Journal Issue

Bretton Woods at forty: Some impressions of the early Fund: Reminiscences of a former senior official

International Monetary Fund. External Relations Dept.
Published Date:
March 1984
  • ShareShare
Show Summary Details

Joseph Gold

The Fund came into existence on December 27, 1945. I joined the staff on October 21, 1946. My remarks will relate largely to the period of the magistracy of Camille Gutt, Ivar Rooth, and Per Jacobsson, the first three Managing Directors. The period came to an end with the death of Per Jacobsson on May 5, 1963.

I was not at Bretton Woods. My astonishment that the delegates had been able to draft the Articles of Agreement in three weeks has never diminished. This feat was without precedent, nor has it been emulated since, in the negotiation of a major multilateral treaty. The Articles gave no evidence of the pressure under which they had been written. On the contrary, Keynes was able to report to the Chancellor of the Exchequer, not without an undertone of surprise, that the final product was “clear and even aesthetic in presentation.” What was accomplished at Bretton Woods can be compared with the 8 months of drafting the First Amendment of the Articles and the 20 months of the Second Amendment. “Bretton Woods” has entered the language of finance, as is evident from the tribute paid to the success of the Conference by ministers who express their dissatisfaction with current monetary relations by calling from time to time for “a new Bretton Woods.” They must not overlook that Bretton Woods was preceded by discussions among political leaders, officials, and scholars that began as early as 1941 in a world at war, which is yet another cause for wonder.

A newcomer to the staff of the Fund in its first years became aware almost at once of two currents in the atmosphere of the organization. One was the influence of those Executive Directors and members of the staff who had participated in the Conference or in the preparations for it. The intellectual vitality of these people enhanced their influence. It would be ungenerous not to mention the Americans in particular, and Edward M. Bernstein among them. The lucidity of his explanations and the eagerness with which he embarked on them were as remarkable as the foresight with which he seemed always to be on the point of producing from his typewriter the first draft of the very memorandum that was needed at that moment. We nonparticipants were awed by the insiders and happy to accept their tutorship. I have recorded my special indebtedness to one of them in the first volume of The Fund Agreement in the Courts.

The other force that charged the air was the exhilaration shared by all in the Fund that they were engaged in a novel and adventurous enterprise. The Fund was going to administer, for the first time in history and after a prolonged and destructive war, a monetary order based on a compact among nations. Members of the staff saw themselves as pioneers and privileged not only for that reason but because they were so few. The sense of partnership was strengthened because it was possible for so small a staff to know almost every colleague. Anyone in the elevator who was not recognizable was assumed to be on the staff of the World Bank.

The spirit of the time attracted outstanding talents to the staff. By early 1948, for example, the Research Department, under the direction of Bernstein, included—without limitation, as lawyers say when defending themselves against the charge of a truncated list—Jorge Del Canto, A.G.B. Fisher, Irving Friedman, Walter Gardner, Earl Hicks, Keith Horsefield, Javier Márquez, Felipe Pazos, J.J. Polak, Ernest Sturc, and Robert Triffin.

Maintenance of a relatively small staff became a tradition that persisted even when recruitment began to increase in response to the growing number of member countries and the expanding activities of the organization. The passage of time, new conditions, and the difficulty of knowing all colleagues in a larger staff made it inevitable that the zeal of earlier years would be replaced by a more sober dedication. The reputation of the staff as an elite corps did not diminish, and has not disappeared to this day, even if for some the adjective elite now has an odious resonance.

The desire to preserve the cohesion of earlier years was a motive for the creation of a Staff Association. When, during the days of Camille Gutt, a few delegates of the staff approached him with trepidation to announce the formation of an association, the tacticians decided that he should be assured early in the interview that the functions of the association would be largely social. The plenipotentiaries were nonplussed by his immediate reaction, delivered with warmth in his typically husky tone: “Good! I have always favored trade unions.” Nevertheless, there seemed to be no occasion for activism by the staff in those days: salaries were considered competitive; other terms of service comfortable; and the Fund a kindly employer, with no campaign conducted to make it less so.

Early disappointment

Nevertheless, the early years were not without disappointment, even grave disappointment. It was not produced by a declining sense of mission. On the contrary, unhappiness spread because the mission could not be fulfilled. The United States held the view that reconstruction was the fundamental problem of the time. If industry and agriculture could be restored in devastated countries, there would be no difficulty about exporting the products, and balances of payments would be strengthened. The United States, following the logic of its analysis and dwelling on the financial assistance it was giving through the European Recovery Program, insisted on decisions that impeded the financial activity of the Fund.

Differences about the use of the Fund’s resources bred the strongest divisions among members. Notwithstanding the clarity that Keynes thought was a characteristic of the Articles, the provisions dealing with the Fund’s financial transactions were not clear enough to prevent controversy about such questions as the choice between those unlovely polysyllables, conditionality and automaticity. Whether or not the Bretton Woods Conference intended to leave these questions for settlement by the Fund itself, or whether each side thought it had succeeded in writing its preference into the Articles, has never been answered authoritatively. The United States succeeded in its advocacy of conditionality when the problems had to be faced by the Executive Board. Uncertainty about the conditions that a member had to meet under this doctrine was one of the deterrents that led to a decline in requests for use of the Fund’s resources and, after a time, a total halt in financial activity.

The gloom that this lethargy produced within the Fund was deepened by the speed with which the World Bank’s activities began to flourish. In the negotiation of joint activities with the Bank, which usually were no more than administrative in character, the Fund had to accept the role of junior partner. It was painful also that the Fund tended to disappear from the public consciousness. A traveler by taxi had little hope of reaching his destination in Washington if the driver was instructed to proceed to the International Monetary Fund. He had to be directed to the World Bank. Propinquity, at least, was a benefit that the Fund could enjoy.

The absence of financial activity by the Fund may have contributed to the continuing appointment of part-time Executive Directors by some members. The differences of opinion about the character of the Fund that were expressed at Bretton Woods and at the Inaugural Meeting of the Board of Governors at Savannah, Georgia, on March 8–18, 1946, may have been a more important reason. Some members had wanted the Fund’s financing to be automatic and they foresaw no need for resident Executive Directors to supervise the Fund’s financial activities. Furthermore, nonresident Executive Directors would be more effective in communicating the views of their governments to the Fund on the policies it should follow. The discordant attitudes among members to the service of Executive Directors were only one example of the differences of prenatal days that continued to exist during the formative years of the Fund.

The eventual growth in the Fund’s activities led to the disappearance of the nonresident Executive Director. The roster of Executive Directors at all times, however, included men—it was not remarked in those days that there were no women—who had already achieved prominence in international monetary matters or were clearly destined for it. The presence on the Executive Board of these men was a fillip to morale within the Fund. If such names as J.W. Beyen, Guido Carli, Otmar Emminger, Pieter Lieftinck, Wilfried Guth, and Louis Rasminsky come to mind immediately, it is with the realization that the roster could be extended beyond the space available here. It may be of interest to recall that Camille Gutt was elected as an Executive Director but was selected as Managing Director at the first meeting of the Executive Board and that Pierre-Paul Schweitzer was an active Alternate Executive Director at a time of great strain between France and the Fund.

Another consequence of the Fund’s early inactivity in providing financial assistance to its members was constant dispute about the jurisdiction of the Fund. The staff, looking to the day when the Fund might realize its potential, often, although not invariably, found authority in the Articles for interpretations that sustained the jurisdiction of the Fund. All the resources of interpretation were employed; text, context, intent, purposes, and drafting history. Not infrequently, even the techniques of interpretation were the subject of debate by the Executive Board.

The preparation of most memoranda that went to the Executive Board was undertaken by groups of members of the staff who served in various divisions of the organization and who were trained in various disciplines. The superiority of collaborative studies was recognized at an early stage. The custom spread to all aspects of the practice of the Fund and did not decline as the structure of the organization became more complex. The effort to reach a joint view provoked much dispute but little rancor among those engaged on an assignment, notwithstanding the confidence that each participant had in his own competence. The names of the collaborators had to appear on the masthead of the memoranda they produced for the Executive Board, but later only the names of those who approved the documents were cited. The Managing Director, as head of the staff, decided that no memoranda went forward without his consent and support. A clear chain of command was established and much virtue was attributed to a short chain.

An international monetary system

A teleological approach in the examination of the Fund’s authority was inspired not only by the principle that the Fund must be effective in the pursuit of its purposes but also by the belief that the Articles, and especially the provisions on the par value system, constituted an international monetary system. The Articles were thought to resemble a constitution that governed the area of the Fund’s responsibility. Such an instrument provided answers, expressly or implicitly, for all problems, and even as conditions changed. In the early days, there was little mention of so grandiloquent a term as the international monetary system. It became commonplace only in the 1960s when anxiety began to grow that the improvements for which the Fund could claim at least some credit, such as the convertibility of currencies, the growth of exchange markets, and freedom for capital movements, might be imperiled. The General Arrangements to Borrow, for example, originated in the view within the staff that the position of the United States in the world might be changing. The Arrangements, which entered into force in 1962, referred explicitly to defense of the international monetary system.

In the early decades of the Fund, the idea of amendment of the Articles was not entertained, and even a casual mention of it produced shudders. If amendments were undertaken too frequently or too light-heartedly, the effect would be a loss of respect for the Articles as a constitution. It was feared also that a proposal for the amendment of a provision would open the floodgates to a cataract of proposed amendments.

Many members resisted the assertion of the Fund’s authority, particularly in matters involving the Fund’s regulatory jurisdiction when the Articles were being clarified or the practice of the Fund developed. This resistance was a reaction to the Fund’s parsimony. The decisions on the use of the Fund’s resources were adopted at an early stage, although not without strife, largely because there was a special sense of deference to the views of the United States as the member whose currency was likely to be in almost exclusive use in transactions of the Fund. Decisions that would emphasize the obligations of members under the regulatory jurisdiction of the Fund were the subject of more prolonged controversy. Often, these decisions, when reached, would affirm the authority of the Fund, but they would purport to be guidance rather than a final judicial pronouncement or they would contain language that assured members that they would have the benefit of the doubt in the Fund’s exercise of its authority. Decisions on par values and restrictions were prominent examples of this tendency. Sometimes, a decision could not be reached at all, as in the case of the Fund’s authority over multiple currency practices that are confined to capital transfers.

Deadlock on the use of the Fund’s resources was not accepted as the permanent condition of the Fund. Efforts to infuse vitality into the Fund culminated in the decision of February 13, 1952, which was negotiated by Ivar Rooth with the patient and courtly insistence that was characteristic of him. The decision is to this day one of the most remarkable ever adopted by the Fund. The decision clarified the meaning of the temporary use of the Fund’s resources by establishing the basic period for use, created the gold tranche, and adumbrated the ideas of the stand-by arrangement and economic programs. I was surprised to receive a letter from Ivar Rooth in April 1971, almost 20 years after the decision, in which he asked me who was responsible for first calling it the “Rooth Plan.”

Many in the Fund were perturbed as they observed over the years a growing pluralism in the organization of the international monetary system. They feared that this development would produce a factionalism that could lessen the authority of the Fund as the central organization of the system. Per Jacobsson once said that the Fund need never fear that its opportunities would be limited if it remained aware of its special character. The Fund was not simply the administrator of a code of conduct in matters that had been reserved to the sovereignty of nations in the past. It was also uniquely endowed with substantial resources that it could deploy to encourage observance of the code. The Fund could gain acceptance and cultivate assurance only if it performed effectively as both a regulatory and a financial organization.

Decision by consensus

The patient approach to important decisions in early days became a characteristic, even an ethic, of the Fund. Perhaps the record is held by the decision authorizing the Fund to invest some of its resources, which took nine years of negotiation. Every attempt was made to reach a consensus among Executive Directors on important questions, or at least to reach a situation in which those who could not concur were content to record their objections and forgo further resistance. Voting was avoided. Decisions adopted with the strong arm of those who commanded a majority of the total voting power were considered indecorous and possibly futile. This conviction did not spring into existence full grown, because early delays provoked exasperation and reminders that weighted voting power had been accepted at the recent Bretton Woods Conference and should be exercised if consensus could not be achieved.

The practice of working toward consensus or widespread agreement recognized and promoted the interest of all members in the international monetary system and in the Fund as its central organization. Lewis Namier once formulated a law that dictated the failure of the League of Nations: the impartial were not interested and the interested were not impartial. The Fund has prevailed because all members have been interested.

Perhaps it was easier in those days to involve all members through their Executive Directors. The Managing Director and senior staff were active in the engineering of consent when serious disagreements appeared in the Executive Board. The Executive Directors were fewer, and it was not difficult for one or more members of the staff to make the rounds and report to the Managing Director on the possibilities for negotiating agreement that were open to him. This practice developed after the Executive Board took decisions on January 12, 1948 to demarcate the responsibilities of the Executive Board, the Managing Director, and the staff. These early decisions on the division and interrelation of their functions had become necessary to dispel the unease created by uncertainty about the way the Fund would be operated.

The experience of the early years has left an ineradicable mark on the Fund. Many of the decisions that were taken remain in effect, either as decisions or as amendments of the Articles. Operating procedures worked out at that time continue to be followed. The principle that all members of the Fund are involved in the affairs of the organization through their Executive Directors is still fundamental for success. Continuity and response to change have combined to ensure the vitality of the Fund. The phenomenon is all the more noteworthy in international organization when it is recalled that the purposes of the Fund as stated in Article I have never been changed.

These recollections began by referring to a period in the history of the Fund that ended with the death of Per Jacobsson. The period is distinguishable because, by the time it ended, the Fund, to a considerable degree as the result of his efforts, had achieved maturity and acceptance. But with his passing there departed one of the most colorful persons who have been associated with the Fund. He was impressive in physique and equally powerful in personality, but the beaming eye and the limitless stream of anecdotes put one at ease. His zest for life and labor were prodigious. I remember an occasion when President Kennedy had invited the Ministers and Governors of the Group of Ten to a reception at the White House. Jacobsson, who never shrank from visibility, was distressed because he thought that his invitation had been an afterthought. He summoned me to his room and asked my advice on whether he should attend, and I said that of course he must. When he returned, I was again summoned. He sat in his chair, still discontented, and finally he said, “Do you realize that I was the oldest man there.” Another pause, and then he added, “If I am offered a reappointment, I may refuse.” I expressed doubt. He waited again, and then he said, “Well, if I accept, they will have to give me two weeks’ leave.” Laborare est orare.

Other Resources Citing This Publication