William Greider & Bretton Woods

For those of you who would like a clear overview of the Bretton Woods System and its history, plus his expanded ideas of capitalism which are not in his new books, W. Greider offers it here:

frontline: the crash: interviews: william greider

Could you go back and talk about the end of World War II, the position the United States was in, the theories behind Bretton Woods--we had just been through one of these moments of financial crash in a big way.

At the end of World War II, we had two rare conditions. One, most of the industrial world, excluding the United States, was in ruin, including our allies in Europe, and, of course, our enemies, Germany and Japan. Secondly, we were still recovering in a sense from the depression of the '30s when a similar catastrophe took down everything, literally shut down the global trading system. That was a great opportunity for the United States to lead and to sketch out the new principles that would, first of all, get international trade going in the Marshall Plan, help rebuild Europe, similar program in Japan, help their industries come back to life ...

It was a rather broad program, but with a very conscious understanding that you do have to have some operating rules over this global financial system and over trade. Ideally, they should be liberal in the sense that they're open to all and fair, etc. But you can't just simply let the markets do it. It won't happen. So the centerpiece of Bretton Woods was a system of stable currencies. The stability was built around the guarantee from the United States that everybody's currency would be in relation to the dollar. If they liked, they could bring the currency in debt paper or whatever, and exchange it for dollars or exchange it for gold.

That system broke down in the U.S. inflation in the early 1970s. Since then, there hasn't been any operating regime. Currencies are on their own. They're subject to market prices every day. We know over the last 25 years we have had this extraordinarily destructive instability at the center of the global system. That is, in currencies themselves. You buy a product in yen one year and six months later it's worth 30% more compared to the dollar or 30% less. The same with the Deutsche mark. Then all of those smaller, lighter currencies, the gyrations are even more extreme.

So if you were going to reform a system now, you would begin probably not with the details of how to do it, but with some broad principles. How do we want the system? We would have to begin with some way of whether it's an institution or simply new operating rules that guarantees people and countries and companies that they're not going to be hostage to these wild gyrations in finance. Not just currency values, but the sort of free flow, the sloshing back and forth of speculative capital, of short-term lending, and all those other things. This is hard to do. That's why nobody wants to get their head into it. But I think present events demonstrate that if you don't tackle those problems, the instabilities will keep swaying back and forth. One year it may be Southeast Asia that's victimized by it and another year it's Latin America or Eastern Europe or maybe us. It's almost not meaningful as to who the target is this season. The question is the system itself. ...{article continued}