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The Bretton Woods Accords: The Beginning And The End

Updated on December 28, 2011

From the decade of the roaring 20s, we entered the 30s doing everything but roaring: the Great Depression, without question, the most economically scarce period in our economic engine’s history—caused many things to be questioned about macroeconomic policies. One of those things was whether or not we should remain on the gold standard. This said, not only did the Great Depression bring an end to the gold standard; it also served as a prelude to novel macroeconomic thinking. This novel macro-economical thinking manifested itself at an international conference of nations in Bretton Woods, New Hampshire. Any time you have "nation gathering"—with a bunch of sovereign countries putting their minds together for the betterment of the global economy—something seriously has gone wrong. What was the aim of the Bretton Woods conference? The aim was quite simple: how the hell do we restore world monetary systems? This was the same world monetary system that was seriously damaged by the Great Depression—the same system relegated to complete shambles during WWII.

If you want to buildup a strong robust economic engine, the first thing you have to do is lay the groundwork for a strong monetary system. And at Bretton Woods, the adaptation of a fixed/adjustable system of exchanges seemed to be the panacea for all the problems that ailed the world economic engines back then. This idea shouldn’t be too hard to comprehend: the adage, back then, was, if we can’t have a “full gold” standard, then lets do a “half gold” standard—that is to say, lets fix the price of gold at 35 “almighty dollars” to the ounce and then lets fix all other currencies to the “almighty dollar” thereby allowing them to adjust if conditions need be. Almighty Dollar? The title “almighty dollar” is in reference to the “U.S. dollar” which came out of Bretton Woods "king of all currencies." In fact, one of the real reasons for the meeting was more along the lines of creating what’s called a reserve currency—a kind of currency that stood above and beyond the rest. This is what is meant by The Beginning and The End. The dollar acting as the reserve currency gave “big gov” safeguard for engaging in collusive monetary recourse towards other world currencies.

The End of Bretton Woods Accord

After World War II, there was very little doubt that the U.S. economic engine was the strongest in the world: the gross national product of the United States between 1947 and 1960 grow by more than 24%. Why was this? Well, under the Bretton Woods system, the dollar and gold together hailed as the international reserves. What this meant, in reference to economic growth, isn’t completely hard to understand: the dollar backed by some form of commodity (gold and silver) attracted massive foreign interest. The United States had accumulated large quantities of gold and between 1934 and 1971 maintained a policy of buying gold from, and selling gold to, foreign monetary authorities at a fixed price of $35 per ounce. "The dollar was convertible into gold on demand; the dollar came to be regarded as a substitute for gold, or as good as gold” (Economics: Stanly L. Brue).

From the landmark conference of Bretton Woods, we got such world renowned organizations like the IMF and World Bank. What Bretton Woods also gave us was remnants of a gold standard that created a “pre-war/pre-depression” currency like none other: in the 1920s, the U.S. economic engine “roared” and it was a direct result of the strength of the commodity currency in existence at that time. Five decades later, our money would enter into a kind of reverse monetary paradigm created by “big gov’s” illogical monetary policies and it will never function the same. On August 15, 1971, when President Nixon cut the dollar’s convertibility into gold, his decision to divorce the dollar from any form of commodity created a three-way "trifurcation" of our monetary system that has never happen in the U.S. economic engine’s history: the dollar went from being “fixed to gold,” “fixed/adjusted to gold” and to the now current full scale fiat based “floating dollar” which isn’t fixed to anything at all. To many mainstream economists, Nixon’s decision to replace the Bretton Woods system for a flexible floating exchange rate dollar system was the instrument that sounded the United State’s monetary death knell. Our money hasn’t been real money since. The subsequent weakness of today’s dollar is a direct result of the abolishment of the Bretton Woods system. With today’s chronic U.S. trade imbalances, it doesn’t look like the value of the American dollar will be anymore promising tomorrow as it is today.


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