## The Messy Legacy of Harry Dexter White

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**Canonical URL:** [The Messy Legacy of Harry Dexter White](https://www.imf.org/-/media/files/publications/fandd/article/2024/06/boughton.pdf)

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### Biography and early career
- Born in Boston, Massachusetts, in 1892, the seventh and last child of Lithuanian immigrants.
- Education interrupted multiple times; orphaned and worked at an early age.
- Enlisted as an officer in the US Army and served in France during the First World War.
- Earned a doctorate in economics at Harvard University when he was 40.
- In 1934 accepted a junior position at the US Treasury and rose rapidly; by 1941 (when the United States entered World War II) he was the Treasury’s chief economist.
- Became the first US executive director of the IMF in 1946; health deteriorated and he died of a heart attack in 1948.

### Role at Bretton Woods and institutional design
- Tasked by Treasury secretary Henry Morgenthau Jr. to develop a plan for organizing postwar economic and financial relations, leading to the Bretton Woods conference in 1944.
- The 44 allied countries adopted what was essentially the White plan as the blueprint for the IMF and the World Bank.
- Organized a series of meetings for smaller groups of countries before bringing more than 700 delegates together in New Hampshire; the conference lasted three weeks.
- Insisted that all allies have an opportunity to contribute to the design; contrasted with Keynes, who preferred a deal between the United Kingdom and the United States to present to others.

### Vision for the IMF: goals and early constraints
- Vision: IMF would foster international financial cooperation so countries could trade freely and develop their economies; famously stated that “prosperity, like peace, is indivisible.”
- Believed US prosperity depended on people and companies in other countries being able to buy US output.
- Hoped to restore stability and return to a predepression level of activity after the Great Depression and World War II.
- Concerned that the IMF was too small to meet potential demands as international trade recovered and Cold War pressures increased.

### Financial innovation: “trade dollars” and SDR prototype
- Proposed a new international financial asset called “trade dollars” as a response to the IMF’s limited resources; it was not enacted at the time.
- The “trade dollars” proposal served as a prototype for the special drawing rights (SDRs) two decades later.
- Today, the SDR is recognized as a crucial component of the IMF’s tool kit for helping countries manage their finances.

### Capital flows and evolution of policy on openness
- In the 1940s private sector international financial transactions (international bank loans and internationally sold bonds) were practically nonexistent; viewed as a hot money threat.
- White and Keynes agreed the IMF should discourage openness to capital flows; the Fund’s charter:
  - Specified that countries could borrow from the IMF only to finance trade deficits, not to counteract large capital outflows.
  - Authorized the IMF to require countries to impose capital controls when necessary.
- As bank loans and international bonds became more widely used, the IMF eventually reversed course and began urging most countries to open their financial markets to foreign competition.
- Today, the IMF takes a more cautious approach, recognizing both the benefits of openness and the risks of volatility and loss of control.

### Membership, governance, and voting power
- Vision included universal participation in international commerce, though impossible in 1944 because of the world war and colonial rule.
- Accession of Germany and Japan in 1952 and decolonization expanded membership from 40 countries in 1946 to 190 countries today.
- White wanted every member to have a voice but argued that financial control should be in the hands of major creditor countries supplying the IMF’s resources; at the outset most usable assets came from the United States and the US Treasury was the dominant force.
- To compensate for dominance by large countries, White insisted that small and mostly poor members should have at least 10 percent of the voting power.
- Over decades, dominance of large countries has waned, but the United States and now the European Union still hold the reins; despite the rise in small member countries, their share of voting power has been eviscerated.

### Purpose of the IMF and debates over policy stance
- White and Keynes agreed the IMF was to be a “Keynesian” institution: to promote prosperity through sound and effective policymaking and by helping countries avoid actions “destructive of national or international prosperity.”
- Persistent criticism: IMF perceived as promoting austerity rather than economic growth.
- IMF’s defense: prosperity cannot be sustained unless underpinned by sound policies; countries in economic distress may need short-term pain for longer-term success.
- Question remains whether the balance between short-term pain and long-term gain is right.

### Espionage allegations and posthumous reputation
- During the postwar Red Scare, two former Communist Party members accused White of being a Soviet agent and passing secret documents to Soviet intelligence; evidence for those charges was described as always flimsy.
- White’s frequent wartime contact with Soviet officials made him a target of Soviet prying for information; more recent evidence suggests he was a target, not an agent.
- Bretton Woods brought him limited fame overshadowed by Keynes; posthumous attacks badly tarnished his reputation.
- “Ultimately, though, his legacy must rise or fall with the value of his greatest achievement, the IMF.”

*James M. Boughton is a senior fellow at the Centre for International Governance Innovation and formerly historian of the IMF.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2024/06/boughton.pdf_