The disasters of the international financial system after World War I


Faculty: Assistant Professor, Dr James Morrison, Department of International Relations
Phelan US Centre Research Assistant: Johann Power, Department of Philosophy, Logic and Scientific Method

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Author

Johann Power

Department of Philosophy, Logic and Scientific Method

This program was a brilliant opportunity to conduct research alongside a member of faculty which is a rare opportunity for undergraduate students and good preparation for postgraduate study. I have benefited a lot from the program particularly in gaining a new appreciation for archival research which I had never done before.

Research Topic 

During the past academic year as a research assistant at the LSE US Centre I have been assisting Dr James Morrison in researching “The failures to restore the international financial system after World War I”. This project explores the failed restructuring of a cooperative international financial system during the inter-war period, the departure from the Gold Standard and the disasters that followed. Particular focus is given to the role of individuals like J.M. Keynes who helped shape the Anglo-American relationship during the first half of the 20th century.     

Research Role  

In my role as a research assistant, I focussed mostly on the writings of the economist J.M. Keynes. I covered several volumes of his work including the reconstruction of Europe and revisions of the Treaty of Versailles following World War I, the creation of a clearing union for international trade and finance, a general theory of employment and money, and probability theory. My primary role was to convert Keynes’s writings into a text version stored in a digital database so that information can be searched by date, name, key words or correspondences along with editorial notes, quotes and footnotes making it much easier and faster for researchers to work with Keynes’s writings. I also took notes of any interesting ideas I came across within Keynes’s writings which relate to the post-war international financial system.  

Methods

Most of my research centred around the role of Keynes in shaping the international financial system post World War I. Thus, I spent most of my time engaging with his publications, speeches, articles, and letters which have been complied and preserved in volumes featuring his collected writings. However, these volumes are currently organized by theme and stored in PDF format. To make these documents more useful for research, I worked through his volumes transforming them into text documents with date tags, sorting editorial notes and footnotes, highlighting quoted passages, and cleaning any text which had not been scanned correctly. This involved inserting bits of “code” to separate individual documents from each other within the same volume and to highlight the distinction between the original text and editorial notes and to identify which documents such notes refer too. This was performed using the text editor ‘Sublime Text’. As such, these volumes in their text form are now stored in a digital database allowing researchers to quickly look up any passages of text Keynes has written by date, words, name, or who he was corresponding with etc. which makes it easier for researchers to work with the vast collection of writings Keynes produced in his life.  

Results and Findings  

This process required me to spend a great deal of time reading and understanding Keynes’s work which as an economist I greatly enjoyed. A revolutionary thinker of his time, many of his ideas are still very relevant to this day. For instance, I found volume 25 of Keynes’s collected writings most interesting for I learnt a lot about Keynes’s proposed bancor plan, a proposed supranational currency to be used in international trade as a unit of account. While the world decided in favour of the Bretton Woods system, Keynes’s bancor plan may have averted some of the most recent modern day crises like the global financial crisis and the U.S. – China trade war for it was designed to avoid large build ups of current account surpluses and deficits. I also admire Keynes’s writings for its diversity. Like a true renaissance man, his work spanned the fields of not only economics, but also history, politics, international relations, philosophy and mathematics. Perhaps the most admirable feature of Keynes’s work was that he wrote with the intention of solving the biggest issues of his day. Whether that be finding new designs for an international financial system after both world wars, financing spending during such wars, the reconstruction of Europe or creating new theories about employment, interest rates and money to deal with the impacts of the great depression, Keynes provided solutions which very much benefitted society.   

The post-World War I era featured many proposals for different international financial systems and while there are many reasons for why various proposals failed, one reason I picked up on during my research was for having a lack of long-term vision. For example, while the United States backed White’s plan at Bretton-Woods this was done at a time when they held a current account surplus. But over the next few decades as the U.S. became debtors, the U.S. dollar became increasingly overvalued and they were forced to drop the U.S. dollar - gold peg. Whereas Keynes’s proposed bancor was designed with long term regulations on the size of current account surpluses and deficits to avoid these problems from occurring. Therefore, international financial systems should be designed around longevity as this will bring credibility and trust which is ultimately what an international currency system is built upon.      

Personal Reflections

Overall, I very much enjoyed working with Dr Morrison and being involved in this project. I have gained a new appreciation for archival research which I will take with me for future research projects, as I have found there are often small pieces of information you discover which contribute well to your current work or even just general current affairs. Helping to create a new digital database for future researchers to use in researching Keynes’s writings is also an exciting legacy from this project.  

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