Interwar Financial Summits: The Economic Consequences and Lessons of Attempts to Repair a Broken World

Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. … Moved by insane delusion and reckless self-regard, the German people overturned the foundations on which we all lived and built. But the spokesmen of the French and British peoples have run the risk of completing the ruin … by a Peace, which, if it is carried into effect, must impair yet further, when it might have restored, the delicate, complicated organization, already shaken and broken by war, through which alone the European peoples can employ themselves and live. (Keynes 1920) Political summits with economic and financial consequences have a long history. Reparation payments accompanied Napoleon’s peace agreement with Prussia in 1807 and Prussia’s peace agreement with France in 1871. The Vienna Conference following Napoleon’s defeat was not about finance principally, but it not only stipulated reparations for the victors, its framework for international stability also helped set the stage for nearly 100 years of economic development supported by the growth of new financial institutions and nearly unprecedented financial cohesion. As former U.S. Secretary of State Henry Kissinger observed, these financial settlements provided a model for future ones by not posing a mortal threat to any nation’s survival, thereby preserving a basis for future negotiation and consensus (Kissinger 1956). During that 100-year period, there were many “summits”— meetings of heads of governments or their senior representatives which were usually bilateral, but not always. Some might even be classified as “family reunions.” In addition, there were many meetings of high-ranking experts, sometimes representing private interests or their nations, but financial cooperation, as opposed to bilateral investment, was rarely an important item on the agenda when heads of state met. Before World War I, a government’s role in economic activity and finance in general was much more subdued (Flandreau and James 2003). Notwithstanding growing nationalism, the decades preceding World War I witnessed a burst of international cooperation and meetings. Technology both helped facilitate conferences and make them less necessary. Between 1900 and 1914, over 300 nongovernmental and thirteen governmental international organizations were created, dealing with subjects as diverse as health care and technical specifications. The creation of the organizations often followed a conference on the topic. Labor and business met and organized on an international level. A Union of International Associations was even founded in 1910 by 137 international groups and headquartered in Brussels to coordinate the schedules of the many international conferences and congresses (Hale 1971). None of these institutions or organization dealt with financial matters. Despite periodic financial crises and more regular departures from the strict norms of the Gold Standard, central bankers, ministers of finance, and private banking experts convened sporadically with little or no institutional structure. Between 1874 and 1913, most major currencies remained convertible into gold; most exchange rates remained relatively stable; inflation remained low and relatively steady; long-term interest rates stayed low and steady; and economic growth and trade remained vigorous (Eichengreen 1992b; Ferguson 2001). Even though the system did not function as automatically as hoped, key players understood the rules of the game of global finance sufficiently and the mechanisms functioned adequately, so face-to-face meeting of private and public leaders hardly ever occurred even during crises. be public and private and as and sometimes from to to cooperation meetings were often with the through 1914, financial leaders of and central or to the major or the role of in the system of exchange meetings relatively and or even technical over financial of a more to a in the of As economic in a few of from a as it to 1914, most major were and currencies were no convertible the of World War I, that were in and the in the the which a major nations, was of the and financial in not be a a is often as a meeting heads of for the of I meetings of senior public and even private leaders to the financial that World War some and by and there were financial or private bankers, or a of both central bankers, and of of but not meetings were organized and by the new of The meetings to be but some were not as as international financial is the of organized international of economic and of financial to the of the can be to of the players summits were from Western Europe and but some of the meetings were global in were by heads of state or finance, but the was by experts from private and public organizations in Europe and The and of were international and in that The as an for the of and Before World War I, the leaders of most a about to the financial system and the was not of and did not financial the players a set of of the that consensus in the of the economic and not only and but also the financial that and in the of global economic In of in the war, the to meetings of senior and international organizations to the that was the of the In the of is the of the of in a that and the and of summits and these summits with the of about on I on the summits of the and the technical that the meetings the of of financial and to banking and by is to from meetings. I that these as much as from and no for dealing with it is that not and that both and A in can us the but is no that we can the be if did is not in even though some of their and for not following years of can of the of to interests and to their in and in most the economic summits were a that be the the The summits have or even the of the key leaders as central and to financial into the But the summits did not the economic of the years and a of global in the The of and economic experts the of and institutions of to the of over the of the of to the advantages of international consensus to and of on financial of dealing with the The for that the of World War I and the of the to in and the in global and economic by the both and the of the a to have an the by and financial experts to the in international during the The to the in the have to the long-term The were to a of private to the from financial of the the to the to the and financial leaders of the many of the and interest of the and on the German of the and economic a But the these the the financial and The and all to the that and economic As as the were so that there to be no to and no were even the for and the into a and for the many of its the with on to long the and and trade cooperation more more and In of German economic on the France on and cooperation the war, to for economic and The of the war, of was and from and people of The in a that through was The and by nearly a and into and in peace The during the nearly half of their and was by and and Despite of the by the were for the were in to be and the of the was to but the in reparations the did not the and of for the financial were the of the and were and created, of an But the of the of was were from their and many of the new remained the of The or and that the and the war, were by a of and long-term and financial World War I the of European and economic the war, most into of or many was The which to the a of from the to 1914, to the in The inflation that from to was not only but also The might have the in Europe of the of but by not the only Some was to the economic their financial The the with alone the The in to its France nearly and from the and the Despite on which to reparations and relatively little was during the the were to be about finance, which the Some that a new congresses and organizations to future for financial to Europe witnessed international the on the of there were international conferences during that these conferences some financial and some temporary from The also for and the in and to some But there were so many and German of and French 2001). The for France and for and international were to the to it the most was the of leaders to the consequences of the and the in the that in to their Some but were for many years the was by the Conference as a of the British British about the relatively of about the of and the of the French any of European to the of the the of the U.S. to French leaders their people that German reparations the by the the from France German and from its and its to in any a in France In the of were by and to the was the of French for and The important economic to a European that the in the German the a for future payments that German if not the to their that not only the conference the economic of the war, but that it also was the of a of European leaders their to trade and yet as to a new long-term from the to there be little of future peace and from the of that the and the leaders to from their and set of and which (Keynes in the The and that followed the did little to economic activity and and the 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the to which central cooperation the economic but that the cooperation was bilateral and less that following the World War I and central in the were already of an their were not of public and rarely met to coordinate were relatively and by which a or by if a was and by and usually of and in the of and private many of the of central in the and which central relatively Even and not be in a major international cooperation was sometimes to with a as that in in the of the but was by and face-to-face meetings. During the and of in the of central much as have in the a during the In and their was the of their The of a World War I and the Conference a for Even an international international payments not to and The of central in the by and of the the did not even have a central World War The central a of in the International cooperation or of a of central to their central to that and banking stability to be set in the of international The of to the international an role for central cooperation in many the of to be as The were the of central but central as their James During the of central of of of and The of central in the was not The of dealing with international financial their and to coordinate economic their on in or and in a with but the to with the in through the banking crises of but of meetings to be meetings were to for meetings with the for were to with in Some were about a more organization of central to for European and economic As of an of experts, and that a by the Conference in with that a to the to its to finance by their and into a of The of central cooperation have to of their on on the Gold some of and on As the by some to to the Gold have and have Some In the on its a of but a that the and British to in from to Despite these for to of Even with the and was In a new by was government’s for of the and in the on the Gold the In a France to but a the The French and central a of to French financial and it from economic for the creation of (Eichengreen The to the to the Gold Standard, was the of the of the of the in 1913, the that to nearly of the Even the with all the economic advantages from and late into the war, have some in to its were with the which the with and of their were only for on the Gold a of economic or the of currencies in an of a of and the on the in

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