Best, Jacqueline. "Hollowing out Keynesian Norms: How the Search for a Technical Fix Undermined the Bretton Woods Regime". Review of International Studies, Vol.30, No.3 (2004): 383-404.

Best, Jacqueline. "Hollowing out Keynesian Norms: How the Search for a Technical Fix Undermined the Bretton Woods Regime". Review of International Studies, Vol.30, No.3 (2004): 383-404.

• Despite discussions of major change, the IMF's proposed reforms in the aftermath of the Asian and Russian financial crises of the late 1990s are almost entirely technical rather than systematic. As opposed to changing the system, they focused on improving certain aspects, like information-gathering (383).
• The author engages with two prominent Constructivist scholars of international political economy: John Gerard Ruggie and Eric Helleiner. Dr. Ruggie argues that liberal norms continued to function after the collapse of the Bretton-Woods system, whereas Dr. Helleiner contends that the liberal norms of the Bretton-Woods system were replaced by neoliberalism in the contemporary economic order (384, 386).
• The author suggests that both authors miss some important factors in the collapse of the Bretton-Woods system. Dr. Best thus counter-proposes that actually the Bretton-Woods system has gradually hollowed out during its lifespan as its liberal, Keynesian norms were replaced with neoclassical and neoliberal assumptions, leaving it without the ideological unity to reform in the face of mounting pressure (384).
• Dr. Best's core thesis is that whereas the Bretton-Woods institutions as created were deeply influenced by John Maynard Keynes and his stress on intersectional liberalism, by the 1960s, it had been mixed with neoclassical ideas of economic rationality and neutrality. This led the IMF to adopt technical rather than ideological solutions (386).
• Source mine of perspectives on the reason behind the collapse of the Bretton-Woods system available on page 385. Includes neoliberal theorists, focusing on technical failings, and power-politics theorists, looking at changing US interests.
• Keynesian economic theory rests on a claim that classical economics is only applicable to rare conditions of full employment, with 'regular' economics depending on the ability of investors to correctly gauge an unregulated future investment climate. He regarded this central uncertainty as the cause of capitalist instability, and wanted to design a financial system that would limit the impact of these irregular and capricious capital flows (387-388).
• These assumptions about capitalism combined to convince John Keynes that financial markets cannot be relied on to create the conditions for general prosperity, and that such reliance will ultimately result in disastrous financial collapse. He thus tried to limit opportunities for speculation in the Bretton-Woods system (389).
• In the 1960s, a number of economists, including Paul Samuelson,  Robert Solow, James Tobin, James Meade and J.R. Hicks, worked to adapt Keynesian economics within classical principles, created a neoclassical synthesis. They agreed with John Keynes's assertion that investment was discouraged by capital instability, they believed that imperfections in the market were to blame for violent capital shifts, not human nature (390).
• Accordingly, their solutions focused on technical adjustments to improve markets and prevent the rapid capital outflows that spurred crashes. They proposed a much more limited intervention into market than suggested by John Keynes (390-391).
• Monetarism, advocated by Milton Friedman during this period, argues that there is a direct relationship between prices and the supply of money; printing more money will increase prices, and visa-versa. They content that prices are the main predictor of spending, meaning that economic activity is reducible to the supply of money (391).
• The implications of this economic theory were that limitation or interference with the money supply produces a lag between money and the economy, causing the sort of violent adjustments which cause collapse. Accordingly, the government needs to stop interfering in economic and fiscal policy outside of guaranteeing that there is a stable supply of money expanding at the same rate as the economy (391).
• "Advocates of the neoclassical synthesis had far more in common with monetarists than one would initially believe. [...] by rejecting Keynes' more critical insights, the neoclassical synthesists did move far closer to their monetarist opponents. Unlike Keynes, both neoclassical synthesists and monetarists assume that it is possible to participate in the economy without the complications of mutual interpretation: the economy is transparent to the analyst's gaze" (392).
• The neoclassical synthesis was the most entrenched in America, where Keynesian economics had never really caught on. Even the 'most Keynesian' presidents, John Kennedy and Lyndon Johnson, actually selected officials like Paul Samuelson, who were leaders of the neoclassic synthesis movement (393-394).
• The IMF during the late 1960s and 1970s adopted a mix of monetarist and neoclassical synthesis policies, looking at the role of government deficit financing as a cause of balance-of-payments issues on one hand, but attracted to the pure technicality of the monetarist approach on the other (394).
• The IMF, the US government, and other lynchpins of the Bretton-Woods system had adopted economic policies which retained the Keynesian belief in the role of government in economic and fiscal policy, but had largely abandoned his more population-centric ideas in favor of increased trust in the perfectibility of markets (395).
• The Bretton-Woods regime collapsed under the pressures of liquidity, adjustment, and speculation. The issue of liquidity existed because the US dollar was needed for liquidity in major deals, but doing so required printing so many dollars that its convertibility to gold came into doubt. The system also required a huge outflow of dollars from the US, forcing the US to have a massive balance-of-payments deficit, which it could not reduce without starving global liquidity (395).
• The adoption of mutual convertibility rules for European currencies in 1958, under which European currencies were convertible with each other instead of only being convertible to the US dollar, led to a 'glut' of dollars no longer needed to provide liquidity, causing countries to exchange their dollar reserves for gold, trapping the US in a system of increasing gold payments abroad and mass inflation caused by a huge influx of dollars into the economy (395).
• The establishment of multiple currency convertibility in 1958 also allowed capital to become increasingly mobile, especially in Europe, where it chased down short gains through speculation in exactly the destructive way predicted by Robert Keynes (395-396).
• Faced with the massive and irregular inflows of dollars into the US economy following 1958, the Kennedy administration created a committee to devise ways of controlling capital inflows and outflows, as did many other countries. Rather than directly intervening in the market, these reforms attempt to discourage Americans from transferring capital abroad by taxing income earned abroad and discourage short-term borrowing by driving up interest rates (397).
• At the international level, a number of solutions came into being to deal with the issues caused by the Bretton-Woods system. The first post-war crisis struck in 1960, when there was a rush to buy gold, flooded the US with dollars. As a response, the UK and US set up the Gold Pool to jointly manage the gold market (398).
• Only a few months later, the Stirling Crisis hit the UK in 1961, as money rapidly left the country following the fear that the Pound would fail. The central banks of the world responded by signing the Basle Agreement, promising to hold onto each other's currencies rather than converting them, creating an international trust to reassure investors (398).
• "While the Gold Pool and the Basle Agreement each tackled different aspects of the international monetary system, both adopted similar strategies: they were informal, ad hoc solutions to immediate problems which did not attempt to resolve any of the underlying causes of the instabilities that they sought to manage" (398).
• Although the political ease of short-term fixes cannot be discounted, the limited solutions of countries to the failures of the Bretton-Woods system during this period also reflect a belief stemming from neoclassic synthesis that these measures would be enough to correct malfunctioning markets (398-399, 401).
• By the 1960s, the consensus in the 1940s that a direct control over capital inflows and outflows would be desirable to both the short and long-term had broken down, as contemporary economists saw capital controls as emergency measures to solve temporary issues with 'natural' and 'healthy' speculation, rather than permanent measures to counteract human nature as envisioned by John Keynes and the other creators of the IMF (400).
• The author argues that a more robust Keynesian understanding of capital flows are endemic to human nature and economics could have propelled the IMF or national policy-makers to make the necessary adjustments. The failure to move beyond technical solutions, a problem imposed by the limits of neoclassical synthesis theory, doomed the Bretton-Woods system to failure (401).
• The Bretton-Woods system was ultimately unable to deal with increased speculation and capital mobility, for which no permanent controls were provided. In 1967, a major currency crises hit Britain and overwhelmed the attempts of the IMF and G-10 to stabilize the British pound. The failure of the Bretton-Woods system became recognized at this point, with states cutting their attachment to its currency pegs, ending with President Nixon's abolition of gold-dollar convertibility in 1971 (400-401).
• The author posits that the increased dependence of the contemporary system of neoliberal economics on technique and objectivity does not bode well for the ability of the system to deal with major economic problems. The author suggests that drawing on John Keynes's understanding of economics as fundamentally political and changeable would be a helpful change that could perhaps allow the economic crises of Asia, Russia, and the Dotcom bubble to be solved (404).