Moneycontrol Pro Weekender: Fairy Tale Economics
In the world of economics, fairy tales may seem out of place, but at the inaugural meeting of the World Bank and the International Monetary Fund (IMF) in 1946, Lord John Maynard Keynes, one of the architects of the Bretton Woods system, brought a touch of fantasy to the event. Fresh from watching Tchaikovsky’s ballet Sleeping Beauty, Keynes wove the language of fairy tales into his speech, hoping that the Bretton Woods twins—Master Fund and Miss Bank—would receive three precious gifts from their fairy godmothers.
These gifts, as Keynes eloquently described, were symbolic of what he believed the world’s financial institutions should embody. The first gift was a “many-coloured coat,” a perpetual reminder that they belonged to the whole world. The second was vitamins, signifying “energy and a fearless spirit” that would not shy away from difficult issues but instead welcome and resolve them. The third was the gift of wisdom, so that their approach to every problem would be “absolutely objective.”
This imaginative reference to fairy godmothers and their gifts set the tone for a post-war world eager to rebuild and foster international cooperation. The institutions, born out of the Bretton Woods Conference, were seen as a symbol of hope for a peaceful global order after the devastation of World War II. Keynes lauded this cooperative effort as a “victory for the human spirit,” urging that if nations continued to work together, the “nightmare” that many had lived through would finally be over.
However, despite Keynes’ optimism, he also expressed a note of caution. Drawing once again from Sleeping Beauty, he warned of a potential malicious fairy—referred to in the story as Carabosse—who might have been left out of the party. This uninvited fairy, he suggested, could curse the newly born institutions, predicting that their every decision might be tainted by ulterior motives, driven not by merit or principles but by political interests. His concern was prescient, as global institutions often find themselves entangled in geopolitical struggles and the pursuit of national interests.
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The September issue of the IMF’s Finance and Development magazine revisited Keynes’ speech, with an article titled “Fairy Dust’s Economic Possibilities” by Zachary Carter, a scholar with the Carnegie Endowment for International Peace. Carter reflects on Keynes’ reference to fairies and how it symbolized the idealism and challenges of international cooperation at the time. He highlighted Keynes’ words, where he celebrated the spirit of unity among nations at Bretton Woods as a triumph of collaboration, underscoring the importance of continuing such cooperation to make the “brotherhood of man” more than just a phrase.
However, the optimism was short-lived. As Carter notes, just a few years after the Bretton Woods agreement, the Cold War tensions escalated with the outbreak of the Korean War. The Soviet Union had not signed the agreement, and geopolitical rifts deepened, quashing hopes for the seamless global unity Keynes had envisioned.
Keynes’ skepticism about the enduring success of international bodies proved insightful. He admitted during his speech that there was little historical evidence of any international body living up to the high hopes of its creators. This was particularly poignant given his own defeat at the Bretton Woods Conference. His vision for a more balanced system, particularly the proposal for an International Clearing Union, was shot down by the Americans. The U.S., seeking to cement its dominance, ensured that the dollar would become the cornerstone of the global financial system. This dominance has continued to shape international economics, and as Robert Skidelsky noted in his biography of Keynes, the U.S. Secretary of the Treasury at the time, Frederic Vinson, was none too pleased with being likened to the malicious fairy Carabosse. “I don’t mind being called malicious, but I do mind being called a fairy,” Vinson reportedly quipped.
Keynes’ Sleeping Beauty analogy, with its good and bad fairies, continues to resonate in the world of economics, reflecting the idealism, challenges, and inevitable power struggles that define international financial institutions. The post-war dream of a unified global order remains a delicate balance between cooperation and competition, with nations and institutions still grappling with the complex interplay of economics and politics.
