Which economist influenced the Bretton Woods framework, associated with the idea that economic crises occur when a country does not have enough money?

Which economist influenced the Bretton Woods framework, associated with the idea that economic crises occur when a country does not have enough money?

• A. Milton Friedman
• B. Adam Smith
• C. John Maynard Keynes
• D. Karl Marx

Answer: (C)

Key idea: crises are linked to liquidity and international money available to settle payments. John Maynard Keynes argued that the international system must provide enough money or liquidity to countries facing imbalances, so crises don’t spiral from shortages of funds. This thinking shaped Bretton Woods, leading to the creation of institutions and rules designed to supply international liquidity and stabilize exchange rates, notably the IMF, which would lend to countries with balance-of-payments problems. The result was a framework that kept currencies within fixed par values and reduced the frequency of “not enough money” crises by providing financial support when demand for money rose. Other thinkers pointed to different mechanisms—Friedman to monetarist control of money supply, Smith to laissez-faire markets, Marx to capitalism’s structural critique—but Keynes’s focus on liquidity and international cooperation is what connected him to Bretton Woods.

Key idea: crises are linked to liquidity and international money available to settle payments. John Maynard Keynes argued that the international system must provide enough money or liquidity to countries facing imbalances, so crises don’t spiral from shortages of funds. This thinking shaped Bretton Woods, leading to the creation of institutions and rules designed to supply international liquidity and stabilize exchange rates, notably the IMF, which would lend to countries with balance-of-payments problems. The result was a framework that kept currencies within fixed par values and reduced the frequency of “not enough money” crises by providing financial support when demand for money rose. Other thinkers pointed to different mechanisms—Friedman to monetarist control of money supply, Smith to laissez-faire markets, Marx to capitalism’s structural critique—but Keynes’s focus on liquidity and international cooperation is what connected him to Bretton Woods.