“The Quartet” and Reform of the Exchange Rate System, 1945–73: A Reconstitution

ABSTRACT During the heyday of the Bretton Woods years, William Fellner, Gottfried Haberler, Fritz Machlup, and Robert Triffin were known as “the Quartet,” in recognition of their contributions on international monetary reform. Three of the Quartet members, Haberler, Machlup, and Fellner, have been credited as having been part of a small, select group of economists who foresaw the desirability of, and paved the way to, freely flexible exchange rates, the regime that succeeded the Bretton Woods system in 1973. This paper assesses the views on exchange rate regimes of the members of the Quartet from the mid‐1940s to the early 1970s and, in doing so, provides both a reconstitution of the conventional narrative and a window through which the evolving position of the profession at large towards increased exchange rate flexibility can be better understood. In the 1960s and early 1970s, Haberler, Machlup, and Fellner were proponents of a crawling peg regime, an arrangement that required a high degree of government intervention. Their support for a system with a high degree of government intervention mainly reflected a pragmatic policy position rather than a theoretical stance. To provide a frame of comparison, the views of the members of the Quartet on exchange rates are compared with those of Milton Friedman, who advocated an exchange rate system without government intervention.