218 The Domestic Politics of International Monetary Order: The Gold Standard
CONCLUSION
Although international monetary stability may require the provision of Kindle-
berger’s equilibrating mechanisms, states can have different objectives and divergent
policy preferences if the international spillovers of their national policy choices
are solidly positive. Thus, agreement among member states about the rules and
requirements of membership is not a necessary condition for global monetary
stability. Nor is it necessary that a hegemon exist to provide the requisite stabilizing
functions. An international “social order,” like the classical gold standard, can be
maintained when states advance their internally determined private national interests
in ways that generate nonexcludable systemic benefits, according to the logic of
the joint-products model.
Historical evidence tends to support these claims. Not only did major gold
standard countries have different (private) preferences regarding the basic tradeoffs
implicit in adhering to a fixed exchange-rate regime but the aggregate (public)
result of their individual national choices was a modicum of international stability.
The British leaned more consistently toward gold-standard orthodoxy—monetary
authorities advanced external priorities over internal concerns. This was a function
of the political dominance of those economic groups that found advantages in the
internationalist and deflationary agenda of the gold standard: the bankers of the
City of London, rentier landlords, and bondholders. For these groups, maintaining
the purchasing power of the currency took precedent over domestic targets when
these objectives clashed.
In conjunction with London’s central position in world trade and payments,
this commitment spilled over into the international arena in the form of the elevation
of sterling to the status of international currency. The commitment to gold, meant
that the pound sterling became almost universally accepted as a transaction and
reserve currency, and England therefore became the main source of liquidity for
international payments. The two continental powers, in contrast, did not welcome
their loss of independence in forming monetary policy that the gold standard
required. They preferred instead to give monetary policy a decidedly domestic
slant. They did so by artificially restricting the free flow of gold and restricting
the gold convertibility of their currencies when necessary. Yet France and Germany
came to share the position of international lender of last resort. Their concern for
internal targets and for their policies of international lender of last resort had a
common source—domestic politics and priorities. Unable to perfectly insulate
their domestic economics from external pressures in line with the interests of
their dominant coalitions, monetary authorities in France and Germany found it
necessary to release gold from their reserves to the Bank of England, which then
channeled it abroad to the source of the shock. The French and Germans, however,
did not provide this stabilizing function for the international gold-standard system
out of a commitment to global welfare or regime stability. Instead, the central
bank’s support operations under the gold standard were a means by which weaker
members of the regime—members who were not fully committed to gold—sought
to drive a wedge between gold standard discipline and domestic macroeconomic
policy making. Paradoxically, it was because France and Germany did not share