Barry Eichengreen 221of an international regime. The concentration of economic power is seen as a
way of internalizing the externalities associated with systemic stability and of
ensuring its adequate provision. The application of this “theory of hegemonic
stability” to international monetary affairs is straightforward. The maintenance
of the Bretton Woods system for a quarter century is ascribed to the singular
power of the United States in the postwar world, much as the persistence of the
classical gold standard is ascribed to Britain’s dominance of international financial
affairs in the second half of the nineteenth century.... By contrast, the instability
of the interwar gold exchange standard is attributed to the absence of a hegemonic
power, due to Britain’s inability to play the dominant role and America’s
unwillingness to accept it.
The appeal of this notion lies in its resonance with the public good and cartel
analogies for international monetary affairs, through what might be called the
carrot and stick variants of hegemonic stability theory. In the carrot variant, the
hegemon, like a dominant firm in an oligopolistic market, maintains the cohesion
of the cartel by making the equivalent of side payments to members of the fringe.
In the stick variant, the hegemon, like a dominant firm, deters defection from the
international monetary cartel by using its economic policies to threaten retaliation
against renegades. In strong versions of the theory...all participants are rendered
better off by the intervention of the dominant power. In weak versions... either
because systemic stability is not a purely public good or because its costs are
shunted onto smaller states, the benefits of stability accrue disproportionately or
even exclusively to the hegemon.
Three problems bedevil attempts to apply hegemonic stability theory to
international monetary affairs. First is the ambiguity surrounding three concepts
central to the theory: hegemony, the power the hegemon is assumed to possess,
and the regime whose stability is ostensibly enhanced by the exercise of hegemonic
power. Rather than adopting general definitions offered previously and devoting
this paper to their criticism, I adopt specialized definitions tailored to my concern
with the international monetary system. I employ the economist’s definition of
economic—or market—power: sufficient size in the relevant market to influence
prices and quantities. I define a hegemon analogously to a dominant firm: as a
country whose market power, understood in this sense, significantly exceeds that
of all rivals. Finally, I avoid defining the concept of regime around which much
debate has revolved by posing the question narrowly: whether hegemony is
conducive to the stability of the international monetary system (where the system
is defined as those explicit rules and procedures governing international monetary
affairs), rather than whether it is conducive to the stability of the international
regime, however defined.
The second problem plaguing attempts to apply hegemonic stability theory to
international monetary affairs is ambiguity about the instruments with which the
hegemon makes its influence felt. This is the distinction between what are
characterized above as the carrot and stick variants of the theory. Does the hegemon
alter its monetary, fiscal, or commercial policies to discipline countries that refuse
to play by its rules, as “basic force” models of international relations would suggest?
Does it link international economic policy to other issue areas and impose military