222 Hegemonic Stability Theories of the International Monetary System
or diplomatic sanctions on uncooperative nations? Or does it stabilize the system
through the use of “positive sanctions,” financing the public good of international
monetary stability by acting as lender of last resort even when the probability of
repayment is slim and forsaking beggar-thy-neighbor policies even when used to
advantage by other countries?
The third problem is ambiguity about the scope of hegemonic stability theories.
In principle, such theories could be applied equally to the design, the operation,
or the decline of the international monetary system. Yet in practice, hegemonic
stability theories may shed light on the success of efforts to design or reform the
international monetary system but not on its day-to-day operation or eventual
decline. Other combinations are equally plausible a priori. Only analysis of individual
cases can throw light on the theory’s range of applicability.
In this paper, I structure an analysis of hegemonic stability theories of the
international monetary system around the dual problems of range of applicability
and mode of implementation. I consider separately the genesis of international
monetary systems, their operation in normal periods and times of crisis, and their
disintegration. In each context, I draw evidence from three modern incarnations
of the international monetary system: the classical gold standard, the interwar
gold exchange standard, and Bretton Woods. These three episodes in the history
of the international monetary system are typically thought to offer two examples
of hegemonic stability—Britain before 1914, the United States after 1944—and
one episode—the interwar years—destabilized by the absence of hegemony. I do
not attempt to document Britain’s dominance of international markets before 1914
or the dominance of the United States after 1944; I simply ask whether the market
power they possessed was causally connected to the stability of the international
monetary system.
The historical analysis indicates that the relationship between the market
power of the leading economy and the stability of the international monetary
system is considerably more complex than suggested by simple variants of
hegemonic stability theory. While one cannot simply reject the hypothesis that
on more than one occasion the stabilizing capacity of a dominant economic
power has contributed to the smooth functioning of the international monetary
system, neither can one reconcile much of the evidence, notably on the central
role of international negotiation and collaboration even in periods of hegemonic
dominance, with simple versions of the theory. Although both the appeal and
limitations of hegemonic stability theories are apparent when one takes a static
view of the international monetary system, those limitations are most evident
when one considers the evolution of an international monetary system over
time. An international monetary system whose smooth operation at one point
is predicated on the dominance of one powerful country may in fact be
dynamically unstable. Historical experience suggests that the hegemon’s
willingness to act in a stabilizing capacity at a single point tends to undermine
its continued capacity to do so over time....