200 The Domestic Politics of International Monetary Order: The Gold Standard
“hegemon,” that either unilaterally provides the international public good or leads
the coordination effort that produces adherence to the rules of the game. The
internal logic of the argument is simple: only a state large enough to appropriate
a significant share of the benefits of producing a public good like international
monetary stability would have the incentive to perform the functions necessary to
assure such stability. Empirical work, however, finds this hegemonic-stability thesis
a weak predictor of the level of international monetary cooperation: hegemony is
associated with elements of both stability and extreme instability. Logical flaws
have also been uncovered. Most problematic is the supposition that the strongest
incentives and constraints that states face originate at the international level, which
trivializes the role of domestic political conditions in shaping the macroeconomic
choices of states. Likewise, functional theories of international regimes, which
predict cooperation in the absence of hegemony, also give analytical primacy to
problems of international-level collective action. Here, cooperation leading to greatly
expanded joint welfare gains (assuming shared preferences) can occur in the presence
of international institutions because such institutions reduce information,
communication, and enforcement costs.
A final possibility...is that, at both the international and domestic levels, a
stable regime has dynamic effects that create a kind of “virtuous circle” in support
of the system. At the international level, the increased trade and investment the
regime engenders encourages nations to commit to the regime by offering
improvements in national economic welfare. At the domestic level, the existence
of exchange-rate predictability in one part of the world economy gives internationally
oriented interest groups (for instance, international banks, multinational investors
and corporations, and major exporters) in as yet unaffiliated areas a stronger incentive
to encourage their governments to associate with the regime....
Despite obvious differences, these approaches see the essential problem as one
of coordinating the behavior of national governments who have, in one way or
another, come to regard a certain exchange-rate regime as a common national
objective. That is, regardless of the processes by which international monetary
regimes are created and maintained, these perspectives treat all members of a
regime as having homogenous preferences in regard to currency issues. As a result,
the analytical problem becomes how a group of like-minded national governments
resolve the international collective-action problems (for instance, free riding, ex-
post opportunism) that normally constrain the production of international public
goods to suboptimal levels.
The approach of this chapter turns the public-goods puzzle “outside-in.” The
underlying premise that all parties to an exchange-rate regime share the same
objectives in the same order of priority is treated as problematic. This supposition
is grounded in the logic of comparative political economy: that the preferences
and constraints influencing policy formation diverge markedly across countries.
Nations differ in their political, economic, and institutional characteristics, and
these differences make it highly improbable that national policy preferences will
converge sufficiently to make international agreements on currency values simply
a matter of establishing credible commitments and effective enforcement
mechanisms to prevent defections of the “beggar-thy-neighbor” sort.