238 Hegemonic Stability Theories of the International Monetary System
the form of most-favored-nation status for Germany, IMF exchange rate oversight,
and Swiss links with the Organization for European Economic Cooperation.
While it is certain that the European countries could not have moved so quickly
to relax capital controls and quantitative trade restrictions without these forms
of U.S. assistance, it is not clear how far the argument can be generalized. The
Marshall Plan coincided with a very special era in the history of the international
monetary system, in which convertibility outside the United States had not yet
been restored. Hence there was little role for the central function of the lender
of last resort: discounting freely when a convertibility crisis threatens. When
convertibility was threatened in the 1960s, rescue operations were mounted not
by the United States but cooperatively by the Group of Ten.
Kindleberger has argued that the 1929–31 financial crisis might have been
avoided by the intervention of an international lender of last resort. The
unwillingness of Britain and the United States to engage in countercyclical long-
term lending and to provide an open market for distress goods surely exacerbated
convertibility crises in the non-European world. Both the curtailment of overseas
lending and the imposition of restrictive trade policies contributed greatly to
the balance-of-payments difficulties that led to the suspension of convertibility
by primary producers as early as 1929. Gold movements from the periphery to
London and New York in 1930 heightened the problem and hastened its spread
to Central Europe.
But it is not obvious that additional U.S. loans to Britain and other European
countries attempting to fend off threats to convertibility would have succeeded in
altering significantly the course of the 1931 financial crisis. Heading off the crisis
would have required a successful defense of the pound sterling, whose depreciation
was followed almost immediately by purposeful devaluation in some two dozen
other countries. Britain did succeed in obtaining a substantial amount of short-
term credit abroad in support of the pound, raising $650 million in New York and
Paris after only minimal delay. Total short-term lending to countries under pressure
amounted to approximately $1 billion, or roughly 10 percent of total international
short-term indebtedness and 5 percent of world imports (more than the ratio of
total IMF quotas to world imports in the mid-1970s). It is noteworthy that these
credits were obtained not from a dominant power but from a coalition of creditor
countries.
Could additional short-term credits from an international lender of last resort
have prevented Britain’s suspension of convertibility? If the run on sterling
reflected merely a temporary loss of confidence in the stability of fixed parities,
then additional loans from an international lender of last resort—like central
bank loans to temporarily illiquid banks—might have permitted the crisis to be
surmounted. But if the loss of confidence had a basis in economic fundamentals,
no amount of short-term lending would have done more than delay the crisis in
the absence of measures to eliminate the underlying imbalance. The existence
of an international lender of last resort could have affected the timing but not
the fact of collapse.
The fundamental disequilibrium that undermined confidence in sterling is
typically sought in the government budget. The argument is that by stimulating