Domestic Politics of International Monetary Order: the Gold Standard

This page is a summary of an essay written by Lawrence Broz, titled "The Domestic Politics of International Monetary Order: the Gold Standard."

Recognizing that a smoothly functioning monetary regime deviates from "natural state of affairs," Broz is deeply concerned with the question of how macroeconomic policy cooperation among member states--the key prerequisite of the regime's existence--is achievable. Whereas Charles Kindleberger attributes this to the existence of a hegemonic economic power, Broz calls this hegemonic stability theory into question on the grounds that empirical work does not fully support it, and that the model's assumption that member states' have homogeneous preferences is contrary to reality. Nevertheless, Broz does not consider this assumption essential to international monetary regimes. His main argument in the essay is that, stable international monetary regime can arise notwithstanding its participants heterogeneous national policy preferences, especially with respect to the issue of exchange-rate variability, so long as all parties to the regime willingly perform specialized regime-stabilizing functions consistent with their national objectives. This paradoxical idea that a state can pursue its national interest while contributing to the international public good is referred to as positive externalities.

Using the Gold standard in the late nineteenth and early twentieth-century as a case in point, Broz surveys the British, French and German experiences, and shows that their different contributions to the functioning of the gold standard are shaped and sustained by domestic interests.