1. Leonard Seabrooke L.Seabrooke@warwick.ac.uk Theories and Issues in International Political Economy

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3. 3 Twentieth Century The Great War - look at what happens to international capital mobility. The Interwar Period - monetarism vs. proto-Keynesianism in the face of the Great Contraction. World War II - the rise of the military-industrial complex Bretton Woods - the ‘compromise of embedded liberalism’ Nixon Shocks and stagflation

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5. 5 The Great War Raised the contrast between more domestic rights and more international exploitation sponsored by Western governments - Mann’s ‘superloyal schizoids’ in Britain. State intervention into domestic economies and the world economy increased massively. Within Western states taxation was doubled, states assisted banks to form cartels to guide investment, and imperial trade preferences dominated Changing conception of unemployment due to mass mobilization UK is economically crippled and US is now clear economic hegemon but not willing to take the title.

6. 6 Twentieth Century The Great War - look at what happens to international capital mobility. The Interwar Period - monetarism vs. proto-Keynesianism in the face of the Great Contraction. World War II - the rise of the military-industrial complex Bretton Woods - the ‘compromise of embedded liberalism’ Nixon Shocks and stagflation

7. 7 The Interwar Period Following the Great War Britain attempted through extensive state intervention to place the world back on a Gold Standard with no real success. Economic downturns in mid-1920s (not started in the US) led to ‘Beggar-Thy- Neighbour’, whereby states would devalue their currencies in order to make their exports more competitive, leading their trading partners to do the same and leading to further inflation. Smoot-Hawley Act of 1930 led to a tariff of 50% on a range of goods than greatly reduced imports. Between 1929 and 1933 international trade reduced by over 65%. Vicious cycle of French and Brits needing to pay the US for past debt by squeezing the Germans. Prolonged bad debts with no means to raise revenue led private banks to collapse unless they were supported. In the US in 1930 there were more than 60 bank failures per month, with 254 in November and 344 in December of that year Britain asked the US to take over responsibility for the international monetary system at the London Economic Conference of 1933. The answer was a polite ‘not for the moment’.

8. 8 The Interwar Period Crucial here is the role of an International Lender of the Last Resort. For Kindleberger the Great Depression was caused by the failure of a hegemon, either the Brits or the US, to 1.maintain a relatively open market for distress goods 2.provide stable long-term lending 3.police a stable system of exchange rates 4.ensure the coordination of macroeconomic policies 5.act as a lender of the last resort. Kindleberger wrties: ‘These functions, I believe, must be organized and carried out by a single country that assumes responsibility for the system’.

9. 9 The Interwar Period The Reciprocal Trade Agreements Act of 1934. Lowered tariffs and increased free trade, also broader institutional changes in the US. The New Deal of 1935 led to the development of Keynesian-like policies. This was essentially to publicly spend their way out of the Great Depression and embodied a social liberalism that would carry on to the formation of the Bretton Woods system. Taxation increases during 1930s following the diffusion of Keynesian ideas. Bank for International Settlements created to deal with reparations problems.

10. 10 Twentieth Century The Great War - look at what happens to international capital mobility. The Interwar Period - monetarism vs. proto-Keynesianism in the face of the Great Contraction. World War II - the rise of the military-industrial complex Bretton Woods - the ‘compromise of embedded liberalism’ Nixon Shocks and stagflation

11. 11 World War II During the Second World War the US doubled its GDP and consolidated what Ann Markusen calls the ‘military-industrial complex’. In part this was due to the negotiation of Lend-Lease agreements to sell goods to allied states. By the end of the Second World War the US was unquestionably the biggest power and was able to convince Britain to drop its Imperial Preference system and engage in a new framework for global economic governance. Decolonization began as former empires were dismantled or reduced. Within Western state mass mobilization raised expectations on what citizens should expect from government, including the provision of employment and pensions. The US is ready for hegemony…

12. 12 Twentieth Century The Great War - look at what happens to international capital mobility. The Interwar Period - monetarism vs. proto-Keynesianism in the face of the Great Contraction. World War II - the rise of the military-industrial complex Bretton Woods - the ‘compromise of embedded liberalism’ Nixon Shocks and stagflation

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15. 15 Bretton Woods The two critical elements of the Bretton Woods system were the creation of: 1. A Fixed Exchange Rate Regime to provide international monetary stability (given the problems associated with monetary stability since World War One). 2.The construction of an international trade regime to encourage free trade and discourage the beggar-thy-neighbour policies of the 1920s and the Great Depression. Both of these aims reflected the ‘compromise of embedded liberalism’, whereby societies welcomed international trade and financial liberalization in return for a greater social welfare role for states. States would therefore engage in a multilateral framework while also having domestic autonomy.

16. 16 Bretton Woods US and Britain submitted proposals to the Economic and Social Council (ECOSOC) of the United Nations for the formation of an International Trade Organization (ITO) and talks occurred during 1946-7. … but GATT instead due to US Congress’s refusal to ratify in 1950. Keynes hoped for a system that would counterbalance American power - the International Clearing Union with a separate currency, the ‘Bancor’ … but threats from US Congress led to the International Monetary Fund. The US dollar as a world currency, set at $35 for an ounce of gold. The system had a flaw - what was it?

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18. 18 Bretton Woods In 1955 the Bank of the Midlands starts accepting deposits from Chinese and Soviet sources The ‘Euromarkets’ boom through the 1960s. In 1958, the year when Bretton Woods currency convertibility began the final stage of implementation (completed in 1961), the US lost $2 billion in gold reserves as European states began to run current account surpluses and convert dollars into gold. … in 1961 the private market price rose to $40 per ounce whilst the official rate remained at $35 per ounce. In 1968 an official two-tier gold system to defuse speculation on the dollar. By 1971 the US makes some calls…

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20. 20 Questions Why did the world economy that had developed prior to 1914 fall into disorder and conflict? What role did the Bretton Woods agreement play in the rebuilding of an international economy after the Second World War? How useful is Polanyi’s notion of “the double movement” in explaining the inter-war collapse and post-war reconstruction?