The Origins of International Economic Disorder: A Study of United States International Monetary Policy from World War II to the Present | Date: 13 April 2011, 11:02
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The book begins with an overview of the British gold standard and its gradual breakdown during the interwar period. This sets the stage for the main subject: the history of the monetary order underlying the multilateral free-trade system promoted and managed by the United States. The analysis rests on a distinction between a closed economy, where trade imbalances can be corrected by the imposition of quotas and tariffs, and an open one, where the only way to overcome an imbalance is either to encourage exports by lowering the value of the national currency (devaluation) or to discourage imports by allowing domestic economic activity to stagnate (deflation). Block suggests that while the closed economy is more favorable to the working classes, the open one is sought by those with money to invest, i.e. the capitalists. What the book actually studies is the historical effort by a surplus exporter, the postwar United States, to provide the credit required by its trading partners, essentially the Western European nations and Japan, to continue purchasing its goods and thus sustain its industrial expansion. To do this meant successfully foreclosing the trend toward domestically oriented industrial production (or “national capitalism”) recommended by J.M Keynes as a pathway toward full employment. Here is Block’s thesis in a nutshell: “The traditional Cold War perspective obscures the fact that both before and after the intensification of the Cold War, the struggle to prevent the emergence of national capitalism in Western Europe was central to U.S. foreign policy.”
The strength of the book’s first part, “The Making of an International Economic Order,” is to recount in detail the internal political arguments leading to the various U.S. monetary policies (including both treaties and loans). In the course of their application, those favored by the State Department gradually prevailed, eventually creating the present multilateral free-trade order. Thus Block provides an important corrective to the standard treatment of the Bretton-Woods treaty, which portrays the defeat of a well-intentioned Lord Keynes by the ruthless United States. Block instead shows how the national-capitalist approach of the Roosevelt administration’s Treasury, headed by Henry Morgenthau and steered by the brilliant negotiator Harry Dexter White, overcame the national and imperial interests of the British, only to meet the successful opposition of a State Department headed by Cordell Hull and dominated by William Clayton and Dean Acheson. The latter group was decisively influenced by the Council on Foreign Relations, as shown in the essential companion book to Block’s, namely Shoup and Minter’s Imperial Brain Trust. After the neutralization of the initial missions of the International Monetary Fund, the State Department forces went on to support U.S. economic expansion by providing credit to the Europeans, first through the Marshall Plan, then through rearmament programs leading to the reindustrialization of Germany (and after the outbreak of the Korean war, of Japan). The integration of the European market beginning with the Community of Coal and Steel was directly favored by the U.S. as part of the general push toward free trade. Throughout this process, both tariff barriers and capital controls were maintained by the Western European nations. In 1958, however, the convertibility of European currencies was finally achieved, releasing their export capacities and leading to the culmination of the postwar boom.
The book’s second part is entitled “The Unmaking of an International Monetary Order.” It is based on tables of raw data showing the evolution of the U.S. trade balance. These reveal a continuously positive balance in the area of sophisticated producer goods, but an increasing decline of the initial surplus in the export of consumer goods (including automobiles). Interestingly, one sees that in the absence of any constraint imposed by national planning, American corporations tended to neglect the modernization of their domestic production facilities and to seek higher profits by investing in branch plants abroad, thus contributing to the transfer of fixed capital to Europe and Japan. As Block shows, the other key factor in the decay of the U.S. balance of trade was the enormous export of capital to support the country’s overseas military programs, culminating in the Vietnam War. As the deficit increased, runs on the dollar began, leading to the imposition of capital controls and the “closing of the gold window” (i.e. the abandonment of America’s Bretton-Woods obligation to maintain the convertibility of the dollar to gold at $35 an ounce). At this point currencies begin to float against each other: the crucial turning point. It’s important to realize that the offshore Eurodollar market, which served as a major source of corporate financing for the EEC in the 1960s and is also the prototype of today’s deregulated financial system, flourished precisely as a result of controls on the export of U.S. capital. Block divides his history of the decline into a phase of “naive Atlanticism” (1958-63), when it was believed that minor adjustments in the economic relations of the U.S. and Europe could solve the deficit problem; then a phase of “holding actions” (1964-68), when NATO threatened to collapse under pressure from breakaway France; and finally, a phase of “chronic crisis” (1968-75). What emerged in this last phase was an acceptance by American policy makers of the idea that the U.S. would take advantage of a de facto “dollar standard” (the dollar as international reserve currency) to abuse the very free-trade system that it had created, by running trade deficits that no other nation could successfully maintain under a regime of floating currency values. Marked by severe inflation in all the developed countries, this phase of chronic crisis spelled the end of the postwar monetary order. Although Block could not see the outcomes predicted with greater acuity by Michael Hudson in Super-Imperialism, and described in detail by Peter Gowan in Global Gamble, his careful scholarship is unrivaled by either of those two books and it serves as a guide to their use, allowing a far more detailed interpretation of the emergence of neoliberal finance.
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