The London Monetary and Economic Conference of 1933: A Public Goods Analysis

I The Hegemon Contention THE SEARCH FOR STABILITY in the world economy has given rise to a host of institutional arrangements aimed at international cooperation. Yet, as recurring policy disagreements and trade disputes demonstrate, global economic relations are still marked by something less than perfect harmony. A theory of international political economy, the hegemonic stability thesis, has been offered to explain these divergent tendencies. Perhaps the clearest statement of this theory can be found in Charles Kindleberger's The World in Depression, 1929-1939, where the author contends that a major economic power must serve as the world's equilibrating mechanism, providing a liberal trading system and a monetary regime if stability is to obtain in the international economy.(1) This claim is based on the premise that open world trading systems and monetary regimes are public goods because they are nonrival in consumption and economic agents cannot be excluded from using them once they are in place.(2) Thus, hegemony theorists conclude, if these international public goods are going to be supplied, the responsibility for providing them rests with the world's major economic power. Hegemony theory has its critics. Nonetheless, its advocates generally agree Great Britain stabilized the international economy before World War I and the United States did so after World War II. During the interwar period, however, because no country served as hegemon, supplying the public goods needed for international stability, the world economy collapsed. Indeed, according to Kindleberger, the severity and duration of the Great Depression of the 1930s were, in large measure, due to Great Britain's economic decline and the United States' "unwillingness to assume responsibility for stabilizing" the international economy. "From 1919 to 1929," Kindleberger asserts, "Britain could not, and the United States would not, act in the capacity of world leader."(3) In 1933, at the London Monetary and Economic Conference, a Great Depression version of current-day economic summits, the United States had a chance to break with the position it had taken earlier and replace Great Britain as world hegemon. Its decision not to do so is the subject of this paper. II The United States and World Leadership THE IMPORTANCE OF THE UNITED STATES to the world economy during the interwar period was evident in the repeated attempts European powers made to involve it in efforts to fight the Great Depression. European leaders raised the question of international cooperation with President Hoover in 1930, and again in 1932 when they invited him to send U.S. representatives to a Lausanne, Switzerland, conference on war reparations and intergovernmental debts.(4) These efforts culminated in a League of Nations' decision to ask six major nations, foremost among them the United States, to organize a world economic summit. All six complied and in 1932 they sent representatives to Geneva, Switzerland, to draft an agenda for what came to be known as the London Monetary and Economic Conference of 1933. The consensus view among the experts who met in Geneva was that if the impending conference were to be successful in ending the world's economic crisis, it would have to accomplish several things: restore the gold standard; stabilize commodity prices; and return world trade, down in volume by approximately a quarter since 1929, to its pre-Depression levels. But there were other issues on which these experts disagreed. Europeans considered intergovernmental debts a major cause of the Great Depression and a serious obstacle to recovery, convictions they expressed in the Draft Agenda they wrote for the Conference. They asserted that the debt question "should be settled and that the settlement should relieve the world of the further anxiety concerning the disturbing effects of such payments on financial, economic, and currency stability. …