This chapter has examined the subject of exchange rate policy-making from a theoretical perspective. It has outlined the conventional means of understanding this issue and has highlighted some of the difficulties that these accounts face. An alternative approach to this subject was then proposed based on a Marxist methodology which sought to address the issue of exchange rate policy-making by conceptualising political and economic behaviour as internally related elements of a unified social whole. This illustrated how social phenomena can be seen as forms of social relations that are determined during the process of production and by the development of class struggle. In capitalist society the form taken by these relations was seen to be expressed in the circuit of capital, in which capital expansion is achieved through the exploitation of labour. This process was also shown to fundamentally involve the state as a regulator of class relations, and to be constituted on an inherently global basis, with national states themselves constrained by the dynamic of international capitalist competition. Within this overarching framework, the primary concerns of the core executive were considered to be the reproduction of capitalist relations and the attainment of high political goals. Economic policy-making was analysed in terms of the development of a governing strategy for the achievement of these aims, and exchange rate policy-making was regarded as a component part of this governing strategy.
This alternative approach stands in sharp contrast to existing accounts of exchange rate policy-making. It argues that exchange rate policy is not made in the technocratic pursuit of ‘optimal’ policies for the maximisation of economic growth and prosperity, and
nor is it determined by a country’s particular structural characteristics or by the dominance of certain socio-economic interest groups. Instead, exchange rate policy-making is seen as a component part of a wider governing strategy made with a view to regulating class struggle, to providing favourable conditions for the expansion of capital, and for ensuring that the core executive possess sufficient freedom with which to pursue their high political aims.
In order to examine how this takes place in more detail, it is necessary to focus empirically on exchange rate policy-making within a particular state. Here, the key focus for this study shall consist of an examination of Britain’s interwar gold standard policy. The structure for the rest of the thesis is therefore as follows: Chapter 2 reviews the current literature on Britain’s interwar gold standard policy and provides a contrasting view based upon the alternative theoretical approach to exchange rate policy-making. Chapter 3 establishes the backdrop to the development of the policy by charting the growth of an economic and political crisis in the British state from the nineteenth century. Chapters 4 and 5 cover the period leading up to the return to gold between 1920 and 1925, showing this policy to have been the key component of a governing strategy designed to address Britain’s economic and political difficulties. Chapter 6 analyses and assesses the initial success of this policy from 1925 to 1928, chapter 7 examines the breakdown of the regime during 1929-1931, while in chapter 8 the emergence of a new regime for economic policy regulation during the 1930s is also examined. The concluding chapter outlines how the findings of this thesis provide a basis for drawing wider generalisations about the political economy of exchange rate policy-making, and contains a brief examination of Britain’s
membership of the European Exchange Rate Mechanism from 1990-1992 in order to demonstrate the contemporary relevance of the argument presented.
Chapter 2 : The Gold Standard
Britain’s return to the gold standard at the prewar parity in 1925 was a decision of fundamental importance not only for Britain but for the international political economy as a whole during the interwar period. It is a subject which has long been a source of controversy and debate among scholars, though it is also one which still holds contemporary relevance, frequently forming a text-book model for fixed exchange rate systems such as the European Exchange Rate Mechanism or the single European currency. Given the sheer volume of material devoted to this subject then, the relevance of yet another examination may not therefore appear to be readily apparent. The advantages of this however, are two-fold. In the first instance, analysing the return to gold using the alternative theoretical approach to exchange rate policy-making outlined in the previous chapter offers a new means of understanding and assessing this decision. Secondly, this analysis therefore also provides a basis from which wider generalisations about the political economy of exchange rate policy-making can be drawn.
This chapter thus examines Britain’s interwar gold standard policy as a case study into the political economy of exchange rate policy-making. It begins by outlining the technical mechanisms and historical background of the regime, and critically examines conventional explanations for Britain’s decision to return to it. Following this, an alternative theory and assessment of Britain’s return to gold are then proposed on the basis of the alternative theoretical approach to exchange rate policy-making.