Población y muestra

In the absence of global government, historic monetary cooperation has relied upon interstate negotiation and trust. During the historical periods that gold and silver (or convertible paper) were accepted as international money, global trade could be expanded (beyond that of barter) since the commodity-money transcended the financial boundaries of the nation-state. The gold standard of the nineteenth century benefited from the size and reach of the Pax Britannica, since confidence in the pound was instilled as a consequence of British international activity. In the modern era, exchange rate regimes such as the Bretton Woods (BW) system or the European Exchange Rate Mechanism (ERM) have involved substantial collaboration and had significant implications for the monetary sovereignty of nation-states. During the BW fixed-exchange-rate system, backed by central bank dollar to gold

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convertibility (at $35 per ounce), capital controls were used to engender balance-of-payments equilibrium by virtually eliminating private speculation, and member countries were expected to adjust their macroeconomic conditions to ensure trade balance.154 Monetary policy, open market currency operations and IMF occasional lending were needed to guide states towards this purpose. It was the reluctance of surplus countries to inflate, particularly Japan and Germany (whilst agreeing to restrict converting surplus to gold), which was one of the main causes of the breakdown of the system in the seventies (Helleiner 2008: 222).155 When this was combined with the devaluation of the dollar, and oil price shocks, the BW system collapsed. During the operation of the BW system, nation-states needed to ensure that monetary policy adhered to the necessary conditions for balanced trade. The early period of the ERM (from 1979 to 1986) also used capital controls, and member states (though instigating controls) had a measure of monetary sovereignty as a consequence. An erosion of financial capability then occurred when exchange controls were removed in 1986 as part of the Single European Act when states then needed to maintain market risk premiums (in practice interest rates above the strong Deutschmark rates) in order to prevent speculative attack and a breakdown of the system. As Potts argued, there would be more monetary sovereignty for the UK (or any other EU member) in the Eurozone than theoretically existed in the ERM without controls (Potts 1997). Increased currency speculation (especially when leveraged) has recently served to erode the financial power of nation-states, because individual treasuries do not have enough funds to conduct effective open-market operations in comparison with colossal privately owned volumes, a point highlighted by Griffith-Jones in her research on capital flows (Griffith-Jones 1998). This point is significant for the thesis since this has eroded the capacity to influence exchange rates, a significant element of purchasing power (see 9.4 and 10.8). Some critics have subsequently called for a tax to deter speculation and reduce these harmful effects by restoring some state sovereignty (Tobin 1978). Other forms of monetary regulation, which are a direct result of international cooperation, are likely to reduce monetary sovereignty. The BIS Basle accords have led to the de facto reduction of state regulatory power (reserve requirements have virtually disappeared) and contributed towards the 2008 financial crisis by allowing the self-regulation

154 _{The domestic imposition of capital controls, in a sovereign currency area, gives a nation-state a measure of}

influence over the exchange value of its own currency. This also gives the financial authorities a simultaneous measure of influence over other currencies by implication. However, if the controls are a consequence of a multilateral exchange rate regime then the sovereignty is shared. This is an important distinction. For the purposes of the investigation, if a nation-state imposes control this is evidence of capability regardless of source.

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of security risk assessment. As several have commented, more in-house risk assessments create occasional conflicts of interest between financial agents (Pettifor 2006, Rochon 2007). One issue is that in the post-war era the use of the US dollar as the main reserve currency has meant that other nation-state financial authorities have been, to a greater or lesser extent, influenced by the vagaries of US domestic monetary policy. The US dollar is used as the currency denomination for multinational accounting, statistical measures, global commodity exchanges (including the increasingly tense oil trading platforms), multilateral institutions, capital markets, sovereign lending, commercial credit and as a vehicle currency for virtually all foreign exchange transactions. Fluctuations in the dollar exchange rate, and general reserve currency demand and supply conditions, have a substantial impact on the global economy. Nation-states have found that there are implications for their monetary sovereignty. Benjamin Cohen has found that there is a measure of inter-state competition in order to harness the benefits that accrue to a nation-state when their currency is in general use (such as a vehicle for cheaper borrowing), and the US has certainly gained in this respect in the modern era (Cohen 1998). In a world of hard and soft currencies, and fewer currencies over time, the evolution of global monies is a constant activity, with ramifications for sovereignty as financial power is eroded or enhanced. The thesis posits that an examination of the erosion of national sovereignty needs to take account of any currency regimes in place that are founded on international agreement. On the one hand these represent state capabilities, but they imply certain constraints. As stated in 7.3, if the state chooses to impose these it still represents an erosion of sovereignty, albeit self-inflicted.

7.8. CONCLUSION

The purpose of the thesis is to examine the general transformation in the financial system and review the (declining) financial capabilities of the modern capitalist state. During the pre- capitalist era in the United Kingdom, the sovereign authorities had more control over the money-issue and functionality in comparison to today. The UK ‘tally-stick’ system had been a successful administration of sovereign authority for centuries and afforded seignorage that financed various state activities (Zarlenga 2002; Brown 2007). In the early capitalist mercantilist era, the monetary aim of the state had been to accumulate specie for the purpose of wielding social power, and several states were able to exercise this power accordingly (De

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Brunhoff 1976). In the latter stage of capitalism, with the credit system evolution, the circumstances changed and a gradual decline in state financial capabilities is evident (see 9.4 and 10.5). It is clearly not appropriate to view money creation as occurring entirely in response to market demand, in an endogenous horizontal sense with minimal (or non- existent) state involvement. Instead, the state (despite its decline) and market both have roles in the issue of money and are able to influence its purchasing power (see 4.2 and 7.6). These matters will be investigated further in the empirical work.

In this chapter, the general concept of power and its exercise were explored followed by financial power; then the manner in which the state has been viewed in political theory was discussed in the context of the monetary function of the state and banks. Finally, the role of the state in the international system was examined. In Chapter Eight, the research questions and research method will be discussed. The Marx notion of the state (defined by Weber), in conjunction with the ideas of Gramsci, is taken forward from this chapter. In this conception, the state primarily protects the priority interests of capital and capitalist system processes, but the ideological environment is also important at certain times. Whilst the material relations of production determine agent’s behaviour, social movements based on ideas have the latent capacity to redirect their behaviour (see 5.2). This can lead to systemic change in the way Gramsci had suggested. The thesis posits that capitalist apologetics have been (and remain) ideologically successful and have served to maintain the regime of expansion and accumulation of value primarily for the benefit of the plutocratic (and bourgeois) elites.156 _It is argued that the post-WW2 ideological environment was heavily influenced by Keynes and led to a nationalised BOE and general policy bias towards state interventionist (see 10.4). This forms the starting point of the empirical investigation; then, following Friedman and later neoclassical/neoliberal thinking, a more liberalised financial order was created in the capitalist economies that led to financialisation and the erosion of state power.

156 _{As Miliband noted, this does not preclude the possibility of certain state measures being pursued that were}

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8.0. CHAPTER EIGHT: METHOD