The political economy of exchange rate policy-making : a re-assessment of Britain’s return to the gold standard in 1925

Abstract

This thesis examines the political economy of exchange rate policy-making from a theoretical and an empirical perspective. It argues that conventional means of understanding this subject are problematic, and it develops an alternative framework for analysis based on a Marxist methodology. From this perspective exchange rate policymaking is understood to be a component part of a wider governing strategy that is made by the core executive with a view to regulating class struggle, to providing favourable conditions for capital expansion, and for ensuring a sufficient degree of freedom for the pursuit of high political goals. This theoretical framework is applied empirically through an examination of Britain’s return to the gold standard in 1925. In contrast to conventional explanations for this policy decision it is argued that the return to gold was the central component of a governing strategy designed to address long-term economic and political difficulties in the British state through the imposition of financial discipline and the ‘depoliticisation’ of economic policy-making. Furthermore, in contrast to conventional assessments of the policy as having been a disaster, it is also argued that the return to gold was a relative success. Though failing to resolve Britain’s economic difficulties, the policy was generally successful in containing class unrest and in enabling the core executive to displace pressures over economic conditions and policy-making away from the state. The substantiation given to the alternative theoretical view of exchange rate policymaking by these empirical claims is also supported by an examination of the policy regime developed after the collapse of the gold standard, and by a brief examination of Britain’s membership of the European Exchange Rate Mechanism from 1990-1992, which is shown to have direct parallels with the return to gold. On this basis, the thesis offers a firm foundation for drawing wider generalisations about the political economy of exchange rate policy-making in terms of an alternative Marxist perspective