On Modern International Cooperation: Exchange Controls, Hyperinflation, and Costly Social Revolution as Efficient National Responses to Externally Imposed Trade Liberalization

Abstract

The fitful decays of both classical colonialism and the gold standard after WWI created a world in which a large number of otherwise independent nations became vitally dependent upon the emergency loan support of dominant countries. In the West, this vital loan support, and even the right to trade on non-discriminatory terms, has regularly come on the ideologically rationalized condition that the dependent countries substantially lower their trade barriers. This chapter shows how the surviving governments have quickly and efficiently, but certainly not costlessly, responded to such ideological constraints with new peacetime institutions of their own. The inability of the concerned economists to see these as rational national responses, responses that take us a long way towards characterizing all that is unique in post-WWI economic institutions, furnishes us with striking evidence both for the social costs of free-trade ideology and for the subconscious efficiency of political systems that survive the harsh evolutionary process.