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Protecting capital from itself: U.S. attempts to regulate the Eurocurrency system

  • James P. Hawley (a1)

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In 1979 and 1980 the U.S. government attempted to regulate the Eurocurrency system in order to stabilize the international monetary and financial systems, and for U.S. domestic monetary purposes. The conflict between the U.S. government (especially the Treasury Department and the Federal Reserve Board) and U.S.-based transnational banks (TNBs) illustrates TNBs' contradictory interests, which are neither self-evident nor easily discernible, even to TNBs themselves. The state comes to play a mediating role vis-a-vis TNBs in an only partially successful attempt to transform contradictory interests into coherent policy, resulting in conflict between the state and TNBs. The origins of U.S. regulatory initiatives are rooted in multilateral attempts to supervise banks between 1974 and 1978, and the failure of such coordination during the 1978 dollar crisis. From the conflict between U.S. officials and U.S. TNBs emerge varying concepts of TNBs' interests. After examining the reasons for the failure of the U.S. proposals, I conclude by suggesting some implications of TNBs' contradictory interests for statist and social conflict theories of the advanced capitalist state. Few theories of the state have adequately taken into account the complexity and contradictory interests of transnational capital.

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Helpful comments on earlier drafts were made by Fred Block, Chris Chase-Dunn, Peter Evans, John Gurley, Peter Katzenstein, Charles Lindblom, Paul Lubeck, Arthur MacEwan, Ben Orlove, Bernadette Tarallo, John Willoughby, and the U. C. Davis Organization Group— Mitchel Abolafia, Nicole Biggart, Bruce Hackett, and Gary Hamilton. David Plotke and three anonymous IO reviewers provided particularly close readings and useful criticisms.

1. See Evans, Peter, “Transnational Linkages and State Capacity” (Paper presented at the meetings of the International Sociological Association, Mexico City, August 1982); Krasner, Stephen D., Defending the National Interest (Princeton: Princeton University Press, 1978), pp. 5570; Odell, John S., U.S. International Monetary Policy (Princeton: Princeton University Press, 1982), pp. 1214; and Schmitter, Philippe C. and Streeck, Wolfgang, “The Organization of Business Interests,” mimeo (Berlin: International Institut fur Management und Verwaltung, 1981).

2. Frank E. Morris, president, Federal Reserve Bank of Boston, “Do the Monetary Aggregates Have a Future as Targets of Federal Reserve Policy?” (Remarks presented at a conference on “Supply Side Economics in the 1980's,” Atlanta, Georgia, 17 March 1982). Mergers and acquisitions, along with the growth of international banking, have created significant pressures to rewrite the Glass-Steagall Act. The Reagan administration is committed to such a policy: see Wall Street Journal, 21 April 1981, p. 2; 22 April 1981, p. 1; 29 April 1981, p. 8.

3. This contradiction is overlooked in Gerald Epstein's otherwise extremely interesting article on the Federal Reserve and Volcker, Paul (“Domestic Stagflation and Monetary Policy: The Federal Reserve and the Hidden Election,” in Ferguson, Thomas and Rogers, Joel, eds., The Hidden Election [New York: Pantheon, 1981], pp. 141–95). For a conservative bureaucratic and political interpretation of Federal Reserve actions, see Shapiro, Robert J., “Politics and the Federal Reserve,” The Public Interest no. 66 (Winter 1983), pp. 119–39.

4. Cleveland, Harold Van B. and Bhagavatula, Ramachandra, “The Continuing World Economic Crisis,” Foreign Affairs 59 (Spring 1981), p. 600. For a critique of this strategy from a “reformed monetarist” view, see Noyes, Guy E., “The Multiple Flaws of the Monetary Base,” Morgan Guaranty Survey, October 1981, pp. 610.

5. Cleveland, and Bhagavatula, , “Continuing World Economic Crisis,” pp. 609, 615. The analogy with Germany, Switzerland, and Japan is faulty. Both Germany and Japan are historically export-dependent economies. Thus, given credit and debt expansion in the United States (and elsewhere), they can pursue lower inflation and moderate growth policies successfully. Switzerland is a unique case—a tiny economy based to a large degree on its global financial importance with specialization in certain industrial sectors requiring highly skilled labor or high-technology products or both.

6. This conceptualization of interests makes a sharp break with the Benthamite-utilitarian tradition, which argues that interests reflect rational calculation as the means toward the maximization of some goal (usually power or money over the long term). Many orthodox Marxists adopt similar positions regarding class interests. See “Symposium on Interest,” in Political Theory 3 (August 1975), pp. 245–87; Wall, Grenville, “The Concept of Interest in Politics,” Politics and Society 5, 4 (1975); and Swarton, Christine, “The Concept of Interests,” Political Theory 8 (February 1980). I am indebted to the larger questions raised by Schmitter, Philippe in “Introduction,” Comparative Political Studies 10 (April 1977), pp. 338; by Charles W. Anderson in “Modes of Political Design and the Representation of Interests,” ibid., pp. 127–52; and by Bauer, Raymond, Pool, Ithiel de Sola, and Dexter, Anthony in American Business and Public Policy (Chicago: Aldine-Atherton, 1972). See also Odell, U.S. International Monetary Policy.

7. Davis, Stanley M., Matrix Organization (Reading, Mass.: Addison-Wesley, 1977), and Managing and Organizing Multinationals (Elmsford, N.Y.: Pergamon, 1979). See also Abernathy, William J., The Productivity Dilemma (Baltimore: Johns Hopkins Press, 1978); Bauer, , Pool, , and Dexter, , American Business, pp. xixii, 473; Lowi, Theodore J., “American Business, Public Policy, Case-Studies, and Political Theory,” World Politics 16 (July 1964), pp. 677715; and Williamson, Oliver E., Markets and Hierarchies (New York: Free Press, 1975).

8. Anderson, , “Modes of Political Design,” p. 129; Block, Fred, “Marxist Theories of the State in World Systems Analysis,” in Kaplan, Barbara Hockey, ed., Social Change in the Capitalist World System (Beverly Hills: Sage, 1978); Schmitter, “Introduction,” and Silk, Leonard and Vogel, David, Ethics and Profits (New York: Touchstone, 1976).

9. This complexity of interest approach does not lend itself well to a causal-predictive model of either business or interest-group actions, nor to predicting state activity and response.

10. Simons, Henry C., “Rules Versus Authority in Monetary Policy,” Journal of Political Economy 44 (February 1936). pp. 13, 17. See also Minsky, Hyman P., “Capitalist Financial Processes and the Instability of Capitalism,” Journal of Economic Issues 11 (June 1980), pp. 507, 519–21. Simons argued that productive capital required protection from financial innovation in order to maintain competition. Thus, he proposed a form of social-state control of financial institutions.

11. For a discussion of the Eurocurrency system as financial innovation, see McKenzie, George W., The Economics of the Euro-Currency System (New York: Halsted, 1976); McKinnon, Ronald I., “Currency Substitution and the Instability in the World Dollar Standard,” American Economic Review 72 (June 1982), pp. 320–33; and Niehans, Jurg, “Innovation in Monetary Policy,” Journal of Banking and Finance 6 (March 1982), pp. 928. For discussion from points of view within the Federal Reserve System, see Balback, Anatol B. and Resler, David H., “Eurodollars and the U.S. Money Supply,” Federal Reserve Bank of St. Louis Review 62 (June-July 1980), pp. 211; Frydl, Edward J., “The Debate over Regulating the Eurocurrency Markets,” Federal Reserve Bank of New York Quarterly Review 4 (Winter 19791980), pp. 1120; Frydl, “The Eurodollar Conundrum,” ibid. 7 (Spring 1982), pp. 11–19; and Goodfriend, Marvin, Parthemos, James, and Summers, Bruce, “Recent Financial Innovations,” Federal Reserve Bank of Richmond Sixty-Fifth Annual Report (May-June 1979), pp. 519.

12. Polanyi, Karl, The Great Transformation (1944; rpt. Boston: Beacon, 1957), p. 192.

13. Ibid., pp. 3, 29, 76

14. Quoted in McKenzie, George W., “Regulating the Euro-Markets,” Journal of Banking and Finance 5 (March 1981), p. 109.

15. Frydl, “Debate over Regulating,” and “Eurodollar Conundrum”; Goodfriend, Parthemos, and Summers, “Recent Financial Innovations.”

16. Swodoba, Alexander K., Credit Creation in the Euromarket: Alternative Theories and Implications of Control (New York: Group of Thirty, 1980), p. 1. For a brief overview see Luther, Kusum A. N., “Eurocurrency Markets and Liquidity: The State of the Issue,” Social Science Journal 18 (April 1981), pp. 4154.

17. This is similar in method to Odell, , U.S. International Monetary Policy, pp. 5866.

18. Aglietta, Michel, “World Capitalism in the Eighties,” New Left Review no. 136 (November-December 1982), pp. 541; Artus, Jacques R. and Young, John H., “Fixed and Flexible Exchange Rates: A Renewal of the Debate,” IMF Staff Papers 26 (December 1979), pp. 654–98; Arturo Brillembourg and Susan M. Schadler, “A Model of Currency Substitution in Exchange Rate Determination: 1978–79,” ibid. 26 (September 1979), pp. 513–42; McKenzie, George W., “Economic Interdependence and the Eurocurrency System,” British Journal of International Studies 3 (1977), pp. 2238; and McKinnon, Ronald I., Money in International Exchange (New York: Oxford University Press, 1979), p. 230.

19. For instance, see Aglietta, “World Capitalism,” and Parboni, Riccardo, The Dollar and Its Rivals (London: NLB, 1981).

20. McKinnon, Ronald I., “The Exchange Rate and Macroeconomic Policy: Changing Postwar Perceptions,” Journal of Economic Literature 19 (June 1981), pp. 531–57. Brillembourg and Schadler, “Model of Currency Substitution,” make a similar point.

21. McKinnon, , “Currency Substitution,” pp. 320–32. See also Bryant, Ralph C., Money and Monetary Policy in Interdependent Nations (Washington, D.C.: Brookings, 1980).

22. McKinnon, Ronald I., “Dollar Stabilization and American Monetary Policy,” American Economic Review 70 (May 1980), p. 385.

23. McKinnon, , Money in International Exchange, pp. 112–21, 156–59.

24. Willett, Thomas D., International Liquidity Issues (Washington, D.C.: American Enterprise Institute, 1980), pp. 45. For instance see Heller, H. Robert, “International Reserves and Worldwide Inflation,” IMF Staff Papers 23, 1 (1976) pp. 6187; and Meiselman, D. I. and Laffer, A. B., eds. The Phenomenon of Worldwide Inflation (Washington, D.C.: American Enterprise Institute, 1975).

25. Brillembourg, and Schadler, , “Model of Currency Substitution,” p. 517. Cf. Bond, Marian E., “Exchange Rates, Inflation and Vicious Circles,” IMF Staff Papers 27 (December 1980), pp. 679709.

26. Concern about this expansion has focused on the perceived loss of autonomous national control of monetary and credit aggregates with consequent inflationary, or potentially deflationary, implications; and on concern about the prudential soundness of the global and domestic banking system. See Folkerts-Landau, D. F. I., “Potential of External Financial Markets to Create Money, Credit and Inflation,” IMF Staff Papers 29 (March 1982), pp. 7778.

27. Niehans, , “Innovation in Monetary Policy,” pp. 1619.

28. Swoboda, , Credit Creation, p. 28. Cf. Willett, International Liquidity, and works cited earlier by McKinnon.

29. Folkerts-Landau, “Potential”; Hewson, J. and Sakakibara, E., “The Eurodollar Deposit Multiplier: A Portfolio Approach,” IMF Staff Papers 21, 2 (1974), p. 327; Little, Jane Sneddon, “Liquidity Creation by Euro-Banks: 1973–1978,” New England Economic Review (January-February 1979), pp. 6272; McKenzie, Economics of Euro-Currency System; McKinnon, , Money in International Exchange, p. 218; Niehans, “Innovation in Monetary Policy”; Swoboda, Credit Creation; Triffin, Robert, “The International Role and Fate of the Dollar,” Foreign Affairs 57 (Winter 19781979), pp. 269–86.Versluysen, Eugene, The Political Economy of International Finance (New York: St. Martin's, 1981), concludes that while the endogenous credit creation of the Eurocurrency system is minimal, especially compared to domestic credit creation, the expansionary effect of the markets is nevertheless significant. For earlier debates about credit creation, see Klopstock, Fred. H., “The Euro-Dollar Market: Some Unresolved Issues,” Princeton Essays in International Finance no. 65 (Princeton, N.J., 1968); Little, Jane Sneddon, Euro-Dollars: The Money Market Gypsies (New York: Harper & Row, 1975); Mayer, Helmut, “Multiplier Effects and Credit Creation in the Euro-dollar Market,” Banca Nazionale del Lavoro Quarterly Review, September 1971; Fritz Machlup, “Euro-Dollar Creation: A Mystery Story,” ibid.; Machlup, “The Magicians and Their Rabbits,” Morgan Guaranty Survey, May 1971; Milton Friedman, “The Euro-dollar Market: Some First Principles,” ibid., October 1969; Swoboda, Alexander K., “The Eurodollar Market: An Interpretation,” Princeton Essays in International Finance no. 64 (February 1968); and Kindleberger, Charles, “The Euro-dollar and the Internationalization of United States Monetary Policy,” Banca Nazionale del Lavoro Quarterly Review, March 1969.

30. Little, , “Liquidity Creation,” pp. 6271. See also Bank of England Quarterly Bulletin 21 (September 1981), pp. 351–60; and The Group of Thirty, Risks in International Bank Lending (New York: 1982).

31. Versluysen, , Political Economy, p. 131.

32. Bank of England, Quarterly Bulletin 21 (September 1981), p. 131.

33. Hewson, John and Niehans, Jurg, “The Eurodollar Market and Monetary Theory,” Journal of Money, Credit and Banking 7 (June 1975), pp. 1315.

34. McKenzie, , Economics of Euro-Currency System, pp. 7880.

35. Mendelsohn, M. S., Money on the Move (New York: McGraw-Hill, 1980), pp. 8788; Spero, Joan Edelman, The Failure of the Franklin National Bank (New York: Columbia University Press, 1980), pp. 182–83. See also the Economist, 16 October 1982, pp. 23–26; and Rohatyn, Felix G., “The State of the Banks,” New York Review of Books, 4 November 1982, pp. 38. For Citibank's role in the interbank market, see New York Times, 13 September 1982, pp. 1 and 25; and Multinational Monitor, October 1982, pp. 9–15. A Group of Thirty survey of Eurobankers concludes that “… a majority of banks feel that interbank activity may be becoming more risky because of a change in the composition of the market (an increasing proportion of interbank borrowing being done by second and third tier banks).” (Group of Thirty, Risks, p. 17.)

36. McKenzie, , Economics of Euro-Currency System, p. 67.

37. Willett, , International Liquidity, table 6, pp. 6465.

38. Swoboda, , Credit Creation, pp. 2022. See also Perkin, M., Richard, I., and Zis, G., “The Determination and Control of the World Money Supply under Fixed Exchange Rates, 1961–1971,” Manchester School, November 1976, pp. 293316.

39. McKinnon, , “Dollar Stabilization,” p. 385.

40. Ibid.

41. Ibid.

42. McKinnon, , “Currency Substitution,” p. 331. See also Bryant, Money and Monetary Policy, for similar joint cooperation proposals under regimes of high monetary interdependence. See Parboni, Dollar and Its Rivals, on the political and economic difficulties and past failures of attempts at such cooperation.

43. Willett, , International Liquidity, pp. 87, 100.

44. Swoboda, , Credit Creation, pp. 3033.

45. Frydl, “Eurodollar Conundrum.”

46. Ibid. This approach is advocated by Versluysen, , Political Economy, pp. 249–54, although he opposes reserve requirements as ineffective, preferring instead a form of capital issues committee modeled on the West German Foreign Issues Sub-Committee, of the Central Capital Market Committee of the Ministry of Finance (pp. 219, 254). See also statements by Deutsche Bank Director and West German Secretary of State, and Federal Ministry of Finance, in Intereconomics, March-April 1980, pp. 65–71.

47. “Supervising the Eurocurrency Dinosaur,” The Banker, August 1978, pp. 677–79; Dale, Richard, Bank Supervision around the World (New York: Group of Thirty, 1982); Einhorn, Jessica P., “International Bank Lending: Expanding the Dialogue,” Columbia Journal of World Business 13 (Fall 1978), pp. 128–30; International Currency Review 12, 4 (1980), p. 13; ibid. 13, 2 (1981); and Spero, , Failure, pp. 186–89.

48. “Supervising Eurocurrency,” The Banker, p. 679; and Spero, , Failure, pp. 189–90.

49. “Supervising Eurocurrency,” The Banker, p. 679; and “Supervising American Banks' Foreign Lending,” ibid., September 1978, pp. 65–67; Einhorn, , “International Bank Lending,” pp. 125–27; Spero, , Failure, p. 187; and Walter, Ingo, “Country Risk, Portfolio Decisions and Regulation in International Bank Lending,” Journal of Banking and Finance 5 (1981), pp. 8491. The Bank of England developed informal guidelines for country-risk and foreign-exchange operations in line with its tradition of informal regulatory relations with the TNBs it supervises. The Bundesbank and the West German government sought in 1978 control over and information on German TNBs' activities in Luxembourg. (The Banker, August 1978, p. 81.)

50. The Banker, August 1978, p. 83.

51. International Currency Review 12, 4 (1980), pp. 1314; Lomax, David F. and Gutmann, P. T. G., The Euromarkets and International Financial Policies (New York: Halsted, 1981), pp. 1552, 103–23.

52. Business Week, 11 September 1978, p. 57; 9 October 1978, pp. 116–18; 23 October 1978, p. 52; 13 November 1978, pp. 18–31.

53. Ibid., 2 October 1978, pp. 96–102; 9 October 1978, pp. 116–18; 23 October 1978, p. 52; Euromoney, October 1978, p. 11; and Keohane, Robert O., “The International Politics of Inflation,” mimeo (Brookings Institution Project on the Politics and Sociology of Global Inflation, April 1979), pp. 14 and 32. For U.S.-German conflict, see Parboni, , Dollar and Its Rivals, pp. 118–40.

54. International Currency Review 11, 3 (1979), pp. 816. Rene Larre, managing director of the BIS, commented on Henry Wallich's speech to the BIS on 15 June that this constituted a “complete change of direction for U.S. foreign financial policy” (ibid., p. 8).

55. Business Week, 6 August 1979, p. 78.

56. Solomon, Anthony, “Remarks” (Presented at the Royal Institute of International Affairs, London, 12 January 1979), in Department of the Treasury News (mimeo, n.d.) pp. 3, 5–6, 8.

57. Hugo Colje, “Bank Supervision on a Consolidated Basis,” The Banker, June 1981, pp. 29–34.

58. Solomon, Anthony, “Remarks” (11 May 1979), in Department of the Treasury News (mimeo, n.d.). It was not until late 1979 that the Federal Reserve explicitly redefined U.S. monetary statistics to account for Eurodollar net additions to the U.S. money supply. In 1979 the Federal Reserve estimated this addition to be about $40 billion (Henry C. Wallich, “Policies of the 1980's” [Remarks to the French-American Chamber of Commerce in the United States, New York City, 3 March 1980], p. 5).

59. Wallich, Henry C., “Euro-Markets and U.S. Monetary Growth” (text for article that appeared in) Journal of Commerce, 1 and 2 May 1979.

60. Ibid.

61. See Wallich, Henry C., “Developments in International Banking” (Remarks to the Association of Foreign Banks in Switzerland, 15 June 1979), p. 14; Minsky, “Capitalist Financial Processes.”

62. Wallich, Henry C., “The International Monetary and Cyclical Situation” (Remarks at a meeting sponsored by the Landeszentralbank in Berlin, 18 June 1979), p. 16.

63. Wallich, Henry C., “Why the Euromarket Needs Restraint,” Columbia Journal of World Business 14 (Fall 1979), pp. 21, 24.

64. Wallich, Remarks of 18 June 1979, p. 17. Four techniques were considered: capital standards, liquidity standards, consolidation of TNB global accounts, and reserve requirements. All require effective multilateral cooperation. The problem with capital standards was there is no multilateral standard regarding minimal capital to total assets or to deposit-to-risk ratio. Liquidity standards pose similar problems. They are also vague, since TNBs operate with a large proportion of borrowed funds. Consolidation posed difficulties since currency portfolios are highly diversified among different currencies, making accounting procedures highly interpretive due to constant exchange flux. Consequently, the Federal Reserve opted for reserve requirements as the most workable solution.

65. Wallich, Remarks of 15 June 1979.

66. These reserve requirements (the exact rates were to have been negotiated among the states) would have gone into effect once states responsible for 75% of all Eurocurrency holdings agreed (U.S. Congress, House Sub-committee on Domestic Investment and Monetary Policy of the Committee on Banking, Finance and Urban Affairs; and Monetary and Policy Sub-committee on International Trade, Hearings on “The Eurocurrency Control Act of 1979,” 96th Cong., 1st sess., pp. 3–10, 178 [hereafter U.S. House, Hearings]). Euroreserves would “equalize” interest rates in the now lower Eurocurrency system, thereby forcing borrowers and lenders into national markets. This proposal is the exact reverse of the 1963 Interest Equalization Act (IET), which was imposed on sales of foreign, primarily European, equities and bonds in the New York capital market. The IET remained in force through 1972. Interest rates had been historically lower in the pre-1963 New York market due to its size and efficiency. The growth of the Eurocurrency system shifted the locus of efficient global finance to the offshore centers, which grew in an unregulated environment.

67. Solomon, Anthony, “Remarks” (before the New York State Bankers Association, 2 June 1979), pp. 1112.

68. Wall Street Journal, 10 June 1981, p. 4.

69. International Currency Review 12, 4 (1980). The Review obtained relevant documents through a Freedom of Information Act suit. Anthony M. Solomon wrote in a letter to Paul Volcker on 7 November 1980, “When a substantial share of what is now Eurocurrency business is done from a U.S. base, it will be made transparent to those that the United States has tangible, unassailable interests in sharing a common approach in regulation. Sooner or later, a consensus will be built recognizing the need for negotiations to achieve uniform treatment of international banking markets…. Our position on these negotiations can only be strengthened when, through International Banking Facilities, one important part of the overall Euromarket is located within this country.” Solomon asked “… would the Federal Reserve be better able to meet its responsibilities for achieving adequate monetary control and fostering a safe and sound world banking system if the banks were doing international [business] here rather than in multiple financial centers …?” He answered in the affirmative, adding that “Authorizing IBF's would send a clear message that we take seriously the need for new approaches to organizing and controlling the Euromarkets and that we are prepared to move ahead with new initiatives.”

70. Documents reprinted in ibid., pp. 14–16. See also Lichtenstein, Cynthia C., “U.S. Banks and the Eurocurrency Markets: The Regulatory Structure,” Banking Law Journal 66 (June-July 1982), pp. 498511, for detailed Federal Reserve regulations. See New York Times, 13 September 1982, for alleged violations.

71. In U.S. House, Hearings, p. 32.

72. Weatherstone, Dennis, “Euromarket, Born of Control, Now Capable of Looking after Itself,” Money Manager, 19 March 1979, pp. 1112.

73. Weatherstone's argument is presented in greater detail in Morgan Guaranty Trust Company, World Financial Markets, March 1979, especially pp. 8–13. An example of the problem of interpreting the “interests” of TNBs, and who truly speaks for those interests, is found in the conclusion. It argues that rather than placing reserve requirements on Eurobanks, “a more suitable approach may be for the individual country to adopt temporary capital controls that limit or regulate the participation of its own residents—banks and non-banks—in the Eurocurrency market” (p. 13). Yet the U.S. capital controls from 1964–1974 were opposed by a broad coalition including the Morgan Guaranty Trust Company.

74. U.S. House, Hearings, pp. 41; 139–39; 281–84. For supporting data see the survey of bankers' opinions by the Group of Thirty, How Bankers See the World Financial Market (New York: Group of Thirty, 1982).

75. There is little basis to distinguish between money and credit, especially short-term credit, since liquidity is legally defined within each nation and conceptually there is much debate about the relation between “money” and credit. The concept of debt proxy is a better indicator of the role of credit in the inflationary process. The rise of debt proxy in the United States closely parallels the highly liquid nature of Eurocurrency deposits and liabilities. See Kaufman, Henry, “Where the Fed Has Gone Awry,” New York Times, 7 October 1979; “The Multiple Flaws of the Monetary Base,” Morgan Guaranty Survey, October 1981, pp. 6–10.

76. Bryant, , Money and Monetary Policy, p. 122; emphasis in original.

77. Business Week, 8 October 1979, p. 87

78. For exceptions see, for instance, Lindblom, Charles, Politics and Markets (New York: Basic Books, 1978), pp. 175–79; and Michalet, Charles Albert, “Etats nations, firmes multinationales et capitalisme mondial,” sociologie et sociétés 11 (October 1979), pp. 3957.

79. Krasner, , Defending the National Interest, p. xi.

80. Ibid., pp. 6, 316, 333.

81. Ibid., p. 32 fn.

82. See Strange, Susan, “Preface,” to Aronson, Jonathan David, Money and Power (Beverly Hills: Sage, 1977), pp. 1113.

83. Wallerstein, Immanuel, The Modern World System (New York: Academic Press, 1975), p. 61, and his The Capitalist World Economy (Cambridge: Cambridge University Press, 1979), where Wallerstein comments “Within a world-economy, the state structures function as ways for particular groups to affect and distort the functioning of the market. The stronger the state machinery, the more its ability to distort the world market in favor of the interests it represents” (p. 20). Frederic C. Lane calls this protection costs and protection rents. A strong state attempts to impose those costs on its competitors (Profits from Power [Albany: State University of New York Press, 1979], pp. 13, 22, 57–59, 85). I focus here on the political aspects of the United States as they affect the economic and political structure of the world system. See Wallerstein, also, “Preface,” in Kaplan, Social Change, p. 7. Related points are made by Zolberg, Aristide, “Origins of the Modern World System: A Missing Link,” World Politics 33 (January 1981), pp. 253–81. For a more detailed discussion, see Hawley, James P., “Interests, State Foreign Economic Policy and the World System: The Case of the U.S. Capital Controls, 1961–1974,” in McGowan, Pat and Kegley, Charles W. Jr, eds., Foreign Policy and the Modern World System (Beverly Hills: Sage, 1983), pp. 223–54. Christopher Chase-Dunn responds to Zolberg and others in “Interstate System and Capitalist World-Economy: One Logic or Two?” International Studies Quarterly 25 (March 1981), pp. 1942.

84. Christopher Chase-Dunn develops Wallerstein's implicit idea that class formation in world-system analysis refers to a global division of labor. Thus, whole classes are globally based while their spatial locations are nationally bound. Consequently, only a class fraction or fractions can dominate national states (Chase-Dunn, , “Socialist States in the Capitalist World Economy,” Social Problems 27 [April 1980], p. 506, and Wallerstein, , Modern World System, p. 61). Wallerstein's most recent work takes a different approach to state autonomy: see “Crises: The World-Economy, the Movements and the Ideologies” (Paper presented at the 6th annual Political Economy of the World System conference, University of Arizona, 15–16 April 1982).

85. Poulantzas, Nicos, State, Power, Socialism (London: NLB, 1978), pp. 30, 127–28. Poulantzas' earlier work (e.g. Political Power and Social Class [London: NLB, 1973]) is more in the Althusserian mold, but his Classes in Contemporary Capitalism (London: NLB, 1975) is also quite functionalist. See also Jessop, Bob, The Capitalist State (New York: Columbia University Press, 1982), pp. 153–91.

86. Poulantzas, , State, Power, Socialism, p. 185. Poulantzas is not entirely consistent. He suggests in Political Power that the state may intervene in favor of nonmonopoly capital. “If the state is no longer in such cases the arbiter between monopoly and non-monopoly capital, it nevertheless represents the condensation of their contradictory relationship; this is moreover one of the reasons for the internal contradictions of the state's ‘economic policy’ ” (p. 161).

Protecting capital from itself: U.S. attempts to regulate the Eurocurrency system

  • James P. Hawley (a1)

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