International Monetary Power

2. The Macrofoundations of Monetary Power

What are the foundations of monetary power? DavidAndrews (chap. 1 in this volume) distinguishes between two pathways for the exercise of monetary power: the macro-level, linked to the problem of balance-of-payments disequilibrium ; and the micro-level, working through the capacity of money to alter actor interests and identities. The purpose of this chapter is to promote a clearer understanding of the sources of power at the macro-level pathway—what we may call the macrofoundations of monetary power. Building in good part on earlier contributions of my own,1 I argue that the central issue at the macro-level is the distribution of the burden of adjustment to external imbalance. The macro-level dimension of monetary power consists, first and foremost, of a capacity to avoid payments adjustment costs, either by delaying adjustment or by deflecting the burden of adjustment on to others. Ceteris paribus, the greater is a state’s capacity to avoid adjustment costs, relative to that of other states, the greater is its power at the macro-level. The devil, of course, is in the details. What do we mean by adjustments costs? What are the sources of the capacity to avoid adjustment costs—the macrofoundations of monetary power?And what are the limits of that capacity?The first of these questions is addressed in first three sections of this chapter, and the subsequent questions are addressed in sections four and five. Section six concludes. The Burden of Adjustment Analysis at the macro-level, I submit, must begin by focusing on the distribution of the burden of adjustment to external imbalance. The underlying source of power at           The Macrofoundations of Monetary Power Benjamin J. Cohen 1. Including, especially, Benjamin J. Cohen, “Adjustment Costs and the Distribution of New Reserves ,” Princeton Studies in International Finance, no. 18 (1966). 31 this level is a state’s relative capacity to avoid adjustment costs, either by delaying the adjustment process or by deflecting the burden of adjustment to others. Autonomy and Influence At the most general level, power in international relations is defined as the ability to control, or at least influence, the outcome of events. In operational terms, this naturally equates with a capacity to control the behavior of actors—“letting others have your way,” as diplomacy has jokingly been defined.A state, in this sense, is powerful to the extent that it can effectively pressure or coerce outsiders, in short, to the extent that it can exercise leverage or enforce compliance. As Andrews points out (chap. 1 in this volume), a common synonym for this meaning of power is, simply, influence.2 But influence is not the only relevant meaning of power. There is also a vital second meaning, corresponding to the dictionary definition of power as a capacity for action. A state is also powerful to the extent that it is able to exercise policy independence —to act freely, insulated from outside pressure in policy formulation and implementation. In this sense, power does not mean influencing others; rather, it means not allowing others to influence you—others letting you have your way.A useful synonym for this meaning of power is autonomy. The distinction between the two meanings is critical. Influence and autonomy may be understood as two distinct dimensions of power, which we may label, respectively , the external dimension and internal dimension. Both are based in social relationships and can be observed in behavioral terms. Both are also unavoidably interrelated .They are not, however, of equal importance. Logically, power begins with autonomy, the internal dimension. Influence, the external dimension, is best thought of as functionally derivative—inconceivable in practical terms without first attaining and sustaining a relatively high degree of policy independence at home. As the saying goes in American football, the best offense starts with a good defense. It is possible to think of autonomy without influence; it is impossible to think of influence without at least some degree of autonomy. This does not mean that autonomy must be enjoyed in all aspects of international affairs or in all geographic relationships in order to be able to exercise influence in any aspect or relationship. Neither domain nor scope needs to be universal for power to be effective. States can successfully apply leverage in selected issue areas or relationships even while themselves being subject to pressure or coercion in others. But 32 Benjamin J. Cohen 2. The careful...