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2. This interaction is based on the “modified” version of the theory of hegemonic stability recently discussed by Keohane, R. in After Hegemony (Princeton: Princeton University Press, 1984).Google Scholar

3. Different authors consider the terms trade account and current account to be interchangeable. As will become clear below, the first term is more appropriate for our discussion.

4. We do not consider strictly political justifications of a neomercantilistic policy. Gilpin, R., “Three Models for the Future,” International Organization 29 (Winter 1975)CrossRefGoogle Scholar, provides a political and economic analysis.

5. Mercantilism has a pluricentennial tradition. Its contemporary revival is due to Keynes, J. M., The General Theory of Employment Interest and Money (New York: Macmillan, 1936)Google Scholar, and Robinson, J., “The New Mercantilism,” in Contributions to Modern Economics (Oxford: Blackwell, 1978)Google Scholar; see also Burbidge, J., “Post Keynesian Theory: The International Dimension,” Challenge, November–December 1978.Google Scholar

6. Keynes, , The General Theory of Employment, especially chap. 23.Google Scholar

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10. Kalecki, M., On Foreign Trade and Domestic Exports (1934), reprinted in his Selected Essays on the Dynamics of the Capitalist Economy (Cambridge: Cambridge University Press, 1971).Google Scholar

11. Ciocca, P. and Colonna, O. Vito, “La politica economica della Germania federale e i suoi riflessi internazionali 1969–1978,” in V., Valli, ed., L'economia tedesca (Milan: Etas libri, 1981)Google Scholar, argue this point in relation to West Germany's attitude; it can, however, be applied to industrial countries in general.

12. International organizations such as the International Monetary Fund (IMF) resort to neomercantilist policies when they impose “adjustment programs” on indebted countries without considering the overall implications of such actions.

13. See Ciocca, and Vito, Colonna, “La politica economica,”Google Scholar and Minsky, H., “Financial Interrelations, the Balance of Payments and the Crisis of the Dollar,” in A., Aronson, ed., Debt and the Less Developed Countries (Boulder: Westview, 1979).Google Scholar

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15. A positive trade balance could also improve political management of business cycles. See Frey, B., “Political-Economic Models and Cycles,” Journal of Public Economics 9 (04 1978)CrossRefGoogle Scholar, and Frey, B., “The Public Choice View of International Political Economy,” International Organization 38 (Winter 1984).CrossRefGoogle Scholar

16. For an example of a traditional analysis see Triffin, R., Gold and the Dollar Crisis (New Haven: Yale University Press, 1960).Google Scholar

17. What follows draws on Minsky, “Financial Interrelations, the Balance of Payments and the Crisis of the Dollar.”

18. As mentioned above a commercial surplus implies positive profits. Kalecki, , On Foreign Trade and Domestic ExportsGoogle Scholar, was the first to notice this link.

19. In this respect we should interpret European requests to convert dollars to gold at the end of the 1960s as signals to the U.S. administration to adopt appropriate adjustment policies. See Officer, L. and Willet, T., “Reserve Asset Preferences and the Confidence Problem in the Crisis Zone,” Quarterly Journal of Economics 83 (11 1969).CrossRefGoogle Scholar

20. Minsky discusses the U.S. balance-of-payments performance in this period in “Financial Interrelations, the Balance of Payments and the Crisis of the Dollar.”

21. See Minsky, H., “The Financial Instability Hypothesis: Capitalist Processes and the Behaviour of the Economy,” in C., Kindleberger and Laffargue, J. P., eds., Financial Crises, Theory, History and Policy (Cambridge: Cambridge University Press, 1982).Google Scholar

22. See Olson, M., The Logic of Collective Action (Cambridge: Harvard University Press, 1965)Google Scholar; Olson, M., The Rise and Decline of Nations (New Haven: Yale University Press, 1982)Google Scholar; Hamada, K., “A Strategic Analysis of Monetary Interdependence,” Journal of Political Economy 84 (08 1976)CrossRefGoogle Scholar; Hamada, K., “On the Political Economy of Monetary Integration: A Public Economics Approach,” in R., Aliber, ed., The Political Economy of Monetary Reform (New York: Macmillan, 1977)Google Scholar; Hamada, K., “Macroeconomic Strategy and Coordination under Alternative Exchange Rates,” in R., Dornbush and J., Frenkel, eds., International Economic Policy, Theory and Evidence (Baltimore: Johns Hopkins University Press, 1979).Google Scholar

23. See Keohane, , After Hegemony.Google Scholar

24. This helps to explain partially why the oligopolistic system is less expansionary than the hegemonic system.

25. See Corden, W. M., “The Revival of Protectionism,” Occasional Paper 14 (New York: Group of Thirty, 1984).Google Scholar

26. The recent revaluation of the dollar has slowed this tendency. However, along with the role this currency plays as a store of value and denomination of financial assets, is the role it plays as a vehicle of exchange. On the relations between the structure of exchanges and the structure of payments, see Krugman, P., “Vehicle Currencies and the Structure of International Exchange,” Journal of Money Credit and Banking 12 (08 1980)CrossRefGoogle Scholar; Krugman, P., “The International Role of the Dollar, Theory and Prospects” (Paper presented at the Conference on Exchange Rate Theory and Policy,Bellagio,25–26 January 1982).Google Scholar

27. For a similar analysis see Aglietta, M., “World Capitalism in the Eighties,” New Left Review, no. 136 (11–12 1982).Google Scholar

28. See Keohane, , After Hegemony.Google Scholar

29. See, e.g., Axelrod, R., The Evolution of Cooperation (New York: Basic, 1984)Google Scholar; Runge, C. F., “Institutions and the Free Rider: The Assurance Problem in Collective Action,” Journal of Politics 46 (02 1984).CrossRefGoogle Scholar

30. See Thygesen, N., “Exchange Rate Experience and Policies of Small Countries: Some European Examples of the 1970's,” Princeton Essays in International Finance, no. 136 (Princeton: Princeton University Press, 1979)Google Scholar; Moon, B., “Exchange Rate System, Policy Distortion and the Maintenance of Trade Dependence,” International Organization 36 (Autumn 1982)CrossRefGoogle Scholar. The “strong currency option” suggests reasons for joining a currency area which supplement those advanced by the theory of optimum currency areas.

31. Hamada, , “A Strategic Analysis of Monetary Interdependence,”Google Scholar demonstrates through game theory why it is that the larger the economic dimension of a country, the larger the relative weight in the determination (containment) of world inflation and the smaller the relative weight in the attainment of a trade surplus. This reinforces our point if we recall that monetary stability (low inflation) is a public good.

32. See Olson, , The Logic of Collective ActionGoogle Scholar, and The Rise and Decline of Nations; also Hamada, , “Strategic Analysis,”Google Scholar and Hamada, , “Macroeconomic Strategy.”Google Scholar

33. The fulfillment of the conditions required by the theory of optimum currency areas is in this respect a necessary but not a sufficient condition for the success of monetary agreements.

34. Vaubel, R., “Why the EMS May Have to Be Dismantled,” Euromoney, 01 1980Google Scholar, is a good example of West German dissatisfaction with the costs that the edification of the EMS would have brought upon the West German economy.

35. See Hager, W., “Supermercantilism as a European Strategy?” Intereconomics 4 (07–08 1984).Google Scholar

36. See Strange, S., “Still an Extraordinary Power,” in R., Lombra and W., Wite, eds., Political Economy of International and Domestic Monetary Relations (Ames: Iowa State University Press, 1982).Google Scholar