THE ISSUES

At the end of our survey of trade theory in Chapters 10 and 11, we reviewed the evolution of trade policy and looked at new policy problems. This chapter and the next play an analogous role. This chapter reviews the history of the international monetary system. The next one examines current policy problems and the outlook for the monetary system.

The history of trade policy in Chapter 10 began with the early nineteenth century, when the United States embraced infant-industry protection and Great Britain moved toward free trade. Much can be learned from the monetary history of the nineteenth century, when Great Britain was the key-currency country and gold was important in theory and practice. But modern monetary systems are different from those of the nineteenth century, as is modern monetary theory, leaving less to learn from nineteenth-century experience than from close inspection of more recent events.

Accordingly, this chapter concentrates on events since the Bretton Woods Conference of 1944, which designed the monetary system that came into being after World War II. It pays particular attention to the role of the United States, because the U.S. dollar has been the main international currency, and U.S. policies have greatly affected the evolution of the system. The chapter focuses on three issues:

• How interpretations of monetary history affected the design of the monetary system.

• How the system has adapted to the needs and problems of the major countries, such as the United States.

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