The social construction of the "impossible trinity": The intersubjective bases of monetary cooperation

Abstract

Over the postwar period, states have shifted from cooperation in support of monetary guidelines, or standards for variation in wages, prices, and exchange rates, to the use of austerity as the primary means of maintaining monetary stability. In this article I offer a constructivist theory of international monetary relations in order to explain this shift, contrasting the effects of Keynesian and Neoclassical understandings on interests in cooperation. I argue that postwar Keynesian understandings, which cast monetary power as based in the authority to stabilize expectations, led states to perceive common interests in maintaining decentralized-but-legitimate guidelines. I then argue that more recent Neoclassical views, which cast monetary power as a function of capabilities, have justified reduced mutual assistance and greater recourse to austerity. From this vantage point, Neoclassical understandings, rather than any material constraints, impede the cooperation necessary to reconcile the impossible trinity of capital mobility, full employment, and monetary stability. © 2004 International Studies Association.