The Disintegration of the
Postwar Monetary Regime
In our preceding discussion of stagflation we referred to this phenomenon as a form of structural crisis (see section 6.3). That type of crisis has to be distinguished from recessions, which represent relatively short-li ved adjustment processes in the normal course of business cycles. A structural crisis has much deeper roots. It typically occurs only during the downswing phases of long waves, when the tendencies of our economic system toward overproduction and credit overextension have become sufficiently dominant. In such a situation the required balances for stable expansion break down, and hitherto effective modes of regulation no longer assure a modicum of stability. Structural crisis, whether in the form of stagflation or depression, therefore denotes a long-term process of institutional erosion and policy failure. The tensions set off in its wake cause the existing accumulation regime to disintegrate in a series of interdependent ruptures. These in turn trigger forces of reorganization which may eventually lead to a new and more viable regime.
We can observe precisely such a combination of paralysis, disintegration, and restructuring during the 1970s. What concerns us in this chapter is how stagflation, with its debt-inflation spiral and credit crunches, destroyed the pillars of the postwar monetary regime one by one.
The international monetary system put into place at the end of World War II was the first component of the postwar monetary regime to break down. On the surface, such a collapse appears to be a sudden chain of events. But that is only the final outcome of underlying and gradually deepening disequilibria which at some point explode into the open as acute moments of crisis. In the case of Bretton Woods, this process began when one of its key institutional features, the