The Political Economy of International Relations

Gilpin argues that a stable, liberal international economy requires a hegemonic power to provide essential public goods: a stable reserve currency, open markets for goods and capital, and rules enforcement. Without a hegemon willing to bear these costs, the liberal order erodes into protectionism and conflict. He rejects the liberal institutionalist view that cooperation can be sustained through regimes alone. When American hegemony declined in the 1970s, Gilpin predicted that the postwar liberal order would give way to 'benign mercantilism'—state intervention to promote domestic values rather than restored global liberalism [citation:1][citation:5].

Gilpin, a self-described 'soft realist,' contended that state power and security interests remain the key determinants of international economic affairs. Keohane's liberal institutionalism argued that international regimes could sustain cooperation even after hegemony declined, because institutions create their own momentum and facilitate reciprocity. Gilpin was more skeptical: he believed non-state actors remain fundamentally dependent on state power, and that the distribution of power shapes the rules of the system. His view is less sanguine than theories of cooperation that conclude liberal order is possible without hegemony [citation:1].

Benign mercantilism is a policy of state intervention designed to promote domestic values and order rather than to prey on other states' vulnerabilities. Gilpin saw it as the best achievable outcome once pluralistic leadership failed to emerge. He already observed manifestations in the 1980s: sectoral protectionism that accommodated different national capacities to adjust, and emerging regional blocs in North America, Western Europe, and the Pacific. Because the Europeans were unprepared to assume a global role and Japan could not act as a market of last resort, Gilpin foresaw a fragmented world economy managed by states pursuing narrower interests [citation:1].

Gilpin wrote against the backdrop of America's dramatic shift from world's major creditor to largest debtor, made possible by Japanese underwriting of the Reagan budget deficit. He argued that US competitiveness was eroded by dollar overvaluation, which altered consumer tastes and strengthened foreign producers. He noted that the US destroyed the Bretton Woods system in August 1971, that protectionism had increased, and that Reagan's macroeconomic policies undermined stability through exchange rate misalignment and massive bilateral trade deficits. His conclusion was more pessimistic than economists who saw these developments as a temporary conjuncture [citation:1].

Gilpin structures the book around three competing perspectives: liberalism, nationalism, and Marxism. He assesses each ideology's contribution to understanding the problems burdening the world economy. His own allegiance is to liberalism—the belief that the economy is an autonomous system separated from the political realm—but he is fair-minded in presenting the alternatives. A reviewer noted that one of the book's strengths is that the reader can see how policy prescriptions follow from ideological premises, making the ideological foundations of economic policy explicit rather than implicit [citation:16].

A common misreading is that Gilpin simply predicts the inevitable collapse of the liberal order. His argument is more conditional: the order can be sustained if a hegemon is willing to bear the costs, but if the hegemon's commitment wanes, the order will fragment. He did not claim collapse was certain—he identified a 'hegemon's dilemma' in which serving the interests of the world as a whole steadily undermines the hegemon's own position, creating a need for policy change before it is too late. His concern was with initiating a change in US policy, not declaring the game over [citation:11].