THE NEED FOR A HEGEMON —THE 1930’S.

THE NEED FOR A HEGEMON—THE 1930’S. The third lesson which Professors DeLong and Eichengreen take from Kindleberger is the importance of having a “hegemon” to deal with financial crises. Kindleberger spoke of the advantage of a benevolent hegemon. (It is necessary to ignore the unfavorable connotations of the word “hegemon” today, with the frequency of European and Chinese criticisms of America as a “hegemon”). Kids, you can think of a hegemon as Bagehot’s lender of last resort with more clout. DeLong and Eichengreen say: “Kindleberger argued that at the root of Europe’s and the world’s problems in the 1920s and 1930s was the absence of a benevolent hegemon.” Great Britain had played the role until 1914; it no longer had the financial power to do so. The United States played the role after 1945, but was not ready to play it in the 1930’s. They quote Kindleberger that the Great Depression was so severe because there was no hegemon to perform the function of: “(a) maintaining a relatively open market for distress goods; (b) providing counter-cyclical long-term lending; and (c) discounting in crisis [think of Bagehot].”