2 International Organization It is not the first time that cross-border capital flows grow out of ordinary propor- tions.A century ago,during the period of the gold standard,the world experienced levels of capital internationalization comparable,if not higher,than current ones.Yet hardly any of the most extreme predictions associated with today's occurrence were realized:internationalization was neither inevitable,uniform,nor notably successful- Britain and France,who embraced internationalization,grew more slowly than Ger- many and the United States,who accepted lower levels of capital market interdepen- dence.And,of course,internationalization was reversed. Two lessons can be drawn from the nineteenth-century stab at capital internation- alization.First,internationalization was a political choice informed by redistribu- tional considerations between rival domestic interests and decided by coalitions on which governments were dependent for support.The choice in favor of openness re- flected the economic preferences of large commercial banks,in alliance with savers in creditor countries,and large firms in debtor countries,all of whom expected to benefit from openness.In contrast,the choice in favor of lesser capital interdepen- dence reflected the preferences of sectors that were expected to lose from openness, including agriculture and sectors with a high density of small-and medium-sized firms. Second,the domestic institutional structure in each country determined the iden- tity of the politically dominant coalition.Decentralized structures allowed potential losers to curb public policies favorable to capital market internationalization,whereas centralized structures allowed expected winners to promote such policies.As a re- sult,economies with centralized states ended up being the most dependent on the international capital market,whereas economies with decentralized states took a less active part in the globalization of finance. This inquiry into the functioning of turn-of-the-century capital markets innovates on two further counts.First,unlike most studies of internationalization,this study parts with comparative statics.7 As generally recognized,internationalization is a process that feeds on itself,calling for a dynamic model.Second,this study modifies the standard approach to the redistributional effects of capital flows.8 Economic in its inspiration,the standard approach points to the cleavage between savers and non- savers,two politically inept groupings on account of size and diffusion.Yet concerns over the wealth effects of financial fows have not remained uniformly unvoiced. They were articulated in a majority of countries along another line of cleavage-the center-periphery cleavage-pitting each central government against its respective local governments. The first part of the article presents the theoretical framework,the second part the argument,and the third part the evidence.The conclusion will summarize the find- ings and amplify the themes of this introduction. 7.See Andrews 1994;and Frieden and Rogowski 1996. 8.Frieden 1991.It is not the Ž rst time that cross-border capital  ows grow out of ordinary propor￾tions. A century ago, during the period of the gold standard, the world experienced levels of capital internationalization comparable, if not higher, than current ones. Yet hardly any of the most extreme predictions associated with today’s occurrence were realized: internationalization was neither inevitable, uniform, nor notably successful— Britain and France, who embraced internationalization, grew more slowly than Ger- many and the United States, who accepted lower levels of capital market interdepen- dence. And, of course, internationalization was reversed. Two lessons can be drawn from the nineteenth-century stab at capital internation- alization. First, internationalization was a political choice informed by redistribu￾tional considerations between rival domestic interests and decided by coalitions on which governments were dependent for support. The choice in favor of openness re-  ected the economic preferences of large commercial banks, in alliance with savers in creditor countries, and large Ž rms in debtor countries, all of whom expected to beneŽ t from openness. In contrast, the choice in favor of lesser capital interdepen- dence re ected the preferences of sectors that were expected to lose from openness, including agriculture and sectors with a high density of small- and medium-sized Ž rms. Second, the domestic institutional structure in each country determined the iden￾tity of the politically dominant coalition. Decentralized structures allowed potential losersto curb public policies favorable to capital market internationalization, whereas centralized structures allowed expected winners to promote such policies. As a re- sult, economies with centralized states ended up being the most dependent on the international capital market, whereas economies with decentralized states took a less active part in the globalization of Ž nance. This inquiry into the functioning of turn-of-the-century capital markets innovates on two further counts. First, unlike most studies of internationalization, this study parts with comparative statics.7 As generally recognized, internationalization is a process that feeds on itself, calling for a dynamic model. Second, this study modiŽ es the standard approach to the redistributional effects of capital  ows.8 Economic in its inspiration, the standard approach points to the cleavage between savers and non- savers, two politically inept groupings on account of size and diffusion. Yet concerns over the wealth effects of Ž nancial  ows have not remained uniformly unvoiced. They were articulated in a majority of countries along another line of cleavage—the center–periphery cleavage—pitting each central government against its respective local governments. The Ž rst part of the article presents the theoretical framework, the second part the argument, and the third part the evidence. The conclusion will summarize the Ž nd￾ings and amplify the themes of this introduction. 7. See Andrews 1994; and Frieden and Rogowski 1996. 8. Frieden 1991. 2 International Organization