Selgin, George Published by EH. Princeton: Princeton University Press, Reviewed for EH. The ultimate failure of all such arrangements, as well as the abandonment of the international gold standard itself, has led Berkeley economist Barry Eichengreen to wonder whether any system of fixed, or at least relatively stable, exchange rates can survive in a world of democratic governments. Elaborating a thesis put forth by Karl Polanyi in , Eichengreen argues that modern democratic governments are bound to yield to pressures to pursue goals, such as the avoidance of cyclical unemployment, that conflict with the maintenance of fixed or pegged exchange rates. Monetary union was the quid pro quo.
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Shelves: economics , non-fiction , ebook I initially shelved this to read on the hoped-for assumption that it was a more ambitious book than it is. Fortuitously, I ended up actually reading it because the narrow subject matter it does tackle is something I needed to learn about for another project. So this is a narrative history walking through the steps and crises not of the international finance system in general, but of the gold standard or lack thereof.
It begins in the early s in Europe, and remains focused there and on the I initially shelved this to read on the hoped-for assumption that it was a more ambitious book than it is. It begins in the early s in Europe, and remains focused there and on the United States until more or less the s, at which point it finally expands to discuss Asia and the largest South American economies.
Still, it seems a bit odd to me that the preface frames the ups and downs the narrative describes as more or less the outcome of a single class struggle. One side of this more or less make sense to me. The gold standard limited the growth of the money supply and thus prevented both some amount of secular growth in the economy and monetary policy to address recessions.
The story of the book is one of governments constantly feeling pressure to devalue their currency, thus increasing export competitiveness and potentially wage growth. The confusing part is that this pressure is only obliged when voting rights are expanded and trade unions become politically influential though even this change is one that is essentially asserted in the preface and whose influence is largely inferred throughout the narrative. Investors who own debt sufficient to see the value of that debt diminished by inflation and augmented by deflation.
Is that all there is to it? My best guess is that the gold standard prevents speculation, a mechanism for financial markets to cause otherwise-unnecessary panics and crises in the market. However, the book suggests that this was a mistake; speculation is more limited by fundamental shifts than imagined and when those fundamentals are bad, the crises will occur regardless of the standard.
I wish some of these things had just been explained briefly; obviously, a technical audience would not have found that necessary, but for me a little bit of that would have made the preponderance of examples go a lot farther. That said, I definitely got what I wanted in terms of background and examples on the gold standard for my current project.
The main take-home messages for me were these. I lean toward those explanations in general but had never heard one applied to this question. Second, I got a much clearer idea of what preceded the gold standard and how that transition occurred. Globalization glutted Europe with metals and increased the scale of international financial trading and investment along with the rest of trade. Third, the main alternative to the gold standard is exchange rate pegging, which faces the same "trying to stop a river with a stick" issue that the gold standard does.
In addition to the internal forces pushing for a consistent currency value, the big problem today is that extreme currency fluctuations are thought to create exchange rate wars, in which countries try to stay competitive by devaluing to counter devaluations of their trading partners. Overall, it seems like there is no ultimately effective way to avoid large fluctuations in currency value.
The exchange rate reserve as an external check is equally ineffective. International cooperative organizations can be useful but only if they are backed by sufficient capital and have the major players on board.
For instance, the IMF does not seem to have made a big difference in coordinating currency stability, but the US was able to achieve it in Europe through large and sustained loans. The fear that speculation could overwhelm real value in the economy seems to have been misguided.
And on a few occasions, Eichengreen provides "rational" explanations for investor behavior that conventional wisdom suggests is something like a collective punishment for a lack of fiscal discipline. At times, political instability itself seems to be more influential than either competing policy might be. On the other hand, governments apparently valued their past reputation more than investors actually cared about. Then there are cases like Austria at the beginning of the Great Depression, a bank failure that might have been bailed out by other countries to protect the international gold standard if those other countries were not recent factors of a bitter war.
There is clearly a collective action problem at work in the system. Eichengreen makes frequent allusion to the fact that countries could easily devalue their currency without setting off the spiral of exchange rate drops if they just did it together, but apparently that has essentially never happened. Is it even possible for a coordinated strategy to provide those fixes? If not, what would be the broader goal of a coordinated strategy?
Just to grow the money supply in general? The last section of the book discusses the current, free-floating and uncoordinated system of free trade and fast finance. Here again I could have used some theoretical grounding. What are the pros and cons of a shared global currency analogous to the Euro? The pre-war gold standard, the interwar chaos, the Great Depression, the Bretton Woods system, the emergence of the Euro, the current financial markets, the US-China trade imbalances, among others, are all explained in this money saga.
Most of Eichengreen does a great job in explaining this complicated subject. Most of the book is centered in the developed countries, but the last chapter also covers the crisis in Argentina, Turkey, and other emerging markets.
The advantages and disadvantages of a pegged currency are very well illustrated for the Argentinian case. The book includes a very useful Glossary that makes the reading much easier. Very recommended if you want to learn about this important topic.
Career[ edit ] Eichengreen has done research and published widely on the history and current operation of the international monetary and financial system. He received his B. He was a senior policy advisor to the International Monetary Fund in and , although he has since been critical of the IMF. In , he served as a fellow of the American Academy of Arts and Sciences. For a variety of reasons, including among others a desire of the Federal Reserve to curb the US stock market boom, monetary policy in several major countries turned contractionary in the late s—a contraction that was transmitted worldwide by the gold standard. What was initially a mild deflationary process began to snowball when the banking and currency crises of instigated an international "scramble for gold".
Globalizing Capital: A History of the International Monetary System
Globalizing Capital by economist Barry Eichengreen is now in its third edition, updated to include the global financial crisis, the Greek bailout, the Euro crisis and the rise of China as a global monetary power. The verses contrast the easy lives of the rich with the poor, hungry, cold and loveless lives of the moneyless. In Germany catastrophically high inflation in the early s had rendered money almost valueless. Money had completely ceased to do its work of making the world go round and millions were impoverished as a result. Even in the victorious countries, Britain and France, there was significant inflation after the war, which had a very dislocating effect. To counter this state of affairs, the world sought to resurrect the gold standard in the hope of returning to the pre-war world of sound money and free and frictionless international trade. But, as Barry Eichengreen explains in Globalizing Capital: A History of the International Monetary System, the restoration of the gold standard did not restore the stability of the pre-war world because, in important respects, the world had changed.
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Shelves: economics , non-fiction , ebook I initially shelved this to read on the hoped-for assumption that it was a more ambitious book than it is. Fortuitously, I ended up actually reading it because the narrow subject matter it does tackle is something I needed to learn about for another project. So this is a narrative history walking through the steps and crises not of the international finance system in general, but of the gold standard or lack thereof. It begins in the early s in Europe, and remains focused there and on the I initially shelved this to read on the hoped-for assumption that it was a more ambitious book than it is. It begins in the early s in Europe, and remains focused there and on the United States until more or less the s, at which point it finally expands to discuss Asia and the largest South American economies. Still, it seems a bit odd to me that the preface frames the ups and downs the narrative describes as more or less the outcome of a single class struggle.