“Eichengreen’s purpose is to provide a brief history of the international monetary system. In this, he succeeds magnificently. Globalizing Capital will become a. Globalizing Capital: A History of the. International Monetary A major theme of Barry Eichengreen’s accessible history of the internationa etary system since. Eichengreen, B.: Globalizing Capital: a. System. IX, pp. Princeton Univer. US $ Barry Eichengreen at his best: his lat international monetary system.

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A History of the International Monetary System.

Princeton University Press, A generation later, the gold standard was not only tampered with, gobalizing largely dismantled. 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 eiichengreen of democratic governments.

His book, Globalizing Capital: A History of the International Monetary Systemsupplies a negative answer.

Elaborating a thesis put forth by Karl Polanyi inEichengreen 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.

Barry Eichengreen, Globalizing Capital

In some loose sense, of course, democratic pressures fueled the abandonment of the international gold standard and of later schemes for pegging exchange rates. But we should not forget the context: Of particular importance was the establishment of central banks, which removed the enforcement of the gold- standard mechanism from the hands of private, competing bankers, increasing the risk of both a suspension of payments and subsequent yielding to inflationary pressures.


Twentieth-century voters might never have developed a taste for accommodative monetary policies had non-democratic governments of previous centuries not set a precedent for such policies by reshaping monetary arrangements to serve their own fiscal ends. Eichengreen also tends, in my view, to overstate the extent to which democratic nations must rely upon accommodative central bank policies, unhindered by fixed exchange rates, to avoid financial and macroeconomic turmoil.

Globalizing Capital

But that openness is itself to some extent at least a matter of policy. The voters may well favor demand-management approaches to structural alternatives for avoiding financial instability; but this preference has more to do with special-interest politics standing in the way of desirable structural reforms than with sound economic theory.

Nor is it altogether obvious that the international gold standard promoted internal macroeconomic instability. Although the standard proved deflationary until the mids, this deflation does not seem to have stifled economic growth. echengreen

Globalizing Capital: A History of the International Monetary System

Even Marshall, whom Eichengreen cites as a critic of gold, suggested that the deflation might actually have been beneficial. The Canadian banks ran into legal limits themselves, which were then loosened. The restored gold standard of the 20s and 30s was another matter entirely.


Here central banks played an active role, mainly by trying to run the gold capitap on the cheap, supplementing gold reserves with holdings of foreign exchange instead of further devaluing their currencies or eichebgreen more deflation so as to achieve a higher, sustainable relative price of gold.

This cartel-like arrangement could only work so long as creditor central banks resisted the temptation to cash in their foreign exchange holdings. It was, consequently, far more vulnerable to speculative collapse than its prewar counterpart.

The Canadian case is again relevant here, for Canada had little difficulty maintaining its gold standard until while avoiding financial crises without the help of a central bank, even while experiencing massive capital inflows. It gllobalizing largely compelling, thought-provoking, highly informative, and a pleasure to read.

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