Saturday, August 15, 2009

What I've Been Reading - Part III

The third book in this spate of reviews is Globalizing Capital: A History of the International Monetary System by Barry Eichengreen.

Let me state at the beginning that the most significant shortcoming of this book is one of timing. It is the second edition (paperback) of the book and was published in 2008. I'm guessing it was early 2008 as there are no direct references to the issues that began to manifest themselves in late 2007.

Nevertheless, the book was interesting and, to me, a valuable addition to my library. I reviewed another of Eichengreen's books about two years ago. A part of the earlier book’s thesis appears in this one, albeit in less detail. But it should. His first book essentially covers the rise and fall of the first international monetary system that he is covering in Globalizing Capital. In both cases, Eichengreen lays out an argument that the monetary systems that were established ultimately broke down because of changing conditions. A more specific way of stating it is that international monetary systems were established to meet certain problems. But as the international conditions changed, and the incentives on politicians laboring in the international policy arena changed, the established systems were unable to respond and eventually succumbed to pressures they were not designed to withstand.

Eichengreen puts forth well-researched and logical explanations for the failure of the post-World War I gold standard, the Bretton Woods System and other post Bretton Woods arrangements. (Indeed, the second edition of this book was written, in part, to help explain the Asian Financial Crisis in the 1990s.

I admit that part of my appreciation of the book is how it conforms (or maybe confirms) my current interest in institutional economics. The political and policy landscape that engendered and later supplanted each of the monetary systems examined by Eichengreen seem to offer a sufficient (but maybe not necessary) prerequisite for each failure. (My reason for the parenthetical comments rests on the difference between correlation and causation, and the fact that in an international arena, there are always multiple pressure points.)

For teachers, I would offer the following recommendations. Modern history teachers, looking for a better understanding of the international financial system in the 20th and early 21st centuries, would have to look far to find a better and more succinct history. Eichengreen's book offers enough data and anecdotal information to provide a framework for history teachers to build on for personal exploration or classroom discussion.

Economics teachers who seek to better understand the advantages and disadvantages of different exchange and monetary regimes would find this book helpful for its lucid explanations and clear examples of how each is meant to operate, but can fail to do so.

I would welcome comments from others who have read this book, as well as their recommendations for this blog's readers.

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