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. “Eichengreen’s purpose is to provide a brief history of the international monetary system. In this, he succeeds magnificently. Globalizing Capital will become a.
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Return to Book Page. Preview — Globalizing Capital by Barry Eichengreen. In this, he succeeds magnificently. Globalizing Capital will become a classic. It has become increasingly apparent that one cannot understand the international dichengreen without knowing how its monetary system operates.
Now Barry Eichengreen presents a brief, lucid book that tells the story eicuengreen the international financial system over the past years. Globalizing Capital is intended not only for economists but also for a general audience of historians, political scientists, professionals in government and business, and anyone with a broad interest in international economic and political relations.
Barry Eichengreen, Globalizing Capital
Eichengreen’s work demonstrates that eichwngreen into the international monetary system and effective principles for governing it can result only if it is seen a historical phenomenon extending from the gold standard period to interwar instability, then to Bretton Woods, and finally to the post period of fluctuating currencies.
Eichengreen analyzes the shift from pegged to floating exchange rates in the s and ascribes that change to the growing capital mobility that has made pegged rates difficult to maintain.
However, he shows that capital mobility was also high prior to World War I, yet this did not prevent the maintenance of fixed eichengeen rates. What was critical for the successful maintenance of fixed exchange rates during that period was the fact that governmentswere relatively insulated from democratic politics and thus from pressure to trade off exchange rate stability for other goals, such as the reduction of unemployment.
Today pegging eichengreeen rates would require very radical reforms of a sort that governments are understandably reluctant to globaliing. The implication seems undeniable: Paperbackpages. To see what your friends thought of this book, please sign up. To ask other readers questions about Globalizing Capitalplease sign up. Lists with This Book.
Eichengreen here traces a history of money from the mids to today. A complicated, but exceedingly important topic.
From the beginning of our history tomost of the European world operated on a gold-backed currency. The gold standard was first established by accident by Sir Isaac Newton in He made a mistake in calculating the prices of silver and gold and their ratios in currency, driving silver out of circulation and thus leaving England with a gold-backed currency. By the mid-1 Eichengreen here traces a history of capiital from eichenrgeen mids to today.
By the mids, the British had become the world’s predominant economy, so thus it insisted on doing commerce with the pound.
This made international trade possible on a larger scale. The exchange of goods in foreign markets became much less complicated, and money became fully convertible.
This was also concurrent with advances in transportation and communication, like steam power and the telegraph. Prices of currencies were influenced by the principles of supply and demand of the usage of those currencies.
The philosopher David Hume first came up with a theory to explain this. Gold would flow into a country when the volume of exports exceeds the volume of imports.
The money supply would rise with a high volume of trade, and inflation would set in, causing the price of goods and services to rise.
Then gold would flow back out if people can’t afford it. It’s ingenious and intellectually appealing, but unfortunately it didn’t explain what happened. Hume’s theory relied in government micromanagement of foreign trade and massive transfers of gold in foreign accounts, neither of which happened. Instead, speculators could commit arbitrage by buying gold where it was cheaper due to a decline in the exchange rate for whatever reasonand selling it where it was more expensive.
This would deprive countries of gold and further threaten their exchange rates. What could a country do to prevent this? You could either raise interest rates, which leads to inflation, or decrease the money supply.
Both of these would curtail economic growth. Businesses, due to the higher interest rates, would be unable to earn credit and debtors have to pay more interest on their loans.
Thus, the gold standard led to artificially contracting the economy, which harmed capifal groups in it. Eichengreen asserts that the gold standard persisted because those who did benefit from it – those who could engage in international trade and investment – would keep it, and those who were against it couldn’t do anything about it. The United States very nearly got off it in the s due to popular pressure.
The gold standard is not some universal panacea, as the goldbugs would have it, but an accident of historical circumstances which benefited the very few at the expense of many. The gold standard was finally doomed after the First World War.
Trade was disrupted, foreign investments were liquidated. After the war, nobody was willing to agree with the system not even the British and Frenchand the United States was hiding in isolationism. The Great Depression put a stake in its heart, as Hoover-style eichengrefn to maintain it by raising interest rates only worsened economic conditions.
The period of American predominance led to the rise of the so-called ‘Bretton Woods’ system, named after the hotel in which it was planned in New Hampshire.
The gold standard was abandoned in all but name, and currency could ‘float’ within a narrow band of values tied to the US dollar. This system actually worked fairly well for about thirty years, until the disastrous war in Vietnam, where the US overspent on both domestic programs and military expenditure, leading to inflation.
None of the original solutions, raising interest rates or unemployment, were politically acceptable, and so the exchange rate limitations were abandoned in This resulted in the monetary system we have today.
Globalizing Capital: A History of the International Monetary System
Levels of international trade grew to unprecedented levels, in proportion and in scale. This, however, had its costs. Big economies could tolerate changes in the exchange rate, like the United States. Smaller economies, on the other hand, were tossed to the wind. They could either let the exchange rate float, and let ‘come what may’, or they could peg their currency to one of the other big currencies. This, however, forced them to follow the monetary policies of the other country, with sometimes disastrous results see: In any case, Eichengreen’s analysis is far more detailed than my sketch, and he lays his arguments out very convincingly.
I’m rather distressed about the implications. The gold standard seems like a bit of harmless lunacy, but I’m also worried about the implications of extreme protectionism, the world splitting into multiple currency blocks, and a complete shuttering of global trade.
Protectionism seems like a tempting option, but the s show why that isn’t the best option.
Fichengreen history is dense, but still fairly accessible. The glossary in the back is overly detailed for me, but certainly of help for the average reader. View all 3 comments. Jul 09, Adam rated it liked it Shelves: 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 eichrngreen s in Europe, and remains focused there and on the Un 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 globailzing the s, at which point it finally expands to discuss Asia and the largest South American economies. I’m always wishing books like this were more mechanistic than narrative. Usually, the problem is that I want mechanistic hypotheses that the available data can’t evaluate. This time, I think a big part of it was just that the subject matter is relatively narrow, and much of the mechanistic content is implicit in related issues that Eichengreen doesn’t see fit to explain.
I’ll certainly admit that if I had taken the time to review the macroeconomic concepts involved here, which I have learned at least twice before, I probably would’ve gotten more out of the book. 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 echengreen of this more or less make sense to me. The gold standard limited the growth of the money supply and eichenngreen 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 capltal one that is essentially asserted in the preface and whose influence is largely inferred throughout the narrative.
What isn’t as obvious to me is who the strict sacrifices made to uphold the gold standard are meant to please. Investors who own debt sufficient eichengreem 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 eichentreen 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 eichwngreen some of these things had just been capiital 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 eichnegreen I wanted in terms of background and examples on the gold standard for my current project. Globwlizing 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. Coins were made of metals at their exact values, and those values didn’t change substantially as long as the value of the metals didn’t change.
Dapital glutted Europe with metals and increased the scale of international financial trading and investment along with the rest of trade.