Globalizing Capital: A History of the International Monetary System (Second Edition) [Paperback]

Barry Eichengreen (Author)

Book Description

Publication Date: September 15, 2008

First published more than a decade ago, Globalizing Capital remains an indispensable part of the economic literature today. Written by renowned economist Barry Eichengreen, this classic book emphasizes the importance of the international monetary system for understanding the international economy. Brief and lucid, Globalizing Capital is intended not only for economists, but also a general audience of historians, political scientists, professionals in government and business, and anyone with a broad interest in international relations. Eichengreen demonstrates that the international monetary system can be understood and effectively governed only if it is seen as a historical phenomenon extending from the period of the gold standard to today's world of fluctuating prices. This updated edition continues to document the effect of floating exchange rates and contains a new chapter on the Asian financial crisis, the advent of the euro, the future of the dollar, and related topics. Globalizing Capital shows how these and other recent developments can be put in perspective only once their political and historical contexts are understood.

Editorial Reviews

Review

Praise for the first edition: "This book by a prominent historian is a succinct and well-written history of the international monetary system. . . . [It] provides useful historical background for understanding current European efforts to create a monetary union. -- Richard N. Cooper, Foreign Affairs



Praise for the first edition: "Capital flows in the recent period, unlike those in the earlier one, proved to be incompatible with exchange rate stability. [Eichengreen's] reasons for the difference . . . constitute a unique insight and contribution. -- Choice

From the Back Cover

Praise for the first edition: "Eichengreen's purpose is to provide a brief history of the international monetary system. In this, he succeeds magnificently. Globalizing Capital will become a classic."--Douglas Irwin, author of Against the Tide

See all Editorial Reviews

Product Details

• Paperback: 276 pages
• Publisher: Princeton University Press; 2 edition (September 15, 2008)
• Language: English
• ISBN-10: 0691139377
• ISBN-13: 978-0691139371
• Product Dimensions: 9.2 x 6.3 x 0.7 inches
• Shipping Weight: 13.6 ounces (View shipping rates and policies)
• Average Customer Review: 4.3 out of 5 stars  See all reviews (7 customer reviews)
• Amazon Best Sellers Rank: #20,945 in Books (See Top 100 in Books)

More About the Author

Barry Eichengreen is George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, NBER Research Associate, and CEPR Research Fellow. He writes a monthly column for Project Syndicate and periodic columns for Conjuntura Economica (in Brazil), Finanz und Wirtschaft (in Switzerland), and Eurointelligence (in Europe).

Customer Reviews

Most Helpful Customer Reviews

4 of 4 people found the following review helpful:

3.0 out of 5 stars Straightforward but problematic expanation of global currency, January 19, 2011

By 

James R. Maclean (Seattle, WA United States) - See all my reviews
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This review is from: Globalizing Capital: A History of the International Monetary System (Second Edition) (Paperback)

The title of this book is misleading; it's not really about capital, it's about monetary systems. There's not very much here on the banking systems of the world, or regimes for financial regulation, or the evolution of bills of exchange--all of which are indispensable parts of such a history. Another criticism is that the book is not terribly imaginative in its focus on five countries, the USA, UK, France, Germany, and Japan. Again, this is disappointing but not really a fair rebuke: Eichengreen's book is a skeletal outline of the subject of global monetary *regimes*, and if that's what you need, it has some real strengths.


These strengths include a clear and vivid explanation of the policy dilemmas facing central bankers over the last hundred years; fair-minded discussion of the role of different countries over the last 100 years; a non-doctrinaire treatment of the macroeconomics; and attention to the role of political regimes. Eichengreen is syncretical (offering different hypotheses to explain major events) without being muddled, which is a very valuable achievement. I think his analysis is sound, and he avoids a lot of pitfalls that lesser economists make routinely. It is a valuable reference, particularly for its superb bibliography.


The analysis of the gold standard's inception is not the best I've seen; readers interested in the matter may want to consult Lawrence H. Officer's Between the Dollar-Sterling Gold Points (2007) or any of his essays on hnn.us. Also, how does one write a book on this subject without mentioning the Mundell-Fleming Model? Most likely readers of this book won't really be reading it for that, but for answers to the question "How did we get to the system we have now?" I assume this because the overwhelming bulk of it addresses the most plausible explanation, viz., because it worked fairly well for the most important industrial nations of the West; and because the 2nd and 3rd tiers of industrial nations would cope with it (with reservations). So my review has focused on how well it answers that question.


However, I think this is where the book stumbles the worst. It's not just an oversimplification to neglect the lower echelon powers in this book. This neglects the really serious ways in which the existing monetary system hurts the chances of emerging economies to achieve moderately high levels of employment, or adequate housing and sanitation for most of their population, or even water security. Likewise, when economists grumble that "workers resist flexible labor markets" (a paraphrase), it's pretty much the same as saying "the existence of humans ruins economic development." It's not that the economist/historian is affronting the sensibilities of non-economists in developing countries, it's that the economist normalizes failure for the profession of economics when treating all opposition as equally self-regarding and therefore equally worthy of dismissal.


But this is mistaken. When investors demand that a country ensure their high rates of return through reliable repatriation of profits, that may be politically decisive, but it's a "soft" requirement; the investor, as such, is not entitled to a put option. When the majority of the population is, either through unemployment or "wage realignment," unable to earn enough to meet essential expenses, that is a "hard" requirement: the economic system has failed and is inadequate. By ignoring this persistent aspect of the "global" monetary system, the neglect becomes a systemic bias. One is led to believe that "growth" is a viable alternative to "social peace." This ignores the urgent stresses on land, water, and fossil fuels that we have experienced and which are going to be worsen. These are not optional considerations, but lie at the heart of our global trading system's ability to renew itself over time.

2 of 2 people found the following review helpful:

5.0 out of 5 stars Brilliant Study, May 11, 2010

By 

Rufus Burgess (San Francisco, CA) - See all my reviews
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This review is from: Globalizing Capital: A History of the International Monetary System (Second Edition) (Paperback)

Barry Eichengreen's "Globalizing Capital" (2ed) succinctly fits 140 years worth of history about the international monetary standard in 232 pages. This is a heroic feat to say the least. His analysis covers each monetary system in roughly equal proportions. "Globalizing Capital" is just one of the many outstanding works in Eichengreen's long, and notable, career.

Eichengreen begins by explaining why the gold standard was never a true gold standard and why it institutions prevented chaos rather than 'pure economics.' He then explains why the interwar gold standard caused the Great Depression (Please read "Golden Fetters" for a more in-depth explanation). After that is a detailed examination of why Bretton Woods I never really worked and why it was doomed to fail. He finishes with an examination of what is now considered Bretton Woods II and the changing nature of domestic exchange rate regimes.

Eichengreen comes to the startling conclusion that with increased global capital flows floating exchange rates are (mostly) inevitable. However, this can have extremely dangerous effects on developing markets that are not prepared to liberalize their capital account. This leaves developing countries vulnerable to the inevitable push towards globalization.

Eichengreen ends his tale with a warning about US debt and an examination of the Euro. He views the burgeoning US debt as problematic for Bretton Woods II and the Euro as an unlikely model for other regional blocks to emulate.

Unfortunately, the 2ed came out shortly before the Financial Crisis of 2008. For anyone interested in Eichengreen's views regarding the financial crisis and the international push for stimulus please go to Voxeu and read "A Tale of Two Depressions" (Amazon will not allow me to post the link).

"Globalizing Capital" is a great work for anyone interested in the financial history of the world.

2 of 2 people found the following review helpful:

5.0 out of 5 stars Explains Why & How the Great Depression Spread Worldwide, December 17, 2009

By 

Arnold Landy (New Jersey, USA) - See all my reviews
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This review is from: Globalizing Capital: A History of the International Monetary System (Second Edition) (Paperback)

Economist Barry Eichengreen offers great insights into the workings of the international monetary system from 1850-2008 in the second edition of Globalizing Capital. This book shows the strong influence that the monetary system has had on the world economy at various points in history.

The most dramatic example began in 1929, as nations' rigid reliance on the gold standard facilitated the spread of the Great Depression from country to country. Under the gold standard, the major countries of the world were linked by a common policy whereby nations pledged to convert their currency into gold at a fixed price upon demand by anyone who would present it for such an exchange. This system maintained the value of paper money relative to gold and relative to the currencies of other countries. Countries saw that maintaining fixed currency values facilitated trade with other countries, as importers and exporters were freed from the risk of financial ruin that might otherwise result from fluctuations in currency values between the time an order was placed and the receipt of payment.

The rigid linking of currencies to the price of gold was thought to prevent trade imbalances between countries. If a country imported much more than it exported, the flow of money and gold outward would cause the general price level to drop, which would make additional importing less attractive and make one's exports more competitive. Another benefit of the gold standard was that the promise to exchange for gold gave the public confidence in paper currency printed by central banks. Unfortunately, this became a double-edged sword.

Here is the Eichengreen script (simplified) of the Great Depression. In 1927, the U.S. Federal Reserve began to raise interest rates in order to curb stock market speculation. The increased rates attracted savings from overseas, which caused declines in economic activity in Europe, which had previously been awash in loan capital from the U.S. This, in turn, caused other countries to raise their own interest rates in order to keep their capital and their gold (gold was money) from fleeing to the U.S and to the other countries that had already raised their rates. Rising interest rates spread from country to country and depressed economic activity. The economic decline which began in 1929 was accompanied by rising interest rates, which delayed any recovery. The worsening economy led to bank failures which shrank the money supply and led to deflation, which further suppressed the economy. Nations hesitated to step in as lender of last resort to banks because that required them to print quantities of new money to liquify the banks, which would detract from their ability to maintain the link between their currency and gold (there's that pesky gold standard, again).

In fact, rescuing banks might have been counterproductive, as the printing of money not backed by gold would lead to fears of devaluation and cause investors to withdraw their national currency - denominated bank deposits, which would worsen the crisis further. In other words, reliance on the gold standard threw the world into what would now be called a negative feedback loop, consisting of shrinking bank deposits, imploding supplies of money, deflation and economic contraction.

Eichengreen finds confirmation of the gold standard's role in transmitting the Depression among countries, as he ties the eventual recoveries by various countries to the timing of their subsequent abandonment of the gold standard, which ushered in reflation and floating currency exchange rates: first the U.K., then the U.S., then France.

Later chapters in the book cover the Bretton Woods Agreement (1944-1973), the subsequent breakdown of fixed exchange rates, and the various currency crises through 2008. Bretton Woods was an attempt to peg currency exchange rates within a 1% range, while providing mechanisms for cooperation and policy coordination among the member countries. Its purpose was to facilitate trade. It broke down for the same reason that all such rigid systems break down - it failed to accommodate the changing economic experiences and political needs of its members. The Asian currency crisis of the late 90s was similar to earlier crises in that it consisted of the cracking of a framework of pegged exchange rates.

This book also provides brief, but instructive treatment of countries that have used currency boards to peg their exchange rate to the dollar (like Argentina, which did it until pressures caused them to devalue and abandon the peg, and Hong Kong). There is also some discussion of our ongoing trade imbalance with China, wherein China exports goods to the U.S. and keeps its currency exchange rate low by investing in U.S. government debt.

Eichengreen summarizes the factors surrounding the creation of the Euro currency, which has succeeded at promoting trade and economic growth among its members. He provides an insightful case for its continued survival, even as individual members may find themselves under strain from time to time, unable to accelerate the printing of money to prime the national economy. His point is that any country that seriously considers abandoning its reliance on the Euro currency in order to engage in monetary stimulus will experience an outflow of funds from its banking system as investors will want to avoid having their Euro bank deposits converted to a new national currency that will almost certainly lose value. The decline of bank deposits would depress that nation's economy even further. Awareness of the likelihood of this scenario will likely keep the Euro family together for the foreseeable future.

Globalizing Capital presents a comprehensive story. Eichengreen's insights on the mechanisms by which the Great Depression traveled from country to country have been quoted extensively by such experts on the Great Depression as Christina Romer, chairwoman of the Obama Administration's Council of Economic Advisers, and Ben Bernanke, chairman of the Federal Reserve. Overall, reading this book requires some effort, but it gives the reader a solid understanding of how evolving changes in the international monetary system have directly affected the course of economic history.