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The Emergence of Modern Central Banking from 1918 to the Present

Author(s):Holtfrerich, Carl-Ludwig
Reis, Jaime
Toniolo, Gianni
Reviewer(s):Toma, Mark

Published by EH.NET (July 2001)


Carl-Ludwig Holtfrerich, Jaime Reis and Gianni Toniolo, editors, The Emergence of Modern Central Banking from 1918 to the Present. Aldershot, UK: Ashgate Publishing, 1999. xi + 385 pp. $99.95 (hardcover), ISBN: 1-85928-241-5.

Reviewed for EH.NET by Mark Toma, Department of Economics, University of Kentucky.

What is a central bank? The question is raised throughout this volume of papers originally presented at a 1996 conference held in Evora, Portugal celebrating the 150th anniversary of the Bank of Portugal. The volume consists of an introductory overview chapter by the editors, nine core chapters discussing the founding and evolution of seventeen central banks, two chapters discussing the role of the International Monetary Fund and the Bank for International Settlements and a concluding chapter by Barry Eichengreen. The core chapters start with a case study of the central banking giant, the Bank of England, and end with the Latin American central banks of Argentina, Brazil, and Mexico. The introductory chapter lists five themes that tie together the case histories. These include the role of central banks in the transition from gold to fiat money, the regulatory role of central banks, the growing importance of open market operations in government debt and the growing concern by central banks for macroeconomic policy objectives.

I found a final theme — worldwide switches between independent and dependent central bank structures — to be the most intriguing. At the risk of over-generalizing, three stages emerge from the various case histories. First, before 1914, central banks tended to be private and independent of their respective governments. Next, during the inter-war period, newly created central banks were made dependent and existing central banks found their independence reduced or eliminated. Finally, the last three decades have witnessed a swing back toward independent, though still government-owned, central banks. A careful reading of the histories suggests a possible reason for the reappearance of independence — globalization, which imposes relatively tight market constraints on the actions of central bankers. Nation-states may as well choose independence for their central banks, since monetary policy must dance to the tune of the market. Before 1914, the tight constraints arose from the rules of the global gold standard game. More recently, they have arisen from global competition among central banks. Looking back, the stage-two era of dependent-managed central banks may turn out to be a relic, suited uniquely to a time when individual central banks possessed a substantial degree of market power.

Another issue raised by the independence/dependence distinction is a possible tie-in between the Great Depression and dependent-managed central banks. Some of the facts presented in the histories seem at odds with the conventional wisdom that dependent central bank structures were created as a remedy to the monetary problems associated with the Great Depression. For instance the chapter on the French and Spanish central banks indicates that the transition to managed structures was well under way before, or early in, the Great Depression. Could it be that the switch from an international self-regulated monetary system to a managed system was a contributing factor to the Depression rather than the other way around? The type of international comparison undertaken in this volume is ideally suited for further exploring this possibility.

Perhaps the most valuable contributions of the assorted histories are not the broad generalizations but the little gems to be absorbed and stored in one’s memory bank. For instance, the chapter comparing German and Japanese central banking finds that the post World War II monetary constitutions of the two nation-states differed markedly even though they were drafted by largely the same people — leaders of the US occupation forces. Also, Pierre Siklos finds that the post World War II economic performance of the US and Canada were similar even though the two had markedly different histories in terms of central bank statutes and the characteristics of the CEO’s in command at the central banks.

Overall, I would recommend this volume to the aficionado of central banking. Those with more general interests would be rewarded with the gems but might find the details of the case studies a bit much. Those with an interest in the history of a particular central bank might be better served by a more narrowly focused study.

Mark Toma is an Associate Professor of Economics at the University of Kentucky. His recent research is on Federal Reserve open market operations during the Great Depression and on the relationship between the income tax amendment of 1913 and the founding of the Fed.


Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Europe in the International Economy, 1500-2000

Author(s):Aldcroft, Derek H.
Sutcliffe, Anthony
Reviewer(s):Persson, Karl Gunnar

Published by EH.NET (August 2000)

Derek H. Aldcroft and Anthony Sutcliffe, editors, Europe in the

International Economy, 1500-2000, Cheltenham: Edward Elgar Publishing,

1999. xi + 289 pp. $90 (cloth), ISBN: 1-85898-670-2.

Reviewed for EH.NET by Karl Gunnar Persson, Institute of Economics, University

of Copenhagen.

This volume carries an endorsement on the book jacket by Peter Mathias saying,

“This will surely prove to be the definitive account — an authoritative text

by six leading authors. Well integrated, clearly written, objective and

balanced in judgment, excellently documented with key bibliographies — the

answer to the needs of all students of the subject.” This assessment sounds too

good to be true, but it is not completely wrong. Although the well-read in the

profession will learn little new from the book, it can be a very useful text

for a course in European economic history when little time can be devoted to

the subject and a comprehensive text is needed — say, at business schools or

at non-European universities.

The purpose of this book, according to the editors, is to explain the

pre-eminence of Europe and its impact on the international economy from the

early modern period, surveying the recent “rise of the west” literature in the

introductory chapter. There are few surprises here, but it gives a

comprehensive overview of the subject.

The first substantial chapter, by Jan L. Van Zanden and Edwin Horlings, offers

a balanced account of recent re-interpretations of early modern and

pre-industrial growth (c.1500 to c. 1800). It stresses the regional and

national differences in growth experiences and contrasts that story with the

traditional view of general stagnation in productivity levels before the

industrial revolution. Most of the quantitative results stem from van Zanden’s

recent research, most of which is not easily available, and the underlying

methodology is not extensively discussed. The results seem plausible, however,

with growth centers in the Low Countries, England and some parts of France as

suggested by other researchers such as Robert Allen, Philip Hoffman and myself.

Sidney Pollard, who died just before the book went to press and to whom the

book is dedicated, writes about the “Europeanization” of the international

economy from 1800 to 1870, giving a fair amount of attention to dissenting

voices when presenting the mainstream account. Like the preceding chapter, the

quantitative information is extensive and the focus is not only on Europe but

also its impact on the rest of the world.

The book proceeds chronologically to the 1870-1918 period, which James

Foreman-Peck describes as the “zenith” of European power. Although clearly the

most thought provoking of the contributions, it does not fit well into the

narrative stream of this volume. Where the rest of the book relies on main

economic indicators, this section concentrates on institutions and regulation

of the international economy. Foreman-Peck also returns to the discussion of

the costs and benefits of empire, offering something for all tastes.

Derek H. Aldcroft follows Foreman-Peck with his chapter on the disintegration

of Europe in the interwar period. Barry Eichengreen and others have made this

narrative familiar to us, and the reference list to this chapter, like most of

the others, is extensive and accurate, as is the survey of the topic. I am

surprised, however, that the excellent little textbook by Charles Feinstein,

Peter Temin and Gianni Toniolo (The European Economy between the Wars,

Oxford University Press, 1997), which is a more wide-ranging alternative to

this compact chapter, is missing from Aldcroft’s list.

The final two chapters by Anthony Sutcliffe and Steven Morewood deal with the

present and focus quite a bit on European institutional integration. By and

large I find these chapters rather less penetrating, and they do not satisfy

the quantitative economic historian’s appetite for numbers and rigorous

economic reasoning. However, both chapters survey the main issues discussed in

relation to the acceleration and decline in European growth rates.

All in all, this book can be useful as a comprehensive textbook on European

economic history since it surveys, over a limited number of pages, such an

extended period. It gives little specific information on national experiences,

so one must go elsewhere for that. If I were teaching this course I would

probably replace the final chapters with excerpts from Economic Growth in

Europe since 1945 (Cambridge University Press, 1996) edited by Nick Crafts

and Gianni Toniolo. I would also like to have a text on the European backlash

to free trade from the 1870s in the O’Rourke-Williamson vein.

The price of the hardcover version of the book might deter teachers from

recommending it. However, if the publisher decides to print a paperback

edition, it should urge the editors to add a workbook section that would assist

students in facing the issues and controversies surveyed in the main text.

K.G. Persson is professor at the Institute of Economics, University of

Copenhagen and co-editor of the European Review of Economic History. His

most recent book is Grain Markets in Europe, 1500-1900: Integration and

Deregulation, Cambridge University Press, 1999 and a recent article

(jointly with Mette Ejrn?s) is “Market Integration and Transport Costs in

France, 1825-1900: A Threshold Error Correction Approach to the Law of One

Price,” in Explorations in Economic History, Vol. 37, pp. 149-73, 2000.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Time Period(s):General or Comparative

Fifty Years of the Deutsche Mark. Central Bank and the Currency in Germany since 1948

Author(s):Bundesbank, Deutsche
Reviewer(s):Ritschl, Albrecht

Published by EH.NET (February 2000)


Deutsche Bundesbank, editor, Fifty Years of the Deutsche Mark. Central Bank and the Currency in Germany since 1948, translated. New York: Oxford University Press, 1999. xxv i + 836 pp. $90.00 (hardback), ISBN: 0-19-829254-6.

Reviewed for EH.NET by Albrecht Ritschl, Department of Economics, University of Zurich, Switzerland. .

This volume was written in commemoration of West Germany4s post-war currency reform. In June, 1948, the Allied military administration in the Western occupation zones of Germany distributed a new currency which had been printed in the U.S. and brought into Germany in a secret operation of the U.S. Army. The bank notes carried no signatures and made no mention of an issuing authority. But they did carry the name of Deutsche Mark. Seldom has a peacetime operation of the Army created a more successful brand name, but that is not the theme of the book.

Actually, this is not the first festschrift issued by the Bundesbank. Two previous ones appeared in 1976 and 1988. The former intended to commemorate the establishment of the Reichsbank in 1876 and consisted of a collection of very carefully edited essays plus a statistical companion volume [1,2]. The 1988 volume, celebrating forty years – why just forty? – of the deutschmark, was an updated data collection for post-war Germany [3].

So, this is the third such festschrift, and in fact it is an obituary. It comes at a time when the deutschmark has already disappeared from official quotations and is scheduled to be withdrawn from circulation in the near future. As the text inside the book jacket asserts, the purpose of the book is an eminently political one: “On June 20th, 1998, the Deutsche Mark was 50 years old: this book will ensure that its legacy lives on.” We have some doubts that it will be sufficient to do that, but the volume is actually a collection of interesting and sometimes very good essays.

Harold James leads with a historical retrospective on the Bundesbank4s predecessor from 1876 to 1945, the Reichsbank, commenting also on the role of notorious Dr. Schacht in financing Hitler4s preparation for war. James argues quite convincingly that except for the interlude of the inter-war gold standard, the general theme of German central banking was a religious belief in a radical version of the banking doctrine. Engineering the credit expansion of the early 1930s was thus not just an invention of Schacht but followed a firmly established intellectual tradition within the bank (of which, lest it be forgotten, the hyperinflation formed an integral part).

After all this, the saving grace of the new currency was that it was originally not German. After World War II, Germany remained under the military administration of the four Allied powers, and attempts to establish joint administrative bodies soon fell victim to the upcoming Cold War. Attempts by the U.S. in 1947 to overcome the deadlock and establish separate structures in the Western zones included preparations for currency reform, which was seen as the only viable way to cope with the monetary overhang created by the Nazi war debt. For this, a separate central bank (called “Bank deutscher Laender”) was created, an act which both manifested and deepened the political division of the country between East and West. Christoph Buchheim has a chapter on the institutional background of the currency reform of 1948, which provides a meticulous review of the scattered literature on the reorganization of central banking prior to that date. It also details the various technical aspects of the project and highlights the principal distributional conflict that underlay the reform process. It is notable that currency reform and a unified central bank preceded political reform in the late 1940s; the Federal Republic was established only a year after the deutschmark had been introduced.

Carl-Ludwig Holtfrerich reviews monetary policies during the Bretton Woods era. He identifies the target of German monetary policy in the 1950s to have consisted of traditional credit-expansion doctrines, which he argues clashed with the needs for monetary stabilization after the middle of the decade. This appears to be a minority view, though. Recent research [4] has argued that German monetary policies in the 1950s just reacted to increasing capital mobility and did so in a roughly consistent way. But clearly, if there were lessons to be learnt for what later became the Mundell-Fleming model, West Germany provided a case in point. Since the mid-1950s, the country experienced growing capital inflows, and whatever monetary sterilization measures were attempted proved to be counter-productive. Several contributors to the book mention also the failures of fiscal policy at the time. These were largely due to an inept attempt at public saving for a future German military contribution to the NATO. The funds were ultimately spent in the run-up for a general election, heating up the economy even further at a time when external stability would have called for budget cuts and tax increases. A nice institutional detail in this context is the foundation of the Bundesbank, which came as late as 1957. Much of the delay was caused by unsuccessful attempts of the government to get a bill approved that would have created a far less independent central bank.

Among the many other contributions in this book that cover everything from the juridical aspects of Bundesbank independence to the policies of monetary unification in 1 990, one that this reviewer liked in particular is a thoughtful essay by Juergen von Hagen on the Bundesbank after the collapse of Bretton Woods. Writing as a monetary economist who has worked on Bundesbank target functions, decision-making coalitions in the board of directors and the like, von Hagen sets out in this paper to find supporting evidence from the minutes of the board meetings of the 1970s. This is really an interesting experiment, and the result is actually a very nice piece in monetary history. Contrary to his original intention, von Hagen dismantles one myth after another, ranging from money-base targeting to whatever way of consistent decision making altogether. In two of the more impressive graphs of this richly documented book, he shows how in mid-1973, M1 growth collapsed from an annualized 15% to zero and how short-term interest rates exploded from 2% to 16% (pp. 406, 410). That is indeed the kind of evidence that Friedman and Schwartz would have liked to find for the Great Depression of the 1930s. As if this were not enough, the essay by Ernst Baltensperger on monetary policies from 1979 on has a chart showing another spectacular rise in interest rates (from 3% to 12%) during 1979-81 (p. 447). Any oil shock out there?

The picture that emerges of the Bundesbank in the critical 1970s is that of a battered institution, trying to recover from the Bretton Woods disaster and to overcome its internal divisions by creating a new public image of itself. It was only in this era that the Bundes bank established its reputation as a committed inflation fighter. In retrospect, it is noteworthy that large parts of Germany4s monetary history since around 1980 consisted in the Bundesbank4s attempts to punish finance ministers for their budget laxity by tightening its monetary stance. Given that German national debt has tripled or so since 1980, the ultimate success of these policies in the wake of the Euro amounts to closing the barn door after the horses have escaped, but that is another matter.

Actually, a notable part of the contributions to the volume come from monetary economists and academic policy advisors. As thus, they often reflect primarily their different views on present-day issues in German monetary policy. As the chapters were original ly contributed to a German edition directed to the domestic market, some of the material will be less interesting to the outside reader. Beginners will find large parts of the book to be excessive on institutional details, and more than one reader will be puzzled by the results of trying to translate those typical, lengthy clauses of written German style into halfway readable English (yes, these lines are also an example of that :-) ). But clearly, the volume is a must for any student of German monetary policies, and it will probably become a standard reference for all work related to the field.


[1] Deutsche Bundesbank (ed.) (1976a), Waehrung und Wirtschaft in Deutschland 1876-1975, Frankfurt: Knapp.

[2] Deutsche Bundesbank (ed.) (1976b), Deutsches Geldund Bankwesen in Zahlen, Frankfurt: Knapp.

[3] Deutsche Bundesbank (ed.) (1988), 40 Jahre Deutsche Mark. Monetaere Statistiken 1948 bis 1987, Frankfurt: Knapp.

[4] Berger, Helge (1997), Konjunkturpolitik im Wirtschaftswunder. Handlu ngsspielraeume und Verhaltensmuster von Bundesbank und Regierung in den 1950er Jahren, Tuebingen: Mohr.

Albert Ritschl is author of numerous articles on German economic history including “Germany and the Political Economy of the Marshall Plan, 1947-52:A Re-revisionist View,” (with Helge Berger) in Barry Eichengreen, editor Europe’s Post-war Recovery. Studies in Monetary and Financial History, (Cambridge University Press, 1995); “An Exercise in Futility: East German Economic Growth and Decline, 1945-89 ,” in Nicholas Crafts and Gianni Toniolo, editors, Economic Growth in Europe since 1945, (Cambridge University Press, 1996) and “Reparation Transfers, the Borchardt Hypothesis and the Great Depression in Germany, 1929-32: A Guided Tour for Hard-Headed Keynesians,” European Review of Economic History; 2(1), April 1998.


Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

An Economic History of the Silk Industry, 1830-1930

Author(s):Federico, Giovanni
Reviewer(s):Scranton, Philip


Published by EH.NET (December 1997)

Giovanni Federico, An Economic History of the Silk Industry, 1830-1930. Cambridge: Cambridge University Press, 1997. xv +257 pp. Tables, maps, bibliography, index. $59.95 (cloth), ISBN: 0521581982.

Reviewed for EH.NET by Philip Scranton, School of History, Technology, and Society, Georgia Institute of Technology.

Dr. Federico (University of Pisa) originally published this monograph’s Italian version in 1994. This translation, which the author accomplished, represents the fifth title in the Press’s Cambridge Studies in Modern Economic History, edited by Charles Feinstein (Oxford), Patrick O’Brien (Institute for Historical Research, London), Barry Supple (Leverhulme Trust), Peter Temin (MIT) and Gianni Toniolo (University of Venice). These studies are presented as “a major new initiative in economic history publishing and a flagship series for Cambridge University Press.” This may be the intention, but neither the editors nor the Press have served their author well in this case. Through stunning inattention to editing Federico’s translated text, they jointly blunt the presentation of his research work and frustrate any but the most dedicated reader’s attempt to assess its significance. I will return to this issue after sketching the book’s methods and themes.

The purpose of this work is to offer a global history of a basic industrial commodity, silk, in order to set the performance of individual countries in the context of worldwide export competition. The Italian experience here represents the hub around which comparative analysis of Japan and China is mounted. This approach is slightly at odds with the title, for on inspection the reader discovers that “silk industry” in this instance excludes all silk fabrics, and most silk yarn, referencing instead the production of reeled silk, the first intermediate good in the trade’s production sequence. Reeling involves soaking cocoons in warm water, then unwinding the long single strand which composes each one, and assembling sets of strands on reels, from which they are removed and packaged as raw silk. This labor-intensive, low-value-added process was concentrated in the nations where silk was “grown” and harvested. As users scattered across the industrialized world, with the U.S. the largest purchaser by the late 19th century, raw silk represented a substantial focal point for international trade. Silk yarn, by contrast, was rarely exported from those nations which spun it (the trade term is “thrown”), as local weavers and knitters took up the products (tram and organized) for immediate use. There was a modest transnational trade in silk fabrics during this century, particularly at the upper end of the fashion/price range, but it did not displace the dominance of raw silk exports until after World War Two. Those who now purchase silk apparel in the U.S. can register this transition by searching for clothing items not made in China, suggesting that nation’s movement up several rungs of the production ladder from commodity exporter to manufacturer of both staple and stylish silkwear.

At the outset, the author notes that a profusion of single country commodity studies already exists, arguing that collectively they “miss a basic preliminary question: what caused exports?” (p. 2). In his conclusion, this query is phrased more concretely as “two main questions: why did world consumption increase in the long run, and what determined the competitiveness on the silk market (as represented by changes in market shares)?” (p. 191). Regrettably, Federico cannot resolve either of these matters firmly, “as the data are not sufficient.” Despite his ragged data (particularly for China), he mounts an “econometric model” which indicates that “the total growth is evenly shared between the demand and the supply side” which in turn suggests that raw silk producers “achieved very high rates of technical progress, expanding the production in spite of falling relative prices of cocoons.” (191) As for silk’s role in overall economic development, Federico appears to confirm the “conventional wisdom” that “Silk exports are deemed at best ineffectual to start development…”, noting that “Probably the causation [runs] from development to silk exports instead of the other way round.” (193). (I say “appears” because the prose in this section is unusually convoluted.) He adds: “This conclusion may be appealing but is a bit vague. Unfortunately, it is difficult to be more precise.” In the final paragraph, Federico suggests that the silk trade does not confirm perspectives on “long-run performance” which stress “institutions (in a broad sense) in of [sic] international competition” and an “active role for the state” as key to augmenting country-level competitiveness. Instead, silk’s trajectory “depended on the input endowment and, to a lesser extent, on entrepreneurship, [for the] very survival of the industry depended on the supply of low cost labor.” This of course, is a bit underwhelming as a final judgment, given that it largely reinforces received understandings of the spatial division of labor in silk’s process segments. Indeed, it’s not clear why Federico needed to fashion an econometric model to confirm this analysis, or how much the fragmented data sets impair such a formal confirmation.

The route between the problem statement and its uncertain resolution involves a thematic tour of the silk-reeling sector, rather than a three-nation chronological narrative. This makes sense, given that Federico is concerned to present both the supply and the demand sides of the growth process. For this study, chronology would have generated a good deal more repetition than does thematic ordering. Thus we commence with industry characteristics, and “The growth in the long run,” then move to chapters on consumption and demand, agricultural supply, technological change, and finally, market and state institutions. In considering whether differences among institutions mattered to the three nation’s outcomes by 1930, Federico wanders through various indicators, beset by data problems and generating mismatched conclusions (e.g., “The quantitative evidence on the transaction costs in the cocoons markets is rather scarce.” (167) “All in all, transaction costs were probably lower in Italy [than China or Japan] by a few percentage points. The benefits of the modernization of institutions were therefore relevant but not really great.” (169) “In other words, institutions were important but hardly decisive.” (170) And, given insufficient evidence on market imperfections, “one cannot rule out the presence of imperfections in the Far Eastern marketplaces. In this case, Italy’s advantage [having modern market relations] would have been substantially greater and institutions would have mattered greatly to competitiveness.” (173)). Not to put too fine a point on it, this could well have benefited from some editorial refining.

Similar problems plague other sections of the text. There are at least ten copyediting errors on page 5 alone; at p. 27, the reader encounters a statement that: “the innovation on product was non-existent, and those on process was entrusted to the producers.” On p. 51, we learn that despite chemical weighting of silk fabrics (to stretch supplies and lower costs), “there was not mass flee from silkwares,” and on the following page: “The total silk content per square yard of broadcloth in the USA fluctuated from 1899 to 1914 between 3.3 and 3.9 pounds.” (ounces!) There are, sadly, many more such blunders.

What went wrong with this effort to provide English-language readers with a comparative analysis of a commodity’s trajectory across a century crucial both for industrial development and for the dramatic increase in long distance trade in raw materials? It seems that the series editors were asleep, out of touch with one another, or indifferent to “product quality.” Yet that Cambridge University Press failed to copyedit the manuscript translation before setting it for publication is equally shocking. It would be a courtesy to Dr. Federico were the Press to withdraw and pulp the available stock of this monograph, have its editors do a properly professional job of preparing the study for an international audience, and re-release An Economic History of the Silk Industry a year or two hence. (Note, that this volume was released by CUP-UK and not by the American division.)

Philip Scranton School of History, Technology, and Society Georgia Institute of Technology and Hagley Museum and Library

Philip Scranton is the author of Endless Novelty: Specialty Production and American Industrialization, 1865-1925 (1997) and the editor of (and a contributor to) Silk City: Studies on the Patterson Silk Industry, 1860-1940 (1985).


Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century