EH.net is owned and operated by the Economic History Association
with the support of other sponsoring organizations.

The History of Foreign Exchange

Author(s):Einzig, Paul
Reviewer(s):Officer, Lawrence H.

Published by EH.NET (January 2006)

Classic Reviews in Economic History

Paul Einzig, The History of Foreign Exchange. London: Macmillan, 1962. xvi + 319 pp. (second edition, 1970, xxi + 362 pp.)

Review Essay by Lawrence H. Officer, Department of Economics, University of Illinois at Chicago.

The History of Foreign Exchange: A Provocative Classic

Paul Einzig (1897-1973) was both a financial journalist and an author of scholarly works. (A brief, excellent biography of Einzig is Tether, 1986.) Einzig was a prolific writer in both the popular press and academic realms. For two decades, he contributed a regular, ?Lombard Street,? column for the Financial News (London). Later, he provided a weekly column in the Commercial and Financial Chronicle (New York). Because of his popular writings, academic economists have a tendency to discount Einzig?s contributions to economics as a discipline. This reviewer feels compelled to refute that tendency.

Using a strict definition of ?book? — excluding pamphlets, revised editions, works with similar titles, translations from English into other languages, volumes written solely in a non-English language, reports to governments or commissions, working papers, works that are in only a handful of libraries, and unpublished manuscripts — this reviewer counted carefully (from the WorldCat database) that Einzig was the author of fifty-seven different books — a phenomenal number. Of this total, one is Einzig?s autobiography and at most a half-dozen could be construed as political treatises (judging by title). This leaves fifty volumes as primarily economic in content. No doubt, some of these volumes were written in haste and some are not particularly technical. On the other side, Einzig?s books contain only his own writings; not one is an edited volume.

It is instructive to count also the number of books produced by the seven other authors of 2006 Classic Reviews series. Allowing for edited as well as authored volumes (but excluding works edited by others, and to which the author of interest merely contributed one or more chapters), the number of books attributed to each of the eight authors is listed below.

Number of Books Attributed to Author

?

Source: WorldCat. See text.

Certainly, Einzig?s total number of books is phenomenal in comparison to any of the other authors. In fact, incredibly, Einzig?s number of books exceeds even the total number of the other seven authors. True, the table is purely quantitative, not qualitative, in nature. And, true, unlike the other authors Einzig was strictly a writer by profession. Nevertheless, by any standard, Einzig was a prolific book author indeed.

Further, Einzig published articles in professional economics journals, even though he was not an academic economist. The JSTOR database lists nineteen articles authored by Einzig — eighteen in the Economic Journal and one in the Journal of Finance. These numbers are exclusive of book reviews; JSTOR lists twelve by Einzig, of which six are in the Economic Journal and one in the Economic History Review.

The point of the above discussion is that, although Einzig was neither an academic professor nor a government economist, he should be taken seriously as an astute observer of contemporary economic events, as an applied-economic theoretician, and as an economic historian. One of his best books in the first category is International Gold Movements (1929, 1931) — invaluable to historians of the interwar gold standard. His best work in the second category is The Theory of Forward Exchange (1937), still useful to researchers of interest-rate parity. Among other virtues, that book contains an excellent discussion of selection of variables to test the theory, as well as data still used in scholarly studies. In the third category, paramount is The History of Foreign Exchange, the anatomy (including publication history) of which is shown in Table 2.

Anatomy of The History of Foreign Exchange

St. Martin?s Press

St. Martin?s Press

?

Listing edition in catalogue. Source: WorldCat.

a Reprint, with alterations.

b Japanese translation, by Asao Ono and Shunzo Muraoka.

Einzig states, in the preface to the first edition of the History, that his purpose is to produce ?a single book … that would cover the entire history of Foreign Exchange in all its main aspects from its origins to our days? (p. xi in the second edition — all references in this review are to that edition). He remarks that nobody before had produced such a treatise. It is fair to say that neither has anybody since done so. There have been many books on the entire history of money as such, rather than of foreign exchange, and a variety of books on foreign exchange for particular currencies over a lengthy period of time or for a variety of currencies over a particular era — but no one other than Einzig has produced a history of the foreign-exchange characteristic of currencies for purportedly all currencies (of interest) and for all eras. From probable international bills of exchange in Babylonia (twenty-first century B.C.), to U.S. borrowing in the Eurodollar market (late 1960s), Einzig succeeds admirably in conveying the flavor of foreign exchange.

To cover systematically experience of such breadth, Einzig divides his book into chronologically based sections, as shown in Table 2. Part I deals with the Ancient Period (primarily Greece and Rome, though also earlier civilizations), Part II the Medieval Period, Part III the Early Modern Period (sixteenth to eighteenth centuries), Part IV the Nineteenth Century (to World War I), Part V 1914-1960, and Part VI (added in the second edition) the 1960s. To provide breadth systematically for each of these six eras, Einzig instills discipline on his research and writing by dividing each Part into four chapters: (1) foreign-exchange markets and practices, (2) exchange rates, including crises and trends, (3) foreign-exchange theory, and (4) exchange-rate policy. This schema greatly enhances the value of the volume as a reference work. Part I includes an introductory chapter, on the origins of foreign exchange; and the book includes a general introduction and a general conclusion (the latter largely rewritten in the second edition).

Each chapter in Parts I-V (but not Part VI) contains endnotes, which are purely bibliographical. There is also an excellent bibliographical essay, termed ?a selected bibliography? — and, in the second edition, this bibliography is extended to incorporate the 1960s. Again the book is presented excellently as a reference volume. This characteristic is helped by a good ?index of names,? but the subject index could have been more extensive.

The author?s ambitious and unique goal, the tremendous research effort (aided by the author?s proficiency in several languages), and the systematic presentation of the research results all make The History of Foreign Exchange a classic in economic history. The caliber of the journals that reviewed the History is indicative of that judgment. Of the five top general journals in economics 1960s vintage (American Economic Review, Economic Journal, Journal of Political Economy, Quarterly Journal of Economics, and Review of Economics and Statistics), the three that reviewed books (the first three stated) did in fact review the History. Two of the top three journals in economic history at the time (Journal of Economic History, and Economic History Review) reviewed the book. It is not surprising that the third, Explorations in Entrepreneurial History (the predecessor of Explorations in Economic History), did not review the History, because of the then-narrow orientation of the journal. (As for the Journal of European Economic History, it did not commence publication until 1972.) Among major economics journals that engaged in book reviews, only Kyklos elected not to review the History. On the other side, American Historical Review, perhaps the top general-history journal, did conduct a review.

These reviews, together with several others in outlets not specializing in history, are listed and summarized in Table 3. The caliber of some reviewers is unusually high: the economic historians J. R. T. Hughes, L. S. Pressnell, and Raymond de Roover; and the international-economics specialist Arthur I. Bloomfield. Most reviewers had very positive things to say about the History; but they did not withhold criticism.

Reviews of The History of Foreign Exchange

Note: All reviews are of the first edition, except the 1971 Choice review.

The most negative evaluation is that of L. S. Pressnell, whose positive assessments are few, and even these are negative assessments in disguise. Einzig did not hesitate to respond to reviewers? criticisms that he viewed as unfair or based on incorrect facts. He had written a rejoinder to a review of his Primitive Money (1949), this review appearing in the anthropological journal Man. The editor of the journal published Einzig?s (1949) rejoinder in condensed form, and, incredibly, wrote a reply to Einzig?s rejoinder (rather than having the reviewer reply)!

Einzig responded to Pressnell?s criticisms, in the preface to the second edition of the History, stating, quite correctly, that Pressnell?s review ?amounted to little more than a list of attacks, wasting very little time or space on trying to justify, explain or illustrate his criticisms? (p. viii). Einzig gleefully, and again correctly, castigates Pressnell for associating paper credit with inflation/deflation in Ancient Rome, whereas in fact there was no paper money and inflation took the form of coinage debasement. Einzig then writes:

Long-suffering authors have seldom the opportunity to answer their critics, which is a pity because, by drawing attention to flagrant instances of ill-informed criticisms such as the one denounced above, they might be able to raise the standard of criticism. Being a hard-hitting critic myself it is not for me to object to being hit hard — provided my critic knows what he is talking about.

In fairness to Einzig, he did meet the criticism of some reviewers that ?the chapters dealing with modern developments were ?too sketchy?? (p. vii), by producing a second edition with the addition of Part VI. However, Einzig disagreed with the criticism that ?the chapters dealing with earlier periods were unnecessarily long,? and therefore did not condense these chapters (or otherwise alter them substantively) in the second edition. The present reviewer agrees with this decision; for the existing literature on foreign exchange is heavily oriented to recent periods. Einzig?s work on earlier periods fills a definite void.

Turning to this reviewer?s impressions of the History, consider each Part in order. For the Ancient Period, there is lack of everything: data, writings on theory, definitive information about markets and about rationales for policy. Einzig acknowledges that he has ?to make bricks with very little straw? (p. 7). There is much conjecture on Einzig?s part, albeit his presentation generally makes sense. He shows knowledge of both the classical literature and modern treatises on these times, and does as much as he can with snippets of information.

Einzig?s definition of a true foreign-exchange transaction (involving coins of both domestic and foreign parties) is acceptance by tale rather than by weight. He suggests that this first occurred in the fifth or sixth century B.C. As for the use of bills of exchange in foreign-exchange transactions, Einzig speculates that this could have arisen even earlier. There is discussion of depreciation and debasement of coinage, including the observation that the debasement of Roman coins had the effect of India ceasing to accept them. Einzig emphasizes that foreign trade was inflexible and, in particular, inelastic with respect to the exchange rate. He notes that exchange-rate information for this era is not only scarce but also complicated, due to the existence of trimetallism (three monetary metals: copper, silver, gold) and symmetallism (electrum: gold/silver alloyed coins).

Einzig is careful not to overstate the role of foreign exchange in theory and policy. Debasement of coinage in Rome was generally done to finance budget deficits rather than to correct balance-of-payments deficits. The same is true for Greek devaluations and debasements. The purchasing-power-parity (PPP) theory of exchange rates cannot be discerned in Ancient writing. The reason given again is the inelasticity of foreign trade, with tremendous differences in prices of goods across countries (due to both high transport costs and high profit margins). On the other side, exchange control was the policy of Sparta and of Egypt (under Ptolemaic and Roman rule), with Plato the intellectual champion of such a policy. Exchange control existed in the Roman Empire in connection with the accumulation of exchange as tribute to be transferred to Rome.

Considering the Medieval Period, Einzig observes that ?manual exchange? (exchange of domestic for foreign coin) began to give way to bills of exchange in an evolutionary process. He makes much of the fact that international bills (because they involved exchange risk) were a means of circumventing the anti-usury laws of the Church. He is impressed with medieval foreign-exchange theorizing, which arose in the context of whether exchange rates concealed interest, and discerns a variety of theories (or harbingers of theories) of exchange-rate determination in the Scholastic writings: demand and supply, exchange risk, cost-of-production, money-supply, balance-of-payments, and PPP. Exchange control over bills was less strict and less pervasive than over coins, because the Church required freedom of transferring funds emanating from Papal collections.

For the Early Modern Period (sixteenth-eighteenth centuries), Einzig provides a good discussion of the gradual transition from medieval to modern practices. He notes that Thomas Gresham (of ?Gresham?s Law? fame) made the first known computation of a specie point (the English gold-import point from Flanders) in 1558. Einzig outlines the history of the British, French, Dutch, German, Spanish, Swedish and Russian exchange rates (each relative to other currencies) during this period. The Early Modern Period witnessed the first true exchange-rate theorizing, meaning ?a deliberate analysis of cause and effects of Foreign Exchange movements and the role of Foreign Exchange in the economic system? (p. 138). Salamancan (Spanish) writers of the sixteenth and seventeenth centuries are credited with the money-supply theory and the purchasing-power theory of the exchange rate; but (as Einzig states) it is unclear whether they meant the entire money supply (coinage) in circulation or the supply merely in the foreign-exchange market for the purchase of foreign bills. The Salamancans did not develop the balance-of-payments (or trade-balance) theory of the exchange rate; this was done by English writers, such as Gresham and Mun.

The Malynes-Misselden-Mun controversy is judged to be ?one of the most important controversies in the history of Foreign Exchange theory? (p. 142); but only one page is devoted to this controversy. Malynes, who here had a speculation theory of the exchange rate, lost the debate; Mun?s view that the exchange rate and specie flows depended on the trade balance became preeminent. Yet elsewhere Malynes theorized the price specie-flow mechanism, but Einzig does not acknowledge this accomplishment. Nor does Einzig mention that ?Malynes has all the ingredients for the PPP theory and comes ever so close to exhibiting the theory for both fixed and floating rates? (Officer, 1982, p. 258). Schumpeter (1954, p. 737) also judges that ?Purchasing-Power Parity theory, or some rudimentary form of it … can … certainly be attributed to Malynes.?

Regarding policy in the Early Modern Period, Einzig mentions various alternatives to exchange control:

1. A uniform tax on exchange transactions — temporarily imposed in England in 1586, after exchange control was abandoned. Not noted by Einzig, the idea was resurrected (but not implemented) during the period of ?dollar surplus? in the 1960s.

2. Official pegging of exchange rates. This was done by fixing the price of foreign coins in domestic coins. The pegging was adjustable, that is, the price was changed periodically.

3. Official intervention in the foreign-exchange market, for example, by requiring exporters to sell their foreign exchange to the government at unfavorable rates. This is actually a form of exchange control. Creation of an exchange equalization account, that would have enabled intervention similar to the Bretton Woods system and the managed float that followed it, was advocated by Gresham and others, but did not occur.

4. Altering mint parities. This was often done to induce a net inflow of specie, rather than to affect exchange rates as such.

5. Changing or suspending seigniorage on coinage. This affected specie points and therefore the exchange-rate spread. Once seigniorage was abolished (as in England in 1666), this policy lost its mechanism.

Regarding the Nineteenth Century, Einzig writes that ?the advanced paper currency inflation in France during the Revolution and the fluctuation of the inconvertible pound during the period of suspension may be regarded as the first meaningful experience in Foreign Exchange movements under inconvertible paper currency systems? (p. 171). This statement is incorrect on two counts:

First, nothing is said about the experience of China, where paper was invented and paper money first issued. At times, paper money circulated together with coined money, and at times the paper money was inconvertible. It is known that Chinese coins circulated in foreign countries in the fifteenth century and probably earlier (see, for example, Bernholz, 2003, p. 56). There must have been implications for exchange rates, if only for ?manual exchange? (domestic for foreign coin). True, little if any information on such foreign exchange exists. Yet that deficiency did not stop Einzig from making conjectures about foreign exchange in the Ancient Period!

Second, several pages are devoted to the Bank Restriction Period (the inconvertible pound in 1797-1821, also called ?the bullionist period?), in both empirical (exchange value of the pound) and theoretical (bullionist-controversy) aspects. Indeed, Einzig writes: ?the so-called ?bullionist? controversy … was probably the most important Foreign Exchange controversy for all time? (p., 202). However, he makes no reference at all to an earlier ?bullionist period,? the Swedish inconvertible paper currency and floating exchange rate of 1745-1776. China was the first country to introduce paper money; but Sweden was the first to issue banknotes. In fairness to Einzig, the Swedish experience was not generally known until ?rediscovered? by Eagly (1963, 1968, 1971). Nevertheless, Einzig could have incorporated this important experience in the second edition of the History, but he chose not to do so.

This reviewer also takes exception to Einzig?s view that ?technical devices? to discourage the outflow or encourage the inflow of gold were undertaken predominantly by countries (such as France and Germany) other than the three (Britain, the United States, Holland) that ?with really narrow gold points were … on a really effective gold standard? (p. 173). Regarding the latter three countries, Einzig states only that the Bank of England adopted such devices during the Boer War, and mentions nothing about U.S. use of these policies. In fact, both the Bank of England and U.S. Treasury engaged in extensive ?direct manipulation? of gold points for much of the classical gold-standard period (see Clark 1984; Officer 1986, 1996, chapter 9).

For the period 1914-1960, Einzig reports the great change in foreign-exchange policy: from minimal government interference with free foreign-exchange markets over the century since the end of the Napoleonic Wars, to official intervention the rule rather than the exception. Exchange control, which had lapsed into disuse, was resurrected. Correspondingly, PPP theory had been almost entirely forgotten during the century of relative stability of the major exchange rates. Now the theory was restated, with great vigor and dogmatism, by Gustav Cassel. Supported by major economists, such as John Maynard Keynes (who later withdrew his support) and A. C. Pigou, the theory would never again be ignored.

Discussion of the 1960s, reluctantly included by Einzig as an additional part in the second edition of the History, is not particularly impressive, in part because a single decade does not warrant the space given to it in a study stretching over several millennia. Einzig compares the only occasional and isolated foreign-exchange crises of the 1815-1914 century to the multitude of crises decade after decade since. The prevalence of foreign-exchange crises continues to this day!

In his concluding chapter, Einzig predicts that an abandonment of the fixed-rate system of Bretton Woods (which was often discussed in the literature, but had not yet happened at the time of his writing) would only be temporary. ?It would not take very long for most Governments to realise the grave disadvantages of the currency chaos resulting from their ill-advised decisions to de-stabilise their exchanges. Sooner or later they would return to the system of stability, as their forerunners did each time they were forced to abandon it in the past? (p. 348). Einzig expresses that view from the perspective of four thousand years of exchange rates! The creation of the euro — fixed exchange rates par excellence, which replaced multiple national currencies with one supranational currency — provides partial validation of Einzig’s prediction. Time will tell whether the present float, or rather managed float, between the various currencies of the developed world (euro, dollar, yen, pound, etc.) will also be succeeded by a renewed fixity of exchange rates. That event would make Einzig’s prediction impressive indeed. Einzig was well-known as a proponent of fixed as distinct from floating exchange rates; but his prediction that any lapse from fixed rates would only be temporary is a positive statement, not a normative one.

Einzig was well-known as a proponent of fixed as distinct from floating exchange rates; but his prediction that any lapse from fixed rates would only be temporary is a positive statement, not a normative one.

Einzig observes, with disdain, the ?obscurantist presentation? of modern foreign-exchange theory and the widening gap of this theory from foreign-exchange policy. He writes: ?No contribution to Foreign Exchange Theory expressed in terms of mathematical economics has added anything of substance to the subject that could not have been added to it without the use of mathematics? (p. 322). This statement is not quite the same as the more-common view that ?any legitimate theory that is expressed mathematically can also be exposited verbally.? Einzig is consistent, for there is not one mathematical symbol in the History!

If there is any general weakness of the History, it is the absence of tables and charts of exchange rates, mint parities, and specie points. Einzig is aware of this limitation; he writes:

There is everything to be said for compiling continuous series of exchange rates for all the important exchanges in the principal Foreign Exchange markets, at least from the 16th century, but preferably also for the late Medieval Period. The material is there, in public records and business archives. But to make it accessible is a task that only some well-endowed research department could undertake. (p. xii)

It is fair to say that economic historians have performed much work of this nature since the publication of the History.

The History of Foreign Exchange has great limitations as well as great strengths. It is an impressive, but also a controversial and provocative, work. Undoubtedly, though, it deserves to be called a classic.

References:

Bernholz, Peter. Monetary Regimes and Inflation: History, Economic, and Political Relationships. Cheltenham: Edward Elgar, 2003.

Clark, Truman A. ?Violations of the Gold Points, 1890-1908.? Journal of Political Economy 92 (October 1984): 791-823.

Eagly, Robert V. ?Money, Employment and Prices: A Swedish View, 1761.? Quarterly Journal of Economics 77 (November 1963): 626-36.

Eagly, Robert V. ?The Swedish and English Bullionist Controversies.? In Robert V. Eagly, ed., Events, Ideology and Economic Theory. Detroit: Wayne State University Press, 1968: 13-31.

Eagly, Robert V., editor, The Swedish Bullionist Controversy. Philadelphia: American Philosophical Society, 1971.

Einzig, Paul. International Gold Movements. London: Macmillan, first edition, 1929, second edition, 1931.

Einzig, Paul. Primitive Money in Its Ethnological, Historical and Economic Aspects. London: Eyre and Spottiswoode, 1949.

Einzig, Paul. ?Primitive Money: A Rejoinder? (with Editor?s Reply). Man 49 (November 1949): 132.

Einzig, Paul. The Theory of Forward Exchange. London: Macmillan, 1937.

Officer, Lawrence H. ?The Purchasing-Power-Parity Theory of Gerrard de Malynes.? History of Political Economy 14 (Summer 1982): 256-59.

Officer, Lawrence H. ?The Efficiency of the Dollar-Sterling Gold Standard, 1890-1908.? Journal of Political Economy 94 (October 1986): 1038-73.

Officer, Lawrence H. Between the Dollar-Sterling Gold Points: Exchange Rates, Parity, and Market Behavior. Cambridge: Cambridge University Press, 1996.

Schumpeter, Joseph A. A History of Economic Analysis. New York: Oxford University Press, 1954.

Tether, C. Gordon. ?Einzig, Paul.? In Lord Blake and C. S. Nicholls, eds., The Dictionary of National Biography. Oxford: Oxford University Press, 1986.

Lawrence H. Officer is Professor of Economics at the University of Illinois at Chicago and Editor, Special Projects, EH.Net. He is a specialist in international economics and monetary history. His recent journal publications include ?The U.S. Specie Standard, 1792-1932: Some Monetarist Arithmetic,? Explorations in Economic History (2002) and ?The Quantity Theory in New England, 1703-1749: New Data to Analyze an Old

Question,? Explorations in Economic History (2005). Officer is a recurrent contributor to the ?How Much Is That?? section of EH.Net.

Copyright (c) 2006 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net; Telephone: 513-529-2229). Published by EH.Net (January 2006). All EH.Net reviews are archived at http://eh.net/BookReview.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

A History of Central Banking in Great Britain and the United States

Author(s):Wood, John H.
Reviewer(s):Redish, Angela

Published by EH.NET (December 2005)

John H. Wood, A History of Central Banking in Great Britain and the United States. New York: Cambridge University Press, 2005. xv + 424 pp. $90 (cloth), ISBN: 0-521-85013-4.

Reviewed for EH.NET by Angela Redish, Department of Economics, University of British Columbia.

In 1694 a group of merchants agreed to lend the English government ?1.2 million in exchange for a charter to create a note-issuing bank, the Bank of England. Two hundred and twenty years later, in response to private sector rather than public sector concerns (notably the panic of 1907), the United States created the Federal Reserve Bank. Focusing on the UK and the United States, this book studies the transition from a seventeenth-century world free of central bankers, through the financial excitements of the eighteenth, nineteenth, and twentieth centuries to the sedate world of central banking in the late twentieth and early twenty-first centuries. The focus is on the interplay between bankers and politicians and on the evolution of an in-between species, the ‘central bankers.’

As the author, John Wood (Department of Economics, Wake Forest University), notes it is a propitious time to write such a book. Central banks are operating in a period of calm, and are widely seen as so successful that they are boring. In both the U.S. and the UK, the twentieth century posed extreme challenges for central banking: financing two world wars, facing the shocks of the Great Depression, and then learning how to operate in a fiat money world after the end of the Bretton Woods period. Since the early 1990s, there has been widespread agreement on the appropriate targets of monetary policy — price stability and financial stability — and, perhaps with the exception of how to respond to “irrational exuberance” in asset markets, central banking has become a technocratic business of forecasting future demand so as to set interest rates at an appropriate level to engender price stability.

How independent should a central bank be in a democratic country? The book takes us through the ups and downs of independence. Today many central banks, including the Bank of England and the Fed, have operational independence but are subject at some horizon to state control, but the degree of independence has fluctuated. At its origins the Bank of England was private, and the fiscal needs of the government gave the Bank considerable power, but by 1833, after years of stable public finances, the government could “afford the luxury of an independent central bank” (p.72). (Interestingly, Wood’s evidence of independence is the introduction of a requirement for the publication of the Bank’s accounts which would make explicit any changing indebtedness of the government.). In the 1920s, the Bank of England was dominant in the decision that Britain would resume convertibility of the pound at the old par, despite the deflation that this would require, but after World War II, it was the politicians and Treasury officials that determined interest rates as well as exchange rate policy. In the second half of the twentieth century the Bank considered itself as merely the “central banking arm of a centralized macroeconomic executive” (p. 386), but then, after decades of erratic monetary policy, the Bank was given its independence in 1998.

The independence of the Federal Reserve System is even more tortuous to describe because of its diffuse structure, itself a reflection of the desire to create a bankers’ bank and a government bank. The Fed is composed of twelve regional banks plus the Board of Governors located in Washington, and tensions between bankers and the government were frequently played out between the Board and the regional (especially New York) Feds. Again the degree of independence fluctuated: the disagreements between the Board and the New York Fed in the late 1920s are well known; in 1935, the system was reorganized giving more power to the Board, and after World War II the Fed was essentially subservient to Treasury desires for low interest rates. The Fed’s reassertion of its independence in early 1951 — a showdown between President Truman and Chairman Eccles — is a story that should be required reading for all students of monetary policy (pp. 226-38). Yet triumph was temporary, and in the 1960s and 70s monetary policy became an issue in election campaigns. Most recently, at Senate confirmation hearings in November, President Bush’s nominee for Chairman of the Board of Governors, Ben Bernanke, stated that: “I will be strictly independent of all political influences and will be guided solely by the Federal Reserve’s mandate from Congress and by the public interest.”

The history of central banking is told against a backdrop of the development of monetary theory and the evolving understanding of how monetary systems and banks operate. The discussion of the real bills doctrine, of ‘operation twist,’ of the use of moral suasion and credit controls, of monetarism, and of price and wage controls takes the reader through the, usually painful, learning that central bankers have undergone. The author uses extensive quotations from memoirs and minutes so that the reader can see the decision-making process in the raw.

Now to cavils: There is an inherent organizational tension in telling two stories chronologically in parallel. The author chooses to begin with three chapters on the history of the Bank of England to 1914, then three chapters on the origins of the Federal Reserve and its history to the 1960s, then a chapter taking the Bank of England from 1914 to 1980, followed by three chapters that combine analysis of contemporary monetary theory and the history of monetary policy in both countries over the last 25 years. I’m not sure there is a better way, but I found some of the transitions awkward. I suspect earlier readers also did, as there are a large number of signposts for the reader, which help, but still further prevent a seamless flow.

Finally a minor gripe: There are very useful summaries of events and dramatis personae at the beginning of each chapter, but some curious choices are made. Beginning in 1951 the President of the Council of Economic Advisors is listed, but nowhere are the New York Fed Presidents listed; Governors of the Bank of England are not listed until 1914; G. William Miller, Fed Chairman in 1978-79 is not on any list. The lists would have been more useful as a reference if they had been presented as comprehensive appendices to the whole book.

No individual event retraced here is new, but by bringing the pieces together and focusing on the evolution of central bankers this book enables the reader to see the forest rather than the trees, and appreciate one of the successes of economics. This book will be a useful resource for both economic historians and monetary economists looking for a broad overview of the evolution of Anglo-American central banking and monetary theory.

Angela Redish’s publications include Bimetallism: An Economic and Social History (2000) and (with Michael Bordo) “Is Deflation Depressing? Evidence from the Classical Gold Standard” in Burdekin and Siklos, editors, Deflation: Current and Historical Perspectives (2004).

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

The Cambridge Economic History of Modern Britain, Volume III: Structural Change and Growth, 1939-2000

Author(s):Floud, Roderick
Johnson, Paul
Reviewer(s):Carreras, Albert

Published by EH.NET (October 2005)

?

Roderick Floud and Paul Johnson, editors, The Cambridge Economic History of Modern Britain, Volume III: Structural Change and Growth, 1939-2000. Cambridge: Cambridge University Press, 2004. xix + 473 pp. $40 (paperback), ISBN: 0-521-52738-4.

Reviewed for EH.NET by Albert Carreras, Department of Economics and Business, Universitat Pompeu Fabra.

When it appeared in 1981, Floud and McCloskey’s Economic History of Britain was a major academic achievement. It set the standard for writing collective national new economic histories for years to come. Most of the issues have been challenged and retuned, but the first edition keeps, almost a quarter of a century later, all its spirit and intellectual strength — except for one major corner. The 1981 project stopped before the Second World War. There was an important chapter — but only one — on British economic policy and performance in the post-war years. The field was assigned to a major policy maker with a high academic profile — Sir Alec Cairncross. New economic historians did not dare to enter into the field. The second edition was a radical departure: a whole volume — a new third — was assigned to the post-1939 British economy. Sir Alec Cairncross’s seminal contribution remained, enlarged into two chapters. A whole array of new authors and themes was introduced. The third edition is no more a radical transformation, but a series of incremental changes. The title, to start with. The first two editions were an “economic history” — the first edition was even known as the “new economic history of Britain.” Now we have “the Cambridge economic history.” The former radical approach has fully seized academic power. It has become mainstream. The subtitle is more explicit about the content. A few more years than before — ending in 2000 rather than in 199 — and a message: “structural change and growth.” Some could argue that this is not a very clear message. There are, also, four more chapters and some seventy additional pages.

A few chapters and authors are quite the same — Howlett on the wartime economy, Hannah on the state ownership of industry, Howson on monetary issues, Tomlinson on economic policy and Johnson on the welfare state — but they are only a third of the volume. A bit more continuity is provided by the authors — although changing chapters. Millward and Broadberry remain, but the former switches from industry to services, while the latter from employment and unemployment to manufacturing. Some issues have been assigned to new authors. Cairncross’s two chapters and Feinstein and Supple’s reflections on growth and performance, success, failure and decline are now summarized by Kitson, in a more data oriented way. The dissolving of the ambitious all-catching grand interpretation chapters has allowed for the emergence of the truly new economic history of contemporary Britain. The new issues are about education and human capital (O’Mahony — also on employment), financial services (Watson), the service economy (Millward), the impact of Europe (Neal), technology (von Tunzelmann), regional development (Scott), fiscal policy (Clark and Dilnot) and industrial relations (Brown).

Each of the chapters provides a first class summary of the issues at stake. The whole is, no doubt, a well rounded textbook. The reader can take advantage of single chapters or of the whole of the book. The bibliography and the index are superb. The tables and figures are clear — although I prefer those of the first edition, which were much sharper and clearer. Among the new chapters my favorites are those that correct my ignorance the most. I enjoyed Larry Neal’s detailed and meaningful account of UK relations with Europe — more the impact of Europe on the UK than the reverse as the title underlines. I appreciate the short and clear summary of William Brown on industrial relations and the economy, and the masterful survey of Tom Clark and Andrew Dilnot on British fiscal policy since 1939. My choice is inevitably biased by those parts of British post 1939 economic history that most appeal to a non-specialist — industrial relations, fiscal policy and the relations with Europe. Isn’t this the bulk of what foreigners quote regarding British contemporary facts? No, it isn’t quite so. We still have missed one major, big, large, fact: the loss of the Empire.

Indeed, the editors have failed to address the essential phenomenon of postwar Britain: the switch from a world-wide Empire to a national economy. The felicitous title of Leandro Prados de la Escosura’s book on nineteenth century Spain — From Empire to Nation — would have been perfect for the third volume of the Cambridge Economic History of Modern Britain. Wasn’t the first volume about “Industrialization” and the second about “Economic Maturity”? Why should the third be about “Structural Change”? Isn’t “Industrialization” a “structural change”? Is this the real core of British change since 1939? There isn’t a single doubt about what did matter: the loss of Empire and the consequences of imploding into a smaller size economy. The failure to address this very issue is the real shortcoming of the volume and the major engine of its future obsolescence.

There are other small shortcomings. They come from the dubious structuring of the chapters and from the lack of a major underlying theme. The chapters come one after the other, without any strong relationship between each pair of them. All the obvious couples are separated, thus impairing a deeper understanding of the phenomena studied. Howlett focuses on the wartime economy, ending in 1945, but Kitson starts the next chapter in 1949, and we remain bereft of the immediate and crucial postwar years until Howson’s sixth chapter on money and monetary policy. More bits and pieces on those years are brought into the fore by Tomlinson on economic policy, by Neal on the impact of Europe and by the last two chapters on fiscal policy (Clark and Dilnot) and industrial relations (Brown). Other misorderings concern the sectoral-based chapters: manufacturing (Broadberry), financial services (Watson) and the service economy (Millward), that form a continuous treatment of the structural change within the UK economy, are third, seventh, and tenth, instead of constituting a cohesive part of the book. The chapters on human capital are as separate as fifth (employment, education and human capital by O’Mahony) and twelfth (technology by von Tunzelmann), although they are extremely close one to the other. The welfare state (Johnson), which lives from taxes, is ninth while fiscal policy (Clark and Dilnot) comes fourteenth. The policy chapters are scattered along the volume, instead of being close together. This reduces the explanatory potential of “monetary policy” (Howson — sixth), “economic policy” (Tomlinson — eighth), and “fiscal policy” (Clark and Dilnot — fourteenth). Indeed, the high value of the chapters is there, but order really matters as it suggests comparisons, explanations, causality and structure.

The lack of a theme is the problem. The volume meets a social demand, but the editors have failed to supply a story. There are a number of authors that provide one such story: the assessment of the Thatcher years. But, by 1981 there was no story to be explained by new economic historians. At most, Britain declined during the “golden age.” The literature on decline and failure was important in the 1994 second edition, but there the impact of Thatcher’s economic and social major reforms was too close to be properly assessed. To put Mrs. Thatcher in historical perspective seems the real goal of many authors. It would have been a legitimate leitmotif for a 1960-2000 volume on British economic history. But, starting in 1939 was not a decision without consequences.

All in all this is a very good volume, excellent for lecturing and extremely useful as a reader in British post-1939 economic history. But the foreigner interested in the British economy after 1939 will be completely puzzled by the lack of awareness of the major underlying historical trends, and the British national will be made believe that the United Kingdom was always as large an economy as it is now. Where has all the Empire gone?

Albert Carreras has co-authored, with Xavier Tafunell, a recent book on Spanish economic history (Historia econ?mica de la Espa?a contepor?nea, Cr?tica, Barcelona, 2004). They are also the editors of the forthcoming second edition of Spanish Historical Statistics (XIXth-XXth centuries).

?

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

The History of Foreign Investment in the United States, 1914-1945

Author(s):Wilkins, Mira
Reviewer(s):Edelstein, Michael

Published by EH.NET (January 2005)

Mira Wilkins, The History of Foreign Investment in the United States, 1914-1945. Cambridge MA: Harvard University Press, 2004. xxvi + 980 pp. $95 (cloth), ISBN: 0-674-01308-5.

Reviewed for EH.NET by Michael Edelstein, Department of Economics, Queens College and the Graduate School, City University of New York.

The book jacket of this volume describes the author, Mira Wilkins of Florida International University, as “the foremost authority on foreign investment in the United States.” Book jackets are known for their hyperbole and general flimflam. However, in this case the book jacket writer is underselling the author. Mira Wilkins is the foremost authority on both foreign investment in the United States and U.S. investment abroad.

The current volume is Wilkins’s fourth on the subject of American cross-border investment flows. Previous volumes include The Emergence of Multinational Enterprise: American Business Abroad from the Colonial Era to 1914 (1970), The Maturing of Multinational Enterprise: American Business Abroad from 1914 to 1970 (1974), and The History of Foreign Investment in the United States to 1914 (1989), all published by Harvard University Press. The current volume is a comprehensive history of the cross-border inflows from 1914 to 1945, covering both foreign direct investment (FDI) and foreign portfolio investment (FPI) in the United States. There are 612 pages of text and 254 pages of footnotes.

A modern capitalist economy is a highly complex phenomenon. It is arguable that one of the most insightful perches from which to observe its workings is that of a scholar of foreign investment. Scholars, of course, know that long-distance portfolio and direct investment are a central feature of the investment process in modern economic growth. Modern British historians, for example, have long debated the extent and character of inter-regional investment flows between the “provinces” and “London.” Similarly, American economic historians have worried about the size and character of inter-regional investment flows from the older regions on the East coast to the Midwest, mountain, and Pacific regions. However, very importantly, there are practically no aggregate data to track the inter-regional movement of funds and corporate competencies. Furthermore, private corporate and financial records are not organized to easily research these inter-regional phenomena. In this sense, our national political institutions and legislation offer something of a gift, at least in the U.S. case, as they provide an abundance of public and private data on cross-border movement of funds, ownership, patents, etc. So, in fact, Mira Wilkins presents us with an extremely rich business history of world and American enterprise, granted through the unique lens of what foreigners thought would enhance their net worth. Still, the breadth of foreign investment activity in the U.S., especially in the period covered by this volume, 1914-1945, means Wilkins is covering a very large chunk of American business and financial history.

In the nineteenth century foreign FDI and FPI in the U.S. was subject to slow, if any, institutional change. In general there were very few barriers to cross-border investment in the U.S. America was a world-class debtor. The immense size of its investment activities and their profits could not help but draw savings from most of the developed economies of Western Europe, although predominantly the U.K. FPI was paramount but FDI was not trivial, including FDI in the form that Wilkins may be said to have discovered, the free-standing company. The aggregates of FPI and FDI clearly had an annual ebb and flow but even these cyclical variations have a certain regularity explored by Kuznets, Abramovitz, and Williamson. The only abrupt, non-cyclical shocks to the volume and character of foreign investments were associated with the Civil War and its longer lasting greenback monetary regime.

The period with which Wilkins is here concerned, 1914-1945, is quite different. The U.S. moved from net debtor to net creditor status, the most important one in the post-World War II world. Furthermore, this movement took place in an environment with very abrupt institutional and cyclical changes that must have astounded those who could remember the quieter environment before 1914. First, World War I entailed severe restrictions by the European belligerents on all forms of current foreign investment; outstanding FPI in the U.S. was commandeered to fund munitions and other purchases. Then, with American entry to World War I, German FDI and other investments were commandeered by the U.S. government, including their patent wealth. By the end of World War I the U.S. was a net creditor. Inward flows of FDI and FPI returned in the immediate post-World War I years but were subject to radically evolving war debt repayment and currency restrictions. The mid-years of the 1920s show a high tide of foreign investment in the U.S. as some semblance of economic and financial order returned to Europe and U.S. growth was energized by electrification and the automobile. This high tide then gave way to the brutal 1929-1933 downturn, ending with the collapse of the U.S. banking system and the devaluation of the dollar. Foreign investment of both types dropped precipitously in these years. Inward foreign investment recovered, 1933-1939. The Hawley-Smoot Tariff Act probably induced some FDI trying to get behind the heightened tariff barriers but both FPI and FDI were also importantly influenced by foreigners seeking a safer haven from Europe’s autarkic and confiscatory regimes. When World War II started in 1939 the European belligerents again imposed capital restrictions and commandeered U.S. investments to fund munitions purchases. Even before 1939, the German government and German corporations, remembering U.S. actions during World War I, made it a matter of policy to sell off, abandon, or hide their U.S. investments through third-party investors in Holland, Switzerland, Panama, etc. With U.S. entry into World War II, of course, Axis investments were once again commandeered and confiscated by the U.S. government, again including German patent wealth. This then is the chapter structure of Wilkins’s book, 1914-1918, 1919-1923, 1924-1929, 1929-1933, 1933-1939, 1939-1941, and 1941-45. And, the weight of her analysis proves this chapter structure correct; each short period has very different institutional and expectational structures governing both FDI and FPI placed in the U.S.

In each period, Wilkins separately covers FDI and FPI. In the case of FPI, discussion moves country by country, sector by sector, with the greatest depth for the U.K., the most important FPI sender. There is excellent coverage of the portfolios and motivations of foreign mutual funds, mortgage, insurance, and banking enterprises which held American FPI. On trend, FPI in American railroad and land resources retreated while industrial and utility FPI increased.

FDI is analyzed sector by sector and company by company. Any reasonably sized foreign company with investment in the U.S. has a story in each of Wilkins’s chapters. There is a wonderful richness to each period’s history. One can only wonder at the presentiment of Unilever’s U.S. subsidiary, for example, which opened new factory floor space and new product lines, and started radio advertising, 1930-32. And in each year, 1930 to 1932, net profits after taxes rose, higher than ever before in the Unilever subsidiary’s history. In the same years, Royal Dutch Shell moved aggressively to acquire more oil fields and reserves, despite losses; Anglo-Persian remained aloof, too absorbed with the drop in oil prices and (unsuccessful) moves to control world prices.

A central part of the FDI story during these years is the ups and downs of German FDI in the U.S. After commandeering German property during World War I and holding it captive for some years after the war, American alien property authorities quietly relented in the mid-1920s and German owners reappeared, often from behind American and other covers. As before World War I, German FDI was particularly strong where German technology and patents were at the frontiers of industrial capabilities (e.g., chemicals), the patents often acting as a bargaining chip in secret world market sharing agreements. Indeed, these patent-sharing agreements are one of the most significant stories that Wilkins covers. That she was able to gather so much information on these matters is surely due to the radical shift in Franklin Roosevelt’s antitrust policy. By the late 1930s, the White House, Congress, and Justice Department had decided that illegal international cartel arrangements and the immense patent holdings of large domestic and foreign corporations represented a threat to an American recovery based on rapid technical change. A good deal of the energy of the 1939-1941 Temporary National Economic Committee, its hearings, and its reports were focused on these phenomena. While the Justice Department’s antitrust cases in this area were moth-balled during World War II, the antitrust division returned to the fray after 1945 and altered the terrain of corporate patent and research strategy with its court-ordered settlements requiring wider licensing of patents. The terrain was also altered by the commandeering of German patent assets during World War II, made widely available to American corporations for war and post-war production. Much is known about the U. S. government’s commandeering of German assets during both world wars. Wilkins deserves a great deal of credit for carrying her story forward into the post-World War II years, assembling the disparate threads of the post-war history of these ex-German assets.

One way to measure the course of FPI and FDI in the U.S. over these years is as a percentage of GNP (p. 565). In 1914, total foreign investment (FI = FDI + FPI) was 19.5% of GNP while FDI was 4.7%. By 1918, the total (FI) was down to 3.9% while FDI was 1.3%. The war years had dramatically reduced the investment total and its FPI-FDI distribution. The 1920s did not change these percentages very much but the 1930s raised them so that by 1939 they stood at 6.8-9.6% and 3.2%, respectively. By the end of World War II, however, they were back to where they were in 1918; total FI was 3.7% and FDI was 1.3%. What Wilkins has carefully laid out is the micro-history of these movements, who entered, who stayed out, who endured, and who failed. One acquires very clear ideas of what, why, and how capital was reallocated and expanded during the first half of the twentieth century at the level of the firm and the central role of technological knowledge. Wilkins’s rich account of foreign investment in the U.S. is also a major part of the story of the retreat from the pre-World War I high-tide of globalization. Business and economic historians of the twentieth century are surely and greatly in Mira Wilkins’s debt. Finally, it should also be said that students of the macroeconomic movements of foreign investment will ignore this micro-history and its abrupt changes at their peril.

Michael Edelstein is the author of the “International Transactions and Foreign Commerce” chapter in the Millennial Edition of Historical Statistics of the United States (Cambridge University Press, forthcoming).

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

From Buildings and Loans to Bail-Outs: A History of the American Savings and Loan Industry, 1831-1995

Author(s):Mason, David L.
Reviewer(s):Keehn, Richard H.

Published by EH.NET (January 2005)

David L. Mason, From Buildings and Loans to Bail-Outs: A History of the American Savings and Loan Industry, 1831-1995. New York: Cambridge University Press, 2004. xii + 349 pp. $50 (cloth), ISBN: 0-521-82754-X.

Reviewed for EH.NET by Richard H. Keehn, Department of Economics, University of Wisconsin – Parkside.

David L. Mason, assistant professor of history at Young Harris College, utilized prior experience with the Bank of America and the Resolution Trust Corporation, industry sources, government documents, and background as a business historian to write a comprehensive history of the building and loan industry in the United States from 1831 to1995. He uses four broad themes to explore thrift history: (1) a study of the business practices of S&Ls, including the problems associated with borrowing short and lending long, (2) the history and behavior of the national trade association from the 1890s until its demise in 1991, (3) the evolving relationship between S&Ls and various state and federal governmental units, and (4) the role of the S&L industry in promoting home ownership and thrift in the United States. Each is covered in nine chapters, centered around important industry changes or economic events. The book includes an introduction and a concluding chapter providing a useful perspective on the thrift industry.

The first chapter traces the roots of the American buildings and loans movement to the building society movement in eighteenth-century England. The first American building society began in Philadelphia in 1831 to provide home loans and instill the idea of systematic savings in working people. The early American associations, stressing thrift and mutual cooperation, were small ventures operating on the terminating plan, meaning that the association ceased operations when all members had repaid their loans or paid for their shares in full. Associations gradually adopted more permanent forms of organization and, by 1900, 5,356 organizations had total assets of more than $571 million, reflecting rapid growth in numbers and the small size of the average association. The industry trade association, the U.S. League of Local Buildings and Loan Associations, was formed in 1892 to popularize the benefits of thrift and home ownership and to improve the public image of thrifts, damaged by the practices of some newer and large, often banker-organized, associations that did not have the local emphasis of the traditional smaller non-profit associations.

Chapter 2 covers the years 1900-1929 and the increasing importance of the League. Of special interest is the development of ethnic thrifts serving members in particular ethnic neighborhoods and the role of women as members and staff in early thrifts. The impact of World War I and the postwar consumer goods and home building expansion on the thrift industry is well documented. Chapter 3 focuses on the gradual development of state regulation beginning as early as 1860. The national trade association favored state regulation but the crisis of the early 1930s led to greatly increased federal oversight of thrifts.

Major topics in Chapter 4, focusing on the years 1930-1945, include improvements in the national trade association under long-time leader Morton Bodfish, the impact of the Great Depression, and new federal agencies and regulations impacting the thrift industry. These federal initiatives included the Federal Home Loan Bank Board, the Federal Savings and Loan Insurance Corporation (FSLIC), federal charters for thrifts, the Federal Housing Administration (FHA) and the National Recovery Administration. While the Great Depression battered the industry, it emerged in 1945 in a strong position as the largest single provider of home mortgages.

Mason sees the years 1946-55, reviewed in Chapter 5, as the glory years for savings and loans. By the latter year, average thrift size had increased to $6 million, while the number of associations decreased due to mergers and workouts of weaker associations. By 1955, S&Ls provided 36% of real estate mortgages and their deposits were up to 70% of commercial bank savings deposits. Thrifts faced increasing competition from government entities, including the Veterans Administration and FHA, but made use of the secondary mortgage market created by the Federal National Mortgage Association (FNMA). Close ties developed between S&Ls and their regulators, who became more industry friendly.

Chapter 6, covering the years 1956-1966, highlights the growing division between large associations and the large number of more traditional small thrifts. Slower economic expansion impacted S&L growth, and the relationship with regulators became less “cozy.” A major change in 1966 was the extension of Regulation Q interest rate ceilings to thrifts, with an allowable rate 0.25% above that of banks. Mason documents that, by 1965, average thrift size had increased to $21 million and S&Ls held 26% of consumer savings and originated 46% of single-family home mortgages.

Chapter 7’s title, “Lost Opportunities 1967-79,” makes clear Mason’s view that this period, marked by slow economic growth, high interest rates and inflation, was an opportunity lost to make changes in industry organization and structure. Spread management became a problem and disintermediation threatened the viability of some thrifts. Consumer activism, racial and social, further complicated thrift management problems, as did the widening gap between small and large thrifts that made it difficult for the trade association (whose name changed to the U.S. League of Savings and Loans in 1974) to develop a reform package acceptable to members.

Mason calls the period 1979-1988, covered in Chapter 8, “Deregulation and Disaster,” as growing problems associated with borrowing short and lending long led to increased disintermediation, losses and failures. This period saw the rise of “high flyers,” associations that acquired fewer funds from the local market and had substantially less of their total assets invested in traditional mortgages than traditional thrifts. Mason provides an excellent review of these developments and the resulting regulatory and Congressional responses, including the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 and the Garn-St. Germain Act of 1982 that provided broader asset powers for thrifts, new accounting rules and regulatory forbearance to shore up failing institutions. He shows that these actions did not solve the problems but served mainly to hide the seriousness of the thrift industry crisis. Two appendices, “Fraud, Forbearance, and Failure” and “Success the Old-fashioned Way,” present case studies of a high flyer and a more traditional thrift.

Resolving the crisis and restoring confidence 1989-1995 are the foci of Chapter 9. The Financial Institutions Relief, Recovery and Enforcement Act (FIRREA) of 1989 was designed to deal with the problems exposed in the 80s. The act eliminated the FSLIC with its functions taken over by the FDIC, the FHLBB was replaced by the new Office of Thrift Supervision, and the process of re-regulating the thrift industry began. Between 1980 and 1994, 1,295 thrifts with total assets of $621 billion were gone. The Resolution Trust Corporation (RTC) was established to dispose of failed S&L assets and that agency ultimately resolved 747 S&Ls, sold $402 billion of the assets and recovered 78% of book value of those assets. Mason provides an excellent analysis of the crisis and why the 1980s reforms failed. While fraud was important in some high-profile cases, he believes that the major causes were a rigid institutional and regulatory structure and human error factors, including flawed piecemeal deregulation, lax oversight (including forbearance), and misguided lending in new areas where association managers had little or no experience. By 1995, the thrift industry had shrunk but did not disappear and large and small thrifts continued to operate side-by-side, but the share of residential mortgages originated by thrifts fell from 47% to 15%. The national trade association was a casualty, merging with former rival, the National Council of Savings Institutions, then becoming part of America’s Community Bankers, a trade association for thrifts, savings banks, and commercial community banks. By 1995, the term S&L was used by only 60% of thrifts, down from 90% in 1977.

The antecedents to and the nineteenth-century development of the buildings and loans movement in America, trade association efforts to make the industry more professional and standardized, new data on ethnic thrifts, and the role of women in the movement are important contributions. One of the book’s strengths is the coverage of post-World War II developments, especially the buildup to and the causes of the crisis of the 1980s. Mason provides an excellent review of the crisis and aftermath, including political and economic factors, actions by thrifts and other financial market participants, and responses of regulators and Congress to try and cope with the changing environment. Partial and piecemeal deregulation, inept oversight, human error and fraud are carefully evaluated as contributing factors. Several tables report thrift numbers and total assets for benchmark years from 1888 to 1995. The extensive list of sources will be especially useful to researchers.

Many readers will wish Mason had been able to continue his history beyond 1995 since the savings and loan industry was substantially different by 2004. Mason’s insights on the continued shrinking of the thrift industry post 1995 would be enlightening. Credit unions, another cooperative financial intermediary, are not mentioned at all and savings banks rate only a very brief mention, despite their importance as an early financial intermediary.

In the 1970s and 1980s, Regulation Q prevented nominal interest rates paid on savings from rising, but high nominal rates did not deter borrowing because real interest rates fell as the rate of inflation increased. Noting the difference between nominal and real rates would have improved Mason’s discussion of spread management and disintermediation problems.

Historically, banks concentrated on larger depositors and business lending and new institutional types, including savings and loans, appeared throughout the nineteenth and early twentieth centuries to fill needs not met by existing institutions. This led to functional and geographic segregation within the financial sector and these boundaries increased substantially in the crisis atmosphere of the 1930s. Mason suggests that attempts to lower these boundaries in the 1980s, at least the way it was done, contributed to subsequent problems. At times he seems overly supportive of thrift industry appeals for special treatment. He does not emphasize the inefficiencies in resource allocation arising from this excessive financial market segmentation, and caused in part by the protection accorded thrifts.

These reservations do not detract from Mason’s accomplishment in providing an excellent, well-researched and well-written history of the thrift industry in the United States. The book should be read by those interested in financial intermediaries, trade associations, and government-business relations.

Richard H. Keehn is an emeritus professor of economics at the University of Wisconsin-Parkside. His primary research areas are banking and business history with a special focus on Wisconsin banking and manufacturing development.

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

Separatism and Integration: A Study in Analytical History

Author(s):Roehner, Bertrand M.
Reviewer(s):Spolaore, Enrico

Published by EH.NET (January 2006)

Bertrand M. Roehner (with the collaboration of Leonard J. Rahilly), Separatism and Integration: A Study in Analytical History. Lanham, MD: Rowman and Littlefield, 2002. xi + 351 pp. $75 (cloth), ISBN: 0-7425-1734-9.

Reviewed for EH.NET by Enrico Spolaore, Department of Economics, Tufts University.

This book is a cornucopia of useful information about separatist movements. Bertrand Roehner focuses his intriguing analysis on separatist struggles by “homeland minorities,” which he defines as “minorities whose social and cultural life is associated with a specific territory.” He pointedly refuses to provide a general theory of separatism. He writes that he is not interested in explaining the causes of separatist movements (the “why” question). His aim is rather to identify empirical regularities which are common to separatist struggles (the “how” question) by analyzing separatist episodes as “clusters of events.” In this respect the book is a specific application of the methodological approach to history and social analysis that Roehner has vigorously argued for in his nice book Pattern and Repertoire in History, written with Tony Syme, and reviewed for EH.NET by John Nye. This monograph on separatism shares the methodological assumptions of that broader work, including a belief that social scientists should describe “forms of actions” rather than focus on “motivations.” Specifically, the author argues that separatist struggles tend to follow similar patterns, and that past separatist struggles in a region are the best predictors of more recent separatist disturbances in that same region, even when explicit motivations have changed. For instance the author, building on work by J.R.G. Jenkins, stresses the elements of continuity in the separatist movement of the Bernese Jura (Switzerland) in the nineteenth and twentieth centuries. He also notices the similarity of Flemish separatist actions in the past two centuries, even though the specific issues under dispute and the economic conditions of the different groups within Belgium have been changing.

The author identifies three kinds of separatist struggles: over land, over language/culture, and over political power. He then uses this taxonomy, in conjunction with the type of society, to classify different kinds of separatist revolts. When the dispute is over land, an aristocratic revolt may occur in a feudal society (say, Hungary in the seventeenth and eighteenth centuries), while a peasant revolt may rise in a rural society where peasants are freeholders (say, Ireland around the same period). A struggle over cultural domination would involve only urban, educated people before the spread of public education (for example, Bohemia in the nineteenth century), but the mass of the population after public education has spread (twentieth century Quebec). Finally, anticolonial struggle over political power may be confined to the nation’s elite (Egypt) or involve the mass of people (India), depending on the central government’s level of tax pressure. The author describes and analyzes a large number of separatist struggles in these different categories, although, as he writes, space limitations prevent him from providing an exhaustive “Handbook of separatist disturbances.”

Although he is reluctant to provide general theories, the author does suggest two sets of determinants of separatism: spatial and historical determinants. He constructs a “geographical index of interaction” to capture the degree of isolation of a region from the rest of the nation. The index is based on the extent to which the region and the rest of the nation share a border. For example, Scotland is more isolated from the rest of Great Britain than Andalusia is from Spain, since most of Scotland’s borders are not with the rest of the UK, but with the sea. Adjustments are made for common borders with other countries that share language/culture with the “homeland minority” (e.g., Alsace’s border with Germany reduces its “index of interaction” with France). The author finds that linguistic assimilation is higher and separatist disturbances lower in less isolated regions. But the lion’s share in explaining separatist disturbances in a region after 1945 is given by measures of disturbances in that same region in previous periods (the “historical index”).

I greatly enjoyed reading Roehner’s tour de force. The book is rich in historical information, methodological discussions, and analytical observations. However, I wonder whether this book may disappoint some historians and economists, perhaps for opposite reasons. Some historians may take issue with this bold attempt to put the same hat on very different historical events. By contrast, as an economist, I have no problem with heroic generalizations. On the contrary, I wish the author had been even bolder at identifying common variables and determinants. In fact, I feel that an explicit theoretical framework could have helped rather than hindered the analysis. As often is the case with attempts to “let the facts speak” without an explicit theoretical model, assumptions about behaviors and motivations are still there, only they are kept implicit and unstated. For example, one feels that the “geographical index of interactions” could be rationalized (and possibly improved) with a more explicit and rigorous microfoundation — perhaps linking it to the extensive literature on social interactions developed by economists and other social scientists. And the taxonomy and description of the different “types of revolts” seem pretty consistent with a politico-economic analysis of the incentives and constraints faced by different individuals and groups.

Which brings up a question of special interest to EH.NET readers: how important are economic variables and mechanisms in explaining separatism? Roehner’s discussion of this question is perhaps one of the least convincing parts of his book. He observes that income per capita is not systematically correlated to separatism across and within countries: Ireland was poorer than the rest of the UK when it struggled for independence, the Basque Countries and Catalonia are richer than the rest of Spain, support for separatism in the Bernese Jura is uncorrelated to income per capita, etc. He concludes that separatist movements do not “spring from economic motives,” and that economic conditions do not exert an influence on separatism. These conclusions seem unwarranted for at least two reasons.

First, the level of income per capita is not a sufficient statistic for “economic motivation.” Even if separatists were motivated exclusively by material considerations (say, increasing their future income through a secession), current income per capita would hardly capture this motivation. Instead one should look at the expected effects that a secession would have on their income per capita — that is, to the expected difference between income per capita in the region before and after a secession. For example, in the classic article on the political economy of breakups by Patrick Bolton and Gerard Roland (Quarterly Journal of Economics, November 1997), a majority of people in a region may prefer a secession for economic reasons if they expect a tax and redistribution policy closer to their preferences after the breakup. In that setting, a secession may be preferred by a majority of people in a richer region, but also in a poorer region. What matters to the supporters of separatism is expected changes in tax and redistribution policies, which depend on the differences between average income and median income before and after the secession.

Second, one may believe (with plenty of good reasons) that separatists’ main motives are not economic, and still find a strong influence of economic conditions on separatist movements. Again, one should look at marginal effects. People in a region may want to secede for purely cultural/linguistic reasons, even though that may reduce their income per capita. But the expected reduction in income per capita can be higher or lower depending on economic conditions. For instance, in a world of protectionism and high barriers to trade, a secession may turn a small region into a very poor, even non-viable autarkic economy, while in a world of high international openness and free trade the economic costs of secessions are much smaller. Hence, an increase in economic integration tends to strengthen separatism, although separatist preferences themselves may be motivated by purely non-economic considerations. For example, French-speaking people in Quebec may want to form their own country for purely cultural and linguistic reasons, but international economic integration with the United States (NAFTA) substantially reduces the costs of secession, and therefore makes separatism politically and economically viable within Canada. Consider an analogy with individual decisions: most artists choose their profession for non-monetary reasons (say, they love painting or composing music, even though they could make more money in other professions), but changes in the availability of scholarships and grants for artists are likely to make a difference to the supply of art (artists need to eat too).

The above examples illustrate a more general point: before ruling out “economic conditions” (or any other variables, for that matter) as explanatory variables, it is crucial to specify the mechanisms through which those variables may or may not influence separatist preferences and behaviors. Otherwise, one may rule out important variables based on implicit (and perhaps inexact) theoretical assumptions.

In spite of the above reservations and caveats, I think that economic historians and political economists can learn a great deal from Bertrand Roehner’s intriguing and stimulating book, which I recommend to all EH.NET readers.

Enrico Spolaore is the author of The Size of Nations (with Alberto Alesina), MIT Press, 2003.

Subject(s):Urban and Regional History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

The Monetary History of Gold: A Documentary History, 1660-1999

Author(s):Duckenfield, Mark
Reviewer(s):Officer, Lawrence H.

Published by EH.NET (December 2004)

Mark Duckenfield, editor, The Monetary History of Gold: A

Documentary History, 1660-1999. London: Pickering & Chatto,

2004. xix + 536 pp. ?99/$160 (hardcover), ISBN: 1-85196-785-0.

Reviewed for EH.NET by Lawrence H. Officer, Department of

Economics, University of Illinois at Chicago.

A Review Article

A new collection of historical documents is always welcomed by

scholars. This is especially so if the collection is

theme-oriented, so that specialists can acquire new information or

readier access to existing information. Therefore the present

volume, presented as a documentary history of gold, warrants

careful review. The editor, Mark Duckenfield, explains that the

project was financed by the World Gold Council?s Public Policy

Centre ?to raise awareness among journalists, scholars and the

informed public of gold?s role as a monetary asset? (p. xvii). This

review will be concerned solely with the book?s place in the

scholarly literature.

What is the World Gold Council? According to its website

(http://www.jewelrynet.com/WorldGold/),

?the World Gold Council is a non-profit association of the world?s

leading gold producers, established to promote the use of gold …

and its promotional activities cover markets representing some

three quarters of the world?s annual consumption of gold.? It is

interesting, therefore, that the volume contains no documents that

deal with gold production, gold consumption, or gold investment.

Indeed, these categories do not even enter the index, which, at

over eleven pages, is not short. Only in one editorial passage does

the editor discuss the role of gold as an investment. Duckenfield

sees gold and the stock market as investment alternatives, and

observes that ?the stock market?s decline since 1999, as well as

the increase in international tensions as a result of the terrorist

attack on the World Trade Center in New York on 11 September 2001

and the second Gulf War in 2003, brought a resurgence in the gold

market as investors returned to gold as a traditional safe-haven in

troubled times? (p. 327). He explicitly states that ?gold … [is]

a non-interest bearing asset.? Notwithstanding the sponsorship,

this is a book that adopts a scholarly viewpoint and can be

appreciated by historians.

In this review the book is placed in context with existing

collections of historical documents that have the same,

gold-oriented, theme — in whole or in part. These books are listed

in Table 1, in chronological order; full citations are provided in

the references at the end of this review.

Table 1

Pages Devoted

Exclusively to Historical Documents

Book

Pages

Number

Percent of Book

U.S. Senate (1879)

596

65

Horton (1887)

87

28

Laughlin (1896)

38

11

Huntington and Mawhinney (1910)

812a

100

Shrigley (1935)

87

81

Krooss (1969)

3232a

100

Duckenfield (2004)

536a

100

a Includes index.

In terms of absolute size Duckenfield is in the middle of the

pack, fourth out of seven in total pagination. With 100-percent

devotion to documents, the book?s relative size in this respect is

shared by only two other collections: Huntington and Mawhinney

(subsequently referenced as ?Huntington?) and the massive,

four-volume work of Krooss. Considering the other books in Table 1,

what else is in them apart from historical documents and associated

editorial commentary? U.S. Senate contains proceedings of the

International Monetary Conference of 1878. These are presented as

contemporary recording rather than historical documentation;

therefore these proceedings are not included in the

historical?document pagination. Horton and Laughlin are each mainly

a monetary treatise. Shrigley offers non-document information,

quantitative and qualitative, on gold and the Bank of England (of

which, more below). It may be noted that S. Dana Horton, a U.S.

delegate to international monetary conferences, not only authored

and edited the historical documents in Horton (1887) but also had

been responsible for the historical documents included in U.S.

Senate (1879).

Table 2 summarizes the anatomy of Duckenfield and the six other

works. In Table 1 all historical documents are included to obtain

the page count; in Table 2 only those documents that fall within

categories covered by Duckenfield are incorporated. (These are

called ?pertinent documents,? in this review.) Some judgment on the

part of this reviewer is involved. For example, Duckenfield has one

document pertaining to the greenback period as a suspension of

specie payments; documents under that category are included for the

other works. An opposite example: Duckenfield has a document on

goldsmith banking; this reviewer judges that insufficient to

incorporate the category ?commercial banking.? Again, measured by

number of documents, Duckenfield is fourth among the seven

collections.

Table 2

Anatomy of Duckenfield

and Related Works

?

?

Book

?

No. of

Docs.a

Sections

Editorial Commentary:

by

?

No.

?

Basis

Sub-sections

?

Vol.

?

Section

?

Document

U.S. Senate

91

5

countryb

noc

yes

nod

no

Horton

40

2

topic

no

no

no

noe

Laughlin

22

6

countryf

no

no

no

no

Huntington

142g,h

4i

topic

yesj

no

no

no

Shrigley

20

1

yes

no

no

Krooss

123h

10

time

yesk

yesl

yes

no

Duckenfield

153

3

time

no

yes

yes

yes

a Of type in Duckenfield volume.

b Also ?Miscellaneous? and ?Monetary Union.?

c Except for one subsection.

d Except for one section.

e Except for one document.

f Also ?Latin Monetary Union.?

g ?Acts? only. Excluded are ?Revised Statutes,? of

which 162 are pertinent.

h Excluded are documents in categories omitted by

Duckenfield: government financing, commercial banking, U.S. central

banking, U.S. paper money (except for greenback period).

I Of which only two are of type in Duckenfield

volume.

j ?Acts? and ?Revised Statutes.?

k Basis: by topic.

l By Paul A. Samuelson.

All the collections except Shrigley are divided into sections,

some chronological, some by country, some by topic, as Table 2

shows. Only two of the works have systematic subsections. Within

sections and subsections, ordering is uniformly chronological.

Regarding editorial commentary, Duckenfield is unique, and deserves

praise, for having editorial introductions in all three

manifestations: for the entire volume, by section, and for the

individual documents within each section. Because entries in a

collected volume of documents generally are excerpts rather than

the entire documents, this reviewer appreciates Duckenfield?s

practice of calling attention to non-reprinted parts of

documents.

The three sections of Duckenfield warrant discussion, here in

the context of editorial commentary. The introduction to the first,

?The Rise of the Gold Standard, 1660-1819,? is concerned entirely

with British monetary history. Duckenfield observes England?s

movement from bimetallism to a de facto gold standard in 1717. He

notes the interruption of the Bank Restriction Period in this

process. It is reasonable to confine discussion to Britain, because

it was the only country on a gold standard well into the nineteenth

century. However, it would have been in order to discuss the

bimetallist systems of other countries.

The second section, ?The Heyday of the Gold Standard,

1820-1930,? has a broader introduction, including topics such as

the expansion of the gold standard, the price specie-flow

mechanism, the U.S. shift from an effective silver to an effective

gold standard (with the interruption of the greenback period), the

deflation of 1873-1896, and London as the center of the gold

standard. The end of the classical gold standard with World War I

is noted, as is the return to the standard after the war.

Duckenfield discusses the issue of convertibility but can be

criticized for ignoring that of credibility (of countries?

commitment to convertibility at the existing mint price), which

underlay the success of the classical gold standard.

In his introduction to the third section, ?After the Gold

Standard, 1931-1999,? Duckenfield sees a weak institutional

structure as the cause of instability of the interwar gold

standard. ?Domestic social tensions? and the ?prospect of

substantial budget deficits? drove countries off the gold standard.

War and ?new social realities? meant that political and economic

institutions that supported the gold standard could not overcome

political demands that occurred during the Great Depression. Again,

reference to the issue of credibility, now the lack thereof, in

government?s commitment to convertibility would have been in

order.

The introduction also discusses the International Monetary Fund,

the role of the dollar, and the ?Triffin dilemma? (the trade-off

between liquidity and confidence). On the U.S. suspension of gold

convertibility in 1971, Duckenfield writes: ?Ironically, although

it was the weakness of the dollar relative to gold that brought

about the collapse of the Bretton Woods system, it was gold that

was removed from its primary position as a monetary asset while the

devalued dollar became even more crucial to the smooth operation of

the international economy? (pp. 326-327). It can be argued, rather,

that it was U.S. commitment to a fixed dollar price of gold that

artificially made gold the first?class monetary asset.

Table 3 divides the pertinent documents of each work into

chronological sections (pre?1820, 1820-1930, post-1930)

corresponding to the Duckenfield partitioning, except that Horton?s

original partitioning is retained, because it is so close to that

of Duckenfield chronologically. Of course, the four documents

antedating Shrigley lack the third (post?1930) section, because of

the date of publication.

Table 3

Number of Pertinent

Documents — by Type and Time Period

?

Book

?

Period

No. of Documents

Official

Private

U.S. Senate

1666-1819

46

5

1820-1877

36

4

Horton

1663-1817

26

5

1818-1882

9

0

Laughlin

1778-1819

2

0

1820-1893

20

0

Huntington

1778-1819

20

0

1820-1908

122

0

Shrigley

1694-1819

2

0

1820-1930

14

2

1931-1933

1

1

Krooss

1652-1819

15

0

1820-1930

64

7

1931-1968

35

2

Duckenfield

1660-1819

34

18

1820-1930

34

2

1931-2004a

61

4

a Although the title of the book states the full

period as 1660-1999, one document (in an appendix) pertains to the

year 2004.

What are the components of official versus private documents?

Official documents consist of country and international items.

Country official documents include acts, resolutions,

announcements, reports, memoranda, communications, statements,

declarations, representations, speeches, notes on petitions,

parliamentary diaries, proclamations, mint correspondence, and

press conferences. International documents (all official) consist

of treaties, conventions, resolutions, agreements, press releases,

communiqu?s, and decisions. Private documents include treatises,

books, pamphlets, diaries, discourses, petitions, speeches,

reports, correspondence, memoirs, newspaper articles, and

memoranda.

As one would expect in collections of documents, the vast

majority of documents are official, in all the works. Duckenfield

is unique in having private documents constitute a significant

proportion — over one-third the total number — of documents in

the pre-1820 period.

Table 4 offers an alternative division of pertinent documents –

by country (Britain, United States, other countries), with

international as a separate category. For private documents, the

subject country is taken. For official documents, the country

category is the country of the official document rather than the

subject country or countries. All seven works concentrate on

Britain and/or the United States. Huntington and Krooss deal only

with the United States, Shrigley only with Britain. Laughlin has

U.S., other-country, and international — but not British –

documents; while Horton includes only British and international

documents. The only works with documents in each category are the

earliest and latest: U.S. Senate and Duckenfield. As would be

expected, U.S. Senate has somewhat more U.S. than British documents

overall (but not for the pre-1820 period).

Table 4

Number of Pertinent

Documents — by Country and Time Period

?

Book

Period

Number of Documents

Britain

United States

Other Countries

International

U.S. Senate

1666-1819

26

20

5

0

1820-1877

7

17

2

14

Horton

1663-1817

31

0

0

0

1818-1882

5

0

0

4

Laughlin

1778-1819

0

1

1

0

1820-1893

0

13

4

3

Huntington

1778-1819

0

20

0

0

1820-1908

0

122

0

0

Shrigley

1694-1819

2

0

0

0

1820-1930

16

0

0

0

1931-1933

2

0

0

0

Krooss

1652-1819

0

15

0

0

1820-1930

0

71

0

0

1931-1968

0

37

0

0

Duckenfield

1660-1819

50

1

1

0

1820-1930

22

7

5

2

1931-2004

27

23

4

11

One would predict a balanced British/U.S. division on the part

of Duckenfield, given that neither the book-title nor the sponsor

is specific-country oriented. Then one would be disappointed,

because a British emphasis is present in every period. The

asymmetry is apparent in several ways:

1. There are nine documents of the Bank Restriction Period but

only three from the greenback period and nothing on other U.S.

suspensions of specie payments.

2. There is an entry for the Bank of England charter, but not

for the Federal Reserve Act.

3. There are more entries for Acts of Parliament than for U.S.

legislation.

4. The British Coinage Act of 1870 is reprinted in full; not so

the U.S. Coinage Act of 1873, which admittedly is a longer Act.

In fairness to Duckenfield, it should be noted that, while

Winston Churchill?s famous Budget Speech of 1925 returning the

United Kingdom to the gold standard is excerpted, William Jennings

Bryan?s at least equally famous ?Cross of Gold? Speech is reprinted

in full. Also, there are many entries involving U.S. abandonment of

the gold standard in 1933-1934.

Notwithstanding the generally British orientation of

Duckenfield, Horton is the better source for material on the

history of the guinea — perhaps the most famous coin in British

history, and, along with the (new) sovereign introduced in 1817,

one of the country?s two most important coins. Only seven of

Horton?s 31 documents on the guinea are included in Duckenfield.

The guinea is notable as a coin for two reasons. First, its initial

value of 20 shillings corresponded to the pound sterling.

Interestingly, the guinea was not the first coin with this

property; that distinction belongs to the old sovereign, introduced

in 1489. Second, the fineness of 11/12th was firmly established

with the guinea (and continuing with the new sovereign); but again

the guinea was not the first coin with that fineness (that honor

belonging to the crown in 1526).

Shrigley, totally specialized on Britain, has a specific theme

within gold. She writes: ?The purpose of this collection of

documents is to show the official position of gold as a marketable

commodity from the Incorporation of the Bank of England to the Gold

Standard (Amendment) Act of 1931? (p. vii). Of her 20 documents, 12

are not in Duckenfield.

Table 5 breaks down the ?other-countries? category of Table 4

into specific countries. Duckenfield does not provide a rationale

for his concentration on Switzerland in the 1920-1930 and post-1930

periods in this respect, nor for inclusion of material on countries

such as Chile and Yugoslavia post-1930. It is also arguable that

France and Germany deserve greater attention than all three works

give these countries.

Table 5

Number of Pertinent

Documents — by ?Other Country? and Time Period

?

Book

?

Period

Number of Documents

France

Germany

Switzerland

Remaining

U.S. Senate

1666-1819

5

0

0

0

1820-1877

0

2

0

0

Laughlin

1778-1819

1

0

0

0

1820-1893

0

2

0

2a

Duckenfield

1660-1819

1

0

0

0

1820-1930

1

1

2

1b

1931-2004

1

0

2

1c

a Italy, Austria.

b Chile.

c Yugoslavia.

Table 6, similarly, partitions the ?international? category of

Table 4. Duckenfield can perhaps be criticized for neglecting the

international monetary conferences of the nineteenth century. Yet

he deserves praise for including the, post-World War I, Treaty of

Versailles — relevant because of the gold-denomination of the

monetary obligations imposed on Germany.

Table 6

Number of Pertinent

International Documents — by Organization and Time Period

?

Book

Period

Number of Documents

?

International Monetary

Conferences

Latin Monetary

Union

Bank of International

Settlements

International Monetary

Fund

?

Central Banks

?

?

Other

U.S. Senate

1820-1877

12

2

Horton

1818-1882

4

Laughlin

1820-1893

3

Duckenfield

1820-1930

1

1a

1931-2004

2

4

3

2b

a Treaty of Versailles.

b Tripartite Agreement, Smithsonian Agreement.

Duckenfield deserves praise on a number of counts. First, for

some documents, the contents of appendices are listed. (Indeed,

that is sometimes the full text of the entry.) These contents can

be useful references for the scholar. Second, Duckenfield makes use

of generally neglected sources: Bank of England archives and the

House of Lords Record Office. Third, some documents may be new to

historians. Examples: a ?confidential telegram? (one of many) sent

on September 20, 1931, from the Bank of England to domestic and

foreign correspondents; the Rothschild letter on fixing the price

of gold in 1939, just prior to World War II.

A serious limitation of the Duckenfield volume is the neglect of

quantitative information. Only three documents have a quantitative

aspect: the original Articles of Agreement of the IMF, which

contains the list of country quotas; the IMF Executive Board

decision on the Smithsonian Agreement which lists exchange rates

for member countries; and, perhaps most interesting to historians

because probably not available elsewhere, three documents from the

Bank of England?s Archives providing data on gold holdings of

countries occupied by Germany, in 1940. In contrast, the documents

in U.S. Senate contain many useful tables on U.S. exchange rates,

gold and silver prices, and coinage.

Shrigley presents several useful time series (which are not

included in the list of her documents, in Tables 2-4): the annual

gold-silver market price ratio, 1867-1932; the London market price

of gold, annual 1870-1932, daily 1919-1925; and the London market

price of silver, monthly 1833-1933. The last is an insert at the

end of the book, and includes also annual data on silver coined in

England, the amount of bills and telegraphic transfers drawn in

England on Indian governments, exports of silver to the East,

imports of silver, average Bank Rate, and remarks (generally

historical). It is a large and impressive table, which,

unfortunately, because not attached to the volume, may be missing

from many copies. Not a time series, but nevertheless useful, is a

list of Governors of the Bank of England from inception to 1920,

along with dates of service.

In conclusion, the Duckenfield volume is a useful addition to

collections of historical documents on gold, and would be best

utilized by scholars in conjunction with existing works of a

similar ilk.

References:

Horton, S. Dana (1887). The Silver Pound and England?s

Monetary Policy since the Restoration, together with the History of

the Guinea, illustrated by contemporary documents. London:

Macmillan.

Huntington, A. T., and Robert J. Mawhinney, eds. (1910). Laws

of the United States Concerning Money, Banking, and Loans,

1778-1909. National Monetary Commission, Senate Document No.

580, 61st Congress, 2nd session. Washington:

Government Printing Office.

Krooss, Herman E., ed. (1969). Documentary History of Banking

and Currency in the United States, four volumes. New York:

Chelsea House in association with McGraw-Hill.

Lauglin, J. Laurence (1896). The History of Bimetallism in

the United States. New York: D. Appleton.

Shrigley, Irene, ed. (1935). The Price of Gold: Documents

Illustrating the Statutory Control through the Bank of England of

the Market Price of Gold, 1694-1931. London: P.S. King &

Son.

U.S. Senate (1879). International Monetary Conference?held?in

Paris, in August 1878, under the auspices of the Ministry of

Foreign Affairs of the Republic of France. Senate Executive

Document No. 58, 45th Congress, 3rd session.

Washington: Government Printing Office.

Lawrence H. Officer is Professor of Economics at University of

Illinois at Chicago. As Editor, Special Projects, EH.Net, he has

recently completed ?What Is Its Relative Value in U.K. Pounds,? a

calculator available on the EH.Net website (http://eh.net/hmit/ukcompare).

Copyright (c) 2004 by EH.Net. All rights reserved. This work may

be copied for non-profit educational uses if proper credit is given

to the author and EH.Net. For other permission, please contact the

EH.Net Administrator (administrator@eh.net; Telephone:

513-529-2229). Published by EH.Net (December 2004). All EH.Net

reviews are archived at http://eh.net/BookReview.

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

A History of Monetary Unions

Author(s):Chown, John F.
Reviewer(s):Officer, Lawrence H.

Published by EH.NET (August 2004)

John F. Chown, A History of Monetary Unions. London: Routledge, 2003. ix + 369 pp. $129.95 (cloth), ISBN: 0-415-27737-X.

Reviewed for EH.NET by Lawrence H. Officer, Department of Economics, University of Illinois at Chicago.

John Chown, a partner in Chown Dewhurst LLP, has written a book that, notwithstanding its title, is more like a general monetary history (complementing the author?s previously published History of Money, London: Routledge, 1994) than a history of monetary unions. The book contains good, summary histories of many countries? monetary experiences, and it is readable and witty. In fact, the volume is like a grand sweep of world monetary history. It is encyclopedic in the number of countries covered, including little-known experiences (such as Korea). There are some nice tidbits of information. For example, Russia was the first country to decimalize its currency (in 1704) and the third country (after China and France under John Law) ?to make sustained use of inconvertible paper money.?

While there is no original research, there is certainly original selection of a set of monetary experiences, original organization, and original presentation. The author offers a good descriptive history, but the analysis is not deep. In fact, the book is disappointing from an analytical standpoint. There is no grand analytical theme — or, from the vantage point of this reviewer, any theme. The book could have benefited from a chapter devoted to conclusions — if only in the author?s mind.

Too often, too much is left unsaid. For example, Chown makes blunt statements such as the following: ?The United Kingdom … joined the Snake, but was effectively driven out by market forces six weeks later? (p. 201). One wonders: what were these market forces? Again, ?Exchange controls increase the time between bad economic decisions and their viable consequences; this is both their attraction to a certain type of politician, and the most serious and subtle way in which they damage the economy? (p. 202) — a perceptive comment, but there is no elaboration.

Also, the book is replete with breadth but not depth. The book is composed of 54 chapters! With so many chapters, it stands to reason that many of them are too short. Also, the chapters can be quite disjoint from one another. Sometimes the reader receives the impression of rat-tat-tat from one experience to another. The volume contains too many trees, not enough forest.

Nevertheless, the book is excellent as a chronicle of events. It is a useful reference volume on monetary history, with the virtue of being well readable cover to cover. The book presents in one volume what is available elsewhere in many different sources — and the author is scrupulous in citing sources (except for the tables, only one of which has the source provided). The references to specific-country histories will prove most useful to the monetary historian. It is clear that Chown did a thorough literature research. Perhaps he has too heavy a reliance on ?authority,? but he compensates by writing well. The British orientation and caustic comments on U.K. policy might annoy and amuse American readers.

The volume is mainly a literary history. There are no mathematics and no econometrics. There is some reference to quantitative studies, but this is far from exhaustive. There are only eight tables and no graphs — on a subject that lends itself to quantification. In fairness, the author does provide substantial quantitative information within the text.

The title of the book is misleading, in suggesting that the book deals exclusively with ?monetary unions.? In fact, the book covers the following topics:

1. monetary unions (perhaps with greater concern with formation than functioning)

2. monetary ?disunions? (breaking-up of existing unions)

3. ?not-really? monetary unions (and disunions)

4. ?never-happened? monetary unions (proposed but did not happen)

The usual definition of a monetary union (or ?monetary integration?) is perhaps best presented by W. M. Corden (Monetary Integration, International Finance Section, Princeton University, 1972): permanently fixed exchange rates and permanent currency convertibility (that is absence of exchange controls). Corden sees the former as inevitably involving a union central bank. (Of course, if a smaller country enters the monetary area of a larger one, via a currency board or ?dollarization,? the large country?s central bank functions as the supranational bank.) Chown accepts the first criterion — ?a really permanent fixed rate? (p. 12) — but not the second, and does not require a supranational central bank. This opens the door to a broad interpretation of what are monetary unions (that is, inclusion of topic 3 above in the volume).

Regarding topic 1, true monetary unions, cases of union that result from national political unification (for example, Germany, Italy, Switzerland) are discussed. Beyond that, the Austro-Hungarian Empire and Latin Monetary Union are emphasized. Chown observes, as others have, that the latter organization could have, but did not, lead to a world monetary union; but his eloquence is telling: ?Then, as now, politics and national pride took precedence over economic common sense? (p. 4). It is regrettable that Chown, in a rare neglect of the literature, does not refer to the excellent work of Luca Einaudi (Money and Politics: European Monetary Unification and the International Gold Standard, 1865-1873, Oxford: Oxford University Press, 2001) on the Latin Monetary Union. Chown too readily seems to accept the view that F?lix Esquirou de Parieu, who advocated European and world monetary union, was a French nationalist; whereas Einaudi provides evidence that he was an internationalist.

Chown is very good on European monetary union. He contrasts the actual process of achieving union — economic convergence, followed by irrevocably fixed exchange rates, followed by replacement of national currencies with the euro — with alternative schemes. The monetary union of East and West Germany is termed ?badly conceived,? and it endangered the larger and more-important European monetary union.

Turning to topic 2, Chown emphasizes monetary ?disunions? as much as unions. The disintegration of the currency unions (following disintegration of the political unions) of the Austro-Hungarian Empire, Yugoslavia, Czechoslovakia, and the Soviet Union are discussed. Also receiving attention are the break-ups of colonial currency areas and the sterling area, and the U.S. Civil War. Chown comments that the last ?contradicts the idea that monetary union makes for a lasting peace.? This reviewer finds that statement to rest on a simplistic straw man.

Topic 3, ?non-really? monetary unions (and disunions), is not termed so by Chown, who has an overly broad concept of what is a monetary union. He includes metallic standards (gold, silver, bimetallic) under this rubric. So the historic gold and bimetallic standards receive attention, both as union and disunion (breaking-up). Much is made of the collapse of bimetallism and its deleterious implications for c ountries on a silver standard. Even the Bretton Woods system is a topic of study. Here Chown acknowledges: ?The Bretton Woods system was not a monetary union but was, in its day, the nearest approach we had? (p. 193).

Treatment of metallic standards (to say nothing of Bretton Woods) as monetary unions is unusual, to say the least. Chown can also be criticized for not explaining why the U.K. made the mistake of returning to gold at the prewar mint price in 1925 and for saying very little about why the gold standard collapsed in 1931. He mentions ?declining confidence in banks,? but why this decline? The entire discussion of the gold standard suffers from neglect of the issue of credibility.

Topic four, ?never-happened? monetary unions, treats proposed U.S./Canada (possibly including Mexico) and Australian/New Zealand unions. Chown observes that, for political reasons, Canada objects to monetary union with the United States. However, it is also true that Canada historically has, from time to time, revealed a preference for monetary policy independent of (or at least not wholly dependent on) that of the United States — the proof being Canada?s occasional predilection for a floating exchange rate even when most of the world was on a fixed rate. Here, as usual, Chown mainly presents the views of others (?authorities,? one might say). Interestingly, while Chown comments negatively on a proposed Argentina/Brazil monetary union — ?This might well have been disastrous for both countries? (p. 312) — he does not make the obvious point that inclusion of Mexico as a third party in a North American monetary union is also not sensible.

An omission from a book that takes so broad a view of monetary unions is monetary disunions that never happened, for example, monetary implications of a secession of Quebec from Canada.

All in all, Chown has produced a useful work for the monetary historian and an interesting book for non-specialists.

Lawrence H. Officer is Professor of Economics at the University of Illinois at Chicago. He is also Editor, Special Projects, at EH.Net. His recent research concentrates on historical-data development, both for printed journals and for the ?How Much Is That?? section of EH.Net. An example of the former is his article ?The U.S. Specie Standard, 1792-1932: Some Monetarist Arithmetic,? Explorations in Economic History, Vol. 39, No. 2 (April 2002), pp. 113-153.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Gold, Dollars, and Power: The Politics of International Monetary Relations, 1958-1971

Author(s):Gavin, Francis J.
Reviewer(s):James, Harold

Published by EH.NET (January 2004)

Francis J. Gavin, Gold, Dollars, and Power: The Politics of International Monetary Relations, 1958-1971. Chapel Hill: University of North Carolina Press, 2004. xiii + 263 pp. $45 (cloth), ISBN: 0-8078-2823-8.

Reviewed for EH.NET by Harold James, Department of History, Princeton University.

Francis Gavin has written a study of U.S. administrations and their approach to dollar politics between 1958 and 1968, when he identifies the suspending of the London gold pool in March 1968 as the effective end of the Bretton Woods system. From then, the world was on a dollar standard, and there were two separate prices for gold, one for the private market and one for official transactions. Events up to the better known crisis of August 1971, when the official dollar price of $35 an ounce was also ended, are treated only in a summary chapter. The major emphasis of this book is on how dollar politics and security politics interacted in the Kennedy and Johnson administrations, and in particular how a continual worry about balance of payments deficits forced the U.S. government to think about the reduction of military expenditure overseas, especially in Europe. One major theme is American-German negotiations about the “offset,” i.e. German spending on U.S. military products to counterbalance the cost to the United States of stationing troops in Germany, and pressure on the Bundesbank to hold dollar reserves. This, incidentally, has also been the subject of a fine study recently by Hubert Zimmermann: Money and Security: Troops, Monetary Policy and West Germany’s Relations with the United States and Britain, 1950-1971, New York: Cambridge University Press, 2002. The well known tensions between the United States and France and de Gaulle and Rueff’s criticism of the U.S.’s “exorbitant privilege” of forcing its dollars and deficits on the world are also examined in depth. Great Britain’s sterling crises and the relationship between strains on sterling (at that time the other major world reserve currency) and strains on the dollar are handled conventionally. Japan, which became a major focus of U.S. concerns right at the end of the decade, and especially in 1970 and 1971, is not treated in any depth. And Canada, which had abandoned a fixed exchange rate regime, is not treated at all, presumably because Gavin found no evidence that anyone ever thought of Canada’s non-compliance with Bretton Woods as a problem. There is also little discussion of the places where multilateral financial diplomacy took place: the G-10, the OECD’s Working Party Three, or the International Monetary Fund.

The evidence offered by Gavin about the state of thinking about the U.S. deficits is interesting. There is almost universal agreement among U.S. officials and policy makers that something is wrong. On the other hand, all the figures from the Kennedy and Johnson administrations will only think about flexible exchange rates in order to reject the suggestion (as for instance W.W. Rostow did). It is surprising that Gavin does not look at greater length at the debates among economists at the time, and about the arguments for free capital mobility and flexible rates. Milton Friedman is mentioned only in passing, and Gottfried Haberler, who headed a taskforce for the transition to the Nixon administration, not at all.

Gavin pitches his account as being at odds with the conventional wisdom on the subject. This sounds like a peculiar claim about modern economists’ discussion of the problems of Bretton Woods, where there is an almost universal consensus about the problems of the fixed exchange rate system and simultaneous capital flows (which started to develop on a large scale in the course of the 1960s). So most economists will say to this book: so what? On the other hand, he is probably right about many historians and political scientists, who have treated dollar politics under Bretton Woods as part of the exercise of U.S. hegemony and have essentially, since David Calleo and Robert Gilpin’s work, taken over the contemporary French criticism of Rueff and de Gaulle. In the context of this literature, it is helpful to see what U.S. policy makers were saying and thinking, and how worried they were by the inherent instability of their situation and the eventual likelihood of a dollar collapse. The exercise of linking discussions of security issues and economics and finance is also a welcome one. And the archival evidence (which provides the core of the book) is fascinating and well handled. There are some fascinating novelties: that at the end of his administration, President Eisenhower suggested replacing gold as the major measure of value with uranium and plutonium (p. 49). The idea was not taken seriously, but it does demonstrate something important about the gold standard of the past: that an ultimate source of value was the use of gold in providing a military use (to pay soldiers), and that in the modern world the military role was taken more and more by nuclear weapons.

But the heavy dependence on archives makes, I think, for a greater sense of crisis about the whole decade than is really warranted by a comparison of the 1960s with other eras. Policy makers live and breathe in a world of continual problems and crises: that is how they carve out their influence. Reading this book in 2004 for this reviewer has a paradoxically reassuring effect: that the policy-makers and journalists can be very worried, but the problems are still fundamentally manageable. I believe many readers will be struck by the similarity of many of the historical views recorded here with very contemporary debates. De Gaulle’s phrasing was very striking: “The United States is not capable of balancing its budget. It allows itself to have enormous debts. Since the dollar is the reference currency everywhere, it can cause others to suffer the effects of its poor management. This is not acceptable. This cannot last” (p. 121). The German government was perceived to be moving worryingly close to France. The U.S. government concluded that the Germans “can easily develop neuroses that can be catastrophic for all of us. They did it before and they can do it again. A neurotic, disaffected Germany could be like a loose ship’s cannon in a high sea” (p. 136). As a result the discussions between President Johnson and Chancellor Erhard were envisaged by officials as “one of the most important decisions the U.S. has faced in the postwar period” (p. 148).

Such language raises the important issue of whether we should take the crisis rhetoric at face value. There was not in the end any major clash in this case, at least not something that deserves to go into the textbooks. Erhard reached an agreement on the offset and the Bundesbank agreed not to convert dollars to gold. Six American divisions stayed in Germany and there were no troop reductions. There is also, perhaps surprisingly given the overall thesis of the book, no evidence that the financial worries, however acute they were, actually constrained U.S. geopolitical decisions. Was there even one fewer U.S. soldier in South East Asia as a result of concerns about the dollar? In the end, in that kind of debate, the security concerns overrode the financial debate. When modern neo-Gaullists use the words and thoughts of the General and say that U.S. deficits are not acceptable and cannot last, are they right or wrong? And over what time period is the appropriate calculation about “cannot last”? The major contribution of this book, in my opinion, is to draw attention to the relationship between the language of crisis in international monetary relations and the underlying economics which are not necessarily driven by political crisis.

Harold James is Professor of History at Princeton University and author of The End of Globalization (Harvard University Press, 2001) and International Monetary Cooperation since Bretton Woods (Oxford University Press, 1996).

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

State Banking in Early America: A New Economic History

Author(s):Bodenhorn, Howard
Reviewer(s):Rousseau, Peter L.

Published by EH.NET (November 2003)

Howard Bodenhorn, State Banking in Early America: A New Economic History. New York: Oxford University Press, 2003. ix + 355 pp. $45 (cloth), ISBN: 0-19-514776-6.

Reviewed for EH.NET by Peter L. Rousseau, Department of Economics, Vanderbilt University.

The antebellum period in U.S. history is fertile ground for economists and economic historians seeking to understand the linkages between financial factors and macroeconomic performance. This is especially so because the topic has not, until recently, attracted much attention among scholars of the period. I suspect that this is for two reasons. First, developments in agriculture, commercial trade, and internal improvements in the first sixty years of the nation’s history appear, to many, to have had a more direct link with the nation’s early growth, diverting attention from the capital markets that made these advances possible. Second, the preoccupation of financial history with banks rather than with financial systems more generally leads inevitably to an over-emphasis on the rather checkered record of antebellum banking. Nowhere is this more apparent than in the traditional view that problems in the nation’s early banks usually began with deviations from the real bills doctrine, in which self-liquidating commercial paper was to be a bank’s primary asset, and backed by as much specie and as little real estate as possible. More recent scholarship recognizes the potential for missed investment opportunities and for a perverse elasticity of money that can follow from conservative practices such as these, and has contributed to the view that state banks — even those managed under real-bills principles — could not have added much punch to early U.S. growth.

Howard Bodenhorn’s second book, titled State Banking in Early America: A New Economic History, takes on the challenge of explaining how banks did contribute to the growth of the antebellum economy. The task is formidable because an enormous body of research on early U.S. banking has, if anything, shown that successful banks did not conform to simple principles that worked universally. This means that idiosyncratic practices in various states and at various times must be placed in the context of regional growth, piece by piece. The case might have been more convincing had federal banks, state banks, and markets been considered together, as Robert Wright does in The Wealth of Nations Rediscovered (Cambridge University Press, 2002), but Bodenhorn still does a respectable job of synthesizing the literature on early U.S. banking and placing it in a broader context.

The early chapters (2 and 3) consider difficulties faced by banks in navigating the often-politicized process of obtaining charters, compensating states for them, and serving the varied lending needs of the communities in which they operated. Emphasis is on just how well banks were able to develop governance structures under difficult circumstances that reduced informational asymmetries along the corporate chain of command. Bodenhorn then asserts that it was deviations from the real-bills doctrine that, when not leading to non-performing loans and bank failure, were most effective in promoting entrepreneurship and growth. In terms of impact, however, this may be an instance of seeing the glass as 1/4 full rather than 3/4 empty. This is not to say that banks never made loans to entrepreneurs, and that these loans did not improve economic conditions, but it is likely that the effects of state banks on economic growth in the early United States were more a result of growth in their numbers and in the resources that became available to them, than the quality of their allocation decisions.

Bodenhorn then considers banking systems region-by-region, starting with New England (chapters 4 and 5). In revisiting how kinship ties affected the allocation of credit (i.e., the so-called “insider-lending” hypothesis), he raises the important question of why uninformed outsiders would choose to hold minority shares or lodge deposits with banks that might divert returns from them while advancing the interests of a core group of insiders. Bodenhorn contributes the insight that minority insiders, related by kinship to the majority shareholders, held similar interests to outsiders, and could thus monitor the bank’s practices for them. This augments the simpler view that capital scarcity was at the heart of insider lending with a plausible story of its advantages in reducing the severity of problems in firm governance.

Attention then turns to the Suffolk System, which allowed for the clearance of New England bank notes at par. The system should have been an improvement over gross clearings, but had one serious flaw, namely that costs fell primarily on country banks that saw their notes redeemed more rapidly under the Suffolk system than would have otherwise occurred. By inverting the logical cost structure to favor those Boston bankers who had the most to gain from the system, the Suffolk Bank created a structure which, though working for years, collapsed when the Bank of Mutual Redemption emerged as a viable alternative to its coercive practices. Bodenhorn submits the Suffolk Bank as an example of how an innovation, however flawed, worked in a particular place and time to improve the flow of credit and make a rapidly monetizing economy more efficient.

The next three chapters (6, 7, and 8) focus on the Mid-Atlantic States. After describing how the state interfered with the free allocation of bank credit in New York, Pennsylvania, and Maryland early on, Bodenhorn considers the relative success of New York’s Safety Fund in establishing confidence among holders of bank notes, and the system’s fatal inability to maintain this confidence by winding up troubled banks in a timely manner when faced with the depression of the 1840s. The experience showed that liability insurance could be used effectively, but that some form of central banking would be needed to administer the system and to serve as a lender of last resort. This was not to be, of course, for nearly another century. Instead, New York turned to free banking. The ability to issue notes based on holdings of government bonds was an attractive feature of the free banking legislation, and allowed the number of banks to expand rapidly. And while it is easy to focus on the problems associated with free banking, Bodenhorn takes a more balanced stance, reiterating Richard Sylla’s point that the real contribution of free banking was to introduce the notion of free incorporation, which encouraged entrepreneurship.

When considering the South and West in chapter 9, Bodenhorn describes a set of banking systems that drew eclectically upon the experiences of other regions to serve the credit needs of agriculture. As the South and West have received relatively less scholarly attention than banking in other regions, the account here is particularly useful.

Overall, I would recommend the book to scholars interested in a fresh discussion of antebellum banking. It is, however, largely a synthesis of older research in the area, and Bodenhorn’s ready adoption of the “accepted views” of various historical events gives the impression that little has been done recently to sharpen our views of them. Nonetheless, the book does provide answers to several questions about finance and growth in early America that had interested this reader for some time. How much did state-level banking practices contribute to growth? Perhaps not all that much in general, but the interaction of these practices with other institutional characteristics of the regions in which they were implemented had important local effects. Were particular institutional structures clearly superior to others? Probably not, since states both succeeded and failed with a myriad of approaches that cannot be reduced to a simple set of rules.

These questions and answers relate closely to the modern debate on banks vs. markets, or Anglo-American vs. German-style financial systems. The conclusion of this literature seems to be that financial development matters for the agglomeration of capital, and that the methods by which this finance is administered are of secondary importance. The early United States saw rapid expansion of banks and bond, stock, and insurance markets, starting almost immediately from the adoption of the Federal Constitution. By 1825 it had a financial system that was world-class. It is difficult to make the case that state banks, or any one component of the system, was the prime mover — all were crucial. Bodenhorn’s book aptly fills in the details of the emergence and meteoric growth of one of these components, and describes how lessons learned in the period of early state banking have gone on to shape the institutional forms that remain with us today.

Peter L. Rousseau is an Associate Professor of Economics at Vanderbilt University and a Research Associate of the NBER. He is the author of “The Permanent Effects of Innovation on Financial Depth: Theory and U.S. Historical Evidence from Unobservable Components Models,” Journal of Monetary Economics (October 1998), “Jacksonian Monetary Policy, Specie Flows, and the Panic of 1837,” Journal of Economic History (June 2002), and “Historical Perspectives on Financial Development and Economic Growth,” Review, Federal Reserve Bank of St. Louis (July/August 2003).

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):19th Century