A History of Monetary Unions

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.