Published by EH.NET (December 2011)

John Singleton, Central Banking in the Twentieth Century. Cambridge: Cambridge University Press, 2011. xii + 337 pp. $99 (hardcover), ISBN: 978-0-521-89909-3.

Reviewed for EH.Net by Pierre Siklos, Department of Economics, Wilfrid Laurier University.

These are heady times for central bankers. Central bankers appear to be the only ones with tools to prevent a recurrence of a second Great Depression. As John Singleton reminds us in this volume on Central Banking in the Twentieth Century, central bankers were not always viewed favorably. The volume begins by noting that central banks as institutions took on significant roles in the maintenance of price stability, as partners in fostering economic development, and as guardians of financial stability, only after the start of the twentieth century. Next, Singleton explores the role of personalities. Readers are familiar with how Alan Greenspan, former Fed Chairman, loomed large in economic policy circles. However, there are several notable individuals whose place in history deserves attention. Yet, many were likely more influenced by the crises or conditions they faced than the other way around.? The early twentieth century was marked by the creation of the Federal Reserve and the first stirrings of international central bank cooperation. Before World War II, as noted in Chapter 3, monetary policy strategies were dominated by the Gold Standard, which left relatively little room for central banks to maneuver. Hence, questions about central bank independence did not play an important role in policy discussions.

The interwar period, covered in Chapter 4, saw the arrival of several new kids on the block with the spread of newly minted central banks a feature of the international landscape. The interwar years were also difficult years for central banks, the subject of Chapter 5. This period was dominated by the Great Depression, deflation, and exit and re-entry into the Gold Standard. The once powerful central banks in the U.S. and Great Britain were cut down to size as politicians noted the failure of these institutions to guarantee price stability and sustain economic growth.? Keynes, and what was to become Keynesian economics, came into the picture at this point.

The first serious attempts at central bank cooperation are discussed in Chapter 6. The Bank for International Settlements, created to deal with the financial aftermath of World War I, became the forum for central banks to discuss issues of common concern. The BIS, an institution whose life was meant to be cut short more than once, instead would become a powerful, yet relatively small, place where central bankers could help develop international rules of the game in banking and finance.

Singleton views the history of central banking in the last century as consisting of two ?revolutions.? The first, described in Chapter 7, took place in the years following World War II. Central banking and monetary policy played a supporting role to fiscal policy, which became the preferred means of influencing economic outcomes. Central banks were more or less dependent on the government and their influence reached its nadir. This was the era of Keynesian economic policy making, the subject of Chapter 8. The secondary role of central banks was reinforced by the institutional arrangements and the pegged exchange rate regime of the Bretton Woods era, surveyed in Chapter 9. It was also around this time that central banking came into its own in many other parts of the world, and Singleton usefully reviews the experience of central banking in the developing world, and the extent to which central banks in the industrial world served as role models for the monetary authorities in the developing world. It is quite clear, as discussed in Chapter 10, that central banks in the developing world were generally subservient to the objectives of government.

The failure of Bretton Woods led to the Great Inflation of the 1970s and early 1980s, and the volume devotes an entire chapter to theories and policies developed to cope with the problem. This sets up the second revolution in central banking (Chapter 12) wherein governments around the world began legislating central bank independence to guarantee the maintenance of low and stable inflation. The return to prominence of central banks in economic policy making meant that the role of the monetary authority expanded as academics and policy makers debated whether central banks should also supervise the financial system (Chapter 13). Success in controlling inflation led to the spread of inflation targeting around the world and Singleton ably summarizes the background and evolution of inflation control regimes since their introduction in New Zealand in the later 1980s (Chapter 14). Central banking history in the last century is then rounded out, in Chapter 15, by a description of the great experiment at monetary integration that led to the creation of the eurozone. The volume concludes by providing a link between central banking in the twentieth century and the travails since the global financial crisis of 2008 began to suggest that the twenty-first may bring significant new changes to central banking.

Other than a few quibbles, readers interested in the history and evolution of monetary policy will find this a delightful volume. It provides easy to understand summaries of the dominant policy regimes in place between 1900 and the early 2000s. It is careful to avoid drawing too strong conclusions about the current state of central banking. However, many readers will clearly see that how the seeds of the current crisis were sown over the years as monetary policy makers, with more than a little hubris, believed that business cycles were a thing of the past. The volume might have spent a little more time on the conquest of the inflation of the 1970s, and why earlier monetary regime strategies (i.e., exchange rate and monetary targeting) were abandoned in favor of inflation targeting. At the institutional level the book underemphasizes the critical role played by attempts to codify how government and central banks would respond in the event of a serious disagreement or crisis and where ultimate responsibility for the performance of monetary policy lies. Other than that, students of monetary policy will find this volume to be an essential starting point for delving further into the history and practice of central banking.

Pierre Siklos is Professor of Economics at Wilfrid Laurier University and co-editor of Challenges in Central Banking (Cambridge University Press).

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