Published by EH.Net (November 2012)

Geoffrey Wood, Terence C. Mills and Nicholas Crafts, editors, Monetary and Banking History: Essays in Honour of Forrest Capie. Abingdon, UK: Routledge, 2011. xxii + 316 pp.? $140 (cloth), ISBN: 978-0-415-45146-8.

Reviewed for EH.Net by Larry Neal, Department of Economics, University of Illinois.

As Forrest Capie was wrapping up his official history of the Bank of England covering the period 1950s to 1979, a book already a classic in the literature, he was honored at a conference held at the Bank of England organized by his friend, frequent co-author, and former colleague at the Cass Business School in the City University, Geoffrey Wood.? Geoffrey solicited papers from a wide range of fellow monetary and financial historians, even including the present reviewer, and most responded with excellent papers, each of which deserves reading on its own merits.? Alas for this reviewer and potential readers, however, the papers as a group do not cohere with each other in any obvious way.? Reflecting the variety of topics Forrest has dealt with over his career and the number of friends and admirers he has acquired, the papers cover a variety of subjects with a mix of methodologies, which range from time series analysis to narrative accounts of previous Bank of England histories.? Recognizing the problem, the editors have organized the contributions into categories pertinent to the corpus of Forrest?s scholarly work.

Part I, ?Writing History,? has Charles Goodhart disparaging previous histories of the Bank while setting a high bar for Forrest?s then unpublished history (update: Forrest met the bar and then some, see my jacket blurb) and Barry Eichengreen reviewing the literature of ?The New Monetary and Financial History,? that combines analysis of monetary disturbances with due attention to financial innovations and crises.? Goodhart provides a helpful guide to past histories of the Bank of England, while Eichengreen gives a masterly overview of the recent contributions to monetary and financial history covering the period from mid-nineteenth century on.

Part II, ?Crisis Management,? has Mae Baker and Michael Collins evaluating the information exchanges between Bank of England officials and private bank managers before and during the financial crisis of 1836; Eugene N. White arguing that the Banque de France did apply Bagehot?s rule effectively even in financial crises caused by miscalculations in the derivatives markets in Paris in the 1880s; and Charles Calomiris insisting that the Bank of England got the lender of last resort role right by 1856, while the U.S. financial system was repeatedly waylaid by misguided regulation.? Baker and Collins demonstrate how intense were personal communications between bankers and regulators dealing with the vicissitudes of impersonal and international money markets at the outset of global financial markets.? White elucidates how Bagehot?s rule depended on the role of collateral, but it took independent experts to assess the quality of collateral.? Calomiris highlights the problems of inadequate information and capital that plagued the fragmented American unit banking system as contrasted with both the British and Canadian systems of concentrated branch banking.

Part III, ?Money and Interest Rates,? presents three analyses of new financial and monetary time series to show: 1) that a true ?liquidity trap? did not exist even in the depths of Great Depression in the U.S. (Peter Basile, John Landon-Lane and Hugh Rockoff) as shown by the junk bond market of the time; 2) that the separate monetary regimes created in Britain over two-and-a-half centuries created different interactions between inflation and nominal interest rates so that Gibson?s famous paradox of a positive relationships between the price level and the nominal interest rate existed only during the gold standard periods (Terence C. Mills and Geoffrey Wood); and 3) that creating a consistent broad measure of the money supply, M4 retail, over the period of rapid monetary innovation of the 1970s and 1980s allows a stable money demand function to re-emerge despite the Bank of England?s decision to target exchange rates rather than money supply at the end of the 1980s (Alec Chrystal and Paul Mizen).??

Part IV, ?Implications of Economic Integration,? puts together two papers dealing with the flawed design of the euro, first from a comparative historical perspective that briefly surveys four successful monetary unions and two disasters leaving this reviewer convinced that the disaster examples of Argentina and Brazil are most relevant despite the authors? attempt to be optimistic (Michael Bordo, Lars Jonung, and Agnieszka Markiewcz); and then from an inside look at the turf battles between central bank governors and finance ministers that led to the eventual creation of the euro without, however, resolving the issue of bank regulation (Harold D. James).? These are followed by two papers that show how the progressive lowering of tariffs by the United Kingdom after World War II and then the reforms undertaken during the Thatcher era did improve Britain’s productivity significantly and permanently (?Openness, Protectionism and Britain?s Productivity Performance over the Long Run,? by Stephen Broadberry and Nicholas Crafts; and ?The Price-cost Markup in the UK: A Long-run Perspective,? by Nicholas Crafts and Terence C. Mills).? Neither contribution gives much credit to the removal of capital controls or the financial innovations that were key to the Thatcher reforms.

Overall, each reader can decide on the basis of his/her own interests which of these contributions is worth checking in the university library?s copy, but will probably not find it worthwhile to pay the $140 retail price for a personal copy.? They will, nevertheless, be well-advised to go directly to Forrest Capie, The Bank of England: 1950s to 1979, New York: Cambridge University Press, 2011, the completion of which was the occasion for the conference volume.

Larry Neal is professor emeritus of economics, University of Illinois at Urbana-Champaign, research associate of the National Bureau of Economic Research, and visiting professor at the London School of Economics.?? His books include The Rise of Financial Capitalism: International Capital Markets in the Age of Reason (1990) and ?I Am Not Master of Events?: The Speculations of John Law and Lord Londonderry in the Mississippi and South Sea Bubbles (2012).

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