Published by EH.NET (August 2002)

Andrew Britton, Monetary Regimes of the Twentieth Century. New York:

Cambridge University Press, 2001. xi + 244 pp. $70 (hardcover), ISBN:


Reviewed for EH.NET by George Macesich, Department of Economics, Florida State


Myth, fact, and fancy tend to dominate monetary affairs. Some themes in the

literature of monetary controversy may be interpreted as involving puzzles

fundamentally vexing to the human mind, since they have provoked discussion

over the centuries with no evident improvement in the general level of

comprehension. Monetary problems are thus as fascinating as they are

perplexing, combining as they do a rich mixture of technical economics,

political repercussions, and even the psychology of symbols and beliefs.

Andrew Britton in his study provides insight into monetary and political

problems as they appear in the twentieth century. He concentrates on

developments in the United States, Europe, and Japan from the period of the

gold standard regime to the end-of-the-century regimes he calls “neo-liberal.”

It is a journey he describes as “to Utopia and back.” In his view “no school of

macroeconomics is right for all time; different theoretical models may be

appropriate.” Macroeconomics must be seen in its historical context if it is to

add to our understanding of economic, and indeed, political processes.

Britton’s narrative pulls together in eight chapters various episodes in the

twentieth century in a clear manner. It is, he writes, a book about history and

economics. Each chapter begins with a section describing the behavior of the

world’s major economies with respect to inflation, output growth, unemployment,

and interest rates. A second section describes the evolution of economic policy

and specifically monetary policy for most of the economies under review. A

third section takes under discussion international monetary systems. In a

fourth section Britton illustrates the interrelationship between economic

behavior and the monetary regime in place.

This is a useful book. Monetary regimes in the world do indeed have a colorful

history. They certainly merit serious study. These regimes have ranged from

stone money to the current fiat monetary regimes. The better known are the

specie (gold and/or silver) regime, under which domestic currency was

convertible into specie, and the fiat (paper) regime. The specie regime, more

or less, dominated until 1971. The fiat paper regime has come to be the world’s

principal regime since 1971.

Other regimes included: bimetallic standard (gold and silver); unimetallic

(gold or silver); gold exchange standard; and post-World War II Bretton Woods.

Over the years government priorities changed from the earlier focus on domestic

currency convertibility to that of general (macro) domestic economic stability.

These changes were prompted by economic (and indeed political) problems during

the interwar years particularly during the Great Depression of the 1930s.

Although the post-World War II Bretton Woods regime with its adjustable peg

exchange rate arrangement maintained an indirect link with gold, the

convertibility into gold was abandoned. Henceforth, the goals would be internal

domestic economic stability and especially “full” employment. The net effect

was to set off the Great Inflation of the 1960s and 1970s. The experience

promoted many monetary authorities worldwide to again emphasize the goal of low

inflation and some sort of rules-based monetary regime. Indeed, by the 1990s a

rules-oriented monetary regime became increasingly popular as a means for

restoring and preserving the credibility of monetary authorities and central


What are we to make of the performance of the several monetary regimes? We have

it from such studies as Milton Friedman and Anna J. Schwartz, A Monetary

History of the United States, 1867-1960 (Princeton: Princeton University

Press, 1963); Michael D. Bordo, “The Classical Gold Standard: Some Lessons for

Today,” Monthly Review, Federal Reserve Bank of St. Louis (May 1981);

Colin D. Campbell and William Dougan editors, Alternative Monetary

Regimes (Baltimore: Johns Hopkins University Press, 1986); Gary M. Walton

and Hugh Rockoff, History of the American Economy, eighth edition

(Orlando: Harcourt, Brace, Jovanovich, 1998); and George Macesich, Money and

Monetary Regimes: Struggle for Monetary Supremacy (Westport, CT: Praeger

Publishers, 2002) that real output was considerably less stable in both the

United States and the United Kingdom during the interwar years than during the

post-World War II years when both higher rates of inflation and lower

variability in output and unemployment were registered. This demonstrates the

apparent policy preference away from long-term price stability toward full

employment and suggests the reason behind the strong inflationary pressures in

the postwar years. It is on the basis of such evidence that the public

recognized that a specie-like monetary regime no longer existed and began to

arrange its affairs accordingly.

The evidence also suggests that a fiat monetary regime based on some type of

monetary rule, including one calling for a steady monetary growth, could

provide the benefits of the gold standard without its costs. A prerequisite for

success, however, is a firm commitment from the government to maintain a

monetary rule and to incorporate long-run stability as one of its goals.

In any case, the international gold regime cannot now be restored. It requires

a return to the set of economic, political, and philosophical beliefs upon

which that regime was based, which is unlikely. It is probably easier to

deprive the government altogether of its monopoly over money, although the

magnitude of such a task should not be minimized. Because the sensitive issue

of national sovereignty is involved, as well as for other reasons, governments

will not voluntarily abdicate their power over money (currency boards and

similar arrangements may in fact do just that).

Constraints imposed on national monetary sovereignty by the rules of the

international gold standard regime have been eroding since the collapse of the

international monetary system. Fumbling attempts to reimpose monetary

constraints through international monetary reform since World War I have only

served the cause of discretionary intervention and imposed tasks on the

monetary system, which it has been unable to attain.

Few monetary problems have ever been so ingeniously contrived to maximize

difficulty as that of granting discretionary authority to central banks. Such

authority, when granted central banks over domestic monetary policies —

undertaken for various and often illusive goals — constitutes a formidable

reinforcement of nationalism in the economic sphere and creates an important

source of instability. At the same time, the discretionary authority serves the

central bank well whose preference function may indeed differ significantly

from that of the general public. Central banks are an economic arm of the

political interventionist position, while admirably serving their own

bureaucratic goals and interests.

Central banks are subject to potential pressures, and their typical response,

in the absence of explicit constraints, is to manipulate money and monetary

policy as a matter of bureaucratic survival. They are, after all, creatures of

the national state. Little wonder that the Federal Reserve System stubbornly

refuses to disclose the criteria it uses to decide when to pump more money into

the economy to drive (nominal) interest rates down or when to draw money out of

the economy to drive (nominal) rates up. It is this lack of clarity that is an

important criticism of the Federal Reserve.

One suspects (and Andrew Britton observes) that the Federal Reserve System,

along with many other central bank staffs and some economists, do not use

growth in the money supply in monetary policy deliberations. They appear to

prefer to rely on the Phillips Curve and/or atheoretical relations. What

evidence we do have suggests that minimizing the role of money and its growth

is ill-advised indeed.

In fact, such evidence underscores that there is a positive and close relation

between the price levels and money relative to real income. This relation holds

for long as well as short periods of time for many countries (see Milton

Friedman, Money Mischief: Episodes in Monetary History, New York:

Harcourt Brace Jovanovich, 1992). The average rise in this relationship during

the early 1990s appears to be transitory and not at all unusual when viewed in

a larger context. Indeed, the argument advanced by some economists that there

is no information in monetary aggregates is simply incorrect. This is in marked

contrast to the conclusion drawn by Milton Friedman “that substantial changes

in prices or nominal revenue are almost always the result of changes in the

nominal supply of money, rarely the result of changes in demand for money”

(Money Mischief, p. 46).

Friedman also observes that a change in the “monetary regime can set the world

sailing on unchartered monetary seas . . . without any agreed on and

trustworthy map to the future course of the monetary voyage” (Money

Mischief, p. 142). That in fact is now the problem. The world since the

1970s is on an irredeemable fiat monetary regime unprecedented in history. We

are sailing into turbulent seas without reliable charts or an anchor to the

general level of prices that earlier monetary regimes provided. Andrew Britton,

to his credit, does point out some of the rocks and shoals. Certainly, I

recommend the book to those who prefer reading economics without the usual


George Macesich is the author of several books, including Political Economy

of Money: Emerging Fiat Monetary Regime (Praeger, 1999); Issues in Money

and Banking (Praeger, 2000) and Money and Monetary Regimes: Struggle for

Monetary Supremacy (Praeger, 2002).