Author(s): | Acena, Pablo Martin Reis, Jaime |
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Reviewer(s): | Redish, Angela |
Published by EH.NET (September 2000)
Pablo Martin Acena and Jaime Reis, editors, Monetary Standards in the
Periphery: Paper, Silver and Gold, 1854-1933. New York: St. Martin’s Press,
2000. x + 264 pp. $75 (cloth), ISBN: 0-312-22677-2.
Reviewed for EH.NET by Angela Redish, Department of Economics, University of
British Columbia and Bank of Canada.
The classical gold standard of the late nineteenth and early twentieth
centuries remains a touchstone for evaluating alternative international
monetary regimes. Therefore the operation of that standard has both
contemporary and historical implications. With some notable exceptions,
analyses have focused on the operation and costs and benefits of that regime in
a few “core” economies — predominantly the United Kingdom, the United States
and France. Thus, this book, in which leading monetary historians in six
“peripheral” economies present case-studies of the operation of the gold
standard, is particularly welcome.
The book begins with a brief chapter by Pablo Martin Acena, Jaime Reis and
Agustin Llona Rodriguez that summarizes the literature on two related themes
pursued (to varying degrees) in the case studies: the possibility that
adherence to the gold standard was more difficult in peripheral economies and
the possibility that the benefits of gold standard adherence were different for
the periphery. The article then suggests what can be learned from these six
economies. In a nutshell, the authors believe that adherence to the gold
standard was more difficult for peripheral countries (especially in Latin
America) because they faced volatile export prices, were sensitive to the
international capital market and had an underdeveloped financial system,
particularly no lender of last resort.
The six economies discussed in the book are Italy, Portugal and Spain (within
Europe) and Brazil, Chile and Columbia (within Latin America). The overall
picture presented is a diverse one, which is a little disheartening for those
wishing to take away general lessons. Was the gold standard an appropriate
monetary regime for peripheral countries? Jose Antonio Ocampo, writing on
Columbia, argues that it “worked” (perhaps not the strongest endorsement!) even
in the face of sharp external cycles. Rodriguez, writing on Chile, carefully
shows how the appropriate exchange rate regime might depend on the level of
development of the banking system. He argues that, in Chile, the paper standard
in the late nineteenth century had been a good fit. Did countries benefit from
a “Good Housekeeping seal of approval” if they joined the gold standard? Reis,
writing on Portugal, argues that this did not happen. Portugal did not enjoy
low interest rates as a member of the gold standard club, but, on the other
hand, it did not behave according to the rules either. In Italy and Spain, for
much of the period, exchange rates were stable even without formal adherence to
the gold standard. But if being on the gold standard assured easier/cheaper
access to international capital markets, why pay the price of acting like a
convertible currency without getting the benefit of the “seal”? (This is an
issue that has similarities with the current debate about the advantages of
explicit targets for the implementation of monetary policy.)
This book may find its principal use as a source for those studying the
monetary systems of individual countries, but let me turn to what I took away
from the whole. Firstly, economies on paper money standards experienced a wide
range of macro-economic outcomes. As Tolstoy might have put it, “All metallic
standards resemble one another; every paper standard is a standard in its own
way.” Fiat money standards provide the scope for everything from high inflation
to stable prices. Given that today most economies are searching for the optimal
paper standard it is this diverse experience off the gold standard that may
have the most useful lessons for understanding the international monetary
system.
Secondly, while the introductory chapter emphasizes that these six economies
spent more time off than on a metallic standard, there is an interesting common
chronology underlying that statistic. For virtually all of the first thirty
years of the period covered, Chile, Columbia, Portugal, and Spain were on
metallic standards; from 1880 to the mid-1920s most regimes were paper based;
and, in the mid-1920s, there was a return to metallism in Latin American and
Italy. Were there common factors in the suspension and return to
convertibility? Again there is more diversity than uniformity. Chile suspended
convertibility after enduring balance of payments problems from 1875-78 as the
price of wheat and copper fell, and these problems were then exacerbated by the
War of the Pacific (1879-83). Columbia’s civil war began in 1885 leading to the
issue of inconvertible paper. Portugal suspended the gold standard as a result
of fallout from the dramatic depreciation in Brazil after the 1889 Republican
revolution there, and also from the cessation of lending by the Barings.
Finally, Spain’s suspension appears to have been caused by the dramatic fall in
the price of silver in the early 1880s. (The discussion of the return to
metallism in the 1920s is told only for Columbia where the influence of the
renowned Dr. Kemmerer was (pro)found.)
Finally, the summary chapter stresses the need for greater emphasis on
political economy analyses of the monetary standard issue, and I strongly
concur. While economic factors, such as the dependence on a few exports whose
prices are volatile, were important vulnerabilities for the peripheral
countries, perhaps the most significant threats to metallism were war and
unstable political processes. This of course was equally true in the core: the
Franco-Prussian War, the US Civil War and the First World War all led to
suspensions of convertibility, and Barry Eichengreen and others have argued for
the importance of changing political systems in the collapse of the gold
standard in the core countries during the interwar period. A monetary system is
a social contract, and its strength will reflect the degree of social cohesion.
Before wholeheartedly recommending this book, let me just add a brief wish
list. The book would have profited from a concluding chapter that pulled the
material together even more than in the introductory chapter, focusing on
whether or not mistakes were made and whether or not there are lessons that can
be learned. The book might have also benefited had the authors of the case
studies presented comparable material and coverage. For example, the time
periods differed quite starkly, with the chapter on Brazil focusing only on the
ten gold standard years, while other chapters covered only subsets of the
period–to 1891 (Portugal) and to 1914 (Spain and Italy). My last request would
be for a common set of data tables, which would have enhanced the usefulness of
the book as a source for comparative financial history. That said, however,
there are a vast number of data tables and plenty of references for those who
want to go further.
Let me then end as I began: there is not sufficient knowledge about the
experience of peripheral economies during the heyday of the international gold
standard, and this book goes a long way toward filling gaps in our information.
Angela Redish is the author of Bimetallism: An Economic and Historical
Analysis recently published by Cambridge University Press. She is currently
Special Advisor at the Bank of Canada, on leave from the Economics Department
at the University of British Columbia.
Subject(s): | Financial Markets, Financial Institutions, and Monetary History |
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Geographic Area(s): | Latin America, incl. Mexico and the Caribbean |
Time Period(s): | 20th Century: Pre WWII |