Published by EH.Net (September 2017)

Kurt Mettenheim, Monetary Statecraft in Brazil, 1808-2014. New York: Routledge, 2016. xi + 206 pp. $131 (hardcover), ISBN: 978-1-84893-619-2.

Reviewed for EH.Net by Gail Triner, Department of History, Rutgers University.

Kurt Mettenheim’s Monetary Statecraft in Brazil, 1808-2014 tackles a useful and under-examined topic: the politics involved in making monetary policy in Brazil over the broad sweep from the origins of Brazil (in 1808, with the transfer of the monarchy from Portugal to Lisbon) through the early twenty-first century. The book’s central tenet is that politics, independently of economic circumstance and ideology, has driven monetary policy. Mettenheim takes the idea further in two directions by finding that monetary policy has been, first, the result of “muddling through and adapting ideas from abroad” (p.2; Mettenheim’s emphasis, although its relevance is not clear) and second, “central to democratisation and political development” (p. 171.)

The book offers a detailed continuous history of Brazilian monetary policy, and the politics that produced policy. In parallel with Brazilian political history, the rules governing money successively represented the interests of monarch, oligarchs, populist leaders, dictators, and emerging democrats/technocrats. This interpretation gives heavy weight to the original sin of monetary absolutism at the beginning of the nineteenth century, which initiated a path-dependent process that endured for two centuries. By responding to the interests of political elites and selectively adapting ideas developed elsewhere, monetary policy contributed to Brazilian poverty and inequality until the late twentieth century. At the end of the twentieth century, the politics of reaction against deeply embedded, long-term inflation and global financial crises facilitated fundamental monetary reform that has resulted in monetary stability and modernized central banking. With time, these reforms also created new monetary channels that responded to a wide range of social groups, including the working class and those aspiring to the working class.

The second important contribution of Monetary Statecraft is to articulate the role of monetary decisions in social welfare. Mettenheim emphasizes the benefits of monetary stability after decades of high inflation and of financial inclusion (policies extending access to the financial system) allowed widespread improvement in the standard of living in Brazil. The “positive sum relations between political development and monetary policy” (p. 169) generated large political returns to stability and financial inclusion. Monetary historians seldom make the connection between monetary policy and broader political aims; asserting a causal direction from monetary policy to political democracy occurs even more rarely. This conclusion is one that has the potential for engaging much future debate.

Methodologically and analytically, Monetary Statecraft reflects Mettenheim’s perspective as a political scientist in the School of Business Administration (Social and Legal Studies Department) at the Fundação Getúlio Vargas in São Paulo. The monograph is a model of clarity about is methods: it relies on historical analysis of monetary institutions and on recursive policy tracing in preference to the economist’s tools of quantitative analysis. Since its goal is to trace politics, this choice of methods is commonsensical. Economic historians may find that asserting the primacy of politics comes at a cost to understanding the interrelationship of politics with ideology, economic dynamics and circumstances. Additional research to integrate Mettenheim’s questions and perspective with existing literature may provide a follow-up to the current book.

Perhaps as a result of the disciplinary divide between the orientations of the author and readers of this review, much of the book’s terminology may be unfamiliar and merits more attention than it receives. Mettenheim defines monetary statecraft as “a theory that accounts for the open-ended, autonomous character of politics” (p. 1.) Some may wonder about the value-added of the term “statecraft” relative to “policy-making.” Further examples of the concern about terminology include: “policy tracing,” “epistemic communities,” “national liberalism,” “Kemmerer coalitions” (especially confusing, since Edwin Kemmerer did not ply his trade in Brazil) and most importantly “muddling through.”

We all know what “muddling through” means when we have not prepared for a class or read a seminar paper; in this context, Mettenheim seems to mean that short-term political reaction shaped monetary policy more than economic circumstance or ideology. One wonders how policy-making and governing could, at a first approximation, proceed otherwise. The argument does not take seriously the possibility that shifting ideological competition, emerging economic ideas and economic circumstance could define short-term politics. The framework minimizes the relevance of ideas and ideology in monetary policy-making. Ignoring the importance of the (dynamic) history of Brazilian economic thought deserves justification. Such late twentieth-century economic experiences as hyperinflation, debt and petroleum crises, and state-led developmentalism created economic circumstances that deeply implicated monetary policy. Insistence on the primacy of political competition, rather than the economic dynamics of these circumstances, relegates the economic effects to the background. Economic historians will approach that view with a great deal of skepticism. A deeper dive into the underlying economic and ideological formation of immediate politics would have been useful in this regard.

Finally, the presentation of the narrative is of concern. Scholars of Brazilian economic history will be able to work with the book’s ideas. The uninitiated may have trouble making sense of the (unexplained) importance of specific individuals and organizations, as well as accommodating the inconsistencies of naming conventions, currency denominations and some terminology. The book’s clarity also would have benefited from comprehensive editing of the text, graphs and tables.

Monetary Statecraft in Brazil: 1808-2014 traces two centuries of Brazilian monetary history in detail and addresses important issues in the formulation of policy. It can serve to open a spirited debate about the political and economic roles of monetary policy-making.

Gail Triner is the author of Mining and the State in Brazilian Development (Pickering & Chatto, 2010) and Banking and Economic Development: Brazil, 1889-1930 (Palgrave, 2001) as well as articles on Brazilian economic history.

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