Published by EH.NET (May 2002)

George Macesich. Money and Monetary Regimes: Struggle for Monetary Supremacy. Westport, CT: Praeger Publishers, 2002. xiv + 167 pp. $62 (hardback), ISBN: 0-275-97218-6.

Reviewed for EH.Net by Gerald P. Dwyer, Jr., Vice President and financial economist in the Research Department of the Federal Reserve Bank of Atlanta.

What does George Macesich mean by the “Struggle for Monetary Supremacy”? Who is struggling and what does victory mean? A summary of the book’s purpose combined with the contents indicates what Macesich means by this term. He summarizes the book as providing “insight into monetary and political problems as they appear in past and ongoing struggles for monetary supremacy in the United States and elsewhere” (p. xi). The book contains summaries of research by the author on the development of the United States monetary system followed by summaries of theoretical research on aspects of monetary economics. In short, the “struggle for monetary supremacy” is the turmoil associated with the rise and fall from prominence of different monetary systems at different times.

The book does deliver insights on the evolution of monetary systems, although some parts do not. For example, about twelve pages are devoted to Macesich’s empirical study of the relative importance of money and autonomous expenditures in Canada, results reported in a paper published in 1964. After presenting results using data through 1958, Macesich ends the chapter by saying that these “results are, like all scientific judgments, subject to later modifications as additional data and other ways of organizing these data become available” (p. 84). Additional data are available, as are more sophisticated statistical analyses. It would have been interesting to see what new light could be shed on this question.

What is the really interesting insight in the book? It is a technical point in monetary economics that probably would repay attention and would have substantial implications for historical analyses of monetary systems. In the last couple of chapters, Macesich discusses the evolution of monetary standards and institutions’ reputations and relates them to some famous results in game theory.

Let me summarize some basic points concisely. Equilibria with central banks commonly are modeled using non-cooperative game theory. As is well known, there are an infinite number of equilibria in typical models with rational expectations and a central bank. How can one reduce the range of equilibria? The standard way of reducing the range of equilibria is to introduce reputation. In these models, the central bank’s reputation is not due to anything that the central bank does. The central bank’s reputation is due to a trigger strategy imposed by households: households punish the monetary authority for high inflation. The higher the punishment, the less inflation will be generated by the central bank; hence, the greater the central bank’s “reputation.” Most prominently, George Evans, Seppo Honkapohja and Thomas J. Sargent have been examining learning in models such as these. In these models, the central bank actually can be said to acquire a reputation by its own actions.

The point that Macesich makes in the last couple of chapters is that some justly famous strategies such as “tit for tat” may make more sense than the ubiquitous trigger strategies. In general game theory environments, tit for tat seems to work reasonably well. In addition, such a strategy definitely leaves scope for a central bank to lose or earn a reputation over time by its actions.

Gerald P. Dwyer, Jr.’s current research is on economic growth including financial aspects of growth. The first completed papers in this project are “How Important Are Capital and Total Factor Productivity for Economic Growth?” with Scott Baier and Robert Tamura and “Are Stocks in New Industries Like Lottery Tickets?” with Cora Barnhart.