------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (November 2007)

Lawrence H. Officer, _Pricing Theory, Financing of International 
Organisations and Monetary History_. London: Routledge, 2007. xii + 
324 pp. $135 (cloth), ISBN: 978-0-415-77065-1.

Reviewed for EH.NET by Richard Sylla, Department of Economics, Stern 
School of Business, New York University.


"As they contemplate mortality and immortality," the late Charles 
Kindleberger (1985, 1) once wrote, "many economists ... think it 
useful to gather their scattered academic detritus into packages, 
organized either chronologically or by subject." Kindleberger was a 
master of the genre, producing several such packages, which he 
described as exercises in tidying up things for one's literary 
executor. In case you hadn't guessed from the title of Lawrence 
Officer's new book, it is a recent addition to the genre.

Officer, Professor of Economics at the University of Illinois at 
Chicago, is probably best known to economic historians for his work 
on purchasing power parity, the operation of the gold standard, and 
dollar-sterling exchange rates, all of which are treated in an 
earlier book (Officer, 1996). The current collection, written over 
the forty years 1966 to 2005, deals mostly with different but 
sometimes related topics, the three mentioned in the book's title, 
and a final brief one entitled "Gold." Each of the four parts ends 
with an afterword reflecting on and extending the papers collected 
under that topic. The first section, "Pricing Theory," contains four 
papers, all written more than three decades ago, dealing with "firm 
and market behavior under conditions of joint supply" and developing 
"a multidimensional approach to pricing." These are contributions to 
microeconomics, but probably will be of limited interest to economic 
historians.

"Financing of International Organizations," part II, contains three 
papers on how the IMF sets its quotas of contributions and drawing 
rights for member nations, how the UN assessed member states to cover 
its expenses, and how both organizations might have done a better job 
of allocating their costs and benefits. Officer's focus is on the 
tensions between developed and developing countries over the costs 
and benefits. Both international organizations tended to base their 
charges on members' relative GDPs, made comparable by exchange-rate 
conversions. Such conversions tend to make developing countries 
appear smaller, economically, relative to developed countries than 
would purchasing-power-parity (PPP) comparisons. In the case of the 
UN, the developing countries liked this method because it resulted in 
lower assessments. But as regards the IMF, the method reduced the 
drawing rights of the developing countries compared to alternative 
methods of determining quotas, so it was less acceptable to them. 
Such is the stuff of political economy. Officer's discussion is 
remindful of the debates over slavery at the U.S. constitutional 
convention, in which the northern-state delegates argued that slaves 
ought to be counted for purposes of taxation but not representation, 
and the southern delegates argued for just the opposite -- or of the 
debates between Britain and its colonies in the heyday of the empire, 
in which the British wanted the colonies to be economically 
independent but politically dependent, whereas the colonies wanted 
just the opposite. Officer's treatment of the IMF and UN financing 
issues is as thorough as one is likely to find anywhere.

Economic historians, or at least financial historians, are likely to 
gravitate toward part III on "Monetary History," which contains three 
fine papers published between 2000 and 2005. One is on the long 
British episode of sterling inconvertibility -- the paper pound of 
1797-1821 -- and the related, so-called bullionist controversy. In 
that debate, which Officer terms "the most famous monetary debate in 
the history of economic thought," the bullionists, forerunners of 
later monetarists, argued that excessive note issues by the Bank of 
England led to price-level inflation, a deteriorating exchange rate, 
and a premium on gold. On the other side, the anti-bullionists argued 
for a balance-of-payments theory of the exchange rate, in which 
Napoleonic-War trade interferences, British military spending outside 
of Britain, and poor wheat harvests led to a deteriorating exchange 
rate and the gold premium, higher import prices, and general price 
inflation, whereupon the Bank of England rather passively printed 
more notes to accommodate supplies of and demands for bills of 
exchange at the 5 percent usury limit. Officer models and tests both 
theories with improved data he painstakingly constructed (not 
included in the original paper, but included in the book in the 
afterword to part III), using up-to-date econometric techniques. The 
results are fairly decisively in favor of the anti-bullionist 
position. Officer ends the chapter on a thoughtful note worth quoting:

Monetarism sees its origin in the bullionist model; and the 
antibullionist approach to the exchange rate (a flow theory) and 
monetary policy (passive, and accommodating to the price level) has 
gone out of fashion. It may be humbling to the macroeconomist that 
these theoretical developments are contravened by the preponderance 
of empirical results for the Bank Restriction Period (178).

Chapter 11, "The U.S. Specie Standard, 1792-1932: Some Monetarist 
Arithmetic," is one that intrigued me when it first appeared in 2002, 
and it still does. Among other things, careful data work -- a mark of 
all of Officer's scholarship -- produces "a monetary base series that 
is consistent, complete in coverage, and continuous over a long 
period of time" (185). One intriguing argument of the chapter is that 
the two Banks of the United States (BUS) in early U.S. history were 
indeed central banks; Officer points to substantial evidence that BUS 
note and deposit liabilities were held as reserves by state and other 
banks. This is in contrast with analyses by Temin (1969) and others, 
which view the monetary base as specie (gold and silver) and the BUSs 
as very large banks but in other respects just like all the other 
banks in the system. Whether the two BUSs were central banks adding 
to the monetary base or ordinary banks operating on a specie base 
obviously bears on how one might model the U.S. money supply and its 
proximate determinants. It is safe to say that future work in this 
area will have to build on, or at least contend with, Officer's data 
and insights. Officer himself uses the data to study eight different 
regimes during the 140 years covered in the study, and concludes that 
the classical gold standard regime (1879-1913) was superior to the 
others in most respects. One oddity of Officer's monetary base series 
is that it grows by 64 percent in 1874, the first of several 
consecutive years of price deflation. Perhaps this is another triumph 
of non-monetarists over monetarists.

But wait. In Chapter 12, "The Quantity Theory in New England, 
1703-1749: New Data to Analyze an Old Question," Officer demonstrates 
that both the classical quantity theory of money and Milton 
Friedman's modern version of the quantity theory test out quite well. 
For Officer, various economic theories are tools to be applied, not 
articles of faith, and that is rather refreshing. The afterword to 
part III is full of substance, extensions, and wise commentary on the 
three provocative papers preceding it.

The short part IV on Gold contains a guide to various documentary 
collections relating to that subject, and study of reserve-asset 
preferences of countries when the Bretton Woods System was moving 
into its crisis period of 1958-1967. In the latter, Officer develops 
a political-power approach to the proportions of reserve assets 
consisting of dollars and gold various countries maintained. The 
United States wanted countries to hold dollars, of course, and used 
its clout in attempts to achieve that objective. Officer's 
political-power model works to his satisfaction, and perhaps even 
better than standard alternative approaches based on 
portfolio-management concepts. Bretton Woods was a different world 
from our current one with market-determined exchange rates for the 
principal countries. But it seems the United States still has 
problems getting others to hold all the dollars out there at a 
non-depreciating exchange rate. Officer's essay, written a third of 
century ago and republished here, indirectly sheds some light on a 
problem that has not gone away.

As one who has been stimulated by Officer's work and who has relied 
on some of it in my own, I welcome this collection of articles from a 
researcher who richly deserves the accolade, "a scholar's scholar."

References:

Kindleberger, Charles P. 1985. _Keynesianism vs. Monetarism, and 
Other Essays in Financial History_. London: George Allen & Unwin.

Officer, Lawrence H. 1996. _Between the Dollar-Sterling Gold Points_. 
Cambridge: Cambridge University Press.

Temin, Peter. 1969. _The Jacksonian Economy_. New York: Norton.


Richard Sylla is Henry Kaufman Professor of the History of Financial 
Institutions and Markets and Professor of Economics, Stern School of 
Business, New York University. His article, "Integration of 
Trans-Atlantic Capital Markets, 1790-1845," co-authored with Jack W. 
Wilson and Robert E. Wright, was published in _Review of Finance_ 10 
(2006).

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