------------ 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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