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Published by EH.NET (September 2003) 
 
Eric Helleiner, _The Making of National Money: Territorial Currencies in Historical
Perspective_. Ithaca, NY: Cornell University Press, 2003. xii + 277 pp. $32.50
(hardcover), ISBN: 0 8014 4049-1.
 
Reviewed for EH.NET by Lawrence H. Officer, Department of Economics, University of
Illinois at Chicago.
 
Eric Helleiner (Trent University) defines territorial currencies as currencies that are
(1) homogeneous, (2) national, and (3) exclusive. This is a broader definition than
"national currency," the concept that most monetary historians would use. A "national"
currency is not "territorial" unless and until there are no other currencies -- whether
foreign or privately issued domestic -- in the land, _and_ the currency is homogeneous in
quality. It is doubtful that any currency has ever been "territorial" in that pure sense,
and in fact Helleiner's usage is looser than he admits.
 
After an introduction, which summarizes the entire book excellently, the author divides
the volume into two parts, each with five chapters. Part 1 ("The Birth of Territorial
Currencies in the Nineteenth Century") focuses on the origins of territorial currencies;
Part 2 ("The Contestation and Spread of Territorial Currencies") deals with expansion of
territorial currencies in the twentieth century and the challenges to territorial
currencies, both historical and present-day.
 
Contradicting the conventional wisdom of international-relations scholars (but certainly
not of monetary historians), Helleiner observes that prior to the nineteenth century,
monetary systems everywhere diverged from the territorial-currency model: foreign money
circulated with domestically-issued money, low-denomination money was not rigidly related
to official currency, and even officially issued domestic currency was non-standardized
and varied in value in different regions of the sovereign territory. In the nineteenth
century, all three deviations from the territorial-currency norm were corrected.
 
How did this happen, and why in the nineteenth century, rather than earlier? Helleiner
sees the answer as double-layered. First, new industrial technologies (for example, steam
power, steel plates, and siderography) enabled standardization of coin and note
production. Second, nation-states emerged with the power to achieve territoriality in
their money (for example, via enforcement of legal-tender laws) and with trust of the
citizenry in the state's capability of managing money. Second, the authorities had the
motivation to create territorial currencies. There were four reasons for this motivation,
according to Helleiner. A territorial currency was seen as a means to (1) reduce currency-
related transactions costs, (2) control the money supply for macroeconomic purposes, (3)
extract seigniorage, and (4) strengthen national identity. The technology and nation-state
prerequisites, and at least some of the reasons for the motivation, were not in existence
(or of insufficient strength) until the nineteenth century.
 
Challenges to the territorial currency in that century took the forms of the free-banking
movement and international currency unions; but the territorial-currency movement
prevailed. In the interwar period, territorial currencies reached their pinnacle. Powerful
central bankers in center countries provided substantial support for strong and
independent central banking (an important ingredient of a territorial currency) in
countries not yet within the territorial-currency rubric. Montagu Norman, Governor of the
Bank of England, "was so keen to see central banks created abroad that he even refused to
visit countries that did not yet have them" (p. 147). Benjamin Strong, Governor of the
Federal Reserve Bank of New York, felt the same way. The advisory missions of Edwin
Kemmerer in enabling creation of central banks (and therefore territorial currencies) in
Latin American and elsewhere are, properly, emphasized.
 
Attention (an entire chapter) is devoted to colonial currency reforms, where,
surprisingly, distinct colonial currencies were generally created, usually in the form of
currency boards. With many newly independent countries generated from ex-colonies after
World War II, the creation of territorial currencies received a new impetus. In addition
to the usual rationales, some new ones were involved: the desire to _increase_
transactions costs (in connection with the abandonment of colonial currency unions) and
the objective of national macroeconomic management. Monetary reforms involving territorial
currencies were supported by the United States, but generally opposed by Britain and
France (naturally, as these were the ex-colonial powers).
 
In the final chapter, Helleiner addresses current challenges to territorial currencies. He
sees four such challenges. First, there is the movement to monetary unions, spurred
largely by European monetary union, which resulted in creation of the euro. Second, there
is increasing use of foreign currencies within poorer countries of the world, taking the
form of dollarization and, in some cases, even abolition of national currencies in favor
of entering the "dollar zone." The weakness of the nation state is viewed as the ultimate
cause. Third is the development of "local currencies" -- important in previous eras,
including (in the interwar period) during the Great Depression. This development, little
known in the literature, is properly noted by Helleiner as potentially important because,
unlike in the 1930s, the impetus is more than just a temporary response to a depression.
Fourth, perhaps most interestingly, "electronic money" (corporate currencies, such as
value cards, and electronic payments) is coming to the fore. This is a new technology of
producing money that now acts against territorial currencies.
 
The author concludes with an adroit summary of his findings: "territorial currencies have
had a relatively short life, and they have experienced constant challenges in various
regions of the world throughout their existence" (pp. 243-44).
 
Helleiner deserves praise on several grounds. First, the work is a history of thought as
much as a history, and the two themes are cleverly welded together. Second, an
interdisciplinary approach (economics, political science, sociology) is used throughout.
Third, in refreshing contrast to the tendency of economic historians to concentrate on the
Anglo-Saxon or European experience, much attention is given to other areas of the world:
Japan, China, Latin America, Africa, and the Middle East. The typical economic historian
can learn much in this context. Fourth, to help the specialist, there is an extensive
bibliography, covering 25 pages. Fifth, the author does what economic historians tend to
say is important but rarely do: relate historical experience to the present day. Sixth,
the book is well organized and the author sticks to his focus relentlessly.
 
One hesitates to criticize an author with these virtues; but there are as many or more
limitations of the volume. First, and perhaps foremost, Helleiner does not work with data
at all. There are no tables and almost no figures at all in the book. Without measurement,
the study becomes qualitative in nature, and the author's statements lack quantitative
support. Second, although there is breadth, there is not much depth in the analysis. Third
(and related), the author's treatment tends to be disjoint. For example, the U.S. national
banking system is discussed in several contexts and places in the book, with no over-all
consideration. Fourth, Helleiner's concern is with ideology more than effective influence
on policy, with motivation more than outcome. The relative importance (in Helleiner's
judgment) of various ideologies does not necessarily correspond with their practical
impact -- a feature that diminishes the value of the book to the economic historian.
Fifth, the author does not distinguish between the monetary base and the money stock, nor
between the money stock and its velocity.
 
Finally, the author's strictures against the optimum-currency-area (OCA) approach are
overblown and perhaps unfair. Helleiner, in effect, claims that the OCA theory is purely
economic, thereby ignoring political implications, and contains the prediction that
countries make a rational judgment that their country is now an OCA and therefore decide
to create a territorial currency. He also observes that "most countries are not optimum
currency areas" (p. 11). In response, first, an OCA character can be _acquired_ via a
territorial currency (or forming/joining an existing currency union); OCA is not a
property that is only endowed. Second, economists are well aware of the importance of
political as well as economic factors in this context. For example, Leland B. Yeager
(_International Monetary Relations_, second edition, New York, Harper & Row, 1976, p. 133)
distinguishes the following attributes of a country that would favor creation of a
currency union: "flexible prices, large size, openness of its members to each other but
closedness to the outside world, homogeneity, factor mobility, policy prudence, and
acceptability of a union-wide government." Several of these qualities are at least
partially political in nature!
 
In sum, this book can be recommended to economic historians for its virtues but with an
eye to its limitations.
 
Lawrence H. Officer is Professor of Economics at University of Illinois at Chicago. As
Editor, Special Projects, EH.Net, he has recently completed "What Was the UK GDP Then?"
which is available on the EH.Net website.
 
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529-2851; Fax: 513-529-3308). Published by EH.Net (September 2003). All EH.Net reviews are
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