------------ EH.NET BOOK REVIEW -------------- 
Published by EH.NET (September 2004) 
 
Marc Flandreau, editor, _Money Doctors: The Experience of 
FinancialAdvising, 1850-2000_. New York: Routledge, 2003. xiv + 312 
pp.$169.95 (cloth), ISBN: 0-415-32154-9. 
 
Reviewed for EH.NET by Anna J. Schwartz, National Bureau of Economic Rese= 
arch. 
 
 
Marc Flandreau, Professor of Economics, Institut d'Etudes Politiquesde 
Paris, France, the editor of this volume of ten essays, hascontributed an 
introduction as well the first essay. He organized aconference of which the 
product is this volume. It explores thehistorical evolution of the practice 
of money doctoring. It beganwith individual bankers and advisers giving way 
to multilateralagencies. The main themes are the need for international 
cooperationand the decisive role of the world's economic and political 
order inunderstanding the diversity of experiences of money doctoring. 
Moneydoctoring is a political activity that involves economic analysis 
andhas a long-term record. 
 
In the introduction Flandreau quotes from a talk Edwin W. Kemmerer,the 
money doctor par excellence, gave at the December 1926 AmericanEconomic 
Association meeting on this field of work. What gave thebest results, 
according to Kemmerer, was a government and publicreceptive to foreign 
advisers, the extent to which the advice wasfollowed, and the absence of 
economic fallacies that obstructed thework of foreign advisers. Flandreau 
comments that the relevance ofmoney doctors currently depends on whether 
they "can improve thestability of global capitalism." 
 
The pioneer money doctor, we read, was a French economist,Jean-Gustave 
Courcelle Seneuil who left political turmoil in Francein the 1850s for a 
fairly tranquil Chile. There, as an opponent ofgovernment intervention, he 
helped draft a free banking law. Moneydoctors of later years, unlike 
Courcelle Seneuil, traveled fromstable Western European nations and the 
United States tocrisis-ridden nations in Latin America and Eastern and 
SouthernEurope which sought advice on how to solve their 
financialdifficulties. Resolving the crisis involved bitter medicine 
--budgetary austerity and monetary diet -- but a prospective sweetenerwas 
an inflow of foreign money, provided the country in crisisundertook the 
right policies. 
 
Money doctors in effect, Flandreau stresses, were brokers betweenlocal 
authorities and foreign investors, brokering money againstreforms. 
Financial crises in the second half of the nineteenthcentury thus provided 
knowledge of how problems arose and insights onhow to resolve them. The 
knowledge and the money resided in countriesother than the ones where 
problems arose. According to Flandreau,this imbalance accounts for the rise 
of the advice relation. Usuallyeconomists gave advice to their home 
governments, but money doctorstraveled abroad. 
 
Flandreau finds a relation between the emergence of American moneydoctors 
after 1900 and their success in driving out European ones inseveral parts 
of the world and the rise of U.S. financialinstitutions as global players. 
He derides Kemmerer's belief that itwas honest, disinterested advice that 
Americans provided othergovernments, unsullied by efforts to extend U.S. 
political power,that accounts for the money doctors' success. Flandreau 
argues thatbecause funds and advice were complements politics were 
inevitablybrought into the picture. For him, what clinches this argument 
isthat Kemmerer, despite his genuine desire to help countries, was onthe 
payroll of the New York brokerage firm Dillon, Read and Co. 
 
For Flandreau the exchange of money for reforms is an "implicitcontract" to 
provide borrowers with appropriate incentives, and thatmodern 
conditionality, which now describes these contracts, is meantto maximize 
economic welfare of the debtor by fostering goodinvestment. The welfare 
function of the creditor, however, hasdifferent arguments. The link between 
both is loose and usinginternational advice to achieve political ends has 
not been resisted.Politics shapes the remedies that are applied, depending 
on thespecific strategic importance of ailing nations, as illustrated 
bywhich nations are chosen for IMF programs. 
 
The essays are arranged in three parts: Part I (The long run: 
theinstitutionalization of a practice) includes the chapter byFlandreau. It 
traces the origins of conditionality before World War Ito the relation 
between borrowing governments and Europeanfinanciers, and emphasizes an 
attempt to improve creditors'monitoring of borrowers. Steven Schuker's 
chapter covers the interwarperiod when traditional money doctors were still 
practicing, and aninternational agency, the League of Nations, tried but 
failed to fillthat role because of the absence of coordination and 
cooperationamong the advisers. The chapter by Harold James on post- World 
War IIinternational lending by the IMF emphasizes its concern to win 
thecooperation of countries that asked for stabilization assistance 
bygiving them ownership of structural reform programs. 
 
Part II (Case studies: physicians and politicians) covers fourcountry 
experiences involving political and economic interactions.The study of the 
Russian default of 1998 by Charles Wyplosz andNadezhda Ivanova shows that 
while hyperinflation of the early 1990swas overcome, political and fiscal 
reforms were delayed. Collapse wasinevitable when speculators withdrew 
support of high-yield Russiangovernment debt. French money doctors' aid to 
Romania in the 1920s isthe subject of Ken Mour=E9's chapter. The Bank of 
England and theBanque de France each jockeyed for political advantage in 
this case.Elisabeth Glaser's chapter on money doctoring in Chile 
coversepisodes when classical economics prevailed 
(Courcelle-Seneuil1855-57; Kemmerer monetary reforms 1926-31; the 
Klein-Sachs exchangerate and fiscal reforms 1955-57; Chicago boys 
post-1973), punctuatedby episodes of inflation (1880-1925; inflows of 
foreign loans fromthe U.S. and Britain in 1926-30 were followed by 
governmentoverspending and default in 1931 on foreign debt -- despite a 
wish torescue Chile by creditors whose attempt at crisis intervention 
failedbecause of rivalry between them -- the exchange rate then 
plummetedand inflation surged; a brief fight against inflation in 
themid-1950s ended when budget deficits mounted; vigorous 
anti-inflationpolicy from 1973 to 1982 ended hyperinflation.). Roumen 
Avramov'schapter on Bulgaria surveys the country's experience 
withconditionality from 1900 to 2000. French creditors initiallyexercised 
direct control over the economy. That was superseded byLeague of Nations 
monitoring. Internal problems, however, were met bystate intervention. 
 
Part III (Experts agree: international financial institutions 
andmacroeconomic orthodoxy) begins with Patricia Clavin's chapter on 
theLeague of Nations (1929-40), in which she discusses how its effortsto 
support reflation were limited by its questionable legitimacy. Shefinds 
that international financial institutions operate in apolitical context 
that hinders their ability to develop their ownresearch and policy 
proposals. Eric Helleiner's chapter on U.S.unorthodox money doctoring 
post-1945 in Latin America contrasts theirKeynesian expansionary advice 
with the orthodox recommendations ofFrench and British experts in the 
nations where they wereinfluential. Louis Pauly's chapter on structural 
conditionality inthe Bretton Woods institutions focuses on the role of the 
U.S., whosedecisions on which countries to fund are decisive. He finds that 
theU.S. has shaped conditionality to a greater extent than have theproblems 
in the recipient countries. 
 
Here are my reactions to this collaborative research effort. Thearchival 
research that underlies many of the chapters is trulyimpressive. The 
volume's theme -- that policy failure can beexplained by lack of 
international cooperation -- has become apopular mantra of economic 
historians. That emphasis, however, oftenobscures difficult underlying 
internal and external problems, such asundiversified economies dependent on 
a single export commodity, ormisaligned exchange rates, or real interest 
rate differences amongcountries that international cooperation cannot cure. 
With respect tothe theme that money doctoring has a political dimension, it 
isundoubtedly the case of multilateral institutions' activities, butthere 
clearly are exceptions when considering individual moneydoctors, such as 
Courcelle Seneuil, and probably Kemmerer, despiteFlandreau's 
animadversions. 
 
The epigraph is a quotation from _Moby Dick_ by Herman Melville: 
 
It's a mutual joint-stock world, in all meridians. 
We cannibals must help out those Christians. 
 
The authors apparently regard the creditors in Western Europe and theU.S. 
as the cannibals and the debtors in Latin America and Easternand Southern 
Europe as the Christians. 
 
 
Anna Schwartz (with Owen Humpage and Michael Bordo) is writing amonograph 
on the history of U.S. official exchange marketintervention. 
 
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