------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (April 2007)
Lars Jonung and J???rgen Nautz, editors, _Conflict Potentials in
Monetary Unions_. Stuttgart: Franz Steiner, 2007. 181 pp. ???34
(paperback), ISBN: 978-3-515-09002-5.
Reviewed for EH.NET by Lawrence H. Officer, Department of Economics,
University of Illinois at Chicago.
This relatively short book contains seven papers on monetary unions,
most of which will be of interest to economic historians. The
editors, writing individually, account for two of the seven papers. I
use the term "papers" advisedly, because the papers are not
enumerated as chapters. In fact, although the editors (Lars Jonung,
Research Adviser at the European Commission, and J???rgen Nautz, a
faculty member at the University of Vienna) are to be commended for
assembling a group of interesting papers, some editorial decisions
detract from the usefulness of the volume. In particular: (1) The
papers are not organized into sections or parts of the overall work,
so relationships among the papers are not emphasized. Jonung does
some thematic discussion in his introduction to the volume; but most
of that essay is a paper-by-paper summary of the individual-author
contributions. Further, Jonung's discussion is expositional rather
than critical. (2) Although the acknowledgements state that "several
of the chapters of this book have emerged from papers presented at
the conference [with the same name as the book title]," the volume
presents no comments on, or exchange of views about, the various
papers. (3) There is no index -- a serious flaw for any scholarly
book, in my view. (4) There is neither a common list of references
nor individual-chapter lists of references. All bibliographical
references are in footnotes. (5) In some "chapters," tables and
figures are placed at the end of the paper; in other chapters, they
are embedded within the text. Such lack of uniformity can be
confusing to the reader. (6) The contributors were allowed to be
uneven in their methodology with respect to each other. For example,
some authors adopt modern time-series analysis; others make
less-sophisticated use of quantitative information. Also, some papers
are heavily oriented to specific historical experiences; others make
use of history only in passing. On the positive side, there is a
paragraph-length bibliography of each of the contributors to the
volume.
In fairness to Jonung, his summation of the lessons of the papers,
although short, is perceptive. First, monetary unification and
resulting adjustment are long-run processes. Second, monetary
unification is an exercise in political economy, not just in
economics: "Politics is commonly driving monetary marriages as well
as monetary divorces. In short, money is an inherent political
matter. This message emerges from every chapter of the book" (p. 17).
Third, internal distribution issues are important in decisions
regarding currency and monetary arrangements.
Something should be said about each paper; but the space devoted to
each reflects the interest of this particular reviewer. The
contribution of Farley Grubb ("The Constitutional Creation of a
Common Currency in the U.S.: Monetary Stabilization versus Merchant
Rent-Seeking") is well-written, interesting and provocative. He
writes: "This evidence indicates that the formation of the U.S.
currency union had more to do with usurpation of state sovereignty
for the personal gain of merchant-bankers than with solutions to
monetary instability and transactions costs within the union" (p.
19). Grubb views the monetary policy of the colonies, and later,
individual states, as credible and responsible, compared to that of
the post-Constitution United States. His views have been vigorously
attacked in the literature (Michener and Wright, 2005) and equally
vigorously defended (Grubb, 2005); but Grubb's contribution in the
volume makes no mention of this particular literature. In fairness
again, the reason might be lag in publication (the conference
underlying the volume occurred in 2001 and 2002); but, given the long
lag, the authors of contributions could have been given the
opportunity to revise their essays in the light of recent literature.
Grubb's paper is also useful in its provision of excellent
bibliographical references and a good, though short, summary of
colonial monetary history.
Grubb makes the following point (among others) regarding the source
of U.S. monetary instability in the post-Constitution
[pre-Federal-Reserve?] era: "The U.S ... had no regulation of banking
specie-reserve to bank-note-loan ratios" (p. 24). This reviewer
(Officer, 2002) computed the "pyramiding ratio" monetary base to
specie stock for, among other periods, 1792-1810 (First Bank of the
United States, FBUS), 1817-1838 (Second Bank of the United States,
SBUS), 1862-1878 (greenback) and 1879-1913 (gold standard). The mean
ratio is, in order, 1.22, 1.27, 3.72, 2.17. The coefficient of
variation of the ratio is, in order, 6.86, 11.45, 42.77, 14.80. From
the standpoint of monetary discipline, the ideal ratio would have a
"zero coefficient of variation around a unitary mean" (Officer, 2002,
p. 136). So the FBUS and SBUS periods come closer to this ideal than
the polar monetary standards of a free float and gold standard. The
implication is that the problem with the Constitutional monetary
system was lack of a central bank (ameliorated by the FBUS and SBUS
acting in that role) rather than (as argued by Grubb) a fixed
exchange rate.
In their "From Monetary Union to Financial Union in the United
States," John Landon Lane and Hugh Rockoff offer an excellent review
of the literature on financial-market integration in U.S. history.
Using regional interest rate data in conjunction with national
interest rate and monetary data, they conclude that "the journey from
monetary union to financial union was long and hard" (p. 65). This
essay is clearly complementary to that of Grubb. It is unfortunate
that neither essay comments on the other contribution.
Wearing his contributor's hat, J???rgen Nautz's topic is "Ethnic
Conflicts and Monetary Unification in Austria-Hungary." Much of the
essay would be of interest only to the specialist; but one admires
the attention to detail and the single-minded viewpoint centering on
the interests of the various ethnic groups within Austria-Hungary and
their influences on monetary arrangements and monetary policy.
"Summing up, the monetary policy of the Austro-Hungarian Bank was
very successful despite the lasting ethnical frictions in the
political system" (p. 87).
Nuno Val???rio offers "The Escudo Zone: A Failed Attempt at a Colonial
Monetary Union," a history of the failure of a monetary union and
free-trade area for Portugal and its colonies in 1960s.
Well-considered tables help the reader appreciate the story.
Notwithstanding the failed escudo-zone experiment, Portugal's
colonial empire did survive longer than the empires of other colonial
powers. The author does not address the reasons for that
accomplishment.
This reviewer did not learn much from the essay, "Trade, Money and
Institutions for Conflict Resolution in Monetary Unions: The Gold
Standard and European Integration Compared," by C???dric Dupont and
Carsten Hefeker. In contrast, Tal Sadeh's contribution, "Managing a
Common Currency: Political and Cultural Preferences," is a useful
survey article. There is much discussion of the functions of money;
but implications of the survey for currency unions are drawn only in
the concluding paragraphs and only in the form of generalizations.
The second editor, Lars Jonung, closes the volume with "The Political
Economy of Monetary Unification: The Swedish Euro Referendum of
2003." Via exit polls and official results for all of Sweden's
municipalities, Jonung shows that the theory of optimum currency
areas is reflected in the voting patterns. "Yes" votes for the euro
came from those employed in the tradable sector or private sector in
general, and from high income people and well-educated individuals;
"no" votes came from those employed in the non-tradable sector,
low-educated people, and low-income individuals. Jonung also makes
the excellent point that, with the world's oldest central bank and a
long history of good monetary management -- along with the stable
forces of a monarchy combined with democracy -- Sweden (and the
similarly situated countries Denmark and the United Kingdom) enjoys a
profound internal respect for its national currency.
All in all, this volume merits praise for the solid research and
readable exposition of the contributors.
References:
Grubb, Farley W. (2005). "State 'Currencies' and the Transition to
the U.S. Dollar: Reply-- Including a New View from Canada." _American
Economic Review_ 95, pp. 1341-1348.
Michener, Ronald W., and Wright, Robert E. (2005). "State
'Currencies' and the Transition to the U.S. Dollar: Clarifying Some
Conclusions." _American Economic Review_ 95, pp. 682-703.
Officer, Lawrence H. (2002). "The U.S. Specie Standard, 1792-1932:
Some Monetarist Arithmetic." _Explorations in Economic History_ 39,
pp. 113-153.
Lawrence H. Officer is Professor of Economics, University of Illinois
at Chicago. He is Editor, Special Projects, EH.Net, and Director of
Research, MeasuringWorth.com. His most recent book is _Pricing
Theory, Financing of International Organisations and Monetary
History_ (Routledge, 2007).
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Published by EH.Net (April 2007). All EH.Net reviews are archived at
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