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Globalizing Capital: A History of the International Monetary System [Kindle Edition]

Barry Eichengreen
4.3 out of 5 stars  See all reviews (3 customer reviews)

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Book Description

First published more than a decade ago, Globalizing Capital remains an indispensable part of the economic literature today. Written by renowned economist Barry Eichengreen, this classic book emphasizes the importance of the international monetary system for understanding the international economy. Brief and lucid, Globalizing Capital is intended not only for economists, but also a general audience of historians, political scientists, professionals in government and business, and anyone with a broad interest in international relations. Eichengreen demonstrates that the international monetary system can be understood and effectively governed only if it is seen as a historical phenomenon extending from the period of the gold standard to today's world of fluctuating prices. This updated edition continues to document the effect of floating exchange rates and contains a new chapter on the Asian financial crisis, the advent of the euro, the future of the dollar, and related topics. Globalizing Capital shows how these and other recent developments can be put in perspective only once their political and historical contexts are understood.



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Review

Praise for the first edition: "This book by a prominent historian is a succinct and well-written history of the international monetary system. . . . [It] provides useful historical background for understanding current European efforts to create a monetary union."--Richard N. Cooper, Foreign Affairs

Praise for the first edition: "Capital flows in the recent period, unlike those in the earlier one, proved to be incompatible with exchange rate stability. [Eichengreen's] reasons for the difference . . . constitute a unique insight and contribution."--Choice

From the Back Cover

Praise for the first edition: "Eichengreen's purpose is to provide a brief history of the international monetary system. In this, he succeeds magnificently. Globalizing Capital will become a classic."--Douglas Irwin, author of Against the Tide


Product details

  • Format: Kindle Edition
  • File Size: 2341 KB
  • Print Length: 271 pages
  • Page Numbers Source ISBN: 0691139377
  • Publisher: Princeton University Press; 2 edition (15 Sept. 2008)
  • Sold by: Amazon Media EU S.à r.l.
  • Language: English
  • ASIN: B00C5MX3EQ
  • Text-to-Speech: Enabled
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  • Word Wise: Enabled
  • Enhanced Typesetting: Not Enabled
  • Average Customer Review: 4.3 out of 5 stars  See all reviews (3 customer reviews)
  • Amazon Bestsellers Rank: #167,434 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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4 of 5 people found the following review helpful
Format:Kindle Edition|Verified Purchase
Globalizing Capital is a good introduction to the international monetary system, and a decent review for the already familiar who want to revise their knowledge.
The book begins in the mid nineteenth century, and examines the problems of bi-metalism (the linking of the value of silver with gold) and the linkage with metal and paper money.
The book follows to describe the important milestones in international monetarism, including the collapse of the gold standard, Bretton Woods and its subsequent collapse in 1971, European Monetary Union, and the 1997 Asian Financial Crisis.
As a book originally published in 1996, it has been decently updated to include the aforementioned Asian Financial Crisis, and other developments such as the Euro and the 2008 onward financial crisis.
The only thing lacking is further explanation into the process of exchange and valuation, which is what this reader initially sought.
But on the whole, a decent overview and a readable book with knowledge and understanding to be gained.
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3 of 5 people found the following review helpful
5.0 out of 5 stars Monetary History made easy 8 Mar. 2011
By MIL
Format:Paperback
A fine text on the History of the International Monetary System. Easy reading, interesting and very useful to understand the Euro crisis and European Monetary History.
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1 of 4 people found the following review helpful
4.0 out of 5 stars A good book for interested 6 Jan. 2012
By jukka
Format:Paperback
I generally like very much authors other books as well, I believe I have most of them at home plus I have read plenty of his articles.
This book fairly short, but it gives a nice idea of history of monetary system. As we have now entered an era of funding issues in many places, I wish I could read a book about capital flows, sovereign risk and finance of current accounts from Eichngreen. I think current account deficits/surplusses and required adjustment processes have received only limited attention. So far the history has been fairly smooth despite regional crisis happening occasionally, as the international lenders of the last resort have been able to intervene to restore largely business as usual. Also, sovereign debt was considered "risk free" in terms of credit. As the European experience now shows, adjustment following excess liquidity can be painful. For that reason I would be delighted to read a book from some author of this calibre related to current issues in international monetary system. There are too many scandal or polemique seeking authors who are just not very credible.
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Amazon.com: 4.7 out of 5 stars  10 reviews
7 of 8 people found the following review helpful
5.0 out of 5 stars Brilliant Study 12 May 2010
By Rufus Burgess - Published on Amazon.com
Format:Paperback
Barry Eichengreen's "Globalizing Capital" (2ed) succinctly fits 140 years worth of history about the international monetary standard in 232 pages. This is a heroic feat to say the least. His analysis covers each monetary system in roughly equal proportions. "Globalizing Capital" is just one of the many outstanding works in Eichengreen's long, and notable, career.

Eichengreen begins by explaining why the gold standard was never a true gold standard and why it institutions prevented chaos rather than 'pure economics.' He then explains why the interwar gold standard caused the Great Depression (Please read "Golden Fetters" for a more in-depth explanation). After that is a detailed examination of why Bretton Woods I never really worked and why it was doomed to fail. He finishes with an examination of what is now considered Bretton Woods II and the changing nature of domestic exchange rate regimes.

Eichengreen comes to the startling conclusion that with increased global capital flows floating exchange rates are (mostly) inevitable. However, this can have extremely dangerous effects on developing markets that are not prepared to liberalize their capital account. This leaves developing countries vulnerable to the inevitable push towards globalization.

Eichengreen ends his tale with a warning about US debt and an examination of the Euro. He views the burgeoning US debt as problematic for Bretton Woods II and the Euro as an unlikely model for other regional blocks to emulate.

Unfortunately, the 2ed came out shortly before the Financial Crisis of 2008. For anyone interested in Eichengreen's views regarding the financial crisis and the international push for stimulus please go to Voxeu and read "A Tale of Two Depressions" (Amazon will not allow me to post the link).

"Globalizing Capital" is a great work for anyone interested in the financial history of the world.
9 of 12 people found the following review helpful
3.0 out of 5 stars Straightforward but problematic expanation of global currency 19 Jan. 2011
By James R. Maclean - Published on Amazon.com
Format:Paperback
The title of this book is misleading; it's not really about capital, it's about monetary systems. There's not very much here on the banking systems of the world, or regimes for financial regulation, or the evolution of bills of exchange--all of which are indispensable parts of such a history. Another criticism is that the book is not terribly imaginative in its focus on five countries, the USA, UK, France, Germany, and Japan. Again, this is disappointing but not really a fair rebuke: Eichengreen's book is a skeletal outline of the subject of global monetary *regimes*, and if that's what you need, it has some real strengths.

These strengths include a clear and vivid explanation of the policy dilemmas facing central bankers over the last hundred years; fair-minded discussion of the role of different countries over the last 100 years; a non-doctrinaire treatment of the macroeconomics; and attention to the role of political regimes. Eichengreen is syncretical (offering different hypotheses to explain major events) without being muddled, which is a very valuable achievement. I think his analysis is sound, and he avoids a lot of pitfalls that lesser economists make routinely. It is a valuable reference, particularly for its superb bibliography.

The analysis of the gold standard's inception is not the best I've seen; readers interested in the matter may want to consult Lawrence H. Officer's Between the Dollar-Sterling Gold Points (2007) or any of his essays on hnn.us. Also, how does one write a book on this subject without mentioning the Mundell-Fleming Model? Most likely readers of this book won't really be reading it for that, but for answers to the question "How did we get to the system we have now?" I assume this because the overwhelming bulk of it addresses the most plausible explanation, viz., because it worked fairly well for the most important industrial nations of the West; and because the 2nd and 3rd tiers of industrial nations would cope with it (with reservations). So my review has focused on how well it answers that question.

However, I think this is where the book stumbles the worst. It's not just an oversimplification to neglect the lower echelon powers in this book. This neglects the really serious ways in which the existing monetary system hurts the chances of emerging economies to achieve moderately high levels of employment, or adequate housing and sanitation for most of their population, or even water security. Likewise, when economists grumble that "workers resist flexible labor markets" (a paraphrase), it's pretty much the same as saying "the existence of humans ruins economic development." It's not that the economist/historian is affronting the sensibilities of non-economists in developing countries, it's that the economist normalizes failure for the profession of economics when treating all opposition as equally self-regarding and therefore equally worthy of dismissal.

But this is mistaken. When investors demand that a country ensure their high rates of return through reliable repatriation of profits, that may be politically decisive, but it's a "soft" requirement; the investor, as such, is not entitled to a put option. When the majority of the population is, either through unemployment or "wage realignment," unable to earn enough to meet essential expenses, that is a "hard" requirement: the economic system has failed and is inadequate. By ignoring this persistent aspect of the "global" monetary system, the neglect becomes a systemic bias. One is led to believe that "growth" is a viable alternative to "social peace." This ignores the urgent stresses on land, water, and fossil fuels that we have experienced and which are going to be worsen. These are not optional considerations, but lie at the heart of our global trading system's ability to renew itself over time.
4 of 5 people found the following review helpful
5.0 out of 5 stars Explains Why & How the Great Depression Spread Worldwide 17 Dec. 2009
By Arnold Landy - Published on Amazon.com
Format:Paperback
Economist Barry Eichengreen offers great insights into the workings of the international monetary system from 1850-2008 in the second edition of Globalizing Capital. This book shows the strong influence that the monetary system has had on the world economy at various points in history.

The most dramatic example began in 1929, as nations' rigid reliance on the gold standard facilitated the spread of the Great Depression from country to country. Under the gold standard, the major countries of the world were linked by a common policy whereby nations pledged to convert their currency into gold at a fixed price upon demand by anyone who would present it for such an exchange. This system maintained the value of paper money relative to gold and relative to the currencies of other countries. Countries saw that maintaining fixed currency values facilitated trade with other countries, as importers and exporters were freed from the risk of financial ruin that might otherwise result from fluctuations in currency values between the time an order was placed and the receipt of payment.

The rigid linking of currencies to the price of gold was thought to prevent trade imbalances between countries. If a country imported much more than it exported, the flow of money and gold outward would cause the general price level to drop, which would make additional importing less attractive and make one's exports more competitive. Another benefit of the gold standard was that the promise to exchange for gold gave the public confidence in paper currency printed by central banks. Unfortunately, this became a double-edged sword.

Here is the Eichengreen script (simplified) of the Great Depression. In 1927, the U.S. Federal Reserve began to raise interest rates in order to curb stock market speculation. The increased rates attracted savings from overseas, which caused declines in economic activity in Europe, which had previously been awash in loan capital from the U.S. This, in turn, caused other countries to raise their own interest rates in order to keep their capital and their gold (gold was money) from fleeing to the U.S and to the other countries that had already raised their rates. Rising interest rates spread from country to country and depressed economic activity. The economic decline which began in 1929 was accompanied by rising interest rates, which delayed any recovery. The worsening economy led to bank failures which shrank the money supply and led to deflation, which further suppressed the economy. Nations hesitated to step in as lender of last resort to banks because that required them to print quantities of new money to liquify the banks, which would detract from their ability to maintain the link between their currency and gold (there's that pesky gold standard, again).

In fact, rescuing banks might have been counterproductive, as the printing of money not backed by gold would lead to fears of devaluation and cause investors to withdraw their national currency - denominated bank deposits, which would worsen the crisis further. In other words, reliance on the gold standard threw the world into what would now be called a negative feedback loop, consisting of shrinking bank deposits, imploding supplies of money, deflation and economic contraction.

Eichengreen finds confirmation of the gold standard's role in transmitting the Depression among countries, as he ties the eventual recoveries by various countries to the timing of their subsequent abandonment of the gold standard, which ushered in reflation and floating currency exchange rates: first the U.K., then the U.S., then France.

Later chapters in the book cover the Bretton Woods Agreement (1944-1973), the subsequent breakdown of fixed exchange rates, and the various currency crises through 2008. Bretton Woods was an attempt to peg currency exchange rates within a 1% range, while providing mechanisms for cooperation and policy coordination among the member countries. Its purpose was to facilitate trade. It broke down for the same reason that all such rigid systems break down - it failed to accommodate the changing economic experiences and political needs of its members. The Asian currency crisis of the late 90s was similar to earlier crises in that it consisted of the cracking of a framework of pegged exchange rates.

This book also provides brief, but instructive treatment of countries that have used currency boards to peg their exchange rate to the dollar (like Argentina, which did it until pressures caused them to devalue and abandon the peg, and Hong Kong). There is also some discussion of our ongoing trade imbalance with China, wherein China exports goods to the U.S. and keeps its currency exchange rate low by investing in U.S. government debt.

Eichengreen summarizes the factors surrounding the creation of the Euro currency, which has succeeded at promoting trade and economic growth among its members. He provides an insightful case for its continued survival, even as individual members may find themselves under strain from time to time, unable to accelerate the printing of money to prime the national economy. His point is that any country that seriously considers abandoning its reliance on the Euro currency in order to engage in monetary stimulus will experience an outflow of funds from its banking system as investors will want to avoid having their Euro bank deposits converted to a new national currency that will almost certainly lose value. The decline of bank deposits would depress that nation's economy even further. Awareness of the likelihood of this scenario will likely keep the Euro family together for the foreseeable future.

Globalizing Capital presents a comprehensive story. Eichengreen's insights on the mechanisms by which the Great Depression traveled from country to country have been quoted extensively by such experts on the Great Depression as Christina Romer, chairwoman of the Obama Administration's Council of Economic Advisers, and Ben Bernanke, chairman of the Federal Reserve. Overall, reading this book requires some effort, but it gives the reader a solid understanding of how evolving changes in the international monetary system have directly affected the course of economic history.
1 of 2 people found the following review helpful
4.0 out of 5 stars You can't have-your-cake-and-eat-it-too 13 Feb. 2013
By T. Graczewski - Published on Amazon.com
Format:Paperback|Verified Purchase
A dilemma rests at the heart of the international monetary system. A stable and predictable international currency regime is a necessary catalyst to international trade. So too is capital mobility, allowing the efficient allocation of foreign investment and spurring global economic growth. The rub is that high capital mobility tends to undermine stable, predictable currency exchange rates.

Is it possible to have a stable exchange rate regime and high capital mobility, combining to promote international trade and global economic growth, the proverbial rising-tide-that-lifts-all-boats? "Yes," says distinguished economist Barry Eichengreen in "Globalizing Capital: A History of the International Monetary System." Paradoxically, the one modern period that witnessed precisely such a mutually reinforcing regime was the gold standard era (1870-1913), a system shunned today as archaic, if not asinine.

The gold standard was an "accident of history" according to the author, the result of England's unilateral decision to adopt only gold convertibility for the pound in the early nineteenth century. Given British economic dominance in the early industrial era, a network effect took hold as other nations adopted gold as a means to lubricate the movement of goods and money with the British capitalist dynamo. By 1870, the world's leading economies had converged on a gold standard.

Eichengreen stresses that this system was effective only because governments were committed and able to defend their currency pegs to gold by raising interest rates and/or cutting domestic spending to defend against devaluation. Two facts contributed to this ability to defend the currency. First, the domestic macroeconomic impact of monetary and fiscal policy was poorly understood. For instance, there was little appreciation that raising domestic interest rates would dampen business investment, leading to a rise in unemployment. Second, and related to the first, the author notes that workers and labor groups had limited political power during this period and thus could not put pressure on governments to take policy actions that staved off unemployment rather than currency devaluation, even if they had understood the relationship. Because governments had a free hand to take whatever necessary policy steps to keep the currency in line, international investors made moves that worked as self-corrected capital flows. If a currency looked overvalued and devaluation against gold appeared likely, foreign capital would flood into the country anticipating a rise in domestic interest rates to defend the currency. Eichengreen writes that these reactions were so quick and thorough that the imbalance often corrected itself without government intervention: "Knowing that the authorities would ultimately take whatever steps were needed to defend the convertibility, investors shifted capital toward weak-currency countries, financing their deficits even when their central banks temporarily violated the rules of the game."

In the post-gold standard world the opposite was the case. And, in a sense, Eichengreen seems to argue that world political and economic leaders have been searching in vain for a full century now for a system that worked as well as the gold standard, at least from the perspective of promoting trade, stable exchange rates and capital mobility.

The brief and volatile period following the First World War when exchange rates were allowed to float spooked treasury officials and politicians for at least a generation. "Past experience," he tells us, "continued to shape - some would say distort - contemporary perceptions of the international monetary regime." The British and others went to such herculean efforts to reintroduce gold at the pre-war exchange rate precisely because they believed it was the only tonic to soothe the dizzying gyrations and hyperinflation of the early 1920s. But, as the author stresses, the political landscape had fundamentally changed. Going back to the "good old days" of gold was not an option. Newly empowered labor unions and worker-friendly political parties began to flex their muscle, fighting hard to keep interest rates low and social benefits flowing from the central government, actions that were almost certain to lead to a weakened currency on the global market. And once investors lost faith in a country's ability and willingness to defend their currency, capital mobility exacerbated the currency's weakness, rather than mitigating that weakness as it had during the gold standard when government defense of convertibility was a given. Once the macroeconomic indicators hinted that a currency would need to be devalued, capital flight out of the country and currency was the response, accelerating the devaluation that investors feared and the governments were increasingly unable to counteract.

The world's leading economies wrestled with the issue again in the wake of the Second World War. The proposed answer was the Bretton Woods System, an approach that Eichengreen scoffs at, still an "enigma" today. Bretton Woods departed from the traditional gold standard in three substantive ways: 1) pegged exchange rates became adjustable, but only in response to an ill-defined "fundamental disequilibrium"; 2) capital controls were implemented to thwart the flow of money; and 3) a new institution, the IMF, was created to extend balance-of-payments financing to at-risk countries. The author practically guffaws at the absurdity of Bretton Woods: "The belief that this system could work was extraordinarily naïve"..."the marvel is that it survived so long."

At the heart of the trouble was the so-called Tifflin Dilemma - the destabilizing tendency of the Bretton Woods System to meet demand for reserves through the growth of foreign dollar balances. By 1960, foreign US dollar holdings eclipsed domestic US gold reserves. The imbalance only grew as Washington printed dollars to fund major social programs and fight the war in Vietnam. By the early 1970s the system was dead.

"The quarter-century since the collapse of the Bretton Woods System," Eichengreen writes,"brought frustrated ambitions and uncomfortable compromises." "Efforts to reconstruct a system of pegged but adjustable exchange rates [European Monetary System, the Snake, etc.] failed repeatedly. At the root of that failure was the ineluctable rise in international capital mobility, which made currency pegs more fragile and periodic adjustments more difficulty." This combination of high capital mobility and international trade growth has pushed countries inexorably in the direction of free floating currency exchange rates. Today, as many as 30% of currencies float with more being added; a decade ago only about 10% were.

The dour conclusion of "Globalizing Capital," it seems to me, is that you-can't-have-your-cake-and-eat-it-too, a problem that is particularly acute with Americans. We want low taxes, low interest rates, a strong military, government services-a-plenty, a balanced budget, and a trade surplus. Well, you can't have it all - or at least not forever. By and large, we HAVE been having-our-cake-and-eating-it-too. We've been funding our insatiable appetite to consume with household savings from Asia. Or as Eichengreen cleverly puts it: "The United States in effect had a comparative advantage in producing and exporting liquid financial assets, while China had a comparative advantage in producing and exporting manufactured goods."

A couple of additional thoughts in closing. "Globalizing Capital" is a well structured and relatively concise history of the international monetary system, but it is not a breezy read. The book includes a helpful glossary of economic terms and the target audience feels to be undergraduate economics majors. It is accessible enough for any educated layman, although the writing at times is densely academic. I had been hoping for a tight and sharp history, particularly an explanation of the workings of the gold standard, something like an extended profile in "The Economist" magazine. This book is not that, unfortunately. I certainly learned a few things and the main themes were evident enough; it was just more of a trial to read and digest than I would have preferred.
1 of 2 people found the following review helpful
5.0 out of 5 stars Extremely Informative 23 May 2009
By Crosslands - Published on Amazon.com
Format:Paperback|Verified Purchase
Mr. Eichengreen has written a very informative book on the global financial system starting with the pre World War I (often called classic) gold standard. This work is extremely well referenced with a truly astounding number of sources, both in the footnotes and in the bibliography at the end. Mr. Eichengreen has also provided a very informative glossary at the end of the book.

Mr. Eichengreen starts by describing the pre World War I gold standard. He demonstrates that this gold standard came in being rather accidentally. The authorities in England without detailed market knowledge overvalued gold coin in respect to silver. Thus gold became the currency of the realm. Later problems with bimetallism (use of silver coin as well as gold) became apparent and caused the United Kingdom and other countries to go on the gold standard.

The author demonstrates that the pre World War I gold standard with its currencies pegged to gold was a historically specific institution. The United Kingdom was the major industrial power of the era. Its central bank stood ready to take action to ward off any financial threats to the gold standard. The central banks of the major European powers cooperated with the Bank of England to help maintain the pegged exchange rates of the gold standard. Any European country whose imports lagged exports and was having trouble meeting demand for its gold reserves could depend on the aid of the central banks of Europe. The conditions for this gold stand did not exist after 1914.

Mr. Eichengreen demonstrates that fixed exchange rates including in particular the gold standard rates depend on international cooperation to succeed. The the pre World War I gold standard and the Bretton Woods system of exchange rates lasted as long as they did because of the extensive cooperation between the major industrial and financial powers within the systems. In the Bretton Woods system in particular there was a large degree of cooperation and mutual aid among the financial authorities.

In essence fixed exchange rates fail because of the movement of capital. Capital flows of investment and speculative funds from one country to another are not like the trade in goods. Capital funds are unpredictable and subject to sudden change. These funds make the maintenance of fixed exchange rates virtually impossible. There is too much speculation against the weakest currency.

Mr. Eichengreen also wrote chapters on the failed gold standard of the 1920s and 1930s which lead to the Great Depression, and the system of floating exchange rates after 1971 when the Bretton Woods system dissolved. The latter period encompassed exchange rate difficulties in several developing countries and their resolution. Also described is the integration of much of Europe into a single currency area to escape floating exchange rate fluctuations.

This work is a very thorough and informative resource. I did find the extensive discussion of the European attempts at monetary integration prior to the euro somewhat long winded. However I guess this is part of the story.

This book is excellent and should be read by all economics students.
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