Globalizing Capital: A History of the International Monetary System - Second Edition

by Barry Eichengreen

Book Overview

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...

• Format: Paperback
• Language: English
• ISBN: 0691139377
• ISBN13: 9780691139371
• Release Date: October 2008
• Publisher: Princeton University Press
• Length: 280 Pages
• Weight: 0.93 lbs.
• Dimensions: 0.7" x 6.3" x 9.2"

Customer Reviews

Explains Why & How the Great Depression Spread Worldwide

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 currenc

Second Edition is updated to 2008

All the reader reviews and editorial info I see on this page refer to the earlier edition (1996); this book, however, is a 2008 update. From Princeton's description: "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."

Extremely Informative

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 m

Nifty

This is a great book for readers who like economic history. In just 200 pages, Eichengreen tells the history of the modern international monetary system, from the classical gold standard of the late 19th century to the Asian financial meltdown of the 1990s. He writes clearly and his narrative never gets bogged down in historical arcana or mathematical abstractions. The book is a great example of how complex economics can be made comprehensible to ordinary readers if the writer sticks to the big picture and uses simple language. Eichengreen's basic idea is that the rise of democracy made it impossible for central banks to continue to pursue exchange rate stability at the expense of all other economic objectives. That doomed the gold standard and made inevitable a world of floating exchange rates, even though that world would have been unthinkable to most central banks and finance ministries prior to the 1960s and 1970s. I knocked off one star only because Eichengreen is very U.S./Europe-centric. He barely discusses Japan let alone the developing world. Huge events like the rise of OPEC and the Latin debt crisis of the 1980s are hardly mentioned. For that reason, his book never addresses the way that dependence on international capital flows now constrains policymaking in developing countries almost as much as the gold standard ever did.

Clearly-written classic on the world monetery system.

This book is not for the casual reader. However, we do recommend it strongly to anyone interested in understanding the relationship between global politics and international economics. Our consulting staff uses it often when discussing pricing policies and long-range financial planning with experienced and sophisticated exporters. John R. Jagoe, Director, Export Institute.