Globalizing Capital

Globalizing Capital, by noted economist Barry Eichengreen, is a book with a very ambitious goal.  It attempts, as its subtitle indicates, to provide a “History of the International Monetary System.” This is quite a task, but one that Eichengreen lives up to admirably.

            The book is broken up into five parts. Each represents a separate phase in the history of how our monetary system has come to its present state. It begins with the gold standard. The gold standard was in effect basically from 1717 until the Great War. Many consider it the greatest monetary union the world has ever had, only rivaled by the union of the present day. Still, gold has its problems. In order to keep money at the same value, individual countries had to impose measures on their populace that often adversely affected them. Yet at this time the populace, labor, did not have the voice nor say in government to oppose these measures.

 What finally killed the gold standard? The Great War. In the time directly after WWI, for a few years only, a floating exchange rate was in place. But because of various factors outside of the monetary systems purview it operated badly. The gold standard was resurrected. This proved to be a bad move, as it helped lead to the Great Depression.

World War II finally broke the cycle of the Depression and, at its completion, ushered in a new period of monetary policy. For the next 30 years the  world was ruled by something called the “Bretton Woods” system. It was a period of great peace and prosperity. Some thought the system would continue indefinitely. Yet in the early 70’s cracks began to show. The Bretton Woods system featured a pegged currency which the IMF would regulate, to provide for discrepancies, by using its reserves. But the technological changes that had changed the world so much by the 70’s were not compatible with a fixed exchange rate.

So, in 1973, the world agreed to let their exchange rates float. This has given rise to the present system.  What it loses in reliability and predictability it gains in ability to adapt itself to a particular situation. This is good in our fast-paced and often changing world of today.

Eichengreen writes a book both well informed and well written. While someone unknowledgeable about basic economics might have trouble grasping all the details, it provides enough background for the basic student of the discipline to understand. What Eichengreen does so well, and what I find to be the greatest strength of the book, is that he puts many things into one place. He creates a timeline, guiding the reader to exactly where we are, monetarily, today. He links great phases in monetary history into one succinct story.

A small but important critique of the book that I would offer comes in its great concentration on the gold standard. Yes, this was an important part of monetary history. But with the level of detail that Eichengreen goes into the bigger picture occasionally gets obscured. Yet, this fault realized, Globalizing Capital is all in all a compact and fascinating look into the building blocks of our present International Monetary System.