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International money: Issues and analysis
144
Book Reviews
financed government deficits or bond purchases, should be expected to produce real consequ,ences throughout a simultaneous system. Consequently, Dornbusch finds that inflation rates are interdependent - a result that illustrates the lack of ‘monetary sovereignty’ under floating rates Sven Arndt’s contribution is one of several papers he has written applying the type of disequilibrium analysis associated with the names of Clower, Barro, and Grossman to the open economy. Although Arndt obtains the immediate conclusion that stabilization policy depends on the composition as well as the level of aggregate demand, it is difficult (as J.C. Pattison argued .in his comments) to obtain stronger, unambiguous, qualitative conclusions from the analysis at this stage of development. Karl Brunner and Allen Meltzer presented a model with fotrr sectors, for one closed and two open economies, to study output and price fluctuations in the short run, intermediate run, longer run, and long I run with fixed exchange rates. They argue that independently chosen tax, expenditure, and monetary policies produce an inconsistent system -that the exchange rate or some of the policies will have to change. David Laidler and .4.R. Nob.iy contributed a survey on the international aspects of inflation. They place the upsurge in Monetarism and the monetary approach in a historical se%tting both with respect to events and doctrine, and chide Keynesian analysis for embodying money illusion. The last section covers a panel discussion among Friedman, Johnson, Lindbeck, Machlup, Mundell, and Rueff on floating exchange rates. Due to a technical problem, much of the discussion was not recorde:l; however, Johnson, Lindbeck, and Machlup wrote short papers out‘iining their positions and some of the panel debate. Although there are contributiors by Dornbusch, Kenen, and the panelists on floating rates, the volume is primarily concerned with fixed exchange rates. Another characteristic of the volume is the absence of formal empirical work. Since the conference included a large number (47) of distinguished economists and since the lead article in each topic section is either a survey or contains a survey, the volume accurately portrays the areas in which there is consensus and in which there is disagreement in international monztary theory. Don Roper Univeriiity of Utah
Andrew Crockett, International Money: Issues and Analysis (Thomas Nelson and Sons, Middlesex, 1977) pp. 250, E6.95, E3.95 (paper). The quality of scholarship in the field of international finance si-:lce the late 1950s has been impressive. an achievement overshadowed only by the
Book Reuiews
145
frequency of international financial crises. Economists carefully documented the contradictions inherent in the permutations of the Bretton Woods system, strains which made the system’s collapse inevitable. A plethora of reform proposals spilled forth over the years, ranging from the Triffin Plan to wider bands, crawling pegs: delayed pegs, gliding pegs, and other pegs more forgiving than the abso%tely fixed par values and narrow gold bands. In contrast, the international banking community has stayed aloof from the many workable ieform proposals, apparently preferring to be ambushed by reality. As 3 consequence, e\‘ents have always stayed a few steps ahead of reform. Yet, the most remarkable aspect of economists’ work in international finance has been the skillful blending elf theory with policy, the reflection of an acute sensitivity to political realities. This is the stuff from which paradoxes are born and good books arc::written. Crockett chronicles the development of these theoretical ideas and policy prescriptions as well as providing a cloakroom view of international crises. He does so with a clear understanding of the theoretical and policy issues of international monetary relations and with a treatment so brisk that it is a breeze to read. The dramatic background for the book is provided by the recent negotiations on international monetary reform culminating in the Jamaica Accords. Crockett was an insider for most of the reform discussion, though more of a spectator than a participant. Di:ring the period 1972-74, when the work of the Committee of Twenty on Reform of the International Monetary System was proceeding, he was Personal Assistant to the Managing Director of the International Monetary Fund. At the time his book was published, Crockett was Chief of the Special %udies Division of the Research Department of the International Monetary Fund. After reviewing the nature of the Bretton Woods System, and the contradictions leading to its collapse, the author goes on to treat, in turn, the major issues i.n the reform discussions. These include the nature of the exchange regime, the adjustment mechanism, international liquidity, and the control of international capital movements. There are chapters on the Eurocurrency market, the international aspects of inflation, and the role of the International Nlonetary Fund. The book concludes with a lively review of the reform discussions, which highli,shts the more technical arrangements required to solve theoretical probleins as well as the political ramifications of such plans. Crockett deftly shows how international monetary questions have becn:ne bound up with politicel relationships and current economic developmel; [s. He provides the reader with a basis for understanding current controver~it’~, drawing heavily on the ‘reform exercise’ of 1971-76. As he sees it, ti:is ceremony failed in most of its more ambitious objectives but succeeded in focusing more attention than ever before on international mo!letarJ8 issues. The reform discussions dissolved as collective decisionmakillg became
146
Book Retdews
intractable. The negotiating positions of countries were influenceci by their particular interest whereas the preoccupations of monetary officials were and continue to be excessively dictated by the crisis of tne moment. And, there appears to be a crisis from moment to moment. In these tribal delhberations the United States appears among the most unyielding. With the lively political cloakroom discussions as backdrop, ,:.he reader will be treated to accurate and useful theoretical discourses on ‘balance of payments concepts (the price-specie-flow mechanism, purchasing power parity, the elasticity approach, the absorption approach, the monetary approach, and the ‘new Cambridge’ view), adjustments under different regimes (fixed exchange rates, free floating, optimum currency areas, adjustable pegs, wide bands, crawling pegs, and managed floating). The book is up-to-date on issues regarding international liquidity, the contrcl of capital movements, and developments in the Euro-currency market. It also includes a particularly insightful analysis of the problems of inflation control under different exchange regimes. Crockett diligently calls or:r attention to the effect of exchange rate fluctuations upon demand and output shifts within the national economies, that is, from traded to nontraded goods or vice versa. We finds no convincing arguments that would prompt one to select either fixed or flexible rates on grounds of expected anti-inflationary behavior, a conclusion based upon the complex matrix of domestic and international policy issues. The book is intended for students of the international monetary system who require institutional knowledge and historical insights as well as analysis of the theoretical issues. In this field of cascading events (for examples, this book, up-to-date as it is, was published prior to the 1979 energy crisis and the establishment of the European Monetary System), the teacher of international finance at all levels needs a paperback supplement to keep the student appraised of the new issues and the rapidly changing circumstances. I highly recommend this book as such a supplement. It also should be of interest to those outside the held of economics who wish to have a clear understanding of one of the most important elements in international relations. Despite a thorough exploration of the main theories behind the controversies, the author has avoided excessive jargon or arcane concepts. Moreover, the ‘insiders” view of the ‘reform exercise’ helps to illuminate IllOC~issues upon which future reformers might otherwise stumble. E. Ray Canterbery Florida State University
Book Reviews
financed government deficits or bond purchases, should be expected to produce real consequ,ences throughout a simultaneous system. Consequently, Dornbusch finds that inflation rates are interdependent - a result that illustrates the lack of ‘monetary sovereignty’ under floating rates Sven Arndt’s contribution is one of several papers he has written applying the type of disequilibrium analysis associated with the names of Clower, Barro, and Grossman to the open economy. Although Arndt obtains the immediate conclusion that stabilization policy depends on the composition as well as the level of aggregate demand, it is difficult (as J.C. Pattison argued .in his comments) to obtain stronger, unambiguous, qualitative conclusions from the analysis at this stage of development. Karl Brunner and Allen Meltzer presented a model with fotrr sectors, for one closed and two open economies, to study output and price fluctuations in the short run, intermediate run, longer run, and long I run with fixed exchange rates. They argue that independently chosen tax, expenditure, and monetary policies produce an inconsistent system -that the exchange rate or some of the policies will have to change. David Laidler and .4.R. Nob.iy contributed a survey on the international aspects of inflation. They place the upsurge in Monetarism and the monetary approach in a historical se%tting both with respect to events and doctrine, and chide Keynesian analysis for embodying money illusion. The last section covers a panel discussion among Friedman, Johnson, Lindbeck, Machlup, Mundell, and Rueff on floating exchange rates. Due to a technical problem, much of the discussion was not recorde:l; however, Johnson, Lindbeck, and Machlup wrote short papers out‘iining their positions and some of the panel debate. Although there are contributiors by Dornbusch, Kenen, and the panelists on floating rates, the volume is primarily concerned with fixed exchange rates. Another characteristic of the volume is the absence of formal empirical work. Since the conference included a large number (47) of distinguished economists and since the lead article in each topic section is either a survey or contains a survey, the volume accurately portrays the areas in which there is consensus and in which there is disagreement in international monztary theory. Don Roper Univeriiity of Utah
Andrew Crockett, International Money: Issues and Analysis (Thomas Nelson and Sons, Middlesex, 1977) pp. 250, E6.95, E3.95 (paper). The quality of scholarship in the field of international finance si-:lce the late 1950s has been impressive. an achievement overshadowed only by the
Book Reuiews
145
frequency of international financial crises. Economists carefully documented the contradictions inherent in the permutations of the Bretton Woods system, strains which made the system’s collapse inevitable. A plethora of reform proposals spilled forth over the years, ranging from the Triffin Plan to wider bands, crawling pegs: delayed pegs, gliding pegs, and other pegs more forgiving than the abso%tely fixed par values and narrow gold bands. In contrast, the international banking community has stayed aloof from the many workable ieform proposals, apparently preferring to be ambushed by reality. As 3 consequence, e\‘ents have always stayed a few steps ahead of reform. Yet, the most remarkable aspect of economists’ work in international finance has been the skillful blending elf theory with policy, the reflection of an acute sensitivity to political realities. This is the stuff from which paradoxes are born and good books arc::written. Crockett chronicles the development of these theoretical ideas and policy prescriptions as well as providing a cloakroom view of international crises. He does so with a clear understanding of the theoretical and policy issues of international monetary relations and with a treatment so brisk that it is a breeze to read. The dramatic background for the book is provided by the recent negotiations on international monetary reform culminating in the Jamaica Accords. Crockett was an insider for most of the reform discussion, though more of a spectator than a participant. Di:ring the period 1972-74, when the work of the Committee of Twenty on Reform of the International Monetary System was proceeding, he was Personal Assistant to the Managing Director of the International Monetary Fund. At the time his book was published, Crockett was Chief of the Special %udies Division of the Research Department of the International Monetary Fund. After reviewing the nature of the Bretton Woods System, and the contradictions leading to its collapse, the author goes on to treat, in turn, the major issues i.n the reform discussions. These include the nature of the exchange regime, the adjustment mechanism, international liquidity, and the control of international capital movements. There are chapters on the Eurocurrency market, the international aspects of inflation, and the role of the International Nlonetary Fund. The book concludes with a lively review of the reform discussions, which highli,shts the more technical arrangements required to solve theoretical probleins as well as the political ramifications of such plans. Crockett deftly shows how international monetary questions have becn:ne bound up with politicel relationships and current economic developmel; [s. He provides the reader with a basis for understanding current controver~it’~, drawing heavily on the ‘reform exercise’ of 1971-76. As he sees it, ti:is ceremony failed in most of its more ambitious objectives but succeeded in focusing more attention than ever before on international mo!letarJ8 issues. The reform discussions dissolved as collective decisionmakillg became
146
Book Retdews
intractable. The negotiating positions of countries were influenceci by their particular interest whereas the preoccupations of monetary officials were and continue to be excessively dictated by the crisis of tne moment. And, there appears to be a crisis from moment to moment. In these tribal delhberations the United States appears among the most unyielding. With the lively political cloakroom discussions as backdrop, ,:.he reader will be treated to accurate and useful theoretical discourses on ‘balance of payments concepts (the price-specie-flow mechanism, purchasing power parity, the elasticity approach, the absorption approach, the monetary approach, and the ‘new Cambridge’ view), adjustments under different regimes (fixed exchange rates, free floating, optimum currency areas, adjustable pegs, wide bands, crawling pegs, and managed floating). The book is up-to-date on issues regarding international liquidity, the contrcl of capital movements, and developments in the Euro-currency market. It also includes a particularly insightful analysis of the problems of inflation control under different exchange regimes. Crockett diligently calls or:r attention to the effect of exchange rate fluctuations upon demand and output shifts within the national economies, that is, from traded to nontraded goods or vice versa. We finds no convincing arguments that would prompt one to select either fixed or flexible rates on grounds of expected anti-inflationary behavior, a conclusion based upon the complex matrix of domestic and international policy issues. The book is intended for students of the international monetary system who require institutional knowledge and historical insights as well as analysis of the theoretical issues. In this field of cascading events (for examples, this book, up-to-date as it is, was published prior to the 1979 energy crisis and the establishment of the European Monetary System), the teacher of international finance at all levels needs a paperback supplement to keep the student appraised of the new issues and the rapidly changing circumstances. I highly recommend this book as such a supplement. It also should be of interest to those outside the held of economics who wish to have a clear understanding of one of the most important elements in international relations. Despite a thorough exploration of the main theories behind the controversies, the author has avoided excessive jargon or arcane concepts. Moreover, the ‘insiders” view of the ‘reform exercise’ helps to illuminate IllOC~issues upon which future reformers might otherwise stumble. E. Ray Canterbery Florida State University