The Past Speaks

AS: On Friday, I gave a lecture on the international monetary and financial system to our undergraduate students. A student emailed me asking for some suggestions for future reading. I’ve pasted my reply below.

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Obviously there is plenty of journalistic material on these issues. For the basics of the proposed Eurozone banking union, see here.

Here are my suggestions for academic sources on this topic.

Two of the leading authorities in this area are Nick Crafts and Barry Eichengreen. Crafts teaches at Warwick University here in the UK.  Eichengreen teaches at UC Berkeley in California.

These authors have an approach for understanding the global monetary system that’s pretty similar to the one I used in Friday’s lecture: they stress the stability of any particular international monetary regime is ultimately connected to the domestic political economy in each of the participating countries. Democracies are less tolerant of certain monetary systems than non-democracies, since democracies give a voice to the people who suffer from particular monetary and fiscal policies.  In other words, a democracy is going to demand a different monetary policy than, say, an aristocracy such as England in the Gold Standard era or an authoritarian regime such as present-day China. The really interesting thing is when you have currencies issued by very different political systems circulating around in the same global monetary and financial system.

Crafts summarised some of his research in a recent working paper in which he compares and contrasts the problems in the Eurozone today with those that confronted advanced economies during the Great Depression. By some statistical measures, today’s problems are worse. Crafts was interviewed about the problems in the EZ in January 2014. He points out that the degree of fiscal pain as a percentage of GDP that Greece is experiencing as the price of remaining in the EZ is historically unprecedented for a democracy. Crafts’s research suggests that Greece will eventually either abandon austerity and the Eurozone or will give up on democratic governance structures.

Eichengreen coined the term “golden fetters,” which I used in my lecture. He is the author of Globalizing Capital: A History of the International Monetary System,  Global Imbalances and the Lessons of Bretton Woods (2006) and Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (2011).  He writes a column on global monetary issues that is a useful intellectual gateway into his academic publications. (This recent piece may be of interest). He also write a column for the Guardian. His most recent Guardian piece, which appeared last week, may be of interest.

Kris James Michener (Warwick) has also spoken about the need for a banking union in the EZ. You can listen to him talking about it here. In this lecture, he explicitly compares the histories of banking regulation in the USA and the Eurozone.

One masterpiece of research is This Time is Different: A Panoramic View of Eight Centuries of Financial Crises Carmen M. Reinhart and Kenneth S. Rogoff. Unfortunately, this book was published in 2009, so it doesn’t include information about the recent EZ banking crisis. However, it’s good for thinking about banking crises in general.

My current favourite book on banking regulation in different countries was published in the United States earlier this month. It’s Fragile by Design: The Political Origins of Banking Crises and Scarce Credit by Haber and  Calomiris (The Princeton Economic History of the Western World). Haber and Calomiris talk about the banking systems of different countries.   It’s a superb book: grounded in solid economic theory, informed by history, and containing up-to-date information about recent crises. The book isn’t yet in our library, but it should arrive soon. Various chapters of the book are available online as free PDFs. The authors recently presented their research to the International Monetary Fund in DC.  You can read a good review of the book here. Watch the authors talk about the book here on the book’s companion website.