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Money, Markets & Sovereignty

Benn Steil & Manuel Hinds, Yale University Press, 2009, 304 pages, £20.

The press release which accompanied the publication of this book described it as: "The most powerful defence of economic liberalism since F A Hayek published The Road To Serfdom more than sixty years ago." Certainly, this is an intensely ideological book. From the very outset the reader is left in no doubt as to the authors' belief in the unalloyed benefits of free markets and the unhampered operation thereof.

This book is, nonetheless, exceptionally wide-ranging and multi-layered, and your reviewer found it an immensely stimulating read. And while disagreeing profoundly with the conclusion, I would unhesitatingly recommend it to others.
The first part of the book traces the history of the development of the political and legal thinking behind economic liberalism, starting with the Stoic political thought of the Hellenistic world of 400 BC and continuing up to the present day. In this latter connection, the authors tackle the critics of globalisation - notably Joe Stiglitz - head-on, taking issue with the main objections.

The authors then move on to outline a history of monetary sovereignty. Successive chapters discuss the establishment of the Classical Gold Standard, beginning with the Britain's 1816 Coinage Act; the rapid spread of these monetary arrangements during the second half of the 19th century; the globalisation of the late 19th century compared with its current successor; the difficulties the Gold Standard experienced during the troubled inter-war period; and, finally, the US dollar's dominance of the international monetary system from Bretton Woods onwards.

It must be said that some of the arguments deployed sit uneasily with the evidence. It is tendentious, for instance, to suggest that government intervention in the 1930s was always a 'bad thing'. And much of what the authors have to say about the operation of the resurrected Gold Standard in the inter-war period flies in the face of conventional wisdom, notably the notion - argued most forcefully and comprehensively by Barry Eichengreen in his now classic Golden Fetters - that countries exiting the gold standard had much greater success in combating deflation and securing economic recovery than those who chose to stay with its exacting discipline.

The book concludes with an assessment of current international monetary arrangements. The authors' core belief is that expanding globalisation is wholly inconsistent with monetary nationalism, and that this will ensure nothing but continued currency crises in future. In particular, the authors have grave doubts about whether the US dollar can sustain its long-running role at the centre of the international monetary system.

In fact, it is clear that the authors believe that no fiat currency can properly fill this role - whether the euro or, ultimately, the Chinese renminbi - currently the most widely-touted alternatives to the US dollar. Indeed, the (unsurprising) conclusion is that only gold fits the bill.

In concluding thus, however, the authors accept that the restoration of any variant of the Gold Standard is totally unfeasible politically. And though they advocate the adoption of a "private gold-based monetary system" they are sufficiently realistic to accept that this would be a wholesale non-starter as far as governments are concerned. After all, one of the key arguments of the book is that rulers throughout history have sought to control money. Such a privilege will not be voluntarily renounced.

Instead, the authors conclude with a plea that a new statutory framework for the Fed is established, "One which explicitly acknowledges the global role of the dollar and the dependence of the US dollar on foreign confidence in it." 'Dream on', thought your reviewer, as he laid down the book.

Ian Harwood
Chief Economist, Evolution Securities

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