105. Ibid., p. 346.
106. Bloch, Is War Now Impossible?, p. xlv.
107. Lindert and Morton, ‘How Sovereign Debt Has Worked’, pp. 3, 20–24.
108. Lewis, Liar’s Poker, p. 197.
109. Angell, Great Illusion, p. 209.
110. Albertini, Origins of the War, vol. ii, p. 214.
111. Geiss, July 1914, document 57.
112. See Ferguson, Pity of War, ch. 11.
113. Apostol, Bernatzky and Michelson, Russian Public Finances, pp. 320–32.
114. Hardach, First World War, p. 148.
115. Calculated from figures in Morgan, Studies in British Financial Policy, pp. 317, 320 f.
116. Taylor, ‘International Capital Mobility’, p. 5.
117. Bordo and Rockoff, ‘Adherence to the Gold Standard’, table 1.
118. Ibid., pp. 19 f.
119. Schuker, ‘American “Reparations”’.
120. Lindert and Morton, ‘How Sovereign Debt Has Worked’, p. 5.
121. Feinstein and Watson, ‘Private International Capital Flows’; James, Globalization and its Sins, p. 50.
122. Fearon, Origins and Nature of the Great Slump.
123. Ritschl, ‘Sustainability of High Public Debt’.
124. Lindert and Morton, ‘How Sovereign Debt Has Worked’, p. 6.
125. To be precise: in June 1933 Germany imposed a moratorium on all foreign debt repayments except interest and amortization on 1924 Dawes loan and interest payments on 1930 Young Loan: James, Globalization and its Sins, p. 140.
126. James, ‘Ende der Globalisierung’, p. 71; James, Globalization and its Sins, pp. 48, 145.
127. Zevin, ‘World Financial Markets’, p. 47; Economist, World in Figures, pp. 38, 52.
128. Taylor, ‘International Capital Mobility’, p. 3; Eichengreen and Hausmann, ‘Exchange Rates and Financial Fragility’, p. 27.
129. Obstfeld and Taylor, ‘Great Depression as a Watershed’, p. 359; James, ‘Ende der Globalisierung’, p. 63. See also Taylor, ‘International Capital Mobility’, p. 5 and table 1.
130. O’Rourke and Williamson, Globalization and History, p. 30.
131. Ibid., pp. 35 f., 98 f.
132. Ibid., p. 11.
133. Micklethwait and Wooldridge, Future Perfect, p. 51.
134. O’Rourke and Williamson, Globalization and History, p. 119.
135. Ibid., p. 122.
136. Fischer, Krengel and Wietog (eds.), Sozialgeschichtliches Arbeitsbuch, pp. 34 f.
137. O’Rourke and Williamson, Globalization and History, pp. 119, 155.
138. Ibid., pp. 225, 240–45.
139. Micklethwait and Wooldridge, Future Perfect.
140. Giddens, Runaway World.
141. Micklethwait and Wooldridge, Future Perfect, p. 257.
142. Most technological innovation (measured in terms of US patents taken out in 1997) originates in a tiny élite of five countries. Just 10 per cent of the world’s population lives in those countries; yet they account for 87 per cent of all new patents in 1997 and around two-fifths of world GDP. Yet 85 per cent of the world’s people can be classified as non-innovators: between them they took out a mere 0.7 per cent of new patents: Jeffrey Sachs, ‘A New Map of the World’, The Economist, 24 June 2000.
143. See e.g. O’Rourke and Williamson, Globalization and History, chs. 6, 10; Crafts, ‘Globalization and Growth’, pp. 50–52; James, ‘Ende der Globalisierung’, p. 78.
144. See esp. Bordo, Eichengreen and Irwin, ‘Globalization Today’.
145. Ibid., p. 10; Crafts, ‘Globalization and Growth’, p. 25.
146. Friedman, Lexus, p. 112.
147. Ibid., p. 167.
11. Golden Fetters, Paper Chains: International Monetary Regimes
1. Fleming, Goldfinger, pp. 51–9. As a scion of the Fleming banking dynasty, the author was not wholly ignorant of these matters.
2. Readers may find it helpful to bear in mind the troy measures conventionally used in the gold market: 1 ounce is equal to 31.10348 grams; 1 tonne is equal to 1,000,000 grams, therefore 32,150.7 ounces.
3. At June 2000 prices, the gold reserves of the Eurozone were substantially higher than those of the US ($115 bn to $75 bn). Germany, France, Switzerland and Italy all have gold reserves of around $20–$30 billion, compared with just $5.6 billion in Britain: The Economist, 17 June 2000.
4. Roth, ‘View from Switzerland’.
5. See in general Ware, ‘IMF and Gold’.
6. See Bordo and Schwartz, ‘Changing Relationship’, pp. 21 f.
7. Financial Times, 28 September 1999.
8. Calculated from figures in McCaffrey and Lamarque, ‘Gold’.
9. Harmston, ‘Gold as a Store of Value’, p. 29.
10. Green, World of Gold, pp. 357–62.
11. Harmston, ‘Gold as a Store of Value’, p. 5.
12. ONS, quoted in Daily Telegraph, 11 June 1999.
13. Harmston, ‘Gold as a Store of Value’, p. 5.
14. But see Bordo and Schwartz, ‘Changing Relationship’, p. 27.
15. Harmston, ‘Gold as a Store of Value’, pp. 10, 18, 54.
16. I am grateful to Henry Gillett of the Bank of England for this information.
17. Harmston, ‘Gold as a Store of Value’, p. 38.
18. Ibid., pp. 41–5.
19. 2 July 1819 was the date of ‘Peel’s Act’, committing Britain to return to gold at the exchange rate prior to suspension on 26 February 1797.
20. The Bretton Woods Articles Agreement was signed in July 1944 and began working with limited convertibility outside the United States in 1946. The system did not become fully operational until 1959.
21. Obstfeld, ‘International Currency Experience’. A simple measure of purchasing power parity is The Economist’s ‘Big Mac’ index, based on comparing the prices of the standard McDonald’s hamburger. By this measure, most Asian, Latin American and East European currencies were undervalued against the dollar at the time of writing: The Economist, 29 April 2000.
22. See for an accessible account Krugman, Return of Depression Economics. Of course, it can be argued that the Asian crisis was a consequence of trying to maintain pegged exchange rates.
23. Rockoff, ‘Wizard of Oz’. I am grateful to Professors Charles Goodhart and Forrest Capie for this reference.
24. Yeager, ‘Fluctuating Exchange Rates’.
25. Cooper, ‘Gold Standard’, p. 4; Bordo and Kydland, ‘Gold Standard as a Commitment Mechanism’, pp. 72–5.
26. Eichengreen and Flandreau, ‘Geography of the Gold Standard’, table 2.
27. Drummond, Gold Standard, p. 12. These naturally varied according to the costs of shipping, mint charges and interest rates.
28. Ford, Gold Standard.
29. McCloskey and Zecher, ‘How the Gold Standard Worked’.
30. Bloomfield, Monetary Policy.
31. Bordo and Schwartz, ‘Changing Relationship’, p. 15.
32. Cooper, ‘Gold Standard’, p. 9.
33. Barsky, ‘Fisher Hypothesis’; Bordo and Kydland, ‘Gold Standard as a Commitment Mechanism’, pp. 80–83.
34. Bordo, ‘Classical Gold Standard’, pp. 152, 167.
35. Bordo cites the following figures for Britain:
Source: Bordo, ‘Classical Gold Standard’, p. 168 and table 5.1.
36. Bordo, ‘Gold as a Commitment Mechanism’, p. 21. Subtracting Bordo’s figures for inflation (in Table 19) from his figures for long-term rates suggests that real rates were at their lowest under Bretton Woods.
37. Flandreau, L’Or du monde. See also the same author’s ‘Règles de la pratique’, ‘French Crime of 1873’ and ‘Essay on the Emergence’.
38. It cannot be without significance that nearly all the best economists of the period, including Marshall and Wicksell, advocated reform of the gold standard.
39. Bordo and Schwartz, ‘Monetary Policy Regimes’, pp. 18, 72.
40. Green, ‘Central Bank Gold Reserves’. I am grateful to Jill Leyland, Econ
omics and Statistics Consultancy, for this reference.
41. Vilar, History of Gold, pp. 319 ff.
42. Cooper, ‘Gold Standard’, p. 14. For the argument that prospectors and producers responded to a rising purchasing power of gold see e.g. Bordo, ‘Classical Gold Standard’, p. 166.
43. Cooper, ‘Gold Standard’, p. 18.
44. Ford, Gold Standard, p. 25. For a critique of the notion that international monetary systems depend on one country’s hegemony, see Eichengreen, ‘Hegemonic Stability Theories’.
45. Eichengreen, Golden Fetters, p. 73.
46. Capie, Goodhart and Schnadt, ‘Development of Central Banking’, p. 11.
47. Bordo and Kydland, ‘Gold Standard as a Commitment Mechanism’, p. 56; Bordo and Rockoff, ‘Good Housekeeping’, p. 321; Bordo and Schwartz, ‘Monetary Policy Regimes’, p. 10.
48. Bordo, ‘Gold as a Commitment Mechanism’, p. 7.
49. Bordo and Kydland, ‘Gold Standard as a Commitment Mechanism’, pp. 68, 77.
50. See Bordo and Schwartz, ‘Monetary Policy Regimes’, p. 11.
51. Bordo and Rockoff, ‘Good Housekeeping’, pp. 327, 347 f.
52. Bordo and Rockoff, ‘Adherence to the Gold Standard’, p. 28. ‘Canada paid 5.53 per cent when off gold and 4.65 per cent when on gold; Australia paid 6.9 and 5.17; Chile 8.05 and 6.75; Denmark 6.93 and 4.8; Italy 7.8 and 6.25.’
53. Bordo and Schwartz, ‘Monetary Policy Regimes’, pp. 71 f.; Bordo and Jonung, ‘Return to the Convertibility Principle’; Bordo and Dewald, ‘Historical Bond Market Inflation Credibility’.
54. Eichengreen and Hausmann, ‘Exchange Rates and Financial Fragility’, p. 35.
55. Mundell, ‘Prospects for the International Monetary System’, p. 31.
56. Bordo and Schwartz, ‘Monetary Policy Regimes’, p. 62.
57. See Obstfeld, ‘International Currency Experience’.
58. Keynes, Tract on Monetary Reform, p. 138.
59. The definition of this term is a matter of taste. Schwartz argues from the monetarist perspective that only banking crises precipitated by a ‘public … scramble for high powered–money’ qualify: Schwartz, ‘Real and Pseudo-financial Crises’, p. 11. For a more precise definition and a detailed empirical survey see Bordo, ‘Financial Crises’, pp. 190 f. Following in the footsteps of Irving Fisher, Minsky developed the idea of crises as the results of cyclical collisions between indebtedness and interest rates. The more highly geared an economy, the more likely that a rise in the interest rate will spark off debt deflation: see esp. Minsky, ‘Systematic Fragility’. The Minsky–Fisher approach is predominant in Kindleberger, Manias, Panics and Crashes.
60. Goodhart and Delargy, ‘Financial Crises’.
61. Bordo and Eichengreen, ‘International Economic Environment’, passim; Bordo, Eichengreen and Irwin, ‘Globalization Today’, pp. 47–56.
62. See Bayoumi, Eichengreen and Taylor, ‘Introduction’, pp. 7 f., 11 f., for a summary of the literature on this point.
63. Eichengreen and Hausmann, ‘Exchange Rates and Financial Fragility’, p. 28.
64. Bordo and Eichengreen, ‘International Economic Environment’, p. 15. See also Wood, ‘Great Crashes in History’.
65. Friedman and Schwartz, Monetary History.
66. A violation of the rules of the game of which France was also guilty: Eichengreen, ‘Gold-Exchange Standard’.
67. Only China, Spain, Turkey and the Soviet Union were not: Bordo and Schwartz, ‘Changing Relationship’, p. 18; Bordo and Rockoff, ‘Adherence to the Gold Standard’, p. 14.
68. Eichengreen, Golden Fetters. Cf. Eichengreen and Sachs, ‘Exchange Rates and Economic Recovery’.
69. For an outstanding survey see Bordo, ‘Bretton Woods’.
70. Bordo and Schwartz, ‘Changing Relationship’, p. 19; Bordo, ‘Gold as a Commitment Mechanism’, p. 17; Bordo and Schwartz, ‘Monetary Policy Regimes’, p. 19.
71. Bordo, ‘Bretton Woods’, p. 83. See, however, the comment by Cooper in the same volume, p. 106. Cf. Zevin, ‘World Financial Markets’, pp. 56–68.
72. Bordo and Schwartz, ‘Changing Relationship’, pp. 24 f.
73. Krugman, Return of Depression Economics, pp. 96 ff.
74. McKinnon and Pill, ‘International Overborrowing’; Eichengreen and Hausmann, ‘Exchange Rates and Financial Fragility’, pp. 20 f.
75. The argument that this should be the IMF’s role has been advanced in a report for the US Congress by Allan Meltzer (The Economist, 19 March 2000). Capie argues that there can be no such thing as an international lender of last resort, in that in the absence of world money no institution can provide liquidity to the international financial markets as a whole, only bail-outs on a country-by-country basis with the attendant danger of moral hazard: Capie, ‘International Lender of Last Resort’. For a sceptical view on the benefits of bailouts see Bordo and Schwartz, ‘Measuring Real Economic Effects from Bailouts’.
76. McKinnon, ‘East Asian Dollar Standard’.
77. Cooper, ‘Monetary System for the Future’.
78. Eltis, ‘Creation and Destruction of the Euro’.
79. See Bergsten, ‘America and Europe’, pp. 20, 22, 26, 27.
80. The following draws on Ferguson and Kotlikoff, ‘Degeneration of EMU’. I am indebted to Laurence Kotlikoff for his comments.
81. Buiter, ‘Alice in Euroland’.
82. Bordo and Jonung, ‘Future of EMU’, p. 27.
83. Panic, European Monetary Union.
84. Hitherto both were linked to the French franc, so that in effect they became a part of the Euro zone in 1999: see Fielding and Shields, ‘Franc Zone’.
85. Flandreau, ‘The Bank, the States and the Market’.
86. Schubert, ‘Dissolution’; Bordes, Austrian Crown, pp. 40–45.
87. Einaudi, ‘Money and Politics’, ch. 3.
88. Einaudi, ‘Monetary Unions’.
89. Ibid., p. 353. It remained in formal existence until the withdrawal of Switzerland in 1926; it fell apart the next year: Cohen, ‘Beyond EMU’, p. 191.
90. Ferguson and Kotlikoff, ‘Degeneration of EMU’.
91. See the critiques in Cohen, ‘Beyond EMU’; Feldstein, ‘Political Economy’; Obstfeld, ‘EMU: Ready or Not?’; Lal, ‘EMU and Globalisation’.
92. Neal, ‘Shocking View of Economic History’, pp. 327 f.
93. Deutsche Bundesbank, ‘Opinion’.
94. In fact, Eichengreen and Wyplosz show the opposite to be the case in Europe: ‘Stability Pact’, p. 91.
95. Bovenberg, Kremers and Masson, ‘Economic and Monetary Union’, p. 141; Winckler, Hochreiter and Brandner, ‘Deficits, Debt and European Monetary Union’, p. 265; Hagen, ‘Discussion’, p. 278.
96. Goodhart, ‘Two Concepts of Money’, pp. 408 ff.
97. Defined, it appears, as keeping inflation between zero and 2 per cent per annum.
98. King, ‘Commentary’; Winckler, Hochreiter and Brandner, ‘Deficits, Debt and European Monetary Union’, p. 273.
99. Bovenberg, Kremers and Masson, ‘Economic and Monetary Union’, pp. 142 ff.; Sims, ‘Precarious Fiscal Foundations’, p. 15.
100. See e.g. Bordo and Jonung, ‘Future of EMU’, p. 30; Berthold, Fehn and Thode, ‘Real Wage Rigidities’.
101. Eichengreen and Wyplosz, ‘Stability Pact’, p. 103.
12. The American Wave: Democracy’s Flow and Ebb
1. Tocqueville, Democracy, vol. i, pp. 3, 7.
2. Fukuyama, ‘End of History?’, and End of History and the Last Man.
3. Hegel, ‘Philosophical History of the World’, pp. 26–30, 33 ff.
4. Sheehan, German History, p. 212.
5. Fukuyama, ‘Capitalism and Democracy’, pp. 106 ff.
6. Fukuyama, Great Disruption, p. 282.
7. Olson, Power and Prosperity, pp. 8 f.
8. Ibid., p. 17.
9. Ibid., pp. 187, 192 f. Cf. his Rise and Decline, and ‘Big Bills Left on the Sidewalk’, esp. pp. 19 f.
10. North, Institutio
ns, p. 51; but see also pp. 109 f.
11. Sen, Development as Freedom, pp. 51 f., 150 ff.
12. Shin, ‘Democratization’, pp. 156 f.
13. Shleifer and DeLong, ‘Princes and Merchants’.
14. Shleifer, ‘Government in Transition’.
15. Przeworski, ‘Neo-liberal Fallacy’, p. 51.
16. Butterfield, Whig Interpretation. Cf. Clark, English Society, a bold working out of the anti-Whig position.
17. Thomas Babington Macaulay’s History of England (1848, 1855) is usually identified as the classic Whig text.
18. Tocqueville, Democracy, vol. i, pp. 8, 12.
19. Ibid., vol. ii, p. 324.
20. Ibid., vol. ii, p. 336.
21. Tocqueville, Old Regime, pp. 219 f.
22. Jardin, Tocqueville, pp. 427–61.
23. Przeworski, ‘Neo-liberal Fallacy’, pp. 52 f.
24. Institute for Democracy and Electoral Assistance, Annual Report 1998, p. xi.
25. Ward et al., ‘Spatial and Temporal Diffusion’, p. 3.
26. Starr, ‘Democratic Dominoes’, p. 356.
27. Modelski and Perry, ‘Democratisation in Long Perspective’, p. 23.
28. Herodotus, Histories, pp. 238–41 (Book 3.82).
29. Schumpeter, Capitalism, Socialism and Democracy, p. 302.
30. Hayek, Road to Serfdom.
31. See e.g. Bollen, ‘Issues in the Comparative Measurement of Political Democracy’, and ‘Liberal Democracy’.
32. According to the Freedom House’s own definition: ‘A country grants its citizens political rights when it permits them to form political parties that represent a significant range of voter choice and whose leaders can openly compete for and be elected to positions of power in government. A country upholds its citizens’ civil liberties when it respects and protects their religious, ethnic, economic, linguistic, and other rights, including gender and family rights, personal freedoms, and freedoms of the press, belief, and association.’
33. Karatnycky, ‘Decline of Illiberal Democracy’, p. 112.
34. The fact that these were Nigeria, Indonesia and Sierra Leone shows how ephemeral, if not wholly illusory, such progress can be.
35. Zakaria, ‘The Rise of Illiberal Democracy’.
36. ‘The Freedom House roster of electoral democracies is based on a stringent standard requiring that all elected national authority must be the product of free and fair electoral processes’: neither Mexico nor Malaysia qualify.
The Cash Nexus: Money and Politics in Modern History, 1700-2000 Page 63