Evaluating the Bretton Woods System
Halm, George N., A Guide to International Monetary Reform, Lexington, Massachusetts, U.S.A., Lexington Books, 1975, v + 126 pp., $13.
Scammell, W. M., International Monetary Policy: Bretton Woods and After, New York, N. Y., U.S.A., John Wiley and Sons, Inc., 1975, vi + 262 pp., $16.95.
Monroe, Wilbur F., International Trade Policy in Transition, Lexington, Massachusetts, U.S.A., Lexington Books, 1975, xv + 172 pp., $14.50.
Since August 1971 economists have been enjoying a field day appraising the Bretton Woods system and making suggestions for reform. These three books are useful additions to the growing literature. They enhance our understanding of the past and contain suggestions for the future.
It has been thirty years since George N. Halm, now Emeritus Professor of Economics at the Fletcher School of Law and Diplomacy at Tufts University, wrote the classic. InternationalMonetaryCooperation, in which he reviewed the background to the establishment of the International Monetary Fund. Now he revisits the scene to see what has happened since. Halm’s new book, AGuidetoInternationalMonetaryReform, is a delight. In a little over 100 pages he describes the evolution of the problems of liquidity, confidence, and adjustment, as well as the problems of European monetary union and of the developing countries. He provides insight into the actions of monetary officials and fits together pieces of the puzzle characterizing international monetary relations in the last decade. The book is unusually well written and the coverage remarkably current: it includes the impact of the oil crisis and the introduction of the Fund’s oil facility in June 1974.
Halm attributes the Bretton Woods system’s failure to two factors: One, the Fund did not have sufficient resources to give the system the liquidity it required; hence, the dollar had to make up the deficiency and the gold-exchange standard became the gold-dollar standard. Two, changes in par values were relatively rare and, when they did occur, were very sizable; therefore, the system had to weather repeated crises. He is a well-known advocate of flexible exchange rates, and he concludes that greater flexibility of exchange rates will give a new monetary system more elasticity and coherence than the one arranged at Bretton Woods. He believes that such a reconstruction of the system is quite feasible.
Professor W.M. Scammell, of McMaster University, in his InternationalMonetaryPolicy: BrettonWoodsandAfter, also undertakes to examine the planning for, the performance of, and the eventual breakdown of, the Bretton Woods system and to consider plans for its reform. Like Halm, Scammell starts from a long-standing predilection for flexible exchange rates. However, Scammell believes that the system was wrong to begin with because it lacked an adjustment mechanism. He concedes little to the Bretton Woods system or the International Monetary Fund as factors in the phenomenal growth of international trade and investment and in the attainment of unprecedented world-wide prosperity in the quarter century after 1945. On the other hand, an especially useful feature of his book is the description of how different exchange rate mechanisms are meant to work.
Along with the pressing need for monetary reform has been the need for an overhaul of international trade policy. For some 30 years the reciprocal trade approach has governed trade patterns and policies, and the spirit and philosophy of that approach, which began in the United States, gradually became world-wide and institutionalized in the GATT. Since the late 1960s, however, there has been a growing discontent with the prevailing trade structure, and more disharmony in trade relations. These topics form the subject of International Trade Policy In Transition, by Dr. Wilbur F. Monroe, a U.S. Government economist. A companion volume to Monroe’s International Monetary Reconstruction (reviewed in Finance and Development, September 1974, p. 44), this short book provides those primarily concerned with international monetary questions with a useful summary of the issues in international trade. Monroe brings out well the topics that will be discussed over the next several years in what has become known as the Tokyo Round of multilateral trade negotiations. His search for trends is also commendable, and he discerns several: the gradual internationalization of the U.S. economy; the closer ties between trade policy, exchange rate policy, economic assistance, and investment policy; and the switch of countries from concern with access to markets to concern with assurance of supplies. Several of his ideas would come across better, however, if some of his sentences were shorter.
Margaret Garritsen de Vries
Braving the new world
Bergsten, C. Fred, Toward a New International Economic Order: Selected Papers of C. Fred Bergsten, 1972-1974, Lexington, Massachusetts, U.S.A., Lexington Books, 1975, xv + 519 pp., $20.
Bergsten, C. Fred, ed., Toward a New World Trade Policy: The Maidenhead Papers, Lexington, Massachusetts, U.S.A., Lexington Books, 1975, xi + 393 pp., $20.
The declaration of a “New International Economic Order” (NIEO) by the Sixth Special Session of the United Nations General Assembly in 1974 has given prominence to a series of issues that will keep the UN busy for some time. These two books are therefore both timely and substantive contributions to literature on this subject.
C. Fred Bergsten, a Brookings Institution scholar, is the author of the selected papers and editor of the Maidenhead Papers. He has the rare ability to deal with complex economic and political issues with the skill of a seasoned journalist without losing scholarly control over his work.
Observing that the basic rules and institutional frameworks of monetary, trade, and development relations have become “largely inoperative,” Bergsten sets forth some new bases of international economic relations. He asserts that inflation is the primary economic problem in virtually every industrial country and underscores the primacy likely to be attached to economic security in years ahead. On trade, Bergsten thinks that the future focus of international trade policies will be on access to supplies. He discusses the assessment that old rationales for foreign aid have gone without being replaced by a new consensus.
Bergsten has stuck his neck out quite far in predicting the strength and success of third-world country cartels in commodity marketing. Thus far at least, the more skeptical Varon-Takeuchi approach appears more convincing. Two consistent themes of the 36 entries comprising the Economic Order book are that foreign economic policy will be more important in overall foreign policy considerations, and that the third world will be of increasing economic importance to the industrialized countries. The style is forthright; Bergsten enjoys cutting to the heart of an issue and is occasionally bold and brash in doing so.
The Maidenhead Papers result from a conference held in Maidenhead, England, in April 1973 to help advance the understanding and policy thinking on industrial trade among the industrialized countries. The individual contributions are of a generally good quality. Richard N. Cooper’s piece reviewing exceptions to free trade policy and generally endorsing a liberal trade policy with complementary measures is a useful overview. The papers by Harry Johnson relating trade to the international mobility of capital and technology and by Kiyoshi Kojima comparing trade-inducing versus trade-substituting investment are stimulating. The studies of Imperial Chemical Industries, Bendix, and Mitsubishi help tie the reality of the business world to a necessarily theoretical forum. Similarly, the presence of labor adds balance to the discussion: Nat Weinberg of the United Auto Workers, for example, calls for checks on multinational firms, including assistance for workers laid off due to investment abroad by U.S. firms.
Both these books underline the fact that the challenge presented by the UN General Assembly and the tottering state of the “old” economic order require a serious rethinking of the international economic system.
Arthur H. House
Who’s afraid of scarcity?
Connelly, Philip, and Robert Perlman, The Politics of Scarcity: Resource Conflicts in International Relations, London, England, Oxford University Press, 1975, viii + 162 pp., $10.95.
This is a very timely and topical book, written in a simple, direct style mercifully free of the obfuscating jargon that characterizes so much social science writing. Although it purports to cover nonrenewable natural resources in general, it is in fact largely devoted to the oil question.
Part I, “The Anatomy of Scarcity,” considers the situation and objectives of four main groups of countries: resource exporting developing countries; resource importing industrial countries; resource self-sufficient countries; and resource poor developing countries. This classification is more appropriate than the traditional resource exporter/resource importer one, although it must be realized that significantly different situations exist among each of the four groups. The conclusions that emerges from the authors’ analysis is that first, metal ores are still abundant but, unless extractive technology keeps pace, there will be an upward trend in their cost, and second, that a sudden disruption of oil supplies would have a serious impact on industrial nations, although alternative fuels could in the longer run make up the difference but at the cost of considerable price increases.
After some generalizations of dubious value, Part II, “The Politics of Scarcity,” sets out to analyze the situation of the various “actors” in the overall situation. The chapter on resource exporters includes a capsule account of OPEC, while that on the consumers demonstrates the increasing dependence of the rich countries, in particular Japan and Western Europe, on imported resources.
Swidrowski, Jozef, Exchange and Trade Controls, Cambridge, Gower Press, Ltd., 1975, xvi + 342 pp., $32.50.
Dr. Swidrowski provides in this volume an up-to-date account of exchange and trade controls, particularly of the former. He approaches his subject with great warmth, since he has been closely concerned with exchange controls throughout his career—both as a member of the staff of the International Monetary Fund and, earlier, as an official of the Polish Government. The result is a practical account of the purpose of controls and how they are operated.