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Book Notices

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1970
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Mundell, Robert A. and Alexander K. Swoboda (Editors), Monetary Problems of the International Economy, Chicago, Illinois, U.S.A., The University of Chicago Press, 1969, x + 405 pp., $12.50; Aliber, Robert Z. (Editor), The International Market for Foreign Exchange, New York, N.Y., U.S.A., Praeger, 1969, xviii + 272 pp., $17.50.

Books based on the proceedings of academic conferences are often of limited interest to those who were not there. The two books under review, each associated with a conference organized by the University of Chicago, are notable exceptions. The Mundell and Swoboda volume is based on a conference held in 1966 and was originally designed as a forum for younger theorists to isolate the underlying theoretical problems of the international monetary system. In the event, the participants declined to abstract from practical problems as rigorously as the sponsors had intended.

The resulting application of sophisticated analytical technique to current problems is particularly illuminating in the discussion of ‘The Seignorage Problem and International Liquidity,” in contributions by Herbert Grubel, W. M. Corden, and Harry G. Johnson. The discussion of how seignorage, the “net value of resources accruing to the issuer of money,” should be distributed within the international community in connection with newly created international money has gained rather than lost in relevance through the establishment and activation of the SDR facility. Other aspects covered include optimum currency areas; adjustment and the assignment problem; and stability and the crisis problem, together reflecting the approach of the convener of the conference, Robert A. Mundell.

The volume edited by Robert Aliber contains the fruits of a conference in 1967 which brought together academic economists, central bank officials, and leading dealers and other practitioners in the exchange markets. The core of the book consists of nine chapters describing the foreign exchange markets of seven European countries and of the United States and Canada. These chapters were prepared in each case by the central bank concerned, and describe in a systematic manner the participants, practices, and regulations of the market and, most valuably, the policies of official intervention. In a number of cases, these latter descriptions are a prime source, and these descriptions alone will make this a reference volume for specialists. These accounts disclose, for example, that the Swiss authorities aim to avoid intervention while the rate is in a specified central range (viz., between 4.3150 and 4.34 francs to the dollar). The Bank of France states that it avoids any intervention in the forward market, and confines its intervention in the spot market to dealings in the Paris market, as it believes that “above the board, open intervention is more efficient and less costly than geographically dispersed and covert operations, which it is impossible to keep secret for any significant length of time.”

The volume also contains some analytical chapters of exchange market problems, and an intriguing offering on “Psychology of the Exchange Market” by Professor Helmut Lipfert, who is among the select few to have combined theorizing about foreign exchange with dealing in it. Unlike many accounts of foreign exchange practice tinctured with a public relations defensiveness. Professor Lipfert tells it straight. Thus, in dealers’ business conversations: “Normally, a deliberate falsehood is not told, as the possible exposure of a misleading statement may impair standing.”

Fred Hirsch

British Financial Institutions (Central Office of Information Reference Pamphlet No. 24), London, Her Majesty’s Stationery Office, 1969, 76 pp., 7s. 6d.; Burgess, Norman, How to Find Out About Banking and Investment, Oxford, England, Pergamon Press, 1969, xii + 300 pp., £1.5s. Od.

These two publications usefully complement each other. The first, a British Government pamphlet, describes in some detail all the constituent institutions which make up “The City,” including such lesser-known ones as the Panel on Take-Overs and Mergers and the Association of Investment Trust Companies. The relevant legal provisions are also set out. Only the lack of an index detracts from the value of this comprehensive and up-to-date guide to the London financial structure.

Mr. Burgess’ compendium contains the names, publishers, and dates of something like 1,000 books and periodicals on the subjects covered by Dewey Classification 332 (“Financial Economics”). There is also a short section on relevant aspects of law. Chapters on careers, dictionaries and encyclopedias, libraries and guides to libraries, bibliographies and literature guides, and periodical literature precede 22 chapters on various subdivisions of the subject. Brief, generally uncritical, descriptions are given of the contents of each item noted. While not every reader will agree with all the author’s choices, the book contains a sound introduction to an enormous literature, and the publishers are to be congratulated on their enterprise.

J. Keith Horsefield

Roseveare, Henry, The Treasury: The Evolution of a British Institution, London, Allen Lane the Penguin Press, 406 pp., 1969, 84s. (hardback).

The British Treasury has for many years produced more folklore than it can consume, and Dr. Roseveare’s engaging book explains some of the production processes.

He notes that it is in no sense a history of the Treasury, and in fact the bulk of the book is devoted to the adaptation of the institution to the strains of the late nineteenth and early twentieth centuries. Chronologically, the book races through the first 700 years of the existence of an English Treasury/Exchequer, and while noting there was a difference between the two, does not clearly define it. The author settles into his stride with developments in the later nineteenth century, amid Victorian surges of reform and economic tinkering and seems somewhat disappointed by the need to move finally to a consideration of crasser twentieth century economic imperatives. However, the chapters devoted to the nineteenth century Treasury make engrossing reading.

Dr. Roseveare claims that the Treasury control of the U.K. Civil Service is of recent origin dating from 1920 by his reckoning, shortly after the appearance of Warren Fisher as Permanent Secretary-and an instigator of reforms-in 1919. However, his own description of the Treasury’s evolution in the nineteenth century and even earlier makes it clear that the Treasury enjoyed a steady preeminence and tended to set the tone for successive Administrations from the seventeenth century onward, whatever its formal relations with other government departments.

There are some aspects which are covered disappointingly briefly, or not at all. For instance, the American Revolution is recounted mostly in terms of the legal justification for levying taxes in that country and the impetus for Treasury reform resulting from the War of Independence. It would have been interesting to know how the “no-taxation-without-representation” taxes were raised (or were not) and how they were transmitted to London. There is also only passing reference to the effects on the Treasury of the extension of British rule in India.

Again it would be interesting to see something more on the Peninsular War, when Wellington, besides acting as commander in chief, his own chief-of-staff, and quartermaster-general, also acted as his own finance minister, paymaster-general, and central bank in the field, and how the Treasury reacted to his efforts.

This is essentially a study of the personalities who shaped the British Treasury in modern times, giving it an intellectual preeminence real or assumed, a mystique all its own, and an ability to devour upstart departments and ministers. For this alone, it is well worth reading.

David Armour

Bhagwati, Jagadish, Trade, Tariffs and Growth, Cambridge, Mass., The M.I.T. Press, 1969, ix + 371 pp., $12.50; Johnson, Harry G. (Editor), New Trade Strategy for the World Economy, Toronto, University of Toronto Press, 1969, 344 pp., $7.95.

These two books deal between them with many aspects of modern developments in the field of international trade theory and policy. The volume by Jagadish Bhagwati brings under one cover the author’s contributions to international trade theory spanning the last decade. Professor Bhagwati, along with Professors Harry G. Johnson, Kemp, Caves, Cravis, and Kennen, to mention only the leading lights, are credited with some of the important contributions to the modern international trade theory and its synthesis with the main corpus of growth economics. The present collection of his essays testifies, in no small measure, to his own place among these leading names.

His first important paper, entitled “Immiserizing Growth: A Geometrical Note,” though appearing in this volume in the last section, pointed up the conditions more explicitly for the first time under which economic growth may culminate in impoverishing the economy through deterioration in terms of trade. Though the propositions developed there were implied in the neoclassical literature, it was Bhagwati who linked their relevance to the modern growth theory. The first essay on survey of international trade theory originally appeared in The Economic Journal in a series of surveys of economic theory. It encompasses all that Dasses under a rubric of “pure” theory of international trade, which represents, in essence, the application of theories of value and welfare to the international economies. Yet, Bhagwati has tried, through empirical verification of testable propositions, to relate pure theory to the facts of life as he perceives them. This is evident most conspicuously in the Addendum where he analyzes in depth the developments that have taken place in response to the famous Leonthief’s original tests of Hechscher-Ohlin hypothesis for U.S. foreign trade.

Two other notable papers are No. 11—”Domestic Distortion, Tariffs and the Theory of Optimum Subsidy,” and No. 10—”Fiscal Policies, the Fakinq of Foreian Trade Declarations, and the Balance of Payments.” The former, written jointly with the late V.K. Ramaswamy, focuses attention on the proposition that the optimal policy in the case of domestic distortion calls for domestic rather than foreign trade policy instruments. The latter has identified the nature of impact of some of the fiscal policies, such as import and export duties or subsidies, on the balance of payments. Though the conclusions are more analytical than definitive, they have a great deal of policy relevance, as illustrated by Bhagwati’s use of Turkish and Indian data for testing his main proposition.

Altogether, an important volume on the growing body of literature on international trade theory.

The volume edited by Professor Harry G. Johnson is mainly concerned with the issues related to the formation of a free trade association in industrial products among a group of countries centered on the Atlantic, together with some subsidiary proposals for action in related areas of trade policy. The core of this free trade area-a North Atlantic Free Trade Area (NAFTA)—comprises the United States, Canada, the United Kingdom, and other members of the European Free Trade Association (EFTA). It is contemplated that this area would be gradually extended to include Japan, Australia, New Zealand and the countries of the European Economic Community (EEC) in case they so desired in future.

The free trade area, such as the proposed NAFTA, basically differs from a customs union in that under the former member countries do not unify their original national tariffs into a common tariff against imports from nonmembers. Nor does the free trade area prevent a free movement of capital and labor or the integration of fiscal and monetary policies, as in the case of a customs union. It follows, therefore, that the main justification for the NAFTA type of trade association lies in the reluctance of countries to join a common market for one reason or the other. The main impulse for such type of association stems from the obstacles placed in the British entry into the EEC. The content, however, has changed considerably since this present study was originally undertaken. The main assumption on which it is predicated may also have changed with a greater willingness of the main countries forming the EEC to allow the United Kingdom to enter their club.

As a document spotlighting the international interest in the liberalization of trade among nations and national interests—economic or political—in the international trade of the prospective members, the present study is both interesting and useful. It is possible that trade liberalization, even beyond what is envisaged by the Kennedy Round, is only possible if a NAFTA type of free trade association is formed. However, even for this purpose, the old framework of a free trade association has to be transformed somewhat radically by bringing in the scope of such association the issues relating to nontariff barriers to trade in industrial products. As regards the national interests, a formation of a free trade association suggested would undoubtedly promote the interests of countries as geographically separated as Canada and the United Kingdom.

The present volume, which is based on a series of research papers commissioned by the Atlantic Trade Study (ATS), discusses many of the above issues carefully and as dispassionately as possible. It contains four major studies. The first is by Professor Gerard Curzon and his wife and analyzes and compares the alternative strategies for the pursuit of liberalization of world trade that are available after the Kennedy Round. The second essay by Mr. Gçlber analyzes the political case for British participation in a loose trading arrangement. His conclusion, somewhat novel, is that joining a NAFTA kind of free trade association might make greater political sense for the United Kingdom than being a part of the EEC. In the third essay by Mr. Maxwell Stamp and Mr. Harry Cowie they seem to argue that the NAFTA would have beneficial effects on the volume of British trade and balance of payments; they also provide a much needed correction to the view, largely exaggerated, that the United Kingdom would not withstand competition from the technologically advanced U.S. industry. Mr. David Robinson, in the last essay, concludes that despite the strong forces of inertia to be surmounted, the British initiative toward NAFTA might be welcomed by Canada, the United States, and the EFTA countries.

Professor Harry Johnson’s introduction, though brief, is lucid and helps the reader to see the whole discussion of the new trade policy and trade blocks in a proper perspective. The importance of such studies can hardly be exaggerated when many leading economic issues are distorted by “gut—reactions” made possible by superficial journalistic writings.

Deena R. Khatkhate

Brown, Lester R., Seeds of Change: The Green Revolution and Development in the 1970’s, 1970, xv + 205 pp., Praeger, New York, $2.50 (paperback).

The new seeds and the new advances in agricultural technologies—the green revolution—may eliminate the malnutrition crippling half the people on this planet. Or the food-production breakthrough could displace millions in the countryside, pushing them into the crowded cities.

In Seeds of Change, an expansion of an article that appeared originally in the magazine Foreign Affairs, Lester Brown argues that agriculture “is where the action is” in economic development today. He points out that this means more than working with hybrids, water, fertilizer, and rich-nation money. Agriculture is—or should be—concerned with the major problems facing man: poverty, population growth, unemployment, and the environment crisis, as well as hunger.

Mr. Brown, who was raised on a farm in New Jersey (his boyhood speciality was tomatoes), was formerly with the U.S. Department of Agriculture. The book was written under the auspices of the overseas Development Council, an Organization which aims to improve the American people’s understanding of the problems of development.

Seeds of Change points out the “tragic gap” between food production and consumption in developing nations, and new problems arising from agriculture’s sudden leap forward. The author argues that the “miracle” rice and wheat strains do not provide the ultimate solution to the food-population problem, but that they have bought time in which to seek a breakthrough in family planning comparable to the breakthrough in plant breeding.

“The new seeds promise to improve the well-being of more people in a shorter time than any other single technological advance in history,” Mr. Brown predicts. “They are replacing disappointment and despair with hope. For literally hundreds of millions, they can be the key to the door opening into the twentieth century. But that door will open only if a sustained effort is mounted by the rich and poor countries together.”

D. W. Townson

OTHER BOOKS RECEIVED

Bierman, Harold, Jr., Financial Policy Decisions, New York, N.Y., U.S.A., The MacMillan Company, 1970, xii + 307 pp., $9.95.

Pearson, Lester B., The Crisis of Development, New York, N.Y., U.S.A., Praeger, 1970, viii + 117 pp., $4.95.

Meier, Gerald M., Leading Issues in Economic Development (Second Edition), New York, N.Y., U.S.A., Oxford University Press, 1970, xviii + 758 pp., $9.95.

Saïd, Shafik-G., De Léopoldville à Kinshasa: La Situation Economique et Financière au Congo ex-Belge au Jour de l’Indépendance, Bruxelles, Belgique, 1969, 262 pp., Université Libre de Bruxelles, BF 500.

Roth, Gabriel, Paying for Roads: The Economics of Traffic Congestion Baltimore, Md., U.S.A., Penguin Books, 1967, 153 pp., $1.25 (paperback).

Institut d’études Européennes, Université Libre de Bruxelles, La Communauté’ et le Tiers Monde, Bruxelles, Belgique, 1970, 124 pp.

Kulp, Earl M., Rural Development Planning: Systems Analysis and Working Method, New York, N.Y., U.S.A., Praeger, 1970, xxi + 664 pp., $18.50.

Harroy, Jean-Paul, Economie des Peuples Sans Machinisme, Université Libre de Bruxelles, Bruxelles, Belgique, 1970, 222 pp., BF 375.

Legum, Colin (Editor), The First U.N. Development Decade and Its Lessons for the 1970’s, New York, N.Y., U.S.A., Praeger, 1970, xxviii + 312 pp., $16.50.

Areskoug, Kaj, External Public Borrowing: Its Role in Economic Development, New York, N.Y., U.S.A., Praeger, 1970, xiii + 140 pp., $15.00.

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