NOT TOO MANY years ago, economists wrote books about money, and other people wrote books about banks. The division of labor was particularly sharp in international matters. Economists wrote about the monetary system--the more or less formal arrangements that define the rights and duties of governments and thus regulate relations among them and among their currencies. Others wrote about equally mysterious but more entertaining matters--the bankers, sheiks, and other exotic inhabitants of currency and credit markets.
This distinction was easy to draw and was probably useful 15 years ago. The governments' rights and obligations wer rather clearly defined by the Articles of Agreement of the International Monetary Fund. They were expected to keep exchange rates fixed and to finance their balance-of- payments deficits by drawing on their currency reserves or on the IMF. International financial markets were important but were not central to the functioning or governance of the monetary system.
The situation is totally different today. The rights and obligations of governments have changed, and international financial markets have grown hugely. Governments act as participants in currency and credit markets, rather than regulators, and treat the banks as partners in managing the system. In the currently fashionable phrase, we have a market-based monetary system.
Michael Moffitt sees this clearly, does not like it, and sets out to tell us why. The present system, he explains, is the product of "a struggle between governments and the private banks for control over the international monetary system." The governments have lost, he argues, because banks have used fair means and foul to wriggle around regulations. But the banks may be losers in the long run, along with the rest of us, because they have been greedy and cannot police themselves.
In 1066 & All That, Walter Sellar and Robert Yeatman divided English history into good things and bad things. It ends with the First World War, which was a bad thing:
"America was thus clearly top nation, and History came to a ."
Moffitt's monetary history begins with the 1944 Bretton Woods conference that created the IMF and the World Bank; it is what made America top nation, and that was a good thing. But many bad things happened later. John Connally and Richard Nixon made the dollar top currency, which was a bad thing. Michael Blumenthal talked down the dollar, which was worse, Paul Volcker rescued it by raising interest rates, and that was very bad indeed.
There are no heroes in this morality play--only villains and victims. Moffitt deplores the decline of the IMF which was, he says, the victim of the struggle between the banks and governments. Yet he deplores with equal vigor the recent revival of the IMF, because its programs "typically bring economic and social disaster" to poor countries. But floating exchange rates and Euromarkets are worst of all, because they foster speculation, and speculation was "the proximate cause" of many very bad things.
Does this sound like parody? Perhaps. But it is Moffitt's parody of monetary history, offered up indignantly and with much bank-bashing.
Bank-bashing is fun--and banks deserve a bit of bashing. Some banks have been devious. Some have made some dumb mistakes. Moffitt delights in telling us about dubious practices and bad loans. But he overdoes it and contradicts himself.
He damns Michael Blumenthal for "talking down the dollar" in 1977 but goes on to blame the banks for selling dollars. What should they have done? Bought dollars in a falling market? Third World countries, he writes, had "a Hobson's choice of going into debt or facing economic collapse," but goes on to blame the banks for overlending. Should they not be praised for helping the Third World countries to avoid collapse?
At times, high-minded moral outrage gives way to silly political theory. Why did Paul Volcker rely on tight money in 1979, instead of taking direct action to control speculation and inflation? "The answer is that the head of a central bank cannot be expected to take on his main constituents. He is there to protect their interests, not prosecute them. So instead of disciplining the banks, he was forced to deal with the speculative fever by throwing the economy into a deep slump." Moffitt seems to have forgotten, however, that he wrote that the use of credit controls in 1980 "did the trick" but by causing the economy to "sink like a stone." He is never satisfied.
The monetary system has serious problems. Moffitt is right about that. But Moffitt does not tell us how to solve them. He is free with criticism but stingy with advice.
The balance-of-payments problems of the less-developed countries are due, he says, "to the structural dilemmas of development and global economic fluctuations over which Third World countries have little influence," and IMF programs are therefore "irrelevant to the real problems at hand." What should be done? He does not say.
The props of the monetary system, he says, "are crumbling under the raw political power of business. In time, no doubt, the safeguards enacted to prevent another great crash will also be dismantled." What does he recommend? More regulation. But he has spent 200 pages telling us how banks have avoided regulation--the long, familiar history of the Euromarkets.
Indignation is not analysis. Slogans are not remedies.