- Central Banks and Gold: How Tokyo, London, and New York Shaped the Modern World by Simon James Bytheway and Mark Metzler
Since the beginning of the twenty-first century, Japan has constantly been in the spotlight of economic and financial historians. This may have to do with the particular relevance of Japan's financial travails in recent history. As is well known, the bursting of the country's proverbial bubble economy heralded a "lost decade" (some would argue two lost decades). In hindsight, it turned out to be a highly delineated experience of the predicament that struck most of the developed world in the aftermath of the crisis of 2007–8. Not only was "quantitative easing," the preferred medicine for stress relief practiced by central bankers, remarkably similar to Japan's postbubble strategy, but, as Japan's policymakers had learned earlier, Western economies have responded very slowly, if at all, to their medicine. According to some, maintaining adequate aggregate demand is a worldwide problem and will persist for some time. Scholars such as Lawrence Summers and Robert Gordon refer to this phenomenon as "secular stagnation" (as opposed to a cyclical, or short-term, stagnation). Very low, and even negative, interest rates may be around for a long time, and this without causing out-of-control [End Page 492] inflation—an assumption that not only upsets long-established economic theory but, eventually, may also invalidate a host of conceptual instruments guiding central bankers when trying to understand and forecast inflation.1
The significance of Japan's early encounter with protracted economic stagnation has not been lost on Simon Bytheway and Mark Metzler, but they also identify a pattern. As they emphatically note in the introduction to Central Banks and Gold, Japanese markets have been the de facto leading indicator for economic turbulence in the history of modern finance capitalism. This has held true for the largely Great Britain–led gold standard period before 1914, the turbulent interwar years, and the postwar, (obviously) U.S.-led dollar standard period. In their own words: "Every truly major international crisis of the era—1907, 1920, 1929—appeared first in Tokyo, having an onset some three to six months earlier than in New York and London."
This book can legitimately be read as an attempt to dissect and unravel the networks and protocols behind Japan's particular position. On the one hand, Japan is located at the periphery of the world's monetary geography, as the country's frequent exclusion from the London-New York axis makes abundantly clear. On the other hand, it has turned out to be at the very center of a host of policy debates and developing crises. If anything, Bytheway and Metzler's meticulously researched argument takes aim at this paradox. Key to explaining the latter, they argue, is the persistently secretive nature of tightly knit networks of central bankers that existed from the late nineteenth century onward and that must be held accountable for many systemic events in the world economic order throughout the twentieth century (and into the twenty-first century). Their story is at once a very personal one, for instance, highlighting the oddities of these powerful men and their often withdrawn lives. At the same time, the authors attempt to describe these networks as a profoundly structural element in central bank policymaking. In their view, personal relationships functioned as powerful tools for mobilizing power and commitment to self-proclaimed policy expertise and for defining the latter as unpolluted by political preference.
The book starts by showing how Tokyo-London cooperation started long before World War I, in the aftermath of the Sino-Japanese War, something that may still be surprising to some readers. The roots of cooperation are found in the setting up of Japan's gold standard, particularly in the way Japan was to receive the Chinese war indemnity (1895). In a contentious move, the indemnity was kept in a non-interest-bearing account at the Bank [End...