Governing the World's Money (review)

Globalization challenges not only policymaking institutions at the national and international levels, but academic analysts as well. This volume focuses on problems stemming from the increasing mobility and integration of international capital, and the resulting erosion of prestige and power for national currencies and monetary policies. Contributors include distinguished political scientists and economists, who analyze the evolution of Bretton Woods monetary institutions since 1945, advance the theorization of optimal and endogenous currency areas, and propose paths for future research in international political economy (IPE).

After the editors' introduction, Robert Gilpin offers an admirably concise survey of how economics and political economy have defined their tasks over time, the current major theoretical schools, and the revival of interest in "political economy" by both political scientists and economists seeking to clarify the complex interactions between politics and markets.

Several essays review the developments in IPE theory and set agendas for developing a better theoretical grounding for analysis. Thomas D. Willett urges greater breadth in the use of public-choice theory, including "soft core" analysis in order to include psychology and human agency in studying policy determination. John S. Odell criticizes the unlimited rationality implicit in most rational-choice analysis, arguing that analysts should adopt principles of "bounded rationality" in order to take into account the limits of knowledge held by rational actors, the limits on their ability and willingness to calculate optimal solutions, and the instability and irrationality present in many individual preferences. Peter Kenen reviews the development of theory on optimal currency areas, in which he played a major role, from its origins in an era of low capital mobility to its current challenges in an era of high mobility, financial integration, and reduced monetary autonomy. Philip G. Cerny urges greater attention to the development of new forms of self-regulation in markets as a result of global integration, and to the ways in which the role for the state is changing from economic management and wealth redistribution to the regulation of market norms to reduce instability. Given the high degree of uncertainty as to outcomes of current changes, these essays serve as timely reviews of how IPE theory has advanced to where it is today, and seek to set agendas for new research.

The essays with a historical approach place current trends in a longer-term perspective on changes in monetary governance. Kathleen R. McNamara examines the development of a single currency in the United States during the Civil War era, stressing the importance of war and pressures for market integration in the adoption of a single currency as a key element in building a national state. Her study provides an interesting contrast to current trends in the "deterritorialization" of money, marking how greatly the economic and political worlds have changed. Nation states are well established, currencies are less important as instruments of national identity, and expectations for national monetary policies have declined significantly since the mid-twentieth century.

Eric Helleiner's analysis of the reasons for the degree to which territorial currencies are becoming "unpopular" adopts a strongly historical approach. He argues that saving on international transaction costs and skepticism regarding activist national monetary policies are the key factors promoting the move away from territorial currencies. State concerns for fiscal resources and the role of currency in establishing the identity and autonomy of nation states, both important in the "territorialization" of currencies in the nineteenth century, no longer weigh heavily in current concerns. Miles Kahler's essay argues that the institutional character of the Bretton Woods system was a "striking innovation in international monetary governance," based on U.S. ability to enforce its preferences and on a fundamental misreading of interwar monetary history.

The collection provides a snapshot of the state of the art in IPE at the turn of the millennium, with theory struggling to keep the reality of monetary union in Europe and currency deterritorialization within its grasp. The collection should be welcome to historians for its clear delineation...