Controlling Credit: Central Banking and the Planned Economy in Postwar France, 1948–1973 by Eric Monnet (review)

When Monnet started working on this research project in 2008, hardly any monetary historian displayed much interest in the postwar years—an epoch so strongly characterized by capital controls and "financial repression" that its study seemed to bear no relevance from a contemporary perspective. By the time Monnet had completed his Ph.D. in 2012, the world had changed completely: Post-crisis management had spectacularly widened the scale and scope of central banks' interventions, and many started to wonder whether the high times of state control over the financial system were not about to return. Also thanks to this first-mover advantage, Monnet's dissertation about France received considerable attention internationally and was awarded several prizes. Controlling Credit is a substantially revised and augmented version of that work; some of its chapters have already appeared in academic journals.

The book is fundamentally intended as a rehabilitation of credit policy. According to the pre-crisis consensus, monetary policy should be neutral—that is, it should not affect the private sector's allocation of credit. Credit policy, the aim of which is precisely to reallocate capital in favor of some borrowers, should therefore be discarded. What Monnet wants to argue is that credit policy does not deserve such a bad reputation. In postwar France, credit policy contributed to spectacular economic growth, only losing its clout when the first attempts at financial liberalization deprived it of the means to pursue its goals.

The volume is structured in two uneven parts. Part I is a "book within the book," arguing that a consistent framework for the implementation of credit policy emerged before World War II (Chapter 1), reached perfection after the conflict (Chapter 2), and then started to be demolished in the 1960s (Chapter 3). Monnet's focus is on what he calls the "institutionalization of credit." Borrowing from an impressively wide range of literatures (including economic anthropology, legal history, economic history, political science, new institutional economics, and the theory of incentives), Monnet tailors his own definition of institutionalization as the construction of a system of legal, social, and ideological norms guiding individual action and preventing it from subverting the system itself. According to him, credit was "institutionalized" in France since the 1930s; its "deinstitutionalization" since the 1960s undermined the usefulness of credit policy. Compared to Part I, Part II is a less homogeneous collection of studies focusing on monetary policy transmission (Chapter 4), the monetization of public debt (Chapter 5), and capital allocation (Chapter 6). Chapter 7 sketches some comparative perspectives on credit policy across postwar Europe.

Monnet's attempt at weaving a dialogue between different branches of the social sciences is undoubtedly laudable. However, readers might be perplexed by the long list of authors who reportedly inspired his approach—featuring such diverse scholars as Polanyi, Thomas, Gerschenkron, Hall, Greif,and Tirole.¹ This sort of "methodological cherry-picking" does not serve Monnet's purpose very well; the resulting concept of institutionalization lacks clarity. Apart from this reviewer's personal bias in favor of "functional" approaches (especially to central banking), Monnet's "institutional" approach arguably runs into circularity problems as he enumerates his ideal types (the "dirigiste system," the "market system," etc.) and then equates failure to hybridization (the French dirigiste credit system lost its proficiency because it lost its original "purity"). Self-declared as fiercely positive (he explicitly acknowledges a lack of interest in the question of efficiency), Monnet's stance thus paradoxically ends up being astonishingly normative—without, however, being able to draw clear implications for the present.

Unfortunately, Monnet's strict "institutional" approach also prevents him from focusing on the most intriguing aspect of credit policy, its political economy. Authors like Morin have provided extensive evidence about the private interests that stood behind France's alleged "state capitalism."² It would have been interesting for Monnet to link stateinduced credit allocation to private rent-seeking. At any rate, this issue might...