Guttman Blockbuster

["RICHARD P.F. HOLT" <holtri@xxxxxxxxxxxxx>]

PKTers should appreciate Robert Guttmann's magnum opus, How Credit Money
Shapes the World, M.E. Sharpe, 1994, $27.95 (Paper). My review follows:
	Robert Guttmann's pathbreaking critique of contemporary international
monetary policy attempts to explain capitalism's long-run tendencies and
sources of instability. Building on the works of Karl Marx and John Maynard
Keynes, Guttmann contends that both were essentially monetary economists.
As critics of standard equilibrium theory, Marx and Keynes based their
heterodox alternatives "on presenting money as the unifying force that
integrates otherwise separate and disparate activities into a coherent whole
capable of reproducing itself in expanding fashion...Both economists
understood the standard treatment of money to be the Achilles' heel at which
to aim their attacks against orthodox economists."
	Traditionally economists have considered Marx and Keynes as rivals,
and it is certainly true that Keynes had little use for the Classical writings
of Marx.  This antagonism between the two major heterodox economists of the
19th and 20th century, respectively, was exacerbated by Stalin and dogmatic
Marxists, who felt that Keynesian economics was an alternative to their hoped-
for crisis of the advanced capitalist system.  On the other hand, most
Keynesians, with the exception of Joan Robinson, have refused to take Marx
seriously.
	Guttmann does for international banking what William Greider did
for United States monetary policy, with extensive probing of the world
history of money.  But he is equally at home with contemporary affairs,
such as the recent breakdown of the European Monetary System.  He is
rightly critical of the monetarist biases of the Proposed Union Treaty
coming out of Maastricht: "The abandonment of debt monetization is in line
with standard Monetarist thinking.  The influence of that theory within
the Delors Committee, which drew up the plan for economic and monetary
union, can also be seen from its emphasis on price stability as the
primary policy objective and its lack of attention to the structural
origins of inflation.  In this quantitativist notion, price stability
is seen to depend on prudent management of the ECU money supply by the
Eurofed. The focus of attention thus shifts from the currency to the
monetary institution, justifying the notorious anti-inflationary Bundesbank
as the model to copy.  This particular bias raises some troubling questions
about the future monetary union." (p. 425)
	The deregulation of capital movements in the Economic Community
since 1991 -- during the first phase of the transition -- "may have been
a serious mistake," according to Guttmann.
	In his conclusion, Guttmann develops a plan for a truly supranational
form of credit-money (SNCM).  He builds on Keynes' Bancor Plan which was
ultimately pushed aside by the U.S. delegation at Bretton Woods.  This plan
was based on comprehensive exchange controls on both ends of capital movement
to make them more effective.  One of his goals was "to distinguish between
trade or productive investment, both of which would receive licenses
automatically, and unproductive movements of capital for speculation or
flight purposes,which would not be approved."
	The Bancor would have largely eliminated the role of gold, which
had a comparatively inelastic supply and was responsible for the deflationary
biases of the international gold standard. As the nation with the largest
expected foreign trade surplus after the war, the United States dollar would
have been subject to constant revaluations.  Thus, the delegation headed
by Harry Dexter White rejected Keynes' proposal in favor of a gold-backed
dollar, the so-called "gold exchange standard,"under which the United States
would reapthe benefits of seigniorage and turn its huge postwar gold hoard
into a source of global liquidity.
	Guttmann also consider the limitations of the Special Drawing Rights
(SDRs) first issued by the IMF in 1969 as a substitute for gold and dollars,
and the European Currency Units (ECUs) of the Common Market as first steps
towardsa truly
 stateless money managed by an international monetary
authority.  Because the SDRs cannot be held by private parties, and because
their further creation has been subject to the approval of the U.S. Congress
since 1982, a new form of world fiat money is still far from being realized.
	Michel Camdessus, the IMF's current Managing Director, would like
to create enough SDRs to cover 10 percent of the total growth in demand for
government financial liquidity, according to Pete Passell (The New York
Times, July 7, 1994, p. D-2). For well over a year, Camdessus has proposed,
in the name of rough equity, the issuance of SDRs for the countries of
Eastern Europe which have only recently joined the club and therefore failed
to share in the earlier creation of SDRs.
	Guttmann views international monetary history as a gradual transition
from commodity-money (as in Marx's time) to credit-money,and finally to a
new supranational credit-money.  With NSCM, there would be no need for nations
such as the United States benefitting from seigniorage. There would be no need
for the richest nation, the United States, to become a huge importer of foreign
capital,some of which comes from the poorer countries.  There would be no need for politically motivated foreign aid programs or the writing off of debt.  With
the ending of the Cold War, this would now seem to be more possible.
	If this reviewer has any reservations about Guttmann's conclusions,
it is his assumption that our chief rivals (Japan and Germany) are still
"closing the gap."  Granted that the advanced capitalist system seems to be
in trouble, the recent hegemonic success of the United States economy relative
to Japan and Germany has to be explained.  In my view, Germany continues to
be handicapped by the "notorious" Bundesbank, which has already been responsiblefor bringing down four postwar German governments.  The Japanese, on the other
hand, seem to be constricted by continually tight fiscal policy, or a reluctanceto engage in deficit financing to get them our of their doldrums.  Lynn Turgeon
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