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Changing Fortunes.

Paul Volcker, former official of the Treasury and most notably from 1979 to 1987 Chairman of the U.S. Federal Reserve Board and Toyoo Gyothen, 30 year veteran of the Japanese Ministry of Finance have collaborated on a remarkable book. This volume is a record of their seminar lectures delivered at their alma mater Princeton University during 1991. Each of the ten chapters begins with an overview description of events by Mr. Volcker followed by a discussion first by Mr. Volcker and then by Mr. Gyothen. The arrangement provides a point/counterpoint perspective on their discussion of economic events of the past thirty years to which each was a participant.

Organized chronologically, the book surveys the evolution of international monetary affairs since the 1950's. As participants in the events described, the book is both a personal memoir, an institutional history; and provides analysis of the events and the subsequent policies which emerged. Chapter after chapter describes, the often times, frantic efforts on the part of the government officials to international economic crisis management which threatened to overwhelm economic stability. These episodes include the efforts in the 1960's to stem the weakening of the U.S. dollar which was the linchpin of the post World War II economic system, to the collapse of fixed exchange rates and the oil shock of the 1970's, to the third world debt crisis of the 1980's. Messrs. Volcker and Gyothen were participants in many of these efforts. Their writings provide fascinating inside stories which are alternatively amusing and frightening as these gentlemen describe the enormous efforts to stay on top of each pending crisis. Overall, it is remarkable that given the enormous change in international economic conditions that the evolutionary change, while dramatic, was not more disruptive to world order. Most revealing were the discussion by Mr. Gyothen about the apparent naivety of the Japanese in the early 1970's about their economic strength. Their complacency and aloofness from the early efforts to manage the changes in foreign exchange mechanisms was a significant contributing factor to the lack of political leadership within Japan to face economic problems. The initial Japanese interpretation of outside pressure principally by the United States caused an overly defensive reaction, Japan's exclusion from the process and the consequences began to hurt their economic progress. Finally in the late 1970's, the realization that their prosperity was inextricably tied to that of the major economic powers of which they were one, caused a change from a defensive posture to enthusiastic cooperation. Mr. Gyothen's writings are the first widely published account, at least in the United States, of the internal angst experienced by the Japanese over their reaction to and participation in revising the international economic order.

Of particular interest are the sketches of the many U.S. officials who were participants in the monetary melodrama. Mr. Volcker, while circumspect, characterizes many of the Regan administration officials as "starry-eyed" ideologues fixated on the "magic elixir" of tax cuts. Ineptness marked many of the officials handling of successive crisis.

As a history of post World War II international economic events, this book is comprehensive. All the high and low points of the post World War II monetary history are discussed. However, the book is not as informative in providing an analysis of perspective policies at this juncture. The major economic powers are currently faced with the desire to have exchange rate stability, private capital mobility and an autonomous national economic policy. With present technology, movement of capital can be instantaneous, contributing to the volatility in exchange rates not their stability. The technology can also facilitate the movement of private capital irrespective of a national government's wishes. Both conditions erode the ability of a national government to have an autonomous economic policy. The authors after thirty years of participating in and now watching, advocate strong coordination of efforts on the part of the major economic powers to continue to form an internationally recognized exchange rate target mechanism. Such a mechanism would provide stability to a system they view as increasingly unstable. They also recognize the political impediments. Overall, Mssrs. Volcker and Gyothen have written a highly readable, but not overly analytical treatise on the post World War II economic world.

IRENE UNTERBERGER Doctoral Candidate, Pace University and VP-Citibank
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Author:Unterberger, Irene
Publication:American Economist
Article Type:Book Review
Date:Sep 22, 1993
Words:711
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