Conferences.

• Position: On economic conditions

Bordo and Meissner assemble data on nearly 30 countries from 1880 to 1913 and examine debt crises, currency crises, banking crises, and twin crises. They pay special attention to the role of foreign currency and gold clause debt, currency mismatches, and debt intolerance. The authors uncover fairly robust evidence that more foreign currency debt leads to a higher chance of having a debt crisis or a banking crisis. However, they also fred that countries with noticeably different backgrounds and strong institutions--such as Australia, Canada, New Zealand, Norway, and the United States--deftly managed their exposure to hard currency debt, generally avoided having too many crises, and never had severe financial meltdowns. Moreover, a strong reserve position seems to be correlated with a lower likelihood of a debt crisis, currency crisis, or a banking crisis. Thus it appears that foreign currency debt is dangerous when mismanaged. Bordo and Meissner also observe that countries with previous default histories seem prone to debt crises even at seemingly low debt-to-revenue ratios.

While the pre-1914 gold standard typically is viewed as a successful system of fixed exchange rates, several countries in the system's periphery experienced dramatic exchange rate adjustments. Catao relates this phenomenon to a combination of sudden stops in international capital flows along with domestic financial imperfections that heightened the pro-cyclicality of the monetary transmission mechanism. He shows that while all net capital importers during the period occasionally faced such "sudden stops," the higher elasticity of monetary expansion to capital inflows, and disincentives to reserve accumulation in a subset of these countries, made them more prone to currency crashes.

Maurer and Haber argue that neither looting nor credit misallocation are necessary outcomes of related lending. On the contrary, related lending often exists as a response by bankers to high costs of information and contract enforcement. The authors examine a banking system in which there was widespread related lending, but in which the institutions were constructed so as to give bank directors strong incentives to monitor one another in order to protect their capital and reputations: Mexico from 1888 to 1913. They find little evidence, during this 25-year period, of tunneling or credit misallocation. In fact, the banking system was remarkably stable, and manufacturing enterprises that received related loans performed at least as well as their competitors.

Della Paolera and Grandes construct the true measure of country risk for Argentina over the important 1886-92 period, at the end of which occurred the first widespread emerging-market capital and debt crisis. This risk measure, computed as a weighted average of sovereign and sub-sovereign default risk premiums, acknowledges the importance of the political structure of an emerging market economy in determining its degree of participation and its strategies in international debt markets. The lessons learned here are key to understanding the recent build up of debt that drove the surprising collapse of the Argentine currency board and the financial system in early 2002. Moreover, this research informs policymakers and investors about the "correct" way to assess country risk in federal countries where sub-sovereign entities are fiscally interdependent and potential time inconsistencies and sovereign moral hazards exist. Incidentally, the true measure of country risks differs from the typical sovereign risk spread by 200 to 350 basis points when liquidity crunches and political upheaval in Argentina after July 1890 had taken place.

Sokoloff and Zolt turn to history to gain a better perspective on how and why tax systems vary. They focus on the societies of the Americas over the nineteenth and twentieth centuries, for two major reasons. First, despite this region having the most extreme inequality in the world, the tax structures of Latin America generally are recognized as among the most regressive, even by developing country standards. Second, as has come to be widely appreciated, the colonization and development of the Americas constitute a natural experiment of sorts: beginning more than 500 years ago, a small number of European countries established colonies in diverse environments across the hemisphere; the different circumstances meant that largely exogenous differences existed across these societies, not only in national heritage, but also in the extent of inequality. How did this inequality influence the design and implementation of tax systems? Several salient patterns emerge. The United States and Canada (like Britain, France, Germany, and even Spain) were much more inclined to tax both wealth and income during their early stages of growth, and into the twentieth century, than developing countries are today. Although the U.S. and Canadian federal governments were similar to those of their counterparts in Latin America in relying primarily on the taxation of foreign trade (overwhelmingly tariffs) and the use of excise taxes, the greater success or inclination of state (provincial) and local governments in North America to tax wealth (primarily in the form of property or estate taxes) and income (primarily in the form of business taxes), as well as the much larger relative sizes of these sub-national governments in North America, accounted for a radical divergence in the overall structure of taxation. Tapping these progressive sources of government revenue, state and local governments in the United States and Canada, even before independence, began directing substantial resources toward public schools, improvements in infrastructure involving transportation and health, and other social programs. In contrast, the societies of Latin America, which had come to be characterized soon after initial settlement by rather extreme inequality in wealth, human capital, and political influence, tended to adopt tax structures that were significantly less progressive in incidence and these societies manifested greater reluctance or inability to impose local taxes to fund local public investments and services. Moreover, these patterns persisted, well into the twentieth century--indeed up to the present day. The apparent association between initial inequality and the institutions of taxation and public finance is all the more intriguing in that the authors find corresponding patterns across different regions of the United States and across different countries of Latin America.

Edwards discusses different theoretical views of the role of outside advisors, focusing on an important historical stabilization episode in Chile, one of the countries with the longest history of chronic inflation in the world. Of the many stabilization programs adopted to tackle this problem, the 1955-8 package implemented with the advice of the U.S. consulting firm of Klein-Saks is one of the most interesting. Edwards argues that these foreign advisors gave initial credibility to the stabilization program launched in 1955; they played the role of independent, non-partisan, technocratic arbiters. And, it was precisely because they were foreigners that they could rise above the political fray and suggest a specific program whose main components were rapidly approved by a highly divided Congress. The fact that the program was very similar to one proposed earlier by the government--and rejected by Congress--underscores the view that, while locals are suspect of being excessively partisan, foreigners are often (but not always) seen as independent policy brokers. But providing initial credibility was not enough to ensure success. In spite of supporting trade reform, foreign exchange rate reform, and the deindexation of wages, Congress failed to act decisively on the fiscal front. Consequently, the fiscal imbalances that had plagued Chile for a long time were reduced, but not eliminated. In 1957 a sharp drop in the international price of copper--the country's main export--resulted in a major decline in fiscal revenue and in an increase in the fiscal deficit. The Klein-Saks Mission recommended a series of belt-tightening measures, but politicians had had enough of orthodoxy. No adjustment was made, and inflationary expectations once again shifted for the worse. By October of 1958 the Mission had left the country, and an opportunity for achieving stability had been lost.

Has the gap between developed countries and Latin America widened over time? Using the tools of the inequality literature, Prados de la Escosura assesses long-run intercountry inequality in terms of real (purchasing power-adjusted) GDP per head and an "improved" human development index as an indicator of welfare in present-day OECD and Latin America. He observes a long-term rise in income inequality for this sample of countries, with the deepening gap between OECD and Latin America as its main determinant. Contrary to a widespread view, Latin America fell behind in terms of income in the late twentieth century. In terms of human development, inequality has declined over time, but the gap between OECD and Latin America has remained largely unchanged.

From 1870 to 1913, the Portuguese economy expanded slowly and diverged from the European core. In contrast, Portugal achieved higher growth in the interwar period and partially caught up to the levels of labor productivity of Western Europe. According to Lains, higher growth in Portugal after World War I occurred within the framework of protection, increasing state intervention, and capital deepening. Agriculture responded more positively than industry, revealing important changes in its structure that favored output with higher levels of factor productivity. Changes in agriculture also were associated with higher levels of investment in the sector.

Gomez-Galvarriato compares prices, costs, and productivity levels of a Mexican...