The State, the Market, and the Euro.

Author:Sawyer, Malcolm
Position:Book Review

The State, the Market, and the Euro, edited by Stephanie A. Bell and Edward J. Nell. Edward Elgar. 2003. ISBN 1843761564, $80.00. xiv + 202 pages.

The issues raised in this book are well indicated by the title, namely the roles of the State and of the market in the origins of money, and the relevance of debates over the nature, origin, and role of money for the euro. The chapters had their origins in a conference held at the New School in April 1999 (and those papers appear not to have been updated for publication as there is no mention of the actual experience of the euro and reference is made to just eleven members of the eurozone). The conference and the papers in this book are centered on a paper by Charles Goodhart on "The Two Concepts of Money: Implications for the Analysis of Optimal Currency Area," first published in the European Journal of Political Economy in 1998, reprinted here as chapter 1, and the final chapter is a response by Goodhart to the contributions in the book. The two concepts refer to the M-approach (M standing for metallist, though it could be Menger, approach) and the C-approach (Chartalist approach, sometimes with an h and sometimes without). The M-approach, viewed as having dominated monetary analysis, sees money emerging as a convenient transaction cost-reducing medium of exchange. This approach, it is argued, is heavily drawn upon in the optimal currency area (OCA) whereby the geographical "coverage" of a currency arises from a cost-benefit set of calculations. This, it is often asserted in this book, can be linked with the emergence of the euro, a view on which I have some doubts. It would seem self-evident that the euro project was driven through by governments and that OCA considerations had little to do with the introduction of the euro. Indeed many of those who have considered the OCA arguments have concluded that the limited labor mobility and so on means that the eurozone is not an OCA. Goodhart quotes a referee of his paper as saying that "OCA theory is a normative, not a positive, theory" and as such the question can be put whether the criteria of the OCA can be usefully be applied to the design of the euro and, if the euro is found wanting on those criteria, whether that would be good reason to either oppose the formation of the euro (or, more relevantly in countries such as the UK, oppose entry) and/or to foretell troubles ahead for the euro.

The C-approach views the state as playing the central...

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