The reform of the international financial system deserves a special place in the annals of futility. In the 1960s and early 1970s, concerted efforts by brilliant economists and powerful government officials to resolve the weaknesses of the Bretton Woods system failed utterly. In 1971, President Richard Nixon—who knew little about international finance and cared less—severed the link between the dollar and gold, and in 1973, the industrial democracies abandoned efforts to stabilize their currencies. Perhaps most irritating for those deeply involved in reform, these events did not bring disaster. Floating exchange rates complicated doing business across borders in important ways but simplified it in others. Companies now had to hedge against shifts in foreign exchange rates, but they no longer had to worry about capital controls, which gradually withered away. Reform yielded only one major initiative: Special Drawing Rights (SDRs), a reserve asset created by the International Monetary Fund. Today central banks carry billions of SDRs on their books, but these credits play a negligible role in global trade and finance. In retrospect, would-be reformers misjudged the system they sought to save. This system's most important feature was the free convertibility of currencies, not fixed exchange rates, and the solution to its problems was not to elaborate the system by devising new financial mechanisms and policy rules but to simplify it by allowing currencies to float.

In her book Reforming the World Monetary System, Carol Connell examines the role of the Bellagio Group in reform. Founded by three gifted economists—Fritz Machlup, Robert Triffin, and William Fellner—it provided a forum for leading economists and government officials to discuss the issues of monetary reform free from the constraints of political passions and official positions. Machlup, the guiding spirit behind the enterprise, focused discussion on underlying assumptions about the financial system, avoiding specific proposals in the hope that a common understanding of the problems would yield agreement on solutions. Connell traces the various meetings of the Bellagio Group (named after the site in Italy where it met), its publications, and its changing ideas for reform. The short sketches of some of the leading figures in the group are a highlight of the book; Machlup, Triffin, and Fellner were all interesting men with broad experience and extensive ties on both sides of the Atlantic.

According to Connell, the Bellagio Group made two important contributions to reform. First, it defined the issues as liquidity, adjustment, and confidence. That is, any viable system had to provide the financial resources for international trade and investment, offer a way for countries to eliminate payments deficits, and convince those involved that it could indeed perform these tasks. Second, the group did much to make flexible exchange rates—hitherto an object of horror in many quarters—acceptable, though few of the group's participants went so far as to favor floating rates.

Yet in the end, this activity did not matter much. The Bretton Woods system collapsed because the chief countries involved refused to make sacrifices to preserve it. In the United States, neither the Lyndon B. Johnson nor the Nixon administration had the least intention of raising interest rates or cutting spending to preserve the international value of the dollar, nor did the Germans or Japanese consider revaluing their currencies or permitting prices to rise at home lest they retard exports. For all their stated enthusiasm for the gold standard, the French did not hesitate to devalue the franc when it came under heavy pressure. The British were perhaps the most resolute, but even they refused to tolerate higher unemployment to preserve the value of sterling. Before 1914, the international gold standard worked in part because most people in the chief countries considered its maintenance critical to their long-term well-being and so tolerated considerable short-term hardship to preserve it. By the 1960s, sentiment had changed. Many members of the Bellagio Group endorsed flexibility—more frequent changes in official exchange rates—to reconcile this reluctance to act within the international order, but this solution failed on account of confidence. If everyone knew that governments would change currency values in response to a major payments imbalance, traders would dump any currency under pressure, thereby forcing devaluation. The outcome would not differ much from a float, save that in the interim governments would take losses defending their currency.

Connell does not ignore the failure of reform, but neither does she really address it. The discussions of the Bellagio Group were clearly interesting, but did they have much influence? Except for reducing the general horror at flexible exchange rates, such does not seem to have been the case, raising the question of whether the group really deserves an entire book. Perhaps recognizing that the Bellagio Group fell well short of expectations, Connell spends considerable time discussing both the dynamics of its discussions—citing social science literature on the subject—and the relationship between Fritz Machlup and his most famous student, Edith Penrose. The latter, at least, is interesting, but it is not relevant to the main subject. Connell also tries to relate monetary reform to the 2008 financial crisis, but the link is not convincing. The events of 2008 were certainly international in scope; however, they were not a crisis of the international system per se, but rather of the solvency of banks around the world. It was more similar to the 1890 Baring crisis, which involved Argentinean borrowers and British banks, than to the 1931 collapse of the gold standard. Likewise, the current problems of Greece and other members of the “southern tier” of Europe are a crisis of the Eurozone, not of the international system as a whole.

The book also suffers from poor copyediting—a fault found by this reviewer in another book in this series from Pickering & Chatto. Quotes lack quotation marks, block quotes are not set off, and paragraphs lack indentation. On page 46, the book states that the United States economy grew only 1 percent a year between 1950 and 1973, a statistic so wildly off the mark that it must be a typo. If Pickering & Chatto is going to charge $120 a volume, it should spring for a good copy editor.

This book might have made a good article, or perhaps two (the Machlup-Penrose relationship is a particularly interesting tangent). There is not enough material for a good book, however. Specialists in the field will no doubt want to mine this volume for information, but they will find themselves skimming over large portions of it.