In a world where floating exchange rates have become the norm and the success of inflation targeting is hailed almost everywhere, it might be worthwhile to remember that this is a new phenomenon. Only twenty years ago, received wisdom proscribed that the best course for small open economies was to pursue a fixed exchange rate. As a matter of fact, when this reviewer took high school economics back in the late 1980s, we learned that float was an alternative only for a major economy like the United States (we also learnt that deflation was an historical phenomena not likely to reoccur). In economics, the road from orthodoxy to heretical might indeed be short. In Fixed Ideas of Money, Tobias Straumann maps the exchange rate choices of seven smaller West European states (the Netherlands, Belgium, Switzerland, post- World War II Austria, Sweden, Denmark, and Norway) from the end of the Great War to the late 1990s. Stylized the routes taken can be summarized as follows: In the interwar years, all countries strived to restore the gold standard. The timing of the monetary restoration and the eventual demise of the gold standard were determined by the largest states. The Scandinavians shadowed Britain, the smaller Gold Block countries France. The Scandinavians even ended up with their currencies pegged to sterling after September 1931, although it did require a period of floating. Only a major financial and political crisis forced Belgium off gold 18 months ahead of France. After the end of Bretton Woods, the smaller advanced countries of Western Europe displayed a stronger bias for a fixed exchange regime than the major economies. In the long run, however, all the small countries ended up with either a floating regime or became part (directly or indirectly) of what became the Euro zone. Switzerland was the first of the small countries to abandon the commitment to a fixed exchange rate in 1973; Norway, the last, in 1999.

The point of departure is nicely captured in the book's title, Fixed Ideas, which highlights the tenacity of the small countries' adherence to fixed exchange rate regimes. With mild mockery, Straumann dismisses recent explanatory models put forward by political scientists with a fondness for regression analyses not matched by their historical insights, economic intuition, or political acumen. The political scientists emphasize domestic institutional or political factors such as the strength of the left, government unrest, central bank independence, and specific economic interests. But the devotion to fixed exchange rates, Straumann argues, was deeply rooted in a widespread macroeconomic consensus that small open economies needed fixed exchange rates, because trade and investment would be hampered by the volatility of float. This belief prevailed long after the larger countries one by one opted for flexibility in the aftermath of Bretton Woods. The smaller countries feared letting the market have the last word, even if that meant yearly devaluations. Fixed exchange rates were not the only result of these fears, for they also gave rise to corporatist decision making. But with the coming of financial openness, this whole model became suspect, and in the face of crisis. even Sweden and Norway finally opted out of the fixed exchange rates. In both countries, inflation targeting in the course of only a few years turned into a new creed as strongly held as the old.

I would have liked more on what came before the volatile regime changes in the interwar period and after 1971, i.e., during the pre-World War I gold standard and the Bretton Woods period. I would suggest that while the legacy of the prewar gold standard in 1920s was rather uniform across countries, that was less the case for the how Bretton Woods was perceived in the 1970s. Arguably, larger countries suffered more from the shortcomings of that regime in the 1960s, while smaller countries were more sheltered or just gave less weight to them in the face of their flourishing export record. As such, the Bretton Woods experience might have strengthened the fixed exchange rate bias of smaller countries while weakening that of the larger powers. An inquiry along these lines would have provided further arguments for the thesis of Straumann's book.

This notwithstanding, Straumann has made an important contribution to the understanding of modern European monetary history. Small countries tend to attract limited interest, and as a result most studies of small countries aim only at domestic readers. One thread that runs through such studies is the small country's particular experience or relationship with a major power. With Fixed Ideas, the exchange rate policies of the smaller advanced European countries are examined for the first time under one lens and using extensive archival sources; that yields well-argued new insights. In essence, Straumann pinpoints why beliefs are important for the study of monetary history. Beliefs create the lenses the world is seen through, shape the range of possible policy choices, and ultimately influence outcomes. Although open for questioning ex post, the world created by perceptions was real for the historical decision makers and must be taken into account.

For anyone with an interest in the formation of the European monetary scene or small state adjustment in general, this book is a must read. It is well-written and will appeal both to specialists and enlightened laymen. As such, Straumann has provided a powerful argument for the continued presence of qualitatively orientated, but economically informed studies in monetary history.