Jeffry Frieden has written a thoughtful book investigating the political economy of exchange rate policies. Frieden's expertise is self-evident, and the book is well written, despite arguments and evidence that are complex and potentially intimidating. Frieden frequently applies modern economic theories of exchange rate determination, which—although Frieden does a good job of summarizing the most salient points for nonspecialists—require very close reading. This is indisputably a book written by a sophisticated, technically trained academic for others of the same tribe. Lin-Manuel Miranda will not be adapting it for Broadway.

The book explores how the choice of exchange rate regime affects a nation's different economic interests asymmetrically, the asymmetric effects being most evident and politically controversial in countries integrated into regional and world economies, countries that experience substantial trade and capital flows. In such countries, exchange rate policies become an important political issue pitting interest groups against one another. Producers of traded goods, driven by concern for their competitiveness in international and domestic markets, exert pressure for a low real exchange rate, while producers of nontraded goods and consumers prefer a high real exchange rate that maximizes the purchasing power of domestic consumers. The real exchange rate is not directly controlled by the government, but because adjustment to purchasing power parity is sluggish, the real exchange rate can be manipulated in the short run by government actions. The choice of floating or flexible exchange rates introduces additional considerations. Floating exchange rates have the benefit of allowing a country to pursue an independent monetary policy to mitigate macroeconomic shocks, a benefit that is likely to be offset in the calculations of those heavily involved in the international trade sector by considerations of foreign exchange rate risk, leading those involved in international commerce to favor fixed rates, and those engaged principally in domestic commerce to prefer floating rates. In many examples discussed in the book, these choices are intertwined, as floating rates can serve as a means of lowering the real exchange rate and improving international competitiveness, while fixed exchange rates are often a tool for increasing the real exchange rate. A fixed rate logically need not imply a high real exchange rate; in principle, an exchange rate might be fixed either too low or too high relative to economic fundamentals. The historical examples discussed in the book, however, are disproportionately ones in which fixed exchange rates, once adopted, encouraged capital inflows that gave rise to an elevated real exchange rate.

The book is devoted to showing how this political dynamic has played out in a variety of historical contexts: in the United States from the introduction of greenbacks in the Civil War until McKinley defeated Bryan in 1896, in the case of European monetary integration from Bretton Woods to the present, and in various Latin American examples between 1970 and 2010. Frieden relies heavily on formal statistical analysis to buttress his argument. Logit and regression models are used to analyze congressional votes relating to resumption and the demonetization of silver. In the analysis of European monetary integration, the author relates the percentage depreciation of national currencies against the deutsche mark (DM) and the coefficient of variation of national exchange rates against the DM to the economic and political circumstances of each country. Data on Latin America is analyzed to quantify the influence of various economic factors in the choice of exchange rate regime.

Chapters 2 and 3, which describe the currency politics of greenbacks and the battle over monetization of silver that culminated in Bryan's defeat in 1896, will likely be of interest to readers of this journal. I found aspects of the argument puzzling, however. For example, Frieden identifies manufacturing interests as being among the principle advocates for the greenback in the late 1860s (p. 65). Yet his analysis of voting patterns reveals support for a return to gold was stronger in congressional districts with more manufacturing output per capita (pp. 90–94). Discovering the results were not in line with expectations, he introduces interaction terms for manufacturing with regional dummies for Pennsylvania and New England, where manufacturing industries competed directly with foreign products. The interaction terms being negative and statistically significant he takes as a vindication of his position. However, the marginal effect of manufacturing in these regions is the sum of the coefficients on the original manufacturing variable and the interaction term, which suggests that even in New England support for the gold standard was positively associated with manufacturing, and in Pennsylvania, opposition to the gold standard was only weakly related to manufacturing. Miners (particularly silver miners) strongly supported a silver standard, yet Frieden's econometric analysis of congressional voting does not include a variable measuring the importance of mining in each congressional district, a curious omission (pp. 114, 131–35).

I also puzzled over why one consideration took precedence over another. Frieden observes that the relative price of primary goods fell substantially after 1873 while the relative price of nontraded goods rose (pp. 125–26). These relative price movements, popularly attributed to the gold standard, induced primary goods producers to oppose the gold standard. Logically, one might also anticipate the same relative price shift would induce producers of nontraded goods to support the gold standard, but apparently, it did not. Why not? Presumably Frieden would counter that nontraded goods producers preferred a system with monetary control over one that minimized exchange rate risk, but why this consideration should trump the relative price effect remains mysterious to me. Such puzzles plagued me throughout the book. Interest groups often had conflicting incentives, as producers of nontraded goods did in the 1890s. Which considerations prevail and why? The theory advanced in the book would have limited predictive power in the hands of a practitioner as unskilled as I in answering this question.