More than twenty-five years ago, Barry Eichengreen and Jeffrey Sachs published an original paper reexamining the case of competitive devaluations in the 1930s (“Exchange Rates and Economic Recovery in the 1930s.” The Journal of Economic History 45, no. 4 [1985]: 925–46). They argued that devaluations were not necessarily “beggar-thy-neighbor” policies benefiting the initiating countries at the expense of their trading partners. In fact, a coordinated devaluation of all currencies against gold could have left the world economy better off (because of its effect on the money supply). Eichengreen and Sachs’ paper today figures among the most cited articles published in the The Journal of Economic History. By shifting the focus from individual countries’ mistakes towards the lack of international coordination in the gold standard system, the authors indeed completely changed our perspective on the causes of the Great Depression. Yet, as they concluded, their article was meant to be “as much an agenda for research as a statement of results” (p. 945). In particular, they recommended extending their analysis to other policy instruments such as exchange controls and trade restrictions. Two decades on, Douglas Irwin's book makes a significant contribution along this line.

The book is made out of a series of lectures (the Ohlin Lectures) given by Irwin at the Stockholm School of Economics in September 2010. Drawing on previous research, the author investigates the advent of protectionism in the 1930s in the broader context of the literature on the interwar gold standard. His main argument is that trade and exchange rates policies were intimately related in the interwar years. In the midst of the Great Depression, countries were confronted with an “open economy trilemma:” they could not loosen monetary policy while remaining committed to both fixed exchange rates and free trade at the same time. For those countries, which were reluctant to leave the gold standard, the only option was therefore to increase trade protection. A simultaneous devaluation of all currencies accompanied by monetary expansion would have been preferable according to Irwin: not only would it have stimulated global industrial production (as Eichengreen and Sachs showed), but it would also have prevented the dramatic contraction of world trade.

The first chapter presents the sequence of events leading to the global rise in protectionism. This chapter starts with a description of the operation of the interwar gold standard. It is regrettable that Irwin spends so much space blaming the United States and France for not playing by the “rules of the game.” He surely cannot ignore that these so-called rules were in fact very rarely followed even in the nineteenth century nor that France was actually one of the few countries that did not systematically sterilize international reserves inflows in the early 1930s. Moreover, stressing individual countries’ mistakes tends to blur the broad picture of a failure of international policy coordination. The rest of the chapter is nevertheless much more convincing. Irwin shows that the trigger precipitating the trade war of the 1930s was not the Smoot-Hawley tariff of 1930 but the 1931 global financial crisis.

Chapter 2 presents a series of case studies illustrating how different countries resolved the trilemma. The general impression coming out of these narratives is that the trilemma only offers a schematic representation of how trade policy was formulated; things were much more complex in practice. The case of the United Kingdom is particularly interesting from this perspective. Irwin describes how the British opinion towards trade protection evolved in the early 1930s and how this determined the policy implemented in the wake of the sterling crisis of September 1931. Facing a choice between a pound's depreciation and higher trade tariffs, British authorities eventually ended up with both. The problem faced by the German government at that time was even more difficult. Given the high level of its foreign currency debts, devaluation was a particularly costly option for Germany and policy choices were even more constrained. Only the United States seems to offer a pure illustration of the trilemma: the depreciation of the dollar in 1933 was soon followed by a loosening of trade policy.

Chapter 3 provides quantitative evidence in support of Irwin's thesis. The author estimates with caution that around 50 percent of the global trade contraction of the 1930s was caused by the increase in protection and that trade barriers accounted for about 10 percent of the global decline in output. He also presents evidence (previously published in Eichengreen and Irwin, “The Slide to Protectionism in the Great Depression: Who Succumbed and Why?” The Journal of Economic History 70, no. 4 [2010]: 873–98) that countries which did not devalue in the early 1930s increased trade protection more severely (through tariffs, quotas, and exchange restrictions), expanded the money supply less aggressively and recovered more slowly than others. One might wonder whether this evidence does not put the whole notion of a policy trilemma into question as countries opting for fixed exchange rates in fact had to renounce to both open trade and monetary independence.

The book ends on an optimistic note: according to Irwin, another “trade policy disaster” is less likely to occur in today's world of floating exchange rates because governments have more policy options available to respond to crises.

Overall, Irwin's argument is convincing. The great merit of this book is that it analyzes the rise in protectionism of the 1930s as part of a broader issue of policy coordination in the international monetary system. If governments had been able to coordinate on a cooperative equilibrium, economic recovery would have been faster and the “trade policy disaster” would have been avoided. Yet, reaching such an equilibrium is not easy, as current events in the eurozone remind us, and the policy lessons from this episode are therefore not straightforward.

What misses perhaps is a more thorough analysis of the political dynamics underpinning the various governments’ decisions. Irwin argues that the fear of hyperinflation explains why some countries were reluctant to leave the gold standard and preferred protection. But a choice between these two options also surely had distributional consequences. Therefore, understanding how decisions were made would require identifying the winners and losers of alternative policies and how they were empowered under various political and institutional systems. As Eichengreen and Sachs wrote, “a full understanding of the role of policy in the economic recovery of the 1930s requires an integrated analysis of both policy's formulation and effects” (pp. 945–46). A complete political economy of trade and exchange rates policies in the 1930s remains to be done at this stage and there is still room for expanding their research agenda. However, Irwin's book already takes a big step in this direction.