It is time to wrap up the century in some conclusions. A first conclusion is that the international monetary system depends on the power configuration of the countries that make it up. Bismarck once said that the most important fact of the nineteenth century was that England and America spoke the same language. Along the same lines, the most important fact of the twentieth century has been the rise of the United States as a superpower. Despite the incredible rise in gold production, Gresham's Law came into play and the dollar elbowed out gold as the principal international money.

The first third of twentieth century economics was dominated by the confrontation of the Federal Reserve System with the gold standard. The gold standard broke down in World War I and its restoration in the 1920's created the deflation of the 1930's. Economists blamed the gold standard instead of their mishandling of it and turned away from international automaticity to national management. The Great Depression itself let to totalitarianism and World War II.

The second third of the twentieth century was dominated by the contradiction between national macroeconomic management and the new international monetary system. In the new system, the United States fixed the price of gold and the other major countries fixed their currencies to the convertible dollar. But national macroeconomic management precluded the operation of the international adjustment mechanism and the system broke down in the early 1970's when the United States stopped fixing the price of gold and the other countries stopped fixing the dollar.

The last third of the twentieth century started off with the destruction of the international monetary system and the vacuum sent officials and academics into a search for "structure." In the 1970's the clarion call was for a "new international monetary order" and in the 1990's a "new international monetary architecture." The old system was one way of handling the inflation problem multilaterally. Flexibility left each country on its own. Inflation was the initial result but a learning mechanism educated a generation of monetary officials on the advantages of stability and by the end of the century fiscal prudence and inflation control had again become the watchword in all the rich and many of the poor countries.

Today, the dollar, the euro and yen have established three islands of monetary stability,which is a great improvement over the 1970's and 1980's. There are, however, two pieces of unfinished business. The most important is the dysfunctional volatility of exchange rates that could sour international relations in time of crisis. The other is the absence of an international currency.

The century closes with an international monetary system inferior to that with which it began, but much improved from the situation that existed only two-and-a-half decades ago. It remains to be seen where leadership will come from and whether a restoration of the international monetary system will be compatible with the power configuration of the world economy. It would certainly make a contribution to world harmony.

RAM