The 2022 Globie: Money and Empire – Perry Mehrling on Charles Kindleberger

Yves here. I suspect many here have heard of, and likely even read, Charles Kindleberger’s celebrated Manias, Panics and Crashes. I must confess to not knowing about his insightful work about international monetary systems. For instance, Kindleberger would have strongly disapproved of the Fed’s lack of concern about the impact of its interest rate moves on the rest of the world.

By Joseph Joyce, a Professor of Economics at Wellesley College, where he holds the M. Margaret Ball Chair of International Relations. He served as the first Faculty Director of the Madeleine Korbel Albright Institute for Global Affairs. Originally published at Angry Bear

Every year we name a book the “Globalization Book of the Year” (aka the “Globie”). The prize is (alas!) strictly honorific and does not come with a monetary award. But announcing the award gives me a chance to draw attention to a recent book—or books—that are particularly insightful about globalization. Previous winners are listed at the bottom of the column (also see here and here).

This year’s recipient is Money and Empire: Charles P. Kindleberger and the Dollar System by Perry Mehrling, Professor of International Political Economy at the Pardee School of Global Studies of Boston University. The book is an intellectual biography of Charles Kindleberger, who came to MIT in 1948 after having served at the U.S. Treasury, the Federal Reserve Board, the Bank of International Settlements and the U.S. Department of State. He was the author of a number of articles and books on international macroeconomics and economic history that have retained their relevance long after their initial publication date. In his work he often focused on the policies needed to achieve international stability in a world of different national currencies and policies. He had a insightful perspective on the circumstances that led to the Great Depression, and what needed to be done to avoid a repeat of that catastrophic occurrence.

Among the topics that Mehrling covers is the evolution of Kindleberger’s views on the global economic role of the dollar. The dollar became the international reserve currency under the Bretton Woods regime, which was designed to avoid a repeat of the relative chaos of the 1930s. Foreign central banks held dollars to stabilize the value of their currencies, while the U.S. stood ready to exchange these dollars for gold. What had been a dollar shortage in the period after World War II became a dollar glut in the 1950s and 1960s, however, and the stability of the link to gold was questioned by Robert Triffin and others.

Kindleberger, on the other hand, believed that the dollar was serving an important international function as a key currency, as the pound had done in the pre-WWI ear. The responsibility of the U.S. was to set monetary policies that took account of the state of the world economy. In 1966, he joined with Walter Salant and Emile Despres in writing an article for The Economist, “The Dollar and World Liquidity: A Minority View,”  which advanced the view that the U.S. served as the “world’s banker,” i.e., as a financial intermediary with respect to Europe that issued short-term deposits and invested long-term capital around the world. The result was an unplanned but functional international monetary system. In that perspective, gold was an unnecessary distraction.

The debate over the architecture of the international monetary system seemed to end when Richard Nixon terminated the exchange of gold for dollars in 1971. The U.S. and the European nations also began the transition away from fixed exchange rate regimes, although the Europeans would move to their own “fixed currency” with the euro. But the dollar did not recede into the mix of the international monies. The end of Bretton Woods also meant the end of the acceptance of capital controls, and capital began to flow more freely, first among the advanced economies and then to the emerging market nations. Private capital flows rose in importance in financing corporate and government debt, and in the cases of external finance these debt instruments (particularly of emerging market economies) were denominated in dollars.

By the 2000s the existence of a “global financial cycle”, based on U.S. monetary policy, became widely accepted. The dollar was indeed the international currency, although this was decided by private markets as much as governmental decrees. Pierre-Olivier Gourinchas of UC-Berkeley and Hélène Rey  of the London Business School, in explaining the central role of the U.S., updated the 1966 title given to the dollar by Kindleberger and his associates to the world’s “venture capitalist.”

One of Kindleberger’s most well known contributions came from his analysis of the Great Depression. Previous work usually placed the blame on the outbreak and/or duration of the crisis to misguided national policies. Kindleberger realized that there was an international dimension: the lack of a country that acted as a leader in providing the international public goods needed for stability. These included maintaining an open market for distress goods, providing long-term lending and overseeing a stable system of exchange rates, ensuring the coordination of macro policies among nations and acting as a lender of last resort. In the 1930s Britain was no longer able to act as the global leader, while the U.S. was not willing to accept that roel. Kindleberger’s insight became the basis of a body of work known as “hegemonic stability,” one of the tenets of international political economy.

Kindleberger offered yet another perspective on financial instability in his Manias, Panics and Crashes. As the title implies, the book is an account of financial crises dating back over time and their common elements. The book was first published in 1978. Robert Aliber took over the job of updating the book after Kindleberger’s death, and the latest edition (the eighth) has Robert N. McCauley as the newest co-author.

In the book Kindleberger extended Hyman Minsky’s model of financial instability, which was a domestic model, to include an international dimension. Minsky had proposed that credit expansion and contraction followed a cycle of initial displacement, boom, euphoria, profit taking, and panic. In a global context, this cycle can be amplified by short-term international capital flows, that increase the amount of credit that is available during the early stages of the cycle. But the money is rapidly withdrawn by foreign investors when doubts arise about the solvency of the projects they have financed. The withdrawal of foreign capital exacerbates the instability of the last stages of the cycle. Kindleberger’s adaptation of Minsky’s work proved to be remarkably prescient during the emerging market economies’ crises of the 1990s, such as the Asian crisis, as well as the global financial crisis.

Mehrling, therefore, has done a valuable service in explaining Kindleberger’s contributions to our understanding of the global economy. Because his analyses were not based on mathematical models or econometric testing, Kindleberger did not receive the same degree of respect as did his colleagues at MIT and elsewhere who used these tools. But the passing of time demonstrates that Kindleberger possessed a keen understanding of how capital and credit flows functioned, and the need for some form of governmental oversight. Any lack of attention to this work at the time when Kindleberger was active tells us more about the blindfolds of economics than it does about Charles Kindlberger.


2016    Branko Milanovic        Global Inequality

2017    Stephen D. King          Grave New World: The End of Globalization, The Return of History

2018    Adam Tooze                Crashed: How a Decade of Financial Crises Changed the World

2019    Branko Milanovic        Capitalism, Alone

2020    Tim Lee, Jamie Lee      The Rise of Carry

and Kevin Coldiron

2021    Anthony Elson             The Global Currency Power of the Dollar

Jeff Garten                  Three Days at Camp David

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  1. fjallstrom

    Thinking about the need for global lender / global leader. I tend to see it in terms of empire, the structure built mainly by the British empire.

    Building that structure included separating people from their means of production. Enclosures, the Highland clearings, etc. It also included de facto bans on communities creating credit for each other and settling everything at harvest time (see Greaber’s Debt). And it included de jure bans on providing relief in famines (see Late Victorian Holocausts).

    My view is that through these bans, and similar today by way of enforced budget discipline, the structure creates in countries the need for a capitalist class with access to the money creation of the state, and in empires an imperial center. The imperial center creates money backed by the production of the empire, which the imperial military makes accessible to the center.

    If and when the center refuses to play its role in providing money for (underpriced) raw materials, goods and services you get a crisis. The crisis can be solved either by the subservient states breaking of from the center and producing for themselves, or by the center resuming its function. The first is the solution of revolutionaries and it is the job of the imperial military to prevent it.

    Coordinating the imperial center to make sure it draws in all the raw materials, goods and services it has placed dibs on, is the role of imperial bureaucrats. Building on the theoretical framework for how the imperial center improves it’s role in sucking in raw materials, goods and services in exchange for IOUs, is what you can get a “Globie” for.

    1. Regis II

      I think your comment demonstrates the centrality of governments (or in this case empires) to the “how and why” of money.

      This, of course, is in stark contrast to the Econ 101 view of the world, which places “markets,” unmediated by government, at the center of the origin story of money, with government coming into the picture some time later.

      It is the dominance of the Econ 101 story, false though it is, which makes it so difficult for views like yours to break through to the “mainstream.”

  2. Eclair

    Fascinating post. The phrase, new to me, ‘hegemonic stability,’ froze my blood. How does that work with ‘democracy?’ And ‘nationalism?’ And at what point does stability morph into control? Plus all the questions raised by fjallstrom.

    Is a hegemonic currency, or any currency, a brilliant mechanism for super predators to profit from disaster? Drought, disease, famine, would have been shared equally by some communities; putting elders on the ice floes (metaphorically,) a last resort to enable the young to survive. (Where as now we shove elders onto ice flows for profit. Read Skippy’s heartbreaking posts.)

    Now weapons makers, drug lords, big ag, hoover up the dollars created as profit from war, plague, and famine. ‘Separating people from their means of production,’ and continuing with the program of enclosures and clearances (both physical and intellectual property,) again as fjallstrom points out.

  3. spud

    keynes recognized that free trade was the root cause of the 1930’s. the hot money that instantly gets invested, and just as instantly disappears was why he wrote this,

    “I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel–these are the things which should of their nature be international.

    But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national”…

    by creating the institutions that help create the conditions for instant global investments, only helps create the conditions of instability, and of course the inevitable crash. that is what we face today.

    no matter how much money we create, its unavoidable that that money ends up in the hands of a few, who immedietly over leverage every single penny world wide, thus comes the inevitable crash when said over leveraged so-called investments implode.

    so you think you can stop the implosion with more money at low interest rates? it just gets over leveraged again. just look at the immediate aftermath of 2008.

    a trading system without a reserve currency, and the institutions that back hot money flows, and over leverage, the only real comparative advantage, human and environmental degradation. will only encourage more.

    only actual nation to nation trade without a world wide reserve currency, no trading blocks, or sovereign stealing garbage inst. like the W.T.O., I.M.F., WORLD BANK, ETC.

      1. spud


        “There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations among men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation.

        I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel–these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national. Yet, at the same time, those who seek to disembarrass a country of its entanglements should be very slow and wary. It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction.

        For these strong reasons, therefore, I am inclined to the belief that, after the transition is accomplished, a greater measure of national self-sufficiency and economic isolation among countries than existed in 1914 may tend to serve the cause of peace, rather than otherwise. At any rate, the age of economic internationalism was not particularly successful in avoiding war; and if its friends retort, that the imperfection of its success never gave it a fair chance, it is reasonable to point out that a greater success is scarcely probable in the coming years.”

        1. Michael Smitka

          The phrase “remoteness between ownership and operation is an evil in the relations among men” is a warning against financialization in general, surely Keynes was familiar with Berle, Adolf A., and Gardiner C. Means (1932) The Modern Corporation and Private Property. New York: Macmillan Publishing Co. The international dimension is at best a bit more icing on the cake.

  4. Dida

    Kindleberger would have strongly disapproved of the Fed’s lack of concern about the impact of its interest rate moves on the rest of the world.

    Due to their ‘blessed’ location at the pinnacle of the international financial system (IFS), the US financial actors benefit in any circumstance, while for the Global South it is pretty much a damn if you do-damn if you don’t kind of game.

    When the money is cheap, such as in times of QE, US investors have plenty of chips to play and buy productive assets abroad. In Romania 40% of the fertile land is owned by foreigners, and 5 foreign companies with IKEA at the top own 50% of the forests, which is sheer absurdity – and pure colonialism. I wonder what Romanians will say 20 years from now, when in the middle of global ecological collapse, foreign mercenaries are carrying the harvest away.

    And when the Feds raise the interest rate high enough, it can bankrupt the Global South though the debt mechanism, which is exactly what happened in the 80s, when interest rates on dollar debts tripled over night. Hypocritically it was called the ‘Third World debt crisis’, when in reality the Third World did nothing to cause this catastrophe. How many people would be able to pay their mortgage if it tripled over night?

    Then indebted states have to go to the IMF, which surprise surprise forces them to sell their assets on the cheap to the benefit of Blackrock and its ilk. Because the IFS is a casino where the house always wins. And this is exactly what the ‘casino’ was designed to do.

    So I don’t think it is ‘lack of concern’ for the rest of the world, but the same purposeful policy of siphoning the wealth of developing countries and undermining their capacity to protect their economies. This is why the current US confrontation with Russia-China is in reality a struggle between The West and the Rest.

    The US ruling elites are going to discover very soon that 80% of the world will exit this criminal regime as soon as there is a reasonable alternative – currently under construction. The only question is if Dementia Biden nukes the peasant uprising.

    1. spud

      free trade is evil, and its a massive debt/poverty creation machine.

      that is why i say the elites need to pay a price for this. and as things are going, it appears that maybe the case.

      1. Paul Art

        Would not hold my breath. The only gang capable of this is the White Nationalist crowd and even they will make a deal with the current corrupt elite to get their share of the pie and immunity for a few days of roaming around murdering the colored population. I hardly ever read Bannon talking at length about demolishing Wall Street. OTOH the guy latched onto the Mercers like some paid mercenary and none of his fan boys minded it a bit.

        1. spud

          we are young into this meltdown now. the clintonites did a masterful job at playing off blue collar, against blue collar, and the PMC against the blue collar.

          that worked as long as some crumbs hit the PMC, its not working anymore. everyone is getting blasted except the oligarchs.

          all through out the 1920’s the economy was deteriorating, by 1929 the s##t hit the fan engulfing everyone. that created the conditions for this,

          i believe that one of the most important reasons FDR was allowed to run, is because america was melting down into a elites are gonna pay one way or another.

          elites feared that they were gonna pay for their follies, and not in a court room, but by mob.

          “Violence was in no way limited to cities and industrial workers. Since World War I farmers had been producing too much food. As a result they were getting very low prices for their crops. Many could not make ends meet or afford to make their farm mortgage payments to the banks. Banks were foreclosing on those who could not make their payments, taking possession, and then selling the farms at auctions to recover what money they could. Seeing no help coming from Hoover, in 1933 farmers in the Midwest began taking matters into their own hands. They began organizing to push for mortgage relief legislation and a guarantee that at least their farming production costs would be covered. Some went beyond lobbying to forcefully stopping eviction sales and intimidating judges, bankers, and insurance agents. In Dennison, Iowa, a crowd of farmers attacked collection agents and sheriff’s deputies attempting to foreclose on a farm. Such violence in early 1933 was growing so much that the governor of Iowa placed six counties under martial law, which meant suspending local civil laws and placing military forces—in this instance armed National Guard troops—in control to maintain peace. Some warned President-elect Franklin Roosevelt that economic strife was so widespread and severe that a violent revolution was brewing in the Midwest farm region. Farm relief became a top priority of Roosevelt’s first New Deal programs.”

          once rage fueled mobs go out of control, you never know where it might lead, FDR understood this well.

          and as we see, the free trading dim wits running the country cannot handle free trades latest implosion.

          so we do not know where this is going to lead, and who will make up that rage fueled mob.

  5. Gulag

    As Adam Tooze has noted in his own discussion of Mehring and his new Kindleberger book–Kindleberger was not just an analyst of inter-national finance, of balance of payments and currency, or of the gold standard and Bretton Woods but also a theorist of money and banking as inherently transnational and anchored in a mesh of private balance sheets as well as in the power of empires and nation states.

    Tooze further points out that Kindleberger, as highlighted by Mehring, was better able to analyze money beyond the nation-state framework because he was trained by a generation of American monetary economists for whom the existence of an independent American national monetary system was anything but a given.

    Surprisingly, at least to me, the recent brilliant series of essays by Zoltan Polzsar (War and Industrial Policy, Oil, Gold and LCLo (SP)R, and War and Commodity Encumbrance) appears to be challenging the respective and somewhat overlapping theoretical frameworks of Mehring, Kindleberger and Tooze.

    Polzsar argues quite persuasively that we are now in an international environment were we are moving from a unipolar world (where the Kindleberger framework was predominant) to a multipolar world and it will be the actions of different heads of state (especially in China, Russia, Saudi Arabia, Iran, Venezuela and the UAE) that will be more important than the actions of central banks, because heads of state actors affect inflation by leading with their decisions, with central banks merely following by hiking rates to “clean up.” It is also Zoltans contention that if investors read only the speeches of central bankers but not statesmen, like those mentioned above, they will be even further behind the inflation curve.

  6. dean 1000

    fjallstrom put it all in a nutshell.

    If Carry is based on borrowing why doesn’t the Fed shut down the portion that exceeds the actual reserves of the banks instead of trashing the real economy with higher interest rates? Can your dear leaders in Congress answer the question? When government bails out currency speculators they have taken no risks and deserve no reward.
    Conservatives used to bray about the democratic policy of “tax and spend’ Tax and spend.’ Carry is borrow and inflate, borrow and inflate the economy into a recession. Tulip futures anyone?

  7. Mikel

    “Because his analyses were not based on mathematical models or econometric testing, Kindleberger did not receive the same degree of respect as did his colleagues at MIT and elsewhere who used these tools….”
    And that beat goes on. If people are represented as or bombarded with abstractions, it’s easier to exploit and abuse them.
    Click on the second link in the next to last paragraph of the article. It leads to:
    Subprime mortgage crisis and possible recession

    The article is dated Jan. 8, 2008.
    The artcle describes the issues at hand and the troubles.
    Jan. 2008 – he wasn’t the only one selling “possible recession” and saying things at that time like “are we in a recession”.
    Also, note that the Fed at that point (Jan 8 2008…before it all hit the fan in ways that couldn’t be hidden, lied about, or denied) had begun to CUT rates again.

    “Possible recession”….
    Slowly boil those frogs. It works over and over again.

  8. Paul Art

    Kindleberger was Krugman’s Prof at MIT. He talks about ‘my professor Charles Kindleberger’ many a time in his columns.

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