Money and Empire: Charles P. Kindleberger and the Dollar System

by Perry G. Mehrling

Charles Kindleberger ranks as one of the twentieth century's best known and most influential international economists. This book traces the evolution of his thinking in the context of a 'key-currency' approach to the rise of the dollar system, here revealed as the indispensable framework for global economic development since World War II. Unlike most of his colleagues, Kindleberger was deeply interested in history, and his economics brimmed with real people and institutional details. His research at the New York Fed and BIS during the Great Depression, his wartime intelligence work, and his role in administering the Marshall Plan gave him deep insight into how the international financial system really operated. A biography of both the dollar and a man, this book is also the story of the development of ideas about how money works. It throws revealing light on the underlying economic forces and political obstacles shaping our globalized world.

Genres: Economics, History, Finance, Nonfiction, Money, Politics, Biography

310 pages, Kindle Edition

Published August 4, 2022

About the author

Perry G. Mehrling (born August 14, 1959) is professor of economics at Barnard College in New York City. He specializes in the study of financial theory within the history of economics.

Reviews

[Brecht Rogissart · Rating 4 out of 5]

A smart intellectual characterisation of Kindleberger as a US-centred, postwar internationalist. In his views, both in his early career as a policymaker and later as academic, it was good that the US took the lead role (as it actually should have done already after WWI) in global politics and allow for global development. The global market needs a leader if it wants to operate well, and mostly leadership positions aren't necessarily 'taken' or 'seized'. Instead, throughout development and global transitions it is pushed upon a nation as its task. For Kindleberger, after 1945 this became the task of the US.

Why does a global market need a leader? Because some 'international public goods' need to be guaranteed by the top of a hierarchy in order to assure a smooth development. For Kindleberger this mainly had a monetary dimension, which means in essence that he considered the dollar not merely a national currency any longer, but an international responsibility. Just as the 'Darwinian process' had eliminated various currencies in the national realm, eventually even displacing metal for state guaranteed banknotes and bank credit, the same process needed to be finalised on the international stage, where the dollar, backed by the US government, had to become the only currency used to allow the global market to function properly. Therefore it had to assume its place at the top of the hierarchy. More than an "exorbitant privilege", this implied for Kindleberger that the US government took a great, global responsibility, and needed to forsake its national interests for global responsibilities. It had to make sure there were enough dollars everywhere. The US also needed to adapt the FED's monetary policy to global needs.

More than just a leader, such a system also needed followers that did not rebel. Therefore, Kindleberger was not interested and even slightly worried by regional monetary unifications such as European monetary unification: what the globe needed was one currency, not several competing currencies. This is also part of the explanation of 1971 for Kindleberger: Yes, Nixon was stupid. But the followers also started rebelling, which altered the functioning hierarchy.

Moreover, that one currency needed to be backed by a powerful polity, not a currency artifically imposed by an international organisation such as the IMF, which Robert Triffin proposed. The dollar spontaneously arose throughout time as the preferred currency of the markets, which was a good thing. As he would say: "governments propose, markets dispose". Triffin, instead, wanted to force his theory upon reality. As Harold James would say: "Bretton Woods was the intellectual sugar, covering and masking the bitter taste of the pill of Realpolitik dollar hegemony" (137) This is what Triffin wanted to reverse, and shape reality to the myth of Bretton Woods.

Triffin mostly focused on the problem of dollar shortage for global trade when tied to gold, as well as the consequences for the US trade deficit. But for Kindleberger, the dissapearing structural surplus of US was not a problem, and rather the solution to a former problem, showing that US firms were finally spreading the dollar. The most important problem in global monetary markets and politics was hot money, which bounces around more easily if there are multiple strong currencies. This is a real problem that needs political managing (and thus a strong polity). The structural deficit was the consequence of the US offering a valuable service to the global market, which is offering stable, monetary reserves.

This brings us to Kindleberger's debate with Friedman over free exchange rates. Friedman wanted to "set the dollar free, and make it clear that it will continue to be free, and the Euro-dollar market will shrivel and New York will become in the final decades of the twentieth century what London was in the final decades of the nineteenth century." (173) Kindleberger, in contrast, was sceptical. He feared that flexible exchange rates would break up the world economy and leave the world without a clear anchor for store of value. It would only stimulate hot money and instability. Still, it happened in 1971, and up until 1985 with the Plaza Accord, global money was unregulated. Afterwards, a new reformed dollar leadership was installed based on central bank cooperation.

Overall a really strong book. But slightly too much about Kindleberger, too little about the dollar, and barely nothing explicit about empire.

Some quotes: Kindleberger in 1970: "In 1962, President Kennedy said that the two most important problems in the world were the nuclear bomb and the balance of payments of the United States. When i first hear this, i thought it was funny. Now I think it tragic." (115)

Besides, from Mehrling's reading I think the most interesting reads of Kindleberger are his book "Money and Power", his chef d'oeuvre "A Financial History of Western Europe" and his 1966 article for The Economist on the dollar deficit.

[Winmonroe · Rating 4 out of 5]

After the New Lombard Street, Perry Mehrling returns to his previous writing style of integrating an intellectual and economic history with the biography and of an important economist. He has chosen well with Kindleberger for his exploration of international money and finance. Wonderfully written with insights into the profession, the economy, and Kindleberger, it's easy to recommend this book.

[Thilina Panduwawala · Rating 5 out of 5]

Perry at his best, describing Charlie at his fullest.

[Mike Sanders · Rating 5 out of 5]

On a second read remains as expansively storied and deeply connected to the different lines of monetary reality across the dollar world. Brilliant read

[Andrei · Rating 2 out of 5]

An ok book, learned a few things about “Charlie”, as Perry refers to him. The ultimate flaw of the book is that it’s rather superficial and thin, running at 260 pages and thus not doing justice to Kindleberger’s vast corpus of work and decently long life. We don’t really get enough insight into his work, and the contextualisation of his life is formulaic, which is bizarre give that he lived in the whirlwind that was the twentieth century and you’d expect that to have had a massive impact on him and his thinking, particularly the breaks and transformations in the monetary and financial system. It would have been so useful to unpack his ideas against the backdrop of the changing global economic system. None of that I’m afraid.

I also really wanted to understand how he wrote his books, especially the ones in financial history, what kind of sources did he use, how did he get to know and understand finance since the Middle Ages? No insight into that sadly. I haven’t read Perry’s book on Fisher Black, but from what I can gather in this one, biography is not his greatest strength. And I say that because I have read The New Lombard Street, and I did enjoy that one.

[Warren Mcpherson · Rating 4 out of 5]

This book traces the development of the international dollar system. It feels ponderous and academic without a sharp thesis. The style turns out to be the point. Rather than using a simple model to represent a complex system Mehrling extols the virtue of examining the behaviour of the system to understand what works and what doesn't. Along the way, of course, he castigates the false dichotomy of monetarism and Keynesian thought.

Another interesting theme is dealing with an expected crisis that fails to materialize. The book is filled with excellent analysis that is surprisingly current. For Bitcoinati moving a half step beyond "money printer go brrr..." this is great.

Here is a sample passage that demonstrates the style and suggests the brilliant and memorable conclusion:
Leadership to provide the public good of stability, properly regarded, misunderstood as exploitation, or sniped at by free riders, seems a poor system, but like democracy, honesty, and stable marriages, is better than the available alternatives.

[Aimee · Rating 3 out of 5]

A reminder of just how little I grasp about macroeconomics. I was hoping this would skew a little more general economic history, but I think the intended audience is one that understands a lot more about banking/intl trade than I do. It will probably take me a good amount of post-hoc research to get there (a long list titled “things I still don’t know” in my notes app). Felt I had to finish because I gave up the last book….. why do I do this to myself.