Perry Mehrling - Money and Empire

MONEY AND EMPIRE
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.
Perry Mehrling is Professor of International Political Economy at Boston

University.
Published online by Cambridge University Press

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MONEY AND EMPIRE
Charles P. Kindleberger and the Dollar System
Perry Mehrling
Boston University

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Names: Mehrling, Perry, author.
Title: Money and empire : Charles P. Kindleberger and the dollar system / Perry
Mehrling, Boston University.
Description: Cambridge, United Kingdom ; New York, NY : Cambridge University
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references and index.
Identifiers: LCCN 2021056132 (print) | LCCN 2021056133 (ebook) | ISBN
9781009158572 (hardback) | ISBN 9781009158589 (ebook)
Subjects: LCSH: Kindleberger, Charles P., 1910–2003. | Monetary policy – United
States. | United States. Federal Reserve Board. | Dollar.
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MONEY AND EMPIRE

University.


MONEY AND EMPIRE
Perry Mehrling
Boston University


www.cambridge.org
DOI: 10.1017/9781009158589
973–dc23/eng/20211203
ISBN 978-1-009-15857-2 Hardback

MONEY AND EMPIRE

University.


MONEY AND EMPIRE
Perry Mehrling
Boston University


www.cambridge.org
DOI: 10.1017/9781009158589
973–dc23/eng/20211203
ISBN 978-1-009-15857-2 Hardback

MONEY AND EMPIRE

University.


MONEY AND EMPIRE
Perry Mehrling
Boston University


www.cambridge.org
DOI: 10.1017/9781009158589
973–dc23/eng/20211203
ISBN 978-1-009-15857-2 Hardback

For my teachers and students
(from whom I also learned)

Contents
Preface page ix
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
part i: intellectual formation, 1910–1948

1 Golden Boy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2 Columbia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3 Hot Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4 A Good War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
part ii: international economist, 1948–1976

5 Tech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
6 The Dollar System . . . . . . . . . . . . . . . . . . . . . . . . 126
7 Among Economists . . . . . . . . . . . . . . . . . . . . . . . . 156
part iii: historical economist, 1976–2003

8 Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . 187
9 Chef d’Oeuvre . . . . . . . . . . . . . . . . . . . . . . . . . . . 209
10 Leadership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
Bibliography 262
Index 279
vii

Preface
This book started out as a biography of the dollar, not of a man. It was
intended to be an international version of the story I had told in The New
Lombard Street: How the Fed Became the Dealer of Last Resort (2011). That book
was a biography of the Fed, as seen through the analytical lens of the
“money view,” an approach to monetary theory that I had been develop-
ing in the classroom for the previous decade. The new project was
supposed to extend the money view to a theory of foreign exchange
and the international monetary system, and in doing so would enable
the story of the emerging market-based credit system to encompass the
story of financial globalization and the spreading dollar system. As in the
previous book, I planned a story of institutional development as context
for a story of economic thought development – this time international
rather than domestic. Fortunately for me, my plan attracted support from
the initial grant round of the fledgling Institute for New Economic
Thinking (INET), which I gratefully acknowledge. However, in the
first year the project began to change shape, and I decided not to request
renewal.
As I reconstruct my process today, the shift in focus began with work
I had been doing on the history of monetary economics at MIT.1
Spending a few days in the Modigliani Papers at Duke University in
January 2011, I found extensive correspondence with Charles
P. Kindleberger about international monetary reform, and that is
where the seed for the present book was planted. Subsequent discovery
of the extensive Kindleberger Papers at MIT made me realize that there
1
Mehrling (2014).
ix
https://doi.org/10.1017/9781009158589.001 Published online by Cambridge University Press

PREFACE
was enough material on which to hang an entire book, just as I had

previously hung my history of financial economics on the life of Fischer
Black.2
It should be noted for the record that I did not abandon the original
project, but rather published its central chapters in individual papers
rather than a full book, most importantly “Essential Hybridity: A Money
View of FX.”3 With my previous commitment thus cleared, in the summer
of 2013 I spent a month in the Kindleberger Papers at MIT and then, in
January 2014, a week in the Kindleberger Papers at the Truman Library,
with the result that by February 2014 I was able to construct a plausible
chapter outline for the new book. By September 2015, this new concep-
tion of the project attracted renewed support from INET.
Still, it took me another six years to complete the book, which is quite
a bit slower than my previous books, because of other projects I was
working on. The launch of New Lombard Street (2011) brought unex-
pected demand for follow-ups of various kinds, which I felt obliged to
supply. Then, in April 2012, INET asked me to organize a student gath-
ering parallel to the INET Plenary in Berlin, which turned out to be the
launch of what would become INET’s Young Scholars Initiative. Even
more, in Fall 2012, INET filmed my Money and Banking course, and over
the next year I worked to edit the film into a MOOC (Massive Open
Online Course) that launched on Coursera in Fall 2013. In January 2017,
just as I was starting to fill in the outline of the new book, Boston
University approached me about possibly shifting my academic base
and I accepted, effective January 2018. The transition proved more
disruptive than I anticipated. A thirty-year accumulation of files and
books is not easy to shift, even less a thirty-year pattern of teaching and
research, not to mention life. That accounts for the slow progress, but
I wish to assert for the record that it was definitely worth it. I had hoped to
find in The Pardee School of Global Studies the supportive academic
home that I needed to complete the book, and so it proved to be, for
which I am eternally grateful.
Starting in 2018, I began to make rapid progress, taking the oppor-
tunity to present each chapter for public feedback as it was completed. In
2 3
Mehrling (2005). Mehrling (2013). Also Bernes et al. (2014) and Mehrling (2015).

PREFACE
this vein, my schedule included talks at the Kennedy School, Credit

Suisse, the European Society for the History of Economic Thought, the
Eastern Economic Association, Marist College, Duke University, and
multiple presentations at my new academic home. For me this was
a new way of working, since all my previous books had been produced
essentially in isolation and under tremendous time pressure, with very
little in the way of institutional support. A pleasant surprise, I found that
I enjoyed this new way of working, and that is the final reason for my slow
progress. For the first time in my life, I have had time to really enjoy the
process of writing, and indeed even to indulge in some rewriting! I hope
and trust that the result is a better book.
At INET, my main debt has been to Rob Johnson for his unwavering
support over the last decade, his judgment perhaps distorted by lasting
affection for Kindleberger, a key influence on his own early education as
an economist. Tom Ferguson has been an invaluable reader and critic,
especially of the later chapters, which have been immeasurably improved
by my attempt to rise to his standard. I should also mention prominently
Jay Pocklington, whose work to build the Young Scholars Initiative not
only freed up my own time, but, even more important, created the
intellectual community that I came to envision as the concrete audience
for the words I was putting on paper. His periodic requests for progress
reports on the book, starting in January 2015 with a talk to the YSI
Economic History Workshop, provided much-needed stimulus to put
words into PowerPoints, as preliminary to actual chapters. It was also
Jay who arranged for YSI intern Mariam Tabatadze to serve as my
research assistant for a while, gathering together the transcripts of
Kindleberger’s extensive Congressional testimony.
Second only to INET, I owe a debt to the Kindleberger family, especially
Sally Kindleberger, nearby in Lincoln, Massachusetts, who opened the
family archive to me, but also, farther afield, Charles P. Kindleberger III
(now deceased) and Elizabeth Randall Kindleberger, who provided crit-
ical insight on the private life. I see in my notes that my first contact with
Sally was July 2013, and I take this opportunity to apologize to the family for
the long delay bringing this project to fruition. I don’t work as fast as their
father, obviously, perhaps suffering from a perfectionist streak of which he
would definitely have disapproved.
xi

PREFACE
Kindleberger wrote a lot for publication, but I have found the unpub-
lished record invaluable for teasing out the underlying life story that
brings the published work to life. In addition to MIT and the Truman
Library, I thank archivists at the Kent School, the Jamestown Historical
Society, the University of Pennsylvania, and Bucknell University. Special
thanks are due to MIT archivist Myles Crowley who went beyond the call
of duty when the pandemic closed the archive, providing Zoom access to
critical documents needed to complete the book. Financial support from
the Truman Library for my week there is gratefully acknowledged.
Along the way, I have accumulated additional debts to numerous
individuals: Bob Solow, Stephen Magee, Ron Findlay, Hossein Askari,
Bob McCauley, David Warsh, Deirdre McCloskey, Bob Pollin, and Peter
Johns. Also, to the readers who saved me from error and helped me to
sharpen my argument: Andre Burgstaller, Kevin Gallagher, Vivien
Schmidt, Erik Goldstein, Maria Cecilia Schweinberger, Steffen Murau,
Anush Kapadia, Michael Beall, Yakov Feygin, Frederick V. Hermann,
Asgeir Torfason, Celine Tcheng, Eric Monnet, Muriel Dalpont, Bob
Dimand, and Catherine Schenk. In the final stages of manuscript prep-
aration, Andrew Grafton served as research assistant, checking quotes
and references with a fresh eye.
Finally, as always, this book would not have been possible without the
constant and patient support of my wife Judy. I’ve lost track of the
number of times I assured her that there were only six months to go,
though I insist that each time I believed it. In my defense, repeatedly
I found that there was more to the story than I had anticipated, and
repeatedly I was grateful that I was able to take the time to pursue the
story where it led.
xii

Introduction
T he title of this book is intended as homage to marcello de

Cecco’s classic Money and Empire, The International Gold Standard,
1890–1914 (1974). In de Cecco’s story, the pound sterling is global
money, managed by the Bank of England; borrowers and lenders from
all over the world find each other in the money and capital markets of the
City of London; and the British Empire is ruled, directly and indirectly,
by elite graduates of Oxford and Cambridge operating out of Whitehall.
As the dates of his book suggest, this sterling system came to an end with
World War I, whereupon construction of the dollar system that would
replace it began, bit by bit.
The present book tells the story of that construction. In my story, the
dollar is global money managed by the Federal Reserve; borrowers and
lenders find each other in the money and capital markets of New York;
and global rule is outsourced to a variety of multilateral institutions and
multinational corporations staffed by elite graduates of Harvard and
Yale. For the dollar system, the myth of the United Nations plays the
same role that the myth of the gold standard played for the sterling
system, decorously veiling the political reality of dollar rule.
In a departure from de Cecco, the present book tells its story through
the life and times of a single individual, Charles P. Kindleberger (1910–
2003). It is in effect a Bildungsroman in which the development of the man
parallels the development of the dollar system he devoted his life to under-
standing and advancing. As Professor of International Economics at MIT
from 1948 to 1976, and author of the best-selling International Economics
textbook (1953, 1958, 1963, 1968, 1973), he taught cosmopolitanism to

MONEY AND EMPIRE
a world riven with primitive nationalist instinct, continuing with unflagging

energy even after official retirement.
For Charlie, the historical task of the emerging dollar system was the
economic development of what we now call the Global South, a task
requiring long-term capital flow from the Global North. Channels of
public capital flow, such as the World Bank that had been established
at Bretton Woods, could get things started, but the big money would
necessarily come through private channels such as Wall Street and the
multinational corporation. And, for that, the crucial infrastructure was
the international monetary system.
From H. Parker Willis, his teacher at Columbia University, Charlie
learned about the long battle for domestic monetary reform in the
United States that finally led to the creation of the Federal Reserve
System in 1913, thereby unifying the previously disparate clearing
regions into a single system. Here is the origin of Charlie’s own lifelong
battle for international monetary reform, specifically his ambition to do
for the world system what Willis had done for the United States. For
Charlie, the economic advantage of a unified international monetary
system was clear, and so Darwinian evolution could be depended upon
to tend in that direction. But politics was the ever-present obstacle – even
more so in a world of separate nation-states than had been the case within
a United States of separate economic regions.
Just so, depression and world war sidetracked the course of Darwinian
evolution for a while, as individual nation-states retreated to autarky. For
a long time, what capital flowed between nations flowed in public chan-
nels following political logic, not private channels following commercial
logic: Lend-Lease during the War, the Anglo-American loan after the
War, and then the Marshall Plan for reconstruction of war-torn Europe.
The turning point came only in 1958 when European currencies
returned to convertibility and private channels began to develop in
earnest.
From the beginning, the emerging dollar system had its opponents,
both outside the United States and inside. Nondollar countries resented
what they saw as “exorbitant privilege,” while US authorities resented the
global responsibility that came with issue of the global money. The three
bogeymen of American politics – big government, big finance, and the

INTRODUCTION
big wide world – came together in the idea of a global central bank, which
US citizens therefore instinctively and viscerally resisted, even as business
practice pushed ahead with the construction of the global dollar system
as a concrete reality.
Having himself been a central banker from 1936 until 1942 – first at
the Federal Reserve Bank of New York, then the Bank for International
Settlements, then back at the Board of Governors – Charlie worked to
assuage the fears of his fellow citizens, using education as his main
weapon. If people understood how the dollar system actually worked,
he thought, they would stop trying to destroy it. Having served in the
Department of State from 1945 to 1948, first guiding the German recon-
struction effort and then coordinating the legislative effort to launch the
Marshall Plan, Charlie thought the key was to educate the junior staffers
who, in his experience, actually made the policy that their superiors
subsequently announced.
But education didn’t work. One reason was that his fellow economists
were feeding the fears of the politicians. Economists such as Robert
Triffin wanted to replace the dollar with a nonnational world currency,
and Harry Johnson wanted to replace the Bretton Woods fixed exchange
rate system with a flexible exchange rate system. Even Charlie’s MIT
colleagues, ambitious Keynesians who found in President Kennedy an
eager student, were swayed by the arguments of Triffin and Johnson. And
educating them was an even harder task, since their professional eco-
nomic discourse increasingly took the form of mathematical and statis-
tical modelling, a language that Charlie did not speak.
In the end, politics won out and the opponents of the dollar system got
their way. In August 1971, President Nixon took the dollar off gold, and
in 1973 abandoned any attempt to stabilize the exchange rate. For
Charlie, it was a devastating blow: not only the abdication of a crucial
responsibility, but probably the end of the dollar system. Roosevelt’s
decision in 1933 to torpedo the central bankers’ attempt to stabilize
currencies had doomed the world to Depression. Nixon’s decision in
1973 now doomed the world to stagflation, or worse.
Speaking at a colloquy on “The Global Economic Crisis” held at
Bucknell University, February 27–March 1, 1975, Charlie took as his
theme “The Lessons of 1929–1933 for 1975.” His latest book The World

MONEY AND EMPIRE
in Depression, 1929–1939 (1973) (hereafter WID) had argued that the

Depression was fundamentally caused by a failure of world leadership,
Britain no longer able to lead, and the United States not yet ready or
willing to lead. From this point of view, the present crisis seemed also to
be a failure of world leadership, the United States having abdicated in
1971 and no one else yet ready or willing to take its place.
The Bucknell students, however, were having none of it, and after the
talk they peppered Charlie with questions about socialist alternatives
instead. He should have expected it. The keynote speaker the previous
evening had been Paul Sweezy, Charlie’s wartime buddy in London when
they both worked at the Office of Strategic Services, speaking on the topic
“The Crisis of Capitalism.” And radical economists from the New School
for Social Research and the University of Massachusetts at Amherst had
been well-represented in other sessions. Only six months earlier,
President Nixon had resigned in order to avoid impeachment and
been pardoned by his successor Gerald Ford. Suffice it to say that leader-
ship was a problem within the United States, let alone worldwide.
The next year (1976) was Charlie’s last of full-time employment at
MIT, having reached the mandatory retirement age of sixty-five. He
would continue teaching part-time at MIT for another five years, followed
by stints at Brandeis and Middlebury. The point of all this teaching was
partly to supplement his meager retirement income, but also, more
importantly, to feed Charlie’s new research focus – economic history –
launched by Depression and culminating in the book he would consider
his “chef d’oeuvre,” A Financial History of Western Europe (1984). In retire-
ment, Charlie largely stayed out of policy debate, and mainly just watched
while, after the chastening experience with floating exchange rates,
amazingly the dollar system got put back together, starting with Paul
Volcker’s appointment as Fed Chair in 1979 and continuing with the
Plaza Accord of 1985.
Charlie did not live to see the Global Financial Crisis of 2007–9, which
shook the dollar system to its core, but which resulted ultimately in
stabilization of that core with a system of permanent central bank liquid-
ity swaps, and which was then followed by expansion of the dollar system
from core to periphery as national champions in the Global South found
themselves able to tap global dollar capital markets. Nor did he live to see

INTRODUCTION
the Covid Crisis of 2020, which the Fed met with rapid and massive
intervention, acting now quite openly as central bank of the world, triple
threat bogeyman no more apparently. In the end, Darwinian evolution
thus seems to have got us where Charlie predicted after all, though of
course it remains to be seen if the politics will hold.
The overall arc of this book follows the vicissitudes of the dollar
system, as seen through the eyes of one of its keenest observers. But an
important subtheme that also runs throughout concerns exactly why it
was that Charlie could see things so clearly that were so opaque to others.
A biography of the dollar, this book is also the biography of a man.
Interestingly, Charlie wrote his own autobiography The Life of an
Economist (1991), but it is a disappointingly unreflective and impersonal
book, perhaps reflecting the WASP’s ingrained reticence to talk about
oneself. Most disappointing, there is very little discussion of his work or
its larger context, just a chronology. Students and colleagues loved this
man, for his wit and charm, for his integrity and responsibility, for his
dedication and hard work, but more than one of them read his autobiog-
raphy and came away disappointed. MIT colleagues admired his eco-
nomic “intuition,” but had no very good idea how he came up with what
he did, since his process was so different from theirs.
Fortunately, I have found many other sources to fill in the gaps:
a collection of papers at MIT, others at the Truman Library including
Charlie’s FBI file and the “Interim Biography” that he wrote in an
attempt to regain his security clearance lost in the McCarthy witch
hunt, family papers including a memoir “A 20th Century Family” put
together by Charlie’s sister, school records, and personal remembrances
by colleagues and friends prepared for Charlie’s eightieth birthday. And,
of course, there is the work itself: thirty-one published books and hun-
dreds of articles, but also unpublished memos he wrote at the Fed and
BIS, speeches, and Congressional testimony. All that is more than
enough to flesh out a three-dimensional picture of the man.
Born in 1910, Charlie came of age in the Roaring Twenties, the only
son of a successful lawyer who wanted his son to follow him in the trade.
Kent School formed his character, and he found economics at
Pennsylvania University, but it was at Columbia University in the years
of “hot money” (1933–6) that he became a scholar. Family finances

MONEY AND EMPIRE
having fallen apart in the Depression, he made his own way and chose his
own intellectual fathers, all of them from within the tradition of
American institutionalism. Not only Willis, but also James Angell and
John H. Williams were critical intellectual influences, the latter mediated
through Emile Despres, a student of Williams who became Charlie’s
lifelong friend and colleague. Williams’ key-currency idea, first floated
at the fateful 1933 World Economic Conference that Roosevelt torpe-
doed, was always core to Charlie’s thinking. Later, it was Williams’
Harvard colleague Alvin Hansen who drew Charlie’s attention to the
central importance of long-term capital flows to the Global South.
Equally important for his intellectual formation was Charlie’s real
world experience: as a practicing central banker starting at the
New York Fed supporting the 1936 Tripartite Agreement, continuing at
the BIS confronting the emerging challenges of war finance, and then
back at the Board of Governors for contingency planning in the event of
a German victory. But it was war service more than anything else that
made Charlie into the mature economist he would be, pressing him to
develop his analytical skills to the highest level, first as an intelligence
analyst in the OSS and then in postwar service at the State Department.
His Pantheon of heroes included the four great men he worked under in
those years: Omar Bradley, William Clayton, George Marshall, and Allan
Sproul. Closer to Charlie’s own merely human condition, the demigods
of his private religion were the economists with whom he worked: Emile
Despres, Alvin Hansen, Edward Mason, and Willard Thorp. A self-
diagnosed overachiever, Charlie never aspired to be one of the greats,
but he could and did aspire to be an economist like these men.
It was only in 1948, at age 38, that Charlie landed his first academic
appointment, at MIT, then as now primarily a school of engineering.
Over the next decades, under the leadership of Paul Samuelson and
Robert Solow, the department would pioneer the use of mathematical
and statistical methods for economic modelling, and in so doing would
transform itself into one of the leading departments in the world. Charlie
himself, however, never retooled, and one reason is that he never felt the
need. Twelve years in government service left him with a wealth of
knowledge about how the system worked, and he had seen how the
pragmatic empiricist method of the American institutionalists worked

INTRODUCTION
in practice to solve even the most difficult problems thrown up by the

world. It was enough for him.
For Charlie, the bigger need to retool came when he lost his security
clearance in 1951, as that meant he was unable to keep a foot in the world
of practical policy as had been his plan. Subsequently, he came to rely
instead on textbook writing as a more indirect means of influence,
shepherding to publication multiple editions of both International
Economics (1953) and Economic Development (1958) before his swan song
Power and Money: The Politics of International Economics and the Economics of
International Politics (1970). It was his students – in person at MIT, but also
the readers of his books – who would have to solve the problems thrown
up by the world, problems in which economics and politics were inextric-
ably intertwined.
For the international money story, particular interest attaches to two
of those students, Egon Sohmen and Robert Mundell, the former an
early advocate of flexible exchange rates and the latter the originator of
what became the standard model of open economy macroeconomics, for
which he would be awarded the Nobel Memorial Prize in Economic
Sciences in 1999. Charlie wrangled with them both, favoring fixed
exchange rates against Sohmen and seeing Mundell’s advocacy for
a common European currency as an incorrect extension of Williams’
key-currency approach. For Charlie, the optimal currency area was always
the world as a whole, and the central problem was making the dollar
system work, not finding alternatives to it.
After twenty years of this, as the MIT department changed along with
the rest of the economics profession, Charlie came to see that it was time
for a change himself, and that’s when he embraced a new identity as
economic historian. Most historians spend their days digging in the
archives for new facts; Charlie instead used his intelligence analyst skills
to spin stories about what the facts mean. Having mounted his first major
effort in this vein, the Depression book, while still on the MIT payroll, he
was ready to hit the ground running when mandatory retirement
required him to step down, starting with Manias, Panics, and Crashes
(1978), which became a best-seller and remains in print to this day.
In biographical context, we can read Charlie’s self-identified 1984
masterpiece Financial History as a synthesis of the multiple strands of his

MONEY AND EMPIRE
life work. The first three Parts – titled respectively “Money,” “Banking,”
and “Finance” – can be read as an attempt inductively to sketch for the
reader his own analytical framework for understanding the international
monetary system, building on his earlier nonhistorical works The Dollar
Shortage (1950), Europe and the Dollar (1966), and International Money
(1981). Here, in effect, we find his treatise on money. The second two
parts – “The Interwar Period” and “After World War II” – use this
analytical framework to make sense of the dramatic monetary events of
his own life. In effect, Financial History is Charlie’s own Money and Empire,
a Bildungsroman of both the dollar and himself.
In all of this postretirement work, we see Charlie not so much turning
himself into an economic historian, but rather using the material of eco-
nomic history finally to do the kind of comparative political economics that
he had intended to do when he left government service for the academy.
Indeed, Charlie signals as much himself in the title of his final collection of
favorite papers: Comparative Political Economy, A Retrospective (2000). Resilient
in the face of multiple obstacles, Charlie ultimately achieved what he had set
out to way back in 1933 when he found himself confronting the reality of
global economic collapse and the necessity of making some kind of life for
himself.

I
INTELLECTUAL
FORMATION, 1910–1948

CHAPTER 1
Golden Boy
My father used to tell me, as I tell my journalist son about news-

work, that lawyers don’t know anything, but have to be quick
learners in a case in a new field.1
Born October 12, 1910, Charles “Charlie” Poor Kindleberger II was the
third child but first son born to up-and-coming New York City lawyer
Evertson Crosby Kindleberger (1875–1950) and his socially ambitious wife
Elizabeth Randall (née McIlvaine) (1879–1959).2 Elizabeth had been raised
to be a “lady,” and Crosby had been raised to marry one, and so the marital
bargain was struck while both were vacationing in North Hatley, Quebec.
Married in June 1906, she, at twenty-seven years the oldest of four sisters, felt
herself lucky to have avoided dreaded spinsterhood. He, lame from child-
hood polio, felt himself lucky to have attracted such a beautiful wife.
Episcopalians and “rock-ribbed Republicans” both, they made an attractive
couple in local social and political circles, which they were careful to
cultivate. Crosby worked long hours at his law practice and Elizabeth kept
herself busy with social calls, while the help kept the household running.
After Charlie, two more daughters would follow, but no more sons.
Charlie thus grew up sandwiched between pairs of sisters – Katharine Wirt
(1907) and Mattie Lindsay (1908), and Elizabeth Randall (1911) and Mary
Bolling (1914) – but he was always closest to Elizabeth (Betty), only eleven
months younger and so almost a twin. All five children were born at home,
1
Kindleberger (1991a, 71).
2
The family history here recounted draws on “A 20th Century Family” (1994), an
unpublished collection of essays about the Kindleberger family put together by
Charlie’s sister Betty Stone. KPMD, Box 40.
11

MONEY AND EMPIRE
which was 11 West 8th Street in New York City, just a block from
Washington Square Park. There they lived in an increasingly crowded
fourth floor apartment shared with two servants, an Austrian cook who
lived in the back room, and a succession of nursemaids who came and went
during the day. Child-rearing practice was informed by Mother’s
Emersonian ideas – “self-reliance, plain living, and high thinking” – plus
a strong dose of the newly fashionable and purportedly scientific Watson
behaviorism, which warned of the danger of excessive mother-
dependence and thumb-sucking.3 Because of Father’s irregular income,
family finances operated almost entirely on store credit, repaid in part
whenever a big fee came in. As Betty remembers: “Being in debt never
seemed to bother her or Daddy in the least.”4
In his autobiography, The Life of an Economist (1991), Charlie opens
the narrative by telling the reader, “Mine is an Eastern seaboard
family.”5 This I take to be characteristic circumlocution. Not to put
too fine a point on it, Charlie was a WASP of the generation chronicled
by Tad Friend in his memoir Cheerful Money: Me, My Family, and the Last
Days of Wasp Splendor (2009). In Charlie’s case, the ancestral WASP
splendor was naval, specifically three admirals, two of them doctors.
His grandfather, Admiral David M. Kindleberger (1834–1921), had
married Mattie Lindsay Poor, herself the daughter of Admiral Charles
Henry Poor (1808–82), and they named their first son Charles Poor
Kindleberger (1870–1957) in honor of her father. That first CPK
dutifully made his career in the Navy and rose to admiral rank, but
without producing progeny.6 It was left therefore to the second son,
Charlie’s father, to continue the name with his own first son, Charlie
himself. In due course, Charlie would continue the name with his own
first son, Charles Poor Kindleberger III. Thus did ancestral splendor
live on in memory, even as successive generations turned to other
things.
3
20th Century Family, 36–37.
4
20th Century Family, 6.
5
6
Biographies of these admirals, useful for our purposes mainly for the names and dates
of their progeny, can be found at MOLLUS, Military Order of the Loyal Legion of the
United States, www.suvcw.org/mollus/mollus.htm.
12

GOLDEN BOY
Charlie continues his narrative: “It was a middle-class family, comfort-

able until the depression of the 1930s deepened, but far from rich.”7
Again, a certain degree of circumlocution. Most important, “comfortable”
meant summers at the sea. Only a year after Charlie’s birth, the
Kindlebergers bought property at the top of Shoreby Hill in Jamestown
on Conanicut Island in Narragansett Bay, Rhode Island, and began con-
struction of “June Cottage” (now 13 Standish Road). Betty remembers:
“away from the dark and constricted life of the city into a place of light and
freedom, blue sea to swim in, wild flowers you could pick, great bunches of
wild strawberries and blackberries and raspberries you could stuff yourself
with, half-starved as you were, in that pre-vitamins age, for vitamin C.” For
his part, Charlie remembered tennis and golf, crabbing in the tidal marsh,
and rocks and surf on overnight camping trips to Beavertail, the southern-
most tip of the island and so most exposed to the open ocean.8
Father had himself spent summers in Jamestown as a boy, in the big
house “Beachhaven” that Grandfather had built in 1886 right on the shore
at 141 Conanicus Avenue.9 The naval base on the mainland in Newport
had made it a natural choice for the Admiral, and in his retirement
Grandfather had shifted with his third wife to a smaller house up the hill
at 45 Calvert Place, where he devoted himself to painting. But the record
makes clear that the driving force for the Kindlebergers’ purchase was not
Father or Grandfather, but rather Mother and Grandmother. The very day
of the purchase, the Kindlebergers subdivided the land and sold the part
with an existing house (now 3 Standish Road) to Fannie McIlvaine,
Elizabeth’s mother, who would spend summers there for the next two
decades, along with the growing families of her other daughters.10
Grandma Fannie’s husband, Henry Clay McIlvaine, a naval engineer
who then became owner of a wholesale drug company, had died young of
diabetes and Fannie never remarried, preferring instead to remain in
7
8
20th Century Family, 9, 15–18.
9
Rhode Island Historical Preservation and Heritage Commission. 1995. Historic and
Architectural Resources of Jamestown, Rhode Island. Available at https://preservation.ri.gov
/sites/g/files/xkgbur406/files/pdfs_zips_downloads/survey_pdfs/jamestown.pdf.
10
In 1912, the Kindlebergers bought an additional 15 feet of abutting land, and in 1915
transferred an additional 15 feet to Grandma Fannie.
13

MONEY AND EMPIRE
mourning clothes, attended in summer by her four beautiful daughters

and in winter by her sole surviving son, Henry Clay Jr., the youngest.11 At
peak capacity, Grandma Fannie’s house held twenty-two beds, including
space on the third floor for nursemaids and cribs. Suffice it to say that
Charlie grew up with his mother’s family, and lots of cousins, absorbing
Grandma Fannie’s tales of her Grand Tour of Europe in 1869, as well as the
tragic loss not only of her husband but also of her brother in childhood,
and of her first-born son Randall at only 18 – lots to mourn. The hopes of
both sides of the family thus rested on Charlie’s shoulders, but his
mother’s side was the more influential. Charlie might have been talking
about himself (notoriously a difficult thing for WASPs) when he wrote, “A
man with a strong mother and weak father tends to have a stronger need
for achievement than one with parents in the converse situation.”12
Today Jamestown is linked to the mainland by a bridge, but that is
a modern perversion.13 Until 1922 when they acquired a car (a Dodge,
not a Ford or Chevrolet), the Kindlebergers got to Jamestown by boat,
starting with an overnight ferry that traveled from New York City up the
East River and Long Island Sound to Fall River, then a train to Newport,
and another short ferry to Jamestown. Once there, Mother and children
stayed for the entire summer, May to September, joined by Father on
occasional weekends and for an extended two-week vacation when
Charlie would earn pocket money by “caddying for Daddy” at the local
golf course. Social life revolved around the nearby casino, a kind of beach
club with daily swimming and dances on Monday, Wednesday, and
Saturday nights. After Prohibition in 1920, there was no more alcohol,
but there were still lots of boisterous tea parties. Moral instruction was
Sunday School at St. Matthew’s Episcopal Church, where Charlie and his
siblings were confirmed.
It was during those long summers that Charlie became a sailor, racing
without distinction with family friend Bill Hodges at the Yacht Club in the
11
Biographical details again usefully available at MOLLUS, www.suvcw.org/mollus/m
ollus.htm.
12
13
The books of Rosemary Enright and Sue Maden (2010, 2014, 2016) provide a vivid
picture of Jamestown life in the early days, sources usefully supplemented by material
on the website of the Jamestown Historical Society.
14

GOLDEN BOY
Kindlebergers’ boat Spider (a gift from Morton Otis, the elevator tycoon),
and cruising in Wham with Bill Wetherill (who would eventually marry
Charlie’s oldest sister, Katharine). Essentially unsupervised, the boys
sailed all around Narragansett Bay to “Fall River, Bristol, Hope Island,
Prudence, West Greenwich, Warwick and Point Judith,” and once even to
Block Island. It was also during those long summers that Charlie became
a reader, raiding the cottage bookshelves for “E. Phillips Oppenheim,
Gertrude Atherton, A. S. M Hutchison (If Winter Comes), Henry Sydnor
Harrison (V. V.’s Eyes and Queed), Beau Geste, The Prisoner of Zenda, Rupert of
Hentzau.”14 Left to their own devices by adults on extended vacation,
Charlie, along with his siblings and cousins, learned to make their own
fun.
The taste for the sea formed at Jamestown stayed with Charlie for the
rest of his life, even as he eventually settled into academic life as an
economist. In retirement, he wrote a small book, Mariners and Markets
(1992), that in effect joined his two lifetime interests – the sea and
economics – including on the back cover a picture of himself in 1930 as
deckboy on the SS Bird City, about which episode there is more later.15
For present purposes, the important point to emphasize is how the
“halcyon days” of Jamestown remained always a place of security and
comfort, an unshakably solid emotional foundation to which Charlie
could repair in times of need simply by taking the helm of a small boat.
That’s what lies underneath the surface when Charlie writes, “I prefer for
vacations above all else, to go sailing in Maine.”16
Having acquired a summer house, the Kindlebergers’ next logical
move was for more space during the winter, but that move was delayed
first by the birth of Mary and then by World War I. Thus, it was not until
September 1919 when, flush with “superpatriot” wartime savings in the
form of Liberty bonds and just in time to avoid capital loss from the
interest rate rise later that year, the family was finally able to move to 81
Maple Avenue (now 134–28) in Flushing, Queens, a Long Island suburb,
14
20th Century Family, 17. I have corrected minor misspellings and misrememberings.
15
Charlie dedicated the book to “W. H. S.,” which refers to William H. Sands, his best
friend in his college fraternity and a lifelong sailing enthusiast.
16
15

MONEY AND EMPIRE
on a block inhabited by “nice people” whose children became Charlie’s

playmates and schoolmates at PS 20. Charlie remembers:
I sang in the choir at St. George’s for 5 years. There is a picture of me in my

working regalia, at some point in this career. I worked up from 15 cents
per service to 45 cents, and 75 cents for funerals and weddings. In my last
years I sang solos.
During these years I belonged to scouts, built the usual number of
cabins, huts, tree houses, etc., proved very inept at the telegraphy schemes
of my friends; got my last spanking when I chose to absent myself from
dancing class on Washington’s Birthday – it was a holiday, wasn’t it – which
happened to be the day that my father chose to see what he was getting for
his money.17
A central institution of family life in Flushing was Sunday lunch, the

only meal of the week when the children joined the adults. It was a dress-
up affair, the four girls in identical dresses each in their own designated
color – blue, pink, yellow, lavender – and Charlie in knickers. Regular
male guests, Dr. Charles Camac and Colonel Crosby, livened on occasion
by a visiting Episcopalian dignitary, made adult conversation while the
cook passed the roast leg of lamb, candied sweet potatoes, and spinach
with slices of hard-boiled egg – a culinary treat for children more accus-
tomed to the bland and frugal weekday children’s fare.18 As Father was an
avid reader of multiple daily newspapers, the content of these adult
conversations can readily be imagined in those years right after World
War I: the Paris Peace Conference of 1919, the controversy over
Woodrow Wilson’s proposed League of Nations, the Washington Naval
17
This passage is taken from “Security Report – An Interim Biography,” which
Kindleberger wrote in 1956 in an attempt to get cleared for government service.
This unpublished document, though referenced in the published autobiography
(1991a, 127) and clearly a source close at hand in the writing of that book, provides
considerably greater personal detail as well as subtly different accounts of several key
life episodes. Writing for an imagined inquisitor seems to have loosened Charlie’s
tongue, which was noticeably more circumspect for an imagined public audience:
“Because of its limited purpose, the document will be long on opinions and on
relations with ‘controversial persons,’ brief on other aspects of my life” (1). KPTL,
Box 8.
18
20th Century Family, 27.
16

GOLDEN BOY
Conference of 1921–2 that settled the global balance of naval forces, and
maybe even the Genoa Economic and Financial Conference of 1922 that
agreed the postwar gold-exchange standard. All seeds planted in the
developing young Charlie, just beginning to be aware of the larger
world outside.
But these seeds would have to grow to fruition elsewhere, as “it was
decided after one and a half years at the Flushing High School that I be
sent away.”19 Roger Williams Jr., the son of Mother’s younger sister
Frances, attended the Kent School, and so it was decided Charlie should
too. He passed the entrance exam, but began at Kent in the third form,
receiving no credit for the years he had skipped in public school. At age
13, Charlie left home for boarding school and did not return for any
extended period until after college.
Today the town of Kent, Connecticut, lies at the end of the Harlem
line of the Metro-North Railroad and is commutable to New York City
in about two hours. Back then, in the age of the steam locomotive, it
took twice that long and there were only two trains a day. Kent School
was thus an isolated community, not unlike a ship on a transatlantic
crossing, self-contained and untouched by either the comforts or the
stresses of life on land. Founded in 1906, the School was in 1924 still
very much a work in progress: a collection of drafty repurposed
wooden farmhouse structures and not at all the well-endowed brick
campus of modern day.
From its founding, Headmaster Frederick H. Sill, a celibate monk in
the Episcopalian Order of the Holy Cross, made virtue of what we might
today consider deficiencies, promoting “Simplicity of Life, Self-Reliance
and Directness of Purpose” as the guiding trinity of the school: “The
standard of life I had in mind was that to be found in the average country
rectory.”20 Self-reliance meant that students, not teachers or employees,
took charge of supervising study halls and dormitories, serving food,
filling the coal bin and even serving on work gangs for the neighboring
farms that supplied the school. “Directness of Purpose” references
19
20
Frederick H. Sill. “Address on the Subject of Simplicity of Life, Self-Reliance and
Directness of Purpose,” Feb. 27, 1926. Kent School Archives.
17

MONEY AND EMPIRE
preparation for college: students were to come out of Kent with a clear
sense of direction toward a future vocation.
Sill himself made sure that the daily life of the school reflected its
founding values, enforcing strict discipline, including compulsory daily
chapel. Remembers Maitland Edey, a classmate of Charlie’s and also
a neighbor from Queens: “Father Sill had a mesmerizing personality and
appearance, unique in the secondary-school world. Short, stout and with
a big head, he nevertheless cut a commanding figure in his long white robe
with its knotted cord girdling his stomach and a large black cross dangling
from his neck.”21 Charlie recalls: “Sill would rant and rave when something
went wrong, and send a form, or the whole school, out to do penance,
sometimes running around the big pond several times, occasionally work-
ing on a job such as cleaning up a construction site.”22
Having himself rowed crew (actually coxswain) at Columbia and perhaps
having in mind the pitiful state of the school library, Sill put great emphasis
on sports and less on intellectual achievement. His crowning glory was the
crew team in the class ahead of Charlie, which competed in the Henley
Royal Regatta in 1927. Charlie’s own class, however, was “more intellectual
than sporting,” as was Charlie himself: “I played second-team football, class
hockey – unable to make either the first or second team – and became
manager of the tennis team,” but became “number two on the Kent School
News and number one on the chess team,” as well as the winner of two essay
contests and the Latin Prize. “Some of my classmates hated school.
I happened to love it, whether from lack of imagination or merely a good
digestive tract that predisposes one to like whatever happens along.”23
What did he like about it? Simplicity of life and self-reliance, certainly –
these could have been the motto for Jamestown summers as well – but also
directness of purpose. It is perhaps telling that, after graduation, Charlie
chose to spend the summer of 1928 at Kent rather than Jamestown, under-
taking “a job surveying Kent School, learning to use the tape, stadia rod,
transit, and triangulation.”24 But his autobiographical chapter on Kent
21
Edey (1983).
22
23
Kindleberger (1991a, 6–7).
24
18

GOLDEN BOY
reveals an additional dimension: the appeal of being part of a team of

men organized around a common purpose; if one is not good enough
to play, one can always manage. Kent was above all about building
character. Charlie thought enough of the experience that he would
send both of his own sons, though only the oldest would stick it out to
graduation.
Some flavor of life at Kent can be gleaned from Charlie’s letter to his
father, dated January 10, 1926, a Sunday:
To-day I learned what the life of an assistant manager is really like. As it

had snowed after chapel the IV form needed my services in helping clean
off a place on the pond for the form team and I worked on that from 11–
12:30. Then on the way to my room I was accosted by Snyder the hockey
manager who asked me to eat early and wait on the New Haven Boy’s
Club whom we played against. By eating early I got lots of food but waiting
is a tedious job especially if you have just waited the meal before. Then
I set 7 tables for supper and hasted down to the rink to work some more
after the game which we won 7–0, Ding Palmer scoring 6 goals and being
partly responsible for the other. We swept the rink and proceeded to
flood it. Then we flooded a small adjoining rink which we had built
betimes and piled snow up to prop the side board. Then there was still
a piece of bad ice on the big rink we had to fix and to do this we mixed
snow and water and sort of cemented it. Meanwhile it was after supper
and cold and wet. Then we wandered up to the school and went to the
kitchen and cooked 3 eggs apiece with fryed onions and potatoes and had
the best meal Kent has ever furnished me with . . . Please send a check for
about $30 to my account soon as I only have $4 left and I haven’t gotten
the crew pants yet. Give my love to mother and the family please. Yours
filially, Chas.25
“My account” in this passage refers to the school’s internal

payment system. Students paid for incidentals, including chapel
offering, by writing checks, and there was no cash allowed on
campus. Students ran the bank, as they ran everything else, clearing
25
KPMD, Box 20.
19

MONEY AND EMPIRE
checks and reconciling balances. Edey tells the story of one remark-
able transaction:
One Easter morning [Ernie] Jacoby went from chapel to the athletic store
where he worked. A few minutes later the Sacristan, DeWolf Perry of the
Class of 1927, came in to count up the receipts. Among the checks was one:
“Pay to Jesus Christ for Easter Offering (signed) Herbert Barnum Seeley.”
“What do I do about this?” asked Perry in some agitation. “Just endorse it
Jesus Christ,” replied Ernie calmly, “and then sign your own name
underneath.”26
At that time, Charlie’s interest in banking had yet to emerge. Instead,

the prize essays that he wrote testify to Charlie’s interest in mastering the
essay form, a skill that would stand him in good stead later in life. (“Essays
by Charlie Kindleberger! They are a treat for all who read them,” writes
Peter Temin in the foreword to Charlie’s last book.27) The subject matter
of the school essays is also relevant, testifying to Charlie’s developing
intellectual interests, “stimulated first by Cuthbert Wright, unhappy at
school but incapable through various weaknesses of finishing his
advanced degree in history; Gordon Haight who stayed only a short
time and then left to end up in the English department at Yale; and
Everett Gleason, also in English, who was too high powered for such
a school and left.”28 Essays on Cardinal Wolsey and Oliver Cromwell
evince a schoolboy’s fascination with men of action and power. Essays
on world disarmament and the future of relations between the United
States and Britain identify the field of action open to such men today. In
the latter essay, young Charlie enthuses about the results of the 1921
Washington Naval Conference, but presses for more: “Toward a warless
world, of disarmament, free trade, a strong League of Nations, and
a strong World Court.”29 So much for Directness of Purpose, but we
may well imagine that Father was not fully pleased with what he was
getting for his money.
26
Edey (1983, 7).
27
Kindleberger (1999, ix).
28
Interim Biography, 8.
29
Kent School Archives, “Kindleberger Term Papers.”
20

GOLDEN BOY
Charlie recalls: “When I was born it was decided I would be named

after my uncle, that I would go to Penn, and that I would be a lawyer.”30
Charlie’s classmates went to Harvard, Yale, and Princeton, and likely he
could have as well. But Father insisted, and so Charlie went to the
University of Pennsylvania, where Father and also Uncle Charlie had
gone as undergraduates, and also for graduate study in law and medicine,
respectively. One good thing about Penn: it had a 150-pound crew for
lightweights like Charlie, which Kent had not. He seized the chance, work-
ing himself up to alternate for second seat in the eight-man boat; Father Sill
would have approved. On the other hand, encouraged by Father
Kindleberger, Charlie joined the fraternity Delta Psi (St. Anthony’s Hall)
and began to travel in Philadelphia society circles, turning his back for
a while on simplicity and acquiring a taste instead for the good life: “For
a while I got in this social circuit, and stayed down in Philadelphia, rather
than go home at Thanksgiving, to attend debutante parties. For a while,
I was sleeping all day and dancing all night, and it took some time to get
straightened out again.”31
Having thus outwardly satisfied both of his fathers, Charlie apparently
felt free to pursue his own developing intellectual interests independ-
ently. In his freshman year, he joined the Philomathean Society, a literary
society and the oldest student group at the university, and also the school
newspaper, The Daily Pennsylvanian. Most important, however, was
a friendship he struck up with Andrew J. Biemiller, a graduate student
and “convinced Socialist” who happened to live across the hall.
Biemiller represented intellectual sophistication to a boy from the

backwoods of Kent. I do not want to suggest that he converted me to
Socialism. Primarily, he built on the foundations laid at Kent . . . to make
me intensely interested in intellectuality. The seed was already there . . .
but I then became intensely involved in the world about me. One aspect of
this was that when every Sunday evening I went to take supper with my
grandmother [Fannie], we used to argue violently about Woodrow Wilson,
she against, I for. She belonged to that group of unreconstructed
30
31
21

MONEY AND EMPIRE
Republicans who thought Wilson represented the devil. I differed. She was
in her 80s. I was 18.32
Having excelled at Greek and Latin at Kent, Charlie entered Penn as

a classics major but, after the brush with Biemiller, switched to economics
and never looked back: “My real interest in economics was of a kind that
matures only after about twenty years of age . . . Children grow up in
homogeneous environments, and are unaware of the complexity of the
typical social situation until they have been exposed to a series of them in
the city, the university, or both.”33
Though Charlie turned away from classics in favor of economics, his
classical training left a permanent mark. Not only did it leave him with
a lifelong facility for languages, it also gifted him with a distinctive appreci-
ation for the human condition. In later life, when he spoke of the “human
condition” as “a world full of ambiguity, paradox, uncertainty and
problems,”34 we hear him approaching economics as a classicist. The
rational maximizing agent of whom economists are so fond is nowhere to
be found in Kindleberger’s own economics. Instead, there are real people:
Man in his elemental state is a peasant with a possessive love of his own turf;
a mercantilist who favors exports over imports; a Populist who distrusts
banks, especially foreign banks; a monopolist, who abhors competition;
a xenophobe, who feels threatened by strangers and foreigners, and above
all, a child who wants to have his cake and eat it too.35
Such is the poor stuff of which we are made, but which our better nature
may aspire to overcome.
“International economics began in 1929,”36 Charlie tells us, and imme-
diately we think of the stock market crash in October 1929 that ushered in
a widening global collapse that did not find its bottom until 1933. Certainly
that is part of Charlie’s story, if only because of the consequences for his
family’s income. After 1929, the upper-middle or lower-upper class life into
32
33
34
35
Kindleberger (1984b, 39).
36
22

GOLDEN BOY
which Charlie had been born was effectively over, though money was
found to keep him in college to completion, and his sister Betty at Bryn
Mawr as well. But of course in 1929 no one knew that future. The actual
contemporary importance of 1929 for Charlie was not the Depression but
rather his summer job as cadet on the SS California, a passenger ship
traveling between New York and San Francisco with stops in Cuba,
Panama, and Los Angeles. His uncle, Roger Williams, arranged the matter.
For Charlie, it was about seeing the world and engaging the range of
people who choose the seafaring life.
He liked it so much that he did it again the next year, signing on in
summer 1930 with a job as ordinary seaman on the oil tanker MV
Australia and then, again thanks to Uncle Roger, as deck boy on the SS
Bird City, which traveled to Copenhagen, Gdynia, Helsinki, and
Leningrad. His unpublished account of the latter journey, “A Seaman
Visits Leningrad,” dwells equally on his impressions of Leningrad, then in
the throes of its first five-year plan under Joseph Stalin, and his impres-
sions of his shipmates, two of them Russians. For our purposes, special
interest attaches to Charlie’s account of a four-hour argument with an
agitator sent from the Soviet of Seamen while their boat was docked in
Leningrad:
[The agitator’s argument that] there is no unemployment in Russia, while

there is a lot in the United States, ergo Russia had a better government than
the United States, was easily disproved. A country under construction
obviously has more work to be done, than one already built up. However,
when Russia finally is industrialized, she too will be subject to business
depressions. – She will not. The people will work less hours. – But for the
same amount of money? – That is Socialism (Marxian). – Explain it then. He
was unable to. That was my biggest score, and another point on which he was
unable to be evasive, was what was the difference between the present
depression and all the others from which we had recovered. He replied
that this was an international crisis and the others had been local. Well then
the nations of the world will recover together, with one or two exceptions,
and the depression will be over, I offered. No. Why not? It won’t.37
37
Part III, 3–4. KPMD, Box 14.
23

MONEY AND EMPIRE
Here we see Charlie, after only a year of economics, testing what he

had learned against the world events unrolling in front of his eyes. For
him, international economics was about seafaring adventure, but it was
also about expanding the horizon of his own sight to encompass the
larger world, even as most everyone else – whether in business, banking,
or politics – adopted more limited “decision horizons.”38
Returning to school after the Leningrad adventure, Charlie signed up
for classes in money and banking. Then, in spring 1931, he took part in
a model League of Nations held at Princeton and competed successfully
for a place in the two-month summer school operated by the Students
International Union in Geneva, Switzerland, along with about twenty
other Americans. It was during the crossing to Europe, this time as
passenger rather than crew, that Charlie fatefully made the acquaintance
of one Francis T. Miles, who was traveling to Munich for a summer school
in nuclear chemistry. On the return journey, Francis was met on the dock
by his sister Sarah, and that’s how Charlie met the woman who would
eventually become his wife.
In a second stroke of fate, Francis’ roommate at Princeton was Robert
T. Miller, who had been a class ahead of Charlie at Kent and editor of the
Kent School News. Continuing connection with Francis thus led to continu-
ing connection with Miller, who was subsequently denounced as
a Communist by Elizabeth Bentley in her testimony to the House Un-
American Activities Committee. Charlie’s connection to Miller would be
one of three counts against him that caused him to lose his security
clearance in 1951: guilt by association. In his autobiography, Charlie
makes a point of proudly stating his continuing association with Miller.
Notwithstanding one relative who turned his back on Miller, “none of the
rest of us did, including my brother-in-law Francis T. Miles . . . My wife and
I see him from time to time and find him and his wife delightful friends.”39
Of course, in summer 1931, both marriage and security trouble lay far
ahead in the unknowable future. More immediately important, the
38
On business, this would be the whole point of his extensive work on multinational
corporations (see Chapter 5). On speculators and politicians, see Kindleberger (1966,
119 and 146).
39
24

GOLDEN BOY
summer school lost its planned director at the last minute, and so the
undergraduates were enrolled instead in a more advanced summer
school operated by the Graduate School of International Studies,
a training arm of the League of Nations, along with 200 more advanced
students. The SIU students remained a separate unit for meals and
housing, but during the day they were essentially treated like graduate
students, with lectures in the morning, afternoon, and evening, for seven
long weeks. This was Charlie’s first exposure to first-rate economists,
teachers and students alike, and he realized for the first time the second-
rate education he had been receiving at Penn. One fellow undergradu-
ate, F. Tyler Ostrander, “who was writing an honors thesis in economics at
Williams . . . knew about such things as the Keynes-Ohlin controversy
[concerning war reparations], of which I had never heard.”40
Summer 1931 also turned out to be a momentous time in international
money matters: the failure of Credit Anstalt in May, Hoover’s moratorium
on war debt payments in June, the British Macmillan report (penned
largely by Keynes), and the German banking crisis in July, all leading up
to Britain’s abandonment of the gold standard in September. All of these
were matters that Charlie would treat in detail forty years later in The World
in Depression (1973), but of which he remained “sublimely unconscious”
contemporaneously. In summer 1931 his attention was elsewhere: “The
social life – swimming, climbing, partying in the cafes – was delightful.” For
him, the experience “did perhaps what good teachers can best do, which is
to stimulate appetite and create enthusiasm. Students teach themselves
(and each other). The role of experience and teachers is to encourage and
to motivate. The summer of 1931 did that for me.”41
The summer of 1931 was also the origin of Charlie’s misbegotten
infatuation with one Caroline Thompson, a student from Bryn Mawr
whom he had met at the model League of Nations and who had intro-
duced him to Francis Miles during the crossing. One thing led to another
and “in the fall of 1931 I thought I was in love, despite receiving no
encouragement, and decided to graduate from the University of
40
Interim Biography, p. 18. Charlie’s notebook from the summer survives in his papers,
but Ostrander (2009) provides a fuller account.
41
25

MONEY AND EMPIRE
Pennsylvania at the earliest opportunity – February 1932 – to get a job,

and prepare myself to support a family.”42 In the event, Miss Thompson
had other ideas, and so did the world of work.
At that time, Charlie’s dream job was in foreign exchange at some
New York bank, ideally the Federal Reserve Bank of New York. Father’s
connections got him an interview with George Harrison, president of the
Bank, but not the job: “The Fed had no use for the likes of me, with
a simple bachelor’s degree and no experience. And besides, there was
a depression.”43 In fact, though Charlie did not know it at the time, his
future friend and colleague Emile Despres had successfully managed to
move directly from a bachelor’s degree at Harvard into a position at the
New York Fed as a foreign exchange analyst. But Penn was not Harvard,
and perhaps it could be said that Charlie was not Emile, a “brilliant,
perfectionist, [with] a recorded IQ of 192.”44
Rejected by the Fed, Charlie settled instead for lowly office work at the
conservative National Economy League until July, when Uncle Roger came
through with a job at Johnson and Higgins, a marine insurance brokerage.
Maybe this was the answer – a career combining the seafaring life with
economics? Charlie started at the bottom as a messenger boy and began to
learn the business: “I enrolled in a course on marine insurance in some
insurance institute with classes in Wall Street and read a book by a distant
cousin of mine, Wharton Poor, an admiralty lawyer, with the enticing title
Charter Parties and Bills of Lading. I did well in the course, too.”45
Summer 1932 thus found Charlie living at home, depressed by the
failure of his grand life plans, and picking fights with his parents over
politics as the Depression deepened. Come November he would cast his
first presidential ballot for Norman Thomas, seeing no essential differ-
ence between Hoover and Roosevelt, “balancing the budget, only better.
I was not a Socialist in any doctrinaire sense, although the influence of
Biemiller et al may still have been there. I did not agree with my father at
whose house I lived. His defence of the Republican principle moved me
42
Kindleberger (1991a, 27). He kept track of her sufficiently to note her marriage to
John Farr Simmons, US Ambassador, in Interim Biography, p. 19.
43
Interim Biography, p. 27.
44
45
26

GOLDEN BOY
not; his detailing law cases in progress or prospect at the dinner table
found me unamused.”46
Betty followed her big brother in supporting Norman Thomas and
more besides as she recollects:
New York City during the thirties was thick with communists as well as
socialists. A friend and I attended a meeting of New York City Trotsky
communists in the apartment of the attractive young woman who was the
group’s leader . . . there were a few communists at Bank Street College and
some at the New School for Social Research where Henry and I took a course
by the psychiatrist Fritz Wittels . . . A couple of communists worked with Henry
and me in the welfare department . . . I felt about communists what I now feel
about radical right Christians; these are hostile people who want permission to
feel good about themselves while doing violent and hurtful things.47
Suffice it to say that in summer 1932, the world was in turmoil, and so
was Charlie. For the first time in his life, he faced squarely the prospect of
making his own way in the world. In a contemporary fragment titled
“Stock-taking,” he reflects:
How am I fitted for existence, for happiness, for social relations, for this
economic system, for any other, for the marine insurance world, for
marriage, for parenthood? Where have the mistakes been made in my
upbringing and by whom? Am I any different from anybody else, from the
great mass, from my class, the upper middle class mentally, morally,
spiritually? What difference does it make to anyone beside myself? In
what measure do I embody the virtues I have been trained to admire –
intellectual honesty, integrity, personal, social and commercial, and
paradoxically enough courage and moderation?
The choice confronting him, as he saw it, was between three possible
directions: foreign banking, law, or economics. Having tried with no
success to get into foreign banking, the very real danger was that he
would wind up in law, the direction his father favored but mere “fence
walking” as Charlie then saw: “I admired my father, but was turned off law
46
47
20th Century Family, p. 147.
27

MONEY AND EMPIRE
on the ground that most of it was fighting over spilled milk, so to speak,
rather than dealing with current problems.”48 Economics offered escape
from that fate, but also more positively a kind of engagement with the
world that he thought might actually suit him: “summation of personal
characteristics, economic views world and personal, political.”49 But how
to do it? Here, not for the last time, fortune took a hand.
As it happened, the Columbia College chapter of his fraternity, looking
to rebuild its Alpha chapter, “proposed that I be given money to undertake
graduate work, provided I would live in the Chapter House, 434 Riverside
Drive, and work with the undergraduate chapter. The suggestion was made
to me that I might like to study law. I said I would be delighted to accept, but
that I wanted to study economics.”50 In February 1933, all the while con-
tinuing to live at home and to work at Johnson and Higgins, Charlie dipped
his toe into the water by taking an evening class in banking with Ralph
W. Robey, Financial Editor for the New York Evening Post, which turned out
to be a ringside seat from which to watch the collapse of the US banking
system that spring. Charlie’s choice of topic for his term paper, “The
Discount Rate in Federal Reserve Policy, 1927–1933,” reveals his continuing
interest not just in banking, but more specifically in central banking.51
Of course, the ringside seat that Charlie really wanted was at the Fed,
where his future colleague Emile Despres spent “perhaps a week, sleeping
in the infirmary, as the bank staff tried to solve the problem of reopening
the banks, which had been closed in Roosevelt’s bank holiday of March 3,
and at the same time to avoid the reporters that were circling the building
like piranhas.”52 That’s the life Charlie had sought, and he still wanted it,
even if it meant more school and delayed entry into adult life. Years later,
when he was a professor himself, Charlie would sympathize with the plight
of his graduate students: “A graduate student is by definition unhappy; he
has the appetites of a man and the income of a child.”53 Starting Fall 1933,
48
49
KPMD, Box 40, “Stock-taking” (July 30, 1932).
50
51
KPMD, Box 4.
52
53
Charles Staley, in “Reminiscences of Charles P. Kindleberger on his Eightieth
Birthday.” KPMD, Box 24. See also Kindleberger (1988a, 144).
28

GOLDEN BOY
that would be his own plight, as he resigned from Johnson and Higgins and
hunkered down to full-time graduate study.
But first, a visit to Jamestown for a sailing trip with friends out on the
Sound, in a Friendship sloop named the Sea Fox. Capsized when the
mainsheet jammed during a sudden squall, Charlie was injured and rescued
from “almost certain death,” according to the local newspaper.54 Returning
to New York, he moved out of his parents’ house and into St. Anthony Hall,
keeping a personal diary for the first and last time in his life. Herbert Keith
Fitzroy (“Fitz”), a friend from Penn days now working on a doctorate in legal
history at Columbia, and Eileen O’Daniel, an acquaintance made at the
Geneva Summer School now living at home in nearby Englewood, were his
best male and female friends in that first year, providing ample social
diversion. But Charlie was clearly serious about becoming an economist,
recording not only what he was reading for class (Hawtrey, Keynes, Ohlin,
and Hayek), but also his thoughts about his eventual dissertation topic.
November 2, 1933:
I have become interested in the possibilities of selecting ‘capital flights’ for

a doctorate dissertation, attempting to measure them, fit them in
adequately to the gold standard, gold exchange standard and managed
currencies, and the evolution of a sound doctrine for their control,
whether through the discount rate or foreign exchange . . . by governments.
December 8, 1933:
I still feel strongly that international economic theory, in regard to the

balance of payments mechanism . . . comparative cost and gold standard
theory, does not fit the facts and wonder concerning the possibility of
deducing a new – and probably more complicated theory – from la situation
actuelle. Given time, this is the field in which I hope to contribute to the so-
called science.55
54
Interim Biography, p. 16. The accident happened Sept. 10, 1933, in Fishers Island
Sound off Stonington Point. First entry in the Personal Journal is Sept. 16, 1933.
KPMD, Box 40.
55
KPMD, Box 40, “Personal Journal.”
29

CHAPTER 2
Columbia
I have a strong impression that economics is a countercyclical indus-

try that attracts adherents when times are troubled. Some are drawn
to the subject by the opportunity to do good, to save the world so to
speak by curing depression. The stronger drive in my view is curios-
ity. How does the economy work, and what has gone wrong?1
In his autobiography, Charlie dispenses with his graduate study at Columbia

in a single chapter. The first paragraph sets the tone: “Economics education
at Columbia in the 1930s was not terribly exciting. In the first place there
were too many students . . . Secondly, the faculty spent a great deal of time
off campus . . . Thirdly, banking was taught in the business school, not the
economics department which made for reduced interaction.” Of Wesley
Clair Mitchell, the most famous and widely published economist at
Columbia, whose institutionalist brand of empiricism gave distinctive flavor
to the entire program, Charlie writes: “Mitchell taught the history of eco-
nomic thought in a manner that the students liked – connecting theory with
economic history – but his lectures were later regarded as pedestrian when
he gave them in England.” Similarly, of H. Parker Willis, his professor of
banking in the business school: “memorable less for his ideas . . . than for his
polished lectures.” Similarly, of his eventual thesis supervisor in the eco-
nomics department: “Our course in money had been taught by James
W. Angell, whose work in the field has not survived.”2 Nothing to see
1
2
Kindleberger (1991a, 31, 32, 34). I read these passages as a retrospective view distorted
by the lens of thirty years at MIT, where there were fewer students, faculty spent time in
their offices, and banking was taught in the economics department.
30

COLUMBIA
here, Charlie seems to be saying, impatient in retrospect to move on to life

after graduate school, as no doubt he was contemporaneously.
But, in fact, there is quite a bit to see here, specifically the intellectual
formation of the mature economist, and in multiple dimensions. Most
fundamental, Charlie’s first-year diary charts his evolution from socialite
party boy, for whom the crowning event of the year was the repeal of
Prohibition on December 5th, to the budding economist who would
write only a month later: “To the Hall and reading, cold and alone, the
lectures of Wesley C. Mitchell on the development of English economic
theory. They are delightful bespeaking his wide background in learning,
his knowledge of all phases of the period, and clear, sometimes brilliant
exposition of the relation of economists and economics to the changing
historical landscape. They are charming.”3 Pedestrian in England and in
retrospect perhaps, but clearly a significant influence on Charlie at the
time, and also a lasting influence, as we will see. His retrospective dismis-
sal of Willis and Angell needs similarly to be understood against contrary
contemporaneous evidence. Writing on September 26, 1933, Charlie
tells his diary what courses he is taking: “H. Parker Willis’ seminar,
a theory course with W. C. Mitchell, a course in central reserve banking
with Beckhart, and international trade, and currency and credit with
Angell. The Willis seminar will deal with ‘inflation’ and should prove
the best.”
The Willis seminar was part of a large-scale research project, funded
originally by the Social Science Research Council, continuing now in
its second year with support from the Columbia University Council for
Research in the Social Sciences. The first year of the project had produced
a comprehensive survey of The Banking Situation: American Post-war Problems
and Developments, with one-third of the 924 pages written by Willis himself
and the rest by seminar participants.4 The second year was to focus more
narrowly on the problem of “inflation,” defined by Willis as the expansion
of bank balance sheets by the purchase of long-dated and hence illiquid
3
KPMD, Box 40, Personal Journal, Jan. 14, 1934. Probably the lectures he references are
the mimeographed student notes later published as Types of Economic Theory (Mitchell
1967). Rutherford (2011) is the best source on the institutionalist movement more
generally.
4
Willis and Chapman (1934).
31

MONEY AND EMPIRE
assets, especially noncommercial government debt. It also would produce

a book, The Economics of Inflation: The Basis of Contemporary Monetary Policy,
including a few pages on “The Theory of Inflation and Foreign Trade” by
one Chas. P. Kindleberger, essentially a verbal summary of his largely
empirical Master’s thesis which stemmed from work he did in the seminar
that first year.5 In later years, Charlie would be at pains to distance himself
from Willis as an advocate of the erroneous real bills doctrine, and he
would view the banking problem of 1933 as a problem of deflation not of
inflation.6 But in his first year at Columbia, Charlie described himself as an
“intelligent deflationist,” more concerned with disequilibrium in the struc-
ture of prices than with price levels and willing to scale down debts directly,
which was more or less the position of Willis.7
Indeed, it is not going too far to say that Charlie was, for several years,
a kind of protégé of Willis. In his first year, he became friends with and
tutored Willis’ son Parker B. Willis in monetary economics and was
invited to the Willis home on Staten Island for dinner, over which
Father Willis memorably presided as an old-fashioned father figure,
“dominating the dinner-table conversation. He was by no means tyran-
nical or malevolent, merely what I understood to be Victorian.”8 In
his second year, Charlie served as teaching assistant in Willis’ class, and
Willis arranged for him to make extra money by teaching at the American
Institute of Banking. And in his third year, Charlie financed his studies
with a fellowship from the Business School – which is to say from Willis.
During that year, in partnership with others from the Willis circle,
Charlie produced three chapters – “The United States Treasury and
Banking,” “Balance of Payments,” and “The Government and the
Foreign Exchanges” – for a banking textbook that never got published
because others did not deliver their chapters.9
In the two summers between his three years at Columbia, Charlie
worked at a small New York firm called Economic Statistics: in summer
5
Willis and Chapman (1935).
6
7
KPMD, Box 40, “Personal Journal,” Jan 3, 1934.
8
9
KPMD, Box 4. The others were John Chapman, Anatol Murad, Vladimir Kazekevitch,
and Eric Kjellstrom. Interim Biography, p. 26.
32

COLUMBIA
1934 selling their economic forecasting service, and in summer 1935

coauthoring with his boss, G. O. Trenchard, an article for the practi-
tioner’s weekly Barron’s titled “Bank Credit and Business Demands”
(July 29, 1935) in which he concerned himself with the condition of
banks in the anticipated economic recovery when the Fed would presum-
ably be raising interest rates.10 What caught his attention were the very
large bank holdings of government securities, which would have to be
liquidated to make room for rising business credit:
The government debt does not represent the invested savings of the
country, but rather credit created by the banks. This credit is liquid only
in the limited sense that it is shiftable, or that the asset can be transferred
to another holder (the Federal Reserve Banks), while it cannot be paid off
out of current income on the part of the debtor, the United States
Government.
Here he expresses his concern that prior banking inflation will lead to
monetary inflation as government debt is shifted to the Federal Reserve,
which again was more or less exactly Willis’ concern.
Charlie would ultimately move beyond Willis, as good students always
move beyond their teachers, but there can be no question that he started
from Willis. To understand Charlie, therefore, we also must start from
Willis.
The central event in the life of Henry Parker Willis (1874–1937) was
the establishment of the Federal Reserve System in 1913. A student of
J. Laurence Laughlin at the University Chicago, Willis was coauthor with
Laughlin of the 1898 Report of the Monetary Commission of the Indianapolis
Convention, which launched the movement for monetary reform, and for
the rest of his life his attention never wavered. Not only did he help draft
the Federal Reserve Act, working closely with Senator Glass, but also,
after the Act was adopted, he served as chairman of the Technical
Organization Committee,11 then Secretary of the Federal Reserve
Board (1914–18) and then Director of Research (1918–22). The process
10
His published autobiography claims no recollection of summer 1935. The Interim
Biography, however, does treat this episode: pp. 27–28.
11
Hammes (2001) provides a comprehensive account of the work of this committee.
33

MONEY AND EMPIRE
left him with a firm view of what the Fed was all about, what problems in
the past it was meant to solve, and what vision of the future it was meant to
bring into reality.
Inspired by the British model of central banking, Willis always con-
sidered the central purpose of the Fed to be the creation of a class of
notes and deposit accounts backed by self-liquidating commercial loans
(so-called “real bills”), which notes and deposits would serve as the solid
foundation of the larger monetary and financial system. Says Willis: “The
banker is essentially one who concerns himself with facilitating the move-
ment of goods into actual consumption, the basis of his loans being
found in the consuming power of the community.”12 In this point of
view, loans against goods on their way to sale are naturally self-
liquidating, since the eventual sale of the goods provides the funds
needed to pay back the loans. A core holding of such loans therefore
provides a constant flow of liquid funds to the banker, enabling him
readily to meet any deficit at the daily clearing, so allowing his balance
sheet to expand and contract elastically according to the needs of
business.
Willis knew well that American commercial banks would be making
other kinds of business loans as well, financing “production, storage, or
speculation” in order to meet the long-term capital investment needs of
the dynamic young economy.13 But he was at pains to point out that such
loans involve commitment of funds for a longer term – funds that are
therefore not available to meet a deficit at the daily clearing. Some
fraction of this kind of business may be appropriate for commercial
banks, but definitely not for the new Reserve Banks, whose deposit and
note liabilities were supposed to serve as the reserve for commercial
banks and others. That is why the Act explicitly limited Reserve Banks
to holding real bills; the assets of the Reserve Banks were supposed to be
the core holding of self-liquidating bills for the entire banking system.
The Reserve Banks were also explicitly not supposed to constitute
a central bank, rather just a cooperative system of private banks, more
or less on the model of a mutual clearinghouse: “co-operative
12
Willis and Chapman (1934, 31).
13
34

COLUMBIA
organization of existing banks for the purpose of providing a jointly

guaranteed or secured type of credit representative which could be
used as reserve funds.”14 Foreign trade was similarly not supposed to be
a matter of settlement between central banks, but rather a natural exten-
sion of decentralized reserve banking, and that is why foreign bills that
finance the movement of goods into and out of the United States were
also made eligible assets for the Reserve Banks. The idea was to bring
some of the existing trade finance business home from London, and to
do it in dollars rather than sterling. But there was no intention for the Fed
to serve, as the Bank of England did, as de facto central bank for the
world. Rather, a core holding of self-liquidating bills was supposed to
provide a constant flow of funds to the US banking system, allowing it to
expand or contract elastically according to the needs of trade, inter-
nationally as well as domestically.
All of this was meant to be a revolutionary change from the former
National Banking System, under which bank notes had been backed
instead by government bond debt and holding foreign trade bills had
been illegal. Under that former system, what elasticity there was in
domestic trade operated through the international money market in
London, an inefficient procedure for the United States and
a periodically disruptive influence on the rest of the world. With
a more or less fixed domestic money supply and a pronounced seasonal
fluctuation in money demand on account of the predominance of agricul-
ture, the United States always had either too much money, in which case
the excess supply flowed to New York and the call loan market for stock
market speculation, or too little money, in which case the excess demand
pulled in supply from London. Pronounced seasonality of short-term
interest rates reflected this feast–famine seesaw and also exacerbated
political tensions between Main Street and Wall Street since rates were
always lowest when Main Street had money to invest and highest when
Main Street needed to borrow. The new Fed was supposed to fix all of that
by allowing the money supply to fluctuate in tandem with demand.
It didn’t work out that way. Almost immediately after adoption of the
Act in December 1913, the banking system was called upon to help
14
Willis (1923, 48).
35

MONEY AND EMPIRE
finance the World War, and as a consequence not real bills but rather
Treasury bills became the core asset of the Reserve Banks. “Balance sheet
inflation,” Willis called it. Even as he accepted wartime necessity, Willis
regretted keenly the evolution of the banking system toward a more
frozen and less liquid portfolio – the exact opposite of the future envi-
sioned by the language of the Federal Reserve Act. In war time, govern-
ment became the ultimate consumer, buying whatever it needed on
credit using the banking system, with the Reserve Banks operating as
a backstop by expanding their own balance sheets to provide banks with
the funds needed. War allies, especially France and Britain, also served as
ultimate consumers, buying essential war material from the United States
on credit, to such an extent that the United States became for the first
time a net creditor on the world stage. These foreign debts were largely
public debts, one Treasury borrowing from another, but the important
point is that they were financed ultimately by the US Treasury borrowing
from the US banking system.
In theory, all of this short-term bank credit expansion was supposed to
be periodically reversed by government bond issues, the proceeds of
which would be used to pay off short-term bank credits. In practice,
however, banks lent their retail customers much of the funds needed to
purchase the government bond issues, and anyway the proceeds of the
bond sales were never used to liquidate government bank credits, which
just kept growing. Bank liabilities (which is to say the money supply) grew
along with bank assets, and so too did the prices of the commodities
purchased by all this credit-financed demand. For Willis it was never
a matter of money supply growth causing price inflation, as believers in
the simplistic quantity theory of money would have it, but rather balance
sheet inflation driving both money and prices. In the end the banking
system survived, but it was a near-run thing. Says Willis: “Had the war
continued much longer . . . the country would have plunged definitely
into the morass of ‘fiat credit’ as one economist has termed it.”15
On the bright side, one of the positive features of the period of war
finance was the extraordinarily rapid unification of domestic money
markets, and capital markets as well, as funds were drawn from every
15
Willis (1923, 1220).
36

COLUMBIA
corner of the United States to support short- and long-term borrowing by

the government. The goal of the Federal Reserve Act had been merely to
establish nationwide settlement with par clearing, and it had been
expected that the different Reserve Banks would set different short-
term interest rates according to local conditions. In short order, however,
we got more or less uniform discount rates across the entire country,
deliberately set by the Fed below the coupon rate on government war
bonds in order to create incentive for investors to “borrow and buy.” All
of this led to nationwide unification of money and capital markets, with
much tighter spreads between one region and another than previously.
A process that might well have taken more than a decade happened
instead in a few short years.
In addition to monetary unification, the experience of war finance
also brought centralization, as the system of decentralized reserve banks
evolved rapidly to become in effect a central bank with regional
branches.16 The Board of Governors in Washington may have bemoaned
the wartime power grab by the Treasury, but the real beneficiary was the
New York Fed, which became in effect the Treasury’s bank: “Thus by
a certain stretching of the terms of existing law the entire body of banks
in the United States were to be used as depositary banks, while the reserve
banks were to act as local collecting and disbursing agencies, thus for the
first time fulfilling their functions as fiscal agents.”17 Again, perhaps this
process would have happened without war, but it would have been more
than a decade instead of a few short years.
The end of the war did not mean the immediate end of war finance,
since government deficit spending continued and one big final bond
issue had yet to be floated, and so for a while the Fed continued its
wartime policy of supporting “borrow and buy.” But the end of the war
did mean the end of wartime restrictions on private credit, which imme-
diately took off, making full use of the enormous credit machine that had
been built to facilitate public borrowing during the war. Banks that saw
16
Willis (1923, 1211, 1509). The pre-Fed system of clearing using bankers’ balances was
replaced by clearing using Reserve Bank balances, and then final clearing between the
Reserve Banks themselves.
17
Willis (1923, 1119). Increasingly, the government held its deposits with the few
Reserve Banks, not with the many commercial banks.
37

MONEY AND EMPIRE
their public credit holdings paid off from the final bond issue used the
proceeds not to shrink their inflated balance sheets, but rather to expand
private credit. Balance sheet inflation thus continued, albeit now with
frozen private credits rather than frozen public credits.
In an attempt to control this speculative excess, the Fed began to
transition away from the wartime discount rate policy, starting
November 1919 with a 0.5 percent discount rate advance and ending
a year later “on the verge of a Panic” with the rate standing at 7 percent.
The Depression of 1920–1 that followed was, for Willis, the inevitable
adjustment of a wartime economy to peacetime conditions, a wrenching
process but one in which the Fed played an admirably supportive role by
discounting freely.18 Prices that had been inflated by wartime demand
pressures dropped precipitously, and credits that had been extended on
the basis of wartime prices inevitably defaulted, but the system held. For
Willis, this was the Fed’s finest hour.
Writing in 1923, in his massive tome The Federal Reserve System:
Legislation, Organization and Operation, Willis told the story of the found-
ing of the Fed, urging his readers to put wartime experience behind them
and to return to the original vision of the Federal Reserve Act.
Domestically, “experience has shown the capacity of the note issue to
contract as prices fell and demand for circulation was reduced. It is a fact
that the theoretical elasticity of the new note currency has been entirely
vindicated.”19 Internationally, the high discount rates used to combat
postwar speculation had allowed London to regain its dominance of
foreign trade financing, but it was not too late to make another effort.
“Come on, guys,” you can hear him exhorting his New York banker
friends, “make an effort!”
Once again, it didn’t work out that way. Looking back a decade later,
Willis saw only “credit debauch.”20 The beautiful machinery of the Fed,
tuned by the experience of war finance, had instead been diverted to
speculative finance, not only domestically but also internationally. The
resulting mess ultimately collapsed, first internationally, starting with the
18
Willis (1923, 1406).
19
Willis (1923, 1522).
20
38

COLUMBIA
stock market collapse of 1929, and then domestically, ending with

Roosevelt’s national bank holiday in March 1933. At the root of both
collapses was the prior expansion of unsound credit, first during the war,
when government debt replaced real bills as the core of the system, and
then after the war, when banks extended credit on government bond
collateral for more or less anything.
This perversion of his creation must have been a terrible thing for
Willis to watch. As editor of the Journal of Commerce, starting in 1919, he
not only had a ringside seat from which to watch the unfolding debacle,
but also a megaphone through which to express his dismay. But it was
hard to make his voice heard over the Roaring Twenties, and so mainly he
just watched, as “slower and less liquid forms of bank holdings invaded
the portfolios of the different institutions during the ten years in
question . . . result[ing] in a reduction of liquidity (or viewed from
another angle, in an increase of inflation) by approximately
40 per cent before 1929.”21
What was worse, Willis’ beloved Reserve Banks had not only let it all
happen, but also had participated themselves. The orthodox doctrine
that had privileged self-liquidating bills had been replaced by a new
“shiftability” doctrine that instead privileged assets that were readily
saleable.22 As a consequence, banking came to be based not on the
consuming power of the community, but rather on the “ability of the
community to purchase, pay for, and hold or absorb issues of bonds,
stocks, and other securities,” which is to say on the “general conditions in
the stock market.”23 In the process, central banking had come to be
based not on discounting self-liquidating bills, but rather on outright
purchase of long-term assets for the Fed’s own portfolio through so-
called “open market operations.” Even internationally, “foreign funds
had been largely engaged in frozen paper (‘revolving’ bankers’ accept-
ances and others of the same level), with the guarantee of the Federal
Reserve Bank of New York which, of course, meant the guarantee of the
21
22
Moulton (1918).
23
39

MONEY AND EMPIRE
system.”24 The underlying cause of the credit debauch was, in this sense,
the deliberate monetary policy of the Federal Reserve System.
Against this background, we can understand the seminar that Willis
offered at Columbia in 1933–4 as a kind of last-ditch effort to get the Fed
and the larger banking system back on track. The credit debauch of the
Twenties had been about using banking and currency manipulation to
avoid confronting hard political realities. Banking collapse could there-
fore be seen as a good thing, since it finally forced us to face reality and
offered the opportunity to rebuild on solid ground rather than shifting
sand. Just so, Willis urged his readers to put the period of speculative
excess behind them, and to use the Banking Act of 1933, which he had
himself played a role in drafting as advisor to Senator Glass, as an
opportunity to restart the Fed on sound principles. That Act, known
today as Glass-Steagall, called for strict separation of commercial and
investment banking, which in context we can understand as an adapta-
tion of the real bills doctrine for American conditions. Willis hoped that
Glass-Steagall, though not itself as far-reaching as he would have liked,
would in time spark a radical transformation of American banking.
For Willis, collapse had been inevitable because the underlying
credit was unsound, but what was not inevitable was mismanagement
of the policy response by leaders who should have known better. Hoover
was one such leader, using the Reconstruction Finance Corporation to
prop up banks that had been made insolvent by the prior policy of
stuffing them with illiquid assets. The Fed was another such leader,
needlessly abandoning the gold standard in 1933 in the face of a little
speculative attack, even while the United States held 40 percent of the
world’s gold: “Speculators in New York bought sterling, and the British
government, in pursuance of its policy of maintaining a relative degree
of stability in the pound sterling, bought the dollars offered for the
sterling – almost necessarily so – with the result that they earmarked
a corresponding amount of metal.”25 Central bank cooperation could
have shut down the speculators in short order, but the Fed was unpre-
pared, having “never developed and trained an adequate foreign
24
25
40

COLUMBIA
exchange staff,”26 and so instead they abandoned the stable anchor of

the system just at the very moment it was most needed. Instead of simply
borrowing the gold back from the Bank of England, the Fed treated the
speculative movement as a genuine loss of reserves, and then on June 5,
1933, Congress enacted a resolution nullifying the right of creditors to
demand payment in gold.
Against this background, it is no wonder that Willis took an interest in
Charlie. Students like Charlie were exactly what the Fed needed as it
sought to build a more adequate foreign exchange staff. For Willis
himself, the international dimension of the US banking system was always
of secondary concern; he was more about the Fed and domestic money.
But at the highest level of abstraction, the fundamental issues at stake in
domestic and international payments are much the same. The “inter-
national short-term capital movements” that would be the central focus
of Charlie’s dissertation are the international analogue of the bankers’
balances that had served to facilitate domestic settlement in the United
States before the establishment of the Fed.
Even more, Willis’ life project of knitting together the sprawling US
monetary system, with its twelve separate clearing districts, into a single
whole can be seen as the inspiration for Charlie’s eventual life project of
knitting the international monetary system, with its multiple national
sovereignties, into a single whole. Looking back on his thesis after fifty
years, he made the connection explicit: “The model for the world should
be the integrated financial market of a single country, with one money,
free movements of capital at long and short term, the quantity theory of
money employed on trend, but free discounting in periods of trouble.”27
For Charlie, 1933 was what 1898 had been for Willis: the beginning of
a lifelong engagement with the process of monetary reform, albeit inter-
national reform for Charlie rather than domestic reform as it had been
for Willis. From Willis, he had learned how it required the financial crisis
of 1907 to get the Federal Reserve Act of 1913; and how it had required
the exigencies of war finance to bring the Act alive; and how, even so, in
1933 the work of full implementation remained. Analogously, it seems to
26
27
41

MONEY AND EMPIRE
have required the international financial crisis of 1929 to put the matter
of international monetary reform firmly on the agenda of the London
Economic and Financial Conference, scheduled for June 1933, but the
result was no international analogue of the Federal Reserve Act. Instead,
Roosevelt’s preemptive action on gold and his subsequent refusal to
consider a proposal for exchange stabilization put forward by his own
central bank meant that the Conference ended early without substantive
agreement.28 The time was apparently not ripe. In 1933, everyone was
still absorbing the fact that the old system, which had been centered on
London and the pound sterling, was well and truly dead, while the
eventual new system centered on New York and the dollar was not yet
ready to be born.
International economics may have begun for Charlie, as he says, in his
shipboard adventures of summer 1929, but his formal education in the
subject began in fall 1933 in the classroom with James Angell. It was his
worst grade, but a lasting influence in multiple ways. Most fundamentally,
Angell’s teaching is the likely origin of Charlie’s early sense that “inter-
national economic theory . . . does not fit the facts.” Even more, Charlie’s
early ambition to deduce “a new – and probably more complicated
theory – from la situation actuelle” more or less mirrors Angell’s own
ambition to offer an alternative. Four years later, Charlie would produce
his own treatise: International Short-Term Capital Movements (1937). He
might have been talking about the relationship of his work to Angell’s
when he wrote about how the more rigorous textbooks produced by his
MIT students had eaten into the market for his own: “that is the way
academic life works: one climbs on the shoulders of the older generation
and occasionally steps on a face.”29 Like Angell, Charlie would eventually
become a Professor of International Economics, and it was Angell’s
example more than any other that shaped his conception of the job. To
understand Charlie, we thus need also to understand Angell as a kind of
aspirational role model.
28
Clavin (2013) provides a detailed time line of the relevant events, though always from
the somewhat distorting perspective of the League of Nations, which organized the
Conference and had its own view on the central importance of free trade, not so much
currency stabilization.
29
42

COLUMBIA
Unlike Charlie, James Waterhouse Angell (1898–1986) was an aca-

demic born and bred. His father, James Rowland Angell, was a well-
known psychologist and President of Yale University (1921–37), and his
grandfather, James Burrill Angell, had been president of the University
of Vermont and the University of Michigan. At Harvard, young Angell
earned his PhD in economics in 1924, working initially mainly with the
great international economist Frank Taussig, and then with Allyn Young,
whose favorite he became. The support of these men got him the job at
Columbia University in 1924, where he remained until his retirement in
1966, living in the idyllic Fieldston historic district of the Bronx and
summering on Martha’s Vineyard. Unlike Charlie, Angell never strayed
from the family business, and also unlike Charlie, that family business was
never upended by the Depression.
Like Taussig and Young, Angell was an internationalist, regretting the
failure of the United States to join the League of Nations, but nonethe-
less committed as a private citizen to advancing the internationalist cause
wherever possible. The central focus of his thinking in this regard was the
very much enlarged role of the United States in the realm of inter-
national trade and finance that arose as a direct consequence of World
War. During the War, European belligerents had depended heavily on
American production, and also on American finance to buy that produc-
tion. As a consequence, during the war the United States was able to
remain on the gold standard even as everyone else abandoned convert-
ibility. Even more, the United States shifted from a net debtor to a net
creditor position, becoming in effect investment banker for Europe, as
well as substantially replacing Europe as investment banker for the rest of
the world.
After the war, like everyone else, Angell expected a return to the
status quo ante, which is to say the gold standard and global free trade,
all centered in London, albeit with the share of the United States
substantially increased. But until that eventual return, the United
States would inevitably be called upon to play a major role in the
transition from the disordered conditions of war and its aftermath.
Dependence on American production and finance thus continued and
even widened (notably to include Germany) in the period of recon-
struction that followed the War. All of this posed for the United States
43

MONEY AND EMPIRE
a new challenge of economic management, and even moreso a new

challenge of intellectual development to guide that management.
Prewar isolationist habits of thought would have to change if
America was to play the role required by new conditions.
As a graduate student, Angell had used his 1924 PhD dissertation,
expanded into his first book, The Theory of International Prices: History,
Criticism and Restatement (1926), to prepare himself to engage the range
of new economic problems stemming from this new postwar reality.
Substantially a history of economic thought on the topic, the book tells
the story of developing English thought and Continental reaction, but
the guiding question throughout is how much of classical doctrine can be
taken over to the new world, and what needs to be reconsidered. Classical
doctrine had developed the theory of international trade more or less
separately from the theory of money, whereas it was clear that postwar
problems of international trade and finance were completely intertwined
and could not be treated separately. Integration of the two bodies of
economic doctrine was thus needed, and such integration was bound to
require changes in both.
In classical doctrine, the place where trade and finance come into
closest contact is the so-called specie-flow mechanism, which is sup-
posed to restore equilibrium in the balance of payments under a gold
standard. If a country exports less than it imports, then it must pay for
the difference in international money, which means gold. But gold
reserves are also the basis of the national money supply, both notes
and deposits, so these international gold flows cause contraction of
money at home and expansion of money abroad, which tends to lower
prices here and raise them abroad. In this way exports are encouraged
and imports discouraged, and that is what restores balance, according
to the theory.
Nice theory, but the facts turn out to be otherwise. Gold flows are
clearly driven by other factors in addition to trade balances, most import-
antly capital flows, both short- and long-term. Further, the link between
gold reserves and the domestic money supply is not so tight as the theory
supposes, nor is the link between domestic price levels and the domestic
money supply. And anyway, the price of international goods is only
a small component of the overall price level. Angell concludes: “The
44

COLUMBIA
specie flow analysis, at least in any short time sense, is now discredited in
the eyes of most writers.”30
And yet, some mechanism of self-regulation does seem to be operat-
ing, since prices do tend to remain more or less in line across country
boundaries. Angell proposes that the relevant mechanism is not the flow
of gold, but rather the operation of the market for foreign exchange, and
in particular the shifting balance of importer and exporter bills, which
has an immediate effect on short-term interest rates and also, so he
proposes, on the total volume of purchasing power, meaning bank credit.
“This explanation rests on the effects which changes in the demand and
supply of bills of exchange produce in the volume of bank deposits, and
in the levels of general prices.”31
One virtue of Angell’s alternative explanation of international prices
is that it applies even when currencies are not convertible, as they were
not for some period after the war. Under such circumstances, not only
interest rates but also exchange rates shift with movements of the balance
of international payments.32 The classical doctrine for the case of incon-
vertible currency depended on so-called “purchasing power parity,”
according to which exchange rates simply reflect relative price levels, so
that exchange depreciation simply reflects relative inflation rates, which
presumably arise from relative monetary policies. But that is another nice
theory at odds with the facts, since exchange rates can and do move
independently from price levels in response to speculation, and chan-
ging exchange rates can and do affect domestic price levels independ-
ently from domestic monetary policy.
After Angell took up his new job at Columbia, Allyn Young encour-
aged him to develop his theory of foreign exchange into a full-blown
treatise, as did Ralph Hawtrey, who reviewed Angell’s book for the British
Economic Journal. But Angell had other ideas. As a student, he had spent
the academic year 1922–3 touring Europe to meet all the leading inter-
national economists, as background research for his dissertation. Once
he was in New York, he lost no time in establishing contact with the
30
Angell (1926, 393).
31
Angell (1926, 474).
32
Indeed, it seems that Angell began with the inconvertible case, as in Angell (1922).
45

MONEY AND EMPIRE
Council on Foreign Relations, founded in 1921 as a kind of successor to

“The Inquiry,” which had organized academic input into the Paris Peace
Conference. After Congress rejected official membership in the League
of Nations, the Council operated as a kind of informal member of the
League. Under its auspices, Angell turned his attention to the pressing
policy questions of his time in The Inter-Ally Debts and the United States
(1925), along with the problem of reparations and The Recovery of Germany
(1929), the latter volume being the output of a year’s travel in Germany
sponsored by the Council.
In doing so, Angell was very much following in the footsteps of his
mentor Young, who had served as chief economist of The Inquiry and
chronicler of the League’s first World Economic Conference in
Geneva.33 Indeed, Angell’s starting point in thinking about the problem
of international debts was Young’s 1924 article, “War Debts, External and
Internal” (published in the CFR journal Foreign Affairs). Like Young,
Angell saw intergovernmental debts as the major obstacle unsettling
world economic affairs and eventual commercialization of German
reparations obligations as the essential step toward resolution. Until
that could be worked out, however, the important thing was to keep the
credit flowing. Germany needed US loans in order to rebuild its economy
to pay reparations, and Europe needed reparations in order to repay war
debts to the United States. The Dawes Plan of 1924 and then the Young
Plan of 1929 were therefore key to the continued operation of the
international monetary system. Writing in 1929, Angell was optimistic
that things would work out, but also very much aware that international
success depended crucially on the continued ability of German borrow-
ers to issue securities in New York.
Even after the 1929 stock market crash, and the untimely death of Young,
who had by then moved to the London School of Economics, Angell
remained optimistic. The crash and the devastating economic contraction
that followed were definite setbacks for the internationalist program, but all
was not lost. The Hoover Moratorium bought time to put things back on
a sustainable track. After the Lausanne Agreement resettled the reparations
problem, Angell joined a group of economists urging creation of a World
33
Young (1921a, 1921b), and Young and Fay (1927). See also Mehrling (1997, ch. 3).
46

COLUMBIA
War Foreign Debt Commission to readjust funding agreements between the

allies, and he went on to produce a book-length report on Financial Foreign
Policy of the United States for the Second International Studies Conference in
1933 (a project of the League of Nations), and to write the introduction to
The Program for the World Economic Conference (1933) in an attempt to garner
support for that conference in the United States.34
As he was doing all of this, apparently assuming that a solution would
be found to the immediate problem of war debts, Angell focused his own
attention on the deeper and longer-term problem that he anticipated
would be revealed after settlement. As a net creditor, the United States
was for the first time in its history in a structurally surplus position in
terms of the international balance of payments, and that meant that the
rest of the world would need to find means to make payments to the
United States. Given US resistance to buying foreign goods, as expressed
in high tariffs, payments would have to be made not by selling goods but
instead by selling securities and other property, which is to say by further
expanding the US net creditor position. In a prescient speech of
November 14, 1930, Angell warned that “when we take our income from
abroad in the form of additional foreign securities, we are not solving the
foreigners’ payment problem at all. We are merely deferring the problem,
and in the end making it worse.”35 At some point, he cautioned, further
lending would cease, and at that point settlement would become impos-
sible, making foreign sales impossible, and the world system would shatter.
In fact, even as Angell was speaking, that breaking point was already at
hand, the collapse having begun with the New York stock market crash in
October 1929. But in 1930 Angell thought it was still possible to turn the
tide, and he kept that faith until the bitter end. On the very eve of the
fateful 1933 World Economic Conference, Angell judged that currency
stabilization remained an achievable goal, even if greater international
financial cooperation did not. In the event, however, even currency
stabilization proved too much since the United States was unwilling to
play the necessary leading role, Roosevelt in effect blocking the inter-
nationalist program on which Angell and others had pinned their hopes
34
Angell (1932, 1933a, 1933b).
35
Angell (1931).
47

MONEY AND EMPIRE
for so long.36 It must have been a sore disappointment for him. The
mission he had accepted from his mentors – to help the United States
navigate the tricky transition from war to peace, and from autarky to
global free trade – seemed now more or less a complete failure.
Not only an internationalist, Angell was also a liberal, and as such
a strong supporter of Roosevelt’s interventionist New Deal. For him,
economic stabilization at the national level was the prerequisite for any
program of stabilization at the international level that went beyond mere
currency stabilization and central bank cooperation. Angell’s response to
the policy failure of 1933 was therefore to shift his attention away from
international matters and to focus instead on using monetary control to
stabilize the domestic economy. Ultimately, he produced two books on
the topic: The Behavior of Money: Exploratory Studies (1936) and Investment
and Business Cycles (1941).
It is this latter work that did not survive, as Charlie pointed out in his
autobiography, and the reason was Keynes, whose General Theory of
Employment, Interest and Money (1936) better caught the spirit of the
times. On the matter of effective control of internal economic activity,
Charlie, along with everyone else, followed Keynes rather than Angell.
Charlie had been introduced to Keynesian thinking as early as 1934 by
Henry Villard who had been part of the Keynes seminar at Cambridge but
then shifted to the City College of New York, “bringing with him reports
of the new book by Keynes which fundamentally altered economic ana-
lysis of business fluctuations.”37 They had met and become friends in
Charlie’s second year at Columbia, and then in the third year they had
organized a graduate student seminar which met at the apartment of
Professors Arthur R. and Eveline M. Burns, which “proved to be as
stimulating as any formal seminar listed in the catalogue.”38
All of this – the bitter disappointment of the World Economic
Conference and the looming figure of Keynes – would have been upper-
most in Angell’s mind in fall 1933 when Charlie enrolled in his class, and
no doubt it colored their initial interaction. Although Charlie was
36
See Clavin (2013), and footnote 28 herein.
37
38
48

COLUMBIA
initially a protégé of Willis, the topics of the papers he wrote during his
first graduate years show him moving toward the Angell agenda step by
step. Already in fall 1933 he was writing a term paper for his course with
Beckhart, “Competitive Currency Depreciation between Denmark and
New Zealand,” concluding that the only winner of competitive depreci-
ation was the British consumer who got cheaper butter.39 More funda-
mentally, in his master’s thesis “Inflation and Foreign Trade” (1934), he
examined exchange depreciation in Great Britain, Japan, and the United
States, concluding that it was not a consequence of domestic inflation, as
the theory of purchasing power proposed, but rather a cause of subse-
quent inflation. Compare Angell: “The English data . . . show that the
order of change which that theory expects was on the whole reversed
here, not confirmed. The exchanges moved first, then prices, and last of
all the note circulation.”40
With these finger exercises behind him, Charlie was ready to tackle
the Angell agenda head on, producing a sketch of a possible theoretical
framework: “Flexibility of Demand in International Trade Theory.”
Feeling the inadequacy of his mathematical preparation, Charlie pro-
ceeded instead “with the (possibly) archaic tool of logical analysis,”41 but
there is no mistaking his ambition. He urges attention to the role of
changes in nominal income, not just the international prices emphasized
by Angell, as central to the mechanism through which disequilibrium in
the balance of payments is adjusted. It was on the basis of this paper that
Angell agreed to serve as supervisor of his thesis.
The thesis itself was written largely off-campus in evenings and week-
ends, initially at a temporary job at the US Treasury in summer 1936, and
then during the first year of a permanent job at the Federal Reserve Bank
of New York which started in October 1936. Charlie remembers:
Angell lacked a warm nature, and called me Mr. Kindleberger all through
the process of supervision. He did however respond fully to the separate
39
The paper was Charlie’s first publication, in Harvard Business Review (July 1934), and
the only pre-World War II publication that he would include in his retrospective
(2000a, ch. 2).
40
Angell (1926, 430).
41
49

MONEY AND EMPIRE
chapters of the thesis as I submitted them . . . In the end we disagreed on

the main point of the thesis, whether disequilibrium in the balance of
payments should be measured by gold flows alone, as he thought, or gold
flows plus or minus short-term capital movements, as I maintained.42
In context, we can understand this disagreement as stemming from

Charlie’s Willis-inflected understanding of the international monetary
system as fundamentally a payment system, with short-term capital move-
ments playing the role that bankers’ balances play in the domestic system,
shifting funds from short-term surplus agents to short-term deficit agents
in order to facilitate immediate settlement. Thus, although Charlie got
his start in international economics from Angell, he used what he had
learned about banking from Willis to propose his own alternative to the
classical model, which was more far-reaching than Angell’s.
The usefulness of this alternative perspective was revealed most imme-
diately in the clarity it gave to the phenomenon of “hot money,” which is
to say the speculative short-term capital movements that first got Charlie
interested in understanding the international monetary system. He
writes in his thesis:
To take a simple case, if a central bank of a country on an exchange

standard decides to shift its foreign exchange reserves from one country
to another, the sale of the exchange on the country where the reserves
were originally held and the purchase of the exchange on the country to
which they are to be moved may well cause a gold flow from the former to
the latter. If gold be the evidence of disequilibrium in the balance of
payments . . . then the first country should deflate and the second
country should expand its means of payment. If short-term capital
movements be the sole criterion, then the first country having
experienced a reduction in its net short-term liabilities – an outflow of
short-term capital – should inflate and the second country, with increased
net short-term foreign liabilities, should deflate. But if the gold outflow
and inflow be set off against the short-term capital outflow and inflow,
respectively, then it is seen that no change in the means of payment should
be permitted to take place, which requires that the gold movements
42
50

COLUMBIA
should be offset in both countries. This is evidently what should take

place.43
Observe here that “logical analysis” takes the form of thinking like
a banker, in balance sheet terms, attending to both assets and liabilities.
From this perspective it becomes clear that the central bank in the
country losing the gold should at most borrow it back from the central
bank in the country gaining the gold, thus reversing the speculative flow,
both of gold and of short-term capital.
In the theory of international money, Charlie thus moved beyond
Angell, as good students always move beyond their teachers, but the
example of Angell had a lasting influence on Charlie’s trajectory in
other ways, most importantly by introducing him to an alternative career
goal: teaching, instead of central banking. The teaching plan did not
immediately work out – this was the Depression and there were simply no
jobs – but eventually Charlie did manage to shift into teaching, starting at
MIT in 1948 as a professor of international economics, more or less
exactly the position that Angell still held at Columbia.
Further, Angell’s internationalist perspective had lasting influence,
while the failure of Angell’s internationalist interventions informed
Charlie’s own rather different interventions when the opportunity pre-
sented itself. Significantly, Charlie would have nothing to do with the
multilateral Bretton Woods agreement, nor the United Nations which
arose as successor to the failed League. His energies were devoted instead
to the Marshall Plan, the unilateral move of the de facto world leader. That
said, Charlie’s economic justification for the Marshall Plan, laid out in The
Dollar Shortage (1950), very clearly echoes the concerns expressed by Angell
as the international monetary system was collapsing in 1930. In 1950 as in
1930, the fundamental problem was that the rest of the world needed to
make payments to the United States, now not so much for war debts but
rather for the materials needed for reconstruction, so even zero tariffs
would not help very much. The Marshall Plan worked because it addressed
this most pressing obstacle to recovery, and so bridged the gap from war to
peace, from command economy to market economy (Chapter 4).
43
51

MONEY AND EMPIRE
In February 1932, Charlie had graduated early from Penn with the
idea of getting a job at the Fed and marrying Caroline Thompson. Three
years into his graduate studies, it was time to try again. Eileen O’Daniels
was by this time out of the picture. Her parting gift to Charlie was to
arrange for him to get professional help for his stuttering problem, and
this softened the blow: “Not to stutter in teaching or in a big public
lecture before as many, on some occasions, as a thousand people,
reminds me of my deliverance.”44 Taking her place was Sarah B. Miles,
the sister of Charlie’s friend Francis Miles, and the daughter of Wardlaw
Miles, the World War I hero who became headmaster of the Gilman
School and then Professor of English at Johns Hopkins, and who would
become a kind of adoptive father for Charlie as his own family collapsed
under the strain of Depression.45 But Charlie did not feel that he could
propose to Sarah until he had a job, and he did not feel that he could
marry until he finished the thesis: “A considerable part of the spur to
complete the dissertation was the suggestion from my prospective father-
in-law that it might be useful to get the thesis out of the way before
marrying.”46 Strong incentive.
Job first. As it happened, W. Randolph Burgess, a vice president of the
Federal Reserve Bank of New York, attended one meeting of the Villard–
Kindleberger Keynes seminar and, when Charlie expressed interest in
a job, invited him down: “I met Lewis Galantiere and discussed with him
the possibility of a job working partly in his Foreign Information Division
and partly for the Foreign Report Section of the Foreign Exchange
Department with Emile Despres.”47 But nothing immediately came of
it, and so instead Charlie accepted a summer position in the Division of
Research and Statistics at the US Treasury, working mainly on calculating
purchasing power parities, while writing his thesis in the evenings and
visiting Miss Miles in Baltimore on the weekends. Eventually, the Fed job
did materialize with a starting date of October 1, 1936, and on the
strength of that Charlie got engaged on September 26th and resigned
44
45
Like Charlie, Miles had managed to avoid his father’s profession (medicine) and
developed a mastery of the essay form (French 1944, Miles 1930).
46
47
52

COLUMBIA
from the Treasury on the 28th. “Harry White, I recall, asked me to stay on
for $2600 [a $200 raise from his summer salary]. I said I would for $3200,
but he could not or would not make such an offer.”48 And so Charlie
shifted from Washington to New York, now working mainly on calculat-
ing international capital flows.
Thesis second. A lot of the preparatory reading and note-taking was
already done. A first step had been a review of the recent literature on
international capital flows. Three books on the topic were published in
1935, and Charlie got hold of them by promising to review them for the
Political Science Quarterly. The best of them all was Ragnar Nurkse’s
Internationale Kapitalbewegungen, “a brilliant excursion into
a theoretically dimly lighted territory.”49 It is Nurkse’s classification of
different kinds of capital flows that Charlie would use as the frame for
Part I of his thesis.
Part II of the thesis followed Willis, by applying a payments perspective
to short-term capital movements. The first of two basic principles that
Charlie sought to establish has recognizable origins in Willis: “that short-
term capital in the balance of payments and in a national banking system
should be regarded as equivalent to gold (from which the corollary
follows that when gold flows are due solely to movements of short-term
funds their effects on the banking system should be offset).” Part III then
followed Angell by tracing the effects of these flows on domestic money
and nominal income. The second principle has recognizable origins in
Angell: “that equilibrium in the foreign-exchange market and in the
balance of payments can be said to obtain when at a given rate of
exchange the balance of payments exerts neither an inflationary nor
a deflationary force on the national money income.”
48
This is the account in the Interim Biography, p. 33. In his autobiography, Charlie says
he was willing to stay for $2,600 but White was unwilling to offer the extra $200. I have
favored the IB account, as it was written closer to the time of the event, but it should be
kept in mind that a central purpose of that account was to establish that Charlie was
not so interested in a job at the Treasury, so as to “dispel any possible question in any
mind that I was participating in a Treasury plot, if there was one, whether to pastor-
alize Germany, or for any other purpose.” In the IB account, Charlie more or less
rejects the Treasury, while in the autobiography account the Treasury more or less
rejects Charlie.
49
Kindleberger (1936).
53

MONEY AND EMPIRE
It is only in the final section – Part IV, “International Monetary

Interdependence” – that Charlie looks forward, toward his career as
central banker. Here he argues that the task of the central bank is not
to choose internal or external stability, but rather to find the best com-
bination of partial stability in both, using the available range of stabiliza-
tion tools, and he devotes the remaining chapters to an exploration of
those tools. In this argument we see him breaking away from his teachers:
from Willis, who held that “some form of external stability is all that can
be hoped for in the present state of knowledge,” and also from Angell,
who held that “internal stability is approachable only if external stability
be abandoned.”50 Charlie rejects both extremes and adopts instead
a position that seems closest to that of John H. Williams, Professor of
Economics at Harvard and also Chief Economist at the New York Fed,
whose views Charlie distilled from his 1934 paper “The World’s Monetary
Dilemma – Internal versus External Monetary Stability.”51
As it happens, Charlie had attended the conference in spring 1934
where Williams presented this paper, but he had not given it any special
attention at the time. As he told his diary: “Brown and Hansen made the
best talks, Pitt the senator from Nevada on silver and Warren on gold
being the most provocative.”52 Likely his renewed attention to Williams
came instead from Emile Despres, his Fed colleague who had studied
under Williams at Harvard, writing his undergraduate thesis on “Capital
Movements and the Mechanism of International Trade Adjustment
under Gold” (April 15, 1930).53 All the while Charlie was writing the
thesis on International Short-Term Capital Movements, his day job was to
work with Emile Despres tracking short-term capital movements in the
real world. In the thesis, this influence can be seen in the statistical
appendix which outlines the available data, and their deficiencies, as
well as the careful treatment of the mechanics of the forward exchange
market (Chapter 8). In this regard, it is significant that Charlie thanks
Despres equally, along with his formal supervisor Angell, “for the light
50
Kindleberger (1937b, 176–177).
51
Williams (1934).
52
KPMD, Box 40, “Personal Diary.” The conference was held at Hotel Astor, Mar. 21,
1934.
53
Truman Library, Despres Papers.
54

COLUMBIA
they have given me on the problems covered below and for their patience
in reading and suggesting improvements in the manuscript.”54
Job first, thesis second, and finally marriage. Working fast, Charlie
finished the thesis in March 1937, just in time to marry Miss Miles on
May 1, 1937. Marriage came with a dowry of $6,000, half of which he used
to fund publication of the thesis by Columbia University Press, so it was
fitting that the published book was dedicated “To S.M.K.” Realizing that
the two key dates of his engagement and his marriage coincided with two
important events in the world of money – the Tripartite Agreement that
stabilized dollar–sterling–franc exchange and the Fed’s decision to raise
reserve requirements – Charlie included an entry in the book’s index for
“S. Murgatroyd” that references the two worldly events. He liked to joke
that it served as an aide memoire to remind him of the important
personal anniversaries. Everywhere else it may have been Depression,
but not in Charlie’s life. Not for the last time, Charlie’s planful resilience
had overcome worldly setback.
54
Kindleberger (1937b, viii).
55

CHAPTER 3
Hot Money
This much is evident: governments propose, markets dispose.1
As Charlie started his new job at the New York Fed, the Tripartite
Agreement for currency stabilization between the United States, Britain,
and France was being implemented. In fact, his new job largely involved
providing statistical support for the US role in the new monetary system,
working with Emile Despres to tally short-term capital flows and report to
the Treasury. A further idea seems to have been to free up Despres to do
other things, such as spending the academic year 1937–8 pursuing formal
graduate study at Harvard, specifically participating in the famous Hansen–
Williams Fiscal Policy Seminar. For Charlie, the important thing was that he
was now finally in the game, doing more or less exactly what he had set his
mind on doing. Rejected out of hand by the Fed in his first attempt back in
1932, he had regrouped and retrained and was now on his way.
The way the new currency stabilization system worked, every day each
country published the price at which it was willing to sell gold to other
signatories of the Agreement, and then for the next 24 hours met all
requests using the gold reserves in its Exchange Stabilization Fund.
Large enough gold outflows could of course exhaust the gold reserves of
any one country, but so long as outflows were matched by inflows into one
of the other Tripartite currencies, reserves could always be replenished
simply by borrowing and lending between the deficit and surplus Funds.
As the system came into effect, this replenishment came to operate mainly
1
Kindleberger (1981a, 69). Possibly Charlie is here echoing a famous line from The
Imitation of Christ, which he likely encountered in chapel at Kent: “Man proposes, but
God disposes.”
56

HOT MONEY
through the fixed buying and selling price of gold in terms of dollars, $35
an ounce, which operated as an anchor for the system as a whole. The
effect was to create a 24-hour fixed exchange rate between the three
countries. As an international monetary system, it wasn’t much – only
three currencies and only 24 hours – but it was a start, and it was soon
joined by Belgium, Switzerland, and the Netherlands. It didn’t restore the
prewar globally integrated trading system, but it did temporarily help to
stabilize exchange rates that had been whipsawed by the flow of so-called
“hot money” ever since Britain’s suspension of gold convertibility in 1931.
The underlying logic of the Tripartite system, it is important to
emphasize, was the so-called “key-currency” idea that had first been
floated by Harvard Professor John H. Williams back in 1932 in his role
as US representative to the Preparatory Commission of Experts, prelim-
inary to the June 1933 World Economic Conference in London.2 Prior to
the Conference, in May 1933, Williams was brought on to the New York
Fed staff as an assistant Federal Reserve agent, and then in 1936, prior to
the Tripartite Agreement, he was promoted to Vice President. Thus, in
effect Williams was chief economist of the New York Fed when Charlie
joined, and, although Charlie never reported to him directly, his job
required him very much to engage with Williams’ thinking.
In his autobiography, Charlie remembers how Williams split his time
between Harvard and the Fed:
He patronized the overnight sleeper, the Owl, to such an extent that some
of us thought he had hung pictures in his lower berth . . . I saw more of
Professor Williams [after the war] when I was at MIT and he at Harvard,
and found myself slowly and partly unconsciously more and more
impressed with his notion of “key currencies.”3
2
Following Clarke (1967, 40), Kindleberger (1984a, 336, 430) suggests that the key-
currency idea perhaps has its origin even earlier in the thinking of Benjamin Strong,
while drawing attention to the account of Williams’ “pays-clef” views in Documents
diplomatiques francais, 1932–39, 1st Series, 1932–1934, Volume 2, para. 180, Geneva to
Paris, p. 386. See also Kindleberger (1987b, 122, 140). Clavin (1996, 90, 110, 112)
tracks the diplomatic history of stabilization discussions leading up to the World
Economic Conference, emphasizing their tripartite nature. The most complete
account of Williams’ thinking is Asso and Fiorito (2009).
3
57

MONEY AND EMPIRE
In fact, the record shows that Williams’ intellectual influence during

Charlie’s two-and-a-half year stint at the Fed before the war was already
quite substantial. Charlie’s postwar monetary writings – Europe and the
Dollar (1966), International Money (1981), and International Capital
Movements (1987) – all build on that prewar influence, quite as much as
they do on the influence of Willis and Angell. And so, finally, to under-
stand Charlie, we must also understand Williams.
Like Angell, John Henry Williams (1887–1980) had been a student of
Taussig at Harvard, from whom he absorbed the same lesson that Angell
did about the shortcomings of the classical analysis of the gold standard.
Williams’ 1920 PhD thesis, “Argentine International Trade under
Inconvertible Paper Money, 1880–1900,” was the first in a remarkable
series produced by Taussig students, followed by Viner (1924), Angell
(1926), and White (1933).4 But it was Williams more than any of the
others who focused his attention on banking, and it was Williams alone
who returned to Harvard, starting in 1925 and rising to full professorship
in 1929.
The key-currency idea seems to have arisen to make sense of the
experience of international monetary reconstruction in the 1920s.
After World War I, everyone had expected restoration of the prewar
gold standard system, which was understood almost universally (if not
by Taussig and his students) in orthodox specie-flow terms. The gold-
exchange standard agreed to at Genoa in 1922, according to which
countries were supposed to accept one another’s currencies in settle-
ment of international payments and not insist on gold, was understood as
only a temporary stopgap on the road toward reconstruction of the
prewar system. In 1925 Britain did return to gold convertibility, albeit
at the overvalued prewar parity, followed shortly after by France. Gold
outflow from Britain began immediately and became a persistent prob-
lem, caused in part by undervaluation of the French franc, and also by
a sustained shift of French sterling balances in London to dollar balances
in New York. Periodically, the Fed tried to help the Bank of England by
lowering its own interest rate in order to make the dollar less attractive,
but the rising US stock market pulled in foreign capital anyway. And, all
4
Alacevich et al. (2015).
58

HOT MONEY
the while, the unresolved problem of Allied war debts and German
reparations stood in the way of more extensive central bank cooperation.
Williams’ breakthrough in thinking about these matters was to recog-
nize that the prewar gold standard had actually been a gold standard only
for Britain: “England was on the gold standard and the rest of the world
was on the sterling standard,” insofar as it was the London sterling bill
market that facilitated trade across the globe.5 Through its empire,
Britain had run a trade surplus with the rest of the world, and through
its financial center in London it had recycled that surplus into long-term
investments across the globe, while the Bank of England managed the
daily fluctuations of the international monetary system by raising the
bank rate in response to net gold outflows and lowering it in response
to net gold inflows.
From a key-currency perspective, the central problem facing the
Bank of England after the war was the new position of the United
States as net creditor to the rest of the world, which meant that sterling
no longer stood alone at the apex of the system. As a consequence,
reasoned Williams, stabilization of both sterling and the dollar, against
gold but more importantly against each other, was the key to achieving
international monetary stability, the essential first step but also the
essential stable core around which others could subsequently orient
themselves:
Fixed exchanges and gold flow would provide a means of imparting to the
rest of the world stabilizing influences developed, maintained and
controlled through money management in the center countries. Under
such conditions, the foreign exchange problem would boil down in the
main to the question of the dollar-sterling rate relationship. Some
community of action in monetary and in general economic policy as
between these two countries would clearly be involved.6
5
Williams (1934, 65). Here he is explicitly following the historical account of Smit
(1934), which references a longer study he published with the Council on Foreign
Relations. In context, we can understand the interventions of Williams and Smit as an
attempt to shift the multilateral League-style thinking of the Council in a key-currency
direction.
6
Williams (1934, 66).
59

MONEY AND EMPIRE
The Agenda for the 1933 World Economic Conference very much
reflected Williams’ conception of the road forward. The very first item on
the Agenda was Monetary and Credit Policy: “We feel that, in practice,
certain countries are in a key position in that the reestablishment of a free
gold standard by them would influence action in a number of other
countries.” In this regard, “countries with a free gold standard and with
abundant monetary reserves” are obliged to take the lead; no specific
countries are named, but clearly France and the United States are
intended. “Countries which have left the gold standard” are obliged to
restrain themselves from seeking individual advantage by depreciating
their currencies against the leaders; again, no specific countries are
named, but clearly Britain is intended. And “countries which have intro-
duced exchange restrictions” as a means of defending their exchange
rates are obliged to allow these rates to find their own levels and to
stabilize at those levels; here, the main target is likely Germany. The
central banks of all three kinds of countries are obliged to cooperate,
initially to facilitate reallocation of world monetary reserves, and after
that on an ongoing basis concerning credit policy. “The Bank for
International Settlements represents a new agency for central banks
and should be able to play an increasingly important part, not only by
improving contact, but also as an instrument of common action.”7
This published Agenda is likely more or less what Williams urged
privately to his fellow experts in 1932, and it is also likely more or less
what the American representatives to the World Economic Conference,
O. M. W. Sprague from Harvard (representing the Treasury) and George
Harrison from the Federal Reserve, pushed during the first weeks of that
Conference. For a brief moment, it even seemed possible that the
Agenda might become reality as central bankers, meeting separately
from the main conference, made rapid progress nailing down the details
of specific exchange rate pegs. But in the end, the new US President
Roosevelt refused to go along, perhaps having in mind the British experi-
ence of the 1920s when domestic prosperity was sacrificed to a quixotic
attempt to restore the prewar gold standard. Instead, Roosevelt moved in
exactly the opposite direction by suspending US gold payments in
7
Angell (1933b, 31–39).
60

HOT MONEY
April 1933 and then raising the price of gold in an attempt to raise
domestic prices, causing gold to flood into the United States. His “bomb-
shell” telegram more or less tanked the Conference, with the result that
instead of international monetary stabilization we got the era of hot
money.8
Notwithstanding the failure of 1933, it is important to appreciate that
the Agenda of the World Economic Conference was subsequently kept
alive as a minority view inside the New York Fed by Williams and also by
Allan Sproul, Charlie’s ultimate boss, who would succeed Harrison as
President of the Bank. Finally in 1936, when recovery in the United States
seemed to be under way, there was space to press the Agenda forward
again. The result was the Tripartite Agreement.
Whether or not Charlie knew about the larger Williams agenda in
advance of taking the Fed job, he certainly found out in a hurry once on
site. For the first six months, his focus understandably was on finishing his
thesis, but all the while he was coming up to speed. Already in an internal
Fed manuscript dated January 12, 1937, and titled “International
Monetary Organization and Policy,” which opens with an essay by John
H. Williams of the same title,9 Charlie contributed a coauthored chapter 6,
“Trade Areas,” and a single-authored chapter 7, “Some General
Implications of Recent Currency Developments.” Charlie might have
been channeling Williams when he writes: “The devaluation of the franc
and the other gold bloc currencies, long expected and postponed, clears
the way for possible advances in the development of international monet-
ary organization.”10
What possible advances? One possibility, which Charlie subsequently
urged in a variety of internal Fed memos, was the demonetization of gold:
“A Program for Gold” (June 18, 1937), and “The Gold Problem”
(March 24, 1938, with Emilio G. Collado). He argued that the continued
availability of gold as a monetary asset was a destabilizing feature of the
system, since it enabled runs on national currencies, that is, the hot
8
Clavin (2013, 120–121).
9
Under a different title, this chapter was published as Williams (1937).
10
“International Monetary Organization and Policy,” p. 144. KPMD, Box 4, Folder
“Federal Reserve Bank of New York, 1936.”
61

MONEY AND EMPIRE
money problem. His solution: “set up a system of foreign exchange based

upon less expensive counters than gold by exchanging cash assets with
foreign countries, closing all central banks to gold, and going on a world
foreign exchange (largely dollar and sterling) standard.”11
Short of that ideal, the important thing was to prevent short-term
capital flows from destabilizing exchange. Toward that end, in an
internal memo titled “Hot Money” (April 18, 1938, with Collado),
Charlie urged a two-tier exchange system: the official dollar to be kept
stable by official gold flows, and the private dollar to be allowed to
fluctuate.12 The idea was to channel short-term capital flows into the
private market, in effect absorbing the pressure of speculative inflows
and outflows in the fluctuating price of the private dollar, while main-
taining stable official rates for foreign trade purposes. “In effect this
proposal would provide a system of foreign exchange control, sorting
out the commercial from the hot money transactions with none of the
usual administrative details and difficulties incident to most foreign
exchange control systems.”13
It is important to appreciate that both of these ideas about possible
future developments are fully consistent with the key-currency approach.
True, Williams always framed his proposal as a return to the gold stand-
ard, but gold convertibility of the key currencies was never the main
thing; rather, it was stable exchange rates between them so as to serve
as an anchor and reserve for the larger international monetary system.
Demonetization of gold internationally was just a next logical step after
demonetization of gold nationally, which essentially all countries had
achieved by then. Similarly, Williams was always centrally concerned
about the destabilizing effect of short-term capital flows, and concerned
particularly that they might overwhelm the capacity of central banks to
11
“The Gold Problem,” p. 4. KPMD, Box 4, Folder “FRBNY, 1938–1939.”
12
The origin of the idea (probably Collado's contribution) was apparently ATT’s
practice of limiting foreign ownership of its stock and letting the price of the foreign
quota fluctuate relative to the price of the domestically held stock.
13
“Hot Money,” p. 12. KPMD, Box 4, Folder “FRBNY, 1938–1939.” Despres (1973,
ch. 14) would revive both of these proposals in the 1960s, prior to the imposition of
a two-tier gold market in March 1968, and the suspension of convertibility on
August 15, 1971.
62

HOT MONEY
absorb them. The so-called “golden avalanche” that followed Roosevelt’s

increase of the dollar price of gold was just such an overwhelming flow. If
only there were a way to absorb some of the flow in price, it would be
easier to absorb the rest in central bank credit. Charlie’s two-tier
exchange market proposal was designed to do exactly that.
In the end, the Tripartite Agreement didn’t really deliver, in part
because of the reversal of the US recovery in 1937, but more fundamen-
tally because of European preparations for war. Meanwhile, however,
daily engagement with the nitty-gritty of foreign exchange markets left
Charlie with a base of institutional knowledge on which he would build
for the rest of his life. The most significant indicator of this is his paper
“Speculation and Forward Exchange,” written in 1938, tracking the
effects of speculative capital flows and official interventions over the
period 1935–7, a period spanning the implementation of the Tripartite
Agreement. His most significant empirical finding is the very different
operation of sterling as opposed to the franc and the guilder; the sterling
forward premium against the dollar is clearly driven by active interest rate
arbitrage, whereas the same arbitrage is restricted or impossible in the
case of the franc and the guilder. Though he does not say so explicitly, in
effect Charlie is documenting the emergence of a dollar–sterling key-
currency system, with the two currencies held together by covered inter-
est parity arbitrage so that differences in domestic interest rates are
reflected in the difference between spot and forward exchange rates.14
As the prospect of European War loomed, Charlie reframed his views on
gold demonetization and hot money as ruminations about “American Gold
Policy in the Event of European War” (August 19, 1938) and “The Dollar in
the Event of European War” (April 13, 1939). But once Despres returned
from his year at Harvard, realizing that his prospects for promotion within
the Fed were distinctly limited, Charlie began looking for a change. When
he learned of an opening at the Bank for International Settlements, he
asked Sproul to nominate him and, after an interview with New York banker
Leon Fraser, former President of the Bank, he got the job, which entailed
14
Charlie’s explicit target is the erroneous argument of Paul Einzig (1937) to the effect
that intervention in the forward market offers a nearly costless way of stabilizing
exchange, since it does not require use of scarce gold reserves.
63

MONEY AND EMPIRE
a three-year commitment in Basel, Switzerland.15 A particular attraction was

the regular meeting of central bankers at the Bank, in effect the very locus of
international monetary cooperation. A further attraction was a return to the
land of his ancestors, whose origins he traced back to Berne by way of the
German Palatinate.16
Established in 1930 as part of the Young Plan to commercialize the
German reparations debt – a project almost immediately rendered moot
by cancellation of that debt – the Bank for International Settlements
remained important as the Trustee for the privately funded Young Loan
and as a meeting place for member central banks. Because of the repar-
ations connection, the United States had refused to join the Bank; so,
private New York banks took up the allotted shares instead. Thus,
although de facto Charlie was sent as a representative of the Fed, as
indicated by his month of orientation meetings at the Board before
setting sail, de jure he was required to resign from the Fed in order to
take up the new position. The incoming president of the Bank, Thomas
H. McKittrick, was an American but an outsider to New York banking
circles. Charlie, however, was by now an insider to those circles, and so
presumably a reliable conduit of information from his listening post in
Basel.
For Charlie, international economics had begun in 1929 with his
summer adventures on commercial freighters traveling to foreign shores.
Imagine his delight, therefore, to find himself only ten years later travel-
ing on the SS America to a new job at the central bankers’ bank as a first-
class passenger, upgraded by the line to show appreciation for the Fed’s
gold shipment business. His life was quite definitely coming together,
and not only his professional life, for he was traveling with his new wife
and her dog Mr. Whimperton. Had he remained in Switzerland for the
planned three years, both of his sons would have been born there, and
international economics might well have extended beyond the agreed
three years. In the event, however, the outbreak of war would limit his
time in Basel to a single year, as we shall see.
15
Interim Biography, p. 38. The autobiography says that Sproul approached him about
the opportunity; Kindleberger (1991a, 50).
16
64

HOT MONEY
It is perhaps significant that, well after the war, while on sabbatical in

Geneva, Charlie took the opportunity to challenge himself and his eldest
son with the famous Haute Route, a strenuous hike through the Alps, “he
at fourteen just old enough . . . I at forty-four hoping to be just young
enough.” And then later, to mark his seventieth birthday, he organized
another less strenuous hike from the Saint Bernard Pass down to
Champery with his two sons, “this time they taking care of me, rather
than as in 1953–4, my looking out for them.”17 Baptismal hikes thus took
the place of actual baptisms, significant for their suggestion of a life that
might have been, a life that in summer 1939 Charlie was intent on
building.
By the time Charlie and Sarah left the United States on July 3, 1939,
Germany had already invaded Czechoslovakia and wider war seemed
a distinct possibility. But the United States was determined to remain
neutral, as was Switzerland and especially the BIS, the latter in reaction to
its earlier decision to accede to an obviously coerced Czech request to
transfer its gold reserves – held physically at the Bank of England but
booked at the BIS – to the Reichsbank. At any rate, in summer 1939, the
prospect of wider war seemed sufficiently distant that Charlie and Sarah
invited her parents to join them in Switzerland for a touring holiday in
the last weeks of August. When Germany invaded Poland, triggering
England and France to declare war on September 3, the in-laws cut
their holiday short and scrambled home, but Charlie and Sarah stayed,
moving into a rented apartment at 14 Casinostrasse, across from a park
and easy walking distance to the Bank.
Unfortunately for Charlie, war meant suspension of the regular meet-
ings of central bankers, which was a big disappointment, but maybe only
temporary. Meanwhile, citizens of the belligerent countries who were
returning home were eager to sell their furniture, and the Kindlebergers
were eager to buy. These items, shipped back to the States a year later
courtesy of the Fed, would remain in the family as mementos of a life plan
cut short.
After September 3, Basel was transformed by a general mobilization,
on account of its strategic location on the border of both France and
17
65

MONEY AND EMPIRE
Germany: “soldiers everywhere, the huge tank barricades in the streets

near the station and bridges. Our park now is spotted with machine gun
nests and barbed wire.”18 But life went on. New refugee arrivals replaced
belligerent departures, and the Kindlebergers built an extensive social
life with interesting new friends, enjoying elaborate restaurant meals
hosted by the Bank, and even indulging in a February ski vacation in
Davos. Meanwhile, the Bank offered a platform from which to observe
and analyze the workings of the European war economies, so different
from the peace economy of the United States. By March, Sarah was
officially pregnant, expecting in August. The Kindlebergers were staying.
After the German invasion of the lowlands in May, however, the Bank
moved up into the mountains to Chateau d’Oex, in effect a retreat to the
famous National Redoubt, and Charlie began to think about leaving.
Through his Fed friends he managed to get a concrete job offer from the
Board of Governors of the Federal Reserve in Washington, DC. But the
BIS would not release him. As late as June 13 (which is to say after
Dunkirk), Charlie wrote to his father-in-law:
If the war were to end before the end of June with a German victory and an
armistice, I should resign I think from the bank, and we should head right
for Baltimore. If the Germans should win later, I am afraid it would be
more feasible to stay here until after Cookie [the baby] arrived and got
into travelling condition. But most of all for general reasons, let us hope
the Allies hang on until the Germans collapse from exhaustion, in which
event I have to stay until June 1942.19
The fall of Paris on June 17 changed everything. The real possibility of

German victory and armistice brought the prospect of a very different
Europe – a Europe organized around the Reichsmark, as envisioned in
the famous Funk Plan that would be released in July.20 It would be
a Europe that engaged with the rest of the world on a cash (which is to
say gold) basis, starting with the looted gold reserves of the Banks of
France and Belgium. The BIS thus seemed in danger of becoming at best
18
KPTL, Box 11, “Dr. and Mrs. Wardlaw Miles.”
19
KPTL, Box 11, “Dr. and Mrs. Wardlaw Miles.”
20
Gross (2017).
66

HOT MONEY
irrelevant and at worst an agent of the Reichsbank. For Charlie, the idyll
was definitely over. After some renewed pressure from the Fed (organ-
ized by Despres), on June 29 he was finally able to get a release from his
BIS contract. On July 3, the Kindlebergers left Geneva by bus, arriving
eventually in Lisbon where they caught the SS Manhattan for New York,
and then on to Baltimore where Charles Poor Kindleberger III was born
nine days later (July 27).
Back in the States, and back also at the Fed, now the Board in DC
rather than the Fed in New York, Charlie commuted for a while from
Baltimore before moving with the family in October to a rented house on
Seminary Hill in rural Alexandria, Virginia. There the Kindlebergers
would remain until 1948, even as war service and then State
Department posting took Charlie abroad for extended periods. The
friendships forged with the New Dealers who made Seminary Hill their
home during those first years of family life continued on for the rest of
their lives; three of these friends served as godparents for the children
born on Seminary Hill.21 After the move to MIT in 1948, Charlie’s
continuing appetite for international economics would take the family
abroad repeatedly for sabbatical trips, but Sarah’s responsibility for
domestic economics would keep the family firmly rooted on domestic
soil.
Meanwhile, life went on at the BIS without Charlie. In October 1940,
the Bank moved back to Basel and Charlie’s boss, Per Jacobsson,
Economic Advisor of the BIS, stayed on through the war, as did the
American President McKittrick.22 Uncomfortably, the majority of Bank
assets were loans to Germany (against the long-term deposits of the
founding members of the BIS), which Germany continued to service
throughout the war. Accepting gold in payment of interest due was
arguably less shameful than laundering German gold for war material
imports (as the Swiss banks did), especially since those interest payments
were the main source of BIS income during those years; the Bank would
have had to shut down without them. But it cannot have come as any
surprise that, in the 1944 Bretton Woods Conference that laid the
21
Chandler Morse for Sally, Clifford Durr and Mary Walton Livingston for Randall.
22
Auboin (1955), Jacobsson (1979), Toniolo (2005).
67

MONEY AND EMPIRE
groundwork for postwar monetary arrangements, the BIS was slated for
closure, and only managed to survive thanks to the staunch support of its
central bank founders. In the years that followed, the diminished BIS
would redeem itself by managing the monetary stress of postwar recon-
struction in Europe, specifically by running the European Payments
Union that served as the seed of the subsequent Monetary Union. But
that is getting ahead of the story. The important thing for now is that
Charlie’s dream of a life in international central banking was over.
In his autobiography, Charlie passes quickly over his year at the BIS,
and also his two subsequent years at the Board before he joined the War.
Understandably, his war experience starting August 1942 stands out
much more sharply in his memory. But an outsider can see what he
does not: a period of some three fallow years when Charlie, previously
narrowly focused on monetary matters and heading for a career as
a central banker, laid the foundations for the wide-ranging mature
economist that he would become. For the first (and last) time in his life
he had more time than he needed – time to draft and revise. By tempera-
ment, he was not happy with so much time on his hands, and he found
the solution by jumping into the war as soon as he could. But until that
moment he continued his education, and it all began in Basel, with his
work with Jacobsson on the Bank’s Tenth Annual Report (May 1940).
In typical understatement, Charlie suggests that the report was “mod-
estly better than those it followed.”23 In fact his hand is very visible
throughout, perhaps most obviously in a short digression on the theory
of “shiftability,” but more generally in the attention given to short-term
capital flows as disruptive shocks to the system, and the way that markets
and central bankers were responding to them. We can, I think, read this
report as the missing empirical chapter of Charlie’s dissertation, but also
more importantly as a foreshadowing of his mature The World in Depression
(1973), and the opening statement of his lifelong debate with monetarism,
as in Keynesianism vs. Monetarism (1985).
The report opens by reminding the reader of the tremendous advance
in human flourishing that had been achieved in the period leading up to
World War I: “This improvement was built on the basis of the
23
68

HOT MONEY
international gold standard, the relative freedom of trade, and the

intensification of international lending both at short and at long term.”
After the war, it seemed for a while that this prewar trajectory could be
regained, but the Depression of 1929–33 halted forward momentum,
a disruption greater even than World War had been. “It is to be hoped
that further attempts will be made to analyse the causes of the great
depression of 1930–33,” Charlie writes in a memo-to-self he would
check off more than thirty years later (Chapter 8).
“As a result the international credit system was largely put out of
action – there has been an almost complete cessation of long-term
foreign investment and a gradual liquidation of a great mass of short-
term credits often at a considerable loss.” However, “by the end of 1936,
after the devaluation of the gold bloc and the simultaneous conclusion of
the Tripartite Agreement, a new equilibrium in the world’s monetary
conditions seemed within reach and a rapid improvement in trade set in
over a wide area.” Writing before the Blitzkrieg, Charlie’s emphasis was
on how the preparation for war had prevented an improvement in
economic conditions from showing up in the general standard of living,
which he hoped might yet prove only temporary.24
On the eve of World War II, in effect the world economy had been
split in half, with one half operating under new wartime rules and the
other half still operating under old peacetime rules – a division also
between state control and the free market. The war economies of
Britain and Germany had both mobilized their respective captive trade
areas to support wide-ranging programs of rearmament and restocking,
and inevitably the pressure spilled over into the peace economies. What
was most remarkable was how well the world economy was holding up
under this new demand pressure, so much better in 1939 than it had in
1914, with no speculative bubble in commodity prices and no spiking of
interest rates. War rumblings brought repatriation of capital to France
and flight capital to the United States, both of which put tremendous
pressure on the British pound, but the Tripartite machinery more or less
held up under the strain, at least until late August 1939.
24
BIS, Tenth Annual Report, pp. 6–8.
69

MONEY AND EMPIRE
Only then was Britain finally forced to abandon its defense of the pound,
to allow devaluation, and to implement far-reaching currency controls.
Other countries responded along a spectrum, some (such as France)
following the pound, others switching to peg against the dollar instead,
and still others splitting the difference. In effect, under pressure from war,
the global shift from a sterling standard to a dollar standard was moving
forward faster than it would have in peace time. In September 1939, the
United States issued a statement reaffirming the Tripartite Agreement, but
in effect it was already over. Foreign trade between the war economies and
the peace economies shifted quickly to a cash basis, as commercial traders
were unwilling to offer credit terms, and states were yet unprepared to offer
political terms. Central banks everywhere supported the flight to safety in
their individual countries by expanding their note issue against purchases of
long-term government debt, much of it new debt issued to support rearma-
ment expenditure beyond tax revenue. In effect, central banks, “the indis-
pensable adjunct” of government, were shifting from bankers’ banks to
government banks, even in peace economies.
Just so, in the United States, Depression deficits had already trans-
formed the central bank balance sheet and central bank policy as well,
showing the way forward for others; “In fact, the bond market has to an
increasing extent been utilized by the banks not only for investment but
as a means of adjusting their cash position, thus usurping the functions of
the money market.” “[T]he old conception of liquidity has changed . . .
In the United States, the theory of ‘shiftability’ was developed – any assets
for which there was a high degree of marketability were considered
liquid.” As adjuncts of government, central banks take on the task of
maintaining orderly bond markets but, “anxious not to become ‘shifter
of last resort’,” insist on substantial price concession before absorbing
excess bond selling pressure.25
Charlie’s embrace of shiftability shows how far he had traveled from
his teacher Willis, but not so far as monetarism, not by a long shot.
Working on the Report meant tangling with Per Jacobsson, head of the
Monetary and Economic Department and a committed monetarist with
special interest in the Report’s chapter on “Production and Movements
25
BIS, Tenth Annual Report, pp. 102, 134, 135.
70

HOT MONEY
of Gold.” But even in this chapter, Charlie’s hand is visible: “Gold in itself
has no mystical influence on prices; it is only when the supply brings
about an increase in active purchasing power than an effect on the price
level can be expected.” From Angell, Charlie had absorbed the idea that
money influences income as well as prices, and from Keynes the idea that
it is not so much money as spending that drives income, specifically
investment spending:
Experience has proved that monetary measures such as the depreciation

of the dollar, cheap money and deficit spending have not been sufficient
by themselves to achieve or even to support effectively a sustained
recovery. Such measures can be of lasting effect only in so far as they
influence the continuing flow of private funds into durable producers’
goods and into housing.26
The mention of housing as a potential driver of recovery is significant.

In his presidential address to the American Economic Association (AEA)
the previous year, Harvard Professor Alvin Hansen had put forward what
came to be known as the secular stagnation hypothesis: the idea that the
maturation of the US economy, including the closing of the frontier, had
permanently weakened investment spending as the engine of economic
growth.27 Without explicitly referencing Hansen, the Report is at pains to
suggest that increased spending on housing can substitute for decreased
spending on producers’ goods – indeed, that the effectiveness of such
a policy had been demonstrated in the European context, specifically the
UK, Sweden, and Switzerland.28
Subsequently, Charlie’s shift to the Board of Governors would bring
a shift from this relatively complacent view to a recognition that restoring
economic growth was a problem at the level of the entire world, not each
nation separately, and that it would require deliberate steps to promote
investment spending in the underdeveloped parts of the world. The key
influence driving that shift in his thinking was none other than Hansen
26
BIS, Tenth Annual Report, pp. 80, 14.
27
Hansen (1939).
28
BIS, Tenth Annual Report, p. 15.
71

MONEY AND EMPIRE
himself, chair of the Joint Economic Committee of Canada and the

United States, for which enterprise Charlie would serve as Secretary.
Back home, Charlie built on the work he had done at the BIS:
The work which the Board was so anxious to have me undertake was to
contemplate the nature of United States foreign trade in a world where
Germany had conquered Britain. It is hard to recall the deep pessimism of
those months of June, after Dunkirk, and July, August and September,
until it appeared that possibly the British would be able to resist defeat . . .
I wrote a long memorandum on the “Future of World Trade.”29
The concern was with American loss not only of export markets, but also
of raw material supply channels, in a world divided between a German
“New Order of Europe” and a Japanese “Co-Prosperity Sphere” – two
essentially imperial projects with their own dedicated, more or less
enslaved peripheries serving the imperial core. Supposing that hap-
pened, America would survive, but its existing industrial structure
would have to be significantly changed, and trading patterns would
have to be shifted strongly toward Canada and Latin America.
Definitely not a bright prospect, and fortunately one that did not actually
have to be faced as, after the bombing of Pearl Harbor on December 7,
1941, the United States officially abandoned neutrality and declared war,
thus decisively shifting the likely outcome.
But even supposing that Britain somehow managed to resist defeat, all
would not be well. Providing statistical support to the negotiations of the
Lend-Lease Act in March 1941, Charlie had reason to appreciate not only
the desperate position of wartime Britain, but also how much that unten-
able situation would persist even after eventual peace.30 In a seminal essay
“Britain’s Trade in the Postwar World,” published anonymously with
Hansen’s encouragement by the National Planning Association in
December 1941, Charlie set out the problem and his proposed solution.31
29
Interim Biography, pp. 41, 46. KPMD, Box 21.
30
Charlie’s interest in British matters dates from New York Fed days: “Tentative Outline of
a Memorandum for Mr. Williams on British Economic Future” (Apr. 24, 1937) and “The
British Economy, 1925–1937” (July 20, 1937), both listed in Interim Biography, p. 37.
31
Whitham (2016) provides useful historical context about the efforts of the National
Planning Association.
72

HOT MONEY
The whole reason for Lend-Lease was that Britain had by then largely
liquidated her portfolio of foreign investments, and so had nothing with
which to pay for essential war imports.32 One consequence of that liquid-
ation was that, after the war, there would be no investment earnings to
support essential imports. Even more, the anticipated postwar shift to
a dollar standard seemed likely to involve shift also of the trade financing
business from London to New York – another crucial source of earnings lost.
And even though Lend-Lease meant that there would be no postwar indebt-
edness to the United States, Britain was in effect borrowing heavily from her
former colonies by paying them for war material with sterling balances,
which they would want to spend on imports from the United States after
the war: “How Britain can improve her balance of payments is one of the
crucial postwar problems . . . Narrowly construed, the problem of Britain
and the entire sterling area will be: ‘What will we use for dollars?’”33
Lend-Lease for Britain during wartime, and perhaps also during
reconstruction, solved this problem for a while, but obviously it could
not be expected to continue after the war. The danger (and the obvious
default scenario) was that Britain would resort to bilateralism and
exchange control, as it had after it went off gold in 1931, so likely coming
into conflict with the United States over trade preferences with former
colonies. Meanwhile, the clear interest of the United States was in a larger
global settlement: “International economic collaboration for production
and trade on a new and higher level,” to be achieved by a two-pronged
program of “simultaneous internal measures to achieve world prosperity,
and the development of economically backward countries under inter-
national sponsorship and with international capital.”34
Just as British prosperity in the nineteenth century had depended on
development of the New World, so too more general prosperity after
World War II would depend on development of the rest of the world:
“Indian, Chinese, and African peoples must be helped to develop their
32
Some of this liquidation was more or less forced on Britain. “White was determined to
make the British turn their pockets inside out, and this led to their being compelled to
sell a prize investment in the United States, the American Viscose Company, owned by
Courtaulds” (Kindleberger (1991a, 66).
33
Kindleberger (1941, 15, 16).
34
73

MONEY AND EMPIRE
own countries . . . Capital and technical assistance from more developed

nations could be made available under adequate international safe-
guards.” International loans would be key, but “subject to local laws gov-
erning hours of work, wages, working conditions, health, sanitation,
housing and other social standards,” perhaps under the guidance of the
International Labor Organization. The goal, in effect, was to get the
economic boost of imperialism, but without the political and social down-
side of actual imperialism – in effect an international version of Roosevelt’s
New Deal measures that had created the conditions for restoration of
domestic prosperity in the United States. In a prosperous world economy,
Britain could prosper as well, and meanwhile Lend-Lease could provide
the leverage for the United States to encourage (not to say force) Britain to
choose postwar collaboration rather than isolationism.35
US isolationism was another potential problem. Charlie writes: “The
United States is learning for the second time in a single generation that she
is unable to escape from the impact of world forces. She is therefore
compelled to assume world responsibilities, and to concern herself with
policies designed to promote world security and world prosperity.”36 It is
perhaps these words that caught the eye of Hansen, who proposed to
Charlie that they coauthor for Foreign Affairs an article on “The
Economic Tasks of the Postwar World.” The resulting article advocates
the same two-pronged policy approach – full employment domestically
plus economic development internationally – but now with a focus on US
security rather than the British balance of payments. The whole problem
with the settlement after World War I was that it had focused too narrowly
on political stability and monetary stability, leaving economic stability to
take care of itself. Stalin’s example of forced economic development,
undertaken despite more or less complete lack of foreign loans, stands as
a possible choice for other countries after the war. US security interest
would be better served by promoting instead a kind of “International
R. F. C.” on the model of Hoover’s Reconstruction Finance Corporation.37
35
Kindleberger (1941, 33–34).
36
Kindleberger (1941, 29).
37
Hansen and Kindleberger (1942a, 473). See Mehrling (1997, 117–123) for the larger
context in Hansen’s own work.
74

HOT MONEY
In subsequent work, Charlie would sketch in further detail how

such an International Development Authority, as he came to call it,
might work: “The Bases of an International Program for National
Development after the War” (June 24, 1942); “Problems of World
Economic Development” (July 27, 1942); and “The Organization of
An International Development Authority” (August 5, 1942). A central
idea running throughout these essays is the prevalence of fundamental
disequilibrium. The price system could not be expected to work very
well under such conditions; hence the necessity for a program of
public loans, but also the necessity to limit those loans to productive
purposes in order that their repayment not be excessively burden-
some, productive not only in terms of domestic income but also in
terms of foreign exchange earning.
A revised version of the first memo would eventually be published as
“International Monetary Stabilization.”38 More immediately important,
the second memo apparently caught the eye of Hansen, leading to
another coauthored article, “International Development Loans.”39
Having warned against the dangers of isolationism in their previous
piece, their target now was the opposite danger of economic imperialism:
“Economic sovereignty can rest fundamentally in nations which adjust
economic differences internally by virtue of their sovereign power, and
internationally as equals among United Nations . . . International assist-
ance should be free from the implications of imperialism – military or
financial.”40
This vision of a possible postwar world never left Charlie, but for the
moment there was a war on and he was anxious to play a more active role
in it. The birth of his second son, Richard, on June 17, 1942, meant that
military draft would not reach him for another year, but he was anxious to
get started anyway. After an abortive attempt to join the Navy, in line with
family tradition, he took the opportunity instead, following Emile
Despres and Chandler Morse, to join the Office of Strategic Services in
38
Kindleberger (1943b).
39
“Together we wrote a pamphlet for the National Planning Association on International
Development Loans.” Interim Biography, p. 49.
40
Hansen and Kindleberger (1942b, 5, 34).
75

MONEY AND EMPIRE
the Research and Analysis Branch, starting in August 1942 as chief of the
Military Supplies section in the Economics Division.
“The task of the Military Supplies section, as outlined to me by Morse,
was to estimate German economic capabilities in the fields of military
hardware . . . but we very shortly started to move into target selection.”
While Morse traveled to London to set up what came to be called the
Enemy Objectives Unit, Charlie stayed in DC to draft “the first beginnings
of a theory of bombardment known to me, in which the recuperative powers
of an industry, the depth of its output behind the fighting front, and the
need for a fighting front as an anvil to the air force hammer were related to
each other.”41 With this sketch in hand, Charlie then traveled to London to
relieve Morse, taking up residence at 50 Great Cumberland Place and
working at the US Embassy at 40 Berkeley Square. There was a war on,
and now he was in it.
One last thing before he left: Charlie took part in a panel on “The Future
of International Investment” held on January 6, 1943 in Washington, DC, as
part of the annual meeting of the American Economic Association. His
contribution, “Planning for Foreign Investment,” is notable for its unusual
forthrightness:
The world “chronic shortage of dollars” of which so much has been heard
abroad, is basically ascribable to the United States’ failure to lend abroad
more abundantly, or rather more continuously . . . The private investor is not
in a position to undertake the provision of large blocks of capital for major
development undertakings . . . The government is appropriately the borrower
for such large-scale projects, as government is appropriately the lender.42
Let economists quibble about fine points of price theory; Charlie was
embarked on a much grander venture. There was a war to be won, and
after that a world to be reconstructed. For the next five years, both tasks
would occupy him completely.
41
Interim Biography, pp. 52–53, 55.
42
76

CHAPTER 4
A Good War
If one processes enough hay, one can find a few needles.1
There can be no question that for Charlie, like so many of his generation,
war service was the peak experience of his life, a fact that he signals by
dedicating his 1991 autobiography to “the comrades-at-arms of EOU,”
meaning the Enemy Objectives Unit of which he became chief starting
February 28, 1943. He was relieving Chandler Morse, and the plan was for
Emile Despres to relieve him in turn; so, it was just a temporary assign-
ment, but it was his first significant managerial position and he was
determined to rise to the occasion. In the event, Despres never did relieve
him, and Charlie remained in London as chief until D-Day, after which
he shifted to the ground war in France. His colleague Walt Rostow
remembers: “His rule in exercising authority was ‘tough upwards, soft
downwards’,” and he set an example with his own “fierce integrity” and
unrelenting work ethic.2 Many of the friendships he formed in the
foxhole at 40 Berkeley Square would continue on into postwar govern-
ment work and remain lifelong.
The job itself was Research and Analysis: desk work behind the lines
and behind the scenes, not Secret Intelligence “spy stuff” or Secret
Operations “sabotage” (the other OSS units), but nonetheless clearly
an essential contribution to the war effort. Charlie loved it. Even with
two babies at home, there is no sense at all that he ever questioned where
his duty lay, not until the war was well and truly won. Indeed, he was
plenty irritated by the fact that in September 1943, when the official draft
1
2
Rostow (1992). See also Winks (1987), Katz (1989, Ch. 4), and Milne (2008, 31–34).
77

MONEY AND EMPIRE
finally got around to him, he was required to leave his vital war work
behind and return to the States for six weeks in order to receive his
official commission (as Captain).3
The central task of the EOU was to provide analytical support for the
strategic bombing effort, in effect advising how best to disrupt the
German war machine. Put another way, the question was how best to
make practical use of the 50,000 airplanes that Roosevelt had committed
to supply. The British favored shock and awe, for psychological effect, but
as an economist Charlie thought about the problem differently. The
economics of war, Charlie would reflect, are essentially simple: “win the
war without unduly deranging the domestic economy . . . Our task in OSS
was to try to decide how best the enemy economy could be taken apart . . .
In the end, we recommended ball-bearings and aircraft.”4
The remaining problem was to find out where exactly the Germans
were producing ball-bearings and aircraft, and that’s where the hay-
processing came in: “every possible source of information, including
mountains of Photostats produced by Polish intelligence, aerial photog-
raphy, prisoner-of-war interrogation, etc . . . Instead of passively examin-
ing the flow that came across our desks, we pushed . . . The task kept us
going nights and weekends.”5 In his autobiography, Charlie lovingly
relates various needles found by processing this hay, but these war stories
need not detain us. The important thing for our account is the demon-
strable success of EOU’s methods of research and analysis, a success that
would inform Charlie’s later academic style of research and analysis. He
was never much one for digging in the archives, but he was definitely
prepared to read everything written on a subject and then to spin the bits
and pieces into a plausible narrative. As an academic, he would remain in
effect an intelligence analyst.
As D-Day approached, the attention of the EOU shifted from strategic
to tactical bombing in support of the invasion, which required an
3
Interim Biography, p. 58. The autobiography spins this moment more positively,
referencing instead a “week of blessed leave” (1991a, 80).
4
Kindleberger (1991a, 71, 76). Tooze (2007) tells the story of a German war economy
already stretched near to breaking point, and significantly disrupted by Allied
bombing.
5
Kindleberger (1991a, 77, 79). See also Babington-Smith (1987).
78

A GOOD WAR
upgrade in Charlie’s security clearance from Top Secret to BIGOT since

he obviously needed to know the location of the eventual landing.
Strategically, the EOU recommended a shift to bombing fuel depots,
while tactically they recommended bombing railway bridges as a way of
interfering with German resupply. Their British counterparts argued
instead for bombing railway centers (marshalling yards), and for
a while the British view prevailed; pilots were even forbidden to bomb
bridges.6 In the end, the EOU position won out, thanks to the political
stratagem of temporarily breaking up the group and spreading key
personnel throughout the Allied War effort, so-called “Operation
Octopus.” Charlie himself was temporarily appointed to Allied Tactical
Air Command of the Twenty-First Army Group, based outside of London
in Uxbridge, Middlesex. “It was striking how the various headquarters
after a time were sounding the same notes.”7
In the last days before D-Day, all bridges crossing the Seine from Paris
to the sea were destroyed, and after D-Day the bridges crossing the Loire
were attacked as well. It was not the comprehensive plan that EOU had
recommended, but it proved to be enough, as Charlie would argue
convincingly in a contemporary assessment of the first ten days of the
invasion.8 Here again, war stories are not the important thing, but rather
the demonstrable success of EOU’s methods of persuasion, which would
inform Charlie’s later academic efforts. Even if one is defeated by a more
powerful opponent in a public “trial by combat,” one can nevertheless
hope ultimately to prevail by means of quieter and more decentralized
6
The key proponent of the British view was Lord Zuckerman. Rostow (1981b) tells the
story of Eisenhower’s fateful decision of March 25, 1944, in favor of Zuckerman, and of
the eventually successful EOU effort to reverse that decision. Rostow’s decision to
publish seems to have been provoked by Zuckerman’s (1978) self-serving memoir, and
Kindleberger’s (1978d) review of that memoir.
7
KPTL, Box 3, “War Diary, R&A Branch, OSS London, Vol. 5. Economic Outpost with
Economic Warfare Division.” Kindleberger (1991a, 88).
8
“German Rail Movement in France in the First Ten Days after D-Day: an Interim Report
by Charles P. Kindleberger, June 16–19, 1944,” published as Appendix F in Rostow
(1981b). A less hasty and more comprehensive post-mortem can be found in
Kindleberger’s letter to Major Derek J. Ezra, Apr. 13, 1945, which treats also the
political battle over targeting that continued from D-Day all the way to the end of the
war, KPTL Box 1.
79

MONEY AND EMPIRE
methods, operating through one’s students and the readers of one’s

books.
On the eve of the invasion of France, Charlie wrote to his son Richard,
then just two weeks shy of his second birthday, about what his father had
learned (so far) from his war experience:
It is not a pleasant thought: and it is a very obvious one, which we all take
for granted without translating it into its many practical applications. It is
that beauty, and logic, and symmetry and truth have to fight to win against
power. The rise of Hitler and the enormous effort and loss of life which it is
going to cost to defeat him are the obvious manifestation of this. But I, in
my very small way, have been conducting a fight in planning for some four
months now, a fight against power, held by a few men, with a very bad plan,
with a good plan which has truth on its side.
It is sometimes thought, and frequently stated, that the right will
prevail . . . What I have finally gotten a sense of is power, naked and
unashamed, which can laugh at logic, reason and truth. Goebbels and
Hitler do so. But so can all power.9
Once the invading Allied force was well and truly established, Charlie
shifted to the G-2 (Intelligence) section of the Twelfth Army Group, and
from London to the Continent, in effect an attempt to keep “Operation
Octopus” going even as the ground war progressed. This move required
a further upgrade in his clearance all the way to Ultra, which gave him
access to the code-breaking operation that had been reading German
communications. In his new position, he worked out of the forward
tactical headquarters, so-called “Eagle Tac,” traveling with General
Omar Bradley, working in a mobile trailer and sleeping in a tent with
two others: “My charge was intelligence on enemy supply and transport,
and specifically to make recommendations as to how air force could assist
the ground troops.”10 The frustrating political battle over bomb targeting
continued, but for Charlie the long hours at EOU learning the intelli-
gence business had paid off. For the first time he had full access to all
intelligence, and also a direct line to a key decision maker whenever he
9
KPTL, Box 10. CPK to Richard, June 4, 1944.
10
Kindleberger (1991a, 83, 91).
80

A GOOD WAR
had advice to offer. It’s what he liked best – being a useful member of
a highly qualified and motivated team, working toward a common
objective.
Eventual Allied victory was never seriously in doubt, and Charlie
found time to enjoy his access to French food and drink, as well as the
occasional jaunt through the French countryside, but as the end
approached he found himself increasingly eager to get home. Initially
he thought it would be over by October, then Christmas 1944 at the latest.
The last-ditch German offensive at Ardennes on December 16th came as
a complete surprise, notwithstanding access to Ultra intelligence. After
the first weeks of battle, Charlie judged that German fuel supplies were
nearly exhausted and urged a final big Allied push. Instead, the decision
was made to continue grinding and even to launch the horrific firebomb-
ing of Dresden and other German population centers in February.
As the war finally wound down, Charlie took the opportunity to visit
some of the sites he had most been looking to destroy, most importantly
the very impressive underground factory near Nordhausen (soon to be
within the Soviet zone of occupation) that had been producing buzz
bombs, jet engines, and V-2 rockets. “Fantastic” as a piece of German
engineering – “the eighth wonder of the world,” as he wrote to his wife – it
was at the same time a horrific death camp, where prisoners were literally
worked to death: “A strong man could last six months. A thin or weak one
usually folded after three.”11 It was obvious that the Germans who worked
at the factory knew about the death camp, but somehow they had man-
aged not to confront its horror until the war was lost. Having lost the war,
Germans were forced to confront the fact that they had lost their honor
as well; suicide of responsible leaders seemed to Charlie an honorable
acknowledgment of complicity in such war crimes.
Charlie would end the war with the rank of Major and be awarded
a Bronze Star by General Bradley himself, but by then his thoughts were
very much on other things, specifically postwar employment. The easiest
thing would have been to stay in Europe, specifically Germany, as part of
the postwar Army occupation. But that Charlie most definitely did not
want to do, and not only because he wanted to get home. Wartime
11
April 19, 1945. Letter reproduced in Kindleberger (1989b, 203).
81

MONEY AND EMPIRE
animus toward the German army was clearly spilling over into peacetime
animus toward the German people, and Charlie wanted no part of it. The
Morgenthau Plan to pastoralize Germany, made public after the
September 1944 Quebec Conference, was the guiding document on
the ground even if not official policy. Writing to Despres in October,
Charlie is clear:
The important point of a postwar program for Germany is not military or

economic controls from without, but firm support for the right people
within, and a reeducation program, run by Germans, which can point to
a cooperative world outside so long as the right Germans are in control.
We can ruin our friends pretty easily by insisting they keep power and then
accusing the German nation as a whole of being evil.12
Ideally, Charlie wanted some kind of Research and Analysis position

back in DC, and he wrote to Despres about that as well. But Despres was
intent on getting out of the intelligence business altogether, and in the
end what he had to offer Charlie was a job providing analytical support
for postwar settlement discussions. Charlie took it. It got him out of
Germany, and it got him home, albeit at the cost of giving up three
months accumulated leave since work had to start right away. He arrived
home June 12, 1945. His third child, Sarah, was born nine months later,
on February 28, 1946.
Years later, in response to a request from General Bradley for his
recollections of the last months of war, Charlie prefaced his remarks
with the following reflection:
[W]hile no man is a hero to his valet in the usual aphorism, I have often
stated that I have four heros in the Pantheon of men I have worked for – well
down the line to be sure, in my youth. They consist in (in alphabetical
order), Omar Bradley, William Clayton, George Marshall and Allan Sproul.
There is universal agreement that I have been blessed beyond the deserts of
any man to have had an opportunity to work with these great men.13
12
KPTL, Box 1. CPK to Chan and Emile, Oct. 27, 1944.
13
KPTL, Box 9, CPK to Bradley, Dec. 18, 1978. He would offer the same list in a letter to
Alfred Malabre of the Wall Street Journal (Oct. 7, 1988), in his autobiography
82

A GOOD WAR
Sproul, of course, had been Charlie’s superior at the New York Fed
during the years of the Tripartite Agreement, and Clayton and Marshall
would be his superiors during his immediate postwar service at the State
Department. But in my judgment it was the experience with Bradley,
more than anything else, that made Charlie realize the deep satisfaction
that could come from service to one of the greats, and it was that experi-
ence, moreover, that impelled him to seek out similar opportunities in
postwar service. In this interpretation, it was the opportunity to work
under Clayton that persuaded Charlie to put aside his own feelings and to
accept the position of Chief of German and Austrian Affairs in
November 1945, in effect confronting the power of the Morgenthau
boys who had a very bad plan for Germany. And it was the opportunity
to work under Marshall that caused Charlie to accept the position of
director of the committee that put together the Marshall Plan and
ushered it successfully through Congress, in effect confronting the
power of American isolationists who had a very bad plan for Europe. In
both jobs, he would be joined by former EOU comrades-in-arms and
would pursue the well-honed EOU strategy of using a small, dedicated
team to shift a large and determined consensus.
It is notable that Charlie’s Pantheon were all men of the world, men of
broad vision and decisive action, albeit in different spheres: (in temporal
order) the banker Sproul, the soldier Bradley, the merchant-statesman
Clayton, and the soldier-statesman Marshall. Charlie would dedicate his
1996 World Economic Primacy to the memory of these four. In addition, and
closer to Charlie’s own merely human condition, the demigods in his
private religion were advisors and implementers, all of them economists:
Emile Despres and Alvin H. Hansen, about whom we have heard already,
and Edward S. Mason and Willard L. Thorp, his immediate superiors at
the State Department, working under Undersecretary for Economic
Affairs Clayton, and eventually Secretary of State Marshall. Charlie
would dedicate his 1999 Essays in History to the memory of these four. It
seems clear that the experience of working for his Pantheon, and along-
side these economists, made Charlie into the economist he was, well
(Kindleberger 1991a, 48), and in a letter to Clarice Thorp (May 11, 1992). KPMD,
Box 12.
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MONEY AND EMPIRE
before he shifted to MIT in Fall 1948. An admitted lifelong overachiever,

Charlie never felt that he could aspire to be one of the greats, but he
could and did aspire to be a useful economist.
Back in Washington at the State Department, Charlie began his post-
war work as the DC backstop to the reparations discussions taking place at
the Potsdam conference in August, and then moved on to support of
negotiations for the Anglo-American loan. But these assignments were
both essentially marking time until his appointment in November as
Chief of the Division of German and Austrian Economic Affairs (GA).
There his charge was to provide guidance to the Office of Military
Government, US (OMGUS), which had been running Germany since
the end of the war under the command of General Lucius Clay. As
Charlie put it, “From 1942 to 1945 I was engaged in helping to take the
German economy apart; from 1945 to 1947 I was busy helping put it back
together again.”14 His staff consisted largely of familiar faces from EOU
days, recruited for the purpose – John deWilde, Harold Barnett, William
Salant, and, most importantly, Walt Rostow – a group that came to be
known as “Clayton’s economists.”15
An immediate problem they confronted was JCS 1067, a directive of
the Joint Chiefs of Staff issued in April 1945, which contained strong
language that appeared to stand in the way of the reconstruction of
Germany:
You will take no steps (a) looking toward the economic rehabilitation of
Germany, or (b) designed to maintain or strengthen the German
economy . . . [C]onsumption held to the minimum in order that imports
may be strictly limited and that surpluses may be made available for the
occupying forces and displaced persons and United Nations prisoners of
war, and for reparation.16
It was this kind of language that had emboldened the so-called

“Morgenthau boys” working under Bernard Bernstein in the Finance
Division of OMGUS.
14
15
Rostow (1981a, 52).
16
Reprinted as Appendix C in Department of State (1946, 63–64).
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A GOOD WAR
Notwithstanding the emotional appeal of such a position, the eco-

nomic logic was questionable, as even a noneconomist like General Clay
could see. Even supposing a maximal shift toward agricultural output (as
urged by JCS 1067 in obvious echo of the Morgenthau Plan), there was
essentially no prospect that Germany could ever be self-sufficient in food.
So unless the Allies were prepared indefinitely to subsidize German food
imports, economic recovery and reconstruction were essential in order
for Germany to be able to produce sufficient exports to cover its neces-
sary food imports. That logic was already leading Clay to cozy up to
conservative industrial interests in the American zone, in an attempt to
get the German economy off the American dole. By October 1945 Clay
had managed to outmaneuver Bernstein and his men, and to install
instead his friend Joseph Dodge as his chief financial advisor. In time,
Dodge would coauthor the famous Colm–Dodge–Goldsmith report “A
Plan for the Liquidation of War Finance and the Financial Rehabilitation
of Germany,” issued May 20, 1946, which would became the template for
the eventual Monetary Reform promulgated June 20, 1948. But on
myriad other matters there was a vacuum, and the job of Clayton’s
economists, as they saw it, was to fill that vacuum.17
The first item of business was to interpret the August Potsdam
Agreement, which superseded JCS 1067, in such a way as to mute the
force of the most problematic passages of the latter. The way forward was
found in the specific Potsdam language: “It is the intention of the Allies
that the German people be given the opportunity for the eventual
reconstruction of their life on a democratic and peaceful basis.”18
Clayton’s economists argued that this passage implicitly involved
a commitment to specifically economic reconstruction: “It is recognized
that democratic and peaceful institutions will have little chance of devel-
oping unless the economic foundations are properly laid.”19 Interpreted
thus, the “level of industry” agreement at Potsdam became not a ceiling
17
The report was eventually published as Colm, Dodge, and Goldsmith (1955). See also
Gottlieb (1956/1957, 404), Kindleberger and Ostrander (2003). It should be noted
that Gottlieb worked under Dodge, while Ostrander ran Price Control. It was
Ostrander who recommended Colm and Goldsmith to Clay.
18
Department of State (1946, 78).
19
85

MONEY AND EMPIRE
that prevented economic reconstruction beyond a bare minimum, but

rather a floor on which economic reconstruction could be built.
The key document marking that policy shift was “The Reparation
Settlement and the Peacetime Economy of Germany,” released by the
Department of State on December 12, 1945, approximately a month after
Charlie took over as chief of the German and Austrian division:
[T]he United States intends, ultimately, in cooperation with its Allies, to

permit the German people under a peaceful democratic government of
their own choice to develop their own resources and to work toward
a higher standard of living subject only to such restriction designed to
prevent production of armaments as may be laid down in the peace
settlement . . . It is our desire to see Germany’s economy geared to
a world system and not an autarchical system.”20
So far as Charlie was concerned, this was the policy of the State
Department going forward, and his job was to lay the groundwork for
implementing it.
The December report envisaged a three-stage approach. In the first
stage, which was to last until Spring 1946, the focus would be on recovery of
the rest of Europe, even at the immediate expense of Germany in terms of
coal and food allocation. It would be a cold and hungry winter for the
Germans while the Allies worked out a detailed level of industry plan for
the eventual peacetime German economy. But then, in the second stage,
allowed peacetime industries would reopen while excess or disallowed
wartime industries would be available for reparations. And upon comple-
tion of that second stage – say, by February 1948 – control would be shifted
to the Germans themselves, for further economic development of the
peacetime economy as they saw fit.
From the start, the goal was eventual freedom of the German people
to chart their own course, not only economically but also politically.
Clay’s closeness to business interests and the conservative CDU was
therefore highly inappropriate. After all, the British Labour government
was nominally socialist and they were running the British zone, so there
was no reason for the United States to resist something similar for the
20
Department of State (1946, pp. 94, 97).
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A GOOD WAR
American zone if that was what the Germans themselves wanted. The
problem was not just Clay. The entire War Department, headed by
Stimson and his deputy McCloy, was intent on preventing Communist
political parties operating as agents of the Soviet Union from taking
advantage of disordered postwar conditions to gain a foothold in
Western Europe, and they viewed socialist parties as a dangerous entry
point for such. This political calculation would in the end lead to the
division of Germany, and of Europe also, between the two superpowers,
but in 1945 alternative futures still seemed possible and Clayton’s econo-
mists were working toward their own favored outcome.21
From an economic point of view, the central challenge to be con-
fronted in the level of industry plan was that prewar Germany had
depended on exports from heavy industry to pay for necessary imports,
and that was going to be impossible for postwar Germany. Under Hitler,
heavy industry had been easily repurposed for war production, and that
made it the immediate target of postwar plans for “industrial disarma-
ment” and also of demands for reparations.22 In broad terms, the main
idea was to dismantle as much of German heavy industry as possible and
ship it to the USSR. That left light industry as the potential source of
postwar export earnings; so, that’s where Clayton’s economists focused
their attention, urging not only retention of existing capacity, but also
a wholesale retraining of the labor force to work in that capacity, using
multiple shifts in order to make maximal use of existing capacity until it
could be increased. The plan was fleshed out and then adopted by the
Allied Control Council in a comprehensive document, “Plan for
Reparations and Level of post-war German economy,” issued March 28,
1946, with lists of Prohibited, Restricted, and Unrestricted sectors for
industrial reconstruction and development. Stage One thus complete,
attention turned to Stage Two, and that’s where the trouble began.
Key to the plan was the “single economic unit” principle established in
the Potsdam Agreement, according to which the four zones of occupa-
tion were to be treated as a single unit for economic purposes. That
meant pooling scarce export proceeds from all four zones and using
21
Leffler (1996). On the War Department and McCloy, see Bird (1992).
22
On the complex politics of reparations, see Cairncross (1986).
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MONEY AND EMPIRE
them to meet the most pressing import needs in all four zones. And it also
meant taking maximal advantage of interzonal trade within Germany:
“The United States zone lacks coal. The French and British zones have
coal but lack food. The Soviet zone has food and brown coal, lacks iron
and steel.”23 Thus, from the beginning, the plan was concerned not just
with the American zone, but also with Germany as a whole, and in
particular with restoring economic relations between the four zones of
occupation. The trouble on this front came from France and Russia, both
of which resisted the single economic unit principle and in practice
treated their own zones as a resource to be exploited for their own
domestic purposes.
Even more, and also from the beginning, the plan was also concerned
with restoring economic relations between Germany and Europe. It
seemed clear to Clayton’s economists that reconstruction of Germany
was a key element of the larger project of reconstruction of Europe, and
by Europe they meant all of Europe, both East and West. Walt Rostow, in
particular, made this wider European dimension of the plan his own
personal mission, sketching the outline of such a plan as early as
February 1946, which in later draft would become known as the
Acheson–Clayton plan, forwarded by Charlie to Secretary Byrnes in
April. But Byrnes did nothing with it, neither forwarding it to the atten-
tion of President Truman nor introducing it at the April Council of
Foreign Ministers meeting in Paris. In retrospect, Rostow would come
to view Byrnes’ pocket veto as a crucial missed opportunity to avoid the
drift toward division of Europe. In the event, instead of the economists, it
was the foreign service side of the State Department that had Byrnes’ ear,
starting with Kennan’s famous “Long Telegram” in February. As Rostow
remembers, “The task of the West was to contain the outward thrust of
Communist power rather than seek a grand settlement embracing all of
Europe.”24
But Rostow was not one to accept defeat so easily. In true “Operation
Octopus” fashion, he simply shifted his attention from the State
Department to the United Nations, where he urged the creation of an
23
24
Rostow (1981a, 42).
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Economic Commission of Europe (ECE), and there he met with more

success. His idea was to build on three existing instruments of Europe-
wide cooperation: the European Coal Organization, the European
Central Inland Transport Organization, and the Emergency Economic
Committee for Europe. ECE was formally created March 1947, and in
May held its first meeting in Geneva. By then a similar initiative was emerging
inside the State Department, which would come to be known as the Marshall
Plan after a public announcement at Harvard Commencement on June 5,
1947. Significantly, the initial idea was to run the Marshall Plan out of the
ECE. But that is getting ahead of the story.
Back in 1946, Charlie’s own response to Byrnes’ pocket veto was to
travel in August to Berlin, Vienna, Frankfurt, and Brussels in an attempt
to canvass potential support for the GA plan from the forces on the
ground, most importantly from General Lucius Clay. Clay had visited
Washington in the early days of GA and had come away unimpressed by
the “little people” he had met there, including Charlie himself, and
thenceforth had proceeded to run Germany more or less on his own.25
Specifically, confronted with a fractious Allied Control Council and
facing the prospect that the American zone might have to go it alone,
Clay had taken the decision in May to halt reparations deliveries to the
USSR, while, in July, Byrnes had floated the idea of possible joint
management of just the British and American zones. Division of
Germany was thus already under way when Charlie arrived in Berlin
on August 3, and he seems to have been determined to do what he could
to stem the tide.
The GA plan, to recall, was for a unified Germany in a unified Europe.
General Clay’s interest, by contrast, turned out to be more narrowly in
a united Allied Control Council, and, if that proved impossible, then
even more narrowly in an economically self-sufficient American sector no
longer a burden to the American taxpayer. Indeed, in an effort to keep
the Council together, Clay early on had proposed acceding to Russia’s
demand for reparations out of current production (as opposed to capital
equipment), which ran in direct opposition to explicit State Department
policy: “The United States in particular has no desire to repeat, in
25
Clay (1950).
89

MONEY AND EMPIRE
different form, the experience undergone after World War I, when

Germany paid reparation out of the proceeds of American loans and
investments, then defaulted on the latter.”26 But so long as the United
States was shipping its own current production to the Western zones to
keep the Germans alive, Russian demands for reparations from current
production more or less amounted to exactly that repeat.
Clay’s focus on keeping the Council together had the further effect of
blinding him to any larger agenda of a united Europe. “Localitis,” Charlie
would call it, attributing the phrase to General Marshall.27 The best that
Charlie was able to achieve with Clay was a united front against “carpet-
bagging”: the attempt by American and other business interests to buy up
German property on the cheap. But even there, Clay tolerated smaller-
scale carpet-bagging by the occupying troops, and even facilitated their
activity by his policy of freely converting occupying Reichsmarks into
dollars.28 Charlie’s mission to Europe was thus largely a failure, judged
against the objective of a unified Germany in a unified Europe.
Back home, however, his reports did have some apparent success in
stimulating Secretary Byrnes to make a public statement of policy, specif-
ically in the famous Stuttgart speech of September 6th, which he framed
as a restatement of the principles agreed at Potsdam. Central themes of
Byrnes’ speech included the GA interpretation of Potsdam as a floor not
a ceiling, and the central importance of the “one economic unit” prin-
ciple and of interzonal trade, along with implicit endorsement of the
Colm–Dodge–Goldsmith plan for monetary reform. Announcing the
formation of common administrative apparatus for the British and
American zones, Byrnes called for the French and Russian zones to join
in due time, with the aim of turning over responsibility to the Germans
themselves as soon as possible – in effect, Stage 3 of the original GA plan.
“We do not want Germany to become the satellite of any power or powers
or to live under a dictatorship, foreign or domestic,” which is to say
neither Russian dictatorship nor a reconstituted Nazi dictatorship.29
26
27
28
29
Stuttgart speech, available at ghdi.ghi-dc.org/pdf/eng/Allied%20Policies%209%20
ENG1.pdf.
90

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Unified Germany was thus reaffirmed as official American policy, even if

not unified Europe. Byrnes was now on record resisting the drift toward
division, presenting the Bizone as the core of an eventual unified
Germany rather than as de facto acceptance of inevitable division.
That’s where matters stood going into the brutal winter of 1946–7,
which necessitated much larger American support than had been antici-
pated, including even transatlantic shipments of coal. One consequence
was to convince skeptics that a larger-scale program of relief was needed.
At the same time, change of leadership at the State Department, as
President Truman prevailed upon General Marshall to return to govern-
ment service as Secretary of State in January 1947, provided new oppor-
tunity to push the economists’ agenda, first at the Moscow Council of
Foreign Ministers in March, and then in the Marshall Plan announced in
June.
In Charlie’s telling, both were attempts by Marshall to find some
possible accommodation with Russia, and so to avoid both division of
Germany and division of Europe. Crucially, Marshall Plan aid was offered
to Eastern as well as Western Europe, but was rejected by Russia and,
then, under pressure from Russia, rejected also by Poland and
Czechoslovakia.30 After that, division of Germany and division of
Europe both became fait accompli for forty years, ending only with the
fall of the Berlin Wall on November 9, 1989, which is to say two years after
publication of Charlie’s Marshall Plan Days (1987) in commemoration of
the fortieth anniversary of the Marshall Plan, and shortly after publica-
tion of Charlie’s Letters from the Field (1989), his letters from Berlin in
August 1946 and from Moscow in March 1947.
With the fall of the Wall, it could perhaps be said that the logic of the
GA plan for a unified Germany in a unified Europe ultimately prevailed,
but in 1947 it had most definitely failed. The Marshall Plan was second
best, especially after Eastern Europe pulled out, though even then
Charlie held out hope that trade relations between West and East could
eventually be restored, a hope that proved illusory once the Korean War
broke out. In the event, notwithstanding its origins as a pro-European
measure, the Marshall Plan got implemented as an anti-Soviet measure.
30
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MONEY AND EMPIRE
Indeed, Charlie points to the Soviet overthrow of the Czech government

and the death of Jan Masaryk in March 1948 as key to achieving the votes
needed in Congress to approve the Marshall Plan in April.31
Even as second best, the Marshall Plan proved to be an enormous
success, and Charlie always counted his own contribution to that success
as one of his proudest achievements. His first contribution was the role of
GA in inserting the idea into policy discussion in the first place.
My conclusions on the origins of the Marshall Plan are that it emerged

largely from the economic side of the Department, with causa remota
being the German and Austrian economic division, an intermediate
cause (my Latin fails me) being the economists in the trade and
commodities divisions, and the causa proxima being the Undersecretary,
Mr. Clayton, and George Kennan, the chief of the Policy Planning Staff,
virtually the only political officer to take a leading role.32
But his even bigger contribution came after. On June 25, just weeks
after Marshall’s speech, Charlie shifted from GA to a new position as
executive secretary of the State Department’s working committee on the
Marshall Plan. Relieved finally to be off the endlessly frustrating German
beat, and to be working instead toward a clear and important goal,
Charlie threw himself into the task of producing a detailed plan that
could be presented to Congress for approval.33 It was a monumental task,
involving coordination with the Committee of European Economic
Cooperation (CEEC) to knit together a unified plan from sixteen differ-
ent country proposals for American contributions of twenty-six different
commodities. Initially the CEEC asked for $30 billion; ultimately
Congress gave $17 billion, spread out from April 1948 to June 1952.
After Congressional passage, the German monetary reform was finally
implemented on June 20th, which triggered the Berlin blockade on
June 24th, which in turn triggered the Berlin airlift operation mounted
with great distinction by General Clay. Notwithstanding these conse-
quences, for many years afterward Charlie imagined that the German
31
Kindleberger (1987b, 101). See also Jones (1955).
32
Kindleberger (1987b, 157). See also Jones (1955, 243).
33
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monetary reform had proceeded more or less along the lines of the
original Colm–Dodge–Goldsmith plan, of which he had heartily
approved. In fact, however, only part of the plan had been implemented:
the part that converted all money and debts from Reichsmarks to
Deutschemarks, at a 10:1 ratio. The proposed capital levy, which had
been intended to effect an internal German redistribution between those
who profited from the war and those who suffered from it, never got
done. (It was that part of the plan that the War Department had choked
on when the plan first came out.) Imagining that the capital levy had
gone through as planned, Charlie would write in 1984: “I regard the
German monetary reform of 1948 as one of the great feats of social
engineering of all time.”34 Informed otherwise by his old friend Tyler
Ostrander, he would walk back the hyperbole in a paper that would see
publication only posthumously, expressing instead “regret that burden
sharing did not go further in rooting democracy more firmly.”35
Meanwhile, the apparent success of the German monetary reform,
which almost immediately brought goods out of hiding and into the shop
windows, stimulated Charlie to reconsider the reasons for the failure of
the Anglo-American loan way back in 1945. The whole idea of the loan
had stemmed from Williams’ key-currency approach, which suggested
the importance of stabilizing sterling against the dollar by facilitating
exchange of the sterling overhang. In retrospect, the mistake had been to
try to stabilize currencies in an environment where markets were basically
not working. The right approach was to address that more fundamental
problem first, which the Marshall Plan did, and only then to address the
monetary problem, precisely as had been done in Germany. Indeed, in
retrospect Charlie would understand the Marshall Plan itself as an exten-
sion of the key-currency idea, focusing on getting a key area – in this case,
Western Europe – on its feet first and then extending the effort to other
areas later. In this regard, Stalin had perhaps done the West a favor by
refusing Marshall Plan aid for Eastern Europe, which might well have
proven to be more than could be tackled at one time.
34
35
Kindleberger and Ostrander (2003, 191).
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MONEY AND EMPIRE
Likely the reason Charlie did not contemporaneously notice how the
German monetary reform had been watered down was that he was glad to
be rid of responsibility for Germany and hence was no longer paying
close attention. In fact, by the time the reform was implemented he was
out of the State Department completely and starting a new life as
a professor at the Massachusetts Institute of Technology. Exhausted by
his work on the Marshall Plan, and anticipating Truman’s defeat in the
1948 election, he had been contemplating such a move for a while, giving
seminars at Princeton and Yale, but with no luck.
The result was different at MIT primarily because of the intervention
of Richard Bissell, himself a 1939 Yale Economics PhD perennially on
leave from his MIT appointment during the war, who had asked MIT for
even more leave in order to serve as deputy to Paul Hoffman, the first
administrator of the Marshall Plan in Europe. Bissell had come to know
Charlie through the Marshall Plan work, Bissell serving as Executive
Secretary of the Harriman Committee which lobbied for the Plan, and
he recommended Charlie to MIT.36 Charlie visited Cambridge, this time
no formal seminar just office visits, most importantly with W. Rupert
Maclaurin, and he was offered the job: “associate professor with
a promise of full professor in three years.”37 He took it and bought
a house at 37 Bedford Road in nearby Lincoln, and that was his life for
the next forty-one years. “Bissell got me this job, and I’ve never regretted
it.”38
The resistance of Princeton and Yale, however, is something that
needs to be understood – indeed, is something that Charlie himself
worked hard to understand and to counter, determined as he was to
make good in his new academic career. Charlie’s seminars at Princeton
and Yale had mounted an economic defense of the Marshall Plan,
a defense he would later expand into the book that got him tenure, The
Dollar Shortage (1950). The fundamental objection of people like Frank
Graham and Jacob Viner, the professors who tanked his academic
36
Bissell would ultimately resign his position in 1952 when he shifted from the
Economic Cooperation Administration to the CIA. See Bissell (1996).
37
38
94

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seminars, came from their stolid belief that “any structural disequilib-
rium could be cured by leaving it to the market.” It was a belief that
Charlie had met before in the work he did as a government economist,
but one so obviously out of touch with conditions on the ground that it
had not been hard to overcome. As chief of GA, Charlie’s mantra had
become “If markets don’t work, don’t use markets.” In academia, as he
was learning, theoretical priors were much harder to shift. He put it down
to what he would call the “fallacy of misplaced concreteness”; for lack of
concrete information about actual conditions on the ground, economists
fell back on the concreteness of their merely theoretical ideas about how
the world works.
To be sure, Charlie always had in the back of his mind the ideal system
of multilateral trade, the theoretical ideal that is the trained economist’s
instinctive reference point, and an ideal that had in fact been approxi-
mated by the multilateral system of the nineteenth century. However, his
point always was that construction of such a multilateral system had
involved a lot more than just leaving things to the market. Indeed, “the
multilateral system of the nineteenth century was an accident, built of
British economic hegemony, the London capital market where dis-
tressed debtors could raise funds, and the British commodity markets
where distressed goods could be sold.”39 In the immediate postwar
period, none of these conditions pertained.
Rather, under actual postwar conditions, the fundamental problem was
structural disequilibrium. “The ultimate restoration of convertibility and
multilateralism presupposes that the resources within the countries in the
system will already be located in those occupations at which they can earn
the highest return,”40 which presupposition was clearly counterfactual for
Europe. The necessary reallocation of productive resources would take
time, and meanwhile opening up markets prematurely could easily disrupt
the necessary adjustment, for example by destroying what already exists,
leaving nothing behind with which to build toward the future. Specifically,
39
Kindleberger (1987b, 58). Compare Kindleberger (1973, 292), which emphasizes the
central role of the United States in the postwar multilateral system, without, however,
ever using the word “hegemony.”
40
95

MONEY AND EMPIRE
in a world in which every country except the United States faced

a structural deficit on the balance of payments, each country on its own
would most likely address its deficit by cutting imports, and the result
would be a general breakdown into autarky, exactly the opposite of what
was needed. From this point of view, the Marshall Plan worked precisely
because it covered the structural deficits of Europe for four years, thus
buying time for recovery and structural adjustment. Put another way, by
covering the deficits, the Marshall Plan allowed the deficits to appear,
thereby creating the conditions for a possible system of multilateral trade
to emerge.
Of course, the Marshall Plan only covered the deficits for four years –
hardly long enough to address fundamental disequilibrium. That’s why
Charlie was no fan of the European Payments Union, established in 1950.
In his mind, the key problem was not economic integration inside Europe,
but rather integration of Europe into the larger world economy. Once the
United States no longer covered the structural deficit of Europe as a whole,
the danger was that Europe would instead solve its problem by cutting
imports from the rest of the world, retreating into a regional autarky. The
success of the Marshall Plan had merely been to provide for restocking the
inventories of the existing European system of production and exchange;
by 1952 the European economy was back on its feet, but the problem of
structural disequilibrium remained.41 By then, however, an alternative
source of dollars had begun to emerge in military expenditures for the
North Atlantic Treaty Organization, established April 1949, in effect
extending US balance of payments support even after the end of the
Marshall Plan, helping to avoid retreat into regional autarky.
To repeat, it was the concept of persistent structural disequilibrium
that orthodox economists found so hard to accept, and that blighted
Charlie’s prospects at Yale and Princeton, but that was not the full extent
of the intellectual challenge that Charlie faced as he entered academia.
Charlie’s experience in the State Department had led him to expand his
conception of equilibrium and disequilibrium to incorporate political as
well as economic dimensions. The economist’s mantra to simply “cut
inflation and devalue” wouldn’t work, not only for balance of payments
41
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reasons, but also because such a policy hits different social groups differ-
ently, and those most affected may well respond in ways that destabilize
the political equilibrium which is presupposed as a condition for imple-
menting the policy. Simply put, a reasonable degree of economic equal-
ity may well be a prerequisite for economic equilibrium: “Political
stability in Europe requires not only an increase in the standard of living
of the peasant and laborer in Italy and Greece, but also a reduction in the
conspicuous consumption of the Italian landowner and the Greek ship-
ping magnate.”42
That’s why Charlie had objected to General Clay’s cozy relationship
with the German industrialists, and that’s why he had seen the capital levy
as a crucial element of the German monetary reform. Indeed, Charlie
always saw political cooperation, not economic cooperation, as the essen-
tial element of the Marshall Plan. Crucially, no country would get anything
from the Plan unless they all came to an agreement on who would get what,
and that forced construction of a new kind of political equilibrium across
Europe. “The division of aid without objective economic or political
criteria was a creative cooperative act, forced on Europe by the United
States, no doubt, but nonetheless cooperative. The type of sharing implied
in this act is the basis of forging many into one sovereignty.”43 “In the
Marshall Plan, the economics profession got an opportunity to spend
$17 billion to test a theory about the relationship between economic
dislocation and political behavior. The experiment was a success.”44
At MIT, Charlie would develop this idea of political equilibrium into
a little paper, “The Distribution of Income, Political Equilibrium, and
Equilibrium in the Balance of Payments.” Rejected by Harvard’s Quarterly
Journal of Economics, Charlie published it anyway as an appendix to
The Dollar Shortage.45 For him the problem of structural disequilibrium
was fundamentally both political and economic and could only be
addressed effectively by engaging both dimensions at the same time.
Economists did not apparently agree but, fortunately for Charlie, MIT
42
43
44
45
KPMD, Box 1, Edward Chamberlin to CPK, Dec. 9, 1949.
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was willing to buck economic orthodoxy by promoting him to tenure

anyway. Charlie never forgot it. By nature he was always a team player,
and now MIT was his team. Significantly, one of his first acts after joining
MIT was to recruit Walt Rostow to join the team with an appointment in
History. Clayton’s economists were shifting to MIT.
For the first part of his career, Charlie’s path had very much paralleled
that of Emile Despres, starting at the New York Fed and then, after a year
on his own at the BIS, continuing at the Board of Governors, the OSS
during the war, and the Department of State after the war. It is important,
therefore, to appreciate that although he could have followed Despres
into academia at Williams College, he actively chose not to. (Both Emile
Despres and Chandler Morse had shifted to academia earlier, even as
Charlie stayed behind to help with the Marshall Plan.) He told Despres it
was for family reasons, due to the physical isolation of the College way out
in western Massachusetts, but Charlie had his own reasons, as he would
later reflect: “It was intellectually debilitating to be too long a colleague
of Despres, as it was often easier to ask him his solution to a problem than
to work it out for oneself.”46
In context, the choice of MIT can thus be understood as a kind of
declaration of intellectual independence. After coauthoring a short
paper with Despres in 1951, “The Mechanism for Adjustment in
International Payments – The Lessons of Postwar Experience,” Charlie
did not collaborate with him again until 1966, in their famous “The
Dollar and World Liquidity: A Minority View” (with Walter S. Salant)
for The Economist. They did remain friends, however, and kept in touch,
visiting regularly and then, after 1961, when Despres moved on from
Williams to Stanford, maintaining a regular correspondence.47 But each
pursued his own local professional agenda.
46
47
Recommendation letters from Charlie and also Paul Samuelson were instrumental in
effecting Despres’ move to Stanford. KPMD, Box 3. CPK to Lorie Tarshis, Mar. 4,
1960.
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II
INTERNATIONAL
ECONOMIST, 1948–1976
99

CHAPTER 5
Tech
A friend of mine was fond of enunciating, “What doesn’t kill,

strengthens.” But that is not true either. Something that might
not kill you might nevertheless leave you crippled.1
In 1948, MIT was not the economics powerhouse it would later become.
For one thing, back then the economists mingled with other social
scientists in one single department, which existed mainly to service
students majoring in engineering of one kind or another. Paul
Samuelson had been charged with producing an introductory textbook
suitable for that student body, the first edition published in 1948; but
conservative alumni objected to the Keynesian thrust of the book, and
the administration had to get involved.2 In a communication to the
alums, department chair Ralph E. Freeman assured that “the group we
now have includes no freaks or extremists . . . all of the members of the
Department share a desire to preserve and improve the free institutions
of America.”3 He might have been talking about Charlie who, with his
twelve years of government service, carried more weight with business
practitioners than academics like Samuelson ever could.
In addition to service teaching, the department had begun offering
a bachelor’s degree in Economics and Engineering, which yet attracted
very few students; it also supported professional courses in Business and
Engineering Administration, but particular attention of the faculty
focused on the fledgling graduate division. Lawrence Klein had been
1
Kindleberger (1991a, 131). See also Kindleberger (1964, 327 n. 3).
2
Giraud (2014, 139–143).
3
MIT Archives. Office of the President, 1930–1959. Box 93 “R.E. Freeman, 1945–1954.”
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MONEY AND EMPIRE
the department’s first PhD, graduating in 1944, supervised by

Samuelson. In the next decades, Charlie along with Robert Solow,
hired in 1949, were the two most popular choices for thesis
supervision.4 In sum, when Charlie joined the MIT department, it was
essentially a startup, a work in progress, and Charlie was hired to help
with the heavy lifting involved in getting the project off the ground.
Officially, his job was to teach International Economics and to provide
graduate advising, while sustaining at the same time a credible personal
research trajectory: “At MIT teaching was a valued activity but research
was vital. People worked their heads off, some like Paul Samuelson with
the most relaxed air in the world, others practically running from place
to place.”5 It rubbed off on Charlie. After years of running around at the
State Department, he embraced the virtue of Sitzfleisch, putting in long
hours at the desk, in the office four days a week in order to be available to
students and then at home in his study on Fridays and weekends.
Long after retiring from MIT, Charlie published what he called “my
working rules,” the very first one stating: “be available to students. That is
what you are paid for.”6 That’s why he maintained four days a week in the
office, where he kept his office door open and prided himself on his class
preparation. He had been hired to teach International Economics, and we
know what he taught because economic necessity forced him to turn his
lecture notes into a textbook. Working rule #3, “do not be a perfectionist,”
allowed far too many errors in the first edition (1953), errors that were
fixed by student assistants in the second (1958). In the classroom, that’s
how he taught also, using his lectures mainly to inspire students, and
relying on the students themselves to fill in the details after lecture.
He took his teaching responsibility seriously, ensuring student mas-
tery of the standard corpus, but there was always a larger agenda as well.
Speaking to the economics profession as president of the American
Economic Association, he recalled: “I have from time to time suggested
that host countries resist the intrusion of strangers . . . usually adding that
it is the task of international economics to extirpate these primitive
4
Cherrier (2014, 25).
5
6
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TECH
instincts and to teach cosmopolitanism.”7 Not only did Charlie teach

cosmopolitanism, he personified it, offering a model that students were
invited to emulate and make their own.
Foreign students particularly noticed and appreciated this. Here is
Ryutaro Komiya, a student visiting from Japan whom Charlie had met
and befriended in 1955, reminiscing at a dinner to celebrate Charlie’s
eightieth birthday:
You are always fair, internationally minded, and quite free from insular,
nationalistic, and racial prejudices. You look at both sides of the matter
when the interest of different groups are in conflict. To be unprejudiced
and internationally minded is an advantage for an economist, especially for
those specialized in international economics, but I found, both with regard
to myself and others, that it is not easy to be free from a nationalistic bias.8
Not easy, indeed. Elsewhere in the MIT economics department, the

predominant spirit of “policy relevance with rigor” tended to emphasize
measures for improvement of national economies, which is to say
Keynesian fiscal and monetary policy for full employment in the short
run and microeconomic measures to promote long-run economic
growth. In this context, it was especially the task of the international
economist to teach cosmopolitanism, simply because no one else was.
We postpone to later chapters a deeper dive into Charlie’s dis-
tinctive approach to international economics in order to place it
properly in the context of concurrent policy debates in the outside
world and concurrent theoretical debates within academia
(Chapters 6 and 7). The present chapter proceeds instead to provide
the scaffolding for that more detailed treatment, as well as for the
chapters that treat Charlie’s post-MIT career as an economic histor-
ian (Chapters 8 and 9).
Charlie’s job was in Cambridge, but his home was in Lincoln, a leafy
suburb to the northwest. The choice to live there was a conscious attempt
to replicate the country life the Kindlebergers had so enjoyed on
7
8
KPMD, Box 24, “Reminiscences of Charles P. Kindleberger on his Eightieth Birthday,
October 12, 1990.”
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Seminary Hill, driving in to work, sometimes carpooling or taking the

train. The house was an old Victorian (circa 1840) on an undersized lot,
drafty and with a creaky heating system, but Charlie loved it. He loved
chopping wood, cutting the grass with a push mower, tending his garden,
and he even tried his hand at beekeeping. In summers, when his mother-
in-law visited and took over his study, he moved into the old chicken coop
in the back yard. The picture on the back cover of his autobiography
shows him standing in the doorway of that outbuilding, and you can just
make out the stacked beehives in the background. There he worked,
banging away at his manual typewriter, taking typewritten notes on
whatever he was reading and arranging them in an expanding set of
loose-leaf binders: “Napoleon’s armies marched on their stomachs. I do
research in economic history with a three-hole punch.”9
He took pride as well in participating in town affairs, founding the
Rural Land Foundation to buy up land for conservation, and building
lifelong friendships with his noneconomist neighbors. His best friend was
Charles Jenney, a Latin teacher at The Belmont Hill School, and other
close friends included the Episcopal minister Rollin J. Fairbanks and his
wife Phyllis (to whom Charlie dedicated one of his books), and Groton
School teacher Fitzhugh Hardcastle and his wife Edith. Money was always
tight – extra money went into the children’s education before anything
else – and Charlie’s biggest regret was that he never felt able to buy
a sailboat of his own. But he did rent boats from time to time, and it
was his noneconomist neighbors as well as family in-laws Aunt Jen
(Sarah’s sister) and Uncle Will Walker who most often would accompany
him. Typically, these excursions took place off the coast of Maine, but
once in summer 1961 off the coast of Sweden for two weeks with the
Hardcastles. Echoes here of privileged childhood summers in
Jamestown.
The Swedish sailing trip was a break during Charlie’s second
sabbatical year (1960–1), which he spent mostly at Oxford and Paris.
He had spent the first sabbatical (1953–4) in Geneva, “under practically
ideal conditions . . . As guests of the Economic Commission for Europe of
the United Nations, at the invitation of its executive director Gunnar
9
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Myrdal.”10 And he would spend the third sabbatical (1970–1) in Kiel and
Rome. Each of these sabbaticals produced a book, but the locations were
always chosen as places that Charlie especially wanted to visit. Echoes
here of the foreshortened BIS adventure.
Children came along on all these adventures, but child rearing, both
at home and abroad, was almost entirely the domain of Charlie’s wife,
Sarah, as was perhaps typical in those prefeminist days. Charlie’s books
thus came at the expense of some neglect of his children, and perhaps
also some neglect of his wife, who found outlet for her own energies in
social work, volunteering at the library, and civil rights activism. After the
last child was safely off to college, it was Sarah’s idea to spend a year at one
or more of the historically black colleges, which took her and Charlie to
Atlanta for 1967–8, and led to Charlie’s ongoing engagement as a trustee
of Clark College. The assassination of Martin Luther King in April 1968
was, Charlie recalls, “the towering event of the year,” especially so
because King had been a graduate of local Morehouse College where
he was teaching a class.11
Life at 37 Bedford Road had its definite routine, but birthdays
and anniversaries were always special opportunities for fun. At
Charlie’s sixtieth, a favorite nephew penned a limerick that
Charlie saved:12
There was an old geezer from Lincoln

Who said “Birthdays set me to thincoln
Bout the meaning of life
And the love of a wife
But the best part of them is the drincoln.”
10
Charlie would have occasion to return the favor in his memorial tribute to Myrdal: “I
first met Gunnar and Alva Myrdal at a party in New York given by a Fortune editor and
his wife, Jack Jessup and Eunice Clark, to celebrate the release of John Strachey from
Ellis Island, where he had been detained as a Communist sympathizer because of the
tone of his book, The Coming Struggle for Power” (Kindleberger 1987c). Strachey’s
account of his experience “A Reporter Confined” was published in The New Yorker
(Nov. 12, 1938).
11
Kindleberger (1991a, 186). Charlie’s report on that year “Teaching Economics at
Atlanta University Center, 1967–68” may be found at KPTL, Box 8.
12
KPMD, Box 1. The limerick is dated 1970, and the menu 1965.
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A menu saved from another special occasion adds detail about food choices:
The Diningroom of the Kindleberger Maison

Cocktail a la Kindleberger
Scotch Eggs, Frikadeller [Danish meatballs], Brasede
Kartofler [German Potatoes], Haricots verts
Trifle Surprice
Kaffe Coffee Cafe
The choice to live in Lincoln created physical separation from MIT

colleagues, but social life nevertheless definitely included them. Charlie
would invite his economist colleagues out for cocktail parties on occa-
sion, and in summer he would have the graduate students out for
a picnic. Work life and home life were thus for him an integrated
package, a rich life even if without much money. Most importantly, it
was a life that enabled him to write his books – twenty-five of them as of
1991, when he wrote his autobiography, and six more after.13 He self-
diagnosed “an acute case of hypergraphia,” but also “occupational
therapy” and “keeping alive by keeping busy,” and he was quick to
specify that, of all his books, only about ten (!) constitute “real books,”
the rest being mostly collections of papers or lectures and textbooks.
“I would emphasize in concluding that an economist’s life is a good one.
Unlike a dean or a college president, one can measure output in
printed words.”14
Returning to academia in 1948 after twelve years away, and now able to
choose his own intellectual direction, Charlie seems to have picked up where
he had left off before the war when he was working with Hansen (see
Chapter 3). His June 1942 memo had identified a series of “disequilibria
for which remedies must be found within the continuing post-war trade
system”:
Among these are the chronic world shortage of dollars; the continuous
balance of payments deficit of the British Isles and a few other countries of
13
KPMD contains outlines for three more collections that never found publishers: The
Economic Review as a Literary Art Form, edited by Stephen Magee (Box 8); The Finance
and Economy of France (Box 25); and The Economist and the Academy (Box 19).
14
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Western Europe; the problem of “hot money” which may be still further
aggravated after the war by the increased proportion which liquid claims
bear to national wealth in all countries; and the world trend of the terms of
trade against agriculture in favor of manufacturing.15
The first of these would be the topic of The Dollar Shortage (1950). The
third was not yet a problem given the capital controls established at Bretton
Woods (but see Chapter 6). The second and fourth Charlie would initially
pursue by accepting “moonlighting” teaching assignments outside MIT,
respectively a year-long course on “The Economy of Europe” at Columbia
University and courses on development economics at the nearby Fletcher
School of Law and Diplomacy.16 The purpose of taking on all this extra
teaching was not only intellectual broadening, but also helping with family
finances since Charlie had taken a substantial cut in pay when he shifted
from government to university work, even as the Kindlebergers welcomed
their fourth child, Elizabeth Randall, born August 1949.
In his preface to The Dollar Shortage, Charlie frames the book explicitly
as an attempt to “bridge part of the gap between government and
university economists, widened by the irritation of the former with the
latter for their lack of responsibility and the occasional patronage of the
latter for the former as students who failed of academic distinction.”17 It
is easy to see that it is Charlie himself who has felt irritated and patron-
ized, not least in those failed job talks at Princeton and Yale, and to see
also that he is determined in his new job to keep one foot deliberately in
each world. Indeed, Charlie probably imagined that his future academic
work would be supported by government contracts of one kind or other,
just as The Dollar Shortage had been supported by his ongoing consulting
work for the Economic Cooperation Administration (the Marshall Plan).
That seems to have been the plan.
Even more, his 1951 paper “Group Behavior and International Trade”
points to the likely intended direction of his immediate posttenure
15
KPMD, Box 5, folder “Post World War II Planning.” “The Bases of an International
Program for National Development after the War” (June 24, 1942), p. 5. The pub-
lished version (Kindleberger 1943b) leads with more or less the same list, though with
dollar shortage listed fourth rather than first.
16
17
Kindleberger (1950, v).
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research. Inspired by reading Polanyi’s Great Transformation, Charlie was

interested in developing a “theory of group behavior at the national
level . . . in particular, a theory that systematically makes allowances for
variation in the relation of subgroups that make up the larger entity . . . as
an adequate adjunct to the analytical tools of the market.”18 Basically
a work of comparative political economy, the paper takes an inductive
approach, comparing the response of different European countries to
the dramatic fall in the price of wheat that resulted from the entry of
American supply in the nineteenth century. Finding himself in an inter-
disciplinary department, Charlie was embracing a broadening of the
decision horizon of economics. This also seems to have been the plan.
But it was not to be, most immediately because in April 1951 Charlie
lost his security clearance and was unable to be hired for government
work in any capacity. Why so? Eventually he would find out, as we shall
see, but in 1951 he could only guess. The precipitating event was his
application the previous August for so-called Q (top secret) clearance
through the Atomic Energy Commission “in response to a request of
Dr. H. P. Robertson of the Weapons Systems Evaluation group to make
myself available for work with his office on a consultant basis.”19 In his
autobiography, Charlie says “I disliked intensely being refused clear-
ance,” but that is just a WASP’s way of saying that he was mad as hell.20
At the very least, the refusal threatened his livelihood, but it was about
more than money.
One gauge of his true feeling is his outrage on behalf of General
Marshall: “A recent revisionist book on postwar economic recovery took
potshots at many of the characters involved and said of Marshall that he
had ‘as yet an unsullied character.’ I find the ‘as yet’ obscene.”21
Given Charlie’s own war service, which had involved top secret clearance,
and which had been recognized with a Bronze Star, the potshots taken at
him by anonymous denouncers might themselves be considered
18
Kindleberger (1951b, 30, 56). On Polanyi specifically, see Kindleberger (1974a).
19
20
21
KPMD, Box 3, “Correspondence 1973–89,” CPK to Alfred Malabre (Oct. 7, 1988). The
offending passage can be found at p. 56n in Alan S. Milward, The Reconstruction of
Western Europe, London: Methuen, as cited in Kindleberger (1987b, 263).
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TECH
obscene. Remembering his postwar work on the Marshall Plan, Charlie

allows himself an emotional outburst: “Every night a brief case went
home. Many nights I stayed late. Work proceeded every Saturday and
most Sundays. One gets annoyed that derogatory information is pro-
duced only from 9–5, with lots of time off for coffee, and clearance
takes many months, when many of the people cleared or not cleared
used to work their tails off.”22
To make up for the lost income, Charlie turned to textbook writing,
starting with International Economics (1953), but the more serious loss was
intellectual. It was now going to be impossible to build a career bridging
the worlds of government and academic economics, as he had planned.
Charlie’s subsequent reflections on the multiplicity of new postwar inter-
national organizations – the IMF, World Bank, but also OEEC and ECE,
United Nations and ECOSOC – have the flavor of ruminations on an
alternative life not lived.23 In effect, the loss of his clearance meant
nothing less than loss of the hay supply he had been depending on to
fuel his research. Of necessity, both of his feet were now in academia, and
he was forced to find a different source of hay. We see him doing that in
his next book, the heavily empirical Terms of Trade, A European Case Study
(1956), written with the support of the Merrill Foundation, and after that
in the heavily historical Economic Growth in France and Britain, 1851–1950
(1964), written with the support of the Ford Foundation. It was not the
life that he had planned, but it is recognizably an adaptation of that plan
to changed circumstances.
It could have been worse. MIT could have taken the clearance issue as
a reason to refuse promotion, as happened to MIT’s first PhD, Lawrence
Klein, at the University of Michigan. In his memoirs, MIT President
Killian includes a chapter entitled “Communist Charges and McCarthy
Harassment,” which reports that in April 1949, six days after his inaugur-
ation, an FBI informant accused mathematics professor Dirk Struik of
teaching “red revolution.” One of Killian’s very first official tasks as
president thus involved scrambling to develop an institutional response.
22
23
Kindleberger (1951a; 1955a).
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MONEY AND EMPIRE
MIT suspended Struik, with salary, for five years, until finally the case was
dropped for lack of evidence.24
In this regard, it is important to note that Charlie’s own promotion
was happening at the exact moment that MIT was setting up the Center
for International Studies, secretly accepting CIA money that Harvard had
turned down because of the CIA’s security restrictions.25 Cold War com-
petition with the Soviet Union was on, and MIT was proud to be of
service, just as it had been during World War II when it had developed
vital radar systems at the famous Radiation Lab. Had Charlie not lost his
security clearance, one can imagine that he might have put himself
forward as a candidate for directorship of the new Center, perhaps
partnering with his wartime buddy Walt Rostow, who produced the first
two studies for the Center under classified CIA contract: one on the
Soviet Union and one on Communist China.26 Indeed, possibly it was
the prospect of involvement with the new Center that triggered the
fateful 1951 security investigation in the first place, which then had the
effect instead of blocking that involvement.
In the event, instead of Charlie it was Max Milliken, a former student
of Bissell brought back from the CIA, who got the director job and held
the post until his premature death in 1969. Under Milliken’s administra-
tion, the CIS became the intellectual center for social sciences at MIT,
attracting large grants from the Ford Foundation (where Bissell had
moved after the Marshall Plan), which built up first the economics
department and then the political science department. But without
security clearance, Charlie’s involvement in all of this was inevitably
limited.
For a brief period in 1956, Charlie thought he saw a way to clear his
name. Following the advice of lawyer friends Walter Surrey and Monroe
Karasik, he produced “An Interim Biography”: 100 typewritten pages
plus multiple appendices.27 The idea was to get hired at the Council of
Economic Advisors and then try to arrange for a hearing if he could not
24
Killian (1985, 150–157).
25
Blackmer (2002).
26
Rostow (1952, 1954).
27
KPTL, Box 9. CPK to Monroe Karasik, June 25, 1956.
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TECH
get cleared; the biography was for the anticipated hearing. But nothing
came of it because Arthur F. Burns, chairman of the Council, thought “it
meant too much trouble.”28 While Charlie was waiting, however, and
apparently hoping for the best, he took on an assignment for the Center,
producing in short order a report, “The Objectives of United States
Economic Assistance Programs,” under contract for a Senate hearing
January 1957.29 The CIS was already on record advocating increased aid
for economic development up to the so-called “absorption limit” in any
given country, in a book by Milliken and Rostow, A Proposal: Key to an
Effective Foreign Policy (1957). In his report, Charlie offers his own spin.
Ever since the outbreak of the Korean War in 1950, US aid had been
focusing mainly on military support to counter the Communist military
threat, but the end of that conflict brought opportunity to shift instead
toward economic development proper. Just as the Marshall Plan had
successfully assisted longer-term reconstruction in Europe (1948–52),
so too a program that channeled capital funds to the underdeveloped
world could assist in their transition to self-sustaining growth. In the
Marshall Plan, the initial idea had been to use the Economic
Commission for Europe as the coordinating body. In his report,
Charlie analogously proposed creation of an International
Development Advisory Council to oversee distribution of largely US
funds. Echoes here of his prewar work with Hansen on a possible
International Development Authority.
In context, we can thus understand the 1957 report not merely as an
attempt by the CIS to shift US policy, but more locally as an attempt by
Charlie to shift CIS policy away from Cold War competition with the
Soviet Union and toward the more globalist Hansenian vision that he
preferred. In the event, neither attempt was successful, and Charlie’s
security clearance plan also failed because of Burns’ timidity. Once again,
Charlie compensated by turning to textbook writing, now Economic
28
29
Kindleberger (1957a). The report lists Charlie as one of many CIS researchers
involved in its production, but Charlie lists the report on his CV without mentioning
any coauthors. According to Blackmer (2002, 102), it was this report that prompted
William F. Buckley, Jr. publically to reveal the previously secret CIA funding of the
CIS.
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Development (1958), which makes extensive use of facts and figures gath-
ered by CIS researchers but within an entirely different analytical frame.
For Charlie, economic development was always a business thing, not
a Cold War thing. It was about the developing countries catching up
with the developed world, not about US competition with the Soviet
Union for influence over them. Further, for Charlie, the critical ingredi-
ent in the growth process was not so much capital formation as what he
called “the social capacity of labor for economic development.” The key
thing is to change people, and that suggests focus on “two major growing
points . . . transport (and communication) and education.”30
Charlie’s 1957 report for the CIS focused on using public funds from
the global North to create public goods in the Global South in order to
prepare the ground for later private investment, both domestic and
foreign, and self-sustaining growth. The economics of that subsequent
private foreign direct investment, however, remained largely unexam-
ined until Charlie, in collaboration with Stephen Hymer, his thesis
student from 1958 to 1960, turned his attention to the problem.
Hymer’s thesis, “The International Operations of National Firms:
A Study of Direct Foreign Investment,” though rejected in 1960 for
publication in the MIT economics department series on the grounds
that “the argument was too simple and straightforward,” laid the founda-
tion for more or less all of Charlie’s subsequent thinking on the topic.31
The central idea was that direct foreign investment was primarily
driven by the attempt of essentially national firms to more efficiently
organize their international operations by bringing them under central-
ized control. Just so, typically American firms make equity investments in
foreign firms, which they then integrate with their own domestic oper-
ations, even as they use the foreign platform to raise creditor capital in
the foreign country. It follows that foreign direct investment is not so
much a part of the theory of international capital movements, but rather
part of the theory of the firm. For Charlie, the most compelling thing
about these international operations was the prospect that they would
eventually lead national firms to become essentially international actors,
30
Kindleberger (1958b, 56, 161).
31
Hymer (1976, xiii).
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TECH
hence potentially a powerful force pushing toward the creation of an

integrated world economy.32 The “Global Reach” of American corpor-
ations that leftists would deplore was thus something that Charlie as an
internationalist was always more inclined to embrace.33
Charlie would go on to incorporate the Hymer analysis as chapter 21 in
the third edition of International Economics (1963) and to pursue an active
sideline on the topic, starting with American Business Abroad (1969) and
continuing with assorted shorter pieces collected in Multinational
Excursions (1984). He also edited multiple volumes, the output of confer-
ences that broadened the community that built on Hymer’s work, most
importantly The International Corporation (1970), but also Multinationals from
Small Countries (1977), and The Multinational Corporation in the 1980s (1983).
That’s a lot of books, but it was really always only a sideline for Charlie,
pursued in part because of a sense of personal responsibility for a favorite
student, particularly after Hymer’s untimely death in 1976. Significantly, in
Charlie’s final collection of his own favorite papers, he includes nothing
from this sideline, “a subject in which I have lost research interest.”34
Blocked as Charlie was from the intellectual center for social sciences
at MIT, he instead sought and found community down the road at
Harvard, joining the interdisciplinary seminar on France at the Center
for International Affairs (CFIA). It was this stimulating group of political
scientists, sociologists, and lawyers that supported Charlie’s first real work
of economic history, “The Postwar Resurgence of the French
economy.”35 Sabbatical in 1960–1 gave him time to develop the argu-
ment further into a book-length manuscript, Economic Growth in France
and Britain, 1851–1950 (1964). And European travel in summer 1964,
financed by the CFIA, gave him the chance to bring the project to
conclusion in Europe’s Postwar Growth: The Role of Labor Supply (1967).
Here he proposes the Lewis model – “the model of growth that Marx
identified and regarded as highly exploitive of labor” – as a unifying
framework for understanding the variety of European experience, both
32
Kindleberger (1967a).
33
34
35
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over time and across countries.36 It was surplus labor supply that had
produced the super-growth of the immediate postwar period, and it was
the drying-up of that supply that was bringing that super-growth period to
an end.
It was thus Harvard not MIT, and the CFIA not the CIS, that kept
Charlie going during his years in the wilderness. In context, we can
understand his championing of the Lewis model as an attempt to pose
an alternative to both Rostow’s Stages of the Economic Growth (1960), which
was the favored frame at CIS, and also to Solow’s (1957) neoclassical
growth model, which was the favored frame in the MIT economics
department. In the event, it was the Solow model, applied to Europe in
the statistical growth accounting exercise of Denison (1967), that would
carry the day. Increasingly, Charlie would find his audience not only
outside MIT but also outside economics.37
Eventually Charlie did get his clearance back, in September 1962,
after the Kennedy administration hired him through the office of the
Undersecretary of State, but by then he was no longer the same person
he had been ten years before.38 He did take advantage of the clearance
to dabble a bit in government consulting around international monet-
ary reform, starting with a memo for his old EOU buddy Robert Roosa,
“Suggested Lines of Evolution for the International Monetary System”
(January 7, 1963), which he developed further in a memo for the
Treasury, “Summary of Views on US Balance of Payments Position
and Policy” (April 2, 1963).39 And two years later he was appointed
to President Johnson’s Advisory Committee on International
Monetary Arrangements.40 But it was really too late for him to build
36
Kindleberger (1967b, 8), Lewis (1954).
37
One exception, his student Peter Temin (2002) would subsequently build on
Charlie’s preferred analytical structure.
38
His application is dated December 5, 1961. The ultimate resolution is stated in a letter
from the US Civil Service Commission, Bureau of Personnel Investigation, dated Sept.
26, 1962. KPTL, Box 8.
39
The Roosa memo may be found in KPMD, Box 21. The Treasury memo was published
as ch. 6 in Kindleberger (1966).
40
In his autobiography, Charlie refers to this committee as the LBJ Presidential
Committee on International Monetary Policy, but historians call it the Dillon
Committee, after Douglas Dillon its Chair. Apparently its first meeting was July 16,
114

TECH
the kind of government–university bridge he had originally planned.

Not only was Charlie different, but so was the government and so was
the university.
In government, the big difference was political leadership: “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 heard this, I thought it was funny. Now I think it
tragic.”41 As we shall see (Chapter 6), in Charlie’s view the United States
was not running a balance of payments deficit, rather merely supplying
the world’s demand for dollars as a liquid reserve. When President
Johnson proved no better on this point than his predecessor, Charlie
took the earliest opportunity to resign from the Advisory Committee and
to pursue instead a public campaign on the pages of The Economist with
his friends Emile Despres and Walter Salant. Their article, “The Dollar
and World Liquidity: A Minority View,” raised a ruckus, but did essentially
nothing to stem the tide.
In economics, the big difference was methodological. When Charlie
first joined MIT, the kind of economics that he did – so-called literary
economics, as opposed to modelling, whether mathematical or statis-
tical – was already old-fashioned, but fourteen years later it was barely
even recognizable as economics by a new generation reared on the latest
technique. And, of course, by then MIT, under Paul Samuelson’s intel-
lectual leadership, was positioning itself as to go-to place for young
scholars seeking professional training in this changed conception of
economics. The older generation at MIT never lost their respect for
Charlie, a respect based on his wide knowledge about the world and
intuition about current economic problems, but increasingly he was
a fish out of water, “MIT not being the sort of place that attracts students
of economic history.”42
As at the Kent School, Charlie found other ways to help the team,
ultimately trying his hand at academic administration as chairman of the
1965, memorialized by a press conference and statement by President Johnson, so it

was a relatively brief sojourn for Charlie.
41
42
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MONEY AND EMPIRE
faculty (1965–7) with a view toward possible deanship or college presi-

dency. In the end, however, he decided instead to rededicate himself to
scholarship, though it took several tries before he found his footing.
During his year away in Atlanta, he dusted off some lectures he had
earlier produced on the multinational corporation and published them
as American Business Abroad (1969). And then, back at MIT, he tried
writing a third textbook, now exploring the boundary between inter-
national economics and international politics. Published as Power and
Money (1970), the book found not much market in either discipline,
though it would later be rediscovered and hailed as a founding text of
the new subdiscipline of International Political Economy.43 Next, in his
third sabbatical (1970–1), he returned to the comparative political econ-
omy project he had floated twenty years earlier, adding more case studies
and eventually publishing the result as Economic Response (1978). Upon
his return from sabbatical, a group of his former students presented him
with a festschrift: Trade, Balance of Payments, and Growth.44 It was an
“affectionate tribute” but also a not-so-subtle hint that his time had
passed.
In the event, it was the fortuitous invitation to write what became
The World in Depression, 1929–1939 (1973) that finally showed the road
forward, that is, financial history. To make room for this new life
venture, Charlie would recruit coauthors for his two successful text-
books and thereafter leave periodic revisions entirely up to them. The
decks thus cleared, after retiring from MIT in 1976, Charlie followed
up the Depression book with his best-selling Manias, Panics, and Crashes,
A History of Financial Crises (1978), dedicated to “the MIT Old Guard of
the 1940s.” And he would follow that up with what he would call his
“chef d’oeuvre,”45 A Financial History of Western Europe (1984), dedicat-
ing it to his wife, just as he had his very first book. Having been a civil
servant for twelve years, and then an economics teacher for twenty-
eight, he used retirement to reinvent himself as an economic
historian.
43
Kirschner et al. (1997), Cohen (2008, ch. 3).
44
Bhagwati et al. (1971).
45
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Going his own way at last, unburdened by academic responsibilities

and no longer held back by loyalty to the department he had done so
much to build, he reaped an unexpected reward in the form of election
as President of the American Economic Association. The students who
had learned from his textbooks, especially International Economics, had
become professional economists and voted him in. His presidential
address in December 1985, “International Public Goods without
International Government,” urged a renewed two-way conversation
between economics and political science, as opposed to the one-way
form of economic imperialism urged by Chicago economists Stigler
and Becker.
Summing up his life, in the self-deprecating way of the WASP, Charlie
suggests: “I should perhaps be ashamed of a life of intellectual hit-and-
run, of taking up a topic – foreign exchange, international trade, capital
flows, economic development, the multinational corporation, political
economy, economic history, financial crises, financial history – skimming
the cream and moving on.” “I sometime accuse myself of having
a grasshopper mind, as I and my sisters know our mother had.”46
Perhaps that is how it felt to him. An outsider, however, surveying the
corpus as a whole and appreciating the formative influence of his most
important teachers, sees more coherence and unity.
Most obviously, economic history was for Charlie a method of inquiry
more than it was a subject of inquiry; that’s where he ultimately found
a rich supply of hay ready for processing.47 True economic historians
focus their efforts on digging up new facts from the archives. By contrast,
Charlie, a self-identified “historical economist,” focused instead on tell-
ing his readers what the facts meant. He remained, as I have said,
fundamentally an intelligence analyst, adding value by sifting through
raw intelligence that had been gathered by others.
Even more, it is no accident that over the years he narrowed his
historical inquiry to focus specifically on financial history. Indeed, the
bright thread running through all of his “real” books, and providing the
analytical frame that he used to detect needles and separate them from
46
Kindleberger (1991a, 209–210; 1999, 1).
47
Kirshner et al. (1997).
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MONEY AND EMPIRE
the hay, was an often implicit theory of international money. He never

produced a proper theoretical treatise, no “real” book on the subject,
though his 1937 thesis comes close. Instead, there were essays and lec-
tures, mostly informal things, most comprehensively collected in
International Money: A Collection of Essays (1981), but preceded by the
essays collected in Europe and the Dollar (1966), and succeeded by
International Capital Movements (1987). Instead of focusing his efforts on
mathematical or statistical refinement of this underlying analytical
frame, which is the kind of thing that wins Nobels, Charlie chose to use
it as an entry point for investigating the problems that interested him,
most centrally problems of comparative political economy as revealed in
the financial historical record.
In this regard, it is significant that Charlie’s last published book of
collected essays, titled Comparative Political Economy: A Retrospective (2000),
includes as chapter 4 the 1951 paper “Group Behavior” with which he
had launched his MIT career. Indeed, an overarching theme that runs
through all of the chosen essays is the dialectic of economics and politics.
Whereas the economic logic of the payment system pushes toward hier-
archy and centralization, the political logic of subglobal and subnational
groupings pushes toward autarky and pluralism.48 Economic history, and
especially financial history, records the never-ceasing and always interest-
ing seesaw between these two opposing logics.
In the end, and notwithstanding multiple obstacles along the way,
Charlie managed to do more or less what he had set out to do half
a century earlier. For fifty years, an unusual degree of psychological resili-
ence combined with focused and deliberate adjustment to shocks of
multiple kinds had enabled him to continue producing intellectual supply
even in the face of shifting intellectual demand. Writing in 1987, in an
unpublished paper on Henry George’s “Protection or Free Trade,”
Charlie endorsed wholeheartedly what he takes to be the central message
of George’s book: “Don’t dig in; keep adjusting.” It’s a good motto for
countries seeking economic development, and also for individuals seeking
intellectual development.49
48
See also Kindleberger (1996b).
49
Kindleberger (1987d). See also Kindleberger (2000a, 171).
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TECH
Barred from government work in 1951 by security clearance problems,

Charlie had to find another way, and so he did. In retrospect, maybe we
could even say that losing his security clearance was a kind of gift to
Charlie, shielding him from the distractions of the policy world and
forcing him instead to become a world-class economic historian.
Rejection and failure, he would always say, force innovation, while success
tends to breed stagnation. “I suspect that defeat is a solvent that melts old
ideas and old resistances, whereas victory strengthens the pressure groups
and vested interests that make adaptation difficult.”50 Nevertheless, the
importance of that rejection for his intellectual trajectory poses the ques-
tion: Why exactly did he lose his security clearance?
For a long time, Charlie wondered about that himself. Initially, he
tried to make light of it, coining a witticism: “Derogatory information is
just like gonorrhea. It’s no worse than a bad cold, and you are not a man
until you have had it.”51 But after living with the situation for some years,
and watching as other friends and colleagues got caught up in the witch
hunt, Charlie decided to do something about it. Writing in summer 1956
for the anticipated hearing, Charlie already had reason to know what
some of the derogatory material must be.
Back when he was still at the State Department, as Chief of the Division
of German and Austrian Affairs, he had discovered that the FBI was
monitoring his phone calls and using what they heard “to peddle gossip
from those calls to its sycophantic columnists such as George Sokolsky.”52
The suggestion was that Charlie was working inside the State Department
in support of the Morgenthau Plan for pastoralization of Germany,
presumably as an agent of the Soviet Union, which sought removal of
Germany’s capital equipment for its own use, and against President
Truman’s stated policy. Nothing could be further from the truth, of
course, since Charlie had quite explicitly and strenuously avoided taking
up the position as GA Chief until after US policy had shifted to rebuilding
Germany instead (see Chapter 4). Charlie hired a lawyer and extracted
50
51
KPMD, Box 1, CPK to Cliff Durr, Dec. 13, 1951. See also Kindleberger (1991a, 155).
52
Kindleberger (1991a, 45, 117). Sokolsky’s articles were published in the New York
Herald Tribune, June 5 and July 23, 1947. See Kindleberger (1987b, pp. 196–197, n. 3)
for excerpts.
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MONEY AND EMPIRE
a grudging apology, but the incident made him aware that somehow he
had attracted the attention of the FBI.
Subsequent events had shed more light on the underlying reasons for the
FBI’s interest in him. Shortly after joining MIT, Charlie had been investi-
gated and cleared for work as an outside consultant for the European
Recovery Program of the Economic Cooperation Administration (ECA).
In the course of that investigation, J. Walter Yeagley, Director of the Security
and Investigation Division for the ECA, sent Charlie a formal request for
further information on his contacts with Frank Coe, Harry D. White, David
Wahl, and Mr. and Mrs. Robert T. Miller. That must have been a worrisome
letter to receive in February 1949, right on the heels of the highly visible
August 1948 hearings of the House Un-American Activities Committee,
which had interviewed Robert T. Miller on August 10th and Harry White
and Frank Coe on August 13th. But Charlie responded to Yeagley with
a letter detailing the nature and extent of his association with each man
and that seemed to be the end of the matter. He was cleared.53
Having dealt – as he thought, successfully – with the problem of White,
Coe, and Miller back in 1949, Charlie no doubt anticipated a similar result
when he applied for security clearance two years later. But it didn’t work
out that way. Thinking back on it in 1956, he concluded that there must be
something else: maybe something added after his 1949 clearance?
A particular worry was his friendship with Clifford Durr, much closer in
fact than that with Miller: “We asked Clifford Durr to be godfather of our
daughter Randall, born after we left Virginia, as a sign of our love for
him.”54 Durr had been tangling with the House Un-American Activities
Committee as early as 1942, and for him Truman’s loyalty program, estab-
lished March 22, 1947, by Executive Order 9835, was the last straw, leading
to his resignation on principle in April 1948. Like Charlie, Durr imagined
that he would find more suitable employment in academia, but unlike
Charlie he found all doors closed to him, and so instead embarked on
a career of private civil rights law practice, starting with defense of people
unjustly fired on spurious loyalty charges.55
53
Interim Biography, p. 86, 92.
54
Interim Biography, p. 43a.
55
Salmond (1990).
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TECH
Durr’s principled example may well have been in Charlie’s mind

when, nine months after his own clearance had been refused, he contrib-
uted $10 to the legal defense of Dirk Struik, the MIT professor of
mathematics who had been indicted by a Middlesex Grand Jury on
charges of advocating the overthrow of the US and Massachusetts gov-
ernments. In his letter to the Struik Defense Committee, Charlie expli-
citly dissociated himself from Struik’s political views, but went on to
explain that “I am nonetheless concerned that the constitutionality of
the act under which he has been indicted be tested.”56 It was an act of
principle that nevertheless brought him to the further attention of the
FBI, as he subsequently learned from friends who were questioned about
it. Worrisome.57
In addition to his connection with Durr, in his “Interim Biography”
Charlie also admitted to connections over the years with “Paul Baran,
Andrew Biemiller, Michael Blankford, Lauchlin Currie, Arthur Fletcher,
Harold Glasser, Vladimir Kazekevitch, Owen Lattimore, Mrs. Ivy Litvinov,
Carl Marzani, Bernard Nortman, William Remington, Rowena Rommel,
Paul Sweezy, Donald Wheeler, Nathaniel Weyl, a disparate group of
avowed one-time or current Socialists, Marxists and Communists, and
of persons who have been publicly attacked on security grounds.”58 He
admitted to all of them without apology, and explained each one, as he
had earlier explained his connections with White, Coe, and Miller.
But he appreciated that likely the biggest problem was his close circle
of professional colleagues, most of whom had wound up with security
troubles of their own, in particular Chandler Morse, Emile Despres, and
George Eddy:
It is my understanding that Morse has been refused clearance for Federal

employment of some kind, that Despres has had clearance difficulties
though he has been cleared and that Eddy has been cleared by a Loyalty
Board of charges brought against him in the Treasury in 1954. I assert that
56
KPTL, Box 9. CPK to Struik Defense Fund, Jan. 21, 1952.
57
KPTL, Box 8. In the event, the Boston Division recommended against any formal
interview on the grounds that it “could prove embarrassing to the Bureau” since there
was very little evidence. Report of the Boston Division, Oct. 4, 1954.
58
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I know them well and that I know them to be loyal Americans who have
worked hard and faithfully in their country’s interest.59
In closing, Charlie summarized:
I have indicated in detail the nature of the relations between me and

a group of people who are known to me to have “security trouble” at one
time or another. This group includes most of my friends and associates in
government.
Since I am acquainted or friendly with so many people who have been
subject to derogatory information, the impression may be created that
I am part of a vast conspiracy. It should be pointed out, however, that if one
man in an office is publicly attacked, derogatory information would be
developed in the files of say 30 people associated with him in professional
work, and the fact that these 30 people know each other adds nothing to
the sum total derogation.60
Here Charlie is speaking as a professional economist about the statis-

tical value of data as evidence and trying to teach his imagined inquisitors
a thing or two. In context, this can be read as a dig specifically directed at
the Jenner Committee’s infamous hearings on “Interlocking Subversion
in Government Departments.”61 In the event, however, the anticipated
confrontation with his inquisitors never happened, and Charlie’s defense
simply moldered in the file drawer.
It is one thing to imagine what might be the reason for your clearance
problem, as Charlie was doing in 1956, but another actually to find out.
Eventually, after passage of the 1966 Freedom of Information Act,
Charlie’s curiosity got the better of him and he filed the necessary
paperwork to obtain his FBI file. When the redacted photocopies finally
came and he worked his way through them, he would have discovered
that in fact all three of the counts against him in 1951 were already on
record from the earlier investigation when he had been hired to work on
the European Recovery Program. Further, all three originated from the
59
60
61
Published July 30, 1953, Report of the Subcommittee to Investigate the
Administration of the Internal Security Act and other Internal Security Laws.
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TECH
FBI’s original file on him, opened in October 1946, as part of its investi-
gation into “Underground Soviet Espionage Organization (NKVD) in
the Agencies of the United States Government.” Once he had his FBI file,
Charlie would have been able to reconstruct what happened, but in his
1991 autobiography he only hints at the full story. Probably it is a case of
WASP reticence: “Never complain; never explain”; though he did take
care to preserve the relevant documents from which it is possible to fill in
the gaps in his own account. Herewith the full story revealed by those
documents.
Charlie left the Department of State effective July 31, 1948, to start his
new academic life at MIT, and he signed on with the ERP effective
November 4, 1948, which triggered a security investigation. In his letter of
November 24, 1948, formally launching the investigation, J. Edgar Hoover
more or less instructed the field offices where the dirt was to be found in
reports that already existed. The resulting report of December 30, 1948,
then dutifully compiled it all, along with fresh investigative reports from
field offices in New York, New Haven, Philadelphia, Washington, DC,
Boston, and Baltimore, none of which turned up any additional derogatory
information. The following sentences from the cover-page synopsis of the
December 1948 FBI investigation were the fatal ones:
While employed at Treasury Department, applicant worked with FRANK

COE, and under HARRY D. WHITE. Informants report both were
involved in a Soviet espionage conspiracy. Informants report applicant
member of Chapter #1 of American Veterans Committee. Further report
that the applicant’s name included in a “roster of helpful persons”
maintained by DAVID WAHL, who was reported to be a member of the
Communist Party underground movement and a close associate of known
Communists. Informants further report applicant and his wife were
associates with the ROBERT T. MILLERS. MILLER reported to have
been involved in a Soviet espionage conspiracy in Washington.62
These were the sentences that must have prompted Yeagley’s querying
letter of February 1949, which Charlie thought he had adequately cleared
up in his response.
62
KPTL, Box 8.
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In fact, however, as the FBI file further makes clear, Charlie’s response
was used in the 1951 investigation as confirmation of the suspect associ-
ations. The fundamental reason he lost his clearance was thus not any new
evidence at all, but rather the fact that, while Yeagley had been willing to
override the FBI in 1948, his counterpart at the Atomic Energy
Commission in 1951 was not. As a consequence, as we have seen, not
only was Charlie unable to be hired for government work in any capacity,
but he was also unable to participate fully in the Center for International
Studies that would be the intellectual center for social science at MIT.
In his autobiography, Charlie chooses not to tell this story, concerning
himself instead with establishing the facts of the matter about White, Coe,
and Miller, the men whose purported involvement in a Soviet espionage
conspiracy had resulted in his own security troubles. Were they in fact
Soviet spies?63
White:
He may or may not have been a Marxist – nothing I have ever witnessed
directly would point in that direction – but he was a conspirator. He
wanted to run the world . . . Although it has been denied in the
biography by his brother, I suspect he committed suicide after returning
to New Hampshire from having testified in Congress and fighting off
accusations. That would fit his conspiratorial character.
Coe:
Coe may well have been a Marxist . . . [While living] in the coal-fields of
Kentucky, [he] became radicalized in observing the conditions of the
miners. I liked Coe, and kept in touch with him for a while, sending him
a copy of my thesis in 1937 . . . Poor Coe: when the McCarthy heat was on
there was so much he could not explain that he left, first for Mexico and
then for Communist China. When Galbraith saw him in China on a trip for
the American Economic Association, Coe expressed an interest in seeing
more current books, and I sent him some.
63
There is an enormous volume of writing on this topic, reviewed and evaluated
persuasively, in my view, in Boughton and Sandilands (2003). My concern here,
however, is not so much with the fact of the matter, but rather with Kindleberger’s
own personal assessment of the cases.
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TECH
Miller:
Miller had made some money in the stock market in 1933, and went to
Russia to see what it was about. There he wrote for a newspaper as
a stringer, and married an American woman who may have been
interested in Marxism. His conservative Baltimore family was not pleased
by all this, and he waited in Europe until his twins were born, meanwhile
working in Paris for the Spanish loyalists.64
In all three cases, it is notable that for Charlie it all comes down to
a matter of character. To evaluate someone’s actions you need to know
what is behind them. Some of that is about personality, some about past
formative experience, and some about the frame they use to understand
the world. It is further notable that in all three cases Charlie says nothing
about whether they were Communists, much less whether they associated
with known Communists. He is interested instead in whether they were
Marxists. In effect, he clears all three men of the charge of espionage, but
convicts each one of a different variety of human frailty that opened them
up to the charge. It is the variety of human frailty that interests him.
Charlie was a New Deal liberal, of the globalist rather than nationalist
variety, and a William Clayton free trader rather than a George Kennan
Cold Warrior. All three of these positions were controversial, but none of
them was the reason for his clearance trouble. He got into trouble instead
for his wide interest in humanity, expressed by his continuing friendship
and contact with people who interested him, even if he disagreed with
them on political grounds. In his autobiography, he concludes that his
problems arose because “some of my friends were less than circumspect
in the way they responded to the witch hunt,” and so they were, Coe and
Miller (White was never a friend) and all the others as well.65 But it is also
true that Charlie continued these friendships even in the face of the
witch hunt. His friends’ lack of circumspection was one of the reasons he
liked them, even when he regretted the trouble it made for them and for
him. That’s who he was, even more than he was a New Dealer.
64
Kindleberger (1991a, 44, 45, 10).
65
125

CHAPTER 6
The Dollar System
The economically efficient system of a dollar standard may serve

the cosmopolitan interest in a national frame. Its demands on
world sophistication are excessive.1
As an internationalist, Charlie was instinctively a free trader, imagining

a world of fine-grained specialization and increasing returns to scale, in
which everyone and every nation trades their own production for the
wide range of goods produced by others, to mutual economic benefit.
Ideally, not only goods but also capital should flow freely across borders:
long-term capital for long-term economic development and also short-
term capital as a buffer for temporary deficits in the balance of payments.
Writing in 1987, Charlie explicitly embraces this lifelong ideal:
The model for the world should be the integrated financial market of a single
country, with one money, free movements of capital at long and short term,
the quantity theory of money employed on trend but free discounting in
periods of trouble. Such a world will be full of ambiguity, paradox,
uncertainty and problems. Such it seems to me is the human condition.2
The reality of the immediate postwar period was of course very far
from this ideal, and Charlie was quick to admit that for present purposes
his internationalist instinct was little more than a “prejudice” at consid-
erable distance from the facts on the ground. Indeed, it seemed to him
clear enough that the world was mired in a state of “pervasive and
unyielding” structural disequilibrium, so much so that the normal
1
2
126

THE DOLLAR SYSTEM
operations of the market, which in the past had worked well enough in
response to small shocks, were simply overwhelmed.3 Adjustment
required instead the active intervention of government to correct struc-
tural disequilibrium, working toward restoration of the conditions under
which the market system might one day be able to work again. Just so, the
immediate postwar structural disequilibrium, which had dollar shortage
as its most dramatic symptom, had been overcome by an equally dramatic
government-led effort, not just the Marshall Plan, but also a whole pan-
oply of intergovernmental economic assistance. At the heart of the
problem, as Charlie saw it, factor prices were out of line with factor
endowments, while the price adjustment called for by standard economic
theory was incompatible with political stability. The answer was found
instead by adjusting endowments to prices by means of a massive pro-
gram of capital investment.
By this means, the immediate postwar structural disequilibrium seemed
well on its way to resolution by the time Charlie was putting together the
first edition of his textbook. But a new form of structural disequilibrium
was already emerging in the developing world and proving equally resist-
ant to a market solution. Put simply, the “social capacity for development”
in the developing countries was running substantially ahead of their own
capital resources even while, as a lasting consequence of depression and
world war, the international market for long-term capital remained essen-
tially shut down. Governments were stepping in to fill the gap, but still
demand was running substantially ahead of supply. “The remedy lies in
creating the climate of opinion in which private capital movements can be
resumed or in devising the international institutions capable of handling
capital movements in the amounts needed, or a little of both.”4
In Charlie’s view, “the young debtor should borrow, the mature debtor
should repay, the young creditor should lend.”5 Specifically, capital should
flow from the low-interest-rate developed world to the high-interest-rate
developing world, as it had before World War I through the mechanism of
empire. The problem was that no substitute for empire, whether markets
3
4
5
127

MONEY AND EMPIRE
or institutions, had yet been adequately established. Official flows through

the World Bank and bilateral aid of various kinds were useful, but were
inevitably much too small and also distorted by political objectives. The
consequence was persistent structural disequilibrium, which showed up as
a tendency toward stagnation in the developed world for lack of demand
and a tendency toward inflation in the developing world for lack of supply.
Free trade in goods was part of the answer, specifically lowering tariff
barriers in the developed world in order to allow the developing world to
raise needed funds by selling their own present production. But the
world also needed free trade in long-term capital, in order to enable
the developing world to run a persistent current-account deficit: “No
fundamental attack on the reserve problem for short-term disequilibria
can be made until secular disequilibrium is under control. From the
intensity of the interest in growth in underdeveloped countries and the
relatively meager flow of long-term capital, this will not be soon.”6
If capital can’t flow to where the labor is, another logical possibility
would be for labor to flow to where the capital is, from low-wage countries
to high-wage countries. Specifically, “migration should take place until
the marginal value product of labor is the same in all parts of the world.”
That’s what a truly “cosmopolitan migration policy” would look like. But
free flow of labor was even less likely than free flow of capital: “In
domestic trade, the principle of efficiency is highly diluted by equity. In
international trade, efficiency has stood by itself, and there has been no
room for considerations of equity”; “Goods move more freely than cap-
ital, and capital more freely than labor. None moves sufficiently to bring
about factor price equalization.”7
Thus, in the immediate postwar period, cosmopolitanism seemed to
Charlie most immediately achievable quite narrowly in the world of
goods, mainly by recognizing that most of the barriers to free trade in
the developed world arise from attempts by narrow interests to receive
special treatment, most importantly attempts by imperfectly competitive
domestic producers to avoid foreign competition.8 For Charlie, “the only
6
7
Kindleberger (1958a, 547, 439, 582, 571, 432).
8
Kindleberger (1958a, chs. 12–15).
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THE DOLLAR SYSTEM
valid argument for a tariff from a world point of view is the infant-industry
argument,” and that argument is more salient for the developing than
the already developed. In a world of specialization and increasing
returns, initial protection may be required in order to build capacity in
a new line of activity. Most importantly, tariffs on manufactured imports
may be appropriate for developing countries which confront the chal-
lenge of shifting labor from a low-wage traditional agricultural sector to
a high-wage modern manufacturing sector – so-called “dual economies.”9
To repeat, it seemed clear to Charlie that tariffs in the developed
world should be lowered. The problem was that persistent balance of
payments disequilibrium made that goal difficult to accomplish. Faced
with a payments deficit, tariffs can seem like a logical policy response
even if “anything that the tariffs can do, something else can do better.”10
That’s why Charlie so forcefully insisted that “the establishment and
maintenance of balance-of-payments equilibrium . . . is the central
problem in international economics today.”11 Balance of payments
disequilibrium was the central problem because it was the biggest threat
to free trade. And the main underlying cause of balance of payments
disequilibrium was the problem of restoring long-term capital flows
from the North to the South.
That’s why, notwithstanding the political challenge, Charlie always
emphasized restoration of long-term capital flows as job one, more
important even than restoration of short-term capital flows. Indeed, he
warned that premature restoration of short-term capital flows would
likely just fill the long-term capital flow vacuum, and that was asking for
trouble since there was no short-term prospect of reversing the flow in
order to repay. It is only when the young debtor becomes a mature debtor
that repayment can be expected. Reliance on short-term capital flows for
long-term capital needs therefore inevitably results in even worse balance
of payment problems when the short-term borrowing comes due.
In Charlie’s view, the stakes could not have been higher. He remem-
bered well how the structural disequilibrium of the 1930s had brought to
9
Kindleberger (1958a, 234, 216, 550).
10
11
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MONEY AND EMPIRE
a halt both long-term and short-term capital flows and so destroyed the
international monetary system, ushering in world depression and eventu-
ally renewed World War. Each country, facing its own individual balance of
payments constraint, had sought direct control over its interface with the
rest of the world, and the result was collapse of the elastic international
credit flows required for continued operation of the world trading system:
“Parallel with the growth of quantitative restrictions on imports . . . has
been the development of foreign exchange control. This depression prod-
uct was born largely of necessity.”12 It is this history that informs the
urgency of Charlie’s message in the immediate postwar period. Sine qua
non for post–World War II reconstruction of the global trading system was
long-term capital flows from the developed world to the developing world.
Teaching cosmopolitanism meant not only presenting a realistic
account of how the world actually works, that is, structural disequilibrium,
but also painting a picture of how the world might one day be able to work,
supposing that the long-term capital-flow problem could be solved and
short-term capital flow resumed. Toward this end, the central pedagogical
challenge that Charlie faced was that the traditional analytical structure of
international economics had very little connection to present reality:
“There can be little doubt in most minds that the real world resembles
less the classical assumptions than their obverse.” Three assumptions in
particular seemed to him clearly false: full employment, elastic demand,
and elastic supply. Supposing these assumptions held, the price mechan-
ism might well be adequate for directing the international adjustment
process, and in this case the classical theory would present a powerful
argument for free trade: “This approach is pedagogically instructive, but it
runs the danger of misleading the student who mistakes the analysis for
a description of reality.”13 The pedagogical challenge was to find an
alternative line of analysis, more tightly connected to observed reality,
without abandoning the cosmopolitan vision of free trade.
Toward that end, Charlie’s first step was the Keynesian one, relaxing
the assumption of full employment, and drawing attention to the role of
income changes in the adjustment process. (This would come to be
12
13
Kindleberger (1958a, 557, 148, 554, 148)
130

THE DOLLAR SYSTEM
called the absorption approach, an early version of which Charlie had

grappled with in his thesis, under the influence of Angell; see Chapter 2.)
But the Keynesian extreme of treating prices as fixed goes too far, and
when we consider a world in which both price and income can change it
becomes difficult to achieve any definite analytical result: “The answer
is . . . that it depends on the circumstances.”14 That’s why his textbook is
so full of facts about actual circumstances, not so much as illustrations of
a theory deduced from first principles, but rather as examples from
which general lessons might possibly be drawn inductively.
It is of course impossible to make sense of facts without some prior
underlying analytical structure, and that seems to be the point of the two
chapters at the beginning of the textbook: “The Balance of Payments”
(ch. 2) and “The Foreign-Exchange Market” (ch. 3). Here we find an
analytical image of international relations sufficiently general to be con-
sistent with both classical and Keynesian theoretical frameworks, but also
one sufficiently connected to reality to serve as the framework for investi-
gating any particular episode or circumstance. In these initial framing
chapters, Charlie emphasizes how the foreign exchange market operates
essentially as a system for clearing international payments:
The primary function of the foreign-exchange market is to transfer

purchasing power and clear transactions in opposite directions in
essentially the same sort of way as do the Federal Reserve System, the
separate Federal Reserve bank, local clearinghouses, or even the
informal clearing which takes the form of swapping of checks between
the clerks of banks in the same small town.15
From this perspective, the balance of payments for a country appears as

nothing more than a clearing balance between the domestic banking system
and the rest of the world. Balance of payments equilibrium thus requires
simply that clearing balances are settled in some acceptable international
means of payment – ultimately gold, but more generally short-term capital
flows. The key mechanism involves net surplus countries lending temporar-
ily to net deficit countries, typically through the intermediation of some
14
Kindleberger (1958a, 206). See also Kindleberger (1957b).
15
131

MONEY AND EMPIRE
world financial center or other, formerly London but prospectively

New York.
“Temporarily” is key: “Short-term capital movements are like inventory
fluctuations in national income . . . [They] should net to zero over a long
period, except for growth or decline in working balances.” Further, it is the
expansion and contraction of the balance sheet of the world banking
center, standing in between deficit and surplus countries, that serves as
the mechanism for settling international payments by everyone else: “A
world banking center must learn to offset the meaningless changes in
reserves arising from international transactions in the same way as it
responds to seasonal and similar changes in the note circulation [domes-
tically]”; “Short term capital assets can substitute for gold in the money
supply of some countries without the necessity for subtracting an equal
amount in the other countries which record the liabilities.”16
The important point to appreciate here is that Charlie always viewed
the official balance of payments accounts not through the lens of the new
national income concept, as was becoming commonplace among his
Keynesian colleagues, but rather through the older lens of the “foreign
exchange budget” concept. From this payments perspective, what he
ideally would have liked to see in a proper set of international accounts
was a full accounting of all payments, both for goods (current account)
and for securities (capital account). Instead, throughout history official
accounts have mostly focused on the movement of goods. That is one
reason that economists had come to focus so much attention on the
current account, and to emphasize a conception of static equilibrium
in which exports equal imports with no net flows of gold, much less short-
or long-term capital flows. By contrast, and notwithstanding data limita-
tions, Charlie always emphasized the importance of long-term capital
flows, inherently cyclical and so inherently requiring a short-term capital-
flow buffer, hence requiring also a more dynamic equilibrium concept.
He summarizes his position thus:
These short-term capital movements have a balance-wheel role to play –

daily, seasonally, and (of great importance) cyclically. If this role can be
16
Kindleberger (1958a, 343, 330, 328).
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THE DOLLAR SYSTEM
played by the money market, in a period of stabilizing speculation, well

and good. If speculation is destabilizing, it may be possible to offset it and
provide the necessary balance by movement of official funds. If official
funds are insufficient to cope with the problem, it may be necessary to
impose exchange control on movements of hot money and then use
official funds to balance – or some other device, such as import
restrictions.17
This sequence of adjustment mechanisms, from private money mar-

kets to official (central bank) funds to direct exchange controls, was the
historical sequence through which the mechanism of international pay-
ment clearing had broken down in the 1930s. The historical task of the
immediate postwar period, as Charlie saw it, was to find a way to run that
sequence in reverse, with the objective of eventually returning to a world
of stabilizing short-term capital movements, the normal infrastructure of
international trade. Such a task would inevitably be slow work, moving
forward by fits and starts, but postwar developments did seem to him to
be proceeding in that general direction, and anyway Charlie was by
nature an optimist. In the short term, structural disequilibrium, formerly
in Europe and now in the developing world, required active government
intervention. But the long-term goal was always the free trade ideal: free
trade in goods but also in capital, both long-term and short-term.
Centrally important for achieving this long-term goal, the United
States had a special role to play, with the dollar replacing sterling as the
currency of international commerce and New York replacing London as
the world financial center. Looking back, Charlie identified the first steps
toward a world dollar system already in the interwar years: “The rational-
ization of the gold standard and the gold-exchange standard was needed
to make the transition from the sterling to the dollar standard.” By the
late 1930s, “if the gold price of the dollar changed, it was the value of gold
which was altered, not the value of the dollar.”18 However, World War II
and then postwar structural disequilibrium had halted this evolutionary
progress, requiring government rather than markets to take the lead for
a while, most prominently in the 1946 Anglo-American loan and the 1948
17
18
133

MONEY AND EMPIRE
Marshall Plan, and continuing in multiple less visible interventions

throughout the succeeding decade. The market’s time would surely
come, but in the 1950s Charlie judged that time was not yet: “Monetary
matters continue to hold a fascination of the intricate and complex
mechanism. In the postwar period, the most glittering of these toys
with which Americans and Europeans joined in playing was the
European Payments Union. But the central issues lay elsewhere.”19
Meanwhile, Charlie’s textbook was a market success. One reason was
its resolutely middle-of-the-road position between the classical orthodoxy
of Charlie’s old nemeses, Viner and Graham, and the Keynesian ortho-
doxy of Charlie’s new MIT colleagues, Samuelson and Solow. On policy,
the text similarly carved a middle way between the “liberals” and the
“planners,” appreciating both the strengths and weaknesses of the mar-
ket mechanism, and both the weaknesses and strengths of state interven-
tion. Even methodologically, the text charted a middle road between the
old institutionalist texts loaded down with detailed description of specific
instruments and institutions and the new, more analytical texts which
sought an abstract and deductive account of theory.
One possible obstacle to adoption of the textbook might have been
Charlie’s distinctive (and idiosyncratic) payments approach to the subject,
as emphasized earlier. But the fact that international short-term capital
markets were still more or less shut down, coupled with Charlie’s convic-
tion that it would be a mistake to reopen them until there were more
satisfactory mechanisms for long-term capital flow, allowed him to place
the central emphasis elsewhere. As a result, teachers were not excessively
bothered by an unfamiliar viewpoint, while the more careful students were
intrigued by Charlie’s third way, neither classical nor Keynesian.
Most important for our story, the textbook was an intellectual success
for Charlie himself. The effort involved in writing it forced him to get up to
speed on developments in international economics, and to stake out his
own positions in the field – positions which would become the agenda for
his subsequent work. As one example, his focus on long-term capital flows
led him to be an early and persistent critic of attempts to solve world
liquidity problems by creating new forms of international liquidity, such
19
134

THE DOLLAR SYSTEM
as Triffin’s SDR proposal for the IMF; for Charlie, central bank swap
arrangements were preferable, and were in fact working fine. As
a second example, notwithstanding the political obstacles to restoring an
international regime of free trade, Charlie warned against the danger of
resorting to a merely regional approach, such as the European Payments
Union, another enthusiasm of Triffin. For Charlie, the important thing
was not so much economic integration within Europe, but rather integra-
tion of each European economy into the larger world system. And, a third
example, Charlie’s conception of the balance of payments as a matter of
settling clearing balances led him to be an early and persistent critic of
enthusiasts for “freely fluctuating exchange rates” such as Milton
Friedman (1953). For Charlie, internationally as much as nationally,
trade works better with a single currency, and on these grounds fixed
exchange was preferable.20 As we will see, these three policy debates
would absorb much of his energy in the decade of the 1960s.
The return of European currencies to convertibility in 1958 marked
the end of one era and the beginning of another. Charlie’s preferred key-
currency approach would have suggested a more gradual evolution, first
stabilizing sterling against the dollar and then adding other currencies
one by one. The operation of the European Payments Union, however,
had effectively ruled that out, requiring the stronger currencies to wait
for the weaker currencies so that all could join at once. From this point of
view, it was not so surprising to him that the return to convertibility was
accompanied by considerable volatility, as each currency found its own
market level relative to everyone else. For Charlie, that was just the
growing pains of the emerging new system, nothing really to worry
about. The memoir of Charles Coombs, Vice President of the New York
Fed in charge of the Bank’s Foreign department, tells the tale of central
bank cooperation during those volatile years, working gradually to
reform the Bretton Woods system by substituting “mutual credit facilities
for international gold settlements.”21 Other voices, however, were not so
sanguine, none more important than the voice of Robert Triffin, and
20
Kindleberger (1958a, 562, 569, 567).
21
Coombs (1976, 188).
135

MONEY AND EMPIRE
unfortunately the anxiety of policy makers in the face of volatility meant

that Triffin’s voice attracted an avid hearing.
Born 1911 (in Belgium) and earning his PhD in Economics at Harvard
University in 1938, Triffin was more or less Charlie’s exact contemporary.
Unlike Charlie, however, Triffin had spent the War years in Washington,
DC, at the Board of Governors of the Federal Reserve System, becoming
a US citizen in the process. In that capacity, he had attended the inaugural
meeting of the IMF and World Bank in Savannah in March 1946, and then
joined the Fund as head of the Exchange Control Division, before shifting
to Paris in 1948 to advise the Economic Cooperation Administration on
establishing the European Payments Union.22 That mission accomplished
in 1950, in 1951 Triffin proved acceptable to the Yale economics depart-
ment (as Charlie had not), and in 1957 he published Europe and the Money
Muddle, which contrasted sharply with Charlie’s earlier Dollar Shortage. Says
Triffin: “The factual evidence . . . accords fully with classical economic
theory, and does not lay sufficient ground for generalizing past experience
into a new theory of a chronic, structural dollar shortage.”23
Provocatively, Triffin dedicated the 1957 book to “John H. Williams
and Alvin H. Hansen, who tried to teach him money and banking,” in
effect claiming Charlie’s own mentors for himself. But Triffin’s framing
of the monetary problem was more or less the opposite of those teachers,
inspired more by the agreement at Bretton Woods and his experience at
the IMF. What Harold James (2012) has called the myth of Bretton
Woods as “an act of enlightened creative internationalism,” Triffin had
swallowed whole and had made into a kind of personal evangelical
project. In Triffin’s mind, the IMF had been supposed to be a world
central bank, and when it turned out instead to be a kind of sideshow, he
turned his attention instead to Europe and the EPU, which he imagined
as a kind of regional version of the International Clearing Union that had
been proposed by Keynes at Bretton Woods.
As opposed to Triffin, Williams and Hansen both always had their
doubts about the IMF and always viewed the World Bank as the more
important institution because of its potential role in channeling long-term
22
Maes (2013), Maes and Pasotti (2016, 5; 2021,61).
23
Triffin (1957, 29).
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THE DOLLAR SYSTEM
capital flows. Even more, Williams had gone so far as to actively oppose the
IMF, in both writing and Congressional testimony, as a distraction from the
more relevant project of building the nascent international dollar system.
In retrospect, Williams’ testimony, in his own admission a “minority view,”
serves as a prescient guide to the true evolutionary dynamic operating
behind the scenes, both in the immediate postwar period and subse-
quently, that is, the emergence of the global dollar system.24 As Harold
James reminds us: “Bretton Woods was the intellectual sugar, covering and
masking the bitter taste of the pill of Realpolitik dollar hegemony.”25
The bulk of Triffin’s 1957 book was not directly concerned with these
matters, but rather was focused more narrowly on the European Payments
Union, which Triffin credits with overcoming bilateralism within Europe,
expansion of intra-European trade, and laying the groundwork for eventual
convertibility. According to Triffin, the EPU had succeeded in achieving at
the regional level what the IMF had not yet been able to achieve at the
international level, due to the greater political obstacles to collective nego-
tiation, which is to say US resistance to full implementation of Bretton
Woods. I have already noted how Triffin’s celebration of the EPU had
attracted Charlie’s critical attention, on the grounds that promotion of
intraregional trade and economic integration came at the expense of the
larger objective of international trade and integration, and indeed involved
discrimination against non-EPU members, specifically the United States.
But it was a few pages at the end of Triffin’s book, added almost as an
afterthought, that would draw Charlie into a more sustained engagement.
It is here, already in 1957, that Triffin first floated the idea that came to be
known as the “Triffin Dilemma”: the idea that national currencies such as
the pound and the dollar are inherently unable to serve as adequate inter-
national reserve currencies, and so should be replaced as soon as possible by
a genuinely international reserve currency. Here is the key passage:
[As early as 1955], it was becoming apparent that further increases on the
scale necessary to ward off monetary pressures toward deflation and trade
restrictions would be found, sooner or later, to overtax the strength not
24
Williams (1947, ch. 4, appendix 3).
25
James (2012, 438).
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MONEY AND EMPIRE
only of the United Kingdom but even of the United States, and to
endanger the acceptability of the dollar itself as a safe reserve medium
for other countries. The solution of this dilemma should lead us to explore
more fully than has been done up to now the possibility of broadening the
basis of the gold exchange standard . . . by requiring all countries . . . to
maintain an appropriate proportion of their international reserves in the
form of a deposit account with the International Monetary Fund.26
The gauntlet was thus thrown. We can read Charlie’s subsequent 1966
collection of essays Europe and the Dollar as the record of his response to this
challenge. The title of the book certainly echoes Triffin’s, and the dedica-
tion to Emile Despres – “economist’s economist, teachers’ teacher, and
friends’ friend” – identifies Charlie’s own position with that of a favorite
student of Williams and Hansen, in effect claiming himself by proxy as the
more legitimate heir of that intellectual legacy, as indeed he was. The essays
in the book are arranged in reverse chronological order, from 1965’s
“Balance-of-Payments Deficits and the International Market for Liquidity”
all the way back to 1939’s “Speculation and Forward Exchange,” showing
how far Charlie had come from his New York Fed days. But more or less all
of the post-1957 essays are directed toward countering Triffin’s interpret-
ation of international monetary events and also his proposal for inter-
national monetary reform.
Triffin’s argument was attractively simple. Gold production was not
keeping up with the growth of world trade, and that posed a potentially
deflationary headwind for global expansion. Temporarily filling the gap,
and so warding off deflation, was the expansion of national credit money,
mainly dollars but also sterling. This mechanism, however, contained the
seeds of its own destruction since new national credit money only became
available for use as international credit money through the mechanism of
a balance-of-payments deficit, the issuing nation paying for purchases of
goods or securities with short-term borrowing rather than with its own goods
or securities. In the longer run, the buildup of these short-term balances
would, Triffin argued, inevitably prove unsustainable, prompting a run on
the national currency as holders sought to convert their balances into gold.
26
Triffin (1957, 299).
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THE DOLLAR SYSTEM
For Triffin, the collapse of sterling in 1931 foreshadowed the problem

that was now confronting the dollar. In his interpretation, 1931 had
demonstrated the inherent instability of a gold-exchange standard and
much the same collapse could be expected of the dollar sooner or later –
maybe even sooner as US gold reserves were already falling dangerously
below its burgeoning short-term international liabilities. The solution, so
Triffin urged, involved creation of a new, explicitly international credit
money, issued perhaps as a liability of the IMF. In this way, the pooled
credit of all participating nations, not any individual nation, would be the
basis of a reformed international monetary system. Maintaining the
growth of that international currency at 3–5 percent annually would
keep money growth in line with the growth of world trade, subject
neither to the vagaries of gold mining nor to the economic fortune (or
monetary policy) of any individual state. In effect, Triffin’s proposal
sought to shape reality to fit the myth of Bretton Woods.
It’s easy to see why this argument appealed to European holders of
dollar balances. Deficit countries (such as France) resented the fact that
the United States apparently avoided the balance of payments discipline
that so constrained their own activity: so-called “exorbitant privilege.”
And surplus countries (such as Germany) worried about the safety of
their dollar accumulations in the event of a devaluation. Developing
countries also rallied to Triffin’s proposed solution as a potential source
of much-needed development finance, naturally welcoming any proposal
that promised to monetize their own credit. There were thus multiple
reasons why Triffin’s analysis and proposal grabbed the headlines.
It is less easy to see the appeal to Americans, except perhaps for the
perennial anxiety about living beyond one’s means, losing competitive-
ness in trade, and spending excessively to help non-Americans in Europe
(NATO) and the developing world (foreign aid). It was to these anxie-
ties, therefore, that Charlie initially addressed himself, in his June 1959
testimony to Congress, with the more or less explicit objective of assua-
ging them and directing attention instead to more pressing matters. In
Charlie’s view, developments since his 1950 Dollar Shortage had in fact
been “highly satisfactory.”27 The fact that the United States no longer had
27
139

MONEY AND EMPIRE
a structural current account surplus was not a problem, but rather the
solution of a former problem, bespeaking the increasingly cosmopolitan
view of American firms and consumers, and also a welcome technological
catchup by Europe.
Contra Triffin, the accumulation of short-term dollar balances by for-
eigners was also no problem: “There is very little danger from a withdrawal
of foreign funds in the United States. It makes no sense to net the
$16 billion of foreign funds in this country against the $20 billion gold
stock. No other country calculates its reserves net of liabilities, rather than
gross, nor does any bank.”28 Central banks already cooperate effectively to
stem short-run currency crises. For the longer run, what was really needed
was a shift on the margin to sharing the “burden of leadership,” specifically
some help with US military expenditure and foreign aid.
Although Charlie’s testimony made no explicit mention of them,
Triffin’s two articles of March and June 1959 in the Banca Nazionale
del Lavoro Quarterly Review were the clear subtext. Probably Charlie
thought (hoped) that his testimony would be enough to set the policy
conversation on the right track. Instead, Triffin came back in October
with his own Congressional testimony and then packaged that testimony
with the earlier articles and published the lot as a best-selling book, Gold
and the Dollar Crisis, The Future of Convertibility (1960), which fatefully
struck a chord with incoming President Kennedy. And so, Charlie was
obliged to spend precious sabbatical time putting together a major state-
ment, “The Prospects for International Liquidity and the Future
Evolution of the International Payments System,” now for the first time
engaging Triffin explicitly.29
For Charlie, the trouble with the gold-exchange standard was not at all
the inherent unsuitability of a national currency to serve international
28
Kindleberger (1966, 165), my emphasis. This somewhat offhand comment seems to
be the earliest explicit mention of Charlie’s conceptualization of the United States as
bank of the world. It is, however, clearly the product of a prepared mind, and in
retrospect is implicit in Charlie’s work as early as 1939. In later work, he often
mentions Hal Lary, Problems of the United States as World Trader and Banker (1963) as
an inspiration. No doubt Lary’s strong title did provide welcome encouragement for
developing the germ of an idea into a full-blown analysis, but the germ was already
there.
29
Kindleberger (1966, ch. 7).
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THE DOLLAR SYSTEM
ends, as Triffin urged, but rather the emergence of multiple purportedly

key currencies in the period immediately after the return to convertibility
in 1958. In this initial stage speculators, anticipating changes in currency
parities, shifted from one currency to another: “Hot money, which raged
from 1925 to 1939 but subsided after World War II, has taken a new lease
of life.”30 In later work, Charlie would reference Gresham’s Law on the
inherent instability of a system with multiple currencies as a venerable
analytic foundation for this point of view. All Triffin had really done was
to reinvent that wheel.31
Adding to the problem, as early as 1953 Charlie had noted “the ‘redis-
covery of money’ within national economies after 1950 and the increased
importance given to the rate of interest, discount policy and the quantity of
money in preventing inflation internally.”32 Now, in 1961, he drew attention
to the significant international consequence: “renewed responsiveness of
international short-term capital movements to interest rate differentials
[which] open up a conflict between internal [domestic] and foreign mon-
etary policy.”33 The real trouble with the gold-exchange standard was thus
not national money, but rather hot money, and modern troubles with hot
money were driven largely by national differences in monetary policy.
Charlie summarizes:
There is a respectable view [i.e. Charlie’s own view] that with all major
currencies more or less in line under the fixed exchange standard, and
holders of liquid assets relatively indifferent as to which currency they
hold, and therefore ready to speculate by taking open positions, the
major money markets have become one market, and small differences in
interest rates, such as one or another country may wish to support by
reason of domestic monetary policy, will lead to large-scale outflows and
inflows of liquid funds.34
Charlie of course remembered well how the hot-money problem of

the 1930s had given rise to the 1936 Tripartite Agreement, which
30
31
See “Gresham’s Law” in Kindleberger (1989a, Third Lecture).
32
33
34
141

MONEY AND EMPIRE
involved key-currency central banks buying the currency that speculators

were selling and selling the currency that speculators were buying, in
order to stabilize exchange rates for twenty-four hours at a time
(Chapter 3). It was therefore natural for him to propose an analogous
but more far-reaching solution for the similar problem of the 1960s:
The scheme, in short, is that central banks of the major currencies, with
treasury support, undertake to buy and hold each others’ currencies during
crises of confidence, when they are under speculative attack . . . [A]s their
defense departments collaborate for defense, so should central banks and
treasuries of the responsible countries . . . collaborate . . . to preserve
monetary stability in the face of de-stabilizing speculation.35
In 1961, by contrast to 1936, Charlie proposed starting with “Belgium,

Canada, France, Germany, Italy, the Netherlands, Switzerland, the
United Kingdom and the United States,” perhaps adding in Sweden
and Japan later, which is more or less the grouping that would soon
come to be known as the G10. And he proposed that central banks hold
the currency they bought not just for twenty-four hours but until the crisis
was over, which risked realizing losses. That’s why treasuries had to be
involved, because central bank losses would have to be compensated.
In effect, Charlie was proposing to make explicit and visible what was
already implicit but hidden, namely central bank cooperation, as part of
a broader agenda of “sharing” the burden of leadership. He was under no
illusion that it would be easy: “There are difficulties of sharing. The process
requires a deep-seated sense of social and political cohesion. But it is
a necessity.”36 The sense of cohesion that already joined central bankers,
on account of their regular technical interaction, needed to be nurtured
more broadly between political bodies. As a sometime central banker
himself, Charlie knew what was possible, and optimistically imagined that
regular interaction would produce the necessary cohesion, given time.
In sum, in contrast to Triffin who wanted to replace the dollar with
a proper international currency, Charlie in effect proposed to inter-
nationalize the dollar, or rather to recognize that in a world of integrated
35
Kindleberger (1966, 102), my emphasis.
36
142

THE DOLLAR SYSTEM
money markets the dollar was already in fact internationalized.

Importantly, however, that internationalization was only really as yet at
the level of the G10, not elsewhere. Thus, Charlie insisted, in further
contrast to Triffin, that the problems of the developing world were of an
entirely different nature. Developing countries needed resources not
liquidity, which is to say long-term capital flows not short-term capital
flows. To the extent that they genuinely wanted to increase their liquid
balances, they could already do so by borrowing long-term and holding
the proceeds on deposit rather than spending them; no new inter-
national apparatus was needed for that.
These differences from Triffin on policy stemmed from deeper differ-
ences in how the two understood money. Charlie, as we have seen, saw the
international monetary system as emerging from a process of historical
evolution driven by practitioner solutions to successive empirical problems,
whereas Triffin imagined a possible top-down or “constitutional” process in
which experts like himself deduced an optimal system and then imposed it
by fiat (treaty) on the rest of the world. A second difference: Charlie was
loathe to spend time and energy negotiating formal legal agreements
outlining explicit contractual obligations in a world that was rapidly chan-
ging in ways that were likely to require flexibility and creativity in response to
problems that no one could reasonably anticipate ahead of time. Again,
Triffin was the reverse. Perhaps these differences reflect American versus
European sensibilities, or perhaps they reflect a central-banker versus an
academic perspective.37 The important point is that such differences were
sufficient in themselves to prevent any meeting of the minds.
Underneath these matters of culture and style there was an even deeper
difference in terms of the basic economics. Triffin, like most economists of
his generation, viewed the international economy through the (Keynesian)
lens of the national income and product accounts and the (monetarist) lens
of the equation of exchange. As a Keynesian, Triffin was concerned to
support domestic aggregate demand as a way of supporting domestic
employment and was always trying to find ways to keep balance of payments
problems from interfering with that objective. As a monetarist, he was
37
In his memoir Coombs notably references the “university economists . . . distaste and
distrust of informally negotiated credit facilities” (1976, 189).
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MONEY AND EMPIRE
further concerned in the longer run to ensure that the world money supply
grew in line with world trade at some appropriate rate, say 3–5 percent, in
order to avoid both deflation and inflation.
Charlie, by contrast, always saw the balance of payments constraint as
a matter of clearing and settlement, and he worried that many proposals
for international monetary reform (including Triffin’s) would be “likely
to subvert the balance of payments discipline which is so needed and so
hard to provide.”38 For Charlie, persistent payment deficits reflect
a structural problem that needs correction not accommodation, and
they are a real problem not a liquidity problem, which is to say
a problem requiring real structural change in the countries affected
not international monetary reform in the world as a whole. So much for
Triffin’s Keynesian short run; what about his monetarist long run? Says
Charlie: “The quantity theory of money has no greater validity inter-
nationally than domestically, and in the latter connection I regard its
validity as small.”39 For him, the key to long-run stability was not the
steady and regular increase of the quantity of world liquidity by a world
central bank, but rather the elasticity of short-term private capital
markets, expanding to accommodate short-term deficits and then con-
tracting again when deficits turn to surpluses. Trend increase of world
liquidity is the endogenous consequence of this fluctuation, not the
exogenous regulator of it.
This difference on the basic economics was perhaps not so immedi-
ately visible in 1961, maybe not even to Charlie himself, as his attention
naturally focused on the concrete policy proposals under consideration.
In 1961, he seems to have thought (hoped) that his own concrete policy
proposal for an updated Tripartite Agreement would carry the day,
emanating as it did from concrete banking and central banking practice.
We hear that optimism in his March 1965 testimony to Congress, in his
exchange with Senator Proxmire:
Mr. Kindleberger: Many of my colleagues are terrified at the thought of

collaboration of central bankers superseding economic sovereignty and
38
39
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THE DOLLAR SYSTEM
so on. I think they are technicians and this is the kind of problem they can
handle easily . . .
Senator Proxmire: This is a very relaxing and reassuring answer . . .40
As in 1959, when he had initially given testimony to the Congress on

this matter, Charlie seems to be thinking that illusory concerns, once
their illusory nature has been pointed out, will simply pass away. In the
event, however, one concern that was not illusory proved decisive, both in
the United States and elsewhere, namely the political challenge of “shar-
ing.” On the one hand, internationalization of the dollar meant that other
countries needed to adapt their domestic monetary policy to conditions in
the single world market, which is to say the dollar market. On the other
hand, internationalization of the dollar meant that the United States itself
would have to take account of world conditions, not just domestic condi-
tions, in setting dollar interest rates. Neither one of these was an easy sell.
Perhaps it could be said that Triffin, a European at heart, notwithstanding
his naturalized citizenship, was grappling mainly with the former whereas
Charlie, as an American, focused his attention on the latter.
In a prescient 1963 memo prepared for the US Treasury, Charlie
explicitly raised the matter:
In a world crisscrossed by broad channels through which capital flows, it may

be necessary to abandon or greatly modify national independence of
monetary policy (just as the Federal Reserve districts have done). This is
a cost, but I judge it less than the benefit . . . New York is becoming a world
capital center where borrowers sell bonds and investors buy them – borrowers
and investors from all over the world. The dependence of the world on
United States dollar deposits – directly and via the Euro-dollar market – is
healthy for the world payments system, even though it involves some cost for
this country. So is the two-way dependence on the capital market. This is
financial integration of the Free World, or primarily of the Atlantic
Partnership. It is desirable, not a pathological condition to be overcome.41
40
Page 382, “Balance of Payments – 1965.” Hearing before a Subcommittee of the
Committee on Banking and Currency. 89th Congress, 1st Session, Mar. 1965.
41
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MONEY AND EMPIRE
Given their subsequent behavior, one imagines that many if not most
of Charlie’s interlocutors at the Treasury weighed the costs and benefits
differently. Writing in retrospect, Charlie lists the history of US capital
controls imposed by those interlocutors: “the Interest Equalization Tax
[of 1963] which broke up the development of an international capital
market in New York and drove it to the Euro-market; . . . the Gore
amendment applying the tax to bank loans; . . . the Voluntary Credit
Restraint Program of February 1965; . . . the Mandatory Program of
January 1, 1968.”42 Every one of these controls was instituted as
a reaction to perceived or actual European threat to cash in their dollar
balances for gold. The ultimate effect, however, was to dismantle the
emerging dollar system. These were policy decisions made by politi-
cians, but encouraged by irresponsible economists whose faith in their
models was greater than their understanding of the operations of the
system.
Charlie’s optimism circa 1965 shifted over the years to frustration,
desperation, and ultimately resignation. But he did not stop fighting
until it seemed clear that the battle was well and truly lost. One venue for
that fight was President Johnson’s Advisory Committee on International
Monetary Arrangements, for which Charlie produced a number of
memos, to no discernible effect.43 In the end, realizing the direction that
things were moving, he was willing to endorse creation of a new artificial
Currency Reserve Unit (CRU) as a way of supporting the international role
of the dollar, swayed by Alvin Hansen’s argument that the world was not
ready to accept a purely fiat dollar, which made it necessary to devise some
mechanism for augmenting apparent gold reserves.44 In the event, how-
ever, the Currency Reserve Unit morphed into the IMF’s Special Drawing
Rights and got allocated to all the members of the IMF, not just the United
States. Instead of backstopping the emerging global dollar system, the SDR
instead served to perpetuate the Bretton Woods myth, even as the Bretton
Woods system was collapsing.
42
43
KPMD, Box 3, Folder “Treasury Dept 1967–1969,” “Issues and Positions in
International Monetary Arrangements,” July 26, 1965. See Ch. 5, n. 40.
44
Hansen (1965).
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THE DOLLAR SYSTEM
The failure of Charlie’s foray into the policy process seems to have taught
him the lesson that he needed to be engaging the policy economists behind
the scenes, not so much the visible policymakers. In any event, that’s what
we see him doing in “Balance-of-Payments Deficits and the International
Market for Liquidity” (1965), which he offers as the lead chapter of the 1966
book.45 Going now beyond his critique of Triffin, his central positive
message is that the United States had in fact been operating as an inter-
national financial intermediary with respect to Europe, borrowing short
term and lending long term, so satisfying the liquidity preference of
Europe’s borrowers who wanted long-term funding and also of Europe’s
lenders who wanted to hold their funds in liquid form. European financial
institutions might conceivably one day do some of this themselves, though
economies of scale would likely still give the United States the edge, allowing
Europeans to borrow at lower rates and lend at higher rates than would be
possible within Europe, given European liquidity preferences.
The point is that the United States was providing a valuable service to
Europe, which unfortunately European policymakers persisted in under-
standing instead as some kind of exploitation, pointing to sustained US
payment deficits funded by burgeoning European central bank dollar
balances. Once one views these data through the lens of international
financial intermediation, however, the dollar balances are revealed not as
short-run capital flows but rather as long-run accumulation of needed
monetary reserves, and the deficits disappear: “Below a certain point –
which shifts with time, the unfolding of events, and opinion – lending
long and borrowing short [as US], or vice versa [as Europe], is merely
trading in liquidity. Beyond it, the long lender is overdoing it and the
short lender has the right to become increasingly nervous.”46
Thus, from Charlie’s point of view, there was no trade-deficit problem.
The fact that Washington policymakers perceived one stemmed merely from
the way the Department of Commerce was reporting balance of payments
statistics, obscuring rather than illuminating the actual situation.
45
Charlie subsequently wrote a second version of this paper for the Journal of Political
Economy, under the title “Measuring Equilibrium in the Balance of Payments,” and it is
this second version that he includes in his 2000 Retrospective. See Chapter 7 for a fuller
account.
46
147

MONEY AND EMPIRE
Responding to these faulty measurements rather than to reality, short lend-

ers were becoming nervous over a phantom. The solution was not to put up
obstacles in the way of valuable international financial intermediation, but
rather simply to change the accounting in order to provide policymakers
with a more accurate picture of the situation. An international financial
center needs a different balance of payments account than other countries
in order to take proper account of its role as financial intermediary.
Having done his best to convince policymakers and now also policy
economists behind the scenes, there is a sense that Charlie felt he was
more or less done, and anyway he was eager to move on to other things.
But first, he felt a final obligation to lay his views before the public. That is the
origin of the famous 1966 Economist article, “The Dollar and World Liquidity:
A Minority View,” coauthored with Walter Salant and Emile Despres. His
highly unusual step of recruiting these coauthors, and publishing in the
financial press, seems to have been an attempt to make it harder for his
target audience to ignore what he now explicitly recognized was a “minority
view.” But it seems also to have been an attempt to recruit some help with the
ongoing public policy battle so that he could scale back his own involvement.
Perhaps he would have better luck than Williams had had twenty years
before with his own “minority view” testimony to Congress; it was worth a try.
If the plan was to turn the job of policy advocacy over to Despres, it
didn’t work. After the article was published, Despres took a temporary
position at the Brookings Institution (Salant’s home base) and produced
two quite extensive bits of Congressional testimony.47 But in March 1968
(coincident with the collapse of the London Gold Pool, an attempt to
channel central bank cooperation for international monetary stabiliza-
tion), Despres suffered a stroke, which meant that he was simply in no
condition to respond to Nixon’s devaluation of the dollar on August 15,
1971, except by authorizing publication of his past works in International
Economic Reform (1973). And by the time that book came out, the
Smithsonian Agreement had already collapsed, ushering in the world’s
experiment with floating exchange rates. Despres’ untimely stroke, and
then premature death in April 1973, provide context for understanding
Charlie’s continuing engagement with monetary matters after 1966 as
47
Reproduced in Despres (1973, chs. 15 and 16).
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THE DOLLAR SYSTEM
recorded in the essays collected in International Money (1981). Instead of

the last thing he wrote before turning to other matters, the 1966
Economist essay served as the sketch of an argument he would spend the
subsequent decade fleshing out in multiple dimensions.
The minority position that Charlie embraced in 1966 was actually – or so
he claimed – a return to tried and true principles, but it is important not to
misunderstand. The principles he has in mind are definitely not the classic
specie-flow mechanism of Hume which shaped so much of academic think-
ing, but rather the principles of practical banking. His position was a minority
one in the economics profession, which is to say in academia, but it arose out
of the practical business of banking, and in particular central banking, in
which world it was just common sense. Charlie always insisted that econo-
mists, like lawyers, “are the high priests of society that provide a ritualistic
justification for what practical men unselfconsciously do.”48 That’s what he
himself had been trying to do in his earlier Dollar Shortage (1950), which
mounted an economic defense of the Marshall Plan. Here in 1966, we see
him mounting an economic defense of the larger “dollar system” that had
grown up after.
So far as Charlie could see, the actions of practical men had by 1966
moved quite far toward creating an integrated international monetary
and financial system, a single money market and a single capital market,
all of it denominated in a single unit of account: the US dollar. No one
had planned it, least of all the economists, and most practical bankers saw
only the bit of the system with which they routinely interacted, not the
system as a whole. For lack of understanding, policymakers had repeat-
edly tried to kill this emerging dollar system with capital controls, but the
fungibility of money kept finding a way around. Charlie’s contribution in
1966 was to make the system as a whole visible, as a way of trying to
forestall misguided attempts to kill it off.
The central idea of the Economist essay is that the United States needs
to be understood as the financial center of this newly integrated inter-
national monetary and financial system. Most important was the oper-
ation of the international capital market, located largely in New York,
48
Kindleberger (1981a, 285). Here he follows Arnold (1937). See also Kindleberger
(1950, 6; 2000a, 70; 1970a, 53).
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MONEY AND EMPIRE
where foreigners meet one another as both borrowers and lenders. This
marketplace had been key to the recovery of Europe and was now
becoming key to the development of the periphery: “In my judgment,
the economists have underrated the contribution to economic develop-
ment of an international capital market.”49
In addition, the United States was also the center of the international
money market, the place where deficit countries settled with surplus coun-
tries. Foreign deposits in New York banks served as the means of this inter-
national settlement, and in doing so played a crucial role in facilitating the
growth of international trade, allowing countries to mismatch their inter-
national earnings and expenditures temporarily, and to absorb any present
imbalance by drawing down or building up their liquid balances. In effect,
international short-term capital flows took place on the balance sheets of
New York banks, which expanded and contracted their balance sheets as
needed.
Originally, both capital and money markets had grown up in
New York, but over time both had also begun developing natural
extensions abroad, in Europe and especially in London, in the so-
called Eurobond and Eurodollar markets. Indeed, the misguided cap-
ital controls imposed by US policymakers had only encouraged these
offshore extensions where foreigners borrowed and lent among them-
selves in dollars, both at long term and at short term. The onshore
markets nevertheless remained critically important for absorbing any
net borrowing or lending, specifically net borrowing long and net
lending short. For Charlie, and for the United States, this was the
crucial point.
In absorbing the net dollar borrowing and dollar lending of the rest of
the world, the United States was in effect operating as an international
financial intermediary:
This financial intermediation performs two functions: it supplies loans and

investment funds to foreign enterprises which have to pay more domestically
to borrow long-term money and which cannot get the amounts they want at
any price, and it supplies liquidity to foreign asset-holders, who receive less for
49
150

THE DOLLAR SYSTEM
placing their short-term deposits at home. Essentially, this is a trade in

liquidity, which is profitable to both sides.50
A central consequence of this international financial intermediation was

the integration of world capital and money markets into a single market.
The price of money in this market then served as the world price around
which all other subsidiary markets arranged themselves.
In operating as bank for the world, the United States thus supported
the development of the global dollar system more generally. People
choose to use dollars not because anyone forces them, but because they
seek access to the liquidity of dollar-denominated money and capital
markets. As a consequence of that choice, New York was now doing for
the broader world what it had previously done for the United States more
narrowly, namely knitting the nation’s disparate geographical areas into
a single integrated money and capital market. Economically speaking, it
seemed obvious to Charlie that this was a good thing, just as good for the
world as it had earlier been for the United States more narrowly. Without
such intermediation, there would be less trade and less investment, less
economic activity and less economic growth.
In sum, for Charlie the dollar was just a “key currency” (as John
H. Williams) or a “vehicle currency” (as Robert Roosa): “International
currencies are not all of equal value as units of account, standards of
deferred payment and media of exchange. They stand in relationship to
one another not as full equals, but in a hierarchical arrangement of
ascending utility as international money.”51 For him, this hierarchy was
not imposed from above, but rather arose from economies of scale that
favor a single international money and from the decentralized choices of
myriad market participants who chose the dollar rather than some other
contender. That’s how it looked to Charlie.
That’s not, however, how it looked to many others, both outside and
inside the United States, both economists and noneconomists. Whatever
the origin of the hierarchy, the fact that the dollar sat on top was
a problem. The global role of the dollar placed the United States in
a position of responsibility and authority that US and non-US sovereigns
50
51
151

MONEY AND EMPIRE
both came to resent, for different reasons. Thus, even The Economist,
while essentially accepting Charlie’s bank-of-the-world analytical frame,
viewed his article as an assertion of American primacy, and specifically of
dollar primacy – “the new nationalism.” The United States may be a bank,
so the editors wrote, but banks need to be mindful of the interest of their
depositors lest they be subject to runs as anxious depositors shift their
funds into better money, in this case gold at the promised parity of $35 an
ounce. For The Economist, Charlie’s rather cavalier attitude toward that
promised parity – “let the gold go” – was a crucial sticking point.52
One imagines that Charlie expected better from The Economist, heir to
the tradition of Walter Bagehot whose 1873 Lombard Street had served to
crystallize the doctrine of lender of last resort for a time when the pound
sterling served the world as international money. Viewing the matter
from the vantage point of the United States, Charlie understood the
problem as the failure of the United States to take responsibility for the
international role that had been thrust upon it. So he was somewhat
taken aback when The Economist interpreted his essay as a symptom, even
an encouragement, of exactly that US irresponsibility. What did Charlie
have in mind when he said “let the gold go”?
It is certainly true that Charlie was willing, even eager, to contemplate
partial or complete demonetization of gold by the United States –
“widening the margin around parity at which it buys and sells gold,
reducing the price at which it buys gold, and otherwise depriving gold
of its present unlimited convertibility into dollars.”53 But the reason was
that the dollar, not gold, had already become the world’s standard of
value. In Charlie’s view, any depreciation of the dollar against gold would
inevitably be followed by similar depreciation of all other currencies, so
leaving exchange rates unchanged. From this point of view, a “run” on
the dollar was essentially pointless, since there was no better money into
which to run. It was only the myth of gold, a myth that had unfortunately
been given substance by central bankers in such misbegotten initiatives as
52
In fact, Charlie’s position was moderate compared to Despres, who explicitly urged
unilateral demonetization of gold (1973, ch. 15).
53
152

THE DOLLAR SYSTEM
the Gold Pool, that gave speculators the idea of shifting between dollars
and gold in the first place.
For Charlie, the way to avoid destabilizing speculation was to eliminate
convertibility altogether, and to operate a pure exchange standard,
embracing de jure the system that had long been in place de facto. Yes,
US gold reserves had been run down even as US short-term liabilities to
the rest of the world had grown. Nevertheless, so far as Charlie was
concerned, the dollar was strong not weak, and the measure of its
strength was the continuing expansion of foreign deposits to the tune
of $1.5 to $2 billion a year, in line with the expansion of the world
economy. The market was demanding this expansion of liquidity, and
the US financial system was responding by supplying it endogenously.
Even more, the system had shown itself able to supply not only the
trend demand but also the occasional crisis demand as well. To that end,
the central bank swap lines formally established in March 1961 by the BIS
had already proven to be a serviceable lender of last resort for the pound
sterling and could be expected to do so as well for other currencies as
needed, including potentially the dollar: “The great merit of the Basel
agreement, and the crucial feature of an international central bank, is
the availability of unlimited amounts of assistance through rediscounting
in a period of crisis.”54
The response of The Economist was disappointing but also extremely
instructive, drawing Charlie’s attention to the political as well as the
economic dimensions of the dollar problem. As he would later summar-
ize: “Benevolent despotism is the best form of government because it
permits us all not to pay the price of eternal vigilance. The difficulty is to
keep it benevolent, or viewed as such.” Charlie’s proposed answer to that
difficulty was to internationalize the institutions for managing the dollar.
Subsequent to the 1966 Economist essay, he would urge formal represen-
tation of the rest of the world in the Fed’s governing apparatus, specific-
ally the creation of an Atlantic Open-Market Committee. And even that
he would view as merely a stepping stone to an eventual proper world
54
Kindleberger (1981a, 28). Coombs (1976, ch. 5) traces the evolution from 1961 of
what he calls “The Federal Reserve Swap Network,” as first line of defense for the
Bretton Woods fixed exchange rate system.
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MONEY AND EMPIRE
central bank, perhaps a repurposed Bank for International Settlements,

which would implement world monetary policy by means of open market
operations in the offshore Eurodollar market.55
In this way, Charlie’s urging of de jure adoption of the de facto dollar
system should be seen not so much as some kind of “new nationalism,”
but rather more reasonably as a new kind of internationalism, the first
step toward shifting responsibility for management of international
money from a national to a genuinely international central bank: “With
a world [central] bank, money would be issued through buying bonds or
rediscounting obligations, at market rates. A country which temporarily
had too much money could lend it to another which was short, as
commercial banks in the USA lend Federal funds back and forth in
a private market.”56 Even without a proper world central bank, the
Eurodollar market was already growing up to serve that function; the
political problem was that the persistence of the Bretton Woods myth
made that reality hard to see.
For Charlie, the problem with the Bretton Woods frame was that,
however functional it might have been for the world of 1944, the world
had moved on and the forces that had produced a changed reality seemed
quite certain to continue driving reality even farther away in the years to
come: “I do not know, but this is where major forces in trade, transport,
communications, capital movements, foreign exchange, and especially the
international corporation are pushing.”57 Significantly, Charlie wrote
these words not in 1966, but three years later at an academic conference
he organized with the political scientist Andrew Shonfield, in an attempt to
find common ground between American cosmopolitans such as himself
and European regionalists such as Shonfield. In effect, the conference was
an academic analogue of the 1933 World Economic Conference where
John H. Williams had tried to broker a key-currency deal between the
major world central banks, only to be shot down by his own President
Roosevelt. Fatefully, the proceeds of the 1969 academic conference would
be published in 1971, the very year that President Nixon unilaterally
55
Kindleberger (1981a; 316, 107, 102, 109, 325–6).
56
57
154

THE DOLLAR SYSTEM
devalued the dollar against gold, thereby bringing the Bretton Woods era
to an end. History may not repeat, but it does seem to rhyme.
In 1966, however, Charlie thought it was still possible to avert disaster.
Similarly, in 1969: “Demonetization [of gold] is nonetheless inevitable.
The basis of national money is national credit. We approach the day when
the basis of international money is international credit.”58 Even as late as
1970, Charlie could write: “I forecast that the world is moving toward
internationalized control of a national money, with gold demonetized.”59
It was in this spirit that he rapidly produced his third textbook effort, Power
and Money: The Economics of International Politics and the Politics of
International Economics (1970). The problem with the dollar standard was
that the dollar was increasingly the offshore Eurodollar, hence an unman-
aged standard, and the central political problem was to find a way to bring
that new offshore dollar under collective management.60 Unfortunately,
“discussion of the politics of the subject is handicapped by lack of agree-
ment on the economics.”61 Most distressingly, politicians seemed now to
be flirting with flexible exchange rates as a possible panacea, a policy
“which solves a political problem but creates an economic one.”62
From this point of view, Nixon’s unilateral devaluation in August 1971
struck Charlie as nothing less than a crime: the Crime of 1971, he called
it. The proximate cause was loose monetary policy in the United States
(for election reasons) combined with tight monetary policy in Germany
(for inflation reasons), which combination led to large capital flows from
the United States to Germany – the dreaded hot money. Writing in 1972,
after the December 1971 Smithsonian Agreement which had established
new parities, but before that agreement had collapsed, Charlie asked:
“With the devaluation of the dollar in 1971, and the adoption of the wider
band, there is a question whether there is any international money
today.” By 1976, Charlie was prepared to concede defeat: “The dollar is
finished as international money.”63
58
59
60
61
62
63
155

CHAPTER 7
Among Economists
In academic life, slow cooking works better than the microwave.1
Charlie’s life as an academic had begun, fatefully, with an academic dispute.

Four years younger than Charlie, Arthur Bloomfield had been a student of
Jacob Viner at the University of Chicago, writing his dissertation on
“International Capital Movements and the American Balance of Payments:
1929–40.” In 1941, following Charlie’s own career path, Bloomfield joined
the Research Department of the New York Fed, rising in 1947 to the position
of Chief of the Balance of Payments Division. Having met Charlie at the Fed
briefly in 1938 when he was choosing his dissertation topic, Bloomfield
renewed the contact after the war, reaching out for comment on his book
manuscript Capital Imports and the American Balance of Payments, 1934–1939,
which was eventually published with the added subtitle “A Study in
Abnormal Capital Transfers”2 – “abnormal” because they were inconsistent
with the classical theory Bloomfield had been taught by Viner.
Bloomfield’s request came in July 1948, and Charlie welcomed it as
a chance to re-engage with academic research in preparation for his
imminent re-entry to academic life. He was himself at that time already
working on The Dollar Shortage. Subsequently, he would review Bloomfield’s
book in Political Science Quarterly, and Bloomfield would review Charlie’s
book in the Review of Economics and Statistics.3 The context for these dueling
reviews, however, was an earlier exchange in the pages of the American
Economic Review.
1
2
KPMD, Box 1, Folder “Bloomfield, Arthur, 1948–87.” Bloomfield (1950).
3
Kindleberger (1950), Bloomfield (1952).
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AMONG ECONOMISTS
Charlie went first, provoked by a footnote in Bloomfield’s manuscript

that purported to identify a serious error in Charlie’s 1943 “International
Monetary Stabilization,” which, as we have seen, had sketched the intel-
lectual agenda that Charlie would take up as an academic (Chapter 5).
The offending passage concerns the chronic world shortage of dollars,
which Charlie attributes to elastic demand by the rest of the world for
imports from the United States, but relatively inelastic demand by the
United States for imports from outside. Over time, rising US income thus
leads to an increase in US imports, which increases income in the rest of
the world, “most of which in turn is spent for imports from [the US]. This
rise in imports may be larger than the increase in exports which prompted it, with
the result that the original stimulus to the favorable balance of trade in
[the rest of the world] eventually produces an unfavorable balance.”4
After publication, the emphasized passage had become mildly infam-
ous in academic circles. Charlie remembers: “it was a common occurrence
during the portion of the war I spent in Washington to be stopped on the
street by fellow economists and to be told that my argument had been
demolished by their graduate students.”5 Apparently professors were using
the offending passage to test their students’ understanding of standard
economic models, which uniformly predict that an exogenous increase in
exports will always improve the balance of payments. Indeed, once at the
Fed, Bloomfield himself had prepared a memo pointing out the error,
which argument then found its way into a published textbook, which
textbook further cited Charlie’s future colleague Paul Samuelson: “So
long as some fraction of income at every stage is leaking into domestic
savings, a new dollar of exports will never be able to lift income by enough
to call forth a full dollar of new imports.”6 Charlie’s attention having been
brought to the matter, he decided it was time to answer his critics.
His main defense was simple: “the position taken conforms to the real
world if not to the mechanics of the most popular economic models.”7
In the 1943 article, he had been talking about the various dimensions of
4
Kindleberger (1966, 255), my emphasis.
5
6
Enke and Salera (1947, 599–606).
7
157

MONEY AND EMPIRE
structural disequilibrium that the world would likely confront after the
war and criticizing the adequacy of various proposals for tackling them,
unorthodox as well as orthodox. His critics, however, were talking about
the properties of formal economic models, and, from their point of view,
the question was what features of the real world Charlie saw outside his
window that were missing from those textbook models. In an attempt to
meet his critics on their own ground, Charlie pointed to the possible role
of so-called “induced investment” for some countries, especially develop-
ing countries, which may respond dynamically to a surge in exports by
building new capacity to such an extent that imports rise by more than
the initial export surge. An empirical example of such is the case of
Argentina during the interwar period.
Bloomfield’s response is telling. While accepting the formal logic of
Charlie’s defense, he objects that it is based on “additional” and “special”
assumptions, and hence represents a particular case rather than
a general one: “Unless some such additional assumptions are postulated,
the theoretical presumption must be that an increase in a country’s
exports will typically result in only a smaller, or at best an equal, increase
[in its imports].” Charlie’s rejoinder is equally telling: “I cannot, how-
ever, accept the proposition that, because more theoretical models have
been built by scholars with a tendency to undercompensate than with the
opposite tendency, there is a strong argument in favor of the prevalence
of this tendency [in the real world].”8
This disjuncture between the real world and the most popular theor-
etical models was a problem that Charlie had encountered repeatedly in
his former life in government service, but in that world practical concerns
had always trumped theoretical niceties. Because Bloomfield was writing
from the New York Fed, one imagines that Charlie expected him to be
similarly motivated by practical concerns and was therefore somewhat
surprised to discover that the influence of academic culture loomed so
large in Bloomfield’s mind. Here, and not for the first time, Charlie was
confronting what he would come to view as the besetting sin of academia,
namely the “fallacy of misplaced concreteness.” Because academics do
not engage directly on a daily basis with the actual world, always so full of
8
Bloomfield (1949, 971), Kindleberger (1949a, 975).
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AMONG ECONOMISTS
complexity and ambiguity, they tend to drift into viewing the artificial
world of economic theory, always so reassuringly simple and clear, as the
central object of attention, more concrete than the actual world itself.
Subsequently in 1958, Bloomfield would shift from the Fed to aca-
demia, once again following Charlie’s own career trajectory, and Charlie
would come to appreciate Bloomfield’s work on the historical experience
of the pre-1914 gold standard. But in 1969, when Bloomfield was asked to
survey “Trends in International Economics,” he focused entirely on
advances in formal theory, in striking contrast with Charlie’s own survey
five years earlier which had been organized around four current issues or
problems.9 Further, Bloomfield’s survey made no mention of Charlie’s
own work on international financial intermediation, or indeed any other
empirical or policy work. One imagines that that slight was on Charlie’s
mind when, in 1985, he was invited to write something for a symposium in
honor of Bloomfield. For the occasion, he made a point of offering an
essay titled “The Functioning of Financial Centers: Britain in the
Nineteenth Century, the United States since 1945,” which used the
frame of international financial intermediation to draw comparisons
between the pre-1914 gold standard (Bloomfield’s focus) and the pre-
sent operation of the dollar system (Charlie’s focus). He made a further
point of starting the essay with a reference to their “brief dispute in an
initial encounter in 1949. I have the memory that I won the early argu-
ment, but doubtless he feels equally sure that he did.”10
The early tussle with Bloomfield established the pattern. Throughout
his academic career, Charlie would chafe repeatedly against the meth-
odological strictures of academic economics, strictures he references on
the very first page of his autobiography: “I am an old-fashioned econo-
mist, who finished his training in the 1930s, spent twelve years in banks,
the military and government, and in starting to teach in 1948 made the
conscious and perhaps mistaken decision not to undertake the daunting
task of retraining in modern analytical, largely mathematical,
techniques.”11 As we have seen, Charlie’s intellectual formation was in
9
Bloomfield (1969). Compare Kindleberger (1965a).
10
11
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MONEY AND EMPIRE
prewar American institutionalism, heavily empirical and favoring induct-

ive methods, whereas postwar academic fashion instead increasingly
favored a hypothetico-deductive method, involving formal model build-
ing, both mathematical and statistical. In 1948 this new fashion was barely
getting started, but over the coming decades the MIT department would
take a leading role in pioneering it.12 Engaging economists on their own
ground, as Charlie had done with Bloomfield, would thus become
increasingly difficult for him as the years went on.
At first this difficulty did not bother Charlie very much, convinced as
he was that the policy process was in the end driven not by academic
disputation, but rather by practical men solving practical problems, and
in particular by the anonymous junior staffers in government agencies
who do all the work. In the academy, however, this was very much
a minority view. Most academic economists, following Keynes, believed
that “Practical men, who believe themselves to be quite exempt from any
intellectual influences, are usually the slaves of some defunct economist.
Madmen in authority, who hear voices in the air, are distilling their frenzy
from some academic scribbler of a few years back.”13 In this way of
thinking, academic disputation is the first step toward capturing the
minds of the practical men in authority. Indeed, the postwar Keynesian
revolution in economic policy had arguably sprung quite directly from
Keynes’ own scribbling, and his example infected an entire generation of
economists with the idea that their own scribblings might possibly change
the world. Mere academic disputation came to seem high stakes.
In 1948, however, all that lay in the future, especially so in inter-
national economics, which remained very much of a backwater, following
the rest of economics with a lag; this gave Charlie some considerable
room to maneuver for a while. Private capital markets were more or less
shut down in most developed countries, which were still recovering from
the exigencies of war and the financial overhang of war finance. Cross-
border capital flows, both long term and short term, were also shut down,
and practically no government had any interest in reviving them, given
their apparent role in exacerbating instability in the interwar period. The
12
Weintraub (2014).
13
Keynes (1936, 383).
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AMONG ECONOMISTS
focus at Bretton Woods in 1944, by both Keynes for the UK and White for
the United States, had instead been on providing machinery to enable
each country separately to implement its own program of national stabil-
ization. International economics thus came into the picture only because
of concern that balance of payments problems might constrain such
programs. As we have seen, the Marshall Plan solved that problem in
the developed world for a few years, and then Cold War and Korean War
spending for a few more, until 1958 when Europe returned to
convertibility.
In the underdeveloped world, however, and in particular in Latin
America, balance of payments problems were rife, even as economic
development ambition was blossoming. As the United States focused on
Europe, it left a vacuum elsewhere, and so that’s where the newly estab-
lished IMF found its most immediate purpose. In the underdeveloped
world, “fundamental disequilibrium” was a recurring phenomenon, giv-
ing license for exchange rate adjustments under the IMF’s Articles of
Agreement. But in each specific case the practical question always was:
how much to devalue, and what other measures might also be needed to
ensure success? Under Edward M. Bernstein, Director of the Research
Department from 1946 to 1958, a multipronged approach emerged from
this practical experience, combining the “elasticity approach” of the
prewar literature with the more Keynes-inflected “absorption approach”
developed largely in-house, and also what came to be called the “monet-
ary approach to the balance of payments.”14
Quantitative work using data and formal mathematical modelling was
central to the work of the IMF’s Research Department. Sidney
S. Alexander (1952) was the first to formalize the absorption approach,
and Jacques Polak (1957) was the first to formalize the monetary
approach; but in both cases, it should be emphasized, the papers
emerged from practical experience in the field, brought back to the
Research Department in Washington, DC, and distilled by a process of
internal debate among multiple authors. These seminal papers were thus
products of the institution as much as they were of the individual authors,
much like the work product and process of most central banks. The key
14
De Vries (1987, 30), IMF (1977).
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MONEY AND EMPIRE
point is that, at the IMF, international economics got its start from the
practical problems of the underdeveloped world.
Watching all of this from his new perch at MIT, Charlie would have
recognized Alexander’s absorption approach as a version of what he
himself had been attempting in his 1937 dissertation. And Alexander
himself would have been a known quantity since he had served during
the War as Director of Research at the OSS. No doubt both were factors in
the decision to bring Alexander to MIT in 1956, where he would remain
until retirement.
Polak’s monetary approach would also have been recognizable to
Charlie, given his own preferred payments approach to international
economics. Polak’s model built on the distinction between money of
external origin and money of domestic origin that Robert Triffin had
brought to the IMF back in 1946, but it was Polak and others who turned
it into a practically usable policy framework. Importantly, and notwith-
standing the emphasis on money supply, the IMF approach was by no
means monetarist.15 Indeed, the whole point was to emphasize how the
money supply in these countries was fundamentally an endogenous
variable, rising and falling with the inflow and outflow of foreign reserves,
as well as the expansion and contraction of domestic credit. The
emphasis on these monetary magnitudes was partly an accommodation
to data availability, but it worked because countries in the underdevel-
oped world were typically quite underdeveloped financially as well. Bank
credit was essentially the only financial instrument, and given the lack of
international capital flows, changes in official foreign reserves of the
central bank were essentially the only means of settling international
payments. Further, in many of these countries, the fiscal Treasury was
effectively conjoined with the monetary central bank, so IMF field inves-
tigations typically involved working with both, advising how to avoid
balance of payments crises by controlling both domestic spending and
credit.
In the case of the monetary approach, there was no need for MIT to
recruit anybody since they already had Charlie. Instead, the flow went the
other way as Robert Mundell, one of Charlie’s first PhD students,
15
De Vries (1987, 30).
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AMONG ECONOMISTS
graduating in 1956, spent two years at the IMF (1961–3). His dissertation
had been pure trade theory, nothing at all on money, but he had taken
a guided reading course from Charlie that would have provided him with
a basic understanding of the relevant literature on international money.
And Charlie had helped Mundell to get the IMF job, no doubt remem-
bering the importance of his own early stints at the Fed and BIS.16
Indeed, there are echoes of Charlie’s 1939 “Speculation and Forward
Exchange” in the paper Mundell wrote jointly with Fleming at the end of
his IMF sojourn, “Official Intervention on the Forward Exchange Market:
A Simplified Analysis.” Notably, the paper builds explicitly on the work of
Charles Coombs at the New York Fed, whose 1976 memoir Charlie would
later review glowingly.17
The point to emphasize in all of this is not only that postwar thinking
about international money had its origins in the world of central bank
and IMF practitioners, but also that that thinking then spilled over into
academic circles at MIT through contacts such as Alexander and
Mundell. Although Charlie always favored the Williams key-currency
approach and so opposed elevation of the IMF into a global central
bank, he quite definitely recognized the usefulness of the institution
for fleshing out the periphery of the emerging global dollar system.
Indeed, in his review of the official history of the IMF, Charlie went so
far as to analogize the Fund’s structural adjustment programs to the
Marshall Plan – both programs used outside funding to support
a program of structural change – and to praise the “Darwinian fashion”
in which the Fund developed over time to meet changing
circumstances.18 He does not mention (but it is relevant) that the author
of the official history, Margaret Garritsen de Vries, was herself an MIT
PhD, graduating in 1946 with a thesis that she wrote under Paul
Samuelson on the management of Federal debt in the postwar period.
Charlie’s arrival two years later thus merely continued and solidified an
IMF–MIT cross-fertilization that predated him.
16
Boughton (2003, 3).
17
Fleming and Mundell (1964). Footnote 1 cites Coombs (1963). Kindleberger
(1977c).
18
163

MONEY AND EMPIRE
All of this cross-fertilization on international money operated largely

under the radar, however. More visibly, MIT was building itself into
a center for academic discourse focused primarily on national economic
stabilization. In 1948, that discourse was organized around the simple
Keynesian fiscal multiplier model, which understood domestic output as
driven by aggregate demand, broken down into aggregate consumption,
investment, and government spending. From the point of view of this
model, international economics enters the picture merely as exports (an
external source of demand) and imports (an external leakage of
demand), which is to say the balance on current account. An exogenous
increase in exports increases domestic income directly and also indirectly
because the higher income increases consumption spending, while some
of the increase leaks abroad in the form of increased imports. This, it will
be noted, is exactly the frame of the 1949 Bloomfield–Kindleberger
debate. The important point to note is that money enters the picture
nowhere.
The reason for this initial neglect of money in the national economics
discourse can be traced to US wartime practice of using the central bank
to support the price of government bond debt, both short term and long
term. In effect, the central bank balance sheet and hence the money
supply simply absorbed any excess supply or demand of government
bonds at the fixed policy price, expanding or contracting respectively,
and this practice continued well after the war. Only in 1951 in the famous
Fed–Treasury Accord did the Fed wrest control of short-term interest
rates from the Treasury and begin to use that control for stabilization
purposes.
Importantly, the initial academic response to that 1951 institutional
change came not from MIT but rather from the University of Chicago –
specifically from Milton Friedman and his students, whose emphasis on
monetary policy rather than fiscal policy mounted an assault on the
emerging Keynesian mainstream view. Even before the Accord,
Friedman (1946) had mounted a sustained attack on Oskar Lange’s
crypto-Keynesian Price Flexibility and Employment (1944) and had proposed
“A Monetary and Fiscal Framework for Economic Stability” (1948) as his
alternative. Subsequently, the students in Friedman’s Workshop on Money
and Banking produced Studies in the Quantity Theory of Money (1956), and
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AMONG ECONOMISTS
Friedman’s lead essay for the volume, “The Quantity Theory:

A Restatement,” provided the analytical foundation for his subsequent
manifesto A Program for Monetary Stability (1959). The empirical foundation
of the monetarist edifice, A Monetary History of the United States (1963)
coauthored with Anna Schwartz, followed soon after. Suffice it to say, in
the field of money Chicago got a very big jump on MIT.19
The central figure in MIT’s response to Friedman was Franco
Modigliani, who joined MIT in 1962 after visiting for a year in 1960,
and began producing a stream of papers on the monetary transmission
mechanism beginning with “The Monetary Mechanism and its
Interaction with Real Phenomena” (1963). MIT’s choice of Modigliani
was in effect an endorsement of Modigliani’s own version of Keynes,
which he had worked out in his PhD dissertation (under Jacob
Marschak at the New School for Social Research) and published as
“Liquidity Preference and the Theory of Interest and Money” (1944).
This was the so-called IS–LM model, with one curve for fiscal policy
denoting equilibrium in the goods market and a second for monetary
policy denoting equilibrium in the money market, a model which would
become central to the analytical approach that Samuelson would pro-
mote as the “neoclassical synthesis,” starting with the 1955 edition of his
best-selling textbook.20
Just so, armed with this model, in 1961 MIT went to Washington to
join the Kennedy administration: Paul Samuelson as unofficial advisor to
the President himself and Bob Solow as senior economist at the Council
of Economic Advisors. Meanwhile, back home at MIT, Modigliani took
charge of developing the monetary sector of the Fed–MIT–Penn (FMP)
model, the first large-scale econometric model of the United States –
basically a fleshed-out version of the two-curve IS–LM model, calibrated
to past data. The way the model worked, monetary policy set the short-
term rate of interest, which then got translated into a long-term rate by a
term structure equation and into a risky rate through an equity pricing
19
This paragraph and the next are taken from Mehrling (2014, 178, 185–187) with
minimal edits. See the original for a story of “MIT and Money” that focuses on the
national discourse rather than, as here, international money.
20
Giraud (2014, 149).
165

MONEY AND EMPIRE
equation. These capital market rates then entered expenditure equa-

tions in the “real” sector of the model.
Throughout the 1960s, this same IS–LM model organized the debate
between the Keynesians at MIT and the monetarists at the University of
Chicago. One point of contention was the slopes of the two curves, which
in the model determine the relative efficacy of fiscal and monetary policy.
Another point of contention was the movement of the curves over time,
which in the model determines how quickly the economy converges to
long-run full-employment equilibrium. For our purposes, the important
thing is not these points of contention, but rather the points of agree-
ment. Keynesians and monetarists both had much the same model of the
economy, and for both groups the monetary side of that model was
a matter of money supply and money demand, with the money supply
taken to be exogenously fixed by the central bank.
As a sometime student of Willis, that was not at all how Charlie
thought about money. Further, as against the emerging national macro-
economic orthodoxy at MIT, Charlie’s message, in effect, was that in the
emerging international world of integrated money and financial markets
the very notion of purely domestic monetary policy was an illusion. In his
view, the US money rate of interest established the level for the entire
world, not just for the United States, and foreign central banks merely
established spreads around that level. In this sense, foreign central banks
were to the Federal Reserve System as the regional Federal Reserve Banks
were to the New York Fed inside the United States. The implication of
this point of view was that US monetary policy was de facto international
monetary policy, and foreign monetary policy was only about managing
the balance of payments, not domestic economic stabilization: “One
market implies one price, which implies one money and one monetary
policy.”21
The economists didn’t want to hear that at all, and even less so their
political masters. No sovereign wants to be told that monetary sovereignty
is a myth: “Sovereignty is the last asset to be pawned.”22 The spirit of the
age, crystallized at Bretton Woods, was that each country was to look after
21
22
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AMONG ECONOMISTS
its own aggregate income and employment, trading goods and services
with the rest of the world as needed, but strictly controlling all capital
flows, both short-term and long-term. In this way, the balance of pay-
ments should be driven by the balance of trade, perhaps fluctuating over
time, but with exports tracking imports on average over time. The world
was not one integrated market, but rather many separate national mar-
kets, economic islands engaging with each other at arm’s length. And the
job of the economist was not to advise how best to manage the world
system as a whole, but rather to advise the domestic sovereign how best to
maximize income and employment on his own island.
Toward that national stabilization goal, initially the IS–LM frame
merely took over the foreign trade multiplier analysis from the original
nonmonetary Keynesian model, embedding it now into the IS curve.
Domestic money entered the model through the LM curve, but inter-
national money still entered nowhere. Obviously this was unsatisfactory,
and so a generation of academics set to work, eventually adding a third
curve that described equilibrium in the foreign exchange market, so
extending the IS–LM model to what became known as the IS–LM–BP
model (BP for balance of payments). Significantly, Robert Mundell
played a central role in this, starting with some papers he published
during the IMF years, reworked as chapters in International Economics
(1968).23 In 1976, Mundell’s student Rudiger Dornbusch, by then him-
self a professor at MIT, would dub the IS–LM–BP model “Mundell–
Fleming” and popularize it in his 1980 textbook Open Economy
Macroeconomics.24 The inclusion of Fleming was meant to acknowledge
the contribution of Fleming’s 1962 paper produced independently from
Mundell’s, also at the IMF. Says Boughton, official historian of the IMF:
“What has become known vernacularly as the Mundell-Fleming model is
essentially Fleming’s equations with Mundell’s policy analysis.”25
We will have occasion to delve into this account of the development of
the standard model a bit later, but for the Kindleberger story it makes
more sense to start earlier, with the work of Egon Sohmen, another
23
Mundell (1961, 1963), Mundell (1968, ch. 15, 18).
24
Young and Darity (2004).
25
Fleming (1962), Boughton (2003, 3).
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MONEY AND EMPIRE
student of Charlie’s who graduated in 1958. Sohmen’s thesis, published

as Flexible Exchange Rates; Theory and Controversy (1961), subsequently
served as a foundation stone for academic discourse as the fixed
exchange rate system that had been established at Bretton Woods came
under stress and increasingly academic economists saw flexible exchange
rates as a possible solution.
Milton Friedman had opened the subject way back in 1953 with his essay
“The Case for Flexible Exchange Rates.” As a monetarist, Friedman
imagined a world in which each country independently controls its own
domestic price level by controlling its own money supply. The problem then
emerges that if monetary policies in different countries are not coordinated,
they will likely be incompatible with a fixed exchange rate system; the
currency of the country with the higher rate of inflation will tend to
depreciate. The solution to the problem was flexible exchange rates,
a policy which thus emerges as the necessary international component of
the monetarist policy agenda that Friedman promoted at the national level.
Over time this logic, coming as it did from a national macroeconomic
perspective, would make increasing sense to the Keynesians as well.
Flexible exchange rates came to seem like a way to increase the autonomy
of governments seeking to control domestic employment and inflation.
In advocating for flexible exchange rates, Sohmen made common
cause with Friedman, but his larger intellectual frame was always more
Charlie than Milton. Like Charlie, Sohmen’s ideal system was always
a single world currency, and he always emphasized short-term capital
flows, not reserve flows, as the key mechanism for absorbing temporary
imbalances. Just so, under the gold standard, exchange rates had fluctu-
ated within a narrow band around mint parity, as stabilizing short-term
capital flows absorbed imbalances rather than gold flows: “The gold
standard is the perfect example for the effectiveness of stabilizing
speculation.”26 The attempt at Bretton Woods to establish a fixed
exchange rate system, with the dollar convertible into gold at $35/oz.
and with every other currency convertible into the dollar, was an attempt
to create an approximation to a world currency system, at least for the
world of commodity trade.
26
Sohmen (1969, 79).
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AMONG ECONOMISTS
The fatal flaw of the Bretton Woods system, however, was price stickiness;
not only wages, but especially output prices due to widespread monopoly.
The result was that, over time, price levels in different countries drifted away
from each other, causing some currencies to become overvalued and others
undervalued. The resulting payment imbalances then eventually exhausted
the capacity of short-term capital flows and reserve flows, leading to more
serious intervention in the form of tariffs and capital controls, all in an
ultimately futile attempt to defend the fixed exchange rate. And all the
while, speculators were placing their bets, attracted by the prospect of
imminent devaluation or revaluation, forcing central banks to engage in
ever more heroic measures only eventually to capitulate, shifting the
exchange rate discontinuously and then holding fast to the new rate until
the same problem emerged again. In this way, according to Sohmen, the
Bretton Woods fixed exchange system had turned out in practice to be
the enemy of free trade in goods and capital. The solution was to abandon
the fixed exchange rate system and embrace flexible rates instead.
What Sohmen imagined as an alternative was a system where the
exchange rate drifts gradually, to keep the price systems of different
countries in alignment, while temporary imbalances are absorbed by
short-term capital flows. In such a system, interest rates move to facilitate
absorption of temporary imbalances, while exchange rates move to facili-
tate absorption of permanent imbalances. The workability of this ideal
system, however, clearly depends on whether speculation is stabilizing, as
it apparently was under the gold standard, or destabilizing, as it arguably
was in the interwar period. Sohmen’s book was therefore largely focused
on the question of stability, starting with the simple world of commodity
trade. Will depreciation improve the balance of payments or make it
worse? Put another way, starting from a position of trade balance, is the
equilibrium stable or unstable?
Sohmen’s first venture into academic publication, while still
a graduate student, had involved an argument that, even if the initial
equilibrium is unstable, there are always other stable equilibria above and
below the unstable one. So, if you experience instability, the trick is to
seek out one of the stable equilibria instead. This argument found favor
with Milton Friedman, who had asserted something similar in a footnote
to his 1953 article, and so Sohmen’s article found its way into the Journal
169

MONEY AND EMPIRE
of Political Economy in 1957. Subsequently, however, the article would

come under attack by Jagdish Bhagwati and Harry Johnson in the
Economic Journal, which provoked Sohmen to “Comment” and Bhagwati-
Johnson to “Rejoinder.”27 Unwittingly, Sohmen had wandered into the
battle between the monetarists and the Keynesians that was then heating
up, but there are echoes here also of the Bloomfield–Kindleberger
academic–practitioner debate. As Kindleberger, Sohmen would fight
on his critic’s ground, even as his main defense was empirical realism.
In fact, the issue of stability in a pure trade model was only
a preliminary to the main argument in Sohmen’s thesis, which was
about stability in a world of capital flows. In a flexible exchange rate
world, international trade involves exposure to exchange rate risk, and
the question arises whether forward exchange markets can be relied
upon to hedge that risk. Sohmen said yes, while Charlie said no, and
more or less the whole case for flexible exchange rates rides on that
answer. On principle, following the example of his own thesis advisor
Angell, Charlie did not require that Sohmen agree with him, and he
passed the thesis anyway. But they continued to debate the issue period-
ically in multiple venues up to and even after Sohmen’s premature death.
In the volume Charlie edited to honor Sohmen posthumously, his
own chapter, “Myths and Realities of Forward – Exchange Markets,” leads
with three myths supported by Sohmen:
Myth 1. Forward markets take exchange risk out of floating exchanges.

Myth 2. Broad and efficient forward markets will spring into existence
under floating exchanges.
Myth 3. With forward-exchange markets, monetary authorities need no
foreign exchange reserves; they can sell foreign exchange forward and roll
maturing contracts over, ad infinitum.28
In Charlie’s view, the ideal that Sohmen imagined as an alternative to

Bretton Woods was simply not going to work in practice the way that he
imagined it would in theory. Against Sohmen, Charlie urged that
27
Sohmen (1957), Bhagwati and Johnson (1960), Sohmen (1961b), Bhagwati and
Johnson (1961).
28
Chipman and Kindleberger (1980, ch. 8).
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AMONG ECONOMISTS
a flexible exchange rate system was likely to inhibit the growth of world
trade and probably dry up long-term cross-border capital flows more or
less completely, as exchange rates got whipsawed by destabilizing specu-
lation – shades of the 1930s. In the event, as we shall see, both men were
wrong. For now, the important thing to appreciate is that both Sohmen
and Charlie were in the minority among academic economists, since they
were both centrally concerned with the international system as a whole,
whereas most everyone else was thinking just about national economic
policy. For everyone else, Keynesians and monetarists both, flexible
exchange rates seemed like an extra degree of freedom for national
policy, which could only be a good thing.
Just so, as we have seen, Franco Modigliani had been hired at MIT to
expand the macroeconomic stabilization toolkit from fiscal policy to
include also monetary policy. Unemployment and inflation were the
targets he was trying to hit, so his interest in international money was
largely about preserving space for an activist domestic monetary policy
agenda. We see him doing exactly that in his various proposals for
international monetary reform, starting with “A Suggestion for Solving
the International Liquidity Problem” (1966), which he coauthored with
Peter Kenen, then a professor at Columbia University. More or less along
Triffin lines, they proposed a new international monetary unit to be
called the MIT (Medium for International Transactions) to be issued
by a new MIT bank, successor to the IMF, which would have the remit to
increase the supply of this new reserve asset in line with the secular
increase in demand from national banking systems. For Modigliani, the
big payoff from such a system was avoiding the necessity for deficit
countries to adopt deflationary policy domestically; they could instead
just devalue.29
Graduate students who were hearing one thing in Franco’s class and
another in Charlie’s organized a debate between the two men on
January 10, 1966, at 4:30 pm, cocktails and dinner to follow. Neither
Charlie’s Economist manifesto nor Franco’s MIT proposal were published
yet, but they were imminent. Professors were invited to the debate as well,
and Bob Solow spoke up on Franco’s side in favor of flexible exchange
29
Modigliani and Kenen (1966, 8).
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MONEY AND EMPIRE
rates, earning him a riposte from Charlie that Solow would remember
and recount at Charlie’s eightieth birthday celebration: “The audience
should keep in mind that MIT does not pay Professor Solow to think
about international economics.”30 The same, of course, could have been
said of Modigliani, but that didn’t stop him from developing his remarks
into a long memorandum for the Fed’s Economic Consultants Meeting
of October 20–21, 1966, explicitly attacking what he called the “CPK
position,” which provoked a formal reply by Charlie dated
November 29th.31
Modigliani would go on to coauthor with a student three more ver-
sions of his international monetary reform proposal, now shifting focus
to the SDR.32 A letter from Charlie commenting on the first of these
three versions survives and shows the distance between the two men as
wide as ever:
There is a fundamental monetary issue here between the school which says
that money is created by the state, or by legislation or international
agreement, and another which says money is created by usage . . . You
dismiss without a hearing the case for internationalization of monetary
policy to avoid the kinds of deficits and surpluses which have been so
troublesome in the last few years. Your independence of domestic
monetary policy is an assumed goal, not debated or debatable.33
Outside of MIT, the flexible rate case burgeoned as well. In 1967,

Milton Friedman debated Robert Roosa, now at the Council on Foreign
Relations, and the published proceedings became required reading
everywhere. At Harvard’s new Kennedy School of Government, Francis
Bator, a 1956 MIT PhD just returned from high office in the Johnson
administration, wrote for Foreign Affairs rejecting Charlie’s proposal to
“crown the dollar” (Bator’s words, but without explicitly naming Charlie)
and embracing instead a new kind of international money: the SDR.
30
KPMD, Box 24, “Reminiscences of Charles P. Kindleberger on his Eightieth Birthday,
October 12, 1990.”
31
KPMD, Box 1, “Graduate Economics Association Seminar.” The Modigliani memo-
randum was eventually published with light revisions as Modigliani (1973).
32
Modigliani and Askari (1971, 1973), Askari and Modigliani (1972).
33
KPMD, Box 1, “Graduate Economics Association Seminar.” CPK to FM, July 16, 1971.
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AMONG ECONOMISTS
Farther afield, Harry Johnson, professor at the University of Chicago,

pressed “The Case for Flexible Exchange Rates, 1969” as one of thirty-
eight papers published after the June 1969 Burgenstock conference
titled Approaches to Greater Flexibility of Exchange Rates.34 The academic
bandwagon was thus rolling, well before Nixon’s 1971 decision to
devalue.
Only the Johnson contribution did Charlie choose to address, in “The
Case for Fixed Exchange Rates, 1969,” presented at a Boston Fed confer-
ence in October 1969. Charlie had in fact been trying to bring Johnson
on board with his own position for some years, in a series of private
letters, to no avail. (The first step in this campaign was apparently
Charlie’s choice of Johnson as [paid] critic of the manuscript for his
1962 Foreign Trade and the National Economy.) So when Milton Friedman
seemed to change his position to something very close to Charlie’s, he
felt the wind at his back and decided to push on Johnson in public.35
Friedman’s idea was that the United States should stop buying and selling
gold, eliminate all capital controls, and renounce any intervention to
influence the price of the dollar, leaving other countries to choose
whether to peg to the dollar, float, or whatever. The end result of all
this, Friedman suggested, would be that
New York would resume its growth as the center of the capital market of
the world . . . 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.36
Buoyed by this unexpected (monetarist) support, as he chose to

interpret it, Charlie responded firmly to (Keynesian) Johnson:
The main case against flexible exchange rates is that they break up the
world market. There is no one money which serves as a medium of
exchange, unit of account, store of value, and standard of deferred
payment . . . Under any system of flexible exchange rates, the drive to
34
Friedman and Roosa (1967), Halm (1970), Bator (1968).
35
Kindleberger (1981a, 84 n. 1, 182 n. 5).
36
Friedman (1969, 365).
173

MONEY AND EMPIRE
establish an international money is virtually inevitable . . . The stable

exchange rate system, in my judgment, is inherent in the evolutionary
process by which barter moves to become efficient trading through the use
of a single money.37
The Burgenstock and the Boston Fed conferences were just two of
many in those years. Reviewing the published proceedings of yet another
one, Charlie observed:
One new industry of the 1960s is the holding of conferences on the

international monetary system by academic economists with an
occasional admixture of central and commercial bankers. One need only
mention in alphabetical order Algarve, Bald Peak, Bellagio, Bologna,
Brookings, Burgenstock, Claremont, Chicago, Ditchley . . . to make the
point. The rediscovery of money in international economics, somewhat
belatedly perhaps, and of Gresham’s law (by Triffin) sets monetary
economists in motion to the airport, papers in hand. To miss
a conference is to be assigned to review the proceedings, either before
publication for the university press which gets the duty, or afterward for an
economic periodical.38
The specific conference that Charlie had been assigned to review in

this case had been held in September 1966, organized by Robert Mundell
with the support of Harry Johnson, both at that time professors in the
economics department at the University of Chicago and coleaders of the
famous International Economics Workshop. Charlie had not been in
attendance (hence the assignment), but he had been at the original
Bellagio conference in 1963 that launched the industry, and that had
been enough for him.39 Enough for Mundell too, and the Chicago
conference was explicitly intended as an alternative to Bellagio, focusing
now on “problems” in monetary theory rather than plans for monetary
reform.
37
38
Kindleberger (1971, 127), quoted also in Kindleberger (1989c).
39
Proceedings of that early effort appear in Machlup (1964). Connell (2013) provides
a useful chronicle of the continuing series of Bellagio conferences, including the shift
eventually to Burgenstock with proceedings published as Halm (1970).
174

AMONG ECONOMISTS
In Charlie’s intellectual formation, as we have seen, the concrete

problems of the international monetary system – the transfer problem
posed by reparations in the 1920s and then the hot money problem
posed by the collapse of the international monetary system in the
1930s – had provided the material from which it was the task of econo-
mists to spin new economics. It was natural, therefore, for him to draw
attention to the issues he saw as currently most pressing, issues unfortu-
nately “largely slighted” by the 1966 Chicago conference proceedings.
Here are the real problems, according to Charlie:
How, for example, to define equilibrium and disequilibrium in the balance of

payments of a country with a dominant capital market; the familiar Triffin
problem posed by Gresham’s law with two or more reserve assets growing at
different rates; international financial intermediation, its use and abuse; the
viability of a system with a series of national money and capital markets of
equal size and efficiency, as contrasted with a system ordered in hierarchical
progression, from broader and more efficient to narrower and less efficient.40
Here perhaps we hear the gentle rebuke of a professor to his former

student, urging him to direct his energies to the actual problems that
confront us in the real world, rather than to artificial “problems” in
academic theory. Charlie closes his review with a more explicit appeal:
“Many of the components of an international monetary theory are con-
tained in these pages. The coherent structure such as produced by
a Friedman, Modigliani or Patinkin is still missing. The obvious candidate
for producing such a grand synthesis is the man who has a theory and has
produced many of the parts, Mundell himself.”41
This was not the first time Charlie had touted Mundell. In a letter of
November 3, 1964, Harry Johnson had written to enquire whether Charlie
might be interested in writing a treatise for a series published by Aldine.
Charlie responded by proposing instead Mundell, or Ron Jones:
As for me, I can detect no signs of treatise-pregnancy. After I finish with

European growth in the fifties (along with everybody else), I contemplate
40
41
175

MONEY AND EMPIRE
more economic history. International trade is becoming too hairy . . .

I have my doubts about whether Mundell will ever write a book – he
scarcely stops anywhere long enough to write a full-length article; but if
he would write up his stuff on money it would be good.42
It was perhaps partly on the strength of this recommendation that the

University of Chicago hired Mundell starting July 1965, but there are
indications that he was not initially planning to stay long. Already on
September 27, 1965, Charlie was writing to his friend Emile Despres to
inquire whether Stanford might be interested in hiring him.43 And
Mundell himself remembers “an offer from MIT around 1966,” which
he ultimately turned down in favor of staying at Chicago, where for
a while he seems to have served as an ally in Charlie’s attempt to split
Johnson from Friedman on the issue of flexible exchange rates.44
What did Charlie like about Mundell? What he liked most was
Mundell’s monetary internationalism and defense of fixed exchange
rates, which in his mind put Mundell in the same key-currency camp as
himself and John H. Williams, specifically “Mundell’s conclusion that
one country must be responsible for price stabilization, but not its own
balance of payments, while the rest of the world concentrates on its
balance of payments, but ignores price stabilization.”45 Significantly,
this conclusion can be found in Mundell’s 1969 paper “Toward a Better
International Monetary System,” which cites a forthcoming “note” by
Charlie in the Journal of Political Economy, which, as editor, Mundell
would have greenlighted.46 This “note” is mentioned as one of several
contributions to the theory of optimum currency areas, which literature
Mundell (1961) had originally got started. In fact, however, the note
turned out to be a full-length paper, “Measuring Equilibrium in the
Balance of Payments,” which, moreover, Kindleberger thought enough
of to include in his final Retrospective (2000).
42
KPMD, Box 2, “Johnson, Harry G., 1961–85,” CPK to HJ, Nov. 9, 1964, and Nov. 27,
1964.
43
KPMD, Box 2, “John Despres.” CPK to ED, Sept. 27, 1965.
44
Vane and Mulhearn (2006, 107).
45
Kindleberger (1989c, 52).
46
Mundell (1969, 642 and 638).
176

AMONG ECONOMISTS
Charlie’s 1969 paper reads as further thoughts on his 1965 paper

criticizing the accounting conventions that had given rise to unwarranted
policy concern about US deficits, which he had reprinted as the first
chapter in Europe and the Dollar (1966). The most significant additional
material in the new paper addresses the question of how, given the
inadequacy of existing accounting structures, one could in practice
detect whether a country such as the United States was in trouble or
not. Charlie’s answer addresses both liquidity and solvency. As a bank, the
United States did need to keep an eye on its reserve balance. In the short
run, reserve drain could be made up by borrowing the reserves back from
wherever they went, if not from private short-term capital markets then
using public liquidity swaps between central banks. Sustained reserve
drain, however, would be a different matter, requiring more substantial
intervention. Further, the United States also needed to keep an eye on its
net worth, most importantly by paying attention to the balance between
earnings on its foreign assets and payments on its foreign liabilities.
A positive balance, which the United States most definitely enjoyed,
showed that there was nothing to worry about on that score, at least not yet.
In context, Mundell’s 1969 paper can thus be read as a complement to
Charlie’s – indeed, even as a kind of follow-up to Despres–Kindleberger–
Salant (1966). Put simply, Mundell’s “Better International Monetary
System” is nothing less than the DKS global dollar system. Says Mundell:
Without hardly anybody noticing it, the gold exchange standard in its old
form was dead, and the dollar exchange standard had taken its place . . .
a system in which the United States took on a new role of world banker, not
just in the sense of being a key currency center, nor the provider of
a reserve money and the main settlement currency, but as a world
banker in the more comprehensive sense of guiding the monetary policy
of the world.47
This certainly looks like Mundell breaking with Chicago and joining
instead with Kindleberger. Even more, this looks like Mundell trying on
the role that Emile Despres had been unable to fulfill, namely taking
Charlie’s place when Congressional testimony was needed. Indeed,
47
Mundell (1969, 631).
177

MONEY AND EMPIRE
a footnote tells us that the paper is a revised version of testimony Mundell

gave on September 9, 1968, at Hearings on “Next Steps in International
Monetary Reform” for the Sub-Committee on International Exchange
and Payments of the Joint Economic Committee, chaired by Senator
Proxmire. This particular experiment would not be repeated, but the
important thing is that it was tried. In 1969 Mundell and Kindleberger
were making common cause in defense of the dollar system.
Mundell remained very much his own man, however, and subse-
quently took things in his own direction, most notably in his 1969 advo-
cacy for a European currency, an idea which Charlie for a long time
viewed as an incorrect extension of the key-currency approach.48 For
Charlie the optimal currency area was the world, not a region; each
European currency should be fixed to the dollar, creating in effect an
international money, rather than fixed to each other and floating against
the dollar and in doing so breaking the world into separate trading
regions. Thirty years later, on the eve of the creation of the euro (the
eve also of Mundell’s Nobel Prize), Mundell would host an international
conference in Kindleberger’s honor on the theme “The Euro as
Stabilizer in the International Economic System.” Charlie, now ninety
years old, offered his musings on “A New Bi-Polarity?,” by which he meant
the possibility that a declining United States might make common cause
with a rising Europe. As Charlie saw it, that common cause would take the
form of stabilizing the dollar–euro exchange rate in normal times, but
also shared responsibility for global lender of last resort.
To recap, back in 1969, notwithstanding academic enthusiasm for
flexible exchange rates, Charlie had hopes that the dollar system could
be saved. His was still a minority view, but with Friedman and Mundell
apparently on his side, he no longer felt as lonely as three years earlier,
when he had just Despres and Salant. Unfortunately, it soon became
apparent that neither Friedman nor Mundell were as firmly on his side as
he imagined. Friedman made this abundantly clear in his vigorous
“Discussion” of Charlie’s Boston Fed paper, reiterating his 1953 case
for flexible rates, now putting even more emphasis on the dependably
stabilizing role of speculation and emphatically rejecting any idea that
48
Mundell (1973).
178

AMONG ECONOMISTS
global money needs to be managed. For Charlie, central bankers were

always watching and waiting, prepared to intervene in order to prevent
destabilizing speculation from wreaking havoc. For Friedman, it was the
central banks themselves who were the source of havoc, in their misbe-
gotten attempts to manipulate the money supply in order to stabilize
economic fluctuations. No meeting of the minds there.49
Mundell’s advocacy for a European currency meant that he also was
not so firmly on Charlie’s side. At first it seemed largely a matter of
political judgment, Mundell taking the view that the best way forward
given Nixon’s monetary irresponsibility was for Europe to go its own way
collectively, perhaps eventually pegging the common currency to the
dollar (as also the Japanese yen) to form a world currency he called the
Jeurodollar. But then Mundell published his own version of world mon-
etarism and went on to embrace supply-side economics in partnership
with Arthur Laffer. Charlie rejected all of it.50
No doubt these were disappointments, but as always the important
thing for Charlie was not to win the academic dispute but rather to
communicate the correct view to the authorities charged with managing
the system. The authorities at the Fed were no problem, but it soon
became clear that the new Nixon administration was not listening to
the Fed. In 1971, John Connally, newly appointed Secretary of the
Treasury, told the world that “The dollar is our currency, but your
problem” and proceeded to remove the dollar from the gold
standard.51 This, according to Charlie, was the Crime of 1971.
After the fact, Charlie would come to appreciate that Connally was in
fact responding to a sudden deterioration in the trade account, not so
much to the sloshing of hot money as he thought at the time, and hence
he would take a more forgiving stance toward the decision to devalue.
The United States had become adjusted to a pattern of dynamic com-
parative advantage, a concept Charlie attributed to John H. Williams, that
was breaking down in 1970, and the result was a serious balance of
49
See also Friedman (1953, 176 n. 9) casting aspersions on Nurkse, and Johnson
(1973, 8) on central bankers more generally, both references cited in Kindleberger
(1981a, 204 n. 4).
50
Mundell (1971), Kindleberger (1982, 56–57).
51
Coombs (1976, 219).
179

MONEY AND EMPIRE
payments problem, no longer just an accounting illusion.52 Whatever the

reason for the 1971 devaluation, the important thing was that the aca-
demic advocates of floating rates got what they wanted, and the world
embarked on an experiment to see whether these theories worked in
practice. Charlie’s attempt to stem the tide had failed.
Meanwhile the success of Mundell’s 1966 Chicago conference had
spawned a legion of imitators, and a range of subnetworks all over the
world, generously funded by foundations happy to jump on the band-
wagon. For the floating rate academics it must have seemed like the
Keynes dream come true, their scribblings now on the verge of being
incised on the pages of monetary history. Jet-setting Johnson took the
lead, moving between his appointments at both the University of Chicago
and the London School of Economics, playing a key role in keeping the
subnetworks all moving in the same direction.
After 1971, this activity only intensified, organized now increasingly
around Johnson’s own thinking, “disseminated, and intellectually
enforced, through the networks” as he said, and published eventually as
The Monetary Approach to the Balance of Payments (1976).53 Johnson con-
tinued to treat Mundell as cofounder of the monetary approach, even
though after 1971 Mundell separated himself from Johnson, starting his
own series of periodic conferences at his villa in Santa Colomba, Italy,
focused more on international commercial banking leaders than on
academics.
Charlie meanwhile kept his distance from it all:
No enforcer has successfully worked on me, and [unlike Johnson] I permit

myself the indulgence of believing that markets mostly work but occasionally,
like intellectuals, are caught up in the coils of fashion and euphoria . . .
There is something to be said for scholars staying in their studies and
classrooms, rather than jetting compulsively around the world, hastily
scribbling an overdue paper on the plane, skimming the other papers
the night before they are presented . . . In the international field enough is
as good as a feast, as my old chairman used to say. No, it’s better. There are
52
Kindleberger (1981a, 141, 186), Williams (1929).
53
Johnson (1981, 89), Frenkel and Johnson (1976).
180

AMONG ECONOMISTS
strongly diminishing returns to conferring, and at the personal level they

are frequently negative.54
Instead of wasting his time in the academic fray, Charlie simply watched
from the sidelines, waiting for the “coils of fashion and euphoria” to burn
themselves out.
By 1976 he was ready to draw “Lessons of Floating Exchange Rates.”
He and Sohmen had both been wrong: “Initiation of flexible exchange
rates was not succeeded by a drying-up of capital movements [as Charlie
had anticipated], or by capital movements only in a stabilizing direction
[as Sohmen had anticipated].”55 Instead, a big surprise for Charlie,
capital flows, both long term and short term, had continued even as
behind the scenes central bank cooperation had worked to mitigate the
worst of destabilizing speculation, even managing to recycle the surpluses
caused by the (first) oil shock.
The continuation of capital flows in the face of flexible exchange rates
counted as a remarkable success in Charlie’s eyes, but a remarkable
failure for advocates of floating rates since it meant that the shift to
floating had failed to separate domestic capital markets as intended.
Notwithstanding floating rates, there was still one world capital market
and one world money market, and both were dollar markets: “With
flexible exchange rates and capital movements, independent monetary
policies are compromised.”56
The central problem now was that this global market was fundamen-
tally unmanaged, basically because the Nixon administration was acting
irresponsibly in its own perceived national interest rather than taking
responsibility for managing the global system, and because without the
United States on board no one else could do it. Instead, each country was
on its own, more or less the situation analyzed by the IS–LM–BP model,
which rose to prominence on the back of this entirely unsatisfactory state
of affairs. Central bank cooperation behind the scenes had kept the
54
KPMD, Box 25, “The Economic Review as a Literary Art Form.” Unpublished
“Comment” on Johnson “The Role of Networks of Economists in International
Monetary Reform.” The last section of this passage also appears in Kindleberger
(1989c, 48).
55
56
Kindleberger (1981a, 201). Compare Rey (2018).
181

MONEY AND EMPIRE
system from collapsing, but continuing irresponsibility of the United

States had led to increasing inflation worldwide.
In 1976, Charlie was gloomy, let down by precisely the policy practi-
tioners that he had depended upon to do the practical thing. His frame
of course came from war time experience, when the whole country was
pulling together for a common goal and the best and the brightest
migrated into public service to do their part. The Nixon years were
different. But Charlie should have remembered his own long-held view
that there are inherent evolutionary forces that lead from instability to
stability. In time, Paul Volcker, Chairman of the Federal Reserve from
1979 to 1987, would channel those forces to tame domestic inflation and
then to restore international monetary stability. In Charlie’s retrospect-
ive view, the 1985 Plaza Accord was the crowning achievement of those
years, pointing the way forward to a reconstructed global dollar system.
But it would take a decade to get there.
Reviewing Harry Johnson’s On Economics and Society (1975), Charlie
pulled no punches: “The collection shows the strengths and weak-
nesses of the compulsion which has driven Johnson in economics.
His forte is exposition, and pursuing economic analysis to its conclu-
sions, but the initial ideas are often those of others.”57 The same could
be said of the 1976 volume Monetary Approach to the Balance of Payments,
in which case the initial ideas were Mundell’s and so in part Charlie’s as
well. We have seen how Charlie was sympathetic to the original IMF
version of the monetary approach in the hands of Polak and his
practitioner colleagues, working on problems of the periphery. The
question was how to develop the approach for the rather different
problems of the core, where financial markets are fully developed and
integrated cross-border. In that regard, Charlie viewed the Mundell–
Johnson academic version of the monetary approach as a big
disappointment.58
Writing in 1976, Charlie expresses that disappointment: “Only the
monetarist approach potentially allows for complete treatment of capital
57
58
See Polak (2002) for a retrospective that draws a sharp contrast between the IMF’s
practitioner version and Johnson’s academic version of the monetary approach.
182

AMONG ECONOMISTS
flows, but its practitioners for the most part abstract from these and
assume that changes in real [money] balances affect changes in expend-
iture rather than those in assets or liabilities, i.e., result from changing
consumption and/or investment and not [from changing] wealth or the
composition of wealth.”59 A few pages later: “A major advantage of the
monetarist approach is that it permits adjustment through capital
movements . . . Real balances can be restored not by changes in expend-
iture, but by reductions in wealth, that is restoring real balances by
portfolio adjustment, by selling off foreign assets or incurring liabilities
to foreigners.”60
One problem with the academic monetary approach was thus its exces-
sively narrow focus on money supply and money demand, ignoring all the
other financial markets that are available for adjustment. After he retired,
Charlie would go even farther in emphasizing this point. In his mind, the
supply and demand frame for the analysis of money, a frame taken over
from the closed economy IS–LM model, was itself the problem. For Charlie,
it will be recalled, short-term capital movements ideally play a balance-wheel
function, expanding and contracting endogenously to facilitate temporary
imbalances: “Most of us adjust our holdings of money to our streams of
income and spending, not income and spending to some rigid demand for
money. And one can always lend a monetary surplus or borrow to make up
a deficiency, without changing output or spending.”61
It is hard for all but true believers to put much credence in the monetary
theory of balance-of-payments adjustment, and for two reasons. In the first
place, the theory runs counter to economic common sense and intuition.
Instead of money serving as a buffer stock to offset temporary disequilibria
between income and expenditure, as in conventional economic reasoning,
income and expenditure are varied to maintain a wanted stock of money.
The intuitive model is stood on its head. Secondly, the theory ignores the
function of the banking system in providing liquidity in the form of
59
Kindleberger (1981a, 195). In this reprinted version, the original “i.e.” was replaced
with “that is,” presumably by some editor, which garbles the meaning a bit. I have
restored the original.
60
Kindleberger (1981a, 198). See also Kindleberger (1982, 54).
61
183

MONEY AND EMPIRE
money . . . If a country wants more money, to use an anthropomorphism, it

indulges in international financial intermediation, borrowing long and
lending short, acquiring by the latter process foreign-exchange reserves
which serve as the basis for an increase in the domestic money stock.62
Here, as always, Charlie insists that money is ultimately an entry on the

balance sheet of some bank or central bank somewhere, an inside not an
outside phenomenon when viewed from the perspective of the world as
a whole. Recovery of private markets, both money markets and capital
markets, and then integration of those markets across the face of the
world, had produced a system with a certain logic of its own, while
economists had developed a class of models with a certain logic of its
own. By 1976, Rudiger Dornbusch had replaced Charlie at MIT, as open
economy macroeconomics had already replaced the cosmopolitan view
Charlie had tried to bring to international economics. Neither develop-
ments in the world nor developments in economics had turned out the
way Charlie had hoped, but it was a relief to no longer have responsibility
for either and to be allowed instead to immerse himself in his new
passion: economic history.
62
184

III
HISTORICAL ECONOMIST,
1976–2003
185

CHAPTER 8
Independence
Anything can happen and often does. The day of positive economics,
useful for prediction, is still some distance away.1
Why economic history?

Coming to academia directly from the State Department, as he did,
Charlie brought with him a sense that economics and politics were inextric-
ably intertwined. He had loved his time at State: “It has been remarked that
the Department of State is the only government department without con-
stituents, which is to say that it is under the disability of attempting to serve
the general, rather than an individual interest.”2 As he left Washington, the
Department had just finished negotiating the Havana Charter that estab-
lished the International Trade Organization, a new international organiza-
tion which, along with the World Bank, Charlie viewed as “the only hope for
the ultimate restoration of world economic order.”3
In the event, of course, individual interest won out, as Congress
refused to ratify the Charter. Not for the first or last time, politics threw
up obstacles to universalistic solutions. But Charlie refused to despair. In
the longer run, so he chose to believe, Darwinian evolution driven by
economic logic tends to find a way. “In economics, the worldwide is
efficient. In social questions, small is beautiful . . . The world is more
and more cosmopolitan.”4 A committed internationalist, Charlie always
felt himself to be standing on the side of history; academia was for him
1
2
3
4
187

MONEY AND EMPIRE
simply an alternative venue for serving the general interest, job security
enabling him to take the long view.
In the short run, however, the noise of politics quite typically drowns out
the trend of history, as multifarious individual interests push this way and
that at multifarious levels of society. Indeed, the complexity of the political
process means that a scientific understanding of the system as a whole is
probably quite impossible, much less the identification of a small number of
causes responsible for any given ultimate effect. Here is the reason that the
“true believer” finds so much traction, in politics and also in economics,
simply because the true scholar finds so little. But that is no reason for the
scholar to desist; curiosity is the thing to cultivate, not certainty. “Is econom-
ics a science, or is it, like law, merely an aid to advocacy?”5 Having narrowly
escaped his ordained fate as a lawyer, as an academic Charlie embraced
a life of scholarship and resisted all temptation to join the political fray.
Thankfully for the scholar, the economic system is more amenable to
scientific understanding than the political, but that is not to say that
economists do not regularly make a hash of it. In this respect,
a recurring hobbyhorse for Charlie throughout his career was the ten-
dency of economists to use partial equilibrium methods for general
equilibrium problems, such as the balance of payments and exchange
rates.6 In the real world, everything depends on everything else, and
viewing that real world through the lens of a model in which some things
are taken as exogenous can seriously mislead. Sometimes the balance of
payments is driven mostly by the current account, and sometimes mostly
by the capital account, so no single partial model will fit all cases. The art
of economics is knowing which to choose when.
A second, more specific hobbyhorse was the tendency of economists to
neglect money and banking or, perhaps worse, to bring money into the
picture through a simplistic monetarist account. Shortly after his arrival at
MIT, Charlie singled out Henry Wallich for high praise as an exception to
what was already becoming the rule, “a reminder of money and banking
theory which is undeservedly going into neglect.”7 Looking back thirty
5
6
7
188

INDEPENDENCE
years later: “The difficulty lies in the narrowness of the IS-LM analysis . . .
The basic difficulty is that, except for Hyman Minsky, modern economists
have thrown away the Adam Smith, John Stuart Mill, Alfred Marshall,
Dennis Robertson, Ralph Hawtrey analysis of credit instability”; “The
monetarist approach in the short run is intuitively ridiculous . . . In the
short run money needs are balanced not through changes in spending but
through borrowing or repaying debts.”8
A final hobbyhorse was the tendency of economists to view economies
other than their own through an analytical lens refined for the case they
know best. Just so, by holding up their own economies as comparison,
economists in the advanced industrialized world draw attention to the
wide range of things that are missing from developing economies and
then recommend attacking that wide range all at once. “Balanced
growth” is typically favored over so-called “unbalanced growth” simply
because of a priori analytical deformation rather than as the result of any
sustained engagement with the facts on the ground. By contrast, Charlie
insisted that the beginning of wisdom is the admission that no one knows
much about economic development, and then “concentrating on the
smallest number of priority blocks to a cumulative and self-sustaining
process of economic development indigenous to the local setting.”9
It was these three hobbyhorses that led Charlie bit by bit, over his years in
academia, away from economics proper and toward a greater appreciation
of the work of economic historians, specifically those engaged in what he
called the “old economic history” by contrast with the self-proclaimed new
economic history (so-called “cliometrics”), which was more or less just
standard econometrics using old data. Reviewing an early contribution in
the latter vein by young Jeffrey Williamson, Charlie chastised: “Anything can
happen, and generally does. When it reminds us of this, history is useful
indeed.”10 In the former vein, Charlie’s heroes were instead scholars such as
Alexander Gerschenkron, “the doyen of economic history in the United
States, widely informed, deeply read, subtle, urbane, and full of zest,” and
8
Kindleberger (1981b, 1586; 1980a, 820).
9
10
Kindleberger (1965c, 55). Williamson (1978) would return the favor in his review of
189

MONEY AND EMPIRE
Stephen Schuker, “old fashioned economic history at its best, carpentered

with the skill of a cabinet maker from snippets of information from books,
articles, and especially diplomatic and banking archives.”11 When Charlie
made his shift into economic history, it was with these examples in mind.
In fact, not only Gerschenkron’s style but also his specific theme of the
advantage of economic backwardness would become a kind of loose
agenda for Charlie’s own researches. Late starters in economic develop-
ment, says Gerschenkron, cannot depend on the efforts of their own
indigenous entrepreneurs, but are forced instead to rely on banking to
supercharge their development efforts. Such was the case in France with
the Crédit Mobilier, an example that subsequently spread to Germany and
across Europe. And the really late starters, such as Russia and much of the
present developing world, are forced to go even farther by relying on the
state to mount a kind of forced march development.12 This theme –
banking and the state as the two prime movers of financial history – runs
through all of Charlie’s mature work as an economic historian.
I say “economic historian,” but more correctly I should say “historical
economist” since Charlie always insisted on the distinction. Even as he was
clearly inspired by the work of proper historians and very much appreciated
their embrace of him as a member of the tribe, he was always an economist
first, and he embraced history quite explicitly as a strategy for improving
economics: “We can improve economic analysis, I believe, by testing its
models against the facts in a variety of contexts, where the conditions in
other economies furnish the counterfactual to a single case from which it is
dangerous to generalize.”13 Most importantly, by revealing the limitations of
particular economic models, comparative history would, so he hoped, insert
a little humility into the economics profession: “The improvement in eco-
nomic analysis comes when a priori notions favoring monetarism, flexible
exchange rates, world monetarism, supply-side economics, international
financial intermediation, and the like are tested against historical
episodes”;14 “It is my considered opinion, as well as my passionate conviction,
11
Kindleberger (1963b, 362; 1977a, 843).
12
Gerschenkron (1962).
13
14
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that economics needs history – perhaps even more than history needs
economics.”15
But this somewhat negative and critical agenda was always only the first
step for him, a kind of ground-clearing exercise preliminary to a deeper and
more positive agenda to follow. Having stripped economics of its hubristic
overreach, what remained would be solid foundations on which the profes-
sion could reliably build – general economic laws more than specific
economic models: “A search for uniformities in history, or the elaboration
of economic ‘stories’, strikes me as a vital complement to, and, for one
whose professional formation took place in the 1930s, even a substitute for,
high-powered theory, mathematical modelling and statistical testing.”16
At MIT, these might well have been read as fighting words, MIT being
the very epitome of high-powered theory, mathematical modelling, and
statistical testing. But Charlie was too much the inveterate team player for
that. Observe that “complement” acknowledges the central position of
the standard MIT approach, and “substitute” is explicitly framed as his
own personal choice, not a competitor for the hearts and minds of the
MIT graduate students. Only after his retirement in 1976 would Charlie
actively promote comparative economic history as an alternative for
others: “It is in the nature of man to evangelize, to urge others to behave
as he does, and I am no exception.”17 That’s from Economic Response
(1978), in which he presents six examples of the kind of comparative
history approach he favors, four of which he would reprint in his 2000
Retrospective as an indication of the importance he attached to this work.18
Two years later, in his Mattioli Lectures of May 1980 (belatedly pub-
lished as Economic Laws and Economic History [1989]), Charlie offered his
own selection of fundamental economic laws:
[M]y interest is in better theory in the sense of more useful, more general
and more relevant theories, and the discarding of that which is merely
elegant but has no bearing on how people behave in an economy . . . The
15
16
Kindleberger (1985c, 4), my emphasis.
17
18
This is the book he dedicated to “AJ and UW,” which refers to Aunt Jen and Uncle Will
Walker.
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MONEY AND EMPIRE
object of the exercise is to discuss a few laws deeply rooted in observed reality
that have powerful explanatory power for some, but not for all economic
history, to show that eclecticism rather than an all-encompassing system of
interpretation is the wiser attitude to bring to the study of the economic
past.19
Here, in these four lectures, we find the nearest that Charlie ever came
to a general economic treatise. The first lecture, on Engel’s Law, is really
about the theory of economic development, emphasizing its inherently
unbalanced nature. The second, on the Iron Law of Wages, extends his
earlier embrace of the Lewis model as a framework for thinking about
economic growth. The third, on Gresham’s Law, brings money into the
picture: “With two or more monies, we are subject to the instability of
Gresham’s law. Any attempt to limit ourselves to one money is likely to be
thwarted by the market’s need for different monies for different purposes
and its capacity to create them.” And the final lecture, on the Law of One
Price, takes as its theme the tendency for market expansion and integra-
tion, in commodity markets and also money and capital markets, with the
result that the increasingly single world market implies a single world
price. The central challenge in such a world is political: “while the opti-
mum scale of economic activity is getting larger and larger, the optimum
social scale appears to be shrinking.”20 It is the same challenge Charlie had
brought with him into academia back in 1948: universalism versus individ-
ual interest, and long-run economics versus short-run politics.
It is against this background that we must read Charlie’s three major
works of economic history: The World in Depression (1973), Manias, Panics,
and Crashes (1978), and A Financial History of Western Europe (1984). The
latter two are explicitly works of comparative economic history, written as
exemplars of the method he now wished publically to evangelize, but we
can read the first in that frame as well. Written starting in fall 1969 and
finished in spring 1971, it is perhaps significant that he took on the project
more or less at the very moment of his abortive defense of fixed exchange
rates at the Boston Fed conference in October 1969. Taken together, this
trilogy can be read as Charlie’s attempt to use history to improve economic
19
Kindleberger (1989a, ix, xi).
20
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INDEPENDENCE
analysis specifically on international money, and also specifically as

a substitute for existing high-powered theory, mathematical modeling,
and statistical testing in his chosen field of specialty.
The World in Depression, 1929–1939 (hereafter WID) is many things, but
first and foremost it is an attempt to improve economic analysis by testing
the monetarist model against a variety of facts in different contexts.
Indeed, chapter 7 of Milton Friedman and Anna Jacobson Schwartz’s
A Monetary History of the United States, 1867–1960 (1963), wherein they
propose a monetarist explanation of what they call “The Great
Contraction, 1929–33,” serves as a kind of stalking horse for the entire
book. Already on the second page of the introduction, Charlie is taking
off the gloves: “Friedman’s explanation of the 1929 worldwide great
depression is national, monetary, related to a policy decision. It is uni-
causal. In my judgement it is wrong.”21
At MIT, of course, attacking monetarism was no danger – quite the
reverse. Indeed, one imagines that such an attack might well have served
as helpful cover for Charlie’s evident deviation from the standard MIT
methodological commitments. In due time, his book attracted a scathing
review by Anna J. Schwartz herself in the pages of the Journal of Political
Economy, more or less a badge of honor for an MIT man: “Some friends
thought I should have replied to the review. Absolutely not. Let the
market decide.”22 And so it did. Subsequently, a second revised and
enlarged edition was published in 1986, and in 2013 the original edition
was reissued on its fortieth anniversary.
When the book was first published, economist reviewers bemoaned
the lack of analytical apparatus (while historian reviewers regretted the
lack of any new facts). Perhaps remembering those critical responses,
economic historians J. Bradford DeLong and Barry Eichengreen, in their
introduction to the 40th Anniversary Edition, propose an implicit analyt-
ical framework in the work of Hyman Minsky: “The Minsky paradigm
emphasizing the possibility of self-reinforcing booms and busts is the
implicit organizing framework of The World in Depression. It comes to the
21
22
Schwartz (1975), Kindleberger (1991a, 179, 205).
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MONEY AND EMPIRE
fore in all its explicit glory in Kindleberger’s subsequent book and

summary statement of the approach, Manias, Panics, and Crashes.”23
But in WID Charlie never cites Minsky, neither in the 1973 original nor
in the 1986 second edition. Indeed, he seems not even to have known of
Minsky in 1973 – though certainly he did by the time of the second
edition, and yet still chose not to cite him. Deepening the puzzle, it is
certainly true that Minsky figures centrally in the 1978 Manias, Panics, and
Crashes, although not quite for the purpose that DeLong and Eichengreen
suggest, as we will see. Even more, it is also true that Charlie promoted
Minsky explicitly in his role as coeditor of a conference volume Financial
Crises, Theory, History and Policy (1982), for which Minsky offered the lead
paper. So why no mention in the 1986 revision of WID?
We find the answer in Charlie’s comment on Minsky’s contribution to
an October 1981 MIT seminar on “Banking and Industry in the Inter-war
Period”:
Minsky’s model (1984) of the impact of the credit system on the prices of
financial assets, and their repercussions back on banking, credit and
income, is much richer than the simple monetary model. It is none the less
limited, as Minsky indicates: it is limited to the United States; there are no
capital movements, no exchange rates, no international commodity prices,
nor even any impact of price changes on bank liquidity for domestic
commodities; all assets are financial. In combination, these limitations
mean that Minsky is not interested in the communication of the collapse
of stock-market prices to commodity markets between September and
December 1929, or in the further pressure on United States, German and
gold-bloc prices from the depreciation of sterling in September 1931.24
This “communication” in 1929 and “further pressure” in 1931 were, as

we shall see, central to Kindleberger’s own understanding of the
Depression at the world level, whereas Minsky’s analytical lens had
been quite specifically developed instead to illuminate postwar business
cycles within the United States. Minsky and Kindleberger were thus
certainly fellow travelers, both of them discontent with the standard
23
DeLong and Eichengreen (2013, 6).
24
Kindleberger (1985c, 301–302), my emphasis.
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INDEPENDENCE
analytical frameworks, and both looking to forge their own alternative.

But we seriously underestimate Kindleberger if we see him merely as an
international extension or adaptation of Minsky.
Instead, if we want to understand WID, we need to read it in the
context of Charlie’s own intellectual development as the work of a man
trying to understand the events of his own formative years, bringing to
bear his subsequent life experience as a central banker as well as twenty
years of teaching. Charlie himself suggests as much in his autobiograph-
ical reminiscences published in his preface to the book.25 But I would go
further to suggest, as well, the importance of Charlie’s wartime experi-
ence as an intelligence analyst. His method in the book is recognizably
more or less exactly that of an intelligence analyst, combing through an
enormous volume of field reports in order to form his own synthetic view
of the overall state of play, the telling detail often revealing the under-
lying structure better than the mass of official statistics. And I would also
suggest the importance of his immediate postwar experience at the
Department of State, working on reconstruction first of Germany and
then of Europe more generally. Intimately involved as he had been in
these experiences of the United States shouldering responsibility when
no one else could, he was especially attuned to the consequences of its
failure to do so in 1929.
“The main lesson of the interwar years,” Charlie states in the conclud-
ing pages of WID, is that “for the world economy to be stabilized, there
has to be a stabilizer, one stabilizer.” In the first edition of the book, he
emphasizes three particular dimensions of stabilization: “(a) maintaining
a relatively open market for distress goods; (b) providing counter-cyclical
long-term lending; and (c) discounting in crisis.”26 In the third of these,
we hear the central banker, acutely aware of lender-of-last-resort respon-
sibility in times of liquidity crisis. But in the first two we also see the sadder
25
Kindleberger (2013, 16). In the second edition, he adds two additional paragraphs of
reminiscence that were “cut out at the last minute on the basis of advice from
a colleague that I now regard as misguided” (1986a, xv). The offending paragraphs
are the second and third, pp. xvii–xviii, concerning a two week stint he spent in
March 1928 as a runner for a Wall Street brokerage house.
26
Kindleberger (1973, 304, 292). See also Kindleberger (1987b, 58), and Chapter 4
n. 39.
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MONEY AND EMPIRE
and wiser central banker, having learned from experience that mere
liquidity provision only buys time and does nothing much to address
underlying imbalances in (a) commodity markets and (b) capital mar-
kets. Indeed, imbalances in both of these markets were, so Charlie had
argued earlier in the book, exactly the challenge faced by the Bank of
England starting in 1929, a challenge that ultimately proved too much for
it to handle: “In 1929, 1930, and 1931 Britain could not act as a stabilizer,
and the United States would not.”27 The result was the collapse of the
international monetary system.
“By way of apology,” says Charlie in the self-deprecating way of the
WASP, “I find the key to why the depression was so wide, so deep, and so
long in my specialty, the international monetary mechanism. This should
surprise no one.” The biographical truth, of course, is more or less the
opposite since, as we have seen, he chose the international monetary
mechanism as his specialty precisely because of his life experience with
the depression. In this respect, it is significant that he dedicates the book
to the memory of his father, “who struggled with great courage against
a physical handicap, and against the Great Depression.”28 This book was
personal to him, perhaps the most personal thing he ever wrote, not
excluding his autobiography. Written as Charlie was on his way out of
a department and a profession where increasingly he found himself “on
its fringes,” the book seems originally to have been conceived as
a culminating academic achievement, a kind of completion of the intel-
lectual journey he had begun in 1929, and continued at Columbia 1933–
6 and the New York Fed 1936–9. When he mentions economists at the
Fed “producing proposals for an ultimate demonetization of gold, and
suggestions of taxes and other devices to contain hot money,” he is
talking about himself (see Chapter 3).29
27
28
Kindleberger (1973, 305, 292, 18). It is perhaps significant that he includes in the
index an entry for S. Murgatroyd, just as he had done in the 1937 thesis to reference
the dates of his engagement and marriage, but there seems to be a typo. In the 1973
book, page 261 references the 1936 Tripartite Agreement (his engagement) but the
1937 increase in reserve requirements (his marriage) is referenced on page 266 not
253.
29
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Written before the breakdown of Bretton Woods, when Charlie still

believed that the dollar system could be made to work, WID was only
published after the shift to flexible exchange rates, with all the ensuing
instability. Although finished in spring 1971, the book’s publication was
delayed until 1973, so Charlie tells us, because the German publisher did
not want the English original to come out before the German translation.
Quite by accident, the timing turned out to be perfect, as readers looking
to understand the instability of the new world found obvious analogy with
the instability of the 1930s. Charlie seemed to have been prescient,
anticipating the future that lay ahead and warning of its danger. The
result was that, instead of being the culmination of his academic career,
the book opened the possibility of a new chapter, which Charlie charac-
teristically grabbed with both hands.
Just so, soon after the book’s publication, we see Charlie making
room for a new life chapter in his decision to turn over his two success-
ful textbooks to others, Peter Lindert taking International Economics and
Bruce Herrick taking Economic Development. (Lindert’s Cornell disserta-
tion on pre-World War I key currencies had caught Charlie’s attention,
as did also Herrick’s MIT dissertation on the Chilean development
experience.30) And we see him developing his chops for the new
adventure in the essays in Economic Response and the lectures in
Economic Laws, as mentioned above. The comparative historical method
he promoted in these books is exactly the method he would use subse-
quently for his own specialty, first in Manias, Panics, and Crashes and
then finally in The Financial History of Western Europe. In the event, it was
this latter book, not WID, that would become his culminating academic
achievement.
The 1986 revision of WID, Charlie says, was his idea not the pub-
lisher’s. In context, we can imagine that he wanted to draw the attention
of readers of his subsequent books back to the first. The revised edition
explicitly responds to critics of the first, both monetarist and Keynesian,
but the central narrative remains unchanged. In the first edition,
Friedman’s monetarism was the main target; in the second edition,
30
Lindert (1969), Herrick (1966).
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MONEY AND EMPIRE
standard Keynesianism in the person of his own student Peter Temin gets
equal treatment for its wrong-headed uni-causal frame.31
My real purpose, related to the foregoing, is, I suppose, an evangelical one.

I have failed to persuade large numbers of scholars . . . Other themes of the
original book have been ignored rather than refuted. These include the
importance of the liquidity squeeze caused by the stock market collapse of
October 1929 for commodity prices, which dropped worldwide by 12 to
20 percent in the year from August 1929 to August 1930; the importance of
irreversible price declines for bank failures; the deflationary impact on the
United States, Germany, and the gold bloc of the sharp depreciation of
the pound sterling (causing appreciation of the dollar, the Reichsmark, and
the gold currencies) by 30 percent from September to December 1931.32
The themes ignored by his monetarist and Keynesian critics, it will be

recognized, are exactly the themes that were ignored by Minsky. Here,
however, the main difficulty, as he explicitly notes, is the unwillingness of
his monetarist and Keynesian critics to venture outside the bounds of the
standard IS–LM model, not a difficulty suffered by Minsky. Importantly,
these themes were not ignored by contemporaneous observers: “the
conventional wisdom of the period was not as wrong as most economists
believe in its concern with the dangers of speculation, the necessity to
raise prices, the desirability of lowering tariffs, and the need to stabilize
exchange rates.”33 Who is he talking about? Readers knowledgeable
about Charlie’s life will note his appreciative references to Ralph
Robey, James Angell, and John H. Williams.
31
Kindleberger (1986a, 5). Taking this criticism apparently to heart, Temin (1989)
subsequently moved considerably in Charlie’s direction, addressing specifically
Charlie’s emphasis on commodity prices in 1929 and the devaluation of sterling in
1931 (Temin 1989, 55, 75). But the focus remains on the policy response in individual
countries and not on the dynamics of the international system.
32
Kindleberger (1986a, xiv).
33
Kindleberger (1986a, 11). This is not an isolated quotation. Also: “the conventional
wisdom was, in this judgment, correct” (p. 72); “it is hard to avoid the conclusion that
there is something to the conventional wisdom” (p. 116); “there is much to be said for
the conventional wisdom of the period” (p. 136); “Contemporaneous conventional
wisdom in the early 1930s thought falling commodity and asset prices important”
(p. 169).
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INDEPENDENCE
Charlie’s objective in WID is thus quite explicitly to use the historical

experience of the Great Depression to cast doubt on the generality of
monetarist and Keynesian orthodoxy and also to make room for alterna-
tive views, specifically a reconsidered version of the conventional wisdom
of his youth. The analytical essence of the alternative he favored, how-
ever, remained substantially underdeveloped in the first edition, which
may be why readers missed it, and it is only quite briefly signaled by
additions to the second edition. In the latter, for example, we find one
added paragraph on the importance of commodity dealer finance
(p. 113) and two added pages on what he now explicitly terms the
“ratchet” theory of interaction between exchange rate instability and
worldwide deflation (pp. 226, 294). Both of these themes he would
develop at greater length elsewhere;34 but apparently he decided not to
overburden the 1986 revision with them, so leaving the impression that
he was merely offering a backward-looking defense of his own teachers.
The biggest substantive change in the second edition was in its con-
clusion, where the original three stabilizing functions are now extended
to five, and printed as a numbered list:35
(1) Maintaining a relatively open market for distress goods;

(2) Providing countercyclical, or at least stable, long-term lending;
(3) Policing a relatively stable system of exchange rates;
(4) Ensuring the coordination of macroeconomic policies;
(5) Acting as a lender of last resort by discounting or otherwise provid-
ing liquidity in financial crisis.
The new stabilizing functions are (3) and (4), added by Charlie to take
account of the experience with flexible exchange rates in the years after
the first edition. The world had for a while embraced flexible exchange
rates as a way to avoid the necessity of macroeconomic policy coordin-
ation, but experience showed that goal to have been illusory. Under the
gold standard of the nineteenth century, exchange stability and macro-
economic coordination had been implicit; to the extent that the Bank of
England took responsibility for managing the gold standard, both were
34
Kindleberger (1999, ch. 1; 1990, ch. 13).
35
199

MONEY AND EMPIRE
implicitly part of the Bank’s more general responsibility for stabilization.

Under an alternative standard, whether a revived dollar standard or
something else, that responsibility would need to be made explicit, and
that’s why Charlie added to his list.
The other changes to the list are small edits to (2) and (5), which
reflect the evolution of Charlie’s thinking about long-term capital flows.
While retaining his observation that the sterling system worked in part
because of stabilizing countercyclical capital flows and that the dollar
system failed in part because of destabilizing procyclical capital flows, he
now sees merely stable capital flows as maybe the best that can be
achieved, business investment and public investment both taking a long
view independent of the cycle. Further, now lacking the prospective
support of countercyclical capital flows, he understandably sees the
need to embrace a wider range of liquidity measures, not just the dis-
count window.
None of these edits changed the basic thrust of the argument. The
updated conclusions merely ensure that busy generals who jump to the
end of the intelligence analyst’s report get what they need for the deci-
sions they have to make. The important question in Charlie’s mind
remained that of who exactly those busy generals would be: Americans
if the future is a revived dollar system, some other nationality if not, but
ideally the leadership of a newly empowered set of international institu-
tions, “a world central bank, a world capital market, and an effective
General Agreement on Tariffs and Trade.”36 This last, because it would
require cession of economic sovereignty, was perhaps the least likely in
the short run, but nonetheless worth working toward. Economics and
politics remain, as always, inextricably intertwined.
The narrative of WID is straightforward. The first chapters set the
scene. The heritage of war, Charlie says, posed a problem of excess
production, which put incipient downward pressure on commodity
prices, but that could have been managed if macroeconomic stability
had been preserved. Unfortunately, a further heritage of war was the
unresolved business of reparations and war debts, plus postwar overvalu-
ation of the pound and undervaluation of the French franc, all of which
36
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INDEPENDENCE
stood in the way of sustained international lending.37 With the private

market mechanism for absorbing shocks thus blocked, it would be up to
policymakers to act, and, when they didn’t, the result was disaster.
The role of the stock market boom and crash was to reveal this
underlying vulnerability. First the boom undermined long-term capital
movement, reversing needed capital outflows and instead drawing in
capital from all over the world, and especially from London.
Subsequent credit squeeze, as foreign lenders withdrew short-term credit
against stock market collateral (so-called “call money”), then caused the
stock market crash of 1929. The real problem came as that credit squeeze
was subsequently “communicated” to commodity markets, as banks with-
drew their finance of burgeoning inventories built up in the boom years,
forcing liquidation. To its credit, the New York Fed made some effort to
meet the liquidity crisis, albeit thwarted somewhat by resistance from the
Board of Governors, and for a while it looked like the economy might be
recovering. But by then the commodity price decline had already inter-
nationalized the crisis, as developing countries dependent on commodity
exports, typically unable to borrow to fill their export earnings gap, cut
back on imports and devalued. The Fed’s halting efforts did not even
begin to reach that dimension of the crisis and so it kept rolling, initially
in the periphery but ultimately reaching the core, where short-term
borrowing had for a while sustained imports in the face of reduced
export earning.
The key to the second stage of the crisis was the subsequent collapse of
long-term capital flows as a consequence of credit-quality deterioration,
which made it impossible for the core to refinance their cumulated short-
term borrowing. The resulting balance of payments problems hit first
Austria, then Germany, and finally Great Britain. Given the centrality of
sterling in the international monetary system, Britain’s devaluation in
September 1931 dealt a further deflationary shock to the world, since it
amounted to an involuntary appreciation of other currencies, which hit
the United States especially hard since the gold bloc responded by
converting dollars into gold. Note that this is not so much a story of
contagion from one country to another as it is a story of how a common
37
201

MONEY AND EMPIRE
international shock affected different countries differently, depending

on their own particular financial and political context.38 The result was
that commodity prices fell farther, with the consequence of widespread
bank failure as farmers defaulted on their loans. The Depression, which
had begun with a liquidity squeeze potentially controllable by timely
lender-of-last-resort intervention, was now beyond the capacity of central
banking to stem. Breakdown of the international monetary system meant
breakdown of international trade, retreat to currency blocs, and ineffi-
cient national production.
In 1933, no less a figure than Keynes attempted to put a brave face on
matters by publically embracing so-called “National Self-Sufficiency” and,
after Roosevelt torpedoed the 1933 World Economic Conference, that
became the credo of the United States as well.39 What followed was the
era of “hot money” as speculators sought safe haven first in one and then
another currency. Only in 1936, with the Tripartite Agreement, was there
the beginning of an attempt to put the international monetary system
back together again, but war preparations meant that it came to nothing
much.
That’s the story Charlie tells in WID, and it is compelling enough in its
own right. But he does not just want to understand the depression.
Equally important, he wants to use that understanding as a test of stand-
ard economic models, specifically monetarism. Friedman and Schwartz
of course blamed the whole thing on mistaken Fed monetary policy,
specifically deliberate contraction of the money supply. Charlie’s main
counterargument concerns the timing of changes in the money supply
relative to changes in prices:
Monetarists may be interested in contemplating a quotation from the

Federal Reserve Bulletin of June 1938, p. 437: “The events of 1929 taught us
that the absence of any rise in prices did not prove that no crisis was
pending. 1937 has taught us that an abundant supply of gold and
a cheap money policy do not prevent prices from falling.”40
38
Ferguson and Temin (2003) usefully flesh out the details of the German case.
39
Keynes (1933).
40
Kindleberger (1973, 272 n. 11; 1986a, 271). In both editions, the page reference is
incorrectly given as p. 437, instead of p. 456. Further, the quoted passage is actually
202

INDEPENDENCE
More generally, Charlie suggests that the world Depression was so wide,
so deep, and so long not because of mistaken policy intervention, but rather
because of market instability that overwhelmed the capacity of policymakers
to act. The key to the disaster was not any inherent instability of markets, but
rather the overwhelming of policymakers; and that happened because the
two shocks, in 1929 and 1931, came at a delicate moment when the system
was in transition from sterling to the dollar and from Great Britain to the
United States as leader of the international monetary system. In Charlie’s
view, the shocks to the system, even as large as they were, could have been
stemmed by timely and vigorous intervention, but that would have required
leadership for which the United States was unprepared. Importantly, mere
central bank cooperation would not have been enough.41
In all of this, we see Charlie looking at the world through the eyes of
a sometime central banker – a lens shared by essentially none of his
economist colleagues, Keynesians no more than monetarists. Instead,
they looked at the world through the lens of their models. Referencing
the first phase of the Depression, Charlie insists: “There is no way in
which these price declines can be connected with a mechanism that goes
through either the quantity theory of money, since money aggregates
barely changed at all, or through Keynesian effects on spending by
consumers, with or without wealth in consumption functions”; “It cannot
be contended that Keynesian analysis explains the 1930s any better than
monetarism”; “No monetarist or Keynesian model can account for such
precipitous declines . . . A point on which I insist, but one neglected by
virtually all other observers, is that the decline in stock prices was com-
municated to commodity prices through the banking system.”42
And yet his economist colleagues remained unconvinced. The reason,
so Charlie came to believe, was that there was no place in their models for
from the 8th Annual Report of the Bank of International Settlements (where it can be
found on p. 11), from which an extensive excerpt is reprinted in the Fed’s Bulletin.
The sentiment expressed is thus not the Fed’s alone, but rather that of the entire
world central banking community more generally.
41
This, despite Charlie’s abiding respect and affection for his former brothers-in-arms at
the New York Fed, as noted in Clarke (1967) and Coombs (1976). On the latter, see
his glowing review (Kindleberger 1977c) and Kindleberger (1978b, 204–205).
42
Kindleberger (1985c, 269, 290, 303).
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MONEY AND EMPIRE
the mechanisms on which he insisted: “The empty debate between

[monetarists] Friedman and Schwartz and [Keynesian] Temin . . .
focuses on a model with no international capital movements, no com-
modity prices, no prices of financial assets.”43 Faced with the incompre-
hension of his economist colleagues, Charlie seems to have come to the
conclusion that he needed a model in order to beat a model. That’s why,
when Martin Mayer brought his attention to the Minsky model, he
decided to take it up, and subject it to the same “testing against the
facts in a variety of contexts.” That’s what Manias, Panics, and Crashes is
all about. As in WID, Charlie states his conclusion up front: “The general
validity of the Minsky model will be established in the chapters that
follow.”44
In Economic Response, introducing a long list of potential topics ripe for
comparative economic history treatment, Charlie notes that the list
“omits a discussion of financial crises on which I am currently engaged,
as I have no interest in encouraging competition.”45 He is talking about
Manias, Panics, and Crashes: A History of Financial Crises (hereafter MPC)
published in the same year, dedicated “To the MIT Old Guard of the
1940s . . . in gratitude for support and friendship.” The Great Depression
is only one of the historical cases he discusses – actually two, as he
distinguishes 1929 and 1931 – as he treats also essentially all examples
he could find reaching back to 1720. We can understand MPC thus as an
attempt to extend the analysis of WID in both time and space in a search
for a possible regular historical pattern. The titles of the core chapters of
the book (chs. 3–7) report the pattern that Charlie found: “Speculative
Manias,” “Fueling the Flames: Monetary Expansion,” “The Emergence of
Swindles,” “The Critical Stage,” and “International Propagation.”
The pattern is this: Some kind of “displacement” gets the thing going
initially; the ensuing “mania” is then a speculative bubble fueled by credit
expansion, with “financial distress” emerging at the peak; followed pos-
sibly by “panic,” in which the bubble bursts and credit contracts. The
monetary dimension of the process comes from the fact that typically
43
44
45
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INDEPENDENCE
some of the credit expansion involves creation of money substitutes, and

typically the panic then involves a flight from speculative assets and the
new forms of money into money proper issued by a central bank. On the
bright side, it is this feature of financial crisis that offers the central bank
the opportunity to allay the panic by timely and forceful lender-of-last-
resort intervention.
Writing in 1978, after the breakdown of Bretton Woods and in the
midst of the unhappy experience with flexible exchange rates, Charlie
was particularly interested in the international dimension of financial
crises, so much so that he explicitly limited his historical cases on that
basis. Given the willful destruction of Bretton Woods by the United
States, there was a real question regarding whether there was any inter-
national lender of last resort. Public statements by Henry Reuss,
Chairman of the House Banking and Currency Committee, and Arthur
F. Burns, Chairman of the Board of Governors of the Federal Reserve
System, suggested that the United States might be unwilling to serve, just
as it had been in 1931: “The danger is that they mean what they say, and
that in a future crisis, as in 1931, countries and international organiza-
tions will try to shrug the responsibility of international stability off onto
others.”46
It will be observed that, in this account of the central argument of
MPC, I have yet to mention Minsky. The reason is that Charlie himself is
at pains to insist that the pattern he finds in these historical examples is
not so much a validation of the specifics of the Minsky model, but more
generally a vindication of an entire tradition of economic thought, “held
by many economists prior to 1940, that has unaccountably slipped into
disrepute during the Keynesian revolution and then monetarist counter-
revolution. A notable up-to-date exception is Hyman Minsky.”47 Even
Charlie’s much-admired mentor Alvin Hansen comes in for criticism
on this score, insofar as it was his influential promulgation of the
Keynesian revolution that dismissed the earlier generation’s emphasis
on the instability of credit: “A study of manias, bubbles, crashes, panics,
and the lender of last resort helps us to move from classical thesis
46
47
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MONEY AND EMPIRE
through revisionist antithesis [such as Hansen] to a more balanced

synthesis. Or so I claim.”48
From this perspective, the attraction of the Minsky model is not only
that it dresses old wisdom in modern garb, but also that it represents one
step on the road toward a more balanced synthesis, albeit not the last
step. Minsky’s scathing review of Peter Temin’s 1976 Did Monetary Forces
Cause the Great Depression? would have revealed to Charlie that Minsky was
a fellow traveler, discontent with both monetarist and Keynesian
orthodoxy.49 Says Charlie, “Neglect of the instability of credit began by
and large with the depression of the 1930s, with the Currency and
Banking Schools converted into monetarists and Keynesians.” What is
needed is not the ongoing “dialectical symbiosis” in which these two
warring schools were presently locked, but rather a dialectical synthesis.
Charlie offers his own: “Our conclusion is that money supply should be
fixed over the long run but be elastic during the short run crisis.”50
In the end, Charlie thus presents his own work not as a heterodox
alternative to standard Keynesian or monetarist theory, as Minsky did,
but rather as a complement to them: “The Keynesian and Friedmanite
schools, along with most modern macroeconomic theories that synthe-
size them, are perhaps not so much wrong as incomplete.”51 Some
people think markets work well all the time, and others that they work
terribly most of the time. Charlie took a middle position: “Markets
generally work, but occasionally they break down. When they do, they
require government intervention to provide the public good of
stability.”52
For Charlie, Minsky is thus useful primarily because he is a “lineal
descendant” of the older classical model, generalizing its insights “in
modern terms,” but only to that extent.53 He is careful to distance himself
from Minsky’s notion that the modern US financial system is “unstable,
fragile, and prone to crisis,” as well as “his emphasis on the fragility of the
48
49
Minsky (1976).
50
Kindleberger (1978b, 70, 55, 12).
51
52
Kindleberger (1978b, 15, 21, 8, 15, 220, 6).
53
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INDEPENDENCE
monetary system and its propensity to disaster”: “We need not take
seriously novelists like Erdman, nor accept uncritically the predictions
of Minsky.” This last is apparently a reference to Paul Erdman, who
started his successful career writing financial thrillers with his 1976
publication The Crash of ’79.
Charlie is further always careful to distance himself from the “pessim-
istic, even lugubrious” side of Minsky, and not just because Charlie
himself was basically an optimistic and cheerful personality.54 The
more fundamental reason comes down to his belief that lender of last
resort not only can stay a panic, but also that general awareness of the
lender-of-last-resort function can even prevent panics and so forestall
crises, allowing speculation to die out gradually rather than necessarily
ending in a catastrophic collapse. In his view, dependable lender-of-last-
resort backstop at the domestic level is the reason that domestic panics
have become much less common. And uncertainty about lender of last
resort at the international level is the reason that international panics
have become more common.55
For Charlie, Minsky goes too far in emphasizing inherent fragility, but
it is important to appreciate that in other respects Charlie thought that
Minsky did not go far enough. Emphasizing business credit from banks
within the United States, Minsky’s model was intended quite narrowly to
be a financial model of the US business cycle. By contrast, Charlie’s
interest is mainly in the financial crisis that sometimes comes at the
peak of a business cycle, and he is interested in all kinds of financial
crises, especially those with international dimensions. Further, and
importantly, he is interested in the instability of credit quite generally,
not just business and bank credit: “Before banks had evolved, and after-
ward, additional means of payment to fund a speculative mania were
available in the virtually infinitely expansible nature of personal credit.”56
The mechanism of instability that Charlie emphasizes is also different.
Whereas Minsky emphasizes positive feedbacks between business spending
on investment and subsequent expansion of aggregate income and
54
55
56
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MONEY AND EMPIRE
business profit, Charlie puts his emphasis squarely on speculative price

bubbles and on positive feedbacks in prices that reinforce both mania on
the upside and panic on the downside, which is to say that he is interested
in capital gains and losses, not operating profits from business. For Charlie,
it is the asymmetric response to price changes that accounts for changes in
aggregate income; nothing ensures that the response of those who benefit
from price change will net out against the response of those who are hurt.
Destabilizing speculation is his central theme, resulting in “over-trading” at
the top and requiring lender of last resort when the bubble bursts.
To be sure, Charlie does sometimes allow himself to get swept up in the
human drama of financial crisis, as well as the inevitable psychological
element of that drama. Just so, the swindles he describes so lovingly in
chapter 5 of MPC are, he insists, “demand-determined,” which is to say that
in the grip of mania the demand for swindles brings forth its own supply.
Such is the human condition. Nevertheless, having had his fun, Charlie is
also careful to insist that financial crisis remains essentially an economic
phenomenon. The important positive feedbacks occur in the mechanics
of the credit system, which have their own logic, quite separate from the
dopamine feedback that overcomes individual speculators.
What about the present prospects for crisis? Writing in 1978, Charlie
insists that the “Minsky model” fits very well the unstable market for foreign
exchange in the flexible exchange rate world and also the burgeoning
market for developing country debt. Will these be the next financial crises?
Charlie won’t say: “I do not forecast world economic collapse, because
I think that our profession of economics does not know the dynamics of
the system well enough to do so.”57 Uncertainty about whether the United
States will act when needed as international lender of last resort, however,
certainly suggests that financial crisis will remain, in the words of his chapter
1 title, “A Hardy Perennial,” as would Charlie’s historical account of past
financial crises. He himself published three more editions of MPC, each one
updated with new crises. After Charlie’s death, Robert Aliber took over for
three more editions, and as of this writing an eighth edition is anticipated in
2022, now with Robert McCauley (a student of Charlie’s from 1978) taking
the reins. A hardy perennial indeed.
57
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CHAPTER 9
Chef d’Oeuvre
A competent military officer is a generalist who can solve all kinds

of problems.1
The whole point of MPC was to bring attention to a neglected line of

economic thought that had focused on the instability of credit. But that
was just the first step. Charlie’s larger ambition was to use his new
comparative historical method to test economic theory in his own spe-
cialty more generally, with the aim of establishing foundations on which
a more adequate understanding of the international monetary system
could be built. This is the explicit goal of his next book, A Financial History
of Western Europe (hereafter FHWE), though almost all readers seem to
have missed it. In the first paragraph of the introduction, he states quite
plainly the objective of the book: “ranging economic theories against the
facts of history and, if possible, deriving theories from accumulated fact.”2
In Charlie’s mind, this book was to be his culminating treatise on
international money, and, if we want to understand it, that is how we must
attempt to read it. After the fact, Charlie realized that the project was
“perhaps excessively ambitious” and so perhaps less successful than he
had hoped.3 Reviewers of the book who read it merely as a reference work
of economic history can thus be forgiven. Even so, there is a reason that
Charlie called this book his “chef d’oeuvre.” Reading the book through
1
2
Kindleberger (1984a, 1), my emphasis. The dedication, “To SMK once more, after
forty-five years, with feeling,” explicitly links this book with his first.
3
“Economist Development,” p. 18. KPMD Box 19, “The Economist and the Academy.”
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MONEY AND EMPIRE
Charlie’s eyes, in the context of all his previous output, perhaps we can
synthesize and reconstruct what he was trying to do.
The book had its origin, so Charlie tells us, in lecture notes for
a course he taught only twice: first at the University of Texas at Austin
in Spring 1979, and second at MIT in Fall 1980. At Austin, in effect he was
taking up the challenge of his wartime buddy Walt Rostow, who had
claimed that there was no proper monetary theory prior to 1914 because
money and finance were entirely passive until then, not the prime movers
of economic events that they would later become.4 Charlie finds, quite to
the contrary, a rich mine of materials produced in and concerning
exactly that pre-1914 period, which materials he uses to derive the theory
that he then uses to understand post-1914. I say “finds,” but in fact
Charlie had been teaching European economic history regularly for
years and was already familiar with much of the material. What is new is
his ambition to use that historical material explicitly to test the limitations
of existing theories (i.e., monetarist and Keynesian theories) and to
derive new, more robust ones.
The Gerschenkronian themes of banking and the state, now renamed
“Finance” and “War Finance,” are the prime movers of Charlie’s narra-
tive, and a central theme throughout is finance as “an independent force
for good or ill”: “War is a hothouse and places enormous strain on
resources, which finance is used to mobilize. Financial innovation occurs
in wartime.” The innovation that he has in mind concerns institutional
change: “New men, new ways of doing things threatened the old.” Not for
nothing does he give his old teacher Wesley Clair Mitchell pride of place
in the epigram to the first chapter. Says Mitchell: “Cannot economic
history be organized most effectively around the evolution of pecuniary
history?” Mitchell’s empiricism, as founder and research director of the
National Bureau of Economics Research, had been quantitative and
statistical. Charlie’s own empiricism was otherwise, as he says: “it is not
my style, and statistics do not on most aspects of the subject go back far.”5
Instead, comparative economic history was Charlie’s way of carrying on
4
See extended quote of Rostow (1978) at Kindleberger (1984a, 3).
5
Kindleberger (1984a, 3, 5, 8, 1, xvii).
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CHEF D’OEUVRE
the American institutionalist tradition, improving on his teachers, as all

good students do.
Banking and the state are the prime movers of Charlie’s financial history,
but puzzlingly the book is not mostly arranged as a chronological narrative.
An appendix to the introductory chapter offers us four “chronologies” –
War, Monetary Events, Banking Landmarks, and Financial Events – but
that’s just a list of dates with no connecting narrative. What follows are
three parts (totaling 285 pages), which treat “Money,” “Banking,” and
“Finance,” respectively. The purpose of this unexpected organization,
apparently, is to derive theory from accumulated fact in each of these
three areas. The final two parts (totaling 175 pages) then treat “The
Interwar Period” and “After World War II.” The point of these parts is to
use the derived theory to make sense of the financial events of Charlie’s own
life – incredible events that he himself had witnessed and had struggled to
make sense of contemporaneously.
Regarding “Money,” the story Charlie tells in Part One “is one of
continuous innovation” driven by persistent shortage of metallic currency.
One driver of this shortage was trade with the East, for a long time a sink
for precious metals of all kinds; another driver was war. Historically, finan-
cial innovation was the answer to shortage, most importantly the bill of
exchange, followed by deposit banking, and then the bank note. Each of
these, Charlie emphasizes, was an innovation by merchants themselves to
meet their own immediately pressing need, and in each case the innov-
ation was some kind of credit instrument to substitute for the shortage of
metal: “The point to be emphasized is that when a market lacks money
sufficient for its needs it takes steps to correct the deficiency.”6
The bill of exchange came first, Charlie explains, as a way of shifting
clearing balances at one medieval fair into the future and to the next fair,
rather than insisting on settlement in metallic currency.7 The essential
quality of money is thus revealed to be means of payment: a means of
exchange for buying goods today and a store of value for settling pay-
ments promised in the future.8 Metallic currency serves both functions,
6
7
8
211

MONEY AND EMPIRE
of course, and we can therefore consider bills of exchange as a means of

economizing on the use of that currency by permitting a small amount of
currency to facilitate a larger amount of trade. Alternatively, and perhaps
more helpfully, we can consider the bill of exchange as just a new form of
money, invented by merchants in order to facilitate mutually beneficial
trade that would otherwise be prevented by the shortage of currency. As
a substitute for coin, the bill of exchange came first, but, the general
principle having been established, it was followed in due course by bank
deposits and then bank notes.9
Pushing in the opposite direction, the same shortage of metallic
currency quite regularly gave rise to various measures by state actors to
safeguard the metallic supply and even to augment it through deliberate
export promotion policy, measures that collectively came to be known as
“mercantilism.” Similar mercantilist impulses show up throughout subse-
quent history: in the Bullion Report of 1810, in the Currency School
thinking that informed the English Bank Act of 1844, and, indeed, in
modern world monetarism as espoused by Arthur Laffer and Robert
Mundell. Thus, from the very beginning monetary debate proceeded
with “expansionists” on the one side and “contractionists” on the other.
The debate between the Keynesians and the monetarists is just the most
recent iteration of this perennial debate, and like previous iterations it
also reflects the reality of continuous (private) financial innovation
posed against continuous (public) opposition to that innovation.10
For Charlie, Gresham’s Law provides a way to push beyond this
perennial dialectical opposition to a higher-level synthesis. Yes, shortage
of money regularly gives rise to new forms of money, but this solution
creates a new problem since inevitably users compare the new with the
old and then shift from one to the other in anticipation of changes in
their relative price, causing instability that calls for management: “The
problem is virtually insoluble: two or more monies are needed to perform
different tasks, but two or more monies are unstable.” Charlie’s account
of bimetallism revolves around precisely this instability: “Instead of the
mint price stabilizing the market price, the market price, responding to
9
10
212

CHEF D’OEUVRE
changes largely in supplies of precious metals, has destabilized the mint

price through the workings of Gresham’s Law.”11
In historical practice, the problem of bimetallism was solved by
demonetization of silver and adoption of the gold standard as the single
international money. Inevitably, once silver was out of the way, the
market then proceeded to create bank money as a new second money:
a promise to pay gold instead of gold itself. Meanwhile, states pushed
toward a universal money in this international monetary conference and
that one, but the effort led nowhere.12 Instead, what emerged from the
Darwinian process of financial evolution was the sterling standard, which
used sterling credit as the international currency of commerce.
Under the sterling standard, the destabilizing dynamic of two monies
still operated, but crucially now under the management of the Bank of
England: “The gold standard was, in effect, a sterling standard, managed
and operated by the Bank of England at the center . . . Management was
required because the market will respond to market restriction, if it gets
the bit between its teeth, by creating more money.”13 Charlie ends Part
One of FHWE with an account of how that system worked:
The Bank of England set the level of world interest rates, which accounts for
the fact that national interest rates moved up and down together, while other
countries had power only over a narrow differential between the domestic
level and the world rate. With sterling bills traded worldwide, serving as
a close substitute for money in foreign countries, and their interest rate
manipulated in London, the gold standard was a sterling system.14
Here, in the establishment of the sterling standard, as at so many

turning points in monetary history, we see an example of what Charlie
considers to be “a critical point of monetary theory”: “the difference
between the Knapp state theory of money (that money is what the state
declares it to be and designates as legal tender for debts public and
private), and nominalism (that money is what the market uses to fulfill
11
12
13
14
213

MONEY AND EMPIRE
the purposes of money). States may propose, but markets dispose.”15

In Charlie’s view, financial innovations typically arise to meet the needs
of the users of money, not from deliberate design by higher political
authorities. Indeed, markets quite regularly reject or find ways around
deliberate designs. Just so, the Bank Act of 1844 tried to control the
money supply by creating a Bank of Issue that had to hold gold against
any increase in bank note issue. But the result was just expanded use of
bank deposits as a substitute for notes, and that set the stage for the
worldwide sterling standard managed by the discount policy of the Bank
of England.
In addition to his positive objective to derive useful theory from
accumulated fact, Charlie was of course also interested in clearing out
nonuseful theories – what he calls “myths.” There were a lot of them: the
idea that the origin of banking was goldsmiths rather than merchants;
the notion that barter historically evolved into the money economy and
then the credit economy, whereas in fact all three coexisted from medi-
eval times; and especially the idea that changes in the general level of
prices can be traced to prior changes in the quantity of money (i.e., the
quantity theory of money) instead of, as is more usually the case, the
reverse. Regarding the latter, Charlie emphasizes that war particularly
has been a common driver of prices and the search for gold and silver in
the Americas more plausibly a result of high prices than a cause of
them.16
An especially persistent myth, which therefore merits repeated dismis-
sal in Charlie’s account, is the classic specie-flow mechanism posited by
Hume (and beloved by economists ever since), which claims that gold
flows cause price-level adjustments that equilibrate trade. To the con-
trary, so Charlie insists, the persistent drain of specie to the East caused
no such price-level adjustment, neither deflation in the West nor infla-
tion in the East, and indeed the drain persisted as a continuous strain
without noticeable sign of adjustment because of persistent hoarding in
the East. The enthusiasm for the specie-flow mechanism by present-day
15
16
Kindleberger (1984a, 35, 51; 21, 45; 24). On the latter point, Vilar (1976) is his
primary source, referenced repeatedly.
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CHEF D’OEUVRE
world monetarists thus has no basis in historical fact: “Gold movements

respond more readily and more frequently to capital flows induced
directly by discount rate changes than to changes in price levels and
trade balances.”17
Building on Part One, the central theme of Part Two “Banking” is
Gerschenkron’s historical hypothesis about the importance of banking
for economic development in the moderately backward countries of
Europe, by comparison to England. By the time Charlie was writing,
Gerschenkron’s famous essay of 1952 (published as the lead essay in
Gerschenkron 1962) had sparked considerable historical literature by
his numerous students and others treating individual cases. It is this
literature that provides Charlie with ample hay for processing in Part
Two.
The case of Britain, the earliest industrializer, is the paradigm against
which all late developers are compared, and accordingly Charlie is at
pains to trace the natural history of financial development in that case as
a baseline for comparison. War, not any exigency of economic develop-
ment, was the trigger for Britain’s financial revolution, specifically the
creation of the Bank of England, and Britain’s subsequent repeated
success in war against larger opponents traces directly to the success of
that financial revolution. By contrast, the subsequent evolution of the
British banking system more generally was largely a story of trial and error
by market participants that proceeded over centuries; complete financial
integration within the country was not achieved until the twentieth
century. For Charlie, the central institutional features of the system that
emerged from that evolutionary process establish the general rule; one
might even say that a theory of banking emerges from all this accumu-
lated fact.
Charlie sketches the outlines of this theory in two pages at the begin-
ning of Part Two. Most important is the evolution from mere deposit
banks to “lending banks which actually create deposits or money,” since it
is that alchemy (my word, not his) that Gerschenkron’s late developers
purportedly harness for their purposes. Further, the hierarchical geog-
raphy of banking, in particular the rise of financial centers such as
17
215

MONEY AND EMPIRE
London and the subsequent spread of banking networks to the hinter-

lands, was not imposed from above, but rather emerged as a natural
outcome of trial and error by multiple individual bankers. And finally,
the hybrid (my word again) character of the central bank, which func-
tions at the same time as both “the government bank and a bankers’ bank
with responsibility for monetary policy,” emerged from lived experience,
as also the role for a lender of last resort and the ultimate location of that
role at the Bank of England.18
In the British case, banking was mostly connected to commerce, not
industry, because the capital needed at the dawn of the Industrial
Revolution was small and typically quite easily met by available private
family resources. Indeed, in the British case, most banks had their origin
in commercial activity, as successful merchants discovered that banking
offered an easier and more stable life. The elasticity of bank credit
provided essential grease for the wheels of commerce and also the
essential mechanism for lender of last resort in times of crisis. The
main problem was that understanding of how the system worked lagged
behind institutional evolution, a case in point being Lord Overstone
who, in the controversy over the Bank Act of 1844, wrote “with the
assurance that characterizes many monetarists.”19 (Echoes here of the
Depres–Kindleberger–Salant “minority view” of the dollar system.)
By comparison to Britain, the financial development of France lagged
for almost a century, even after the establishment of the Crédit Mobilier by
the Pereire brothers.20 Why so? In Charlie’s view, it is a case in the first place
of premature financial innovation, specifically the banking machinations of
John Law in the Mississippi bubble, which “set back the course of banking
and bank notes in France more than a century.” But it wasn’t just him. The
innovation of the French assignats to finance the French Revolution, based
on land seized from the church, “embedded paranoia about paper money
and banks.”21 It was in this context that Saint-Simonianism arose, including
18
Kindleberger (1984a, 73). In other work, I have identified these same three ideas –
alchemy, hierarchy, and hybridity – in addition to the instability which Charlie treats
in Part One, as the four reasons that money is “difficult” (Mehrling 2017).
19
20
21
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CHEF D’OEUVRE
the idea of using money creation as a strategy for fostering industrial

development, but nothing much came of it until the establishment of the
Crédit Mobilier, the bank that Gerschenkron singled out as the paradig-
matic investment bank later copied by Germany and others. Charlie reads
the record differently. It is true that the Crédit Mobilier was a large force in
public finance, lending for railroads and other public works, not only in
France, but also abroad. But it did very little lending to industry, and on that
score does not really support the Gerschenkron thesis.22 Charlie concludes
that “France lagged a hundred years behind Britain in money, banking and
finance, and that this was both a reflection and a cause of its economic
retardation.”23
According to Charlie, it is Germany, characterized by “particularly
close relationships that ran between the great banks and large-scale
industry,” that best fits the Gerschenkron thesis: “The history that took
several hundred years in Britain was telescoped into sixty-five in
Germany.”24 What particularly interests Charlie about the German
case, however, is the way that banking and the sped-up industrialization
that it financed was for a long time held back by lack of monetary
unification within the country, which in turn was held back by lack of
political unification. Indeed, the whole industrialization process only got
started in earnest after 1871, political unification having come in the
course of successful war against France. There is a lesson here, so Charlie
suggests, for those in contemporary Europe who hope to use monetary
integration as a lever to force political integration.25 History suggests that
the reverse order is more typical.
Banking experience in Italy and Spain provides two more negative
cases for the Gerschenkron thesis. Banking development there most
certainly was in both cases, much of it introduced from France and
Germany, but it led to no industrial breakthrough. Instead, “Italy and
Spain are seen as ‘colonized’ by foreign banking by the time of the
nineteenth century, as contrasted with institutions that grew up out of
22
23
24
25
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MONEY AND EMPIRE
local initiatives.” “In Spain, and to some extent in Italy, economic devel-
opment was in fact set back a generation. Banks were needed, but so was
an adequate socio-political matrix of laws, regulation and custom in
which they operated, and appropriate government policies.”26
Having thus dispatched with Gerschenkron in Part Two, Charlie’s
central theme in Part Three – “Finance” – is instead his own alternative
historical thesis, which revolves around the centrality of financial booms
and busts: “financial crises [which] have tended to appear at roughly ten-
year intervals for the last 400 years or so.”27 An important mechanism
involved in these crises, according to Charlie, is the international flow of
capital, the central role of which has quite typically been overlooked by
local historians specialized in the history of their own individual coun-
tries. The final chapter of this Part (chapter 15: “Financial Crises”) reads
as the culminating statement of theory derived from accumulated fact,
not only of Part Three but also of the preceding parts as well. It is this
theory that Charlie will use as his framework for making sense of the post-
World War I chronology that follows.
As in MPC, Charlie emphasizes that booms typically begin with some
“displacement,” which “can be monetary or real.” He credits the concept
to Minsky, but in fact Minsky never used it; it is pure Kindleberger and,
indeed, the central organizing concept for the entire Part Three:28 “The
displacement that gets the most attention in these pages is war and the
end of war. War both cuts off old connections in trade and finance, and is
likely to require the fashioning of new.”29 In particular, war has often
been the impetus for foreign borrowing, which opens channels that
remain after the war is over (ch. 12). It is these new channels that bring
the boom, as initial trickle subsequently widens the channel to enable
eventual flood: “The consequence of limited horizons that change
26
27
28
Kindleberger cites Minsky (1982) but neither the word nor the concept appears in
that chapter. Elsewhere he speaks of the “stages of a financial crisis, worked out by
Hyman Minsky with a small assist from me” (1988a, 110). In his paper for Minsky’s
festschrift, he thanks Martin Mayer for bringing his attention to Minsky, “who got me
to think about instability in financial markets” (1995, 131). On Minsky himself, see
Mehrling (1999) and Neilson (2019).
29
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CHEF D’OEUVRE
discontinuously is that capital flows take place in deep channels (the

same is true of migration). Unlike water flowing evenly over a broad
surface, capital moves like water in sluices or conduits, ignoring or
bypassing better opportunities on occasion, because of the high cost of
obtaining information about them.”30
War cuts new channels, and so too often does the end of war, when the
victor imposes an indemnity on the loser (Ch. 13). The Franco-Prussian
indemnity of 1871, perhaps the paradigmatic case, receives especially loving
treatment:31 “Money payment of the indemnity was accomplished, of
course, by recycling.”32 France borrowed the money to pay Germany, in
part from its own citizens but also from foreign (including German) sub-
scribers to the loan. One consequence of this borrowing was new channels
for foreign lending and borrowing that then got used for other purposes.
War and the end of war are not the only sources of displacement, but
whatever the source, the important point is the way that initial displace-
ment subsequently plays out in speculative booms, and the way these
booms spread internationally by means of capital movements from coun-
try to country. Subsequent distress and then crisis propagate similarly:
“Euphoria and speculative excess are characterized by a rush out of
money, including credit that the system monetizes on the way up, into
securities, commodities, land, or whatever, bidding up their prices. After
distress of long or short duration, the process is reversed, and the move-
ment starts out of real assets or securities into money.”33
At the moment of crisis, a desperate search begins for a lender of
last resort – “some source of cash to ease the liquidation of assets
before prices fall to ruinous levels” – and quite typically one is found
to engage the symptoms of the immediate crisis. The problem comes
from the fact that, due to international capital flows, booms and busts
are quite typically international; “The question arises as to a lender of
last resort between nations.” Usually, the reigning world financial
center can be relied upon to take on that task, but that just raises
30
31
32
33
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MONEY AND EMPIRE
a further question: “Who helps the center when it gets into trouble?”
Historically, central bank cooperation has been the answer.34
Prior to 1700, the world lacked a lender of last resort, but it also largely
lacked the credit mechanism that made such a lender necessary. After
1700, the credit mechanism and the lender of last resort grew up
together, assurance of the latter being the enabler of the former.
Most economists view the lender of last resort as a source of moral hazard
and hence a cause of instability, excessive credit expansion being encour-
aged by assurance of central bank backstop. Not Charlie. He saw instead
encouragement and support of entrepreneurial risk, essential for eco-
nomic growth. In his view, economic development depends on the credit
mechanism and would be (was in fact before 1700) stifled in a world with
no lender of last resort. Instability of credit is, in this way of thinking, part
of the price we pay for economic development, and so too the necessity
for management of that instability by a lender of last resort.
Charlie’s story about the relationship between finance and economic
development can thus be seen as an attempt to improve on
Gerschenkron. In Charlie’s account, the emphasis is not on degrees of
backwardness in different individual countries, but rather on communi-
cation between countries, and on the international spread of information,
institutions, and capital. For Charlie, financial development plays
a central role in economic development, but the process is much more
bottom-up, unplanned, and international than Gerschenkron allows.
And it also typically works itself out in booms and busts.
A central puzzle remains: Why this recurrence? Don’t people learn
from past experience? Charlie’s answer, drawn from the historical record,
emphasizes the dynamic between informed insiders and uninformed out-
siders. Each boom involves mobilization of a new crew of outsiders, who
are left holding the bag when insiders liquidate. The a priori view of Milton
Friedman that destabilizing speculation is theoretically impossible is thus
disproven both historically and theoretically: “Each individual may be
rational, expecting to sell out before the collapse, but the fallacy of
composition assures that not all can be.”35
34
Kindleberger (1984a, 277, 280, 281).
35
220

CHEF D’OEUVRE
The purpose of Parts One through Three was to glean lessons from
history that can help us to understand our own time, which is to say the
time experienced by Charlie himself. Born in 1910, he had come to
consciousness in the aftermath of World War I, and it is that experience
that he wants retrospectively to understand in Part Four. From the point
of view of the preceding parts, the most important thing to appreciate is
that World War constituted monetary displacement on a scale never
before seen in world history. Subsequent euphoria, distress, and crisis
were therefore to be expected, along the general lines sketched in
chapter 15, but this time would be different. This time there were
multiple domestic displacements, each one transmitted internationally
by capital flows and together acting to produce boom–bust on a scale
never before seen. All of this was to be expected, but the exact course of
events remained to be determined, in part by political forces different in
each country and in part by the ability to mount an effective international
lender of last resort operation, never before tested at such a scale.
The monetary displacement came from the war finance of the Allies,
and also from postwar reparation charges to Germany. At the war’s
origin, Germany apparently imagined a quick war that would be financed
by a subsequent indemnity to be imposed on France, along the lines of
the 1871 resolution of the Franco-Prussian War. In the event, however,
what Germany got was a long war, and it was France, along with the Allies,
that got the chance to impose an indemnity on Germany. France natur-
ally imagined that the indemnity would be recycled, along the lines of
1871: “Germany would issue bonds to be bought by Americans with
monies then turned over to reparation claimants. Real reparations
would be paid by Germany when and if she paid off the bonds.”36
That’s not what happened, of course, but Charlie’s frame for understand-
ing what in fact did happen is clearly an imagination of how that coun-
terfactual might have played out.
The first step of the counterfactual would have been to come up with
a number for reparations that was acceptable to both the Allies and to
Germany. Only then could Germany mount the necessary borrowing
operation. Subsequently, just as France had experienced a boom in the
36
221

MONEY AND EMPIRE
aftermath of the 1871 indemnity, one might have expected a similar

boom in Germany post-reparations. A second step of the counterfactual
would have been settlement of inter-Allied war debts, mostly owed to the
United States by the UK and France, again possibly involving some
recycling, but more likely considerable outright forgiveness since, after
all, the Allies had been on the same side, with the UK and France
providing the bulk of the human sacrifice.
The important point to appreciate is that, financially speaking, these
two steps were deeply linked. Greater German reparations would have
enabled greater payment of inter-Allied debts, and, contrariwise, greater
forgiveness of inter-Allied debts would have made room for imposition of
a less Carthaginian peace on Germany. Financially speaking, there was
a deal to be made, but in the event the politicians were not able to find
their way to it. The result was boom and bust on a world scale.
Charlie asks “could the Germans have paid reparations in the amount
of the May 1921 ultimatum if they had loyally tried to? The answer is
probably no.”37 As a result, we never even got past the first step of the
possible solution. Why not? One reason is simply that the May 1921
number catered more to the domestic politics of the victorious Allies
than to financial reality. But even had saner heads prevailed, there was
still the problem of “loyally tried to.” Simply put, in Germany the politics
were never there to accept an indemnity. Charlie points to “the socio-
political condition of the German peoples, unwilling to bear the burdens
of war, reparations, or supporting their compatriots in the Ruhr by
explicit sharing decisions, but rather printing money and letting the
fates decide the outcome.”38 The contrast here is with the French indem-
nity of 1871, where political leaders were able to rally the country to pay
because that was the only way they would get Alsace back from the
Germans. Not so the Germans. When France occupied the Ruhr in an
attempt to move things along, it only intensified Germany’s resolve to
resist.
But the Germans were not the only problem. Strikingly, Charlie lays
considerable blame at the feet of the Allied economists, most prominent
37
38
222

CHEF D’OEUVRE
among them the young John Maynard Keynes, who failed to apply the
appropriate recycling analytical framework. (He was not the only one.
Academic debate quite generally focused on real transfer, i.e., the fam-
ous debate between Keynes and Ohlin, which misses the point.) In this
regard, Keynes’ 1919 account of the Versailles Peace Conference,
Economic Consequences of the Peace, “changed the course of history.” For
one, it “encouraged the Germans to resist paying reparations.” And for
two, it “helped the Republicans in the United States to defeat American
ratification of the Versailles Treaty and keep the United States out of the
League of Nations.”39 In this way, in both Germany and the United States,
it was politics that blocked the two main steps on a possible road to
financial settlement. To their eternal shame, economists facilitated that
blockage rather than helping to break it down.
Charlie posits June 1922 as the fateful turning point, when hope for
a possible rational financial settlement finally gave way. Until that time,
German monetary inflation and deutschemark depreciation had been
moderated by short-term capital inflows as speculators sought to profit
from what they supposed to be temporary disequilibrium. After June,
however, the stabilizing inflows stopped and destabilizing outflows began
to dominate as speculators joined German authorities in selling
deutschemarks for whatever the market would bear, driving down the
exchange rate and sparking the hyperinflation that would destroy the
currency within the next year. In this process, notably prices rose first,
and the German money supply followed after – exactly the opposite of
the monetarist quantity theory of money.
Why did Keynes write as he did? Maybe he was a bit pro-German, but
probably more important was his concern for the postwar fate of the City,
the prewar financial center of the world in London. Removal of Germany
as a trade competitor had sparked hopes of postwar British revival, which
had led to a little postwar boom–bust, but in the longer run the prewar
sterling system was clearly threatened by an emergent dollar; New York
bankers had made no secret of their ambition to take the place of
London bankers: “Churchill does not quite use the expression ‘dollar
standard’ as a replacement for sterling and gold. The words can be
39
223

MONEY AND EMPIRE
found, however, in the Tract on Monetary Reform (Keynes 1924, p. 215).

Britain was conscious of the approach of the end of an era and was
striving to stave it off.”40
For Britain, everything else followed from that misbegotten ambition:
the return to gold at the (overvalued) prewar parity, and also the attempt
to reinstate the prewar managed gold standard system in which the world
interest rate was set by the Bank of England. In that ambition, moreover,
Britain found itself substantially on its own as the United States refused to
help, neither in Brussels 1920 nor in Genoa 1922. The sterling–gold
exchange system that emerged from these efforts was thus an artificial
construct from the beginning, imposed from above rather than emer-
gent from market practice, and consequently it proved fragile. Charlie
points to a July 1927 meeting on Long Island as a final attempt to
organize central bank cooperation, too little too late: “Central bank
cooperation, never deeply rooted, wilted even before the hot sun of 1929,
and the torrid blasts of 1931.”41
The core problem in all of this, in Charlie’s mind, was lack of leader-
ship, and for this he places the blame squarely at the feet of the United
States. Refusal to lead on reparations gave free rein to greedy and
vengeful voices in Europe, and refusal even to discuss inter-Allied debt
settlement gave European negotiators little room to maneuver even if
they had wanted to. In the event, Keynes’ 1919 description of the
Americans as “easily gulled” provided ample cover for Congressional
intransigence,42 and the end result was an impossible situation for the
international monetary system.
One bright point in this sorry tale: the speculative attack on the
French currency had been successfully contained for a time by deter-
mined central bank lender-of-last-resort intervention (ch. 19), demon-
strating what might have been possible more generally had there been
the necessary leadership. Destabilizing speculation (as in Germany after
June 1922) is not inevitable if authorities are willing to intervene to
reverse expectation: “To keep speculators’ expectations reversed in the
40
41
Kindleberger (1984a, 332, 344–345), my emphasis.
42
224

CHEF D’OEUVRE
longer run, however, the authorities must adopt effective means of

monetary and fiscal stabilization. This may be more than the average
set of politicians may be able to accomplish in a given socio-political
state.”43
The politicians having failed to lead in the immediate postwar settle-
ment, it was left to the bankers to cobble something together, and this they
proceeded to do. Just so, the Dawes Plan of 1924 can be understood as an
“initial recycling operation,” showing the world a possible way forward, and
for a while it worked. If anything it was too successful: “oversubscribed
eleven times. It marked a discontinuity in American foreign lending,”
the beginning of a foreign lending boom that would end in tears. The
Young Plan, put in place April 1930, can be understood as a second
tranche of this recycling plan, but by then it was too late. Instead,
Hoover’s Moratorium and the German Standstill Agreement, both of
1931, halted both reparations and inter-Allied debt payments, temporary
measures soon made permanent.
The boom over, now comes the bust, and here we see Charlie retracing
the history he had recounted in World in Depression. As early as 1928, the US
stock market boom had brought an end to the foreign lending boom that
had been launched by the Dawes Plan, leaving short-term capital flows to fill
the gap until the Young Plan could be put together. Realizing that the stock
market boom was being driven by speculation financed by short-term
borrowing from abroad, New York bankers prepared to lend into the
inevitable collapse by withdrawing credit elsewhere. But the resulting credit
crunch forced commodity dealers to liquidate their inventories, driving
world commodity prices down: the first step in the Great Depression.44
Falling prices undermined balance sheets, first of firms and then of banks,
marking the beginning of the distress phase of the financial cycle.
In the event, the Fed made some attempt to stem the collapse, but it
was not nearly enough, and when hot money brought gold outflow the
Fed reversed itself, raising the discount rate. “This is another case where
43
44
This is the same argument Charlie had made in WID. One thing that is new here is his
recognition that his argument “fit easily into the Hawtrey mold of Currency and Credit
(1919)” (Kindleberger (1984a, 364).
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MONEY AND EMPIRE
institutional inhibitions would have been swept aside if there had existed
coherent leadership and cohesive followership.”45 As earlier, the United
States would not lead, and so Britain was left to soldier on as best it could
until it could no longer. Significantly, sterling depreciation in 1931 was
not followed by Deutschemark depreciation – memory of hyperinflation
stood in the way of rational economic response – exacerbating the
international transmission of deflation.
For the United States, the turning point in the depression came from
Roosevelt’s decision in advance of the 1933 World Economic Conference
to devalue the dollar. In response, finally prices began to rise, and by mid-
1933 “the corner of the depression had been turned.” But only for the
United States, not for anyone else. Given the failure to agree on currency
stabilization, “successive depreciation of the pound sterling, the yen, the
dollar and the gold bloc were each excessive and communicated over-
valuation and deflation to the rest of the system.”46 The Tripartite
Agreement of September 1936 did little to stem this tide, serving mainly
as cover for French devaluation. But it did mark a minor triumph for the
key-currency approach, which had been championed by the New York
Fed since the 1920s as a viable alternative to the doomed sterling–gold
exchange standard.
Against this background, Part Five of FHWE reads as a kind of auto-
biographical culmination, though without any explicit marker of
Charlie’s own contributions to the momentous events he records.
WASP reticence, no doubt, which unfortunately also functions to obscure
somewhat the analytical frame that Charlie uses to make sense of these
events. The important point to keep in mind is that the postwar financial
history of Western Europe is intertwined with Charlie’s own life. Just so,
as Chief of the Division of German and Austrian Affairs (GA), Charlie
had an inside view of the challenge of reconstructing Germany after the
war (chapter 22). He is speaking, therefore, in part of his own life project
when he says: “I regard the German monetary reform of 1948 as one of
the great feats of social engineering of all time.”47 Further, as staffer for
45
46
47
226

CHEF D’OEUVRE
negotiation of the Anglo-American Loan, and executive secretary of the

committee that prepared the Marshall Plan legislation, he similarly had
an inside view of the role played by the United States in the reconstruc-
tion of Europe more generally (chapter 23). And finally, as professor at
MIT, he had watched with paternal interest the evolution of the
European monetary system, as individual currencies first returned to
convertibility, and then, after Nixon abandoned US leadership of the
dollar system, as Europe took the first steps toward monetary union and
the creation of a common currency potentially rivaling the dollar. All of
these world-historical events are, for Charlie, personal.
Even more, he views them all through the analytical lens he had spent
a lifetime honing. Other writers on postwar economic history typically
follow the hopeful thread of the purported multilateralism that origin-
ated at Bretton Woods – “the worldwide approach” as Charlie calls it – but
that is emphatically not his tale. He follows instead the key-currency line
that insists on the inherently hierarchical character of international
money. From this point of view, the postwar financial history of
Western Europe is mainly about how the various individual European
currencies, as well as the joint European efforts in the direction of
monetary union, fit in with the evolution of the global dollar system.
Further, whereas other economists quite typically adopt a monetarist
frame, Charlie emphatically does not. Signaling his deviation, he now
explicitly quotes Harvard economist Gottfried Haberler as chief exposi-
tor of the erroneous economist’s view, in 1948, that reconstruction
required nothing more than “stop the inflation and adjust the exchange
rate.” To the contrary, “believers in dollar shortage [such as Charlie
himself] followed the banking school in insisting that the balance-of-
payments deficit had structural origins.”48
Finally, whereas other economists (and, even more so, political scien-
tists) quite typically adopt a nationalist or regionalist frame, Charlie
consistently takes the point of view of the world system as a whole,
transcending both the national interest of his own United States and
the regional interest of the Europeans whose actions he is recounting. As
an economist, he always viewed the optimum currency area as the entire
48
227

MONEY AND EMPIRE
world and the particularist sovereignty claims of individual nation-states

as the biggest obstacle to construction of this economic ideal.
Viewing postwar financial history through this lens, the story Charlie
tells in Part Five is essentially one of governments proposing and markets
disposing. Crucially, in the immediate postwar period, markets were in
no condition to dispose much of anything. The choice was social engin-
eering or barbarism. In Germany, in particular, money was simply not
functioning: “city dwellers would trek individually to the countryside at
the weekend, carrying books, lamps, appliances, and the like to barter for
potatoes brought back to the city in passenger trains in kilo lots in
rucksacks.” The 1948 German monetary reform fixed all that, in
a supreme act of government; “only government can provide the public
good of stable money, although it is evident that it does not always do so.”
Those, such as Milton Friedman, who retrospectively cite the German
monetary reform as a victory of market forces over government get the
history exactly backward, and the economics as well; “Monetary reform is
not something that can be left to the market to work out.”49
For Charlie, the real question was why, in this case, government was
able to provide that public good, which would prove so hard to provide in
later decades. The answer is social and political conditions: “the vacuum
of power interests [inside Germany], and the assertion of responsibility
by the occupying powers [outside Germany], made it possible for reason-
able policies to be adopted.” Note the word “reasonable.” We are dealing
here with engineering, not science; with the practical craft of building
bridges that don’t fall down, not with the academic abstraction of
a frictionless market. And it is the very special social and political condi-
tions of the postwar period that allowed implementation of this reason-
able approach, specifically the willingness of the United States to lead,
and the willingness of Germany to follow. Neither of these conditions
could be taken for granted. Unwillingness to lead could easily have been
justified by the economist’s creed that no leadership was necessary, and
unwillingness to follow could easily have been justified by the national-
ist’s creed that money is no business of the occupying powers since
sovereignty is inviolable. Suffice it to say that the preconditions for the
49
228

CHEF D’OEUVRE
1948 monetary reform were special. Government proposed, the market

disposed, and the result was Wirtschaftswunder (economic miracle).50
In other places, and at other times, the results of government proposing
were more mixed, as Charlie’s subsequent history recounts. Just so, the
Lend-Lease arrangement for Allied war finance, signed August 1941 before
the US official declaration of war, represents US leadership and practical
learning from the disaster of war finance in World War I. But the precipi-
tous end of Lend-Lease in spring 1945, more or less simultaneous with
German surrender, represents a near-disastrous failure of US leadership,
repaired partially by the 1946 Anglo-American Loan, which then failed
instead for lack of followership.51 Subsequently, the Marshall Plan got
both leadership and followership more or less right, and the result was
European recovery.
At the same time, however, the Marshall Plan’s enthusiasm for European
integration, an artifact of America’s desire to create a Cold War bulwark
against the Soviet Union, made less economic sense and, indeed, planted
seeds for subsequent trouble. The European Payments Union (EPU),
created to facilitate multilateral clearing and to overcome the inefficiency
of dollar hoarding within Europe, might well have posed an obstacle to
European integration with the rest of the world. Fortunately, former
European colonies were included indirectly in the EPU, with the United
States covering the overall deficit with the rest of the world, so de facto the
EPU was a world not a regional clearing system. Similarly fortunate, “the
swap network that developed in Basel after March 1961 as a lender of last
resort was worldwide rather than European.”52
Unfortunately, the apparent success of the EPU created the impression
that monetary union might serve as an initial step (and also subsequent
leverage) toward eventual political union, rather than as an eventual culmin-
ation to be achieved only after political union. Against this, Charlie insists that
what apparent integration was actually achieved within Europe was mostly
a result of each individual European country integrating with the larger
world economy, and in particular with the dollar system: “Things equal to
50
51
52
229

MONEY AND EMPIRE
the same thing are equal to each other, but they are not necessarily inte-
grated.” The rise of the Eurodollar and Eurobond markets, after 1971,
created an offshore dollar system (markets disposing) that served this equal-
izing function, even as European politicians flirted with ideas of a Europe-
wide currency (government proposing) as replacement for the dollar.53
We have seen in previous chapters (6, 7, and 8) how Charlie hoped
that Europe might grab the reins of leadership left flapping in the wind
by Nixon’s abdication. Unfortunately, the subsequent history of Europe’s
monetary reform efforts dashed those hopes. Significantly, Charlie ends
the book with these words: “I conclude that the EMU [the Werner Plan]
has failed, and that the EMS promises little advance over the EMU to
solve the European monetary problem, or to provide a European monetary
substitute for the failing dollar, needed to undergird world economic stabil-
ity.” Governments may propose, but markets dispose. “The European
and the world systems will limp along for some time. Ultimately, new
hierarchical arrangements will emerge.”54
Indeed, even as he was writing, the seeds of a new hierarchical
arrangement were already sprouting, in the form of the offshore
Eurodollar and Eurobond markets. As mentioned, Charlie noticed
both of these developments, but he saw them mainly as vehicles for
equalizing asset prices within Europe, rather than as the seed of a new
globalized dollar system, as they turned out to be.55 The second edition
of FHWE, published in 1993, offers a more rosy forecast for European
monetary union, presumably on the basis that the 1992 Maastricht agree-
ment had put in place sufficient political union to make monetary union
a realistic possibility. But Charlie is no more hopeful about the future of
the dollar, notwithstanding the habits of G7 cooperation that continued
even after the breakdown of Bretton Woods (e.g., the 1985 Plaza Accord,
and the 1987 Louvre Accord). “The safest prediction is that there will be
another transitional period, like that between the world wars, after which
a new continental or national leadership will emerge.”56
53
Kindleberger (1984a, 448, 449–453). See also Kindleberger (1969c).
54
Kindleberger (1984a, 463, my emphasis).
55
McCauley (2020), Schenk (2020).
56
230

CHEF D’OEUVRE
Chef d’oeuvre? It must be admitted that in FHWE Charlie’s reach

quite definitely exceeded his grasp. There was simply too much material,
and his stated ambition to derive more adequate theory from it all thus
remained largely unrealized. Furthermore, because of this, even his
more modest objective to reveal the inadequacy of existing a priori
theories, monetarist and Keynesian alike, also remained largely unreal-
ized. It takes a theory to beat a theory.
Although FWHE thus doesn’t really deliver as a stand-alone book,
when we read it against the corpus of Charlie’s previous work, as we
have been trying to do, it makes more sense. I have emphasized that
Charlie viewed the world as a central banker, not so much as an econo-
mist, and that this way of thinking began early, under the influence of
H. P. Willis in his first graduate years (Chapter 2). Charlie came to regret
his juvenile enthusiasm for Willis’ policy views on the Depression – the
problem was not inflation, but rather deflation, and the real bills doc-
trine underestimated the need for active monetary management – and
that regret likely blinded him to the far-reaching influence of this forma-
tive intellectual experience. But it need not blind us.
As we have seen, Charlie’s insistence in his thesis on viewing short-
term capital flows, not gold, as the principal means of international
settlement builds on an analogy with the US experience with bankers’
balances. This comes from Willis, and is the foundation of everything that
followed, in particular Charlie’s lifelong insistence on understanding the
balance of payments as essentially a matter of settlement in the inter-
national payments system, a point of view reinforced by his years at the
Fed and the BIS (Chapter 3). In this regard, Charlie was from the very
beginning thinking like a central banker, not an economist.
We have further seen how, once he shifted to academia, he used this
distinctive approach as the analytical framework for his textbook
International Economics, and then later also as the framework for his “minor-
ity view” understanding of how the dollar system worked (Chapter 6).
Short-term capital flows, he came to understand, were not just ways of
absorbing temporary surpluses and deficits, but even more the key mech-
anism for supplying the international demand for dollar reserve balances.
The US “deficit” was just a byproduct of international financial intermedi-
ation, with the United States serving as a bank. Further, in the absence of
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MONEY AND EMPIRE
a world central bank, the system of central bank swap lines, cobbled
together by the BIS in 1961, was the essential mechanism for central
bank cooperation in defense of the dollar system.
If the payments approach is thus the analytical core of Charlie’s think-
ing, the centrality of the dealer function, that is, market-making for profit,
is a critical second but more emergent element. We can trace this element
too back to early days, not so much the thesis but rather “Speculation and
Forward Exchange” (1939), the article he wrote to make sense of the
pattern of exchange rates during the Tripartite Agreement period.
Covered interest parity arbitrage by speculators kept sterling and the dollar
in line with each other, but not any other currency because the markets
required for arbitrage were shut down; no market-makers, no markets.
Similarly, in the immediate postwar period, given continuing lack of
markets, the BIS substituted its gold swap facility, in effect making markets
between inconvertible European currencies until, after the move to con-
vertibility, private speculators stepped in and the BIS was able to shift
instead to using its swap facility to backstop those private markets.
For a long time, the importance of the dealer function in Charlie’s
thought was limited to foreign exchange markets, and, as a consequence,
it is not so obviously an element distinct from the underlying payments
frame. Here perhaps Charlie was in part unconsciously channeling Willis’
unease with the emerging new understanding of liquidity as “shiftability,” an
understanding which implies that liquidity depends on dealers standing
ready to absorb excess demand or supply. Indeed, we see that unease
explicitly in Charlie’s concern, expressed in the 10th Annual Report of the
BIS, that central banks are being asked to play the role of “shifter of last
resort.”57
A more obvious reason for the limited role of the dealer function in
Charlie’s early thinking was of course the limited role of dealers them-
selves under conditions of Depression and War. Capital markets, both
short term and long term, were more or less shut down. and indeed largely
remained so in the immediate postwar period. Only gradually did they get
put back together again, first domestically and then internationally, the
57
See Chapter 3, n. 25.
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CHEF D’OEUVRE
Eurodollar and Eurobond markets coming into their own only after the
breakdown of Bretton Woods.
This explains why it is only in World in Depression that the dealer function
finally emerges as a clearly separate element, centrally important for
understanding the link between the US stock market crash and the subse-
quent persistent fall of commodity prices. Commodity prices are made by
dealers, who absorb temporary excess supply into their own inventories,
and these inventories need to be financed, which means that disruption of
finance can force liquidation of inventories at fire-sale prices. Similarly, the
collapse of long-term capital flows was really about the collapse of inter-
national capital markets, which is to say the absence of profit-seeking
dealers willing to use their own balance sheets to support new bond issues.
Both of these ideas – banking as a payments system and banking as
a dealer system – came together in Charlie’s MPC understanding of
financial crises as essentially liquidity crises, arising from the inability of
borrowers to make promised payments combined with a further inability
to postpone those payments to some future time. Lender of last resort
can put a floor on this kind of crisis precisely because the liabilities of the
lender are means of payment for everyone else. At the international level,
however, the central challenge is that there is no world central bank
whose liabilities can serve that function, while the ability of national
central banks to cooperate toward that end is limited by national political
constraints. Viewed in this light, FHWE is essentially a story of the
Darwinian coevolution of an integrated world market with an inter-
national lender of last resort, a world market for commodities and also
for capital, both short term and long term. As such, it is essentially a story
of financial development in support of economic development, both
processes advancing together in Darwinian evolutionary fashion by
means of boom and bust – a story that continues to this day.
Thinking of Charlie as an international monetary economist, one might
have thought that his chef-d’oeuvre was the 1981 collection International
Money. Certainly, that is the book that initially attracted my attention. The
book is organized as a treatise, with four parts: “International Money,”
“International Payments,” “International Capital Markets,” and “Toward
a New Monetary World Order.” But it doesn’t really deliver, remaining
more “A Collection of Essays” written in the decade from 1966 to 1976, as
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MONEY AND EMPIRE
the subtitle advertises, than a systematic treatise connecting up Charlie’s

disparate views on specific topics into a unified analytical structure.
As we have seen, in 1964 Harry Johnson invited Charlie to write
a treatise for a series he was editing, but Charlie turned him down.58
Instead of a treatise, he wrote the essays collected in International Money,
which served instead as a bridge to his new life as economic historian, and
hence to FHWE. To be sure, there is a unified analytical framework
underlying it all, as I hope to have shown. But it is up to the reader to
find it, and probably only readers who already share Charlie’s idiosyn-
cratic perspective, typically because of private banking or central banking
experience, can feel the unity. Trained economists, who come to the
book with their own preexisting theoretical frame (a priori, as Charlie
would say), understandably experience the book instead as the collected
musings of a mind that had missed most of the analytical advances of the
postwar period, which is to say not a serious analytical contribution.
From this point of view, we can better understand why Charlie calls
FWHE his chef d’oeuvre. On the one hand, that’s simply what it felt like to
him: a master work in which he was using his waning powers to pull together
the threads of a life spent thinking about international money and finance.
On the other hand, he seems to have been trying to draw attention to the
book, his last best shot at being heard and taken seriously, by economic
historians if not by economists. Note well that Charlie is not asserting that
his book is better than works by others, thus carefully avoiding invidious
comparison with his students and former colleagues, Nobels among them.
He is simply saying that, for him, it is the best thing he ever did.
Notwithstanding all its imperfection, the book seems to have left Charlie
with a sense of completion. He had done his best, holding nothing back. For
a WASP, that was reason enough for pride in the outcome. Years before,
when he had left his young family behind in order to take up a leadership
position in the Enemy Objectives Unit in wartime London, his mother-in-law
had encouraged him. It was his duty, she said, “you have it to do,” and she
backed it up with her own support of Sarah and the children until the war
was over.59 As we have seen, this same sense of duty subsequently led him to
58
Chapter 7, n. 42.
59
CPK to Steve Magee, Dec. 8, 1998. KPMD, Box 20. See also Kindleberger (1988a, 157).
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CHEF D’OEUVRE
accept leadership positions in the effort to reconstruct first Germany and

then Europe (Chapter 4). It is in this context that we should understand his
similar sense of personal responsibility for the well-being of the world dollar
system. Here we find the bright thread that runs throughout his entire
academic life, first as an international economist and then, when he could
see no way to make further progress on that line, as an economic historian.
He had it to do.
As readers, we may be disappointed in FHWE, and for our own good
reasons, but Charlie was not, and for his own good reasons: “In my
new métier, economic history as opposed to international economics,
I find I can still work up a great deal of love.”60 Fifteen years after FHWE,
looking back on his life’s work, Charlie would reflect: “I prefer not to count
myself an institutionalist, a monetarist, a Keynesian, a technologist,
a demographer, a financial analyst, and the like but a jack of all trades
(and master of none?).”61 All of these were of course respectable ways of
being an economist, but Charlie identified with none of them even as he
dabbled in all of them. Looking through his characteristic self-deprecation,
we can identify Charlie’s approach to economics more objectively as that of
the competent military officer referenced in the epigram to this chapter: “a
generalist who can solve all kinds of problems.”
If increasingly such an approach was viewed, especially by the freshest
crop of technically proficient economists, as disqualification for economist
status, so much the worse. In an age when academic economists increasingly
built careers within specialized subfields, Charlie embraced instead synthesis
and systems-level thinking. In an age when economics increasingly took the
form of mathematical and statistical modelling, Charlie reinvented himself
instead as a comparative economic historian. The younger generation may
not have seen Charlie as very much of an economist at all, but Charlie
himself always did, claiming the identity in the very title of his autobiography
The Life of an Economist. Claiming FHWE as his “chef-d’oeuvre” is Charlie’s way
of affirming the choices he had made in his life’s journey and also of
asserting the continuing validity of his approach no matter what others
might say.
60
“Economist Development,” p. 18. Unpublished talk given at Bard College, Oct. 11,
1986. KPMD Box 19, folder “The Economist and the Academy.”
61
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CHAPTER 10
Leadership
Muddling through in Darwinian fashion is my preferred solution.1
The way the American Economic Association works, the president-elect is

in charge of the program of the annual conference (lots of work), but then
the following year mainly presides, with his main duty (actually honor)
being to give the presidential address. Accordingly, Charlie would have
spent a good chunk of 1984 arranging the program that ran from
December 28–30 in Dallas. And then, at his leisure, he would have pro-
duced his presidential address, delivered December 29, 1985, in New York.
For Charlie, the AEA presidency was an unexpected honor, but more
importantly a responsibility and an opportunity for leadership. The out-
puts of his presidency quite definitely show him rising to the occasion.
Most noticeable in the 1984 program are the high-profile invited
lectures – two of them. For the Ely lecture, Charlie invited his long-time
friend and war buddy Alec Cairncross to reflect on “Economics in Theory
and Practice,” meaning the relationship between academia and the real
world. Cairncross had spent his career in Britain shifting back and forth
between the two: “between the priestly who live in clouds of theory and
the lay brethren in Washington, Whitehall, and elsewhere, who do battle
in the corridors of power.”2 It was a life that Charlie might have had in the
United States had it not been for the McCarthy witch hunt.
For the luncheon talk to the joint session of the AEA with the
American Finance Association, Charlie chose Alexandre Lamfalussy,
1
2
Cairncross (1985, 1). See also Kindleberger (1995, ch. 12), prepared for the Cairncross
festschrift.
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LEADERSHIP
General Manager of the Bank for International Settlements, who offered

remarks on “The Changing Environment of Central Bank Policy.”
Financial fragility was his central concern, and specifically the question
of whether fragility is increased or reduced by the “four interconnected
evolutionary processes” he identified: the global disinflation process
begun by Volcker in 1979 and still continuing; the striking international-
ization of money and capital markets that was creating a single global
market; the rapid pace of financial innovation, specifically interest-rate
and foreign-exchange swaps for managing risk in these new global mar-
kets; and, finally, the seemingly inexorable process of deregulation.
Lamfalussy concludes: “In a financially integrated world no country can
isolate itself from the others, no matter what its exchange rate regime”;
worryingly, this calls into question the useability of monetary policy.3
Another life that Charlie might have had, except for the Nazi invasion
of Paris that prompted his hasty departure for home.
The program itself further shows Charlie’s touch, most obviously in the
sessions “In Honor of Stephen H. Hymer,” and “Economic History:
A Necessary Though not Sufficient Condition for an Economist,” the latter
including both economists Kenneth Arrow and Robert Solow and economic
historians Peter Temin and Paul David. Other sessions more likely proposed
to him, but meeting his favor as they might not have done for a different
president-elect, include “The Use and Abuse of Econometrics,” “Credit and
Economic Instability,” and “After-Keynes Cambridge Contributions” – the
latter showcasing the Cambridge England Keynesians, as opposed to the
Cambridge Massachusetts Keynesians (Charlie’s MIT colleagues).
Organized by Hyman Minsky, the session included papers by Jan Kregel
(himself a Cambridge England Keynesian), Bertram Schefold, and Roy
Weintraub (a critic of the Cambridge England Keynesians).4 An evident
theme running through all of these sessions is the attempt to foster conver-
sation between economists who more usually talk to separate audiences in
separate worlds.
Regarding his own presidential address, Charlie’s colleague Peter
Temin advised him not to use the occasion to opine on methodological
3
Lamfalussy (1985, 410).
4
Personal communication, Roy Weintraub.
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MONEY AND EMPIRE
issues, and he chose to take that advice. Thus, Charlie’s enthusiasm for
economic history shows up not in the address, but rather in the book that
came out of the economic history session, Bill Parker’s Economic History
and the Modern Economist (1986), and even more so in Charlie’s own later
collection of essays, Historical Economics, Art or Science? (1990). More on all
of that below. The important point for now is that, in 1985, Charlie chose
to use the most visible platform he ever had to speak instead on
“International Public Goods without International Government.” Here
we see him at the end of his career attempting to foster conversation
between economics and political science, just as he had back at the
beginning with his abortive 1950 “The Distribution of Income, Political
Equilibrium, and Equilibrium in the Balance of Payments.”
Well aware that his audience were all economists, Charlie’s pitch
was in language that all trained economists understand. Standard
economics warns of the possibility of market failure. Left to its own
devices the market mechanism can be expected to supply an ineffi-
ciently low quantity of public goods simply because, by definition,
public goods are freely available to everyone, and so no one is willing
to pay for their supply. A classic example is clean air. Here is
a situation where the market does not work, and that makes room
for the argument that we should not use the market, but rather
government. More generally, Charlie always embraced what he called
a “vacuum theory of government” – namely, that government steps in
to do what the market can’t or doesn’t do well.
The problem is that, at the international level, there is no govern-
ment, and so the vacuum theory leaves open the question of how inter-
national public goods get supplied, if at all. In practice, Charlie says, the
solution has generally been for one nation to step forward as “leader,”
taking on the task itself for whatever reason. The particular public good
closest to Charlie’s heart was of course provision of global money, coord-
ination of macroeconomic policy, and stabilization of exchange rates,
but the argument is general, applying to peace-keeping operations as
well. In the absence of such a leader, the market can be expected to
supply an inefficiently low quantity of needed public goods.
The argument is recognizably an extension of the case Charlie had
made in World in Depression concerning the need for a stabilizer, one
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LEADERSHIP
stabilizer. In 1931, Britain could no longer play that role, and the United
States would not, and so we got world depression. Subsequently, the
United States did take up that role, and, as a consequence, economic
matters went better for a while, until unilateral abandonment of that
leadership role by Nixon, which in Charlie’s mind had raised the pro-
spect of another depression. On that score, the important point to
appreciate is that by December 1985, when Charlie gave his presidential
address, he saw real reason for hope. Three months earlier, the major
powers had met at the Plaza Hotel in New York City and agreed to
cooperate on stabilizing the major currencies. It was only a first step,
but the United States seemed finally to be willing to lead again, and the
major powers seemed once again to be willing to follow. In his address,
Charlie wanted not only to celebrate this new development, but also to
urge further building on this promising start, which he saw as a possible
pivot point in history.
The main argument in Charlie’s address is about public goods because
that’s what he thought his audience would understand. But in fact, and
notwithstanding Temin’s advice, there is a methodological theme that runs
throughout as well, concerning not economic history but rather political
science. Charlie’s target here is the “imperialism” of the Chicago school –
George Stigler and Gary Becker are mentioned by name – who see econom-
ics as having nothing to learn from political science and political science as
subordinate to economics. For them, as a matter of a priori theory, the
market works – and it works just as well internationally as it does domestic-
ally if only government will get out of the way and let it do so, which is
actually easier at the international level since there is no international
government. In opposition to the Chicago School, Charlie’s MIT home
department had long emphasized the prevalence of various market failures,
both microeconomic and macroeconomic, and hence also the general case
for government intervention, but mostly the MIT line had been at the level
of the nation-state, not international. Thus, we can understand Charlie’s
address as a challenge just as much to his MIT friends as to his Chicago
opponents: How to address market failure at the international level when
there is no international government?
It was also a challenge just as much to political science as it was to
economics, since political scientists quite typically take the point of view
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MONEY AND EMPIRE
of the individual nation-state, rather than the world as a whole.

Stimulated by the turmoil of the 1970s, the political science community
had already begun engaging Charlie’s argument in World in Depression.
Robert Keohane in particular, in his book After Hegemony (1984), had
proposed that patterns of behavior between nation-states (so-called
“regimes”) that had become customary during the Bretton Woods period
might be relied upon to sustain world order even after the formal
collapse of Bretton Woods. In 1985 Charlie was talking mainly to the
economists in front of him, but he clearly had in mind also the political
scientists, who he would shortly address in a commissioned review of
Keohane’s book published in 1986 under the title “Hierarchy versus
Inertial Cooperation.” In his presidential address he foreshadows that
subsequent engagement: “I am a realist when it comes to regimes.”5
On the heels of his presidential address, invitations for subsequent
addresses flooded in and Charlie was very busy for a while, flitting here
and there and very much enjoying all the attention that his ideas were
now getting. Significantly, he took the opportunity to reissue World in
Depression in a revised edition (1986) and also Manias, Panics, and Crashes
(1989).6 In this context, it is easy to understand why Charlie welcomed
the inquiry from Peter Johns of Wheatsheaf Books in England as to
whether he would be interested in putting together a collection of recent
papers. He had been using the abundance of speaking requests to flesh
out the argument of his books in multiple directions, and so welcomed
the opportunity to pull these various threads together. In the event, there
would be three Wheatsheaf books.
The first one, The International Economic Order: Essays on Financial Crisis and
International Public Goods (1988), devotes its first half to various follow-ups on
WID, in speeches to college students, economic historians, bankers and
central bankers, and in testimony to both the British House of Commons
and the US Congress. The second half of the book begins with a reprint of
the presidential address, continues with follow-ups addressed to different
5
Kindleberger (1988a, ch. 9, 137).
6
Also Marshall Plan Days (1987) and The German Economy (1989). International Capital
Movements (1987) was based on the Marshall Lectures he had given at Cambridge
University in Fall 1985.
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LEADERSHIP
audiences (political scientists, Japanese and European policymakers), and

concludes with a series of earlier papers that trace the development of
Charlie’s thought on these matters back to 1960.
A central frame for the whole book is the Plaza Accord of September 22,
1985. In his November 13 testimony at the so-called Congressional
Summit, Charlie was already signaling the importance he attached to the
meeting: “Baker’s initiative of September 1985, holding out the possibility
of renewed American leadership in policy coordination and moving
toward international monetary stability, is the way to go.” Importantly, in
the same testimony, he also explicitly rejected calls for more comprehen-
sive reform, such as a new Bretton Woods: “It is a mistake to have a meeting
of bodies before there is a meeting of minds.”7 The calls to which he refers
had been coming largely from what today we would call the Global South:
a set of proposals that had been circulating since 1974 under the name
New International Economic Order. As a key-currency man, Charlie had
not thought much of the multilateral façade of the original Bretton
Woods, and he thought even less of the NIEO, sympathetic though he
was to the goal of economic development. What the world needed was
leadership, not discontents sniping from the wings.8
The importance of Plaza for Charlie was that the possibility of world
depression that had been worrying him ever since August 1971 was now
quite definitely off the table: “So long as the G-7 central banks are commit-
ted to something like the Plaza agreement or the Louvre agreement,
however modified, the dollar will be supported by public authorities if
private investors should experience revulsion from it. This is the lender-of-
last-resort function at the international level.”9 The psychic relief of this
development seems to have opened up mental space (and distance) for
Charlie now to consider the period from 1971 to 1985 as history, in particu-
lar asking himself why, in the absence of an international lender of last
resort, had there been no Depression? In the first half of the 1988 collec-
tion, we see him wrestling with exactly this question, using the framework of
WID and MPC.
7
8
Kindleberger (1978c) is his most comprehensive treatment of the NIEO.
9
241

MONEY AND EMPIRE
Using MPC, Charlie proposes to understand the 1971 Nixon shock as

a massive “displacement,” which subsequently sparked an enormous
credit expansion, both domestically in the United States and internation-
ally in the so-called Least Developed Countries (LDCs). The domestic
credit boom showed up in mortgage lending (the thrifts), as well as farm
and oil-patch lending, all of which eventually overdid it and fell into
distress. But unlike similar problems that arose from the boom of the
1920s, distress did not become crisis; “The major difference was that in
the 1980s, the FDIC and FSLIC were in place.”10 Loans failed and banks
failed, but the system held because bank liabilities (deposits) were back-
stopped by government insurance programs.
The same could not be said of the LDC loans, however. Charlie makes
a big point that the boom in LDC lending was already underway in 1971,
well before the first OPEC oil shock in 1973, as a result of easy money in
the United States flowing first to Europe and then looking for an outlet.
What began as a trickle in 1971 would, after OPEC, become a flood, and
eventually that too was overdone, resulting in distress. In fact, the tight-
ened monetary policy under Volcker after 1979 was the most immediate
trigger for that distress. For a while lending stopped as world interest
rates spiked, raising the cost of funds for banks above the contracted
receipts from loans, which cost the banks then passed through to bor-
rowers at the moment of refinance. Things definitely got hairy for a while
in individual cases, but again the system as a whole held. Why so?
Writing in 1982, on the heels of the Mexican debt crisis, which had
been backstopped by the intervention of the US Treasury with the
famous Brady bonds, Charlie judged that although there was not yet
the meeting of minds necessary for an international lender of last resort,
the Brady venture showed what could be done in the meanwhile:
“Distress is not a time for heroics. Shorten sail and steady as she
goes.”11 That is more or less what was done elsewhere as well, working-
out and writing-off, and it all worked, more or less. But for Charlie the
more important thing was that this experience of tough sailing had the
10
11
242

LEADERSHIP
further result of finally creating the meeting of minds that made the Plaza
Accord a possibility only three years later.
In short, the displacement of 1971 did not cause depression because it
did not cause the collapse of the international monetary system. This
surprised Charlie, who had expected long-term international capital
flows to cease, with short-term flows following soon behind, as had hap-
pened in 1931. But it didn’t happen. Instead of credit collapse we got
credit expansion, and instead of deflation we got inflation. Significantly,
Charlie sees the same ratchet effect, with exchange-rate instability causing
price-level instability, operating in both the 1930s and the 1970s: “The
result was structural inflation in an inflationary world . . . the ratchet was
the opposite of that in the deflation of the 1930s.”12 In both periods, the
movement of exchange rates operated not to bring the economy back to
equilibrium, but rather to drive it farther away – a prime example of the
market not working. Given lack of leadership in the 1970s (as in
the 1930s), for a long time there was no choice but to continue using the
market, and the result was rising inflation. Plaza marked the end of all that.
The question begged by this historical account, of course, is why it took
so long to get to Plaza, and that’s the question that the second half of the
book attempts to answer. The answer, in short, is politics. It will be recalled
that, in 1971, Charlie thought that Nixon was simply making a huge blunder
in economic policy, egged on by a few wrong-thinking economists. But as
time went on and the world did not collapse, Charlie moved beyond this
initial position, coming to see that Nixon’s hand had to a large extent been
forced by the actions of others, “free-riders” on US international leadership
who ultimately exhausted the domestic political limits of that leadership.
For Charlie, the problem traced back at least to 1960. At that time, he
had been asked to write a think piece for John J. McCloy on the future
course of US economic policy, which he titled “The End of the Dominant
Role of the United States and the Future of World Economic Policy.”13
Writing from Paris, where he was on sabbatical, he proposed that it was
12
13
Appreciation of the significance of this assignment requires appreciation of the key role
McCloy played, largely behind the scenes, in multiple administrations. See Bird (1992).
Recall that more or less at this same time, Charlie produced his first explicit engagement
with Triffin, see Chapter 6, n. 29.
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MONEY AND EMPIRE
time for the United States to shift from a position of dominance to one of
leadership: “The United States could no longer dictate to other countries
what was needed to be done in the field of economic foreign policy; it was
obliged at that time to ask, not tell them.”14 In the event, Charlie’s
message was welcomed neither in Washington, so Charlie tells us, nor
in France, where economist Francois Perroux was promoting the idea
that the United States had already shifted in the opposite direction, from
mere dominance to outright exploitation.
The French did not agree with Charlie, but at least they were willing to
publish what he wrote, while the Americans were not, which is why his paper
appeared only in French.15 One imagines that this experience gave
Charlie second thoughts about his plan at the time to re-engage with active
government service, once he managed to regain his security clearance. We
have seen how instead he subsequently followed the evolving drama of
Europe and the dollar (Chapter 6) and then made a conscious shift into
economic history with World in Depression (Chapter 8), in effect putting this
episode behind him. But in 1971 Nixon’s abdication of leadership brought
the matter back up to consciousness. And a timely invitation to give the
Frank D. Graham Memorial Lecture at Princeton in 1977 gave him the
incentive to put his thoughts in order, not to mention a welcome chance
to sit for a moment in the chair that Graham had done so much to deny him
back in 1948.
Like Graham, Charlie had for a time considered the nation-state as an
institution that had outlived its usefulness: “The increase in mobility
produced by innovations in transport and communication during and
after World War II led some of us to conclude that the nation-state was in
difficulty.”16 But whereas Graham had thought the way forward was
international laissez-faire, Charlie thought the way forward was to yield
national sovereignty to some new form of international governance. In
the event, both views got their comeuppance in the 1970s with
a resurgence of nationalism, not least in the United States, and it was
this development that Charlie wanted to understand.
14
15
Kindleberger (1961).
16
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LEADERSHIP
The problem, as he came to understand it, was that whereas the

optimum economic area is the entire world, the optimum political area
is much smaller, in many cases smaller even than the nation-state. Politics
thus quite definitely rules out any possibility of world government:
Political scientists properly place a high value on pluralism and object to

such hierarchical structures as are implicit in a gold standard managed by
London or a dollar standard dominated by the United States . . . But
pluralism tends to underproduce vital public goods [such as global
money] and to overproduce a public bad, neo-nationalism . . . The free
rider is the bane of pluralism, just as the imperious leader is the bane of
hierarchy.17
The answer, so Charlie would propose in 1977, was to seek

a middle ground between pluralism and hierarchy that he called
“federal functionalism” – a phrase he attributed to the economist
Richard Cooper. What might that look like, concretely? The book
records the development of Charlie’s subsequent thinking on this
matter. The central problem is that effective leadership requires
willing followership. Ideally, followership is voluntary, freely chosen,
but the perennial temptation of free-ridership means that voluntary
compliance cannot suffice. The key therefore is collective enforce-
ment, emphasis on collective: “Despite Adam Smith and the Chicago
School, profit-maximizing economies having too few dedicated lead-
ers, with insufficient individual commitment to voluntary compli-
ance, and collective groups unprepared to restrain their demands,
will not function.”18 What is needed is a kind of club, with rules that
are enforced by club members who have signed on to the same rules
themselves: “Bind the members of the international community to
rules of conduct, to which they agree.”19
For individuals, the matters of voluntary compliance and also of collect-
ive enforcement are both largely about values, unwritten rules instilled in
childhood and thus reinforced by an adult peer group: “More basic an
17
18
19
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MONEY AND EMPIRE
incentive than maximizing income and wealth is obtaining the approval of

one’s peers.” In this vein, Charlie’s critique of Keohane points out that he
fails to “leave room for conscience, duty, obligation, or such old-fashioned
notions as noblesse oblige.”20 But these of course are virtues of individuals,
not nations. Also, they are perhaps the virtues to which Charlie himself
aspired and that he tried to enforce in his own chosen adult peer group –
but what about everyone else?
Says Charlie: “A leader, one who is responsible or responsive to need,
who is answerable or answers to the demands of others, is forced to “do it”
by ethical training or by circumstance of position.”21 The key point is that
leadership does not necessarily depend on ethical values; it can emerge
organically from “circumstance of position,” as J. P. Morgan effectively
took on central banking functions before there was a Fed, and as the
United States eventually took on the responsibility of leadership when
Britain could no longer. In both cases we see leaders rising to the occa-
sion, responsive to need and answering the demands of others.
Leadership can emerge that way, but not followership, and therein lies
the source of the inherent instability of the leadership solution: “The
[leadership] system is essentially unstable, subject to entropy. Even if it is
not perceived as domination, leadership is not regarded as legitimate.”22
From this point of view, the Nixon saga was not so much about Nixon
abdicating leadership, and more about everyone else abdicating follow-
ership. It was the inherent instability of the leadership system that caused
it to break down in 1971, and it was the subsequent experience of
instability that created the possibility of reinstituting a reformed leader-
ship system at Plaza in 1985: “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.”23
This, then, is the main intellectual line that Charlie was pursuing in
the years after his presidential address. It is easy to imagine him
20
21
22
23
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LEADERSHIP
continuing to produce work in this rich vein, using his speaking invita-
tions to remain engaged as he watched the slow process of rebuilding the
leadership system, as he hoped. But life intervened. In Fall 1986 his wife
Sarah suffered a stroke, which forced Charlie to curtail his travel and
then to face the prospect of moving out of his beloved Lincoln home.
After sorting through and disposing of the accumulation of a lifetime, he
moved with Sarah on October 3, 1989, to Brookhaven, a new assisted
living facility in nearby Lexington. Significantly, Charlie’s introduction
to the second Wheatsheaf book, Historical Economics, Art or Science?, is
dated November 1989, and he specifically thanks Peter Johns “for urging
me to proceed with the collection.” Given the disruption to his life, it is
remarkable that he was able to proceed, and testament to the importance
that he attached to the subject matter. Having listened to Temin regard-
ing his presidential address, he was now determined to have his say,
imagining perhaps that this would be his last substantive book.
In Charlie’s mind, the book amounts to an extended argument for
restoring the place of economic history in the training of young economists,
“so as to bring a historical perspective to economic questions.”24 His argu-
ment is largely by example: examples of his own work as a historical econo-
mist, notably including his very first effort, “The Postwar Resurgence of the
French Economy” (1963a). Such an effort, he avers, “can be undertaken
only midway in an economist’s development and after a firm grounding in
economic theory and perhaps in an economic special field. My interest is
not in producing economic historians but rather in diluting the rigor of
modern technical economics through exposure to a fairly broad range of
human economic experience.”25 That’s what he had been trying to do in his
own teaching. Now he was offering his own work as a resource for others
who might be inclined to follow his lead.
As a set of examples, this second Wheatsheaf book inevitably has less
thematic coherence than the first one. For our purposes, the most
important chapters are those that show him building on his Financial
History of Western Europe (1984). Just so, chapter 3, “Spenders and
Hoarders: The World Distribution of Spanish American Silver, 1550–
24
25
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MONEY AND EMPIRE
1750” (1989) is essentially a prequel to that “chef d’oeuvre.” “Produced

on my own to satisfy curiosity,”26 as he says, the chapter details 200 years
of silver (a commodity) flowing out of the New World into Europe, where
it was coined into money; and from which it then flowed farther to India
and China, where it entered hoards and so essentially returned to com-
modity status. The lesson Charlie takes from this experience is that no
single theory of the balance of payments could possibly apply to all three
of these areas, and, further, that what looks to modern eyes like a balance
of payments disequilibrium can be and was in fact sustained not only in
the short run but even in the long run. He offers this historical perspec-
tive, so he says, as a contribution to the then current anxiety about
“dollars pouring out of the United States, circulating into and out of
Europe, and ending up in the coffers of Japan and Taiwan.”27 Maybe it’s
more sustainable than people think?
Similarly, three chapters at the end of the book (chs. 11, 12, and 15)
use his financial history of Europe as a frame for thinking about the
current problems of Third World countries: “problem loans and bad
debts, exchange-rate crises, [and] capital flight.”28 And two chapters in
the middle of the book (chs. 9, 10) do the same for the current problems
of a United States apparently in decline, more or less updating his
comprehensive “US Foreign Economic Policy, 1776–1976” (Ch. 8).
Chapters on the ratchet effect and the Panic of 1873 respond, so he
says, to the US stock market collapses of October 19, 1987, and
October 13, 1989, which is to say that they represent attempts to provide
historical perspective on pressing current events.
One apparently new thing in the book is two forays into the history of
economic thought: one on Adam Smith and another on Thomas Mun.
The Smith essay, however, is largely an engagement instead with
“Stephen Marglin’s recent suggestion that the division of labour was
26
Kindleberger (1990, ix).
27
28
Kindleberger (1990, 353). Here we also see Charlie doing his best to build on the work
of a favorite student, Carlos Diaz-Alejandro, subsequent to his untimely death in 1985.
Not included is Charlie’s 1989 memorial essay, “From Graduate Student to
Professional Peer: An Appreciation of Carlos F. Diaz-Alejandro” which he would
reprint in a later collection (1999, ch. 16).
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LEADERSHIP
practiced under capitalism less for efficiency than for lowering the return
to labour,”29 testing that suggestion against the available literature on the
organization of production at the time Adam Smith wrote. And the Mun
essay is essentially a spinoff from the “Spenders and Hoarders” project,
interesting to Charlie because Mun wrote during the time of the Spanish
silver flows in an attempt to make sense of what he was seeing in his role as
director of the East India Company. Both chapters thus are properly
works of economic history more than history of economic thought.
Charlie pitches the book to economics instructors looking for
a “Bridge between Liberal Arts and Business Studies” (the subtitle of
ch. 1), but that’s not all. Says Charlie, in the final sentence of his
concluding chapter: “Historical economics, I contend, can bridge the
chasm between abstractions and facts, test theories against the course of
events, and ensure the discard of models that are unuseful in illuminat-
ing concrete situations.”30 Here we recognize the creed that he had
worked out in Economic Response (1978) and pursued thereafter in
Manias, Panics, and Crashes and then ultimately A Financial History of
Western Europe. Like that earlier book, Historical Economics is a work of
evangelism, a collection of exemplars of comparative economic history
intended to convert others to the true faith by showing concrete practice
of it.
The last thing Charlie did before moving to Brookhaven was to put
together a draft of his autobiography, which would be published as The
Life of an Economist (1991). Encouraged by his friend David Warsh,
columnist at The Boston Globe, he put it together in a blizzard of typing
in only a month.31 There were bits and pieces already available at hand:
a published essay “The Life of an Economist” (1980c), the preface to
World in Depression, an oral history taken down by the Truman Library,
some reminiscences from the fiftieth reunion of his 1928 Kent School
class, the “Interim Biography” he had written in an effort to get cleared,
a long report on his eventful year in Atlanta, plus of course his FBI file,
letters home during the war, and a lifetime of academic correspondence
29
Kindleberger (1990, 109), Marglin (1974).
30
31
Personal communication, David Warsh.
249

MONEY AND EMPIRE
and student files. But there was no time to dig through it all, much less
the appetite (or perhaps capacity?) for self-reflection after a life of WASP
reticence and self-deprecation. As a consequence, there is in the book
none of the loving attention Charlie devotes to tracing the flow of silver,
or the international transmission of the Panic of 1873. Instead, the book
is merely what he calls a “professional biography”: an account of what
happened when, sprinkled with the occasional charming anecdote. The
most personal part of it is the sequence of fourteen plates which alert the
reader to the existence of a deeper story, but without actually telling that
story.
Ken Galbraith, a lifelong friend who Charlie leaned on for the fore-
word to the book, tells us that it is “a book by a scholar for scholars,”
meaning more or less the (limited) audience of Charlie’s presidential
address “and its larger penumbra,” not the best-seller audience for which
Galbraith himself wrote. Not only does Charlie leave out much of the
wartime drama, but also the academic drama: “Kindleberger is not
a person who suffers fools gladly. But he suffers them in tolerant silence,
and not less those with whom he is thrown into scholarly
disagreement.”32 Maybe so, but I would point further to the role of
Charlie’s professed antiperfectionism. Probably that was the essential
trait that enabled him to pound out a draft even as he shipped off to
the archives all of the rich source material, most of it unused.
Charlie thus arrived at Brookhaven with the decks cleared, but still it
took him a while to get settled. The untimely death of his son Richard’s
wife in 1990, leaving two young children, created additional family
responsibility. Also, Brookhaven was new, and Charlie and Sarah were
among its very first residents, so Charlie found himself getting involved in
creating a community culture, not least by recruiting family (on Sarah’s
side, her siblings Francis and Jen) and professorial friends (on Charlie’s
side, his MIT colleague Bob Solow) to join them over the next years.
Unlike many who make this kind of transition late in life, Charlie had
ample experience in total institutions, harking back to boarding school
and his summer shipboard adventures, so he knew what he was in for and
adapted easily. It was not the endgame he had hoped for, but he made
32
Galbraith (1991, x, xi).
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LEADERSHIP
the best of it, a lifelong habit of resilience, adaptation, and resolute

optimism standing him in good stead.
As Charlie relaxed into the rhythms of his new life, gradually he began
again to accept the occasional outside speaking engagement, some even
involving international travel. A first toe in this water was the eightieth
birthday celebration for him: a luncheon event at the Terrace Restaurant
at Columbia University on October 12, 1990. Fifty of his closest associates
had put together a book of their reminiscences, which they presented to
him. Perhaps Paul Streeten captured the general mood the best: “Charlie
had many honors bestowed on him. The one I would propose is that of
the most lovable economist.”33
Meanwhile, back at his new home, as a kind of occupational therapy,
he filled his spare time with a vanity project that would eventually appear
as his third Wheatsheaf book: Mariners and Markets (1992). The back-
cover picture of himself in 1930 as deck boy on the SS Bird City tells us that
he is revisiting his youth, and inside the covers we find again the loving
attention, and the taste for the telling detail, that characterizes his best
work. Mostly it is an account of the seaman’s life in the age of sail,
distinguishing the experience of whalers, fishermen, slavers, merchant
marine, and Navies, comparing British, American, Dutch, and French
accounts of that experience.
The way the book came about, apparently, is that Charlie was asked to
review a book, Markets in History, edited by David W. Galenson, which
consisted of six essays “joined by a belief in the efficiency of the market,”
the product of Chicago School true believers. The assertion in one of the
essays that labor markets for seaman were efficient was too much for
Charlie: “It is hard to believe in the efficiency of labor markets where
recruits for the separate merchant vessel and whaling fleets were drawn
from all over the world, largely from the urban lower classes or from the
farm, often by the forceful methods of impress, pressgangs and shang-
haiing, and experienced high rates of desertion.”34 But if labor markets
for seamen weren’t efficient, then what were they? Notwithstanding that
his entire professional expertise was in international money, not at all in
33
KPMD, Box 24, “Reminiscences of Charles P. Kindleberger.”
34
251

MONEY AND EMPIRE
labor markets, Charlie’s curiosity was piqued, and off he went. The book
was the result.
For our purposes, the important thing is that the occupational therapy
worked. When the little book was done, Charlie was ready to move on to
a bigger one. Back in September 1990, shortly after the move to
Brookhaven, he had attended at Harvard a conference to launch a new
large-scale and long-term project on “The Vitality of Nations,” sponsored
by the Luxembourg Institute for European and International Studies
under the directorship of Armand Clesse. As part of that project, in early
1993, so Charlie says, he started work on the book that would appear as
World Economic Primacy: 1500–1990 (1996), offering a partial draft for
comment at another Harvard conference in May 1994.
To make sense of the book, it is helpful to read it in the context of two
other books Charlie published at about the same time: World Economy and
National Finance in Historical Perspective (1995) and Centralization vs.
Pluralism: A Historical Examination of Political-Economic Struggles and
Swings within Some Leading Nations (1996). The first, a collection of essays,
is a kind “hors d’oeuvre,” he says, for the main course, sketching themes
that he would develop more fully in Economic Primacy. And the second is
a kind of after-dinner sweet (my metaphor, not his), that mops up some
unfinished business. It is these three books that would occupy his ener-
gies at the end of his career.
“Casual observation attests,” so Charlie states as the opening gambit in
Economic Primacy, “to the successive economic primacy of the Italian city-
states, the Spanish-Portuguese empire, the Low Countries, Great Britain,
and the United States, with failed challenges and impressive growth in
France and Germany.”35 Accordingly, the core of the book is seven
chapters, one on each of these instances, plus an eighth, “Japan in the
Queue?,” possibly a late addition. The first three of these and the last
required new research, which took time, but the other four very much
build on previous work. In a departure from his previous practice,
Charlie treats all eight of the cases in a common analytical framework,
which he outlines in chapters 2 and 3 and reprises in the conclusion.
35
252

LEADERSHIP
Charlie’s method is economy history, but his goal is now comparative

political economy.
For Charlie, the whole point of the exercise was to provide historical
perspective on the present condition of the world system. By the time he
was writing, his hope that Plaza might serve as a pivot point for restor-
ation of US leadership had been disappointed by events. As opposed to
1971, the problem now was not the willingness of the United States to
lead but rather its capacity to do so, similar to Britain in 1931: “The real
fear coming into prominence in the summer of 1991 is a return in the
United States to quasi isolationism.”36 Prominent in Charlie’s mind was
the recently concluded Gulf War, so-called Operation Desert Storm,
which had reversed the Iraqi invasion of Kuwait. The United States did
most of the work, but then it passed the hat, asking Germany and Japan to
pay for it: “The fact that the United States sought large monetary contri-
butions from them is, in fact, one indication of US economic aging.”37
There are basically two ideas in Charlie’s “model” of economic pri-
macy. First, there is the idea that nations undergo a kind of inherent life
cycle, not unlike the ages of man, birth, growth and decline: “It is vitality
and flexibility giving way to rigidity that determines the pattern.”38
And, second, there is the idea that the international system has a strong
tendency to be organized hierarchically. Putting the two ideas together,
Charlie suggests that the succession of primacy involves the interaction of
these two tendencies as new countries in their prime surpass older
countries in decline, only in time to be surpassed themselves.
If Desert Storm had suggested that the United States was aging,
subsequent events confirmed the diagnosis: “The social cohesion that
operated at the time, say, of the Marshall Plan, has evaporated, at least
temporarily. Attitudes are rigid, uncompromising, sclerotic”;39 “By 1990,
36
37
38
Kindleberger (1996a, 36). He nods to Mancur Olson (1982) as one who had similar
ideas, but his own thinking along these lines clearly predates, as seen, for example, in
his essay “The Aging Economy” (Kindleberger 1990, ch. 9). Similarly, he nods to the
ubiquity of the “S- or Gompertz or logistic curve” (1996a, 15; 1999, 121). I read both of
these as instances of Charlie looking for allies, as he had done previously with his
embrace of Minsky.
39
253

MONEY AND EMPIRE
discipline and readiness to sacrifice for a concerted purpose had been

lost for more than a decade.”40 American decline, Charlie came to
believe, was simply a fact, a consequence of aging, and so probably
impossible to reverse by any politically possible policy intervention.
The central question posed by the historical record was therefore the
question of succession. And here there was bad news, as it appeared that
the most obvious candidates, Germany and Japan, were at most seeking
dominance in their own backyards, Europe and Asia respectively, not at
the level of the world as a whole.41 Even more, after the events of 1989,
Germany’s focus was inevitably absorbed with the challenge of reunifica-
tion with East Germany, putting off the wider European unification
project.42 And meanwhile in Japan, the bursting of the real estate and
stock market bubble in 1991 had led to a shift in attitudes: “Rather than
push for world-market share and even primacy, working like robots and
becoming an economic giant, perhaps the time has come, some political
and business leaders think, to turn to domestic problems.”43
The question of succession thus remaining open, the next relevant
question was how to bridge the time gap between US leadership and
whatever comes next. For this, Charlie put his faith in “muddling
through.” International lender of last resort can perhaps be assured
because it is operated by the leading central banks through the swap
network, but provision of other public goods will likely be more prob-
lematic: “For the years immediately ahead, it would appear we have to
rely on all the methods of producing public goods, trilateralism, regional-
bloc building, international organizations, and perhaps especially
regimes . . . I am a wobbly – not firm – believer in proceeding as the way
lies open, muddling through, unwritten constitutions”;44 “I happen not
to be a prophet or the son of a prophet, but I predict muddle.”45
Those reared on the Bible may recognize the initial clause in this last
quotation as coming from Amos 7:14. In the original, the passage
40
41
42
43
44
45
254

LEADERSHIP
continues “rather I was a shepherd and a tender of sycamore-fig trees.”

Charlie is thus identifying with Amos, called from humble beginnings to
warn Israel of trouble ahead. As for the second clause, Charlie had reason
to know from the experience of the 1970s that muddling through could
work. Repeatedly he references the creation of the Eurocurrency mar-
kets and the central bank swap network as prime examples: “the two most
far-reaching organizations of the postwar period grew like Topsy rather
than springing full blown from the brow of an economist.”46 In Charlie’s
understanding, these institutions had been key to muddling through
after Nixon’s abdication. The international monetary system did not
collapse then, so maybe it will be okay now as well?
The key thing for muddling through to work is to have some idea of
the general direction you are trying to go so that you can recognize
a possible path forward when it appears through the fog of Darwinian
evolution. That’s where historical perspective can help. Says Charlie: “I
think I know more about desirable ultimate goals and outcomes than I do
about the path or paths the world will follow in getting to them.”47
Obviously, muddle-through will be second best for provision of inter-
national public goods: “In due course a country will emerge from the
muddle for a time as the primary world economic power.”48
Having pointed to the importance of the Eurocurrency market and
the central bank swap network as crucial for the successful muddle-
through of the past, Charlie turns his attention to present developments
in financial markets, which presumably will be crucial for successful
muddle-through in the future. Most important, financial innovation is
leading to the diminished importance of traditional financial intermedi-
aries, which stand in between ultimate borrowers and lenders, offering
each one the kind of financial asset/liability that it prefers. Instead,
today, increasingly borrowers and lenders find one another directly
and then fine-tune their preferred risk exposure using financial deriva-
tives: “Banks and nonfinancial firms can find that pattern of liquidity that
46
Kindleberger (1995, 63). See also p. 46, and Kindleberger (1969c, 14).
47
48
255

MONEY AND EMPIRE
suits them in terms of cash flows in and out through financial contracts
that adjust the time profile of anticipated receipts and payments.”49
Here, in the shifting balance between “Intermediation,
Disintermediation, and Direct Trading,” Charlie points to a general
pattern of history that we can see in all markets, a pattern significant
enough to qualify as a possible fifth “economic law” to be added to the
four he had explored in his 1980 lectures Economic Laws and Economic
History. For present purposes, the important point is that financial
innovation was creating new channels for capital flow. Maybe these
will provide the bridge we need until a new leader emerges? For now,
to the extent that these new mechanisms work well, there is less need
for a leader to manage capital flows directly.50 Significantly, Charlie’s
paper on these matters was prepared for a festschrift in honor of
Hyman P. Minsky. Not for the first time, Charlie’s impulse was to
lean against the prejudice of his audience.
Even more, Charlie would go on to suggest that the problem now had
become one of the government stepping in too often and too much as
lender of last resort, even when there is no real threat to the system as
a whole, so defeating the necessary discipline of the market:
Many high-minded principles suffer from entropy or decay over time, and
the lender of last resort may be one of them . . . Rather than move to having
government take over the financial system, including banking, I would
prefer to try to stuff the genie back into the bottle, reduce the last-resort
function to a weapon of rare and occasional use.51
Significantly, this follow-up was presented at City University Business

School, where the audience would have been exactly those Charlie
thought were becoming too accustomed to government bailout of their
bad decisions.
This is of course a very suggestive line of thinking, but it seems to have
been beyond Charlie’s ability to develop it much further, given the highly
technical nature of modern finance. One indication of this is his
49
50
Kindleberger (1995, ch. 10, 11).
51
256

LEADERSHIP
repeated puzzlement in respect of why foreign lenders to US firms (and

government) do not insist on lending in their own currency rather than
dollars.52 The answer, as we know today, is that lenders can and do hedge
exchange risk in FX swap markets and that the central bank swap network
in effect operates as backstop to those private FX markets. The larger
point is that, while the United States may well have become unable to
lead, the global dollar system not only survived but even expanded, with
central bank cooperation serving as the key mechanism to put a floor
underneath the muddle.53
A central theme running throughout Economic Primacy is the tension
between centralization and pluralism. In good times, decentralization is
best, while in crisis times centralization is essential. As Charlie would later
put it: “On shipboard, the captain may stay below in his cabin in smooth
sailing, but must come back on deck or to the bridge to assume responsi-
bility in storm or in navigating tricky passages.”54 At the level of the
international system, the problem is that institutional lag makes it diffi-
cult to switch from one mode to another in time. This same problem of
course exists at the level of individual countries as well, so maybe we can
learn something by looking at the historical experience of individual
countries first? That’s the goal of Charlie’s brief follow-up book, which
I have termed an after-dinner sweet. As in Economic Primacy, Charlie
begins Centralization versus Pluralism with an analytical frame (chapter 2:
“Theory”), and then proceeds to examine the experience of multiple
individual countries, concluding that, at the level of the nation-state,
“changing mentalities and institutions back and forth may not be pos-
sible, or at least not probable.”55 It goes without saying that the problem
is even less amenable to solution at the international level. For lack of
a captain, muddle-through is the only way forward.
It will not have escaped the reader’s attention that, even as he was
focused on the problem of US aging, Charlie was grappling with his own
52
Kindleberger (1995, 41; 1996b, 187).
53
Mehrling (2015).
54
55
Kindleberger (1996b, 88). See Kindleberger (1974b) for an earlier attempt to use the
historical experience of individual nation-states to shed light on the possible dynamics
at work in the international realm.
257

MONEY AND EMPIRE
personal problem of aging. He might have been talking about himself

when he wrote “The older a country becomes, the more it is interested in
the past, rather than the future, and in art, scholarship, and literature
rather than trade and industry.”56 Indeed, one source of energy for
bringing the Primacy project to conclusion was likely its substantial thera-
peutic element for him. Charlie felt himself to be in decline and was
concerned about his own succession. Several times in his life, Charlie had
felt that he was writing his last substantive book. This time he knew it. For
Economic Primacy, he relied heavily on the scholarly network assembled by
Clesse to feed him with raw intelligence, as he indicates in the
Acknowledgments to the book.57 Going forward, however, he would
have nothing but his own much-reduced library.
Writing had always been occupational therapy for him, however, so he
could not very well stop. Instead, after Economic Primacy, he just scaled
back his ambition. The main thing seems to have been periodic updating
of Manias, Panics, and Crashes, with new editions coming out in 1996 and
2000. His 1999 collection Essays in History: Financial, Economic, Personal
contains only three essays written later than 1995, and Charlie explicitly
tells the reader that the book is “another exercise in tidying up more or
less recent work for the benefit of my literary executor.” Similarly, his
2000 collection Comparative Political Economy: A Retrospective is merely
a collection of his greatest hits of a lifetime.
For our purposes, Essays in History is the more interesting of these
efforts, in particular two chapters of personal history. Here we see him
reading what others had been writing about the conduct of World War II
and about the making of the Marshall Plan, and responding to them based
on his own memory of events. To some extent, this is an exercise in setting
the record straight, insisting for example on the important role played by
his boss William Clayton in formulating the Marshall Plan. But the overall
tone is more one of Charlie reliving what were for him his glory days, in
effect swapping stories with others who lived through the same, even if
their experience was only vicarious through archival research.
56
57
Kindleberger (1996a, ix).
258

LEADERSHIP
The only substantial post-1995 research paper included in the collec-

tion is a twenty-page essay: “Economic and Financial Crises and
Transformation in Sixteenth Century Europe.” Charlie tells us how that
paper came to be written: “I called the project ‘Operation Penelope’,
hoping to weave by day and unravel by night – though I had no suitors –
until the Reaper came to collect. Sadly, I finished it . . . ”58 He would find
other such projects to keep him busy: a planned book titled “Theory and
Experience in Economics,” which he abandoned after two chapters, and
another on “Salt,” which he completed but which was rejected for publi-
cation in 2001.
Against the background of all this scribbling, decline continued. Sarah
passed away on February 26, 1997, but the “family circle” assembled at
Brookhaven remained and continued to provide daily support. Increasing
deafness led to increasing isolation, for which Charlie compensated by
maintaining a wide correspondence with old friends and new, whom he
welcomed whenever they dropped by for visits. I was one of those new
friends, reaching out to him for information on Alvin Hansen when
writing my first book and continuing periodically to correspond and visit
thereafter, with no idea then that I would eventually be writing the present
book. Finally, the Reaper did come to collect: July 7, 2003.
As body declined, reputation actually increased. Maybe not so much
among economists, notwithstanding the valiant defense by people such
as Barry Eichengreen and Ed Kane; a collection of reminiscences by
former students published in the Atlantic Economic Journal (2005) mostly
praise Charlie’s inspirational teaching. Economic historians appreciated
him a bit more, primarily as a synthesizer of work by others, but nonethe-
less “one of the founders of the modern school of financial history that
studies financial systems as elaborate networks rather than focusing only
on one or two components of that network.”59 Most of all, it was the new
field of international political economy, a subfield of political science,
that claimed him as a founder of so-called hegemonic stability theory.60
58
59
Eichengreen (1997), Kane (2005), Jones (2005), Findlay (2005), Fischer (2005),
Bhagwati (2005), Sylla (2005, 32).
60
Kirshner et al. (1997), Cohen (2008, ch. 3).
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MONEY AND EMPIRE
It should be observed that each of these academic communities

touched only one part of the Kindleberger corpus, the part that inter-
sected with their own specific disciplinary focus. The result is that today
there are multiple Kindlebergers in the literature, none of them doing full
justice to the man. Similarly, outside academia, Kindleberger is mostly
remembered as the author of a single book, the hardy perennial Manias,
Panics, and Crashes, yet another partial Kindleberger. Charlie himself con-
tributed to the impression of multiple Kindlebergers when he self-
deprecatingly “accused” (his word) himself of having a “grasshopper
mind,” jumping from one thing to another.61
My own view of the biographical truth, as elaborated in the pages
preceding, is more or less exactly the opposite. There are deep constants
that run throughout Charlie’s life: a sense of curiosity about the world
around him that fueled repeated exhaustive investigations to find the
truth of the matter, largely by digging through reports that others had
written and using these pieces to construct a picture of the whole. He was,
as I have said, essentially an intelligence analyst, and it is this constant that
is at the core of his remarkable “ability to transform” – the quality that he
always insisted was the essential difference between developed econ-
omies and underdeveloped ones. His insistence on cross-checking
reports from multiple sources, multiple eras, and written in multiple
languages reflects the determination of an intelligence analyst to use all
the information available, sorting through for the needle in the haystack,
the telling detail that will make all the pieces fall into place.
Call it comparative economic history, as he did in Economic Response, or
comparative political economy, as he did in his Retrospective, but that’s just
Charlie’s way of drawing the attention of a specific target audience. Charlie
was never content just to satisfy his own curiosity. He wanted to tell others
so that they could use this new knowledge – indeed, he felt a positive duty
to do so, even (or perhaps especially) when the truth he had to tell was
uncomfortable or unwelcome.
The world, so Charlie insists, needs “strong leadership, best when it is
disguised,”62 lest it be resented and resisted. Charlie’s own disguise was in
61
62
260

LEADERSHIP
plain sight. As a self-proclaimed “literary” economist, he posed no threat

to the “theorists.” He was just a country gentleman with a history hobby in
addition to beekeeping, a devoted teacher who had no interest in col-
lecting disciples, a team player at MIT no matter his disagreements, and
a man of principle rather than worldly ambition. No one resented or
resisted Charlie, even when he was telling them something unwelcome,
because he always made it seem like he was just having a bit of fun, doing
his bit to keep the dinner party conversation lively. A constant in the
reminiscences of his students is that initially they thought he was
a terrible teacher, but looking back they realize that they learned more
in his class than in any other. That’s leadership, well disguised.
261

Bibliography
MANUSCRIPT COLLECTIONS
KPMD = Charles P. Kindleberger Papers, MIT Library, Department of

Distinctive Collections
KPTL = Charles P. Kindleberger Papers, Harry S. Truman Library
ARTICLES AND BOOKS
Agmon, Tamir and Charles P. Kindleberger, eds. 1977. Multinationals from Small
Countries. Cambridge, MA: The MIT Press.
Alacevich, Michele, Pier Francesco Asso, and Sevastiano Nerozzi. 2015. “Harvard
Meets the Crisis: The Monetary Theory and Policy of Lauchlin B. Currie, Jacob
Viner, John H. Williams, and Harry D. White.” Journal of the History of Economic
Thought 37 No. 3 (September): 387–410.
Alexander, Sidney S. 1952. “Effects of a Devaluation on a Trade Balance.” Staff
Papers (International Monetary Fund) 2 (April): 263–278.
Angell, James W. 1922. “International Trade Under Inconvertible Paper.”
Quarterly Journal of Economics 36 No. 3 (May): 359–412. https://doi.org/10
.2307/188603.
Angell, James W. 1925. “The Effects of International Payments in the Past”; “The
Debts and American Finance.” Chapters 5 and 6 in The Inter-Ally Debts and the
United States, pages 138–228. New York: National Industrial Conference Board.
Angell, James W. 1926. The Theory of International Prices: History, Criticism and
Restatement. Cambridge, MA: Harvard University Press.
Angell, James W. 1929. The Recovery of Germany. New Haven, CT: Yale University
Press.
Angell, James W. 1931. “America’s Role in the International Economic
Situation.” Proceedings of the Academy of Political Science 14 No. 2 (January): 70–80.
Angell, James W. 1932. Report of Committee of Economists on Intergovernmental
Debts. Available at https://clio.columbia.edu/catalog/SCSB-689117.
Angell, James W. 1933a. Financial Foreign Policy of the United States. New York:
Council on Foreign Relations.
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Angell, James W. 1933b. The Program for the World Economic Conference, The Experts’
Agenda and other Documents. Boston, MA: World Peace Foundation.
Angell, James W. 1936a. “Equilibrium in International Payments: The United
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278

Index
absorption approach, 131, 161–162 Atomic Energy Commission, 124

accounting conventions, Kindleberger’s Atomic Energy Commission,
criticisms, 177 Kindleberger’s application for
Acheson–Clayton plan, 88 Q clearance through, 108
Advisory Committee on International Austria, 201
Monetary Arrangements, 146 autarky, 2, 48, 96, 118
After Hegemony (Keohane), 240
agriculture, 35, 107 Bagehot, Walter, 152
Alexander, Sidney S., 161 balance of payments
Aliber, Robert, 208 addition to IS–LM model, 167
Allied Control Council, 89 equilibrium role of short-term capital
Allied war debts, 59 flows, 131–132
American Business Abroad (Kindleberger), Kindleberger’s understanding, 231
113, 116 monetary approach, 161
American Economic Association (AEA), 71, post-war problems, 201
76, 124 requirements for equilibrium, 131
American Economic Association (AEA), underlying cause of disequilibrium, 129
Kindleberger’s presidency, 102, 117, balance sheet inflation, 36, 38
236 “Balance-of-Payments Deficits and the
“American Gold Policy in the event of International Market for Liquidity”
European War” (Kindleberger), 63 (Kindleberger), 138, 147
American Institute of Banking, 32 Bank Act (1844), 212–214, 216
American Veterans Committee, 123 “Bank Credit and Business Demands”
Angell, James B., 43 (Trenchard & Kindleberger), 33
Angell, James R., 43 Bank for International Settlements (BIS), 3,
Angell, James W., 42–50, 58 60, 64, 237
dissertation, 44 gold swap facility, 232
Anglo-American Loan (1946), 2, 84, 93, Kindleberger’s career, 6, 63–67
133, 227, 229 lender of last resort status, 153
Argentina, 158 neutrality during World War II, 65
“Argentine International Trade under post-war reconstruction in Europe and,
Inconvertible Paper Money, 68
1880–1900” (Williams), 58 wartime loans to Germany, 67
Arrow, Kenneth, 237 wartime neutrality, 65
Atlantic Economic Journal, 259 Bank of England
Atlantic Open-Market Committee, 153 assistance from the Fed, 58
Atlantic Partnership, 145 central bank for the world status, 35
279

INDEX
Bank of England (cont.) Blankford, Michael, 121

central problem after the war, 59 Bloomfield, Arthur, 156
collapse of the international monetary Capital Imports and the American Balance of
system and, 196 Payments, 1934–1939, 156
German gold reserves held by, 65 dissertation, 156
gold standard management role, 199, identifies error in Kindleberger’s
213, 224 “International Monetary
international monetary system Stabilization,” 157
management role, 59 “International Capital Movements and
lender of last resort role, 216 the American Balance of Payments:
level of world interest rates set by, 213, 1929–40,” 156
224 Kindleberger’s relationship with,
sterling standard management role, 1, 156–159
213–214 “Recent Trends in International
trigger for creation of, 215 Economics,” 159
Bank Street College, 27 Bloomfield–Kindleberger debate, 164, 170
banking Board of Governors, 3, 6, 37, 66, 98, 136,
commercial origins in Britain, 216 201
development in Italy and Spain, 217 Boston Globe, 249
German history of, 217 Bradley, Omar, 6, 80, 82, 83
Gerschenkron’s hypothesis, 215–218, 220 Brady bonds, 242
Kindleberger on the history of, 215–218 Bretton Woods
origins in France, 216–217 BIS and, 67
theory of, 215 breakdown/collapse of the system, 146,
Banking Act (1933), 40 197, 205, 230, 233
Banking Situation: American Postwar Problems capital controls established at, 107
and Developments, The (Willis et al.), 31 customary patterns of behavior between
Baran, Paul, 121 nation-states, 240
Barnett, Harold, 84 establishment of the World Bank, 2
barter, 174, 214, 228 fixed exchange rate system, 3, 168
Basel agreement, 153 flaw in the system, 169
Bator, Francis, 172 Harold James on, 136–137
Becker, Gary, 239 Kindleberger’s views on, 51, 241
Beckhart, Benjamin H., 31, 49 multilateralism and, 227
Behavior of Money, The (Angell), 48 Nixon devaluation and, 155
Belgium, currency stabilization agreement problem with the framework, 154
participation, 57 reformation of the system, 135
Bellagio conference, 174 Sohmen’s alternative, 170
Bentley, Elizabeth, 24 sovereignty and, 166
Berlin Wall, fall of, 91 Triffin and, 136–137, 139
Bernstein, Bernard, 84–85 UK and US stabilization and, 161
Bernstein, Edward M., 161 Bretton Woods Conference (1944), 67
“Better International Monetary System” Britain
(Mundell), 176–177 currency stabilization agreement
Bhagwati, Jagdish, 170 participation, 56
Biemiller, Andrew J., 21, 121 gold outflow problems, 58
BIGOT security status, Kindleberger’s post-war balance of payments problems,
upgrade to, 79 201
bilateral aid, 128 returns to gold convertibility, 58
bill of exchange, 211 trigger for financial revolution, 215
bimetallism, 213 war debts, 73
Bissell, Richard, 94, 110 war economy, 69
280

INDEX
“Britain’s Trade in the Postwar World” obstacles to, 59

(Kindleberger), 72 stabilizing role, 181, 257
British Empire, 1 Centralization vs. Pluralism: A Historical
Brookhaven, 247, 249–250, 252, 259 Examination of Political-Economic
Brookings Institution, 148 Struggles and Swings within Some
Bullion Report (1810), 212 Leading Nations (Kindleberger), 252,
Burgess, W. Randolph, 52 257
Burns, Arthur F., 111, 205 Charter Parties and Bills of Lading (Poor), 26
Burns, Arthur R. and Eveline B., 48 Cheerful Money (Friend), 12
Byrnes, James F., 88–91 Chicago conference (1966), 174–175, 180
Chicago School, 239, 245, 251
Cairncross, Alec, 236–237 Clark College, 105
“call money,” 201 classical doctrine, 44, 45
Camac, Charles, 16 Clay, Lucius, 84, 85, 86, 89, 90, 97
capital flows Clayton, William, 6, 82, 83
consequences of 1930s disequilibrium “Clayton’s economists,” 84–88, 98
for, 129 Clesse, Armand, 252, 258
continuation of in the face of flexible Coe, Frank, 120, 123, 124
exchange rates, 181 Colm–Dodge–Goldsmith Plan, 85, 93
gold movements’ responses, 215 Columbia College, 28
Kindleberger’s view, 127 Committee of European Economic
long-term, 127, see long-term capital Cooperation (CEEC), 92
flows. common currency, Kindleberger’s
monetarist approach and, 182 rejection, 179
post-war issues and solutions, common European currency, 7
126–130 “Communist Charges and McCarthy
post-war situation, 160 Harassment” (Killian), 109
restoration of long-term vs short-term, Comparative Political Economy: A Retrospective
129 (Kindleberger), 8, 118, 176, 258
short-term, 129, see short-term capital Connally, John, 179
flows. convertibility
war and, 219 elimination of as way to avoid
Capital Imports and the American Balance of destabilizing speculation, 153
Payments, 1934–1939 (Bloomfield), emergence of multiple key currencies
156 immediately after return to, 141
“Capital Movements and the Mechanism of post-war return of European currencies
International trade Adjustment to, 2, 135, 161
under Gold” (Despres), 54 Coombs, Charles, 135, 163
“Case for Flexible Exchange Rates, 1969, Cooper, Richard, 245
The” (Johnson), 173 cosmopolitanism
“Case for Flexible Exchange Rates, The” Kindleberger’s teaching of, 1, 103, 130
(Friedman), 168 Kindleberger’s view of, 128
Center for International Affairs (CFIA), 113 replacement by open economy
Center for International Studies (CIS), macroeconomics, 184
110–112, 114, 124 teaching of as task of the international
central bank, US war time practice of using economist, 103
to support the price of government Council on Foreign Relations, 46, 59,
bond debt, 164 172
central bank cooperation, 40, 135, 181, 220 Covid-19, 5
essential mechanism for, 232 Crash of ’79, The (Erdman), 207
failure of, 224 Credit Anstalt, 25
Kindleberger’s proposal, 142 credit debauch, 38–40
281

INDEX
credit mechanism, lender of last resort developing countries

doctrine and, 220 appropriateness of tariffs on
Crédit Mobilier, 190, 216–217 manufactured imports for, 129
Crosby, Colonel, 16 development of international economics
currency devaluations, 61, 69–70, 139, 155, and, 161–162
169, 180, 226 impact of the 1929 stock market crash on,
Currency Reserve Unit, 146 201
currency stabilization induced investment and, 158
Angell’s judgment on, 47 long-term capital requirements,
the system, 56 143
Tripartite Agreement for, 56, 226 post-war balance of payments problems,
see also Tripartite Agreement (1936). 161
Currie, Lauchlin, 121 post-war capital resources, 127
recurring nature of “fundamental
Darwinian process of financial evolution, 2, disequilibrium,” 161
5, 163, 187, 213, 233, 255 Triffin’s international currency proposal
David, Paul, 237 and, 139
Dawes Plan (1924), 46 see also underdeveloped world; Least
de Cecco, Marcello, 1 Developed Countries (LDCs).
De Vries, Margaret Garritsen, 163 deWilde, John, 84
dealer function, 232–233 Diaz-Alejandro, Carlos, 248
DeLong, J. Bradford, 193 Did Monetary Forces Cause the Great Depression?
demonetization of gold, 61–62, 63, (Temin), 206
152, 155 disequilibrium, 32, see fundamental
demonetization of silver, 213 disequilibrium; structural
Denison, Edward F., 114 disequilibrium.
Depression (1920–21), 38 displacement theory of financial crises,
Depression (1929–33), 69, 226 204–205, 218, 242
devaluation of the dollar and, 3 “Distribution of Income, Political
Friedman’s explanation, 193 Equilibrium, and Equilibrium in the
Despres, Emile, 6, 52, 82, 83, 98 Balance of Payments”
Brookings Institution position, 148 (Kindleberger), 97
“Capital Movements and the Mechanism Dodge, Joseph, 85
of International trade Adjustment dollar
under Gold,” 54 Bretton Woods and, 168
Europe and the Dollar dedication, 138 Clay’s conversion of occupying
influence on Kindleberger, 54 Reichsmarks into dollars, 90
International Economic Reform, 148 CRU and, 146
Kindleberger’s collaboration with, 56, 98, dollars purchased by the British
115, 148 government, 40
New York Fed position, 26, 28 Friedman’s idea, 173
security troubles, 121 global management, 1
untimely stroke and premature death, global role of as problem, 151–152
148 hoarding within Europe, 229
destabilizing speculation importance of stabilizing sterling and
avoidance mechanism, 153, gold against, 59, 93
224–225 internationalization, 142, 145, 178
central banks’ prevention and mitigation Kindleberger’s hopes for the future of,
role, 179, 181 230
central theme of MPC, 208 lender-of-last-resort function and, 241
Friedman’s view, 220 liquidity as attraction of, 151
impact on exchange rates, 171 NATO and, 96
282

INDEX
Nixon’s devaluation (1971), 148, 155, Dornbusch, Rudiger, 167, 184

180 dual economies, 129
onshore and offshore markets and, 150 Durr, Clifford, 120, 121
political/economic dimensions of the
dollar problem, 153 East India Company, 249
potential for collapse, 139 “Economic and Financial Crises and
removal from the gold standard, 3, 179 Transformation in Sixteenth
replaces sterling as currency of Century Europe” (Kindleberger),
international commerce, 133 259
Roosevelt’s devaluation (1933), 3, 226 Economic and Monetary Union (EMU), 230
Triffin’s replacement desire, 3, 137 economic backwardness, Gerschenkron’s
see also Triffin Dilemma. theme, 190
use of by foreign lenders to US firms and Economic Commission of Europe (ECE),
government, 257 89
world’s demand for as liquid reserve, 115 Economic Consequences of the Peace (Keynes),
“Dollar and World Liquidity, The” 223
(Kindleberger, Despres, & Salant), Economic Development (Kindleberger), 7, 111
98, 115, 148 Economic Growth in France and Britain,
“Dollar in the Event of European War, The” 1851–1950 (Kindleberger), 109,
(Kindleberger), 63 113
Dollar Shortage, The (Kindleberger), 8, 51, Economic History and the Modern Economist
94, 97, 107, 136, 149, 156 (Parker), 238
dollar shortage, criticisms and defense of Economic Journal, 170
passage in “International Monetary Economic Response (Kindleberger), 116, 191,
Stabilization,” 157–158 197, 204, 249, 260
dollar standard, problem with, 155 “Economic Tasks of the Postwar World,
dollar system The” (Kindleberger & Hansen), 74
beginnings, 1 Economics Laws and Economic History
development of, 133, 151 (Kindleberger), 191, 197
economic development of the Global Economics of Inflation
South and, 2 The (Kindleberger), 32
effects of US capital control efforts, 146, The (Willis et al.), 32
149 Economist, The, 98, 115, 149, 152, 153
IMF and, 163 economists, Kindleberger’s hobbyhorses,
impact of the Global Financial Crisis, 4 188–189
importance of education about, 3 Eddy, George, 121
John H. Williams and, 137 Edey, Maitland, 18, 20
Kindleberger’s views on, 149, 151–152, Eichengreen, Barry, 193, 259
154, 178, 197, 200, 235 Einzig, Paul, 63
Mundell on, 177–178 elasticity approach, 161
Nixon abandons US leadership of, 227 Emergency Economic Committee for
opponents, 2–3 Europe (EECE), 89
Plaza Accord (1985) and, 182 empire, as mechanism for capital flow, 127
post-war financial history of Western Engel’s Law, 192
Europe and, 227, 229 Erdman, Paul, 207
SDR and, 146 Essays in History: Financial, Economic, Personal
sterling system replaced by, 70, 73, 133, (Kindleberger), 258
223 “Euro as Stabilizer in the International
survival and expansion, 257 Economic System, The”
United Nations and, 1 (conference), 178
domestic monetary policy, Kindleberger’s Eurobond market, 150, 230, 233
view, 166 Eurocurrency markets, 255
283

INDEX
Eurodollar market, 145, 150, 154–155, 173, equilibrium in the foreign-exchange

230, 233 market and, 53
Europe facilitating absorption of permanent
capital/money markets development, imbalances with, 169
150 fluctuation under the gold standard, 168
creation of a common currency, 227 impact of destabilizing speculation on,
Crédit Mobilier and, 190 171
division of, 91 inconvertible currency doctrine and, 45
European currencies return to pattern during the Tripartite Agreement
convertibility, 2, 161, 227 period, 232
first OPEC oil shock and, 242 see also fixed exchange rate system;
Kindleberger’s view on integration into flexible exchange rates.
the larger world system, 135, 229 exchange restrictions, 60
lack of leadership and, 224 Exchange Stabilization Fund, 56
Mundell’s advocacy for a European
currency, 179 Fairbanks, Phyllis, 104
post-war reconstruction, 68, 88, 195, Fairbanks, Rollin J., 104
227 fallacy of misplaced concreteness, 95, 158
prospects of German victory for, 66 FBI, interest in Kindleberger, 119–125
recovery role of the international capital Federal Deposit Insurance Corporation
market, 150 (FDIC), 242
replaced by US as investment banker for federal functionalism, 245
the world, 43 Federal Reserve Act (1913), 34–35, 37–38,
requirements for political stability, 97 41–42
Solow model and, 114 Federal Reserve Bank of New York,
Soviet Union and, 87 Kindleberger’s dream job, see also
US’s financial intermediary service, 147 New York Fed, 26
war debts to the United States, 46 Federal Reserve System (the Fed)
workings of the Marshall Plan, 96, 111 see abandons the gold standard, 40
also Financial History of Western Europe, Bank of England and, 58
A (Kindleberger). Covid Crisis and, 5
Europe and the Dollar (Kindleberger), 8, 58, creation, 2
118, 138, 177 dollar management role, 1
Europe and the Money Muddle (Triffin), 136 Economic Consultants Meeting (1966),
European Central Inland Transport 172
Organization (ECITO), 89 Fed-Treasury Accord, 164
European Coal Organization (ECO), 89 goal, 37
European currency, Mundell’s advocacy, Henry Parker Willis and, 33–34, 38, 40
179 hot money containment proposals, 196
European Monetary System (EMS), 230 impact of shifting government debt to, 33
European Payments Union (EPU), 68, 96, intended function, 35
134–137 James Angell and, 49
European Recovery Program, see also Kindleberger’s dream job, 28, 52, 56, 58
Marshall Plan, 120, 122 Nixon administration’s attitude towards,
Europe’s Postwar Growth, The Role of Labor 179
Supply (Kindleberger), 113 periodic lowering of interest rate, 58
exchange depreciation, Kindleberger’s raises reserve requirements, 55
examination, 49 relationship of foreign central banks to,
exchange rates 166
Bretton Woods system and, 169 stock market crash of 1929 and, 201–202,
defense mechanisms, 60 225
demonetization of gold and, 152 wartime policies, 37–38
284

INDEX
Federal Reserve System, The (Willis), 38 Friedman’s vision, 168

Federal Savings and Loan Insurance global experience of, 199
Corporation (FSLIC), 242 Johnson on the case for, 173
Fed-MIT-Penn model, 165 Kindleberger on the potential impact of,
Fed-Treasury Accord, 164 171, 173, 181
FHWE {see} Financial History of Western publication of WID and, 197
Europe, A (Kindleberger). Sohmen’s advocacy for, 7, 168
finance, Kindleberger on the history of, Solow’s advocacy for, 171
218–220 successes and failures, 181
financial crises Flexible Exchange Rates: Theory and Controversy
displacement theory, 204–205, 218, 242 (Sohmen), 168
drivers of, 233 floating exchange rates, 148
international dimension of, 205 Ford, Gerald, 4
Kindleberger’s discussion of, 204, 208 Ford Foundation, 109–110
see also Manias, Panics, and Crashes foreign aid, 139–140
(Kindleberger). foreign direct investment, Kindleberger’s
monetary reform and, 41–42 thinking on, 112
regularity, 218 foreign exchange
Financial Crises, Theory, History and Policy Angell’s proposal, 45
(Kindleberger & Laffargue), 194 dealer function and, 232
Financial History of Western Europe, development of foreign exchange
A (Kindleberger), 7, 192, 249 control, 130
“chef d’oeuvre” status, 4, 116, 209, 231, dollar-sterling rate relationship and, 59,
234–235 62
dismissal of myths, 214 “hot money” and, 50, 62
forecast for European monetary union, inadequacy of the Fed’s provision,
230 40–41
Gerschenkron’s hypothesis, 215–218 Kindleberger’s dream job, 26
history of banking, 215–218 Kindleberger’s knowledge base, 63
history of finance, 218–220 Minsky model and, 208
history of money, 211–215 primary function of the foreign-
interwar period, 221 exchange market, 131
Kindleberger’s previous work and, swaps, 237
231–235 foreign trade, decentralized reserve
objective, 209 banking and, 35
origins, 210 forward exchange market, 54
post-war period, 226–231 forward exchange market, Kindleberger
sterling system, 213–214 and Sohmen’s views, 170
structure of the book, 211 France
First World War, 1, see World War I. Crédit Mobilier, 190, 216–217
Fitzroy, Herbert Keith, 29 currency stabilization agreement
fixed exchange rate system, 168 participation, 56
attempted defense, 169, 173, 192 economic retardation, 217
flexible exchange rates vs, 168–170 financial development of, 216
Johnson’s replacement desires, 3 returns to gold convertibility, 58
Kindleberger’s favoring of, 7 war debt, 219
Mundell’s defense, 176 war economy, 69
Tripartite currencies, 57 Franco-Prussian indemnity (1871), 219,
Fleming, J. Marcus, 163, 167 221–222
Fletcher, Arthur, 121 Frank D. Graham Memorial Lecture
Fletcher School of Law and Diplomacy, 107 (1977), 244
flexible exchange rates, 155 Fraser, Leon, 63
285

INDEX
free trade, 20, 128–129, 130, 133, 135, 169 Morgenthau plan, 83, 119
answering structural disequilibrium post-war balance of payments problems,
through, 128 201
Freeman, Ralph E., 101 post-war program, 82–91, 195
Friedman, Milton, 135, 173, 178 see also Marshall plan.
“Case for Flexible Exchange Rates, The,” post-war recovery of Europe and, 86, 88
168 post–World War I reparation payments,
debate with Robert Roosa, 172 90, 221–225
explanation for the 1929 Depression, 193 see also reparations.
flexible exchange rates discourse, 168 post–World War I US loan requirements,
MIT’s response to, 165 46
“Monetary and Fiscal Framework for prospects for self-sufficiency in food, 85
Economic Stability, A,” 164 stock market collapse of 1929 and, 198
Monetary History of the United States, unification of as official American policy,
1867–1960, A (with Schwartz), 165, 91
193 war economy, 69
Program for Monetary Stability, A, 165 Gerschenkron, Alexander, 189–190,
“Quantity Theory, The,” 165 210–211
response to the Fed-Treasury Accord, Gerschenkron’s thesis, 215–218, 220
164–165 Glasser, Harold, 121
stable equilibria-seeking argument and, Glass-Steagall Act (1933), 40
169 Global Financial Crisis (2007–9), 4
Studies in the Quantity Theory of Money, 164 Global South, see also developing countries;
view on destabilizing speculation, 220 Least Developed Countries (LDCs);
view on German monetary reform, 228 underdeveloped world, 2
Workshop on Money and Banking, 164 gold
Friend, Tad, 12 demonetization of, 61–62, 63, 152, 155
fundamental disequilibrium, also structural Roosevelt’s increase of the dollar price of,
disequilibrium, 75, 96, 161 63
Funk Plan, 66 “Gold Problem, The” (Kindleberger &
Collado), 61
Galbraith, Ken, 250 gold standard
Galenson, David W., 251 adoption as single international money,
General Theory of Employment, Interest and 213
Money (Keynes), 48 attempted reinstatement, 224
Genoa Economic and Financial Bank of England’s management role,
Conference (1922), 17, 58, 224 199, 213, 224
German banking crisis (1931), 25 Bloomfield’s work on the historical
German Reparations, see also reparations, 59 experience of, 159
German Standstill Agreement (1931), 225 Britain’s abandonment, 25
Germany comparison with the dollar system, 159
BIS loans to, 67 equilibrium in the balance of payments
Crédit Mobilier and, 190, 217 under, 44
division of, 87, 89, 91 expectations of post-war re-establishment,
Gerschenkron thesis and, 217 60
gold standard and, 60 Fed’s abandonment, 40
hot money and, 155 fluctuation of exchange rates under, 168
interzonal trade, 88 post–World War I expectations of
invasion of Czechoslovakia, 65 restoration, 58
invasion of Poland, 65 removal of the dollar from, 179
JCS 1067 directive, 84 stabilizing speculation and, 168–169
monetary reform, 92–94, 97, 226, 228 sterling system and, 1
286

INDEX
wartime position of the United States, 43 Hume, David, 149, 214

gold-exchange standard Hymer, Stephen H., 112–113, 237
function, 58 hypothetico-deductive method, MIT’s
inherent instability, 139 pioneering role, 160
international agreements, 17
replaced by dollar exchange standard, 177 imperialism, 74, 75
sterling-dollar transition and, 133 economic, 117, 239
the trouble with, 140–141 inconvertible currency, 45
government debt, 33 induced investment, 158
government securities, 33 Industrial Revolution, 216
government war bonds, 37 infant-industry argument, 129
Graham, Frank D., 94, 244 inflation
Great Transformation (Polanyi), 108 balance sheet inflation, 36, 38
Gresham’s Law, 141, 174–175, 192, 212 displacement of 1971 and, 243
“Group Behavior and International Trade” exchange depreciation and, 45, 49
(Kindleberger), 107, 118 prevention mechanisms, 141, 144
price vs balance sheet, 36
Haberler, Gottfried, 227 ratchet effect and, 243
Hansen, Alvin H., 6, 71, 74–75, 83, 111, 136, structural disequilibrium and, 128
259 transfer of government debt to the
Hansen-Williams Fiscal Policy Seminar, 56 Federal Reserve and, 33
Hardcastle, Edith, 104 Willis’s definition, 31, 36
Hardcastle, Fitzhugh, 104 worldwide increase due to
Harrison, George, 26, 60 US irresponsibility, 182
Havana Charter, 187 “Inflation and Foreign Trade”
Hawtrey, Ralph, 45 (Kindleberger), 49
Henley Royal Regatta, 18 institutionalism, American, 6, 30–31, 134,
Herrick, Bruce, 197 160, 211, 235
Hicks–Hansen model, 165, see IS-LM model Inter-Ally Debts and the United States,
(investment savings-liquidity The (National Industrial Conference
preference money supply). Board Inc), 46
“Hierarchy versus Inertial Cooperation” Interest Equalization Tax (1963), 146
(Kindleberger), 240 interest rates
Historical Economics, Art or Science? Bank of England’s responsibility, 213,
(Kindleberger), 238, 247–249 224
historically black colleges, 105 Federal Reserve’s periodic lowering of,
Hoffman, Paul, 94 58
Hoover, Herbert, 26, 40 impact of 1973 oil shock, 242
Hoover, J. Edgar, 123 seasonality of, 35
Hoover Moratorium (1931), 225 sterling and, 63
“hot money” “Interim Biography, An” (Kindleberger),
chronology, 5 110, 121
containment mechanisms, 61 “Interlocking Subversion in Government
impact on exchange rates, 57 Departments” (Jenner Committee),
Kindleberger’s thesis, 50–51 122
new lease of life, 141 international capital market, evolution of,
reframing of Kindleberger’s views, 63 149–151
the Tripartite Agreement and, 141 International Capital Movements
“Hot Money” (Kindleberger & Collado), 62 (Kindleberger), 58, 118
House Un-American Activities Committee, “International Capital Movements and the
see also McCarthy witch hunt, 24, 120 American Balance of Payments:
housing, potential driver of recovery, 71 1929–40” (Bloomfield), 156
287

INDEX
International Clearing Union, 136 Kindleberger’s vision vs Triffin’s,

International Corporation, The (Kindleberger, 143–144
Ed.), 113 transition to US as leader of, 203
International Development Advisory international money
Council, 111 cross-fertilization, 164
“International Development Loans” devaluation of the dollar and the
(Kindleberger & Hansen), 75 question of, 155
International Economic Order, Essays on driver of Kindleberger’s interest, 171
Financial Crisis and International European currency and, 178
Public Goods (Kindleberger), FHWE as Kindleberger’s culminating
240–246 treatise on, 209, 234
International Economic Reform (Despres), flexible exchange rates and the
148 inevitability of, 174
International Economics (Kindleberger), 7, inherently hierarchical character, 227
109, 113, 131 international credit as basis of, 155
intellectual success of for Kindleberger, origins of post-war thinking, 163
134 SDR as new kind of, 172
middle-of-the-road position, 134 International Money (Kindleberger), 8, 58,
possible obstacle to adoption of, 134 118, 149, 233
International Economics (Mundell), 167 “International Operations of National
international economics, exports and Firms, The” (Hymer), 112
imports model, 164 “International Public Goods without
International Economics Workshop, 174 International Government”
international financial crisis (1929), 42 (Kindleberger), 117, 238
International Monetary Fund (IMF), 109, International Short-Term Capital Movements
146 (Kindleberger), 42, 54
creation, 136 international trade, exposure to exchange
development of a multi-pronged rate risk and, 170
monetary approach, 161 International Trade Organization, 187
Kindleberger’s review of the official Internationale Kapitalbewegungen (Nurkse),
history, 163 53
Mundell and, 163 internationalism, 43, 46–48, 51, 113, 126,
Research Department, 161 136, 154, 176, 187
Special Drawing Rights, 135 internationalization of the dollar, 142, 145
Triffin’s SDR proposal, 135, Investment and Business Cycles (Angell), 48
see also SDR (Special Drawing Rights). Iron Law of Wages, 192
Williams’ opposition to, 137 IS-LM model (investment savings-liquidity
international monetary reform preference money supply), 165–167,
international financial crisis and, 42 183, 189
Modigliani’s proposal, 172 IS-LM model (investment savings-liquidity
“International Monetary Stabilization” preference money supply), Mundell
(Kindleberger), 157 and Fleming’s extension (IS-LM-BP
international monetary system model), 167, 181
Bank of England’s management, 59
collapse in the 1930s, 51, 130, 175, 196 Jacobsson, Per, 67–68, 70
concrete problems, 175 James, Harold, 136–137
crucial infrastructure, 2 Jenner Committee, 122
displacement of 1971 and, 243, 255 Jenney, Charles, 104
holding of conferences, 174 Johns, Peter, 240, 247
impact of breakdown, 202 Johnson, Harry, 3, 170, 173–174, 175, 180,
Kindleberger’s framework for 182, 234
understanding, 8, 209 Johnson, Lyndon B., 114, 146
288

INDEX
Johnson and Higgins, Kindleberger’s COLLEAGUES AND STUDENTS

employment with, 26–29 recommends Mundell to write treatise,
Journal of Political Economy, 169, 176 175
relationship with Bloomfield, 156–159
Kane, Ed, 259 relationship with Diaz-Alejandro, 248
Karasik, Monroe, 110 relationship with Hymer, 112–113, 237
Kazekevitch, Vladimir, 121 relationship with Mundell, 175–178
Kenen, Peter, 171 relationship with Sohmen, 167–171
Kennan, George, 88, 92 ECONOMIC HISTORY WORK
Kent School, 5, 17, 18, 249 influences and themes, 189–191
Keohane, Robert, 240, 246 Mattioli Lectures, 191–192
key currencies promotion of comparative economic
consistency of Kindleberger’s proposals history, 191, 192, 197
with, 62 three major works, 192
dollar-sterling system, 63 economic justification for the Marshall
Kindleberger’s interest in the notion of, Plan, 51, 94, 149
57 EDUCATION AND ACADEMIC
Kindleberger’s preferred approach, CAREER
135 academic dispute, 156
Roosevelt’s reaction to the idea of, 6 Angell’s influence, 42–50
roots of the idea, 58 dissertation topic, 29, 41
Tripartite system and, 57, 142, 226 first exposure to first-rate economists,
Keynes, John Maynard, 25, 48, 71, 136, 160, teachers and students, 25
161, 202, 223, 224 graduate study at Columbia, 30–55
Keynesianism, critique of, 3, 103, 130–132, introduction to Keynesian thinking, 48
134, 143, 198–199, 203, 205 Kent School, 5, 17–19
Keynesianism vs. Monetarism (Kindleberger), master’s thesis, 49
68 Money and Banking classes, 24
Keynes-Ohlin controversy, 25 Pennsylvania University, 5, 21–25
Killian, James R., 109 Princeton summer school, 24–25
Kindleberger, Charles P., I, 12 retrospective dismissal of Willis and
Kindleberger, Charles P., II, 248 Angell, 31
CAREER structural disequilibrium and, 96
Bank for International Settlements, 6, summer jobs, 23, 32, 52
63–67 Tenth Annual Report work, 68,
banking experience, 6 70–71
begins work at the New York Fed, 52, thesis, 53–55
56 Willis’s influence, 41, 50
Board of Governors, 71 election as AEA president, 117
central banking positions, 3 FBI’s interest, 119–125
choice of direction, 27 historical economics, 190
Columbia University, 107 hobbyhorses, 188–189
early employment history, 26 influences and heroes, 6, 31, 58, 82–83,
New York Fed, 3, 6, 49, 52, 56, 98 189, 231
post-retirement work, 7–8 interest in economics, 22
post-war work, 84 lasting influence of Angell’s
contribution to Germany’s post-war internationalist perspective, 51
program, 82–91, 195 lifelong ideal, 126
resignation from the Fed, 64 MIT CAREER, 1–2, 4, 51, 94, 97–98
return to the Fed, 67 friends and neighbors, 104
work with Emile Despres tracking short- home life and commute, 103, 106
term capital movements, 54–56 Kindleberger’s replacement, 184
289

INDEX
Kindleberger, Charles P., II (cont.) “Distribution of Income, Political

loss of security clearance and, 108–110, Equilibrium, and Equilibrium in the
119 Balance of Payments,” 97
“moonlighting” teaching assignments, “Dollar and World Liquidity, The” (with
107 Despres & Salant), 98, 115, 148
official purpose of employment, “Dollar in the Event of European War,
102 The,” 63
promotion, 110 Dollar Shortage, The, 8, 51, 94, 97, 107,
retirement, 116 136, 149, 156
sabbaticals, 67, 104–105, 113, 116 “Economic and Financial Crises and
style of economics, 115 Transformation in Sixteenth
working ethos, 102–103 Century Europe,” 259
PERSONAL LIFE AND BACKGROUND Economic Development, 7, 111
birth, 5, 11 Economic Growth in France and Britain,
Brookhaven life, 247, 250–259 1851–1950, 109, 113
character, 260–261 Economic Response, 116, 191, 197, 204,
childhood family life, 11–17 249, 260
death, 259 “Economic Tasks of the Postwar World,
family life in Flushing, 15, 17 The” (with Hansen), 74
injured on sailing trip, 29 Economics Laws and Economic History,
marriage, 55 191, 197
naval ancestry, 12 Economics of Inflation, The, 32
sailing experience, 14 Essays in History: Financial, Economic,
Sarah’s stroke and its impact on family Personal, 258
life, 247–259 Europe and the Dollar, 8, 58, 118, 138,
siblings, 11 177
stuttering problem, 52 Europe’s Postwar Growth, The Role of Labor
World War II and, 65–67 Supply, 113
POLITICS AND PHILOSOPHY Financial Crises, Theory, History and
connections with Socialists, Marxists Policy (with Laffargue), 194
and Communists, 121 “Flexibility of demand in international
interest in Socialism, 21–24 trade theory,” 49
origins of lifelong battle for “Gold Problem, The” (with Collado),
international monetary reform, 2 61
PUBLICATIONS, 204, 208 “Group Behavior and International
American Business Abroad, 113, 116 Trade,” 107, 118
“American Gold Policy in the event of “Hierarchy versus Inertial
European War,” 63 Cooperation,” 240
“Balance-of-Payments Deficits and the Historical Economics, Art or Science?, 238,
International Market for Liquidity,” 247–249
138, 147 “Hot Money” (with Collado), 62
“Britain’s Trade in the Postwar World,” “Inflation and Foreign Trade,” 49
72 “Interim Biography, An,” 110, 121
Centralization vs. Pluralism: A Historical International Capital Movements, 58,
Examination of Political-Economic 118
Struggles and Swings within Some “International Development Loans”
Leading Nations, 252, 257 (with Hansen), 75
Comparative Political Economy: International Economic Order: Essays on
A Retrospective, 8, 118, 176, 258 Financial Crisis and International
“Competitive Currency Depreciation Public Goods, 240–246
between Denmark and New Zealand,” “International Monetary Stabilization,”
49 157
290

INDEX
International Money, 8, 58, 118, 149, Enemy Objectives Unit assignment,

233 77–79
“International Public Goods without influence on later career and
International Government,” 117, scholarship, 6, 79
238 joins Office of Strategic Services, 75
International Short-Term Capital post-war employment, 81
Movements, 42, 54 rank, 81
Keynesianism vs. Monetarism, 68 receives official commission, 78
“Lessons of Floating Exchange Rates,” security clearance upgrade, 79
181 Twelfth Army Group assignment, 80–81
Letters from the Field, 91 visits in Germany, 81
Life of an Economist, The, 5, 12, 249–250 WRITINGS
Mariners and Markets, 15, 251 on aging, 258
Marshall Plan Days, 91 autobiography, 30, 68, 77, 106, 125,
“Mechanism for Adjustment in 159, 249–250
International Payments, The” (with biography, 111
Despres), 98 chapters for unpublished banking
Multinational Excursions, 113 textbook, 32
“Myths and Realities of CIS report, 111, 112
Forward–Exchange Markets,” 170 contributions to internal Fed
“Objectives of United States Economic documents, 61–62
Assistance Programs, The,” 111 direct foreign investment, 112
“Planning for Foreign Investment,” dispute with Bloomfield, 159
76 essay writing, 20
“Postwar Resurgence of the French flexible exchange rates, 171, 173, 181
Economy, The,” 247 focus on financial history, 117
Power and Money, 7, 116, 155 future course of US economic policy,
“Program for Gold, A,” 61 243
“Seaman Visits Leningrad, A,” 23 future of world trade, 72
“Speculation and Forward Exchange,” group behavior, 108
63, 138, 232 history of economic thought, 248
“Suggested Lines of Evolution for the holding of conferences on the
International Monetary System,” 114 international monetary system, 174
“Summary of Views on US Balance of “hot money” thesis, 50–51
Payments Position and Policy,” 114 impact on family life, 105
Terms of Trade, A European Case Study, international monetary reform, 114
109 last published book of collected essays,
“Theory of Inflation and Foreign 118
Trade, The,” 32 memo-to-self, 69
World Economic Primacy 1500–1990, 252, monetary approach, 182–183
257–258 my working rules, 102
World Economy and National Finance in political equilibrium, 97
Historical Perspective, 252 post-war disequilibria, 106
see also Financial History of Western post-war economy, 74–75
Europe, A; International Economics; post-war monetary writings, 58
Manias, Panics, and Crashes; World in primary function of the foreign-
Depression, 1929–1939, The. exchange market, 131
relationship with H. Parker Willis and recollections of the last months of war,
family, 31–32 82
sources of information about, 5 review of Charles Coombs’ memoir,
travels, 23, 64–67, 89, 104, 113 163
WARTIME EXPERIENCES review of IMF history, 163
291

INDEX
Kindleberger, Charles P., II (cont.) Nixon shock of 1971 and, 242

review of Johnson’s On Economics and see also developing countries;
Society, 182 underdeveloped world.
ruminations on the prospect of lender of last resort doctrine, 152, 241
European War, 63 Bank of England and, 216
structural disequilibrium, 158 Basel swap network and, 229
summary of Master’s thesis, 32 BIS and, 153
Tenth Annual Report work, 68, breakdown of Bretton Woods and,
70–71 205
textbook writing, 7, 109, 111, 116–117 credit mechanism and, 220
thesis, 53–55 destabilizing speculation and, 208
unpublished paper on Henry George’s financial crises and, 205, 219
“Protection or Free Trade,” 118 historical perspective, 220
unpublished works, 259 moral hazard, 220
Kindleberger, Charles P., III, 12, 67 panics and, 207
Kindleberger, David M., 12 Plaza agreement and, 241
Kindleberger, E. Randall, 107, 120 US and, 208, 254
Kindleberger, Elizabeth R., 11 Lend-Lease Act (1941), 2, 72–74, 229
Kindleberger, Elizabeth R. (Betty), 11 “Lessons of Floating Exchange Rates”
Kindleberger, Evertson Crosby, 11 (Kindleberger), 181
Kindleberger, Katharine W., 11 Letters from the Field (Kindleberger), 91
Kindleberger, Mary B., 11, 15 Lewis model, 113–114, 192
Kindleberger, Mattie L., 11 Life of an Economist, The (Kindleberger), 5,
Kindleberger, Richard, 75 12, 249–250
Kindleberger, Sarah, 67, 105, 247 Lindert, Peter, 197
King, Martin Luther, 105 liquidity
Klein, Lawrence, 101 banking system’s function, 183
Komiya, Ryutaro, 103 change in the conception of, 70
Korean War, 91, 111 dollar system and, 151
Kregel, Jan, 237 market demand for expansion of, 153
“shiftability” understanding of, 232
labor, free flow of, 128 trading in, 147, 151
Laffer, Arthur, 179, 212 see also “Balance-of-Payments Deficits and
Lamfalussy, Alexandre, 236 the International Market for
Lange, Oskar, 164 Liquidity”.
Latin America, post-war balance of “Liquidity Preference and the Theory of
payments problems, 161 Interest and Money” (Modigliani),
Lattimore, Owen, 121 165
Laughlin, J. Laurence, 33 Litvinov, Ivy, 121
Law, John, 216 London
Law of One Price, 192 dominance of foreign trade financing,
leadership 38
followership requirements, 245–246 Kindleberger’s war service in, 77
Marshall Plan and, 229 World Economic Conference (1933), 57
need for, 260 London Economic and Financial
Nixon saga and, 244, 246 Conference (1933), 42
US and the lack of, 224–227, 239, London Gold Pool, 148
243 London School of Economics, 46, 180
League of Nations, 16, 43, 46 long-term capital flows
model, 24, 25 collapse after the 1929 stock market
Least Developed Countries (LDCs), 242 crash, 201, 233
lending to, 242 evolution of Kindleberger’s thinking, 200
292

INDEX
Kindleberger’s emphasis on the post-war focus on engineering, 101

importance of, 129–130, 132 response to Friedman, 165
value for developing countries, 2, 6 war service, 110
World Bank’s channeling role, 136 Mayer, Martin, 204
Louvre Accord (1987), 230, 241 McCarthy witch hunt, see also House Un-
Luxembourg Institute for European and American Activities Committee, 5,
International Studies, 252 124, 236
McCauley, Robert, 208
Maclaurin, W. Rupert, 94 McCloy, John J., 87, 243
Macmillan Report (1931), 25 McIlvaine, Fannie, 13
Mandatory Program (1968), 146 McIlvaine, Henry C., 13
Manias, Panics, and Crashes (Kindleberger), McIlvaine, Randall, 14
7, 116, 192, 204, 249 McKittrick, Thomas H., 64, 67
dedication, 204 “Measuring equilibrium in the balance of
Minsky model and, 205–208 payments” (Mundell), 176
pattern depicted in, 204–205 “Mechanism for Adjustment in
periodic updating, 258 International Payments, The”
revised edition, 240 (Kindleberger & Despres),
swindles, 208 98
updated editions, 208 mercantilism, concept of, 212
Mariners and Markets (Kindleberger), 15, Merrill Foundation, 109
251 metallic currency, drivers of shortage,
Markets in History (Galenson), 251 211
Marschak, Jacob, 165 Mexican debt crisis (1982), 242
Marshall, George C., 6, 82, 90–91, 108 Middlebury College, 4
Marshall Plan, 2, 89, 120, 122 migration, cosmopolitan policy, 128
coordinating body, 111 Miles, Francis T., 24, 52
enthusiasm for European integration, 229 Miles, Sarah B., 52, 55
implementation as anti-Soviet measure, Miles, Wardlaw, 52
92 Miller, Robert T., 24, 120, 123, 125
Kindleberger’s contribution, 3, 83, Milliken, Max, 110–111
91–94, 98 Minsky, Hyman, 189, 193–195, 198,
Kindleberger’s economic defense of, 51, 205–207, 218, 237, 253 n., 256
94, 149 Minsky model
Stalin’s refusal of aid for Eastern Europe, attraction of, 206
93 Manias, Panics, and Crashes and, 204,
structural disequilibrium and, 96 205–208
Marshall Plan Days (Kindleberger), 91 World in Depression and, 193–195
Marzani, Carl, 121 Mississippi bubble (1720), 216
Masaryk, Jan, 92 Mitchell, Wesley C., 30–31, 210
Mason, Edward S., 6, 83 Modigliani, Franco, 165, 171, 172
Massachusetts Institute of Technology (MIT) monetarism
Center for International Studies, 110 critique of, 68, 190, 193, 197–198, 202,
focus on national economic stabilization, 203
164 expansionist v contractionist debate, 166,
importance of research for, 102 212
Kennedy administration and, 165 world, 179, 190, 212
Kindleberger’s appointment, 6 “Monetary and Fiscal Framework for
see also Kindleberger, Charles P., II, Economic Stability, A” (Friedman),
MIT CAREER. 164
pioneering of the hypothetico-deductive monetary approach to the balance of
method, 160 payments, 161
293

INDEX
Monetary Approach to the Balance of Payments, Myrdal, Gunnar, 104

The (Johnson), 180, 182 “Myths and Realities of Forward–Exchange
Monetary History of the United States, Markets” (Kindleberger), 170
1867–1960, A (Friedman &
Schwartz), 165, 193 National Banking System, 35
monetary reform, financial crises and, National Economy League, 26
41–42 “National Self-Sufficiency,” 202
Monetary Union, 68 nationalism, resurgence of in the 1970s, 244
money Netherlands, currency stabilization
creation of as strategy for fostering agreement participation, 57
industrial development, 217 New Deal, 48, 74
initial neglect in national economics New School for Social Research, 27, 165
discourse, 164 New York Fed
Kindleberger on the history of, 211–215 Bloomfield’s position, 156
Money and Empire, The International Gold champions the key-currency approach,
Standard, 1890–1914 (de Cecco), 1 226
Morehouse College, 105 Charles Coombs’ work, 163
Morgan, J.P., 246 Despres’ position, 26
Morgenthau boys, 83, 84 Kindleberger’s employment, 3, 6, 49, 52,
Morgenthau Plan, 82, 85, 119 56, 98
Morse, Chandler, 75–77, 98, 121 liquidity crisis and, 201
mortgage lending, domestic credit boom Treasury’s bank status, 37
and, 242 “Next Steps in International Monetary
MPC {see} Manias, Panics, and Crashes Reform” (Mundell), 178
(Kindleberger). Nixon, Richard M., resignation, 4
Multinational Corporation in the 1980s, Nixon administration, irresponsibility,
The (Kindleberger), 113 181–182
Multinational Excursions (Kindleberger), Nixon shock (1971), 3, 148, 242
113 North Atlantic Treaty Organization
Multinationals from Small Countries (NATO), 96
(Kindleberger), 113 Nortman, Bernard, 121
Mun, Thomas, 248 Nurkse, Ragnar, 53
Mundell, Robert, 212
advocacy for a European currency, 179 “Objectives of United States Economic
awarded Nobel Prize, 7 Assistance Programs, The”
“Better International Monetary System,” (Kindleberger), 111
176–177 O’Daniels, Eileen, 29, 52
defense of the fixed exchange rate Office of Strategic Services (OSS), 6, 78,
system, 176 98
focuses more on international “Official Intervention on the Forward
commercial banking leaders, 180 Exchange Market” (Mundell &
hired by Chicago University, 176 Fleming), 163
IMF posting, 162 oil shock (1973), 242
International Economics, 167 On Economics and Society (Johnson), 182
IS-LM-BP model and, 167 OPEC (Organization of the Petroleum
Kindleberger’s recommendation to write Exporting Countries), 242
treatise, 175 Open Economy Macroeconomics (Dornbusch),
Kindleberger’s relationship with, 167
175–178 “Operation Octopus,” 79–80, 88
“Measuring equilibrium in the balance of “Operation Penelope,” 259
payments,” 176 optimum currency areas, 176, 227
Mundell-Fleming model, 167 Ostrander, F. Tyler, 25, 93
294

INDEX
Otis, Morton, 15 “Recent Trends in International

Overstone, Lord, 216 Economics” (Bloomfield), 159
Reconstruction Finance Corporation,
Paris Peace Conference (1919), 46 40
Parker, Bill, 238 Remington, William, 121
Pearl Harbor (1941), 72 “Reparation Settlement and the Peacetime
Pereire brothers, 216 Economy of Germany, The” (State
Perroux, Francois, 244 Dept.), 86
Perry, DeWolf, 20 reparations
“Plan for the Liquidation of War Finance commercialization of German
and the Financial Rehabilitation of obligations, 46, 64
Germany, A” (Colm-Dodge- level of industry plan, 86–87
Goldsmith), 85 post–World War I situation, 90, 221–225
“Planning for Foreign Investment” Potsdam discussions, 84
(Kindleberger), 76 Russia’s demand, 89–90
Plaza Accord (1985), 4, 182, 230, 239, transfer problem posed by in the 1920s,
241–243, 246, 253 175
pluralism, 118, 245 Reserve Banks, 34–37
Polak, Jacques P., 161–162, 182 Reuss, Henry, 205
Poor, Charles H., 12 Robertson, H. P., 108
Poor, Mattie L., 12 Robey, Ralph W., 28, 198
Poor, Wharton, 26 Rommel, Rowena, 121
“Postwar Resurgence of the French Roosa, Robert, 114
Economy, The” (Kindleberger), Roosevelt, Franklin D., 6, 26, 39, 42, 47, 63,
247 74, 202, 226
Potsdam Agreement (1945), 84, 85, 87, 90 Rostow, Walt W., 84, 88, 98, 110–111, 210
Power and Money (Kindleberger), 7, 116, 155 Russia, 190
Preparatory Commission of Experts, 57
Price Flexibility and Employment (Lange), 164 Saint-Simonianism, 216
price stickiness, Bretton Woods system and, Salant, Walter S., 98, 115, 148
169 Salant, William, 84
“Program for Gold, A” (Kindleberger), 61 Samuelson, Paul, 6, 101, 102, 115, 157, 163,
Program for Monetary Stability, A (Friedman), 165
165 Schefold, Bertram, 237
Prohibition, repeal of, 31 Schuker, Stephen, 190
Proposal: Key to an Effective Foreign Policy, Schwartz, Anna Jacobson, 193
A (Milliken & Rostow), 111 SDR (Special Drawing Rights), IMF model,
“Protection or Free Trade” (George), 118 135, 146, 172
Proxmire, William, 144, 178 “Seaman Visits Leningrad, A”
public goods (Kindleberger), 23
global South, 112 secular stagnation hypothesis, 71
international, 117, 238, 254–255 security clearance
stability, 206, 228, 245, 246 Kindleberger’s loss of, 108–110,
119
“Quantity Theory, The” (Friedman), 165 Kindleberger’s upgrade to BIGOT
quantity theory of money, 36, 41, 126, 144, security status, 79
203, 214, 223 Kindleberger’s upgrade to ULTRA
security status, 80–81
Randall, Elizabeth, 11 self-liquidating bills, 34–35, 39
ratchet theory, 199, 243, 248 Seminary Hill, 67, 104
real bills doctrine, 32, 34–36, 39–40, 43, “shiftability,” 68, 70, 232
231 Shonfield, Andrew, 154
295

INDEX
short-term capital flows Stimson, 87

absorption of temporary imbalances by, stock market crash (1929), 22, 39, 46, 201
168–169 Stone, Betty (Elizabeth R. Kindleberger),
balance of payments equilibrium role, 11–13, 23, 27
131–132 Streeten, Paul, 251
destabilizing effect, 62 structural disequilibrium, 127, 130, 133
international demand for dollar reserve consequences of the 1930s situation, 129
balances and, 231 free trade as answer to, 128
potential impact of premature impact on sterling-dollar transition, 133
restoration, 129 the market and, 95
principal means of international new form emerging in the developing
settlement, 231 world, 127
US stock market boom and, 225 persistence of after the war, 128
Sill, Frederick H., 17–18 post–World War II problem of, 95–97, 133
silver Struik, Dirk, 109, 121
demonetization of, 213 Studies in the Quantity Theory of Money
historical perspective, 248 (Friedman), 164
single world currency, 168 “Suggested Lines of Evolution for the
Smith, Adam, 245, 248 International Monetary System”
Smithsonian Agreement, 148, (Kindleberger), 114
155 “Summary of Views on US Balance of
Social Science Research Council, research Payments Position and Policy”
project, 31 (Kindleberger), 114
Sohmen, Egon, 7, 167–171 Surrey, Walter, 110
Sokolsky, George, 119 swap lines, central bank, 4, 135, 153, 177,
Solow, Robert, 6, 102, 165, 237 229, 232, 254–255, 257
Solow model of growth, 114 Sweezy, Paul, 4, 121
Soviet Union, 87, 119, 229 Switzerland, 65
Special Drawing Rights (SDR), 146 currency stabilization agreement
specie flow mechanism, 44–45, 58, 149, 214 participation, 57
speculation, stabilizing v destabilizing, 59,
61–62, 133, 153, 168–169, 171, 179, tariffs
181, 208, 213, 220, 223–224 appropriateness for developing
“Speculation and Forward Exchange” countries, 129
(Kindleberger), 63, 138, 232 only valid argument, 129
Sprague, O. M. W., 60 Taussig, Frank, 43
Sproul, Allan, 6, 61, 63, 82 Temin, Peter, 206, 237, 247
stabilizing speculation, gold standard as Terms of Trade, A European Case Study
perfect example for effectiveness of, (Kindleberger), 109
168 “Theory of Inflation and Foreign Trade,
Stages of the Economic Growth (Rostow), 114 The” (Kindleberger), 32
stagflation, 3 Theory of International Prices, The (Angell), 44
Stalin, Joseph, 23, 74, 93 Thomas, Norman, 26–27
static equilibrium, concept of, 132 Thompson, Caroline, 25, 52
sterling Thorp, Willard L., 6, 83
comparison with other currencies, 63 Tract on Monetary Reform (Keynes), 224
devaluation (1931), 201 Trade, Balance of Payments, and Growth
sterling standard, 213 (Bhagwati et al.), 116
sterling system, 1, 42, 200 Treasury, Kindleberger’s resignation, 53
replaced by dollar system, 70, 73, 133, 223 Trenchard, G. O., 33
World War I and, 1 Triffin, Robert, 3, 162, 174
Stigler, George, 239 Triffin Dilemma, 137, 175
296

INDEX
Tripartite Agreement (1936) transition to as leader of international

impact of European war preparations, monetary system, 203
63 unwillingness to serve as international
implementation, 56 lender of last resort, 208
Kindleberger’s proposal for an updated war economy, 69
Agreement, 144 world creditor position, 43, 59
pattern of exchange rates and, 232 worldwide increase in inflation and, 182
stabilizing function, 141 University of Chicago, 156, 164–166, 173,
underlying logic of the Tripartite system, 176, 180
57
World Economic Conference and, 61 Versailles Peace Conference, 223
world economy on the eve of World War II Villard, Henry, 48
and, 69 Viner, Jacob, 58, 94, 156
Truman, Harry S., 88, 91, 94, 120 “Vitality of Nations, The,” 252
Truman Library, 5, 249 Volcker, Paul, 4, 182, 237, 242
two-tier exchange system, Kindleberger’s Voluntary Credit Restraint Program (1965),
proposal, 62–63 146
ULTRA, security clearance, 80–81 Wahl, David, 120, 123

underdeveloped world Wall Street, 2
development of international economics political tensions between Main Street
and, 161–162 and, 35
promoting investment spending in, 71 Wallich, Henry, 188
tariffs and, 128 war, displacement and, 218
US aid and, 111 war economy, 66, 69–70, 78
see also developing countries; Least war finance, 6, 36–37, 38, 41, 85, 160, 210,
Developed Countries (LDCs). 221, 229
Underground Soviet Espionage Warsh, David, 249
Organization (NKVD), 123 Washington Naval Conference (1921–22),
United Nations, 88, 109 16
United States (US) Weintraub, Roy, 237
currency stabilization agreement Wetherill, Bill, 15
participation, 56 Weyl, Nathaniel, 121
declaration of war, 72 Wheatsheaf books, 240, 247, 251
determination to remain neutral during Wheeler, Donald, 121
World War II, 65 White, Harry D., 58, 120, 123–124
Europe’s war debts to, 46 WID {see} World in Depression, 1929–1939,
first large-scale econometric model, 165 The (Kindleberger).
focus of international aid, 111 Williams, John H., 6, 54, 57–61, 198
gold holdings, 40 doubts about the IMF, 136
gold standard and, 43 key-currency deal attempt, 154
isolationism, 74 Triffin dedicates book to Hansen and,
lack of leadership, 224–227, 239 136
League of Nations and, 223 US pattern of dynamic comparative
lender of last resort doctrine and, 205 advantage and, 179
operation as international financial Williams, Roger, Jr, 17, 23
intermediary, 147 Williamson, Jeffrey, 189
post-war economy, 74 Willis, H. Parker
refusal to join the Bank for International Banking Situation: American Postwar
Settlements, 254 Problems and Developments, The, 31
replaces Europe as investment banker for definition of inflation, 31, 36
the world, 43 Economics of Inflation, The, 32
297

INDEX
Willis, H. Parker (cont.) objective, 193–204

establishment of the Federal Reserve preface, 249
System and, 33–39 publication, 197
Federal Reserve System, The, 38 purpose of 1986 revision, 197–198
influence on Kindleberger, 2, 6, 30, 41 reviews, 193
Willis, Parker B., 32 revised edition, 240
Wilson, Woodrow, 16, 21 Tenth Annual Report and, 68
Wittels, Fritz, 27 world leadership, failure of as cause of the
World Bank, 109, 128, 187 Depression, 4
established at Bretton Woods, 2 World War I, 16
World Economic Conference (1933), 6, delays Kindleberger’s plans, 15
47–48, 57, 60–61, 154, 202, 226 focus of post-war settlement, 74
World Economic Primacy 1500–1990 gold standard and, 58
(Kindleberger), 252, 257–258 influence on Kindleberger’s writing, 221
World Economy and National Finance in post-war reconstruction, 43
Historical Perspective (Kindleberger), role of American finance and
252 production, 36, 43
World in Depression, 1929–1939, sterling system and, 1
The (Kindleberger), 25, 116, 193, US experience of post-war reparations,
199–200 90
argument on cause of the Depression, 3 World War II, MIT’s service, 110
central banking lens, 203 “World’s Monetary Dilemma, The”
dealer function, 233 (Williams), 54
Kindleberger’s life experience and,
195–196 Yeagley, J. Walter, 120, 123
Minsky paradigm and, 193–195 Young, Allyn, 43, 45
narrative, 200–202 Young Plan (1930), 46, 64
298

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MONEY AND EMPIRE

Perry Mehrling is Professor of International Political Economy at Boston

Published online by Cambridge University Press

Published online by Cambridge University Press

Charles P. Kindleberger and the Dollar System

Published online by Cambridge University Press

Cambridge University Press is part of the University of Cambridge.

Published online by Cambridge University Press

Perry Mehrling is Professor of International Political Economy at Boston

Published online by Cambridge University Press

Published online by Cambridge University Press

Charles P. Kindleberger and the Dollar System

Published online by Cambridge University Press

Cambridge University Press is part of the University of Cambridge.

Published online by Cambridge University Press

Perry Mehrling is Professor of International Political Economy at Boston

Published online by Cambridge University Press

Published online by Cambridge University Press

Charles P. Kindleberger and the Dollar System

Published online by Cambridge University Press

Cambridge University Press is part of the University of Cambridge.

Published online by Cambridge University Press

Perry Mehrling is Professor of International Political Economy at Boston

Published online by Cambridge University Press

Published online by Cambridge University Press

Charles P. Kindleberger and the Dollar System

Published online by Cambridge University Press

Cambridge University Press is part of the University of Cambridge.

Published online by Cambridge University Press

Published online by Cambridge University Press

part i: intellectual formation, 1910–1948

part ii: international economist, 1948–1976

part iii: historical economist, 1976–2003

Published online by Cambridge University Press

https://doi.org/10.1017/9781009158589.001 Published online by Cambridge University Press

was enough material on which to hang an entire book, just as I had

https://doi.org/10.1017/9781009158589.001 Published online by Cambridge University Press

this vein, my schedule included talks at the Kennedy School, Credit

https://doi.org/10.1017/9781009158589.001 Published online by Cambridge University Press

https://doi.org/10.1017/9781009158589.001 Published online by Cambridge University Press

T he title of this book is intended as homage to marcello de

https://doi.org/10.1017/9781009158589.002 Published online by Cambridge University Press

a world riven with primitive nationalist instinct, continuing with unﬂagging

https://doi.org/10.1017/9781009158589.002 Published online by Cambridge University Press

https://doi.org/10.1017/9781009158589.002 Published online by Cambridge University Press

in Depression, 1929–1939 (1973) (hereafter WID) had argued that the

https://doi.org/10.1017/9781009158589.002 Published online by Cambridge University Press

https://doi.org/10.1017/9781009158589.002 Published online by Cambridge University Press

https://doi.org/10.1017/9781009158589.002 Published online by Cambridge University Press

in practice to solve even the most difﬁcult problems thrown up by the

https://doi.org/10.1017/9781009158589.002 Published online by Cambridge University Press

https://doi.org/10.1017/9781009158589.002 Published online by Cambridge University Press

Published online by Cambridge University Press

My father used to tell me, as I tell my journalist son about news-

https://doi.org/10.1017/9781009158589.003 Published online by Cambridge University Press

https://doi.org/10.1017/9781009158589.003 Published online by Cambridge University Press

Charlie continues his narrative: “It was a middle-class family, comfort-

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