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

A summary of the book written by Perry Mehrling (2022) - Article #30

In this 10 min article, The X Project will answer these questions:

• I. Why this book, and what’s it about?

• II. Who is the author?

• III. How popular is the book?

• IV. What is one of the top takeaways from the book?

• V. What is another top takeaway?

• VI. What is the third top takeaway?

• VII. What is the fourth top takeaway?

• VIII. What is the fifth top takeaway?

• IX. What does The X Project Guy have to say?

• X. Why should you care?

I. Why this book, and what’s it about?

In a world teetering on the brink of economic transformations and geopolitical upheavals, understanding the undercurrents that shape our financial system has never been more critical. Enter Money and Empire: Charles P. Kindleberger and the Dollar System. This book doesn't just dissect the anatomy of modern finance but also gives us a lens through which to view its future trajectory. Why now? Because as we grapple with volatile markets, shifting demographics, and overwhelming government debt, Kindleberger's insights offer a compass in the storm. This article isn't just a summary; it's a beacon for those navigating the choppy waters of economics, geopolitics, and beyond.

Thanks to

Michael Kao

for sharing his reading list on Twitter/X in April of 2023. I could not find the specific tweet, but the Urban Kaoboy has since published his list on Substack here. For those who do not know Michael Kao, he is a favorite of The X Project and was listed as a top influencer in The X Project’s article #2.

II. Who is the author?

According to Wikipedia, Perry Mehrling is a professor of economics at the Pardee School of Global Studies at Boston University. He was a professor of economics at Barnard College in New York City for 30 years. He specializes in the study of financial theory within the history of economics. Perry Mehrling received a Ph.D. from Harvard University and an M.Sc. from the London School of Economics. He is also the Director of Educational Programs at the Institute for New Economic Thinking, a global not-for-profit organization dedicated to changing how economics is taught. He teaches the hugely popular "Economics of Money and Banking" MOOC (Massive Open Online Course) on the Coursera website.

III. How popular is the book?

Here are the book’s rankings on Amazon:

This is one of the least popular books on my list, but that is no indication of how important it is or how much I enjoyed reading it.

IV. What is one of the top takeaways from the book?

Who is Charles P. Kindleberger?

He is the first part of the subtitle of the book and a titan in the world of economic theory, like the cartographer of modern economic geography. His work, rooted deeply in the intricacies of global finance, has shaped how we understand the flow of money and power. Kindleberger, an architect of the Marshall Plan and a professor at MIT wielded his pen and intellect to chart the course of economic history. In Money and Empire, his legacy is unpacked, revealing a thinker who saw beyond numbers and charts - a visionary who understood that money, in its essence, is a story of human ambition, power, and, often, folly. His importance? He's the luminary who lit the path for understanding how money moves in an interconnected world and why it matters.

V. What is another top takeaway?

The ‘Dollar System’

One of the pivotal takeaways from Money and Empire is the concept of the 'Dollar System' as a hegemonic force, which is the second part of the subtitle of the book. Mehrling unravels the narrative of how the U.S. dollar, post-World War II, transformed from just a national currency into a global leviathan, dictating the ebbs and flows of international finance. Kindleberger argues compellingly that this dollar dominance is not merely an economic phenomenon but a cornerstone of geopolitical power. This revelation is crucial as it underscores how energy markets, government policies, and even international relations are tethered to the fate of the dollar.

VI. What is the third top takeaway?

The Marshall Plan

The Marshall Plan was a U.S.-sponsored program that provided economic aid to Western Europe after World War II. It was proposed by U.S. Secretary of State George C. Marshall in 1947 and lasted until 1951. The plan’s main goals were to help rebuild the war-torn regions, remove trade barriers, modernize industry, and prevent the spread of communism. The plan gave more than $15 billion (equivalent to $173 billion in 2024) to 16 European countries, including Britain, France, Germany, and Italy. The plan was also seen as a way to strengthen the U.S. influence and alliances in Europe.

Mehrling’s scrutiny of the Marshall Plan offers another profound insight. Kindleberger, who was an architect of the plan, views it not just as a post-war reconstruction effort, but as a strategic move to cement the dollar's global supremacy. By linking war-torn Europe's recovery to the dollar, Kindleberger illustrates how economic aid can be a potent tool for geopolitical strategy. This aspect is particularly relevant as it parallels contemporary issues like government deficits and geopolitical strategies, offering a historical lens to view current economic policies and their long-term implications.

VII. What is the fourth top takeaway?

The Double-edged Sword

Mehrling’s exploration of Kindleberger’s views of the balance of power in global finance is illuminating. He points out that the dollar's dominance is a double-edged sword, fostering stability and growth but also creating dependencies and vulnerabilities – including the potential for domestic policy decisions in the U.S. to have outsized effects globally. He also speculates on the future, pondering the rise of alternative currencies and the potential shift towards a more multipolar financial world. This perspective is vital for understanding current geopolitical tensions and economic policies. It challenges us to think about the future of the dollar system in a multipolar world and the possible shifts in global financial power dynamics.

VIII. What is the fifth top takeaway?

Financial Crises

Mehrling explores Kindleberger’s views of financial crises beyond their mechanics; he delves into the human aspects – the euphoria and panic that drive economic cycles. Kindleberger argues that these crises often stem from a mix of irrational exuberance and regulatory lapses, exacerbated by a lack of international coordination. In his anatomy of economic meltdowns, he argues that they are not aberrations but inherent features of a capitalist system. His thesis that the global financial system needs a stabilizer or a lender of last resort – traditionally the role played by the U.S. and the dollar – is especially relevant today as we witness the rise of alternative power centers and currencies. This insight is critical for understanding the dynamics of international finance and the potential for new economic architectures to emerge.

IX. What does The X Project Guy have to say?

First, I want to thank all subscribers - mostly free and some paid - who have signed up thus far. Gaining additional subscribers every day at this point is a strong vote of confidence that continues to propel The X Project forward. Substack tells me that nearly two-thirds of you have a 4-star or 5-star activity rating, meaning you are consistently engaging with my content - which is great! Please hit the heart icon indicating you like the article. The more “likes” I get, the more Substack will promote my content within the Substack community. If you don’t like my content or have any suggestions, please email me at TheXprojectGuy@gmail.com.

Second, this book made my top 20 list because I think it is very important to understand how the ‘Dollar System’ came to be, which did not happen all at once but has evolved over a long time and is continuing to evolve. I agree with Luke Gromen that we are in the midst of the first Western sovereign debt bubble bursting in over a hundred years (see article #27 for more on this topic). Of course, the Fed and U.S. Treasury will do everything possible to save the U.S. Treasury market, which means they will ultimately sacrifice the U.S. Dollar by monetizing the debt and attempting to inflate the debt away. Will they succeed, or will the U.S. Dollar bubble they are inflating first burst?

In the final section, I will discuss what you could do about it. However, The X Project now requires you to be a paid subscriber to view the final section. In a few articles, the paywall will move up within the article so that only paid subscribers will see the last two sections, or rather, free subscribers will only see the first eight sections. I will be moving the paywall up every few weeks, so ultimately, free subscribers will only see the first four or five sections of each article. Please consider a paid subscription.

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X. Why should you care?

First, thank you for your paid subscription. Your support is everything to The X Project and is greatly appreciated. If you agree, please do me the favor of posting positive comments about my articles - assuming you have positive things to say - especially about the final section (soon to be more sections) that only you get to see.

Second, nothing that The X Project writes and says should be considered investment advice or recommendations to buy or sell any securities or investment products. Everything written and said is for informational purposes only, and you should do your own research and due diligence. You should discuss with an investment advisor before making any investments or changes to your investments based on any information provided by The X Project.

The X Project expects a lot of volatility in various markets as we head toward increasingly frequent and intense crises and as our policymakers do everything possible to keep the system functioning, serving the status quo and responding to the crises as they erupt. There will be tremendous opportunities to capitalize on the volatility if you can anticipate certain market reactions and be positioned accordingly.

This final section will be reserved for discussing the investment theses to which The X Project subscribes, which are as follows:

1. Overweight cash and short-term US T-bills for optionality, given expected volatility related to the remaining list below.

2. Bullish gold and gold miner equities

3. Bullish Bitcoin

4. Bullish oil and oil-related equities

5. Bullish natural gas and related equities

6. Bullish uranium and related equities

7. Bullish industrial commodities and related equities

8. Bullish agricultural commodities and related equities

9. Bullish industrial and especially electrical infrastructure equities

10. Bearish long-dated US and other Western sovereign bonds

These are long-term investments with a 5-10 year time horizon. Many, if not most, of these bullish ideas have a short-term bearish outlook. The X Project sees the overall stock market has relatively little short-term upside potential at current over-valued levels after the rally in the fourth quarter of last year and recent new highs this year. In fact, The X Project sees much larger, short-term downside risk in the stock market at the moment, with the lagged effects of the Fed’s interest rate hikes finally starting to bite and the U.S. and global economies potentially heading for a recession in 2024.

Going forward, The X Project intends to discuss one or more of these investment theses in the final section of each article; the following section in bold is new for this article.

Getting back to this point from the section above:

I really don’t know the answer to that question. But it is because of this question and the binary outcome of either persistently higher inflation for a lot longer or worse, the end of the U.S. Dollar and all other fiat currencies that I currently hold 2.5% of my net worth in physical gold in my possession and why I am continuing to accumulate gold and aiming for at least 5% and hopefully as much as 10% within a year. This binary outcome is the biggest risk to everything I have accumulated in my life, and owning gold is my highest conviction investment thesis. More speculatively, I also have about 0.5% of my net worth invested in gold and silver mining companies - with half in blue chip miners and half in junior miners. I will be adding to those positions and looking to bring that allocation up to at least 1% and hopefully 2.5% of my net worth. If we get a recession and a sharp pullback in the equity market, then it is likely both gold and miners will go down as well. And that is why I also have a large cash and short-term U.S. Treasury bill position so I can take advantage of that opportunity should it come to pass.