Stefan Link, a 2023-24 CASBS fellow, chats with Barry Eichengreen, a 1996-97 CASBS fellow and world renowned for his expertise at the nexus of international economics and economic history. They discuss some of Eichengreen's most prominent works — including "The European Economy Since 1945," which emerged from his CASBS experience, and "Golden Fetters," his most cited book — interrogating their durability and applicability to contemporary industrial, financial, and monetary policy challenges and governance.
Stefan Link, a 2023-24 CASBS fellow, chats with Barry Eichengreen, a 1996-97 CASBS fellow and world renowned for his expertise at the nexus of international economics and economic history. They discuss some of Eichengreen's most prominent works — including "The European Economy Since 1945," which emerged from his CASBS experience, and "Golden Fetters," his most cited book — interrogating their durability and applicability to contemporary industrial, financial, and monetary policy challenges and governance.
BARRY EICHENGREEN: UC Berkeley faculty page | Homepage & CV | on Wikipedia |
STEFAN LINK: CASBS bio | Dartmouth faculty page |
Mentioned in the episode:
Eichengreen's talk on "Steering Structural Change" (session 2) at the Peterson Institute for International Economics (16 April 2024)
Eichengreen & Temin NBER paper on "The Gold Standard and the Great Depression" (June 1997)
Select Eichengreen books
Elusive Stability: Essays in the History of International Finance 1919-1939 (Cambridge Univ. Press, 1990)
Golden Fetters: The Gold Standard and the Great Depression 1919-1939 (Oxford Univ. Press, 1992)
International Monetary Arrangements for the 21st Century (Brookings Institution, 1994)
Globalizing Capital: A History of the International Monetary System (Princeton Univ. Press, 1994)
European Monetary Unification: Theory, Practice, and Analysis (MIT Press, 1997)
Toward a New International Financial Architecture: A Practical Post-Asia Agenda (Peterson Institute for International Economics, 1999)
Financial Crises and What to Do About Them (Oxford Univ. Press, 2002)
Capital Flows and Crises (MIT Press, 2004)
Global Imbalances and the Lessons of Bretton Woods (MIT Press, 2006)
The European Economy Since 1945: Coordinated Capitalism and Beyond (Princeton Univ. Press, 2006)
Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System (Oxford Univ. Press, 2012)
Hall of Mirrors: The Great Depression, the Great Recession, and the Uses — and Misuses — of History (Oxford Univ. Press, 2015)
Stefan Link book
Forging Global Fordism: Nazi Germany, Soviet Russia, and the Contest over the Industrial Order (Princeton Univ. Press, 2020)
Winner of the Stuart L. Bernath Book Prize, Society for Historians of American Foreign Relations, as well as the Herbert Baxter Adams Prize, American Historical Association
Narrator: From the Center for Advanced Study in the Behavioral Sciences at Stanford University, this is Human Centered.
Thank If governments and their leaders expect to effectively manage structural changes in today's industrial policy landscape, and expect to navigate challenges facing monetary policy and financial market landscapes, they would be wise to interrogate the parallels, precedents, and pitfalls of historical cases. Today on Human Centered, a conversation with Barry Eichengreen, who is among the world's most respected scholars working at the intersection of contemporary international economics and economic history. He was a CASBS fellow in 1996-97, and holds the George C.
Party and Helen N. Party chair, and serves as distinguished professor of economics and political science at University of California, Berkeley. As just a small sampling of career highlights, Eichengreen is an elected member of the American Academy of Arts and Sciences, as well as the recipient of Guggenheim and Fulbright Fellowships, and an honorary doctorate from the American University in Paris.
We'll provide links to his bio and CV in the episode notes. Notably, Barry is that rare economist who writes books, many books, some of which serve as launching points throughout today's discussion. Joining him in that conversation is Stefan Link, a 2023-24 CASBS fellow and historian at Dartmouth College specializing in the history of global political economy and the intellectual history of capitalism.
This is another inspired pairing of conversation partners that we're known for at Human Centered. As you're about to hear, Stefan is extremely well-versed in the Eichengreen canon. The two discuss work Eichengreen conducted during his CASBS Fellowship and the book that emerged from it, titled The European Economy Since 1945, and how its findings resonate with industrial policy debates occurring today.
The book Barry probably is best known for is titled Golden Fetters, The Gold Standard and the Great Depression. They'll discuss the book and whether the economic crises occurring from the 1970s through recent years bolster the durability of what some consider Barry's definitive global interpretation. This also relates nicely to Stefan's current book in progress on a new global history of the Great Depression.
Today's other topics and themes are drawn from Eichengreen's books such as Elusive Stability, Essays in the History of International Finance, Globalizing Capital, History of the International Monetary System, Hall of Mirrors, The Great Depression, The Great Recession and the Uses and Misuses of History. They'll also touch on Barry's work with the International Monetary Fund during the 1997 Asian financial crisis, the intellectual titans who influenced his career trajectory and more. There's sure to be something here that advances your thinking, so let's listen.
Stefan Link: First of all, thanks, Barry, for making the way across the bay.
Barry Eichengreen: It's a pleasure.
Stefan Link: You're often, very frequently, asked to weigh in on contemporary issues. I want to take you back to the 1990s. If I can, your semester here at CASBS was January through June in 1997.
I'm just curious, I mean, it's a long time ago, but what do you remember about this period? You know, what were you working on? And maybe what were economic historians like you thinking about at the time?
Barry Eichengreen: So looking back at my report to the director at the end of my term here, I had proposed that I would work on a couple of projects. One was on the European economy since 1945. I had been commissioned by Mary Folbrooke, a professor of history in London, to write the chapter on the economy for her edited volume, the short Oxford compendium on Europe since 1945.
My contribution turned out not to be so short. It was a 100-page article chapter on the European economy since 1945. That was about both Western and Eastern Europe, about both the successful fast growth period in the third quarter of the 20th century, and the not so successful period that came after.
So the 1990s, after all, was inaugurated. The decade was inaugurated by the fall of the wall and the collapse of the Soviet bloc. So that was part of what was in the air and encouraging me to broaden my focus from the immediate post-war period and Western Europe to look more widely.
So that project, in retrospect, turned out nicely. I wrote that chapter and, with a 10-year delay, turned it into a book on the European economy since 1945. The other project that I proposed to work on in that period during my stay was on the Maastricht Treaty and monetary unification because the euro was impending, if you will, I was here exactly 24 months before the euro came into existence, so a lot of us were thinking about whether this new currency would work, whether the fiscal rules around it were viable or not.
So I did a little bit of work on that together with a colleague in France, Charles Wipplos. I aspired to turn that work into a book as well. That book didn't happen.
Stefan Link: To circle back to Europe and the book you wrote in 2007, so I was intrigued to see that very recently at a talk at the Peterson Institute. You used the book.
Barry Eichengreen: It's called The European Economy Since 1945, Cooperative Capitalism and Beyond. My publisher made me invert my preferred title and subtitle for marketing reasons. So it's The European Economy Since 1945.
Stefan Link: Right. Descriptive title. Published in 2007, right?
That's correct? Yeah. So you used it at a very recent talk at the Peterson Institute and the theme of the event at the Peterson Institute where you have invited, this is on YouTube, publicly available for anyone interested.
The theme was Steering Structural Change and the theme was obviously related to current day concerns, the new industrial policy, the climate challenge, etc., And you chose to go back to that book, why?
Barry Eichengreen: In thinking about industrial policy, etc., my mind inevitably turns to historical precedents that have some similarity with what is happening now and some differences as well. Industrial policy, indicative planning were central to efforts to rebuild the European economy after World War II.
It is argued in much of the literature that they contributed positively, that they contributed importantly to restructuring the economy of Europe after the war, enabling Europe to close the gap in terms of productivity and living standards vis-à-vis the United States. So I thought it was worthwhile to go back and look at that experience one more time to alert my audience, which is not always as aware of such history as it might be, of the parallels and to the extent that industrial policy or indicative planning, as it was then called, indeed worked in the third quarter of the 20th century to try to figure out why it worked and then to ask whether the same approach or the same recipe could be adopted now. So the answer I gave then was what needed to be done in terms of which industries needed to be subsidized and encouraged.
The answer to that question was relatively straightforward. Governments in Europe needed only to look to the United States to see their future, if you will. Today it's much harder to know what the future holds now that many of us are close to the technological frontier and we're in a period of heightened technological uncertainty.
Planning ministries were, in countries like France, were independent, insulated from politics. Whether economic policymakers have that kind of insulation and independence today, I think, is questionable. And the planners had personal authority.
They were eminent people who had contributed importantly to the war effort in their countries, Jan Tinbergen in the Netherlands, Jean Monnet in France. So in going back to that historical experience, I think one becomes skeptical or at least cautious about the prospects for successful productive industrial policies today.
Stefan Link: Well, let me ask you more about that. I mean, in your book, you make a theoretical argument about how growth depends on what you call the institutional fit between the technological and economic demands of the time and the institutions that are in place to respond to them. And you argued that Europe after 1945 and the period of extraordinary growth up into the 70s, you know, this institutional fit was in place and actually applied across the Iron Curtain, both East and West, with indicative planning, extensive growth, catch up development and industrial policy.
You also argue in the book that Europe kind of lost its way in the 1970s and that these institutions got in the way or weren't able to respond to the technological and economic demands of the 1970s and following, which was a much more volatile global macroeconomic environment, but also what would growth depend on would be new technological sectors, so technological innovation that didn't allow for that kind of catch up dynamic. Where are we today? Am I understanding you right that you're saying what's old about, you know, where the parallel of post 1945 Europe may fit is that we're thinking again about industrial policy.
What's new is that we're thinking about industrial policy with an open technological horizon. But what would be the institutional makeup that could respond to this if you were to design it? What would it look like?
Barry Eichengreen: So if I were to design it, I think I would be putting less weight on targeted subsidies and incentives for particular activities and industries. I would be throwing less money at the chip industry or at electric vehicles. And rather I would be trying to equip people better for this uncertain future world.
I'm talking my own book as an educator, but investing more in education and training rather than targeting industries that may be the future or may not. And looking back at US history, for example, the first half of the 20th century was when we had the high school revolution in the United States when the US leapt as much as two generations ahead of other advanced economies in terms of high school attendance and graduation rates. And I think that translated into the productive labor force that we had after World War II together with inter alia the GI Bill that contributed importantly to our success.
Stefan Link: So you said you got interested in it because it was at the time that you were here in the 1990s, the euro was coming, you know, the Iron Curtain had fallen with momentous consequences for Europe and for European integration, the euro was on the horizon. Let me ask you about the euro. You wrote about it then you've witnessed its growth and evolution since and you have at times been fiercely critical of it. Why and where do you see the euro today?
Barry Eichengreen: Whether I've been ferociously critical of it or not depends on who you ask. So many people also think that I was for a long time the American economist most supportive of the euro.
Stefan Link: Let me just say that in one of your books from the 2010s, Hall of Mirrors, was actually on the Great Depression, you called the euro, you said the euro has had disastrous consequences. I believe that's a quote.
Barry Eichengreen: So I think with hindsight, the leap to the euro was probably premature and more labor market reform, fiscal integration, preceding the transition to the euro would have been desirable, but some events cannot be undone. This is a podcast and not a videocast. If it was a videocast, you would be able to see that my hair is gray.
And I sometimes say that the reason my hair is gray is an article that I wrote in 2007. Again, a commission for a collective volume on the euro. I was asked to write the chapter on exiting the euro area, how the euro could collapse.
Perhaps the title was the breakup of the euro zone. And I confidently predicted in that article that it could not happen, that the euro, once it came into existence, could not break up. Because for a country to withdraw would unleash the mother of all financial crises.
All the bank deposits in Greece would be immediately transferred to Frankfurt if Greek citizens got wind of the fact that their government was thinking about withdrawing from the euro area. And as soon as that article got out there, the euro crisis broke. And I would get up every Monday morning to check that no country had in fact abandoned the euro over the preceding weekend.
So far, so good.
Stefan Link: Can you explain a little bit what was problematic about the euro, what you thought was problematic at the time, and what kinds of political response, obviously referring to the Greek crisis in particular and everything, and all that?
Barry Eichengreen: Well, in thinking about the euro and its limitations, I was very much reasoning from the theory of optimum currency areas, which is the analytical framework developed by the late, great Robert Mundell that economists use to think about common currencies. Mundell was Canadian by birth, and he was interested in how different Canadian provinces with very different economic conditions could share a common currency. So that's where his ideas came from.
He observed that there is a relatively high level of labor mobility within successful currency areas. So if one Canadian province is booming and another one is depressed, people will move from the depressed region to the booming one. Europeans are notoriously immobile.
You know, they speak different languages from one another. They are tied to particular areas to a much greater extent than footloose Americans or for that matter, Canadians. If economic conditions are very different across different parts of the currency union, if the shocks affecting the different constituent economies are very different, these asymmetric shocks normally would have to be met by a different set of monetary and fiscal policies in the different regions.
If you're in a monetary union, you have only one monetary policy. And if you're in a monetary union where one of the members looks back at a history where budget deficits led to hyperinflation, you also end up with a very rigid set of fiscal rules that one member, of course, being Germany in the European case. And there was no system of fiscal transfers from booming to depressed regions like we have through the federal tax and transfer system in the US in place then in Europe.
So none of those problems have really been solved over the intervening 25 years. But Europe has basically shown that it can live with these constraints. I do not think that the euro is high on the list of the reasons why the European economy doesn't grow faster. But I do think that we can only understand why the crisis that broke out in Europe starting in 2008-2009 became so severe in terms of these structural flaws, if you will, that the theory of optimum currency areas points to.
Stefan Link: That, of course, is a great point of transition for me to ask you about some of your other work that you were engaged in in the 1990s that is on the gold standard and the Great Depression. And here I want to point to a remarkable paper that came out, an NBER working paper that came out in June 1997. So at the very conclusion of your stay here at CASBS, which you co-wrote with Peter Temin, a great MIT macroeconomist.
It's titled The Gold Standard and the Great Depression. And it's written for historians by economists, for historians. That's what you say in the, I'm not sure that made it into the published version, which is published in the Journal of Contemporary History, I believe.
But that was in the working paper. And you also say, here I want to use a quote from that paper. So regarding the causes of the Great Depression, you said in June 1997, the modern literature can be regarded as having fundamentally solved the riddle of the Great Depression.
That literature focuses on the gold standard. And in the footnotes, with no undue modesty, you and Peter Tham incited your own work with justification, because the gold standard explanation, of course, was most paradigmatically really laid out by yourself in what may be your most famous book, the 1992 Golden Fetters on the gold standard and the Great Depression. And so I'm curious about this.
First of all, you know, with all the appropriate brevity, if you can, might you just briefly explain what is the gold standard interpretation of the Great Depression and how did it depart from other explanations available at the time?
Barry Eichengreen: So I'm going to frame my answer with a couple of side notes. Number one, it's gratifying and uncomfortable to be reminded that your most widely cited book is your first. It's been all downhill from there.
I do think the claim in the article that Peter and I wrote in 1997 was a bit immodest. That's fair. There were three of us who began to argue in the 1980s and 1990s that you could not understand the Great Depression as the simple result of mistaken monetary policies by the Federal Reserve, as some people had tried to do previously.
The three of us who were writing on this subject were Peter Tammann, myself, and of course, Ben Bernanke, who did important work on this area as well. So in 1997, Peter and I tried to summarize what we thought we had learned, which we thought we had conveyed successfully to the economics profession, but that historians had continued to advance arguments about what had happened in particular countries without acknowledging adequately that the Great Depression was a global phenomenon, that the policy responses of central banks and governments were constrained by the gold standard, which was basically a system of fixed exchange rates that couldn't be changed.
Stefan Link: Like the euro.
Barry Eichengreen: Like the euro that prevented individual governments and central banks from adjusting policies in response to economic conditions from loosening when output and employment collapsed after 1929. Peter and I argued that it was not simply the financial constraints of the gold standard, but also the mindset, the mentalite of the gold standard, which went, it's not appropriate for central banks and governments to tailor policy to local conditions. Rather, it should remain on autopilot as it always had been when currencies were tied to gold and thereby to one another.
So this was, if you will, Peter and I had written along these lines that the gold standard was the key to understanding the Great Depression. The phenomenon needed to be analyzed globally rather than locally or nationally. We'd written along these lines separately and individually, so this was an effort to bring our work together.
Stefan Link: How did you get interested in this entire cluster of problems during the period? You're saying, you know, Tim and Eichengreen-Bernanke were working on it jointly and separately. There was something in the air. What was that? Where did this come from?
Barry Eichengreen: So the Great Depression had been analyzed previously, most influential by Milton Friedman and Anna Schwartz in their Monetary History of the United States, published in 1963. The title says it all. It was a monetary history with a short 110-page chapter on the Great Depression focused on the United States.
Most work in macroeconomics and related fields in that period was closed economy, if you will. US academia dominated economics in the 1950s and 1960s. The United States is relatively speaking not a terribly open economy influenced by events in the rest of the world.
So those facts lent themselves to the closed economy focus that informed much of the literature on the Depression. Come the 1980s, the economics profession, including in the United States, becomes more aware of the rest of the world. So my two hats, if you will, are as an economic historian and an international economist, and it became kind of natural to revisit the Great Depression as a global event with open economy or international economy aspects.
You might be asking instead why the Great Depression? Bernanke said it best when he called the Great Depression the Holy Grail of macroeconomics. If you can explain the mother of all business cycles, you presumably can explain the others as well.
So, you know, as scholars, we're naturally drawn to big events, to analyzing big events, and for a business cycle historian or a financial historian or a macroeconomic historian, the Great Depression remains that big event.
Stefan Link: Yeah. Is there a way in which the big global economic events of the 80s, even going back to the 1970s, I just wonder what role they played in the 1970s, of course, the Bretton Woods system of fixed exchange rates broke down, ushering in a period that we still live with today. It took a time to develop, but in which the major currencies, in fact, flowed against each other, which required a completely different sort of institutional responses to govern the global macroeconomy.
In the 1980s, the big debt crisis of Latin America and other emerging markets of the time, I know that you also did some work with Richard Portis in the 1980s, studying the effects of these debt crisis in comparison with the Great Depression. So did these things play a role in this overall shift that you just described from being more interested in understanding the international macroeconomy, or what role did they play?
Barry Eichengreen: So I studied international economics in graduate school in the 1970s. I'm a first generation American. My parents emigrated from Europe, so I may have been more aware than your typical American graduate student in economics in the 1970s of the existence and importance and interesting nature of the rest of the world.
But as you say, Stefan, then there was one interesting international economic event after another, from the collapse of Bretton Woods to the two global oil shocks to the Latin American and Eastern European debt crisis of the 1980s. So I was predisposed, if you will, to look at these international aspects, but there were plenty of interesting international economic events, some of which had historical precedents, or for some of which there were interesting prior historical episodes with which to compare. So that's what Richard Portis and I did for the debt crisis of the 1930s, international debt crisis of the 1930s, for example.
We didn't know when we began working on this in 1984-85 how the Latin American debt crisis would play out. We could look back at the 1930s and understand how that one played out and was ultimately resolved as one way of thinking what the current prospects were.
Stefan Link: Excellent. Can you reflect a little bit on how Golden Fetters was received at the time and has been since?
Barry Eichengreen: So I recall it as being received broadly, positively by both economists and historians. I remember some critics as well. So I mentioned Anna Schwartz previously, a great scholar whose contributions to economics are underappreciated.
But she was very critical of the book and pointed to an earlier book by William Adams Brown, a two-volume book on the international economy in the 1920s and 1930s as containing many of the same insights. Be that as it may, I'm happy that the book continues to be cited and that maybe the rate of citation count has gone up rather than gone down.
Stefan Link: Okay, yeah. I mean, this is, I was once told that every big intervention receives a response from critics along the lines of, what you're saying is firstly, impossible, and also we've known it all along. So maybe Ada Schwartz's response to Golden Fetters fits in there.
Barry Eichengreen: You know, just to elaborate that a little bit, some of the most interesting and rewarding and even combative discussions I've had over the book have been with close friends and colleagues. So for example, my longtime Berkeley colleague with whom I've co-taught many times, Christina Romer, wrote an article together with the now University of Chicago economist, Chiang Kai-shek, critical of the argument in Golden Fetters that even the Federal Reserve was constrained in the policies it could follow by the gold standard. They argued the opposite, and we've gone back and forth over the years over that a lot. We continue to disagree. We continue to be good friends.
Stefan Link: The question there is how much were policymakers at the Federal Reserve at the time in the 1920s behold and through their connections to London to international central bank cooperation and committed to maintaining, to allowing other countries, in particular Britain, to manage the gold standard successfully, as opposed to, this will be Romer's point, am I getting this right, as opposed to focused on more domestic questions.
Barry Eichengreen: So the specific issue where Christy and I disagree is over what is referred to as free gold, how much gold in excess of what was required at the time did the Federal Reserve have specifically in 1932, where the argument in the book is not very much, so it didn't have much leeway if it wanted to keep the dollar pegged to gold as it was obligated to do under the gold standard. It couldn't cut interest rates significantly and loosen it in response to the Depression. The decision had to be taken, as it was by FDR in 1933, to abandon the gold peg before the Fed could begin to loosen.
That is my argument in the book, and the Romer-Shea argument is au contraire. The Fed did have some room for maneuver, and if it hadn't been beholden to this doctrine, it could have cut interest rates even without abandoning the gold standard.
Stefan Link: Yeah, it strikes me that this is very much in tune with the older argument of Friedman and Schwarz, which essentially describes the actions of the Federal Reserve in responding to the crisis as, or I think this is even a quote, inept, quote, unquote, inept. Whereas you argued in the book that there is a certain logic, albeit a perverse logic, to the actions of the Federal Reserve in the sense that they were following gold standard rules. And the question was, do you follow the gold standard rules in that case?
You have to act in deflationary ways, or you abandon the gold standard, which is ultimately what happened across the world in a more or less forced manner.
My sense is that Golden Fetters, it's actually remarkable how durable it has been. Would you still say it holds true today? Have there been any serious challenges? You just referenced your conversations with Romer, which seems to be a disagreement coming from a literature that preceded, so the Friedman-Schwarz monetary interpretation that preceded your intervention. Have there been any new challenges to the set of interpretations you set forth in 1992? Or if not, are there open questions, amendments? Do you see any more than 30 years in?
Barry Eichengreen: So coming from me, you may want to take the statement with a grain of salt, but I think the gold standard interpretation has stood the test of time. And what arguments I developed in the book mainly for Europe and the United States, which was my focus at the time, have been extended, applied, validated for other parts of the world, Latin America, for example, subsequently. So, you know, if I conclude that no, there haven't been important, significant challenges, that probably won't surprise you hearing it coming from me.
Much of the interesting subsequent work done by people in a variety of areas has been on the political economy and on understanding the policy choices that were made. So one of the interesting questions you are inevitably led to by this international perspective on the Great Depression is why different governments, polities, societies responded in such different ways. Some choosing to abandon the gold standard, regain their policy autonomy and use it early on, and others waiting much longer to move if they moved at all.
So what was it about their history, about their contemporary politics, about their geopolitical situation, whatever?
Stefan Link: Do you have an example in mind?
Barry Eichengreen: Well, a classic example would be Latin American countries, which abandoned the gold standard in the face of a vicious deflation relatively early on, 1930-31, in certain European countries epitomized by France that waited an additional six years before moving.
Stefan Link: One more question about the gold standard. So going back to that 97 paper, because I'm trying to anchor our entire conversation here in your CASBS period, one of the things that you say in this paper and in the article that followed is, which strikes me, which has always struck me as parallel to, you've described how you departed from the Friedman-Schwartz monetary explanation, but there is a parallel in the sense that you also, and this is a quote, you ultimately conclude that following the gold stand was bad policy, quote unquote, and that it was bad policies and not, and this is another quote, not deep-seated flaws in the world economy that in a nutshell caused the Great Depression or caused what could have been a garden variety downturn to be the kind of macroeconomic monster that it was. Would you still agree with that statement?
I'm just saying, because it seems to, you know, it runs counter a couple of explanations that stress the impact of World War I, the structural upheavals that followed World War I, reparations, lopsided lending coming out of the United States, which was coupled at the time with high protectionism in the United States, the agricultural oversupply in the world economy at large, and, you know, other arguments that have been made. I'm thinking here of the work of Dietmar Rothermunt, who emphasized the lopsided development, so the fact that in the late 1920s, at the eve of the Great Depression, the world was still divided in essentially a very narrow manufacturing core and a wide, everyone else in the world was exporting agriculture, agriculture and primary goods. So, historians have called it the great specialization, that this lopsided development, a very unipolar world if you want, prevented kind of geographical counterbalancing of the type that we might see today, where, you know, if you think back to the financial crisis of 2008, it was a Western financial crisis.
Emerging markets were, in fact, more resilient in any case than one might expect. Or the literature that focuses on the gold standard as a core institution of empire, Marcelo de Checo's work. So and all of these seem to say, no, no, there were structural flaws in the world economy that they had to do.
It's not just that you could write a counterfactual in which more enlightened policymakers would have recognized that the gold standard was, that remaining attached to the gold standard was a terrible idea and would have ditched it much earlier and then, you know, the whole thing wouldn't have happened.
Barry Eichengreen: You make a very fair point. And indeed, in Golden Fetters and other books like Hall of Mirrors, which you mentioned earlier, I do talk about these structural factors in the global environment leading up to the Great Depression, from imbalances between agriculture and manufacturing to the legacies, both economic, financial and political of World War I. So I would agree that there was an important role for these structural forces, as well as simply for the policy response in explaining what came after.
You can develop arguments like that more fully in a book than you can in a short article for contemporary history. In this podcast, Stefan, you're allowing me to talk about many of my favorite people. Peter Temin, with whom I wrote that 1997 article, is another of my favorite people.
But Peter has a very strong tendency to keep things as simple as possible. That is his strength. And I think he pushed me hard to simplify when we wrote that article.
And we ended up with a simple dichotomy in terms of what was more important. What did we want to put the emphasis on in a short article, on the flawed policies or on the deep structures that unfolded over long periods of time? So all I can say in response is that, yes, I have other work that looks at those structural aspects.
Stefan Link: Yes. And, I mean, the two are not incompatible as I think, again, a lot of your own work has borne out. I want to move on to one more event of the period that you were here at CASBS, the Asian financial crisis, which, well, hit the summer of 97.
I think began, first signs began to show in July 1997, what was the Asian financial crisis countries like Thailand, Indonesia and South Korea had borrowed in foreign currency, over borrowed even though coming off a period of remarkable growth and had at the same time had fixed exchange rates, fixed currencies to the dollar and were forced to abandon these fixed exchange rates in a moment of acute capital flight and crisis. There's another theme here, the fixed exchange rate. Is it a bad idea?
But my question is actually more broad, which is, were you surprised by what happened and did it change your outlook and future work on the international financial system? What happened in 1997?
Barry Eichengreen: Yes and yes. I think everybody was surprised by the eruption of the Asian financial crisis. So some people and institutions like the International Monetary Fund knew there were problems in Thailand, in other words, in an Asian country or two.
But nobody anticipated the widespread systemic financial fragilities and fallout that became the Asian financial crisis. That event was very important for me intellectually for two reasons. Number one, I had done earlier work.
I mentioned Charles Weeplos before. He and I had done earlier work on the 1992 European monetary system crisis when George Soros famously bet against the Bank of England and Sterling was booted out of that pegged exchange rate system. So I was kind of poised to think about the next currency crisis having looked at the last one.
And secondly, I went straight from the center here on the hill to the International Monetary Fund in July of 1997. So the position was to be a senior advisor where I was going to be the wise academic who counseled the young researchers at the IMF. But when the Asian financial crisis hit, it became all hands on deck.
And you will recall that one of the first things that happened in the fall of 1997 when the IMF World Bank Meetings occurred was the Prime Minister of Malaysia, Mohammed Mahathir, accused the hedge funds and Mr. Soros by name of fomenting the Asian crisis and he demanded that the IMF investigate it. So the IMF demanded that I investigate it. So that was the one time when I had a corporate credit card and a team of economists to work with and we went around the world basically talking to hedge funds and their counter parties, the people who booked their trades and their regulators.
It was an interesting experience. You can imagine walking into the office of a hedge fund and saying, Hi, we're from the IMF. Can you tell us whether you caused the crisis?
It was a problematic exercise, but it exposed me really for the first time to the inner inner workings of financial markets and institutions and long conversations with people who worked in the markets. You can study the history and read the books all you want, but to talk to these characters face to face gives you another perspective that has been important to me subsequently in thinking about the world of finance and macroeconomics.
Stefan Link: That's really interesting. Can you say what your finding was overall regarding 1997 and the hedge funds? What did you find out? What did you report back to the IMF?
Barry Eichengreen: So I can tell you some of the things we found, which are on the record. There was a report with my name on it that was issued called Hedge Funds and Financial Market Dynamics. And there were other things that we discovered that I cannot reveal on this podcast.
Stefan Link: We wish you could!
Barry Eichengreen: But the bottom line of the report was there's nothing special about hedge funds. There are lots of entities out there from hedge funds to investment banks to commercial banks, all of which bet against peg currencies when they think there's a chance to collapse the peg and make a profit. So hedge funds were a convenient villain to point to, but there were lots of potential villains, other villains out there if you were a finance minister or a central bank governor seeking to defend your currency peg.
Stefan Link: Is it fair to say that your skepticism about fixed exchange rate regimes is simply owed to the fact that under conditions of capital mobility in a moment of crisis, they will not hold and you end up with a situation where you either need a fixed exchange rate regime that is set in stone like the Euro or floating exchange rates or more flexible exchange rates?
Barry Eichengreen: Yeah. So that is my view that there are rare cases where it's possible to commit beyond a shadow of a doubt to defending a currency peg. Hong Kong is such a case, at least up until now, and there are a few others.
But more typical are the Pound Sterling and the Italian Lira and the others in the 1992 crisis in Europe, this list of Asian currencies in 1997. So the theme really is that in a world of high capital mobility and political democracy, where policy makers come under pressure to attend to other priorities like bringing down a high rate of unemployment, either they can address that concern by cutting interest rates or they can defend the currency by raising interest rates, in which direction does the political pressure run in a democracy. So, that's really the argument of another book, Globalizing Capital, that if you have high capital mobility and democratic politics, it becomes efforts to defend a currency peg are fraught.
Stefan Link: Historically, there is another solution, which you might say comes with different sorts of problems, but you could also prevent capital mobility or ring fence, constrain capital mobility or at least constrain the mobility of capital to be as mobile as it wants if you want in crisis. And if I remember correctly, in the Asian crisis, Mohammed Mahath in Malaysia, in fact, instituted capital controls to some effects. There seem to have been instant reprieve, something that then the IMF took note of, et cetera, et cetera, et cetera.
So, I mean, what role does that play in the mix, the political ability or appetite for constraining capital mobility?
Barry Eichengreen: It's not only Malaysia in the 1990s, but a range of countries in the 1930s responded to pressure on currencies and a difficult economic environment by turning to capital controls. The issue is, the question is, whether that response is feasible on a widespread basis under current political and technological conditions. So ways around capital controls proliferate in a high-tech financial world.
And the politics are such that it's hard to imagine countries which have gone a long way down the road toward capital account liberalization, turning around and going back in the other direction. It's hard to put the toothpaste back in the tube.
Stefan Link: Barry, overrated or underrated? Invocations of the end of neoliberalism.
Barry Eichengreen: I do think that we're taking a turn away from neoliberalism. So I think I would say underrated, that we're along many dimensions, we're moving in a less liberal direction.
Stefan Link: Can I ask a follow-up question on that, which is the term neoliberalism, you don't use it in your work. Can you speak about why?
Barry Eichengreen: I don't know a lot of economists who do use it. So avoiding the word is not a conscious choice. It's just not a standard part of the economists' or economic historians' vocabulary. So somebody like Gary Gerstel comes from a different tradition or political science, political history, background.
Stefan Link: Any ideas of why that is? Would you describe as a disciplinary difference between economics? Or to put it bluntly, it's known, economists tend not to like the term. Why is that?
Barry Eichengreen: I'm not sure economists are all that averse to the term. So if Danny Roderick were sitting here, he's a prominent critic of what you're referring to neoliberal policies.
There is a sense that neoliberalism is somewhat derogatory term, perhaps, insofar as economists are market fundamentalists, market-friendly. They may not like the subtle derogatory connotations.
Stefan Link: Yeah, this has always struck me as ironic because it is also a term of self-description of the first generation of market fundamentalists, if you want. So Milton Friedman has a famous essay as you know from the 1950s, The Prospects for Neoliberalism. The first generation, if you want, neoliberals refer to their project as a new kind of liberalism.
So there's a whole interesting intellectual history here. But before we digress too much, I just want to end with a couple of questions about your work in general, give you a chance to reflect a little bit more broadly. I mean, you've talked about some of the people you've worked with and that have influenced you already.
But I wonder if I could invite you to reflect a little bit more generally about your intellectual influences broadly over the course of your work. And I was wondering if you could talk about three in particular that recur as persons of reference, if you want. The first one is Charles Kindleberger.
Second one is Carlos Díaz Alejandro, who was your advisor at Yale. And the third is Karl Polanyi, who you don't know personally, obviously, but who you've referenced in, you know, passing throughout your work on the Great Depression. Yeah, can I invite you to do that?
Barry Eichengreen: Charlie Kindleberger wrote probably the most important book along with William Adams Brown, who I referred to earlier, anticipating the modern literature on the international interpretation of the Great Depression. So his book was entitled The World in Depression, published in 1973, didn't talk much about the gold standard, but did view the depression as a global phenomenon. And I've often had the uneasy feeling that I'm simply following in Charlie's footsteps.
He worked as a young economist on the Marshall Plan, and I've written on the Marshall Plan. He wrote a book on Europe's economic problems coming out of the war, and I've worked on that. He wrote a book on European economic growth in the 1960s, and I kind of followed 35 years later.
And Charlie was one of the rare birds who early on worked both on economic history on the one hand and international economics on the other, which is the terrain that I plow. He never really regarded himself as an economic historian, but I think he did make important historical contributions. Carlos Diaz Alejandro was on my dissertation committee, as you said, when I was at Yale in the 1970s, and he was important for bringing the economic history of emerging markets, the third world, Latin America, whatever you want to call it, to the attention of the economics profession.
So he too was an exemplar of someone who worked both in economic history and international economics in the Latin American context. I think Carlos was a student of Kindleberger's, actually, if I recall correctly. You noted again accurately that I didn't have the pleasure of knowing Karl Polanyi.
I became aware of him because my father, who, because of the events of the 1930s, was not able to finish university, had Polanyi's book, The Great Transformation, paperback edition, paperback that came out in 1948. I think something like that on the bookshelf at home. So I picked this book up at various years in my child and teenage years and tried to make heads or tails of it, but it remains a fundamental text for those of us who think about the interplay between markets and politics and how events and markets can have political ramifications that feed back to the market arrangements.
So again, in Globalizing Capital, I draw on his insights explicitly.
Stefan Link: Polanyi is interesting because maybe like the term neoliberalism is not exactly popular among economists. Do you ever get raised eyebrows from your economist colleagues when you bring up Karl Polanyi?
Barry Eichengreen: No, because I think there are enough other respectable economists who also invoke his work. Polanyi was influential through his book, primarily his books. Economists don't read books in this day and age, so eyebrows are not raised one way or the other.
Stefan Link: That actually brings me to my next question, because you have straddled over the course of your career and your writings two disciplines, history and economics. Trained obviously as an economist, but I'd be curious to hear from you how you think this relationship has actually evolved since you started out, so since the 1980s and where are we now, I ask, as a historian.
Barry Eichengreen: History and economics moved apart for quite some time, starting in the 1960s and 1970s. I think economists were to blame for this fact initially because we claimed too much asserted that only by using our methods and models could historical questions be definitively answered, which was claiming too much and alienating our friends and colleagues on the history side. So, in response to that very strong intervention by economic historians and economics departments, people in history departments moved away from economic questions.
So there really was a deep divide between the two disciplines for a period of decades. I think there has been some convergence now as economic history on the economic side has matured and we're no longer as imperialistic. We're no longer inclined to claim so much.
We appreciate more the contributions of historians using other methods and approaches. On the history side, say what you will about the new history of capitalism. And one could say a lot of different things, but it has redirected the attention and energies of a bunch of younger historians toward mainstream economic questions.
And finally, I think the availability of new sources of historical data that can be digitized and analyzed in new ways will benefit economic historians in both disciplines and possibly bring them further together.
Stefan Link: Barry, are there any big questions or issues in economic history that you think we haven't asked that you'd be?
Barry Eichengreen: I think the big questions that haven't been answered are the same questions that we've been asking for the longest time. So issues about how economic and political and social development interact with one another and why outcomes are so different across time and different societies, the history of economic development and growth, that's kind of where economic history came in, remains a focus for a lot of people working in the field. I'm gratified by the extent to which the geographical focus of economic history has broadened.
So a lot of the questions that we have asked and partly answered in the context of the United States and Europe, people are asking about the history of other economies and other continents now. So it's striking to me how much more activity there is around Latin American economic history, Asian economic history, African economic history. Again, the ability to digitize historical records, whether these are generated by colonial administrations in Africa or by other means has opened up vistas, if you will, for economic historians of that continent.
So seeing how many people are active working on African economic history, Latin American economic history, Haitian economic history, is gratifying also. So I'm answering your question more in terms of geographic scope, maybe, than intellectual scope.
Stefan Link: Yeah, but I would agree with that. I think that's right. We talked about a couple of things that you got right.
So the persistence of the gold standard interpretation of the Great Depression is remarkable. You earlier referenced that you are so far right on predicting that an exit from the euro is well nigh impossible to engineer for just a single country at this point. So anything you ever got really wrong, and how did that affect your work?
Barry Eichengreen: Forecasts are hard, especially when they involve the future. I can remember two strong forecasts that didn't pan out. One is about exchange rate arrangements for the 21st century.
So I did a little book for Brookings in 1994 called International Monetary Arrangements for the 21st Century, where I argued that because of high capital mobility and democratic politics, countries would have to move toward one of the two poles in terms of exchange rate flexibility, either hard pegs like a monetary union or a currency board at one extreme, or freely floating exchange rates at the other extreme. So in my lighter moments, I called this the bipolar view of international monetary arrangements that the center of the spectrum would hollow out, and it hasn't hollowed out. That there are a substantial number of countries around the world that continue to operate managed, floating exchange rates.
Some float more freely than others.
Stefan Link: China being the big example.
Barry Eichengreen: But the center does hold. You know, the premise of that little 1994 book was that capital mobility would continue to rise and capital controls would continue to go by the boards. That hasn't exactly been the case in China.
So China has had has alternatives that are not as obviously open to other economies, but a variety of other economies with open financial markets. Singapore, for example, targets its exchange rate within a relatively narrow band. Another example would be exorbitant privilege in 2011, so there were two forecasts in that book..
Stefan Link: This is your book on the history and future of the dollar.
Barry Eichengreen: One forecast there was that the dollar's dominance of international monetary and financial affairs would continue to erode over time. And I think that has happened, but even more slowly than I anticipated there. And the other forecast of that book has been wrong, namely that to the extent that the dollar lost dominance or market share, its weight would be taken up by the currencies of the other large economies, the euro area and China.
The euro area has gained no ground on the dollar in the subsequent 14 years. China has gained only a little bit of ground. And what's actually happened is where the dollar lost ground as a reserve currency globally, that ground has been taken up by the currencies of small, open, well-managed economies, Australia, Canada, New Zealand, South Korea, Denmark, Norway, Sweden.
So all of the countries that I've just mentioned, with the exception of South Korea, their currencies are either called the dollar or some variant of the of the corona, which is interesting as well. But I think what they really have in common is that they are the currencies of small, well-managed economies whose financial markets are open to the rest of the world, that also offer positive returns to central bank reserve managers and investors in a period when returns on the dollar and the euro have been relatively low. And what has made it possible for central bank reserve managers and others to move into those currencies is technology, that they're easier to buy, sell, hold, trade, given modern financial platforms, given modern financial technology.
And that wasn't something that I appreciated adequately writing in 2010.
Stefan Link: Barry, final question. So across the decades of your work, there's been kind of core animating interest. If I asked you, I've written on lots of different topics, author of more than 15 books, or is it 30 books. Is there a common thread?
Barry Eichengreen: I'm not sure there is. Maybe I have too many different interests or am too intellectually schizophrenic for there to be a common thread. Maybe one common thread is the interaction of economics and politics, so I do formally have appointments in both the economics department and the political science department at Cal, so that's the Polanyi set of issues yet again.
And the other set of animating questions has to do with the operation of the international system, whatever we mean by international system. How different economies and societies interact with one another. For me, first and foremost, economically, monetarily, financially, but ultimately more broadly.
Stefan Link: One brief follow-up question to that, if I may. The way I read your work is, I was wondering actually about this in the run-up to this interview, there is, I mean, the first book with your name to it is actually a collection of essays that you wrote in the 1980s, and the title is Elusive Stability. And the way I read your work, what stands out to me as a common thread is also a keen interest in governance.
In fact, in how, you know, the international economic system can be reasonably, pragmatically governed, and if you want to correct me if I'm wrong, from a kind of interest in the technocratic mechanisms, but also an interest in how these can be responsive to popular and democratic pressures, is that approaching something like a fair description?
Barry Eichengreen: That's a description I could definitely accept, but I think this little bit of dialogue is a reminder that it's often harder for the principal to identify that animating common theme than it is for someone else looking at the work to do so.
Stefan Link: All right. On that note, thanks Barry.
Barry Eichengreen: Thank you.
Narrator: That was Barry Eichengreen in conversation with Stefan Link. As always, you can follow us online or in your podcast app of choice. And if you're interested in learning more about the Center's people, projects and rich history, you can visit our website at casbs.stanford.edu.
Until next time, from everyone at CASBS and the Human Centered team, thanks for listening.
Thanks for listening.