How America Built A Durable Dollar Empire | Mary Bridges

In Episode 489 https://hiddenforces.io/podcasts/the-infrastructure-of-american-empire-and-the-dollar-system-mary-bridges of Hidden Forces, Demetri Kofinas speaks with historian Mary Bridges, a senior fellow at the Vanderbilt Policy Accelerator and author of Dollars and Dominion, about the origins of America's financial empire, the rise of the dollar from a second-rate currency to the most decentralized form of international money in world history, and what could accelerate or inhibit its continued domination. The first hour traces the origins of America's financial empire following the end of the Spanish-American War, when the dollar wasn't in the same league as the British pound and any American trader moving goods abroad had to go directly through London. Bridges walks us through the messy, often improvised story of how that transformation happened—beginning with the multinational expansion of the International Banking Corporation and its eventual absorption into National City Bank, the entanglement of profit-seeking enterprise with the pursuit of empire, and the central role that information, its creation, organization, and dissemination, played in laying the infrastructure for American financial hegemony. The second hour traces the dollar's evolution into the most decentralized form of international money in world history, embedded in every aspect of global trade and commerce. It then turns to a discussion about the pressures and competition facing the dollar today and what could accelerate or inhibit its continued use as a medium of exchange and store of value internationally. The episode closes with a discussion of Bridges's work on American shipbuilding and maritime power, and her argument that rebuilding America's industrial base will require the kind of government–private sector partnership that has historically built the country's most strategically vital industries—the full public commitment the United States tends to muster only when it decides a sector is too important to leave behind. Subscribe to our premium content—including our premium feed, episode transcripts, and Intelligence Reports—by visiting HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you'd like to join the conversation and become a member of the Hidden Forces Genius community—with benefits like Q&A calls with guests, exclusive research and analysis, in-person events, and dinners—you can also sign up on our subscriber page at HiddenForces.io/subscribe https://hiddenforces.io/subscribe. If you enjoyed today's episode of Hidden Forces, please support the show by: Subscribing on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334, YouTube https://www.youtube.com/channel/UC8URhgYos5fjHqFSO4RSIEg, Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP, Stitcher https://www.stitcher.com/podcast/demetri-kofinas/hidden-forces, SoundCloud https://soundcloud.com/hiddenforces, CastBox https://castbox.fm/channel/2629539, or via our RSS Feed http://hiddenforces.libsyn.com/rss Writing us a review on Apple Podcasts https://podcasts.apple.com/us/podcast/hidden-forces/id1205359334 & Spotify https://open.spotify.com/show/0TK6u251zGSlMgJKH6cOaP Join our mailing list at https://hiddenforces.io/newsletter/ Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Subscribe and support the podcast at https://hiddenforces.io https://hiddenforces.io/. Join the conversation on Facebook https://www.facebook.com/hiddenforcespod/, Instagram https://www.instagram.com/hiddenforcespod/, and Twitter https://twitter.com/hiddenforcespod at @hiddenforcespod Follow Demetri on Twitter at @Kofinas https://twitter.com/kofinas Episode Recorded on 07/13/2026

• 0:00Speaker 00

  What's up everybody? My name is Demetri Kofinas and you're listening to Hidden Forces, a podcast that inspires investors, entrepreneurs, and everyday citizens to challenge consensus narratives and learn how to think critically about the systems of power shaping our world. My guest in this episode of Hidden Forces is Mary Bridges, a historian of 20th century America and a senior fellow at the Vanderbilt Policy Accelerator, whose research investigates the historical linkages between US foreign relations and the business community. She is also the author of Dollars and Dominion, a history of how the United States built its financial empire through the overseas expansion of American banks at the turn of the 20th

• 0:44Speaker 00

  century. Mary and I spend the first hour of this conversation tracing the origins of America's financial empire following the end of the Spanish-American War, when the dollar wasn't even in the same league as the British pound, and any American trader who wanted to move goods abroad needed to go directly through London. She walks us through the improvised, often messy story of how that transformation happened, beginning with the multinational expansion of the International Banking Corporation and its eventual absorption, International City Bank, the entanglement of profit-seeking enterprises with the pursuit of empire, and the central role that information, its creation, organization, and dissemination played in laying the infrastructure for American financial hegemony.

• 1:29Speaker 00

  In the second hour, Mary and I discuss the dollar's evolution from its humble roots as a second-rate currency to becoming the most decentralized form of international money in world history, embedded as it is in every aspect of global trade and commerce. From there, we turn to the pressures and competition facing the dollar today, and what could accelerate or inhibit its continued use as a medium of exchange and store of value internationally. We end the episode with a brief discussion about Mary's work on American shipbuilding and maritime power, and her argument for why rebuilding America's industrial base would require the kind of partnership between government and the private sector that has historically built the country's most strategically vital industries, the

• 2:11Speaker 00

  kind of full public commitment the United States tends to muster only when it decides a sector is too important to leave behind. If you want access to all of this conversation, go to hiddenforces.io/subscribe and join our premium feed, which you can listen to on your mobile device using your favorite podcast app, just like you're listening to this episode right now. If you want to join in on the conversation, become a member of the Hidden Forces Genius Community, which includes Q&A calls with guests, discounted access to third-party research and analysis, and in-person events like our intimate dinners and weekend retreats. You can also do that on our subscriber page. And if you still

• 2:51Speaker 00

  have questions, feel free to send an email to [email protected], and I or someone from our team will get right back to you. And with that, please enjoy this excellent conversation about a pivotal turning point in global history with my guest, Mary Bridges.

• 3:13Speaker 00

  Mary Bridges, welcome to Hidden Forces.

• 3:16Speaker 01

  Thank you. I'm thrilled to be here.

• 3:18Speaker 00

  I'm excited to finally have you on the show, Mary. You spoke with our Genius Community members not long ago about a subject that I'm interested in and about which you published an article in Foreign Policy Magazine related to America's maritime fleet and the US shipbuilding industry. And I think we'll have a chance, in the second hour at least, to revisit part of that conversation, because it does relate to this larger infrastructural thesis that you put forward in your book, Dollars and Dominion, which will form the basis for much of today's conversation. And that has to do with how America built its empire, and in particular, its financial empire, and the US dollar-based financial system that has become such a source of power for Washington. I should also mention that this book fits

• 4:03Speaker 00

  very nicely within a growing stable of episodes that we've done with guests such as Lev Manand, Perry Merling, and Barry Eichengreen, just to name a few, whose books explore each in their own way the growth and eventual internationalization of the US dollar-based financial system. Just so everyone has some context into who you are, you were up until recently at Harvard's Belfer Center, and you've since moved down to Texas where you serve as a senior fellow at the Vanderbilt Policy Accelerator. Your bio describes you as a historian of 20th century America, whose research investigates the historical linkages between US foreign

• 4:45Speaker 00

  relations and the business community. What exactly does that mean? And what does that work look like in practice?

• 4:54Speaker 01

  So, well, first of all, thanks for the chance to get to speak with you. And yeah, you've had some greats on your show, some real luminaries in my field. I guess I started out in this whole process of inquiry. My background is not as an economist, or even as an economic historian necessarily. I was a business reporter. I was a journalist for a while. And I had a few experiences of reporting where the size and scale and kind of airspace that US multinationals claimed in geopolitics really blew me away. And I didn't feel like my traditional history training had prepared me for the degree to which those kind of

• 5:37Speaker 01

  institutions, like from BlackRock to Google to Facebook, were really shaping the way US power looked overseas. And so that was kind of the core dynamic I wanted to understand in my historical research. And I guess the "follow the money" adage for reporting really got drilled into me. And I think so I kept on kind of scooting back the question and wanting to understand the origins of it. And I got to, like, kind of, there's no way around banks. So, my book looks at the expansion of US banks overseas. What I really wanted to understand were the brick-and-mortar outposts of US banks, and how the people set up practices,

• 6:18Speaker 01

  how basically US banking moved the dollar in the beginning of the 20th century. And so that was kind of the origins of my interest, and it was really wanting to understand the interface of public and private sector, how corporations and government worked together to make US power what it is and was overseas.

• 6:36Speaker 00

  Yeah, so your book actually begins at the turn of the 20th century with the Spanish-American War in 1898. What did the American financial system and the role of American financial institutions and the US dollar play overseas at that time?

• 6:52Speaker 01

  So, the US dollar wasn't nothing. It wasn't complete. I mean, I guess to call the United States a financial backwater would be a bit of an overstatement. But in terms of international finance, the dollar was nothing compared to the British pound. The British pound was, you know, the truly gold standard of global banking and global finance. And basically, any US trader who wanted to move goods overseas had to do business in the US with a bank that had operations in London or be affiliated with some kind of British-oriented financial system. So, the United States was a trading nation at

• 7:33Speaker 01

  the time, you know, it did have a global presence, but basically, things all flowed through London. And that system worked. It worked fine. You know, US traders could get credit, like, it wasn't an impossible world. But as the United States starts wanting a larger position internationally and to increase its trading footprint, to kind of claim new markets, the limits of that system and what the United States can't control in that regard starts to become more and more problematic. And so that's really the moment that we start to see in this turn of the century, as the limits of the British-oriented trading world are becoming kind of apparent to a number of players in the United States.

• 8:18Speaker 00

  Well, what were some of those specific, sort of, highest priority drawbacks of having to rely on a foreign intermediary or correspondent bank for companies like the Morgan Bank, like the, or Brown Brothers, for example, that did a lot of international business?

• 8:33Speaker 01

  Well, so Morgan and Brown were pretty well positioned, because they had very nicely integrated family relationships and Anglo partners. So, in fact, their whole banking orbit was this Anglo-US hybrid, and they really straddled that with their partnerships. So, they kind of built it into the way the fabric of their banking worked. You know, there are two kind of concrete examples. So, soldiers, US soldiers in Manila got paid by the US government, but they had to cash their paychecks at British banks. And the US government was actually having to use British banks in Manila to pay its soldiers.

• 9:15Speaker 01

  And soldiers started complaining that they were getting terrible exchange rates. And so they were sort of feeling like they were getting shorted on their pay, according to some of the bankers' letters at the time. And so the United States is feeling really like a two-bit empire that can't even, you know, pay its soldiers, right? Because it's having to work through British banks. There were also complaints from US traders that basically, they're having to expose the inner workings of their business to these British institutions who have much longer-running relationships with British firms. And all of a sudden, they're basically giving over trade secrets in order to get their goods financed. So, there are these kind of poles that highlighting the limits of the system

• 9:59Speaker 01

  for these different kind of international activities that the United States is beginning increasingly to move into.

• 10:06Speaker 00

  So you begin the story, as we said, in terms of time period at the turn of the 20th century, and you also begin with one very specific institution known as the International Banking Corporation, or IBC. Why did you choose to begin with this Connecticut Chartered Bank? And what problem were their partners seeking to solve?

• 10:24Speaker 01

  IBC is a beautiful institution for a historian, I guess I should say. So I sort of chose it. I had read several historians had referenced it, but it was a really opaque institution that weirdly had a global network by like 1903, at a time when it was technically illegal for national banks to operate branches overseas. So it just seemed like a real outlier to me that was, it was really the US's first multinational branch bank, but it didn't really have its own history. It was this kind of bizarro institution that didn't really have its sufficient origin story. So I uncovered its papers and really, you know, did forensic

• 11:09Speaker 01

  analysis of these records in the National Archive and some of its banking records and bankers' memoirs to try to reconstruct what exactly the institution was and was doing. And basically, it's

• 11:21Speaker 00

  Where did those records reside? Are they with Citibank at this point?

• 11:26Speaker 01

  Yeah, the Citibank Archive. And they have partial archives, and then there's a lot of great stuff at the National Archives, and then some of the bankers' papers also helped kind of raise the whole story. And so basically, what happened is the Connecticut Legislature got kind of pressured, sweet-talked, angled into creating this charter that allowed a bank to pretty much do anything, to print money, own other banks, build infrastructure, whatever, as long as it did so outside of Connecticut, which is the recipients of this charter were quite excited to have. And they basically left Connecticut, set up shop,

• 12:07Speaker 01

  put a sign in a Bridgeport, Connecticut insurance office, and where they could receive mail, but set up shop in New York, and then opened branches in the Philippines, China's treaty ports, Panama, and then increasingly in Europe and Latin America.

• 12:21Speaker 00

  So as I said to you before we started the recording, having read your book, I came away with the impression that it tells the early story of how America built its empire, but that it does so through two interweaving frameworks, the first being infrastructural, and the second being narrative-driven, and specifically by telling the story of how Washington, working at times hand in glove with the private sector and profit-seeking entrepreneurs like the partners of the International Banking Corporation, or with National Citibank, expanded the scope and scale of that same financial architecture, or financial infrastructure. And so I'm curious to understand how and where those two sets of motivations, the

• 13:05Speaker 00

  imperial motivations of Washington, and the profit-seeking motivations of bankers and industrialists intersected in the case of, say, IBC's partners, people like Marcellus Hartley and Henry Hyde. What problems were they looking to solve? And how did those objectives and goals align with the problems that the United States government was seeking to address?

• 13:30Speaker 01

  So what was really striking in the archive is the degree to which this was not some grand strategic plot by rapacious capitalists to pillage other, you know, this was a mess. This banking project was a total mess, and people didn't agree. So it was really a bunch of strands of interests that were competing with what to do with this fabulous charter, fabulously expansive charter. And so there's a lot of open questions. And at the outset, there is no clear plan to be a branch bank overseas. Some of the founders who included the really big insurance company money that was really starting to pool up in New York and become huge, huge amounts of capital to invest. And also, some of the

• 14:15Speaker 01

  other founders were the big names of Gilded Age wealth and robber barons, but they weren't the primary railroad builders. They were the grandsons, or nephews, or heirs to those, some of those fortunes, that really had space to dabble, kind of. So there are a lot of debates about what the bank is going to be. And they're bad bankers. They lose a lot of money. They make a lot of rookie mistakes. They're constantly needing to borrow money in New York, to mortgage some of their real estate. And so really, at the outset, it's not a story of, you know, US entrepreneurship, you know, overcoming all obstacles. They get kicked around a whole lot and have to ask for a lot of political favors and bailouts.

• 14:58Speaker 00

  Yeah, I love that you brought up the fact that these were Gilded Age fortunes, and not just people like Edwin Gould and Alfred Vanderbilt, both early members of the IBC Board, and the children of famous railroad magnates Jay Gould and Cornelius Vanderbilt. But more importantly, the funds that were pooled together through these big insurers like Equitable Life, which held nearly one-fifth of the initial issue of IBC stock. So there was a lot of industrial wealth, and people with a lot of money looking for ways to diversify their fortunes. How much of this opportunity reflected a savings glut of sorts, and a buildup of overcapacity in American industrial production, looking for new avenues of growth? And are there any parallels there with what we've seen

• 15:43Speaker 00

  in terms of China's Belt and Road Initiative? In other words, like, the United States had just undergone a rapid phase of industrial development, albeit it was far from finished, and the winners were potentially looking for places outside the country to pour some of those winnings into, and productive output into. Was that also a source of demand that the IBC was looking to satisfy?

• 16:05Speaker 01

  I think so. And some of the founders of the bank are actually these industrialists who want to export their goods, like manufacturers of pneumatic tools and cranes, and, you know, people who want some kind of facility to help move their stuff overseas. So it is an internationally kind of plugged-in, like, how do we move money and goods abroad, kind of design. But I think important to overstate that it's not necessarily a well-oiled machine at this moment.

• 16:34Speaker 00

  I have a few more questions about this period. But before I ask them, was the forcing function here primarily profit-seeking?

• 16:40Speaker 01

  Yes, I think that's fair to say. But it required the simultaneity of these political opportunities, because profit-seeking isn't enough to make it work and to get it landed. It really takes colonial government deposits to make the banks work. So profit-seeking is a huge part of the push, but what creates enough to anchor is the political institutions, the kind of diplomatic force, that kind of extra kick of US empire.

• 17:11Speaker 00

  Yeah, some listeners may already know where I'm headed with this, and I plan to ask you about these questions later. But I'm really interested in drawing out a comparison here, between the animating energies that produce the international dollar system, and those that would conspire in a more overt fashion to supersede it, namely a Chinese devised alternative payment and renminbi collateralized system. Because while these two economies have two very different starting points, they both seem to be converging on the same terrain. And this is something that, again, it's something that we've covered on this podcast for many years, and it's a conversation I'd like to have with you in the second hour, Mary. What was the political climate like in the US at this time, at the time these changes that we've discussed so far were happening? And is that important

• 17:56Speaker 00

  context for us to have?

• 17:58Speaker 01

  So basically, the, to kick us ahead a little bit, the project doesn't really work until we get the creation of the Federal Reserve System, that these kind of scattered banks overseas don't really have enough density, don't really have enough network, don't really have enough staying power to be successful until the central banking system in the United States is established. And so in the United States, there was a huge appetite. The Republicans in power at that time were very kind of favorable to these industrial interests. But it was also a really chaotic time politically, with the crash in 1907, and all kind, panic of

• 18:40Speaker 01

  1907, and then all kinds of political pressure to regulate banking and to create a more stable system. So it is favorable politically for a lot of this activity and kind of gurgling of international movement, but without the institutions to really ground the system until the Federal Reserve System starts getting up and running.

• 19:02Speaker 00

  So in the third chapter, I think of the book, or the fourth, you introduce the National Citibank, which ends up purchasing IBC. Why is that an important piece of a story that you sought to tell in Dollars and Dominion? And how does it fit into the larger process through which the infrastructure of American finance and American empire went international?

• 19:25Speaker 01

  So, running an international banking network is expensive. It is hard. It requires standardization. It requires people. It requires a lot of protocols. And IBC really doesn't have the muscle to do that until they get bailed out by a larger or bought by this and kind of folded into this larger network of National City Bank, which was one of the largest banks at the time and really had the kind of scale to operate this network. Before the passage of the Federal Reserve Act, it wasn't possible for National City to really have branches overseas.

• 20:05Speaker 01

  The Federal Reserve Act removes the prohibition against owning branches overseas, that Connecticut, that weird charter. Oh, go ahead.

• 20:15Speaker 00

  Sorry, I was just gonna ask, what was it? What was unique about IBC that allowed it to open branches internationally, but National City couldn't?

• 20:23Speaker 01

  Connecticut. So, IBC was not a nationally chartered bank. It was a specific state charter that was, by all accounts, very unusual and valuable. And so, IBC really wanted to hold on to that. And in fact, the when National City, part of what National City wanted was this unique state charter. And National City didn't squish IBC, completely engulf IBC. Instead, it kept IBC operational as this kind of, I considered it sort of like a double helix, like they were interwoven institutions that kind of increased each other's operational leverage or kind of plane of operation because of their weird characters and the kind of legacy of staffing and the different ways they had come into being.

• 21:08Speaker 01

  So, National City buys IBC, but really keeps IBC staff, keeps the IBC brand, keeps IBC buildings in many cases. And it's a slow turnover as National City opens its own branches and then gradually, decades later, incorporates all of the IBC branches more formally under its network.

• 21:28Speaker 00

  Now, something I learned in the course of reading your book is that foreign branching often ran at a loss or was otherwise marginally profitable. And this is true for National City. So, why did the bank do it in this case? And what drew it to want to purchase IBC in the first place?

• 21:44Speaker 01

  I was surprised to find that it really had, initially had almost nothing to do with banking in these foreign locations. It was instead, having branches overseas was a way to get US customers. That National City was one of the largest banks to US corporations and really wanted to get more, a greater share of these US companies increasingly looking to trade overseas. And so, the prestige of an international network was a huge draw in selling itself to New York, basically. And so, National City really advertised its banking services, almost like a concierge

• 22:25Speaker 01

  service for traveling businessmen, that traveling businessmen could hop off a boat in Buenos Aires, take a letter of credit to National City Bank, use National City Bank translators, use typewriter, it's typists.

• 22:38Speaker 00

  The infrastructure that your book writes about.

• 22:40Speaker 01

  Exactly, exactly. They could get train schedules and hotel recommendations and contacts with many of the most, the elite merchants and kind of traders and the kind of financial powers of these different cities. And so, National City Bank really uses this international branching to showcase its heft as a ploy to get US customers. So, it's really only a surprise that happens later that they realize that the actual activities of a brand of being an international bank are, can themselves be profitable. That's kind of an afterthought.

• 23:18Speaker 00

  It actually reminded me, when I was reading this portion of the book, it reminded me a little bit of those companies that sprang up in the early 2000s, or early 2000s, after the iPhone, rather, in the App Store, that created applications that did some, you know, engaging consumer thing that were actually loss leaders for the real business, which was collecting customer data that was then sold off to other companies, specifically advertisers and ad marketplaces. So, it feels like something similar was going on there. Would you agree with that? Is that a good analogy?

• 23:48Speaker 01

  Yeah, and absolutely. And I was, one of the drawing principles that I was really interested in understanding was credit information, what the bank wanted out of credit information, because there was so much talk, just in all of the banking records of how they were bankers, wanted to assemble all of this credit information about the international trading world. And having this information, like they presented as like this library, this room in New York with, you know, wall-to-wall filing cabinets of all of the business uses you might want to trade with internationally. And that was the pitch they were taking to the US trading community. It's like, we have the information.

• 24:32Speaker 00

  Well, I, first of all, another thing I learned from your book was that the term Manila folder actually comes because of banks operating in Manila, the Philippines, and the Manila folders were built out of fibers from, what, sugarcane or?

• 24:46Speaker 01

  Manila hemp, yeah.

• 24:47Speaker 00

  Manila hemp, pardon me.

• 24:48Speaker 01

  That's what I said, but that was technology. The folders were sturdier. And if you go back and look at, as I have, the trade journals of the times, you know, the, instead of like ads for AI, you've got ads for filing desks, for desks that had spaces and slots for these folders. And because kind of keeping track of these records, these record systems and records management practices were, you know, that was the cutting-edge information technology of the day.

• 25:16Speaker 00

  So, one of my favorite quotes from the book, and I'm gonna read it now because it works so perfectly with what we're talking about here, is the following. "But the history of banking reveals that determining what information counts as data was and is a process of creating categories, differentiating people, and extracting certain features of an ecosystem as relevant and quantifiable. Credit files are not pre-existing artifacts that US bankers can collect from objectively accurate predetermined sources. Information must get made." I love that last part. And I think that, you know, this is something that especially younger listeners can intuitively

• 25:56Speaker 00

  understand, because it feels like, in some sense, Mary, all of modernity, all of industrial and especially post-industrial civilization, has been about streamlining and scaling information, information acquisition, processing, computation, and storage. And what we're seeing here in terms of how the United States built its administrative empire, and I'm using air quotes there, overseas, is that it outsourced a lot of that informational burden to the private sector and especially to the banking sector. And so, that raises another question for me, which is something that we touched on briefly at the beginning of our conversation, having to do with the legacy infrastructure of the British Empire in particular.

• 26:41Speaker 00

  How much of this, of what the US did, was essentially piggybacking off of the pre-existing infrastructure laid down by previous empires, whether those be the British, the French, or the Dutch? And how much of this was a novel enterprise on the part of the Americans?

• 27:00Speaker 01

  Oh, I am fascinated by that question and really wanted to figure out when this project became American. Like, when does it make sense to even use that term? So, just to, for reference sake, the project was such a British copycat project in the origins that IBC bankers, there was no such thing as an international banker in the United States, really. That did, that job category just didn't exist. IBC sent this kind of cohort of, you know, a handful of young 20-something US men to London to get trained in penmanship, in banking practices. They learned to write and it, basically, they couldn't leave London and go to their

• 27:45Speaker 01

  first posts until they learned to write like British bankers. Because if you couldn't read the ledger, the system didn't work. So, in some of the cities where IBC operated, people thought it was a British bank because every manager that was hired came from Hong Kong Shanghai Bank, HSBC, or Standard Chartered Bank. The staffing was also British. The systems were British. So, that's the snapshot as of like 1902. By the 1930s, there are stories of British credit men coming to the United States and

• 28:23Speaker 01

  admiring these credit libraries in awe of the way in which this information was systematized and.

• 28:31Speaker 00

  And schematized, right.

• 28:33Speaker 01

  Yeah, exactly. And the kind of regularity of those systems. And so, somehow in this period, what really started as a British copycat project changed. But it changed in a really piecemeal way. And in fact, some of the people are still in the same offices. So, it's really hard to say, you know, sharp rupture, though of course, the geopolitical backdrop of how the United States really changed its global status in the course of World War I, and also the institutional changes of the Federal Reserve system, those are not negligible by any stretch. But in terms of kind of the procedural element, the artifacts on the ground, the presence of these banks, it is a much more continuous story.

• 29:15Speaker 01

  So, I think, I think it's sometime in this window from 1902 to the 1930s, but it is a really incremental process.

• 29:22Speaker 00

  Yeah, for listeners out there who are already thinking about Ian McGilchrist's Left and Right Hemispheres, this is very much the left hemisphere organizing the world. And I think this is why his thesis is so useful across domains for thinking about how we bring order to experience. Mary, what were the characteristics and lending practices that were successfully employed by such bankers and banks in the early days in order to make inroads into international markets? And how did those differ from domestic lending practices?

• 29:54Speaker 01

  So, let's see. I mean, what was successful was really place-dependent. It really depended on bankers getting to know, you know, local customs and local hierarchies and the different systems.

• 30:06Speaker 00

  It was an entirely different risk landscape, of course, than operating in the United States and a different need for liquidity and cash reserves. And so I'm curious, sort of logistically, were there any important differences in terms of how the infrastructure needed to be built to address those novelties in those new locations?

• 30:25Speaker 01

  Well, from headquarters' standpoint, from New York's standpoint, in the early period, it's a very haphazard system. And basically, if your manager is good enough, your bank does fine. And that means hiring the right former British banker and keeping that person in place. The problem for IBC is it has ridiculously high turnover. British banks at the time had managers stayed for multiple decades. US banks were running through managers every 18 months or so. And so there really isn't that kind of continuity. And even in the United States at the time, bank managers, the temperament, the kind of social

• 31:08Speaker 01

  networks of bank managers was very predictive of who they're lending to. And banking was only becoming around this moment, moving from this kind of like investment club model to a more professionalized, you know, paper-bound, kind of standardized set of protocols. And so IBC really uses the personalist template to some success, because if the British banker is good enough, that works. And, you know, to the extent that I did a deep dive on the loan portfolio of the Manila Bank of IBC, and there is a lot of white supremacist rhetoric of bankers of the day that is really very clear in the archives and how they talk and

• 31:52Speaker 01

  think about, you know, about the places where they're living. At the same time, IBC in Manila was doing a lot of lending to Chinese merchants and Chinese entrepreneurs, in part because they were some of the elites, and that's what the practices were of British banks. So it was completely unproblematic and expected for IBC to be doing the same kinds of things. So their risk, what we would call risk management practices, were really looking at the elites and continuing to fund those kind of established European and Chinese interests that were already the kind of the local elites.

• 32:28Speaker 00

  Well, without getting our podcast banned or anything, what are some examples of how or what kind of language was used on the part of American bankers operating in the Philippines or in Cuba or elsewhere when talking about the locals or the local economy or their level of economic or social development? How did they view them?

• 32:47Speaker 01

  So it was, you know, Peter Hudson has a wonderful book, Bankers and Empire, that's really about the racial ideologies and the racialized landscape on which US bankers were working in the Caribbean. And it's quite striking, the kind of us-them polarization. At the same time, in practice, there could be a lot more nuance. So US bankers, for example, I looked at China, some of the banking practices of IBC in China. And so bankers would write home really derogatory stereotypes about the kind of table manners of Chinese counterparts, whatever. But then they were completely reliant on this position in Chinese banks called the comprador, which is a little bit, can be translated as sort

• 33:31Speaker 01

  of like a local fixer, but it's also sort of the master of all Chinese lending operations. And the banks couldn't function without this intermediary who oversaw all of the local staff, all of the silver counting. There were so many different coins and types of currency in circulation, and the US bankers were completely baffled by what the different money was. So all the way down to even like balancing the books and keeping the ledgers, they were completely dependent on these different Chinese staffers. So there is definitely a white supremacist kind of overlay to the thinking of bankers. At the same time, the

• 34:13Speaker 01

  practices were a good bit more porous in terms of the ways in which they attached in different places.

• 34:20Speaker 00

  So I'd like to go back to where and how the federal government and these commercial interests are interfacing. Because I feel like most of us, when we think about the government, we think about the private sector, we tend to separate them. But it seems that overseas, especially at the frontier, foreign offices, the military, clandestine services, and private moneyed interests, all kind of blend into each other. And so what were some ways in which these groups were mutually symbiotic? And what other ways were they possibly rubbing up against each other in ways that created tension? So like, help flesh that out for me. What were those relationships like there at the frontier?

• 35:03Speaker 01

  So the Philippines is actually a great place to study it, because this kind of colonial incubator really highlights both extremes, the porousness of public and private sectors, and also the way in which the private sector can push against public government interests. So in the kind of porousness part, the kind of slippery revolving door of people rotating off colonial offices and going into banking practices, there was this, I think it was a sugar plantation deal, where a few people from the colonial, like land assessor's office, realized that there were these huge plots that weren't getting sold. They rotated off office, borrowed money from IBC, partnered with US sugar interests, bought these huge

• 35:48Speaker 01

  tracts of land. Turned out they couldn't build enough stuff on it to make them profitable. Then the former director of Penal Colony also joins the board. They start using prison labor to cultivate. Anyway, there's this huge churn. IBC becomes a part investor in a colonial railroad that's built by these engineers that they've worked with in China that's continually being bailed out by the US government. So it's its own mashup of kind of public-private sector infrastructure, interests, and Cota. The railroad never fully gets built. It never delivers any kind of profit. It's just sort of a disaster of a

• 36:28Speaker 01

  construction project. So there's always that sort of slurry, I guess, of activity going on, in which it's very difficult to disentangle where private sector stops and public sector begins. And then on the other side, there are moments when it really does matter. So after the election of Woodrow Wilson, the interests of the US government really change in the Philippines. And the US government starts talking about wanting to give more self-governance to Filipinos and to Philippine interests, to really give governance back to locals. And the US business community in Manila is horrified. That means sacrificing

• 37:11Speaker 01

  their land. That means sacrificing their political interests. That means putting their investments at risk. And so all of a sudden, that community that has been very continuous with the colonial government lobbies hard against this return to national rule. And you can see the way in which those interests really, really divide and become, you know, this business community has really built its strength in part by piggybacking on all of these colonial favors. And it comes to pushback on what Washington is saying. So I think the Philippines really shows the ways in which the lines can be blurred, and also these moments where it can matter quite substantially, what interests are in public and private sector hands.

• 37:55Speaker 00

  So I'm curious, when looking through the archive, were you able to more clearly identify differing nodes of power within the political economy, especially ones that don't map on perfectly to the public or private sector? And do you feel like you came away from this project with a better sense of how that consensus-making process works? Or did work between Washington and private capital?

• 38:20Speaker 01

  I wish. I found it very blurry. I have so many, like, idea webs and people webs and trying to track all of the different places where it moves. And I don't have like a grid to show how that progression happens.

• 38:34Speaker 00

  Well, one obvious place that you do talk about, the intersection between the private sector and the public sector, and you kind of touched on it with the passage of the Federal Reserve Act in 1913 and its implementation in 1914, was the role of bankers' acceptances. Now, this is something that we also touched on in my recent episode with Barry Eichen Green. Before the Fed used the Treasury market to conduct open market operations, it used bankers' acceptances. Tell our audience a bit here, what are bankers' acceptances? And how did they feature in the internationalization of the banking system?

• 39:08Speaker 01

  I was stunned that you even knew the term. To most people, it's an insanely obscure credit instrument.

• 39:13Speaker 00

  I used to read Paul Warburg's speeches to locally chartered banks years ago. Yeah. In the lead-up to the passage of the Federal Reserve Act, Paul Warburg was going around the country, trying to sell the bank to, yeah, evangelizing. And we kind of touched on this history a bit, not necessarily Warburg's speeches, but the nature of the Federal Reserve system and why it looks the way it does, why it's so decentralized, I think with Lev Menand in our episode. And he wrote a great book called In the Fed We, no, Not in the Fed We Trust. That's, I'm thinking of somebody else there. But in any case, that's a great episode, too. People should listen to it. But refresh our memory here. What are bankers' acceptances? And how did they feature in this very particular hybrid of the public and private sector operating overseas?

• 39:59Speaker 01

  Yeah, so bankers' acceptances are very arcane credit instruments that were really the bread and butter of how the Federal Reserve was supposed to work. And they are kind of a holdover from modeling the Bank of England. And it's hard to explain the logistics of a banker's acceptance without realizing all of the unknowns involved in trading at the time. So sending goods overseas involves a huge amount of risk and a huge amount of time. Sending money back involves a huge amount of risk and a huge amount of time. Bankers' acceptances are a technology that

• 40:38Speaker 01

  emerged to solve some of those gaps and connect intermediaries in order to facilitate trade. So it's a form of trade credit wherein a bank accepts the payment of a particular buyer as that the buyer is actually good for that payment. And so the bank stamps on the Bill of Exchange that this document is good at maturity for payment.

• 41:07Speaker 00

  Isn't that kind of what happens when I use American Express? American Express is taking on the liability of my payment to the merchant, and ultimately, I pay American Express. The bank was taking on that liability as an intermediary.

• 41:20Speaker 01

  Exactly.

• 41:21Speaker 00

  In order to facilitate trade.

• 41:22Speaker 01

  And just like American Express is always going to take that money from you ultimately. So the bank isn't actually having to risk anything upfront because it knows it always has recourse to get the funds. It's just a manner of a way of kind of bridging the unknowns to make that trade possible. And so this Bill on London, as it was called in London, is the cornerstone of how the Bank of England is operating. And at the time, US traders and politicians are looking at the Bank of England as really the explanation for how London became so central in this international trading world. And so people like Paul Warburg envisioned the United States designing a system modeled on the Bank

• 42:06Speaker 01

  of England and other European models, where the central bank buys and sells bankers' acceptances as a way to enable and facilitate more trade based on dollars than on sterling. And so the original architecture of the Federal Reserve is not about buying and selling government debt. That was not the plan at all. In fact, it was considered kind of below the central bank to do such a thing. Lending to the Crown would be just all kinds of, how dare we? Instead, it was supposed to be this private trade credit because there's no way that could be inflationary. That was the thinking of the time. These were, they were called

• 42:50Speaker 01

  real bills. If you increase the availability of bankers' acceptances, that's not going to be inflationary because it's actually tied to production in the economy. And so in the economic thinking of the day, it's inherently anti-inflationary. It's just about providing the flexibility of the currency in the way that we need.

• 43:09Speaker 00

  Right. And also, in an era of great populism and distrust of banking and

• 43:15Speaker 01

  Speculation.

• 43:16Speaker 00

  the money trust, and the money trust, that was an easier sell to Congress.

• 43:20Speaker 01

  Absolutely. It's productive. It's not speculative. It's not going to be feeding these, you know, these kind of money lords on Wall Street. This is the main street. This is where we're really giving money to production. And so it carries the right kind of rhetorical trappings. It has a political backing. It can kind of, it doesn't undercut agricultural interests. So it's really like a Goldilocks, you know, credit instrument in this political moment because everybody can kind of get on board with it. And it's not seen as this huge Wall Street empowering credit instrument. In fact, what actually happens with it is very much a Wall Street story. But in this 1913, 1912, you know, kind

• 44:03Speaker 01

  of run-up-to-the-Federal-Reserve-Act moment, it doesn't look like that.

• 44:07Speaker 00

  What did the secondary market for bankers' acceptances look like at that time before the founding of the Federal Reserve? And how important was the Fed in expanding the size and scope of that market?

• 44:18Speaker 01

  So there is none in the United States. And basically, that has to be the Fed. So the Fed comes in not only authorizing bankers' acceptances, but it is the buyer for the overwhelming majority of bankers' acceptances. Something like, I had a few graphs in my book, and I forget the specific numbers now, but overwhelmingly, if the Federal Reserve wasn't buying, this market would not exist. And so whatever the standards that the Federal Reserve sets for what legitimate paper is, are the ones that carry the day. So all of a sudden, just in terms of its standardizing function, whatever the Fed

• 44:59Speaker 01

  needs for bankers' acceptances to be legit, becomes the kind of singular standard for what this market is going to be able to process. And National City Bank, it's complicated. It's a very complicated piece of credit and a financial instrument to keep track of, to keep all of the paperwork, the insurance claims, all of the intermediaries and partners and things attached to it. So even though it's sold as this kind of real bills, like, you know, productive machinery instrument, to make it happen is incredibly complicated and requires the resources of something of a fairly large institution to do that churn.

• 45:41Speaker 01

  It's low margins. It's complicated. And it requires staffing and training. So the Federal Reserve is there to make it possible. And then players like National City Bank are the ones who can come in and take advantage.

• 45:55Speaker 00

  So Mary, I'd like to flesh out the rest of this history in the second hour, and then fast forward to today and have a conversation about both competitors to the US dollar-based financial system, namely efforts at digitizing and opening up the renminbi, as well as financial innovation, in particular, the promotion of dollar-based stablecoins. And then I'd like to revisit your work in shipbuilding and maritime power, which we had talked about in your appearance on the Genius Community, why this industry is so vital for national security in your view, and what you think can and needs to be done to prioritize it, keeping with the broader theme of America's overseas empire that we've been exploring today. For anyone new to the program, Hidden Forces is listener-supported. We don't accept

• 46:39Speaker 00

  advertisers or commercial sponsors. The entire show is funded from top to bottom by listeners like you. If you want access to the second hour of today's conversation with Mary, head over to hiddenforces.io/subscribe and sign up to one of our three content tiers. All subscribers get access to our premium feed, which you can use to listen to the rest of today's conversation on your mobile device, using your favorite podcast app, just like you're listening to this episode right now. Mary, stick around. We're going to move the second hour of our conversation onto the premium feed. If you want to listen in on the rest of today's conversation, head over to hiddenforces.io/subscribe and join our premium feed. If you want to join in on the conversation and become a

• 47:24Speaker 00

  member of the Hidden Forces Genius Community, you can also do that through our subscriber page. Today's episode was produced by me and edited by Stylianos Nicolaou. For more episodes, you can check out our website at hiddenforces.io. You can follow me on Twitter at Kofinas, and you can email me at [email protected]. As always, thanks for listening. We'll see you next time.