How America Built A Durable Dollar Empire | Mary Bridges

0:00Demetri Kofinas: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 century.

0:45Demetri Kofinas: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 into National 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.

1:28Demetri Kofinas: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 will require the kind of partnership between government and the private sector that has historically built the country's most strategically vital industries, the kind of full public commitment the United States tends to muster only when it decides a sector is too important to leave behind.

2:19Demetri Kofinas:If you want access to all of this conversation, go to hiddenforces.io slash 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 have questions, feel free to send an email to info at hiddenforces.io.

2:57Demetri Kofinas: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.

3:13Demetri Kofinas:Mary Bridges, welcome to Hidden Forces. Thank you. I'm thrilled to be here. 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.

3:49Demetri Kofinas: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 very nicely within a growing stable of episodes that we've done with guests such as Lev Menand, 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.

4:35Demetri Kofinas:Your bio describes you as a historian of 20th century America, whose research investigates the historical linkages between US foreign relations and the business community. What exactly does that mean? And what does that work look like in practice? 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 U.S.

5:24multinationals 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 institutions, like from BlackRock to Google to Facebook, were really shaping the way U.S. 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.

6:06So my book looks at the expansion of U.S. banks overseas. What I really wanted to understand were the brick and mortar outposts of U.S. banks and how the people set up practices, how basically U.S. 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 U.S. power what it is and was overseas. Yeah.

6:36Demetri Kofinas: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 U.S. dollar play overseas at that time? So the U.S. 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 U.S.

7:18trader who wanted to move goods overseas had to do business in the U.S. 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 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, U.S. 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.

8:05And 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.

8:17Demetri Kofinas: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 or Brown Brothers, for example, that did a lot of international business? 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-U.S. 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.

8:59So soldiers, U.S. soldiers in Manila got paid by the U.S. government, but they had to cash their paychecks at British banks. And the U.S. government was actually having to use British banks in Manila to pay its soldiers. 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 pay its soldiers, right, because it's having to work through British banks. There were also complaints from U.S.

9:36traders 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 pulls that highlighting the limits of the system for these different kind of international activities that the United States is beginning increasingly to move into.

10:05Demetri Kofinas: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? 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.

10:47So it just seemed like a real outlier to me that was it was really the U.S.'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 did forensic 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 kind of -

11:22Demetri Kofinas:Where did those records reside? Are they with Citibank at this point? 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.

12:03And they basically left Connecticut, set up shop, put a sign in a Bridgeport, Connecticut insurance office, and where they could receive mail, but set up shop in New York and then open branches. in the Philippines, China's treaty ports, Panama, and then increasingly in Europe and Latin America.

12:21Demetri Kofinas: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 City Bank, expanded the scope and scale of that same financial architecture or financial infrastructure.

13:00Demetri Kofinas:And so I'm curious to understand how and where those two sets of motivations, the 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? 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.

13:44This 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 other founders were the big names of Gilded Age wealth and robber barons, but they weren't the primary railroad builders.

14:22They were the grandsons or nephews or heirs to 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 U.S. entrepreneurship overcoming all obstacles. They get kicked around a whole lot and have to ask for a lot of political favors and bailouts. Yeah.

14:59Demetri Kofinas: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 pulled 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?

15:41Demetri Kofinas:And are there any parallels there with what we've seen in terms of China's Belt and Road Initiative? In other words, 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? 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 people who want some kind of facility to help move their stuff overseas.

16:20So 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.

16:34Demetri Kofinas:I have a few more questions about this period, but before I ask them, was the forcing function here primarily profit-seeking? 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. 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.

17:33Demetri Kofinas: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 of these changes that we've discussed so far were happening? And is that important context for us to have? So basically, 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.

18:23And 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 panic of 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.

19:03Demetri Kofinas:So in the third chapter, I think of the book or the fourth, you introduced 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? 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.

19:57Before the passage of the Federal Reserve Act, it wasn't possible for National City to really have branches overseas. The Federal Reserve Act removes the prohibition against owning branches overseas. That Connecticut, that weird charter... Oh, go ahead.

20:15Demetri Kofinas:Sorry. I was just going to ask, what was unique about IBC that allowed it to open branches internationally, but National City couldn't? 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, part of what National City wanted was this unique state charter. And National City didn't squish IBC, it completely engulfed 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.

21:08So 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.

21:27Demetri Kofinas: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? 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 U.S. customers. That National City was one of the largest banks to U.S. corporations and really wanted to get more, a greater share of these U.S.

22:06companies 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 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, its typists.

22:38Demetri Kofinas:The infrastructure that your book writes about. 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 U.S. customers. So it's really only a surprise that happens later that they realize that the actual activities of being an international bank can themselves be profitable. That's kind of an afterthought. 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, after the iPhone rather, and the App Store that created applications that did some 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 in that marketplaces.

23:42Demetri Kofinas:So it feels like something similar was going on there. Would you agree with that? Is that a good analogy? Yeah, absolutely. And 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 bankers wanted to assemble all of this credit information about the international trading world. And having this information, they presented as this library, this room in New York with wall-to-wall filing cabinets of all of the business uses you might want to trade with internationally.

24:26And that was the pitch they were taking to the US trading community. It's like, we have the information.

24:32Demetri Kofinas:Well, 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, sugar cane or - Manila hemp. Yeah. Manila hemp. That was technology. The folders were sturdier. And if you go back and look at, as I have, the trade journals of the times, 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.