What happens when a hegemon falls?
Why economists are turning to a 50-year-old book on the Depression
May 8th 2025
The “Kindleberger Spiral”, a graph of world trade between 1929 and 1933, looks like water circling a drain, or a small animal curling up into a ball. It was produced by Charles Kindleberger, an economic historian, in “The World in Depression”, a book published in 1973, and has recently enjoyed a new lease of life as a demonstration of the self-harm that protectionism inflicts. From month to month, Kindleberger charted how the global economy turned in on itself throughout the late-1920s and 1930s, spiralling towards disaster. Another idea from his work—the “Kindleberger gap”, referring to a leadership void—is also proving helpful.
Kindleberger had a front-row seat for the Depression. As a graduate student completing his thesis in the 1930s, he worked at the US Treasury for Harry Dexter White, chief architect of the post-first-world-war system of fixed exchange rates. Graduation led to a job at New York Federal Reserve. After the second world war, during which he worked at the Office of Strategic Services, a precursor to the CIA, he moved to the State Department, where he helped shape the Marshall Plan, America’s programme for the reconstruction of Europe. In time he found his way to academia—he had probably had enough excitement, his biographer speculates—becoming one of the first members of the economics department at the Massachusetts Institute of Technology.
At MIT, Kindleberger was something of a pre-war figure in a post-war world. He was not a mathematical-model builder in the mould of Paul Samuelson and Robert Solow, two supremely talented colleagues. Instead, he followed a methodology he called historical economics, not economic history. “It is better, I believe, to err on the side of an artistic feel for the relationships and the data,” he wrote. Despite this, in 2009, it was his work to which Larry Summers turned as he co-ordinated America’s response to the financial crisis while director of the National Economic Council.
“The World in Depression” answers fundamental questions: “How and where the Depression originated, why it spread so widely and why it went so deep and lasted so long.” The book starts with the venomous diplomacy of first-world-war debts and reparations, travels through the stockmarket crash of 1929, the turn to protectionism, subsequent bank failures and the seemingly never-ending economic slump, until it concludes with German rearmament—stopping short of the second world war.
Kindleberger’s conclusion is that the Depression was such a disaster because the global economy lacked a leading nation to stabilise it. “Britain could not and America would not,” he wrote. Britain, which under the gold standard was the dominant economic as well as military power, was exhausted by the first world war. America was isolationist, protectionist and overrun by hard-money thinking, which insisted on balanced budgets and a gold peg. France was too small to stabilise the world but big enough to destabilise it, he wrote, as when the country attached conditions to bail-outs or dug in its heels over German reparations. The Kindleberger gap refers to this void of economic leadership.
Why economists are turning to a 50-year-old book on the Depression
May 8th 2025
The “Kindleberger Spiral”, a graph of world trade between 1929 and 1933, looks like water circling a drain, or a small animal curling up into a ball. It was produced by Charles Kindleberger, an economic historian, in “The World in Depression”, a book published in 1973, and has recently enjoyed a new lease of life as a demonstration of the self-harm that protectionism inflicts. From month to month, Kindleberger charted how the global economy turned in on itself throughout the late-1920s and 1930s, spiralling towards disaster. Another idea from his work—the “Kindleberger gap”, referring to a leadership void—is also proving helpful.
Kindleberger had a front-row seat for the Depression. As a graduate student completing his thesis in the 1930s, he worked at the US Treasury for Harry Dexter White, chief architect of the post-first-world-war system of fixed exchange rates. Graduation led to a job at New York Federal Reserve. After the second world war, during which he worked at the Office of Strategic Services, a precursor to the CIA, he moved to the State Department, where he helped shape the Marshall Plan, America’s programme for the reconstruction of Europe. In time he found his way to academia—he had probably had enough excitement, his biographer speculates—becoming one of the first members of the economics department at the Massachusetts Institute of Technology.
At MIT, Kindleberger was something of a pre-war figure in a post-war world. He was not a mathematical-model builder in the mould of Paul Samuelson and Robert Solow, two supremely talented colleagues. Instead, he followed a methodology he called historical economics, not economic history. “It is better, I believe, to err on the side of an artistic feel for the relationships and the data,” he wrote. Despite this, in 2009, it was his work to which Larry Summers turned as he co-ordinated America’s response to the financial crisis while director of the National Economic Council.
“The World in Depression” answers fundamental questions: “How and where the Depression originated, why it spread so widely and why it went so deep and lasted so long.” The book starts with the venomous diplomacy of first-world-war debts and reparations, travels through the stockmarket crash of 1929, the turn to protectionism, subsequent bank failures and the seemingly never-ending economic slump, until it concludes with German rearmament—stopping short of the second world war.
Kindleberger’s conclusion is that the Depression was such a disaster because the global economy lacked a leading nation to stabilise it. “Britain could not and America would not,” he wrote. Britain, which under the gold standard was the dominant economic as well as military power, was exhausted by the first world war. America was isolationist, protectionist and overrun by hard-money thinking, which insisted on balanced budgets and a gold peg. France was too small to stabilise the world but big enough to destabilise it, he wrote, as when the country attached conditions to bail-outs or dug in its heels over German reparations. The Kindleberger gap refers to this void of economic leadership.
