Capital Ideas: The IMF and the Rise of Financial Liberalization

by Jeffrey M. Chwieroth

Overview

The right of governments to employ capital controls has always been the official orthodoxy of the International Monetary Fund, and the organization's formal rules providing this right have not changed significantly since the IMF was founded in 1945. But informally, among the staff inside the IMF, these controls became heresy in the 1980s and 1990s, prompting critics to accuse the IMF of indiscriminately encouraging the liberalization of controls and precipitating a wave of financial crises in emerging markets in the late 1990s. In Capital Ideas, Jeffrey Chwieroth explores the inner workings of the IMF to understand how its staff's thinking about capital controls changed so radically. In doing so, he also provides an important case study of how international organizations work and evolve.


Drawing on original survey and archival research, extensive interviews, and scholarship from economics, politics, and sociology, Chwieroth traces the evolution of the IMF's approach to capital controls from the 1940s through spring 2009 and the first stages of the subprime credit crisis. He shows that IMF staff vigorously debated the legitimacy of capital controls and that these internal debates eventually changed the organization's behavior—despite the lack of major rule changes. He also shows that the IMF exercised a significant amount of autonomy despite the influence of member states. Normative and behavioral changes in international organizations, Chwieroth concludes, are driven not just by new rules but also by the evolving makeup, beliefs, debates, and strategic agency of their staffs.

Product Details

ISBN-13:	9780691142326
Publisher:	Princeton University Press
Publication date:	01/03/2010
Pages:	352
Product dimensions:	6.10(w) x 9.10(h) x 0.90(d)

About the Author

Jeffrey M. Chwieroth is senior lecturer in the Department of International Relations at the London School of Economics and Political Science.

Table of Contents

List of Figures and Tables ix

Preface xi

List of Abbreviations xvii

CHAPTER ONE: Introduction 1

CHAPTER TWO: Normative Change from Within 23

CHAPTER THREE: Capital Ideas and Capital Controls 61

CHAPTER FOUR: Capital Controlled: The Early Postwar Era 105

CHAPTER FIVE: The Limits and Hollowness of Keynesianism in the 1960s 121

CHAPTER SIX: Formal Change and Informal Continuity: The Reform Negotiations of the 1970s 138

CHAPTER SEVEN: Capital Freed: Informal Change from the 1980s to the Mid-1990s 147

CHAPTER EIGHT: Capital in Crisis: Financial Turmoil in the Late 1990s 187

CHAPTER NINE: Norm Continuity and Organizational Legitimacy from the Asian Crisis to the Subprime Crisis 226

EPILOGUE: A Subprime "Crisis" for Capital Freedom? 255

Index 301

What People are Saying About This

Randall Stone

This is a fascinating and important book that every student of the International Monetary Fund should read and absorb. Chwieroth buttresses his argument with impressive interview and archival research and poses a serious challenge to previous scholarship about the liberalization of global finance.
— Randall Stone, University of Rochester

From the Publisher

"Chwieroth gives us an in-depth and fair account of what the staff of the International Monetary Fund came to believe about freedom of capital flows and, more importantly, why the IMF holds those beliefs and how its views have evolved over the past six decades. Capital Ideas will be a valuable source for researchers studying one of the key economic policy issues of our time."—James M. Boughton, author of Silent Revolution: The International Monetary Fund, 1979-1989

"This is a fascinating and important book that every student of the International Monetary Fund should read and absorb. Chwieroth buttresses his argument with impressive interview and archival research and poses a serious challenge to previous scholarship about the liberalization of global finance."—Randall Stone, University of Rochester

"What works so well about Capital Ideas is Jeffrey Chwieroth's commitment to understanding historical change and to the very challenging task of getting inside the 'black box' that is the International Monetary Fund. Chwieroth convincingly knocks down some cherished assumptions about international financial institutions and international organizations more broadly. This is a most interesting book and it is likely to be widely read and become a standard work in the field."—Timothy J. Sinclair, University of Warwick

Boughton

Chwieroth gives us an in-depth and fair account of what the staff of the International Monetary Fund came to believe about freedom of capital flows and, more importantly, why the IMF holds those beliefs and how its views have evolved over the past six decades. Capital Ideas will be a valuable source for researchers studying one of the key economic policy issues of our time.
— James M. Boughton, author of "Silent Revolution: The International Monetary Fund, 1979-1989"

Sinclair

What works so well about Capital Ideas is Jeffrey Chwieroth's commitment to understanding historical change and to the very challenging task of getting inside the 'black box' that is the International Monetary Fund. Chwieroth convincingly knocks down some cherished assumptions about international financial institutions and international organizations more broadly. This is a most interesting book and it is likely to be widely read and become a standard work in the field.
— Timothy J. Sinclair, University of Warwick

Editorial Reviews

"This book . . . usefully traces the evolution of the thinking about this issue at the International Monetary Fund, the international body most concerned with it."

Foreign Affairs

[Capital Ideas] is an absorbing narrative of the varying IMF's intellectual processes at work. Many may find it academic in approach—and it is. Nevertheless, the book is an important read for those who wish to understand our economic environment to be better masters of our own destiny.

Businessworld - Srikanth Srinivas

How do ideas travel and become shared beliefs? Or, more worryingly, how do 'causal beliefs become hardened into articles of faith' (p. 47)? And how do beliefs get turned into policies? In this intelligent, well-researched and thought-provoking book Jeffrey Chwieroth addresses these questions, using the IMF's approach to capital account liberalization as a case study. . . . Capital Ideas is a truly multidisciplinary book whose author draws on economics, international political economy and sociology to explore how an organization fosters, promotes and disseminates ideas.

International Affairs - Paola Subacchi

Jeffrey M. Chwieroth provides the best inside view of the international organization that an outsider can offer. . . . More organizational behavior than international economics, Capital Ideas is an important contribution to the literature on IO governance.

Journal of International and Global Studies - Anthony Clark

This is a fascinating book. . . . Every economist with an interest in international finance would learn from reading this book, and would enjoy doing so.

Journal of Financial History Review - Geoffrey Wood

[Capital Ideas] is an absorbing narrative of the varying IMF's intellectual processes at work. Many may find it academic in approach—and it is. Nevertheless, the book is an important read for those who wish to understand our economic environment to be better masters of our own destiny.
— Srikanth Srinivas

Businessworld

How do ideas travel and become shared beliefs? Or, more worryingly, how do 'causal beliefs become hardened into articles of faith' (p. 47)? And how do beliefs get turned into policies? In this intelligent, well-researched and thought-provoking book Jeffrey Chwieroth addresses these questions, using the IMF's approach to capital account liberalization as a case study. . . . Capital Ideas is a truly multidisciplinary book whose author draws on economics, international political economy and sociology to explore how an organization fosters, promotes and disseminates ideas.
— Paola Subacchi

International Affairs

Jeffrey M. Chwieroth provides the best inside view of the international organization that an outsider can offer. . . . More organizational behavior than international economics, Capital Ideas is an important contribution to the literature on IO governance.
— Anthony Clark

Journal of International and Global Studies

This is a fascinating book. . . . Every economist with an interest in international finance would learn from reading this book, and would enjoy doing so.
— Geoffrey Wood

Journal of Financial History Review

Combining archival research, interviews, and his own survey research, [Chwieroth] provides a compelling history of how the IMF gradually changed from supporting capital controls to opposing them. . . . Chwieroth's work fills an important void in the literature.

Choice

This is a fascinating book. . . . Every economist with an interest in international finance would learn from reading this book, and would enjoy doing so.—-Geoffrey Wood, Journal of Financial History Review

"This book . . . usefully traces the evolution of the thinking about this issue at the International Monetary Fund, the international body most concerned with it."—Foreign Affairs

Jeffrey M. Chwieroth provides the best inside view of the international organization that an outsider can offer. . . . More organizational behavior than international economics, Capital Ideas is an important contribution to the literature on IO governance.—-Anthony Clark, Journal of International and Global Studies

How do ideas travel and become shared beliefs? Or, more worryingly, how do 'causal beliefs become hardened into articles of faith' (p. 47)? And how do beliefs get turned into policies? In this intelligent, well-researched and thought-provoking book Jeffrey Chwieroth addresses these questions, using the IMF's approach to capital account liberalization as a case study. . . . Capital Ideas is a truly multidisciplinary book whose author draws on economics, international political economy and sociology to explore how an organization fosters, promotes and disseminates ideas.—-Paola Subacchi, International Affairs

"Combining archival research, interviews, and his own survey research, [Chwieroth] provides a compelling history of how the IMF gradually changed from supporting capital controls to opposing them. . . . Chwieroth's work fills an important void in the literature."—Choice

[Capital Ideas] is an absorbing narrative of the varying IMF's intellectual processes at work. Many may find it academic in approach—and it is. Nevertheless, the book is an important read for those who wish to understand our economic environment to be better masters of our own destiny.—-Srikanth Srinivas, Businessworld

"This is a fascinating book. . . . Every economist with an interest in international finance would learn from reading this book, and would enjoy doing so."—Geoffrey Wood, Journal of Financial History Review

All in all, the book offers a comprehensive explanation of the international financial flow: mechanisms, institutions, causes and effects. . . . [I]ts language is clear and accessible to all.—-Rodica Milena Zaharia, European Legacy

"Jeffrey M. Chwieroth provides the best inside view of the international organization that an outsider can offer. . . . More organizational behavior than international economics, Capital Ideas is an important contribution to the literature on IO governance."—Anthony Clark, Journal of International and Global Studies

"How do ideas travel and become shared beliefs? Or, more worryingly, how do 'causal beliefs become hardened into articles of faith' (p. 47)? And how do beliefs get turned into policies? In this intelligent, well-researched and thought-provoking book Jeffrey Chwieroth addresses these questions, using the IMF's approach to capital account liberalization as a case study. . . . Capital Ideas is a truly multidisciplinary book whose author draws on economics, international political economy and sociology to explore how an organization fosters, promotes and disseminates ideas."—Paola Subacchi, International Affairs

Chwieroth's book is captivating and persuasive because of a rare combination of interviews with former IMF staff, archival research, and original survey evidence, with an impressive overview of a diverse secondary literature.—-Cristina Bodea, Perspectives on Politics

"[Capital Ideas] is an absorbing narrative of the varying IMF's intellectual processes at work. Many may find it academic in approach—and it is. Nevertheless, the book is an important read for those who wish to understand our economic environment to be better masters of our own destiny."—Srikanth Srinivas, Businessworld

"All in all, the book offers a comprehensive explanation of the international financial flow: mechanisms, institutions, causes and effects. . . . [I]ts language is clear and accessible to all."—Rodica Milena Zaharia, European Legacy

"Chwieroth's book is captivating and persuasive because of a rare combination of interviews with former IMF staff, archival research, and original survey evidence, with an impressive overview of a diverse secondary literature."—Cristina Bodea, Perspectives on Politics

From the Publisher