Daniel De Menocal arrived in Hong Kong in the early 1900s as the first US staffer of one of the earliest US bank branches in Asia. Of all the things that might have impressed him—China’s treaty ports, financing opium trade, the language barrier—one that stuck out was the handwriting: “These young Britishers all had extremely good hand-writing,” he later recalled.Footnote 1
De Menocal learned the consequences of sloppy writing, after several colleagues from the International Banking Corporation were demoted over their poor handwriting. The bank sent young US staffers like De Menocal to London to learn proper British banking methods. At the time, the idea of a US “international banker” hardly existed. Training in London was a way to counter the deficit in domestic know-how. But when De Menocal’s colleagues failed to master penmanship, they had to prolong their stay. “[T]heir handwriting was so bad,” recalled De Menocal, “that the London office could make no use of their service and they were all sent to an English school to be taught how to write before they were permitted to touch pen to paper.”Footnote 2
As De Menocal learned, legible and accurate records were essential to the success of financial institutions, and those institutions were themselves vital linkages connecting imperial metropoles and their colonies, territories, and markets around the world. Clean handwriting and rigorous bookkeeping constituted the prosaic foundations on which financial empires were built.Footnote 3 My dissertation, “Branching Out: Banking, Credit, and the Globalizing US Economy, 1900s–1930s,” investigates these foundations. It untangles the interrelations of expanding US global power in the early twentieth century and the protocols and paperwork of US foreign banking that undergirded it. Doing so reveals that US empire-building was not a coherent, monolithic project devised in Washington, DC, boardrooms but instead was a messy coproduction of often divergent public- and private-sector agendas. Despite their tensions, these agendas nevertheless had the effect of expanding US influence around the world. The dissertation highlights the uneven, racialized, gendered, and class-based foundations on which that influence was built.
The early twentieth century marked a time of massive transformation in US global power. Within a few decades around the turn of the century, the United States went from being a peripheral developing economy—exporting cash crops and courting European investment—to becoming a manufacturing powerhouse, the banker to much of the world, and a “super-state” in the post-World War I order.Footnote 4 “Branching Out” explores the power dynamics that propelled this transformation. It argues that we cannot understand the expansion of US finance overseas without untangling its relation to imperial power—both in terms of dependence on the US state as well as reliance on an earlier generation of European empires.
Financial infrastructures are less visible than the iconic railroads that connected the United States, cemented its continental empire, and catalyzed the growth of managerial capitalism in the nineteenth century. However, as with railroads, financial systems were indispensable to the movement of people, capital, and goods in the early twentieth century. My dissertation focuses on the brick-and-mortar outposts of early 1900s US banks to chart the financial pathways—the trackwork and trestles—through which capital moved. Following the work of bankers such as Daniel De Menocal reveals the way in which US international banking took shape to construct a new apparatus of US foreign power.
Banks are a rich site for tracking the movement of imperial power and capitalism. After all, they do more than simply accept deposits and grant loans. Banks finance wars, increase the money supply, and enable the construction of public works. When the machinery of US finance expanded overseas, US bankers became agents for enlarging US power.
What kind of power? For whose benefit? These were open questions at the time—questions that would be answered only as the circuitry of US multinational banking became operational. The dissertation reveals that the success of US foreign branches had as much to do with private sector entrepreneurship as with a reliance on the US state. Initially, that support often took shape as explicit overseas empire-building in places like the Philippines and Cuba.Footnote 5
As the twentieth century progressed, so too did the structures and formats of state support. In addition to deploying ground troops to flex international muscle, US politicians created a new vehicle for aiding US multinational banking: the Federal Reserve System. Technical, complex, and monied, the Federal Reserve System was a much different imperial formation than militarized conquest, but one that would prove more enduring and adaptable to the changing shapes of US foreign power.
Credit as Cornerstone
The Federal Reserve System spurred the creation of a new information architecture that undergirded US banks’ foreign expansion—the systems for gathering and inscribing credit information, making dossiers about trade opportunities, and extracting details about foreign communities. After all, foreign bankers could not simply jump off a steamer and pluck preconstituted facts out of someone else’s filing cabinet. Credit information had to get made. “Branching Out” examines how that process evolved overseas in the early decades of the twentieth century—a time when, domestically, the practices for evaluating credit were shifting. For generations, credit assessments had depended on first-hand, personalized ways of knowing borrowers. As JP Morgan famously declared in a 1912 Congressional inquiry, character was the cornerstone of commercial credit, more than money or any other characteristic. “Money can not buy it,” he said.Footnote 6
Following a series of financial panics and bank failures around the turn of the century, lenders sought new tools to standardize credit information across the expanding geography of US business. Thus, only a few years after Morgan’s comments, the Federal Reserve Board rallied behind new tools to scientize credit evaluations. Professional credit evaluators wanted to parse “character” and other aspects of creditworthiness into discrete, quantifiable categories. A new field even emerged—“credit barometrics”—to generate statistics for assessing a firm’s creditworthiness, much like actuarial practices measured risk in the insurance industry.Footnote 7 With credit barometrics, calculating ratios—such as the total debt to net worth of a shoemaker, for example—and comparing that number to averages in an industry would help lenders evaluate risk.Footnote 8 At least that was the thinking.
Scholars have analyzed the rich history of US credit systems, but much less is known about the transnational movement of credit practices.Footnote 9 What were the markers of trustworthiness for bankers operating in new contexts? How did traditional information systems of US banking interact with local practices around the world? “Branching Out” expands the geography of US credit practices to reframe our understanding of that history. It reveals that, perhaps surprisingly, overseas bankers clung to traditional forms of personalized knowledge, even as new tools gave an outwardly scientific appearance to credit decisions. I argue that the new forms of bureaucratized credit—enabled and sustained by the Federal Reserve System—tucked longstanding practices of gentleman banking into a new credit machinery, powered by filing cabinets and standardized forms.Footnote 10
The second main intervention of the dissertation is the argument that US banking overseas was interconnected with the changing shape of US empire—but in ways that were less linear and predictable than the scholarship sometimes suggests. Historians of US global power have long been interested in the entanglement of economic and political power, and a common framing in the literature is to regard financiers and diplomats as complementary forces in shaping US power overseas. Historians such as Emily Rosenberg and Peter Hudson have powerfully demonstrated the way in which the racialized and gendered world views of politicians and financiers were foundational to the operation of empire.Footnote 11
My work highlights the friction, contestation, and divergent agendas that defined imperial power at its core. Uncovering the day-to-day mechanics of state-bank relations reveals that the two rarely moved in lockstep. Bankers pursued opportunities for self-enrichment while US politicians balanced a shifting matrix of foreign policy objectives and public relations challenges. For example, as the US colonial government in Manila attempted to promote greater self-rule by Filipinos, US bankers undermined these efforts by financing US businesses that championed imperial control.
While the expansion of US power overseas sometimes put diplomats and bankers at odds, at other times it prompted them to redefine the very boundaries separating public and private sectors to benefit themselves. The patterns of state-bank interaction that evolved in the early twentieth century would become hallmarks of late twentieth-century economic development. As historian Vanessa Ogle has argued, “archipelago capitalism” characterizes the dynamic of multinational businesses relocating to tax havens and evading nation-states’ regulation after World War II.Footnote 12 “Branching Out” demonstrates that many of the dynamics of archipelago capitalism emerged and were refined in the decades prior. The lines between public and private sectors were blurred, erased, and redrawn constantly as banks hopped jurisdictional boundaries.Footnote 13 Civil servants joined corporate boards, and private bankers became leading regulators. As early as the 1920s, US banks assessed regulatory regimes and reformulated their branches’ legal structures to maximize financial opportunities. A careful reading of the mechanics of state-bank interactions helps us understand patterns that came to define globalization in the postwar era.
Structure
The story spans the first three decades of US multinational branch banking. It begins with Chapter One, shortly after 1898 when the United States government found itself in the unusual position of managing an international empire without an international bank. Whereas British banks operated more than twelve hundred branches around the world by 1913, only one US bank had acquired a significant multinational network: the International Banking Corporation.Footnote 14 IBC was a peculiar mashup of robber-baron power and a copycat emulation of elite British banks. It opened more than a dozen branches on four continents at a time when not a single US national bank was permitted to operate foreign branches.Footnote 15 Several historians have drawn attention to IBC’s imperial foundation.Footnote 16 My study expands the geography of that foundation and nuances our understanding of state-bank relations by drawing on the bank’s internal archives to reconstruct its origins. As I demonstrate, IBC executives aspired to make the bank an imperial entity and claimed to work “hand-in-hand with Uncle Sam,” as one IBC banker observed.Footnote 17 The reality, however, was much messier.
Chapter Two uses a case study of IBC’s work in the Philippines to demonstrate the ways in which US bankers and politicians often had different interpretations of promoting US power. While US bankers often understood “pro-American” as revenue-generating for themselves, US colonial officials struggled to downplay the profiteering of US businesses and finesse public relations with a range of Filipino constituencies. Their different visions of empire created friction both in Washington and on the ground in Manila. Some colonial officials bemoaned the ineptitude of US bankers. By contrast, US bankers supported the US business community that denounced the priorities of colonial officials.
The creation of the Federal Reserve System changed the relationship between state power and US overseas banks. Chapter Three examines the ways in which the Fed supported banks’ international work and helped establish a new infrastructure of trade finance. A key feature of that system was a new credit instrument—the bankers’ acceptance—that enabled national banks to commodify trade debt. Understanding the acceptance market requires a gritty detour into the mechanics of early 1900s trade finance, but the payoff is large. Scrutinizing banks’ balance sheets alongside changing Fed policies reveals that the acceptance market was a key site for fusing state and bank power.
“Branching Out” argues that the acceptance market changed the foreign operation of US banks, their financing capacity, and risk calculations.Footnote 18 Not only could US banks resell debt resulting from foreign trade, but they could also discount acceptances with the Federal Reserve. The Fed’s discounting of acceptances performed a kind of monetary alchemy, converting trade debt into deposits at the Federal Reserve – in other words, claims on the US gold supply.Footnote 19 The Federal Reserve invested aggressively in the market for bankers’ acceptances. Throughout the 1910s and 1920s, the Fed purchased acceptances much like it buys Treasury securities today.Footnote 20 By examining this broader financial landscape, we gain a deeper understanding of the way in which the US state was involved not just as a diplomatic negotiator or as a systems architect but also as a day-to-day participant in supporting and shaping the work of US banks overseas.
Chapter Four examines the changes in credit practices associated with the international movement of US bankers, who left New York to make the foreign commercial world legible and predictable looking to domestic firms. As they boarded steamers to enter the “foreign field,” bankers carried a template for what constituted “creditworthy,” which, as I show, emerged from the racialized, gendered, and class-based hierarchies imprinted onto them during their bank training.Footnote 21 As they helped construct a new system of US financial power overseas, their notions about creditworthiness and character informed the information systems they assembled. Despite initial enthusiasm for financial statements and standardized forms, many US bankers ultimately became advocates for a more flexible and fluid epistemology of credit that prioritized face-to-face relationships and social networks as more reliable indicators of trust—modes that resembled nineteeth-century ways of assessing borrowers. This analysis demonstrates how longstanding systems of privilege became etched into a system that aspired to rationalized, quantifiable forms of risk management.
Chapter Five explores what happened as overseas bankers began to see the “foreign field” not as a flat, undifferentiated commercial expanse but as diverse local markets. In doing so, it examines foreign bankers’ attempts to export New York methods of retail banking overseas. From thrift campaigns to savings drives, these efforts deepened the connections between US foreign banks and their local communities and marked a profound shift from bankers’ earlier elite orientation.Footnote 22 Moreover, US foreign banks experimented with legal strategies to adapt to growing resistance to US power in many places around the world. For example, National City Bank acquired IBC in 1919, but it did not dissolve IBC immediately. Instead, bank lawyers and executives found that IBC—both as a brand name and a legal entity—gave the combined National City-IBC behemoth privileges that each institution would have lacked if operating alone. National City’s actions prefigure forms of offshoring and “archipelago capitalism” that have become defining features of twentieth century globalization.Footnote 23
Conclusion
Many of the keywords in this study, such as credit systems and the Federal Reserve, have recently again become headline news. The 2008 financial crisis and the Fed’s responses to the Covid-19 pandemic have laid bare the critical role that banks play in our society. The events have also revealed the politics behind Fed calculations: determining what assets to hold and when involves choices about economic winners and losers.Footnote 24 The Fed’s quantitative easing programs after the financial crisis gave it broader powers to acquire assets other than US Treasury debt. Commentators called quantitative easing “non-traditional” monetary policy, but “Branching Out” reminds us that investing in non-Treasuries assets was, in fact, the most traditional of Fed activities. After all, bankers’ acceptances were foundational to the Fed’s operation prior to the Great Depression. Moreover, the operation of the Federal Reserve System has always been political: it is inherently about the state’s power to create and regulate the money supply and how the public accesses that money.Footnote 25
As many of the cornerstone institutions of twentieth century financialization have come into question in recent years—from fiat money to FICO scores—there is no timelier moment to examine the fissures, pressures, and historical processes that shaped the origins of twentieth-century finance. This study examines the partnerships and tradeoffs that propelled the twentieth century rise of US businesses, as well as the swampy “archipelago capitalism” of regulatory evasion and transnational jockeying that accompanied it.
“Branching Out” reveals that the handwritten ledgers, credit reports, and financial accounts—transcribed by Daniel De Menocal and his colleagues around the world—were not the inevitable byproducts of the demands of commerce. Instead, much like today’s credit algorithms, they were systems for organizing people and distributing money that emerged in response to specific formations of political economy. Moreover, those systems meted out financial opportunity and, on the flip side, inscribed inequality. Understanding the shape of our world today demands that we excavate these origins.
