Much of my research has centered on the financial relationships among countries and the determinants of the flows of money, securities, goods, and services among countries. Twenty five years ago I developed the "Andy Warhol Theory of Economic Growth"—every country experiences fifteen or twenty years of rapid growth during the early period of industrialization. Financial capital flows toward countries as their rates of economic growth accelerate because investment spending is high relative to their domestic saving. When their growth rates slow, financial capital flows from these countries because their investment spending has declined relative to their domestic spending. Changes in the anticipated inflation rates also have a major impact on the direction and scope of cross-border flows of money. For most of the period since World War I the U.S. external payments position has evolved to provide consistency of the international accounts for all other countries as a group. During periods when many foreign countries experienced rapid economic growth, these countries developed large trade deficits that meant that the United States then developed the counterpart large trade surpluses. One major policy issue centers on the type of exchange rate arrangements that best accommodates the divergent interests of the United States and its major trading partners—for most of the last 200 years the U.S. dollar and other national currencies have been pegged, initially in the context of the gold standard and subsequently in the context of the Bretton Woods system of adjustable parities. The major currencies have been floating for the last 30 years. In the 1950s and the 1960s the proponents of floating exchange rates advanced a number of claims about the advantages of such an arrangement, including gradualism in terms of the scope and pace of movements in exchange rates and greater independence for national monetary policies. The last 30 years have been the most tumultuous in monetary history; the pace and scope of movements in exchange rates have been larger than ever before, and "overshooting" and "undershooting" (measured as the difference between the market exchange rates and the exchange rates projected from the differences in national inflation rates) also have been larger. There have been four major asset price bubbles—first in Japan and at more or less the same time, in Finland, Norway and Sweden, and then in Bangkok and the neighboring countries in the mid-1990s, and then in the United States in the late 1990s. The national banking systems in 40 or 50 countries have collapsed, after loan losses that in some countries amounted to 20 to 30 percent of their GDPs.


B.A. (1952)Williams College; B.A. (1954) Cambridge University; M.A. (1957) Cambridge University; Ph.D. (1962) Yale University


International Economics,International Finance


  • Associate Professor, then Professor, of International Economics and Finance, Graduate School of Business, University of Chicago, 1964-present
  • Chair, Committee on Public Policy, University of Chicago, 1978-81
  • Senior Economic Advisor, Office of Program Coordination, Agency for International Development, U.S. Department of State, 1964-65
  • Staff Economist, Committee for Economic Development, Washington, D.C., 1961-64
  • Staff Economist, Commission on Money and Credit, New York, N.Y., 1959-61


International finance; macro international economics; asset valuation in the global context; exchange rate arrangements; multinational firms; the international financial system; asset price bubbles

Project Summary

The U.S. trade deficits and the U.S. current account deficits are too large to be sustainable. The U.S. net international debtor position now is thirty percent of U.S. GDP and increasing by four to five percentage points each year. The United States obtains the funds to pay the investment income to the foreign creditors from the creditors in the form of their current purchases of U.S. securities. The U.S. external payments position evolved into the large annual deficits in response to the inflow of saving from other countries, primarily Japan and its neighbors in Asia; in effect the U.S. external accounts passively take on the values that provide global consistency. But there is now a time-inconsistency problem; eventually there must be a significant reduction in the U.S. trade deficits that implies that there must be a counterpart reduction in the trade surpluses of other countries as a group.

Major Publications

  • The Multinational Paradigm, MIT Press, 1992
  • The New International Money Game, Palgrave, Basingstoke, 2001
  • Your Money and Your Life, Basic Books, New York, 1983