Continued from part 1.

The story in its popular outline is well known.

Facing persistent stagflation, the new chair of the Federal Reserve, Paul Volcker, set out to cure the American economy via a treatment of shock therapy, rapidly hiking interest rates. From 1979 to 1983 the effective federal funds rate scarcely dipped below 10 percent and nearly touched 20 percent. Rising from the ashes of Volcker’s manufactured recession, Ronald Reagan’s program of tax cuts, deregulation, and increased military spending powered the American economy through the decade, culminating in the capitulation of its exhausted Cold War rival as the country rode triumphantly on into the 1990s and the end of history.

Except, of course, that history did not end. And for all the general story gets right, it glosses over much. For example, the late 1980s and early 1990s also featured multiple recessions and crises that usually go unmentioned. Further, within the solutions arrived at to maintain the dollar’s hegemony in the post–Bretton Woods period were the ingredients of the eventual global financial crisis. When it occurred in 2007–08 it triggered a global recession, and further political and geopolitical upheavals that have yet to be decisively settled. For all their significance, it may seem strange to look to the seemingly esoteric history of money and banking in the United States for insight as to why events transpired as they did. But once it had been accepted in the 1970s that currency values would henceforth be determined by market forces, the logic of the proposition generated its own slew of corollaries, liberalized capital controls and domestic banking among them.

This was happening, furthermore, at a time of broader social, political, and economic change. And while these dynamics often interact in ways that make it difficult if not impossible to discern the extent to which any or all are involved in driving a given event, in this case several...

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