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political spectrum in ruins, the entire debate shifted. Suddenly, there was only one basic approach to organizing a country’s economy. This is why Alan Greenspan has described the fall of the Soviet Union as the seminal economic event of our time. Since then, despite all the unease about various liberalization and marketization plans, the general direction has not changed. As Margaret Thatcher famously put it in the years when she was reviving the British economy, “There is no alternative.”
    The ideological shift in economics had been building over the 1970s and 1980s even before the fall of the Berlin Wall. Conventional economic wisdom, embodied in organizations such as the International Monetary Fund and the World Bank, had become far more critical of the quasi-socialist path of countries like India. Academic experts like Jeffrey Sachs traveled around the world advising governments to liberalize, liberalize, liberalize. Graduates of Western economics programs, such as Chile’s “Chicago Boys,” went home and implemented market-friendly policies. Some developing countries worried about becoming rapacious capitalists, and Sachs recalls explaining to them that they should debate long and hard whether they wanted to end up more like Sweden, France, or the United States. But, he would add, they didn’t have to worry about that decision for a while: most of them were still much closer to the Soviet Union.
    The financial force that has powered the new era is the free movement of capital. This, too, is a relatively recent phenomenon. The post–World War II period was one of fixed exchange rates. Most Western countries, including France and Italy, had capital controls restricting the movement of currency in and out of their borders. The dollar was pegged to gold. But as global trade grew, fixed rates created frictions and inefficiencies and prevented capital from being put to its best use. Most Western countries removed controls during the 1970s and 1980s. The result: a vast and ever-growing supply of capital that could move freely from one place to the next. Today, when people think about globalization, they still think of it mostly in terms of the huge amount of cash—currency traders swap about $2 trillion a day—that sloshes around the globe, rewarding some countries and punishing others. It is globalization’s celestial mechanism for discipline. (That discipline didn’t extend to the money-shifters themselves. Those piles of money created their own problems, which we’ll get to in a moment.)
    Along with freely floating money came another policy revolution: the spread of independent central banks and the taming of inflation. Hyperinflation is the worst economic malady that can befall a nation. It wipes out the value of money, savings, assets, and thus work. It is worse even than a deep recession. Hyperinflation robs you of what you have now (savings), whereas a recession robs you of what you might have had (higher standards of living if the economy had grown). That’s why hyperinflation has so often toppled governments and produced revolution. It was not the Great Depression that brought the Nazis to power in Germany but rather hyperinflation, which destroyed the middle class by making its savings worthless.
    It is rare that one can look back at a war that was so decisively won. Starting with Paul Volcker in the United States during the early 1980s, central bankers waged war on inflation, wielding the blunt tools of monetary policy to keep the price of goods relatively stable. It’s hard to overstate the momentousness of this economic battle. Between 1854 and 1919 (the years immediately preceding the creation of the Federal Reserve, the institution responsible for keeping inflation in check), recessions struck once every four years and lasted nearly two full years when they came. In the two decades before 2008, the United States experienced eight years of uninterrupted growth between recessions, and the