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At Liberty Street Economics , New York Federal Reserve economist Linda Goldberg provides the most succinct history of international banking we've seen. Here it is: Actually, she has a series of charts and explanations of key changes in banking since the 1800s. The above chart gives the broad overview. Goldberg calls the rise from 1860 to 1914 "the First Age of Globalization," in which increasing connectivity between nations brought about "large-scale capital investments (such as in railways), a deepening of global finance, and expanded prosperity." The start of the First World War brought that all to a halt. Goldberg: World War I marks the onset of the second period—what economists Raghu Rajan and Luigi Zingales call “The Great Reversal of 1914 through 1939.” This period is characterized by financial collapse and the Great Depression. They forcefully argue that this episode shows that globalization is not an immutable economic force, and a backlash against it can be disastrous. Indeed, as the previous chart shows, after restarting briefly, financial integration again collapsed with World War II and recovered slowly thereafter. Recognizing the importance of avoiding the mistakes of the interwar period, the Allies met in Bretton Woods, New Hampshire, in 1944 to create institutions to oversee the repair of the international financial system and to ensure trade and recovery among nations. This effort gave rise to the International Monetary Fund and the World Bank, and in 1947 to the General Agreement on Tariffs and Trade (in Geneva), which evolved into the World Trade Organization. The policy focus of these organizations was institution-building, recovery, and the financing of at least temporary balance-of-payment difficulties that arose at the sovereign level. The last period—the “Second Age of Globalization”—spans roughly 1960 through the end of the twentieth century. The era is characterized by intense financial integration. One of the most frequently used metrics of international financial integration, depicted in the chart below, demonstrates this point. Constructed using data on international assets plus international liabilities relative to GDP, the metric shows a number of periods of accelerating financial integration. How would you define the era from 2000 to 2008, and then the period we are in now? Read How Has the Business of International Banking Changed? here .

The West has dominated wealth creation since the Industrial Revolution. It sure feels like the dawn of the twenty-first century is revealing a shift of some sort. Could this be the end of the West's dominance of the global economy? If it is, in what ways is that a bad thing for the global economy? And what lessons might China, India, Brazil, and other rising economies take from the last 200 years? The often-provocative Niall Ferguson tries to tackle the question of how the "Great Divergence" came about. In this Ted Talk, Ferguson outlines what he calls "killer apps," that set the course for the West's unrivaled rise of prosperity:

Robert Samuelson , business and financial journalist for the Washington Post and Newsweek , is tired of the blame game. He sees a lot of people trying to explain the cause of the the global economic crisis and the great recession by looking for clear villains and victims. And while he agrees that there is a lot of blame to go around, he argues, the the latest Wilson Quarterly , that the story of this recession is more one of boom and bust cycles. It is a narrative that is more complicated and less satisfactory for some. But, he writes, this telling of the story "is more understandable and innocent than the standard tale of calculated greed and dishonesty." But the story is also more disturbing in that it batters our faith that modern economics—whether of the Left or Right—can protect us against great instability and insecurity. The financial panic and subsequent Great Recession have demonstrated that the advances in economic management and financial understanding that supposedly protected us from violent business cycles—ruling out another Great Depression—were oversold, exposing us to larger economic reversals than we thought possible. It’s true that we’ve so far avoided another depression, but it was a close call, and the fact that all the standard weapons (low interest rates, huge government budget deficits) have already been deployed leaves open the disquieting question of what would happen if the economic system again lurched violently into reverse. The economic theorems and tools that we thought could forewarn and protect us are more primitive than we imagined. We have not traveled so far from the panic-prone economies of 1857, 1893, and 1907 as we supposed. Our experience since 2007 has also revealed a huge contradiction at the center of our politics. Prosperity is almost everyone’s goal, but too much prosperity enjoyed for too long tends to destroy itself. It seems that periodic recessions and burst bubbles—at least those of modest proportions—serve a social purpose by reminding people of economic and financial hazards and by rewarding prudence. Milder setbacks may avert less frequent but larger and more damaging convulsions—such as the one we’re now experiencing—that shake the country’s very political and social foundations. But hardly anyone wants to admit this publicly. What politician is going to campaign on the slogan, “More Recessions, Please”? In a more honest telling of the story, avaricious Wall Street types, fumbling government regulators, and clueless economists become supporting players in a larger tragedy that is not mainly of their making. If you ask who did make it, the most honest answer is: We all did. Put differently, the widely shared quest for ever-improving prosperity contributed to the conditions that led to the financial and economic collapse. Our economic technocrats as well as our politicians and the general public constantly strive for expansions that last longer, unemployment that falls lower, economic growth that increases faster. Americans crave booms, which bring on busts. That is the unspoken contradiction. Read Rethinking the Great Recession here .

MIT economist Daron Acemoglu believes institutions matter when it comes to generating prosperity. And in analyzing what makes rich countries rich, and poor countries poor, one has to look primarily at government. Or as he writes in Esquire : "Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments." How do we know that institutions are so central to the wealth and poverty of nations? Start in Nogales, a city cut in half by the Mexican-American border fence. There is no difference in geography between the two halves of Nogales. The weather is the same. The winds are the same, as are the soils. The types of diseases prevalent in the area given its geography and climate are the same, as is the ethnic, cultural, and linguistic background of the residents. By logic, both sides of the city should be identical economically. And yet they are far from the same. On one side of the border fence, in Santa Cruz County, Arizona, the median household income is $30,000. A few feet away, it's $10,000. On one side, most of the teenagers are in public high school, and the majority of the adults are high school graduates. On the other side, few of the residents have gone to high school, let alone college. Those in Arizona enjoy relatively good health and Medicare for those over sixty-five, not to mention an efficient road network, electricity, telephone service, and a dependable sewage and public-health system. None of those things are a given across the border. There, the roads are bad, the infant-mortality rate high, electricity and phone service expensive and spotty. The key difference is that those on the north side of the border enjoy law and order and dependable government services — they can go about their daily activities and jobs without fear for their life or safety or property rights. On the other side, the inhabitants have institutions that perpetuate crime, graft, and insecurity. Read What Makes a Nation Rich? One Economist's Big Answer here . And take a closer look at the accompanying map/graphic (above) by clicking here .