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Perry Mehrling, The Money and the Empire

Francesco Sergi
p. 691-697
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Perry Mehrling, The Money and the Empire, Cambridge: Cambridge University Press, 2022, xii+298 pages, 978-100915857-2

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1Perry Mehrling’s last book The Money and the Empire is an intellectual biography of Charles P. Kindleberger. Although the initial project was to write a “biography of the dollar” (ix), the proximity between the original intent and the resulting book is no mystery: the life, career, and intellectual contribution of Kindleberger, spanning from the late 1920s to the early 2000s, would provide the narrative thread to a book about the architecture of the international monetary system, and the evolving role of the dollar during this era. Mehrling had taken a similar narrative perspective in his Fischer Black and the Revolutionary Idea of Finance (Mehrling, 2005). In The Money and the Empire, again, the individual story of “Charlie” (as Mehrling refers to Kindleberger throughout the book) and the history of the building of “the dollar system” make a very relevant combination—and a very pleasant and insightful reading—, although, ultimately, Kindleberger’s character is almost always on the frontstage, whilst the dollar is mostly relegated to the backstage.

2Mehrling made an original choice in taking Kindleberger as the main character of his book. Before the publication of The Money and the Empire, there were virtually no other contributions in the history of economic thought focusing on Kindleberger and his work (besides a very few exceptions, e.g., Meardon, 2014). This is a surprising fact about an economist who has been so widely celebrated by his contemporaries—colleagues, peers, students, and the general public alike. Professor at MIT for twenty years, author of the reference textbook on international economics of the 1950s-1960s and of the best-seller Manias, Panics, and Crashes. A History of Financial Crises (1978), Kindleberger would even be elected President of the American Economic Association (AEA) in 1985.

3It is fair to say that Mehrling has written both the first and the ultimate intellectual biography on Kindleberger. Everything about “Charlie”, his personal and intellectual life, is thoroughly reconstructed, thanks to the author’s in-depth knowledge of Kindleberger’s work (and that’s an impressively long list of publications), but also thanks to an extensive use of archive materials from the MIT Library and to the insights on “Charlie”’s private life provided by Kindleberger’s 1991 autobiography, the family archive, and conversations with family members. No wonder that the completion of such a rich and well-documented book took around a decade (x)!

4Born in 1910 in New York, Kindleberger trained as an economist in the late 1920s and started his career as a central banker (at the New York Fed first) in 1936. During this time, the world witnessed the decline and end of the gold standard, whose cornerstone was the pound sterling, and the rise of the US dollar as a global currency. The early years of Kindleberger’s life are marked by the global economic and political turmoil of two world wars and of the Great Depression (the consequences of which were felt in his own family). The intertwining between these events and Kindleberger “intellectual formation” are recounted in Part I of the book.

5In 1948, Kindleberger joined MIT as a Professor, a position that he held until his retirement in 1976. During these years, he fully embraced academic life (also because government jobs were precluded to him, for political reasons detailed in Chapter 5); he became a dedicated teacher and, ultimately, the best-selling author of an International Economics textbook. As Mehrling emphasizes though, “Charlie” was both a peculiar economist within the changing landscape of MIT’s economics of that time, and a much-respected voice within the profession. Here is also an insightful by-product of the book: uncovering a distinctive intellectual path within MIT and US economics of the post-war, both in terms of methodology and in terms of theory. Part II of the book documents this period of Kindleberger’s life, highlighting the debates between “Charlie” and the rest of the profession about the limitations of the post-war, dollar-based international monetary system of the time.

6Finally, Part III of the book covers Kindleberger’s work after his retirement from MIT. His research path took somehow a new turn, towards economic history and, more specifically, towards financial history; this new perspective led notably to the publication of A Financial History of Western Europe (1984), which Kindleberger considered his “chef d’œuvre” (209). These late works still echoed the ongoing debates about the post-Bretton Woods era, although now in a more distant, remote manner.

7Part I of the book is divided into four chapters about the formative years of Kindleberger. It starts with a chapter that reads like a novel: Mehrling recounts vividly Kindleberger’s upper-class family environment (a “Golden Boy”, 11), as well as his early education at Penn (when he switched from classics major to economics, “and never looked back”, 22) and his summer jobs (1929, 1930) as a seaman, traveling towards South America, Europe, and even Leningrad (23). Chapter 2 (titled “Columbia”) entirely focuses on Kindleberger’s graduate studies as the major turning point in his intellectual record. Under the influence of major names of US pre-war monetary economics (James Angell and Henry Willis) and American institutionalism (Wesley Mitchell), Kindleberger built up his long-lasting interest in monetary and international economics; his views of economics and, most importantly, of the nature of money will be anchored in these training years, even in later works. Kindleberger’s views on money will be particularly at odds with post-war mainstream macroeconomic and monetary analysis (both à la Modigliani and à la Friedman). Telling enough, in the 1980s, Kindleberger lamented that “except for Hyman Minsky, modern economists have thrown away the Adam Smith, John Stuart Mill, Alfred Marshall, Dennis Robertson, Ralph Hawtrey analysis of credit instability ... In the short run money needs are balanced not through changes in spending but through borrowing or repaying debts.” (189). Thus, one of the tasks of this Chapter 2 is to locate Kindleberger’s whole thought within the American traditions of monetary thinking—a topic already extensively covered by Mehrling (2014). Angell’s and Willis’s seminars at Columbia had also a more practical, immediate consequence: sparking the desire, for the young “Charlie”, to take a job at the New York Fed after graduation. This would be the starting point of more than a decade of government service, both in peacetime (Chapter 3) and during the war (Chapter 4). At the Fed, Kindleberger first worked to prepare the June 1933 World Economic Conference. This required him to engage with the views of John H. Williams, Harvard Professor of economics and a US representative, who was spinning the Fed position in the negotiations.

8After a stint at the Bank of International Settlements in 1939, quickly interrupted by the outbreak of the war in Europe, “Charlie” returned to the Fed, this time at the Board, in Washington. This leads us to Chapter 4, which covers Kindleberger’s experience serving in various research and analysis groups within the US intelligence—starting as chief of the Military Supplies section at Office of Strategic Services (OSS). As Kindleberger put it later, his duties during the war covered “from 1942 to 1945 ... helping to take the Germany economy apart; from 1945 to 1947 ... helping to put it back together again” (84). In Washington, then in London and in France after D-Day, Kindleberger contributed to the strategic bombing effort of the Allies, identifying the most important targets to disrupt the German war economy. Promoted to the rank of Major and eventually decorated before the end of the war, “Charlie” left the OSS and came back to the State Department in D.C., to contribute to the discussion about post-war reconstruction of Germany and Europe (including the crafting of the Marshall Plan). Overall, Mehrling argues, “for Charlie, like so many of his generation, war service was the peak experience of his life” (77). More narrowly, regarding Kindleberger’s economic thought, these war years seem especially crucial for his thinking about the mechanisms of economic growth and development, which he will later integrate in his view of the ideal architecture of the international monetary system.

9In Part II, the book enters the “core” of the subject of Kindleberger’s contribution to economics, that is, his work about connecting the “money” (the dollar) and the “empire” (the role of the US economy, but also of its political leadership, within the global economy during the post-war). Yet, the first chapter of Part II (Chapter 5) echoes Chapter 1 of Part I, insofar as it recounts, with lively details and an extensive use of Kindleberger’s autobiography and archives, the personal trajectory of an economist entering academia somehow late (at 38 years old), after a “previous life” in government services. Mehrling highlights also an important personal tension between Kindleberger’s academic life and his experience (and aspiration) to contribute to policymaking. Although a dedicated professor (“Working Rule #1 ... be available to students. That is what you are paid for”, 102), Kindleberger longed building “a career bridging the worlds of government and academic economics” (109). And yet, it became somehow impossible to fulfil this aspiration, when, in the context of the Cold War, Kindleberger lost his security clearance, while being investigated by the FBI; this effectively precluded him to access government jobs and somehow put him on the sideline even for consultancies. Mehrling reconstructs precisely the events leading to this, thanks to Kindleberger’s archives (119-125).

10Chapter 5 introduces also two insights about the context of Kindleberger’s contribution to economics—both are recurring topics in the remaining chapters. The first one relates to his methodology, and the other concerns the envisioned relationship between economics and political science. Kindleberger joined MIT in 1948, when “it was not the economics powerhouse it would become later” (101). Although contributing to the ensuing transformation of MIT (see e.g. Weintraub, 2014), notably as a teacher and as a PhD supervisor, Kindleberger stood also apart from the path pursued by his colleagues:

When Charlie first joined MIT, the kind of economics that he did—so-called literary economics, as opposed to modelling, whether mathematical or statistical—was already old-fashioned, but fourteen years later it was barely even recognizable as economics by a new generation reared on the latest techniques. ... The older generation at MIT never lost their respect for Charlie, a respect based on his wide knowledge about the world and intuition about current economic problems, but increasingly he was a fish out of the water ... (115).

11As an alternative, Kindleberger built a distinctive historical approach to economics (described in more details in Chapter 8 and Chapter 10). As he will argue in the 1980s, searching for “uniformities in history, or the elaboration of ‘economic stories’ ... [is] a vital complement to, and, for one whose professional formation took place in the 1930s, even a substitute for, high-powered theory, mathematical modelling and statistical testing.” (191, emphasis in the original)

12Chapter 5 also highlights a second (and related) distinctive position of Kindleberger, that is, the importance he had granted in his work to build and to entertain a dialogue between economics and political science. Kindleberger sought this interaction by participating to the activities of Harvard’s Center for International Affairs (CFIA), which nourished his 1970’s book Power and Money—nowadays widely acknowledge as an earlier contribution to the field of international political economy (116). Retrospectively, Kindleberger will argue for that position in his AEA Presidential address in 1985 (covered in Chapter 10), even explicitly antagonizing the “imperialism” of economics championed by Chicago economists (238-239).

13Chapter 6, “The Dollar System” is in many ways the core of the book. It describes Kindleberger’s thought about the post-war monetary system and its limitations, and it locates his position within the broader spectrum of the ongoing political and academic conversations of the time. The first key point is Kindleberger’s policy stance: a free trader, deeply convinced about the economic benefits of international exchange and cooperation, he defended (during this period but also throughout his whole life) an international system in which goods and capital will flow freely. Yet, he considered that the monetary aspect of this architecture was of paramount importance for global stability, both preventing global financial imbalances and ensuring economic development and growth on the long run. This is the second key aspect of Kindleberger’s thought. Consequently, in the post-war era, restoring long-term capital flows (from developed countries towards developing countries, where this capital could ignite economic development) represented, for Kindleberger, the first policy priority. In this perspective, he argued that the US dollar should serve as the international currency. This position set him apart from those arguing for an international money, while also locating him on those critical of the post-war dollar standard. The role of the US, as conceived by Kindleberger, is therefore one of “leadership” (to be intended in the extensive meaning of both a political and economic/monetary leadership): a role that, he regretted, the Nixon administration had definitely abandoned in 1971 (the “Crime of 1971”, as “Charlie” called it; 155).

14How was Kindleberger’s position perceived by peers, colleagues, and students? While Chapter 6 engages mostly with the difference between Kindleberger and Robert Triffin, Chapter 7 (“Among Economists”) addresses this question in the broader context of US academia of the 1950s-1970s. This is done by recounting Kindleberger’s disputes, debates, and endorsements of fellow economists. Controversies on the international monetary system with Arthur Bloomfield (155-160) and disagreements with Robert Mundell (Kindleberger’s first PhD student; 176-180), or Harry Johnson (182) are embedded within the more general divergence between “Charlie” and the two poles of monetary theory emerging in the US during this era: the monetarist-Chicago framework and the Keynesian synthesis-MIT approach, mostly developed by Charlie’s colleague Franco Modigliani.

15In 1978, Rudiger Dornbusch was hired at MIT to replace Kindleberger (retired) as Professor of International Economics—in passim, another figure that would deserve better attention from historians of economics, for his crucial contributions to what would become the “new open macroeconomics” framework. As for “Charlie”, he embraced a different research pattern, in economic history, which he pursued from his retirement in 1978 until his death in 2003. Part III of the book starts with an account of Kindleberger’s (Chapter 8) methodology in economic history and an overview of his contributions, chiefly The World in Depression (1929-1939) and Manias, Panics, and Crashes. As a concluding remark of this chapter, Mehrling hints at Kindleberger’s connection to Hyman Minsky, a topic explored again in Chapter 9 (204-208), and that Mehrling has, since, further developed in an article (Mehrling, 2023).

16“Leadership”, the title of the final chapter, constitutes a sort of pun, as it refers to both Kindleberger’s own intellectual “leadership” (as an AEA President for a start, and then as a bestselling author) and his own conception about the necessary leadership of the US in the functioning of the global economy. This latter point, which “Charlie” has argued all along his own life and academic career, was a crucial theme, Mehrling argues, to Kindleberger’s AEA presidential address and to his The International Economic Order: Essays on Financial Crisis and International Public Goods (1988). Both pieces are influenced by his understanding of the Plaza Accord of 1985. “Leadership” is to be understood not as position of “dominance” (or exploitation) of the US, but as “stepping-forward” to ensure the otherwise faulty production of “international public goods” (global money, coordination of macroeconomic policy, stability of exchange rates; 238-246).

17The Money and the Empire is, in a nutshell, a compelling reading, thanks to Mehrling’s outstanding writing style and the well-documented, complete intellectual biography of a major economist who had been overlooked so far. Yet, there are still important gaps in the history of international economics since the post-war era, especially on international monetary issues and finance. Mehrling’s book—together with another recent intellectual biography, by Ivo Maes and Ilaria Pasotti (2021), about Triffin—is a good start for those willing to build a more general history of international economics in the near future.

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Bibliographie

Maes, Ivo and Ilaria Pasotti. 2021. Robert Triffin. A Life. Oxford: Oxford University Press.

Meardon, Stephen. 2014. On Kindleberger and Hegemony: From Berlin to MIT and Back. History of Political Economy, 46(Suppl.): 351-374.

Mehrling, Perry. 2005. Fischer Black and the Revolutionary Idea of Finance. Hoboken: John Wiley and Sons.

Mehrling, Perry. 2014. The New Lombard Street. How the Fed Became the Dealer of Last Resort. Princeton: Princeton University Press.

Mehrling, Perry. 2023. The Minsky-Kindleberger Connection and the Making of Manias, Panics, and Crashes. Œconomia, 13(4): 1029-1053.

Weintraub, E. Roy (ed.). 2014. MIT and the Transformation of American Economics. History of Political Economy, 46(Suppl.).

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Francesco Sergi, « Perry Mehrling, The Money and the Empire  »Œconomia, 14-3 | 2024, 691-697.

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Francesco Sergi, « Perry Mehrling, The Money and the Empire  »Œconomia [En ligne], 14-3 | 2024, mis en ligne le 01 septembre 2024, consulté le 07 février 2025. URL : http://journals.openedition.org/oeconomia/17692 ; DOI : https://doi.org/10.4000/12v37

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Francesco Sergi

Université Paris Est Créteil, LIPHA. francesco.sergi@u-pec.fr

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