Perry Mehrling: Charles P. Kindleberger and the Dollar System
Jan 26, 2023
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Boston University economic professor Perry Mehrling discusses his recently released book on Charles P. Kindleberger, who shaped the global dollar system. The podcast covers Kindleberger's early influences, his role in the reconstruction of Germany and Austria, the positive role of multinational corporations, differences between Kindleberger and Hyman Minsky, and encounters with economists and central bankers.
Charles Kindleberger was significantly influenced by figures like H. Parker Willis and John H. Williams, leading to his aspiration to create an integrated international monetary system.
Kindleberger's work was influenced by his friendship with Hyman Minsky, who focused on the financial forces behind business cycles, while Kindleberger's international perspective centered on structural displacements caused by events like war.
Kindleberger's insights on the importance of not taking models too literally and integrating modern finance into economic analysis can bridge the gap between traditional economic analysis and the realities of finance.
Deep dives
Formation and Influence
The first four chapters of the book delve into Charles Kindelberger's formative experiences and key influences. Born in 1910, he was deeply impacted by the Great Depression and his family's financial struggles. Influential figures like H. Parker Willis, John H. Williams, and James Angle played a significant role in shaping his thinking and career trajectory. Kindelberger aspired to create an integrated international monetary system, drawing inspiration from Willis' efforts in establishing the US Federal Reserve. His wide-ranging experiences in academia, intelligence analysis, and policymaking fueled his intellectual resilience and adaptability.
MIT Years and Departure from Orthodoxy
Kindelberger joined MIT in 1948, at a time when the department was not dominated by mathematical and statistical modeling. However, by the mid-1960s, MIT embraced this approach, which led Kindelberger to explore alternative avenues for his research. Kindelberger became friends with Hyman Minsky, another critic of mainstream macroeconomics. While they had a shared spirit of challenging the conventional wisdom, their work differed in focus. Kindelberger's international perspective centered on structural displacements caused by events like war and reparations, while Minsky's work focused more on financial forces behind business cycles. Minsky's early ideas, including his financial instability hypothesis, influenced Kindelberger's book, "Manias, Panics, and Crashes". Despite offering feedback and suggestions to a young Ben Bernanke, Kindelberger's concerns about Bernanke's credit-focused thinking did not impact Bernanke's subsequent work and Nobel Prize-winning research.
Importance of Kindleberger's Insights
Kindelberger's insights and perspectives continue to have relevance today. While modern finance and complex asset valuation were not extensively incorporated in his work, there is value in building upon and expanding his ideas. Kindleberger emphasized the importance of not taking models too literally and instead using them as tools to understand and illuminate complex economic processes and causality. Incorporating more understanding of modern finance is a crucial step towards furthering the wisdom shared by Kindleberger and other heterodox economists. By delving into Kindleberger's thinking alongside that of other influential economists like Fisher Black, it becomes clear that there are valuable lessons to be learned by integrating perspectives and bridging the gap between traditional economic analysis and the realities of finance.
The Impact of Losing Security Clearance
The podcast episode explores how losing security clearance affected the protagonist's life and career. It caused disruptions in his plans and forced him to find alternatives. While he was relatively lucky to be offered tenure at MIT, he still faced institutional barriers, such as being unable to join the Center for International Studies due to the requirement of security clearance. Ultimately, he found intellectual community and teaching opportunities at Harvard and Tufts, highlighting the importance of adaptability and seeking alternative paths.
The Role of Multinational Corporations
The episode delves into the protagonist's interest in multinational corporations and their role in economic development and globalization. Initially, he saw them as a means to channel capital flow from the global north to the global south. However, his student's research on multinational corporations revealed that while they integrated with local branches, capital flow was limited. Despite facing criticism from some friends on the left, the protagonist believed that multinational corporations could be a progressive influence. This perspective challenged conventional anti-globalization views and emphasized the need for nuanced thinking.
Boston University economic professor Perry Mehrling discusses his recently released INET book, in collaboration with Cambridge University Press, "Money and Empire," which chronicles the life of Charles P. Kindleberger and how he helped shape the emerging global dollar system.
