SOMERVILLE, Mass.
Most people know economist Charles. P. Kindleberger, to the extent they know him at all, as the author of Manias, Panics, and Crashes: A History of Financial Crises, (Basic Books, 1978), the best book on its topic since Lombard Street: A Description of the Money Market, by Walter Bagehot, in 1873. Fewer understand that the reason that they know Hyman Minsky at all is because Kindleberger devoted the second chapter of his book to him.
Though Minsky was “a man with a reputation among monetary theorists for being particularly pessimistic, even lugubrious, in his emphasis on the fragility of the monetary system and its propensity to disaster… his model lends itself effectively to the interpretation of economic and financial history,” wrote Kindleberger. After that, Minsky became for some a shadow Keynes.
In fact Minsky didn’t really have a model, in the sense the term was used by macroeconomists. Like Kindleberger, he was mostly a literary economist in possession of a narrative, but he was ten years younger and a member of the post-WWII generation. After completing his Ph.D. at Harvard University in 1949, Minsky had taught ten years at Brown University, eight more at University of California at Berkeley and another twenty-five at Washington University in St. Louis before retiring, in 1990. He was, however, one of a relative handful of scholars who took financial intermediation seriously. He published “Central Banking and Money Market Changes,” in the Quarterly Journal of Economics in 1957 and Stabilizing an Unstable Economy (Yale), in 1986. But he never gained altitude in the profession and settled instead for the lesser role of “maverick.” He died in 1996.
CPK, as he was known, on the other hand, was a star, though of lesser magnitude in a Massachusetts Institute of Technology department led by Nobel laureates Paul Samuelson, Robert Solow and Franco Modigliani. Known initially mostly as a textbook writer, Kindleberger’s influence as an international economist grew until he became a Distinguished Fellow of the American Economic Association, in 1980, and president in 1985. He died in 2003, but Manias, Panics and Crashes has outlived him, though three posthumous editions edited by Robert Aliber, who somewhat broadened its scope. Robert McCauley has edited an eighth.
Now an important new biography has appeared. Money and Empire: Charles P. Kindleberger and the Dollar System (Cambridge, 2022), by Perry Mehrling, of Boston University, brings CPK vividly back to life, in the form of a coming-of-age story about an unusually perspicacious young man’s adventures in the last days of literary economics. The author, Mehrling, is something of a border-crosser himself, an economic biographer who first book, The Money Interest and The Public Interest: American Monetary Thought 1920-1970 (Harvard 1997) profiled economists Allyn Young, Alvin Hansen and Edward Stone Shaw. His Fischer Black and the Revolutionary Idea of Finance (Wiley, 2005) traced the intellectual development and personal life of the co-inventor of the Black-Scholes options pricing formula – “a charming and brilliant book about a charming and brilliant man,” according to Robert Lucas.
Money and Empire is Mehrling’s fourth book. Kindleberger’s serial lives and ideas turn out to have been no less interesting than those of Black. Born to WASPy parents in New York City in 1910, “Charlie” – that’s what nearly everyone called him – attended the Kent School, a boarding school in rural Connecticut, and graduated from the University of Pennsylvania. His father, a prosperous lawyer, had hoped that his only son would become a lawyer, but Charlie spent his summers at sea, sailing around Europe as a merchant seaman.
By then the Great Depression was on. So it was at Columbia University that Kindleberger became an economist, studying under H. Parker Willis, one of the architects of the Federal Reserve System. He then worked as a central banker, from 1936 until 1942; first at the New York Fed; then the Bank for International Settlements in Basel, Switzerland; finally with the Fed’s Board of Governors in Washington. After America entered World War II, he joined the Office of Strategic Services in London, and became chief of its Enemy Objectives Unit in 1943. After the war, he spent three years at the State Department, working for William Clayton, on developing the Marshall Plan.
Disaster struck in 1948: in the early stage of the McCarthy era, Kindleberger’s security clearance was questioned by the FBI, apparently for remaining in touch with those with whom he had disagreed during negotiations surrounding the Bretton Woods treaty, in 1944. In 1951 it was vacated altogether. The path he had envisaged – civil service, central banking, government work – was foreclosed. The alternative was academia. He accepted an offer from the department at the Massachusetts Institute of Technology and left the State Department, in 1948.
The rest of Mehrling book is no less dramatic for tracing Kindlebeger’s intellectual engagement in the pressing issues of the day. How would New York and the dollar replace London and the pound sterling as the currency in which global trading would be conducted? There may be no better way for the lay person to follow this complicated story as it unfolded than through the life story of one of its foremost analytic protagonists. Mehring’s grace is extraordinary as he sifts through the reams of Kindleberger’s published books and articles; his private papers, now deposited in archives; and still more revealing family records. Mehrling’s insight is even more striking.
It turns out Kindlebeger’s most important book may have been nearly his last – A Financial History of Western Europe, nearly half of which is devoted to the interwar period and the years after World War II. Ostensibly notes for two courses that Kindleberger taught at the end of the Seventies – the first at the University of Texas at Austin, at the behest of his OSS friend Walt Rostow, the second at MIT – the book is, in Kindleberger’s own phrase, his chef d’oeuvre, an exposition of how the dollar system arose, what it is, and and how it is supposed to work, plus the background necessary to understand it.
There is just one problem. CPK described himself as a grasshopper intellect, hopping from topic to topic. His style is epigrammatic, even telegraphic. Mehrling tries to fill in the outlines of Kindleberger’s fundamentally institutionalist views; as author, though, he is too faithful to the story of his subject’s life to interpose his own opinions more than lightly.
Hence the dual purpose. With one jobs done, another looms. Mehrling’s third book, The New Lombard Street: How the Fed Became the Dealer of Last Resort (Princeton, 2011), was written quickly, in the aftermath of the crisis of 2007-08. Although it was better than almost all of the other analyses tumbling from the presses in those days, it still didn’t quite work. Mehrling’s others books each took most of a decade to write.
It is time now, to settle down to write one more. What are Mehrling’s own views on the prospects for the dollar system in the future of a world increasingly taking sides between the regnant American system and its rival now being gradually assembled in China? If this sort of thing interests, if you want to learn something about international economics up close and personal, then you can’t do better to pass the time than to read Money and Empire: Charles P. Kindleberger and the Dollar System.
David Warsh, a veteran columnist and an economic historian, is proprietor of Somerville-based economicprincipals.com, where this column originated.
