On the History of the Mundell-Fleming Model: Keynote Speech.(Robert A. Mundell address)(Transcript)

It is a great pleasure for me to speak at this opening of the first IMF Annual Conference on International Macroeconomics and a special honor to be here at the inauguration of the annual Mundell-Fleming Lecture. Quite apart from the flattering distinction it confers on Marcus Fleming and me, it serves to commemorate a very special period in the Research Department at the Fund when, under the able leadership of Jacques Polak, it made an enduring contribution to the development of the standard international macroeconomic model.

I think the best service I could provide tonight would be to give some of the background behind the development of the model, some of the influences that were important, and, yes, some of the defects of the model. If what I have to say seems too autobiographical, I can only respond that I wish Marcus Fleming could have been here to fill in the blanks from his point of view and redress the balance.

I have read interpretations of my work that have made stylistic points about the "early" and the "late" Mundell, the first being a Keynesian, the second a classicist. Such periods may be relevant to painters, but are they really applicable to economists? I am not myself aware of any basic shift of direction. I did write on different subjects and use different models at different points in time, but why not? I worked on what caine to be called the Mundell-Fleming model mainly over the years 1960-64, but before, after, and during this period, I was also publishing my work on the pure theory of trade, monetary theory, optimum currency areas, the public debt, the monetary approach to the balance of payments, customs unions, and the theory of inflation. The agenda, models, and information changed, but the periodization doesn't ring true.

If there was an "early" Mundell, it was a classical one. Let me start as close to the beginning as seems necessary. After graduating from the University of British Columbia (UBC) in 1953, I went as a teaching fellow and graduate student to the University of Washington, where I had my first real brush with macroeconomics, mathematical economics, and international trade. My next stop was the Massachusetts Institute of Technology (MIT) in 1954-55, where I was of course especially influenced by Samuelson and Kindleberger. After completing my doctorate exams at MIT in the spring of 1955, I made use of a Mackenzie King Traveling Scholarship from Canada to study at the London School of Economics (LSE). I had a special interest in Lionel (later Lord) Robbins and (later Sir) James Meade.

I got a nice letter of acceptance directly from Meade, and he agreed to "supervise" my thesis for MIT up until March 1956, when he was to leave for New Zealand. I want to discuss my relations with Meade. I saw him in his office about once a week, and also participated in, besides the Robbins theory seminar, the Meade-Robson (Robson was a political scientist) seminar on international economics, as well as lectures by Harry Johnson, who came up from Cambridge once a week to give a course in which he read-yes, read-his latest papers. In those two terms I wrote two papers, "Transport Costs in International Trade Theory" (Mundell, 1957b), and "International Trade and Factor Mobility" (Mundell, 1957a), which were two of five chapters of my MIT Ph.D. thesis. The latter article I presented in the Meade-Robson seminar, and I got helpful comments on it from Tadeusz Rybczynski, Dick Lipsey, Max Corden, and Steve Ozga, as well as James Meade and Harry Johnson. Throughout that year and the following summer in Boston, my w ork was entirely on aspects of the classical or Heckscher-Ohlin theory of trade, and I had no discussions about macroeconomics with Meade or anyone else.

I had "read" Meade's (195 ib) Mathematical Supplement. In June 1998 Max Corden stayed with me in Siena a few days, and reminded me of a conversation we had at the time. When asked whether I had read Meade's (195la) Balance of Payments, I replied, "No, but I have read his Mathematical Supplement." This gave me the reputation (along with the prestige of coming from MIT), quite Unmerited, that I was a mathematician. I never told anyone that when I began graduate work, I had zero knowledge of even rudimentary calculus. But my reply to Corden was not quite accurate. One didn't read the Mathematical Supplement. It was almost as tedious as the main book. What was exasperating was the taxonomy, roundly criticized by Harry Johnson in his review. (1) Meade has a very amusing footnote on combinations at the bottom of page 33, where he contributes the information, confirmed by William Baumol, that there were precisely 28,781,143,379 possible solutions to his model.

Much later, in 1970, during a walk in the foothills of Mount Fuji, Meade told me that he had a mind like Pigou's--a "meat-grinder's mind," he said. He told a story about Pigou on his way out after a lecture being asked by a student if he had not made an error in the sign of an elasticity, at which point Pigou marched back up to the podium to his notes (presumably left for his assistant to return), looked up the relevant section, and simply replied "no." Meade said that he wrote down the equations, differentiated them, and reported the results in his book. It wasn't very exciting, but his two volumes and their appendices were nevertheless landmarks in the development of international economic theory. (2)

I learned a lot from Meade, of course--not macroeconomics, but his brilliant contributions to the classical model. This influence can be seen all through my "Pure Theory of International Trade" article (Mundell, 1960b), which was an expansion (and contraction) of two of the five chapters of my thesis. When you asked a question like "How much will a tariff, or unilateral transfer, or productivity change alter the terms of trade (or some other variable)?," you would find that Meade had produced the first definitive answer to that question. I was able to develop his work in some new areas, develop some of the dynamics, and …