Robert Mundell
Nobel-winning economist who backed radical tax cutting and was also dubbed ‘father of the euro’
ROBERT MUNDELL, who has died aged 88, was a Canadian-born Nobel laureate economist whose work on “optimum currency areas” earned him the label of “father of the euro”. Softly spoken but formidable in debate, Mundell was one of the most influential economic thinkers of his era, having developed iconoclastic ideas in academic papers, and as an IMF adviser in the late 1950s and 1960s, which entered the mainstream in the decades that followed.
He took pleasure in the idea that his work “stepped on a lot of intellectual toes”, while the eminent British economist Lord Robbins of the LSE once said of him: “Bob is seldom wrong. And even when you disagree with him, you must do so with your hat in your hand.”
In North America he was known particularly as an advocate of supplyside measures including radical tax cuts – and as an early influence on Arthur Laffer, his friend (and sometime colleague at the University of Chicago) whose much-cited “Laffer Curve” made the case that optimum lower tax rates generate stronger government revenues by stimulating higher growth. Steeply progressive tax rates, by contrast, “reduced the size of the pie to be distributed,” said Mundell: “The poor might be better off with a smaller share of a larger pie than with a larger share of a small pie.”
In the sphere of international trade, Mundell’s key observation was that “the nation-state is not the optimum currency area” if it inhibits the “real wage flexibility” which is vital to competition and growth. The optimum area might in fact be larger or smaller than any particular nation – he was willing to argue conceptually for exchange rates between Oklahoma and Illinois – but it was his firm conviction that if the European common market was to prosper, it needed a common currency. In 1969 he drew up what may well have been the first blueprint for European monetary union, adding later that the project needed the backing of “a strong central state”.
As to whether that made him the new currency’s true progenitor, he observed: “It’s true that some people have called me that. Initially when many people didn’t like the idea of the euro and thought that it would fail, they were glad to call me its father.
“Then it became a success, and that brings up the saying, ‘Failure is an orphan, success has many fathers’. [In 2004] Jean-claude Trichet, president of the European Central Bank, said quite explicitly that I was the father … I’m willing to wear the label if we agree that the euro has many fathers.”
Robert Alexander Mundell was born on October 24 1934 at Kingston, Ontario, the son of William Campbell Mundell, a military officer, and his wife Lila, née Hamilton. Childhood on a farm and teenage years in the rugged surroundings of British Columbia created a sense of self-reliance – and a nascent belief in laissez-faire.
After high school, Mundell studied first at the universities of British Columbia and Washington, then took a doctorate at Massachusetts Institute of Technology and completed his thesis at the LSE. As a postdoctoral fellow at the University of Chicago from 1956, he entered the orbit of Milton Friedman, leader of the emergent free-market school that was beginning to challenge postwar Keynesian orthodoxies.
But the two had lively disputes, notably on the issue of exchange rates – Friedman favouring floating rates driven by market forces while Mundell argued for a continuing version of the Bretton Woods system of fixed rates, which he felt had served the world well from 1944 until 1971, when President Nixon abolished then fixed convertibility of the dollar to gold. In 1971 Mundell left Chicago, first for the University of Waterloo in Canada and later for a professorship at Columbia University in New York and a clutch of other appointments around the world. The mid-1970s found him arguing forcefully for a $30 billion US tax cut to counter recession, rising unemployment and inflation: the national economy, he declared was being “asphyxiated” by taxes.
After receiving the 1999 Nobel Prize for his work on exchange rate regimes and optimum currency areas, Mundell offered advice to fellow laureates on how to make a gracious acceptance speech: “Do your best to be profound … but don’t try too hard. See if you can make people laugh a little; I sang a verse from My Way and that seemed to do the trick.”
Robert Mundell married first, in 1957, Barbara Sheff; they were divorced in 1972 and he married secondly, in 1997, his long-time companion Valerie Natsos, with whom he lived in bohemian style at Santa Colomba in Tuscany, in a 13th-century palazzo of some 65 rooms. It was described by another notable economist as “crumbling” and “half-habitable” – Mundell had bought it in 1969 as a hedge against the global inflation he was predicting at the time. There he pursued his pastime of abstract painting and in later years hosted conferences on the theme of “restoring the international monetary system and creating a world currency”.
Valerie survives him with their son, and a son and daughter of the first marriage, another son of that marriage having predeceased him.
Robert Mundell, born October 24 1932, died April 4 2021