Robert Mundell

Early Life

Robert Mundell was one of four sons born to William Cambell Mundell, then a sergeant major in the Canadian Armed Forces, and Lila Teresa (née Hamilton) Mundell, an heiress who gave up her family’s castle in Britain after being unable to afford its taxes.

Mundell first lived with his family in Barriefield, Ontario, before moving to Latimer, Ontario, at age six. He attended a one-room school house that held just a dozen other children. Mundell and his only classmate would make the school’s fires at 5 a.m., then sweep them out at night for $85 per year, split equally. Mundell also spent time working at a cheese factory in town, where he overheard farmers delivering their milk complain about middlemen cutting into their profits, his first exposure to economic concepts.

In 1945, his family moved to the Gatehouse of the Royal Military College in Kingston, Ontario, where his father was teaching, and Mundell attended Grade 9 at Kingston Collegiate and Vocational Institute. When the Second World War ended that year, his father retired from teaching, and moved the family to Maple Ridge, British Columbia, where Mundell completed high school.

While growing up in British Columbia, Mundell grew interested in economic concepts. The province exposed him to what he termed a “cult of rugged individuality” that shaped his laissez-faire (non-interventionist) economic views later in life. It was also where the field first piqued his curiosity. In 1949, Canada devalued its currency in response to global events, then reversed course a year later. This sparked an interest in currency exchange that would come to define his career. (See also Canadian Dollar.)

Education

In 1949, Robert Mundell enrolled in the University of British Columbia for Slavonic studies and economics and graduated with a bachelor’s degree in 1953. He then received a scholarship to the University of Washington in Seattle, where he earned his master’s degree in 1954. Mundell then returned east, pursuing a PhD at the Massachusetts Institute of Technology (MIT). While completing his PhD thesis, he travelled to London, England, to study at the London School of Economics.

Career Highlights

Robert Mundell earned his doctorate from MIT in 1956 and returned to the United States to study as a post-doctoral fellow in political economy at the University of Chicago. Led by influential economist Milton Friedman, the university’s economics department was a hotbed of laissez-faire, market-oriented thinking, in stark contrast to the more orthodox Keynesian tradition. The Chicago School economists developed models that sought to explain domestic economies, but Mundell was interested in open economies like Canada’s, which are dependent on exports and therefore vulnerable to changes in international currencies, as he had observed in 1949.

After cycling through various teaching positions across the United States, Mundell joined the staff of the International Monetary Fund in Washington, D.C. in 1961 as an international economist. Here, he put his interest in open economies to work. That same year, he published a paper titled “A Theory of Optimum Currency Areas,” which argued that so long as workers and capital were able to move around relatively easily, it could be beneficial for multiple countries to adopt the same currency. Written 41 years before the euro was adopted as a common currency in Europe, Mundell’s research on optimum currency areas is now regarded as “almost prophetic.”

Through the early 1960s, Mundell also studied the relationship between two economic concepts: monetary policy and fiscal policy. Monetary policy involves actions by government that influence how much money is available in the economy, while fiscal policy refers to how a government uses taxation and spending to influence the economy. Mundell was also concerned with currency exchange. Different currencies have different values: one Canadian dollar does not have the same value as one US dollar. Governments can make choices about how this works: it is possible to set fixed exchange rates, where the value of one Canadian dollar vs. one American dollar is always the same. Or, governments can allow these rates to “float,” with the value of their money in other currencies changing based on supply and demand.

Using a mathematical model, Mundell demonstrated that when currency rates “float,” and investment money can move freely across borders, monetary policy influences economic output, while fiscal policy does not. However, when exchange rates are fixed, he found that the opposite happens: fiscal policy influences the economy, while monetary policy does not. This, he argued, meant a government could use fiscal and monetary policy to achieve different goals. A Scottish economist, Marcus Fleming, had a similar idea around the same time, and this model became known as the “Mundell-Fleming Model.”

In 1970, Mundell worked as a consultant to the Monetary Committee of the European Economic Commission, before unexpectedly returning to Canada to chair the economics department at the University of Waterloo, in Ontario. He taught there until 1974, when he moved back to the United States to join Columbia University in New York, where he taught until 2014. In 2001, he obtained the university’s highest rank, university professor.

Mundell became less visible in the economics world throughout the 1970s and 1980s. However, he became more active in the 1990s, serving as the AGIP Professor of Economics at the Johns Hopkins Bologna Center of the Paul H. Nitze School of Advanced International Studies from 1997 to 1998. In 1998, he wrote in support of the euro when it was near adoption by 11 countries and argued that Canada should fix its exchange rate with the US dollar.

Personal Life

Robert Mundell was described as “proudly pugnacious,” and one of “the liveliest and most mercurial figures in all of economics.” His first marriage, to Barbara Sheff in 1957, ended in divorce in 1972. With Sheff he had two sons, Bill and Paul, and a daughter, Robyn. Paul died in a car accident in 2018.

In 1969, Mundell bought a crumbling Italian mansion — known as a palazzo — in the hills above Siena, Italy, for US$10,000, as a hedge against rising inflation. At the time, the structure was crumbling, and lacked both electricity and running water. Over the next 30 years, Mundell spent tens of thousands of dollars restoring it, and in 1999 claimed it was worth 100 times what he originally paid for it.

Mundell began living with Italian poet Valerie Natsios in 1984, and they married shortly after the birth of their son, Nicholas.

He died of cancer of the bile duct on 4 April 2021, at his palazzo. He was 88 years old.

Significance

Robert Mundell’s early work on currency exchange rates proved relevant for the introduction of the euro as Europe’s common currency, earning him the nickname “Father of the Euro.” In 1999, Mundell was awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (or the Nobel Memorial Prize in Economic Sciences) for “his analysis of monetary and fiscal policy under different exchange rate regimes and his analysis of optimum currency areas,” which came with a $1.4 million prize. (See also Nobel Prizes and Canada.)

Over his career, Mundell served as an adviser to various governments, including that of the United States under President Ronald Reagan. His work provided the intellectual grounding for policies that reduced taxes for the rich, a movement known as “supply-side economics” that proved influential in the United States, the United Kingdom, and elsewhere in the 1980s. For this, Mundell is also known as the “Father of Reaganomics.”

Publications

Mundell’s writings include over 100 articles in scientific journals. He also authored three books and co-edited seven books.

Honours and Awards

In addition to the 1999 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, Mundell was also the recipient of the:

• Guggenheim Fellowship, John Simon Guggenheim Memorial Foundation (1971)
• Jacques Rueff Memorial Prize, Fondation Jacques Rueff and the Lehrman Institute of New York (1983)
• Honorary doctorate, University of Paris (1992)
• Honorary professorship, Renmin University in China (1995)
• Distinguished Fellow Award, American Economic Association (1997)
• Fellow, American Academy of Arts and Sciences (1998)
• Companion, Order of Canada (2002)