Marina Von Neumann Whitman, Namer Of The Supply-Side Revolution

In May, we lost after a long and full life of ninety years the economist Marina von Neumann Whitman. Among a host of accomplishments, von Neumann Whitman was the first to coin a name, in the mid-1970s, for the nascent “supply-side” revolution that would sweep the world of economic policy in the 1980s. In a classic article of 1975, building on a conference paper she had presented at the Brookings Institution that year, she spoke in the title of “Global Monetarism and the Monetary Approach to the Balance of Payments.” Followers will note that the name of my own website, on all things historical of supply-side economics (including points about our new book Free Money on the supply-side perspective on Bitcoin), www.globalmonetarism.com, is taken from the title of von Neumann Whitman’s article. For about a year in 1975-76, people referred to the tax-cut, sound money policy alternative as “global monetarism.”

What a lilting beginning von Neumann Whitman’s article had:

“A DECADE OR SO ago, when the twin concerns about the balance of payments of the United States and the functioning of the international monetary system began to impinge on the consciousness of a public theretofore indifferent to such esoterica, the opinions of those who were already paying attention fell into a neat dichotomy. Government officials and ‘men of affairs,’ on the one hand, insisted that the continued health of international trade, investment, and the world economy required the maintenance of the Bretton Woods system of pegged exchange rates, under which changes in rates were made infrequently and as a last resort. Academic experts, on the other hand, were nearly unanimous in pressing the advantages of greater flexibility of exchange rates, with many urging that governments abstain altogether from intervention and allow exchange rates to be determined by the interplay of supply and demand in the marketplace, just like any other price.…

“Today, most major industrialized countries are no longer bound to pegged exchange rates. But a funny thing happened on the way to this flexible-rate nirvana. The post-Bretton Woods world of managed flexibility has produced surprises undreamed of in the analyses of the 1950s and 1960s; moreover, a small but influential group of international economists has stood traditional balance-of-payments analysis on its head. I have termed this group the ‘global monetarists’—‘monetarists’ because of their belief that macroeconomic phenomena can be analyzed best in terms of the relationship between the demand for and the supply of money, and ‘global’ because of their conviction that, as a first approximation, the world consists, not of separable national economies, but of a single, integrated, closed economy.

“From these two fundamental tenets arise a number of startling propositions….”

The small group of influential economists—the commentator Walter Salant said that there were “maybe two”—were the redoubtable Robert Mundell and Arthur Laffer, who would indeed upend economic policy wholesale and for good with Reagan in the 1980s. Von Neumann Whitman sure was onto something. What an experience it must be to perceive, rather alone as a professional, an intellectual wave that is about to hit. This is what von Neumann Whitman did in 1975, as her article reveals.

The line that always got me was, “But a funny thing happened on the way to this flexible-rate nirvana.” The United States took the world off the gold standard on all expert advice in 1971. But a funny thing happened on the way to this flexible-rate nirvana. She said it. In 1974, the inflation rate was ten percent, as it nearly was the next year, and it had been 6 percent in 1973 and basically that in 1972 but for price controls mandated by Nixon.

Going off the gold standard will be great! Actually here comes huge inflation. The woman said it. She said it! My kingdom for an economics profession that noticed that going off the monetary system of the ages, the gold standard, in 1971, and thereby causing an inflation, which exposes the huge progressive tax-rate structure (rates up to 70 percent) to real tax increases beyond belief, will result in stupid catastrophic real losses. She said it! Economics, that supercilious, take-me-seriously profession? It said going off gold was enlightened (and we triste est dicere include Milton Friedman here).

Von Neumann Whitman, an economist, was surrounded by people who said it would be “nirvana”—her beautiful choice of words—if we went off gold. And she called them on it, at that establishmentarian center Brookings no less. Here’s to her. In the tremendous 1973-75 recession, in which unemployment doubled and inflation went to double digits, economics actually generally held that going off the gold standard a few years before was working out well. Von Neumann Whitman was one of the few who said, in the thick of it, the very heat of battle, say what?

In 1976, Alan Reynolds and Jude Wanniski coined “supply-side economics,” replacing “global monetarism” for the understanding that not having a classical monetary system means you have to cut tax rates and fast. Reagan would in time take matters from there.

Von Neumann Whitman, daughter of the preeminent mathematician John von Neumann, took a doctorate in economics under Gary Becker at Columbia. Her college sweetheart and husband Robert Whitman was an anchor of the University of Pittsburgh department of English.

One of the joys of von Neumann Whitman’s remarkable memoir The Martian’s Daughter (2012) is its portrait of university life in America in its great era of renaissance in the 1950s and 1960s (a topic I explored in an essay years ago on Harvard’s president Pusey). As a native Pittsburgher, I can attest that the Pitt English department had traction far and wide as a center of inspiring leadership on the arts of our language, starting with Shakespeare. These days, our English departments are in laughable decline after their embrace of foolish politics. Bob Whitman was a polestar in the great era before that.

Marina, in economics, conveyed a lesson just as direct, but as yet unperceived. Economics became as daffy as English, and yet it has never had its comeuppance. Economics said get off the gold standard, and to this day it has not merely insisted that this was the right move, it has condescended to all those suggesting otherwise. Economics, for the record, was completely wrong in urging the end of the gold standard in the 1970s and at this late date owes us a pile of penance for the mistake. Whatever rite of expiration the university in general is going through these days—that of economics and its mistakes are reserved still for the future, because this discipline has refused to understand, let alone concede, that the switch in the monetary system back in the 1970s was a horrible idea.

Nirvana—von Neumann Whitman read economics like a book back then and understood this exactly is what they promised we would get from going off gold. And we got stagflation. Thanks guys, bye. But they didn’t go bye. They took credit for the supply-side—the global monetarist—revolution that solved everything in the 1980s and really came care of renegades from the profession. Economics still owes us sackcloth and ashes for saying let’s go off gold. Instead they say gimme Nobel Prizes. Among the very few in the establishment who was clear about these matters from the jump was our departed Marina von Neumann Whitman.