Robert Mundell On Why The Market Is Feminine

Robert Mundell received the Nobel Prize in Economics in 1999 for his work in “monetary dynamics and optimum currency areas.” (He is currently professor of economics at Columbia University.) For as long as I can remember, I’ve owned a copy of his little primer, Man and Economics (McGraw-Hill, 1968; another edition bears the subtitle The Science of Choice.) Somehow, I’ve never gotten around to reading it. In this regard, Mundell’s book is exactly like many other books on my shelves.  But on Friday, I finally began to make my way through its pages, curious to see what it held within.

Man and Economics  was released in 1968, so I expected some aspects of its discussions of choice, supply, demand, inflation, money, currency rates, recession and unemployment, the gold standard etc to be just a little dated. As I read on, I noticed that what really gave the book’s vintage away was its choice of illustrative examples.

To wit, men are earners and women are spenders. The man brings home money, the woman spends it. This division and classification is then used to illustrate problems of liquidity, budget balancing, and so on. For instance:

There is a certain unevenness in spending and earning patterns . The husband may be paid for his services only once every week, fortnight, or month. Typically, the husband will deposit his salary in the bank every month, while the wife will go about the business of shopping every day or perhaps once a week. In this case, the cash balance will be high at the beginning of the month and gradually fall toward zero…toward the end of the month. Discipline is required at the beginning of the month, since it would be most unwise for the wife to spend a whole month’s income on rent, groceries, and other needs in the first two weeks. If this discipline is not present the family will suffer from a liquidity crisis toward the end of the month. Experience (or intrafamily strife) will teach the wife the expenditure pattern over time that is feasible with a given income, or the husband the income that is needed to maintain a certain expenditure.

But that’s not all.

Consider for instance, Mundell’s description of the language used to describe currency markets:

The language used by foreign-exchange dealers and operators responsible for supervising a market in which the government has a great stake may strike the reader as unusual. One speaks of the “feel of the market,” its “depth, breadth, and resiliency,” “strategy of penetration,” “getting in and out,” “slackness,” “looseness,” and the market “drying up.” It is the language of market intervention, but it all sounds like a scenario for a grand seduction. Indeed, one distinguished dealer from a very important central bank likens intervention to an exercise in applied psychology and manipulation of a market to the management of a woman. When it is troubled, it must be caressed; when it is quiet, it should be left alone; and when it gets hysterical, it has to be slapped. In that sense, the market is feminine.

Markets are temperamental creatures indeed.

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