Introduction

Born 1902, Fritz Machlup's lifelong interest in monetary economics and methodology were shaped by the Europe of his university days (1920–3), as well as by his specifically Austrian roots. In his 1980 career retrospective, ‘My Early Work on International Monetary Problems’, Machlup paints a picture of pre- and post-World War I Europe. The Europe of 1914 had ten currencies, all with fixed gold parities and fixed exchange rates. The Europe of 1920 had twenty-seven paper currencies, none with a gold parity, none with fixed exchange rates and several of them in various stages of inflation or hyperinflation. Monetary experts were raising questions about the best techniques for stabilization and perhaps a return to the gold standard.

This chapter focuses on Fritz Machlup's body of work in monetary economics from 1923 to 1962, particularly his early writings on the gold standard; the theory of foreign exchanges, trade and devaluation; opportunity costs; frameworks for organizing and assessing change in payments balance and exchange rate policies, including his distinctive writing on issues of payments adjustment, liquidity and confidence; through to his 1962 Plans for Reform of the International Monetary System. Because Machlup, much like William Fellner, pursued so many areas of economics – from patents to the production of knowledge to the theory of the firm – and published prolifically in these areas, the chapter also gives some focus to these areas.