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Abstract
American Keynesianism was a set of ideas, intellectuals, policies, and a world-system, all of which allegedly passed into irrelevance during the 1970s, according to standard histories of twentieth century America, and it was replaced by “neoliberalism.” Without contesting that a major transformation occurred in the nature of American political economy, this dissertation provides a very different roadmap for how that transformation occurred. To do so it tracks the intellectual and material changes in the postwar economics department at MIT, and its increasingly tight connections with the IMF, Wall Street, and central banks around the world. MIT is well-known as the midcentury headquarters of American Keynesianism, but no other institution has had more alumni in high office during the so-called “neoliberal” era, a paradox worth underscoring as we try to gain critical distance on the world we have inherited. Its professors regularly moved back and forth between the halls of high finance, international institutions, and presidential cabinets. An examination of such actors’ intellectual development and an exploration of the linkages sustained between the academy, banking, and the monetary policy communities provides crucial context for understanding modern capitalism. This dissertation investigates how central banks became a bridge between academia and the world of finance, shaping and responding to the priorities of economists. By connecting an analysis of transformations that occurred in the structures of political economy during this period—the changing industrial composition of economies, the evolution of international coordination mechanisms like Bretton Woods, and the growth of global finance—with a focus on intellectual history, it explores the forces that created the conditions of possibility for individual action, and to investigate how the theoretical tools that developed allowed various actors to shape and reshape their worlds. The mediating link between transformations in the larger American political economy and intellectuals was academic patronage. Due to the high marketability of their skills, Economics Departments are expensive to maintain. Tracking the changing institutional networks and funding streams that made MIT economists’ research agendas possible provides insight into the changing nature of their ideas and project. These same bodies occasionally made their policy preferences a reality. It is well known (if often exaggerated into caricature) what role the military played in making MIT and American Keynesianism. The GI Bill underwrote a national market for textbooks just as Paul Samuelson was writing his soon-to-be classic introductory Economics. In 1969, MIT’s campus-wide budget was 210 million USD, 180 million USD of which came from the Pentagon; economists shared in this bounty insofar as they could pitch statistical analysis and optimization techniques as effective in addressing security concerns broadly conceived. And while “military Keynesianism” was no one’s first choice, the late 1960s did see a version of the high-pressure, full employment economy that MIT economists longed for. After America’s geopolitical defeat in Vietnam, however, this well dried up. In the inflationary 1970s, grants from the military became more difficult to secure for economists and MIT administrators. What has been less well-documented is the compensating role that the Federal Reserve’s expanding research budget played in offsetting the loss of alternative financing streams and career paths. As late as the 1950s, the Fed’s research departments focused mainly on data gathering. Today the System funds hundreds of academics to produce scholarship on topics as diverse as monetary policy, the economics of race, and climate change, and employs a PhD-trained research staff the size of ten top university departments combined. This institutional handoff, from the Defense Department to the Fed, especially at MIT, played a role in the relative weight given to monetary and fiscal policies in macroeconomic theory since the 1960s.