Fritz Machlup and the Bellagio Group: Strategy and Organization in an Early NGO

Economist Fritz Machlup, the mentor and teacher of Edith Penrose, applied an opportunity cost-focused approach to the strategy and organization of his NGO for world monetary system reform. The NGO was the Bellagio Group, formed by Machlup and partners Robert Triffin and William Fellner to understand and solve the problems facing the world monetary system from the late 1950s through the 1970s. This story has been largely untold. This paper examines Fritz Machlup’s intellectual background, his understanding of opportunity costs and now they figure in his model of strategic change as well as his use of scenarios and framing to galvanize thinking and group action at the Bellagio Group conferences. Further, the paper probes the identity and background of the “team of rivals,” the so-called nongovernmental, academic economists, drawn from eleven countries, many of them chosen because they were well-known advocates for divergent, often feuding, schools of thought on the problems and solutions to problems facing the international monetary system in the 1960s, most of whom had had significant public policy experience before entering academia. How did the Bellagio Group turn the tide of policy-maker and central banker opinion toward exchange rates as an instrument to correct balance of payments problems, as contemporaries suggested? My research finds the answer in Fritz Machlup’s collaborative and iterative approach to strategy and his cross-functional, cross-geographic, approach to organization.