The Origins and Development of the Latin American Structuralist Approach to the Balance of Payments, 1944–1964

The paper offers an historical account of the origins and development of the Latin American structuralist approach to the balance of payments between 1944 and 1964. We focus on the contributions by Raul Prebisch, Celso Furtado and Juan Noyola, all of them members of the United Nations Economic Commission for Latin America (CEPAL) during the 1950s. Prebisch used the foreign trade multiplier concept to distinguish the business cycle mechanisms at the ‘centre’ and at the ‘periphery’. Noyola introduced the notion of external disequilibrium as a feature of the industrialization process. This was further elaborated by Prebisch's formula connecting the relative rates of growth to the ratio of income-elasticities of import. Furtado examined the implications of the external demand constraint for economic growth, an important element of the two-gap models of the 1960s. The main piece of empirical structuralist research was the CEPAL 1957 report about Mexican external disequilibrium elaborated by Furtado and Noyola, not published at the time; we discuss that report in the context of the Mexican devaluation of 1954.     

Price expectations, capital accumulation and employment: Lindahl's macroeconomics from the 1920s to the 1950s

Erik Lindahl's approach to macroeconomics focused on the non-neutralityof monetary policy (in the short and the long run) and on thedenial of the existence of natural rates of interest and unemployment.From the 1920s until his death in 1960, Lindahl advocated theuse of norms for monetary policy to fight inflation and deflationprecisely because he would not rely on the market system's returnto natural rates. Making use of hitherto unexplored material,this paper analyses the development of Lindahl's thinking aboutprice level changes, investment and employment from the 1920sto the 1950s.     

Simonsen and the early history of the cash\in-advance approach

The paper brings to light an early contribution to the cash-in-advance literature made by the Brazilian economist Mario Henrique Simonsen (1935–1997) in an article written in Portuguese as far back as 1964. Simonsen explicitly introduced the cash-in-advance constraint as an inequality in a non-linear programming problem and provided a diagrammatic illustration of the interior and boundary solutions. He also applied the concept to the discussion of the quantity theory of money and showed that the classical dichotomy is valid for the stationary equilibrium of prices over time.     

Patinkin,the Cowles Commission,and the theory of unemployment and aggregate supply

The paper provides an account of Don Patinkin's long-time search for an explanation of the notions of an aggregate demand constraint and unemployment under the assumption of a perfectly competitive goods market. It is argued that Patinkin's quest is reflected on the development of the concept of an aggregate supply function in the goods market. Patinkin's interpretation of aggregate supply and unemployment is compared to similar ideas put forward by Jacob Marschak, Trygve Haavelmo and Lawrence Klein, his former colleagues at the Cowles Commission in Chicago.     

Schumpeter on unemployment

Joseph Alois Schumpeter’s approach to the phenomenon of unemployment differs strongly from the traditional classification with its strict distinctions between frictional, cyclical and structural unemployment. By relating these three categories to his theory of creative destruction, Schumpeter collapsed them all into one: technological unemployment. In our paper, we provide a systematic overview and discussion of Schumpeter’s varied writings on unemployment, from 1908 to 1954. We compare his view with the positions of some of his contemporaries, such as Wicksell, Hicks, Beveridge and Keynes. Finally, we discuss to what extent recent writers, such as Aghion, Howitt and Caballero, have integrated Schumpeter’s approach into modern macroeconomics.     

The Robertson connection between the natural rates of interest and unemployment

The paper explores the connection between the natural rates of unemployment and interest first put forward in the literature by Dennis Robertson in the 1930s. This looks at monetary dynamics in the business cycle and assesses the Robertsonian contribution to developments in macroeconomics before and after Keynes's General Theory. Robertson showed how unanticipated price level changes affect supply and demand in the labour market, as well as the saving–investment process in the credit market. Robertson's approach to economic policy was that of getting the relations right between cyclical changes in prices, output and employment and their long-run equilibrium values over time.     

Response to De Vroey

Abstract

This paper is a response to Michel De Vroey's review of our book, published in this issue of EJHET. Differently from De Vroey's, our aim is to understand the theoretical choices with which economists believed they were confronted at the time. This is reflected in the organisation of our book, the selection of topics (disequilibrium, imperfect competition, etc.), and the conclusions about the fate of disequilibrium macroeconomics.     

Fisher and Wicksell on money: A reconstructed conversation

Abstract

The paper offers a reconstruction of the ‘conversation’ between Irving Fisher and Knut Wicksell on money as shown by references they made to each other's works. The first phase corresponded largely to the period between 1897 and 1911, when they proposed different explanations of the interaction between interest and prices, and incorporated aspects of each other's approaches into their own respective frameworks. This was followed by Wicksell's extended criticism of Fisher's compensated dollar plan and his bewilderment at its apparent lack of relation with the quantity theory of money (1912–1919). Finally, especially after Wicksell's death, Fisher came to support a significant part of Wicksell's monetary policy proposals, particularly in connection with the Swedish stabilisation experiment in the early 1930s. Fisher and Wicksell were both heirs of Böhm-Bawerk's interest theory, but interpreted and criticised the Austrian from different perspectives, which helps to explain the differences in their approaches to monetary dynamics.     

Wicksell,Ramsey and the theory of interest *

The article discusses Wicksell's assessment of the controversy between Böhm-Bawerk on one side, and Fisher and Bortkiewicz on the other, on the role of productivity (the ‘third reason’) in the determination of the rate of interest. It is shown that in the process of arguing out the third reason Wicksell came remarkably close to Frank Ramsey's view of the determinants of saving in economies with a positive subjective rate of discount. The similarities between Wicksell and Ramsey result from the fact that – in contrast with Fisher and Böhm-Bewerk – they assumed reinvestment, with the corollary that maximum permanent consumption will be reached at zero interest if the subjective rate discount of future utility is zero. Wicksell used his Ramsey–like saving rule to explain the interaction betwen Böhm–Bawerk's three reasons in either dynamic or stationary conditions, which enabled him to reformulate the third reason as the ‘marginal productivity of waiting’. Finally, the relevance of Wicksell's savings rule for the perennial debate on ‘Wicksell's missing equation' is considered in the last section of the article.