Capital Flows to Latin America (2003–17): A Critical Survey from Prebisch’s Business Cycle Theory

ABSTRACT

The economic literature on capital flows to developing countries has shared two important commonalities since the 1990s. Published works (whether they focus on the external situation or stress the domestic determinants of capital flows) tend to assume a beneficial effect of capital inflows, which leads to an improvement of peripheral institutions, whose deficiencies are ostensibly the main cause of economic turmoil and/or failure in attracting capital flows, in continuity with New Institutional Economics. In doing so, mainstream economists deliberately overlook the asymmetric characteristics of the international monetary system and the persisting hegemony of dollar. Raul Prebisch’s pioneering work on business cycles in Latin America provide an alternative view, one capable of amending the existing mainstream literature. On the one hand, Prebisch stressed the destabilizing role of capital inflows on Latin American economies, particularly short-term speculative capital. On the other hand, Prebisch designed a set of counter cyclical monetary policies in order to contrast capital volatility, particularly during downturns. An analysis of stylized facts shows that, when correctly updated, Prebisch’s theory has remarkable explanatory potential when applied to Latin America’s current economic and financial situation.     

Cognition,competition, and catallaxy in memory of Friedrich August von Hayek

The paper focuses on central elements of the scientific work of Friedrich A. v. Hayek since the 1930s. In a first part, his epistemological position and its implications for his understanding of the tasks of the social sciences are presented as he set them out particularly in theSensory Order (1952). Then, it is shown how his findings in economic theory as well as in the analysis of economic and societal systems are formed by these foundations. His emphasis on the subjectivity and the constitutional limitations of human knowledge is identified as a precondition for the outstanding analytical insights which he gained with regard to the functioning of a market order and the role of institutions in societal development. Furthermore, it is argued that Hayek's enduring campaign for freedom and against the socialist tendencies in welfare states was not simply a matter of personal conviction. It was also the result of his analysis in constitutional political economy which revealed to him that freedom as a normative basis of economic and societal institutions is the key to the explanation of European cultural evolution.     

严复自由主义经济思想的哲学思辨

严复借助于经济人模式和建立自由主义经济的思路,重新解读人性和人的存在,解构了传统人性论生物性与社会性对立的思维,并由抽象的人性观照转向关注人的个体性,使对人的理解,由传统的群体本位转向个体本位.在自由主义经济的语境中重构价值理念,肯定了两利基础上利益追求的舍道德性与合人性.确立利益主体与权力主体合一的主体意识,引发利益基础上人权的制度诉求.     

Hayek and Keynes: From a common critique of economic method to different theories of expectations

The methodological positions of Hayek and Keynes contain striking similarities. Both authors opposed empiricist approaches to economics that assign priority to mere observation as the source of knowledge. Both emphasised intentionality, motivation and human agency. Notwithstanding this common ground, they had different conceptions of how beliefs are formed and had different explanations of thought and action in economics. Hayek grounded his explanation on an evolutionary theory of the mind, i.e. on psychological premises, whereas Keynes based his view of belief formation on probable reasoning, where probability is a logical concept. Starting from psychological premises Hayek maintained that individuals act rationally only by following rules. As a consequence, he considered conventional expectations to be the primary guide for agents in economic life. Keynes agreed that conventional expectations actually guide economic behaviour, but he maintained that they are justified only in situations of total ignorance. In conditions of limited knowledge, agents can base their action on reasonable expectations, independently of conventions. Moreover, agents?particularly those institutions responsible for economic policy?ought to shun conventional behaviour in order to counteract its negative social consequences. We argue that Keynes's theory of expectations is well grounded upon his theory of logical probability. Hence his advocacy of discretionary policy is rationally justified.     

The sceptic as an economist's philosopher? Humean utility as a positive principle

Whereas in philosophy David Hume was long regarded as a negative thinker to be criticized rather than read, many thinkers interested in social and economic theory from Adam Smith onwards found key concepts, distinctions and problems as developed by Hume useful and inspiring. This applies not only to his seminal contributions to technical problems in economics. It is argued that the way in which Hume employed ‘utility as a positive principle’ (most notably in his ‘experimental’ moral theory) is of pivotal importance in this context. It allows for:

a. distinguishing between internal motifs and external circumstances and constraints; and for

b. making explicit the abstract logic of social interaction structures, mechanisms and processes.

Both are necessary conditions for employing the logic of social situations and mechanisms in the explanation of social institutions and economic processes. It moreover prepares the ground for the use of simplified or cartoon-like models of individual agency in economic and social theory, but also for its critique. On this basis, Hume's influence on various strands of social and economic thought, but also the specific differences with regard to more ‘rationalistic’ approaches (such as Hobbesianism or important versions of neoclassical economics) can be assessed more clearly.     

An interpretation of unequal exchange from Prebisch-Singer to Emmanuel

Emmanuel's view of the Center-Periphery trade relation is linked to a classical literature in trade and development theory which starts from the work of Prebisch, Singer and Lewis. A very simple general equilibrium Ricardian trade model is formulated to deal with terms of trade determination in the context of class conflict both in the Center and the Periphery. The model focuses attention on the effects of technical progress and changes in income distribution on employment levels in the Periphery, where labor surplus conditions are assumed to prevail.     

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.     

Trade Unions Face a New Western Capitalist Society

Nicholas Georgescu-Roegen was hostile to work in economic theory that is based on the notion of a continuum of agents. In this essay, I use this hostility as a point of departure for an exploration of his views concerning representation, language and theory as they pertain to what he saw as economic science. In particular, I view his methodological stance to the "doing of economics," as expressed primarily in his epistemological writings, in the light of Richard Wollheim's reflections on "art and its objects."     

Rethinking Trade and Development: A Developmentalist Perspective

Abstract

In one of the longest lasting debates in economics, mainstream economists still basically rest their position regarding trade and development policies on the static principle of comparative advantage, while relying on fancier econometric techniques to find empirical support. This paper draws attention to dynamic considerations, first emphasizing Smith's observation that there was more scope for division of labor in manufactures than in primary production. Prebisch noted that primary products generally have lower income elasticity of demand than manufactures. In a global context where some countries undertook industrial development ahead of others, these would generate the trade patterns that Ricardo predicted. Investment would flow from the industrial center to the periphery to augment primary production as Mill anticipated. Through the dominance of backwash over spread effects, international inequalities would widen à la Mrydal. International dualism, especially in a technological sense, would be aggravated à la Singer. To counter such uneven development, developmentalists such as Hamilton, List, Prebisch, Myrdal, and Singer advocated technological acquisitions and industrial development on the part of the less-developed countries or regions. Contrary to mainstream portrayal they did not simply advocate protectionism. Instead, their policy suggestions were nuanced and sophisticated, and included both non-trade and trade instruments, means of building technological capabilities, and (for those writing after World War II) considerations of how to sensibly direct and regulate the activities of multinational corporations. These policy ideas appear to neatly link up with those drawn from case studies of East Asian development undertaken by some researchers that are outside of the economics mainstream.     

‘… More of Keynes and Less of Milton Friedman!’ 1

This paper gives an account of the scientific work of a pioneer whose heterodox ideas stimulated debate in development economics for more than three decades. It will be shown that his intellectual biography—in particular, his experiences as a victim of National Socialism—provided an important stimulus for his commitment to the problems of the socially underprivileged. This led him to initiate several studies of unemployment in the depressed areas of Great Britain during the Great Depression and the Second World War. Then, starting from the late 1940s, during the years of his affiliation with the UN, he made pathbreaking contributions to the economics of underdevelopment in fields such as the deterioration of terms of trade, the basic needs strategy, and food security. The topics will be discussed both in the context of history of thought and with regard to recent work in development economics.     

From Mill to Weber: the meaning of the concept of economic rationality

Weber recognized explicitly that his concept of ideal-type is directly borrowed from economic theory and as it is commonly admitted from the German-speaking ‘marginalist school’. Nevertheless, the construction of ideal-types reminds greatly the definition of economic rationality made by John Stuart Mill, who also built up a concept to explain, in individualistic terms, the real world in a given historical and geographical context. The position defended here is that Weber generalizes Mill's methodological proposition of concept formation regarding economic rationality to accomplish his much larger project of determining the social factors responsible for the rationalization of the Western civilization.     

GENDER AND THE FOUNDATIONS OF SOCIAL CHOICE: THE ROLE OF SITUATED AGENCY

Amartya Sen defends a rich conception of social choice theory against tendencies to limit social choice theory to the formal investigation of rules of collective decision-making. His understanding of social choice theory makes the field a natural candidate for exploring gender issues in the evaluation of democratic policy. Not surprisingly, Sen has applied the insights he developed from his study of social choice to the evaluation of gender inequality, in particular to women's well-being in the context of the family. I focus on Sen's distinction between well-being and agency, and argue that from the perspective of women's movements and related social movements, the role of agency has so far been unduly neglected in social choice theory.     

The Hayekian Puzzle: Spontaneous Order and the Business Cycle

In his early years, F. A. Hayek focused his research on the theory of capital and the business cycle. Later he turned to social philosophy and the theory of a spontaneous economic order. The two phases, it is argued in this paper, correspond to two basically incompatible research programs—general equilibrium theory vs. a theory of adapting, collective learning, and expectation formation. Hayek never reconsidered business cycle theory in the light of his later thought. The paper asks why and discusses what role cyclical fluctuations in aggregate economic activity may have to be play in the theory of spontaneous economic order.     

Enrico Barone's ‘Ministry of Production’: Content and Context

Abstract

Enrico Barone's famous article on economic planning, ‘Il Ministro della Produzione nello Stato Collettivista’ (‘The Ministry of Production in the Collectivist State’), which showed the theoretical possibility of an economically efficient collectivist planned economy, was published in Giornale degli Economisti in 1908. Barone's article has been widely cited, particularly in the comparative economic systems literature, but it has not been very widely read or analysed in recent years, and there is not much literature that places Barone's ‘Ministry’ model in the context of his other works or in its historical, social, or ideological context. The aims of this article are: (a) to analyse and clarify Barone's model in depth; (b) to place it in the context of Barone's other writings and the literature on the subject; and (c) to examine the apparent contradiction between Barone's hostility to socialism and his attempt to formulate the pure theory of the collectivist economy.     

Karl Polanyi on economy and society: a critical analysis of core concepts

The Review of Social Economy was founded to highlight the irreducible social aspects of economic activity. Yet, the nature of the ‘social’ and the ‘economic’ are both unresolved, and they are much more problematic than often assumed. This article probes Karl Polanyi’s depiction of the relationship between the ‘social’ and the ‘economic’ and subsequent discourse on ‘embeddedness’. In his Great Transformation (1944) Polanyi associated the ‘economic’ with motives of material gain, while ‘social’ referred to norms of reciprocity and redistribution: his distinction between the ‘social’ and the ‘economic’ then focused primarily on different kinds of motivation. But in a 1957 essay he brought in different kinds of institutions that engender different types of motivation. Polanyi (1944) argued that after 1800 Britain was transformed into a market-oriented ‘economic’ system, based on motives of greed and material gain. He also proposed that an effective market system had to be ‘self-adjusting’ and free of political interference, despite his important additional claim that the state was involved in its creation. Some of Polanyi’s core concepts and arguments are contradictory and problematic, and need to be reconsidered, especially if his enduring insights are to be salvaged.     

Economists on Darwin's theory of social evolution and human behaviour

Abstract

This article analyses Darwin's image among economists with a specific focus on his theory of social evolution as presented in the Descent of Man (1871). We propose an analysis of the way and context in which economists refer to Darwin, mention his name and quote his writings. It then appears that Darwin is most of the time viewed as a biologist only, who never developed his own theory of social evolution. He is thus quoted as a biologist who either borrowed concepts from economists who developed a theory of social evolution, or laid the basis for biological theory of social evolution developed by others, Spencer, in particular. It is only recently that eventually the twofold dimensions—biological and social—of Darwin's general theory of evolution are considered together by bioeconomists.     

Friedrich List and the Imperial origins of the national economy

This essay offers a critical reexamination of the works of Friedrich List by placing them in the context of nineteenth-century imperial economies. I argue that List's theory of the national economy is characterised by a major ambivalence, as it incorporates both imperial and anti-imperial elements. On the one hand, List pitted his national principle against the British imperialism of free trade and the relations of dependency it heralded for late developers like Germany. On the other hand, his economic nationalism aimed less at dismantling imperial core–periphery relations as a whole than at reproducing these relations domestically and expanding them globally. I explain this ambivalence with reference to List's designation of imperial Britain as the prime example of successful economic development and a model to be emulated by late industrialisers. List thereby fashioned his ideas on national development out of the historical experience of an empire whereby he internalised its economic logic and discourse of the civilising mission. Consequently, List's national economy culminated in an early vision of the global north–south relations, in which the global industrial-financial core would expand to include France, Germany and the USA, while the rest of the world would be reduced to quasi-colonial agrarian hinterlands.     

Schumpeter's crisis of the tax state: An essay in fiscal sociology

Schumpeter'sCrisis of the Tax State and other fiscal writings are summarized. His crisis theory and its relation to his prognosis of capitalist decline is explored, along with Goldscheid's earlier model. Both are found to have underestimated the resilience of the tax state and its ability to sustain expanding budgets. Schumpeter's view of the income tax as appropriate for a minimal state is assessed along with subsequent tax development. His fiscal model is placed in the context of his understanding of sociology as a social science. Some conjectures on his response to the subsequent course of fiscal sociology are added.The Editors invitation to revisit the Crisis of the Tax State coincided with my intent to review Schumpeter's recently publishedEssays in Economic Policy, 1991, C. Seidl and W. Stolper, eds., Princeton University Press. Spanning Schumpeter's economic and fiscal writings for three decades, this volume provides a rich addition to his initial vision, so that these pages may serve both tasks.     

Making a difference — how environmental economists can influence the policy process — a case study of David W Pearce

Can environmental economists influence policy? If so, how? This paper addresses these two questions using the late David Pearce’s career as a case study. Influence can be exercised, but Pearce’s career shows that certain conditions must be met. The first is desire: he wanted to influence policy, and directed a high proportion of his efforts to doing so. He focused particular attention on the power centres of his time — the OECD, World Bank, European Commission, UN, UK government; his influence was aided by his status and location as a professor in a prestige university (UCL) in a major global city (London). His messages were consistent and clear: theory is important, and can be used to frame most environmental challenges as regards both explanation and solution; externalities can be valued; assessing benefits and costs of options is important; market signals (taxes etc) and incentives generally are powerful shapers of behaviour; stock of capital (human, built, natural) is a key measure of sustainability. He communicated simply and clearly, in words and phrases that Ministers for Finance and journalists could understand. All of the broadsheet newspapers in England (Financial Times, Guardian, Independent, Telegraph, Times) were grist to Pearce’s mill of advocacy for environmental economics. He provided the Blueprint books that could be read on a commute and summaries to the media that they could fit into a 1,000 word piece. He didn’t seek out, but neither did he shirk controversy. He worked with various interest groups and politicians, but never to the point were he was co-opted. He initiated and directed the MSc in Environmental and Resource Economics that created an ever-widening and influential pool of advocates for his ideas. Finally, he achieved a prodigious academic output that ensures a sort of immortality, and provided the intellectual ballast the enabled his policy influence.     

Celso Furtado: Culture and Creativity Matter

This article deals with the relationship between development, creativity, and culture. It is based on the works of Celso Furtado — a Brazilian economist, a member of ECLAC’s first generation of scholars (along with Raul Prebisch), and a notable intellectual of sub-development and development in Brazil and Latin America. For Furtado, economic development is an endogenous social process that leads to human ingenuity and creativity. However, Furtado argued that creativity does not occur haphazardly. It is conditioned by cultural structures that can take two forms: material (means) or immaterial (ends). The former steers creativity toward serving material accumulation and consumption, while the latter guides it toward individuals’ existential way of life. Furtado’s central claim is that, in the “industrial civilization,” such values as rationality and efficiency bring human creativity into the production process.