Taussig, Williams, Prebisch: discussions on the balance of payments and the exchange rate

FLORENCIA SEMBER

Paris

Jornada; Journée d?étude en hommage à Jérôme de Boyer des Roches (1954-2020) ?La macroéconomie monétaire à l?épreuve des crises: marchés, cycles et politiques économiques (1765-1985); 2022

Université Paris I Panthéon-Sorbonne

In his famous“ECLAC manifesto” of 1949, Prebisch will recommend industrialization to LatinAmerican countries to raise the standard of living. Accordingly, during hisstay at CEPAL as secretary executive from 1950 until 1963, Raul Prebischrecommended these countries import substitution policies to address the problemof the declining terms of trade.The aim of thisarticle is to show that the germ of these ideas lies in the studies andcontributions Prebisch made in the twenties on the balance of payments and itsinfluence on the Argentine economic cycle, influenced by Williams and Taussig. Thedeterminant of the cycle was the instability of gold inflows –coming from exportsbut above all from external loans. These ideas wereinspired by the work of John Williams, "Argentine International TradeUnder Inconvertible Paper Money, 1880-1900”, which was read and translated toSpanish by Prebisch in 1921. The book was Williams PhD. dissertation and waswritten under the supervision of Frank Taussig. In an articlepublished in 1917, Taussig stressed the influence of the balance of payments inthe formation of exchange rates and the premium on gold when the currency wasnot convertible. In the interwar period, the debates about the causes ofinflation and depreciation gained new strength. As in the times of the BullionReport, some attributed the “high price of bullion” to an excess of currency(“over-issue”), and others to an unfavourable balance of trade.This debatesignificantly influenced Prebisch and provided him with the foundations for hisexplanation of the specificities of the Argentine economic cycle. Argentina wasan open economy highly dependent on foreign capital and international tradeand, in 1914, had abandoned the gold standard. This is why Prebisch thoughtthat the question of international trade under inconvertible paper raised byTaussig in 1917 was especially relevant to the Argentine case. Interestingly,Williams pointed out an issue that should be further studied by theory: thedifferent influence of the gold premium on imports and exports inprimary-producing countries due to the different nature of imported andexported goods. This idea led Prebisch to place importance in the economicstructure of Argentina as an aggravating factor in the way the foreign capitalproduced instability in the Argentine economy, and later in the necessity ofchanging that structure to solve the problem in the long period.