Raúl Prebisch, the economic cycle and the performance of the Central Bank of Argentina in its first years (1935-1943)

FLORENCIA SEMBER

Santiago de Chile

Congreso; Presentation Call for papers Submission & Registration Program & Speakers Travel Grants & Young Scholars Committees Venue & Accommodation 5th Latin American Conference of the History of Economic Thought ? ESHET; 2015

Universidad Adolfo Ibáñez y European Society of the History of Economic Thoguht

The aim of the article is to show that the so praised anti-cyclicalpolicies followed by the bank in its first years, even if accomplishing the mandateof the BCRA of maintaining the external value of money, didn?t consent to takeadvantage of the favorable international situation to promote economic growth. Prebischfailed to recognize that by the thirties, structural changes were taking placein the argentine economy. Later on, in his Conversacionesen el Banco de México, he recognized that the Central Bank was behavinglike an orthodox institution, introducing some new ways to intervene in themarket to stabilize the value of money, without supporting economic activity.There were two main ideas that guided the bank?s policy, which stemmedfrom Prebisch?s conception of the economic cycle. The first one was the beliefthat in the economic cycle, the magnitude of the contraction in the descendingphase is proportional to the intensity of growth in the ascending phase. The intenseabsorption policy of the bank sought to avoid ?artificial? support of theeconomic activity in prosperity phases, which would only make the subsequentfall more severe. The second idea was that banks should not make long terms investmentloans, since investment had to be financed with savings. Following this idea,the bank had an explicit policy of preventing the banks to increase theirinvestment loans, which would increase the circulating medium more than it wasnecessary and stimulate imports. The banks could only grant short term loans orrediscount ?real documents?. Prebisch?s ideas on the cycle and on monetary and baking policy were atodds with the promotion of industrial growth. The lack of an institution thatcould grant long term loans was solved only in 1944 with the creation of theBank of Industrial Credit. Finally, in 1946, under a completely different economicproject, the Central Bank was nationalized and the banking system entirely reformed.