Prebisch on central banking and credit (1935-1948)

FLORENCIA SEMBER

Toronto

Congreso; History of economic Society (HES) Annual Conference; 2017

History of Economics Society

This workstudies Prebisch?s ideas on banking and credit during his role as generalmanager of the Argentine Central Bank (1935-43), and in the course of hisparticipation in some advisory missions to other Latin American countries. Inthese years, Prebisch?s activities and writings reflect an interesting mix oftraditional and innovative ideas. On the oneside, his ideas on monetary policy derive from his conception of the Argentineeconomic cycle, characterized by the external vulnerability stemming from thefluctuations in the balance of payments. This allowed him to support policieslike exchange control, import restrictions, and open market operations on thepart of the Central Bank, which were opposed by the British money doctor SirOtto Niemeyer, who advised the Argentine government regarding the creation ofthe Argentine Central Bank. Regardingcredit Prebisch had a much more traditional approach, dominated by two mainideas. The first one was that in the economic cycle, the severity of thecontraction in the descending phase was proportional to the intensity of growthin the ascending phase. This was reflected in the policies adopted by the bankthat acted always under the assumption that the promotion of ?artificial credit?(as opposed to ?normal credit?) in periods of prosperity would only make thesubsequent slump deeper.The secondrelevant element was Prebisch?s adherence to the real bills doctrine, and therelated idea that investment didn?t have to be financed by credit, but bysavings. Under Prebisch?s guidance, the Central Bank had an active policy thatlooked to prevent the banks from increasing investment credit.Lastly, wewill show that these ideas also can be traced in Prebisch?s role as an advisorin Paraguay, Dominican Republic and Venezuela.