Friday, February 21, 2014

Raúl Prebisch on Cyclical growth and center-periphery interaction

New Working Paper at the IDEAs Network. From the asbtract:
Prebisch believed that understanding the evolution of capitalist economies over time and in different contexts required a general cycle approach, which he labeled ‘dynamic economics’, encompassing all the different areas of economic activity. His dynamic economics stemmed from a critique of both neoclassical and  Keynesian theories, which Prebisch viewed as static representations of capitalism. His dynamics was first applied to a closed economy and then to a center-periphery context. These combined the notion that profit is  the driving motive of  economic activity with a process of forced savings and the idea that the time lag between income circulation and the derived demand, and the time taken in the productive process was the main source of cyclical fluctuations. Prebisch’s dynamic theory, which he never completed, influenced his Development Manifesto (1949).
Full paper available here. From the conclusion:
The long process of development of Prebisch’s economic ideas, which did not stop with his famous Development Manifesto in 1949, from the 1920s culminated in the late 1940 with his dynamic theory. The essence of Prebisch’s dynamic analysis, in which cycle and growth went hand in hand, was the introduction of time lags in a process of continuous disequilibrium. In his model fluctuations result from the difference in the time-period for incomes to circulate within the productive process with the time period required for final production to be brought and sold on the market. In this respect, he was part of a broad tradition of authors trying to formalize macro-dynamics in the wake of the Keynesian Revolution. He maintained elements that were Keynesian in spirit with others that were decidedly neoclassical, while at the same time introducing elements of the old classical school, as it should be expected in a period of transition in the economic profession, and also in an author that was brought up intellectually in a rather eclectic environment.

More importantly, Prebisch stands alone among his contemporaries in trying to explain the cyclical growth of the global economy as the result of the interaction of center and periphery, in which the international division of labor matters. Not only Prebisch introduces the specificity of the problems of managing the peripheral economy, but also he is unique among the economists dealing with cyclical growth to discuss the importance of the change in the global center in the inter-war period from the United Kingdom to the United States.

His conception of the institutional and historical specificity of economic dynamics would eventually develop into what Structuralists at ECLAC would refer to as the Historical-Structural method of analysis, which analyzed the process of structural transformation of underdeveloped economies in historical perspective. In this sense, his understanding of capitalist dynamics, right before he wrote the Development Manifesto and became the Secretary General of ECLAC, was based on a theory that purported to be general and encompassing well beyond the problems of peripheral countries with declining terms of trade, which became the trade mark of his contributions to economic analysis.

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