1 Raúl Prebisch, “Commercial Policy in the Underdeveloped Countries”, American Economic Review (May, 1959): 251.

2 Cf. Pedro C. M. Teichert, Economic Policy Revolution and Industrialization in Latin America, 1959. Especially Chapters 15-17.

3 List, National System, 129-30.

4 Especially Book VII, “The Management of Money.”

5 Keynes, Treatise On Money, Book IV, Chapter 20, p. 307.

6 Raúl Prebisch, “The Economic Development of Latin America and its Principal Problems” for the Economic Commission of Latin America, United Nations, Department of Economic Affairs (Lake Success, New York, 1950), 59 pp. Original text in Spanish.

7 Ibid., 1.

8 While Prebisch himself is not a Schumpeterian, he would probably accept Celso Furtado's definition of economic development (i.e. changing the form and proportions in which factors of production are combined) without difficulty. Cf. “Formaçâo de Capital e Desenvolvimento Econômico” in Revista Brasileira de Economía (Sept., 1952): 7:40.

9 W. W. Rostow, “The Take-Off into Self-Sustained Growth”, The Economic Journal Volume LXVI (March, 1956): 25-48. Rostow defines the “take-off” as “an industrial revolution, tied directly to radical changes in methods of production, having their decisive consequence over a relatively short period of time (p. 47).”

In this same stimulating article, Rostow quotes W. Arthur Lewis to the effect that the central problem of the theory of development is “to understand the process by which a community which was previously saving and investing 5% or less of its national income converts itself into an economy where voluntary saving is running at about 12-15% of the national income (p. 32).”

10 Cf. William H. Fink, “Trends in Latin America's capacity to import and gains from trade”, Inter-American Economic Affairs (Summer, 1955): 61-67. Fink indulges in a statistical critique of the export-import price ratio (i.e., the net barter terms of trade) in the 1949 United Nations Economic Survey of Latin America in which the Prebisch thesis was first adumbrated.

11 Jacob Viner, International Trade and Economic Development (Oxford, 1953), 41-45.

12 Ibid., 42-43.

13 Ibid., 44.

14 Ibid., 46.

15 Ibid., 52.

16 Benjamin A. Rogge, “Economic Development in Latin America: The Prebisch Thesis”, Inter-American Economic Affairs (Spring, 1956): 24-49. Analyzes ECLA's 1949 Economic Survey of Latin America, especially the section on economic development which raised the issue, Why has not the industrial revolution improved living conditions in the periphery?

17 Cf. Note 6 above.

18 Prebisch, Economic Development, 2.

19 Ibid., 2.

20 Raúl Prebisch, “Interpretacáo do Processo de Desenvolvimento Económico,” Revista Brasilelra de Economía (March, 1951): 117.

21 Cf. Note 10 above. Recall the U. S. farm price parity situation. Cf. also H. W. Singer, “The Distribution of Gains between Investing and Borrowing Countries” in American Economic Review (May, 1950): 473-485. In this pioneer article, Hans Singer stresses the importance of the deteriorating terms of trade in the long run between developed and underdeveloped economies. Singer has been with the United Nations for many years.

22 Cf. F. Benham and H. A. Holley, A Short Introduction To The Economy of Latin America, London, 1960. Chapter 8 on foreign trade and Chapter 7 on manufacturing both show the imprint of the Prebisch thesis.

23 Prebisch, Economic Development, 24.

24 Cf. Ibid., 35. Prebisch recalls Lord Keynes’ dictum in the General Theory that with full employment the economist finds himself safely ensconced in a Ricardian world.

* Cf. Ragnar Nurkse, Problems of Capital Formation in Underdeveloped Countries (New York, 1956). Nurkse defines the concept of the “vicious circle of poverty” as implying a “circular constellation of forces tending to act and react upon one another in such a way as to keep a poor country poor” (p. 4).

25 Ibid., 37.

26 Ibid., 37.

27 Ibid., 40. Prebisch's analysis of inflation is especially significant now when not a few Latin American economists defend inflation as necessary and even good. E. g., The Survey of the Brazilian Economy, 1960, p. 63-65, published by the Brazilian Embassy in Washington, takes a kindly view of inflation. For a recent Prebisch contribution to an understanding of inflation in the periphery see “Economic Development or Monetary Stability: The False Dilemma” in Economic Bulletin for Latin America (March, 1961): 1-25.

28 Ibid., 40-41.

29 Ibid., 45.

30 Ibid., 53.

31 Raúl Prebisch, “Interpretação do Processo de Desenvolvimento Econômico” in Revista Brasileira de Economia (March, 1951): 7-117. (Summary in English, 117-127.)

32 Ibid., 117.

33 Ibid., 19s.

34 Ibid., Chapter IV, especially p. 85.

35 Ibid., Chapter V (“Consequences of International Inequalities in National Income and Productivity”).

36 Raúl Prebisch, American Economic Review (May, 1959): 251-273.

37 Ibid., 252.

38 Ibid.

39 Ibid., 253.

40 Ibid., 255. (Cf. Sidney S. Dell, Problemas de un Mercado Común en América Latina (Mexico, 1959), especially the First Conference.)

41 Ibid., 255-256. Prebisch's argument here is not easy to follow. As I understand it, he reasons this way: Competitive equilibrium would be reached in the periphery at a point where returns for export producers equalize those for newlyformed industries. This is not an optimum point for the periphery because the marginal increment of income, arising out of successive increments of employment in export activities, has been falling faster than prices. The marginal increment of income in export activities could even be negative if elasticity is low enough.

It will help to remember the key facts on which Prebisch's argument is based: Disparities in elasticities cause the demand for imports to grow faster than the demand for exports. The income and price elasticity of export demand is generally low. Therefore only a small part of the surplus manpower released by productivity increases and expanded by population growth can be employed in export activities at given prices.

42 Ibid., 266-269. Prebisch develops briefly his analysis of multilateral trade. See Allyn A. Young's pioneer article, “Increasing Returns and Economic Progress” in Economic Journal (December, 1928); 527s.

43 Ibid., 268.

44 In November, 1956, the Latin-American governments requested ECLA to set up two groups of experts, one to work on the gradual establishments of a multilateral payments system and the other to define the characteristics of the regional market. Cf. United Nations ECLA, The Latin American Common Market, 1959. (Sales No. 59.II.G.4)), especially Sections A & B.

An earlier report by ECLA entitled “International Cooperation in a Latin American Development Policy” (New York, 1954) should also be noted. Chapter One begins: “In the final analysis, economic development is an urgent social need. The desire for new consumption patterns and for the higher standards of material existence which more advanced countries could only attain through a steady rise in productivity and per capita income, is spreading rapidly among underdeveloped countries.”

45 ECLA, The Latin American Common Market, 139. Cf. Statement by Raúl Prebisch, Ibid., 141-46. He states (p. 144): “The only basic solution I can see for this serious problem (i. e., the economic vulnerability of Latin America) and for that of the costliness of the substitution process is to break up the outdated mould referred to by means of the gradual and progressive establishment of the common market and the consequent diversification of imports and exports.”

46 CED, Problems of United States Economic Development, New York, 1958, Volume I, p. 47. Prebisch's is one of the 48 papers written in response to the question: What is the most important economic problem to be faced by the United States in the next twenty years?

47 Ibid., 48. Cf. Virgil Salera “Prebisch on America's Development Role” in Inter-American Economic Affairs (Spring, 1958): 61-70. Salera quotes the sentence “it is unrealistic …” and criticizes Prebisch for emphasizing development by the state rather than by private enterprise. Salera advocates that corporation law in Latin America be modernized. This article with its criticism is a good example of what happens when only part of the Prebisch analysis is reviewed. See also H. \V. Singer, “The Distribution of Gains …” in American Economic Review (May, 1950): 474-5. Singer makes the important point in this article that in many cases foreign industries in the under-developed economies are really outposts of the industrial centers. Their link to the developing economy is geographical but not structural. Thus the underdeveloped country finds itself with a dual economy.

48 Ibid., 51. Prebisch reminds us that from the point of view of the masses in Latin America the private enterprise policy of the United States is seen not in terms of freedom and democracy but in terms of profits and improving investment yields (p. 55). He admits that investment yields are a perfectly legitimate preoccupation, “but not one calculated to inspire faith in a system or fire the imagination of new generations.” For an excellent non-technical summary of the present Prebisch position, see Raúl Prebisch, “Joint Responsibilities for Latin American Progress,” in Foreign Affairs (July, 1961): 622-634.

49 “Imperialismo Paulista” in Visão (27 Jan. 1961): 22-25. (Visão is a weekly review similar to Time in the United States.)

50 Ibid., 24. Under the title “E hora de distribuir,” the writer points out that the very industrialization of the other states of Brazil will open new perspectives for the industrial complex in São Paulo. The alternative is domestic strife: “Aliás, a consciêncía revelada pelas elites de outros Estados acerca do problema de seu atraso em relação a São Paulo é bem um indicio da sua acertada disposição de combate.” Cf. also Ernest Feder, “Land Reform in Latin America” in Social Order, (Jan. 1961): 29-36. Writes of imbalances in the Chilean economy.

51 Cf. Octavio Gouvea de Bulhões, “Inflation and Industrialization: A Brazilian Viewpoint” in Tennessee Institute For Brazilian Studies, Four Papers, 1951, 35-5S. Also confer Celso Furtado, A Economía Brasileña (Rio de Janeiro, 1954). Furtado dedicates this work on economic development to Raúl Prebisch.