THE TRANSFER PROBLEM REVISITED: ANALOGIES BETWEEN THE REPARATIONS PAYMENTS OF THE 1920s AND THE PROBLEMS OF THE OPEC SURPLUSES
| Author | THOMAS BALOGH,ANDREW GRAHAM |
| Published date | 01 August 1979 |
| DOI | http://doi.org/10.1111/j.1468-0084.1979.mp41003001.x |
| Date | 01 August 1979 |
OXFORD BULLETIN
of
ECONOMICS and STATISTICS
THE TRANSFER PROBLEM REVISITED:
ANALOGIES BETWEEN THE REPARATIONS PAYMENTS
OF THE 1920s AND THE PROBLEMS
OF THE OPEC SURPLUSES
By THOMAS BALOGH and ANDREW GRAHAM
I. INTRODUCTION AND SUMMARY
Anyone with an appreciation of economic history must sense that we seem to
be drifting back into the dark 1 920s in economic analysis and advice. The carefully
nurtured criticism, indeed execration of Keynes has become the fastest growing
industry in academic economics. Paradoxically, this is occurring at a time when
serious cyclical fluctuations in economic activity and mass unemployment have
reappeared. It seems to have been forgotten that this is where Keynes came in. It
also appears that some academics have forgotten, or overlooked, that Keynes in
1919 at the time of analysing the problem of reparation payments had not yet
become a Keynesianor perhaps it is that they have never really understood what
the Keynesian revolution was all about.'
In this article we therefore firstly look back at the question of reparations as an
example of the transfer problem and bring out what ought to have been said about
this once the Keynesian revolution was understood (which is, of course, to be
sharply distinguished from what Keynes himself said in either 1919 or even
1929). Secondly, we consider the misunderstandings that existed following
Keynes' faulty analysis of the nature of the reparations problem and look at the
effect that this had on subsequent policy. Thirdly, we consider a number of close
analogies between the transfer involved in reparations payments and the transfer
of resources consequent upon the increase in the oil price in 1973/4 (and in
subsequent years). We attempt to show that there are analogies not only in the
analysis but also in the mistaken policy responses that have been made. Finally,
we draw out what we see as the crucial policy implications for the present of these
lessons from the past.
Typical of this regression is Mr. McIntosh's note 'Mantoux versus Keynes. A note on German
Income and the Reparation Controversy' Economic Journal, December 1977, pp. 765-7. We discuss
below how Mr. McIntosh falls into the trap of concentrating on esoteric refinements and as a result
misses the basic point concerning German post-First World War reparations.
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Volume 41 August 1979 No. 3
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