Table Of ContentAN AGGREGATE THEORY OF
INTERNATIONAL PAYMENTS ADJUSTMENT
By the same author
International Travel: International Trade
The Economics of Business Investment Abroad
An Aggregate Theory
of International
Payments Adjustment
H. PETER G RA Y
PALGRAVE MACMILLAN
© H. Peter Gray 1974
Softcover reprint of the hardcover 1st edition 1974
All rights reserved. No part of this publication
may be reproduced or transmitted, in any form
or by any means, without permission.
First published 1974 by
THE MACMILLAN PRESS LTD
London and Basingstoke
Associated companies in New York
Dublin Melbourne Johannesburg and Madras
SBN 333 14484 8
ISBN 978-1-349-01770-6 ISBN 978-1-349-01768-3 (eBook)
DOI 10.1007/978-1-349-01768-3
To
JEAN M. GRAY
Contents
Preface ix
PART I: THE INFRASTRUCTURE
1 The Need for a New Theory of International Payments 3
Adjustment
2 Characteristics of the Short-Run Model 7
3 The Debt to John Maynard Keynes 38
4 The Accounting, Formal Definitions and the Assumptions 58
Appendix: The Competitive Ratio 75
PART II: THE AGGREGATE THEORY
5 The Theory Developed for the Balance of Trade 83
6 The Capital Account Introduced 110
7 Induced International Saving 131
8 Capital Controls as Quasi-Adjustments 150
9 The Aggregate Theory Summarised 164
PART III: THE IMPLICATIONS FOR THE INSTITUTIONAL
SETTING
10 Target Compatibility and International Co-operation 177
11 The Monetary Background 195
12 Valedictory 208
Index 211
Preface
The model presented in this book is designed to liberate balance-of
payments theory from the general equilibrium framework in which it
has been confined. The theory presented here is less susceptible to
elegance than is the standard model but it should be more relevant
for policy formulation in a real world in which disturbances come in
many shapes and sizes and in which nations do not always seek
compatible payments objectives. Unfortunately the experience of
Max Planck does not offer much hope to would-be creators of new
proofs or methodological approaches - particularly in such an in
herently imprecise field as international economics. (See Scientific
Autobiography and Other Papers, New York: Philosophical Library,
1949, pp. 30-4.) Consequently the writing of this book has been, in
large part, an act of faith - perhaps a belief that however useful it
may be to fill empty boxes, it is even more useful to create those
boxes. The theory developed here is by no means a finished model,
but it has reached the stage at which fresh insights will more
quickly enable it to reach whatever potential value it may prove to
have.
The ideas presented here have had a long gestation since the
original insights were gained in 1964. A Ford Foundation Faculty
Fellowship, awarded in 1965-6 for work on the economics of inter
national travel, was partially diverted to what is now the core of
Part II. It was published as, 'A Keynesian Framework for the Inter
national Accounts' in Weltwirtschaftliches Archiv (1969), and I am
grateful to the editors for permission to include that material. The
book would never have been completed without the award of a
Rutgers University Research Council Fellowship and the concom
itant permission to accept that award by Douglass College and by
my colleagues who, under the rules of that fellowship, take up the
burden of an absentee. The Brookings Institution provided me with
guest scholar privileges from September 1971, to February 1972, and
made a significant contribution to my productivity by providing me
with an office between those of Walter S. Salant and Lawrence B.
Krause. In this way, the Institution allowed me to learn (and to learn
x Preface
much) by osmosis as well as by interchange. None of these institu
tions is in any way responsible for the ideas expressed in this book.
The theory presented here stands on the shoulders of many giants
(and one titan): the writings of Sir Roy Harrod, Harry G. Johnson,
Fritz Machlup, J. E. Meade, Joan Robinson and Jan Tinbergen have
all provided grist for my synthesising mill. Valuable insights were
gained from the methodological approach of the Brookings forecast
of the U.S. balance-of-payments in 1968, from the Reddaway team's
work on foreign investment, and from Richard N. Cooper's work on
interdependence. The following people have all made a contribution
to the model through conversation, correspondence or comments on
parts of the manuscript, and I should like to acknowledge their help:
E. Ray Canterbery, Richard E. Caves, Robert V. Eagly, Peter B.
Kenen, Jan Kregel, Vincent Lin, Gail E. Makinen, D. E. Moggridge,
lngo Walter and Donald Winch. If they cannot remember doing
so, the reason is the length of the gestation period. There remains
the debt that lowe to my wife. It is very great. She encouraged me,
she refurbished and clarified the economics. She asked insightful
questions and she bore with the cyclical pattern of euphoria and
despondency during the many years over which the theory evolved.
Dedication is less than payment in full.
Finally, let me acknowledge the contributions of Mrs Doris
Cunningham and Mrs Gerri Dructor both of whom performed nobly
in the production of the manuscript in an orderly and legible form.
H. PETER GRAY
Belle Mead, New Jersey
Part One
The Infrastructure
