The Classical Transfer Problem: An Alternative Formulation

Abstract

Following work of Samuelson (1952, 1954), derived from famous Keynes-Ohlin debate of 1929 over German reparations (Keynes, Ohlin and Rueff, 1929), central of transfer theory has come to be conceived of as whether or not there is any classical presumption that terms of trade will turn against country making transfer (Samuelson, 1971). This is a real independent of magnitude of transfer and of numeraire in terms of which transfer is expressed. Yet transfer with which Keynes was concerned in The Economic Consequences of Peace, and to which he returned in 1929 debate, was whether or not Germany could reasonably be expected to pay reparations allies wished to extort from her; and his negative views on this questionsupported though they were by extremely naive partial equilibrium analysis itself of a partial kind and by far too short-run a view of processes of structural adjustment for in hand, as well as being continuingly entangled in strong emotions generated in him by participation in Versailles Conference-were undoubtedly extremely influential in decision of western allies not to impose reparations on Germans after second world war. (The Soviets, by contrast, imposed severe reparations, but stipulated them in kind, thus avoiding problems of German reparations with which Keynes and others were concerned after first world war.) The question of presumptive effect of a transfer on terms of trade of a transferring country is, of course, an interesting questioneven though few if any contemporary theorists are aware of origins of in Keynes' and others' distinction between the budgetary problem and the transfer problem, or alternatively distinction between primary and of transfer, and assumption that size of transfer is fixed on basis of pre-transfer prices so that secondary burden may make an apparently manageable transfer impossible to effect. The is only of practical interest if size of transfer is fixed without reference to economic repercussions of attempting to effect it by changes in trade flows and productive patterns; and in this connection 1 This article is a byproduct of International Monetary Research Programme at London School of Economics, financed by Social Science Research Council. 20