Journal Issue

Book Notices

International Monetary Fund. External Relations Dept.
Published Date:
March 1966
  • ShareShare
Show Summary Details

Hirsch, Fred, The Pound Sterling: A Polemic, London, Gollancz, 1965, 176 pp., £1 Is. Od.; Cassell, Francis, Gold or Credit? The Economics and Politics of International Money, New York, Praeger, 1965, 216 pp., $6.00, and London, Pall Mall Press, 1965, 216 pp., 32s. 6d.

THESE two small and interesting books are a testimonial to the high level of financial journalism in England, since Mr. Hirsch is on the staff of The Economist and Mr. Cassell was until recently assistant editor of The Banker.

The Pound Sterling is a stimulating discussion of the management of sterling since the end of World War II. Hirsch says that, as late as the beginning of 1963, he was still convinced (“perhaps mistakenly”) that the arguments against devaluation were stronger than those for it, since devaluation would harm international confidence in, and international cooperation for, an improved international monetary system more than it would bolster the United Kingdom’s trading position. But he argues that by 1964-65 the situation had changed, and that the authorities should then have devalued sterling by 15 or 20 per cent and introduced wider exchange margins. These actions would have increased Britain’s financial strength, and Hirsch would have used this to support reform of the international monetary system and other internationalist moves. He suggests that Britain, following such a devaluation, should have reduced its tariffs unilaterally, eliminated the reserve currency status of sterling, and supported the same treatment for the dollar. He argues that arrangements should be agreed upon for countries to deposit their official holdings of sterling (and of dollars) with the International Monetary Fund; these deposits would carry a gold value guarantee, as do the Fund’s own holdings of currency. He would reduce the role of both gold and key currencies as international reserves.

The last half of The Pound Sterling consists of two irreverent chapters calling for improvements in attitudes and in decision making arrangements in the British Treasury and the Bank of England. The British Treasury should recognize that its responses to the problem of sterling in 1955-64 were depressingly uniform, despite seven Chancellors of the Exchequer drawn from the two major political parties and four administrative chiefs drawn from the Civil Service; the Bank of England should recognize that its great record as a pacemaker in its heyday has been followed by its “poor record as an innovator of monetary policy in modern times.” These views of the author are interestingly expressed; both chapters contain some sharp, illuminating details on personalities and decision making.

Gold or Credit? is an informative, but longer and less well-organized, book. It examines many factors in the current discussion of international monetary problems, without succeeding in bringing all of them to bear on the central problem of reform. Cassell’s road to reform is clear: dethrone gold and set up something like an international central bank to create and manage international liquidity, which would then consist of credit instruments. His reasons for this reform go beyond the question of financial arrangements, important though these are; they look toward a more internationally minded world: “A credit-creating Fund could play the same integrating role within an Atlantic Community that the European Payments Union played in Europe during the 1950s.” He recommends a number of other ways to improve the functioning of the international economic system, including widening the limits within which fixed exchange rates can fluctuate.

In the course of his discussion, Cassell deals with many interesting subjects, such as General de Gaulle’s comments on gold in his press conference of February 1965; Keynes’ proposals in 1943 for an International Clearing Union, which would greatly have extended the credit component of international reserves; and a convenient summary of the most important proposals for international monetary reform. His chapter on “Common Markets and Common Currencies” argues forcefully that the creation of the European Common Market was bound to improve the balance of payments of its six members, which should have revalued their currencies to recognize their new positions and to facilitate international balance of payments adjustment. The failure of the Six to do this brought about adjustment through rising domestic prices—which they have called inflation. It would have been interesting if Cassell had pushed this analysis a bit further and discussed more specifically what effect these Common Market developments had upon the balance of payments difficulties of the United Kingdom and the United States, and whether further economic integration of the Six may be expected to reduce their needs for reserves of gold and dollars, since half of their trade will be with each other.

Oscar L. Altman

Anderson, C. Arnold, and Mary Jean Bowman (Eds.), Education and Economic Development, Chicago, Aldine Publishing Co., 1965, 436 pp., $10.75.

CARNOLD ANDERSON and Mary Jean Bowman—the Sidney and Beatrice Webb of the economics of education—have here edited, revised, and endowed with coherence and continuity the papers which were presented by 16 independent authorities at a 1963 conference on the role of education in the early stages of development.

The volume does not undertake to provide practical guidance in assigning current educational investment to economic development. Nearly half of the text is given over to historical narration; interesting as this may be, industrial and occupational mixes in both developed and underdeveloped economies have changed so rapidly, even since World War II, that historical precedent may have little application to the current problems of educational investment.

Only one of the authors (Wharton) provides a definition of the “education” that he is relating to economic development, and his definition is so wide as to include almost every interpersonal relationship as an aspect of education. Educational economists, I suggest, ought to sharpen and narrow their focus to a more modest, and clearly recognizable, function. My own attempt at denning this would be: Education is the process of teaching and learning in a formal academic setting, primarily for young persons before they take up their economic roles, in order to equip them better for participation in adult life; it also includes some formal teaching of adults who voluntarily seek it for their own economic and intellectual improvement.

If education is defined in some such way—and I believe that the definition at least indicates a readily distinguishable activity such as most educated people have in mind when they use the word—then the authors may be claiming too much for its economic result. To be sure, the citizen’s adult economic attitudes, behavior, and productivity are influenced powerfully by what he acquires in school. But workers, especially at the highest professional and administrative levels, acquire their competence through training after leaving school—from their fellows, superiors, and staff.

Let us look at some quantities. If 3 per cent per annum of the present labor force in a country disappears through death or retirement, then 15 years from now (far beyond any safe economic prediction) 55 per cent of the present labor force will still remain active, and through seniority, more than 55 per cent of the élite, administrative and professional. Economic growth thus depends heavily upon raising the productivity and improving the utilization of people who are already in employment.

Foster alone, in the volume, touches on this point in his chapter, “The Vocational School Fallacy in Development Planning.” In highly developed economies (the United States for one) the average worker by the age of 45 will have held nine different types of jobs—not merely different jobs. In underdeveloped countries where the industrial pattern is still more fluid than in the developed, he can expect to be called upon for even more occupational mobility and flexibility, for which—too often—school experience is not preparing him. Even at university level, it has been well said that engineering graduates now have a “half-life” of only 10 years: half of the knowledge they carry away from the university will be out of date in 10 years—half of the knowledge they will be applying in their professions in 10 years has not yet been discovered. Their knowledge that they can apply to economic development will be acquired, essentially, after their formal education is finished.

Interesting as their present book is, one may hope that the editors will develop some of these ideas further in the way which made their earlier writings outstanding.

George Tobias

Bryce, Murray D., Policies and Methods for Industrial Development: A Guide for Accelerating Economic Growth, 1965, 309 pp., $7.50; and Staley, Eugene and Richard Morse, Modern Small Industry for Developing Countries, 1965, 435 pp., $9.00, New York, McGraw-Hill.

THESE BOOKS both form part of the McGraw-Hill Series in International Development and are complementary. Bryce’s book is concerned with the general conditions which determine industrial growth, and that of Staley and Morse is concerned with the important role which small industry must play in this process.

Early in his book, Mr. Bryce makes the statement, “An almost universal misconception in the underdeveloped world is that industrialization is a quick, easy, and certain route to wealth.” A study of the two books should go far to dispel this misconception.

Staley and Morse discuss the most interesting problems of small industry and the development of entrepreneurs and managers. They quote an excerpt from a report by McCrory on the small industrialists of Chopur in Northern India, which contains the statement: “The small industrialists of Chopur have every earmark of the successful industrial entrepreneur except success. By and large, they do not prosper. When they do prosper, it is not for long.” McCrory himself considered that the reason for this failure was lack of capital. But Staley and Morse question further whether this lack of capital may not be a symptom in some cases of other handicaps, especially unskilled management and lack of education. They further state:

Another capital saving advantage from vigorous development of small factories should appeal particularly to thoughtful economic planners. The amount of costly misinvest-ment as the result of mistaken decisions on what to produce and how and when, and where to produce it may thereby be lessened. If the decisions on new manufacturing investment are made only in large blocks, and if now and again somebody makes a mistake, the engineers miscalculate, or the economists or the marketing people incorrectly judge costs and demands, very large mistakes are going to be made.

Taken together, these two statements raise the problem of business failure. The small industrialists of Chopur did not prosper and the large factory may not be a success. It seems to this reviewer that the small-industry sector of an economy can be regarded as consisting of three main types of enterprise. The first of these is the successful small enterprise which is on the way to becoming larger. The second is the small enterprise that has reached a plateau of development and is now the size that it is likely to remain; and the small enterprise which is a failure—this is the third class, where the entrepreneur is forced to revert to the status of a skilled workman and recoup his fortunes for another attempt. There would therefore appear to be some form of birth-and-death process inherent in the small-industry sector.

Every year small enterprises leave the group, either by being successful and moving out of the classification of small industry, or by failure, and others take their places. The authors do not seem to have covered this question of the failure rate of small enterprises extensively and this may well be due to a scarcity of reliable information. It would be interesting to have more information on this since the probability of failure in small enterprises could have a very significant influence on the availability of financial assistance and the general terms on which it could be obtained.

Both of these books are full of interesting and thought-provoking comments and their chief weakness lies in the manner of presentation. Neither book can honestly be said to be completely readable, and certain statements need to be read more than once before the reader can be sure of the author’s exact meaning. This problem of clarity in contemporary writing is not by any means confined to the authors of these two books and the point is well illustrated by two quotations in Mr. Bryce’s book, both of which give statements on the law of comparative costs. One statement is that made by Professor Kindleberger in 1962, while the other was made by John Stuart Mill in 1887. The latter statement is longer but, unless there is a misprint in the statement attributed to Professor Kindleberger, is much more easily understood.

H. G. Hilton

Gittinger, J. Price, Planning for Agricultural Development: The Iranian Experience, Washington, National Planning Association, 1965. 123 pp., $2.00.

“AGRICULTURAL PLANNING does not solve problems of agricultural development, it only provides a means for choosing a rational, coordinated approach to these problems.” This very sensible pronouncement strikes the keynote in Dr. Gittinger’s monograph, which (based upon the experience of the Agricultural Planning Group in preparing Iran’s Third Five-Year Plan) makes an effective case for planning for economic progress in low-income agriculture.

The planning which the author describes has a large element that might be described as “political,” although it is carried out by people who are not at all politicians in the ordinary sense of the term. If they follow the Iranian example, however, agricultural planners should seek out reticent scientists and encourage them to think about development problems, should consult local and national government officials, and should spend time in the field in order to learn how farmers think and what they want. In order that both contributions to planning and responsibility for carrying it out should be widely spread, the planners must involve outside technicians and local leaders in what they themselves are doing. It is because they must make such use of the arts of persuasion in order to get men to work together for the common good that the author considers their activity as at least partly political in its true nature.

Planners must not expect too much, but must use the resources available. In the absence of reliable data they must use the information available to make informed guesses. They must make all the use they can of experts working in international or bilateral technical assistance programs. Without insisting on complicated economic models, they must help the economist in assigning decisive values to crucial variables to test common sense and judgment by more formal analysis. The specialists should also encourage research in colleges and universities, without expecting very much very quickly in the way of results.

These lessons are solidly based on experience. In the chapter entitled “Adapting Planning Techniques to Data Capabilities,” the author gives an account of the way in which, in Iran, the future demand for food was estimated for the urban and rural populations, making assumptions for rising income and population; how production targets were chosen; how priorities were established; and how the program was constructed. Under the heading “Planning Framework,” he gives the steps in the planning process as they were taken in the organizational and financial framework. He makes it clear that the agricultural sector of the economy is peculiar in that it depends on the initiative of a very large number of individuals willing to invest in it. These farmers must have access to the information they need and the supplies and equipment. Above all, they must have the economic incentive to improve, for “agricultural development only occurs as individual cultivators decide to change their traditional practices, not in the capital city but far away on a myriad of individual farms.”

This publication of the National Planning Association is not intended as a blueprint in agricultural planning. It is an account of what happened in a particular country. But it is a realistic description of what was achieved and of the shortcomings and frustrations that were encountered along the way, making it valuable reading for practitioners, and bringing down to earth—where they belong—those planners who may be tempted into following an unrealistically sophisticated approach to agricultural development.

Horst von Oppenfeld

Other Resources Citing This Publication