Journal Issue


International Monetary Fund. External Relations Dept.
Published Date:
June 1988
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A Rich Mine for Economists: Review article of The New Palgrave: a Dictionary of Economics

John Eatwell, Murray Milgate, and Peter Newman (Editors) The New Palgrave: A Dictionary of Economics

Stockton Press, New York, 1987, 4 volumes, xxxi + 4,102 pp., $650.

This is an important publishing event for economists. Given the growth, fragmentation, and specialization of the discipline, there has long been a need for a reliable work of reference—not merely to check terms or technical points, but to tap an authoritative source giving the analytical foundations and history of economic theories and concepts, and thus obviating the need for lengthy search. There are some 20 reference books on economics in English in existence, one half of which are glossaries or quick-reference books, and the remainder essentially limited to explaining the barest outlines of any particular topic. (The McGraw-Hill Encylopedia of Economics goes somewhat beyond the others.)

Palgrave is in a different class altogether. If not quite the economist’s equivalent of Grove’s Dictionary of Music and Musicians, it is of the genre of the Oxford Companion volumes which have been published on a number of subjects, only more extensive in its breadth. The question is not whether to have Palgrave or some other dictionary, but whether to have Palgrave. Two explanations are in order: all examples given in this review have been chosen at random, and any numerical references are approximations.

Who’s in, who’s out?

Biographical references account for 700 of the 2000 entries. The editors must obviously be allowed their own subjective criteria and idiosyncrasies. Nonetheless, the user is justified in asking the question: “if X is in, why not Y?” This reviewer was both surprised and delighted to find a number of names of whose contribution to economics and economic thought he was totally unaware: for example, Carlo Cattaneo, Giovanni Ceva, Cléemont Juglar, Guillaume François Le Trosne, Ugo Mazzola, George Poulett Scrope, and Pyotr Berngardovich Struve. He was equally surprised at some of the omissions (notwithstanding the editors’ cutoff point in terms of age of the economists covered.) Surely Jean Monnet is at least as deserving as Hugh Dalton or Hugh Gaitskell? And where are W.W. Rostow, H.W. Singer, Hla Myint, and Celso Furtado, to say nothing of others such as Per Jacobsson and John Rawls (a philosopher whose contribution to the theory of distributive justice merits him a slot, even though he is mentioned under the subject heading).

If one may query some entries and omissions regarding individuals, the treatment of certain economic organizations and institutions is downright quixotic and a major weakness of Palgrave. The American Economic Association gains an entry, as does the Royal Economic Society. No doubt very useful. But the reader who wants to learn something about the European Economic Community, the European Payments Union, the European Monetary System, the Bank for International Settlements, and the OECD will have to look elsewhere. And dare one add, at the risk of institutional chauvinism, the IMF and the World Bank are not considered of sufficient importance to merit their own entries. But Palgrave is not against all institutions. For instance, the Ecole Nationale des Ponts et Chaussées, the renowned French school of civil engineering, has a berth, but not the Ecole Normale Supérieure, an institution that has been far more important in training those in charge of economic policy. Perhaps all can be forgiven when in the entry on that wonderful institution, the Knights Templar, one comes across the following gem: “…they acted on the principle admitted by Aquinas that a man who lends money may without sin contract for a compensation in case of delay of repayment.”

What’s in, what’s out?

Again, the intriguing question is which topics are accorded an entry of their own, and which are cross-referenced (see next section) or covered under some other subject heading. Any reader who looks up the Almon lag or the Shapley-Folkman theorem or ophelimity will be enlightened, as will the person looking under patents, or quasi-concavity, (but not quasi-rent which is cross-referenced). Market failure is there (but, alas, economics has not codified other types of failure); and Gresham’s Law is there (but, surprisingly, not Parkinson’s Law—far more important in the present day world.) Also included are monetary cranks, free lunch (which explains why there is no such thing), and hunting and gathering economies. In the unexpected category, rhetoric and pleasure and pain are both represented. Also, crime and punishment, not of Dostoyevski, but the economics thereof: “General equilibrium analysis of the market for offenses involving the joint determination of the volume of offenses and the net returns of crime in a system of interrelated markets is still at an embryonic stage” in response to which the reader may be forgiven for crying out “why?”given the ample statistical data and impressive and pervasive evidence.

It was probably too late to capture target zones, but one might have expected brief entries under Marshall Plan, export pessimism, adjustment programs, green revolution, and supply-side economics, to name but a few. The greatest surprise, and one that had probably little to do with the judgment of the editors, is that there is virtually nothing relating to Japan, providing further proof that there is no discernible link between theoretical economics (and economists) and economic performance (although some claim to have found an inverse relationship).


A cat, upon being stroked, emitted the sound: “meep.” The bewildered cat lover rushed to the library and, to his surprise, found the word in the dictionary. The entry read: “meep see miao.” Given the complex web of interrelationships among economic topics and concepts, any dictionary is bound to be littered with meeps, meaning that the reader can seldom find anything under the entry he looks up. Palgrave contains fewer than one would expect—about one fifth of all entries are cross-references (if one looks up commodities, one is directed to see goods and commodities; and commodities, contingent directs you to see contingent commodities). A whole host of other topics to be found in some of the quick-reference dictionaries are not listed at all (for instance featherbedding, federal funds, Smithsonian agreement, and swaps.) All this begs the question of who is the intended user of Palgrave? Clearly not the journalist or itinerant economist wishing to look for the definition of a term or concept. Palgrave assumes a fair degree of economic literacy and will be of greatest use to the professional economist who will find in it authoritative essays, some succinct and some lengthy, and all supported by bibliographical references (the entry on social choice is over 10,000 words long with a bibliography of some 200 items). Within the category for whom Palgrave is intended, accessibility is maximized by the restrained use of mathematical or geometrical exposition.

Sampling the goods

A sample of eight terms was “tested” by this reviewer.

The first was planned economy (by Alec Nove). Based almost entirely on the experience in socialist countries, this essay, clearly and concisely, discusses the rationale for planning, the circumstances that favor it, and some of its drawbacks (mainly that it can be complicated). More attention to the achievements and historical record would have been useful, as would a section on planning in developing countries, which are mentioned but once or twice. The author correctly mentions that the impressive performance of Japan and the Republic of Korea owes more to state direction than to laissez faire, but fails to explain why the same approach in so many other countries has been an utter failure. Further, he might have added that the planners in the two countries mentioned were surely keenly aware of international market forces, and thus avoided the mistakes of other state-directed economies.

Looking up floating exchange rates one is directed to flexible exchange rates—not exactly the same thing, but no need to start a semantic squabble here. The entry (by R. Driskill) provides a judicious blend of theory and evidence, and is moderately technical. Does exchange rate volatility matter? How does it affect trade and investment? These and other questions could have been treated more fully for this reviewer.

The entry under IS-LM analysis (by Axel Leijonhufvud) assumes the reader is familiar with the building blocks and constructive technique of this concept. Provided one has this knowledge (which most economists would and hence would not have to look up Pigou effect—which would refer them to real balances) the essay is a model of lucidity, providing an account of the theoretical foundations and some of the problems of this theory.

Making assumptions is the stock-in-trade of theoretical economists. Assuming (a) that the debt problem were resolved tomorrow, and (b) that in five years from now a young undergraduate looked up this topic in Palgrave, he would be likely to have no notion of the wrenching international problem that this had been for over a decade (even if the official debt crisis was not declared until 1982). Although there are in fact two entries, under external debt (by Peter Oppenheimer) and international indebtedness (by Vladimir Brailovsky), our hypothetical reader would gain little insight into the dimensions and characteristics of the debt crisis, its causes, the approaches adopted for dealing with it, the possible alternative solutions, etc. Given the wealth of information that is available, it is somewhat puzzling that this topic was not given a more systematic and informative treatment.

The entry under purchasing power parity theory (by Rudiger Dornbusch) provides a clear and balanced blend of history, theory, and experience. The same can be said of the treatment of monetarism (by Phillip Cagan), though it is surprising to find no mention of Kaldor in the debate that raged in the 1970s.

The passage on effective protection (by Max Corden) is well written and convincing, as it ought to be, given that he was the originator of that theory. Finally, the entry on the transfer problem (by Barry Eichengreen) brings out the historical roots of this concept and the ensuing theoretical dispute in a precise manner.

In conclusion

No dictionary can be all things to all men, and Palgrave is not without its flaws. But Palgrave is certainly an impressive achievement. The core material is there, and it is not limited to economics: apart from covering economic theory, thought, and biography, there is a great deal from adjacent social sciences, including much that is of purely historical interest. The contributions are generally of a high quality, and the contributors include the illustrious as well as the little known. In all, Palgrave is unique in the field. No library should be without it, nor any economist who can afford the stiff price. Given the nature and the pace of development in the discipline, it will be necessary to issue fairly frequent updates. The original Dictionary of Political Economy by R.H. Inglis Palgrave (who was also editor of The Economist in 1877-1883) was published between 1894 and 1899. The present work is a worthy successor. Palgrave would have been pleased.

Bahram Nowzad

Roger C. Riddell Foreign Aid Reconsidered

The Johns Hopkins University Press, Baltimore, MD, USA, 1987, X + 309 pp., $35.

Foreign aid is a subject that has always aroused strong political passions. Roger C. Riddell examines virtually all facets of the debates about aid in this curiously dispassionate book. He outlines the moral case for aid and discusses “critics of the moral case,” such as P.T. Bauer. He presents a lucid exposition of foreign aid theory, including aid and the “take-off,” the two-gap models, and aid’s role in structural adjustment.

Criticisms from the radical left and those from the right each receive a thorough chapter. Riddell concludes that “radical leftist criticisms of aid which maintain that the structural and political constraints are so great as to make foreign aid incapable of assisting recipient economies, and especially of helping to alleviate poverty, have to be rejected.” He is no happier with the right. “There are,” writes Riddell, “serious grounds for questioning whether the private sector is able or willing to respond in the positive manner suggested by the critics. Thus there are not sufficient grounds for arguing either that aid should be reduced or that it should be channelled exclusively into projects consistent with a free-market approach. The perspective of the rightist critics therefore remains a theoretical oddity. …”

In the book’s final chapter, Riddell aims to “retake the middle ground.” But the discussion, as elsewhere in the book, is a bit tentative and unconvincing. He admits that one of his main conclusions—that a positive or negative relationship between aid and development can neither be derived theoretically nor ascertained empirically—is “singularly unexciting.” And so it is. Perhaps it is a thoroughly accurate judgment about the current state of aid evaluation. There is undoubtedly more wisdom in it than in the radical rantings about “development without aid” and money “down a rathole.”

Nevertheless, one would hope for a more convincing, if not more exciting, conclusion from an analysis as painstaking as the author’s. It is undoubtedly true that “lack of predictability about aid’s lasting impact, the hostile environment, and uncertainty about how best to promote Third World development lie at the root of aid’s mixed results.” This—another unexciting conclusion—is perhaps less a criticism of Riddell than it is of the theoreticians and practitioners of aid.

The book’s chapters survey the empirical evidence on three important topics: the relationship between aid, savings, and economic growth; the impact of aid at the micro-level, especially aid’s contributions to alleviating poverty; and the impact of aid at the national level, with particular reference to Haiti. Students of aid will already be familiar with the indeterminate conclusion that some studies “show that aid leads to a significant increase in domestic savings levels and to higher rates of economic growth and others show the opposite effects.” At the micro-level, limited success has been achieved within a context of considerable complexity, ignorance, and uncertainty. But “no one can doubt that improvements are needed.” Judgments about aid’s impact at the national level are rendered difficult by the “woeful lack of comprehensive and representative data” and the tentative nature of the findings of specific country studies.

In short, this is an extremely cautious assessment of more than a generation of aid. One suspects that Riddell could have pushed some of his conclusions further and taken a more definitive stance on certain questions. Still, his book is a thorough, well-researched account of the subject that no serious student of aid should miss reading. It sheds considerable light even if it provides little heat.

Robert L. Ayres

Sven W. Arndt and J. David Richardson (editors)

Real-Financial Linkages Among Open Economies

MIT Press, Cambridge, MA, USA, 1987, xiv + 215 pp., $27.50.

Researchers in international trade often seem to operate in two alien territories: the monetary and pure theories of international economics. This volume of conference papers is a welcome attempt to integrate the two camps and generate further research. Its eight papers examine various structural and financial linkages among countries.

The book is organized in three parts. The introductory section contains two overview chapters followed by two sections exploring structural and financial linkages. The overview by the editors is particularly worth reading because it provides an excellent and compact integration of the ideas and results of the contributors. Alan Stockman’s contribution is a thoughtful analysis of the fundamental linkages that exist between financial and real markets independently of monetary regimes and non-neutralities.

The next set of papers on structural linkages reflect various attempts to explain deviations from purchasing power parity. Paul Krugman examines the role of pricing-to-market as a factor explaining why import prices may adjust less than proportionately to exchange rate changes. His main conclusion is that certain dynamic factors, including cost adjustment and investment in reputation by firms, may help explain why this phenomenon is specific to certain sectors. Richard Marston’s paper is an empirical investigation of the effect of productivity growth differentials between Japanese and US tradable goods sectors on real exchange rate movements between the yen and the dollar. His main finding is that for the bilateral exchange rate for traded goods to return to its historical level for 1973-83, a fall in US nominal wages relative to Japanese wages of about 36 percent or a yen appreciation of similar magnitude is required. Irving Kravis and Robert Lipsey extend their well known work on purchasing power parity to test the hypothesis that real exchange rates are determined by structural factors including per capita income, sectoral structure, and the propensity to trade. Their results show that since 1960, relative prices for a large group of industrial countries can be increasingly explained by these factors.

The last set of papers examine intertemporal linkages among countries. The paper by Michael Hutchison and Charles Pigott on the effects of fiscal policy in open economies highlights the limitations of a non-rigorous approach. Their interesting empirical findings show that in the United States, Japan, and several European countries, fiscal deficits were associated with real effective exchange rate appreciations during 1971-84. In contrast, this was not the case for France, the Federal Republic of Germany, and the United Kingdom. The paper by Koichi Hamada and Akiyoshi Horiuchi provides a fairly descriptive analysis of various aspects of yen internationalization. They conclude that the yen, at present, fails to fulfill the functions of an international money. The final paper by Paul De Grauwe and Bernard de Bellefroid examines the effect of exchange rate variability on growth in world trade using cross-country analysis that separate out the effect of trade integration and other shocks. Unlike many other researchers, they are able to identify a strong negative relationship between real exchange rate variability and world trade growth.

Jocelyn Home

Richard L. Kilmer and Walter J. Armbruster (editors)

Economic Efficiency in Agricultural and Food Marketing

Iowa State University Press, Ames, lowa, USA, 1987, xii + 315 pp., $24.95.

This book, which comprises 16 papers and a similar number of commentaries, is concerned with the methods that economists use to evaluate market efficiency and the welfare consequences of market intervention policies. The standard tools of applied welfare economics, especially producer and consumer surpluses, are shown to be fragile when the underlying assumptions are relaxed to admit aspects of dynamic adjustment, risk, imperfect information, and externalities that characterize most agricultural and food markets. Moreover, it is not just that the economist’s tools become suspect, but that markets themselves fail to allocate resources in the theoretically prescribed way.

Papers in this book provide a careful review of the concepts, issues, and limitations involved in measuring welfare, and provide guidance on the conditions under which the usual tools of welfare analysis should and should not be used. There are also suggestions on how these tools can be redeemed in some situations, and for new tools of analysis when this is not possible. The latter include “political preference functions” and “multivariate social objective functions.”

Other papers delve into organizational aspects of firms and marketing systems, and relate these to economic efficiency. There is also a useful paper on the value of market information and another on futures markets. Concluding papers examine the rationale for public interventions in agricultural and food markets in the United States. These include marketing orders, grading and minimum standards, and public storage.

The book lacks a real synthesis of ideas. For example, the papers about US government intervention do not draw upon or develop the concerns raised about methods in earlier papers. Nor is there any attempt to compare methods, and to quantify the magnitude of the errors that could arise through inappropriate use of established methods of analysis. There is also an annoying amount of duplication of ideas between papers.

Nevertheless, at a time when the supposed efficiency of free markets is much lauded, this is a timely and sobering book. It probably has even more relevance for analysts of agricultural and food markets in the developing world where there are so many more structural impediments to efficiency than in the United States.

Peter Hazell

Neil McMullen Seeds and World Agricultural Progress

National Planning Association, Washington, DC, USA, 1987, viii + 263 pp., $25.

Future growth in global agricultural output will be based, in large part, on increases in the productivity of land and labor. Improvements in the seeds used to generate that output will be an important source of that increase in productivity. More importantly, and much neglected in this otherwise valuable monograph, improvements in the quality of seeds and other modern inputs, plus the substitution of these modern inputs for the traditional inputs of land and labor, will be an important source of expanded income streams for the world as a whole, and thus an important source of global economic growth.

This book attempts to fill an important gap in our knowledge—the lack of systematic data on and analysis of seed and the seed industry. The focus is on the private agricultural seed industry, which the author notes is a phenomenon of the last 50 years in the United States and Europe. The emergence of integrated, well-capitalized, professionally managed firms is even more recent. Although seeds are truly a “high-tech” industry, the US Department of Commerce does not collect data on it; neither does the US Department of Agriculture. Data on the industry in developing countries are even more sparse.

McMullen’s contribution is to begin to pull together the data on this critically and strategically important industry, and to take stock of policies toward the sector in both developed and developing countries. After a discussion of seeds and the world food balance, he discusses the roots of the industry which lie in genetic resources and basic plant breeding. This is followed by a description of the seed industry and its recent internationalization. There follows a chapter on hybrid seed corn in the European Economic Community, and a chapter on seeds and the developing countries. Three chapters on policy follow: one on seed policies in several developing countries; one on barriers to international trade in seed; and a final chapter on policies for development of the seed industry.

This monograph is an ambitious attempt to understand a strategic industry which ultimately links all countries of the world, and which is especially critical to the development of low-income countries. It should be required reading for policymakers in both developed and developing countries, as well as for concerned citizens. Of special value is its lucid explanation of the knowledge externalities associated with the seed industry and thus of the chronic tendency for nations to significantly underinvest in agricultural research.

Of equal importance is the author’s penetrating and succinct analysis of the controversy between the developing countries and the international agricultural research system (especially the Consultative Group on International Agricultural Research) over the movement of genetic material from one country to another. The tragic misperceptions of the issues in this debate threaten to hold back economic progress in the very countries most needing and demanding it. McMullen clarifies this as well as other issues in a most persuasive way.

G. Edward Schuh

André Neurrisse

Le Franc CFA

Librairie General de Droit et de Jurisprudence, Paris, France, 1987, vi + 275 pp., F 235.

This book looks at three aspects of the CFA franc: its evolution, its institutional structure, and consequences of monetary integration of the member countries. Although the CFA franc is issued by two separate monetary authorities, the author treats it as a single currency.

The historical discussion begins with the development of money and extends through the introduction of separate colonial currencies, their unification, and their association in 1945 with the French franc. Since 1945, the effective parity between the CFA franc and the French franc was changed twice: in 1948 when the French franc was devalued, but not the CFA franc; and in 1957 when the reverse occurred. Neurrisse defends fixed parity between the two currencies.

Neurrisse also describes the economic and social developments in each member country, noting that such developments have been generally satisfactory and crediting them to the countries’ membership in the franc zone.

Rattan J. Bhatìa

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