postulates “income distribution” (Prebisch 1948a in 1991c: 500).<fnref n="35" />

There was one further theoretical strategy among the defenders of classical postulates, which was the least coherent: it postulated an “endogenous” theory of the cycle,<fnref n="36" /> but did so “independently of the body of traditional doctrine” and, in contrast to previous attitudes, “incompatible” with the tradition due to the impossibility of simultaneously arguing that “the action of businessmen” brings “society to a point of equilibrium” and/or to a “continuous succession of disequilibria” (Prebisch 1948a in 1991c: 502).<fnref n="37" /> In other words, the postulates of classical doctrine are accepted, but reality is explained from different premises. To underline this “incoherence,”<fnref n="38" /> Prebisch brings up the name of none other than Alvin Hansen, which should not astound us when we remember how little “respect” he showed toward Keynes.<fnref n="39" />

By the late 1920s then, political economy was facing the “Great Depression” in a state of “ineptitude” and “theoretical incongruousness.” The “deep instability” and “excessive inequality in distribution” found no explanation whatsoever, never mind a strategy to correct them.

This period of the great world depression brings about the “second crisis in political economy” (Prebisch 1948a in 1991c: 503), overwhelmed by the labyrinth of the economic depression, we find Keynes suggesting an explanation that grants a certain place to “economic freedom.” Its “practical” solutions are couched in a “theory of economic movement” which had supposedly done away with the principles of “classical economics.”

had not therefore “solved the crisis in political economy,” neither had he “extricated himself completely” from classical doctrine:

> it is surprising that the two most formidable critics of the classical doctrine (Marx and Keynes) ran into the same difficulty. Marx because he sought to build his whole doctrine and interpretation of capitalism upon the basis of a theory of value inherited from classical doctrine. The Marxist theory of value, which essentially is the Ricardian theory of value. In respect of Keynes, was incapable of letting go of the mental habits of the classical economists who led him, in his theoretical system, to pursue the search for positions and laws of equilibrium in economics. (Prebisch 1948a in 1991c: 504)

Therefore, what should have been transcended was the “quest for laws of equilibrium,” otherwise “constructions alien to reality” (Prebisch 1948a in 1991c: 505) would continue unabated. Prebisch understood why early classical economists were fascinated by theorizing about the “apparent chaos of phenomena” in terms of “precise laws of equilibrium,” though these “laws of movement” could also be explained in rigorous scientific terms. However, the rigorous logical system of traditional thought embellished by mathematics had one drawback: it did not “correspond to reality” (ibid.).<fnref n="40" /> The “crisis” in “political economy” was due to its inadequacy in explaining reality.

The crisis occurred when political economy turned its back in horror to the “key factor of time”: classical economists view it as “contrived,” and Keynes as “arbitrary.” The discipline’s theoretical problem therefore lay in how “to introduce time into their theory just the way it is” in reality (Prebisch 1993: 271).<fnref n="41" />

The absence of the *time* element could be seen in the notions of capital and saving in classical and Keynesian doctrine because it was through the “subterfuge” of the interest rate that it was tackled in theory.<fnref n="42" /> The interest

<footnote n="35">³⁵ “Whence the crisis in political economy, and whence its ineptitude at explaining the form and origin of economic phenomena” (ibid.).</footnote>

<footnote n="36">³⁶ “A spontaneous logical result of the way businessmen act” (Prebisch 1948a in 1991c: 502).</footnote>

<footnote n="37">³⁷ Further ahead, he was saying the same thing: “the continuous succession of disequilibriums” (Prebisch, 1949a in 1993: 413). Prebisch claims that, “Of course, no classical economist, ancient or modern, holds that in reality there are equilibriums. What I do want to say is that the system by its own forces that move it, tends toward equilibrium; but that, naturally, external disturbances always intervene to prevent it attaining this equilibrium. I maintain that these disturbances that intervene and prevent it attaining equilibrium, which lend the system its characteristic wave pattern stem from the interdependence of the curve” (Prebisch 1949a in 1993: 462). See graphics at the end of the chapter. For Ralph W. Souter equilibrium involves, “the conception of a continual attempted adaptation toward real equilibrium which is continually thwarted in some degree by the inequality of time-coefficients plus the constant emergence of new evolutionary changes” (Souter 1930: 82).</footnote>

<footnote n="38">³⁸ “The very economist who speaks of typical equilibrium has devoted himself (...) to the study of the economic cycle and flits from one thing to the other without the slightest theoretical scruple. (...) in a first part, they have expounded their theory of equilibrium for us with great doctrinaire rigor, and in a chapter on the cycle expound the theory of disequilibrium for us without any concern for the fact that they cannot combine two fundamentally different theories; if the cycle were a mere accident occasionally registered in the economy, it *would* be possible to combine them. But as the economy’s way of moving *is* the cycle, the theory of economic movement can be nothing but cyclical” (Prebisch 1948a in 1991c: 502). Possibly one of the best discussions of this set of issues is found in Mirowski (1985).</footnote>

<footnote n="39">³⁹ It was Prebisch himself who called for a “respectful revision of classical theories” (Prebisch 1993: 325).</footnote>

<footnote n="40">⁴⁰ “A scientifically satisfactory economic theory would have to explain cyclical movement for us because the type of movement presented to us by reality is a wave pattern, [as well as] the reason [why] the capitalist economy does not take full advantage of its productive factors, and at the same time give us an interpretation of the periodic phenomenon of unemployment” (Prebisch 1993: 303).</footnote>

<footnote n="41">⁴¹ “Time is a fundamental element of reality, it is not possible to eliminate it arbitrarily as Keynes does, nor to view it with the subterfuge of classical economists. A good deal of the investment that has been -and still is being- made throughout history has been via a mechanism different to the supply and demand for saving; and a good deal of the saving invested is not the result of what society may choose to do spontaneously according to one of its inclinations or tastes, or the interest rate” (Prebisch 1993: 278). I translate “artificio” as subterfuge.</footnote>

<footnote n="42">⁴² “I call the interest rate a logical subterfuge produced by classical economists to solve the problem of time because, after long reflection and observation of the facts, I have become convinced that the interest rate does not in fact play the regulatory role in production and distribution that classical economists ascribe to it. (...) the formation of capital in society is quite different, and the interest rate only minimally plays the regulatory role ascribed to it by the classical school. (...) If the interest rate does not perform the functions in the production and distribution of products assigned to it by traditional doctrine, the problem then arises of</footnote>
rate then was the mechanism through which the saving that “society is willing
to supply” matched capitalists’ demand to develop capital: according to the
demand for saving, the interest rate would rise or fall, and therefore the
saving “required” by businessmen would emerge. But Prebisch maintains
that, for any given period, the produce requires a certain time to arrive to
the marketplace, and therefore the income in process awaiting products
has to be higher than the value of the production of the final consumption.
These facts could clearly not be explained with Say’s Law, which states that
“supply creates its own demand,” since it would be contradicting the idea
that “demand” should not outstrip supply at the end of the productive cycle.
However, classical economists explained this anomaly as being the result of a
“saving” made by the community given a certain the interest rate. The interest
rate is the subterfuge that facilitates or limits what amount of saving would be
used in production in any given period, namely, the total income generated
at the end of the process. Any “surplus” would be explained by the existence
of the relevant “saving,” thus fulfilling Say’s law.

Keynes, for his part, tackled the problem of time with a variety of
“attitudes” (Prebisch 1993: 275). In one case, Prebisch claimed that, with a
falling “interest rate,” Keynes went hand in glove with classical economists,
but once marginal capital yield did not keep pace with the interest rate (due to
a preference for liquidity), then Keynes ditched classical economics behind.
Savings were left in liquid form, not invested, and a deficiency in demand
arose. Nevertheless, according to Prebisch, Keynes keeps “within the logical
game” of classical economics: on one hand, he recognizes “the time factor,”
but uses the “subterfuge” of the “interest rate” to manage it; on the other,
this subterfuge has limits after a certain point (the “preference for liquidity”).
In contrast with this “attitude,” in the theory of the multiplier, Keynes
“denies” the role granted to the interest rate by classical economists and
does so without introducing time altogether; saving becomes an altogether
different phenomenon than for classical economists. Here, the assumption
of simultaneity in saving and investment is not taken into account, and it is
simply accepted that saving will come out of the “income from production”:
this would in turn multiply these “investments” (Prebisch 1993: 276). The very
multiplication of income (also the product of investments) would by itself
generate a certain level of saving in the community. Saving is a function of the
rate of income growth. But Prebisch points out that, for certain investments
to produce a certain income, a certain time is required, which otherwise
only “confuses” the present with the future. This, according to Prebisch, is
precisely the theory of the Keynesian multiplier. Its “logical inconsistency”
invalidates “Keynesian theory” (Prebisch 1993: 277) and marks the absolute
rift between him and the classical school.

It is the idea of static equilibrium which should be called into question.
In this “position,” neither businessmen nor consumers are thought of as
having any interest in “moving” (nor do savers). The amount saved is the
one that businessmen demand from a specific interest rate. Wages too reflect
the position where there is no further incentive to work harder or change
jobs. Similarly, the price of primary commodities is high enough to keep on
working “marginal” lands where the production cost “only just” equals the
“value of the products (the difference in cost in the best endowed or located
lands being left as earnings)” (Prebisch 1993: 280). A change in any of the
circumstances once again establishes a “position of static equilibrium”:

> The concept of static equilibrium is a mere instrument of abstract analysis of the phenomena as viewed by classical economists to gain a better understanding of them. In classical doctrine, one can easily switch from the static to the dynamic. (Prebisch 1993: 281)

If classical economists isolated every latent change and interpreted the
event as a happening which could become unstable, then economic reality
could be viewed as an “endless succession of disturbances.” It was therefore
possible to go from the “static equilibrium” of classical economics to a
“dynamic” theory of reality (ibid.). This theory should be infinite overlaying
processes tending to reach equilibrium (Prebisch 1993: 281). But it is the
incessant changes which might prevent it ever reaching “equilibrium,” even
though one might suppose that “abstractly speaking,” the disturbance itself
is the point of “equilibrium.” Prebisch offered a definition incorporating the
very paradox of the economic reality he was attempting to describe: only if
a certain limit-point is viewed abstractly in the sense that its disturbances
“end,” can we speak of “equilibrium” in the economic system, which will,
nevertheless, be unachievable.

According to Prebisch, this explains why classical economists did not
elaborate “a dynamic” or “general theory”: they presume that the disturbances
themselves lead to equilibrium, and this excludes any reflection about “how it
is reached” (Prebisch 1993: 282). A general theory could “be constructed” but
it would suffer from the “fundamental vice of the theory of static equilibrium,”
namely, its “mistaken conception of saving, and the subterfuge of the interest
rate” (Prebisch 1993: 282). As the “theory of static equilibrium” starts from
mistaken premises about reality, a theory of “dynamic equilibrium” would
also suffer such consequences. “What we need then is a dynamic theory that
explains movement, gives us laws of movement, and does not get bogged down
in the quest for laws of equilibrium which does not conform to reality” (ibid.).

Prebisch then moved on to present the way the interest rate was
conceived as a regulator of production and distribution. First, he showed
how businessmen require an incentive to transform techniques to mutate
into “Professor Schumpeter’s” classical businessman (Prebisch 1993: 283).
Only in this way will he seek out higher levels of saving, while paying a higher

<footnote>substituting it with a theory different to the Keynesian one, for such are its inconsistencies
that it is not, in my opinion, possible to use Keynes's theory even as an instrument to explore
reality, since it also has serious defects" (Prebisch 1993: 278).</footnote>
interest rate given the proportion of profit achieved in the new productive arrangement. Businessmen therefore require saving to put population growth on a level with a corresponding employment. “Profit” is the businessman’s “prize.” Due to technical innovations, he lowers production costs, which will eventually be matched by other businessmen. This makes “profit” a “temporary” thing. Competition pushes up wages or prices fall, so that “free competition transfer[s] to society the fruit of technical innovations which, during the transition period, is held by businessmen in the form of profit” (Prebisch 1993: 287).

Once businessmen have made their investments concrete, the intensity of demand for greater savings evaporates, which had previously expanded due to a rising interest rate (a consequence of the businessmen's earlier “creative” drive). This would in turn generate a fall in the interest rate. But this new equilibrium in the interest rate entails the existence of profits for businessmen because of the new fruits of technical progress.

Prebisch then outlined a series of scenarios in which businessmen chose to use the same interest rate, without trying to alter it to make new investments. But there will also be businessmen looking for greater investment per head, who would reduce the employed population, and drive up the interest rate. And although, in the latter case, society loses out because “there are fewer products and unemployed people” (Prebisch 1993: 291), businessmen usually choose this situation because it gives them greater incentives to profit.

But in this case the classical school would say that, if wages are not fixed, their levels will fall, and with it the demand for workers will grow once again, reaching a new point of equilibrium. To put it another way, wages will pay for the costs of the higher interest rate required so that savers supply a growing amount.

One cannot here talk about a point of equilibrium because, as production is transformed by new technical inputs, the demand for workers will grow, raising the level of salaries, on the one hand, while on the other, reducing prices with greater production. Over time this will reach equilibrium, compelling “profit” to disappear, thus favoring “society.”

Prebisch concludes that the classics maintain that unemployment is a means of reaching a new position of equilibrium by lowering wages sufficiently for businessmen to (a) obtain the minimum profit to induce them to extend innovations until unemployed is absorbed, and (b) pay the highest interest rate demanded by the market for additional savings (Prebisch 1993: 292).

It is therefore a *temporary* impairment which is surmounted when equilibrium is reached, where profit evaporates and the “interest rate falls as the supply of saving rises by virtue of the increase in savers’ income” (*ibid*.).

These examples aimed to underscore the process described by classical economists, as they facilitate exposition of the theory of “cyclical movements”: in classical and Keynesian models the “dynamic phenomena of reality whose

disturbances prevent” equilibrium being reached are forgotten. Thus nothing prevents in the classical model, in which “businessmen themselves use their own saving for investment,” so as not to resort to the market or putting pressure on the interest rate: “They may lend to each other, and if the marginal yield is lower given the interest rate (once profits are withdrawn), they will prefer to lend their saving” (Prebisch 1993: 296). Keynes’s stance is different because, when there is unemployment, “saving” inhibits accumulation, and therefore the income multiplier. Equally, Keynes overlooks the reasoning of classical economists of the transitory period, in which wages are supposed to fall to achieve full employment. However, as “saving” is a “spontaneous” activity and requires a specific incentive to raise its total amount, there would seem to be no explanation as to how to achieve a lower interest rate to drive up investment.

Prebisch says that this is where Keynes parted company with classical economics, especially for maintaining that the “*interest rate is a conventional phenomenon* and is within the reach of the Banks” (Prebisch 1993: 297). It can also be manipulated to reduce it and induce higher investment, which will in turn generate the corresponding savings, “until a new position of equilibrium is reached” (Prebisch 1993: 298). Therefore, the way of thinking about money creation, or its way of inducing a certain interest rate is, according to Prebisch, a “real revolution” (*ibid*.). Keynes maintained “just the opposite of what the classical school held,” but through the creation of money or “using inactive money, the equilibrium of the multiplier is not reached, instead, we go through the typical phases of the cycle, which neither Keynes nor classical economists have been able to explain because their reasoning is so artificial and arbitrary” (Prebisch 1993: 298).

According to Prebisch, at the beginning of the cyclical upswing, the supply of saving is meager because recession is still being felt. This means that businessmen do not have the “option” of using the spontaneous “saving” assumed by classical economists unless they raise the interest rate considerably. Instead, a process of money creation by businessmen occurs:

> The typical manner of accumulating capital consists in increasing the money supply. The businessman does not go out looking for saving, except to a minimal extent. (...) most fixed capital investment is covered *indirectly* with a rise in the money supply, not by turning to the market. (Prebisch 1993: 299).

In contrast to what classical economists say, the rise in the money supply which makes technological progress possible does not allow prices to come down.<fnref n="43" /> Such a process involves a wage reduction, but not to be able to pay a higher interest rate in order to cover the growing “demand” for saving *through investment*, as classical economists believe:

<footnote n="43">⁴³ "It is through price rises that consumer items are transferred to those responsible for the formation of capital. The saving market has only a supplementary function. The increase returns to businessmen in the form of profits, thus again performing its function in the accumulation of capital" (Prebisch 1993: 300).</footnote>
but to compel those paying the highest prices to save, and shift this
saving to the businessman (...), it is not the result of a mechanism of
incentives and preferences, but of a mechanism of compulsion. This
is what happens in the capitalist reality. (...) Except that one does not
arrive at the equilibrium of the multiplier, but the typical phases of the
cycle. (Prebisch 1993: 300)

The classical mechanism of the transference of savings is alterable and,
by not being “complete,” loses the function assigned to it by classical
economists. What Keynes advocated is then what happens in the capitalist
reality, with one difference: that, instead of reaching a new position of
equilibrium, “this way of covering investments” leads “to the typical
movement of the cycle that characterizes reality” (Prebisch 1993: 301).
This phenomenon also reflects the characteristic of capitalism mentioned
by Keynes: “economic instability” and “inequality of distribution.” On
the other hand, saving in the “collectivist economy” is identical because
businessmen collectively raise prices, or stop them from declining, after
bringing about a transformation in production.<fnref n="44" />

Prebisch moves swiftly on to describe human history as one in which certain
“groups and dominant classes” have made use of a variety of instruments to
set up a distribution favorable to its regime: under capitalism the “monetary”
instrument is privileged. However, the fact that the process is different under
collectivism does not necessarily guarantee that inequalities are abolished.
All regimes make use of certain monetary instruments “to favor dominant
groups” (Prebisch 1993: 303).

To summarize, the savings “interest rate” level has a regulatory function
both in boosting productive activity to optimum levels, and in the
“distribution” of income. There is no room for unemployment in classical
economics where, given free competition, the economy tends to the
“optimum.” Unemployment is a phenomenon of “system rigidity.” Optimum
production requires a certain amount of market savings, and if the amount
required is not forthcoming at the existing interest rate, higher costs means a
reduction of wages (“temporarily”), to allow businessmen to afford the rate
in question. In the classical mechanism, this was achieved by displacing the
workforce, which would lead to lowering wages, and paying a higher rate
of interest. In the event of lower wages not being accepted, there would be
unemployment. Unemployment is a phenomenon of “system rigidity.” But
this possibility also finds a place in the classical system (a case only Keynes
considers) thus completing the system, and still “remaining classical”
(Prebisch 1993: 305), but equally far removed from “reality.”

Nevertheless, Prebisch would accept the classical postulate about how
capitalism transfers the fruits of technical progress, either via wage increases

or a price decrease. But “the process by which this transfer has occurred,
the time it has taken, and its quantity are, in my opinion, different to those
postulated by classical theory” (Prebisch 1993: 311).<fnref n="45" />

There was also the classical and Keynesian coincidence in terms of the
phenomenon of short-term unemployment. This involved an abundance of
manpower and temporary shortage of capital. The explanatory difference
between classical economists and Keynes regarding the phenomenon would
lie in the “remedy” and its correction: classical economists advocate a fall in
wages, while in Keynes it is attempted by “lowering the interest rate.”

With its conception of money as a mere “veil,” classical theory obscured its
prime importance. Classical doctrine’s idea of isolating “money” presupposed
that it could be studied independently of productive and distributive
phenomena, and that “it intervenes without affecting either the nature of the
phenomena or the laws that guide them toward equilibrium” (Prebisch 1993:
317). Money therefore adapts to economic evolution, and with this system
in “equilibrium,” it made analysis of the monetary phenomenon superfluous.

If for classical economists' inflation was a "pathological" aspect,
for Prebisch "certain inflationary seeds" that "upset the tendencies to
equilibrium" (Prebisch 1993: 319) were part and parcel of capitalism. It
was really their way of making abstractions that led classical economists to
certain theoretical errors because they believed that various partial aspects
could reach equilibrium in themselves and as regards to the whole. Positing
a theory "closer to reality" (Prebisch 1993: 324), Prebisch suggests that the
increment in money systematically affects the "three planes" of economic
reality (a theory of production and distribution, a monetary theory, and a
theory of international trade), identified by classical economists, which
culminates in his theory of the "wave movement." In this case there are
"disturbances" that lead to "a series of actions and reactions that are in fact
those that give economic phenomenon their characteristic wave form" (ibid.).
Their "laws" are different to those that supposedly lead to "equilibrium." It is
the "interdependence" between different economic spaces which makes of
the process a wave phenomenon and makes it imperative to discard classical
theories.

It is both ironic and unfortunate that Prebisch never considered the Keynes
of *The General Theory* as a possible theoretical ally, but rather as a special case
within neoclassical economics, the so-called “neoclassical synthesis.”<fnref n="46" /> Given

<footnote n="44">⁴⁴ “And one wonders,” says Prebisch, “whether handing this instrument of inequality from private hands to the hands of the State is enough to lead us to the conclusion that inequality has disappeared” (Prebisch 1993: 302).</footnote>

<footnote n="45">⁴⁵ “Income that, at different stages in the process, businessmen pay to the productive factors employed by their companies” (Prebisch 1949a in 1993: 417).</footnote>

<footnote n="46">⁴⁶ According to Jaime Puyana Ferrara: "It is clear that there was a very solid trust in the ana-
lytical instrument available, particularly in the formal interpretation of Keynes, as outlined
initially by John Hicks and Alvin Hansen in the late 1930s. It was mainly through this inter-
pretation, better known as the IS/LM model, (...) that key aspects of Keynes's thinking were
eliminated, making him a very special -almost aberrant- case in a much broader theoretical
approach whose roots are deep in general Walrasian equilibrium. (...) It comes as no surprise</footnote>
the importance of money and money creation in Prebisch's model (also, paradoxically, a crucial topic in Keynes, as is nowadays being recognized) when it comes to understanding the cycle and capitalism, it is the Keynes of the *Treatise on Money* whom Prebisch exhibits as constructive for his own theoretical development up till this stage, all the more so because he then identifies him as a follower of Wicksell:<fnref n="47" />

If we go back to the *Treatise on Money*, we will find that his reasoning over the economic process and the cycle is fundamentally Wicksellian (...) I would not know how to explain (...) the reason for such an abrupt change in Keynes when, a few years after the *Treatise on Money*, he switches to *The General Theory*, forgetting everything he had told us about Wicksellian theory, and the economic cycle to go and get himself hopelessly tangled up in the theory of the multiplier, thus spoiling the value of his contribution to economic phenomena (Prebisch 1993: 326).

Prebisch then sets about integrating monetary theory and the theory of production. He lays out the shortcomings of the classical theory of money, showing that, faced with an increase in the money supply (assuming the economy is at a point of equilibrium), it is correct to deduce an increase in prices. This is explained by the hypothesis that there is a "proportional relationship between price movement and the amount of money" (Prebisch 1993: 327), which signifies a new "position of equilibrium." But given the assumption of full exploitation of resources from which its starts, "prices rise or fall" without affecting production. But a disturbance of this nature "makes the amount of businessmen's profits vary and leads them to expand and contract production, distancing them from the position of equilibrium postulated by classical theory" (Prebisch 1993: 328).

If full employment of factors is assumed, the increase in the money supply undoubtedly:

pushes prices up: Keynes starts from a position of insufficient

exploitation of resources, and assumes that the increase in the money supply only pushes up production without having a bearing on prices, except where the production cost for the diminishing labor yield pushes up prices (Prebisch 1948b in 1993: 330).

However, this is an arbitrary starting point because, as the "economy approaches full employment, it is due precisely to a series of phenomena in which monetary expansion plays an important part" (Prebisch 1948b in 1993: 329).

Full employment is something "fleeting" and, in this respect at least, Keynes is closer to reality than classical economists, otherwise productive capacity could not rise. But in contrast, Prebisch holds that growing production involves price rises.

Classical economists are wide of the mark because the nearest thing in the capitalist reality to full employment is when "monetary expansion" occurs. The Keynesian position misses the point too because, despite assuming the existence of unused resources, monetary expansion increases both production and prices, and this trend does not necessarily lead to equilibrium.

The "intimate relationship" between production and the monetary can be visualized, according to Prebisch, in the "the cycle's upswing," where it can be seen that the:

> increase in the money supply tends to simultaneously expand production and prices (or stops them declining to the extent that they would fall due to falling costs arising from technical innovations, under a regime of free competition). This process gives rise to business profits, and the sequence of actions and reactions. (Prebisch 1948b in 1993: 330)

In other words, it is typical of the capitalist cycle. The core of Prebisch's explanation assumes an understanding the variations and global quantity of profit. Profit is a consequence of the successive processes of money creation used during different periods to form or cover the costs of forming capital. It follows a different logic than the simple use of "savings." If, for the time being, we exclude the phenomenon of increases of money filtering through to other economic spaces, the function of money left in a given space is to "absorb" the "increase in finished consumer production" (Prebisch 1948b in 1993: 332).<fnref n="48" />

The process of the capitalist cycle, according to Prebisch, requires an "excess" of the "increase in the money supply" in relation to the increment of production, which in fact defines its form: prices rise (preventing the incorporation of declining prices as a consequence of productive improvements) under a regime of competition. The "origin" of and reason for

<footnote>therefore that this construction has been christened “neoclassical synthesis” (Puyana 1992: 25). See also Guillén (1990: 17).</footnote>

<footnote n="47">⁴⁷ Gottfried von Haberler: "the process of monetary expansion by way of reciprocal stimulation of consumption and investment -the so-called Wicksellian process" (Haberler 1937: 306). A good synthesis of Wicksell's ideas can be found in Pribram: "Wicksell's dictum that any theory of money worthy of the name must be able to show how and why monetary or pecuniary demand for goods exceeds or falls short of the supply of goods in given conditions. The consideration implied a repudiation of Say's law of markets, since the validity of that 'law' was predicated on the assumption that demand for and supply of money were equal. (...) Wicksell questioned the traditional relationship which had been established between the volume of money and the volume of exchange transactions as a means of defining the price level. In support of these doubts he pointed to the observation that the loan rate of interest had been low during periods of low prices -periods of limited supply capital supply -and had been high when the supply of capital was obviously abundant and prices were rising. (...) Wicksell attack[ed] (...) the almost generally accepted 'banking principle,' according to which the supply of money was automatically adjusted to the requirement of the economy when the prevailing rules of short-term lending were strictly observed." (Pribram 1983: 323)</footnote>

<footnote n="48">⁴⁸ "In other words, that part of the increase in the money supply left in the economic space is higher in the cyclical upswing than the amount of the increase in production which is gradually stored from new investment" (Prebisch 1993: 332).</footnote>
the quantity of “businessmen’s profit” is then due to the fact that the “increase in the money supply is thus responsible for businessmen’s profit, and makes its quantity to vary, with major repercussions for the economic process” (Prebisch 1948b in 1993: 332).

Prebisch thus refuses to accept that the mechanism of “savings supply and demand” assumed by classical and Keynesian theories is so important. The “increase in the money supply” is actually the method used (instead of “savings”) since at the lowest point of the cycle, businessmen find themselves with relatively “large quantities” of money “inactive in their bank accounts” (Prebisch 1948b in 1993: 333); they do not require to use the market for savings which might actually “force upwards” interest rates.” There is then a paradoxical phenomenon at the lowest point in the cycle: savings are in short supply, “but there is an abundance of money (a very important distinction indeed, for, where there is no savings but an abundance of money, money is used by businessmen in substitution of savings to make investments” (Prebisch 1948b in 1993: 333).

When the net increase in the money supply “decreases,” or its rate of expansion decreases and is “insufficient to absorb the increase in production, at the prevailing prices”, the “decrease in prices” is not automatic. There are “obstacles,” otherwise we would be back in the realm of classical economics. The situation assumed by this perspective, where profits have completely disappeared, is a stage unreachable because in the capitalist economy profits are “irreversible,” (Prebisch 1948b in 1993: 336), in other words, they cannot be “shrunk.” This becomes clearer when we are told that profit does not “blossom” in the last stage of production and sale of the produce in question, but that it had been generated previously over several productive stages by various businessmen as it approaches culmination in the final consumer. In other words, in terms of Marx’s metaphor about “the *Salto Mortale*” of commodities, this event has already occurred before reaching the marketplace (*profit is materialized in product prices*).<fnref n="49" />

Therefore, what halts the continuation of the cycle, is a relatively insufficient demand, a result of a *slowdown* in the increase in the money supply in terms of the increment in production. As profit, “accumulated by businessmen,” is not “confirmed,” the economy contracts, and the typical phenomena of the “downward slope of the economic cycle” (Prebisch 1948b in 1993: 338) begins. If the net increase in the money supply cannot guarantee the increase of production, according to the value of supply, one cannot turn back and reimburse the profit received: the phenomenon is “irreversible.”

The growing stocks held by businessmen indicates that it is necessary to reduce production, and thus initiate the cyclical downward trend.<fnref n="50" /> However, if for classical economists profit (the result of cost reduction) decreases with competition, for Prebisch competition does not have “any influence on the general amount of profits in the economy as a whole”; it is set “*exclusively* by the difference between the increase in production and that part of the increases in money left in the economic space” (Prebisch 1948c in 1993: 355, my emphasis).

This does not mean that competition is not important, rather its function is not to “lower the amount of total profits set by other factors, but to establish how profit is distributed among businessmen” (*ibid*.). The quantity of profit is set by both phenomena: productive and monetary activity -competition does not alter the “*quantity* nor the variations” but their distribution “within the group of businessmen” (*ibid*.). On the other hand, profit is “concomitant” to the phenomena of the cycle and “has nothing to do with the free competition” (Prebisch 1948a 1993: 355) of businessmen, regardless of the decrease or increase of the profit which is determined by the competition between them.

According to Prebisch (1948a in 1993: 357), in the “real economic movement” during the cycle’s upswing, prices rise at the expense of real wages, and their decrease does not obey the classical thesis that this is done to pay a higher rate of interest to savers; rather, it is “to allow businessmen to carry out their own savings with the profit from price rises, that is shifting savings from the rest of society unto the businessmen” (Prebisch 1948a in 1993: 357).

Conventional theory considers other agents as the sectors that save to undertake technological innovations, supposedly motivated by a higher rate of interest. For Prebisch, different sectors of the collectivity:

are *compelled* by the system to save more so as to make the investments. These are undertaken yielding fruitions, which is a higher productivity. How is this fruit transferred in reality? In the classic scheme, by the

<footnote n="49">⁴⁹ “but there is one fundamental difference between the value of the products in process that are created at each stage, and their respective income. The value created at each stage is not the value of an immediately consumable product. (...) It therefore involves a series of values that are gradually added, but that are not immediately consumable until the productive process ends. However, the income businessmen pay one another and those paid by the productive factors at each of the stages, are immediately expendable, and can immediately be transformed into demand for finished articles. The producer of raw materials paying income to factors and receiving profits can spend this income immediately, long before the final production of consumer items manufactured with the raw materials that he himself produced has appeared in the marketplace. (...) In this fundamental difference between the nature of the created value, which is not immediately consumable except at the end of the process, and the nature of the income paid, which can immediately be transformed into demand, in this difference between the two phenomena [on the one hand, production, on the other, circulation] lies the germ of the wave movement.” (Prebisch 1949a in 1993: 417). “There are various businessmen distributed across the various different phases; and no one waits for the final sale to liquidate the profit by distributing it among participants in the process. Businessmen pay each other profits in advance of the final sale; (...) set precisely by the duration of the process. We</footnote>

<footnote>are again faced with the *time* factor” (Prebisch 1993: 338, my emphasis).</footnote>

<footnote n="50">⁵⁰ “If profits were reversible or only occurred at the final sale, investments could even conceivably fall without causing disturbance, since prices and profits would fall as increases in money supply that had earlier made both rises were reabsorbed” (Prebisch 1948a in 1993: 339).</footnote>
competition, translated in raising salaries or a decrease of prices. In
reality, this transference exists with more or less intensity, depending
the circumstances but not through competition but rather during
cycles' downward phase. Just as during the upward phase prices rise
above nominal salaries, and therefore, real salaries decrease with more
or less intensity, and even making plausible investments in a determined
cycle without a perceptible lowering of real salaries, which by itself is
sufficient for the businessmen given the high productivity increase;
during the downswing, the cycle's inherent forces of its movement
generate a lowering of salaries by much less than prices (...) While prices
decrease with salaries declining at not the same intensity, the worker
gets transferred the fruits of technical progress. Free competition does
not perform the distribution role which the classic scheme attributes to
it. In synthesis, in reality salaries decline because of price rises, not to
draw a higher savings from the high-income sectors by means of a rise
in the rate of interest but rather so that businessmen can compulsively
accumulate the savings of the rest of the collectivity. (Prebisch 1948a in
1993: 357, my emphasis).

Prebisch insists that the justification of profits, and the theory thereof, in its classical sense or his own postulates cannot be confirmed given that “objective elements” are few and far between. It is therefore a matter of a political or ethical posture. Its un-demonstrable how far “competition” would keep on lowering the profits of “businessmen who have undertaken technological innovations” (Prebisch 1993: 359) because this “reality” has never existed:

and the theory does not allow us to measure the magnitude of a
phenomenon that is not tested in the real world. Nor could we ascertain
the scope of the businessman's incentive (...). We cannot say, for we
utterly lack any objective elements for doing so. The only thing we can
say at this stage is that profit has a different origin than that stated by
classical theory; that its quantity and variations are determined by the
increase in money supply and production (...), but we cannot ascertain
how far profit is justified or not because, from an economic perspective,
we lack the elements of judgment to demonstrate this. (Prebisch 1948a
in 1993: 359)<fnref n="51" />

Furthermore, if an aliquot of profit is absorbed to varying degrees by
most businesses according to their innovations, then we can no longer speak
of “profit as the prize of those who have introduced technical innovations”
(Prebisch 1948a in 1993: 359) without forgetting the existence of so-called
called “free riders.” There can be no such principle by means of which
businessmen can exert a proportion of the profits by claiming “to each
according to his innovations” as it were.

Equally, the wave form capitalist reality, driven by the specific structure
through which the economic ensemble grows, and through businessmen's
decisions, cannot be justified. We may complain and object or not, but
economics, cannot justify the *compulsive* mechanism of savings in action,
given the nonexistence of equilibrium, equality or “optimums.” The only
thing which can be said is that average profit is the prize of businessmen
who “introduce innovations,” and it is the “minimum incentive that the
other businessmen require in order to go on” (Prebisch 1948a in 1993:
360) expanding production. But one cannot ascertain “how far technical
competition would change technical results” or “what the minimum incentive
of businessmen would be. Only experience will tell” (ibid.).

Prebisch underlines that, although capitalism requires a “compulsory”
mechanism guaranteeing society’s savings during the “cyclical upswing,” its
concept of “forced savings” should not be imagined in terms of “plundering”
some to “give to others” (Prebisch 1948a in 1993: 360), for on occasions
“profit” can be null and void, and it is *businessmen* who “begin to use increases
in money supply which push up prices and move consumer articles from
certain sectors to others, generating profit.” Therefore:

> what businessmen take is precisely what is due to them, since they were
> working without profits and now [that] the increase in money supply
> is engendering them (...) this is the incentive that must stimulate them
> to introduce innovations and increase production. (Prebisch 1948a in
> 1993: 361)

In other words, during the upswing there are transfers, but it cannot be
said to “what extent businessmen take from the rest of society what is due to
them as a prize or incentive, and what is not due to them” (Prebisch 1948a in
1993: 361). Therefore, Prebisch’s theory does not “enable us to say what profit
is justified” either; rather it compels us to undertake a “decision” as to our
postures with respect of the “Other” given the existent power asymmetries.

If we assume that economic spaces are always linked by “influx” and
“exit” currents of income, another mechanism presents itself through which
income filters, and reduces the “net increase” in money supply in one of those
spaces. This is the thesis of “doctrinaire economists” (Prebisch 1993: 367)
who, basing themselves on the “brilliant” (“Ricardo’s theorem of comparative
costs”) prove what should be imported and/or exported between certain
countries, or what should be produced locally. Prebisch, however, holds that
this reasoning is only true from the static point of view,” in other words, “when
it is shown (...) that the protection of **B** is an economic heresy: [for] it would
use more labor, and primary income would be lost by seeking to produce
directly what one can obtain indirectly under better conditions (ibid.).

But in dynamic terms, a certain level of protection between countries **A** and **B** can bring about significant changes because a “net loss in **A**” can be a “net gain for **B**” (Prebisch 1993: 368). But this will not always be true, as

<footnote n="51">⁵¹ For modern discussions of the accounting illusions of the procedures see Mirowski (2007, 2010), Felipe (2008), Felipe & McCombie (2014, 2019).</footnote>
it will depend on how **B** reduces its “Ricardian loss” (*ibid*.). And if we also take into account the fact that **B** has been “subject to the cyclical fluctuations stimulated in **A**, having achieved a more stable production even if costlier, involves increasing the net gain” (Prebisch 1948a in 1993: 369). Here we are back to the “gold standard” disparities-power asymmetries described by Prebisch early in the 1940s, but with a distinct vocabulary toying with the idea that **B** represents a “group of countries” (Prebisch 1948a in 1993: 368)<fnref n="52" /> testing out an industrialization process. He also points out how unjustifiable and untenable is the posture of deploying “the classical theory of international trade” in order to restrict protectionist policies in the **B** countries, as executed by “United States of North America” (Prebisch 1993: 373), whose violation of “rules of the game” was never-ending.

## The Eternal Return: Time and Asynchrony

This was the context in which Prebisch would make his qualitative theoretical leap, leading us to the Center-Periphery theory he expounded in a series of lectures in México eight months after his course *Apuntes de Economía Política* (1948d in 1993), the title of which read *Teoría Dinámica de la Economía (con especial aplicación a las economías latinoamericanas)* (1949a in 1993). If on this occasion Prebisch is slightly less vociferous in his critique of the history of economic thought, he nevertheless salvages and expands on his earlier theory of capitalism and profit.

The “countries” “found in the Periphery of the world economy,”<fnref n="53" /> display the effects of the cycle, whose characteristics are:

different from the ones it has in the big Centers. There is a very clear-cut division of functions between Center and Periphery. The theory is to explain the workings of the economy between the Center and the Periphery, and the close connection between the two. (Prebisch 1949a in 1993: 413)

The notion of “the laws of movement” forced Prebisch to specify his conception of *time*, and the reason for its effects: the “wave movement.” This could be defined using the narrative which points to “time-lags,” but then we will mislay the essential forces at hand. Forces driven by a desire of profits, a notion of the appearance of profit in a context of power asymmetries (“disparities” is Prebisch’s term), a power whose force generates movement, which in the last instance crystalizes as “time disparities” (power disparities) between the time of the productive process and the time of the circulatory process, generated in the process itself. I believe that Keynes’s notion of

“uncertainty” can be subsumed under this general description of the process, since the intervals or the metric of the “units” of time cannot in themselves be deduced in advance: the “construction” of these “units” compose the antagonistic element of the choice-decision of the agents in the context of the (power) asymmetries in question. Hence Shakespeare’s expression “time is out of joint” is an irreplaceable representation.<fnref n="54" />

The disparity in these “units” of times is what gives us the cyclical movement with its alternating prosperity and depression. Even “under the most ‘perfect’ free competition and a total lack of State intervention in the economy,” the wave phenomenon will necessarily occur “due to the time disparities” (Prebisch 1949a in 1993: 416). Agents are under real or imagined asymmetric power-time horizons.

If we accept Prebisch’s assumption that the incomes being paid currently are greater than those corresponding to today’s completed production, then what he is underlining is the asynchronies between the productive and circulatory processes, between the appearance of liquid resources in the marketplace and products, which prevents there ever being a “perfect equilibrium between the total overall demand for income and profits paid, and global supply (the value of the finished items),” for then one would have to assume “equality between the time of the circulation process of income and profits, and the time taken by the entire production process” (Prebisch 1949a in 1993: 418).

Therefore, the money or the final “demand” paid today relates to an income which was paid long before today’s market transaction, or the actual production in process during the same day. In Armando Di Filippo’s words, there is an “asynchrony” (Di Filippo 1981: 54), and therefore:

> there is no automatic mechanism in the economy, however perfect free competition, that assures a perfect correlation between the time of the value formation and the time of the circulation of the income generated in the productive process when these values are created (Prebisch 1949a in 1993: 419).

Starting out from this asynchrony, Prebisch would present the model of a world economy between the Periphery and the Center, which in turn forced him to explain expanding and contracting phases, in other words, the reason for the changing tempos of the world economy.

This he attempts in a simple graph (see graphics at the end of chapter): a series of curves which we could think in terms of three rollercoaster wagons starting out one after another and which we will call **IP**, **RI**, and **PT** (“paid incomes = production in process,” “returning income = demand,” “completed production” respectively) (Prebisch 1949a in 1993: 419).<fnref n="55" /> The

<footnote n="52">⁵² For a presentation in modern vocabulary of the case outlined by Prebisch, see Cypher (1998).</footnote>

<footnote n="53">⁵³ “I will take it that the primary production stage takes place in the Periphery, and the other stages of elaboration and outlay at the cyclical Center. This is not the only characteristic of cyclical Centers; there are others (...) I mean that a cyclical Center and a Periphery can be contained in one and the same country, as in the United States, which has a large Periphery, unlike what happened in the British cyclical Center, which had the world economy as a Periphery” (Prebisch 1949a in 1993: 449).</footnote>

<footnote n="54">⁵⁴ Or Jorge L. Borges (1944).</footnote>

<footnote n="55">⁵⁵ The curves are shaped like sine waves and slopped indicating the different times at which they begin (horizontal plane) and vary in “amplitude” from one to the next. See my adapta-</footnote>
brave occupants of the cars **IP** and **PT** speed up their movement, amplitude and steepness of their ride which will always be more intense than for those occupying the RI, the “weaklings” wagon.

These wagons or curves advance uphill in parallel until they reach the points at which they cross paths, or as Prebisch calls them, the points of “conjunction.” It is only at this instance that the wagons’ occupants can wave at each other; from then on, the speed of the trajectory changes. This representation tells us that when the “demand” curve (wagon **RI**) finally reaches the supply curve or “completed production” (wagon **PT**), the latter maintains up its upward momentum, whereas demand slows down and bottoms out. Meanwhile, the paid income curve (wagon **IP**) is still on its way up. Then, as the curves approach their peaks, the representation of the cycle begins just as this curve (**IP**) is showing a tendency to level its movement, and the wagon’s occupants’ yell. After a “while,” the occupants will be able to wave at each other once again (a new point of conjunction). This is where demand (wagon **RI**) bumps into “completed production” or supply (wagon **PT**) once more, which in contrast with the first moments of the expanding cyclical process, demand exceeds completed production.

This again inaugurates the cycle, and a new line of passengers repeat their rides (those inhabiting the Center can repeat several times in the “period” which takes those in the Periphery to complete just “one” ride), and once again the waves of the occupants as their wagons cross each other: it is the disparity (asymmetry) in the *time* taken to complete the cycle which explains why they cannot wave at each other at a point of “equilibrium,” bearing in mind income paid and overall gross production.

When the movement is represented through the respective origins of paid income or demand (Center and/or Periphery) and the respective productions, we can see that, unlike the Periphery, the paid income=demand curve of the Center always “exceeds” completed production or supply: in the Periphery the curve of its demand always displays an “insufficiency” in terms of the completed production curve. The Center’s “excess” is the counterpart of peripheral “insufficiency.” If observed from the Center, the “point of conjunction,” which can be seen in the cycle in its expanding phase, indicates that this “excess” of demand gradually disappears, and is outstripped by the completed production curve, which continues upward as the demand curve flattens away (Prebisch

1949a in 1933: 456). We don't know in advance where these curves may actually intersect each other, these aspects of the time-power asymmetries, are the flip side of Keynes's notion of "uncertainty," which Prebisch does not discuss, but which requires his ideas on time-power disparities.

Prebisch starts from the idea that, during the “cyclical upswing,” paid income “for businessmen” is always higher than completed production (the “demand curve exceeds supply”). This process is reversed after the point of “conjunction.” Demand outstrips supply because:

> the time of return of the income paid by businessmen is shorter than the time taken by the productive process. Therefore, before completed production flows in, it is outstripped by income. (Prebisch 1949a in 1993: 420)

It is the decline or the accumulation of stocks which spurs on expansion or contraction, respectively. But completed production or supply always trails behind the contraction of income in both the upswing and the downswing. The conditions of contraction and expansion are generated at these two points of “conjunction”, on the upswing or the downswing. This means that “disequilibrium” is inseparable from capitalism’s growth logic: one “goes alternately from a situation in which demand exceeds supply” (Prebisch 1949a in 1993: 421).

The “Center” and “Periphery” divide is central to understanding the economics of “our processes.” The origin of a certain demand and the place where certain values are generated has distinct effects for their respective roles due to the varying amplitudes and rates displayed within each economic space. The Center will always have an excess of demand whose shrinkage takes “time,” which depends on the amplitude and rates of the time disparities of the return of income in question. I should mention that my exegesis presents Prebisch’s perspective using terms such as “rate,” when in fact Prebisch systematically avoided the term. Therefore the “rate” of “return” of income towards the Center from the Periphery actually is slower than the converse of the same process.<fnref n="56" /> In other words, there is a power-time asymmetry (Prebisch uses the term “disparity”) between the periods of production and circulation, and the time for the “return” of income originally paid in the “cyclical Center”:

> the return of incomes and demand, paid by the cyclical Center towards the Periphery is extremely long. So that if in the combination of both processes, the time of return shrinks and the time of value formation in the productive process shortens, the excess demand over supply will tend to shrink, because it has been initiated precisely by the contrary

<footnote>tion of Prebisch's graphics at the end of the chapter. Perhaps there is only occasion in which Prebisch appears to be flirting with “geometrical” deductions as to the “height” and base of the curve; “the excess of circulating capital is represented by an amount equal to the *vertical distance* between the point of conjunction and the point of income. Before the demand would be above of production. Hence businessmen were being stimulated to increment production for which they would initiate developing a circulating capital, and from which, in time, a future production would result (Prebisch 1949a in 1993: 485, my emphasis); in other words, gener- ally he evades talking about “minimums” or “maximus” of the curve (s), given the power-time asymmetry of the agents-countries in question, which means diverse and asymmetric “time periods,” this aspect of his ideas has being generally lost to modern interpretations.</footnote>

<footnote n="56">⁵⁶ “Some time elapses between the payment of income by businessmen (payments to produc- tive factors and payments of profits to each other) and the return of this income to business- men in the form of demand for the goods they produce. This period of return varies according to whether it involves the cyclical Center or the Periphery, and the different circulation pro- cesses” (Prebisch 1949a in 1993: 425).</footnote>
phenomenon, that is, by a very much shorter return time than the time of production. (Prebisch 1949a in 1993: 422)

The “wave form” is a consequence of this “Time” disparity, within and between production and circulation processes. “Within,” because “branches,” “sectors,” exhibit their own specific product-power-time heterogeneous characteristics (asymmetries). On the upswing there is an accumulation of circulating capital investment, while production is in process along with completed production; on the downswing, the circulating capital is liquidated: investment and/or disinvestment, respectively. Just as on the upswing income influx is lower than the payment of income, during the downswing “income return” is higher than the “payment[s] of income by businessmen” (Prebisch 1949a in 1993: 425).

What “corrects” the timing disparity in question, between the “demand curve” headed to meet the “completed production” curve is the contraction of production undertaken by businessmen when they observe that their stocks are overflowing and start reducing their investment. This will in turn produce the other “point of conjunction,” and inaugurate the cycle in its upward phase.

Overall, therefore demand exceeds supply, and retailers initially cover the higher demand with stocks instead of putting prices up, by increasing unit sales: prices only rarely depend on supply and demand, according to Prebisch. It is businessmen's stocks that regulate the market: they simply sell more items. This produces greater demand from retailers on wholesalers, and in their turn from wholesalers on industry, which also ups demand on primary producers. This chain causes the rise in prices, as well as “profits” (Prebisch 1949a in 1993: 432). But when the “market” does not confirm the “speculation” or “anticipation” by businessmen, prices have already incorporated these “profits,” which having been paid previously and cannot be reduced, as assumed in the classical image of the market where supply and demand converge. As prices have already incorporated the values by the time they have reached the marketplace, this involves, as Prebisch insists, an “irreversible” phenomenon (Prebisch 1949a in 1993: 434), which nevertheless still produces fatal contraction effects. As the different productive stages transpire, profit is incorporated into final goods, and the “rigidity” which those values convey induces a cyclical contraction, that is demand becomes “insufficient to absorb supply after the point of conjunction” (Prebisch 1949a in 1993: 433). Therefore, it is the “disparity of time” between the process of return and income, and the outflow of production which produces the “disequilibrium between demand and supply” during the cyclical upswing.

Let us not forget either that in this illustration Prebisch claims that the most usual thing in cycles is the relatively faster growth of profits in the Periphery with respect of those of the Center:

How do we prove this? It is an established fact that, in general, prices of primary products rise faster than those of finished products, indicating that the profit incorporated into the primary product has grown faster than that incorporated into the finished product (Prebisch 1949a in 1993: 434).

This occurs because, between the different stages of the manufacture production and sale, each agent buys the goods at one price and sells them at another with a given “unitary” profit. But through such buying and selling, businessmen pay their peers their respective profits and other income, while production has yet to arrive. It is the stocks in the respective agents’ warehouses that are sold at a price including the profit, driven by the “demand” generated by the ongoing productive process. This explains why the “value of supply” increases at each stage, which in turn drives the increasing demand. The profit arising among the various businessmen performing these alternative activities in turn make possible an increase in demand. Each productive stage raises demand above the immediately previous one, and so on.

There can therefore be no “stability of demand” (Prebisch 1949a in 1993: 436);<fnref n="57" /> demand is always contingent, which lends capitalism its typical “wave” form. Even in the idyllic scenario of a perfect market with no “rigidities,” it would be the *time* element in terms of process and the “timetable” to generate a given production, which ultimately defines the existence of profit and explain its *total quantity*. And since the process of production or response to a given stimulus is slower in the Periphery than in the Center, the *quantity* of “profit corresponding to the Periphery will be less than for the cyclical Center” (Prebisch 1949a in 1993: 440).<fnref n="58" /> This is due to the fact that, in terms of the whole picture (Center and Periphery), lower unit profits are not necessarily at odds with a higher *quantity of the total profit*.

To put it another way, when the Periphery itself shortens the time response to demand from the Center, it does not necessarily mean that “total quantity of profit” declines, as this process would drive businessmen

<footnote n="57">⁵⁷ “In the partial phenomenon -an industry or company- we can dismiss as insignificant the impact on demand of the rise in income stemming from the persistent efforts of businessmen to increase production. (...) But when it is not only the footwear manufacturer but all businessmen who, to one extent or another, respond to the growing impetus of the cycle, the income they pay over and above the completed production tends to increase demand in greater proportion than supply, and thus reactivates the process of cyclical growth until the point of conjunction is reached” (Prebisch 1949a in 1993: 441).</footnote>

<footnote n="58">⁵⁸ On the next line he says: “It is obvious, moreover, that if this increase in demand were not to vary -if it were to remain fixed- and, for whatever reason, the time the primary businessman took turned out to be shorter than for the businessmen in the Center, the quantity [of] profit in the Periphery would fall, while remaining the same in the Center: the total unit profit would then be lower than in the preceding case” (*ibid*.). Let us remember that these lectures were not revised by the author. It is perhaps one of the very few texts “published” in (Prebisch, 1949a in 1993) which show some typos and errors and fragments missing. The original text can be found in ECLAC or in *El Colegio de México* library: “Teoría dinámica de la economía. Con especial aplicación a las economías latino-americanas”” (February-March 1949).</footnote>
to cover demand more quickly, and push up their own production and profits, generated by their payments to productive factors and other businessmen. This makes a lower profit per product compatible with a higher *total* quantity of the profit.

On this occasion, Prebisch no longer speaks of a “compulsory mechanism” for savings. He continues to question the traditional “theory” on the subject and how it would shape the “interest rate,” but maintains the idea of the “inflationary” dimension in order to understand the resources used by businessmen to start the phase of the upward cycle, as well as its negative social distributive consequences.<fnref n="59" />

Prebisch wants to show that it is “increases in the money supply” that makes capitalism work, since the monetary volume is flexible. “Money” then is supposedly an endogenous creation of companies, and it is therefore businessmen who are the main agents in explaining the operation of capitalism, and its characteristic wave form. It is obvious by now that the “Wicksellian” notions on the “natural rate of interest” have been superseded in Prebisch’s narrative.

Therefore, investments are started with money created by the banking system, or which has been inactive and has been accumulating in businessmen's accounts. During the cyclical upswing, businessmen offload their savings, or turn to the banks, and during the downswing, they do the opposite, canceling debts and storing up circulating capital to be used during the cyclical upswing. In other words, for Prebisch savings are performed in the downswing since during the cyclical upswing, the phenomenon signifies an expansion of future productive capacity and profits, a process which culminates once “fixed capital necessities” have been covered and the rate of growth declines with respect to profits, inducing businessmen instead to invest a portion of the profit “in circulating capital. This is enough to lead us to the point of conjunction, and to unleash the phenomenon of contraction” (Prebisch 1949a in 1993: 449).

The notion of the cycle then involves a series of articulated activities between Center and Periphery. Businessmen in the Center make resource payments in the Center and to the Periphery (see graphics at the end of the chapter). This entails resources leaving a certain economic space, and due to the nature of the Periphery they take much longer to return to the Center than the income and profits paid within the Center itself. And we know that during the upswing businessmen pay more resources and profits than they will recoup in the future, but “accumulation” occurs because they are manufacturing articles in process,

and paid resources (two modes of establishing circulating capital). However, in the downswing “they liquidate articles in process” and “store money,” for any future productive resources or profits.

In both contexts (Center and Periphery), profits grow faster during the cyclical upswing than “productive factors’ income,” thus explaining the rise in prices. But just as profits “grow faster in the upswing,” “they fall faster during the downswing” (Prebisch 1949a in 1993: 452). However, the “distribution of profit over the different stages of the productive process does not occur proportionally to income” (ibid.), and profits in the Periphery grow relatively faster than in the Center.

The movement of the capitalist cycle, regardless of its origin, the process inevitably leads to the points of “conjunction,” and the curves between demand and supply intersect and the contraction process initiates.

During the upswing, an “insufficiency” of demand concerning supply or finished products always manifests itself. The functioning differences between the demand and completed production between the Center (“excess”) and the Periphery (“insufficiency”) can be explained by the fact that the velocity of the rate of “income return” in the Center is relatively much lower than in the Periphery but with time, the gap between peripheral insufficiency and Center’s excess tends to grow wider.<fnref n="60" />

If we think about the hypothesis that profits are generated relatively faster in the Center than the Periphery, a relatively larger quantity of profits will go to the Periphery. But meanwhile, businessmen go on demanding higher levels of produce due to the existing surplus demand, and simultaneously reciprocally increasing profits and demand. This displacement of profits to the Periphery eventually determines the peripheral “insufficiency” and the Center’s “excess” to converge.<fnref n="61" />

According to Prebisch, it is the “spontaneous play of the system” (Prebisch 1949a in 1993: 461). It is not a point of static equilibrium; it is a point of conjunction. It is the “equivalence of magnitudes” of pressures exerted by profits towards the Periphery. There can be no convergence of demand and supply because then that would mean there would be no profits, least of all the “undulatory” phenomenon of capitalism.

“Dynamic” equilibrium and the “succession of dynamic equilibriums” are equally impossible (Prebisch 1949a in 1993: 463), as it would presuppose

<footnote n="59">⁵⁹ “the typical form of capitalist accumulation (...) Is the result, therefore, of an inflationary pressure, through which distribution is altered within the collectivity, considerable share of the income to relatively small groups of businessmen with which they increment their savings capacity, and hence we arrive to this conclusion: the shortage of savings, a characteristic feature in the early stages of the cycle’s upward phase, generates the phenomenon of profit, and profit generates the growth of savings” (Prebisch 1949a in 1993: 447).</footnote>

<footnote n="60">⁶⁰ “I maintain that within the same system there are forces which tend to enlarge the deficit or insufficiency of peripheral demand with greater amplitude than the excess of the Center’s demand. As the upswing heightens both the excess of Center’s demand and peripheral insufficiency increase, but the Periphery’s insufficiency grows much more intensively than the excess, until it reaches the moment where the Periphery’s insufficiency is equal to the Center’s excess (points [sic] A in the Center and Periphery curves” (Prebisch 1949a in 1993: 459). See graphs at the end of chapter.</footnote>

<footnote n="61">⁶¹ “Until its quantity has created an insufficiency similar to the excess” (Prebisch 1949a in 1993: 461).</footnote>
supply closely shadowing the demand curve, where in fact the point of conjunction means that the demand curve begins to lose speed or bottom out. Or else his “model would be destroyed,” and “classical theory” vindicated (Prebisch 1993: 462).<fnref n="62" /> Because the dynamic element comes from the decrease or otherwise of “stocks,” forcing businessmen to invest or disinvest, “the idea of equilibrium with a possible increase or systematic decrease in stocks” is untenable. “The two conditions repel each other” (ibid.).

To demonstrate the systematic and circular accumulative disequilibrium of capitalism between the Center and the Periphery, Prebisch reconceptualizes his earlier idea of the *coefficient expansion* into *exit coefficient*. He presupposes a kind of circulatory production process during which, as production expands and is replicated, it reincorporates part of its income to amplify the established capacity. The Periphery “returns” its income towards the Center in a much more time-consuming interlude than the other way around, but since both entities are divergent in terms of their respective “exit coefficients,” there is no chance of their respective supply and demand curves ever catching up to each other simultaneously. This is why Prebisch posits that “excess of Center demand” and “insufficiency of peripheral demand” are parts of a single system. To each unit growth of the economy (central or Periphery), we should add the outbound proportion of income, as well as any investment necessary to keep steady their respective growing capacities, therefore the distinctive outflow, or “influx coefficients” (Prebisch 1949a in 1993: 466). This movement opposes the possibility that their respective demand and supply curves would coincide, because of their respective “exit coefficients.”

Any race to intensify growth or demand from either sector will eventually bring about the system to the point of conjunction (intersection), and the respective contraction inaugurating the next cycle. What conducts the system towards to the point of conjunction and contraction is its virtue, namely, profit. As stocks are accumulated in the Center, businessmen react in order to lower the proportion of stocks, which in turn gradually reduces profit per unit among various businessmen, until demand meets supply the “point of conjunction” (Prebisch 1949a in 1993: 461),<fnref n="63" /> that is “completed production”.

Nevertheless, the “peripheral insufficiency” grows faster than the “excess of the Center’s demand” due to the respective asymmetric exit coefficients, or their respective income circulating velocities. This causes the gap between the “insufficient [demand] of the Periphery” and the “excess of the Center’s demand” to widen, which in turn brings about the conjunction initiating the process that leads to the system’s contraction.

This is precisely what prevents theorizing about the growth and circulation of income between the Periphery and the cyclical Center in terms of “dynamic equilibrium”:<fnref n="64" /> it will simply never be reached.<fnref n="65" /> If different economic spaces grow at distinct time rhythms’ disparities, a change in exit coefficients, or an acceleration of peripheral growth would not alter the proportional asymmetry of income which each of the spaces “retains” for itself.

In a timeless world it is possible to observe positions of equilibrium between the mass of income and production. However, businessmen would then be none the wiser as to the levels of accumulated or declining stocks. For the same reason, “Centers’s excess” “dies out before insufficiency,” which is a consequence of the greater slowness of the return of income towards the Center. If we postulate a growth or greater productive expansion in the Periphery, autonomously from the Center and equalize the income magnitudes, then we would move from a situation in which a “net [excess] of demand” reign to one where a “net insufficiency of demand” predominates. This would in turn involve an accumulation of stocks and reduce production, unlike the reverse situation in which businessmen continued expanding production given a surplus demand.

Only by neutralizing the “action of stocks on demand” could a “dynamic equilibrium” (Prebisch 1949a in 1993: 470) perspective be made viable, but impossible in practice since it is the mechanism that makes the whole productive apparatus work, starting with the reactions of businessmen themselves. But in the event that the tempo of production, or the farsightedness of businessmen begins to slacken, circulating capital will accumulate to be used during the recovery, or the start of the cycle in its upward phase.

During his account, Prebisch perceived among his audience a near frenzy state, reacting to the merely “passive” function of peripheral economies with respect of the Center, insisting on raising the theoretical possibility of an autonomous process of expansion and growth. Prebisch would later try to show that such a process is absurd.

<footnote n="62">⁶² “I believe that these disturbances that intervene and prevent it attaining equilibrium, which lend the system its characteristic undulatory pattern which result from the interdependence of the scheme’s curve” (Prebisch 1949a in 1993: 462).</footnote>

<footnote n="63">⁶³ “What happens while the peripheral insufficiency does not coincide with the Center’s excess? There is a net excess of demand over [the] supply at the cyclical Center, the consequence of which is the decrease in businessmen of final produce stocks, causing an increase in demand among them with the purpose of increasing production, and in turn brings about an increase in profits which, in our hypothetical scenario, goes largely to the Periphery. In other words, as long as the point of conjunction is not reached, there will be a continuous fall in stocks, a continuous rise in the demand of businessmen, continuous growth in profits, and a shift of profits toward the Periphery. Profits go on shifting more and more toward the Periphery, until their quantity has created an insufficiency equal to the excess. This is the spontaneous play of the system. The equivalence of magnitudes is reached through the pressure exerted by profits</footnote>

<footnote>bound for the Periphery, and by the consequences this pressure has on the difference between production and income return” (Prebisch 1949a in 1993: 460).</footnote>

<footnote n="64">⁶⁴ “The smaller the exit coefficient of the circulatory mass is, the higher the magnitude of income retained to cause the regular increase that leads to positions of dynamic equilibrium, the farther away the point from which these positions of dynamic equilibrium are reached” (Prebisch 1993: 464).</footnote>

<footnote n="65">⁶⁵ “I believe that where there are two diverse exit coefficients, it is quite impossible to reach equilibrium” (Prebisch 1949a in 1993: 466).</footnote>
He introduces a series of alternatives (such as higher levels of investments or loans in the Periphery) to see whether the point of conjunction could thus be avoided or postponed for a while at least. Now, a higher quantity of investment in the Periphery (due to whatever mechanism) would speed up the encounter between demand and supply (the point of conjunction). Another theoretical option for reaching the point of conjunction is to examine an atypical case where income grows at a faster rate during the upswing in the Center rather than in the Periphery. Here, unlike the *typical case*, the “excess of Center’s demand” and “peripheral insufficiency” (by definition the point of conjunction) cannot be made to coincide. But although rising demand will take its course, and exceed supply, it cannot go on rising *ad infinitum*. The point of conjunction will be reached only if the tempo of fixed capital investment grows faster than the rise of profits. This involves higher levels of fixed capital investment, which in turn implies a growing proportion of savings. This would considerably slow down income return, which means that the “excess of the Center’s demand” curve begins to level out, eventually coinciding with the rate of “peripheral insufficiency” (the “point of conjunction”) “via another path.”

If in the typical case, the point of conjunction was reached because the “insufficiency of peripheral demand grew more intensely” than demand in the “Center,” it is now “Center’s demand” which slows down relative to the “Periphery.”<fnref n="66" />

At his audience's request, Prebisch examines a case when the Periphery, acting autonomously, generates its own process of economic expansion in an attempt to break away from its merely "passive" function.<fnref n="67" /> Such action would only "delay" the meeting of the supply and demand curves (the point of conjunction) in the cyclical Center, in turn generating full employment and a process of inflation. We would be faced with an event in which the cyclical phenomenon and the inflationary phenomenon would converge, with much more profound negative effects than would occur during any strictly cyclical process. But in fact, these considerations only change the "amplitude" of the cycle, not its characteristic "wave form": "it has always risen only to fall again" (Prebisch 1949a in 1993: 478). See graphics at the end of the chapter.

Apparently then, the adjustment mechanism for the “phenomena of Center and Periphery” would not change, regardless of the variables considered, precisely the phenomena that prevent “equilibrium” being achieved: the existence of *time*. When Prebisch describes the depressive effects of the cycle after the point of conjunction, demand does not “exceed” production, and therefore the accumulation of “the circulating capital” is “excessive” (Prebisch 1949a in 1993: 485). Then the problem of liquidating stocks arises, which generally exceed the level necessary to deal with the “demand set by the point of conjunction” (*ibid*.) and it’s when businessmen react:

> leading us back to recovery, for, while businessmen see themselves accumulating passive stocks, it is natural for them to try to lower production, but when they see that their stock in existence is not accumulating before the point of conjunction, if they don’t wish to be deprived of their existence in time, if they wish to deal with the volume of demand reached, they will have to go back to paying higher incomes superior to the completed production, thus initiating the system’s recovery. (...) Supposing that, for whatever reason, instead of returning the income during the cyclical downswing in the way we have seen, the Periphery is slower to make repayments making the devolution with less rapidity (...) what would happen? Income return would be less active, and instead, the point of conjunction where we marked it, would be found much lower down. (Prebisch 1949a in 1993: 486)

If, during the depression, instead of offloading stocks or circulating capital, the Periphery is also able to raise its import coefficient, and prolong the repayment of income towards the Center by some mechanism, then “supply and demand” would cross much earlier (the “point of conjunction”).

But this is something that has never actually happened. According to Prebisch, the history of inflationary phenomena is originally the result of the Center’s monetary practices, not the Periphery. No matter how long it goes on, the inflationary process will eventually produce the “point of conjunction”:

> Inflation means an intense and increasing accumulation of profits in the cyclical Center. A portion of those profits is made over to the Periphery, all the more so, the faster the rise in profits in the Center is, and the longer the time the productive period in the Periphery. This would tend to make simultaneously a parallel development of production in the Periphery increasingly difficult, and neither would the growth of the quantity of the outflow of profits towards the Periphery such as to make peripheral deficit encounter, sooner or later, the excess. (Prebisch 1949a in 1993: 487)

The idea that this process would only stop because there was “full employment” was for Prebisch a theoretical madness simply because while the inflationary process is at full tilt, businessmen will go on investing and

<footnote n="66">⁶⁶ “A higher retention of income has been developing. This means a slower return, and although the distance between income and production continues to grow, a point will be reached at which, due to the saving invested, not in fixed, but in circulating capital, peripheral insufficiency coincides with the Center’s excess. The point of conjunction can be reached in different ways, but always by virtue of the disparity in the *time* of income return” (Prebisch 1949a in 1993: 476, my emphasis).</footnote>

<footnote n="67">⁶⁷ “It creates its own income in a much greater quantity than the Periphery would need in its passive function to respond to the Center’s demand. (...) It could happen that the magnitude of this expansion distinctive of the Periphery be such that, instead of the net peripheral insufficiency begetting downward the Center’s excess until it reaches the point of conjunction, we will have a net excess in the Periphery and that, in the cyclical Center, the excess of demand will be much larger than those cases we have considered” (Prebisch 1949a in 1993: 479).</footnote>
receiving profits in view of the rise in prices. Circulating capital will grow,
and as in any expanding process, will require increasing sums of money to
enlarge the circulating capital/stocks. But they will also have to use their
profits to make purchases and investments in the Periphery, which means in
fact that the "excess of cyclical demand" will be reduced. This will increase
the "insufficiency of peripheral demand" (Prebisch 1949a in 1993: 488), and
"inevitably" produce a point of "conjunction after which the contraction of
the system will supervene" (ibid.).

In his last lecture given registered on the March 1, 1949, Prebisch promised
to return and delve deeper into certain aspects, introducing "world gold
production and the tempo of technical progress" into his model (Prebisch
1949a in 1993: 488). But Prebisch did not keep this promise, for he left
for Santiago de Chile the next day as consultant to the ECLAC, where he
embarked upon other reflections of a theoretical and practical nature.

I have tried here to describe a period in Prebisch's critical thinking on
economics of a specific period. Even during his lifetime, certain devotees or
detractors of Prebisch's work have made our protagonist say many things, I
have, as far as possible, adopted the strategy of presenting his ideas by means
of his own words, however paradoxically that sounds to non-Spanish speaking
readers. The development and conclusion of his ideas on the world economic
cycle during this period involved setting aside certain ideas that he had
initially espoused. His political radicalization is the flipside of his theoretical
reconstruction. I believe the history of Latin American economic thought has
not carefully examined this period in Prebisch's intellectual development,
and his further rise to fame after ECLAC's reunion in Habana distanced him
from making such reflections.

However, certain faint conceptual traces passed into the phraseology of
his following texts at ECLAC, and this makes Di Filippo's work (1981) even
more worthy. In just a few sentences he transports us to Prebisch's texts and
ideas of a quarter century later, around 1975, when he began work on what
would become *Capitalismo Periférico* (Peripheral Capitalism). Once retired
from his international posts, Prebisch crossed the equator to return to tropical
lands, and took his manuscripts of the period we have been analyzing out
of the deep freeze. Unfortunately, in the Western-centric academy Keynes
work as the IS-LM<fnref n="68" /> instigator, seemed to corroborate Prebisch's critique and
distance him as a potential ally against economic orthodoxy. Their notions on
money creation are close to the versions about endogenous money currently
being resurrected (Dow 1997, Cutler *et al.* 1978), which resuscitates Keynes
himself. For Prebisch, as we have seen, Keynes remained a hopeless case.

Discussion of the economic cycle (Kuznets 1930), standard for the
course back in those days, and its stochastic nature (Mirowski 1989, 1990,
1991a, 1991b), would also again become part of the intellectual daily life. I

am not referring to the “real business cycle,” but Ormerod’s critique (2000) of it demonstrating its theoretical incongruities (a version that is currently dominant in certain schools of economics in the United States). Also, those who feel that the “equilibrium” or “disequilibrium” issue is a myth made up by Prebisch, should remember that the economic establishment had considered an attempt to “stabilize” Weintraub’s “dynamic” (Weintraub 1991: 123) to be their main theoretical task, since the notion of “equilibrium” in neoclassical economics has always been highly “unstable” (De Vroey 1999), if not impossible (Nadal 2004).

Only time will tell if economics will again be thought of in historical
and institutional terms (Hodgson 2001, Furtado 1983, Mallorquín 2001) as
Prebisch highlighted throughout his life, an attitude clearly visible in his
descriptions of the action of businessmen in their zeal for maximum profit.
What better than to return to the past and some of its thinkers in Latin
America, who gathered together in the Golden Decade of ECLAC (1950-
1960), providing then as today, theoretical and practical alternatives for
economic development in a region facing a legacy of economic problems
bequeathed by latter day neoliberalism.

<footnote n="68">⁶⁸ See the recent account in De Vroey & Hoover (2004).</footnote>
<figure><img src="image_6.png" /></figure>

Neither the amplitude
nor the "minimum levels"
where they intersect can
be known in advance.
Therefore, neither can the
respective gradients of the
positive or negative slopes

Neither the amplitude
nor the "minimum levels"
where they intersect can
be known in advance.
Therefore, neither can the
respective gradients of the
positive or negative slopes

Based on Prebisch 1949a in Prebisch 1993: 419.

IP = Paid Incomes; PP = Production in progress; PT = Completed Production; IR = Returning Incomes; D = Demand; X = Intersection; Prebisch uses overwhelmingly the term "conjunción" which grammatically has the role to join two words, (i.e. "and"), on occasions, we also find "inflexión"(inflection).

<figure><img src="image_7.png" /></figure>

Based on Prebisch 1949a in Prebisch 1993: 484.

I = Total incomes paid, Center and Periphery; P = Production; D = Demand, (D = R) R = returning Incomes. Horizontal lines show expenditure and circulation in the Periphery during the upswing. Vertical lines indicate circulating capital held in the Periphery during the upswing. After point A (supply and demand intersect), starts the downswing of the cycle, and incomes paid initiates their return to the Center.
Celso Furtado and Development: A Brief Outline (1950-2004)

The main purpose of this chapter is to attempt to give a brief review or outline of the works and ideas of Celso Furtado in relation to development. In order to limit the work to a reasonable length, I have sought to emphasize only those moments I believe were crucial in his thought process, in the hope that Western-centric readers will appreciate the importance of his ideas related to the “development” of Latin America during the 1960s and 1970s. His exile after 1964 limited much the diffusion of his ideas, although his publications did not recede, much of which were the basis for his classes in France and conferences, until his return to Brazil in 1984. Aspects of his work have today become central to rethink the discipline and economic policies appropriate for the future of the region.

Previously we have already drawn an outline sketch of the conditions that made the rise of developmental economics, touching on some of the political, economic, and cultural world historical context of the post World War II period which established the institutional and theoretical conditions in Latin America facilitating the rise of a “southern” perspective. Prebisch’s leadership of the process was crucial, although known worldwide for his “Central Bank” counsel; in the region the apparent default by the USA, of many of its promises in Latin America in the 1940s, generated the fervor for a more “nationalist” perspective on development. The International Conference in 1947 in Rio de Janeiro in favor of maintaining the Peace and Security for the continent, takes up the Interamerican concords realized in Chapultepec, Mexico City, in 1945, on problems of war and peace.

Therefore we now follow by examining some pertinent aspects of the economic discipline that were confronted head-on and transformed by this Brazilian economist (“The Economic Science: the Glorious Days and its Deficits”), continued with a description of his first period as a theoretician of development (“The Armed Crusader: 1949-1964”), that is, as a “reform monger” according to O. A. Hirschman (1963), or “a fanatic” (G. Harbeler).<fnref n="1" /> This is followed by a description of his period in exile (“Rethinking Capitalism and the Industrialization Process, 1964-1975”), to concluding (“The Prophet Returns: 1975-2004”) with a discussion of some of his work produced upon his return to Brazil in the 1980s until his decease in 2004.

The importance of his work has been overshadowed by the rise of neoliberalism's dominance, whose history and deconstruction of Latin American Structuralism revolves around its portrait as an “anti-market” discourse. And yet it is a suitable occasion to reiterate that the “creation” of

<footnote n="1">¹ Furtado (1985: 124) from a conversation between G. Harbeler and E. Gudin.</footnote>
markets was an explicit aspect of the main objectives in the transformation of the social and technical division through the policies promoted (land and fiscal reforms). Although “governmental” guidelines or interventions by way of programmed sectoral reconstructions of the economy were part and parcel of the strategy to boost certain aspects of “development” and “growth,” today these characteristics of the discourse are lost to younger generations all over the world. Nevertheless, the “market,” left to its own devices could not produce the momentum and the force necessary for the transformation of societies into more equal and just entities.

Although Furtado’s name might be a misnomer to many, the economic vision nearest to his conception of “structuralism” could be described as “old institutionalism” (Veblen, Mitchell, Commons, Ayres, amongst others). If their respective ideas could be welded together today, they would not simply be a counter-position to revive the “State” vis-à-vis the “Market” dichotomy, but rather they would offer a means to argue that the contrasting “opposition” is itself unfounded. Furtado’s structuralism shares with the classical institutionalists the idea that the “market” is a specific set of asymmetric social relationships, which have specific conditions of existence pertaining to the agents’ power mechanisms in question (“embeddedness” was Polanyi’s term), and which need to be understood in order to construct the pertinent economic strategies to disentangle and liberate their action for a “better,” equal and just society. Although it is not the present theme of the chapter, I have argued (Mallorquin 2006) for their mutual articulation and similitude, although Furtado himself disowns any parallel between his structuralism and institutionalism.<fnref n="2" />

## Economic Science: Its Glory Days and its Shortcomings

By the second half of the 1940s, the preeminence of Keynes’s ideas on the possibility of resolving the “cyclical” nature of capitalism through some kind of planning or demand management cannot be put into doubt; his name and his ideas were synonymous with a “revolution” in economic science within academic institutions all over the world. The fruitful results of his ideas over time and space, not really expected by their progenitor, were soon to be discovered by many and especially those working within Latin America. With some degree of adaptation and transformation, the Keynesian categories could easily become a powerful tool to initiate a description and explanation of the economic history of Latin America. This task was soon undertaken by R. Prebisch, J. F. Noyola, V. Urquidi, R. Boti, A. Pinto, O. Sunkel, D. Seers, to name but a few.

For some, the “Keynesian revolution” meant that the theoretical

importance accorded to its ideas were part of a much broader mutation in economic science itself and accordingly, sooner or later they would be uprooted, in much the same way as they had once displaced some of the “neoclassical” postulates, which, unfortunately as we now clearly know, were not after all banished to the rubbish heap of history.

The role of the “multiplier” and the “accelerator” were crucial to many of the calculations that would be undertaken to postulate specific rates of growth. The recommendations towards a full employment policy admitted that the economic complex could not be a self-regulatory entity. Fiscal policies and management of interest rates as well as budgetary deficits were part of a process aimed at maintaining a certain level of employment and income: demand-managed economies became the common name in post-World War II discourse. In Latin America, these aspects were examined within “structural reforms” of all sorts, fiscal, land, and reconstruction and integration of the societies in the region.

But Western-centric “economic science” could not go further than reiterate its newfangled categories when thinking of the Periphery or the “backward countries.” There was a brutal silence, and absence of a specific theoretical discourse about countries that were plainly not “industrialized” (Arndt 1987, Heilbroiner 1964, Love 1996). The emergence of the notion of “underdeveloped economies,” following World War II, which singled out late-comers to the growing industrialization process or raw material producer countries, was the product of crucial theoretical and political battles fought by institutions like ECLAC to push forward the process of industrialization and social transformations. Simultaneously, in the Latin American region, long existent and new universities would recognize “economics” as an independent field in its curriculum, for example, the National Autonomous University of Mexico founded economics as a separate discipline in 1946.

Prebisch’s ideas, and later those of Furtado, opened up a vast uncharted theoretical landscape, which henceforth would be mapped by means of new categories which would incorporate “programing” (ECLAC’s functionaries eluded the use of the term “planning”) as one of the means to induce a calibrated process of development. Since the thirties, Prebisch had been experimenting, with great difficulty and not much success, with various explanations to account for Argentina’s topsy-turvy economic development, including those that took their starting point from conventional economic categories: the cyclical notions of capitalism and the “Gold Standard,” were parameters that left much to be desired, and could only be fitted to Argentina’s experience through an unquenchable violation of the facts (Prebisch 1944b, 1944c, 1949a).<fnref n="3" />

As seen above, by 1948 Prebisch had advanced a theoretical perspective that would culminate in a specific discourse about the so-called “primary

<footnote n="2">² Furtado says that he did not include the “North-American institutionalists, (...) by the simple fact that they did not offer a systematic interpretation of the process of growth.” (Furtado 1961: 8) Which is his particular way of saying that most western-centric discourse is inadequate to think the economy in the Periphery.</footnote>

<footnote n="3">³ See chapter on Prebisch or Mallorquin (2005, 2006a).</footnote>
goods producer” countries or the Periphery of capitalism. In other words, he thought that what was needed to address the “Periphery’s” problems, could not be deduced from Keynesian and/or neoclassical models of development. It was therefore paramount to differentiate the raw material producing countries (the Periphery) *vis-à-vis* the “Center” or industrialized nations. He was arguing against the plainly “false” claims of “universality” of the Western-centric economic discourse hegemonic at that time, which in the last instance assumed that the countries of the Periphery would undergo similar structural transformations during their development process as those that the industrialized countries had undergone in the past, adjusting themselves to the world economic forces; a concept of history which L. Althusser (1969), in a polite and paradoxical manner has termed as “future anterior.”

Under this scheme of things, the “backward economies” had to adapt themselves to an international trading system that blessed its relative abundance of “factors of production.” There arose a version of a worldwide complex of trade, which reinforced the hitherto international division of labor: the Periphery had to specialize in the production of raw and primary products, and the Center concentrate on the production of manufactured products.

These countries were supposed to utilize those “factors of production” which were in relative abundance, and thus cheaper, to produce specific goods. Accordingly, there was a “comparative advantage” (no doubt in static terms) that favored some countries to concentrate on the production of certain products that required diverse intensities of capital and/or labor. The surplus production would form part of the trade pattern that would maximize the overall growth and earnings of respective economies.

Above we saw that Prebisch (and H. Singer) showed that those countries that actually followed this path, and accordingly adjusted their economies to the cyclical growth process of capitalism, found themselves, in the long run, in a worsening spiral situation. If, as he argued, the diffusion of the fruits of technological progress should have favored the Periphery, given its lower productive or technological capacity/intensity, so it should have manifested itself in lower price levels for manufactured goods imported. But the international price index revealed otherwise; this by itself did not prove, nor explain what came to be known as the Prebisch/Singer thesis of the “deterioration in terms of trade” of the Periphery *vis-à-vis* the industrialized Centers. What was claimed was that after the repetitive cycle, the Periphery, besides not being able to keep to itself its own “fruits of technological progress,” also lost them through the downward pressure that was exerted on the prices of its goods.

The Periphery's deterioration of its terms of trade *vis-à-vis* the industrial nations, was due to the existence of an asymmetric power relationship between the parties in question, or as is commonly typified in mainstream

economics terms a disparity of the “elasticity price demand” for their respective products. Given the Center’s labor force mode of organization, they managed to preserve their overall wage-salaries conditions, sustaining heretofore price and cost levels *vis-à-vis* the Periphery, despite the downswing in the cyclical process. It is true, as Prebisch argued that the gains (prices) in primary products during the upswing rose at a much faster pace than their counterparts at the Center’s, but it is also historically correct that during the downswing they declined and lost much more than they had gained previously.

To preserve the hitherto level of export earnings the Periphery had to increase the quantum of its exports, intensifying its productive capacity, which in turn increased its demand for imported goods (semi-manufactured and manufactured), constraining the diversification of its economy, in other words the technical and social geographical division of labor. Thus, every cycle saw the imposition of a descent of its income level. The deterioration of the Periphery’s terms of trade with all the subsequent negative consequences on its external balance account and the search for the so-called “equilibrium,” generated a lower rate of investment, while simultaneously considering formulas to induce a higher level of savings, which was generally undertaken by cutting health and education expenses. Which in turn reduced the capacity to receive foreign credits and consequently overseas capital. This had to be resolved by attracting foreign capital through an internal deflationary process, all of which stalled the growth of the economy.

The growth of income in the Center was not reflected in an equally proportionate increase in the demand for products or goods from the Periphery; on the contrary, a whole series of substitutes and demand schedules appeared for other, and more elaborated types of goods, which for the Periphery meant a reduction in demand for its goods. The Periphery's growth was therefore inhibited by internal and external tendencies, “disequilibrium,” given its lower capacity for imports, which explains its stop-go characteristics.

Also, the manifestations of the Periphery's erratic growth process throughout the twentieth century, forms part of its heterogenous characteristics product in turn of the asymmetric power between and among the agents, regions, and countries. An aspect central to Furtado's theorization was the notion of heterogeneity and “underdevelopment” related to differing productive organizations, not “stages” to be superseded, but rather requiring reconstruction under alternative social relations, and geographical integration, hence the importance of regional “common market” arrangements. Besides creating a less “heterogenous” configuration base, the substitution of imports with local production (industrialization), would also make it easier to control the economy during cyclical downturns.
During strong nationalist social forces in the 1940s, the so-called “ideology of developmentalism” reigned supreme. The political forces headed by Getulio Vargas and a large number of institutions like the Superior Institute of Brazilian Studies (ISEB) inscribed the industrialization process within the plans that they had a chance to come up with, culminating with Kubitschek’s (“Targets Plan”) economic plans.

After the war, the National Bank of Economic Development (BNDE) was founded and soon made agreements with ECLAC through the work of Furtado founding many development projects. The *Joint American and Brazilian Commission*, which was formed to enhance the industrialization process, had Furtado as its Director. Brazil became, in the first half of the fifties, a theoretical paradise for discussing and experimenting on the theme of “development.” Most of the leading exponents, and critics of a full-speed-ahead-towards-industrialization policy visited the country during that time and discussed the topic. For example, G. Myrdal and R. Nurkse with whom Furtado was to establish a specific debate on the issue of the size or otherwise of the market as a potential limit to the capitalization and development process. However, *last but not least*, the “structuralists’” terror: J. Viner and L. Robbins also visited the region to counteract the transformation in process, the latter had recently finished polishing the Mont Pelerin Society (Mirowski 2009), the former an active member of the society in question. One should not forget also that it was Vargas’s ultimate push that finally made it possible to confirm the existence of ECLAC as a member of the United Nations, contrary to the wishes of the United States, after a trial period of three years (Santa Cruz 1984, Magariños 1991, Furtado 1985).

## The Armed Crusader: 1949-1964

Two aspects dominated and predetermined Furtado’s theoretical and practical interests during these years. On the one hand, the examination of the evolution and transformation of the Brazilian “economy” from its inception as a colonial entity, with particular attention given to the post-slavery period of 1889; and on the other, a description and reconstruction of the interpretation of the rise and history of economic ideas as the royal road to knowledge for the Periphery and its development process.<fnref n="4" /> He clearly wanted to follow the critique of economic theory which Prebisch had initiated to its radical roots, but considered it too general, and sought a more specific theoretical vocabulary rejecting most of Western-centric discourses.

Ever since taking up a post at ECLAC in 1948, Furtado had been working on a whole series of projects that kept him in close contact with Brazil and the growth of the Latin American economies. Perhaps for the very first time in Latin America, at the organization mentioned above, there arose a profound consciousness of its possibility to contribute, theoretically and practically, to the solution and advancement of economic science but with

a view more geared towards Latin America. New data and statistical series were elaborated, with specific objectives in mind; thus, the practicality of updating methods for measuring (deteriorating) terms of trade, and external “purchasing power” as Furtado coined it in a ECLAC document (1953)<fnref n="5" /> under his direction.

Furtado’s first published book, *The Brazilian Economy: A Contribution to the Analysis of its Development* (1954)<fnref n="6" /> as mentioned previously, had two quite distinct problematics. On the one hand, it was comprised of a historical description of Brazil’s “economy” from its colonization up until the decade of the 1950s, and on the other, one of the first documented histories of economic thought focused on the problems of the so-called “backward” economies,<fnref n="7" /> demonstrating that these concepts were negative at best, and worthless to think the lineages of the specificities of an “underdeveloped economy.”

Since joining the organization Furtado had been taken very seriously Prebisch’s thesis of the false universality of the Western-centric economics orthodoxy. His first book, *The Brazilian Economy* (1954), which was dedicated to Prebisch, was simultaneously written while undertaking his organizational tasks, directing *An Introduction to the Technique of Programming* (1953) and revised in 1955. Between 1950 and 1954 he wrote a series of articles that were to become the book mentioned above (1954). Some of the articles were published in Western-centric international journals.<fnref n="8" />

The book (*The Brazilian Economy*) can be divided in two parts: a historical description of Brazil’s recent economic evolution and transformation, and an engaging critique with classical political and its more modern theorists: A.

<footnote n="4">⁴ For more details, see Mallorquin (1998, 2005).</footnote>

<footnote n="5">⁵ ECLAC (1953) E/CN.12/292, *Preliminary Study on the Programming Technique of Economic Development*.</footnote>

<footnote n="6">⁶ It is ironic that a book that was dedicated to R. Prebisch, was to cause him so many problems at ECLAC, his views were used to put pressure on Prebisch and the Organization, but it must be remarked that it is in great part at odds with the economic categories then dominant, including Prebisch’s.</footnote>

<footnote n="7">⁷ The closest resemblance to this type of examination within Western-centric discourses can be seen in Meier and Baldwin (1957). Prebisch’s critique of economic theory, described in the previous chapter, was not known outside a few groups of students in the Economics Faculty of the University of Buenos Aires; but Prebisch’s stature in Argentina and the region was without doubt sustained “worldwide” by his work in the construction and administration of Argentina’s Central Bank (1935-1943).</footnote>

<footnote n="8">⁸ M. H. Dobb reviewed *International Economic Papers*, No. 4., in which an early Furtado article appeared and writes: “[Furtado] thinks that in countries at early stages of development the income-elasticity of demand for imports is so high (in the case both of consumer goods and capital goods) that progress may be early arrested by balance-of-payments difficulties. From this he concludes that ‘the inflation which accompanies economic development ... is not a monetary problem’; and that while this may require structural modifications in a country’s economy to increase either its export-capacity or its capacity for finding substitutes for imports, ‘a reduction in investments, which is the remedy usually proposed ... will not necessarily rectify the unbalance and will not put the other troubles right.’ But there he stops short, and one is left with some sense of disappointment -with a sense of being brought to the threshold of an interesting problem and no further.” (Dobb 1955: 515)</footnote>
Hansen, J. Schumpeter, J. M. Keynes, whom with the exception of Schumpeter all misunderstood or did not engage theoretically on the problems which could be thought within the “underdevelopment” ensemble.

The second part of the book is indeed paradoxical given that its author, who was to be in the years to come the constructor of the “underdevelopment” problematic nearly single handedly, exhibited deep theoretical tensions. On the one hand its contradictory and teleological characteristics and on the other hand, unwittingly recognizing in the Western-centric perspective a potentiality to supersede its limitations.

The problematic and questions with which he addressed to economic thought have yet to be created which was to be a product of his own doing: mainstream orthodoxy examined “backward” countries in terms of its own categories, with all the linear evolution suppositions that it entailed. And yet one of Furtado’s starting bases to construct the theoretical space of underdevelopment is promoted by the conclusions of a Western-centric economic reunion in Chicago University in 1951 (Hoselitz 1953), where it was decided that the issue of “development,” “evolution,” and “change” in underdeveloped countries was not part of economics properly. Additionally, the theoretical strategy, through the examination of Myrdal’s (1945), *The Political Element in the Development of Economic Theory*, and Edwin Cannan’s (1942), *History of Theories and Production*… argued that economic thought has until then been a fully-fledged comedy of errors.<fnref n="9" />

But in ECLAC, Furtado’s book did not fare well, especially with Prebisch, since his description of economic growth of Brazil in the forties and fifties was argued showing that there was no deterioration of the terms of trade and that the high rate of capitalization and industrialization process was realized under a very positive socializing cost effects that fell on coffee exporters and importers of consumer goods: the then existent selective foreign exchange controls in force favored the introduction of capital goods imports. The narrative questioned the idea that the recent growth of Brazil in the 1945-1954 years was a product of an “inflationary” process unless one forgets the simultaneous parallel product growth and expansion during the period.

The concept of an underdeveloped economy as a distinct entity with its own logic and structure was already being processed conceptually by Furtado, which culminated into a fully-fledged discourse during the years of 1958-1962, displacing the teleological and evolutionary notions implicit and explicit in conventional economic discourse, Keynesian included. To start with, the notion of an “underdeveloped economy” of the “economic formation” starts dislodging the hitherto category of a “colonial economy” dominant in much of the text (Furtado 1954). By 1958, Furtado was convinced, although not

yet completely theoretically armed, that the Latin American economies were specific historical entities that could not be explained with the traditional vocabulary of mainstream economics.

Paradoxically, Prebisch’s brilliant foresight of the route Furtado’s ideas had taken in *The Brazilian Economy*… (1954), compelled him to reprimand the work. The confrontation (Mallorquin 1995) made Furtado think about leaving ECLAC. We could even speculate that to keep him away from the center of attention at ECLAC, he was regularly commissioned to participate in various economic reports and commissions, starting in the Brazilian and United States Commission and later, through his sudden trips to prepare reports in Mexico (1956), Venezuela (1957), both of which were not formally published by ECLAC, and known only internally to its functionaries and a few governmental representatives. He did finally leave ECLAC in 1957 to return to Brazil in 1958, after a ten-month visiting period of research in Cambridge, as an invitation sponsored by N. Kaldor.

After 1954, Furtado’s cyclical notions of capitalism started disappearing; theoretically, Furtado started thinking more in “structural” terms, “obstacles” or “structural transformations”; concepts that could think productive agents embedded in specific social relations and historical contexts, which meant that the “rational” maximizing entities espoused in the official and mainstream economic discourse were insufficient.

It followed that a theoretical reconstruction was in order, and accordingly, “underdevelopment” could not and should not be thought of as a historical “stage” to be overcome, but rather as the consequence and outcome of the existence of a specific set of power asymmetries between and among agents, hence the social and geographical heterogeneity which generated the many “imbalances” whose effects were once thought of as cyclical phenomena.

Thus, a specific body of conceptual tools had to be constructed and that was precisely what occupied Furtado between 1958 and 1962. This process and its evolution did not appear in “one fell swoop,” as it were. In fact, it was achieved painfully during a period when he was fighting crucial political battles to transform, first the Northeast, as its first Superintendent (1959c),<fnref n="10" /> and secondly, as the Minister for Planning (1962b).<fnref n="11" />

As I said, by 1957 Furtado had left ECLAC and spent a short period at Cambridge University, during which he became conscious of the asymmetric power context of ideas and their command. It seems perfectly plausible that Furtado’s reflections on his life in 1985 relates to the theoretical and ethical

<footnote n="10">¹⁰ There he elaborated *An Economic Development Policy for the Northeast* (1959c), perhaps one of the first accounts to have used the thesis of the deterioration terms of trade between different regions (Northeast and Center-south) within a single country. See details in Mallorquin (1996) and Love (1996).</footnote>

<footnote n="11">¹¹ The three-year plan of the government, *Plano trienal de desenvolvimento economico e social* (1963-1965), elaborated by Furtado, was attacked by all social forces.</footnote>

<footnote n="9">⁹ It is not until Meier and Baldwin 1957 book that a history and revision with reference to “backwards economies” was undertaken.</footnote>
relation of intellectuals and politics. We have mentioned that by 1954 having rejected most of the Western-centric economic discourses as incompetent to theorize “underdevelopment”, the then ongoing “theoretical festival” (Furtado 1985, 2004) occasioned a reevaluation of his standing within “economics,” simultaneously exposing what he then considered an ethical imperative:

> The formidable intellectual effort to which I was testimony in Cambridge [1957] was a new chapter in the permanent process of re-adaptation of economic science so that it can comply with the hoped-for functions of society. True: the nature of economic knowledge is scientific, but the domain which she explores is delimited by ideological motivations. The work of economics that strays from the domain of the political preoccupations delimited by its age is not good nor bad, its simply irrelevant. (Furtado 1985: 224)

During those meetings, he approached James Mead, who having read an article in the making by Furtado (“The External Disequilibrium in the Underdeveloped Economies”)<fnref n="12" /> transmits to Furtado, in an apparently dismissive tone, that his perspective of the nature of the “external disequilibrium” in “underdeveloped economies”<fnref n="13" /> will be superseded and wither away once capital exports are resumed from developed towards underdeveloped countries. Furtado’s retrospective reflection to the “conversation” is significant: his interpretation presumes an undergoing theoretical process guided by a “counter-offensive” to “save the neoclassical theory of income.” As such there:

> was no reason to contaminate economic science with institutional impurities. It did not escape me that the efforts undertaken by these men of exceptional qualifications was to take us *back to the starting point*: the recognition that development had taken place where technological progress and the circumstances permit, so that certain social agents canalize it for the formation of capital. (Furtado 1985: 225, my emphasis)

In other words, Furtado’s irony and tautological triviality should not be lost to the reader:

> The lesson was clear: the work of theorizing in the Social Sciences is to a certain extent a prolongation of politics. These reflections made me modify the vision I had of theoretical labor, inducing in me a change of my plans [1957] for the future in the sense of reevaluating political activity. (Furtado 1985: 226)

Having returned to Brazil, he takes up in 1958 the first post of Director for the Northeast section at the National Bank of Economic Development (BNDE)

and wrote the first project to develop the Northeast. Simultaneously during this period, he published *The Economic Formation of Brazil* (1959a),<fnref n="14" /> a text that incorporated most of the historical sections of the previously mentioned book *The Brazilian Economy*... (1954). The subsequent version of the book came with all the appropriate reformulations to give it a more distinctly “structural” flavor.

Between the appearance of this book and the period of 1964 when he was forced to leave Brazil by the Military regime, Furtado fought on many a battlefield. He produced books and articles with distinct political and/or academic flavor, and some of a controversial nature. The latter can be exemplified by the title of the book *The Brazilian Pre-Revolution* (1962),<fnref n="15" /> a compilation of a series of articles including the one used whose title created the explosive political uproar given his governmental responsibilities; a good example of the former can be seen in *Development and Underdevelopment* (1961), also a compilation of some of the material found in *The Brazilian Economy*... (1954), similarly appropriately reformulated, and also containing new material from 1958a and 1959b.

By 1967, Furtado consciously established the existence of a Latin American perspective:

> Economic structuralism (a school of thought that arose in the first half of the 1960s amongst Latin American economists) has as its principal objective to take into consideration the importance of the ‘non-economic parameters’ contained in macroeconomic models. Given that the behavior of these economic variables depends mostly on these parameters they have to be the object of meticulous study. (Furtado 1967: 81)

Hence the importance of the emergence of economic plans, which for example implied “land reforms” (Furtado 1969, Chapter XXIII), so that the “structural picture” could be modified and the social agents in question be freed to take up better remunerated positions within the social and technical division of labor, which would improve the distribution of incomes and resources. It presumed then an “advancement in the knowledge of real structures, so that on many occasions it demanded the supersession of conventional economic analysis” (Furtado 1969: 297). Furtado insisted that his perspective had:

> no direct relationship with the French structuralist school, whose main orientation was to give importance to the synchronic axis of

<footnote n="12">¹² *Indian Journal of Economics* 38: 403-410.</footnote>

<footnote n="13">¹³ Furtado has said “Professor Mead did not seem to take seriously what I was saying” (Furtado 1985: 225).</footnote>

<footnote n="14">¹⁴ In Mallorquin (2005) I offer a detailed follow up of the conceptual changes in the theoretical vocabulary of this book in relation to its original version: *The Brazilian Economy*... (1954).</footnote>

<footnote n="15">¹⁵ The English version of *The Dialectics of Development* (1964) appeared as *Diagnosis of the Brazilian Crisis* (1965), which can also be put in this tradition, but it is a better and very well-developed case for explaining the unification of the regressive political and social forces of the right against the government, which he foresaw with a military takeover, which unfortunately turned out to be true. Willard Barber reviewed the English version of the *Dialéctica del Desarrollo* (Furtado 1964), alleging Furtado’s “deep Leninist ruts.” (Barber 1966: 196). A positive review in English can be seen in Donald J. Harris’s text “Diagnosis of the Brazilian Crisis” (1966).</footnote>
social analysis and establish the ‘syntaxes’ of the disparities in social organizations. (Furtado 1967: 80)

Traditional conventional economics cannot take account of nor explain the existence of “structural obstacles” or “heterogeneous agents.” Thus, there are no “homogeneous factors with the same technological time horizon” (Furtado 1969: 102). The problems of “underdevelopment” needs to incorporate notions of a non-unified labor market and the simultaneity of diverse (heterogenous) production functions, depending on the “surface of the economic structure in which the productive agent is inserted” (ibid: 102). The theoretical emphasis therefore tries to systematically destroy the traditional appearance of these problems within separate compartments, be they “economics” or “history.”

In a sense, Furtado rebuilt into a theoretical concept a notion which for Perroux appeared to be an obstacle or ephemeral phenomena that needed to be reformed:

> Structural inflation has adulterated the very notions of our science; that is to say, it has warped or broken the modern instruments which are necessary not only for the diagnosis, but also for the treatment or operations that are indispensable for its cure.
> 
> (Perroux 1957: 263)

From a Western-centric tradition, Furtado's conclusions can be observed as theoretical transformations of Perroux's idea (1950, 1950a) that specific and distinct economic units have differing “plans,” necessarily antagonistic to each other, and that so-called existence of an “equilibrium” or “relative peace” takes place when a certain unit or agent of production manages to establish a dominion around a respective economic plan-space and thus over the other economic agents (units of production).

At this stage, his theoretical pondering took him explicitly beyond the confines of simple economics; his whole vision overflowed typical academic disciplinary boundaries; it took turns to wander along the paths of “sociology” and “politics” and even veered towards “anthropology.” To contemplate social changes or “structural obstacles” in underdeveloped countries, Furtado clearly disposed of traditional academic boundaries. In other words, he took on a daunting and/or heroic task: he attempted to “bridge” the divide between sociology and economics.

It was also during these years that his political ideas became more radicalized; he discovered that he was not just another “technocratic” advice agent “free of values.” During this period, Furtado also resumed his rapprochement with Marx, which helped ennoble him further; he discussed and criticized him, discarded his theory of value, only to finally assimilate his notions of social classes and the State, exemplifying just how enigmatic and profound the turn of events in 1963-1964 must have been to Furtado.

## Rethinking Capitalism and the Industrialization Process, 1964-1975

Exiled by the military regime, Furtado left Brazil and passed through Chile on his way to the United States of America. In ECLAC, at the offices of the ILPES, Furtado discussed the material that would become part of his next book *Underdevelopment and Stagnation in Latin America* (1965). Among those assisting, were the names of those so often mentioned as the theorists of “dependency theory.”

In the book, Furtado presented the first “structuralist” model of stagnation; but the book in its entirety presented all the conceptual characteristics that would later appear in the coming publications under the above-mentioned denomination. It clearly highlighted the social-political forces that are the basis of “internal” or “external” dislocations of an economy which constitute the conditions of existence of “underdevelopment,” so Furtado argued, notwithstanding the industrial base of some of the economies in question.

The text was the culmination of what was to be Furtado's specific “structuralism.” Although in this book Furtado exhibited a very pessimistic view of Latin American economies' past and future rate of growth, industrialization, and social transformation, with hindsight we understood that the aim was to criticize and exhibit his disapproval of the social and economic asymmetries of the societies in the region, which was confused with an apparently inherent “stagnation” tendency, conceptualizing the exclusionary mechanism of social complexes like “capitalism”, which excludes the majority from the fruits of its technical progress. Furtado for the first time undertook an analysis, with a very nationalistic overtone, of the role of foreign capital in the conformation of the debt pattern and its productive role in Latin America. This was a theme that would never again become peripheral to his intellectual and political activities.

In its inception, ECLAC always regarded foreign capital as merely a transitional phenomenon in Latin American economies, required only to undertake the initial process of capitalization and industrialization. Furtado felt betrayed by the United States' promises and policies explicitly stated in the Alliance of Progress during his period at the forefront of development of the Northeast, which in part also explains his pessimistic tone after the Brazilian Military Coup.

Furtado started with an examination of the “external” factors that he believed crippled Latin American economies (U.S. policy), and then moved on to describe the “internal” limits of the industrialization process within Latin America. In this aspect, he argued that once the easy phase of the industrialization process was over, in other words the phase aimed at substituting certain consumption goods previously imported through local production, which in real terms managed to incorporate a comprehensive number of the population within the growth of the economy, the next phase, involving the more capital intensive sectors, was bound to collapse.
Furtado considered that the substitution of capital goods imports with local production required an overly intensive capital function, which in turn implied a higher level of savings requirements and income for imports. But this phase, exhibited certain negative aspects since it only absorbed a relatively low level of the labor force from the “backward” sectors of the economy. Aside from the fact that the capital-intensive function implied a much higher level of savings, which the upper classes did not and could not supply given their traditional historical behavior, the reduced market for its goods impeded the benefits of fully-fledged economies of scale.

As a result, everything seemed to work towards lowering the productivity level of the economy (not just the capital-intensive sectors), thus ensuring the stagnation process of the Latin American economies.

If Furtado was belied by the so-called “Brazilian miracle,” with rates of growth in the manufacturing sectors reaching up to 10 and 12 percent annually, in the late sixties and early seventies, he soon incorporated these new aspects into his future analyses of the Brazilian “model” of development. From *Underdevelopment and Stagnation in Latin America* onwards, Furtado would emphasize the historical aspects and role of the social classes leading the development process. Thus, Furtado was able to provide reasons to explain the (“unexpected”) growth pattern of the economy in question.

In the *Analysis of the Brazilian Model* (1972), Furtado started by explaining the conformation of the Brazilian State with Vargas, and went on to illustrate that the growth pattern of the “Brazilian miracle,” owed its effort to the incommensurable concentration of wealth amongst a reduced minority, which was the only way to sustain the intensity of growth of the industrialization process based on the production of durable consumer goods.

The economic policy was implemented by the “concentration” of income in fewer hands, not through its spread across wider strata of the population. State intervention in the economy, offering lower interest rates to businessmen and to potential consumers of the upper strata, enabled and induced a consumption pattern similar to that which existed in the industrial Centers, but without the corresponding level of savings. It was this policy that drove Brazil’s deficit on its external accounts sky-high during the 1980s which generated an un-payable foreign debt pile.

The economy was composed of two unrelated markets,<fnref n="16" /> a massive consumer sector, with a very low productivity turn out, due in part to the State's policy of maintaining salaries low; and simultaneously the market that produced durable goods for a modern lifestyle *imitated* from the industrial Centers. Furtado claimed that a very “specific demand” was in process, for a very particular structure of production, hence we had high levels of growth and at the same time, a growing majority of the population untouched by the fruits of the technological progress.

Hence, it was easy for Furtado to leap towards a “cultural” theory of dependency, reiterating his sociological theorization of the agents of production explaining their behavior. Unfortunately, the “modernization” process was anything but a universal phenomenon. Its effect only reached and extended to a minority, which managed to impose a developmental pattern and values that were nevertheless unfelt by the rest of the population. It is obvious that Furtado here used the notion of “modernization” in a plainly sarcastic tone, since the so-called “structural functionalist” theory of modernization assumed it as an irreversible and universal force once it got under way. We cannot but mention the obvious similarities to today’s discussion on “globalization.”

By now, the economist ingredients and the iron law of “stagnation,” proposed by Furtado in *Underdevelopment and Stagnation...* (1965), had withered away by his historical and sociological explanations. There was no automatic reproduction of any “tendency” in the economy, or hidden hand guiding it, but rather it was plain that it required a clear intervention by the State to give it some direction. And the social political forces which dominated the State in Brazil during the 1980s put aside the social reforms as well as some form of planification of the activities of its public enterprises.

On the one hand, Furtado’s analysis of Multinational Corporations (MC) took on a greater significance in his studies of “capitalism” in general from 1964, but his perspective and intention to understand their dominance, and explain it under an all-encompassing logic swayed by US’s global policies, actually threatened, on the other hand, at the very least, to undermine the specific structuralist accounts that he’s been distinguished for. His insistence during the seventies, that a world capitalist superstructure was under construction, led by the US but on some occasions and in some versions in combination with the EEC (European Economic Community) (to control disturbances of capitalism, like the petroleum shocks in 1973, or the regulation on the use of certain raw materials), puts his analysis extremely close to those “structuralist functionalist” and teleological accounts of capitalism of which he so justifiably made fun of on other occasions.

During the 1980s, this problem became more complex in his writings because his own descriptions of the USA’s commercial and industrial decline, vis-à-vis Japan and the EEC, dictated a new notion to explain the heterogeneous forces and politics of the MC and States in question. Thus, from a “multipolar” notion of political and economic power at a world level, we could end up, under this logic, into a “unipolar” world after the demise of the Soviet Union, which could hardly be the case in economic and political terms given Japan’s and the EEC’s rapacious nature.

All this was pointing towards a theorization that Furtado was trying to

<footnote n="16">¹⁶ This is clearly the theme in *Economic Development: A Myth* (1974).</footnote>
undertake at a much more general level, which explains his onslaught, once
again, on economic (positive) science, found in *Economic Development: A
Myth* (1974). Furtado was thus preparing new theoretical ground, which
takes us to the next stage.

The Prophet Returns: 1975-2004

In *Preface to a New Political Economy* (1976),<fnref n="17" /> Furtado made desolating
claims: “structuralism” had made an important and heroic assault on the
fortress of conventional economics. The absence of its categories in the fifties
and sixties would have been catastrophic for Latin America, but it had served
its purpose and had entered a process of “diminishing returns.” In isolation,
such pronouncements might have seemed to many as the end of a long
theoretical tradition in Latin America. However, for Furtado it was a period
of theoretical experimentation, proposing nothing other than a complete
overhaul of conventional and structuralist economics. What was needed,
Furtado went on to argue, was not so much an interdisciplinary approach or
method to study Latin America’s problems, which was to be his claim in his
next book, *Creativity and Dependency* (1978), but a new “general theory of
social formations.”

To undertake this theoretical reconstruction, Furtado rescued a forgotten
view from his younger days: the notion of the “surplus product” (Furtado
1954). The category was to serve an explanation of the rise and fall of empires,
nations and the “industrial civilization.” Its appearance and reproduction had
specific mechanisms of appropriation (“authoritarian” and “commercial”) by
specific social classes, as well as the way it was distributed. Whereas in *Preface
to a New*... (1976) Furtado posed these questions in terms of a “Preface” of a
book yet unwritten, his future texts provided the new theoretical vocabulary
emanated therein, which can be seen in his 1980 book *A Brief Introduction to
Development. An Interdisciplinary Approach*, which comfortably intermingled
with his “old” version of “structuralism.”

Furtado turned to the Physiocrats, rather than to classical political
economics, to reconstruct social theory through a new perspective on
the role of accumulation but with special reference to underdeveloped
countries. What was required was a new theory of accumulation, rescuing
those elements which were omitted by classical and modern economics
alike. In this sense, although Furtado did not acknowledge it, he moved
closer to the ideas of Marx. Furtado showed that modern economics,
especially since Keynes, saw the process of accumulation as a liquid
corporeality form reservoir, represented in the account books, which could
be freely put into operation. Furtado explicitly ridiculed the notion that

digging holes to fill them up again or constructing China's Wall could be
considered as "productive."

Examining this theoretical move, it would be difficult to question
Furtado's position without simultaneously bringing down with him a long-
established tradition in modern and classical economics. But the theoretical
status of his postulates changed when he elaborates the distinction between
the "accumulation" that takes place in the industrialized countries and an
apparently similar process in underdeveloped countries. Furtado argued that
in the latter case, a certain "accumulation" was not "productive," because it
took place "outside" the productive process. Here he seemed to be pointing
to a whole series of uses of the "surplus" to generate luxury goods which do
not amplify the radius of the productive value chain, nor does it intensify the
productive capacity of an economy. But even if this interpretation of Furtado
were adequate, it was still not very clear which of the production processes
were "productive" and which were not, in terms of the existence or otherwise
of a "surplus."<fnref n="18" /> In other words, if the "appropriation" of the surplus is
achieved through the process of production, which are those components of
the labor process which were lacking in competence to generate a "surplus"
in a specific geographical location?

During the 1980s, with the coming to end of the military regime and the
democratic movement in progress in Brazil, Furtado was allowed to return
to his country and formed part of a political group built around the former
Brazilian Democratic Movement (MDB) that along with the participation
of other political clusters led to the creation of the Party of the Brazilian
Democratic Movement (PMDB). In fact, Furtado kept close to the PMDB,
taking on an advisory role on economic matters during the first five years
of 1980s. During these years, he decided to concentrate on his theoretical-
political work.

The notions of accumulation inside and outside of the productive system,
and the notion of the surplus mentioned above in his previous books,
remained in the background or they were conflated with the more orthodox
meanings of the declining “capital-product ratio” for the economy. Aside from
his return to Brazil, his advisory role, and later incorporation into Sarney’s
government, he was obliged to write and reformulate answers relating to his
participation in past economic policies.

The books that Furtado wrote during this period showed him to be
“putting history in order,” clarifying and establishing responsibilities. As a
public figure, Furtado underwent important changes. In 1985, he was named
Ambassador to the European Economic Community, and shortly later
Minister of Culture, a responsibility from which he resigned at the end of July
of 1988.

<footnote n="17">¹⁷ It is interesting to note that it was during these years that Prebisch too is rethinking the Periphery through the notion of the “surplus”: his articles appearing originally in the *Review of the CEPAL* from 1975 onwards were to be integrated in his book *Peripheral Capitalism* (1981), according to Furtado it was just plain coincidence. See Furtado (1998b in Mallorquin 1998).</footnote>

<footnote n="18">¹⁸ Prebisch also has a series of similar problems to differentiate between “productive” and “un-productive” investments, during his theoretical transition after 1975.</footnote>
During this interlude, in contrast with his immediate past, his writings suggested an eminently “political” strategy which formed part of his commitment to a democratic regime and the reconstruction of a more just social economic development.

These years saw the publication of three almost autobiographical texts. *The Fantasy Organized* (1985), which narrated of his activities prior to and during the 1950s while he occupied his post within ECLAC, the struggle for its creation. *The Wrecked Fantasy* (1989), which dealt with the interlude in which he headed certain governmental departments in Brazil (1958-1964) until he became the Superintendent of the Northeast (SUDENE) and as Minister of Planning (these two books, by way of retrospective, described his intellectual formation and insertion into the administrative apparatus of the Brazilian State). Finally, *The Winds of the Change* (1991) concentrated its deliberations around an endless number of thematic theoretical-political discussions, as well as his experiences as an “exile” in different countries between during the sixties and eighties. Special reference was given to his visits to various universities and international institutions. The text also included several unpublished texts from the past which were censored by the military regime and his reflections on some countries. Nevertheless, I reiterate that these were texts that tried to pinpoint “the responsibility that fit him” as the intellectual and State policy designer.

Finally, an account in his own words of his theoretical evolution appeared as an article in 1987 “Underdevelopment: To Conform or Reform.” The autobiographical books (the two “fantasies” of 1985 and 1989), *The Winds of the Change* (1991), as well as *Brazil After the “Miracle”* (1981), are integral texts in the sense that they apparently were designed as such.

Previously, *The New Dependence...* (1982) revolves around two central chapters, and the format is directed towards the academic establishment. In contrast to the latter books, we see *No to Recession* (1983), and *Culture and Development* (1984), which incorporated a series of articles with relatively dispersed themes, initially in the form of journalistic notes and writings appealing to the general reader. In the former book, Furtado’s position is spelled out with respect to the problem of the external debt, a thesis that was practically adopted by the Government of Sarney when Furtado oversaw the Ministry of Culture. The latter, through the thematic progress of its chapters, clearly denotes the exercise of his role and responsibilities assumed under Sarney’s government.

On the other hand, almost all the articles produced during this decade showed an approach towards the “culture” of Brazil and the participation and misfortunes of the diverse and heterogenous regions in their process to constitute the “nation,” as well as their latent fragility given the incommensurable inequalities between and within them: the inherent heterogeneity of the social relations product of the power asymmetries.

Therefore, Furtado seems to be presenting the need for a new sort of federalism, which he viewed as vital to integrate the great masses that had remained unempowered by the “bad” development of the Brazil under military rule. In *Culture and Development* (1984) we find a chapter dealing with the notion of an “endogenous development.” Likewise, he spoke about the functions of universities, and especially those located in the Northeast, where the role of a simple instrumental rationality, if not questioned, could only but delay the enormous projects of research still needed to be undertaken.

The discussion centered around the role of the “creativity” of man seen previously in other books, and the fundamental importance of a clear political will to materialize its visions and projects. Retrospectively, he tells us that the existence of greater quantities of information to face the crisis that afflicted the country made it feasible to surpass the role of “spectators of history” (Furtado 1984: 33), and become its true agent. Furtado believed possible, notwithstanding the conceptualization of the world economy and the diagnosis of Brazil, an “endogenous development” process for the country which could break the chains of the transnational capitalist exclusionist model. In fact, we had to wait many years to hear him propose concrete approaches and measures around the “self-transformation” of Brazil, a problem that recalled his perspective of the first years of the 1960s.

The discourse on the role of national sovereignty, as the means to treat the problem of external debt, and how to confront social inequalities, exhibited an eminently political diagnosis. At the same time, the detailed analysis of the Brazilian situation and how to defeat adversities and promote its development under the logic of an “auto-centric” capitalism, echoes the return of his “structuralism” as a central guide with its emphasis on internal and external structural factors.

We could also note that he incorporated the theoretical vocabulary present in the texts of the recent past about the conformation of a new “capitalist world totality.” The analysis of the configuration of world capitalism under the leadership of the MC, a totality safeguarded by the United States, does not seem to give rise to a “political superstructure” that could organize the new emerging entity. On certain occasions this was advanced as a process still in the making; or alternatively, the power of the United States was simply assumed as the organizing umbilical Center of the whole.

Furtado emphasized simultaneously the consequences of a relatively high growth rate of the Brazilian economy, and the fact that it might be materialized within its domestic market, without forgetting its highly negative exclusionary effects. He held that the future of Brazilian capitalist industrialization, supported within its own domestic market, would suffer serious traumatisms if deep “structural transformations” were not carried out.

The description of the so-called “economic miracle” underlined most of its aberrant consequences: vast inequalities at the level of personal incomes
as well as intra and inter-regional dislocations. It was by no means an
apologetic description of the growth of the Brazilian economic formation;
the description of its economic history was overturned to emphasize that the
"miracle" created debt and dismantled the economy. Under the weight of a
sizable foreign debt burden correlated to the pattern of the industrialization
adopted during the 1970s, the economy began to lose control of its
"coordinating Centers," and Furtado now presented its recovery as one of the
first tasks to carry out; the economy had entered a process of total financial
disorder as a consequence of the internationalization and the modus whereby
many pompous projects were financed.

The State's participation in economic infrastructure and productive sectors was carried out without any type of programming or control. *Brazil After...* (1981) and *The New Dependence...* (1982) showed the vital need to transform Brazil's industrial pattern. The central theme of *No to Recession...* (1983) was therefore already implicit in the texts. The industrialization pattern generated in Brazil, with highly intensive capital production functions, required a relatively higher degree of savings. The government opted to index savings invested in domestic bonds to the foreign exchange rate, which led to the conversion of the dollar into a currency of "first" importance and the cruzeiro, the national currency at the time, into one of "second" importance. In addition, the Treasury paid interest rates according to international rates and lent in local currency at almost a negative rate of interest.

Public sector companies “hypertrophied,” lacking any control or any kind of programming, simply fell heavily into debt with the euphoria of the Brazilian “miracle,” even though they were created primarily with the intention of raising exports and acquiring foreign currencies. Inflationary “pressures” (*No To Recession...* 1983) were essentially the consequence of low productivity levels and disarticulated production units, not a “monetary” phenomenon. It was more than obvious that they required restructuring, reminiscent of the “structural” theory of inflation developed in the early 1950s.

Subsequently, when Brazil came close to moratorium and was forced to renegotiate its debts with the IMF, the strategy promoted by this institution implied repaying the debt and simultaneously dismantling large parts of its industry, as had been previously experienced in Argentina and Chile.

But the inflationary phenomena could not be resolved by the application
of monetarist medicine because two quite different forces were in play. On
the one hand, the “propagation” was the fueling mechanism of the inflationary
“pressures”<fnref n="19" /> related to the control of the financial apparatus and the manner
by which they were articulated within the Brazilian economic structure, and
on the other, “pressures” the means by which distinct sectors defended their
**income level.** The restoration of the industrial organization was necessary

to down-tone the origin of the “pressures.” In other words, “inflationary”
processes are not a monetary phenomenon, they represent the antagonism
and the manner whereby agents struggle for a pattern of redistributing
income.

He maintained that a greater integration into the global market through
the export of manufactured goods was necessary and unavoidable, but argued
that given the technological surpluses of industry and the circumstances of
the “world economy” at the time (mid-nineteen eighties), a selective positive
discrimination should be made in favor of some of its branches and sectors.

If the economy, and especially public sector industries had been held on
some kind of leash, they would not have been able to get into the disastrous
debt situation that they did, and their produce would have been incorporated
quickly into the productive circuits, reducing the demand that they themselves
procreated, which would have lessened much of the inflationary “pressures,”
and “propagation” forces that ensued.

The problem resided in raising domestic productivity so that it could
cope with the enormous existing demand. According to Furtado, the pre-
eminence of the neo-liberal discourse on the market, viewed as the savior of
the situation, complicated matters because what was in fact needed was the
establishment of an internal globally programmed strategy and a consensus
among the diverse social and economic forces, so that a fair distribution of
the sacrifices among them could be constructed.

Rising prices are little more than a sign that certain social groups are
being sacrificed. In an analysis of the serious inflationary situation afflicting
Brazilian companies, it was necessary to distinguish the basic causes (the
generating foci of *pressures*) from the *propagating* mechanism of these price
pressures. The expansion of the means of payment and monetary correction
are simply the propagation mechanisms (Furtado 1982: 45).

In Furtado's view, freely escalating wages by themselves do not generate
inflation, but they do enable its "propagation," that is to say, they enable the
materialization of inflationary "pressures" to occur. Wage compression breaks
the process of propagation and complies with its assignment to concentrate
income. Inflation does not end through an institutional setting, in terms of a
change in the statutes of the central bank or fiscal reforms, etc. It is:

necessary that a consensus ensue at the level of those who make
decisions with respect to the environment of action of the government
regarding the priorities which the action of the state should obey.
In modern pluralist societies that consensus is obtained, with the
mediation of the political class, through the representative organs of
the popular will. (Furtado 1982: 46)

The roots of the inflationary pressure stem from excessive incentives given
to the private sector which in turn generated excessive public sector spending.

<footnote n="19">¹⁹ These concepts first appear in Furtado 1954 and become the basis for the "structuralist theory of inflation," which subsequently appeared in the classic texts of Noyola (1956) and Sunkel (1958), see Danby (2005).</footnote>
To eliminate these roots, relative prices should be restructured, to maintain levels of exports without subsidies, and to adapt global expenditure of the State to its effective capacity for collecting real resources (instead of bonds articulated to a rate of interest established externally), without reducing the private sector's productivity and without generating social tensions.

The illusion of the “Brazilian miracle” was empowered and deepened in the Brazilian economy through the country’s external debt. It was believed that the economy was at its full peak when the circumstances of world trade were not promising. With the oil “shock” of 1973 came the need for extensive structural transformation and an alternative pattern of economic development which was less reliant on the consumption of oil. In fact, external debt as a momentary “solution” obstructed viewing the fact that the trade balance was no longer favorable, and that an intense restructuring of the whole economy was required. The capital account showed a surplus due to the ridiculous conditions that were imposed on capital entering or leaving the country; at the same time, both the form in which domestic bonds or treasuries were indexed to external rates of interest as well as the fluidity of debt, procreated the idea of an endless economic “boom.”

Notwithstanding, Furtado argued that the strategies to face the problem of external debt and its repayment required that its “solution” should be posed as part of a policy “problem” and its alternatives. In the first instance, the payment of interest on the debt should not sacrifice growth, which should necessarily conform the basis for the continuance of such repayments without restricting economic policy, which obeyed a view of opening up the economy without any sort of differential discrimination towards specific sectors. The insertion into the international marketplace should be promoted in those branches and sectors whose possibilities of adaptation and survival were more reliable. Nevertheless, the reports of the IMF policies prompted the adoption on the part of Brazil of an internal/external policy with the aim to produce dollars, which invariably meant reducing domestic social expenditure, assuring the free incorporation of international segments into the national economy and the dismantling of the national productive apparatus. Through “recession” and the decrease in public expenditure, imports vital for continuing the process of industrialization were reduced considerably, which implied elevating the overall cost of this process.

Subsequently, Furtado did radicalize his position on the debt of Third World Countries, and argued that “moratorium” as the “smaller of all evils,” (Furtado 1999) founded on the basis of the eleventh chapter of the Code of Bankruptcy of the United States of America.

On the other hand, the context of the political struggle for the reconstruction of democracy in Brazil at the beginning of the eighties, and the structural instability of its economy, cannot explain the theoretical passion with which he returned to the issue of the Brazilian Northeast. The question

of the “Northeast” was always one of his crucial life existence themes, both in personal and political terms, whilst the interpretation of the industrialization process was the other.

One should, therefore, examine the evolution of the Northeast post 1964, and their effects on the views of this Brazilian “Northeastern” economist. Almost two decades after the *coup d'état*, he proposed again that the SUDENE acquire independent functions of direction over the future of the region, which under the military regime had been destroyed, losing its executive capacities in exchange for a more deliberative participation. Because it was an important advisory entity to the Executive it was integrated, like other entities, within the confines of the Ministry of the Interior.

Without a doubt, important changes in Furtado's perspectives were clearly visible here. In the first place he gave a high priority to the promotion of self-administration of the Northeast on the part of its population so that it could solve "its" own problems. The thesis repeated was that a new model of development would have to be invented by the people of the Northeast themselves. The importance was fundamental and thus invited the need to constitute "cooperatives" and a process of land reform which could release the "creative capacity" of the local population.

The leading discursive element was its “anti-technocratic” stance and the demystification of the role of the “Prince” as a supreme guiding Center of the process, which went a long way to criticize his own previous conceptions and policies. Overall, the industrial structure had not undergone great mutations in the Northeast; the industrial sector did not elevate its relative participation in a resounding way, and the agricultural sector maintained its relative regional importance. The absence of interregional industrial links can be explained by the predominance of “the dynamic” industries, highly dependent on resources and products originating from the Mid-South. Thus Moreira (1976) concluded that it is easier to explain the situation of the Northeast as part of a centripetal expansion of capitalism, than as a regional problem unto itself.

Furtado's more pragmatic vision underlines the issue that the fundamental problem is no just eradicating inequalities, which exist everywhere. Although eliminating inequalities is important, what is needed is rather the:

> transformation of society in Brazil's northeast in order to enable development to effectively benefit the mass of the population. If the standard of living of the northeastern rural man is not raised deliberately, if he continues to be subjected to hunger and ignorance, the social structure of the whole country will tend to remain semi-immobilized, reproducing and worsening the extreme inequalities that characterize it at the present moment. The strategic target should be to open up space so that those that are really at the bottom of the social scale can become active agents of development. That first boost,
which can finally break the structures that imprisonment those that are the lower social levels, will only be produced as a consequence of a decided political will. (Furtado 1981: 121)

During the 1990s, Furtado reiterated the need for social reforms and ways to sponsor a policy which could break the stronghold of the exclusionary and imitative Western-centric pattern of Brazil's development: *Global Capitalism* (1999) and *Looking for a New Model* (2002). In terms of these ideas, many dependence theorists and critics of Furtado in their younger days became part of his entourage and came under his sway. He offered his intellectual support everywhere, especially to the “movimento sem terra,” (landless movement), as well as to President Lula, on whom he lavished plenty of elegant words hoping he would have the “courage” to undertake the land-reforms so vital to kick-start the social changes Brazil needed. He struggled for social equality until his very last days through an endless array of proposals and proclamations.

Celso Furtado died on the very same day that Lula administration deposed his *protegé*, Carlos Lessa, from the presidency of the *Banco Nacional de Desenvolvimento Economico* (BNDES. National Bank for Economic and Social Development). At his death, he had become a world-renowned personality, and various universities had acknowledged his considerable abilities and achievements by awarding him honorary doctorates. In 2004 a movement grew within Brazil, which put him forward as a candidate for the Nobel Prize for Economics of that same year. In recent decades, few intellectuals in Latin America can be said to have kept the flag of democracy and development flying so long and as high as Furtado. Long live Celso Furtado!

# Chapter 4

## Theoretical Misrecognitions as the Source of Development

### Theory Déjà vu

Ah, what happened to you, written and painted thoughts!
Not long ago you were so colorful, young and malicious,
so full of thorns and secret spices that you made me sneeze and
laugh –and now? Already you have doffed your novelty,
and some of you, I fear, are about to become truths:
so immortal do they already look, so distressingly honorable, so boring!

Nietzsche

## Introduction

This chapter describes an episode in economic theorizing in Latin-America during the 1950s. After a brief glimpse at economics (*The End of Postmodern Economics*), it examines Albert O. Hirschman's theoretical evolution before his work on development (*On the Road to the Mecca of Development*). Then the story moves to examine the structuralist vocabulary of Celso Furtado and Raúl Prebisch (*Disembarking at the Mecca of Development*) and returns to Hirschman once again to scrutinize his classic work on development (*Mr. Hirschman Through the Looking Glass*). Lastly, in (*Remembering the Future*) I argue that structuralism can certainly be examined as a feature of a cyclically found and lost tradition in economic thought that insists on highlighting the power asymmetry of the social relations to understand the evolution of the economy and its agents. In this last segment I attempt to make a defense for Latin American Structuralism, contradicting the worst and perhaps silly occurrences which were said about the perspective. Given that this story tries to recover the notion of development for today's reexamination of policies in the “Center” and “Periphery” alike, we can say that if it wasn't for Hirschman's work, perhaps Latin-American structuralism would have not been heard at all, given that nobody was obliged to read or publish in Spanish or Portuguese then or now. I was told once by perhaps one of the most important sources in Western-centric academia on these issues (Joseph Love) that having asked for a research grant to develop a work on these matters, one of the reviewers said he had never heard the name of Raúl Prebisch, circumstance which perhaps the chapter might redress a little!!! But today we are under an inverse phenomenon, paraphrasing Mirowski and Nik-Khah (2017), a vast amount of “knowledge” on Prebisch and Furtado is lost to the “information.”

Although development theory had its heyday between the fifties and the mid-seventies, recent revivals (Chang 2003, Toye 2004, Vernengo 2007) bring to mind a series of theoretical misinterpretations which are valuable to
recall, especially for Western-centric readers. Some even find the discourses
surrounding the notions of growth and development as part of a forgotten or
lost world. As Jolly *et al.* explain:

One of the more interesting *discoveries* that digging into UN archives
of the 1950s brings out is the central role of the UN in development
thinking regarding two major issues which have been at the genesis of
the emergence of development economics as an autonomous branch
of knowledge and which even today are at the heart of the debate
on development. These are the role of the state versus the role of the
market and the role of external versus internal factors. (2004: 51, my
emphasis)

Certain aspects of Krugman's work on geographic economic differences
are interesting, however we find a phrase which establishes that "the theory
of economic development was correct" (Krugman 1995: 29) mentioning
A. O. Hirschman as its genealogy and intellectual hero, and yet nearly the
whole story is left untold or "skewed." Much of Hirschman's classic work
published in 1958 (The Strategy of Economic Development) leaves out most of
the theoretical and practical debates of the fifties and sixties at the Economic
Commission for Latin America (ECLAC)<fnref n="1" /> and other institutions.

As seen above much of which was constructed in Latin America as
"structuralism" during the fifties had a very specific theoretical source and
perspective: 1) the questioning of orthodox economics, 2) the construction
of a theoretical tradition, and 3) the theoretical recovery of the historical
conditions of the agents to understand their behavior and their calculus.
Indeed, like the institutionalism of the 1920s, most of its promoters were
intellectuals that composed the first generation of ECLAC functionaries.

This could be put in a somewhat more elliptical fashion: if Keynes
thought that neoclassical thought was a "special" case, structuralists like
Raúl Prebisch and Celso Furtado argued that Keynesianism was just another
"special" case within the corpus of the economics mainstream in general,
which in turn should be transformed to think not only the Latin-American
problematic, but mainstream's own conditions of existence and its pretense
of "universality."

We will see that in a similar fashion Hirschman's vocabulary on development
went through an analogous conceptual transformation once he discovered
that those elements perceived in "underdeveloped" economies that inhibited
its "proper" functioning could also be found in "developed" ones.

Initially the theoretical strategy adopted by Latin-Americans in the fifties
(later on called "structuralists") was to refuse the relevance of economics'
general categories, arguing that they could not explain the specific structural
features of "underdeveloped countries," and therefore the reconstruction of
the theoretical vocabulary was required for its own specific field of application,

but the process finally culminated with a general perspective which could be
used to examine and explain the “Center” and “Periphery” economies alike.

Krugman's reminder of Hirschman as one of the most important pioneers
in development thought is not in doubt here, but Hirschman certainly took
his time to signal or articulate much of his ideas to Latin America's own
pioneers in the field. In his classic work *The Strategy of Economic Development*
(1958) much of his *vocabulary* seems consciously constructed so as not to
be confused with them, in *other words*, pardon the pun intended, they both
shared some similar notions.

Nevertheless, the publication of Furtado's review (Furtado 1959a) of
Hirschman's book *The Strategy...* (1958), scolding its author for his omissions
of ECLAC theoretical and practical discussions on growth and development
in Latin America, brought about important changes in the way Hirschman
communicated certain intellectual currents. Undisturbed, Furtado stated:

> This book is an extremely useful reading because it shows much more
> a desire to comprehend a reality of underdevelopment and lagging
> development than a preoccupation to submit reality under a pre-
> established academic scheme. He is a heterodox in his own way (...)
> Analyzing this interesting book by Hirschman, we cannot but reflect
> on this point. Large part of what is said in the book was already said
> and repeated by Latin-American economists. Particularly, the analysis
> of the problems of the external disequilibrium and of inflation is for us
> extremely familiar, that is why they are less interesting. Meanwhile the
> author nearly does not quote the Latin-American bibliography and, in
> particular, the contributions of ECLAC. Given that the bibliography
> is well known by Hirschman, who opened his eyes to the problems
> of underdevelopment in Latin America, it is possible to deduce that
> there exists a deliberate purpose to ignore the contribution of the
> organ that acted as an authentic pioneer in the field of the study of
> underdevelopment and especially, in the analysis and interpretation of
> the Latin-American economies. (1959a: 64)

Without a doubt this brought on an important change in Hirschman's
evaluation and acknowledgement, to say the least, of the issue about the
presence of "indigenous theories" (Hirschman 1961a: 5). Judging by the latter
book, the vocabulary of "structuralism" takes on a much more prominent
place and mention, especially as an alternative explanation of inflation vis-
à-vis the orthodox perspective, including Prebisch's perspective and theory
on the "Center"/ "Periphery" where it gets a short and honest presentation.
But from then on, for example, in the book *Journeys Towards Progress*
(1963), more than four years after his classic work *The Strategy...* (1958),
Hirschman never lost the opportunity to recall the structuralist perspective.<fnref n="2" />
Indeed, *Journeys Towards Progress* is dedicated to one of its founders: Celso

<footnote n="1">¹ Later its acronym includes “the Caribbean.”</footnote>

<footnote n="2">² See also Hirschman on “structuralism” (1961).</footnote>
Furtado<fnref n="3" /> as a “reform monger.” Notice nonetheless, that the notion is much closer to a “dealer,” a “haggler,” a “negotiator,” or politician instead of an able theoretician.

## The End of Postmodern Economics

Hirschman's own social milieu and political proclivities of his early days as an anti-Nazi operator (Hirschman would immediately retort saying “my Weltanschauung”), as well as his intellectual formation explains to a punctuated degree his intrinsic subversive tendency to question orthodoxies in general. Meldolesi emphasizes that:

> It is important to remember that, for a series of reasons, generally not considered, economy in that epoch in France [in the thirties] some peculiar characteristics have occurred: a practical inclination towards the description of economic facts, some tolerance with respect of the several different schools of thought (liberal, historical, social, mathematical, sociological, etc.) and a marked interest for the political aspect of the economy. From here (and from Henry Pommery's course at the École on money and banking) probably grew his interest [Hirshcman's] to start an investigation on France's monetary policy of the twenties and thirties, conceived in London and concluded in Trieste. (1997: 20)

For our story, similar positive conclusions can be derived from the promiscuous and “postmodern” intellectual and academic landscape under which Celso Furtado received his academic formation, especially his doctoral thesis in Paris in 1948, under the guidance of Maurice Bye, one of Perroux's disciples. In contrast, Raúl Prebisch (18- and 13-years Furtado's and Hirschman's senior respectively) was a totally different kettle of fish. The social and political milieu at the Faculty of Economics of Buenos Aires had just undergone a reform in 1918 when he started his studies, outstanding among them was the freedom of students not to attend classes, which Prebisch exploited to the fullest. What marked the difference in the Faculty, until he was forced to leave in 1948, was the presence of two prominent intellectuals: Alejandro E. Bunge (1880-1943), the “first apostol” of industrialization (Prebisch 2006), and Luis Roque Gondra (1881-1943), perhaps one of the most outstanding of Pareto's disciples. Thus, on the one hand a F. List follower, and on the other a guardian of “Laissez-faire,” up to a certain point. With Gondra the mathematization of economics was based on the hegemonic currents of mathematics of the time, the influential views of Vito Volterra (Weintraub 2002). Part of this work was carried out by Ugo Broggi (another professor of Prebisch), from whom, perhaps in his younger years, Prebisch heard that he was trying, long before Gerard Debreu, to prove the existence of general equilibrium (López 2000).

## On the Road to the Mecca of Development

As discussed further on, notwithstanding certain similarities between the Latin Americans mentioned, and Hirschman, as to the role of reforms and reconstructing the economy as well as the appropriate mechanisms induced through which the growth/development gets started, their divergence cannot be any further apart with respect to the theoretical strategies of reconstruction, and supersession orthodox economic thought alike.

Among the factors that promoted growth and development as a political and conscious policy objective in Latin America was the creation of ECLAC in 1947, which in turn was born under the drive for the political and economic reconstruction of Europe after World War II. The Marshall Plan and the Economic Commission for Europe were the basis for the “impertinent” idea by Latin Americans at the UN to create a similar organization for the region. The U.S. had alternative plans because it wanted to launch its project of development under the tutelage of the Organization of American States (OAS), created in 1948 and under its control. ECLAC started initially with a first three-year life trial; subsequently, a decision was to be taken if it were to become a permanent UN body. With the support of France and other Latin American countries, the opposition of the U.S. was defeated and in 1952 ECLAC established its new lease on life.<fnref n="4" />

Hirschman was quite close to these developments in Europe before he decided to move to Colombia in 1952. Before his arrival in Latin America, most of his work from the late thirties onwards concentrated on the international economic order: in 1939 he ventured into a study on the statistical trends of foreign trade (Hirschman 1939) and by 1945 he published his first book, *National Power and the Structure of Foreign Trade*<fnref n="5" /> where Germany's foreign policy for the post first world war period and the rise of the Nazi regime were analyzed. Its focus was the function of commerce and foreign trade as the basis for enhancing national power. Therefore, the central role in the book of examining the trends in world trade between different nations and the importance of economic policies which tends to diversify the commercial external flows of some countries became the basis to curb their “dependency” or some sort of domination vis-à-vis other countries.

In *National Power*, Hirschman also illustrates the inadequate established view that the great bulk of world trade was undertaken between countries producing raw materials versus manufactured goods. Thus, Hirschman shows early his ability to question the prevailing orthodoxy, emphasizing the *heterogeneity* of the countries in question as well as their trade patterns.<fnref n="6" />

<footnote n="3">³ Also, to Carlos Lleras Restrepo, a Colombian intellectual and politician.</footnote>

<footnote n="4">⁴ For more details see first chapter, Santa Cruz (1984), Mallorquin (2006, 2009).</footnote>

<footnote n="5">⁵ Hirschman published his seventh chapter in 1943 as “The Commodity Structure of World Trade” in Furlo-Blasco (1998).</footnote>

<footnote n="6">⁶ Although rather naively, Hirschman says: “Any future reconstruction of world trade should take into account the complexity of its structure which our statistics reveal. (...) The policy of all countries during the period of mercantilism was to prevent the spreading out of their par-</footnote>
That work is followed by a few texts which examine inflation and deflation as well as exchange control in certain European countries; much of which was done when he became a functionary at the Federal Reserve.<fnref n="7" /> And apart from his studies of the structure of world trade, Hirschman was quite oblivious of the economic conditions of the “underdeveloped” countries in Latin America.

His arrival in Colombia in 1952 (staying until 1957 working as a member of the Council for National Planning of Colombia during the first half, a post suggested by the World Bank, and the latter half as a private consultant), marked his first experiences and contact with the magical realism of the tropical rationality.<fnref n="8" />

As early on as 1951, Hirschman was already mentioning the “Notoriously inconsistent” policy of the most technically advanced countries towards the less advanced in hindering their policies and their desires for promoting some manufactured activity: “alternatively and sometimes simultaneously helped, feared and obstruct the efforts of these countries to acquire technical and industrial machinery” (Hirschman 1951c: 285); he was mainly focusing on the east central European countries.<fnref n="9" /> He insisted reminding us of some of his 1945 conclusions on foreign trade and market power that:

> This development need not have any sinister consequences for the future of international trade; there will surely be space left for a profitable division of labor between nations. But it could be asked if this division of labor based on ability differences and the past history of the industrial development might not be more unstable than the simple and ‘natural’ labor between industrial and agrarian nations. (...) In each individual case, the loss of the preexistent international specialization will be small, although in aggregate figures these losses could be considerable. For this reason, the detailed disintegration of the

ticular skills and industrial arts. But this vestige of mercantilism has assumed a most beguiling disguise -that of the maintenance of “sound” international division of labor. An encouraging aspect of present thought on postwar reconstruction is therefore the radical change from the traditional outlook in this respect. Today [1945], schemes for the future industrialization of underdeveloped countries (...) are proposed and discussed on many quarters; and the future economic mission of the older industrial countries is conceived less as the mechanical workshop of the world than as the initiator and educator in industrial processes. International trade has nothing to fear from these developments, since there will probably always remain a fruitful division of labor between the various countries and parts of the world. But it is highly improbable that any *particular* pattern of the international division of labor will last forever. (...) But to conclude that the world trade is doomed because the traditional pattern of the international division of labor seems imperiled is one of these flights of imagination at the start of which we find a lack of real imagination: and incapacity to conceive of a state of affairs radically different from that which we have been acquainted.” (Hirschman 1945: 150)

international division of labor that we have in mind here is dangerously probable while the nations continue in freedom to follow autonomous internal economic policies, while sectoral interests put pressure under the banner of the national interest, and while the special risks that affect the international trade, in contrast to the internal ones, have not been eliminated. (...) This division of labor is based more on a historical accident than on any basic difference in natural or human resources. (Hirschman 1951c: 296)

Even in his subsequent text he had not extricated himself totally from what can genuinely and legitimately be an industrialized country perspective and interests. Also, he spoke as a United States citizen. Thus, unlike those fears that in other industrialized countries prompted some policy strategies to inhibit the industrialization of some of their trading partners, Hirschman stated:

> In the United States those fears never became very important because the dependency of *our* economy from external supplies has always been quantitatively and qualitatively of a much smaller magnitude than those of the industrial countries in Western Europe. (1952a: 310, my emphasis).

Without any intention to downgrade in any way Hirschman's *early work*, which in some sense can be branded as very brave indeed, in Colombia and South America (1952-1957), much of it can be defined as “advisory” and “technical” with none of the “curse” which haunted D. Seers's work. In contrast to what could be thought as the run of the mill economic histories, the presentation of the economic descriptions of Colombia and Central America, and those aspects emphasized, seemed written as manuals to attract investment to the region. Nevertheless, although in similar light to his previous work in Europe, in Latin America he allows himself a much more open and participatory position in his evaluations of the themes, in part imposed on him given the scant information and certain limitations on the information gathered and the national accounts in question.

But once stationed in the tropics we can also see that he is willing to go further politically and theoretically and question several of many economic theses. His colleagues at the Federal Reserve would certainly have been flabbergasted to hear Hirschman state:

> There is *no economic law* that demands narrow and automatic parallelism between the means of payment and level of prices even though the experience of a period of several of years nearly always shows an approximate parallelism with the observation that prices nearly always stay a little behind the means of payment for the reason given in the previous point. (1954a: 325, my emphasis)

But an overhauling of the monetarist conception was not yet in his mind.

<footnote n="7">⁷ As an example of some of his work of the period see Hirschman 1948a, 1948b, 1948c, 1949a, 1949b, 1951a, 1951b, 1951c, 1952a.</footnote>

<footnote n="8">⁸ Example of this work in that period: Hirschman 1954a, 1954b, 1955, 1956, 1956a, 1957a, 1957b.</footnote>

<footnote n="9">⁹ There is something which must intrigue anybody that has analyzed his work up to this period of his life and perhaps even there after: I have yet to find some mention or discussion in Hirschman of the Romanian Mihail Manoilescu (see Love 1996) or the German Frederick List!!!</footnote>
As Hirschman argued:

(...) or when the means of payment rise without a corresponding rise in prices, it's obvious that the velocity of the means of payment has risen (...) having said this, nevertheless, even if it sounds scientific, *it does not explain nothing rigorously* (...) *The problem consists, precisely in knowing why the velocity of money has risen*... (1954: 325, my emphasis)

In other words, Hirschman shows an interesting period of experimentation. He insists as “artificial” (Hirschman 1954a) the polemics on the topic as to whether the origins of the rise of prices is monetary or non-monetary (Furtado 1954). As discussed later, those years exhibit the deliberations on the nature of inflation, a crucial theoretical and political issue in the region; and perhaps Hirschman forms part of those few scholars able to understand its basis given his experience in the region. As Hirschman states:

> Equally, the economist does not have to wait for the economic and statistic documentation, even the most complete, to produce mechanically and automatically the best recipe; such documentation is an indispensable work instrument, that permits his orientation and the avoidance of many errors; but in the last instance (and this is in turn the most irritant and pleasurable of our profession), there is always an area of ignorance, variable interpretation of the facts and possible hesitation and discussion. (1954a: 336)

In Hirschman (1954b), where he describes certain experiences in the field in Colombia, we find what appears to be his first break with economics as a stabilizing recipe for macroeconomics misadventures. It is in reference to that work (a confession in 1961) that Hirschman says: “first work written on general problems of economic development,” of which “various ideas, (but not all of them) were structured in a more systematic form in *The Strategy of Economic Development*” (1954b: 338).

In the latter text, Hirschman is not very amicable to ECLAC's role. His thesis against the notion of “balance growth,” although not expressed in these terms, lurks huge in the background. He questions the “myth of integrated and global plans of growth” (Hirschman 1954b: 341) arguing instead for precise planned projects by sectors. Apart from various notes of “skepticism,” (Hirschman 1954b: 353), ECLAC appears as one of the culprits of global planning,¹⁰ as much as all those projects of growth and capitalization

¹⁰ For many reasons, both theoretically as well as politically, in ECLAC the word “planning” was not used, especially during Prebisch’s reign, but instead, the term “programing” which is a way to start questioning Hirschman’s reading, that as mentioned previously had changed after Furtado’s recriminations in 1959. From 1961 onward Hirschman started speaking of “close adversaries” referring to Prebisch, Nurkse, Rosenberg Rodan. Also, the issue of the term “balance” comes to light, since most of the translations of Hirschman to Spanish and Portuguese use the term “equilibrio,” that is “equilibrium,” so unbalanced growth means in Spanish “crecimiento desequilibrado” or “desarrollo desequilibrado.” It is interesting to note that in his letter to Andre Gunder Frank in 1959, Hirschman talks in terms of “disequilibriums” (Hirschman 1984: 105). The not so speculative point on my part is that Latin American structuralists used

thought in “The Point IV of the United States.” Hirschman also complains that Nurkse’s “demonstration effects,” solely in terms of consumption, forgets or bypasses its counterpart: the “investment demonstration effect” given the high capital or technological intensity of the machinery used in Colombia and other underdeveloped countries. Years later Nurkse would be, if not the central focus, one of the most important theoreticians of “balance growth”<fnref n="11" /> critiqued by Hirschman.

Just prior to *The Strategy of...* (1958), Hirschman’s work involved, as mentioned before, simultaneously economic macro descriptions of Colombia and Central America, and a project and diagnosis for the creation of an electricity plant. Most of which is coauthored with George Kalmanoff.<fnref n="12" /> On the other hand, having returned to the U.S. he published “Economic Policy for Underdeveloped Countries” (Hirschman 1957a), which is a preface to his classic work: the pervasive presence and importance and impertinence of “national plans of development”; the problematic nature of the recurrent “inflation” and the distinct social and political conditions in underdeveloped countries vis-à-vis developed ones. The problematic nature of the characteristic of the region opens the possibility that perhaps economic discourse may need some overhauling to explain them.

## Disembarking at the Mecca of Development

Retracing a little our steps, by the year 1954 many theoretical and political events had taken place in Latin America. Prebisch’s irruption at ECLAC Habana<fnref n="13" /> in the 1949 reunion with his *The Economic Development of Latin America and its Principles Problems* was to be branded from then on as the Latin American “manifesto” for development, a depiction elaborated by Hirschman himself. In retrospect, Furtado’s own explanation of the appearance of Prebisch’s as having superseded the previous manuscript discussed in ECLAC as “monetarist” (Furtado 1985: 53) only points to the theoretical evolution of Prebisch’s perspective unknown to many and the political difficulties surrounding USA’s scrutinization of ECLAC. Notwithstanding Prebisch’s openly “desequilibrio,” that is “disequilibrium,” on the one hand, and on the other, it may perhaps be too much of a heresy if used by Hirschman. That would have obliged him to engage with the general equilibrium debate in process in Western-centric academia. Perhaps this strategy, perceived in Hirschman’s vocabulary, hoped to keep simultaneously both perspectives at a distance liberating him from a futile discussion on the notion of “equilibrium,” hence the use of “balance-unbalance” couple. As we have showed above, Latin American “structuralists” were perhaps more theoretically and politically transparent as to the (ir)relevance of “equilibrium.” Both Furtado and Prebisch were disequilibrium theorists: so what is there of so-called price stability or of some sort? The answer was elaborated via the notion of power and domination of certain unit or sectors of production in specific geographic locations. For more details, Di Filippo (2009, 2009a, 2013) and the fifth chapter up ahead.

<footnote n="11">¹¹ Thus, the paperback edition of *The Strategy of Economic...* pays homage to Nurkse with a long note in its “Preface” insisting on the importance of his notion elaborated as the “unbalance growth sequence” (Hirschman 1961: viii).</footnote>

<footnote n="12">¹² Hirschman and Kalmanoff (1955, 1956, 1957).</footnote>

<footnote n="13">¹³ I intentionally use the “Spanish” spelling.</footnote>