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Raúl Prebish’s Unpublished Manuscripts on the Buenos Aires Lectures on Economic Dynamics

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By Esteban Pérez Caldentey

Raúl Prebish’s Unpublished Manuscripts on the Buenos Aires Lectures on Economic Dynamics edited by Esteban Pérez Caldentey (ECLAC) and Matías Vernengo (Bucknell University), have been published in the ECLAC Review, August 2018

Raúl Prebisch (1901–1986), the Second Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC) which he joined in 1949 is mostly known for his long-run analysis and diagnostic of the development problem of Latin America, which he fully stated in “The economic development of Latin America and some of its principal problems” (1950), also known as Prebisch’s “Manifesto”.

However, prior to joining ECLAC Prebisch also devoted a great part of his time and career the analysis of business cycles in theory and in practice (he was the first Director General of the central bank of Argentina created in 1935 and Prebisch himself drafted the project for the bank). On the basis of his cycle analysis he began to develop a theory of dynamics which sought to introduce two elements that, according to Prebisch, were missing from the Classical and Keynesian analyses, time and space.

Prebisch argued that capitalist economies evolved and developed in growth cycles. From 1920 to 1944 his analyses of capitalism centered on Argentina and on the characteristics of its business cycle. He attributed the phases of the Argentinean cycle to external causes determined to a large extent by the policy and economic performance in developed countries (Great Britain and the United States).

During this period, and with particular force after WWII, he became convinced that the cycle far from being country specific was in fact a global and more general phenomenon involving the interaction between what he termed a ‘center’ and a ‘periphery’. The cyclical center referred to the country (or group of countries) whose economic repercussions due to its importance were transmitted to the rest of the world. The countries subject to the influence of the impulses of the center, the periphery, included all Latin American countries.

Moreover, he also came to the conclusion that since the cycle was the typical form of movement of capitalist economies it affected all the different areas of an economy including production, employment and distribution.

As a result for Prebisch, cycle analysis far from being relegated to a particular and partial field of expertise, must encompass the entire spectrum of economic movement and evolution in both the center and the periphery. Cycle analysis should explain not only fluctuations and their sequence in the center and periphery but also their economic and social transformations occurring during the cycle. This included the changes in the distribution of income.

For Prebisch this general approach to the cycle required the explicit introduction of time into the analysis. More precisely it required the recognition that the time-period for incomes to circulate within the productive process did not coincide with the time period required for final production to be bought and sold on the market. For Prebisch this disparity between time-periods in the circulation and productive spheres was at the core root of the cycle. Prebisch termed this general approach to the cycle a ‘Dynamic Theory’ and sought to make it applicable to developing countries (i.e. the periphery).

He developed this approach through a series of lectures that took place in Buenos Aires between April 1945 and October 1948 under the title “Political Economy (Economic Dynamics)”. The first lectures offered a critique of classical economics and of Keynes’s General Theory (1936). These lectures bore the title “The Crisis in Political Economy: Keynes and the Classical Economists”. As part of the development of his dynamic theory, Prebisch’s analyses of Keynes led him to publish his Introducción a Keynes (1947) which laid out the main ideas of the General Theory.

In a second stage, from 1948 until his incorporation to the executive secretariat of ECLAC in 1949, Prebisch began to pull together the main building blocks of an alternative approach that could explain the wave motion in capitalist economies, thus capturing precisely the element missing from classical and Keynesian analyses. Most of the ideas that led Prebisch to his alternative model were developed during a series of lectures delivered at the University of Buenos Aires in 1948 and then at the National School of Economics in Mexico City in February and March 1949.

The latter comprise eight lectures titled “Dynamic Theory of Economics” (with particular application to Latin American economies) which are published, although not corrected by Prebisch himself, in Vol. 4 of Prebisch´s Obras as eight separate chapters (pp.410-489). The first lecture was given on the 18th February and the seven remaining ones from the 21st to the 28th of the same month and on the 1st of March.

The material available for the Buenos Aires Lectures include the first seven lectures delivered between the 4th and 30th of June 1948 and 15 unpublished lectures given between the 6th of August and the 22nd of October of the same year. The unpublished lectures are in manuscript form, mostly in typescript but also in hand-written form, and are part of the ECLAC Prebisch writings.

These are reproduced for the first time in a special edition of the ECLAC Review and made available to the wider public. The publication is in Spanish and available at:

Prebisch started with the premise that economic theory at the time was in a state of crisis. It was unable to explain and account for the cyclical growth pattern of capitalist economies which for Prebisch was their defining mark. His judgment applied to Classical theory as well as to that of Keynes. Both were, according to him, stuck in a timeless equilibrium analysis of capitalism.

Moreover, the understanding and analysis of the cycle in the periphery was precarious and shaped by the theories elaborated in the center. The countries of the periphery needed to elaborate their own cycle theory with its particular specificities in order to design policies for ‘orderly growth and maximum use of resources and human capital.’

Prebisch dynamics was built from the idea that profits are the main drivers of capitalist economies. In a closed economy profits originated due to the disparity between the time period required for incomes to circulate within the production process and that required for final production to be brought to the market.

For Prebisch the former always exceeded the latter (i.e., the time period for the circulation of incomes within the production process always tended to exceed the time period for the production of final output or the velocity with which entrepreneurs received their income). This generated an excess net demand which in turn translated into higher prices and profits providing an incentive to further expand investment and production.

In turn, plans to increase production generated additional income, net demand and increased profits. In this way, the difference in velocities created a cumulative process. The cumulative process came to an end through inventory adjustment paving the way for the downturn, vía a decrease in demand. The expansion of demand, prices and profits and the cumulative process was rationalized in terms of an orthodox argument, the ‘forced savings doctrine’ in line with the loanable funds theory (LFT) championed by Dennis H. Robertson, and John R. Hicks.

For the open economy (center and periphery) Prebisch assumed that the periphery specialized in the production of raw materials (and goods in process) and was mainly conceived as a ‘circulating area’ for the profits of the center. As the forced savings process took hold in the center and entrepreneurs ‘got what they spent in the center’ they transferred part of their profits to the periphery in the form of demand for raw materials. In turn, the periphery purchased final goods from the center, so that entrepreneurs ‘got what they spent in the periphery.’

In the same way that Prebisch assumed that the time period for the circulation of incomes exceeded that for the production of final goods, he assumed that the time period for incomes to return from the center to the center was shorter than that for incomes to return from the periphery to the center. As a result, the net excess demand created by the forced savings process in a closed economy would be smaller in the case of an open economy; the more so the larger the share of profits transferred to the periphery.

Eventually Prebisch thought that the dampening effects on demand in the center as a result of the transfer of profits to the periphery would act as a brake on further expansion. The concomitant accumulation of inventories would then set the stage for the downturn. As in his earlier work on the Argentinean cycle, he argued that expectations were central to the explanation of cyclical growth for both closed and open economy settings.

In the Buenos Aires Lectures Prebisch addressed a key concept, the fluctuations in the terms-of-trade, that became an important research area in development economics. However, the fluctuations in the terms-of-trade trade tends to be associated with long-run factors rather than with the nature of the business cycle which is what Prebisch had in mind.

Prebisch argued that technical progress is concentrated in the center and that it does not translate into a decline in the price of the products produced by the cyclical center due to wage rigidity (the periphery is characterized by wage flexibility). This occurs in the upward and downward phase of the cycle. In the upward phase of the cycle prices increase and in downward phase of the cycle prices do not decrease.

In the case of the periphery the upward phase of the cycle is accompanied by rising commodity prices, moreover, as profits are increasingly transferred to the periphery the price of commodities tends to increase above that of industrialized products. This results in rising terms of trade for periphery. In the downward phase of the cycle the prices of commodities decline and so do the terms of trade.

This cycle analysis was the basis for Prebisch hypothesis of the declining terms-of-trade for the periphery. As he argued in the Prebisch Manifesto (1950, p.503-504) written after the Buenos Aires lectures:

“…if in spite of greater technical progress in industry in relation to primary production the terms-of-trade have worsened for the latter, instead of improving…This fact could not be understood without relating it to the cyclical movement of the economy and the way it manifests itself in the center and the periphery. Since the cycle is the characteristic form of growth of capitalist economies and the increase in productivity one of the primary factors of growth…the prices of primary products increase more rapidly than that of final goods in the upward phase of the cycle, but they also descend more rapidly in the downward phase, in such a way, that the former tend to increasingly diverge from the latter.”

[The English language document has the same points but different wording on pp.12-13 at:]

Selected References

Prebisch. 1947. Introducción a Keynes. México D.F.: Fondo de Cultura Económica.

Presbisch, R. 1950. Estudio económico de América Latina, 1949 (E/CN.12/164/Rev.1),

New York, United Nations

Prebisch, Foundation. 1991. Raúl Prebisch: Obras 1919-1948, III vols. Fernández López, M. (ed), Buenos Aires, Prebisch Foundation.

Prebisch, Foundation. 1993. Raúl Prebisch: Obras 1919-1949, vol. IV, Fernández López, M. (ed), Buenos Aires, Prebisch Foundation.

Prebisch, R. (1950) “The Economic Development of Latin America and its Principal Problems” for the Economic Commission of Latin America, United Nations, Department of Economic Affairs. New York: Lake Success.

From: pp.2-4 of WEA Commentaries 8(5), December 2018

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1 response

  • Michael Monterey says:

    Ummm… Does anyone else smell econometric bullgas? Again, without considering qualitative influences, causes, effects & cascading chain reactions, how can anyone monitor or evaluate the reality of human sociocultural activity? And, again, why is there no discussion of ethical ecometrics that could enable more accurate assessment of actual cultural economies and personal interaction? After all, personal experience, dedisions, and interactions are the basis of every cultural economy. That is true at the level of communities (online & off), villages, towns, counties, states, nations and the world, globally. Hmmm…

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