Sunday, December 26, 2004

Gems from Sir W. Arthur Lewis, part 1

I've just read a very interesting book, Economic Survey, 1919 to 1939 by Sir W. Arthur Lewis. It is a fantastic, succinct (200 pages) account of the economic history of the inter-war period.

The turbulent economic experience left the world with some important lessons that would make us better off if we remembered them. Here is the first one, on unilateral actions to correct economic imbalances. Here Lewis is referring to Japan's decision to dramatically devalue the yen in order to get through the great depression.

"It is a most important lesson that unilateral action of this kind is a breeding-ground for war. The first business of all trading nations must be to try to keep international trade continually expanding, for unless it is expanding, the changes in the relative importance of countries which circumstances continually demand cannot be achieved without friction. The world must contrive to make the problems of each the official problem of all, so that they may be solved by discussion and mutual concession. To return to the jungle of the thirties in matters of international currency and trade policy is to return to the inevitability of war."

Surely, few people believe this statement, as right now it seems that the necessary "changes in economic circumstances" that are being demanded are being achieved through unilateral policy (the US devalues the dollar). Either international economic policy will become much more coordinated in the near-term (unfortunately I am pessimistic about that), or we will find out whether Sir W. Arthur Lewis' lessons are valid.


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