Real adjustment compensatory corrections and foreign financing of imbalances

[Front Matter and Series Information]: Title page and introductory information for the second number in the Reprints in International Finance series, noting the original publication source. [Introduction and Conceptual Framework]: Machlup introduces the history of balance-of-payments adjustment theory from the 18th century to the 1960s. He argues that current expositions are unsatisfactory and proposes a new tripartite conceptual framework consisting of 'adjustment', 'financing', and a new third category: 'compensatory corrections'. [Misunderstandings and Definitions of Adjustment]: The author explores semantic confusions regarding 'adjustment', distinguishing between adjustment as a process versus a state. He critiques existing definitions, particularly those that exclude exchange-rate variations from the adjustment process, and contrasts the 'classical mechanism' of price-income changes with modern policy instruments like capital controls. [A Political Bill of Fare: Prescribed Policies and Measures]: This section provides a comprehensive list of 28 policy measures (56 total for deficit and surplus countries) recommended for correcting payments imbalances. It includes comparative data on monetary expansion and price indices for the US, France, and Germany (1957-1963) to illustrate the 'sharing of the burden' between deficit and surplus nations. [Protests and Disqualifications of Adjustment Measures]: Machlup critiques various policy prescriptions, arguing that many do not qualify as 'real adjustment'. He distinguishes between measures that 'suppress' a deficit (like direct controls) and those that 'correct' it, while also analyzing the complex effects of government spending abroad and private capital movements on the balance of payments. [The Meaning of Financing and the Third Category]: The author defines 'financing' as a holding action or accommodating transaction and introduces his central innovation: 'compensatory corrections'. This third category describes developments or policies that reduce the need for adjustment without being temporary financing or classical price-income adjustment. He distinguishes between domestic financing (which delays adjustment) and external financing. [Types of Compensatory Corrections and Taxonomic Summary]: Machlup provides a detailed taxonomy of real adjustments, compensatory corrections, and temporary financing. He explains that compensatory corrections can be spontaneous (e.g., productivity gains) or induced (e.g., import restrictions) and can occur across current, long-term, and short-term capital accounts. [Theoretical Summary and Policy Implications]: The concluding section warns that compensatory corrections are often undependable and may frustrate economic efficiency. Machlup argues that while real adjustment is painful, relying on induced capital movements or trade restrictions violates the economic principle of resource allocation based on productivity and wealth rather than payment balances. [Library Metadata and Cataloging]: Library cataloging information including a date due stamp and the call number for the physical document.