Josef Herbert Fürth, Review of The Dollar Shortage (1951)

Josef Herbert Fürth’s review of Charles P. Kindleberger’s The Dollar Shortage identifies a durable theory of international economic development within a study whose immediate policy subject was already changing. Kindleberger’s acknowledgment that events in Korea had overtaken the title does not, for Fürth, diminish the book’s principal intellectual contribution. The review moves from an exposition of the proposed developmental cycle to questions about its empirical criteria, its coordinating mechanisms, and its applicability across economic systems. Fürth’s governing distinction is between an illuminating hypothesis and an explanation whose categories and causal relationships can be independently established.

The theory replaces a static conception of international equilibrium with one appropriate to economies at different developmental stages. A country need not balance its current account at every stage: borrowing, repayment, lending, and the liquidation of foreign investments may each be consistent with its position in an evolutionary sequence. Kindleberger traces movement from young through adult and mature debtor status, followed by corresponding creditor stages, and eventually economic senescence. War can precipitate transitions; otherwise, foreign investment and development abroad may narrow the technological advantage of a young creditor. On this account, international equilibrium concerns compatible developmental positions, not simply the elimination of each country’s current-account imbalance.

This framework makes the dollar shortage a problem of developmental mismatch. A country whose current account behaves like that of a young creditor must supply sufficient international loans to sustain the corresponding debtor economies. Business-cycle fluctuations need not correct the resulting imbalance: contrasting tendencies toward stagnation and expansion can leave countries persistently in deficit or surplus through both prosperity and depression. Kindleberger connects the weakening of automatic adjustment to less elastic supply and demand, slower American expansion, and consumption expectations abroad that impede capital formation. Fürth presents these explanations as suggestive, while retaining the book’s acknowledgment that the historical distinctiveness of the twentieth-century dollar problem remains speculative.

The review’s decisive turn concerns verification. Fürth welcomes new hypotheses but refuses to treat their originality as a substitute for consistency with evidence. Calling the United States a young creditor and Britain a mature creditor risks merely redescribing their international accounts unless those classifications have an independent domestic basis:

If the theory is correct, it should be possible to correlate a country’s domestic stage of development with its balance of international payments; but in order to do so, it would be necessary to define the various stages of development on the basis of criteria that are independent of the country’s international position.

Fürth tests two possible criteria: the attained level of technological skill, measured through capital or productivity per person, and the rate at which that skill increases. Neither suffices alone. Britain’s supposed maturity cannot mean a higher technological level than America’s, while America may have experienced comparable rates of progress during both debtor and creditor phases. Combining the criteria might distinguish debtor from creditor stages by technological level and creditor youth from maturity by growth rate. Yet this still leaves unexplained why reaching a particular level should necessarily cause slower progress.

Fürth consequently opens the developmental model to social psychology, political institutions, and geography. Technological change cannot by itself establish a universal sequence or common threshold of maturity:

If this is true, the "evolutionary cycle" would depend upon the entire complex of a country's social data, and would greatly vary from one country to another.

This qualification strengthens the connection between economic and non-economic processes that Fürth finds in Kindleberger, while making the model less mechanically predictable. Developmental cycles might be even more diverse than ordinary business cycles. The proposed stages therefore require explanation through particular social configurations rather than chronological labels alone.

A second difficulty concerns international synchronization. Young debtors require young creditors; when either changes stage, another country must assume the complementary position or its partner must change accordingly. Fürth insists that matching financial movements do not explain this coordination:

In order to make this theory more than a mere tautology, it would not suffice to show that some country invariably starts or ceases to lend whenever another country starts or ceases to borrow.

What is needed is a mechanism connecting domestic development to mutually compatible international behavior. Fürth invokes Hume’s account of static adjustment as the methodological precedent: a dynamic theory must likewise identify the conditions under which adjustment occurs and the factors that interrupt it. Nationally administered economic controls may be important, but the review presents this as a possibility requiring investigation.

Finally, Fürth questions the model’s apparent preservation of society’s fundamental economic structure. Relations between development and external balance matter in centrally planned as well as market economies, but Soviet lending to its satellites cannot simply be equated with American relations with Latin America. Comparing their responses to debtor development requires attention to institutional differences. The review thus ends with a research agenda rather than a rejection:

However, his theory opens a vast new field for promising economic research.

Kindleberger’s achievement is to make domestic evolution central to international balance; Fürth’s contribution is to specify what would turn that insight into an explanatory theory: independent criteria, historical testing, coordinating mechanisms, and institutional differentiation.