Josef Herbert Fürth: Review of Monetair Evenwicht en Betalingsbalansevenwicht, by G. A. Kessler (1959)

Josef Herbert Fürth’s book review assesses Kessler’s study as a substantial theoretical application of the Netherlands Bank’s liquidity analysis. Its central judgment distinguishes the analytical promise of statistical instruments from their actual use: although American flow-of-funds data may offer a more comprehensive framework, Dutch economists have more successfully integrated their instrument into policy analysis and monetary theory. Fürth therefore evaluates both Kessler’s conceptual achievement and the research practice that made it possible.

The review opens by placing liquidity analysis alongside the Federal Reserve’s flow-of-funds data as a recent innovation in the study of monetary developments. Kessler, identified as a deputy director and long-time research chief of the Netherlands Bank, developed the Dutch approach together with M. W. Holtrop. His book extends that institutional work into an account of monetary and balance-of-payments equilibrium. Fürth outlines its progression from monetary equilibrium in a closed economy, through balance-of-payments equilibrium, to the interaction between the two:

In the third and most important part of the book, he deals with the relations between monetary and balance-of-payments equilibrium, including especially the problems of restoring disrupted equilibria.

The emphasis on restoring equilibrium makes the book relevant to policy as well as theoretical classification. Its opening concepts—liquidity deficits and surpluses, inflationary and deflationary impulses and reactions—provide the vocabulary for examining adjustment. An appendix explains the Netherlands Bank’s accounting technique. Fürth also notes an English translation of the book’s concluding summary, but qualifies its usefulness: it omits much of the reasoning and rearranges the conclusions relative to the main exposition. Access to conclusions, in his assessment, does not substitute for following their derivation.

Fürth praises the breadth of Kessler’s treatment and singles out tables that organize relationships among capital supply and demand, liquidity conditions, internal and external equilibrium, stabilizing policies, and international transactions. These examples show why he regards the book as useful: it makes explicit the connections through which domestic conditions and foreign impulses affect one another. His account nevertheless concentrates on two conceptual issues rather than reproducing those relationships in detail.

The first is the distinction between liquidity and cash balances. Following the Netherlands tradition, Kessler includes time deposits and short-term Treasury paper alongside money. Their holders can convert them into money without market transactions that would simultaneously diminish another economic unit’s liquidity. This broader definition changes how central-bank operations must be understood:

The author concludes that a central bank can reduce or increase the liquidity of the economy by its open-market transactions, without changing its net holdings of government securities, merely by selling long-term and buying short-term securities, or vice versa (p. 205).

Fürth draws a pointed policy implication from this conclusion. Economists and politicians advocating transactions in securities of different maturities to influence interest rates must also consider their effects on liquidity. An unchanged net holding of government securities does not imply an unchanged monetary influence: the maturity composition matters within Kessler’s framework.

The second issue limits what liquidity accounting alone can explain:

The author freely concedes that liquidity analysis must be supplemented by income-flow analysis since liquidity analysis only reveals changes in liquidity positions without indicating the flows that lead to those changes (e.g., p. 162).

Fürth consequently regards Federal Reserve flow-of-funds data as apparently superior, while carefully distinguishing that judgment from an assessment of their scholarly application. He knows of no major American work exploiting them comparably. The Netherlands Bank, by contrast, has repeatedly used liquidity analysis in its annual reports, and Kessler has now built a substantial theoretical study on that foundation. The review’s concluding preference is thus practical and qualified: a potentially stronger instrument does not establish intellectual leadership unless economists put it to productive use. Kessler’s achievement lies in connecting an operational accounting framework to theoretical and policy questions, while acknowledging the additional analysis needed to explain the flows behind observed liquidity changes.