Josef Herbert Fürth, Unbalanced International Accounts: Diagnosis and Therapy (1961)

Josef Herbert Fürth’s conference paper, published as a journal article, examines the United States’ external deficit within a general framework for diagnosing and correcting international monetary imbalance. Its three-part movement—from general principles to the American experience of 1958–60 and then to remedies—connects domestic economic adjustment with the preservation of the international dollar standard. Fürth’s central contention is that restoring balance requires attention to the causes of reserve losses, not indiscriminate austerity or restrictions on international transactions. American responsibility for structural adjustment must be complemented by cooperation from surplus countries.

The opening definition establishes the distinction on which the argument rests:

Imbalance so defined is a purely monetary concept: a decline in a country's external liquidity. It does not necessarily imply a decline in the country's "real" wealth, abroad or at home.

Fürth restricts his analysis to persistent, unintended reserve declines. A country can acquire productive assets abroad while losing the liquidity needed to sustain confidence in its currency. Accordingly, neither national impoverishment nor an adverse trade balance adequately defines the problem. He distinguishes current-account causes—domestic inflation, changes in foreign demand and supply, and persistent international price disparities—from capital-account causes, including yield differences and expectations of exceptional losses or gains. Crucially, a price disparity may survive earlier inflation or devaluation without reflecting present inflationary pressure.

Treatment must increase receipts, reduce expenditures, or combine both, but the relevant adjustment extends beyond explicitly international transactions:

A direct reduction in foreign expenditures, for instance, would be ineffective if it were offset by a rise in domestic expenditures that would eventually spill over into the international sector.

This interconnectedness makes therapy a problem of practical economic conditions rather than accounting alone. Fürth identifies five conditioning factors: available reserves and credit, domestic resource utilization, domestic flexibility, flexibility abroad, and competing policy commitments. Idle resources permit export expansion only if they can move into appropriate sectors; willing exporters still need receptive foreign markets. Whereas the classical gold standard encouraged expansion in surplus countries, contemporary monetary arrangements require deliberate cooperation to perform that corrective function.

Applied to the United States, the framework changes the meaning of an apparently favorable current balance. Since late 1957, measured annual reserve losses had exceeded $3 billion. Fürth locates the principal imbalance in current transactions until mid-1960, after which unusual capital movements became important. Because the United States normally exports capital and carries substantial international obligations, equilibrium requires a current surplus sufficient to finance that normal outflow over the cycle. The favorable current balance in late 1960 therefore did not establish structural equilibrium: it occurred when American stagnation and foreign expansion were already encouraging exports and restraining imports.

Fürth finds little evidence that general American inflation since 1957 explains the deficit. Instead, foreign industrial economies had caught up technologically and commercially, while reconstruction-driven demand no longer absorbed their output. He also considers whether excessive foreign devaluations in 1949 left price disparities whose effects emerged only later. These remain qualified diagnoses, not conclusive statistical findings. Capital flows are harder to interpret: cyclical yield differences, European growth, tax incentives, the Common Market, and expectations of German currency appreciation all matter. Unrecorded outflows, transfers to countries without higher interest rates, and increased purchases of American gold additionally suggest anxiety about the dollar itself.

That anxiety explains why exchanging gold and short-term liabilities for foreign investments nevertheless demands correction. The United States’ ability to pay internationally in its own currency depends on confidence in the dollar’s stable value and the adequacy of its gold backing. Earlier deficits had supplied dollars to a world experiencing dollar scarcity; accumulated foreign holdings had changed the situation:

Therapy must therefore aim at eliminating rather than merely reducing the over-all deficit in the U.S. balance of payments.

Fürth prefers export expansion to import contraction. Substantial reserves allow a transition period, and unemployment leaves room for increased output. Yet expansion requires greater efficiency and adaptability. His discussion of domestic rigidities moves beyond union and business monopoly to administrative overhead, bureaucratization, and a broader inertia that threatens American competitiveness. Internationally, protectionism and discriminatory regional arrangements obstruct the necessary adjustment. Import and capital controls would introduce further rigidities rather than resolve its causes.

Economic remedies also face a hierarchy of political purposes:

Therapies that would undermine that standard, such as an increase in the price of gold or other attempts at changing the established par value of the dollar, would thus be as bad as the disease.

Preserving the Atlantic Alliance and supporting less-developed economies rank still higher than defending the dollar standard. Cuts in aid, military expenditure, or trade commitments are therefore acceptable only when consistent with basic foreign-policy objectives.

For capital outflows, Fürth proposes remedies matched to causes: faster domestic growth, possible tax coordination, resolution of currency-appreciation expectations, and credible monetary and fiscal policies. Cyclical short-term flows present a special difficulty because initially reversible movements can provoke fear and persistent secondary outflows. Keeping interest rates high during recession would impede recovery and encourage long-term capital flight. International cooperation, potentially through the IMF or the Bank for International Settlements, should instead neutralize destabilizing cyclical movements. The paper’s enduring conceptual contribution is this distinction between structural adjustment and confidence-driven monetary instability: the United States must correct its accounts, while other nations share responsibility for maintaining the commercial and financial system organized around the dollar.