Josef Herbert Fürth’s Review of Ausgleichsgesetze der Amerikanischen Zahlungsbilanz (1953)

Josef Herbert Fürth’s book review examines Jürg Niehans’s attempt to explain adjustment in the United States balance of payments through price theory and empirical estimates of demand elasticity. Fürth follows the book’s movement from theoretical classification to quantitative analysis and policy conclusions, then assesses the strength of its evidence. His judgment is favorable toward the method but guarded about the findings: disciplined price analysis advances the discussion, yet the statistical foundation cannot establish the proposed economic relationships conclusively.

The author attempts to make general price theory the basis of quantitative forecasting in the field of international economics.

This opening identifies the ambition against which Fürth evaluates the book. Niehans seeks more than a description of international transactions: he wants measurable relationships that explain movements toward equilibrium. His theoretical starting point defines balance-of-payments equilibrium as the absence of discrepancies between intended and actual international transactions. He then distinguishes “visible” adjustments, verifiable in balance-of-payments statistics, from “invisible” ones. Visible adjustments are further classified as monetary or administrative according to their effects on the freedom of private international market transactions.

The most consequential distinction separates primary, secondary, and tertiary effects. Primary effects concern the prices and quantities of internationally traded goods and services, chiefly through demand elasticity. Secondary effects transmit those changes to incomes and to other prices and quantities; tertiary effects alter producers’ and consumers’ future decisions. Fürth’s account makes this hierarchy central because Niehans’s practical conclusions depend on whether the wider repercussions amplify or substantially modify the initial response to price changes.

The quantitative section estimates demand elasticities for American imports and foreign travel, principally using observations from mid-1947 to early 1949. Its eighteen commodity groups represented 46 percent of American imports in 1948. Comparing import volumes with relative domestic and import prices, Niehans finds short-run elasticities below unity for about half the goods and above unity for roughly one-quarter, with the remainder either at unity or indeterminate. Almost two-thirds have long-run elasticities at least equal to unity. Foreign travel likewise has an estimated elasticity above unity. These differences matter because a lower price does not necessarily increase total dollar receipts: the outcome depends on how strongly demand responds.

Niehans also examines relationships among imports, exports, and national income, alongside the limited role of foreign exchange in American banking. He concludes that changes in imports generate negligible secondary effects and very small tertiary effects. On that account, their net consequences remain virtually identical to their primary effects, making demand elasticity decisive for exporters’ earnings.

For this reason, the trading partners of the United States can hope to raise their total dollar earnings only by means of selective rather than indiscriminate reductions in the prices of their export goods (or even in U. S. tariff duties).

The policy argument thus rests on differences among goods rather than a general expectation that cheaper exports will resolve a dollar-earnings problem. Selective reductions might succeed where demand responds sufficiently; indiscriminate reductions cannot be assumed to do so. Niehans also advises European countries to pursue technological progress and export newly invented goods, directing attention toward changes in what they offer the American market.

Fürth praises the application of established price analysis to an urgent international economic problem, but separates plausible conclusions from demonstrated ones.

However, the statistical basis of the study is far too narrow to furnish conclusive evidence for his estimates of price elasticities and thus for the validity of his practical conclusions.

This reservation reaches the policy recommendations through their empirical premise: uncertain elasticity estimates cannot securely establish the effects of price reductions. Nevertheless, Fürth values the study’s conscientious effort to replace facile generalizations about the American balance of payments with scientific method and quantitative measurement. The review’s central assessment is therefore methodological: Niehans offers a useful analytical framework and a serious empirical inquiry, whose practical conclusions remain provisional.