Jacques Rueff, Mr. Keynes' Views on the Transfer Problem. I. A Criticism (1929)

Published in September 1929, this English translation of Rueff’s Les idées de M. Keynes sur le problème des transferts challenges Keynes’s account of German reparations. Rueff argues that reparations pose a budgetary problem but no independent transfer problem when prices and exchange rates can adjust freely. His argument moves from the distinction between nominal and real wages to historical evidence of trade adjustment, before drawing broader conclusions about economic liberalism.

Rueff accepts that Germany may need lower gold-denominated earnings to expand exports, but denies that this necessarily imposes a real sacrifice additional to taxation. His reasoning depends on a proportional adjustment of domestic prices and wages:

Assuming then that, in the adjustment which restores equilibrium to the balance of payments all the prices vary in the same proportion as wages, real wages are not modified.

The assumption separates the nominal changes required for external equilibrium from the real burden of raising reparations revenue. Taxation reduces German purchasing power and transfers it to creditors; subsequent price adjustment need not further reduce real earnings. Rueff generalizes this reasoning through a principle of the conservation of purchasing power: economic transformations redistribute purchasing power rather than independently create or destroy it.

For all these reasons I have ventured to assert that, at any rate as a matter of economic theory, there is no transfer problem, but only a budgetary problem.

The qualification “as a matter of economic theory” marks the transition to the practical dispute. Keynes’s objection concerns resistance to adjustment: established economic structures may not change rapidly enough to accommodate imposed financial obligations. Rueff instead treats responsiveness as an empirical question. If transfers themselves generate the commercial adjustments necessary to execute them, limiting payments to an independently estimated transfer capacity mistakes an effect for a prior condition.

His principal evidence concerns France after the cessation of British and American credits in 1919. Rueff associates the withdrawal of roughly twenty milliard francs with the subsequent contraction of the French trade deficit, from approximately twenty-three milliard francs in 1919–1920 to about two milliard in 1921. He interprets this correspondence as evidence that the trade balance adapted to the disappearance of foreign financing. Although currency depreciation accompanied the adjustment, he maintains that falling domestic prices under gold circulation could perform the same function.

To distinguish this mechanism from the general transition from war to peace, Rueff examines later capital movements. French capital exports beginning late in 1923 coincided with trade surpluses; a deficit returned in 1928 after that movement subsided. France’s surpluses during payment of the German war indemnity in 1872–1875 provide another supporting case. Together, these episodes are intended to show that commercial balances respond to financial obligations, rather than financial flows merely accommodating trade balances determined elsewhere.

Rueff consequently rejects a structurally fixed “natural” export level. France’s devastated productive regions and reconstruction needs might have suggested persistently enlarged imports. Yet its dollar-denominated trade deficits in 1921 and 1922 were only 57 and 69 percent of the 1913 figure. He explains this apparent contradiction through the adjustment necessitated by diminished foreign-investment income. His treatment of tariffs likewise distinguishes changes in the composition and total value of trade from changes in its net balance.

The argument does not imply that unlimited payments are feasible. Rueff requires transfers to originate in a balanced budget and excepts circumstances involving budget deficits or flight from the currency. These qualifications locate the effective constraint in fiscal capacity and monetary conditions, rather than in a separate, fixed commercial capacity to transfer.

The concluding disagreement concerns the flexibility of economic relations themselves:

Keynes refuses to admit that the stuff of economics is sufficiently fluid to obey rapidly and without profound disturbances the influences of a non-economic origin which tend to shape it.

For Rueff, this issue connects reparations policy to the choice between liberal and organized economic systems. His historical examples serve both as evidence for the feasibility of adjustment and as a defense of removing impediments to it. The article’s distinctive move is thus to turn a technical controversy over international payments into an empirical argument for confidence in decentralized economic adaptation.