The Origins and Interpretation of the Prebisch-Singer Thesis

The Prebisch-Singer thesis is generally taken to be the proposition that the net barter terms of trade between primary products (raw materials) and manufactures have been subject to a long-run downward trend. The publication dates of the first two works in English that expounded the thesis were nearly simultaneous. In May 1950, the English version of The Economic Development of Latin America and Its Principal Problems, by Raúl Prebisch, appeared under the UN's imprint. In the same month Hans Singer published an article, "The Distribution of Gains between Investing and Borrowing Countries," in the American Economic Review. The continuing significance of the "Prebisch-Singer thesis" is that it implies that, barring major changes in the structure of the world economy, the gains from trade will continue to be distributed unequally (and, some would add, unfairly) between nations exporting mainly primary products and those exporting mainly manufactures. Further, inequality of per capita income between these two types of countries will be increased by the growth of trade, rather than reduced. This could be, and has been, taken as an indicator of the need for both industrialization and tariff protection.

Prebisch and Singer identified two types of negative effects on primary producers' terms of trade. One effect occurs because of systematically different institutional features of product and factor markets, such as cost-plus pricing and the unionization of labor in industry. Another negative influence is that of technical progress, both from the asymmetric distribution of its fruits, but also from its asymmetric impact on future demand, favorable to that of industry while unfavorable to that of agriculture. The empirical significance of the thesis has been much disputed and continues to be controversial after more than fifty years. One recent investigation has claimed that these two effects have operated strongly in the forty years after the Second World War, and that they have indeed outweighed the positive influences on primary producers' terms of trade arising from capital accumulation and the growth of industrial production. This particular study suggested that the economic mechanisms that disfavor primary product producers, which were specified by Prebisch and Singer, have had significant impacts, even though the net secular decline of primary producers' net barter terms of trade has been found to be relatively small, at around 1 percent a year (Bloch and Sapsford 1998).

The Prebisch-Singer thesis contradicted a long tradition of contrary belief among economists. The nineteenth-century English political economists believed that the terms of trade of industrial manufactures relative to agricultural produce would tend to decline. This belief underpinned their pessimism about the sustainability of rapid population growth. That manufactures' terms of trade would decline, and that rapid population growth was therefore unsustainable, were two propositions that caused political economy to be dubbed the "dismal science." This basic framework of ideas remained remarkably stable throughout the entire century and a quarter from Robert Malthus to the early works of John Maynard Keynes. Although, by the late 1940s, this proposition was rarely stated explicitly, when Prebisch and Singer came to reverse the classical expectation of declining terms of trade for manufactures, their conclusions were immediately controversial, and are still so regarded by some today.¹

Prebisch is frequently credited with having formulated the declining terms of trade thesis before Singer did. Joseph Love (1980, 58–59) claimed that "Prebisch clearly seems to have reached his position earlier than Singer." Other authors have held that Singer discovered the thesis independently and simultaneously. Cristobal Kay (1989, 32) wrote that "Singer . . . reached his conclusions independently from Prebisch and around the same time [so that] the thesis on the deterioration in the terms of trade is known in the economic literature as the ‘Prebisch-Singer thesis.'" This second view was indeed that held by Singer himself.² Our account of the events surrounding the United Nations Economic Commission for...