Prebisch – an inequality in the terms of trade between primary- product producing economies and manufacturing economies. In a League of Nations study conducted in 1927, the Swedish economist Karl Gustav Cassel noted: “From 1913, a very serious dislocation of relative prices” took place in “the exchange of goods between Europe and the Colonia l World.” 165 In 1948, upon observing an inequality in the terms of trade between developed and underdeveloped countries, the Nobel-Prize winning economist and staunch free trade advocate, Paul Samuelson, commented that the “terms of trade are abnormally favo urable to agricultural production” and that one could “venture scepticism that this abnormal trend of the terms of trade” would, counter to the “historical drift... continue” 166 . Even though economists have not been able to reach a consensus on the empirical validity of the Prebisch-Singer hypothesis, the hypothesis has encouraged underdeveloped countries to examine their terms of trade and productive capabilities more closely. Singer himself believed that the Prebisch-Singer thesis had entered the economic mainstream. In 1998 he argued that the “advice given by the Bretton Woods Institutions to developing countries” showed that the Prebisch -Singer thesis had been “incorporated both implicitly and explicitly.” 167 The warnings given to developing countries from the IMF and World Bank on the dangers of currency overvaluation, Dutch disease, and an overreliance on booming export sectors were, Singer asserted, exactly the same warnings posited by the Prebisch-Singer hypothesis. Prebisch’s theoretical formulation of the inequality in the terms of trade would have a profound influence on Latin America’s economic development. It would also directly support into his other 165 Joseph Leroy Love, Crafting the Third World: Theorizing Underdevelopment in Rumania and Brazil , (California: Stanford University Press, 1996), page 79. 166 Paul Samuelson, “International T rade and the Equalisation of Factor Prices” Economic Journal 58 (1948), pages 163-184. 167 Hans Singer, “The Terms of Trade Fifty Years Later – Convergence and Divergence” The South Letter (30), (1998)
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