The Dangers of Monetary Policy in Agrarian Economies. A Comment

Hugh Patrick and Lester Chandler
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Hugh Patrick: Yale University
Lester Chandler: Princeton University

The Pakistan Development Review, 1962, vol. 2, issue 2, 269-275

Abstract: In an interesting recent article in this Journall Richard C. Porter presents a model "to show that, in agrarian (or predominantly agricultural) economies it may be impossible to counteract apparently temporary shifts in the price level by means of traditional monetary policy". In Section III, to which this comment relates, he assumes a two-sector modet \vith one sector (agriculture) producing the single commodity (foodstuffs) in the economy and the other sector living on lump-sum transfer payments from the agricultural sector and producing nothing. These lump-sum taxes are fixed and in money form; Porter in a footnote (p. 61) assumes (incorrectly, as is discussed below) that "none of the conclusions would be altered if the tax were fixed in real terms".

Date: 1962
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