ABOUT THE OBJECTIVITY OF THE ECONOMIST

Celso Furtado

The more intense the process of transformation of the society in which they live, the
greater is the burden of responsibility of the intellectuals. It is in these rapidly changing
societies that one can can be aware of the great social problems that exist, which thus
opens up a unique opportunity to men of learning to conscientiously cooperate in the
improvement of culture and to contribute to the development of man as a social being.
This responsibility cannot however be fulfilled if Universities, where men of learning
tend to congregate, are not adequately equipped and guided in a superior manner.
Without the systematic and disciplined effort of researchers and without the dedication
of analysts that are meticulous and conscious of methodological requirements, the
interpretation of social processes becomes overly dependent on individual inclinations
and on the social position of each within the social structure. I know and admire the
tradition of this Faculty as a center of intellectual work. I very much appreciate the
opportunity these graduates of 1959 have conferred on me to stand up here on stage
to recount something of my experiences and concerns as an economist from a
generation that has already done its part.
More than other scholars of society, one must demand of the economist a strict
definition of principles. Objectivity, in economic science, is greater the more explicit
those basic principles of living in society, which have been set down and accepted by
the economist, are. The fundamental difference between us and the economists of the
generation that preceded us is exactly in this: we do not believe in pure economic
science, that is, independent of a group of pre-established principles of social
coexistence, of value judgments. Some of these principles can tend towards
universality, such as the norm that says that social well-being should prevail over the
interests of the individual. Nevertheless, at the stage we find ourselves, one of huge
disparities in levels of economic development and social integration, not to mention the
antagonisms that prevail with respect to ideas of social coexistence, it would be totally
wrong to instill in the mind of the economist an equivocal idea of objectivity, lent to the
physical sciences.
For the economist, objectivity means understanding exactly that the economic
phenomenon cannot be caught outside its context, and in order to place it within this
context, value judgments are required that presuppose the acceptance of principles.
Whenever it is possible to agree on this principle, it is then not difficult to establish the
criteria of rationality, thus creating an economic science that is sufficiently effective to
point out the interdependence of past and present phenomena and suggest tendencies
in relation to future behavior of relevant economic variables. In the highly developed
nations, which have therefore reached a high level of social integration, a relative
agreement on certain basic principles can easily be achieved. The same however,
cannot be said for a rapidly transforming and heterogeneous country, like Brazil.
Nevertheless, having understood the limits of our objectivity already constitutes
considerable progress. We no longer need to look abroad for prefabricated solutions to

1
our problems, claiming that elsewhere there are economists who are more capable
than those we have here. Unless it can be proven that the value judgments of these
good economists correspond to the social coexistence principles that we postulate,
their recommendations are more likely to be less objective for us than those of our own
economists, in spite of their limitations.
The conflict that some Brazilian economists have had with the theoretical experts at the
International Monetary Fund, in the current year, is a clear example of this problem of
objectivity. The Monetary Fund economists accept, as a principle, that nothing is more
important for an economic system than a minimum degree of stability. Like all
assumptions, this results from experimental observations, observations furthermore
that have been made in countries with relatively homogeneous structures. In these
structures, economic growth occurs with a moderate degree of inflation. As soon as
this level is surpassed, the criteria of rationality begin to fail, with the result that growth
slows or its social costs increase. Under such conditions, the therapy to correct inflation
consists, as a rule, of a reduction in public spending or private investment.
In trying to universalize these rules, the economists at the International Monetary Fund
make a mistake of serious consequences for underdeveloped countries, an error that is
that much more serious when it results from the application of supposedly scientific
criteria.
The heart of this question lies in the fact that to assume stability is a distinct thing,
depending on whether you are dealing with developed or underdeveloped structures.
To assume the stability of the United States is to assume full employment of the labor
force, that is, the full use of productive capacity. Sometimes, this can ultimately be an
assumption in the maximum growth rate that is compatible with the principles of social
coexistence accepted in that country. Avoiding that inflation pressure passes a certain
critical point, in the United States, means maintaining the growth rate at its highest
level.
On the other hand, avoiding any kind of collapse in effective demand signifies
defending a high level of investment. Thus, all it takes for the United States to see its
historical growth rate increase and even possibly double is for it to maintain a
reasonable level of stability in its economy. We can therefore state that the economists
at the Monetary Fund are totally objective when they think in terms of a highly
developed economy. Objective in terms of the basic principles that rule North American
life, that is to achieve maximum well-being within the regime of free economic initiative.
If one transplants these IMF conclusions to a country like ours, they become much less
objective. Unable to think in terms of full employment of labor, stability becomes a
problem that is strictly based on price levels. Taking into account fluctuations in
external demand and the precarious guidance of investment, to maintain the level of
prices stable, without other measures, can result in permanent unemployment in part of
the productive capacity. Thus, stability can have a social cost that is higher than that of
inflation itself. To transform stability from a means to an end is to opt for the
immutability of income distribution as the basic principle of social coexistence. As this
has not been made explicit by the Monetary Funds economists, we must then
conclude that they lack the necessary objectivity to tackle our specific problems.
This proof of objectivity should be applied by us, economists, to those fundamental
problems that divide opinions amongst those responsible for economic policy in this
country. This would be a valuable contribution from economists to provoke awareness
of the problems faced by our social development. We can take as an example the
boiling issue that translates into the dichotomy between those who defend foreign
capital and those who are ardent nationalists.

2
Dialogue between these two groups has become impractical thanks to the fact that the
implicit principles are distinct and not always clearly established. Setting off from a
variety of different principles, each speaker tries to demonstrate the lack of reality of
the contrary viewpoint. Let us look at the case of those who defend foreign capital.
They assume that in an underdeveloped country, the production factor which par
excellence is lacking, is capital; to increase the rate of investment using own resources
is extremely difficult in view of the low level of per capita income.
This is the vicious circle of poverty. To break it one must urgently call upon foreign aid.
This line of thought however largely results in the transposition of observations made in
homogenous and highly integrated systems to underdeveloped economies. The
underlying principle here is that the pace of growth is a known function of the level of
employment since it is the level of employment that determines on one hand, the rate
of investment, and on the other, the efficiency of investment application. In other words,
in a developed economy, on reaching full labor force employment conditions are
created under which the rate of investment achieves its optimum level and under which
the entrepreneurs expectations reach their maximum in terms of objectivity. Under
such conditions, to interfere in the growth process through an artificial increase in the
savings rate could result in a modification in demand conditions and a drop in the
efficient use of new investments. In this case, only an influx of foreign investment can
raise the rate of investment without reducing its average efficiency.
To apply this model to an underdeveloped country is, therefore, an act that greatly
lacks objectivity. If a country like Brazil had to depend on a steady inflow of foreign
capital in order to develop, its present prospects would be very inauspicious indeed.
This is because the inflow of foreign capital signifies the creation of a permanent flow of
income from within the country to the outside. If this foreign capital contributes to
increasing exports or substituting imports, then this outflow may not create problems
for the balance of payments. At our present stage of development, however, the typical
foreign investor has largely contributed to the creation of new habits of consumption
and stimulated demand amongst high and medium income consumers. He has thus
contributed to a reduction in voluntary saving whilst at the same time created a flow of
income abroad with serious consequences for the balance of payments.
One can admit, based on historical experience that the capacity of foreign payments by
this country will continue to grow at a slower pace than global demand. In other words,
that the real value of exports will grow less than the real product and this observation is
valid for almost all nations. But, that isnt all. If, on one hand the prime international
currency has a tendency to become an ever-scarcer asset amongst us, on the other
hand, its demand is likely to be increasingly intense, for the simple fact that
technological advancement is greater outside Brazil than within its borders.
This problem did not exist at the time when foreign exchange served us merely or
entirely as a means of buying consumer goods. But, we have now entered an era in
which our imports have become basically made up of equipment, and equipment
containing the latest advances in technology. We no longer simply import rail tracks,
rail wagons or trucks, but rather equipment that represents cutting-edge technology. In
view of this, the contribution of foreign capital needs to be faced with its cost in terms of
the reduction in capacity to import equipment over an indefinite period in the future.
This problem does not exist for a highly developed nation, due to the simple fact that its
growth depends much less on importing equipment and technology from abroad.
We can now consider the problem of those who are intransigently against foreign
capital inflows. This side assumes that the advantage to the country of the influx of
foreign capital is totally fictitious, because this capital that arrives here links itself to
domestic saving, thus contributing to its denationalization. Funds borrowed in the
country by foreign groups, once settled, are transformed into foreign capital, and this

3
contributes to increasing the volume of funds leaving the country and to increasing
pressure on the balance of payments.
However, even if one recognizes a high degree of truth in this view, one cannot deduce
from it that this country can develop without a contribution, and in some cases a sizable
contribution, of foreign capital. Brazil is nothing more than a small part of a global
economy in expansion. And, in this global economy, technical development is taking
place, through preference, in just a few countries who are fully aware of this important
asset they have. Even if we became fully conscious of this problem and as from today
made a great effort to seek independence on the technological plane, we would still
have to pass many decades servile to scientific research and its technical applications
in the great centers of the world. Therefore, like it or not, a good deal of modern
technology is either almost inaccessible or costs a good deal of money.
On the other hand, this technology, in many cases, is only efficient if it continues to
benefit from the ceaseless toil of the great centers of research that designed it in the
first place. Alternatively, it requires from the very start, tried technical personnel that is
difficult to recruit. How can we develop this nation with its huge dimensions without fully
using the resources of modern technology? And, how can we gain access to these
resources without paying the price they cost?
In looking at the results of our analysis, we come to the conclusion that in order to be
able to profit from the real benefits of foreign capital, those derived from the influx of
constantly updated technology, we need a policy that regulates the inflow of this
capital. To allow a disorderly influx of such capital would undoubtedly deprive the
country, in the future, of the real advantages of cooperating with this capital in less
accessible technological sectors. On the other hand, to create conditions of
generalized hostility to foreign capital would mean increasing the price that we will
always have to pay for the indispensable contribution of alien technology, and thus,
making it more difficult for our country to develop.
We should now consider another aspect of the problem. In a developed country, as we
have already seen, the rate of growth achieved under the condition of full labor force
employment can be considered as optimum. It would be difficult to surpass this rate
without compromising the normal functioning of the system, unless the country benefits
from an influx of foreign capital. There is nothing further from the reality of an
underdeveloped nation than this statement. What accounts for the low pace of growth
of an underdeveloped country is less the problem of low volumes of investments and
more the problem of inadequate allocation of this investment.
It is for this reason that those adepts of laisser faire economics appear to be so far
outside reality in a country like ours, especially in poorer regions. In these poorer
regions, laisser faire simply means the perpetuation of misery. Resources available for
investment are allocated to luxury homes, sumptuous clubs or exported. Such
investments do not create permanent jobs for the population and, therefore, contribute
nothing to changing the economic structure. In a good year, of good harvests and great
exports, investment can double without any fundamental change occurring. To put a
stop to a system of this kind, we need to fundamentally modify the allocation of
investments, which always requires firm action on the part of the public authorities. In
the first phase, investment must be concentrated on the infrastructure sector, for which
private initiative cannot be counted upon to contribute in any significant way. In the
second phase, incentives have to be created to enable private investment to redirect
itself. It is difficult for a modification of this order in the structure of investments to take
place spontaneously.
The basic problem of underdeveloped countries is increasing the efficiency of their
investments. This problem almost didnt exist at the stages when development took
place under pressure from growing external demand. The dynamic element then acted

4
from the outside inward, where the allocation of investments reflected, on one hand, a
growing external demand and, on the other, the action of diversifying domestic demand
through its own growth. Investment in infrastructure could be carried out by private
groups, such as those interested in financing foreign trade in clear expansion.
The present situation is totally distinct. There is no dynamic factor acting from outside
inward. Infrastructure investments cannot be allocated on the basis of defined export
lines. Not only is financing of infrastructure investments a complex task but allocating
these investments is too. The government, whose task is to raise the funds to finance
these investments, has not as yet equipped itself however, to adequately allocate
them. The result is therefore, that we have a very low efficiency level in these
investments. And it is from this inefficiency of basic services that we get external
diseconomies for the private sector as a whole.
I believe that the most important step to be taken in improving our economic policy is to
discipline public investment with greater rigor. Such discipline presupposes careful
analysis of the tendencies and potential of the national economy. The supplementary
actions of the State should be present in all sectors if this discipline is to be effectively
enforced. Private initiative can broadly increase its efficiency if it can develop its
projects on a playing field thus illuminated by longer-term projects of infrastructure
investment.
We need to make a big effort to review all that we teach in our universities about
investment theories. In no sector of economic theory has the concept of laisser faire
been as prejudicial as it has been in investment. We readily accept that the State
accounts for a third or more of investment in the economy, but we dont seem
concerned by the fact that the State does not have objective criteria to guide these
investments.
We thus come back to the initial question of objectivity in economic science. How can
we formulate an objective investment theory, be it public or private, if we dont first
accept certain principles related to the States guidance of social development? These
principles are implicit in our fiscal, monetary and foreign exchange policies or are
altered when we create credit organisms to finance certain types of long-term
investment. What has really been lacking is mere open discussion on these principles,
discussion from which could emerge an authentic doctrine of national development
capable of agglutinating the constructive effort of men of learning.
If we had these directives, it would be much easier to direct the men of action to a
clearer understanding of the problems they confusingly face in this rapidly changing
country. Thus subject, evidently transcends the exclusive responsibility of economists.
Political science, sociology and other disciplines should be equally mobilized. The
ideals of social coexistence, especially in a society with a high degree of class
differentiation, cannot be strictly subordinated to the criteria of economic development.
The final goal of all of us who work in the areas of social sciences, is to create
conditions for the improvement of man, harmonically developed. One cannot ignore the
fact that in an underdeveloped nation, the economic aspects of social development
take on a high degree of urgency. It is not possible to educate a man before you have
satisfied his hunger. Nevertheless, to relegate other aspects of the social problem to a
second level would be to compromise the subsequent development of a culture that
should mold the man of the future.
The Faculty of Economic Sciences at the University of Minas Gerais and its Economic,
Political and Social Sciences Institute, have achieved exceptional prestige throughout
the country as research centers and centers of analytical and interpretive work on our
economic development. Economists who have graduated from here are already
contributing across the country to raising the standards of out centers of research and
learning.

5
The class that has just completed its university curriculum belongs to the generation
educated under the sign of economic development and, especially under the sign of
transformation of this state into one of the countrys most industrialized regions. The
economist who has just graduated will no longer have to fight, as those who left
schools ten or fifteen years ago had to, against those remnants from the 19th century,
who dug in against industrialization, against state participation in the economic field,
and against the independence of thought vis--vis ideas that had been consecrated in
old texts. Nevertheless, the battle for these new economists will still be long and
arduous. It will be up to them to consolidate the independence of thought and
objectivity in the interpretation of our problems. It will be their duty to raise that which
has previously been done by others in the heat of improvisation, to a level of scientific
work and to the serenity of university activity. The imaginative audacity of yesterday
should be completed and corrected by the in-depth work of men whose scientific
education has already benefited from clearings opened up in the old orthodoxies. The
path you take is long, but fascinating. I would like to express my wishes of happiness to
you all and I predict that you will have a fruitful journey.

Speech given as class valedictorian by Celso Furtado

All rights reserved.