Gulf War Reparations: Iraq, OPEC, and the Transfer Problem
Author(s): Rodney J. Morrison
Source: The American Journal of Economics and Sociology , Oct., 1992, Vol. 51, No. 4
(Oct., 1992), pp. 385-399
Published by: American Journal of Economics and Sociology, Inc.
Stable URL: https://www.jstor.org/stable/3487447
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms
is collaborating with JSTOR to digitize, preserve and extend access to The American Journal of
Economics and Sociology
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
The AMERICAN JOURNAL of
ECONOMICS and SOCIOLOGY
Published Q UARTE R LY in the interest of constructive
synthesis in the social sciences, under grants from the FRANCIS
NEILSON FUND and the ROBERT SCHALKENBACH FOUNDATION.
VOLUME 51 OCTOBER, 1992 NUMBER 4
Gulf War Reparations:
Iraq, OPEC, and the Transfer Probl
By RODNEY J. MORRISON*
ABSTRACT. On February 27, 1991, the government
Nations Security Council Resolution 674, a measure requi
to the victims of its aggression in the Gulf Crisis of
problems and consequences that may result as Iraq fac
olution 674 are discussed. This latest example of inte
pensation is placed in the context of the transfer p
debate engendered by the experience of Germany in d
burden after World War I. Lessons gained from this hist
tions are then applied to the case of Iraq, one of the
producers, a country that must rely on oil exports
payments.
Introduction
THE COLLAPSE OF COMMUNISM has made all but obsolete the theories of containment
and deterrence used to explain superpower relations during the Cold War.
* [Rodney J. Morrison, Ph.D., is professor of economics, Wellesley College, Wellesley, MA
02181.]
American Journal of Economics and Sociology, Vol. 51, No. 4 (October, 1992).
? 1992 American Journal of Economics and Sociology, Inc.
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
386 American Journal of Economics and Sociology
Now many analysts of world affairs speak of unipolar systems, the most famous
of which is, of course, the New World Order. This latest model of international
relations had its initial test in the Gulf War of 1990-1991, a conflict in which a
United Nations coalition, led by the United States, drove Iraqi troops from Kuwait
by force of arms. That the military dimension of the decision to confront and
reverse Saddam Hussein's invasion of Kuwait captured world attention is indisputable.
But there was another and far less visible dimension to the New World
Order's intervention in the Gulf crisis: the United Nations directive that Iraq
pay reparations to those who suffered from its acts of aggression. While less
dramatic than high-tech warfare, this economic corollary of military action
in the Gulf will nonetheless have serious long-term consequences for the nations
of the Middle East and states bound to that region by commercial and economic
ties.
Postwar reparations are not new. Indeed, the demand that Iraq compensate
its Gulf War victims is simply the latest chapter in the continuing story of victor
in international conflicts exacting economic compensation from the vanquished
The purpose of this paper is to put this newest addition to the history of reparations
in context. The paper begins by reviewing the most famous example of
such payments, Germany after World War I. It then applies knowledge gained
from this historical case to several issues that must be considered as the proces
of collecting economic recompense from Iraq unfolds.
II
Reparations: The Theoretical Debate
THE GOVERNMENT OF IRAQ, on February 27, 1991, after suffering intensive ground
and air operations inflicted by a coalition of United Nations forces led by the
United States, acceded to United Nations Security Council Resolution 674. This
was a twelve-part motion holding it liable "for any loss, damage or injury arising
in regard to Kuwait and third states, and their nationals and corporations, as a
result of. ... [its]. ... invasion and illegal occupation of Kuwait.. ." Consequently,
Iraq found itself in a situation similar to what Germany faced in 1919
when it accepted Article 231 of the Versailles Treaty, the so-called "War Guilt
Clause."2 Its government had been widely condemned and its economy was
about to be mortgaged to redress wartime wrongs. Thus, as a result of the Gulf
War of 1990-1991, the world community readied itself for yet another replay of
an oft-repeated drama, an international aggressor paying reparations to its victims.
Diplomats and historians are fascinated by reparations. Economists, however,
regard them as simply a species of international financial transactions, little
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
Reparations 387
different from such seemingly div
Marshall Plan), international constr
visioning one's troops in a foreign
The element common to all these
transactions is that each ultimate
across the borders of sovereign sta
Economists may consider reparation
as mundane as supplying soldiers w
to foreigners, but they are no less
fact, one of the most famous contr
and the foremost name in twentiet
first came to international promin
the Treaty of Versailles and the c
War opponents.
The discussion attending German
two closely related points: (1) how
(2) how those payments would affe
period. The first matter had both
mestically, Germany had to achieve
financial aspect of reparations could
problem, and it was itself a subject
over the size, capacity, and conditio
and levels of government spendin
was possible, once it was delivered
to receive reparations, the internat
external accounts of Germany and
give up more than money to meet
real resources. To do this, however,
and those to whom it was paying r
imbalances in international trade we
economy's most famous debates, th
Theoretical arguments about the
context of a two-good, two-country
to the other. It was assumed that i
was in equilibrium and that full e
both. The crux of the matter was
transferred from the country payin
The most famous commentator to o
Maynard Keynes, who presented w
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
388 American Journal of Economics and Sociology
had revealed his qualms about the collection problem in his controversial treatise,
The Economic Consequences of the Peace, and in his Revision of the Treaty.
Now he expounded on his reservations about Germany's ability to meet the real
burden of its reparations obligations. Germany would not be able to earn a
sufficiently large trade surplus, he asserted, nor would its creditors incur sufficiently
large trade deficits to effect completely the real transfer, because the
relevant import and export elasticities were too low. Thus, Keynes maintained,
Germany's terms of trade would have to decline for the full real transfer to
occur.6 But a deterioration in a country's terms of trade can lead to a reduction
in its real income. Which meant, by Keynes' reasoning, that Germany had to
bear an additional or secondary burden: a further loss in real income caused by
the decline in its terms of trade.7
The principal challenge to Keynes came from Swedish economist Bertil Ohlin.
It is one of the ironies of the history of economic thought that Ohlin's thesis,
a rebuttal of Keynes' classical argument, relied on a very Keynesian concept,
aggregate demand. Ohlin claimed that when the country owing reparations met
its financial obligations, its total purchasing power would decline, and this reduction
in national income would lead to a decline in its imports. Conversely,
national income in the country receiving the financial payment would increase,
as would its imports. Assuming total purchasing power in the system at large
remained constant, Ohlin asserted that the adjustments in imports triggered by
changes in national income would be large enough to effect completely the
real transfer. He concluded, therefore, that Keynes was wrong: the terms of
trade did not have to shift; there would be no secondary burden; the real transfer
would be accomplished through changes in national income.8
A third and final argument put forward in the theoretical debate over the
transfer problem was known as the modern Keynesian case. Similar to Ohlin's
thesis in its reliance on changes in national income, the modern Keynesian
explanation broke with the assumption that full employment and flexible prices
characterized the economies involved in the transfer. Thus it rejected the notion
that the initial changes in national income would cause trade imbalances large
enough to complete the real transfer without requiring any secondary burdens.
In this model, an additional adjustment would be necessary, but contrary to the
classical case, it would not come through changes in relative prices. It would
be manifested in changes in national income and employment. That is, if the
real transfer was not completely effected on the first round, further changes in
national income would be required to produce the required trade imbalances
in the countries making and receiving reparations. Having dispensed with the
assumptions of full employment and flexible prices, this approach predicted
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
Reparations 389
that, absent devaluation or com
ment in the country paying rep
were to be completed.9
The classical thesis, Ohlin's reje
Keynesian view dominated the d
initial debate was couched in te
but the argument has been extend
in-kind, traded and non-traded
volving more than two countries
transfer problem was resolved
trade and changes in national in
includes a full multiplier analys
save out of reparations payments
First, if the relevant marginal
completed without any seconda
sum of these propensities is less t
and a secondary burden will hav
case, a classicist would argue, the
paying reparations and it would s
redistribution of real income. I
pleted through income and subs
undereffected transfer denies t
Instead, it maintains that further
are required. The third possible
ginal propensities to import and
is overeffected and the terms of
Which means the reparations pa
bution of income, that is, there w
III
Reparations: The Historical Debate
THE SECOND CONTROVERSIAL ISSUE in the debate over Germany's post-World War
I reparations-how those payments would affect its economy and political stability-was
as contentious as the theoretical argument surrounding the transfer
process. Germans (and many of their supporters in the international community)
claimed their country could not make the payments demanded by its conquerers.
Those seeking reparations were equally adamant in asserting Germany did have
the capacity to meet their demands.
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
390 American Journal of Economics and Sociology
The popularly accepted version of this aspect of the World War I reparations
story began with the publication of Keynes' The Economic Consequences of the
Peace. In that polemical work, Keynes estimated that the Versailles Treaty, an
open-ended arrangement, required Germany to pay some $40 billion in damages,
a policy that would, he claimed, reduce it "to servitude for a generation."13
During the first two years following the war Germany delivered reparations
in-kind and made territorial concessions, but specific terms on what it would
have to pay its conquerors were not arrived at until the Allies formulated the
London Schedule of Payments (1921). That agreement demanded that Germany
pay compensation totaling 132 billion gold marks ($33 billion in current prices),
a sum equal to two years' output of the entire German economy.'4 Many observers,
then and now, considered that amount exorbitant and impossible for
Germany to meet.
Participation in the debate on how much Germany should or could pay was
not limited to economists or politicians. In 1922, no less a figure than Ernest
Hemingway, then a journalist writing from Paris, observed that the French, by
trying to get as much from Germany as they could, "cannot see that they will
only produce utter bankruptcy and get nothing."'5 Invariably, those who agreed
with Hemingway (and Keynes) concluded that the hyperinflation that devastated
Germany in 1923 resulted directly from the enormous reparations demanded
by the Allies. Or they attributed the collapse of the Weimar Republic to inordinately
large reparations. And some went so far as to claim that reparations and
the War Guilt Clause had in fact paved the way for Adolph Hitler, National
Socialism, and World War II.
That the Allies demanded too much of Germany is a view that has prevailed
to the present. A recent article in American Heritage (1991) describes World
War I reparations as "crushing" and "one more millstone hung around Germany's
neck."16 Whether such claims are valid is not just a debating point, not just a
matter of interest limited to historians studying the interwar period. How economists
and policymakers thought reparations affected reconstruction and the
restoration of peace in Europe in the 1920s had serious practical significance
some twenty-five years later.
At the end of World War II, Allied decisions regarding reparations were colored
in large measure by what had happened in Germany during the 1920s.17 This
topic has surfaced again. Once more, lessons of the past, correct or not, are
informing decisions of the present. In an article discussing Gulf War reparations,
a major American publication, Business Week, noted, "Diplomats can't escape
the ghost of post-World War I Germany, which, crippled by punitive reparations,
turned to Hitler."'8
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
Reparations 391
Not everyone agreed with the pop
by the victorious Allies imposed a
famous dissent from that belief w
thaginian Peace, or The Economic
view has two major themes: (1) Ger
as had generally been thought; an
capacity to meet its post-World W
these points charge that Germany's
the early 1920s and the hyperinfla
1923 did not result from economic
liberate, inevitable outcomes of gov
the country's external obligations.
ernment had a "single-minded deter
impossible."20
Empirical support for the view that Germany's World War I reparations were
not so oppressive has been provided by economist Fritz Machlup, who found
that even at their peak, in 1929, Germany's reparations payments required a
transfer of only 3.5 percent of that year's national income. Over a longer period,
between 1925-1932, they claimed annually on average about 2.5 percent of the
country's national income. Little wonder Machlup took issue with those who
saw reparations as a "millstone" about Germany's neck. "It is hard to understand
why some economists," he wrote, "made such a fuss about the supposed severity
of the German transfer problem."21
That fuss was further undermined by additional information offered by revisionist
critics. They contend, for example, transfers in-kind and territorial
concessions aside, reparations payments flowing out of Germany exceeded foreign
capital inflows in only two years, 1930 and 1931. In short, before 1929,
capital flows from the rest of the world, particularly from the United States, were
the means whereby Germany was able to meet its international obligations.22
In effect, reparations payments made by Germany before 1929 were reverse
transfers-from World War I's victors to its principal loser. The title of a major
study of this period captures this irony rather well: American 'Reparations' to
Germany, 1919-33.23
IV
Iraq and the Gulf Crisis
THE WORLD COMMUNITY is in the midst of yet another round of war reparations,
this time in the Middle East, with Germany's post-World War I experience as
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
392 American Journal of Economics and Sociology
its historical model and the theory of international transfers as its analytical base.
When Iraq accepted U.N. Resolution 674, a means was put in place for its victims
to seek economic compensation for the destruction suffered at the hands of
Saddam Hussein. To initiate this process, the Security Council invited all aggrieved
parties-individual, corporate, and governmental-to submit damage
claims to a U.N. commission charged with overseeing such requests. There are
historical parallels for what Iraq will face when those bills come due. It will
have to address, for instance, the dilemmas of a collection process and a transfer
of real resources. But the past will not be a perfect guide for solving these
problems, for there are major differences between this case of war reparations
and those of an earlier time. Iraq is a small country and it relies heavily on
export earnings for much of its national income. But it not so small that it will
not affect world prices and real incomes by what it does to meet its reparations
burdens. Much more than just the state of the Iraqi economy will be at risk as
this reparations process goes forward. Other Middle Eastern nations and countries
bound by economic ties to this region will also be affected.
A major issue in the debate over Germany's post-World War I reparations bill
was the base upon which those claims were imposed. Economists and historians
investigating that question were at wide variance as to the size of German national
income.24 Assessing Iraq's ability to pay poses similar difficulties. Data on Iraq's
GNP exist, but they are less than reliable for any number of reasons, not the
least of which is the Iraqi government's reluctance to release such information
because of national security considerations.25 The Gulf War itself is another
factor. According to U.N. observers, the bombing campaign of early 1991 reduced
the country to a pre-industrial state. For what they are worth, the most recent
estimates of Iraq's national income that are even remotely reliable are for 1986,
a time when the war with Iran was still being fought. They put Iraq's nominal
GNP at $55 billion. Distributional questions aside, with a population of about
16 million, per capita nominal GNP that year was somewhere in the neighborhood
of $3400.26 Since 1986, Iraq's population has grown and inflation and
another war have hit that country. Clearly, caution must be exercised in interpreting
data regarding the current state of Iraq's economy.
Reliable information about two aspects of Iraqi economic activity is, however,
available. The first relates to structure; the second concerns oil. With respect to
the former, in 1964 the regime then in power in Baghdad began an extensive
campaign of economic nationalization. In 1983, that policy changed and the
Baghdad government began to move away from state ownership toward an
economy more dependent on market forces.27 Observers claim that by 1987 this
shift towards the market had begun "in earnest," but Iraq had still not moved
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
Reparations 393
very far along the road to privatizat
By no means had privatization tou
Having been fully nationalized by
under government control.29
It is difficult to exaggerate oil's r
commodity have provided as much as
of its foreign earnings, and 99 perc
war with Iran, Iraq's oil exports f
materials so critical to its ambitio
much of the nation's daily consump
in Iraq is imported.
Despite its large import bills, Iraq's
to produce current account surpluses
assets. The government had hoped
nation's overwhelming dependence
the mid-1980s oil revenues decline
deficits, and rather than accumulat
abroad. Again, because they are regar
on net foreign indebtedness are un
ever, that Iraq owes approximatel
banks, $10 billion to the Soviet Un
States, about $85 billion in all.31
Gulf War Reparations
THE FINAL BILL on Iraq's reparations
large. The principal claimant is Kuw
billion in damages. Private firms f
$5 billion. Other Gulf States, Israel
of the environment will demand r
for reparations.32 Immigrant worker
personnel killed in the war, and c
conflict will seek compensation. Th
in line. It has and will continue t
missions sent to inspect and monit
Iraq could face reparation demands
more, Iraq has the foreign indebted
be serviced. In the face of these exter
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
394 American Journal of Economics and Sociology
in which U.N. sanctions have frozen its holdings of $5 billion in foreign assets
and its foreign exchange reserves are all but exhausted. Given these constraints,
Iraq has but one means of meeting its external liabilities: oil.
Revisionist critics of World War I reparations contend the German government
never raised taxes and/or reduced its spending sufficiently to produce the domestic
fiscal surplus required by the collection process.33 Keynes, and those
who shared his opinion of those reparations, claimed Germany did not have
the capacity to do so, at least not without forcing its standard of living to subsistence
levels. As the collection problem applies to Iraq, the source of its reparations
payments will most certainly be its oil revenues. However, because the
oil industry is completely nationalized, those earnings do not flow into the
treasuries of private firms and the hands of private individuals; they are taken
directly by the government. Thus Iraq will not have to face one painful duty
usually associated with reparations. Its government will not have to raise taxes,
at least not explicitly, in order to deposit with a transfer agent the domestic
currency that will be used to buy the foreign exchange earned in trade surpluses
by private entities. Once it sells its oil abroad, the government will have in hand
immediately the foreign exchange needed to effect the actual transfer.
Implicit taxation is another matter entirely. If Iraq's oil exports return to prewar
levels and there is no change in petroleum prices, two rather strong assumptions,
in order to have a surplus in its trade balance, Iraq will have to
reduce its imports. But this is not a matter for the private sector. Given the high
degree of state ownership in the Iraqi economy, it is the government that will
have to reduce directly its demand for foreign goods and services. But those
imports have provided the capital used in Iraq's development programs and
much of the food and other goods consumed by the Iraqi population. When
the government reduces its import demands, which it must do if a trade surplus
is to obtain, it will be raising taxes. This fiscal action will be implicit in nature
but no less real in effect. The administrative difficulties usually associated with
tax increases may be minimized, but the Iraqi people will still feel the impact
of higher taxation.
In 1981, Iraq's nominal oil export revenues peaked at $26 billion. Recently,
its annual earnings have run between $17 and $18 billion, which is probably a
reasonable range for what Iraq can hope to obtain from this sector.34 In 1991,
when the United Nations offered to lift its sanctions and allow Iraq to export
$1.6 billion worth of oil, it demanded 30 percent of the proceeds as reparations.
Indeed, 30 percent has been the proportion frequently mentioned as the impost
the U.N. would apply to all Iraqi oil sales once the full reparations process gets
under way.35 Using $18 to $26 billion as a possible range for Iraq's oil revenues,
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
Reparations 395
a 30 percent levy will produce b
butions to the UN's reparations f
10 and 15 percent of Iraq's $55 b
magnitude is Carthaginian or no
greater than anything Machlup fou
of reparations.
Several factors condition these calculations: the extent to which Iraq's economy
was damaged during the war; the adjustment costs of moving from a wartime
to a peacetime economy; and how import constraints will affect these efforts.
Another important question concerns Iraq's external liabilities. Adding the service
on $85 billion in foreign indebtedness to the tax burden, implicit or otherwise,
required by reparations could increase considerably the severity of Iraq's
economic problems. Capital inflows could ease this situation, but eventually
they too would have to be repaid.
VI
The Transfer Problem
THE TRANSFER PROBLEM is equally problematic. Iraq will pay reparations to man
countries, but its principal creditor will be Kuwait. HarryJohnson has describe
the conditions necessary to determine the degree to which the real transfer
effected when more than two countries are involved. Stated specifically in terms
of Iraq and Kuwait, the theoretical result rests on how the sum of Iraq's margina
propensity to import from all sources, and Kuwait's marginal propensity to impor
from Iraq, relates to unity. The destruction the Gulf War visited on these countrie
makes any calculations of these marginal propensities impossible.36 Regardless
this aspect of the transfer process may be far less important than something els
that is all but certain to appear when Iraq gets back in the oil business: th
classical phenomenon of changes in the terms of trade.
Implicit in any consideration of Gulf War reparations is the assumption tha
Iraq will honor the conditions of U.N. Resolution 674 and any subsequen
agreements regarding its obligation to make good the damages it inflicted during
that conflict. It is clear that oil will be the means Iraq will use to meet those
responsibilities. When it was a member in good standing of OPEC, Iraqi oi
accounted for approximately 15 percent of the cartel's supply. By the time th
Gulf War ended, Iraq's share of OPEC production had fallen to zero, yet th
cartel's total output (and prices) remained virtually unchanged because Saud
Arabia and Iran filled in the gap. Barring any output changes by the other members
of OPEC, when Iraq begins exporting petroleum to pay its reparations, th
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
396 American Journal of Economics and Sociology
addition of its production (and Kuwait's) to the cartel's supply is bound to lead
to a decline in oil prices. But that means all members of OPEC will suffer
deteriorations in their terms of trade, i.e., losses in real income. As for Iraq, it
will be able to make its reparations payments but it will suffer a secondary
burden. And finally, countries that are net oil importers will see their terms of
trade improve and their real incomes increase. In the short run, this could aid
efforts to end the current recession. If successful, in the long run, an international
economic recovery could mean greater earnings for oil producers as higher
world incomes increase the demand for petroleum.
The preceding analysis assumes that once Iraqi wells come back on line the
other members of OPEC make no supply adjustments. However, if the cartel's
goal is to maintain current price levels, it will have to reduce its output. In this
event, Iraq will not suffer a decline in its terms of trade and hence no secondary
burden. Kuwait will have its reparations and no change in its terms of trade.
And the rest of the world will have its reparations and also face unchanged
terms of trade. But the members of the OPEC cartel that reduce supply to offset
Iraq's production increases will see their revenues decline. In this instance,
there will be two losers: Iraq and OPEC countries that make the necessary
adjustments in supply. Saudi Arabia and Iran benefited most when OPEC moved
to meet the supply reductions that occurred at the start of the Gulf crisis. Forgoing
income once the crisis ended was not something they envisioned when they
threw in their lot with the United Nations. This is particularly true of Saudi
Arabia, OPEC's largest producer. Recently, deficits have appeared in that country's
national budget and its government adamantly opposes any reduction in its
market share. Indeed, the Saudi refusal to accept a lower quota and observe an
OPEC production ceiling proposed at a February 1992 cartel meeting is clear
evidence of that unwillingness to cut back at this time.
Another outcome, unlikely but painful, could result from Iraq's attempt to
satisfy its reparations payments. In this instance, OPEC members, insensitive to
international considerations, reduce the cartel's supply by more than the increase
occasioned by Iraq's resumption of production. Given the short-run inelasticity
of the demand for petroleum, OPEC revenues will increase. Iraq's terms of trade
will improve and its reparations burden will be mitigated by a perverse transfer.
But now the rest of the world would face the unhappy prospect that higher oil
prices could slow the recovery from the current recession and reduce further
growth rates as well. Furthermore, in a turn reminiscent of the 1970s, there
could be another redistribution of world income away from oil importers and
to oil exporters. This is hardly the denouement expected by the nations that
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
Reparations 397
joined the New World Order to st
cidentally, to stabilize world oil pr
The analyses presented above are w
is aware of them. Since the Gulf W
attempts to bring its production
meeting in Vienna refused to supp
United Nations to end sanctions aga
reported that, at an Istanbul confere
nations, an overwhelming majority
states who opposed another Iraqi plea
a senior Arab-OPEC delegate at OP
marked, "If we say the Saudis cont
forever, what do we do when Kuwa
ducers in the Gulf know full well ho
obligations may affect their econom
VII
Conclusion
FEW WOULD DISAGREE with the New World Order principles enunciated dur
the Gulf War: a world allied against aggression and the conviction that th
who attack their neighbors should be liable for the destruction they cause. H
ever, before such retribution is exacted, all possible economic repercussi
should be investigated. In almost every previous example of reparations,
principal issues were how to get the offender to pay and how the real trans
would be effected. That history, particularly the case of Germany in the 192
will serve to inform United Nations officials as they negotiate the final terms
Iraq's reparations bill in the 1990s. But the Gulf War has added a new consi
eration to the modalities of reparations: how to proceed when the guilty nat
has the ability to affect world prices-even to the point where it may be ab
to reduce its reparations burden and inflict real income losses on those seeki
compensation. This twentieth-century case of Middle East reparations promi
to add an interesting dimension to an already fascinating chapter in the hist
of international economic relations.
Notes
1. Charles Kindleberger, A Financial History of Western Europe (London: Allen, 1984) 2
250.
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
398 American Journal of Economics and Sociology
2. Frank Tipton and Robert Aldrich, An Economic and Social History of Europe (Baltimore:
Johns Hopkins UP, 1987) 267.
3. Kindleberger, Financial History 238-239, 250, 433-445.
4. Stephen Schuker, American 'Reparations' to Germany, 1919-1933: Implicationsfor the
Third World Debt Crisis (Princeton, NJ: Princeton UP, 1988) 24-35.
5. Richard Caves and Ronald Jones, World Trade and Payments, 4th ed. (Boston: Little, Brown
and Company, 1985) 55-58; Bo Sodersten, International Economics, 2nd ed. (New York: St.
Martin's, 1980) 289-291; Harry Johnson, "The Transfer Problem and Exchange Stability,"Journal
of Political Economy 64.3 (1956): 212-225.
6. John Maynard Keynes, "The German Transfer Problem," EconomicJournal39.153 (1929):
1-7; Caves and Jones, World Trade 55.
7. Such declines are not inevitable, given productivity changes of the right order of magnitude.
See Kindleberger, Financial History 299.
8. Bertil Ohlin, "The Reparations Problem: A Discussion," EconomicJournal39.154 (1929):
172-173; Caves and Jones, World Trade 55.
9. Thomas Balogh and Andrew Graham, "The Transfer Problem Revisited: Analogies Between
the Reparations Payments of the 1920s and the Problems of the OPEC Surplus," Oxford Bulletin
of Economics and Statistics 41.3 (1979): 183-188.
10. Johnson, "The Transfer Problem," 213-217.
11. Ibid., 217-221; Sodersten, International Economics, 289-290.
12. The three outcomes described here are theoretical propositions. How the trade imbalances
they produce relate in size to the required reparations payments is strictly an empirical matter.
See Johnson, "The Transfer Problem," 213.
13. John Maynard Keynes, The Economic Consequences of the Peace (New York: Harcourt,
1920) 161, 225.
14. Rondo Cameron, A Concise Economic History of the World (New York: Oxford UP, 1989)
351.
15. Toronto Star, Feb. 4, 1922.
16. Bernard Weisberger, "In the News," American Heritage 42.4 (1991): 22-23.
17. Balogh and Graham, "The Transfer Problem Revisited," 187-188.
18. Business Week, March 18, 1991.
19. Etienne Mantoux, The Carthaginian Peace or The Economic Consequences of Mr. Keynes
(London: Oxford UP, 1946).
20. Schuker, American 'Reparations, 19. See Jon Jacobson, "Is There a New International
History of the 1920s?" American Historical Review 88.3 (1983): 617-645.
21. Fritz Machlup, International Payments, Debts, and Gold (New York: Scribner's, 1964)
374-395.
22. Ibid., 382-383; Kindleberger, Financial History, 303.
23. Schuker, American 'Reparations'24-35.
24. See, for example, Douglas McIntosh, "Mantoux versus Keynes: A Note on German Income
and the Reparations Controversy," EconomicJournal87.348 (1977): 765-767.
25. Helen Chapin, ed., Iraq: A Country Study (Washington: Library of Congress, 1990) 171.
26. Ian Skeet, OPEC: Twenty-Five Years of Prices and Politics (Cambridge: Cambridge UP,
1988) 239; Facts and Figures (Vienna: OPEC Secretariat, 1987) 29.
27. Kiren Choudry, "On the Way to Market," Middle East Report21. 3 (1991): 14-23.
28. Ibid., 15.
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms
Reparations 399
29. Chapin, Iraq, 141.
30. Christine Helms, Iraq. Eastern Flank of t
1984) 118-119; Chapin, Iraq 125.
31. New York Times, March 1, 1991.
32. Iran's demand is related to its war wit
33. Arminio Fraga, German Reparations an
NJ: Princeton UP, 1986) 7.
34. Iraq and OPEC oil production and pric
Monthly Energy Review (Washington: Gove
issues.
35. Manchester Guardian Weekly, June 23, 1991.
36. Available data, faulty as they are, indicate the sum of the marginal propensities is probably
less than unity because of the insensitivity between Kuwait's income and its demand for Iraq's
exports. However, Iraq's oil earnings, denominated in dollars, go directly to the state. The government's
marginal propensity to import out of those revenues is probably close to unity. When
the U.N. lifts its sanctions against Iraq, it could prohibit all capital flows into that country. Because
its foreign assets have been frozen and its exchange reserves are all but depleted, when the U.N.
takes 30 percent of Iraq's oil earnings as reparations, Iraq's imports would have to decline,
thereby producing a trade surplus.
37. New York Times, June 15, 1991; Aug. 3, 1991; Feb. 15, 1992.
TheJoan Robinson Legacy-A Review Article
INGRID RIMA has assembled fifteen stimulating and insightful essays, ( TheJoan
Robinson Legacy. Edited by Ingrid H. Rima. New York and London: M. E. Sharpe,
Inc., 1991) in the main previously unpublished, the response of significant second
and third generation post-Keynesian theorists to the opportunity she offered
them to refine, extend and clarify their views of the message of that redoubtable
First Lady of economic analysis, Joan Robinson. The collection is usefully embellished
by the reproduction of Phyllis Deane's sympathetic biographical
memoir, Maria Marcuzzo's scholarly Robinson bibliography of 378 items and
Marjorie Turner's conjecture that Robinson's failure to be awarded the Nobel
Prize in Economics was due to her gender, her political orientation and particularly
to her unrelenting criticism of the neoclassical orthodoxy going so far as
to repudiate her own well-known early work, The Economics of Imperfect
Competition.
Generally stopping well short of hagiography, the majority of the essays demonstrate
the radical criticism proffered by Robinson. Hans Jurgen traces the
metaphysical foundations of Robinson's theories to values she herself attributed
to her upbringing. These views infused her analysis and contributed to her
identification of the inherent weakness of contemporary theory, particularly its
method of suppression of value-related and class-related characteristics of capital.
This content downloaded from
147.251.68.36 on Wed, 24 Feb 2021 13:11:04 UTC
All use subject to https://about.jstor.org/terms