Economic Crisis and Policy Prescriptions: The Kalecki and Mikesell Reports, 1950–1952

Abstract

In early 1950, the left-leaning Israeli government came under attack from opposition parties that denounced its quasi-socialist economic policies. They advocated the abolition of exchange and price controls, along with the introduction of a floating exchange rate. In response, the government turned to the well-known economist, Kalecki, who, in a September 1950 report, recommended not only the retention of exchange controls but of price controls. His advice was at first implemented, although it seems that he was initially approached to strengthen the image of policy decisions that had already been made. Later on, in a politically inspired economic reform, the government distanced itself from his recommendations. By April 1952, Israel’s financial position had deteriorated, due to a short-term foreign currency debt crisis. The US government decided to send an economic expert, Mikesell, to Israel. His main recommendation was the immediate implementation of a detailed and comprehensive foreign exchange budget, albeit over the initial objections of the then Israeli finance minister. This was eventually put into place, enabling continued US support of Israel’s “New Economic Policy,” which distanced the economy from the earlier quasi-socialist policies advocated by Kalecki and the Israeli government itself.