ABSTRACT OF PAPER
Title: Abba Lerner in Israel, 1953-1956
Author: Schiffman Daniel, Young Warren , Zelekha Yaron
In 1953-1956, Abba Lerner served as a resident advisor to the nascent State of Israel. For most of this period, Lerner was a member of the Economic Advisory Service (EAS), an official body within the office of Prime Minister David Ben Gurion, under the direction of the American economist Oscar Gass. After the EAS’ contract was not renewed, Lerner served during the first half of 1956 as an advisor to then-Finance Minister Levi Eshkol. This paper utilizes the Lerner Papers and the EAS papers in Israel State Archives to document Lerner’s activities and influence in these roles. In internal EAS memoranda, Lerner analyzed export subsidies, the proposed legislation to establish the Bank of Israel (established 1954), and the COLA system. He advocated export subsidies, on the grounds that they would allow Israel to keep its trade deficit constant without restricting output growth. He urged the Israeli government to reconsider the proposed Bank of Israel law, on the grounds that the law granted the central bank too little independence, allowed for too much discretion on the part of the governor, and assigned the central bank multiple functions that were beyond the scope of monetary policy (including banking supervision). Lerner’s objections to the Bank of Israel law brought him into conflict with David Horowitz, the founding governor of the Bank of Israel. Lerner advocated replacing the COLA system with an official Wage Authority. The task of the Wage Authority as envisioned by Lerner was to keep wage increases in line with productivity growth, so as to maintain price stability. Lerner also sought to play the unconventional role of visiting public intellectual. He contributed to “the economic independence debate”–the debate concerning the long term sustainability of Israel’s massive trade deficit and capital imports. He lectured to nonacademic audiences and contributed articles to popular magazines. Before his departure, Lerner launched a public campaign to abolish the COLA. In two open letters (January 1956 and August 1956), he exhorted Israelis to write their union representatives (or the Finance Minister himself) and declare their willingness to forego the COLA payment, and to influence others to do the same. Although Lerner’s letters elicited virtually no response, they provoked a vehement controversy. In January 1956, one of the socialist coalition parties called for Lerner’s dismissal. Eshkol offered muted criticism of Lerner’s letter but refused to dismiss him. Ultimately, Lerner’s campaign to abolish the COLA ended in failure.
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