THE FIRST TEN YEARS OF THE INTERNATIONAL MONETARY FUND by The International Monetary Fund Economic Growth and Development The world economy is much stronger and better balanced now than in the decade before World War II; it offers promise of continued growth and development far beyond the hopes of the last generation. The growth in production since the end of the war has been at an unprecedented rate almost everywhere. There is no assurance, of course, that production will continue to grow at the same high rate as during the past ten years. It is reasonable to expect, however, that a satisfactory rate of growth will be maintained in the highly developed industrial countries. Although much constructive work has still to be done before the prospects for the underdeveloped countries can be regarded as entirely satisfactory, expansion there, too, is likely to be accelerated.
There are a number of reasons why production is likely to continue to expand at a satisfactory rate. In many countries, resources from domestic savings and from foreign capital are available for new investment on a larger scale than in the past. Everywhere there is a greater receptivity to new methods of production, and large sums are being spent on industrial and agricultural research. While the expansion of production has been interrupted for brief periods from time to time, the danger of deep and prolonged depression has been successfully averted. Of far greater importance at this time is the disruption and distortion of production from inflationary financial and wage policies.
While there is little danger of a runaway inflation, there is great danger in many countries of a persistent price and cost inflation which will undermine financial stability. In underdeveloped countries, the availability of resources for new investment often falls short of the expectations in their development programs. In some highly industrialized countries, expectations of increases in current consumption tend to outrun increases in the productivity of the economy. The world is confronted with a problem of a challenging character—to reconcile economic growth and full employment with monetary stability. The solution of this problem calls for discipline of a high order in all aspects of economic and financial policy. The creation of credit is not a substitute for real savings, and a
rise in money wages is not equivalent to a rise in real income.
The strains and stresses caused by excessive inflation constitute the greatest threat to continued growth and development. The stimulus that inflation gives to investment and production is soon exhausted. The distortions that arise from inflation impede the efforts to encourage domestic savings and to attract foreign capital. And inflation inevitably generates forces that will in time check expansion and may even lead to depression. Far greater progress will ultimately be achieved through a policy of restraint in the creation of bank credit, in government expenditure, and in the rise in money incomes, than through any attempt to use inflationary techniques to force a rate of investment for which there are inadequate resources and a level of real income for which there is inadequate output.
Financial policy is an essential part of a program for economic growth and development. Its role is to create an environment of monetary stability in which the will to save and invest can have its full effect in providing real resources and encouraging new enterprise. Unless the problem of persistent inflation is solved, the hope for continued economic progress at the present rate will inevitably be disappointed. In countries incapable of avoiding inflation, the postwar payments difficulties which have been largely overcome will reappear as chronic balance of payments problems. The Fund must be the advocate of economic development with stability in a strong and balanced world economy.