Abstract
Whether or not monetary expansion leads to inflation, and is conducive to output growth in this way, the growth of the money economy and the development of a country’s financial system must be considered an integral part of the development process. As Hicks has said:
The beginning of a process of expansion … might occur because ofreal factors (inventions and the like) raising the real (prospective) rate of profit. But it might also occur because of financial improvements …, thereby permitting access to funds, for improvements which could have been made earlier, if the necessary funds had been forthcoming. It is not savings only that are required, but a channel of communication between potential savings and potential real investment.1
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Notes
J. Hicks, Capital and Growth (Oxford University Press, 1965) p. 290.
U. Hicks, Development Finance, Planning and Control (Oxford University Press) 1965.
Unless, of course, the objective is to initiate a deflationary spiral. Such a policy has been seriously suggested by Professor Friedman to equate the return on money holdings with the rate of return on alternative assets in order to encourage the holding of money which is costless to produce. Since there are easier ways to encourage the holding of money (such as offering interest rates on current account bank deposits), and many prices are probably inflexible downwards anyway, Friedman’s monetary rules are not considered in detail here. Interested readers are referred to M. Friedman, The Optimum Quantity of Money and other Essays (London: Macmillan, 1969).
A. C. Harberger, ‘Some Notes on Inflation in Latin America’ in Inflation and Growth in Latin America, ed. W. Baer and I. Kerstenetsky (London: Irwin, 1964).
M. F. Fry, ‘Manipulating Demand for Money’ in Essays in Modern Economics-Proceedings of the A.U.T.E. Conference 1972, ed. M. Parkin (Harlow: Longman, 1973).
See P. Cagan, ‘The Monetary Dynamics of Hyper-Inflation’ in Studies in the Quantity Theory of Money, ed. M. Friedman (University of Chicago Press, 1956).
W. Newlyn and D. C. Rowan, Money and Banking in British Colonial Africa (Oxford University Press, 1954).
U Tun Wai, Financial Intermediaries and National Savings in Developing Countries (New York: Praeger, 1972).
A. Lewis, Theory of Economic Growth (London: Allen & Unwin, 1955).
This section draws heavily on W. Diamond, Development Banks (Baltimore: Johns Hopkins Press, 1957).
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© 1974 A. P. Thirlwall
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Thirlwall, A.P. (1974). Money in a Developing Economy. In: Inflation, Saving and Growth in Developing Economies. Palgrave, London. https://doi.org/10.1007/978-1-349-86179-8_5
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DOI: https://doi.org/10.1007/978-1-349-86179-8_5
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