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the uncommitted nations of the world that a democracy can grow more rapidly than a communist state. |
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These arguments are thoroughly misleading. The fact is that the Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. A governmentally established agencythe Federal Reserve Systemhad been assigned responsibility for monetary policy. In 1930 and 1931, it exercised this responsibility so ineptly as to convert what otherwise would have been a moderate contraction into a major catastrophe (see further discussion, pages 4550, below). Similarly today, governmental measures constitute the major impediments to economic growth in the United States. Tariffs and other restrictions on international trade, high tax burdens and a complex and inequitable tax structure, regulatory commissions, government price and wage fixing, and a host of other measures give individuals an incentive to misuse and misdirect resources, and distort the investment of new savings. What we urgently need, for both economic stability and growth, is a reduction of government intervention not an increase. |
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Such a reduction would still leave an important role for government in these areas. It is desirable that we use government to provide a stable monetary framework for a free economythis is part of the function of providing a stable legal framework. It is desirable too that we use government to provide a general legal and economic framework that will enable individuals to produce growth in the economy, if that is in accord with their values. |
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The major areas of governmental policy that are relevant to economic stability are monetary policy and fiscal or budgetary policy. This chapter discusses domestic monetary policy, the next, international monetary arrangements, and chapter v, fiscal or budgetary policy. |
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Our task in this and the following chapter is to steer a course between two views, neither of which is acceptable though both have their attractions. The Scylla is the belief that a purely automatic gold standard is both feasible and desirable and would resolve all the problems of fostering economic co-operation |
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