Money, Banks and Finance in Economic Thought

The Formation of Modern Thought on Inflation in Brazil: from the Second World War to the Exchange Rate Crisis (1939 – 1947)

Fontaine Reis de Araujo Patrick, UFRJ

This article explores the controversy on money and inflation in Brazil from the eruption of the Second World War to the Exchange Crisis that occurred in 1947. It recovers, analyzes and organizes contributions from original authors of the period, and establishes a narrative to the development of money theory in Brazil. Authors are separated between liberals and interventionists, as literature has normally classified them. Liberals, on one hand, tended to interpret inflation as a result of public deficit expansion and of an overheating of the Brazilian economy, which was developing new industrial activities during the effort of war. The incapacity to access imported goods and excessive currency issuing - used to purchase dollars from trade surpluses - were particularly emphasized as potential causes to inflation during the world conflict. Interventionists, on the other hand, saw inflation as the result of sluggish supply expansion, due to the lack of capital available, but also as a result of an imbalanced growth process in a backward and incomplete economy. The article is organized in two sections that intend to isolate two different contexts. The first section is consecrated to the conflict period, while the second describes the post-war period - when international trade was normalized - until the emergence of the exchange crisis. Context movements seem to have influenced analyses elaborated by both sides of the controversy, and profoundly transformed the debate. Peace brought international trade normalization, but did not bring inflation to an end, and many of the arguments presented during the war could no longer sustain. The climax of the debate was reached when in 1947 international reserves were depleted and authors converged in suggesting the implementation of an administrative import license. Only essential goods, according to a priority criterion, would be allowed to be imported by the government. This solution was considered optimal by authors on both sides of the controversy, as it could potentially solve the exchange crisis and, at the same time, avoid an inflationary shock, which could eventually result from exchange devaluation.

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Keywords: inflation, money, economic thought, Brazil