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Sent to Commercial West

5-15-61

South Dakota Bankers Convention
Rapid City, South Dakota
May 12, 1961

Frederick L. Deming, President
Federal Reserve Bank of
Minneapolis

PROBLEMS OF GROWTH
The most basic economic issues facing the world today are embodied
in the problem of economic growth.

No matter where you go in the \ o- Id,

whether to the free nations of the west, to the countries o* the :ommunist
camp, or to the host of underdeveloped nations that lie between, this question
is sure to be discussed.
Economic growth in the communist countries has been a central goal
of state policy, both to provide strength for defense in war and raise living
standards, and for the propaganda purpose of impressing the neutrals, the West,
and their own people with the alleged superiority of their system.

The Soviet

Union has had a very substantial rate of growth and this rate has been achieved
by channelling a substantial share of resources and effort into investment.
We must view with grave concern their ability to divert and devote
considerable of their national productivity to efforts of military and strategic
importance.

At the same time we should recognize that the Soviets have no

monopoly on high growth rates.

At least

four

or five capitalist nations have

exceeded the Soviet rate of growth in the last decade.
Soviet growth combines two peculiar qualities: it is exaggerated,
but it is dangerous.

We must be alert to the danger bit. not be misled by the

claims.
In the underdeveloped countries many of the people live so
to the subsistence level that it ?ould be virtually impossible

lose to

or them to

provide the amount of savings to support the investment needed for even a lot
rate of growth, so most of the capital must flow in from outside*-

But since

economic growth is not just the automatic outcome of applying investment to
an economy, the underdeveloped and semi-developed nations still face many



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problems and must look to the outside, not only for some investment capital*
but for assistance in the necessary pre~investment activities.
In the United States we have seen what a free market economy can
accomplish in the way of growth.

Such a free market economy has great

dynamic characteristics, and on balance seems to produce better growth over
the long-term pull than other kinds.

Since it is free and dynamic, however,

it is difficult to guarantee i t ^ predetermined and steady annual growth rate,
and it is difficult for such an economy to allocate its resources to meet
the present Communist challenge on the world stage.

What Is required in such

an economy is for free men to see clearly the threats and instruct their
Government to take the necessary measures to provide such resource allocation
so as to meet the threat,
Central banking - in this country the Federal Reserve System - has
as one of its major objectives the promotion of growth.

It is probably safe

to say that good monetary policy does not by itself assure growth, but bad
monetary policy can pretty much assure that growth will not be long term nor
very sound.