chapter  12
Payments balance and economic policy
Pages 9

In much of the second part of this book we were concerned with forces, automatic market forces, that tend to maintain or restore equilibrium in the balance of payments. We argued that the action of these forces is generally smooth and painless in interregional relations but that under the very different conditions of today's international relations, the same forces, though fully capable of preserving international payments equilibrium, would often do so in so painful a way that national authorities prefer most of the time to offset or weaken their action. When their action is offset or weakened, the burden of adjustment is removed or lessened; but so is the tendency towards payments equilibrium. The problem of national policy therefore is twofold . First, how to compromise between the goals of keeping international payments in balance (external equilibrium) and maintaining domestic prosperity and stability (domestic equilibrium) when the two are in conflict; second, how to eliminate the conflict and the need for compromise by developing and pursuing policies or combinations of policies that will simultaneously assure both external and domestic equilibrium. If the second were possible, the first would be unnecessary; but, to judge by events, the second often is not feasible.