National economic policies played a significant role in growth and development. The crisis of 1929 and the demands of the war economy forced governments to intervene increasingly in economic activity. This does not refer to the “dirigisme” that most belligerents implemented during the war to allocate essential resources to the military sector. Rather, it considers the full range of contemporary economic policy instruments whose importance has reshaped the traditional features of what was termed “liberal” capitalism. This state action is reflected primarily in the weight of the public sector and in the diversity of intervention mechanisms.
Public expenditure in France represented 9% of gross national product in 1913, 21% in 1938, and 23.5% in 1962. From 1926 to 1929, the budget measured in constant francs increased 4.5 times, while national income grew 1.7 times. No country escaped this trend, and governments gained the capacity to act directly on aggregate demand through consumption and investment spending. Advances in economic science, both in understanding fundamental mechanisms and in measurement tools, provided valuable support for policymakers. Forward-looking studies and national accounting enabled governments to better manage economic conditions. However, it cannot be concluded that Western countries that attempted short- and medium-term planning achieved superior results. The liberal model associated with West Germany did not exclude state support, limited to broad monetary and fiscal instruments. In the case of Great Britain, often placed among the slower-growing economies, the absence of a selective economic policy partly explains this position, though deflationary policies aimed at preserving exchange rate stability and the international role of the pound must also be considered. Overall, the central issue between 1945 and 1958 was inflation. Governments sought to maintain full employment and expansion, even at the cost of inflationary pressures, rising prices, and external imbalances. With the exception of the Federal Republic of Germany, most countries, including France and Great Britain, experienced significant external deficits during inflationary expansion, notably in 1951 and 1956–1957.
The incompatibility between domestic growth and external balance is a long-standing issue that remains relevant. It becomes particularly acute in periods of full resource utilization, when aggregate demand exceeds productive capacity. Rising prices lead to faster wage increases, especially when labor is scarce. Production costs rise, and producers pass these increases on to prices. This process is facilitated when demand exceeds supply in inflationary markets. Price increases generate new wage demands, which, once granted, immediately affect costs again. An inflationary spiral emerges, combining demand pressures and rising costs to push prices upward.
Exports from countries experiencing faster price increases are placed at a disadvantage, while imports are encouraged not only because foreign prices are relatively lower, but also because domestic supply is insufficient to meet total demand over time. During 1955–1956, excessively long delivery times became a disadvantage in external markets. For this reason, governments often restrained domestic demand to free resources for export. It is important to note, however, that inflationary expansion implies full utilization of national economic resources. Growth rates tend to be higher during inflationary phases than in periods of equilibrium. One of the main objectives of economic policy is to ensure the highest possible growth rate compatible with relative price stability and external balance. Persistent inflationary tendencies suggest that aggregate demand has often exceeded productive capacity and has thus been a primary driver of rapid growth.