This careful empirical study is a valuable addition to the already extensive literature on the causes of inflation in Brazil from gradual beginnings at the end of World War II to a wildly uncontrolled stage checked only by a military takeover of the government of President João Goulart on April 1, 1964. Making use of refined statistical data, the author seeks to provide a definitive conclusion to the controversy that raged between monetarist and structuralist economists over the Brazilian case in the late 1960s. Though disagreement will continue, he has greatly strengthened the empirical foundations of the monetarist position.
Taking as an hypothesis the structuralist contention that the underlying causes of the Brazilian inflation were the country’s backward agriculture, its rapid urbanization, its lack of mobility of investment funds, and its deteriorating terms of trade, Kahil examines each sector in turn and concludes that while structural weaknesses existed, they did not play a significant role in the sustained rise in price levels from 1945 to 1964. On the contrary, accelerating inflation itself, arising from other causes, aggravated existing structural deficiencies.
He thus accepts the monetarist thesis that the immediate causes of the persistent and often violent rise in prices were large and growing public deficits, too rapid expansion of bank credit in the first years and, later, excessive increases in legal minimum wages. These sources of excess monetary demand were in turn a consequence of two overriding aims shared by nearly all administrations during this period: to promote rapid industrialization and to win the allegiance of the urban masses while effectively serving the interests of privileged groups— bankers, big industrialists, merchants, contractors, and land speculators. The ultimate outcomes were to slow the country’s growth and to cause extreme labor unrest, peasant invasions, cruel disparities of income, and an eventual forceful intervention.
Kahil’s interpretation is not new, and some links in his chains of inference may be questioned. Yet his work is impressive in the diligence and skill with which he marshals statistical data. As a monetarist, his statement of structuralist positions is fair and even sympathetic. He credits the structuralists with forcing a closer examination of underlying factors, and he concedes that as an inflationary process advances, the complex interplay of demand-pull and cost-push forces, together with basic weaknesses in backward economies, lends credence to the view that governments have no choice but to continue expansionary measures. Nevertheless, he insists that the initiating forces in Brazil were not structural, and that the correct remedy was stabilization, however painful.
One may take issue with his assertion that “the supply of agricultural foodstuffs since World War II was on the whole adequate in relation to both the increase in population and the growth of per capita real income” (p. 84). As he reports, during the period from 1948 to 1963, food prices rose over thirty-fold, severe meat shortages developed, and large quantities of wheat had to be imported as subsidized aid. Considering the low nutritional level already prevailing, one might reasonably conclude that a more positive policy toward agricultural development was needed and that it would have had some counterinflationary effect.
It is also difficult to accept Kahil’s conclusion that, taking the country as a whole, “accelerated urbanization has had no effect on house rents” (p. 107), and that the large increases which occurred were wholly due to other causes. Complete rejection of the structuralist thesis leads to overstatements of this kind.
What one chiefly misses in Kahil’s otherwise admirable study is a positive theory of development. One is led to conclude that if only the Brazilian authorities had carried out orthodox stabilization policies, development would have taken care of itself in response to market forces. This is still very much at issue.
