Capital formation in Latin America and the inflationary process | Raúl Prebisch

 


From The Economic Development of Latin America and its principal problems

Raúl Prebisch, 1950. Translated by ECLA.


 

The margin of savings depends ultimately upon the progressive increase of labour productivity. Though the level of productivity achieved by some Latin-American countries is such that, by means of a judicious policy, they would be able to reduce the amount of foreign capital needed to supplement national savings to moderate proportions, in the majority of them this capital is admittedly indispensable.

In actual fact, productivity in these countries is very low owing to lack of capital; and the lack of capital is due to the narrow margin of savings resulting from this low productivity. The temporary help of foreign capital is necessary if this vicious circle is to be broken without unduly restricting the present consumption of the masses, which, generally speaking, is very low. If this capital is effectively used, the increase in productivity will, in time, allow savings to accumulate which could be substituted for foreign capital in the new investments necessitated by new technical processes and the growth of the population.

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