PART IV - MONEY IN TIMES OFWAR, CENTRAL PLANNING AND REGULATION, 1940–1986

Summary

Monetary development in the years after 1945 necessarily reflected the financial and economic challenges created by World War II. A huge monetary overhang had to be dealt with and there was an urgent need for restoring broken trading links and production capacity. The scare of a repetition of the 1920s, when the end of World War I represented the beginning of a long period of crisis and hardship that lasted throughout the 1920s and well into the 1930s, was at the forefront among the new generation of leaders. It should prove that the challenges arising from the war, although substantial, were all short term in nature and were fairly soon overcome. Already by 1947 output in per capita terms had surpassed the 1939 level. By the mid-1950s the monetary overhang had been more or less eliminated.

The international monetary system following the 1944 Bretton Woods agreement and the establishment of the International Monetary Fund (IMF) was intended to pave the way for a return to a financial order based on a fixed exchange rate system with limited opportunities for competitive devaluations. On the domestic scene, Norway laid out ambitious plans for reconstruction, full employment and modernisation centred on Keynesian economic policy and government planning. Within the new political economy, Norway turned out to be an outlier. The potential for planning was taken further than in almost every Western country and postwar regulations were in place for a much longer period of time. Not until 1990 were its last remnants (capital controls) finally removed. The early postwar years were a period of great unorthodoxy of monetary policy in many countries, and Norway turned out to be the most unorthodox country of all.

Monetary and credit policy in the postwar economy rested on three pillars. First, the persistent commitment to low interest rates prevailing after the war was retained in order to support further growth and promote income redistribution. Second, with politically determined interest rates consistently below the level needed to clear the market, credit had to be subjected to forms of rationing other than the price mechanism in order to maintain macroeconomic stability.