The preceding two chapters were devoted to an analysis of the first of the two major roles that fiscal and monetary policies can play to stimulate development. This is to provide adequate resources for financing a target volume of investment without engendering price inflation. Chapter 3 was concerned with the problems of augmenting investment resources through domestic savings and Chapter 4 with those related to the importation of such resources from abroad. This chapter is devoted to the analysis of the second role of fiscal and monetary policies, namely their use to influence the pattern of investment i.e. its sectoral and geographical allocation (see pp. 53–4 and 63–4).

It will be recalled that, in the context of Kalecki's simple model of development of mixed economies, there are two basic reasons for the authorities to play an active role in determining the pattern of investment. The first is simply to prevent, or discourage, investment in the production of inessential luxury goods in order to avoid a ‘lopsided’ development. The second reason is to ensure that adequate resources are devoted to the production of necessities, or wage goods, to ease the constraint imposed by the supply of such goods on the rate of investment and growth (see pp. 56–9). But since, apart from the supply of necessities, other bottlenecks, such as those in the economic infrastructure and in skilled labour, can also seriously retard the pace of development, the second purpose of regulating the pattern of investment can be expressed (in wider terms) as being the attainment of a ‘balanced’ growth of the major sectors of the economy.