The Capitalist Golden Age
The Post WWII “Free World”
Real Economy

Domestic US Factors in GreatDepression• Steel production – leading sector of the late 19th
century “second industrial revolution”, grew tomeet demand for railways, port facilities,
communications, industrial and civic construction,
WWI weaponry and transport equipment• Following the war, with much of global track laid,
global trading and communications infrastructure
emplaced, and construction booms waning,
demand began to taper off• By early 1930s steel production, with its hugeeconomy of scale requirements, operated ataround 50 percent capacity

Contd.
• US agricultural production expanded in response
to rising prices and growing demand during WW1• Wealth effects transmitted to construction +nascent auto industries• Thus mid-1920s drop in demand for US produced
farm commodities reverberated througheconomy• Devastating impact on banks which had financed
growth in agriculture• Auto industry particularly vulnerable given
uneven technological base + limited demandInternational Causes of GreatDepression• Peculiar triangular flow of payments instituted bywhich private lenders coveting German assets
lent Germany money to cover war reparations• Private flows turned away from Europe by 1928
in favor of lucrative gains on Wall Street• Net dollar outflows from US to Europe, Latin
America and Asia plummeted from $900 million
in 1927-28 to $86 million by 1929-31• Dearth of global liquidity led to world-wide
recession which exacerbated travails of US
economy to create Great Depression

Making of Golden Age Economy:
Automobiles• Hard to imagine another production industry
with the sheer material accouterment ofautomobiles – steel, rubber, glass, electronicallyoperating production equipment and electronic
components, machine tools, paint, upholstery,and plastics etc.
• Supportive infrastructure of roads, petroleum
industry installations, service and repair facilities• Backward and forward linkages running gamut
from design and engineering to sales showrooms
and marketing networks

New Business Model• Exemplified by US automobile companies new
multinational corporations (MNCs) coordinatedsupply and distribution of thousands ofstandardized parts and components• Integrated diverse operations running the gamut
from research and product design throughproduction and distribution to advertising andmarketing• Beyond automobiles MNCs sprang topredominance in industries ranging fromchemicals and petroleum, agricultural machinery,transportation and construction equipment

Vertical Integration
Management andoperations – centralizedcontrol

Final assembly and high valueadded production

Low value-added components also produced“in-house”.
Early General Motors Company produced 75%of all cars in-house

Horizontal Integration
Toyota: 25% of automobile produced “in-house”

Supplier

Subcontractor

Supplier

Class Accord Between
Capital & Labor• Recognition by capital that high wages for
production work flip side to high throughput
of industry – workers could buy consumer
goods they made• Growth of labor unions saw wages rise inrelation to productivity gains• Unions de-politicized – concerned witheconomic gain not political economic change

Industrial Foundations of Employment• 100 jobs in manufacturing had created afurther approximately 422 jobs attendant tothem• In the 1960s and 70s autos and relatedindustries employed 1 in 6 Americans• 100 jobs in the automobile industry create
another 691 around itFactory Model of Education: Track 1HIIQAcademicsubjectsHighcredentials

Professional/
managerialjobs

Factory Model of Education: Track 2

LOW

PracticalLowIQ

subjects

credentials

Semi/
unskilledjobs

Educational Expansion + Middle Class• Growth of middle class – less able to maintainstanding through inheritance and seeking
status of “white collar” work – depended
upon education to transmit “cultural capital”
to offspring• “Diploma disease” – use of qualifications byprofessional groups to restrict access led todemand for higher level of credentials• Widening access to universities lowers thevalue of credentials in job competition

“Big Government” Social Democracy• Economist John Maynard Keynes famously
claimed that as household wealth increased
the marginal propensity to consume fell
• Therefore when concern of economy is withmaintaining effective demand – solution isincome redistribution• Entails – social wage – unemployment
insurance, old age social security, publichealth insurance plans, social welfare, public
education

Ideology of Ever-expanding Mass
Consumption• High throughput of consumer durable MNCs
supported not only by government social wage
but inculcation of new ideology• Ideology of ever-expanding mass consumption
equates happiness and personal fulfillment with
consuming a diverse array of consumer durables
and services• Related ideology of hyper-individualism countersfact of large MNC collectivities and centralized
collectivity of the Keynesian welfare/warfare
state delivering “the goods” by forceful assertionof people’s seemingly unique individual tastes
and consumption choices

Automobile – Suburbia – Television
Complex
Automobile
as keyconsumerdurableTelevision is themedium through whichhigh priests ofadvertizing confront
isolated individuals withinsatiability of needs

Private home insuburbs is thesite for
consumption ofconsumer goods
and justifies
spending on
autos and roadinfrastructure

Advent of Macroeconomic PolicyMaking• Growing belief that governments have a policyrole to play in supporting capital accumulationarises in the early 20th century• Macroeconomic policy comes into its own in
the post-WWII golden age economy of mass
production and mass consumption• Fiscal policy of countercyclical demand
management along with social wage is flipsideto high throughput of mass production

Keynesian Multiplier Effect
As businesses profit andworkers receive wages
both are able to pay moretaxes which clears thegovernment deficit.

Governments invest in
public works andsupport of social wage
duringrecession phase of thebusiness cycle

Potentially unemployed workers continue
to receive income as do many unemployed.
These workers are a source of effective demand.
Their purchasing of goods from the private sector
keeps businesses from closing.

Bretton Woods Monetary System (BWMS) US dominant economic power – 65% of world gold reserves inFort Knox – allies devise new international monetary order in1944 – BWMS – US dollar to be principle world money
 The dollar price of gold becomes basis for fixing exchange
rates between different national currencies
 The exchange rate of dollars to gold was $35 = 1oz gold National currencies issued as fiat money ends seamlessness
between domestic and international monetary system
 BWMS offers a “social contract” between nations – USallowed to satisfy global demand for its capital by means
which strengthened its own industrial base and power Other countries received dollars necessary for participation inworld economy
 BWMS mandated capital controls to allow domestic policy
space for post-war reconstruction

“Impossibility Theorem”
CapitalMobility

Stable ExchangeRate

MonetaryPolicy
IndependenceGoldStandardGold StandardXXXXBretton Woods

Bretton Woods

Stylized View of Capital Mobility inModern History

Maurice Obstfeld and Alan M. Taylor,Globalizationand Capital Markets in, Michael D. Bordo, Alan M. Taylor and Jeffrey G. Williamson (eds.) Globalization in Historical Perspective (University of Chicago Press, 2003)

New International Policy Orientationof US to Build a “Free World”
1. “Cold War” and anti-communism to fashion
TRIAD of North America/WesternEurope/Japan centered Northeast Asian
economy into 3 “showcase” economic
growth poles of capitalism
2. Marshall Plan to reconstruct Western Europe
3. “Dodge Plan” to rebuild Japan
4. US exports new model of consumer
capitalism to Western Europe and Japan

Marshall Plan and the Cold War• Marshall aid to Western Europe + Japan totaled afull 5% of US GNP in 1948 (equivalent of US 2000
GDP = $500 billion!)• Aid solved catch-22 of having to export in orderto pay for imports but being unable to producefor export without first importing materials andmachinery• Marshall Plan involved severing of links between
Western Europe and Soviet Union + politicalreconstruction and integration of Western Europe
into a common area

“Dodge Plan” Reconstructs Japan• “Reverse Course” sees US policy support forreconstituting Japan’s Zaibatsu as Keiretsu• Between 1951 and 1974 there were 23,424
cases of technology imports into Japan fromthe US with a value of $5 billion• Anti-communist alliance with “Free World”
pays handsome economic dividends as Japanessential support of US Korea war effort

Economic TRIAD in Early Post-WW2 Period
US is most powerful
militarily and develops
new consumer
Industries firstDollars flow toWestern Europe

WesternEurope adopts
Fordist model

Dollars flow toBretton Woods Monetary
System provides globalliquidity

Japan + E. Asia

Japan adopts
Fordist modelPolitical Management of theGlobal Economy• Along with BWMS three further major new international
multilateral institutions created to manage global economy• United Nations (UN) adopted legal principles delimiting theform and scope of the conduct of all members of theinternational community• International Monetary Fund (IMF) demanded policy
compliance from member states to treat balance of
payments difficulties• World Bank (WB) an organization funded to lend money toindividual states for development• Political organization of world economy replete with supranational institutions one of the most significant changes inhistory of capitalism