CHAPTER SEVEN
The Long Boom
The "Golden Age" of Western capitalism
Many economic forecasters expected the world economy to slip into crisis again after the war, after a brief period of boom as in 1919. It did not happen. What followed was the longest boom that capitalism had ever known-what is often now called "the golden age of capitalism", or in France, "the glorious thirty years". By the 1970s American economic output was three times the 1940 level; German economic output was five times the (depressed) level of 1947; French output up fourfold. A thirteen-fold increase in industrial output turned Japan, still thought of as a poor country in the 1940s, into the second largest Western1 economy after the US. And along with economic growth went rising real wages, virtually full employment and welfare provision on a scale people had only been able to dream of previously.
Conditions were very different in Asia, Africa and Latin America-what became known as the "Third World" after the Bandung conference of 1955. There massive poverty remained the lot of the vast mass of people. But the European powers were forced to relinquish their colonies, and increased per capita economic growth2 created the expectation that eventually the economically "less developed" countries would begin to catch up with the most advanced.
It became the orthodoxy on both the right and much of the left to proclaim that the contradictions in the system perceived by Marx had been overcome. The key change, it was argued, was that governments had learnt to intervene in the economy to counteract tendencies to crisis along the lines urged in the 1930s by John Maynard Keynes. All that was needed for the system to work was for the existing state to disregard old free market orthodoxies and to intervene in economic life to raise the level of spending on investment and consumption. This could be done either by changes in interest rates ( "monetary measures" ) to encourage private investment, or through increasing government expenditure above its tax revenues ("fiscal measures"). " Deficit financing" of the latter sort would increase the demand for goods and so the level of employment. It would also pay for itself eventually through a "multiplier effect" (discovered by Keynes's Cambridge colleague Richard Kahn). The extra workers who got jobs because of government expenditures would spend their wages, so providing a market for the output of other workers, who in turn would spend their wages and provide still bigger markets. And as the economy expanded closer to its full employment level, the government's revenue from taxes on incomes and spending would rise, until it was enough to pay for the previous increase in expenditure.
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