Golden Age of Capitalism - Literature review Example

Golden age of capitalism Golden age of capitalism refers to the period of international economic prosperity of the mid 20th century. There is the period which followed the ending of the Second World War in 1945 and lasted up to the early 1970s. Middleton (2000) argues that this collapse of the economic boom began with the collapse in 1971 of the Bretton Woods System, the oil and energy crisis of 1973 and the falling of the stock market of 1973- 1974, all this brought in the 1970s global economic recession. In strict terms, the golden age period lasted from 1951 to 1973 although is exact dates differ depending on the specific country in question. For instance in East Asia this period lasts for more that a decade longer up to the 1980s and 90s. Middleton (2000) also suggests that the period was characterized by an increased global economic growth, with the East Asian and western Europe countries in particular exhibiting a high and sustained growth and development altogether. This growth was however experience in capitalistic nations thus Soviet influenced regions of eastern Europe block experience a steady economic decline over the major part of this period. Countries which were badly devastated by the Second World War such as France, Japan, Italy and Germany surprising experience in a greater extent this economic miracle. In the academic world literature, the period is referred to as the “Golden age of capitalism” or the Post-World War II economic boom. This also refers to the conditions that caused capital accumulation of 1940s to 1970s leading to the increase of the welfare state in Japan, Western Europe and United State. However this “golden age of Capitalism” does not capture other historical events that occurred ion that period, for instance; the Chinese and Cuban revolutions, de- colonization of Africa, McCarthyism, Vietnam war and the Cold War not forgetting the intensive political turbulence and class conflict around the world at that time. For better understanding of the occurrences of this Golden Age, it is important to take note of the rate of profits during the period. The global economy at that time brought in conditions that fostered high rates of investment, increased output growth and low inflation levels with low unemployment levels. This climate fostered highly favorable conditions for increased profit levels. The year to year profit rates rise from the mid 1930s was due to technical change patterns- labor output increased due to increased mechanization and the resulting high capital productivity sustained solid rates growth. Contrary to convectional wealth expectation, the technical transformation led to increase in employment levels as more jobs were being created. This Golden Age trend and style in profits and investment accumulation, increased growth and employment were related to the historical conditions. They therefore laid the necessary framework for the setting of the appropriate institutional arrangements that push capitalism toward mixed economies of the 1950s and 60s. The victory of the US in the Second World War and threat to communism created the terms for Pax Americana- the involvement of the US and thus the increasing role that made it the main financial just like it happened after the First World War. The US was more than determined to contain the Soviet influence in the Eastern bloc of Europe and beyond. The latter was professed to be a vital and strategic area of the world. To materialize this, the US embarked on an ambitious plan which involved the transfer of funds through direct investment and money transfers such as the emergency short-term relief from the United Nations Relief and Rehabilitation Administration and also the European Recovery programme (Marshall Plan Aid) which kicked off in April 1948 and was expected to last for four years. The estimated aid in terms of commodities and fiancé in the Marshall Plan is over $13.365 billion. Germany for instance, received financial aid on about 57 percent of their net imports for the five year period of 1947- 49. Kondratieff (2000) asserts that this represented about 2.3 percent of their GDP in these five years reaching a high of 5 percent. The aid from this ingenious plan enabled Germany to attain its Pre-War production levels in just three years. Kondratieff (2000) asserts that Immediately after the aid in early 1950, American emphasis now shifted to the containment of the global military strength; a strategy believed to have sparked the US military confrontation and presence in Korean Wars of 1950- 53 and Vietnam wars of 1957 to 1975. There was also a section of capitalist class in the American government that proposed the creation of a set of continued international measures meant for regulating and rebuilding the global capitalism ideology. Basing on this the American government took a commanding role in the formation of the Bretton Woods Agreement, Which was obligated with: Return to the Gold Standard and Exchange Rate Stability One of the main objectives of Bretton Woods was idea of stability rate exchange that would have scraped the policy coded “beggar thy neighbor”, by boosting exports through aggressive devaluations of the national currency. This vital element of this idea was to ensure a return to a “gold- backed exchange rate system” thus the gold set of standards. Kondratieff (2000) believes that this idea was performed through a policy mechanism that connected the non- American currencies to gold through the US dollar. In essence, this meant the unit value of gold was translated through the US dollar, for instance until 1971, 1oz of fine gold was equated to US$35. This was effectively made to be the core of the global international monetary systems. This dollar- founded, fixed exchange meant that any potential devaluations of any national currency needed an American consent. Funding trade Deficits- Creation of international Monetary Fund The International Monetary fund (IMF) was created so as to fund the contemporary trade deficits in addition to preventing financial and economic recessions. This fund was expected therefore to manage a central poor of banks and reserves used in cases where a member nation experienced a temporary payments imbalance crisis. The US government has all along kept a tight grip on the International Monetary Fund since its inception and has for that long been its main contributor. Free Trade along with the General Agreement on Trade and Tariffs For centuries the US has stuck on its principle of trade liberation. The General Agreement on Tariffs and Trade (GATT) got signed in the year 1947 and it was succeeded by WHO i.e. World Trade Organization in 1995. GATT aimed at the elimination of all trade barriers, as per the tenets of orthodox doctrine. This move was aimed at opening up markets for American products throughout the globes. The setting up of the World Bank Initially the World Bank was referred to as the international Bank for Reconstruction. It was aimed at financing development and reconstruction of countries devastated by the Second World War as well as post-colonized countries. Webber (1996) notes that by the end of 1960s, the Golden age had reached the climax and some signs of fall and decline started to emerge. The major cause attributed was the precipitous decline of the profit rates by the late 1960s. The collapse was made evident during early 1970s through the fall of Bretton Woods System. Stephen (2003) believes that this spontaneous restructuring of the very economic capitalistic institutions that had authorized of this post-war social agreement meant that the reducing profit rate was united with the drift in international relations. Rate of Profit- Business Sector, United States c1929-2003 (Webber, 1996, p.3) Note: The golden age period is depicted by a light band on the above graph Webber (1996) describes the relative stability enjoyed during the Golden Age was partly due to monetary system adopted at that time that correlated with the American rules of the game. For example, the gold standard adopted during the post-war period was due its credibility of the vast US gold reserves. This type of the monetary system offered the American capitalism the chance to take on rising foreign debts levels without feeling the constraint experienced by other nations, which were compelled to adopt the US dollar currency for their central monetary reserves as well as the accredited means of making international payments (Webber, 1996, p.2). Kondratieff, 2000 supports that the dollars ability to withstand its value depended on the strength and vitality of the American capital abroad and the general American economy. Webber (1996) confirms that immediately the return of dollar currency invested by American firm declined, the dollar holdings on foreign nations assumed the noticeable characteristics of debt, with a rather heightened pressure on the link to gold (Kondratieff, 2000, p.3). Stephen (2003) claims that the situation created a tendency for dollar devaluation that later expressed in an increased liquidity crisis that later culminated in a world global crisis by the late 1960s. Webber (1996) believes that in that liquidity crisis, foreign nations could no longer withstand the domination of a single currency- in that case, the US dollars as it had been previously established. Beginning in the late 1960s, the comprehensive liquidity crisis led to a run on the established US reserves as it happens to banks in situations of financial crisis. Stephen (2003) asserts that due to this effect, the fixed connection between the dollar and gold – the dollar gold price; grew progressively more artificial as the dollars lost its worthiness when trading with the old, fixed rate for gold. The fictional gold price in terms of dollar was eventually revealed to the world by the then president Richard Nixon in 1971, when the increasing discrepancy compelled him to retract the dollar off as the gold standard. Kondratieff, (2000) acknowledges that this is well attributed to the readjustment of the capitalist reality of the 1950s when the US gold reserves was about five times to the assets in terms of dollars of the foreign powers by the by 1970s the reality was not the same, since the figure had dropped to about one fifth of the foreign wealth. Kondratieff, (2000) asserts that this period in the 1970s was also marked with high unemployment rates, prolonged sluggish output growth, increased political instability and high raw material costs from the third world nations. Conclusion From this analysis, it is evident that just like other historical periods, the Golden Age of Capitalism needs to be understood as a series of interconnecting and interacting institutions- all functioning at different areas of global economy, but in some cases interlocking with each other and thus important to an in depth intelligent analysis of a decisive period not only in the American but global experience at large. References Cairncross, D 1994, The Legacy of the Golden Age: 1960's and Their Economic Consequences, Rutledge. Kondratieff, N 2000, "The Long Waves in Economic Life". Review of Economics and Statistics, Watson, Washington. Middleton, R 2000. The American Economy Since 1945. Palgrave Macmillan Stephen A. M (2003) "The Golden Age of Capitalism, Prentice Hall publishers, New york. Webber, M 1996, The golden age illusion: rethinking postwar capitalism, Phaidon, London Read More