The Greatest Boom
Between 1945 and 1973, the Western world lived through unprecedented growth: European GDP doubled or tripled, Japan surged, and inflation was low. This was the Golden Age of Capitalism.
Bretton Woods (1944) built postwar monetary architecture: the US dollar pegged to gold at per ounce, and all other currencies pegged to the dollar. Exchange rates were fixed but adjustable.
| Institution | Role |
|---|---|
| IMF | Managed balance-of-payments crises |
| World Bank | Financed development |
| GATT | Liberalised trade, preventing 1930s tariff wars |
Catch-up growth (convergence) let war-devastated nations adopt US tech. Solow-model logic applied: low capital stock meant high marginal returns to investment, so importing the frontier was faster than inventing it.
The Mixed Economy and Collapse
The mixed economy combined Keynesian demand management, welfare states, and nationalised industries. The political bargain: capital got stable demand, labour got rising wages.
Why it ended: US trade surpluses vanished as rivals recovered, leading to a dollar-gold run. In 1971, Nixon suspended gold convertibility, collapsing Bretton Woods.
| Ingredient | Contribution |
|---|---|
| Bretton Woods | Stable exchange rates |
| Catch-up | Adopting the US frontier |
| Cheap oil | Falling energy costs |
| Social bargain | High demand and wages |
Common pitfall: Projecting the Golden Age as normal. Catch-up growth is a one-off phase; pushing the frontier itself is slow. When catch-up finished, growth slowed.