Recall the pre-1913 post-1800 progress of humanity in the direction of a utopia of material abundance.
The classic Industrial Revolution period—1800 to 1870—had seen material productivity and living standards rise by perhaps one-quarter worldwide, with an average growth rate of perhaps one-third of a percent per year. Growth had been faster—greater than one-half percent per year—in the countries that were to become the G-7, even though two of its future members, Italy and Japan, as of yet showed few signs of significant industrial-era growth. Then 1870-1913 the modern corporation, the industrial research lab, the manufacturing value chain, plus globalization—the land and submarine telegraph cable, the iron-hulled screw-propellered ocean-going steamship and the railroad, and global migration—pulled the world forward with a large jerk: a more than tripling of growth, with a more than doubling of growth rates in the industrial core that was to become the G-7 and substantial participation elsewhere even where factories were not build. A Mexico, for example, saw its productivity levels double between 1870 and 1913. An Argentina, for example, saw its productivity levels triple. And growth in Italy and Japan for the first time kept pace with that in their future G-7 partners.
The pre-World War I order allowed for peace (if an imperial “peace”), and growth (albeit not “convergence”, either between or within countries) at a pace that doubled material standards of living—the order of things that Keynes called:
this economic Eldorado…. What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914!… The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper…
And the well-thinking had thought progress at the 1870-1913 pace was “normal, certain, and permanent, except in the direction of further improvement”. The future G-7 in 1913 was twice as productive as it had been in 1870, and the rest world on average at least 50% richer.
Then from 1913-1938 things fell apart. Worldwide growth fell back to its 1800-1870 pace. At the 1913-1938 pace of average growth it would take not 30-50 years for productivity to double, but more like 80-120. An Argentina, heavily invested in the growing world division of labor, found its trading links heavily damaged by war, depression, and protectionism: it appears that Argentina in 1938 was poorer than it had been in 1913, as was Spain (albeit Spain was then at the end of the civil war sparked by Franco’s attempted coup). British national income per capita grew at only 0.40%/year, French at 0.35%/year, and Canadian at only 0.11%/year from 1913 to 1938. Of the future G-7, only Germany and Japan maintained and even accelerated their pace of growth and industrialization at nearly 2%/year. Outside, only the Soviet Union claimed economic and political success—with some reason, but even at the time and more in retrospect it was properly classified as more dys- than utopia.
And then came the catastrophe of World War II: 50 million people killed (out of the 2.3 billion then alive), and something like two years’ worth of global production worse than wasted, as it was devoted to killing people and destroying wealth and capital.
Post-World War II, prospects for a return to growth like that seen over 1870-1913 seemed slim. Neither the pre-World War I order nor any substitute had been rebuilt. It had turned out to be a “delicate organization” built in a sense on a bluff: upper classes that received income—broadly—did not consume but invested it, while working classes—broadly—allowed upper classes to continue receiving income. World War I had “disclosed the possibility of consumption to all and the vanity of abstinence to many… the bluff was discovered”.
And yet it happened. From 1938 to 1973 growth in the G-7 jerked forward again: not at the 0.76%/year pace of 1913-1938 or even the 1.42%/year pace of 1870-1913, but at an average pace of 3.0%/year. That is a material wealth doubling time of not the 90 years or so of 1913-1938 or even the 50 years of 1870-1913, but 24 years: less than a generation. Thus the G-7 was three times as well-off in 1973 as it had been in 1938. Japan grew at a previously unseen 4.7%/year—in spite of Curtis LeMay’s firestorms and two atomic bombs that incinerated Japanese cities in 1944-1945. Canada and Italy grew at more than 3%/year. But they were not alone—Mexico and Spain as well as others achieved that rate of growth as well. The French call this period the Thirty Glorious Years: the Trentes Glorieuses.
Keynes had thought that the pre-World War I order was built on a bluff: the working classes believed they could not claim more income than the market gave them because laissez-faire was the only system allowing even a modicum of prosperity; the upper classes believed they should not spend more lavishly because laissez-faire guaranteed them high profits from reinvesting their dividends and rents. But that had been revealed as a bluff. On what alternative foundations was the order that enabled the growth of the Thirty Glorious Years built?
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