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Are scholars justified in using the term 'Golden Age' to describe the economic history of Western Europe during the period between 1950 to 1973

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Introduction

Are scholars justified in using the term 'Golden Age' to describe the economic history of Western Europe during the period between 1950 to 1973? 'Nothing in the history of Western Europe resembles its experience between 1945 and 1968.' Milward, European rescue, pg. 21 In the quarter of a century that followed the Second World War, the achievements of the European economy were so impressive that the period was often referred to as the 'Golden Age'. Since 1913 Europe had experienced two world wars plus the great depression and trade wars of the 1930's, the economy had been stunted and growth was well below trend. In the early post-war years between 1945 and 1947 recovery was frustrated by shortages of food, labour, raw materials and the need to reastablish both financial and political institutions. However this gave Europe a clean slate so to speak and the opportunity for rapid growth through the correction of previous mistakes. Between 1950 and 1973, the real GDP of western Europe grew more than twice as fast as the secular trend, fluctuations in this growth were mild and inflation rates were seen as socially acceptable. But more importantly in the long run, 'by the end of this period the perpetual possibility of serious economic hardship, which had earlier always hovered over the lives of three-quarters of the population now menaced only about one-fifth of it.' ...read more.

Middle

In this sense the breaking point was brought about in 1973, not just by the quadrupling of the price in oil but also by the world economic boom which preceded it and drove prices up in all industrial countries across the world. The question economists wanted to know was no more, how long? But rather, why? Ever since it became clear the forecasting of the post war economy, based on previous trends, did not reflect the reality presented by the 'Golden Age', economists started their search for reasons why? Work by such writers as Maddison gave an explanation of the 'Golden Age' through an approach known as "growth accounting". Observing a huge increase in the ratio of investment to GDP and incorporating technical progress, Maddison argued that investment itself was the main cause of Europe's performance in productivity growth. For Maddison the implementation of new favourable policy and the increase in technology transfer led to the growth in total factor productivity. Kindleberger, in his explanation however consentrated on an unlimited supply of labour. Drawing on a growth model derived from Lewis, Kindleberger argued that an elastic labour supply skewed income distribution, favoured profits, and thereby sustained unusually high investment ratios. Lesser known is the exports approach by Lamfalussy which came to be known as the export-led growth explanation of the 'Golden Age'. ...read more.

Conclusion

The answer, in my opinion, would have to point to yes. However the survivors of these decades do not look back on them as a resounding success. 'Those who presided over the Golden Age did not feel at the time that they were singularly blessed and carried in a golden coach'. People are more likely to remember these decades as ones of repeated crises. There were currency uncertainties almost throughout due to balance-of-payments difficulties, and if they think to the economic experiments of the 1960s, they may look on how many were later abandoned. So if the question was asked again in terms of whether the economist using all his tools guided the economy into a 'Golden Age' of success the answer may be somewhat negative. If taken individually, each explanation of the 'Golden Age' reviewed proves to be lacking and inadequate. However taken together they provide an insight to the main factors that helped to sustain the 'Golden Age'. High investment rates were critical to the transfer of technology; exports provided rapidly expanding markets; the abundant labour supply helped the allocation of manpower to the more technologically advanced industries as well as the moderation of wages and stabilised expectations reinforced the investment drive. But why did these ingredients catalyse and produce rapid growth at this point in time, from 1950-1973? 'Economists possess their full share of the common ability to invent and commit errors.... Perhaps their most common error is to believe other economists.' G. J. Stigler ...read more.

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