%202.png){kind=logo}
The ‘golden age’ of capitalism is generally thought of as a period of economic prosperity spanning from 1945 to 1970s. In the United States, capital benefitted from the adoption of Fordist production techniques that allowed for economies of scale and productivity growth to be achieved, ultimately resulting in mass production. Central to Fordist ideology was the recognition that mass production must be supported by mass consumption. As such, labour benefited from increased bargaining power and higher wages as well as ample leisure time to allow for consumption. This phenomena is an example of class compromise where capital and labour reach an agreement motivated by mutual benefit.
Harvey (1989) extends this concept of compromise to argue that, in addition to capital and labour, the role of the state also had to transform. In particular, many nations across the global North embraced Keynesianist ideology in order to support stable demand growth. Keynesianism is an economic school of thought that advocates for state intervention to stabilise economic fluctuations through demand side policy. Importantly, Keynesian economists at the time believed that the relationship between unemployment and inflation was inverse as suggested by the Phillip’s curve.
However, during the early 1970’s the United States was struck by a period of stagflation, where inflation and unemployment were rising concomitantly. Contributing significantly to this were supply side factors such as high wage costs and the world oil crisis of 1973 which saw oil prices quadruple. For the Keynesian economy, this crippled the ability for the state to maintain promises to maximise employment as government spending would only work to further stimulate demand side inflationary pressures. As a result of this, support for Keynesian economics waned and an era of neoliberalism, characterised by austerity and deregulation, arrived in the global North (Thatcherism in the United Kingdom and Reaganomics in the United States).
Modern understandings of the Phillip’s curve have been developed. While an inverse relationship between inflation and unemployment is accepted, this is importantly limited to the short-run. In the long-run, inflation expectations (influencing the behaviours of consumers and businesses) are considered and it is seen that when expectations catch up to the actual rate of inflation unemployment will equate to its natural rate. Importantly, Keynesian policies cannot be utilised to systematically maintain unemployment at levels lower than its natural rate.
In essence, while Keynesianism was able to support economic growth during the golden age period, a changing economic landscape exposed structural vulnerabilities to traditional Keynesian perspectives.
References:
Harvey, D. (1989). Fordism. The Condition of Postmodernity: An Enquiry into the Origins of Cultural Change (pp. 125-140). Blackwell.
Comments