In the first three decades after the war, the world economy experienced unprecedented growth rates and falling unemployment. But the boom rested on unstable foundations, writes Neil Faulkner

Capitalism is an irrational and dysfunctional system. Crisis is never far away. Boom and slump are its natural rhythms.

The Long Depression of the late 19^th century was ended only by imperialism, rearmament, and world war.

The system’s sluggishness in the 1920s caused a bubble of speculation as capital flowed into banking instead of industry. When the bubble burst in 1929, the system was pitched into the Great Depression. Again, it required imperialism, rearmament, and world war to end the downturn.

It is in this context that the Great Boom, which lasted broadly from 1948 to 1973, is so remarkable. Growth rates were phenomenal and unprecedented.

Total US economic output was three times higher in 1970 than in 1940. German industrial output increased five-fold between 1948 and 1970, and French output four-fold.

Old industries expanded and new ones formed, with giant plants employing hundreds, thousands, even tens of thousands. Car plants in particular, with assembly-line production for a growing mass market, become symbolic of a new consumer economy. The US eventually had 70 million workers employed in manufacturing.

Unemployment fell across the developed world, to 3% in the US, 1.5% in Britain, 1% in Germany.

New workers were sucked into the workplaces. Black Americans migrated from Southern estates to Northern factories. Italian peasants left impoverished farms in Sicily to work in Turin and Milan. Turks found work in Cologne car-plants, Algerians in Parisian hotels, Punjabis in British textile towns.

Such was the demand for labour that women, too, entered the workforce in unprecedented peacetime numbers. Only one in five married women in Britain was working in 1950. Thereafter, the proportion rose steadily, reaching two in five by 1970, three in five by 2000.

Wages and living standards rose. Working-class families bought vacuum-cleaners, washing-machines, fridges, televisions, and second-hand cars.

‘From the cradle to the grave’ welfare states were constructed. Governments invested heavily in public-sector jobs, social housing, state hospitals, new schools, and increased benefits for the poor.

Youth culture was born, because for the first time young people had sufficient independence and income to cultivate their own forms of dress, music, and identity.

High growth rates; rapidly rising living-standards; a business cycle whose occasional slowdowns were so slight as to be barely noticeable: these things made it appear to many that capitalism had solved its problems and could now deliver endlessly increasing prosperity for all.

The social-democratic politician Tony Crosland caught the mood in his much-praised 1956 book The Future of Socialism:

‘The full employment welfare state … would have seemed like a paradise to many early socialist pioneers. Poverty and insecurity are in the process of disappearing. Living standards are rising rapidly; the fear of unemployment is steadily weakening; and the ordinary young worker has hopes that would never have entered his father’s head… We stand in Britain on the threshold of mass abundance.’

Academics stepped forth to give the new era of ‘mass abundance’ its intellectual gloss. Sociologists spoke of the ‘embourgeoisement’ of ‘the affluent worker’ – comfortable, secure, contented, and therefore no longer interested in class politics, only in lifestyle.

Others constructed models of society that stressed its cohesion and consensus, or they proclaimed ‘the end of ideology’ on the grounds that it had become irrelevant in the new era of technocratic management and social engineering.

Politicians established a broad consensus: most favoured heavy doses of state planning and public expenditure, while lauding reform, modernisation, and what one called ‘the white heat of the technological revolution’.

The optimism of the age was a re-run of an old film. Previous booms – between 1848 and 1873, and again between 1896 and 1914 – had also been greeted with euphoric predictions of a new society of ever-increasing wealth. Crosland’s ‘revisionism’ was an echo of that of German social-democratic theorist Edward Bernstein before the First World War (see MHW 67).

The contradictions of capitalism had not, in fact, been abolished. The mole of history was still at work. New crises would in due course erupt. The class struggle would resume. Marx would return. For the boom rested on unstable foundations and was in the long run unsustainable.

The Great Boom was a product of three factors, all of them rooted in the Second World War.

First, though arms expenditure fell after 1945, it nonetheless remained, because of the Cold War, at exceptionally high peacetime levels (see MHW 91). State arms contracts provided a host of top corporations with guaranteed sales and profits. Once a contract was signed, investment in arms production, including research and development, became virtually risk-free.

The ‘multiplier effect’ meant that the boom in arms production stimulated the economy as a whole, as arms manufacturers bought raw materials, components, power, and various services from other capitalists, and as arms-industry workers spent their wages on a wide range of consumption goods.

What is more, because arms production was waste expenditure, it leaked surplus wealth out of the system, reducing the tendency for capital accumulation to ‘overheat’ the economy and put a squeeze on markets, prices, and profits, thereby precipitating a slump.

The second factor was the enhanced economic role of the state more generally. As well as buying arms, post-war states nationalised major industries, built infrastructure, expanded the government workforce, and redistributed income in the form of benefits, pensions, and the ‘social wage’ represented by hospitals, schools, and other public services.

This, too, provided markets and profits for capitalists – for construction firms building social housing, for example, or pharmaceuticals companies supplying medicines to public hospitals, or factories building rolling-stock for nationalised rail networks. And here again, the multiplier effect was at work.

Neither decision – for the state to spend on a) arms or b) welfare – was economically driven. Both were political decisions. The first reflected Cold War tensions, the second pressure from below for radical change. The latter constituted the third factor behind the post-war boom.

The ruling class knew that the First World War had ended in a wave of revolution between 1917 and 1923. They knew that economic depression in the interwar period had fed renewed revolutionary upsurges, like those in France and Spain in 1936.

They knew, too, that the European working class had emerged from the Second World War both embittered by memories of interwar dole queues and poverty, but also empowered by full employment in the war economies of 1939-1945.

The immediate post-war Communist threat might have receded, but the Left’s demands for planning and welfare had become hegemonic inside a European working class determined that there would be ‘no return to the 1930s’.

Quintin Hogg, a Tory officer and MP, had put the case for reform in the House of Commons in 1943: ‘If you do not give the people social reform, they are going to give you social revolution.’

Post-war Marshall Aid – US loans to regenerate Western European economies – had similar motives: stopping the spread of Communism by alleviating social distress.

European capitalism survived after the Second World War because of US loans to fund investment, maintain full employment, and build welfare states. The combined economic effect of the ‘permanent arms economy’ and the ‘welfare-state consensus’ was a state-sponsored boom that enabled capitalism to grow at an unprecedented rate for an entire generation.

It could not last. It did not last. The contradictions of the system were temporarily submerged, but they had not been resolved, and by the late 1960s Western capitalism was entering a new phase of crisis.