184
T
he years immediately
following World War II
were, inevitably, a time for
rebuilding economies. Even before
the end of the war, politicians and
economists had started planning
for peace. They were working to
avoid the problems that had
followed World War I and to
establish a peaceful world of
international economic cooperation.
The League of Nations, an
international organization set up to
maintain peace, had collapsed at
the beginning of the war, and in
1945, it was replaced by the more
robust United Nations (U.N.). One
of the U.N.’s first tasks was to vote
on proposals drawn up by delegates
to the U.N. Monetary and Financial
Conference, now better known by
its location—Bretton Woods, in New
Hampshire. Here, delegates from the
Soviet Union, the UK, and the US
agreed on the founding of major
new institutions, such as
the International Monetary Fund
(IMF), the International Bank for
Reconstruction and Development
(IBRD), and the General Agreement
on Tariffs and Trade (GATT).Post-war Keynesianism
The British delegate at Bretton
Woods was John Maynard Keynes
(p.161), whose 1919 book, The
Economic Consequences of the
Peace, had warned what might
happen after World War I as a result
of economic policy. Keynes’s work
had inspired President Franklin D.
Roosevelt to lift the US out of the
Great Depression of the 1930s by
the state spending package of the
New Deal. It was not surprising
that his ideas were equallyinfluential after World War II.
In the US Keynesian policies were
enthusiastically advocated
by economists such as Canadian-
American John Kenneth Galbraith
and quickly adopted by the liberal
democratic government. In Britain
the incoming Labor government
brought in measures that set up a
welfare state. The rebuilding of the
economies of Japan and Germany
was to mark a turning point in their
histories. Germany, in particular,
experienced an “economic miracle,”
the Wirtschaftswunder, under
Chancellor Konrad Adenauer. The
success of their social market
economy, tempering free market
economics with government
intervention, became the model
for many Western European
economies in the second half
of the 20th century. However, otherINTRODUCTION
1945
1949
1949
1950 S 1951
1951 1953
1953
1955
Milton Friedman
advocates a
monetarist
policy, in which
governments limit
the money supply.General Motors
becomes the first US
company to make a
profit of more than
$1 billion in a year.The People’s
Republic of
China is founded,
led by the
Communist Party.Maurice Allais
presents a paradox in
decision making that
shows how people hate
losing more than they
like winning.Konrad Adenauer
starts to build
Germany’s social
market economy,
with large private and
public sectors.The International
Monetary Fund
is put in place,
operating from a base in
Washington DC.
Mathematician John
Nash pioneers
game theory,
which is used to
explain economic
decision making.János Kornai’s
Overcentralization
gives a critical
analysis of the
planned economies
of communist states.Kenneth Arrow’s
impossibility
theorem shows
that there is
no perfect
voting system.