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Assess the view that the golden age of the global economy from 1945 to

1973 was solely due to the role of the US.


The Golden Age of the global economy is defined as an era of free trade,
capital movements and stable currencies within the western world. Output
went up by 4 times and world trade increased by 10 times between the early
1950s to the early 1970s. This essay seeks to argue that although the
Golden Age of the global economy was not solely due to the role of the US,
the US played a pivotal and dominant role as the key economic driver and
leader of the world economy, intervening to stimulate the economy of
Europe.
The US contributed to the economic expansion of the Global economy and
hence the Golden Age by pumping out her dollars via the Marshall Plan. At
the end of WW2, Western Europe was experiencing dire economic problems
as their reserves of foreign assets had been depleted in the early postwar
reconstruction efforts and the necessity of importing all their needs, from
food to medical supplies. 40 to 45million Europeans lost their lives. 15million
were awaiting reparation. A generation was lost and millions more injured.
Without US assistance through Marshall Plan, the Western Europe could not
even recover, let alone give rise to the Golden Age.
It was the dollar flood from the $13.2billion Marshall Plan where the US
pumped out the dollar which served as a base for enlarging credit and
monetary circulation in other countries that led to expansionary effect of the
European economy. The restoration of financial stability and the free play of
market forces launched the European economy on a two-decade long path of
unprecedented rapid growth. European economic growth of 4.8% per annum
between 1953 and 1973 was twice as fast as any comparable period before
or since. Since Western Europe was the key production and consumption
centers, the role of the US in contributing to the Golden Age by supporting its
recovery is therefore significant.
However, the inherent strength of Western Europe in recovery limits the
significance of the role of the US in contributing to the rise of the Golden
Age. Industrial and social discipline meant that infrastructure needed only to
be repaired and not built from scratch. The fact that Latin America, which too
received the Marshall Aid, but did not see similar growth as Europe did shows
that there are intrinsic advantages of the Western European economies that
was not tied to aid granted by the US. As such, the US only played a part till
the mid 1950s when Western Europe recovered sufficiently to function
independently and hence cannot take full credit
Nonetheless, US contribution to the recovery of Western Europe by backing
international financial institutions such as the IMF and WB also shows the
significance of its role in the effecting the Golden Age. In a time when the
IMF and WB were not equipped with sufficient capital to cope with the

immediate post-war problems, it was the US that stepped in to fill in the


balance such that the Western European countries would have sufficient
funds for economic rehabilitations. While $3.75 billion was expected to be
necessary to enable Britain to complete its reconstruction and return the
pound to convertibility, only a total of $570million was available for World
Bank lending. The IMF was similarly unable to handle the task that was given
to it, having only a capital of $8.8b on inception. While the merchandise
imports of devastated European areas cost $20.2b, exports only amounted to
$13.1b. The differential of $7.1b for the year of 1947 alone was nearly the
entire sum of the IMF startup capital. By 1947, even the IMF and World bank
themselves admitted that they could not deal with the systems economic
problems and had to call in the US for help. The deficiencies exhibited by the
IMF and WB in dealing with western European issues shows the immensity of
the problems Western Europe was facing, which only the US had the financial
clout to help. Hence, the Golden Age was still mainly due to the US effort.
Furthermore, stability in international trade that was provided by the fixed
exchange rates as part of the BW system in which the US was the
centerpiece showed that the US played a central role in bringing about the
Golden Age. Under the BW system, fixed exchange rate was adopted to
ensure economic stability. All countries agreed to establish the parity, or
value of their currencies in terms of gold and to maintain exchange rates
within 1% plus of minus, of parity such that overall economic stability could
still be preserved even with technicalities. Yet, this only worked because of
the USs ability to support this as it owned most of the golds supply in 1946,
amounted to about $26b out of $33b of the gold in the world then. The result
of the Bretton Woods system is a largely mitigated forex risk and hence
indirectly encouraging the growth of trade. Stable exchange rates brought in
by the BW system also resulted in predictability and hence higher business
confidence. The fact that the value of gold was denoted through US$, with
1oz of gold pegged to US$35, shows that the US dollar and by extension, the
US itself, held a central position in the BW system. The direct correlation
between the maintenance of the Golden Age and the strength of the US as
shown by parallel slowdown in the GA when US economic prowess declined
also showed that the US played a central role in bringing about the Golden
Age.
In conclusion, the golden age of the global economy was not solely due to
the role of the US as inherent condition of western Europe had a part to play
in the extent to which the Global Economy would rebound as well. However,
by and large, the necessary conditions for European recovery, and climate
for high growth, were found in the US.

Alternative arguments:
GATTs initiative which encouraged an environment conducive for free trade
also contributed to the Golden Age. This is shown by the fact that the rise of
new protectionism in the form of non-tariff barriers such as the anti-dumping
laws after 1967 spelt problems for the golden age just because GATT was ill
equipped to deal with them, showing the importance of it in contributing to
the Golden Age.
The Cold War environment which predisposed the US to help the recovery of
the war devastated European economies also contributed to the rise of the
Golden Age. It was due to the Cold War climate where communist threat was
imminent that the US was willing to the take up the leadership role in
developing the global economy and the Western European nations became
accepting US economic leadership. As dtente set in after the early 1960s
and with it waned the Soviet threat, the US was no longer so keen to
continue growing the Western European states at great cost to itself. The
Western European countries too began to question the US in its foreign policy
and the economic policies of the US in sustaining it.
The availability of cheap raw materials, namely oil, also caused the Golden
Age of the global economy before 1973. Index price of oil which rose from
146.3 to 752.1 between 1972 to 1974 marked the end of the era of relatively
cheap oil export.