The Golden Hour

The Golden Hour:

Booming Markets, False Narratives, and the Decades That Made Modern Society

Clara E. Mattei


Overview: The perils of folklore economics

In the folk history of the twentieth century, the three decades that followed World War II constituted a “golden age of capitalism”: a period of continuous economic growth that produced rising wages for workers and established the US as a global hegemon.

Intellectually, this era doubled as the economic age of Keynesianism—the deployment in the US, UK, and elsewhere of the brand of economic interventions associated with British economist John Maynard Keynes. Keynes’s case for modest state interventions in the free market, a departure from the neoclassical laissez-faire approach that had dominated Anglo-American economics previously, became synonymous with the high employment and economic growth that were celebrated during these decades. “Embedded liberalism,” a term claiming to describe the free trade and measured provision of welfare by the state, seemed to have solved the problems of economics and capitalism in the postwar era and, by extension, resolved the troubling tension between capitalism and democracy. These policy solutions were framed as the theoretical opposite of neoclassical policies, the kind espoused by Keynes’s intellectual rival Friedrich Hayek. In other words, Keynesianism was rendered as the liberal quintessence of progressivism in economics.

Such a broad-scoped idealization of the golden age of capitalism is a common trope amongst economists and economic historians of different traditions (e.g., Karl Polanyi, Ben Fine, Paul Davidson, Wolfgang Streeck, Paul Krugman, Robert Kuttner, Stephanie Kelton, Andrew Gamble, Dani Rodrik, and Peter Hall). It has even permeated the interpretations of some Marxian critics, who present neoliberalism as either a crisis or a rupture of the class gains and compromises of post-WWII capitalism (e.g., Dumenil and Levy 2004; Harvey 2005; Ong 2006).

The political stakes of these narratives are profound, stretching from the end of the golden age of capitalism until today. Indeed, in our present moment in which capitalist society is facing profound existential concerns, Keynesianism is still firmly at the center—or perhaps, the limits—of the progressive imagination. Calls for a “Green New Deal,” a “new Bretton Woods,” and a “new Marshall Plan” are the order of the day; notably, these movements are all grounded in political structures that existed in the recent past. Nowadays, as Geoff Mann jokes, “Socialism can easily look something like an environmentally sustainable version of the welfare state.” These thoughts emerge naturally if one takes the idealization of the past as the optimal template. Of course, especially in times of downturn, the fetish for Keynesianism is ever more present in the mainstream, as the recent COVID-19 policies in the Western countries have demonstrated. Nobel-winning Chicago economist Robert Lucas summarized this recurring trend when he remarked that “everyone is a Keynesian in a foxhole.”

The Golden Hour proposes a new critical history of the golden era of capitalism, with two main interconnected threads. The first considers the unique social and economic circumstances of the postwar decades in western countries in order to reconsider whether Keynesianism was indeed a primary contributor to their prosperity. And just as importantly, was Keynesianism really that different from the doctrines that preceded it? Postwar policies, in countries like the US, UK and Italy, paralleled the neoclassical austerity policies of the earlier interwar period in their shared focus on squashing inflation; both periods, in turn, pursued wage restrictions as a means of advancing macroeconomic agendas. Reconsidering the timing of the Keynes renaissance, along with the exact nature of its economic policies, informs how the general public thinks about the economy in our still-Keynesian world.

This book’s decision to explicitly focus on advanced western economies is based on the urge to investigate the best possible historical scenarios for Keynesianism to thrive. Certainly, like much critical literature documents, Keynesianism in the west was possible because of structural exploitation and warmongering in the rest of the world. This book intends to make a further point: even in the most privileged geo-political contexts, the golden age was not what it appeared.

The second objective is to reassess the nature of this time period (1945-1973) through a class lens to expose how Keynesianism—both as theory and policy—reinforces a myopic understanding of economics that harms most of us while benefiting relatively few. Here I argue that what is normally dubbed “neoliberalism”—a devout economic orientation toward markets and against regulation that dominated after the golden era—emerged neither as a rupture nor response to Keynesianism, but rather as an outgrowth of it. Over time, the relatively modest differences between the neoliberal and Keynesian paradigms—no regulation versus a tiny bit of regulation, respectively—have served to limit the public imagination about how we organize society and the economy. As a set of theories, Keynesianism was never focused on a fundamental redistribution of income or a change in the social relations of production—ideas that would have challenged the tenets of a capitalist society. But it was, in the reparative terms that Keynesians presented it, an economic idea centered on sharing the gains that came from increased productivity. Keynesianism was a path to nicer capitalism, and in its pursuit of that mantle it benefitted from its overlap with a twentieth-century period of economic growth and stability. This, I argue, is something of a happy accident for today’s economic orthodoxy.

Of course, stressing continuity does not mean ignoring the profound contextual differences of the two post-war epochs. Unlike the interwar window of 1918-1920, where post-capitalist experiments were only dawning, the period after World War II saw western countries forced to contend and compete with entrenched forms of socialist planning that were occurring and expanding in Eastern Europe. Moreover, as John Kenneth Galbraith reminds us, some varieties of planning were already a reality in the capitalist west. Indeed, unlike the austerity that defined the interwar period, Keynesianism did not present itself as a rejection of planning but rather as the apex of effective economic management: the state took an explicitly active, albeit measured, role to run the economy, both in slump and in boom. And unlike the pioneers of austerity after WWI who stood by the motto “what is good for capital is good for the workers”, post-WWII Keynesian experts were poised to adhere to a different one “what is good for workers is good for capitalism”. Indeed, the enticing argument, which emerged from Keynes himself, was that reforming capitalism could make capitalism a force for good (or rather a greater good, one that enriched workers, too). This framing was essential in a historical moment after the war, when society was still haunted by the specter of mass unemployment and stagnation from the 1930s. By shifting the focus of the economic discussion to its output—enrichment for all!—Keynesianism cultivated a collective interest across capital and labor in short-run economic stability and fostering full employment. Thus, the intrinsic class antagonism of capitalism, the stuff of Ricardian and Marxian traditions, was deemed irrelevant to twentieth-century industrial capitalist economies.

However, once we pay close attention to the nature and purpose of Keynesian economic management, the magical characterization of Keynesianism as producing shared prosperity begins to crumble: it does not match historical reality, either in terms of economic policies or in theory. I now delve briefly into both aspects.