Chapter 13 Capitalism After the Second World War

Joseph Schumpeter's pessimistic forecast of the decline of capitalism and the victory of socialism is to be found in Capitalism, Socialism and Democracy (1942). But the dynamic aspects of capitalism that led to its resurgence after World War II are brought out in his The Theory of Capitalist Development (1912). Schumpeter also emphasized the uneven and often costly process of economic growth in the private-enterprise economy in his two-volume Business Cycles (1939), in which he laid out the theory of long waves. John Kenneth Galbraith provides an equally perceptive analysis of post-World War II capitalism in his major works: American Capitalism (1952), The Affluent Society (1958), The New Industrial State (1967), and Economics and the Public Purpose (1973). Galbraith argued that financial markets and the monetary system created instability in The Great Crash, 1929 (1955) and Money: Whence It Came and Where it Went (1975, revised 1995). Andrew Shonfeld, Modern Capitalism: The Changing Balance of Public and Private Power (1965) looked at the international aspects of big business. Issues raised by big business in the United States are explored in Walter Adams and Horace M. Gray, Monopoly in America: The Government as Promoter (1955); Gardner C. Means, Pricing Power and the Public Interest (1962); John Blair, Economic Concentration (1972); John Munkirs, The Transformation of Industrial Organization (1990); and two books by Walter Adams and James W. Brock, The Bigness Complex (1986) and Antitrust Economics on Trial: A Dialogue on the New Laissez-Faire (1991).

Two excellent books chronicle American economic policy since World War II: Herbert Stein, Presidential Economics: The Making of Economic Policy from Roosevelt to Reagan and Beyond (1984) and Lynn Turgeon, Bastard Keynesianism: The Evolution of Economic Thinking and Policymaking Since World War II (1996). Both books, written from opposite sides of the political spectrum, are highly critical. Benjamin M. Friedman, Day of Reckoning: The Consequences of American Economic Policy (1989) criticizes the Reagan era policies while Martin Feldstein, ed., American Economic Policy in the 1980s (1994) defends them.

The conservative economics of the post-World War II years is presented in highly simplified form in Henry Hazlitt, Economics in One Lesson (fourth edition.

1979). Milton Friedman and Rose Friedman, Free to Choose: A Personal Statement (1980) is a similar paean of praise for the laissez-faire philosophy. The rationale for the policies of the Reagan administration, which are laid out in the administration's own statement, America's New Beginning: A Program for Economic Recovery (1981) and in the Economic Report of the President for the years 1981 through 1988.

The underdeveloped countries were an important field of study for economists during the Cold War, when the United States and the Soviet Union were contesting for their loyalty. Three widely different approaches are presented by Barbara Ward, The Rich Nations and the Poor Nations (1962); Pierre Moussa, The Underprivileged Nations (1963); and L. J. Zimmerman, Poor hands, Rich Lands: The Widening Gap (1965). Gunnar MyrdaTs An International Economy (1956) deals with problems of underdevelopment and is one of the most important economics books of the post-World War II years; an abridged version was published in 1957 under the title Rich Lands and Poor. MyrdaTs concept of circular causation with cumulative effects was an important contribution to understanding economic backwardness as a self-reinforcing condition that was not subject to simple solutions. Several other important analyses of economic backwardness appeared in the 1950s and 1960s. Alexander Gerschenkron, Economic Backwardness in Historical Perspective (1962) is a minor classic. Raoul Prebisch argued that the terms of trade and financial ties between the center and periphery nations reinforced and perpetuated backwardness, in "The Economic Development of Latin America and Its Principal Problems" (1949), published by the United Nations Economic Commission for Latin America. W. Arthur Lewis took up the issue in a highly influential paper, "Economic Development with Unlimited Supplies of Labor" (1954) in the Manchester School of Economics and Social Studies, Vol. 22, pp. 139-91, and in The Theory of Economic Growth (1955). These and other ideas were brought together in Bert F. Hoselitz, ed.. Theories of Economic Growth (1965) and Albert D. Hirschman, The Strategy of Economic Development (1958).

Edward F. Denison, The Sources of Economic Growth in the United States and the Alternatives Before Us (1982) is a seminal empirical study of U.S. economic growth. Jacob Schmookler, Inventions and Economic Growth (1966), Nathan Rosenberg, Perspectives on Technology (1976), and Gerald Silverberg and Luke Soete, eds.. The Economics of Growth and Technical Change (1994) provide a broad account of the role of technology in economic growth. Three books by Alfred D. Chandler make the case for changes in business organization and management in raising productivity: Strategy and Structure: Chapters in the History of the Industrial Enterprise (1962), The Visible Hand: The Managerial Revolution in American Business (1977), and Scale and Scope: The Dynamics of American Capitalism (1990). Two broader studies of institutional change should also be examined by anyone interested in the process of economic growth: Richard R. Nelson and Sidney G. Winter, An Evolutionary Theory of Economic Change (1982) and Douglass North, Institutions, Institutional Change and Economic Performance (1990).

A number of important writings on the relationship between growth, population, food, resources, and pollution are reprinted in Growth and Its Implications for the Future, Part I, Flearings, Subcommittee on Fisheries and Wildlife, U.S. House of Representatives (1973). An older book with new relevance is K. William

Kapp, The Social Costs of Private Enterprise (1950). Lester R. Brown, In the Human Interest: A Strategy to Stabilize World Population (1974) has an excellent treatment of population problems. Readings on the steady-state economy are included in Herman E. Daly, ed.. Toward a Steady-State Economy (1973) and Mancur Olson and Hans H. Landsberg, eds.. The No-Growth Society (1973). Two very provocative little books, Robert L. Heilbroner, An Inquiry into the Human Prospect (1975) and E. L. Schumacher, Small Is Beautiful (1973) deal with those larger issues at the level of the general reader, while Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process (1971) is slowly coming to be recognized as a key treatise on the physical limitations to economic growth. Herman E. Daly, Beyond Growth, The Economics of Sustainable Development (1996) argues for a compromise between economic growth and protection of the environment. Susan Baker et al., eds.. The Politics of Sustainable Development (1997) and Nick Mabey, et al., eds.. Argument in the Greenhouse: The International Economics of Controlling Global Warming (1997) discuss the pros and cons of these hot topics.