Macro Economy Chapter 08. The Postwar “Golden Age” (1950s–late 1960s)

The Postwar “Golden Age” (1950s–late 1960s): Growth and Demand Management

Summary

This text describes the postwar “Golden Age” as a period often remembered for strong economic performance, but it focuses on what can be measured and compared carefully across countries. Two big ideas shaped research and policy thinking: growth theory (how economies grow over decades) and the Phillips curve tradition (how unemployment and inflation might be related). Growth accounting, linked to Solow’s work, gave economists a practical way to split growth into parts coming from more labor and capital versus higher productivity (technical progress). In short-run policy debates, the Phillips curve influenced discussions about managing demand, because it suggested a possible tradeoff between inflation and unemployment. But by the late 1960s, critics—especially Friedman—argued that this tradeoff may not be stable over time, because expectations matter. The period also saw stronger international data systems (OECD, IMF) and central-bank reporting (BIS), which made cross-country monitoring of inflation, unemployment, and other indicators much easier. Finally, the text notes that social spending and wage-setting institutions (like unions and bargaining systems) can be measured and compared, but broad claims across countries require careful definitions and verification. Overall, the chapter presents the era as one where better measurement and influential macro ideas developed together and shaped how economists and policymakers talked about growth and stabilization.

Key Takeaways

Postwar macro research and policy discussion were shaped by two influential pillars: neoclassical growth theory and the Phillips-curve tradition linking labor-market slack to nominal wage/price dynamics. [12][14][15]
Growth accounting offered a practical way to separate input-driven growth from productivity (“technical change”), reinforcing a measurement-centered style of macro analysis. [13][10][11]
The Phillips curve was influential in early stabilization policy debates, but prominent critiques in the late 1960s challenged the idea of a stable inflation–unemployment “menu.” [15][16]
Institutional data systems (OECD, IMF) and central-bank reporting (BIS) made cross-country macro surveillance and comparative narratives more feasible and more standardized. [1][3][6][7]
Social expenditure and wage-setting institutions are measurable and central to the era’s political economy, but strong cross-country generalizations require careful verification. [4][5]

1) What “Golden Age” Means Here: Narrative, Measurement, and Guardrails

Facts

This chapter uses the term “Golden Age” as a conventional label for the postwar era frequently discussed as a period of strong economic performance in advanced economies, as treated in scholarly syntheses and well-regarded narrative economic history. [17][18] The chapter’s empirical backbone is deliberately conservative: rather than asserting specific growth or inflation magnitudes, it emphasizes what can be measured consistently using institutional and academic datasets and how macro research frameworks organized interpretation. [1][3][9][10][11]

Institutional sources provide standardized macro indicators (e.g., inflation, unemployment, industrial production, interest rates) for cross-country comparison. [1] The OECD Economic Outlook products—an issue (period analysis) and an associated database—provide a framework for contemporaneous and comparative macro surveillance, especially useful for anchoring discussion toward the late 1960s endpoint. [2][3] For international monetary and financial conditions, the BIS annual report offers a primary institutional window into late-1960s developments and concerns as understood by a central-bank institution. [7] For macro-financial and external-sector series (prices, exchange rates, monetary aggregates, balance of payments components), the IMF’s statistical infrastructure (historically associated with IFS) is a standard institutional route. [6]

For long-run benchmarking of the postwar episode, Maddison-style reconstructions (via the Maddison Project Database) allow GDP-per-capita comparisons across long horizons. [8][9] For post-1950 cross-country growth and productivity comparisons grounded in PPP-based methods, the Penn World Table (PWT) provides standardized series, with peer-reviewed methodological foundations. [10][11]

Interpretation

The central methodological choice is to treat “Golden Age” less as a claim about a specific numeric threshold and more as a structured inquiry: (i) what measurement systems can document about macro outcomes, (ii) what research frameworks were prominent, and (iii) how the interaction of institutions and ideas shaped policy debate. [1][3][12][14][15][17]

2) Growth Theory as a Postwar Research Organizing Principle

Facts

Neoclassical growth theory—particularly the model associated with Solow—provided an influential analytical framework for thinking about long-run output dynamics, emphasizing capital accumulation, population growth, and technological progress. [12] Solow’s growth accounting approach linked theory to measurement by framing “technical change” (often proxied by a residual) as a key component of observed growth not explained by measured factor inputs. [13]

The practical implementation of comparative growth and productivity analysis relies on systematic datasets. The Penn World Table provides cross-country macro aggregates and productivity-relevant constructs used widely in growth comparisons, and its conceptual underpinnings are described in a peer-reviewed methodological paper. [10][11] For broader historical benchmarking of GDP per capita and population, Maddison-style estimates provide long-run series designed for historical comparison across countries and time. [8][9]

A Europe-centered scholarly synthesis provides a structured account of post-1945 growth, supporting a careful narrative that connects measured performance to institutional and historical context. [17]

Interpretation

The postwar research “style” that emerges from these sources is measurement-forward and decompositional: growth is not only observed, but parsed into inputs and productivity, and then situated within a comparative, cross-country frame. [13][10][11][17] This matters for policy regimes because it encourages a view of macro performance as partly “structural” (productivity, capital deepening) and partly responsive to institutions and policy, even if the model itself is not a policy manual. [12][13][17]

3) Demand Management and the Phillips-Curve Policy Imagination

Facts

Phillips documented a negative relationship between unemployment and nominal wage inflation in the United Kingdom over a long historical sample (1861–1957), providing an empirical reference point that would influence later macro discussion. [14] In the early 1960s, Samuelson and Solow discussed analytical aspects of anti-inflation policy in a way that engaged with the empirical idea of an inflation–unemployment tradeoff, reflecting how stabilization policy debates were framed in that period. [15]

By the late 1960s, Friedman articulated a prominent critique of the notion that policymakers could reliably exploit a stable tradeoff between inflation and unemployment, emphasizing ideas associated with a “natural rate” perspective and the role of expectations. [16] Taken together, these sources document a research-to-policy conversation: an empirical regularity (Phillips), a policy-facing interpretation (Samuelson–Solow), and a foundational critique (Friedman). [14][15][16]

Interpretation

It is tempting to summarize the era as one in which policymakers “used the Phillips curve as a menu.” The source pack supports that this idea was salient in policy-facing analysis. [15] However, the step from salience in analysis to systematic use in decision-making across countries and institutions is not directly established here.

[HIGH-RISK CLAIM] “Policymakers in the 1960s widely and explicitly used a stable Phillips-curve menu to choose inflation vs unemployment.” [15]

Status in this chapter: Treated as an interpretation with limited direct support from the current pack; strong cross-country wording is avoided.
What extra verification would require: Primary policy documents (e.g., government economic reports, central bank speeches, OECD country surveys) demonstrating explicit use and operationalization across a defined set of countries and years. [citation needed]

4) Late-1960s “Limits”: From Tradeoff to Constraints and Critique

Facts

Friedman’s 1968 statement of monetary policy’s role is central to the “limits” narrative: it challenges stable tradeoff thinking and highlights expectations and longer-run constraints on unemployment outcomes. [16] This intellectual shift is best read alongside contemporaneous institutional surveillance of macro conditions and international financial developments. OECD Economic Outlook materials provide a contemporaneous lens on macroeconomic conditions and policy concerns, while the OECD database provides standardized macro indicators for cross-country comparison. [2][3] The BIS annual report offers institutional reporting on international monetary and financial conditions, anchoring the idea that domestic stabilization occurred in an environment shaped by external developments. [7]

Interpretation

The combined implication is not that “demand management ended” in the late 1960s (that would require additional evidence), but that the intellectual and institutional environment became more attentive to constraints—especially to the possibility that policy could not permanently buy lower unemployment with higher inflation. [16][2][7]

[HIGH-RISK CLAIM] “International constraints were minor until the 1970s; the late 1960s posed no meaningful external pressures on demand management.” [7][6]

Status in this chapter: Not asserted; the chapter instead notes that external monetary/financial conditions were salient enough to be systematically reported by BIS and tracked via IMF-style series. [7][6]
What extra verification would require: Country-by-country evidence linking specific external-balance or exchange-rate pressures to concrete policy actions using harmonized series and primary policy records. [citation needed]

5) Political Economy Institutions: Welfare States, Unions, and Wage Setting

Facts

Welfare-state expansion can be documented quantitatively from 1960 onward using OECD social expenditure work, which explicitly addresses social expenditure growth and control issues over 1960–1990. [4] Labor-market institutions relevant to wage dynamics can be measured systematically using the ICTWSS dataset, which covers trade unions, wage setting, state intervention, and social pacts with indicators such as union density and bargaining coverage/coordination. [5]

These measurement systems matter for macro narratives because they enable structured comparisons of institutional environments plausibly connected to wage dynamics, inflation processes, and the feasibility of demand-management strategies. [5][4]

Interpretation

It is reasonable to interpret the era’s policy regime as operating at the intersection of macro stabilization aims and institutional wage/benefit structures. [4][5][15] However, causal claims about why welfare states expanded, or whether “strong unions” characterized “most” countries, require careful scope definition and explicit measurement thresholds.

[HIGH-RISK CLAIM] “The welfare state expanded mainly because high growth mechanically financed it.” [4][17]

Status in this chapter: Not asserted as a primary cause; the chapter restricts itself to what is supported: measurable expansion from 1960 onward and the existence of scholarly synthesis for postwar Europe. [4][17]
What extra verification would require: Decomposition of spending drivers (demography, program design, political coalitions, macro conditions) across specific countries with consistent definitions. [citation needed]

[HIGH-RISK CLAIM] “Strong unions and centralized bargaining were defining features in most Golden Age countries.” [5]

Status in this chapter: Reframed as a measurement opportunity rather than a universal claim: ICTWSS allows comparative assessment, but “most” requires explicit counting rules and a defined country set. [5]
What extra verification would require: A pre-specified sample (e.g., OECD members) and summary statistics for union density/coverage/coordination over the relevant years. [citation needed]

Research Lens (Models, Ideas, and Policy Implications)
Core frameworks in this chapter’s lens: Neoclassical growth theory and growth accounting (Solow) organize long-run analysis around capital accumulation and productivity, reinforcing decomposition and measurement as central research practices. [12][13] In short-run stabilization debates, the Phillips-curve tradition supplied an influential empirical reference point for thinking about relationships between labor-market slack and nominal wage/price dynamics. [14][15]
Implications for policy: The growth lens encouraged attention to productivity and structural drivers of living standards (not only cyclical management). [12][13][10][11] The stabilization lens encouraged a belief that managing demand could influence unemployment and inflation outcomes, though later critiques emphasized limits to stable tradeoffs and the role of expectations. [15][16]

6) What Changed: Institutions, Policy Tools, and Measurement Capacity

Facts

Institutions and surveillance: The OECD’s statistical and analytical infrastructure—Main Economic Indicators and the Economic Outlook—supported standardized cross-country monitoring of inflation, unemployment, industrial production, interest rates, and broader macro conditions, which is essential for comparative policy discussion. [1][2][3] The IMF’s statistical systems provided a complementary pathway for macro-financial and external-sector series (including exchange rates and monetary aggregates), supporting analysis of domestic policy in an international context. [6] The BIS annual report exemplifies high-level central-bank institutional reporting on international monetary and financial conditions, particularly relevant at the late-1960s boundary of the chapter. [7]

Measurement and data: Academic datasets and methodological work strengthened cross-country and long-run measurement. Maddison-style estimates allow long-run GDP-per-capita benchmarking, while PWT offers standardized PPP-based constructs for productivity and cross-country comparisons, grounded in peer-reviewed methods. [8][9][10][11]

Ideas and research practice: Solow’s contributions exemplify formal growth modeling and operational growth accounting, linking theory to measurable decompositions of output growth. [12][13] In stabilization policy debates, the Phillips–Samuelson–Solow lineage shows how empirical relationships were drawn into policy-facing discourse, while Friedman’s critique highlights doubts about the stability of inflation–unemployment tradeoffs and the importance of expectations. [14][15][16]

Interpretation

The “Golden Age” era can be read as a period when macro policy regimes and macro research co-evolved: better data and stronger comparative frameworks made it easier to monitor outcomes and debate policy, while ideas about growth and stabilization provided a language for interpreting performance and constraints. [1][3][10][12][15][16]

7) Why It Matters Now

The postwar “Golden Age” remains a reference point because it links three enduring macro questions.

First, it highlights the tension between structural and cyclical explanations of performance. Growth theory and growth accounting institutionalized the idea that long-run living standards depend heavily on productivity and capital deepening, not only on demand management. [12][13][10][11] Contemporary debates about stagnation, productivity slowdowns, and the measurement of growth drivers still rely on the same core decomposition logic, even when models have evolved beyond Solow’s baseline. [13][11]

Second, it shows how empirical regularities can become policy-relevant, and then contested. The Phillips curve began as an empirical relationship in a particular setting (UK wage inflation and unemployment), gained broader policy-facing interpretations, and then faced fundamental critique regarding stability and expectations. [14][15][16] This arc is highly relevant whenever policymakers or commentators treat reduced-form correlations as durable “menus” rather than as relationships contingent on institutions, expectations, and regime conditions. [16][5]

Third, it underscores the importance of measurement institutions. OECD and IMF infrastructures, along with BIS reporting, exemplify how the capacity to compare inflation, unemployment, external balances, and monetary conditions across countries shapes the policy conversation—what is seen, what is debated, and what is treated as feasible. [1][3][6][7] In modern settings—whether facing inflation episodes, supply shocks, or external constraints—the quality and comparability of macro data remain foundational to credible policy evaluation. [1][3]

[HIGH-RISK CLAIM] “The 1950s–late 1960s featured universally low unemployment and low inflation across advanced economies.” [1][3]

Status in this chapter: Not asserted in universal form; the chapter treats outcomes as measurable and comparable, but avoids quantifiers without extracting and reporting series. [1][3]
What extra verification would require: Country-year series extraction from OECD MEI/EO with explicit definitions and coverage, then transparent summary statistics. [citation needed]

Data / Series Used (for figures and factual grounding)

OECD Main Economic Indicators: CPI/inflation, unemployment, industrial production, interest rates. [1]
OECD Economic Outlook Database: standardized macro series and late-1960s surveillance context. [3]
IMF macro-financial/external series access pathway (historically associated with IFS content): exchange rates, monetary aggregates, balance of payments components. [6]
Maddison Project Database (MPD 2023): long-run GDP per capita and population. [9]
Penn World Table (PWT 10.01): PPP-based cross-country macro aggregates and productivity-related constructs. [10][11]

References (numbered to match citations)

OECD. (Serial). Main Economic Indicators. OECD Publishing.
OECD. (1967). OECD Economic Outlook, Volume 1967 Issue 1. OECD Publishing.
OECD. (Database/documentation). OECD Economic Outlook Database (EO). OECD.
Organisation for Economic Co-operation and Development. (1985). Social Expenditure, 1960–1990: Problems of Growth and Control. OECD.
OECD and AIAS. (2025). Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts (ICTWSS), version 2.0. OECD Publishing.
International Monetary Fund (IMF). (2025). “Accessing International Financial Statistics (IFS).” IMF Data.
Bank for International Settlements (BIS). (1968). Thirty-eighth Annual Report: 1 April 1967–31 March 1968. BIS, Basle.
Bolt, Jutta, and Jan Luiten van Zanden (and collaborators). (2024). “Maddison style estimates of the evolution of the world economy: A new 2023 update.” Journal of Economic Surveys.
Groningen Growth and Development Centre (GGDC). (2024). Maddison Project Database 2023. DataverseNL.
Groningen Growth and Development Centre (GGDC). (2023). Penn World Table version 10.01. DataverseNL.
Feenstra, Robert C., Robert Inklaar, and Marcel P. Timmer. (2015). “The Next Generation of the Penn World Table.” American Economic Review, 105(10), 3150–3182.
Solow, Robert M. (1956). “A Contribution to the Theory of Economic Growth.” The Quarterly Journal of Economics, 70(1), 65–94.
Solow, Robert M. (1957). “Technical Change and the Aggregate Production Function.” The Review of Economics and Statistics, 39(3), 312–320.
Phillips, A. W. (1958). “The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957.” Economica, 25(100), 283–299.
Samuelson, Paul A., and Robert M. Solow. (1960). “Analytical Aspects of Anti-Inflation Policy.” American Economic Review (Papers and Proceedings), 50(2), 177–194.
Friedman, Milton. (1968). “The Role of Monetary Policy.” American Economic Review, 58(1), 1–17.
Crafts, Nicholas, and Gianni Toniolo (eds.). (1996). Economic Growth in Europe Since 1945. Cambridge University Press.
DeLong, J. Bradford. (2022). Slouching Towards Utopia: An Economic History of the Twentieth Century. Basic Books.

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