On the matter of that WWII growth spurt
An observer of British society in the 19th Century would note that wealth was intimately tied in with the ownership of agricultural land. Not just that's where the great aristocratic fortunes were, but that's where anyone who made any money raced to put it. Buying that country estate with a few thousand acres was just what parvenus did with their cash. And then this all changed in three stages.
This is well laid out in some work by Piketty and Emmanuel Saez, where they look at the constituents of the national wealth (that wealth that was so unequally apportioned, and the incomes from it equally unequally so). A very large part of the wealth of Britain was that agricultural land – then as now – very unequally owned. Then came the steamship which opened up the pampas and the prairies.
Yes, it's true, they don't make land any more: but as political economist David Ricardo's basic model of land rents points out, having people competing from where land is essentially free is going to reduce the value of that local land. And that's what happened: the 1870s saw a very deep agricultural depression in Britain. And then another one in the 1890s as the railways brought the Ukraine into contention.
The final blow was the mechanisation of farming rapidly after World War One. Sure, tractors and all that could increase the value of land: you can gain more produce from it with less labour that way.
But if everyone is doing this then the price of food could fall: as it did, substantially. The combination of the three technological changes pretty much destroyed the value of agricultural land in Britain. And with it the great aristocratic fortunes: it's worth noting that the seriously rich ones left are those with large urban holdings (Westminster, Cadogan, Chelsea, De La Warr, and so on).
Yes, of course there's still room for death duties, taxes and all the rest to have made a difference: but I would argue that this was the biggest cause of the change in the wealth and income distributions.
Which brings us to that post WWII growth spurt. At which point I too differ from the generally accepted story: yes, I agree that that growth spurt was unprecedented but I don't ascribe it to the policies of the time at all. Rather, to the paucity of the policies of the preceding two decades. For, if you look at average economic growth over 1929 to say 1970, there's nothing really very odd about it at all. There is about 1945 to 1970, and about 1929 to 1945, but not over the whole period.
Of course, we all know that 1929 was the Crash, leading to the Depression. The UK timescale was a little different from the US, our slump really starting with Winston Churchill's idiot decision to go back onto the gold standard at the pre-WWI rate in 1925. But while this isn't exactly accurate, it's fair enough to say that there was no economic growth in either country until 1945.
Sure, the war years can be made to look pretty good but I don't really take making things to blow up, blow up other things or be blown up economic growth. Might well be important, necessary and a great victory but it's not conventional economic growth.
Yet, underneath that absence of economic growth, technology was marching on. The '30s were in fact one of the great decades for such technological advance, an industrial revolution as electricity replaced steam and so on. And in my story that's the explanation for the burst of growth post-1945.
That pent up technological growth of the '30s was put to work in the general economy and that's what led to the above average growth of those two decades. That this coincided with high marginal tax rates, currency controls, union power and so on is interesting, but I'm arguing that the growth would have happened without those policies simply because of what had gone before.
As to whether I've convinced you well, that's up to you.
And I wouldn't be so brash as to insist that my story is all of the story. For economies are very complex things and we don't ever have but just the one effect going on in them. Which is why I'm generally on the free market side and not the government-can-plan-it side, simply because economies are complex things.
My story does have one advantage, though.
Like the other one, it explains the observable facts post-1945. But it also explains the facts prior to that date as well: Britain didn't have notably less powerful unions in the 1930s, for example. And it also does so without violating what we think we know about microeconomics. That high marginal tax rates damage growth prospects, and so on.
I'm not insisting that it's the only factor, nor that it's all of the story. Only that it's as good a story as the one we usually hear, possibly better, and might even be a more accurate description of reality as it did in fact happen. ®
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