The Effects of Post-War Inflation on Business Cycles and Economic Growth

During the post-war period and until the end of the Korean boom, the economic life of Europe and America was largely dominated by wars and their consequences. Indeed, the whole period from 1939 to 1953 could without much exaggeration be characterized as one of continuous full employment, since the two recessions, one ending in the U.S.A. in 1949 and one in 1954, were slight. In the U.K. also there was an absence of large oscillations. In Western Europe industrial production and employment were even more stable over these years than in the U.S.A.1 It was not until 1953 in Europe, and 1954 in the U.S.A., that something conforming very much to the classical pattern of the prosperity phase of business cycles began. Some features of this expansion, lasting until 1957, were, indeed, common to the whole period of post-war growth — increasing total demand, concentration of expenditure on capital goods, increasing debt, and rising wages. But the 1954-57 boom was a matter of civilian demand, of rising interest rates and of budgetary surpluses, comparable with the earlier prototype of a revival period.2 Thus, while the whole post-war period up to 1953 was also characterized by inflation, the focus of the present inquiry upon inflation and business cycles implies a concentration upon events since 1953 or 1954. This will, of course, not preclude references to developments in the preceding years whenever significant similarities or contrasts exist.