Rebuilding after the Second World War started a long boom. Pent-up demand, new technology and American aid came together.
In 1945 much of Europe and Japan lay in ruins. Factories, railways and ports were destroyed, food was short, and governments had little foreign currency to buy what they needed.
Rebuilding created huge demand for steel, machines, housing and consumer goods. Firms could copy the newer methods used in American industry, so output and productivity rose quickly.
The USA supplied the dollars that Europe and Japan lacked. The Marshall Plan gave Western Europe about 13 billion dollars from 1948 to 1952. In Japan, the Dodge Line of 1949 stopped inflation and fixed the yen at 360 to the dollar. US military orders during the Korean War then gave Japanese industry a boost.
Governments also reformed at home. West Germany's currency reform of 1948 ended the black market and gave people a reason to produce and sell again.
The result was the "Golden Age" of 1950 to 1973. World output grew by about 5 per cent a year. World trade grew even faster, at about 8 per cent a year.
- Marshall Plan
- About 13 billion dollars to Western Europe, 1948-1952.
- Dodge Line
- 1949: stopped inflation in Japan; 360 yen to the dollar.
- Golden Age
- 1950-1973: world output up about 5 per cent a year.
Worked example: Explaining the Golden Age
Why was growth so fast after 1950?
- Demand: rebuilding and pent-up consumer demand.
- Supply: catching up with American technology and methods.
- Finance: Marshall aid and US spending supplied dollars.
- Stability: fixed exchange rates and cheap oil until 1973.
Watch out for this
The Marshall Plan alone rebuilt Western Europe.
Marshall aid was a small share of European income. It mattered because it eased the dollar shortage and encouraged cooperation. Europe's own investment and reforms did most of the rebuilding.
Check your understanding
Why did Western Europe and Japan grow fast in the 1950s?
- Rebuilding created demand, and they could catch up with American technology.
- They had no war damage to repair.
- Oil prices were very high.