It is claimed that the internationalisation of capital markets has caused a weakening of the economy of the ‘Golden Age’ - a period between 1950 and 1973. This paper looks into the development of the Golden Age period, explains booms and dooms as well as the creation of the Eurocurrency market. Using the concept of the ‘Impossible Trinity’ the paper concludes that the internationalisation and liberalisation of the capital market undermined the Golden Age.
Table of Contents
1 Introducing the Research Paper
1.1 Interpretations of Fordism
1.2 Development of the Golden Age
1.3 Explaining Booms and Dooms
2 The Rise of the Eurocurrency Market
2.1 The ‘Impossible Trinity’
3 Conclusion
Research Objectives and Themes
This research paper examines the impact of the internationalisation of capital markets on the economic stability of the 'Golden Age of Capitalism' between 1950 and 1973. It addresses the central research question of whether the liberalisation and growth of international capital flows undermined the socio-economic achievements and structural foundations of that period.
- Analysis of Fordist economic models and social structures.
- Examination of the "Golden Age" characteristics and its subsequent decline.
- Investigation into the emergence and mechanics of the Eurocurrency market.
- Application of the "Impossible Trinity" trilemma to explain US monetary policy and capital controls.
Excerpt from the Book
The ‘Impossible Trinity’
The Mundell Fleming model shows how a nation can use fiscal and monetary policies to achieve both internal and external balance without any change in the exchange rate. As stated by Salvatore (2004, p. 643) the US fixed exchange rate regime of the 1950s and 1960s has shown how fiscal and monetary policies were used to achieve internal balance. However, monetary policies were hardly used to correct the external imbalance and for that reason direct controls over capital were applied instead. For a more theoretical approach (IS-LM model) please refer to Krugman and Obstfeld (2003, pp. 472).
The concept of the ‘impossible trinity’ states that a country must give up one of the three goals of the triangle: an autonomous monetary policy, a fixed exchange rate and/or capital mobility. The forces of economics do not allow the simultaneous achievement of all three, so Eiteman, Stonehill and Moffett (2004, p. 33). According to Krugman and Obstfeld (2003, p. 643) this ‘trilemma’ results either in a combination of: (a) having a fixed exchange rate and an autonomous monetary policy or (b) a fixed exchange rate and capital mobility or (c) capital mobility and monetary policy oriented towards domestic goals. A fixed exchange rate eliminates interest rate autonomy. Blecker (1999, p. 22) argues that if a country’s exchange rate is fixed and if its capital market is wide open then the central bank has to match the foreign interest rate hike in order to prevent capital from fleeing the country and thus alleviating the pressure on the currency to depreciate.
Chapter Summaries
1 Introducing the Research Paper: This chapter provides an introduction to Fordism as an institutional framework and outlines the development of the "Golden Age," setting the stage for the analysis of economic booms and downswings.
2 The Rise of the Eurocurrency Market: This chapter details the transnational shift in the 1960s, focusing on the emergence of offshore banking and the "Impossible Trinity" as a framework for understanding the limitations of sovereign monetary policy.
3 Conclusion: The final chapter synthesizes the arguments, concluding that while capital internationalisation initially fueled growth, it eventually acted as a destabilizing force when constrained by the macroeconomic policies of the late 1960s.
Keywords
Golden Age of Capitalism, Fordism, Eurocurrency Market, Impossible Trinity, Capital Internationalisation, Monetary Policy, Exchange Rates, Financial Liberalisation, Stagflation, Economic Growth, US Deficit, Offshore Finance, Regulation Theory, Business Cycles
Frequently Asked Questions
What is the core subject of this research paper?
The paper explores the relationship between the internationalisation of capital and the decline of the "Golden Age of Capitalism" (1950–1973).
What are the primary themes discussed in the work?
Key themes include the institutional foundations of Fordism, the transition to deregulated global financial systems, the growth of the Eurocurrency market, and the mechanics of the "Impossible Trinity."
What is the central research question?
The paper seeks to determine whether the internationalisation of capital markets significantly weakened the economy of the post-war "Golden Age."
Which scientific methodology is employed?
The author uses a historical and theoretical economic approach, synthesizing regulation theory, the Mundell-Fleming model, and business cycle theories to interpret historical economic data.
What topics are covered in the main body?
The main body covers the definition and interpretation of Fordism, the economic characteristics of the "Golden Age," the rise of offshore finance in the City of London, and the challenges faced by US economic policy makers.
Which keywords best characterize this work?
Essential keywords include Fordism, Golden Age, Eurocurrency, Impossible Trinity, and financial liberalisation.
How does the author define the 'Impossible Trinity'?
The author explains it as a trilemma where a country must choose between three goals: autonomous monetary policy, a fixed exchange rate, and capital mobility, as it is impossible to achieve all three simultaneously.
What role did the Eurocurrency market play in this analysis?
The Eurocurrency market is identified as a critical factor that allowed capital to bypass domestic regulations, thereby diminishing the effectiveness of national stabilization efforts and contributing to economic instability.
- Quote paper
- Vicki Preibisch (Author), 2006, Did the Internationalisation of Capital undermined the 'Golden Age' of Capitalism?, Munich, GRIN Verlag, https://www.grin.com/document/67973
