Underpinning the building surge and diplomacy of the 1960s was the financial strength of the United States economy, the dollar, and the ingenuity of American companies that were either founded or went public between 1958 and 1975. From 1961 to December 1969 alone, the United States exceeded the effervescent growth of the 1950s and achieved its longest economic expansion of the twentieth century.
The economic achievements of the 1960s spun out in relation to World War II even though the war ended fifteen years before Kennedy. With Japan’s surrender, the devastation of the world was almost complete: the defeated vanquished, the victors crippled. The United States alone remained the proverbial “last man standing” and, almost by default, magazine publisher Henry Luce talked about a future “American Century.”
Many people – including economists – believed that doubling the size of the US economy during the war must give way to hard times after 1945 as the price of demobilization and peace. These predictions were partially correct. The difficulties of unwinding the wartime economy included unprecedented numbers of strikes, wage demands, inflation, goods shortages, government price controls; and the acute political and military demands from 1946 to 1953 – Greece, the Berlin Blockade, Israel and the Arab states, Soviet atomic tests, Mao in China, NATO, the Korean Emergency – made the Truman years turbulent and economic growth erratic. Still, the economic dominance of the United States was overwhelming. At the end of the war, the United States held two-thirds of the world’s gold reserves. In 1950, its share of world manufacturing was 62%; by 1960, its factories and mines still produced over half.
American economic performance – and the world’s – including that of the 1960s, operated according to the financial architecture the Allies put in place at the Bretton Woods Conference at the end of World War II.
The architecture was designed to spur growth and trade, and to this end it established the World Bank, the IMF, and the General Agreement on Tariffs and Trade (GATT) which became the World Trade Organization in 1995. All this followed the need to revive Europe and integrate it into a liberal multilateral economy for which many Americans believed the Second World War had been fought. But at the center lay the strong and abundant American currency which replaced the British pound after World War II, and the dollar’s rocky fortunes in relation to gold made the 1960s a crucial time financially and a true hinge in the history of the twentieth century.
The dollar became “good as gold” in the middle 1940s because the US promised to exchange gold for dollars held by foreign central banks at a price of $35 the ounce. America seemed to have everything the rest of the world needed: spare cash, gold, and vast manufacturing capacity. Now a system of stable exchange rates was in place upon which international trade and finance could rely and prosper. But a prostrate world had few customers or trading partners with gold and dollars; and the appeal of communism, particularly in Europe, concerned American policymakers. To remedy both problems – the so-called “dollar gap” in trade and the temptations of totalitarianism that stemmed from it, President Truman’s Secretary of State lent his name to an enormous gifting of American financial and material aid to help rebuild European societies from the destruction of war. Accomplishing its objectives, Marshall Plan aid was also the crucial engine of Bretton Woods, and American dollars were the gasoline that lifted Western Europe’s GDP by a third in four years. When economic assistance ended in 1952, American military aid replaced it. American dollars continued overseas and European economic miracles unfolded across the continent amidst the worldwide boom of the 1950s and 1960s.
Mount Washington Hotel, Bretton Woods, NH
Bretton Woods draws our attention for many reasons, not the least of which because its arrangements were almost completely undone in the 1960s. It was the crucial, yet largely ignored, measure of America’s position in the international economy and the financial backdrop against which more colorful and frenetic events between 1958 and 1971 took place.
The dollar was key. In 1953, dollar balances of foreign governments were 57% of US gold reserves and of little note. American unemployment was an unbelievable 1.3% as Korea drew to a close, and “trade not aid” was a popular notion.[i] Especially between Europe and the United States, tariff barriers came down for the free flow of goods, people and capital. The strong dollar allowed American companies to buy foreign assets cheaply and to build or expand facilities overseas. After Truman, the presidency of Eisenhower returned to a plain, modest public policy of balanced budgets, modest inflation and low unemployment with the general expectation that, except for national security, markets and private investment could best steer economic growth, not the Federal government.
By the late 1950s the European postwar revival was all but complete. Its companies became export competitive. American consumers developed a taste for foreign goods. Proof of European success came in 1958 when the American trade surplus on consumer items disappeared. At that time, the overall American balance of payments briefly turned negative, and the effect of the net transfers of gold and dollars to the rest of the world since Bretton Woods began to bite. In 1958 US military expenditures overseas and foreign direct investment by companies brought into question the adequacy of US gold stocks because total dollar balances held by foreign governments had risen to 86 percent of the gold supply. Fearing devaluation, in fact, several European central banks began converting their dollars and, between 1958 and 1960, US gold holdings fell by $5 billion. The dollar shortagethat the Marshall Plan so successfully addressed – the “highest level of statesmanship” in Churchill’s view – turned into a dollar glut. At the end of the 1950s, the United States had by far the world’s largest economy and balance of payments deficits were endorsed as a way to generate the international liquidity that would foster international trade. Still, in 1958 Eisenhower cautiously placed quotas on imports such as oil, and imposed restrictions on other trade outflows to conserve gold.
As the 1960s proper began, Kennedy stated in his televised debate with Richard Nixon that he wanted “to get America moving again,” and he likely meant it. Growth had slowed in the late 1950s. The 1960 economy appeared to have stagnated, unemployment had risen above 5%, and “creeping inflation” stalked the US economy. Internationally, the number of dollar claims held abroad that year exceeded US gold supplies for the first time. Here was a “new frontier” indeed.
At Yale, President Kennedy proposed a “new economics” in June 1962 to coax a tepid economy, and to encourage a stock market that had signaled its discontent by falling 25% in six months. To spark economic growth and keep it going, two revenue acts materialized – in 1962 under Kennedy and in 1964 under Lyndon Johnson. They included tax cuts and in the case of Johnson, the largest stimulative fiscal action taken by the federal government in peacetime.
Together, these two revenue measures made the 1960s economically dynamic; the first half particularly so. The apparent triumph of the “new economics” led policymakers in the 1960s to believe they could “fine tune” the economy, abandon annual balanced federal budgets, even abolish the business cycle. This was likely only partially true under Kennedy, who lacked the redistributionist tendencies that a commitment to social welfare liberalism represented. He also escaped the full demands of a war in Southeast Asia. Johnson committed to both.
“Guns & butter” described twin challenges for the Johnson years after 1964. American economic growth gave a false confidence that the United States could finance Vietnam and expand the role of government by the 500 new agencies that blossomed from Great Society promises in the presidential campaign. December 1964 may have been “the most hopeful time since Christ was born in Bethlehem,” as Johnson averred. The trouble was that something had to give, and it did.
Military spending jumped in late 1965 as the number of troops to Vietnam spiked. Congress and the President neither raised taxes nor cut domestic spending – for example, on the so-called war on poverty. Rather, an increased budget deficit financed spending and came at a time when the economy already had low unemployment and the least excess capacity since the end of World War II. Inflation almost doubled in 1966.[ii]The Federal Reserve tightened for the first time in the decade, and talk of a “credit crunch” led to talk of financial panic. The stock market crashed at the end of the year as a harbinger of difficult times to come, and the economy skidded enough in 1967 for the Fed to loosen again to restart growth.
Despite the hopeful nature of LBJ’s 1968 State of the Union address, Nixon reaped the whirlwind of Vietnam upon taking office in 1969. He also had to manage the nation’s fragile domestic economy and its deteriorating international finances. Nixon declared inflation as the nation’s primary macroeconomic problem. He cut federal spending, the Fed raised rates, and the budget achieved its first surplus in eight years; yet the economy continued to misbehave. As the economy turned to negative growth in 1970, unemployment rose but inflation also spiked to such an extent that a new phenomenon, “stagflation,” locked in – seemingly impervious to standard policy.
After resisting Congressional urgings for price and wage freezes in 1970 to control inflation, Nixon implemented these in phases after the overallAmerican balance of trade – in surplus in the early booming 1960s – turned negative for the first time in the 20thcentury (1893).[iii] In the 1940s and 1950s, Europe was the focus of American aid and investment. In the 1960s Europe remained, but Asia came on board as a location for the export of American dollars in the form of massive military expenditures for a war that Johnson thought would be shorter than it turned out to be.
The United States used trade surpluses since 1945 to finance activities abroad, including military operations and such programs as the Alliance for Progress in Latin America. Throughout the 1960s surpluses were shrinking. With rising inflation in the United States, foreign central banks were inundated with dollars as foreign holders converted dollars into their home currencies for fear of devaluation. The hinge year was 1970 when the trade andcapital accounts went negative permanently as dollars flowed out of the United States chasing yield after the Federal Reserve turned to easy monetary policy to stimulate the economy. Confidence in the dollar sunk. In 1971 Great Britain asked to convert $3 billion of dollar holdings into gold, and the rest of Europe followed. President Nixon faced a run on US gold stocks as claims against the United States were gravely out of balance with resources to pay them – at least by Bretton Woods standards. The United States held $12 billion in gold. Foreign claims stood at $40 billion.
In a fateful Sunday night speech, August 15, 1971, the President announced the closure of the “gold window” without consulting members of the international monetary community or even his own State Department, and ended the convertibility of the dollar. Forever after known as the “Nixon Shock,” the United States repudiated at the end of the 1960s the financial arrangements it had created in the period of its maximum relative power. Thus in 1971 ended an era of gold stress that expanded liquidity with dollars and maintained convertibility to mend the world economy, yet broke when the postwar recovery it sought to foster was achieved. Over the next few decades, the IMF enforced a new orthodoxy that money should flow freely across borders.
Despite the uneasy relationship of gold to dollars, business, business formation, and growth flourished in the 1960s. Military imperatives of the Cold War, Bretton Woods, the Marshall Plan, and tariff reform ended American isolation and provided major openings for expansion to industries and companies that had already profited mightily from wartime production, such as oil, steel, chemicals, aircraft, motor vehicles and electronics. All these sectors saw their reckoning with the full recovery of Europe and Japan during the early 1970s, but the 1960s still saw American dominance. The formation of the Common Market with a population of 172 million in 1967 and a GDP of $170 billion made Europe especially an important receiver of direct investment dollars from American multinationals that benefitted both sides of the Atlantic.
The 1960s continued the trend of conglomerate building, which began in the mid-1950s. The mergers that created large diversified companies provided bankers a lot of lucrative business and was one reason for the era acquiring the nickname “Go-Go Sixties,” and with the help of low interest rates and a 15-year bull market in equities that began in 1952, giants such as Textron, Litton Industries, Teledyne, and Transamerica emerged that still exist today though in different form. This was the era of IBM’s unquestioned dominance, the heyday of American television manufacturers such as RCA, Zenith and Motorola; the prime innovation years of Xerox Corporation, a seminal R&D period for AT&T Bell Laboratories, and the time when Boeing introduced both its bestselling airplane ever, the 737; and its largest, the 747.
The world recovered after World War II and America’s dominant position in business and commerce declined to pre-war levels. The recovery benefitted American firms but created companies in Germany and Japan that became arch competitors in the early 1970s in industries that were dominated in the 1950s and 1960s by Americans such as cars and consumer electronics. And in this lies one of the great unheralded 1960s stories: the restoration of competitiveness and prosperity throughout the world from Taiwan to France, and the United States’ central role in bringing this about with its critical supply of dollars for rebuilding and trade.
GNP figures confirm the broad rise in the standards of living of the era. Western Europeenjoyed real GDP growth rates averaging over 4% in the 1950s, and very near a spectacular 5% a year in the 1960s, compared with 3% in the 1970s and 2% in the 1980s. Japan’s growth dazzled in the 1960s between 10-13%. Likewise others.[iv] The GDP of the United States is closer to a 4.5% average in the 1960s for growth – faster than any other decade in the 20thcentury – and this meant a GDP that doubled from $543 billion to $1.1 trillion between 1960 and 1970 – the decade of gold stress. More extraordinary was the 1960s’ increase of productivity in non-farm businesses by a staggering 50% over the previous six decades averages, lifting living standards.[v] Here was an engine of growth for the world economy that changed its character with the “Nixon Shock” but was nevertheless powerful and indispensable.
Established companies such as General Motors, US Steel, Honeywell, and Standard Oil of New Jersey prospered in the postwar and the 1960s, and expanded business overseas. They benefitted during the war and afterwards grew larger. But competition and innovation did not die because large companies grew larger. The most basic asset to business or any enterprise – its success, its failure, its creativity – is people, and the world in the 1960s was in the midst of a people boom. With established companies doing well, entrepreneurs started and built some of the most beloved names in America. Below are fifty of the thousands of new companies founded or taken public during our period 1960 to 1975.
25 FOUNDED, 1960-75
Medtronic, 1960
Sea-Land Service, 1960
Frito-Lay, 1961
Humana, 1961
Six Flags, 1961
Nike, 1962
Wal-Mart Stores, 1962
CVS Pharmacy, 1963
Coffee Bean & Tea Leaf, 1963
Comcast, 1963
Pennzoil, 1963
Parker Hannifin, 1964
Petco, 1965
Best Buy, 1966
K-Swiss, 1966
MasterCard, 1966
Southwest Airlines, 1967
Qualcomm, 1968
Royal Caribbean, 1969
Sturm Ruger, 1969
Federal Express, 1970
Barnes & Noble, 1971
Starbuck’s, 1971
Cablevision, 1973
Microsoft, 1975
25 GOING PUBLIC, 1960-75
Mattel, 1960
Alberto-Culver, 1961
Automatic Data Processing, 1961
Lowe’s, 1961
H & R Block, 1962
Becton Dickinson, 1963
Weyerhauser, 1963
Schlumberger, 1964
Harley Davidson, 1965
McDonald’s, 1965
Target, 1966
Denny’s, 1966
New York Times, 1967
Dollar General, 1967
Hyatt Hotels, 1967
Hasbro, 1968
Rite Aid, 1968
Dillard’s, 1969
Scholastic Corporation, 1969
Intel, 1971
Merrill Lynch, 1971
Nordstrom, 1971
Pizza Hut, 1972
Mylan Labs, 1973
Gap Stores, 1975
SOURCES
[i]Joseph Finkelstein, The American Economy, p. 69.
[ii]Samuel Rosenberg, American Economic Development since 1945 (Houndmills, 2003), pp. 114-116.
[iii]Finkelstein, American Economy, p. 116.
[iv]Stephen Marglin & Juliet Schor (eds.), The Golden Age of Capitalism (Oxford, 1992), p. 49.
[v]Thomas K. McCraw, American Business 1920-2000: How It Worked (Wheeling, 2000), p. 160.