So at bottom we are back where the debate of the 1930s left off: Why is the incentive to invest so weak? Hansen's answers are, I think, a good deal less, not more, persuasive today than they were when he first advanced them. And surely no one can follow the Schumpeter line of blaming anti-business policies for discouraging capitalists from investing in the years since the Second World War, least of all with an administration in power like the one we now have in Washington. We must look elsewhere.

I suggest that the answer is to be found in analyzing the long period--twenty-five years or so--which followed the Second World War, during which we did not have a problem of stagnation. In fact during that time the incentive to invest was strong and sustained, and the growth record of the economy was perhaps the best for any comparable period in the history of capitalism. Why?

The reason, I think, is that the war altered the givens of the world economic situation in ways that enormously strengthened the incentive to invest. I list in very summary form the main factors: (1) the need to make good wartime damage; (2) the existence of a vast potential demand for goods and services the production of which had been eliminated or greatly reduced during the war (houses, automobiles, appliances, etc.): a huge pool of purchasing power accumulated during the war by firms and individuals which could be used to transform potential demand into effective demand; (3) the establishment of U.S. global hegemony as a result of the war: the U.S. dollar became the basis of the international monetary system, prewar trade and currency blocs were dismantled, and the conditions for relatively free capital movements were created--all of which served to fuel an enormous expansion of international trade; (4) civilian spin-offs from military technology, especially electronics and jet planes; and (5) the building up by the United States of a huge peacetime armaments industry, spurred on by major regional wars in Korea and Indochina. Very important but often overlooked is the fact that these changes were in due course reflected in a fundamental change in the business climate. The pessimism and caution left over from the 1930s were not dissipated immediately, but when it became clear that the postwar boom had much deeper roots than merely repairing the damages and losses of the war itself, the mood changed into one of long-term optimism. A great investment boom in all the essential industries of a modern capitalist society was triggered: steel, autos, energy, ship-building, heavy chemicals, and many more. Capacity was built up rapidly in all the leading capitalist countries and in a few of the more advanced countries of the third world like Mexico, Brazil, India, and South Korea.