This chapter attempts to flag the profound changes that underwent economic practice and economic theory during the Cold War—from 1947 to 1991—as being at the roots of the present inequality crisis. Two aspects are raised. As regards the worsening inequality between nations it is argued that a key distinction between economic activities—at the core of the 1947 Marshall Plan—was increasingly marginalized as the tools of neo-classical economics carried the profession toward higher levels of abstraction.

As regards the worsening inequality within nations it is argued that a) the system of wage-setting changed from a virtual ratchet wheel effect, making wages practically irreversible without a devaluation, to a system of ‘internal devaluations’ (whether or not recognized by that name) and b) the distinction between financial capital and production capital—which had been there since the Bible and the Quran via Medieval church fathers and persisted in Continental European economics from Marx to Schumpeter—gradually disappeared, leading to the present financialization of economic life.

During the Cold War we find that a very successful economic practice—starting with the 1947 Marshall Plan—dominated economic policy up until and including the theoretical foundation for the Maastricht Treaty and the European Single Market: Paulo Cecchini's 1988 book The European Challenge 1992. The Benefits of a Single Market.

This period from the 1947 Marshall Plan to the Cecchini report 41 years later represents an important continuity. The insights from the Marshall Plan about the importance of a manufacturing industry were built into the original foundations of the European Union, and—in that same spirit—Cecchini argued in 1988 that almost all of the benefits from the Single Market would be the result of the increasing returns to scale mostly found in the manufacturing sector. However, the practice of the European Union after Maastricht slowly changed to represent almost the opposite of Cecchini's vision.

Simultaneously—but completely separately from what happened in economic policy—at the start of the Cold War Paul Samuelson brought David Ricardo's trade theory into the core of economics with two articles in The Economic Journal in 1948 and 1949.