Opinion Editorial | |
| Wednesday, July 22, 1998 | |
The Lift That Began the German Miracle |
Last month, there were numerous ceremonies and other events celebrating
the 50th anniversary of the Berlin Airlift. However, almost no mention
was made of the economic reforms that led the Soviet Union to cut off land
routes to West Berlin, thus necessitating the airlift. Yet in the long
run, the economic reforms were of greater historical significance than the
better known airlift. At the end of World War II, Germany was jointly occupied by British,
French, Soviet and American troops. One of the biggest problems faced by
the occupation forces was the utter collapse of the German economy. Obviously,
devastation from the war was the principal cause of the German people's
destitution, but the legacy of Nazi economic controls was also an important
factor. These controls were largely continued by the Allies after the war. All prices and trade were controlled, while the money supply spun out
of control. As a consequence, there was almost no production and money
was virtually worthless. Businesses hoarded what little merchandise they
had and most commerce consisted of barter transactions. In a vain effort
to stop inflation, the Allies raised taxes, which only had the effect of
depressing economic activity still more. Finally, two men stepped forward to try and fix the economy. First was
General Lucius Clay, the commander of U.S. forces in Germany. He saw that
something had to be done to get the German economy moving, if only to relieve
the Allies of the need to provide relief aid. Beginning in 1947, he started
planning for an overhaul of the German economy, especially the establishment
of a sound currency. The second key player was Ludwig Erhard, a German economist chosen by
Clay to spearhead the economic reforms. They were instituted over the weekend
of June 19-20, 1948, when the old currency, known as the Reichsmark, was
withdrawn and replaced by the Deutsche mark, with 10 Reichsmarks now worth
one Deutsche mark. Solemn promises were made that the Deutsche mark would
maintain its purchasing power. This monetary conversion was accompanied by abolition of all price controls.
Erhard was able to do this because although permission from the Allies
was necessary to change any of the controls, none was needed to abolish
them altogether. "The Allies never seemed to have thought it possible
that someone could have the idea, not to alter price controls, but simply
to remove them," Erhard later wrote. The removal of all price controls horrified most German economists and
politicians, who expected hyperinflation to result. General Clay even told
Erhard, "My advisers tell me you're making a terrible mistake."
He replied, "Don't listen to them, General. My advisers tell me the
same thing." What Erhard understood is that price controls were doing nothing to reduce
inflation because in fact there were no goods for sale. But by lifting
controls, Erhard encouraged people and businesses to bring hoarded goods
to market, now that they could be sold at freely set prices. Thus on Monday,
June 21, stores that were empty on Friday were suddenly filled with goods
and the German economic recovery was underway. The new currency and the economic reforms only took effect in the British,
French and American zones. The Soviet zone remained under tight economic
controls. So when the Western powers announced that the reforms would extend
to West Berlin, situated within the Soviet zone, the Soviets saw this as
a threat and responded with a blockade. The airlift to resupply Berlin is rightly remembered as a critical event
in postwar history. But we should not forget the equally important economic
reforms that set the stage for Germany's great economic miracle. Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis,
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