Miracles normally fall into the category of the supernatural. June 20, however, marks the 60th anniversary of a European economic resurrection — and that was the work of mere mortals, however inspired they may have been. But as with all man’s efforts — all the glories of this world — there were no guarantees that the miracle would endure.
In 1948, Western Europe was still emerging from the rubble of six years of war. Germany itself continued to endure rationing. Its currency was increasingly worthless. Millions relied on the black market for survival.
Germany’s economy also remained bound by the Nazis’ war-time regulations. Of course, the Allies’ failure to remove these fetters was unsurprising. Almost everyone was convinced the future belonged to highly planned economies. New Dealers, Keynesians, and Social Democrats held the levers of power.
All, that is, except one.
In early 1948, an unknown economist named Ludwig Erhard was appointed economic director for the combined British and American zones of occupied Germany. Bavarian by birth and free-market by conviction, Erhard spent the war in a business-supported research institute writing about Germany’s post-war future. Economic freedom, Erhard believed, was indispensable to Germany’s recovery. His 1948 appointment placed him in a unique position to implement his ideas.
Erhard’s revolution took place in two stages. First, with the occupiers’ support, he instituted a new currency — the Deutschemark — on June 20, 1948. The very next day, goods previously unobtainable because of lack of confidence in the old currency began appearing everywhere.
But Erhard’s second step was more difficult. The currency reform’s effects would only last, Erhard understood, if the Deutschemark reflected the real price of goods and services. This meant abolishing rationing and price-controls – a step unapproved by the occupation authorities. But on June 24th, Erhard simply went ahead and did it.
The benefits were immediate. Money acquired genuine purchasing power. People lost their fear of selling goods. Queues disappeared. Entrepreneurial incentives suddenly became real. Thus began West Germany’s remarkable tale of post-war prosperity.
There is, however, another side to this story, the consequences of which haunt Germany today. On many occasions, Erhard acknowledged his intellectual debt to a small group of German economists who, at considerable personal risk, had argued the case for economic liberty even before 1939.
Often called “neo-liberals” or “ordo-liberal,s, economists such as Wilhelm Röpke had long criticized Germany’s slide toward collectivism. This, they argued, began when the “Iron Chancellor,” Otto von Bismarck, instituted tariffs in 1878, and ended in the nightmare of Hitler’s war economy.
A passionate anti-Nazi, Röpke fled Germany in 1933. Interestingly, Röpke’s anti-Nazism included powerful critiques of the socialist aspects of the National Socialists’ program. Unlike the Nazi regime, the ordo-liberals believed in free enterprise and markets. The state’s role, they stressed, was to uphold monetary stability, the rule of law, contracts, property rights, and open markets, and to inhibit attempts by businesses to establish cartels and unions to create labor monopolies.
Unsurprisingly, these economists avidly supported Erhard’s 1948 reforms. Less well-known is that many ordo-liberals grew increasingly critical of West German economic policies after the “Great Reform,” as Röpke called it, of 1948.