The German "Miracle"

William (Bill) Buckler
Captain of The Privateer
Apr 6, 2009

Perhaps today, the spectacle of a government deciding to implement sound economics and monetary “policy” in the face of a financial crisis would appear as a “miracle”. But sooner or later, some government somewhere is going to have to do what the German government did after WW II.

Please consider first a point which has been made by The Privateer on many occasions since the global financial crisis hit a bit more than two years ago. What the world faces today is not the loss of REAL WEALTH. There has been no actual physical destruction at all, what has been destroyed is the vital connection between the medium of exchange - the money - and the REAL economy.

In the aftermath of WWII, large parts of Germany were little more than piles of rubble or smoking ashes. Most of their major cities had been all but destroyed by bombing. Their infrastructure and transportation links lay in ruins. The nation itself was fully occupied by the conquering powers and in the process of being split in half with the eastern half swallowed by USSR sponsored totalitarianism. Even in the west, the allies dismantled and shipped out of Germany much of the standing industrial plant and literally stole all the intellectual know how and patents they could find in order to license them to western companies. The value of this plunder alone has been put at $US 10 Billion - in 1945 purchasing power terms.

The Germans themselves were utterly demoralized, having lost a world war for the second time in one generation. What economic exchange there was took place by means of barter. Cigarettes were used as money for those who had no access to the “scrip” issued by the occupying powers.

It took three years, until mid 1948, for a situation would arise whereby the new German government could once again assert any form of independence from the occupying powers. It has been claimed that it was Marshall Plan money which turned the German economy around in the late 1940s. This is patently false. Loans received by Germany under the Marshall Plan totaled $US 1.4 Billion. Britain got much more. In addition, the allied powers were charging Germany $US 2.4 Billion per year for occupying the country. And finally, the US decided in 1953 that Germany was to pay back $US 1.1 Billion of the $US 1.4 Billion in Marshall Plan loans. The final payment on that was made - in 1971. “Aid” did not resuscitate the western half of Germany - a return to sound economics and (relatively) sound money did.

The process was simplicity itself. In one move over a long weekend in mid-1948, the German government slipped out from under the strictures of “crass Keynesianism” as administered by the representatives of the allied powers which regulated the nation. This was done by means of monetary reform by which the Reichsmark was replaced by the Deutschmark. But more important still was the abolition of controls on prices and wages and the lifting of most of the regulatory structure on the economy. This was done literally overnight. The next day, the German people almost literally began to construct a new nation out of the rubble. Inside a decade, Germany had one of the most dynamic and richest economies in the world and a currency which was arguably the soundest in the world.

In the words of the great Austrian Economist, Wilhelm Roepke, advisor to German Economics Minister Ludwig Erhard at the time: “...here is to be found the most convincing case in all history against collectivism and inflationism and for market economy and monetary discipline.” The Privateer would certainly not dispute that statement, but we would take it one step further. Here also is to be found one of the most convincing cases in all history of what happens to a nation which is the FIRST to throw off the strait jacket of government regulation and regimentation at the end of a period during which it has spread over the whole world. Germany was the first nation to emerge out from under the global interventionism of WWII. The advantages that gave the nation were huge and the results appropriately spectacular.

Angela Merkel of Germany is well aware of all this. So are her counterparts elsewhere in the EU. Sixty years later, the world is once more mired in a global web of intervention and monetary debasement with the only public “cure” on offer being more of the same. Who will be “first” this time? Which nation or nations will bring forth the “economic miracle”? Who will repudiate “crass Keynesianism”?

William (Bill) Buckler
Captain of The Privateer
email: capt@the-privateer.com

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