Planning a Free Economy: Germany 1945-1960
Author(s): Wolfgang F. Stolper and Karl W. Roskamp
Reviewed work(s):
Source: Zeitschrift für die gesamte Staatswissenschaft / Journal of Institutional and
Theoretical Economics, Bd. 135, H. 3., Currency and Economic Reform: West Germany After
World War II: A Symposium (September 1979), pp. 374-404
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//. The YearsofReconstruction
a FreeEconomy:
Planning
Germany1945-1960*
by
F. Stolper
Wolfgang
AnnArbor,Michigan
Karl W. Roskamp**
Detroit
I. TheSocial MarketEconomy
Neverin Germaneconomichistoryhave so manypeople reachedso higha
standardofliving.Table 1 showstheacceleratedgrowthand theunprecendenis
ted levelsof per capita incomereachedsince the war. The achievement
left
The
of
the
Federal
has
standards.
Republic
development
impressive
byany
theEast Germaneconomylimpingbehind.And evenin international
terms,
thatall
is verygood. At thesametime,it is wellto remember
theachievement
advancedcountrieshave grownsubstantially
comparedto theirpre-warbase.
And it is importantto realizethatuntilthe Federal Republicachievedfull
succeededin catchingup with
between1956and 1958itprimarily
employment
countries.
theotheradvancedindustrial
Theseare facts.Theyhavebeendescribedas an economicmiracle.Butwhat
is a miracle?If it is that eventscannot be logicallyexplained,Germany's
is no morea miraclethananyothereconomicdevelopeconomicdevelopment
whatmakeseconomiesgrow.
ment.For,nowheredo we reallyfullyunderstand
of our knowledgeaside,ifa miracleis definedas
limitation
This fundamental
the coincidenceof good luck, good policies,and fortunatedevelopments
elsewhere,
then,perhaps,whathas happenedhas been a miraclethoughan
explicableand rationalone. But,ifa miracleis definedas a uniqueeventthat
* Thiscontribution
in 1965as a projected
finished
was originally
chapterofa book on
who
aftertheSecondWorldWar.Professor
Germandevelopments
HenryA. Kissinger,
servicebeforeitcouldbe
had plannedand editedthebook,wascalledto moreimportant
ina somewhatshortened
form.The
forthepublication
finished.
He has givenpermission
originalchapterwas about 90 pagesin lengthand was an analysisof Germandevelopthediscussion
versionhas beenshortened
mentsuntilabout1965.Thepresent
bylimiting
reform
suchas thecurrency
varioussubjectmatters
to theperioduntil1960and omitting
to thisissue.
whichare dealtwithin othercontributions
** ProfessorDr. WolfgangF. Stolper,Departmentof Economics,University
of
Dr. Karl W. Roskamp,Department
Michigan,AnnArbor,Michigan,U.S.A.; Professor
of Economics,WayneStateUniversity,
Detroit,Michigan,U.S.A.
135/3(1979)
Planninga FreeEconomy
375
has not been open to others,then,perhaps, it was no miracle at all, as Japan,
Taiwan or Israel suggest.
Table1
theBoundaries
within
Real Per CapitaNationalIncomeat FactorCost,Germany
at theTime.Constant1913Prices.
Date
1871/75
1911/13
1925/29
1930/34
1935/39
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
Mark/RM/DM
352
728
696
596
827
845
922
993
1.065
1.138
1.272
1.350
1.414
1.442
1.514
L633
Sources:Hoffmannund Müller [1959],T. 2, p. 14; statistischesJahrbuchfür die
BundesrepublikDeutschland 1964,p. 548.
Note: Figuresin currentprices.1950-60deflatedby implicitpricedeflatorforGNP
and linkedto average 1950/4calculatedby Hoffmannund Müller [1959]. It is a
statistical
accidentthattheaverageof theperiod1950-54is equal to theincomeof the
middleyear.Figuresfor 1950-59excluding,1960 includingWest Berlin.Inclusionof
WestBerlinlowerspercapitaincomeslightly.
The notion of a "miracle" is perhaps mostlydue to the startlingcontinuities
and breaks in German development.The dramatic changes of borders aside, it
is, however,not at all clear what in historycan be considered a break, German
history,as all history,consists of more than one strand. The last break in
German historymightbe understood as a reaction against the Nazi period. As
economics is our topic, we shall restrictourselves to it. The Nazis not only
armed and developed armamentindustries,theyhad a view of the economy as
an entitywhich had to get detailed directionfromthe State ifit was to work in
the desired manner. They were obviously not hostile to private property.But
theycould not understandthat an economy mightwork by itselfwithina social
frameworkcontrolled and influencedby the government.They never grasped
that the performanceof an economy mightbe much improved if the influence
of governmentis limitedprimarilyto create such a general social framework.
376
F. Stolper
/KarlW.Roskamp
Wolgang
ZgS
else. But
Duringthewar,controlsbecameessentialin Germanyas everywhere
controls,forcedcartels,
priceand tradecontrols,exchangeand investment
abolitionofunionsand therestwerealready
labor (Arbeitsdienst),
semi-forced
evenbeforeHitler
and someofthemwereintroduced
inthethirties,
introduced
in responseto theGreatDepressionwhichno one knewhow to handle.
and thevirtuesof themarket
Much of theemphasison privateenterprise
economycan onlybe understoodas thereactionagainstthe Nazi past. The
insistence
of theso-called"Ordo" Circle,thatan economyworkseven if no
as a breakwiththepast
tellsit to work,can be interpreted
minorpartyofficial
of themoredistantpast *. Many of the"new" discoveries
or a reawakening
oftensound hollow to Americanor Englishears because theyseem to be
But in thenightmarish
contextof
and unnecessary.
preachingtheself-evident
are
neither.
therecentNazi past,thesestatements
of 1945is describedas a breakthefactis that
or notthecatastrophe
Whether
crumbled.
Individualswho had beentoldthat
A
world
shock.
itwas a terrible
survival
but
the
matter
theirlivesdidnot
did,foundthatthecountry
country's
while
to live.The alternatives
exist
continued
to
ceased
it
had
knew
as they
they
withthecatastroto
terms
and
weresuicide,or working,
coming
keepingquiet
phe.
of German
Thus foreignobserverswerepuzzledby thelack of belligerence
fervorof the
tradeunionswhichcontrastedsharplywiththe revolutionary
periodafterWorldWar I. In 1918,theend of the war foundan exhausted
In 1945,theframework
had beenpreserved.
butthebasic framework
country,
itselfhad disappeared.In such a situation,withmillionsof unemployedand
on higherwageswas unrealimoremillionsofrefugees
in,insistence
streaming
sticand ideologicalfervorsimplybesidethepoint.
had no defenseburdento
Germany,dividedand occupied,at leastinitially,
theMarshallPlanand its
and shehad helpthrough
at rebuilding
slowitsefforts
was largelytakenbya
defense
of
the
expenditures
Though place
predecessors.
thereis a difference.
burdenofwarand refugee
substantial
relief,
Refugeesand
soldiersmayconsumeequivalentamounts,buttheequivalentof thehardware
witha
to providea refugee
thata soldierneedsmaybe theequipmentnecessary
newjob.
luckhas undoubtedly
Germaneconomicdevelopments
In explaining
played
was
an enormousrole.But,again,whatis luck?One ofthe"lucky"happenings
since1945,grewwiththerestoftheWesternworld.Indeed,the
thatGermany,
1 The Ordo-Kreis
and other
civilservants,
refers
to a groupofeconomists,
politicians,
interested
citizensthatformedafterthewar aroundtheideas of WalterEucken,and
thepostwarGermaneconomyalong
whichwas concernedwithproblemsof organizing
moreliberallinesthanin thepastwhilestillsolvingtheurgentsocialproblemsinherited
considereda memberof this
chancellorErhardis commonly
fromthewar.The former
groupwhichhas publisheda yearbooksince1948(Ordo, Jahrbuchfür die Ordnung
aroundtheUnivercentered
von Wirtschaftund Gesellschaft) and whichphysically
forthisessay
whereEuckenwas teaching.Majorideasas faras relevant
sityofFreiburg,
in thetext.[See also Watrin,thisissue,pp.405ff.(ed.).]
are summarized
135/3(1979)
a FreeEconomy
Planning
377
factthattherestof theworldsolveditsproblemsahead of Germanymade it
of othersuntilshe herself
possibleforGermanyto profitfromtheexperience
becamea leadingforcein theworldeconomy.
Secondly,however,Germanysucceededin usingeventsfavorableto her
and suggestsa particular
of
interpretation
growth.Thisis farfromself-evident
withthe
hereconomicpolicies.Germanymadetwodecisionsearly:to integrate
and internationally
western
world,and to developa highlyproductive
competitiveeconomythroughthemaximumuse of thepriceand marketmechanism.
to thenotionthat
Germanofficialspokesmenhave,of course,contributed
herrecovery
and spectaculargrowthweredue to theadoptionof a Smithian
laissez-faire
philosophyand,perhaps,theyare notso farwrong.Germanyhas
opposed "planning" and preachedthe virtuesof monetaryrestraintand
competition.Yet, much of this is verbiage.For, as we will tryto show,
ideolopragmatic
policywithoutunnecessary
Germanyhas pursueda flexible,
gicalblinders(see Malenbaum and Stolper [I960]).
German thinkersof this problemnever
Actually,the more thoughtful
or "laissez-faire".
If theydid,they
to "freeenterprise"
themselves
committed
and theirinsistence
thattheydealtwitha
qualifiedtheirviewveryconsiderably,
mustbe understoodin this
Social MarketEconomy(soziale Marktwirtschaft)
the
detailed
discussion
of
the
oftheso-called
manner.Space precludes
thoughts
theproperfunction
of theStatein theeconomy.There
Ordo-Kreisconcerning
can, however,be not the slightestdoubt thatthe State was assigneda very
positiverole. Thus WalterEucken,who is justlyconsideredthe intellectual
godfatherof the postwarGerman economicpolicy,pointedout that the
putifitwas to be
questionoftheroleoftheStatein theeconomywas wrongly
terms.It did not matterwhethertheStateintervened
reducedto quantitative
It maybe worthwhile
muchor little,but how it intervened.
to quote Eucken
of
German
because
have
not
himself,
manyinterpreters
policy
alwayshad the
ofthemasterwhowas a good economistand a great
breadthofunderstanding
man.
"Whethermore or less Governmentactivity- this questionmissesthe
essentialpoint. The problemis not quantitativebut qualitative.However
unbearableit is to leave theeconomy(Gestaltung
der Wirtschaftsordnung)
to
moderntechnology,
itselfin theage of industry,
hugecitiesand mass population, the State is incapable to directthe daily economicprocess of this
complicatedeconomywithits divisionof labor and continuous
enormously
changes.How thenshould the State act? The answeris: The State has to
influence
theforms,theinstitutional
theeconomicorder,and ithas
framework,
to set the conditionswithinwhicha viable (funktionsfähig)
and humane
economicorderdevelops.Butit mustnotdirecttheecono(menschenwürdig)
mic process itself... Governmentplanningof forms- yes; Government
planningand directionof theeconomicprocess- no. To knowthedifference
- thisis essential.
betweenformsand processand to act accordingly
"(Eucken
in
92-93.
Italics
the
translation
[1949],p.
original,
byW.F. Stolper.)
378
F. Stolper
Wolgang
¡ KarlW.Roskamp
ZgS
This generalstatementleaves the State a verywide field,indeed. Thus
Euckenhimselfdiscussesinvestment
policyin connectionwithbusinesscycle
stabilization,and feels that stabilitycan be maintainedby avoidance of
and bymakinginvestments
deflation
and inflation,
throughkeeping
profitable
theirpricesin a properrelationto thoseof consumergoods. Othermeasures
hewouldhaveapproved
(ibid.,p. 91). Whether
mightormightnotbe necessary
and recountedbelow can remainopen.
of the measuresactuallyuntertaken
incometaxas longas itdidnotinterfere
with
Euckenalso favoreda progressive
incentives
to capitalformation
(ibid.,p. 73).
achievedthisaim: capitalformaThe Social MarketEconomyhas certainly
the postwar
tionin Germanyhas remainedat a veryhighlevelthroughout
period.All thesame,questionsabout thecost of postwargrowthin termsof
have neverceased and therehave been
inequalitiesof incomedistribution
thatgrowthwas accompaniedalso byseriousinequities.
suggestions
persistent
and thattheoverwhelming
Yet we feelthatfirstthingshad to be solvedfirst,
We feelalso that,since
full
and
employment.
problemwas to achievegrowth
of
its
moralsting.We feel,
lost
much
the
becamebetteroff, problem
everyone
share
and
of
full
achievement
thatwiththe
employment theincreasing
thirdly,
we
will
to
which
a
national
in
the
of laborincome
pay
product, development
moreattentionbelow,theincomedistribution
problemis now beingtackled.
thattheconceptof theSocial MarketEconomyis sufficiently
We feel,finally,
of
in both the distribution
broad to permitconsiderablefutureadjustments
as a
incomeand of wealth.In short,Eucken'sviewcan be easilyinterpreted
defenseof a welfarestatewhich,whenappliedin othercountriesis subjectto
as theSocial MarketEconomy.
Germanscornbutwhichin Germanyis defined
fromearlierinterthepresentactivities
Two additionalaspectsdifferentiate
seen
as a flawin an
was
earlier
of
interventionism
the
ventionism.
days
First,
Now
it
is
seenas partof
role.
had
no
which
the
State
in
world
otherwise
perfect
ofthe
a systemin whichtheStateis an integralelement.Secondly,theactivity
State is introducedonly to achievea particularend, be it social policyor
Once theend is achievedit is againabolished.This
of investment.
stimulation
of thepostwarGermanscene2.
feature
new
is
a
self-liquidation
the basic policy
The policymakerswereconcernedwith„Grundfragen",
lines,and theytriedto holdto them.However,thecontrastbetweentoo many
publishedstatementson the freeeconomyand the actual continualand
into the economymake an outsider's
intervention
substantialgovernment
of theeconomicpoliciesinevitable.
reinterpretation
is simplythis:GermaneconomicpolicymakersunderOur interpretation
stood perhapsforthefirsttimein Germanhistory- thatan economyis a
and that pricesand profitsare
complicatednetworkof interrelationships,
also
for
action.
understood,perhapsinstinctively,
They
importantsignals
2 Unfortunately,
lessonhasbeenunlearned.
thatthisimportant
isevidence
there
a FreeEconomy
Planning
135/3(1979)
379
perhapsconsciously,that pricesand profitshave no ideologicalcontentin
but are tools to be used forspecificpurposes.Finally,theyknew
themselves,
thatpolicydecisionsare made not onlyin theratherrarefied
atmosphereof
fiscal
but
also
the
and
on
policies,
day-to-dayoperatinglevel of
monetary
with
and
business
and in thefaceofuncertainty
foibles,
bypeople
government
concentrated
on establishing
and ignoranceof facts.Theytherefore
a frametheconstantadaptationto changingevents.It was this
workwhichpermitted
attitudeofseeingthelongrunas a sequenceof shortrunswithoutlosingsight
a freemarket;ofseeingpolicyas the
oftheultimatepolicyaimsofestablishing
art of wideningtheareas of choiceand thenmakingat any one momentthe
bestpossiblechoicewhichpermitted
Germanyto use favorableopportunities
creatively.
and early
This,however,is obviouslynotthewholestory.In thelatefourties
fifties
the opportunities
werelimited.In
open to Germanunilateralefforts
factmustbe keptin mind:the
explainingGermany'sgrowthone important
of othercountriesand especiallythehelpfromthe
policiesand developments
UnitedStates.
Table2
and Unemployment
in the
Employment,
Population,
FederalRepublic1949to 1960
Year
Employed0 Unemployed
Population
Excluding5 Including0
WestBerlin WestBerlin
1939a
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
Millions
Millions
Millions
Millions
0/
rtf
/o OI
Labor Force
39.300
46.700
47.522
48.075
48.488
48.938
49.693
50.195
50.801
51.432
52.069
52.665
53.234
42.999
49.198
49.989
50.528
50.859
51.350
51.880
52.380
53.008
53.656
54.292
54.876
55.433
n.a.
13.489
13.827
14.556
15.291
15.888
16.598
17.496
18.383
18.945
19.175
19.748
20.184
negligible
1.283
1.580
1.432
1.383
1.258
1.173
.936
.767
.667
.688
.540
.271
negligible
8.7
10.3
8.9
8.3
7.3
6.6
5.1
4.0
3.4
3.5
2.7
1.3
Source: Statistisches Jahrbuchfür die BundesrepublikDeutschland, various
issues.
a Prewar
refersto area ofWestGermany.
figure
b
Figuresfor1939through1954excludingSaar; 1955following
includingSaar.
c
IncludingSaar throughout.
d WithoutWestBerlin.
380
WolgangF. Stolper/Karl W. Roskamp
ZgS
//. TheLegacyof theLost War
Whenhostilities
ceasedin 1945,Westand East Germanyappearedphysically,
and emotionally
hopelessly
destroyed.
Refugeessweleconomically,
politically,
led thepopulationofWestGermanyfrom43.0 millionto 50.5millionbetween
1939and 1951,bothfigures
includingWestBerlin(Table 2). By contrast,the
East Germanpopulationincreasedonly from16.7 millionto 18.4 million.
Thus, whilea large part of physicalassets was destroyed,populationhad
increasedsubstantially,
leadingto considerabledifficulties,
especiallyin food
supplyand decenthousing.The miseryof thoseyearslefta vividmemory.It
also led to somewhatexaggeratednotionsas to theextentof thedestruction
and subsequent
of 1948usheredinthereconstruction
reform
whenthecurrency
phenomenalgrowthof theWestGermaneconomy.
It is obviousthatneitherthe Westnor the East Germaneconomystarted
fromzero in 1948. Considerableproductivecapacitiesremained.So did an
industrious
populationwithall theknow-howand skillsnecessaryin a highly
developedeconomy.In West Germany,at least,thereturnedout to be also
considerablestocksof all kindsof goods whichthemonetarychaos keptin
hoards,but whichfoundtheirway quicklyinto the marketonce it was rereform.
establishedbythecurrency
CapitalStock
of housingand durableconsumergoods,
Therewereverylargedestructions
at a fairly
highleveldespitethe
capacitiessurvived
yet,WestGermanindustrial
because of thesubstantialincreasein capacity
war and postwardismantling
duringthewar: Industrialcapacitieswereabout the same in 1939 and 1948
capacitiessurvivedthewar- the
(Table 3). In East Germany,too, substantial
- butdismantof
industries
to
work
Russiansputa good number
immediately
in
than
the
West.
lingwas muchmoreserious
Table3
AreaoftheFederalRepublic,1950Prices
CapitalStockinIndustry.
Year
BillionDM
Ï936
1939
1943
1945
1948
1950
5L2
57.3
71.7
62.0
57.8
6^5
Source:Krengel [1958],p. 94. For earlierperiodssee also Grüning[1958],p. 41.
Note: "CapitalStock"refers
to plantand equipment.
135/3(1979)
a FreeEconomy
Planning
381
However,even thoughthe aggregatecapital stockin West Germanywas
was considerably
about the same in 1948 as in pre-wardays,its structure
were
changed.Some keycapacities,suchas rollingmillsin thesteelindustry,
missing.Therewereconsiderable
disproportions
sharplyreducedorcompletely
in thecapitalstock,manyof themcaused by thesplitof thecountryintoa
western
and easternpartwhichwas latentsince1945,butbecameobviouswith
in 1948.Althoughdetaileddata on East Germareforms
theseparatecurrency
nvaremissing,
thereis no doubtthatthestorywouldbe substantially
thesame.
The years between 1945 and 1948 were marked by uncertainty
as to
As long as herpolitical
Germany'sfuturepoliticallyas wellas economically.
destinywas uncleartheeconomicproblemsremainedunsettled.Yet, evenin
thisperiod,manyfactoriesand machineswererepairedand used again,and
outputincreased,perhapsmuchbeyondwhatthepublishedfiguresindicate.
Thus, in 1948,therewereenoughcapacitiesavailable in West Germanyto
permitresumptionof productiononce political,monetary,and economic
reform
established
theconditionsfor
was restored.Whenthecurrency
stability
revivalin West Germany,capital stock in industrywas certainlynot the
factor.
limiting
LaborForce
For various reasons the labor force in West Germanydid not increase
withtheincreasein populationand in East Germany,it even
proportionately
declined(Stolper [1960],p. 27). It is estimatedthatin 1948,shortly
beforethe
theWestGermanlaborforcewas,with21.6 millionpersons,
reform,
currency
onlyas largeas in 19393.Becauseoflossesin theage groupbetween20 and 40
yearstheproportionof old and veryyoungworkerswas high.Refugeesand
expelleescreated special problems.A large part of them had workedin
in theirold pursuits.Retraining
but could not findemployment
agriculture
settledinitially
inruralareaswhereshelter
becameessential.The refugees
could
existedmainlyin industrialareas
be found.Yet, employment
opportunities
whichhad especiallysuffered
duringthe war and in particular,could not
accommodatewhole families.The efficient
use of labor oftendependedon
in 1948, therewas plentyof labor
in housing. Nevertheless,
investments
availableto be drawnintotheproductive
process4.
Most of theworkerswereonlytoo happyto workfora wage whichwould
thebarenecessities
of lifefortheirfamilies.Unlikethe
permitthemto furnish
on
the
was
whole,
twenties,
ideology,
conspicuousby its absence.One may
the
to
what
extent
of
speculate
experience a warand thefateofthelaborforce
in theRussian-occupied
partof Germanymayhave caused this.Perhapsthe
3 JointReport of the Military
Government,p. 89. SincetheFrenchzone did not
admitrefugeesit probablyhad the same populationas in 1946. See also Deutsches
Institutfür Wirtschaftsforschungil 9471,p. 271.
4 Thiswas also trueforEast
Germany,
despitethedeclinein thelaborforce.
382
F. Stolper
/KarlW.Roskamp
Wolgang
ZgS
was a wayof comingto
to workhard,evenforlow remuneration,
willingness
before
termswiththepast. Perhapswiththefateof Soviet-occupied
territory
theireyes,therewas a feelingof not wantingto disturbtheprecariousstatus
quo. It probablygoes too farto say thatat thetimelabor had a stakein the
theRussianexperience,
which
survivalof themarketeconomy.Nevertheless,
all membersof theGermanarmedforceson theEasternfrontshared,had a
Ifnothingelse,itconvincedlaborthatsocializationwas not
effect.
devastating
the answerto theirproblems.The ideologicalturnof the social
necessarily
in lateryearsawayfromnationalization
and dogmaticinsistence
on
democrats
to a new-dealtypeof approachis foreshadowed
in the
ownership
government
earlyattitudeof workers.It cannot be explainedmerelyby the prosperity
achievedin thesixties.
labor'sattitude,
therewas a willingness
to
Whateverthemotivesunderlying
on thelaborsidein WestGermany'speriod
workhard.Therewas no restraint
ofeconomicrevival.
Land
Withtheagricultural
surplusareas in centralGermanylost,West Germany
had to relyon food importsto preventmass starvation.Undervariousaid
programstheAlliesimportedsubstantialamountsof grainsand otherfoodIn thissituation,thehighestpossibleagricultural
stuffs
intoWestGermany5.
outputwas called for. Because of the lack of importantinputs,especially
thecropyieldswerefarbelowpre-warlevels.The resultantfodder
fertilizers,
sourceof meatsand
shortagereducedthenumberof pigs,themostimportant
an
fats.All of this improvedonly afterthe currencyreformreintroduced
forfarmers,
and thenecessary
effective
pricesystemand providedincentives
keyinputsbecameonce again available.Duringtheperiodof food shortage
but hoarthereweremanyinstancesof considerablehoardingin agriculture,
dingoccurredalso elsewherein theeconomy.
Trade
International
measuresoftheAlliedControlCouncilwas to forbidindividual
One ofthefirst
trade.All tradehad to go throughAllied
Germansto engagein international
channels.The decisionas to what the zones shouldexportand importwas
Germanyhad always imported
completelyin Allied hands. Traditionally,
and raw materials,and exportedmainlyfinishedgoods of the
foodstuffs
Beforethe
and thechemicalindustries.
theelectro-technical,
machine-building,
consisted
of
industrial
cent
of
97
warabout per
products,
Germany'sexports
mostof themfinished
goods.
donatedby the
Afterthewar,importsstillconsistedmainlyof foodstuffs
5 Thecombined
in1947thefoodequivalent
of
received
U.S.-U.K.zoneofoccupation
tonsofwheat.
4.15million
135/3(1979)
a FreeEconomy
Planning
383
WesternAllies.Butimportsofrawmaterialsforindustrial
productionamountedto only1 percentofall importsin 1947and 6 percentin 1948.The area of
WestGermanyexported,however,mainlyrawmaterials- especiallytimberin
of
thisstructure
whether
coal exports.It is uncertain
additionto thetraditional
Allied
side
of
or
decisions
on
the
limitations
reflected
policy
physical
exports
thetraditional
authorities.
exportpatternwas reversed.
Certainly,
worse.The Russian armylived
The East Germansituationwas infinitely
werepaid outofcurrent
output,including
largelyofftheland,and reparations
goodswhoseproductionsupposedlywas forbidden.
It is impossiblein a short compass to give a detailed account of the
waysofAlliedpolicyinthisperiod.Thecoldwarquicklyexploded
labyrinthian
thatall fouroccupationzoneswouldbe treatedas a unit.In the
theassumption
West,the Morgenthaupolicyremainedstillborn.So did the Limitationof
IndustryPlan, whichneverhad preventedthe Russiansfromproducingin
in
whattheyneeded.The famousByrnesspeechin Stuttgart6
Germanfactories
1946markedthefirst
openchangeinWesternpolicy.The Americanand British
zoneswereunifiedin 1947and werejoined bytheFrenchzone in 1948.Allied
foodand rawmaterialspouredintothewesternzones whileRussia despoiled
hers.WhentheMarshallPlan was established,
Germanybecameat firsta de
of
the
member
full
EuropeanRecoveryProgram.If one were
factoand later,a
an
and
U.S.
the
to characterize
Englishpolicyit wouldhave to be as, at first,
in
the
of
the
economic
wake
last
to
disintegration
attempt preventcomplete
hope and "normality"withinthe
war, graduallychangingto reestablishing
voice but
of controls.WestGermanyhad no independent
structure
inherited
heardby theWesternvictors.
was nevertheless
Russianpolicytowardsherzone ofoccupationlookedmuchmorequicklyto
ofa separatecountry."The GermanEconomicCommission
theestablishment
thedefacto predecessorof thelaterGo(DeutscheWirtschaftskommission),
as
an
was
established
vernment,
advisorybody to the Russian Military
in June,1947,but becameon February12, 1948,an executive
Government
bodyunderRussiansupervision"(Stolper [1957],p. 522), fourand one-half
whichis oftenand notquitecorrectly
made
monthsbeforethecurrency
reform,
of
final
for
the
Germany.
split
responsible
///.ThePeriodofAnxiety
TheCurrency
Reformof 1948
reformwas finallycarriedout in June1948,with
The long overduecurrency
6
ofStateByrnes,
6, 1946.Thisspeechwasheldinthe
SpeechofSecretary
September
before
anaudience
ofleading
members
oftheAmerican
Staatstheater,
Stuttgart,
military
Selected
inKeesing's
Archiv
derGegengovernment.
passagesreproduced
(inGerman)
wart,
16./17.
Jahrgang
(1946/47),
pp.861ff.
384
WolgangF. Stolper/Karl W. Roskamp
ZgS
of the West German
consequencesforthe futuredevelopment
far-reaching
economy7.The basic problemwas the organizationof the West German
economyafterthereform.Inheritedpricecontrolsand rationingdeviceshad
thelegal markets.In
persistedintothepostwarperiod 1945-1948governing
addition,blackmarketsexistedbecauseoftheenormousexcessmoneysupply.
In both markets,transactionswerecumbersome.A currencyreformcould
eliminateblackmarketsbywipingout theexcessmoneysupply.Yet
certainly
to eliminatepricecontrolsat thesametime.Profeswhether
opinionsdiffered
sor Erhardand othersfavoredas muchde-controlas possible.Othershad
and arguedthatcompletede-control
would,in thefaceof
strongreservations
and
demand
for many key
an expecteddiscrepancybetweenthe supply
the
new
undermine
pricesystem.Finally,a compromise
products,completely
commodities8.
Howfor
most
manufactured
ceased
was adopted.Rationing
rents
and
basic
and
foodstuffs,
steel, coal,
transportation,
ever, for iron
controlsremained,someup to 1952.Threemonthsafterthecurrency
reform,
wagecontrolswerealso abolished9.
West Germanyhad gone througha rigorouscurrencyreformwhichhad
wipedout the financiallegacyof the war. The reformwas overwhelmingly
Its inequities
and stimulateproductiveeffort.
designedto increaseefficiency
dealtwith,theycould
werekeenlyfelt,and eventhoughtheywereeventually
forthe futurepolitical
not be entirelyeliminated.It was perhapsfortunate
was designedand
the
reform
that
Federal
of
the
currency
Republic
stability
executedbytheAllies.
to havea voice
WestGermansbeganincreasingly
reform
Afterthecurrency
in economicpolicymattersfromwhichtheyhad so farbeenlargelyexcluded,
The WestGermancurrency
function.
or inwhichtheyhad mainlya consulting
fortheincreasesin effort,
in 1948establishedthepreconditions
reform
output,
also
individual
some
after
time,
savings.
and,
productivity
reform
Fromthecurrency
onward,WestGermanyreliedon theworkingof
themarketmechanismas themajormeansto achieveherpolicyaims.Where
in orderto influence
the
modifiedthepricemechanism
necessarysheskillfully
when
resultsofmarketdecisionswithoutshyingawayfromdirectinterference
meansdid notsuffice.
moresubtleand indirect
7 In this
GermanyfollowedwheretherestofEuropehad led. Belgiumhad its
respect,
established
from1946on; theNetherlands
in 1944,Francehad a seriesofreforms
reform
in 1945
orderin 1945;so did Denmarkand Norway.Austriahad tworeforms,
monetary
and 1947(Pederson[1949]).[Cf.also L. A. Metzler, thisissuepp. 365-373(ed.).]
8 Dr. G. Harkort
explainedthe urgentnecessityoí the currencyreformwith a
moreorlessfixedsince1936,itwasas ifone
Since
simile.
priceshad remained
convincing
set.It was simplyessentialto
and signalswrongly
had to runa railwaywithall switches
get some ideas of the truescarcitieseven if it shouldturnout to be necessaryto reintroduce
somerationing.
* The
reiormwnicnnas oeen
discussionoi thecurrency
originalcontaineda lengthy
in thisvolumediscusstheissuein greatdetail.
omittedbecauseothercontributions
135/3(1979)
a FreeEconomy
Planning
385
The Uncertain
Recovery:1948 to 1950
reform
of 1948and
thattheperiodbetweenthecurrency
It is almostforgotten
and anxietiesfortheWestGerman
theend of 1950 was fullof uncertainties
weremade to reachagain theprewarlevelof produceconomy.Greatefforts
tionand to overcomea largenumberof difficulties.
Aggregateprewaroutput
was reachedin 1950. Per capita GNP, however,remainedbelow the prewar
levelbecauseof thegreatlyincreasedpopulation.
One industryafterthe otherreachedprewarlevels. In 1948, only three
industriessurpassedtheir1936 output.In 1950, alreadythirteenindustries
reachedthistarget.Some industriesdoubled and more than doubled their
productionbetween1948and 1950.The productionof vehicles,forexample,
increasedthreefoldover 1948. An improvedsupplyof raw materialswas
usuallythereasonforrapidexpansion.However,theoutputsof coal mining
and iron and steel lagged seriously.These industriesvery early became
thefurther
bottleneck
sectorsendangering
expansionof theeconomy.
In 1950,labor productivity
perhourworkedwas still7 percentbelowthe
1936 level,due to the unfavorableage compositionof the labor forceand
realhourlywagesin 1948and
antiquatedand wornoutequipment.In industry,
1949wereabout 15to 20 percentbelowthe1938levelwhichitselfhad beenfar
In spite of low real wages, the economywas unable to
fromsatisfactory.
The numberof unemployedincreasedfrom0.78
achievefullemployment.
reform
forceddisguised
millionin 1948to 1.5 millionin 1950as thecurrency
intotheopen.
unemployment
characteThe prewarlevelofproductionwas reachedin an economicsetting
forentrepreneurs,
low wagesforworkers,
rizedbystrongprofitincentives
and
Our taskis to indicatetheroleofeconomicpolicyin this
heavyunemployment.
most precariousperiod for the West Germaneconomy.We turnfirstto
monetary
policy.
to notethattheperiod1948-1950is also
Beforedoingthisit is interesting
in East Germany.Half-yearand
and experimentation
one of uncertainty
a
were
followed
Two-Year
Plan ofReconstruction
by
( Wiederquarterly
plans
was
which
to
the
aufbau)for1949-50,
prepare economyforitsFirstFive-Year
Plan. Thus, 1950marksa caesurabothin Westand in East Germanpostwar
developments.
MonetaryPolicy: 1948-1950
reform
mademonetary
Thecurrency
three
policyagainpossible,butinthefirst
monthsafterJune1948,thenewCentralBank (at thattime„Bank Deutscher
Länder") was forcedto remainpassive.The initialallocationsofnewmoneyto
banksand publicauthorities
wereratherlargeand theCentralBankapparently
did not wish to check the resultinghigh liquidityof the bankingsystem.
Businesswas clamoringforcredit,and thebankingsystemcould,withavailable resources,
funds.UntilOctober1948,commercial
obligewithshort-term
27 ZgS135H3
386
F. Stolper
¡ KarlW.Roskamp
Wolgang
ZgS
banks had no need to borrowfromthe CentralBank to obtain additional
funds.
increasedin thisperiod,butso didprices.Goods continuedto be
Production
in scarcesupplyand occasionally,black marketsand inflationary
pressures
formonetary
stability,
reappeared.Fortunately
moneywagesremainedstable
becausetradeunions,forreasonsalreadyhintedat,voluntarily
abstainedfrom
demandingwage increases.The new inflationary
pressurescame fromthe
demandside whichthe CentralBank could and did checkwitha restrictive
pressureshad been broughtunder
monetary
policy.By 1949,theinflationary
control.
Pricesdeclinedin WestGermanybetween1948and 1950- one of therare
instancesin recenthistory.The substantialimportsurplusesof 1948-1950
to thisdecline.In anycase,thestringent
monetary
policy
probablycontributed
sloweddown the expansionof the economyand, untilthe outbreakof the
influx
KoreanWar,onlyverylittleidlelaborwas absorbed.Witha continuing
roseto about 1.5
ofrefugees
fromtheSovietzone ofoccupationunemployment
10.3percentof thelaborforcein 195010.The West
million,or approximately
was
Germaneconomy
seriouslythreatened
by stagnation.
Thereweremanycomplaintsabout too tighta monetarypolicybut the
a paramountpolicyobjective.
CentralBankconsideredavoidanceof inflation
rose
and
its
under
as
However, unemployment
figures
policycameincreasingly
finance
a
works
of
to
the
Federal
it
criticism,reluctantly
public
program
agreed
Until
in 1950-51.Yet theprogramnevergainedrealmomentum.
Government
March31, 1950,a totalofonly175millionDM was involved.By March1951,
854 millionDM of credithad been extendedbut much of this was only
connectedwiththepublicworksprogram.
indirectly
The
The roleof monetary
policyin thisperiodhas remainedcontroversial.
CentralBank argued that monetarypolicyshould not aim at, nor was it
was largely
because unemployment
in achieving,fullemployment
effective
structural
and not theresultof insufficient
aggregatedemand.It maintained
thatlaborcould be absorbedintotheproductive
processonlyas theavailable
withKeynesian
physicalplantand equipmentincreased.This was consistent
At the same time,
and investment.
theoryabout therelationof employment
however,it insisted,contraryto Keynesianreasoning,that the amountof
investment
was limitedby the amountof savings.A tightmonetarypolicy,
wouldinducesuchsavings,and in this
stableprices,and highratesof interest
to theabsorptionof unemployment.
mannercontribute
Thus,at a veryearlystagein postwarWestGermaneconomicdevelopment
we encountera problemwhichhas neverdisappeared.On theone hand,the
doctrineof a freemarketassumesthat the smoothworkingof the market
and optimalresourceallocationin theeconomechanism
guaranteesefficient
10Between
cameintoWest
June,1948and June,1950about1.1million
refugees
inthelosteastern
areas.
about800,000
ofwhich
originated
Germany,
135/3(1979)
a FreeEconomy
Planning
387
in pricesforcommodities
and factorsof productionwould
my.Adjustments
in
provideimportantsignalsfor changeswhich,givensufficient
flexibility
couldbe quicklyachieved.Yet, in fact,
and consumption
patterns,
production
itwas earlyrecognizedthattherewereall sortsofrigidities
and bottlenecks.
To
on themarketmechanismto overcomethesewould,in many
relyexclusively
cases, have caused intolerablyhighsocial cost. To allow the pricesforthe
to generatethe necessary
productsof bottlenecksectorsto rise sufficiently
investiblefunds,would have endangeredthe pricestructure.
Priceincreases
theeconomy,whereasgeneraldownwouldhave spreadrapidlythroughout
wouldhavemadecompensating
wardpricerigidities
pricedecreasesunlikely.
Thus, otherthan monetarymethodshad to be used to overcomethese
structuralrigidities.As a result,thereevolved a largernumberof policy
measures.Most ofthemwereofa fiscalnature.The problemwas to coordinate
withtheworkingof themarketmechanismwhilemaking
publicintervention
maximumuse of thelatter.
Fiscal PolicyMeasuresto StimulateEconomicExpansion
The impactoffiscalpolicyon WestGermany'seconomicgrowthhas beenfully
onlymuchlater11.For a longtimeitremainedobscure.Ideological
recognized
reasonsmustbe partlyblamedforthisstateof affairs.For reasonswhichare
notentirely
clear,bothGermansand theircriticsplayeddowntheimportance
offiscalmeasuresand otherdirectinterventions
of theState.One reasonmay
havebeenthatWestGermanbudgetdata aredifficult
to comparewiththoseof
otherWesterncountries.Furthermore,
the numerousmeasuresto stimulate
and growthwereoftencomplicated,
and theyare notreadily
capitalformation
Eventodaythereis notcompleteagreement
systematized.
amongexpertsabout
thequantitative
of thesemeasures.Moreover,it is stillnotcertain
importance
in whatyearsWestGermanyhad, in U.S. budgetterminology,
a surplusor a
deficit12.
The first
fiscalmeasurewas to changetheinherited
tax structure.
Beforethe
theoccupationauthorities
reform
currency
kepttaxeshighin orderto siphon
offpartoftheexcessmoneysupply.Afterthereform
theywereeagerto assure
that no fiscalirresponsibility
should jeopardize the new currencyand, in
thattax reveanticipationof risinggovernment
expenditures,
theypreferred
nues continueto be high.Many West Germansfelt,however,thatthe rates
weremuchtoo highand would stifleincentives.In the tug-of-war
between
Alliesand WestGermanstheAlliesagreedonlyveryreluctantly
to generaltax
11 One of the firstauthors
dealing with the fiscalaspects,largelyfroma legal
is Reuss [19631.See also Roskamp[19651(Manuscriptpublishedin 1959).
standpoint,
12 See, forinstance,Dreissig
[1963].See also Roskamp[1965],p. 144,foran estimate
of theleverageeffects
of theconsolidatedGermanbudgets.Most authorsreferonlyto
theFederalBudget,whichis onlypartof thetotalpicture.
27*
388
F. Stolper
Wolgang
/KarlW.Roskamp
ZgS
cuts.The WestGermans,on theotherhand,did theirbestto reducethetax
in theGermanincometax code.
tax exemptions
burdenbyliberalizing
Secondly,a numberof selectivefiscalmeasureswere designedto solve
theproblemof capitalformation
specificproblems.From theverybeginning
had to be
overshadowednearlyall others.The volumeof capitalformation
raisedand ithad to be channelledintothosesectorswhichwerevital
drastically
thebottleneck
sectorsofironand steel,
thatis, precisely
foreconomicgrowth,
and transportation.
coal mining,
generation,
electricity
thevolumeof savings.It was difficult
was givento increasing
Highpriority
to induceWest Germans,withlow incomes,a huge backlog of consumer
demand,and two shattering
experiencesof inflationand currencyreform
to save again. High interestratessimplywerenot a
withinone generation,
sufficient
incentive.Indeed, as we now know, personal savings in West
ratesand verymuchto income
Germanyhaverespondedverylittleto interest
changes:whenincomeswerelow, personalsavingswerelow; whenincomes
rose,WestGermansbeganto save13.
to savings
In thefirst
phaseofWestGermanrevivalthelargestcontributions
weremadebybusinessand government
(Table 4). WestGermansdid notsave
voluntarily;theywere forcedto save. Savingstook the formof earnings
ifinvested).
retainedbybusinessout oflargeprofits
(mostofthemnon-taxable
in
sellers'
markets
and
were
in
possiblethroughhighprices
Largeprofits, turn,
saved
because
it
had
an
excess
of
current
The
low
government
relatively wages.
receiptsover currentexpenditureswhich could be used eitherfor direct
or investment
loans to theprivatesector.Between
investment
by government
27.4 percentofgrosssavingsand 43.9
contributed
1948and 1960,government
thegovernment
savingswerepossible
percentofnetsavings.To a largeextent,
wereimpressive,
defenseexpenditures
becauseeventhoughsocialexpenditures
low.
remained
and interest
very
payments
weretaxes
as budgetsurplusesused to stimulateinvestment
As important
in presentU.S.
so-called"tax expenditures"
whichthegovernment
forewent,
wereintroduced
parlance.In 1949,a largenumberoftaxincentives
budgetary
weregrantedto savingsdeposits,savings
to stimulate
savings.Tax exemptions
was givento interest
on
in buildingassociations,and favorabletax treatment
securities.Businesscould use liberalaccelerateddepreciationprovisionsto
If fundswerenotwithdrawn
frombusiness,
avoid tax paymentstemporarily.
taxeswerereduced.Loans to specialsectorsoftheeconomy,suchas residential
wereeitherfullyor partiallydeductiblefrom
or shipbuilding,
construction
taxableincome.
to
The legalprovisionswerecomplicatedand changing.Thus,it is difficult
as the tax
assess the importanceof these measuresprecisely,particularly
rate.ExpertsoftheGermanMinistry
at an impressive
revenueskeptincreasing
of Financehaveestimatedthetotaltax deductionsundertheabove provisions
13This,incidentally,
andKeynesian
withbothSchumpeterian
is inkeeping
theory.
135/3( 1979)
389
Planninga FreeEconomy
Table4
SourcesofNetSavings1949to 1960.Current
Prices,Bill.DM
Year
Private
Households
Business
Government
Social
Insurances
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
2.4
2.0
2.3
4.3
5.4
6.7
6.9
7.0
11.1
12.8
14.1
14.8
4.7
4.7
7.5
8.4
5.8
7.8
13.6
14.7
14.0
14.6
15.6
17.4
3.3
4.1
5.5
6.5
8.3
9.0
10.7
11.7
11.8
10.7
13.6
18.1
.5
1.2
1.8
1.7
2.4
2.8
3.3
3.7
2.7
2.1
2.3
3.3
Sources: Monatsberichteder deutschen Bundesbank,variousissues; Roskamp
[1965],Tables 13 and 14.
a IncludesBalanceof
to RestofWorld.
CapitalTransfer
between1949and 1957at 28.4 billionDM, or about6.6 percentoftotalbudget
receipts(estimatesquoted in Roskamp[1965]).Some of the28.4 billionDM
deferredpaymentsratherthan permanentbudgetlosses,but the
represents
is stillimpressive.
ofthisaid to capitalformation
Thereis no doubt
magnitude
or evenprimarily
thatGermanpolicymakersdid not relyexclusively
on the
marketto provide the necessarysavings,and that government
made an
to totalsavings,especiallyin the
directand indirectcontribution
outstanding
earlyyearsof economicrevival.
of theGermangovernment
to generatesavingswas,
The considerableeffort
fundsin theperiod
however,onlypartof thestory.The volumeof investible
increasedby foreignaid. FromApril,1948to
1948to 1950was considerably
aid
June,1950theFederalRepublicreceiveda totalof$ 2.031billionin foreign
ofwhich$ 714.4millionwas made availableundertheMarshallAid Program.
The availabilityof foreignaid fundsrequiredsome kind of investment
planning.The Economic CooperationAgreementAct had stipulatedthat
aid to WestGermanyshouldacceleratetherevivaloftheeconomyand
foreign
especiallydiminishprolongeddependenceon outsideaid. To thisend, MarshallPlan fundswerechannelledintothelaggingsectorsof theeconomy.The
preciseallocationcriteriaare not known. The Marshall Plan fundshave
becomerevolving
fundsand permanent
partsoftheGermaneconomiclandscaIn
were
some
investments
made
inmining;in others
pe14.
years,
predominantly
14 For a brief
see Bundesschatzminister
Dollinger [1965].By theendof
description,
fundamountedto DM 8.3billion.The StatistischesJahrbuchfür
1964,therevolving
die BundesrepublikDeutschland, 1965,p. 456,publishesdata on thisspecialfundfor
thefirsttimein easilyaccessibleform.
390
WolgangF. Stolper/Karl W. Roskamp
ZgS
The emphasischanged.
or in exportindustries.
in theironand steelindustry
Specialselectionproceduresweredevelopedand someof thesehaveno doubt
servedfor later public investment
programssuch as the "InvestmentAid
Program"discussedlateron.
fundswereavailableforinvestWhereMarshallaid or othergovernment
theiruse. In othercases,especiallywhen
determined
ment,publicpreferences
a mixtureof publicand
tax exemptions
wereused as investment
incentives,
businesspattern.In manyinstances,
shapedtheinvestment
privatepreferences
and notbythem.As credit
menusedfundsin waysdesiredbythegovernment
was tightunderthemonetary
policypursuedin 1949-50,theywereveryeager
Thus
to maintainliquidity,
to save taxes;first,
second,to buildup inventories.
made
in
1949-50
selective
fiscalmeasuresto influence
thetightmonetary
policy
moreeffective.
capitalformation
TheCapitalMarket
to be discussed
of theGermancapitalmarketis too intricate
The resurgence
in
the
manner
which
the
centralmechain
small
a
compass.Yet,
adequately
fundswas built up both reflectsthe
nism of allocatingscarce investment
oftheperiodand theessenceofGermaneconomicpolicy.It reflects
difficulties
the concernand main weaknessesof the period,and the quite unorthodox
them.
methodsof overcoming
Thisis notto suggestthatthecapitalmarketby 1960was perfect,
competitive,and efficient.
Normally,and otherthingsbeingequal, as savingsincrease
theinterest
ratestructure
would
thesupplyof fundsforlong-term
investment,
decline.In Germany,however,individualsavingstendto flowinto savings
The fundsavailable
accountsand notintotypicalcapitalmarketinvestments.
frombanksand frombusiness
cometraditionally
to businessand government
itself,fromthegovernment
(includingthevarioussocialinsurances)and from
ofindividualsavingsfindtheirwayintocapital
sources.Onlya fraction
foreign
individualsavings
To look onlyat therapidlyincreasing
marketinvestments.
wouldtherefore
pictureofthesupplyoflong-term
givea somewhatmisleading
loanablefunds.
The allocation of fundsavailable to the capital marketis significantly
influenced
by the advice of the CentralCapital MarketCommitteewhich
howvariousdemandsforand suppliesoffunds
to potentialborrowers
suggests
same
timethedemandforfundsis sharplyaffected
At
the
mightbe balanced.
about the
policy,directlyby the decisionof thegovernment
by government
or
its
of
extentof its own demand,and indirectly
by
policies stimulating
a
net
The
sectors.
economic
though
supplier
government,
restraining
particular
ratestructure
on theinterest
of fundsto theeconomy,has a crucialinfluence
and thelendingside.
on theborrowing
throughitsactivity
ofthatnameexisted.In 1949,thevolume
In 1948,no capitalmarketworthy
and newsharessold was 811.4 million
of newfixed-interest
bearingsecurities
135/3(1979)
a FreeEconomy
Planning
391
DM. In 1954,thevolumehad jumpedto 5.1 billionDM; in 1960 it was 7.3
billionDM. Offerings
(as distinctfromactual sales or "placements")in 1949
In 1960almostall of
were1.4billionDM, nearlytwicethelevelofplacements.
wereplaced.The volumeof bondsoutstanding
the7.6 billionDM offered
in
1948was 18.6millionDM; in 1960itwas 40.9 billionDM. "Resurgence"is not
too stronga word15.
thisessaywe havemadethepointthatwhileGermaneconomic
Throughout
a workingmarketmechanismit did not shy
policyaimed at re-establishing
methodsto achievethisend.The orthodox
awayfromusinghighlyunorthodox
hercapitalshortagewouldhavebeento letinterest
methodofovercoming
rates
rise.Indeed,thismethodwas usedafterthehyperinflation
of 1923whenyields
on capitalwereraisedfrom5 percentto 10 percent16.
Interestratesas reflected
by primebank ratesof commercialbanks were
indeedveryhigh.At thesametime,however,theGermangovernment
pursued
a low-interest
policyforlongterminvestiblefunds.Whilecommercialbank
ratesmightbe anythingbetween10 and 15 per cent,long-term
capital for
approvedpurposescould be had at a nominalrateof 5 to 6 percent.The lowinterest
funds,includingfunds
capitalmarketwas largelyfedby government
fromthesocialsecurity
wereinducedintothissection
system.Privateinvestors
of thecapitalmarketby tax exemptions
and laterby directmeans,as willbe
The tax systemwas thususednotonlyto directfunds,but
describedpresently.
in theinterest
also to bridgethediscontinuity
ratestructure.
The low-interest
ratepolicyrequiredat thesametimean allocationdeviceto
take theplace of the marketmechanism.For thispurposea specialCapital
MarketCommittee
was setup to decideon a systemofpreferences.
Historicalthe
was
a
creation
of
the
committee
of
Marshall
Plan
aid which
ly,
consequence
insistedon coordination
ofGermanefforts
withtheaid. Underthissystem
lowinterest
fundswerechannelledintothebottleneck
sectorsoftransport,
housing,
ironand steel,and therest.We shallreturn
to thiscomplexofproblemsfurther
on.
BalanceofPaymentsand ExternalMonetaryStability
One of theareas in whichAlliedcontrolpersistedlongestwas foreigntrade.
Only in 1950 did controlover foreigntraderevertcompletelyto Germany.
Between1945 and 1948 the threeWesternzones developedgrowingimport
aid. Alliedagencies(in theU.S.-U.K.
surpluseswhichwerefinancedbyforeign
all
trade
transactions.
In May, 1948theofficial
zone,JEIA) supervised foreign
dollar-markexchangerate was set at thirtycents and paradoxically,the
15 Monatsberichte der Deutschen
Bundesbank, August 1965, p. 99. A technical
descriptionof the workingsand imperfectionsof the German capital marketis found in
Becker [19651.
16 Strathuis
itselfreal interestrates were,of course,
[n.d.]. During the hyperinflation
oftennegative.
392
F. Stolper
/KarlW.Roskamp
Wolgang
ZgS
whichnobodywanted.(AfterthesuccessReichsmark
becamea hardcurrency
theDM was devaluedto 23.8 centsforone DM [see also
fulcurrency
reform
forWestGermanexportshad to be made
belowpp.478f.(ed.)].)All payments
in U.S. dollarsand no bilateralarrangements
werepermitted.
This,coupled
withcumbersome
and applicationprocedures,
administrative
discourlicensing
After1949,JEIA slowlyyieldeditsauthorities
to the
aged potentialexporters.
WestGermans,and withit came important
changes.The firstwas to giveup
the thenprevailingbilateral
dollarpricingand follow,at least temporarily,
exchangepracticesin Europe. The second, in 1950 was the adherenceof
to
Germanyto theEuropeanPaymentsUnion(EPU) formedbyU.S. initiative
counteractthe bilateraltendenciesstiflingEuropean trade. Finally,West
begana drivefortradeliberalization.
Germanyherself
deficitof 946
In 1948,WestGermanyhad an overallbalance-of-payments
and
in
million
of
in
of
milliondollars: 1949, 1,018
dollars;
1950, 607 million
in
1949
1.136
billion
to 1.985billion
risen
from
dollars
had
dollars.Exports
to achieve a balance in the
dollars in 1950, yet this was not sufficient
accounts.Importswere2.247 billiondollarsin 1949,but they
international
increasedto 2.543 billiondollarsin 195017.This strongincreasein imports
mustbe partlyascribedto West Germany'srapid trade liberalization.By
September,1950 Germanyhad boldlyliberalized60 per centof all imports
fromOEEC countries,
mainlyrawmaterials.This turnedout to be too much
too soon. It also turnedout to be a blessingin disguise.WiththeKoreanWar
increasedtheirraw
and theordersitbroughtforGermangoods,Germanfirms
ofexport.ByOctober,
materialpurchasesheavily,and ahead oftheirdeliveries
usedup and thegovernment
1950WestGermany'sEPU quota was completely
was
Liberalization
was forcedto restrict
stoppedin February1951,
imports.
1952.Thiswas to remaintheonlybalanceand was notresumeduntilJanuary,
crisisof theGermaneconomy.
of-payments
The obvious long-runsolutionforthe balance-of-payments
problemand
was a strongexpansionof exports.In viewof the
externalmonetarystability
did not
importanceof an increasein exports,thegovernment
overwhelming
ofvariouskinds.In 1951the"Law to
hesitateto helpwithexportpromotions
PromoteExports"providedfor the creationof tax-freereservesin export
the
businesses.Also,specialguaranteeswereextendedto exporters,
decreasing
transactions.
riskofinternational
Finally,theCentralBankbeganto promote
rates.
exportdraftsat preferential
exportsbydiscounting
what
for
reasons
Thereare good
may seem a disproportionate
spending
amountof space on the earlyperiod of Germangrowth.One is thatit is
and
werethefirstyearsofrecovery,
how uncertain
nowadaysnearlyforgotten
17 These
figuresare taken fromWallich [1955],pp. 230, 238. The ultimatesources are
the Annual Reports of the Bank Deutscher Länder (Geschäftsberichte der Bank
Deutscher Länder).
135/3(1979)
a FreeEconomy
Planning
393
how muchcare had to be expendedby Germansand Alliesalike to get the
economygoingagain.
thepragmatism
withwhicheconomic
theperiodillustrates
More important,
was assuredat thattimewhen
decisionsweremade. The futuredevelopment
carefulpolicydecisionshad to be made which,as our accountis intendedto
show,can hardlybe describedas orthodoxlaissez-faire
policies.The basic
was built,itwas
framework
was setinthisearlyperiod,butoncetheframework
possibleto relax,as it were,and letthemarkettakeovermoreand more.
andFullIntegration
IV. Absorption
of Unemployment
IntotheWorldEconomy
TheKoreanBoom
Germanpolicymakerscould notforeseethattheKoreanwarwouldbringan
economicboom. Yet by good luck theireconomicpolicyhad preparedthe
WestGermaneconomyto takeadvantageofit.The Germaneconomyentered
theboom periodwithsubstantialidle resourceswhiletheeconomiesof most
had alreadysubstantially
reachedfull-employment
lepotentialcompetitors
moreeasilymeetthe growingdomesticand
vels. Germanycould, therefore,
foreigndemandwithoutdisastrousinflation.
The vivid memoriesof war shortagesled to an immediateresponseby
Germanconsumers.Simultaneously,
Germanimportersrushedto buy raw
materialsin worldmarketswhichled to the alreadymentionedbalance-ofTable 5
Index of IndustrialProduction,West Germany,1950 = 100
Year
Total Industry
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
118
126
139
155
178
192
202
208
224
249
Source: Statistisches Jahrbuch für die Bundesrepublik Deutschland
1964,
p. 243, 1965 p. 246.
Note: Refers to average monthlyproduction for the year. The figuresquoted in the
textreferto Juneof the year.
394
WolgangF. Stolper/Karl W. Roskamp
ZgS
Thisimmediate
reactionto thewarhad
and EPU deficit.
difficulties
payments
resultthatWest Germanyobtainedin many
the incidentaland unforeseen
The
instancesrawmaterialsat priceswellbelowthoseof calmercompetitors.
increaseindomesticdemandwas accompaniedbya sharpriseinworlddemand
skilledto produce.
forpreciselythosegoods whichGermanywas eminently
Whenothercountriesdivertedtheirresourcesto war production,Germany
enteredthefieldas a handysupplier,especiallyforinvestment
goods. Exports
nearlydoubledbetweenJune,1950 and June,1951. In thatperiod,too, the
indexof industrial
productionroseby 26 points(Table 5).
and employment
rose.Unemployment,
The slackin theeconomydiminished
leveluntil1953,becausethecontinhowever,persistedaroundthe9 per-cent
the West Germanlabor reserves:in the
uous influxof refugeesreplenished
eighteenmonthsbetweenJune,1950 and December,1952,900,000refugees
enteredthecountry.
The strongincreasein demandbroughtrapidpricerises,expeciallyforraw
materialsand manufactured
goods. The painfullyestablishedpricestability
In
was seriouslyjeopardized. October, 1950 the CentralBank raised the
reserverequirements,
discountratefrom5 to 6 percent,increasedminimum
Table6
Pricesand Wages1949to 1960.1950= 100a
Year
Producer Construe- Cost of
ImplicitPrice
tion
Deflatorof GNPb Prices0
Livinge
Prices0
•¡949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
106.0
100.0
110.4
116.5
116.4
116.4
118.9
122.6
126.5
131.0
133.3
137.3
103
100
119
121
118
116
119
121
124
125
124
126
104.7
100.0
115.6
123.3
119.1
119.7
126.2
129.6
134.2
138.3
145.6
156.6
106.7
100.0
107.8
110.0
108.1
108.2
110.0
112.9
115.2
117.7
118.8
120.5
Hourly
Wage
Ratesf
913
100.0
115.0
124.0
130.0
133.0
142.0
156.0
170.0
182.0
191.8
209.6
a Calculated from data in Statistisches Jahrbuch für die Bundesrepublik
Deutschland, variousissues.Some rebased.
b Calculatedwith1954constantprices.
c Producer
pricesin industry.
d Construction
ofappartments.
e Refersto employeehouseholds.
f Averagehourlywageratein industry,
miningand construction.
including
135/3(1979)
a FreeEconomy
Planning
395
fordiscounts.It reducedimport
and introduced
requirements
specialeligibility
licensesand requiredimportersto deposit50 per cent of the DM value of
foreignexchangeforwhichtheyhad applied.Onlyin November,1951 were
pricesagainstabilizedat a newhigherlevelat whichtheywereto remainmore
was reached(Table 6). In 1951,thereal Gross
or less untilfullemployment
National Productrose by 10.5 per centover the 1950 level. In April,1951
exportsexceededimportsfor the firsttime. The accumulationof foreign
exchangereserveshad started.The threatto externalmonetarystability
disappearedforgood. The EPU deficitwas soon wipedout,and thecountry
becamea creditorto the Union. WestGermanyhad achievedindependence
aid just beforetheMarshallPlan Aid ended.
fromforeign
The economyhad receiveda shotin thearm,correctin timing,
extent,and
length.It had increasedthelevelof economicactivityabove theprewarlevel
and had causedtheabsorptionof idlefactors.At thesametimethereintegraslowbetween1948and 1950,
tionin an expandingworldmarket,so painfully
and accelerated.By theend of 1951theWestGerman
was greatlyfacilitated
of getting
started.The
coped withall thedifficulties
economyhad successfully
theeconomywereover.The futuretask
in
mostcriticalphases re-establishing
further
was to facilitate
expansion.
in Production
Threatsto Further
Sectors
Expansion:Bottlenecks
Duringthe 1950'sthereal GermanGNP increasedon theaverageby 7.5 per
cent,and per capita incomeby 6.5 per cent18.
Throughout,grossinvestment
and one-fourthof GNP. Unemployment
amountedto betweenone-fifth
made important
structural
disappeared,and theeconomysuccessfully
adjustofagriculture
mentsofwhichthedeclineofthecontribution
to GNP from10.3
percentin 1951to 6.3 percentin 1960is, perhaps,theoutstanding
example.
Productionrosesteadily,untilin 1960productivity
permanhourwas 188per
centof thatin 1950.
In retrospect
look almostautomatic.Yet no
theseimpressive
developments
and deliberatepolicieswererequiredto bring
one foresawthesedevelopments,
themabout.The Korean boom revealedseriousbottlenecks
in theproduction
of coal, steel,and electricpower.To a certainextent,bottlenecks
could be
overcomethroughimports,butthiswas limitedby theprecariousbalance-ofwas largeinvestments
in
remedytherefore
paymentssituation.The preferred
theappropriateindustries.
Once againthiscrucialproblemwas notsolvedbymethodswhichGermans
referto as „marktkonform"
(based on the marketeconomy).There were
an orthodoxmarketsolutionin favorof
perfectly
good reasonsforrejecting
directpublicintervention.
Coal and steelare basic inputsin theWestGerman
18
ofthestatistics
oftheGNP and laborproductivity
has beenomitted
Reproduction
becauseof theireasyavailability.
396
F. Stolper
/KarlW.Roskamp
Wolgang
ZgS
fromspreading
economy,and pricerisesfortheseitemscannotbe prevented
theeconomy.Priceincreasesin coal and steelsufficient
to
quicklythroughout
fundswouldthushave endangered
generatea necessaryvolumeof investible
withoutguaranteeing
success.Atthesametime,the
thetreasured
pricestability
fundsfromthecapitalmarketwerelimited
methodsofattracting
conventional
forreasonswhichwe have alreadysketched.
inindustry
startedin
Thedebateon thebestmethodto overcomebottlenecks
late 1950, and continuedthroughout1951. The so-called"InvestmentAid
in 1952.It was labeleda "self-aidprogram"of
Law" was finallypromulgated
the economyand providedfor large transferof fundsfromthe business
sectors.Businesswas forcedto buyone
at largeto thebottleneck
community
billionDM of securitiesfromthe bottlenecksectors.This was, of course,a
in the freemarketeconomy.It embarrassedmanywho
massiveinterference
in
curative
believed the
powersofa marketeconomyand thosewhohad to pay
thefunds
for
little
enthusiasm
had
it; 132,000firmswereforcedto contribute
34 in coal mining,22 in theiron
whichwerechannelledinto 187 enterprises:
and therestin otherbottleneck
34 in electricity
and steelindustry,
generation,
sectors19.
transfer
of funds,special
In additionto the large directand involuntary
in
increasedinternalfinancing
accelerateddepreciationprovisionspermitted
coal
German
the
to
a
West
theseindustries.
source,
miningindustry
According
derivedprobably1.3 billionDM in investiblefundsfromspecialaccelerated
the
depreciationbetween1952 and 1955. For the iron and steel industry,
amountwas probably1.0 billionDM, and fortheelectricpowersector,1.1
billionDM20.
fortheallocationof
is availableon theprecisecriteria
Not muchinformation
be no doubtthatthisinvestment
Aid Funds".Therecan,however,
"Investment
a verypowerful
forrebuilding
effective
aid was bothunpopularand extremely
machine.ltwas pinpointedto therightspots,and
industrial
and well-rounded
the timingwas good. It did not use the marketto overcomestructural
wereovercome,theraisond'êtrefor
But once thosedisequilibria
disequilibria.
vanished.The law was allowedto expirein 1954,and the
directinterference
marketwas encouragedto takeover.
to AccelerateCapitalFormation
OtherSelectivePublicEfforts
in the industrialspherewas onlyone major
The eliminationof bottlenecks
The war had left
residentialconstruction.
was
problem.Equally important
WestGermanywithlargedeficitof housingunits.Veryearlya construction
19 See Roskamp
Zeitschrift
fürdas
[1965],p. 168,and „ZahlenzurInvestitionshilfe",
, 1955.
gesamteKreditwesen
20 OutoftheERP fundsand Investment
received
industries
Aid Funds,thebottleneck
the followinginvestiblefunds:coal mining,
between1949 and 1956 approximately
1.3billionDM; electricpowersector,2.1billion
2.0billionDM; ironand steelindustry,
DM (Roskamp[1965],p. 168).
135/3(1979)
a FreeEconomy
Planning
397
were
programwas started,and between1949and 1959,5.1 billionapartments
withdirectpublicaid. In addition,
built.A largepartofthemwereconstructed
speciallow interestratesforcertain
manytook advantageof tax incentives,
and otherbenefits.
construction
Accordingto an estimate
typesof residential
provided,between1950 and 1959,
by theGermanTreasury,thegovernment
construction
about 55 percentof totalresidential
outlaysof 91.5 billionDM.
the
About37 billionDM of thispublicaid wereloans and directinvestments;
subsidiesand tax exemptions21.
restaccruedin theformof interest
and annually
Likeall countriesWestGermanyhas itsagricultural
problems,
substantialamountsof publicfundsare divertedinto thissector,partlyfor
and partlyforpricesupports.Probablyaround
modernization
investments,
800 millionDM of publicfundsannuallywere,on theaverage,chanelledinto
The remaining
sectorsin whichpublicaid to investinvestment.
agricultural
and
mentscontinuedto be highwereshipbuilding
and,ofcourse,thetransport
Federal Railway and
sector with the government-owned
communications
telephoneand televisionnetworks.
featureof the firstphase of actual economicgrowthis
The characteristic
the
sustainedhigh level of public capital formation,benefitting
the
thus,
variouskeysectorsof theeconomy.Government
savingsremainedsubstantial
low individualsavings.As timepassed,thecapitalstock
and morethanoffset
not onlygrew,but also becamebetterbalanced.It was of newervintageand
Withitsexpansionand rejuvenation
theproblemofunemploymoreefficient.
mentwas solved.
IntotheWorldEconomy
Demandand Integration
Aggregate
Most observerswould agreethatbetween1951and 1958,theexpansionwas
sparkedoffby foreigndemand for West Germanexportsand by internal
also increasedsubstantially
investment
demand.Privateconsumption
as incoof GNP, itfellfrom65.8 percentin 1949to 61.1
mesrose,butas a percentage
percentin 1951,58.8 percentin 1957,and 57.3 percentin 1960.
Commodityexportsincreasedfrom14.6 billionDM in 1951to 31.0 billion
DM in 1958,and 47.8 billionDM in 1960.The bulkof this(73.1 percentin
1951,82.2percentin 1958,and 82.4 percentin 1960)werefinished
goods.The
in spiteof an initially
traditionalpatternof exportswas soon re-established
motorcars, iron and steel
large change in factorproportions:machinery,
and
electro-technical
chemical
products,
equipmentdominatedexproducts,
ports.
The intensive
Germanexportdrivewas greatlyfacilitated
becauseGermany
thoseproductswhichan expandingworldeconowas able to supplyprecisely
in WestGermanystrongly
increased
mydemanded.The relativepricestability
in international
markets.Yet, throughout
thecompetitiveness
theperiod,the
after1957.
termsof tradeimproved,particularly
21 Roskamp
[1965],pp. 180-181,Table 39 and sourcesgiventhere.
398
WolgangF. Stolper/Karl W. Roskamp
ZgS
foreignexchange
Importsalso rose rapidly(see Table 7). Nevertheless,
reservescontinuedto accumulateat a rapid pace. By 1958, the country's
foreign
exchangereservesamountedto 26.1 billionDM, largerthanGermany
had everheldevenin thebestyearsbefore1914.(By 1960theforeign
exchange
reserveshad climbedto a phenomenal31.6 billionDM.) The rapidexpansion
offoreign
tradegives,ofcourse,onlya limitedpictureofGermany'sparticipaoftheCoal and
tionin theexpandingworldeconomy.Withtheestablishment
Steel Communityin 1951, the firstimportantstep for European economic
was taken.It was followedsix yearslaterby theTreatyof Rome,
integration
theCommonMarket.Betweenthesetwoevents,Germanybecame
establishing
a Europeanleaderin theexpansionof freeworldtrade.
theDeutscheMarkbecame
wereaccumulated,
reserves
Once sizableforeign
the
DM was already freely
all
a hard currency.For
practicalpurposes
was officially
December
in
convertible 1954.On
27, 1958,generalconvertibility
control
thus
all
announcedand
ceased,
endinga periodof
foreignexchange
which
had
lasted
for
in
German
control
nearly28 years.
history
exchange
into
the worldeconomy
The phenomenalsuccessof integrating
Germany
internal
for
serious
raised,however,
monetarystability.Between
problems
1953 and early 1957, the influxof foreignexchangeadded approximately
15.2 billion DM to Germanmonetaryreserves.Open marketoperations,
increasesin currencyin circulation,decreasesin discounts,and increasesin
absorbedapproximately
8.3 billionDM. This
minimum
reserverequirements,
Bank.
of
the
Central
restrictive
the
exhausted
powers
practically
Table 7
Prices.
ForeignTrade1950to 1960.BillionDM. Current
Year
Exports
f.o.b.
Imports
f.o.b.
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
8.356
14.577
16.894
18.477
21.938
25.580
30.712
35.831
36.849
41.025
47.849
10.670
13.084
14.732
14.848
18.046
22.339
25.079
28.509
29.380
33.141
39.574
Terms
Balanceof
Changein
ofTradec
Payments51 Foreign
Reserves1* 1954=100
-564
80
-200
80
2.038
2.428
92
2.761
2.505
100
3.614
3.843
100
2.782
3.234
98
1.851
1.755
99
5.014
4.537
101
5.122
3.442
109
3.188
3.673
111
-2.204
-2.008
HI
8.007
6.492
Source:Monatsberichteder Deutschen Bundesbank,June1965,p. 34^35.
a Balanceof CurrentAccountsand CapitalAccounts.
b
betweenBalance of Paymentsand Change in
found.Difference
Independently
ForeignReservesis due to omissionand errors.
c International Monetary Fund, International
variousissues.
FinancialStatistics,
135/3(1979)
a FreeEconomy
Planning
399
In thissituationunexpectedhelpcamefromtheTreasury.FinanceMinister
decidedto buildup Federalgovernment
Schäffer
depositsin theCentralBank
Between1953 and 1956 these
in anticipationof futuredefenseexpenditures.
depositsreacheda levelofnearly7.5 billionDM. Thiswas enoughto eliminate
theinflationary
surplusin these
potentialcaused by thebalance-of-payments
accidental.
years.It is ironicthatthisperfecttimingwas probablycompletely
Germanpricesaggravatedthebalance-ofAlso,theverysuccessof stabilizing
payments
problemof subsequentyears.
with exports.
Investmentdemand continuedto increasesimultaneously
amountedto 21.8 billionDM in 1950,and to 26.0
Grossdomesticinvestment
billionDM in 1951.By 1958it had increasedto 54.1 billionDM, and during
1960,to 75.0 billionDM!
in equipmentwas motivatedby a need to expandand
Businessinvestment
modernizeproductivecapacities,a need greatlyfavoredby public policy.
Investmentin residentialconstructionwas largelyindependentof market
forces;as a social necessityit was pushed as much as available resources
itsvolume.In non-residential
permitted.
Againpublicpolicyheavilyinfluenced
a
role
with
directinvestments
in road
construction
played large
government
of
and
construction
publicbuildings.
building
was takingplacethenormalization
Whilethislargevolumeofinvestments
of
the capitalmarketwas graduallyachieved.We have alreadymentionedthe
fundsto thebottleneck
sectors.In additionto
forcedallocationof investment
Aid Law", a "Law forthe Encouragement
of the
the so-called"Investment
in
which
Market"
was
enacted
broadened
1952,
alreadyexistingtax
Capital
in
1954.
This
exemptions. law, too, expired
in achievingtherequiredcapitalformation
Bothlaws revealthedifficulties
Bothweredesignedto solvespecificproblemsand to
withorthodoxmethods.
The hope was thattheforcedcapitalformation
makethemselves
unnecessary.
to generatethelargevolumeof savingswhich
wouldraiseincomesufficiently
in thecapitalmarketunnecessary.
This hope
wouldmakedirectintervention
was largelyfulfilled
resortedto strong
by 1955.The last timethegovernment
thecapitalmarketwas in 1956-57,whenthesoto influence
fiscalincentives
called "Lex Preusker"was enactedto promotethe financingof residential
construction.
Thereafter,
taxpayersat largeceased to subsidizebond holders,
althoughthemarketremainedfarfromperfect22.
As long as idle labor could be absorbedinto the processof production
expansionof economicactivitywas possiblewithmoreor less constantprice
levels.For some yearsmonetarypolicyin WestGermanyseemedto be more
successfulin maintainingprice stabilitythan in othercountries.However,
on monetary
policy.Abundanceof
Germanyobviouslydid notrelyexclusively
labor- largelydue to a continuousinfluxfromEast Germany- relativewage
22 One can
willremain
speculatewithsomeuneasehowlongthelessonsofthe'fifties
learnedin theuncertain
'seventiesand 'eighties.
400
WolgangF. Stolper/Karl W. Roskamp
ZgS
associatedwiththenewinvestments,
productivity
stability,
rapidlyincreasing
and low levelsof consumerspendingcontributed
greatlyto thispricestability
and thevigorousexpansionof theGermaneconomy23.
: GrowthWithFullEmployment
V. Conclusion
to determinepreciselywhenan economyachievesfull
It is alwaysdifficult
ratefellto less than4
theWestGermanunemployment
In
1957
employment:
23 WhiletheFederal
intothe(free)world
Republicgraduallybecamefullyintegrated
the East Germaneconomywentthroughits
economyand achievedfullemployment,
at
FirstFive-Year Plan.Thereis someevidencethatitachievedfullemployment
roughly
ofovertwo
thesametimeas theFederalRepublic.Thusitis ourviewthattheemigration
in East Germanyuntilabout
millionpersonsbetween1949and 1959didnothurtgrowth
1956or 1958.
Populationin theGermanDemocraticRepublicactuallyfelluntil1961or 1962.Per
theperiodbyabout300percentbetween1950and
rosethroughout
capitaconsumption
increasedfurther
since.Per capita GNP has increased,
1958,and it has undoubtedly
arereconciled
however,
bythe
onlyabout60 percentinthesametimespan.Thesefigures
ceasedin 1953.By 1958,theEast German
drainof reparations
factthatthesubstantial
oftheWestGermanlevel.
percapitaincomelevelwas onlyaboutthree-fifths
It is impossiblein a shortspace to go into detailforthisdifferential
performance.
whileWest
Suffice
it to listthreereasons:East Germanyhad to pay highreparations
intothe Soviet
integrated
Germanyreceivedaid. East Germanywas veryimperfectly
trade- and
Bloc,withwhichitnowtradedto theextentof75 percentofitstotalforeign
theblockitselfgropedonlyslowlytowardsa moreefficient
„socialistworldeconomy".
and didapparently
notimprovesubstantially
until
Finally,planningitselfwas inefficient,
theearlysixties.
can be blamedforthepoorer
lackoflabor,norofland,norofinvestment
Thusneither
went
eventhoughlaborleft,land was inefficiently
used,and investments
performance,
housingand consumergoods.
neglecting
largelyintoheavyindustries,
small.It is interesting
to note,however,
that
TradewiththeFederalRepublicremained
of theprewarpatternof
thesame forcesthatled in WestGermanyto a re-emergence
trade also did so in East Germany,and traditionalproductsof Germanindustry,
chemicals,optical products,and machinery
again became dominantin
particularly
had gonewrongwithplanning.
exports.By 1957it also becameobviousthatsomething
- calleda moneyexchange- becamenecessary
whichsqueezed
reform
A secondcurrency
incirculation
wasreducedbyabouta fourth.
excessmoneyoutoftheeconomy.Currency
therublehad alreadybeenchangedin 1953.
valueoftheEast Markvis-à-vis
The foreign
By 1958or 1959,theEast Germaneconomyhad runintoserioustrouble.Evenaccording
netproductin current
to official
prices,whichwas supposedto haverisenon the
figures,
growthrateof4.6
avergebyover8 percentbetween1955and 1959,showedan official
percentbetween1959and 1960,and only3.2 and 2.2 per centin thetwo succeeding
- western
calculationsindicatea growthbetween
years.Knowingthebias in thefigures
whether
East Germanoutputincreased
1955and 1959ofabout5 percent- itis doubtful
at all between1959and 1962.
The official
East German
See Stolper [1960]fora detailedaccountofdevelopments.
are fromtheStatistischeJahrbuchder Deutschen DemokratischenRepufigures
blik, 1964,p. 30,and earlierissues.See also Stolper and Roskamp[1961],and Stolper
[1961].
135/3(1979)
a FreeEconomy
Planning
401
per cent of the labor force;in 1958-59 it fell below 3 per cent. We may
takethesummerof 1958whenunemployment
droppedtemporarily
arbitrarily
entereda periodof
to 2 percentofthelaborforceas thedatewhenthecountry
Between1958and 1961growthin employment
growthwithfullemployment.
increasingly
dependedon an influxof workersfromEast Germany,but after
workershavebeen
1961whenerectionof theBerlinwallcurtailedemigration,
drawnfroma continually
wideningradius.
in 1958was reachedunderfavorableconditions.The pace
Full employment
of economicgrowthrelaxedafterseveralyearsof rapid expansion.Export
demanddecreasedas the generalboom in theworldeconomyfrom1953 to
1957subsided,butdomesticinvestment
demand,especiallyin theconstruction
industries
suchas coal mining,ironand
basic
remainedhigh.Some
industry,
in
outlets
fortheirproducts.Among
steelindustry,
had difficulties finding
textilesbecamemoredifficult
to sell.
consumergoods industries,
in
1958
recession
the
that
the
United
Statesmightspill
fear
the
Fortunately,
over and stop West Germaneconomicexpansionproved groundless.The
economycontinuedto expand,thoughit did so at a lowerrate.Full employmentwas thusreachedin a periodin whichaggregateincreasesin demand
Domesticpricesremainedstable,and theaccumulationof foreign
diminished.
ratesapproachedthose
reservesseemedto slow down.WestGermaninterest
As
a
the
unwanted
inflowofforeign
in
other
countries.
funds
result,
prevailing
fundsevenbegan to find
was temporarily
reducedwhileGermanshort-term
foreignoutlets.The dangerof excessivebalance of paymentsurpluses,which
had in previousyearsled to a highdegreeofdomesticliquidity,
seemedto have
in its
been overcome.The CentralBank statedwithjustifiablesatisfaction
AnnualReportthateconomicprospectswerealmostideal.
As brightas the overall picturewas, seriousdifficulties
lay ahead. The
problemswhichfullemployment
posedwereaggravatedbya generalreduction
of theworkweekfrom48 to 45 hours.In 1959,a generalrevivalof theworld
economyinitiatedanotherrapidincreasein WestGermanexports.The steel
strikein the UnitedStatesthatyearaided the suffering
West Germansteel
and therewas againan increaseddemandforGermanexportsmainly
industry,
nations.
fromindustrialized
In 1959therealGNP roseagainby6.7 percent.All thesymptoms
ofa strong
excessdemandreappeared.Increasein aggregatedemandoutranproduction
whichwererestrained
possibilities
by a shortageof workers.In March,1959
one stillcountedabout 600,000jobless but in thefall,thenumberof unemployedwas only190,000,or 0.9 percentofthelaborforce.Only36,000foreign
and only72,000workersfledfromEast Germany24.
workers
couldbe recruited
hours
wereagain slightly
reduced.The shortageof labor
Moreover,working
led to voluntarywage increasesby competingemployers.Negotiatedunion
wage ceilingswereexceeded,soon followedby inevitableuniondemandsfor
24 Geschäftsbericht der Deutschen
Bundesbank, 1961, p. 62.
28 ZgS135H3
402
F. Stolper
/KarlW.Roskamp
Wolgang
ZgS
economy.On theaverage,negotiageneralwageincreasesina full-employment
tedwagesincreasedbyabout 8 percentin 1959.
The boom extendedinto 1960whenindustrialproductionincreasedby 11
per centand real GNP by a phenomenal8 per cent.Yet theneed forlabor
continuedto restrainfurther
expansion.By September,1960 therewerefive
unfilled
positionsforeach unemployed.
The averageannualwageincreasedfrom5,580DM in 1959to 6,100DM in
Between1958and 1962average
1960.Moneywagesoutranlaborproductivity.
industryrose by 39.8 per cent in Germany
hourlywages in manufacturing
comparedto 34.7percentin France,26.2 percentintheUnitedKingdom,17.5
per centin Belgium,and 13.3 per centin the USA25. Labor's sharein total
whichwas accompanied
nationalproductgrew,a not undesirableoccurrence
in
by a largeupsurgein theindividualsavingsmainly savingsaccounts- the
traditional
formof savingbythelowerand middleclasses.
West Germaneconomyhad its firstexperienceof rapidgrowth
the
Thus,
authorities
withrisingpricesand wages.The monetary
underfullemployment
and decidedin the fallof
withsome discomfort
viewedthesedevelopments
policy.The discountratewas increasedto
1959,to switchto a morerestrictive
5
in
June
4
1960, percent.The CentralBank'ssoleintention
2.67,3, and,finally
and it consciouslyignoredthe
was to maintaininternalmonetarystability,
a
restrictive
such
monetarypolicy mighthave on the balance of
impact
becauseof
measureswereno longereffective
traditional
these
But
payments.
The
old
dilemma
of
of
balance
renewed
surpluses.
payments
Germany's
so familiarfromthe 1920's,reappearexternalvs. internalmonetary
stability,
ed. Ironically,the very success of Germany'sintegrationinto the world
economydependedto no smallextenton herrefusalto abide bythe"rulesof
and to letdomesticpricesrise(muchas theU.S. had done
thegame"internally
in the1920's).
to two
of monetarypolicyafter1958can be attributed
The ineffectiveness
lower
ratedidnotperceptibly
theincreasein theinterest
factors.Domestically,
policyconcerned,
aggregatedemand.The real problemof thetightmonetary
however,the internationaleconomy.When Germanyswitchedto higher
theU.S., did theopposiinterest
ratesmanyotherforeign
countries,
including
and a newinfluxof
in Germanybecameagainattractive,
te.Thusinvestments
overallbalance-ofraised
the
inflow
capital occurred.The massivecapital
the
billion
6.3
about
DM,
largestsurplusin thecountry's
surplusto
payments
increased
reserves
international
and
by 8 billionDM.
history,
obliteratedthe
The hugeincreasein foreignexchangereservescompletely
concedethat
to
Bank
had
the
Central
and
restrictive
monetary
policymeasures,
Withpricesstillrisingit decidedon Novemhad beenselfdefeating.
itsefforts
to 4 percent.On March6, 1961,the
ber11, 1960,to reducetherateofinterest
dollarrateof theDM was adjustedfrom4.20 DM/$ to 4.00 DM/$.
25 Statistisches Jahrbuch für die Bundesrepublik Deutschland,
129*-132*.
1964, pp. 500,
135/3(1979)
a FreeEconomy
Planning
403
That evena restrictive
has been recogmonetarypolicymaybe ineffective
whoseeconomistshad begunto
nizedfora numberofyearsin othercountries
In theGermancase,thebalance-oflimitations.
exploreitsdomesticstructural
foritsfailure.A flexible
anti-cyclical
payments
surpluswas largelyresponsible
fiscalpolicywas obviouslyneeded,yetno suchpolicyexisted.
The storyof the 1960'sand '70's is leftto futurecontributions.
It is evident
thattheworldeconomyhas entereda periodofgreatuncertainty.
However,if
the recentpast is any guide, Germanpolicy will be directedto keep her
and to keep her even
competitive,
economyproductiveand internationally
withthe freeworld.The lessonsof the postwarperiodare
moreintegrated
ofactiondependsupona flexible
clear:independence
and productive
economy,
fromtheworldeconomywillresultina loss ofindependence
and withdrawal
of
action.We have no doubt that Germanpolicymakerswill use the market
mechanism
to thewidestpossibleextent.But,once again,iftherecentpast is
any guide,theywill not hesitateto interfere
directlywhennecessary.And,
unlessthe lessonsof the past have been completelyforgotten,
theywill not
than
is
maintaintheinterference
to
achieve
itspurpose.
anylonger
necessary
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