The Myth That the Marshall Plan Rebuilt Germany's Economy After WWII
The Marshall Plan didn’t rebuild Germany after World War II. Sound money did.
Saturday, March 19, 2022
Image Credit: U.S. National Archives, CC BY-SA 4.0
Christian Monson
History Germany The Marshall Plan Sound Money West Germany Ludwig Erhard World
War II Inflation Deregulation
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In 1939, Germany had a GDP of nearly $400 billion, having surpassed the USSR to
make it the second most powerful economy in the world, behind the US. In 1946,
following years of war, Germany’s GDP had dropped to just $160 billion, lower
than the UK and France. Food production had been reduced by 50 percent, housing
stock by 20 percent, and industrial output by 33 percent.
Yet by 1955, German GDP was back near $400 billion, once again overcoming that
of the UK. Industrial output had quadrupled by 1958 with a steady rate of
growth of about 8 percent each year throughout the 50s.
This “economic miracle” is commonly referred to as die Wirtschaftswunder. But
how did Germany go from rubble to riches in just a decade while neutral
countries like Spain merely treaded economic water? If you ask your average
American history student, they will say the Marshall Plan, of course!
The Marshall Plan as Propaganda
Unfortunately, the ubiquity of the myth that the Marshall Plan rebuilt Germany
is proof that state-controlled education favors propaganda over economic
literacy. Despite the fact that most modern historians don’t give the Marshall
Plan much credit at all for rebuilding Germany and attribute to it less than 5
percent of Germany’s national income during its implementation, standard
history textbooks still place it at the forefront of the discussion about
post-war reconstruction.
Consider this section from McDougal Littell’s World History (p. 968), the
textbook I was given in high school:
“This assistance program, called the Marshall Plan, would provide food,
machinery, and other materials to rebuild Western Europe. As Congress debated
the $12.5 billion program in 1948, the Communists seized power in
Czechoslovakia. Congress immediately voted approval. The plan was a spectacular
success.”
Of course, the textbook makes no mention of the actual cause of the
Wirtschaftwunder: sound economic policy. That’s because, for the state, the
Marshall Plan makes great statist mythology.
Not only is it frequently brought up to justify the United States getting
involved in foreign conflicts, but it simply gives support for central
planning. Just look at the economic miracle the government was able to create
with easy credit, they say.
And of course, admitting that the billions of dollars pumped into Germany after
WWII accomplished next to nothing, especially when compared to something as
simple as sound money, would be tantamount to admitting that the government
spends most of its time making itself needed when it isn’t and thereby doing
little besides getting in the way.
The Inconvenient Truth of Currency Reform
You are unlikely to find the real cause of the Wirtschaftwunder mentioned in
any high school history textbook, but here is what it was. In 1948, the
economist and future Chancellor of West Germany Ludwig Erhard was chosen by the
occupational Bizonal Economic Council as their Director of Economics. He went
on to liberalize the West German economy with a number of good policies, the
most important being currency reform.
The currency in Germany immediately after WWII was still the Reichsmark, and
both the Nazis and then the occupying Soviet authorities had increased the
amount in circulation significantly. As a result, by 1948 the Reichsmark was so
worthless that people had turned to using cigarettes and coffee as money.
To give people a true store of value so that they could calculate economic
costs accurately, assess risk and invest in the future, Erhard created the
Deutsche Mark, West Germany’s new currency. Like ripping off a bandaid, he
decreased the money supply by 93 percent overnight.
It’s also worth noting that while Erhard, following his school of
Ordoliberalism, did form a central bank, it was at least designed independent
from the government and followed a hard-money policy (preserving a stable
amount of money) through the length of the Wirtschaftswunder. In fact, the
original Bank Deutsche Länder was rather limited in scope until it was
reorganized as the considerably more centralized Bundesbank in 1957,
incidentally when Germany’s economic miracle began to lose steam.
Other notable liberal policies instituted by Erhard included removing all price
controls and lowering taxes from the Nazis’ absurd 85 percent to 18 percent.
The American occupational authorities opposed these reforms, but Erhard went
through with them anyway. This liberalization had an immediate effect. The
black market disappeared almost overnight, and in one year, industrial output
almost doubled.
Perhaps most poignantly, unemployment dropped from more than 10 percent to
around 1 percent by the end of the 1950s. Normally the government tries to
justify currency manipulation as a means to eliminate unemployment, but the
Wirtschaftwunder is evidence that sound money does the job far better.
Okay, So What?
So what can the truth of the Wirtschaftswunder teach us, other than that the
government prefers promoting itself over real economic education? As
politicians increasingly destroy our economies with inflationary monetary
policy while simultaneously trying to convince us that these very policies are
the only way to save us, the lessons of post-war Germany only become more
relevant.
What I’ve always taken away primarily is the simplicity and speed of the
Wirtschaftswunder. While the Federal Reserve debates endlessly whether to raise
rates and how much, our economy becomes increasingly weighed down by
miscalculated investments, rising prices, and stagnating wages. The wealthy
regulators with their hands on the money printer may make these seem like
complicated problems, but look at how the post-apocalyptic economy of post-war
Germany healed in mere months under sound money, deregulation, and low taxes.
Will our politicians and central bankers ever admit such a simple cure? As long
as they can hide it from us, I doubt it.
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Christian Monson
Christian Monson is a writer and journalist covering subjects from motorcycles
and guns to economics and European history. You can see more of his work at
ChristianMonson.com.
