_ Dr. Hendrik Hagedorn. Berlin, 27. August 2023. *
Few economic phenomena are as deeply anchored in the collective memory of Germans as the “economic miracle”. Ludwig Erhard is rightly recognised as the father of this miracle. This man, who in his function as economic director of the Bizone announced the release of all prices by radio address on the day before the currency reform without consultation with the occupying powers – and against their will – initiated what was indeed commonly perceived as a miracle, namely the filling of shop windows – virtually overnight. Within a very short time, all the goods that had previously been traded at best on black markets were available again, or at least visible. This turn of events in German post-war history still moves people today.
It was the summer of 1948 when all this happened. The Allies had initiated the urgently needed currency reform in a country that had not only been destroyed by the war, but was also still subject to the socialist economic structure of the Nazi era. The laws from that time, the farming constraints, the rationing and especially the general wage and price controls were all still in force. It was precisely the centrally fixed prices, which were all far too low, that were the reason why the economy could not get going at all during this phase: No one was willing to sell goods at prices that did not come close to the market values. Ludwig Erhard and his colleague Leonard Miksch – both thoroughly schooled in the ordoliberal tradition – recognized this and proclaimed the economic revolution.
Instead, prices only gradually levelled off. Due to the general shortages, they initially rose to astronomical heights – which even led to a general strike in November 1948 – but soon they also unfolded their incentive effects on the producers. Production got going, prices actually began to fall in the spring, and the economic upswing took its course.
This spring of 1949 is also the time when the first deliveries of raw materials from the so-called Marshall Plan arrived in Germany. The actual “miracle” had already happened by this time. And yet the claim persists that the Marshall Plan made a decisive contribution to Germany’s economic resurgence after the Second World War. To this day, much of the development aid practised is based on similar ideas and whenever a country needs to be built up, a politician can reliably be found calling for a Marshall Plan for any country in distress.[1]
To show why the Marshall Plan didn’t work, one has to be familiar with the details. The idea dates back to a speech by US Secretary of State George Marshall in June 1947.[2] In April 1948, the corresponding “Economic Cooperation Act” was passed by the American Congress, on the basis of which, after lengthy negotiations and an extremely slow start, around 12.4 billion dollars were granted as loans to Europe between 1948 and 1952, around 1.5 billion of them to West Germany. The loans bore interest at 2.5 percent and were serviced by Germany until 1966, when they were partially waived. However, only American products could be bought with these loans and the recipient countries had to submit to far-reaching regulations. European governments had to use the proceeds from the sale of credit-financed US goods to domestic companies to finance government spending programs. In addition, there was a mandatory delivery of strategic raw materials to the United States, drastic export restrictions to Eastern Europe, as a result of which Germany and the European countries lost important trading partners, and a system vaguely reminiscent of today’s euro zone, which sought to equalize the payment balances between the nations – ostensibly to the restoration of trade relations. The Marshall Plan was therefore a highly interventionist and also highly bureaucratic program. Basically, it was even incompatible with the ideas of the social market economy, which were style-defining in Germany at the time.
Ludwig Erhard describes the partly absurd incentive structures of this system in his book “Germany’s Return to the World Market”. Within the framework of this system for balancing payments, countries that had intra-European trade deficits (or those that were considered to have such deficits according to the political conviction of the Marshall Plan administration) were allocated foreign currency from the surplus countries, in effect claims on the resources of their European neighbours. Even then (despite the destruction) Germany, Holland, and Belgium were among the surplus countries and were thus expropriated, while France, Greece, Norway, and Austria were subsidised. Belgium lost about 80 per cent of its US aid through this system.[3] All this led to the curious situation that under the Marshall Plan regime some nations artificially restricted their exports to prevent the forced surrender of other goods.
The effects of the Marshall Plan were also mainly negative elsewhere. In Greece, for example, the tobacco industry, which had once been a major export branch of the country, collapsed permanently and never recovered as Greek products were crowded out in Germany and elsewhere by US suppliers. Turkey, Rhodesia and Algeria fared similarly. The American oil industry also benefited significantly from the Marshall Plan because it was able to sell its oil in Europe at overpriced prices and the plan’s regulations helped to crowd out other energy sources in Europe.[4] In turn, the choice of products that were offered as relief supplies often did not correspond to the needs of the importing countries and hardly found any buyers, which was partly due to the planned economy ordering processes and partly to the regularly concealed sales needs of the surplus producers overseas. In Germany, for example, leather, raw rubber, oils and fats were piled up in 1949, so that some even considered returning them.[5] The machines supplied, such as the urgently needed mining equipment, were regularly unusable on site. All in all, the Marshall Plan was so profoundly state-directed that it did not stimulate the economy, but rather strangled it. Empirically, it can be shown that most European economies only began to recover after the Marshall Plan had ended and those countries in particular that had received a particularly large amount of “aid” had to wait particularly long for the upswing.
From the American perspective, however, the Marshall Plan was a success. For it was never intended as altruistic economic aid, but was guided by tangible American interests. It was never about pure aid for the down-and-out “democratic partners”, but about their geostrategic integration. This is also shown by another fact: the payments alone that Germany had to make to the Allies in 1948 and 1949 as “occupation costs” more than doubled the total Marshall Plan aid of those years. Even the payments that West Germany made to support West Berlin during this period were higher.
Then, as now, the proponents of the Marshall Plan also claim that the US was concerned with closing the so-called “dollar gap”, because without foreign currency the devastated economies of Europe could not have afforded American imports. But if the United States were really concerned with closing the dollar gap in Europe, why were tariffs on imports from Europe not reduced, which at the time were often over 30 per cent? A reduction would have been simple and straightforward, allowing Europe to earn the foreign exchange. But instead it was all about geopolitics and preparing for the Cold War. It is certainly to be welcomed that it was not the Morgenthau Plan that was implemented, which aimed at the complete deindustrialisation of Germany, but the alternative Marshall Plan, which envisaged the western integration of Western Europe, but it must be clear that this foreign policy goal was the decisive one, which was also achieved.
The economic miracle, however, is a completely different story. A conversation between Ludwig Erhard and officers of the military government has been handed down: “What made you change the Allied farming regulations in the face of the general food shortage? To which Ludwig Erhard replied: “But Colonel, I did not change them. I am repealing them.” – “Our advisers say they are making a terrible mistake”. – “Don’t listen to them, General, my advisors say the same thing.”
Notes
[1] Von der Leyen U., Scholz O. (2022). Ein Marshallplan für die Ukraine. FAZ. URL: https://www.faz.net/aktuell/politik/ausland/ukraine-wiederaufbau-scholz-und-von-der-leyen-wollen-marshallplan-18408678.html
[2] Marshall G.C. (1947). „Marshall-Rede“. Harvard University. Themenportal Europäische Geschichte. URL: https://www.europa.clio-online.de/quelle/id/q63-28407
[3] Erhard L. (1954). Germany’s Comeback in the World Market. London.
[4] Tyler Cowen T. (1985). The Marshall Plan: Myth and Realities. Heritage Foundation.
[5] Abelshauser W. (1989). Hilfe und Selbsthilfe: Zur Funktion des Marshallplans beim Westdeutschen Wiederaufbau. Vierteljahreshefte der Zeitgeschichte.
* Translated and republished with kind permission by the author from the original publication in: Hagedorn H. (2023). Mythos Marschallplan: Wie die Amerikaner die europäische Wirtschaft lähmten. Krautzone. Wohlstand für Keinen. Nr. 34. URL: https://shop.kraut-zone.de/produkt/34-wohlstand-fuer-keinen/