Evaluate Erhard's reforms

“No matter what period it is, free market economy is an indestructible solution to the world.” The person who said this was Ludwig Aha, the creator of the German economic miracle after World War II. Virtue. Germany's post-war history clearly proves this: when the market economy is allowed to function freely, the economy will develop stably; when the government attempts to interfere improperly and disrupt the operation of the market, the economy will be in trouble.

The Sneaky Free Market

The Germans launched a war arrogantly, but failed shamefully in the end, and the German economy also collapsed.

Germany’s monetary system has completely collapsed. Officially issued currency is effectively worthless, and people prefer to trade in cigarettes, which can buy almost anything. In 1947, a pack of cigarettes was equal to a month's salary of a German worker.

Walter Eugen, a representative figure of German ordoliberalism and a former economic adviser to Erhard, once recalled that many times, when you use money to buy food from farmers, the farmers simply ignore you. If you live in a city and need food, you'd better pack up your furniture and ship it to a farm to see if you can get potatoes in exchange.

The wrong economic concepts led the US and British military occupation authorities to pursue a wrong economic policy. Most of the economic advisers to General Clay, the supreme commander of the Allied occupation forces, were Keynesians. They were keen on economic aid and macro policies, but they did not issue a sound currency in western Germany, nor did they allow prices and wages to float freely to reestablish market order. Instead, they sought to run the country through ubiquitous written directives and quota allocations, which Oegan called "paper warfare."

Currency and price are the two pillars of economic operation, but these two pillars were not established in time. As a result, the war has been over for more than a year and the economy has not shown any improvement. By January 1947, Germany's production level was only 31% of 1936, and dropped to 29% in February. Germans still live in dilapidated cellars, subsisting on food rations including four eggs a year.

At this time, Ludwig Erhard appeared. Since 1948, he has served as Minister of the "Ministry of Economic Management of the Unified Economic Zone", when he was almost 50 years old. He majored in national economics and corporate economics at university, and served as Bavarian Minister of Industry and Commerce after the war.

When Erhard rang the bell for Germany's economic recovery, it was Saturday, June 20, 1948. The Germans called it "X Day", which is the day of the new currency reform. Erhard announced on the radio that the old currency would be replaced by a new currency called the "Deutsche Mark."

The occupation authorities expressed support for this reform. However, Erhard's ambitions don't stop there. He also wants to abolish price controls and let the free market determine the allocation of resources. Because real money can only function in a real market, and a real market should not have price controls and rationing. But General Clay's advisers were not interested in the free market at all. They had never believed in the free market.

So Erhard decided to do it secretly. On the first Sunday after the German mark entered circulation, Erhard took advantage of the rest of Allied officials to announce on the radio the cancellation of the rationing system for most commodities and the relaxation of wage and price controls. He said: "From now on, the only rationing system is the German mark."

General Clay was furious after hearing the news on the radio. He called Erhard and threatened to imprison him. Going to jail, Erhard replied, "Yes, general, you can put me in prison, but you can't put prices in prison."

Social Market Economy

It is said that General Clay also said to Erhard at the time: "Professor Erhard, my advisers tell me that you are making a big mistake." Erhard said, "My advisers told me the same thing. of".

At first, the removal of price controls did seem like a big mistake: prices soared, unemployment soared, and trade unions organized demonstrations demanding the restoration of rationing, with slogans: Hang Erhard.

But Stalin instinctively recognized the power of Erhard's new mark and the free market, and he blockaded Berlin within days.

After the initial pain, West Germany’s market economy took off rapidly. In 1949, prices began to level off. Three years later, German national production returned to pre-war levels.

At the same time, Erhard took measures to reduce taxes. Erhard firmly believed that the key to a free market economic system is to stimulate individual initiative and allow more resources to be controlled by individuals. To this end, he even put forward the slogan "tax-free for self-reliance" and abolished the Allied Control Commission when it took over Germany. The high tax rate system implemented.

What followed was the rapid economic development throughout the 1950s. With the support of Chancellor Adenauer, Erhard, who always kept his cigar out of his mouth, served as Minister of Economy and became the "Father of the Economic Miracle" of Germany. On Erhard's 60th birthday in 1957, people queued for more than ten hours outside the Ministry of Economic Affairs, waiting to express birthday wishes to Erhard. The store also specially shipped cigars named "Professor Erhard" .

The system created by Erhard was called the "social market economic system" and was written into the Constitution of the Federal Republic of Germany. In 1957, Erhard himself wrote a book at the peak of his career. His tendency can be seen from the title of the book: "Prosperity Through Competition". Only through free ex post competition can economic prosperity be achieved. In his view, although "social market economy" has an adjective added before market economy, it is still fundamentally a market economy. In such a system, the market price mechanism spontaneously regulates economic activities, which is the most perfect embodiment of the free market economic model. Therefore, the government should give up centralized management of the economy and restore the freedom of production and consumption. The goal of the social market economy is indeed "prosperity for all", but the means to achieve this goal is not the redistribution of wealth by the government, but a free economy as the mainstay, supplemented by state intervention. The government should try not to interfere in market activities. Even if it does, it is to encourage competition, combat monopoly, and create a competitive order.

Betrayal of Erhard

Erhard himself explained to Hayek that he used the term "social market economy" to make it easier for some people Accept the market economy, but his focus is always on the market economy. This is exactly what he did when he presided over the German economy. Erhard once strongly opposed the economic proposition of high wages and high welfare. In his view, the welfare state proposition pursued by the social democratic parties in Northern and Western Europe was a "modern fantasy" that was not only incompatible with economic freedom, but would also affect the basis of economic development. His conclusion is: the greater the achievements of economic policies, the less necessary social welfare policies are.

This seems to be the common sense of the Germans at that time. In Germany in the 1950s and 1960s, people indeed made more determined and conscious efforts to maintain a free market economy. At the same time, other countries, such as the United Kingdom and France, were keen on government intervention and Keynesianism. This is the fundamental reason why Germany can quickly catch up with these countries and become a world economic power.

However, after the late 1960s, German rulers placed more emphasis on the "social" aspect. As a result, Germany became the "chief representative" of the welfare state. Germany’s social welfare expenditures are higher than the European average, and much higher than those in the United States. Government intervention in the market has intensified, and the price system has been severely disrupted. The power of trade unions has expanded dramatically, and labor costs have risen sharply. Since the 1970s, Germany's structural unemployment has continued to increase, from 0.7% at that time to 8.5% today.

In the past two years, some people were talking about the so-called "Rhine model". However, under this model, Germany has ranked last in Europe's economic growth rate list for many years, but ranked first in the social welfare tax list, so much so that Schroeder had to find prostitutes to collect taxes. . In conjunction with this, Germany's global competitiveness began to decline slowly in the mid-1970s, and the rate was getting faster and faster.

Since the 1990s, Germany has changed from the "locomotive" of Europe's economic growth to the "tail". Instead of becoming a driving force for the growth of the Eurozone, the German economy has become a problem for Europe. In the wave of information technology, the performance of German companies is also lackluster.

In fact, the Germans had a ready solution to their troubles: revisit Erhard's ideas and policies. However, in the current political atmosphere, no politician has such courage, and people who are accustomed to state control are not easy to accept the concept of free market. Therefore, it can be expected that Germany will follow France and become the vanguard in pushing the EU towards trade protectionism, moving further and further away from Erhard and the free market.