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2013 Looks a Lot Like 1937 in Four Fearsome Ways
Amity Shlaes, Bloomberg, Nov 19, 2012

The Forgotten Man: A New History of the Great Depression, by Amity Shlaes.
This new book is the finest history of the Great Depression ever written.
Steven F. Hayward, National Review, July 30, 2007

Farewell to the Mark

By Amity Shlaes, a member of The Wall Street Journal's editorial board. This article was adapted from her April, 1997 New Yorker article, "Loving the Mark." (WSJ December 31, 1998, excerpts)

In the spring of 1948, more than 30 months after V-E Day, the inhabitants of occupied Germany surveyed their bomb-scarred homeland and found scant sign of recovery. Hershey's bars, Lucky Strikes and lumps of coal had long since supplanted the almost worthless reichsmark as the medium of exchange. Many citizens still lived in the cellars of roofless buildings and subsisted on rations that included as few as four eggs a year.

What troubled the Germans most was not the empty warehouses or the moribund factories but their sense that the circumstances were permanent. The three Western zones of occupation--American, British and French--and the Soviet zone in the East all seemed stuck at what Germany's young poets called "die Stunde Null"--"zero hour."

Yet the German clock soon did come unstuck, and the recovery did begin, at a moment that most citizens can point to precisely: Sunday, June 20, 1948--Day X, as the Germans called it--the day of the new currency reform.

The reform, which the Western Allies and their German adviser, a box-headed economics professor named Ludwig Erhard, announced over the radio, technically involved a simple trade of pieces of paper: the Germans were to exchange their old reichsmark for a new money, dubbed the deutsche mark.

Erhard, whom the American occupiers had promoted as the director of the economic council for the British and American zones, cautioned his listeners not to expect miracles. Nevertheless, items that had been almost impossible to obtain for years--cauliflower and eggs, stoves and bicycles--appeared in shop windows once more.

To Germans, Day X was a miracle, and it laid the groundwork for West Germany's multi-decade Economic Miracle. The priest of that movement was Erhard himself, and its symbol was the new coin: their German mark.

This weekend, Germany is to kill off the mark and lead Europe in adopting the new Continental currency, the euro. It is in fact remarkable that Germany is playing this role, since some of the more vigilant activists in Europe's anti-euro movement can be found in Germany. These opponents treasure the stable mark above anything that a vague and bureaucratic European state might be able to offer.

And contrary to ex-Chancellor Helmut Kohl's solemn declarations that the only safe Germany is one that can be locked--along with its money--into the constraining framework of a greater Europe, the anti-euro activists believe that the reappearance of

German militarism is more likely without the mark. For them, the mark is an indispensable talisman of the "good" Germany.

The Kaiser created the first currency crisis when he paid for his Great War by borrowing and then inflating. The Weimar Republic then compounded his folly, printing more reichsmarks to shoulder the enormous debt ordained by Versailles.

The reichsmark moved from just over four to the dollar in July, 1914, to around 4 trillion to the dollar in November, 1923.

Weimar's hyperinflation passed, but it fostered an extreme insecurity that would soon be exploited by Adolf Hitler.

(RE: Please Note that the Weimar hyperinflation passed. Hitler came to power promising to fight not the inflation, but the unemployment that was a result of the Depression, whicht might have been the result of UK:s trying to reintroduce in 1925, the exchange rate against the dollar that existed in 1914.)

The Fuhrer himself did not long refrain from paying for his own war by also printing money--a move that was a particularly bitter betrayal for those who believed that National Socialism would prevent the kind of indiscipline that had led to the hyperinflation of 1923.

As it happened, it was an occupier, not a German, who precipitated the Aufschwung--the long-prayed-for postwar economic recovery. In 1947, Gen. Lucius Clay, the commander of the United States forces in Europe, implemented the currency-reform effort. The project was so enormous that an onlooker termed it "the greatest logistical accomplishment of the American Army since the invasion of Normandy."

The reform was like a giant sponge that absorbed the reichsmark flood. It required Germans to trade their old money in for new marks at a ten-to-one rate.

It was Ludwig Erhard, however, who made the economic miracle stick. In the same week that the authorities gave Germany the new deutsche mark, Erhard startled occupiers by easing the rationing of all but the most basic goods and announcing that an end to long-standing price and wage controls would follow. Germans still proudly recount an exchange between Clay and Erhard: "Professor Erhard, you altered my regulations!" Clay exclaimed. "No, Herr General," Erhard replied. "I didn't alter them. I got rid of them!"

At first prices rose, and so did joblessness. But the West German economy soon took off. Many outsiders later simplistically ascribed this change entirely to the Marshall Plan. But the import of Erhard and his mark was instantly understood by Joseph Stalin, who responded to the new currency within days by blockading Berlin.

(Although today's euro politicians rarely mention it, Erhard also took a position in early discussions of a European union: he was a skeptic, out of fear of an "institutional" superstate.)

As Europe wagers that German voters will succumb to the charms of another monetary project--the euro--Chancellor Gerhard Schroeder's government has also forgotten many of Erhard's lessons. Germans, who are facing unemployment figures as high as those of 1933, now murmur "Weimar conditions"--a reference to the moment when joblessness drove Germany into Hitler's arms.

Instead of taking up this painful subject, Mr. Schroeder's government preaches lower interest rates, hoping that monetary union will give Germany's new leaders a little economic miracle of their own. Germany's hard money cardinals, such as Bundesbank

President Hans Tietmeyer, plead for restraint and issue reminders of the suffering that can be caused by inflated money.

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