A Weekly Dose of Hazlitt: Ten-Year Miracle

Ten-Year Miracle” is the title of Henry Hazlitt’s Newsweek column from November 10, 1958. Here, Hazlitt relates his observations of Germany’s post World War 2 economic recovery.

There is an unfortunate feature of Hazlitt’s view of inflation at the end of this article. While Hazlitt usually correctly notes that inflation is an increase in money and/or fiduciary media, he occasionally cites increases in government spending, union wage demands, and other non monetary factors as causes of inflation. I can only suppose that Hazlitt is confusing inflation and its manifestations.

Bonn —The economic history of present-day
Germany begins on a single day—June 21, 1948. This
was the day of what is usually described as “the currency
reform.” On that day two things happened—the old
currency was abolished and a new currency substituted;
and price controls (with the exception of rent controls)
were abolished overnight. The very next business day,
goods appeared in the shops, and enterprise began to
spurt forward.

In most discussion, both in Germany and the outside
world, it is “the currency reform,” rather than the
abolition of price control, that gets the chief credit for
the resulting economic “miracle.” But an analysis of the
facts does not seem to support this conclusion. It is said
that the old currency had become “worthless”—but it
was “worthless” only because nobody would sell anything
at the ridiculously unrealistic controlled prices. It
was this that drove the Germans into a primitive barter
economy. This is not to belittle the importance of
the currency reform, with its insurance of a relatively
stable value; but, as France and Italy have proved, with
relative freedom from absurd price controls, a nation’s
economy can function even after a huge inflation and
with a currency unit with a value of a fraction of an
American cent.

Incredible Progress

After ten years the German economic miracle continues,
and the most impressive evidence is in the incredible
amount and quality of new building. Practically all the
leading cities suffered terrific destruction in the second
world war, ranging from 60 to 90 percent. Taking the
country as a whole, it is estimated that before the war
the number of dwelling houses (or dwelling “units”)
was 11.5 million. Of these about 2,250,000 were totally
destroyed and 2.5 million so damaged as to become
uninhabitable, making a total effective destruction of
some 4,750,000. The proportional damage to office
buildings and factories was presumably much worse,
because of the concentration of bombing in the center
of big industrial cities. Yet one can stand at many points
of Bonn, Cologne, Dusseldorf, and Frankfurt and see
nothing but new buildings, nearly all looking modern,
substantial, even luxurious. Since 1950 Germany has
built new dwelling units at an annual rate of 540,000.
If this rate is continued, the housing target of the government
will be achieved by 1962 or 1963.

The Germans themselves attribute their economic
miracle, in the recent words of Karl Blessing, president
of the Bundesbank (Germany’s central bank), to their
trust “in a free-market economy and in private initiative.”
And this explanation is correct. But it is necessary
to add that the German economy, like the Swiss, is
only relatively, not absolutely, a free-market and private initiative

Persistent Problem

Take housing, for example. A large percentage of it,
renting for certain maximum rents, has been built with
the help of state subsidies. Like all subsidized housing,
in England, France, or at home, it can usually
be quickly recognized by its regimented or barracks like
quality. For new non-subsidized housing or office
buildings, there is no rent control, but rent control is
still kept on old housing, which explains why it is so
seldom renovated or adequately repaired.

In spite of the incredible economic renaissance
of Germany, and its success in maintaining, with
Switzerland, one of the two hardest currencies in
Europe, it has not wholly escaped from the problems
and dangers of inflation. Since 1951 the consumer price
index has risen from 108 to 119, though it has been
steady since January. The inflationary pressure comes
from three sources. Wages, particularly in the building
industry, have been pushing upward. The favorable
balance of trade has led to the domestic money supply
increasing more than the domestic supply of goods.
And there are heavy and increasing drains on the budget.
As one example, social-security payments now go
up automatically with a rising wage index.

The political problem of inflation in Germany, in
short, is not unlike that in the United States; and our
present election results are likely to make our own inflationary
pressures greater rather than less.

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