The German Paralysis

April 21, 1947

GENEVA—This former seat of the League of Nations is still the best listening post in Europe. Bordered by Germany, Austria, Italy, and France and speaking the languages of all, Switzerland is the meeting place of nationals who have penetrated the curtains of its frontiers to say the things it is useless or dangerous to say at home. The most ominous situation that emerges from these reports is that of Germany.

The comfortable assumption of most of us has been that the sickness of Germany and Europe is a temporary consequence of war destruction and will be cured almost automatically by the passage of time. But closer examination makes it clear that prostration has been brought about mainly by postwar governmental policies and that it grows worse, not better, every day. The economic chaos in Germany is the product of many causes—war and postwar destruction, Russian and other Allied seizure, displacement of populations, dismemberment of the country, watertight political and economic zones, the level-of-industry plan, and currency inflation, which is wholly out of control.

In addition, there is one cause as important as any of these, though it has so far received amazingly little outside attention. When the occupying powers took over Germany, they accepted virtually the whole existing Nazi system of economic controls. This included the Nazi device, imitated by the whole world, of great monetary inflation on one hand with its normal consequences prevented on the other by a system of price, wage, exchange, and production control.

Such a repressed inflation not only destroys all economic liberty but is far more harmful in its ultimate economic consequences than an open inflation. It removes all incentives; it deprives the price system of its whole function in directing, allocating, and synchronizing production as among thousands of different goods and services.

The result has been an appalling waste of manpower in Germany. There is full employment, with millions of people wastefully and wrongly employed under German planned economy. Wages, prices, and rents are purely nominal, and almost no activity is permitted except by special official license. The available food rations are so small nobody can live on them. Workers are paid in useless marks. Under these conditions a primitive barter economy has grown up outside the planned economy. True German currency consists of brandy for large transactions and cigarettes for small ones. City workers must devote an increasing part of their time, at the expense of their regular jobs, to home gardens. They are officially encouraged to do what is officially prohibited in the French zone.

Textile firms and makers of kitchen utensils are legally required to pay workers 10 percent of their wages in goods, but after a few weeks these are useless except to barter for food stuffs which are supposed to pass through official markets at official prices. So workmen spend their weekends in cycling or trudging many miles into the country to bring back a few wretched potatoes. Potatoes are actually exchanged singly. Apart from any other aspect this is an appalling waste of labor. German industry entered the postwar period with high stocks of raw materials put aside for this purpose. German production in the last two years has been living on these stocks. They are now nearly exhausted. Where German producers are paid in marks at official prices, the worthlessness of these marks and official restrictions prevent them from replacing the raw materials they have used up. This threatens a further drying up of production. Until it is cured through currency reform, a return to free markets, and foreign exchanges and credits on a commercial basis, the German paralysis at the heart of Europe must drag down the rest of the world.

As the recent Hoover report has pointed out, American and British taxpayers are contributing nearly $600,000,000 a year to prevent the Germans from starving simply because the Germans are prevented from producing for themselves. This has contributed to the serious European shortage of fertilizers and coal. “The whole economy of Europe.” as Mr. Hoover declares, “is interlinked with German economy.... The productivity of Europe cannot be restored without the restoration of Germany as a contributor to that productivity.”