Correlli Barnett

The Lost Victory

At the beginning of 1948 West Germany (then the so-called Bizone, comprising the British and American occupation zones, created on 1 January 1947) confronted problems of far greater severity than did Britain. Five per cent of her industrial capacity had been removed as reparations. Her industrial output stood at only 47 per cent of 1938. Her traditional markets in central and eastern Europe were lost behind the Iron Curtain. Her current exports of mechanical and electrical engineering goods, machine-tools and instruments amounted to a meagre $45 million, as against the United Kingdom's £1440 million. Her shops were even emptier than those in Britain (except for black-market trading). Her currency, the Reichsmark, had become of less use for making purchases than American cigarettes. She had, moreover, inherited from the Nazi regime an apparatus of rationing, allocations and controls over prices, wages and rents just as cumbersome as those in Britain—its purpose, as in Britain, to act as a corset holding a dropsical and deformed economy together.

Yet West Germany did enjoy certain countervailing advantages, paradoxically springing from defeat and occupation by the allies and from national guilt at the crimes of the Third Reich. For such a plight meant that Germany's leaders and people could no longer cherish costly illusions of a world-power role or even a great-power role, while in any case it was their good fortune to be forbidden any defence expenditure whatsoever by their conquerors and occupiers. No 'Reichsmark Area' existed to cast a nostalgic spell of financial self-importance while actually helping to empty the pocket. Nor could the Germans in their present impoverishment entertain expensive dreams of a New Jerusalem to be constructed without delay. So circumstance dictated that West Germany's total strategy could have only one possible Schwerpunkt, and that was to achieve future success as an industrial society.

She enjoyed other advantages as well. Her previous governing elites—political and bureaucratic—had been broken up by defeat, so compelling a new start, often with new men, amid the rubble of habit and tradition. Her old militant trade union movement had been smashed by the Nazi regime, and an entirely new and rational industry-based union system had been set up by the victors. Class distinctions in industry and in society at large had been eroded by Nazi egalitarianism. All these were assets rich in potential compared with a Britain still lumbered with the structures and elites of the past. Nor should be forgotten the factor of national morale and motivation. While the smugness of victory acted on the British like a relaxing drug, 'Day Zero' (8 May 1945, when, like a giant machine switched off, Germany lay stopped and silent amid the rubble) inspired the Germans to reach for their shovels and go to work. It makes an apt parable that twelve days after 'Day Zero' the first underground train ran again in Berlin, followed two days later by the first bus, while in London no buses were running because the crews were on strike.

The first phase of West Germany's campaign for economic revival opened on 20 June 1948 with the replacement of the Reichsmark by a new currency, the Deutschemark, at a conversion rate for bank deposits of only 6.5 DM to 100 RM, 10 DM to 100 RM for mortgages and other private debts—and zero for public debt: that is, cancellation. In exchange for all his Reichsmark notes each citizen was allowed a total of just 40 Deutschemarks (plus another 20 DM shortly afterwards), and no more. Only rents, wages and prices were converted at parity. At once all the distending froth of inflation from too much cash and savings, plus all the accumulated paper of public debt, was blown away. Money and the quantity of available goods—national resources and national obligations too—were brought abruptly back towards balance. A new central bank was created, which—unlike the nationalised Bank of England—was to be independent of politicians who would debauch the currency in order to puff up 'fall employment' or to shove more paper money into the voters' pockets before a general election. It was therefore free to discharge its given paramount duty of maintaining the value of the Deutschemark. At a stroke West Germany had largely banished inflation, and, in comparison with most other currencies (including sterling), it would stay largely banished for more than four decades. In Britain by contrast, and despite all the 'controls' and subsidies, the value of the pound dropped from 38 per cent of its 1914 value in 1946 to 31 per cent in 1950.

Currency reform supplied only the opening German attack on the economics of fudge. The elaborate system of rationing and controls on prices and supplies was demolished except—for the time being—in regard to some basic foodstuffs and key supplies like coal and steel. In the autumn the control on wages too was abolished. German companies were free to expand as much as they could in pursuit of profit; German workers were free to earn real money, as much of it as their own talent and effort enabled, and then, as they wished, save it or spend it on the goods that soon began to fill the shops after the currency reform. In the second half of 1948 industrial production soared by 50 per cent. Yet the return to economic and productive reality, coupled with the abolition of controls over prices and wages, temporarily caused the price of goods and also unemployment to rise steeply, alike horrors which the Labour Government desired to avoid in Britain at all cost. Moreover, when the Bizone authorities refused a demand by German trade unions for the restoration of price controls this provoked what in Britain would have seemed worse than a horror, in fact a social nightmare: to wit, a general strike. It achieved nothing. Fuelled by Marshall Aid (though Germany was to receive in all a third less than Britain) and boosted by an undervalued exchange rate for the D-Mark, the march towards a market economy rolled on through 1949, the year when the Bizone became the Federal Republic of Germany. Free of the kind of restrictive control exercised by government in Britain, investment followed where there beckoned prospects of fast growth in productivity and exports, such as motor vehicles, chemicals, machinery, electrical engineering.

For it was in a blitzkrieg expansion of such exports—by twenty-five times by 1953-4 to the Western hemisphere alone, according to the target—that there lay the thrustline of West Germany's longer-term strategy for recovery, as embodied in her tender for Marshall Aid in 1948. This expansion was to be coupled with high imports of industrial goods and raw materials to feed the expansion, and of foodstuffs to feed the German worker. Clausewitz would have applauded such a bold strategy of concentrating all effort, all resources, on a single chosen Schwerpunkt.