FASTER, PLEASE: Unleash the entrepreneurs America needs to build a post-coronavirus economy. Perhaps we need some sort of across-the-board regulatory suspension, like in postwar Germany under (and even before) the Marshall Plan. Here’s more on the German plan:
On July 7, 1948, the German government approved a law giving the economic authorities the right to “take all necessary measures in the field of control and to determine in detail which goods and production should be freed from price controls.”
The ensuing deregulation was dramatic and shocking to occupation forces. As Erhard notes, “It was strictly laid down by the British and American control authorities that permission had to be obtained before any definite price changes could be made. The Allies never seemed to have thought it possible that someone could have the idea, not to alter price controls, but simply to remove them.” With determined action and the strong support of one American, a Gen. Lucius Clay, the German free market exponents were able to blast through the inertia of Allied supervision.
The sweeping success of the currency reform is of little doubt. As Prof. Henry Wallich put it, “The spirit of the country changed overnight.” Two observers not native to Germany, Jacques Rueff and Andre Piettre, had the following report: “Only an eye-witness can give an account of the sudden effect which currency reform had on the size of stocks and the wealth of goods on display. Shops filled up with goods from one day to the next; the factories began to work. On the eve of currency reform the Germans were aimlessly wandering about their towns in search of a few additional items of food. A day later they thought of nothing but producing them. One day apathy was mirrored on their faces while on the next a whole nation looked hopefully into the future.”
I’m just sayin’. Plus:
Almost all consumer goods were immediately deregulated (excepting agricultural commodities); wages were set free three months after the currency reform; and industrial commodities (steel, iron, coal, oil, etc.) were gradually deregulated over the next few years; while foreign trade, which was under technical restrictions in law, was turned to free competition in practice in a very short time. The one area where price control would remain in effect throughout the 1950’s was the special case of rents.
The result of this substantial deregulation was to let the Germans take full advantage of the powerful incentives set before them. The gravity of the German postwar condition provided strong motivation for productive effort, yet economic restriction had prohibited the enterprise and imagination of the populace. In a system where supply and demand cannot coincide, the result is economic chaos. In the German instance, the price regulation had legislated massive shortages, for the surest way to curtail supply is to make it impossible to reap the rewards of production. Additionally, the heavy reliance on black markets created vast senseless gyrations and economic waste. Commenting bn the explosion of effort in the post-reform era, Gordon Hallet has noted how “the startling change between the period before and after July 1948 indicates the extent to which an economic system can either frustrate individual efforts or give them the opportunity to be effective.”
Contemporary analysts might paint the German policy as harsh in that it left few rewards for those who did not seek to take care of themselves. While government expenditures on social welfare through transfer payments were comparable with those of other European nations, the State abstained from further economic intrusions via “full employment” policies, subsidies, and income redistribution. In fact the tax policy was shifted to reduce the burden on upper-income brackets. The tight money policies pursued by Erhard created buyers’—rather than sellers’—markets.
If the harshness of the policy was great, so was the positive record of accomplishment. Industrial production and national income skyrocketed. Industrial output increased 50 percent within the year, and national income (in constant prices) was restored to the 1936 level in just over a year (it had fallen 20 percent below this figure). Economic recovery was complete except for one plaguing phenomenon—the emergence of unemployment, which steadily rose to a peak of 10.2 percent in 1950. The instantaneous response of the British and Americans was to explain the dilemma in Keynesian terms and diagnose the problem as “insufficient effective demand.” The prescription; immediate government and monetary expansion, along with reintroduction of economic controls.
The German response, in the light of the Keynesian revolution, was terribly naive. The Germans theorized that an increased money supply would simply cause inflation and that the employment problem was frictional, fueled basically by the stream (still flowing) of millions of refugees. The resultant policy was a strict balanced-budget fiscal framework and a conservative monetary course by the Deutsche Bundesbank. Unemployment dropped steadily—to six percent in 1952, three percent in 1956, and one percent by 1960.
Again.