Politics

Adrian Lee: Erhard’s economic miracle today has lessons for Great Britain and Germany

Adrian Lee is a London lawyer specializing in criminal defense. He was a City Councilor for the City of London for 20 years and a two-time Conservative candidate for Parliament. Between 1994 and 1995 he was chairman of the National Young Conservatives.

On Tuesday June 30, 2020, the Prime Minister, fearing an economic collapse after the lockdown, gave a speech in which he recalled Franklin Roosevelt and signaled his own readiness for the government to intervene in the economy and create its own “New Deal “Should start. Stimulate growth.

Boris Johnson’s message was that desperate times called for drastic action. Fair enough, but maybe we should look at the example of Germany in the immediate post-war years before we get into a Keynesian shopping spree?

At the end of the Second World War, the German economic structure was in ruins. It’s hard today to ponder the physical destruction wrought by the Nazis from ground fighting, air strikes, displacement of the population, genocide, and destruction of vital infrastructure. Millions of people had seen their homes destroyed, and malnutrition and disease spread across the country.

Within a decade, however, the newly created Federal Republic of Germany had begun to enjoy a level of prosperity that would last into the present. One person was mainly responsible for this turning point: Ludwig Erhard.

Erhard was born on February 4, 1897 in the city of Nuremberg near Furth. His father, originally of peasant descent, owned a small clothing store that he founded himself in 1888 and married the daughter of a glass blower. At the age of three, Erhard suffered polio, which left him with a deformity of his right foot that resulted in him having to wear orthopedic shoes for the rest of his life. He was a mediocre elementary school student at best, and when he entered secondary he was sent to a vocational school.

By attending this school, he was automatically excluded from studying, as the vocational schools did not offer the arbitration certificate required for university entrance. So Erhard began an apprenticeship at a textile company in Nuremberg in 1913, faced with few other options.

Although he had doubts about World War I, he volunteered for military service in 1916 and was a weapons target in the 22nd Royal Bavarian Artillery Regiment. Unfortunately, his military career suddenly ended on September 28, 1918 in Ypres when he was hit by fragments of an Allied grenade. He stayed in the hospital until the spring of 1919 and suffered seven operations on his left arm and leg, which resulted in the arm being shortened and his left leg permanently weakened.

Returning to Furth in 1919, few would have questioned the success of this plump, handicapped man with few qualifications. However, his life was to take a significant turn. Tired of working in his father’s business, Erhard enrolled in a business administration course at a local college and suddenly found his calling to study economics.

He received his diploma in March 1922 and was eager to graduate, but there was another catch. The local college did not have the right to award formal degrees, so his tutor required considerable lobbying to get his star student admitted to the University of Frankfurt. An exception was made in Erhard’s case and he received his master’s degree in 1924. During the next decade Erhard worked as a researcher for a professional association in Nuremberg while he was studying for his doctorate.

By the time he had completed his doctoral thesis, Hitler had come to power, and since doctoral students were allowed to take up academic positions, membership of the NSDAP was a requirement for graduation. Erhard had no intention of joining the Nazis and therefore withdrew his thesis from the examination. Remarkably, throughout the Third Reich, Erhard managed to keep his distance from the regime and continue to work for institutions such as the Consumer Research Company and his own institute for industrial research.

Erhard believed that the key to Germany’s economic success lay in the reorientation of industry towards the production of consumer goods. What he proposed was a significant break with the German past, which until 1945 was largely based on heavy industry of iron, coal, steel and chemical production. Erhard rejected fashionable criticism of materialism, arguing that the purpose of doing business was to satisfy consumer needs:

“Our economy serves the consumer, he alone is the yardstick and judge of economic activity,” as he put it. Economic goods helped free people from everyday tasks so they could pursue higher goals.

Erhard rejected Keynesian solutions, stating that currency stability should be accepted as a basic human right. He advocated balanced budgets, arguing that the state should only spend money when tax revenues were available.

Another priority for Erhard was home ownership: “Property makes you free”, he declared in 1961. However, he wanted property to be acquired through savings and not through state subsidies. Over time, Erhard planned a company with large shareholdings to consolidate acceptance of the free market. He rejected the concept of distributive justice as a society “… in which everyone has their hand in everyone else’s pocket”.

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In Germany, the revived Social Democrats (SPD) had plans to collectivize the entire economy and introduce a system of state planning. Your leader Kurt Schumacher spoke openly about the abolition of capitalism and the establishment of a socialist state. The opposition Christian Democrats (CDU) were influenced by a group of Christian socialists who campaigned for the “containment of capitalism” and the end of “traditional bourgeois society”. In February 1947, Konrad Adenauer’s Ahlen Program for the CDU declared: “The capitalist economic system does not meet the state and social needs of the German people.”

Erhard’s success appears to be due to the support he received from U.S. General Lucius D. Clay, the head of the U.S. Department of Military Government. Occupation zone. According to legend, Erhard showed up in their offices on the second day of the American occupation to offer his services. Clay appointed him Bavarian Minister of Economic Affairs and later chairman of the special office for money in loans.

During this time, Erhard suffered from immense political turmoil, which was not aided by his refusal to join a political party. The SPD rejected his policy for ideological reasons, while the Allies were still discussing the merits of deindustrializing Germany. At one point Erhard had to literally ask the Americans not to liquidate and dismantle BMW. However, he worked to get the region back to work and focus industry on the production of consumer goods, and on March 2, 1948, Erhard was elected administrative director for economics for the entire western allied zone. In this position he convinced the Allies to implement the currency reform by introducing the German mark and making it possible to end the rationing of consumer goods.

Finally, when his policies were beginning to bear fruit, the CDU adopted Erhard’s policy of “social market economy”.

Erhard argued that the social market economy was different from traditional laissez faire in that it required a strong central government to arbitrate to prevent cartels and ensure the persistence of competitive markets. When asked by Friedrich Hayek about the inclusion of the word “social”, Erhard explained:

“I hope you don’t get me wrong when I speak of a social market economy. I mean, the market as such is social, not that it has to be made social … the freer the economy, the more social it is. “

He was the German Minister of Economic Affairs for a total of 14 years and then served as the second Federal Chancellor. During this time he would argue with his adoptive party, the CDU, on many topics, especially the European Community. Erhard was suspicious of creating European institutions, which in his opinion would lead to more planning and bureaucratic intervention. He feared that a single economic or fiscal policy for Europe would inevitably fail, and he opposed tariffs against non-community members.

Erhard died in 1977, so unfortunately it did not see the 1980s when his views found wider acceptance under the Anglo-American alliance of Margaret Thatcher and Ronald Reagan. However, we should remember how he used the free market to lay the foundations for Germany’s continued economic strength after the war, and his methods should be reviewed by conservatives who are not convinced of the long-term benefits of Keynesianism.

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