Currency birthday

Remembering the D-Mark, talisman of Germany's economic miracle

Währungsreform 1948
New currency, new prices – and new pride. Source: DPA

It seems odd to celebrate a money that no longer exists. Yet that’s exactly what German politicians did on Friday, tapping into the pride that many citizens feel about their old currency and the socio-economic model that delivered the country’s post-war prosperity.

Seventy years ago, on June 21 1948, the Western allies jointly introduced the deutsche mark or “D-Mark” to replace its predecessor, the reichsmark, which had become virtually worthless at the end of World War II. Printed in New York, the new notes and coins were shipped across the Atlantic under absolute secrecy. Overnight, all financial assets were redenominated in the new unit, which rapidly became a symbol of Germany’s economic prowess.

This success is why Angela Merkel and her finance minister, Olaf Scholz, gave speeches saluting the currency, which was replaced by Europe’s common currency in 2001. The chancellor’s team is keen to celebrate “prosperity for all,” a slogan coined by Ludwig Erhard, the former economics minister who ushered in the “social market economy” – a blend of free competition and innovation with strong trade unions and a generous welfare system. For many Germans, this is still an inspiring political vision, but they fear for its survival in a world of Chinese expansion and Donald Trump’s protectionism.

With this in mind, Handelsblatt asked four leading German economists how they see the future of the social market.

Ludwig Erhard mit Zigarre
Ludwig Erhard, seen as the father of Germany's "economic miracle." Source: DPA

An adaptable system
Lars P. Feld, director of the think-tank Walter Eucken Institut

The social market system has turned out to be very adaptable, able to cope with crises and structural shocks. The idea that the government should intervene to regulate prices is still a very bad one: we can see this today with the minimum wage, rent regulation and so on. It really is astonishing how ancient ideas come round again, even though they never worked in the past: look at today’s house-building subsidies, property taxes, etc. The state needs to give private businesses room to breathe: that is the only way it can help them innovate.

Since Ludwig Erhard’s day, Angela Merkel’s Christian Democrats have failed to really adopt market principles in their labor and social policy. Back then, Mr. Erhard represented the “market” for Christian Democrats – he introduced currency reform and ended price controls. But nowadays, even the CDU is moving toward reregulation, especially since the Social Democrat-Green welfare reforms of the early 2000s. In discussions about European monetary union, it’s crucial that the German government stand up for principles of financial responsibility. Otherwise, everything could be swept away.

Leeway for society
Christoph M. Schmidt, chairman of the German Council of Economic Experts

For West Germany, the social market economy was a prosperity generator, allowing it to rebuild out of the ruins of the war. The resulting economic progress gave society the leeway to progress. This progress includes the social safeguards, tolerance, diversity and equality which today we take for granted.

These days, we face new economic and political challenges on a global scale. Problems like climate change demand global answers, and this means collaboration between economies based on very different social models. But it is crucial that we do not question the social market economy: It stands for individual freedom and for equal opportunity for all.

There are many reasons why we should defend our economic and social model more energetically than we have so far. Despite global upheavals, the social market economy has succeeded in preserving relatively equal income distribution. Those who lose out through structural change are supported. Educational opportunities exist across the social spectrum. Old-age poverty has been largely eradicated thanks to a comprehensive welfare policy.

Deutsche Mark
Changing faces of the D-Mark, 1948-2001. Source: DPA

Broken promises
Marcel Fratzscher, president of German economic research insitute DIW

The social market economy was the basis of Germany’s post-war economic miracle. We need this social contract more than ever in order to face up to the challenges of globalization and technical change. But the model itself needs reform and renewal. Too often, neither the “market economy” nor the “social state” work as well as they should.

Politicians need to prioritize reinforcing the social market economy. Greater distribution through taxes and transfers will not fix the social market: Welfare cannot compensate for inequality of opportunity. The current coalition must grasp the opportunity and keep its promises. Europe must be reformed and digitalization successfully negotiated. The education system needs long-term improvements in quality, for everyone who uses it.

Social exclusion and equality of opportunity in the job market represent major unfinished business for this government. In addition, we must improve the framework for public and private investment. Germany must become more innovative: for this, it needs more young entrepreneurs and more venture capital.

Trust the power of the market
Clemens Fuest, head of the Ifo economic institute

The social market economy relies on five key principles: Market competition; sound public finances combined with a stable currency; a focus on economic growth over distribution; social security rather than a welfare state; and free trade in a united Europe.

These principles can help us understand emerging challenges, like environmental protection, digitalization and automatization, and the demographic crisis. But they cannot solve them on their own.

In recent years, the Christian Democrats have not given the impression that they take Ludwig Erhard’s principles all that seriously. It remains to be seen if the current Economics Minister, Peter Altmaier, will do things differently. I am confident he can. Economic policy in Germany and Europe needs a stronger orientation toward market principles.

The federal government must recall that state interventions in markets can often have unintended side effects. Rent controls, for example, can drive accommodation off the market, making a bad housing situation worse. We need less fantasy politics, and more sober analysis and debate about the actual consequences of political decisions.

Donata Riedel covers economic policy for Handelsblatt. Brían Hanrahan and Jeremy Gray adapted this story in English for Handelsblatt Global. To contact the author:

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