The German Currency Reform and the Revival of the German Economy

Abstract

AFTER the collapse of Germany in 1945 the German economy rapidly deteriorated into a barter economy in which money served neither as a unit of account, nor as a means of payment (except for the purchase of the meagre official rations when they were obtainable), nor as a store of value. The period which ended with the currency reform of June 2oth, 1948, offers to the economist a unique illustration of the situation which is so often described in text book discussions leading up to the analysis of the advantages of money: individuals and business firms acquired most of the commodities they wanted by exchange against commodities they had to offer, and a whole series of exchanges were sometimes necessary to obtain the desired commodity. Every firm had several specialists, called compensators , on its st'aff. If, for example, cardboard for packing was needed, the compensator might be obliged to barter the plant's own products for typewriters, the typewriters for shoes, and the shoes for cardboard. All this was not only illegal but involved tremendous costs. In one case known to the present writer five long trips by a compensator were required to obtain a case of special varnish, whereas formerly a postcard dropped into the post box would have been sufficient. Workers and employees also insisted on being paid partly in kind, and bartered the commodities they received against others which they needed. Most people had no inducement to earn more money than was required to buy the rations at prices which were, on the whole, still fixed at the pre-war level. It was profitable for a man to be absent one or two days a week from his job if he could use the time to cultivate his own garden, to forage in the countryside for food, or to operate in the black market. Accurate accounting was impossible for firms as well as for consumers, because there was no market in which a common price for a commodity could establish itself; each purchase carried out in the black market (whether made by way of the transfer of money or by way of barter) was made at a unique price which was determined by the bargaining power of the individuals concerned, a price which might easily be twice as high as the price at which some other similar transaction was taking place somewhere else at the same moment. The economy was organised along lines such that the sell-interest of individuals and firms was strictly opposed to the common interest. Working at a regular job was the least profitable occupation, and mere survival necessitated breaches of the law. By the middle of I948 the economy had reached a state of paralysis resulting in near-starvation for a large part of the population.