The Money Trail

After coming into power in 1936, Adolf Hitler initiated price controls in order for his government to purchase war materials at artificially lowered prices as well as imposing rationing on consumer goods (something that many countries do during times of conflict). The difference between Hitler’s controls and those of, say, the US or Great England, was that persons found violating those controls were subject to death.

He called his money units Reichsmarks. After the war, this money was converted into Deutsche Marks at a much higher exchange rate causing many people to see a major reduction in their net worth. As the money supply suffered a ninety-three per cent (93%) contraction in availability, bartering became a way of life for day to day necessities. However, an economist named Ludwig Erhard believed that if given the chance, the people would work for the new money if it could be shown to be valuable.  Under Allied control, he all but abolished rationing on foods and manufactured goods … and was proven correct. “Decontrol of prices allowed buyers to transmit their demands to sellers, without a rationing system getting in the way, and the higher prices gave sellers an incentive to supply more” (Henderson). Because of this, when shops opened on the date of de-rationing, June 21, 1948,  people flocked to stores which were selling items that now made economic sense for the shop owners to carry. The economy came back with a flourish, much sooner than anyone had predicted for a defeated nation.

The German’s labeled their new economy a ‘social market economy’, denoting the material as well as the social (human) dimension of their new system. They stressed the word market because, after the tyranny of the Nazi regime, they wanted to stay away from any possible taint of government control.  The only state control in West Germany was to protect the economy from monopolies. They stressed the word social because they wanted to develop an economy that would help all of their citizens, but again didn’t want the idea of the government coming in and ‘directing’ any programs to be part of the new plan. (www.germanculture.com.ua).

In 1950, $1 in US dollars was equal to 4.20M (marks). By 1998, one US dollar was the equivalent of 1.78M. In 2002, the Euro was made the legal monetary unit in Germany and it is currently the equivalent of $1.46337, which is good for Germans purchasing American goods, not so much the other way around (XE.com).

The smallest unit of German money is called a Pfenning (pf) and there are 100 pf in one mark; Germans call Deutsch Marks simply marks or D-Marks or DM. A listing of the coins frequently used:

1 pf, 2 pf, 5 pf, 10 pf, 50 pf, 1 DM, 2 DM, 5 DM

Their paper money (bank notes) breakdown is:

Banknotes frequently used: 10 DM, 20 DM, 50 DM, 100 DM; larger amounts are available but rurely used 5 DM, 200 DM, 500 DM, 1000 DM.

SOURCES:

David R. Henderson, “German Economic Miracle.” The Concise Encyclopedia of Economics. 2008. Library of Economics and Liberty. 3 June 2011. <http://www.econlib.org/library/Enc/GermanEconomicMiracle.html&gt;.

http://www.germanculture.com.ua/library/facts/bl_economy.htm

http://www.xe.com/ucc/

http://www.history.ucsb.edu/faculty/marcuse/projects/currency.htm

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One response to “The Money Trail

  1. The use of a single central bank in Europe has really helped unify the entirety of the European market. The Euro is a great advantage not only for the locals, but also those of us who like to tour. It was neat to learn from your post just how the German market recovered after WWII.

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