Happy Birthday, Dear Deutsche Mark

At its birth in 1948, the West German Deutsche mark scarcely seemed to be a currency that could produce a miracle. Most of the country's war-wrecked industry still lay in ruins; the economy was torn by inflation, black markets, and such a food shortage that hungry city dwellers trekked to the country in hordes to barter their clothes and furniture for farmers' grain and potatoes. Neither gold nor a cushion of foreign exchange backed the infant mark. Yet its creation proved to be the essential underpinning of the Wirtschaftswunder that transformed West Germany into Europe's most prosperous power. By last week, as West Germans celebrated the 20th birthday of their postwar currency, the once lowly Deutsche mark had risen to become one of the two most coveted moneys in the world.

Unqualified Confidence. Only the Swiss franc, which is 100% backed by gold, shares with today's Deutsche mark the unqualified confidence of international businessmen, financiers and speculators. Because investors now prefer bonds floated in German marks to those denominated in U.S. dollars, most mark issues are selling above par, while dollar bonds go at a discount in Europe. During the March gold crisis, there was such a rush to change other money into marks that foreign accounts in West German banks swelled by a net $285 million in a single week.

At the birthday festivities in Bonn's Beethoven Hall, former Chancellor Ludwig Erhard recalled his crucial 1948 decision to close West Germany's banks and deal no more in grotesquely inflated reichsmarks (1,000 for a carton of U.S. cigarettes). As economic boss of occupied West Germany, Erhard courageously exchanged only 6 1/2 Deutsche marks for every 100 of the old marks, thus wiping out the cash savings of most of his countrymen for the second time in a generation.* A laissez-faire economist, Erhard followed currency reform by abolishing price controls and rationing. "The only chance I had," said Erhard, "was that people were telling themselves: 'Our situation is so desperate that this crazy man should have his opportunity.' Miracles don't happen, but miraculous results can be achieved by a determined nation operating under a logical policy."

Relying on Discipline. At first it was touch and go, but Erhard's classic reforms prodded Germans to the hard work that turned revival into boom. Since 1951, West Germany's reliance on monetary and fiscal discipline has repeatedly proved its potency at steadying the economy. Ironically, Erhard fell as chancellor in 1966 partly because he failed to follow his own doctrine. A euphoric orgy of government overspending helped push the country into an economic slump complicated by a surge of inflation. After the Kiesinger government reimposed a program of austerity by raising taxes and cutting federal spending, West German prices soon stopped climbing. Unemployment has now fallen to a mere 1.3% and during the first quarter of this year industrial productivity soared by an astonishing 10%. Symbolizing that performance, the Deutsche mark today ranks as the most stable currency in the inflation-beset industrial world. The mark's domestic purchasing power has declined by a comparatively modest 36% in 20 years. Second-best performer: the U.S. dollar, with a 41% drop in buying power over the same period.

* In the inflationary aftermath of World War I, the value of the mark shrank in 1923 to an unprecedented 4.2 trillion to $1, pauperizing the middle class and leaving Germany with a horror of inflation that survives in today's constitutional prohibition against government budget deficits.

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