A long-term goal was to rebuild German society. A generation of young people had been shaped by an ideology which demanded total obedience to the government: an ideology which taught citizens gladly to be controlled by the government, even to seek the government’s control over them.
The Germans needed to rebuild the concept of liberty.
Ludwig Erhard was instrumental in expanding freedom in postwar Germany. Erhard avoided partisan loyalties as much as possible: even through political parties like the CSU, CDU, and FDP sought him, he delayed party membership for years, as historian Hans Jörg Hennecke writes:
In March 1948, at the suggestion of the CDU and FDP – and despite the resistance of the SPD – Erhard was elected director of the Economic Council of the Bizone (as the combined American and British zones of occupation were called) with a small but significant majority. In this role, Erhard not only oversaw the long-planned currency reform of 20 June 1948, but also introduced market-oriented economic reform when – literally overnight – he abolished price controls on a wide range of goods.
From that point, Germany began to move into its famous Wirtschaftswunder phase, years during which economic liberty enjoyed a powerful synergy with social and political liberty. Civil rights and prosperity developed in a virtuous cycle, each encouraging the other, and bringing democracy and financial stability to postwar Germany.
Yet danger still lurked. How is it that, people who enjoy the fruit of political liberty and experience a flourishing of justice such as Germany had in the 1950s, can yet be lured away into the confines of an anti-democratic government? This problem confronts any truly free society.
Economist Joseph Schumpeter, an influential economist who pre-dated Ludwig Erhard by several years, “had suggested in 1942 that free market capitalism and democracy sow the seeds of their own destruction,” in the words of historian Alfred Mierzejewski.
Schumpeter meant that when people become used to prosperity, they are less tolerant of the occasional economic crash, which is part of the natural cycle of the macroeconomy resetting itself as it seeks equilibrium. Accustomed to prosperity, people tend to see small problems as big problems, because the big problems have gone away. Intolerant of small problems, they embrace government intervention into the economy as a way to fix these problems: but in reality, such intervention will dismantle the free market which produced prosperity, and much larger problems will result.
In the comfort of prosperity, citizens forget that high taxes, price controls, and wage controls are not creative instruments for adjusting the economy and addressing problems, but rather that they are the sources of large-scale human misery, as Mierzejewski explains:
People become so accustomed to the rewards of the free market that they come to take them for granted and then abuse them, ultimately putting them at risk. Similarly, people disdain political freedom and turn to authoritarian government to pursue mirages such as economic equality and social justice. The result is dictatorship and poverty, or, as another liberal economist put it, serfdom.
The use of the word ‘serfdom’ is an allusion to economist Friedrich Hayek, winner of the Nobel Prize, and author of a book titled The Road to Serfdom.
The lesson which must be learned and relearned is this: that a planned economy or a command economy solves no problems and simply creates worse problems — wage controls, price controls, and high taxes generate only human suffering, and that this economic suffering leads inevitably to social suffering. Any successful democracy which produces justice and a humane society can only be the result of a free market.
