953

Western European Recovery and the Promise of Prosperity

Christian Democrat Ludwig Erhard, minister for economic affairs (1949–1963) and then chancellor (1963–1966) of West Germany, was an outspoken proponent of liberal capitalism and free markets in the years of the “economic miracle.” In this newspaper article from June 16, 1953, Erhard defends the use of consumer credit and the expansion of consumption, starting with the wealthy, as an engine of postwar economic growth.

I have often pointed out that the consumption of quality goods can only be expanded provided we tolerate their use being confined initially to a relatively small number of people in the higher income brackets. If this is not accepted, and if the enjoyment of such goods is regarded as indulgence and made the subject of social obloquy and hostility, then the economy will be forced to abandon production in this sector, and there will be a corresponding loss of potential national income (and jobs) and the growth of the country’s productive capacity will be forcibly curtailed. One section of the press actually challenged me to say how an old-age pensioner was to set about getting his refrigerator. To this puerile question I replied that the first motor-cars in America were presumably not run by pensioners but by millionaires, and I do not consider this reply unduly flippant. Does not the history of the world in the last hundred years afford abundant proof of the fact that every single improvement in the standard of living can only be effected step by step, spreading progressively over a gradually mounting proportion of the population? . . .

Ever since 1948 I have been propounding an economic policy which puts the consumer at the very centre of all economic processes, by ensuring freedom of choice to him and restoring him to a position of dignity and power. . . .

Responding to a critique of shoppers purchasing goods on credit, Erhard continues:

At first sight, this argument seems reasonable enough, but in the balance-sheet of the economy as a whole the picture looks different. Consumer credit enables goods to be produced which could otherwise not find a market. . . . Now, consumer credit goes a step further and initiates an expansion of production (e.g. of refrigerators), and this expanded production creates new income which in its turn appears as additional purchasing power on the market. The volume of goods at the disposal of the economy has in other words been built up to a higher level, the national product and the national income have been extended. . . .

In this connection of course the question of magnitude is of vital importance. Consumer credit cannot carry, but can usefully supplement an upswing of the economy as a whole. . . . The use of consumer credit [is] one of the means capable of subserving a general policy aimed at expanded consumption. . . .

Consumer credit can be a means of increasing employment, creating additional returns, and thus enlarging the national product and the national income. The wider the choice of goods available to the consumer, the more active competition becomes, and the more prices will tend to come down, to the benefit of us all.

EVALUATE THE EVIDENCE

Source: Ludwig Erhard, The Economics of Success, trans. J. A. Arengo-Jones and D. J. S. Thomson (Princeton: D. Van Nostrand Co., 1963). Used by permission of Ludwig-Erhard-Stiftung e.V.