Backstory to the Berlin Airlift: The Imperative of Currency Reform
By the start of 1947, the United States and Britain had abandoned their illusions of post-war cooperation with the Soviet Union -- without yet viewing themselves in a state of "Cold War." Despite Churchill's warnings about the "Iron Curtain" and growing evidence of Soviet bad-will, the United States was still reluctant to confront the Communists openly and directly. Instead, the U.S. focused on moving ahead with policies designed to kick-start the European economy with -- or without -- Soviet cooperation. Central to this policy was the creation of a sound banking system, a currency to replace the barter economy, and the creation of an independent and sovereign German state.
The Soviet Union too had repeatedly proclaimed its interest in a currency reform – provided it had control of the currency. With respect to an new German government, the Soviets were working diligently toward this goal through their Party cadres and with the help of the Secret Police. The Soviet Union was very committed to creating a German government – so long as it was controlled directly from the Kremlin without the slightest deviation or hint of independent thought, much less action.
The West perceived the currency question as most pressing and so turned their attentions to the subject of currency reform first. Typically, the Soviets had been asked repeatedly over the previous two years to support measures to put German finances on a sound basis, but the Soviets were very much a part of the problem and this made if very difficult to work with them towards a solution. It should be kept in mind that at no time in the history of the Soviet Union did it – or its satellites - ever have a freely convertible and internationally recognized currency.
In any case, in post-war Berlin whether because Soviet ideology prevented it or Soviet policy makers simply never grasped the essentials of finance, there can be no doubt that the Soviet Union was largely responsible for the fact that the official post-war currency, the so-called “Occupation Mark,” was utterly worthless. This came about as follows. Even before the occupation of Germany, the Allies agreed to print an “occupation currency” to be used by all troops in occupation of Germany. The Soviets insisted on being given a set of plates for printing these marks, and promised to provide a strict accounting of the notes produced on them. In the event, they not only failed to provide an accounting to the West, they apparently never bothered with such a burdensome task even for internal purposes. Instead the “marks” were printed as recklessly as toilet-paper and used to pay soldiers with years of back-wages. The Soviet soldiers thus found their pockets bursting with tens of thousands of marks which, furthermore, they were strictly prohibited from taking back to the Soviet Union. Uncontrollable inflation inevitably ensued.
The situation was aggravated by the fact that the official exchange rate for American soldiers was 10 occupation marks to a dollar and the Army post exchanges were obliged to convert the worthless marks, which the Soviets were printing by the hundreds of millions, into dollars. This meant, for example, that:
A soldier with a gift of a crisp ten-dollar bill from home…had the choice of converting it to one hundred marks at the official rate of exchange or taking it to the black market, where the same ten dollar would bring one thousand marks, which could then be converted back into dollars at the official rate and sent home again in the form of a money order for one hundred dollars – a profit of 900 % on a simple transaction. It really was not much of a choice.[i]
The worthlessness of the “official” currency meant furthermore that most genuine economic transactions took the form of barter and cigarettes rapidly became the principal alternative currency. Yet, while a carton of American cigarettes, available for purchase at $ 0.50 could bring 1,500 occupation marks or $ 150 on the black market, wages paid to German workers in marks could not cover the basic necessities of life. Unskilled workers, for example, earned as little as 180 marks (at the above rate of exchange for cigarettes, $ 0.06) per month. Butter cost sixty dollars (6,000 – 9,000 occupations marks) a pound, and bread twelve dollars (12,000 – 18,000 occupation marks) a loaf. Given the disparity between wages and prices, it is hardly surprising that a social worker reported to General Clay: “Many people find it not worth while to work for a wage. It takes too much time away from earning a living on the black market.”[ii]
But people could only “earn” a living on the black market if they had something to sell. Occupation marks and cigarettes were in the first instance issued to the Occupation Forces. In order to obtain these, the Germans had to sell something to the Occupation Forces. Furthermore, since the Soviets had printed the occupation marks by the billion, farmers refused to accept them, so food could only be purchased in exchange for goods: a Persian carpet for a sack of potatoes, the family silver for a side of ham. Anyone without a lucky hand (and the time and connections) for successful trading on the Black Market got progressively poorer, while the poor, who had no Persian carpets or silver to sell in the first place, were reduced to prostitution or starvation.
Another side effect of the black market was that it drained away resources that would otherwise have been distributed through official channels as rations. It has been estimated that “at least” 10% of the imports from abroad each month failed to reach the rationed consumer, while as much as 40% of the domestically produced food was “being siphoned off into the black market.”[iii]
The situation was intolerable and everyone recognised that a currency reform was long over due, but still the Western Allies hesitated to take independent action. It was obvious that the Soviets were not going to allow currency controlled by the Western Powers to circulate in their Zone; that would have made them dependent on the West. But if the currency could not circulate freely throughout Germany, then it would reinforce the division in Germany rather than help overcome the fragmentation of the economy. With each day, however, the delay of currency reform meant more delay in economic recovery, and once the European Recovery Program had passed through Congress in late 1947, a Currency Reform became imperative to enable Marshall Aid to flow into Germany.
On March 1, 1948 a central bank was established in the Western zones and from that point forward, despite intense secrecy about the details, it was obvious to all that a new currency was coming. Consumers tried to buy up everything they could to find in order to rid themselves of their soon-to-be-completely-worthless old money. Retailers and wholesalers on the other hand tried to hoard their products until they could be sold for “real” money. When the new currency was finally introduced, it was like a purifying summer thunderstorm.
No Currency Reform can be completely equitable. It is impossible to ensure that people’s personal savings are not wiped out without burdening industry with unrealistic debt etc. etc. This currency reform was no exception, but for all its imperfections, the overall impact was dramatically positive. Goods, which had been held in warehouses or “under the counter” for months, suddenly appeared in the stores. One observer claimed: “Practically everything disappeared from the shelves and some stores closed altogether until June 25; afterwards things that one hadn’t seen in ages could be seen in the windows.”[iv] More important in the long run, there was an overall greater willingness on the part of workers to accept wages and on the part of companies to invest in raw materials and productive capacity because it was now possible to calculate both costs and returns. The confidence in the new currency grew rapidly and it laid the foundation of what was latter known as the German “Economic Miracle.”
[i] Haydock, p. 39.
[ii] Collier, p.30.
[iii] Haydock, p.119.
[iv] Peter Kroenig, Schaut of diese Stadt!, p. 28.
*****
NOTE: The content of this blog post is based on Helena P. Schrader. The Blockade Breakers. Pen & Sword, 2008
The Berlin Airlift is also the subject of Bridge to Tomorrow, a trilogy of novels starting with Cold Peace.
Berlin 1948.
In the ruins of Hitler’s capital, former RAF officers, a woman pilot, and the victim of Russian brutality form an air ambulance company. But the West is on a collision course with Stalin’s aggression and Berlin is about to become a flashpoint. World War Three is only a misstep away.
View a video teaser at: https://www.youtube.com/watch?v=JTuE7m5InZM&t=5s
My novels about the RAF in WWII are intended as tributes to the men in the air and on the ground that made a victory against fascism in Europe possible.
they took the war to Hitler.
Their chances of survival were less than fifty percent.
Their average age was 21.
This is the story of just one bomber pilot, his crew and the woman he loved.
It is intended as a tribute to them all.
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MORAL FIBRE is the WINNER OF A HEMINGWAY AWARD 2022 and was a FINALIST for the BOOK EXCELLENCE AWARD IN HISTORICAL FICTION.
"Where Eagles Never Flew" was the the winner of a Hemingway Award for 20th Century Wartime Fiction and a Maincrest Media Award for Military Fiction. Find out more at: https://crossseaspress.com/where-eagles-never-flew
For more information about all my aviation books visit: https://www.helenapschrader.com/aviation.html
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