Chapter XIII REARMAMENT AND THE MARKET ECONOMY

REARMAMENT MUST BE SO ORGANIZED that it will not upset our free social economic system. I have held this view ever since the rearmament of Germany was first discussed. It is not dogmatism but anxiety to secure our social existence which has led me repeatedly to stress this. It is important that every contribution to defence should not merely maintain but also strengthen the freedom-loving order of the West. It would be paradoxical if in making our contribution to defence this freedom-loving order were threatened or given up.

The fundamental condition of reconciling economic consequences of defence with the market economy is anything but theoretical. It imposes on us utterly concrete and important conclusions affecting our lives.

To begin with, world opinion should be reminded that it is the experience of history that rearmament in Germany has, as a general rule, disregarded the principles of financial stability and economic order, thus bringing about a decay of the currency. This bitter memory is based on two unfortunate experiences. Everyone has been affected by this lack of responsibility. If the last (price-freeze) inflation could be said to be due to the cost of the war, its roots certainly lay in the methods of financing rearmament. To ask the people to go through such dreadful experiences for a third time is impossible. We must resist all attempts to disguise the costs of rearmament by debasing the value of our money. In a people as experienced in inflation as the Germans, the smallest deviation from the right path tends to lead to disastrous effects. It is therefore essential to remain honest, and to finance rearmament exclusively by transferring purchasing power through taxes, and not by misusing the Central Bank. All manipulations in this field, however cleverly veiled, must be met by a hard, unconditional ‘No’.

Currency Stability Not Endangered

In spite of acknowledging the economic severity of any defence contribution this refusal must be made all the more decisive—so that foreseeable expenditure will not go beyond what our expanding economy is in a position to offer. Our economy, for example, has for years managed to carry a contribution to occupation costs amounting to about DM 7 milliard without bringing into question the stability of the currency, or similar points. The proposed defence contribution is DM 9 milliard per annum. In spite of all the criticism that has been made for years, no one can say that this figure has been exceeded. The increase of DM 2 milliard a year compared with the occupation costs can be traced in the yearly increase in the national income, which in recent years has amounted to between DM 10 milliard to DM 20 milliard (1953: DM 134.3 milliard; 1954: DM 145.46 milliard; 1955: DM 164.0 milliard; 1956: approximately DM 180 milliard.)

This increased burden of DM 2 milliard must not be taken lightly, but it cannot with a good conscience be described as in any way endangering economic stability. In past years we have financed the occupation costs without inhibiting or preventing German reconstruction; the defence costs which are to take their place are unlikely to do so either.

The amount of DM 10 milliard can nevertheless be regarded as inconsiderable only if the market economic policy, with its inner stability, is continued. It is thanks to the pursuit of these principles that the national income since 1949 has been raised by about DM 100 milliard. If the Federal Republic continues on this path, it should be in an increasingly better position to meet the needs of defence without detriment to its obligation to increase the standard of living of the German people and, above all, to increase social services. The expansive force of our economy creates the best conditions for success. The German people are thus able to look forward towards future development in this sector with calm.

If the relationship between the market economic order and rearmament has just been discussed from the point of view of financial policy, so should the production of armaments; in this sector, too, the rules of the market economy should be applied. Wherever possible the function of the free market must be allowed room, or its principles must be sensibly applied. That is why I have always stood for the principle of open tendering. As in the civil sector, this alone ensures that everyone interested can make his offer, and that the one in a position to offer the goods at the best price will receive the order. (It does not mean that the cheapest price will always win.)

This method—with some variations in detail—should be possible within the usual trade machinery. But with special armaments a market price of this kind cannot be determined. With public tendering, however, the most important principle of the market economy will be laid down. Thus I want to oppose strongly all attempts to make the market economy responsible for any deficiencies in deliveries.

These deficiencies are due not to public tendering, but rather to handling it in too bureaucratic a manner, and not least to the machinery of placing and accepting orders, which is only in its infancy. Thus, for example, according to the regulations, the price contained in the offer is not decisive for its acceptance. Other circumstances, in particular the suitability of the company and its actual ability to deliver, must be taken into account. In placing orders the definition of quality should be so clearly met that the goods on delivery could be examined to see if they correspond to the standards laid down.

The smallest amounts of standard trade goods will, of course, not be tendered for, but bought in ‘the shop’ A principle can be ridden to death, and a sensible principle can in this way be sabotaged. Every method of public tendering presupposes a certain number of offers. It thus loses its justification where—perhaps in the case of heavy arms such as tanks—there is no market. Yet even there the choice of firms should be guided by the spirit of the market economy. With any given means the best result must always be secured; in applying this general economic law it is necessary to reflect whether and how far German readiness for rearmament in this sector is practical and responsible.

Clearing House for European Armaments

The development of a home armament industry raises serious doubts both in respect of savings and in respect of the enormous investments required for such production. What is invested here cannot be invested elsewhere in the national economy. This is certainly a very simple statement, but in a country with a struggling capital market it is also very important.

These heavy armaments, whose production in West Germany for the Federal Republic alone would demand a greater output, thus immediately offer possibilities for European collaboration. I have represented Germany in the talks for the formation of a ‘Permanent Armaments Committee’ and hope that the idea of forming a kind of clearing house for European collaboration in the armaments sector can soon be realized. No country should be possessed by the ambition to achieve self-sufficiency in armaments.

Unfortunately the first attempts to collaborate have not led to a concrete solution. Perhaps the points of view are too different. Possibly, one country may believe that we in West Germany could produce too many armaments, while another may think that we are producing too little. These differences in attitude have perhaps contributed to the lack of a firm plan for common rearmament.

Now that there exists a general idea of the material needs of the German forces, one must repeat a strong appeal for a systematic division of work in Western Europe. There is still time to prevent false developments and wasted energies. Once the national armaments industry—and it need only be the beginning of it—demands to be heard, it will become more difficult to ban the spirit of autarchy. Such ideas then acquire a certain weight and so are correspondingly less easy to correct.

The wish to give preference to a European agreement before the creation of a national armaments autarchy stems—apart from political and military viewpoints—from economic considerations. Above all, rational production with considerably larger quantities can be built up here, and all the advantages of mass and batch production are effectively exploited. To renounce home production, and the necessity arising from it, for heavy equipment, would also be an excellent means to reduce our trade and payments surpluses. Here again the armaments sector should be regarded only as a part of the whole economy.

Actions Not Talk

In only a small number of cases has there so far been agreement for common European manufacture, and even with agreement about standard models, not much progress has been made. This unsatisfactory state of affairs must not be accepted as unchangeable; to accept such a fatalistic attitude would mean transferring belief in European unity into the realm of the fairytale. I believe that this field offers an excellent opportunity to realize fruitful liaison rapidly without necessarily calling special conferences to work out complicated detailed agreements which take years. The organization and technical framework for it already exist.

This acceptance of European co-operation does not mean, though, that there will be no research and development commissions in Germany. Such work is valuable for every modern national economy beyond its specific use for the armaments economy. So far as the private economic sector is concerned, a form of orders must be devised which will not lead to eventual demands for protection or even a monopoly position for such production. Such a procedure would be neither in keeping with the principles outlined above, nor with the desire to leave a free hand for later collaboration within the European framework.

If the task of economic rearmament is guided by the principles of market economy the right decision will be made possible. To mention only one of many examples, the inclusion of West Germany in the NATO community will call for a certain amount of stocks, in particular of strategically important goods. To allow the State to do this stocking up, and to advance perhaps towards the building up of vast government stocks, would not be in accordance with the principles of the free market economy. Nor would the accumulation of stocks by compulsion be in keeping with a free economic order. Thus the aim must be to offer special concessions to the economy, perhaps in the form of tax reductions, to achieve that decentralized building up of stocks which, from the point of view of defence, is so desirable.

The same principle, not to permit the State to take over what the private economic sector can itself achieve, naturally forbids the State to build up its own armaments industry. This idea, which has repeatedly been mentioned, must be turned down with equal vigour.

No Useful Economic Impulse

The desire to include the armaments sector in the general economy is having technical administrative consequences. For this reason I suggested the formation of the so-called six-member committee, within which the Ministry for Economic Affairs and the Ministry of Defence freely discuss those questions which come under the jurisdiction of their Ministries. This committee, according to the unanimous view of my colleague Strauss (Minister of Defence) and myself, has done excellent work in solving all the economic problems of defence.

In considering these tasks the German people must never forget that the Federal Republic has not for one moment allowed itself to be swayed in its decisions by ideas of combining rearmament with the stimulating of the economy. We know that we have not made such mistakes. What appear to us to make rearmament essential are not economic reasons, but exclusively important political considerations.

The disowning of any independent economic interest gives the Minister for Economic Affairs the moral right and the opportunity to raise his voice in the future if the danger should ever arise that our free and social market economy might be destroyed by rearmament, or by its methods. The events, still so fresh in our minds, that rearmament means economic and social disturbances must not be accepted as causal; it means no more than that we trod the wrong path. But there does exist the orderly harmless way, and it is this which we shall use in the future.

Our defence efforts strengthen the consciousness of the free world of belonging together, and that in turn gives us the certainty of preserving peace.