Germany’s Bundesbank Had Not Sacrificed Its All for “Europe”—i.e., for Keynesian Inflationists and Centralizing Collectivists

Since 1979, the European governments have been trying to maintain a fixed exchange rate system among themselves; in the last few years, they have been trying to close the allowed bands of fluctuation—2.25 percent plus or minus the official rate—in preparation for a single European Currency Unit (ECU) that was supposed to begin at the end of 1993 and would be issued by a single European central bank.

A single European currency and central bank was sold to the world public as a giant “free trade unit,” but it actually was a giant step toward centralized government in Brussels. It was a step toward the old Keynesian dream of a world paper unit by a World Reserve Bank administered by a world government.

Fortunately, with the resistance to Maastricht, and then with the pullout of Britain from the European Currency System and the face-saving new system of very wide exchange rate bands, the ECU and the Keynesian dream lie all but dead. The world market has once against triumphed over Keynesian statism, even though the power seemed to be in the Establishment’s hands.

In the French case, there was another villain condemned by all. The German Bundesbank, worried about German inflation as a result of the mammoth subsidies to East Germany, has not been as inflationary as France would have liked. One way for France or Britain to be able to enjoy the goodies of inflation without the embarrassment of a falling currency is to try to muscle harder currencies to inflate, dragging them down to the level of the weaker currencies.

Fortunately, the Germans, even though they inflated a bit and wasted billions supporting the franc, did not inflate nearly as much as the French or British would have liked. Yet for pursuing a relatively sound monetary course, the Germans were condemned as “selfish,” for they had not sacrificed their all for “Europe”—that is, for Keynesian inflationists and centralizing collectivists.

—Murray N. Rothbard, “‘Attacking’ the Franc,” in Making Economic Sense, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2006), 305-306.