austin-murphy-the-triumph-of-evil

296 THE TRIUMPH OF EVIL
in the real output computations, since doing so results in an overstating of economic
growth for capitalist countries that increase their spending on selling, repackaging, and
unnecessarily complicating a basic service that communist systems provide so much
more effectively and less confusingly, i.e., with less risk and analysis time lost to the
individual). rt should also be mentioned that official output accounts in all countries
systematically leave out some economic activity, such as unreported output by tax dodg­
ers and other law evaders (some of whom provide useful products or services). Also,
official accounts don't take into consideration most of the output produced by individuals
and families for themselves (this latter unreported output was probably much higher
fo r East Germany, since shortages there motivated individuals to do many things on
their own instead of purchasing them, as commercially sold consumer services made up
a relatively small portion of National Income because the dominating state businesses
put far more resources into production).
6. Some, such as Merkel and Wahl ( 1991) and Schwarzer ( 1999), have suggested that
the actual prices paid for all goods should be adjusted for a price ratio determined by
some very narrowly-traded products when estimating the actual inflation rate needed
to deflate nominal output to compute real output growth. However, even an anticom·
munist propagandist like Ritschl ( 1996) has called such an arbitrary, biased, and ina ­ �
curate practice "obviously questionable," especially since the chosen traded goods dtd
not include big essentials like housing, which East Gennany heavily subsidized. Th
.
e
use of such exchange rates to evaluate relative income, living standards, and output ts
about as ridiculous as using the black market exchange rate, which had only a very
narrow use and varied widely, being as high as 20 East German Marks per West G
.
erman
Mark on the day after the Wall opened up in November 1989 (Nawrocki, 1987), tmply·
ing an absurd ratio of per capita income in the two countries of about 40 to I on that
day.
7. This exchange rate is consistent with the cross-rate between East German Marks
and West German Marks implied by Stolper's ( 1960) estimated valuation ratio of 1 748
:
West German Marks in 1950 per 1936 Reichsmark and his citation of a 1936 Retchs·
mark having the same purchasing power as 4. 186 East German Marks in 1950. These
data imply that the East Gennan Mark was worth 1.748/4. 186=0.42 West Ge��
Marks at that time. Although a drastic reduction in reparations payments permtlt
East German consumer prices to be lowered significantly after 1953 (Weber, 1988),
the official economic statistics (reported by each country) indicate negligible aggreg�te
inflation (on all output) in both East and West Germany in the 1950s, thus implytng
approximately the same relative purchasing power (0.42 West German Marks per East
German Mark) in 1961 as in 1950. Despite the fact that both East and West Germany
initially had the same Mark currency between 1945 and 1947, the USSR (in an attempt
to circumvent the USA's refusal to allow West Germany to pay its share of the �tions)
had caused East Germany to print excessive amounts of money to pay reparattons
(Schwarzer, 1 999), and the USA reacted by causing West Germany to form a separate
currency that was not subject to the reparations-induced inflation of East Germany. As
a result, in 1948, after the establishment of separate currencies for East and West Ger·
many, there were over twice as many East German Marks per East German resident �
.
West German Marks per West German resident, and, despite a continued I : I officta
k
exchange rate (which was only honored for some specified currency trades), the blac
NoTES 297
Olllket exchange rate was 0.27 West German Marks per East German Mark late in 1948
and fell below 0.2 West German Marks in the early 1950s (Schwarzer, 1 999).
8. Many prior studies of relative income may have overestimated relative East German
income at various points in the past, at least partially because of an overestimate of
the value of the East German Mark in the aggregate (Gregory and Leptin, 1977). Previous
research has shown the relative consumption purchasing power of the East German
Muk to have generally exhibited a rising trend over time that is consistent with the
higher inflation in West Germany, with the currency having been estimated to be worth
0.88 West German Marks in 1973 (Gregory and Leptin, 1977), 1.06 West German
Marks in 1980 (Collier, 1985), and values averaging about 1.13 West German Marts
in tbe early 1980s (DIW, 1984). However, these values may not fully incorporate quality
differences, and they definitely do not include producer prices, which were much
higher in East Germany because of the East German government's taxes on industry to
finance subsidization of consumer prices (Schwarzer, 1999). As a result, such past figeovcrstate
the true aggregate economic purchasing power of the East German Mark
on those dates and therefore also result in overestimates of the comparative income of
East Getmany at those times. East Germany itself overestimated its relative per capita
income in 1960 to be only 30% below that of West Germany, but this estimate was
likely based on its clearly overvalued official I: I exchange rate (that it felt necessary to
officially support and that at sci enabled it to make an apparently futile attempt to keep
its wortc force in the country with optimistic statements about relative living standards),
wbcRas actual East German income per capita was probably about 40% of the West
German level at that time (Merkel and Wahl, 1991 ).
9. The relative pricing of goods and services in international trade may also have led
�economic advantages for West Germany. For instance, because of superior market­
llllllld protectionist trade policies in West Germany, the West German Mark was often
�ued in the currency markets relative to its purchasing power, and this overvalu-
111011
provided West Germany with terms of trade advantages with the rest of the world
(Murphy, t992a). On the other hand. East German terms of trade suffered not only from
lrlde barriers erected by capitalist countries against communist countries (Melzer and
&ahnke. 1986) but also from the negative worldwide propaganda leveled against p�­
� from communist countries (Szczesny, 2000a) that was both political an� econo � 1c
111 content and purpose. East German terms of trade with their larger Russtan tradmg
l'ltneq, which were determined by negotiation, did not produce any offsetting advan­
� for East Germany, as slow adjustments to world market prices for many commod­
Ity trades provided East European countries with temporary advantages and disadvan­
� began to charge prices for oil that more reflected world market prices (Ritschl,
llacs that tended to cancel out (Mendershausen, 1960), until the late 1980s when the
996).
� to be hi . gher under communism than under capitalism (Die� 1976), the find . ing of
.10 · Whereas other studies have also shown economic growth in less developed coun­
· �
15 especially important because it compares two relatiVely advan�, mdus­
��� economies. This comparison of real economic growth measures rel � ttve effi­
�.•n &ggregate terms of mobilizing and managing resources. Comparative return
:• figures are not separately analyzed in this �per �use marginal re�s t�
are often more a function of the percent of nattonal mcome allocated to mvest