The Deutsche Mark and the dollar: Domestic price stability and international currencies

National currencies often become projections of national power. They are also the focus of historically based myths that help to shape policy. The currency's value of course depends foremost on market evaluations of monetary and fiscal behavior, but a certain “vision” of the currency will play an important part not only in forming current policies, but also in guiding market assessments of likely future developments and thus of the current price. Currency movements thus reflect a whole range of deep-seated attitudes and expectations about monetary and fiscal policy. In postwar history, the Deutsche Mark and the United States dollar are two of the most striking instances of currencies that are much more than mere units of account. Each is associated with a different creation story or myth, and the two have therefore behaved in quite contrasting ways. The introduction of the Deutsche Mark is popularly (and fundamentally correctly) credited as the beginning of the postwar German economic miracle, and the strength of the mark on currency markets came to be widely seen in divided Germany as a testament to the economic power of a politically constrained state. After the collapse of the German Democratic Republic (GDR) and the end of the Cold War, worried commentators warned Germans against what Jürgen Habermas termed a new “DM-Nationalismus.” But these worriers missed the critical point that the history of the Deutsche Mark had produced the political idea, or myth, of stability and that the goal of stability precludes the use of a currency for political pressure. A stable currency is attractive because it is not subject to depreciation as a result of political pressures. The solidity of the Deutsche Mark precisely symbolized a limitation on German politics: It is stable because it limits and circumscribes politically seductive opportunities for fiscal and monetary expansionism. In short, stability involves the limitation of political choices.