The reasons for the German economic miracle

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The reasons for the German economic miracle
The reasons for the German economic miracle
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After the Second World War, Germany was a ruined state with an incredibly bleak future. The country has been occupied by four nations and will soon be divided in two by the Berlin Wall. But by 1989, when the Berlin Wall came down and Germany reunified, it was the envy of much of the world. Germany had the third largest economy in the world, second only to Japan and the US in terms of GDP.

The rise of Germany has become known throughout the world as the German economic miracle. Here it was also christened Wirtscaftswunder. How did this happen?

Backstory

At the end of World War II, much of Germany was in ruins. Much of the country's infrastructure was destroyed. The city of Dresden was completely destroyed. The population of Cologne was reduced from 750,000 to 32,000. The housing stock was reduced by 20%. Productionfood was half as much as before the start of the war; industrial production fell by a third. Most of the population between the ages of 18 and 35, those who could do the hard work to rebuild the country, were either killed or maimed.

During the war, Hitler introduced food rations, limiting his civilian population to no more than 2,000 calories a day. After the war, the Allies continued this policy of food rationing and limited the consumption of the population even more: from 1,000 to 1,500 calories. Price controls on goods and services led to shortages and a huge black market. The German currency, the Reichsmark, became completely worthless, as a result of which the population was forced to resort to the exchange of goods and services.

Germany after the war

W alter Eucken

Perhaps the most important person in Germany's stunning renaissance was W alter Eucken. The son of a Nobel Prize winner in literature, he studied economics at the University of Bonn. After World War I ended, Eucken began teaching at his alma mater. He eventually transferred to the University of Freiburg.

He gained a following at the school, which became one of the few places in Germany where Hitler's opponents could express their views. But, more importantly, it was here that he began to develop his economic theories, which became known as the Freiburg School, ordoliberalism or "social free market".

W alter Eucken

Concept

Eucken's ideas are firmly rootedin the market capitalist camp, and also allowed the government to participate in ensuring that the system is effective for as many people as possible. For example, through the introduction of strict rules that prevent the formation of cartels or monopolies.

He also supported the creation of a strong central bank independent of government that focused on using monetary policy to maintain price stability, much in the same way that Milton Friedman became famous.

This type of system seems perfectly normal today, but at the time it looked pretty radical. It is necessary to take into account the conditions of the era in which Eucken developed his ideas. The Great Depression, which engulfed the entire globe, hit Germany particularly hard; hyperinflation significantly destroyed the economy and led to the growth of Hitler's influence. Many believed that socialism was an economic theory that would sweep the world.

Erhard's influence

While West Germany's economy was in its infancy, heated debate began about the direction of the new state's fiscal policy. Many, including union leaders and members of the Social Democratic Party, wanted a system that still retained state control. But Eucken's protégé, a man named Ludwig Erhard, began to catch on with the American forces, who were still in de facto control of Germany.

Erhard, a World War I veteran who attended business school, was largely an inconspicuous man,who worked as a researcher in an organization that de alt with the economics of the restaurant industry. But in 1944, when the Nazi Party was still in control of Germany, Erhard wrote an essay discussing Germany's financial situation, where it was already assumed that the Nazis had lost the war. His work eventually reached the US intelligence forces, who soon sought him out. And as soon as Germany surrendered, he was appointed to the post of Minister of Finance of Bavaria, and then he became the director of the economic council of the still occupied western part of Germany.

Ludwig Erhard

First steps

After gaining political influence, effectively bringing about the German economic miracle, Erhard began to make efforts to bring the West German economy back to life. First, he played a big role in the formation of a new currency. In addition, significant tax cuts have been made in an attempt to stimulate spending and investment.

The currency was planned to be introduced on June 21, 1948. Erhard also decided to play a highly controversial move on the same day. He was almost universally criticized for this decision.

The reasons for the German economic miracle

Researchers identify the following:

  1. The country, according to the Morgenthau plan, was demilitarized, respectively, no money was spent on armament and maintenance of the army.
  2. Sizable production capacity remains.
  3. The introduction of the latest technology led to a rapid increase in labor productivity, which was one of the foundations of the German economicmiracle.
  4. In the context of growing demand for food and consumer goods, light industry developed.
  5. Displaced persons have provided the country with relatively cheap labor.
  6. The influx of capital investments, including those under the Marshall Plan, contributed to the development of the economy.
Siemens after the war

Main Events

From the point of view of historical development, the German and Japanese economic miracles can be put on the same level. After World War II ended, both countries found themselves on the losing side, with hard-hit economies, occupied by the Allies. At the same time, they were able to recover, bypassing many of the victorious countries.

Looking briefly at the German economic miracle, it should be noted that it is a special type of economic system, the effectiveness of which was ensured by a combination of liberal market mechanisms and targeted credit and tax policies.

This system included a whole range of measures.

  1. 1949-1950 were a shock period: the money supply was reduced, prices were liberalized, which led to their growth and some increase in unemployment. The reforms were accompanied by some tough measures from the government. The volume of agricultural production began to increase, the role of animal husbandry increased.
  2. Since 1951, the revival of the economy begins. GDP growth was 9-10% (1953-1956 - 15%). Thanks to the growth of exports, the gold reserves were being formed.

Actually GermanThe economic miracle is associated with the rule of the CDU / CSU bloc, which was represented after the proclamation of the FRG by Konrad Adenauer, who headed the government. In 1963 this post was taken by Ludwig Erhard.

During the first five years the country's national income was doubled, in the next seven (by 1961) it was tripled. During this time, the income of the population has tripled, unemployment has significantly decreased (from 8.5% in 1949 to 0.7% in 1962).

Konrad Adenauer

Results

Almost overnight, West Germany came alive. Stores were immediately filled with merchandise as people realized that the new currency had value. Barter quickly ended; the black market has ceased to exist. People once again had an incentive to work, the glorified industriousness of the Germans returned.

In May 1948, the Germans missed about 9.5 hours of work a week, desperately wasting their time looking for food and other necessities. But in October, just a few weeks after the introduction of the new currency and the end of price controls, that number dropped to 4.2 hours a week. In June, the country's industrial production was about half its level in 1936. By the end of the year it was close to 80%.

production of Volkswagen cars

The European Recovery Program, better known as the Marshall Plan, also contributed to the rebirth of Germany and the development of the German economic miracle. This act, drafted by US Secretary of State George Marshall, allowed the United States to allocate $13 billion to European countries,victims of the Second World War, with a significant part of this money going to Germany.

The German economic miracle has been going on for years. By 1958, the country's industrial production was four times what it had been just ten years earlier.

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