The Unexpected Success of Postwar Germany

At the end of WWII, Germany was a wasteland: millions of young men had been killed in battle, civilians had been killed in bombing raids, the physical infrastructure - factories, water pipes, electrical and telephone wiring - was largely destroyed, and the nation’s economy was a disaster.

Hitler and his Nazi government had inflicted incalculable damage on the German people during the twelve years of their horrific dictatorship.

Many observers predicted that Germany would sink permanently into the ranks of the “third world” countries.

Konrad Adenauer became federal chancellor - Bundeskanzler - in 1949, and led the heroic efforts by millions of Germans to rescue central Europe from collapse. He was greatly aided by Ludwig Erhard, whom he appointed Bundeswirtschaftsminister: Minister of Economics.

The amazing recovery has become a standard example in textbooks about economics. Adenauer and Erhard, having persuaded the western Allies - England, France, and the United States - to return sovereignty to the Germans, set out a policy of reducing taxes and deregulating markets.

The Nazi policy of “national socialism” had dictated that the government should control the prices of everything from bread to shoelaces. Postwar freedom now meant that individual store owners could set their own prices, and customers were free to bargain.

The Encyclopedia Britannica describes the energizing effect of lower taxes and deregulated markets:

The West German currency reform that produced the western deutsche mark was a courageous act. It exchanged one deutsche mark for 10 obsolete reichsmarks; later the rate was slightly reduced. In one respect, the result was similar to that of Weimar’s hyperinflation; paper savings were suddenly devalued. This time, however, there was a limit to any losses. What was more, quite small quantities of the new currency would actually buy goods. When Ludwig Erhard, the economic director who had undertaken the reform, also dismantled price and other controls, the scene was set for the so-called Wirtschaftswunder, the German “economic miracle,” fueled by freedom and competition and the energy they released.

When Adenauer retired from the office in 1963, Erhard became chancellor and remained until 1966.

From 1949 to 1966, the two of them laid the foundations of economic prosperity, not only for Germany, but for central Europe generally, which has lasted for several decades. Much of what still exists in terms of a manufacturing base is running on the momentum of those years.

Economists see the resurrection of the German economy as paradigmatic for growth. David R. Henderson writes:

What caused the so-­called miracle? The two main factors were currency reform and the elimination of price controls, both of which happened over a period of weeks in 1948. A further factor was the reduction of marginal tax rates later in 1948 and in 1949.

Germany defied the expectations of the postwar world. When many economists thought that Germany would be relegated to a “third world” status, it instead became one of the most powerful economies, not only in Europe, but in the world.

Stunde Null - Rebuilding from Nothing

The end of the WWII is a major turning-point in the history of Germany. The end of the war meant the end of twelve years of Nazi oppression. The nation was largely destroyed, but it also had its first chance in a dozen years for constructive activity.

The devastation was immense: millions of Jewish Germans had been mercilessly murdered in concentration camps, joined by other victims like Gypsies, Jehovah’s Witnesses, and anyone who expressed political opposition to the Nazis.

Millions more had died when German cities were destroyed by bombs dropped from aircraft, and millions of young men had died on the battlefields. The German population was decimated.

Physically, the nation’s infrastructure was in shambles. Roads, electrical and telephone wires, and the pipes bringing water to houses were often non-functional. Buildings of all types had been destroyed.

The nation’s economy had also been gravely damaged by Hitler’s policies. The Nazis had controlled the prices of nearly anything that could be bought or sold, and taxed the people harshly.

Many observers assumed that Germany would permanently become a “third world” country, an ongoing economic disaster. As David R. Henderson writes,

After World War II the German economy lay in shambles. The war, along with Hitler’s scorched-­earth policy, had destroyed 20 percent of all housing. Food production per capita in 1947 was only 51 percent of its level in 1938, and the official food ration set by the occupying powers varied between 1,040 and 1,550 calories per day. Industrial output in 1947 was only one-­third its 1938 level. Moreover, a large percentage of Germany’s working-­age men were dead. At the time, observers thought that West Germany would have to be the biggest client of the U.S. welfare state; yet, twenty years later its economy was envied by most of the world. And less than ten years after the war people already were talking about the German economic miracle.

How did Germany rise from such devastation? Other nations have remained in the category of “developing world” without actually developing.

There are many complex aspects to Germany’s Wirtschaftswunder - its ‘economic miracle’ - including the cultural attitudes and ethics of central Europe. Self-discipline, focus, farsightedness, and societal emphases on education all played a part.

Additionally, the policies implemented by West Germany’s first chancellor, Konrad Adenauer, and his appointee, Ludwig Erhard, opened the door to economic growth. Simply put, they reduced taxes and reduced regulation.

Individuals were free to discuss the prices they wanted to pay. The give-and-take of talking about prices with local merchants revitalized the markets.

Lower taxes meant that opportunities arose for individuals to start their own small businesses and shops. Larger businesses could sell more because smaller businesses were thriving.

To understand why the Wirtschaftswunder was regarded as something like a miracle, we need to remember that Germany was rising from near-total destruction: millions of its people dead, its physical infrastructure demolished, and its economy shattered by years of Nazi socialist policies.

The time immediately after the war’s end, and immediately before the economic recovery, was called Stunde Null - the ‘zero hour’ - because it was almost as if history were starting over again. Germany had to rebuild itself from almost nothing.

Today, more than half a century later, economists still study the years of the Wirtschaftswunder - roughly 1949 to 1966 - as a landmark era of growth in world history. The Germans built one of the world’s most powerful economies from piles of rubble.