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.
