Ludwig Erhard’s German Economic Miracle: Free Markets Create Social Justice

A student taking a serious economics class — one with lots of equations and graphs and charts — might be forgiven for wondering how economics could relate to the popular phrase “social justice.”

Another student, taking a superficial economics class — fewer charts, graphs, and equations, but more focus on policy and politics — will quickly see the connection to “social justice,” but will justifiably wonder if economics has any claim to academic rigor or intellectual respectability.

Ludwig Erhard showed that market economies lead to social justice, and that property rights lead to civil rights. He showed that when suppliers are free to creatively meet demands and consumers are free to choose, all parties in the marketplace benefit.

Alexander Kluy, writing in the Frankfurter Rundschau, summarizes Erhard’s thought with the slogan je freier, desto gerechter, roughly “more freedom means more justice.”

Who was Ludwig Erhard? A researcher, an academic, and a professor of economics, he was associated with two groups — the Freiburger Kreis and the Freiburger Schule — both of which opposed Hitler’s National Socialism. If free markets and property rights create social justice and civil rights, then Hitler embodied the opposite principle: regulated markets, price controls, govern-owned industries, and high rates of taxation led to war, genocide, oppression, and death.

The word ‘Nazi’ is an abbreviation of ‘National Socialism.’

Members of these two resistance groups — the Freiburger Kreis and the Freiburger Schule — took serious risks in opposing National Socialism, and some were in fact rounded up by the Gestapo and later executed.

At the war’s end, Germany was in a situation called Stunde Null: the “zero hour” of a massive economic reset. The nation’s infrastructure was almost entirely gone: roads, bridges, running water, sewage systems, telephone lines, electrical service, etc. Civilian Germans had died during air raids, Jewish Germans had died in concentration camps, and young Germans had died on battlefields. This devastation was the result of National Socialism.

Some observers speculated the Germany would be permanently relegated to a third world status.

After the war ended in May 1945, Ludwig Erhard and others worked to undo Nazi policies. They worked to deregulate the economy, reduce tax rates, and privatize industries previously owned by the National Socialist government.

In 1949, when control of West Germany moved from occupational armies to a freely-elected government, Konrad Adenauer became the country’s first chancellor, and he appointed Ludwig Erhard as Bundesminister für Wirtschaft, the federal minister for economics.

From the late 1940s to the early 1960s, Erhard was largely responsible for the Wirtschaftswunder — the “economic miracle” which lifted Germany to the status of the strongest economy in Europe, and the leading manufacturer in Europe.

As Alexander Kluy writes, Erhard was associated with prosperity in the public imagination. He had given the nation hope, and he had given it the vision and opportunity to rebuild through hard work:

Der dicke Mann mit der Zigarre war zum Monument geworden in einer fragmentierten Gesellschaft. Kaum jemand verkörperte das Wirtschaftswunder-Deutschland so wie Erhard (1897-1977). Der exponentiell ansteigende Wohlstand der 1950er und 1960er Jahre in der Bundesrepublik ist auf das Engste mit dem Namen des Kaufmannssohns aus Fürth verbunden. Wohlstand für Alle, Titel seines erfolgreichsten Buches, wurde zum Signum einer Ära, zum Schlachtruf der Christdemokratischen Parteien, die in vielen Wahlkämpfen auf Erhards rhetorische Begabung, seine Reputation als Ökonom setzten und in den Fünfzigern mit dem bestechenden Satz »Erhard hält, was er verspricht« auf Wahlplakaten warben.

For Erhard, creating economic justice in the wake of Nazi oppression was a central task. From his Freiburg days, he used the concept of der sozialen Marktwirtschaft. The German language contrasts sozial, meaning something like “socially conscious,” with sozialistisch, meaning socialist.

The postwar government rejected the national-sozialistische government of Hitler, and instead implemented Erhard’s soziale Marktwirtschaft.

Erhard explained that a market economy is socially conscious because, as suppliers seek to sell to every demand, then every consumer benefits from the competition to offer better products at a lower price. Everyone is a consumer, and everyone is part of the economy’s aggregate demand. In a competitive market economy, every supplier wants to meet as many demands as possible, and suppliers will lower their prices and raise quality in order to sell to those demands.

A market economy creates social justice because it improves the standards of living for everyone in the nation, as Alexander Kluy writes:

Sie sei sozial gewesen, weil sie den Verbrauchern und somit allen nützte. »Die Lösung liegt nicht in der Division, sondern in der Multiplikation des Sozialprodukts«, so Erhard. Bedürftigkeit werde durch Wachstum beseitigt, Ungleichheit durch Wachstum irrelevant. Der Markt sei sozial, weil er die Bedürfnisse der Menschen befriedige und ihren Lebensstandard anhebe.

In 1963, Konrad Adenauer stepped down, and Ludwig Erhard became Chancellor of West Germany. But Erhard’s most significant work was already done by that time. His chancellorship was an afterthought. Between early 1947 and October 1963, Erhard was the brilliant economist who created postwar Germany.

Undoing the Bureaucracy of Nazi Oppression: Ludwig Erhard Dismantles Hitler’s Apparatus

When the European part of WW2 ended in May 1945, Germany faced its Stunde Null — its “zero hour” when it had to restart an entire nation from nothing. Although relieved to be liberated from the oppression of the Nazi government, the Germans were living in conditions which threatened to permanently relegate the country to a third world status.

The physical infrastructure was almost entirely gone: telephone, radio, paved roads, bridges, railways, water supply, sewage systems, etc., functioned only sporadically in a few places. The food supply was devastated: some Germans actually starved to death.

The population was utterly traumatized: although the term ‘PTSD’ wasn’t invented until decades later, it would have accurately applied. German civilians had died in air raids, German Jews had died in concentration camps, and German young men had died on battlefields.

Germany needed to rebuild, but it also needed leaders who were untainted. It looked for gifted and qualified individuals who had not been a part of the National Socialist regime. The word ‘Nazi’ means ‘National Socialist’ and encapsulates Hitler’s political ideology.

Individuals who had resisted Hitler’s National Socialism were sought and found to lead the new postwar Germany. Konrad Adenauer became the country’s first chancellor, and Theodor Heuss was vice chancellor.

Perhaps the greatest and most brilliant postwar leader in Germany was Ludwig Erhard, who courageously defied the National Socialists, as Charles Moritz’s Current Biography Yearbook notes:

In 1944 Erhard, forseeing the collapse of the Nazi regime, formulated an elaborate plan for the economic rebuilding of postwar Germany on liberal principles. The program was based on the premise — considered treasonable in the eyes of the Nazis — that Germany would be totally defeated in the war. Erhard sent copies of this document to several trusted friends, including Dr. Carl Friedrich Goerdeler, a former mayor of Leipzig. Goerdeler, who was later executed for his role as a leader in the anti-Hitler plot of July 20, 1944, had slated Erhard for a Cabinet post in his projected post-Nazi government. Fortunately for Erhard, the Nazi authorities neer saw his incriminating economic plan.

Ludwig Erhard represented the opposite of Hitler’s National Socialism. Where the Nazis wanted high taxes, Erhard lowered them, after he became Bundesminister für Wirtschaft — Federal Minister for Economics — in September 1949.

Where Hitler demanded that the central government control wages and dictate retail prices, Erhard created a market economy, in which customers and businesses were free to set prices, negotiate, and make mutual compromises to establish prices and wages beneficial to both sides.

The Nazis had demanded government ownership of certain economic sectors. Ludwig Erhard released those sectors so that individuals and groups could own their own small businesses, or own shares of larger companies.

The result of Erhard’s work was an amazing economic rebound. Many observers had guessed that Germany would be perpetually downgraded to the status of a third world country. Instead, the nation experienced the Wirtschaftswunder — the economic miracle. Standards of living and income levels rose for all citizens, and especially for those at the bottom of the wage scale.

Within less than a decade, Germany went from being the weakest economy in Europe to being the strongest. It soon became the second strongest industrial power in the world. Ludwig Erhard deserves credit for much of this advancement.

Erhard’s insistence that ordinary individuals in the lower and middle classes be able to own and operate their own small businesses, and be able to purchase shares of larger companies, gave significant opportunities to German workers. He undid the Nazi policy that decreed that certain industrial sectors must be owned by the government.

Not only did this privatization create chances for ordinary people, but it also improved the efficiency and quality of industrial manufacturing. Historian Germa Bel writes that the word ‘privatization’ itself was created to describe Erhard’s policies and their implementation:

The Oxford English Dictionary (second edition, 1989, volume XII, p. 521) suggests that the earliest written record of the word “privatization” in English occurred in 1959. On July 28, the British newspaper News Chronicle reported: “Erhard selected the rich Preussag mining concern for his first experiment in privatisation.” Ludwig Erhard was at that time Vice-Chancellor and Minister for Economic Affairs of the German Federal Republic. However, the compilations of Erhard’s writings and speeches around this time do not include the word “privatization” (Erhard, 1958, 1963). The OED (volume XIII, p. 666) also suggests that “reprivatize” was used in 1959. The April 4, 1959, issue of The Economist gave information about the first sale of state-owned shares of the Preussische Bergwerks- und Hütten AG, commenting: “A whole series of political and legal hurdles will have to be taken before the way is clear to denationalize, or reprivatise, in earnest” (CXCI, 6032, p. 53).

There were certainly other thinkers who contributed to Germany’s Wirtschaftswunder: in addition to Adenauer and Heuss, American economists like Walter Heller and Lewis H. Brown, and American officials like George Marshall and Lucius D. Clay played a role in the reconstruction of Germany.

Without Erhard, generations of people would have been subjected to misery and poverty. The brilliant economy of Germany in the second half of the twentieth century would have been impossible without the policies and actions of Ludwig Erhard.

Ludwig Erhard, the Man Who Saved Germany

In mid-1945, Germany was a devastated nation, and was in danger of permanently becoming a third-world country. The war had ended in May, and while the people were relieved to liberated from Nazi oppression, they were desperate for the basic necessities of life: food, water, clothing, housing, and medicine.

The nation was mostly destroyed. German civilians had died in bombing raids. German soldiers had died on the battlefields. German Jews had died in concentration camps.

The physical condition of the country was pathetic. Thousands of houses, stores, schools, churches, and factories had been demolished. Infrastructure was mostly gone: there were hardly any usable roads or bridges. Electricity, running water, sewage systems, and telephone systems were mostly absent.

The Nazi government was gone, and the country was ruled by the occupational armies of the four victorious Allies: England, France, the Soviet Union, and the United States. While these four countries had defeated the Nazis, they oddly kept Nazi regulations in effect.

The Nazi policies were responsible for death and destruction on a massive scale. Those policies included high taxes and government controls on wages and retail prices. The government dictated exactly how much each worker would earn and exactly what the price of retail goods would be.

Of course, the word Nazi is an abbreviated form of ‘National Socialism’ which was the official name for Nazi policy.

With these policies still in place, even though the Nazis who implemented them were long gone, the German people had no chance to recover from the damage the Nazis had done to them.

There was, however, one man who saw a path to recovery. Ludwig Erhard had been a professor of economics, a business analyst, and a dedicated opponent of the Nazis. He had risked his life by networking with those who attempted to assassinate Hitler.

This moment in history is known as Stunde Null, the zero hour, the gigantic reset of the German economy. It had been almost entirely destroyed, and something new would have to be put in its place.

Erhard saw that, with the war over, Germany’s chance to succeed would be found in a complete rejection of the Nazi policies. Erhard first had to convince the Allied occupational officers to abandon the high taxes and regulated markets which were the core of Nazi policy.

A skeptical American army officer was willing to give Erhard a chance. In June 1948, Erhard headed the introduction of new economic policies. Taxes were reduced. He worked energetically and thoroughly to eliminate government regulations on any type of buying, selling, or other business activity.

The result was the Wirtschaftswunder — the economic miracle. The nation which had been in danger of being permanently a third-world country was now prospering. The quick rise of the German economy amazed people around the world. Charles Moritz’s Current Biography Yearbook notes:

Under Erhard’s guidance, the West German economy continued its upward trend. Aided by generous tax concessions, reductions in tariffs and import duties, and the absence of controls, manufacturers steadily increased their output, and by 1952 production had passed the prewar peak of 1938. During Erhard’s fourteen years as Economic Minister, West Germany became the second industrial power and the third trading nation in the world. Exports increased by 700 percent to a total of $14 billion; unemployment practically disappeared; the German mark became one of the world’s most stable currencies.

Ludwig Erhard had brought Germany from a zero to a leading economic power in the world. It would have been amazing for any nation to do this, but for a nation which had been utterly destroyed only a few years before, the meteoric rise seemed miraculous.

The currency used in Germany at that time, die Deutsche Mark, became a valued international currency, and Germany’s industrial output was second only to the United States.

For the German people, who’d suffered under more than a decade of Nazi dictatorship, the sense of freedom and sense of prosperity were euphoric, and were due largely to Ludwig Erhard.

Companies Value German Training Systems: Manufacturers Replicate German Employee Coaching Models

An article in a January 2020 edition of Industry Week explains “why CLAAS of Omaha chose a German-based apprenticeship program.” In the article, journalist Adrienne Selko notes that “For 100 years, and still going strong, the German apprenticeship program has been a successful tool in providing precise training that manufacturing companies need.”

CLAAS is a global manufacturer of light, medium, and heavy machinery.

Like many successful manufacturers, CLAAS has a steady demand for skilled workers. But while there is a pool of unskilled labor, highly-skilled craftsmen and machinists are difficult to find. So CLAAS decided to train its own rather than search for them.

“CLAAS Omaha Inc. joined another German company with operations in Omaha to become the first companies in the state to participate in the German Dual Study Apprenticeship Program.” In this, Nebraska is joining other states which are adopting German job-training patterns.

Economists and policymakers are following the German model in many regions within the United States.

“This program has been the backbone of the German economy,” explains Matthias Ristow, president of CLAAS Omaha Inc. “They must be doing something right. So we adapted this program to our local needs. It’s a high standard of learning.”

Many American industries cannot find enough tool and die makers. The nation needs to find a way to produce more skilled machinists. To remedy the shortage of skilled and highly-skilled labor, many regions are embracing the German training methods.

Under the name “Industrial Consortium for Advanced Technical Training” (ICATT), this way of giving skills to workers has been implemented in Texas, Michigan, Florida, Wisconsin, Nebraska, and other states.

There is a large and increasing demand for welders, electricians, and other trades. Parallel with advances in technology, precision tool and die making is necessary in many industries.

The program, called ICATT Apprenticeship, which was established by the German American Chamber of Commerce, is a dual study work-based education model that combines classwork with on-the-job practical experience.

This new wave of training is a welcome development. Previously, training was in decline. “Since 2008, the number of apprentices” had “fallen by nearly 40 percent, according to a Center for American Progress study,” states a report by the Aerospace Joint Apprenticeship Committee in early 2014.

That decline had continued for approximately six years, from 2008 to 2014. Now there is a revitalization in job training. A steady demand for workers is the result of, and at the same time necessary to sustain, a recovery of the nation’s manufacturing base.

Global Trade Dynamics Fuel Increased Demand for German-Speaking Professionals

An article appeared in the Independent in April 2019, written by Alan Jones, under the headline “German Overtakes French as the Language Most Sought-After by Employers.” The article was distributed by the Press Association.

Given the role of Switzerland and Austria in the global economy,

German has overtaken French as the language most sought-after by employers, amid fears that companies face a shortfall of linguists, new research suggests.

The international trading presence of Germany, Austria, Switzerland, and the other German-speaking countries is on a par with that of the United States and China.

To that can be added Luxembourg and the German-speaking regions of Belgium. Employment opportunities on websites, like Indeed.com, show a strong uptick in jobs requiring a knowledge of German:

Jobs site Indeed said vacancies specifying German language skills increased by more than a tenth over the past three years, compared with only a slight rise in demand for French speakers.

The changing variables in the world’s trading markets — from Brexit to America’s interest in expanding its non-Chinese trade relationships — are fueling an increased demand at all levels and in all sectors for workers and professionals who have a working knowledge of the German language.