Around the world, many economists, historians, and political leaders expressed the view that Germany might find it impossible to rebuild. Many thought that Germany would be permanently relegated to a third-world status. Some observers believed that, if Germany could rebuild, it would take more than 100 years. The country had taken such a terrible beating that recovery seemed impossible.
Yet within a single decade, Germany would be the most powerful economy in Europe, and by many metrics, the second most powerful economy in the world. Commentators from other nations were amazed, as Lawrence White writes:
Germany became a role model for recovery from a very different crisis. In the aftermath of World War II, Germany’s cities, factories and railroads lay in ruins. Severe shortages of food, fuel, water and housing posed challenges to sheer survival.
In 1945, the situation was so desperate that many Germans starved to death. Millions of young German men had died in the war, and now their families were dying from a lack of food at home.
In the immediate postwar situation, the armies of the winning countries (The United States, France, Britain, and the USSR) had political and civil control over Germany. The Germans were not allowed to have their own government until late 1949.
At first, the postwar military occupational powers enforced the economic policies which were on the books at the end of the war — the Nazi policies. The word “Nazi” is short for “National Socialist,” and the Nazis lived up to that name.
The Nazis nationalized industries — the government seizing an individual’s property. This was the case, e.g., for two major aircraft companies, Junkers and Arado, and for two railroad systems, the Lübeck-Büchener Railway and the Brunswick Landes railway. The Nazi government also created the massive Reichswerke Hermann Göring, a government-owned and -operated industrial conglomerate. State-owned companies were a central part of the fascist control of Germany.
The other part of “National Socialist” is the socialist economic programs which the Nazis implemented. Although in their propaganda, the Nazis portrayed themselves as rescuing the German people from the evils of communism and socialism, the reality was that the Nazis imposed regulations which choked the free functioning of markets. Opposing laissez-faire economic systems is a cornerstone of socialist economics.
Accordingly, the Nazis imposed wage and price regulations. Only the government could set prices for merchandise, and only the government could determine how much workers would be paid. In this way, the Nazis controlled nearly every aspect of the economy.
The Nazis also imposed significant taxes on all Germans, which amounted simply to the confiscation of the property of ordinary working-class people.
Finally, the Nazis engaged in a “command economy.” They dictated how much of each product might be manufactured — no more, and no less, was allowed.
As strange as it may be, the four powers who controlled Germany after the war initially decided to keep the genocidal Nazi economic policies in place. After fighting a war to defeat National Socialism, the victorious Allies kept Nazi economic regulations in effect, as Lawrence White reports:
Unfortunately, occupation policy makers actually perpetuated the shortages by retaining the price controls the Nazi government had imposed before and during the war. Consumers and businessmen battled against the bureaucratic regime of controls and rationing in what the German economist Ludwig Erhard described as Der Papierkrieg — the paper war. Black markets were pervasive.
The downward death spiral of the German economy continued to worsen. The great recovery began only when Ludwig Erhard persuaded the military governors to allow the dismantling of Nazi policies. Erhard worked systematically to undo fascism: his policies reduced regulations, reduced taxes, and reduced government ownership of industries. People could freely negotiate wages and prices, and could decide for themselves how much of any given product they wanted to manufacture.
Ludwig Erhard was simply the anti-Nazi and anti-fascist economist. Whatever the Nazis had done to the economy, Erhard would do the opposite.
Within a year, the growth of the German economy was significant. Unemployment fell, wages rose, and the standard of living rose. German companies became more innovative than their European competitors. Economists coined the word Wirtschaftswunder — “economic miracle” — to describe the turnaround.
Erhard commented that there was no miracle, but rather merely the consistent and sound application of economic policies and principles. He explained that prosperity and freedom were coextensive. The undoing of the fascist control of the economy was simultaneously the introduction of social justice and the beginning of an economic rebirth. He wrote:
Das, was sich in Deutschland in den letzten neun Jahren vollzogen hat, war alles andere als ein Wunder. Es war nur die Konsequenz der ehrlichen Anstrengung eines ganzen Volkes, das nach freiheitlichen Prinzipien die Möglichkeit eingeräumt erhalten hat, menschliche Initiative, menschliche Energien wieder anwenden zu dürfen. Wenn darum dieses deutsche Beispiel über das eigene Land hinaus einen Sinn haben soll, dann kann es nur der sein, aller Welt den Segen der menschlichen Freiheit und der ökonomischen Freizügigkeit deutlich zu machen.
The rebirth of the German economy was also the rebirth of a truly democratic society. Justice demanded the undoing of Nazi policies, which brought about personal freedom and political liberty, as well as prosperity.
