The physical facilities of the nation were shattered: buildings and infrastructure were in some areas totally ruined, in other areas partially.
With the end of the war, and the end of Nazi oppression, the reader might think that this was the time that postwar rebuilding began. But things actually got worse after the war’s end, not better.
Although the German citizens were no longer held captive to Nazi subjugation, they were still shackled by Nazi economic policies. Ironically, those policies were continued by the western Allies.
England, France, and the United States continued those policies - high tax rates, regulated markets, government controls over wages and prices - perhaps partly in order to ensure that Germany remained weak.
In the first year or two after the war, these policies threatened to shape Germany into a “third world” country. Poverty increased, while worker motivation decreased. The economic environment lacked opportunity, predictability, and stability.
Historian Thomas Hazlett writes:
Yet the shocking reality was that war-scorched Germany was to face its greatest economic crisis in the years after 1945. The postwar devastation was the combined effect of two principal factors.
What drove Germany downward during these years? The effects of regulation and taxation, combined with an oversupply of money.
The Nazi government had printed huge amounts of cash, while rigidly regulating both prices and wages. This caused the buildup of inflationary pressure, which erupted at war’s end.
The Nazis could keep the economy functioning only through harsh repression, including draconian steps taken again the black market. Thomas Hazlett reports:
First, a tremendous inflation broke loose - the predictable result of prior history. Under the Third Reich, the German government had financed a colossal industrial build-up to accommodate the designs of the Nazi war machine. The tremendous industrial expansion was paid for with rampant monetary expansion. All the screws of the Nazi State had to be tightened to their breaking point to suppress the resultant inflation; the guns of the Gestapo turned on black marketeers and others who sought to evade the officially posted prices of goods and services. The result of the effective price controls under Fascism was the explosion of liquidity after Fascism.
Ironically, it was the black market which kept much of the country alive. It functioned after the visible economy collapsed.
The steps which eventually brought the German economy back from the brink of “third world” status began with Adenauer’s ability to persuade the western Allies that the Germans needed some sovereignty, including economic sovereignty, over their own country.
Adenauer had been elected chancellor in 1949. After the western Allies gave the German government some control over the national economy, Adenauer’s key economic appointee, Ludwig Erhard, masterminded policies of deregulation, lower tax rates, and currency reform.
Konrad Adenauer was chancellor from 1949 to 1963; Ludwig Erhard succeeded him in office and remained until 1966. Between the two of them, they unleashed the market forces which pulled Germany back from the brink of permanent “third world” status.