Millions of families were homeless. There were shortages of clothing, paper, electricity, fuel, clean water, and nearly everything else. The food supply was on the very brink of a mass famine, and in fact, some people did die from pure starvation.
What partially contributed to creating these conditions, and what was solely responsible for keeping these conditions in place, were the brutal economic policies of Hitler’s National Socialist government. Nazi economics oppressed the ordinary people and kept them in poverty.
What were the policies which the Nazis used to brutalize the population? High rates of taxation; prices for retail goods set and enforced by the government; wages set and enforced by the government; government-organized monopolistic ‘cartels’ of industrial firms; and an ever increasing number of state-owned businesses and institutions gradually replacing private-sector businesses and institutions.
These measures, taken by Hitler’s government, flowed organically from Nazi ideology: The word ‘Nazi’ means ‘National Socialist.’
When the war ended in May 1945, the National Socialists, their government, and their policies were gone, but the damage remained. How could Germany recover? How would it rise above its third-world condition?
Although there were many people involved in re-thinking the nation’s economy, and millions of people involved in re-building it, a few key individuals provided a powerful vision to lead the effort. Chief among them was Ludwig Erhard.
One aspect of Erhard’s logic was simple and obvious: undo what the Nazis had done. Where the Nazis had wage and price controls, Erhard opted for free choice by individuals to negotiate. Where the Nazis had high taxes, Erhard opted for low taxes. Where the Nazis had monopolistic cartels, Erhard freed the businesses to act independently of each other, to compete, and thereby to offer better products at lower prices. Where the Nazis favored government-owned industries, schools, and businesses, Erhard allowed for private-sector ownership of businesses and institutions.
The effects of Erhard’s policies were significant and immediate. Wages and standards of living rose quickly, and rose most for the lower- and working-class. Low taxes and unregulated free markets offered opportunities for the unemployed and for blue-collar workers. Alexander Kluy, writing in the Frankfurter Rundschau, notes:
Friedrich von Hayek, de[r] Theoretiker einer radikal freien Marktwirtschaft, soll ihn einmal nach seinem Konzept gefragt haben und berichtete, dass Erhard antwortete: “Ich hoffe, Sie missverstehen mich nicht, wenn ich von der sozialen Marktwirtschaft spreche. Ich meine, dass der Markt an sich sozial ist, nicht dass er sozial gemacht werden muss.” Erhard konkretisierte diesen Gedanken: “Je freier die Wirtschaft, umso sozialer ist sie auch.”
The creation of equal opportunity is intrinsic to a market economy. Equal opportunity inherently favors the lower classes, inasmuch as the upper classes don’t need opportunities, having already had theirs.
Erhard saw that a free market economy would create prosperity for all social classes. When buying, selling, and hiring were continuously happening in millions of individual decisions, with individually negotiated prices, wealth circulated more freely to various parts of the economy.
Oddly, the western Allies (England, France, and the United States) at first wanted to keep West Germany under a continuation of Nazi policies. Erhard had to convince not only his own fellow Germans to adopt freer policies, but he also had to convince the occupational governors.
Regulations, and government-dictated wages and prices, kept wealth from flowing through different sectors of the economy. Erhard worked with great focus to increase every aspect of economic freedom, as Alexander Kluy reports:
Nur der Markt könne den Wohlstand gerecht verteilen. Dies war der freiheitliche Grundgedanke, den er mit enormer Energie und unbändigem Optimismus zwischen 1946 und 1949 gegen Widerstände von allen Seiten durchfocht, selbst gegen die Alliierten, die sämtlich lieber eine gelenkte Volkswirtschaft gesehen hätten als eine Umsetzung von Erhards Vision, seinem Glauben an freies Unternehmertum und Deregulation und seine Ablehnung von Planung und wettbewerbsfeindlicher Kartelle.
The results of Erhard’s policies – he was appointed minister of economics by Germany’s first postwar chancellor, Konrad Adenauer – were so profound that they were called the Wirtschaftswunder - the ‘economic miracle.’
It is no exaggeration to say that, at its worst, Germany’s status was that of a third-world nation. From late 1945 until early 1948, Germany’s economy and standards of living could have quite accurately been compared to some of the most desperate regions of Africa, Asia, and South America.
Ludwig Erhard was began implementing his policies in late 1948 and early 1949. Within a decade, Germany’s economy had risen to be one of the top five in the world. It was a major exporter and importer. Its working class enjoyed a high and ascending standard of living. Ironically, Germany’s economy surpassed those of England and France.
Erhard demonstrated that a free market not only creates prosperity, but it does so with a sense of justice for the blue-collar workers of the middle and lower classes.