Postwar Economic Thought Develops

Following the end of WW2, Germany was in shambles, a country nearly totally destroyed. Millions of men had died in combat; millions of civilians had died at home from bombing raids; millions of Jewish Germans had died in the horrors of the Holocaust.

Physically, the nation was a wreck. Roads, water pipes, sewage pipes, telephone lines, bridges, railroads, and electrical power lines were greatly damaged in some places, and nonexistent in other places.

Economically, the nation had been ravaged by the viciousness of the Nazi government. High rates of taxation burdened the citizens, a centralized bureaucracy dictated the exact price for everything from bread to butter, wages for any job from surgeon to barber were determined by the central government, and large quantities of money had been printed rapidly.

Hitler’s government had inflicted economic atrocities: innocent civilians, in some cases, starved to death.

At war’s end, Germany began to regain its freedom. The Nazi oppressors were gone, and although the western Allies were at first hesitant, they eventually allowed German citizens to obtain the civil rights which they hadn’t had in over a dozen years.

(Sadly, the one eastern Ally - the USSR - kept Nazi policies in place in the eastern sector of Germany.)

As freedom reappeared in West Germany, so did debate. People finally had the liberty to express opinions. One question was about the future of the German economy.

The aftermath of Hitler’s dictatorship left the Germans facing massive inflation - the quick increase of prices, making it difficult for ordinary people to purchase the necessities of daily life.

Historian Thomas Hazlett describes the exciting intellectual discussions of the era:

Meanwhile, an exciting intellectual debate roared in the academic institutions and councils of government, exploding from its previously suppressed condition in an inflationary blast mirroring the flare-up of prices. Out of the haze of viewpoints emerged two predominant schools of thought: the Social Democrats and the “Freiburg School.”

The Social Democrats, whose party was known as the SPD, favored a return to the Nazi’s “national socialism,” with governmental control over prices and wages. The SPD wanted high taxes and government regulation of the marketplace.

The Freiburger Schule wanted to reduce the government’s control, and let ordinary people make decisions about how much they wanted to pay for products, and about which wages they wanted in their places of work.

It would be the Freiburger Schule which eventually won. Konrad Adenauer, Germany’s first postwar chancellor elected in 1949, appointed Ludwig Erhard, a leader of the Freiburg movement.

Quickly, Erhard set about reducing government regulations. The result was the Wirtschaftswunder - the “economic miracle,” which was no miracle at all, but rather the replicable and predictable laws of economics in action.

Soon, Germany’s economy was one of the strongest in Europe, and one of the strongest in the world, thanks to the concept of deregulation and lower taxes. From the horrors of wartime destruction, modern Germany had been reborn.

Alienation and Identity in Kafka

Kafka lived in a tension between a cultural Judaism and a cultural Christianity in Prague shortly after the turn of the century. The adjective ‘cultural’ is used because this particular tension had little or nothing to do with the theological propositional content of the two faiths.

While there certainly are other tensions which do directly connect to the beliefs and assertions of the two creeds, Kafka’s predicament manifested itself most directly in concrete social situations. Among Kafka’s peers, the two main responses to this tension were either a self-ghettoizing orthodoxy or a modernistic assimilationism.

Like Kafka, author Fritz Mauthner went through the educational system in Prague. Concerning his spiritual formation, Mauthner wrote:

So bestand unser jüdischer Religionsunterricht aus zwei unzusammengehörigen Hälften: aus der moralisierenden Religionslehre, die für die Dümmsten unter uns zu dumm war, und aus einem Praktikum der semitischen Philologie, das manchem gelehrten Orientalisten noch Nüsse aufzuknacken gegeben hätte. Die wir uns längst als jüdische Deutsche fühlten oder als deutsche Juden, gewöhnten uns mit den Jahren daran, an diesem Unterrichte so selten wie möglich teilzunehmen; wir erlangten eine Virtuosität darin, die Religionsstunde zu schwänzen.

While Mauthner accurately describes the situation, his response to it was different than Kafka’s. While Mauthner shrugged it off in favor of agnosticism, Kafka lived in the tension and felt pulled in two directions.

Kafka internalized the conflict. We can see this, e.g., in the text of Die Verwandlung, when three bearded borders rent living space in the Samsa family home.

The long beard is a visual symbol for orthodoxy. The full beard was worn by every, or nearly every, orthodox adult male Jew in Prague, and very few men outside of orthodoxy would have such a full beard in the early 1900s in that city.

The borders are in the same house as Gregor Samsa, just as Kafka lived in the same town with a large orthodox population. But they do not establish any personal relationship with Gregor, and emit an attitude of disapproval toward him, just as Kafka was not included in the orthodox community.

Simultaneously, Kafka felt little kinship with the assimilationists. When his father referred his Bar-Mitzvah as a Confirmation, Kafka was disappointed, as Klaus Wagenbach notes.

The assimilationists sought to minimize any conspicuous visible differences between themselves and the gentile majority in Prague. Assimilationism focused on externals, because externals created the perceptible distinctions between Jews and Gentiles.

Kafka dismissed his father’s assimilationism as purely a business ploy, smoothing relations with Gentile clients, vendors, and coworkers. For Kafka, assimilationism was inauthentic, hypocritical, and insincere.

He therefore found himself in a sort of spiritual “no man’s land.” He belonged neither to orthodoxy nor to assimilationism. He demonstrated some affinity toward Christianity: Christmas is mentioned three times in Die Verwandlung.

But the cultural barriers between Kafka and Christianity were even greater. The actual propositional content of Christianity was less problematic than the cultural trappings in which that content was packaged.

Much of Kafka’s thought was not far from Christian doctrine, as some passages in Betrachtungen über Sünde, Leid, Hoffnung und den wahren Weg show. But it was social barriers, not theological ones, which prevented him from exploring these potential connections.

Kafka was thus alienated from the Judaism which should have been his by birth, and alienated from the Christian doctrines with which he sometimes flirted. Alienation led to diminished identity: if he wasn’t a Jew or a Christian, what was he?

He felt therefore like an ungeheueres Ungeziefer - something which doesn’t belong. This phrase is notoriously complex, and many have commented on it, but it will suffice to note that ungeheuer can mean ‘very large’ and geheuer can mean ‘secure’ - Gregor Samsa was too large to belong in his family home, and was not something secure or safe.

Tax Reform, Currency Reform, and Deregulation: Recipe for an Economic Miracle

To even attempt to reconstruct Germany from the near-total devastation of WW2 was an audacious thought. Millions of civilians had died in bombing raids, millions of young German men had died in combat, and millions of Jewish Germans had died in Hitler’s horrific genocide.

Physically, the nation’s infrastructure was utterly shattered: roads, telephone lines, electrical power lines, water pipes, sewage pipes, bridges, and roads were in many places nonexistent.

The economy had been smothered by Nazi policies of wage control and price control: the government had dictated the exact price of nearly every retail product from bread to bedsheets, and had dictated the exact wage of everyone from teachers to dentists.

Hitler had further damaged the economy by printing huge amounts of money: this was how the Nazi government paid for its war efforts. Further, the German civilians had suffered under crushing taxes.

The victorious western Allies kept these Nazi policies in place at the war’s end in May 1945. In the east, the Soviets established a socialist dictatorship which ended any hopes for personal freedom or individual political liberty.

In the West, the Allies - France, Britain, and the United States - retained Hitler’s economics, in part because some of them wanted to ensure that Germany would remain weak. The French in particular were vindictive. The British wanted to continue the damaging policies because they had not realized how utterly such policies would prevent any form of growth or prosperity. Among the Americans, some agreed simply because they didn’t know what to do, and because they wanted to get along with the other Allies. Some Americans, like Henry Morgenthau, wanted to utterly dismantle Germany’s industrial base, and keep it permanently in the ‘third world’ status.

Eventually, the Allies saw that a strong West Germany was the only effective defense against the Soviet Union. The USSR was ready to expand westward, and West Germany was the first line of defense. A weak West Germany would have been quickly overrun by the Soviets.

Gradually, the Allies turned control of the country over to the Germans. Initially, in 1945, the occupying Allied armies controlled everything in the country. By 1949, the Germans were able to elect their first chancellor, Konrad Adenauer, and operate with near-complete independence. The Allies retained some influence, but let the Germans, for the most part, run their own country.

As the Germans regained control of their own country, they worked to shed the economic policies which had caused so much suffering. Freedom returned to ordinary transactions: merchants were free to set prices, and consumers free to bargain.

The oversupply of currency was reduced. Currency oversupply had created inflationary pressures, which had been kept in check only by wage and price controls. But those controls, in turn, had given rise to widespread black market activity.

Concurrent with this deregulation and currency reform, a third aspect of Germany’s economic rebirth was tax reform, as David Henderson explains:

Along with currency reform and decontrol of prices, the government also cut tax rates. A young economist named Walter Heller, who was then with the U.S. Office of Military Government in Germany and was later to be the chairman of President John F. Kennedy’s Council of Economic Advisers, described the reforms in a 1949 article. To “remove the repressive effect of extremely high rates,” wrote Heller, “Military Government Law No. 64 cut a wide swath across the [West] German tax system at the time of the currency reform.” The corporate income tax rate, which had ranged from 35 percent to 65 percent, was made a flat 50 percent. Although the top rate on individual income remained at 95 percent, it applied only to income above the level of DM 250,000 annually. In 1946, by contrast, the Allies had taxed all income above 60,000 reichsmarks (which translated into about DM 6,000) at 95 percent. For the median-­income German in 1950, with an annual income of a little less than DM 2,400, the marginal tax rate was 18 percent. That same person, had he earned the reichsmark equivalent in 1948, would have been in an 85 percent tax bracket.

Adenauer appointed Ludwig Erhard to address economic policy. Together, Adenauer and Erhard took Germany from its Stunde Null - its ‘zero hour’ and historic reset after the war’s destruction - to its Wirtschaftswunder - its ‘economic miracle’ which is not a violation of natural laws, but merely the predictable and replicable application of the laws of economics.

In less than a decade, Germany went from a likely candidate for permanent ‘third world’ status to the most powerful and quickest-growing economy in Europe, and one of the most significant economies in the world.

The Struggle for Economic Freedom: Postwar Germany

The end of WW2 in May 1945 brought freedom for the Germans. A dozen years of ghastly atrocities inflicted by the Nazi government were over. The people would finally be able to experience liberty.

Or so it seemed.

But freedom didn’t arrive easily or quickly.

The eastern portion of Germany was swallowed up into a Soviet socialist dictatorship. Freedom wouldn’t arrive for another 45 years in that place.

The western portion was governed by occupying military powers: French, English, and American. Although these western Allies represented liberty, they kept Hitler’s economic policies in place. These were the policies which enslaved the people and fueled the horrors of the Holocaust.

Nazi economics were based on high rates of taxation, government control of wages and prices, and a huge money supply. The Nazi government dictated the retail prices of everything from bread to shirts, and it dictated the wages of everyone from taxicab drivers to engineers. There were no free choices for consumers.

To pay for its war efforts, the Nazi government printed huge amounts of money. Oversupply of money causes hyperinflation. The Nazis avoided hyperinflation by strict price controls, which led, however, to shortages of retail goods.

The occupying Allies kept this system in place for several years after the war’s end. Historian Thomas Hazlett writes:

The Allies were thorough in their regulation of Germany. Censorship was so tight, for example, that James T. Farrell’s popular novel Studs Lonigan was declared contraband. The victors attempted to administer the economy through a patchwork assortment of price regulations, allocation details, and rationing. In the fall of 1946 the mechanism had reached bankruptcy, the officially rationed food allotment being under 1,500 calories per person per day. Ludwig Erhard was to report: “All attempts at mending matters were frustrated, not only by the prevailing conditions of devastation, exhaustion and disruption, but also by the supposed experts, in and outside Germany, clinging tenaciously to their reliance on controls. The people worked on doggedly, tormented by hunger and exasperated by zonal restrictions, corruption and the black market.”

The Allies gradually allowed the Germans to form their own civilian government. Ludwig Erhard and others persuaded the Allies to let the Germans form their own economic policies.

In 1948, Erhard oversaw a radical currency reform, in which the amount of money in circulation was significantly reduced. At the same time, Erhard phased out wage and price controls.

This was the turning point which allowed Germany to rescue itself from become a permanent member of the ‘third world’ group of nations. This was Stunde Null - the ‘zero hour’ of a massive economic reset. This was the beginning of the Wirtschaftswunder, which was not an ‘economic miracle,’ but rather the predictable and replicable results of economic laws.

In a single decade, Germany would rise to be the strongest and largest economy in Europe, and one of the most powerful economies in the world.

Germany's Big Choice: Postwar Economics

After WW2 ended in 1945, the USSR controlled the eastern part of Germany, and imposed there a socialist dictatorship. The western Allies - England, France, and the United States - administered the western side of the country.

Over the next several years, the western Allies gradually turned control over the Germans, who began to govern themselves. In 1947 and 1948, the Germans were making important decisions about economic policy, but the Allies still had the final power to approve or reject any legislation.

One central question faced the Germans: should they continue the economic policy of control, which the Nazis had imposed on the them in the 1930s and which the Allies had continued to impose at war’s end? This policy meant that the government dictated the retail price of everything from shoelaces to paint, and dictated the wages of everyone from the gardener to the surgeon.

This policy also included high rates of taxation. The combined effects of price controls, wage controls, and high taxes had inflicted misery on the Germans for over a decade.

Ludwig Erhard was an economist who’d opposed Hitler’s government during the war, and now, in peacetime, wanted to free people from the last vestiges of Nazi oppression. The Germans debated among themselves about how to move forward, as David Henderson writes:

Ludwig Erhard won the debate. Because the Allies wanted non-­Nazis in the new German government, Erhard, whose anti-­Nazi views were clear (he had refused to join the Nazi Association of University Teachers), was appointed Bavarian minister of finance in 1945. In 1947 he became the director of the bizonal Office of Economic Opportunity and, in that capacity, advised U.S. General Lucius D. Clay, military governor of the U.S. zone. After the Soviets withdrew from the Allied Control Authority, Clay, along with his French and British counterparts, undertook a currency reform on Sunday, June 20, 1948. The basic idea was to substitute a much smaller number of deutsche marks (DM), the new legal currency, for reichsmarks. The money supply would thus contract substantially so that even at the controlled prices, now stated in deutsche marks, there would be fewer shortages. The currency reform was highly complex, with many people taking a substantial reduction in their net wealth. The net result was about a 93 percent contraction in the money supply.

The debate about the money supply had been a technical one: until 1945, the Nazi government had financed its aggression by printing currency which it used to pay for war supplies. This massive flood of currency would have led to hyperinflation, but the Nazis prevented that by using strict price controls. The price controls tamed inflation, but led instead to extreme shortages.

So, if money supply was the first part of the debate, price controls were the second part. Both were important, but price controls were more easily seen as a direct attack on personal freedom. The German people had been tormented by over a decade of totalitarian controls in which the government dictated the prices on all retail goods.

Ludwig Erhard saw deregulation of the market not only as an economic step toward growth, prosperity, and the rebuilding of a nation destroyed by war, but also as a step toward personal freedom and individual liberty. Consumers were free to go to different stores, compare different products at different prices, and make a choice.

So it was simultaneously that the German government contracted the money supply while deregulating its markets:

On that same Sunday the German Bizonal Economic Council adopted, at the urging of Ludwig Erhard and against the opposition of its Social Democratic members, a price decontrol ordinance that allowed and encouraged Erhard to eliminate price controls.

That was merely the beginning. The money supply was contracted, for the most part, all at once. But the deregulation went on, bit by bit, in different sectors, on wholesale and retails prices.

At the same time, Erhard also began advocating for the strategy of lowering taxes. When Konrad Adenauer was elected to be Germany’s first chancellor in 1949, he would appoint Erhard to oversee economic policy. David Henderson notes that

Erhard spent the summer de-­Nazifying the West German economy. From June through August 1948, wrote Fred Klopstock, an economist at the Federal Reserve Bank of New York, “directive followed directive removing price, allocation, and rationing regulations.” Vegetables, fruit, eggs, and almost all manufactured goods were freed of controls. Ceiling prices on many other goods were raised substantially, and many remaining controls were no longer enforced. Erhard’s motto could have been: “Don’t just sit there; undo something.”

In 1948, Germany faced a monumental choice: continue the oppressive fascist economic system of high taxes and government-controlled prices, or deregulate the economy and create a free market. Because they chose the path of freedom, Germans enjoyed an amazing level of prosperity only a few years later.

Because they went from a ruined nation to a prosperous economy, and because they were not permanently cast onto the heap of ‘third-world’ nations, history books routinely refer to this as the Wirtschaftswunder - the ‘economic miracle’ - which was, in fact, no miracle at all, but merely the predictable and replicable results of the laws of economics.

Women in Germany - Seeking Value and Seeking Values

During the first decade or two of the twenty-first century, women in Germany continue to refine their roles in society, in business, in government, and in the family.

Given that Germany's chancellor, Angela Merkel, is regularly listed not only in Forbes magazine’s list of the world’s most powerful women, but also in its list of most powerful people, German females need little convincing that they can play influential roles.

They seem now to be asking questions, not about what they can do, but rather about what they want to do. Having proven that they can rise to the highest levels, they can now ask if it should be assumed that they must always want to do so.

Rather than fighting for economic or political power, German women seem to be working for the right not to be forced into business or politics. Why should anyone assume that women with university educations automatically want to devote the bulk of their lives to careers?

An interesting consequence of this trend is that men, too, are beginning to ask why professional activities are expected to be the core of man’s identity, instead of, e.g., his roles as husband or father. Germans, who still lead most of the world in efficiency and productivity, are asking if they can prioritize family life above the work world. In July 2014, Rose Jacobs wrote in Newsweek magazine:

Where American women can only dream of a system that encourages men to share more of the burdens of family life, Germany has replaced maternity leave with “parent time,” offering up to 14 months’ paid leave to couples who both take time off after their child’s birth.

Placing family ahead of career doesn’t mean surrendering the option of being active in business or politics. German men and women both want that alternative left open to them. But they don’t want to sacrifice the chance to be fully engaged parents and spouses - two roles regarded by many people as life’s most meaningful experiences.

The numbers show that women don’t have to surrender political influence to be active mothers and wives: while Germany has more full-time stay-at-home mothers than the US or the UK,

The US and the UK both have a lower proportion of women in their legislatures.

So German women win on both fronts: they can fully rival the men in the political world, and yet not be forced into the monotony and drudgery of full-time, lifelong employment in the business or political worlds.

Hitting Bottom: Postwar Germany

When WW2 ended in May 1945, nearly everyone in central Europe was relieved that the fighting was finally over. But other difficulties soon appeared.

The economy and infrastructure had been so damaged that mere physical survival was a full-time occupation for many people. They devoted their days to finding food, and some starved.

Germany had been carved into four sectors, one for each of the victorious Allies: the USSR, the USA, France, and Britain. The Soviet zone soon isolated itself, and the remaining three zones began, for practical purposes, to merge into a single territory, which would eventually become West Germany.

Starting in the early 1930s, the German economy had been savagely abused by the Nazis: the government had controlled the prices of retail goods and the wages of workers. Tax rates were high. These brutal policies kept the populace in misery.

The Allies, who controlled Germany as an occupational force after the war’s end, did not rescind Hitler’s policies. The three western Allies, each for its own reasons, kept the economic cruelty in place. Thomas Hazlett writes:

In the eastern zone, the Russian formula was basic: loot everything of value. In the west, however, there was a different problem: total indecisive ness. As Wilhelm Roepke relates: “Among the victors only Russia could be said to have had a German policy at all.” The western zones were afflicted by an acute case of disarray, and government policy fluctuated among the vengeance of the French, the reformist zeal of the British (Laborites), and the bewilderment of the Americans. About the only consensus to be found anywhere was to rely on economic controls.

It would not be until 1949, when Konrad Adenauer became Chancellor and appointed Ludwig Erhard to address economic concerns, that the suffering would begin to end. Together, Adenauer and Erhard initiated policies of deregulation and lower tax rates.

This was the moment of Stunde Null - the ‘zero hour’ when there was a monumental historical reset: a chance to start over and rebuild the economy.

Adenauer and Erhard allowed the consumers, merchants, and manufacturers to have a degree of free which they’d not experienced in over a decade. The result was the Wirtschaftswunder - the ‘economic miracle’ of amazingly quick growth. Germany would become, within a decade or two, the most powerful economy in Europe, and one of the most significant economies on the planet.