Economic recovery and the 'economic miracle', 1945-66

Question 1

What is the Wirtschaftswunder?

Answer 1

• This is the transformation from war devastation to a global economic power which was labelled an ‘economic miracle’.

Question 2

What was involved in the Wirtschaftswunder, 1950-60?

Answer 2

• Jobs: the unemployment rate fell from 11% to only 1.2%
• Economic growth: National income almost doubled from 845 billion Deutschmarks to 1,633 billion
• Industrial development: Industrial development increased by 150%. New industrial developments such as VW at Wolfsburg were developed
• Living standards: real incomes rose after 1952

Question 3

CAUSE 1 of the Wirtschaftswunder

Answer 3

The Deutschmark, 1948

• In June 1948 a new currency, the Deutschmark (DM), introduced into the non-Soviet zones of Germany to replace the Reichsmark (RM).
• Wage levels in DM were at the same level as for RM, but savings were exchanged at a very low level of 6.5DM to 100RM.
• Savers were very badly hit, but debts of some 400 billion RM were written off - gave a much-needed stimulus to the economy

Question 4

CAUSE 2 of the Wirtschaftswunder

Answer 4

The end of price controls
- On same day as the introduction of the new currency, Ludwig Erhard, in his role as Director of Economics in the British and American zones, ended price controls.
=> increasing the supply of goods to the market
- this reform stimulated the economy and contributed to economic recovery

Question 5

CAUSE 3 of the Wirtschaftswunder

Answer 5

Loans for industry and high levels of public and private investment

• Banks were given money by authorities to loan to businesses to get industrial investment restarted
• Industrial investment increased by 50% following this move
• In addition to the loans, greater stability was created by the currency reforms, and after a few years of peace helped encourage business to feel confident to invest
• The Investment Aid Law of 1952 provided subsidies to assist with industrial development
• local authorities also invested heavily in transport, educational, social and cultural infrastructure at this time.
• Job creation schemes were developed from 1950

Question 6

CAUSE 4 of the Wirtshaftswunder

Answer 6

Tax cuts

• Tax cuts helped stimulate the economy by increasing the money that people had to spend => increased production of goods
• for those on lower incomes - tax level was reduced to 18%

Question 7

CAUSE 5 of the Wirtschaftswunder

Answer 7

The Marshall Plan
- The $1.5 billion transferred to Germany from the USA under the Marshall Plan helped to rebuild German infrastructure and generate confidence

Question 8

CAUSE 6 of the Wirtschaftswunder

Answer 8

The social market economy

• mixed economic model proved highly successful in creating economic growth and maintaining stability in West Germany
• The country combined capitalist free enterprise with governmental oversight to prevent unfair practices, and the ownership by the state of parts of the economy, e.g. railways, and the state provision of welfare services
• Model of worker involvement in commercial enterprises, often established by British managers in occupied Germany in plants such as VW after the war, was extended.
• Workers’ representatives sat on the boards of German companies and had a right to be consulted about major decisions.
• this helped maintain harmony between workers and management, this was assisted with economic development

Question 9

CAUSE 7 of the Wirtschaftswunder

Answer 9

Other factors behind the Wirtschaftswunder

• this includes the development of a trade surplus, as German manufactured goods proved popular round the world
• surpluses could be invested in further development
• Germany had an educated workforce, many raw materials and good sea ports for exporting goods
• The pursuit of cooperation and integration with other European states such as France in the EEC helped with economic stability and development
• > promoted lower tariffs which helped stimulate international trade