Economy: Creating a social market economy Flashcards
Who served as economics minister when the FRG was established under Adenauer? - FRG
Ludwig Erhard
What type of economy did Erhard favour as opposed to command economy? - FRG
Social market economy: lowering taxes and increasing deregulation
What was the economic priority from 1945-49? - FRG
Recovery from the war
How did the social market economy help recover Germany from war? - FRG
- Wages stayed fixed to help businesses recover/establish themselves
- Rationing on all but the most essential items (e.g bread and milk powder)
Why was economic recovery slow? - FRG
Due to the extent of damage inflicted from WW2
Why was there difficulties following the creation of a new currency? - FRG
The Reichsmark was dropped for the Deutschmark and there was a limited supply of DM in circulation.
This was to avoid inflation.
How much did unemployment increase from 1948 to 1950? Why did it increase? - FRG
1948: 442,000
1950: 1.8 million
The lack of monetary supply meant that paying wages was difficult for many small/medium sized businesses.
What was the Marshall Plan and what role did it play in Germany’s post-war economic recovery? - FRG
A US sponsored program that funded improvements to infrastructure and industrial development.
How significant an impact on economic recovery did the fact that most of Germany’s infrastructure remained largely intact have? - FRG
Germany had the wealthiest European economy in the Nazi period and many industrial plants had been unaffected by wartime destruction.
What state was Germany in economically in the immediate post-war period? How did this affect the distribution of Marshall Aid in Europe? - FRG
- German currency was largely worthless and a barter economy operated.
- Food was rationed and most people were surviving on less than 1,500 calories per day.
To what extent did the economy of the Western zones improve from 1948 onwards? Which factors contributed to this? - FRG
The index of industrial production in the US and British zones (Bizonia) rose from 51% of 1936 levels in January 1948 to 75% by December 1948.
Factors:
- Currency
- Tax reform
- Introduction of free market forces than Marshall Aid
What was the new currency introduced in the Western zones of Germany? Why was it introduced? - FRG
Deutschmark introduced on the 20th June 1948.
- It was introduced in far less quantities.
Why? The Reichsmark wasn’t valuable, practically worthless.
How and why was the Rentenmark exchanged for the Deutschmark at different rates for different assets? What was the purpose of this? - FRG
How - Private citizens could initially exchange RM60 to DM40 and wages were converted at a rate of DM1 to RM1, other assets were changed at far less generous rates.
- Savings: converted at RM100 to DM6.5
- Debts to the value of RM400 billion were wiped out.
Purpose - This reform was designed to facilitate spending and get the economy moving.
Why was giving large deposits of Deutschmarks to banks to loan to businesses to develop production such a shrewd economic move? - FRG
Entrepreneurs had been reluctant to invest in the light of post-war uncertainties.
After the currency reform, however, industrial output increased by 50%, largely as a result of this willingness to invest and produce goods.
What did Erhard abolish/announce on the 20th June 1948? - FRG
He abolished price controls and announced the relaxation of rationing.
Why did Erhard abolish price controls and rationing? - FRG
He believed that if prices found their own levels, producers would have more incentive to produce and farmers to send their food to markets.
Therefore, goods would return to markets.
How successful was Erhard’s ending of price controls? - FRG
Most people could afford goods which re-emerged in the shops because they have been hoarding the worthless currency which couldn’t buy much and could convert it into Deutschmark.
What economic impact did Erhard’s ending of price controls have? - FRG
Prices rose, but they could buy goods with their new Deutschmarks.
The black market disappeared.
From 1950 onwards, by what percentage was tax for those on average income? - FRG
18% when in 1948 it had been as high as 85%.
What was the highest rate of tax for those with incomes of more than DM 250,000? - FRG
95%
What was the purpose of Erhard’s tax reforms? - FRG
To allow businesses to retain enough profit to reinvest in their operations whilst individuals had more disposable income.
It was also part of broader efforts to rebuild public confidence in the economy and government post-war.
How did Erhard’s tax reforms kickstart the economy from 1950 onwards? - FRG
Absenteeism from work was radically reduced from an average of 9.5 hours per week to less than 2 hours.
- Ensured more productivity and the index of industrial production rose significantly.
- This was partly due to the fact people were no longer queuing, bartering for food.
In 1950 alone, what was the growth rate of industrial production? - FRG
25%
By what % did wages rise from 1949-55 as a result of Erhard’s reforms? - FRG
80%