How Did Germany Climb Out of Poverty In No Time? Posted by Sten on Aug 26, 2021 in Culture, Vocabulary
People are hungry and lost everything. They are perspektivlos (without prospects). But then, within 10 years, the GDP triples. There is Vollbeschäftigung (f, full employment). In fact, there are so many jobs, that people from other countries are urged to come to fill all the vacancies, the so-called Gastarbeiter (guest workers). Everybody can afford a car, quintupling(!) the car industry. Families can afford housing, and many have a proper bathroom for the first time in their lives. The hunger and poverty from those few years before almost seem like a bad dream. Sounds like science fiction, but it is exactly what happened in 1950s post-war Germany. Let’s talk about the Wirtschaftswunder (“Economic Miracle”).
How did the Miracle happen?
The Second World War was a destructive time in Europe. And not only outside of Germany, but also within the country. When the fighting was done, many Germans lost their work, houses, belongings, hopes and dreams. But the founding of the Bundesrepublik Deutschland (Federal Republic of Germany) in 1949, which at the time only comprised West Germany, marked a turning point. Within a few short years, Germany transformed from poverty and destruction to a thriving economy. How was this pulled off?
There are at least four main points that contributed to the Wirtschaftswunder: The Währungsreform (f, currency reform), the Marshallplan (m, Marshall Plan), the soziale Marktwirtschaft (social market economy) and the tenacity and hard work of the people. Let’s go point by point.
Die Währungsreform
The German currency under Nazi Germany, the Reichsmark, lost a lot of value for obvious reasons. After the war, it was basically worthless. A black market, where cigarettes were the store of value, flourished.
A new currency was needed, not only economically, but also to separate the Bundesrepublik from the Nazi regime. This became the Deutsche Mark (German Mark), which the Germans normally call D-Mark. The currency would continue until the euro. However, a new currency wasn’t all that Germany needed to turn the country around.
Der Marshallplan
The Marshall Plan was hailed as one of the greatest achievements of the post-war reconstruction of Europe. This US plan was part to help the Europeans in need, and part to create a Europe that would resist Russian efforts of introducing communism (which did happen in East Germany). With 14 billion US dollars, the European Recovery Plan, as it was officially named, also contributed to European reconstruction. For context, that’s $135 billion in today’s money, or, at the time, $80 dollars per American! At the time, an interesting half-hour documentary called “Your Eighty Dollars” was produced to sell the idea to the American people. I linked it above.
Germany received about 10% of the Marshall Plan funds. The Plan also consisted of tons of goods to support the budding European economies.
Die soziale Marktwirtschaft
The third factor is the soziale Marktwirtschaft. The concept of a social market economy was put forward by Ludwig Erhard, who envisioned a capitalist society that is limited by active government involvement to ensure a sozialer Ausgleich (social balance). The goal of Rhine capitalism, as it is also called, is to get der Wohlstand (welfare) of capitalism, while fighting its drawbacks, such as monopolies and unemployability. Think of policies like Verbraucherschutz (consumer protection) or Arbeitslosengeld (unemployment benefits). The specific set of policies was exactly what Germany needed to build a strong economy and later to become Exportweltmeister (m, export world leader).
This website from the German Ministry for Economy and Environment has a great page with more information and videos about the Wirtschaftswunder.
Miracle on the Rhine
Photo by Florian Wächter on Unsplash
In English, the Wirtschaftswunder is also known as the Miracle on the Rhine. Why is a river related to this economic miracle?
This is related to the Ruhrgebiet (Ruhr Area), which is known for its (former) heavy industry. It formed the backbone of the strong economic growth in the early Federal Republic. The rivers Ruhr and Rhine flow through this densely populated and economically prosperous area in Western Germany. The area includes cities like Essen, Düsseldorf, Dortmund, Cologne and Bonn, the capital of Germany before German Reunification.
What do you know about the Wirtschaftswunder? Have you experienced this time in Germany? Let me know in the comments below!
Build vocabulary, practice pronunciation, and more with Transparent Language Online. Available anytime, anywhere, on any device.
About the Author: Sten
Hi! I am Sten, both Dutch and German. For many years, I've written for the German and the Dutch blogs with a passion for everything related to language and culture. It's fascinating to reflect on my own culture, and in the process allow our readers to learn more about it! Besides blogging, I am a German-Dutch-English translator, animator and filmmaker.
Comments:
Simon Fawthrop:
My first post must have gone in to the spam trap because of the link. Here’s another go:
Not everyone thinks it was the Marshall Plan:
“The Marshall Plan
This account has not mentioned the Marshall Plan. Can’t West Germany’s revival be attributed mainly to that? The answer is no. The reason is simple: Marshall Plan aid to West Germany was not that large. Cumulative aid from the Marshall Plan and other aid programs totaled only $2 billion through October 1954. Even in 1948 and 1949, when aid was at its peak, Marshall Plan aid was less than 5 percent of German national income. Other countries that received substantial Marshall Plan aid exhibited lower growth than Germany.
Moreover, while West Germany was receiving aid, it was also making reparations and restitution payments well in excess of $1 billion. Finally, and most important, the Allies charged the Germans DM7.2 billion annually ($2.4 billion) for their costs of occupying Germany. (Of course, these occupation costs also meant that Germany did not need to pay for its own defense.) Moreover, as economist Tyler Cowen notes, Belgium recovered the fastest from the war and placed a greater reliance on free markets than the other war-torn European countries did, and Belgium’s recovery predated the Marshall Plan.
Conclusion
What looked like a miracle to many observers was really no such thing. It was expected by Ludwig Erhard and by others of the Freiburg school who understood the damage that can be done by inflation coupled with price controls and high tax rates, and the large productivity gains that can be unleashed by ending inflation, removing controls, and cutting high marginal tax rates.”
Google econlib german miracle
Sten:
@Simon Fawthrop Hi Simon!
I believe you quoted this article. Thanks for pointing me to it, an interesting read!
I was surprised by how low Marshall Aid was. But it was also more than just monetary value. I believe these monetary values given in both the sources I found and this econlib article do not include the other forms of aid, such as food and other necessities. Overall, the other factors clearly played a bigger role. I slightly changed the wording in the post to reflect this.
It makes sense, doesn’t it? If throwing money at an economy made it grow like this, we would be doing this a lot more. But there was more going on, of course. A government that wanted the economy and the country to grow, incentivizing it to do so. I suppose other factors, like still standing infrastructure that didn’t need much fixing, also helped Germany recover quicker.
Simon Fawthrop:
@Sten Yes, that’s the link.
Its not so much throwing money at an economy as what you are doing with it. Because Germany had been destroyed, throwing money at capital projects would have very good returns: providing jobs while the rebuild goes on and then in the new factories, hospitals etc.
There is a diminishing return on that type capital investment though. Imagine 2 prosperous cities that don’t have any physical connection. The 1st road you build will generate lots of new trade and pay for itself very quickly. You may need more roads/railways but each new one would would have a diminishing effect.
Obviously many other causes but the thrust of that article is the free market reforms that Ludwig Erhard implemented and they had a lasting effect. Compare that to UK where we went down the nationalising everything path and you have a really contrast. Our rationing lasted much longer.
I read something interesting recently about how Konrad Adenauer didn’t like Erhard and did everything he could to frustrate Erhard becoming president and when he was president.