Posts Tagged ‘Wirtschaftswunder’

West German Economic Miracle Secret

Monday, November 14th, 2016

 

Less than ten years after World War II, people began talking about a German economic miracle (Wirtschaftswunder). Twenty years after the war, Germany’s economy was envied by much of the world. What was the secret behind this so-called Wirtschaftswunder?

At the end of the war in 1945, 20% of Germany’s buildings were destroyed; in Berlin, the capital, 40% were destroyed. Factories and railroad tracks that had survived the war were dismantled and shipped east and west to pay for war reparations. Power, sewage, transportation systems no longer functioned. Food production per capita in 1947 was only one-third of its 1938 level. Then how did Germany get back on its feet so quickly?

The Marshall Plan and the West German economic miracle

The US-sponsored Marshall Plan (European Recovery Aid) immediately comes to mind. Between 1948 and 1951, the U.S. paid out 12 million dollars in recovery aid. The top two recipients were Great Britain (26%) and France (18%). West Germany was third with a little over 11%. The Soviet Union, its allies and East Germany did not take advantage of the Marshall Plan, which might explain the different rate of post-war growth and reconstruction between East and West Germany. Many economists now say that the Marshall Plan was not the main reason for the West German economic miracle. But if the Marshall Plan was not the driving force, then what was?

The currency reform and the West German economic miracle

Many economists today feel that what looked like a West German economic miracle was really the result of policies that ended inflation, price controls, a high marginal tax rate and ration tickets. These policies promoted a “social market economy”, which unleashed a hefty increase in productivity. Germany’s currency reform of 1948 replaced the highly inflated Reichsmark (RM) with a much smaller number of Deutsche Mark (DM). http://www.econlib.org/library/Enc/GermanEconomicMiracle.html At the same time, many prices were decontrolled, taxes were cut and ration tickets were completed eliminated. A proponent of the currency reform, West German Finance Minister Ludwig Erhard said, “The only ration ticket the German people will need is the Deutsche Mark. And they will work hard to get these marks.”

Schools behind the free market economy

The school of economic thought, called the Soziale Markwirtschaft (social free market) was based at Germany’s University of Freiburg. Its founder was Walter Eucken. Among its members were Wilhelm Roepke and Ludwig Erhard. (http://www.walled-in-berlin.com/j-elke-ertle/ludwig-erhard-and-the-economic-miracle/) The Freiburg school was similar to the Chicago school based at the University of Chicago with Milton Friedman and George Stigler. Members of both schools believed in free markets, along with some slight degree of progression in the income tax system and government action to limit monopolies.

 

For a sneak peek at the first 20+ pages of my memoir, “Walled-In: A West Berlin Girl’s Journey to Freedom,” click “Download a free excerpt” on the home page of http://www.walled-in-berlin.com

 

Mr. Volkswagen: Heinrich Nordhoff

Thursday, September 25th, 2014

Heinrich Nordhoff was born in Hildesheim, Germany, in 1899. As a young man in 1930, he left BMW (Bayerische Motorenwerke) to accept an executive position at the competition, the Opel AG. General Motors (GM) had become the majority stakeholder in Opel the year before. During World War II, most of Opel’s factories were shut down. The exception was their truck manufacturing division in Brandenburg, managed for GM by Nordhoff. At the end of the war, the truck division fell into the Russian zone of divided post-war Germany. The plant was dismantled and shipped to Russia. Nordhoff fled to the West. Having been trained by GM, he hoped for a leading position at the newly rebuilt Opel plant in Ruesselheim in the West. But the Americans told him that he would never again build cars. He should consider himself lucky to get a job sweeping the street.

Nordhoff turns to Volkwagen

Until GM had given Nordhoff the cold shoulder he had been completely disinterested in associating himself with the Volkswagen, that “Nazi car.” http://walled-in-berlin.com/j-elke-ertle/those-tough-little-beetles/.However, when British occupation forces offered him the management of the badly damaged Volkswagen plant in Wolfburg, he accepted. On January 1, 1948, a day before his 50th birthday, he became managing director of Volkswagen. https://www.volkswagenag.com/presence/medien/documents/HN7+Chronik_d_k.pdf  Nordhoff never looked back. During his first year, Volkswagen doubled the production of the Beetle to 20,000 cars. By 1950 they produced 100,000, and by 1955 1 million had been built. Despite his GM training, which subscribed to multi-market marketing, Nordhoff took the opposite approach. He believed in continuous improvement of the car’s underpinnings while retaining the humpback styling. http://www.spiegel.de/spiegel/print/d-46106820.html

Nordhoff and the American Market

1969 Volkswagen Beetle, Photo © J. Elke Ertle

1969 Volkswagen Beetle Photo © J. Elke Ertle

Within five years after World War II, Nordhoff exported the Beetle to the USA. When he first traveled to New York to promote the car, custom agents just laughed when they took a look at his promotional drawings. They told him that no one in the world would buy a car like that and charged him $30 in fees. The fees were levied because customs rejected Nordhoff’s claim that the drawings were promotional materials. The agents declared them to be art graphics. http://www.spiegel.de/spiegel/print/d-46106820.html But Nordhoff did not give up. He had come to believe in the Beetle despite the British Officers’ warning that the Beetle “has more flaws than a dog has fleas.” As we know, the Volkswagen Beetle went on to become the symbol of West Germany’s post-World War II Wirtschaftswunder – economic wonder.

The End of the Beetle

By the late sixties, however, the Beetle was getting serious competition from Japanese, American, and other European models. With 15 million sold in 1972, production of the Volkswagen Beetle had exceeded even that of Ford’s Model T. The last Beetle was sold in Mexico in 2003. Visit also http://www.walled-in-berlin.com/j-elke-ertle/those-tough-little-beetles/http://www.walled-in-berlin.com/j-elke-ertle/volkswagen-when-greed-meets-technology/

Now, Volkswagen is hoping to make a comeback with the production of an all-electric, fully integrated e-generation bus. The vehicle should hit the market by 2022 and is intended to make Volkswagen a worldwide bestseller once again. http://www.walled-in-berlin.com/j-elke-ertle/volkswagen-comeback-e-generation-bus/

 

For a sneak peek at the first 20+ pages of my memoir, Walled-In: A West Berlin Girl’s Journey to Freedom, click “Download a free excerpt” on the home page of http://www.walled-in-berlin.com. Walled-In is my story of growing up in Berlin during the Cold War.

 

Deutsche Mark

Thursday, June 20th, 2013

On this day in history in 1948 – on June 20, a Sunday – Germans were issued a new currency: the Deutsche Mark. Their previous Reichsmark had become worthless. It no longer bought anything. In the absence of a viable hard currency, cigarettes had taken the place of money.

A few days preceding June 20, American, British, and French troops had quietly dispersed 23,000 wooden crates throughout the country. They were labeled, “Doorknobs.” In reality, these boxes contained Germany’s new bank notes, printed in the United States. To be exact, the crates contained 10,701,720,000 Deutsche Mark.

That Sunday, the places that had previously handed out ration stamps now issued 40 Deutsche Mark to every citizen. Another 20 Deutsche Mark were handed out one month later. Miraculously, the next morning, the previously empty shop-shelves were filling. Merchandise was becoming available for sale again at fixed prices. The cigarette economy was dying. It became apparent that factories and farmers had held back their finished goods and produce until they could be sold for hard currency.

Währungsreform

June 20, 1948,
currency reform in Germany
www.Kalendarblatt.de

Following the currency reform of 1948, Germany’s economy took off. Over the next decades it produced the “Wirtschaftswunder” (economic wonder). But it wasn’t only the three western Allies who were responsible for this economic wonder. A man by the name of Ludwig Erhard also deserves much of the credit. He convinced the Allies to declare all rationing systems invalid after the new Deutsche Mark was introduced. Erhard placed his trust in free market forces, and by the end of the 1960s the Deutsche Mark had become an anchor for the European economies.

 

For a sneak peek at the first 20+ pages of my memoir, Walled-In: A West Berlin Girl’s Journey to Freedom, click “Download a free excerpt” on the home page of http://www.walled-in-berlin.com. Walled-In is a story of growing up in Berlin during the Cold War.