German Economy after World War

The first several years after World War 2 were years of bitter penury for the Germans; farm production fell, food supplies were cut off  and the standart of living fell to extremely bad levels. High inflation caused savings loss of  99% of their values.

The period of 1950-60 called “German Economic Miracle” in the German period. It was a rapid reconstruction and development of the economy of Germany which was a lasting period of low inflation and rapid industrial growth.

The first step of Germans was to decide a new economic system : “Social Market Economy”; which was an economic system free of state intervention and domination. The only state role in the new German economy was to protect the competitive environment from monopolistic tendencies. The main components of Social Market Economy are;

• Price stability,
• Restricted redistributive system of social transfer,
• Effective competition policy,
• Liberal trade regime,
• Absence of price regulations.

The second step was currency reform; abolishing of the Reichsmark and the creation of a new currency, the Deutsch Mark; a much more valuable currency. To clean up the postwar mess and solving the problem of capital shortage; Germans substituted a much smaller number of  DM, the new legal currency, for  Reichsmark. The net result was about 93% of  contraction in the money supply.

With the currency reform, German’s currency went more valuable so German people were going to work hard to get those  DM.  The fundamental reason for the quick economic recovery can be found in this currency reform, Germany had a skilled workforce and a high technological level in 1946. Germany’s capital stock had largely been destroyed during the war. This problem were overcome by the time of currency reform which made the currency much valuable and halts the inflation. During the period, Germany also increased the interest rate to encourage savings and to keep inflation low.  Along with currency reform and increasing interest rates, the Government made a reform in tax system. According to new tax system; the richer pay more and the poorer pay less.

Germany proceeded after 1950 to quickly rebuild its capital stock and thus to increase its economic output at stunning rates. The very high capital investment rate thanks to low consumption and a very small need for replacement capital investment drove this recovery during 50’s. Initial exports of Germany were raw materials such as coke but by the end of 1950’s exports were mainly manufactured goods. German farm employment and farm production declined sharply during the period.

• Over the period the average annual growth rate was 18%  per year.
• By 1960, industrial production was more than four times of its annual rate in 1950.
• GDP rose by two-thirds during the decade.
• The number of persons employed rose from 13.8 to 10.8 millions.
• Unemployment rate fell from 10.3%  to 1.2%.
• Wages and salaries rose over 80 percent, even without causing an increase in inflation.