German cities and the country's industrial plant located in the cities were destroyed in World War II. Most of the damage was done by the Allied strategic bombing campaign, largely at the end of the War (1944-45). There was also considerable damage in cities like Berlin where the Germans decided to make a serious stand. This included several cities in the east that Hitler designated fortress cities. Many German cities were quite literaly piles of rubbel by the time the NAZIs capitulated and the War eded (May 1945). Many thought that it would take a generation for Germny to recover. The German Economic Miracle in the West began with the Marshall Plan (1948). Both American aid and the beginning steps in European integration were important factors. The major factor was, however, that while the physical plant of German industry had been destroyed, the technological capability and skills of German workers and technicians were still in tact. Thanks to an excellent Civil Defense program, the civilians killed were suprisingly small. (Unlike the situation in countries the Germans occupied, most of the Germans who died in the War were military personnel or German civilians targetted by the NAZIs.) The German Economic Miracle (Das deutsche Wirtschaftswunder) was fully underway by the 1950s. Conditions were tight, but improving rapidkly in the early-50s. One outcome of the destruction of old plants was that by the end of the decade, Germany had the most modern industrial plant in Europe. And workers were receiving higher wages than ever before. Parents at last had some disposable income in the 1950s. Most spent frugally, but at last they were able to afford the basics. Mothers could once again begin to exercize their interest in fashion. hey began spending on other items suh as fashionable clothes and treats for the children. There was a trenendous renewal of economic conditions during the 1950s. Germany by the late 50s had returned to prosperous economic condditions, at least in the west. Families were earning good incomes and expenditures for food and clothing increased substantially. Despite the fact that the German industrial plant was destroyed, the recovery in German took place faster than in Britain.
It was very common before World War II to read about an earlier Gernman economic miracle. Many in the 1930s lauded the NAZI achievement in ending the Deopression. Other of course envied the Soviet Union. This is perhaps understandable in the 1930s when it was not entirely clear what was going on in those countries. Wha is surprising is that we still see some authors blinkered by ideology and often adding outriht falsehoods still talking about the NAZI achievement. Here is a typical example, "The Nazis came to power in Germany in 1933, at a time when its economy was in total collapse, with ruinous war-reparation obligations and zero prospects for foreign investment or credit. Yet through an independent monetary policy of sovereign credit and a full-employment public-works program, the Third Reich was able to turn a bankrupt Germany, stripped of overseas colonies it could exploit, into the strongest economy in Europe within four years, even before armament spending began. In fact, German economic recovery preceded and later enabled German rearmament, in contrast to the US economy, where constitutional roadblocks placed by the US Supreme Court on the New Deal delayed economic recovery until US entry to World War Two put the US market economy on a war footing." [Liu] IThe author is wrong thst the NAZIs did not begin to re-militarize at an early point. He is also wrong that reparations were a major problem. In fact te Germans payed very little in the way of repsarations. Most of the payments they made were funds borrowed from America and at the orhnial reparations required in the Versailles Treaty were postponed. It is true thst Hitler put German workers to work. It is also true that the real wages (purchasing power) of German weorkers declined. And by the time that Hitler launched the War that the NAZI state was near bankruptsy. The German people had after the War lived under NAZI price controls and subsequently rationing when the War began. The NAZIs first imposed price controls (1936). This allowed the Goivernent to re-militarize with materials purchased at prices below market levels. Hitler placed Reichmarshal Hermann Goering in charge of the war economy (1939). He imposed rationing. NAZI rationing was at first linited because the food of production of the occupied countries could be looted. Draconian punishments faced Germans violating the porice control regulations. The Allied Control Authority (American, British, French, and Soviet occupation authorities) decided to keep the NAZI price controls and rationing in force (November 1945).
Hitler's concept of World War II involved short campaigns in which targeted counties would be knocked out individually or in small groups before they could adequately prepare. This was historically the way Prussia waged war. Prussia was a small, relatively poor country that did not have the resources to wage protracted wars against larger, richer countries. Thus a well trained standing army gave Prussia an advantage at the onset of wars. This was the approsch that Hitler adopted as Germany was surrounded by countries with far greater resources. Once countries were occupied, they could be looted to finance abd supply the German war effort. Hitler wanted to mimimize the demands on the German civilians because many did not want another war and privations on the home front had undermined the World war I war effort. Hitler stressed the importance of the ‘gigantic all destroying blow’. This was a central concept in Prussian war planning. The competence of the Wehrmacht brought huge victories in the early phase of the War, but his plan began to fail when the British refused to buckle under in the Battle of Britain (1940). This led to Barbarossa, the invasion of the Soviet Union (1941). The Soviet winter offensive before Moscow meant that the Wehrmacht had failed to smash the Red Army and that there would be no German victory in a short war. Hitler planned for a short war because Germany did not have the manpower or resources for a protracted war. As a result, the German people and the German economy were not prepared for a long war. The Germany economy was not put on a total war footing. Women were not brouht into the work force and German companies continued to produce consumer goods. Promising arms projects like jet aircraft were on hold. Hitler wanted to maintain the civilian standard of living. Even after the disaster before Moscow, Hitler resisted massive changes in economic policy. This changed after the disasters in Stalingrad and North Africa. As the War turned against Germany, Hitler no longer desired to appear in public. It was thus Propaganda Minister Goebbels that announced "Total War". He delivered a long speeces in Berlin (February 1943). The German people were required to make real sacrifices for the first time at the same time that the Allied Strategic Bombing campaign became increasingly effective. By this time, however, it was too late. German war production could be raised and Speer accomplished a great deal. But productions increased were only marginal and paled in comparison to Allied production. The Germans faced the massive armies and war production that the Americans, British, Soviets were able to muster.
German cities and the country's industrial plant located in the cities were destroyed in World War II. Most of the damage was done by the Allied strategic bombing campaign, largely at the end of the War (1944-45). There was also considerable damage in cities like Berlin where the Germans decided to make a serious stand. This included several cities in the east that Hitler designated fortress cities. Many German cities were quite literaly piles of rubbel by the time the NAZIs capitulated and the War eded (May 1945). Anout 20 percent of houses and apartments had been destroyed. Germany was not self sufficent in food production before and after the War, per capita percapoita producrtion was about half of pre-War levels. Induystrial production was even less, about one-third of pre-War levels. Moreover, a large percentage of Germany’s working-age men were dead. At the time, observers thought that West Germany would have to be the biggest client of the U.S. welfare state; yet, twenty years later its economy was envied by most of the world. And less than ten years after the war people already were talking about the German economic miracle.
The Allies had no coherent plan when thery entered the Reich. The Soviets were intent on making the Germans pay. Whole factories if still intsat wre dismantelled sand shipped east. Once the occupstion began, the Soviets demanded reparations. The Western Allies had considered a range of policies for their western occuption zone. The best knoiwn plan was the Morgenthsu Plan, but once in Germany, the Western Allies began to change their assessments. Germany was in ruins. The official food ration was set by the occupying powers varied between 1,040 and 1,550 calories per day. The idea of demanding reparations or converting Germany into a pastoral nation was quickly disgarded. It soon becamer oibvious thst without a vibrant economy that Germany would be a basket case requiring welfare for decades. And as the nature of Soviet desigs became clearer, it soon became apparent that the future of Western Europe would be decided by the Germans. If they turned Communist, the Soviet Union would dominsate the continent. Thus the Western Allies soon adopoted a policy of not only deNazification, but turn Germany into a democracy with a vibrant capitalist economy.
German cities as a result of the Allies Strategic Bombing Campaign and ground fighting were huge piles of rubble. And if the nombing and fighting were not bad enough, two orders made matters worse. Hitler had orderd that as Allied and Soviet armies moved into cities, that everything of economic value be destroyed--the Nero Order (March 19, 1945). He totally dismissed the needs of the German people after the War. Stalin ordered that factories that survided, be noxed up and shipped back to the Societ Union as war reparatiins for the factories these Germans had destroyed. Thus the destriction was beyond that of any event in modern historfy. World war I in the West had been fought in a narrow band in northern France and Belgium. Germany had not even been occupied. Even during the dreadful Napoleonic wars, damage to German cities had been limited. World war II was very different. Not only were German factories in ruin, but the tranportation network was also destroyed. There was no way to move goods. Destruction on this level was unknown in Europe since the Thirty Years War (17th century). There were no precedents to help estimate how long it would take for the country to recover from destruction on the order of World war II. Most thought that it would take a generation for Germny to recover, perhaps longer. Many Ameicans thought that supporting a devestated Germany would require foreign aid expenditures for decades.
German politics had been trandormed by the War. Two major political parties emerged in the western occupation zones, the Christian Democrats (CDU) and the Social Democrats (SPD). The NAZIs were now banned, but nationalist parties had been descredited. The Communists had some initial appeal. Many workers had voted for the Communists in the Weimar elections before the NAZIs seized power. The Soviets rapidly undermined what residual loyalty may have remained for the Communist Party, at least in the Allied occupation zome. Voters in the Soviet zone had no other options. The Red Army's brutal occupation of eastern Germany, the expulsion of Germans from Eastern Europe, and behavior in the early phase of occupation rapidly disenhanted even working-class Germans. The Soviet attempt to expel the Western allies from Berlin and the resulting Berlin Air Lift was a turning point in German attitudes and ended any major appeal of Communism in West Germany. The SPD had existed before the War. The CDU was new party, but was essentially built around the pre-War Catholic Center Party with a non-sectarian ethos. Many conservatives which had supported the right-wing ultra-nationalists before the NAZis also gravitated to the CDU. Workers who had reviously supported the Communists gravitated to the SPD. Democratic politics in West Germany would thus revolve around the CDU and SPD. Ans these two parties had very different ideas about dealing with the economic problems.
Post-war Germany at first gave little indication that recovery would be rapid. In fact very little orogress was made in the first few years. the German economy made little progress by 1948. Manufacturing was only 60 percent of pre-War levels. German sinsumptionhad also fallen along the same dimensions, to about two-thirds of pre-War levels. Thus there was serious d\shortages of basic consumer goods. here was a massive public debt. The result was what economists call a currency overhang. There was a vast amount of excess liquidity. Whiles goods were scarce, there were large amounts of Reichsmarks (RM) in circulation. The result was that the RM was losing its basic function as a means of exchange, Barter trade was becoming prevalent. City pepople on the weekends streamed out of the city in an effort to obrain food thriugh barter. become the order of the day. Price and wage controls were undermined by the black markets. The falling real value of the RM meant that there was no real incentove to work for wages. And imported goods like chocolste and cigrattees disappeared from shop shelves. Manufacturing for export also declined because regulation forced exporters to turn foreign currency earnings over for RMs.
The Allies after the Wehrmacht surrendered (May 7, 1945) refused to recognize the NAZI Government headed by Admiral Karl Dönitz as Reichspräsident. The Allies arrested Dönitz for war crimes (May 23). Instead the four Allied powers set up the Allied Control Council (ACA)" "The Governments of the United States of America, the Union of Soviet Socialist Republics and the United Kingdom, and the Provisional Government of the French Republic, hereby assume supreme authority with respect to Germany, including all the powers possessed by the German Government, the High Command and any state, municipal, or local government or authority." (June 5) [US Department of State] Thus the ACA became the German Government until relations between the Soviets and Western Allies were ruptured when the Soviets blockaded Berlin (1948). In the heady days of peace after VE Day, there was hope that the Western Allies and the Soviets could cooperate in the administration of occupied Germny. A range of problems soon surfaced and obly wosened as time went on. One issue which surfaced early was currency reform. The Soviets would eventually chose to make it a central issue. Another part of the Allied Occupation government was thge four-power "Allied Kommandatura" for Berlin.
The genius behind the Germam Wirtschaftswunder was a then little-known economist working in Nuremberg. Ludwig grew up in Bavaria in humble circustances. Because of limited family circumstamnces, he only completed junior secondary school. Like many German boys he then began a commercial apprenticeship. He was 17 years old when World War I broke out. He was inducted into the German Army and served as an artilleryman. He was seriously wounded (1918). After recovering from his wounds, Erhard entered the commercial college at Nuernberg.
He pursued adcanced studies in marketing, management, political economy and sociology at the University of Frankfurt/Main (1922). At the time, hyperinflation was devestating Germany, destroying the economic security of the middle class. In the process it undermined public confidence in Germany's new republic.
Erhard began working as a consumer market researcher for the Institute of Restaurant Economics. The Depression began devestating the German economy (1929). Largely in consequence, NAZIs seized power (1933). This ended any real serious debate about economic issues. The NAZI outlook was that Germany's economic problems were the result of foreign stagulation and racial pollution. The NAZI sollution was carving out an Eastern empire and expelling the Jews. The NAZIs began an economic program of control and regulation which only increased after Hitler laujnched the War. Erhard had an entirely different outlook. He saw the economic problems as resulting from Germany's authoritarian political history. Erhard during the NAZI era had to limit how he expressed his economic ideas. He continued to work in the consumer sector. He wrote a memo on war financing and debt consolidation. The article began with the increasingly obvious assumption that Germany would lose the war. This might have been enough to get him arrested. He probably was saved by the collapsing military situation and the fact it was an academic paper not picked up by the popular media. The memo was picked up by the German resistance and passed on to the Allies. Thus the American occupation authorities after the War saw Erhard ad a German they could work with to help build an economically sound, democratic Germany. American authorities appointed him director of the Economic Council for the joint Anglo-U.S. occupation zone (1947). Here he defied allied supreme commander Gen. Lucius Clay in advocating the lifting of economic restrictions. Erhard wanted to design a new and different kind of German economy. He was given his chance by United States officials, who found him working in Nuremberg and who saw that many of his ideas coincided with their own. The collapse of the German ecomomy gave Erhard the opportunity available to few ecomomists. Erhard's first and most decisive step was currency reform. He abolished the old Reichsmark and created the new Deutsche Mark at a 1 to 10 ratio (June 20, 1948). That was just the first step, Erhard also oversaw most NAZI and occupation rules and regulations to create the framework of a free market economy. Many saw the curency, the DM a disastrous mistake.
The currency problem soon became apparent to many working in occupied Germany. The United States Military Government (USMG) submitted a currency reform program to the Allied Control Council (ACA) at a very eary point (1946). The American plan was to create a new Mark at a 10 to 1 basis to help reduce the amount of currency in circulation. Currency reform was a complicated matter and there were provisions related to property, war losdes, bomb damage, propert loss through reparations, and many other matters. The British and French and even the Soviets were at first sympathetic. The Soviets quickly changed their position and began objecting to various aspects of the proposal. The Soviets for example demanded that rather than a centrally controlled printing operation that zonal commanders have control of the printing. This would have meant that the Soviets could have printed large quantities of notes that would have had to honored in the western zones. [Bennett, p. 43.] It is unclear why the Soviets were so opposed to currency reform. Cynics may argue that Stalin did not want a rapid German recovery. I don't think that was the reason. After all the Soviets still saw Communism as the surprrior ecoomic system. Probably the lack of control mean that the Soviets could no longer print Reich Marks that were honored in the Western zones. Surely Stalin would have objected to the lack of control that would result from a strong currency and vibrant market economy. And he probably saw the currency reform as the first step in organizing a West German government.
After 2 years of fruitless dithering with the Soviets, the Western Allies finally acted. The First Law on Currency Reform in the American, British, and French occupation zones specified the conditions for the introduction of the new German currency to replace the Reichmark--the Deutschmark (June 20, 1948). The Law was promulgated by the three Western Military Governors (America, Britain and France) after they were unable to obtain Soviet agreement.
The Reichmark was invalidated. The new currency was named the Deutsche Mark which was be divided into 100 Deutsche Pfennig. The old currency (Reichsmark, Rentenmark and Mark notes) issued by the Allied Military authorities was invalidated as of June 21. An exception was made for old Mark notes and coins up to a denomination of 1 mark. This was done to prevent a temporary shortage of small change. The small notes and coins continued in use until, but at one tenth their old or nominal value.
Postage stamps remained valid at one tenth their nominal value. As a first step, each inhabitant of the western zone received a sum of the new Deutsche Mmark--60 marks to be purchased by an equal sum of old bank notes. Other money held by the German public, as well as savings accounts in banks, savings banks, and postal-savings institutions will be converted into Deutsche Marks at a later date. The conversion rate, which will drastically reduce the total amount of money in circulation, as well as other details concerning the exchange of these amounts of money, will be published shortly in further laws. The exchange rate was set at 10 to 1 as initially suggest in the American plan.
The Soviets blockeded rail access to Berlin (June 11), but lifted it after 2 days. They failed to appear for a Berlin Kommandatura meeting. Such orders could have only come from Stalin. Presumably this was his way of warning the Western Allies what would happen if they continued with plans to set up a West German government. The Western Allies announced plans for a new deutschmark to replace the former German currency which was now virtually worthless (June 18). The Soviets saw it as one more step toward establishing West Germany. They refuse to accept the Western action and announced their own German currency plans (June 22). Germans in the three Western occupation zones exchanged their Reichsmarks for the new Deutsche Marks. The new Western Deutschmark appeared in Berlin (June 23). Just before midnight on the same day, Soviet authorities cut electrical power to West Berlin and began a blockade of rail, barge, and road lines. Apparently the currency reform was the decisive step by the Allies. Stalin had already signaled what he could do. Apparently he was sure that the Allies would not launch a ground attack to open the rail lines. Here Stalin calculated correctly. Not only was he probably correct that the public in the Allied countries would not accept another massive war to keep Berlin free, but the Soviets had a clear superority in conventional fotrces. He calculated that as soon as food ran out, the Allies would concede. Here he calculated incorrectly. It never occurred to Stalin and his advisers that a city of 2.5 million people could be supplied by air. And if they even thought of it, what would have been foremost in their minds was the Luftwaffe Wotld War II attempt to supply Stalingrad by air. As a result of the blockade, trains and barges began to build up, unable to move. At the time both rail and barge traffic was more important than road transport for moving cargo. The Soviets tighted the blockade by announcing that they would not allow any cargo from their occupation zone, which surrounds the city, to reach West Berlin (June 25). Berlin at the time had food for 36 days and coal for 45 days. The Western Allies imposed a counter-blockade on Soviet areas. The impact is limited, but at least no food can be sent from the dwindling stockpiles to East Berlin. The Allies began airlifting supplies almost immediately. The Berlin Airlift would prove to be the defining moment of the Cold War. It began with 32 flights by American C-47 aircraft in West Germany to the Tempelhof airport in Berlin (June 26). These were the World war II twin-engine Allied cargo workhorse. The first U.S. and British cargos for civilian Berliners arrived (June 28). It was clearly insufficent for Berlin's needs and the Soiviets were not impressed. Only 80 tons of supplies, mostly food, were delivered that first day. And the minimum requirement for the city was 4,500 tond daily. The Americans name the effort to supply Berlin as "Operation Vittles". The British call it "Operation Plainfare".
The German Economic Miracle in the West began with the Marshall Plan (1948). A key aspect pf the Marshall Plan was that the Europeans countries receiving aid shouls participate in regional integration planning. Both American aid and the beginning steps in European integration were important factors. American histories of the Cold war may over emphasize the Marshall Plan. The amounts involved were too small to explain the recovery solely because of the American effort.
The key element in the German Ecomnomiv Miravcle and the general ecomomic recovery of Western Europe was the Europeans itself. Their competence and energy in the final analasis was what enable Europe to so rapidly recovery from the terrible destruction of the War. There was a remendius reservoir of industrial talent as well as a copetent political and legal system. The Marshall Plan, however, should not be dismissed. It provided important zmmounts of capital infusion at a very critical time. In the modern parlance, it was targetted and timely.
The major factor in the German Economic Miracle was that while the physical plant of German industry had been destroyed, the technological capability survived the War were still in tact. Thanks to an excellent Civil Defense program, the civilians killed were suprisingly small. (Unlike the situation in countries the Germans occupied, most of the Germans who died in the War were military personnel or German civilians targetted by the NAZIs.) his mean, however, that many German workers were killed. The NAZIs had mobilized nearly the entire adult male population (includung many teenagrs and older men) for military service. While unenployment was ininitally a problem, once the economy began to reover, finding workers became a real problem.
The German Economic Miracle (Das deutsche Wirtschaftswunder) was fully underway by the 1950s. Conditions were tight, but improving rapidkly in the early-50s. One outcome of the destruction of old plants was that by the end of the decade, Germany had the most modern industrial plant in Europe. And workers were receiving higher wages than ever before. Parents at last had some disposable income in the 1950s. Most spent frugally, but at last they were able to afford the basics. Mothers could once again begin to exercize their interest in fashion. hey began spending on other items suh as fashionable clothes and treats for the children. There was a trenendous renewal of economic conditions during the 1950s. Germany by the late 50s had returned to prosperous economic condditions, at least in the west. Families were earning good incomes and expenditures for food and clothing increased substantially. And Germany was not just returning to pre-War prosperity. The Germnan people by the mid-50s were reporting incomes any one that ever experienced in Germany. We see working-class families with cars for the first time. In fact, nothig symbolized the German Economic Miricle more than the Volkwagen--the peopkle's csar first envisioned by the NAZIs before the War. Despite the fact that the German industrial plant was destroyed, the recovery in German took place faster than in Britain. It is difficult to see any major difference between the two countries beyond the Germn Christian Democratic Government which was friendly toward business and the Brirish Labour (Socialist) Government intent on government operation of major industril sectors.
The Economic Miracle that occurred in the West did not occur on the other side of the Iron Cutrain.
The Soviets moved to separate the East German ecomomy fom thsat of the West after the United Ststes decided to nsack the cirrency reform promoted by Bavarian Finance Minister Ludwig Erhard. Stalin refused to accept Msrshall Plsan aid or allow his Eastern European satallites participate. The Soviets and Eas Germa Communist allies moved to create a socialist economy. The Soviet occupsation zone that becamne the DDR (1949) was a largely agrarian part of Germany without the heavybindustry thst had developed in the west. The primary factor here was raw materials. The heavily developed Ruhr Basin for examle developed around te abundant coal resources there. And the Soviet occupiers ininited a massive program of dismsntling factories that survived the War and shipping it east as reparaions. Even after actual reparatins ended, the trade agreements negoitiated by the Soiviets were heavily in their favor. The East German economy thus stagnated while the West Germany ecomnomy exploded. The East Germans could not very well blame the lackluster economic performance on theirfratenal socialist ally so they blamed in on the flood of trained workers and profesionals from the worker's paradise to the capitalst west. A huge dispsarity in living sdtandards developed between East and West. And unlike the situstion in Russia, the East Germans could not hide the disparity. East Germans could listen to West Germsn televusdion and radio. Aparently te commercials had more impact than the political content. The Berlin Wall and extensions dividing the two Germanies ended the flow (1961). It probably did impair the Germnan economy, but was not the centrl problem. Even with all the limitations, East Germany became the most profucvtive part of the Soviet Empire--COMEDCON.
The East Germans published impressive production statistics. Very little of this production could be excported to the West. It was either consumed in Germany or traded within COMECON as barter of barter sarragemets. While it was some of the best indusdtrial product within COMECON, it was not up to Western standards. Thus when the Berlin Wall came down and Germany was unified, few East German industries could survive in a market economy.
It is interesting to put the German Economic Miracle in the context of what was happening in other Western Ruropean countries. Other countries which joined the Common Market (Belgium, France, Italy, Luxemberg, and Netherlands) also reported rapid growth. A major factor in their success was integration with the German economy which proved to be a major engine of growth. One country that lagged considerablt behind was Britain which decided for many years not to participate in the integration process.
Bennett, Jack. "The German Currency Reform,"
Henderson, David R. "German Economic Miracle". Annals of the American Accademy of Political and Social Science Vol. 267: Military Government (January, 1950, pp.43-54).
Liu, Henry C. K. "Nazism and the German Economic Miracle," Asia Times Online (May 24 2005).
U.S. Department of State. Treaties and Other International Acts Series No. 1520.
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