After World War II the German economy was a smoldering ruin. Scorched-earth policies destroyed 20-70% of all houses. Factories, hospitals, and schools were bomb craters. Germans only ate 1,000-1500 calories a day. There was no food in the stores because price controls disincentivized shop keepers and farmers to sell anywhere except the black market.
But something happened in 1948 that changed everything. Revolutionary market changes were introduced by Minister of Economics Ludwig Erhard that overnight caused stores to re-open, factories to fire up, and delivery trucks to clog the streets. In a year, food production and domestic output skyrocketed. By 1950, journalists spoke of a Wirtschaftswunder (economic miracle). By the 1960s, West Germany’s economy was envied by most of the world and had surpassed struggling Great Britain.
In today’s episode, we look at how economies manage to rebuilt after total devastation. How do you rebuild a factory when the roads are blown up, there are no materials available to make it, and hyperinflation has made the money so worthless that nobody will hire you? How do you restart a nation’s economic engine when there are no parts? The example of Western Germany is a good answer to many of these questions.
Below is an AI-generated transcript complete with timecodes. This transcript may contain errors and is not a substitute for listening to the podcast episode.
Scott Rank 0:12
History isn’t just a bunch of names and dates and facts. It’s the collection of all the stories throughout human history that explained how and why we got here. Welcome to the history unplugged Podcast, where we look at the forgotten, neglected, strange, and even counterfactual stories that made our world what it is. I’m your host Scott rank.
In recent history, probably nobody had as broken of an economy as Germany did after World War Two. Because of the war and Hitler’s scorched earth policy, about 20% of all houses were destroyed. food production in 1947 was only 51% of its level in 1938. rationing That people were only consuming between 1015 hundred calories per day, barely above the starvation level. industrial output in 1947 was only a third of its 1938 level. Most of the working-age men in Germany were dead. There were hundreds of thousands of refugees in Germany who were fleeing the advancement of the Soviet Union. Germany was even more wrecked than Japan. The firebombing of Dresden had completely destroyed that city, and it was more destructive than the atomic bombs dropped on Hiroshima, Nagasaki, the city of Cologne had dropped from 750,000 to less than 32,000. Most of the country’s historic buildings and churches were destroyed. For all those people who are left homeless, they had to live in shantytowns that would look like a slum in South Africa. industrial output didn’t exist, the money was worthless and a pack of American made cigarettes that gave out of charity could be worth more on the black market and hundreds of German marks when Peterson A member of the Allied occupation forces described Germany this way. German men and women, for the most part, ragged hollow wide. Then for Lauren looking peddled what wealth had escaped the bombing and burning silver jewelry, Zeiss binoculars, cameras, China frequently chipped and BRIC a BRAC, including ashtrays, lamps, clocks, and cheap paintings, all at fancy prices. I saw a used commonplace alarm clock go for the equivalent of $85 in 19 $45, so Germany’s economy was completely destroyed. But in the space of fewer than 20 years, Germany’s economy became envied by most in the world. And less than 10 years after the war, people were already referring to a transformation that had happened in the country is the German economic miracle, where production had doubled, tripled, people were living normal lives again. And even though housing factories and everything else seemed completely destroyed, they were able to rebuild. These feelings could already be felt by 1948 shops refilled with goods, the black market closed down, and even absenteeism from work plummeted. In May 1948, workers had stayed away from their jobs for an average of 10 hours a week because the money they worked for wasn’t worth much, and they were out foraging or bartering for money. Back tober absenteeism was down to 4.2 hours per week, and output grew by leaps and bounds by thanking 58 industrial productions was more than four times its annual rate for the six months in 1948. Before the currency reform in the country, industrial production per capita was three times as high. So what happened here? How did Germany which was in complete ruins, managed to bounce back? I’m recording this episode in April 2020 when the Coronavirus is still what everyone is talking about. And there’s a lot of discussion by economists about what’s going to happen with the economy. The most optimistic take is called the V-shaped curve where everything that’s happened with layoffs and talk of recession is simply going to bounce around right back up to what it was before because none of our factories have been destroyed and bombs, none of our houses have been destroyed. In a sense, the machine is just going to be started up again. Others say that our global economy is much less resilient than that. And our supply chains have been disrupted. Many other things have been disrupted. So there could be a major recession or even a depression that will happen. Now, I’m not an economist. So I don’t know how things are going to shake out and no one really does at this point, we can only make educated guesses. But what I wanted to do with this episode, is look at how societies managed to bounce back and have economic recoveries when their economies have been completely devastated. something much worse than what we’re having in 2020 because again, things haven’t been blown up as they have in the case of massive Total War. So in this episode, we’re going to be looking specifically at the German economic miracle. That’s what Germans call the rebound after World War Two, the Vert Shock flew under economics Miracle, we’re going to be looking at how it happens, or the policies that had in place that allowed this to happen. And also, more specifically, the lessons that were learned from the recent past. Germany also plunged into a terrible depression after World War One. But it didn’t rebound from it in the same way as World War Two, had horrible inflation, perhaps a worst in history. And many people think that Germany’s rocky economy in the 20s and 30s led directly to the rise of the Nazi Party. Well, nobody wanted that to happen again after World War Two. So they saw what went wrong after world war one and made those changes. So that’s what we’re going to be looking at in this episode. Now it bears
one more look at the challenges that Europe was facing after World War Two. First, a brief personal anecdote. A couple of years ago, I met a woman who was in her 70s and she was from Switzerland. And she mentioned that she was a vegetarian. I thought that was very interesting because as far as I understood, the vegetarian movement is something that I happen in the latter half of the 20th century and I didn’t know many people of her generation who did that was a dietary reason. Well, the reason is in Switzerland in the postwar years, there was no meat available. People couldn’t purchase meat, so she grew up not eating meat. By the time most of Europe had rebounded and livestock industries were back and you could purchase me at a reasonable price. She didn’t have the stomach for it. And I wonder how many other stories are like that where the fallout after World War Two is still affecting society. 70 years after the fact. Let’s take a closer look at what Europe was facing. Now, to say that Germany was devastated as an understatement. Some people refer to the period after 1945 as Year Zero. Most of Europe was in ruins. It was a smoldering crater. There were 60 million dead 25 million of them Soviet, many a die by genocide in addition to combat and deaths. There are also millions of displaced persons, someone they were voluntary refugees that were moving west in the face of the advancing Red Army. Others were deported as undesirable minorities. For example, the newly independent Czech state expelled 3 million ethnic Germans after 1945. And Poland expelled a further 1.3 million. There were orphaned children everywhere. 300,000 alone Yugoslavia. There are also millions of women who had been raped by soldiers, and up to 2 million women had abortions in Germany every year between 1945 and 1948. What made this process so hard is how do you even begin to rebuild when roads are destroyed? bridges are destroyed railroad lines are destroyed. You can’t buy anything because the factory isn’t there to produce it. But how do you rebuild the factory when you can’t get the necessary equipment there, the construction teams there to rebuild the factory. And what do you pay them with when there’s rampant inflation economies are depleted by nations spending all that they can on their war machines. In Germany between 20 and up to 70% of housing has been destroyed in the Soviet Union 1700 towns and 70,000 villages, vineyards, fields, and forests were ripped to pieces. If we take a look at Asia, millions of acres in North China were flooded after the Japanese destroyed the dikes nations where the finding wasn’t as intense and says Britain and France also had little despair. Britain basically went bankrupt fighting the war and France had been stripped bare by the Germans. And it’s because of the aftermath of World War Two that colonialism across the globe fell apart. European colonies in Africa and Asia soon disappeared because they couldn’t be financed and this led to independence movements after world war two up through the 60s and 70s. Part of the reason there was so much chaos after World War Two is because of the iron curtain that went up between mostly the United States and its allies in the Soviet Union. There was no comprehensive peace plan like a Treaty of Versailles after World War One There were a number of separate agreements or ad hoc arrangements. The Soviet Union seized back some bits of territory that lost Romania in 1919. Poland as a nation basically shifted West 200 miles. It called itself a country on wheels. It lost 69,000 square meters of the Soviet Union. And again, a little bit less than that from Germany in the West. So this is the stage for that chaos in World War Two. Now, I mentioned earlier that Germany and other nations managed not to repeat the mistakes of World War One, because Germany was able to recover after world war two in a way it wasn’t in World War One. So let me turn back the clock even further and take a look at that case. One of the biggest failures of World War One was the peace process. When it ended, the victorious Allied Powers put significant reparations payments and treaties on the Central Powers forcing them to pay for the war, which they thought that they were almost completely responsible Central Powers had lost huge chunks of their population due to the war. The Big Four, Great Britain, France, Italy, and the United States decided that Germany was the chief instigator of the conflict, so they should pay and forfeit the most. According to the terms of the Treaty of Versailles, Germany was forced to give up large portions of its land about 13% demilitarize the Rhineland, and significantly lower the number of Germany’s military forces. That was one factor. But the other factor too were economic policies coupled with having to pay a huge war indemnity when they couldn’t pay for much of anything after the war.
One of the problems was that in 1914, at the outbreak of World War One, Germany left the gold standard, which wasn’t a problem at the time, there were lots of other nations that did it. But in order to finance the war, instead of taxing its people more, it borrowed huge amounts of money with the help of its national bank in the form of bonds. The Treasury Then printed money at a higher rate to pay back these dues. But this is money that wasn’t backed by anything. So as a result, a growing percentage of government debt found its way into the vaults of the central bank. And an equivalent amount of money that came right off the printing press came into people’s cash holdings. So the central bank was monetizing the growing government debt. prices and money in circulation rose steadily in Germany from 1914 to 1918. Due to wartime expenditures, which wasn’t unusual for our country during wartime. But by the time of the armistice in 1818, the amount of money in circulation in Germany had risen by four and prices increased by 140%. In order to pay its expenses after the war, the German government didn’t stop this policy but continue to print money to pay expenses workers and make reparations payments. In order to keep the system afloat, Germany needed gold and a strong foreign currency but it didn’t have this at the time. Five years after the war ended in December of 1923, the German bank had issued nearly 500 quintillion marks, making the German market equal to 1 trillion of its value in 1914. Probably one of the greatest cases of hyperinflation in all of history, in November of 19 2342 billion marks were worth one American set. But many German government officials didn’t recognize the danger of inflation before 1923. After the war, they invested a lot of money for health care, education, and other public expenses in order to repair their infrastructure of the country and provide jobs for its returning soldiers. But government expenses skyrocketed, and collecting taxes alone couldn’t cover the costs because many of the citizens either couldn’t pay any taxes. They were impoverished as a result of World War One. So tax collection plummeted, and the monetization of short term government by printing out more money resumed and inflation kept accelerating. So Germany what really had no means have been able to break the cycle had to make wartime indemnity payments and to pay off all the expenses of the war. But it couldn’t do that because they didn’t have the money to do so. So it was printing off more money, which was increasing inflation and driving down the value of their currency making it harder to pay off their debts. And the cycle continued and continued and continued. From 1940 to 1923. Only 15% of the government’s expenses were covered by taxes, but due to a drop in their currency and the loss of a tax base, this number fell 2.8% in 1923. To make a long story short, this chaos in Germany led to the rise of the Nazi Party. One thing that they implemented in order to stop the shock of the system and runaway inflation, were price controls. Let me just say a little bit about this, and I’ll try to make this as not dry as possible because price controls are important to understand. They play into this whole story about how Germany suffers after World War One, but how it manages to not make the same mistake after World War Two. So what price controls are it’s a restriction set in place and enforced by governments on prices that can be charged for goods and services pretty standard dictionary definition. The purpose of this is to maintain the affordability of goods even during shortages and to slow inflation or to ensure a minimum income for providers of certain goods. This is not a new idea. This does not begin in the 20th century. You can go all the way back to the Roman Emperor Diocletian, that tried to set a maximum price for all commodities in the third century. But he didn’t succeed for reasons I’ll get into. This was tried in India in the 14th century as well. And up into the modern era in the United States, price controls were enacted several times. The first came in 1906 as part of the hep bomb act. In World War One the world industries board was established to fix prices and standardized products in order to boost the war effort. Even in World War Two, the National Industrial Recovery Act created The National Recovery administration to set prices and create a code of what is considered to be fair prices. price controls aren’t really supported by modern economists anymore. The reason is that when you install a price ceiling, it keeps prices artificially low. Okay? That’s the point that makes sense so far, but demand has decreased to the point where supply can’t keep up. This is where you see empty grocery stores because people are buying things out and they’re being sold for far below their value. And producers simply aren’t as incentivized to make more of it because they might lose money in the transaction. One Roman writer noted that Diocletian
by various taxes had made all things exceedingly expensive, attempted by law to limit their prices. The much blood of merchants was shed for trifles. Men were afraid to offer anything for sale, and the scarcity became more excessive and grievous than ever.
Unknown Speaker 15:55
Until in the end,
Scott Rank 15:57
the price limit law after having proved destructive to many people was from near necessity abolished. Another factor in addition to having empty shelves in grocery stores and other places, goods still appear. But they don’t appear in government back stores. They appear in black markets, where prices for those reflect what the goods are actually worth instead of those in the controlled market. black markets flourished in wartime in World War One and World War Two and practically any war that you can look at the United States when there were restrictions on food, gas, rubber, and metal. These goods were restricted in order to support the war effort and build military equipment. There was a thriving black market. Also in the United States. One of the main sources of black market goods were farmers. In Britain, farmers declared fewer domestic animal births to the Ministry of Food that actually happened so that they could sell this meat on the black market. Milton Friedman, Nobel Prize-winning economist said we economists don’t know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes for example. Just pass a law that retailers can’t sell tomatoes for more than two cents a pound. Instantly, you’ll have a tomato shortage, and it’s the same with oil or gas. Well, Germany enacted price controls in the 1930s and 1940s, with one goal in mind, and that was to win World War Two. All goods essential to the war were acquired by the government at a reduced cost. And prices were controlled in order to limit inflation. But like any other place, it resulted in a black market. Now, it wasn’t just an upper limit on prices that were using price controls. There were also price floors that were introduced for stocks or bonds, that’s prevented securities from declining in value, so you wouldn’t have the same type of death spiral like you saw in the 1920s. What this meant is that stock prices didn’t reflect their actual value. So stock markets were frozen and trade dwindled until it was almost nonexistent. But if it reflected the actual value, they would have lost heavily as a war effort turned against the Nazis and they Wouldn’t able to keep their factories running. Factories may not have liked this but in the Nazi period, they were run to support the war effort not to make profits. Many countries had price floors and they were introduced during World War One in England in the United States and Germany and other countries. Stocks traded at full price, but market makers only had to put up a little bit of the cost of the stocks waiting until settlement days to balance their accounts. If there were a steep decline in prices, it would have bankrupted many of the stock market traders. So the price floor is prevented panic selling but trading them a security stop because no one was willing to buy shares for less than they were worth. So between January 1943 and June 1948, there was almost no change in the German stock market index and almost nobody was training It was a ghost town. After World War Two, the economic situation for Germany got worse. The money supply continued to grow, it expanded fivefold between 1930 1945 but the prices of goods were fixed. ration coupons were given out for some goods. But the number of rations couldn’t meet daily needs for people and consumers had to turn to the black market. By the time Germany was under military occupation at the end of World War Two, they replaced the Reich’s mark with a military mark. Western Allies tried to limit the issue of military marks control inflation. But the Soviet sector was willing to print extra marks to pay for the rising cost of occupation. So it was the same process that Germany was facing after World War One of an inflationary death spiral. And the economy was collapsing by the spring of 1948. food production was only half of what it was in 1938. industrial production was a third of its pre-war level. wages were low and many workers failed to show up because salaries were controlled by the government, which led to declining production. People devoted their time instead of finding the food they needed to survive. Maybe they will go foraging. Maybe Would barter with the goods they did have on the black market. They said earlier one of the most reliable units of currency was American cigarettes kind of like in prison. Cigarettes held their value no matter what. And many soldiers sold their cigarettes on the black market to add to the small salary they were receiving. T eyes were issued cigarettes all the time, so this was kind of like a stipend. On the weekends, Germans will leave the cities to go to the countryside to buy food directly from farmers. Because there was nothing on the shelves in the city stores. Others grew so-called Victory Gardens in their backyards to keep themselves from starving.
So Germany faced many challenges after World War Two, but an advantage that it had that it didn’t have in World War One is that the Allies actively looked to help Germany rebuild its economy, and this was decided at the Potsdam Conference. This conference took place from July 17 to August 2 1945. After Germany officially surrendered in World War Two. The goal was to achieve sustained peace. But the main focus of the Potsdam Conference was the finding and implementing a plan for Germany to promote its economic stability and make it able to repay war reparations without completely bankrupting it like it did in World War One. The four parts of the plan were decentralization demilitarization de knots if occasion and democratization of Germany. Another goal was to completely transform the West German economy. The economy of Nazi Germany was based on heavy industry and heavy levels of production. But instead of eliminating industrial and economic capabilities, like what happened after world war one and the demilitarization of Germany, the pulled some conference wanted to transform Germany and maintain some level of economic strength so it could recover. Germany would become a nation whose economy was based more on efficient agriculture and light domestic industry. Germany was occupied by four zones and the English French and American occupied zones eventually became West Germany and the Russian occupied zombie In Eastern Germany, originally, Allied Powers administered German administrative and economic controls. They were directly involved in running Germany for the first few years. But that’s mostly to make sure that Germany wouldn’t develop wartime potential right away. But most of the controls later given to the German people so that they would sink or swim after World War Two, the most strict restrictions were placed on Germany’s wartime industries. The production of arms, ammunition, and implements of war tanks and aircraft were prohibited or prevented. And any types of metals or chemicals or machinery that were directly necessary for war were also originally controlled. That was the big build-up to the main point of this episode, which is how did Germany recover? Let’s get to it now that we’ve set the stage. As I said, the beginning of this episode, Germany’s factories, and railroads and cities were completely in ruin after World War Two. But the Allied occupational policymakers continued the Nazi government system. price controls that had been imposed before and during the war. Germany’s Social Democratic Party wanted to continue controls and rationing and some American advisors agreed, especially john Kenneth Galbraith. Galbraith was an official of the US State Department. He oversaw economic policy for occupying Germany and Japan. And he’d been the price controls are the US from 1941 to 1943. The Soviet zone factories that weren’t destroyed in the war were dismantled and shipped back to the Soviet Union. Sometimes they were used sometimes they were mothballed and not used at all, but they weren’t in Germany. Soviet soldiers as they had done when they came into Germany and World War Two continue to terrorize the population. And the communist political structure was quickly set up by Stalin. In the Allied zones, American and British troops treated the occupied Germans much better but the population was still sort of viewed as an enemy and they weren’t showing excessive sympathy or generally Especially after news of the Holocaust came out. But there were a number of German intellectuals and academics who pushed back against the system of price control. One of the leading figures in this movement was Walter can, who is a professor at the University of Freiburg. He was restricted on what he could say during the Nazi regime. But he and his colleagues had a network amongst themselves that shared ideas of establishing a market-oriented economy. And they had plans for doing this in a post-Hitler period that they all desperately wanted to happen. They followed classical free-market economists like Ludwig von Mises, and we’ll have rookie and one of Yukon protegees was an economist named Ludovic Earhart. errored was a veteran of World War One and he earned his Ph.D. in economics in 1925. From the University of Frankfurt. He refused to join the Nazi party so this cut short his career, he abandoned academia and joined the Business Research Institute in Nuremberg. He started to work for the American occupation forces as an economic advisor. In 1945, and he served in several Commission’s until he was commissioned by Allied authorities to steer the West German economy. Everhard was influenced by the School of Economics called Ordoliberalism. This has its roots in the University of Freiburg in the 1930s.
And it’s also closely linked to the classical liberal tradition. For two years, Earhart served as the economics minister in the American zone in Bavaria, from 1946 and 1948. And he advocated market reforms and radio broadcasts. He told his German audience that they had essentially brought their current situation on themselves and they can only get out of it through saving self-responsibility, hard work, and restore their prosperity. In 1948, the British and American zones were combined into one administrative unit, and Earhart was now the director of economics in June of 1948. He instituted two pieces of reform that completely transformed the German economy. The first was to restore it needs stability, and his second policy sought to end inflation after-effects from the Nazi period. The first policy was introduced a new currency, and people could exchange 10 of the old marks for one of the new to reduce the money supply, keep inflation under control, and also give people a hard currency. But the second one was much more radical. He wanted to completely abolish price and production controls, without any approval from the Allied military command. One Sunday when the authorities were out of their offices, Earhart announced on the radio that the very next morning, all price controls would be abolished. This is a very radical movement he was undoing decades of established policy in Germany overnight. led leaders were shocked by this I thought this is far too radical. It will lead to complete and total chaos journal Lucius clay, who was commander of American forces in Germany, he called Earhart into his office and said her era My advisors tell me you’re making a terrible mistake. And Earhart replied, don’t listen to the General, my advisors tell me the same thing. So what do you announce is that first each German would be given 40 Deutsche Marks that replace the old currency of the Reichsmarks. This will be followed by the second installment of 20 Deutschmarks, basically giving people money to buy things when they may very well have no money or they were relying almost completely on bartering because the Reichsmarks were completely useless. All debts and credits would be converted into this new currency at the rate of 10 to one, and people would have to prove how they came by sums that exceeded 5000 Reichsmarks so that way people weren’t just gaming the system and taking too much of this new currency. Earhart knew that his plan wouldn’t succeed if the new money was used by people but then they went into empty stores and empty warehouses as the old currency faced. That’s why he announced the complete abolition of wage and price controls. Now you see Introducing new currency if it can’t be used on anything. The plan is that first controls would end on an enormous range of consumer goods, then within six months of controls on food would be dropped. He promoted these measures by claiming that they were a patriotic move to replace a foreign economic system that had been imposed on Germany, even though that happened from within and not without. Earhart believed, as you most modern economists, that 2000 years of data going back to Diocletian showed that wage controls and price controls didn’t work. They always ended in a lack of goods, they destroyed incentives and the transfer of wealth from citizens into the hands of bureaucrats and those favored by the government. Well, the effects were dramatic. As I described at the top of this episode, it was as if stores came to life. black markets disappeared, buying and selling with Deutsche Marks replaced barter. almost overnight, factories began to belch smoke again and observers said they could see delivery trucks Trucks crowding the streets and the noise of construction crews clattering throughout the cities again. The success of this was unmistakable. A few months later, the French zone followed suit and industrial production skyrocketed. In the second half of 1948, industrial production increased by nearly 50% from its June level. A year later, at the end of 1949. The production was 81% above what it had been when the reforms were first implemented. Prices did spike initially when sellers could sell things for what the market value made them actually worth instead of price control. But by the end of 1950, there was the greater industrial and agricultural output that was offered on a more open market, which reduced the cost of living because they produce the goods that people wanted and economies of scale they were cheaper. After the French, British and American zones merged in 1949. Growth continued, and Earhart then became the Minister of Economic Affairs was Germany grew rapidly and East Germany. Did not between 1950 and 1960.
Germany eventually surpassed France in the United Kingdom, Despite receiving much less Marshall Plan aid. From 1950 to 1960, the West German economy is real output more than doubled. And it grew for a decade at a compounding annual rate of 8% a year. It wasn’t just the lack of price controls, but it was a growing labor force and investment flows like Germany to catch up to a low level of initial output. It’s by the end of the 1950s that you hear the term virtual founder or economic miracle the way that Germany was so quickly able to rebound. And only in a little more than a decade, it went from a pile of rubble to a modern Western European nation. Now it’s worth looking at East Germany a little bit because it provides a very useful case study comparing it to West Germany because they were all one combination and then split off into two divergent paths to good AB test, as they say in internet marketing Because the rights Mark was now worthless in Western Germany after it was replaced by the Deutsche Mark, the Soviets introduced a new currency as well into Eastern Germany, called the OST mark. It continued to circulate in Eastern Germany for the next 40 years. The exchange rate between the OST mark and the Deutsche Mark was officially set at one to one, but the postmark always traded at a discount. If you went to East Germany in the 80s and exchange currency on the black market, the exchange rate was more like five marks to one to each mark. After the currency reform in Western Germany, the Soviets blocked all roads into the Soviet zone, which made West Berlin inaccessible. The currency reform of 1948 directly led to the Berlin Blockade, and also the airlift from allies that save the people of West Berlin from starvation. They were closed off by the Soviets on all sides, so allies airlifted thousands and millions of tons of crucial supplies so they didn’t starve and I think I’ve covered the Berlin airlift in other episodes. So the separation of Berlin from Eastern West, which went from 1948 to 1989, was started by this economic plan. Eastern Europe did not develop and after the fall of communism and the reintegration of Eastern and Western Germany, the eastern part of Germany has always lagged and in many ways continues to lag economically from areas in Western Germany. And not only did factories spring up and industry springing up all over Western Germany, but the stock market recovered, the German stock market recovered its pre currency reform level by 1952. By 1953, Germany officially defaulted on its foreign debts and replace old bonds with new ones which had lower interest rates and extended maturity. capital controls were lifted and the Deutsche Mark was now considered a strong currency that stood by the pounds and the lira and other European currencies. Now one other thing that did a Germany’s economic recovery, it wasn’t just a drastic change in its economic plans. The Marshall Plan Also did have an effect. The Marshall Plan or funds given by the United States to nations destroyed and World War Two to rebuild war-torn regions remove trade barriers and modernize industry and also importantly, to prevent the spread of communism wasn’t completely altruistic. The Marshall Plan initially offered aid to the Soviet Union, but they refused to accept it because they didn’t want the United States to have a degree of control over communist economies. The Soviet Union prevented satellite states like East Germany and Poland from accepting it. The Marshall Plan resulted in $12 billion in aid distributed to Western Europe, and Germany was one of the largest recipients taking about 11% of the $12 billion. So this allowed it to stimulate the domestic industry to repair their broken highways and hospitals and power lines in other nations also benefited from 1948 to 1951. Those that did receive aid from the Marshall Plan had a rise in the gross national product by at least 15 to 25%.
And interestingly, the engineer of the Marshall Plan, George Marshall, who was Secretary of State later received the Nobel Prize for Peace, and he was the only general in history to do so funding it in 1953, but the economy of every participant state had surpassed pre-war levels. Output was at least 35% higher in 1951 than it was in 1938. However, I think that the effect of the Marshall Plan wasn’t as big as other things that led to Germany’s economic revival. The Marshall Plan aid to West Germany wasn’t that large Yes, they did take the largest share of it, but cumulative aid from the Marshall Plan and other aid programs only totaled $2 billion through October 1954. Through all the years that it was in effect. When aid was at its peak in 1948 1949. The Marshall Plan was less than 5% of German national income. And while Western Germany was receiving aid, it was also making reparations and restitution payments over a billion dollars. The lie is charged to the Germans $2.4 billion for their cost of occupying Germany. Although this is partly offset by the fact that Germany didn’t need to pay for its own defense at this period, you don’t have to maintain a standing army that saves a lot of money. So in conclusion of this episode, I think the case of Germany after world war One and World War Two show good examples of how to rebuild the economy and how not to rebuild the economy. And this is also affected by what others do to a nation that is economically devastated. Germany, after World War One was heavily reliant on foreign loans or people, were starving, they had a worthless currency, and their government wasn’t stable, which set the perfect conditions for the rise of the Nazi Party in Adolf Hitler. Western Germany, in contrast, had an economic policy that opened up free markets, it had the support of its former enemies from the war. It was given foreign loans, that reparation payments were reasonable given its current situation. And by the 1950s and 1960s, West Germany had the strongest economy in Western Europe. Perhaps even the worst world in a strong currency or extremely independence, they had limited reliance on imports and had a booming industry. Much of the failures after World War One were due to what Germany did. Their economic policy of pumping out money led to hyperinflation. So it’s arguably only fair that Germany gets the credit for what happened after World War Two. Now, one advantage Germany did have is that its population was well educated and had a lot of technical skills. So even if factories were destroyed, Germany’s productive capacity was never completely eliminated in the war. It was still much higher than before the war started. Germany quickly repaired its infrastructure, especially the bottleneck sectors that the Allies had destroyed. So employment and worker productivity rose, allowing Germany to regain its productive potential and transfer the wartime economic model to a domestic industrial model. And Germany had almost peasant-like agriculture before World War Two, as did many nations on Earth. Were some farmers mostly used machinery, but there were some who didn’t. Germany was forced to provide food for its starving people and a large number of Allied soldiers occupying it. So they quickly mechanized their agricultural sector and became one of the most advanced on Earth. So became more efficient with its agriculture and moved much of its population to the domestic industry. So with these plans in place, without crippling reparations payments on them, they were able to succeed. And almost everything about the post-war plans was a success, the treaties the plans, like the Marshall plans that move for economic unification and reducing trade barriers in Western Europe. We’re all done to unite Western Europe politically and economically in order to promote sustained lasting peace, and with military alliances like NATO. I meant that there were successfully no major wars in Western Europe after world war two until now. So this analysis of economic recovery doesn’t apply to everything. It might not apply directly to things like pandemic Next, where, because we’re looking specifically at how a war-torn nation rebuilds. Hopefully this at least gives some optimism that a nation that comes from essentially a pile of rubble can rebuild and become one of those modern nations in the world in a period of only a little over a decade. Right. So that is all for the episode today. Once again, I want to start things off by thanking the spymasters of history unplugged. I’ll explain what that is. In a second. perspective. Masters include bill IV Moondog he from Ohio, Tom from Ohio, Ryan Gillan, Rob from Chicago, Nick Brooks, Michael from New York, Carl from Norway. Josh Reddick, Jennifer French Lee, Jake Harrington McRae’s, David Santee, Chris C. And Baron Fraser. If you’d like to support the show, there are some very easy ways to do so.
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Cite This Article"How Economies Bounce Back From Total Collapse: The German Economic Miracle (1948-1957)" History on the Net
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