West Germanys Economic Miracle (Coursework Sample)

WEST GERMANY’S ECONOMIC MIRACLE: THE TRANSFORMATION FROM A BACKWARD ECONOMY INTO A COMPETITIVE ONE
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Introduction
After the guns had gone silent on D-Day, Germany lay in shambles. The bombing had decimated a significant portion of the country’s infrastructure, housing had shrunk by 20 percent, and the country’s population radically reduced. For instance, Cologne’s population before the war stood at 750000; after the war, it was 32000. The production of food in Germany had reduced by half and the bulk of the population regarded as productive had been killed during the war. Inflation hit Germany like the plague, and people would trek hundreds of miles into the countryside seeking food. The medium of exchange was barter trade. All these signaled the return to backwardness, but this narrative would soon change after the rebuilding begun. The economic boom that soon followed was aptly termed "Wirtschaftswunder," German for the economic miracle.
Currency Reform, Price Decontrol and Reform of the Margin Tax Rates
The post-Nazi period (1948-9) saw the Allied Control Authority retaining most of the price controls that Hitler had initiated during the World War II to keep the prices of war raw materials cheap. The amount of money in the West Germany state at the start of 1947 was five times higher that of 1936. This scenario implied that the price controls would create a shortage in the market. The economy entered a phase of free-fall, and drastic action had to be taken to redress this imbalance.[Erhard, Ludwig. Germany's Comeback in the World Market: The German'miracle' Explained by the Bonn Minister for Economics. Routledge, 2013. 34.]
The first policy West Germany adopted to stabilize the economy was to reform the currency. The reform process was led by economists who shared the economic philosophies of the Chicago School of Economists such as Milton Friedman and Stigler George. German economists such as Ludwig Erhard advocated for the reform of currency to balance the supply of money in the economy with the number of goods. By keeping the two on the same level, inflation could easily be tackled. At the same time, this school advocated for price decontrols which would curb the market repression.[Dustmann, Christian, Bernd Fitzenberger, Uta Schönberg, and Alexandra Spitz-Oener. "From sick man of Europe to economic superstar: Germany's resurgent economy." The Journal of Economic Perspectives 28, no. 1 (2014): 169.]
The currency reform saw the introduction of Deutsche marks (DM) in place of the reichsmarks, Hitler’s currency. The amount of DMs introduced in the economy was smaller when compared to the number of Reichsmarks. The intention was to contract the money supply, thus reducing the steep inflation brought about by a runaway currency. This policy worked and resulted in a 93 percent contraction in the value of money held in German currency. The obvious implication was that a lot of people ceded a substantial amount of their wealth to accommodate the currency reform.
Similarly, the country eliminated price controls so as to let the supply-demand metrics dictate prices in the markets. The elimination of price controls resulted in traders charging higher, which also catalyzed more supply of goods and services. The third policy that stabilized the markets and spurred economic growth was a reform of the marginal tax rates charged on income. The law on taxation was streamlined, resulting in less taxation for people, leaving them with surpluses which could be channeled into investment and expenditure. This surplus money increased the level of individual investments, activating docile economy.[Ibid, 172] [Hirseland, Gerhard. "The West German Miracle Revisited." Challenge (05775132)Â&nbs...