West Germany Economic Miracle (Essay Sample)

West Germany Economic miracle
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West Germany Economic Miracle
By the time the Second World War come to an end, a larger part of Germany was already ruined. Allied forces had bombed or attacked large parts of Germany’s infrastructure. Industrial production had dropped by a third of what it was before the war; food production was down by half. The demographic that could be utilized for rebuilding the country that consisted of men between the ages of 18 and 35 were crippled or had been killed by the war.
Food rations that had been instituted by Hitler in 1936 had been maintained by the Allies and ensured that the population was limited to a number of calories that they could consume. Massive black market and food shortages resulted from price controls that were practiced on other services and goods. Germany in short was a ruined state and what it faced was facing was a bleak future. The country was divided into four with the Eastern part becoming a socialist state, Western half turning to democracy while the central part being divided into two by the Berlin wall.
Walter Eucken
Walter Eucken was the instrumental person that ensured the stunning rebirth of West Germany. At the Bonn University, Eucken studied economist and later on taught at his alma mater. Later he moved to the University of Freiburg where his economic theories were initially developed. His ideas had a deep root in free market capitalism root as well as the involvement of the government in ensuring that many individuals were served by the system. These could include regulations to ensure that monopolies and cartels were prevented from forming. He was also of the view that a strong central bank that is independent of the government was necessary that could ensure that the prices remained stable through using monetary policies. In many ways, he was seen to mirror the thoughts of Milton Friedman. This type of system during those times it was viewed as radical since Germany had been hit hard by the great depression that had affected the entire globe. In the thoughts of many the economic theory capable of sweeping the world was socialism.
The Transition
There was heavy debate during the infancy of West Germany regarding the direction of the fiscal policy of the new nation. Many Social Democratic leaders and labor leaders favored a government controlled system. But Ludwig Erhard who was Eucken’s protégé gained prominence with American forces that still had control of Germany. Erhard was a researcher ad worked for the restaurant industry in the department of economics. He daringly wrote a letter when the Nazi were in control in 1944 whose information discussed the financial position of Germany and assumed the war was lost by the Nazi. The U.S intelligent forces received information contained in the letter and looked for him. He was later appointed the Bavaria’s finance minister after Germany surrendered. He later become the economic council director of the Western half of Germany.
After gaining political influence, he endeavored in coming up with ways to ensure the economy of West Germany come back to life. He ensured a new currency is formulated that replaced the past currency that was worthless. The effect was the reduction of the currency that the public could access by about 93%. Additionally tax cuts that were large were also instituted in order to spur investment and spending. On June 21, 1948, is when the currency was to be introduced, and on the same day price controls were removed by Erhard. These decisions made Erhard to be universally criticized. Erhard was summoned to the US General Lucious Clay Office where he was informed that the new laws would fail. He responded by telling the General not to listen to his adviso...