AnExplana0onforGermany’sMacroeconomic
Developmentfrom1918to1989
GDPpercapita
18.000
16.000
2ndOilCrisis
14.000
12.000
1stOilCrisis
EconomicMiracle
10.000
8.000
GreatDepression
6.000
NaziRegime
Stagfla=on
Post-warPeriod
GoldenTwen=es
Hyperinfla=on
4.000
StundeNull
(“ZeroHour”)
WorldWarII
2.000
0
1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989
1918-1923:ThebeginningsoftheWeimarRepublic&
Hyperinfla0on
1924-1929:TheGolden
Twen0es
1929-1933:TheGreatDepression
ThenewYoungPlanslightlyreduced
Germany’sdefeatinWorldWarIpresentedmul=plechallengesforthe Stabilitycouldonlyberegained
repara=onannui=esandincludeda
newdemocra=cgovernment:Itwasrequiredtoreduceunemployment throughacurrencyreform.The
stabilisa=onloan.However,italsoabandoned
ands=mulateeconomicgrowthwhilstsimultaneouslypaying132bn
newReichsmarkwas=edtothe
theconceptoftransferprotec=on.Instead,
Reichsmarkinforeigncurrencytothevictoriouspowersasrepara=ons. goldstandard,andtheold
repara=onpaymentswouldassumeseniority
Thewarfinancinghadoccurredvialoans,andtheabandonmentofthe Reichsmarkwasconvertedtothe
overcommercialloansaferoneyear.When
goldstandardhadenabledthegovernmenttoincreasethemoney
newoneatarateof1012:1.To
newsofthisleakedinMarch1929,acrisisin
supply.Toimprovethecountry’seconomicsitua=on,thegovernment
addressthedebtproblem,the
thebondandmoneymarketsensuedaswell
con=nuedtoinvest,financedthroughprin=ngmoneyandraisingtaxes. DawesPlanwasputinplacein
asasuddenstopofcapitalimports.A
Addi=onally,theS=nnes-Legien-Agreementhadstrengthenedworkers’ 1924,reducingthetotalamountof governmentbondflota=onfailedinthesame
rights.France,doub=ngGermany’sabilitytopaythedebt,occupiedthe repara=onpaymentsto42bn
month.InOctoberof1929,thestockmarkets
Ruhrvalleyin1923,thecentreofGermany’scoalandsteelindustries.
Reichsmark.Itpromotedpayingfor crashedandtheGreatDepressionspread
Consequently,Germanworkerswentonstrike,worseningthesitua=on. repara=onsbyusingcreditsince
acrossGermany,resul=ngadisastrous
Inconclusion,thegovernment’spoliciesreducedunemploymentand
commercialclaimsenjoyedtransfer economicrecession.Despitethedras=c
increasedGDP/capitaintheshortrun,buttheyprovedunsuccessfulin protec=onagainstrepara=ons.This increaseinunemployment,wagesweres=ll
thelongrun:wardebtshadtoberepaidusingforeigncurrency,andthe resultedinlargeshort-termcapital rising.Thisfurtheredunemploymentand
devalua=onoftheReichsmarkledtothehyperinfla=onof1923.
inflowsandeconomicprosperity,
increasedthecostofproduc=on,therefore
knownasthe“GoldenTwen=es”.
deterringinvestment.
50
45
40
35
30
25
20
15
10
5
0
1933-1945:TheNaziRegime&WorldWarII
TheNaziparty’seconomicpoliciesfocusedonreducing
unemployment,improvinginfrastructure,rearmament,
and(unsuccessful)Germaneconomicautarky.
Tradeunionsandstrikeswereprohibited,and
industrialistsbecamemorepowerful.Morejobswere
alsocreatedduetothena=onallabourservice,public
workprogrammesandrearmament.Ordinaryworkers
weremo=vatedthroughthe“StrengththroughJoy”
organisa=on.Wagesfell,andhourswerelongerasa
result.FinancingwassecuredbecausetheNazisstopped
payingrepara=onsandintroducedthe“Mefo”bills.
Addi=onally,womenandJewsweredismissed,andtheir
jobsgivento“Aryan”men.Infrastructurewasimproved
andfullemploymentwasachievedforashortperiod.
However,regardlessofpoten=aleconomicsuccesses,
theresultsofWorldWarIIandtheHolocaustdestroyed
thecountryandkilledmanyinnocents.
1945-1966:Post-warPeriod,theSocialFreeMarketEconomy,andtheEconomicMiracleinWestGermany
AfertheendofWorldWarII,thecountrywasdestroyed,ascanbeseenaboveandbelow.Thepictureaboveshowsthe
‘BrandenburgerTor’in1945.Thephotographnexttoitcelebratesthecomple=onoftheonemillionthVolkswagenin1955.
ThethreepicturesbelowshowjetsflyingovertheReichstag,peopledemandingcoalandbread,andfinally,women
workingtorebuildthecountry.Duringthepost-waryears,theGermanpopula=onwassufferingfromhunger,cold,
illnesses,poverty,andhomelessness.Inordertodealwiththeseproblems,thenewgovernmentcooperatedwiththe
alliedforces.ThefutureEastGermany(“GermanDemocra=cRepublic”,GDR)wasoccupiedbytheSovietUnion,and
thereforeadoptedacommunistplannedeconomy.However,IwillfocusonWestGermany(“FederalRepublicof
Germany”,FRG),whichwasunderthecontroloftheUSA,theUK,andFrance.Thus,theFRGadoptedacapitalistsystem.
TheMinisterofEconomicAffairs,LudwigErhard(heisshownbelow,presen=nghisbook“Wohlstandfüralle”,“Wealthfor
all”),oversawthecurrencyreforminJune1948(the“DeutscheMark”replacedthe“Reichsmark”),whichendedthe
prevalenceofblackmarkettradeandbarter,andtheintroduc=onofthesocialfreemarketeconomy.Thisconcept
combinedcompe==on,profitorienta=onandprivatepropertywithagovernmentredistribu=onconceptthatincludeda
progressiveincometaxandsocialbenefits.Addi=onally,theMarshallPlanwasaUSforeignaidprogrammethatsawover
$12bninvestedintoWesternEuropeandthereforeboostedGermaneconomicrecovery.TheGermancentralbankbecame
independentin1957.Inthesameyear,aFederalCartelOfficewasestablishedtoensureacompe==vemarketeconomy.
Allofthesefactorsresultedinthe“GermanEconomicMiracle”,anunprecedentedeconomicupswing:unemployment
cameveryclosetozero(resul=ngintheneedtoaqractoveronemillionguestworkers),andGDPpercapitaincreased
morethanfourfoldatacompoundannualgrowthrateofcirca7.5%.
1966-1972:KeynesianConcepts
Bythemid-1960s,theeconomicboomhadsloweddown:
GDPpercapitawasstagna=ng,andunemploymenthad
beguntorise.Inordertoreturntoposi=veeconomic
development,the“stabilitylaw”waspassedunanimously
in1967.Itoutlinedfourmaineconomicgoals:pricelevel
stability,highemployment,externaleconomicbalance,
andcon=nuous&reasonableeconomicgrowth.Thenew
government,notablyKarlSchiller,MinisterofEconomic
Affairs,pursuedKeynesian-an=cyclicaleconomicpolicies:
forexample,in1967,2.5bnMarkwereinvestedin
infrastructure,andinterestrateswerelowered.
Furthermore,the“concertedac=on”programme
facilitatedthedialoguebetweenthegovernment,
industrialists,unions,thecentralbank,andacademia.
Thesepolicieshadaposi=veeffect:GDPpercapitagrewat
around3.4%peryear,andunemploymentdecreasedun=l
itwasclosetozero.
1972-1982:OilCrisesandStagfla0on
Thenewgovernmentsubstan=allyexpandedthesocial
securitysystem.Andin1973,theoilpricehikeputthe
economyunderpressure.Forexample,thecyclistonthe
motorwayinthepicturebelowillustratesoneoftheresultsof
theshortageinoil:inNovemberandDecember1973,four
Sundaysweredeclared‘car-free’.Thismeantthatapartfrom
ambulances,taxisorfoodsuppliers,nobodywasallowedto
usetheircar.Thepreviouslyposi=veresultspromptedthe
governmenttoincreasepublicdebtdrama=cally.Thenew
governmentalsosupportedworkers’wishesagainst
industrialists.Thisiswhywagesincreasedsteeply.Theexcess
debtcausedinfla=on,whilewageraisesresultedindeferred
investmentandunemployment.Asaconsequence,GDPper
capitagrowthsloweddowntocirca2%peryear,and
unemploymentrosefrom1%in1972to7%in1982.Thislack
ofeconomicgrowthincombina=onwithanincreasein
infla=onwascalled“Stagfla=on”.
1982-1989:WaytoReunifica0on
Theeconomicdownturncon=nuedwith
highunemployment,debtandapersistent
lackofeconomicgrowth.Risingwagesand
theexcessivedebtmadebytheprevious
governmenthadnothadthedesiredeffect.
Thegovernmentaqemptedtominimiseits
roleintheeconomybyusingsupplyorientedpoliciessuchasstrengtheningthe
privatesectorandconsolida=ngpublic
finances.Consequently,theeconomy
recovered:GDPpercapitaincreasedagain
ataround2.4%annually,and
unemploymentbegantodecreasefromjust
under9%inthemid-1980sto7.6%in1989.
InNovember1989,thefalloftheBerlin
Wallmarkedthereunifica=onofEastand
WestGermany.
UnemploymentRate
GoldenTwen=es
NaziRegime
StundeNull
(“ZeroHour”)
Hyperinfla=on
WorldWarII
GreatDepression
Stagfla=on
Post-warPeriod
EconomicMiracle
Nodataavailable1940-1945
1918
1920
1922
1924
1926
1928
1930
1932
1934
1936
1938
1940
1942
1944
2ndOilCrisis
1946
1948
1950
1952
1954
1956
1958
1960
1962
1964
1stOilCrisis
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988