How Economies Bounce Back From Total Collapse: The German Economic Miracle (1948-1957)

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.