History of the German Economy, (1945 - Present)

Following World War II, the German economy, not to mention Germany itself, was in ruins. Millions of people were displaced in the aftermath of the war, becoming homeless refugees with few possessions. Once again, inflation played a devastating role in the collapse of the German economy. Luxury items, such as pens, nylons, and cigarettes, became just as acceptable as the paper money in economic exchanges. The Allied powers that controlled Germany saw this as an opportunity to start fresh and create a new, stable society that could enjoy economic prosperity. One of the first steps to creating a free German economy was abolishing many of the rules that the Nazi party imposed on economic functioning, as well as to create a new legal tender that Germans could use as money. These measures proved to be enormously successful, and provided a solid foundation for the establishment of a new economy in West Germany.

The German economy has often been referred to as a soziale Marktwirtschaft, or a Social market Economy, a name that reflects its dualistic devotion to the materialistic aspect of economics, as well as the human aspect. As a reaction to the extreme role that the Nazis assigned their government in the old economy, the new German economy is mostly free from government regulation, except to protect the competitive environment from being dominated by monopolies. The “social” in Social Market Economy began to take on greater and greater importance, serving as a substitute for “socialism,” which had become an ugly word. The economy now made provisions for those who could not keep up with its demands, caring for its poor as well as its wealthy participants. Today, Germany has the most expensive social welfare system in the world.

Although Germans have tried to keep state influence out of the German economy, several events have prompted the state to take greater and greater control of the nation’s economic policies. One of the most significant of these was perhaps the Reunification that took place in the early 1990s. The economy of East Germany, which had been a socialist state, suddenly merged with that of West Germany, which had run on the Social Market system, and the government of West Germany set about privatizing the East German economy. One of the biggest issues was the fact that many people often had legitimate claims to the same property, since many expropriations had taken place since the end of the war. The conversion rates between East German and West German Marks also presented a problem, as well as the lack of infrastructure driving away investors.

Despite these problems, as the divided nation moved toward unity, the German economy also began to flourish. By the time the Treuhand, the organization crated to help privatize East German enterprises, was disbanded, over 10,000 different firms had been privatized. Although the merger put the new German economy on shaky footing, costing the German people much of the prosperity they had won following World War II, these newly imposed government regulations eventually turned the tide. Today, Germany has one of the most powerful economies in Europe—and the world.