FRG Economy

FRG Economy

Economic Recovery (1945-1955)

Problems with economy post-war:

• industrial output only 1/3 of pre-war levels
• currency collapse
• bartering of goods rather than paying
• unemployment rose to 2 million

Marshall Plan (1948) - plan created by the US to fund countries which were threatened by communist takeover - overall contributed $1.5 billion

Erhard's policies for reform (1948):

• Currency change - removal of Reichmark in replacement for the Deustchmark
• Abolition of price controls and rationing - social market economy
• tax reductions - fell to 18% (1950)

Effects of reforms:

• Meant that more investment took place as more entreprenuers were willing to invest and produce goods - industrial output increased by 50%
• Meant cheaper and more competitive products were being sold which in turn convinced Germans to stop hoarding and buy new products
• Disappearance of black market
• Reduction of absenteeism - average dropped from 9.5 hours to 2 hours
• unemployment fell from 10% to 1.2% in 1960
• salaries rose by 80% from 1949 to 1955

Social Market Economy - end of monopolies/cartels in promotion of free development of business (wages/prices) whilst the government regulated economy and helped worser members of society

Government policies for economic growth:

• 1950 - creation of work creation schemes
• Investment Aid Law (1952) - government subsidy of 3.2 billion to facilitate industrial development
• rebuilding programme of buildings/infrastructure - Trummerfrau
• Anti-Trust Law (1957) - stopped creation of monopolies/cartels to create competition
• creation of strong banking controls to ensure strong currency

Other factors contributing to economic growth:

• limited expendituture on millitary - meant money could be spent elsewhere
• Korean War (1950-53) - meant that there was a need for munitions and arms which Germany could provide
• skilled workforce, many raw materials and sea ports with easy access - geographically Germany had good bases
• Factories could be rebuilt with new equipment and technology
• Marshall Plan
• co-determination allowed workers to elect representatives to participate in management - created more…