1963-65 - Ludwig Erhard

Ludwig Erhard (CDU) was Minister of Economics during Konrad Adenauer’s term in office (1949–1963). His name is linked to the introduction of the Deutschmark (D-Mark) in 1948 (called the “currency reform”). Erhard is regarded as the father of the social market economy, and the father of the "Economic Miracle" (Wirtschaftswunder ).

Ludwig Erhard had emerged already in 1948 as the economic architect of the British-American Bizone. In contrast to many other German politicians of the time, he agreed with General Clay that socialization of the German economy had to be avoided. Erhard was to become one of two politicians who shaped the Federal Republic more than anyone else. Together with Konrad Adenauer, the political architect who anchored the new West German state in Western Europe, reconciled it with its neighbors, and closely attached it to the Atlantic Alliance, Ludwig Erhard set the course for economic reconstruction and earned himself the title, “father of the economic miracle (Wirtschaftswunder).”

Germany's economic growth during the first decades after the war at times overshadowed its marked success at joining the international community. In 1945 the country's economy was shattered. A good part of what survived was later dismantled and carried off by the victorious Allies. Within Germany there was much argument about how to rebuild the economy and what its nature should be. Socialist politicians argued for a central distribution system, extensive state controls, and the nationalization of banks and industry. Their main opponent was Ludwig Erhard, a liberal economist appointed to head the office of economic affairs in the Bizone, who later became minister for economics and ultimately FRG chancellor (1963-66), succeeding Adenauer.

Erhard's concept of a socially responsive market economy based on free trade and private enterprise, aided by the infusion of capital through the Marshall Plan, proved to be the ideal basis for the strong recovery of the West German economy, culminating in the economic miracle (Wirtschaftswunder ) of the 1950s. In some areas, for instance in housing and in agriculture, prevailing circumstances required the introduction of price controls and subsidies. Controls to prevent the formation of cartels and to foster monetary stability also remained the state's responsibility. The state likewise furthered the accumulation of private capital and protected ordinary citizens by establishing a generous system of social services that included statutory health, unemployment, and pension insurance programs.

West Germany's economy functioned very well for several decades, and the country became one of the world's wealthiest. Thanks to the strong social welfare component and the system of codetermination, which gave workers in factories some say about their management, West German industry enjoyed a long period of labor peace. The export-oriented economy received another boost with the creation of the European Economic Community (EEC) by the Treaty of Rome in March 1957. West Germany was one of the EEC's founding members.

Erhard’s concept for the German economy became known as the “social market economy.” Together with his colleagues mostly from the University of Freiburg, Professor Erhard had secretly begun to develop the concept during the years of Nazi rule. The so-called Freiburg School was searching for a new model for the postwar economy that would avoid the pitfalls of the Weimar Republic and Nazi era. As expressed in the definition, it consisted of two strands of ideals and ideas.

In looking for a market economy, Erhard and the Freiburg School proclaimed that freedom of initiative was to be one central idea. The role of the government was to be limited to the protection of the competitive environment from monopolistic tendencies. Under the motto “as little government as possible, as much government as necessary,” the state was to play a mainly regulatory role in the market economy. Erhard wanted to avoid the kind of connivance between big business and government that had helped to bring Hitler to power.

The second strand of ideas for the social market economy stemmed from the desire to maintain and promote social peace and justice. In the 1920s and 1930s, the political battles between left and right had been fierce. Adenauer and Erhard both wanted to avoid a climate of confrontation that could lead to the re-emergence of radical movements. In 1948 the Deutschmark replaced the old “Reichsmark” as the currency in West Germany. Ludwig Erhard virtually single-handedly also revoked price fixing for most goods. Where previously the state had determined the price of certain products, from then on prices were regulated by supply and demand.

Ludwig Erhard was an early advocate of a liberal, social economic order, both during his time as Minister of Economics and prior to that as Professor of Economics. In West Germany that led to an unbroken period of economic growth that lasted around one and a half decades.

Germany became one of the world’s leading industrial and export nations. It is because of this that Erhard is regarded as the author of Germany’s post-war “economic miracle”. The optimism of the “man with the cigar” was infectious. His motto – “prosperity for all” – became a reality for millions of Germans after the dark years of Hitler tyranny and hardship. For many years Ludwig Erhard was the most popular politician in West Germany.

Ludwig Erhard succeeded Adenauer as chancellor. Under Erhard's leadership, the CDU/CSU-FDP coalition remained in power until 1966. Erhard's more liberal economic policy toward the East European states that maintained diplomatic relations with East Germany made maintaining the Hallstein Doctrine difficult. In addition, his position of favoring close coordination of German foreign policy with the United States was resisted by the "Gaullists," even those in his own party, who favored a continuation of Adenauer's close relations with France.

In terms of foreign policy, Chancellor Erhard attached particular importance to relations with the United States and Israel. By the time Adenauer left office in 1963 (a month before Kennedy was assassinated), a dispute was growing in Germany between those who wanted closer ties to France and de Gaulle and those (called the “Atlanticists”) who insisted on close ties with the United States. This dispute divided the government of Adenauer’s successor, Ludwig Erhard, and continued until de Gaulle’s resignation from office in 1969. Erhard also began slowly opening up to the East by establishing trade missions in Poland, Romania, Hungary and Bulgaria. The CDU/CSU did well in the elections of 1965, but relations with the FDP had deteriorated. A recession and a budget crisis caused the FDP to drop out of the coalition. Erhard ruled with a minority government for a short time, but after the opposition's significant gains in several Land elections, his party formed a new coalition government with the SPD. After 14 years as Minister of Economics, Erhard was Federal Chancellor for only three years. Disagreements over economic and fiscal policy issues in 1966 led to the end of the CDU/CSU/FDP coalition government. Erhard resigned as chancellor in November 1966, less successful in that position than he had been as the "father of the economic miracle."