[Once Upon a Time] The Market Economy and the Rhine Miracle

Before World War II

At a time when Britain was pursuing liberal policies, Hitler in Germany was aggressively advancing National Socialism. Nearly all major industries were under state control, and daily necessities were distributed through a rationing system. Even after Germany was defeated in World War II and Hitler disappeared, socialism seemed to be Germany’s unavoidable path. This was because politicians from the Social Democratic Party, who advocated nationalization and rationing, had taken control of the key levers of power in postwar Germany under the U.S. military government. One of them was Johannes Semler, who was then in charge of economic policy. But a wholly unexpected “chicken feed” incident changed Germany’s fate.

Semler publicly complained that the corn the United States was providing to Germany as aid was “chicken feed” fit only for chickens to eat. Enraged by the remark, the commander of the U.S. military government dismissed Semler and appointed in his place an obscure economist, Ludwig Erhard. Erhard belonged to the school known as ordoliberalism. Scholars in this school shared the view that while freedom of economic activity should be fully guaranteed, the government need only prevent monopolies and provide a basic social safety net for those left behind in the market.

Overnight, Erhard abandoned price controls, carried out price liberalization, and also scrapped the rationing system for daily necessities. Since the German people had grown accustomed to such institutions for decades, beginning in the Nazi era, Erhard’s measures were truly revolutionary. Even the commander of the U.S. military government expressed great surprise. Yet contrary to everyone’s concerns, the results unfolded just as the textbooks say. The black market disappeared, and goods began to reappear on store shelves. The German economy had begun to revive from the ruins of the postwar period.

In September 1949, after a fierce election battle between Schumacher, who championed socialism, and Adenauer, who advocated a free market economy, Adenauer was elected the new chancellor. During the 14 years that Adenauer served as chancellor, Erhard, as minister of economics, brought about the miracle of the German economy—the Miracle on the Rhine. Germany rose from the misery of defeat to stand at the center of Europe’s economic order.

Original title: [옛날옛적에 ] 시장경제와 라인강의 기적

Author: Center for Free Enterprise (CFE)

Date: 2006-06-22

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=21&idx=10674