German Economy

What Accounts for the Enduring Success of the German Economy?

Germany suffered major economic setbacks after their defeat in two world wars. After World War I and II, under strong political leadership and allied aid, the German state was able to rebuild itself and become one of the leading economies in the world. The German government played an important role in the rejuvenation of the economy so the German state and the economic system are closely intertwined. The relationship between state and market in Germany is known as the social market economy. Germany’s social market economy defied expectations and by the 1960s it was the envied by most of the world. The success of the German economy is due to government intervention in the market. The unique aspects of the German economy that has allowed it to flourish time and time again is because “the relationship between state and market is neither free market nor state dominant” and the German economy combines capitalism with social welfare programs aimed to provide economic or social assistance for its citizens.
When World War I started on July 31, 1914, people could not redeem their notes in gold from the Reichsbank. After this there was no limit to how many notes the Reichsbank could print. By the end of the war, the amount of notes in circulation increased significantly. At the end of the war, as stipulated by the Treaty of Versailles, Germany was obligated to “issue and deliver bonds to the amount of 100 billion gold marks,” and “deliver annually during the following decade at least 30 million tons of coal and large quantities of chemicals.” “In addition, 26 percent of the proceeds of German exports were to be paid in each of these forty two years. “The harsh reparation payments imposed on Germany led the mark to depreciate against foreign currencies,” and the government issuing a flood of new money with no gold backing, this led to inflation. By July 1922, the German mark “sank for the first time below 1...