Ludwig Erhard

Chancellor of West Germany (1963-1966)

• Born: February 4, 1897
• Birthplace: Fürth, Germany
• Died: May 5, 1977
• Place of death: Bonn, West Germany (now in Germany)

Erhard developed the idea of the social market economy and transformed the life of postwar West Germany, setting his country on the path to becoming the “economic miracle” of the 1950’s. He went on to become his country’s minister of economics, vice chancellor, and chancellor between 1949 and 1966.

Early Life

Ludwig Erhard (LEWT-vihk AYR-hahrt) was born into a family of independent businessmen and craftsmen. Erhard learned early the pride and self-reliance of hard work. He intended to assume ownership of his father’s small textile shop and at sixteen became an apprentice in the northern Bavarian town of Nürnberg. These plans were cruelly ended when Erhard was badly wounded while a member of the Bavarian Artillery during World War I.

As a result of his wartime injuries, Erhard could not endure the hours on his feet then so necessary for a successful shopkeeper. Consequently, he enrolled at the College of Economics in Nürnberg to study economic theory. After graduating, he married and went on to the University of Frankfurt to study political economy, philosophy, and sociology. He earned his doctorate in 1924.

Following his studies at Frankfurt, Erhard involved himself in business from 1925 to 1927, eventually going back as a sometime faculty member to his old college in Nürnberg in 1928. From that year until 1942, Erhard did teach occasionally but devoted his principal energies to serving on the editorial staffs of the Economic Press and, later, Market and Consumption, two journals of a Nürnberg-based economics research institute.

Throughout this period, Erhard considered himself an economic liberal, defending the interests of small- and midsize business against monopolies and undue government intervention. While at Frankfurt, Erhard had imbibed the liberal but socially oriented, free market philosophy of his dissertation supervisor, the noted Franz Oppenheimer; he also stood close intellectually to the Nürnberg institute’s director, Wilhelm Vershofen. Vershofen, in turn, advocated extensive market research as a tool for generating maximum investment profits and was influenced by the capitalist success of Great Britain and the United States. Though not then a member of any political party, Erhard voted periodically for the liberal German Democratic Party during the troubled years of the Weimar Republic.

Erhard reserved special criticism for Germany’s industrial cartels. These vast monopolies secured unfair political and economic advantages, stifling small business and thereby the initiative and prosperity of the overwhelming majority of Germans in the process. The consequences, he constantly warned, would be eventual stagnation and decline. Indeed, collapse did come, not gradually but with the suddenness of the Great Depression. With the deepening crisis, desperation grew as people sought relief. In the late 1920’s, the ravings of the Nazi Party seemed to many in the middle class to point the way to salvation.

From 1933 on, Erhard watched as the Nazi regime’s totalitarianism extended itself to all facets of German life, social and economic. Autarkic Nazi regimentation was worse than anything Erhard had ever condemned. The Nazis’ vast, inflationary armaments spending meant only one thing: a war whose destructiveness surpassed anything in the human experience. Unbeknown to him at the time, Erhard would play a major role in Germany’s reconstruction after that terrible conflict.

Life’s Work

Ironically, the war’s vast destruction created conditions in which Erhard’s economic ideas bore fruit. Initially assigned by United States occupation forces to oversee Fürth’s economic reconstruction, Erhard’s authority was soon extended to a large part of northern Bavaria. From there he went on to become minister of economics in the second Bavarian state government formed at the behest of the United States in September, 1945.

Conditions in Bavaria, as in the rest of Germany, were critical. Industrial production and, more important, transportation services whether by road, rail, or river had been severely disrupted by aerial and ground combat as well as by the total destruction of the governmental apparatus. Equally severe was the disruption of global trading patterns caused by the war, a fact of particular importance to export-dependent Germany. Coming as it did on top of the fratricidal process of de-Nazification, this dislocation affected all initial efforts at economic reconstruction. Consequently, Erhard’s efforts in Bavaria, where he allowed as much free market activity as possible, created unfounded accusations of his having abetted profiteering. He was replaced following the Bavarian state elections in December, 1946.

After writing occasionally for the United States forces’ paper, Die Neue Zeit, Erhard assumed the honorary post of professor of political economy at the University of Munich in November, 1947. There he propagated the economic ideas that became the basis of the social market economy adopted with the establishment of the Federal Republic of Germany in 1949. In essence, they contained separate economic and political aspects.

Economically, the social market theory calls for the statutory prevention of unfair competition created by industrial cartelization. In a view similar to classic antitrust policy in the United States, the central government assumes the role of watchdog, not ensuring universal economic equality but rather fair conditions in which mutually beneficial economic competition might occur. Social market economic theory also presupposes an explicit legal affirmation of the right to private property as well as a substantial governmental role as guarantor of social responsibility. Consequently, the inevitable social disparities caused by robust economic competition are mitigated as much as possible.

Politically, the theory advocated a decentralized, federated political structure. Erhard hoped such a structure would prevent unfair economic concentration by concomitantly dispersing political power away from a single central source. This would also make it possible to avoid the cartelization and state planning inherent in socialist economies and as had existed under the Nazi regime. Coinciding with much contemporary German political thought, Erhard’s political ideas found expression in the Federal Republic of Germany when that state was born out of the combined occupation zones of the United States, Great Britain, and France. In 1945-1946, however, the Germans in all occupation zones remained for the most part homeless, hungry, and desperate, all the while laboring under innumerable regulations as the German and Allied authorities attempted to spread severely limited resources as far as possible.

To overcome these difficulties in the face of a growing rift between the Western Allies and the Soviet Union, the American and British zones were economically amalgamated in January, 1947. This so-called Bizone struggled along throughout that year, unable to make much headway in solving the western zones’ problems. In addition to teaching, Erhard spent this period conferring, at the Americans’ request, with other experts over the question of a currency reform for the western zones. In March, 1948, he was relieved of this duty and asked to become the Bizone’s new director for economics.

Erhard immediately began implementing the earlier plans for the currency reform. Such reform would, he expected, create open competition between supply and demand and thereby break the zones’ economies of their lingering stagnation. He also planned to remove economic controls in place since 1945, and in some cases since 1933, reckoning that the marketplace itself would more effectively regulate prices. All the while, he adamantly maintained that totally unregulated competition would have to be prevented so as not to disadvantage the needy further. On June 20, 1948, the reforms became effective, beginning an immediate economic revival. The “economic miracle” of the postwar era loomed.

While not initially intended to be political in nature, this economic integration and reform helped widen the gulf between the western zones and the Soviet-controlled eastern zone. By the end of 1949, two new German states existed: the Federal Republic of Germany in the west and the German Democratic Republic in the east. With the formation of the first Federal German government in September, 1949, Erhard became minister of economics. From this post, he oversaw not only the almost unbelievably rapid recovery of West Germany but also the successful integration of literally millions of Germans from East Germany and Eastern Europe between 1949 and 1961.

Simultaneous with the Federal Republic’s recovery came the birth and initial growth of the European Community . Both West Germany’s first chancellor, Konrad Adenauer, and Erhard were advocates of the new European Community. Both advocated the European Community’s being built on free market principles. Though sometimes painful for various sectors of the several national economies involved including that of West Germany Erhard’s belief in a Europe-wide free market proved its worth in producing generally sustained, mutually beneficial growth for all countries concerned well into the 1960’s.

In 1963, Erhard reached the pinnacle of his long career. Having been not only minister of economics but also vice chancellor, he became chancellor following the troubled end of Adenauer’s long tenure in office. Though Erhard’s period as chancellor was short (1963-1966), it saw important efforts by West Germany and the United States to heal the rift caused by France’s withdrawal from the North Atlantic Treaty Organization’s integrated command structure. Erhard also initiated diplomatic relations between West Germany and Israel. Domestically, Erhard had to face the lingering effects of the building of the Berlin Wall in 1961 and a period of labor unrest in the mining industry, brought on by economic recession. In 1966, Erhard’s government was replaced by a so-called grand coalition between his own Christian Democratic Union (CDU) and the left-of-center Social Democratic Party (SPD).

Significance

Assuming the role of elder statesman from 1966 until his death in 1977, Erhard could look back on a life dedicated to the long and honorable service of his country. Far from becoming the small businessman of his early expectations, he was called to assume the mantle of “master architect” of postwar western Germany’s economic and social recovery. Throughout his adult life, he never lost his belief, as one contemporary noted, “in the long-range importance of a free market to a free society and a free world.” Forming the bedrock of Erhard’s political and economic philosophy, this idea often encountered resistance. Many believed that Erhard’s programs would merely allow for continued, unbridled, and therefore abusive free enterprise. He elegantly countered, however, that he not only disavowed state-planned economies as stultifying but also rejected laissez-faire capitalism as too cruel. He sought, therefore, what he termed a third way between socialism and capitalism hence the social market economy, combining the best features of social responsibility and open economic competition.

While postwar conditions in West Germany were perhaps uniquely suited to rapid economic growth, the social market system as defined and implemented by Erhard did seem to strike precisely the right combination to unleash West Germany’s potential. The result was free economic and social growth unparalleled in German history and a massive infusion of strength into the body of an increasingly united Western Europe.

Bibliography

Braunthel, Gerard. “The Political Economy of West Germany.” Current History 68 (March, 1975): 123-126. Braunthel’s essay offers a concise chronological description of the condition of the political economy of West Germany after the first change of government at the national level from Erhard’s CDU to the left-of-center SPD of Willy Brandt. The work is instructive on the efforts by Brandt’s and later governments to mitigate the effects of the recession that began during Erhard’s chancellorship.

Hallett, Graham. The Social Economy of West Germany. New York: St. Martin’s Press, 1973. While not specifically about Erhard, Hallett’s analysis shows the evolution of West Germany’s social market economy. In this analysis, Erhard’s role, and that of his mentors, becomes clear. This work represents a fair assessment of the social market economy as it emerged from West Germany’s first recession in the mid-1960’s.

Hanreider, Wolfram F. Germany, America, Europe: Forty Years of German Foreign Policy. New Haven, Conn.: Yale University Press, 1989. Contains a very useful discussion of Erhard’s economic policies and the situation in which West Germany found itself after World War II. Includes extensive notes and an index.

Hartrich, Edwin. The Fourth and Richest Reich. New York: Macmillan, 1980. Contains some good biographical discussion of Erhard, including his early life and entry into the German government. Many references to him throughout the book discuss his economic policies, how he employed them, and what effect they had. Includes notes and an index.

Mierzejewski, Alfred C. Ludwig Erhard: A Biography. Chapel Hill: University of North Carolina Press, 2004. This first English-language biography of Erhard outlines his policies, ideas, character, and relationships with other politicians. Mierzejewski also focuses on Erhard’s liberal economic policies, which helped spur Germany’s postwar economic recovery.

Mühle, Dieter. Ludwig Erhard: Eine Biographie. Berlin: Dietz, 1965. As Mühle wrote for an East German publisher, this work must be read carefully so as to recognize several clearly propagandistic passages. Given this caveat, Mühle’s work is useful in presenting a critical view of Erhard and his accomplishments not usually seen in Western literature on this subject.

Schröder, Gerhard, et al. Ludwig Erhard: Beiträge zu seiner politischen Biographie. Festschrift zum fünfundziebzigsten Geburtstag. Edited by Gerhard Schröder. Frankfurt: Propyläen Verlag, 1972. This large collection of essays contains several in English by contemporaries of Erhard. Though not deeply analytical, these essays accurately convey the respect with which Erhard’s United States counterparts viewed him and his contribution to Germany’s and Europe’s postwar recovery. Schröder includes two excellent portraits of Erhard, one of which is by the renowned Austrian painter Oskar Kokoschka.

Van Hook, James C. Rebuilding Germany: The Creation of the Social Market Economy, 1945-1957. New York: Cambridge University Press, 2004. An analysis of the market economy and the economic policy of the former West Germany following World War II and including the time of Erhard’s tenure as an economist for the state.