Erhard, Ludwig (Germany)

Reference work entry


Ludwig Erhard was West Germany’s Chancellor between 1963–66 but is better remembered as Minister of Finance from 1949–63, when he masterminded Germany’s ‘economic miracle’. While Chancellor Adenauer concentrated on foreign affairs, Erhard was free to implement his ‘social market’ agenda. Freed from bureaucratic controls, the German economy was energized and industrial output spiralled.

Early Life

Erhard was born on 4 Feb. 1897 in Fürth, Germany. At 16 he left school to take up an apprenticeship. He went on to study economics and sociology at Nuremberg, qualifying in 1923 and gaining a doctorate from Frankfurt-am-Main in 1925. He worked for an economics research institute until removed from his post in 1942. He then set up his own institute and, as Germany’s defeat became ever more likely, turned his mind to how Germany could rebuild itself in the aftermath.

Unsullied by Nazi activity, Erhard’s career advanced rapidly after the allied victory. From 1945–46 he was Bavaria’s Economic Minister. The following year he joined the Special Money and Credit Department in Frankfurt-am-Main and in 1948–49 was Director of the Bizonal Economic Council. In June 1948 he announced the immediate introduction of the deutschmark in place of the Reichsmark, a first step towards a strong stable currency. More controversially, he proposed an end to wage and price controls, against the advice of many Allied and German economists.

Adenauer persuaded Erhard to join his fledgling Christian Democratic Union (CDU), and in Sept. 1949 he became Minister of Finance. His reforms were already beginning to have an effect. Rationing had ended and commercial deregulation was well underway. It was Alfred Müller-Armack, Secretary of State at the Ministry of Economics, 1958–63, who termed Erhard’s policies ‘social market economics’. Production was left to the private sector and wages and prices were determined by market mechanisms, while the government was responsible for social equality and a reasonable distribution of wealth. In practical terms, the government undertook extensive programmes in farming, housing and social benefits.

Germany’s economy benefited from grants obtained through the Marshall Plan, a US-inspired scheme to provide dollar aid for the rebuilding of war-torn Europe. Furthermore, West Germany had received well over 10 m. refugees in the aftermath of war and, while this influx put a strain on the social structure, it presented a plentiful and inexpensive supply of labour. The Korean War and its effects throughout the 1950s opened a wealth of new markets for West Germany. Within 2 years of Erhard’s appointment, industrial production had increased three fold and by the end of the 1950s the country was one of the world’s great economic powerhouses.

Adenauer’s idealistic vision of a united Europe with Germany playing an integral part did not always rest easily with Erhard’s cool economic pragmatism, and relations between the two became increasingly strained. Adenauer made attempts to halt Erhard’s rise to power but, after significant losses by the CDU in the 1961 elections followed by a troubled few years of government, Erhard succeeded the ailing Adenauer. Erhard led a CDU-Christian Social Union coalition to convincing victory at general elections in 1965.

Career Peak

Erhard’s period in office was blighted by difficult foreign relations and a large trade deficit. He also had difficulty reconciling several factions in government, particularly those who wished to move closer to the USA with opponents who saw the future with France. When a recession took hold in 1966 Erhard was forced to raise taxes, after which a number of his key supporters left the cabinet. His government lost the state election in Hesse in Nov. 1966 and on 1 Dec. he resigned as Chancellor.

Later Life

A year later Erhard was given the honorary role of Chairman of the CDU. He died in Bonn on 5 May 1967.

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