By 1950 allied dismantling of West German coal and steel industries, agreed upon at Potsdam, was finished; 706 manufacturing plants in Western Germany had been stripped dramatically reducing steel production by 6,700,000 tonnes.
West Germany was in the shadow of hyperinflation and a black market economy had exploded. The Americans released the Joint Chiefs of Staff in article 1067 directly following Germany's defeat stating specifically that economic rehabilitation of Western Germany strictly forbidden. This Stayed in effect for two years following the war.
Currency reform was enacted in 1948 replacing the Reichmark with the Deutschemark. Once in place this allowed for the rapidly increasing levels of inflations to be halted and the Black market trading seized as shops reopened.
Ludwig Erhard was appointed Minister of Economics under the chancellorship of Konrad Adenauer. Erhard believed in the concept of social market economy which the West Germany government put on the party platform. Erhard made the decision, as Economic Director of the occupational Bizone, to lift many price controls left by the Nazi's in 1948, despite opposition from the social democrats and the allied powers. It was Erhard's pursuit of free markets that was a key factor in enabling West Germany unprecedented growth at the start of the 1950's.
The West German extension of the Marshall Aid marked the end of the JCS 1067 integrating West Germany closer into the western market. The amount of monetary aid received by Germany through the Marshall Plan was far overshadowed by the amount the Germans had to pay back as war reparations and by the charges the Allies made on the Germans for the ongoing cost of occupation.
Although monetary aid had little effect, the Marshall plan offered a moral boost to West German's with greater western integration and support. In addition, the effect of the "unofficial contributions" of 150,000 U.S. occupation troops it is often overlooked, earning as much as 4 Deutsche Marks to the dollar. These marks were spent within Germany revitalising the local domestic economy buying food, luxury items, beer and cars, as well as entertainment. Closer integration with France in the ECSC also further integrated West Germany with Western Europe unifying their coal and steel industries whilst extending their market for German products for export.
With the outbreak of the Korean war in 1950-53 the industries of the west were put on a war footing leading to a global shortage in commercial goods. This shortage gap was quickly filled by German products as German enterprise took off.
West Germany's workforce was a highly skilled one and it was bolstered by some 16.5 million Germans joining the workforce due to migration and deportation from the Eastern territories. This combination of the drop in global production of domestic products and an increase to industry growth though constantly supplies of fresh labour, allowed West Germany to double its exports value. In addition to this, successful negotiations with trade unions encouraged hard work and long hours at full capacity among the population in the 1950s. This growth in industry was furthered through the extra labour supplied by thousands of Gastarbeiter provided a vital base for the sustainment of the economic upturn with additional workforce.
However the 1960's saw a period of economic slowdown compared to the rapid unsustainable growth witnessed in the1950's. This was in part due to the construction the the Berlin Wall in 1961 which severed the link of skilled workers coming from the East, and in part to the frequent shifting of the Bundesbank to avoid economic overheating of the economy by steadying economic growth. Erhard, now Chancellor of the Federal Republic, faced critisicm over the economic slowdown and was voted out of government in the winter of 1966 to be replaced by the grad coalition.
The Grand coalition faced the task of turning West Germany back to the rapid growth of the 1950's by moving away from Erhards Laissez Faire economic policies. Karl Schiller, who had been newly appointed to economic minister, petitioned for new legislation that allowed greater control of economic policy by the government and economic ministry. Schiller was granted his law for promoting stability and growth in 1967. The new legislation allowed for the synchronization of national budget plans in order to maximise the effectiveness of fiscal policy. Schiller aimed to use this consolidation of budget to achieve economic growth, increase in employment, stability of the Deutschmark and foreign trade balance.
Schiller's economic policy success won his party victory in 1969 allowing for the creation of a new coalition government with Willy Brandt and the Free Democratic Party.
This new coalition of the SPD and the FDP looked to create a wider social budget and increase the national social security system. With this obligatory introduction of more social reforms social cost rose by 10% reducing West Germany's fiscal flexibility. This increase in social costs and reduced flexibility would be a fatal blow for the Schiller and the West German Economy as in 1972 the global economy experienced a downturn leading to Schiller's resignation thus ending the Wirshaftwunder.
In conclusion, West Germany had achieved rapid substantial growth unseen anywhere else in Europe spanning over 3 decades. By maximising what Capital stock was left and utilising the flows of skilled workforce fleeing westwards, West Germany was brilliantly place for unprecedented growth. West Germany being born into the new Cold War era provided great opportunities as German products filled the markets of its NATO members such as during the Korean War. In addition Westpolitik and linkages with American industry through the Marshall plan allowed for technological transfer allowing for an explosion of foreign trade overcoming fear of German products and growth. With a continuation of economic expansion into the 60s German domestic demand was revived and therefore economic growth could proceed on up until the 1970s..
