Rebuilding Germany: The Creation of the Social Market Economy, 1945-1957 (review)

The rise of the Federal Republic of Germany from wartime despair to leading economic power in Europe remains one of the great success stories of modern history. Germans and non-Germans refer to this recovery as the "economic miracle," associating it with the "social market economy" created in the first postwar decade by Economics Minister and later Chancellor Ludwig Erhard. This system, which combined free markets with social-welfare provisions, produced stability and prosperity that became the envy of the industrialized world. Today, however, Modell Deutschland has lost its luster, with stagnant growth blamed on high labor costs and corporatist barriers to innovation, raising questions about the long-term value of Erhard's vision. Thus, a study of the social market economy's origins should interest all who want to understand both the history and the future of German and European society.

Van Hook encourages a reconsideration of the social market economy's place in German economic history. He rejects the idea that the development of West German capitalism was simply the product of Allied pressure, and emphasizes the creative role that Erhard and other Germans played even before the official birth of the Federal Republic in 1949. Erhard's decision, as economics director for the British and American occupation zones, to lift many price controls in 1948, despite opposition from both the social democratic opposition and Allied authorities, and his consistent advocacy of free markets, helped set the Federal Republic on its phenomenal growth path. As economics minister, Erhard and his intellectual allies continued to advocate deregulation, gradually earning the respect and support of both the Allies and the electorate. He did not win every argument, and had to compromise on such key issues as the anti-cartel legislation passed in 1957, but Van Hook rejects suggestions made by other authors that these compromises meant that Erhard abandoned his principles. He admits Erhard's flaws, but his conclusion offers a clear endorsement of his historical importance: "By rejecting the complex of economic institutions ultimately utilized by the Nazis, by legitimizing a competitive order meant to insure the independence of the small businessman, by embracing the free international trading regime offered by the Americans, social market theorists backing Erhard facilitated a dramatic transformation of German economic and industrial culture" (295).

Van Hook's analysis is convincing, based on a solid understanding of the existing scholarly literature and wide research in German, British, and American archives. The writing is clear, though occasional repetition weakens the overall effect. His arguments will appeal most directly to specialists in postwar German and European politics and history. Economists will find some interesting discussions of the nature of the German economy, but the narrative as a whole focuses much more on the details of policymaking than on the development of economic theory. That the focus on policy also keeps Van Hook from discussing larger social and cultural developments related to postwar prosperity may disappoint some readers. Those who approach this book with clear expectations, however, will find it a valuable addition to their understanding of the decisions behind West Germany's remarkable recovery.