CHAPTER 4
“The task of political economy is not only analytical, but also constructive” K. Paul Hensel (1951, 13) once wrote in an article published in the journal Ordo. An economist who produced his habilitation thesis under Eucken’s supervision, Hensel was in a way voicing one of the ordoliberal mottos. At this point, we are interested in the constructive facet of ordoliberalism, reconstructing in particular the path from the objectives it set to the means of action advocated. The ordoliberal policy to shape the economic order was obviously rooted in analytical considerations. And yet it should also be analyzed in the light of the ordoliberals’ historical doctrine and the epistemology set out in the preceding pages of this book.
Ordoliberal writing on economic policy, while clearly embedded in the debates of the interwar period, came thick and fast to take on definitive form in the postwar years accompanying the birth of the Federal Republic of Germany (FRG). One of the main ordoliberal victories in the political and legislative arena was the adoption of a law against restrictions on competition in July 1957 (coming into effect in January 1958). It provided the FRG with a legislative arsenal of private law sanctions against companies showing anti-competitive behavior.1 Final agreement on the actual content of the text was preceded by bitter and lengthy debate—with discussions involving certain ordoliberal views. With Eucken and Miksch gone (they both died in 1950), the jurist Franz Böhm, who had joined the Christian Democratic Union (CDU) as early as 1945, was the foremost advocate of the ordoliberals’ thesis (Nörr 1995). Promoting promulgation of the law, Ludwig Erhard, a member of the CDU and then Minister of the Economy, emphasized the central role of competition in the first pages of his programmatic book Wohlstand für alle, translated as Prosperity Through Competition:
It is no exaggeration when I declare that a law against monopoly is an indispensable principle of the “economic constitution”. Should the State fail here, there would be an early end to the “social market economy” . . . “Prosperity for all” and “Prosperity through Competition” are inseparable. The former marks the aim, the latter the path leading to it. (Erhard 1957, 2–3)
But what is the allegedly “social” character of the market economy Erhard refers to? Erhard claimed that the competitive order would lead to general enrichment of the population, or economic growth in contemporary terms (in his argument, the question of distribution is deemed secondary). Such was the promise of the social market economy that Erhard and Alfred Müller-Armack conceived and popularized.
While Erhard’s reading does not basically contravene the ordoliberal analysis, it does not capture its central focus. Indeed, the ordoliberals saw resolution of the “social question” (soziale Frage) as the fundamental objective of economic policy. In retrospect, Böhm recognized that the social question was the ordoliberals’ “major pre-scientific interest” (quoted by Wohlgemuth 2013, 162); an interest marked by a process of careful reformulation, which was an integral part of the ordoliberal political economy. The ordoliberals refused to endorse the established definition of the social question as poverty and inequality (the old social question), or indeed as insecurity and injustice (the new social question). They reformulated it as the collapse of human autonomy (in a moral, almost existential sense) in the face of rising private (cartels) and public (the economic state) economic powers. In doing so, the ordoliberals aimed at reappropriating the social question that had been abandoned to the socialist tradition in nineteenth-century Germany. The ordoliberals embarked upon a critical reading of Karl Marx and Gustav von Schmoller’s Sozialpolitik in the light of the new modes of economic management—state planning, state interventionism, the welfare state—which gained traction in the aftermath of the First World War.
According to the ordoliberals, solving the social question requires establishment and perpetuation of the competitive order by a strong state in order to find an answer to the “vast problem of regulating economic and social power” (Eucken 1948b, 272; see also Röpke 1942c, 299). Clearly, for Eucken (1948b, 275), “social motives, in particular, indicate that there is no alternative to competition.” Indeed, the ordoliberals saw competition as an incomparable tool for the disempowerment of the exchange economy. However, the establishment of competitive markets would require a significant number of preconditions and respect for normative principles. The legal fight against cartels was undoubtedly a key principle of ordoliberal policy. It symbolized the ultimate intervention within a broader set of legislative principles, which should preferably be underpinned by an “economic constitution” (Wirtschaftsverfassung). It was therefore the fight against the various illegitimate manifestations of economic power that drove the ordoliberals to formalize a broad economic policy agenda.
4.1 Reformulation of the Social Question
4.1.1 The Social Question: Old and New
With the (second) Industrial Revolution of the nineteenth century, the German Confederation (Deutscher Bund) went through rapid modernization of its production structures. This late but abrupt industrialization prompted questioning of the consequences it held for society in general and for the labor force in particular. Max Weber (1904, 144) encapsulated these issues in the term “social question,” which he defined in terms of investigation into the “relations between the modern class of employees and the existing social order.”2 Before Weber, Marx had embodied the main, and arguably most radical, expression of this questioning. However, German social sciences as a whole had not remained insensitive to the fate of the working classes. Indeed, the attempt to bring together “history, theory, financial science, economic politics,” from Cameralism to the Historical Schools, can be seen as an “examination of the ‘social question,’ in all its legal, moral and economic aspects” (Priddat 2004, 53; see also Schmidt 2011, 106).
The Wilhelmian era (1890–1918) of the newly unified Germany was rich in reforms. Schmoller and his colleagues of the Verein für Socialpolitik had a decisive impact on Chancellor Otto von Bismarck’s social measures, particularly with the introduction of a social security system in 1883, occupational accident insurance laws in 1884, and disability and old age insurance in 1889.3 Röpke (1934a, 4) interpreted the rise of social policy as part of a “new era of protectionism” endorsed with Bismarck’s 1879 revision of tariffs, and one which marked the end of free trade between Germany and the rest of the world, thus constituting a major historical turning point. An understanding of the way the economists and social reformers raised the social question is therefore essential to analyzing their policy recommendations since they are closely linked to one another. Indeed, Eucken (1951, 56) claimed that the social question had emerged as the fundamental problem of industrialized societies and, as a result, had become “a moving force in the history of our time. Addressing it has had a prior claim on thought and actions.” The ordoliberal discourse was no exception, but it would attempt to redefine the contours of the social question.
To this end, Eucken explicitly looked to Marx and Schmoller. The former came in for ambivalent critical treatment by Eucken. On the one hand, Eucken emphasized Marx’s penetrating historical observation regarding the old social question of unequal distribution while, on the other hand, he rejected the solutions Marx envisaged. Nevertheless, the Marxist current had clearly identified the influence of the oppressive economic power of capital resulting from the class struggle between workers and entrepreneurs, which extended into the social and political sphere. Eucken (1948b, 267) conceded that formal equality and freedom brought about by law had proved to be largely violated in practice. From this perspective, the ordoliberals joined Marx and Engels in recognizing that capitalist exploitation of industrial workers had left them in deplorable living conditions (Eucken 1949, 220; Röpke 1942c, 230; Rüstow 1951, 163). Nevertheless, by anchoring the social question on the issue of the ownership of the means of production, Marx made of the “disappearance of capitalist private property and the emergence of communal property” (Eucken 1948b, 268) the deus ex machina of the social question. Hence, despite Marx’s “keen insight into the economic forces of his epoch,” the fact that he saw common ownership of the means of production as a solution to the issue of private economic power led Eucken (1948b, 271) to call him “a dreamer.”
Schmoller was less concerned than Marx with questioning the foundations of nineteenth-century society and advocated the introduction of social legislation to offset the negative consequences of capitalism. Yet, from the ordoliberal point of view, both Marx and Schmoller, in their desire to resolve the old social question, directly contributed to the rise of the new social question of the twentieth century—a new social question that would be characterized by the shift of the monopoly of oppressive economic power from the private hands of capitalists to the public hands of the state.
While the turn of the nineteenth to the twentieth centuries marked an improvement in workers’ living conditions, Eucken (1951, 57) claimed it was less due to German social policy than to “the general economic and technical progress.” As early as 1914, though, Europe entered a period of spreading unemployment. Eucken (1951, 56) stressed that this change had led to a shift in the substance of the social question from the objective of a more egalitarian distribution of wealth to “social security and social justice” so as to address the issue of mass employment.
From an ordoliberal point of view, the disintegration of the nineteenth-century competitive order and its replacement by interventionism or planning confirmed a common trend among European countries in meeting the need for security and social justice. For planned economies, in fact, achieving full employment would not raise insurmountable difficulties. Eucken emphasized that security of employment was achieved precisely by abolishing a price system capable of taking into account relative scarcity (building his argument on the case of Nazi Germany). However, achieving full employment had a cost in terms of inefficiency in resource allocation. Therefore, achieving full employment would not necessarily imply addressing the central problem of the economy: namely, adequate satisfaction of consumers (Eucken 1948a, 44; Röpke 1949a, 15–16).
According to Eucken (1948b, 269), economic planning had not resolved the social question but had, on the contrary, made it more pressing than ever for “as soon as the steering mechanism in a modern economy fails to function, the social question assumes greater poignancy.” In short, economic planning provided everyone with a job, but with scarce goods to consume. Röpke corroborated Eucken’s analysis with some considerations on the planning system still in force in West Germany under Allied occupation:
Full employment can be achieved, but combined with a tragic waste of productive forces and, consequently, with a terrible degree of general poverty, which is all the less bearable as it increases rather than decreases. (Röpke 1947e, 247; see also Eucken 1948a, 44)
Following the ordoliberal rationale, it can be said that the “old” and the “new” social questions came to overlap. Indeed, with its management of the economic process, the state decides on the content and location of work, which are not left to individual choices but are part of an overall plan established over several years. The old social question that continued to affect industrial workers would now be extended to all the other professions (farmers, craftsmen, merchants, liberal professions, etc.). To ordoliberals’ eyes, state planning only aggravated the social question which the Marxist, socialist, and historicist thinkers were trying to resolve (Eucken 1951, 64; Miksch 1948, 319). As Eucken (1947, 408) put it, it was therefore clear that in such economic orders “social problems are thus not solved, but recreated in a new and harsher form.”4
The ordoliberal reformulation of the social question is, in the end, simple, but operative. As pointed out in Chapter 1, economic liberalism in its historical form (i.e., laissez-faire) had opened the way for the private economic power of the capitalists to spread, essentially to the detriment of the workers. In order to respond to the degraded living conditions of the latter, the socialists and Marxists encouraged the state to take control of the production process, in particular through social policy and legislation, but also through the socialization of certain enterprises, together with investments and the allocation of resources and factors of production, such as labor. In response to the rise of mass unemployment after the First World War, governments sought to address the problem on two fronts: by encouraging the formation of social pressure groups (such as opposition unions) and by (pre-)Keynesian-type full employment policies (Eucken 1951, 56).
According to the ordoliberals, the three major doctrines—liberalism, socialism, interventionism—failed to recognize the essential task of shaping the framework of a market economy. Liberalism failed because of its “confidence in the spontaneous realization of the natural order,” socialism because of its “confidence in an inevitable evolutionary process,” and interventionism because of an “ad hoc approach to economic policies” (Eucken 1948a, 40). In short, the old social question, far from being resolved through public policy, had been joined by unemployment and insecurity (the new social question)—problems due precisely to mismatch interventions detrimental to economic stability. The ordoliberals aimed to break out of what they saw as a vicious circle between increased political intervention, on the one hand, and increased social distress, on the other.
4.1.2 The Ordoliberal Social Question
From an ordoliberal perspective, behind the problem of lack of freedom lies the issue of the rise of economic powers, both private and public. As we have seen, Eucken pointed out that social security and social justice were, regrettably, “the great question of the hour.” These demands came from both workers and entrepreneurs and were characteristic of the post-First World War period (Eucken 1932b). Demands for security and justice gradually found an answer in what the ordoliberals perceived as state ownership of the economic process, whether in a totalitarian version (the Bolshevik, fascist, or National Socialist regimes) or in a more moderate version (the interventionism associated with Keynesianism). In this respect, a liberal order based on the freedom of individuals in the economic sphere seemed outdated in view of the economic and political crises of the interwar period.
As Eucken saw it, governments had favored security over freedom in a sort of mutually exclusive choice—an otherwise artificial antithesis to his eyes, since “German experience has shown that the antithesis between security and freedom does not exist at all” (Eucken 1951, 63). Based once again on the case of Germany, Eucken (1951, 64) attempted to reverse the argument: “deprivation of freedom,” whether through the allocation of consumer goods, housing, the location and content of work, would be precisely “what causes insecurity . . . for security presupposes the possession by the individual of liberty and choice of action” in contrast to a state of total dependence. The “planning” solution, which ended in assimilation between private and public powers, certainly solved the question of unemployment but aggravated the social question as reformulated by the ordoliberals: individuals went from dependence on the private power of firms to dependence on the public power of the state.
According to Eucken, the problem of adequate control of the economic order lay neither in pursuit of full employment nor in responding to individuals’ demands for security and justice, but in the dispersion of private economic power. The presence of illegitimate private powers within society was the real social question to the ordoliberals’ eyes:
The structure designed to accommodate the sequence of economic events requires continuous government supervision and possibly organization in an age of industrialization. But in commodity and labor markets—in other words, in the everyday economic process—there must be freedom. That is the real goal. Without freedom, there can be no solution of the social question. (Eucken 1948b, 275)
The ordoliberal defense of freedom was not so much a matter of a strictly economic idea leading to greater efficiency as, rather, an issue of social regulation. Basically, the ordoliberal policy of order (Ordnungspolitik) aimed at suppressing the exercise of economic power in the market economy. Thus, purely negative action by the state—abdication from central management of the economy and recognition of liberal legislation—cannot be sufficient for the exercise of freedom. How can the ambiguity that “freedom has often been seen as an individual’s right to violate the freedom of others” (Eucken 1948a, 35) be resolved? Such ambiguity is specific to the laissez-faire system but arises for every liberal system.
Through proper management of the economic framework, the ordoliberals sought to neutralize the exercise of economic power. The political issues of freedom and the liberal system would eventually be driven by a problem with economic foundations. Equal (free) market access would give every agent the measure of his effort or sacrifice (in the absence of monopolies that distort prices and ration quantities). Here we find the liberal credo according to which the market institution can be this anonymous, impersonal, and neutral economic process that will reveal the “true” contribution of each individual to social production. In short, solving the problem of (economic) freedom is already to a considerable degree a response to the social question of insecurity and injustice:
Here our analysis of the German experience penetrates to the heart of the social question: freedom. It was lack of freedom that crushed individuals’ conditions of existence (Daseinsbedingungen). The hegemony of private or public concentrations of power endangered the rule of justice, and lack of security arose from lack of freedom. (Eucken 1951, 64)
For the ordoliberals, achieving social justice therefore meant realizing economic freedom. The negative freedom of agents would consist in the absence of the exercise of market powers in terms of quantity rationing and fixing excessively high prices. Such a socioeconomic order would secure a meritocratic market structure, in the sense of justice in exchange (or commutative justice) and neutrality of exchange in terms of income effect.5
With the issue of private and public economic power, the ordoliberals sought a joint response to two issues that cut across the history of German political economy: freedom and justice. Focusing on the particular challenge of economic power, the substantial implications made of ordoliberal economic policies a line that was resolutely distinct from both socialism and traditional liberalism. By “linking together the theory of justice and conceptions of freedom and power” (Wörsdörfer 2013b, 313), the ordoliberals aimed at solving these issues simultaneously by highlighting their respective constitutions. In particular, rather than “refusing an arbitration between freedom and social justice” (Peukert 2000, 105), the ordoliberals claimed that the former was the instrument for resolution of the latter. Given that the ordoliberal resolution of the social question is ultimately conditioned by the primary objective of freedom, it can be difficult to grasp what remains of the social in the question. Indeed, it might be argued that the ordoliberal reformulation of the social question provided not so much a detailed account of how it could resolve the difficulties raised with the “traditional”—old and new—social question (poverty, inequality, unemployment, etc.) as apparently a way to, if not to clear away, at least to put these difficulties in the background.
In the following pages, we will see that the space of economic freedom must be built and safeguarded by public authority: the economic sphere does not have an existence of its own outside the pre-established institutional conditions, which are the responsibility of the political sphere. The pattern of the economy should emerge from a normative-legal and political framework. In the end, economic freedom was a conquest resulting from government action (Bonefeld 2012, 6). Yet the ordoliberals perceived this economic order, in all its institutional dimensions, as ultimately embedded in a moral and cultural order.
4.1.3 The Spiritual Question
The social crisis that spread through the West in the early twentieth century was marked by a general phenomenon that the ordoliberals—like many others—termed the “massification” (Vermassung) of modern society. This massification of the West, in its sociological, economic, political, and spiritual components, encompasses the social question as we defined it in the previous pages.
In the economic sphere, the massification took the form of “proletarization”; a phenomenon that Röpke (1942c, 14) defined as “a sociological and anthropological position which is characterized by economic and social dependence, a rootless life, where men are strangers to nature and overwhelmed by the dreariness of work.” From the outset, laissez-faire liberalism was to remain blind not only to the material but also to the spiritual deterioration of the worker. An “average liberal of that time, Röpke (1942c, 53) pointed out, never thought of looking upon the social question also (or even in the first place) as a problem of vitality, i.e., as a non-economic, spiritual problem posed by the industrial form of life.” Röpke (1942c, 52) formulated a question that is certainly linked to the social question, but one whose perspective embraces what classical liberals had “a supreme disregard for,” that is, “the vital and anthropological conditions which must limit the development of capitalist industrialism.”
Of the ordoliberals, it was clearly Röpke and Rüstow who dedicated most attention to a civilizational outlook in their work, although this is not to suggest that the rest of the ordoliberals neglected societal and spiritual issues. Indeed, both Eucken (1932a, 86) and Miksch (1948, 322) appeared equally concerned about the constant threat to “the human personality” posed by industrial society.6 As they saw it, the phenomenon of proletarianization was largely dependent on the increasing concentration of firms combined with the division of labor and the mechanization of tasks (Eucken 1940b, 314; Röpke 1942d, 228). While the technological revolution had considerably increased the wealth produced in absolute terms, Miksch (1948, 338) also stressed that it had “wounded humanity in its soul” (Seele). All this appeared to be leading, in Eucken’s strong terms, to the emergence of a “new type of human being . . . a mass product whose existence depends on the state” (1948b, 269).
According to Röpke, a major factor in the rise of massification was the deprivation of property for most individuals, which meant that peasants and craftsmen were less likely to be affected by this cultural condition. He insisted on the importance of maintaining an economic structure that met human needs, mainly through a sense of measure and balance: “the market, division of labor, competition and economic rationalism—they all have in common that there is an optimum in their use, after which their harmfulness increasingly exceeds their utility” (Röpke 1942c, 119). Röpke voiced an indisputable mistrust of technological progress, but even more of the mechanization, which he perceived as inherently damaging. Big businesses embodied this modern decadence as the driving force behind the desertification of the countryside and the rise of large cities, mass media, mass political parties, advertising, and shopping malls. The power that big business exercised was not only economic in nature, but also cultural and spiritual:
Is it not the great factory that has transformed everything, man, his way of thinking, his way of life, his work, his faith, which has endowed us with the stone deserts that are the great cities with their nomads, which has weakened so many solid things, made so many essential things sick, deprived of soul so many living things? (Röpke 1947c, 29)
The ordoliberal view centered on the deracination of workers in capitalist societies was far from unique in mid-twentieth-century Europe. Concern over the articulation interrelation—and in particular propagation of harmful effects—between the economic and cultural spheres was a central theme for scholars close to the ordoliberals, such as the Spanish philosopher Ortega y Gasset, the Dutch historian Johan Huizinga, or even the Austrian economists as a whole (Dekker 2016).7 Nonetheless, the same concern can be found among academics at the antipodes of the ordoliberals’ political stance, as, for example, in the works of Theodor Adorno and Max Horkheimer, developed within the framework of the Frankfurt School (Arnsperger 2008).
Clearly, the ordoliberal discourse on societal issues sought reference more in socialist and Catholic thought than in the liberal sphere. Indeed, Röpke (1942c, 255) claimed the ordoliberal “third way” (dritter Weg) partly originated from the reflections of authors as disparate as Riehl or Le Play, but also Sismondi, Kropotkin, and Proudhon. The ordoliberals shared with socialist thought an undeniable distrust of massification, which is reflected in its political program. However, the ordoliberals were also anchored on the social doctrine of the Church. The elective affinity between Catholic thought and liberalism as understood by the ordoliberals was also explicitly claimed by Eucken (1952, 348) and Hensel (1949) and can be found in many ordoliberal writings (Rieter and Schmolz 1993, 104–105). In particular, the principle of “subsidiarity”—central to the Church’s social doctrine (Delsol 1992; Barroche 2013)—is reflected in the ordoliberal discourse on the decentralization of decisions. Ultimately, subsidiarity appeared to Röpke as a solution to the unsociable sociability problematized by Kant. Röpke (1944b, 12) went a step further than his fellow ordoliberals by claiming that “a good Christian is a liberal who doesn’t know it,” arguing that the 1931 encyclical Quadragesimo Anno actually enclosed a “social and economic philosophy” much like that of liberalism.8 The crisis of liberalism, the crisis of the Church (secularization), and the overall societal crisis of the West is seen to originate from the same development of mass capitalism.
In the final analysis, industrialization and technological progress had been a formidable driving force, the ordoliberals recognized, increasing wealth and standards of living, but they had at the same time proved deadly for the spiritual conditions of peoples. How can the economic system be adapted to these new conditions so as to maintain its benefits in terms of living standards while removing its socially and spiritually harmful consequences? This was precisely the conundrum ordoliberals were trying to answer.
4.2 Competition as an “Instrument of Disempowerment”
How did the ordoliberals approach a response to the social question of their time? They were fully convinced that the competitive order would take care of the essential task of dissolving illegitimate economic powers. If the ordoliberal response was quite straightforward, the set of conditions and procedures for achieving and maintaining the competitive order were far less so. To begin with, the ordoliberals had to impose the competitive order on a German public opinion customarily in favor of further concentration and socialization of the economy.
4.2.1 Challenging the Standard Narrative on Monopoly
The idea of promoting competition and fighting against monopolies appears, in retrospect, a basic liberal policy to uphold in a market economy. Nevertheless, it should be stressed that, throughout the changing context examined in this book (1932–1950), this policy found few supporters but many staunch opponents. German opponents, in particular, mobilized various arguments to demonstrate that competition policy was “neither desirable nor attainable,” as Böhm recalled (1954, 155, emphasis in original) .
Böhm opened his article “Monopoly and Competition in Western Germany” by lining up the arguments against the competitive order, only to then proceed to knock them down.9 The first argument of the opponents of the competitive system was that competition as empirically observed did not correspond to theoretical competition (invalidating the defense of empirical competition with theoretical arguments). Even when there was some form of competition on a market, it would always take on imperfect forms such as oligopolies, partial monopolies, etc., and it is often difficult to discern whether or not there are in fact elements of competition within these market structures. Here we find arguments in line with the “revolution” of theories on monopolistic competition (see Chapter 3). The second argument stated that, in general, few large production units are more efficient than countless small and dispersed ones. Furthermore, competition between many small firms would often lead to the domination of a few large firms whose technical advantages must be taken into account and which are based on legitimate economic power regarding economic progress and stability, particularly in the face of business cycles turbulence.
These arguments coincided with Schumpeter’s position in Capitalism, Socialism and Democracy (1942), where he legitimized the existence of monopolies with three arguments. First, cartels could act as stabilizers of the overall level of production in times of crisis. Second, in the process of creative destruction, some dominant positions are legitimate as the driving force of entrepreneurial capitalism (in the long run, there is also a strong tendency for monopolies to disappear, or at least to replace old ones with new ones). Third, in some cases, a monopoly is actually technically superior to competitive firms in terms of the “long-run expansion of total output” (Schumpeter 1942, 106).
In sharp opposition to what was later termed the “Schumpeterian thesis” on large firms (Mayhew 1980), the ordoliberals saw monopolies as elements intrinsically harmful to the economic order in particular and to the social order in general. Although Röpke (1942c, 228) partially conceded the superiority of the monopoly in terms of innovation, he argued that this alone could not make up for its many defects: “not only are monopolies socially intolerable but they also interfere with the economic process and act as a brake on productivity as a whole.” In a later edition of his manual (adapted for US readerships), Röpke lined up arguments with the explicit aim of exploding the Schumpeterian thesis:
The decisive fact remains that monopolists have a degree of power over their markets and the economy, and that a well-ordered economic system based on a fair relationship between performance and reward cannot tolerate. (Röpke 1963, 161–162)
The ordoliberals disregarded the various advantages, particularly technical ones, that can result from a monopoly position.10 Their position was only implicitly coherent with ultimate aims regarding economic efficiency and growth. Indeed, the question of productive efficiency in a market was secondary to the objective of regulating the economic and social process. If the objective is the disappearance of economic power, the monopoly was de facto an obstacle to the resolution of the social question. In short, any defense or encouragement of the development of monopolies was to be ruled out.
The ordoliberal campaign against monopolies was uncompromising, to say the least. Yet, even for those who were far from dismissing these arguments, monopolies were often perceived as necessary evils coming with the very functioning of market capitalism. So, what were the arguments advanced by the ordoliberals to prove that a successful economic policy toward competition was both possible and necessary? To answer this, Böhm (1954, 157) outlined several arguments which had been put forward, in his words, by a “minority consisting mainly of economists, lawyers and politicians”—indeed, by the ordoliberal collective.
Was competition policy even possible at all? Bohm (1954, 157) answered the question positively on two counts. First, securing competition would not be so much a matter of transposing the theoretical conditions of perfect competition to reality as, rather, of reaching “a reasonably satisfactory degree of competition.” Such (complete) competition would rest less on technical data than on “political will” and “economic views” that must prevail in a “free society.” In short, the degree of competition that can be achieved in a given market cannot be known by means of “theoretical discussion or historical speculation” alone, but can only be arrived at through “political experiment,” albeit guided by scientific expertise (in line with the message of the ordoliberal manifesto of 1936). Second, Böhm argued that certain technical conditions for competition were indeed achievable in practice. The competitive state of a market should not be assessed solely through comparison with an ideal theoretical situation, but to the extent that there is potential to encourage any improvement, however small, in competitive conditions (see also Miksch 1948, 337). And indeed, the ordoliberal “complete competition” (vollständige Konkurrenz) aimed at reconciling theoretical and practical approaches.11
Why was competition policy not only possible but also necessary according to the ordoliberals? Their main argument, the one that summed up all the others and made sense of their entire economic policy, was the force that competition exerted in bringing the agents’ exercise of power to a minimum, or to its maximum dispersion (Eucken 1940b, 269; 2001, 83; Eucken and Böhm 1948, xi). In other words, the essential advantage of a competitive order lay in the fact that power was “so fragmented (zersplittert) that it no longer had any harmful effect” (Eucken 1946b, 142). In stating the “anti-power” (machtfeindlich) aspect of the competitive order, Böhm (1947, 125) emphasized a key point: competition was not about leaving everyone with an equal share of power, but rather bringing “powerlessness” (Machtlosigkeit) to every single economic actor. With hindsight, Böhm (1961, 42) encapsulated the ordoliberal approach to competition by describing it as “the most efficient and ingenious instrument of disempowerment (Entmachtungsinstrument) in history.”
According to the ordoliberals, competition drives firms to reach their optimal size (in contrast with oversized monopoly), thereby enhancing their ability to make short-term adjustments. In his 1932 article, Eucken (1932b, 52) had already observed that “the lash of competition” worked against the (German) process of “feudalization” (Feudalisierung) of the entrepreneur’s role in the economy. Therefore, the enhanced short-run elasticity of firms granted by the competitive order would make the economy more stable and resilient to economic crisis in the long run. From this idea, Böhm (1954, 158) drew an even more important lesson regarding the interaction between the economic and political orders, stressing that “the minimization of power structures in the social foundations minimizes the need for concentration of power in the political superstructure.” Hence competition was a central aim of ordoliberal economic policy but also a precondition to maintain a liberal state that is not driven toward concentration itself.
Consequently, the competitive price system was for the ordoliberals neither “simply a measure of scarcity or a calculation device” nor an incentive mechanism, but rather “a control mechanism of a binding nature” (Eucken 1948c, 88; see also Böhm 1966, 52). From the ordoliberal point of view, satisfying the requirement of economic freedom of individuals and, consequently, orienting production in favor of consumer choices, prevails over any argument based on performance. The greatest advantage of this control mechanism was that, in this way, the price system would be imposed on the will of all individuals while at the same time being the result of the exercise of their will. If Eucken held that “the aspiration for competitive order is closely linked to the desire for freedom” (1949, 231), it was because he perceived the competitive price as an instrument of social control and regulation, of the mechanics of a society freed from illegitimate economic power. Ultimately, the ordoliberals embraced competition as a cultural asset, at the same time condition and result of the open society.
4.2.2 Political Authority as “Liberal Interventionism”
The ordoliberals focused on the institutional—constitutional—conditions that were mandatory for establishment of the competitive order. This kind of economic policy can only be achieved by the highly visible hand of the state; what Rüstow (1932) and Röpke (1934a, 50) tellingly termed “liberal interventionism.” As a promoter of the general interest, the state would be an essential actor in guaranteeing the functioning of the competitive order. Rüstow detailed this idea in a text published as an appendix to Röpke’s 1942 book International Economic Disintegration:
A strong and independent state is the prime condition in every case, but state intervention must be restricted to the indispensable minimum; it must not be in opposition to the functioning of the market mechanism or disturb the structure of the market; it must, on the contrary, maintain them. (Rüstow 1942, 281)
However, Rüstow’s formulation could be misleading. Indeed, this minimum intervention happens, as Röpke (1944b, 65) emphasized, to be based on an extensive program of “positive economic policy” with an important list of tasks to perform. Like his friend Rüstow, Röpke (1942c, 299) stressed that state policy that would never be tempted to “exceed the limits assigned to it by conformable interventionism.” So where was the line to be drawn between what is acceptable and what is not? How could the ordoliberals ensure that their positive economic policy would not lead to untimely and growing interventionism dictated by interested groups? In a number of writings, Röpke (1936a, 195; 1940, 268; 1942c, 206) formulated the opposition between “conformable” interventions (e.g., custom duties, monetary devaluation, a measured redistribution policy) and “non-conformable” interventions (e.g., foreign currency controls, quota or trade controls, price fixing). And again, Röpke (1944b, 68) warned the state against any tendency toward over-interventionism, for conformity was just a “necessary condition, not a sufficient one.”
Later, Eucken formulated a more general principle for assessing whether an economic policy measure was in line with the principles of the competitive order:
The realisation of a price system of complete competition is the essential criterion for any economic policy measure. This is the fundamental principle of the economic constitution. (Eucken 1949, 232, emphasis in original)
In this passage, Eucken formulated the fundamental principle of the ordoliberal desired order of the economy: the competitive price mechanism, stated in the economic constitution, must become the normative criterion for state action in economic policies. Similarly, interventions are therefore in line with Röpke’s (1936a, 195) approach when they respect “the inner structure of our economic system, . . . leave intact the market mechanism itself and attain their objective not by contravening the rules of this mechanism but by making use of them” (Röpke 1936a, 195). Any intervention likely to divert (in the short and long run) the effective price system from the results of a theoretical competitive price system will be abandoned. Böhm (1966, 57) summarized the limits of the ordoliberal economic policy by stressing that the government must exert a “neutral” influence on the process.
This core ordoliberal principle must be enshrined in the “economic constitution,” defined by Böhm, Eucken, and Großmann-Doerth (1936, 24) in their programmatic text Our Task as a “general political decision that shows how the economic life of nations should be structured.” The economic constitution was conceived as the centerpiece of the broader legal framework of the political constitution. The economic constitution primarily brings together principles of private law with a view to regulating relations between persons (natural and legal), of which market relations are an integral part (Walther 2016, 110; Wakote 2016, 147). Miksch (1948, 315), emphasized the requirement that a “uniform and coherent economic constitution” should indicate the guidelines for every possible measure and prevent “internal contradictions” from arising in economic policy measures. Perhaps no other concept had embodied more clearly than the economic constitution the “mutual dependence” between the economic and the legal orders that Eucken (1952, 278) and other ordoliberals emphasized so firmly.12
Both a strong state and a comprehensive program of economic policy were mandatory to achieve the competitive order and thus resolve the social question. Therefore, securing the maximum dispersion of—private—economic power in society must be performed, in the final analysis, by another—public—form of power. Hence the question: How did the ordoliberals justify the use of a power considered legitimate (the economic policy pursued by the state) to discipline another form of power, considered illegitimate (e.g., the price strategy of a monopoly or a cartel)? Is there a difference in nature between these two expressions of power in the economy? Disempowerment of economic power through the competitive mechanism is at the heart of the ordoliberal political project. And yet the social order as a whole cannot exist without any form of power. Indeed, Eucken (1951, 38) made it quite clear that power plays a vital role in society: “without positions of power there can be no social life; for there must be authority for all community life, whether in the state or in the firm.” And again, Eucken (1951) referred to a real “economic policy dilemma,” power being both socially indispensable for the realization of a free society, but also the main threat to it (see also Eucken 1940c, 479; Hensel 1966, 131).
To some extent, Eucken bypassed this difficulty by moving on from the notion of “power” (Macht) to that of “authority” (Autorität). This semantic shift is crucial in understanding ordoliberal economic policy and, in particular, the institutions that can conduct it. Here, authority can be defined as the legitimate expression of power within the organizational framework of hierarchical structures.13 Hence the ordoliberals did not question the authority of the state, central bank, office of monopoly control, nor indeed of the entrepreneur (within the firm) or the trade unions. On the contrary, legitimate power was a key condition in achieving the competitive order, and economic and political power should therefore only be tolerated “to the extent necessary to maintain the competitive order” (Eucken 1949, 238). Eucken illustrated this argument regarding the institutions by taking the example of the monetary issue:
A central bank which has the exclusive privilege to issue bank notes also exerts economic power, which gives rise to the difficult problem of its control. But this formation of power (Machtbildung) is created for the purpose of enabling the competitive order, by creating a sufficient monetary order. (Eucken 1949, 238)
Eucken outlined two forms of legitimate exercise of economic power: that of economic agents (heads of households or businesses), limited by the mechanism of competitive prices, and that of institutions in a logic external to the functioning of the market (here the central bank). If the consumer’s freedom of choice is critical, it is not absolute. Individual freedom is always subject to the rules of application which are ultimately defined by the “Ordnungspolitik” (economic policy of the order). As a result, the consumer has the freedom to set neither “the rules of the game” (Spielregeln) nor “the forms of the economic process” (Eucken 1949, 227).
The limitation to the power of institutions appears much more difficult precisely because they are not regulated through the daily economic process of the competitive order. Moreover, the state (or any other institution) must exercise its authority to minimize the existence of illegitimate, or arbitrary, economic power while refraining from violating individuals’ liberty. Of the institutions, the ordoliberals also saw economic policy itself as a form of power applied externally to coordination between agents. Again, both Miksch (1950a, 46) and Eucken (1951, 38) stressed that the issue of the legitimacy of economic policy rested on the fact that it should not be “arbitrary” (Willkür). The ordoliberals devoted much room to setting out what they saw legitimate economic policy as residing in.
4.3 Shaping the Economic Order
The ordoliberals’ explicit formulation of a set of economic policies was a direct response to the various practices they witnessed in the interwar period (interventionism, planning, pricing, and rationing). The ordoliberals claimed that these disorganized and ad hoc policies gave rise to an ineffective price system that was clearly not resolving but aggravating the social question. Eucken, Böhm, Röpke, and various others called for the implementation of a competitive pricing system as the key goal in guiding policy measures.
4.3.1 Framework and Process
According to the ordoliberals, the state should be the central architect of the competitive order yet should perform its tasks without embracing planning. The ordoliberal set of economic policies was precisely an attempt to guide the state in the shaping of a particular social order, one based on the competitive order in the economic sphere. To this end, the ordoliberals highlighted what they perceived as a central duality in the functioning of an economy, separating its “framework” (or form) from its “process.” While the framework embodies the perennial rules of the economic game, the process represents the daily “movements”—decisions, actions, etc.—of the economic agents within the limits set by the rules.
On the basis of this duality between framework and process, Eucken divided economic policies into two categories: the “constitutive principles” (konstituierenden Prinzipien) aimed at organizing the structural framework of the economy (or form), while the “regulative principles” (regulierenden Prinzipien) should deal with the internal process—and daily defects—of the economy, yet without deliberately taking on direction of it:
What should be the nature of the state’s activity? The answer lies in the fact that the State must influence the forms of the economy, but not itself direct the economic process. . . . Planning of forms by the State—yes; State planning and control of the economic process—no. The key point is to recognize the difference between form and process, and to act accordingly. (Eucken 1951, 95–96)
The constitutive principles are predominantly legal, while the regulative principles allow for economic actions per se.14 The economic framework is based on a “careful conception of the constitutional foundations” (Miksch 1948, 334), a field specific to the state that encompasses all the rules necessary for the functioning of the competitive order (see also Röpke 1940, 124). By contrast, the process concerns the infra-constitutional level—it is the domain of individual initiative and activity, the domain of coordination between agents.
4.3.1.1 Constitutive Principles
Eucken formulated the principles mandatory for implementing the competitive order in federal Germany. He outlined in particular seven “constitutive principles” (konstituierenden Prinzipien), which were to be reflected in his Principles of Economic Policy (Eucken 1952, 254–291). However, these seven principles can be divided in two groups, with a first group including two meta-principles that would organize and frame the other five principles that are more directly related to legislative principles:
K. 1.The realization of a price system of complete competition
K. 2.The constancy of economic policy
K. a.The primacy of monetary stability
K. b.Free access to markets
K. c.Private property
K. d.Contract law
K. e.Corporate liability
We already discussed the first meta-principle (K. 1) a couple of pages earlier, and the principle of “constancy” of the economic policy (K. 2) will be address later when dealing with ordoliberals’ aversion for discretionary policy management. Taken in their generality, the other five basic principles actually seem quite classical within the liberal tradition. Indeed, Eucken (1952, 290) emphasized that “some of the principles such as freedom of contract, liability or private property have been developed by philosophers and lawyers as purely legal principles, practically as principles of natural law.” But the meaning Eucken attributed to them merits detailed analysis, for he aimed at radically distancing himself from some of the core legal principles of liberalism:
It is not a question of legal dogmatism or principles of natural law. The global order context (Ordnungzusammenhang) that interests us here does not emanate from natural law or from a higher plane of dogmatic axioms. For example, the requirement to establish private property is often deduced from the nature of man and is justified as an imperative of natural law. This is not the case here. Private property is—along with other principles—essential to shape the competitive order. (Eucken 1952, 290)
The perspective Eucken developed in this passage was certainly informed by the work of Böhm. Although the latter could be approached as a natural law theorist, for he insisted on the necessity of equating legal norms to the functioning of the economic order, he nevertheless opposed reference to any form of metaphysical arguments in law (Nientiedt 2019b). So it was that the ordoliberals considered the transcription from economics to law an essential task. Böhm (1937, 13), in particular, made it his leitmotif, for he intended to “use economic concepts to interpret and renew private law” and in particular property law, contract law, firm law, etc.15 The various areas of law that directly concerned economic activity were to be oriented to satisfy the first principle since the fundamental aim was to translate the solutions arrived at in political economy into legal language. Some laws were, in fact, to affect the regulation of production, as is the case, for example, of real estate law, administrative law, and even family law (Böhm et al. 1936, 24).
On closer scrutiny it emerges that each constitutive principle can be misinterpreted and thus monopolized by power groups to promote industrial concentration and monopoly. It was, after all, also the possibility of concentration of economic power in the form of cartels or monopolies that worried the ordoliberals and guided discussion of these principles.
Controlling inflation was clearly an ordoliberal priority (K. a), although this did not mean arriving at any numerical inflation “target.” An unstable currency upsets the competitive allocation mechanism, leads to a disproportionate number of productive structures, and disrupts the distribution of income. More seriously, from the point of view of state economic management, the destruction of an efficient price system by inflation calls for state intervention in the management of the economic process. It must start managing the supply of money, imposing certain quotas and commodity prices. Such interventions lead the liberal economy down a different path, that of interventionism and planning. Management of monetary policy is probably the most complex of all from this point of view: the difficulty of grasping the relevant factors at any given time and the pressure of particular opinions and interests are issues raised by Eucken (1952, 257).
To overcome these shortcomings, the ordoliberals sought an order ensuring a stable value for money. According to them, this can be achieved with a more automatic system (i.e., with rules). For instance, the gold standard system (Goldwährung)—of which Lutz (1935; 1949a) was the main proponent—seemed to them to be the surest way to secure a neutral currency from an international perspective. With regard to the balance of the national market, they held monopoly of money creation to be justified, adding, however, that it was to be viewed in the light of historical development since “any economic monopoly can be misused” (Miksch 1948, 324). Miksch (1948) identified a particular case in the monetary system: that of the existence of a “monopoly that is not really a monopoly, i.e., the metric monopoly.” Miksch distinguished between two types of money creation monopolies, endorsing the theoretical dichotomy of market forms set by Eucken:
In the economic monopoly of money creation, the monopoly holder determines the money supply, which, however, if it is metal, is constrained by certain limits. In the metric monopoly of monetary creation, the holder of the monopoly only determines the modalities and certain elements of technical arrangements, while the money supply results from the resolutions of economic actors and is therefore subject to the law of large numbers. The metric monopoly is therefore part of the form of a fully competitive market. (Miksch 1948, 325, emphasis in original)
Miksch’s metric monopoly was a means by which to protect monopoly of currency issue from ordoliberal criticism of the concentration of economic power of supply-and-demand monopolies. The question of the rules and monopoly of monetary issuance provoked a great deal of controversy among the various strands of economic liberalism, as clearly evidenced, for example, by the debate between the Currency School and Banking School at the beginning of the nineteenth century—a debate Eucken (1940b, 169) explicitly mentioned.
For Eucken, competition is imperative in the field of banking services and loans, although “on money creation, the state must exercise a crucial right of control” (Eucken 1946d, 46). This view implies the separation of private lending activities from monetary creation activities and the rejection of the granting of credit at all costs, which would promote concentration and positions of power, the spread of external controls, and, ultimately, planning (Miksch 1948, 337). The ordoliberal reflections are based on the Chicago Plan—itself inspired by Irving Fisher’s 100% Money (1935)—of which Henry C. Simons (1936, 4–5) was also one of the main promoters. This was seen by the ordoliberals as an update of Ricardo’s analysis and the Currency School (Eucken 1946d, 54–55; Lutz 1936, 86).
Free market access (K. b), or the principle of open markets (Offene Märkte), is one of the ordoliberals’ technical requirements in their theoretical definition of complete competition. In practice, augmenting market openness is not only a negative policy—of the state against itself—of removing barriers to international trade (embargoes, quotas, customs, or national privileges), but above all it is essential to prevent such practices from being carried out by private actors themselves. Eucken (1952, 267) asked: “What is the point of a freedom of trade officially decreed by the State if the policy of power groups abolishes it in practice?” As a result, the state must also pay attention to all cases of anti-competitive preventive policy, such as loyalty discounts, exclusive contracts, or advertising.
The particular case of the ordoliberal discussion on the role of “patent law” (Patentrecht) in the market economy offers an archetypal example of the harm that can be caused by unfair legislation (Eucken 1949, 233; Röpke 1942c, 157). Skeptical about the alleged advantages of patents (promotion of technological progress and protection of invention), Eucken (1952, 268) argued that patents had made it possible to “step up the formation of monopolies and concentration” since they “restrict the quantity of goods offered,” as in the field of telecommunications and in the chemical industry. The question remains as to the extent to which patents are, indeed, if not the sole cause, at least one of the forces encouraging concentration and cartelization in these cases. From the ordoliberal viewpoint, patents represented a vehicle for the formation of illegitimate economic power. Thus Röpke (1942c, 303), like Eucken,16 wished to replace patents with compulsory licences (i.e., monetary compensation due to the inventor). As Robert Van Horn and Matthias Klaes (2010) suggested, the position against patents was characteristic of some liberal economists, particularly American economists like Henry C. Simon or Frank Knight—a position that was to be reversed within the Chicago tradition (notably by Stigler) in favor of patent protection.
The defense of the right to private property (K. c), one of the central principles of the liberal tradition, must also be interpreted from a specific ordoliberal viewpoint. According to the ordoliberal philosophy of history, private property had allowed monopolies “to exercise their power against workers, customers and competitors” (Eucken 1952, 273). A priori, Eucken did not attribute a particularly positive value to private property, holding that it is in the light of the overall functioning of the economic process that it is possible to assess whether private property acquires a desirable economic and social significance and does not represent an abuse or misappropriation:
The key question is whether market forms and the monetary system can be achieved in such a way that “exploitation” (Ausbeutung) is impossible, power concentration (Vermachtung) is impossible and the balance of the overall process is preserved. In other words: can private property become a useful economic and social instrument of the structure of the order of society? (Eucken 1952, 273, emphasis in original)
From the ordoliberal viewpoint, the relationship between private property and the competitive order is a circular one. Essential for the exercise of property rights to acquire capital property and to meet consumer demand, private property in a noncompetitive system has nonetheless an effect that Eucken (1952, 274) considered “antisocial” (unsozial).17
Like the right to private property, the principle of freedom of contract (K. d) should also be analyzed as a neutral principle insofar as it is a condition of the competitive order whose use may be perverted when exercised by groups. The contract then becomes an instrument of economic warfare, an “exquisite instrument of individual domination,” to use Böhm’s words (1961, 40).
Finally, the civil and commercial liability (Haftung) of companies (K. e) is the last constitutive principle. Faced with the spread of joint stock companies (Aktiengesellschaft) and limited liability companies (Gesellschaft mit beschränkter Haftung), Eucken (1952, 279) noted that liability (i.e., “the possibility of seizing a debtor’s assets”) was largely in default. However, Eucken did not directly recommend the abolition of these legal forms of companies. Most importantly, the possibility of bankruptcy and liability for losses must remain a credible threat because the proper functioning of the global economic order depended on it. Indeed, according to Eucken (1952, 280), commercial liability has the merit of “exerting a prophylactic effect (prophylaktisch) by preventing the liquidation and waste of capital because it motivates a better analysis of the market” based on a rigorous cost analysis which thus prevents economic concentration based on erroneous economic grounds (see also Röpke 1942c, 121).18
These constitutive principles embodied the “rules of the game,” or “all the constraints” (Grossekettler 1989, 43), for both state and individual actions. Rigorous application of the constitutive principles was indeed a necessary condition for minimizing the potential existence of monopolistic power structures and making the competitive order possible (resolving the social question). Yet it was by no means a sufficient condition. Hence an economic policy based on regulative principles was compulsory.
4.3.1.2 Regulative Principles
Eucken formulated “regulative principles” (regulieren Prinzipien) in response to the imperfections inherent in an exchange economy. They covered four areas of action, also amended by Eucken in his Principles (Eucken 1952, 291–304):
R. 1.Control of monopolistic market structures
R. 2.Redistributing income policy
R. 3.Control of adverse effects (negative externalities)
R. 4.Control of abnormal supply reactions
Eucken made it perfectly clear that “the competitive order has its defects” (1952, 300, emphasis in original). Accordingly, regulative principles were required to overcome two types of shortcomings. First, merely securing the legal framework—the constitutive principles—of markets does not completely prevent the emergence of firms with monopolistic tendencies (R.1). Moreover, even when complete competition prevails within an economic order, some market failures requiring correction may occur (R. 2–4).
When Eucken mentioned the control of abnormal supply reactions (R. 4), he had in mind the formation of insufficient wages on the labor market. In such cases, Eucken (1952, 304) argued that setting “minimum wages” would be an adequate policy measure. The unions, in turn, would have an “important function” within the competitive order, namely “compensating for the unequal market position between workers and entrepreneurs” (Eucken 1946c, 21). According to the ordoliberals, an unorganized workforce would be in an excessively unfavorable bargaining position vis-à-vis the employer; indeed, the workers had “always been the weakest party in the market relationship” (Miksch 1948, 320).
Eucken’s principle of control of adverse effects (R. 3) can be reduced to the consideration of negative externalities, although he did not explicitly use this concept (Grossekettler 1994, 16; Möschel 2001, 11).19 In his own lexical field associated with the issue of “economic calculation,” Eucken (1952, 301, emphasis in original) referred to the principle of externalities as “repercussions that will not be felt by individuals in their own planning area” (Planungsbereich). Typical of such cases were the social cost in terms of workers’ health and hygiene conditions, as well as the environmental impact of some companies’ production. Similarly, Röpke (1940, 291) proved highly skeptical about private exploitation of environmental resources, claiming that it would be necessary to prevent any “rapacious exploitation of natural treasures.” While respecting to the full the competitive effort of firms, Eucken (1952, 303) observed that a “commercial police” department should, for instance, ensure that the damage that a soda ash plant could cause to households and surrounding businesses be taken into account, for example, in the regulations of certain branches of industry.
Eucken’s principle of redistributive income policy (R. 2) contained important clarifications for positioning ordoliberalism within the liberal tradition. Eucken (1952, 300) called for a “progressive tax rate” aiming at fairer distribution. Röpke (1944b, 147) endorsed this view of tax progressiveness, insisting in particular on a “progressive inheritance tax.” Their ambition was to equalize individuals’ starting conditions and prevent the concentration of wealth over several generations—a potential factor for economic concentration and therefore for the exercise of power.
Admittedly, Röpke (1942c, 293) recognized that a social policy increasing wages and reducing working time would have paradoxical effects since it could tend to destroy small and medium-sized enterprises by leaving only the large ones able to cope with this increase in costs. However, social emergency requires that the state does not remain totally insensitive to the plight of the poorest: “as long as we have a proletariat, this social policy will indeed retain a certain limited scope of activity, and much intelligent work can still be done in the field of wage policy, trade unionism, workers’ protection and social insurance” (Röpke 1942c, 295). Röpke presented this pursuit of greater justice as coherent with changes, first, in the distribution of income by category; second, in the personal distribution of income; and third, in a posteriori correction of the distribution of income. A redistribution policy would be possible without necessarily disrupting the price system (demand inflation) and as long as it was careful not to discourage investment (Eucken 1952, 301; Röpke 1942c, 248). If ordoliberal social policy deserves special mention among the various forms of (neo-)liberalism, for instance by contrast with the Austrians’ (Chaloupek 2006; Wörsdörfer 2013b), its scope should not be exaggerated. Actually, the ordoliberal social policy in any case remains secondary, in the sense that realization of the competitive order represents the first and foremost social policy.
It can reasonably be argued that ordoliberal thought remained somewhat vague about the system of taxation and redistribution to be effectively implemented. Nevertheless, the position adopted does not seem so far removed from the general observation Keynes made about the same period. Indeed, in his “Final Notes on the Social Philosophy to Which General Theory Can Lead,” Keynes (1936, 374) stressed that from the nineteenth century on, “significant inequalities of incomes and wealth” can be justified on social and psychological grounds, “but not for such large disparities as exist today.” While, on the one hand, we may consider it a weakness not to sharpen the focus on a more precise, even quantified formulation, we might equally well interpret it as a reasoned omission on the part of these economists: from the Keynesian viewpoint, a matter of allowing for political deliberation to set social objectives, while in the ordoliberal perspective, the principle was to leave the necessary degree of freedom for the historical, political, and institutional analysis that must be carried out in situ and judged in each case according to the particular conditions.
4.3.2 Taming Market Power
The aim of the ordoliberal policy could not have been clearer: “Prevention, combating and reversal of the process of concentration of power” was to be their motto (Böhm 1947, 130, emphasis in original; see also Eucken 1952, 290). Constitutive and regulative principles combined to contribute to achievement of the competitive order. However, one principle in particular—control of monopolistic market structures (R. 1)—was the cornerstone of Eucken’s regulatory policy. Indeed, the Monopoly Office had the essential role of preventing the formation, within the exchange economy, of market structures alien to complete competition and whose emergence cannot be prevented by constitutive principles alone.
4.3.2.1 The Monopoly Office as Referee
If competition policy is to be taken seriously as a means of deconcentrating the economy in general and combating monopolies in particular, then the existence of supervision and sanctions is critical. The ordoliberals envisaged three responses to address price wars or any other type of abuse of dominant position strategies: first, “dissolution” (Auflösung) of the firm; second, nationalization of the firm if the monopoly (individual or collective) was unavoidable or of public interest; and, third, maintaining the firm under the control of an independent Office.
The first solution was ideal for the ordoliberals, according precisely with the competitive order (Eucken 1952, 290; Lutz 1956, 163). Yet, in practice, dissolution can raise new problems. In fact, dissolving a cartel previously acting as a collective monopoly would, for instance, lead to an oligopoly market structure, not a competitive one (Eucken 1942a, 90). Similarly, technical conditions such as the existence of a natural monopoly can prevent its dissolution. Dissolving a monopoly could also overly ration supply in certain markets and therefore have socially unjustifiable consequences in terms of both shortages and labor opportunity.
There is no unanimity among the ordoliberal authors regarding nationalization. This ambiguity can be explained by the fact that the nature of the firm’s ownership (private or public) was not a decisive criterion with regard to the ordoliberal focus on power; decisive, on the other hand, was the type of management of the economic process. While Röpke (1942c, 248) argued that nationalization was not directly “contrary to the logic of a market economy,” and as such could be implemented in some cases,20 Eucken (1949, 240) claimed that neither nationalization—being tantamount to “merging economic and political power”—nor collective control by the workforce would provide a satisfactory answer to the monopoly problem in the competitive order.
Rejecting both dissolution and nationalization, the ordoliberals opted for the third solution: that of economic supervision by an independent “Monopoly Office” (Monopolamt). This Office, comprised of economists and lawyers, would have to control the effective conditions of competition. Eucken (1949, 241) described the Office as a public (state-related) institution, yet independent of the political institutions (government, ministries, parliaments). Indeed, the Office had to be as far as possible “from the persistently dangerous influence exerted by interested parties (although these are weakened in the competitive order).”21 Thanks to its independent status, the ordoliberals believed that the Office would acquire sufficient authority while minimizing the risk of making it the vehicle for a deleterious exercise of private power. In this case, the Office would become the epitome of what Böhm (1947, 131) termed “pitiless de-concentration of the private economy; de-privatisation of any remaining market power.” According to the ordoliberals, the Office would be a vital institution in the modern market economy, an institution of economic justice functioning as a real safeguard against the dynamics of concentration. It was, therefore, Eucken (1949, 241) claimed, “just as indispensable as the Supreme Court” (the Oberste Gericht).
The Office should fight against concentration mainly through legislative decisions. However, the ordoliberals were aware that it was one thing to create new institutions parallel to the courts—indeed, in keeping with the ordoliberal observation of the law on cartels of November 1923 (Kartellverordnung), as mentioned in Chapter 1 of this book—but defining the notion of “abuse” of economic power precisely in legal language was far from easy. Yet, in the case of the Monopoly Office, Eucken underlined that it was “less against the abuses of existing power groups that economic policy should therefore focus, than against the formation of these entities holding power” (Eucken 1951, 35, emphasis added). To carry out an effective policy of combating monopolistic positions, it was, then, not so much a matter of a posteriori sanctions as, rather, of a priori prevention through assiduous control and supervision.
This market referee was to be a central institution of economic control. However, it would only be able to fulfil its mission if cartels and monopoly were already reduced to a minimum—otherwise it would be overwhelmed. Indeed, the modern state would be truly “unable to establish an effective supervision of monopolies in an economic order in which large parts of the industry are monopolized” (Eucken 1949, 239). The opposite situation is made possible by prior and systematic application of the constitutive principles. According to Böhm’s terminology (1961, 44), this would be the second “prophylactic” effect exerted by economic policy.22 Indeed, the Office’s task would be greatly facilitated within the competitive order where the formation of monopolistic powers is de facto prevented.
Not only by prohibitions of cartels, but also—and far more importantly—by an economic and legal policy which breaks through the strong forces of competition, as exist in a modern economy, by applying the constitutive principles. In this way the state largely escapes the influence of private pressure groups. (Eucken 1949, 239)
Hence, in addition to the actual action of the Monopoly Office, the ordoliberals relied on the credibility of its threat. This authority would have a preventive effect, further limiting tangible cases by its mere existence, taming the individual lust for the power gained by acquiring monopoly positions, “which is normally so strong,” but would be “considerably weakened” or even “eliminated” if the supervision of monopolies became effective (Eucken 1949, 243). This could be labelled the third prophylactic effect of the ordoliberal economic policy.
4.3.2.2 The “As If” Competition
Even when the economic order is already tending toward the competitive order—which minimizes the logic of concentration without totally preventing it—the fight against monopolies is a permanent mission. So what, then, is this Monopoly Office actually to do? One of its central aims is to ensure that competitive practices are effectively oriented toward performance. The “performance-based competition” (Leistungswettbewerb) the ordoliberals envisaged would ensure that every entrepreneur, in a dynamic process, was subject to pressure from his competitors (Eucken 1948c, 88; 1949, 231; Rüstow 1942, 274). Eventually, competition would benefit the consumer by offering the widest range of choices that would guide the production process (Eucken 1949, 226; Lenel 1971, 262; Müller-Armack 1956, 83). As a result, the ordoliberals never saw competition as a good thing in itself, and some competitive practices could even harm the competitive order. Cut-throat competition, or “impediment competition” (Behinderungswettbewerb) as Eucken (1949, 235) called it, includes embargo strategies, loyalty discounts, predatory pricing, and dumping, which favor the disappearance of competitors and close the door to new entrants—typical cartel strategies. Eucken (1949, 228) defined impediment competition, which is in fact a “struggle for monopoly,” as distinct from competitive behavior, as the absence of cost-based price regulation.
The essential task of the Office when identifying these injurious practices must be to compel monopolies and cartels to charge prices comparable to those of competition: indeed “as if” (als ob) they were really in a competitive situation. In short, the Office must place firms in a situation “analogous to competition” (wettbewerbsanalog), as Eucken (1949, 241) termed it. Here Eucken was drawing on Miksch’s work, and in particular on his article “Die Wirtschaftspolitik des Als-Ob” published in 1948, where he stressed that theoretical analysis could serve as a guide for imposing a certain scale of pricing on the actual markets.23
While “as if” competition was to become the benchmark for determining whether firms were adopting acceptable competitive practices, as Böhm emphasized (Walther 2016, 119), it would also take on a proactive and normative sense in correcting actual market pricing, as Miksch argued (Goldschmidt and Berndt 2005, 973).24 Hence the Office’s management of prices should coordinate the economic process to facilitate return to the theoretical functioning and outcome of the competitive order:
It is no simple matter to translate the conceptual model of internal coordination [i.e., the competitive order] into reality. However, the comparison of the model with actual historical reality offers the possibility to identify systematically and precisely where a gap exists between the conceptual model and reality, and to determine in each case whether this incongruity can be resolved through transformation of the legal data of the actual economic process. The conceptual model, despite its ideal-typical nature, is by no means a mere utopia. (Miksch 1948, 333)
To arrive at the theoretical outcome of competition, the market price should correspond to the firm’s marginal cost. In theory, the Office would have to set the firm’s price at the exact level “that ensures that it sells, produces and generally behaves as if it found itself in a situation of complete competition” (Eucken 1942a, 90–91, emphasis in original). In practice, Eucken (1949, 243) was fully aware of the difficulty of calculating this cost. Moreover, the technical difficulty of knowing whether or not a marginal cost equalization of the price allowed a firm to cover its fixed costs would always be there (Ahlborn and Grave 2006, 216). In particular, marginal cost pricing for a natural monopoly (increasing scales) would lead to losses, which meant that the “as if” policy was more easily applicable in some contexts than in others. While in principle it was applicable to “wage formation” (Lohnbildung), Miksch pointed out that this was a more complex issue than that of markets of goods and services. Indeed, within certain limits, the national labor authority may be involved in wage formation. Thus, fixing wage rates that approximately correspond to the “equilibrium wage which does not cause any long-term unemployment” seemed to Miksch (1948, 335) an accessible goal.
In light of these many shortcomings, Miksch (1948, 333) outlined three criteria to assess the effective competitiveness of a firm, and therefore guide the Office’s activity if they were not satisfied. First, economic agents should not be able to fix the market price. Second, the market price should be linked to the real cost of production. Third, the price should follow the general movement of prices on free markets. As long as a firm or a group of firms charge prices “that do not come close to competitive prices, they will have to expect the daily interventions of the office” (Eucken 1949, 245). Miksch (1948) justified this form of external interference in the internal coordination of the market with the fact that the Office does no more than reproduce, or imitate, the “severity” of the constraint exerted by competitive market in normal times. Hence the Office’s management of prices would be authoritative but not arbitrary.
The ordoliberals wanted to avoid any intervention in the economic process. Yet, paradoxically, the Office had the power to impose prices to mimic the competitive mechanism if it failed to function properly, taking on the task of guiding the economic process in the direction of the normative criteria. In short, the ordoliberals fundamentally saw the economy as consisting of two types of markets. First of all, there are markets where implementation of the constitutive principles sufficed to ensure completion. This first type, representing the majority of the markets, functions through internal coordination. Second, there are markets requiring specific interventions through the regulatory policy in general and through the control of monopolistic market structures in particular. Although very limited in number, these markets called for external coordination through economic policy because they undermined the legal and moral foundations of the competitive order as a whole, and thus—given the interdependencies—undermined its overall functioning.
4.3.3 Crisis Policies: From Krise to Gesellschaftskrise
The constitutive and regulative principles were central to the ordoliberal program of economic policies and yet they did not cover the whole field. While the ordoliberals did in fact envisage a short-run expansionary kind of policy to restore the economy in periods of severe economic crises, they contemplated a long-run sociological program designed to counteract the alleged spiritual crises of the twentieth century.
4.3.3.1 A Keynesian Moment?
Looking back on them, the ordoliberal economic policies are now often seen as systematic recipes to be absolutely followed, but this means forgetting that they resulted from critical and historical reflection on the particular case of Germany. Evidence of this attitude is to be seen in the ordoliberals’ ways of addressing the Great Depression that hit Germany harder than any other European country.
By the beginning of 1932, the Brüning government was seriously considering fighting recession, deflation, and unemployment by means of public works and job creation. Hence, well before the publication of Keynes’s General Theory (1936), Germany already had its own “anticipators” of Keynes or “proto-Keynesians,” which accounts for the similarities between the German economic policies of the thirties and the general spirit of the Keynesian program in the sense of public stimulus for job creation (Klausinger 1999). Wilhelm Lautenbach, “a scholar and a policy-maker simultaneously” (Backhaus 1985, 177), was the main architect of this German version of Keynesianism as early as 1931. He supported “a radical plan for credit-financed government spending” (Tooze 2001, 170) that found its way through the Brauns Commission, which was created to come up with an answer to the unemployment crisis coming with the Great Depression.
Despite the public works policy envisaged by Brüning and partly carried out by the following Chancellor (von Papen), it was not a systematic policy of public works, and it eventually proved to be extremely modest and without real effects on mass unemployment (Petzina 1969, 69). Indeed, this program of job creation did not get under way until Hitler finally applied and reoriented it toward “massive rearmament” when he came to power (Garvy 1975, 403). While the influence of the Brauns Commission remained very limited and the expansionist policy was not implemented immediately, the investment and public expenditure plans could then count on the strong support of Hjalmar Schacht, president of the Reichsbank (1933–1939).25
Both Eucken and Röpke participated in the pre-Hitler expert circles and were among the scholars who called for an immediate short-run expansionist program in Weimar Germany (Commun 2018; Feld et al. 2018). In September 1931, Eucken took part in a two-day meeting with the then Reichsbank President Hans Luther. There the question was to decide between continuation of the deflationary policy or transition to state job creation, low interest rates, and credit expansion, an issue more debated than ever. Shortly afterward, Röpke was fighting this battle within the Brauns Commission. Drawing a distinction between the initial, or “primary,” phase of the Depression and its “secondary” phase, Röpke (1932; 1936a) attempted to combine—and thus reconcile—Hayek’s and Keynes’s approaches to the business cycle (see Fèvre 2018b). As Germany was entering the latter (secondary) kind of depression, Röpke argued that the state had to lower taxes drastically while raising expenditure and financing public works to produce a strong “initial spark” (Initialzündung) that would eventually boost the economy. Indeed, Röpke (1933, 430) emphasized that “the national economy was captive to a form of torpor, from which it could emerge through a state-led impulse.”
For Röpke as for Eucken, the urgency and magnitude of the Great Depression made it impossible for the government to remain unresponsive to the situation and wait for the crisis to work itself out, as for instance advocated in the Austrian theory of cycles. And, indeed, Hayek tried to convinced Röpke that it was too soon to be backing an expansionist policy (see Magliulo 2018).
In retrospect, Eucken (1951, 65) insisted that when “there are millions of unemployed, any government will have to pursue a policy of full employment . . . social conscience forbids us to tolerate mass unemployment, and so does reason of state.” Eucken (1951, 59) went so far as to suggest that if at that time the government had accepted the plan designed by Lautenbach—“deservedly known as the German Keynes”—then “there might perhaps never have been a National Socialist revolution.” Over and above the counterfactual element in Eucken’s analysis, due weight should be given to the reason he provided for the authorities’ passive conduct:
The most likely reason why the government did not do so [adopt Lautenbach’s plan], was because it was afraid of inflation, which had caused such devastation in Germany ten years previously. (Eucken 1951, 59)
Remarkably, Eucken challenged the panic fear of inflation—in this case the hyperinflation of the twenties—as a bad political advisor. In any case, Eucken’s reflection attested to the fact that the ordoliberals were not, in all circumstances, contrary to a policy of economic recovery that might involve public spending and control of investment. From the early 1930s to the late 1940s, Eucken maintained a similar perspective on the need for a Keynesian-like policy to overcome severe crises. But how, then, are we to take the ordoliberal rejection of the full-employment objective?
Neither Röpke nor Eucken envisaged controlling the overall level of investment as ambitiously or continuously as Keynes did. From an ordoliberal point of view, expansionary policy had to respond to the special case of the Great Depression and be abandoned at the first signs of recovery; otherwise, it would lead to marked inflation. Therefore, according to the ordoliberals, there was room for no more—though no less—than a Keynesian moment.
Thus, what drove the ordoliberals to flat dismissal of the full employment philosophy of Keynesian interventionism was adoption of it as a perennial guide in state management of day-to-day economic life. More generally, Röpke and Eucken criticized Keynes for making the full employment policy not only the means to overcome the crisis in the national or international economy—since they themselves were in favor of it at the beginning of the 1930s—but for making it a mode of state management of current economic affairs.
According to them, it is precisely this day-to-day management that poses the risk of a spread of economic planning and political authoritarianism, given the example of the full employment policies implemented by Hitler in 1933, followed by Göring’s four-year plan as early as 1936. Indeed, both Eucken (1948c, 179) and Röpke (1944b, 196) associated Keynesianism with a form of policy on the economic process (Prozesspolitik) that would be, mutatis mutandis, back on the same tracks as the managed economy implemented by the national socialist state (from 1933 to 1936), eventually leading toward protectionism, nationalism, and central planning. The ordoliberals completed this bizarre cocktail by adding the Beveridge Plan of 1944 to the mix. Although Keynes was decidedly alien to the project of the British welfare state (Marcuzzo 2010; Backhouse and Bateman 2012), from the ordoliberal point of view—here in line with the neoliberal thought collective—they were all eventually paving the way to serfdom, to paraphrase the title of Hayek’s famous book.
Eucken believed that unemployment was not the evident consequence of the development of liberal capitalism, but rather the result of the instability of market forms and the monetary system. Eucken aimed to shift the focus of public intervention within the economic process—a state investment plan, for example—to the framework, or “rules of the game,” of the economic system itself. Thus, he refused to place full employment at the center of social justice and preferred to pursue other objectives that he deemed sufficient to ensure a high level of employment in return. This issue could only be resolved indirectly through the establishment of a sustainable economic order and not through a “perfect welfare state” (Rüstow 1956, 1). Thus, full employment must be a result, the consequence of an economic policy of stabilizing market forms and never the direct object of specific intervention. Otherwise, this preliminary objective would be contravened:
Satisfactory control of the overall process and through this “full employment”—yes. Full employment alone, ignoring or concealing the problem of control of the economic order—no. (Eucken 1948a, 45)
Eucken and the ordoliberals envisaged economic policy as “state planning of forms” of economic framework.26 Yet even in calling for ruled-based policy, they did not imply that state action would be uniform in time and space. On the contrary, Eucken (1949, 228) was very clear about the plasticity of the competitive order, stressing that “it will be realized in a particular way, depending on the current or historical situation” of each country. And even when the right economic policy had been carried out to implement the competitive order in one country in particular, the task was “never finished,” for the economy itself is in “constant evolution” and requires a reinvention of the tools and fields of action of economic policy (Miksch 1948, 337). However, the ordoliberals set two limits to this adaptive attitude. Not only was every single measure to be consistent with all the others, but economic policy itself was to be conducted on a reasonably consistent basis over time.
First, the ordoliberals were adamant on the fact that each policy decision would be evaluated in terms of its compliance with other decisions. The historical process of increasing the complexity (i.e., interdependence) of economic activities runs counter to adoption of public policies that are not in line with the dynamics of the overall economic order. The need for coherence in economic policy was truly decisive on the nation-state level. And eventually the principle of coherence should also apply to international governance.
As a matter of fact, the ordoliberals opposed Keynes’s “Plan for an International Clearing Union” (the second version of April 1943) on the ground that it would entail inconsistent global measures. Eucken (1943, 273) recognized that the Keynes Plan did in fact envisage international monetary measures “seriously attempting to promote equilibrium tendencies” among national competitive orders, but it also entailed global control of investment and trade, thus favoring forms of international planning that would lead to “general imbalance in world commodity markets.”27 Ultimately, as Eucken (1943, 273) saw it, Keynes would then be organizing “concentration of power” on an international scale. Eucken’s former student Friedrich Lutz (1943, 21) came to similar conclusions to Eucken’s regarding the deleterious role of pressure groups on international decisions.28 Lutz (1943) also emphasized the lack of “logical consistency” regarding economic policy as the chief weakness of modern governments in general and of pre-Bretton Woods discussions in particular. Thus, neither of these plans (White’s or Keynes’s) would adequately regulate the international monetary system in the long run. Lutz complained that the interdependence of economic orders was not sufficiently considered and always overshadowed by technical sophistication in narrow domains and, indeed, by short-sighted resolutions.
Second, a certain consistency in economic policies over time was a necessary condition for effective anticipation of specific long-run economic plans. Eucken (1952, 285) referred to this principle as “constancy of economic policy.” He argued that “the nervous restlessness of economic policy” which counteracts the formation of “an atmosphere of confidence” was a major factor accounting for underinvestment (1952, 288).
Drawing on Lutz’s (1945) work on US firms and his own experience of 1940s Germany, Eucken (1952, 288) stressed that firms often disregarded a wide range of profitable investments to implement solely the most profitable ones. He attributed this state of affairs to the inconsistency of economic policy inducing firms to undertake investments that could be amortized in the short run (in a three- to five-year time span). Thus, in addition to the constitutive and regulative principles, the proper functioning of the competitive order requires “a certain constancy” (1952, 288) in economic policy. Entrepreneurs can then behave rationally (i.e., conceive long-run economic plans) with regard to opportunities to invest in capital or employ more staff. By contrast, uncertainty accompanying inconsistent economic policy would give “an impulse” (Anstoß) to the formation of industrial—horizontal—concentration: large industrial groups being allegedly more resilient to hazard (Eucken 1952, 289).
4.3.3.2 Spiritual Reform and the Competitive Order
Clearly, the ordoliberals saw competition as the key organizational principle of economic life, thus building their entire political vision around the shaping of the competitive order. As Rüstow (1951, 170) put it, competition was the “most productive and healthiest economic principle.” However, he also emphasized that competition carried “obvious drawbacks” and in particular opposed the “principle of solidarity . . . one of the most fundamental and valuable human needs.” Lack of solidarity would not be overcome by means of usual social policy but by taking care of the “vital situation” of mankind. Under this heading, the ordoliberals—Röpke and Rüstow foremost—outlined a broad sociological and civilizational agenda aiming to restore the spiritual and existential conditions of persons (as opposed to the masses).29 The ordoliberal program aimed to go beyond local or symptomatic therapeutics to establish itself as “medicine for the mass society” (Röpke 1942c, 297). It ambitioned nothing less than combining policy for the competitive order with “degregarization, deproletarianization, decollectivization, and enhancement of the peasantry, craftsmanship and decentralization—in short, with a social policy aiming at a more solid sociological-anthropological framework” (Röpke 1944b, 73–74).
To do so, Röpke (1942c, 176) deemed that individuals should be provided with types of property of vital importance, covering a quasi-anthropological range of human needs: ownership of one’s dwelling and, to a certain extent, of one’s means of production. Röpke (1944b, 69) conceived a structural policy based on sustained action in the direction of the social preconditions that are prerequisites for and outcomes of the market economy, including the “distribution of income and property, [the] size of farms, [the] distribution of the population between town and country, between industry and agriculture and between the different classes.” According to Röpke, it would in some respects be necessary to return to an earlier stage of industrial-social development, although this would inevitably entail “highly unrealistic expectations” informed by “preindustrial social structures” (Ptak 2009, 123).30
Röpke (1942c, 263) claimed that the agrarian world was the true source of morality; he called it the true “backbone of a healthy nation.” The farmer’s way of life embodied Röpke’s sociological ideal. Obviously, Röpke condemned large-scale, concentrated farms with the same logic as he did with the industrial sector. Here, Röpke outlines clearly restrictive rules. And although these rules do not directly contravene the logic of a competitive market economy, they find their reason outside the commercial sphere, in both the communitarian and natural spheres:
It is an essential characteristic of peasant agriculture that the size of each farm does not exceed the working capacity of one family . . . ; it is embedded in the social organization of the family and the kinship group, of the village, of the cooperative peasant associations and the occupational and neighborly community to which every thought of competition is alien; and lastly, following the cycle of nature and its laws. (Röpke 1942c, 202, emphasis added)
According to Röpke, the agrarian world would somehow function as a sociological force counteracting the destructuring tendency of competitive capitalism. The agrarian sector embodies a form of alter- or contra-capitalist way of life. In short, peasant farming would be “the normal complement” to the “industrial and urban side of our civilisation” (Röpke 1942b, 263).
Obviously, the peasant’s way of life cannot be generalized to the whole social body. If the artisanal sector is to be brought closer to it, particularly in terms of ownership conditions, everything possible must be done to ensure that the working class and wage workers tend toward this ideal. In order to emerge from the current era of the masses, Röpke (1942c, 219) argued that it would be necessary to make the “working and living conditions of the industrial worker as similar to the positive aspects of the life of the peasant and artisan as possible.” What, however, remains questionable here is the compatibility between this sociological program and the competitive order the ordoliberals called for. Indeed, competition in the field of employment, for example, implies a high degree of mobility, of being ready to change one’s occupation or function according to the economic situation: Does this not directly contradict the ordoliberal desire for the individual to take root in his family and in his community?
In any case, behind this structural policy lay the ambition to endow work with a new spirit—not only with a view to resisting the socially, sociologically, and spiritually destructuring tendencies of the competitive exchange economy, but also in order to have what might be termed a fourth prophylactic effect: that is, to provide individuals from the outset with mental structures that are antagonistic to industrial concentration (praise for the local and the small) and the exercise of power. Eucken (1952, 275) claimed that small-scale private property would be a vector of independence, freedom, and individuality, or, in other words, a source of “social and moral freedom” (Bilger 1964, 108) because it gives everyone the means to exercise their potential as well as a degree of independence essential to cope with the negative effects of the market economy.
Thus, paradoxically, response to the social and spiritual crisis afflicting workers mainly involves reforms outside the economic sphere. Röpke aimed at bypassing the Marxist program of dictatorship of the proletariat through the multiplication and diffusion of small holdings of capital property. He was convinced that “the misery of ‘capitalism’ ” does not lie in the fact that some have capital, but in the fact that others do not and are therefore “proletarians” (Röpke 1942c, 178).31 Nevertheless, widespread distribution of capital could not suffice to answer to what the ordoliberals perceived as the spiritual emptiness of the masses, for it would also be necessary to educate individuals in the implications, use, and social significance of such property.
The subjective and educational dimension of the Röpkean program also concerned the consumer, who, while often presented in ordoliberal discourse as a victim at the mercy of monopolistic structures, was also guilty of a form of complicity. It was not only the conditions of industrial supply of certain products that crushed artisanal production, but also the subjective conditions of demand and consumption habits. This is why Röpke (1942b, 384, 307) saw “intelligent and effective consumer education” as the appropriate means “to weaken the power of the monopolies considerably.” For Röpke, nothing was more crucial than the fullest possible clarification of all economic phenomena, the most diffuse and transparent “publicity,” and as perfect precision as was possible in examination of the market and the data that determine it. Note that here “publicity” is to be understood in the sense of economic information since the ordoliberals fiercely opposed advertising in its modern form, which they saw as contributing to establishing the economic power of monopolies. No doubt, an “exceptional effort” would be required of the population as a whole in order to achieve a competitive economy, with everyone pursuing this goal as a “kind of national sport” (Böhm 1954, 159). The educational dimension of the ordoliberal program was conveyed in particular by Ludwig Erhard in the postwar period. He represented some of the societal items on the ordoliberal agenda in his speeches and through numerous works intended for the general public.
4.4 Conclusion: Toward a Power-Free Economic Order
Rather than growth, security, or justice, the ordoliberals aimed at the disappearance of illegitimate economic power as a flagship objective of economic policy. This goal was not only fundamental in the economic perspective, but also in a more comprehensive societal dimension. The ordoliberal reformulation of the social question required a threefold effort of distinction: from historical liberalism, from socialist planning, and indeed from Keynesian interventionism (associated with the infant British welfare state). In this way the ordoliberal reformulation of the social question stood as culmination of the ordoliberal historical diagnosis highlighted in Chapter 1 of this book.
From the ordoliberal standpoint, standard social policy could at best conceal the social question, at worst aggravate it. Thus, the ordoliberals relegated social policy per se to the background of core state intervention, to the benefit of economic policy and moral reform. In the quest for a composite synthesis emerging from the liberal, socialist, and conservative tradition of thought, the ordoliberals aimed to take up the socialist and Marxist criticism but, at the same time, to empty it of its corollary. For instance, the ordoliberal criticism of the living conditions of workers was hampered by the desire to organize the whole economy according to a competitive process: competition which, as Marx among others had shown, brings pressure to bear on the workers. In the final analysis, it may prove difficult to understand how the two levels of the ordoliberal policy—economic competition and spiritual reform—can effectively be combined in a satisfactory and noncontradictory way. Nevertheless, the ordoliberals drew up an ambitious sociological program to address the spiritual problem of the masses which the industrial countries would inevitably be faced with.
The ordoliberals’ fundamental argument asserting the superiority of the competitive order over other types of societal organization ran thus: individuals—in the absence of private economic power—would be both promoters of and subject to the expression of the general will (embodied by the competitive price) which drives the production process according to consumer choices.32 Three implicit economic arguments follow on from this central societal aim. First, a trend toward enhanced performance in production techniques (in terms of quality/price ratio). Second, better allocation of scarce resources, depending on the effective utility within the overall process (the calculation tool that drives the process). Finally, a trend toward a long-run economic equilibrium (in the sense of coordination of individual actions through plans). However, these three arguments were not based so much on rigorous logical demonstration as on the return to certain conclusions of an economic theory external to ordoliberal thinking, as discussed in Chapter 3.
By holding to the stability of market forms and monetary order, the ordoliberals made the disappearance of economic power within the economic process the key to solving the social problem in both the short and long run. To this end, Eucken outlined a set of constitutive and regulative principles. The state and public authorities were the only legitimate institutions in the exercise of power (for the purposes of maintaining or modifying the economic order) while being themselves the source of their own limitations. Indeed, the objective of an adequate functioning of the price system in the competition order serves as a yardstick for freedom of action, both of the individual and of the public authorities. While the emergence of monopolistic situations can be minimized with assiduous application of economic policy principles, it can under no circumstances be entirely prevented. This is why the Monopoly Office has to force companies to behave as if they were effectively in a competitive situation. The ordoliberals saw competition as the vital instrument for the disempowerment of private economic power—as a tool for regulating the social body in order to eliminate its positions of illegitimate economic power.
In this chapter, we also assessed to what extent the ordoliberal principles, although having general—universal—relevance, were irrevocably anchored to the German context of the first half of the twentieth century. Certainly, the ordoliberals paid exceptional attention to the stability of the currency and condemned state intervention in the economic process. However, they also argued that interventionism by means of short-run expansionary policy was mandatory in overcoming periods of severe economic crisis. What mattered to the ordoliberals most was nonetheless observing a certain consistency in economic policy, both over time and in terms of coherence binding economic measures together. Thus, the crux of the ordoliberal disagreement with Keynesianism lay precisely in the time span perspective of economic policy. On the one hand, Keynesianism reasoned in terms of the urgency of the moment—famously embodied by Keynes’s catchphrase that “in the long run we are all dead” (see Mann 2017). On the other hand, Eucken (1942a, 95, emphasis in original) underlined that the right economic policy for the present “transitional economy” (in view to the postwar period) should remain orientated toward the future “permanent order” if there was to be any hope of reaching it one day.
1. The keystones of the Gesetz gegen Wettbewerbsbeschränkungen (GWB) are prohibition of anti-competitive agreements and curbing abuse of dominant positions and concentrations. The GWB is currently in its eighth version, notably revised within the framework of the European Union (Möschel 2006; Demme 2013).
2. The transformation of the German social and economic structures in the second half of the nineteenth century had disastrous effects on a significant segment of the population, particularly on the “social base” of the electorate of German liberal parties, which can partly account for the growing interest of liberal authors in the social question (Jarausch and Jones 1990, 20).
3. This aspect of German history is well researched (Grimmer-Solem 2003; Lindenfeld 2008). The reader interested in Schmoller’s impact on social reforms can consult the works by Powers (1997) and vom Bruch (2004). For a historical account of the Verein, see Harald Hagemann (2001).
4. On this issue, ordoliberal arguments were often built on a “perverse effect,” to borrow the concept Albert O. Hirschman outlined in his essay The Rhetoric of Reaction (1991).
5. Negative freedom is a fundamental precondition, but the ordoliberal approach to liberty also incorporated a positive dimension of freedom coupled with distributive social justice (Bönker and Wagener 2001; Wörsdörfer 2013b).
6. In the interwar period, Eucken wrote several short pieces published in Die Tatwelt, a journal associated with Rudolf (Walter’s father) Eucken and the family entourage. One of the central aim of this journal, for which Lutz (1933) also wrote, was to thwart the alleged cultural decline of German civilization (Gerken 2000, 133–166; Dathe and Goldschmidt 2003; Dathe 2009).
7. For detailed analysis of Ropke’s cultural pessimism, see in particular Jean Solchany (2018) and Frans Willem Lantink (2018).
8. The encyclical by Pope Pius XI marked a turning point in Catholic economic thought with the consideration that the capitalist system was not evil, but that its excesses had to be tamed, particularly in terms of concentration of wealth (Calvez 2000; Almodovar and Teixeira 2008).
9. Böhm’s article was published in a 1954 collection of essays edited by Edward H. Chamberlin but based on a 1951 conference.
10. Eucken (1951, 39) noted—again explicitly against Schumpeter—that the admiration of the technical progress achieved through monopoly was in any case overestimated, since without a given monopoly “other branches of production would have had more means at their disposal and—most important of all—the supply of consumer goods in general would have been better” (see also Lutz 1956, 168–169).
11. Thanks to conditions looser than perfect completion, the ordoliberal complete competition could be empirically assessed through the absence of market strategies and should serve as an instrument for analyzing real cases (Ahlborn and Grave 2006, 200).
12. The ordoliberal economic constitution has come under scrutiny from the legal viewpoint in some recent collective volumes (Rabault 2016b; Hien and Joerges 2017).
13. Here Eucken departs from the classical Weberian vocabulary, although the meaning is nevertheless quite similar since Weber spoke of authority (Herrschaft) as “legitimate domination” (Dockès 1999, 83).
14. In formulating constitutive and regulative principles, Eucken stressed several contributions that inspired him by Böhm (1933), Miksch (1937b), Stackelberg (1934b, 1948), and Röpke (1942c, 1944b). He also mentioned the Chicago economist Henry C. Simons, in particular his Economic Policy for a Free Society (1948). On Simons and the ordoliberals, see Ekkehard A. Köhler and Stefan Kolev (2013).
15. Later, Böhm (1966, 53) forged the concept of “private-law society” (Privatgesellschaft) to underline the need for a well-designed legal system to keep the market economy functioning well (see Streit 1992; Nörr 2000).
16. On Eucken’s view on patents, see Manuel Wörsdörfer (2012b).
17. Article 14 [Property, inheritance rights and expropriation] of the German Constitution of 1949, which stipulates that “property obliges: its use must contribute at the same time to the good of the community”; can be interpreted along these lines. Despite the proximity between some ordoliberal ideas and the content of the Basic Law (Constantinesco 1960), it nevertheless seems that the concrete influence of the ordoliberals in the legislative field came later (Rabault 2016a).
18. The liability criterion must also be placed in the context of the issue of motivation and private initiative in business. For instance, the five-year study by Adolf A. Berle and Gardiner C. Means (1932) on more than two hundred of the major industrial companies in the United States came to the same conclusions about changes in the form of corporate ownership.
19. The modern understanding of externalities was forged in the late 1950s. Previously, externalities had widely been seen as “exceptional” and thus trivial quibbling about the effectiveness of the properties of the theoretical equilibrium and, as such, were not really perceived as a relevant issue for economic policy (Medema 2020).
20. Initially, Röpke (1942a) argued for the nationalization of all private monopolies in order to keep only public monopolies. In a subsequent text, however, he toned down this position, calling for nationalization only if official surveillance proved insufficient (Röpke 1944b).
21. As Eucken (1951, 35) noted, “once monopolistic bodies have begun to flourish in a state, they gain considerable political influence, so considerable that the state itself becomes incapable of exercising effective monopoly control.” If the ordoliberals showed a certain distrust of the state, it was not because of logic intrinsic to its functioning, as was the case with Hayek or, for example, in the Public Choice. The state can be threatening because it can be the object of predatory strategies on the part of firms. Hence the ordoliberal suspicion ultimately concerned the private sphere.
22. For the record, the first prophylactic effect was performed by the principle of commercial liability of firms (K. e) discussed earlier.
23. As Claire Mongouachon (2016, 174) underlined, Miksch (1937b) formulated this idea as early as his habilitation thesis.
24. Thus, Miksch and Böhm did not exactly understand the “as if” policy in the same way. On the one hand, Böhm (1947, 130) favored the discretionary power of the Office, for example, by radically prohibiting certain agreements but limited to monopoly, while, on the other hand, Miksch wanted an authority devoted to “information and economic expertise” but which also addressed cases of oligopoly. Nevertheless, the real doctrinal oppositions would only fully emerge within the new wave of the Freiburg School, which took shape after the fifties (Mongouachon 2016, 181–183).
25. Within a broader perspective, the volume edited by Peter E. Hall (1989) on The Political Power of Economic Ideas: Keynesianism Across Nations showed how Western countries’ counter-cyclical fiscal policies against unemployment came about primarily without any reference to Keynes. Franklin Delano Roosevelt’s New Deal is an obvious example, but other examples can also be seen in Sweden, France, or Italy (see also Bateman 2006, 283–286).
26. This alternative formulation can be found in the German notes for the lectures at the LSE in Eucken, published posthumously (see Eucken 2001, 77).
27. Eventually, Eucken (1944, 277) adopted a more nuanced position in his second commentary on the Keynes Plan. He then recognized that in some particular cases, controlling already existing international cartels may be a lesser evil, rather than constant state intervention in these markets. In particular, certain technological shocks could in fact render the market process for raw materials such as rubber or cotton inoperative.
28. Eucken and Lutz arrived at rather similar analyses and conclusions despite their completely different environments. While Eucken presented discussion of Keynes’s Plan to a private audience within the Freiburg resistance circles (cf. Chapter 3), Lutz had been in the United States since 1939, eventually becoming full professor at Princeton University. He issued a comparative analysis of Keynes’s and White’s Plan in the booklet series of the International Finance Section.
29. Werner Bonefeld (2013b) contributed to the reading of Rüstow’s Vitalpolitik from a Foucauldian viewpoint (see also Dörr et al. 2016).
30. At the beginning of the 1930s, Röpke (1934a, 13–14) had mocked the attempts of “conservative economists” like Adolph Wagner “to turn back the wheels of history.” And yet, during the war, Röpke adopted a somewhat similar approach. In the second half of the twentieth century, Röpke grew increasingly conservative on societal issues: close to American neoconservatism, he notably supported South Africa’s policy of apartheid (see Goldschmidt and Dörr 2018; Slobodian 2018, chap. 7).
31. From this point of view, Röpke’s perspective sits well with the “property-owning democracy” later indicated by John Rawls (2001): an institutional system in its own right imagined as an alternative to laissez-faire or different versions of state socialism.
32. Formalized interpretations of the ordoliberal perspective can be found in the language of game theory (Vatiero 2010, 2015) and using Edgeworth boxes (Dold and Krieger 2017).