CHAPTER 5
So far, this book has kept the issue of power well to the fore as the central challenge around which the ordoliberal political economy was structured—in its doctrinal, methodological, and theoretical as well as political aspects. In this fifth and last chapter, we take a sidestep: rather than examining the nature of the ordoliberal project as it took shape over some twenty years, from 1932 to 1950, we offer an overview of the critical scope of ordoliberal discourse over the short but significant period of the early postwar years. The following pages will flesh out the scenario of the ordoliberal campaign against economic planning and in favor of transition toward a market economy in West Germany.
Significant for this purpose is Michel Foucault’s conjecture that “Nazism was, in a way, the epistemological and political ‘road to Damascus’ for the Freiburg School. That is to say, Nazism enabled them to define what I would call the field of adversity that they had to define and cross in order to reach their objective” (Foucault 2008, 106). Foucault’s conjecture finds confirmation if we analyze the ordoliberal literature of the early postwar years in West Germany. This literature shows that, in the eyes of the ordoliberals, the planning promoted by the Bizonal administration of the Western Allies represented the continuation of a policy that perpetuated the ills of the Nazi administration. Relying on fixed prices and output/input objectives, the Allies thus ensured that the new West Germany would suffer from the same economic and social problems that plagued the old Nazi regime.
The ordoliberals wanted to dispel what they perceived as the huge illusion still held by the West: the ordoliberals wanted to disabuse the West of the notion that the Nazi machinery had been marked by tremendous economic and social efficiency. In truth, as the ordoliberals well knew, Hitler’s Germany had been an unsustainable economic order. They argued that West Germany’s economic problem did not reside in the fact that Germany lay in ruins after the war, but in the Allies’ perpetuation of unsustainable economic policies (i.e., the Nazi planning model). They saw market liberalism as the only way to overcome the economic slump West Germany was locked in. My contention is that the ordoliberals drew the political lessons that could be learned from the economy of the Third Reich: they confronted the Western Allies and the German authorities with the fact that proper denazification could succeed only if Nazi planning methods were rejected.1 The narrative outline here rests on the hypothesis that ordoliberal ideas gained traction because their authors sought to establish a continuity between the economic order of the Nazi and the administration of the Western Allies in the postwar period. Wilhelm Röpke offered perhaps the best summing up of the continuity thesis by highlighting—with a characteristic tone of caustic irony—what he viewed as a truly absurd situation:
We have seen the strange spectacle of the Western Allies trying to rush the German experts into accepting an economic programme which, in the final analysis, reveals itself as that of the Third Reich. (Röpke 1950a, 339)
As a matter of fact, the continuity ordoliberals were setting forth was not so much based on the fact that part of the Nazi administration remained in place several years after the end of the war. Their argument was rather that, although Nazi Germany and the Allies represented different political ideologies, the Allies were continuing, in West Germany, the economic planning and price controls of Hitler’s regime. As such, the continuity thesis was addressed both to the West German political authorities and to the Western Allies who held the fate of Germany in their hands. On what looks rather like an economic policy battlefield, the ordoliberals promoted and circulated their arguments through various media: hence we used various kinds of documentation, including advisory reports, newspaper/magazine articles, and academic publications focusing on a short period of time (1945–1950).
In June 1948, the monetary reform and a law liberalizing prices seemed to mark the unexpected veer of West Germany away from planning toward a market economy.2 These reforms may be seen as constituting a cunning maneuver of the Anglo-American Bizone in keeping with Western liberal principles and in opposition to the rise of the communist bloc. However, to attribute both policies—the monetary reform and price liberalization—to the Allies would be a mistake. In truth, the Allies pushed forward only the monetary reform. It took the ordoliberals to add price liberalization to the policy mix. As far as the ordoliberals were concerned, the Bizone’s sole direct concern was monetary reform and certainly not moving in the direction of liberalism.3 Indeed, they saw the US government (Balisciano 1998), and even more so Clement Atlee’s Labour government in Britain (see Chick 2002), sticking to the principles inherited from the Second World War: the national “love affair[s] with planning”—to borrow Marcia Balisciano’s metaphor (1999, 13)—continued to flourish in the early postwar years. Planning found support in Germany not only because of the Allied (military) administrations, but even more so on account of the socialist orientation of the Social Democratic Party (SPD), which dominated the political scene from 1945 to the summer of 1947. Even part of the Christian Democratic Union (CDU/CSU) was inclined to nationalize major industries and pursue a degree of economic planning (Giersch et al. 1992, 32–33). Rationalization of the economy—ranging from complete planning to a Keynesian mixed economy—was then the dominant perspective.
Nevertheless, it was the German authorities who enacted the law liberalizing prices, but not without the lobbying of the ordoliberals. Indeed, Walter Eucken, Leonhard Miksch, Friedrich Lutz, and Franz Böhm worked with the government of the French zone (in which Freiburg im Breisgau was situated), but also with a number of Anglo-American Bizone government commissions in which they exerted a growing influence together with Ludwig Erhard (Glossner 2010, 43).4 Erhard, the director of the economic administration newly appointed by the Bizonal Economic Council, is credited with this unexpected “leap into cold water.” It is well established that Erhard’s admiration for economic liberalism was rooted in ordoliberal ideas. It was indeed the ordoliberals who, advancing their continuity thesis, urged Erhard to combine monetary reform with the liberalization of prices. Otherwise, monetary reform alone would fail to change the economic order in depth and bring prosperity to West German citizens. Despite the decidedly unfavorable postwar situation in which, “politically, liberalism was weak and discredited” (Nicholls 1994, 137), as in a large part of the West, ordoliberal ideas gained substantial ground in the early postwar years, a pivotal period in shaping the economic model first of the Federal Republic of Germany (FRG) and later of unified Germany.
Previous literature offers a detailed picture of the political debates in West Germany in the early post-Second World War years. The rise of ordoliberalism as a leading intellectual force has been explained through a series of political and institutional circumstances (Giersch et al. 1992; Glossner 2010; Hook 2004; Nicholls 1994). Scholars have also emphasized the ordoliberal offer of a simple and “culturally coherent concept of economic theory” in turbulent times as the main reason for its success (Ptak 2009, 120; see also Rieter and Schmolz 1993). However, these explanations are only one side of the story. Indeed, the substance of the ordoliberal diagnosis—in particular the issue of continuity—has been largely neglected in the existing literature.
5.1 West Germany Under the Ordoliberal Diagnosis
In the crucial postwar years, the ordoliberals were faced with a West German economy stuck at an extremely low level of production. To account for this state of affairs, the ordoliberals did not refer to the devastation of war, German laziness and lack of cooperation, or events such as the Allies’ breaking down heavily cartelized sectors or promoting agriculture, as has been commonly argued (Allen 1989, 269). For Eucken, Röpke, and other ordoliberals, the fundamental cause of the economic malaise was economic planning: a continuation of what the Nazis had been doing. Bringing the Western Allies as well as German opinion around to this point of view was far from easy, as the Nazi economic machinery still enjoyed a solid reputation in the postwar years.
5.1.1 An International Campaign
Magazines and newspapers were the best medium through which ordoliberal expertise could influence “world public opinion” (Röpke 1946b, 511). The Swiss liberal newspaper Neue Zürcher Zeitung was the first and foremost platform (and then the German Frankfurter Allgemeine Zeitung from its creation in November 1949), but an ordoliberal international campaign started in parallel with publications in British, American, and French outlets.
Worth mentioning is the British weekly political and literary review Time & Tide, which was a favored place of publication for Röpke (a dozen publications between 1947 and 1951) and Eucken (1947, 1948d). Important academic articles were also published in various international journals: a notable example is “Repressed Inflation” by Röpke (1947e), which appeared in the newly created academic journal Kyklos (see Meijer 1994, 29). Another good example is the two-part article “On the Theory of the Centrally Administrated Economy,” by Eucken (1948c) in Economica. Eucken and Röpke’s English-language articles contributed to the socialist planning debate and the debate on the viability of a mixed economy.5 While ordoliberal activism originated in the second half of the thirties with the book series known as Ordnung der Wirtschaft (see Böhm et al. 1936), it came into its own with the creation, by Franz Böhm and Walter Eucken, of the academic journal Ordo in 1948.6 A central forum for liberal ideas, Ordo provided real political visibility. In pursuit of “a well-functioning economic and social order” (Lenel and Meyer 1948, viii), the first contribution to the journal by Eucken (1948a) set forth in broad lines what this new economic order should look like.
Although they attributed a major role to the disastrous effects of the Second World War, the ordoliberals pointed to the problem of the economic order as the primary cause of the weakness of the German economy.7 And behind the state of the European postwar economy (of Germany in particular) lay two—almost independent—basic reasons for Röpke: “the war has destroyed so much, and the economic process is in disorder” (Röpke 1947d, 123, emphasis added). What was missing in the German economic order in those early postwar years was “a perfectly functioning ‘scarcity gauge,’ then although economic activity is still possible the lack of coordination will not be conducive to overcoming scarcity” (Eucken 1948a, 30). The “scarcity gauge” Eucken referred to was the price system, which suffered under the strain of rationing and price-fixing but was also disturbed by serious monetary disequilibria. The main consequence of economic disorder, however, was to be seen in the price structure. Prices, because they were fixed, no longer had any real economic basis; they were “fictitious values” (Röpke 1947e, 247) that had nothing to do with scarcity or need and thus represented factors of inefficiency in the form of an “inadequate utilization of the productive capacity” (Eucken and Meyer 1948, 53).
The official markets suffered from serious disproportions and, in particular, severe shortages. When “the direction of the economy by central administration broke down in 1946–47” (Eucken 1948c, 81), what we would now call an “unofficial” or “secondary” economy emerged: a black market obviously, but also barter and a domestic self-sufficient economy (i.e., households producing their own food and other necessities).8 These were not just marginal cases. From November 1945 to January 1946, transactions made under the table rose from 20% to 50% in the total amount of exchanges (Bignon 2007, 230).9 Given this state of affairs, money could no longer fulfil its canonical functions (medium of exchange, unit of account, and store of value), and a barter economy emerged—and with it the problem of the “twofold coincidence of needs” necessary for exchange. Friedrich Lutz (1949b, 122) explained that in such circumstances, for both “individuals and business firms . . . a whole series of exchanges were sometimes necessary to obtain the desired commodity.”
5.1.2 “No Economic Order at All”
The ordoliberals asserted that the economy generated such a complex system of coordination, spawning so much inefficiency, that it was impossible to identify it with either of the two major types of coordination known thus far. Röpke indeed observed “the distortion of all value relations, the increasing importance of illegal dealings besides the shrinking ‘official sector’ and the ever-greater conflict between the impulses of the market and the administration struggling desperately to maintain its authority—all this leads finally to a chaos where there is no economic order at all, be it collectivist or competitive” (Röpke 1947e, 247, emphasis added). From this point of view, Germany experienced “a border-line case . . . of particular interest” (Eucken 1951, 81).
With the aim of raising worker productivity, but also of eluding the fixed ceiling set on wages, some firms introduced forms of “payment in kind” alongside monetary pay. Without affecting the level of production, according to Eucken and Meyer (1948, 53), these industries increased their wage bill to the detriment of the industries that did not practice such forms of remuneration. And even worse, this payment in kind had the perverse effect of encouraging black markets. Röpke (1947e, 250), as well as Eucken and Meyer, called attention to the negative repercussions that these practices had on the secondary economy: “partial wage payments in kind, furthermore, have increased the turnover in the black market and in the barter deals” (Eucken and Meyer 1948, 53).
The consequent decline in productivity and in the total volume of production led to a vicious circle. The advantages offered by specialization and the division of labor were inadequate, so people turned to unofficial channels. In the ordoliberal analysis, then, as the division of labor was reduced to a more limited scale, the development of “primitive” or “precapitalist” forms of organization were to be seen, including barter and home food production (Eucken 1951, 69). Faced with economic disorder, the people of West Germany eventually turned to expedients that were rational at the individual level—taking on extra work, looking for black markets, and barter—but led to increasing irrationality at the global level of the economy:
From the economic point of view, such extra work is senseless waste. From the point of view of the individual German, however, it is exceedingly important because it saves him from misery and frequently even from death by starvation. For that reason this extra work is also more important to him than the work at his job. (Eucken and Meyer 1948, 53, emphasis added)
Inefficient as it was at the collective level, this individual behavior gave spontaneous expression to the individual will to engage in free exchange. In Eucken and Meyer’s view, a resort to bargaining, rational at the individual level, was the only means for survival. Eucken makes the same point in another article (Eucken 1948a, 43). In the ordoliberal reading, barter was indeed an inefficient system (see Levy and Peart 2008, 689), but Eucken and Meyer raised the issue not so much to condemn it, but rather as a signal indicating spontaneous pressures for free exchange. In short, barter was approached as an additional argument in favor of reform toward a market economy. So much is clearly attested in an incidental sentence—with its significant parenthesis—in Röpke: “the law of supply and demand (sometimes referred to as the ‘black markets’)” (1948a, 5). Those primitive markets were indeed the only markets where “prices are free” (Lutz 1948, 9).
Instead of pointing their fingers at individual behavior (laziness, for instance) or decrying the ill will of the individuals involved, as some foreign commentators did, Eucken and Meyer, Röpke, and Lutz brought the discussion back to the field of economic systems analysis. The ordoliberals found fault with the current economic system itself, which contravened the “invisible hand” mechanism: Friedrich Lutz (1949b, 122) emphasized that the “economy was ‘organized’ along lines such that the self-interest of individuals and firms was strictly opposed to the common interest.” From 1933 to the time he was writing, the German economy embodied what Miksch (1947, 5) qualified as a “drastic contrast between private and public interests.” Lutz (1949b, 122) concluded that “working at a regular job was the least profitable occupation, and mere survival necessitated breaches of the law.” In the face of a chaotic economy, it had become indispensable for a great many workers to break the law: the planning system undermined its own foundations.
Thus, we have seen that the ordoliberals dismissed the causes that were commonly said to account for West Germany’s low level of productivity. The ordoliberals leveled their critical fire at the economic order in place as the root of West Germany’s economic depression; the role of prices in channeling rare resources toward their best use was entirely out of action. The circumstances that lay behind the lack of trade coordination were perceived as a return to primitive forms of organization such as black markets, barter, or personal production of the means of subsistence. But these primitive forms of trade were taken as proof of the potential of market forces waiting to be released.
5.2 Denazifying the Economic Order
The ordoliberals based their rejection of economic planning on the grounds that it constituted continuation of the economic order of the Third Reich. Thus, they accused the Allies of perpetuating a system “inherited from the Nazis” (Röpke 1948b, 1270). The ordoliberal continuity thesis rested on two arguments. First, there would be an administrative perpetuation of previous planning methods (i.e., a political continuity). Second, there would be propagation of a vicious circle linking price-fixing and repressed inflation (i.e., an economic continuity). On the basis of these analyses, the ordoliberals argued that authoritarian methods of economic control must be replaced by market mechanisms by virtue of which democratic aims could be set in the form of consumer democracy.
5.2.1 Political Continuity: Yet Another Army, an “Army of Officials”
The first major ordoliberal publication asserting the need for a new political order in postwar Germany was Röpke’s Die Deutsche Frage (1945a), translated the following year for an English readership as The German Question. Simultaneously, Röpke (1946a) summarized his main argument in favor of turning West Germany into a democratic federation in The New York Times. Röpke’s leading recommendation was to decentralize the German state in order to avoid a return to totalitarianism. Political centralization went hand in hand with economic centralization in Röpke’s eyes, and this historical trend must be broken.
According to Ludwig Erhard, political and economic centralization pursued with the merging of the British and American zones as of January 1, 1947, was also a major cause of constraints on production. As the then chairman of the Special Department for Money and Credit (Sonderstelle Geld und Kredit) constituted in the Bizone, he made it clear that “without a centralized administration and its concomitant powers, for example, the deterioration of Germany’s economy would never have assumed such pathological proportions” (Erhard 1947, 25). Erhard’s statement was not only directed toward the Allied military administrations, but also against the SPD. Indeed from 1945 to 1947, the SPD dominated the Ministries of Economy in most Länder and were especially influential in the British zone (Domes and Wolffsohn 1979, 334).10 Viktor Agartz commanded great influence at that time: first as the head of the central office for economics (Zentralamt der Wirtschaft) in the British zone and, from January 1947, Director of the Bizonal economic administrations. Agartz is a particularly good representative of a trend toward a more sophisticated—“scientifically designed” (Agartz 1946, 8)—planning method than that of war, notably promoting the growth and centralization of the administration.
Since the end of the war, Eucken (1946c, 9) had been decrying the same fact, which he considered an absurdity: German consumers were reckoning on “prices of 1936 which are still basically valid today,” and this absurd economic situation would remain the same, he said, “as long as the direction of economic life continues to be entrusted to a central bureau” (Eucken 1947, 408). Röpke highlighted this continuity in his article entitled “Economic Disease in Germany”: “very few people seem to realize that in all this the Allies are continuing the Nazi tradition,” they “are still drawing on the Nazi model” (1947b, 129). He concluded by summarizing what became the ordoliberal imperative in the early postwar years: “up to the present it does not seem to have occurred to anybody that, in the sphere of economic policy in Germany, ‘denazification’ is just as urgent as in any other sphere” (1947b). Röpke illustrated this similarity in strongly critical terms, attributing the official language of yesterday’s enemies to today’s liberators:
Allies, when taking Germany into their custody, did not hesitate to adopt the whole formidable machinery of Nazi collectivism with all its principles and conceptions. Although the implications are so serious it is almost amusing to hear leading men among the occupation authorities talking in the jargon of the Nazi economy and using as a matter of course the German equivalents of “apportioning”, “directing”, “controlling” and “priorities.” (Röpke 1947b, 129)
In Röpke’s eyes, the irony is less to be found in the last part of the quotation than in the Allies having thought that the Nazi bureaucratic apparatus was indeed a “formidable mechanism” (1947b, 129). In a special number of the Annals of the American Academy of Political and Social Science on “Postwar Reconstruction in Western Germany,” Eucken and Meyer (1948) leveled their criticism at the “Evils of Planned Economy.” They expressed their concern in a language full of military terms, referring to the—German under the Allies’—administrative body in charge of planning as a “veritable army of officials,” or “a whole army of officials” (Eucken and Meyer 1948, 53, emphasis added). As with Röpke, the stylistic formulas of Eucken and Meyer serve to highlight their continuity thesis.
Rhetorical in character, the ordoliberal narrative was not just an abstract fantasy. The failure of the Allies’ economic planning, undertaken on the basis of prices and quotas fixed before the war by the Nazi command economy (Zwangswirtschaft), is now recognized by historians as the obstacle to recovery (Giersch et al. 1992, 19–23). From 1936 on, the Nazi economy had been based on Göring’s four-year plan. This plan, which showed some affinity with the Soviet-type economy (Temin 1991), relied on major investments (25% of the overall amount) and drastic control of international trade (especially in raw materials), while both prices (including wages) and output were set in key sectors. However, private ownership of enterprises was admitted on a very large scale, so planning was based on—extremely imbalanced—contracting through agencies; that is, a chain of command that went back to the highest authorities of the Reich (Tooze 2006).
The Allies’ pursuit of what van Hook (2004, 51) calls a “moderately socialist agenda” and Ptak (2009, 119) “comprehensive economic planning” soon impeded the coordination of productive forces. The Allies’ planning authority mixed foreign officials with German administrative and political forces under the guidance of a bureaucratic military organization. If it differed from one zone to another, they jointly encouraged socialization and corporatism as ways to “democratize” the economy (Prowe 1985, 458). By promoting Länder control, planning nevertheless took on a local dimension. In 1946–1947, the Allied authorities of the military occupation set out to decentralize Germany’s industries with the aim of crippling German industrial potential, in accordance with the Potsdam agreements (Schwartz 1957, 642–648; Shapiro 1962, 4). On the evidence of the disastrous experience of First World War reparations, the British and Americans came to favor dismantling as a punishment (Fisch 2004, 272). In the two reports he wrote for the Scientific Advisory Committee of the French zone, Eucken (1946a, 1946c) pointed out the presence of numerous cartels in the German economy, taking as an example the case of I. G. Farben.11 Eucken’s addressed this monopoly problem following a classic pattern of ordoliberal argumentation: beginning with administrative scientific reports (1946a), through articles intended for the wider public (1947), to academic reformulations (1948a).
Thus, Eucken warned against monopoly power and the negative influence of cartels on the economy: a central issue for ordoliberals. On this basis, Eucken should have supported dismantling, and to some extent he did, but not in the way the Allies did.12 The Allies’ decision to put clamps on the German economy by dismantling a cartelized industry was seen by the ordoliberals not just as poorly implemented, but as blurring the most fundamental issue. Like Eucken (1947, 409), Röpke (1947b, 129) noted that the dismantling of the German industry was not the primary or essential reason for West Germany’s productive weakness; he was “convinced that the trouble lies much deeper”; “what was needed was a thorough change of the principles of economic life” (1947a, 584, emphasis in original).
In his LSE series of lectures in London, Eucken (1951, 81) returned to the tenuous connection between productive capacity, inflation, and global coordination of the economy: “even existing possibilities of production were insufficiently exploited” at that time, because repressed “inflation had rendered the price system incapable of controlling the economy.” Over and above the problem of monetary evaluation of goods and wages in a planned economy, there was the question of inflation. In the next section, I will address the indissoluble link that the ordoliberals (in particular Röpke and Eucken) aimed to establish between repressed inflation and planning.
5.2.2 Economic Continuity: The Planning–Inflation Vicious Circle
Inflation was nothing new in the postwar period for it had been a cause of concern since the end of the First World War (hyperinflation peaked in 1923). Indeed, surveying the post-conflict situation, Ludwig Erhard (1944, 5) was already warning that “the real problem lies in the elimination of superfluous purchasing power from the economy.”13 Inflation within the planned war economies constituted a well-known problem, proving, according to Gunnar Myrdal’s own admission, “one main defect of . . . national planning” (Myrdal 1951, 35).
Röpke offered an innovative study of this phenomenon, typical of a war economy, which he called “repressed” inflation (as opposed to “open” inflation).14 For Röpke, this was nothing less than “the great economic malady of our times” (1947e, 242). Repressed inflation arises from a tension between two contradictory forces (which are not of the same nature), that of the supply and demand mechanism in search of a price adjustment, and that of fixing these prices by public authorities. Repressed inflation persists as long as the second force prevails over the first one:
As a consequence of the war and of bad economic management after the war we observe almost everywhere a serious inflation in the sense of a great increase of the volume of money relative to a very slow recovery of production. . . . [Government] forbids the excess of demand to result in increased prices . . . there are now two sorts of pressure working against each other: the pressure of inflation driving prices, costs, and exchanges upward and the pressure of “control” which tries to neutralize that upward pressure. The question is how long the government can sit on the gusher of inflation, and what will happen as long as it is able to do so. (Röpke 1947e, 242)
If repressed inflation does not mean prices increase (as they remain fixed), in what sense is it inflation at all? In a situation of repressed inflation, demand exceeds supply in all markets. In short, the fundamental mechanism can be summarized as follows. In the attempt to achieve full employment, state planning results in an investment shock. The overabundant money supply, far in excess of the amount of available goods, sends prices rising. By definition, markets then cannot clear through prices (open inflation). An excess of purchasing power follows, and the authorities are forced to ration consumption, as with quotas or coupon allocations, in order to avoid massive shortages. People cannot obtain goods; therefore, the extra money becomes worthless and prices fail to function as relevant signals: money is no longer desired. The extra money results in forced savings. The only way out of this sequence is to maintain the available amount of purchasing power by increasing the volume of goods to bridge the gap: the ordoliberals decried the lack of incentives—to invest, to work harder, etc.—to achieve a rise in output (Eucken 1948d, 900; Lutz 1948, 10; Röpke 1947e, 248).
Eucken (1948c, 79) adopted Röpke’s analysis to describe (in retrospect) the situation in Germany since 1936. But in doing so, Eucken implicitly abandoned the war–inflation connection to concentrate on the link that he considered more fundamental, that between a planned economy and inflation: “because in one sphere, where a sufficient order is most needed, namely that of currency, the problem of order was inadequately solved, planning was called into being in every other sphere of economic life” (Eucken 1947, 409). War had this effect only insofar as a wartime economy was planned: the perpetuation of “measures of repression” (Röpke 1947e, 242). Röpke also stressed this inevitable interconnection:
First, repressed inflation is the monetary counterpart of collectivism because all experiences bear out the well-founded assumption that collectivism invariably leads to inflation. Secondly, as we saw, collectivism is connected with repressed inflation because the measures of repression constitute what we call collectivism, i.e., an economic system which replaces the spontaneous order of the free market by an order which some name “conscious” while, in fact, it is based on command and the sanctions assuring obedience. (Röpke 1947e, 243, emphasis added)
Röpke was arguing in terms of the empirical evidence and logical tautology in this passage, delineating the interrelatedness between the two terms “repressed inflation” and “collectivism.” Similarly, Eucken made of this connection the great lesson to be drawn from the economic experience of the Third Reich: planning feeds on monetary surplus. This reading was by no means prevalent at the time. Shortly after, two prominent American economists were still claiming that German inflation was caused “wholly and exclusively by two destructive wars which left the economy in monetary chaos” (Hansen and Musgrave 1951, 39).
What worried Eucken was not so much that inflation was a consequence of planning but rather the reverse, that inflation led to planning: “Not only did the inflation destroy the price system and hence all free types of economic order, not only did they engender or decisively foster the tendency to central planning, but they were also a precondition of the existence of central planning” (Eucken 1951, 69, emphasis added). This was in line with Röpke’s earlier statement that “collectivism and inflation became intertwined: it was inflation which made possible the waste and disorder of collectivism which made it possible to have inflation without turn-away prices, wages, and exchange rates” (1947b, 130). Röpke made the correlation clear, stressing the compensatory effect that came into play between the two phenomena, one coming to the aid of the other and vice-versa. It seemed to him that “collectivism serves just as well for an attempt to mitigate the open harms of inflation as inflation serves for an attempt to mitigate the open harms of collectivism” (Röpke 1947e, 244).15 Collectivism developed to curb inflation and may justify its existence with this end; this led Röpke (1947f, 115) to the conclusion that “defence of controls rests on the assumption of inflation.” The greater circulation of money, to some extent, counterbalances disturbances in the supply of certain goods. To some extent, the overabundant money supply fed an ignis fatuus of prosperity and success.
If the effects on production were disastrous, ordoliberal criticism of this type of inflation eventually extended to issues of social justice and economic democracy:
Under collectivism, it is no longer true that money embodies the liberty of choice and the freedom to buy under conditions equal to all. Collectivist money means that money is next to worthless unless it is accompanied with rights and privileges accorded by the political authority. If the rationing is equal for all it is money plus ration coupons which decide its real value. If the rationing is differentiated according to a system of needs and merits defined by the government it is money plus ration coupons plus the social and political position of the owner which determines its ultimate value. (Röpke 1947e, 245, emphasis in original)
In a word, according to Röpke (1947e, 246), “under collectivism, money begins to smell.” The value of money is no longer intrinsically guaranteed, but quite other factors, like the status or position of the person holding it, become decisive in the purchase of goods and services. From an ordoliberal viewpoint, such a situation favored personalism and authoritarian control over democratic consumer values. As a consequence, the ordoliberals put aside their original interwar mistrust of parliamentary democracy in favor of an approach that would prove of great significance in the subsequent West German context: democracy should be achieved first and foremost in the economic sphere; hence, achievement of a democratic regime depended above all on the advent of sovereign consumers.
5.2.3 Toward a Consumer Democracy?
Through their analysis of repressed inflation, Röpke and the ordoliberals insisted on the monetary order as one central channel for expression of individual decisions in the market economy. This channel was then obstructed by administrative control of the economy. Back in the interwar period, Röpke (1942d, 253) had already used the metaphor of money as a “ballot-paper” embodying a “plébiscite de tous les jours” (in original French) through buying and selling decisions.16 In his opinion, therefore, the true model of democracy is not to be found in the political sphere but in the economic domain. Indeed, as each “ballot-paper” ensured proportional representation of every person, including minorities, Röpke (1942b, 138) claimed that “market democracy . . . surpasses the most perfect political democracy.” In the same vein, Böhm emphasized that the creation of market prices would be tantamount to a “voting process, taking place, by the day, hour and even minute”; hence he called the free market economy “the most perfect expression of mass democracy; its degree of precision is impossible to reproduce within political life”(Böhm 1947, 127–128, emphasis in original).17
In short, from an ordoliberal perspective, the market economy was not only the best expression of political democracy, nor just its most natural complement, but more essentially its main vector and safeguard. The market economy was the first step in a political model in accordance with what the ordoliberals saw to be the core of Western values, as opposed to the communist model that East Germany saw setting in. On this basis, should it be concluded that the ordoliberals pursued a model of “economic democracy?” In Chapter 1 we saw that the ordoliberals had leveled their critical fire at the parliamentary democracy of the interwar period, a political system that fueled economic concentration and eventually saw Hitler appointed Chancellor. Was there a new turn in the ordoliberals’ appreciation of (economic) democracy after 1945?
On the one hand, the ordoliberals were convinced that a lot of improvement could—and needed to—be made within capitalist firms in terms of greater “self-governance of the workforce,” better working conditions, and indeed larger shares in the firms’ profits (Rüstow 1951, 171). On the other hand, they were staunchly opposed to economic democracy understood as “equal participation of workers in all the decisions taken by firms, cartels, chambers of commerce or industry” (Böhm 1954, 153; see also Rüstow 1951, 171). According to the ordoliberals, this desire for “absolute equality between capital and labour” (Böhm 1954, 156) within managerial representation was the Trojan horse of neo-mercantilism—a form of governance that could only work to the detriment of consumers. In this respect, the ordoliberals were opposed to a cornerstone of what today we call Rhine capitalism: consensual co-management within the firm. In contrast to “economic democracy” as understood from the postwar period to the present day, it seems more appropriate to use Röpke’s term and to speak of “consumer democracy” to describe the political-economic model the ordoliberals envisaged. Essentially, the ordoliberals located the true site for individual sovereignty not in individuals’ identity as producers (whether managers or workers), but in their consumer identity.
From the ordoliberal standpoint, the competitive order alone—neither the interventionist welfare state nor authoritarian planning—was the adequate framework for the advent of the consumer democracy they envisaged. Eucken (1946b) and Miksch (1948) insisted on the incompatibility between socialism (broadly understood) and the values of liberal democracy. In other words, an incompatibility of socialism with what Miksch (1948, 332) called “the foundations of Western Christian culture” and, in particular, with the aspiration to individual freedom (see also Böhm 1954, 159). Indeed, Miksch claimed that Western values were in harmony with the results of a competitive market economy:
The high value of internal coordination [the competitive order] is based on the fact that it combines maximum economic efficiency with maximum freedom and personal autonomy. The economic sovereignty of consumers makes internal coordination the economic counterpart of political democracy. (Miksch 1948, 332, emphasis in original)
In this text, Miksch emphasized the similarity and complementarity between what he called the “internal coordination” (the free market) of the economy and political democracy (see also Miksch 1950a). One of their main common points was rejection of every kind of illegitimate position of power. Again, Röpke had already stressed this crucial bond between the political and economic orders. However, to conclude that because of this connection the ordoliberals assimilated both orders by indicating that market was, ultimately, “only a political order” (Joerges 2006, 249) seems overstated. Actually, the ordoliberals did emphasize the specificity of each of these two spheres, ruling out reduction of the former (the economic order) to the latter (the political order). In any case, Röpke made a point of underlining the incongruity of reasoning in terms of completely different logics in two interdependent spheres:
There always exists a definite, more or less fixed relationship between a political and an economic system which makes it impossible to combine just any political system with just any economic system, and vice versa. . . . In the long run economic dictatorship can as little exclude political and intellectual control as, conversely, political and intellectual dictatorship can exclude economic control. It is hardly forgivable naïveté to believe that a state can be all powerful in the economic sphere without also being autocratic in the political and intellectual domain and vice versa. (Röpke 1942c, 87–90)
The ordoliberals understood democracy not so much as the sovereignty of voting citizens who express themselves through representative bodies. Rather, they understood it in terms of certain values of the open society where, within a set of common constraints, everyone is free to pursue the objectives they have individually set themselves, in particular through their purchasing decisions on the market. Röpke did not speak directly of sovereign consumers, but of a “consumer democracy” in which the general interest would be achieved when the interest of all consumers—for each individual is a consumer—would prevail over the private interests of producers. Consumer sovereignty proved pivotal in the justification of Erhard’s social market economy and its ability to shape a desirable future society in the postwar years (see Olsen 2018, chap. 3).18
In final analysis, everything turned out as if the ordoliberals had shifted the exercise of popular sovereignty from the political to the economic sphere. Accordingly, Miksch (1947, 5) claimed that providing West Germany with a market economy was a vital democratic “public task” (öffentliche Aufgabe). Thus, sovereignty no longer existed so much through representativeness, or the impact of the popular will on political decisions—because the ordoliberals saw the genesis of norms lying with an elite of experts (Wörsdörfer 2012a)—but went directly through the capacity for choice in the market: hence the requirement that it should function flawlessly. From an ordoliberal point of view, establishment of this economic democracy was the condition not only necessary, but to some extent sufficient, for the development of a (future) political democracy in West Germany.
5.3 The 1948 Reforms in the Early Cold War Context
Having reconstructed the ordoliberal diagnosis of and discussion on the functioning of the postwar economic order in West Germany, this last section investigates the content and context of the 1948 reforms. In determining price liberalization in particular, ordoliberal expertise was key. Just as critical was the ordoliberals’ fierce defense of the 1948 reforms in the early Cold War context, which they ensured by championing the German “economic miracle.”
5.3.1 Ordoliberal Expertise
Printed in the United States with top-secret security, the Deutsche Mark (DM) was brought in to replace the Reichsmark (RM) in the early hours of June 21, 1948. Initially conceived as a new currency for all of Germany, it came up against the misgivings of the Soviet authorities, so the new currency was restricted to West Germany. The priority was to reduce the quantity of money drastically by nullifying public and private debts, together with (forced) savings. Monetary reform had been in the cards for a long time, and the Americans worked on the details at considerable length on the basis of the Colm-Dodge-Goldsmith Plan of 1946.19
The surprise came some days later, on June 24, when Erhard proclaimed the end of the controlled economy in the journal of the Frankfurt administration, without waiting for Allied approval and, indeed, against the advice of the Anglo-American counselors.20 Erhard’s reform won the day, eliminating controls for four hundred products and slackening the measures on wages. In the autumn of 1948, price controls were lifted on other basic products (fruits, vegetables, coffee, tea, etc.), but also on manufactured goods and services such as insurance (see table IV in Mendershausen 1949, 664). In an address delivered before the Economic Council (Wirtschaftsrat des Vereinigten Wirtschaftsgebietes) in Frankfurt on April 21, 1948, Erhard made the case for his policies: monetary reform alone would not cure the ills of West Germany’s economy. Price-fixing, “as the pioneer of a controlled economy,” was not to survive the reform: “our task is not to dilute the price freeze, but to get rid of it altogether” (Erhard 1948, 29).
When they wrote their article, Eucken and Meyer (1948) were aware that a monetary and fiscal reform was imminent, but they did not know all the details. Their worries were about the other measures that were to accompany the monetary reform:
The first and most important requisite for a reconstruction of the German economy is the introduction of a yardstick for economic calculations. . . . If an important part of the prices remains at a fixed level, the interaction of misorientation of the productive forces, formation of a new surplus of money, appearance of a black market, and the necessity of barter will begin again. (Eucken and Meyer 1948, 61; see also Böhm 1947, 134)
Given the hardships experienced by the population, in particular after the terrible winter of 1946–1947 (Solchany 2003, 362), the Allies and German authorities were faced with a choice: either enhance centralization and planning techniques or venture upon a market economy. “The opinion that a centrally planned economy is superior to a free market economy is now open to very serious doubts” according to Alfred Müller-Armack (1947, 20), an economist and politician who rallied to the ordoliberals precepts in the postwar period and coined the expression “Social Market Economy” (Soziale Marktwirtschaft). Like the ordoliberals, Müller-Armack now came firmly down in favor of a market economy, stressing that West Germany “shall inevitably have to take steps towards market freedom” (1947, 20).21 In a similar vein Röpke wrote that “the paralysis cannot be overcome within the framework of the present collectivist system” (Röpke 1948a, 5).
A general end to price controls nevertheless “met with incomprehension” (Glossner 2010, 128) and was seen as potentially dangerous by both political leaders (Stolper and Roskamp 1979, 384) and the public (Hoppe 1991, 79). But Erhard found support in the analyses by Eucken and Miksch. From October 1947, the Special Commission (Sonderstelle Geld und Kredit) worked specifically on future reforms. The commission member responsible for price and wage policy, Leonhard Miksch, held a position of primary importance for the support of the ordoliberal recommendations (Mierzejewski 2004, 65–67). Together with Erhard, Miksch drafted the liberalization measures. Ludwig Erhard’s rallying to the ordoliberal precepts and to the social market economy owed much to personal contact with Eucken and Miksch as well as, to a lesser extent, to Röpke.22 In fact, both Eucken and Miksch—alongside Böhm, Lampe, and Müller-Armack—belonged to the Scientific Advisory Committee (Wissenschaftlicher Beirat) of the Bizone economic administration, of which Erhard had been director from March 2, 1948. Membership in the committee was designed to maintain a balanced representation of the various ideological positions,23 but the liberal majority argued in favor of price liberalization and an end to administrative control over raw materials. It wished to promote market competition and was wary of the risk of concentrations while watching out for the possibility of abuse.
The committee’s first report therefore showed a clear orientation in the direction of liberalization:
The currency reform only makes sense if it is accompanied by a fundamental change from previous dirigisme. It would be worthless and even dangerous if it were introduced merely as an isolated, technical operation. Effective demand will be restricted as a result of the currency reform so that the complete control of consumption and economic activity will be superfluous. (“Measures for Controlling Consumption” 1979, 449)
The tendency to favor market solutions was not shared among all the members of the Committee, however. A minority of the Committee opposed such recommendations: “to try to move in this direction [economic equilibrium] through a system of free market prices is impractical” (“Measures for Controlling Consumption” 1979, 452). This minority, consisting of G. Keiser, G. Weisser, K. Schiller, and W. Kromphardt, especially feared that liberalization would cause a major inflation. In stark contrast with ordoliberals claims, they argued in favor of a mixed economy, which was to pursue a full-employment policy. Consistent with the Marshall Plan which had just been implemented, Weisser and Schiller wanted to improve the techniques of planning. To do so, Kromphardt, following his market division theory (Marktspaltung), offered to legalize black markets, with the aim of extending the official allocation management system (coupons, etc.) to these—formerly—unofficial markets. Kromphardt thought his solution would “reduce the transaction costs and widen bottlenecks in the administrated core of the economy” (Giersch et al. 1992, 35).24
The arguments developed by the minority were rooted in the program of the SPD, which was looking for a kind of synthesis between Marxist historical grammar and Keynesian-type of manning the economy, but without conceiving a clear theoretical picture of these claims (Abelshauser 1986, 90). In any case, the social-democrat views expressed by the minority of the Committee were practically disregarded in the reform.
5.3.2 Championing the “Economic Miracle”
The reforms of 1948 proved, as the ordoliberals were eager to stress, “a tremendous success” (Lutz 1949b, 122; see also Eucken 1948d, 900; Röpke 1950a, 339). The monetary reform led to a drastic reduction in the quantity of money in circulation. In short, “money became scarce” (Eucken 1951, 69), and, indeed, the money supply had been reduced by about 90%. Overall, the monetary reform reintroduced the essential conditions for a competitive economic order as the ordoliberals conceived it:
The reform restored an adequate unit of account, allowed the economy to be controlled by prices and gave rise to an economic order that provided a framework for the organization of a large-scale division of labour. (Eucken 1951, 69)
In this context, consumer choices had regained their weight and influence on the production process through the free price mechanism. This situation offered only advantages according to Eucken. When the money in circulation was scarce, firms and households alike would be paying more attention to product quality. He also noted that, after the reforms, absenteeism at work decreased, productivity increased, and real production costs fell. As a result, “under the new conditions created by monetary reform and the partial return to a free market, production has increased rapidly” (Eucken 1951, 69).
The enthusiasm shown by Eucken and Lutz was shared by Erhard and Röpke. The former stressed the shift of plan-making capacity from the central authorities to economic agents: “it seems to me that these last eight to ten weeks since the Currency Reform has witnessed the drawing up of more plans i.e., more premeditation and provision for the future than all the years of a regimented economy” (Erhard 1948, 35–36, emphasis added). Röpke, on the other hand, once again emphasized the complementarity of the two reforms and the indispensability of price liberalization. Monetary reform alone would not solve Germany’s economic problems, as he made clear in his influential 1950 report Ist die deutsche Wirtschaftspolitik richtig? (Is the German Economic Policy the Right One?) commissioned by Chancellor Adenauer: “it is an incomprehensible distortion of the true facts and a failure to recognize intrinsic economic implications if one depicts the currency reform as being more important or as the solely effective part of the overall reform” (Röpke 1950b, 41).
All this seems to show that, if the ordoliberals were so keen to defend the reforms, it is because a return to administrated prices appeared a very real threat. In the seven months following the reforms, the prices of agricultural products increased by 25%, and of manufactured goods by 35% (Klopstock 1949, 287).25 And, between late 1948 and early 1949, macroeconomic stability was threatened by steadily increasing prices. The reforms soon came under attack by American and British experts and researchers, also from the point of view of social justice and of the ills of increasing inequality (Hutchison 1979, 436). Faced with these hardships, the trade unions, supported by part of the politicians, were pressing for the reintroduction of price controls (Bignon 2007, 248). In March 1949, Horst Mendershausen (1949, 658)—an economist who served with the US Military Government of Germany in the capacity of Assistant Chief of Price Control from 1947 to 1948—considered a return to price control as very likely, but nothing was to come of it.
Thus, the reform was not an all-around success, and Germany’s “economic miracle” (Wirtschaftswunder) would only come effectively in the mid-1950s, driven by external factors.26 As historian Jean Solchany (2003, 364) pointed out, not all the effects of this liberalization were beneficial: the cost of living remained high, as did unemployment (about 10% of the active population), leading to strikes in 1950. The inflow of more than 12 million refugees beginning in 1945 should also be taken into account (Commun 2004, 23). Finally, the substantial aid granted by the Marshall Plan (initiated in 1947) made a significant contribution (Buchheim 1993; Wolf 1993, 30) and was, according to some observers (Borchardt 1991, 92; Braun 1990, 154), the fundamental factor in West Germany’s economic recovery.
The Berlin blockade began on June 22, 1948, right between the dates of the West German reforms, making explicit, if there were indeed any need, the conflicting foreign interests at work on German soil. While the fate of Germany was indeed crucial to political and economic stability in Europe (Dijk 2004, 78; Wala 2004, 73), the German Federal Republic was to become a model of growth that could stand up to the rise of European communism (Allen 1989, 270). But to conclude that Germany found itself being used as an experiment for rival economic policies—as Grenier and Orléan (2007) did—goes too far. The West Germans were not merely passive subjects but also key actors in the Cold War. In this respect, we saw how isolated the ordoliberals were at that time in their favoring market liberalism against any kind of planning, a position which Allied authorities (Anglo-American and French), but also many political parties (foremost the SPD), were still very distant from.
As a matter of fact, the ordoliberals’ publications, like those by Röpke (1947d, 1947g) and Eucken (1948d, 901), as well as a twenty-page essay for the International Finance Section of Princeton University by Lutz (1948, 3, 7, 11), were linking the success of the Marshall Plan with the rise of liberal economies. Röpke insisted on the importance of the issue as a matter of life or death: “if the West fails in Western Germany it will fail everywhere” (1948a, 31). Worried about communist subversion of West Germany, the ordoliberals tried to clarify the continuity between the Nazis and the Allies in order to stop any drift toward communism.
5.4 Conclusion: Entering the Economic Policy Battlefield
Although Germany’s productive capacity remained considerable after the Second World War, the population was utterly indigent. In their diagnosis, the ordoliberals took this paradox as evidence that the economy was “highly pathological,” eventually leading to “the complete dissolution of the national economy” (Röpke 1947e, 246–247): the Allies were perpetuating a planning system much like that of the Third Reich. To win on the economic policy battlefield, the ordoliberals’ best defense was a direct attack: they rejected economic planning on the ground that it was a continuation of the Third Reich’s economic order. Thus, they accused the Allies of perpetuating a system inherited from the Nazis. The ordoliberals presented this continuity thesis along two different lines. First, there was a political continuity: an administrative perpetuation of previous methods of planning. Second, there was an economic continuity, which became visible in the conjunction between price fixing and (repressed) inflation. The ordoliberals constructed that continuity to argue that planning should end and be replaced by a certain form of market liberalism. True denazification could only be achieved once its method of coordinating the economy was rejected.
Two main conclusions can be drawn from our presentation of the continuity thesis. First, drawing lessons from the economic experience of the Third Reich, the ordoliberals acquired the epistemological and theoretical resources that enabled them to address institutional change in Germany politically. In other words, the ordoliberals appeared particularly well prepared and theoretically equipped to play their part on the economic policy battlefields of the seminal postwar years in West Germany precisely because they were able to take advantage, within a radically different historical context, of capital they acquired under Nazism (as Michel Foucault conjectured).27 If, however, ordoliberals discussed the problem of inflation even before 1933, it was the experience of Nazi Germany that provided them with a full picture of the mechanism linking the phenomenon of open and repressed inflation to the structure of the economic order and the functioning of the economic process.
Second, the continuity thesis brings out the mainly political nature of the struggle against inflation. As the ordoliberals saw it, inflation fostered by the reproduction of the planned economy imposed by the Allies came on top of the inflation inherited from the Third Reich and war years. Over and above the distortions in economic calculation and distribution that the ordoliberals stressed (Helmut 2001, 337), they considered inflation fundamentally dangerous—politically speaking—because it paved the way to planning, with a potential assault on the competitive economic order. In the light of this observation, it was expedient to introduce a new currency (monetary reform) but at the same time free prices (Leitsätzegesetz), so that the latter could reflect needs and scarcity. Retrospectively, monetary reform and price liberalization appear as an obvious set of economic policies: however, the choice to bring in both of them together in 1948 was by no means self-evident. Thus, Erhard’s initiative to concomitantly adopt the reforms based on the ordoliberals’ prescriptions helped them to take the credit—at least symbolically—for an economic miracle linked to the political birth of the Federal Republic of Germany. According to Böhm (1954, 167), the Germans were then entering a new era, leaving behind their old pattern of “a people which has never really liked competition, and which has been used to regard . . . every concentration as a growth of the social ethos.” Well aware of this historical turning point, Jürgen Habermas (1971, 32–33) later stressed, in a disillusioned tone of amusement, that by becoming “one of the six or seven most liberal countries” in the postwar world, Federal Germany “for the first time in centuries, became a contemporary of Western Europe.”
The continuity thesis enables us to specify the interactions of ordoliberal ideas on the ideological battlefield of the early Cold War. The ordoliberal crusade for market liberalism was also intended as a crusade against communism. The real impact of ordoliberal ideas should be sought in their capacity to shape the agenda of the West German state and, more in general, to exert considerable influence on the postwar ideological context: West Germany’s “leap into cold water,” which the ordoliberals urged and celebrated, also contributed, on a much wider scale, to the West–East leap into the Cold War.
1. Hayek (1944) was among the loudest liberal voices expressing concern about the West’s planning tendencies. If in principle the “slippery slope” argument, which one can also find in Mises and Friedman, is consistent with ordoliberal ideas, the continuity argument I discuss here follows a separate route.
2. The Law on Principles and Pricing Policy After the Monetary Reform (Gesetz über Leitsätze und Preispolitik nach der Geldreform).
3. The monetary reform was a unilateral Anglo-American decision (Braun 1990, 154–155; Capie and Wood 2001, 452; Sauermann 1979, 302; Wandel 1979, 321).
4. As an academic in Geneva, Röpke had no direct role to play in administrative circles during these early postwar years. He nevertheless commanded considerable attention as a liberal thinker.
5. This debate waxed particularly lively in England, chiefly at the London School of Economics (Backhouse 2005, 355).
6. In the same spirit, Röpke had endeavored to found the journal Occident, conceived of as a place of publication for liberal European intellectuals, but this project aborted. Indeed, Röpke failed to raise enough funds from Swiss contributors to ensure the sustainability of the project. The funds he did manage to secure were eventually redirected to organization of the first conference (April 1947) of the Mont Pèlerin Society (Steiner 2007).
7. The ordoliberal diagnosis was partially corroborated by subsequent historical studies on that point. Although the German cities, transport infrastructure, and population had been so severely hit, historians concur that Germany’s productive potential remained at a level almost as high as its prewar level (Braun 1990, 153; Nicholls 1994, 124–125; Sohmen 1959, 989; Hook 2004, 9). For example, the capital stock (in billion RM of 1950 prices) rose from 51.8 in 1938 to 71.2—its highest level—by the end of 1943, and terminated at 58.6 in 1946 (Krengel 1963, 123, table I). This is nuanced by Postan (1967, 24): “[t]rue enough, some of this productive capital was in the form of highly specialized munitions plants unsuited to peacetime employment.” Nevertheless, what was termed “zero hour” (Stunde Null) reflects a somewhat distorted view. Indeed, Germany found itself in a comparatively more favorable situation than that of the other European countries, especially thanks to a better “balance between wartime investment and destruction” (Carlin 1996, 463).
8. Study of this type of coordination was developed to a great degree in the postwar period, with the rise of what were called the Soviet-type economies: “all economic activities that are either undertaken directly for private gain or are knowingly illegal in some substantial way” (Alexeev 2008, 384).
9. For a detailed inquiry into German black markets at that time, see Frank Grube and Gerhard Richter (1979).
10. On the reasons and circumstances that led to the progressive weakening of the SPD—though hegemonic at the end of the war—in favor of the CDU, see James C. van Hook (2004, chap. 3).
11. The world’s biggest chemical cartel, deeply involved in the Nazi war effort and the Holocaust (see Hayes 1987), is paradigmatic of the American industrial policy in West Germany.
12. The (mainly American) adverse prescriptions against the German economy—namely the Morgenthau plan and the JCS 1067 directive—gradually weakened from 1946: even if the US military authorities (OMGUS) went furthest in blaming the German people (see Solchany 1997, 29–32), Tobias Vogelgsang (2016, 162–163) demonstrated how, between the two competing views within the American position, the anti- vs. pro-industry factions, the latter soon prevailed over the former.
13. On the pre-1945 German debates and the road “from Nazi war finance to monetary overhang,” see Keith Tribe (2001, 25–39).
14. Röpke was the first to use the English expression “repressed inflation.” Hitherto a variety of terms had been used for the phenomenon, including “suppressed,” “retarded,” or “frustrated” inflation (by Henry C. Simons or Frank Hahn). Before, Röpke used the German term “zurückgestaute Inflation” in commenting on the French economist Jacques Rueff’s L’Ordre Social (Röpke 1947h). Albert O. Hirschman (1948, 599) observed that Röpke’s concept “has since been widely used in the analysis of postwar monetary conditions,” applying it himself to the situation in postwar Italy. Alongside Walter Eucken (1948c, 79), Gottfried Haberler (1948, 11) and Abba Lerner (1949, 195–196) were among the first to discuss the term, illustrating Röpke’s contemporary impact on the field. Without any reference to Röpke’s work, F. W. Paish’s article (1953) and above all Harold K. Charlesworth’s book (1956) provided the first systematic studies on the subject.
15. Or, in Eucken’s (1951, 74) words, “planned economy . . . correlates with inflation.”
16. Röpke was not the first to use the metaphor associating money with ballot-papers: Mises (1922) is probably responsible for giving wider circulation to this expression coined by the American economist Frank A. Fetter at the beginning of the twentieth century (Persky 1993, 185).
17. Much later, Böhm (1961, 30) continued to insist on the daily plebiscite embodied by consumer choices through the competitive price mechanism.
18. The English-born economist William H. Hutt is attributed with the first occurrence of the concept of “consumer sovereignty.” In the same years, the Austrian Hayek and the ordoliberal Röpke came up with comparable formulations. On Hutt’s concept and its central place in the Anglo-Saxon context of the LSE, see Maxime Desmarais-Tremblay (2020).
19. For a detailed explanation of the monetary reform package, see Herbert Giersch et al. (1992, 36–38). In view of the coming reform, the Bank Deutscher Länder—the forerunner of the Deutsche Bundesbank—had been established on March 1, 1948, to take on monopoly of issue. For a history of the independence of West Germany’s Central Bank, see Bibow (2009).
20. This episode is closely analyzed in the literature (Broyer 2003b, 210; Carlin 1996, 464; Nicholls 1994, 215–218; Uterwedde 2009, 25).
21. Here the ordoliberals were unanimous, urging a shock therapy, which the authorities found premature at the time. What they called for was the simultaneous liberalization of prices and wages (Röpke 1947e, 251). We nevertheless find here an example of contrasting positions among German liberals, with Röpke, Eucken, and Miksch pressing for it in the face of Müller-Armack’s prudence (see Nicholls 1994, 184, 203, 206, 259).
22. Erhard and especially Konrad Adenauer, elected federal chancellor in 1949, regularly called on his expertise. On the—limited—influence of Röpke on Erhard, see Mierzejewski (2006). In addition to these contacts, the political context also played a crucial role: as Patricia Commun (2003, 193) explains, the two reforms of June 1948 were “made possible by the Soviet walkout, abandoning the quadripartite government on 6 March 1948.”
23. Erhard took charge of this committee, which he had not set up himself. For a list of the original twenty-three members of the Scientific Committee—professors mainly of economics (seventeen), but also of law (three), political science (two), and philosophy (one)—as well as their stance in favor of liberalism (accounting for three-quarters) or planning, see Sylvain Broyer (2003b, 208).
24. On the overall debates inside the Wissenschaftlicher Beirat, see Anthony J. Nicholls (1994, chap. 9).
25. Jacques Rueff (1949, 105–106) had also noted the inevitable inflationary pressure following price liberalization which he had himself been advocating for France since 1947.
26. This chapter gives little room to diverse appraisals of the effective causes of the “economic miracle.” Werner Abelshauser (1975) was among the first to cast doubt on this excessively well-disposed retrospective view toward liberal action, attributing no real importance to the economic policies of the time. The literature wavers between these two positions. With great good sense, Jean Solchany (2003, 366–370) calls for a more nuanced explanation (see also Plumpe 2004, 299–300). He considers the combined effect of government policy and the German industrial structure little affected (Hook 2004, 4–5) as well as a favorable international context, attested by the recovery of the European countries as a whole. If the word “miracle” was used, it was also because the renewed growth came later but more strikingly than in the other countries.
27. In an ironic turn of events, ordoliberal ideas themselves were the object of a (failed) campaign to show that the Nazis were “sympathetic to the ordoliberal concept of competition” during what Ekkehard A. Köhler and Daniel Nientiedt (2017, 625) called the “Muthesius controversy” of the fifties.