Ordoliberalism has played a significant role in German economic policy-making for decades. But ordoliberalism’s role in providing the theoretical framework for the policies adopted by the eurozone and EU  in the post-2008 crisis environment has also been largely ignored by the financial press. It’s a curious lack of interest since the importance of ordoliberal thought on EU policy-makers isn’t exactly a secret :
Draghi says ECB has not compromised its ‘ordoliberal’ principles
ECB president tells Stanley Fischer farewell conference that the ECB’s LTRO and OMT operations are ‘controlled’ and ‘necessary for the pursuit of price stability’
Central Banking Newsdesk, Central Banking Journal | 18 Jun 2013
Mario Draghi, president of the European Central Bank (ECB), today insisted the ECB has not violated its “ordoliberal principles” by taking some credit risk onto its own balance sheet, through its long-term refinancing operations (LTRO) and outright monetary transactions (OMT).
Draghi told a conference in Israel  in honour of outgoing Bank of Israel governor Stanley Fischer that the monetary constitution of the ECB is firmly grounded in the principles of ‘ordoliberalism’, particularly two of its central tenets: a “clear separation of power and objectives between authorities”; and “adherence to the principles of an open market economy with free competition, favouring an efficient allocation of resources”.
Ordoliberalism’s Lasting Legacy. It Includes Fascism
First, consider that the head of the European Central Bank (ECB) felt the need to public defend his adherence to ‘ordoliberal principles’. And now consider that fact that the ECB has been notoriously hesitant to actually use  the tools at its disposal (like sovereign bond purchases) that prompted the Draghi’s defensive comments. And now consider what an absolute disaster the EU/eurozone crisis-response (or lack of a response) has been over the past few years and how there’s almost no indication  of a real, meaningful policy-shift. Considering all of that, a look at the origins and philosophical underpinnings of ordoliberalism is probably in order :
Freedom, Crisis and the Strong State: On German Ordoliberalism
The German ordoliberals tradition is better known in the Anglo-Saxon world as the Freiburg School, or German neo-liberalism, or indeed as the theoretical foundation of the German social market economy. It origins date back to the late 1920 / early 1930. Its foundation lies in the works of Walter Eucken, Franz Böhm, Alexander Rüstow, Wilhelm Röpke and Alfred Müller-Armack. These authors saw their work as providing a third way, a (neo-)liberal alternative to laissez faire liberalism and collective forms of political economy, ranging from Bismarckian paternalism to social-democratic ideas of social justice, from Keynesianism and Bolshevism. In the face of Weimar mass democracy, economic crisis and political turmoil, they advanced a programme of liberal-conservative transformation that focused on the strong state as the locus of social and economic order. The dictum that the free economy depends on the strong state is key to its theoretical stance.2
The fundamental question at the heart of ordo-liberal thought is how to sustain market liberal governance in the face of mass-democratic challenges, class conflicts, and political strife. How, in other words, to promote enterprise and secure the role of the entrepreneur in the face of powerful demands for employment and welfare, and protection from competitive pressures. For the ordo-liberals, yielding to any one of these demands was seen to lead to ‘collectivist tyranny’. Hayek’s Road to Serfdom (1944) brought this insight to wider attention, but did not provide its original formulation, which lies in the ordo-liberal thought of the late 1920s.3 It holds that a functioning free economy requires robust social and economic frameworks to assure undistorted competitive relations. Markets, they argue, also require provision of an ethical framework to secure the viability of liberal values in the face of ‘greedy self-seekers’ (Rüstow, 1932/1963, p. 255) and antagonistic class interests. The provision of these legal-social-ethical frameworks belongs to the state. The state is held responsible transforming a class-divided society into, and maintaining, an entrepreneurial market society. For the ordo-liberals, competition is the indispensable ‘instrument of any free mass society’, and the promotion of enterprise and entrepreneurial freedom is thus a ‘public duty’ (Müller-Armack, 1979, pp. 146, 147). They thus propose the strong state as the political form of the free economy.
The works of Wilhelm Röpke4 and Alfred Müller-Armack are of particular importance concerning the sociological and ethical formation of free markets. Both were adamant that the preconditions of economic freedom can neither be found nor generated in the economic sphere. A competitive market society is by definition unsocial, and without strong state authority, will ‘degenerate into a vulgar brawl’ (Röpke, 1982, p. 188) that threatens to break it up. In this context, Müller-Armack focuses on myth as the ‘metaphysical glue’ (Fried, 1950, p. 352) to hold it together. In the 1920s he espoused the myth of the nation as the over-arching framework beyond class, in the 1930s he addressed the national myth as the unity between movement and leader, and advocated ‘total mobilisation’ (Müller-Armack, 1933, p. 38), in the post-war period he argued for the ‘re-christianization of our culture as the only realistic means to prevent its imminent collapse’ (1981c, p. 496). Yet, in the context of the so-called West-German economic miracle, he perceived social cohesion to derive from an economic development that Erhard (1958) termed ‘prosperity through competition’. It offered a new kind of national myth rooted in the idea of an economic miracle as the founding myth of the new Republic (see Haselbach, 1994a,b). Sustained economic growth is the best possible social policy (Müller-Armack, 1976) – it placates working class dissatisfaction by providing employment and security of wage income. In contrast, Röpke had started out as a rationalist thinker of economic value, and in the course of his life he bemoaned the disappearance of traditional means of social cohesion in peasant life, and the relations of nobility and authority, hierarchy, community, and family. In his view, the free economy destroys its own social conditions in what he called human community. In his view, the ‘social market economy’ endangered the social preconditions of competition in „human community? – the economic miracle created materialist workers; it did not create satisfied workers who as self-responsible entrepreneurs, maintain their vitality by means of a ‘human community’ of family and natural community (cf. Röpke, 1936 with Röpke, 1998). He perceived the ‘menacing dissatisfaction of the workers’ (Röpke, 1942, p. 3) as a constant threat, and demanded that social policy ‘[attack] the source of the evil and…do away with the proletariat itself…True welfare policy’, he argued, ‘is…equivalent to a policy of eliminating the proletariat’ (Röpke, 2009, p. 225). In this same context, Eucken argued that economic constitution is a political matter. The economic and the political comprise distinct spheres social organisation, which need to operate interdependently for each other to maintain the system as a whole. For the ordo-liberals the state is the power of interdependence and is thus fundamental as the locus of liberal governance.
I Convictions, Assumptions, Positions
In the late 1920s, in a context of economic crisis and political turmoil, conflicting ideologies and entrenched class relations, ordo-liberal thought emerged as a particular account on how to make capitalism work as a liberal economy, or as Foucault (2008, p. 106) saw it, on how to define or redefine, or rediscover ‘the economic rationality’ of capitalist social relations. The ordo-liberals conceived of individual freedom as the freedom of the entrepreneur to engage in competition, and seek gratification by means of voluntary exchanges on the market. The free economy is the purpose of its theoretical effort, the political state is endorsed as the means towards that end, and the social policy is the instrument with which to develop, promote and maintain undistorted competition. They recognised the ‘social irrationality of capitalism’, particularly that irrationality which they called proletarianization, and proposed means to restore the entrepreneurial vitality of the workers. Social crisis is brought about by the ‘revolt of the masses’,8 which destroys the culture of achievement in favour of a permissive society. For the ordo-liberals, this development called for a decisive defence of economic freedom by the elite (Böhm, etal, 1936, Röpke, 1998) to restore liberty, individual self-responsibility and entrepreneurial vitality. That is, „the “revolt of the masses” must to be countered by another revolt, “the revolt of the elite”? (Röpke, 1998, p. 130). They identified the welfare state as an expression of proletarianised social structures, and demanded the de-proletarianisation of social relations9; they argued that socio-economic relations had become politicised as a consequence of class conflict, and demanded the depoliticisation of social-labour relations; they saw unrestrained democracy as replacing the sovereignty of the rule of law by the sovereignty of the demos, and demanded that, if indeed there has to be democracy, it must be „hedged in by such limitations and safeguards as will prevent liberalisms being devoured by democracy. Mass man fights against liberal-democracy in order to replace it by illiberal democracy? (Röpke, 1969, p. 97). For the ordo-liberals, the resolution to proletarianization lies in determining the true interest of the worker in sustained accumulation, as the basis of social security and employment. De-proletarianisation is the precondition of „civitas?. Freedom, they say, comes with responsibility. They thus conceive of society as an enterprise society consisting of entrepreneurial individuals, regardless of social position.
Based on the above description (and be sure to read the rest ) ordoliberalism could be characterized as a philosophy that envisions every individual as a potential entrepreneur and it is the entrepreneurs that are to be the driving force behind a healthy society. And since an entrepreneur can only survive as long as there are healthy market conditions a strong State is require to prevent private interests and ‘greedy self-seekers’ from destroying a fair market environment. Now, except for the entrepreneur fetishism, that all doesn’t sound so bad, does it?
But it ordoliberal thinkers also appeared to champion the necessity of the “national myth”. And they also viewed the increasing affluence and political influence of the ‘proletariat’ as a direct threat to both the entrepreneurial vitality of society’s human capital AND a threat to the political order that, in turn, threatens the precious entrepreneurs. In other words, ordoliberal thinkers appeared to appeared to treat the concept of a decent life for non-business-owners as an existential threat to the social order. So if the ordoliberal thought-leaders like Wilhelm Röpke ,Alfred Müller-Armack, and Walther Eucken sound sort of scary and authoritarian it’s because they sort of were :
The Political Economy of Fascism: Myth or Reality: or Myth and Reality?
This is a working draft of an article published in New Political Economy, Volume 11, Number 2, June 2006. pp. 227-250.
“No comparative study exists of fascist economic systems. Nor is this surprising. For one can legitimately doubt whether it is appropriate to use so distinctive a term as system when discussing fascist economics. …… Nor, in the economic field, could fascism lay claim to any serious theoretical basis or to any outstanding economic theoreticians. Were fascist economics…..anything more than a series of improvisations, of responses to particular and immediate problems? Were not the economic actions of any single fascist regime …. so contradictory as to make it difficult to speak of a coherent and consistent economic policy in one country, let alone of a more general system.”
S. J. Woolf: Did a fascist economic system exist? in Woolf (Ed) The Nature of Fascism, Random House, NY, 1968, p. 119.
It is almost forty years since Woolfs observations, yet they remain pertinent. At the time of writing, a search for the term political economy in the index of almost any serious work on fascism, or via a web search engine, yields distinctly thin results.[*] Equally, there is still no major comparative monograph dealing with the question, aside from Charles Maiers magisterial general political economy of the period, which concluded:
“…if it advanced any economic program, fascism proposed an economy geared for national self sufficiency and war. Autarkic policies represented a natural outgrowth of their political premises. They seemed all the more attractive to the dictators as ways to cut through contradictory interests at home. Faced with a tug of war among conflicting priorities and bureaucratic agencies, Mussolini in 1925 and 1936 and Hitler in 1935-6 seized upon autarky to impose a more comprehensive authority over disputing factions….. In a larger sense, fascist economics was not really economics at all. As Hitler wrote, economic issues were problems to be overcome by political will. The original appeal of fascism consisted in part of its promise that ordinary people need not be powerless against what often seemed inevitable and overpowering economic trends.”Fascisms economic doctrines and aspirations have, therefore, remained amongst the least researched elements of classical fascism. They also represent one of the most difficult components of the value-matrix of fascism to probe, encapsulated in vague statements of the corporate state and of restoring blood and soil agricultural communities, largely abandoned in practice. Equally, a supposed adherence to forms of third way economics, between individualism and collectivism, appear little more than mobilising myths to separate fascism from its chief enemies and rivals – liberalism and socialism/communism rather than any developed political economy. There were also glaring contradictions and inconsistencies in the economic pronouncements of fascist leaders towards market capitalism and the proper functions of the state.”
Further, neo-Marxist scholars consistently conceptualise fascist movements, parties and regimes as licensed defenders of the interests of monopoly capital, seeking to rescue the capitalist system from the rising forces of the organised working class and inherently falling profits, while furthering the international Imperialist purposes of monopoly capitalism. Frankfurt School Members Horkheimer, Adorno, Neumann, and Pollock, viewed fascism as a system in which capitalists increasingly acted through the medium of the authoritarian state. Such a society could eventually abandon market commodity production and its law of value, as it was replaced by the state bureaucracy, allowing capitalists to extract surplus value directly through the state. The market would be completely replaced by a state-owned and managed economy, and capitalists would no longer be capitalists, but rather owners of the state economy through their permanent control of the state. As Maier put it, fascism represented crisis capitalism with a cudgel.
When attempting to evaluate classical fascist economic doctrines, it is important to understand classical fascists aversions to traditional concepts of political economy, due to an inbuilt ideological bias against materialist based arguments and an associated hostility towards structural-economistic interpretations of events in history. Marxism and socialism are inherently materialistic, embracing the need to have a highly developed understanding and appreciation of the interaction of the economic side of human existence upon the forms of politics and civil society they support. Liberal beliefs also derive from forms of political economy a term which emerged in liberal thought in order to explain the natural rise of market-based individualism and liberal notions of the innate value of freedom of action in civil society.
In his Fascism: Doctrine and Institutions, (1935) Mussolini explicity rejected all such economic conceptions of history:
Fascism, now and always, believes in …. actions influenced by no economic motive, direct or indirect…. Fascism denies the materialist conception of happiness as a possibility, and abandons it to its inventors, the economists of the first half of the nineteenth century…Fascism has taken up an attitude of complete opposition to the doctrines of Liberalism …. in the field of economics…… If the nineteenth century was a century of individualism ….. it may be expected that this will be a century of collectivism and hence the century of the State.
Fascist anti-materialism ruled-out allocating a key role to any independent economic causation, either the disciplines of the free market, or materialist/structuralist class-based forms. The roots of fascist ideology lay principally in pseudo-Nietzschean superman myths, expressed first through the apocalyptic meta-historical writings of Oswald Spengler, and vitalistic opera plots of Wagner, which denied the significance of mere economics in dictating the upward (and downward) movement of peoples and civilizations. Fascist philosophy was centred on an anticipated triumph of the will of the chosen leader and his devoted disciples over mere material/structural obstacles. For fascists, when an economy failed, or succeeded, someone not something was responsible.
Fascist Political Economy: A Two Regime Model
What scholarly effort has been devoted to understanding fascist political economy has naturally concentrated on the regime phases of fascism in Italy and Germany, the only examples of mature fascist dictatorships. The problem with regime models, however, is that the realisation of the economic intentions of regimes depends upon their relative autonomy from the existing socio-economic structures and power blocs inherited from of the previous state, and the degree of pragmatism and/or force of will shown by the new leadership in overcoming a variety of external economic barriers to their plans. In both cases the wishes and desires of both dictators were undoubtedly modified by the inherited exigencies of the pre-existing economies and by external forces in the international economy, undermining any genuine fascist political economy (in the case of Italy producing shallow corporatism and in Germany single-minded preparations for total war). Besides, Milward argues that:
economic policy …. remained not only subordinate to but also an integral part of the ideological and political ambitions of the fascist movement….the ideological framework within which economic decisions were made often had even more weight than the practical questions of satisfying the economic wishes of those groups which supported the regime.
Nevertheless, if elements of fascist political economy can be discerned behind regime practices, this may partly explain the nature of the Italian and German economies under their dictatorships. In order to investigate this, a comparative analysis of the two regimes is undertaken below, divided into three idea-typically discrete historical phases, to capture the multi-layered ideological and/or contingent practices underlying fascist economic policies.
Phase One Radical Ideas and Reformist Leaderships.
Early fascism was militantly anti-big-capitalist and violently anti-Bolshevik, strongly for reclaiming and unifying the lost national territories, and located on the left of the fascist spectrum in the more radical elements within the early movements, many of which emerged from authoritarian-leftist and anti-capitalist rightist splinter groups. Consequently, such impulses produced programmes which were extremely anti-market-capitalist, authoritarian and ultra-nationalist.
The Italian fascist programme of 1919 demanded a heavy capital levy, a tax on war profits, generous minimum wage rates, participation by workers in management, confiscation of church property and surplus land to be allocated to peasants cooperatives. Leading Italian Fascist intellectuals spoke of a postcapitalist economic system with collective ownership of a corporative economy.
The Nazi programme of 1920 sought the abolition of unearned income, outright confiscation of excess war profits, nationalization of trusts, land reform, and the strengthening of the middle orders. Calls were also made for closing the stock exchanges and nationalising the banks. While: On taking power, radical Nazis launched a campaign against department stores which were hit with special tax legislation and by consumer boycotts.  Artisan and small business groups sought to ban certain services from large chain stores and cooperatives. Even the concept of the industrial corporation was challenged by Nazi populists who dreamed of a return to the old system of patriarchal management. In both countries, early fascists displayed a visceral mistrust of big capital, especially rapacious finance capital in Germany, contrasted with creative industrial capital, while fascists in Italy distinguished between the productive and the parasitic elements of the bourgeoisie and promised wholesale nationalisation of industry and commerce.
In Italy, the revolutionary syndicalism and corporativism of the more radical Ras (regional fascist leaders) lay behind such anti-capitalist beliefs, while in Germany nationalbolshevist left-Strasserism of the North German faction was responsible for much of the high profile argumentation within the nazi movement. But, arguably, the most important doctrine of this kind was the ordoliberalism of Wilhelm Roepke, Walther Eucken and Carl Schmitt. Schmitt, in particular, theorised the possibility of a natural compatibility between liberal economics and a total state.[**] But he was far from alone.
To achieve a healthy economy within a strong state, Rstow and others tolerated, even proposed to use authoritarian means. Mller-Armack, who was later to become the first section chief of the newly founded Grundsatzabteilung (planning section) of the ministry of economic affairs and state secretary under Ludwig Erhard from 1958 to 1963, sympathized with Italian fascism …… and after 1933 warmly welcomed the new order …….. He joined the Nazi party the very same year. Eucken had become a sympathizer of the National Socialist party as early as 1931 …… His 1932 article was nothing less than a total damnation of the system of Weimar. For Eucken, parliamentarism and particularism had become synonyms. He shared with Rstow, Mller-Armack and Rpke the profound distaste for the amorphous mass and favored a strictly elitist conception of political leadership.
Of course, these were authoritarian liberal intellectuals Roepke was driven into exile by nazism but in terms of the impact of their ideas on nazi thinkers and bureaucrats, there is a case perhaps to be made for a distinctive German authoritarian doctrine of national economic development.
Be sure to check out the rest the above article . It’s a great resource. A key point to take from the above excerpt is that while the early years of fascist thought included a number of anti-capitalist/anti-communist radicals yearning for a return to a more patriarchal system and a collectively corporate state, it was the staunchly elitist, pro-big-capitalist ordoliberal thinkers that really made a lasting impression on the eventual development of fascist economics. AND some these same ordoliberal thinkers went on play key roles in crafting the West German post-war economic policy.
Then And Now
As we saw in the second excerpt, the ordoliberal thinkers like Wilhelm Röpke viewed the defense of “capitalism” (his elitist conception of capitalism) against the whimsies of the devolved rabble or greedy capitalist predators as a paramount goal of ordoliberalism. And as we saw in the above excerpt, Röpke and his ordoliberal cohorts were also sympathetic influential on both the Nazi’s eventual economic policies and in the post-war era. And they were also apparently sympathetic to fascist ideals and methods. It’s against this historical backdrop that we should be viewing contemporary policy-making decisions emanating from Frankfurt and Berlin. It’s a policy-making backdrop with an ordoliberal inspiration :
The New Yorker
May 20, 2013
Why Is Europe So Messed Up? An Illuminating History
Posted by John Cassidy
The big news of the past week had nothing to do with the I.R.S. or Benghazi. It was the confirmation that, while the American economy continues to recover from the disastrous financial bust of 2008 and 2009, Europe remains mired in a seemingly endless slump.
On this side of the pond, the Congressional Budget Office announced that, with the economy expanding, tax revenues rising, and federal spending being restrained, the budget deficit is set to fall to about four per cent of Gross Domestic Product this year, and to 3.4 per cent next year. The latter figure is pretty close to the average for the past thirty years. At least for now, the great U.S. fiscal scare is over—not that you’d guess that from listening to the public debate in Washington. In Europe, things are going from bad to worse. New figures show that in the seventeen-member euro zone, G.D.P. has been contracting for six quarters in a row. The unemployment rate across the zone is 12.1 per cent, and an economic disaster that was once confined to the periphery of the continent is now striking at its core. France and Italy are both mired in recession, and even the mighty German economy is faltering badly.
Why the sharp divergence between the United States and Europe? When the Great Recession struck, U.S. policymakers did what mainstream textbooks recommend: they introduced monetary and fiscal-stimulus programs, which helped offset the retrenchments and job losses in the private sector. In Europe, austerity has been the order of the day, and it still is. Nearly five years after the financial crisis, governments are still trimming spending and cutting benefits in a vain attempt to bring down their budget deficits.
The big mystery isn’t why austerity has failed to work as advertised: anybody familiar with the concept of “aggregate demand” could explain that one. It is why an area with a population of more than three hundred million has stuck with a policy prescription that was discredited in the nineteen-twenties and thirties. The stock answer, which is that austerity is necessary to preserve the euro, doesn’t hold up. At this stage, austerity is the biggest threat to the euro. If the recession lasts for very much longer, political unrest is sure to mount, and the currency zone could well break up.
So why is this woebegone approach proving so sticky? Some of the answers can be found in a timely and suitably irreverent new book  by Mark Blyth, a professor of political economy at Brown: “Austerity: The History of a Dangerous Idea.” Adopting a tone that is by turns bemused and outraged, Blyth traces the intellectual and political roots of austerity back to the Enlightenment, and the works of John Locke, David Hume, and Adam Smith. But he also provides a sharp analysis of Europe’s current predicament, explaining how an unholy alliance of financiers, central bankers, and German politicians foisted a draconian and unworkable policy on an unsuspecting populace.
The central fact about Europe’s “debt crisis” is that it largely originated in the private sector rather than the public sector. In 2007, Blyth reminds us, the ratio of net public debt to G.D.P. was just twelve per cent in Ireland and twenty-six per cent in Spain. In some places, such as Greece and Italy, the ratios were considerably higher. Over all, though, the euro zone was modestly indebted. Then came the financial crisis and the fateful decision to rescue many of the continent’s creaking banks, which had lent heavily into property bubbles and other speculative schemes. In Ireland, Spain, and other countries, bad bank debts were shifted onto the public sector’s balance sheet, which suddenly looked a lot less robust. But rather than recognizing the looming sovereign-debt crisis for what it was—an artifact of the speculative boom and bust in the financial sector—policymakers and commentators put the blame on public-sector profligacy.
“The result of all this opportunistic rebranding was the greatest bait-and-switch operation in modern history,” Blyth writes. “What were essentially private-sector debt problems were rechristened as ‘the Debt’ generated by ‘out-of-control’ public spending.”
The obvious alternative to rescuing the bad banks in the periphery countries was to let them go bust, but that was a risky option. As we saw in the United States after Lehman Brothers was allowed to fail, once one domino goes down the others get very shaky. Preventing a wholesale U.S. banking collapse took the Fed launching all sorts of emergency lending programs and Congress approving a seven-hundred-billion-dollar bailout. In Europe, such policies weren’t available. The E.C.B.’s charter didn’t provide for it acting as a lender of the last resort. And the European universal banks were simply too big to rescue. In 2008, Blyth recalls, the combined assets of the six largest U.S. banks came to sixty-one per cent of U.S. G.D.P. Compare that with Germany, where the biggest financial institutions (Deutsche Bank and Commerzbank) had assets equal to a hundred and fourteen per cent of German G.D.P., or France, where the three biggest banks (BNP Paribas, Société Générale, and Crédit Agricole) had assets equal to three hundred and sixteen per cent of France’s G.D.P.
Note that shifting massive amounts of private debt onto public balance-sheets could be seen as not just sleazybut also consistent with the “defence of capitalism” ordoliberal-ethos. Germany’s two largest banks had assets equal to 114% of Germany’s GDP and if they collapsed  you can bet that capitalism in Germany, at least the form of ordoliberal capitalism preferred and protected by policy-makers, would probably collapse. And a similar threat existed for the other large European banks and their home economies. So, from this perspective, transferring private debt for ‘too big to fail’ institutions into the public debt of the eurozone’s smaller, weaker economies represents a kind of ordoliberal act of ‘saving the system’. A financial crisis response that results in greater public accountability, better government services, less inequality, and a more vibrant middle-class at the expense of an all-powerful business-government axis would be seen as a failure and abondonment of ‘the pro-entrepreneur system’.
With defaults and a wholesale bailout off the table, Europe was condemned to muddling through as best it could. Coming out of the first stage of the crisis, which lasted until the first half of 2011, it was saddled with a periphery—Greece, Ireland, Portugal—that had been bailed out but that was still sinking under enormous debts, and a financial system that was highly leveraged and loaded up with suspect government bonds. What the continent desperately needed was a return to growth-oriented policies of the sort adopted in the United States. Higher growth would have raised tax revenues, boosted job growth, and shored up the banks’ balance sheets. But largely due to the euro, Europe was stuck in an austerity vice.
Membership of the common currency prevented individual countries from printing money and devaluing their currencies, which is what the United States had done. Blyth notes:
If states cannot inflate their way out of trouble (no printing press) or devalue to do the same (non-sovereign currency), they can only default (which will blow up the banking system, so it’s not an option), which leaves internal deflation through prices and wages—austerity.
Theoretically, there is another option: fiscal stimulus in the form of tax cuts and more government spending. But that, too, is effectively ruled out. Under the terms of the euro zone’s comically misnamed Stability and Growth Pact, countries like France and Italy, which have budget deficits larger than three per cent of G.D.P., are legally obliged to cut spending, even though doing so is sure to depress the economy further, leading to lower tax revenues and bigger deficits. Meanwhile, member countries that have a budget surplus, particularly Germany, refuse to help their neighbors by introducing a stimulus.
It’s all quite mad, but that doesn’t mean it will end anytime soon. Indeed, about the only things that seem likely to change the situation are another blow up in the bond markets or a political revolution in a member state. So far, Mario Draghi, the Italian financier who took over as the chairman of the E.C.B. in 2011, has managed to prevent the first of these things from happening. And despite mass protests from Athens to Madrid, the pro-euro political establishment has held onto power.
Blyth rightly describes this whole sad story as an attempt to recreate a European version of the gold standard, the “barbarous relic” (Keynes) that helped bring about the Great Depression. But rather than confine himself to explaining and bemoaning the enduring appeal of austerity policies, Blyth explores their roots in the laissez-faire writings of Locke, Smith, and David Ricardo; the Treasury view of the nineteen-twenties; the Austrian business cycle theory of Friedrich Hayek and Joseph Schumpeter; the monetarism of Milton Friedman; the Washington Consensus of the I.M.F. and the World Bank; and the “expansionary austerity” school that emerged from Bocconi University, in Milan. With so much hinging on Germany, the discussion of postwar German ordoliberalism, which underpins Berlin’s hostility to expansionary policies, is particularly valuable.
The parallel drawn between the gold standard and what appears to be taking place in eurozone (and larger EU to a lesser extent) is an apt analogy. Under ordoliberal doctrines inflation and monetary instability as viewed as deep sins to be avoided at all costs, so it could be thought as a “good-as-gold standard”. And when you factor in that the gold standard didn’t actually bring about price stability  we could almost think of the eurozone project as a “better-than-gold standard”. And when you consider how much the gold standard sucks in practice  and clear follies of focusing on price-stability alone (which is the sole mandate of the ECB ), we might rechristen it the “better-than-gold-but-still-woefully-inadequate standard”.
As Blyth points out, German politicians influenced by ordoliberalism, such as Chancellor Angela Merkel and Wolfgang Schäuble, the finance minister, aren’t hostile to government activism in the same way conservatives in the United States and Britain are. To the contrary, they believe in a social market economy, where the state sets the rules, including the generous provision of entitlement benefits, and vigorously enforces them. But encouraged by Germany’s success in creating an export-led industrial juggernaut, they believe that everybody else, even much less efficient economies, such as Greece and Portugal, should copy them rather than rely on the crutch of easy money and deficit-financed stimulus programs.
That’s all very well if you are an official at the Bundesbank, or one of the parsimonious Swabian housewives beloved of Merkel, but it ignores a couple of things. First, it’s the very presence of weaker economies in the euro zone that keeps the value of the currency at competitive levels, greatly helping German industry. If Greece and Portugal and other periphery countries dropped out, the euro would spike up, making Volkswagens and BMWs a lot more expensive. Second, it isn’t arithmetically possible for every country to turn into Germany and run a big trade surplus. On this, Blyth quotes Martin Wolff, of the Financial Times: “Is everybody supposed to run a current account surplus? And if so, with whom—Martians? And if everybody does indeed try to run a savings surplus, what else can be the outcome but a permanent global depression?”
You have to love how it’s now widely recognized that the crisis strategy championed by Merkel & Friends is arithmetically impossible. And yet it all continues day after day without the entire continent suffering some sort of cognitive dissonance-induced nervous breakdown. It’s kind of medical miracle.
Welcome To The Funhouse
Unfortunately, while trying to achieve the impossible can be noble goal, it sort of becomes a stupid and mean Sisysphian hell when the method to the madness centers around pointless austerity and junk economic supply-side theories like ‘If governments send signals to the markets that governments were serious about cutting deficits this would induce “confidence” in the financial markets. This deficit-cutting turnaround in the financial markets would, in theory, alleviate the underlying jobs crisis as businesses started hiring again‘. The austerity was supposed to literally be inspiring enough to create its own net job growth  according to ordoliberal theory. All that was needed for the magic of the market to work was the creation of the right “conditions” by the EU-ECB-IMF Troika . And no stimulus spending because that’s apparently anti-ordoliberal for any state that hasn’t yet achieved its ordoliberally-deemed optimal state of competitiveness. As long as inflation is under control and the market structure is deemed to be fundamentally sound (according to ordoliberal principles) whatever happens happens. No intervention is deemed necessary. The system is sound. A ‘healthy’ economy doesn’t necessarily include a healthy, employed populace but it must include ‘healthy’ public finances before the economy can ever heal, hence the prohibition on stimulus spending. Plus, stimulus spending prevents a populace from engaging in the necessary “structural reforms” that typically involve making the poor and middle-class poorer along with various forms of “pro-business” deregulations. At least that’s theory theory fluttering about inside the mind of a madman :
Capitalism and Freedom
Inside The Mind Of Jens Weidmann
Christopher T. Mahoney
Sunday, July 7, 2013
Jens Weidmann is the president of the Bundesbank and a member of the ECB Governing Council. He is seen as the leader of the Hawkish Group at the ECB. He holds views that are diametrically different from mine (not that he knows or cares). But it is crucial to understand how he thinks, because he holds an effective veto over ECB policy. That makes him one of the most important central bankers in the world. His views cannot be ignored.
Weidmann has provided us with two recent insights into his thinking: a speech today (7/7) in France, and a recent interview (6/24) with Suddeutsche Zeitung. Helpfully, both documents are available in English on the Bundesbank website.
Weidmann speaks in plain language and doesn’t mince words, or at least no more than he must. It appears that he regrets EMU, although he denies that (as he must as a board member of the ECB). His official posture is: effective monetary union will require greater fiscal discipline and structural reform; easy money is not the answer. His views about EMU can be summed up as: In the absence of fiscal union, EMU remains a looser grouping of countries that will face the discipline of the financial markets if they fail to produce economic convergence.
With respect to monetary policy, Weidmann adheres to a strict interpretation of the ECB Treaty which provides for a single mandate, price stability, and which excludes “monetary financing” or deficit monetization.
Weidmann’s attitude is: EMU was founded on the explicit understanding that the ECB would be as single-minded as the Bundesbank in its focus on the single mandate. His view is that not only does the ECB lack a growth mandate, it should not have one (and nor should any central bank). He is a supply-sider: growth results from sound fiscal, structural and monetary policies, not from “artificial stimulus”.
There is nothing radical or heterodox about Weidmann’s views. They are shared by a number of members of the FOMC. Indeed, his views are orthodox. I think that his true desire is a federal eurozone, modeled on the dollar zone. This would be a eurozone without national central banks and without national banking systems. South Dakota does not have a central bank, nor does it have a financial system. The Fed and the FDIC could not care less if South Dakota defaulted on its muni bonds.
Note that, while it’s true that Bundesbank Chief Jens Weidmann’s supply-sider views on these matters are in keeping with a type of economic orthodoxy, it happens to be the supply-side orthodoxy  that keeps  trashing  economies.
Here are his words:
“We need to make sure that in a system of national control and national responsibility [federalism] , sovereign default is possible without bringing down the financial system. Only then will we really do away with the implicit guarantee for sovereigns. To achieve this, we have to sever the excessively close links between banks and sovereigns. Currently, European banks hold too many of their own governments’ bonds.”
Weidmann desires a eurozone where governments can default without collapsing their financial systems. He also desires a eurozone where banks can fail without becoming contingent liabilities of their governments:
“Getting to grips with the implicit guarantee for sovereigns would be a big step towards eliminating the inherent tensions in the monetary union’s structure. Removing the implicit guarantee for banks would be another one. To make that happen, we have to ensure the resolvability of banks. Defining a clear hierarchy of creditors is crucial. Shareholders and creditors will have to be first in line when it comes to bearing banks’ losses – instead of taxpayers.”
This is American federalism: states can go bankrupt without destroying their financial systems, and banks can fail without having any claim on their state. (Washington State did not shudder when WaMu failed.) We know that such a system could work because the dollar zone has worked for a couple of centuries.
But next we come to the crux: eurozone monetary policy. As a monetarist, I adhere to the view that the quantity theory operates, and that real growth is a derivative of money growth. In a nutshell: you can’t have 4% real growth with 1% nominal growth, and you can’t have 6% nominal growth without some inflation. That’s Market Monetarism, although it is really both Fisherian and Keynesian.
Here is Weidmann’s view: “The best contribution a central bank can make to a lasting resolution of the crisis is to fulfil its mandate: that of maintaining price stability.” In other words, there is no reason why the eurozone periphery cannot resume strong growth with 0% inflation and 0% nominal growth. I don’t mean to caricature his view, but it comes pretty close to that.
Has Weidmann read Fisher lately (or Bernanke, or Sumner)? To my knowledge he has not refuted the necessity of reflation in ending a depression. Indeed, I think that he is a sincere liquidationist, who views depressions and defaults as prophylactic. He wants to remake Southern Europe in the image of Northern Europe. He believes that, in the long run, it is in their own interest. He should read a financial history of the last three years of the Weimar Republic.
To summarize, the unrepentant  Ghost of Andrew Mellon is now one of the most powerful bankers in the world. But as disturbing as it is to contemplate the fact that the guiding philosophy of the Bundesbank – and therefore the ECB – is stunningly similar to philosophy of Depression-era Republican economists, it is far more disturbing to realize that Jens Weidmann’s worldview appears to be shockingly similar to the modern day GOP. That’s right, the forced implosion of the eurozone economies could be thought of as part of Europe’s very own Supply-Side Revolution :
The New York Times
The Urge to Purge
By PAUL KRUGMAN
Published: April 4, 2013
When the Great Depression struck, many influential people argued that the government shouldn’t even try to limit the damage. According to Herbert Hoover, Andrew Mellon, his Treasury secretary, urged him to “Liquidate labor, liquidate stocks, liquidate the farmers. … It will purge the rottenness out of the system.” Don’t try to hasten recovery, warned the famous economist Joseph Schumpeter, because “artificial stimulus leaves part of the work of depressions undone.”
Like many economists, I used to quote these past luminaries with a certain smugness. After all, modern macroeconomics had shown how wrong they were, and we wouldn’t repeat the mistakes of the 1930s, would we?
How naïve we were. It turns out that the urge to purge — the urge to see depression as a necessary and somehow even desirable punishment for past sins, while inveighing against any attempt to mitigate suffering — is as strong as ever. Indeed, Mellonism is everywhere these days. Turn on CNBC or read an op-ed page, and the odds are that you won’t see someone arguing that the federal government and the Federal Reserve are doing too little to fight mass unemployment. Instead, you’re much more likely to encounter an alleged expert ranting about the evils of budget deficits and money creation, and denouncing Keynesian economics as the root of all evil.
Now, the fact is that these ranters have been wrong about everything, at every stage of the crisis, while the Keynesians have been mostly right. Remember how federal deficits were supposed to cause soaring interest rates? Never mind: After four years of such warnings, rates remain near historic lows — just as Keynesians predicted. Remember how running the printing presses was going to cause runaway inflation? Since the recession began, the Fed has more than tripled the size of its balance sheet, but inflation has averaged less than 2 percent.
But the Mellonites just keep coming. The latest example is David Stockman, Ronald Reagan’s first budget director, who has just published a mammoth screed titled “The Great Deformation.”
But that prescription is, of course, anathema to Mellonites, who wrongly see it as more of the same policies that got us into this trap. And that, in turn, tells you why liquidationism is such a destructive doctrine: by turning our problems into a morality play of sin and retribution, it helps condemn us to a deeper and longer slump.
The bad news is that sin sells. Although the Mellonites have, as I said, been wrong about everything, the notion of macroeconomics as morality play has a visceral appeal that’s hard to fight. Disguise it with a bit of political cross-dressing, and even liberals can fall for it.
But they shouldn’t. Mellon was dead wrong in the 1930s, and his avatars are dead wrong today. Unemployment, not excessive money printing, is what ails us now — and policy should be doing more, not less.
Sin Sells. So Does Sinn
Paul Krugman’s above op-ed was written about the policy advocated by US Republicans but notice how easily it could just have easily described the mindset emanating from the Bundesbank and ECB. Sure, there are real differences between the laissez faire true-believers like Andrew Mellon (and the GOP) vs the ordoliberal followers like Bundesbank chief Jens Weidmann (and virtually all of his predecessors at the Bundesbank). Weidmann and his fellow ordoliberalists probably have a much more open-minded attitude towards government regulations than their purely-supply-side-oriented counterparts. But those differences in methods shouldn’t be confused with a rejection of the belief in the universal supremacy of “markets” for determining social outcomes. The business of ordoliberalism is protecting business, not creating a better society(that’s the job of business). It’s just a question of whether or not the markets are unregulated or ordoliberally-regulated. Market outcomes will still dominate the fate of the individual in the society, even when it results in social catastrophe. As Krugman pointed out above, “The bad news is that sin sells”. And as he’s pointed out before , Sinn sells too :
The New York Times
April 6, 2009, 3:11 pm
Why Germany Prefers Regulation to Stimulus
By CARTER DOUGHERTY
Americans struggling to understand why Germans seem to care little about economic stimulus these days, and yet so much about regulation, could do worse than to read a recent essay  by Hans-Werner Sinn, head of the Ifo Institute  in Munich.
Mr. Sinn makes a brief appeal to John Maynard Keynes — somewhat oddly since that name is usually associated with stimulus — in arguing that governments need to step in and forcibly recapitalize hard-hit banks with equity. Sweetheart loans are a bad idea, says Mr. Sinn. Instead, only issuing new shares will do, and we should not cry for chief executives who have to water down their shares. That is the most pressing need, Mr. Sinn writes.
But take careful note of the name Walter Eucken , whom Mr. Sinn references with a reverential tone that could be found only in Germany. Mr. Eucken, who died in 1950, is closely associated with a school of economics known as ordoliberalism, which teaches that state regulations can help the free market produce results close to its theoretical potential.
After World War II, ordoliberals (also known, confusingly given the argot of today’s anti-globalization protesters, as neoliberals) defended capitalism but said the state needed to play a strong role in regulating what did not come naturally. That meant ensuring stable prices, protecting property rights and – oh, how prescient this sounds today! – ensuring unlimited liability for those daring capitalists so that they bear the rewards, but also the risks, of their behavior..
It’s worth recalling that while there has been an extensive amount of public discussion over the last few years by folks like Angela Merkel and Jens Weidmann about forcing an investor “bail-in” in the various eurozone bank bailouts  and other “tough love” approaches that are intended to use socioeconomic pain as catalyst for “structural ” “reform “. But those plans were always abandoned when  it became clear  that such “tough love” approaches would cause a market meltdown. That whole dynamic all changed in March of this year, of course, when it Russian oligarchs finally got “bailed-in” in Cyprus and the markets only almost melted down  (and it doesn’t look like the banks that the Russian oligarchs were actually investing in even had  much  to do  with the Cypriot banking crisis). The “float a bad idea, tanks the markets” phenomena hasn’t been limited to the eurozone , but it’s been a policy-making theme in recent years. At the same time, Sinn’s concerns about the public paying the price for private risks and the related dangers of a vastly over-leveraged financial sector warping the self-correcting nature of the market are concerns that  should not be dismissed .
Also note that Sinn’s attitude towards financial executives in the wake of the 2008 meltdown was surprisingly supportive  given his stance on bailing out banksters.
It is important to remember the historical context here. After the war, and the Depression that preceded it, capitalism looked discredited (and Communist armies occupied half of Europe). Ordoliberalism offered a credible argument that stemmed the socialist tide by essentially arguing for capitalism, but with a strong state. It helped cement a political coalition against widespread nationalization and central planning, two approaches very much in favor when Germany lay in ruins in 1945.
In his essay, Mr. Sinn writes that “a time bomb is ticking” because if banks shrink themselves back to health, they will drag down economies with them. “And all this just because banks, hedge funds, special purpose vehicles, investment funds and real-estate financers were allowed to conduct their business with only tiny amounts of equity capital,” he continues. “Without equity, there is no liability, and without liability, people gamble.”
This is a good jumping-off point to understand why Germans see regulation as part of the solution to today’s crisis — this was a major point at the recent G-20 summit — even as the United States tut-tuts that the Germans are not stimulating enough. The most successful economic order that Germany – and some would say Europe – has ever seen put stability first and last. It did not encourage financial wheeling and dealing for its own sake, but put it in the context of the entire economy. Mr. Eucken would have asked what financial innovation did for the real economy, and whether the innovators were taking risks the rest of us would pay for, Mr. Sinn suggests.
And by the way: In case you are inclined to dismiss Mr. Eucken as a guru of some irrelevant talking heads, think again. Jürgen Stark, an executive board member of the European Central Bank, has praised Mr. Eucken as a thinker whose main work, Principles of Economic Policy, “has been a constant source of inspiration throughout my career.”
The Third Ordoliberal Way Still Leads To Austerity
Ordoliberalism’s mix of a strong belief in the primacy and necessity of market competition as the tool for achieving social justice which is why the term “competitiveness” gets endlessly used by the EU’s austerity-advocates . But the elevation of market competition is coupled with an ideological rejection of laissez faire capitalism. This naturally leads to much of the confusion outside observers have regarding the German government’s strenuous rejections of stimulus spending or any other state-directed efforts at rebuilding eurozone economies. On the surface it’s hard to discern large differences between ordoliberalism and the regulated capitalism found in most other developed economies so it’s no surprise that so many observers have been caught off guard in recent years by the intensity of the opposition to state stimulus spending and higher inflation coming from German ordoliberal economists like Mr. Sinn. German workers, after all, are generally perceived as being very well treated compared to their counterparts elsewhere. So how is it that an economy guided by the principles of ordoliberalism could generate would of the most robust welfare states on the planet while simultaneously demanding that its eurozone partners engage in brutal austerity for the masses? Well, one explanation is that the legendary German social safety-net is a lot less safe  than it used to be :
Insight: The dark side of Germany’s jobs miracle
By Sarah Marsh and Holger Hansen
STRALSUND, Germany | Wed Feb 8, 2012 9:42am EST
(Reuters) – Anja has been scrubbing floors and washing dishes for two euros an hour over the past six years. She is bewildered when she sees newspapers hailing Germany’s “job miracle.”
“My company exploited me,” says the 50-year-old, sitting in the kitchen of her small flat in the eastern German town of Stralsund. “If I could find something else, I’d be long gone.”
Stralsund is an attractive seaside town but Anja, who preferred not to use her full name for fear of being fired, cannot afford the quaint cafes.
Wage restraint and labor market reforms have pushed the jobless rate down to a 20-year low, and the German model is often cited as an example for European nations seeking to cut unemployment and become more competitive.
But critics say the reforms that helped create jobs also broadened and entrenched the low-paid and temporary work sector, boosting wage inequality.
Labor office data show the low wage sector grew three times as fast as other employment in the five years to 2010, explaining why the “job miracle” has not prompted Germans to spend much more than they have in the past.
Pay in Germany, which has no nationwide minimum wage, can go well below one euro an hour, especially in the former communist east German states.
“I’ve had some people earning as little as 55 cents per hour,” said Peter Huefken, the head of Stralsund’s job agency, the first of its kind to sue employers for paying too little. He is encouraging other agencies to follow suit.
Data from the European Statistics Office suggests people in work in Germany are slightly less prone to poverty than their peers in the euro zone, but the risk has risen: 7.2 percent of workers were earning so little they were likely to experience poverty in 2010, versus 4.8 percent in 2005.
It is still lower than the euro zone average of 8.2 percent. But the number of so-called “working poor” has grown faster in Germany than in the currency bloc as a whole.
In response, as other European countries rush to deregulate, Germany is re-regulating.
Angela Merkel’s conservative government is trying to water down the effects of some labor reforms brought in by her Social Democrat (SPD) predecessor Gerhard Schroeder, a year-and-a-half before the next federal election, when she is expected to seek a third term.
The contrast between Germany’s record levels of employment and the dire jobs situation elsewhere in Europe is stark.
Last year, the number of people in employment in Germany rose above the 41 million mark for the first time. The jobless rate has been falling steadily since 2005 and now stands at just 6.7 percent, compared to 23 percent in Spain and 18 percent in Greece.
It has been a tough battle since German unemployment peaked after reunification in 1990. Many east German businesses floundered in a free market once the Berlin Wall fell, sending joblessness there soaring over 20 percent.
Globalization put Germany’s export-reliant economy under competitive pressure, forcing it to adjust quickly.
By 2003, Germany was embarking on reforms hailed as the biggest change to the social welfare system since World War Two, even as many of its peers were moving in the opposite direction.
While the French Socialists were introducing the 35-hour week and cranking up minimum wages, Germany’s Social Democrats (SPD) were deregulating the labor market and raising pressure on the jobless to find work.
Unions and employers agreed wage restraint in return for job security and growth. Flexible working practices and government-subsidized reduced working hours enabled employers to adjust to the economic cycle without hiring and firing.
From 2005, joblessness started to fall and is nearing pre-reunification levels. Elsewhere in Europe, governments tackling high unemployment are playing catch-up, making labor reforms the number one priority.
France’s conservative President Nicolas Sarkozy has repeatedly cited Schroeder’s “Agenda 2010” reforms as an example for his country over the past few months. Labor reforms being introduced in Spain and Portugal have also borrowed heavily from Germany.
“BEST LOW WAGE SECTOR IN EUROPE”
Job growth in Germany has been especially strong for low wage and temporary agency employment because of deregulation and the promotion of flexible, low-income, state-subsidised so-called “mini-jobs.”
The number of full-time workers on low wages – sometimes defined as less than two thirds of middle income – rose by 13.5 percent to 4.3 million between 2005 and 2010, three times faster than other employment, according to the Labour Office.
Jobs at temporary work agencies reached a record high in 2011 of 910,000 — triple the number from 2002 when Berlin started deregulating the temp sector.
Economists say it was Schroeder’s intention to bring about a rapid expansion of these sectors in order to get the poorly-qualified and long-term unemployed back into the workforce.
In 2005, Schroeder’s last year as chancellor, he boasted at the World Economic Forum in Davos: “We have built up one of the best low wage sectors in Europe.”
Seven years later, employers praise the reforms that led to the growth of mini-jobs and temping.
ROAD TO NOWHERE
Critics say Germany’s reforms came at a high price as they firmly entrenched the low-wage sector and depressed wages, leading to a two-tier labor market.
New categories of low-income, government-subsidized jobs – a concept being considered in Spain – have proven especially problematic. Some economists say they have backfired.
They were created to help those with bad job prospects eventually become reintegrated into the regular labor market, but surveys show that for most people, they lead nowhere.
Employers have little incentive to create regular full-time jobs if they know they can hire workers on flexible contracts.
One out of five jobs is a now a “mini-job,” earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.
While wage inequality used to be as low in Germany as in the Nordic countries, it has risen sharply over the past decade.
Low wage workers earn less relative to the median in Germany than in all other OECD states except South Korea and the United States.
“The poor have clearly lost out to the middle class, more so in Germany than in other countries,” said OECD economist Isabell Koske.
Depressed wages and job insecurity have also kept a lid on domestic demand, the Achilles heel of the export-dependent German economy, much to the exasperation of its neighbors.
ILO’s Ernst says Germany can only hope that other European countries do not emulate its own wage deflationary policies too closely, as demand will dry up: “If everyone is doing same thing, there won’t be anyone left to export to.”
So part of the answer to the question “how could ordoliberalism create a worker-friendly economy in Germany but an austerity wasteland elswhere?” is that Germany hasn’t actually been a worker-paradise over the last decade specifically because it has embreaced ordoliberal dogma. But another part of the answer can be found with another look at the exellent paper “Freedom, Crisis and the Strong State: On German Ordoliberalism” by Werner Bonfeld. As we’ll see, the opposition towards state welfare policies held by the early ordoliberal thinkers like Walter Eucken included an deep opposition to the general character of ‘mass man’. And ‘mass man’ happens to be the general public :
Freedom, Crisis and the Strong State: On German Ordoliberalism
Ordo-liberalism saw itself as a third way between collectivism and laissez-faire liberalism ‘ a new liberalism that commits itself to battle to secure liberty in the face of selfish interest groups and the proletarian adversary. That is to say, laissez-faire is neither an answer „to the hungry hordes of vested interests’ (Röpke, 2009, p. 181) nor to the ‘disease of statism’ (Barry, 1989, p. 118) that the proletarian masses exact when in the face of class conflict the state weakens in its liberal resolve by conceding collective welfare provisions. Nor is it an ‘answer to riots’ (Willgerodt and Peacock, 1989, p. 6). That is, laissez-faire liberalism is unable to posit either political aims or definite social values. In the end, then, the laissez faire liberalism ‘dissolves [the state] into an apolitical exchange society’ (Müller-Armack, 1933, p. 21). Instead of defending liberty, the apolitical state becomes the prey of vested interests, and succumbs to proletarian demands. Laissez-faire conceptions of freedom are inherently self-destructive. For freedom to prevail a more or less ‘authoritarian direction of the state’ is necessary (Böhm, 1937, p. 67) to facilitate the utility of freedom within the limits of its form, that is, the individual as entrepreneur.
II Social Policy: Freedom and Enterprise
Social policy is about the provision of a ‘stable framework of political, moral and legal standards’ (Röpke, 1959, p. 255). It is a means of liberal governance. Its purpose is to secure a market economy within the confines of what Adam Smith called the ‘laws of justice’ (1976, p. 87). A social policy that concedes to working class demand for social justice ‘by wage fixing, shortening of the working day, social insurance and protection of labour…offers only palliatives, instead of a solution to the challenging problem of the proletariat’ (Röpke, 1942, p. 3). It leads to the „rotten fruit? of the welfare state (Röpke, 1957, p. 14) which is „the “woddenleg” of a society crippled by its proletariat? (ibid., p. 36). The welfare state is the institution of ‘mass man’ who ‘shirk their own responsibility’ (ibid., p. 24). That is, social policy aims at transforming the proletarian into a citizen ‘in the truest and noblest sense’ (Röpke, 2009, p. 95).
Haselbach (1991) has rightly pointed out that Schumpeter’s identification of capitalism with entrepreneurial freedom is key to the ordo-liberal conception of the free economy. For Eucken (1932, p. 297) the well-being of capitalism is synonymous with the well-being of the entrepreneurial spirit – innovative, energetic, enterprising, competitive, risk-taking, self-reliant, self-responsible, eternally mobile, always ready to adjust to price signals, etc. Müller-Armack (1932) speaks of the ‘doing’ of the entrepreneur, whom he likens to civilisation’s most advanced form of human self-realisation. Ordo-liberalism identifies capitalism with the figure of the entrepreneur, a figure of enduring vitality, innovative energy, and industrious leadership qualities. This then also means that they conceive of capitalist crisis as a crisis of the entrepreneur. Things are at a standstill because the entrepreneur is denied – not just by ‘mass man’ but by a state that yields to mass man. Crisis resolution has thus to restore the entrepreneurial vitality of society. For the ordo-liberals this task entailed a ‘policy towards the organisation of the market’ (Eucken, 1948, p. 45, fn 2) that secures ‘the possibility of spontaneous action’ without which ‘man was not a “human being”’ (ibid. p. 34). In this conception, ‘state-organised mass welfare’ (Röpke, 1957, p. 14) amount to a ‘revolt against civilisation’ (Röpke, 1969, p. 96) – it expresses a state of profound ‘devitalisation and loss of personality’ (Röpke, 2002, p 140), which for the ordo-liberals characterises proletarianised social structures.
Whether or not one happens to be a member of the ‘mass man’ segment of society, the idea of running a society based philosophy that views anyone that isn’t an entrepreneur as some sort of degenerate parasite seems like an ill-advised solution to society’s challenges. And yet the entire eurozone appears to be rushing to implement a zone-wide set of new permanent rules that look like they could be pulled from the pages of the ordoliberal playbook without any general recognition that ordoliberalism is a far-right, elitist philosophy dedicated to the protection of ‘capitalism’ by protecting the biggest ‘capitalist’ under the guise of safeguarding a healthy market for the idealized hypothetical small entrepreneur. Ordoliberalism shares a lot of traits  with its zany cousins in the Austrian Schools of thought  but ordoliberalism is, in many ways, a much scarier variant of far-right thought. Ordoliberalism doesn’t contain the overt insanity of an adherence to anti-government solutions to societies problems. And ordoliberalism can even claim to be actively working to ensure a type of social justice even if it’s social justice exclusively for “the entrepreneur” that is ideologically achieved primarily through state-enforced competition . Selling ‘mass man’ on some sort of “Ordoliberal Populism “, in other words, is simply a much more plausible way to get the ‘mass man’ to accept a far-right economic paradigm than the “Libertarian Populism” far-right alternatives currently being peddled  in the US . Compared to its laissez faire alternatives, ordoliberalism really is a more realistic approach to managing an economy and society. It’s still a hopelessly inadequate and flawed approach, but it’s less hopelessly inadequate and flawed than its far-right alternatives. And considering that it’s only far-right policy options that get any serious consideration across much of the world these days, we should probably expect the stealth adoption of ordoliberal principles and policies to continue. This stealth campaign shouldn’t continue, but as as long as ordoliberalism remains generally unrecognized as a far-right ideology, it probably will.
Here’s an excerpt from the book The Road from Mont Pèlerin: the making of the neoliberal thought collective, available on Amazon and Google Books (with an excellent review here ). The chapter “Neoliberalism in Germany” contains some great examples of the ordoliberal theoreticians were able to obtain the “anti-Nazi” mantle and wield such influence in the post-war era.
So, here’s a few excerpts form The Road from Mont Pèlerin: the making of the neoliberal thought collective 
edited by Philip Mirowski, Dieter Plehwe
2009, Harvard University Press
The Nazi Era: Working on the Theoretical Foundations of Ordoliberalism
After its early formulations of culturally pessimistic perspectives during the early 1930s, German ordoliberalism assumed the format of an economic school of thought during the Nazi era. Its ambitions were to formulate universal economic policy principles with an eve to the whole of society. The circle aroundEurchn in Freiburg came to be considered both the point of departure and the theoretical backbone of later German ordoliberalism.
The work done by Eucken’s group between 1933 and 1945 fostered the precondiations for the Freiburger Schules, which became the most highly regarded academic institution of ordoliberalism after World War II-despite the rather close entanglement of manry of its members with the Nazi regime. The most relevant basic texts and the preliminary work for subsequent manuscripts came out of this period, yielding the broad theoretical foundation of ordoliberalism immediately after the end of World War II.
Articles published by Bohm, Eucken, and Miksch in a 1942 book, Der Wettbewerb als Mittel volkswirtschaftlicher Leistungssteigerung und Leistungsauslese ( Competiton as a means to increase and select national economic efficiency), edited by Klasse IV der Akademie fur Deutsches Recht (AfDR),21 took up a variety of topics closely connected to the Freiburg school’s perspective on competition theory and policy. These contributions did not cover new ground in terms of theory, but they were nonetheless politically important. The involvement of ordoliberals in Nazi Germany’s most important academic institution has been a subsequent topic of heated discussion in the historical literature. Ther ordoliberal contributions did indeed discuss the Nazi regime’s economic policies in the most concrete ways, but they show no evidence for the frequent claims22 that they were in fundamental opposition against the Nazis. Their contributions, rather, provide evidence that the ordoliberals constructively contributed to solutions of specific problems of the war economy, and they even seem to indicate their ability to grasp an opportunity “to gain influence on the programmatic efforts to plan for a post-war economic policy” (Haselbach 1991, 95). Arguments claiming that their activites in the these circles should be regarded as secret resistance efforts and promotion of an “underground economy” (Schlecht 1981, 15) are unconvincing. Because of the importance of the issue, we will present a separate discussion of the relationships between ordoliberals and the Nazis in the next section.
Ordoliberalism and Nazism
The very fact that ordoliberalism developed a large part of its theoretical foundations within the temporal and geographical bounds of Nazi Germany raises the important question, If and to what extent were ordoliberals influenced by Nazi Germany in general and by Nazi economic policy considerations in particular? Repeated claims that the Freiburg school and Ludwig Erhard were a staunch part of the opposition to the Nazis – claims that buttressed the legitimacy of the social market economy – deserve closer scrutiny.
What certainly can be rejected as a mere cover-up is the claim that the ordoliberals who did not emigrate from Germany opposed, or even persistently resisted, the national socialist regime (e.g., Willgerodt 1998; Wegmann 2002, 55-72; Goldschmidt 2005). With the exception of the documented emigrants (Wilhelm Ropke and Alexander Rustow), such a revionist history of the wartime ordoliberals is not supported by facts. Papers published in Freiburg between the mid-1930s and the beginning of the 1940s unquestionalby reveal the ordoliberal concepts were designed to be implemented under the auspices of a Nazi government. In particular, Bohm’s book o the order of the (Die Ordnung der Wirtschaft als geschichtliche Aufgabe und rechtschopferische Leistung), published in 1937, leaves no room for speculation in this regard (Abelshauser 1991; Haselbach 1991, 84f,; Tribe 1995, 212; Ptak 2004, 90f.). The very lack of a consistent economic policy under the Nazis – the Nazis’ economic policy oscillated wildly between planning and competition at least until the war – reinforced the ordoliberals’ hope of finding a sympathetic hearing for their authority-suppoerted model of competition (Herbst 1982; Abelshauser 1999).
At the same time, the economists who were on the road to ordoliberalism were not (necessarily) National Socialist economists. In spite of the totalitarian character of Nazi-Germany, it is very important to recognize and understand that different lines of economic thinking coexisted in Nazi Germany. Any analysis should therefore address the question of economics in Nazi-Germany in order to adequately address distance from and complicitness with the ruling powers and philosophies, as well as the changing perspectives and fortunes of individual economists over time. One must consider the multiform ways of relating to the Nazi regime (1) before and after 1933, when parliamentarian democracy and labor movement opposition were eliminated; (2) before and after 1938, when the pogroms against the Jewish population stated in earnest; and (3) before and after 1942, which marked both the year when the Holocaust decision was taken and when the war fortunes turned against the Nazis in Stalingrad (Walpen 2004, 93f).
After 1942, many people in Nazi Germany recognized that the war was lost and so attempted to distance themselves from the ruling Nazis (Roth 2004). Even if this was in a sense opportunistic, moving into opposition against the regime at that juncture did cost many lives, including the liberal economist Jens Jessen. Several members of the Freiburg school were questioned by the Gestapo, and some were imprisoned. However, any late participation in oppositional activities can hardly exonerate those right-wing liberal economists who had accommodated themselves to the regime before 1942 and deliberately lent their economic expertise to the Nazis for the bulk of the era. While early theoretical considerations of ordoliberalism were congenial to Nazi efforts to curtail certain special interests and trade unions in particular, the ordoliberal framework that promoted a strong and independent state could just as well be turned against the Nazi usurpation of power. This perspective was easier to articulate after the Nazies were toppled, but it should be noted that few expressed it before 1942.
With regard to more narrowly defined economic issues, the early ordoliberals were continually at odds with other schools of economic reasoning that operated during the Nazi era. As a coherent theoretical circle within the ordoliberal spectrum, the Freiburger Schule particular tried to promote a competitive order before and even during wartime. By developing policy advisory roles, they saw a chance to fill the economic theory vacuum in Nazi Germany with an authoritarian competitive order. Even though one cannot assume a broad, overall congruence between ordoliberal positions and National Socialist ideology, the authoritarian element, which Bohm characterized as kombinierte Wirtshaftsverfassung (“combined economic constitutino”) (1937), represents a much visited point of intersection with National Socialist ideology regarding regional self-sufficiency. Despite the ordoliberals’ growing skepticism about Nazi Germany during the later phases of the wartime economy in particular, hope remained that the residual market economy could be preserved to create pro-market conditions that could be implemented after the war. Miksch as a journalist and Muller-Armack and Erhard as political advisers directly dealt with issues concerning the wartime economy and planning for the postwar period, and like many other economic professionals were at least indirectly entangled in National Socialist policies of expansion during much of the 1930s and 1940s (Ptak 2004). Tribe (1995) has mapped the respective attitudes of neoliberals ranging from Republican resistance (Ropke) to staunch conservatism (Eucken) and active Nazism (von Stackelberg). Other researchers try to excuse cooperating ordoliberals by speking in rather obscure ways of exiles and “half exiles”. In any case, Wegmann (2002) and others who insist that a huge distance be maintained between ordoliberals and the Nazis fail to understand the considerable overlap of ordoliberal and Nazi critiques of parliamentarian democracy, trade unions, and the Communist Party in particular.
Reading the early critiques of parliamentarian democracy in the ouvre of German ordoliberals and Austrian school neoliberals reveals the obscure authoritarian tendencies that were operating just beneath the surface of many neoliberals. These tendencies have reemerged time and again in eras of perceived danger to the neoliberal cause. These weaknesses for repressive regimes and recur in the history of neoliberalism, as evidenced by Hayek’s and Frieman’s support of “free market economic policies” under the leadership of Pinochet in Chile, for exaumple (see Fischer, Chapter 9 in this volume).