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The New World Ordoliberalism Part 2: A ‘Third Way’ to Fascism

[1] [2]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 [3] 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 [4]:

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 [5] 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 [6] 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 [7] of a real, mean­ing­ful pol­i­cy-shift. Con­sid­er­ing all of that, a look at the ori­gins and philo­soph­i­cal under­pin­nings of ordolib­er­al­ism is prob­a­bly in order [8]:

Free­dom, Cri­sis and the Strong State: On Ger­man Ordolib­er­al­ism
Wern­er Bon­feld


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 [9]) 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 [10],Alfred Müller-Arma­ck, and Walther Euck­en sound sort of scary and author­i­tar­i­an it’s because they sort of were [11]:

The Polit­i­cal Econ­o­my of Fas­cism: Myth or Real­i­ty: or Myth and Real­i­ty?

David Bak­er

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:[1]

“...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[2]. 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.[3] As Maier put it, fas­cism rep­re­sent­ed cri­sis cap­i­tal­ism with a cudgel[4].


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.[9] 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.[10]

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,[16] 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.[17] 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.[18]

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.[19] 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.[20]

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.[21]


Be sure to check out the rest the above arti­cle [11]. 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 [12]:

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 [13] 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 [14] 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 [15] 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 [16] and clear fol­lies of focus­ing on price-sta­bil­i­ty alone (which is the sole man­date of the ECB [17]), 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 [18] 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 [19]. 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 [20]:

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 [21] that keeps [22] trash­ing [23] 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 [24] 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 [25]:

The New York Times
The Urge to Purge
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 [26], Sinn sells too [27]:

The New York Times
April 6, 2009, 3:11 pm
Why Ger­many Prefers Reg­u­la­tion to Stim­u­lus

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 [28] by Hans-Wern­er Sinn, head of the Ifo Insti­tute [29] 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 [30], 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 [31] and oth­er “tough love” approach­es that are intend­ed to use socioe­co­nom­ic pain as cat­a­lyst for “struc­tur­al [32]” “reform [33]”. But those plans were always aban­doned when [34] it became clear [35] 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 [36] (and it does­n’t look like the banks that the Russ­ian oli­garchs were actu­al­ly invest­ing in even had [37] much [38] to do [39] with the Cypri­ot bank­ing cri­sis). The “float a bad idea, tanks the mar­kets” phe­nom­e­na has­n’t been lim­it­ed to the euro­zone [40], 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 [41] should not be dis­missed [14].

Also note that Sin­n’s atti­tude towards finan­cial exec­u­tives in the wake of the 2008 melt­down was sur­pris­ing­ly sup­port­ive [42] 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 [43]. 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 [44] than it used to be [45]:

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.


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.



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 [8]:

Free­dom, Cri­sis and the Strong State: On Ger­man Ordolib­er­al­ism
Wern­er Bon­feld


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 [46] with its zany cousins in the Aus­tri­an Schools of thought [47] 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 [48]. Sell­ing ‘mass man’ on some sort of “Ordolib­er­al Pop­ulism [49]”, 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 [50] in the US [51]. 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.

Update 7/26/2013

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 [52]). 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 [53]
edit­ed by Philip Mirows­ki, Dieter Ple­hwe
2009, Har­vard Uni­ver­si­ty Press

p. 112:

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.

p. 117–119

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[24].

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[25] (“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”.[26] 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.[27]

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).