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Conservative Liberalism, Ordo-Liberalism, and the State
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Conservative Liberalism, Ordo-Liberalism, and the State Disciplining Democracy and the Market K E N N E T H DYS O N
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1 Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © Kenneth Dyson 2021 The moral rights of the author have been asserted First Edition published in 2021 Impression: 1 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by licence or under terms agreed with the appropriate reprographics rights organization. Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2020935144 ISBN 978–0–19–885428–9 Printed and bound in Great Britain by Clays Ltd, Elcograf S.p.A. Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work.
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For Ann
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Live with your century, but do not be its creature; serve your contemporaries, but give them what they need, not what they praise. Friedrich Schiller (2016/1795), On the Aesthetic Education of Man, Ninth Letter: 32. Quoted by Walter Eucken at the end of his lecture ‘The Struggle of the Sciences’ (Der Kampf der Wissenschaften) at the University of Freiburg, 1936 (text available in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken)
[Academic neutrality] leads only to the emasculation and disarmament of the social sciences in the struggle against the terrible threat to our civilization from collectivism, which severs the freedom as well as the living nerves of science. Wilhelm Röpke in a speech in Rome on 31 May 1952 (Röpke Papers, file 24, Institute for Economic Policy, Cologne University), author’s translation
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Acknowledgements In writing this book I have incurred an enormous number of debts. The daunting challenge of acknowledgement reflects the way in which the book evolved to become more ambitious than originally intended. It starts from the premise that Ordo-liberalism cannot be properly understood without setting it in the larger cross-national context of conservative liberal thought and locating both more broadly in the complex and variegated history of liberalism. The consequence is a book that is wide-ranging, comparative, and historical in nature and that took a long time to complete. The book combines critical reflection on primary and secondary texts in various languages, many unavailable in English, with original research, using archival sources and conducting confidential elite interviews, across a range of countries. Many colleagues have generously sought out texts that might be relevant to my purpose and tolerated my questions and half-formed musings. Interviewees have been equally patient. The complications of acknowledgement in no way detract from my pleasure in thanking all those who, in varying ways, have helped in making this book possible. And, of course, the usual disclaimer applies. Those who are acknowledged are in no way responsible for errors of fact, unfortunate omissions, infelicities of interpretation, or inconsistencies that have entered the text. Ordo-liberalism has been a recurrent theme in my thinking and writing about Germany and Europe. Not only has it proved a persistent and resilient body of thought. Also, use of the term has exploded in academic publications, with Ordoliberalism becoming highly controversial with respect both to its contents and to its presumed real-world effects. Beginning with The State Tradition in Western Europe (2009/1980: 95–6), I stressed the intimate connection between Ordoliberalism and continental state theory, especially legal theory. The character of Ordo-liberalism reflects its continental Roman-law context. The Roman-law tradition emphasized the role of exhaustively codified rules in mitigating the uncertainty of law and in giving predictability to individuals in managing their economic, social, and political lives. It contrasted with the common-law approach, which favoured situational judgements, and which relied on litigation and precedent to mitigate the uncertainty of law. One reason for returning to this connection between Ordo-liberalism, the state, and law is to correct a tendency— pronounced in the English-language world—to analyse and critique Ordoliberalism from the narrow perspective of economic theory. From its inception, law and philosophy played crucial roles in shaping not just Ordo-liberalism but also conservative liberalism more broadly. Their presence was evident in the work
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x Acknowledgements of such thinkers as Louis Brandeis and Henry Simons; Franz Böhm, Walter Eucken, Friedrich von Hayek, and Ernst-Joachim Mestmäcker; and Jacques Rueff. A competitive market economy was not just a matter of economic efficiency and prosperity. It was fundamentally about securing and safeguarding individual rights, about human flourishing, and about the inner life of man. Ordo-liberalism recurred in my later writing on German political economy and on the history of the Economic and Monetary Union (EMU) in Europe (e.g. Dyson and Featherstone 1999: 263–6, 274–85, 332–4). It featured in my States, Debt and Power (2014: 262, 275, 612–17, 622–9) as offering a justification of the power of net creditor states and guidance on the use of this power. Disciplinary conceptions of liberalism—with their associated language of ‘saints’ and ‘sinners’—had instrumental value for those who promoted the interests of net cred itor states, notably in the strategic positioning of German power in post-war Europe (cf. Röpke 1954, 1959). Views about Ordo-liberalism—positive and negative— were very much bound up with attitudes to appropriate behaviour in creditor– debtor relations, to who bears the burden of adjustment when problems arise. For this reason, it is not surprising that Ordo-liberalism retained a narrative appeal to post-war German elites, who from the early 1950s sought to protect their interests as a net creditor power. This appeal could also extend to elites in debtor states who looked for guidance on how to restore creditworthiness: for instance, to Reinhard Kamitz in his pursuit of monetary stabilization as Austrian finance minister in the 1950s (Diwok and Koller 1977: 27). My thinking about Ordo-liberalism focused on its instrumental as well as its normative value. It provided for governing elites a useful explanation of why some states proved successful in state, economic, social, and cultural development, while others failed. Ordo-liberalism also provided guidance about the way forward and about who was best suited to offer leadership. In addition, it had value as a narrative that promised to deliver social cohesion by addressing problems of private as well as public power. Ordo-liberalism offered a means to socialize people into an appropriate set of social norms like individual responsibility, self-restraint, discipline, hard work, frugality, and thrift. And, not least, Ordoliberalism provided a basis for legitimizing and privileging certain institutions and power relationships that could ensure social cohesion and safeguard appropriate social norms. In writing this book I have been reminded of the vital importance of what one can learn from the archives and from the support of archivists. The personal papers, alongside the published works, of the founding thinkers of conservative liberalism and Ordo-liberalism offer an indispensable insight into their extraordinarily broad-ranging intellectual erudition and aesthetic sensibility. Their writings encompass the history of economic and political thought, social and cultural history, imaginative literature, ethical philosophy, political science, and legal theory, as well as economics. A defining feature was their attempt to transcend the
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Acknowledgements xi scope of economics, narrowly defined, and see political economy in its larger context. The archives are invaluable in addressing basic questions about when, and in what circumstances, their texts were written. Their copious correspond ence, preparatory notes for their books and articles, lecture notes, and records of their talks and meetings help to locate their evolving thinking in its wider personal, intellectual, and historical contexts. The archives offer insights into the significance that authors attributed to their own texts. They are also invaluable in plotting cross-national networks that tie founding Ordo-liberals to each other and to conservative liberalism more generally. Detailed biographical research in archives influences how one thinks about conservative liberalism and Ordo-liberalism. Exposure to their thinking processes makes it difficult to believe that one can do full justice to them through neat, abstract categorization of individual thinkers. Their thinking reflected differences in socialization and in the contexts in which they operated, crossnationally and not least over time. Böhm, Hayek, Alfred Müller-Armack, and Röpke lived much longer than Eucken and his successor in Freiburg, Leonhard Miksch, both of whom died in 1950. They had to deal with the challenges that were thrown up by European integration and by the generational and social changes that became apparent by the 1960s, not least as they experienced them in higher education. They faced questions about whether, and how, to adapt their thinking. In consequence, their lengthy individual life-stories combined consistency with evolution in their thinking in ways that were far from consistent intern ally or with each other. Conservative liberalism and Ordo-liberalism came to embody internal variety and to reflect the imprints of historical contingency. At the same time, patterns are discernible. Their individual thinkers display overlapping and cross-cutting features—family resemblances—which suggest a shared way of looking at the world. Conservative liberalism and Ordo-liberalism possess a measure of internal coherence and distinctive contours, while evolving in ways that lack a single, definitive, and finalized form. The archives and personal papers of founding conservative liberals and Ordoliberals show that they defined themselves in opposition to the academic world of narrow, highly specialized economic or legal experts. They sought to develop critical economists and lawyers who could master their subject but think beyond it, who could contextualize economics and law (Goldschmidt in Caspari and Schefold 2011: 302, 308). Conservative liberals and Ordo-liberals believed it was vital to avoid becoming an insular community of experts who communicated only with each other in a highly technical, inaccessible way. The emphasis was on asking large, ambitious questions, on relevance and on rigour, as well as—as the opening quote of Röpke demonstrates—on not being constrained by a misplaced notion of academic neutrality.
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xii Acknowledgements The founding conservatives and Ordo-liberals are more properly understood as philosopher-economists or philosopher-lawyers. They defined their role as architects, designing the foundations of economic, political, and social order (Dyson 2016; Tietmeyer 1999; also Posner 2003). This self-definition led them to carve out a role as public intellectuals. They were simultaneously deeply immersed in, and comfortable with, the world of ideas and theory and engaged in a practical discourse that sought to advance a distinctive political agenda. The interest of conservative liberals and Ordo-liberals in the intellectual and historical foundations of an order that safeguarded freedom and their stress on the interdependence of the legal, economic, social, and political orders led them to theorize on general matters of long-term public concern. They were extraordinarily erudite, encompassing an impressive breadth and depth of knowledge across the human ities and the social sciences. This formative background enabled conservative liberals and Ordo-liberals to draw on, and engage in, foundational debates within philosophy, cultural history, historical sociology, economics, law, political science, and in some cases—like Louis Rougier—the natural sciences. Simultaneously, they were engaged in a public ideological activity that claimed the mantle of legitimacy for a distinctive way of thinking about liberty. They sought to deny the mantle of legitimacy both to collectivists, amongst whom they included social liberals, and to libertarians. They feared that social liberals were subverting liberalism from within by making socialism—in a general ethical sense—part of liberal terminology. The archives also show that the social and economic roots of conservative liberalism and Ordo-liberalism were firmly planted in the cultivated bourgeois intelligentsia, in what Germans refer to as the Bildungsbürgertum. In developing their web of beliefs, the founding thinkers drew on the favoured canonical authors and texts within this social stratum, with copious referencing of thinkers like Johann Wolfgang von Goethe and Friedrich von Schiller. By this strategy of cit ation and quotation, they aimed to secure their own canonical status within conservative liberalism and Ordo-liberalism (cf. Ajouri 2017). Analysis of their citations and quotations (Chapters 5–7) shows how they acquired an elevated standing by identification with a distinct moral community and cultural milieu whose values they affirmed in this way as authoritative. The founding conservative liberals and Ordo-liberals embodied both the virtues and the limitations of the cultivated bourgeois intelligentsia (cf. Bruford 1975; Schäfer 2017). The archives underline their dedication to the intrinsic values of aesthetics, culture, and the intellect and to an ethical and critical perspective on the economy, society, and state. For them, liberalism was inseparably bound up with cultivating the inner life of man, not just or mainly with changing the external environment. Conservative liberals and Ordo-liberals were uncomfortable with what they saw as the superficiality, mediocrity, and philistinism that was fostered by mass politics, commercialism, consumerism, and the reduction of
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Acknowledgements xiii public life to entertainment. They regretted the destruction of virtue by cynical careerist and demagogic politicians, by profit-obsessed entrepreneurs, by an anticompetitive and rent-seeking capitalism, and by hedonistic consumption and its accompanying obsession with, and celebration of, the external material world. Conservative liberals and Ordo-liberals inhabited the world of an intellectual ‘aristocracy’ within the bourgeoisie, one that abhorred moral relativism and the notion that all opinions were equal. They saw themselves as entrusted with a humanistic, civilizing mission on behalf of a liberalism that was concerned with expanding and deepening the inner world of man and with safeguarding aesthetic and cognitive standards (cf. Kahan 1992). This mission involved drawing on past references that were already familiar to the cultivated intelligentsia: from aristocratic liberalism, from ethical philosophy, and from religion. Out of this social stratum, and these past sources, conservative liberals and Ordo-liberals set new priorities within liberalism; sought to justify this claim by reference to authoritative evidence; and evolved an identity through which they sought to distinguish themselves from other forms of liberalism—the market fundamentalists of laissezfaire liberalism, social liberals, and pragmatic liberals. The erudition of the founding conservative liberals and Ordo-liberals, combined with their narrow social basis as a minority (even in bourgeois terms), created a problem in the ‘arts of translation’. Their problem was how to frame and communicate their intellectual knowledge in terms that connected to the everyday lives of the wider public, to their lived experiences of capitalism and mass democracy, as well as to the everyday challenges facing those in power. The strength of their belief in creating and sharing a civilizing mission of identitybuilding and cultural renewal around liberalism was not so readily complemented by skills in political communication and public persuasion. The cultural gap that confronted this kind of liberalism was evident in the collapse of the Weimar Republic (Hacke 2018). In post-war Germany Ludwig Erhard was the key figure in helping to bridge this cultural gap through his skills in political communication and persuasion. He, along with his advisors, translated Ordo-liberalism into the popular terminology of the ‘social market economy’ and built up powerful media support (Hentschel 1996; Laitenberger 1986; Wünsche 2015a, 2015b). Despite this problem of the arts of translation, the personal archives of founding conservative liberals and Ordo-liberals reveal how intensely some of them were engaged with major and urgent policy questions of public concern. To different degrees, for varying lengths of time, and with variable success, they took on the role of statesmen-economists and statesmen-lawyers. German examples included Böhm, Miksch, Röpke, and Alexander Rüstow. Outside Germany, Brandeis, Luigi Einaudi, Ralph Hawtrey, Kamitz, Rueff, Simons, and Paul van Zeeland represented a similar type of conservative liberal. They addressed pressing problems of cartel and trade-union power, inflation, economic depression, political extremism, and the popularity of collectivism and national
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xiv Acknowledgements protectionism. Böhm, Einaudi, Kamitz, Miksch, Müller-Armack, Rueff, Otto Veit, and van Zeeland involved themselves directly with the challenges of postwar economic reconstruction and European integration. They became actively involved with issues of monetary, fiscal, wage, exchange-rate, trade, and competition policy. Crucially, however, in this statesman-economist role the founding conservative liberals and Ordo-liberals sought to retain their authority as intellectuals. To them, policy questions were not simply practical and technical. They were ‘culture-defining’ and ethical, about how we live and should live (e.g. Briefs 1930, 1980; Eucken 1926, 1932b, 1938b; Müller-Armack 1948a, 1949, 1970; NellBreuning 1949, 1974; Rüstow 1955, 1963a; Schlecht 1983; Veit 1935, 1954, 1970, 1981; Willgerodt 2011). The label ‘political economists’ does not adequately encompass their range. They were publicly engaged scholars, dedicated to speaking truth to both ‘power’ and ‘the public’ and thus, for many, challenging and uncomfortable thinkers. Conservative liberalism and Ordo-liberalism developed a powerful critical cutting-edge on cultural, social, economic, legal, and political matters. Access to the private papers provides insight into just how intensively conservative liberals and Ordo-liberals corresponded with each other, with those attached to other traditions—above all the Austrian and the old Chicago—and with a wide range of policy makers. Walter Lippmann, Rougier, Rueff, and Röpke corresponded actively about the Lippmann Colloquium in 1938 and the subsequent, short-lived foundation and activities of the International Centre for the Renewal of Liberalism (Centre International pour la Rénovation du Libéralisme) (Denord 2007; Lecoq 1989). After 1945 Eucken, Hayek, and Röpke exchanged copious letters about the formation of the Mont Pèlerin Society (Plickert 2008: 132–50). These two examples illustrate the intensity of the efforts to establish a cross-national body of intellectuals who were united by a shared mission: to rebuild liberalism on new foundations and, in this way, to combat tendencies both to private monopoly power and to state power and to a destructive symbi osis of the two in a rent-seeking capitalism that hollowed out both liberalism and democracy. Röpke stands out as a notably prolific correspondent, in a variety of languages, on an extraordinary range of topics. From 1937 to 1948 he occupied a special position in Europe and beyond as a Swiss-based ‘Super-Hub’ in Ordo-liberal networking, at a time when German intellectuals were isolated (recognized by Eucken in a letter to Röpke, 10 November 1949, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In the 1950s Röpke’s inter national network embraced academics, journalists, and businesspeople, notably in Germany, Switzerland, and Italy (Hennecke 2005: 187–8). The Röpke papers reveal his deep and increasingly troubled involvement with the Mont Pèlerin Society, leading to his eventual resignation. They also contain his extensive
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Acknowledgements xv correspondence with Erhard as German federal economics minister, mostly between 1948 and 1957, as well as with federal chancellor Konrad Adenauer. Eucken, Einaudi, Hayek, Rüstow, and Veit also figured prominently in this corres pondence. Röpke’s continuing nodal role in networking was evident in the sheer scale of his correspondence with Albert Hunold about the affairs of the Mont Pèlerin Society and with Wolfgang Frickhöffer about the affairs of the Action Group for the Social Market Economy (Aktionsgemeinschaft Soziale Marktwirtschaft) (e.g. Röpke 1976). The broad range of the intellectual and practical engagements of conservative liberals and Ordo-liberals surfaces not just in their many books, their voluminous articles for specialized learned journals, their private notes, and their correspond ence. They appreciated the importance of presence in the public sphere for the dissemination of their ideas. They engaged actively with the media in Germany, as well as with the media in the Allied occupying powers in the late 1940s (also Herzer 2015; Kutzner 2015; Löffler 2003). They also made active use of the institutional networks of the Mont Pèlerin Society. In Germany, they were involved with the scientific advisory council (wissenschaftlicher Beirat) of the federal economics ministry; with the Kronberg Circle (Kronberger Kreis) and its parent body the Market Economy Foundation (Stiftung Marktwirtschaft); and with the Action Group for the Social Market Economy—all badges of Ordo-liberal identity. As public intellectuals, conservative liberals saw their mission as bringing about broad cultural change in the face of formidable opposition, not least from vested interests in both government and the economy (Löffler 2010b). This description is particularly apt in the cases of Lippmann in the United States before 1940, Röpke in the German-speaking world, Rougier in France before 1940, Einaudi in Italy from 1943–4, Kamitz in Austria during the 1950s, and van Zeeland in Belgium in the 1930s. They each defined a powerful ‘other’ against which they sought to build new circles of belonging that were founded on shared, renovated liberal values and meanings. The public engagement of the founding conservative liberals and Ordo-liberals is manifested in their voluminous national and cross-national correspondence with leading political figures and media commentators and in their columns in the national press. Einaudi wrote prolifically for the newspapers Corriere de la Serra and La Stampa. Brandeis wrote numerous articles for Harper’s Weekly, whose editor Norman Hapgood was a great admirer, and provided material for Lippmann’s newspaper columns. He was a close advisor of US president Woodrow Wilson and of the progressive political leader, Robert LaFollette. Röpke was an active columnist in the Neue Zürcher Zeitung and the Frankfurter Allgemeine Zeitung. He corresponded actively with their respective editors, Willy Bretscher and Erich Welter, as well as with the editor of the Rheinische Merkur, Franz Albert Kramer. Röpke was widely read by centre-right politicians and thinkers across the German-speaking world, with Die Presse a major outlet for his ideas in Austria.
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xvi Acknowledgements In this way he sought to strengthen what he saw as Erhard’s precarious position in the German federal government (Hennecke 2005: 188). Some Ordo-liberals were journalists by profession. Bretscher at the Neue Zürcher Zeitung was close to Röpke. Paul Fabra (1974, 1993, 2010) at Le Monde and Les Echos admired Rueff, who was an Ordo-liberal self-identifier. Welter at the Frankfurter Allgemeine Zeitung turned its economics department into the main media disseminator of the ideas of the Freiburg School and again corres ponded voluminously with Röpke (Herzer 2015; Kutzner 2015). In the 1930s Lippmann used both the New York Herald Tribune and the Washington Post to spread ideas that had a close family resemblance to continental European Ordoliberalism (Goodwin 2014). Ordo-liberals did not think of ‘stability culture’ as an historic given. It was a cultural achievement, fragile and requiring careful cultivation of public opinion through media dissemination (Löffler 2010a: 24, 28, 35, 2010b: 127, 130). Some private papers proved easier to access than others. The Ludwig Erhard Centre in Furth, Bavaria is an excellent source of documents, especially on his role in the 1940s. The papers of Böhm and of Müller-Armack are held in the Archiv für Christlich-Demokratische Politik der Konrad Adenauer Stiftung in Sankt Augustin, near Bonn. Those of Röpke can be consulted in the Institute for Economic Policy (Institut für Wirtschaftspolitik) of the University of Cologne. A selection of letters was published in Röpke (1976). A digitalized copy of the Röpke papers can be found in the Wolfgang-Röpke archive at the University of Erfurt. The personal papers of Rüstow are in the Bundesarchiv in Koblenz. Those of Hayek can be found in the Hoover Institution Archives at Stanford University. Two sets of personal papers shed light on key periods. The papers of Constantin von Dietze are in the Freiburg University library and are a major source on the role of Freiburg academics in the resistance to National Socialism in the period 1938–44 (Dathe 2018a). The personal papers of Hans Möller, which are housed in the Institute for Contemporary History (Institut für Zeitgeschichte) in Munich, are invaluable for assessing the influence of Ordo-liberals during the German monet ary reform of 1948, including the Conclave at Rothwesten in which he was a participant (volume 10 of his papers). However, easy access to the papers of Walter Eucken only began to be available from 2013. After deteriorating in a Frankfurt villa, they were moved to the State and University Library of Thuringia (Thüringer Landes- und Universitätsbibliothek) in Jena, the hometown of the Eucken family. Here they are complemented by the archive of his father, the philosopher and Nobel Prize-winner Rudolf Eucken. This archive contains material relating to the biography of Walter Eucken; his close intellectual relationship to his mother, Irene (1863–1941), and to his wife, the cultural philosopher Edith Eucken-Erdsiek (1896–1985); Eucken’s role, and that of his wife, in the Eucken Association (Euckenbund) and its journal Die Tatwelt (1925–43); the origins of the Freiburg School; Eucken’s critique of
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Acknowledgements xvii National Socialist economic policy; his relations to the academic resistance in Nazi Germany; and his critical views on post-war reconstruction and the role of the Allied occupation authorities. It also includes work that has never previously been published and his preparatory notes for his main books (Dathe 2018b; Dathe and Goldschmidt 2003). I am grateful to Uwe Dathe and to Andreas Freytag (Jena) for their help in accessing this invaluable archive. They were instrumental in preparing a selection of Eucken’s monographs, essays, diaries, correspondence, and unpublished works for publication in German (Dathe, Feld, Freytag, Goldschmidt, and Oswald 2020). Similarly, the papers of Miksch have only recently begun to be examined. I owe a great deal to the pioneering work on the Miksch papers by members of the Walter Eucken Institute at Freiburg University—notably Ekkehard Köhler, and by Dathe (Jena) and Nils Goldschmidt (Siegen). In Freiburg I benefited immensely from the guidance of Köhler, Daniel Nientiedt, and Viktor Vanberg in accessing German sources and from their insights into German debates. They provided me with access to the wonderful resources of the Walter Eucken Institute and acted as most generous hosts. This Institute contains the libraries of Friedrich Lutz and Karl Schiller, while the University library has copies of Die Tatwelt, the journal of the Eucken Association. In addition, Steffen Roth of the Institute for Economic Policy at the University of Cologne kindly granted me permission to use their collection of the papers of Röpke. Helmut Schlesinger (former president and chief economist of the Bundesbank) was most generous in patiently answering many of my detailed questions about Germany’s post-war economic and monetary policies. I also benefited greatly from the very helpful comments of Otmar Issing (former chief economist of the Bundesbank and the first chief economist of the European Central Bank, ECB) on the first draft of Chapter 11. Rolf Herget (head of the historical archive of the German Bundesbank) assisted me in accessing key documents and papers relating to Ordo-liberalism and the Bundesbank. I am also grateful to Carl-Ludwig Holtfrerich (Free University of Berlin) for help with sources on the Weimar period. On the economic journalism of the Frankfurter Allgemeine Zeitung I benefited greatly from the advice of Martin Herzer (European University Institute, Florence) and Maximilian Kutzner (Julius-Maximilians-Universität Würzburg). Heike Schweitzer (Humboldt University of Berlin) and her assistants were enormously helpful in helping me to track down sources on the legal aspects of Ordo-liberalism and for guiding me through the literature on competition policy. Uwe Blaurock (Freiburg) provided valuable insights into the role of Ordoliberalism in German teaching and research in economic law. Josef Hein (Milan University), Troels Krarup (Copenhagen University), and Philip Manow (Bremen University) assisted me in coming to grips with the religious foundations of Ordo-liberalism.
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xviii Acknowledgements I also received great help from Sebastian Dullien (European Council on Foreign Relations, Berlin), Lothar Funk (Hochschule Düsseldorf), Christian Joerges (Bremen University and the Hertie School of Governance, Berlin), Tim Krieger (Freiburg University), Oliver Landmann (Freiburg University), Bernhard Löffler (Regensburg University), Hanspeter Scheller (formerly the ECB), Claus Tigges (German Bundesbank, Berlin), Michael Wohlgemuth (Open Europe, Berlin), and Barbara Young (Münster University). I learnt a great deal from participation in the research workshop on Ordo-liberalism, organized by Christian Joerges in May 2016 in Berlin, and from my part in the lecture series, organized by Tim Krieger in 2017 in Freiburg. These events helped me to test some of my early thinking in the subsequent edited books (Dyson 2017, 2019). For guidance in accessing French sources on conservative liberalism, I am indebted to Eric Bussière (University of Paris-Sorbonne), Patricia Commun (University of Cergy Pontoise), and Caroline Vincensini (École Normale Supérieure, Paris). They made it possible for me to consult in detail the works of Rougier and of Rueff. The papers of Rougier are available at the Rougier Foundation in the Chateau de Lourmarin in Provence. Tristan Lecoq and François Denord have produced pioneering work using this archive. Particularly useful are the papers relating to the Walter Lippmann Colloquium in August 1938 (subsection 8.3), the correspondence with Lippmann, and, above all, that with Rueff (sub-sections 1.2 and 1.3). There was also an intense correspondence between Rougier and Maurice Allais between September 1945 and July 1947. The papers of Rueff that are cited here are in the French national archives at Pierrefitte-surSeine. I am grateful to Christopher Chivvis (RAND Corporation) and to Marie Daou (University of Paris 1, Pantheon-Sorbonne) for advice on Rueff. Alexandre Moatti (University of Paris-Diderot) provided a helpful ‘economist-engineer’ perspective, drawing on the archives of the École Polytechnique and the Corps des Mines. In the case of Britain, the personal papers of Edwin Cannan and Lionel Robbins are held in the London School of Economics and Political Science (LSE) library. I benefited greatly from the advice of Susan Howson (University of Toronto) on Lionel Robbins and the Ordo-liberals and for the material that she provided. I would also like to acknowledge the assistance of the staff at the Churchill Archives Centre in Churchill College, Cambridge for their help in accessing the papers of Sir Ralph Hawtrey, notably his correspondence and unpublished manuscripts. Clara Elisabetta Mattei (Scuola Superiore Sant’Anna, Pisa) also offered helpful guidance on the Hawtrey papers. In addition, Köhler (Freiburg University) offered useful advice on the Simons papers in Chicago, Schweitzer (Humboldt University, Berlin) on Brandeis, and Vanberg (Freiburg University) on James Buchanan. Andrew Gamble (Sheffield University) provided valuable comments on the first draft of Chapter 9. Jeremy Shearmur (Australian
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Acknowledgements xix National University) proved an invaluable guide on the role of think tanks and libertarian journalists. Italian scholars were enormously helpful to me in examining the links between German Ordo-liberals, notably Röpke, and Italian liberals like Carlo Antoni, Costantino Bresciani-Turroni, Einaudi, Panfilo Gentile, Ernesto Rossi, and Don Luigi Sturzo. I would like to thank Pier Francesco Asso (University of Palermo), Giovanni Farese (European University of Rome), Flavio Felice (Lateran Pontifical University, Rome), Alberto Giordano (University of Genoa), Antonio Magliulo (UNINT University, Rome), Sebastiano Nerozzi (University of Palermo), Giovanni Pavanelli (University of Turin), and Stefano Solari (University of Padua). They directed me to relevant Italian sources; to the rich archives of the Fondazione Luigi Einaudi in Turin, especially the Einaudi–Röpke correspond ence, 1934–61, and the Einaudi–Rossi correspondence, 1925–61; and to the Catholic humanist tradition and its connections to Ordo-liberalism. I owe a special debt to my colleagues David Boucher and Andrew Vincent at Cardiff University. They helped me to develop my thinking about the philosoph ical roots of Ordo-liberalism, as well as about the connections between the trad ition and the political ideologies with which it has been linked historically. These discussions sharpened my awareness of the normative political foundations of the Ordo-liberal tradition. They helped me to examine in more detail the influence of neo-Kantian Idealist philosophy and of phenomenological philosophy, particularly the work of Gaston Bachelard, Franz Brentano, Edmund Husserl, Rudolf Eucken, and Max Scheler. I would also like to thank Luisa Tramontini of the Cardiff University Arts and Humanities Library. She helped to provide relevant citations of Ordo-liberalism in publications since 1945 in English, French, German, and Italian. Cardiff University’s School of Law and Politics also provided financial support that helped me access various archives related to this project. In addition, I benefited greatly from the expert help of the staff at the British Library Reading Room, Boston Spa. The extensive elite interview research on which the empirical case studies were based poses more difficult problems of acknowledgement because of ethical issues of anonymity and confidentiality. I can only record my appreciation to all those working in official positions who gave so generously of their time to discuss their views on the nature and influence of Ordo-liberalism in the German and European contexts. Some debts can be openly acknowledged. I would like to thank Ivo Maes (Louvain University and the National Bank of Belgium) for discussions about the role of van Zeeland in Belgium, for his help in acquiring literature on Kamitz in Austria, and above all for his friendship. In the case of Kamitz, I am also grateful to Hansjörg Klausinger (University of Vienna) both for his help with sources and for patiently answering my various questions. Elena Danescu (University of Luxembourg) provided useful insights into the influence of Rueff
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xx Acknowledgements on Pierre Werner, the long-serving Luxembourg finance minister and prime minister. Exposure to the teaching of Rueff in Paris helped instil in Werner the conviction about the importance of sound public finances and sound money in European integration. Throughout the process of writing this book I have benefited inestimably from the enthusiasm, loyalty, and support of Dominic Byatt, my commissioning editor at Oxford University Press. Working with Dominic on various books has revealed to me just how fortunate I have been to have his professional editorial guidance. I have also had the benefit of a highly professional team at OUP to oversee the book’s production. In particular, I would like to thank my copyeditor, Sally EvansDarby, whose keen eye has saved the manuscript from numerous blemishes. The various confidential readers’ reports proved invaluable as a source of constructive suggestions from which the final draft benefited enormously. It has been a source of great personal as well as intellectual pleasure to work with Dominic and his colleagues at OUP. My wife Ann has shown endless good humour, kindness, and patience while I have worked on this book. Her good spirits cheered and distracted me and brought joy as only she can. No words can adequately express my debt to her. This book is dedicated to Ann, with love and admiration. I hope that she and our granddaughter Nevena will live in a world that reflects their natures: a liberal society with a strong ethic of care, one in which people seek to work for mutual benefit, one that respects the dignity and worth of each individual, and one that tries to help all to flourish and lead worthwhile lives. Kenneth Dyson Cardiff University
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Contents Dramatis Personae
xxiii
Introduction1 I . T H E O R IG I N S O F C O N SE RVAT I V E L I B E R A L I SM A N D O R D O - L I B E R A L I SM 1. Ordo-Liberalism in Comparative and Historical Perspective
19
2. Conservative Liberalism and Ordo-Liberalism: From Child to Midwife of Crisis in Capitalism and Democracy
45
3. Conservative Liberalism as a Disciplinary Revolution
77
I I . PAT R O N S A I N T S O F C O N SE RVAT I V E L I B E R A L I SM A N D O R D O - L I B E R A L I SM 4. Ordo-Liberalism as Tradition, Ideology, and Model of Citizenship: Memorializing, Reinventing, Forgetting
99
5. Patron Saints: (1) The European Tradition of Aristocratic Liberalism129 6. Patron Saints: (2) Continental European Ethical Philosophy
162
7. Patron Saints: (3) Theological Foundations of Ordo and Religious Traces
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I I I . T H E SIG N I F IC A N C E O F C O N SE RVAT I V E L I B E R A L I SM A N D O R D O - L I B E R A L I SM 8. Just a Germanic Tradition? The Cross-National Significance of Conservative Liberalism
241
9. Conservative Liberalism in American and British Political Economy
266
10. Conservative Liberalism in French and Italian Political Economy
308
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xxii Contents
11. How Ordo-Liberal Is Germany? Ordo-Liberalism in Post-War National Unifying Mythology
350
12. The Historical Significance and Contemporary Relevance of Conservative Liberalism and Ordo-Liberalism: A Hollow Promise? 410 References Name Index Subject Index
451 501 519
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Dramatis Personae This list is confined to intellectuals, officials, journalists, and politicians who figure prominently in the text and focuses on details of their careers that relate to conservative liberalism and Ordo-liberalism. It includes prominent theorists and practitioners, as well as individuals from related traditions who influenced them and/or with whom they interacted closely.
Historians and Philosophers Acton, Lord John (1834–1902): British Whig historian, later professor at Cambridge University; born into English Catholic family; multi-lingual; studied in Munich and Paris; friend of William Gladstone; influence on Hayek, Röpke, and Simons. Bachelard, Gaston (1884–1962): French historian and philosopher of science; professor at Dijon University, 1930–40 and at the Sorbonne, 1940–54; developed a constructivist epistemology of the natural sciences; influence on Rueff. Benda, Julien (1867–1956): French philosopher, commentator, and novelist; son of wealthy industrial family; exile in Carcassonne in the Second World War; neo-Kantian; famous for his fierce criticism of contemporary intellectuals, including Bergson; influence on Rougier. Bergson, Henri (1859–1941): French philosopher; professor at the Collège de France, 1900–21; Nobel Prize for Literature, 1927; influence on Rueff, also on Charles de Gaulle. Brentano, Franz (1838–1917): hugely influential Aristotelian scholar; a product of the Austrian Catholic Scholastic tradition; developed ‘realist’ phenomenology; taught philoso phy at Vienna University but left Austria in 1895; influence on Husserl and Menger. Broglie, Louis de (1892–1987): Nobel Prize for Physics for work in quantum theory, 1929; professor at the Sorbonne from 1928; elected to the French Academy, 1944; worked on philosophy of science; influence on Rueff. Brunschvicg, Léon (1869–1944): French Idealist philosopher, influenced by Kant; professor of philosophy at the Sorbonne, 1909–40; influence on Bachelard and Rueff. Burckhardt, Jacob (1818–97): Swiss-German cultural historian from Basel; studied in Berlin (with Leopold Ranke), Cologne, and Freiburg; professor of history at Basel University, 1858–93; taught Friedrich Nietzsche; influence through both his books and later published letters, notably on Böhm, Einaudi, Huch, and Röpke.
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xxiv Dramatis Personae Eucken, Rudolf (1846–1926): professor of philosophy at Basel University, 1871–4, and at Jena University, 1874–1920; Nobel Prize for Literature, 1908; Idealist philosopher who advocated ethical activism in the service of cultural renewal; a major public intellectual; the Eucken Association (Euckenbund) propagated his ethical activism; influence on son Walter Eucken, Scheler, and Veit; friend of Husserl. Eucken-Erdsiek, Edith (1896–1985): married Walter Eucken in 1920; her interest in cultural philosophy informed her work as editor of Die Tatwelt; after 1948 she wrote on German history and contemporary economic and political problems. Ferrero, Guglielmo (1871–1942): historian and student of law, literature, sociology, and psychology; anti-fascist under house-arrest; left Italy in 1930 to become professor of history at Geneva University; international reputation especially in France and the United States; influence on Röpke and Rougier. Goethe, Johann Wolfgang (1749–1832): German intellectual celebrity in his lifetime; fame as poet, novelist, and dramatist, and through his autobiography and correspondence; official advisor to the duke of Weimar, 1776–86; friend of Schiller; influence on Walter Eucken, Müller-Armack, Röpke, Rüstow, and Veit. Hartmann, Nikolai (1882–1950): major Baltic-German philosopher; a critical realist with a specialization in ontology and ethics; from 1919 to 1950 worked successively at Marburg, Cologne, and Göttingen universities; close to Scheler; influenced Veit. Huch, Ricarda (1864–1947): German poet, novelist, and cultural historian; studied history, philosophy, and philology at Zurich University; influenced by Burckhardt, Goethe, and Martin Luther; first woman elected to the poetry section of the Prussian Academy of the Arts, from which she resigned in 1933; honorary president of the First German Writers’ Congress in Berlin, 1947; called the First Lady of Germany by Thomas Mann; mother-inlaw of Böhm, with whose family she lived; influenced Freiburg Ordo-liberals through Böhm and her close relations with the Eucken family. Huizinga, Johan (1872–1945): Dutch cultural historian and critic; influenced by Burckhardt; professor at Leiden University, 1915–42; strongly anti-fascist; persecuted by the Nazis; influence on Einaudi and Röpke. Husserl, Edmund (1859–1938): the principal founder of phenomenology; mathematics student who was influenced by Brentano; taught at Halle University, 1886–1901, and at Göttingen, 1901–16; professor at Freiburg University, 1916–28; as Jew persecuted by the Nazis and died in Freiburg; influence on Walter Eucken and Scheler. James, William (1842–1910): born into a wealthy and cultivated New York family; eminent in both philosophy and psychology; taught philosophy at Harvard, 1881–1907. Close in thinking to Bergson and influenced Lippmann and Knight. Kant, Immanuel (1724–1804): German philosopher and founder of critical philosophy; studied and taught at Königsberg University in East Prussia, becoming professor of logic and metaphysics in 1770; his emphasis on ‘the moral law within’, his rigorous ethic of respect for law, and his break with sensationalist empiricism had a profound influence on Ordo-liberals, notably through Rudolf Eucken, Hartmann, and Scheler.
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Dramatis Personae xxv Le Bon, Gustav (1841–1931): polymath who worked in anthropology, psychology, and sociology; controversial social critic during the French Third Republic; key work on col lective psychology; influence on Rougier and many politicians, including Charles de Gaulle. Moore, George (1873–1958): Cambridge ethical philosopher; Fellow of Trinity College, 1898–1904 and 1911–58; professor of philosophy, 1925–39; a central figure in the Cambridge Apostles, who included Hawtrey and Keynes; famous for his Principia Ethica (1903); advocate of ‘common-sense’ realism and a conservative form of rule-consequentialism, favouring following established rules in the face of uncertainty; influenced Hawtrey. Ortega y Gasset, José (1883–1955): Spanish philosopher; studied in Germany, 1905–8; influenced by Husserl and Scheler; professor of philosophy in Madrid, 1910; active contributor to magazine Faro and newspaper El Sol; politically active in the 1920s to early 1930s; famous for his Revolt of the Masses; exile in 1936 with civil war; returned to Madrid in 1948; influenced Rougier, Röpke, Rüstow, and Veit. Russell, Bertrand (1872–1970): from English aristocratic family; eminent philosopher, logician, social critic, and political activist; long association with Trinity College, Cambridge; difficult relationship with Moore. Santayana, George (1863–1952): historically minded Spanish philosopher, poet, novelist, and cultural critic; opposed most modern philosophy, including American Pragmatism and German Idealism; professor at Harvard University until 1912 when he returned to Europe; influence of his views on realism and ethics on Lippmann and Russell. Scheler, Max (1874–1928): influenced by Rudolf Eucken and Husserl; professor of philoso phy at Cologne University, 1918–28; leading figure in the phenomenology movement and in personalism; influenced Hauriou, Müller-Armack, and Veit. Schiller, Friedrich (1759–1805): German poet, dramatist, and philosopher; professor at Jena University, 1789–99; influenced by Kant; developed aestheticism as basis of humane sociability; friend of Goethe; influence on Eucken, Huch, Röpke, Rüstow, and Veit. Smith, Adam (1723–90): chair of logic, then of moral philosophy at Glasgow University, from 1751; wrote on ethics, jurisprudence, and economics as part of the Scottish Enlightenment; contacts with French economists; stress on rules of behaviour; influenced Böhm, Mestmäcker, Knight, and Simons. Tocqueville, Alexis de (1805–59): French aristocrat and historical sociologist; politically active in the 1840s; author of influential books on democracy in the United States and on the French ancien régime; influenced Acton, Hayek, Röpke, and Simons.
Academic Economists and Lawyers Allais, Maurice (1911–2010): top French economist and first to win the Nobel Prize in Economics; educated at the École Polytechnique; member of the corps of mining engineers; participant in the Lippmann Colloquium and the first meeting of the Mont Pèlerin Society; founder of the French Movement for a Free Society in 1959; close to Rougier and Rueff.
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xxvi Dramatis Personae Andreatta, Beniamino ‘Nino’ (1928–2007): studied law in Padua; senior economics figure in the Italian Christian Democratic Party and advocate of the social market economy; treasury minister, 1980–2; secretary of state, 1993–4; defence minister, 1996–8; professor at various universities including Bologna; influenced Romano Prodi, prime minister of Italy and president of the European Commission. Barre, Raymond (1924–2007): French economist and politician; studied law, economics, and politics; professor of economics, University of Paris and Sciences Po; head of private office of Jeanneney, ministry of industry and trade, 1959–62; vice-president of the European Commission, 1967–72; prime minister and finance minister, 1976–81; presidential candidate, 1988. Bastiat, Frédéric (1801–50): French liberal economist; influenced by Jean-Baptiste Say and Smith; influenced Austrian economics, notably Murray Rothbard and Salin. Baudin, Louis (1887–1964): French law professor in Dijon (1923) and Paris (1937); member of the Mont Pèlerin Society. Beckerath, Erwin von (1889–1964): pupil of Schmoller; professor of economics at Cologne University, 1924–37, and at Bonn University, 1937–57; chaired the Erwin von Beckerath Study Group to prepare an economic and social policy programme for the post-war period, 1940–4; chair of the scientific advisory council of the federal economics ministry, 1948–64. Bilger, François (1934–2010): thesis on German Ordo-liberalism in 1960, the key reference in the French language; professor of economics at Strasbourg University; member of the Mont Pèlerin Society; influenced by Villey; influenced Foucault. Böhm, Franz (1895–1977): father was education minister in Baden; mother-in-law was Huch; studied law in Freiburg, 1919–22; an official dealing with cartel policy in the imper ial economics ministry (Reichswirtschaftsministerium), 1925–32; lecturer in law at Freiburg/Breisgau University, 1932–6; close collaborator of Walter Eucken and GrossmannDoerth; lecturer in Jena from 1936 and dismissed from post because of opposition to Nazi policy towards Jews, 1938; professor of law at Frankfurt University, 1946–62, with a special interest in competition policy; first chair of the federal economic advisory council, 1948; Christian Democratic Union (CDU) member of the Bundestag, 1953–65; influenced by Huch and by Smith; influenced Biedenkopf and Mestmäcker. Böhm-Bawerk, Eugen von (1851–1914): influenced by Menger; close family friend of Wieser; Austrian finance ministry official and finance minister on three occasions between 1895 and 1904, when he resigned over the failure to balance the budget; professor of economics at Vienna University, 1904–14; ambassador to Germany, 1897; elevated to the upper house, 1899; influenced Mises and Hayek. Brandeis, Louis (1856–1941): hugely influential Harvard-trained lawyer, legal and social reformer, and Supreme Court Justice (1916–39); associated with the US Progressive movement and opposition to monopoly power, big corporations, and mass consumerism; key role in anti-trust cases and in creation of the US Federal Reserve System and Federal Trade Commission.
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Dramatis Personae xxvii Bresciani-Turroni, Costantino (1882–1963): studied law and economics in Padua and economics in Berlin; influenced by Loria; took close interest in the German economy, especially hyper-inflation; international reputation in monetary policy, international economics, and statistics; taught at Padua, Palermo, and Genoa universities, then political economy in Bologna and in Milan (1926–57); following opposition to fascism, took post in Cairo, 1927–40; served various official and unofficial roles in post-war Italian reconstruction, including president of the Bank of Rome and briefly in 1953 minister for foreign trade; his work received strong endorsement from Einaudi. Briefs, Götz (1889–1974): Roman Catholic social theorist and economist; studied in Munich, Bonn, and Freiburg; professor for economic and social policy at Freiburg University, 1919–26, then at the Technische Hochschule Berlin; Walter Eucken was his successor in Freiburg; member of the Königswinter Circle which helped prepare the Papal Encyclical Quadragesimo Anno (1931); emigrated to the USA in 1934; worked for the reconciliation of Ordo-liberalism and Catholic social teaching; close to Röpke and Rüstow. Brunner, Karl (1916–89): Swiss economist; close to Allan Meltzer and to Friedman and the Chicago tradition of monetarism; studied at Zurich University and the LSE; professor of economics at Rochester University, Ohio State University, and Konstanz University; founder of the Konstanz seminar on monetary theory and monetary policy in 1970, attended by Schlesinger of the Bundesbank; close collaborator of Neumann in disseminat ing the idea of rule-based, long-term-oriented monetary policy in Germany and more widely in Europe. Buchanan, James (1919–2013): influenced by Knight and by Simons at Chicago University; professor at Virginia University and later Virginia Tech; developed ‘constitutional economics’ as well as working in public choice theory; Nobel Prize for Economics, 1986; member of the Mont Pèlerin Society, its president 1984–6; influence on the Walter Eucken Institute in Freiburg through Vanberg. Cannan, Edward (1861–1931): British economist and historian of economic thought; professor at the LSE, 1895–1926; influenced Hutt and Robbins. Colson, Clément (1853–1939): studied at the École Polytechnique; example of French ‘engineer-economist’; lawyer and member of the Conseil d’État; professor of political economy at the École Polytechnique, 1914–28; influence on Rueff. Dietze, Constantin von (1891–1973): lawyer, economist, and theologian; active in Lutheran Church; professor in Jena, 1927–33, and in Berlin, 1933–7; professor in Freiburg, 1937–61, where he was a close colleague of Walter Eucken and active in the Freiburg Circle’s resistance to National Socialism; co-author with Eucken and Lampe of the memorandum of the Freiburg Bonhoeffer Circle on the economic and social order, 1942; arrested by the Gestapo in 1944 after the July plot and tortured; rector of Freiburg University, 1946–9; member of the Mont Pèlerin Society. Einaudi, Luigi (1874–1961): economics editor of the daily La Stampa newspaper following his doctorate in 1895; involvement with the Corriere della Sera newspaper, 1900–25 and 1943–61; professor of finance at Turin University, 1902–48, and at the Bocconi University
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xxviii Dramatis Personae in Milan, 1920–5; withdrawal from various activities in 1925 in protest at fascist control; influenced by Röpke in the 1940s. Eucken, Walter (1891–1950): key founder of the Freiburg School with Böhm and von Dietze; influenced by his father Rudolf Eucken, Husserl, and Martin Luther; active in the Eucken Association and in its journal Die Tatwelt; studied in Kiel, Bonn, and Jena; worked for the imperial federation of German industry (Reichsverband der Deutschen Industrie), 1921–4; professor of economics at Tübingen University, 1925–7, and at Freiburg, 1927–50; linked to Freiburg Circles of resistance to Third Reich, like von Dietze; arrested and interrogated; like Miksch, member of the scientific advisory council of the Bizonal Economics Administration of Erhard, from 1947; the Walter Eucken Institute was established at Freiburg University in 1954 as the ‘competence centre’ for ordo-economics and is located in Eucken’s former home in Freiburg; influenced Gocht, Götz, Hensel, Höffner, Lutz, Maier, Meyer, Miksch, Schlecht, and Welter. Feld, Lars (1966–): studied economics at the University of Saarland and awarded doctorate and habilitation at St Gallen University; professor at Marburg University, 2002–6, and at Heidelberg University, 2006–10; director of the Walter Eucken Institute and professor at Freiburg University, 2010–; member of the economic advisory council of the federal finance ministry, 2003–; member of the council of economic advisors, 2011–; member of the Kronberg Circle, 2008–; advocate of the Swiss model, notably the ‘debt brake’, citizen sovereignty, and direct democracy. Fikentscher, Wolfgang (1928–2015): student of Alfred Hueck; broad intellectual background in law and the humanities; chairs in Münster (1957–65), Tübingen (1965–71), and Munich (1971–96); interest in legal anthropology, with frequent visits to the United States. Forte, Francesco (1929–): studied law in Padua; holder of the Einaudi chair at Turin University, 1961; Italian Socialist Party deputy, 1979–94; senator, minister of finance, 1982–3; influenced by Einaudi and Ezio Vanoni. Friedman, Milton (1912–2006): studied economics at Chicago and Columbia universities; member of the research staff of the National Bureau of Economic Research, 1937–81; taught at Chicago University, 1946–76; member of the Mont Pèlerin Society; Nobel Prize for Economics, 1976; Presidential Medal of Freedom, 1988; National Medal of Science, 1988. Gestrich, Hans (1895–1943): student, then journalist in Berlin; close to Walter Eucken and Rüstow from this period; press officer at the Reichsbank where he opposed the deflationary policy of the Brüning government and backed the ideas of Lautenbach; later economic advisor to the Prussian State Bank; important work on monetary and especially credit policy. Grossekettler, Heinz Georg (1939–2019): studied economics at Mainz University; professor of economics, Münster University, 1975–9; professor of economics, Mainz University, 1979; member of the scientific advisory council of the federal finance ministry, 1989–, and its chair, 2003–. Grossmann-Doerth, Hans (1894–1944): studied law; professor of law at Freiburg University from 1933; close collaborator of Böhm and Walter Eucken, but broke with them over his support for the National Socialist Party (NSDAP); died on the Eastern Front.
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Dramatis Personae xxix Haberler, Gottfried (1900–95): student of Mises in Vienna; professor at Harvard University from 1936; criticized both Mises and Keynes on Great Depression—closer to Röpke on this issue. Hauriou, Maurice (1856–1929): professor of administrative science at Toulouse University, 1888–1926, and dean from 1906; founder of the prestigious Toulouse School of Law and famous for his theory of the institution; influenced by Bergson, Scheler, positivism, and Catholic Thomist thought; influenced Rueff. Hawtrey, Ralph (1879–1974): studied mathematics at Cambridge, where he was close to Russell; member of the Cambridge Apostles; honorary fellow of Trinity College, Cambridge, 1959–74; like Hayek, a strong critic of Keynes; self-taught economist who became president of the Royal Economic Society, 1946–8; key contribution on monetary theory of the business cycle; shaping influence on the so-called ‘Treasury View’ of the 1920s; indirect influence on Simons; influenced by Moore and Irving Fisher. Hayek, Friedrich von (1899–1992): studied at Vienna University where he was close to Mises in the 1920s; professor of economics at the LSE from 1931, where he was close to Robbins; co-founder of the Mont Pèlerin Society with Röpke, 1947; professor of economics at Chicago University, 1950–62, and at Freiburg University, 1962–8; visiting professor at Salzburg University, 1968–77; first president of the Mont Pèlerin Society, 1948–61; Nobel Prize for Economics, 1974; influenced by Acton, Mises, Smith, and Tocqueville; influenced Hoppmann and Vanberg. Höffner, Joseph (1906–87): pupil of Walter Eucken; like Nell-Breuning, kept a critical distance from Ordo-liberalism from the perspective of Catholic social teaching; professor of Christian social sciences at Münster University, 1951–62; head of the social office in the central committee of German Catholics; bishop of Münster, 1962–9; archbishop of Cologne, 1969–87; appointed cardinal, 1969; chair of the German bishops’ conference, 1976–87. Hoppmann, Ernst (1923–2007): successor of Hayek in Freiburg, 1968–89; influenced by Hayek, he developed Freiburg thinking on the market as a spontaneous economic order and on ‘workable’ competition; winner of the Hayek Medal, 1999. Hutt, William (1899–1988): studied at the LSE; influenced by Cannan; professor at the University of Cape Town from 1930; coined the concept of consumer sovereignty; moved closer to Mises and the Austrian School; staunch opponent of trade-union power. Issing, Otmar (1936–): studied economics at Würzburg University; professor of economics at Würzburg University, 1973–90; member of the Council of Economic Advisors, 1988–90; president of the Centre for Financial Studies, Frankfurt University, 2006–; member of the Walter Eucken Institute. Janssen, Albert-Edouard (1883–1966): studied law in Louvain; worked in monetary theory and banking; director of the National Bank of Belgium, 1919–25; career as banker; minister of finance, 1925–6, 1938, and 1952–4; member of the Christian Social Party; influenced van Zeeland. Keynes, John Maynard (1883–1946): Fellow of King’s College, Cambridge; member of the Cambridge Apostles like Hawtrey and initially influenced by Moore; active at the Versailles Peace Conference, 1919; the leading British negotiator at Bretton Woods, 1944; generally
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xxx Dramatis Personae recognized as one of the most brilliant minds of his generation; huge influence reflected in many variants of ‘Keynesianism’ and including John Hicks, Paul Samuelson, Franco Modigliani, James Solow, Paul Krugman, and Joseph Stiglitz; criticized by Einaudi, Hawtrey, Hayek, Hutt, Mises, Robbins, Röpke, and Rueff. Knight, Frank (1885–1972): educated at Cornell University; key founding figure of the old Chicago tradition; interests in history of economic thought, ethics and economics, religion, and the economic order; influenced Simons, Friedman, and Buchanan; co-founder and vice-president of the Mont Pèlerin Society. Le Play, Frédéric (1806–82): French engineer, sociologist, and economist; product of the École Polytechnique and the École des Mines; influenced Einaudi, Röpke, and Rueff. Liefmann-Keil, Elisabeth (1908–75): niece of Robert Liefmann, economics professor at Freiburg University; studied economics in Freiburg under Adolf Lampe; supported by Walter Eucken during Nazi persecution of the Jews; member of the scientific advisory council of the federal economics ministry from 1948; the first woman to be appointed a full professor in economics in Germany, at Saarbrücken University (when Giersch was there); important work on Ordo-liberal social policy; influenced Schlecht. Loria, Achille (1857–1943): Italian lawyer and economist who taught in Padua and then in Turin; interest in German historical economics and Marxism; prolific and controversial economist; sharp critic of scale and damage of unproductive capital; influenced Bresciani-Turroni. Lutz, Friedrich (1901–75): student of Walter Eucken in Tübingen and later in Freiburg; left for the United States in 1937; taught at Princeton University, 1938–53 (from 1947 as full professor); professor at Zurich University, 1953–72; one of the founders with Maier of the Walter Eucken Institute in Freiburg; president of the Mont Pèlerin Society, 1964–7 and 1968–70; influenced Paul Volcker, later chair of the US Federal Reserve. Machlup, Fritz (1902–83): studied in Vienna where he was influenced by Mises and Wieser; emigrated to the USA in 1933; professor at John Hopkins University, 1947–59, Princeton University, 1960–83, and New York University, 1971–83. Maier, Karl Friedrich (1905–93): student of Walter Eucken; remained in Freiburg and a key figure in founding the Walter Eucken Institute. Menger, Carl (1840–1921): influenced by Brentano; founder of the Austrian tradition of economics and staunch critic of the German historical tradition; studied law; began as financial journalist; professor of economic theory, 1873–8, and of political economy, 1878–1903, at Vienna University; tutor and advisor to Archduke Rudolf von Hapsburg, 1876–89; influenced Böhm-Bawerk, Wieser, Mises, and Hayek. Mestmäcker, Ernst-Joachim (1926–): student of Böhm in Frankfurt; professor of law in Saarbrücken, 1959–63, Münster, 1963–9, Bielefeld, 1969–78, and Hamburg, 1980–; member of the scientific advisory council of the federal economics ministry, 1960–2006; special advisor of the European Commission on competition law, 1960–70; chair of the German monopoly commission, 1973–6; influenced Möschel and a whole generation of academic lawyers.
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Dramatis Personae xxxi Meyer, Fritz Walter (1907–80): student of Walter Eucken in Freiburg; researcher at the Institute for the World Economy in Kiel; joined the National Socialist Party in 1933; professor of economics at Bonn University, 1949–73; member of the scientific advisory council of the federal economics ministry, 1950–80; member of the Council of Economic Advisors, 1964–6; member of the Mont Pèlerin Society from 1951; colleague of Beckerath and Müller-Armack. Miksch, Leonhard (1901–50): pupil of Walter Eucken; economics journalist at the Frankfurter Zeitung, 1929–43; head of department at the Economic Administration in Frankfurt, 1947–9; professor of economics at Freiburg University, 1949–50. Mises, Ludwig von (1881–1973): studied law in Vienna; influenced by Menger and BöhmBawerk; chief economist of the Austrian Chamber of Commerce; his private seminars in the 1920s were attended by Haberler, Hayek, and Machlup; co-founded the Austrian Institute for Trade Cycle Research; economic advisor to the Austrian chancellor Dollfuss; emigrated in 1934 to Switzerland, then in 1940 to the USA; visiting professor at New York University, 1945–69; founder member of the Mont Pèlerin Society. Monti, Mario (1943–): studied economics at the Bocconi University and Yale; professor at Turin University, 1970–85; later rector and president of the Bocconi; European Commissioner, 1995–2004; prime minister of Italy, 2011–13; influenced by Einaudi. Möschel, Wernhard (1941–): student of Mestmäcker at Münster and Bielefeld universities; professor of law at Tübingen University, 1973–2009; member of the Kronberg Circle, 1984–2012; member of the scientific advisory council of the federal economics ministry, 1987–, and its chair, 2000–4; member of the German monopoly commission, 1989–2000, and its chair, 1998–2000. Müller-Armack, Alfred (1901–78): assistant lecturer and professor at Cologne University, 1926–38; professor of political economy and cultural sociology and director of the Institute for Economics and Social Sciences at Münster University, 1939–50; professor of economics at Cologne University, 1950–69; chair of the Konrad Adenauer Foundation, 1964–8; chair of the Ludwig Erhard Foundation, 1977–8. Nell-Breuning, Oswald von (1890–1991): like Höffner, took a critical and conditional view of Ordo-liberalism from the perspective of Catholic moral theology and social teaching; closer than Briefs to the German Social Democratic Party (SPD) and the trade unions; entered Jesuit order, 1911; studied theology in Berlin and Innsbruck; follower of solidarism; professor of moral theology and social sciences at the College of Philosophy and Theology at Sankt Georgen in Frankfurt, 1928–37, 1947–85; worked on the Papal Encyclical Quadragesimo Anno, 1930–1; prosecuted by the Nazis, 1943; member of the scientific advisory council of the federal economics ministry, 1949–65, and various other ministerial advisory councils. Neumann, J. Manfred (1940–2016): influenced by Brunner; worked for a time at the Bundesbank with Schlesinger; professor at Bonn University, 1981–2006; executive director of the Institute for International Economic Policy; chair of the scientific advisory council of the federal economics ministry, 1996–2000; member of the Kronberg Circle, 1992–2011; one of his students was Weidmann.
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xxxii Dramatis Personae Peacock, Alan (1922–2014): graduated in economics and political science, St Andrews University; lecturer in economics at the LSE, 1948; professor of economics, Edinburgh University, 1956; professor of economics, York University, 1961; closely associated with the Institute of Economic Affairs; chief economic advisor at the Department of Trade and Industry, 1973–6; professor of economics, independent university of Buckingham, 1978, then its principal; served on various committees of enquiry, notably in cultural policy. Robbins, Lionel (1898–1984): active interest in continental European economics, especially Austrian tradition of Böhm-Bawerk and Wieser; professor of economics at the LSE, 1929–61; influential in appointment of Hayek to the LSE and active supporter of his views in early 1930s against Keynes; worked for war cabinet in Second World War; present at Bretton Woods. Röpke, Wilhelm (1899–1966): professor of economics at Jena University, 1924–8, then Germany’s youngest professor; professor at Marburg University, 1929–33; member of the Brauns Commission, 1931; worked closely with Lautenbach; dismissed from Marburg and emigrated to Istanbul, 1933–7; taught at the Institut des Hautes Études Internationales in Geneva, 1937–66; key figure in foundation of the Mont Pèlerin Society—its president, 1960–1, after which he resigned; influenced by Acton, Burckhardt, Goethe, Le Play, and Ortega y Gasset; influenced Bretscher, Einaudi, Veit, and Willgerodt. Rougier, Louis (1889–1982): French philosopher; taught at Besançon University, 1925–48; post in Geneva, 1935–7; organizer of the Walter Lippmann Colloquium in Paris, August 1938, and subsequently founder of the Centre international d’études pour la rénovation du libéralisme; his career was deeply affected by his involvement with the Vichy Regime during the Second World War and his continuing defence of Marshal Pétain; eventually admitted to the Mont Pèlerin Society in 1957; influenced by Benda and Rueff. Rueff, Jacques (1896–1978): French economist, financial expert, and official; studied at the École Polytechnique under Colson; lecturer in statistics and mathematical economics at the University of Paris, 1922; professor of political economy at the École Libre des Sciences Politiques, 1931; present at the Lippmann Colloquium in Paris, 1938; member of the Mont Pèlerin Society; elected to the French Academy, 1964; influenced by Bachelard, Bergson, Broglie, Brunschvicg, Colson, Hauriou, and Le Play. Rüstow, Alexander (1885–1963): an official in the imperial economics ministry, 1918–24; head of economic policy division of the German machine tools association; speech on ‘Free Economy—Strong State’ to the Association for Social Policy (Verein für Socialpolitik) in Dresden, 1932; emigrated to Turkey, 1933; professor at Istanbul University, where he was close to Röpke; professor of economics and social sciences at Heidelberg University, 1950–6; chair of the Action Group for the Social Market Economy (Aktionsgemeinschaft Soziale Marktwirtschaft); member of the Mont Pèlerin Society, and resigned after Röpke; influenced by Goethe. Salin, Edgar (1892–1974): follower of Schmoller and the historical tradition; pursued economic history and history of ideas; student of Alfred Weber; professor of economics, Heidelberg University, 1924–7, then at Basel University, 1927–62; co-founder of the List Society in 1925 and again in 1954; participant in the List Society Bad Pyrmont
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Dramatis Personae xxxiii conference, 1928, and the List Society Lautenbach conference, 1931; critic of Röpke and Ordo-liberalism. Salin, Pascal (1939–): economics professor at the University of Paris Dauphine, 1970–2009; director of the Jean-Baptiste Say Centre for Research in Economic Theory; president of the Mont Pèlerin Society, 1994–6; influenced by the Austrian tradition of Mises and Hayek and by Bastiat. Savona, Paolo (1936–): Italian economics professor; studied at MIT and worked in the Banca d’Italia where he was close to Carli; in 2018 rejected by Italian president Sergio Mattarella as minister of economics and appointed minister of European affairs in the Five Star/League government; critic of the euro. Schmölders, Günter (1903–91): studied financial economics in Berlin; joined National Socialist Party, 1933, but distanced himself; professor at Breslau University, 1934; professor at Cologne University, 1940–71; president of the Mont Pèlerin Society, 1968–70; founder of the Cologne School of Financial Economics. Schmoller, Gustav (1838–1917): central figure in the German historical tradition; critic of the Austrian tradition represented by Menger; social reformer; professor at the Humboldt University Berlin, 1882–1913; founder and long-serving chair of the Verein für Socialpolitik. Simons, Henry (1899–1946): student of Knight; worked on banking, monetary policy, and anti-trust policy; first professor of economics in the Chicago University law school; influenced Buchanan and indirectly Walter Eucken. Sinn, Hans-Werner (1948–): professor of economics and public finance at the University of Munich, 1984–; president of the Ifo Institute for Economic Research in Munich, 1999–; head of the Verein für Socialpolitik, 1997–2000. Sombart, Werner (1863–1941): student of Schmoller and Adolph Wagner in Berlin, the leading scholars of the German Historical School; professor at the Humboldt University of Berlin, succeeding Wagner, 1917. Vanberg, Viktor (1943–): studied sociology in Münster; worked at George Mason University, 1985–95; professor of economic policy at Freiburg University, 1995–2009; head of the Walter Eucken Institute, 2001–10; influenced by Buchanan and Hayek; imported the idea of ‘constitutional economics’ into the Freiburg School; Hayek Medal, 2010. Van Zeeland, Paul (1893–1973): studied law, philosophy, and economics in Louvain; mentored by Janssen; studied economics in Princeton; first head of the economics service of the National Bank of Belgium, and deputy governor in 1934; prime minister, 1935–7; foreign minister, 1949–54; member of the Christian Social Party. Veit, Otto (1898–1984): studied economics and philosophy at Frankfurt University; worked in financial journalism and banking; close to the Freiburg School; president of the state central bank of Hesse,1947–52 and a member of the council of the Bank deutscher Länder,1948–52; professor of economics at Frankfurt University, 1952–69, specializing in monetary and banking policies; member of the Mont Pèlerin Society; influenced by Goethe, Hartmann, Ortega y Gasset, and Röpke.
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xxxiv Dramatis Personae Villey, Daniel (1910–68): French liberal economist; professor of economics in universities of Caen, Poitiers, and from 1956 Paris; member of the Mont Pèlerin Society—its president 1967–8; corresponded with Röpke on Catholic social teaching and the market economy; influenced Bilger. Viner, Jakob (1892–1970): Canadian economist and, along with Knight and Simons, a key founder of the old Chicago tradition; professor of economics at Chicago, 1916–17 and 1919–46, and at Princeton, 1946–60; advisor to Henry Morgenthau as treasury secretary in the Roosevelt Administration. Watrin, Christian (1930–): assistant of Müller-Armack in Cologne; professor of economics in Cologne, 1965–95; director of the Institute for Economic Policy in Cologne; president of the Mont Pèlerin Society, 2000–2; colleague of Willgerodt. Wieser, Friedrich von (1851–1926): influenced by Menger and Böhm-Bawerk; Menger’s successor at Vienna University, 1903; Austrian minister of commerce, 1917–18; influenced Mises and Hayek. Willgerodt, Hans (1924–2012): influenced by his uncle, Röpke; assistant of Meyer in Bonn; succeeded Müller-Armack in Cologne, 1963–90, where he was a colleague of Watrin; dir ector of the Institute for Economic Policy in Cologne; member of the Kronberg Circle, 1982–90; closely involved with the ORDO Yearbook (Jahrbuch).
Officials Carli, Guido (1914–93): studied law in Padua; influenced by Einaudi; present at Bretton Woods, 1944; joined Italian Liberal Party (PLI), later the Christian Democrats; banking career; governor of the Bank of Italy, 1960–75; treasury minister, 1989–92, during negoti ation of the Maastricht Treaty. Emminger, Otmar (1911–86): studied law and economics, 1928–33; university assistant in economics and researcher on counter-cyclical policy in Berlin, 1934–9; official in Bavarian economics ministry, 1947–9, becoming division head and head of the minister’s office; head of the economics div ision of the German permanent representation to the Organization for European Economic Cooperation (OEEC) in Paris, 1949–50; Bank deutscher Länder, 1950–7; head of its economics and statistical division, 1951–3, and member of the directorate, 1953–7; member of the directorate and of the central bank council of the Bundesbank, from 1957, specializing in international affairs; German representative in the economic policy committee of the Organisation for Economic Co-operation and Development (OECD), 1969–76; vice-president of the Bundesbank, 1970–7; president of the Bundesbank, 1977–9. Gocht, Rolf (1913–2008): student of Walter Eucken in the 1930s; employee of the Baden ministry of economics, 1946–9; official in the economic policy division of the federal economics ministry, 1951–67, sub-division head, 1959–63, and its head from 1963; director of the Bundesbank, 1967–75.
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Dramatis Personae xxxv Hawtrey, Ralph (1879–1975): British Treasury official, 1904–45; from 1919, as director of financial enquiries in the Treasury, its in-house economist; major role at the Genoa Conference on European monetary reconstruction in 1922. Issing, Otmar (1936–): chief economist of the German Bundesbank, 1990–8; chief econo mist of the ECB, 1998–2006. Larosière, Jacques de (1929–): 1958, entered French Trésor where he worked mostly on international financial matters; 1974, head of private office of Valéry Giscard d’Estaing; 1974–8, director of the Trésor, working closely with Barre; 1978, managing director of the International Monetary Fund; 1987, governor of the Banque de France; 1988–9, member of the Delors committee on monetary union; 1993–8, president of the European Bank for Reconstruction and Development; influenced by Barre and Rueff. Lautenbach, Wilhelm (1891–1948): German official in the imperial economics ministry, known for the Lautenbach Plan of September 1931 when close to Röpke; the so-called ‘German pre-Keynes Keynesian’. Meyer-Cording, Ulrich (1911–98): lawyer and later professor of law at Cologne University; official in the imperial justice ministry, 1939–45; federal justice ministry, 1950–6; head of the Europe division in the federal economics ministry under Müller-Armack, 1958–64, vice-president of the European Investment Bank, 1964–72. Müller-Armack, Alfred (1901–78): head of the economic policy division of the German federal economics ministry, 1952–8; state secretary for European affairs in the German federal economics ministry, 1958–63. Rueff, Jacques (1896–1978): member of the Inspectorate of Finance from 1923; served in the cabinet of the prime minister Raymond Poincaré in 1926; member of the economic and financial committee of the League of Nations in Geneva, 1927–30; financial attaché at the French embassy in London, 1930–4; director in the finance ministry, 1934–9; vice-president of the Banque de France, 1939–40 (dismissed in 1940); economic advisor to the French military government in Germany, 1945–; European Court of Justice, 1958–62; key advisor to president Charles de Gaulle; author of the Pinay-Rueff stabilization plan in 1958, including currency reform, and instigator of the Armand-Rueff report on hindrances to economic growth in 1960; severe critic of the Bretton Woods system; close friend of Couve de Murville. Schlecht, Otto (1925–2003): studied economics in Freiburg under Walter Eucken, Miksch, and Liefmann-Keil, 1947–52; official in the federal economics ministry, 1953–91; personal assistant to state secretary Westrick, 1960–2; head of section in the economic policy div ision and section in the Europe division, 1962–7; sub-division head, then head of the economic policy division, 1967–73; state secretary, 1973–91; chair of the Ludwig Erhard Foundation, 1991. Schlesinger, Helmut (1924–): studied economics at Munich University; researcher at the Ifo Economic Research Institute in Munich, 1949–52; joined the Bank deutscher Länder in 1952; director of economics and statistics in the Bundesbank, 1964–; member of the Bundesbank executive board, 1972–9; vice-president of the Bundesbank, 1980–91; president of the Bundesbank, 1991–3; regular participant in the Konstanz seminar of Brunner.
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xxxvi Dramatis Personae Schöllhorn, Johann Baptist (1922–2009): economist; researcher at the Ifo Economic Research Institute in Munich, 1952–5; official in the economic policy division of the federal economics ministry, 1956–66, state secretary of the federal economics ministry, 1967–72; president of the state central bank of Schleswig Holstein, 1973–89; member of the administrative council of the Bank for International Settlements (BIS), 1976–89. Stark, Jürgen (1948–): studied economics at Hohenheim and Tübingen universities; began career in federal economics ministry; official in the economic policy division of the federal chancellor’s office, 1988–92; official in the federal finance ministry, 1992–8, and its state secretary, 1995–8, when he negotiated the Stability and Growth Pact; vice-president of the Bundesbank, 1998–2006; member of the executive board of the ECB responsible for economics and for monetary analysis, 2006–11; resigned from ECB, 2011; honorary professor at Tübingen University. Tietmeyer, Hans (1931–2018): studied theology at Münster University under Höffner, then economics at Cologne University under Müller-Armack; official in the economic policy division from 1962 and then in the European division of the German federal economics ministry; state secretary in the federal finance ministry, 1982–9; vice-president of the Bundesbank, 1990–3; president of the Bundesbank, 1993–9, during preparations for launch of the euro. Vocke, Wilhelm (1886–1973): member of the directorate of the Reichsbank, 1919–39; from 1930 deputy of the president of the Reichsbank in the BIS; president of the Bank deutscher Länder, 1948–57. Weber, Axel (1957–): studied economics at Giessen and Konstanz universities, specializing in monetary economics; professor of economic theory at Bonn University, 1994–8, of applied monetary economics at Frankfurt University, 1998–2001, and of international economics at Cologne University, 2001–4; member of the Council of Economic Advisers, 2002–4; president of the Bundesbank, 2004–11; visiting professor at Chicago University; chair of the board of UBS, 2011–. Weidmann, Jens (1968–): studied economics at Bonn University and in France; student of Franz Neumann; general secretary of the Council of Economic Advisers, 1999–2003; head of the economic policy division in the Bundesbank, 2003–6; head of the economic policy division in the federal chancellor’s office, 2006–11; president of the Bundesbank, with responsibility for economics and research, 2011–; awarded the Walter Eucken Medal, 2020.
Journalists Barbier, Hans (1937–2017): student of Giersch; head of the economics department of the Frankfurter Allgemeine Zeitung, 1986–2002; Ludwig Erhard Prize for economic journalism, 1989; journalist prize of the Friedrich Hayek Foundation, 2001. Bretscher, Willy (1897–1992): studied public and international law in Zurich; journalist at the Neue Zürcher Zeitung from 1917, Berlin correspondent 1925–9, and its chief editor,
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Dramatis Personae xxxvii 1933–67; politically active in the Freisinnig-Demokratische Partei, which had an Ordoliberal agenda; close to Röpke. Fabra, Paul (1927–): studied law; began journalistic career in 1953, principally at La Vie française; financial editor of Le Monde, 1961–93, and at Les Echos, 1993–2009; great admirer of, and close to, Rueff; awarded the Jacques Rueff Prize in 1979. Götz, Hans Herbert (1921–99): student of Walter Eucken; economic journalist at Frankfurter Allgemeine Zeitung, 1949–, and its leading expert on the Freiburg School and the European Economic Community (EEC); protégé of Welter but took much more positive view of the EEC; Ludwig Erhard Prize for economic journalism, 1980. Hapgood, Norman (1868–1937): studied law at Harvard University; influential editor of Harper’s Weekly, 1913–16; close friend of Brandeis and committed publicist of his antitrust campaign and his legal and social philosophy; also close to US president Woodrow Wilson. Lippmann, Walter (1889–1974): American public intellectual, journalist, and political commentator; twice winner of the Pulitzer Prize; studied at Harvard University (languages and philosophy); assistant of Santayana; in early years as journalist close to Brandeis; cofounder of The New Republic, 1913; informal advisor to several US presidents; influence through the Lippmann Colloquium in Paris, organized by Rougier in 1938. Miksch, Leonhard (1901–50): economic journalist with the Frankfurter Zeitung, 1928–43, under Welter; contributor to Die Wirtschaftskurve during this period. Welter, Erich (1900–82): studied law and political economy in Berlin; then student of Wilhelm Gerloff in Frankfurt; worked in economics department of the Frankfurter Zeitung, 1921–33, becoming its head in 1927, and again in 1935–43, as well as economics professor at Frankfurt University, 1944; main feature writer for Die Wirtschaftskurve, 1936–44; professor of economics at Mainz University, 1948–63; main co-founder of the Frankfurter Allgemeine Zeitung in 1949, and editor of its economics department, 1949–80; admirer and strong promoter of the ideas of Walter Eucken; supporter of Erhard; Ludwig Erhard Medal for services to the social market economy, 1978.
Politicians Biedenkopf, Kurt (1930–): general secretary of the Christian Democratic Union (CDU), 1973–7, when he was for a period very close to Helmut Kohl; CDU member of Bundestag, 1976–80; expert advisor to CDU on co-determination in industry; prime minister of Saxony, 1990–2002; studied law in Munich and then law and economics in Frankfurt alongside Fikentscher and Mestmäcker; professor, then rector, at Bochum University, 1964–9; influenced by Böhm. Couve de Murville, Maurice (1907–99): entered Inspectorate of Finance, 1930; protégé and close friend of Rueff; financial official in the Vichy regime, 1940–; French ambassador, including in Bonn and in Washington, 1950–8; foreign minister under de Gaulle, 1958–68,
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xxxviii Dramatis Personae and prime minister, 1968–9; supporter of the Rueff reforms in 1958–60 and opponent of the Bretton Woods system. Einaudi, Luigi (1874–1961): senator of the kingdom of Italy from 1919; voluntary exile to Switzerland; governor of the Bank of Italy, 1945–8; minister of finance and deputy prime minister, 1947–8; second Italian president, 1948–55. Erhard, Ludwig (1899–1977): researcher and member of management team of the Nuremberg Institute for Observation of German Finished Products, 1928–42; head of the Institute, 1942–5; Bavarian minister of economics, 1945–6; honorary professor at Munich University, 1947; chair of the special office for money and credit of the Anglo-American Bi-Zonal Economic Council, 1947–8; director of the Economics Administration of the Bi-Zonal Economic Council, 1948–9; German federal economics minister, 1949–63, and from 1957 deputy federal chancellor; federal chancellor, 1963–6. Giscard d’Estaing, Valéry (1926–): from important conservative liberal family; graduate of ENA and inspector of finance; began political career in centre-Right party of Antoine Pinay; minister of finance, 1962–6; founded the Independent Republican party, distinct from Gaullists but part of presidential majority; minister of the economy, 1969–74; president, 1974–81; close to Barre and Larosière. Jeanneney, Jean-Marcel (1910–2010): economics professor in Dijon and Grenoble in the 1930s, and in Paris from 1970; industry minister, 1959–62, and social affairs minister, 1966–8; close to Barre and Rueff; member of the Pinay-Rueff committee on stabilization in 1958. Kamitz, Reinhard (1907–93): researcher at the Austrian Institute for Counter-Cyclical Research, 1934–8; head of the economic section of the chamber of commerce, 1939–48; professor of economics at the Hochschule für Welthandel in Vienna, 1944–5; head of the economic policy department of the Austrian federal chamber of trade and commerce, 1948–52; Austrian finance minister, 1952–60; president of the Austrian National Bank, 1960–8. Pinay, Antoine (1891–1994): modest business background; a conservative liberal; prime minister in 1952; close to Rueff; finance minister, 1958–60, at the time of the stabilization plan. Schiller, Karl (1911–94): studied economics in Kiel, Frankfurt, Berlin, and Hamburg; worked for the Institut für Weltwirtschaft in Kiel, 1935–41; joined the SPD, 1946; professor of economics at Hamburg University from 1947 (rector, 1956–8); member of the scientific advisory council of the Economics Administration of the Bi-Zonal Economic Council, 1947–9, and of the federal economics ministry, 1949–; senator for economics in Hamburg, 1948–53; senator for economics in Berlin, 1961–5; member of the SPD executive committee, 1962–72, from 1966 of the presidium; federal economics minister, 1966–71; ‘superminister’ for economics and finance, 1971–2; resigned office and left the SPD in 1972; re-joined the SPD, 1980. Schmidt, Helmut (1918–2015): studied economics at Hamburg University under Schiller, 1945–9; worked in the Hamburg economics ministry, for a time as head of its economic
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Dramatis Personae xxxix policy division, 1949–53, again under Schiller; SPD member of the Bundestag, 1953–62; Hamburg senator for interior affairs, 1961–5; member of the Bundestag, 1965–87; chair of the SPD parliamentary party in the Bundestag, 1967–9; federal defence minister, 1969–72; federal economics minister, 1972; federal finance minister, 1972–4; federal chancellor, 1974–82; co-editor of Die Zeit. Sturzo, Don Luigi (1871–1959): Italian Catholic priest and anti-fascist politician who founded the People’s Party in 1919; in exile, 1924–46; made senator for life in 1953 by Einaudi. Werner, Pierre (1913–2002): Luxembourg minister of finance (1959–64 and 1969–74), minister for the treasury (1964–9 and 1979–84), and prime minister (1959–74 and 1979–84); chaired the Werner Committee on economic and monetary union, 1970: influenced by Rueff, under whom he studied economics in 1936–8 in Paris.
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Introduction Everything begins as a mystique [founding ideal] and ends as a politique [political competition and manoeuvring] . . . The whole point . . . is that in each order, in each system, THE MYSTIQUE SHOULD NOT BE DEVOURED BY THE POLITIQUE TO WHICH IT GAVE BIRTH. Charles Péguy, ‘La République: Mystique et Politique’, Notre Jeunesse, 1910. Translated in A. Dru (1958), Temporal and Eternal. London: Harvill Press Charles Péguy (1873–1914), the legendary poet and philosopher, used the contrast between mystique and politique to critique pre-1914 French republicanism. His critique has a renewed relevance as, at the dawn of the twenty-first century, we witness a heightened sense of the fragility and contingent character of liberalism. Liberals were newly alert to the danger that liberalism could succumb to a gathering storm of challenges. Liberalism was confronted with adverse geo-strategic changes in a multi-polar world of more confident and resourceful authoritarian leaders. It had to deal with deep structural changes in society, politics, and the economy. The demographics of ageing populations, changing gender relations, and new forms of family structure presented new policy challenges. Mass higher education, the digital revolution, and the expanding ‘knowledge economy’ threw up new bases of social division. The new surveillance capacity of corporations and states was accompanied by the capacity of expanding social media to polarize debate and spread fake news and images. More insidiously, liberalism faced a hollowing-out of its founding ideals by manifestations of a crony capitalism, in which both democracy and the market were being exploited by predatory elites who damaged competitors, customers, and governments. They sought to insulate themselves from intense competition in the markets in which they operated through market-rigging practices and collusion with governments and regulators. Periodic financial crises exposed dangerous practices of securitization, rigging of interest rates and foreign exchange markets, abusive lending practices, mis-selling, money laundering, and
Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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2 Conservative Liberalism, Ordo-Liberalism, and the State tax avoidance (Crouch 2011; Dyson 2014; Streeck 2013). There was the risk that liberalism would succumb to the hubris, complacency, and misconceived choices of those notionally committed to its defence. Péguy points to an ambiguity that plagues liberalism in all its forms and that opens it to charges of hypocrisy. The cocktail of challenges that confronted liberalism included the existential threats to human and natural habitats from environmental degradation and climate change. The unexpected eruption of religious fundamentalism and terrorism; the demise of traditional industrial structures and communities; an associated feeling of being ‘left behind’ and abandoned on the part of many lessadvantaged and less well-qualified people; and an emerging exclusionary identity politics, promising to protect the ‘real’ people against various threats—migrants, minorities, and treasonous elites: these developments engendered a deepening sense of insecurity, which in turn offered opportunities for unscrupulous populist ‘strongmen’ to foment a politics of fear and hate, turning a resurgent nationalism against liberalism. Liberalism seemed to face a transformational crisis that echoed its previous crisis in the aftermath of the First World War. There was a sense that, echoing Péguy, politique was hollowing out—and potentially devouring—the mystique of liberalism and that liberalism was once again in urgent need of renovation. Against this background, this book examines an earlier interwar and post-war attempt to renovate liberalism. Much has been written on the birth of social liberalism (e.g. Freeden 1986). The emphasis here is on how the interwar crisis gave rise to a new conservative liberalism and on its most coherent and developed form, Ordo-liberalism. With the dawn of the new millennium, the symptoms of a crisis in liberalism multiplied. National populist parties entered the mainstream. The independent institutions—like the judiciary, law enforcement, intelligence agencies, and media—on which liberalism depended were being questioned, even subverted. The notion of a rule-based order was being challenged at the national and international levels. Opponents were being denigrated and marginalized or elimin ated. Liberal elites were tempted to shift towards an agenda being set by the far-Right in order to contain losses, thereby eroding liberalism from within (Levitsky and Ziblatt 2018). According to Péguy, complacency, combined with narrow-minded cunning, discredits all orders, whether religious or political, authoritarian or liberal, or a variant of liberalism. This phenomenon applies to laissez-faire liberalism, to social liberalism, and to conservative liberalism and Ordo-liberalism. This book leaves the reader to decide whether, and if so in what way, conservative liberalism and Ordo-liberalism can contribute to the debate about how best to renew liberalism in its first historical crisis of the new millennium. Its main purpose is to contextualize contemporary debate about the decline of liberalism
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Introduction 3 by offering an historical perspective on how liberal theorists have in the past sought to reframe debate about liberalism at times of profound crisis, and how their efforts have fared in the realms of discourse, policy, and politics. It does so by examining one important strand in the historical reframing of liberalism. The book draws attention to conservative liberalism as a cross-national effort to renew liberalism’s claim to offer a moral purpose, one that promises a more prosperous, secure, and humane society, and a more worthwhile life, than its alternatives like laissez-faire liberalism and social liberalism. The reader deserves one further explanation. Given the comparative and historical scale of this book, some arguments and events are repeated when there seems a positive benefit to be gained by seeing them from a different angle. Also, in this way, the reader can be helped to keep in mind connecting threads within a large text.
Ordo-Liberalism and Neo-Liberalism In the late 1930s, the conservative liberals and Ordo-liberals tried to capture their ambition to renovate liberalism in the term ‘neo-liberalism’ (see Louis Rougier at the Lippmann Colloquium in Paris in August 1938, CWL 1939: 107). In a similar vein, the German economist Alexander Rüstow (1950–7, Band 2, 1960b) dismissed what he contemptuously called the earlier ‘Palaeolithic liberalism’ (Paläoliberalismus) (Meier-Rust 1993: 69–70). In one of the ironies of intellectual history, the term neo-liberalism later became dissociated from its meaning in the minds of the founding conservative liberals, as expressed in August 1938 (see Chapter 9: 302 and Chapter 10: 316–17). It began to be used to characterize a free-wheeling, deregulated market economy and, perhaps more insidiously to its opponents, the penetration and abuse of state power by the vested interests of large corporations. These meanings of neo-liberalism were at variance with what the French economist Maurice Allais (1978) meant when he called for ‘the organized competitive economy’ and with what Jacques Rueff (1958, 1979) termed the ‘institutional market’. For them, market fundamentalism stood in contrast to the notion of the impartial strong state, standing above and beyond special interests, and championed by Rüstow (1963c/1932) and other German Ordo-liberals as the basis of a sustainable liberal economic order. However, the term neo-liberalism evolved in use to become a thorn in the side of conservative liberals who had helped to give birth to it. Its use posed a deeper question: was the promise of conservative liberalism and Ordo-liberalism a hollow one? Had the notion of the strong, impartial state any foundation in the reality of human behaviour? Was it possible to discipline either democracy or the market, given their perpetually effervescent energy?
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4 Conservative Liberalism, Ordo-Liberalism, and the State
Conservative Liberalism and Ordo-Liberalism Through the Lens of History History was vitally important to the founding conservative liberals and Ordoliberals. They had an acute sense of the openness and indeterminacy of history and were accordingly dismissive of claims about the historical inevitability of liberalism. Their view of history was close to that of the eminent German historian, Golo Mann, who stressed that the complexity of circumstances and decisions means that more than one possibility exists at any point in time. When examining the significance of conservative liberalism and Ordo-liberalism, notably in Chapters 8 and 12, it is wise to remember Mann’s aphorism: In the history of mankind there is more that is spontaneous, wilful, unreasonable and senseless than our conceit allows. (Mann 1961: 170, author’s translation)
The founding conservative liberals and Ordo-liberals would have little difficulty in seeing that their significance remains historically contingent. For them, ideas required constant cultivation if they were to thrive. History has an additional value for the reader who wishes to understand this variant of liberalism. It facilitates the achievement of a critical distance in reporting the nature and significance of conservative liberalism and Ordo-liberalism. It helps in challenging myths that have grown up around them. The vantage point of critical distance also assists in observing the various changes in the usage of terms over time by different agents. It helps in identifying how conservative liberalism and Ordo-liberalism have been employed as tools in ideological debate. It shows that, in prioritizing the interests of savers and creditors, they inevitably become infected with partisanship. In addition to offering a way to rise above fractious voices, history’s other contribution is to dig down deeper to uncover underlying cross-national patterns in conservative-liberal thought. Identifying the guiding ideas of conservative liberalism is far from straightforward when thinkers are context-bound. Also, the texts of the founding conservative liberals and Ordo-liberals and their conduct often exhibit ambiguities and multiple meanings. These problems are compounded as patterns evolve over time. Individual conservative liberals, and succeeding generations, acquire new knowledge and experience and fish across intellectual boundaries. Some remain natives of the tradition. Others migrate in often complex intellectual journeys across boundaries within liberalism and even beyond. Moreover, thinkers may share the guiding ideas of conservative liberalism and Ordo-liberalism without identifying themselves with the terms. History provides an additional insight. It shows how conservative liberalism and Ordo-liberalism are characterized by forgetting and by silence. Once-esteemed
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Introduction 5 thinkers have been marginalized and fallen into neglect. Issues that once occupied centre-stage have passed out of focus. The historian can alert the critical reader to the negative side of forgetting and silence: what it reveals about institutional power structures and their ability to build their identity by shaping what is memorized and what is not. More positively, history can help us to retrieve thinkers and their insights that have been lost from view in processes of memorialization. In this way, the full intellectual richness of conservative liberalism and Ordo-liberalism can be recovered for the attention of contemporary readers.
Why Ordo-Liberalism? Readers who are unfamiliar with the German language may rightly ask why they should engage with ‘Ordo-liberalism’—surely it is just a foreign, context-specific concept? This book argues that it has much wider relevance and importance. In the first place, Ordo-liberalism is a constituent part of a much larger rule-based conservative liberalism whose imprints are to be found in Britain, France, Italy, and the United States, as well as Germany. It was embedded within a wider crossnational disciplinary revolution in liberalism that began with the interwar crisis of capitalism and democracy. This comparative and historical perspective offers a fresh opportunity to reassess Ordo-liberal claims to originality. In one perspective, Ordo-liberalism led the way in giving primacy to the notion of a normative ‘economic constitution’ as the prerequisite of a sustainable liberal order. Economic, financial, and monetary policies were to be conducted in a clear long-term framework of firm, stabilityoriented rules. Later, US-based credibility and time-consistency literature, with its foundational belief that managing expectations matters, can be interpreted as an affirmation and formalization of earlier Ordo-liberal thinking. From the 1980s, Ordo-liberalism seemed part of a new international consensus about monetary policy (on the latter see Goodfriend 2007). In another perspective, early Ordo-liberal thinking showed striking corres pondence with existing US-based thinking about rules: notably the competitionpolicy ideas of Louis Brandeis and the monetary-policy ideas of the Chicago School in the 1930s. This correspondence begs questions about the claim that Ordo-liberalism represents a special German historical path (Sonderweg). There are distinctive German and continental European characteristics. However, there are also marked family resemblances between Ordo-liberalism and the modes of conservative liberalism in Britain, France, Italy, and the United States. Comparative historical examination highlights the factors shaping cultural openness to these ideas, including their relationship to attempts of elites to forge ascendant national unifying myths in the post-war period.
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6 Conservative Liberalism, Ordo-Liberalism, and the State Examining Ordo-liberalism has an additional value. It helps to challenge the reductionist tendency to equate Ordo-liberalism with a monolithic set of ideas, which have become negatively labelled as ‘neo-liberalism’ (Audier 2012c: 28; Mirowski and Plehwe 2009). Many critiques of Ordo-liberalism see it as essentially an integral part of a shared ideology of ‘market radicalism’, membership of which is defined by belonging to the Mont Pèlerin Society (e.g. Pűhringer and Ősch 2015). There are many complex affinities between economic libertarians, the Austrian tradition, the new Chicago tradition, and the Ordo-liberal tradition. They are united in hostility to Keynesianism, socialism, and corporatist and collectivist thought. They also share a firm belief in property rights, in the sanctity of contract, in the effective functioning of the price mechanism, in individual freedom of choice in markets, and in price stability. The relations between these three variants of economic liberalism are, accordingly, defined by the lack of firm intellectual boundaries. Nevertheless, Ordo-liberalism was distinctive as a form of economic liberalism in ways that blunted its market radicalism. In the first place, its founding thinkers emphasized an economic constitution that would enshrine in law the foundations of the competitive market system to root out abuses of power. Their way of thinking about state and markets stemmed from a Roman-law tradition that emphasized the autonomy, distinctiveness, and normative character of public power. It had its academic basis in the early association of law and economics in university teaching (Dyson 2009/1980). Conservative liberals and Ordo-liberals were tied together by shared belief in the ‘institutional market order’. The state is respon sible for constructing and maintaining the process of economic exchange, consistent with safeguarding individual liberty, equality before the law, and the requirements of social order (cf. Rueff 1957, 1958, referring to the European common market). According to this conception of liberalism, the institutional framework must protect the interests of savers and creditors by rooting out the evils of inflation. Reinhard Kamitz, the Austrian finance minister, summarized this view in 1957: ‘There is a cardinal challenge for me: that one does not deceive the people who save, based on trust in the currency. I shall never permit that’ (quoted in Diwok and Koller 1977: 27). Paul van Zeeland (1921: 104), the Belgian economist, central banker, and future prime minister, noted that inflation unjustly favoured the debtor over the creditor and led to lower real incomes for workers. ‘It [inflation] compromises at the same time the economic order, the moral order, and the social order in the country’ (author’s translation). According to van Zeeland (ibid.: 56), referring to events in Russia in 1917: ‘There is a common outcome to unbridled inflation and that is revolution’. His stabilization plan of 1921 reflected his training in Catholic economic thought at the University of Leuven, with its emphasis on economic order, a stable currency, and a money supply based on sound assets (Maes 2018).
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Introduction 7 The reader has another reason to examine Ordo-liberalism. It makes an explicit connection between economic liberalism and social conservativism. Certain themes recur in the writings of its founding thinkers: the cultivation of individual virtue and ‘inner freedom’; the importance of custom, tradition, family, neighbourhood, and religion as sources of social trust and belonging; a communitarian (as opposed to collectivist) conception of social solidarity; a stress on duty as the corollary of individual rights; an elitist fear of unlimited democracy and the potential tyranny of public opinion; the inadequacy of instrumental conceptions of government and of managerial models of efficiency; rejection of the notion of the market as a spontaneous, natural order; priority to the interests of savers and creditors; and protection of the individual against private as well as state power. These characteristics underpin the distinctive approach of the founding Ordoliberals to competition policy. Competition policy was a vital instrument of ‘disempowerment’ to secure individual rights in competitive markets (Böhm 1937: 105–7; also Brandeis and Hapgood 2009/1914: 32). It was about much more than utilitarian assessments of economic efficiency. Competition policy was to be grounded in fixed and immutable principles, with the market serving as a moral proving ground for the social order. Brandeis quoted Johann Wolfgang Goethe in support of his moral conception of competition policy (Urofksy 2009 on Brandeis as prophet; also Hapgood’s preface to Brandeis and Hapgood 2009/1914). The founding Ordo-liberals were distinctive within economic liberalism in another sense. They combined their emphasis on institutional design with the insight that a liberal society was a matter of cultivating the inner life of the individual. The liberal economic order was a cultural construct: it was about the formation of character. In stressing moral and intellectual discipline as the basis for individual responsibility, Ordo-liberalism put economic liberalism on guard against the perils of a scientific determinism that discredits the idea of freedom (Hayek 1960: 15–16). Liberalism had to function in a way that enabled the individual to transcend selfishness through moral and spiritual improvement and to see markets as a route to mutual advantage. Without a clear understanding of Ordo-liberalism, the reader is unable to appreciate the nature of debates within economic liberalism and just how divisive they were. The Mont Pèlerin Society was the key institutional venue within which the distinctive features of Ordo-liberalism were challenged by other variants of economic liberalism. By the 1950s it proved inhospitable to the ‘sociological’ Ordo-liberalism that was represented by Wilhelm Röpke, one of its most active founding members, and by Rüstow. In 1961–2 both resigned after bitter disputes. These disputes reflected an internal shift of influence in favour of American laissez-faire and libertarian thought. The Ordo-liberals encountered liberal economists who differed from the old Chicago School of Frank Knight that had been represented at the first meeting of the Society in 1947 and that had had close affinities to the Ordo-liberals (Plickert 2008: 178–93).
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8 Conservative Liberalism, Ordo-Liberalism, and the State The different types of economic liberalism offered markedly contrasting conceptions of the relationship between state and markets. The founding Ordo-liberals judged the Austrian tradition, the libertarian tradition, and the new post-war Chicago tradition—associated respectively with Ludwig von Mises, Leonard Read, and Milton Friedman—to be historically culpable for the dangerous plight of liberalism. The belief in laissez-faire liberalism was held responsible for having squandered political support for the competitive market economy. It had created the conditions in which unjustifiable market power, excessive economic inequality, and political privilege had flourished. In the process, the reputation of the state as a credible representative of the general interest had declined. According to Rüstow (1963c/1932), the state had succumbed to predators (Staat als Beute). Röpke (1944: 2) referred to the ‘termite-state’, a condition that was as unattractive as anarchy. The libertarians, Austrians, and new Chicago economists were criticized for paying too little attention to the constitutive role of the state in the design of the economic order. They did not appreciate the importance of a transformative ‘constitutional moment’. The differences between the three traditions of economic liberalism came to a head in the process of establishing the Mont Pèlerin Society. In a letter to Friedrich Hayek on 31 December 1946, Mises expressed his discomfort at having Röpke as a member; he was too interventionist (Hayek Papers, Mises file, the Hoover Institution, Stanford University). At the second meeting of the Mont Pèlerin Society in July 1949 in Seelisberg, Mises accused the Freiburg economist Leonhard Miksch of pursuing ‘totalitarian lines of thought’, provoking a furious debate with Walter Eucken (Kolev 2018: 79). He went on later to refer to ‘Ordo-interventionists’. Ordo-liberalism was just another manifestation of the ‘German interventionist tradition’. Ordo-liberals were ‘interventionist doctrinaires’ (ibid.: 84). Internal differences about the meaning and boundaries of liberalism meant that the Mont Pèlerin Society remained essentially a discussion forum with little capacity for agreeing shared manifestos on key policy issues. In the view of Ordo-liberals, the libertarians, Austrians, and new Chicago economists placed too much faith in the market as a natural, spontaneous, and evolutionary process. They failed to appreciate the dependence of a sustainable market economy on a clear and predictable framework of principles and rules to safeguard market competition and economic stability. If capitalism was to prosper and to contribute to human dignity, it required—above all—an ethical basis of order, represented by an ‘economic constitution’, a point repeatedly emphasized by Böhm (1928, 1937, 1950b, 1961). The economic constitution comprised not just the legal norms in the constitution of the state or in a supra-national body. It also included all other legal norms relevant to the economy like competition law, banking law, tax law, intellectual property law, and labour-relations law (cf. Brunner and Kehrle 2012: 54).
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Introduction 9 At a deeper level, these debates about economic liberalism expressed contrasting philosophical and methodological positions. The founding Ordo-liberals were deeply influenced by Kantianism, by phenomenology, and by critiques of ‘the civilization of the mass’. Compared to the other liberal traditions, the founding Ordo-liberals were more likely to frame their analysis in a discourse of ‘crisis in capitalism’ and to identify ‘disorderly capitalism’ as a source of crisis in the social and political orders.
The Distinctiveness of the Book The sizeable and rapidly growing literature about Ordo-liberalism has focused on the Freiburg School, on individual biography, and more generally on a Germanic view (e.g. Commun 2003, 2016; Grossekettler 1989; Haselbach 1991; Kolev 2013; Nicholls 1994; Rabault 2016). Eucken has taken on an iconic, even heroic role as intellectual leader of the Freiburg School. There is a strong case for a Germaniccentred narrative. The very word is German in origin; its mainstream journal, the ORDO Yearbook (Jahrbuch), is German based; and the various conditions for its reception are better developed there, including the vital importance ascribed to law in governing the state, the scope for university chair patronage, and the extent of its institutional appropriation. This book reinterprets Ordo-liberalism as a vital part of a larger cross-national tradition of conservative liberalism that cuts across different contexts. It argues that narratives about Ordo-liberalism need to be sensitive to family resemblances; to overlapping and criss-crossing similarities. This type of narrative makes clear the lack of firm boundaries when examining traditions and the element of arbitrariness in categorizing individual thinkers. Family resemblances can be discerned despite differences in historical starting-points and experiences of crisis; despite variations in national intellectual traditions and institutional inheritance; despite the difficulties of tracing sources and influences on individual thinkers; and despite the inconsistencies and fragmentariness that thinkers display. Parallels and correspondences with German Ordo-liberal thinking can be found in the writings of seemingly disparate economists in Britain, France, Italy, and the United States. During the period of the Third Reich in the 1930s and 1940s, when Freiburg was isolated, the main linking-pin of the Ordo-liberal trad ition was the Institut Universitaire des Hautes Études Internationales, which was located in Geneva in French-speaking Switzerland. It was the base of Röpke and attracted, for periods, Luigi Einaudi and Louis Rougier. The publication of Röpke’s Gesellschaftskrise der Gegenwart in 1942—diagnosing the social crisis of the age— marked him out as the most internationally recognized and respected of the Ordo-liberal intellectuals.
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10 Conservative Liberalism, Ordo-Liberalism, and the State A second distinctive feature of this book is its examination of Ordo-liberalism as a tradition. Conventionally, Ordo-liberalism has been treated more narrowly as a school, as defined by a founder, or as a theory or methodology. However, one cannot fully understand Ordo-liberalism as just an economic theory, as a methodology, or as specific to a certain time and place. Ordo-liberalism is a tradition with its own canon and with its own processes of memorialization, reinvention, and forgetting. It can only be properly understood by investigating its prehistory in European aristocratic liberalism, ethical philosophy, and religious social ethics. This book differs from conventional English-language readings of Ordoliberalism in digging down to the complex intellectual and social roots of this tradition, including its own self-defined canonical texts. It examines the intellectual world out of which Ordo-liberalism was born and without which neither the writings of its founding thinkers nor its distinctiveness within liberalism can be properly understood. The book plots the Ordo-liberal tradition’s historical trajectory from being a ‘child of crisis’ to its attribution as a catalyst of crisis. It shows how its ideological ambivalence as conservative liberal lends to it a problematic identity and an embattled character both within liberalism and from the Left and the Right. Historical and textual contextualization of this kind helps the reader to more fully understand the characters of the founding Ordo-liberals, the experiences that helped to shape them, and their networks of supporters and followers. It reveals the varied effects of space and time. In combination with historical arch ival research, contextualization makes it possible to disentangle myth and reality when assessing the meaning of Ordo-liberal texts and the significance of the founding Ordo-liberals. Eucken, for instance, was no advocate of central bank independence. Ludwig Erhard in Germany, Röpke in Switzerland, Rueff in France, and Einaudi in Italy were powerful, magnetic personalities. However, they were more important in terms of what they symbolized than what they—as individuals—achieved. A third distinctive characteristic of the book is its depiction of the Ordo-liberal tradition as far from monolithic. The early Freiburg School was challenged on various fronts. Röpke and Rüstow represented a different, more sociologically grounded variant from that of Ordo-liberalism. Alfred Müller-Armack was preoccupied with the problems of social balance and social peace. Hayek argued that a much bigger gulf separated competition from no competition than perfect competition from imperfect competition. It was less important that competition was perfect than that there was some competition (Hayek 1948/1935: 105). The Freiburg School remained disunited on key questions (Goldschmidt and Berndt 2005). Miksch (1937: 9) agreed with Franz Böhm that competition was a ‘state arrangement’ (staatliche Veranstaltung), not a natural order. However, he differed in placing emphasis on different forms of market (competition, oligopoly, monopoly, and their variants); in advocating a differentiated approach to
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Introduction 11 developing policies for them; and in stressing the evolutionary character of competition (ibid.: 20). State regulation was required to ensure that ‘constrained’ competition functioned ‘as if ’ free competition existed (Miksch 1948). In contrast, Böhm argued for complete state prohibition of cartels and oligopoly (Goldschmidt 2015: 45). Miksch also held contrasting views on monetary policy from those of Eucken, Friedrich Lutz, and Otto Veit. They represented the mainstream Freiburg view that money creation must be a monopoly power of the central bank (Köhler 2015; Lutz 1936, 1949). Miksch’s proposal for a competitive monetary order foreshadowed the later ideas of Hayek (1976b). He sought to avert the risk of misuse of the discretionary power of money creation by the central bank, and its capture by special interests, by allowing money creation to be decided by those who used money (Miksch 1949a). Evolution added to the sense of fragmentation within Freiburg. The original emphasis on the morphological method of Eucken found no echo in the later Freiburg School thinking of Hayek and Viktor Vanberg. This fragmentation reflected different epistemological and methodological choices. The book’s claim to distinctiveness is also methodological. It draws on crossnational archival evidence, much of it newly available or neglected. This kind of evidence goes behind Ordo-liberal texts and later memorialization—often demonization—to provide a more nuanced and contextualized historical understanding. Archival evidence offers access to the thoughts and actions of the founding thinkers in the specific circumstances of their time. It also shows how Ordo-liberalism was formed in dialogue with other traditions around it, notably the Austrian and the Historical. Not least, the significance of Ordo-liberalism can be re-examined, using the historical archive of the German Bundesbank and the papers deposited by Hans Möller at the Institut für Zeitgeschichte (IfZ) in Munich on German reconstruction and monetary reform. This book complements these sources with extensive confidential elite interviews with key figures involved in German economic and monetary reform debates and decisions in 1970–4, 1988–91, 1995–7, and post-2008. Archival research highlights just how much the founding conservative liberals and Ordo-liberals lived and worked in a different social, intellectual, material, and technological milieu from that of later commentators on political economy. Their world was less secularized, more socially hierarchical and conservative, more patriarchal, and deeply scarred by economic and political disorder. Intellectually, they were less captive to the spirit of the natural sciences in epistemological method and to the pressures for theoretical and empirical specialization. They were intellectually ambitious in the questions they asked. This ambition was captured by Rueff (1968: 314, author’s translation): Scholars . . . [need] . . . to go beyond the limits of their disciplines . . . to take the royal way at the end of which shines a synthetic view of human knowledge.
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12 Conservative Liberalism, Ordo-Liberalism, and the State Understanding conservative liberalism and Ordo-liberalism means examining its founding thinkers in the context of the crisis of their time, their often-tragic failure to fully comprehend its character, and their efforts to draw lessons of enduring significance. The founding thinkers need to be understood by reference to their contemporaries, to the intellectual roots that helped to nourish them, and to the canonical texts on which they drew to develop and justify the web of beliefs that were distinctive to their brand of liberalism. In this way it is possible not only to identify in what ways they were prescient but also to bring out their misplaced hopes. Delving into original sources makes it possible to clear up some misconceptions about Ordo-liberalism, above all in the English-language world, which has but limited access to texts. It also helps to make readers alert to the ambiguities and multiple meanings of texts and to arrive at a more balanced assessment of the character and significance of Ordo-liberalism. The sources reveal its rich intellectual context in three modes of thinking that imparted a distinctive character to the moral cognition of the founding Ordo-liberals. Aristocratic liberalism, ethical philosophy, and austere religious beliefs provided Ordo-liberalism with its own language, technique of thinking, and epistemic and moral bias. They did not determine the precise forms that Ordo-liberalism took, for instance in monetary, fiscal, competition, and labour-market policies. They did, however, frame and shape the founding Ordo-liberals’ way of looking at the world of political economy: what they chose to foreground as problems and the direction in which they looked for solutions, as well as what they neglected. This context helps in understanding their preoccupation with the question of how the competitive market order relates to the wider legal, social, and political orders; and with how these orders are grounded in foundational conceptions of man and nature that are irreducibly ethical. Revisiting Ordo-liberalism in its cross-national context makes possible another distinctive feature of the book. It challenges the way in which Ordo-liberalism was discussed in the context of European integration and, above all, of the euro area crisis and its management since 2009. Discussion of the ideational basis of German semi-hegemonic power in Europe typically centres on the presumed dominant influence of Ordo-liberalism in the design and operation of European monetary union. More specifically, it centres on the variant of Ordo-liberalism associated with Eucken and the Freiburg School: what Tim Geithner (2014), the US secretary of the Treasury, referred to as ‘the blood-curdling moral hazard’ of ‘Old Testament justice’ meted out on ‘profligate’ and ‘mendacious’ Greeks. The basis of this interpretation is that Eucken’s principles—notably of avoiding moral hazard and of accepting liability—formed the basis for German policies on institutional design, operation, and reform of the euro area. However, serious questions arise in making these kinds of cause–effect statements. Correspondence between EU/euro area reforms and Ordo-liberalism is
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Introduction 13 not in itself evidence of a direct causal relationship between Ordo-liberal ideas and EU/euro area practice. There is a striking correspondence between the renaissance in rule-based policy ideas in US credibility and time-consistency literature from the 1970s, their adoption as mainstream in much central bank thinking in the 1980s to 90s, and the design of European monetary union. This mainstream was not simply German or narrowly Ordo-liberal but helped to connect the latter to thinking that had taken root in other national capitals and financial centres. It was also by no means evident that EU/euro area reforms in response to the crisis—taken as a whole—represent the ascendancy of Ordoliberalism in Germany and Europe, as opposed to its abridgement and decline. Under Mario Draghi and then Christine Lagarde, the European Central Bank seemed less and less like the Bundesbank ‘writ large’. German negotiating positions had more to do with the protection of a German coordinated market-economy model of export-led growth than with the defence of Ordo-liberalism. Archival and interview research casts doubt on just how ascendant Ordo-liberalism proved to be in institutions like the Bundesbank, the German federal economics and finance ministries, and German economic policies in general (see Chapter 4: 112–13). Original archival research and elite interviews yielded other insights. They brought out the role of institutional appropriation and instrumental use of ideas in influencing how we have come to think about Ordo-liberalism. They revealed the Ordo-liberal tradition as a process of invention and reinvention, as opposed to being a historical ‘given’ or intellectually fixed (cf. Hobsbawm 1983). It expresses and privileges certain social norms, institutional interests, and power relationships. Tracing this process in Germany highlights the connection between Ordoliberalism and the special roles ascribed to Freiburg University, the federal economics and finance ministries, the Bundesbank, and the Frankfurter Allgemeine Zeitung. Each has in its own way appropriated and sought to shape how we have come to think about Ordo-liberalism. In consequence, certain authors and ideas have been elevated to centre-stage, above all Eucken and the Freiburg School. Analysing the Ordo-liberal tradition as a process of reinvention adds value in another way. It helps in identifying the ‘lost’ intellectual diversity and richness of the Ordo-liberal tradition. It assists in spotting which thinkers and ideas have been forgotten or neglected in the process of appropriating and shaping the trad ition. For good or ill, some giants of the past have slipped from the central poleposition they once enjoyed. This fate of neglect and forgetting has affected the work of Müller-Armack, Röpke, and Rüstow and, within conservative liberalism more widely, Ralph Hawtrey, Knight, and Rougier. Their work was grounded in social and political philosophy, whether the humanism of the Classical Age or Christian social ethics. For Müller-Armack and Rueff, economics was a practical science, one that must take account of historical contingency and the interestshaped and value-laden nature of politics.
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14 Conservative Liberalism, Ordo-Liberalism, and the State The insights of these past giants have been lost to view in modern debate about Ordo-liberalism, at least outside the specialist realm of historians of economic thought. A reading of these authors points to an Ordo-liberalism that differs in important respects from what became judged as mainstream. Their form of Ordo-liberalism opposed radical austerity, advocated fiscal adjustments in a sustainable and proportionate manner, and was open—in certain circumstances— to short-term fiscal stimulus. The reactions of leading founding German Ordo-liberals to the Lautenbach Plan of 1931 are testament to this non-dogmatic but still highly cautious attitude to the dangers of deflation (for details, see Chapter 11: 380–7). Selective memorialization of the Ordo-liberal tradition has not only led to neglect of some of its most creative personalities. It has also overlooked the extent to which some founding Ordo-liberals were sceptical that a competitive market order could alone satisfy the ethical requirements of a humane as well as prosperous society (notably Röpke 1958b; Rüstow 1950–7). Selective memorialization was also linked to a failure to see to what extent Ordo-liberalism was ‘outcomeoriented’, not just process-oriented in the Eucken and Hayek manners. Many of its key figures, notably Müller-Armack, were sensitive to the prudential need to bend institutional design and policy prescriptions to what was reasonable in the circumstances of time and space for the sake of social integration and peace. For Röpke and Rueff, a good economic order rested on the principle of ‘caring for society’. In their view, liberalism depended on both a strong state and a strong society.
The Structure of the Book Parts I and II of this book deal with the origins and nature of conservative liberalism and Ordo-liberalism. They are a study in the history of economic ideas. This section is essentially a work of synthesis. It draws on a wide range of archival sources to complement and enrich a close, in-depth reading of seminal, and sometimes neglected, texts in French, German, and Italian—many untranslated— as well as in English. The founding thinkers are mainly German but draw on a cross-national literature and show a close resemblance to thinking in Britain, France, Italy, and the United States. Parts I and II argue for the importance of contextualizing the Ordo-liberal tradition’s key authors, texts, and the processes of dissemination. In this way, they draw out the intellectual ambition, complexity, linguistic variety, and richness of the tradition; its place in larger debates about liberalism, capitalism, and democracy; and its origins in the experience of exist ential crisis in these three conceptual domains. They also make debates in other linguistic contexts better accessible to English-language audiences. The book shows how our understanding of Ordo-liberalism has been shaped by selective narrative construction, which has marginalized some founding
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Introduction 15 thinkers and texts and privileged others. This process of selective narrative construction has been influenced by later instrumental use of authors and texts to provide public justification for certain institutional and political interests. It overlooked the work and contribution of other authors and policy makers: Kamitz in Austria; van Zeeland in Belgium; Hawtrey and William Hutt in Britain; Allais, Rougier, and Rueff in France; Costantino Bresciani-Turroni and Einaudi in Italy; and Knight and Henry Simons in the United States. Part III examines the cultural openness to conservative liberalism and Ordoliberalism in Britain, France, Germany, Italy, and the United States; the nature of their conservative liberalism; and its significance within discourse, institutions, and policies. In assessing overall significance, much hangs on the case of Germany as the acknowledged epicentre of Ordo-liberalism. This part uses original arch ival research to examine the role of Ordo-liberals in the Great Depression of the 1930s, in post-war German reconstruction, and in the monetarist revolution of the 1970s. Their role in European integration draws on both archival research and elite interviews. The approach in this part is empirical and based on case study.
The Challenge of Critical Distance This book is inspired by the view that a task of scholarship is to rescue thinkers and their ideas from neglect. By doing so, it becomes possible to think more crit ically and constructively about the Ordo-liberal tradition, to identify the institutional interests and power relationships that have shaped and benefited from its ongoing invention, and to provide material with which we can reshape how we think about Ordo-liberalism and its contemporary relevance. Despite their shared characteristics, the founding Ordo-liberals were far from united about such fundamental issues as deflation, social solidarity, political consensus, and European integration. On these issues, Müller-Armack, Röpke, Rueff, and Rüstow adopted positions sometimes at variance not just with one another but, more particularly, with those of Eucken and the Freiburg School. By examining Ordo-liberalism as a tradition, it becomes possible to move beyond the often highly partisan and polemical nature of discussion about its nature and significance. All too often, position-taking on Ordo-liberalism betrays a partial and second-hand understanding, driven by ideology more than evidence. There is a great deal of selective cherry-picking from texts and of oversight of inconvenient facts and arguments in debating Ordo-liberalism. A close reading of the Ordo-liberal tradition shows it to be a complex, multi-faceted, and rich body of thought. It also opens new possibilities to draw on this tradition to offer a critical alternative to fashionable, mainstream, ‘neo-liberal’ views about states, markets, and society within Anglo-American thinking. The book seeks to show that the influence of Ordo-liberalism looks very different when carefully context ualized, both historically and structurally.
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16 Conservative Liberalism, Ordo-Liberalism, and the State Ultimately, much of the literature and comment on Ordo-liberalism is driven by deep ideological aversion to its conservative-liberal character (e.g. Bonefeld 2012, 2015; Haselbach 1991; Ptak 2004; Streeck 2015; Tribe 1995). This book differs in seeking to convey a sense not just of how Ordo-liberals think, through immersion in the tradition and its context, but also of how its critics think. It hopes to help the reader to achieve a more critical distance in assessing the Ordo-liberal tradition, its nature, and its significance. However, achieving a balanced view, one that is alert to Ordo-liberalism’s strengths and weaknesses, is no easy task. In the final analysis, one cannot avoid wading into muddy and treacherous ideological waters.
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PART I
THE OR IGIN S OF C ONSE RVAT I V E LI BE R A L ISM A ND OR D O L IBE R A LI SM
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1
Ordo-Liberalism in Comparative and Historical Perspective [Ludwig von] Mises and [Friedrich von] Hayek should be put into a museum, conserved in formaldehyde, as the last examples of the other wise extinct species of liberals who provoked the current catastrophe. Alexander Rüstow to Wilhelm Röpke, letter of 21 February 1941, Röpke Papers, Institute for Economic Policy, University of Cologne This book captures the sense of crisis in liberalism that was conveyed by this letter from one leading Ordo-liberal to another. It examines an important strain in liberal thought that, in contrast to social liberalism and to laissez-faire and libertarian liberalism, has been relatively neglected in English-language histories of the attempts to renovate liberalism in the twentieth century. It is concerned with conservative liberalism and with Ordo-liberalism as one of the most important manifestations of the search for a new liberalism. Both are united by an emphasis on the state as the guarantor of order in political economy: of restoring discipline in democracy and in the market. State, order, and rules represent their core concepts within liberalism. For conservative liberals and Ordo-liberals, a rule-based economic and political order is an essential discipline on predatory elites (potential or actual) who seek to exploit democracy and markets for their own enrichment at the expense of consumers, employees, and the public. Their central concern is with the pathologies of democratic and market power and with how their misuse by privileged interests can discredit and jeopardize liberalism. The distinctiveness of conservative liberalism and Ordo-liberalism lies less in documenting economic and political behaviour than in showing how democracy and the market might be if economics and law recovered their intellectual and moral authority (Böhm, Eucken, and Grossmann-Doerth 1989/1936). According to the mission statement of the Freiburg School, legal thought had succumbed to a relativism and a fatalism. It had proved too willing to accept economic facts as unchangeable and to adopt an attitude of ‘tired resignation’ (ibid.). Conservative liberals emphasized interdisciplinarity; the need to recognize the interdependence
Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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20 Conservative Liberalism, Ordo-Liberalism, and the State of the economic, legal, political, social, and cultural orders; and the importance of a consensus amongst governors and governed about what is virtuous, honourable, and responsible, as well as of a willingness to abide by these standards. Conservative liberals sought a morally disciplined population. In thinking about discipline, they were less inclined to trust in self-discipline—in individuals exercising their own initiative to maintain essential liberal standards—than to impose external discipline. Their thinking about discipline was moulded by a complex, and individually varying, combination of aristocratic liberalism, ethical philosophy, and austere religious belief. The emphasis of conservative liberals and Ordo-liberals on shackling democratic and market power had simultaneously an enabling purpose. A rule-based order offers the opportunity to take account of future generations whose needs and preferences are not incorporated in, and revealed by, the short-term and untamed character of democracy and markets. It enables the perpetually effervescent energy of democracy and markets to be put in the service of long-term social and economic interests. Governance according to rules is an essential element in overcoming the limitations of democratic space, territorially as well as gener ationally. It makes it possible to take account of externalities in economic policy making, for instance in national fiscal policies in an integrated cross-national economy (on the fiscal policy rules of the European Union and the euro area, see Heipertz and Verdun 2010). A rule-based order has an additional enabling purpose. It helps to promote quality in the deliberative process by taking seriously the role of independent supra-majoritarian institutions and of experts in promoting reasoned debate, focused on common principles. For the founding thinkers, the universities, the law, the churches, and central banks were the kind of institutions that were indispensable in critically reflecting on rules and in ensuring the integrity of the deliberative process. The examination of conservative liberalism and Ordo-liberalism exposes a delicate question of balance in safeguarding liberalism. On the one hand, this variant of liberalism argues that a rule-based order is required to prevent democracy and capitalism from degenerating through self-harm and self-destruction, including the neglect of public goods and of the interests of future generations. Its advocates fear what avarice and greed can do to liberalism by creating entrenched winners and perpetual losers. On the other hand, conservative liberalism and Ordo-liberalism pose the question of how much discipline a society can bear before liberalism itself loses a strong constituency of support. Finding the right balance is a challenge in the arts of political judgement by those who design and apply rules. It tests the strength of the institutions and norms that a society inherits; the character of its elites; and the respect and trust that liberalism can inspire in the face of the nature and scale of the challenges that society faces. Given these historical contingencies, conservative liberalism and Ordo-liberalism, and liberalism more widely, seem potentially fragile constructs.
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ORDO-LIBERALISM IN PERSPECTIVE 21
The First and Second Historical Transformations in Liberalism: The Fear of Liberal Self-Harm and Self-Destruction Conservative liberalism—and its most developed strand, Ordo-liberalism—lay claim to representing an historical transformation in liberalism. At the same time, they remain inseparably connected to the first great historical transformation in liberalism, providing a vital thread of continuity. This transformation took place in the period from circa. the 1750s to circa. the 1850s. Its context was the deepseated social, political, and intellectual changes associated with the Industrial Revolution, the Enlightenment, the American Revolution, and the French Revolution (Koselleck 1972). The rise of liberalism was driven by the interests and aspirations of a growing and confident administrative, professional, commercial, and industrial bourgeoisie. This complex, heterogenous status group became proportionately larger in West European societies, sought to enhance the esteem in which it was held, and shifted political, economic, and cultural power away from the traditional privileged aristocracy. It promoted the values of talent, merit, and achievement against aristocratic values of ascription. The rising bourgeoisie identified in the political and economic theory of individualism the means to check the arbitrary power of monarchy, the oppressive ‘cage of norms’ represented by the Church, and the intrusions and ineptitude of public bureaucracy. More specifically, an ambitious and expanding bourgeoisie recognized in freedom of contract the foundation for securing the rights of property and the right to carry out a business or trade. The leading liberal intellectuals of this age provided canonical texts on which later conservative liberals drew copiously and which—through quotation and citation—shaped the family resemblance that held together later, often contending, variants of liberalism. These intellectuals included Benjamin Constant, Wilhelm von Humboldt, Immanuel Kant, Charles-Louis de Montesquieu, Friedrich Schiller, Adam Smith, Madame de Staël, and Alexis de Tocqueville. Their writings addressed the challenges of how best to promote political and civic freedom, to safeguard the rights of the individual against arbitrary rule, to embed norms of civility and tolerance in society, and to tap the latent energy in society for public advantage. In doing so, these liberal intellectuals looked back for inspir ation to Ancient Rome, its distinction between the private and the public spheres, and its emphasis on institutionalized checks and balances and the rule of law. From the perspective of political economy and of economic liberalism, the legacy of this period was the distinction between state, civil society, and the private sphere as distinctive and independent realms. This distinction opened space for the market economy to be recognized as a legitimate sphere of activity, independent of the state, and as a motor of sustainable progress, harmonizing private interest with public interest. It became possible to envision liberty as bound up with a process of contestation and cooperation between state and society and
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22 Conservative Liberalism, Ordo-Liberalism, and the State with markets as sites through which individuals could engage to their—and society’s—mutual advantage. This book examines and traces the origins, nature, and legacy of conservative liberalism as a key strand in the second great historical transformation in liberalism. The second historical transformation began to take shape from the 1870s and intensified in the period from the 1920s to the 1950s as the search for a new liberalism. The search for a new conservative liberalism was one type of response to the perceived crisis in liberalism’s relationships with capitalism and with mass democracy. Various developments played into this sense of a crisis. Capitalism was spawning large-scale and powerful corporations with the power to manipulate markets. Party-based democracy, amplified by increasingly intrusive mass media, offered opportunities for unscrupulous politicians to exploit popular fear and anger against established elites. In the view of conservative liberals, capitalism and democracy were throwing up predatory, self-serving elites whose behaviour harmed liberalism. Their exorbitant privileges and abuses of power threatened to hollow out liberalism, to create a climate of fear, anger, and resentment, and to undermine the essential bonds of social trust on which liberalism depended. Conservative liberals linked the crisis to the growth of cartel and monopoly power, demagogic politics, centralizing state power, and the threat to liberal values from corporatism, collectivism, and national protectionism (e.g. Lippmann 1937). The sense of a liberal debacle was intensified by pervasive financial and economic crises in the wake of the physically, morally, and intellectually exhausting First World War, followed by the Great Depression of the 1930s and the rise of communism and fascism (e.g. Allais 1946). After 1945, leading conservative liberals and Ordo-liberals became bound up with Cold-War liberalism. They feared that liberalism could succumb to the messianism of communist ideology (e.g. Röpke 1957b, 1962b; Rougier 1960, 1969). Fear and pessimism were central characteristics of the kind of liberalism they espoused (Shklar 1998).
Variants of the New Liberalism It is important to note that conservative liberalism was just one strand in the competition to provide a new liberalism. Three other strands offered powerful, politically attractive rivals. The Austrian School around Ludwig von Mises (1922, 1927) and Friedrich von Hayek (1944) engaged actively in debates about the new liberalism, notably in the Lippmann Colloquium in August 1938 and the Mont Pèlerin Society from 1947. According to Mises, the reinvigoration of liberalism required a realistic conception of the market as a natural, evolutionary order. He argued that the material benefits of the market had been progressively eroded by cumulative state intervention, for instance in wage setting and social insurance
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ORDO-LIBERALISM IN PERSPECTIVE 23 provision. Calls for state action had led inevitably to corporatism and collectivism and set the stage for economic and political crisis. This conception of renewal through laissez-faire liberalism gained strong support in the United States from the 1930s: from Mises who sought exile there in the 1930s; from a growing body of right-wing think tanks and magazines like The Freeman; from libertarian Christianity preaching ‘freedom under God’; from the new Chicago School; and from big corporate funding that sought to prevent intervention for the purpose of redistribution (details in Chapter 9: 267–8). The leading figures of laissez-faire liberalism included Mises, Milton Friedman, Henry Hazlitt, Leonard Reed, and Murray Rothbard. American libertarians like Frank Chodorov and Alfred Jay Nock stressed their affinities with the Austrian economics of Mises (Yaeger 1984). In contrast, from the late nineteenth century onwards, social liberals looked to a new social ethics that was better adapted to the dawning age of democracy, powerful corporations, and organized occupational groups. They included William Beveridge, Leonard Trelawny Hobhouse, John Atkinson Hobson, and John Maynard Keynes in Britain; Léon Bourgeois, Léon Duguit, Émile Durkheim, and Pierre Mendès-France in France; and Lujo Brentano, Friedrich Naumann, Franz Oppenheimer, and Alfred Weber in Germany (on Britain, see Freeden 1986; on Germany, see Hacke 2018: 297–300; on France, see Hazareesingh 1994: 88–9, 211). The social liberals adopted an experimental attitude to law and stressed the social basis of the formation and flourishing of the individual human personality. In economic policy they stressed the social as well as economic function of property and advocated progressive taxation, collective social insurance against unemployment, infirmity and sickness, and old age, and new forms of state intervention in housing. This variant of new liberalism sought to encourage a sense of mutual responsibility and social solidarity and to use collective provision to support the development of individual capabilities from which society itself would benefit. Not all advocates of a new liberalism fitted neatly into the categories of laissezfaire, social liberals, or conservative liberals and Ordo-liberals. The new liberalism also took a ‘common-sense’, pragmatic form, for instance in the work of Moritz Julius Bonn (1926) and in the thinking of Felix Frankfurter (1882–1965), the US Harvard law professor, later Supreme Court justice, and intimate advisor of president Franklin Delano Roosevelt during the New Deal. Though a close friend and admirer of Louis Brandeis, Frankfurter regarded his positions, for instance on corporate size and efficiency, as too dogmatic and extreme (Parrish 1982). This type of liberalism was essentially eclectic and typically grounded in a close involvement in policy issues and processes. An example is Bonn’s liberalism which drew on elements in both the Austrian and the social strands of liberalism in the search to reconcile liberalism with the practical exigencies and contradictions of contemporary ‘democratic capitalism’ (Hacke 2018:
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24 Conservative Liberalism, Ordo-Liberalism, and the State 152–63, 308–21). He was quick to realize that in times of crisis the liberal order could shift from the privatization of economic gains to the collectivization of losses. This contradiction could only bring the liberal order into disrepute (ibid.: 320–1). Despite his call for minimum wages and for measures of support for the unemployed, Bonn rejected the idea of a fiscal or monetary stimulus in 1931 to counter the Great Depression (in contrast to Ordo-liberals like Eucken and Röpke; see Chapter 11: 380–7). According to Bonn, a stimulus would only perpetuate failure and waste taxpayers’ money. Walter Lippmann too proved to be a pragmatic liberal, confirming the suspicions of Brandeis—and later of Röpke—that he was unreliable (Urofsky and Levy 1973). The laissez-faire, social, and pragmatic forms of the new liberalism shared a discomfort with the Ordo-liberal idea of the strong state, standing above economic and political interests, as dangerous or unrealistic, or both. It was to them too authoritarian in character. In the case of the social liberals, this discomfort did not extend to a denial of the state as distinctive, as embodying the public power. Social liberals were, however, disposed to welcome a sharing of powers in ways that Ordo-liberals feared would harbour corporatist tendencies to a feudal ization of the economy and the emergence of a privileged, self-serving capitalist class. In the Ordo-liberal diagnosis, the new liberalism could be hollowed out from within.
The End of Laissez-Faire We do not view laissez-faire thought as liberal but as anarchistic . . . laissez-faire leads not to freedom but to the emergence of untrammelled power in society, to a brutal fight between powerful groups, to social and economic ex ploit ation . . . and to a ‘lawless and godless con-trick of sovereignty’ (Bismarck). Franz Böhm, Schutz dem Leistungswettbewerb, 29 April 1955, p. 104, quoted in Hansen (2009: 403–4), author’s translation
Conservative liberals and Ordo-liberals were associated with the attempt to relabel liberalism as ‘neo-liberalism’ in the late 1930s (see Plickert 2008: 103–12). They constructed the crisis of liberalism around the argument that Classical liberalism had mutated in the nineteenth century into a dominant conception of the laissez-faire state and into a justification for unfettered and ultimately selfdestructive market competition. In this mutated form, which Rüstow identified with the Austrian School (see quote, p. 116–17), liberalism had become a major factor in generating the social crisis of the age, the proliferating calls for state intervention in economic and welfare policies, and the drift to corporatism,
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ORDO-LIBERALISM IN PERSPECTIVE 25 collectivism, and totalitarianism (see Rüstow’s letter to Wilhelm Röpke in February 1942, Röpke Papers, Institute for Economic Policy, University of Cologne). Conservative liberals defined the crisis as one of liberalism itself. The German economist Röpke (1931: 450) attacked the ‘business-cycle policy nihilism’, of the kind preached by Mises and Hayek, for creating the conditions in which a crisis in the financial and economic order after 1929 could spread and entrench itself in the political order. He advocated a ‘positive’ economic policy (Röpke 1944: 28, 40). Its key elements were a secure and stable framework of economic policy; a ‘liberal interventionism’ that supported market adjustment in a manner that was compatible with the market economy; and decisiveness in delivering short-term fiscal and monetary stimulus when depression threatened to degenerate into a vicious circle of contraction. The conservative liberals were far from original in claiming the ‘end of laissezfaire’. Keynes (1972/1926) had made this claim in a book and in lectures in 1926. The lecture that he delivered in Berlin received considerable attention in Germany (see Köster 2013; Feld, Köhler, and Nientiedt 2018). Keynes traced the idea of laissez-faire back to the Marquis d’Argenson in 1751 and noted that it had gathered momentum as a rallying cry for merchants and industrialists in the nineteenth century. He argued that individuals had no prescriptive natural liberty in their economic activities and that self-interest was not always enlightened and consistent with the public interest. However, these points of overlap between Keynes and the founding conservative liberals and Ordo-liberals did not amount to similarity in the way in which they responded to the challenge of what they defined as the end of laissez-faire. Ordo-liberals like Röpke and Rüstow differed from Keynes in stressing the importance of communitarian rather than collectivist action in economic affairs. These two thinkers represented what was later termed ‘sociological’ Ordoliberalism (see Chapter 4: 116–17). They recognized that the market economy did not in itself provide a satisfactory social ethics. However, they did not see the state as the prime or main source of social bonds. Walter Eucken’s (1952: 244) disagreement with Keynes focused more on the centrality that Keynes attached to the role of semi-autonomous corporations and what Eucken saw as the threat they posed to market competition. Eucken did not believe in the effectiveness of state control over such entities and argued that they were likely to breed anticompetitive cartels and monopolies. Keynes was accused of underestimating the tendency of competition to generate excessive concentrations of market power. Above all, conservative liberals and Ordo-liberals were later to reject the notion that counter-cyclical macro-economic policy—as advocated by Keynes—represented a ‘general’ theory. Instead, they saw in it the germs of collectivist politics, rising public debt, and chronic inflation (Feld, Köhler, and Nientiedt 2018).
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26 Conservative Liberalism, Ordo-Liberalism, and the State
Conservative Liberalism: How Much a Disciplinary Revolution? Conservative liberals constructed their own significance in the history of economic liberalism. They argued that liberalism, as it had evolved during the nineteenth and twentieth centuries—notably the new variants of fundamentalist market liberalism, social liberalism, and pragmatic liberalism—had failed to adequately address the challenges that stemmed from the excesses of capitalism and democracy. These excesses manifested themselves in the triumph of expediency over principle, in rent-seeking by special interest groups, in the privileges and inequality that ensued, in the subsequent loss of faith in liberalism, and in the squandering of the reputation of governments as competent and trustworthy. The excesses of capitalism and democracy could only be avoided, and liberalism made sustainable, by embedding and constraining both in a long-term, rule-based framework of order. Conservative liberalism sought the salvation of liberalism in the general acceptance of binding rules that restrained the assertion of pure, egoistic self-interest in social, political, and economic interaction. Its ascetic, highminded conception of liberalism emphasized a rule-based order that rested on trusteeship and collective prudence and that fostered the high level of enlightened self-interest and social obligation that trusteeship and collective prudence required. Conservative liberalism was driven by the moral outlook and interests of an endangered cultural elite. In intellectual outlook conservative liberals were critics of the incompleteness of the eighteenth-century Enlightenment, as represented by the Marquis de Condorcet and Voltaire, without being counter-Enlightenment. They recognized that reason and science were indispensable in liberalism’s struggle against ignorance and prejudice and for religious tolerance. However, reason and science did not alone provide the insight and wisdom that a sustainable liberalism required. The broad intellectual aim of conservative liberals was to strengthen the Enlightenment by means of a conservative and religious critique that posited the individual as moral and spiritual as well as materialistic in outlook. They argued that individuals sought a transcendental meaning that the market alone could not provide. In the final analysis, the individual needed nourishment of the inner life, aesthetically, intellectually, and culturally, more than material possessions and comfort. For most of the founding conservative liberals and Ordo-liberals Johann Wolfgang Goethe was a key point of reference in discussing the importance of inner freedom (Chapter 5: 140–3). Similarly, many of them attached great importance to religion in the moral and spiritual transformation of the individual (Chapter 7). Religion offered the means of transcending selfishness. This intellectual context meant that economists in this tradition retained a critical distance to utilitarianism and the concept of the self-maximizing individual in neo-classical
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ORDO-LIBERALISM IN PERSPECTIVE 27 economic theory. Conservative liberals were also uncomfortable with dominant notions of social efficiency in economics. For instance, Brandeis argued that social efficiency was not to be achieved by greater corporate or governmental size but by the intensive development of the individual. He conceived of business as part of a social organism. It was socially inefficient if it injured the whole (Brandeis and Hapgood 2009/1914). Conservative liberals and Ordo-liberals feared that Classical and new variants of liberalism were debasing aesthetic and intellectual values and enfeebling the moral energy and purpose of individuals. They attributed this development to the materialism and to the anonymity and atomization of the individual that had been fostered by industrialization, urbanization, commercialism, and newly emergent forms of large-scale, centralized economic, social, and political organ ization. Conservative liberals and Ordo-liberals were uncomfortable with giant corporations, big trade unions, modern political parties, interest groups, and government bureaucracies. Their attempt to rethink liberalism was deeply grounded in a conservative cultural critique of modernity. Conservative liberals took as their canon such writers as Julien Benda, Jacob Burckhardt, Rudolf Eucken, Guglielmo Ferrero, Johan Huizinga, Edmund Husserl, Frédéric Le Play, José Ortega y Gasset, George Santayana, and Max Scheler. In the period from the 1920s to the 1950s, the meanings ascribed to liberalism shifted in ways that changed the future parameters of thought about political economy (Hacke 2018: 25; cf. Koselleck 1972: xv). The claim of conservative liberalism and Ordo-liberalism to offer a revolution in liberalism needs to be treated with caution. One way or another, all strands of liberalism build on previous ones. In fact, as Chapters 5 and 6 show, these advocates of a renovated liberalism drew heavily on Classical liberals like Kant, Schiller, Smith, and Tocqueville as sources of insights into the ethical justification for discipline. Their claim to represent a revolution rested on a determination to break with what they saw as the pernicious heritage of a dated and rigid laissezfaire liberalism. At the same time, they defined their identity in opposition to ‘economic planning’ as the slide into corporatism and collectivism. Like all revolutionaries, conservative liberals wove their own historical mythology that belied the extent of continuity. Conservative liberalism carried within itself much of the Classical liberal past; often exaggerated its degree of break with nineteenthcentury liberalism with its attachment to the disciplines of the gold standard and free trade; and failed to adequately distinguish the ideology of laissez-faire from the nineteenth-century reality of often widespread intervention by liberals in the economy and society. Despite the claims to a revolutionary break, early liberal thought continued to pervade and limit the vocabulary of conservative liberalism and Ordo-liberalism. Unlimited human power continued to be considered untrustworthy; the exercise
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28 Conservative Liberalism, Ordo-Liberalism, and the State of power was only legitimate when hedged by moral restraints; and, subject to this proviso, social and political conflict could be made compatible with sustainable progress (Fawcett 2014). At the same time, conservative liberals and Ordo-liberals rejected certain threads of meaning that they associated with the liberal inheritance, notably unfettered competition and the laissez-faire state. They also developed new threads. They sought to offer a new rational basis for a rule-based approach to political economy that would create a privilege-free and non-discriminating economic and political order, in which the values of freedom, dignity, and prudence could be safeguarded. They also tried to rethink social solidarity in a way that better protected the individual, monetary stability, and competition in a new age of collectivist and corporatist tendencies. Leonhard Miksch’s (1937) opposition to ‘socially blind’ liberalism was one manifestation of this outlook. For Miksch, social policies were a necessary complement to economic liberalization; and competition had to suit the interests of employees as well as consumers. Again, as with all revolutions, the significance of conservative liberalism and Ordo-liberalism as a disciplinary variant of liberalism was as much—if not more—symbolic in what it stood for as it was in what it changed in the real world. The conception of a disciplinary revolution in liberalism suggested a new opportunity to create a unifying mythology of purpose, identity, and solidarity for democratic capitalism. Conservative liberalism and Ordo-liberalism promoted a moral seriousness in economics, grounded in such values as personal responsibility, self-restraint, industriousness, frugality, avoidance of ostentation, and respect for learning. Alfred Müller-Armack (1971: 10), the originator of the concept of the social market economy, defined economics as more than just an exercise in objective analysis. Economics could only contribute to a sustainable liberal society as part of an ascetic attitude to life. Luigi Einaudi (1932) condemned Keynes for lacking this attitude. This conception of economics was captured by Hayek (1948b: 109): . . . we shall have to pay deliberate attention to the moral temper of contemporary man if we are to succeed in canalizing his energies from the harmful policies to which they are now devoted to a new effort on behalf of individual freedom.
Origins and Context of the Term Ordo-Liberalism Ordo-liberalism merits special attention for two reasons. It stands out within this second great historical transformation as the most advanced form of conservative liberalism. In addition, understanding and appreciation of Ordo-liberalism’s character as a tradition has suffered from its limited linguistic reach into the
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ORDO-LIBERALISM IN PERSPECTIVE 29 Anglo-American public sphere. Its deeper roots, and the meanings to which they have given rise, deserve closer examination. This task becomes all the more relevant in an age when financial and economic crisis, rising populism, and authoritarianism seemed to place liberalism, and not least conservative liberalism, once again under threat across Europe and in the United States. The early twenty-first century witnessed a growing sense of a new transformational crisis of liberalism (see Chapter 12). The term Ordo-liberalism seems to have first been used in 1950 by the German economist Hero Moeller. He employed the term in a critical analysis of what he termed the ‘new liberalism’, one that he associated with Eucken, Hayek, and Röpke (Moeller 1950: 224). Moeller outlined the central features of the new Ordo-liberalism. Its historical hallmark was a rationalistic optimism. Its economic hallmark was a profound hostility both to private monopoly power and to collectivist planning and intervention in the economic process. Its political hallmark was—in addition to its robust rejection of Marxism—the belief in a strong state that ‘organizes complete competition’ (ibid.: 227). Moeller derived the term Ordo-liberalism from the title of the new academic journal ORDO Yearbook (Jahrbuch). The ORDO Yearbook had started publication in 1948. It aimed to pursue the same aims as the newly established Mont Pèlerin Society and was originally conceived as the ‘Yearbook for Competitive Economy’ (Jahrbuch für Wettbewerbswirtschaft) (Eucken letter to Hayek, 5 February 1947 Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). The ORDO Yearbook rapidly established a position as the flagship of the new liberal movement as it sought to impress its message on the post-war crisis of German reconstruction. Its mission was the renovation of what was judged to have been a failed Classical liberalism, which had been presided over by the laissez-faire state. This position corresponded with that of Henry Simons (1934: 42), who had argued that the representation of liberalism as a laissez-faire policy of ‘doing nothing’ had been an historical mistake, colluded in by liberals. It had inflicted damage on the cause of liberalism. It was, however, by no means evident that laissez-faire was an historically accurate picture of the reality of earlier liberalism (Sally 1998). Ordo-liberalism cannot be properly understood without reference to dating its origins as a word and without the historical attribution of the term ‘mainstream’ to Freiburg-centred scholarship. These two factors are central to any narrative about Ordo-liberalism. They represent the conventional wisdom. However, a full and comprehensive understanding of the richness and variety of Ordo-liberalism is best captured by thinking of it as an embedded tradition. This book seeks to show that what Ordo-liberalism outlines—a disciplinary revolution in liberalism—has a longer and richer intellectual history than the historical dating of the term conveys. A tradition of thinking can typically be traced back before its verbal label gained currency. In this sense, the term Ordo-liberalism was akin to such
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30 Conservative Liberalism, Ordo-Liberalism, and the State terms as ecology in science or to Gothic and Renaissance in art history. The use of these terms post-dated changing perceptions, beliefs, and practices. They were labels attached—in these cases, often centuries later—to pre-existing phenomena. In the same way, the Ordo-liberal tradition can be traced back well before 1950 and to sources other than German, to those who thought in terms of a conservative liberalism. Ordo-liberalism also had a wider European and international resonance. This resonance is linked to a heritage of European aristocratic liberalism; to a philosophical mode different from the analytical mode so fashionable in AngloAmerican thinking; and to a legacy of ascetic and austere religious thought that transcends national borders. Together, these three factors shaped cross-national intellectual and cultural receptiveness to the notions associated with Ordoliberalism. Conservative liberals in other national contexts were comfortable with its language, analysis, and precepts. Despite this intellectual resonance, Ordo-liberals retained something of an ‘outsider’ status from the origins of the tradition onwards. They were a beleaguered, critical minority, even within liberalism, and often seen by others as oldfashioned and even reactionary, as eccentric and hypocritical, as dogmatic and lacking in human sensitivity, and as mistaken and dangerous. On their own ideological ground, Ordo-liberals were exposed uncertainly between the distrust of purist conservatives (for whom they were too liberal) and of purist liberals (for whom they were too conservative). They were also faced by hostility from the political Left; from strict materialists and positivists in philosophy; and from Catholic social thought. Their ideological ambivalence as liberal in economics and conservative in social philosophy left them vulnerable on multiple fronts. Nevertheless, the leading thinkers of Ordo-liberalism were able to retain considerable intellectual respect. Their thinking tapped into a widespread sense of living in a ‘crisis of modernity’ that was more than just economic and political and that affected ‘the Western world’ (e.g. Böhm 1934: 192). For Ordo-liberals, the crisis was fundamentally cultural, social, and intellectual: it reflected the character of the age. There remained an abiding public sympathy for the idea of an enlightened and disinterested elite that could stand outside and above contending sectional interests, the partisanship of electoral and party politics, and the claims of a narrowly meritocratic elite with highly specialist knowledge. Ordo-liberalism connected with the idea of a public philosophy that pursued truth in argument, that sought to avoid ethical relativism, and that pursued an impartial standard of distributive justice. The problem was that, in offering this promise, Ordoliberalism could never break free from its own limited social and economic roots, its own ideologically partisan nature in asserting the superior moral rights of the saver and the creditor, and the sense of hypocrisy that followed. It was also vulnerable to misplaced hope that an extra-parliamentary space would be occupied by forces that identified with the liberal principles it espoused.
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ORDO-LIBERALISM IN PERSPECTIVE 31
Historical Contingency The genesis of the Ordo-liberal tradition was from the outset marked by historical contingency. This contingency was displayed in the emergence of Eucken’s role and in the later attribution of centrality to the Freiburg School. In 1924, and again in 1928–9, Marburg University preferred Röpke over Eucken, making him the youngest professor in Germany (Hennecke 2005: 47, 62). In 1926–7 Eucken was only the third equal choice of Freiburg University’s appointment committee. Freiburg was looking for an economic theoretician, and Joseph Schumpeter, the highly accomplished and colourful Austrian who had briefly served as his country’s finance minister, was overwhelmingly the first choice. Only his rejection of the offer opened the way for Eucken, then a far less well-known figure (Brintzinger 1996: 38–9). Schumpeter would have imparted a very different character to Freiburg economics. Later, at Harvard University, he became famous for his emphasis on pure economic theory and espousal of exact methods. More to the point, Schumpeter focused on the dynamics of the economic process and the theory of imperfect competition. He worked in a context of Harvard economics that gave birth to the idea of monopolistic competition, an idea anathema to the Freiburg School as it developed under Eucken, As late as the Nazi seizure of power in 1933, Hayek and Röpke were much better-known and internationally respected young economists than Eucken (Hennecke 2005). In 1930 the British economist Lionel Robbins recommended that Keynes’s committee of economists, working for the government’s economic advisory council, should broaden its outlook by consulting Hayek to represent central Europe and Röpke to represent Germany (Howson 2012: 180). In the period 1920–39 Hayek was the only Germanic (Austrian) economist to appear in the top twenty-five ranking by citations, in sixth place (Deutscher 1990: 193). Other contingencies affected the Freiburg School and the wider development of conservative liberalism. One was the presence of the lawyer Franz Böhm in the same faculty as Eucken. He was important in the identification of Ordo-liberalism with the concept of the ‘economic constitution’ (Wirtschaftsverfassung); in the emphasis that was given to anti-cartel policy; and, through his family, in connecting the Freiburg School with the political liberalism of the Grand Duchy of Baden where his father has been education minister (Dathe 2014a, 2014b). Böhm’s postwar move to Frankfurt University deprived Freiburg of his leadership role, whilst more generally his engagement as a Christian Democratic Union (CDU) member of the Bundestag deflected his attention from academic research. Death was another contingency. Simons’ sudden, early death in 1946 had implications for how the Chicago tradition evolved. By the late 1950s Friedman had shifted from Simons’ disciplinary approach to the banking system, which he
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32 Conservative Liberalism, Ordo-Liberalism, and the State had endorsed in the 1940s, to the belief that commercial banks should ‘govern themselves’ within the framework of an independent central bank. Likewise, Eucken’s sudden death in London in 1950, following Böhm’s earlier departure to Frankfurt University, deprived the Freiburg School of inspiration and affected the intellectual momentum of the Ordo-liberal tradition (Hayek 2017: 288). Subsequently, Röpke and his close colleague Rüstow took up the challenge of promoting Ordo-liberalism, notably within the Mont Pèlerin Society (Plickert 2008). However, their contribution to the Ordo-liberal tradition was different from the Freiburg mainstream in giving greater emphasis to its ethical and social dimensions, outside the sphere of the market economy. Despite setbacks, conservative liberalism thrived in Germany more than elsewhere. Though Frank Knight was the ‘star’ Chicago economist of the 1930s, his legacy in shaping the Chicago tradition of economics proved much less durable than that of Eucken in Freiburg and beyond (Emmett 2001). One factor was Knight’s deeply held scepticism (Emmett 2009). His sense of the tragic internal contradictions of nineteenth-century liberalism was not matched by belief in a single philosophical position that helped order his principles for a reconstructed liberalism in the coherent manner of Eucken (Burgin 2009). In a letter of 16 December 1947 to Eucken, Knight outlined his sense of despair and futility at the lack of US political and public interest in what he had to say (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Eucken’s reply on 19 February 1948 stressed the need to ‘think in terms of decades, not years’ in spreading and entrenching the idea of an effective liberal order that safeguards human dignity. The immediate future was bleak and short-term success was not to be expected (see also letter of 30 March 1946 from Eucken to Röpke, Nachlass Walter Eucken). Knight did not generate a positive programme for a renovated liberalism akin to that of his colleague Simons (1934), let alone to that of Eucken’s (1952) constitutive and regulative principles of the economic order. Eucken’s principles con tinued to be regularly invoked by German policy makers into the twenty-first century. Walter Lippmann, another early conservative liberal of the 1930s, quickly fell under the spell of Keynes, the anti-hero of conservative liberals like Einaudi, Eucken, Knight, Röpke, and Simons. He did not engage with the Mont Pèlerin Society (Goodwin 2014). In the case of France, the surge of interest in conservative liberalism in 1938–9 soon vanished. Louis Rougier was discredited by his wartime exploits, his identification with defence of the Vichy Regime, his vehement attacks on General Charles de Gaulle, and his post-war association with farRight political figures (Denord 2009: 55–60). Jacques Rueff suffered from his close involvement with the deflationary policies of the French Third Republic in the 1930s and from the role of the Left and social Catholicism in the post-war politics of the Fourth Republic. Einaudi’s emergence as a conservative liberal in the German mould and his early post-war impact on Italian economic and
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ORDO-LIBERALISM IN PERSPECTIVE 33 monetary policies was soon eclipsed. The rise of Italian Christian democracy was linked to support for collectivist forms of corporate organization that offered favourable opportunities to practise patronage and clientelism as techniques of rule. Conservative liberals were to be found in a variety of national contexts. However, they tended not to thrive in political contexts in which debtor–state interests prevailed in policy making and in which the political Left held power (cf. Dyson 2014); in institutional contexts in which Keynesian ideas took firm root; in milieus in which traditional conflicts between liberalism and Catholicism continued and Catholic social teaching prevailed (cf. Hayek 1967c/1944); and where its core ideas lacked the patronage power of nodal university chairs to build up a cohort of disciples and networks through which to disseminate ideas of conservative liberalism.
Certifying Mainstream Good Practice: The ORDO Yearbook and Freiburg As the flagship of Ordo-liberalism since 1948, the ORDO Yearbook had a special position in establishing and certifying mainstream views about its nature. It specialized in two types of economic thought, which together formed the ‘economics of order’ (Ordnungsökonomik) (Streit 1995). The first type was theory about the shaping of the economic order (Ordnungstheorie). This theory dealt with the ‘constitution of the economy’ (Wirtschaftsverfassung), the ‘rules of the game’, and was heavily influenced by legal scholarship, notably Böhm (1928, 1933, 1937). The second type focused on policies for the economic order (Ordnungspolitik), like trade, monetary, competition, employment, and patent policies. The emphasis on the ‘order of rules’ (Rechtsordnung) remained fundamental. The early intellectual reference point was very much centred on Freiburg University. It centred on Eucken’s morphological method and his notion of the competitive market economy as ‘constructed’ by the state (Eucken 1940, 1949, 1952: 26–55, 356–60). On this foundation he developed his distinction between the constitutive principles and the regulative principles of the economic order (Eucken 1952: 254–304; for details of the morphological method and the principles see Chapter 4: 115–16; also Chapter 6: 175–6 and 187–8). However, Eucken’s sudden death in 1950 proved a crippling blow to the development of this body of theory. Later, from the 1960s, after Hayek’s move to Freiburg, the ORDO Yearbook witnessed a shift away from Eucken towards greater engagement with Hayek’s different notion of the market as a spontaneous order (Hayek 1967a). Hayek’s approach rested on a more sceptical view of institutional engineering than that of Eucken. He argued that the epistemic requirements of designing an economic constitution
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34 Conservative Liberalism, Ordo-Liberalism, and the State risked succumbing to a ‘pretence of knowledge’. The central theme of his Nobel Prize lecture was the fiction and the arrogance of knowledge in the face of the essential complexity of economic systems (Hayek 1975c, 1989/1974). Hayek retained a belief in the ‘order of rules’ and in the need to assess policies by reference to rules (ibid., 1960, 1973). However, he argued that the ‘order of rules’ was part of the process of organic market evolution. It was bound up inseparably with the ‘order of actions’ (Handelnsordnung), which was the efficient secret of the market economy (Hayek 1967b). Hayek’s view of the market as a ‘discovery procedure’, his interest in the problem of knowledge, and his stress on the relationship of rules to market evolution began to have a shaping influence on the ORDO Yearbook (Hayek 2001, 2003). He remained a member of the editorial board from 1948 to 1992. He also inspired other Freiburg-based economists and ORDO Yearbook editors, notably Erich Hoppmann (1967, 1988, 1995) and Viktor Vanberg (1997, 2003, 2012, 2014), as well as Manfred Streit (1995). The ORDO Yearbook continued to define the criteria for ‘good’ practice in Ordo-liberalism through its own scholarly commissioning and refereeing. Editorial policy was to promote ethically sound and economically rational prin ciples and rules that were consistent with a social, economic, legal, and political order founded on liberty, individuality, and diversity. The core, animating belief was that economic policies to strengthen individual rights and freedom, notably through a competitive market order, would help generate the material prosperity that would in turn facilitate human flourishing in a wider cultural sense. The location of the ORDO Yearbook and its editorial policy help explain why the so-called ‘Freiburg School’ became identified as the ‘mainstream’ in Ordoliberal thinking and practice (on the journal see Bönker, Labrousse, and Weisz 2001; also Streit 1995). Ordo-liberalism gained its reputation as a peculiarly Germanic and Freiburg-led phenomenon through this process of naming and certification of ‘good’ practice. It became a ‘brand’ name for the city and for the University of Freiburg, useful even for those there who were sceptical, even hostile to Ordo-liberalism. This ‘branding’ was reinforced by the post-1945 reputation of the Freiburg economists and lawyers as the leading academic centre of resistance to the Nazi regime. Through the Freiburg Circles, especially from 1942, they were seminal contributors of ideas about how to build a new post-war Germany (on which Blumenberg-Lampe 1973, 1991; Dietze 1960/1961; Goldschmidt 1997). Böhm, Constantin von Dietze, Walter Eucken, and Arnold Lampe assumed heroic qualities in historical memorialization of German academic resistance and renewal (e.g. Dathe 2014; I. Eucken 2014).
The Road to Freiburg: Memorializing Ordo-Liberalism Memorializing and publicly celebrating Ordo-liberalism through the prism of Freiburg has been a recurring feature within German political and expert elites.
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ORDO-LIBERALISM IN PERSPECTIVE 35 They sought to counter the impression that it was ‘old-fashioned’ by updating it to fit new and changing economic and financial realities. This memorialization was principally linked to the Walter Eucken Institute in Freiburg, the self-styled ‘competence centre’ in Ordo-liberalism. Politicians and officials took ‘the road to Freiburg’ to justify their economic policy views as inspired by and consistent with Ordo-liberal principles and to stress its continuing relevance. Even if weakly represented in its own teaching and research in economics and in law, Ordoliberalism was an indispensable part of the Freiburg University ‘brand’. What Wittenberg was to Lutheranism, Freiburg was to Ordo-liberalism. Karl Schiller, the German economics professor and the Social Democratic Party (SPD) ‘super-minister’ of economics from 1966 to 1972, was an early prominent example. He was a key figure in the difficult struggle to convert the SPD to the ‘social market economy’ in the 1950s. Schiller sought to modernize the social market economy through the so-called ‘Keynesian revolution’ in the 1960s and the concept of ‘global steering’. By identifying the SPD with economic policy competence, he tried to make it electorally appealing as a party of federal government and to establish his own reputation as the new Ludwig Erhard. Schiller was in effect the ‘intellectual economist’ of the SPD in the 1950s and 60s. However, his intellectual background amongst macro-economists, and his commitment to a hybrid, more discretionary economic policy management, made him a suspicious figure for some Ordo-liberals, like Kurt Biedenkopf (1969). Schiller visited Freiburg on two occasions during this formative period and was eventually to donate his library to the Walter Eucken Institute. On both occasions, and even more clearly in his later published works, he stressed the coherence between his cautious, Keynesian-inspired economic reforms and Ordo-liberalism (Schiller 1956, 1966; also 1964; also Nützenadel 2005: 305–6). He quoted Eucken with approval: . . . state planning of the forms—yes; state planning and direction of the economic process—no. Recognizing the difference between form and process and acting on this basis is essential. That is the economic imperative of the Freiburg School. (Schiller 1956: 43, author’s translation)
According to Schiller, Eucken’s theory of ‘qualitative’ economic policy—his morphology of market forms, his principles of economic policy, and his stress on the interdependence of individual orders—had proved to be of indispensable value. It had highlighted the dangers of corrupting the social order through thinking and acting purely on quantitative indicators. Freiburg Ordo-liberalism had provided an ‘enormous contribution’ to Germany’s post-war economic reconstruction. However, changing institutions and rules was not enough. A theory of quantitative economic policy was also needed. ‘Economic policy is not just Ordnungspolitik’ (ibid.: 41). The state cannot just reduce its activities to influen cing forms of economic order without direct interventions in the economic
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36 Conservative Liberalism, Ordo-Liberalism, and the State process. Schiller was at pains to stress the symmetry of the two approaches— qualitative and quantitative—in a ‘mixed economic order’ (ibid.: 44). He sought to link the ‘Freiburg imperative’ with the ‘Keynesian message’. After his bitter personal experience of resigning his ministerial post in 1972, and leaving the SPD, Schiller began to align himself more closely with the ‘Freiburg imperative’ (Schiller 1984, 1986, 1994). This process had been anticipated even earlier when he used a lecture in Freiburg to stress the difficulties of a counter-cyclical fiscal policy. He had stressed the high degree of analytical power, judgement, and decisiveness that was required if governments were to act in a timely and effective way (Schiller 1966). Schiller retained common ground with Ordo-liberals on the paramount importance of an elite that possessed objective economic knowledge, as well as of discipline to ensure economic stability (Schiller 1964). His stress as a minister on a Keynesianism that was tempered by ‘the Freiburg imperative’ had instrumental value in persuading some Ordo-liberal academics and officials to rally to his reforms, including Friedrich Lutz, a pupil of Eucken (Lütjen 2007; Nützenadel 2005: 313). Schiller held ‘vulgar Keynesians’ in contempt, a reason for his resignation and break with the SPD in 1972, and his subsequent shift closer towards Ordo-liberal thought (Schiller 1986, 1994). Notably, he endorsed Eucken rather than Friedman and the Chicago School as the source of inspiration for his shift to neo-liberalism. For Schiller (1986: 8), the key was Eucken’s principle of consistency in economic policies. Measured against this principle, ad hoc and ‘extreme’ supply-side policies, like those in the United Kingdom and the United States, were to be avoided. This process of celebrating Ordo-liberalism and its Freiburg brand intensified with the euro area crisis, post-2009, and the reforms to which it led. In the period 2013–16 Freiburg University attracted a phalanx of prestigious speakers: Joachim Gauck, the German federal president; Angela Merkel, the federal chancellor; Sigmar Gabriel, the deputy federal chancellor, federal economics minister, and SPD chair; and Jens Weidmann, the president of the Bundesbank. In his speech of 16 January 2014 president Gauck stressed the importance of Ordo-liberalism as part of the constitutional foundation of the Federal Republic. It represented an ‘order that neither subordinated the individual to a state that imposed its will nor to a market in which the strong could become so big that they themselves determine the rules’. Spoken by a former pastor from the old German Democratic Republic, these words represented his first major public commitment as federal president to the values of the competitive market economy. Weidmann used Ordo-liberal terminology in thirty-three of the 106 speeches that he delivered between 1 May 2011 and 1 December 2015, referring to Böhm and Eucken in sixteen of them (Hien 2017b: 9). In January 2020 he claimed to have probably cited Eucken more than any other economist and to have used one phrase of Eucken’s over two dozen times in public speeches: ‘Whoever has the gain must bear the losses’ (Eucken 1952: 279; Weidmann 2020: 7). For Weidmann,
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ORDO-LIBERALISM IN PERSPECTIVE 37 this phrase captured the essence of the liability principle. Eucken’s principles were invaluable as a compass, offering orientation and a sense of direction (Weidmann 2020: 8). Perhaps Weidmann’s most striking speech was in Freiburg on 11 February 2013. He closed by repeating words of the director of the Walter Eucken Institute, Lars Feld: ‘I recommend to all politicians they put a copy of Eucken’s “Principles of Economic Policy” [Grundsätze der Wirtschaftspolitik] under their pillows’. This comment reflected the sense of disappointment amongst Ordo-liberals, like Feld and Weidmann, at the failure of German politicians to more rigorously uphold Ordo-liberal principles as defined by Eucken during the euro area crisis. Gauck, Gabriel, and Merkel were not regarded by most leading Ordo-liberals as reliable and committed Ordo-liberals. However, and paradoxically, this advice on the need for an intimate reading and knowledge of Ordo-liberal principles by politicians was far from being followed by senior officials in the economic policy div ision of the Bundesbank or by their equivalents in the federal economics and finance ministries. If they were to be classed as Ordo-liberal, it was not due to their close reading and formal knowledge of the texts (based on systematic elite interviews by the author, 2014–16). Gabriel used his Freiburg speech of 23 June 2015 to praise the ‘neo-liberalism’ of Eucken for its rejection of Classical economic liberalism and the laissez-faire, ‘night-watchman’ state. However, as chair of the SPD he chose his words carefully. Gabriel called on his party to embrace this thinking to the extent that it could ‘bear’ to do so. He sought to draw on Eucken to justify a ‘left-liberalism’ as opposed to a ‘national liberalism’, seeing the former as more relevant to the new digital economy. This ‘left-liberalism’ was dedicated to the model of an open society that welcomed the mobility and public engagement that was made possible by the digital economy. It emphasized the role of the state in creating equality of opportunity, above all through social and infrastructure investment. More problematically, given Eucken’s arguments, Gabriel argued that this left-liberalism could be reconciled with the minimum wage that the SPD had made into a central plank of its grand-coalition with Merkel’s Christian Democratic Union/ Christian Social Union (CDU/CSU) in 2013. Perhaps the most notable aspect of Gabriel’s speech was how, in developing his argument about left-liberalism, the SPD chair referred more to Müller-Armack, the Cologne-based originator of the social market economy, than to Eucken. He titled his talk ‘A Speech on the Principles of the Social Market Economy’. For purist Ordo-liberals of the Freiburg School the ‘social’ in the social market economy was the Trojan horse of post-war corporatist and collectivist political practice. They regarded the social market economy as a political slogan that had been responsible for a progressively enlarging welfare state and rising public debt (e.g. Tietmeyer 1999). Unsurprisingly, Müller-Armack had been marginalized in their writings about the icons of Ordo-liberalism.
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38 Conservative Liberalism, Ordo-Liberalism, and the State In contrast to Gabriel, federal chancellor Angela Merkel had always been more forthright in praising Ordo-liberalism. Even before German unification, in an article in Berliner Zeitung on 10 February 1990, she had praised the ‘radical course’ of Erhard, Eucken, Böhm (mis-spelt as Bohlen), and Müller-Armack (mis-spelt as Müller-Arnau) as a way out of the present difficult legacy. Her Freiburg speech of 13 January 2016 on Ordnungspolitik was a more sophisticated and accurate defence of the Eucken legacy. Merkel’s visit marked the 125th anniversary of Eucken’s birth. She noted: . . . Germans are sometimes severely criticized for their emphasis on rules. Various people have suggested that it verges on an obsession. However, I am convinced that it is absolutely necessary to have a certain framework, a certain principle of order, above all the requirement of liability, of taking responsibility for risks . . . That we have a central theme in Eucken’s policies for order (Ordnungspolitik) provides, I believe, a great deal of security. For Walter Eucken, it was always a matter of reliability, calculability, and security in planning . . . it was, above all, about a reliable compass. (Author’s translation)
Chancellor Merkel closed her speech with the following praise for Eucken: ‘His ordering principles help again and again in not losing sight of the whole. They are comprehensible and provide guidance’. However, away from Freiburg, in the privacy of their Berlin offices, German politicians were more cautious and qualified in their commitment to Ordoliberalism. This wariness was clear in an interview with the popular and influential federal finance minister Wolfgang Schäuble, published in the weekly magazine Der Spiegel on 23 September 2013. Although Schäuble had been educated as a lawyer at Freiburg University, his supervisor, Fritz Rittner, had defended a positivist conception of law. In the interview Schäuble refused to commit to an individual school of economic thought. ‘These categories are too simplistic for my taste . . . I have a disdain for them, shaped by experience. I am beyond that’. He extolled instead the arts of the politically possible and the importance of instinct in crisis management when faced by radical uncertainties. ‘As Bismarck said, within the space of a second, you suddenly find yourself walking into a dark forest’. Schäuble articulated the virtues of political practice: the rapid-fire recognition of opportunities and threats, decisiveness, adaptability, and cunning. They were what marked the difference between the worlds inhabited by academic economists, dominated by internal tests of peer review, and the politician, exposed to the onerous requirements of public justification. And yet, in the interview in Der Spiegel, Schäuble’s profession of scepticism about economists and economic knowledge was complemented by recognition that he needed to listen to experts. His connections to the world of academic economics were mediated by his chief economist, Ludger Schuknecht. Schuknecht
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ORDO-LIBERALISM IN PERSPECTIVE 39 was a committed Ordo-liberal and close to Hans-Werner Sinn (2012a, 2014a, 2014b), president of the Ifo Institute for Economic Research in Munich. Sinn was a severe critic of bail-outs of banks and sovereigns, the ECB’s assumption of liabilities, and aspects of banking union. He pressed the value of a return to Ordoliberal principles in crisis management and reform (Sinn 2014b). Schäuble may have stressed his scepticism about academic economics in general and dismissed attempts to pigeon-hole himself as representing a single school of economics. Nevertheless, on numerous occasions he referred to his background in Freiburg and reiterated the Ordo-liberal position that strengthening the long-term economic foundations of economies like Greece was the fundamental requirement in euro area crisis management (Hien and Joerges 2018: 19–20). Schäuble (2015a, 2015c) stressed the need for Greece to respect the prin ciples of responsibility, reliability, and solidity. His linkage of these principles to Lutheran values was evident in an address to the Evangelical church conference (Chapter 7 on the religious context). Schäuble (2015b) presented Ordo-liberalism as a normative project of order whose values of reliability, frugality, discipline, and self-reliance derived from Christianity and the Reformation. In eighty speeches between 1 January 2010 and 1 December 2015 he referred thirty-six times to Ordo-liberal concepts and eighteen times to Freiburg and the Freiburg School (Hien 2017b: 7). Ordo-liberalism played two key roles, in addition to memorialization and public affirmation of belief. It functioned as a background idea, as part of the tacit knowledge of policy makers. It informed the assumptions of elite policy makers about what was deemed important, worthy of support, or menacing. It provided a road map to help them deal with uncertainty. Ordo-liberalism did not need explicit affirmation to serve these purposes. It needed to be institutionally and socially anchored. Second, Ordo-liberalism had an instrumental value in certain institutional settings and circumstances. Memorialization was selective, depending on whether it helped to legitimize policies that were deemed to serve institutional and national interests.
The Strong State: Misplaced Hopes and Their Legacy The belief of German Ordo-liberals in the crisis of 1931–3 that the ‘strong’ state was urgently required if a liberal economic and political order was to be created and safeguarded proved an enduring source of difficulties for the reception of Ordo-liberalism. The failings of the Weimar Republic (1919–33) led Ordo-liberals to conclude that democratization had unleashed forces that had disrupted liberalism. Walter Eucken (1932a: 17) buttressed this claim by reference to the earlier comments of Otto von Bismarck, Jacob Burckhardt, and Alexis de Tocqueville. Germany’s political and economic order had given way to demagogic politics and
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40 Conservative Liberalism, Ordo-Liberalism, and the State to an ‘anarchistic’ economy. According to Eucken (ibid.: 22): ‘The state must find the strength (Kraft) to free itself from the influence of the masses’. These difficulties were compounded by the early flirtation of some founding Ordo-liberals with fascist ideas. Until he came under the influence of Eucken after 1925, Miksch had been a member of the National Socialist party since 1923, expressed strong opposition to the Weimar Republic, and was attracted to antiSemitic ideas (Dathe 2015a: 12–13). His personal break with the Nazi regime did not come until 1943. Until then, Miksch had concluded that the war had been forced on Germany and must be won, that liberalism had no future, and that the idea of the ‘strong’ state had been realized by the Nazi regime—positions that were not shared by Eucken (ibid.: 29). Müller-Armack had flirted with fascist ideas since 1924, had welcomed the Nazi take-over, and had joined the Nazi Party in 1933. He remained a passive party member in the manner of the ‘opportunistic fellow-traveller’ (Kowitz 1998: 60–85). Like Miksch, Müller-Armack (1932: 125) believed that liberalism had failed and that the age was witnessing the transition from the liberal to the national ‘economic state’. This argument echoed Carl Schmitt, the prominent legal apologist for the Hitler state. Müller-Armack (ibid.: 110) pleaded for the ‘strong’ state on the Italian fascist model. However, as the Nazi regime developed, he retreated into research on the historical sociology of religion and the historical origins of different economic styles. The long-term reputation of Reinhard Kamitz in post-war Austria was similarly burdened by his association with the Nazi Party after the annexation in 1938. He was one of a small group of leading Austrian economists who remained after the departure of the Austrian School of Hayek and Mises. Like Miksch and Müller-Armack, Kamitz suffered from intellectual isolation and association with anti-liberal thinking after 1933. The premise of the ‘strong’ state as the foundation of the liberal order was most forcefully articulated by Alexander Rüstow (1963c/1932) on the eve of the Nazi accession to power. It was to prove an enduring source of later critiques (e.g. Bonefeld 2012, 2013, 2015, 2017; Haselbach 1991; Ptak 2004; Streeck 2015). In thinking about the ‘strong’ state in 1931–3, both Eucken and Rüstow looked back nostalgically to the Prussia of the Stein-Hardenberg ‘reforms from above’ (1806–15) and, to a lesser extent, to Bismarck’s Prussia before 1878 (see Rüstow letter of 16 May 1933 to Eucken in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In this letter Rüstow was at pains to stress that he rejected the ‘power’ state (Herrschaftsstaat), in which a ruling class identifies its interests with those of the state. He favoured a ‘communitarian’ state (Gemeinschaftsstaat) whose institutions acted on behalf of the community as a whole (ibid.). In the context of the terrible tyranny that followed, the belief that Germany could be rescued by the strong state proved at best naïve and counter-productive
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ORDO-LIBERALISM IN PERSPECTIVE 41 for Ordo-liberalism’s reputation. The words of founding Ordo-liberals in 1931–3 could be interpreted in different ways, with conclusions about individual Ordoliberals that might differ. On one influential reading they were ‘authoritarian liberals’, with a disdainful attitude to democracy and too much in the intellectual shadow of Schmitt (e.g. Bonefeld 2015, 2017). Their liberal democratic arguments had been tainted by association with a notorious apologist for extra-parliamentary dictatorship. In another reading, they were guilty of practising a pragmatic selfcensorship. Like many others, they feared speaking their minds in dangerous times. In yet another reading, they emerge as politically confused and naïve—at least for a time—in the face of forces whose malign character they did not fully comprehend until it was too late. They fell into the difficulty of many other wellintentioned Christians at that time: failure to fully comprehend and anticipate the evil that lay before them. Rüstow, who differed from the others in not being religiously devout, fares none too well. His critique of ‘the crisis of parliamentarianism’ in 1923–4, his backing for ‘dictatorship within the limits of democracy’ in 1929, and his ‘strong state’ speech in 1932 suggested affinity with Schmitt, reinforced by references to his work. However, there is no suggestion that Rüstow endorsed the concept of an extra-parliamentary presidential dictatorship. He looked not to replacement but to reform of the Weimar Republic, with the aim of reinforcing the leadership role of the imperial chancellor (Meier-Rust 1993: 28–30, 46–53, 54–9). In this spirit he endorsed Schmitt’s proposal to strengthen the executive power by the ‘constructive vote of no-confidence’, a procedure to block negative parliamentary majorities that was later adopted in Article 67 of the Basic Law of the Federal Republic. The reputation of the French philosopher Rougier seemed a reverse image of the founding German Ordo-liberals. After 1940 he was to be tainted by associ ation with the Pétain regime and later with the far Right. However, earlier he had lamented the degeneration of Europe into a mosaic of closed economies, hostile ideological camps, and feverish rearmament. Rougier (1935: 121) stressed the need to embed political, economic, and cultural liberalism in a framework of international cooperation and for statesmen who could think and act at the level of the European continent and of the world. ‘The Duce and the Führer are not the engineers of the future’ (ibid.). Later critics forgot that in 1935 Rougier had spoken out against the revival of past attitudes of nationalism and racism.
The Distinctive Features of Conservative Liberalism This book examines the Ordo-liberal tradition in its larger historical context of cross-national conservative liberalism, tracing family resemblances and borrowings. Ordo-liberalism emerges as an embedded tradition. The promise of a discip linary revolution was the response to a perceived existential crisis in liberalism
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42 Conservative Liberalism, Ordo-Liberalism, and the State and its relationship to capitalism and democracy. The self-appointed task of those seeking a reconstructed liberalism was to provide more secure foundations for a sustainable competitive market, based on a freely functioning price mechanism, private ownership, contractual freedom, protection of the interests of savers and creditors, clear liability for losses and debts, and securing creditworthiness (e.g. Einaudi 1942a, 1945; Eucken 1940, 1952; Meltzer 2012). Conservative liberalism represents a distinctive clustering of features. They delineate the boundaries of family resemblance vis-à-vis other types of liberalism and, ideologically, vis-à-vis fascism and socialism. Its features are shared in varying degrees by individual thinkers, in part because of this ideological hybridity, in part because of national differences in trajectories of historical development, and in part because of variation in the knowledge and experience of individuals. Family resemblance is not synonymous with each thinker sharing all features of conservative liberalism. Conservative liberalism encompasses the following recurring features which form the basis of a common language and technique of thinking: • An austere and ascetic view of civic virtue. • Intellectual hostility to utilitarianism, to materialism, and to philistine elites and publics. • The paramount importance of law, order, morality, and personal conscience. • The need for social hierarchy and respect for authority. • An educated, cultivated, and disinterested elite that rules in the name of the general interest. • The sacrosanct nature of private property and freedom of contract, qualified by a lack of equal regard for all kinds of property, notably unproductive capital, and by hostility to coercion in contract. • Priority for the interests of savers and creditors. • Distaste for those ‘unhealthy’ bourgeois values that undermine moral and social norms. • Respect for trustworthy officials who serve the community; for independ ently minded, creative artisans; for small, independent family businesses; and for the social balance and solidity that farming and rural communities provide. • Recognition of the interdependence of the economic with the social, legal, and political orders. • Belief in the strong but limited state—strong in the face of mass and pluralistic politics but limited to market-conforming intervention. • A cautious approach to democracy that protects both individual rights and public virtue from the political demagogue and from the excesses of public opinion.
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ORDO-LIBERALISM IN PERSPECTIVE 43 • The need for sources of influence that are independent of centralized government: through decentralization and through robust, non-majoritarian institutions, represented by the law, academia, central banks, banking supervision and regulation, and competition authorities. • A principle- and rule-based market order, with a juridical basis. • Rejection of untrammelled private market power, with competitive markets acting as a safeguard of individual liberty. • Price and financial stability as preconditions of a liberal order. • Profound scepticism that history is an unfolding of moral and intellectual progress. The significance of conservative liberalism and Ordo-liberalism was not rimarily in developing new macro- or micro-economic theories. It lay in p re-examining the epistemological problems of studying economic reality and in developing the idea of principle-based policies for the economic order and for the wider legal, social, and political orders with which the economy was inextricably interdependent. Conservative liberalism and Ordo-liberalism sought to return to foundational, first-order, constitutional questions in political economy by examining them in an interdisciplinary way. This intellectual challenge led conservative liberals to reject the concept of the ‘unhampered, self-healing market’, as advocated by the Austrian economist Mises (1949: 238). Later, American libertarians like Murray Rothbard (1962/2004) and French libertarians like Pascal Salin (2000, 2014) were to identify with Austrian economics. In contrast, conservative liberals, and notably Ordo-liberals, favoured a constitutional order for the economy, which rested on agreed ‘rules of the game’. Its constitutive elements were interdependent and had to be consciously shaped (Vanberg 2004: 3–8; also Buchanan 1991, 1999/1986 and Vining 1969, 1984). According to Röpke (1944: 133), the market was ‘an artistic construction and an edifice of civilization’. Heated clashes took place amongst liberals about how fundamentally, and in what ways, liberalism should be reconstructed. The most public encounters were between Rüstow and Mises at the Lippmann Colloquium in August 1938 in Paris (Audier 2012a; Burgin 2012: 71–6; Hülsmann 2007: 734–9); between Eucken and Mises at the second meeting of the Mont Pèlerin Society in July 1949 in Seelisberg (Kolev, Goldschmidt, and Hesse 2014: 20–1, 33–6); and between Rueff and Mises at the Centre Paul Hymans Colloquium in September 1957 in Ostend (Audier 2012b; Lane 1997). Hayek defended his fellow-Austrian Mises, whilst recognizing his shortcomings. In a letter of 30 July 1944 to Fritz Machlup, Hayek noted that Mises had ‘very brilliant patches’ but lacked ‘the gift to persuade’ (Machlup Papers, Hoover Institution, Stanford University, 43-15). The differences within liberalism extended to the name of the revolution. At the Lippmann Colloquium Rüstow’s suggestion of ‘neo-liberalism’ gained wide
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44 Conservative Liberalism, Ordo-Liberalism, and the State approval. However, no final agreement on terminology was reached. Other suggestions at the colloquium included ‘positive liberalism’, ‘social liberalism’, and, even more controversially, ‘liberalism of the Left’ (Plickert 2008: 95, 101). All were designed to make clear the radical break with nineteenth-century ‘Manchester’ or laissez-faire liberalism. Mises proved to be one of the staunchest, most relentless critics of the disciplinary revolution that was advocated by Ordoliberals. In these early encounters, by contrast, Hayek remained a more discreet, diplomatic, and ambiguous figure.
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2
Conservative Liberalism and Ordo-Liberalism: From Child to Midwife of Crisis in Capitalism and Democracy We are living in a demented world . . . It is but a little while since the apprehension of impending doom and of a progressive deterioration of civilization has become general. Johan Huizinga (1936: 15) This view of the Dutch cultural historian Johan Huizinga was widely shared amongst those who sought to renovate liberalism in the 1930s. There was a widespread sense of an existential crisis facing liberalism in its relations with capitalism and democracy. The question was on what terms—if any—they could be made compatible. In the words of the US economist Henry Simons (1934: 1): ‘the future of our civilization hangs in balance’. The French economist Maurice Allais (1946: 1) pointed to the ‘liberal debacle’ that he regarded as both cause and consequence of the Great Depression after 1929. The nature of conservative liberalism and Ordo-liberalism was profoundly shaped by its origin in this sense of an early twentieth-century catastrophe of liberalism. Liberals like Luigi Einaudi in fascist Italy and Wilhelm Röpke—both admirers of Huizinga—were profoundly affected by the traumatic and disorienting experiences of Europe during and after the First World War. They looked to an aesthetic and ethical renewal of liberalism and to re-founding it by building strong institutions. These normative and institutional facets of a renovated liberalism were connected in the call for a strong state, presided over by an enlightened and cultivated intellectual elite. It was, however, a largely fearful and pessimistic liberal elite that convened at the first meeting of the Mont Pèlerin Society in April 1947. This chapter shows that, within conservative liberalism, Ordo-liberalism stands out as distinctive in the sheer intensity of the twentieth-century crisis that beset Germany. It was, however, far from being alone in its sense of shock and liberal failure. The renovators of liberalism witnessed not just the physical destruction of Europe. Above all in Germany, they experienced personal
Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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46 Conservative Liberalism, Ordo-Liberalism, and the State intellectual intimidation and suffering, huge disruption to their academic careers, threats to family and friends, and the craven opportunism of many of their colleagues. Outside Germany, Huizinga was persecuted by the Nazis. Einaudi finally fled from fascism to Switzerland. Röpke was dismissed from his chair in Marburg and lived in exile, first in Istanbul, then in Geneva. Alexander Rüstow was also in exile in Istanbul. The members of the Freiburg School who remained in Germany were exposed to National Socialist academic intimidation and student protest, to interrogation and torture, and to death threats. National socialism, fascism, and war severely disrupted the exchange of ideas about the future of liberalism. The effects of intellectual isolation were most acutely felt in Germany. Eucken did not receive copies of Walter Lippmann’s The Good Society (1937) and Simons’ A Positive Programme for Laissez Faire (1934) until October 1947 (details in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In turn, the American economist Milton Friedman complained that ‘it was a pity to say the least that we know so little about the work of Europeans working in the same tradition’ (letter to Hayek, 2 January 1947, Hayek Papers, the Hoover Institution, Stanford University). By the winter semester of 1934–5, 24 per cent of economists in German universities had been dismissed on racial or political grounds (Hagemann 2011: 648). Emigration after 1933 meant that the percentage of leading economists working in the German-speaking world fell from 15 per cent to 3 per cent (ibid.: 645). Those who remained in post were either principled conservative liberals like Walter Eucken or opportunists and beneficiaries of Nazi favouritism who were disavowed by the founding Ordo-liberals. On 22 November 1937 Walter Eucken noted pessimistically in his diary: ‘academic energy will still continue under cover—it will gradually disappear in the universities. Lutz, Böhm, Pfister, Hensel etc. will not succeed . . . Everything that is left of true Germany thrives or shrivels beneath the oppressive official surface’ (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken, author’s translation).
Liberalism’s Second Great Transformational Crisis Demonic forces are let loose when a state is weak or when its leadership is demonically possessed . . . [by] demagogues who are often banal, purveyors of bluffs and lies, often hysterics, fools, idiots . . . tools of demonic forces, driven by fear. Walter Eucken, notes for a book, Gedanken zur Geschichte, 1940–7, 27 pp. (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken, author’s translation)
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From Child to Midwife of Crisis 47 Eucken’s private comments, dated October 1940, underline the extent to which German Ordo-liberals were acutely aware that they were living through liberalism’s greatest transformational crisis since the period between the 1750s and the 1850s (more generally on this crisis see Hacke 2018: 25; Koselleck 1972). The period from the 1920s to the 1940s eclipsed any other crisis of liberalism in the twentieth century in its scale and barbarity. Ordo-liberals looked back to the canonical texts of those who had engaged with the earlier transformational crisis in the effort to re-imagine what form a civilized and more durable liberal society might take. As their personal archives show, Franz Böhm and Walter Eucken sought guidance in such texts as Wilhelm Humboldt’s The Limits of State Action (1792), Immanuel Kant’s Groundwork on the Metaphysics of Morals (1785) and Critique of Practical Reason (1788), Friedrich Schiller’s On the Aesthetic Education of Man (2016/1795), and Adam Smith’s The Theory of Moral Sentiments (1759). Schiller had a striking relevance. Taking much of his inspiration from Kant, he identified the lack of moral resolve as a key obstacle to a liberal society (Schiller 2016/1795, Eighth Letter: 27). A liberal society required resolute will and living feeling. Schiller had pictured his own dramatic revolutionary age of the 1790s as characterized by a dual evil: the savagery of ‘the lower and more numerous classes’ and the lethargy and depraved character of the civilized classes (ibid., Fifth Letter: 14–15). The French Revolution had revealed the ‘incapacity and unworthiness’ of the French people, turning ‘a considerable part of Europe, back a whole century in barbarism and servitude’ (ibid.: 123). A moral reform of the state was not possible until the character of the age had first lifted itself from its degradation (ibid.: 24–5). According to Schiller (ibid.: 126): . . . this wondrous structure [of political and civic freedom] can only be built on the solid foundation of an ennobled character. One must begin with the creation of the citizens for a constitution, before these citizens can be granted a constitution.
Böhm and Eucken drew from Schiller’s reflections in 1795 the insight that a liberal order required not just an appropriate philosophical culture but also an aesthetic culture. Their respective tasks were the clarification of concepts and the refinement of feelings. Man had to be rescued from a narrow egoism and, through empathy, to recognize the freedom of others. Political, legal, and economic reforms to remake institutions might be indispensable but were not enough. A sustainable liberal order depended on the cultivation of character through refined taste and through moral energy and resolve. Like other founding Ordo-liberals, they saw the existential crisis of liberalism as cultural as well as institutional and material; as a crisis of feelings and principles, not just a set of economic problems. In a manner like the French Revolution in the time of Schiller, the interwar crisis had exposed the fragility of the liberal economic and political order in the
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48 Conservative Liberalism, Ordo-Liberalism, and the State face of the depravity and degradation of which man was shown to be capable (ibid.: 14–16). The interwar crisis represented a challenge of meaning for liberalism: how to make sense of a fast-moving relapse into barbarism and how to reconstitute liberalism as a force of enlightenment. The period from the 1920s to the 1950s was one of intense and rich debate within and about liberalism. However, as constitutional crisis loomed, notably in Germany after 1930, the debate revealed widespread disillusionment and self-doubt amongst the founding Ordo-liberals. There was confusion about where to draw political boundaries to the Left and to the Right and oscillation between a sense of helplessness in the face of fast-moving events and misplaced hopes. Rüstow, for instance, displayed serious misjudgements in the support he lent to the measures of the Franz von Papen government from May 1932. He emerged on the short-list of cabinet posts as economics minister in a government of General Kurt von Schleicher that was never formed (details in Meier-Rust 1993: 54–9). The problem for the founding Ordo-liberals was that there was no prospect of a parliamentary majority for the liberal competitive market order that they regarded as necessary. There was inadequate room for manoeuvre to make a decisive step in this direction. They had to contend with unfolding economic collapse in the context of American, British, and French obduracy over war debts and reparations and of a dysfunctional parliamentary democracy that they claimed had withered from within by failing to reform itself and head off the Nazi seizure of power. The responses of the founding Ordo-liberals to this dilemma were conditioned by their loss of belief that parliamentary democracy, with a pluralistic party system, could provide the necessary governmental power to master the challenges. Their responses differed from that of other Weimar liberals. Ordo-liberals looked to the ‘strong state’ as the only credible guardian of the competitive market economy. Many placed their faith—at least initially—in an extra-parliamentary presidential government to better protect a liberal order and looked back to previous German experiences of ‘reform from above’ as a source of hope. Other liberal reformers, like Friedrich Naumann, had sought to reconcile liberalism with the trends towards monopoly, centralization, and rationalization in capitalism and to pursue a more socially inclusive party politics (for details, Hacke 2018: 28–86). Their social liberalism took the form of proposals for state industrial policies and welfare-state policies which Ordo-liberals rejected. In contrast, more pragmatic, ‘common-sense’ liberals like Moritz Julius Bonn were more anxious about the ‘authoritarian capitalism’ of big industry and more focused on a collaborative international policy. Bonn advocated a democratic capitalism, based on the primacy of parliamentary government and political compromise (for details, ibid.: 308–21). On the one hand, he recognized the need for state intervention and welfare-state policies to secure a stable liberal order. On the other, Bonn was sceptical about their value in dealing with an economic crisis like
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From Child to Midwife of Crisis 49 that in 1931–3. In this sense, he occupied a middle ground between Eucken and Naumann. The founding Ordo-liberals felt themselves to be embattled amongst liberals. More profoundly, they believed that they were isolated in a world that had turned hostile to cultural and humanistic values and to the intellectual elites that upheld these values (e.g. Eucken 1921b: 1055, 1066, 1926a, 1930: 37; Röpke 1942: 16, 1958: 160–91; also Knight 1934, 1946). Ordo-liberals encountered widespread anti-liberal values, even amongst intellectuals. Böhm (1950a: LX–LXI) noted that during the Weimar Republic (1919–33) many employers, interest groups, and political parties—alongside ‘romantic aesthetes’—were unfriendly to liberal ideas. Drawing on Julien Benda and Huizinga, Röpke (1942: 178) pointed to another aspect of liberal intellectual failure: their silence in the face of barbarism. This traumatic experience of crisis produced a distinctive type of Ordo-liberal philosopher-economist and philosopher-lawyer. They were united by a commitment to an ‘intellectual renaissance’ in liberalism and to focusing on the fundamental questions of political economy rather than applied economics (Böhm 1950a: LXI; Eucken letter of 19 February 1948 to Knight, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Experience of crisis lent an ascetic and stoic character to their ethical outlook. The founding Ordo-liberals were strictly steadfast in their moral principles; intellectually formidable in their range of learning and depth of reflection; and, not least, highminded in their aesthetic culture. Walter Eucken was a prime example of this kind of philosopher-economist. His Grundlagen der Nationalökonomie (1940) offers a partial insight into this aspect of his intellectual character. His letters to his mother Irene in 1911–12 revealed his close friendship with the expressionist painter August Macke whilst a student in Bonn (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken; also, for the later correspondence with Macke’s widow, Elisabeth). Long discussions with Macke about art and music helped to convince Eucken that the scholar must be committed to penetrate through superficial and often deceptive appearances of the world to the reality at its core (ibid.). This similarity of outlook helped to foster long-term contacts between Elisabeth Erdmann-Macke and the Eucken family. Eucken’s colleague Böhm (1937) was very much the philosopher-lawyer. He took aesthetic pleasure in ‘thinking in orders’ and viewed the market economy as a ‘cultural marvel’ (Böhm 1950a: xxxv, 1990). Böhm believed that to fully understand freedom one had to look beyond Kant, Smith, and the formal analysis of economists and lawyers. Inspiration had to be found in the way in which philosophically minded poets and novelists had thought about freedom. His aesthetic culture and stylistic power owed a great deal to Ricarda Huch, the eminent poet, novelist, and historian who was honoured by Thomas Mann as ‘the first lady of Germany’ (Hansen 2009: 25–9). She was Böhm’s mother-in-law and lived with his family in Berlin, Freiburg, and Jena. Huch helped to connect Böhm to a wide
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50 Conservative Liberalism, Ordo-Liberalism, and the State range of artists, intellectuals, and theologians (Dathe 2014b; Hansen 2009; Roser 1998: 93–101). Following Schiller, Huch turned to the Reformation and the Thirty Years’ War to examine the problem of freedom in times of profound adversity and the ensuing moral challenges. Her historical work took on a topical relevance in the Germany of the 1930s and 40s and offered an indirect critique of the Nazi regime (details in Bendt and Schmidgall 1994). Like Huch, Böhm gained inspiration from the insights of Schiller into the ‘felt experience’ of freedom and into the characteristics of character that freedom required (Zieschang 2003). He and Huch shared an admiration for the early nineteenth-century Prussian reformer Friedrich von Stein. They contrasted his advocacy of freedom and law and the moral character of power with the politics of ‘power, money, and the mass’ of Bismarck, the worship of the material world that it had inspired, and the decline of the German tradition (Bendt and Schmidgall 1994: 225, 305–6). In Huch’s formulation, Stein represented the ‘Old God’ and Bismarck the ‘New God’, a symptom of the tradition’s decline. This combination of philosophy with cultural history was common amongst the founding Ordo-liberals. Alfred Müller-Armack, Röpke, Rüstow, and Otto Veit venerated Johann Wolfgang von Goethe as a source of inspiration about how to resolve two antinomies that had taken on a sharper form in the modern, increasingly complex technical age. The first—the conflict between the good self and the bad self—had preoccupied Goethe’s Faust and seemed to have been played out in German history (notably Veit 1946: 306–8, 316–20). Goethe suggested that the solution was to be found in cultivating the inner mind (Chapter 5: 140–3). The second—the conflict between freedom and social solidarity—had informed Goethe’s response to the French Revolution and to industrialization. Goethe looked to marry modernity with the best in tradition. In a similar manner, Classical history and mythology littered the work of Louis Rougier, Jacques Rueff, Röpke, Rüstow, and Veit. The turn to cultural history was part of their search for meaning through a reconstructed liberalism whose value system was not simply to derive from the spontaneous outcomes of the market. Veit (1935: 213) sought to restore the notion that ethics was an essential part of culture: that the ‘cultural quality’ of man was to be measured in ethical terms.
Contesting ‘Vulgar’ Liberalism: Critiquing the Mainstream This intellectual background of aesthetic and cultural, as well as institutional, critique helps in understanding why one prominent Ordo-liberal identified the challenge of renovating liberalism as stemming from what he termed ‘vulgar liberalism’ (Rüstow 1950–7: 165). In Rüstow’s view, laissez-faire liberalism had produced a nineteenth- and twentieth-century capitalism that—by neglecting the
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From Child to Midwife of Crisis 51 constitutive role of institutions and rules—had led to a pathologically degenerated form of economy, characterized by monopoly and cartel power. It had paved the way for the enemies of the market, bred political pressures for collectivism, and weakened liberalism (also Hayek 1960: 286–7). Liberalism had to be saved from itself as well as from its enemies. A similar type of argument was developed by Böhm. He argued that the biggest danger to a law-based market order came not from outside forces like Marxism but from within (Böhm 1953b/1960: 153). It stemmed from the inconsiderate, insensitive, and ignorant cynicism of those active in the market economy. Their tolerance of monopoly power, their support for state intervention to protect monopoly power, their neglect of social policy, and their indifference to the consequences of fluctuations in levels of economic activity had helped to foment widespread alienation, rebellion, and ‘an anarchistic process of disintegration’ (ibid.: 154–5; also Böhm 1953a/1960: 147–8). The competitive market was the most effective institution for disempowerment and opening opportunities. It ensured a ‘society of those enjoying equal rights’ (Privatrechtsgesellschaft). Its members were not subordinated one to another. They were coordinated through a market, regulated by civil law which ensures that freedom is safeguarded (Böhm 1966). The sense of liberalism as rotting from within deeply affected Frank Knight, the most influential figure in the early Chicago School of the 1930s (Burgin 2009: 522; Emmett 2009). In the wake of the Wall Street Crash of 1929 and the Great Depression, he wrote of the ‘sickness of liberal society’. Laissez-faire liberalism had failed to remedy capitalism’s shortcomings. It had neglected inequality and the sordidness of life for the poor. It had tolerated dreary, monotonous work that undermined human dignity. This type of liberalism suffered from serious ethical shortcomings in not doing enough to promote the good life, which came not just through work but also through cultural activity, play, and spontaneous sociability (Knight 1946). It rewarded two sources of income that—unlike individual effort—were without ethical significance: inheritance and luck (Knight 1929). Monetary and economic disorder and the rise of authoritarian and fascist forces were testimony to how nineteenth-century liberalism was ‘played out’ (Knight 1934). Later in the 1950s, Knight was to be a forceful critic of the way in which the Chicago tradition had evolved as a ‘doctrinaire’ and ‘foolish’ eulogizer of free markets under his former pupils Milton Friedman and George Stigler (Burgin 2009: 536–7). In short, for conservative liberals and Ordo-liberals, the core political, economic, and social problem was not so much the outsider forces of fascism and communism as the failure of mainstream liberalism—defined as laissez-faire liberalism—to renew itself. This framing of the problem as one of internal failure was by no means specific to this form of liberalism. It offered one type of critique from within liberalism. The social-liberal critique of the mainstream—again
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52 Conservative Liberalism, Ordo-Liberalism, and the State defined as laissez-faire—was an alternative that swept across Britain, France, Italy, and Scandinavia in the first half of the twentieth century. In a similar way, Ordoliberalism was embedded within a cross-national disciplinary revolution within liberalism: the call for a rule-based economic order and for legal, social, and political orders that were consistent with, and supported, this type of order so that it would prove sustainable. The dispute of disciplinary liberals with the Austrian and the new post-1945 Chicago varieties of liberalism was not about the competitive market system. It centred on its proper foundations, on the need not just for strong institutions but also for aesthetic and ethical renewal to avoid the effects of unfettered competition. Their dispute with the social liberals focused on the avoidance of discretion and the misuse of governmental and corporate power. Each of these variants thought in its own way that it was renewing a failing liberalism.
The Twentieth-Century Crisis: Experiencing Disorder Conservative liberals and Ordo-liberals attributed the long twentieth-century crisis, and the failure within traditional liberalism, to forces beyond technical economics—to a larger, encompassing ‘crisis of modernity’, whose origins could be traced back well before the First World War (e.g. Eucken 1921a, 1926a, 1932b; Müller-Armack 1948a, 1949; Röpke 1942, 1944; Rüstow 1945, 1950–7; Veit 1932, 1935, 1941). Their critique was grounded in a return to the aristocratic liberalism of Lord John Acton, Jacob Burckhardt, Goethe, and Alexis de Tocqueville (e.g. Hayek 1967c/1944, 1967a; Röpke 1942). It was also linked to a conviction that there had been a profound and more fundamental failure within philosophy, which had abandoned Idealism for the naturalism of the ‘hard’ sciences and for ‘naïve’ realism (e.g. Veit 1935: 131–9). They argued that the intellectual centre of gravity had shifted away from the inner development of man’s aesthetic and moral capacity to the preoccupation with the mastering of the external physical and social environments (e.g. Rudolf Eucken 1914: 231; Guardini 1950; Huizinga 1936; Husserl 1970/1936; Ortega y Gasset 1930). As Chapter 6 demonstrates, conservative liberalism and Ordo-liberalism drew inspiration from four philosophical traditions: the Idealism of Kant and Rudolf Eucken; the phenomenology of Edmund Husserl and Max Scheler; the critical Realism of Nicolai Hartmann and George Santayana; and the humanistic phil osophy of the Classical world. This sense of fundamental civilizational crisis played a foundational part in conservative liberalism and Ordo-liberalism. It shaped the distinctive identity of the tradition: its combination of aristocratic liberalism with anti-naturalistic philosophies that valued the distinctiveness of the social and ethical realms from the mechanistic character of the natural sciences.
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From Child to Midwife of Crisis 53
Transformative Events in the History of Conservative Liberalism and Ordo-Liberalism The founding figures of conservative liberalism and Ordo-liberalism lived through an unfolding twentieth-century crisis, marked by a series of transformative events that shook the foundations of European stability. They included the First World War in 1914–18; the Bolshevik revolution in Russia and the collapse of four European empires in 1917–18; the long ‘interwar crisis’; the Second World War in 1939–45; the post-war division of Europe; and the unfolding of the Cold War from 1947/1948. The dark shadows of intolerance, tyranny, war, and—for so many of them—defeat and humiliation hung over these years. Europe experienced economic and monetary disorder and breakdown, the rise of violent paramilitary sub-cultures, massive population displacements, appalling human suffering and loss of life, and immense physical destruction (for details see e.g. Kershaw 2015; Mazower 1998). The extremity of this economic, social, and polit ical disorder was most starkly revealed in a bewildering series of border conflicts, civil wars, revolutions and counter-revolutions, tyrannical regimes, pogroms, widespread torture, hyperinflations, economic depression and mass unemployment, and final eruption into continent-wide total war and mass genocide. The persecution of intellectuals in Germany and Italy, the horrors that were perpet rated against minorities, the grim descent into the Second World War, and communist seizures of power in eastern Europe after 1945 brought home the powerlessness of the liberal intelligentsia. The first period of the extended European crisis extended from 1917 to 1923 (Gerwarth 2016). As the First World War drew to its tragic and deeply contested closure, the collapse of empires—Austro-Hungarian, German, Ottoman, and Russian—opened space for violent, insurrectionist political forces on both Right and Left. Bolshevism and fascism gained political traction and spawned violent sub-cultures. In Germany, left-wing uprisings in Berlin and Munich in 1918 were accompanied by the brutality and street-battles of the Freikorps and were followed by the attempted right-wing ‘Kapp Putsch’ in March 1920 in Berlin. During this period Walter Eucken and others—returned from the horror of the trenches—were temporarily drawn towards the far Right. The situation was aggravated by high inflation, economic dislocation, and social distress. The German hyperinflation of 1923 stood out as an event that was to figure prominently in the historical narrative of Ordo-liberals and their construction of a disciplinary ‘stability consciousness’ in monetary policy (Lindenlaub 2010; Löffler 2010a). Eucken (1923: 70, 79, 83) broke new ground in German monetary policy debate by arguing that inflation was a monetary phenomenon that required a strong state committed to price and exchange-rate stability. ‘The state has used inflation to conduct an arbitrary form of taxation’ (ibid.: 73). According to Eucken, there had to be no diversion from the goal of reducing
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54 Conservative Liberalism, Ordo-Liberalism, and the State inflation by eliminating the fiscal deficit and by higher interest rates. He repeated his message at the conference of the German Association for Social Policy (Verein für Socialpolitik) in 1924: that the domestic control of credit and the money supply—not correction of the balance-of-payments deficit—was the essential basis of economic stability. Eucken’s Kritische Betrachtungen zum deutschen Geldproblem was a striking early foundational statement of Ordo-liberal monetary thinking. Costantino Bresciani-Turroni (1937: 77–82), the Italian economist, also used Germany’s experience in 1914–23 to press the argument that inflation was a monetary phenomenon (Chapter 10: 336). In the period beyond 1923 the fragility of the international monetary and financial order continued to be exposed by the insidious and poisoning politics of war debts and reparations, in the wake of the Versailles peace settlement. The victorious powers proved unwilling to undertake a comprehensive and simultaneous write-down of these debts and reparations. In consequence, serious damage was inflicted on the new and fragile Weimar Republic. The period was overshadowed by the lack of post-war political agreement on a durable framework of inter national and European order to restore stability to finance and to trade. The instability of national currencies—both internally and externally—hindered the return to a sustainable gold standard—other than from the mid-1920s to early 1930s—as an instrument of economic and political discipline. By early 1932 Ordo-liberals were gathering in the new German Association for a Free Economic Policy (Deutscher Bund für freie Wirtschaftspolitik) to oppose policies of economic autarky, to argue for a fixed exchange rate, and to oppose the extension of state power in the economy (see Chapter 11: 385–6). The executive committee included Goetz Briefs, Eucken, Röpke, and Rüstow. They saw its programme as a substitute for the bankrupt political parties which had failed to bring together economic liberals (letter of Rüstow to Eucken, 25 June 1932, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In an Ordoliberal manner the programme rejected the idea of a return to ‘Manchester liberalism’. Opposition to ‘protectionist nationalists’ was from the outset a unifying theme amongst Ordo-liberals. In a letter to Eucken on 16 July 1931 Röpke claimed that one cannot be a free trader if one is at the same time a nationalist (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). The limitation of national sovereignty was—alongside domestic price stability—a prerequis ite of a stable international monetary and financial order. This theme was developed in Ordo-liberal thinking from the 1930s (e.g. Lutz 1936, 1949; Miksch 1949a, 1949b; Röpke 1936, 1954, 1959; Veit 1950). Röpke provided the important foundational statement of Ordo-liberal thinking on the international monetary and trade order. He argued that the gold standard continued to provide the ideal of a disciplinary device (a point of agreement with Einaudi in Italy and Rueff in France). In its absence the key priority in
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From Child to Midwife of Crisis 55 European integration was monetary and financial discipline on the German and Swiss models (Röpke 1959: 8–9, 265). ‘Liberal discipline’ in a framework of free, open trade was superior to the ‘collectivist austerity’ of national protectionism (ibid.: 211). It required both the ‘taming of the market’ and the diminution of national sovereignty (ibid.: 6). Röpke recognized his Internationale Ordnung— Heute, the last of his trilogy of texts on the crisis (also Röpke 1942 and 1944), as the main statement of the economic lessons that he drew from the interwar crisis. The Wall Street Crash of 1929 and the onset of the Great Depression in the period 1931–3 intensified the sense of civilizational crisis. Liberalism—notably in Weimar Germany—was caught up in a crisis that encompassed economic collapse, fiscal and monetary disorder, overloaded welfare states, fragmented soci eties, and enemies on the Left and Right. The crisis took the form of banking collapses, harsh deflationary policies, escalating unemployment and destitution, the rise to power of the National Socialists in Germany in 1933, the complicity of some in the traditional elites with this process, and the rise of extreme right-wing political forces across Europe. The French Third Republic was convulsed by crisis. The militaristic far-Right Croix de Feu was the catalyst for violent confrontations in February 1934 and March 1937. By 1936 it had close to 500,000 members. Tensions increased with the hectic pace of economic and social reforms by the short-lived left-wing Popular Front government of May 1936 to June 1937. The sense of political crisis was accompanied at technical elite levels by a new enthusiasm for planning. Against this background, Rougier, Rueff, and other French liberals sought to reappraise liberalism and to reflect on the limitations of democracy as outlined by Gustave Le Bon (1896) and José Ortega y Gasset (1930). In contrast to France, Belgian liberals had, if for a short time, an opportunity to try to pursue a renovated liberalism. The context was Belgium’s harsh, unsuccessful deflation of 1931–4, the economic crisis in 1933–4, increasing social unrest, and the rise of the far-Right, authoritarian Rexist Party. In 1935–7 Paul van Zeeland, the prime minister of the ‘government of national renovation’, responded with a comprehensive programme of economic, social, and political reforms (Dujardin and Dumoulin 1997). In 1937 he successfully challenged the Rexist Party leader in a Brussels by-election. Van Zeeland’s reform programme was designed to provide relief from the pains of deflation by an immediate devalu ation; to restore discipline to liberalism by putting the public finances in order, lowering interest rates, and returning firms to profitability; to use a stronger economy as the basis for social reforms to ease pressures on employees; and then to establish the ‘quiet and strong state’ (van Zeeland 1943: 265–6, 270). The programme was tied together by the belief that Belgium suffered from ‘the excessive use and shameless abuse’ of the nineteenth-century liberalism it had inherited. Liberalism needed to be put to constructive purpose through a strengthened executive power. ‘The personality of man had to be helped and protected . . . against
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56 Conservative Liberalism, Ordo-Liberalism, and the State the disorderly egoism of ambitious groups . . . or against an omnivorous state, eventually conquered by and made the fief of a few bold and strong adventurers’ (van Zeeland 1943, preface: i). However, ‘the van Zeeland experiment’ was to last only two years and was only partially implemented. It fell victim to the paradox of the reliance that it was forced to place on the political parties whose influence it sought to reduce (ibid.: 269). Like his French counterparts, van Zeeland looked to Le Bon and Ortega y Gasset, as well as to Walter Lippmann (1937) and Rougier (1949/1938), in his search for a renovated liberalism (van Zeeland 1943: 278–80). The single most profound shock to Eucken and his Freiburg colleagues was the organized violence of the National Socialist pogrom of 9–10 November 1938 against Jews (Kristallnacht). It was dramatic testament to the failure of both European liberalism and the Lutheran Church and led them, driven by Constantin von Dietze and Adolf Lampe, to intensify their resistance to the Nazi regime (Blumenberg-Lampe 1973, 1991; Dathe 2015b, 2018a: 78–9; Dietze 1960/1961). In autumn 1944 von Dietze and Lampe were arrested by the Gestapo and tortured, along with the Freiburg historian Gerhard Ritter. Against this background, Eucken committed his thoughts to the (unpublished) manuscript ‘Gedanken zur Geschichte’ (thoughts on history, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). He condemned the lethal mixture of ethical relativism and political opportunism that had entered German public life, citing as examples Martin Heidegger and Carl Schmitt. The result had been tolerance of racist ideology (note of April 1942, ibid.). Eucken offered a public critique of the Historical School and Gustav Schmoller in a provocative article in Schmollers Jahrbuch (1938). He openly criticized their relativism and the fatalism they bred amongst economists and lawyers. In the article he took up the themes in the 1936 Freiburg manifesto (Böhm, Eucken, and Grossmann-Doerth 1989/1936). Historical experience had to be studied through the critical lens of rational, theory-based analysis (ibid.: 214), in the manner suggested by Eucken in his Kapitaltheoretische Untersuchungen (1934) and his Nationalökonomie—wozu? (1938). Eucken’s critique provoked sharp criti cism from National Socialist economists who accused him of polemics (Dathe 2018b: 125). From the beginning of 1943, Eucken occupied himself intensively with the study of freedom in the work of Kant, Schiller, and Tocqueville and with the debate about natural law. He drew the lesson that freedom was about more than a political doctrine or an abstract principle. It was ‘a way of life’. At the very least, the liberal order depended on basic rights being incorporated in a constitution (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken, box on ‘principles originals 4’). In summary, the events of the 1930s and 40s intensified the sense of profound failure on the part of the liberal intelligentsia. It had proved incapable of generating support for ideas that could prevent or reverse the economic and political meltdown in 1931–3; wrong in its belief that the ‘strong state’ promised by
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From Child to Midwife of Crisis 57 extra-parliamentary presidential government would strengthen the liberal order; and powerless in the face of the Nazi seizure of power. Liberals had succumbed to the idolatry of the national community (Volksgemeinschaft), which had served to camouflage the power of state interests and led to the complete destruction of law (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken, manuscript ‘on the vocation of science’, April 1942; also box ‘principles original 2’, notes of October 1943). Ordo-liberals responded to this crisis and sense of failure by focusing their attention on constitutional limits on political rule (including democratic rule) and on preventing the concentration of market power (Goldschmidt and Hesse 2012; Hayek 1944, 1960, 1967c/1944, 1967a, 1973). They came to recognize the foremost value of the competitive market order was not the optimization of production but the greater opportunity it provided to live a free and dignified existence. The centrally directed Nazi economy had amounted to ‘state slavery’ (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken, box on ‘principles originals’; also box ‘economic policy’, 1933–45). Eucken—like Röpke—had moved a long way since 1931 when they had agreed on calling for belief in the state (Staatsgesinnung) and in the integrity of the state (Staatsintegrität) (letter of Röpke to Eucken, 16 July 1931, ibid.).
Ordo-Liberalism and the Civilizational Crisis of Modernity The sense of moral energy and urgency that so marked conservative liberalism and Ordo-liberalism derived from the combination of this prolonged and dramatic existential crisis with a longer-standing debate about the ‘crisis of modern ity’. Ordo-liberalism grew out of the belief that inherited mainstream liberal thought had failed to come to grips with the scale and depth of the civilizational crisis. This belief stimulated the founding Ordo-liberals to ‘go back to fundamentals’ in designing the moral, legal, and institutional foundations of a liberal order (e.g. Röpke 1942, 1944, 1954; Eucken manuscript ‘thoughts on history’ and notes in box ‘principles originals 4’ in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). On closer contextual examination, reference to the ‘crisis of the Western world’ offered a basis for critique that did not single out the Third Reich and put the author in direct and serious jeopardy (cf. Böhm 1934: 192). Böhm (1957b/1960) stressed, in documenting the origins and nature of the Freiburg School, that the period from 1914 had given birth to a new discourse and practice of inhumanity, terror, and violence. Ordo-liberals sought to put in place new safeguards against the subversion of what had been traditionally understood as civilized values. These values had proved to be highly fragile (also Mestmäcker 1995: 11). In the search for safeguards they looked back to
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58 Conservative Liberalism, Ordo-Liberalism, and the State aristocratic liberalism, to austere and ascetic forms of religious thought, and to Classical values of heroic discipline. The notion of creating a civilized and discip linary liberal order, and the search to define its ethical foundation and institutional attributes, stood at the core of the Ordo-liberal tradition. Writing just after the First World War, the German philosopher Scheler (1954: 103) captured the sense of the existential crisis that humanity faced and that came to define the Ordo-liberal tradition. Humanity had been left ‘drunk with suffering, death, and tears’. Scheler feared the rise of an idol or a false god unless Europe underwent a religious and intellectual renewal (ibid.: 104). He stressed the urgent necessity of collective and individual action to restore peace and to avert the terror that follows when political apathy and indifference becomes the cultural norm (Scheler 1990: 72, 121). Scheler’s fears resonated strongly in the work of one of his pupils, Müller-Armack (1948a: 127): ‘Idol formation is . . . a religious phenomenon of meaning in a secularized world’. Müller-Armack noted that, from the nineteenth century, history had been a story of the construction of worldly idols: the idolization of states, nations, races, classes, progress, technology, youth, art, and science (ibid.: 54–66, 125–37). The Ordo-liberal tradition was shaped by a sense of living in a new, ill-defined, and threatening epoch. The crisis was not just a narrow economic and political crisis. It was a deep and profound intellectual and cultural crisis (Eucken 1926a, 1930, 1932b; Knight 1935a, 1937; Lippmann 1937, 1955; Müller-Armack 1948a; Röpke 1942, 1944, 1958b; Rougier 1949/1938: 70–88, 1960, 1969; Rueff 1945; Rüstow 1945; Veit 1935, 1943). The challenge was to understand the nature of this crisis in its totality and to reset one’s moral compass amidst so much confusion. The crisis was not simply nation-specific—say, a German crisis. It was more fundamental: a cultural ‘crisis of modernity’ (Veit 1946). This sense of a profound cultural and intellectual crisis had been identified by earlier intellectuals, amongst others by Le Bon (1896), Benda (1927/1946), Ortega y Gasset (1930), and Burckhardt (1943) (see also Dru 1955; Hinde 2000). In the view of influential ethical philosophers, writing in the period from the 1890s to the 1930s, the crisis had been induced by the reductive mind-sets associated with the rise of capitalism, the mechanization of nature, secularization, and radical individualism (e.g. Bergson 1977/1932; Husserl 1970/1936; Rudolf Eucken 1914, 1918, 1922; Scheler 1954). Methodological individualism in economics was one such reductive mind-set (e.g. Hawtrey 1926, c.1946–c.1973b; Knight 1935b, 1937). It had led to the dehumanization of economics (Röpke 1958b: 367–85). This lived experience of disorder across the economic, political, social, and cultural realms was deeply inscribed in the foundations of the Ordo-liberal trad ition. It conditioned and gave distinctiveness to the way in which Ordo-liberals thought about state, society, law, and markets. It also helps in understanding their passionate intellectual engagement with ‘thinking in orders’, and not just with
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From Child to Midwife of Crisis 59 incentives; with the interdependency of orders; with the priority for safeguarding a rule-based order over intervention in the economic process; with the vital role of competitive markets in securing individual rights, and not just in promoting economic efficiency; and with the need for competitive markets to be legally and institutionally anchored in ways that correct power imbalances. The paramount requirement was a framework of order that serves the common good, defined as the humane values of freedom, dignity, and solidarity, and that is not subverted by the power of special interests. Disorder was the crucible within which was forged the distinctive memorizing that Ordo-liberals cultivated and on which they drew to justify their policies. They stressed the imminence of disorder and its pernicious consequences. The risks of disorder had to be guarded against, above all in good times. The Ordoliberal mind-set was ascetic, stoic, disciplinary, and precautionary. It was deeply averse to complacency. At the same time, the historical memorizing that became inscribed in the Ordo-liberal tradition was selective. Its selectivity was guided by ideological positions, which were in turn socially grounded in the social origins, socialization processes, and experiences and interests of those working in the tradition. The ideological values of Ordo-liberals affected how they defined the interwar crisis, the role of economics in the crisis, and the policy lessons to be drawn.
Defining the Crisis: A Beleaguered Cultivated Bourgeois Intelligentsia As with any tradition, Ordo-liberalism is only comprehensible in the light of its initial conditions, material and perceptual, and their social basis. The social basis of the Ordo-liberal tradition was to be found in the anxieties, fears, and reflections of a cultivated bourgeois intelligentsia (the Bildungsbürgertum) about modernity and its manifestations in centralized state power, the concentration of economic power, democracy, and depersonalized social life. This social status group presided over the genesis and early development of the tradition. Its members, like Rudolf Eucken (1911/1890), had felt beleaguered before 1914. Their anxieties mounted after the First World War (Renker 2009; more generally, Bruford 1975 and Ringer 1969). They believed that their ideal of civilized society—and their special role in safeguarding it—was threatened by the mounting troubles of modernity. Ricarda Huch was a high-profile representative of this cultivated bourgeois intelligentsia. For her, a close confidant of Böhm and the Eucken family, the mission of the bourgeoisie was to provide the state with moral conscience and to oppose the progressive depersonalization of life. She claimed not to be democratic ‘in the contemporary sense’ (Bendt and Schmidgall 1994: 307–9).
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60 Conservative Liberalism, Ordo-Liberalism, and the State From the late nineteenth century, the cultivated bourgeois intelligentsia spawned ‘circles, societies and networks’ around ethical, aesthetic, and cultural programmes, occasionally led by charismatic figures (Schäfer 2017). Circles were the smaller, more personal and intimate intellectual gatherings, like that around Huch in Jena in the late 1930s and 40s. A prominent early example—closely connected to the Ordo-liberal tradition—was the Eucken Circle. Societies were organized to serve a wide membership. After the First World War the Eucken Circle changed into the more formal character of the Eucken Association (Euckenbund). As a circle and then society, they continued in existence from 1900 to 1943 and propagated an ‘ethical activism’ within liberalism that influenced Böhm, Walter Eucken, and other early Ordo-liberals. The crisis was defined by members of the cultivated bourgeois intelligentsia as the outcome of the rise of ‘mass’ society. Its characteristics were the atomization of society and politics. The French Revolution, industrialization, urbanization, and secularization were held responsible for a ‘crisis of social solidarity’. They had eroded the traditional institutional bonds of family, church, and neighbourhood; promoted a new, radical, and potentially anti-social individualism; and produced a fragmented and depersonalized society. The ‘crisis of civilization’ debates that underpinned the origins of the Ordo-liberal tradition combined nostalgia for a lost and more comfortable past of ‘community’; discomfort about the anonymity and loneliness of contemporary ‘mass’ society; and fear for the future of liberalism (e.g. Briefs 1937, 1980; Röpke 1942, 1944, 1958b; Röpke, Rüstow, and Briefs 1960; Rüstow 1945, 1950–7, 1955, 1963a). The supporting historical narrative for this definition of crisis looked back to nineteenth-century sociology (e.g. Röpke 1942: 16–29). In the words of Müller-Armack (1948a), individuals in mass society were ‘internally homeless’ and vulnerable to the appeals of substitute secularized religions like communism and fascism. The sense of crisis in the social and political role, status, and interests of the cultivated bourgeois intelligentsia had material as well as ideational foundations. Like the bourgeoisie more broadly, they suffered economic emaciation through war loans and inflation, which eroded their wealth (Taylor 2013). Material pain was made harder to bear by a sense of loss of respect for learning, for reason, and for truth. They looked out at a world that they defined as succumbing to intellectual decadence as agnosticism, scepticism, and moral relativism gained ground (e.g. Eucken 1926a, 1927, 1930, 1950; Guardini 1950; Lippmann 1929, 1937; Röpke 1944: 151–61; Scheler 1954, 1990). The shift to materialism, positivism, and utilitarianism in philosophy was viewed as the intellectual mirror to a larger social and cultural development. These philosophical currents were judged as inadequate bases for formulating ethical principles. They eroded interest in, and respect for, intrinsic values of good conduct. The Cambridge philosopher G. E. Moore (1993/1903) attached blame to the ‘naturalistic fallacy’ at the heart of empiricism. It failed to recognize
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From Child to Midwife of Crisis 61 the important role of intuition in grasping universal intrinsic values, which were in consequence suffering neglect. Fallacious philosophical views were held responsible for inducing relativism in ethics, for trivializing social, economic, and political life, and for narrowing public discourse. This intellectual context made it easier for economic interests to justify their privileged access to power and bend the state to their will. It made a pretence of their claims to operate in competitive markets or to promote social solidarity. In consequence, Europe had witnessed the erosion of economic liberalism and social solidarity: the key pillars of economic, social, and political order. The Ordo-liberals represented a distinguished part of a larger intellectual aristocracy that saw itself as in crisis. Their ideological hallmark was the selective use of philosophical, religious, and social ideas and references to support and legitimate the conservative and liberal values they cherished. They looked to a conservativeliberal order that would celebrate, restore, and renew values of integrity, reason, freedom, law, human dignity, and respect for traditions of social hierarchy. The Ordo-liberal outlook on economics was linked to a wider critique of an age of ‘unphilosophical experts’ (Husserl 1970/1936: 11). The new meritocrats possessed ‘knowledge without wisdom, technique without understanding’, pursuing the ideology of the state as a massive machine and destroying creativity (Ortega y Gasset 1930: 87). For leading figures in this cultivated bourgeois intelligentsia, disorder was the enemy of the kind of liberalism they valued. Classical economic liberalism was identified as part of the problem. Against this social and cultural background, the Ordo-liberal tradition emerged as a complex and ambiguous fusing of conservative and liberal thinking around the search for a restored and renovated liberalism. The disciplinary liberalism that ensued had the characteristics of radical conservatism. In their attempts to make sense of the interwar crisis, the founding Ordo-liberals connected back to intellectual debates that predated the First World War. Many in the European intelligentsia viewed the events from 1917 onwards as confirming, and making more relevant, earlier arguments about a long-term crisis of civilization. The intellectual ‘anti-heroes’ of the Ordo-liberals were materialism, positivism, empiricism, utilitarianism, and historicism. Ordo-liberals defined them as ‘the other’, with reference to which they consolidated their sense of identity (cf. Rumelili and Todd 2018). Materialism and positivism were held responsible for the ‘crisis of meaning’. Historicism had given rise to the ‘crisis of relativism’. More fundamentally, the Enlightenment had proved incomplete in its onesided rationality, in its optimism about progress, and in its celebration of mod ernity. The belief in intellect and progress had been accompanied by neglect of the importance of the inner spiritual life and by underestimation of the temptations of messianic, totalitarian ideologies (e.g. Eucken 1926b, 1930, 1933a; Husserl 1970/1936: 296; Müller-Armack 1948a, 1949, 1950/1974, 1959, 1970).
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62 Conservative Liberalism, Ordo-Liberalism, and the State Ordo-liberals drew on these arguments to support the belief that leading roles had to be assumed by the cultivated intelligentsia—in academia, the state, and the churches—if the crisis was to be overcome. New claims were made for the import ance of metaphysical philosophy in overcoming the deficiencies of naturalism, empiricism, and realism, and ‘the idealization of mathematics’ (Husserl 1970/1936: 295, 299). In this view, philosophy had become part of the civilizational crisis. It had succumbed to a narrow view that all phenomena were to be regarded as empirically given facts of nature. Philosophy had failed to insist on the distinctiveness of philosophical methods from those of the natural sciences, and their priority. The philosophical challenge was to restore meaning to life, to offer ethical guidance, and to instil virtue in governing elites and the public (see e.g. Bergson 1977/1932; Rudolf Eucken 1911/1890, 1912, 1918; Husserl 1970/1936; Scheler 1973, 1961). This intellectual background in debate about civilizational crisis had important implications for Ordo-liberal attitudes towards economics. Conservative liberals like Sir Ralph Hawtrey (1926) in Britain and Knight (1935a: 357–8, 1937) in the United States looked to an intellectual ‘priesthood’ to educate public taste in aesthetic and intellectual values. Its task was to break economics free from Pragmatism and utilitarianism and to reconnect it to ethics (Knight 1937; also Lippmann 1937, 1955; Goodwin 2014). Knight (1935a: 21–2) was critical of the insidious ethical influence of advertising and marketing on public taste. This critique was echoed by his Chicago colleague Simons (1934: 34). It was taken up again by Rüstow (1960b). According to Hawtrey (1926: 314), the cult of moneymaking, like that of national power, disposed individuals to pursue false ends. Market value was not to be equated with ethical value (Hawtrey c.1946–c.1973b: 159). The disciplinary revolution in liberalism was essentially—and perhaps paradoxically—conservative in nature. The Ordo-liberal tradition exhibited a prevailing mood of ambivalence, ver ging on pessimism, about the modern world. This mood was reflected in attitudes towards the French Revolution and Napoleon, towards industrial and urban society, towards large-scale corporate organizations in business and labour relations, towards the powerful centralized state, and towards ‘mass’ society and politics. Along with secularization and the loss of religion as a source of order, they were viewed as aspects of the ‘crisis of modernity’. Ordo-liberals diagnosed these cultural, social, economic, and political trends as hostile to the values in which they believed. Their values combined, in an uneasy way, liberalism with attachment to certain pre-capitalist values.
The Character of the Ordo-Liberals: Views from Within Liberalism Liberalism’s prolonged crisis was a profoundly character-shaping experience for the founding conservative liberals and especially the Ordo-liberals. They were, by
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From Child to Midwife of Crisis 63 general consent of leading liberals, enormously impressive, often formidable characters, who commanded great personal admiration and respect. Allais (1990), like Friedrich von Hayek a Nobel Prize-winner in Economics, praised the courage of Rougier as exemplary in his defence of liberalism in France. According to Allais, Rougier was a ‘prince’ amongst intellectuals. As in the case of other founding figures, Rougier’s work was rich in historical and literary allusion. Louis Brandeis’s moral aloofness and strength of purpose led US New Dealers to characterize him as ‘Old Isaiah’, the courageous prophet of a renovated liberalism (Urofsky 2009: chapter 28). He combined meticulous legal research with a deep personal dedication to promoting a spirit of moral regeneration in what he saw as a corrupted capitalism. Brandeis drew on Classical Greek and German literary references, notably Goethe, and was prone to quote Matthew Arnold’s dictum that life was about being and becoming, not having and getting. By the late 1940s, Röpke was a major European intellectual. Unlike in the cases of Eucken and Rougier, his key books had been translated into multiple languages. Hayek (2017: 268–9, 287) acknowledged his enormous debt to Röpke. He stressed Röpke’s bravery in pressing the case for liberalism when it was most severely challenged and, more generally, in the vigour with which he combated popular illusions. Röpke had stood out as the youngest professor in Germany— twenty-five years old—when appointed by Jena University in 1924. He had subsequently been dismissed from his chair in Marburg in April 1933—just three months after the Nazi seizure of power—for claiming in a public address that the ‘garden of culture’ was being turned back into primeval forest (Schüller 2003: 36–7). Mises (1966: 200) wrote of him as ‘a fearless man who was never afraid to profess what he considered to be right and true. Amid moral and intellectual decay, he was an inflexible harbinger of the return to reason, honesty and sound political practice’. Röpke became the ‘congenial intellectual’ of the Adenauer/ Erhard era (1949–65), his views always gaining great attention in the Germanic world. On his sixtieth birthday he received personal best wishes from half of Adenauer’s cabinet, including the federal chancellor (Hennecke 2005: 218). Röpke’s death in February 1966 was noted on the front pages of virtually every quality newspaper in Western Europe. Other than Röpke, no conservative liberal could exceed Walter Eucken in the admiration that was bestowed upon him. Knight described Eucken as ‘both the hope and the moral redemption of at least that part of Germany we can think of as still belonging to our world’ (letter of 16 December 1947 to Eucken, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In his preface to the seminal French-language book on Ordo-liberalism by his student François Bilger, the French economist Daniel Villey (1964: iv–v) described Eucken as a ‘type of saint of economic theory’. Eucken was an ‘exemplary figure’: both a ‘splendid intellectual’ and intensely loyal to colleagues in the most challenging political circumstances. Remembering Eucken’s presence as the only German at the first ten-day meeting of the Mont Pèlerin Society in April 1947, the
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64 Conservative Liberalism, Ordo-Liberalism, and the State British economist John Jewkes referred to him as ‘a great man . . . tall and commanding . . . [with] the serenity of an undeviating integrity . . . [with a] gift for powerful and penetrating analysis . . . [a] rare combination of character and learning . . . [a man of] integrity and courage’ (introduction in Eucken 1951: 7–9). These testimonials came from two economists who were critical of aspects of Eucken’s thought (e.g. Villey 1964: iv). In a letter to Grete Willgerodt of 29 September 1946, Röpke (1976: 89–91) referred to Eucken as ‘a fine fellow [Prachtkerl], a true rock, who knows where he stands’. Later, in a letter of April 1957, Röpke (ibid.: 152–4) emphasized Eucken’s firmness of philosophical conviction, intellectual power, and unconditional reliability. Those who were close to Eucken were deeply impressed by his strength of conviction in opposing the philosopher Martin Heidegger’s efforts—as newly installed rector—to align Freiburg University with the new Nazi regime in 1933 (see the manuscript ‘Thoughts on the University Question’ in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Eucken was privately critical of the opportunism of many of his Freiburg colleagues. He criticized his student Leonhard Miksch for pro-Nazi regime sentiments. Eucken severed relations with Hans Grossmann-Doerth, a fellow Ordo-liberal colleague in the Freiburg School, over his support for the regime (Eucken 2014: 74). Hayek (2017: 288) claimed Eucken was one of the most impressive German social philo sophers in the previous 100 years—though strikingly he did less to promote this view in his English-language than in his German-language writings. Eucken was enormously brave in speaking out—even during the Nazi period— against the way in which moral relativism and irrational subjectivism were destroying scholarship. In 1936, in a remarkable inter-faculty lecture ‘The Struggle of Science’ (Der Kampf der Wissenschaft) at Freiburg University, Eucken held up Galileo and Socrates as models in resisting intellectual scepticism and moral relativism—represented by the Sophists—and political tyranny and the abuse of power—represented by the Inquisition (original in the Thüringer Universitätsund Landesbibliothek, Jena, Nachlass Walter Eucken). They had been passionately and unconditionally engaged with the problem of truth. The lecture unleashed student protests and harsh personal attacks and threats on Eucken (detailed in letters from Eucken to his mother on 1, 16, 23, and 30 May 1936 and on 6 and 12 June 1936, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken; also Klinckowstroem 2000: 77–8). It made a powerful impression on Ricarda Huch, who praised Eucken for his character and conviction (Huch 1955: 182; Dathe 2014b). The lecture closed with a quote from the Ninth Letter of Schiller’s On the Aesthetic Education of Man: ‘Live with your century, but do not be its creature; serve your contemporaries but give them what they need, not what they praise’. The lecture was a call to steadfast courage: according to Schiller (2016/1795: 30, 32), not to please one’s own century but to ‘cleanse’ it.
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From Child to Midwife of Crisis 65 This lecture was followed by Eucken’s public debate on the nature of economics with the Nazi economist Lorenz in May 1937, again in Freiburg (typescript in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Eucken claimed that Lorenz had misrepresented theory; that he represented a return to the antiquated world of pre-1914 economics; and that variations in human behaviour were the product of background, education, and type of work, not race. He argued for a new type of economist who could distance himself from, and challenge, the ideologies and interests underpinning economic policy (ibid.: 7–8). The Nazi economist Siegfried Fassbender intervened in the debate to accuse Eucken of hiding his liberal political position behind his pure theoretical economics and undermining the German nation (ibid.: 40–7; see also Fassbender 1938 for his attack on the Freiburg School manifesto of 1936). For Fassbender and Lorenz, economics was an objective science but not all races—citing Jews and Negroes—were capable of objective thought. They identified Friedrich Lutz, Eucken’s former pupil who was working abroad, as a special threat to the German nation. During the debate Eucken and Lutz were resolutely defended by Constantin von Dietze. The debate revealed just how exposed and precarious was Eucken’s position. This and later experiences formed the background to Walter Eucken’s notebook entry of August 1943: Historians and economists are ‘domestic animals’. They are ‘domesticated’. They have no idea of wild animals. At most, fear of predators. But these wolves appear mainly in sheep’s clothing. (Box ‘thoughts on history’, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken, author’s translation)
Reflecting again in April 1947, Eucken criticized historians and economists for having too little sense of the precariousness of civilization and the imminence of catastrophe: ‘nothing was truly secured’ (ibid.). Böhm’s moral courage was also exemplary. Following the Nazi seizure of power, he had rejected legal positivism and Carl Schmitt’s attitude to freedom and the role of civil law (notably Böhm 1934). Böhm stressed the vital importance of basing legal and political reasoning on a priori, religiously grounded beliefs. In this way he became a highly controversial character in Freiburg and put himself at odds with the foremost legal apologist for the new Nazi regime (Huch 1955: 174, 180; Dathe 2014a: 149). Just after his move from Freiburg to Jena in 1937, Böhm was subjected to a disciplinary procedure for remarks critical of Nazi policy to the Jews at a private dinner party where he strongly opposed the suggestion that Jews were intellectually inferior (Baum 1950: 379, 391; Bendt and Schmidgall 1994: 374–9; Roser 1998: 116–22). In October 1938, seeking to overturn his exclusion from teaching, he reiterated this criticism in his written court testimony
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66 Conservative Liberalism, Ordo-Liberalism, and the State (Dathe 2014a: 155). He was defended by his friend Grossmann-Doerth and received letters of support from Freiburg colleagues, including Eucken (Hansen 2009: 126–9). Böhm was denied permission to teach, not promoted to a chair in Jena, and attempts to appoint him in Freiburg as Grossmann-Doerth’s successor in 1944–5 were blocked. Like Eucken, he participated actively in the Freiburg resistance circles and in the drafting of the Bonhoeffer Memorandum (Bonhoeffer-Denkschrift 1979/1943; see Chapter 7: 221–2). In 1945 he returned to Freiburg as pro-rector. Böhm’s moral courage was recognized by the federal president, Theodor Heuss, who in 1959 suggested him as his successor, a suggestion that foundered on the opposition of chancellor Konrad Adenauer who viewed Böhm as too close to Ludwig Erhard and too independent-minded (Hansen 2009: 483–8; Roser 1998: 1).
From Child to Midwife of Crisis: The Term Ordo-Liberalism in Post-War Europe The sheer scale of defeat, ruin, and distress that faced Europe in 1945, and its division and descent into the Cold War, seemed to open new opportunities for conservative liberalism and Ordo-liberalism to gain voice and influence on behalf of a renovated ‘Cold-War liberalism’ (e.g. Röpke 1945). Fascism and Bolshevism were, in their view, intellectually discredited. The post-war challenge was to ensure that individual freedom was not once again subverted, and society dehumanized, by Soviet expansionism in Europe, by the seductions of messianic communist ideology and utopian socialism, and by other more experimental forms of collectivism—for them, represented by US New Deal thinking and the post-war British Labour government. Eucken’s letters to Röpke of 30 March 1946 and 14 August 1947 show that he saw the German collapse as part of a wider collapse; that he was not optimistic about what the Allied occupation would bring to Germany; and that he feared Germany becoming like the planned economy in Britain (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Fear and pessimism were a recurrent feature in conservative liberalism and Ordo-liberalism. Eucken and Röpke felt alienated both from mainstream academic economics in ‘Anglo-Saxon’ countries and from the Allied occupation authorities (e.g. Röpke’s letter to Eucken on 28 March 1949, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). The crisis of liberalism was not just German (Röpke 1945). From 1946 they set about trying to propagate their fears about the ‘Keynesian illusion’ and its influence within the Allied occupation through contacts with the American and British press and journals. Eucken and Röpke sought in this way to mobilize domestic criticism of American and British policies towards post-war Germany. Eucken, for instance,
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From Child to Midwife of Crisis 67 corresponded with Henry Hazlitt at Newsweek; Leonard Read at the Foundation for Economic Education; and Veronica Wedgwood at Time and Tide (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In this correspondence he pictured Keynesian full employment policies as a regression to mercantilism, prioritizing production for the sake of employment over consumption, and—influenced by Hayek’s The Road to Serfdom—as the road to the centrally planned economy. The post-1945 trajectory of the term Ordo-liberalism never lost its connection with crisis. In the early phase it was widely seen as having provided the foundations for the most successful post-war reconstruction, that of Germany, and of helping to power its ‘economic miracle’ and, as such, offering a secure model for the economic, monetary, and institutional architecture of the emerging process of European integration (for details, Dyson 1994: 231–59; Dyson and Featherstone 1999). It offered the promise of a sustainably constructed, less crisis-prone Europe. However, from the 1980s, the process of economic and monetary union (EMU) in Europe—and the structural power of German ideas in this process—generated a gathering body of views in such states as France and Italy that Ordo-liberalism was a contributory cause of crisis in Europe (Dyson 2013a, 2013b; Hien and Joerges 2017). Born as the child of crisis, perceptions of Ordo-liberalism mutated into its role as midwife of the financial, economic, and sovereign debt crisis that unfolded in the euro area from 2009 onwards. The post-war career of the term Ordo-liberalism was shaped by two types of actors. In the first place, a relatively small group of academic economists and lawyers sought to develop the agenda of Ordo-liberalism (e.g. Grossekettler 1997; Hayek 1967a, 2003; Mestmäcker 1973, 1995; Vanberg 1988, 2014; Willgerodt 2011). They stressed the priority of the ethical foundation of political economy over the technical modelling of how policies worked and their outcomes. Rules had precedence over policies. These thinkers sought to act as the agenda-setters and gatekeepers in debates about what constituted Ordo-liberalism, about its key strengths and weaknesses, and about where its proper boundaries lay. They identified and preserved the key texts that contained authoritative definitions; they manufactured relevant knowledge; and they provided scripts for action. ErnstJoachim Mestmäcker was the prime example in academic law, and Hayek in academic economics. The French philosopher Michel Foucault (2004) represented a different kind of academic agenda-setter. His work formed the basis for wide-ranging critiques of Ordo-liberalism (e.g. Biebricher 2011; Biebricher and Vogelmann 2012, 2017; Tribe 2009; for details see Chapter 12: 424–5). As the euro area slipped into financial, economic, and sovereign debt crisis from 2007, these critiques gained momentum to overshadow academic efforts to develop Ordo-liberalism. They were premised on the notion that Ordo-liberalism was itself a cause—or at least a major symptom—of deep crisis in the liberal political economy. The
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68 Conservative Liberalism, Ordo-Liberalism, and the State literature, above all in the English-speaking world, became dominated by the conception of Ordo-liberalism as a source of crisis rather than a source of answers. Second, Ordo-liberalism’s trajectory of development was shaped through the engagement of its defenders with the complexities of post-war legal, economic, and monetary policy and practice. As statesmen-economists, they reflected on its value in managing crisis and in designing institutional arrangements and policies. A prime example was Müller-Armack’s work as a German official working on European economic integration in the 1950s and early 1960s. This engagement led him to develop a more pragmatic approach to business-cycle policy, which identified symmetrical dangers of deflation and inflation (Müller-Armack 1976a/1959, 1976b/1960, 1976c). He advocated a coordinated European countercyclical policy as a way of averting future crises brought about through fastgrowing trade and financial interdependence in Europe (see details in Chapter 11: 395–405). Statesmen-economists tended to be more disposed to a ‘common-sense’ Ordo-liberalism that adapted itself to diversity in historical legacies and structures and to changing challenges (e.g. Giersch 1959). The single most striking connection between the historical trajectory of the term Ordo-liberalism and crisis emerged in the context of the process of EMU. Money—along with competition—was one of the vital pillars of Ordoliberal stability policy. Both the European Exchange Rate Mechanism (ERM) of 1978–9 and the Maastricht Treaty provisions on EMU in 1991 were widely seen as German Ordo-liberal in design. Eminent social scientists like Pierre Bourdieu (1996), Fritz Scharpf (2010, 2012), and Wolfgang Streeck (2013, 2015) identified Ordo-liberalism as a threat to the European social state and to trust and confidence in European democratic processes. The euro area crisis from 2009 cast the political spotlight on the inadequacy of the Maastricht architecture for preventing and managing crises (Dyson and Maes 2016: 5–7, 254–69). German insistence on the principle of ‘no liability without control’ was associated with the emphasis on strict conditionality and intrusive external monitoring of euro area member states in crisis (e.g. Feld, Köhler, and Nientiedt 2015; Issing 2011, 2013; Sinn 2012b, 2014a; Stark 2008, 2011; Weidmann 2013, 2014a). This principle also provided a justification for German rejection of collective liability in the form of Eurobonds and of common bank deposit insurance. In this context of crisis, Foucault’s critical analysis of the use of Ordo-liberalism as a dis ciplinary technique of governance gained new relevance. The post-2009 crisis made Ordo-liberalism a key term in critical analysis of the European political economy. The most striking feature of the post-1945 trajectory of the term Ordoliberalism, and its associated terms, was the explosion in its use. Its career can be mapped by examining the occurrences of the term in different languages and types of publication over time. Various sources are available. The Web of Science
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From Child to Midwife of Crisis 69 gives an overview of its presence in scholarly journals. Google Book Ngram provides coverage of the American English, British English, French, and German corpuses of books for 1950–2000. Google Scholar and Harzing’s Publish or Perish are useful for examining occurrences of the term in English-language and German-language publications. These sources provide a very similar picture of both the development in its occurrence and how this development correlates with contextual political and economic changes, above all in European integration and in crisis in the integration process. Linguistic caution is necessary in assessing usage. In the German language, focusing just on the term Ordoliberalismus overlooks the extent to which German authors made copious reference to the related terms Ordnungstheorie (theory about the shaping of the economic order) and Ordnungspolitik (policies for the economic order). These two terms were much more frequently used, for instance in the pages of the ORDO Yearbook. They did not resonate with English- and other foreign-language publications. Ordo-liberalism, ordolibéralisme, and ordoliberalismo served as the most frequently used terms in English, French, and Italian usage, respectively. The Google Scholar and Harzing’s Publish or Perish data show that usage of the English term Ordo-liberalism remained very limited in the 1950s and 60s, at the height of the German economic miracle. There was a temporary, small increase in 1957, coinciding with the launch of the European Economic Community (EEC). In this early period, publication data suggest that Ordo-liberalism occupied a very marginal position in academic interests. Later data on occurrences of the term Ordo-liberalism reveal five surges. The first was a three-fold increase in 1978–9. This increase took place alongside the negotiation and launch of the European Monetary System (EMS). The second surge in 1988–9 witnessed once again a three-fold increase. It accompanied the work of the Delors Committee on establishing EMU. There was a further surge in 1992–3, coinciding with the Maastricht Treaty and the ERM crises, followed by a big surge from 1996, paralleling the imminent launch of the third and final stage of EMU in 1998–9. Clearly the creation of the EMS and EMU played a major role in the growth of interest in Ordo-liberalism. This growth was linked in turn to the supposition that they owed much in their design to German economic ideas. Even allowing for the increase in the number of books published over the period, the rise in usage of the term far eclipsed the earlier period. However, the single biggest surge in the occurrence of Ordo-liberalism between 1950 and 2014 was linked to the post-2007 crisis and, above all, to the euro area crisis from 2009. Google Scholar and Harzing’s Publish or Perish data reveal that, at its peak in 2012, the frequency of occurrence was four times higher than in 2000 and over 100 times higher than in 1978. Well over half of the total Web of Science journal citations for Ordo-liberalism up to 2013 occurred in the period 2008–13.
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70 Conservative Liberalism, Ordo-Liberalism, and the State Two factors played a part in this surge of interest. The discrediting of the Anglo-American idea of the self-regulating, efficient market generated a new and deeper reflection on economic ethics and the ‘normative order’ (e.g. Wörsdörfer 2010, 2011; Willgerodt 2011). Ordo-liberalism offered a reference point from which to challenge ascendant and seemingly failed ideas of laissezfaire capitalism with its light-touch/lax supervision and regulation (e.g. Sinn 2009, 2014a). The eminent German economist Hans-Werner Sinn (2014b) identified a new opportunity to rebuild neo-liberalism on more solid ethical foundations by recognizing the role of the state in constituting the competitive market economy. However, the surge of interest owed even more to the belief that Ordoliberalism was part and parcel of the same neo-liberal ideology that had celebrated ‘market radicalism’ and that was held responsible for the crisis (e.g. Iglesias 2015b; Newman 2012; Pühringer and Ötsch 2015; Varoufakis 2012). The image of the strong, impartial state was pictured as mythological. It was a smokescreen behind which powerful corporate interests captured the state both intellectually and institutionally (Bonefeld 2012). Ordo-liberalism’s contribution was a political rationality of rule that was disciplinary in nature. It provided a means of de-politicizing calls for sanctions for non-compliant behaviour (Biebricher 2012; Biebricher and Vogelmann 2012; Foucault 2004; Tribe 2009). The fascination with Ordo-liberalism was an aspect of the wider, critical interest in the resilience of neo-liberalism in the context of the financial and economic crisis and of the euro area crisis (e.g. Crouch 2011; Schmidt and Thatcher 2013). Any distinctive aspect of Ordo-liberalism as a normative order was regarded as secondary. The patterns are broadly similar in French, German, and Italian usage. German occurrences of Ordnungstheorie and Ordnungspolitik date from 1948, the first year of publication of the ORDO Yearbook. Use of these terms remained limited initially, with small increases in 1957 (the Treaty of Rome) and 1963–5 (the European Commission Action Plan for Stage Two of the EEC). The collapse of the Bretton Woods system in 1971–3 and the creation of the EMS in 1978–9 increased occurrences considerably. However, the major catalyst in German use of these terms came with the debate about the single European market in 1984–5 and then the debate about EMU in 1988–90. Occurrences in 1988 were double those in 1980. Over the period 1948–2016 the highest points were 1990–2 (the Maastricht Treaty) and 1997–8. The peak came during the decision period about the launch of monetary union in 1998–9. Strikingly, and in contrast to France and Italy, the next peak, with the euro area crisis, was well short of the peaks in 1990–2 and 1997–8. In Germany the crisis was not seen as domestically originated. French and Italian occurrences display some variations. Ordolibéralisme first made an appearance in 1957 (the Treaty of Rome) and barely figured in French usage before 1980 (following the lectures by Foucault). Thereafter, usage remained largely dormant until 1995–8, when it revived with the problems of French
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From Child to Midwife of Crisis 71 qualification for monetary union and a renewed domestic debate about German power and its nature. The significant increase in 2003–5 coincided with the crisis and reform of the Stability and Growth Pact (SGP) in which France was heavily implicated. However, the major leap in French occurrences began with the financial crisis in 2007, peaking in 2012–15. There were eight times more occurrences of ordolibéralisme in 2013 than in 1998. In Italy, the first occurrence of ordoliberalismo was not until 1955. The term then slipped out of sight until 1962, and its use remained strikingly low compared to France through the 1960s to 90s. It was not until the crisis and reform of the SGP in 2003–5 and, above all, the Italian crisis from 2011 that the gap with France closed. In the period 2011–16 Italian occurrences of ordoliberalismo exceeded those of ordolibéralisme in French. These figures reflect the different ways in which external events impacted on national debates and on the perception of threat from German ‘orthodoxy’. More detailed analysis of citations using Google Scholar data on publications in English and German between 1945 and 2014 offers further insight into the marginality of the terms Ordo-liberalism, Ordoliberalismus, Ordnungstheorie, and Ordnungspolitik in international and national economics and legal texts. The most cited publications include historical texts on German public law (e.g. Stolleis 2012); texts on German and EU competition law (e.g. Gerber 2001); political economy studies in varieties of capitalism, notably Michel Albert (1993); intellectual historical studies of continental European thinking about the state (e.g. Dyson 2009/1980); and critical social and political studies of Ordoliberalism, above all by Foucault (2004) and Werner Bonefeld (2012). Citation analysis also shows a low overall impact factor for attempts by the Walter Eucken Institute in Freiburg to revive an Ordo-liberal research agenda around constitutional economics (e.g. Feld and Köhler 2011; Vanberg 1988, 2011). The citation evidence supports the view that the vast bulk of post-1945 research and scholarly publication has been about rather than in Ordo-liberalism. There have been important studies by historians of economic thought. However, by the early twenty-first century, the overwhelming bulk of the literature had become highly critical in character, with Foucault a central reference. These critiques were grounded principally in philosophy, political science, and sociology: variously in post-structuralism, critical theory, and positivism. A few economists and lawyers attempted to take forward Ordo-liberalism as a research programme by importing institutional economics and public-choice theory, notably the work of James Buchanan (e.g. Vanberg 2011). However, there was little evidence from citations that this attempt had been successful. Even if the claim that German Ordoliberalism was the midwife of crisis in capitalism and democracy is overstated, Ordo-liberalism was itself in a crisis. It was dismissed by many economic liberals as too interventionist; assailed by critics of neo-liberalism for its naïve and potentially dangerous view of the ‘strong’ state and for putting the interests of
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72 Conservative Liberalism, Ordo-Liberalism, and the State capitalism before those of democracy; and seemingly entrapped within an outdated patriarchal social model.
Ordo-Liberalism in the Context of Post-1945 Structural Changes Post-war structural changes were on balance unfavourable to the Ordo-liberal tradition. Even in the nineteenth century, liberal ‘high-minded’ preoccupation with aesthetics and culture had been the butt of criticism for its elitist arrogance and pretentiousness. The cultivated bourgeois intelligentsia seemed to be engaged in an excessively self-referential inward-looking discourse that failed to translate into terms that communicated clearly and relevantly to the practical concerns of ordinary individuals in their everyday lives. Its prestige as a social status group was further challenged by the democratization of political and social institutions, by the proliferation and intrusiveness of media communication, and by the frantic pace of news reporting. The cultivated bourgeois intelligentsia experienced greater competition for social status as traditional status hierarchies were weakened and as cultural monopolies broke down. From the 1960s onwards, the rapid expansion of higher educational participation in states like Britain, France, Germany, Italy, and the United States shifted the centre of gravity in the enlarged university-educated intellectual elite towards the Left and a liberal conception of society (Piketty 2018). This socially mobile elite existed in a difficult, critical relationship with the values of the business elite; was uncomfortable with the rising inequality of wealth and income; and in principle was attracted to the concept of social solidarity. These characteristics provided some points of similarity with the founding Ordo-liberals. However, the growing university-educated elite differed in being less traditionalist and more socially liberal, in rejecting what it saw as narrow-minded and bigoted social attitudes, in rejecting patriarchal values, and in embracing experimentation, modernity, and metropolitan values. Founding Ordo-liberals responded very critically to the emergence of this new intellectual elite. They saw it as the root of a deepening crisis in liberalism, democracy, and capitalism through the insidious spread of collectivism (e.g. Hayek 1967d/1956, 1983; Röpke 1960; Rougier 1967, 1969). In the wake of the student-centred revolts of 1968, Rougier (1970: 69, 73–4) pointed to the danger that was posed by the emergence of an intellectual proletariat of young people who subordinated their individuality to the collective and rejected the values of risk-taking and heroism. Hayek (1996/1978: 67–8) attacked the influence of Sigmund Freud, the decline in family cohesion, permissive education, and the modish intellectualism in the social sciences in spreading an ethical relativism and destroying culture. Even earlier, Röpke (1960) had condemned a policy of ‘educational Jacobinism’ for the way in which the new mass universities were
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From Child to Midwife of Crisis 73 reducing academic standards, at the same time as permissiveness within families was undermining traditional morality. The problems of Ordo-liberalism were further compounded by the rise of the national populist Right from the 1980s. Its rise was boosted by the post-2008 financial and economic crisis and the migration and refugee crisis that gathered momentum from 2015. Populist mobilization, and its attendant identity politics, was discernible across states like Britain, France, Germany, Italy, and the United States (Mudde 2013). It correlated with resentment at rising inequality of wealth and income, with fear of the ‘outsider’, and with the growing sense of a deepening social divide between the excluded and marginalized and the privileged elites (both intellectual and business), which were attacked for organizing society to their own benefit. Populists threatened Ordo-liberal values in being less liberal in outlook; deeply critical of establishment elites; uncomfortable with globalization, above all with free trade; and prone to defining rules as a cage on democracy. Against this background of a changing intellectual elite and of populist politics, Ordo-liberalism faced an acute challenge in communicating the values of a rulebased, open economic order. It lacked the large and strong political constituency that founding figures like Eucken, Hayek, Röpke, and Rougier had hoped to build in the formative post-war years.
Ordo-Liberalism as Patriarchy: The Role of Invisible Women Fewer structural changes contributed more to the impression of Ordo-liberalism as outmoded than the changed position of women. Ordo-liberalism appeared to embody a patriarchal social model. Its founding figures were overwhelmingly male. Their social and political outlook was in many ways typical of the prevailing masculine mind-set with which they had grown up. Their liberalism bore the hallmarks of the social conservativism of their day. They emphasized the trad itional family structure and the binding social and ethical role of the churches as the basis of a natural social order based on subsidiarity. However, patriarchy remains an incomplete conceptualization of Ordoliberalism and conservative liberalism more widely. It does not fully capture the complexity of attitudes stemming from the ambiguity at the heart of this liberal tradition. A traditional conception of the role of women, notably in the family, sat alongside the belief that the social order should enable individual self-realization, which might in turn imply the idea of women developing away from their trad itional role. Moreover, despite its social conservatism, the family milieu of the cultivated intelligentsia was, relatively speaking, more open—if somewhat patronizingly—to the notion of the ‘accomplished’ female. There were opportun ities for women from this kind of social background to engage with intellectual
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74 Conservative Liberalism, Ordo-Liberalism, and the State life and with social and political reform and to emerge as strong, independentminded characters. A closer examination of social practice amongst the founding conservative liberals and Ordo-liberals reveals a differentiated picture. Brandeis’s wife Alice provided strong encouragement to his commitment to social reform and was herself active in spreading ideas of social reform and bringing intellectually minded figures together at their home (details in Urofsky 2009: 103–29). Both Alice and Louis were the products of cultured and prosperous American families of German extraction and deeply immersed in German and Classical literature and culture. Brandeis treated his wife as an intellectual equal; took her advice seriously; and changed to support the right of women to vote (ibid.: 114–15, 364). He also attested to the enormous influence of his mother Frederika in shaping his moral standards and his ascetic and disciplined character (ibid.: 15–16). Böhm owed much to the intellectual stimulation provided by Ricarda Huch, with whom he discussed the idea of freedom in history and the vital role of religion in giving meaning and direction to freedom (Dathe 2014b; Hansen 2009). Huch hosted an intellectual salon in the Jena of the late 1930s and early 1940s that drew in artists, historians, and theologians (details in Bendt and Schmidgall 1994: 361–79; Roser 1998; also Chapter 7: 221–2). Amongst other topics, its members discussed Walter Eucken’s market theory (letter of Böhm to Eucken, 28 October 1942, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Huch was close to the Eucken family, with whom she shared a rejection of a ‘hidden servility in relation to reality’. She played a role in encouraging Böhm and Walter Eucken to rethink the relationship between freedom and order in the light of the experience of Nazi Germany and to put freedom more clearly at the centre. For Huch, at least in her early thinking, the ‘women’s question’ was essentially a cultural and educational matter. The role of women was to humanize society and politics and in this way complement that of men who governed the world (Bendt and Schmidgall 1994: 280–4). She embodied a conservative-liberal paradox. Huch opposed votes for women in 1918–19 (ibid.: 284–94). Her Lutheran beliefs led her to argue that this reform would undermine the preordained order of the sexes and that pursuing a political career was incompatible with family life. At the same time, Huch took part in elections. In 1919 she sought unsuccessfully to be nominated as a candidate for the German Democratic Party (Deutsche Demokratische Partei) of Friedrich Naumann. In September 1930, along with Thomas Mann and other prominent intellectuals, she supported the ‘appeal to the party of non-voters’. In 1931, she became co-editor of the new weekly magazine Der Staat seid Ihr, which opposed both the Versailles Treaty and National Socialism (Bendt and Schmidgall 1994: 333–46). Above all, Huch stood out as a courageous intellectual critic of Nazism. In 1933 she resigned in protest from the Prussian Academy of Arts. In her correspondence with the Academy, Huch made
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From Child to Midwife of Crisis 75 no secret of her detestation of Nazi policy towards the Jews, the un-German boastful arrogance of the regime, its brutal methods, and its defamation of critics (Hansen 2009: 58–62; Huch 1955: 161–2). The Eucken family stands out, in Jena and in Freiburg, as, in the words of Rudolf Eucken (1921a: 118), ‘a microcosm of intellectual life’. Rudolf ’s wife, Irena, was deeply engaged in the Eucken Association (Euckenbund) and in a range of cultural activities in Jena and Weimar (see Eucken-Erdsiek 1941). She was a close confidante of her son Walter, notably on religious matters, despite retaining an anti-liberal outlook from which her son departed in the 1920s. In addition, Irena helped to draw Walter into the world of painters like Ernst Ludwig Kirchner, musicians like Max Reger, and poets like Stefan George (details in Dathe and Goldschmidt 2003: 55–6). Walter Eucken’s wife, Edith Eucken-Erdsiek, was also a formidable intellectual. She worked closely with him in editing the journal Die Tatwelt and in transforming it into what they envisaged would serve as a forum for the intellectual and religious renewal of Germany. Edith also brought new work in cultural and ethical philosophy to his attention, as well as contributing articles and book reviews to the journal (e.g. Eucken-Erdsiek 1932). She sought to keep Die Tatwelt free from National Socialist interference by depoliticizing its contents (see her letters of 2 May 1933 and 18 August 1934 to her husband, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In addition, Walter Eucken took a close interest in furthering the academic career of Elisabeth Liefmann-Keil in Freiburg. He offered practical support when she and her family were threatened by Nazi anti-Semitism. Liefmann-Keil went on to be appointed as the first female professor of economics in Germany; author of a major text on the economic theory of social policy; and a leading figure in the development of public-choice theory in Germany (Goldschmidt and Gräfin von Klinckowstroem 2004; Liefmann-Keil 1961). And yet, despite these qualifications, and the element of ambiguity in attitudes to women’s role within the cultivated intelligentsia, the overriding impression remains one of patriarchy. This impression is reinforced when considering the cases of Einaudi and Röpke, both of whom praised the virtues of Frédéric Le Play’s conception of the patriarchal family structure as the basis of social order. Röpke’s wife, Eva, translated Hayek’s The Road to Serfdom into German in 1945. However, women’s engagement with the disciplinary element in economic liberalism was rare. The Italian liberal Nina Ruffini was an admirer of Einaudi but never properly engaged with his economic thought. Her ethical and cultural conception of liberalism was characteristic of the intellectual aristocracy of Piedmont and found expression in her activism as a journalist. The importance of Walter Eucken’s mother and wife, of Ricarda Huch, and of Nina Ruffini rested more in their engagement with the cultural, philosophical, and historical aspects of liberalism. This engagement did not extend to prioritizing the need for an ethics of
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76 Conservative Liberalism, Ordo-Liberalism, and the State fiscal and social policy that would commit the state to providing collectivist forms of care. Women tended on balance to occupy an invisible role in conservative liberalism and Ordo-liberalism. Their own conservative conception of communitarianism privatized care in the sphere of the family, and thus of women, and of the wider social structures—of church and neighbourhood—that supported the family, consistent with the principle of subsidiarity. Their outlook tended to reflect a privileged social and cultural world that had little contact with the realities of hard-pressed working families and of the ways in which a fast-changing capitalist society was impinging upon them. There were exceptions. Alice Brandeis, for instance, argued that the female suffrage would help to counter the complacent assumptions of laissez-faire, to reinforce the social side of economics, and to promote the search for greater social justice (Urofsky 2009: 364–5). Generally, however, the invisible women of Ordo-liberalism differed markedly from later radical feminist theorists of gender justice. These theorists identified a mounting ‘crisis of care’ within a liberalism whose elites seemed content to accept a low-wage, precarious-employment economy, with lengthening working hours, alongside severe cuts to social provision. They argued that the outcome was a heavy and socially unjust burden on women and working families (e.g. Fraser 2009, 2013). The challenge was to support the aspirations of women throughout society and to strengthen social bonds through a greater value placed on caring in thinking about economic as well as social policies. Brandeis was one of the few conservative liberals who identified the victimization of women as a major social and political problem and expressed his indebtedness to his wife’s influence (Urofsky 2009: 365).
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3
Conservative Liberalism as a Disciplinary Revolution Our civilization is excessively romantic; it needs more discipline and faith in discipline—and more patience, and in the fields of morals and politics vastly more real intellectual work . . . The belief in competition as a principle seems to carry with it recognition of the necessity of having and obeying rules. Frank Knight (1935a: 356) In the interwar period and the early post-1945 period, this call for a disciplinary revolution in liberalism from the ‘star’ American economist Frank Knight, the intellectual father of the early Chicago tradition, was echoed by other prominent liberal economists and public intellectuals of a conservative disposition. In Britain they included Sir Ralph Hawtrey, the Treasury official and one of the most cited economists in the 1920s and 30s, and the economist Alan Peacock from the 1950s. In the United States conservative liberalism was represented by such figures as Knight; his Chicago colleague Henry Simons; James Buchanan, the Nobel Prize-winner in economics; Louis Brandeis, the statesman-lawyer and Supreme Court justice; and the public intellectual Walter Lippmann. In France its most prominent figures included Louis Rougier, the philosopher-economist; Raymond Barre and Jacques Rueff, both statesmen-economists; Maurice Allais, the first French economist to win the Nobel Prize; Maurice Hauriou, the philosopherlawyer and doyen of the institutionalist school; and Charles Rist, the central banker. Conservative liberalism found expression in Austria in Reinhard Kamitz, the economist, long-serving finance minister, and later central bank president. Its main advocate in Belgium was Paul van Zeeland, who combined economic expertise with being a senior national central bank official, prime minister at a critical juncture, and later foreign minister. In Italy, the foremost exponent of conservative liberalism was Luigi Einaudi, the ‘star’ economist and post-war finance minister, central bank governor, and president. In short, conservative liberalism comprised a set of powerful intellectual heavyweights. This remark applies particularly to German Ordo-liberalism, whose stars included Franz Böhm, Walter Eucken, Alfred Müller-Armack, Wilhelm Röpke, and Alexander
Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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78 Conservative Liberalism, Ordo-Liberalism, and the State Rüstow. The pole star in the conservative-liberal firmament was Ludwig Erhard, the ‘father of the German economic miracle’. Strikingly, the US economist Milton Friedman, who was to gain international fame as the representative of a later and different form of Chicago liberalism, began his career as a conservative liberal in the manner of his mentor Simons. His early writings mirrored the newly emerging Ordo-liberalism in Germany. According to Friedman (1951: 92), the state had an important positive function. It operated through general rules that were designed to prevent the past error of laissez-faire liberalism: the usurpation of power by over-mighty individuals. The notion of a rule-based liberal order was at the centre of a family resemblance between German Ordo-liberals and influential US-based economists like Simons (1936), Karl Brunner (1971), James Buchanan (2009, 2010a), Finn Kydland and Edward Prescott (1977), Allan Meltzer (2003, 2012), and Hyman Minsky (1986). Their work on rules might not have been Ordo-liberal in the traditional sense. Nevertheless, from the 1970s it played a vital role in (re-) invigorating and enriching Ordo-liberalism as economic, and to some extent political, theory. The originality of Ordo-liberalism was less in the economic theory of rules than in its fusion of economic with social, political, and legal theories.
Law as Discipline: The Contributions of Franz Böhm and Louis Brandeis The law is the discipline [that ensures] social peace, and social peace is a practical matter. Maurice Hauriou (1914), Précis de Droit Administratif et de Droit Public. Paris: Sirey, p. VII (author’s translation)
In his path-breaking work on public law, Hauriou pointed to the two ways in which law contributes to liberalism. It ensures that behaviour conforms to the requirements of social order. At the same time, law possesses a dynamic, living character that seeks for the best way to apply immutable universal principles of liberalism in changing circumstances. This insight into the nature of the discip linary role of law points to a striking family resemblance between the writings of Hauriou in France, Brandeis in the United States, and Franz Böhm, the eminent German academic lawyer and a founding figure in the so-called Freiburg School of Ordo-liberalism. It is a family resemblance that emerges despite the absence of mutual citation and quotation. Brandeis had been a passionate public scourge of the American world of the giant corporate and money trusts, notably the railroads and J.P. Morgan (for details, Urofsky 2009: chapter 8). Through his writings and the courts, he sought
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Conservative Liberalism as a Disciplinary Revolution 79 remedies for what he saw as the evils of destructive, unbridled competition and the excessively static and disengaged character of US law in the face of this phenomenon (Brandeis and Hopgood 2009/1914). His immutable principle was that no contract is good that is not advantageous to both parties to it. This attitude led him to condemn what he saw as the US legal culture of the ‘corporate lawyer’ and to represent himself as the ‘people’s lawyer’ who would champion a renovated liberalism. The United States needed ‘all-round lawyers’, who were versed in economics, sociology, and politics, who would ensure the rule of law in place of the rule of trusts within the economy, and who would protect the interests of the common man (Brandeis 1916: 469–70; Urofsky and Levy 1972). Brandeis sought to rehabilitate lawyers as public servants, courageous enough to fight established corporate and legal interests and to serve as instruments of social reform. Brandeis’s targets were the abuses and inefficiencies of the US financial oli garchy, interlocking directorates, and ‘the curse of bigness’. But, as he stressed in an article in the Cleveland Plain Dealer of 15 October 1912: ‘If we desire respect for the law, we must first make the law respectable’. The US legal culture had to free itself from a ‘vulgar culture of materialism’ and demonstrate independence and vitality of judgement, grounded in immutable and sacred universal prin ciples. In support of his call for a new ‘living law’, Brandeis (1916: 463–4) cited Euripides and, as a German speaker, Johann Wolfgang Goethe. Against this background, Brandeis’s nomination to the Supreme Court by president Woodrow Wilson was to prove one of the most contested in US history (details in Urofsky 1981: chapter 3). He was the courageous social outcast, seen as ‘rebellious and troublesome’ by the traditional Boston elite (Urofsky 2009: 430–59). Similarly, Böhm (1934: 185–91)—against the background of the ‘Röhm-Putsch’ of 30 June 1934—argued that classical economic liberalism had taken too lax a view of the practical preconditions for a sustainable, humane, and effective competitive market order. It had failed to recognize how important legal instruments were if market power was to be disciplined, access for investors and producers widened, consumer rights and freedom protected, and fair competition—for instance, in advertising and product promotion—ensured. Böhm (ibid.: 187–8, author’s translation) concluded that the liberal economic order ‘is in no way a simple constitution . . . it places exceptionally high requirements on the moral strength of a nation, on the insight and resolution of state leadership, on judicial training and skill, on the level of legal education, and on political education’. He reminded economic liberals that: ‘The only guarantee against the misuse of power is the availability of a strong and unshakeable strength of legal consciousness and of moral capital in the people itself ’. (ibid.: 191). This insight echoed the strongly principled position and didactic style of Brandeis (Urofsky and Levy 1973). For conservative liberals and Ordo-liberals, strength of character and the possession of the moral qualities that engendered trustworthiness were essential attributes in governing elites if liberalism was to survive (e.g. Böhm 1937: 7).
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80 Conservative Liberalism, Ordo-Liberalism, and the State Böhm’s seminal article of 1934 on law and power is striking in two respects. It points to the shaping role of culture as a defining feature of Ordo-liberalism. A liberal order comes from human beings rather than just the laws and institutions, a position that echoed Brandeis. The context is striking. The article was published in 1934: when Hitler was already German chancellor; when the reputation of Carl Schmitt as the legal defender of the ‘leadership principle’ was at its zenith; and when the eminent philosopher Martin Heidegger was rector of the university, Freiburg, where Böhm hoped to establish an academic career. The article is a testament to Böhm’s extraordinary academic and political courage (Hansen 2009: 68–71).
Discipline in the History of Liberalism The division of liberalism into separate groups is essentially a question of the preponderance, not the exclusive possession, of certain characteristics. This observation applies to the distinction between what is conventionally referred to as laissez-faire or Manchester liberalism, social liberalism, and conservative liberalism. The notion of discipline was not absent in the nineteenth-century era to which the term laissez-faire is conventionally attributed. Equally, social liberals like John Maynard Keynes were aware of the dangers of accumulating a high stock of public debt and the need for fiscal prudence if confidence was to be retained (notably Keynes 1940; also Dyson 2014: 79). Moreover, the concept of discipline was inherent in the free functioning of the price mechanism and, not least, in the gold standard and the principle of free trade (Röpke 1954; Rueff 1979). After the collapse of Italian fascism, Einaudi looked back to the period from 1814 to 1914: ‘the fact that, in the blissful century, the monetary unit was extraneous to human will or power [a reference to the gold standard] was a blessing for the era’ (quoted in Forte and Marchionatti 2010: 26). Similarly, Wilhelm Röpke (1945: 212–13), a prominent German Ordo-liberal, argued that the German question could not be solved in the absence of unconditional free trade. He regarded it as the most effective disciplinary measure of ‘economic disarmament’, directed against the re-emergence of the forces of German nationalism and monopoly capitalism. The examples of the gold standard and free trade—and of Keynes’s cautious attitude to fiscal deficits and public debt—show that boundaries were open rather than sealed within liberalism. In this context of permeable boundaries, Ordoliberalism stands out as the most highly evolved and organized expression of the disciplinary revolution in liberalism. It developed in Germany from the early 1930s and became associated with Böhm, Walter Eucken, and the Freiburg School from 1934–5, as well as with two exiles from Nazi Germany, Röpke and Alexander Rüstow. Ordo-liberalism—and above all the Freiburg School—stood out within the wider, cross-national disciplinary revolution in liberalism as having the most
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Conservative Liberalism as a Disciplinary Revolution 81 powerful story to tell of how economic and monetary disorder could lead to tyranny, the abuse of power, and the loss of human and cognitive values—in short, to political catastrophe. Friedman’s article of 1951 was a striking, if (for him) impermanent embodiment of its core tenets. The distinctive feature of conservative liberalism and Ordo-liberalism was its central focus on the pathologies of market power and its exercise. Markets were a story about the weak and the powerful. In the words of François Bilger (1964: 131), the most knowledgeable French commentator on Ordo-liberalism, the classical form of liberalism had not believed in ‘the creative, constructive power of reason in relation to nature’. According to Bilger, Ordo-liberalism offered a Kantian ‘scientific Idealism’, an escape from the liberal view of the market as a ‘state of nature’. The message was the same from Brandeis, Knight, and Simons, through Böhm and Eucken, to the US-based credibility and time-consistency literature of the 1970s and 80s: not only the state but also the market required discipline—binding pre-commitments— if a liberal society was to flourish and be sustainable. Belief in perfectly efficient, self-correcting markets was a liberal illusion. According to Bilger (ibid.: 140), ‘What a difference from the hedonistic philosophy of the old liberalism!’
The Reason of Rules: Conservative Liberalism and the Problem of Unelected Power At the core of conservative liberalism and Ordo-liberalism is the emphasis on the economic, social, and political functions of rules. Rules offer protection against unpredictable interference and are thus the essential condition of individual freedom (Hayek 1960: 161). The liberal order is based on strict adherence to general principles as opposed to expediency, discrimination, and coercion. In contrast to ambitious political announcements of non-binding targets, for instance in envir onmental and social policies, rules provide predictability so that a measure of orderly behaviour is possible. They are an essential basis of a state of equilibrium between the different plans of individuals (Hayek 1948/1937: 41). The question was whether conservative liberalism and Ordo-liberalism would side with a rationalist or evolutionary approach to rules: with the notion of rules as the outcome of conscious design in pursuit of an independently defined purpose; or with rules as the result of adaptation to changing circumstances, of trial and error. This tension ran through conservative liberalism and Ordo-liberalism. It focused on attitudes to constructivist accounts of liberal order and highlighted a difference between Walter Eucken and Friedrich Hayek. Over time, the consensus about rules within conservative liberalism and Ordo-liberalism shifted in the direction of Hayek. Hayek (1960: 54–70) adopted an evolutionary conception of rules, grounded in an intelligent use of reason that, to him, meant respecting custom and tradition. Governing by discretionary
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82 Conservative Liberalism, Ordo-Liberalism, and the State intervention is to rule by ‘the pretence of knowledge’ (Hayek 1948/1946, 1975c, 1989/1974). Freedom depends on deeply ingrained moral rules that are ‘the result of the experimentation of many generations’ and ‘embody more experience than any one man possesses’ (Hayek 1960: 62). Given the severe limits to our know ledge and the inability of our reason to master the full details of complex reality, the liberal order flourishes best by reliance on rules that reflect accumulated knowledge and experience, and the general principles they embody, rather than on discretionary and ultimately arbitrary and coercive choices. Rules have the merit of having evolved socially through trial and error. Individuals need the guidance of rules in order to coordinate their actions with each other, given the constraints on their capacity to predict future economic development. Rules provide social tools for the spontaneous coordination of individual behaviour. In situations of conflict, they facilitate decisions by focusing on selected aspects of the available choices. Seabright (2010) reinforced this rationale for rules. They serve as the foundation of social trust amongst people who otherwise would be total strangers and lack the knowledge to negotiate the complexities of economic, social, and political systems. Hawtrey (1947: 3–4), the former Treasury economist, argued that the hallmark of a civilized community was the economic discipline that is provided by legal rules and by ‘codes of morality, honour and manners’. Civilization was best understood as the process of rationalizing discipline. It depended on the enforcement of rules by public-spirited government, complemented by an enlightened public. He stressed that: ‘if discipline is to work, enforcement by penalties must be the exception [in occasional cases of recalcitrance]; acquiescence in authority must be the rule’ (ibid.: 1). Problems of acquiescence arise when the purpose of economic discipline is obscure or dedicated to what Hawtrey termed ‘false ends’ (on which Chapter 6: 206); when there is a severe scarcity of basic goods and services; or when inequalities widen too far. Hawtrey noted: ‘The incentive to economic activity is, for the poor man, the fear of privation, for the rich man, the reward of his acquisitiveness’ (ibid.: 19). In a liberal order, the political function of rules is twofold (Hayek 1960: 103–17, 176–83). The liberal order requires government within rules. Ordinary legislation by those in authority, above all temporary majorities, must be constrained to comply with common principles that safeguard individual liberty. Hayek (ibid.: 68) quotes Benjamin Constant, the nineteenth-century French liberal, on liberalism as the système des principes. According to Hayek (ibid.: 117), ‘If it is to survive, democracy must recognize that it is not the fountainhead of justice’. A liberal order also involves government by rules, in conformity with the principles of limited government, equality before the law, and non-discrimination, and as opposed to government by orders (ibid.: 163, 193–204; also Hayek 1948/1946: 18). Rules that enforce abstract principles help to prevent government and administration from becoming the target for rent-seeking by special-interest groups and the vehicle
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Conservative Liberalism as a Disciplinary Revolution 83 for entrenching privilege and inequality. They have an additional political as well as economic value. They serve to stabilize expectations and in this way add to the credibility and reputation of governments (Kydland and Prescott 1977: 487). In short, rules, rule-compliance, and the trust they engender are an indispensable attribute of a sustainable liberal order. Conservative liberals stressed the ‘rules of the game’ as opposed to a prolifer ation of rules that would prove coercive and undermine individual liberty. Typically, they favoured ‘simple and easily understood [rules], so it is obvious when a policymaker deviates from the policy’ (Kydland and Prescott 1977: 487). The difficulty was that the commitment to a rule-based order posed a myriad of open and controversial questions about the choice, design, and use of rules. Which areas of economic, social, and political activities should be rule-governed (cf. Taylor 1993)? How much discipline could a liberal society tolerate without excessive and harmful constraints on freedom and claims that democratic choice and the benefits of a market economy were being impaired or denied? Should rules be prescriptive or proscriptive with respect to given problems? Should they require certain kinds of action, or should they tell actors to refrain from certain forms of action? How detailed should rules be, for instance in regulating financial conduct and the behaviour of banks or big tech companies? Who should be the principal target of rules: politicians or private economic agents, or both? What scope of rules was necessary or desirable in economic policy? Should they include money supply, exchange rates, bank liquidity, fiscal policy, tax rates, employment practices, carbon emissions, various environmental impacts, etc.? What was the appropriate relationship between external and internal sources of discipline? Should states borrow discipline by adopting an external anchor, or must it be ‘home-grown’ by domestic rule-compliance? Which form, and what degree, of discipline was desirable to ensure the credibil ity of rules? How much reliance should be placed on sanctions, of what type, how much on ‘naming and shaming’, and how much on public goodwill? What, in practical terms, was the line of demarcation between rules and discretion? How should rules be used in practice—mechanically or with some discretion and flexi bility? On what basis should rules change over time? Should they take account of differences in policy inheritance? Should they be adapted to suit different types of political economy? How important was consensus about rules, and about some rules but not others, and how was consensus to be established? How much do the distributive costs of rules matter? Whose interests are protected, and whose are marginalized, by a given set of rules? What are the implications of changes in rules for different interests? Are democracy and discipline reconcilable? If so, on what terms? In short, despite its aspirations to an enlightened view of long-term social, economic, and political interests, conservative liberalism is inexorably caught up in contention. Advocacy of a rule-based order raises many more questions than it provides unambiguously clear answers that can command general consent.
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84 Conservative Liberalism, Ordo-Liberalism, and the State The debate about rules versus discretion featured prominently in monetary policy and in the arguments between the Banking School and the Currency School (Huerta de Soto 2006: 622–30). Though at first glance a highly technical domain of expert judgement, consensus proved elusive. Thus, for instance, the economists Finn Kydland and Edward Prescott (1977: 487) made the case for rules, whilst the central banker Alexandre Lamfalussy (1981: 48–50) argued for discretion. Conservative liberals and Ordo-liberals, like Simons, were closely associated with the Currency School and the belief that banking should follow universal rules. They favoured state monopoly of money creation for two reasons: to better manage the credit cycle (Simons) or to preserve the value of the currency (Eucken). Simons (1934, 1936) proposed rules that would ensure a clear separation of money creation and financial intermediation and rules to constrain money creation by the state (Chapter 9: 293–5). Following Simons, Hayek (1960: 334–7) stressed that monetary policy must be as predictable as possible. In contrast, the Banking School rejected total state control over the money supply, arguing for leaving it in the hands of the private sector so that monetary aggregates could respond flexibly to the needs of trade. No monetary rule could account for all eventualities. Many Keynesians were attracted to discretionary monetary policy as a means of demand management. It justified unconventional monetary policies in times of crisis. Adherents of laissez-faire, the Austrian School, and libertarianism were attracted to the Banking School by the belief that the banking system should serve as the vehicle for the free exercise of creative entrepreneurship (Huerta de Soto 2006: 49, 183, 284). For this reason, the banking system needed to be able to expand credit. Eucken (1923: 10, 19) blamed the ascendancy of Banking School thinking for failings in Reichsbank monetary policy that had led to the disastrous German hyper-inflation of 1923. This critique was echoed by Otto Veit (1970: 509), the German monetary theorist and central banker, who attacked the prevalent conception of ‘functional finance’. Simons blamed the influence of Banking School thinking in the US Federal Reserve Bank for the depth of the Great Depression in 1929–33. German Ordo-liberals, like Eucken and his most famous pupil, Friedrich Lutz (1936, 1949), were—as Currency School adherents—to be deeply influenced by Simons’ work on the Chicago Plan (see Chapter 9: 293–5; on Lutz, see Veit-Bachmann 2003). The question of rules versus discretion resurfaced from the 1960s in the contest between monetarists and credibility and time-consistency theorists, on the one hand, and Keynesians, on the other. The former favoured reliance on rule-based monetary and fiscal policies to stabilize expectations and strengthen confidence. Keynesians placed greater emphasis on monetary and fiscal discretion to counter cyclical fluctuations in the economy. The advocacy of rules by conservative liberalism raised deeper normative issues of ethics, legitimacy, and accountability. Against the background of the
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Conservative Liberalism as a Disciplinary Revolution 85 inhumanity that had been and continued to be inflicted by totalitarian dictatorships, George Orwell (1946) expressed the fear that an undue emphasis on discip line could prove the enemy of liberty and democracy. Later, after the post-2008 financial and economic crisis and fear that public trust in governing elites was eroding, the former British central banker Paul Tucker (2018) focused on the problem of the scale of unelected power in modern democracies. The question was who had, and who should have, power over rules. Debate about appropriate rules is difficult to disentangle from the raw distributive politics of who is empowered and who disempowered in markets and in policy processes, and from fears that rule-making and application have been captured by privileged interests. In short, who benefits from the way in which independent, non-majoritarian institutions, like central banks, operate? Those who make and apply the rules that are favoured by conservative liberals can soon become the villains in public debate and face uncomfortable calls for accountability for the distributive outcomes of their actions. The post-2008 financial, economic, and sovereigndebt crisis broke implicit social trust in bankers, in their supervisors and regulators, and in the wider political elite. It helped to expose the fragility of the liberal order. Rules were justified in academic economics by reference to the need to avert destabilizing shocks. For conservative liberals, the state was a potent source of destabilizing shocks to the private sector. These shocks originated from the discretionary, ill-informed use of monetary, fiscal, competition, and industrial pol icies. Ad hoc state interventions on behalf of special interests could unleash compound effects. Monetary, fiscal, and competition policy rules were required to provide insurance against political short-sightedness, incompetence, and mistakes. This position linked conservative liberalism to wider liberalism. For instance, Friedman, who was typically categorized as a laissez-faire liberal, argued for a money-growth rule to bind the hands of central banks (Friedman and Schwartz 1963; Friedman 1968). The distinctiveness of conservative liberalism, in relation to the new Chicago School, resided in identifying the market as a source of destabilizing financial and economic shocks to the liberal order (e.g. Buchanan 2009, 2010a, 2010b; Larosière 2006). The market—above all, financial markets—could not be relied on to behave in a disciplined way and to provide states with the timely and appropriate discipline they required. Destabilizing shocks could originate within markets through irrational exuberance and self-reinforcing expectations. In addition, incumbent competitors could abuse their market dominance to emasculate effective market competition and establish ‘crony capitalism’; to create asymmetries of information and power between ‘insiders’ and ‘outsiders’; to pursue rent-seeking rather than contributing to general economic welfare and social solidarity; and to narrow and debase consumer choice. Competitive markets required a sophisticated infrastructure of public and civil law, alongside public trust that
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86 Conservative Liberalism, Ordo-Liberalism, and the State the law would be rigorously and consistently applied to all. In short, as Adam Smith (1759, 1776) had recognized, the market order required the state to underwrite its legitimacy (Sen 2011). The character of conservative liberalism crystallized in experience of the dis order of the interwar period (see Chapter 2). Conservative liberals defined their task as to stabilize the liberal economic, social, and political orders in the face of pervasive uncertainty and proneness to unpredictable shocks—social and polit ical as well as economic. They pointed to the inherent dynamism and instability of political and market behaviour. Dysfunctional political behaviour stemmed from blinkered ideology, partisanship, short-term political cycles, and the unrealistic expectations they cultivated. Dysfunctional market behaviour was driven by highly imperfect information of economic agents, incompatible incentives, emotions of greed and fear, and herd-like behaviour. The response of conservative liberals was to argue for appropriately designed institutions and rules that would embed individual policies and measures in a long-term framework and stabilize both political and market expectations. Rules were needed to constrain future policy choices in the interests of inter-generational justice; to strengthen the position of ‘neutral’, independent authorities by providing a shield against partisan political pressures and opportunism; to police proper conduct in the market economy; to provide signals to market actors that would enable them to plan by giving them confidence in the rationale and direction of policy; and to strengthen the credibility of policy. The key was to align the expectations of private and public agents with macro-economic stabilization. The role of the state was to provide a stable and predictable framework through a long-term-oriented, rule-based approach to competition, monetary, fiscal, and economic policies. Crucially, the conservative liberals saw the rule-based order as about constraints that were simultaneously enabling. They enabled politics to escape the limitations of democratic space, understood as both borders and political gener ations. They enlightened public debate by taking account of the interests of future generations. They enabled individuals to understand markets as ideally about mutual advantage and not about greed and fear. Also, as Chapters 5–7 show, the founding thinkers of conservative liberalism believed that discipline was enabling in enriching the inner life of the individual, aesthetically, culturally, and intellectually. A liberal society was about the formation of the character and moral sense of individuals.
Metaphor: The Distinctive Imagery of Conservative Liberalism The nature of conservative liberalism is captured by its preference for certain metaphors that sound repeatedly in its discourse, as well as by its rejection of
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Conservative Liberalism as a Disciplinary Revolution 87 thers. Its founding figures were well aware of the power of words to underpin o their construction of the social world and to undermine other constructions. Metaphor added authority to their messages and aroused emotions amongst their readers. In short, it endowed conservative liberalism with rhetorical power. The most frequently rejected metaphor was the notion of political economy as a problem of ‘engineering’. Conservative liberals associated the engineering mentality with Saint-Simonian dirigiste political economy in France; with Keynesianism; and, more generally, with deference to the model of the physical sciences (e.g. Buchanan 1979, 2009; Knight 1937; Rougier in CWL 1939: 16; Hayek 1989/1974). Knight attacked the development of an ideology of social control within academic economics. It supported a new tyranny of experts who had no legitimate right to claim a special status in social discourse (Emmett 2009: 65–72). He preferred the metaphor of the political economist as artistic and literary critic to that of the social engineer (Knight 1935a). The political economist was engaging in an open-ended ‘government by discussion’ about standards in market behaviour and refining standards through debate. James Buchanan (2009: 151) condemned the Keynesian obsession with controlling economic outcomes as a massive waste of intellectual energy. As we shall see, Böhm and Hayek preferred the metaphor of the political economist as gardener. The most frequent analogy in conservative liberalism was ‘to think of social life as a game’ (Knight 1946, 1956). Knight had something more fundamental in mind than just personal interest in winning the game through effective strategies of play; that is, choices within rules. Individuals also had an interest in the game continuing and in its improvement. His use of the metaphor of markets as a game highlighted what he saw as the crisis in neo-classical economic theory with its postulate of utility-maximizing individuals (Knight 1935a: 301). The main task of political economy was to assist in the choice of the ‘rules of the game’ and in their improvement to achieve a better game (Knight 1940). Political economy was at root about constitutional choice. It was about debating and agreeing self-imposed constraints that were needed to prevent the use of coercion, deception, and fraud in markets and the spread of corrupt practices like bribery. The proper concern of political economy was with designing, improving, and obeying the rules. Knight’s premise was that individual freedom had to be conditioned and limited by law to secure the collective good (Emmett 2009: 145–55). Markets work well when they are played by ‘good sports’ who are distinguished by the moral quality of their play (ibid.: 88–9, 93–7). In this form, the game analogy had appeared in the work of Eucken (1952: 266ff.) and had been taken up by Hayek (1973: 71). However, its most influential use was by the US-based economists like Robert Lucas (1976), Kydland and Prescott (1977), and Robert Barro and David Gordon (1983). Their work on rational expectations and on credibility and time-consistency in fiscal and mon etary policies examined the strategic aspects of optimal rule design. Its purpose
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88 Conservative Liberalism, Ordo-Liberalism, and the State was to shift the behaviour of politicians and of private agents by binding commitments. Credibility and time-consistency literature gave conceptual and theoret ical support to two key principles of Eucken: price stability and consistency in economic policies. Similarly, Buchanan’s ‘constitutional economics’ built on earlier work on the rules of the game by his colleague Rutledge Vining (1969, 1984). Both had been students of Knight. Beginning in the 1980s, this approach was taken up by Viktor Vanberg who introduced constitutional economics into the work of the Freiburg School (e.g. Buchanan 1999/1986: 467; Vanberg 1988, 2018). Buchanan’s use of the game analogy gave an individualistic and contractarian foundation to the notion of a rule-based political economy. Its attraction was that it offered a clearer fit with the concept of citizenship in democratic thought than had been provided earlier by Eucken. In the process it had the advantage of helping to counter spreading critique of Ordo-liberalism as authoritarian and too grounded in trad itional German state-centric thinking (e.g. Haselbach 1991; Kirchgässner 1988; Ptak 2004). The civilizing and disciplining role of Ordo-liberalism was driven home by the frequent use of vivid metaphors to impart precision, feeling, and power to its central arguments. The most often deployed metaphors were theatrical, architectural, horticultural, religious, and medical. Röpke (1942) saw his role in theatrical terms as akin to that of the chorus in Greek tragedy. He was there as the warning and guiding voice. He sought to check the arrogance of those economists who had faith in the ‘primitive magic’ of mathematics to help them engineer the economic cycle (Röpke 1958b: 367–85; also his letter of 3 October 1956 to Hans Willgerodt, Röpke Papers, Institute for Economic Policy, University of Cologne). The idea of political economy as at heart about sound institutional design was captured in architectural metaphor. It was evident in the importance that was attached to the ‘foundations’ of liberal order. This type of metaphor recurred in the emphasis on the interdependence of the different ‘pillars’ of order—fiscal, monetary, legal, political, social, and cultural (e.g. Eucken 1940, 1952; Hensel 1951; Schlecht 1985; Tietmeyer 1999; also Dyson 2016). ‘Thinking in orders’ meant attending to the foundations of economic policy, a task that involved high moral and political responsibility (Hensel 1951: 12–13). The idea of creating and maintaining a framework of rules of the game for a competitive market economy was captured in a different way by likening it to the activity of a gardener. Unlike an architect or engineer, the gardener is involved in an activity of cultivation rather than of construction (cf. Heath 1989). The gardener uses what knowledge he/she has acquired to provide the appropriate envir onment in which plants can grow to their full potential. According to Böhm (1980: 115, 200), a well-functioning market requires continuous gardening and nursing, in a manner comparable to maintaining a highly cultivated park. The gardening metaphor recurred in Hayek’s Nobel Prize lecture (1989/1974: 7).
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Conservative Liberalism as a Disciplinary Revolution 89 It was well adapted to his conception of the market as a spontaneous order that flourished in an appropriately tended environment (Heath 1989). The same metaphor was adopted by Hawtrey. The ruler should emulate the gardener whose aim is ‘to secure for all his plants conditions in which each grows according to its nature. He cannot dictate to each the level of flower or fruit it is to yield . . . The gardener has more scope in guarding his people against harm than in inducing positive good’ (Hawtrey c.1946–c.1973b: 62). Religion played a foundational role in the Ordo-liberal tradition (Chapter 7) and proved a potent source of metaphor. Einaudi (1942a: 72) criticized the industrial revolution for having spawned an ‘idolization of the large-scale, of the colossal, of the machine, of technology’ and, in the process, destroying individualism and diversity. Capitalism had a fatal tendency to ‘production for production’s sake, to consumption for consumption’s sake’, the effect of which was to make man subservient (Einaudi 1942b: 124–5). Walter Eucken (1926a, 1927, 1932b: 85) had earlier attacked the ‘idolatry’ of ‘economism’ and of ‘scientism’ as the root cause of contemporary spiritual emptiness. They had led to the absolutism of the market and of the state. Alfred Müller-Armack (1948a: 54–66) located his ethical liberalism within the historical sociology of religion. In his view, the period since 1832 had been a history of constructing worldly ‘idols’. The shift from one idol to another had accompanied the process of secularization. ‘Idol creation is . . . a religious phenomenon of meaning in a secularizing world’ (ibid.: 127). Idolization had been focused variously on the state, the people, race, class, technology, progress, youth, art, and science. It had proved brutalizing in its consequences. For Einaudi, Eucken, and Müller-Armack, the solution lay in restoring economic liberalism through a return to the discipline of Christian ethics. This language brings home the ethical basis of their thinking about the competitive market order. It was about taming concentrations of worldly power and the sins of egoism and materialism. Medical metaphors of ‘sickness’ and ‘health’ played an even more powerful and arresting role in Ordo-liberalism and more widely in conservative liberalism. They abounded as liberal theorists sought to diagnose the ‘ills’ of the times and connected to their perception of the need for a moral and aesthetic response to the contemporary crisis (see Chapter 2). This kind of metaphor also reflected the strongly conservative cultural context in which their liberalism was embedded. The American economist Knight (1946) wrote about ‘the sickness of modern civilization’ as manifested in the ‘decay’ of the ideals of liberalism. ‘Loss of faith in intellectual leaders was followed by the final step, a turning away from belief in the very reality of truth’ (ibid.: 96). Knight (1935a: 398) noted that much is to be said for ‘an aristocratic constitution of society’ (see here Chapter 5). There was a need to rethink the foundations of a liberal social order in terms of ethical prin ciples, truth-telling, and contribution to the good life (ibid.: 357–8). These remarks betray an intellectual indebtedness to aristocratic liberalism, if qualified
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90 Conservative Liberalism, Ordo-Liberalism, and the State by his doubts about its practicality. Liberalism had to come to grips with ‘the meaning of social health’, beyond its traditional fixation on work, to include aesthetic and cultural values, values of humour and play, and sociability (Knight 1946: 79). Medical metaphor figured strongly in the writings of Röpke, whose father had been a doctor, and of Rüstow. Röpke (1942: 16) commented on ‘the sickness of our civilized world’. The world was ‘sickening to death’ in the face of an overwhelming concentration of economic and political power (Röpke 1958b: 384). The competitive market economy was not enough to meet the ethical requirements of the good society. The key question for liberalism was whether the competitive market co-existed with a ‘healthy’ or ‘unhealthy’ social structure. Röpke’s concern was that a fundamentalist liberal commitment to the competitive market economy, and subsequent commercialization, had ‘poisoned’ society and undermined the meaning and dignity of work (ibid.: 171–2). The cure resided in strengthening the ‘healthy’ middle classes. It involved fostering a strong culture of independent, family-based artisans and farmers and a ‘healthy’ balance between urban and rural life (Röpke 1944: 377; Röpke 1958b: 51). Politics had witnessed the triumph of ‘sick’ over ‘healthy’ pluralism (Röpke 1958b: 55, 205–15). He saw salvation in a political system that endowed a ‘natural aristocracy’ with authority, one that could attend to the general interest in a disinterested manner (ibid.: 191–9). A ‘healthy’ state required the counterweights of an independent intellectual class, legal system, and press (Röpke 1944). Later, he added communal autonomy, federalism, family, and property to the list of necessary counterweights (Röpke 1958b: 208–9). The medical metaphor recurred in Röpke’s writings on European integration. European integration had to be built on monetary discipline which was best secured by tying the process to Germany. In this way, other member states could be encouraged to adopt responsible financial policies and wage-bargaining. He used medical metaphor to express his scepticism about how healthy European integration would prove. It was unlikely that, if you put healthy children together with measles-infected children, the healthy children would remain so (Röpke 1957b: 166). Likewise, the works of Rüstow were littered with medical metaphors. He defined his role as medicus rei publicae, as identifying the pathologies of history and offering remedies (Meier-Rust 1993: 211–26; Rüstow 1950–7, Band 1: 16). Advanced cultures were suffering from a loss of individuality (Vermassung) and from the decline of respect for authority (ibid., Band 3: 138–44, 187). They had been ‘poisoned’ by figures like Lenin (1870–1924), leader of the Bolshevik revolution in Russia, and the French revolutionary syndicalist Georges Sorel (1847–1922) (ibid., Band 2: 137; Band 3: 193, 198, 346). According to Rüstow, the root causes of the ‘social sickness’ could be traced back to the nineteenth century. During this period the earlier balance between reason and emotion—symbolized
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Conservative Liberalism as a Disciplinary Revolution 91 in the figure of Goethe—had been lost. Art and literature were invaluable as a mirror to this ethical sickness and its expression in social atomization (ibid., Band 3: 113, 138–9, 136). ‘Vulgar’ liberalism was part of this larger process of degener ation. The proliferation of subsidy, protection, and monopoly had produced a ‘pathologically degenerated’ form of market economy, which in turn had made capitalism an easy target of economic, social, and political criticism (ibid.: 159–70). Like his friend Röpke, Rüstow looked to a model of independent, family-based artisans and farmers as the essential basis for a ‘healthy’ liberal economy, society, and polity. Two German Ordo-liberals who were directly involved in post-war economic reforms made vivid use of medical metaphor. Böhm (1955) levelled his criticism at the primitive ‘medicine-men’ who rejected the role of theory in economic policy. He elaborated this critique in a speech in the German Bundestag on the proposed anti-cartel law, in whose passage he took a deep personal interest as an Ordo-liberal lawyer and a parliamentarian. Böhm argued that the role of theory was to expose the privileges that had been acquired by the propertied classes. These privileges had formed under the protection of the ‘medicine-men’ who claimed to manage the economy. The medicine-men ‘lit magic candles, spread mist, and repeated mantras’ that hid the failings, inequities, and confusion that their policies had produced. The role of theory was to expose the abuse of power—‘good theory and good policy are twins’ (author’s translation). Otto Schlecht (1992: 324), a senior federal economics ministry official who had worked closely with Karl Schiller, compared Keynesian counter-cyclical policies to a drug that was used to provide short-term relief from pain. Its long-term use induced dependency and damaged the patient—through inflation, unsound public finances, and reduced social provision.
Natives and Migrants: Identity and Boundaries of Ordo-Liberalism As the cross-national intellectual pedigree of liberalism suggests, Ordo-liberalism was not a German peculiarity, to be pigeon-holed as a German Sonderweg. It shared cross-national characteristics as a national particularity within the context of a wider disciplinary revolution in liberalism. The tradition expressed varyingly recurring, shared features across space and over time. In this sense, the Ordoliberal tradition was not simply and solely reducible to a single essential defin ition. It was not just coterminous with the principles—constitutive and regulative—that were propounded by Walter Eucken (1949, 1952) and the Freiburg School (on which see Chapter 4: 108–9). The tradition was not simply defined by, and confined to, a process of borrowing from, and emulation of, this one source. Ordo-liberalism is best seen as a distinctive emanation of a
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92 Conservative Liberalism, Ordo-Liberalism, and the State multi-faceted, cross-national phenomenon within liberal thought and language, one bound together by what Wittgenstein (2009/1953) called family resemblance. German thinking has carved out a semi-hegemonic position within the discip linary revolution in liberalism, one that is inevitably reflected in the structure and contents of this book. At the same time, there were important echoes and affi n ities outside the German national and linguistic boundary with which Ordoliberalism has become conventionally identified. From the 1920s onwards, overlapping and cross-cutting similarities became evident in the thinking of various European and American intellectuals about the contemporary crisis within liberalism and its roots, nature, and implications. Their thinking exhibited a cross-national convergence. This convergence reflected shared, if differently combined, conservative and liberal ideological thinking about how best to construct and justify a humane, prosperous, and viable framework of liberal order. The same question animated the Ordo-liberal tradition as had animated aristocratic liberalism, ethical philosophy, and many theologians: how to safeguard public virtue in a world where citizens, consumers, producers, and organized groups were preoccupied with their private interests and where political dem agogues and powerful corporate players could corrupt public morals. It was a question that yielded humanistic critiques of radical individualism and of unlimited democracy as well as of collectivist forms like fascism, socialism, and communism. This question was bound up in a profound sense of the ‘crisis of modernity’. The crisis was defined as posing a dual threat—of servitude to the state and of anarchy in society. Its resolution required a more disciplinary and robust liberalism. There was a striking family resemblance in the importance that Ordo-liberal thinkers attached both to the ethical basis of economic theory and practice and to giving a rigorous scientific basis to their work. Thinking in terms of Wittgenstein’s family resemblance makes it possible to identify an emerging Ordo-liberal trad ition before the term itself came into currency. The tradition did not depend on thinkers like Hawtrey, Knight, Rougier, or Rueff self-consciously identifying themselves as ‘Ordo-liberals’: any more than Alexander von Humboldt had identified himself as an ‘ecologist’ or William of Sens had identified himself as a ‘Gothic’ architect. Equally, thinking in terms of family resemblance does not mean abandoning the ‘exclusion principle’, the grounds on which certain ideas can be ruled out of the Ordo-liberal tradition. There might be open, fuzzy boundaries to both conservatism and liberalism and much internal variety within the Ordo-liberal tradition. Nevertheless, the Ordo-liberal tradition had shared features that gave it a discernible boundary as a type of liberalism. At the same time, for two main reasons, pinning down the Ordo-liberal tradition with precision is far from easy. First, like any tradition, it is open-ended in texture. Ordo-liberalism lacks firm boundaries. Its thinkers combined and re-combined ideas, pragmatically and eclectically, in response to different and
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Conservative Liberalism as a Disciplinary Revolution 93 changing conditions. From its origins in the methodological conflict (Methodenstreit) within German economics (on which Chapter 6: 181–3), Ordo-liberalism carried strong, and far from readily compatible, imprints from external influences. In seeking to distance itself from both the Austrian theoretical tradition and the German historical tradition of economics, it retained aspects of both (Schefold 1998, 2003). The consequence was different degrees of emphasis on theory and on history within Ordo-liberalism. Later, from the 1970s and 80s, Ordo-liberalism was able to shore up its disciplinary character by borrowing from American-centred credibility and time-consistency literature and aligning itself with the emerging international consensus in monetary policy about the primacy of anchoring inflation expectations in financial markets, firms, and households (cf. Goodfriend 2007). Its emphasis on pre-commitment through rules and central bank independence was designed to cut the costs of disinflation (notably Kydland and Prescott 1977; Barro and Gordon 1983). As Einaudi (1942a) noted, caution is required in attributing thinkers to a single school or tradition. Their thought bears the imprint of multiple sources. It also evolves with time and exposure to new experiences and the insights they generate. The belonging of thinkers to the Ordo-liberal tradition varied in extent and over time. Some liberal thinkers like Böhm and Eucken remained Ordo-liberal natives. Others were migrants. They assumed shifting and complex identities over time. Einaudi engaged with Ordo-liberal thought through his reading of Röpke, late in his career, from 1943 (Forte 2009, 2016; Giordano 2006a, 2006b). Hayek’s closest affinity to the Eucken School of Ordo-liberalism lasted from approximately 1935 to 1947 and included his popular The Road to Serfdom (Hayek 1944, 1948/1935; Köhler and Kolev 2011; Vanberg 2003). He had a more ambivalent and changing relationship to the Ordo-liberal tradition in the form bequeathed by Böhm and Eucken, reshaping the Freiburg School from the 1960s. Lippmann’s engagement dated from the mid-1930s. However, by 1947 it was clear that he would not join the new Mont Pèlerin Society (Riccio 1996; Goodwin 2014). Secondly, pinning down the Ordo-liberal tradition is difficult because of its internal fragmentation around different epistemic and methodological choices. Typically, Ordo-liberal thinkers straddled the boundaries between the neo-classical and institutional approaches to economics in ways that make it difficult to identify the tradition with the methodological individualism of the Austrian tradition. Fragmentation around different epistemic and methodological choices was also apparent in the way in which various Ordo-liberal thinkers parted company with Eucken in prioritizing the problem of social solidarity as involving values outside the economic order. Götz Briefs, Müller-Armack, Oswald von Nell-Breuning, Röpke, and Rüstow became identified with a distinct strand of ‘sociological’ Ordo-liberalism that emphasized ethical values outside and beyond the market. Rougier and Rueff developed their views on the market order from rethinking French positivist philosophy of science rather than from the Idealism and
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94 Conservative Liberalism, Ordo-Liberalism, and the State phenomenology that was so influential amongst German Ordo-liberals. Yet their prescriptions ended up being strikingly close to those of Röpke and Rüstow. For these reasons, the notion of ‘mainstream’ Ordo-liberalism emerges as historically contingent and variable and in need of contextualization and critical distance. Examining Ordo-liberalism as a tradition provides an opportunity to assess the claim that it possesses a fixed identity by reference to an iconic theorist, text, or school. It draws attention to the coexistence of similarities with variation, to family resemblances across linguistic and national boundaries and over time, and to processes of identity consolidation and change.
Establishing a Mainstream: Defining Key Texts The notion of a mainstream is defined by a social process of selecting key texts as essential references and citations. A key aspect of the Ordo-liberal tradition was a successful process of establishing the notion of a mainstream Ordo-liberalism that is Germanic and Freiburg in character. As we have seen, this claim was linked to the German origins of the word and the ORDO Yearbook. More concretely, it built on the identification of a set of key thinkers and key texts to which seminal historical influence has been attributed. One such text was Rüstow’s (1963c/1932) famous speech of September 1932 on the ‘free economy-strong state’. Delivered to the German economics association (Verein für Socialpolitik) in Leipzig, it became a foundational reference in the literature about Ordo-liberalism. Another landmark text was the ‘Ordo Manifesto’ of Böhm, Eucken, and Hans Grossmann-Doerth (1989/1936). This ‘mission statement’ of 1936 was connected to their launch of the ‘Order of the Economy’ (Ordnung der Wirtschaft) series as a flagship for the new Freiburg School (see Böhm 1937). The Freiburg School rested on an extraordinarily intimate collaboration of economists—like Constantin von Dietze, Eucken, Adolf Lampe, and Leonhard Miksch—with lawyers—notably Grossmann-Doerth and Böhm, beginning in 1934–5 (Blumenberg-Lampe 1991; Böhm 1957b/1960; Dietze 1960/1961; Goldschmidt 1997; Grossekettler 1989; Heinemann 1989; Hollerbach 1991; Streit 1995). The basis for this collaboration was evident in the commitment of the ‘Ordo Manifesto’ to ‘understanding and fashioning the legal instruments for an economic constitution’ (Böhm, Eucken, and Grossmann-Doerth 1989/1936: 23). In a lecture on socialist calculation in 1935, Hayek (1948/1935: 134–5) also stressed the vital importance of a legal framework to secure competition and noted its ‘sad neglect’ by economists. Perhaps most famously of all, Eucken’s influence is attributed to three seminal texts from this period: his article on ‘state structural changes and the crisis of capitalism’ (Eucken 1932a); his Foundations of Economics (Grundlagen der Nationalökonomie) (Eucken 1940); and his Principles of Economic Policy (Grundsätze der Wirtschaftspolitik) (Eucken 1952). They outline respectively
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Conservative Liberalism as a Disciplinary Revolution 95 Eucken’s critique of contemporary capitalism; the morphological methodology and the interdependence of orders; and the constitutive and regulative principles for a competitive market order. Nevertheless, as this book shows, the Ordo-liberal tradition—in the absence of the word—found echo outside Germany, often in advance of Germany. Edwin Cannan (1997/1909, 1997/1912), the LSE economist, stressed the vital role of institutions and rules for an effectively functioning market economy. He emphasized the formative role of the state and the law in securing property rights. Hawtrey, the British Treasury’s most senior economist in the interwar period, stressed the ethical aspects of economic behaviour, notably in The Economic Problem (1926). His thinking about rules in money, credit, and price stability influenced American thinking, which in turn was assimilated in the work of Walter Eucken (Laidler 1993, 1998). Hawtrey (1926,c.1946–c.1973a, c.1946–c.1973b) worked on the ethical and political problems of markets, independently—and in advance—of the German Ordo-liberals. Family resemblances were to be found in the United States. In examining the ethics of competition, Knight (1935a) echoed Hawtrey’s thinking about the ethics of consumption. His fellow Chicago economist, Simons, in A Positive Programme for Laissez Faire (1934), anticipated later thinking about the superiority of rules over discretion in monetary policy, as well as about the role of the state in anti-trust policies. Later, James Buchanan was to prove a defining presence in Freiburg 3 (see Chapter 4: 123). His work in public choice theory helped counter critiques of the authoritarian liberalism of the Freiburg School, along with his emphasis on the constitution of economic policy (e.g. Buchanan 1975, 1999/1986). Hayek was a special case because of his long career in British and American universities, his admiration for British thinkers like Lord Acton, Edmund Burke, and John Locke, and his rejection of what he saw as the continental antecedents of modern collectivism. The main themes of his lifetime’s work were spelt out in his rejection of socialist calculation, his paper on ‘economics and knowledge’, his hugely popular The Road to Serfdom, and his lecture on ‘Individualism: True and False’ (Hayek 1944, 1948/1935, 1948/1937, 1948/1946). Hayek insisted on the importance of rules for a competitive order. Like Eucken, he argued that adherence to abstract principles was the vital bedrock of a liberal society (Hayek 1967a). However, Hayek also stressed the unavoidable imperfection of human knowledge, leading him to reject Cartesian rationalism and constructivist belief in a consciously designed order of ‘rationalistic individualism’ (Hayek 1948/1946: 25). Rules had to evolve in conformity with custom and tradition, according to a trialand-error procedure (Hayek 1960, 1967b). Hayek became the intellectual centre of gravity in Freiburg 2 (see Chapter 4: 123). His Constitution of Liberty and his article in the ORDO Yearbook on principles of a liberal social order were very much seminal texts of Freiburg 2 (Hayek 1960, 1967a).
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96 Conservative Liberalism, Ordo-Liberalism, and the State In continental Europe outside Germany, very few texts succeeded in becoming defined as part of the mainstream in conservative liberalism. In 1945 the French economist and public official Rueff published his monumental two-volume L’ordre social (The Social Order). It failed to be taken up as a key text in the mainstream despite its much more detailed specification of fiscal policy rules than can be found in the work of Eucken (Rueff 1945: 723–34). Eucken’s main contribution on fiscal deficits and public debt came early but was not significantly developed thereafter (Eucken 1923). Austria, Belgium, and Italy provided no major textual contributions to the mainstream of conservative liberalism. Einaudi was a for midable intellectual and was influenced by Röpke’s work on social solidarity (Chartier 1989; Einaudi 1942a; Giordano 2006a, 2006b). Nevertheless, Einaudi, Kamitz, and van Zeeland were more important for their practical engagement in economic policy than as original thinkers. Defining the mainstream in conservative liberalism was also linked to what were identified as pivotal international events in attempting to revitalize liberalism. The first of these events followed the publication of The Good Society in 1937 by Lippmann, the American intellectual and journalist. The Lippmann Colloquium in Paris, 26–30 August 1938, was organized by Rougier with the intention of using both Lippmann’s book and the recent and impending publications of the Librairie de Médicis, with which he was closely associated, to establish a programme for the renovation of liberalism (Audier 2012a; see Chapter 9: 300–3). The second of these events was the launch of the Mont Pèlerin Society in 1947 with the purpose of restarting the work that had begun in 1938–9 before the disruption of world war. In its early years it offered an important platform for Ordo-liberal ideas and for the notion—shared with the earlier Lippmann Colloquium—that a renovated liberalism required the concerted efforts of historians, philosophers, and economists. The early hopes of the founding Ordoliberals were in this respect disappointed (Plickert 2008: 115–90).
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PART II
PAT RON SA I NT S OF C ON SE RVAT IV E L I BE R A LI SM A N D OR D O - L IBE R A LI SM
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4
Ordo-Liberalism as Tradition, Ideology, and Model of Citizenship: Memorializing, Reinventing, Forgetting This [Ordo-liberal] attitude is likely to be criticized as dogmatic adherence to rigid principles. This, however, is a reproach which ought not to deter us . . . because principles are the most important contributions we can make to the question of policy . . . Especially so far as economic policy is concerned, principles are practically all that we have to contribute. Friedrich Hayek (2014/1963: 267) Ordo-liberalism merits special attention as the most coherent and highly developed body of thought within conservative liberalism. Hayek’s reference to principles, in his inaugural lecture at the University of Freiburg in 1962, testifies to an important thread of continuity that binds together Ordo-liberalism as a tradition. This chapter examines the complex processes of memorialization, reinvention, and forgetting that marked the Ordo-liberal tradition. These processes involved selectivity in choosing to emphasize certain features in political economy and overlook others. The outcome was a distinctive focusing effect or illusion (Kahneman 2011). Memorialization, reinvention, and forgetting mirror changes on three levels. They are shaped by the challenges that are thrown up by ongoing structural changes and crises in society, economy, and politics. Ordo-liberalism has had to contend with radical changes in family structure, in education, in patterns of working, in technology, in market scale, and in European integration. In addition, memorialization, reinvention, and forgetting reflect epistemic developments within economics, political science, law, and philosophy, including public-choice theory and mathematical model-building. Finally, these processes are bound up with the specificities of individual biography and personal experience that, for instance, make for differences between Walter Eucken, Hayek, and Lars Feld. Memorialization, reinvention, and forgetting are closely tied to the Freiburg School, to the way it evolved in the wake of Hayek and others, and to its being no longer simply synonymous with the Eucken School. Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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100 Conservative Liberalism, Ordo-Liberalism, and the State
The Porous and Hybrid Identity of the Ordo-Liberal Tradition This chapter examines how the Ordo-liberal tradition has gained its identity through three characteristics: its dominant form of memorialization, its ideological makeup, and its model of citizenship. It also highlights the ways in which processes of memorialization, reinvention, and forgetting contribute to problems in trying to clarify the distinctiveness of Ordo-liberal identity and to fix precisely its boundaries. The connections between individual thinkers sit, often uncom fortably, alongside discrepancies in their emphasis on concepts and theories. These discrepancies are indicative of different exposures in space and over time to intellectual, technological, economic, social, and political changes. Also, many of the problems of delineating the Ordo-liberal tradition stem from extensive borrowings from, and overlaps with, related traditions, not least within liberalism. Ordo-liberalism is not a hermetically sealed tradition, immune from the complexity and flux of the real world and the world of ideas. The problem of internal coherence within the Ordo-liberal tradition is aggravated by its hybrid ideological nature: its normative grounding in both conservatism and liberalism. Ideology plays a vital role as its binding-glue and its mobilizer. It shapes the ways in which Ordo-liberals structure and understand society, politics, the law, and the economy. Ideology conditions the values and norms with which they identify. It shapes what they deem to be important—like, in this case, the interests of savers and creditors—and, conversely, what they neglect. It frames the set of choices that they see as available. It provides the kind of political and policy arguments that they advance. In short, ideology is integral to the identity of the Ordo-liberal tradition, its sense of shared values, meanings, and relationships. It helps explain the distinctive focusing illusion of Ordoliberalism (ibid.). Ordo-liberals assessed some aspects of political economy to be more important than others (cf. Akerlof and Kranton 2010). The institutional framework for long-term economic stability mattered more than shorter-term macro-economic counter-cyclical policies. Institutional predictability, integrity and resilience, and the micro-foundations of the economy, had priority over exigencies of macro-economic management. At the same time, the hybrid ideological identity of the Ordo-liberal tradition proved a source of enduring tension between its conservative and liberal strands. This tension was captured when Hayek (1957) sought to identify himself as a liberal rather than as a conservative: ‘The liberal differs from the conservative in his willingness to face [his] ignorance, and to admit how little we know’. According to Hayek, the liberal possesses the qualities of scepticism and diffidence (ibid.: 1–2). However, when it came to social as opposed to epistemic values, Hayek’s conservatism was unmistakeable. He argued that true individualism affirms the
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Ordo-Liberalism as Tradition, Ideology and Model 101 value of the family, voluntary association, and local autonomy (Hayek 1948/1946: 23). It respects custom and tradition. In the wake of the student revolts of the 1960s, Hayek attacked the ‘ideologized disciplines’ of psychology, sociology, and political science. They had helped to nurture the ‘undomesticated barbarians’ of the youth counter-culture. This counter-culture manifested ‘the instincts of savages’, was ‘the necessary product of a permissive education’, and failed to respect the boundary between ‘right’ and ‘wrong’ (Hayek 1996/1978: 67–8). This ideological tension in Hayek can be related to changing social context. In the more conservative age of the 1950s, he could comfortably stress his liberalism. In the more critical, socially liberal age of the 1960s and 70s, his conservativism was threatened and foregrounded. The ideological hybridity of Ordo-liberals led to controversies with purist conservatives and purist liberals, as well as critique from those outside the conservative-liberal fold, including social liberals. The internal tension within Ordo-liberalism was revealed in the correspondence between Walter Eucken and Wilhelm Röpke about Alexander Rüstow. They saw Rüstow as becoming ‘more radical’, reflecting the legacy of his earlier socialism and his critical distance from Christianity (Röpke’s letter to Eucken on 29 November 1945 and Eucken’s letter to Röpke on 24 May 1946, both in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Ideology was a key factor in the hostility of many economists, social and polit ical theorists, politicians, and commentators to Ordo-liberalism as an ill-conceived, even dangerous idea. An example was provided by the critical review of Jacques Rueff ’s L’ordre social by the Belgian-American economist Robert Triffin. Triffin referred to it as ‘rigid and contested’, as ‘a political pamphlet, clothed in the terminology and methodological apparatus of pure economics’ (Robert Triffin Papers at the Yale University archives). Ordo-liberalism offended against prevailing conceptions of how academic economics should be conducted and of how a democratic polity should function. It also challenged the beliefs of many critics about the importance of discretionary macro-economic policy and about how economies should be organized and operate.
Examining Ordo-Liberalism as a Tradition The value of examining Ordo-liberalism as a tradition lies in questioning three conventional views that have blinkered understanding of this body of thought. The first of these views is that Ordo-liberalism is essentially an abstract, coherent, and precisely definable mental entity, whose boundaries can be clearly delineated. This view reflects the Idealist philosophic outlook that inspired many of its founders. It helps to reinforce the belief that intellectually formulated ideas matter and
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102 Conservative Liberalism, Ordo-Liberalism, and the State can change the world. At the same time, it constrains analysis and narrows understanding of Ordo-liberalism by failing to recognize the part that commonsense, tacit knowledge plays within traditions. The second conventional view is that the intellectual boundaries of Ordoliberalism are laid down by a school of thought and its canonical texts. The founders of this school form the reference point and define the body of doctrine (cf. Goldschmidt and Wohlgemuth 2008 on the Freiburg School texts). Their followers construct a story around this legacy, seek to work within its terms, and police the intellectual borders. When taken too far, this view leads to Ordo-liberalism taking on the characteristics of an exclusive caste. It becomes the preserve of the initiated, who define those who belong and those who do not. The third view is that Ordo-liberalism is essentially a German ‘fixed idea’. It represents a ‘special path’ (Sonderweg) in the development of German economic and political thought. This association of Ordo-liberalism with a Sonderweg arouses deep political fears—grounded in explanatory theories of why liberal democracy had failed in the past in Germany; in bitter memories of past German behaviour in Europe; and in arguments that German attitudes could once again prove disastrous for Europe. German pursuit of an Ordo-liberal-designed European Union (EU) was widely viewed as potentially destructive of democracy in member states, of European solidarity, and of trust in Germany as a benign power in Europe. This view fails to account for Ordo-liberalism’s place within wider cross-national conservative liberalism, for the coincidence of much of its thinking with the adoption of credibility and time-consistency ideas by financial and monetary policy elites from the 1980s, and for the capacity of theorists and policy makers to reinvent the tradition to suit changing circumstances. Examining Ordo-liberalism as a tradition enables a more nuanced and balanced debate about its nature and significance and about its strengths and weaknesses. It does so by enabling the analyst to achieve a more critical distance in relation to Ordo-liberalism; by increasing awareness of its ambiguities and paradoxes, its richness and complexity; by helping to rescue neglected thinkers and their ideas from selective processes of historical memorizing; and by tracing its cross-national resonance. What does it mean to speak of Ordo-liberalism as a tradition? Tradition is not synonymous with networks of influence, traceable through evidence of meetings, collaborative activities, quotation, citation of sources, or correspondence. Thinkers may prefer to work individually; they do not always acknowledge sources or do so selectively; and some correspond more actively than others. Tradition may owe less to the spreading influence of a thinker or thinkers than to an unconscious process of convergence in thinking. This form of convergence derives from shared social, economic, and political challenges, common institutional positions, and similarities of social origin, socialization, and ideological
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Ordo-Liberalism as Tradition, Ideology and Model 103 standpoint. Traditions grow as much, if not more, out of evolving affinities as they do out of ‘followership’ of certain intellectual gurus.
A Distinctive Way of Thinking about Political Economy The Ordo-liberal tradition is constituted by shared and overlapping features. As this book argues, the Ordo-liberal tradition is not to be confused with an economic theory. It represents a distinctive way of thinking about the state, the law, the market, and society. In its broadest sense, Ordo-liberalism is a way of thinking that, consciously or unconsciously, is grounded normatively in the importance attached to ethics and to law in making possible a sustainable liberal market order. It represents a belief in the shaping role of the state and, more generally, in the importance of non-majoritarian institutions in ensuring a rule-based economy. At the heart of Ordo-liberal thought is the conception of the state as having a formative role to play in securing an orderly competitive market economy by ensuring the rule of law. It ensures that the market economy is governed by rules that advance and protect individual rights, notably the right to property and to access markets on equal terms. The state promotes the principle of individual responsibility by enforcing liability and thereby averting moral hazard. This principle should be the foundation of insolvency law, intellectual property law, consumer law, labour law, family law, and bank and capital market law (cf. Riesenhuber 2011; also Eucken 1952: 279–85 and Hayek 1960: 93). In addition, the state adheres to the principle of consistency and predictability in economic policy, above all in safeguarding price stability, competition, and private property. Together, these principles serve to ensure a humane as well as productive economy. They promote individual rights, enhance economic efficiency, and make possible the prosperity and stability that social solidarity and human flourishing require. The emphasis in the Ordo-liberal tradition is on getting the long-term economic foundations right, including a sustainable level and trajectory of debt. The founding Ordo-liberals offered a conceptualization of the relationship between the state and the economy that sought to differentiate this new tradition from other traditions, liberal as well as collectivist. Within the extended liberal family, they rejected the conception of the atomized individual, divorced from her or his social surroundings. Instead, they emphasized that a sustainable liberalism required shared values that are embodied in a consistent framework of the interdependent legal, economic, social, and political orders. The founding Ordoliberals also distinguished themselves from the increasingly influential social-liberal tradition, which they characterized as too prone to experimentalism and too prone to act as a bridge to socialism. They characterized Ordo-liberalism as communitarian in its liberalism, whilst being staunchly opposed to the collectivism,
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104 Conservative Liberalism, Ordo-Liberalism, and the State the discretionary economic management, and the welfare state that they associated with social liberalism, as represented by Keynesians and New Dealers. The distinguishing feature of this new form of liberal tradition, within the metamorphoses that liberalism was undergoing, was its stress on the abstract concept of order. However, its founding figures recognized that a certain kind of culture was the ultimate foundation of a prosperous and humane liberal order and that religion had been a profound shaping factor in cultural development. The concepts of order and of a hierarchical social structure acted as bridges to social Catholicism. At the same time, the founding Ordo-liberals remained uncomfortable and ambivalent about the cultural effects of Roman Catholic social teaching, which they saw as too corporatist and too hostile to the market economy, in short as insufficiently liberal (for details, see Chapter 7: 223–9). In the continental European context, liberalism’s relationship to Catholicism took on an importance not seen in the Anglo-American context. Also, in contrast to the Austrian and the new Chicago variants of liberal trad ition, the founding Ordo-liberals did not understand the competitive market to be a wholly natural phenomenon. It required constitution by a ‘strong state’, with the crucial proviso that this state had a limited purpose. This purpose was to protect competition from the competitors: to ensure that those who acquire market power do not use that power to reduce or eliminate competition. In the absence of this ‘strong state’, asymmetries of power developed. This problem of private market power was evident in Weimar Germany in the form of the cartelization of industry. Hence a shared feature of Ordo-liberal tradition is that its enemy is the collusion of the state with rent-seeking capitalists whose self-aggrandizement erodes social welfare and public morals (Böhm 1980). As Chapters 5–7 show, the foundational beliefs—ontological and epistemo logical—of the Ordo-liberal tradition differ from those of the Austrian, the postwar Chicago, and the social-liberal traditions. Ordo-liberals share either a broadly Kantian and phenomenological philosophic background or a philosophic background in a positivism that serves the purpose of assessing the effectiveness of different mental structures in ensuring the dominance of man over nature (e.g. respectively Eucken 1938b: 13; Rougier 1955: 426, 1969: 428). The effect is a commitment to ethical activism in designing the economic order. French Ordo-liberalism differs from the German variant in being more closely aligned with a positivist philosophy of science. Positivism is used critically to demystify as unscientific the economic doctrines of laissez-faire ‘Manchester’ liberalism and of fascist or socialist forms of economic planning. They are ineffect ive and inefficient mentalities. Significantly, the emphasis on the Promethean mentality within French Ordo-liberalism was consistent with a shared enthusiasm for aristocratic liberalism with their German counterparts. They endorsed with enthusiasm the brand of elitism espoused by the Spanish philosopher José Ortega y Gasset (cf. Rougier 1949/1938: 24–31; also Röpke 1942, 1960). Ortega y
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Ordo-Liberalism as Tradition, Ideology and Model 105 Gasset (1930) argued that ‘the civilization of the masses’ was producing dehumanization and a loss of respect for excellence. The triumph of the ‘commonplace mind’ was at the root of a profound social, cultural, and political crisis (on Rueff, see Chivvis 2010: 19). An additional shared feature of the Ordo-liberal tradition is the belief in the autonomy and distinctiveness of public power and in exhaustively codified rules as the basis of order (Dyson 2009/1980). This belief renders alien the idea of the self-regulating market as a natural phenomenon in response to which the task of governance is to adjust and accommodate public policies. The state is understood to be a reality to which markets must also adjust and accommodate and, more over, a reality that embodies an ethical purpose (e.g. Hauriou 1910). However, as with any tradition, Ordo-liberalism begs questions about the form its distinctive way of thinking takes. Three questions about the tradition emerge. What is the relationship between explicit and tacit knowledge, between ‘foreground’ ideas in canonical texts and ‘background’ ideas in practice? Second, how is one to adjudicate claims that Ordo-liberalism represents a unitary tradition, with fixed meaning and boundaries, against claims that it is an internally varied tradition over time, flexible in meaning, and possessing porous and fuzzy boundaries? Third, to what extent is the Ordo-liberal tradition an historical given, an inheritance? Or is it invented and evolving? Are invention and evolution fundamental and ontological, or are they secondary and strategic within an enduring schema? Do they represent a process of entropy? Is the Freiburg School still the Eucken School? Conceptions of identity change with metatheoretical positions. These questions highlight the ambiguities and paradoxes at the heart of the tradition and its open-textured character as a form of liberalism, above all in relation to the conservative tradition. They also touch on fundamental issues in social science. How comfortable are we with accepting the untidiness of an evolving tradition with porous and fuzzy boundaries? Do we opt narrowly for essentialist definition or more broadly examine family resemblances? Do we stress the aspect of historical legacy? Or do we focus on evolving debate about the content and distinctiveness of the tradition, about which thinkers and which texts matter most, and why? Agreement on the answers remains elusive.
The Ordo-Liberal Tradition as Explicit and as Tacit Knowledge When we speak about an Ordo-liberal tradition, what kind of knowledge are we talking about? Conventionally, attempts to define Ordo-liberalism rest on highly intellectualized, formalized accounts of its nature and scope, grounded in textual analysis of certain key thinkers, their biographies, their contexts, and their legacies.
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106 Conservative Liberalism, Ordo-Liberalism, and the State However, in his famous Herbert Spencer lecture, the Cambridge philosopher William Sorley (1926) argued that tradition exists in two forms. It can be dis covered in the narrower sense of formalized knowledge. Seen in this way, the Ordo-liberal tradition can be read, learned, debated, and transmitted through seminal, canonical texts. Its importance can be traced by examining the corres pondence between prescriptions in these texts (say, Walter Eucken’s constitutive and regulative principles; see pp. 108–9 below) and actual institutional and policy designs and practices—subject to the important proviso that correspond ence is not to be confused with causality. Seen in this way, the tradition’s importance as formalized knowledge owes much to the extent to which its core texts and authors become embedded in academic and intellectual power structures through processes of elite recruitment to university chairs and continuing dissemination through appointments, teaching, and research.
Tradition as Formalized Knowledge: Canonical Texts and Academic Power Structures In examining tradition as formalized knowledge, Sorley (1926) points out that it is bound together by a creation myth. A narrative evolves that centres on one or more unifying heroes who provide the tradition with a distinctive intellectual ‘face’. These iconic figures act as a doctrinal rallying point and as a focus for a coherent narrative account of the tradition. In the case of Ordo-liberalism, this rallying point has been the Freiburg School, principally Franz Böhm in law and Eucken in economics. The key texts of these two figures came to serve as canon ical texts, as the central and essential references. Their dissemination was assisted by the success of Eucken in producing doctoral and post-doctoral students who went on to hold university chairs in Germany and who, in turn, continued the process of dissemination (Pűhringer and Őtsch 2015). In the wake of National Socialist university reforms, this process was helped by the rehabilitation of the pivotal role of professors in German academic power structures, notably their patronage power. Neither Jacques Rueff and Louis Rougier in France nor Sir Ralph Hawtrey in Britain possessed a similar patronage power. They did not give rise to their own ‘schools’ and disciplines or secure the same canonical status for their texts.
Academic Power Structures in Law The influence of the Ordo-liberal tradition in German law was mediated through Böhm’s most famous student, Ernst-Wolfgang Mestmäcker. Mestmäcker mentored an impressive third generation of Ordo-liberal chair holders in civil law and especially in economic law (Wirtschaftsrecht), including cartel law, competition policy, and labour law (Engel 2008; Nörr 1993). Böhm’s importance derived from
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Ordo-Liberalism as Tradition, Ideology and Model 107 the lessons he drew from his period as a cartel-policy official in the imperial economics ministry in the 1920s; from a series of early seminal texts on this topic; and from his later activities in the 1950s as a Christian Democratic Union (CDU) member of the Bundestag specializing in anti-cartel and competition policy. In contrast to Mestmäcker, his influence was not the product of creating a big successor generation through the supervision of students. Böhm’s canonical texts within the Ordo-liberal tradition included the article ‘The Problem of Private Power’ (1928) and his books Competition and the Fight against Monopoly (1933) and The Economic Order as Historical Task and Creative Legal Achievement (1937). These texts identified the challenge as one of integrating the insights of economics and law in the design of the ‘economic constitution’ (Wirtschaftsverfassung). The competitive market economy could only be secured through a comprehensive and clearly defined legal framework. Böhm (1961) defined the problem as one of private market power, as it had emerged in the highly cartelized German economy, as well as one of state power. He argued that German lawyers and courts had failed to take seriously individual rights to engage in trade and to compete on equal terms in the market (Nörr 1994). By neglecting market power, German civil law had done too little to promote individual freedom. Later, Böhm (1966, 1980) went on to develop this theme with the concept of the ‘civil-law society’ (Privatrechtsgesellschaft). This concept stressed the individual right to equality of access to the market and the role of lawyers and the courts in securing this right (Mestmäcker 2007a). It had implications for such areas as cartel law, the law on unfair competition, labour law, company law, capital market law, intellectual property law, and media law (Emmerich 2014a, 2014b; Riesenhuber 2007). The concept of ‘civil-law society’ connected the Ordo-liberal tradition to a Kantian notion of freedom through law and to the work of John Locke on civil society. It stressed the idea that freedom had to come from below (Böhm 1980, 1990). Freedom could not just depend on the state. In this way, Böhm and his followers helped distance the Ordo-liberal tradition from formalistic legal positivists like Ernst Forsthoff and Herbert Krűger, who followed Carl Schmitt and who were influential in public law. They also defined themselves against those in the mould of Jeremy Bentham who took a utilitarian approach to law. Böhm, Mestmäcker, and other advocates of a ‘civil-law society’ recognized that individual freedom required the anchoring of basic rights in public constitutional law. However, freedom also needed the appropriate development of civil law, above all by the courts, to protect individual autonomy (Mestmäcker 2007a). Inspired by Böhm, his pupil Mestmäcker sought to connect the Ordo-liberal tradition to legal philosophy and the history of legal ideas. He was concerned to promote reflection on the foundational principles of law, rather than to treat law as just a matter of technical training. Mestmäcker drew on Kant to insist on the
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108 Conservative Liberalism, Ordo-Liberalism, and the State autonomy of law in safeguarding the freedom of the individual. He went on to warn against the danger of ceding too much ground to the simplistic arguments of neo-classical welfare economics about efficiency (Engel 2008: 8–12). For Mestmäcker the economic system was ‘a system of liberty based on a legal order that provides for and guarantees the constituent economic liberties as individual rights’ (quote in ibid.: 9). Mestmäcker played a central role in helping to sustain and cultivate this trad ition through an impressive third generation of academic lawyers (Engel 2008). His doctoral and post-doctoral students included professors who excelled in cartel law and competition law, notably Volker Emmerich (2012, 2014), Wernhard Möschel (1975, 2011), and Heike Schweitzer (Mestmäcker and Schweitzer 2004). Others went on to work in various branches of civil law, including Eckhart Koch on the boundary between civil law and cartel law and Dieter Reuther on labour law and corporate law. Other students played important roles in the Max Planck Institute for research on collective goods, working for instance on telecommunications law, and in the monopoly commission (for details see Engel 2008).
Academic Power Structures in Economics In assessing the influence of the Ordo-liberal tradition as formalized economic knowledge, three texts stand out as canonical: Eucken’s Foundations of Economics (1940) and Principles of Economic Policy (1952); and Röpke’s Internationale Ordnung—Heute (1954; republished in English in 1959). Eucken’s book of 1952 offered a codified account of Ordo-liberalism; that of Röpke focused on the requirements of a liberal international and European economic order. Eucken specified a principle-based approach to designing an ‘economic constitution’, one that would safeguard the competitive market order. In the work of many commentators, Ordo-liberalism became identified with this principlesbased approach. Eucken (1952: 254–337) distinguished between constitutive principles, regulative principles, and principles of state action. He enumerated seven constitutive principles of the economic order: • competitive prices • the primacy of stable prices • open markets • the primacy of private property rights • the freedom of contract • unrestricted liability • the long-term continuity of economic policies. The four regulative principles were designed to correct specific market failures that might arise when the constitutive principles were in place:
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Ordo-Liberalism as Tradition, Ideology and Model 109 • dissolving or supervising monopolies • adjustment of income distribution • correcting external effects • tackling abnormal supply problems, for instance in labour markets. However, market-correcting measures were not to endanger the constitutive principles of the economic order. The constitutive and regulative principles were underpinned by two principles of state action: the limitation of the power and influence of interest groups, and the priority of the constitutive and regulative principles over any policy of detailed intervention, for instance in tax policy. The strong state that the competitive market order required had to be a state with restricted competences and in which rights-based law was sovereign. Röpke’s texts on the international and European order achieved canonical status because they helped clarify and justify German policy choices as the most powerful post-war European creditor state. His central message was that a stable international and European order must begin at home with sound domestic pol icies. It required a moral, legal, and institutional framework that would support a system of stable exchange rates (1959: 16, 212). This framework must include an inviolable rule of law based on clear principles; freely convertible and stable currencies; and monetary and financial discipline on the German and Swiss models (ibid.: 8–9, 72). In Röpke’s view, the central danger to international and European order (he had in mind the Bretton Woods system and the European Payments Union, EPU) arose when creditor states became impotent in the face of demands from debtor states (ibid.: 83). Systems like the EPU could not just depend on the patience of creditor states (ibid.: 232). In the final analysis the viability of an international and European order, based on free trade, required the willingness of states to cede national sovereignty (ibid.: 6). Röpke (ibid.: 5) had in mind the political and economic structure of Switzerland as the model for international and European order. The influence of Eucken and Röpke rested on different foundations. The centrality of Eucken as a rallying point and source of inspiration owed an enormous amount to the number of his students who went on to hold economics chairs in German universities. The number of these second-generation ‘Eucken chairholders’ amounted to at least ten (Pűhringer and Őtsch 2015). Three of these chairholders were notably successful in producing students who became third-generation economics chairholders in Germany. Karl Paul Hensel had been a long-time assistant of Eucken. As a professor in Marburg, 1957–74, he developed Eucken’s morphological approach to the comparative study of economic systems (Hensel 1967, 2015/1972). Fritz Walter Meyer was a professor in Bonn, 1947–73, and one of the founding members of the Council of Economic Advisers (Sachverständigenrat) in 1963 (Meyer 1948). Bernhard Pfister held the chair in
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110 Conservative Liberalism, Ordo-Liberalism, and the State economics in Munich, 1949–68 (Pfister 1928). These three professors each accounted for seven future third-generation chairholders, making twenty-one in total. They were also active members in the Mont Pèlerin Society. A further fifteen chairholders were added to the total by three other pupils of Eucken—Martin Beckmann (Bonn, 1963–9, then Munich), Ernst Heuss (Marburg, 1966–76, and Erlangen-Nűrnberg, 1962–6 and 1976–90), and Wilhelm Krelle (Bonn, 1958–62). This total of thirty-six third-generation Ordo-liberal economics chairholders formed a lineage that stretched from Eucken to Manfred Neumann (Bonn), Peter Oberender (Bayreuth), and Hans Willgerodt (Cologne). Neumann was a key figure in the dissemination of monetarist thought in Germany. One of his students, Jens Weidmann, went on to become chief economist in the federal chancellor’s office under Angela Merkel and then president of the Bundesbank. This third generation was notably active in signing manifestos criticizing the Maastricht Treaty, the premature transition to the final stage of European monetary union in 1999, and the creation of European banking union (Ohr et al. 1992; Kösters, Neumann, Ohr, and Vaudel 1998; Sinn et al. 2012; also Neumann 1998). The influence of Röpke did not derive from his occupation of a nodal position in an academic power structure based around his patronage. It rested on his extraordinary international network-building in the 1930s and beyond from his base in Switzerland. Röpke cultivated close links to figures like Konrad Adenauer, Ludwig Erhard, and Luigi Einaudi. His role in the Mont Pèlerin Society from before its foundation in 1947 to 1961 offered him a major platform. In addition, Röpke’s many articles in the Frankfurter Allgemeine Zeitung, the Neue Zürcher Zeitung, and the Rheinische Merkur were widely read within German-speaking elites. Translations of his books into English, French, Italian, and other languages meant that he reached a very wide international readership. In all, Röpke was more widely read than Eucken, who remained intellectually isolated from 1933–45. He was the consummate public intellectual of Ordo-liberalism. And crucially, the thinking in Internationale Ordnung—Heute corresponded with the emerging interests of post-war Germany as the major creditor state in European economic integration. Its terminology and approach corresponded closely to that of German elites during the post-2008 financial and economic crisis. In contrast to Eucken, the legacy of Alfred Müller-Armack proved more difficult to sustain both at the University of Cologne and elsewhere in German academia. He had sought to embody his thinking about the social market economy in the new Institute for Economic Policy in Cologne, which in turn disseminated ideas on practical policy issues in its Wirtschaftspolitische Chronik (Economic Policy Chronicle) (Kowitz 1998: 123–6). However, these initiatives failed to act as a strong counter-pole to the Freiburg School. The time and energy of MüllerArmack was diverted into pressing policy issues by his official work in the federal economics ministry from 1952. He was head of the basic economic policy div ision and then, from 1958, state secretary for European affairs.
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Ordo-Liberalism as Tradition, Ideology and Model 111 One problem was that Müller-Armack did not develop a coherent theoretical construct akin to those of Eucken or Röpke. His legacy was a more pragmatic and consensual way of thinking about policies based on achieving social peace through balance and, in this way, securing the competitive market order. Second, MüllerArmack did not construct an academic power structure through active patronage. He supervised some 130 doctoral students between 1951 and 1972, many of whom went on to top positions in financial institutions and industrial associations as well as in the media (based on archival research in Cologne). However, Müller-Armack had only five successful post-doctoral students, all between 1962 and 1974 after he gave up his official duties. Just two went on to hold prominent university chairs in economics. Joachim Starbatty (Tübingen) went on to be a controversial political figure, prominent in opposing successive euro area crisis management and reform measures. Christian Watrin (Cologne) became a key figure in the University’s Institute for Economic Policy. Along with Hans Willgerodt, his Ordo-liberal colleague in Cologne, he was a member of the editorial board of the ORDO Yearbook and wrote on the theory of market orders (Watrin and Streissler 1980). The issue of Müller-Armack’s legacy came to a head in a public clash in 2009 when the University of Cologne decided to appoint to six posts in a new specialist research programme on macro-economics. Watrin and Willgerodt, by then emeri tus professors, issued a public rebuke. They argued that, in betraying Müller-Armack’s legacy, Cologne University was sacrificing its distinctive brand name. Müller-Armack’s success as a policy powerbroker was not matched by success in academic power structures akin to that of Eucken. The long-term effect was decline in attendance to his ideas in academic teaching and research, along with neglect of his innovative thinking about European economic governance (on which Chapter 11: 395–405).
The Complex, Multi-Faceted Nature of Academic Lineage Caution is needed in analysing the Ordo-liberal tradition in terms of the power structures of knowledge that are represented by academic lineage, stretching back to iconic authors and their texts. Much changes, and sometimes is lost, in the succession of generations and the differing socialization processes they undergo. Third-generation Ordo-liberal economists and lawyers were much more exposed to Anglo-American political economy with its methodological individualism and utilitarianism. They exhibited a stronger tendency towards specialization and a less direct and sustained engagement with foundational principles. Ordo-liberal economists paid more attention to economic modelling, quantitative techniques, and public-choice theory in order to position themselves closer to the inter national mainstream that was represented by Anglo-American journals. Ordoliberal lawyers ceded ground to what Mestmäcker (2007b: 21, 44) saw as the excessively narrow claims of economics to provide the tools for governing life, for instance by applying efficiency tests in cartel law.
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112 Conservative Liberalism, Ordo-Liberalism, and the State In addition, certain figures from outside the charmed lineages that traced back to Böhm and Eucken found their way to the Ordo-liberal tradition. In economic law, for instance, Wolfgang Fikentscher (2004) carved out a distinct position. He advocated greater sensitivity to, and respect for, cultural context and complexity in designing a humane legal and economic order on the international, European, and national levels. The distinctive aspects of his work stemmed from an interest in legal anthropology and in comparative and historical studies. This interest led him to stress the dangers of ethnocentric narrow-mindedness in legal studies and caused him to elevate cultural respect as a general principle of anti-trust policy. Fikentscher (2008) examined legal, social, and religious norms and the processes of conflict between these normative orderings. Two of his pupils went on to hold chairs in law and continue his approach: Josef Drexl and Andreas Heinemann (1989). Though a student of Alfred Hueck (1889–1975) in Munich, Fikentscher identified himself as a second-generation Ordo-liberal lawyer, alongside Mestmäcker and another ‘outsider’, Kurt Biedenkopf. His socio-cultural variant of Ordoliberalism placed him closer to the economist Müller-Armack. However, many Ordo-liberal lawyers in the lineage of Böhm and Mestmäcker were uncomfortable with the relativism that seemed to be implied by Fikentscher’s emphasis on cultural differences and his appeal to toleration of diversity. Their inclination was to look to shared legal and social norms as the basis of a humane economic order. Both Böhm and Mestmäcker were more present and influential in the realm of policy than Fikentscher. As Chapters 5–7 show, the intellectual narrative of the Ordo-liberal tradition as formalized knowledge can be further fleshed out by examining writers whose texts have provided its deeper intellectual roots. These roots can be traced to Idealist and phenomenological philosophy, to Christian and especially Lutheran social ethics, and to aristocratic liberalism with its diagnosis of a ‘civilizational’ crisis of modernity (e.g. Dathe and Goldschmidt 2003; Goldschmidt 2006, 2009; Manow 2001; Renker 2009). Ordo-liberals like Böhm, Eucken, Röpke, and Rüstow could find in these literary texts intellectual and spiritual inspiration for their commitment to ethical activism and to a comprehensive normative and principles-based approach to the problem of creating a humane and productive social, economic, and political order.
Tradition as ‘Common-Sense’ Knowledge: The Role of Administrative Culture According to Sorley (1926), tradition exists in a second, wider, and more elusive sense. It takes the form of the Ordo-liberal tradition as ‘common-sense’, practical, or experiential knowledge. This type of knowledge is institutionally and culturally
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Ordo-Liberalism as Tradition, Ideology and Model 113 embedded in practice. Seen in this way, the significance of Ordo-liberalism as a tradition does not rest on those who identify with it having read the ‘creation texts’. In contrast to the proposition of the president of the Bundesbank, Jens Weidmann (2013), it is not necessary that German politicians (or for that matter officials) go to bed with a copy of Eucken’s Principles of Economic Policy (1952) under their pillows. More likely, it is the speechwriters in the German federal economics and finance ministries, and not least in the Bundesbank, who are likely to have examined these texts, and then very briefly and selectively. Otherwise, few German officials have read the ‘creation texts’ (based on extensive confidential elite interviewing in Berlin and Frankfurt, 2013–17). This sense of tradition as common-sense knowledge serves as a reminder that the initial and enduring appeal of Ordo-liberalism resided in embodying everyday values that were already present in society. These everyday values were, in part at least, religious in basis. They included belief in personal responsibility and in the virtues of discipline, honesty, and reliability as safeguarded through a rulebased ordering of life. The enduring appeal of the Ordo-liberal tradition depended on continuing to cultivate respect for these values through elite-driven narratives. As Böhm (1937) emphasized, the Ordo-liberal tradition is a cultural as well as an intellectual achievement. Sorley (1926) points out that the glue that binds together and gives life to a tradition is provided by praxis and implicit knowledge. This point corresponds with the emphasis that the philosopher Michael Polanyi (1966), an early attendee at the Mont Pèlerin Society meetings, placed on the role of tacit knowledge and implied values in how we frame and interpret information and take decisions. The role of ‘background’ ideas, and the resilience of ‘taken-for-granted’ understandings, tend to be neglected when analysing the nature and significance of Ordo-liberalism. This neglect stems from their more elusive, less readily access ible nature than the formalized, ‘foreground’ ideas of Ordo-liberalism (cf. Adler 2005; Searle 1995). The mapping of the relationship between explicit and implicit knowledge, between ‘foreground’ and ‘background’ ideas, proves complex. This complexity is evident even in the self-assigned institutional guardians and consciences of Ordoliberalism. Officials in the economic policy divisions of the German federal economics ministry, of the federal finance ministry, and of the Bundesbank, as well as in the federal cartel office (Bundeskartellamt), possess substantial formalized knowledge. However, this knowledge reflects their academic economic training in statistical analysis and in ‘mainstream’, highly formalized neo-classical models of the economy or in technical legal analysis on a case-by-case basis. They have less formalized grounding in the foundational thinking of Ordo-liberalism. Very few enter their official careers as Ordo-liberals in any formed sense. Nevertheless, Ordo-liberalism becomes important because it is embedded in the institutional context and networks within which German officials work. It
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114 Conservative Liberalism, Ordo-Liberalism, and the State forms part of the heuristic baggage that has accumulated there over time. It continues to manifest itself in the specification of the nature of the policy problems that need to be addressed and in the terminology and approach that inform policy choices. This heuristic baggage is reflected in the revealed preferences of officials and policy makers about what constitutes ‘sound’, sustainable policies when confronted with complex problems of balancing competing interests and managing trade-offs in economic policy. It affects how they draw conclusions from statistical data and formal economic modelling. In this background way, Ordo-liberalism colours the focusing illusion of German officials: how they come to define what is a problem, what needs doing, and what they overlook (cf. Kahneman 2011). Ordo-liberalism became part of the operational code of key German decision makers (cf. George 1969). This process was facilitated by the distinctive historical way in which the inheritance of a formalized, rule-based administrative culture was reinforced by the detailed constitutional order of the Federal Republic as its founders sought to learn lessons from the horrors of the Third Reich. The challenge of navigating the complex constitutional order of a post-war state based on the principle of the primacy of law (Rechtsstaat)—in a substantive as well as formal sense—encouraged the appointment and promotion of lawyers within the civil service (for details, Schwanke and Ebinger 2006). A rule-based administrative culture provided fertile ground for the ready, tacit acceptance of Ordo-liberalism. Lawyers continued to occupy a large proportion of the most senior roles in the German federal finance ministry, especially in the European division. Furthermore, the Germanic conception of the European Economic Community (EEC) as a process of ‘integration by law’ proved fertile ground for helping to project Ordo-liberal thinking onto a wider stage in the 1950s and 60s. Conversely, the existence of different types of administrative culture in Britain, France, and Italy helps explain why an Ordo-liberal tradition was much slower to take root and endure there. Historical path dependency in administrative cultures made for difficulties in transposing German-centred Ordo-liberal thinking into EEC policies and across EEC member states, even in the case of competition policy.
The Ordo-Liberal Tradition as Ideal Type and as Family Resemblance When we speak about an Ordo-liberal tradition, we confront the problem that a tradition can be understood in varied ways. Reflecting its own philosophical roots, the Ordo-liberal tradition is typically characterized by its adherents in Idealist terms. It is pictured as a coherent abstract mental entity whose essential features can be formally delineated around one or more shared, defining features.
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Ordo-Liberalism as Tradition, Ideology and Model 115 This way of thinking in terms of essential and accidental features of Ordoliberalism is exemplified in the contrast that is drawn between Eucken/Freiburg (as Ordo-liberal) and Müller-Armack (as social market and not Ordo-liberal) (e.g. Lange-von Kulessa and Renner 1998). The question is: which features are to be selected as essential, which as accidental, and on what basis? Essentialist defin ition involves a decision about which features most matter in terms of characterizing the distinctiveness of Ordo-liberalism. There are clear differences. Müller-Armack has a more comprehensive conception of the state than Eucken. Its tasks are to provide counter-cyclical stabilization against both deflation and inflation and to intervene to ensure social balance and peace. His conception of economic ‘style’ also differed in placing greater stress on the practical implications of differing historical and sociological contexts for pol icies (Kowitz 1998: 212–22). For Böhm, the most important social policy contribution came from the perfection of the competitive market economy, hence his preoccupation with the problems of cartels and monopolies. The construction of the welfare state represented too great a concentration of power in the ‘executive state’ to be compatible with a ‘state ruled by law’ (Böhm 1953a/1960: 138, 144). At the same, the work of Eucken and Müller-Armack, as well as of Hayek, shared certain features. They thought in ‘orders’ and their interdependencies; they strove for an institutionally embedded, rule-based competitive market order; they recognized that social policy interventions had to be compatible with market principles; and they were committed to a constitutionally limited democracy, recognizing democracy’s potential threat to individual freedom. In a letter to Müller-Armack on 21 March 1970, Böhm stated he had withdrawn his earlier reservations about him and recognized that he was a staunch defender of citizen rights (Nachlass Franz Böhm, 01-200-001/3, Archiv für Christlich-Demokratische Politik der Konrad Adenauer Stiftung). He accepted that the market might not always be adequate for dealing with social problems. However, it was important first to test whether the competitive market could effectively address ‘crass variations in income and wealth’ and ‘the economic exploitation of people by people’ (Hansen 2009: 423).
Essentialist Definition In one reading, the morphological approach to characterizing the economic order is the essential feature of Ordo-liberalism. Eucken’s (1940: 179) morphological approach of ‘isolating abstraction’ was the most influential attempt to capture the essential, distinguishing, and significant characteristics of economic reality in abstract, pure forms; the exchange-based order and the centrally directed order (ibid.: 107, 326). This approach sought to specify the different types of economic order that can be discerned in historical experience and that can serve as universal models for comparisons across space and over time.
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116 Conservative Liberalism, Ordo-Liberalism, and the State Eucken claimed that his morphological approach was non-subjective. At the same time, he and other Ordo-liberals claimed that it justified competitive market systems as ethically superior to the centrally directed systems in promoting a humane as well as efficient economic order. In this respect, Eucken’s morpho logical approach appears to be consistent with what Max Weber saw as the function of the ideal type: to provide a ‘conceptually controlled subjectivity’ (Kaube 2014: 154). Eucken’s morphological approach formed the basis for claiming that Ordoliberalism had clear boundaries that distinguished it from other variants of liberal economic thought. The combination of the morphological approach with ethical activism was understood to set Ordo-liberalism apart from the empiricism and relativism of the German Historical tradition. It also distinguished Ordoliberalism from the Austrian tradition, the post-war Chicago tradition, and the Keynesianism in Anglo-American economics. Its distinctiveness reflected the conditioning from Kantian Idealism, from phenomenology, and from Max Weber’s thinking in ideal types.
Family Resemblance: Porous and Fuzzy Boundaries The essential/accidental distinction proves restrictive and hard to apply to the Ordo-liberal tradition. There is the problem of gaining agreement about which features matter most in demarcating its subject matter. In addition, essentialist definition risks generating a static, formalized conception of Ordo-liberalism that proves rigid and inflexible in capturing a fast-changing reality. Following phenomenological insights, the philosopher Ludwig Wittgenstein (2009/1953) became uncomfortable with essentialist narratives. In his later work, he argued that more attention should be paid to the ambiguity and variety in the ways in which words are used in everyday life. This ambiguity and variety are in turn evident amongst those who associate themselves with Ordo-liberalism. Ordoliberals exhibit both continuities and contrasts in their views about the state, the market, and social solidarity. These contrasts are very evident when comparing the Freiburg School(s) of Eucken or Hayek with ‘sociological’ Ordo-liberals. The category of ‘sociological’ Ordo-liberals includes Götz Briefs (1930, 1937, 1980), Müller-Armack (1946, 1947, 1948b), Oswald von Nell-Breuning (1975), Röpke (1942, 1944, 1958), and Rüstow (1945, 1950–7, 1955). For the Freiburg School, the competitive market order was inherently an ethical order through its non-discriminating, privilegefree character. Only minimum income guarantees were reconcilable with this type of market order. Interventionist, discriminating subsidies would entail its corruption.
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Ordo-Liberalism as Tradition, Ideology and Model 117 Conversely, the ‘sociological’ variant of Ordo-liberalism was more deeply embroiled in Christian social ethics, in personalism, and in philosophical anthropology. It was concerned with market outcomes as well as with rules and proced ures. ‘Sociological’ Ordo-liberals argued that a competitive market order is economically the most efficient but is not, in and by itself, an ethical order that ensures social solidarity. An ethically grounded society must look ‘beyond supply and demand’ to supplementary social policy provisions. Otherwise, the market will ‘poison society’ by breeding an atomistic individualism (Röpke 1942, 1960). From the standpoint of Christian social ethics, Briefs (1980: 120) and later Nell-Breuning (1974, 1975) took up the notion of a ‘socially sensitive capitalism’. They stressed the primacy of ethical norms and the independent status of these norms from economics. Briefs and Nell-Breuning placed their faith in the cultivation of personal morality rather than in the state’s capacity to shape the economy and society. On this point, they staked out a key difference with the Freiburg School (Goldschmidt 2006). Seen in the terms advocated by the later Wittgenstein, the Ordo-liberal trad ition takes on the looser form of family resemblance. Those who belong to the tradition are tied together not by one or two common features but by a network of resemblances, like persons whose faces share features that are characteristic of a family. Resemblance manifests itself in a variety of features that are shared by some, but not all, to varying degrees and that alter in expression over time—as with members of a conventional family. The Ordo-liberal tradition is held together by a general overlapping mesh of features—but with different features in individual cases. It is not necessary that one feature—say, the morphological method—is found in all who belong to the Ordo-liberal tradition. The tradition comprises cross-cutting and criss-crossing features which bind it together (cf. Wittgenstein 2009/1953: 61). In the case of Ordo-liberalism, these features blend, in various combinations, features of conservative and liberal ideologies. The crucial point is that, seen in these terms, the Ordo-liberal tradition lacks the exactness that essentialist definition promises. Following Wittgenstein, the Ordo-liberal tradition has porous and fuzzy boundaries, both intellectually and geographically. This openness is apparent with respect to the Austrian tradition and the US-based old and new Chicago traditions. Just as conventional families intermarry, there are cross-cutting features—like devotion to the competitive market and primacy to the value of personal freedom—shared by these three liberal traditions. For this reason, they coexist, albeit with frictions and conflicts, in the Mont Pèlerin Society (Hartwell 1995; Plickert 2008). The porous and fuzzy nature of boundaries is evident in the way in which ‘natives’ of Ordo-liberalism borrow from other traditions. For instance, Eucken’s economic thinking on rules and discretion was strongly influenced by the old
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118 Conservative Liberalism, Ordo-Liberalism, and the State Chicago School of the 1930s, especially Henry Simons (1934, 1936). The thinking of Hayek (1929) and Röpke (1936) on money, credit, and the business cycle owed much to Ludwig von Mises (1953/1912). Ordo-liberalism displays cross-national family resemblance with other manifestations of liberalism. The conception of the Ordo-liberal tradition as held together by family resemblance allows for differences of degree in belonging. Eucken, Hayek, MüllerArmack, Röpke, and Rüstow belonged in varying ways. For instance, Hayek had early roots in the Austrian tradition and the seminars of Ludwig von Mises in 1920s Vienna (Hennecke 2000; Mises 1969; Vanberg 2003, 2012). MüllerArmack’s interest in economic ‘styles’ derived from his close reading of historical economists and sociologists like Werner Sombart, Albert Spiethoff, Ernst Troeltsch, and Max Weber (Kowitz 1998: 212–13). Rüstow’s work remained indebted to the universal historical cultural sociology of Franz Oppenheimer (1864–1943) and his idea of liberal socialism and a ‘third way’ (Hegner 2000: 18–21). This indebtedness introduced tensions into his relationship with other Ordo-liberals, even with Röpke, his closest colleague. In addition, the porous and fuzzy nature of boundaries was evident in the ‘migrants’ both into and out of the Ordo-liberal tradition and the influence they brought to bear. Perhaps the best example of a migrant remains Hayek. The high point of his affinity with the Ordo-liberal tradition—as represented by the Eucken School—appears to have been 1935–47, well before his move to Freiburg (Köhler and Kolev 2011). Hayek’s period in Freiburg University, a decade after Eucken’s death in 1950, served as a springboard for launching new Ordo-liberal reflection on the competitive market. He emphasized a more Darwinian conception of the market as an evolutionary phenomenon, a discovery procedure. He also questioned the constructivist conception of the state, emphasizing the intractable problems of knowledge in institutional design and regulation (Hayek 1960, 1967a, 1967b). Hayek nudged the Freiburg School in new directions, as evident in the thinking of Erich Hoppmann (1967, 1988) and Viktor Vanberg (2003). Similarly, from the 1980s, two new external influences helped to generate a fresh reflection in Freiburg on the political basis of the competitive market order. The first was US-based public-choice theory and the new institutional economics, notably the work of James Buchanan (1991). Vanberg (1988, 1997) imported Buchanan’s constitutional economics to Freiburg, with its combination of methodological individualism and emphasis on the rules of the game. The second new external influence was associated with the Swiss economist Gebhard Kirchgässner (1988). He published an influential critique of the trad itionalist elitism in Ordo-liberal economic doctrine, the failure to keep pace with the latest international developments in economics, and the methodological weaknesses of the Freiburg School. Later, his former student Lars Feld used his position as director of the Walter Eucken Institute in Freiburg to address these criticisms. Feld sought to draw Ordo-liberalism closer to the economics
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Ordo-Liberalism as Tradition, Ideology and Model 119 mainstream through advocacy of public-choice theory. Like Vanberg, he stressed the principle of consensus and the centrality of ‘citizen’ sovereignty alongside ‘consumer’ sovereignty (Feld and Köhler 2011). Ordo-liberalism was to be reconstructed around the normative premise of individual sovereignty. In these ways Ordo-liberalism becomes a complex story of cross-fertilization across traditions, simultaneously enriching the tradition whilst eroding what some see as its ori ginal identity. Examining the Ordo-liberal tradition in Wittgenstein’s terms of family resemblance begs some serious questions that go to the heart of historical study and of social science. Should these subjects limit themselves to the pursuit of analytical exactness and the establishment of clear, firm conceptual and theoretical bound ar ies? The belief in parsimony inspired Eucken’s morphological method for uncovering pure forms of economic order. Or should historical study and social science embrace the complexity, the ambiguities, and the paradoxes of life? Should they limit themselves to identifying a single essential common feature of the Ordo-liberal tradition? Or should historical study give primacy to recognizing overlapping family features as the characteristic of the tradition, along with the cross-fertilization of ideas across intellectual and national boundaries? This position sacrifices parsimony but better captures the contingency, variety, and richness within the Ordo-liberal tradition. It has the advantage of enabling study to delve behind distinctive commonality to examine the differences in temperament, judgement, and nuance that the tradition exhibits.
Ordo-Liberalism as Authentic and Invented Tradition: Consolidation and Change, Memorizing and Forgetting Speaking of Ordo-liberalism as a tradition poses a third problem. Are we dealing with an authentic tradition or with one that has been continuously re-invented? In what ways has its identity changed—fundamentally or on the margins? An authentic tradition is understood as an historical given, a fixed identity that is handed down in the form of a set of shared understandings and practices. It is honoured, mythologized, and defended by its guardians and interpreters. They return repeatedly to the canonical texts to illustrate their enduring contemporary relevance. The Ordo-liberal tradition embodies a paradox. On the one hand, it involves the search to maintain a tightly guarded consensus about what constitutes the ‘right’ liberal order. On the other hand, there is continuing contestation about whether adaptations to changing circumstances—economic, social, and polit ical—threaten the integrity of the tradition. The resulting tension is manifested in the thinking of the Ordo-liberal statesmen-economists, those who work with very practical economic and monetary problems. Röpke’s reflections on deflation
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120 Conservative Liberalism, Ordo-Liberalism, and the State in the early 1930s and Müller-Armack’s on European economic governance in the late 1950s challenged received Ordo-liberal wisdom (for details, see Chapter 11: 380–7 and 395–404). In the 1970s and 80s the ‘star’ German economist Herbert Giersch, who worked in prominent advisory positions, captured the implications of practical engagement for Ordo-liberalism. Eucken had been opposed to experimental, trial-and-error policy making. Giersch shared the Ordo-liberal belief in the importance of an economic order. However, based on his reading of AngloAmerican welfare economics in the 1950s, he pointed out that this theoretical commitment to a given economic order should not detract from the careful, empirically informed comparison of the advantages and disadvantages of individual measures (Giersch 1959: 277). Giersch combined self-identification as an Ordo-liberal with a ‘theory of the best possible’ that extolled the benefits of carefully crafted, balanced compromise. He criticized an idealistic Ordo-liberalism whose economic theory was grounded in unrealizable, optimal, first-best conditions. In a world of imperfections, economic theory must seek out and accept the second best. This strategy is preferable to the third best of pragmatically and opportunistically responding to bad situations (ibid.: 259–60). Giersch’s experience as a statesman-economist made him acutely aware of the difficulties and costs of insisting on first-best solutions. His Ordo-liberal-informed but less deductive—and, as he saw it, less dogmatic—approach to economic policy was closer to the German economics mainstream by the end of the 1950s than was the Eucken School.
Invented Tradition: Institutional, Intellectual, and Expert Appropriation Historical analysis of authenticity and invention in the Ordo-liberal tradition helps to uncover and examine critically the mythology that creeps into its narrative construction. It brings out the element of institutional, intellectual, and expert self-interest at work in constructing, defending, and reinventing a trad ition. As Eric Hobsbawm (1983) argues, traditions are not just original and authentic historical givens. A tradition is invented, institutionalized, and guarded by its initiates. The conception of Ordo-liberalism as invented tradition highlights its institutional, intellectual, and expert appropriation; the underlying interests that inform this appropriation; and the use of the tradition to advance a certain kind of polit ical and policy agenda. It draws out the ideological activity at work within Ordoliberalism. A tradition is constructed by the selective and utilitarian process of ‘cherry-picking’ past canonical texts, ideas, and experiences. This process begs the
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Ordo-Liberalism as Tradition, Ideology and Model 121 question: how authentic is the commitment of the Bundesbank and of the German federal economics and finance ministries to Ordo-liberalism? Ordoliberalism functions, at least in part, as an ideology of convenience, a rhetorical device in strategic positioning. Its success depends on its compatibility with, and use in serving, institutional interests in complex bargaining relations. The process of ‘cherry-picking’ by self-assigned embodiments of the tradition begs questions not only about the nature of Ordo-liberalism as currently presented but also about its relative significance. Ordo-liberalism may help to buttress the case for central bank independence and monetary stability. It may assist in protecting powerful interests behind the German model of the competitive market economy. However, historical archives suggest that other ideas and sources have proved more important in shaping the thinking that drove these forms of German discourse and associated institutional and policy developments (also Abelshauser 1983, 1987; Manow 2019; see Chapter 11). The ideas of the new Chicago tradition about oligopolistic competition practices and regulation of market competition accorded better than those of Ordo-liberalism with the interests of large German export-oriented companies, their investors, and the consumers they professed to serve. They served these companies’ interest in creating critical domestic scale in a fast-changing market context of globalization, Europeanization, and technological change. Chicago trumped Böhm. Similarly, the Bundesbank’s case for central bank independence and for change in monetary policy goals and instruments, in the changed context of the collapse of the Bretton Woods system in 1971–3, drew more heavily on the new Chicago tradition’s ideas of monetarism than on Ordo-liberal thinking about an automatic monetary stabilizer (Bundesbank council papers for 1971–4, Historical Archive of the German Bundesbank; see Chapter 11: 391–4). Milton Friedman trumped Eucken.
Invented Tradition: Identity Consolidation and Change The conception of Ordo-liberalism as invented tradition also draws attention to processes of identity consolidation and change; to the tensions they unleash; to the heterogeneity and dissonance within the tradition at any one time; and to the way in which identity and identity change remain contested and contestable. The tensions centre on how the tradition relates to other different liberal traditions and whether, and in what ways, boundaries might be redrawn; weighing the balance between continuity and change; the relationship between individual selfinterpretation and classification and assignment by others as belonging or not; and the relationship between consensus and contestation in processes of identity change (Rumelili and Todd 2018: 6).
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122 Conservative Liberalism, Ordo-Liberalism, and the State The contests around identity consolidation and change were evident by the 1940s as Müller-Armack, Röpke, and Rüstow developed their sociological form of Ordo-liberalism. They focused on what Eucken did not fully develop before his death in 1950, namely the analysis of the social and cultural orders and their interdependence with the economic order. Those who identified with the Freiburg School were unsure whether to assign these thinkers as belonging or as the ‘other’. Müller-Armack (1946, 1962/1974) linked his concept of the social market economy to the Ordo-liberal theorizing of Eucken and the Freiburg School. However, he gave greater attention than had Eucken to two questions: historical economic ‘style’, and the social and political acceptability of the competitive market order (Müller-Armack 1947, 1948c/1974, 1962/1974; details in Chapter 6: 189–90). Böhm (1937) proved more prescient in this respect than Eucken. He questioned the value of having a perfect system of order, only for the public to reject it. Once an elected member of the German Bundestag, his concern for the social and political dimension increased (Böhm 1953a/1960, 1953b/1960). Müller-Armack’s attempt from the mid-1950s to develop a second phase of the social market economy illustrated the increasing flexibility and pragmatism of his thinking (Müller-Armack 1948c/1974, 1976a/1959, 1976b/1960). He differed from Eucken in being a ‘statesman’-economist rather than a pure ‘philosopher’economist. Social balance and peace became the guiding principles of his approach to economic policy. It entailed a greater concern with outcomes rather than just with process. He was concerned about the risks of deflation, about combating inequality, about improving the quality of work, and about strengthening environmental standards. The contested question was whether Müller-Armack was fundamentally changing the Ordo-liberal tradition or strategically repos itioning the tradition. In terms of political symbolism, the concept of the social market economy came to represent the politically popular and successful face of the Ordo-liberal tradition. But for many in the tradition, above all attached to the Freiburg School, Müller-Armack was not an authentic Ordo-liberal. His view of the ‘social’ was seen by them as a Trojan horse for the interventionist policies and for the mounting fiscal deficits and public debt that they saw as burdening the German economy since the 1970s (e.g. Tietmeyer 1999). At the same time, the very flexibility of the concept of the social market economy had the advantage of being more suited to developing an inclusive and sustainable polity. It was better adapted to addressing the issue of how state and society could strengthen the capability of individuals to make use of their abstract rights and thus to make a reality of the promise of liberalism. It was also more likely to accord with the preferences of citizens and thus to generate and sustain consensus around liberal values.
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Ordo-Liberalism as Tradition, Ideology and Model 123
The Freiburg School: Identity and Identity Change The tensions around identity consolidation and change were evident in the processes of reinvention and evolution of the Freiburg School itself. One can discern a ‘Freiburg 1’, a ‘Freiburg 2’, and a ‘Freiburg 3’. Each positioned or repositioned the Freiburg School in terminology and approach, and in content and meaning, a process that was mirrored in change in the canonical status of authors and texts. ‘Freiburg 1’ had as its reference point Eucken’s morphological method, his constitutive conception of the competitive market, and his ordering principles (Vanberg 2004). It was very much the ‘Eucken School’ and focused on two canon ical texts (Eucken 1940, 1952). Viewed from the importance that Eucken attached to the morphological method, the evolution of the Freiburg School could be judged to be a process of entropy through boundary change. ‘Freiburg 2’ dated from the presence of Hayek in Freiburg (Vanberg 2003, 2012). It involved the appropriation of Hayek’s notion of ‘spontaneous order’, with its evolutionary and more dynamic conception of competitive markets. The belief in the primacy of a framework of rules remained a factor of continuity. However, Hayek (1976a) no longer saw this framework as best rationally constructed by the state. Members of the Freiburg School sought to adapt to Hayek’s general critique of economic ‘scientism’ as founded on the pretence of knowledge (Hayek 1989/1974). ‘Freiburg 2’ was represented within the School by Erich Hoppmann (1967, 1988). Its ideas were carried forward by Viktor Vanberg. Hoppmann stressed the incompleteness in Eucken’s work with reference to the concept of cultural evolution and the importance of Hayek’s work on competitive markets and on monetary policy for updating Ordo-liberalism (Hoppmann 1995: 51–4). ‘Freiburg 3’ was linked to the influence of Buchanan’s (1979, 1991) ‘constitutional economics’, mediated through the presence of his former colleague Vanberg in Freiburg (1988, 1997). Constitutional economics attempted to counter the broader critique of the ‘authoritarian’ liberalism of Ordo-liberalism by a new concern with the question of consent for the rules of the game. This question was addressed by connecting Freiburg thinking about economic order to Buchanan’s normative individualism through the twin concepts of citizen sovereignty in setting the rules of the game and consumer sovereignty in the competitive market. Ordo-liberalism was about satisfying the interests of the individual both as citizen and as consumer. Influenced respectively by Hayek and Buchanan, the Freiburg School underwent its own difficult process of reinventing itself within the Ordo-liberal trad ition. The open question was whether, in the process, the Freiburg School had witnessed a ‘hollowing-out’ of its distinctive identity. It had in any case moved a long way from Eucken.
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124 Conservative Liberalism, Ordo-Liberalism, and the State Borrowing new conceptual and theoretical thinking in US-based economics could help to reinvigorate traditional insights of Ordo-liberalism. Crisis in the 1970s—the collapse of the Bretton Woods exchange-rate system, the supply-side crisis, and the interrelated problems of inflation, unemployment, and fiscal def icits—prompted a serious rethink in mainstream US-based economics (e.g. Alesina 1989; Barro and Gordon 1983; Kydland and Prescott 1977; Lucas 1976). The new literature on credibility and time-consistency in monetary and fiscal policies re-established—though it did not reference—the relevance of Eucken’s principle of price stability, his principle of continuity and predictability, and, more broadly, his rule-based approach (Eucken 1952: 254–337). A rule-based order could be presented in a new form as a binding pre-commitment that would stabilize inflation expectations and reduce the costs of disinflation. Central bank independence was established as a pre-commitment device to safeguard price stability in a clearer way than in Eucken’s own writings (cf. Bibow 2013). Similarly, commitment to an international or European ‘hard’ exchange-rate system could serve as a way of ‘borrowing’ credibility and of empowering domestic fiscal and labour-market reforms in states like Italy where political inertia was prevalent (Giavazzi and Pagano 1988). This commitment might re-establish the relevance of Freiburg Ordo-liberalism but owed its theoretical basis to US-based literature. The credibility and time-consistency literature played an important role—not least through the fortuitousness of its timing—in the debates surrounding European monetary integration and union in the 1980s and 90s (Dyson 2014: chapter 7). It helped to make the traditional insights of Eucken’s Ordo-liberalism relevant to debates about the construction and reform of European economic and monetary union. It also made the principles of Ordo-liberalism more relevant to technocratic elites in EU member states like France and Italy. Not least, the stipulation of time-consistency was consistent with the conservative characteristics of the Ordo-liberal tradition.
Memorizing and Forgetting Critical analysis of the Ordo-liberal tradition also highlights processes of memor izing and forgetting. The historical selectivity that goes along with the claim to represent the authentic tradition or with attempts to reinvent the tradition has as its counterpart the marginalization and neglect of the contributions of other, once-seminal figures. This fate befell Müller-Armack, Röpke, Rougier, Rueff, and Rüstow. Memorizing is also a process of forgetting. Müller-Armack’s and Röpke’s writings were more widely read than those of Eucken in the 1940s and 50s. Müller-Armack was close to the heart of economic and European policy making under Erhard in the federal economics ministry. His proposals for a more proactive structure of European economic governance
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Ordo-Liberalism as Tradition, Ideology and Model 125 in 1958–9 included a European counter-cyclical capacity, designed to ward off threats of deflation as well as inflation (Dyson 2016: 138; details in Chapter 11: 395–405). The early versions of this proposal were strikingly radical not just in their time but also looked back on fifty years later. Röpke was generally regarded in the interwar period as—with Hayek—the most outstanding young German economist of his generation (Hennecke 2005). He served on the Brauns Commission on the unemployment question in 1931. Along with Karl Lautenbach, he was a key figure in proposing radical measures to counter German descent into a ‘secondary’ deflation in 1931 (Borchardt and Schötz 1991; Röpke 1931; details in Chapter 11: 380–7). His innovative thinking on the Great Depression brought him into conflict with Hayek and contrasted with the reluctant support of Eucken. Later, Röpke and Rüstow came to represent so-called ‘sociological’ Ordoliberalism. On the one hand, they shared Ordo-liberal aversion to the welfare state. For instance, Röpke mounted a scathing attack on the Beveridge Report of 1942 on the creation of a British welfare state. He saw it as the expression of a ‘proletarianized’ English social structure and as inimical to a culture of enterprise (Bonefeld 2012: 636). On the other hand, in their writings of the 1940s and 50s the ‘sociological’ Ordo-liberals focused on the limits of the competitive market economy. In their different individual ways, they were strong advocates of policies that would actively promote social solidarity. Rüstow (1963b, 1963c/1932) called for an ‘organic policy’ (Vitalpolitik) that justified a ‘liberal interventionism’, an approach he had proposed in 1932. The ‘sociological’ Ordo-liberals favoured measures to encourage less inequality in wealth and income and to address the asymmetry of power relations within firms by statutory co-determination (notably Briefs 1980; Hengsbach 2010; Nell-Breuning 1974, 1975). Perhaps most controversially, Rüstow (1960a, 1963a) advocated a tough approach to inheritance taxation (see e.g. Lenel 1986 for an Ordo-liberal critique). The writings of Briefs, Müller-Armack, Nell-Breuning, Röpke, and Rüstow attempted to build on Ordo-liberal ideas to generate a vision of an inclusive social order to complement the liberal economic order. Critical analysis of the Ordo-liberal tradition helps to provide historical perspective and proportion in examining current debates within liberalism. Past and present modes of thought emerge as historically contingent and fleeting. In add ition, looking back to thinkers and their texts within the evolution of a tradition helps in the historical task of rescuing lost and marginalized individuals and ideas with which it was in the past associated. It becomes possible to rescue MüllerArmack’s ideas on European macro-economic governance, counter-cyclical policy, and policies to promote social balance. Röpke’s thinking about risks from ‘secondary’ deflation as well as from inflation are restored to the tradition. The richness and radicalism of Rüstow’s ideas about social solidarity come back to the fore. The Ordo-liberal tradition contains treasures that have been hidden from view by later ideologically based reconstructions of canonical authors and texts.
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126 Conservative Liberalism, Ordo-Liberalism, and the State
Ordo-Liberalism as Ideology: Ambivalence and Controversy Ideology plays a central role within the Ordo-liberal tradition. It endows Ordoliberalism with a broad worldview, which connects and mobilizes its adherents and repels its detractors (cf. Freeden 1998; Vincent 1992). This connecting and mobilizing role takes the form of a hybrid of conservative and liberal ideologies. Its hybrid ideological character lends an ambivalence to the Ordo-liberal trad ition, expressed in a great deal of internal variety and its open-textured nature, above all in relation to the conservative tradition. Bringing in ideology helps us to understand the nature of the Ordo-liberal tradition and of its detractors. The tradition fuses together, in various hybrid ways, conservatism and liberalism. On the one hand, the Ordo-liberal tradition has a liberal face. It is inseparable from the legal safeguarding of individual rights, above all property rights, contractual rights, and rights to compete on equal terms. Personal freedom remains the core concern of the Ordo-liberal tradition (Gerken 1998). This liberal face takes inspiration from Classical economic theory and the writings of the Scottish Enlightenment, notably Adam Smith and David Hume (e.g. Böhm 1933; Mestmäcker 2010). Within the Freiburg School it was most clearly represented by Böhm (Dathe 2014). For him, the economic constitution was, above all, a matter of individual basic rights (Böhm 1928). On the other hand, the Ordo-liberal tradition has a conservative face. It finds expression in the emphasis on order, discipline, and duty. It is based on respect for a hierarchical social order; on reverence for institutions, norms, and customs that have stood the test of time; and on a deep commitment to personal and institutional autonomy. This conservative face reveals itself in an emphasis on family, on religion, and on metaphysical guidance by a learned elite. They provide the key pillars of order through the ethical values they prescribe. This face of the Ordoliberal tradition is associated with the notion of economic ethics as inscribed rather than as the expression of individual will—as a manifestation of natural law (Höffner 1953; Veit 1941, 1946). It stands in sharp contrast to the radical indi vidualism of neo-classical economic liberalism. A key aspect of the conservative strand in the Ordo-liberal tradition is the concept of Ordo. This concept had its origins in medieval Scholastic thought, in the belief that there was one superior form of economy and society that deserved the name ‘order’ (Böhm 1950a; Höffner 1953, 1997; Krings 1941; Veit 1953). The economic ethics of this Ordo proscribed unfair competition and the failure to respect the dignity of working people. It also mandated help for the needy (Höffner 1953: 185–7, 1959/2006, 1985). Order is not something that exists in the economy, as post-medieval Classical liberal economic theory had suggested. Man’s role is to divine the ethically true basis of order and to construct it on earth. Ideological ambivalence makes it difficult to pin down precisely the Ordoliberal tradition. For instance, it evades being tied down to a single conception of
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Ordo-Liberalism as Tradition, Ideology and Model 127 justice. There is broad agreement that it represents a commitment to procedural justice, based on adherence to rules (Hayek 2001; Vanberg 1988, 1997). Solidarity is expressed in conformity to rules. At the same time, controversy arises about whether, and if so in which form, distributive justice should be its concern (Wörsdörfer 2013). In contrast to Eucken, Hayek, and Vanberg, other adherents of the Ordo-liberal tradition displayed an interest in the ethical justification of outcomes. They included Briefs, Joseph Höffner, Müller-Armack, Nell-Breuning, Röpke, and Rüstow.
The Ordo-Liberal Model of Citizenship The ideological appeal of Ordo-liberalism is linked to its distinctive model of citizenship which in turn is core to its identity and a further source of contest. Its model of citizenship emphasizes safeguarding the free, morally ‘solid’, and responsible citizen. This model of citizenship serves as code for the interests of wise consumers, thrifty savers, and responsible creditors—what Röpke (1944: 377) referred to as the ‘healthy’ middle classes. Ordo-liberalism finds support amongst those institutions, intellectuals, experts, and members of the general public who identify themselves with this citizenship model and its associated economic, social, and cultural values and interests. They coalesce around a moral definition of the economic problem as originating in the feckless, irresponsible, and profligate behaviour of individuals, corporate entities, and states, above all debtors, and in the collective as well as individual costs that their presumed profligacy generates. Equally, this model of citizenship is hotly contested by those who suggest that the ‘healthy’ middle classes can turn out to be self-servingly unhealthy for society, that the saver and the creditor can behave in socially irresponsible ways, and that debtors are as much, if not more, a product of the role of accident and misfortune in human affairs. The ‘reckless’ creditor offers a counter-image to the ‘feckless’ debtor (Dyson 2014: chapter 3 on moralizing credit). According to Ordo-liberals, the solution to the moral problem of political economy involves basing policy on sound principles and on a clear and firm framework of rules that constrain both political rule and individual and corpor ate conduct. It means embedding policy in a holistic medium- to long-term perspective and examining the compatibility of individual measures—monetary, fiscal, social, employment, labour markets—with the whole system. The emphasis is on limiting discretion to do harm through opportunistic and inconsistent behaviour or through fraud, bribery, and corruption. These forms of harm represent the worst excesses of authoritarian or democratic rule. The Ordo-liberal tradition celebrates the traditional bourgeois values of ‘solid’ citizenship. They are exemplified in prudence, thrift, and discipline. They involve respect for the
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128 Conservative Liberalism, Ordo-Liberalism, and the State traditional social order and for the institutions—like the rule of law, property, the family, the churches, and the state—that support this order. Conversely, the opponents of the Ordo-liberal tradition were to be found amongst many social liberals and social democrats and throughout the Marxist Left. They included those who had been influenced by the thinking of Karl Polanyi and Michel Foucault and those who associated the call for the ‘strong state’ with traditional authoritarianism (details in Chapter 12: 421–36). Opponents also existed nearer to ideological home. Fellow conservatives, like the Italian philosopher Benedetto Croce in his debate with the economist Luigi Einaudi, distrusted some of Ordo-liberalism’s features as corrosive of the organic unity of society and the eternal values that held it together (Giordano 2006b). At the same time, many fellow liberals, particularly Austrians like Mises and American libertarians like Murray Rothbard (1962/2004), were deeply suspicious of the conservative features in the Ordo-liberal tradition which they saw as encouraging state intervention and threatening market freedom. This libertarian suspicion surfaced in the Mont Pèlerin Society from the 1950s onwards. It was part of a wider shift that was led by Friedman and George Stigler, Chicago economists. This process resulted in the progressive marginalization of the ‘sociological’ Ordo-liberalism of Röpke and Rüstow, as well as of founding figures of the Chicago tradition like Frank Knight and Henry Simons. Röpke and Rüstow resigned from the Mont Pèlerin Society in 1961 in an atmosphere of mounting tension. They complained that the society had evolved into an ‘economic ghetto’ (Plickert 2008: 178–93). In this charged context, Hayek (1957) sought to explain why he was not a conservative. The most outspoken liberal critique came from the so-called ‘anarcho-capitalists’, above all Rothbard (1962/2004) and Ralph Raico (1994). Anarcho-capitalism never became a dominant force in the Mont Pèlerin Society. Nevertheless, it fitted into a broader trend towards laissez-faire in its discussions (Plickert 2008: 328–30). Anarcho-capitalism took inspiration from the Austrian tradition, with which it retained affinities. Rothbard had been a student of Mises and was to be a co-founder of the Mises Institute in Alabama. Raico had studied under Hayek. Later, the constitutional economics of Vanberg failed to gain a warm reception in the Mont Pèlerin Society. Vanberg delivered two papers, in 1994 and 1998. Despite the attempt to integrate Buchanan and Hayek into a revised Ordoliberalism, he failed to shift the direction of ideological change away from laissezfaire economics (Plickert 2008: 462–8). The differences were not merely technical. They were more deeply cultural and grounded in very different models of citizenship in a liberal society.
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5
Patron Saints: (1) The European Tradition of Aristocratic Liberalism The character of conservative liberalism and Ordo-liberalism can be properly understood only by digging down to its intellectual roots. These intellectual roots were complex and entangled in aristocratic liberalism, continental European eth ical philosophy, and Lutheran and Reformist Protestant religion. Individually, and together, these sets of belief provided a distinctive language that helped to propel the normative framework of conservative liberalism and Ordo-liberalism in a certain direction and gave it its epistemic and moral bias. The founding thinkers drew heavily on certain securely established canonical authors and texts as sources of cultural authority and persuasion. Authors and texts were selectively quoted and cited by interwar and post-war conservative liberals and Ordo-liberals to establish their own canonical status within the trad ition they were seeking to form (Ajouri 2017). This chapter examines—in a chronological order—the key authors and texts that provided conservative liberalism and Ordo-liberalism, as ‘new’ liberalism, with a distinctive aristocratic character: its paternalism, its scepticism about democracy, its discomfort with the commercial aspects of capitalism, and its belief in a hierarchy of ability. One such canonical author was the Dutch cultural historian Johan Huizinga. He noted: ‘An aristocratic culture does not advertise its emotions. In its forms of expression, it is sober and reserved. Its general attitude is stoic’ (Huizinga 1984: 47).
Conservative Liberalism as a Social and Cultural Order: An Aristocracy of Knowledge From their interwar origins, conservative liberalism and Ordo-liberalism were about more than the economic order. They were fundamentally about the kind of social and cultural order that was appropriate to a sustainable liberal society. Huizinga (1936), identified the interwar crisis as one of moral and intellectual values. It had been precipitated by the displacement of an aristocratic by a plebeian culture, leading to the decline in quality of public discourse and the loss of personal responsibility and self-discipline, in both elites and wider society. His notion of aristocratic culture both mirrored and helped shape the mind-set of founding thinkers of conservative liberalism like Luigi Einaudi and Wilhelm Röpke. Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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130 Conservative Liberalism, Ordo-Liberalism, and the State Aristocratic liberalism provided the distinctive elitist, humanistic, and ethical social and political thought that flowed into the founding ideas of conservative liberalism and Ordo-liberalism. It endowed their founding thinkers with intellectual respectability, legitimacy, and power by association with the standard canonical references amongst the cultivated bourgeois intelligentsia (Bildungsbürgertum). Aristocratic liberalism offered this elite a means to understand political economy through the prism of their own interests and status aspirations, reinforcing certain biases in cultural outlook. The founding thinkers of conservative liberalism and Ordo-liberalism made frequent, selective, and often tactical use of texts in aristocratic liberalism to support their political economy arguments. It helped to build a wide constituency of intellectual support. In many cases, like Franz Böhm, Walter Eucken, Röpke, and Otto Veit, their social origins were in the cultivated intelligentsia. In other cases, like Frank Knight, elite recruitment and socialization transformed someone from outside this social milieu into a self-identifier with its values and norms (Emmett 2009). The underlying assumption was that the cultivated bourgeois intelligentsia served as a model of self-discipline for the larger society and economy, which in turn—because of its narrower habits of mind—required external discipline to enforce responsibility. The irony rested in the appropriation of the language of an aristocratic culture by bourgeois intellectuals. Irony was compounded by the admiration of founding Ordo-liberals for Switzerland, which—though serving for them as a model of a conservative-liberal society—hardly counts as a model of aristocratic order. From the late eighteenth century onwards, aristocratic liberalism had already established itself as an important corpus of thought about culture, society, the economy, and politics. It was to provide much of the ideological binding-glue of the newly emerging conservative liberalism and Ordo-liberalism: its distinctive blending of conservatism with liberalism, and its twin fears of unbridled, unlimited democracy and of the despotic state—of anarchy and servitude. The founding thinkers drew on texts in aristocratic liberalism for inspiration and to justify their arguments and messages to wider audiences. In this way, conservative liberalism and Ordo-liberalism reached beyond narrow technical political economy to a broader humanistic perspective that centred on disciplining democracy in the larger interests of a liberal, humane society. Discipline meant ensuring personal character, moral integrity, and moral energy within governing elites: a capacity to detach themselves from the world and its corruptions and to choose duty over inclination. Institutionally, it meant safeguarding the authority of non-majoritarian institutions so that the public goods to underpin a sustainable liberal society were provided. Aristocratic liberalism and conservative liberalism were united in part by the influence of birth but, more importantly, by the educational background of their leading thinkers—one steeped in Classical education, in art and literature, and in
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Patron Saints ( 1 ) 131 cultural and historical studies. Sociologically, their ascribed identity was with the cultivated intelligentsia. Aristocratic liberals and the founding thinkers of conservative liberalism and Ordo-liberalism shared a commitment to a critical, aloof, and independent standpoint, one that disavowed party labels and the political passions of class, nationalism, race, and religion. They were wedded to a contemplative ideal of the noble pursuit of disinterested truth in opposition to utilitar ianism and materialism. This commitment lent to their characters a quality of steadfast courage and strength of mind. They sought to fearlessly uncover popular prejudices and illusions and to stand up for their convictions (Dathe 2014: 149–55 on Böhm; Faucci 1986 and Forte 2009, 2016 on Einaudi; Hayek 2017: 267–70 on Röpke; Allais 1990 on Louis Rougier). This high-mindedness, their self-belief in a civilizing mission, and their core belief in the well-ordered family home were not conducive to a populist appeal through easy slogans. It opened them to criticism for their paternalism, insensitivity to democracy, and gender blindness (on patriarchy, see Chapter 2: 73–6). These characteristics of aristocratic liberalism helped to make the founding conservative liberals and Ordo-liberals exceptional observers of political economy, from a distinctive viewpoint, and contributed to their intellectual appeal. At the same time, these characteristics made them vulnerable to criticism. Moral aloofness could prove a factor in why Ordo-liberals were relatively unsuccessful in translating their thinking into action. Their frequent disdain for the mediocrity of their contemporaries, including many fellow intellectuals, and their harsh judgements of their characters and abilities, meant that they tended to remain politically isolated and open to charges of being naïve and out of touch. This aloofness also encouraged charges of self-serving hypocrisy, of being part of a privileged elite that was indifferent to social suffering.
The Nature of Aristocratic Liberalism Perhaps the clearest statement about the core beliefs of aristocratic liberalism is to be found in the notes that were prepared by a fellow French intellectual, Alexis de Tocqueville, for a speech in November 1841: I have an intellectual preference for democratic institutions, but I am aristocratic by instinct, which is to say that I scorn and fear the crowd. I love with passion liberty, legality, respect for the law, but not democracy. There you have it, the essence of my thinking. I loathe the demagogue, the disorderly behaviour of the crowd, their violent and ill-informed intervention in matters, the envious passions of the low classes, their irreligious propensities. There you have it, the essence of my thinking.
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132 Conservative Liberalism, Ordo-Liberalism, and the State I am neither of the revolutionary party nor of the conservative party. But, nevertheless and in the final analysis, I adhere more to the second than to the first. Liberty is the first of my passions. There you have the truth. (Tocqueville 1985: 87, author’s translation)
Aristocratic liberals bequeathed to conservative liberalism and Ordo-liberalism a deeply problematic relationship to modernity. Modernity was understood by them to be a dangerous compound. One set of elements was linked to the French Revolution: democracy, equality, centralization, and secularization. Another set derived from the industrial revolution and urbanization: the commercial spirit, class struggle, mechanization, and specialization (Kahan 1992: 46–51). Aristocratic liberals saw modernity as caught between the twin threats of anarchy and servitude. They feared a stifling tyranny of the majority, the all-powerful bureaucratic state, the triumph of mediocrity in opinions and taste, and the dissolution of diversity and individuality. The target of aristocratic liberals was not just proletarian taste and culture, along with the levelling and despotic forces of socialism and communism. It was also the unenlightened commercial bourgeoisie whose outlook was judged to be essentially materialistic and opportunistic, sapping them of moral energy; a rising meritocracy of narrow-minded specialists; a political class that engaged in an incessant jockeying and squabbling for power and in fuelling political passions of class, race, nationalism, and religion; and intellectuals who betrayed cognitive values by identifying themselves with partisan causes. The outlook of aristocratic liberals was formed by Classical humanism—by the political values of liberty, individuality, and diversity, by aesthetic refinement of taste, and by the cognitive values of reason, truth, and justice. Unsurprisingly, whilst their intellectual influence proved considerable, the political careers of such thinkers as Lord John Acton and Tocqueville proved short-lived and not very successful. In terms of political economy, aristocratic liberals tended to privilege culture over economics: what Tocqueville called ‘habits of the heart’ and ‘habits of the body’, as well as ‘habits of the mind’ (Swedberg 2009: 277–9). Liberty was something you felt, not just thought. It was a way of life (e.g. Einaudi 1942a; Walter Eucken in box ‘principles originals 4’, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). The moral order and moral growth that was the necessary attribute of a healthy liberal society rested on certain foundations. One pillar was an economic order that was based on sound money and sound finance. Jacob Burckhardt—a favourite of Einaudi and Röpke—opposed deficit financing and price-fixing (Kahan 1992: 116). The second pillar was the dismantlement of concentrations of power in the market as well as in the state (e.g. Böhm 1928, 1933; Einaudi 1948). The third pillar was a strong state whose sphere of action was strictly limited (e.g. Rüstow 1963c/1932).
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Patron Saints ( 1 ) 133 The fourth pillar of the moral economic order for aristocratic liberals was the ‘good-household’ economy in which the young would be educated into values of respect for authority, hierarchy, discipline, frugality, and social responsibility. The model of the ‘good-household’ economy was essentially patriarchal and gender insensitive (see Chapter 2: 73–6). Einaudi (1942a, 1960) and Röpke (1942, 1944) drew heavily on the French engineer-sociologist Frédéric Le Play’s investigation into the family as the chief agency of moral authority and social stability (Le Play 1864, 1870). They took from Le Play the concept of the traditionally structured ‘stem-family’ (famille-souche or Stammfamilie). It was identified as the basic disciplinary structure of authority, one that could hold back the forces of ‘proletarian industrialism’ by maintaining social balance. The ‘stem-family’ was held to guarantee that the values of savings and investment would guide economic activity. In Germany it became identified with the model of the frugal Swabian housewife, praised by federal chancellor Angela Merkel at the beginning of her speech to the Christian Democratic Union (CDU) party congress in December 2008. For the founding Ordo-liberals in particular, the ‘stem-family’ was synonym ous with creditworthiness, with living within one’s means. It was traditionally represented by the farmer, the craftsman, tradespeople, and the self-employed (Röpke 1944: 209). For Röpke (1960), the ‘well-ordered’ house was the foundation of a civilized and happy society; it was ‘the natural sphere of the woman’. The combination of family authority and loyalty with the possession of property— including, for Röpke, the family garden—provided the preconditions for ‘moral enjoyment’. They offered the opportunity to work enthusiastically and creatively in a framework of cross-generational accumulation of skills (Röpke 1944: 307). Röpke (1957a, 1960) drew two lessons from Le Play. Family disintegration was the greatest of all threats to a civilized liberal society. In addition, Le Play demonstrated that it was possible, and important, to reach out to liberal-minded Catholics in the pursuit of economic and social reform. Conservative liberals and Ordo-liberals drew support from aristocratic liberalism for their belief that a healthy liberal society had its basis in ‘the best types of peasants, artisans, small traders, small and medium-sized businessmen in commerce and industry, members of the free professions, and trusty officials and servants of the community . . . [whose life] gives them inward and, as much as possible, outward independence’ (Röpke 1942: 178). This type of economic and social structure provided the backbone of a liberal society by fostering freedom, diversity, and solidarity. In a similar way, Einaudi (1942b: 128–30) argued that moral flourishing required a liberal society with the strong spirit of independence that was associated with ‘the artisan, the small and medium-sized enterprise, the inventor, the artist, the writer, the poet, the maestro, the thinker’. The decline of these free spirits was for aristocratic liberals a key part of the crisis of modernity.
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134 Conservative Liberalism, Ordo-Liberalism, and the State This diagnosis was widely shared within conservative liberalism and Ordoliberalism (e.g. Eucken writing as Dr Kurt Heinrich 1926; also Eucken 1932b: 83). Röpke (1942: 47, 1959: 5) and Louis Rougier (1949/1938: 19)—both of whom had taught in Geneva—hailed the balance and decentralization of the Swiss economy as the model of good practice for Europe in its ‘tragic hour’. The final foundation of the moral economic order was rule by a ‘natural aristocracy’ of the educated. According to Rougier (1949/1938: 23): ‘The art of government [is] an eminently aristocratic matter, which can only be exercised by the elites’. Einaudi (1960) looked to the ‘providential man’, who embodied great personal dignity, high moral integrity, and an ethic of public service, to act as the conscience of the nation (also Röpke 1958b: 191–9). Einaudi stressed that this understanding of elite rule as a matter of moral obligation differed from the notion of circulation of the elites in Vilfredo Pareto. It envisaged rule by an elite who led ‘an exemplary life of self-denial and hard work, rigorous integrity . . . as they ascend to a position above the classes, interests, passions, hatreds, and follies’ (Röpke 1982: 375). This type of thinking about elite rule was remarkably close to that of Charles de Gaulle in France, reflecting similar conservative intellectual sources (Jackson 2018: 43–4, 81–4, 121–2). The pessimism within aristocratic liberalism gave a distinctive character to the conservative liberalism and Ordo-liberalism within both the wider liberal trad ition and political economy more generally. The commercialism within a market society provoked a range of responses from aristocratic liberals. They varied from discomfort to strong hostility, from Acton’s belief that measures could be adopted to ameliorate the risks of anarchy and servitude to Burckhardt’s more dire predictions of ‘absolute brutality’ and the pessimism with which Julien Benda closed his book on betrayal by the clerisy (Benda 1927/1946; Kahan 1992: 123). The risks of social anarchy and of servitude to the state pervaded conservative liberalism and Ordo-liberalism and justified its disciplinary approach to political economy. Economists in the Keynesian tradition were more disposed to believe in the ‘benevolent’ state and the capacity for enlightenment in a market economy. Economists in the Austrian tradition, and especially in the new Chicago trad ition, were more inclined to place their trust in unfettered markets and market self-correction.
Friedrich von Hayek, The Road to Serfdom, and the Acton-Tocqueville Society The reception and influence of aristocratic liberalism on the founding thinkers of conservative liberalism and Ordo-liberalism was marked by certain defining characteristics. Unsurprisingly, it reveals the imprint of national context. Walter Eucken was intensively concerned with Johann Wolfgang Goethe and Friedrich
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Patron Saints ( 1 ) 135 Schiller (notes ‘thoughts on history, 1940–47’, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). More striking was the way in which aristocratic liberals’ reception and influence reached across borders and helped to give a European character to conservative liberalism and Ordoliberalism. Louis Brandeis, the product of a cultivated German-speaking American family, admired Matthew Arnold and Goethe as exemplars of the importance of character in human affairs (Urofsky 2009: 120). The aristocratic liberalism of the Italian economist Luigi Einaudi (1942a, 1946, 1960) was inspired by Burckhardt, his friend Huizinga, Le Play, Charles de Montesquieu, and Tocqueville. Röpke (1942, 1944) drew on Lord Acton, Guglielmo Ferrero, and Tocqueville, as well as José Ortega y Gasset. From 1943 Walter Eucken made an intensive study of Acton and Tocqueville, as well as Burckhardt (notes ‘thoughts on history’, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Paul van Zeeland’s thinking on liberalism and democracy drew on Gustave Le Bon and Ortega y Gasset (van Zeeland 1943: 278–80). Le Bon’s ana lysis of crowd psychology, and his rejection of the legend of the divine people, ‘always sacrosanct in its follies, its crimes’, also influenced Charles de Gaulle’s conception of charismatic leadership. Leadership was about directing ‘people’s faith and dreams’, harnessing national energy, not ‘a mechanically organized intelligence’ (Jackson 2018: 83, 94, quoting de Gaulle). Böhm’s speeches and letters demonstrate a fondness for Swiss intellectuals that was shared with his mother-in-law Ricarda Huch, who had studied in Zürich. He referred to Burckhardt’s letters to Friedrich von Preen and the accuracy of their pessimistic prediction of the dangers facing Germany and Europe. Like many in the German resistance in the 1930s and 40s, Böhm admired Gottfried Keller’s poem Die öffentlichen Verleumder of the 1880s. Drawing on his experience in his Swiss canton, Keller depicted the terrible personal and social damage caused by populist slander, by the use of lies as a technique of power, and by the mobilization of opportunists. The poem appealed to Germans who were horrified by antiSemitism because it seemed to offer a premonition of Adolf Hitler and the Nazis. In addition, Böhm was inspired by Heinrich Pestalozzi’s ideas on education and state theory. He admired the Swiss reformer’s stress on cultivating character, personal responsibility, and a sense of duty as more important than academic brilliance. He also drew on his depiction of a liberal order as resting on the value attached to home and family and to vocation, as well as to state and nation (Hansen 2009: 197–200). ‘The order of the household’ was an important theme of the founding figures of conservative liberalism and Ordo-liberalism. This cross-national character was further reflected in the reception and influence of Ortega y Gasset well beyond the Hispanic world, notably in Germany. Similarly, Benda was read and quoted beyond France; Burckhardt beyond Switzerland; Tocqueville’s reach extended Europe- and worldwide. Lord Acton was as much a European as an English intellectual. Along with Tocqueville, he
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136 Conservative Liberalism, Ordo-Liberalism, and the State inspired the Austrian Hayek’s social and political thinking (Hayek 1948/1946, 1960, 1967c/1944, 1992, 2017). Einaudi (1948), Jacques Rueff (1977), and Veit (1932, 1935, 1946: 142, 244) were admirers of Ortega y Gasset’s argument that ‘the civilization of the masses’ needed the counterweight of an elite cadre. Veit’s conception of freedom as a matter of individual moral character had much in common with that of the Italian-German Catholic intellectual Romano Guardini (1885–1968), who in turn looked to Goethe as a model of aristocratic liberalism (Veit 1946: 167–75, 338–9; Guardini 1950). Rüstow’s (1950–7, Band 3: 139–58) discussion of Vermassung (loss of individuality) to describe a ‘pathological’ condition of social atomization drew on Le Bon’s concept of the crowd (foule). In short, all the aristocratic liberals who contributed to conservative liberalism and Ordo-liberalism were European intellectuals, multi-lingual, and cosmopolitan in their cultural identification. Two notes of caution are necessary in assessing the influence of aristocratic liberals on conservative liberalism and Ordo-liberalism. Aristocratic liberals were not systematic thinkers about political economy. Acton, Benda, Huizinga, Ortega y Gasset, and Schiller had little to say directly on this subject. To the extent that they engaged with political economy, their ideas—for instance, on property, tax ation, public expenditure, debt, consumption, and entrepreneurship—were scattered throughout their work. In matters of political economy, and wider social and political theorizing, aristocratic liberals like Goethe, Bertrand Russell, and Tocqueville were essentially synthetic thinkers. They connected empirical economic phenomena to larger reflections on human nature and character, on institutional structures, and on ideas, sentiments, and habits. By drawing on aristocratic liberalism the founding thinkers of conservative liberalism and Ordoliberalism could shed fresh light on contemporary thinking about political economy and its limitations. Rueff, for instance, was inspired by Ortega y Gasset to associate Keynesianism with the rise of ‘mass civilization’ and the placating of the masses through deficit spending and the ‘drug of inflation’ (Chivvis 2010: 19). If conservative liberals and Ordo-liberals could not derive a single clear theory of political economy from aristocratic liberalism, they were encouraged to become public intellectuals with a strongly disciplinary message and to look beyond economics to the humanities and imaginative literature. Second, the imprint of aristocratic liberalism is by no means exclusive to conservative liberalism and Ordo-liberalism. It surfaced, for instance, in the writings of the Austrian and Keynesian traditions of political economy. Few expressed their concerns about the ‘common man’ in more forthright and brutal terms than Ludwig von Mises, a doyen of the Austrian tradition: The uncouth hordes of common men are not fit to recognize duly the merits of those who eclipse their own wretchedness. They judge everybody from the point of view of the satisfaction of their desires . . . The dull beneficiaries of the
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Patron Saints ( 1 ) 137 capitalist system indulge in the delusion that it is their own performance of routine jobs that creates all these marvels [gadgets]. (Mises 1962: 112–13)
In contrast, John Maynard Keynes (1949/1938) was much better mannered, in the spirit of aristocratic liberalism, when he wrote of civilization as a thin and precarious veneer on society. In his view, the preservation of civilization depended on decisions being reached by a small group of intelligent people. Keynes adopted an aloof and detached attitude to mass politics. Mises and Keynes exemplify, respectively, the way in which aristocratic liberalism was deeply embedded both in the continental European intelligentsia and in the high-minded sense of purpose that inspired the ‘intellectual aristocracy’ (Annan 1999; Bruford 1975). In this way, aristocratic liberalism provided a degree of shared family resemblance across different traditions of political economy. It was captured in Gottfried Keller’s letter of 20 December 1881 to his friend Moritz Lazarus, in which he referred to ‘the thin layer of culture which seems to separate us from the rooting and howling animals of the darkest depths’ (Elektronische Historisch-Kritische Gottfried-Keller-Ausgabe, downloaded 17 January 2017, author’s translation). However, compared to the Austrian and Keynesian economic traditions, the founding thinkers of interwar conservative liberalism and Ordo-liberalism were characterized by a distinctive and more pronounced preoccupation with social and political theory, with historical reflection, and with the insights to be gained from imaginative literature. This preoccupation with setting economics in a broad interdisciplinary perspective was linked to a much more explicit and sustained interest in the ‘patron saints’ of aristocratic liberalism and in returning to their insights as a basis for renovating a failed liberalism (e.g. Walter Eucken notes ‘thoughts on history, 1940–47’, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken; Hayek 1960, 1967c/1944, 1967a, 2017; MüllerArmack 1948a, 1949; Röpke 1942, 1944). For instance, the title of Hayek’s widely read Road to Serfdom (1944: 25) was borrowed from a speech of Tocqueville on the right to work, delivered to the French Constituent Assembly on 12 September 1848 (Tocqueville 1866b: 541; Hayek 1948/1946: 16; also Friedrich 1955). Analysis of the citation of sources in the key early Ordo-liberal texts confirms this picture. The most cited sources in the four main books of Röpke (1942, 1944, 1950, 1958b) are, in descending order: Goethe, Burckhardt, Montesquieu, Tocqueville, Benjamin Constant, and (equal) Le Play and Ortega y Gasset. Goethe is again prominent in Alfred Müller-Armack’s Das Jahrhundert ohne Gott (1948a) and Ortega y Gasset in his Diagnose unserer Gegenwart (1949). In his Religion und Wirtschaft (1959) Goethe and Ortega y Gasset are exceeded only by Martin Luther and Max Weber, with Max Scheler a close rival. The dominance of Goethe is once again notable in Alexander Rüstow’s monumental three-volume Ortsbestimmung der Gegenwart, followed by his references to Burckhardt and Montesquieu.
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138 Conservative Liberalism, Ordo-Liberalism, and the State The veneration of Goethe was apparent in the writings of Veit. Veit identified two achievements of Goethe that helped restore order out of the chaos of modern technology-driven culture. Goethe was devoted to the idea of an integrative harmonic order in nature and society and to the value of a morphological approach that looked for the underlying patterns behind historical events (Veit 1946: 83–8, 101–9, 1953: 13–15). In this way, according to Veit, Goethe prefigured Ordoliberalism. He also saw in Goethe a precursor of the critical Realism or inductive metaphysics of Nicolai Hartmann, his favourite philosopher, whilst Goethe’s Faust was drawn on as a source of profound insight into the German, and the wider Western, tragedy (Veit 1946: 306–8, 316–20, 1981: 41–3, 209–23, 225). Eucken also took a deep interest in Goethe’s morphological studies as the basis of a comparative economic theory that dealt with real as opposed to abstract types. He was attracted by Goethe’s emphasis on patient identification of the basic forms to be found in ‘concrete reality’ through a process of a posteriori reasoning and their use to analyse economic phenomena like inflation and unemployment (file on morphological studies, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken, 34pp.). These positive references contrast with the many negative references to Keynes, Karl Marx, Friedrich Nietzsche, and Jean-Jacques Rousseau in Ordo-liberal texts. All four were depicted as patron saints of collectivism and as pernicious influences on the crisis of modernity (notably Eucken letter to Bertrand de Jouvenal, 14 August 1947, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In a series of letters between 1947 and 1950 Eucken lamented the influence of the Keynesian ‘illusion’ in Britain and the United States and in the Allied occupying authorities in post-war Germany. In a letter of 14 March 1946 to Eucken, Röpke referred to combating ‘Keynes-Islam’. In a letter to Eucken on 15 September 1949, he claimed that American occupation policies were a disaster (Röpke Papers, Institute for Economic Policy, Cologne University). Veit (1946: 296–8) criticized the lack of moral seriousness in Keynes’s short-term attitude to investment in public works. Hayek warned against identifying John Stuart Mill as a model for renewing post-war liberalism. He was too inclined towards socialism and too hostile to religion, in a way that alienated many from liberalism (Shearmur 2015: 208). Mill was a less secure guide than Acton and Tocqueville (Hayek 1948/1946: 29–31). In his wartime thinking about renewing liberalism, Hayek was keen to counter what he saw as the negative character of British anti-Nazi propaganda by identifying Classical figures as role models for re-educating the leading post-war Germans, using Friedrich Schiller as an example (Hayek Papers, 104.5, the Hoover Institution, Stanford University). Above all, he stressed that the leadership role should be played by an independent international academy, free from association with Allied propaganda and recruiting suitable Germans (Shearmur 2015: 206). Hayek (2017: 290) had originally conceived of a group of
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Patron Saints ( 1 ) 139 liberal renovators who would be drawn not just from economics but also from social philosophers, lawyers, and especially historians. His initial thinking was revealed in a speech to the political society at Kings College, Cambridge on 28 February 1944 and in his subsequent correspondence with Eucken, Röpke, and Henry Simons (see Hayek Papers, 61.7, the Hoover Institution, Stanford University). The speech on ‘historians and the future of Europe’ showed that Hayek had made a long, close study of Lord Acton (Hayek 1967c/1944; also, on Acton, see Hayek 2017: 61–4). He quoted Acton with approval: ‘The inflexible integrity of the moral code is, to me, the secret of the authority, the dignity, the utility of history’ (1967c/1944: 143). Hayek suggested three possible sources of names for a new society to reinvigorate liberalism in post-war Europe. The title Acton Society was attractive because Acton combined the English liberal tradition with a half-German education; because he was a devout Catholic who had demonstrated independence of Rome; because of the correspondence of his ideas to those of Burckhardt (popular in the German world) and Tocqueville (popular in the French world); and because of his opposition to nationalism. Burckhardt and Tocqueville were two other pos sible candidates. Burckhardt was distinguished by his aversion to centralized power; Tocqueville, by the way in which he had inspired Acton and Burckhardt. In 1945–6, Hayek sought to encourage Simons to help establish an interdisciplin ary initiative for the renewal of liberalism at the University of Chicago. His correspondence with Simons went back to 1934 and revealed a shared interest in Acton, Burckhardt, and Tocqueville as sources for renewing liberalism. In August 1945 Hayek authored a memorandum on the proposed foundation of an international ‘Acton-Tocqueville Society’ that would be dedicated to polit ical philosophy. It would include ‘liberal socialists’ and ‘liberal Catholics’; in short, those who opposed collectivism. This ambitious proposal to broaden both the intellectual disciplines and the ideological and religious reach of the new crossnational initiative, beyond Classical liberals, was tactical as well as principled in nature. It aimed to widen the constituency of support for a renovated liberalism. In this spirit, Walter Eucken suggested that tactically it would be preferable to attack the planned economy without using the concept of socialism (letter to Hayek, 12 June 1947, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). However, the establishment of the Mont Pèlerin Society in 1947, and its subsequent development, showed that Hayek’s proposal was not to be realized in this form. Simons’ proposal for a similar US body was rejected by his university in 1946 (see Chapter 9: 293). Mises led opposition to the inclusion of what he termed ‘interventionists’, and the price of financial support for American participation in the first Mont Pèlerin meeting was the inclusion of anti-interventionist libertarians like Henry Hazlitt and Leonard Read. Moreover, Knight attacked the idea of founding a post-war society for the renovation of liberalism around the
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140 Conservative Liberalism, Ordo-Liberalism, and the State names of two Catholics on the basis that Catholicism and liberalism were irre concilable (Ebenstein 2001: 146). In contrast, Eucken welcomed Hayek’s initiative, suggesting the addition of the name of Wilhelm von Humboldt to the role model for renewing the German liberal tradition (Eucken letter to Hayek, 11 January 1947, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). By 1947 the force of opposition led Hayek to change his mind in favour of what was to become the more narrowly conceived Mont Pèlerin Society. The outcome was that thinkers like Walter Lippmann, Reinhold Niebuhr, Karl Popper, and Russell did not engage with the new venture—or, like Popper, only briefly (Plickert 2008: 132–7). Nevertheless, Hayek and Röpke retained their interest in the social and political theories of aristocratic liberalism.
The Political Economy of Johann Wolfgang von Goethe ‘In our spiritual history there are only two men of full stature to be placed by Goethe’s side—Luther and Kant’ (Eucken 1914: 230). Walter Eucken’s father went on to praise the ‘synthetic and reconciliatory genius’ of Goethe. What he shared with Luther and Kant was the insight that man has an inner life (ibid.: 215). Goethe’s genius was in emphasizing the problems of man’s inner life. Character provided the central anchor for his conception of political economy. On this point Goethe’s thinking corresponded closely to that of the political credo of his friend Schiller’s On the Aesthetic Education of Man (2016/1795): man must develop the harmony of his being by sacrificing inclination in favour of duty and turning away from ‘nature’ and passions to ‘civilization’ and reason (ibid.: 22–3). These qualities of Goethe, whom he read all his life, were the source of his appeal to Brandeis in his role as prophet of the ‘all-round’, public-spirited lawyer (Brandeis 1916). Goethe’s influence also ran through the work of Ricarda Huch, who received the Goethe Prize in 1931. Like Rudolf Eucken, her chief intellectual mentors were Goethe and Luther (Bendt and Schmidgall 1994: 349–51). Goethe’s influence on the founding thinkers of German Ordo-liberalism has been neglected. No other thinker featured as prominently as Goethe in the cited sources of key Ordo-liberal authors. He was a presiding spirit of the Ordo-liberal tradition. Walter Eucken was deeply immersed in Goethe from his earliest days and later drew closely on his morphological studies (manuscript ‘morphological studies’, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Goethe’s work was cited liberally by Müller-Armack, Röpke, Rüstow, and Veit to illuminate their arguments about political economy. They focused on Goethe’s autobiographical Dichtung und Wahrheit (1833), the epic poem Hermann and Dorothea (1797), the novel Wilhelm Meisters Wanderjahre (1821/1829), and, above all, the monumental play Faust, Part 1 (1808) and Part II (1832).
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Patron Saints ( 1 ) 141 These texts could be read in multiple, selective ways. The emphasis in early Ordo-liberal readings was on the ethical and social thoughts of Goethe and how they related to problems in political economy and German history. Goethe’s Faust was read as a source of insights into the German tragedy (Leppmann 1961). It suggested that salvation could come from looking within ourselves to the creative capacity of the human mind (Brown 1986). Faust could be read as a source of German virtues—profundity, courage, tenacity, defiance, and discipline (Williams 1987). Müller-Armack (1959: 377–8) identified the year of Goethe’s death (1832) as the close of the ‘long’ eighteenth century. It was also, for him, the beginning of the tragic nineteenth century. The tragedy resided in the loss of Goethe’s insight into the importance of a balance between cultivating the inner life and seeking to master the physical and social environment. Here, like Rudolf Eucken, MüllerArmack used Goethe to exemplify the painful loss of moral capacity in modern culture. Similarly, Veit (1946, 1967, 1981) looked back to Goethe’s Faust in search of the inspiration to rediscover the balance, reconciliation, and synthesis that were necessary for post-war society to be healed and humanism restored. Goethe’s views on political economy were shaped by his background and career. He had been born into the patrician class of Frankfurt, a thriving commercial city, and in 1776 moved to the aristocratic culture of Weimar. As a court ier and advisor to the duke of Saxony-Weimar, he advocated ‘order’ and economy in public finances, pursuing a strict balanced budget policy which involved tax cuts and deep retrenchment for the army. Goethe’s policy stressed moderation, respect for custom, a sense of duty, and order (Mommsen 1948: 39–43). In his view, its continuation depended on rule by an aristocratic and educated elite and on keeping the ‘natural force’ of the masses at a distance from government business (ibid.: 8, 113, 261). Goethe’s conception of freedom embodied the aristocratic liberal outlook. Freedom was not so much a constitutional and political matter as a cultural one. He followed Schiller in seeing refinement of character as of fundamental import ance (Schiller 2016/1795: 29–32). Freedom involved the individual forming his personality according to his nature and to his position in a stratified social order (Mommsen 1948: 114–15). The form of the state was unimportant, as long as it left the individual free to cultivate his personality. Similarly, the sense of community had less to do with the state than with religion, custom, and communal education (ibid.: 224–5, 274). Goethe’s thinking on political economy evolved as, from the 1780s, he turned to the ideal of Hellenic harmony, wholeness, and noble simplicity in the attempt to correct the faults of ‘modernity’. Both the French Revolution and the industrial revolution filled him with alarm. For Goethe, neither the external trappings of political power nor material wealth could replace character-building as the measure of a ‘true person’ (ibid.: 311–13). Democracy threatened to unleash the power
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142 Conservative Liberalism, Ordo-Liberalism, and the State of the political demagogue and create chaos. Mechanization and specialization narrowed and limited man’s inner capacity. They sacrificed character to know ledge. A higher educational average was not synonymous with higher cultural achievement. Goethe admired the craft occupations (Handwerk) and the smallholding as character- and community-forming. In contrast, he had less respect for farmers and those in trade (ibid.: 271–80). Goethe’s thinking about political economy remained wedded to a hierarchical conception of a social order of estates. These features of Goethe’s political economy found a strong resonance amongst the founding thinkers of the German Ordo-liberal tradition. Röpke (1944: 122, 134) identified in Faust a warning that the devil will capture us if we worship science and allow it to become a ‘pedantic master’. The danger resided in the hubris and self-destruction that were encouraged by the mechanistic rationalism within the Enlightenment (Williams 1987). He also commended Goethe as the embodiment of how a cosmopolitan identity could rest alongside local identity (Röpke 1958b: 351). For Röpke, Goethe was the great defender of small-scale social, economic, and political organization. Above all, Hermann und Dorothea provided a Classical ideal picture of social relations, whilst Wilhelm Meisters Wanderjahre offered a masterful portrait of the costs of modernity, notably the loss of respect for traditional crafts (Röpke 1950: 80, 1942: 25). Dignity and selfworth could be restored to the craftsman if society continued to be shaped by aristocratic values. The figure of the devout, family-based craftsman and smallholder surfaced strongly in Röpke’s writings (1942, 1944). It had been taken up earlier by Walter Eucken (1932b: 83), who lamented the way in which the unity of belief and life was being destroyed by economic change and social and polit ical unrest. Veit devoted a long section of his Flucht vor der Freiheit (1946: 303–12) to Faust’s pact with the devil, pointing to parallels between Faust and Nietzsche. He characterized the twentieth-century tragedy as the flight from Christian and Western values into the arms of the devil, a tragedy he believed had been exhibited philosophically in Nietzsche’s nihilism (also Veit 1935: 136–40). The same pessimistic image of man is clear in Röpke’s (1944: 104) reading of Faust. The play portrays the ‘Lucifer thinker’, the godless individual who is egotistical, ruthless, arrogant, and proud (Williams 1987). In addition, as a practising central banker, Veit drew on Goethe to argue that the decisive factor in monetary policy was not so much legal independence of the central bank as the personal character of central bankers. Independence depends in practice on the individual, and character is the prerequisite for the exercise of monetary-policy responsibility (Veit 1968; Solf 1988). In a similar fashion, Walter Eucken’s critique of post-1918 German monetary policy had focused on the deficiencies of character of its central bankers (Eucken 1923).
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Patron Saints ( 1 ) 143 The ‘inner man’ was a recurring theme in the thinking of the founding thinkers of the Ordo-liberal tradition. Guardini (1950) drew on Goethe in his critique of the descent from aristocratic liberalism to ‘mass-man’, for whom neither liberty of external action nor freedom of internal judgement seem to have unique value because outside their experience. But perhaps the greatest legacy of Goethe to the Ordo-liberal tradition was his emphasis on the importance of balance: between tradition and modernity, reason and belief, order and freedom, community and individualism, technique and humanity (Veit 1946, 1953, 1981). The challenge of reconciliation left an enduring quality of ambivalence to the Ordo-liberal trad ition: its openness—like that of Goethe—to alternative readings.
The Political Economy of Alexis de Tocqueville Tocqueville’s appeal to the founding thinkers of a renovated conservative liberalism and Ordo-liberalism stemmed from two factors. First, he had proclaimed himself a ‘liberal of a new kind’: one who respected the rule of law, loved order, and was attached to religious beliefs and the limits of political action (Tocqueville 1866a: 431). This proclamation made him an enormously appealing thinker to Hayek and Röpke as, in 1944–7, they contemplated the enormous challenge of renewing liberalism in the wake of the Second World War. Tocqueville (1835/2012: part 2, chapter 7) pinpointed the threat from ‘unlimited democracy’ and ‘majoritarian omnipotence’, a threat that was to continue to inform Hayek’s thinking about liberty (e.g. Hayek 1960: 115–17). According to Tocqueville (1959: 280, author’s translation) in a letter of 24 January 1857: I have always said that liberty is more difficult to establish and maintain in democratic societies like ours than in certain aristocratic societies which have preceded ours. But I shall never be rash enough to think that this is impossible.
Tocqueville’s deep distrust of the masses and his contempt for the bourgeois commercial spirit echoed Goethe and was taken up by Röpke. In a letter of January 1858, Tocqueville complained that the ‘enlightened classes’ had been dethroned by ‘the classes which . . . read nothing but newspapers’ (Kahan 1992: 50). He summed up the bourgeois commercial spirit as ‘moderate in all things, except in the taste for material well-being, and mediocre’ (ibid.: 49). Röpke’s work reflected these sentiments. He shared with Tocqueville a fear of the masses. Second, Tocqueville (1959: 34) was an heir to Montesquieu’s aristocratic liberalism. He opposed the centralization of power as the route to despotism, whether under the French ancien régime, the Jacobins, or Napoleon Bonaparte. Virtue was
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144 Conservative Liberalism, Ordo-Liberalism, and the State the root principle of republican government. It required a ‘higher degree’ of citizenship, one that subordinated private concerns to the good of the community. It also depended on having independent intermediary powers between central government and the people. This theme was taken up strongly during the interwar and post-war period by conservative liberals and Ordo-liberals, for instance by Einaudi (1945, 1948). However, Tocqueville went beyond Montesquieu—and beyond Goethe—in giving more detailed theoretical and empirical attention to matters of political economy. He had read the French economist Jean-Baptiste Say (1767–1832) and the English economists Nassau Senior and John Stuart Mill (Swedberg 2009: 81–99). Moreover, he kept up long-standing correspondence and had intimate, recorded conversations with Nassau Senior (Tocqueville 1991). The central question at the heart of Tocqueville’s political economy was: which habits are conducive to liberty and prosperity? He sought to answer this by a detailed examination of the emergence of a new ‘manufacturing aristocracy’ in the United States, and the commercial mores of that country. It offered a contrast with the old ‘territorial aristocracy’ of France with which his family was linked. The search for an answer led him to a broader view of political economy than those held by Senior and Mill (Swedberg 2009; Tocqueville 1991). Tocqueville made clear to Senior that ‘striving for wealth’ was too narrow a basis for characterizing economic behaviour and outcomes. The economy was as much a part of society as religion and politics and could not be understood as an autonomous realm. This argument led Tocqueville to recognize the importance of differences in institutional structures in understanding economic behaviour and outcomes. However, far more important were the underlying mores of society: the role of ideas, sentiments, and moral feelings (Swedberg 2009: 277–9). Tocqueville focused on the ‘habits of the mind’, ‘the habits of the heart’, and the ‘habits of the body’ that were characteristic of society. Liberty was above all a ‘habit of the heart’; something that is felt. This historical insight was taken up by Einaudi (1942b, 1946) in reflecting on the problems of the post-war reconstruction of a liberal order in Italy (Chartier 1989). Walter Eucken’s preparatory notes on economic principles reveal how much Tocqueville helped shape his conception of freedom from 1943 onwards (principles originals 4, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Tocqueville was far from being an uncritical observer of the new commercial society. His political economy comprised three critiques. He saw large-scale industry, with its division of labour and pursuit of economies of scale, as intellectually debasing the working person. They were left impoverished and defenceless against the fluctuations of the economy. In addition, Tocqueville developed a distaste for the ‘manufacturing aristocracy’, which he saw as having too little sense of responsibility for the relief of economic and social distress. Finally, he feared the
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Patron Saints ( 1 ) 145 new industrial proletariat. Its search for equality was driven by envy and would lead inexorably to socialism, communism, and the death of liberty (Tocqueville 1991: 273–4). Like other aristocratic liberals, Tocqueville stopped short of elaborating in full his economic views. His main public pronouncement was in an address to the French Constituent Assembly in September 1848 on the right to work. The speech was principally directed against socialism and in favour of Christian charity. It also affirmed a belief in a constitutional economics, one that would set ground rules for the economy. This notion was not fully developed. Nevertheless, the speech is testament to the proximity of Tocqueville’s political economy to the founding ideas of interwar and post-war conservative liberalism and Ordo-liberalism.
Lord John Acton’s Legacy to Conservative Liberalism Acton was the epitome of the European intellectual. He was born into an old and devout English Catholic family with wide European connections through marriage: his grandfather had been prime minister of the Kingdom of the Two Sicilies. He had studied in Paris and Munich and, like his friend the Liberal Party leader and prime minister William Gladstone, was multi-lingual (Mathew 1968; Nurser 1987). Acton’s thinking on liberalism was drawn from Edmund Burke and Thomas Macauley, placing him securely in the Whig tradition (Fasnachts 1952). He was also a great admirer of Tocqueville, whom he regarded as ‘a liberal of the purest breed—deeply suspicious of democracy and its kindred, equality, central ization, and utilitarianism’ (Nurser 1987: 75; also Mathew 1968: 75–86). Acton’s influence on the founding thinkers of interwar and post-war conservative liberalism and Ordo-liberalism came principally through Hayek and Röpke, both of whom corresponded about Acton in the mid- and late 1940s. The connection stemmed from Hayek’s period at the London School of Economics, where— ironically—the work of Harold Laski, the charismatic socialist political scientist, on Acton’s role in the liberal tradition had sparked his interest (Hayek 1992: 216). Hayek sought to play a role in the ‘Actonian Revival’ as key to the post-war renovation of liberalism (ibid.: 216–18). Acton had provided ‘the most complete summation of that true liberalism which sharply differed from the radicalism that led to socialism’ (ibid.: 217). Additionally, Acton’s work had tactical value; it could be used to build bridges to Roman Catholicism and to win it over to the liberal cause. In Hayek’s view, continental European liberalism had suffered from a fierce intolerance towards religion which had divided Europe. Here Röpke was in strong agreement with Hayek. He recognized in Acton—and in Burke and Tocqueville earlier—the insight that a liberal order depends on the secure foundation of a religious belief (Röpke 1944, 1950).
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146 Conservative Liberalism, Ordo-Liberalism, and the State Acton’s influence on the founding thinkers of the renovated conservative liberalism and Ordo-liberalism took place despite the absence of the kind of engagement with political economy to be found in Goethe and Tocqueville. He provided powerful arguments against ‘unlimited’ democracy and in favour of conscience as the political absolute. Acton had been brought up to regard democracy as a form of political disease (Fasnachts 1952; Nurser 1987: 75). He shared with Tocqueville a sense of the loss of values and a horror of what might be thrown up by a ‘mere majority’. For Acton, ‘The great purpose of civilization . . . [is] only to be got by the predominance of moral and intellectual superiority—not by the judgement of the uninstructed’. He concluded that in a democracy it was impossible to purify public opinion of prejudice, and that ‘Prejudices . . . are the nearest approach to reason of people incapable of it’ (Nurser 1987: 79). These thoughts resonated throughout the work of Röpke. Acton also offered insight into the problems that stem from the ambivalence between liberalism and conservatism at the heart of the Ordo-liberal tradition. His essays on the history of freedom showed how the two ideologies have combined in different forms, sometimes usefully for liberalism, but often in ways that threaten liberalism. Acton stressed that attempts to combine liberalism with conservatism always provide opportunities to the enemies of liberalism: At all times sincere friends of freedom have been rare, and its triumphs have been due to minorities that have prevailed by associating themselves with auxiliaries whose objects often differed from their own; and this association, which is always dangerous, has sometimes been disastrous, by giving to opponents just grounds of opposition, and by kindling dispute over the spoils in the hour of success. (Acton 1907: 1, address first delivered 26 February 1877)
Acton was, in short, more than an inspiration to the founding thinkers of the renovated conservative liberalism and Ordo-liberalism. His writings contained warnings about the dangers they faced in the political arena, consequent on their ideological ambivalence. For Hayek, the message in Acton’s ‘Old Whig liberalism’ was that liberalism must remain distinct from pure conservatism in its attachment to principles. For this reason, he declared himself not to be a conservative (Hayek 1957, 1960: 408–10).
Jacob Burckhardt’s Legacy Burckhardt was, after Goethe, the second most cited author in Röpke’s (1942, 1944, 1950, 1958b) four main books on the crisis of modernity. Likewise, after Goethe, he was the second most cited author in Rüstow’s monumental threevolume Ortsbestimmung der Gegenwart (1950–7). They were attracted not least by
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Patron Saints ( 1 ) 147 his many letters, especially to his friend von Preen (see Dru 1955). Röpke (1944: 242–3) quoted from two letters. The first, on 30 December 1875, pointed out that: ‘People today feel abandoned, and they feel cold unless they get together in the thousands’. The second, on 27 December 1890, suggested a bleak future: ‘Someday, terrible capitalism, from above, and greedy desires, from below, will crash into each other like two express trains on the same tracks’. Burckhardt’s great appeal to the founding Ordo-liberals had much to do with his admiration for moral nobility. As a cultural historian, he was driven by a sense of professional duty to preserve the ‘higher’ traditions of Europe, which he identified with the Christian ascetics and the ‘men of honour’ of the Renaissance (Kaegi 1947–85). Like Goethe and Schiller, he believed that character was much more decisive for man than material possessions or even richness of intellect (Nichols 1943: 17). In Burckhardt’s view, material advancement was only one aspect of human welfare. Röpke and Rüstow endorsed his view that material progress could be accompanied by regression in the arts, culture, religion, and the state (ibid.: 67–70). Burckhardt’s warning that history was not an evolutionary tale of cultural, intellectual, and moral progress struck a chord with the Ordoliberal ‘children of crisis’ (Hinde 2000; also Walter Eucken note of April 1947 in ‘thoughts on history’, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Burckhardt’s great contribution was as a cultural historian. Political economy figured only in the margins of his work. In this respect, he was close to Goethe’s belief in order and moderation. He was strongly opposed to deficit budgeting, to price-fixing, and to intrusive social legislation, like Ordo-liberals later (Kahan 1992: 116; Dru 1955: 223 for Burckhardt’s letter of 25 March 1890). However, Burckhardt (1943) conceived of history not narrowly as economic but as the reciprocal interaction of the ‘three powers’—the state, religion, and culture. His concern was that the world of education, arts, and culture was a house of cards in a new era of radic alism, socialism, and communism in domestic politics, of ‘great power politics’ in Europe, and of industrial and urban expansion. The scope for creative personal ities was being narrowed by a utilitarian mind-set (ibid.: 293–300). Burckhardt’s analysis of the French Revolution and of Napoleon was close to that of Tocqueville and served to reinforce the founding Ordo-liberals’ fears of ‘unlimited’ democracy. These developments demonstrated ‘the hellishness in human nature’ (ibid.: 36–7). Democracy was ‘the product of mediocre minds and their envy’ (Dru 1955: 215 for Burckhardt’s letter of 17 March 1888). It was undermining ‘possessions, religion, civilized manners, pure scholarship’ (ibid.: 205 for Burckhardt’s letter of 10 September 1881). He noted ‘how empty-headed and defenceless even thoroughly decent people are when confronted by the spirit of the age’ (ibid.: 222 for Burckhardt’s letter of 25 March 1890). Drawing on his reading of Burckhardt, Walter Eucken noted in October 1940: ‘demonic forces are let loose when a state is weak or when its leadership is
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148 Conservative Liberalism, Ordo-Liberalism, and the State demonically possessed’ (box ‘thoughts on history’, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Röpke (1944: 242–3, 1958b: 111) quoted from Burckhardt as a prophet: The picture I have formed of the terribles simplificateurs [italics in original] who are going to descend on poor old Europe is not an agreeable one; and here and there in imagination I can already see the fellows visibly before me. (Dru 1955: 220 for Burckhardt’s letter of 24 July 1889 to Preen)
Burckhardt personified for Röpke (1942: 46–8) the special quality of Switzerland as the model of a ‘healthy’ society from which one might learn how to deal with the crisis of modernity. Burckhardt was an ‘Old Basler’, the product of a very conservative-aristocratic and independent-minded city to which he remained rooted. He hailed from a Calvinist family of scholars and clergy. This background lent to his thinking a quality of asceticism and a belief in the creative spirit of man. Burckhardt had a conservative and theological aversion to utilitarianism and to ‘the men of power and the outlaws of history’, like Bismarck and Napoleon and, more generally, to the mediocrity of career politicians (Nichols 1943: 28). At the same time, his thinking represented a peculiarly Swiss cross-fertilization of French, German, and Italian cultures. Burckhardt was a genuinely European intellectual. He combined a stout defence of the world of small states with a cosmopolitan outlook, a core belief of Röpke and one widely shared amongst founding Ordo-liberals like Einaudi (1945, 1946, 1948; Kaegi 1947–85). Rudolf Eucken, who studied in Basel and was familiar with Burckhardt’s work, was a great admirer of what he regarded as Basel’s model of ascetic aristocratic liberalism (Graf 1997: 60–1).
Gustave Le Bon, the Orleanist Tradition, and French Conservative Liberalism Le Bon played two important roles in connecting aristocratic liberalism to the founding thinkers of conservative liberalism in France. First, he transmitted a respect for the Orleanist tradition of ‘order and liberty’ into debates in the French Third Republic. He did so by building on the insights of Tocqueville about democracy and on the ‘moral revolution’, which had been espoused by Ernest Renan and Hippolyte Taine and which had attempted to reconcile the renewal of individualism with social solidarity (Nye 1975: 160–1). Le Bon sought to develop a political discourse that blended conservative with liberal values. Second, Le Bon attempted to give this discourse a scientific basis in positivism (ibid.: 176). He attempted to found—with the aid of science—a confident, messianic community of social scientists who could learn, from such eminent thinkers as Henri Poincaré, how to construct a predictable economy, society, and polity on a
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Patron Saints ( 1 ) 149 conservative-liberal basis. In these two ways, Le Bon had a considerable influence on Rougier’s thinking, notably as expressed in La Mystique démocratique (1929), a book for which Le Bon served as editor. Rougier’s receptiveness stemmed from being educated in the French positivist tradition and from their shared admir ation for Poincaré. The highpoint of Le Bon’s fame and influence was the French belle époque between 1895 and 1914 when he developed his critique of French society and its collectivist tendencies (Nye 1975). He was an extraordinary networker, both as long-serving editor of the influential publisher Flammarion (1902–31) and through his regular luncheon discussions, which were attended by such elite politicians as Aristide Briand, Georges Clemenceau, Pierre Flandin, Édouard Herriot, and Paul Reynaud. He identified in science a weapon with which to regenerate France after the disasters of the Franco-Prussian war of 1870 and the Paris Commune. Le Bon remained a tireless critic of the Third Republic for moving away from the conservative-liberal values of its early years and a force for using science to renovate France (Nye 1975: 181). Above all, Le Bon’s Psychologie des foules (1896) made a powerful impression on such thinkers as Briand, Clemenceau, and de Gaulle and gained a wide reading public. He sought to develop a science of collective crowd psychology that would enable political leaders to deal with challenges to democratic institutions. This challenge had been graphically exhibited in the French revolutions of 1789, 1830, and 1848, in the Paris Commune, in the Dreyfus Affair, and in revolutionary syndicalism. Le Bon addressed elite and popular fears of brutal, fanatical, savage, and contagious crowd behaviour. He pointed to the trance-like, unconscious nature of this behaviour, the role of example and imitation, and the amenability of crowd behaviour to hypnotic suggestion, especially to the repetition of simple messages (ibid.: 15–17, 114–15). Crowd behaviour was driven by ‘mental contagion’ (ibid.: 114). It exhibited a pathological character that reflected the ‘atavistic residue of the instincts of the primitive man’ (ibid.: 39). ‘Ideas, sentiments, emotions and beliefs possess in crowds a contagious power as intense as that of microbes’ (ibid.: 113–14). The role of the statesman is to accept this reality and then to modify it by certain ‘suggestive images’ that, through repetition and affi rmation, achieve a hypnotic effect (ibid.: 101). Science could be used by elites to tame the potentially violent and irrational forces of the crowd in the service of conservative-liberal values. This elitist message resonated in French elite circles, not least in the thinking of Rougier.
The Legacy of Guglielmo Ferrero: The Aristocratic Republic The popular Italian historian Ferrero remained a close friend of Rougier from their first contact in 1929, when he praised Rougier’s La Mystique démocratique, until his death in 1942. In 1930–1 Rougier played a role in helping organize
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150 Conservative Liberalism, Ordo-Liberalism, and the State Ferrero’s departure to Geneva from fascist Italy, where, as a virulent anti-fascist, he lived in house-arrest (Berndt and Marion 2006: 37). Ferrero was one of Rougier’s ‘sages of the West’ (Rougier 1949/1938: 3). In Geneva Ferrero became a colleague of Röpke, whose Gesellschaftskrise der Gegenwart he greatly admired. In turn, Röpke was to cite Ferrero in various later books. Ferrero’s cross-fertilization of history with psychology and sociology served as a model of the interdisciplinary thought that Röpke admired and sought to emulate. Röpke (1944: 172) praised Ferrero’s insights into healthy and sick states (Ferrero 1942: 323–4). He had shown how, in different periods of history, the fall of monarchs and nobles had plunged Europe into disorder. The threat of disorder was now compounded by socialism, which sought to create a society not just without a monarchy and a nobility but also without classes and riches. The First World War was a turning-point in Ferrero’s work. Earlier he had positioned himself as a critic of ‘Germanized’ Italian intellectuals, especially those influenced by Hegel. Ferrero had taken the positivism of Auguste Comte as his point of reference. By 1918 he had lost his liberal optimism and his faith in science and progress. The ‘old’ Europe had given way to the ‘new’ Europe, one in which there was a danger of anarchy, dictatorship, and war. He drew the distinction between ‘qualitative’ civilizations (like republican Rome) and ‘quantitative’ civilizations (like the Germany and United States of his day). Ferrero advocated a return to philosophic doctrines which sustain the principle of authority and which form the solid basis of tradition, religion, and family (Ferrero 1918: 18). It was time to return to a form of asceticism, to ‘humble truths and common sense’ (Ferrero 1926: 158). Ferrero (1921: 179–210) drew a parallel between the great crisis of Rome in the third century ad and interwar Europe. Interwar Europe lacked the assured principle of authority that Christianity had provided from the third century ad (ibid.: 185). He warned against illusion about the strength of European civilization (ibid.: 209–10). The principle of authority was the key to all civilizations. However, Europe no longer had a universally respected principle of authority. The monarchical principle had broken down, and the principle of the sovereignty of the people—embodied in the French Revolution—was too imprecise and obscure to enable strong and stable government. The challenge was to find a principle of authority that was consistent with the supreme aim of life: the moral and religious development of the individual (ibid.: 186; also Ferrero 1942). It had to provide government without the fear that attached to the ‘strong men’ of history like Julius Caesar, Napoleon Bonaparte, and the fascist dictators of his day. Ferrero was inspired by Montesquieu and by Tocqueville, as well as by Aristotle as the phil osopher of order and moderation (Ferrero 1918: 176). He looked to the aristocratic republic of Ancient Rome, with its self-sufficient aristocratic households, as the model.
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The Legacy of George Santayana: The High Religion of Moral Disinterestedness Santayana’s early influence on American conservative liberalism stems principally from his period as professor of philosophy at Harvard University until 1912, before his return to Europe. His influence derived not just from his work as a philosopher. He was a novelist, a poet, and a literary and cultural critic. Santayana (1922) distanced himself from what he called the ‘genteel’ European tradition in nineteenth-century American philosophy, which he defined as sharing the characteristics of Calvinism, Idealism, and transcendentalism. It was associated with his Harvard colleague Josiah Royce (1855–1916). He also rejected the newer philosophical Pragmatism of his popular Harvard colleague William James, which he saw as representing the true, ultra-modern America. Pragmatism was dismissed as representing a utilitarian view of the mind and ideas that he rejected. Santayana’s influence within American political economy was mediated through his former assistant in the Harvard philosophy department, Walter Lippmann. Lippmann’s A Preface to Morals (1929: 15) owed more to him than to James. But otherwise, Santayana professed views that were out of tune with the American mainstream and that were to make him many enemies there, as well as in Britain (McCormick 1987). Santayana remained the aloof outsider, a critic of modern liberalism, notably in its American form. His Classical form of aristocratic liberalism was evident in his monumental The Life of Reason (1954/1905–6; also 1936). In chapter 4 he looked to the ideal of an aristocratic society in which the diversity of man’s faculties and ideals is expressed. Men differ in capacity. Aristocracy logically involves castes and inequality. However, injustice arises when privilege involves a wrong. Inequality is only justified by ‘radiating benefit’ (ibid.: 130–9). In chapter 5 on democracy Santayana writes: The pleasures a democratic society affords are vulgar and not even by an amiable illusion can they become an aim in life. A life of pleasure requires an aristocratic setting to make it interesting or conceivable . . . Genius, like goodness . . . would arise in a democratic society as frequently as elsewhere, but it might not be so well fed or so well assimilated. (ibid.: 148)
Santayana’s reputation as a critical conservative stemmed from his fierce rejection of modern liberalism (Santayana 1922, 1951; also Gray 1993). According to Santayana, liberalism was not just about freedom to live but about freedom to live well—to grow wise, to live in friendship, and to experience the joy of living according to one’s nature. In its Classical form, liberalism had celebrated diversity and recognized discipline and constraint. In its modern form, liberalism was
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152 Conservative Liberalism, Ordo-Liberalism, and the State about material progress through the wealth generated by industrialism. In practice, it failed to deliver either material comfort (work proved unrewarding) or moral liberty (because it eroded social diversity). Modern liberalism was associated with a servile way of life, a boring monotony, and a tendency to destroy the traditional order. It led to ‘a dull peasantry, elevated into factory-hands, shopkeepers, and chauffeurs’ (Santayana 1922: 184–5). The promise of securing mater ial progress produced in turn the growing dominance of the state in every area of life. Commercialism, in the form of advertising, transformed the press into a venal institution, whilst demagogues exploited liberalism by promising to free the people from constraints (ibid.: 189). Modern liberalism was characterized by a lack of discipline, of humility, and of scepticism. Santayana drew his inspiration from the Classical liberalism of Ancient Greece and from the abstract notion of a liberal empire that would safeguard diversity. It meant abandonment of a modern romantic liberalism of limitless hubris for a Classical liberalism (Gray 1993). However, his diagnosis of the ills of modern liberalism did not lead him to offer a clear view of an alternative political economy. Lippmann was to try to fill that gap in The Good Society (1937). Santayana’s emphasis on moral disinterestedness evolved out of his variant of critical Realism and a certain world-weary disillusionment with the follies of the politically engaged (McCormick 1987). He rejected what he saw as the egoism both of German Idealist philosophy and of American radical empiricism (Santayana 1939). A self-proclaimed materialist, he dismissed the idea that existence was subjective. The natural world was, for Santayana, a world of objective reality, incessantly in flux, and accessible through the life of reason. Ideas were the product of material causes. At the same time, the independent life of the mind— imagination and thought—were aspects of reality. Social arrangements were to be judged by the extent to which they were hospitable to the contemplative spiritual life, furthering man’s capacity to penetrate through intuition to the timeless essences of experience. Modern liberalism was judged harshly against this test. Lippmann took from Santayana the notion that the achievement of the good can only be achieved by an aesthetic aristocracy, committed to a civilized sto icism, the life of reason, and a moral disinterestedness. This notion characterized Lippmann’s thinking from A Preface to Morals (1929), through The Good Society (1937), to Essays in the Public Philosophy (1955). It led to a certain disaffection with American life. For Lippmann (1929:15–16, 68), ‘the acids of modernity’ had dissolved ‘the ancestral order’. The subsequent moral vacuum prevented ‘prudent, orderly thinking’ by ‘mature men’ practising ‘moral disinterestedness’. Lippmann’s thinking remained very much in the shadow of Santayana’s aristocratic liberalism, reinforced by his experience in wartime propaganda and by watching events in Russia and Italy. They led him to critique prevailing assumptions about representative democracy and the idea of an ‘authentic’ public opinion
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Patron Saints ( 1 ) 153 (Regalzi 2010). He advocated abandonment of ‘the myth of the omnicompetent citizen’. Public opinion was a phantom and too uncertain a basis for public policy. Appealing to it could readily lead to authoritarian rule. The state must evolve ‘compensatory mechanisms’ to redress the liability of individuals and publics to error. Louis Brandeis singled out for praise Lippmann’s work on the power of prejudice and stereotypes over the public mind and on the deficiencies of the press in informing people’s judgements in an intelligent way (Urofsky and Levy 1973).
Defending the Value of Knowledge: The Legacies of Julien Benda, José Ortega y Gasset, and Bertrand Russell Aristocratic liberalism and the founding thinkers of conservative liberalism and Ordo-liberalism were bound together not just by political values but also by a passionate commitment to cognitive values of reason, truth, and justice. Both trad itions were driven by a shared belief that intellectual foolishness posed a growing threat to civilized society. Civilized society was succumbing to pervasive error, illusion, sham belief, and inexactness (Mulligan 2016). The source of this foolishness was typically attributed to the utilitarianism of Bentham, to Pragmatism, to radical empiricism, to the vitalism of Henri Bergson and Nietzsche, and more generally to ‘subjectivist madness’ (e.g. Russell 1969: 27–30). In his opening remarks to the Lippmann Colloquium in August 1938, Rougier drew on Benda to argue that the moral drama of the age arose from the blindness of too many intellectuals—on the Left and on the Right—to the threat of tyranny (Audier 2012a; CWL 1939: 14–15, 19–20). Whilst tending to criticize European fascism, European intellectuals were prone to excuse Soviet communism. Similarly, in his magnum opus on economic ideas of the same year, Rougier praised Ortega y Gasset and Russell, with Ferrero, as three of four ‘sages of the West’ (Rougier 1949/1938: 3). Rougier’s critique of mystiques—democratic, economic, revolutionary, Soviet—highlighted the way in which intellectuals can become blind, hostile, or indifferent to cognitive values. It resonated closely with Russell’s (1935) rebuttal of ‘the revolt against reason’. Aristocratic liberals like Benda, Ortega y Gasset, and Russell sought respect for ‘the life of the mind’, a priestly role for intellectuals, as an antidote to foolishness. Russell’s view that cultural questions were more important than economic and political questions was wholly consistent with his own aristocratic background. It also drew on ideas that had held sway in Victorian and Edwardian England and that had been popularized by Samuel Taylor Coleridge, including his notion of the clerisy, and by John Stuart Mill, as well as in the cultural criticism of Matthew Arnold (Ironside 1996: 4–8). In his autobiography, Russell (1969: 71–2) spelt out his ten cognitive principles, two of which advocated:
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154 Conservative Liberalism, Ordo-Liberalism, and the State 9. Be scrupulously truthful, even if the truth is inconvenient, for it is more inconvenient when you try to suppress it. 10. Do not feel envious of those who live in a fool’s paradise, for only a fool will think that it is happiness. The enduring theme in Russell’s formidable social and political critique was the challenge of protecting ‘the life of the mind’ and the creative impulse of a gifted minority. The threat stemmed from an encroaching democracy, which was concerned mainly with matters pertaining to the body, and from a market-based culture, which subsisted on materialistic values and the impulse of possessiveness (Ironside 1996: 8). The problem resided in part in the ‘uncivilized’ character of the lower classes (ibid.: 123). It derived also from the ‘religion of materialism’ and obsession with wealth that had infected the middle classes. Not least, Russell was concerned about a new meritocracy that worshiped utilitarian values (ibid.: 212). The role of the intellectual was to inspire discontent with the mediocre, with a ‘complacent and ultimately tedious materialism’ (ibid.: 4). It was to remind society of the importance of discipline from within if civilization was to be sustained. Russell’s most popular and influential text in social and political thought—The Principles of Social Reconstruction (1916)—reflected a high-minded Whig scepticism about the state (Russell 1968: 19–20). He attacked the ‘extreme individualism’ of traditional liberalism and the ‘prisons’ of militarism, capitalism, Benthamism, Fabianism, and state socialism, each of which had displayed its limits in the First World War (Russell 1916: 146–7). ‘I consider the best life that which is most built on creative impulses, and the worst that which is inspired by love of possessions. Political institutions . . . should be such as to promote creativeness at the expense of possessiveness’ (ibid.: 5–6). ‘The most important purpose that political institutions can achieve is to keep alive in individuals creativeness, vigour, vitality, and the joy of life’ through the stimulation of ‘adventure, poetry, music, fine architecture’ (ibid.: 134–5, 164–6). Russell (ibid.: 111–14) diagnosed the crisis of his times as the decay of life and diminishing vitality associated with ‘the religion of material goods’ and ‘worship of money’. In response, he enumerated two principles of social order: promoting the creative impulse and vitality of individuals and communities; and inculcating a spirit of reverence in dealings with others, above all through education (ibid.: 9–43, 146–7, 227). The state’s functions were chiefly in ensuring a universal min imum through public health, compulsory education, and the encouragement of scientific research (ibid.: 67–76). In this way, it could contribute to countering the boredom, dullness, and philistinism of the average existence. In addition, the state should seek to ameliorate economic injustice by challenging monopoly power, by taxing inheritance, and by encouraging independent voluntary organ izations. In considering marriage and the population question, Russell went on to
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Patron Saints ( 1 ) 155 recommend the application of eugenic conditions in public policy, initially cautiously. State benefits to cover the costs of families should not be available for parents who are physically and mentally ‘unsound’ (ibid.: 184–6; also Ironside 1996: 125). His ascetic distaste spread beyond using the state to counter the ‘vulgar’ materialism of mass society to advocacy of eugenic principles in social policy. Russell (ibid.: 195–6) summed up: ‘The present state of the law, of public opinion, and of our economic system is tending to degrade the quality of the race’. Benda is easier to ascribe to aristocratic liberalism by reference to his analysis of intellectual error than to his political values. Politically, he shared its deep reservations about democracy on questions of principle, taste, and aesthetics. At the same time, however, Benda staunchly supported democracy against its enemies on the Right. His support for democracy, as even for communism, was above all grounded in his hostility to their reactionary opponents rather than in embracing, for instance, Marxism (Benda 1949b: 109; Niess 1956: 196–7). Benda was no straightforward conservative liberal in matters of political economy. Nevertheless, in the manner of Rougier, he claimed that the bourgeoisie was creating a mystique of order for itself, a new conformity to which intellectuals were expected to adhere. Benda was not so much on the Left in his economic thinking as morally identifying with the Left as more sympathetic to his intellectual ideals of reason, truth, and justice (Niess 1956: 180, 191). During the 1920s ‘betrayal of the clerisy’ emerged as the key phrase in Benda’s thinking. His La Trahison des clercs (1927/1946) was an impassioned appeal on behalf of the universal values of reason, truth, and justice against rising political passions. The context in which it matured was twofold: the legacy of the Dreyfus Affair (1894–8), during which intellectuals had divided into two warring camps, and the First World War, which had seen intellectuals unify in espousing nationalism (Drake 2005: 20; Sarocchi 1968: 11–16; Niess 1956: 145–50). These two events—and later the rise of fascism in the 1930s and then the Vichy regime— convinced Benda that the value of truth was under mounting threat (Benda 1949a, 1949b: 37–60; Nichols 1979). The West had entered ‘the age of the intellectual organization of political hatreds’ (Benda 1927/1946). Intellectuals had betrayed their unique vocation by becoming apologists for crass nationalism, racism, and war mongering. Benda (1927/1946: 140) defined the true intellectual as one dedicated to the contemplative life, opposed to the political passions of class, race, nationalism, and religion, and at a remove from practical affairs. The intellectual’s loyalty was solely to the values of reason, truth, and justice. It was exhibited in three characteristics: commitment to these values as fixed and timeless, disinterested, and rational (Benda 1927/1946, 2nd ed.: 97–104). The role of the intellectual was not to change the world but to remain faithful to the cognitive values that are necessary for a civilized humanism. According to Benda (1949a: 22), ‘reality shifts,
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156 Conservative Liberalism, Ordo-Liberalism, and the State method is eternal’. Intellectual probity rested on the will to respect the truth, whatever it is, and the refusal to bend it in one’s interest or in that of some group (ibid.). Benda stood for intellectual tradition against modernity. His intellectual models were Plato, Socrates, Aquinas, Spinoza, Montesquieu, Kant, Goethe, and Renan (Benda 1927/1946: 54). They served as the conscience of a society beset by evils. Since the eighteenth century, intellectuals of this sort had been gradually isolated by democratization and by the rise of new commercial, financial, and industrial classes. Benda’s intellectual enemies were those espousing modern theories of ‘dynamic living’—Gaston Bachelard, Bergson, William James, Nietzsche, and Existentialists like Jean-Paul Sartre. He subscribed to a Hellenic view of the intellectual. As the introductory quote for his La Trahison des clercs he took a line from Charles Renouvier: ‘The world suffers from the lack of belief in a transcendental truth’. As an indictment of intellectual foolishness, Ortega y Gasset’s The Revolt of the Masses (1930) had a huge international influence. Like that of Benda’s seminal text, this influence stretched from the 1930s into the 1950s (Dobson 1989). The book was read by Edmund Husserl, who recommended it to Walter Eucken (Dathe and Goldschmidt 2003: 66; Renker 2009). It was also taken up by Einaudi, Rueff, Röpke, and Rüstow, as well as being the key reference in Veit’s Die Tragik des technischen Zeitalters (1935: 150–66, 207–8). This impact led Rougier to invite Ortega y Gasset to the Lippmann Colloquium in 1938, but he was unable to attend. Ortega y Gasset was a world-class ‘intellectual at large’, for Veit (1935: 150), and ‘a European in the best sense’. His writings combined social and polit ical philosophy with cultural criticism and resonated outside the Spanishspeaking world in Britain, France, Germany, and the United States (Dobson 1989; Gray 1989). Before 1914 Ortega y Gasset had emerged as an admirer of German ‘high’ culture, deeply indebted to neo-Kantianism and to the phenomenology of Husserl and Max Scheler. From them he imbibed a deep belief in external standards of reason and truth. His aim was to help to create a modern Spain which was firmly re-embedded in European civilization. However, the First World War and its aftermath, including the primitivism of the dictatorship of General Miguel Primo de Rivera in Spain, shattered his liberal faith in a Europe and in a Spain founded on reason. The Revolt of the Masses was a cry of distaste at the erosion of cultural and intellectual excellence. He portrayed intellectuals as isolated in a world of mass democratization, radical egalitarianism, and the waning of traditional hierarchical structures. The rise of ‘mass-man’ was the central feature of the modern age. It was an age of knowledge without wisdom, of technique without understanding. The central characteristics of the mass were anonymity, the displacement of reason by feelings and instinct, the decline of personal responsibility, and gullibility (Ortega y Gasset 1930: 144).
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Patron Saints ( 1 ) 157 Ortega y Gasset (ibid.: 88–95) was more clearly an aristocratic liberal in a political sense than Benda in that he identified the state as the greatest danger. ‘Mass-man’ too readily welcomed the state as a safeguard for his existence and was not sufficiently aware of how state intervention could crush society. His aristocratic liberalism found expression in his critique of ‘hyper-democracy’, in which ‘notions born in the café’ gain the force of law (ibid.: 14). ‘The characteristic of the hour is that the commonplace mind, knowing itself to be commonplace, has the assurance to proclaim the rights of the commonplace and to impose them wherever it will’ (ibid.: 14). The casualty is cultural and intellectual excellence. Massman ‘accustoms himself not to appeal from his own to any authority outside him’ (ibid.: 47). In consequence: ‘it is the man of excellence, and not the common man, who lives in essential servitude. Life has no savour for him unless he makes it consist in service to something transcendental . . . This is life lived as a discipline— the noble life’ (ibid.: 47–8). Instead, cognitive values are undermined: ‘Barbarianism is the absence of standards to which appeal can be made. The varying degrees of culture are measured by the greater or less precision of the standards’ (ibid.: 54–5). Against this background of a lack of intellectual scruple, Ortega y Gasset suggested that liberalism is a ‘discipline too difficult and complex to take firm root on earth’. The mass ‘crushed everything beneath it which is different . . . excellent, individual, qualified and select’ (ibid.: 18). Crucially, Ortega y Gasset’s concept of ‘mass-man’ does not simply apply to the poor and uneducated. It takes two forms. The first is the ‘new barbarian’, the opinionated and self-satisfied philistine who holds cultural and intellectual excellence in contempt (ibid.: 74–81). The second threat comes from the ‘barbarism of specialization’, from the specialist who claims to speak with authority on larger social and cultural matters (ibid.: 82–7). Veneration of the specialist makes the world easy prey to bias. ‘Mass-man’ is a type of personality rather than a social category. His presence in numbers threatens to corrode cultural and intellectual standards (Dobson 1989; Gray 1989). Ortega y Gasset’s attempt to rescue and revive an aristocratic liberalism from social crisis and ‘hyper-democracy’, and his plea for the reassertion of cognitive values of truth-seeking, inspired many founding thinkers of Ordo-liberalism, notably Müller-Armack (1944: 181), Rougier (1949/1938: 3), Rueff (1977), and Röpke (1942: 16, 1958: 191–9). Each sought to counter the ‘revolt of the masses’ by re-asserting the value of an elite that possessed intellectual integrity, embodied dignity, and earned respect (also Einaudi 1942b, 1946, 1948). Röpke contrasted this form of response to the social and cultural crisis with the proposals of John Maynard Keynes, which he pictured as the attempt to appease and conciliate the ‘revolt of the masses’. The task of what Röpke (1958b: 191–9) termed the nobilitas naturalis was to protect ‘old truths’, to stand up for uncomfortable facts, and to act as the conscience of the common good.
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158 Conservative Liberalism, Ordo-Liberalism, and the State This nostalgic element—of restoring lost virtues and cognitive values—played a powerful role in the origins of the renovated conservative liberalism and Ordoliberalism. It recurred in the writings of Einaudi, Ralph Hawtrey, Knight, Röpke, Rougier, Rueff, Rüstow, and Veit. Amongst founding thinkers of Ordo-liberalism there was a strong sense of a pervasive foolishness in modern elite as well as public thinking, attributable not so much to the lack of intelligence as to the failure of intelligence to counter widespread ignorance. Inspired by Ortega y Gasset, Veit (1935: 164) worried about a world that valued the expert as opposed to the ‘cultivated person’; that looked to expertise instead of ‘cultural quality’.
External Conditions and the Changing Fortunes of Aristocratic Liberalism, Conservative Liberalism, and Ordo-Liberalism The important historical contribution of aristocratic liberalism to the founding thinkers of conservative liberalism and Ordo-liberalism was not the provision of a ready-made set of economic ideas. It was in lending to them a sense of cultural authority within elite discourse and in the way in which they communicated their arguments to the wider public. Aristocratic liberalism fleshed out their roles as critical philosopher-economists and lawyers. It helped to distance them from adopting a narrower utilitarian role on behalf of those in power. Aristocratic liberalism was a part of their self-understanding as intellectuals possessing cultural authority. It lent to them an ascetic character, a quality of detachment and inwardness, that bolstered their claim to disinterestedness. The character of conservative-liberal ethical critique was captured by Hawtrey (c.1946–c.1973a: 312–13): ‘In the twentieth century children have been brought up by parents with a dwindling confidence in their own value judgements . . . [and who] may lack the resources to experiment in the good life’. The consequence was ‘a disillusioned and unruly generation’. Disillusionment had spread even to the science that had challenged the supremacy of ethics. Hawtrey retained hope: ‘However weak and inadequate its influence may be, its reality [the sense of good and evil] is beyond dispute’. The fortunes of traditions are bound up with external conditions. In the second half of the twentieth century, changing external conditions proved unfavourable to the reception of aristocratic liberalism and—by extension—to the continuing appeal of the founding thinkers of conservative liberalism and Ordo-liberalism. The props that had underpinned aristocratic liberalism were shaken. The relative decline of Europe vis-à-vis the United States undermined much of its earlier intellectual and cultural power. Increasing American cultural and economic influence during the twentieth century helped to usher in a more pronounced strain of radical individualism and of celebrating consumerism and popular celebrity culture.
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Patron Saints ( 1 ) 159 Rising economic aspirations, the promise of social mobility, and the opportun ities offered by democratization and fast-broadening access to higher education led to the principle of egalitarianism taking firmer root in society. The consequence was a political and intellectual challenging of distributive outcomes that were judged to be unfair, especially in times of economic recession. Public disenchantment was linked to a sense that educated elites exaggerated their capacity to act in a globalizing and increasingly complex world and were self-serving in carving out privileges for themselves. It expressed itself in the projection of resentment, anger, outrage, and other negative feelings towards these elites and in evidence of increasing distrust of their motives and competence (Flinders 2013). In addition, the model of the traditional stem-family lost much of its relevance. Permissive attitudes to moral issues like abortion, divorce, and sexuality, and their reflection in legislation, challenged traditional assumptions about family structure. Changing gender roles in the home and the workplace, and a new emphasis on work/life balance, went along with a questioning of traditional conservative patriarchal assumptions, the male breadwinner model of economic activity, and the value of an independent leisured class of intellectuals who were freed from caring responsibilities (Fraser 2009, 2013; see also Chapter 2: 73–6). Academia and cultural practices changed in ways that were unfavourable to aristocratic liberalism and the influence of the founding thinkers in Ordoliberalism. The rapid expansion of mass higher education was associated with a shift to the Left within the cultural elite, discernible by the 1960s and favourable to social liberalism and social democracy (Piketty 2018). This shift had been identified and criticized by Hayek (1996/1978), by Rougier (1970), and even earl ier in the 1950s by Röpke (Plickert 2008: 325–7). Mass higher education also changed the balance within the professoriate towards applied research and the dissemination of practical skills. In consequence, utilitarianism gained a stronger academic foothold, and the intellectual aristocracy declined in significance (Annan 1999). Narrow academic specialization gathered pace, not just in subject terms but also within subjects like economics, history, sociology, and political science. Commercialism spread into the cultural sphere, notably in twenty-four-hour, ratings-driven, and more intrusive media. Its portrayal of politics encouraged celebrity politics, entertainment values, and pervasive cynicism. The assumption that audiences had very limited attention spans encouraged a culture of sound bites. The digital revolution led to further radical alterations in social relations and cultural practices. It affected how debates were conducted, notably through the proliferation of social media and the opportunities it offered for ‘fake’ news to spread at epidemic speed and for the development of unchallenged ‘silo’ thinking. The traditional filtering role of professionally experienced editors in trying to ensure objectivity and impartiality in the news process was marginalized. In
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160 Conservative Liberalism, Ordo-Liberalism, and the State consequence, the voices of liberal intellectuals were drowned out in the heightened competition for audience attention. The overall effect of these changing conditions was a relative decline in status for the notion of an intellectual aristocracy as a source of cultural authority and, correspondingly, a decline in elite self-confidence. The notion appeared increasingly anachronistic as the twentieth century progressed and with the new millennium (Annan 1999; Collini 2006). What was once valued as ascetic, disinterested, and the result of patient ‘inward’ reflection was vulnerable to accusations of coldness, pedantry, and indifference to the plight of the less advantaged in society. In this way, thinkers like Goethe, Russell, and Santayana could be dismissed as irrelevant. What was once judged to be disinterested began to be dismissed as self-serving, hypocritical, other-worldly, and protectionist of unearned privilege. George Orwell (1946) and later commentators attacked the snobbish disdain for the decency and common sense of ‘the common man’, and the way in which certain intellectuals patronized their fellow citizens in an arrogant and condescending manner (Annan 1999: 290). The notion that education was there to cultivate the intellect ceded place to accusations of snobbery and to more practical and utilitarian considerations (ibid.: 16–17). This set of changes to external conditions fed through into the evolution of conservative liberalism and Ordo-liberalism. Their historical association with aristocratic liberalism made them vulnerable to various charges. They were accused of not keeping pace with changes in specialist areas of economics, like public-choice theory and mathematical modelling; of having a deficient and patronizing understanding of democracy; and, not least, of having an ideological position that was indifferent to social and economic inequality and to the question of individual capability to make use of rights so that human flourishing was possible (e.g. Bonefeld 2012, 2015; Haselbach 1991; Kirchgässner 1988; Plant 2012; Ptak 2004). Against this background, later generations of conservative liberals and Ordoliberals sought to shift their sources of inspiration and justification away from arguments grounded in aristocratic liberalism. They looked towards AngloAmerican forms of democratic theory (notably constitutional democracy) and, in economics, towards public-choice theory, notably James Buchanan (e.g. Vanberg 1988, 2011). The disconnection between social sciences and humanities became an increasing characteristic of thinking about political economy. For these reasons, from the 1980s, conservative liberalism and Ordo-liberalism evolved away from their early deep roots in aristocratic liberalism. They did not, however, lose their fundamentally conservative-liberal character. Nor did they escape the long shadow of aristocratic liberalism, which coloured accusations that they harboured reactionary, or at least ‘out-of-touch’, viewpoints. This charge could find supportive evidence. Russell’s support for eugenics reflected a strong ‘scientific’ movement in its context but later looked both wrong and dangerous
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Patron Saints ( 1 ) 161 (Ironside 1996: 128–9). Röpke’s (1964) support for apartheid in South Africa as a means of ‘making bearable’ the ‘Negro question’ appears shocking (Solchany 2015). Santayana’s reputation suffered from accusations of anti-Semitism and tolerance for Italian fascism (McCormick 1987). More generally, the founding thinkers of conservative liberalism and Ordo-liberalism were vul ner able to charges of patriarchy, gender blindness, and social aloofness and insensitivity. Some conservative liberals and Ordo-liberals too were wary of, and sought to distance themselves from, reactionary tendencies. Müller-Armack (1959: 326–30) expressed reservations about the historical accuracy of Ortega y Gasset’s portrait of the loss of a superior traditional culture and claim that we lived in a ‘mass culture’. He feared that these views could be misused by unscrupulous politicians. In contrast to his friend Röpke, Rüstow (1950–7 Band 3: 146) criticized Ortega y Gasset as a reactionary. The question of where the boundary between conservative and reactionary features within aristocratic liberalism was to be drawn was open to differences of interpretation by conservative liberals and Ordo-liberals. This ideological aspect of the porous nature of the boundaries of Ordo-liberalism increased its vulner ability to attack from critics on the centre-Left and Marxist Left, as well as from feminists (e.g. Bonefeld 2012, 2015; Haselbach 1991; Ptak 2004; Streeck 2013, 2015).
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6
Patron Saints: (2) Continental European Ethical Philosophy At the centre of conservative-liberal and Ordo-liberal thought is the notion that the economic order is interdependent with the social, the cultural, and the moral orders. This notion shaped their conception of the economist. In paying homage to his friend, Friedrich Hayek (2017: 268) noted that: ‘early, perhaps earlier than most of his contemporaries, [Wilhelm] Röpke felt that an economist who is only an economist cannot also be a good economist’. Hayek and the other founding thinkers of this type of liberalism were opposed to a narrow, technically introverted, and self-aggrandizing conception of economics. They conceived of themselves as public intellectuals and, as the References to this book show, published prolifically. Chapter 5 investigated the connection between aristocratic liberalism and the distinctive conception of the social and cultural order in interwar and post-war conservative-liberal and Ordo-liberal thought. This chapter examines the ways in which their distinctive conception of the moral order bears testimony to the metaphysical and epistemological imprints of continental European ethical phil osophy as it had evolved in the period from the 1880s to the 1930s. The founding thinkers of conservative liberalism and Ordo-liberalism were deeply immersed in ethical philosophy through their broad academic socialization. Their relationship to ethical philosophy remained complex. In one respect, it served as a moral compass. It gave a distinctive direction to their moral cognition, without providing a detailed roadmap to their thinking about political economy. In another respect, founding thinkers of conservative liberalism and Ordoliberalism borrowed actively, selectively, and instrumentally from certain wellestablished canonical philosophical texts. They presented these texts in a form that supported and added intellectual lustre to their arguments and that helped secure their own canonical status within the tradition to which they sought to give birth. As with aristocratic liberalism, these texts served to legitimate conservative-liberal and Ordo-liberal conceptions of political economy by intellectual references that would be respected by, and resonate within, the cultivated bourgeois intelligentsia. They were strategically deployed to bolster the claim that a certain kind of liberal order was an essential precondition for human flourishing.
Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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Patron Saints ( 2 ) 163 This complex relationship is evident in the role that Adam Smith, the Scottish political economist and moral philosopher, played in the thinking of the founding figures of conservative liberalism and Ordo-liberalism. On the one hand, Smith offered an intellectual bridge between Anglo-American thought and Ordoliberalism. He also provided a highly persuasive historical account of how open competitive markets and trade could deliver unprecedented material prosperity and personal liberty. Franz Böhm’s inspiration to move from an official to an academic career in the 1920s was spurred by the advice of Alexander Rüstow that he read Smith’s moral philosophy (Smith 1759; Hansen 2009: 24). His subsequent work on the monopoly problem shows the string imprint of Smith’s notion of a polity and an economy that are embedded in a well-designed institutional framework, based on impartiality and procedural justice (Böhm 1937). On the other hand, founding Ordo-liberals, including Rüstow, displayed a qualified admiration for Smith and often misrepresented him (Horn 2019). They were keen to distinguish themselves from laissez-faire liberalism and prone to brand him with this label. They rejected what they judged to be his faith in individual egoism, in the natural harmony produced by the ‘invisible hand’ of the market, and in a pagan and relativist conception of morality (e.g. Walter Eucken in his letter to Rüstow, in Lenel 1991: 13; Röpke 1942: 51, 1944: 53; Rüstow 1950–7, Band 2: 66, 192, 378–9). Böhm (1937) stood out in his admiration for Smith’s notion of market activity as embedded in a normative social and ethical framework.
Conservative Liberalism, Ordo-Liberalism, and the Morality Critics: Freud, Marx, and Nietzsche The founding thinkers sought to locate their conception of liberalism within a divisive and often polemical continental European philosophical debate about the conditions for human flourishing. They came to intellectual maturity in the period from the 1880s to the 1930s when debate in continental European phil osophy centred around the ethical problems of mind, consciousness, and religious faith in what was identified as a mechanistic, materialistic, and increasingly secular age. This period of an ascendant ethical philosophy could be roughly dated from Rudolf Eucken’s Prolegomena (1885), through Max Scheler’s Formalism in Ethics and Non-Formal Ethics of Values (1973/1913–16) and Nikolai Hartmann’s Ethik (1925), to Henri Bergson’s The Two Sources of Morality and Religion (1977/1932) and Edmund Husserl’s The Crisis of European Sciences and Transcendental Phenomenology (1970/1936). There were Anglo-American outliers, notably in William James’s The Will to Believe (1897) and The Varieties of Religious Experience (1912), G. E. Moore’s Principia Ethica (1963/1903), and the inspiration that had been provided earlier by Henry Sidgwick’s The Methods of Ethics (1874). Their
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164 Conservative Liberalism, Ordo-Liberalism, and the State work occupied a variety of circles, associations, and networks that were devoted to communicating and debating ethical problems. They included the Eucken Circle (Euckenkreis) and later the Eucken Association (Euckenbund) in the period 1900–43, the longer-standing Cambridge Apostles which fell under the spell of Moore, and the networks that spread Bergsonism (Lévy 1981; Mullarkey 1999; Schäfer 2017; Zanfi 2013). The key central reference point in these debates was the legacy of Immanuel Kant’s search for a coherent moral principle that derived from our being as rational, autonomous agents. Kant implanted the insight that the perspective of impartiality was the right place from which to make ethical judgements. It is important not to underestimate the extent to which—in this golden age— European ethical philosophy faced powerful opposition from critics like Sigmund Freud (1856–1939), Karl Marx (1818–83), Friedrich Nietzsche (1844–1900), and their many followers. For different reasons, these critics saw in codified, systematic ethical systems a threat to individual well-being. Freud, whose influence grew from the 1920s, pointed to the way in which entrenched moral codes can cause gratuitous unhappiness, frustration, and neurosis, which he identified as the characteristics of the discontents of civilization. Nietzsche, whose influence spread across a wide range of intellectual circles across Europe from the 1890s, argued that the Kantian notion of a general rule to cover all actions encouraged mediocrity and thwarted the development of individual excellence. His conception of liberalism stressed personal self-creation through experimentation with what fate and nature had bestowed, alongside a scepticism about truth and fact. For Marx, moral codes were part of the ideological superstructure of an exploit ative capitalism that needed to be challenged. They functioned as ideological instruments on behalf of dominant socio-economic interests. Capitalism was inimical to human flourishing. The flourishing of individuals was hostage to institutions and ideas outside their control. Founding Ordo-liberals admired Bergson, Hartmann, and Scheler for renewing ethical philosophy in the face of these powerful ‘morality critics’ (e.g. Veit 1935: 201–21). The publications, notes, and correspondence of the founding thinkers of interwar and post-war conservative liberalism and Ordo-liberalism made very clear their stern opposition to these ‘morality critics’. They deplored the social and cultural effects of their writings. According to Walter Eucken, Nietzsche offered no more than nihilism and a justification for anarchic attitudes (in a letter to Rüstow; see Lenel 1991: 12; also a letter of 14 August 1947 to Bertrand de Jouvenel, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). If Goethe was the model thinker for Otto Veit, Nietzsche was the arch anti-hero. He had unleashed a relativism in ethics that had inspired existentialism and subject ivism in philosophy, expressionism in art, and psychoanalysis, all symptoms of the cultural crisis of the twentieth century (Veit 1946: 120–7, 191, 223–9, 230–7). Hayek (1996/1978: 67–8) claimed that Freud and Marx were the chief culprits in
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Patron Saints ( 2 ) 165 the destruction of values and culture. Marx was singled out by all the founding thinkers as the chief architect of an oppressive collectivism (e.g. Eucken 1921b, 1925, 1926b; Hayek 1944; Rougier 1929, 1935; Veit 1946: 123–7). The selection and use of philosophical texts by the founding thinkers revealed the strength of their attachment to the mainstream ethical philosophy of the period—its challenging of the reach of the natural sciences; its belief in the independence of ethics; and its stress on the value of ethics as a discipline on the exercise of free will. They found in philosophers like Bergson and Rudolf Eucken an opportunity to renew Christianity by going beyond the mechanistic character of the sciences and focusing on the faculty of creation, namely free will (see e.g. Hartmann 1921). Hartmann (1925, volume 2: 36) stressed character: the capacity to orient oneself from within. Its attributes were openness to the world; potential for self-creation; hesitation to change one’s self to satisfy the requirements of others; a broad outlook on life; and the ability to set oneself purposes. Character— the quality of the inner man—was at the heart of conservative liberalism and Ordo-liberalism. Paradoxically, as the renovated conservative liberalism and Ordo-liberalism began to gather momentum from the 1930s, the philosophical centre of gravity— not least in continental Europe—began to shift away from this earlier ambitious ethical philosophy to existentialism and structuralism and—especially in the Anglophone world—to analytical philosophy. In continental Europe there was a new interest in how the individual copes with the concrete, unique moral dilemmas of human existence and with uncovering the underlying characteristics of structure that underpin human behaviour (Worms 2009: 10–13). This shift in philosophical problem-definition was linked to a heightened receptivity to the work of Freud, Nietzsche, and Marx. It was represented in the writings of Michel Foucault, whose critical work on Ordo-liberalism was to be influential (Chapter 12: 424–5). According to Foucault (1983), liberty involved the individual creating her/himself as a work of art. The institutional apparatus of economic discipline, grounded in the epistemic claims of the social sciences, led individuals to be complicit in their own repression. Conservative liberals and Ordo-liberals saw this philosophical shift as a dangerous trend towards an ethical vagueness and moral relativism. At the same time, it left them vulnerable to the charge of being out of touch, entrapped within an outdated philosophical world of dogmatic ethical universalism.
Attributing Intellectual Influence: A Note of Caution The process of tracing philosophical influences on the founding thinkers of interwar and post-war conservative liberalism and Ordo-liberalism is beset with difficulties. These difficulties stem from the way in which the underlying structure of
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166 Conservative Liberalism, Ordo-Liberalism, and the State this new liberalism evolved out of a complex philosophical background. In consequence, its coherence is manifested in close, overlapping family resemblances rather than in a single shared philosophic essence. It brings together many different overlapping tendencies. Any attempt to establish a balance between these tendencies would prove hermeneutically unstable and remain amenable to vary ing and contested interpretations. The difficulties begin with the highly eclectic reading of the founding thinkers of this new liberalism. Their eclecticism is hardly surprising, given the nature of continental university education through which they graduated, their intellectual curiosity, and the individualism which they so highly prized. The intellectual experience of these thinkers about political economy was strikingly interdiscip linary. Müller-Armack studied philosophy, law, economic history, sociology of religion, and political science (Kowitz 1998). Böhm (1950b, 1957b/1960) and his pupil Mestmäcker (1995, 2010) combined law with various other subjects. They took inspiration not just from Kant but also from the Scottish Enlightenment, notably Smith as a legal and moral philosopher. Many founding Ordo-liberals, like Rüstow and Otto Veit, were deeply immersed in cultural and literary studies, not least of the Classical world (Hegner 2000; Meier-Rust 1993). Walter Eucken’s role-models in matters of epistemology and methodology were, in descending order, his father Rudolf and Husserl in philosophy, followed by Max Weber’s his torical sociology, and Johann Friedrich von Thünen in economics (Klump and Wörsdörfer 2011). Eclecticism enriched conservative liberalism and Ordo-liberalism, above all in its cultural, social, ethical, historical, and legal range and sensitivity. It also meant that Ordo-liberal thinkers were not always as coherent or consistent as they aspired to be. Few of them were more eclectic than Hayek (Köhler and Kolev 2011). Hayek began within the Austrian tradition of technical economics, under the influence of Ludwig von Mises. Its features never really left him (Hayek 1992). However, in the period 1935–47, Hayek emancipated himself from Mises in favour of an Ordo-liberal rule-based approach, close to that of Eucken (Hayek 1948/1935). He also displayed an emerging interest in the liberal social philosophies of Lord John Acton, Smith, Edmund Burke, and Alexis de Tocqueville (Hayek 1967c/1944). The stress on embedding economics in an institutional framework of law and of social philosophy never fully disappeared from his work (Hayek 1960, 1973, 1976a). After the 1940s, however, Hayek began to adopt an evolutionary approach, drawing on neurobiology to offer a more dynamic conception of markets as a spontaneous development (Hayek 1952, 1967b). The intellectual challenge for Hayek was to show convincingly that an evolutionary approach was compatible with retaining the rule-based order sought by Ordoliberalism (Hayek 1967b, 2003). Müller-Armack (1959: 406–13, 489–90) made an explicit attempt to order the intellectual influences on his work. He cited Max Weber as inspiring his empirical
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Patron Saints ( 2 ) 167 research on economic development and his interest in cultural and notably religious sociology. In contrast, he argued, Scheler’s work on ethics, and on the philosophical and religious problems of secularization, had given depth to his understanding of values. Drawing both on Scheler and Weber, Müller-Armack (ibid.: 485–6) settled on a philosophical anthropology that saw humankind in both its natural and its spiritual aspects. He also gained from Scheler and Weber a special interest in the religious foundations of economic behaviour (MüllerArmack 1944, 1948a, 1949, 1950/1974, 1959). Despite this search for coherence, Müller-Armack remained vulnerable to the charge that he had sacrificed a strict rule-based ethical approach to economics in the search for an economic order that would meet the requirement of social peace between confessions and classes (e.g. Lange-von Kulessa and Renner 1998; Tietmeyer 1999). Another complicating factor in tracing intellectual influences is that the founding conservative liberals and Ordo-liberals did not always cite their sources very clearly. In some cases—like Hawtrey—they provided only a limited number of citations and references, mostly to Moore. Hayek made strikingly few references, at least in his English-language writings, to Ordo-liberal thinkers like Walter Eucken. There was a tendency to stress originality and distinctiveness in one’s own work over precision in citations. Moreover, individual thinkers very often crossed the boundaries of different traditions in their reading in ways that make their categorization highly problematic and at risk of misrepresentation. This boundary-crossing characteristic was marked in the cases of Hayek and Walter Lippmann. They were migrant figures rather than natives of a single tradition. Their intellectual life-stories contained characteristics of consistency and of unpredictability and fragmentariness. In any case, the philosophers whom they read, and to whom they listened, were themselves intellectually mobile. For instance, both Husserl and Scheler shifted their positions over time. They remained phenomenologists. However, they changed their understandings of phenomenology in different ways. Husserl shifted from a pre-1914 descriptive phenomenology, which was strongly influenced by Franz Brentano, to his later Idealist transcendental phenomenology. Such shifts create problems of unity and coherence in ‘reading’ a philosopher and attributing influence. An additional problem in classifying political economists stems from the question of whether they offer accurate readings of schools of philosophy and of individual philosophers. Misrepresentation is a notorious problem. Smith has suffered in the hands of founding Ordo-liberals (p. 163 above). The question arises of whether Knight can be classified as a Pragmatist. In attacking Pragmatism as hostile to liberalism, his target was John Dewey for justifying social engineering and control and for his experimentalist and relativist conception of liberalism (Dewey 1935). However, Knight’s thinking bore a strong resemblance to that of James, also a Pragmatist (Hands 2006). In his famous paper ‘The Will to Believe’,
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168 Conservative Liberalism, Ordo-Liberalism, and the State James (1897: 27–33, 80–9) defended the right to believe in advance of the evidence, including believing in an objective moral order. Like Knight (1951) in discussing the role of principles in economic policy, James stressed that this right must be qualified by tolerance for the same right in others (Slater 2009). A final complicating factor is that intellectual influences, both philosophical and religious, were indirect and tacit as well as explicit. They operated in the background, in a ‘taken-for-granted’ manner (see Chapter 4: 112–14). Rougier stands out as an exception, a scholar who was a philosopher before an economist. Otherwise, philosophers like Rudolf Eucken, Hartmann, Husserl, Moore, and Scheler had given little in the way of systematic attention to the practical world of political economy with which founding thinkers of interwar conservative liberalism and Ordo-liberalism were preoccupied. Translating their philosophical ideas into economic policy—in contexts where rival claims of ideas and interests operated—raised serious difficulties. These difficulties were exemplified in the Eucken Association and its in-house journal Die Tatwelt in the 1920s over the question of the intellectual and spiritual crisis of capitalism. Rudolf Eucken (1925: 386) sought an answer in social partnership between employers and workers, self-governing occupational groups, and an interventionist state that would bind firms to respect the general interest. From the mid-1920s, as new co-editor of Die Tatwelt, Walter Eucken (1927: 48) began to argue that the answer to this crisis of capitalism did not lie in undermining capitalism, and its subversion by socialism and left- and right-wing utopias of community. It involved putting the individual personality at the centre of political economy (Dathe 2009b: 60–3). For these various reasons, it is enormously difficult to find unambiguous evidence of causality from a given philosopher to specific and often key aspects of the work of an individual conservative-liberal and Ordo-liberal thinker. This difficulty applies in the case of the constitutive and regulative principles that were developed by Walter Eucken (1949, 1952). They cannot be said to derive directly from either his father or from Husserl. Similarly, Hawtrey’s elaboration of the ‘Treasury View’ on monetary and fiscal policies in the 1920s bears little in the way of a direct relationship to G. E. Moore’s ethical principles in which he continued to staunchly believe. Equally, Rueff ’s elaborate ideas on fiscal rules and institutions cannot be traced to a single philosopher like Bergson. Attributions of influence are made difficult by the creative and original contribution that was made to the tradition by its own founding thinkers. They were far too individual to adopt and repeat the views of a single philosopher. They were also aware that economics had its own distinctive character as a domain of objective knowledge that philo sophers did not always fully understand. More modestly, assessments of intellectual influence can take the form of examining the degree of correspondence between conservative-liberal and Ordoliberal thinkers and philosophical sources. In this way, one gains a sense of the intellectual climate out of which their form of ‘new’ liberalism emerged. This kind
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Patron Saints ( 2 ) 169 of approach does not make specific cause–effect claims. It looks for intellectual imprints on conservative liberalism and Ordo-liberalism and avoids embracing the illusion that perfect correspondence is possible. The characteristics of eclecticism, changes in practices of citations, and indirect and tacit influence become more pronounced as a tradition evolves over time across successive generations of scholars. There is a progressive loss of active engagement with the original philosophical foundations. This feature was apparent in the Austrian tradition as one generation succeeded another (Hayek 2017: 143–69, 177–82). It became more difficult to find explicit and unambiguous traces of Brentano’s ideas in the later works of Mises, Gottfried von Haberler, Fritz Machlup, and Hayek (Smith 1990, 1996). Specific intellectual legacies become less easy to trace with time. Conservative liberalism and Ordo-liberalism underwent the same process. In France, the conventionalist view of science that influenced Rueff ’s work on morality and political economy was overshadowed in academia by philosophical approaches to science that were more critical and ontological in attitude. Gaston Bachelard (1884–1962), Maurice Merleau-Ponty (1908–61), and Michel Foucault (1926–84) were enormously influential in staking the claim for philosophy as a domain of truth distinctive from, and even superior to, science (for details, see Gutting 2007: 184–92, 200–6). For the same reason, Rougier’s application of logical empiricism to questions of morality and political economy also proved very unfashionable in mainstream French philosophy. Despite their own epis temological and methodological differences, and their academic unfashionableness, Rougier and Rueff retained a view of economics as a science that emphasized the creative role of human agency in political economy (e.g. Rougier 1960, 1967, 1969; Rueff 1955, 1968). In Germany, the successors of Böhm and Mestmäcker in legal scholarship were less engaged with the deeper philosophical issues than with the technicalities of detailed policy questions. Similarly, the attempt to rejuvenate the Freiburg School in the 1980s and 90s came primarily from importing the ideas of the US economist James Buchanan on ‘constitutional economics’ (Buchanan 1991; Vanberg 1988, 2011). It meant engaging with the methodological individualism of rational choice and with the commitment to demystification of the state in terms that owed nothing to Rudolf Eucken and Husserl, let alone Scheler (Buchanan and Tullock 1962).
Ethical Debate in France and Germany from the 1880s to the 1930s The ethical philosophy to which the founding German Ordo-liberals were most exposed and attracted was that of Rudolf Eucken (1912, 1922), Hartmann (1925), and Scheler (1973). These philosophers emphasized the intellectual and social
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170 Conservative Liberalism, Ordo-Liberalism, and the State harm that had been done by naturalism, utilitarianism, subjectivism, and relativism in ethical thought (e.g. Hartmann 1925: xxiii; also Fellmann 2009: 31). They attacked what they judged to be a prevailing ‘sceptical negativism’ and advocated a Pragmatic Idealism or what Rudolf Eucken (1921a: 74) termed a ‘spiritual positivism’. For Hartmann, ethics had a being in themselves. They were objective and independent. They could be discovered, but not invented. Ethics was a realm with its own laws and order (Harich 2000). In his middle period, 1911–21, Scheler sought to provide a philosophical foundation for Christian, especially Catholic, theology through a theory of an ‘individually and objectively valid good’. All should commune through common obedience to the values of liberty, person, dignity, truth, justice, concord, and solidarity. Man did not just possess moral rights. He/she had moral duties to refrain from certain kinds of conduct that might inflict harm on others. Walter Eucken’s critique of socialism centred on its lack of the idea of duty or its recognition of duty in only an attenuated form (Eucken 1925: 31–2). He was very familiar with Scheler’s thinking. Perhaps the boldest public statement of the ethical principles that would guide key founding thinkers of German Ordo-liberalism was provided by Walter Eucken’s father, the philosopher Rudolf Eucken. In an article in Der Euckenbund, Rudolf Eucken identified ten principles: moral purity, courage, truthfulness, just ice, personal dignity, patriotism (Vaterlandsliebe), a sense of the state (Staatsgesinnung), love of humanity, loyalty to one’s convictions, and reverence (Eucken 1921b). Whilst a neglected thinker in post-1945 Europe, Rudolf Eucken had been the best-known philosopher of Imperial Germany and the recipient of the Nobel Prize for Literature in 1908, and possessed an extensive international network of admirers, including Bergson. Like Bergson, he was a prominent public intellectual who sought to communicate a ‘life-philosophy’. The influence of Hartmann and Scheler, alongside that of Rudolf Eucken and Husserl, was evident in the pages of Die Tatwelt. The journal’s central preoccupation was the crisis of values in capitalism: the paradox that, whilst it provided material goods in abundance, it robbed man of inner life and was responsible for an intellectual emptiness in the modern age (e.g. Walter Eucken 1926a; also Renker 2009). Alfred Müller-Armack (1959: 156, 177–84, 406–13, 481–90) and Veit (1946: 152–4, 257–60, 1981: 103) recognized their indebtedness not just to Rudolf Eucken but also to Hartmann and Scheler for deepening their understanding of values (also Kowitz 1998: 20–2, 135–41; Solf 1988: 55–62). Scheler’s influence extended into the Catholic Church, whose future popes John Paul II and Benedict XVI were his intellectual disciples. The work of the French philosopher Bergson exhibited affinities as well as contrasts with this ethical current in German philosophy. It played a part in shaping the thinking of the French economist Jacques Rueff (1922: 4) about the possibility of integrating the natural and moral sciences on equal terms. Isaak Benrubi (1927:
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Patron Saints ( 2 ) 171 27) emphasized the mutual admiration and close correspondence of thought between Rudolf Eucken, of whom he had been a student in Jena, and Bergson (Zanfi 2013: chapter 1 for details on Benrubi’s role from 1907 onwards in diffusing French philosophy in Germany). Bergson and Eucken were the towering international giants of pre-1914 French and German philosophy. They opposed mechanistic philosophies of empiricism, determinism, and naturalism and sought to carve out a space for metaphysics independent of natural science. As Bergson (1957/1912: 371–2) pointed out in his admiring foreword to the French translation of one of Rudolf Eucken’s books, they found common ground in stressing the need for an activist, psychologically grounded ‘philosophy of life’ that recognized the ‘inner self ’ and the creative role of ‘inner energy and vitality’. Benrubi (1927) noted the affinities between Eucken’s ‘positivist spiritualism’ and Bergson’s ‘spiritual energy’ (Eucken 1912; Bergson 2007/1907). However, there were contrasts. Beyond Jena, Bergson found German admirers who interpreted him differently from Eucken’s pupils. In addition, the sense of active patriotic mission that inspired Bergson and Eucken in the First World War produced a break in their relationship (Zanfi 2013). More relevantly, Bergson (1977/1932) proved less amenable than Eucken to giving substantive intellectual content to his ethics and focused more on process. He was slow to stake out a clear position on absolute values. This reluctance led Julien Benda (1927/1946) to single out Bergson as guilty of intellectual treachery (Worms 2009: 194–5). Bergson was critical of Kant’s conception of ethical duty as too static and absolutist. He denied the possibility of a relevant systematic ethical philosophy in a world in flux (Mullarkey 1999: 5, 115). Ethics must respond to the empirical characteristics of the world. The impersonal rules of a moral social order, with their emphasis on duty, were inimical to creative action. At the same time, Bergson was keen to avoid relativism. He posited a contrast between the two extremes of moral openness and moral closure and saw societies as pulled in two opposite directions, inwards and outwards (Bergson 1977/1932: 51, 84, 96, 213). Above all, he was opposed to the closed society, to dogmatic religion, and to the pressures of the ‘group-mind’. Bergson (ibid.: 69–79, 300–5) was critical of the exclusionary nature of much liberal morality. ‘The idea that greater wealth within a liberal economy facilitates greater liberalism in ethics is simply wrong’ (Bergson, quoted in Mullarkey 1999: 97). Bergson laid stress on a form of liberalism that overcame egoism and avoided self-absorption through ‘good sense’ and open sociability. ‘Good sense’ involved recognizing the value of otherness and practising civility, fraternity, and charity (Bergson 1977/1932: 234, 309). Bergson’s philosophy of action appealed to the young Charles de Gaulle, who in the 1960s claimed that Bergson had influenced him throughout his life (Jackson 2018: 23). Bergson envisaged an open and dynamic moral order in which both intellect and intuition were essential in great men. Reliance could not be placed on abstract ethical systems alone as reliable guides in a life
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172 Conservative Liberalism, Ordo-Liberalism, and the State characterized by creative evolution. According to de Gaulle, the capability for action—which relies on intuition and impulse—must not ‘be paralyzed by the brake of the brain’ (ibid.: 23). Bergson (1977/1932: 34, 49, 68, 80, 84, 278) highlighted the historical role of the inspirational leader and the contagious appeal of inventive, heroic ‘moral creators’ at all levels of society. Their task was to counter the ‘herd-mentality’ of the majority. They were the ‘mystic souls’, who opened new paths to virtue (ibid.: 178–9). This conception of creative evolution, and of the role of moral grandeur, was to find a later echo in Rueff ’s (1968) notion of a Promethean economic and social order (Minart 2016). Bergson was a shared intellectual point of reference for de Gaulle and Rueff in their conception of leadership as more than ‘mechanically organized intelligence’ (Jackson 2018: 83). The notion of a practical ethics grounded in a philosophy of life, and of the interdependence of religious faith and morality, formed the essential common ground of Bergson, Rudolf Eucken, Scheler, and the American philosopher William James. Bergson and James were even closer than Bergson and Eucken, notably in their critique of ‘intellectualism’ and of the way in which concepts can distort rather than reveal reality (Worms 2009: 41, 131–48). Above all, Bergson (1957: 192–3, 583–60) admired James’s The Varieties of Religious Experience (1912). James stressed the close interdependence of morality with a practical religious faith based on human experience and tolerant of pluralism. Both were essential to human flourishing in a liberal society. They provided the basis for a ‘morally strenuous attitude’ and a sense of the ‘wider self ’ or ‘unseen order’ (James 1912: 294–300, 400–8). Man had a ‘right to believe’ in a higher good in the absence of confirmatory evidence (James 1897: 25–33, 80–9). This kind of ethical thinking—with its rejection of egoism—was later reflected in the conservative liberalism of the US economist Frank Knight (1929, 1935a).
Adam Smith, Ethics, and the ‘Visible Hand’ of the Law As in the case of aristocratic liberalism, Anglo-American philosophical and theological thought was by no means cut off from continental Europe. Nevertheless, the analytical and utilitarian philosophical traditions have been far more evident in anchoring and shaping Anglo-American thinking about political economy. The imprint of these traditions is to be found in the way in which the history of neo-classical economic thought came to be written and the canonical texts of Classical liberalism presented (Heilbronner 2000; Sen 2011). Benthamite utilitarian thought influenced the way in which the founding fathers of Anglo-American political economy, David Hume (1711–76) and Adam Smith (1723–90), were read and interpreted. They were identified as patron saints of neo-classical economics, as apologists for individual self-interest, which was understood to provide the essential foundation of a prosperous market economy.
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Patron Saints ( 2 ) 173 In contrast, Böhm, Ernst-Joachim Mestmäcker, and Veit read Hume and Smith from a different Kantian vantage-point (e.g. Veit 1946: 71–5). As philosophically minded lawyers, Böhm (1933) and Mestmäcker (1973, 1995, 2007a, 2010: 7–12) emphasized two roots to their thinking: Smith’s concerns with the ethical and juridical basis of political economy; and the importance that the German legal scholar Friedrich Carl von Savigny (1779–1861) placed on jurisprudence as the science of freedom (also Engel 2008 and Nörr 1993: 119, 1994: 28). They used Smith to critique the prevailing utilitarianism in Anglo-American neo-classical economics with its emphasis on homo economicus and on well-functioning markets as yielding an equilibrium that is Pareto optimal (i.e. no further changes can make one person better off without making another worse off). For Böhm, Smith was not an advocate of laissez-faire economics and market fundamentalism. He was a philosopher who dealt with foundational problems of social solidarity, inequality, and culture; who stressed the importance of the exchange of regard and esteem; and who understood markets as about mutual advantage. Böhm claimed that Smith’s contribution to legal theory was a key source of his own Ordo-liberal insights (Zieschang 2003: 19–22). From Smith, he learnt the need for an ‘economic constitution’ as the underpinning of a competitive market order. The ‘visible’ hand of the law had priority over the ‘invisible hand’ of the market. Böhm was also inspired by Smith’s conception of the impartial moral spectator, the disinterested critical conscience, as the foundation of law. Smith was identified as the source for Böhm’s notion of ‘the civil-law society’ (Privatrechtsgesellschaft), which he saw as the indispensable requirement of Ordoliberalism (Böhm 1966). Civil law had a vital role in enforcing ‘fair play’ in competition and in guaranteeing economic and political freedoms. In Böhm’s reading, Smith showed that a prosperous market economy required more than just selfinterested, egoistic behaviour. It depended on empathy and cooperation and on the individual’s capacity to form a sympathetic notion of the objective merits of a case (Heilbronner 2000: 47). For him, Smith was first and foremost the author of The Theory of Moral Sentiments (1759), not just of The Wealth of Nations (1776). His economics was grounded in his moral philosophy and centred on the notion that the state must underwrite the legitimacy of the market by securing effective competition (also Rüstow 1945: 15, 106; Veit 1946: 74, 1953: 18–19).
Family Resemblance: Unity in Opposition The philosophic unity of the Ordo-liberal tradition derives in substantial part from what, and whom, its leading founding thinkers opposed. George Wilhelm Friedrich Hegel (1770–1831), Karl Marx, and Jean-Jacques Rousseau (1712–78) figured prominently in their critiques. Hayek (1948/1946: 4–10), for instance, rejected Rousseau, and the tradition of Cartesian rationalism that he represented,
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174 Conservative Liberalism, Ordo-Liberalism, and the State as the harbinger of contemporary collectivism and a false individualism. The founding thinkers had various other foes. They rejected Thomas Hobbes’s (1588–1679) materialism, his doctrine of the absolute power of the sovereign, and his essentially egoistic conception of ethics. Founding Ordo-liberals associated Hobbes with the public-law organic conception of the strong state, as in Carl Schmitt. They condemned this conception as eroding individual freedom in the false belief that the state could solve all problems (Eucken 1932b; Mestmäcker 1978: 9–10). Böhm (1966: 152) argued that law must be based on ‘the factual and fact-creating power of the normative’ and not succumb to the ‘normative power of the factual’. Ordo-liberals also saw Anglo-American utilitarianism, and its celebration of pleasure and the satisfaction of desire, as an inadequate basis for moral philoso phy. The influence of Jeremy Bentham (1748–1832) and John Stuart Mill (1806–73) on political economy was viewed as retrograde. In contrast, the appeal of Smith (1723–90) derived from his combination of insights from economics, law, and moral philosophy (Böhm 1957b/1960: 173; Mestmäcker 2010: 7–8, 10–11; Engel 2008). Another foe was American Pragmatism, above all as represented by Dewey, with his celebration of social engineering and control. Founding Ordo-liberals saw in Pragmatism the invitation to a policy of experimentation in economic policies, driven by expediency. Within the Germanic tradition, founding Ordo-liberal thinkers distanced themselves from Hegel’s brand of Idealism. They were uncomfortable with his essentially organic conception of the development of social, cultural, and political forms, including the state. In their view, this conception gave too little attention to the claims of individual conscience. It also allocated too subordinate a role to the market economy in securing freedom, a failing that recurred in the political economy of Carl Schmitt (Mestmäcker 1978: 11, 1995: 12–13, 17–18). For founding Ordo-liberals, Hegel’s notion of the dialectic as a historical force of progress, represented by the ‘collective mind’ (Geist), offered an excessively optimistic and trusting account of the state. Finally, founding Ordo-liberal thinkers were united in their condemnation of Nietzsche and of Marxian historical materialism. Walter Eucken condemned the negative influence of Nietzsche’s nihilism and rejection of the ascetic philosoph ical ideal as ‘life-devaluing’ (letter to Bertrand de Jouvenal, 14 August 1947, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken; Lenel 1991: 12). In addition, founding Ordo-liberals rejected the Marxist idea of history as driven by changes in the structure of the means of production, distribution, and exchange. Walter Eucken (1927: 47) argued that Marxists ignored the radical challenge of enriching the inner world of man and his relationship to his work. He believed that Marxists underestimated man’s potential to construct a more humane and prosperous society, one that combined individual freedom with social solidarity (Eucken 1925, 1926a, 1926b, 1927). In contrast, Kant and
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Patron Saints ( 2 ) 175 neo-Kantianism provided the most common intellectual references amongst founding Ordo-liberal thinkers (Nörr 1993).
Family Resemblance: The Shadow of Immanuel Kant Immanuel Kant cast a long shadow over continental European philosophical traditions and, not least, over the founding Ordo-liberals and more widely over conservative liberalism. The notions of a priori reasoning and of a moral imperative struck a deep chord. They distanced the self-image of conservative liberalism and Ordo-liberalism from the naturalism and empiricism that its founding thinkers saw as dominating Anglo-American philosophy and political economy. Naturalism and empiricism had helped to justify the belief in the methods of the natural sciences and the reliance on mathematical modelling as the basis for clarity and rigour in economics and other social sciences. For Kantians, ethics was neither to be ignored nor to be reduced to politics. It was understood as forming an independent body of knowledge whose insights into such matters as rights, duty, and discipline could not be ignored in political economy. The founding Ordo-liberals sought to align themselves with what they saw as the Classical as opposed to the Romantic Movement in philosophy and with Classical as opposed to neo-classical economics. Walter Eucken situated himself in the philosophical tradition represented by Johann Wolfgang von Goethe, Wilhelm von Humboldt, Kant, and Friedrich Schiller and by later ‘dissenting liberals’. He contrasted this Classical Movement with the violence to which, he argued, Romanticism had contributed (see his letter of 12 March 1946 to Hayek, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken; also Goldschmidt and Hesse 2012: 19). Eucken’s manuscript ‘notes on classical and modern economics’ of March 1948 show that he identified more closely with the Classical economics of Smith and David Ricardo than with the Austrian economics of Carl Menger, the ‘Modern’ economics of Arthur Marshall and Vilfredo Pareto, or John Maynard Keynes. Classical economics had sought an ‘order of the economy’. According to Eucken, the challenge was to clarify this order through the application of the morpho logical method. Eucken’s morphological approach had various antecedents within German intellectual history. Eucken cited his father’s noological method; his reading of Goethe’s morphological studies; the historical sociology of Max Weber; and the nineteenth-century German economist von Thünen (1783–1850). Rudolf Eucken’s noological method involved a process of drawing ideal-type structures out of social facts to offer what he called a new ‘world view’ of the ‘invariant general forms’ of cultural life (Rudolf Eucken 1923: 94–8; also Fellmann 2009: 34; Graf 1997). At an interdisciplinary level, Eucken was inspired by Goethe’s reflections on ‘real’ types as opposed to ‘abstract’ types (see note on morphological
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176 Conservative Liberalism, Ordo-Liberalism, and the State studies, 34pp, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). The lesson he drew from Goethe was that the process of constructing these types was a posteriori, not a priori. Eucken’s starting-point was the concrete world of everyday economic life and facts (Eucken 1950: 21, 226). However, for Walter Eucken (1940: 269), the ‘master’ pioneer in economics was Thünen (1930/1842: 264–74). His method of ‘isolating abstraction’ involved discovering the essential and significant features of economic phenomena, and the interconnectedness of these features, from their surrounding circumstances and any coincidental characteristics (see the note on morphological studies in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Family resemblance within the Ordo-liberal tradition owes a great deal to the way in which its founding thinkers drew inspiration from complementarities within the continental European philosophy of their time. Their inspiration derived in varying individual ways from Idealist, particularly neo-Kantian, phil osophy, with Rudolf Eucken as a key figure; from phenomenology, notably as represented by Husserl and Scheler; from Hartmann’s version of critical Realism; from the discussions about virtue in Classical philosophy; and from critical debates about philosophy of science, principally in France and revolving around the challenge to traditional positivism from the conventionalism of the scientist Henri Poincaré (1854–1912) and from Bergson’s élan vital. Founding conservative liberals and Ordo-liberals tended to subscribe—in varying individual ways, depending on their social, educational, religious, and national backgrounds—to one or more of these philosophical traditions. Idealist and phenomenological philosophies were strongly continental European and metaphysical in character. They gave primacy to examining consciousness, intu ition, and meaning over the methods of the natural sciences and what they judged to be naïve empiricism. In short, they saw the task of philosophy—and by extension of political economy—as the examination of how reality is made intelligible and order apprehended. In contrast, during the period from the 1880s to the 1930s, French debates about philosophy of science were more critical of Kantian emphasis on a priori reasoning and less inclined to abandon scientific Realism. Rueff (1922) embraced the view—taken from Poincaré—that science was based on conventional stipulations. He argued that this methodology could be applied to the moral and political sciences as well as to economics. The special role of economics derived from its bridging-role between the physical sciences and the moral and political sciences (Rueff 1922: 22, 39, 1977: 32). Science rested on the creation of causes, which were established thanks to the prior adoption of conventions, whose truth was established inductively (Rueff 1922: 84). This conception of science was later extended to Rueff ’s (1945) constructivist approach to the creation of the liberal social order (Daou 2018: 17, 26). Rueff ’s thinking drew heavily on his training as an engineereconomist at the elite École Polytechnique, notably on Clément Colson (Rueff 1939).
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Patron Saints ( 2 ) 177 However, he was also impressed by Bergson’s activist philosophy of life with its emphasis on the limits of pure reason and on the role of creative evolution, intuition, and the heroic man of moral grandeur (Minart 2016: 33–8). As a statesmaneconomist and high official, he was aware that scientific knowledge, with its world of abstraction, was incomplete; it lacked ‘contact with life’. In contrast, Louis Rougier rejected Bergson’s ontological conception of phil osophy. He argued that scientific method was a habit of mind that helped to reduce fanaticism, to promote sympathy and mutual understanding, and to make possible a liberal social order (Rougier 1949/1938). Applied to political economy, it served to distinguish economic mystiques (ideals) like Marxism, dirigisme, and laissez-faire liberalism from a ‘constructive’ theory of liberalism that was consistent with an efficient economy and compatible with human dignity (ibid.: 7, 70–88). Like other logical positivists and empiricists, Rougier was an anti-Realist about values. However, he saw in science the means for examining the relation between preferences and the idealistic claims made for different means of satisfying them. Rougier sought to use science to demystify French debate about the desirable form of political economy. Prominent conservative liberals and Ordo-liberals had been exposed as students to the magnetic personalities, and the complex and challenging metaphysics, of thinkers who represented one or other of these philosophical traditions. During the 1920s Müller-Armack was strongly influenced by the phenomenology and ethical personalism of Scheler in Cologne (Kowitz 1998). The thinking of Walter Eucken was inseparably and intimately connected to the Idealism, Lutheraninspired spiritualism, and ethical activism of his father, Rudolf (Goldschmidt 2002; Dathe 2009a; more generally, Dathe, Gander, and Goldschmidt 2009). Böhm, Rüstow (1958), and Veit were also deeply committed to Rudolf Eucken’s ethical activism (Dathe and Goldschmidt 2003; Roser 1998; Solf 1988). Walter Eucken’s debt to his father seemed less visible in his work from 1932 onwards, although he cited him, alongside Max Weber, in discussing the method of reduction through isolating abstraction (Eucken 1934: 19–20, 50; also Renker 2009: 41). Nevertheless, at the end of his life, he used his introduction to the republication of one of his father’s leading texts to reiterate his enduring commitment to the normative power of his father’s work (Eucken 1950). Here he emphasized Rudolf Eucken’s insight into the spiritual problem that stemmed from the standardization and haste of modern life: the reduction of people to ‘machine-parts’ in a ‘fast-moving machine’. The competitive market could help reduce this problem but was not the solution. Walter Eucken was also deeply familiar with the increasingly transcendental phenomenology of their close family friend Husserl (Fellmann 2009; Goldschmidt 2009; Klump and Wörsdörfer 2011; Renker 2009). The relationship with Husserl stretched back to his earlier family life in Jena and was reinforced with Husserl’s move to Freiburg in 1927 and with Husserl’s later persecution by the Nazis.
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178 Conservative Liberalism, Ordo-Liberalism, and the State Husserl (1927) stressed the close affinities between his phenomenology and the thought of Rudolf Eucken. In the Nazi period Walter Eucken referenced Husserl’s text of 1936 on the crisis of European science and on relativism in what was to prove a controversial article (Eucken 1938a; Husserl 1970/1936). Similarly, the British economist and Treasury official Ralph Hawtrey remained devoted to G. E. Moore’s conception of universal intrinsic values, which had played a formative and integrative role in the pre-1914 discussions amongst the small, secret society of the Cambridge ‘Apostles’ (Hawtrey c.1946–c.1973a: 100–3, c.1946–c.1973b: 1–4, 66–9; also Hirai 2012; Macciò 2015). Rougier and Rueff were deeply immersed in revisionist debates within French philosophy of science which stressed indeterminacy as a shared feature of the natural and social worlds (Allais 1990; Berndt and Marion 2006; Bourricaud and Salin 2003; Lecog 1989; Minart 2016). These debates were also influenced by the insights of practising, world-ranking French natural scientists (see Rueff 1955, 1968). The differences amongst founding conservative liberals and Ordo-liberals reflected contrasting philosophical imprints and contrasting readings and receptions that were shaped by varying social, political, and critical contexts. At the same time, there were intellectual affinities. In the view of conservative liberals and Ordo-liberals, the intellectual challenge was to ensure that subjectivism, historicism, relativism, old-fashioned positivism, and the ‘naturalistic fallacy’ in thinking about goodness did not capture economics and the other social sciences. The challenge was one of connecting economics to ethical renewal and liberating it from what Husserl called ‘an unintelligible, idea-less jumble of facts. The superstition of the fact’ (Carman 2007: 11).
The ‘Great Antimony’ and Ordo-Liberal Identity-Building: The Crisis in Economics and Philosophy This philosophical background helps in understanding the way in which founding Ordo-liberals came to perceive the crisis in economics. The identity of Ordoliberalism as an economic tradition was shaped in part by reference to the way in which Ordo-liberals responded to the pre-existing Austrian and Historical trad itions of economic thought and the philosophical contexts out of which the latter were born. The Austrian and Historical traditions had been locked in a longstanding dispute that went back to the late nineteenth century. The identity of the Ordo-liberal tradition was forged in the attempt to overcome this ‘great antimony’. It involved a complex process of both selective borrowing from, and critical distancing from, the Austrian and Historical traditions. At the same time, despite their different intellectual foundations, the three traditions were united in rejecting Marxian belief in laws of historical development.
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Patron Saints ( 2 ) 179
Historicism Ordo-liberals attributed much of the blame for the crisis in economics to the dominance of the Historical tradition (e.g. Eucken 1938a). Historicism had been one of the most important intellectual traditions of the nineteenth century. In philosophy, it was represented by Wilhelm Dilthey and, in law, by Savigny. The key figures in economics were Gustav von Schmoller, Werner Sombart, Othmar Spann, Arthur Spiethoff, and Adolf Wagner. Historicism’s central claim was that history has its own rigorous goals, methods, and standards of knowledge, separate from those of the natural sciences. More specifically, historicism rejected metaphysical explanation in favour of stressing the context-specific dependency of values and institutions on idiosyncrasies of time, space, and culture. This position led them either to be sceptical about, or to reject, the claims of natural law to universal validity. Rudolf Eucken (1911/1890) and Husserl (1970/1936) strongly opposed Historicism’s assault on metaphysics. For Kantians, historicism neglected ethical questions and was too addicted to relativism. In consequence, it failed to offer economics a critical perspective and clear guidance on appropriate institutions and policies for promoting prosperous and humane societies (Walter Eucken 1938a). Historicism was accused of breeding a fatalism amongst economists and lawyers, an acceptance of economic facts as unchangeable, and a friendliness to powerful economic interests. Economists and lawyers became ‘satellites’ of the powerful (ibid.: 322). Historicism was held responsible for the failure to establish economics as an autonomous and rigorous discipline with a solid theoretical basis (Schefold 2003). The founding Ordo-liberals sought to give a more solid ethical basis to economics by unifying history and theory. In this sense, they were neither anti-historical nor ahistorical (ibid.). Rather, in contrast to the Historical School, the founding Ordo-liberals of the Freiburg School sought to isolate abstract forms of economic order from the flux of space, time, and events and base their distinctive contribution to economics on the morphological method. These types could then be used to compare and assess changing and diverse economic systems and, in this way, enrich historical understanding (Eucken 1940).
Franz Brentano, the Austrian Tradition, and Realism The Austrian tradition had begun to establish its own identity well before the Ordo-liberal tradition and in opposition to the dominance of the Historical tradition. Central to this identity-building was Carl Menger’s (1883) critique of Schmoller. Menger argued that the Historical tradition lacked the necessary theoretical rigour to establish economics as an autonomous academic discipline.
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180 Conservative Liberalism, Ordo-Liberalism, and the State However, the Austrian tradition rested on different philosophical foundations from those of Ordo-liberalism, ones that disowned Kant and embraced the common-sense and scientific Realism of Aristotle. The pivotal figure was the charismatic Austrian philosopher Franz Brentano, whose influence spread across central Europe and helped shape the Austrian tradition. He was a colleague and friend of Menger, the heroic founding thinker of the Austrian tradition (Hayek 2017: 143–69). Brentano represented a powerful Roman Catholic Scholastic tradition in Austrian philosophy, strongly influenced by Aristotle and resistant to Hegel and Kant (Campagnolo 2008; Smith 1990: 263–88, 1996: 299–334). Following Aristotle, Brentano argued that by careful and patient observation it was possible to penetrate through the dross of ephemeral detail and institutional and cultural variety to the essence of a phenomenon. In the same way, Menger (1883: 6–7, 17, 38, 41) stated that the task of the economist was to discern the exact and universal laws that the economy obeyed, akin to the laws of geometry or mechanics. In opposition to the Historical tradition, Menger sought to identify the universal features of the market economy; the intelligible structures that it manifests in and of itself. These features recurred, regardless of time and place. They could be regarded as having an a priori, pre-empirical truth and as providing the foundation of economics and its capacity to render the world intelligible (also Böhm-Bawerk 2010/1914; Mises 1949, 1962; Wieser 1927: 5). Radical empiricism went hand in hand with essentialism. Brentano was a founding thinker in phenomenology. However, in contrast to the later evolution of Husserl’s work in a transcendental direction, Brentano identified phenomenology with the new scientific discipline of ‘descriptive’ psych ology as a means of elucidating mental phenomena. This interest in the psychological and subjectivist foundations of economic behaviour continued to influence the character of the Austrian tradition (e.g. Böhm-Bawerk 1890; Wieser 1927; see also Grassl and Smith 1986; Smith 1996). Menger’s view that value exists only in the nexus of human valuing acts recurred in the later gener ations of the Austrian tradition, notably Eugen von Böhm-Bawerk (2010/1914), Mises (1949, 1958, 1962), and Hayek (1983, 1992). The subjectivist foundations of economics and the methodological individualism in the Austrian tradition made its representatives highly critical of the claims of purely quantitative theorizing, mathematical modelling, and economic forecasting (e.g. Hayek 2017: 177–82). There is a correspondence between Husserl’s break with Brentano and the distancing between the Austrian tradition and the emerging Ordo-liberal tradition in the interwar period. Brentano’s imprint on the Austrian tradition is apparent in its epistemological naturalism and stress on Realism (Schulak 2010; Smith 1996: 321). It is reflected in its critique of Hegel, Kant, and the post-Kantian Idealists and in its denial of the existence of abstract essences which were amenable to intuition. Instead, following Brentano, Menger (1883: 38, 41) stood for a stronger emphasis on Realism, logical method, and ‘exact theory’. Economics was to
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Patron Saints ( 2 ) 181 become an autonomous and rigorous discipline which rested on a small number of evident axioms and which identified the universal and essential features of the market. From Menger onwards, the Austrian tradition contained a conception of the market as a spontaneous, evolving order as opposed to a given, rule-based order (Hayek 1992). The market order was continuously shaped and re-shaped by changes in the perceptions, expectations, and subjective evaluations of economic agents. Consequently, the knowledge of economic agents, including their errors of knowledge, became central preoccupations in Austrian theory (notably Hayek 1989/1974). In Hayek’s conception, the market was an ongoing discovery procedure. The painstaking and difficult challenge for the economist was to discover the universals of economic reality (Menger 1883: 6, 14). However, these universals were in no sense the creation of the economist. Following Brentano, Menger and his successors sought to develop a categorical ontology of economic reality which, in its material and mental aspects, existed independently of the mind of the economist. Mises’ praxeology rested on the argument that ‘man acts’ but bases action on the available evidence about the reality of the external world (Mises 1962). The Austrian tradition recognized the market as a complex, given reality, a dynamic process that is subject to unforeseeable changes over time (Mises 1949: 258). It was in no sense created by the theoretical work of the economist. Value was founded on the subjectivity of individual economic agents. There was, in short, a more pronounced ontological and methodological individualism in the Austrian tradition than in the Ordo-liberal tradition. Scheler’s (1973/1913–16) project of an objectivist theory of value was decisively rejected. The acting, valuing human subject, above all the creative entrepreneur, was central to the Austrian tradition. This insight was the source of its claim to Realism, its denial of predictability in economics, and its rejection of attempts to construct economics based on statistical research and mathematical modelling (Mises 1958: 23).
Ordo-Liberals and the Methodenstreit The so-called ‘methodological dispute’ (Methodenstreit) between the Austrian and Historical traditions dated back to the 1880s (Menger 1883; Schmoller 1900–4). When exposed to this dispute, the young Ordo-liberals were quick to identify with the Austrians about the importance of theory in establishing the autonomy and rigour of economics, about the lack of theory development in German economics, and about the urgent need for German ‘catch-up’. In this respect, there was common ground between the Austrian tradition and Ordoliberals. They shared a rejection of German Idealism as represented by Hegel.
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182 Conservative Liberalism, Ordo-Liberalism, and the State They also denounced the materialism of Marx and the influence of socialism. The critiques of socialism by Mises (1922) and by Hayek (1944) found a positive res on ance amongst Ordo-liberals (see Hayek correspondence in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken and in the Röpke Papers at the Institute for Economic Policy, Cologne University). The Austrians and Ordo-liberals saw positivism as the enemy and as a prime cause of the crisis of modernity (Schulak 2010). The counterpart of the mechanization of nature was the mechanization of human thought, evident in economics, and the loss of creative vitality (Mises 1922; Eucken 1925, 1926a, 1926b, 1927). These shared characteristics were evident from 1925 in the formation of the ‘German Ricardians’ to spearhead theory development in German economics (see the correspondence 1925–7 in the Nachlass Rüstow, NL 169/000017, in the Bundesarchiv, Koblenz). This grouping brought together Eucken, Röpke, and Rüstow with the Austrians, notably Mises, as well as figures like Gerhard Colm, Hans Gestrich, Wilhelm Lautenbach, and Hans Neisser. They sought to integrate around a more theory-grounded economics, which would serve as a counterweight to the resurrection of the Historical tradition; provide a critical tool against the influence of powerful economic interests, especially in cartel and trade policies; and offer practical guidance to policy makers, notably on issues like reparations. The difficulties of this practice-oriented theoretical task were revealed at the Bad Pyrmont conference in 1928. Held under the auspices of the Friedrich List Society, the conference aimed to examine the problem of German reparations and the efforts of the Young Plan to resolve this problem. It was attended by Eucken, Röpke, and Rüstow. Sombart represented the Historical School. The policy practitioners included Rudolf Hilferding, the Social Democratic (SPD) minister of finance and theorist of ‘organized capitalism’, and Hjalmar Schacht, president of the Reichsbank (Salin 1929). The Bad Pyrmont conference had a profound effect on the Ricardians. It showed them just how difficult it was for economic theorists to agree on a common definition of a problem, in this case reparations, and on clear prescriptions (Janssen 1998: 20). Moreover, Hilferding’s and Schacht’s enthusiasm was limited to presentations that helped justify their pre-existing views about reparations and, not least, that were ‘theory-light’ in content. In any case, there was in the background a profound difference of belief. Hilferding’s theorizing about ‘organized capitalism’ was anathema to the German Ricardians. They rejected the idea of the state as the actor that was controlling and shaping capitalist development, as well as the notion that economic policy should be subservient to foreign-policy considerations. Despite this attempt to forge a unity around theory, it became increasingly clear that the metaphysical and epistemological positions of the young Ordoliberals were different from those of the Austrians (Janssen 2009). The young
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Patron Saints ( 2 ) 183 Ordo-liberals were less disposed to see the economic problem in naturalistic terms than the Austrians and more convinced of the shaping power of institutions and their actors with respect to markets. They claimed that the state, the legal order, and the courts played an important role in constituting markets. These institutions were judged to be indispensable in safeguarding truly effective competitive markets. For the Austrians, in contrast, the state was the source of problems in a market economy. Markets had to be left alone to flourish as natural phenomena (Mises 1953/1912). They were the outcome of subjective and creative activity by individuals who made and shaped them. For Ordo-liberals, the commitment of the Austrians to methodological individualism was too extreme. This sense of a deep-seated crisis in economics, and of its correspondence with a crisis in philosophy, was discernible in the evolution of the thinking of Walter Eucken, Hawtrey, Rougier, and Rueff. Each drew on philosophy to critique developments in academic economics and to provide it with a new, ethically grounded foundation. Each sought to reconstruct economics as a solid, rigorous, and autonomous scientific discipline, resting on this newly agreed intellectual foundation. And each rejected the empiricist method and Cartesian-style a priori reasoning and deductive theory as inadequate foundations for the discipline. These modes of thinking were held responsible for a deterioration in theoretical economic analysis. Instead, the founding conservative liberals and Ordo-liberals examined the ‘mentalities’ or ‘mental structures’ that underpinned economic behaviour; how these mentalities related to the wider political, social, and cultural orders; and whether they were compatible with the insights of economic theory.
German Idealism, Phenomenology, and Critical Realism: The Imprints of Rudolf Eucken, Nicolai Hartmann, Edmund Husserl, and Max Scheler As we saw above, the intellectual roots of the Ordo-liberal tradition remain complex and multi-faceted. Its leading thinkers were highly eclectic, ranging across a wide range of disciplinary sources. Also, they drew selectively and instrumentally on their favourite sources to justify Ordo-liberal arguments. Philosophy and religion were used in the service of an ideological position that was conservative liberal in character. In consequence, it is important to contextualize and relativize individual intellectual contributions to the tradition and to be cautious in attributing influence. At the same time, certain philosophers stand out as important in helping to understand the characteristic beliefs about man, freedom, and solidarity that informed those working in the Ordo-liberal tradition. They helped to reflect and condition what Rudolf Eucken (1918) and later Husserl (1970/1936) referred to as
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184 Conservative Liberalism, Ordo-Liberalism, and the State the pre-given ‘life-world’ of Ordo-liberals. This ‘life-world’ took the form of the characteristic beliefs of Ordo-liberals, their socially and culturally conditioned meanings, and their common language (Mohanty 2011). It provided the way in which the objective world—economic, social, political, and technical—was constituted inter-subjectively by the founding Ordo-liberals. The binding thread that connected the philosophers who helped to shape the ‘life-world’ of the Ordo-liberal tradition stemmed from their belief in the vital importance of the nature of the legal, social, and cultural orders, of their inter dependence, and of a clear, coherent, and stable framework of institutions and rules, if the fundamental human values of freedom, dignity, and solidarity were to be safeguarded. There was a striking correspondence between the ways in which Rudolf Eucken, Hartmann, Husserl, Rougier, and Scheler conceived of a ‘humane order’ (Klump and Wörsdörfer 2011: 569). The second connecting thread came from the conception of the enlightening function of philosophy in endowing economic, social, and political life with meaning by countering a crisis of values and culture (e.g. Husserl 1970/1936). However, this function of intellectual renewal could only be realized once phil osophy had rid itself of the ‘suffocating’ embraces of historicism, materialism, positivism, and utilitarianism. ‘Positivism, in a manner of speaking, decapitates philosophy’ (ibid.: 9). Philosophy had to offer an independent, ethically grounded, and critical perspective that transcended the realm of the natural sciences (Mohanty 2011). In the words of Husserl (1970/1936: 17, 289), philosophers are ‘the functionaries of mankind’. They are responsible for guiding mankind towards a ‘true sense of being’ through self-reflection. This elitist understanding—outlined by Husserl but shared by Rudolf Eucken and many other philosophers at that time—was reflected in the way in which the newly emerging Freiburg School summarized its role in the Ordo Manifesto of 1936: Men of science, by virtue of their profession and position being independent of economic interests, are the only objective, independent advisers capable of providing true insight into the intricate inter-relationships of economic activity, and therefore also providing the basis upon which economic judgements can be made. (Böhm, Eucken, and Grossmann-Doerth 1989/1936: 15)
Walter Eucken was, by common acknowledgement, the leading integrative figure in the Freiburg School, which began to take shape in 1934–5 (Böhm 1957b/1960; Goldschmidt 2002). Already, through his close-knit family life in Jena, he had become deeply enmeshed in the thinking of his father Rudolf and of their family friend, the philosopher Husserl (for biographical details see Dathe and Goldschmidt 2003; Goldschmidt 2009; Renker 2009; Schäfer 2014). Rudolf Eucken and Husserl worked respectively on ‘life-world’ philosophy
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Patron Saints ( 2 ) 185 (Lebensweltphilosophie) and on phenomenology (Dathe, Gander, and Goldschmidt 2009). They saw their work as essentially complementary (Husserl 1927; Klump and Wörsdörfer 2011: 553; Mohanty 2011). Above all, Walter Eucken retained a lifelong respect for the ‘ethical activism’ espoused by his father. He worked tirelessly through the 1920s and into the 1930s to cultivate his memory through the Eucken Association (1919–42), through its conferences (the last was in 1938), and through improvements to the quality of Die Tatwelt (1925–42), which he edited and to which he contributed (Dathe and Goldschmidt 2003: 57–63). He saw himself as very much the disciple of his father.
The Religious Metaphysics and Ethical Activism of Rudolf Eucken Rudolf Eucken’s thinking drew on various German sources, including Martin Luther (1483–1546), Johann Gottlieb Fichte (1762–1814), Goethe, and Kant. In addition, he was very aware of the work of Adam Smith in moral philosophy and economics. Rudolf Eucken had—before 1914—an enormous following as a critic of ‘superficial’ positivism and a prophet of the ‘renewal of German Idealism’. Interest in his work spread not just across the German-speaking world but also beyond, including France, Italy, the Netherlands, the Nordic states, and the United States (for details of these links, see Rudolf Eucken 1921a: 113–15; also Graf 1997; Hampe 1933; Jones 1907; Tudor Jones 1912). Post-1918, he intensified this role as prophet of the indispensability of German Idealism in a time of enormous trouble (Rudolf Eucken 1934/1923). He offered an alternative to the cultural pessimism of Oswald Spengler—the refusal to accept culture as it is, and a tireless commitment to ethical and religious renewal. Rudolf Eucken was very much a product of the German Idealist tradition, especially the transcendental aspects of Kant’s philosophy, stressing the inner creative power of the mind and its capacity to transform the world. He looked to artists, thinkers, and the churches to renew the world, to relieve individuals of the ‘sad emptiness of an atomized world’, and to counter the retreat into ‘crass egotism’ (Hampe 1933). In an age of mechanization, men had become alienated from life: ‘slaves of work’. Socialism and communism would advance unless meaning was restored to work (Rudolf Eucken 1922: 149–50). However, for Rudolf Eucken (1921a: 74, 1923), an embrace of traditional Idealism and the outright rejection of positivism were not enough to suit an age that was so different in material terms from that of Goethe, Kant, and Schiller. He looked to a ‘spiritual’ positivism in which mind was understood as part of reality. In the Idealist tradition, he stressed the contemplative, inward life of the intellect. At the same time, he looked to a ‘spiritual Reformation’ and to the emergence of new figures of moral enlightenment in the three pivotal worlds of science, polit ics, and work (Graf 1997: 84). This position led him to question the relevance of
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186 Conservative Liberalism, Ordo-Liberalism, and the State simply returning to Schiller’s aesthetics for inspiration (Rudolf Eucken 1905). Rudolf Eucken sought to restore conviction in the importance of the spiritual life through a religious metaphysics. This emphasis on the inner spiritual world of thought was to be united with the will to act on behalf of what has ‘infinite value’ (Rudolf Eucken 1885, 1912). Ethical activism was at the core of his ‘life-world’ philosophy (Rudolf Eucken 1918, 1922; Graf 1997). The route to revelation was through the intuition that could be gained through active engagement, not simply through contemplation. Rudolf Eucken’s ethical activism influenced Müller-Armack and Veit, as well as his son Walter. It was later reflected in Rüstow’s (1958) statement of personal belief: . . . we . . . sit . . . not in the audience, rather we stand on the stage of world history, and each of us has a part to play, be it only as an extra. We must all improvise; for [instructions on] continuing and finishing the production are not to be found in any text . . . but depend totally on how we all decide and act . . . for that everyone is responsible . . . that’s what I believe. (Author’s translation)
Walter Eucken (1926a, 1930, 1932b) imbibed from his father this belief in the inward and higher spiritual nature of man and in the need to combat ‘shallow and popular’ philosophies that derive from a materialistic naturalism (Rudolf Eucken 1911/1890: 504). Man was judged to be capable of higher standards of morality than those of utility and pleasure. Rudolf Eucken was open to criticism by his contemporaries for obscurity, as in such terms as ‘the universal spiritual life’, and for having too little to say about the material world. Nevertheless, he held strong political views which he defined as those of a ‘moderate’ liberal (Rudolf Eucken 1921a: 21). He was critical of Bismarck’s militarism, his Kulturkampf against Catholics, and his anti-socialist legislation. Above all, Rudolf Eucken directed his scorn at the passivity and inertia of the German bourgeoisie, which he accused of withdrawing from active party politics to concentrate on their own material well-being (ibid.: 36–7). In opposition to what he defined as a deep crisis of modernity, Rudolf Eucken conveyed a bold message about the human personality that inspired a devoted son and many inside and outside his own family to pursue a civilizational critique. Walter Eucken (1932b) retained the belief that liberalism could only survive and prosper with a secure and disciplinary religious-metaphysical basis. This belief was strengthened by the trials and tribulations that beset Germany, Europe, and the world after his father’s death. He diagnosed the crisis of the interwar years as fundamentally spiritual and religious (Eucken 1926a, 1932b). Rudolf Eucken (1918, 1921a, 1922) had earlier criticized the failure of the churches and called for an austere and strict religion that would inculcate a sense of individual discipline, duty, and responsibility. His family, notably Walter, sought to celebrate him as a
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Patron Saints ( 2 ) 187 ‘spiritual leader of the age’ through the Eucken Association and Die Tatwelt (Graf 1997: 84).
Husserl’s Phenomenology and the Heroism of Reason Walter Eucken’s friendship with Husserl deepened as Husserl—of Jewish descent—suffered persecution and social isolation under the Nazis. He was one of very few to stand by his family friend in this terrible time. In doing so, he was recognizing the mutual intellectual indebtedness of Husserl and his father. They had both emphasized that consciousness was different from nature and had a shared commitment to freedom, autonomy, and rationality (on Rudolf Eucken, see Husserl 1927; also Dathe, Gander, and Goldschmidt 2009). He was also acknowledging his own intellectual indebtedness during Husserl’s Freiburg years and their shared condition of inner exile during the Nazi years (on Husserl in Freiburg, see Mohanty 2011). From Husserl Walter Eucken learnt to appreciate how intersubjective experience plays a fundamental role in how we constitute ourselves as objectively existing subjects and other-experiencing subjects, as well as the objective world. Husserl’s transcendental phenomenology aimed to reconstruct the rational structures that underpinned constitutive achievements. Intellectually, Walter Eucken remained indebted to Husserl on two levels. First, Husserl suggested a way to end the ‘crisis in science’. He derived from Husserl’s early work the conception of a rigorous, ‘crisis-proof ’ (Husserl’s term) economics (Eucken 1938b, 1940: 233). Eucken (1940: 85–93) argued that this crisis-proof economics could be built using the morphological method of analysis. Husserl’s phenomenology of advancing towards the essence corresponded to Eucken’s thinking in these terms (Mohanty 2011). The basis for the correspondence between the Euckens (father and son), Husserl, and Weber was their common search to end the crisis in science by overcoming the opposition between Idealism and positivism. However, Eucken’s conception of the morphological method was not principally derived from Husserl (Goldschmidt 2002: 83; Klump and Wörsdörfer 2011: 563–4). As we saw above, it bore an earlier and closer affinity with Rudolf Eucken’s noological method of abstraction and reduction; with Weber’s ideal-type reason ing (Kaube 2014); and with von Thünen’s (1930/1842: 264–74) ‘isolating abstraction’. The importance of Husserl and Rudolf Eucken resided in offering a deeper philosophical justification for this type of patient, disinterested, and open-minded observation through which order could be discerned in the flux of economic activities and events. Based on these influences, Eucken (1940, 1952: 378) subscribed to the view that economics must take as its starting-point the isolation of pure economic forms or types of economic order. He identified two basic types: the centrally
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188 Conservative Liberalism, Ordo-Liberalism, and the State directed economy and the exchange economy. They represented objective truth (Wesenswahrheit). By thinking morphologically, value judgements—and the controversies that they aroused—could be avoided. This consideration of ‘objective truth’ was of enormous importance to Eucken in the context of writing in the Third Reich. It also enabled him to address the problem of the great antinomy in economics by following Max Weber’s claim that the ideal type enabled a ‘conceptually controlled subjectivity’ (Kaube 2014: 154). In this way, the Methodenstreit that had bedevilled economics since the clash of the Austrian and Historical traditions could be overcome. The abstraction of the morphological method was therapy for the ‘crisis of science’. It became possible simultaneously to think empirically, conceptually, and theoretically and to recognize historical particularity. In Walter Eucken’s view, morphological reasoning yielded pure forms that could be used to examine and better understand the details and character of real economic systems. He argued that these forms provided the basis for a type of economic theorizing that was more relevant to explaining how economies worked in given historical and geographical contexts. Eucken warned against economic models based on a priori reasoning, as well as against the seductions of big, imprecise concepts like ‘capitalism’ and ‘socialism’. He saw such concepts as a distraction from a more precise understanding of how, in practice, the pure forms can be combined in varying and changing ways in different societies. Careful observation of historically varied economic systems, institutions, and events could serve to intuit the intangible forms or essences that constituted economic orders. This method was radically different from the forms of a priori deductive reasoning associated with methodological individualism in economics. It involved ‘thinking in orders’ (Willgerodt 2011). Secondly, Husserl was important to Walter Eucken on an ethical level. He reinforced Rudolf Eucken’s message about the pervasive cultural crisis in Europe, the debasement of man, and the vital importance of intellectual and socio-political renewal through a philosophy of ‘freedom through rationality’ (Husserl 1970/1936; see also Walter Eucken 1933a: 149, 1938a). Like Rudolf Eucken, Husserl (1989: 117) condemned materialism, egoism, greed, striving for power, and utilitarian and Pragmatic understandings of ethics. He rejected radical individualism; what he saw as the shallowness, soulnessness, and worthlessness of modern societies; and the loss of faith in reason and the embrace of relativism and ‘unremitting’ scepticism (Husserl 1970/1936: 12–15; Klump and Wörsdörfer 2011: 562). In a manner that corresponded with Ordo-liberalism, Husserl conceived of the state, the legal order, and the intellectual elite as having vital roles in ensuring equal civil rights and obligations and in cultivating individual and social responsibility and social solidarity (Husserl 1973a: 107, 109, 1973c: 90, 182, 405). He conceived of them as bearers of an ethics founded on personal freedom, reason, and self-knowledge and safeguarded by the rule of law (Husserl 1973b: 48, 407ff.).
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Patron Saints ( 2 ) 189 This essentially elitist idea of an ordering role for the state, the law, and the intellectual elite found expression in Walter Eucken’s (1952) conception of a humane and prosperous society. Such a society would reconcile ‘internal’ happiness through personal freedom with ‘external’ happiness through an improved standard of living (ibid.: 570). For Husserl, it required a constitutional state with firm philosophical foundations in the commitment to freedom and humanity (Klump and Wörsdörfer 2011: 568). Husserl issued stern warnings that were relevant to economics. He pointed out that ‘no objective science can do justice to the subjectivity which accompanies science’ and stressed the risks in ‘the idealization of mathematics’ and in naïve objectivism (Husserl 1970/1936: 295–6). Resolving Europe’s growing crisis depended on an intellectual elite that had a sense of inner personal vocation: that was prepared to take personal responsibility ‘for the true being of mankind’ (ibid.: 17). Husserl called for ‘the rebirth of Europe from the spirit of philosophy through a heroism of reason that overcomes naturalism once and for all. Europe’s greatest danger is weariness’ (ibid.: 299). Here Husserl echoed the ethical activism of his former friend and colleague Rudolf Eucken.
Max Scheler: Ethical Personalism and Philosophical Anthropology Müller-Armack exhibited a degree of intellectual eclecticism comparable to that of Walter Eucken. However, it took on a somewhat different character. In the case of Müller-Armack, there was a phase in the late 1920s to 30s when he was attracted to a neo-Hegelian conception of the state, specifically Carl Schmitt’s total state (Müller-Armack 1933). Defenders of the Freiburg School claimed that the influence of this phase endured in a more comprehensive, flexible, and interventionist conception of the state in Müller-Armack’s post-war work than in that of Böhm and Eucken (e.g. Lange-von Kulessa and Renner 1998: 81). Müller-Armack offered a disciplinary form of liberalism but one that was less ascetic than that of the Freiburg School. In the long term, the distinctiveness of Müller-Armack’s work on the social market economy reflected two enduring influences, apart from any residual legacy from the 1920s/30s (for details of his economic policy ideas and their influence, see Chapter 11). The first was the stronger imprint of Historicism, notably of Weber’s writings on the historical sociology of religion (e.g. Müller-Armack 1948a). Müller-Armack borrowed the concept of ‘economic ‘style’ (Wirtschaftsstil) from Werner Sombart and from Albert Spiethoff (1933). His Genealogy of Economic Styles draws on philosophy and on economic, political, and cultural history to illuminate the characteristic unity of expression and behaviour that gives individual distinctiveness to an age (Müller-Armack 1944). Its core thesis was that spiritual values are fundamental to the economic order. The success—or failure—of this order is due not just to
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190 Conservative Liberalism, Ordo-Liberalism, and the State economic efficiency but also to the dominant values within the social order (ibid.: 98–9). For it to remain successful it must adapt and develop, based on continuous reflection on its changing historical context. Correspondingly, the social market economy was identified not so much as a new historical stage of universal validity or as a ready-made prescription. It was a new ‘form of [economic] style’ (Stilform). The social market economy represented a material and spiritual unity that was historically appropriate to the huge new challenges of economic reconstruction and of intellectual and religious renewal that Germany faced after 1945 (Kowitz 1998: 212–13, 222). It involved putting in place the constitution of a new, integrative social order. Müller-Armack (1947, 1948b, 1970) retained a deep sense that economic policy had to embody enduring ethical values, not least freedom. At the same time, he recognized that economic policy had to be adapted to the individual social, cultural, and political challenges of different epochs. In this vein, from the mid-1950s he began to develop the concept of a second phase of the social market economy that would be better adapted to the new circumstances of European integration, the exhaustion of reconstruction as a challenge, and the emergence of new problems, for instance in environmental policy (Müller-Armack 1976a/1959, 1976b/1960, 1976c/1958). This duality in Müller-Armack’s thinking about ethics and economic policy, and his openness and flexibility, made him an uncomfortable bedfellow for the Freiburg School. He argued that one could not be a purist, for instance in areas like agriculture and transport, without undermining the effectiveness of the market order (Müller-Armack 1971: 55–6, 258). As Chapter 11 shows, MüllerArmack’s experience as a statesman-economist led him to appreciate how difficult it is to conduct economic policy as Ordnungspolitik. The second enduring influence, and source of long-term difference from the Freiburg School, stemmed from Scheler. Scheler was a passionate and controversial philosopher and public intellectual who taught from 1919 to 1928 in Cologne where Müller-Armack studied (Kowitz 1998: 20–2). Müller-Armack’s concept of the social market economy corresponds closely with Scheler’s distinctive phenomenology. By the 1920s, Scheler’s phenomenology had evolved away from Rudolf Eucken and Husserl towards ethical personalism and an historically grounded philosophical anthropology. Scheler was one of the most prominent and discussed German philosophers in his time (Spader 2002). His early views had been shaped by his Catholic upbringing, which was reflected in the import ance he attached to religious experience (Scheler 1954). Scheler’s enthusiasm for a ‘philosophy of life’ was also influenced by his exposure in Jena to Rudolf Eucken and to Husserl, from whom he gained his initial insights into phenomenology, as well as to the works of Bergson on intuition (Zanfi 2013: chapter 1). Following Bergson, he sought to shape his approach to phenomenology in a distinctive way through his friendships with various artists, poets, and literary figures, notably within German Expressionism (Spader 2002).
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Patron Saints ( 2 ) 191 Scheler (2008) prized the emotional and affective life before the intellectual life, above all stressing the importance of sympathy and fellow-feeling in fostering responsibility and social solidarity. Philosophy was, for him, ‘the loving act of participation by the core of the human being in the essence of all things’ (Scheler 1954: 68). This reverential attitude to the world marked out his early distinctiveness from the kind of ‘Realist’ phenomenology espoused by Brentano and Husserl. It made clear the importance Scheler attached to shared feelings in his ethical personalism and philosophical anthropology. Scheler’s ethical personalism rested on two foundations. They emphasized the importance of personal experience and intuitive insight rather than formal method in acquiring understanding of the human being and the meaning of being human in the world. His philosophical anthropology was an attempt to provide a unified, historical account of the range of these meanings: showing how man progressed from tool making, through rational thought, to the spiritual life (Scheler 1961/1928). The first foundation was that a person’s sense of values stems from emotional engagement with the world. Through experiencing the world, the individual learnt to order preferences around feelings of love and hate. On this basis Scheler argued that it is possible to rank values objectively in a hierarchy, from lowest to highest: from pleasure, to utility, to vitality, to culture, and ultimately to holiness (Scheler 1973/1913–16: 104–13). The higher values reflected the greater duration and intensity of personal fulfilment. In his later work, they were associated with a world-openness and spirit of transcendence that went beyond any individual religion. This ethical standpoint defined the ‘good’ society as one that condemns the celebration of mere pleasure or utility and the ‘value-blindness’, political indifference, and risk of tyranny that they induce. Instead, the ‘good society’ facilitated the attainment of the higher values, represented by the arts, philosophy, and religion. Scheler sets out in this way a critique of modernity, including the obsession with efficiency and productivity. The second foundation of Scheler’s ethical personalism was the importance he attached to responsibility for others through participating in the lives and feelings of others. Shared feelings took various forms (Scheler 1973). He celebrated the ‘life-community’ (Lebensgemeinschaft), in which there was a sense of mutual responsibility and solidarity that formed the basis of trust, which was in turn indispensable to contracting and to economic and social flourishing. Scheler contrasted this type of community with ‘society’ (Gesellschaft), in which communal bonds rested on instrumental considerations of personal welfare. Here communal bonds were driven by values of pleasure and utility. Shared feelings were most intensely developed through the institutional structures of the state, culture, and the church. These institutions represented ‘collective persons’ through which the highest values could be realized. However, these institutions could only fulfil this
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192 Conservative Liberalism, Ordo-Liberalism, and the State role if they rested on respect for the autonomy of the individual and their responsibility for their own actions (ibid.: 526). Scheler’s argument that the absolute value of the person is realized in the bonds of solidarity played a key role in Müller-Armack’s thinking. It was a factor— alongside his reading of Sombart—in giving his work a more pronounced emphasis on the role of the state in social cohesion than was to be found in Eucken and even in the work of Röpke and Rüstow (Zweynert 2007). Echoes of Scheler were discernible when Müller-Armack (1962/1974: 182) argued that competition ‘remains a mechanical process which is indifferent with respect to values and goals’ and that the market is ‘an order which receives values but doesn’t itself set them’. Freiburg Ordo-liberals would have difficulty in accepting such an argument. Scheler’s ethical personalism helped lead Müller-Armack to reject the radical individualism of liberalism and the value reduction of socialism in favour of the Christian democracy that Scheler espoused (Spader 2002). The social market economy was, for Müller-Armack, a form of collective governance in which each person is concerned about the welfare of all, in which basic needs are met for all, and, in this way, dignity is preserved. Social peace and the accompanying need for social balance were at the very core of his conception of the social market economy and were directly attributed to Scheler (Müller-Armack 1948b: 257, 1959: 560). Müller-Armack regarded market freedom as an inadequate basis for the legit imacy of an economic order. He stressed income and wealth taxes, social transfers, the provision of public goods, consumer and employee protection, employee participation, equal opportunities legislation, social housing, and environmental protection—all to be consistent with the core principle of ‘market conformity’ (Müller-Armack 1947, 1956, 1962/1974). The emphasis of personalism on the individual’s nature as a social being and on the values of solidarity marked out a key point of difference with the Freiburg School. Müller-Armack (1959: 560–75) promoted a strategy of reconciliation between the four contending belief systems: neo-liberalism, socialism, Catholic social teaching, and Lutheran social ethics. The prime requirement was a comprehensive social and economic order that would avert descent into the divisions that had helped destroy post-1918 Europe (Kowitz 1998: 207–14). At the same time, Scheler’s own rethinking of his earlier views on the role of ideas—philosophy, religion, art, science—in history gave an additional distinctive mark to Müller-Armack’s thinking about economic policy. Scheler’s experiences of the failures of politics in the 1920s led him to accord more importance to ‘real’ factors—especially interests, passions, and drives—in shaping which ideals prosper and which fail (Scheler 1961/1928: 64–8). He developed his philosophical anthropology through his work in historical sociology, looking more closely at material and social conditions, including geography, climate, technology, demographics, and economic research. Scheler did not go so far as to abandon his
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Patron Saints ( 2 ) 193 belief in the autonomy of ideas and their potential shaping power over reality. However, he came to recognize that their power depended on material factors, the availability of individuals who were prepared to act on their behalf and counter apathy and indifference, and what ultimately people were culturally prepared to accept. In his final work, Scheler noted that, in any contest between ideas and objective forces, ideas will succumb to the superior power of ‘the lower forces in nature’ and ‘the vulgar truths in history’ (ibid.: xxii). Passions and drives were singled out as the key to energizing ideas and giving them momentum, an insight that corresponded with his earlier enthusiasm for Bergson. These insights of Scheler corresponded closely with key distinctive features of Müller-Armack’s Ordo-liberal outlook. Philosophical anthropology and ‘the social crisis of modern times’ were central themes in Müller-Armack’s work in the 1920s. They featured prominently in his thesis of 1923 on the problem of crisis in theoretical social economics (Kowitz 1998: 25–7). He absorbed two features of Scheler’s thinking in the 1920s: a more Realist conception of values and a stress on the transcendental element in man, above all recognizing the role of spiritual and especially religious energy (Müller-Armack 1944). This duality found its way into his concept of the social market economy. Individuals were not to be seen in purely functional terms as consumers and producers. The economic order had to be based on cultivating the freedom and responsibility of the individual, including a sense of mutual responsibility for the common good. It had to ensure a safety net for the accidents of life (Kowitz 1998: 188–92). Following Scheler, Müller-Armack was less dedicated to formal method in economics and rigorous theorizing than Walter Eucken, who took greater inspiration from Husserl. He displayed a greater awareness of cultural and histor ical specificity and the need to adapt economic thinking to changing objective conditions. This openness in his thinking about the social market economy was evident in his avoidance of the Eucken language of ‘principles’ in favour of ‘guidelines’ (Leitlinien), which were to be pragmatically applied (Müller-Armack 1971). He recognized the paramount importance of transformative leadership in making the social market economy possible and in its renewal (Kowitz 1998). Above all, Müller-Armack was acutely aware of the value of social peace and the social balance that is required if a competitive market economy is to endure. Hence his social market economy was more than an orderly framework for an optimal allocation of resources. It represented a comprehensive social concept that aimed to achieve reconciliation and peace.
Nicolai Hartmann’s Critical Realism In contrast to Rudolf Eucken, Husserl, and Scheler, Hartmann confined his work to technical philosophy. There was less direct connection to social, economic, and
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194 Conservative Liberalism, Ordo-Liberalism, and the State political issues. Nevertheless, from the 1920s to the 1950s, Hartmann enjoyed enormous prestige for his work in ontology and in ethics, above all in the German-speaking world, ranking alongside Husserl and Scheler (Harich 2000). His ontological and ethical thought was close to that of Scheler. Müller-Armack (1959: 481–90) cited Hartmann’s ethics as a decisive inspiration. Veit (1946: 152–4, 1967, 1968: 159, 1981: 103) honoured Hartmann as a ‘giant’ of philosophy for his ontological Realism in thinking about ethics. The paradox is that a highly technical philosopher like Hartmann could appeal to two of the most practically engaged of the founding Ordo-liberals. The explan ation lies in the form that critical Realism took in Hartmann’s work. Hartmann sought to practise metaphysics in an inductive manner, beginning with the cat egories of the real world. The task was not to begin from fundamental principles but to work modestly, in a bottom-up fashion, from real-world problems to the larger issues of metaphysics. This approach appealed to Müller-Armack and Veit who were engaged as statesmen-economists with the real world of economic and monetary problems. Hartmann (1921, 1938) posited four levels on which reality is structured. At the lower levels, the world comprises the physical/inanimate, followed by the biological. At the higher levels, it takes the form of the psychological/emotional, followed—at the highest—by the mind. No level was ‘more real’ than the other. However, mind (Geist)—which includes culture, law, and language—was dependent on the lower levels and thus most vulnerable, for instance to factors that operate at the level of psychology and emotion. This ontological Realism offered to Ordo-liberals an insight into why civilization proved so fragile. It also corresponded to the later views of Scheler. Hartmann’s ontological Realism also provided founding Ordo-liberals with a means for structuring and ordering ethics. The level of mind enabled access to the realm of ideal being, which included ethics (Hartmann 1925). Only man can grasp values and act on them. He/she may of course fail to do so. Hartmann offered a phenomenological description of values, drawing them from the Classical world, the Christian world, and the Enlightenment world, and treating them as having an objective and independent existence, apart from human vol ition. He ordered them, in a graded manner, from specific values to fundamental values. The specific values included justice, wisdom, courage, self-discipline, trustworthiness, modesty, and brotherly love. The fundamental values were goodness, nobility, purity, and vitality of experience. Hartmann argued that practising the specific values had a priori claim and was a precondition for realizing the fundamental values. Beyond that, the practical task was to find ways to reconcile values when making choices in real contexts. This kind of argument appealed to practical founding Ordo-liberals like Müller-Armack and Veit who sought an orienting and optimistic philosophy in the post-Nazi world.
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Patron Saints ( 2 ) 195
French Philosophy of Science: Bergson, Hauriou, Rougier, Rueff, and the Debate about Positivism The areas of French economic thought that possessed a close family resemblance to Ordo-liberalism bore different intellectual imprints from the Idealism and phenomenology that were so evident in Germany. The context of French debates in economic thought was the inheritance of philosophy of science. These debates stretched back to René Descartes (1596–1650) and had focused on logic, math ematics, and physics. French thinking about the renovation of economic liberalism had as its main reference point a positivist philosophy of science. Its influence could be traced back to Auguste Comte (1798–1857) and his mentor ClaudeHenri Saint-Simon (1760–1825). Positivism—with its emphasis on observable facts and relationships—had taken institutional root in economics teaching at the prestigious elite training school, the École Polytechnique, where Saint-Simon had been an influential teacher. Rueff studied there before entering the higher civil service as an inspector of finance. Despite their epistemological differences, Rougier and Rueff believed that phil osophy of science offered a key part of the solution to the unemployment, monet ary, and inflation problems of interwar France and to mounting threats of social disorder. It seemed to offer a way of transcending corrosive ideological and party antagonisms and the tragic legacy of war. Disputes could be resolved by the application of scientific method, using the natural sciences as the model for a more disciplined approach to a liberal economic and social order. Scientific method could be used not just to inspire but also to justify elite management of society and the economy by economists, engineers, and statisticians on behalf of the general interest, as defined in liberal terms. Rueff (1922) made an early substantial contribution to French thinking about political economy by applying the conventionalist conception of science. He argued that all sciences—mathematical, physical, moral, and social—were of the same type (ibid.: 224). They were explanatory edifices, founded on conventions, both rational and objective, and using experience and empirical verification as the unique criterion of truth (Daou 2018: 36). His starting-point was that: Man does more than merely record appearances. He determines them to a great extent . . . To say that the empirical laws of our world have existence in themselves is an affirmation without meaning. (Rueff 1922: 39, author’s translation)
Rueff (ibid.: 106) was inspired by Poincaré’s work in mathematics; by the insights of non-Euclidean geometry; by Bergson in philosophy; and by Colson in political economy (Berndt and Marion 2006: 14–20, 43–4; Chivvis 2010: 20–8, 25). Bergson (2007/1907: 680) reinforced his conventionalist conception of science.
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196 Conservative Liberalism, Ordo-Liberalism, and the State At the same time Rueff absorbed from him the vital role of the inventive individual who possesses spiritual energy. Conventionalism taught Rueff to begin by examining the concepts and principles associated with a given social and histor ical context. He believed that, on this basis, it was possible to build an objective and rational moral science and economic science. If Rueff was inspired by geometry, Rougier’s enthusiasm centred on the new physics of relativity. Rougier became the foremost French devotee of logical empiricism. He differed from Rueff in being, first and foremost, a philosopher with an interest in economic affairs. He could also claim to be distinctive, if not unique, amongst French philosophers in engaging with issues about the economic order and economic policies. In the 1930s Rougier engaged actively with the Vienna Circle’s logical positivism and, within France, attempted to promote his own logical empiricism as the basis for ‘the unity of the sciences’ (Berndt and Marion 2006: 29–35). With respect to ethics and political economy, the important step in Rougier’s thinking was his rejection of the Cartesian concept of universal reason. He argued for the scientific examination of variations in ‘mental structure’. Science—this time in the form of Darwinian natural selection—formed the basis for his view that certain civilizations proved fitter to survive and prosper. Rougier (1960: 1–5, 1969) identified the Promethean myth as the founding myth of the West. It represented a mentality of action, adventure, and revolt, of critique, of shaping nature to fit man’s will. He argued that the inspiration for this founding myth came from Greek rationalism, Roman order, Calvinism, and the eighteenth-century Enlightenment (Rougier 1960: 100–5). This view led Rougier to emphasize the social and historical contingency of the civilized liberal order, its vulnerability to intellectual error, and the need for public intellectuals—like Julien Benda (1927/1946)—who could point out the dangers to the civilized life that was represented by liberalism (Rougier in CWL 1939: 19–20; also Steiner 2007: 79, 84–5). At the core of Rougier’s work on logical empiricism was a rejection of the claims of universal, a priori rationalism as too dogmatic. Instead, he argued for a more experientially grounded, a posteriori rationalism. On these grounds, Rougier rejected Kantian and phenomenological philosophies. However, Rougier’s attitude to science was out of tune with the critical and ontological turns in French academic philosophy of science from the 1930s (notably Bachelard 1938; Brunschvicq 1934; more generally Gutting 2007). The academic power of its stars—including later Merleau-Ponty and Foucault—ensured that Rougier and his logical empiricism remained marginal in the world of French university philosophy. Rougier continued to argue, in line with the Vienna Circle, that the ‘pseudo-problems’ of metaphysics had no place in a rigorously conceived philosophy. Rougier used his scientific method to demolish what he saw as the dangerous claims made on behalf of certain political and economic ideals (mystiques) and to
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Patron Saints ( 2 ) 197 justify his ‘constructive’ liberalism (libéralisme constructeur or constructif). This task was undertaken in three much-discussed books: La Mystique dėmocratique (1929), Les Mystiques politiques contemporaines (1935), and Les Mystiques ėconomiques (1949/1938)—the latter is examined in Chapter 10: 322–4. He understood a mystique as the basis for a claim to legitimacy that rests on appeal to the tradition, collective sentiments, and passionate convictions of a people (Rougier 1935: 16). He defined it as what was accepted as self-evident dogma and reinforced by powerful indoctrination and social pressures to conform (Rougier 1929: 11). Rougier argued that the period 1815–1914 had been rendered relatively stable by a contest between two principal mystiques: monarchical and democratic. From 1917 onwards the number of contending mystiques had multiplied, with the addition of the Soviet, the fascist, and the National Socialist. The new virulent moral climate was akin to the wars of religion that had scarred Europe and was putting at risk the principles of constitutional, public, and international law and the civilized values inherited from Greece, Rome, and Christianity (Rougier 1935: 18–19). Rougier sought to subject the various mystiques to critique by means of an international comparison of whether they best served the free exchange of goods, services, capital, people, and ideas; whether they fostered a spirit of mutual understanding and sincere cooperation between peoples; and whether they contributed to world peace and a true ‘concert of nations’ (ibid.: 25). He condemned forms of democratic dogma that bred collectivism and the deprivation of individual liberty in the pursuit of ideals, like equality, that had no basis in what he called ‘logically observed experience’ (Rougier 1929: 42–3). Rougier’s emphasis on the supreme importance of combining the defence of social order with the principle of individual liberty placed him in the French Orleanist tradition of the July Monarchy (1830–48). His conservative-liberal political thinking owed much to François Guizot (1787–1874), who—after a brilliant academic career—had served as education minister, foreign minister, and prime minister under King Louis-Philippe. Guizot had argued that France’s greatest weakness was idolâtrie démocratique, the inevitable result of which was ‘revolutionary despotism’ (Jennings 2011: 169–80). Rougier was also inspired by Vilfredo Pareto (1848–1923) and Gustave Le Bon (1841–1931), to argue that the educated elites—‘the sages of the West’—had to act as a barrier against collectivist dogmas. Their role was to counter what Le Bon (1896) had referred to as the hypnotic and corrupting effects of the crowd mentality on the popular mind. Rueff, like Rougier, was committed to grounding his conception of a liberal social order in philosophy of science. He drew on three sources. First, from the 1950s, Rueff was influenced by the philosophical insights of eminent practising natural scientists, notably the biologists François Jacob and Jacques Monod and the physicists Pierre Auger and Louis de Broglie (Rueff 1955, 1968). In the opening pages of L’ordre social (1945: 9–10, 19–20), Rueff claims to be following Broglie
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198 Conservative Liberalism, Ordo-Liberalism, and the State in basing economics on the framework of ‘certain logical schemes constructed by our reason’. This framework was to be founded on the conception of the right to property, by which it would be possible to order a multitude of empirical observations, for instance the secular and cyclical movement of prices, and to give them a logical form. The role of economics as a science was to reveal the general and permanent principles which, if respected and acted on by politicians and officials, would yield a liberal social order (ibid.: 13). Rueff (1955) argued that the self-reflections of eminent natural scientists suggested that there were important similarities in the problems of order in nature and society. The common trait was their vulnerability to chance and indetermin acy. There was a trend in both nature and society towards entropy and chaos. As in nature, civilizations are fragile and subject to the attrition of time under the influence of rival ideas. This stress on the shared indeterminacy of nature and society, as revealed by developments in the philosophy and the practice of science, left Rueff (ibid.: 16) with a heightened sense of the mystery of social order. In unravelling this mystery, he was able to draw comfort from the way in which practising scientists had shown that, in nature, mechanisms of integration and regulation exist to counteract the trend to entropy. In short, natural science suggests to us that, contrary to the thinking of Hayek and Mises, social order—if it is to endure—is never spontaneous (Rueff 1968: 60). Rueff ’s thinking about mechanisms of social integration and regulation took on a more precise form through French institutional theory as it had been developed in public law by the eminent legal theorist Maurice Hauriou. At the centre of Hauriou’s thinking about the problem of how to secure the liberal social order was his notion of the institution as the mechanism through which objective continuity of legal rules and creative adjustment could be combined. Institutions made possible a social order that was endowed with slow and uniform movement (Hauriou 1929: 71–7). They were more important than men to the duration of the social order. The notion of institution served as the complement to Hauriou’s pessimistic conception of individualism, with its awareness of the abuses of power to which it could lead (Broderick 1970: 127). Institutions provided the directing ideas and rules that helped to correct the fallibility of individual free will. They helped to impart visions and to raise horizons above the selfish pursuit of private interests (Hauriou 1929: VII, XIV, 71–4). They also imparted a social vitalism, a subjective seed, to the way in which law evolved. Hauriou conceived of the state as ‘the institution of institutions’, with its own moral personality. It represented a distinctive public power that was founded on law; that derived its principles from an object ive, universal moral order; but that depended ultimately on the creative capacity and integrity of its elites to sustain ‘consensual communion’ with its citizens (Hauriou 1910 and especially 1933). Hauriou’s concept of institutions left room for the play of social forces and the spontaneous power of individuals in history.
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Patron Saints ( 2 ) 199 Echoing the thinking of Hauriou on the problem of social order, Rueff (1955: 5–14) argued that societies rely for their integration on the law and on institutions to organize cooperation and exchange. They exist to ensure a balance between individual rights and social rights through the auto-limitation of the state. This resemblance stemmed in part from a shared positivism. Both Hauriou (1929: 7) and Rueff shared the view of Bergson: ‘common sense requires that one stays in contact with the facts’ (on Rueff, see Minart 2016: 34). Hauriou (1910: XXXIV) defined himself as a ‘Catholic positivist’ who derived his moral, social, and legal views from his Catholicism and its synthesis with the idea of Republican order. In addition, Hauriou and Rueff had in common a greater emphasis on the economic function of property and the market than social liberals like the legal the orist Léon Duguit (1859–1928) and his mentor Émile Durkheim (1858–1917). Hauriou’s (ibid.: 38–9) concept of property stressed both its economic and its social functions. As a social institution, individual property was justified in economic terms, by the interest in production, and by its role as the basis of social order (Hauriou 1910: chapter 8; also 1929: 652). Finally, there was a striking correspondence between Hauriou’s view that law had to be understood in the context of the history of civilization and the later ideas espoused by Rueff (pp. 199–200). Hauriou saw in institutions and the power of their directing ideas the reason why Western civilization had achieved a position of superiority through the power of institutions both to empower and to constrain individual liberty (Hauriou 1929: VII, XIV). Rueff found a third source of inspiration, besides practising scientists and Hauriou, in Bergson’s theory of creative evolution. Together these three influences shaped the way in which Rueff addressed the question of human creative power in resolving the problem of social order. How did it differ from the mechanics of creative power in nature? Rueff ’s answer was the so-called ‘Promethean Mutation’, which described the process by which man had evolved to recognize her/his freedom to create (Rueff 1968: 128–97). Here his thinking about the will to act corresponded closely with that of Rougier (1969) and with Bergson. Rueff (1968: 140–64) identified two mechanisms through which this creative power was made evident and social peace secured. The first was ideology’s role in refashioning men’s values. The second was the use of structures of incentives and constraints to shape behaviour, above all the price mechanism and—as the primary tool of government—legal regulation. Rueff ’s account of the essential attributes of the Promethean social order corresponds closely to the interdependence of orders as emphasized in German Ordo-liberal thinking. The economic order is about creating forms of production and distribution that ensure the market secures individual freedom. The legal order is identified as the most powerful instrument for this purpose. It protects property rights and contractual rights so that man can be sovereign over her/his
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200 Conservative Liberalism, Ordo-Liberalism, and the State affairs. And, not least, Rueff pointed to the importance of the moral order in ‘humanizing’ the distribution of wealth and income through social policies, the minimum wage, and redistributive taxation. His concern for the moral order was at the root of his self-characterization as a ‘left liberal’ (as early as 1933), who was concerned about the welfare of the poorest, and who advocated ‘liberal interventionism’ (Daou 2018: 111). Rueff (1968: 217–21) concluded by addressing the question: who are the Promethean creators? His answer was the property owners ‘within the limits defined by their rights’, an answer that suggested that property had a social as well as economic function. His ideological self-categorization as ‘left liberal’ reflected his strategic recognition that economic liberalism could not hope to prosper without enlisting socialist support, a position that was close to that of Maurice Allais (see Chapter 10: 326–7). Fundamentally, however, Rueff ’s social liberalism—like that of Röpke and Rüstow, and of Hauriou—was framed within a socially conservative-liberal ideological mind-set.
British Ethical Philosophy: The Imprint of G. E. Moore’s Conception of Intrinsic Value In his memoir of September 1938, looking back on his early beliefs, John Maynard Keynes claimed that the Principia Ethica of G. E. Moore (1903) ‘dominated, and perhaps still dominates everything else’ (Keynes 1949/1938: 81). In the pre-1914 period and into the interwar period, Moore’s work on metaphysical ethics, ethics in relation to conduct, and ‘The Ideal’ had a profound influence within a narrow social world that centred around Trinity College, Cambridge. This influence was concentrated around an intellectual aristocracy that gathered in the Cambridge ‘Apostles’, a secretive society, drawn primarily from Trinity and King’s, whose members were devoted to the Platonic ideal of fellowship in the high-minded, disinterested pursuit of truth. More precisely, Moore’s ideas were disseminated through the specially selected reading parties which he organized as an inner group of Apostles and to which the economist Ralph Hawtrey belonged (Lévy 1981: 52–8, 294–5). Moore’s ‘purity of heart’ resonated beyond Cambridge to the Bloomsbury Group and, in this way, into larger contemporary cultural and intellectual debates (Annan 1999: 57). His resonance derived from his identification of a crisis in moral and aesthetic philosophy and from offering an escape from what were judged by the Bloomsbury circle and other post-Victorian critics as failed inherited ideas, notably empiricism, utilitarianism, and natural selection. In economics, Moore’s work led Keynes—and, above all, Hawtrey—to attend to the philosophical foundations of the subject, in a way not seen amongst their
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Patron Saints ( 2 ) 201 Cambridge contemporaries like Arthur Pigou (1877–1959) and Dennis Robertson (1890–1963). Moore’s idea of intrinsic good in the enjoyment of beautiful objects and of human intercourse fed into, and justified, the pre-existing elitist ideas of cultural superiority that came easily to this quintessentially English intellectual aristocracy. It added substance and justification to their belief in the importance of the arts for spiritual growth and their high-minded sense of mission to spread goodness and truth. These qualities were evident in Hawtrey’s fascination with ‘purely aesthetic art’ and the world of painters, musicians, and writers, which was displayed in his paper to the Friday Club of artists, circa. 1912 (Churchill Archives Centre, The Papers of Sir Ralph Hawtrey, HTRY 12/1, 14pp.). This paper developed ideas that were to feed much later into his metaphysical manuscript Thoughts and Things (c.1946–c.1973a). The sources of the ‘Apostolic ethic’ and of Moore’s ethical thought could be traced back to the nineteenth century. The Apostles appropriated Samuel Taylor Coleridge’s Platonist and German-inspired notion of a clerisy, a cultivated moral elite who could substitute for the traditional clergy and regenerate society. The work of Henry Sidgwick, the Cambridge philosopher, on ethical methods, as well as on political economy and politics, was even more important (Andrews 2010; Hirai 2012). His masterpiece The Methods of Ethics (1874) was the most heavily cited work in Moore’s Principia Ethica (1903). However, Sidgwick’s thinking was often unfairly disparaged by Moore and Keynes for its utilitarianism and hedonism (Schultz 2004: 5–7). Sidgwick was, above all, important in refining utilitar ianism by breaking its earlier association with narrower forms of egoism and with neo-classical economic and what would later be rational choice theory (Schultz 2004: 10, 15–16, 553–5). He had, however, left unresolved what he saw as the central problem in ethics: the potential chaos that might result from ‘the dualism of practical reason’: the conflict between self-interest and duty in a postChristian age. What united the Apostles, from Sidgwick to Moore to Hawtrey, was the belief that egoistic self-interest is too narrow a basis for holding together a liberal society. They were further united in what Sidgwick described as his fear of ‘the selfish ambitions of leaders and the blind appetites of followers’ and of ‘the force of resistance which this machine of party government presents to the influence of enlightened and rational opinion’ (ibid.: 563). ‘A Godless universe above and a vulgar party politics below were the twin poles of Sidgwick’s crisis’ (ibid.). The Apostles were united in worry about the combination of the lack of high-minded public spirit in government with a doubtful capability of the ordinary man to understand public affairs. Sidgwick bequeathed a strongly elitist conception of government. Only a select few could be trusted to know the true principles of a universalist utilitarian ethics in which the happiness of others was made an
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202 Conservative Liberalism, Ordo-Liberalism, and the State integral part of one’s own happiness. The rest of society could be left to believe in ordinary morality, with its notions of virtue and vice. The cult status of Moore’s Principia Ethica within this narrow intellectual aristocracy was linked to his inspirational personal character. His guiding prin ciples—that the good is indefinable and that moral precepts are means, not ends—encouraged Keynes and the Bloomsbury circle to claim the right to subject common-sense moral rules to independent criticism. It bolstered their selfconfident critical spirit and assault on hypocrisy. Individuals read Moore rather differently. The Bloomsbury cultural set, notably Clive Bell, Roger Fry, Lytton Strachey, and Virginia Woolf, sought to emulate the private virtues that were the subject of Moore’s final chapter ‘The Ideal’. They shared Moore’s recognition of the limitations of common-sense morality, his dismissal of the idea that egoism was rational, his hatred of philistinism, his hostility to material success, and the great weight that he placed on personal affection (Moore 1993/1903: 99–100). Hawtrey placed greater weight on the discussions about duty and moral obligation in the earlier and more philosophically challenging chapters. This aspect of Moore’s work provided him with insights into the ethical crisis that beset Classical economic liberalism. In Hawtrey’s view, the problem was that public policy and the practical life of the individual were too concerned with intermediate ends and too disposed to pursue false ends (Hawtrey c.1946–c.1973b: 1, 19–21). At the core of Moore’s work on ethics was the belief that goodness is ‘the rational ultimate end of human action and the sole criterion of social progress’ (Moore 1993/1903: 237–8). Goodness finds expression in the states of consciousness associated with the pleasures of aesthetic enjoyment and personal affection. The fundamental question for Moore was: ‘what is good in itself?’ This question developed from his rejection of the prevalent ‘naturalistic fallacy’: namely, that good is definable in terms of natural or metaphysical properties (ibid.: 13–15). For Hawtrey (c.1946–c.1973b: 1), the key insight of Moore was that ‘the Good [as an end in itself] is a matter of direct judgement and is not to be explained away in terms of anything else’. Instead, in a way that resonated powerfully with Hawtrey, Moore distinguished between ‘intrinsic’ values—things that were valued in themselves, irrespective of their context and consequences—and ‘instrumental’ values—which represented intermediate ends (Moore 1993/1903: 280–98). His view of the content of ethical thought as irreducible was Platonist and essentialist in character (Baldwin 1990). In his phenomenology of ethical thought, Moore parted company both with German Idealist metaphysics, including Kant, and with the British utilitarian philosophers, above all Bentham and James Mill. Kant’s conception of ethics as founded on the a priori principle of practical reason was deemed inadequate. It saw goodness as a matter of ‘being willed’ or ‘felt’ in a certain way, of discovering what is implied in will or feeling ( Moore 1993/1903.: 179–90). For Moore, an ideal state corresponded to anything ‘greatly good in itself ’ (ibid.: 232). It was
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Patron Saints ( 2 ) 203 represented by experiences that inspired aesthetic enjoyment and personal affection towards those with ‘admirable mental qualities’ (ibid.: 238–50; quoted approvingly by Hawtrey c.1946–c.1973a: 101). Ethical knowledge rested on an intuitive grasp of fundamental ethical truths for which we can give no reason. This position led Moore to attribute a special value to knowledge, over and above its value as a means. It also pointed in the direction of a common-sense approach to ethics that appealed to a statesman-economist like Hawtrey (Baldwin 1990). Moore (1993/1903: chapter 2) engaged in a critique of the utilitarianism of Bentham and Mill, the rational egoism and hedonism of Sidgwick, and the evolutionary thought of Herbert Spencer. He criticized the thesis that goodness can be defined in naturalistic terms of pleasure, desire, or the course of evolution. For Hawtrey (c.1946–c.1973b: 4), the key insight that he derived from Moore was that: ‘Good is not a mere measure of the individual’s preferences’. Instead, he followed Moore in claiming that ethics was an autonomous science, irreducible either to natural science or to Kantian-style metaphysics. Ethics examines the ‘intrinsic value’ of objects, which depends on their ‘intrinsic nature’. Under this influence, Hawtrey rejected the idea of basing economics on the doctrine that pleasure is the sole good and on the fallacious confusion of the ‘desired’ with the ‘desirable’. It was erroneous to think that nothing other than pleasure is desired. He was unremittingly hostile to empiricism. Hawtrey (1926: 186) was strongly influenced by Moore’s rejection of utilitarianism for ignoring the issue of the quality and the ordering of different pleasures. Moore inspired his critique of mainstream Classical economic theory for its ‘cult of individualism’ and for treating wealth as the end of economic activity (ibid.: 179–80, 182). In his account of duty and obligation, which so influenced Hawtrey, Moore sought to combine utilitarianism with his conception of intrinsic value in a way that distanced his ‘ideal utilitarianism’ from the ‘hedonistic utilitarianism’ of Bentham, Mill, and Sidgwick (Lévy 1981: 242). He used the utilitarian principle to define obligation in terms of intrinsic value (Moore 1993/1903: 196–8). Given his respect for the uncertainties that beset practical ethics in the real world, Moore adopted a position of moral conservatism. He argued for following rules of conventional morality (ibid.: 205–7, 211–14). ‘The individual can . . . be confidently recommended always to conform to rules which are both generally useful and generally practised’ (ibid.: 213). This tone of moral conservatism in Moore appealed to Hawtrey. Hawtrey (c.1946–c.1973b: 69–71, 134–7) stressed that civilization depended on a practical moral discipline, whether via religion or reason, in the form of respect for legal rules and for ‘the code of morals and manners [enjoining] giving . . . generosity, hospitality, conviviality among friends and on occasion among strangers’. He advocated a moral code of ‘mutual help, fair shares, compassion and self-denial’. Hawtrey (ibid.: 309–10) subscribed to an objective good: ‘Good is the right end for all mankind. That is the meaning of the objectivity of good’.
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204 Conservative Liberalism, Ordo-Liberalism, and the State In contrast, Keynes (1905) drew an early distinction between the ethics of Moore, which dealt with ‘states of mind’ and ‘being good’, and practical ethics, which was about ‘states of affairs’ and ‘doing good’. This distinction detached him at least in part from the Bloomsbury circle. For Keynes, in the wake of Moore’s book, the great moral challenge was in the realm of practical ethics in tackling great questions of public affairs. Practical ethics was the domain of economics and politics, where actors had to deal with uncertainty and probability. In the realm of action, contemplation of the good was not enough. Moore was, in Keynes’s view, a better guide to private virtue—being good—than to political virtue—doing good. ‘States of mind’ were unavoidably connected to ‘states of affairs’ in ways that Moore had not fully appreciated. Keynes’s parting of company with Moore’s attempt to expound a practical ethics had an ideological component as well as a difference of intellectual dispos ition. He was critical of Moore’s attachment to a too-conservative form of ruleconsequentialism. In this respect Keynes differed from Hawtrey (c.1946–c.1973b: 37), who placed faith in a moral code for guidance, one grounded in ‘honesty, good faith, kindness, respect for property, for the family, for authority, and for personal rights and feelings’. Hawtrey retained a distrust of Keynes’s ‘quick and clever talk’ and what he saw as Keynes’s elevation of the pursuit of intellectual pleasure in what was interesting over the pursuit of ethical consistency. In return, Keynes criticized Hawtrey for his ‘atavistic relapse to the very earliest ideas you had on the subject [economics] unmitigated by subsequent experience and discussion’ (Keynes’s letter to Hawtrey of 6 May 1937, Churchill Archives Centre, The Papers of Sir Ralph Hawtrey, HTRY 11/7). Keynes’s distancing from Moore is evident in his memoir My Early Beliefs, which was written just before the Sudeten crisis of 1938. In it he looked back nostalgically to Moore’s belief in human decency, nobility, and reasonableness. However, its chief note was disillusion with the legacy of Moore: namely, an ethical philosophy that had turned inwards and failed to connect with ‘states of affairs’. ‘We accepted Moore’s religion . . . and discarded his morals’ (Keynes 1949/1938: 92). Keynes claimed that Moore and his disciples—including Keynes at the time—had failed to understand both the irrationality in human nature and the tightly constraining limits of knowledge with which practical ethics had to contend. Above all, Moore and his disciples had not appreciated that civilization was ‘a thin and precarious crust’. In fact, traces of Moore’s elitism and conservatism remained in Keynes’s belief that civilization was ‘erected by the personality and will of a very few, and only maintained by rules and conventions skilfully put across and guilefully preserved’ (ibid.: 99). Hawtrey was part of Moore’s inner circle within the Cambridge Apostles and remained so despite his lack of an academic post and his long period as the preeminent in-house economist in the Treasury. Moore’s ideas had enduring effects on him, extending into his long retirement when he intensified his reflection on
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Patron Saints ( 2 ) 205 the value of Moore’s ethical theory and its relevance to political economy. Moore was central to him, as with Keynes, becoming a philosopher-economist. His frank and independent mode of thinking encouraged both Hawtrey and Keynes to challenge traditional conceptual frameworks in economics, especially the individualism of Classical liberalism. Moore’s ethical philosophy led them to reject the hedonistic utilitarianism of Bentham and Mill and to argue that happiness cannot be reduced to material pleasure. In contrast to Keynes, Hawtrey sought consistently to apply Moore’s ethical principles to economics (for details see Chapter 9: 280–6). Moore’s ideas found echoes in some of his published works, notably The Economic Problem (1926) and Economic Destiny (1944). They were even more evident in his later unpublished works: Right Policy: The Place of Value Judgements in Politics (c.1946–c.1973b) and Thought and Things (c.1946–c.1973a). Both manuscripts are lodged in the Churchill Archives Centre, The Papers of Sir Ralph Hawtrey. This difference in the degree of philosophical attachment to Moore paralleled an underlying ideological difference between Hawtrey and Keynes. Hawtrey was a more pronounced conservative liberal in ideological outlook. His approach to economic policy was designed around encouragement of the cautious thrifty saver and safeguarding of the creditor, a point of correspondence with Röpke. Hawtrey’s more conservative ideological outlook contributed to making him a marginal figure in the Bloomsbury Group. Conversely, as Chapter 9 shows, it fitted in much better than that of Keynes with the dominant mind-set in the Bank of England and in the Treasury during the 1920s and into the 1930s. In the 1920s and 30s, Hawtrey became a symbol of orthodoxy as architect of ‘the Treasury View’. Despite this orthodoxy, Hawtrey’s writings displayed an ethical ambivalence towards capitalism (notably Hawtrey 1926: 337–9, 390, 1944: 358, c.1946–c.1973b: 172–3, 197, 219, 250). This ambivalence stemmed from his concern that the profit motive led to economic and political inequality, not least a bias of power within the market order, and from the difficulties that the market economy had in reconciling intrinsic value with market value (Hirai 2012: 183). It suggested a close family resemblance with the social thought of founding Ordo-liberals like Röpke and Rüstow. Moore’s imprint was evident in the way that Hawtrey thought about economics as a subject. It led him to reject purely egoistic philosophy and to emphasize the quality and ordering of preferences. He condemned the influence of utilitarian ism and of the Darwinian doctrine of natural selection in narrowing the subject matter of economics to technical questions about the pursuit of wealth and a single economic end like utility (Hawtrey 1944: 195–6). The consequence of this influence had been the divorce of economics from practical life (Hawtrey 1926: viii, 179–80). The challenge was to apply ethical criticism to economics and thereby draw it into the great controversies of the day. Economics had to deal with the selection of ends as well as of means (ibid.: 6).
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206 Conservative Liberalism, Ordo-Liberalism, and the State Hawtrey’s critique of capitalism centred on ‘false ends’ (ibid.: chapter 26, 1944: 197–201, c.1946–c.1973b: 69–71). He defined a false end as the elevation of an intermediate end into an ultimate end and taking it to extremes. Here Hawtrey had in mind love of one’s country, the acquisition of material possessions, love of money, pursuit of leisure, economic justice, and even liberty itself. The pursuit of false ends leads to an obsession with power which proves either sterile or destructive. According to Hawtrey, the one-dimensional pursuit of profit led to exaggerated inequalities of incomes and power. ‘The cult of money-making and the cult of national power have this in common, that both are directed at what may be called false ends . . . something . . . that people seek . . . without considering for what end it is to be used’ (Hawtrey 1926: 314). For Hawtrey, the economic problem centred on wise spending, not just the distribution of wealth and of national power (ibid.: 387): Wise spending calls for initiative, knowledge and taste, and for time and effort in the application of these qualities. The ordinary man neither possesses the qual ities in any degree, nor can spare the time and effort . . . The products, material and immaterial, to which human effort is applied are very largely superfluities, conforming to fatuous conventions or fashions. (ibid.: 304–5)
Hawtrey’s discussion of the Good led him to offer a critical analysis of economic welfare. He rejected the narrow conception of economic welfare propagated by fellow Cambridge economists Alfred Marshall (1842–1924) and Arthur Pigou. Hawtrey’s notion of economic welfare also stood in sharp contrast to the subject ivist conception in the Austrian tradition. At the heart of his notion of welfare was a critique of the consumption products to which economic activity was devoted, of the concept of consumer preference in Classical economic theory, and of the gap between market value and ethical value (ibid.: 179–201, 304–14, 385–7). In The Economic Problem (1926: 189–201) Hawtrey drew a distinction between ‘creative’ products and ‘defensive’ products. Later, in Economic Destiny (1944: 202–12), ‘defensive’ products were re-labelled ‘utility’ products, whilst in Right Policy (c.1946–c.1973b: 153–63) ‘creative’ products became ‘plus’ products. This distinction mirrored that of Moore between ‘intrinsic’ and ‘instrumental’ values. Utility products served to meet a ‘given need’: maintaining ‘life, health and physical fitness, and [guarding] against injury, pain or discomfort, or [saving] effort and fatigue’ (ibid.: 154). They made life materially easier, not least for the very poor. In contrast, plus products conferred some positive benefit or enjoyment that contributed to the ‘true ends’ (ibid.: 154). Plus products—in such forms as works of art, ornament and decoration, music, sport, and entertainment—were not identified with the Good but seen as contributing to it to the extent that they embodied artistic or intellectual imagination and ‘set out to please’. They offered
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Patron Saints ( 2 ) 207 access to interesting ideas and enriched emotional experience. ‘Intellectual activ ities, viewed as means, are the very basis of civilization. The whole organization of society, economic, political and social, depends upon its accumulated wisdom’ (Hawtrey 1926: 201). Hawtrey’s argument gained the support of Hayek, who regarded The Economic Problem as ‘a most important work’ that fitted with the development of his own thinking (in a letter of 3 May 1934 to Hawtrey, Churchill Archives Centre, The Papers of Sir Ralph Hawtrey, HTRY 10/51). Later, Hayek endorsed the argument in Economic Destiny, pointing out that they agreed on fundamental issues and were wholly on the same side against the ‘younger Keynesians’ (letter of 2 June 1944 to Hawtrey, ibid.). This agreement went beyond their shared technical critique of Keynes’s General Theory of Employment, Interest and Money (on which Hayek’s admiring letter of 29 November 1936 to Hawtrey, ibid.). It reflected a common moral conservatism. For Hawtrey the challenge was to make the market economy contribute something positive to the good life, understood in Moore’s sense. He concluded that the consumer’s preferences ‘have a very slight relation to the real good of the things he chooses. Market value is so far from being a true measure of ethical value that it is hardly even a first approximation to it’ (ibid.: 215). ‘Cash value has very little bearing on the aesthetic or intellectual value of plus products’ (Hawtrey c.1946–c.1973b: 159). He suggested that it was preferable to speak of ‘higher’ rather than ‘greater’ pleasure in the manner of John Stuart Mill’s revision of Benthamism, enabling us to say that ‘poetry is better than push-pin’ (Hawtrey 1926: 186–7). Hawtrey made the connection between private and public virtue in economic matters: Virtue consists in doing good, and if good is done someone must experience good . . . The same moral principle that enjoins kindness to individuals makes the welfare of a community the end of economic action. (Hawtrey 1944: 199)
In a manner that was typical for founding Ordo-liberals, Hawtrey (1919, 1923) argued that virtue required macro-economic policies that would secure price stability through restoration of the gold standard and a vigilant monetary policy in the hands of an independent central bank (see Chapter 9: 281–2). The gold standard and monetary policy needed support from rigorous fiscal policies that would encourage private investment through balanced budgets. These sound-currency policies were consistent with rewarding the thrifty and prudent man, above all the saver and investor. Abstinence and sacrifice were virtues that shaped his economic thinking, especially with respect to consumption (Hawtrey 1919: 230). The presence and cultivation of these virtues was essential to avert inflationary indulgence through credit expansion and the subsequent protracted
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208 Conservative Liberalism, Ordo-Liberalism, and the State and painful deflation, as happened in 1920–2. ‘After the debauch comes the headache’ (ibid.: 375). Hawtrey was distinctive in stressing that the tastes of the market are a proper and ethical issue for economics. Policies are needed to cultivate the quality of creative imagination in individuals and to extend opportunities for its exercise and enjoyment through ‘culture, art, science, learning and literature, the beautiful, the interesting, the humorous’ ( Hawtrey 1944: 211). Such policies should include a supportive context for the artistic and intellectual achievements of a privileged few. More importantly, they should promote appreciation of these achievements as a constituent of the welfare of the many. For Hawtrey (c.1946–c.1973b: 290–1), liberal education in the hands of a dedicated teaching profession assumed the central role in cultivating literary, artistic, and scientific tastes and in inculcating the good manners and sound morals that he sought. He looked to a governing class of families that possessed the tradition of public life, that possessed good judgement, that enjoyed the support of an enlightened public, and that was dedicated to the provision of facilities for desirable pursuits, like libraries, art galleries and museums, good music and drama, and conservation (ibid.: 304–8). Public policy was about more than incentives to productive activity. It was also about seeking to ensure that the system of rewards leads to products that are desirable.
Philosophical Legacies Continental European philosophy did not provide conservative liberalism and Ordo-liberalism with one single coherent language. There were discernible differences in forms of philosophical justification between, for instance, Walter Eucken, Hawtrey, Müller-Armack, Rueff, and Rougier. Nevertheless, the language of the founding thinkers shared certain characteristics. First, they rejected philosophic naturalism and empiricist Realism, two central features of much Anglo-American philosophy. They also had difficulties with philosophic Pragmatism, at least as it evolved after James and as represented by Dewey. Second, the founding conservative liberals and Ordo-liberals identified a crisis in philosophy as part of the larger crisis of modernity, the result of its materialism, subjectivism, and moral relativism (Renker 2009). The tradition began with a strongly metaphysical and ethical leaning in examining economic, monetary, and political disorder. However, the ethical outlook of conservative liberalism and Ordo-liberalism struggled to endure in professional philosophy and to penetrate the mainstream economics discourse. From the 1940s professional philosophy moved on to other problems, whilst Anglo-American economics came to define the international mainstream. The immediate post-war correspondence between Walter Eucken and Röpke illustrates their awareness of this challenge and their sense of its intellectual distance from their own way of thinking about economics. Eucken
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Patron Saints ( 2 ) 209 dismissed the idea of Keynesianism as a revolution, seeing it as a return to mercantilist thinking (letter to Röpke, 9 March 1990, in the Thüringer Universitätsund Landesbibliothek, Jena, Nachlass Walter Eucken). In turn, leading AngloAmerican economists were unfamiliar with, and uncomfortable with, the linguistic imprint of continental ethical philosophy. Different philosophical legacies mattered because language is vital in both facilitating and impeding processes of communication and understanding in political economy. It is the medium through which individuals come to perceive and interpret the world and a factor in the epistemic diversity within political economy. The main background philosophical understandings in AngloAmerican economics were inhospitable to the flourishing of the kind of thinking represented by conservative liberalism and Ordo-liberalism. The dominant analytic philosophy in the Anglo-American world was sceptical, even hostile, towards ‘abstract’ and ‘esoteric’ continental European metaphysics. It offered philosophic justification for narrowly focused, technical economic theorizing, a context within which the mathematical formulae and model-building of the post-war ‘neo-classical synthesis’ or new Keynesianism could flourish. In addition, ethical philosophy left conservative liberalism and Ordo-liberalism with the open question of how, in practice, moral rights and duties are to be enforced. Addressing this question raises the issue of the relationship between truth and relevance (Albert 2009: 84). Claims about the truth or falsity of conservative liberalism and Ordo-liberalism can be made independently of their relevance (Eucken 1934: 29–31, 1940: 45). Claims about their truth can be made even when it proves irrelevant in certain cases because the conditions do not exist for its application (Eucken 1938b: 22–53). This issue arose in the problematic relationship between principle and strategy in the management of the euro area crisis after 2009 and in subsequent euro area reform. The question was how much to rely on strict, automatic legal enforcement, with sanctions, in fiscal and structural policies; how much to trust in public persuasion, for instance through ‘naming and shaming’; and how much to tolerate policy diversity to accommodate different economic philosophies. Conservativeliberal and Ordo-liberal thinking gravitated between two poles. On the one hand, member states had moral duties as part of a ‘stability community’ with a shared destiny. There was a danger that ‘red lines’ would be crossed, and centrifugal forces unleashed, if the law did not firmly enforce these duties (e.g. Stark 2011, 2013). On the other hand, conservative liberalism and Ordo-liberal thinking could attach greater weight to considerations of strategy. There remains a moral duty to comply with rules. However, it could be argued that the most effective strategy would be to use argument and persuasion, not the force of law, and to accommodate the plurality of policies that are linked to different legacies. Conservative liberalism and Ordo-liberalism continued to be caught between these two poles in addressing the enforcement of ethics in European economic governance.
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7
Patron Saints: (3) Theological Foundations of Ordo and Religious Traces My Christianity is that of Leibniz and Kant . . . An economic order cannot make people moral—that must happen through other forces . . . As soon as it [liberalism] lost its religious and metaphysical content, it deteriorated . . . Walter Eucken, letter of September 1941 to Alexander Rüstow (Lenel 1991: 13), author’s translation Religion is vital in understanding the founding conservative liberals and Ordoliberals, their position within debates about liberalism, and—not least—their didactic style of argumentation. They wrote in a time of intense religious revival and controversy, notably in the 1920s and just after 1945. This religious context led them to express their opinions with a conviction and earnestness that could irritate their liberal contemporaries as intransigent, repetitive, and outmoded in a secular age. The religious outlook of the founding conservative liberals and Ordoliberals was important in various ways. It highlighted inner tensions and contradictions within liberalism. It clarified their sense of the limitations of liberalism in providing solutions to key moral issues. It forced consideration of the relationship between private and public values. And it begged questions about how liberalism was to conceive of the individual. The depth of Walter Eucken’s religious convictions, and their importance in relation to his economic thought, are most evident in his copious correspondence with his mother, Irena (in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Their correspondence reveals Eucken’s solution to the problem of the relationship between economic liberalism and Christianity. Its solution depended on recognizing that the individual was indissolubly engaged as a Christian in economic thought and practice. Eucken’s engagement followed his father’s teaching that the most radical change required was not external—for instance, in altering the terms of property ownership, as prescribed by socialism. It was in man’s inner world and how man related to work (Eucken 1927: 47). In a letter of September 1941 to Alexander Rüstow, Eucken stressed that the value of
Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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Patron Saints ( 3 ) 211 Christianity to liberalism derived from the independence of Christians vis-à-vis ruling elites and Christianity’s role in defending the individual from the snares of materialism (Lenel 1991: 13). Man had to follow commandments that derived from a higher authority. For Eucken, religion was the means by which the individual could transcend selfishness and achieve moral and spiritual transformation. Not all founding conservative liberals and Ordo-liberals shared Eucken’s view that the churches were a central pillar of a well-functioning liberal order (for instance, Knight in Knight and Merriam 1945: also Rougier 1925). They did, however, find common ground in the view that the changing fortunes of economic liberalism were intimately linked to the history of religion (e.g. Rüstow 1945). According to Alfred Müller-Armack (1948a), economic liberalism had not been a passive and guiltless victim of the history of religion. It had aided and abetted a process of secularization that had led to ‘an idolatry of humanism’ and conspired to produce the ‘century without God’. The outcome had been the demise of liberalism, Nazi rule, genocide, the Second World War, and the ruin of civilization.
On the Ethical and Strategic Roles of Religion Eucken, Müller-Armack, and Rüstow differed in the precise details of their positions on the nature and role of religion in ensuring a humane and just economic order. Nevertheless, religion was central to the common set of existential concerns, concepts, and discursive practices about order, civic virtue, and moral dis cipline that bound together their thinking about Ordo-liberalism. It addressed what they saw as man’s need to reach beyond immediate and physical needs as an individual to a sense of shared purpose and identity in an insecure world. Religion was important in the intellectual roots of conservative liberalism and Ordo-liberalism. It helped to cultivate what the American philosopher William James (1912: 294–300) called a ‘morally-strenuous’ attitude and had played a shaping role within social and economic structures, not least family life. This claim might seem unfamiliar and exaggerated to a later, more secularized and sceptical age in which religious observance and practices have been relegated to a more background role. Nevertheless, James (ibid..) argued that secularization and scepticism were not synonymous with the loss of emotional and aesthetic attraction to the values imparted by religion (also Bergson 1977/1932). Religious thought imparted a distinctive character to conservative-liberal and Ordo-liberal concern with the relationship between the economic order and the moral and social orders. Writing about Belgium’s and Europe’s post-war monetary difficulties, Paul van Zeeland (1921: 49–56) worried that the destruction of the economic and monetary order by inflation was leading to the destruction of the
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212 Conservative Liberalism, Ordo-Liberalism, and the State moral order of society. His worries reflected the influence of the Roman Catholic Scholastic economic thought to which he had been exposed at the University of Leuven (Maes 2018). ‘The economic order in its original mould was based on a hierarchy of values for goods and services’ and required a stable measure of value, namely a currency based on sound assets and the guarantee that contracts would be honoured on their original terms (van Zeeland 1921: 49–50). Inflation undermined the notion of value in material exchanges, destabilized the relations between creditors and debtors, created excessively rapid and unmerited enrichment that was disproportionate to effort, and poisoned social relationships by opening the door to arrogance, vanity, and egoism on the part of the beneficiaries and to distrust, anger, envy, and hatred on the part of the losers (ibid.: 51–3). The founding thinkers in conservative liberalism and Ordo-liberalism imbibed from religion a concern with what constituted an ethical economic order. They were drawn to reflect on the role of moral conscience in market activity and on the moral limits on markets (see for instance the wartime Bonhoeffer Memorandum (Denkschrift) (1979/1943)). At the same time, behind their worries lurked a conservative-liberal attitude. Religion mattered in the subsequent consolidation, evolution, and reception of conservative liberalism and Ordo-liberalism. Over the longer term, in more secular and sceptical societies, Lutheran and Reformed Protestant conceptions of civic virtue and moral discipline endured. They were described by James Buchanan (1994: 78–9) as the vitally important ‘Puritan virtues’ of hard work, saving, honesty in dealings, promise-keeping, truth-telling, respect for persons and property, sobriety, and tolerance. They were the values with which Buchanan, a disciplinary liberal, identified. Religion contributed not just the kind of publicly expressed faith in God exemplified by Eucken and Wilhelm Röpke. Its traces were also to be found in underlying intellectual and cultural attitudes and in enduring emotional and aesthetic attachments within conservative liberalism and Ordo-liberalism. They survived as ways of thinking, feeling, and living that had become socially embedded and could outlast falling church attendance and a decline in formal religious observance. However, views about the direction of influence between religion and conservative liberalism were divided. Walter Eucken was a deeply devout Christian. In his view, derived from his reading of Lutheranism, Christianity buttressed the independence of the individual vis-à-vis the state and its ruling elites. It also played a vital role in defending the individual from materialism (Lenel 1991: 12). As Eucken argued at the first meeting of the Mont Pèlerin Society in 1947, a lesson of the National Socialist regime was that—consistent with their own principle of tolerance—liberals must recognize the need to protect religion against suppression (Plickert 2008: 148). For him, the direction of influence was from his Lutheran faith to economic theory and practice.
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Patron Saints ( 3 ) 213 Other conservative liberals, for instance Rüstow (1950–7, Band 2: 269–72, 398), were less devout than Eucken (also Hayek; see Shearmur 2015: 216). They looked to religion in a more pragmatic way as an aid in giving meaning and direction in times of upheaval and disorder and in widening support for liberalism. This utilitarian and strategic approach reflected their pragmatic recognition that the reform agenda of economic liberalism could not hope to politically survive and prosper unless it reached out to embrace Christians of all faiths. Faced with the challenge of building a liberal social order in post-war France, Jacques Rueff (1945: 563) stressed that it required moral support, ‘divine or human’. He made copious references to St Thomas Aquinas and to the Books of Deuteronomy, Exodus, and Genesis to support his case (e.g. ibid.: 481, 496, 507, 517–19). Friedrich von Hayek (1967c/1944), who was an agnostic, pointed to the histor ical costs to liberalism from its opposition to, and intolerance of, the Catholic Church. In 1947, at the first Mont Pèlerin meeting, he reiterated the dangers that liberalism faced if it did not build bridges to Christianity (Plickert 2008: 148). Hayek (2017: 155–60) argued that Adam Smith, the father of Classical economics, had grounded his economic thought in ethical views derived from Stoicism and Christianity: the virtues of benevolence, prudence, self-command, industry, and frugality. According to Smith (1759,part 3, chapter 5: 4): And thus religion, even in its rudest form, gave a sanction to the rules of morality, long before the age of artificial reasoning and philosophy.
Religion, Social Ethics, and Ordo-Liberalism In the formative period of Ordo-liberalism, some of its founding thinkers drew on elements from medieval Roman Catholic Scholastic thought to buttress, and widen the appeal of, the Lutheran and Calvinist Reformed Protestant thought from which it had drawn its principal inspiration (e.g. Böhm 1950a; Höffner 1953; Veit 1953, 1954; Villey 1955). Later, in a more secularized and sceptical age, religious traces retained a background presence. Ordo-liberalism—popularized as the social market economy—took on the characteristics of a civil religion (Hien 2017a, 2017b). Religious habits of thought were adapted to secular ends as ways of increasing the emotional as well as rational appeal of ideas of conservative liberalism (Gentile 2005). However, this appeal did not travel so well beyond the Lutheran and Reformed Protestant milieus, notably their cultivated bourgeois intelligentsia (Bildungsbürgertum). Ideas of conservative liberalism retained their deepest social roots in this social stratum. A concern with civic virtue and moral discipline became a fundamental feature of Latin Christendom with the sixteenth-century Reformation. Whilst discernible within Catholicism, this preoccupation took on a distinctive form with
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214 Conservative Liberalism, Ordo-Liberalism, and the State Lutheranism and, even more so, with Calvin-inspired Reformed Protestantism (Schilling 2018: 306–7). These two forms of Protestantism contributed an ascetic and austere quality of moral seriousness to conservative liberalism and Ordoliberalism. The tone reflected Martin Luther’s reliance on admonishing ruling elites, often in harsh terms, for their lapses in civic virtue and moral discipline—a form of ‘naming and shaming’. John Calvin (1509–64) went further in advocating formal legal sanctions. It was these ascetic and austere qualities that Wilhelm Röpke (1976: 152–4, letter of April 1957 to Erich Welter) missed in the ‘brilliant and inventive’ minds of John Maynard Keynes and Joseph Schumpeter. He contrasted them with Walter Eucken’s moral seriousness, integrity, and reliability (Hennecke 2005: 82–4). Eucken identified as the archenemy the nihilism that was preached by Friedrich Nietzsche (Lenel 1991: 12). In addition to this ascetic and austere quality, the social ethics of Lutheranism and Reformed Protestantism were grounded in a communal philosophy that centred on the concept of a ‘just’ economic order. This concept helps in understanding the inspiration that Ordo-liberals like Franz Böhm took from the writings of Adam Smith (see Roser 1998: 110). In his The Theory of Moral Sentiments (1759) Smith recognized the positive role religion could play in encouraging human sympathy. It was in this early period that the legacy of Smith’s family background in a devout Scottish Presbyterian family was most visible. It lent a quality of conservative liberalism to his thinking. The Adam Smith that was discussed and celebrated by Ordo-liberals tended to be different from the Smith as known to neo-classical economists who thought in terms of the rational, utilitymaximizing individual. For Böhm, Smith exemplified the need to reconcile economics with both Christianity and liberalism. The concept of a just economic order was shared with earlier Roman Catholic Scholastic thought and post-Reformation Catholic thought (Höffner 1953, 1959/2006, 1985). Catholic thinkers pictured the economic order as morally and socially embedded (Parisi and Solari 2010). In Italy, Giuseppe Toniolo (1845–1918) and Guido Menegazzi (1900–87) emphasized social solidarity as a ‘third’ or ‘middle’ way between the extremes of atomistic, radical individualism, represented by Classical liberalism, and collectivism, represented by socialism (Gaburro 1997). Social solidarity also featured prominently amongst German Catholic as well as Lutheran thinkers (e.g. Briefs 1937, 1980; Brunner 1943; Müller-Armack 1947/1974, 1950/1974; Nell-Breuning 1955, 1974; Thielicke 1979). In their view, a just economic order depended on more than a self-regulating market, in which individuals pursued only their own subjective preferences. It involved a communitarian conception in which human beings existed in a personal relationship with each other which they valued and wished to sustain and improve. This relationship was grounded in shared ethical values, a social conscience, and mutual obligations, as well as in respect for individual rights (Pesch 1905–23; Scheler 1954, 1987, 2008; also Donohue-White, Grabhill, Westley, and
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Patron Saints ( 3 ) 215 Zúňiga 2002; Parisi and Solari 2010). A just economic order involved moral duties as well as rights. However, the concept of a solidaristic order, as developed by Catholic thinkers like Toniolo and Menegazzi, had a complex and difficult relationship with the kind of ethical liberalism that characterized conservative liberalism and Ordoliberalism. The long-standing theological differences between Lutheranism and Reformed Protestantism, on the one hand, and Roman Catholicism, on the other, remained. They centred on two issues. The first was the issue of whether ethics was a matter for individual conscience, accessible to all believers, or resided in the duty of obedience to a higher ecclesiastical authority (Graf 2006; earlier Rudolf Eucken 1901 and the Bonhoeffer Memorandum 1979/1943: 63–4). The second issue was whether solidarity was a matter of obeying the rules of the economic order or whether it required the state to address the substantive results of that order (Parisi and Solari 2010). Reconciliation of Roman Catholic and Lutheran and Reformed Protestant social ethics was to prove deeply problematic, despite the post-1945 efforts of Protestant Ordo-liberal thinkers to build bridges. The contribution of Lutheranism and Reformed Protestantism to the austere, stern, and rigorous ethics of conservative liberalism spread well beyond Germany into Northern and Western Europe. It took the form of certain views about how one should live, think, and feel. A full life, lived in a communal spirit, required self-discipline, resilience, and strength in the face of adversity, hard work, frugality and thrift, avoidance of ostentation, consciousness of one’s duty, control of one’s emotions, dedication to rationality, valuing education and learning, practising brotherly help, and serving the common good (Eichel 2012; Graf 2006; Schilling 2018). The political economy of conservative liberalism retained this link to a distinctive set of moral and emotional attitudes. These attitudes were to remain more deeply anchored in the legacy of Protestantism than in Catholic social teaching as it had evolved since the nineteenth century.
Classical Humanism, Conservative Liberalism, and Ordo-Liberalism Some founding conservative liberals and Ordo-liberals looked outside Christianity to the Classical Age and to the eighteenth-century Enlightenment as the true source of the virtues on which a civilized economic order should draw. This humanistic strand was represented by Louis Rougier and Rüstow. Rougier (1969: 1, 99–105) emphasized the heritage of Greek rationalism and Roman order as the great historical turning-point. His opposition to the Catholic ‘dogmas’ of France centred on the Scholastic mentality, which he rejected in favour of ‘the diversity and plastic malleability of the human spirit’ (Rougier 1925: xxxix, 808–9). Rüstow (1950–7, Band 2: 90–180) sought inspiration in aspects of
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216 Conservative Liberalism, Ordo-Liberalism, and the State Renaissance humanism and in certain periods of ‘high culture’ in Classical Greece and Rome, like the Athens of Pericles and the Rome of the ‘good’ Emperors. At the same time, the history of Classical humanism taught them both the acute fragility of civilization and its vulnerability to intellectual illusion and error. Rüstow (ibid.: 117–19) looked back to religious thought in the pre-Christian Classical world, notably to the Stoicism of Scipio the Younger. Otto Veit (1953: 33) quoted the words of Aeschylus in his Greek tragedy ‘The Kindly Ones’ (Eumenides, line 674), circa 458 bc: ‘Who among mortal men is righteous if he fears nothing’. The Classical notion of divine fate—in the form of the Furies, punishing those guilty of offending against the universal moral code—offered an alternative source of inspiration to inscribe a new discipline into liberalism. It appealed to those Ordo-liberals who saw Christianity as having inculcated too passive a spirit of subservience to be compatible with a liberal society or as hostile to reason (e.g. Rougier 1925, 1960; also Rüstow 1945, 1950–7, Band 2: 269–72, 1963a; Veit 1946: 207–15). Like Rougier and Rüstow, Wilhelm Röpke (1942) and Veit (1953) looked back to the pre-Christian world of Ancient Greece and Rome. However, Röpke and Veit differed in seeing Classical thought and Christian social ethics as complementary in their views of a divinely planned and rational universal order (on Röpke, see Hennecke 2005: 140). Veit (1953) noted that the concept of Ordo could be traced back beyond medieval Scholasticism to Ancient Greece and Rome. Stoicism had taught that moral goodness and wisdom were achieved by discip line—by replicating the rationality of the universal order in oneself and enacting one’s own assigned role in that order. Classical references to justify a conservative liberalism were helpful in enlisting the intellectual and political support of the cultivated bourgeois intelligentsia of their time.
Religion in the Genesis of Conservative Liberalism and Ordo-Liberalism . . . it is neither safe nor right to go against conscience. I cannot do otherwise. Martin Luther’s words before the Emperor Charles V and the Imperial diet at Worms, 17 April 1521 (Schilling 2018: 184)
These defining words of the Protestant tradition remained an inspiration to those in the Freiburg Circles (Kreise) who were to engage in resistance to the Nazi regime. The Freiburg School and the Freiburg Circles were not synonymous: Constantin von Dietze, Arnold Lampe, and Gerhard Ritter were not Ordo-liberals in the Eucken sense, though the affinities were closer in the case of von Dietze (Dathe 2018a: 71–2). However, Franz Böhm and Walter Eucken played key roles as contributors to the Bonhoeffer Memorandum of early 1943. It attempted to
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Patron Saints ( 3 ) 217 spell out the inspirational Christian social ethics of Ordo-liberalism (Blumenberg-Lampe 1973, 1991; Dietze 1960/1961; Thielecke 1979). In a letter to Rüstow in 1942, Eucken stated: ‘I could neither live nor work if I did not believe that God existed’ (Rieter and Schmolz 1993: 105). His father Rudolf had been critical of much theological thought as insufficiently strict and austere to fill the ‘sad emptiness of an atomized world’ (Hampe 1933: 150). Walter Eucken (1932b: 84–7) echoed this view when he argued that the solution to the problem of emptiness was neither state intervention and the ‘total’ state nor the ‘economization’ of life. The ethical vacuum could only be filled by Christian faith. Böhm, Rudolf Eucken, Walter Eucken, Edmund Husserl, Röpke, and Veit were devout and pious Lutherans. Dietze served as rector of Freiburg University (1946–9) and as president of the German Evangelical Church (1955–61). The religious motif was powerful in the work of Röpke (1958b: 192–3), who wrote of the need for rule by ‘secularized saints’ who could act as a ‘class of censors’ and preserve ‘old truths’. His letters revealed just how emotionally bound he felt to the ascetic values of Lutheranism through his family background (Röpke 1976: 167–8; Hennecke 2005: 11). For Röpke (1944: 210), as for Walter Eucken, Christian values and religious revival were the precondition for a functioning market economy (Dathe and Goldschmidt 2003; Horn 2011: 17). Röpke argued that liberalism required a firm framework of moral discipline that rested on an order preordained by God (see also Höffner 1953; Veit 1953). The sense of civilizational crisis out of which conservative liberalism and Ordo-liberalism emerged provoked a profound conviction that the way forward required a firm grounding in a reinvigorated Christian social ethics. This way forward included a new spirit of reaching out to bridge the confessional divide between Protestantism and Catholicism. Rüstow (1950–7, Band 2: 126) argued that Europe was living through a similar period of crisis to that of the sixteenthcentury Reformation. Müller-Armack (1959:560–75) saw a parallel between post-1945 Europe and how Germany had restored peace after the devastating religious Thirty Years’ War in the seventeenth century. He pointed to a Christian duty to promote social peace by working to reconcile different beliefs. It was necessary to seek common ground between neo-liberalism, the Ordo thinking in Roman Catholic teaching, the idea of brotherly support in Lutheran teaching, and socialism (also Müller-Armack 1948a: 406). The threat from Soviet communism and the new Cold War accentuated the priority that Ordo-liberals gave to confessional reconciliation in the search for a more resilient and politically popular disciplinary basis for liberalism (e.g. Röpke 1954, 1957a, 1962b; Rüstow 2008). The importance that Röpke and others attached to this confessional reconcili ation had a strategic and utilitarian aspect. The division of Germany in 1948–9 deprived the new Federal Republic of its Lutheran population in the east and shifted the population balance towards Catholicism. Gaining electoral majorities for Ordo-liberalism required enlisting support from within Roman Catholicism.
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218 Conservative Liberalism, Ordo-Liberalism, and the State Hence Ordo-liberals had an incentive to adopt an ecumenical outlook. However, Catholics were to remain deeply suspicious of attempts at rapprochement. The German pension reform of 1957 testified to the victory of Catholic arguments on social policy and represented a serious political defeat for Ordo-liberals (Manow 2020). Lutheran and Reformed Protestant social ethics provided a source of family resemblance in conservative liberalism and Ordo-liberalism. However, the relationship between Lutheranism and Reformed Protestantism, on the one hand, and Catholic social thought, on the other, remained profoundly ambivalent and difficult. Overcoming the contestation between them proved a great source of difficulty in extending the political appeal of conservative liberalism and Ordoliberalism. The relationship was to some extent mediated by the concept of Ordo. Nevertheless, Catholic economic thought, as it has developed from the 1830s, made for serious difficulties. It reflected a deep commitment to the ethics of Christian fellowship, forgiveness, and love for the poor (on which Almodovar and Teixeira 2008). However, this commitment went along with a critique of liberalism, as well as socialism, for its materialism and contribution to moral decay. The Catholic critique of liberalism found its way into the early papal encyclicals (e.g. Pope Leo XIII 1891; Pope Pius XI 1931). It endured beyond 1945. The relationship between this body of Catholic social thought and the Ordo-liberal trad ition was shaped by the origins of the tradition in a renaissance of Lutheran social thought that was more hospitable to liberalism. Papal encyclicals—from 1891 to 1991—document an alternative tradition. They also show how, and to what extent, Catholic social thinking adapted to emerging conservative-liberal and Ordo-liberal ideas. This adaptation did not, however, satisfy the disciplinary requirements of many in the Lutheran and Reformed Protestant traditions.
Lutheranism and Reformed Protestantism as Sources of Christian Social Ethics The post-1930s resurgence of Christian social ethics stemmed from the twentieth-century crises of devastating world war, the demise of liberal democracies, and the rise of fascism and communism. Crises on this sort of scale tend to prompt religious reawakening in a population and the renewal of theological debates. Destruction, inhumanity, and terror generate a sense of a ‘fallen world’, produce profound disorientation, and quicken and sharpen the sense that new and deeper meanings need to be found. Across Western Europe the immediate aftermath of the 1939–45 war witnessed a surge in church attendance, in the foundation of political parties that sought to promote Christian social ethics in their policies, and in theological debates about the nature of those ethics within both Catholicism and Protestantism. In broad terms, Catholic social thought
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Patron Saints ( 3 ) 219 shifted in a corporatist direction, and Protestant thought in the direction of conservative liberalism, as represented by Ordo-liberalism. The sense of moral decay went along with deep concern that, unlike Roman Catholicism since the late nineteenth century, Lutheranism had failed to develop a social ethics of its own. Lutheran theologians responded with a sense of urgency (Graf 2006; Petersen 2008b; Thielecke 1979). The Swiss theologian Emil Brunner’s (1943) work on justice—and earlier that of Friedrich Gogarten (1932) on political ethics—influenced many Ordo-liberals, including Walter Eucken (1952: 348–9), Müller-Armack (1948a: 562), Röpke (1944), and Veit (1946: 208–14). They recognized that Luther had not offered a systematic economic or monetary theory; such matters were of secondary interest to him (Schilling 2018: 435, 447). There was, nevertheless, a recurrent theme of intransigent opposition to greed, as manifested in the power of monopolies and in the activities of speculators and usurers (ibid.: 437–42). Lutheran theologians sought to develop this insight in relation to the problems thrown up by industrialization, urbanization, and proletarianization and to the relations between capital and labour. Böhm, Walter Eucken, Müller-Armack, and Röpke were deeply involved in this process of Lutheran renewal. In a letter of January 1944 Röpke (1976: 74) wrote that Lutheranism suffered from having a literature that was ‘so poor in terms of social philosophy and above all so insubstantial’. Müller-Armack (1947: 147, 1950/1974) stressed the urgent duty of Lutheranism to contribute to ‘the moralization of economic life’. It was necessary for Ordo-liberals to create a Protestant economic doctrine that could match Catholic social doctrine as it had evolved since the late nineteenth century. Whatever its historical limitations as a body of social ethics, Lutheranism had from its origins emphasized the vital role of a broad humanistic education in evangelical reform through universities, schools, and families (Schilling 2018: 370–5). Its community embodiment became the scholarly trained pastor (ibid.: 378). A Lutheran background emerged as a common characteristic of the German educational elite and of many in public office (Ringer 1969). Ordo-liberalism’s patron saints were mainly Lutheran: Johann Wolfgang von Goethe, Immanuel Kant, Edmund Husserl, Gottfried Leibniz, and Rudolf Eucken. In rural and smalltown Germany and beyond, the Evangelical vicarage (Pfarrhaus) served as a ‘cultural lighthouse’ and ‘life coach’. Alongside the doctor and the teacher, the pastor represented the cultivated bourgeoisie (Bildungsbürgertum) with its dedication to learning and to a career of public service (Eichel 2012). The Evangelical vicarage produced novelists, poets, philosophers, historians, officials, and politicians who together helped to define the notion of German culture (ibid.). German federal chancellor, Angela Merkel, came from this milieu. She was the daughter of a prominent Lutheran intellectual pastor, Horst Kasner, from whom she imbibed a strict devotion to logical analysis and to service (Resing 2017: 43–61). Röpke (1976: 167–8) never forgot his debt to his Lutheran-trained teacher, his ‘village Cicero’ (Hennecke 2005: 11).
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220 Conservative Liberalism, Ordo-Liberalism, and the State However, Lutheranism was just one part of the disciplinary revolution in Christian moral and social teaching. Gorski (2003) traced the disciplinary revolution in Switzerland, the Netherlands, Prussia, and across the Baltic States and Scandinavia to the Reformed Protestantism of Calvin. From the seventeenth century, it began to influence Lutheranism. This influence involved a greater emphasis on personal responsibility. The role of the Church, the state, and the intelligentsia was to ensure discipline through a clear framework of moral order and through the cultivation of self-discipline. Calvinist Reformed Protestantism further deepened the sense of moral ser iousness, the adherence to austere and ascetic values, within Lutheranism. Its influence spread beyond Northern Europe into the United States. Rougier (1969: 104–5) identified Benjamin Franklin (1706–90) as a prime example of America’s Calvinist virtues. His hugely popular Poor Richard’s Almanack had preached the values of work, frugality, and sobriety. For Rougier, it was Calvin rather than Luther who represented the turning-point with his condemnation of idleness, mendacity, luxury, profligacy, ostentation, and pomp (ibid.: 100–1). However, the connection between religion and economic values proved more complex in the United States. Evangelical Christianity espoused an economic libertarianism that was founded on the concept of freedom under God and that identified the market with the just distribution of rewards for earthly achievement (Chapter 1: 23; Chapter 9: 267–8; Chapter 12: 411–12 and 421–2). The influential American economist Frank Knight was born into an austere Reformed Protestantism (Emmett 2009: 159–70). He was known for his caustic and highly controversial dismissals of the follies of religion in constraining capit alist development (ibid.: 121). According to Knight, religion was unsuited to addressing the problems of power relations and collective action in highly complex pluralistic societies. It was too authoritarian, rigid, and doctrinaire to be compatible with liberalism’s ‘government by discussion’ (e.g. Knight and Merriam 1945: 29, 49–50). ‘Evil rather than good seems likely to result from any appeal to Christian religious or moral teaching’ (Knight 1939: 47). And yet his former student James Buchanan (1982: xi) summarized: ‘There is no God, but Frank Knight is his prophet’. Calvinist values—and the sense of man as a ‘fallen’ creature—continued to influence Knight’s work. He represented a secularized Protestantism of a fundamentalist kind (Emmett 2009; Nelson 2001). In Knight’s view, original sin undermined any efforts to act rationally. Economic and social problems were not at bottom intellectual. They were moral and not amenable to the ‘scientific propaganda’ in modern economics (Knight 1934, 1939, 1956). According to Nelson (2001: 295), Knight believed that ‘ascetic discipline rather than happiness should guide conduct’. He was an arch-opponent of Benthamite utilitarianism. Lutheran aspiration to develop an economic and social ethics has been identified as a shared characteristic of the founding German Ordo-liberals
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Patron Saints ( 3 ) 221 (Krarup 2019; Manow 2001). Walter Eucken (1926a: 16) attributed the decline of liberalism to the loss of its religious-metaphysical foundations. As Böhm (1937: 7), Müller-Armack (1947, 1949), and von Dietze (1947) stressed, an economic order was a moral as well as a technical challenge (also Nörr 1993). In the words of Eucken (1952: 176, 370), economic policy must be so designed that it realizes ‘the free, natural, God-intended order’. This result can only be achieved if the sinful side of human nature is brought under control by reference to an objectively recognizable, preordained order of values (Böhm 1957a/1960: 18; more generally, Manow 2001: 190; also Krarup 2019). In the words of Müller-Armack (1949: 316), this order requires ‘the binding commitment to eternal, final principles, which are given to the West in the form of the Christian revelation’. Seen in these terms, both the state and the market are disciplinary mechanisms that should be used to deter sinful behaviour, like exploitation by the powerful, and to reward appropriate behaviour (Böhm 1937: 12, 1950a: 43). The state is endowed with a moral and educative mission. In economic and monetary affairs this mission requires a prominent role for experts and for non-majoritarian institutions.
The Bonhoeffer Memorandum and Ordo-Liberalism The reformist character of Ordo-liberal thought was apparent in the 1930s when Böhm and Eucken, along with Dietze and Lampe, became active in the Confessing Church (Bekennende Kirche). The Confessing Church was founded in 1934 in opposition to the subordination of the Evangelical Church to the Nazi regime. It formed the context in which an economic programme for postwar Germany was debated and agreed by the Ordo-liberals (BlumenbergLampe 1973, 1991). During his Jena years Böhm enjoyed close contacts to prominent theologians in the Confessing Church, notably Gerhard von Rad and Helmut Gollwitzer, as well as the Marburg theologian Rudolf Bultmann (Roser 1998: 95–101). Gollwitzer’s influence on Böhm was enduring and spread also to the Freiburg Circles (Hansen 2009: 136–9). The link with Gollwitzer went back to the inspiration he had gained from Ricarda Huch’s book on Luther (Huch 1920). On 28 November 1938 Gollwitzer delivered a famous sermon in Berlin in the immediate wake of Kristallnacht as a wake-up call to Lutherans. On reading the text, Huch (1955: 211) wrote that it shone ‘a lonely light in this dark month’. Huch, Böhm’s mother-in-law, organized weekly ‘round table’ meetings of regime dissidents connected to Jena University, in cafes and restaurants (Roser 1998: 93–5; Bendt and Schmidgall 1994: 362, 364–5). These meetings were connected to Freiburg, through Böhm and the Jena economist Erich Preiser, as well as to Dietrich Bonhoeffer’s activities in Berlin, through Gollwitzer. Huch’s deep commitment to Luther found expression in her sense of participating in a
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222 Conservative Liberalism, Ordo-Liberalism, and the State war of religion against the evil represented by Hitler (Huch 1920, 1955: 64, 71, 340–1: also Baum 1950: 205). However, the Jena meetings were less conspiratorial in character than the activities that unfolded in Freiburg. Later, from late 1943 to March 1945, Böhm convened meetings of Jena professors to discuss the ‘Jewish question’, the collapse of law, the re-foundation of a state based on law, and the question of the economic order (Hansen 2009: 137). The imprint of Lutheranism was felt strongly in Freiburg. In October 1942, on behalf of the Confessing Church, the intellectual cleric Dietrich Bonhoeffer turned to the so-called Freiburg Circle to help draft a new principle-based conception of a post-war German state founded on Christian social ethics (Thielicke 1979). In its thinking about the state, the legal order, and the economy, the Bonhoeffer Memorandum reflected the ideas of Böhm, von Dietze, Eucken, Lampe, and the historian Gerhard Ritter. It called for a state with ‘ethical and educative power’ to cope with a world in which man had fallen from grace and was ruled by self-serving impulses (Bonhoeffer-Denkschrift 1979/1943: 72, 103). An economic order had to be constructed to make possible ‘the strongest possible resistance to the power of sin’ (ibid.: 129). Its purpose was to tame the sin that comes from desire and that expresses itself in egoism and to provide the conditions for loving one’s neighbour (ibid.: 90–1). As Eucken (1952: 365) wrote later, the competitive order is ‘the only order that bends the powers of egoism’. In a letter to Ritter on 2 June 1943, Böhm argued that Luther’s life and beliefs offered the one basis for some optimism that answers might be found to the isolation and loss of identity of the individual in modern mass society (Bundesarchiv, Koblenz, NL Ritter N 1166/489). These formulations revealed the element of continuity as well as change in the way in which Lutheran Ordo-liberals thought about the state. The Bonhoeffer Memorandum hesitated to endorse parliamentary democracy in its Western form as the necessary basis for a state ruled by law. This hesitation was justified, in part, by their doubt that such a political system would respect normative Christian principles and, in part, by their vivid memories of the failure of Weimar democracy and of the collapse of the French Third Republic (Bonhoeffer-Denkschrift 1979/1943: 685, 695, 701). Hesitation about parliamentary democracy had been articulated as early as 1933 by the Freiburg historian Ritter in Die Tatwelt. Ritter was the chief editor of, and a major contributor to, the Bonhoeffer Memorandum (Blumenberg-Lampe 1991: 212–13). He wrote of the need to free Germany from both the liberal Anglo-Saxon and the absolutist Roman models. Instead, Ritter envisaged a German national state with an authoritative leadership that respected eternal law and freedom. Its establishment involved a balance based around what the Prussian liberal constitutional theorist Lorenz von Stein had sought and what the conservative Otto von Bismarck had created. In Ritter’s view, the inadequacy of Anglo-Saxon liberalism stemmed from its search for freedom from the state rather than in the state (Ritter 1933).
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Patron Saints ( 3 ) 223
Building Bridges to Catholicism In seeking to build bridges between Lutheran and Roman Catholic social thought, Röpke (1976: 141) displayed a greater flexibility than Eucken on questions about the economic order. He saw Catholic social thought as an important ally in the fight against the enemy of collectivism, notably Soviet communism. In a letter of May 1943 to Rüstow, Röpke (1976: 69) praised Pope Pius XI’s encyclical Quadragesimo Anno of May 1931. Later, he claimed that it was ‘one of the most impressive, profound, and noble of manifestos’ (Röpke 1957a: 130; also Röpke 1944: 18, 96). Röpke’s vital role as a confessional bridge-builder was evident when he encouraged a fellow Mont Pèlerin Society member, the French Catholic economist Daniel Villey, to publish on the market economy in Catholic thought in the ORDO Yearbook (Villey 1955). Röpke placed greater weight than Eucken on the importance of convergence in matters of social philosophy and on the common heritage of Christian values from Ancient Greece and Rome. This desire to find common cause with Catholic social thought was shown again in his, on balance, positive reception of the encyclical Mater et Magistra of Pope John XXIII (Röpke 1962a). Röpke (1957a: 130) noted that ‘a goodly number’ of aristocratic liberals on which he drew for inspiration—he mentioned Acton and Tocqueville—had been Catholics. He was also aware of the political need to be able to marshal Catholic support if an Ordo-liberal programme was to prove viable in post-war divided Europe and Germany. For Eucken (1952: 325–50), the Church was one of the three ‘ordering powers’ in a liberal society, alongside the state and science. Like his Freiburg colleague von Dietze (1947), he believed that the Evangelical Church was better equipped to play this role (Eucken 1952: 348). Other leading Ordo-liberals called for the churches to take on a responsibility for spiritual renewal and to speak out on existential issues in a way that they had failed to do in the interwar period (e.g. Müller-Armack 1948a, 1959; Röpke 1942, 1944, 1960). The churches had a vital role in cultivating moral self-restraint and in inculcating the values of honesty, fairness, and discipline. At the same time, the conviction of Eucken and Röpke about the historical importance of over-throwing the old confessional barriers after so much shared suffering was never free of doubts. Despite this broad enthusiasm for confessional bridge-building, Eucken and Röpke could be critical of the churches. In the case of Protestants, they opposed theologians like Karl Barth (1886–1968), whom they saw as preferring to avoid questions of economic, social, and political order and retreating into inwardlooking theological debates that stressed the unbridgeable distance between man and God (Eucken 1952: 348). The acerbic Swiss Reformed theologian Barth was respected by them as a leading thinker in the Confessing Church’s mission to retain the independence of Lutheranism during the Nazi period. He was, however, less interested in developing new Lutheran thinking on social and economic
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224 Conservative Liberalism, Ordo-Liberalism, and the State questions than in rejecting the claim that the state should be ‘the single and totalitarian order of human life’ (Graf 2006). In contrast, Brunner was admired by Eucken and Röpke for attempting to end the isolation of Lutheran theology, for his clear rejection of communism, and for his advocacy of the family and federalism as the building blocks of a just social order (Eucken 1952: 348–9; Röpke 1944: 28). In Brunner’s book Gerechtigkeit (1943: 77–100, 167–74) the emphasis on family and federalism provided common ground with Catholic social thought. The family was allocated a much more important role than the state, not least in social policy. Like the family, the economy was a God-ordained social order (ibid.: 174–5). Brunner went on to outline the features of a just economic order, with reflections on ownership, interest rates, wages, prices, and business organization (ibid.: 174–218). He noted that, despite their differences over just interest rates and just wages, he was on balance close to Röpke in his conception of a just economic order (ibid.: 328).
Scholasticism, the Ordo Concept, and Catholic Social Thought The founding Ordo-liberals had an ambivalent attitude to medieval Roman Catholic Scholasticism and its revival as neo-Thomism from the late nineteenth century. The sense of mutual incomprehension was captured by Rudolf Eucken (1901) when he wrote of Kantian and Thomist beliefs as occupying different worlds. For Kantians, like Eucken, Scholasticism was too absolutist and rigid; for Thomists, Kantians displayed too little Christian faith and were prone to the error of ethical relativism. Dialogue about Ordo-liberalism was possible because of certain family resemblances with Catholic social thought. Both Ordo-liberals and Catholic social thinkers were suspicious of socialism and hostile to the language of class struggle. They also agreed that they lived in a class society and were on occasion prepared to adopt Marxist language of ‘proletarianization’ in their social critiques of capit alism (e.g. Röpke 1944). In addition, Ordo-liberals and Catholic social thinkers condemned ‘economism’ and ‘scientism’ for a dominant moral relativism and emphasized the moral limits on the market (e.g. Eucken 1926a, 1932b: 85). Beyond these affinities, the relationship between Catholic social thought and Ordo-liberalism proved more complex. Their relationship continued to be bedevilled by ambivalence, mutual suspicion, and conflict. The difficulties were related to the way in which the theological epicentre of the Ordo-liberal tradition remained Lutheran. On the one hand, the central organizing concept of Ordo offered a bridge between Protestants and Catholics. It took its inspiration from Plato and St Augustine and became central in the work of Thomas Aquinas (1225–74) and later Scholastic philosophers. Ordo referred to a universal, God-given order
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Patron Saints ( 3 ) 225 which the Church had a duty to safeguard (Krings 1941: 71). It was an a priori fundamental element of reality that made manifest the interdependence of all things (Veit 1953: 9–10). The capacity to create order is the characteristic of wisdom. According to Aquinas: ‘Those are called wise who order things and regulate them well’ (ibid.: 9). This capacity resided in obedience to the natural order and in man’s redemption from sin through the rediscovery of that order when it is lost. Ordo in Luther was linked to the concept of the three estates (Stände) from St Augustine. The ecclesiastical, the political, and the economic estates represented a divinely ordained, harmonious order, founded in natural law (Schilling 2018: 442). Every individual in this order was ‘called upon’ to exercise her/his responsibilities for the community and to avoid temptation and the devil. This social conservatism of Luther was echoed in Eucken’s concept of the three ‘ordering powers’ of the Church, the state, and science and in his stress on the interdependence of orders (1952: 327–48). Those who make monetary policy, fiscal policy, or social policy need to think in terms of the whole economic order (ibid.: 345). For Ordo-liberals, the concept of Ordo had strategic value in bridge-building to Catholics. It also offered value, meaning, and orientation in a post-war world in disarray. In 1948 Ordo was chosen as the title of the journal that devoted itself to policies for the economic order and in its early issues contained articles that made an ecumenical appeal (e.g. Höffner 1953; Veit 1953). However, other Ordoliberals were uncomfortable with the belief in obedience to a pre-defined, harmonious divine order, whether as envisaged by the pre-Christian Stoics or in Christian thought (e.g. Rüstow 1955: 60, 1960b: 155). This belief was held responsible for undervaluing human agency in creating a just order and for errors in Classical economic thought. Rüstow placed greater weight on human agency in his understanding of Ordo. He objected to the authoritarian and conservative character in the Lutheran conception of order that had been represented by Paul Althaus (1923). Josef Höffner (1953), a Catholic theologian and priest who had studied with Walter Eucken, sought to build bridges to Ordo-liberalism from the Catholic side by stressing their joint preoccupation with economic ethics and order. He pointed to the importance of the market and competition in Scholastic thought. The notion of free markets and competition remained alien, notably the concept of interest. However, Aquinas had argued that market activity could be reconciled with economic ethics if two conditions were satisfied (ibid.: 186–7). First, market activity had to pursue ‘a necessary or honourable goal’ and not be directed to profit as the highest and final goal. Ethically sound market activity included providing for one’s family, supporting those who suffered, and serving the community. Second, unfair competition was forbidden, including deception, improper contracts, and artificial price manipulation. For Aquinas, and the later Scholastics like Ludwig Molina (1535–1600), the ethical basis of market activity rested in service to the community, to the poor, and to one’s own family (ibid.: 202).
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226 Conservative Liberalism, Ordo-Liberalism, and the State According to Veit (1953: 6–7), Aquinas had used the concept of Ordo in a very specific sense. Aquinas had argued that ‘out of all possible constitutions of economy and society there is only one which deserves the name of an order in the higher sense’. The concept of Ordo connected economic questions to Scholastic metaphysics. For Höffner (1953), it offered a bridge between Catholic Scholastic thought and Ordo-liberalism because it had already been assimilated and used in Protestant thought. The concept of Ordo had surfaced in the work of Philip Melanchthon (1497–1560), the first systematic Lutheran theologian and close friend and collaborator of Luther. It recurred in the writings of the philosopher Leibniz (1646–1716) and his concept of pre-established harmony, as well as in the work of Immanuel Kant and Goethe (for examples see Eucken 1952: 372; Höffner 1953, 1959/2006; Krings 1941; Veit 1953). In addition, critiques of ‘mass man’, of radical individualism, and of materialism formed common ground between aspects of Catholic social teaching and Ordo-liberalism (Guardini 1950; Sturzo 1946). This attempt to focus on elements of shared ethical critique of the economy and society helped Eucken, Müller-Armack, Röpke, and others to entertain the belief that it might prove possible to heal the past confessional divide. In this way, a new post-war consensus could be forged around an economic order that was founded on a competitive market economy and social solidarity (see e.g. Petersen 2008a). The principle of subsidiarity in Catholic social thought played a further bridging role. It emphasized the duties of families and local associations and communities in promoting economic and social well-being. In this way, the claims of the centralized state were limited. The application of Scholastic philosophical teaching to a critique of modernity yielded the concept of solidarity, of mutual support, as a cornerstone of Catholic social thought (ibid.: 2–3). However, the concept of solidarism, as it had evolved in the work of Heinrich Pesch (1854–1926), Toniolo, and Menegazzi, highlighted differences between the Scholastic heritage and Lutheran and Reformed Protestant views of Ordo-liberalism about what the claims of solidarity entailed. For Lutherans and Reformed Protestants, solidarity was a matter of ‘help for selfhelp’, with the focus on personal responsibility. For Roman Catholics, the poor were brothers in Christ and deserving of support in the name of dignity and respect. The concept of solidarism stressed the mutual rights and duties of society and its members and became linked to the advocacy of corporatist organization of the economy (Pesch 1905–23). In the context of nineteenth-century industrialization and urbanization, Catholic social thought developed in a direction that challenged the excessively impersonal character of Aquinas’s teaching. Lutheran social thought—and the Ordo-liberalism to which it contributed— took shape against the background of a cross-national ‘golden period’ of Catholic economic thought which lasted from 1891 to the 1950s (Almodovar and Teixeira 2008). By then a cross-national network of Catholic economic thought
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Patron Saints ( 3 ) 227 had already taken shape, focusing on the social question. From 1891 it became subsumed in a hierarchical structure of papal authority. The network included Catholic university professors, relief organizations, societies, meetings, journals, newspapers, trade unions, and political parties. It was spread across Austria, Belgium, France, Germany, and Italy (for details, ibid.). These individuals and bodies were preoccupied with restoring the ethical supremacy of the Church in the modern industrial world by combating the liberalism and socialism to which this world had given birth. The strength and influence of Catholic social thought represented serious doctrinal and strategic challenges to Lutherans as they sought to reconstruct liberalism. The main reference points in Ordo-liberal critical commentary on Catholic social thought were the four papal encyclicals: Leo XIII’s Rerum Novarum (1891), Pius XI’s Quadragesimo Anno (1931), John XXIII’s Mater et Magistra (1961), and John Paul II’s Centesimus Annus (1991). With the passage of time, these encyclic als shifted away from the earlier influence of neo-Thomist thought to take a more indulgent view of modernity. This development was welcomed by many Ordoliberals (Petersen 2008a: 7–10). Nevertheless, Eucken (1952: 149, 362) and Röpke (1942: 152) worried about a tendency—represented by the eminent Austrian theologian Johannes Messner (1891–1984)—for the emphasis on social solidarity to lead to the advocacy of corporatist forms of economic organization and industrial relations. Ordo-liberals were uncomfortable with the concept of a corporate order (berufsständische Ordnung), which they saw as akin to the corporatist structures favoured by the Italian fascist regime and to those in the Austria of the authoritarian chancellor Engelbert Dollfuss. In the post-war period the reputation and influence of Catholic social thought was to be damaged by association with interwar authoritarian and fascist regimes (Almodovar and Peireixa 2008). Messner (1936: 168–82) favoured ‘an occupationally ordered competition’ in which the ordering powers were the state and the occupational groups, both guided by the principle of social justice. They would be responsible for ‘controlling competition’ (ibid.: 122–3). The concept of a corporate order had been taken up in Pope Pius XI’s Quadragesimo Anno (1931: paras. 81–7). However, as Röpke (1976: 69) recognized, the encyclical was invested with a very different content from the fascist thought of Benito Mussolini or the authoritarianism of Dollfuss. Like Messner (1936: 64–7), the encyclical demonstrated awareness of the contribution of a corporate order in promoting social peace and combating socialism, along with recognition of its dangers: We feel bound to say that to Our knowledge there are some who fear that the State is substituting itself in the place of private initiative, instead of limiting itself to necessary and adequate assistance. It is feared that the new syndicalist and corporative organization tends to have an excessively bureaucratic and political character, and that, notwithstanding the general advantages referred to above, it
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228 Conservative Liberalism, Ordo-Liberalism, and the State ends in serving particular political aims rather than in contributing to the initiation and promotion of a better social order. (Pope Pius XI 1931: para. 95)
Despite the papal critique of collectivist economic organization, the Freiburg School continued to view this conception of economic order as undermining market principles by an unwelcome sympathy for socialism, welfare spending, cartelization, and restraints on competition (Eucken 1952: 149, 326). Böhm (1933: 18–20) recognized the political appeal of the Ständestaat as a device for social integration. However, he feared that it would only legitimate the already extensive cartelization of the German economy and protectionist policies. It would promote the ‘re-feudalization’ of society (Böhm 1961: 15). Paul Hensel (1949: 252–6), a pupil of Eucken, stressed the contradiction between the principle of subsidiarity and the principle of a corporate order (also Eucken 1952: 348). The realization of an order founded on the latter principle would require state intervention on a scale that would undermine subsidiarity. It would also enable capture of power by special interests, at a cost to third parties ( Hensel: 250–2). For these reasons, Pope John XXIII’s Mater et Magistra (1961) was favourably received by Röpke (1962a: 25). The new encyclical distanced itself from the conception of a corporate order that had been so central to Quadragesimo Anno. Hans Tietmeyer, a Roman Catholic and long-serving senior official in post-war German economic policy and later central banking, took his inspiration from Höffner, who had taught him in Münster. He argued that Catholicism supported the Ordo-liberal principles of personal responsibility and subsidiarity (Dyson 2016: 145). Tietmeyer quoted with approval the future Pope Benedict XVI, then-Cardinal Josef Ratzinger: A morality that believes it can leave out objective economic knowledge is not morality, but rather moralism, which is the opposite of morality. And objectivity that believes that it can manage without ethics fails to appreciate human reality, and thus lacks objectivity. (Tietmeyer 1999: 128)
Tietmeyer opposed moralizing in thinking about social justice and argued that Christian social ethics must adjust to objective economic knowledge if it was to retain influence. Drawing on Höffner and Ratzinger, he argued that social justice was best served by a state that promotes the market, breaks up monopolistic privileges, rewards performance, and confines itself to restitution for ‘unjustified’ enrichment (ibid.: 133–4). Tietmeyer was in many respects unusual as both a Catholic and the epitome of the austere, ascetic German economic and monetary official (Dyson 2016). Despite this evolution, Catholic social thought retained a suspicion of, and sometimes hostility towards, economic and political liberalism. Drawing heavily
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Patron Saints ( 3 ) 229 on French experience, Villey (1955) identified four factors in this estrangement: Catholic ignorance of the market mechanism, alongside an excessively romanticized conception of the medieval economy; the influence of the Catholic ‘integralist’ movement which opposed liberalism as an aspect of modernity and sought to subordinate economic, social, and political action to the dictates of the Church; moralism, of the kind that Ratzinger later criticized, and that accused the market of being morally indifferent; and the influence of Catholic Marxist ‘prophets’, especially in post-war France. Röpke (1960: 104) echoed the concerns of Villey: ‘Economically ignorant moralism is as objectionable as morally callous economism’. In a letter of January 1956, he gave vent to his irritation with Catholic social thinkers whilst, in a letter to Oswald Nell-Breuning, he claimed never to have deceived himself about the distance that separated himself from these thinkers (Röpke 1976: 141–2, 163).
Post-1945 Catholic Theologians and Ordo-Liberalism: Götz Briefs, Josef Höffner, and Oswald Nell-Breuning It was clear to Röpke that Roman Catholic social thought exhibited considerable variation both across countries and between Left and Right. A few German Catholic theologians sought to avoid the pitfalls of economically ignorant moralizing by engaging directly with Ordo-liberalism. Their engagement was, however, from the perspective of Catholic economic thought as it had been developed by Pesch (1905–23). The most prominent examples were Götz Briefs, Höffner, and NellBreuning. Briefs was Eucken’s predecessor in Freiburg and had been a member of the Königswinter Circle which had helped prepare the papal encyclical Quadragesimo Anno (for details, Amstad 1985). Höffner was a pupil of Eucken, taught Tietmeyer in Münster, and became archbishop of Cologne. Nell-Breuning had also worked on the Quadragesimo Anno, served on advisory councils of the German federal government, and taught the long-serving federal minister for labour and social affairs, Norbert Blüm (1935–2020). Broadly, Höffner and Tietmeyer were ideologically closer to the Right; Nell-Breuning and Blüm, to the Left. Reflecting their roots in Catholic social thought, all three departed in various ways and degrees from the Freiburg School. They were closer to Müller-Armack, Röpke, and Rüstow in their socially conservative Ordo-liberalism (e.g. Rüstow, Röpke, and Briefs 1960; Höffner 1959/2006; Nell-Breuning 1975). Briefs and Nell-Breuning advocated a ‘socially sensitive capitalism’ (sozial temperierter Kapitalismus) (Goldschmidt 2006). Capitalism could be sustained only if it was embedded in a comprehensive social philosophy and if the inequalities of income and wealth that it generated were reduced (also Höffner 1997: 229). The state’s role was to limit the reduction of work to a commodity, to achieve fair shares for all social groups, and to provide protection against social risks.
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230 Conservative Liberalism, Ordo-Liberalism, and the State Höffner (1953: 186–7) emphasized the resemblance between Scholastic thought about economic affairs, notably that of Aquinas, and Ordo-liberalism. Scholastics had developed an economic ethics around the concept of service. The trader must understand his occupation as service to the community, to the poor, and to his own family, and assume personal responsibility (ibid.: 202). According to Aquinas, trade must pursue an honourable goal. This goal excludes unfair competition. Trade must distance itself ‘from deception and unfair contracts’, of which artificial price manipulation by monopolies was an example (ibid.: 186–7). Höffner emphasized the family resemblance with Ordo-liberalism. Like Ordoliberals, the Scholastics differed from Classical economic theory in their rejection of the idea that Ordo comes from within the economy (see also Veit 1953: 34–5). According to Höffner (1985: 22, 27, 1997: 195–6), the state is not just there to safeguard the rules of the market and intervene in a market-conforming manner. It must also protect the dignity of working people through safeguarding rights of collective bargaining, measures to widen participation in capital formation, and management of social risks through insurance systems (Höffner 1959/2006). Briefs identified the central problem in political economy as the integration of economic laws with ethical norms. He shared with the Freiburg School the belief in a rule-governed order (Goldschmidt 2006). Rules were necessary if society was not to be subordinated to the economy with its own ‘natural laws’ and to the power of organized groups (Briefs 1930, 1937). Equally, rules had to take account of specific historical and social conditions (Briefs 1930: 100). Consistent with Catholic social thought, Briefs argued that ethics had an independent status from economics, a point that he saw as neglected in Classical economic theory (ibid.: 109). ‘Marginal ethics’ had a role to play in social philosophy that was analogous to the concept of marginal utility in economics. The market economy must recognize ‘moral limits’ (Briefs 1980: 62–74). Crucially, Briefs differed from the Freiburg School in placing less faith in the strong state and in institutions as the solution to the disciplinary problem. The way forward lay in strengthening individual morality rather than in institutional arrangements which were likely to be captured by special interests (Briefs 1952; Amstad 1985: 188). Like Briefs and Höffner, Nell-Breuning (1952, 1975) sought to engage Catholic social thought with Ordo-liberalism. However, he was more radical in his critique of the subjectivist conception of happiness in liberal thought and, above all, in his structural analysis of the asymmetrical power relations in the capitalist economy (Hengsbach 2010). Nell-Breuning (1955: 117–23) offered a strong defence of the objective conception of happiness and of the primacy of social policy in Catholic social thought. For him, the compatibility of Catholic social thought with Ordoliberalism was only possible under certain strict conditions which emerged from his structural analysis of asymmetrical power relations (Nell-Breuning 1975: 468–9). Nell-Breuning’s (1974) structural analysis rested on three questions: who organizes the economy; in whose interests; and with what outcomes? This ana lysis led him to give a greater emphasis to the way in which financial markets had
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Patron Saints ( 3 ) 231 become disembodied from the productive economy and the subsequent risks to both economic stability and social justice (ibid.: 54). He was also more acutely aware of dependency relations and the risks of exploitation of workers by employers. Correspondingly, Nell-Breuning (ibid.: 100) sought to shift the focus of performance measurement from the profit of firms to their wider value-added, not least for employees. The power asymmetries that he identified led him to propose measures of wealth redistribution and the strengthening of co-determination in firms (for details, ibid.: 55–69, 90–1, 166–82). The enduring tensions about Catholic social teaching were exemplified in the very different positions taken by two prominent German Christian Democratic Union (CDU) politicians, Kurt Biedenkopf (1930–) and Norbert Blüm. Biedenkopf was a former general-secretary of the CDU, whilst Blüm had been a long-serving federal minister for labour and social affairs in the governments of Helmut Kohl. Biedenkopf (2006: 64, 73), who had been a pupil of Böhm, attacked the influence of Catholic social thinkers like Höffner and Nell-Breuning from an Ordo-liberal perspective. He accused them of advancing arguments that had justified the expansion of social policies, led to excessive state intervention, and undermined the authority of the state as a factor of order (ibid.: 59–61, 329). In contrast to Nell-Breuning, Biedenkopf (ibid.: 210–12, 159) called for radical market-oriented reform of pensions policy and for flexible wage agreements. Blüm took a very different position. He acknowledged his intellectual debt to Nell-Breuning and Catholic solidarism, stressed his roots in Scholastic thought, and argued that man was social by nature with mutual rights and duties (Blüm 2006: 48–53, 65). He attacked Hayek for seeing man as little more than an individual governed by subjective wants. For Blüm, the model in industrial relations and in social policy was the ‘cooperative social culture’, which brought together employers and employees in forms of self-administration, as in social insurance (ibid.: 175). These contrasting positions went along with certain shared convictions. Biedenkopf and Blüm emphasized human dignity and social solidarity, rejected the reduction of society to economics, and stressed the need to strengthen fam ilies (Petersen 2008a: 35). They also illustrated how Lutheran and Catholic mindsets could live side by side within the CDU. This uneasy mutual accommodation took the form of a division of labour: the Lutheran mind-set in economic policy and the Catholic mind-set in social policy. The post-war German economy emerged as a strange blend of economic liberalism with generous redistribution (Abelshauser 1987; Manow 2020.
Thinking in Orders Roman Catholic social teaching’s family resemblance to the Ordo-liberal trad ition stemmed from a shared affinity for ‘thinking in orders’ (Denken in Ordnungen) as opposed to solely ‘thinking in incentives’ (Denken in Anreizen).
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232 Conservative Liberalism, Ordo-Liberalism, and the State This tendency became more noticeable during the pontificates of John Paul II (1978–2005) and Benedict XVI (2005–13). Like Müller-Armack, John Paul II (1927–2005) had been influenced by Max Scheler, about whom the future pope had written his dissertation as a student. Pope John Paul II’s encyclical Centesimus Annus (1991) exemplified Scheler’s ethical personalism. It pointed the way to a Christian social ethics that paid attention to principles and rules and that did not try to offer technical solutions to the design of the economic and political orders. In para. 42, it recognized the ‘fundamental and positive role of business, the market, private property’. However, capitalism is only to be accepted when it means ‘a system in which freedom in the economic sector is . . . circumscribed within a strong juridical framework which places it at the service of human freedom in its totality . . . the core of which is ethical and religious’. Earlier, in para. 40, the encyc lical notes that: ‘there are collective and qualitative needs which cannot be satisfied by market mechanisms . . . these mechanisms [of the market] carry the risk of an “idolatry” of the market, an idolatry which ignores the existence of goods which by their nature are not and cannot be mere commodities’. These statements contain much common ground with Scheler and Müller-Armack, as well as with the thinking of Röpke (e.g. 1942, 1944, 1957b, 1960). ‘Thinking in orders’ offered the Roman Catholic Church a means to preserve traditional elements of its teaching against what it saw as the excesses of liberal modernism (Goldschmidt 2006: 15–16). At the same time, defenders of the Freiburg School retained their deep suspicion of the negative effects of Catholic social teaching on the market order. This suspicion seemed to be confirmed by the engagement of the Council of the Evangelical Church and of the German Bishops’ Conference in a consultation process for a ‘joint word’ of the two churches on the social and economic situation in Germany. It led to agreement on how to renew the framework of values of the social market economy (Gemeinsames Wort 1997). The language of ‘social partnership’, ‘round tables’, and ‘concerted action’, of ‘directing structural change’, work-sharing, and European social union to complement monetary union, was anathema to many in the Freiburg School (e.g. Schüller 1997: 745–52). The Gemeinsames Wort was judged excessively collectivist. This drift away from the position of the Freiburg School reflected the way in which, since the late 1960s, the Evangelical Church had shifted ideologically towards the Left.
Pre-Christian Religious Values in Conservative Liberalism and Ordo-Liberalism The cases of Rougier and Rüstow suggest that attachment to Christian social ethics was not a shared family feature for all in conservative liberalism and Ordoliberalism. And yet, despite tensions between Christians and secularists within
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Patron Saints ( 3 ) 233 this form of new liberalism, Röpke, Rougier, and Rüstow maintained close personal contacts. They continued to recognize their close affinity as a new kind of community of morally serious liberals who shared common concerns, concepts, and forms of discourse. The bridge was provided by their admiration for the preChristian world of Ancient Greece and Rome, which offered them examples of insights into how man might live virtuously in agreement with the universal order. This kind of reference resonated positively with the cultivated bourgeois intelligentsia who sought meaning and orientation in a world of disorder. The Stoic philosophers appealed to Rougier and Röpke (e.g. Rougier 1925, 1960). The Stoics had acknowledged the importance of recognizing the interdependence of the parts of the universal order. They had stressed individual responsibility for our choices and actions within this order. Not least, they had reflected on the virtues governing moral choice, like discipline of the perception and of the will, alongside honour, fortitude, and resilience in the world of action. The Ancient World embodied ‘old truths’ to which the disciplinary revolution in liberalism appealed (Röpke 1958b: 192–3). Rougier (1925) stands out as a confirmed atheist. His ethical values were inspired by Classical Greek and Roman philosophy and especially by the histor ical works of Ernest Renan (1823–92). Renan achieved intellectual stature as a ‘secular prophet’, a ‘simple liberal’, who wrote in praise of the heroic virtues (Chadbourne 1968). He saw these virtues as exemplified in scientists and engin eers who dedicated themselves to the disinterested pursuit of truth. Science was the means through which faith in humanity could be restored. By inclination, Renan (1859) was an aristocratic liberal who held conventional bourgeois values in contempt, mistrusted democracy, and believed in an intellectual elite. He posed as the enemy of vulgarity and mediocrity. The ‘capricious popular will’ lacked direction, discipline, and cultural distinction (notably Renan 1871). Rougier remained deeply attached to these ideas of Renan, including his scientific, historical, and demystifying approach to Christianity (e.g. Rougier 1960). The association of liberalism with science and with the heroic virtues of the Ancient World was captured in Rougier’s conception of a creative Promethean foundation of the market order. To Rougier, the Promethean mentality represented a distinctive attribute of Western civilization that could be traced back to Ancient Greece: the will to tame the forces of nature (Rougier 1969: 69). The belief in a ‘Promethean social order’ was adopted by Jacques Rueff (1968: 128–97). Rougier was very much a ‘secular prophet’ of aristocratic liberalism in the Renan mould. Controversially, Rougier attacked what he saw as the baleful influence of Roman Catholic Scholasticism. It had failed to recognize the diversity and plasti city of human thinking (Rougier 1925: xxxix). He took issue with contemporary neo-Thomists who called for a return to Scholasticism as a solution to the crisis of reason and faith in contemporary society (ibid.: 808–9). The ‘dogmas’ of
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234 Conservative Liberalism, Ordo-Liberalism, and the State Christianity ‘flattered the illusions of the intellect’ (ibid.: xli–xlii). Rougier’s critique of Christian dogmas prefigured his later more broadly based attack on mystiques. For Rougier, the one miracle of history was the Greek miracle—Hellenic science. His rejection of Christian ‘dogma’, and of Kantianism, made him many enemies within the elite of the French university system. In a less controversial manner, Rüstow looked back to the ethical heritage of Greece and Rome rather than to Christian teaching. He had initially been a Christian socialist, the son of a Pietist mother. However, during the 1920s he had shed both his Christian faith and his socialism (Hegner 2000; Meier-Rust 1993). Röpke felt deeply indebted to Rüstow for imparting to him his knowledge of Classical humanist literature during their years together in Istanbul in the 1930s and, more generally, for his wide scholarship. He had made Röpke aware of the continuity between the Classical Age and Christian culture and what could be learnt from Classical philosophy and from thinkers like Marcus Tullius Cicero (106–43 bc) about giving a humanistic basis to Christian social thought. Röpke came to see that Christian social thinkers had given too little attention to this legacy, one that was shared by Catholics and Protestants and hence offered a common point of reference in inter-confessional dialogue. Shared experience and reading led Röpke and Rüstow to recognize the extreme fragility of ‘high culture’ through European history and the urgency of clarifying the intellectual, social, economic, and political conditions in which it can be sustained (Rüstow 1950–57, Band 2: 273). However, their close relationship was strained over the question of the role of religion in a renovated liberalism. Röpke (1976: 167–8) was disappointed by the ‘too doctrinaire’, anti-Christian attitude in Rüstow’s monumental, three-volume Ortsbestimmung der Gegenwart (Hennecke 2005: 140). Rüstow (1950–7, Band 2: 269–72) attacked Luther as a demagogue who had preached a ‘cult of subservience’ on which ideologies like National Socialism had been able to build. He also contrasted the passive and inwardlooking conception of man in Luther’s work with Calvin’s conception of man as active in the world (ibid.: 271).
The Legacy: Conservative Liberalism and Ordo-Liberalism as Civil Religion The concept of the social market economy—as it evolved in post-1945 German Christian Democratic thought—served to tame both the Ordo-liberalism in Lutheran social thought and the corporatist tendency in Catholic social thought. In this way, through its emphasis on social balance and social peace, it helped bridge the confessional divide. However, taming Ordo-liberalism did not amount to displacement of its characteristically austere and ascetic disciplinary conception of liberalism. This conception continued to find echoes within those aspects
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Patron Saints ( 3 ) 235 of Roman Catholicism that held to conservative social beliefs and adapted them to liberalism. At the same time, the enduringly problematic relationship of Catholic social thought to Ordo-liberalism was brought into renewed focus when, in 2013, Pope Francis replaced Pope Benedict XVI at a time when the financial and economic crisis was still unfolding. His ethical criticism of capitalism on behalf of the poor, the exploited, and the dispossessed went much further than that of his two predecessors, placing him closer to the left-wing of Catholic social thought. Pope Francis continued the attacks of his predecessors on the ‘idolatry’ of the market, whilst giving more emphasis to social exclusion and the destruction of nature. Papal encyclicals, letters, and interviews suggest that the interconfessional relationship that Ordo-liberals had sought proved more difficult and dynamic than some of them had hoped. The presence of Lutheranism and Reformed Protestantism across Northern Europe and North America is crucial in understanding why the characteristic values of Ordo-liberalism resonated across the cultures of Switzerland, Germany, the Netherlands, the Baltic States, and Scandinavia, as well as parts of the United States (Gorski 2003). This process of dissemination helps to illustrate why conservative liberalism was by no means just a German phenomenon. In his auto biography Rudolf Eucken (1921a: 113–15) emphasized his strong links to the Netherlands and to the Nordic countries. Across Northern Europe there was a widespread cultural receptivity to the social market economy—as viewed through an Ordo-liberal lens. This receptivity could also be found, to a limited extent, amongst Catholic humanist intellectuals in Ireland and in Southern Europe. The Sicilian priest Luigi Sturzo, for instance, welcomed the works of Röpke as a way of escaping from the ‘idolatry’ of the state (Giordano 2006a, 2006b). However, in a broad but fundamental sense, cultural receptivity to conservative liberalism and Ordo-liberalism was much greater in Northern than in Southern Europe (Hien 2017a, 2017b). This difference was reflected in the moral discourse and censoriousness that accompanied the politics of the euro area crisis from 2009 onwards, with its language of ‘saints’ and ‘sinners’ (Dyson 2014; Hien 2017b). Conservative liberalism was much more narrowly embedded, socially and polit ically, in Catholic states like France, Italy, and Spain. Religion was built into the foundations of early conservative-liberal and Ordoliberal thought. The ethical values of this type of liberalism borrowed from preestablished cultural and moral codes. In turn, conservative liberals and Ordo-liberals saw their challenge as to re-legitimate those cultural and moral codes. However, as the foundational interwar and wartime period of unremitting crisis gave way to a new post-1945 era of comparative peace and prosperity, conservative liberalism and Ordo-liberalism became less obviously tethered to theological debates. Religion slipped into a background role. The writings of the founding thinkers of conservative liberalism and Ordo-liberalism seemed to belong to a different, lost world, one that was less captive of natural science in
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236 Conservative Liberalism, Ordo-Liberalism, and the State epistemological method and more socially conservative. Nevertheless, conservative liberalism and Ordo-liberalism continued to carry religious traces in a more secularized form. In effect, this form of new liberalism endured as a form of secularized religion. It did so by adaptation to a very different context. Various factors in the post-1945 world combined to shift religion from an explicit foreground role to an implicit background role in conservative liberalism and Ordo-liberalism. They included the less visible shadow of war, genocide, and the crisis of values that accompanied them; generational change in attitudes and values, especially from the 1960s, and an accompanying discomfort with conservative elitism; social and cultural processes of secularization, reflected in declining church membership and attendance; and the strongly assertive claims of economics to be an autonomous science grounded in a naturalistic worldview. A symptom of this process was the way in which the Chicago tradition of economics evolved away from Knight, the star economist amongst its founding figures in the 1930s (Emmett 2001, 2009). Isolated voices of traditional conservative liberalism and Ordo-liberalism could be heard. Knight (1956) attacked the pretentious claims to science of his Chicago colleagues like Milton Friedman as ‘propaganda’. Hans Willgerodt (2011: 3–22) continued to stress the fundamental importance of Christian ethics in economic and social policy. Economic freedom was a moral problem, whether talking about profit, production, consumption, investment, or interest (ibid.: 23–41). Willgerodt followed Röpke and Lutheran theology in advocating the principle of personal responsibility and the principle of respect for rules in the economy (ibid.: 4–7, 83). However, explicit Ordo-liberal references to the churches and to theology became much less frequent from the 1960s onwards. Later generations of the Freiburg School fell under the influences of Hayek’s secularized, evolutionary approach to markets and of the public-choice theorizing of James Buchanan (Vanberg 1988, 2003, 2012). Buchanan (1979, 1987) was, nevertheless, intellec tually closer to Knight, his doctoral supervisor, than to Milton Friedman. Despite the strength of secularization, religion played a background role in the continuing cultural dissemination of conservative liberalism and Ordo-liberalism as a narrative of virtue and vice in economic conduct. It surfaced in these terms in public speeches by the German finance minister Wolfgang Schäuble (2015b, 2015c) and by the president of the German Bundesbank, Jens Weidmann (2014b) (Chapter 1: 36–7 and 38–9). As president of the Bundesbank (1993–9), Tietmeyer (1999) had been associated with a similar type of moralistic narrative of disciplinary liberalism (Dyson 2016). The German political context for the dissemination of this narrative was in a certain respect more favourable in the legislative period 2013–17 than in 1949–53. In the first cabinet of federal chancellor Konrad Adenauer ten out of fourteen ministers were Catholics (though Erhard was Lutheran). In the 2013–17 cabinet of Angela Merkel, the situation was reversed. Merkel was the daughter of a Lutheran pastor. The foreign minister, the
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Patron Saints ( 3 ) 237 health minister, and the interior minister held senior positions in the hierarchy of the Evangelical Church. The two successive federal presidents in the legislative period 2013–17 were deeply involved in the work of the Evangelical Church. Only two of the post-war federal presidents had been Catholics. Religion survived in conservative liberalism and Ordo-liberalism as a takenfor-granted moral framework or operational code in navigating complex and difficult economic, social, and political challenges. It continued to provide shared family features in the ethics and culture of this type of liberal thought: an emphasis on frugality, modesty, hard work, discipline, reason, conscience, duty, reliability, resilience, and financial solidity. Conservative liberalism and Ordoliberalism were linked to high ethical expectations of the individual, not least those in public office. German public life—and public life more generally in Northern Europe—continued to be averse to flamboyance in behaviour and ostentation in display of wealth and income. Conservative liberalism and Ordoliberalism were not the cause of this cultural and moral tone. They served as a lighthouse that illuminated a long-term, post-Reformation process through which the ethic of discipline became embedded in economic, social, and political life. Conservative liberals and Ordo-liberals were formed by their religious context and in part formative of this context.
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PART III
T HE SIGN IF IC A NCE OF C ON SE RVAT IV E L IBE R A LI SM A ND OR D O - L IBE R A LI SM
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8
Just a Germanic Tradition? The CrossNational Significance of Conservative Liberalism The significance of conservative liberalism—and, more specifically, the crossnational reception of Ordo-liberalism—has proved variable across space and over time. Its success in shaping public debate, institutions and how they operate, and policies has been historically contingent. This historical contingency arises from the complex and changing interaction of the various factors—international and national—that shape the significance of this type of liberalism. Significance is bound up with cultural context, with inherited institutional arrangements, with the structure and dynamics of political opportunities and constraints, with the scale and timing of crises and their effects on the reputation of ideas, with the nature of the national unifying myths that elites construct to consolidate their power, and with the vital factor of human agency. Embedding conservative liberalism and Ordo-liberalism in the practice of political economy—even in advanced economies—is fraught with difficulties. These difficulties range from an inheritance of ill-fitting cultural values and norms, through the presence of weak state structures and predatory elites, to the narrative construction skills of elites, their rhetorical power, and their political management skills. In the background hovers the fear, or presence, of countermobilization by mistrustful, non-acquiescent publics. The significance of this type of liberalism is bound up with the complex, dynamic relationship between ideas, interests, and passions. In the words of Max Scheler (1961: 68): Ideas which do not have interests and passions behind them, that is, energies derived from the vital and instinctual sphere of man, invariably tend to make fools of themselves in history.
Openness to Conservative Liberalism and Ordo-Liberalism The variability in significance of conservative liberalism and Ordo-liberalism is caught up in the ways in which domestic elites attempt to construct credible Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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242 Conservative Liberalism, Ordo-Liberalism, and the State national unifying myths and, by this means, to persuade their publics that they possess superior governing competence. They are part of an ongoing battle of ideas, in which they fare more or less well in national unifying myth, depending on the shifting details of context, events, opportunities, and skills. Elites have varied in their ability to use conservative liberalism as a resource to undermine established narratives and to shape their political economies, not just across societies but also within societies. There are other powerful conceptions of political economy—including alternative liberal conceptions—that are institutionally and culturally embedded and constrain and shape what is seen as possible. Cross-national comparison highlights the factors that influence the degree of cultural openness to conservative liberalism and its Ordo-liberal variant. It shows why and how the significance of these ideas has proved fragile. The British economist John Jewkes (in Eucken 1951: 22–3) stressed the tough social and political requirements: a ‘mature political democracy’ in which citizens were informed and watchful and exhibited ‘communal common sense’ and sobriety (see Chapter 9: 287–8). Conservative liberalism rests on a set of highly restrictive assumptions about political attitudes and behaviour. It presupposes governing elites and citizens who deliberate in a spirit of prudent, reflective, and enlightened self-interest; who exhibit mutual respect and trust; who are willing to act cooperatively; and who take into consideration the interests of future generations. In short, conservative liberalism rests on acceptance of rules that prioritize fairness over the search for positional advantage. Empirical evidence suggests that political behaviour falls short with respect to these tough requirements, in varying degrees across space and over time. The significance of conservative liberalism and Ordo-liberalism has been blunted by ideological and political-system characteristics, like systemic bias in news reporting and short-term rules of electoral competition, as well as by the economic and financial nature of globalization. Its first problem lay in the strength and resilience of the concept of solidarity in European political thought. This concept has often been defined in terms that are not, first and foremost, grounded in economic liberalism but rather in Catholic social thought, social democratic thought, Marxism, and national populism. Solidarity—in these various forms—has been embedded in electoral and party-system competition, in the structure of organized interests, and in public opinion. Its deep embedding helps explain the defensive and beleaguered character of conservative liberalism and Ordo-liberalism. Political incentives—the rules of engagement set by politics—proved inhospit able to conservative liberalism and Ordo-liberalism and left their advocates lonely and frustrated. It has been hard for them to acquire and retain consistent and high levels of political attention and commitment at executive level; to find master wordsmiths who can clearly articulate and communicate their ideas; to gain the support of leaders with the appropriate skills in managing party and parliamentary relations and in crafting and retaining a wide range of institutional and group support; and to establish the strong academic and media presence that
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Just a Germanic Tradition? 243 creates a capacity to mould wider elite and public opinion. Such a combination is rare and transitory. Globalization has been ambivalent in its effects on conservative liberalism and Ordo-liberalism. On the one hand, global financial and industrial companies have strongly supported the agenda of economic liberalization. On the other hand, these companies have been averse to many of the calls for greater market discipline, for instance to reduce systemic risk to stability in banking and financial markets. There has been an in-built tension that stems from the lack of belief of conservative liberals and Ordo-liberals that financial and economic stability can be left to market self-correction or to light-touch or self-regulation. Other forms of economic liberalism have proved more congenial to the global financial and economic elite.
Self-Assessment of the Difficulties Conservative liberals and Ordo-liberals were well aware of the difficulties they faced after 1945. At an early stage, Wilhelm Röpke expected the ‘Einaudi experiment’ to fall victim to Italian politics (see letter of 17 November 1947 to Carlo Antoni, in the Röpke Papers, file 1947, Institute for Economic Policy, Cologne University). Like Röpke, Walter Eucken was pessimistic about post-war reconstruction in Germany. He saw Ludwig Erhard as isolated, Allied occupation policy as leading back to collectivism, and opposition to a competitive market order as strong amongst German party and interest-group officials (e.g. Eucken letter of 11 January 1947 to Friedrich von Hayek and his letter of 8 February 1950 to Alexander Rüstow, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Eucken argued that it was essential to reach out beyond parties and interest groups to public opinion in Britain and the United States, as well as in Germany (e.g. Eucken letter of 11 February 1948 to Henry Hazlitt at Newsweek, ibid.). Röpke argued that Erhard had conceded too much to his opponents (letter of 12 January 1959 to Albert Hunold in file 1958–60, in the Röpke Papers, Institute for Economic Policy, Cologne University). From a different angle, Alfred Müller-Armack, a seasoned Bonn ‘insider’, expressed his deep disappointment at the failures of Erhard to engage consistently and constructively with European integration (letter of 15 July 1958 to his minister in the Nachlass Alfred Müller-Armack, Archiv für Christlich-Demokratische Politik der Konrad Adenauer Stiftung, A CDP 1-236-029/4).
Conservative Liberalism in Austria, Belgium, and France Conservative liberals in Austria, Belgium, and France were even more acutely aware of the domestic challenges. Reinhard Kamitz played an important role in
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244 Conservative Liberalism, Ordo-Liberalism, and the State post-war Austrian economic policy as a long-serving finance minister and then central bank president. The so-called ‘Raab-Kamitz course’ combined a focus on stability (budget balance and a stable currency) with measures to stimulate a competitive market. However, his efforts to stabilize the Austrian economy in 1952–5, and to pursue consolidation in 1955–8 in the wake of the new obligations after the state treaty of 1955, faced greater difficulties than those of Erhard in Germany (details in Diwok and Koller 1977: 139; also Seidel 2005). Three factors limited Kamitz’s scope for reform. He inherited a post-war economic structure with substantial public ownership and a strongly protectionist mentality. In addition, Kamitz was constrained by grand-coalition government, which embraced Left and Right, with ministers claiming a high degree of autonomy in their policy domains. Grand-coalition was in turn paralleled by a highly institutionalized structure of corporatist policy making that involved economic policy roles for the trade unions and for the chambers of labour, commerce, and agriculture. The discourse of social partnership was linked to insistent demands for increasing public expenditure and for measures of economic intervention. These demands complicated Kamitz’s efforts to reduce the tax burden, achieve fiscal balance, contain the welfare state, and help ensure what he called the shift from an ‘employee mentality’ to an ‘employer mentality’ ( Diwock and Koller 1977: 103). Kamitz had limited success in reducing the size and power of the Austrian state (ibid.: 129–32). In the 1990s the leadership of the Austrian People’s Party (ÖVP) sought to use the ‘Raab-Kamitz course’ as the model for a new programme of liberal economic reform to adapt to the challenges of entry to the EU. However, Kamitz remained a rather neglected figure in Austrian national mythology, compared with Erhard in Germany. Marcel van Zeeland (1943) attributed the limited success of the ‘van Zeeland experiment’ in 1935–7 to his brother Paul’s inadequate political skills in navigating the fragmentation and polarization of Belgian party politics. In devising its reform programme the van Zeeland ‘government of national renovation’ sought to draw lessons from the ‘failed’ stabilization of 1926–31 and from the ‘incomplete’ deflation of 1931–4. In 1934–5 it implemented a programme of monetary and economic reforms, kick-started by a devaluation (Chapter 2: 55–6). Van Zeeland believed that these reforms required more comprehensive social and political reforms to reduce social tensions and to introduce more discipline into Belgium’s liberal order (ibid.: 260–4). This second phase of reform fell victim to the resistance of Belgian political parties to threats to their influence over economic and social policies. The outcome was an ‘interrupted experiment’ (ibid.: 256). The history of France’s stabilization reforms is considered in detail in Chapter 10. Röpke had seen the reforms in the Pinay-Rueff Plan and in the Armand-Rueff report in the period 1958–61 as the potential equivalent of the post-war Erhard reforms (Hennecke 2005: 141). However, Jacques Rueff
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Just a Germanic Tradition? 245 estimated that only 25 per cent of these reforms had been implemented. He pointed to the entrenched power of institutional interests, not least the Banque de France in relation to financial liberalization, and to rigid mentalities (Minart 2016: 249).
The Cross-National Character of Conservative Liberalism: The Reception of Ordo-Liberalism The cross-national reception that has been accorded to Ordo-liberalism is paradoxical. On the one hand, the term remained foreign and strange in Britain, France, Italy, and the United States, even amongst many conservative liberals. As Chapter 2 shows, its reception was slow, speeding up only with the European integration process and, above all, with European monetary union and the euro area crisis. When recognized, Ordo-liberalism was generally not well regarded. It was dismissed as old-fashioned and retributive in its moral tone, redolent of an older and less welcome German sense of superiority, disconnected from mainstream economics, and simply wrong (e.g. Beck 2013; Geithner 2014; Krugman 2013; Salin 2000, 2014; Savona 2014, 2018; Stiglitz 2016; Wolf 2010a , 2010b, 2013a, 2013b). Ordo-liberalism was side-lined as just one ‘odd’ example of heterodoxy in the economics discipline. It was further marginalized by the lack of foreign-language translations of some of its major texts. On the other hand, in historical and intellectual terms, Ordo-liberalism displays striking family resemblance with strands of conservative-liberal thought that are to be found cross-nationally. This family resemblance stems in part from the selective borrowing of economic ideas by German Ordo-liberals, notably from US-based economists. In short, Ordo-liberalism is embedded in a crossnational conservative liberalism. There are varieties of conservative liberalism to be found in Britain, France, Italy, and the United States that share a certain language and technique of thinking about economic problems. A further paradox emerges when one considers cross-national conservative liberalism more broadly. On the one hand, conservative liberalism is socially embedded in different national institutional, political, and cultural contexts and practices (Fourcade 2009). It is not identical cross-nationally because of differences in patterns of historical and intellectual development. The complex and varied ways in which conservative liberalism manifests itself reflect differences in national founding myths, in state tradition, in conceptions of democracy, in religious heritage, in economic and social structures and attitudes, in academic organization and networking, and in patterns of elite recruitment and socialization. On the other hand, the cross-cutting features in national contexts are unmistakeable. Despite functioning in different contexts, conservative liberalism
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246 Conservative Liberalism, Ordo-Liberalism, and the State displayed similarities in genetic coding. These cross-national similarities stemmed from the distinctive marriage of conservative with liberal ideologies in conservative liberalism; from its social embedding within the cultivated bourgeois intelligentsia; and from the way in which these ideological and cultural outlooks influenced how conservative liberals conceptualized shared economic, social, and political crises. Conservative liberalism exhibits this tension between its cross-national embedding and its differential embedding in discrete national contexts. Subsequent chapters show that this tension manifests itself in varying and chan ging ways. This chapter examines the factors that promoted cross-national convergence in conservative liberalism, the reasons for cross-national differences in its significance, and the question of why its significance varied over time. In the next chapters (Chapters 9–11), the work of conservative liberals working in different national contexts is used to shed light on the shifting fortunes of conservative liberalism in Britain, France, Germany, Italy, and the United States. Closer examination shows that ideas of conservative liberalism have had more significance in Germany than in other national contexts. This conclusion applies whether one assesses significance by the role of these ideas in academic teaching and research, in public debate, or in influence on institution building and on policy design and implementation. Nevertheless, as Chapter 11 shows, Ordoliberalism has proved less significant in Germany than is sometimes supposed. Scheler’s philosophical reflections on ideas draw out the pivotal role of interests and passions in their transmission (Scheler 1961). The significance of conservative liberalism—whether in Germany or elsewhere—reflects whether, in given circumstances and at a certain time, it accords with the attempts of elites to forge a convincing national unifying myth and, in this way, to elicit passionate conviction. What matters are the conditions in which ascendant myths are defined (and re-defined), which interests benefit (and lose), and how much energy—positive and negative—they provoke. The open question is whether conservative liberalism offers to elites—in given circumstances—a convenient rhet orical device in their attempts to position themselves strategically in domestic, European, and international negotiations. In addressing this question, the place of state elites in the structure of creditor–debtor relations seems to play a key role (Dyson 2014).
Why Convergence? Ordo-Liberalism as an Embedded Tradition The political economy of conservative liberalism witnessed a parallel development of ideas in the interwar period and beyond. From its inception, German Ordo-liberal thought drew actively on sources in other European states and, above all, in the United States. This process was evident in aristocratic liberal
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Just a Germanic Tradition? 247 concern to limit democracy; less so in ethical philosophy; but striking in monet ary and economic theory. The thinking of the early Chicago economist Henry Simons (1934, 1936) on rule-based, long-term competition and monetary pol icies became an important point of reference for Hayek and for Eucken and the Freiburg School (Burgin 2012: 246; Köhler and Kolev 2011; Plickert 2008: 80–6; see also Chapter 9: 293–5). Lutz, a pupil of Eucken who moved to the US, played a key role in keeping Eucken abreast of American debates in the 1930s (see their correspondence in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Simons was cited by Eucken (1949: 79, 98, 1952: 255, 260, 269), by Hayek (1960: 415), and by Lutz (1936, 1949). Moreover, the first major cross-national event in the development of conservative liberalism—the Lippmann Colloquium in August 1938—occurred without the participation of the Freiburg School. It enabled the American public intellectual Walter Lippmann (1937) to enjoy a formative European influence in 1938–9 (Audier 2012a; Plickert 2008: 87–95; Regalzi 2010). The convergence of American, British, French, and Italian thinkers in this tradition of conservative liberalism took place in two ways. It was, in part, the product of independently evolving family resemblance. Thinkers in different national settings came to define economic challenges in similar ways, for instance the challenges of corporate power and of monetary disorder. Their affinities derived from common conservative-liberal ideological positions and from the shared outlooks of the cultivated bourgeois intelligentsia. The US Harvard School of the 1930s shared common traits with the Freiburg School in its curse of big business, its ideal of a society of small independent businesses in which economic power is widely dispersed, and its belief that the concentration of industrial power posed an even greater threat to individual liberty than to competition (e.g. Brandeis 1934). Neither Eucken nor Ralph Hawtrey cite each other in their similar reflections on the post-1918 problems of monetary disorder. Hawtrey is striking in not referencing Austrian or German sources. German Ordo-liberals showed little, if any, awareness of the work of Hawtrey and William Hutt. Again, there was little, if any, cross-national borrowing from Rueff ’s (1945) writings on fiscal institutions and rules. However, fiscal rules became a hallmark of German Ordo-liberalism. From 1933 to 1947–8, Eucken suffered from intellectual isolation. He did not receive copies of Walter Lippmann’s The Good Society (1937) and Henry Simons’ A Positive Programme for Laissez Faire (1934) until October 1947 and a copy of Rueff ’s L’ordre social (1945) until March 1949 (details in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Before his death in 1950 Eucken had too little time to absorb Rueff ’s ideas about fiscal institutions and rules into what was to emerge as his posthumous Grundsätze der Wirtschaftspolitik (1952). In contrast, Röpke benefited from the special position that Switzerland enjoyed in Europe during these years. Swiss-based liberals had
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248 Conservative Liberalism, Ordo-Liberalism, and the State access to American publications and a base from which they could speak (see letter of Eucken to Röpke, 10 November 1949, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Röpke’s work was even able to penetrate wartime Germany (details in Hennecke 2005: 139). Erhard and Müller-Armack claimed to have become familiar with the arguments in Die Gesellschaftskrise der Gegenwart (1942) during the war. In addition, convergence took place through an emerging cross-national network of conservative liberalism. It emerged before the Mont Pèlerin Society in 1947, which acted as a further stimulus (though, as its evolution showed, the new society was not to be confused with conservative liberalism). Intellectual networking took the forms of intensive correspondence, reading of each other’s texts, and citation, as well as through personal meetings. It helped to promote mutual admiration, respect, and often friendship. Hayek was an important linking-pin between American and German academics as early as the 1930s (Köhler and Kolev 2011). However, he played this role in an odd manner. He made numerous complimentary references to Ordo-liberalism in his German writings. In his English-language writings, by contrast, Hayek did much less to convey his admir ation of Eucken and Röpke. The cross-national significance of Eucken and Ordoliberalism was diminished by neglect in translation. Strikingly, there was no English-language edition of Eucken’s seminal book on the principles of economic policy (1952). Convergence through common pressures, similarities of experience, and networking did not amount to identity of thinking on specific questions. One example is the contrast between Simons’ (1936) rule-based conception of monet ary policy and Hawtrey’s (1919, 1923) earlier advocacy of active monetary management by independently minded central banks. Eucken and Simons differed about monopolies. Simons (1934: 18) was willing in certain instances to advocate their public ownership; Eucken (1952: 293–5) preferred governmental regulation. Reactions to Hayek’s influential The Road to Serfdom (1944) also proved diverse. Frank Knight, for instance, gave it only lukewarm endorsement. He thought that the book was too one-sided in its critique of interventionism and in its underestimation of the failings of capitalism in its present form (Emmett 2009). Eucken regretted the book’s neglect of what he saw as the German liberal tradition in favour of emphasizing British and French liberals (Goldschmidt and Hesse 2012). This suggested that Eucken and Hayek held different views about the appropriate relationship between freedom and order. Order had played a stronger role in Eucken’s thought. In short, family resemblance does not amount to complete identity. In some important instances, thinkers outside Germany were pacesetters in the disciplinary revolution in liberalism: Hawtrey (1919, 1923) in stability-oriented monetary policy and central bank independence; Hawtrey (1926, 1944) and Knight (1935a, 1937, 1946) in the analysis of ethical standards in economics, with
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Just a Germanic Tradition? 249 respect to welfare, wealth, and consumption; Simons (1934, 1936) in rule-based competition and monetary policies; Rueff (1945) in rule-based fiscal policy; and James Buchanan (1975, 1991,2001b/1986) in the analysis of alternative sets of constraining ‘rules of the game’. The Freiburg/Chicago link is revealing. Simons’ work was known to Eucken. However, Eucken was little, if at all, known within the Chicago School, in contrast to Hayek. The main points of contact were through the correspondence of Hayek, who was much admired by Simons and others, and through Lutz (1936, 1949), who worked on monetary economics. Lutz took a close interest in the Chicago ‘100 per cent money’ plan, visited Chicago in 1937, and later was to be an influential thinker in German monetary debates (Köhler and Kolev 2011: 24; Richter 1999). The nature of the Freiburg/Chicago link is testimony to the embeddedness of Ordo-liberalism within a cross-national disciplinary revolution in liberalism.
Differences in Significance of Conservative Liberalism Founding Myths and Aristocratic Liberalism The cross-national appeal and resonance of conservative liberalism is, in the first instance, bound up in founding national myths. One might expect aristocratic liberalism to flourish less in the context of the United States than that of Europe. One reason is the foundational US national myth, born of the war of independence, of breaking free from the ‘Old World’ hierarchical social order with its feudalist attitudes (classically Hartz 1955). Practice proved in part different from this myth of a nation born middle class, for instance in the character of the founding fathers, in the elitist social attitudes of the East Coast intelligentsia, in the hier archical order in the ‘Old South’, and in persisting racism (see Hulliung 2010). Nevertheless, despite evidence to the contrary about the contradictions and failings of American liberalism, the egalitarian ‘New World’ myth proved resilient. It represented a belief in national distinctiveness. This myth was reinforced by the ‘frontier’ culture of the nineteenth century which provided a breeding ground for radical and rugged individualism. It offered a receptive cultural contact for libertarian ideas of laissez-faire political economy and for a populist politics that challenged elites as out of touch with the ‘real’ America. Against this background, American social and political attitudes were only limitedly receptive to aristocratic liberalism and to conservative liberalism. In Europe the appeal and resonance of conservative liberalism declined alongside the social and political structures that had supported aristocratic liberalism. Expansion, democratization, and popularization of politics, widening access to higher education, and the growth of commercially funded media and popular
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250 Conservative Liberalism, Ordo-Liberalism, and the State culture made it more difficult for elitist conceptions of liberal democracy and political economy to justify themselves. The emphasis was less on intellectual culture and more on the utility, productivity, and accountability of an academic elite. The social status, prestige, and influence of the cultivated bourgeois intelligentsia was in decline (Annan 1999; Collini 2006). Social, cultural, and political structures and attitudes had changed in ways that favoured more libertarian, individualistic forms of political economy. In addition, expansion of higher education was associated with a shift in the intellectual and cultural elite towards the Left (Piketty 2018). Elite attitudes proved less readily receptive to the morally conservative character of conservative liberalism. Democratization of politics had proceeded in different ways in Europe. In the process, it had generated contrasting notions of political economy. In France the Revolutionary tradition proved a potent source of national myths but was ambivalent in its implications for political economy. In its Jacobin form, the Revolution strengthened the centralized state through its identification of the people with the nation. This identification of state and nation fostered an étatiste and dirigiste conception of political economy: the nation was the judge of policy (Kuisel 1984). This conception of political economy took root in the prestigious grandes écoles. These institutions for training the French administrative elites propagated Saint-Simonian political economy. They rejected ‘Anglo-Saxon’ economic liberalism—and later German Ordo-liberalism—as a threat to the identity and integrity of the ‘one and indivisible’ republic (Hayward 2007). In another form, the French Revolutionary tradition spawned a radical individualism of popular mobilization against state power in defence of rights. This type of rightsbased individualism was receptive to anti-étatiste conceptions of political economy. It was represented by those—like Pascal Salin (2000)—who looked back to Frédéric Bastiat (2005/1845) and Henri Baudrillart for inspiration. In both forms of its legacy, the French Revolutionary tradition proved inhospitable to conservative liberalism. The intense partisanship in French political economy that the Revolutionary tradition bequeathed left little space for conservative liberalism to thrive. Such was the demise of aristocratic liberalism that, by the late twentieth century, few political economists in Europe, let alone the United States, would echo Knight’s (1935a: 357–8) call for a learned and ‘cloistered’ academic class. They would hesitate to adopt his claim that they should enjoy the status of a priesthood, whose mission was to provide intellectual and critical guidance to society in the service of the ideal of an absolute faith in truth. This shift in academic selfimage was in part bound up with the huge changes in the size and structure of higher education. Managing a growing post-1945 influx of students favoured the shift towards specialization and mathematically based models and techniques in the teaching economics (Weintraub 2002). The notion of political economy as
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Just a Germanic Tradition? 251 pre-eminently a form of humanistic cultural and moral critique had become marginal.
Mainstream Philosophy of Political Economy Ethical philosophy was no longer mainstream in American, British, French, and Italian political economy as it evolved during the second half of the twentieth century. From the mid-nineteenth century French political economy had been divided in three ways: ethically grounded Catholic thought, which stressed the principle of solidarism; a law-based approach; and positivism, which encouraged a deductive approach, based on mathematical models. The significance of Catholic social thought within French political economy waned from the 1950s. Law-based economics continued to play a role in the French universities, but less centrally than in the 1930s. In contrast, positivism retained its strong institutional presence in elite training at the École Polytechnique and in the technical grandes écoles. The Polytechnique played a key role in producing engineer-economists, who went on to populate top posts in the French state administration and in business. Law-based university economics—represented by Charles Rist (1874–1955) at the Banque de France—was the most receptive to conservative liberalism. However, neither Catholic social thought nor positivism offered fertile ground in which conservative liberalism could flourish in France. Moreover, law-based university economics gave way to a more autonomous and internationalized economics discipline from the 1970s. In Britain the influence of logical positivism and of linguistic and analytic phil osophy proved inhospitable to conservative liberalism’s normative defence of values and principles. The new mainstream in political economy favoured a narrower concern with empirical research and the precision of conceptual analysis. In the United States the advances made by naturalistic philosophy, and the legitimacy it bestowed on behavioural science, were receptive to the study of wants and preferences in neo-classical economics rather than to the defence of values and prin ciples in argument. Also, American Pragmatism, after William James, opened the door to a radical empiricism in testing what is true or false. These philosophical turns did not mean the death of substantive ethical argument about liberty, just ice, and equality in Britain and the United States—witness the work of Brian Barry and John Rawls. However, in political economy, substantive ethical argument had ceded ground to a neo-classical economics that was grounded in formalistic and naturalistic methods. The international mainstream was represented by testable model-based economics, using mathematics and statistics, and led by developments in the United States (Fourcade 2009; Stiglitz 2011; Weintraub 2002). This development within mainstream economics proved in hos pit able to the agenda of conservative liberalism.
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252 Conservative Liberalism, Ordo-Liberalism, and the State
Religion As Chapter 7 shows, religion influenced receptivity to the political economy of conservative liberalism. Catholic economic and social thought had a strong presence in Belgium (notably Louvain), France, Italy, Spain, and in Rhineland and Southern Germany too (Almodovar and Teixeira 2008). Its relationship to conservative liberalism proved ambivalent. On the one hand, its support for corpor atist forms of organization, and for state intervention to benefit the poor and the disadvantaged, was inimical to many conservative liberals. On the other hand, the kind of Scholastic economic thought taught in Leuven emphasized monetary stability as an essential basis for the economic and social orders (see van Zeeland 1921: 56, 104). Albert-Edouard Janssen and his mentee Paul van Zeeland, both members of the Belgian Christian Party and statesmen-economists, advocated the gold standard, the quantity theory of money, and the ‘real bills’ doctrine, according to which banknotes had to be covered by gold or some other sound asset (Maes 2018). Van Zeeland was a strong supporter of central bank independence. For Janssen and van Zeeland, the paramount policy challenge from the 1920s to the 1950s was the stabilization of the Belgian franc (Dujardin and Dumoulin 1997). In contrast, Reformed Protestantism in the Calvinist/Lutheran modes offered an unequivocally hospitable environment across the Baltic States, the Nordic countries, the Netherlands, and much of Germany and Switzerland. It also had a presence in the United States, mainly through immigrants from these parts of Europe. Conservative liberalism gained a hold amongst a section of Republican voters who typically hailed from this type of religious background. However, in the United States, it had to contend with the political appeal of sustaining ‘superpower’ status and its fiscal consequences; with the rise of a debt-fuelled consumer society and the associated clamour for low interest rates; and with the prestige of naturalistic and Pragmatist philosophies within academic economics. In the United States, conservative liberalism faced a gathering post-war challenge from a spreading libertarian Christianity that rejected the ‘pagan state’ in favour of ‘freedom under God’ and of the notion that the market could be relied on to reward the good and punish the bad (Kruse 2015). Over time, the direct impact of religion on political economy became less vis ible. From the 1950s Catholic and Lutheran social theory went into decline as a factor in economics (Almodovar and Teixeira 2008). The focus in economic theory shifted to technical problems of fiscal, monetary, trade, exchange-rate, competition, labour market, and industrial policies. The emphasis was less on deduction from principles and more empirical and pragmatic. Economic theory was about weighing the consequences of alternative policy measures in the search for the ‘best possible’ (Giersch 1959: 257). In justifying this approach, the German economist Giersch cited the work of the British economist James Meade and the
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Just a Germanic Tradition? 253 American economist Paul Samuelson rather than Eucken. However, Giersch stressed that the ‘best possible’ depended on retaining a commitment to ordering principles.
State Tradition The significance of conservative liberalism varied with the nature of the state tradition: the way in which public power and public law were conceived. Britain and the United States lacked the kind of state tradition found in continental Europe (Dyson 2009/1980). The continental European state tradition emphasized the autonomy, distinctiveness, and normative character of the public power. It depersonalized public power in a two-fold way: as distinctive both from ruler and from ruled (ibid.: xvii, 51–2). This conception of the state was intimately connected to the notion of public law in the Roman-law tradition. According to the Roman-law notion, the law articulates the state in its role as the impartial and impersonal regulator of society, from which the state enjoys autonomy and distinctiveness. Through law, the state constitutes society and, not least, the market through a shared set of normative commitments (ibid.: xiii–xiv). The public institutions that are identified with this kind of state tradition can claim a privileged status as the embodiment of a distinctive public interest which is set apart from temporary and changing electoral majorities and from what is agreed with, or amongst, special interest groups. The role of these institutions is to protect the values of the public sphere from transient popular majorities and from the self-interested behaviour of individuals and groups. The values they protect are those essential to the long-term sustainability of the social, economic, and political orders, like price stability, financial stability, and fiscal rigour. Sustainability—in these limited senses—means the ‘strong’ state as understood by the German Ordo-liberals (classically Rüstow 1963c/1932; Eucken 1932a). This constricted sense of the ‘strong’ state was apparent in Eucken’s (1932b) opposition to Carl Schmitt’s conception of a strong state in which all crises could be solved politically. Schmitt failed to recognize that the spheres of the economy and of religion were outside politics. The Ordo-liberal tradition places emphasis on the public power in providing and safeguarding the legal and moral orders on which a sustainable competitive market order depends (Dyson 2009/1980: 96). This view of political economy, with its Roman-law heritage, was more familiar in continental European than in Anglo-American contexts. In Anglo-American political economy the language of an ‘economic constitution’ was often seen as unduly constraining on innovation and flexibility in a fluidly operating liberal market economy. The language of the ‘strong state’ was a source of discomfort as excessively authoritarian, managerial, and ‘top-down’. For some, it was a hollow promise, a convenient smokescreen for
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254 Conservative Liberalism, Ordo-Liberalism, and the State a crony capitalism in which predatory elites enriched themselves at the public’s expense (see Chapter 12). In Anglo-American thought, there was a more pronounced sense of the limits of the law in economic policy. Law was an instrument in the ongoing contest of ideas and interests. When the importance of the constitution of economic policy was recognized, its design was based on the principle of normative individualism (Buchanan 1979, 1999/1986: 28). The disconnection between law and economics was in general unfavourable to conservative liberalism. As this disconnection began to manifest itself in German universities, the intellectual foundations of Ordo-liberalism were eroded there too.
State- and Nation-Building The significance of conservative liberalism was affected by the context and legacy from state- and nation-building. It thrived when state- and nation-building took place in cultural settings of fear that untrammelled markets could prove the author of the undoing of the process of unification. In such settings the careful regulation of markets was a way to control the baser instincts of avarice, envy, and greed which threatened to undermine public virtue and community. Conservative liberalism also thrived when independence was established against a foreign power that was defined as the ‘Other’ in values and behaviour. Both these features were discernible in the acutely painful and protracted process of Dutch independence from monarchical Spain in the sixteenth and seventeenth centuries. At this time Dutch culture was impregnated with a moralizing humanism which became common ground between Catholics, who had been inspired by the reformer Erasmus (1466–1536), and Calvinists. The question was: how was the Dutch Republic to survive and prosper in a world of threats from great powers and from natural catastrophe? The answer was that the new Dutch Republic had to avoid the lure of wealth and vanity. It had to embrace the virtues of personal honour, hard work, frugality, and restraint in seeking present satisfaction. These virtues were part of the archetype of the solid, righteous Dutch citizen who mastered the art of ‘right living’ (Schama 1987: 323–43). The Dutch citizen had to be protected from the dangers of an untrammelled free market. Catholic humanism and Calvinism lent a powerful formative moralism to Dutch attitudes to the state and the market, justifying a high degree of public regulation. Saving money took on a powerful role in German state- and nation-building in the nineteenth and twentieth centuries. It served an elite-driven collective purpose. Personal saving began to be defined as more than just a private virtue in the Lutheran tradition of restraint and more than just a prudent measure in a very unsafe world. It was identified by ruling elites as an essential component in building the German nation. Saving was a service to the nation. For conservatives,
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Just a Germanic Tradition? 255 saving had an additional value as a bulwark against revolution by ensuring that people had something to lose from disorder. The national savings movement led to a surge in savings accounts. Saving banks (Sparkassen) were a German innov ation and expanded in number across Germany. School children were taught saving, and special school saving banks were introduced. Saving was represented as the morally right choice, not just a financial strategy. It also facilitated the economic development of Germany through the lending activities of the saving banks. The traumatic 1923 hyperinflation and the collapse of the German currency with the end of the Second World War only served to confirm the value of saving in the post-1945 Germany (Löffler 2010a). The identification of saving with personal and collective virtue provided fertile soil for conservative liberalism and for the high status accorded to the Bundesbank amongst German institutions as the robust guardian of ‘sound money’ (Lindenlaub 2010).
Parties and Party Systems The significance of conservative liberalism varied with the character of parties and party systems. The most favourable environment was provided by the presence of a liberal party that was conservative liberal in ideological outlook; that was predominant in winning a majority of parliamentary seats or that was able to play a king-maker role in forming and maintaining government; and that functioned within a party system in which there was a small number of parties, little internal party factionalism, and limited ideological distance between the parties. Across Europe, the typically larger Christian democratic and social democratic parties—and, far more so, the populist parties—were less hospitable to conservative liberalism. They were more inclined to be interventionist in managing economic and social outcomes and to favour collectivist social policies. These various restrictive political conditions meant that conservative liberalism faced serious challenges everywhere. The challenges proved more intractable in some settings than others. They were very evident in post-war Italy where the Italian Liberal Party (PLI) split in the 1960s amidst internal factionalism, partysystem polarization, and marked ideological distance within the party system. France too had a fragmented, polarized, and often changing party system, with parties that were often internally factionalized and occasionally, as the Gaullists in the Fourth Republic, anti-system. A distinctive liberal party failed to consolidate a strong presence in either the French or the Italian party systems. In Germany, by contrast, Ordo-liberalism’s potential influence increased in periods when the Free Democratic Party (FDP) had a king-maker role in German government formation, as in 1969–98, in the context of a relatively concentrated party system with limited ideological distance. Even so, the Christian Democratic parties (CDU/CSU) retained strong roots in Catholic social thought, whilst the
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256 Conservative Liberalism, Ordo-Liberalism, and the State Social Democratic Party (SPD) remained ideologically suspicious of Ordoliberalism. The presence and ideological makeup of these larger parties attenuated the influence of Ordo-liberalism on economic and social policies from the outset (Manow 2020). Already, in letters of 6 and 15 February 1953 to Hans Ilau, Röpke referred to Erhard as a ‘truly miserable sight’, conceding too much to his colleagues and officials and exhibiting a ‘limitless sloppiness’ in every respect (Röpke Papers, file 1952–53, Institute for Economic Policy, Cologne University). His disappointment intensified (I. Eucken 2014: 74). By the late 1950s, Röpke was expressing his deep disappointment with progress towards a liberal market economy in Germany (Röpke 1958b: 49–51). His list included Erhard’s failings in European integration policies, tax reform, social policy reform, and anti-cartel and competition pol icies. In a letter of 12 January 1959 to Albert Hunold, he referred to Erhard’s fate as ‘tragic’ (Röpke Papers, file June 1958–February 1960, Institute for Economic Policy, Cologne University). Caution is required in treating the reception of conservative liberalism as simply a function of whether the Left or the Right is in power. Neither the Left nor the Right is homogenous in its attitudes to conservative liberalism. The Right is concerned with more than just fiscal and monetary discipline. It offers a home to traditional and devoted conservatives who remain deeply suspicious of liberalism. The Right’s concerns with national identity, social solidarity, internal security and border controls, and the projection of state power on the world stage can have different implications for economic policy, prioritizing protection over openness. Similarly, the Left combines a traditional concern with the disadvantaged with a technocratic tendency that identifies with some of the concerns of conservative liberalism. The result is a degree of ambivalence and shifting emphasis in attitudes to conservative liberalism within both Left and Right. The party-political environment became less hospitable to conservative liberalism across Europe and in the United States in the aftermath of the post-2008 economic and financial crisis and of the post-2015 migration and refugee crisis. Three characteristics were evident, in varying combinations: party-system fragmentation as the number of parties in parliaments increased; greater internal party factionalism and indiscipline; and growth in ideological distance and intensity on matters of principles and fundamentals. The combination of these characteristics dispersed power and created uncertainty and loss of elite confidence in a way that eroded the credibility of the notion of the ‘strong’ liberal state. Party-system development offered a further incentive to embrace a competitive politics of ‘outbidding’ and ‘overpromising’ in tax and spending that undermined the credibility of a rule-based economic policy and led governments to practise fiscal trickery. In consequence, the electoral cycle threatened to de-stabilize the economic cycle; to undermine efforts to tackle long-term problems of fiscal deficits, public debt, and structural reforms; and to eclipse the insights of
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Just a Germanic Tradition? 257 credibility and time-consistency literature (Alesina 1989; Kydland ad Prescott 1977). This less hospitable party-political environment became evident even in Germany, the traditional European heartland of Ordo-liberalism and of stable governments. By 2017 the Bundestag comprised seven parties, stretching ideologically from the Left Party to the Alternative for Germany (AfD) Party. The FDP’s king-maker role in government formation was in abeyance. Ordoliberalism retained an institutional presence but occupied a political environment more prone to generate crisis.
Events and Crises The significance of conservative liberalism was shaped by its dynamic interplay over time with the events and crises that beset political systems and affect the reputation of ideas. The dominant narratives about events and crises confirmed either the relevance or the irrelevance of conservative liberalism: whether it was held responsible for a crisis or judged a part of the solution. In post-1918 Europe currency instability, trade disruption, hyperinflation, and reparations generated intense debates about the destabilizing effects of economic and monetary dis order on new liberal democratic orders, especially in Germany. This context opened opportunities to develop new disciplinary conceptions of fiscal and mon etary stabilization (for details, see Chapter 2). However, in Britain and the United States the experience of the Great Depression of the 1930s shifted the terms of the discursive contest within liberalism. In the United States the contest was initially between the ‘experimentalism’ of Franklin Roosevelt’s New Deal policies and disciplinarian liberals (Burgin 2012). As the 1930s progressed, this contest gave way to one between Keynesian thinking and conservative liberalism. Keynesian ideas gained prestige from their association with policies to overcome the Great Depression at lower social and political cost than in much of continental Europe. Their assimilation into mainstream post-war Anglo-American economics textbooks and research— and the post-1945 international ascendancy of this mainstream—left little space for conservative liberalism to thrive. From the 1960s events and crises conspired to shift the terms of discursive contest. The ascendancy of Keynesianism gave way in the face of the difficulties and eventual collapse of the Bretton Woods system and of the oil-price shocks of the 1970s. Keynesianism was held responsible for the subsequent problems of inter national monetary disorder, economic stagnation, and inflation. The vacated space was initially occupied by a reconfigured Chicago monetarist tradition of economics, represented by Milton Friedman (1962). However, this tradition was too laissez-faire in its conception of markets for conservative liberals like Buchanan. From the late 1970s, the space vacated by Keynesianism was
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258 Conservative Liberalism, Ordo-Liberalism, and the State increasingly filled by the credibility and time-consistency literature on monetary policy, which helped rejuvenate conservative liberalism (e.g. Kydland and Prescott 1977). The financial, economic, and sovereign debt crisis that began in 2007–8 had ambivalent implications for conservative liberalism. On the one hand, the crisis seemed to confirm its greater relevance than laissez-faire liberalism in controlling the excesses of state and market behaviour. On the other, questions arose about the suitability of conservative liberalism in minimizing the economic, social, and political costs of the crisis. The main contest in mainstream international economics was between conservative liberalism and efforts to rehabilitate Keynesian counter-cyclical policy. The significance of conservative liberalism is affected by material changes in policy problems; by the attribution of responsibility to certain policy ideas as failures; by the opening—or closing—of intellectual and political space; and by who succeeds in occupying this space. Ordo-liberalism benefited from the displacement of Keynesianism by monetarism and conservative liberalism from the 1970s as the German Bundesbank used the opportunities opened by the collapse of the Bretton Woods system and the oil crisis to empower its role.
Net Creditor and Net Debtor States The significance of conservative liberalism was critically dependent on whether it best accorded with the most powerful interests in the structure of the political economy. Conservative liberalism privileged the interests of savers and creditors over borrowers and debtors through an emphasis on sound money and finances and opposition to the bail-out of those judged to have behaved imprudently (Dyson 2014). Its political constituency was what Röpke (1944: 377, 1958b: 216) called the ‘healthy’ bourgeoisie, whose position would be eroded by softening the responsibility of the debtor (on this constituency, see Chapter 1). He developed the notion of a creditor-led construction of post-war international monetary order in which stability was home-made and adjustment a matter for net debtor states (Röpke 1954, 1959). This theme was stressed by Kamitz in the 1950s. His priority was the restoration of Austrian creditworthiness through monetary stability, restrictive credit policy, fiscal balance, and tax reforms to promote domestic savings (Diwok and Koller 1977: 27–8, 107, 139). He shared Röpke’s view that home-made stability was the precondition for European economic integration (ibid.: 27). This kind of argument was ethically and empirically highly controversial. Its broad-brush moralistic condemnation of debtors was questionable in the light of empirical information about the causes of debt. Excessive private debt was so often the product of accidental and unanticipated events like illness, disability,
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Just a Germanic Tradition? 259 caring responsibilities, divorce, and unemployment, as well as the irresponsible lending practices of banking and other financial bodies. These factors, individually or in combination, could push people into acute financial difficulties. The frailties and vulnerabilities of individuals, along with the interdependence of creditor and debtor interests, pointed to a more enlightened sense of self-interest and self-restraint in pursuing creditor claims. This point applied to creditor– debtor state relations. Punitive action against net debtor states that had ceased to be creditworthy might seem right in relation to irresponsible behaviour of elites. However, morality suggested prudence and self-restraint in taking account of effects on the weaker and the innocent in net debtor states. Savers and creditors were part of a larger configuration of political interests that had legitimate claims to representation. Conservative liberalism struggled as this larger configuration of interests gained greater political resonance with democratization and with academic and media investigation of the social causes of debt. The creditor–debtor issue manifested itself in the way in which regional imbalances affected the significance of conservative liberalism within states. Characteristically, Keynesian ideas were most readily taken up by those who identified with the interests of those parts of national economies that were most economically and financially vulnerable. The Belgian economist Jacques Drèze and the Italian economist Pasquale Saraceno were attracted to Keynesianism by their sense of urgent need to correct regional imbalances in a way that minimized damage to the most vulnerable. They advocated the value of national accounting and model-building for this purpose (Maes 2008). In contrast, conservative liberalism gained a more sympathetic ear from those who identified with the affluent regions. In Belgium, balanced budgets, debt reduction, and sound money were the priorities of Albert-Edouard Janssen as finance minister in 1925–6, 1938, and 1952–4. In Italy, northern economists like Luigi Einaudi (1942a), Costantino Bresciani-Turroni (1942), and Guido Carli (1993) were more receptive to conservative liberalism than their southern counterparts. Once regional imbalance became defined as a problem of protecting the most disadvantaged, Keynesian ideas were likely to displace conservative liberalism. This kind of problem defin ition was to make conservative liberalism a fragile and contested phenomenon in post-war Italian political economy.
The International Structure of Power: Americanization and Financial Markets The significance of conservative liberalism was bound up with the international structure of power—with the process of production and spread of economic ideas, with who had power over ideas. Americanization of European economics began as early as the interwar period. It had its basis, in part, in the large-scale
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260 Conservative Liberalism, Ordo-Liberalism, and the State emigration of leading European economists from fascist dictatorships to the United States (for details, see Hagemann 2011). The German-speaking world suffered a haemorrhage of Left-inclined academic economists that had significant long-term effects on ideological outlooks in German economics. In addition, Americanization benefited from certain features of US economics that made it the centre of reference: a strong professional organization that was dedicated to establishing and defending economics as an autonomous discipline; an emphasis on quantitative techniques and statistical analysis that bolstered the claim to scientific rigour; new, well-financed, and attractive research institutes and graduate programmes; the quality of its refereed journals; and the use of English as the lingua franca. In the post-1945 period the United States emerged even more decisively as the hegemon in economics through the scale of its funding, the reach of its professional journals and textbooks, and the prestige of universities like Chicago, Columbia, Harvard, MIT, Princeton, Stanford, and Yale. The Americanization of academic economics was more rapid in the case of smaller, open European economies like Belgium and the Netherlands. In add ition, some European states benefited disproportionately from access to American graduate fellowships. American resources enabled promising young European economists to study at its universities. In Belgium, this process began in 1920, with van Zeeland in the first group. Later, it included Drèze, Gascon Eyskens, and Robert Triffin. In Italy, Mario Draghi, Franco Modigliani, Paolo Savona, and Luigi Spaventa were beneficiaries (Maes 2008). This American graduate education gave these young European economists an intimate familiarity with Keynesian economics, which they imported into key universities like Leuven in Belgium and the Bocconi in Italy. The hegemonic American role in economics was underpinned not just by its economic power. It was also supported by the United States’ role as leader of the Western liberal order in the Cold War. The Cold War enhanced the prestige of the United States as the ultimate guarantor of the West’s security. It also helped to establish the relevance of game theory for a practically focused technical economics. Americanization of the economics profession proved unfavourable to the prestige of distinctive national traditions, not least in conservative liberalism. It favoured the cross-national spread of quantitative techniques, econometric modelling, Keynesianism, laissez-faire economics, game theory, and public-choice economics. Centres of excellence like Leuven in Belgium, the Bocconi in Italy, and the LSE showed little interest in the type of disciplinary economics represented by Ordo-liberalism. This lack of interest was also apparent in the European Economics Association after its establishment in 1985 with Drèze as its first president. In this fast-changing international and European context, the Freiburg School sought to refresh itself by borrowing very selectively from American economists like Buchanan who retained a connection to the US conservative liberalism of the
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Just a Germanic Tradition? 261 old Chicago School. However, selective borrowing could not disguise the fact that the broad direction of change in political economy was towards positive economic analysis of individual behaviour and of social and political interactions (Buchanan 2001b/1986). This direction of change was visible within economics teaching and research at Freiburg University. The structure of power in the international political economy was also affected by the huge growth in the size and complexity of financial markets. This process gained new momentum with the shift to freedom of international capital mobility from the 1970s onwards. Laissez-faire liberal thought—of the type represented by the new Chicago tradition—was better adapted to the financial interests that had been empowered by these changes. It helped provide justification for the inter national reach and ambitions of investment banking and for the championing of deregulation and privatization to maximize commercial opportunities. Profit maximization through complex financial transactions and deal-making could be presented as a public good. However, in contrast to conservative liberalism, laissezfaire liberalism paid less attention to the notion of financial stability as a public good. The post-2007 crisis re-established the relevance of Hyman Minsky’s (1986) warnings about the inherent instability of financial markets. Buchanan (2009, 2010a) took up the conservative-liberal argument that banking needed to be subject to a constitutional order through firm and constraining rules of the game. Over time, the discursive contests in political economy about changing events and crises had led to cross-national rises and falls in the significance of conservative liberalism. It faced the challenges of New Deal experimentalism in the 1930s, of Keynesianism from the 1940s, and of the new laissez-faire Chicago tradition from the 1960s. From the 1970s monetarism and credibility and time-consistency literature helped the revival of conservative liberalism. The open question was whether the post-2008 financial, economic, and sovereign debt crisis would change the terms of the contest in political economy for or against conservative liberalism. This question was most pertinent in the European Union (EU) and the euro area, where German Ordo-liberal ideas had greater opportunity to shape policies. German economists and negotiators drew the lesson that the crisis required firmer, more precise stability-based rules, the clearer assignment of responsibility with competence, and more consistent policies. Member states must put their own houses in order by taking responsibility for their own policy mistakes (e.g. Sinn 2014a; Weidmann 2012, 2013, 2014a, 2014b). Their lesson-drawing corres pond ed closely with traditional Freiburg Ordo-liberalism, the old Chicago School, and Buchanan (Buchanan 2010b). The German economist Hans-Werner Sinn (2014b) advocated the export of Ordo-liberalism into international and European rules of the game. However, it was unclear that rigid insistence on this type of rule-observance would serve German trading and political interests in retaining the integrity of a large and heterogenous EU and euro area.
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262 Conservative Liberalism, Ordo-Liberalism, and the State
Networking: University Patronage, Think Tanks, and Media Dissemination University patronage and networking add a further dimension to the rise and fall of traditions in political economy. The significance of conservative liberalism was influenced by the degree of success of its thinkers in occupying leading university chairs. Chair appointments provided opportunities for the exercise of patronage powers and for cultivating communication networks through which ideas of conservative liberalism could be disseminated. In this way a common language and technique of thinking could be established within the academic sector and beyond to government, to the civil service, to industrial and employer bodies, to think tanks, and to newspapers, journals, and other media. The two critical factors were, first, whether conservative liberals held key chairs and, second, if they did so, whether they were cosmopolitan and worldly enough to seize the oppor tunities that were provided to actively disseminate their ideas. Some German Ordo-liberals possessed remarkable networking skills. University chairs provided the opportunity to shape teaching, research, postgraduate training, and key appointments within the university sector. Chapter 4 examines the extent to which German Ordo-liberals were successful in academic dissemination. Nevertheless, despite his remarkable networking skills, Röpke lacked a major German university chair after 1933. After 1945 he rejected the repeated efforts of Eucken to attract him to a chair, possibly in Cologne or in Frankfurt, to strengthen the Ordo-liberal voice in German debates (e.g. in a letter of 10 November 1949 to Röpke, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). There was, in consequence, no enduring Röpke School to compare with the Eucken School. In France, in contrast to Germany, neither Louis Rougier nor Rueff occupied prestigious university chairs, with their attendant patronage powers. François Bilger and later Patricia Commun were not part of the centralized power structure of patronage. There was no Rougier School or Rueff School to stand alongside the Eucken School. In Italy, Einaudi was no longer a powerful university chairholder by the time he became associated with conservative liberalism in the 1940s. In Britain neither Hawtrey nor Hutt had academic posts with the patronage powers of John Maynard Keynes in Cambridge or Lionel Robbins at the LSE. Post-war Germany was distinctive in conservative liberalism in developing an infrastructure of university patronage and dissemination that dwarfed anything to be found in Britain, France, Italy, and the United States. The Cologne School of Müller-Armack and the Freiburg School were successful in placing key officials in the new economic policy division of Erhard’s federal economics ministry (details in Löffler 2003). Robert Gocht and Otto Schlecht (1997) went from Freiburg, and Hans Tietmeyer from Cologne, to top careers in German economic and monetary policy (Dyson 2016). The federal cartel office also recruited heavily from students
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Just a Germanic Tradition? 263 of economic law who had been exposed to Ordo-liberal ideas. In this way debate about competition policy took on a strongly Ordo-liberal form. Ordo-liberal academic economists and officials in the German federal economics ministry also cultivated close connections to economic journalism and to think tanks. The so-called ‘Erhard brigade’ included academics, politicians, and journalists who campaigned on key Ordo-liberal issues like the anti-trust law of 1957 and European economic integration (Löffler 2003). Erhard understood the political significance of the media both in agenda-setting and in reinforcement of messages and attitudes, especially in a context where news coverage was limited. The economics department of the Frankfurter Allgemeine Zeitung (FAZ) emerged as a key player in this network and the most influential disseminator of Ordoliberal ideas, alongside the Neue Zürcher Zeitung (Riedl 1992). Erich Welter of the FAZ became a friend and admirer of Franz Böhm, Eucken, and Röpke (ibid.: 87–90). He taught Eucken’s work as professor of economics in Mainz and helped recruit bright young Ordo-liberals to the newspaper’s economics department. Hans Herbert Götz of the FAZ was a former student of Eucken (Kutzner 2015: 3). Röpke had a considerable presence in the FAZ and in the Rheinische Merkur and, above all, in the Neue Zürcher Zeitung through his close links to Hans Barth, Willy Bretscher, and Carlo Mötteli (Riedl 1992: 57–9). Another key factor was the presence and engagement of think tanks and their corporate and political supporters. Here there is a striking contrast between the United States and Germany. In the wake of the New Deal’s interventionist pol icies, the United States witnessed a proliferation of corporate support for think tanks dedicated to disseminating laissez-faire ideas of market fundamentalism (Kruse 2015; details in Chapter 9: 268). In Germany the Action Group for the Social Market Economy (Aktionsgemeinschaft Soziale Marktwirtschaft), which brought together academics, officials, and journalists, played an important role in debating and disseminating Ordo-liberal ideas. From 1953 it played a similar role to that of the Mont Pèlerin Society, but with a more focused domestic campaigning role on behalf of Ordo-liberalism (Riedl 1992: 33). The importance of networking was exemplified by Franz Böhm. He combined being a key member of the Action Group for the Social Market Economy with membership of the scientific advisory council of the federal economics ministry for almost three decades, with his role as a Christian Democratic member of the Bundestag, and with coeditorship of the ORDO Yearbook (for an assessment, see Hansen 2009: 264–73).
Ideas, People, and Power: The Openness of History Rise and fall in the significance of conservative liberalism and Ordo-liberalism, across space and over time, is affected by a complex range of factors that operate on various levels. Many—like founding myths, religious heritage, state tradition,
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264 Conservative Liberalism, Ordo-Liberalism, and the State and power in the international economy—appear to be structural and historical. They afford an element of stability. Structures and historical legacies either empower or disempower conservative liberalism and Ordo-liberalism in differing ways. Certain institutions and actors succeed in identifying themselves with valued historical legacies, either to the benefit or to the cost of conservative liberalism. Identification of conservative liberalism and Ordo-liberalism with the interests of net creditor states proved a potent factor in conditioning their reception. However, as Golo Mann (1961) pointed out, history remains open, an insight that he applied to understanding the past. The significance of conservative liberalism and Ordo-liberalism is not a structural or historical given. Conservative liberals can attempt to seize—with varying success—the opportunities that are offered by crisis and changing structures of power to refashion the dominant narrative. Crisis, and the accidents and decisions that accompany it, plays a vital role in the fortunes of conservative liberalism as a disruptor of existing structures of power. It can benefit conservative liberalism when other policy models are presented as having failed and a policy vacuum emerges. This opportunity arose with the ‘stagflation’ of the 1970s and the sense that Keynesianism was failing. Sound money and sound finance became the policy mantra. A similar opportunity recurred from 2007–8 when the financial crisis was initially defined as a crisis of the Anglo-American capitalist model (see the German finance minister Peer Steinbrück 2010, 2011). However, by 2011–12 the crisis narrative had evolved into one of the euro area. The crisis was being re-defined in France and Italy as precipitated by the ‘blin kered ideology’ and ‘dogmatism’ of German Ordo-liberalism (e.g. Salin 2014; Savona 2014, 2018; for American and British critiques, see Krugman 2013; Munchau 2013b, 2014; Posen 2013b; Wolf 2013a, 2013b). This re-definition was embraced by both Left and Right in France and Italy. Crises have a temporal dimension in which accidents and decisions can help shift the balance of narratives about conservative liberalism. By 2011–12 the conservative-liberal policy model, and the elites with which it was identified, were being assailed as a failure by many in the euro area and used to foment a nationalist populist politics. This shift reflected adverse changes in the material world: rising unemployment, falling or stagnant living standards, increasing distrust of institutions, and the unpopularity of governing parties. Large sections of the population became convinced that their life situation and prospects had been worsened by the outcomes of policies that were justified as conservative liberal in line with the EU Stability and Growth Pact (SGP) and later the euro area’s fiscal compact treaty (details in Dyson 2014: chapter 18). The complex, compound effects of cultural, historical, and institutional leg acies, of ideological competition, and of political incentive structures suggest that conservative liberals and Ordo-liberals are likely to find themselves in alien and
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Just a Germanic Tradition? 265 hostile environments. However, they are not condemned to oblivion in national and European political economies, only to recognize that the conditions for shaping public debate, institutional design, and policies vary considerably across space and over time. The alertness and skills of actors in spotting and seizing opportun ities remain vital. They must display aptitude for wedding conservative liberalism and Ordo-liberalism to the attempts of governing elites to (re-)construct ascendant national unifying myths. They must also be able to navigate the convoluted structures of power at domestic, European, and international levels. The significance of conservative liberalism and Ordo-liberalism rests on skills in using patronage and networking to disseminate their ideas through academia, think tanks, government, and the media. They must also show aptitude in managing parliamentary and party relations and bringing powerful organized groups on board. They need leaders with the rhetorical power to mobilize wider elite and public support and to galvanize action. In the end, as Scheler (1961) noted, interests, energy, and passion are vital in determining which ideas succeed or fail in history.
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9
Conservative Liberalism in American and British Political Economy The American Will inhabits the skyscraper; the American Intellect inhabits the colonial mansion . . . The one is all aggression and enter prise; the other is all genteel tradition. George Santayana (1991: 4) Like Alexis de Tocqueville, Santayana was one of the detached and most insight ful cultural critics of American life. In Character and Opinion in the United States, he painted a vivid portrait of a ‘crude but vital America’, which stood apart from the cultural and intellectual life of continental Europe. Strikingly, Santayana drew out the affinities with England. He pointed to a shared genteel tradition in their intellectual life, alongside their pronounced spirit of ‘free individuality’. Santayana stressed the imprint of the English spirit on the United States. At the same time, his aristocratic liberalism led him to qualify this emphasis on commonality with a deep discomfort about what a resurgent American capitalism was doing to the cultural and intellectual life of individuals (on which Chapter 5: 151–3). A century later the American spirit of corporate aggression and enterprise seemed to have spread into other areas of American life, to have overcome the genteel tradition, and to have reversed the pattern of influence between Britain and the United States. The casualty of this process appeared to be the kind of conservative liberalism for which Santayana had stood. Despite Santayana’s cultural critique, conservative liberalism has been far from absent in American and British political economy. It resonated with key members and voters of the US Republican Party. They valued limited government, indi vidualism, and traditional morality and used a fusion of these values with free enterprise values to recruit support. Conservative liberalism had a similar appeal within the British Conservative Party as it had to those who had been associated with the Asquith tradition in the Liberal Party of the early twentieth century. These political parties sought to establish themselves as the most credible pro ponents of fiscal and monetary conservatism, including balanced budgets, and measures to encourage savings and personal responsibility. This chapter examines the key figures in American and British conservative liberalism; the context in which they thought and wrote; how their thinking Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 267 evolved; and the significance of conservative liberalism in their wider political economies. It shows why conservative liberalism did not flourish in a consistent manner, even with British Conservatives and American Republicans in power. Its significance was conditioned by cultural, historical, and institutional legacies, notably contending national unifying myths; by ideological competition from parties that gave primacy to reducing inequality of wealth and income and to economic security; by the structures of political incentives; and by crises and their effects on the reputation of economic ideas.
Conservative Liberalism in National Unifying Mythology The United States entered the post-war world with two powerful national unify ing myths that left little space for conservative liberalism. The New Deal ideology, which was bequeathed by the Roosevelt administration from the Great Depression, had begun in a pragmatic, experimental fashion that proved uncon genial to conservative liberals like Louis Brandeis, Frank Knight, Henry Simons, and Walter Lippmann. Later, it became identified with Keynesian ideas of discre tionary, counter-cyclical macro-economic management, which retained ascend ancy into the 1970s. Again, US conservative liberals—Lippmann was to become an exception—were in opposition to the mainstream. The ideology of the ‘national security state’ provided another powerful post-war national unifying myth. It gained strength and legitimacy from US participation in the Second World War and from the Cold War. In combination, the mythologies of the New Deal and the national security state supported ‘big’ government, high levels of public expenditure, and an inter ventionist state. When allied with ideological, electoral, and party incentives to embrace low taxation, the outcome was fiscal deficits and public debt at levels that caused consternation amongst frugally minded conservative liberals (for figures on US deficits and debt, see Dyson 2014: 199). Conservative liberalism faced two other challenges that rested on the national myth of US exceptionalism. The first drew on the early ‘frontier’ spirit to stress the virtues of a rugged, self-reliant individualism. This national myth translated into the cult of the heroic entrepreneur and a free-market ideology that distrusted big government and intervention in economic affairs. It was also receptive to a national populism. The second challenge came from the growth of the idea of Christian America in the form of a libertarian Christianity. Its growth can be dated to opposition to the interventionism of the New Deal in the 1930s and later to atheistic communism in the Cold War. The idea of ‘freedom under God’ was used to depict the New Deal as ‘pagan statism’, perverting the sanctity and spirit ual salvation of the individual (Kruse 2015). Individuals are depicted as rising and falling according to their merits, with worldly success as a sign of heaven’s
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268 Conservative Liberalism, Ordo-Liberalism, and the State blessing. The market is a natural order that reveals the good and the bad, a process that state intervention to redistribute wealth and income can only under mine. The free market becomes identified with the American way of life. The frontier spirit and libertarian Christianity were uneasy ideological bed fellows for both conservative and social liberalism in America and provided materials for populist mobilization that was anathema to these strains of liberal ism. They went along with corporate funding of a widening range of right-wing think tanks, dedicated to promoting market fundamentalism and the laissez-faire state, such as the Volker Fund from 1932, the Foundation for Economic Education (FEE, 1946), the Liberty Fund (1960), the Cato Institute (1974), and the Mises Institute (1982). Laissez-faire liberalism was also made popular through the new Chicago School (e.g. Friedman 1962). In addition, its ideas were disseminated by journalists, like those who wrote for The Freeman in its various guises (details in Hamilton 2019). Libertarian economics was represented by the energetic activ ities of figures like Henry Hazlitt, Ralph Raico, Ayn Rand, Leonard Reed, Murray Rothbard, and Ludwig von Mises. Libertarians like Frank Chodorov and Alfred Jay Nock, both closely linked to The Freeman, appropriated the popular late nineteenth-century American economist Henry George as an exponent of ‘indi vidualism against the state’ and of a society based on voluntary cooperation (ibid.; also Yaeger 1984). George had emphasized the necessary connection between the rights of man and the rights of property. These ideological currents flowed in complex ways into the presidencies of Ronald Reagan (1981–9) and Donald Trump (2017–). ‘Reaganomics’ combined an uneasy blend of belief in libertarian economics with the ideology of the national security state. President Reagan used populist rhetoric as a tactic, railing against Washington, DC and its liberal elites. Despite his initial endorsement of a balanced budget in deference to traditional Republican party values, the combin ation of radical tax-cutting with increased military spending took primacy. National populist mobilization and contempt for liberal elites took an even more radical turn with president Trump. This development within the Republican party meant the marginalization of its traditional fiscal and monetary conserva tism. American conservative liberals had at best a troubled and critical relation ship to the economics of Reagan and Trump, as they had with those—notably in the Democratic Party—who looked back to the period of the ascendancy of New Deal economics. The translation of conservative liberalism into American policies and out comes was also made difficult by the complex structure of divided government. US political competition was shaped by a federal system with contending execu tive and legislative majorities. Party discipline was elusive; Congressional logroll ing was prevalent; and the political system was open to powerful lobbying on behalf of special interests. Against this background, American conservative
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 269 liberals were more conspicuous as philosopher-economists, who looked with some despair at the conduct of economic policies, than as statesmen-economists, who came to symbolize what the United States stood for. Brandeis stood out as a notable exception in the field of anti-trust law. In Britain, the two predominant post-war national unifying myths remained the welfare state and the role of ‘global player’. The welfare state was the historical legacy of social liberalism—represented by figures like William Beveridge, John Maynard Keynes, and David Lloyd George—and of the post-war Labour govern ments (1945–51). It proved strikingly resilient, even in the face of the liberal eco nomic radicalism of the Thatcher governments between 1979 and 1990. Thatcherism appealed to Milton Friedman and Friedrich Hayek as sources of intellectual reinforcement for an ideology of freedom. However, they were not active insider statesmen-economists in the British context. Their thinking was absorbed selectively and often in a vague and confused manner, for instance in the control of the money supply. Their importance was symbolic and far from lasting in Conservative Party thinking. The limitations of conservative-liberal influence were apparent in the way in which the Thatcher governments proved more radical in pursuing radical economic liberalization than in pushing through radical reforms to the welfare state. Conservative liberals like the British economist Alan Peacock argued that the welfare state should make more use of markets and pricing systems for registering preferences when allocating resources (Peacock 1997). However, these ideas came into their own after rather than during the Thatcher period; remained deeply divisive; and were introduced in a piecemeal rather than coherent fashion. The economic policies of the New Labour governments (1997–2010), and the policies adopted with the post-2007 financial and eco nomic crisis, showed that British academic economics had not escaped the long shadow of Keynes, who emerges as the pre-eminent post-war British statesman-economist. The mythology of the ‘global role’ in foreign policy and in defence was also a constraint on the fiscal and monetary conservatism of British Conservative governments that was absent in the post-war German context. However, ‘big’ government was more a reality in Britain as far as welfare policy was concerned. In the United States, ‘big’ government was more directly and strongly linked to military spending, which in turn served as an instrument for pursuing an industrial strategy through large-scale investment in technological innovation. Strikingly, Hayek’s attacks focused on the British welfare state rather than the US national security state (1967d/1956). Conservative liberalism had in certain respects a more favourable context in Britain than the United States. Its more cohesive structure of political competi tion offered opportunity to conservative liberalism in times when political will
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270 Conservative Liberalism, Ordo-Liberalism, and the State moved in its favour. The tendency to two-party competition and to single-party government, combined with cabinet government and party discipline, created a potentially more amenable political structure for conservative liberalism. In the early post-war period, American and British national unifying myths privileged a set of institutions and actors that defined their interests around a Keynesian narrative of political economy. However, by the 1980s under Reagan and Thatcher, the New Deal and the social democratic welfare state were being displaced by new mobilizing narratives that drew intellectual nourishment from the academic economics literature on monetarism and on credibility and timeconsistency literature. Economic liberalism was reborn as part of a new national myth that exalted the individual and gave primacy to providing her/him with a context of economic stability and incentives that would liberate enterprise. However, the national security state in the United States and the remodelled wel fare state in Britain continued to represent counter-narratives that blunted the significance of conservative liberalism. Attitudes to conservative liberalism were reflected in the way in which its early advocates—Ralph Hawtrey, William Hutt, Frank Knight, and Henry Simons— became lost and neglected voices in mainstream post-war Anglo-American eco nomic thought. Their marginalization occurred not just during the Keynesian ascendancy up to the 1970s. They remained neglected figures during the subse quent monetarist and rational expectations revolutions in economics, which helped revitalize conservative liberalism. Moreover, Keynesianism proved remarkably adaptive and was important in sustaining reservations about the adequacy and relevance of rule-based economic policy. Anglo-American economics retained a critical attitude to over-reliance on clear and firm rules. They were criticized as insufficiently flexible to suit increas ingly complex, diverse, and fast-changing modern economies; as ill adapted to the modern globalized corporate world with its promise of economies of scale; and as discouraging to creative entrepreneurial risk-taking. Rule-based economic policy was judged to be deficient as macro-economic policy. The one-sided focus on fiscal and monetary rules was criticized for failing to recognize the need to ease social and political stress by discretionary counter-cyclical economic man agement. In this way, economies could be helped to function at high levels of performance in growth and employment. Within Anglo-American economic thought Keynesianism showed a degree of resilience that helped it to survive the high tide of monetarism and credibility and time-consistency theory from the 1970s. It resurfaced with the post-2008 financial and economic crisis as the basis for constructing an anti-austerity narrative. Keynesianism seemed compatible with the aspiration to forge a new national unifying myth of social solidarity and to reverse the sharp increase in economic inequality that had begun with the 1980s.
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Ordo-Liberalism and Anglo-American Economics: A Failed German Export Post-war Anglo-American economic thought exhibited even less cultural openness to German Ordo-liberalism than to its own past domestic conservative liberalism (an exception was Peacock 1982, 1997). Ordo-liberalism elicited a range of reactions. In Britain there was some evidence of Hayek’s influence in the debates about the return to a rule-based economic policy in the 1970s/80s. His influence was more apparent in debates about renewal of the philosophical foundations of liberalism and about structural reforms, for instance in wage bargaining, than in the technical debate about inflation. Hayek’s advice was sought by the Institute of Economic Affairs (IEA), which built up an intimate connection to key figures in British politics, journalism, industry, and commerce through its regular lunches and dinners (Shearmur 2018). His thinking attracted the attention of other think tanks like the Adam Smith Institute and the Centre for Policy Studies; of promin ent Conservatives like Keith Joseph and Nigel Lawson; of a few journalists like Samuel Brittan at the Financial Times; and of some economists, notably Alan Peacock. However, some of the enthusiasts for Hayek embraced a socially liber tarian outlook that was far removed from his brand of conservative liberalism. Over the longer run, the more typical reactions in Britain and the United States to Ordo-liberalism varied from complete ignorance, through puzzlement at an unfamiliar language, to rejection. Ordo-liberalism was dismissed as lacking a suf ficiently robust economic theory, as old-fashioned in its social and political assumptions, and as overly authoritarian and depoliticizing in nature. Exposure to Ordo-liberalism produced the sharpest rebuttal from those who already had more general reservations about conservative liberalism. Incomprehension was mutual from the outset. Wilhelm Röpke referred to the need to combat ‘Keynes-Islam’ (letter to Eucken, 14 March 1946, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Later, he expressed his reluctance to return to Germany as a ‘creature of the Americans’, whose occupation he believed to be a disaster (letter to Eucken, 15 September 1949, ibid.). Likewise, in a series of letters between 1946 and 1950, Walter Eucken emphasized his alienation from Anglo-American economics, which he encountered as a shock after years of intellectual isolation in Freiburg. He outlined his fears about the influence of the ‘Keynesian illusion’ in Britain and the United States and thus on Allied occupation policy in Germany. It had generated a different way of thinking in terms of global aggregates and technical terms. Eucken characterized Keynesianism as more an old-fashioned mercantilist revival than the kind of liberal revolution that post-Nazi Germany and Europe required (letter to Röpke, 9 March 1949, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken).
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272 Conservative Liberalism, Ordo-Liberalism, and the State Like Röpke, Eucken lamented the influence of the Beveridge Plan in Britain and of the New Deal advocates in the United States on post-war reconstruction of Europe. He identified in them the roots of an experimentalism in policies that would lead to a centrally administered planned economy with controls and infla tion (e.g. letters to Friedrich von Hayek, 12 March 1946 and 2 March 1950; letter to Henry Hazlitt, 4 June 1948, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In a series of letters to Hazlitt at Newsweek, to Leonard Read at the US Foundation for Economic Education, and to Veronica Wedgwood at Time and Tide in London, Eucken sought to mobilize independent British and US journalists to campaign for more market-oriented Allied policies in occupied Germany (e.g. letter to Hazlitt, 11 February 1948, ibid.).
The Crowding-Out of Conservative Liberalism Chapter 8 identified historical, intellectual, and structural factors that made American and British political economy inhospitable to the reception of Ordoliberalism and that produced a more general discomfort with conservative liber alism. Britain and the United States lacked the continental European state tradition of public law, with its assumption of a disinterested public power acting in the general interest and its embedding in state institutions. Also, their main stream religion did not carry the deep imprint of Ordo thought in Catholic Scholasticism or in Lutheran social ethics (though the latter had some signifi cance in the American case). Moreover, post-war American and British intellec tual cultures were deeply impregnated with empiricism, positivism, and Pragmatism. In addition, the early establishment of economics as an autonomous discipline in both countries marginalized attention to the social, political, and historical factors—and, above all, the ethical outlook—that were so central to Ordo-liberalism. Conservative liberalism tended to be crowded out in American and British economic policy debates that oscillated between political appeals to individual ism and laissez-faire and collectivism and state intervention. Radical individual ism had a presence in political culture that generated distrust towards calls for ‘order’. In addition, conservative liberalism in Britain and the United States faced powerful institutional structures, with strong public support, that helped foster an in-built bias towards collectivism and interventionism. The apparatus and the reach of the national security state were extensive in post-war America. The wel fare state had a similar presence in post-war Britain. Moreover, the disciplinary component in American and British liberalism did not reflect the existential crisis of living under fascist rule that was so formative for Eucken and other Ordoliberals, as well as for Jacques Rueff in France and Luigi Einaudi in Italy.
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 273 Historical timing is important in the success and failure of economic ideas. The Keynesian narrative had emerged propitiously at a time when American and British economic elites were agonizing over lesson-drawing from the Great Depression of the 1930s. This narrative helped to give coherence to, and legitim ate, what had been essentially pragmatic New Deal policies in the United States. Keynesianism offered the British centre-Left, and above all the Labour Party, a means of squaring their belief in the welfare state and full employment with an intellectually coherent and credible economic policy that broke with past ortho doxy. In addition, Keynesianism coincided with a strengthening belief in the efficacy of sophisticated economic modelling of statistical data to guide inter vention, thereby enhancing the scientific status of economics. This belief fitted in well with an intellectual culture that had become empirical and positivist in character. Structurally, Eucken (1933b) had identified the link between economic policy and the structure of the economy. He argued that his ideas were well suited to the German economy, which was based on industrial and agricultural processing. This type of economy depended on predictability; free and open markets; the fight against cartels; and, not least, ensuring credit to support small and mediumsized firms (ibid.: 152–3). The task of the state and of finance was to serve and support a ‘processing country’ (Verarbeitungsland). Eucken’s picture of the struc ture of the German economy contrasts with Britain and the United States, where finance evolved as a leading and increasingly dis-embedded sector in the eco nomic structure. Britain and the United States were the centres of international financial capitalism, the City of London and Wall Street essential to its iconog raphy. Institutional structures had come to serve the needs of finance. American economic policy was bound up with the revolving door between the US Treasury Department and Wall Street. British economic policy was caught up in the core institutional nexus between the Treasury, the Bank of England, and the City. This kind of economic structure was more conducive to a short-term discretionary approach to economic policy, one that privileged profit-making by big financial conglomerates and their access to state power. It was less receptive to the idea of a disinterested regulatory state that focused on long-term public interest in finan cial stability and in supporting productive investment. In addition, in post-war Britain and the United States, the kind of economic thinking that was associated with Ordo-liberalism and conservative liberalism did not benefit from powerful academic patrons. There was no equivalent to the German Ordo-liberal professors who were able to build networks across teaching and research, government administration, organized groups, and the media. Academic patrons in Britain and the United States were more important in dis seminating Keynesian ideas, mathematical modelling, and laissez-faire forms of liberal economic thought.
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274 Conservative Liberalism, Ordo-Liberalism, and the State
Anglo-American Critiques of Ordo-Liberalism The cultural shock of encounter with German Ordo-liberalism was vividly exem plified by Tim Geithner, the United States’ secretary of the treasury during the Obama presidency. In 2010–12 he faced the challenge of grappling with the spreading and deepening euro area crisis and trying to influence its management. Geithner’s chief concern was to contain risks of contagion to the wider European Union (EU) and to the global and the US economy, above all from the unfolding Greek crisis post-2009. In his book Stress Test: Reflections on Financial Crises, and in the associated transcripts published on the internet, he wrote about his mounting dismay when listening to European leaders and officials at the Group of Seven (G7) summit in Canada in February 2010 (Geithner 2014: 443–8). They criticized the Americans for reckless deregulation of their financial system, for presiding over a ‘WildWest’ financial system, and for indulging in moral hazard by rescuing their banks. Most of all, Geithner (ibid.: 443) was shocked by the harsh Old Testament rhet oric: the desire to punish the ‘profligate’ and ‘mendacious’ Greeks. This type of thinking was, in his view, destined to deepen the crisis and to inflict unnecessary pain and suffering on ordinary people (ibid.: 445–7). It risked unleashing conta gious forces that could bring down the whole EU edifice, a development counter to US strategic as well as economic interests. Geithner (ibid.: 447) recalled saying to Wolfgang Schäuble, the German finance minister: ‘You know you sound just like Herbert Hoover [then US president] in the 1930s. You need to be thinking about growth’. This reference suggested a recognition that conservative liberalism had a history within the United States. Later, on 30 July 2012, Geithner visited Schäuble at his holiday home on the island of Sylt in the North Sea (ibid.: 483). The visit took place less than a week after Mario Draghi, the president of the European Central Bank (ECB), had declared that his central bank stood ready ‘to do whatever it takes’ to save the euro. Geithner welcomed this commitment but expressed his shock at Schäuble’s belief that the euro area could be strengthened by Greek exit. In his account Geithner portrayed himself as the enemy of ‘Old Testament vengeance’ in Europe. German thinking was identified as the main culprit. It had too little understand ing of, and respect for, the financial markets (ibid.: 445). Anglo-American critiques of Ordo-liberalism came most forcefully from those, like Geithner, who were close to the financial markets and from those, like the Nobel Prize-winning economist Paul Krugman, who located themselves in the Keynesian tradition. Keynesianism produced a fundamental and lasting shift in Britain. What was labelled ‘austerity’ under the post-2010 government of David Cameron and chancellor George Osborne fell short of a genuinely disciplinary liberal approach to the financial and economic crisis. In response to Schäuble’s (2013b) defence of the German approach to the euro area crisis in the Financial Times, its economics editor argued that Germany was
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 275 living in a ‘strange parallel universe’ (Wolf 2013a, 2013b). The FT columnist Wolfgang Munchau (2014) claimed that Germany was addicted to ‘wacky’ eco nomics. Germany was judged to be an outlier in international economic debates: to be pursuing a Sonderweg (e.g. Munchau 2013a; Kundnani 2014; Posen 2013b). Krugman (2013) used his New York Times blog to write of ‘the harm that Germany does’, ‘Germany’s sin’, and ‘those depressing Germans’. Another American Nobel Prize-winner, Joseph Stiglitz, spoke in various public fora about German-inspired ‘austerity plans’ as a ‘suicide pact’ for Europe. He compared them to the medieval practice of bloodletting. Austerity plans ignored the basic insights of standard economics, not least the balanced-budget multiplier, according to which raising taxes and spending by the same amounts could boost demand without worsening fiscal deficits (Stiglitz 2016). An assessment of German bargaining positions in the IMF deemed them to be too rigid and dogmatic; too lacking in dexterity and inventiveness (Ahamed 2014).
Conservative Liberalism in British Political Economy The history of conservative liberalism in British political economy is one of intel lectuals whose voices have been lost or neglected. It is also characterized by a sceptical reception of Walter Eucken’s (1940, 1952) two central texts of Ordoliberalism. Strikingly, post-war British revival of conservative liberalism from the 1970s owed much more to developments in American economics, notably mon etarism and the credibility and time-consistency literature, than to a backward look at Edwin Cannan, Hawtrey, and Hutt. The economist Alan Peacock stood out as an advocate of a conservative liberal ism that was grounded in a close reading of the German Ordo-liberal literature and the wider debates in Austrian and German academic economics (Peacock 1982). Starting from a background in Scottish political economy, he sought to challenge what he saw as the mainstream by restoring economics as a moral science, based on principles. His thinking evolved from Keynesian liberal ism to become close to that of James Buchanan, seeking to ground economic lib eralism in public choice theory (Peacock 1997). In 1953 Peacock joined the Unservile State Group, which sought to provide the principles on which the eco nomic and social policies of the Liberal Party could be based. This involvement brought hm close to Jo Grimond, who was heir to the Asquith tradition in the Liberal Party and was its last leader, from 1956 to 1967, in this mould. However, the Liberal Party’s rejection of the kind of policies for which Peacock stood led him to conclude that it had deserted economic liberalism. In the 1970s and 80s Peacock became an increasingly uncomfortable and controversial figure within both Conservative and Labour Party circles. The chief sources of controversy centred on his opposition to using progressive taxation for income redistribution and his advocacy of reforming the welfare state and cultural policy through
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276 Conservative Liberalism, Ordo-Liberalism, and the State greater use of market mechanisms to register preferences. Peacock did, however, favour restrictive rules governing the inheritance of wealth, the revenues from which should go to charities rather than the state. Three factors played a part in the post-war marginalization of British conserva tive liberals. The first was developments in academic economics and elite social ization, notably in Cambridge and at the London School of Economics (LSE). From the very early 1930s, Cambridge economics embraced the so-called Keynesian revolution, in contrast to Hawtrey’s ethical economics and his monet ary approach to the business cycle (Harrod 1951; Skidelsky 1992). Under the formative influence of Lionel Robbins, the LSE displayed little interest in Hawtrey. Until the late 1930s Robbins had sought to locate the LSE’s centre of gravity in economics in the Austrian tradition, which was embodied in the presence of Hayek. Thereafter, the LSE moved towards Keynesianism. Also, Robbins—unlike Hayek—engaged wholeheartedly as a statesman-economist (for details, see Howson 1985, 2012). This slow process of convergence in Cambridge and LSE economics left little space for conservative liberalism, let alone the type associated with the German Ordo-liberals, to thrive after 1945. The second factor was the political strength of the shift to collectivism in British economic and social policies by the 1950s (on which Beer 1966). This shift reflected various factors: the legacy of ‘total’ war in shifting social and political attitudes towards collectivism; the effects of democracy and electoral and party competition on attitudes towards public expenditure and taxation; the strength of political pressures for support in dealing with the challenges facing individuals, industries, and communities from growing exposure to a globalizing economy; and continuing fear that excesses of economic liberalism would erode civic values and social solidarity. Conservative liberals were uncomfortable with the welfare state and the entrenchment of a culture of entitlement (e.g. Peacock 1997). David Cameron’s attempt to offer a post-Thatcherite rebranding of the Conservative Party after 2005 sought to identify it with communitarian ideas of social policy that were consistent with the compassionate face of conservative lib eralism, as represented historically by Edmund Burke. The ‘Big Society’ pro gramme envisaged enhanced social engagement, a revised, less bureaucratic, and streamlined state, and a revitalized civil society. It also offered an ideological bridge within the Conservative–Liberal Democrat coalition government between 2010 and 2015. The emphasis of the Cameron government on fiscal consolidation after the financial and economic crisis was also a point of affinity with conserva tive liberalism. The ‘Big Society’ was supposed to complement this economic policy by stepping in to complement a leaner state. However, by 2013 the original aspirations of the ‘Big Society’ had fallen victim to the driving narrative of auster ity. It barely figured in the general election of 2015. The third factor in the marginalization of conservative liberalism in Britain was the nature of Thatcherism and the New Right under figures like Keith Joseph. Strikingly, the reassertion of economic liberalism under the Thatcher
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 277 governments (1979–90) and beyond was accompanied by justificatory references to contemporary figures like Friedman and Hayek. There was, however, no serious attempt to draw on the thinking of Hawtrey, let alone the founding Ordo-liberals. Moreover, Thatcherism retained an unresolved tension between, on the one hand, a greater economic permissiveness and, on the other, a conservative-liberal strain of moral discipline. The New Right comprised an uneasy, loose coalition of libertarians and social conservatives. In practical policy terms, Thatcherism was more closely associated with pushing the agenda of market freedom than with measures to delimit ‘social permissiveness’. The disciplinary element in the liberalism of the new conservatism took, first and foremost, a rhetorical form, was inconsistently expressed, and ceded ground to measures that furthered the commercialization of society. The ‘yuppie’ culture that emerged in the 1980s bore no relationship to what the founding thinkers of conservative liberalism and Ordo-liberalism had sought. Amongst the lonely and neglected British voices of conservative liberalism, Hawtrey stands out as the most consistent and insightful. His work combined the outlook of the ethically minded philosopher-economist with that of the practic ally minded statesman-economist. He was both a well-connected Cambridge intellectual (see Chapter 6: 204–5) and a ‘man of affairs’ who operated at the heart of Whitehall policy making throughout the interwar period and into the Second World War. The LSE’s Cannan and LSE-trained Hutt are similar examples of lost and neglected voices. However, their work remained less intellectually developed than that of Hawtrey and was much less influential in US debates. Hawtrey was a precursor of the monetary policy thinking of the early Chicago tradition. His influence stemmed from his period at Harvard in 1928–9 and the dissemination of his ideas within the United States by Allyn Young and Lauchlin Currie, who was Hawtrey’s assistant in Harvard (Laidler 1998).
Rejecting Laissez-Faire Liberalism and the Passive State: Edwin Cannan and William Hutt on a New Liberal Social Order Hayek regarded Cannan as playing a comparable role on behalf of Classical liber alism in London to those of Ludwig von Mises in Vienna and Knight in Chicago (Ebenstein 1997: 3). Cannan was the towering figure in economics at the LSE from 1895 to 1926, with Hutt and Robbins amongst his students (ibid.: xi–xxiii). His intellectual outlook had various sources: in his family background of Scottish Covenanters, who had a reputation as disciplinarians and preachers; in his Cambridge teacher Henry Sidgwick, who advocated an inductive historical approach to political economy and stress on the art of political economy; in his fascination with the ideas of Adam Smith, a fellow Scot, whose disinterested, con templative utilitarianism appealed to him (ibid.: 6; on Sidgwick, see Schultz 2004: 187, 553–5). Like Sidgwick in Cambridge, Cannan found himself in rivalry with
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278 Conservative Liberalism, Ordo-Liberalism, and the State the more scientific and technical approach to economics of Ricardo and the Cambridge economics of Alfred Marshall (Ebenstein 1997: 61–6). His self-professed common-sense approach to economics involved an emphasis on institutions and their gradual evolution. It led him to define himself as an economist of protest, opposing economic expediency and the ‘false god’ of economic nationalism (Cannan 1927: v; also Ebenstein 1997: 110–12). An advocate of the currency basis of inflation, Cannan opposed Keynes on the gold standard, to which he remained a devotee for most of his career (ibid.: x–xi; also Cannan 1935/1912). Cannan’s (1914) lectures in economics at the LSE from 1898 onwards con tained a powerful, sustained critique of laissez-faire liberalism and outlined the kind of institutional framework that was necessary for a productive social order. In his words: ‘there never was and never can be a State which practices laisser faire’ (ibid.: 82). A productive social order depended on three great institutions. They were, in descending significance, the family, property, and the state: in effect, Cannan’s ordering powers in the liberal economy (ibid.: 66–83). Institutions were important in making it the interest of the individual to serve others. The family is the most important influence on the future success and productiveness of chil dren when they become adults. Property induces economic activity and compels and facilitates cooperation. Cannan’s views about the state reflected the gospel of mutual service that he imbibed from his intense reading of Adam Smith (espe cially Cannan 1927: 417–30). ‘Economic competition is not war, but rivalry in mutual service’ (Ebenstein 1997: 91). The state’s role was to provide the family and property with a protective framework of order under which they could flour ish, not least by enforcing good customs. It also made up for their deficiencies by combating poverty, exploitation, and discrimination, including improving the position of women (ibid.: 95–6; also Cannan 1997/1909: 281 and 1927). He ascribed to the state a role in ‘deciding what constitutes private property . . . and the means by which it may be exchanged’ (Ebenstein 1997: 25–6). According to Cannan (1997/1912: 24–5), if the market system was to serve the individual, it required careful cultivation through an institutional and legal framework. Anticipating Böhm and Eucken, he argued that the competitive mar ket was not a natural phenomenon. Reliance on the ‘invisible hand’ of the market would not yield maximum value to the consumer. The market needed a robust disciplinary framework that included the gold standard, free trade, an end to the protection and privileges of monopolies and of trade unions, and the restoration of wage flexibility (Cannan 1927). Cannan’s conception of the economist as the mature, good moralist, who preaches civic tolerance and compassion and opposes false idols like nationalism, dominated the economics department at the LSE well into the 1920s (see Robbins’ obituary in Ebenstein 1997: 110–12). However, by the 1930s the Austrian tradition was taking strong root in the LSE economics department under the influence of Mises’ (1922) critique of socialism and then the arrival of Hayek in 1931. Robbins, Cannan’s successor, played a key role in this process. The single most powerful re-statement of conservative
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 279 liberalism came from Hutt (1943), another former student of Cannan and a labour-market specialist. Hutt drew on the thinking of Simons (1936), of Walter Lippmann (1937), and of Hayek at a time—from the mid-1930s to the late 1940s—when Hayek’s thinking displayed its closest affinity with the Eucken School (Köhler and Kolev 2011). He argued that the bitter lessons of the war, and the de-stabilization of traditional ideologies, offered a favourable opportunity for economists to use the power of argument to turn former vested interests into agencies of reform. In his Plan for Reconstruction (1943: 81–92, 215, 316) Hutt sought to specify the institutional framework, especially relating to property and contract, that was required for the post-war liberal order. This new liberal order would maximize freedom, disperse power, and eliminate restrictions on production and the ‘dis ease’ of the ‘restrictionist mentality’. The laissez-faire of Classical economics was to be replaced by laissez-travailler, laissez-crėer (ibid.: 317). Consumer sovereignty— a concept that had been developed by Hutt in 1936—was to be the driving force of the productive system: [This productive system] . . . does not imply State passivity. The arrangements required to make the ideal of consumer realizable exclude any idea of an acqui escent State. Hence economic freedom . . . does not mean laissez-faire in the popular sense. It simply means the end of ‘pressure-group planning’; and the beginning of ‘institutional planning’. (ibid.: 215)
Economists had to strengthen their role as social architects, not limit themselves to the role of dispassionate critics. They had to become institution-makers, not just students of institutions (ibid.: 217). The most important challenge related to the rights and obligations attached to private property and contract, above all to prevent concentrations of power (ibid.: 218). Private property had to be redefined as a system of custodianship, requiring rules designed to serve ‘defensible social ends’. These rules would constrain the discretion of owners to ensure that the public interest was served: . . . neither the rules themselves nor their active execution can be properly regarded as ‘State interference’. The rules and the derived State functions do not interfere with, they are part of the institutions of property . . . Property becomes a new thing, but it works in much the same way as before. (ibid.: 219)
Hutt’s conception of the liberal and neutral state bore a strong family resemblance to that of the Ordo-liberals: . . . the State must be either pressure-group-dominated or neutral. No other power synthesis is conceivable. And the neutral State is the liberal State. Also, it is the most powerful and humanly significant State. For it is the agency through
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280 Conservative Liberalism, Ordo-Liberalism, and the State which unity and meaning can be conferred on civilization . . . Only in a liberal regime is man’s spiritual independence securable. Only in such a regime is the integration of man’s social life as a whole securable under safeguards of liberty . . . the practical clue to the fostering of tolerance is diffusion of power—a diffusion which the neutral State alone can achieve. (ibid.: 316–17)
However, like Hawtrey, Hutt did not gather a set of intellectual disciples. Though he remained an academic, his chair at the University of Cape Town meant that he remained marginal to the debates that centred around Cambridge and the LSE. Moreover, though Hutt remained a member of the Mont Pèlerin Society, his post-war intellectual centre of gravity shifted closer to Mises and the Austrian tradition. He was less consistent in his attachment to conservative liberalism than Hawtrey. Hutt’s Plan for Reconstruction lacked the long-term impact of Hayek’s The Road to Serfdom (1944).
Ralph Hawtrey’s Conservative Liberalism: An Intellectual in the Policy Process Hawtrey was a key figure in the intellectual history of conservative liberalism in interwar British political economy. As Chapter 6 shows, the intellectual roots of his economic ethics derived principally from the philosophy of G. E. Moore (Hawtrey c.1946–c.1973a, c.1946–c.1973b). In the interwar period, Hawtrey’s work was widely read and cited both in Britain and in the United States. The stat istics are impressive, given his lack of a full-time academic post. Between 1920 and 1939 he was the fifth most-cited economist. In the period 1920–30, Hawtrey was the sixth most-cited macro-economist, ahead of John Maynard Keynes who was tenth. Although Keynes was by far the most cited between 1931 and 1944, Hawtrey was the fifth most cited over this period. Between 1936 and 1944, Hawtrey was cited more than Hayek (for all these citation details, see Deutscher 1990: 189–94, taken from the Index of Economic Journals). He was a prolific writer. In the period 1913–40, Hawtrey published some twelve books and at least forty-four journal articles (ibid.: 4). However, from the 1940s onwards, he became a neglected and solitary figure in Anglo-American economics, his work seen as dated and obsolete. Hawtrey’s intellectual achievement was in many ways remarkable. Because of his academic background, and membership of the Apostles, he was associated with the Cambridge school of economists whose members—like Keynes, Arthur Pigou (1877–1959), and Dennis Robertson (1890–1963)—dominated the inter national citation rankings. However, he was a self-taught economist who remained marginal to the mainstream developments within Cambridge econom ics from the late 1920s. Moreover, his intellectual contribution was made without
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 281 the advantages of a full-time academic career. Hawtrey pursued a long and distinguished civil service career including, from 1919, as de facto chief economist in the Treasury. He was very much at ease in the ‘core institutional nexus’ of the Treasury, the Bank of England, and the City and its culture of ‘gentlemanly capitalism’ (Peden 2004: 117). The high point of Hawtrey’s influence was in the 1920s, when he enjoyed unrivalled respect amongst senior figures in Whitehall and the City for his memoranda and reports on fiscal and monetary issues (Howson 1985: 177; Mattei 2018). However, whilst the archetypal statesmaneconomist, he was more of a ‘back-room boy’ in the corridors of power, dependent for his influence on the support of more powerful figures like Basil Blackett and lacking the persuasive skills of Keynes (Howson 1985: 176–7). Hawtrey’s influ ence waned with the 1930s. Hawtrey’s brand of conservative liberalism evolved as he wrestled with the cri sis of the First World War and the subsequent burden of national debt, the loss of UK export markets, the collapse in the international monetary order, and severe economic and financial dislocation. He drew two lessons from the destructive economic consequences of war. First, the most urgent need was to construct a stable post-war economic and monetary order on sound principles that com manded the agreement of the great powers (Hawtrey 1923, c.1946–c.1973b: 351, 357, 466–7, 522). Second, the years 1920–2 and 1929–33 showed that depressions are inflicted by deliberate policy actions. They were only to be avoided by a ‘sufficiently stable flow of money’ (Hawtrey 1944: 359). Hawtrey (1923, 1925) became a principal architect of the so-called ‘Treasury View’ of the 1920s. Its features included a stress on prudence and thrift; advocacy of fiscal and monetary rigour, including budgetary balance and reduction of debt; and the argument that public works crowd out private investment and thus do little to tackle unemployment (Bridel 2014; Mattei 2018; Peden 2004). His think ing fitted in well with a Victorian legacy of Gladstonian rules of public finance. It also conformed with the institutional interests of the Treasury and the Bank of England in asserting their special authority in the face of mounting social and political pressures that threatened economic and political stability (Peden 2004). Hawtrey’s ideas made a notable impression on the governor of the Bank of England, Montagu Norman. In a confidential letter of 17 July 1919 to Hawtrey, Norman expressed his confidence in him as a fellow member of the ‘dear money’ school (Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 1/13, Inflation, Deflation, 1919–21). Hawtrey stressed that fiscal surpluses were not enough on their own to tackle inflation (ibid..: Hawtrey memo of 17 December 1919 on government indebtedness and inflation). Hawtrey’s priority for the principle of a sound currency and his monetary the ory of the business cycle added lustre to the post-1918 role of the central bank. The message that monetary stabilization—flanked by fiscal rigour—was central to virtuous macro-economic policy fitted closely with the inherited values and
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282 Conservative Liberalism, Ordo-Liberalism, and the State interests of the official world of Whitehall and the City and the widespread desire to return to the discipline of the gold standard. However, as the 1920s progressed, Hawtrey was to find himself increasingly out of step with the thinking of other Cambridge economists like Pigou, Robertson, and, most notably, Keynes. He saw Pigou and others as belittling the functions of money and credit (Deutscher 1990: 16–17). The impact of Hawtrey’s thinking stretched beyond Britain. In 1922 he played a major role in helping to define and promote Treasury and Bank interests at the Genoa conference on the international financial order. His advocacy of a ‘man aged gold standard’ and of the stabilization of prices placed the onus on central bank cooperation and formed ‘an integral part of the proposals of the conference’ (Howson 1985: 153–63). It earned the praise of US economist Irving Fisher (letter of 14 May 1925 to Hawtrey, Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 10/43). The same thinking about the importance of money and credit resurfaced in Hawtrey’s attacks on Keynes’s plans of 1941–4 for an international credit-creating institution as part of the post-war architecture of a new post-war international order (details in Dyson and Quaglia 2010: 55–60). It also lay behind his attempt in 1948 to organize an economists’ manifesto, which advocated ‘dear money’ and fiscal surpluses as an antidote to the problem of domestic inflation that he saw as putting at risk the recovery of the current account. Hawtrey’s critique of the thinking behind the Bretton Woods system bore striking correspondence with those of Rueff and Wilhelm Röpke. Hawtrey saw in Keynes’s ideas the threat of post-war inflation because of the incentive for ‘profligate’ states to exploit the new institution. Monetary de-stabilization would follow. Keynes replied that the new institution would have to ‘learn by doing’ (Deutscher 1990: 154–6). This reply ran counter to Hawtrey’s disciplinary conception of liberalism. Robbins was later to argue that Hawtrey had been right in arguing that post-war inflation had proved a greater danger than deflation and that in this respect the Bretton Woods system had failed (Howson 2012: 980). However, in 1948 Robbins—like Hayek—had hesitated to sign Hawtrey’s draft memorandum on inflation which ultimately foundered (Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 6/6/6, 10/77 and HTRY 10/51; also Howson 2012: 685–6). By this time Hawtrey had become a marginal figure amongst academic economists. The Hawtrey–Keynes disputes of 1941–4 rehearsed arguments that were to bedevil later debates about European monetary integration and union, from the European Payments Union (EPU) in the 1950s to the euro area crises from 2009 (Dyson 2014: chapter 18). They placed Hawtrey closer to Ordo-liberal thinking (notably Röpke 1954, 1959). Hawtrey was closely aligned with creditor-state thinking. There was a need for an ‘adequate safeguard against the abuse of the overdraft facility by a weak, reckless, misguided or corrupt country’ (Hawtrey cited in Skidelsky 2000: 215). Ad hoc assistance was better than an automatic credit facility if the stabilization principle was to be safeguarded.
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 283 Other than for a brief but important period at Harvard University in 1928–9, Hawtrey did not hold a full-time academic post. For this reason, like Rueff (see Chapter 10), he did not have the base from which to build a cohort of disciples for his brand of conservative liberalism. Nevertheless, as we saw in Chapter 6, Hawtrey remained an active member of the Cambridge Apostles (along with Keynes and Robertson) and a faithful disciple of G. E. Moore whose philosoph ical insights he translated into economics. Keynes consulted him for his views on drafts of A Treatise on Money (1930) and The General Theory of Employment, Interest and Money (1936) and made amendments to accommodate his criticisms. Initially, Keynes was strongly influenced by Hawtrey’s work on the role of credit as a determining factor in price disturbances (Hawtrey 1919; Skidelsky 1992: 169). However, from the late 1920s, the views of Hawtrey and Keynes moved apart. They were divided on two central macro-economic issues: the relative value of fiscal and monetary policies in macro-economic stabilization, especially in dealing with a low level of economic activity; and the appropriate architecture of the post-1945 international economic order. In 1928–9 Hawtrey provided the Treasury arguments against Keynes’s proposed programme of public works (papers and correspondence in Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 11/1). He argued in favour of cheap money to counter recession (Hawtrey 1925; Skidelsky 1992: 298–9). His views were set out in a memo to the Macmillan Committee on Finance and Industry in 1930–1 (Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 11/3). Then, in 1941–4, Hawtrey led Treasury arguments against Keynes’s evolving plans for a post-war international currency union with credit provision (ibid., HTRY 11/7; also Deutscher 1990: 154–6). He argued that they failed to protect against the kind of monetary disturbances which had produced the inflation of 1919–20 and the depressions of 1921–2 and post-1930. According to Hawtrey, the immediate danger would be universal inflation. ‘The countries impoverished by the war will have to recover mainly by their own efforts’ (ibid., Hawtrey paper of 24 December 1941). He summarized his position as follows: The main source of difficulty in the monetary affairs of the world in the past century has been the alteration of inflation arising from the passivity or negli gence of central banks with deflation caused by their deliberate action. It is this disastrous sequence above all that calls for reform. (ibid.)
The so-called Keynesian revolution in macro-economic theory was already sweeping aside Hawtrey’s monetary theory of the business cycle and his focus on the threat of inflation from excessive credit expansion. In the process, his broader concern with the ethics of economic welfare was also lost from view (on which Chapter 6: 204). At the heart of Hawtrey’s conservative liberalism was a conception of the thrifty and prudent man who acts according to the principle of safeguarding a
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284 Conservative Liberalism, Ordo-Liberalism, and the State stable and sound currency (Mattei 2018). He subscribed to a stern assertion of the rights of private and national creditors and to the full discharge of all liabilities. Savers and investors were the virtuous economic actors; the job of monetary pol icy and taxation policy was to support them. In contrast, consumption posed challenges to macro-economic stabilization as well as serious ethical issues (see Chapter 6: 205–8). The deep moral seriousness in Hawtrey’s thinking was reflected in the stress on sacrifice, on ‘encouraging or enforcing abstinence at home’ by consumers, and on the way in which the uncertainty generated by inflation undermined consider ations of prudence and saving (Hawtrey 1919: 230). In a memo of 1920 on foreign exchange, he argued that sacrifice was necessary—‘severe and sound financial measures to bring about a fall in prices’—to return the currency to a gold basis (Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 1/13, Inflation, Deflation, 1919–21). The two instruments for instilling consumer abstinence, and thus virtue, were dear money to contract credit and high taxes on consumption. Higher savings would then translate into increased investment. Saving was ethic ally sound and fundamental to macro-economic stabilization because it both entailed abstinence from consumption and provided the basis for investment. As he wrote in his widely influential Currency and Credit (1919: 375), the book that led to his reputation as a ‘currency expert’: . . . a return to a standard [a stable monetary unit] once lost is a painful and laborious journey. And if a standard must be preserved, the painful and labori ous journey must be travelled, after every indulgence of inflation . . . after the debauch comes the headache.
Consumers had to be encouraged or forced to be economically virtuous. According to Hawtrey: ‘the defence for deflation has been that it is the only way of escape from the greater evil of continuous and progressive inflation’ (Treasury Papers, ‘Bank Rate’, T208/38, fol. 1, National Archives, Kew, London). Hawtrey’s conception of conservative liberalism rested on his great faith in the power of monetary policy. He placed his confidence in the technical capacity of an independent central bank to act according to the fundamental economic prin ciple of a sound currency and, in this way, to retain market confidence. Monetary policy was to be neither laissez-faire nor rule based. Central banking was an art, which involved discretionary monetary management through interest-rate policy, complemented by open-market operations (Hawtrey 1932: 151). Active monetary management by technicians who were dedicated to the principle of currency sta bility was envisaged as a counter-cyclical disciplinary mechanism that, employed preventively, would avert the dangers of inflation, seen in 1914–23, and the ‘even greater’ dangers of deflation, as in the 1930s (Hawtrey paper on ‘the lessons of monetary policy’, 1936, Churchill Archives Centre, Papers of Sir Ralph Hawtrey,
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 285 HTRY 6/6/3, 32pp.). It would prevent excessive credit creation and excessive credit contraction, both of which Hawtrey saw as the Achilles’ heel of the market economy. The market economy was not self-equilibrating but vulnerable to destabilization through vicious circles of credit expansion and contraction. He emphasized ‘the inherent instability of credit’ (Hawtrey 1919: 12–14, 375–6). The market economy required active, precautionary monetary policy management to stabilize prices and restore investor confidence. Hawtrey (1925) saw unemploy ment as a monetary phenomenon that could be best solved through monetary means and not through public works, which would diminish investor confidence. He placed great trust in independent-minded central bankers as guardians of the public good (Hawtrey 1932). In this respect his position was close to that of Eucken (1923; also, on Eucken, see Chapter 11: 388–9). Though Hawtrey gave primacy to monetary policy in counter-cyclical stabil ization, his conservative liberalism also found expression in the emphasis he placed on a code of sound finance. His views were spelt out in ‘Is there anything to be said for sound finance?’, a paper read to the Political Economy Club, 1939, 20pp. (Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 6/6/4). The function of this code was to guard against excessive borrowing because it causes inflation, generates uncertainty, and leads to loss of market confidence and rising borrowing costs (ibid.: 5, 20). It was to be applied in ‘normal’ times and times of ‘moderate financial stress’. In emergencies more heroic action, including a forced loan or capital levy, might be required (ibid.: 20). Hawtrey’s principles focused on public debt and were designed to distinguish his position from the illusory assumptions of Keynes (ibid.: 14, 19). The salient principles were that: public debt must not exceed what can be raised from genuine savings out of the investors’ income; changes in total public debt should not exceed what can be met without an excessive burden of taxation; the unfunded debt, or more specifically the floating debt, should be kept within narrow limits; and there should be a sinking fund so calculated as to offer a reasonable probability of redeeming the debt incurred for any emergency by the time the next emer gency arose. According to Hawtrey, the art of fiscal judgement resided in balancing the rival claims of welfare and defence with national solvency and in the process ensuring that an ‘intolerable burden’ was not placed on the taxpayer. Taking responsibility for reconciling these claims was the test of institutions, democracy, and ‘above all of character’ (paper on ‘Economic Discipline’, read at Newnham College, 1947, 27pp., in Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 6/6/5: 20, 26–7). Hawtrey argued that, following the formation of the National Government in 1931, adherence to the code of sound finance had—until rearma ment began—enabled Britain to enjoy a greater measure of revival than the United States with its New Deal (paper on sound finance, Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 6/6/4: 10).
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286 Conservative Liberalism, Ordo-Liberalism, and the State Hawtrey’s brand of conservative liberalism was important in two ways. First, it reflected, and helped shape, the self-image of the Treasury and the Bank of England as both moral guardians and technicians who safeguarded sound finance against the self-interested and short-sighted claims of political parties and organ ized groups (Howson 1985; Peden 2004). Here there were parallels with German Ordo-liberal ideas of the ‘strong’ state. According to Hawtrey (1926: 129), the state is ‘the greatest of human institutions, and that from which proceeds all others, in so far as they are based upon it or modified by it’. His intellectual dis tance from the Austrian tradition, and Hayek in particular, became clear when he remarked that ‘the spontaneous action of individuals is not in practice adequate, and the authority of the State has to be invoked’ (ibid.: 135). The state had to ensure that important public goods were provided outside the market and to pro tect members of society from starvation conditions (ibid.: 135). Hawtrey (c.1943–c.1973b: 19–21) looked to ‘conscious direction’ of the community by a ruler who should implement ‘right’ policy based on the Good, understood as in conformity to G. E. Moore’s ethics (see Chapter 6: 200–8). The ruler must be prepared to take an objective view of the moral code; to respect, and ensure respect for, the moral code within the market economy; and to subject all intermediate ends to criticism (ibid.: 61, 72). Second, Hawtrey took a close interest in US monetary thought and practice. His early thinking on the monetary roots of the business cycle was strongly influ enced by Irving Fisher. Fisher praised Hawtrey’s contribution to monetary policy and consulted him on his drafts. He was later to be disappointed that Hawtrey did not fully understand his ‘100 per cent reserve principle’ (see correspondence in Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 10/43). In turn, if in an indirect way, Hawtrey’s monetary theory of the business cycle influenced the early ideas of the Chicago tradition. Simons’ work on the vital role of monet ary policy in countering economic fluctuations built, indirectly and in part, on Hawtrey, as well as on Fisher (Laidler 1993: 1083–9, 1095, 1998: 9). Simons’ main departure from Hawtrey was his advocacy of ‘definite, stable, legislative rules’ for monetary policy, a position that was close to the earlier pro posals of Fisher (Simons 1934: 24). This Chicago-based idea of a rule-based mon etary policy was, in turn, to influence Eucken, via his student Friedrich Lutz (Köhler and Kolev 2011). Hawtrey anticipated much later German Ordo-liberal thinking about the primacy of monetary policy, conducted by an independent central bank. However, Simons’ advocacy of a price-stability rule was to prove more important in the German context.
The Reception of Walter Eucken: John Jewkes and Lionel Robbins In 1947 the British economists John Jewkes and Robbins encountered Walter Eucken at the first meeting of the Mont Pèlerin Society. This encounter led
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 287 Robbins to invite Eucken to give a series of lectures at the LSE (during which Eucken died). Jewkes’ response to Eucken can be traced from Jewkes’ introduc tion to the collected lectures, published as This Unsuccessful Age or the Pains of Economic Progress (Eucken 1951: 7–25). Robbins’ response emerged in the lecture notes for his ‘Principles of Economic Analysis’ course, taught at the LSE between 1947–8 and 1950–1 (for access to which I acknowledge my debt to Susan Howson). Jewkes dealt more fully with the ideas that materialized later in Die Grundsätze der Wirtschaftspolitik (1952). In contrast, Robbins looked back to Die Grundlagen der Nationalökonmie (1940), which had been published in English. Their responses made evident the gap between Eucken’s thinking and mainstream post-war developments in British political economy. Jewkes endorsed Eucken’s principles, and his attachment to ‘automatic mecha nisms’ like a rule-based monetary policy, as attractive. However, he cautioned that their plausibility depended on the institutional context and whether: the average citizen shows, in economic matters, the kind of common sense and communal wisdom revealed in the working of any mature political democracy: reluctance to press in full what may appear to him to be legitimate demands; sagacious understanding of the evil social consequences of apparently innocu ous individual acts multiplied endlessly; sobriety in perceiving that there are always some inequities which can be remedied only at a cost quite out of pro portion to the gain. (Jewkes in Eucken 1951: 22)
His caution extended to the plausibility of binding governments by ‘automatic devices’: . . . no automatic device will check a government which is bent on inflation for, in the last resort, it will dispense with the controlling device. There is no fool-proof or knave-proof way of writing the value of money into the Constitution. It is a much more complicated social problem than that. (ibid.: 22–3)
For Jewkes, a sustainable liberal economic order was a matter of ‘communal common sense’; of whether the government, backed by an ‘informed and watch ful public’, can come to see that ‘the maintenance of the value of its money in free markets is a test of its national probity and its international standing’ (ibid.: 23). Jewkes’ response to Eucken suggests an ambivalence about conservative liber alism. On the one hand, he commends restraint, sagacity, sobriety, and commu nal wisdom. On the other, Jewkes argues that the effectiveness of constraining automatic mechanisms—like the gold standard, monetary rules, or fiscal deficit rules—depends on certain social and political conditions. It requires ‘a mature political democracy’ in which the public is ‘informed and watchful’. Jewkes sees Eucken as unconvincing in another respect. Eucken focuses too narrowly on questions of inflation and neglects questions of employment (ibid.: 10). What
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288 Conservative Liberalism, Ordo-Liberalism, and the State level constitutes ‘full’ employment? How much of unemployment is structural? How do we predict the effects of investment and labour productivity on employment? Despite these reservations, Jewkes responded to Eucken more favourably than Robbins. During the 1930s Robbins had fallen under the spell of the Austrian tradition and its monetary theory of the business cycle (e.g. Hayek 1929; Mises 1953/1912). He had been influenced by Mises’ (1922) attack on socialism, played a key role in Hayek’s appointment to the LSE in 1931–2, and subse quently—along with Hayek—feuded with Keynes about the causes and way out of the Great Depression (e.g. Robbins 1934). However, from 1936–7 Robbins began to move towards the orbit of the Cambridge economists, mainly Dennis Robertson and Keynes. This shift paralleled his growing engagement as a statesman-economist in government service (details in Howson 2012). He came to believe that ‘old-fashioned financial orthodoxy . . . may have the effect of intensifying depression’ (ibid.: 1083). Managing aggregate demand through fiscal and monetary policies was vital to prevent a catastrophic decline of incomes. In this context, the welfare state could serve as a useful automatic stabilizer. In the 1950s Robbins shifted to the ‘neo-classical synthesis’ version of Keynesianism. This intellectual shift meant a parting of company with Hayek. Robbins felt outside the mainstream of the Mont Pèlerin Society. Unlike Jewkes, he resigned his membership (ibid.: 663–4, 705–6). His defection from the Mont Pèlerin Society was a blow to its status and appeal in Britain (Plickert 2008: 172). This background explains Robbins’ response to Eucken. In revising his lectures on ‘The Principles of Economic Analysis’ in 1947–8 he took Eucken’s (1940) morphological method as an organizing principle, distinguishing between the centrally planned economy and the exchange economy. Robbins saw two chief values in Eucken’s method. It focused on the problem of the economic order with a manageable series of models that help in capturing recurring characteristics over time and across space. It also provided an apparatus with which economic systems and processes could be studied comparatively. Otherwise, he was critical of Eucken’s method of abstraction. Robbins’ injunction was to ‘go to the facts in every case’ so that economics stayed in close touch with a complex and changing reality. He contrasted Eucken’s method with his own method. Eucken adopted a distance so that details became blurred. Robbins’ method was to get as close as possible to messy reality. By 1951–2 Robbins’ lecture course had dropped Eucken’s morphological method as its organizing principle. Robbins’ intellectual shift between the 1930s and 1950s was a bellwether of wider changes in British economics. Unlike Eucken and Hayek, Robbins pre ferred to avoid epistemological questions as ‘philosophical rather than practical’ (Howson 2012: 320). He disagreed with Hawtrey, who thought that economics was inseparable from ethics. According to Robbins, economics had to delimit itself as a ‘neutral area of science’, concerned only with how ends are achieved
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 289 (ibid.: 144–5). The economist had the pragmatic task of suiting the method to the task at hand. This outlook made him unreceptive to the kind of con servative liberalism represented not just by Eucken but also by Hawtrey and Knight. Robbins’ conception of economics as an ethically neutral science and his Keynesianism placed him in the early post-war mainstream of AngloAmerican economics. Reflecting on the condition of Britain in the mid-1950s, Hayek noted a change in the character of the people: towards ‘a new form of slavery’ induced by the ‘soft paternalism of the welfare state’ (Hayek 1967d/1956: 224–5).
Conservative Liberalism in American Political Economy A new faith must avoid both errors [of laissez-faire capitalism]. It must . . . explicitly recognize that there are important positive functions that must be performed by the state . . . Neo-liberalism . . . would substi tute . . . the goal of the competitive order. . . The state would police the system, establish conditions favourable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress. Milton Friedman (1951: 3, italics in original)
These words of Friedman bear a striking resemblance to German Ordo-liberalism. They reflect a time when Chicago economists like Frank Knight and Henry Simons had been close readers of German economic thought and of debates about ethics in economics. The Chicago tradition was soon to move away from this position. Nevertheless, Knight and Simons—and later Buchanan—were pivotal figures in the cross-national history of conservative liberalism. Walter Lippman was also to prove an influential figure. They lived in the shadow of the Wall Street Crash of 1929, the subsequent Great Depression, and great economic and social distress and political fear. Events convinced Knight (1934, 1937, 1946), Lippmann (1937: 184–92), and Simons (1934: 42, 1948/1945) that traditional laissez-faire liberalism was ‘played out’. They looked instead to a new ethically based, rulegoverned economic order that would restore the ideal of liberty. Liberalism could only be salvaged by restoring public faith in the moral validity of market values; by recognizing the interdependence of the economic with the legal, social, cultural, and political orders; by enshrining long-term consistency and coherence in economic policies; and by ensuring that the principle of disinterestedness pre vailed over opportunism and ad hoc activism and experimentalism in economic and political affairs (Knight 1939: 51–2, 60; Lippmann 1929: 221, 1955: 367; Simons 1934, 1936). The US advocates of a new conservative liberalism were intellectually close. Lippmann (1937) drew heavily on the Chicago economists Knight and Simons in
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290 Conservative Liberalism, Ordo-Liberalism, and the State developing his proposals for a ‘regenerated liberalism’ (Goodwin 2014: 244). He was indebted to Simons (1936) for the notion of an economic order based on fixed rules (Burgin 2012: 244). Much later, Buchanan (2010b: 3, 5) was to look back to, and identify with, this ‘Old Chicago’ as a key source for his own brand of conservative liberalism. Buchanan and Simons had been students of Knight’s ethical analysis of the market order (on Knight, see Buchanan 1987, 2001a). At the same time, the US advocates of conservative liberalism shared a sense of intellectual isolation in the face of the New Deal politics of the 1930s and the rise of Keynesianism (Köhler and Kolev 2011: 15–16). Lippmann was something of an exception. Initially, he had opposed the lack of coherent vision and the experi mentalism of the New Deal (Burgin 2012: 248). However, he was soon attracted to the thinking of Keynes, whom he saw as a ‘Renaissance man’ (Goodwin 2014: 48–55). Röpke came to see Lippmann as an unreliable opportunist (Hennecke 2005: 160). In contrast, Simons viewed Keynes’s General Theory (1936) as ‘possibly the economic bible of a fascist movement’; Knight saw it as dragging economics back to the dark ages. Keynes had written a foreword for the German edition of his book which had praised the economic policies of Hjalmar Schacht. According to Simons, Keynes was ‘irresponsible and untrustworthy’. His followers were an ‘army of cranks and heretics’, ‘a menace, politically and intellectually’ (Goodwin 2014: 51). Knight and Simons also wrote in the context of Chicago University where, at that time, there was much criticism of ‘communistic influence’ in teaching and research.
Frank Knight and the ‘Sickness’ of Liberal Society Like Lippmann—but with a stronger technical grasp of economics—Knight sought to address the ethical defects of a liberalism based on individualism. At the height of his shaping influence in the formation of the Chicago tradition in the 1930s and 40s, Knight published extensively on the ethical basis of social order in both ethics and economics journals. He proved sceptical and often hos tile to what he saw as the dogmatism of individual religions and their incompati bility with liberalism, famously and controversially at the first meeting of the Mont Pèlerin Society in 1947 (details in Plickert 2008: 147–8). Nevertheless, he never lost his early acquired emotional attachment to the values that were pro moted by religion as—along with unconscious tradition—the foundation of social order (e.g. Emmett 2009; Knight 1934; Knight and Merriam 1945). Knight was a trenchant opponent of Benthamite utilitarianism, Social Darwinism, and Pragmatism as represented by what he saw as the social engineering of John Dewey (on Knight’s misrepresentation of Pragmatism and intellectual proximity to William James, see Hands 2006). They were ‘the negation of philosophy, philis tinism transformed into a cult’ (Knight 1934: 24, 1935b). At the core of his
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 291 conservative liberalism was the recognition that: ‘The role of the state, of law, and of moral constraint are always important, and that of other forms of organization such as voluntary cooperation may be so’ (Knight 1935a: 184). From the late 1940s, Knight’s critique was directed against the methodological individualism of his Chicago colleagues. Earlier, he had argued that the ‘max imum freedom’ promised by the laissez-faire state was illusory because freedom is meaningless without the capacity to act (1929: 9–11). It led to a cumulative increase in inequality that eroded the moral basis of social order. For Knight, ethical significance attached to effort, but not to inheritance or to luck, in accu mulating money and thereby the freedom to act (ibid.: 9–10). This argument was close to that of Alexander Rüstow (1955, 1963a, 1963b). Methodological indi vidualism failed to capture social values which Knight saw as transcending indi vidual preferences. In the same way, extension of the claims of the natural sciences to economics, and in turn of positivistic economic science to social science and philosophy, threatened the destruction of civilized values. The value problem was central to economics and could only be properly understood though a close rela tionship to ethics (Knight 1935a: 19). This argument placed him closer to Hawtrey than to Robbins. Like Hawtrey, Knight (ibid.: 21–2) saw the creation of value as about more than the satisfaction of individual wants. In a similar way, he emphasized the cultivation of aesthetic, intellectual, and spiritual as well as material tastes. Economics dealt with the form of conduct rather than its substance, limiting its relevance to policy (ibid.: 35–6). Knight rejected both a ‘balance-sheet’ view of life and relativism in treating values (ibid.: 40–1). ‘The development of wants is really much more important than their satisfaction’ (ibid.: 103). Liberalism had been too inclined to hedonism, the Benthamite doctrine that the good means pleasure (Knight 1939: 53). According to Knight (ibid.: 85), ‘the “commercialization of culture” is one of the most sinister phases of liberalism as it actually works’ (ibid.: 85). Knight was a strong opponent of collectivism and the experimentation of the New Deal policies of the Roosevelt administration in the 1930s. Notably, he played a major role in ensuring that the University of Chicago did not give an honorary degree to Keynes (Emmett 2009; Knight 1937). In addition, Knight rejected what he saw as the extreme and dogmatic laissez-faire liberalism that was represented by Mises and the Austrian tradition. The competitive market order required clear ethical standards that addressed the problem of private as well as public power and that examined the ‘want-creating’ side of the economic system. In Knight’s (1935a: 57) view, ‘untrammelled individualism would probably tend to lower standards progressively rather than raise them. “Giving the public what it wants” usually means corrupting popular taste’. In elaborating his ethical position Knight looked back to Ancient Greece, to Christianity, and to Kant for inspiration rather than to contemporary US debates
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292 Conservative Liberalism, Ordo-Liberalism, and the State (ibid.: 73). US philosophy was too much focused on a naturalistic conception of science. ‘Science is too strong for old beliefs, and competitive commercialism too strong for old ideals of simplicity, humility, and reverence’ (ibid.: 74). Greek phil osophy and Christianity dealt more thoroughly with the character of motives and of results. They did not treat human wants as data—constant facts on which a science can be built. The problem of social order was not to be seen in terms of the relations between ‘given’ individuals. It was about creating the right kinds of individuals. This position put Knight in direct opposition to the Austrian trad ition associated with Mises (Mises 1949, 1962). The role of the ‘learned class’ was to provide intellectual and moral leadership centred on the ideal of absolute faith in truth (ibid.: 357). Its enemy was the char latans and demagogues who exploited an inexpert and romantically disposed public, as well as other intellectuals who helped to create ‘bigger and better mobs’ (ibid.: 357–8). Knight’s conception of the ‘good life’ centred on the encourage ment of reflective seriousness, not just through work but through engagement with aesthetic and intellectual values of creativity, through formal play, and through pure, spontaneous sociability (1946: 387–93). It looked to an ‘aristocratic constitution of society’ (ibid.: 398). The ‘sickness’ of liberal society was manifested in the ‘aesthetic sordidness’ of life for the poor; the dreary monotony and lack of effective freedom for so many at work; and the ‘over-work’ of those with responsi bility (ibid.: 402). In the final analysis, Knight remained a paradoxical figure in his ethical cri tique of liberalism and in his attitude to religion. The sense of ambiguity that surrounds his work had much to do with his eclecticism and with his concep tualization of the role of the scholar as a robust and forensic critic of received wisdom of all types. At the same time, Knight was more indebted to US philo sophic Pragmatism than he cared to admit. His stress on the importance of principles in political economy was qualified in a way that positioned him closer to Jewkes than to Eucken. The kind of conservative liberalism that was represented by Eucken’s constitutive and regulative principles was too rigid and dogmatic for Knight. His presidential address to the 63rd annual meeting of the American Economics Association reflected the significance of philo sophical Pragmatism in capturing and helping to shape the American intellec tual milieu: The right principle is to respect all the principles, take them fully into account, and then use good judgement as to how far to follow one or another in the case in hand . . . The truly right course is a matter of the best compromise or the best or ‘least bad’ combination of good and evil . . . the ingredients of policy are always imponderable, hence there can be no principle, no formula, for the best com promise. (Knight 1951: 28)
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 293
Henry Simons: A Rule-Based Economic Order Simons owed a great intellectual debt to Knight, who was his doctoral supervisor. He followed Knight from the University of Iowa to Chicago in 1927. From 1934 his relationship with Hayek was distinguished by their frequent correspondence and mutual admiration. In 1945–6, just before his early death, Simons sought unsuccessfully to attract Hayek to the Chicago Law School as part of a new Institute of Political Economy to promote ‘the traditional liberal political philosophy of Chicago economics’ (Simons papers, University of Chicago, box 8, folder 9). The idea behind the so-called ‘Hayek Project’ was to connect with Hayek’s (1945) proposal for the Acton-Tocqueville Society (see Chapter 5: 139–40). The day after the University vetoed the proposal, Simons died, deeply disappointed. This defeat was a precipitating factor in what might have been suicide (Von Horn 2014). Hayek communicated to Eucken that Simons’ sudden death in 1946 was a blow to his plans to work with Chicago in elaborating the necessary changes in the legal framework so that the competitive economy could be made more effective (Köhler and Kolev 2011: 24). There was a sense amongst Chicago colleagues that they had lost their Crown Prince. His close friend Aaron Director (1947) represented Simons’ thinking at the first Mont Pèlerin Society meeting in 1947 (Plickert 2008: 142). He stressed the prevention of monopoly power, the maintenance of currency stability, and the avoidance of social inequality and poverty. However, Director, like other Chicago colleagues, was to prove a less than stout defender of his legacy (for details, Emmett 2001). The leading role was assumed by Friedman (1962) who emerged as an earnest, single-minded, and relentless debater on behalf of libertarian values and ‘free’ markets. In the 1930s Simons was faced by what he saw as a hostile intellectual environ ment in Chicago, ranging from Marxists to institutional economists and legal realists, all advocating what he regarded as collectivism. In reaction, he spelt out his liberal political credo (Simons 1948/1945). In it he stressed his intellectual debts to Lord Acton, Jacob Burckhardt, Hayek, Knight, Henry Sidgwick, Adam Smith, and Alexis de Tocqueville, as well as to John Stuart Mill and Bentham. However, Simons’ brand of conservative liberalism was less distinctive for its engagement with social and political philosophy, in the manner of Hayek and Knight. Instead, he pursued a problem-oriented approach, evident in his wellknown A Positive Programme for Laissez-Faire (1934). The distinctiveness of Simons’ approach also stemmed from his dual role in economics and law at Chicago University. This dual role mirrored what was to be found in Freiburg and other German universities. Simons had spent half a year studying economics in Germany and was familiar with its interdisciplinary character and debates.
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294 Conservative Liberalism, Ordo-Liberalism, and the State Simons (ibid.: iii) rejected the argument that spontaneous order in the econ omy could serve the common good For Simons (1948/1945: 7), ‘the ultimate lib erty obviously is that of men equal in power’. This liberty required a positive role for strong government in providing a framework of ‘constitutional’ rules of policy that will prevent ‘granting inordinate, arbitrary power to ruling parties, factions, or majorities of the moment’ (ibid.: 19; also Simons 1936). Only by sustaining a consensus on rules can democratic government, based on free, intelligent discus sion on general principles of policy, endure and political opportunism be averted (Simons 1948/1945): The proper function of the state . . . is largely not that of providing services but that of providing the framework within which business, local-public and private, may effectively be conducted. (Simons 1934: 18)
Simons’ thinking about the competitive market order corresponds closely with that of Franz Böhm (1928, 1934, 1937), Eucken (1949, 1952), and Röpke (1944) on the need to break up concentrations of power. In the economy, this disem powerment was to be achieved through anti-cartel, competition, company-law, patent-law, and tax-law policies. In the political system, it required the dispersal of power through federalism and the rule of law (Simons 1948/1945: 23). Liberty requires ‘definite, intelligible, and inflexible’ rules of the game, alongside avoid ance of detailed interference with individual and relative prices and wages (Simons 1936). The notion of a rule-based competitive order as the best means of disempowerment suggests affinity with the Freiburg School. Simons (1948/1945: 37) argued that ‘the best single device . . . is to limit the power of officials by keeping their organizations under the severe discipline of competition’. This affinity with Freiburg was also evident in Simons’ consciousness of the interdependence of the legal, economic, and political orders, with the result that decisions in one order had implications for the others. He also saw that, within the economic order, mutually supportive policies were required in monetary, fis cal, competition, labour, and wages policy if each was to be effective in its own domain (Simons 1936). Monetary policy stabilization could be undermined by actions in one or more of the other policy sectors. Simons recognized the inter dependence of orders. Again, akin to the Freiburg School, Simon singled out competition policy and monetary policy as the two indispensable pillars of his rule-based conservative liberalism. Private monopoly—in all its forms—was to be eliminated (Simons 1934: 57). Corporations were to be dismembered; trade-union privileges ended; and free trade was to be used to strengthen competitive pressures (ibid.: 60–1). The second pillar of Simons’ conservative liberalism was a long-term rulebased constitutional framework for monetary stability. In the 1930s and 40s he was more actively involved with monetary policy issues than any other Chicago
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 295 economist and had at that time a substantial impact on Friedman’s thinking. Like his pupils, Buchanan (2009, 2010a) and Hyman Minsky (1986), Simons empha sized the inherent instability of the market economy. The two main elements of his constitutional framework for monetary policy were the so-called ‘100 per cent money’ plan, which owed much to Fisher, and a ‘simple, mechanical rule of mon etary policy’ (Simons 1934, 1936, 1944). The objective of the ‘100 per cent money’ plan was to restrain the ability of the commercial banks to increase the money stock by extending credit. It involved an obligatory 100 per cent reserve for deposits held by individuals. Fisher made clear that the primary purpose of the 100 per cent reserve principle was not to safeguard depositors (the task of deposit insurance) but the mitigation of booms and depressions (letter to Hawtrey in Churchill Archives Centre, Papers of Sir Ralph Hawtrey, HTRY 10/43). Eucken was strongly attracted to this proposal. In addition, the monetary basis should be fixed through a ‘definite and simple’ legislated rule, aimed at stabilizing ‘some broad (wholesale-price) index’, and should be accompanied by a toughening of bank regulation (Simons 1936, 1944: 358). Unlike Hawtrey, Simons lacked confidence that independent central bank ers could be entrusted to stabilize the currency and use their discretion wisely. He wanted to prevent ‘discretionary (dictatorial, arbitrary) action by an independent monetary authority’ (ibid.: 340). This disciplinary approach to monetary and credit policy was designed to inculcate a new ‘religion of money’ (Simons 1936). However, in the views of members of the post-war Chicago School, it was too rigid (Friedman and Schwartz 1963; Friedman 1968). With respect to federal fiscal policy, Simons envisaged more scope for discre tion to deal with depression. The level of federal spending was to be kept relatively stable, with changes in revenue as the main driver of the budgetary position. Even so, he argued that any reflationary fiscal policy had to be accompanied by a ‘defin ite preliminary announcement of an objective, stated, perhaps, in terms of mod erate increase in a specified price-index’ (Simons 1934: 35). Changes in money supply should be implemented mainly through the federal budget, complemented where necessary by traditional open-market policy (Simons 1944: 358). Crucially, Simons wanted to eliminate short-term government debt which should be ‘converted into currency and consols, in whatever proportion is required for price stabilization’ (ibid.: 356). He emphasized the elimination of short-term debt in order to prevent destabilizing shifts between money and money substitutes.
Simons’ Legacy: (1) Chicago and Friedman Simons’ reflections on the conditions for a sustainable liberal order were to prove controversial amongst the post-1945 architects of the new Chicago tradition. Under the influence of price theory, Friedman and others moved away from an interest in the ‘rules of the game’ in favour of more market freedom, not least for
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296 Conservative Liberalism, Ordo-Liberalism, and the State large corporations. Monopolistic power was acceptable if competition remained intact and the state stayed aloof so that the elimination of monopolistic power was possible (Friedman 1962: 28). Simons’ view that monopoly justified public ownership was rejected by Friedman and George Stigler. Simons had also argued that ‘ultimate liberty’ required drastic change in the direction of a progressive tax system to diminish differences in wealth and income. He proposed the ‘gradual withdrawal of the enormous differential sub sidies implicit in the present tax system’ (Simons 1934: 17–18). In addition, Simons (ibid.: 34) wished to introduce heavy taxation of advertising to limit ‘the squandering of our resources on advertising and selling activities’. This last pro posal corresponded closely with the thinking of Hawtrey, Knight, and later Rüstow. In the view of later Chicago economists, Simons’ interventionism sug gested that he was not a true liberal (Emmett 2001). Despite this distancing within the Chicago tradition, Simons continued to have a residual influence on Friedman. Friedman was never completely severed from conservative liberalism. From the 1950s he was much less disciplinarian than Simons in his view of states and markets. However, Friedman remained a discip linarian in his approach to monetary policy. He believed that his clear moneygrowth rule for central banks was tougher than anything advocated by Simons (Friedman and Schwartz 1963). Friedman’s (1968) emphasis on placing monetary policy in a long-run frame of reference meant that he retained characteristics of a disciplinary liberal.
Simons’ Legacy: (2) Buchanan, Minsky, and Credibility and Time-Consistency Literature Simons continued to have influence in the United States and beyond. His legacy was carried forward by two of his students: Buchanan and Minsky. Buchanan (2010a, 2010b) drew on Simons’ work in developing his constitutional economics and his views on monetary policy. Minsky (1975) was critical of a contemporary, conventional Keynesianism of ‘fine-tuning’, which neglected the need for limits on political discretion and the importance of individual incentives. Above all, like Simons, his theory of financial stability emphasized the need to control shortterm borrowing by limiting the ability of commercial banks to create money. He regarded bank credit as inherently unstable and requiring stabilization through explicit rules (Minsky 1986). Simons’ (1936) discussion on rules and discretion provided an intellectual foundation-stone for later debates in monetary policy that were to enter the mainstream from the 1970s. US-based economists built on rational expectations theory to examine the importance of credibility and time-consistency in monet ary and other policies (Lucas 1976). Kydland and Prescott (1977) argued that active counter-cyclical stabilization is best avoided as it is too dangerous. Their view—very close to that of Buchanan—was that economic theory should ‘be used
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 297 to evaluate alternative policy rules and that one with good operating characteris tics be selected’ (ibid.: 487). Accountability was best ensured in a democratic soci ety by having simple rules, like constant growth in money supply, a fiscal policy rule, and constant tax rates. These rules are a form of pre-commitment, constrain ing future policy choices in dealing with issues like inflation and public debt and stabilizing expectations. Barro and Gordon (1983: 608–9) followed the distinction in Buchanan and Tullock (1962) between the constitutional and operating levels of government. The role of the economist was confined to identifying and designing improve ments in institutional arrangements and rules that best constrain future policy choices. John Taylor sought, like Friedman, to give monetary policy a clear rule, based on close empirical investigation. In a pragmatic vein, he suggested a strat egy of ‘rule-like behaviour’. Policy performance was better if the concept of a pol icy rule was preserved even in a policy environment where it is practically impossible to follow the rule mechanistically (Taylor 1993: 197, 213). The influence of credibility and time-consistency literature spread to Europe where, from the 1980s, it provided a boost to conservative liberalism and added theoretical weight to Ordo-liberalism. Economists like Giavazzi and Pagano (1988) applied it to the examination of how discipline could be introduced into economies that lacked a firm domestic political and institutional anchor of stabil ization. They stressed the potential value of the external tying-of-hands as a means of borrowing credibility from more stable economies. An institutional arrangement like the European Exchange Rate Mechanism (ERM) could help to reduce domestic costs of economic adjustment. It enabled credibility to be bor rowed from Germany. Credibility and time-consistency literature also influenced the design of economic and monetary union (EMU) in the Maastricht Treaty of 1993, the Stability and Growth Pact (SGP) of 1997, and the monetary policy strat egy of the new European Central Bank (ECB) (Dyson 1994: chapter 7). It was compatible with the Ordo-liberal outlook of German negotiators and formed a common ground with other EU member state negotiators.
Simons’ Legacy: (3) Michael Oakeshott Simons’ legacy was not just to be found in the economic thinking of Eucken and the early Freiburg School. The British conservative philosopher Michael Oakeshott developed an early antipathy to Hayek and distrusted all forms of lib eral internationalism, not joining the Mont Pèlerin Society. However, he drew on Simons’ (1948/1945) collected works to develop his thoughts on the political economy of freedom (Oakeshott 1962). Oakeshott argued, with reference to Simons, that effective competition depends on the rule of law: To know that unregulated competition is a chimera, to know that to regulate competition is not the same thing as to interfere with the operation of
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298 Conservative Liberalism, Ordo-Liberalism, and the State competitive controls, and to know the difference between these two activities, is the beginning of the political economy of freedom. (ibid.: 56)
In a manner that resembled the Ordo-liberalism of Böhm, Oakeshott argued that ‘inflation is the mother of servitude’ and condemned private monopoly: Even if the much-advertised economies of giant financial combinations were real, sound policy would wisely sacrifice these economies to preservation of more economic freedom and equality. (ibid.: 57–8)
Louis Brandeis: The Curse of Bigness Brandeis stands out as the heroic figure in the history of the US anti-trust move ment in his capacity as a high-profile legal and social reformer and as a longserving Supreme Court Justice. His emphasis on the intellectual, moral, and spiritual development of the individual as the main factor in human betterment— as opposed to material welfare—bears close affinity to the German founding Ordo-liberals (e.g. Brandeis and Hapgood 2009/1914). According to Brandeis, the task of liberalism was to nurture character in the form of the creative, sturdily self-sufficient individual and a socially engaged, public-spirited, and vibrant citizenry. Brandeis’s intellectual roots were nourished by domestic sources, principally his admiration for Thomas Jefferson as the greatest of the Founding Fathers. Jefferson stood for the virtues of the civic as well as the economic man, for a soci ety of small-scale farming and business (Urofsky 2009: 661). Echoing Jefferson, Brandeis identified the enemy of liberalism as centralized and concentrated power, wherever it was to be found, not least within capitalism. He saw the United States as becoming a society of employees, undermining the individual opportun ity that was at the heart of a liberal society and making for greater vulnerability to the danger of business influence and control over politics (ibid.: 359). Brandeis’s belief in an expansive and positive role for the state in promoting unemployment insurance, profit-sharing, and industrial democracy had affinities with Alfred Müller-Armack’s concept of the social market economy. Equally, his advocacy of breaking up big business and of regulated as opposed to unfettered competition echoed the thinking of Franz Böhm. ‘Regulate competition, not monopoly, that is my slogan’ (Urofsky 2009: 319). According to Brandeis (1934: 104): ‘The right to competition had to be limited in order to preserve it [from self-destruction into monopoly]’. In neither of these cases of intellectual affinity with German Ordo-liberals is there evidence of direct influence. There were also striking affinities between Simons and Brandeis (see Simons’ letter to Brandeis, 15 December 1934, in Henry Simons Papers 1925–72, Box 1, Folder 50, University
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 299 of Chicago Library). They both opposed monopoly power, big corporations, and mass consumerism, notably the growth of chain stores. They championed small enterprise for social and political as well as economic reasons. According to Brandeis: ‘far more serious even than the oppression of competition is the sup pression of individual liberty, indeed of manhood itself ’ (Brandeis and Hapgood 2009/1914: 32). Before 1914 Brandeis had emerged as a central figure in the US Progressive movement. He worked closely with Robert La Follette (1855–1925) as Wisconsin governor and then as US Senator, as well as serving as a key advisor of president Woodrow Wilson in anti-trust legislation and banking reform (Urofsky 2009: 327–9, 333–6, 341–53, 435–6). In an influential series of articles in 1913 Brandeis attacked ‘the curse of bigness’ as a central failure of the ‘Gilded Age’ (collected in Brandeis and Hapgood 2009/1914; also Brandeis 1934). He spearheaded a call for tough anti-trust enforcement against such manifestations of corporate power as JP Morgan’s railway monopoly, Rockefeller’s oil dynasty, and US Steel. Their use of cartel pricing, bribes to officials, and accounting fraud was undermining the founding values that had given exceptional character to the United States. Later, as Supreme Court Justice, Brandeis retained close links to president Franklin Delano Roosevelt, principally through his friend the Harvard law pro fessor Felix Frankfurter, and to numerous ‘New Dealers’ in the administration through the Monday afternoon political salon that he and his wife hosted weekly. Roosevelt encapsulated Brandeis’s stern, principled approach to anti-trust, in referring to him in Old Testament terms as ‘Old Isaiah’ (Urofsky 2009: 692). Unlike Frankfurter, Brandeis had an ambivalent attitude to the New Deal (details in ibid.: chapter 28). He opposed such early measures as the National Recovery Administration (NRA) and the Agricultural Adjustment Act (AAA) as conces sions to corporate power and the ‘cult of bigness’. Brandeis’s thinking about how to deal with the Great Depression centred around the disciplining of over-mighty corporate power which he believed bore blame for such ills as financial speculation. He wished to limit the power of bank ers through heavy taxation and structural reforms to break up the banks; to intro duce steep federal inheritance taxes to limit the size of unearned wealth; to use excise duties to restrict the absolute size of corporations; to introduce unemploy ment insurance; and to create work through investment in productive infrastruc ture (ibid.: 710). Roosevelt’s New Deal was measured against these ideas and, at least before 1935, found wanting by Brandeis. He endorsed the New Deal to the extent that it avoided the suffocating grip of big business. The legacy of Brandeis’s thinking endured until the 1970s, when it was dis placed by the Chicago School of anti-trust law, which was represented by the fed eral justice Robert Bork. This new anti-trust philosophy adopted a narrower consumer welfare conception of competition policy that was more tolerant of bigness when it led to reduced prices for consumers. However, US debate about
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300 Conservative Liberalism, Ordo-Liberalism, and the State anti-trust law was revived by the financial and economic crisis, with the collapse of Lehman Brothers in 2008, alongside the rise of the Big Tech giants like Amazon, Facebook, Google, and Microsoft. The New Brandeis School returned to Brandeis’s thinking to call for a new concentrated attack on the excessive power of the big banks, the big pharmaceutical companies, and the Big Tech companies (notably Khan 2018 and Wu 2018). They argued that harm to consumers was an insufficient basis for anti-trust law. Anti-trust law should act preventively against blatantly uncompetitive practices to block potential rivals and against manipula tion of the political system to conserve market power. It should focus on market structure and concentration and widen its agenda beyond efficiency and con sumer prices. The purpose of anti-trust law should be the dispersion of economic and political power. It should concern itself with product quality and variety and with a wider set of interests—those of workers, producers, entrepreneurs, and citizens. Tim Wu (ibid.) argued that since the 1960s the ‘cult of bigness’ had driven a process of widening economic inequality, corrupted the political process, and led to democratic disillusionment. This critique of the second Gilded Age by the New Brandeis School restored a family resemblance to Ordo-liberal thinking on cartels and monopoly. It also had affinities with the tough approach within the competition directorate-general of the European Commission to concentrations of economic and political power. The Big Tech giants had become the equivalents of the earlier railroads and oil giants as a battleground.
Walter Lippmann and the Lippmann Colloquium Like Brandeis, Knight, and Simons, Lippmann was a strongly independentminded figure with a deep devotion to liberalism. However, in other respects, he differed from them. Lippmann was a public intellectual with celebrity status rather than a trained academic economist or lawyer, though he maintained very close links with universities as well as with Brandeis whose Progressive anti-trust ideas he actively disseminated. His significance is suggested by the estimate that over thirty years nearly 40 million Americans read his newspaper columns daily (Riccio 1996: xi). Lippmann was also a less creative and original thinker in the new conservative liberalism. His main importance resided as a commentator and in the stimulus he provided for the first major cross-national networking with the Lippmann Colloquium in August 1938 (which neither Knight nor Simons attended). This difference in his role reflected his academic background in phil osophy and not economics or law (on which Chapter 5: 151–3). He could not claim the technical mastery of economics that Knight and Simons possessed. Lippmann concentrated his criticism on a too-narrowly-conceived technical economics that did not accord due attention to philosophy, law, and political science and thus lacked the ‘big picture’—‘the knowledge of the grammar and the
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 301 syntax of society as a whole’ (Lippmann 1937: 4; Goodwin 2014: 43–4; Wellborn 1969). He was attracted to Brandeis by his conception of the ‘all-round’ lawyer who acts as the ‘people’s attorney’. In addition, Lippmann’s political trajectory differed from those of Knight and Simons. He began as a socialist before advocating a ‘regenerated liberalism’ in which the state was accorded an active role in promoting social solidarity. At the Lippmann Colloquium, Lippmann was closest to the sociological Ordo-liberalism that was outlined there by Rüstow, who like him had an earlier socialist back ground (Plickert 2008: 100). Lippmann was to prove a more flexible defender of a regenerated liberalism than Eucken, Röpke, or Rueff. The final point of difference from Knight and Simons was in attitude to Keynes. Despite his early antipathy to Roosevelt’s New Deal, Lippmann admired him as a modern ‘Renaissance Man’. He was more favourable to Keynes’s (1936) General Theory and less willing to see him as the enemy of a regenerated liberalism (Goodwin 2014: 48–55). Lippmann sought to avoid being caught up in the wars about liberalism within political economy that became apparent at the Lippmann Colloquium in 1938 and afterwards. By 1947 Lippmann’s relations with Hayek and with Röpke had become distant, in part because of their mistrust of his endorsement of Keynesian positions (Plickert 2008: 132). Unlike Knight, he did not engage with the Mont Pèlerin Society. Lippmann’s key contribution to the disciplinary revolution in liberalism was The Good Society (1937). It contained effusive praise for Hayek, Knight, Rougier, Röpke, and Simons as champions of liberalism. The book claimed that it was time to take a firm stand against the strong historical tide of collectivism since the 1870s, not just in Europe but also in the United States. Lippmann took aim at socialism, drawing on Hayek and Mises; at Italian fascism and German National Socialism; and at the way in which ‘well-meaning’ people were supporting a gradual process of collectivism in the United States (ibid.: 106–30). By these various means the eco nomic and social orders were succumbing to protection, privilege, and monopoly. Lippmann developed his earlier concerns about ‘transient popular majorities’ by reference to his disillusionment with the ‘reckless experimenters and intellec tual adventurers’ of president Roosevelt’s New Deal and their backers in Congress (ibid.: 224). Roosevelt’s ‘court packing’ in 1936 to overcome opposition in the Supreme Court was a step too far for Lippmann. Effective democratic govern ment depended on respect for strong independent and non-partisan institutions, including the judiciary and universities (ibid.: 231). Lippmann went on to develop this theme after 1945 as he once again became impatient with political leaders. Their proper task was ‘the enlightenment of public opinion’ (Lippmann 1955: 367). The danger was public ignorance and the subversion of government by party and interest-group sectarianism and by ideologues. The United States lacked a public philosophy: ‘a body of positive principles and precepts which a good citizen cannot deny or ignore’ (ibid.: 10).
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302 Conservative Liberalism, Ordo-Liberalism, and the State Lippmann’s criticism of the New Deal went beyond method to substance. Roosevelt was accused of confused economic thinking which was leading to a gradual collectivism (Lippmann 1937: 248). Lippmann evoked Simons in calling for a rule-based economy (ibid.: 266): ‘the temper of officialdom in a liberal soci ety must be predominantly judicial’ (ibid.: 284). The rules of the game were the essential basis of a liberal social order. In this respect Lippmann argued that there were too few ‘genuine’ liberals in the United States. In regenerating liberalism, it was necessary to bring together law and economics, a position that corresponded with the views of Böhm and Eucken in Freiburg. The Good Society provoked criticism from both Right and Left. Critics on the Left like John Dewey accused Lippmann of becoming a reactionary. By contrast, some on the Right identified a welfare-state liberalism. Lippmann had included in his ‘regenerated liberalism’ some radical proposals for greater state activism. He called for strengthened regulation to correct asymmetries of market power (ibid.: 219–22). He also envisaged heavy taxation of unearned income, including inheritance tax, more progressive taxation, and public employment programmes and rural development projects to help correct inequalities of income, widen opportunities, and enhance the efficiency of markets (ibid.: 218, 227). These pro posals suggested an affinity with the sociological Ordo-liberalism of Röpke and Rüstow. The Lippmann Colloquium in Paris from 26–30 August 1938 testified to the cross-national impact of The Good Society. Rougier organized it to coincide with its French-language publication. However, its main purpose was to build a crossnational network around a new agenda for a regenerated liberalism (Audier 2012a). Some half of the twenty-six participants were French, including Louis Baudin, Rougier, and Rueff. The other participants included Hayek, Mises, Röpke, and Rüstow. Twelve of the twenty-six were later to join the Mont Pèlerin Society. Despite the attempt to engineer agreement on the need for a departure from laissez-faire liberalism, the colloquium did not lead to a clear programme other than the establishment of the Centre International d’Études pour la Rénovation du Libéralisme (CIRL) to take forward the discussions. The controversies that were later to characterize liberalism were in clear evidence. There was no agree ment on a term for the new liberalism. Rüstow suggested ‘neo-liberalism’: other proposals included ‘individualism’, ‘positive liberalism’, ‘social liberalism’, and ‘lib eralism of the left’ (CWL 1939: 101–3). Despite no final terminological agree ment, later commentary was to identify the colloquium as the birth of neo-liberalism (Audier 2012c; Plickert 2008: 101, 106). Controversy also surfaced in the session on monopoly policy, in which Mises and some French participants proved more open to arguments for industrial con centration (CWL 1939: 36–41). But the most controversial session was that devoted to ‘liberalism and the social question’ (ibid.: 67–90). Discussion centred
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 303 on the causes, nature, and implications of the Great Depression. Lippmann was in the minority, along with Röpke and Rüstow, in stressing that reliance on the ‘selfhealing’ powers of the market and on cuts in social insurance and wages was too costly in social solidarity. He enthusiastically supported Rüstow, who argued that the Great Depression was not an economic crisis. It was an ‘organic crisis’ for society and required policies to safeguard social integration (ibid.: 83; Plickert 2008: 100). Mises and Rueff dismissed this critique as pre-capitalist.
James Buchanan and Constitutional Economics The classical liberal must remain . . . a constructivist, at least in some limited sense. Buchanan (2005: 10) Buchanan’s constitutional economics was distinctive in representing the main bridge between the old Chicago tradition and post-war American public choice economics. Like Rutledge Vining, his colleague at the University of Virginia, he had been a pupil of Knight. Vining (1969, 1984) played a pioneering role in this process of trying to reconnect to the rule-based old Chicago tradition. But Buchanan (1987, 2001a, 2001b/1986, 2010b) was the Nobel Prize-winning star of constitutional economics. He acknowledged his enormous intellectual debt to Knight, to Simons, and to the Classical political economy of Adam Smith. From them, he learnt the insights of price theory, alongside the vital importance of giving economics a firm normative basis in individualism and in designing the appropriate ‘rules of the game’ (Meadowcroft 2013; Reisman 1990). Victor Vanberg (1988, 2011, 2014), who had been a colleague of Buchanan in Virginia, used Buchanan’s constitutional economics in the attempt to reinvigorate the Freiburg tradition. Buchanan (2009: 151) emphasized his opposition to the untrammelled use of the efficient markets hypothesis by the new Chicago School; to the ‘engineering and control’ mentality of Keynesians; and to the reduction of economics to a technical exercise in mathematical model-building. The new Chicago School was guilty of ignoring the vital role of constitutional rules in securing a sustainable market economy. The Keynesians were guilty of jeopardizing the individualistic basis of a liberal order. Mathematical modelling was guilty of ignoring the nor mative foundations of economics. Buchanan’s political economy sought to combine the principle of normative individualism with an emphasis on the rules of the game whose purpose was to provide market-preserving institutions as a public good (Buchanan 1991: 29, 1999/1986: 455). His early work on public choice had taken the form of applying price theory to the political process (Buchanan and Tullock 1962). This approach
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304 Conservative Liberalism, Ordo-Liberalism, and the State led him to a procedural rather than a substantive conception of constitutional democracy. It was to form the basis of Buchanan’s (1975: 11) claim that: I remain, in basic values, an individualist, a constitutionalist, a contractarian, a democrat—terms that mean essentially the same thing to me.
Buchanan (1999/1986: 467) defined the role of constitutional economics as follows: Positively, this role involves analysis of the working properties of alternative sets of constraining rules . . . Normatively, the task of the constitutional political economist is to assist individuals, as citizens who ultimately control their own social order, in their continuing search for those rules of the political game that will best serve their purposes, whatever these might be.
This definition sits alongside Buchanan’s argument at the 1954 meeting of the Mont Pèlerin Society that: ‘the maintenance of [a] free society may well depend on the removal of certain decisions from majority-vote determination’ (Burgin 2012: 118). At the same time, it made clear his commitment to normative individualism. The evaluations of the individuals concerned should be the meas uring rod against which the rules constraining social, economic, and political arrangements should be assessed (Vanberg 2018). Buchanan’s normative indi vidualism distinguished his position from Knight (1935a: 57), from Hawtrey (1926), and from the Eucken School. He denied the existence of an independently defined criterion of the good. Buchanan’s position was contractarian, grounded in a notion of political exchange. The question was how his contractarian conceptu alization would work in relation to the choice among alternative constraining rules. Buchanan (1999/1986) attempted to provide an answer by arguing that the principle of unanimity should apply to the process of voluntary agreement on the long-term constitutional rules and on their revision. Within this framework of constitutionally chosen constraints, a less demanding democratic principle of rule-application and development could apply. Buchanan began with constitutional fiscal rules. He called for balanced budgets; restraints on government power to borrow, except in exceptional cir cumstances like depression or war; and state distribution of vouchers for individ ual use rather than reliance on welfare-state bureaucracy (e.g. Buchanan and Tullock 1962). The post-2007 financial and economic crisis prompted him to think more deeply about the monetary constitution. For Buchanan (2010a), the crisis was pre-eminently a ‘constitutional failure’ of the rules governing monetary and financial institutions. The new Chicago tradition’s fault had been to overextend the rationality principle and the efficient markets hypothesis to the institutional
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 305 level. Under the influence of this type of thinking, the economy lacked an adequate rule-based monetary and financial constitution. The monetary and financial structure had proved ‘a house of cards’ (Buchanan 2009: 155). In the absence of a monetary constitution, economic stability fell victim either to ‘money anarchy’ or ‘political money’. Buchanan sought a solution by returning to Simons’ ‘Chicago Plan’ of 1933. Simons had pointed to the inherent instability of fractional reserve banking. In its place, he had proposed that all banks be required to hold 100 per cent reserve against their circulating liabilities. The intention was to prohibit private money creation, which Simons had seen as at the root of the Wall Street Crash and the Great Depression.
Whither Conservative Liberalism? Buchanan’s advocacy of strict fiscal rules and his attempt to resurrect Simons’ ‘Chicago Plan’ proved too radical an exercise in conservative liberalism to gain widespread support. His narrowing of the economist’s proper task to a concern with rules and procedure proved limited in appeal within the academic profes sion. Academic economists were induced by political incentives in an age of democratic politics, and by their own career incentives, to make their work rele vant to current popular concerns with outcomes for social welfare. This focus on detailed management of outcomes—and the factors that underpinned it—muted the impact of conservative liberalism in general, including in Germany. In addition, new forms of moral critique of political economy and concerns with the justice of economic institutions that emerged from the 1970s did not fit well with Buchanan’s conservative liberalism. John Rawls developed a principlebased theory of distributive justice that had a powerful influence within philoso phy and political theory and that viewed a procedural conception as inadequate (Rawls 1972: 265–77). According to Rawls, the state had an obligation to establish the conditions in which public goods—with their characteristics of indivisibility and publicness—are delivered at an appropriate level, including the use of binding rules (ibid.: 266–7). Distributive justice required public taxation of inheritance and government guarantees of a social minimum, whether by family allowances, sickness and unemployment benefits, or a negative income tax (ibid.: 275–9). Markets were in danger of ignoring public harm, for instance through pollution, and of failing to provide an appropriate standard of life for all. If Rawls could be categorized as neo-Kantian, Amartya Sen was much closer to Adam Smith’s impersonal spectator, to the old Chicago of Knight, and to work in social choice theory. He broke with Buchanan over public choice theory and with the argument that the individual invariably behaves as the narrowly self-interested ‘economic man’ (Sen 2002: 290). Sen also rejected what he termed Rawls’s
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306 Conservative Liberalism, Ordo-Liberalism, and the State ‘closed impartiality’, of seeking a set of perfectly just first principles (Sen 1989, 2009). Instead, he advocated a comparative, evidence-based approach to assessing the desirability of different forms of political economy in addressing injustice. Citing Knight, he stressed the importance of value formation through public discussion in generating sympathy and willingness to act on behalf of others. Individuals possessed attributes of self-scrutiny and reasoning, through which moral and political concerns could be incorporated in personal choices (Sen 2002: 47). For Sen (ibid.: 287, 454), as for Knight, injustice was best addressed through government by discussion. Sen also developed a critique that could be applied to conservative liberalism. He argued that rights had little meaning with out individuals having the capability to exercise them. This aspect of liberalism required intervention in such areas as education, health, housing, and transport (Sen 1993). Rawls and Sen show that from the 1970s Anglo-American thought about political economy retained a strong strain of moral reasoning. However, Rawls remained the outsider in professional economics. Sen—like Buchanan—had the advantage of being a Nobel Prize-winner in Economics and thus regarded as more directly relevant. However, neither Buchanan nor Rawls nor Sen succeeded in displacing the mainstream, inward-looking, technical, and utilitarian profes sional economics that had been castigated earlier by Knight. In addition to the influence of Rawls and Sen, the structure of economic power in the United States and beyond changed in ways inhospitable to Buchanan’s mes sage. The power of the big global financial conglomerates was deeply entrenched in Washington, DC and London. Their proximity to the US Treasury Department and the US Federal Reserve, and to the British Treasury and the Bank of England, lent a quality of crony capitalism to their political economies (Dyson 2014: chap ters 11 and 12). Governing elites encouraged this process of financial growth and then became caught up in supporting it, for instance through a supportive mon etary policy of liquidity management. In parallel, they developed a narrative of global economic power as the basis for strengthening their legitimacy. This narra tive justified engagement in regulatory and tax competition to create a hospitable environment for powerful global conglomerates as the essential basis and symbol of this narrative of national power. The health of the City of London and Wall Street became a dominant concern of governing elites. This ideological background, and its associated structure of economic power, was not favourable to clear and firm rules to tame the power of Anglo-American financial capitalism. Instead, the asymmetrical structure of power generated growing economic inequality, pro vided the conditions for financial crisis, bred public resentment and anger, and led to an anti-elite populist politics. National populist politics and its political style of demagoguery was in turn inhospitable to conservative liberalism. The post-2008 financial and economic crisis spawned the search for new national unifying myths in Britain and the United States to challenge the mainstream
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CONSERVATIVE LIBERALISM IN BRITAIN AND THE US 307 thinking of governing elites. However, new post-austerity national narratives put conservative liberalism on the defensive. They rejected the emphasis on rulebased policies as inflexible and anti-social. Conservative liberals were in turn deeply uncomfortable with narratives that privileged social solidarity over longterm financial sustainability and that favoured country-first protectionism. A decade after the crisis—with so much uncertainty about the political trajectory— conservative liberalism continued to struggle to have its voice heard.
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10
Conservative Liberalism in French and Italian Political Economy This is the Italy I left . . . The foreigner fleeced, even if he keeps looking over his shoulder . . . You search in vain for German honesty in every corner . . . Life and activity are here, but not good faith and discipline. Everyone looks out only for himself, distrusts the other, is vain And the masters of the state, too, care only for themselves. Johann Wolfgang von Goethe (2008/1790), Venetian Epigrams: 4 Goethe’s bitter reflections in 1790 encapsulate what emerged as a dominant conservative-liberal mythology in Germany and Northern Europe about Italy and more generally about Latin Europe. They are associated with a cultural icon who was to become a patron saint of conservative liberalism (Chapter 5: 140–3). This chapter attempts to offer a more balanced and nuanced view by examining the key figures in French and Italian conservative liberalism, the context of their work, what they thought and wrote, and how their thinking evolved. It compares the significance of conservative liberalism in the discourses, policies, and politics of French and Italian political economy. In the case of France, it is worth remembering that, despite its weaknesses at the level of party politics and electoral competition, conservative liberalism remained significant at the level of policy belief within the highest levels of the state. The conservative bourgeois intelligentsia retained a strong presence in such key institutions as the Trésor in the finance ministry and the Banque de France. Its thinking reflected and tapped into a recurrent, widespread fear of the collapse of social order, into respect for intellectual sobriety and technical expertise, and into recognition that decisive leadership was required if liberalism was to avoid collapsing in disorder. In the period after 1945 conservative liberalism suffered from a problem of political marginalization in France and Italy that eclipsed its problems in Germany (on which see Rueff 1953a, 1953b; Villey 1964). Its marginalization was part of the larger historical problem of liberalism in both states, a problem that stretched back into the nineteenth century. In the aftermath of wartime chaos and violence, France and Italy failed to establish conservative liberalism as a core part Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 309 of a rejuvenating, unifying national mythology that could galvanize and command widespread elite and public support (Hazareesingh 1994: 16–17). Commenting on France, Catherine Audard and Philippe Raynaud (2014) noted that: ‘liberal designates a progressive or social-democratic attitude in the United States, but in France the word signals an opposition to the welfare state’. The term ‘liberal’ took on a different meaning in the historical and cultural context of France (Hayward 2007). Resistance in the Second World War proved one important shared element in providing France and Italy with unifying myths, rituals, and symbols. However, unlike the Left, conservative liberals had not been at the forefront of the Resistance and impregnated its values. The ideology of the French Resistance was grounded in a combination of humanistic socialism with liberal Catholic social values and a diffuse anti-capitalism (Jackson 2018: 290–1). In Italy, conservative liberals faced the difficulties of gaining reception in a political culture in which Catholic social ideas were strongly entrenched. Hence conservative liberals could not sustain a central role in post-war French and Italian attempts to construct a post-war unifying mythology of national rejuvenation. In post-war France conservative liberalism found expression in the thinking of top officials like Roger Goetze, Jean-Yves Haberer, Hervé Hannoun, Jacques de Larosière, Christian Noyer, Michel Pébereau, and Jacques Rueff (e.g. Haberer 1973; Larosière 2006). Three of them—Hannoun, de Larosière and Noyer—joined other former Austrian, Dutch, and German central bankers in signing a public appeal to the European Central Bank (ECB). They called on the ECB to desist from its unconventional monetary policies and avoid the monetary financing of states (Frankfurter Allgemeine Zeitung 2019). In contrast, the appeal lacked an Italian signatory. In a speech at the Banque de France in 1993, de Larosière underlined his intellectual debt to Rueff (details in Fabra 1993). Despite differences of national context, the reform efforts of conservative lib erals in both France and Italy were repeatedly frustrated by contending political ideas, including within liberalism; by powerful, organized vested interests that appealed to other political traditions like revolutionary individualism and social solidarity; and by the tendency of stabilization programmes to induce opportunistic party-political responses that led to the erosion of the parliamentary and wider political basis of government majorities. Stabilization programmes alienated both Left and Right and caused fragmentation in the political Centre. This tendency was most pronounced when stabilization was enacted in times of weak international growth or recession and against the background of an accumulated burden of fiscal and financial problems. Lessons from past experiences of the problems thrown up by stabilization programmes proved a further inducement for governing elites to be highly cautious about adopting and pursuing them.
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310 Conservative Liberalism, Ordo-Liberalism, and the State
The State and Solidarity in Post-War Unifying Mythology: The Case of French Gaullism Post-war France was characterized by three national unifying myths that contested for ascendancy and that acted as constraints on liberalism. The first was the revitalized étatiste tradition of the active, modernizing state. The second was the tradition of social solidarity, and the third was the tradition of national grandeur and independence. They connected in a powerful state tradition that emphasized collectivist values and an interventionist policy style. The myth of ‘the one and indivisible republic’ was rejuvenated by three notions of the state: a state that was to serve as the technocratic, elite-driven modernizer of France, restoring it to the front rank of powers; a state that would protect the individual from the crushing effects of mechanization from industrial civilization and compensate the losers of market competition; and a state that would ensure French grandeur and independence by acting as a counterweight to the domestic threats of fragmentation and disunity. Dirigisme, solidarity, and grandeur offered in part overlapping and in part competing foundations for the new French economic and social order and for the creation of a shared national identity. They rested on a conception of ‘Anglo-Saxon’ liberalism or ‘neo-liberalism’ as ‘the Other’, the counter-identity around which national myth could be constructed (Hayward 2007). In 1944–5 Gaullism represented a blank slate in economic policy. Its param eters were defined by the pursuit of grandeur and independence, the restoration of republican order through the strengthening of the executive power of the state, and renovation through the overthrow of vested interests (Jackson 2018: 290–1, 369). A state committed to grandeur would restore French self-confidence and prestige after the national humiliations of defeat in 1870–1 and 1940. Charles de Gaulle’s flexible and adaptable approach to economic policy reflected his attempt to construct a national unifying mythology around his ‘idea of France’, whilst adapting it to changing circumstances (ibid.: 396–400, 637–41, 772–3). His approach reflected three different strands. Conservative liberalism of the kind advocated by Rueff appealed to de Gaulle’s traditional conservative bourgeois belief in order and good housekeeping and the strong strain of asceticism in his character. At the same time, de Gaulle was attracted to the concept of the dirigiste state as the modernizer of France through planning and intervention (ibid.: 637–41). At different times and in different circumstances, conservative liberalism and the dirigiste state offered him opportunities to restore and strengthen French power in Europe and the world. In addition, de Gaulle’s Catholic background led him to emphasize the idea of the state as committed to solidarity. In opposition to many Gaullists, he stressed the state’s role in promoting social and economic justice and harmony and bridging the conflict between capital and labour (ibid.: 396–400). Here de Gaulle
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 311 connected to a rich French intellectual history of social solidarity that stretched back into the nineteenth and early twentieth centuries. It embraced thinkers on the Left, like Charles Fourier (1772–1837) and Pierre-Joseph Proudhon (1809–65); on the Right, like Georges Bernanos (1888–1948); those who straddled Left and Right, like Charles Péguy (1873–1914); Catholic social theorists like Frédéric Le Play (1806–82); and the Radical politician Léon Bourgeois (1851–1925) who wished to turn the republic into an instrument of economic and social progress and reduce inequality. The common thread was the belief that solidarity was a way of re-establishing social integration in the wake of the collapse of the ancien régime (Hayward 1983). It was to retain a powerful political potency under the French Third Republic and later. Despite the Gaullist constitutional reforms to strengthen executive power with the post-1958 Fifth Republic, myth and reality proved difficult to reconcile in post-war France. The discursive constructs of dirigisme, solidarity, and grandeur faced numerous problems. However, their problems did little to facilitate the ascendancy of conservative liberalism. The Fourth Republic (1946–58) was plagued by a combination of ideological fragmentation, political opportunism, and institutional immobilism. Although the Fifth Republic sought to offer a cure by strengthening the executive power, the problems proved deeper than constitutional. In the first place, France retained a tradition of tenacious, self-assertive individualism that appealed to the values of the French Revolution. Citizens and groups displayed an alienation from centralized state power. They took to protest and direct action in ways that regularly destabilized governments, including in the Fifth Republic. In addition, the problems of re-building a state tradition around dirigisme, solidarity, and grandeur were compounded by the post-war spread of economic liberalism through globalization and through European integration, from the customs union, through the single market, to monetary union. The pressures of economic liberalization placed technocratic modernizers on the defensive and hollowed out the substance of these contending national myths. Moreover, soli darity and grandeur proved vague sources of practical policy guidance. They were also open to exploitation by nationalist demagogues who railed against liberalism, above all on the far Right. In this context of ideological fragmentation and the defensiveness of ascendant national mythologies, the openings for conservative liberalism proved intermittent and limited. Solidarity was if anything an even more potent unifying myth in post-war Italy. Its Catholic variant was used by an ascendant Christian Democratic Party to counter what was identified as the dangerous internal as well as external com munist threat. Catholic social thinking had in turn to compete with other conceptions of solidarity on the Left and later increasingly on the Right, conceptions that—from a liberal perspective—could be authoritarian and coercive in character.
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312 Conservative Liberalism, Ordo-Liberalism, and the State As in France, myth and reality had little in common. Solidarity was more potent as a mobilizing electoral ideology than as a clear guide to policy. Moreover, in contrast to France, Italy continued to labour under a weak form of state structure. The myth of an activist state had little credibility in a governmental system and complex of para-state institutions that was enfeebled by the ruthless use of clientelism by the political parties. The spread of political favouritism fostered an image of state corruption and incompetence that made the promise of solidarity hollow. The combination of an ascendant myth of solidarity with incompetence and inefficiency in the Italian state structure created a governing and social context that was inhospitable to conservative liberalism. Limited efforts to improve state efficiency and strengthen market processes encountered public resistance and renewed calls for greater solidarity. In both France and Italy, the significance of the concept of solidarity in polit ical thought supported the notion of a state that was there to protect and compensate the losers of market competition. It was also fertile terrain for the reception of Keynesian ideas of discretion in macro-economic policy and for flexibility in using rules. The process of reception of Keynesianism within academic economics differed. In France it fitted with the post-war ascendancy of a domestically inspired positivism in French economics; in Italy the reception of Keynesianism was associated with the early Americanization of Italian economics. The ascendancy of solidarity in French and Italian social thought erected a formidable barrier to cultural openness to conservative liberalism. Devout Catholics like the law professors Georges Renard and Joseph Delos in France tended to look with dis favour on conservative liberalism to the extent that it appeared inimical to the Christian message of charity and love (Broderick 1970: 323).
Cultural Openness to Conservative Liberalism Cultural openness to conservative liberalism was impeded in post-war France and Italy by specific party-system and political-economy characteristics as well as by characteristics of history and discourse. In both states, liberalism failed to build its own large and distinctive social constituency around which a liberal party with conservative roots could achieve electoral success. They did not prod uce an equivalent to Ludwig Erhard; to the infrastructure of intellectual, media, and administrative support that he possessed; or a new post-war generation of leading intellectual figures that could provide substance to liberal rhetoric, other than in terms that emulated Britain and the United States. More generally, stabil ization programmes proved difficult to design and to implement. They became enmeshed in the fragmentation, factionalism, and ideological polarization within the French and Italian party systems and in the clientelist politics and vested interests that they spawned.
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 313 In addition, structural conditions did not assist the flourishing of conservative liberalism other than on imported terms that provoked cultural defensiveness. France and Italy were net debtor states in the post-war structure of international economic power. The moralistic narratives of creditor-state elites about the need for greater domestic discipline, and the embedding of these narratives in inter national institutions, acted as catalysts for their rejection as politically humiliating, as economically unjust, and as subverting social solidarity and democracy. Financial and economic crisis proved fertile ground for populist mobilization of national resentment and a rhetoric of victimhood, directed against stabilization programmes. Strikingly, neither France nor Italy spawned networks of wellresourced and intellectually self-confident liberal think tanks, like the Institute for Economic Affairs in Britain. The euro area crisis from 2009 exposed the difficulties of conservative liberalism in French and Italian public discourse. The critical lectures of the French philosopher Michel Foucault (2004) about German Ordo-liberalism became a key reference in academic anti-austerity narratives. Foucault had pictured Ordoliberalism as a new disciplinary mode of ‘governmentality’, in which the state was conditioned by the market economy and the population was managed in the name of freedom and frugality (ibid.: 16–22, 82–4). In contrast, the more sympathetic work of François Bilger (1964) towards Ordo-liberalism, on which Foucault had drawn, was invisible in French debate. In Italy, Paola Savona (2014: 53, 2018), an economist who had been an advocate of the social market economy, warned that German imposition of austerity through simplistic and dogmatic rules acted as a ‘cage’ for Italy and would bring tragedy to Europe. The overall tenor of Italian debate about Ordo-liberalism, and about domestic disciplinary liberal policies, varied from negative to hostile (Poettinger 2014; Solari 2017: 80–6). Despite these commonalities, the preconditions for conservative liberalism were more hospitable in France than in Italy. As the negotiations of the Maastricht Treaty in 1990–1 revealed, French elites were keen to avoid too close an identification with ‘unreliable’ Italian positions. They believed that too close an associ ation with financial indiscipline would undermine their credibility as a negotiating partner with Germany and weaken their bargaining strength in the European integration process (Dyson and Featherstone 1999: 235–6). This dynamic of French dissociation from Italy was evident in the management of the euro area crisis from 2009, when president Nicolas Sarkozy aligned himself with Angela Merkel against Silvio Berlusconi, the Italian prime minister. In 2018–19 president Emmanuel Macron emerged as a fierce critic of the fiscal laxity of the Italian populist Five Star/League government. Differences in history and in state structure meant that France possessed a greater state executive capacity than Italy. France had a tradition of heroic executive leadership that went back to Napoleon Bonaparte in 1799, Louis Napoleon in 1848–51, Georges Clemenceau in 1917, and Raymond Poincaré—as saviour of
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314 Conservative Liberalism, Ordo-Liberalism, and the State the franc—in 1926. De Gaulle was the principal twentieth-century manifestation of the tradition of the providential saviour, first in 1940–6 and again in 1958–69. The providential saviour promised to restore France’s order, unity, and grandeur by constructing a narrative of existential crisis and the need to rescue France from its own decadent and mediocre elites. De Gaulle’s legacy was the constitution of the French Fifth Republic, notably its directly elected presidency endowed with extensive executive powers. In addition, the French state possessed an infrastructure of highly trained and self-confident top officials, organized in grands corps, who could support decisive executive leadership on conservative-liberal principles. Given a favourable constellation of party majority in the presidency and the Assembly, and an executive leader with a conservative-liberal ideological disposition, this state capacity could—if only temporarily—be mobilized in the service of stabilization programmes. However, French political will to adopt and push through stabilization programmes proved more problematic in the face of the Revolutionary tradition of direct action, as well as of powerful vested interests in the state, economy, and society. The inheritance of the French Revolution was a political culture that contained a deep suspicion of executive authority and personal power as inimical to the sovereign will of the people. In Italy, the obstacles facing conservative liberalism were even more formidable than in France. They stemmed from the combination of weak state executive capacity with deficient political will to effect stabilization programmes. The problem was exemplified by the contrast between the scale and depth of reforms under prime minister Matteo Renzi (2014–16) in Italy and those of another bold and energetic leader, president Macron (post-2017). Macron was the first French twenty-first leader to exploit the myth of the providential saviour.
Conservative Liberalism in France Conservative liberalism enjoyed its heyday in France during the Third Republic, principally in the crisis years of the 1920s and 30s when it was represented by Poincaré, Georges Bonnet, and Paul Reynaud and by thinkers like Clément Colson and Rueff. However, its association with the economic and political failings of the Third Republic, including the catastrophic defeat in 1940, was to prove a major factor in its subsequent decline. It was noted that, even before 1914, the Third Republic had failed to reverse the relative economic backwardness of France vis-à-vis Britain, Germany, and the United States (Kuisel 1984). Against this background, by the 1930s, the discourse of modernization was being captured by an elite of engineer-economists who had little faith in the self-healing properties of the market. They looked to the more intelligent use of the interventionist capacity of the French state (Denord 2007b).
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 315 After liberation in 1944–5, the nature of France’s wartime experience added to the problems of conservative liberalism in two ways. The humiliating defeat in 1940 was taken as evidence of the price France was paying for outdated economic thinking. In addition, the leading figures in French conservative liberalism— notably Louis Rougier and, to a lesser extent, Rueff—had lacked a significant presence in the French Resistance in 1940–4. They suffered from a degree of ‘guilt by association’ with the Vichy Regime of Marshal Pétain. Rougier had managed to offend the French Gaullists and many others; Rueff had family connections to Pétain. Their situation contrasted with the German Ordo-liberals, who had been part of the academic resistance to the Nazi regime and actively involved in planning for post-war Germany. The post-war ideological context was also less receptive than in Germany, which was strongly conservative liberal at the federal level until the mid-1960s. French conservative liberals lacked a political equivalent to Erhard. During the Fourth Republic the social-liberal ideological mind-set of many engineereconomists was closer to the political centre of gravity than the ideological mind-set of conservative liberals. A further factor was the lack of a French equivalent of the strong institutionalized support for conservative liberalism within the German and Swiss financial press (on which Herzer 2015; Kutzner 2015; Westermeier 2015). Paul Fabra (1974, 2010), financial editor of Le Monde (1961–93), was exceptional in his admiration of Rueff ’s ideas.
Jacques Rueff: A Self-Styled Oddity in French Political Economy My misfortune . . . is to have remained a liberal in a world that has ceased to be so. Rueff (1977: 4) Rueff was an extraordinary statesman-economist. His career spanned academic economics, the elite French civil service, personal advisor of heads of state and government, European judge, and Parisian intellectual. Colson, who had taught him at the prestigious École Polytechnique, was the most important influence on him (Rueff 1939; also Chivvis 2010: 20–8; Minart 2016: 30–2). There were striking similarities in their thinking about political economy. Both were characteristically French engineer-economists. They were fascinated by the potential in applying the tools of mathematics and logic to the economy and by the larger challenge of examining the foundations of economic and social order in a scientific manner (Rueff 1922). Colson’s economic liberalism had a big impact on Rueff, especially his stress on the indispensability of an effectively functioning price mechanism to social order (Rueff 1977). Rueff (1945, 1979) followed
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316 Conservative Liberalism, Ordo-Liberalism, and the State another conservative liberal, the Anglophile Jean-Baptiste Say (1767–1832), in his emphasis on competition and free trade. At the same time, Colson’s devotion to Classical economic liberalism was qualified by the inspiration he took from Le Play, another French engineer (not ably Colson 1912). Le Play (1864) recognized that economic change could undermine the moral and social order, above all the family. The quest for a moral liberal order—resting on firm monetary, economic, and legal foundations—remained central to Rueff ’s thinking. It was resolved, in part, by his concept of the ‘institutionalized market’ (le marché institutionel) and, in part, by his self-identification with a ‘left liberalism’ that accepted state intervention to assist the poor (Daou 2018; Minart 2016: 314). The economy had to serve the liberal social order, not vice-versa. The relationship between his neo-classical economic philosophy and his concern—as a self-proclaimed ‘man of the state’—with the moral and social order was a key theme running through Rueff ’s thought (Rueff 1979: 33, 133). As a statesman-economist he was acutely aware that economic policy was a matter of judgement about how far to intervene in the price mechanism for the larger public good. Rueff remained clear that such interventions were costly. If a liberal social order was to endure, state intervention must respect certain foundational principles: the continuing effective functioning of the price mechanism, including in labour markets; the individual right to property; and the avoidance of fiscal deficits. This conservative liberalism was articulated early in his career in an art icle in which he called for comprehensive and coherent action to stabilize the French economy (Rueff 1925). He proposed the need for an end to inflation, sound money, fiscal rigour, use of the price mechanism to speed adjustment, and freedom of capital movement—themes that were to recur throughout his long career. Already, by 1925, Rueff was preoccupied with the causes and nature of unemployment. This issue remained central to his thinking throughout his career; was linked to his reputation as the ‘anti-Keynes’; and revealed his rigorous commitment to the logic of neo-classical economic theory. From the 1930s he opposed what he called Keynes’s ‘world of magic’, which would unleash inflation and a long-term loss of jobs. Rueff argued that labour was a market in which prices had to be allowed to adjust, with appropriate support from the state so that real incomes were protected (Minart 2016: 94–100). He lived long enough to cele brate ‘the end of the Keynesian age’ (Rueff 1976; also 1977: 105). However, Rueff ’s thinking extended beyond neo-classical economic theory. At the Lippmann Colloquium in August 1938 he was exposed to the liberalism of Alexander Rüstow (Plickert 2008: 99–100). Rueff used this opportunity to oppose ‘neo-liberalism’ and advocate a ‘liberalism of the Left’ that would ‘give the least advantaged the most opportunities’ (Audier 2012a: 343–4). He became convinced that deflation alone was not adequate for dealing with economic depression.
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 317 The state had a role to play in restoring investment and in redistributing wealth and income, so long as it ensured that its interventions were compatible with the price mechanism (Rueff 1979: 113–17). Rueff ’s evolving brand of conservative liberalism was close to that of Luigi Einaudi, Wilhelm Röpke, and Rüstow, all of whom referred to the work of Le Play. It owed much to the domestic legacy of Colson, who had sought to bridge the economic liberalism of Say and the sociological outlook of Le Play. On 8 May 1934 Rueff delivered a paper to the X-Crise group. He noted that, whilst he shared a training with them at the École Polytechnique, he represented an oddity in their midst (Rueff 1934; for details of the meeting, Dard 1999: 79–82; Minart 2016: 125–7). In the words of Georges Lane (1997), Rueff was ‘a liberal lost amongst the planners’. The planners of the X-Crise identified neo-classical economic liberalism as the cause of the crisis of the 1930s and regarded figures like Rueff as outdated. Conversely, in his paper, Rueff (1934) identified the cause not in liberalism but in the loss of the gold standard—the international automatic regular of domestic policies—and in the fiscal and credit excesses and monetary and financial disorder that had ensued. According to Rueff (1934: 34, author’s translation): ‘I have always found that all the faults of our way of doing things have their source in state intervention’. Dirigiste interventions only disrupted adjustment through the price mechanism, prolonged and worsened the crisis, and increased the risk of dictatorship. The meeting’s heated debate contributed further to Rueff ’s sense of being an embattled, isolated economic liberal. Rueff ’s sense of being an outsider extended beyond his relationship to other engineer-economists. It also surfaced in his view of his position within a divided French liberalism (Denord 2009). At the Lippmann Colloquium, as in his earlier paper to the X-Crise group, Rueff argued that a freely functioning price mechan ism was the essential condition for social welfare. In this respect he was in close agreement with the Austrian thinking of Ludwig von Mises (Audier 2012a; Plickert 2008: 99). However, the Lippmann Colloquium strengthened the social element in his conception of liberalism. By 1939 Rueff was more clearly distinguishing his own liberalism from laissez-faire liberalism (Lane 1997). The change since 1938 was vividly apparent at the first conference of the Belgian Centre Paul Hymans in September 1957 (Audier 2012b). This meeting revealed his distance from Mises, with Rueff arguing that a liberal order required state intervention in conformity with the market. Rueff also rejected Hayek’s conception of the market as a spontaneous order (Rueff 1957, 1958; also Lane 1997). Instead of Classical laissez-faire liberalism, Rueff (ibid., 1979: 331, 351) advocated ‘the institutional market’. Markets work well when they are built and safeguarded by the state’s legal framework, ensuring free exchange consistent with the requirements of social order. His thinking in 1933 about the value of a European common market had developed further during his period as a judge of the Court of Justice of the European Coal and Steel
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318 Conservative Liberalism, Ordo-Liberalism, and the State Community (ECSC) (Rueff 1933, 1958, 1979: 331–54). Rueff (1953a, 1953b) had also become convinced that Ordo-liberalism was the secret of Germany’s sudden post-war recovery and that it deserved emulation by France. Rueff ’s focus on the principles of the economic order on the national, European, and international levels distanced him from French economic liberals like Louis Baudin (1953), Pascal Salin (2000, 2014), and Daniel Villey (1946, 1967)—all fellow members of the Mont Pèlerin Society. For Baudin and Villey, economic liberty had value independently of its efficiency in using resources. It was the essential counterpart to political liberty and to the flourishing of the individual. Villey (1967) advocated a fundamentalist commitment to the Revolutionary principle of liberty as the supreme independent value. He feared that liberalism could suffer from relativism if it was reduced to serving other principles, like order. Salin (2014) stood for a radical individualism in direct contrast to Maurice Allais and Rueff. He identified his major French influences as Say and Frédéric Bastiat (1801–50). Salin also placed himself in the Austrian tradition of Mises and Hayek, arguing that the truths of economics were universally valid because grounded in logic. Unlike Salin, Villey addressed German Ordo-liberalism. According to Villey (1964: iv), Eucken’s work was excessively abstract, austere, serious, and difficult. It was characterized by an ‘irritating dogmatism’ that was trapped within a German tradition of primacy to order (also Bilger 1971). The French economic historian André Piettre (1952, 1962) differed from Rueff on another point. He doubted that the German economic miracle was mainly attributable to Ordo-liberalism. It masked a high degree of state intervention.
Rueff ’s L’ordre social: A Rule-Based Fiscal Order L’ordre social (1945) represents Rueff ’s magnum opus, written mostly in intellectual isolation in wartime France after his resignation as deputy governor of the Banque de France in January 1941 (Minart 2016: 148–9). It is a remarkable book in the history of conservative liberalism (ibid.: 147–67). With thirty-seven chapters, the book is enormous in size. The key contribution comes in its sixth and seventh parts, dealing with politics and the role of the state in the modern economy. They close with a polemic against budget deficits and inflation, which are held responsible for the collapse of interwar democracies, the drift to authoritar ianism and totalitarianism, and the Second World War. The book is also remark able in going further than Eucken in outlining a rule-based fiscal order and an institutional framework to govern this order ( Rueff 1945: 727–34). This framework bears a closer resemblance to the later Stability and Growth Pact (SGP) of the EU and to the fiscal compact treaty of the euro area than anything in the writings of Eucken.
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 319 Whilst remarkable, the book remained neglected, even by those interested in conservative liberalism. One factor was that, like Eucken’s (1952) Gründsätze der Wirtschaftspolitik, L’ordre social was not translated into English. In addition, unlike Eucken’s book, it was not used as a consistent point of reference by national policy makers in the post-war period. Rueff was intellectually isolated both inter nationally and in France. He had occupied a somewhat ambiguous position during the wartime Vichy period, having retreated from public office in 1941 into semi-retired, rural isolation. On the one hand, he and his wife’s family had connections to Marshal Pétain. On the other, Rueff was a Jew (very rare in the finance inspectorate) and tried to keep a low profile. Nevertheless, he undertook secret work for the French Resistance, principally in the drafting of the Courtin report in summer 1943 (Minart 2016: 193–5). This self-styled ‘economic charter’ of the Resistance called for an end to protectionism, respect for financial stability, priority for investment, and acceptance of the laws of the market economy. Against this background, his relationship to Pétain and to the Resistance was not the decisive factor in his post-war marginalization. Under the Fourth Republic he was identified as a man of the Right who had been associated with the deflationary policies of the 1930s. Instead, the engineer-economists pursued a state-led policy of modernization through national planning and intervention. After 1944–5, until 1958–61, Rueff was even more isolated than he had claimed to be in 1934. The core proposition in L’ordre social was that the liberal social order was not to be confused with the equilibrium that was produced by a freely functioning price system. ‘The liberal order requires moral support, divine or human. Without it, it will still be a social order, but a barbarous order’ (Rueff 1945: 563, author’s translation). The liberal order needed an authoritative morality, not a regime of egoism (ibid.). This proposition underpinned Rueff ’s conception of political economy. The liberal social order required a disciplinary framework of exchange-rate stability, monetary stability, and fiscal balance, all three providing a foundation for sustainable social policies. It required the state to intervene in three ways. First, it had to establish a legal framework that secured individual property rights. Second, it must constrain the exercise of those property rights, both by safeguarding the market order from abuse by cartels and big companies and by acting in the interests of some collective moral good. Third, the objective of price stability meant that the state had to bind its governing class through as automatic a mon etary regulation as possible. The key condition was that any form of state intervention should be in conformity with a freely functioning price system. This condition excluded price controls and minimum wages. Rueff ’s arguments demonstrated a close family resemblance to the Ordo-liberalism that was represented by Röpke and Rüstow, as he recognized later (Rueff 1953a, 1953b). Social order could only be reconciled with the market economy if there was constant vigilance by a strong state that was committed to monetary and financial
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320 Conservative Liberalism, Ordo-Liberalism, and the State stability, to the rule of law, and to equity. In the absence of any one of these three conditions society would relapse into collective coercion. The monetary and financial system becomes the ‘sewer’ into which society’s conflicts are dumped (Rueff 1945: 367). Rueff ’s originality rested in his distinction between ‘true’ rights and ‘false’ rights (ibid.: 716–21). The main threat to monetary and financial equilibrium, and to the liberal social order, arose from the political arts of accommodating false rights (on which ibid.: 377–86). These arts included taxation, borrowing, price controls, exchange controls, and rationing and led to non-conforming interventions in markets that distorted competition and diminished prosperity. Budget deficits and the monetizing of debt by central banks were the cardinal means through which the state generated false rights by increasing inflation (ibid.: 154, 167). These types of intervention disguised the degree of disequilibrium in the economy, eroded individual responsibility, and undermined democracy. The collectivist order represented the extreme case of a society dominated by false rights. The challenge of restoring a civilization based on human dignity, after the privations of war, required government that was dedicated to ‘true’ rights, one that chose financial order (ibid.: 726). Rueff ’s frontal attack on budget deficits began with the claim that: ‘Every important and prolonged deficit leads necessarily to slavery . . . Be liberals, be socialists, but do not be liars’ (ibid.: 724–5, author’s translation). He advocated three reforms at the national level to prevent governing elites from hiding the nature and scale of fiscal problems from citizens. First, the teaching of economic theory must ensure that people better understand the consequences of deficits (ibid.: 728–30). Second, there must be clear liability and accountability for fiscal balances (ibid.: 730–2). Third, Rueff looked back to the Hellenic tradition of the city states where the thesmothetae served as the supreme guardians of constitutional stability. A similar arrangement of life-time supreme guardians was required for the financial order. They would have an absolute veto over any provisions that were deemed likely to engender ‘false’ rights. Rueff argued that this arrangement would make popular sovereignty more effective, not subvert it (ibid.: 732–3). These domestic provisions would need to be further disciplined by inter national arrangements that would ensure respect for the common principles of financial morality. Rueff envisaged an international court of accounts and a supreme court of justice which would assess national budgets, with powers of investigation and inspection. The national financial guardians would act as representatives of this supreme international authority (ibid.: 733). Rueff closed his attack on budget deficits with the statement: ‘It is through deficits that men lose freedom’ (ibid.: 734, author’s translation). The solution rested in hard external constraints and automatic sanctions.
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 321 Rueff was very conscious of the fragility of social order. He argued that the object of a theory of the social order was to make available to statesmen and officials the set of principles that permits them to act effectively to safeguard social peace. However, Rueff recognized that the choice of regime was not a matter for economic science. It was an exercise in the arts of politics (ibid.: 6). At the same time, if the chosen regime is not to prove a deception, it is necessary for those choosing the regime to know the mechanisms at work and their consequences. They could, of course, choose to ignore economic science, for which there would be a price to pay. The problem was that the constraints that were needed to ensure effective policies and social peace ran contrary to the nature and inclinations of man (ibid.: 559). In this respect, his views of economics and of man bear striking resemblance to those of Frank Knight.
Louis Rougier: Philosopher-Economist and Networker Neither Rueff nor Rougier was strictly a university economist. However, Rougier’s contribution to conservative liberalism took a different form from that of Rueff. He was a rare French example of a philosopher-turned-economist and not an elite civil servant. Rougier was an intellectual prophet and entrepreneur, an inter national networker and disseminator. He played a crucial if brief role in 1938–9 in the renovation of liberalism in France and internationally. At this time, the positive reception for Rougier’s conception of a rule-based ‘constructive’ liberalism was assisted by two factors. In the first place, Rougier’s activism coincided with the fall of the Popular Front government and the new government of Édouard Daladier (1884–1970) and his radical finance minister Reynaud (1878–1966). Their ‘return’ to a liberal financial order in 1938–9 provided a receptive domestic political context (Denord 2007a: 126). As an architect of the Reynaud reforms, Rueff was an indispensable ‘insider’ ally of Rougier. In addition, the conception of a rule-based constructive liberalism enjoyed a close intellectual fit with the teaching of law which was widespread and occupied a prestigious position in the French university system. By the 1930s Maurice Hauriou’s theory of institutions as the foundation of a liberal social order was influential within the law faculties (see Chapter 6: 198–9; also Broderick 1970: 15–29). Hauriou (1933: 96) emphasized the vitalist principle of the leading idea in his thinking about institutions, an idea that takes shape and has a legal existence in a social context. The guiding idea of the state was to put in place and safeguard a social order that supports individual liberty (ibid.: 117). His stress on the creative power of institutions went along with his attack on legal relativism and on evolutionary approaches to law (ibid.: 20–34). A law that was grounded in a universal and immutable ideal of justice was the essential basis of
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322 Conservative Liberalism, Ordo-Liberalism, and the State individual liberty. Hauriou’s assault on German legal ideas gained increasing traction as the 1930s progressed. He had singled out German ‘legal nationalism’, ‘legal robbery’, and ‘legal collectivism’ (ibid.: 28). Hauriou’s self-characterization as a historically minded ‘Catholic positivist’, who was focused on observing social facts, made him more congenial to French conservative liberals than those with a stricter, corporatist conception of Catholic social thought like Georges Renard (details in Broderick 1970). Rougier’s attempt to lead a reformist liberal campaign in the late 1930s took three main forms (Berndt and Marion 2006: 47–9; Denord 2007b). His editorial work for the publisher Librairie de Médicis enabled him to promote a new, profound reflection on liberalism in France. In addition to his own Les Mystiques économiques and a book by Rueff, French translations were published of books by Lippmann (The Good Society as La Cité Libre), as well as by Hayek, Mises, and Robbins. Between 1937 and 1940 some fourteen works appeared in this series. In addition, Rougier’s organization of the Lippmann Colloquium in August 1938 was a major international event. It started a new debate about liberalism, greatly influenced Rueff, and was the precursor of the post-war Mont Pèlerin Society (Audier 2012c; Allais 1990; CWL 1939). Subsequently, Rougier played an active leadership role in developing the activities of the new Centre international pour la rénovation du libéralisme (CIRL), which was established by the Lippmann Colloquium as an international coordinating body to continue the renovation of liberalism (Denord 2001/2002, 2007a, 2007b). By 1939 the CIRL had over sixty members in France, including Charles Rist and Rueff. They were drawn from the administrative elite, universities, industry, and even trade unions.
Rougier’s Constructive Liberalism: Les Mystiques Économiques Rougier had three main intellectual debts in this phase of his long intellectual work: to Walter Lippmann, to Rueff, and to Röpke. He acknowledged Lippmann as the source for the concept of ‘constructive’ liberalism (libéralisme constructif or constructeur), which was at the core of his book Les Mystiques économiques (1949/1938: 80). According to Rougier, the liberal economy could only succeed as a rational art, founded on a scientific discipline (ibid.: 38). The ‘constructive’ liberal economy required an active and progressive legal order which would safeguard free competition against cartels and trusts and against trade-union ‘tyranny’ and its destruction of equilibrium in labour markets (ibid.: 34, 80, 84–6). At the Lippmann Colloquium, Rougier had illustrated his thinking about rules by the analogy of road traffic. The rules governing road traffic did not tell one where one had to travel and which route one had to take. Such rules were dirigiste—the approach of the planner. The rules that were appropriate to a liberal order
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 323 governed only how one travelled in the public interest of avoiding traffic accidents and traffic jams (CWL 1939: 16). Following Lippmann, Rougier argued that liberalism had lost its way. It had begun as a radical interventionist doctrine which sought to eliminate constraints on enterprise. Over time, it had evolved into a plutocratic regime of monopoly power. Its mode of rule was laissez-faire in dogma and ‘conservationist intervention’ in practice. It resorted to measures of protection, subsidy, and labour-market regulation that created privileged elites and damaged the interests of consumers (Rougier 1949/1938: 70–88). For Rougier (ibid.: 71), the belief in the competitive market as a natural and spontaneous order had no solid basis in economic science. The liberal state had to be active in re-establishing the natural equilibrium between savings and investment, production and consumption, and exports and imports. It had to intervene to defend the consumer and to safeguard human dignity by ensuring basic minimum standards of social provision, in a manner compatible with the price mechanism (ibid.: 218). This type of social order was the most compatible with the laws of economics. Rougier’s account of liberalism placed him at odds with the Austrian tradition of Mises. The main difference from Lippmann stemmed from Rougier’s background in philosophy of science. According to Rougier (ibid.: 7, author’s translation): ‘There is one economic science . . . [but] economic doctrines are diverse’. He contrasted his ‘constructive’ liberalism with four types of economic mystique: the laissezfaire liberal mystique; the dirigiste economy mystique; the corporatist mystique; and the Marxist mystique. These four mystiques were politically powerful dogmas, moralizing in nature and appealing to sentiments. However, they were founded on economic error and costly to freedom. Liberalism could only succeed in a form that was scientifically grounded in economics, in ‘logically observed experience’ (ibid.: 35–69). The second 1949 edition of Les Mystiques économiques shows how much Rougier’s economic thought owed to Allais and to Rueff ’s thinking about monet ary and fiscal policies. Rougier advocated a court of audit and a supreme court with the power to strike down legislative and administrative abuses of power. However, he had in mind not just budget laws which failed to cover spending with normal revenues. Any interventions that were incompatible with the price mechanism were to be subject to veto (ibid.: 235). The similarity between Rougier and Rueff extended to the nature of their conception of economics as a unique science that stood at the bridge between the physical sciences and the moral and political sciences (Rueff 1922, 1955, 1968, 1977: 32; also Nadeau 2007). The two sciences were converging in economics. Rueff shared Rougier’s passionate interest in the natural sciences. However, he drew his opposition to materialism and determinism from biology and the work of Henri Bergson, who taught him that the paramount need was to stay in ‘contact with life, with the facts’ (Minart 2016: 33–8). In contrast, Rougier looked to
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324 Conservative Liberalism, Ordo-Liberalism, and the State recent debates in physics and Einstein. He attacked what he called the fatal presumption of determinism in economic behaviour that was at the basis of the illusions of technocratic planning and social engineering (Rougier 1949/1938: 206–14). Economic science had to take account of the human creative capacity and the indeterminacy of individual behaviour. Its principal tools were statistical. These tools did not, however, provide the predictive power that planning required. Economic science could not justify or support the claims of planners on the Left and on the Right. The influence of Röpke on Rougier went back to the Lippmann Colloquium. Like Röpke, he paid respect to the Papal encyclical of 1931 for its critique of laissez-faire liberalism (ibid.: 236–8). The state had to provide all with a ‘system of guarantees and assurances’, including families, cooperatives, and professional associations, as well as property owners, savers, and workers. Rougier endorsed a communitarian conception of liberalism that distinguished him from the Austrian tradition of economics. The conditions he attached to intervention were, nevertheless, compatibility with the price mechanism (he ruled out price and wage controls) and with non-inflationary financing (ibid.: 250–63). Rougier also differed from Hayek in rejecting the concept of the competitive market as a spontaneous natural phenomenon (ibid.: 221). The state had an important role in constructing the market.
Rougier’s Post-War Isolation and Neglect Post-1944, Rougier faced isolation and neglect by French economists and philo sophers. His abortive secret mission to London in 1940 led to accusations of excessively close association with the wartime Vichy Regime (on which Denord 2001/2002: 34). Rougier went on to make enemies in exile in New York. Earlier he had offended powerful Catholic intellectuals with his critique of Thomist philosophy (Rougier 1925). His post-war campaigning for amnesty for associates of Marshal Pétain increased suspicion of his anti-democratic attitudes. This impression was intensified by Rougier’s later political links with the French ‘New Right’. He offered intellectual legitimacy for its defence of what it saw as existentially challenged Western civilization. Rougier was isolated in the context of the early post-war dominance of the Left and of social Catholic political forces, and later by his visceral dislike of what he saw as the Bonapartist features of de Gaulle. An additional factor in his marginalization was developments within French philosophy (see Chapter 6: 196). The cumulative effect of this marginalization was that the early positive reception of his work on economic thought in the late 1930s gave way to its neglect after 1944–5. Whereas Rougier had been a leading figure in building an international network for renovating liberalism in 1938–9, his membership of the Mont Pèlerin
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 325 Society was vetoed in 1947—at a time when his licence to teach had been revoked in France (Allais 1990: 34). Röpke referred critically to his malleability (Steiner 2007: 65). Eventually, with the strong backing of Allais and Rueff, he was admitted to membership in 1957. Between 1957 and 1967 Rougier gave four papers at meetings of the Mont Pèlerin Society. These papers underlined the striking continuity of his thought since Les Mystiques économiques (1949/1938) and La Mystique démocratique (1929). In his paper on the philosophical foundations of liberalism in 1957, Rougier emphasized the historical and social contingency of liberalism and hence its fragility (Steiner 2007: 84). He highlighted the roles of natural law thinking and of historical science in differentiating the Ancient and Modern Worlds. Similarly, his paper of 1961 on democracy and liberalism stressed that the ‘sovereignty of the human person’ (their rights) had priority over the sovereignty of the people as expressed by a majority. Democracy is not an absolute value; it must serve liberty (ibid.: 88). The major post-war change was in Rougier’s stress on mentalities in discussing economic liberalism (ibid.: 84–6; also Rougier 1960, 1969). According to Rougier, the ‘authoritative’ state had to promote a Promethean mentality: the psychological will to tackle challenges. Providing subsidy and aid was likely to entrench indolence. At the same time, Rougier expounded a sociological liberalism in the manner of Röpke and Rüstow and looking back to the Lippmann Colloquium. State intervention was permissible if it was in conformity with the free-price mechan ism. It was also permissible to assist the under-privileged and to provide certain infrastructure and services, according to the principle of subsidiarity (Steiner 2007: 90). Rougier supported state intervention in the forms of social insurance, social services, education, and scientific research (Denord 2001/2002: 24–5). However, Rougier’s engagement with the Mont Pèlerin Society came at a time when its intellectual mainstream had already shifted away from the sociological Ordo-liberalism that was to be found at its early meetings in the late 1940s and at the Lippmann Colloquium in 1938. Rougier remained an isolated figure there, speaking to its old rather than its new agenda. Strikingly, Allais and Rueff were the main defenders of Rougier’s reputation later in his career. Allais (1990: 18–19, 34) argued that Rougier was neither a nationalist nor a racist. He noted that René Courtin, the Resistance leader and economist, believed that Rougier had no case to answer. Allais quoted Rueff ’s conviction that Rougier was ‘probably the most liberal of all our philosophers’ (ibid.: 36). This defence did not, however, succeed in rehabilitating Rougier in French intellectual circles.
The Problems of French Liberalism The post-war decline of conservative liberalism—as evidenced in the reputations of Rougier and Rueff—was part of a wider setback for economic liberalism in
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326 Conservative Liberalism, Ordo-Liberalism, and the State France. France could trace its liberal tradition back to the Physiocrats of the eighteenth-century, pre-Revolutionary period. François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–81) had attacked the mercantilist protection that had evolved earlier under Colbert. Their advocacy of the laissez-faire state, individualism, and free trade found an echo in the nineteenth-century political economy of Say and Bastiat (2005/1845). This liberal tradition had retained a presence amongst political Radicals of the Third Republic. However, viewed from the perspective of the 1960s, economic liberalism seemed in decline in both its laissez-faire and conservative/disciplinary variants. According to the French liberal economist Daniel Villey (1964: ii, author’s translation): ‘It seems obvious to us [in France] that the market economy is no more than a museum piece, a past system, an outdated historical category’. He noted that economic liberalism was being used in the past tense in French and in the present and future tenses in German. François Bilger (in 1986), Rougier (in 1962 and 1970), Rueff (in 1960), and Villey (in 1955) were the only French liberals to publish in the German ORDO Yearbook. The problem was compounded by divisions within French liberalism, which had their roots in the complex and fragmented French political tradition. For conservative liberals like Rougier and Rueff, the challenge was to reconcile liberty with order. Their attachment to the Orleanist tradition—with its fears of anarchy and disorder—made for difficulties in developing common positions with laissezfaire liberals, who appealed to individual liberty as the absolute value within the French Revolutionary tradition (Audier 2012b; Denord 2009).
Maurice Allais The Nobel Prize-winning economist Allais did not fit easily into any of the groupings within French liberalism. However, he shared many of the attributes of conservative liberalism as advocated by Rougier and Rueff. He steadfastly opposed laissez-faire liberalism, as the cause of ‘unbearable misery and injustice’, as well as ‘dictatorial’ planning with its discretionary intervention in economic affairs (Allais 1950: 32). In its place, Allais (1949) advocated ‘competitive planning’ (planification concurrentielle). This concept attempted to reconcile ‘the advantages of the market economy with those of conscious action by the state according to a plan aimed at realising an economy that was both more effective and more just’ (Allais 1947: 1, author’s translation). The key to Allais’s thinking was the organized competitive economy, very similar to Rueff ’s concept of the ‘institutional market’ (Allais 1959, 1978). Allais identified himself as a social liberal, in a manner close to Rüstow, the German sociological Ordo-liberal. Like Rüstow, he advocated hefty inheritance taxation. He also looked to the strong state with the authority to control
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 327 monopoly profits and to tax unearned income (Allais 1949). Allais’s thinking remained ideologically distinct in being centre-Left in inspiration. He did not sign the statement of aims of the Mont Pèlerin Society because he judged it to be too individualistic in its approach to property rights. Nevertheless, Allais strove to unite French liberals and sought to make common ground with Rougier, especially in the period from September 1945 to July 1947. At the time of the Liberation in 1944–5 he met with Rougier in the context of the Economic and Social Research Group (Groupe de Recherches Economiques et Sociales, GRECS), which Allais co-founded. Rougier gave two papers to this group: one on reform of the constitution and safeguarding basic rights. On 7–8 February 1959 Allais organized the conference for a free society (Colloque pour une societé libre), at which Rougier presented his manifesto for a liberal society (Allais 1990: 14). However, the event failed to generate the liberal movement for which Allais, Rougier, and Rueff had hoped. Allais’s argument for a liberalism with state intervention revealed once again the difficulties in getting French lib erals to work together, despite the obstacles they faced.
Catholic Social Thought and the Engineer-Economists Conservative liberals like Rueff had found themselves embattled in the 1930s. After 1945 they experienced even greater isolation and exclusion, for instance in debates about monetary policy (Chivvis 2010; Minart 2016: 212). The Fourth Republic was built on very different foundations of political economy from those of the Third Republic. Catholic social thought had been rejuvenated—if only temporarily—by wartime experience. It advocated a corporatist organization of the economy; prioritized generous social provision for the many poor and needy; and shifted to the Left (Villey 1955). However, from the 1950s the influence of Catholic social thought on economic policy declined (Almodovar and Teixeira 2008). The post-war renaissance of the French engineer-economists proved far more important. They brought a logical and mathematical mind-set to the modernization of France through national accounting, planning, and strategic intervention. This model of modernization was to serve as the great mobilizing, elite-driven project after the humiliating defeat of 1940. The engineer-economists were to play a powerful role in the grands projets that were associated with modernization as a unifying myth. They were to give French political economy its distinctive character. On the one hand, French political economy became strongly state-centric, technocratic, and Keynesian; on the other, it was pragmatic in focusing on prac tical problems. The leading engineer-economists were practitioners; statesmeneconomists rather than the philosopher-economists who prevailed in German Ordo-liberalism (Audier 2012b: 227).
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328 Conservative Liberalism, Ordo-Liberalism, and the State The post-war engineer-economists were a distinctive product of the French elite training system. Their institutional centre of gravity was the École Polytechnique and the advanced training schools of the elite technical corps, where their training in economics focused on mathematical and statistical approaches. They carried forward the debates that had begun in the X-Crise group from 1931 and in other groups of modernizers. X-Crise comprised former students of the Polytechnique like Jean Coutrot, Maurice Lacoin, and Jules Moch (Dard 1999). Mostly on the non-Marxist Left, the engineer-economists looked back to the science-based vision of Henri de Saint-Simon (1760–1825) for inspir ation and legitimacy. Their diagnosis of the crisis of the 1930s emphasized the inadequacies of Classical economic liberalism in dealing with market imperfections and the transmission of market failures through complex interdependencies. This diagnosis influenced their approach to post-war reconstruction. The engineer-economists shared a dedication to strengthening the productive capacity of France through a technocratic, state-led administrative structure of national indicative planning, industrial policy, and dirigiste intervention (Kuisel 1984). Their rationalist, top-down approach to modernization made them sympathetic to Keynesianism, national accounting methodology, econometric modelling, and industrial concentration, themes popularized by the economist Jean Fourastié (Rosanvallon 1989). The state had to target intervention at key nodal points in the complex system of interdependency in the market economy and, where appropriate, encourage processes of concentration. This approach distinguished them from German Ordo-liberals, from French disciplinarian liberals like Rueff, as well as from libertarian economists in the French universities (Commun 2016). The ideological milieu of the engineer-economists remained essentially left of centre and broadly Saint-Simonian. They sought inspiration in figures like Jean Monnet, a leading architect of European integration, and Pierre Mendès-France (Brun 1985). In part because of the strategic institutional position of the engineereconomists, there was to be no French equivalent in conservative liberalism to the Freiburg School in Germany. French conservative liberals emerged from the 1930s and the wartime years of the Vichy Regime with a tainted reputation. In contrast, the engineer-economists were institutionally embedded in the state elite training schools, the technical corps, and senior administrative roles. They were imbued with a sense of mission: revitalizing post-war French power through state action. There was no ‘Rueff school’ to rival the ‘Eucken school’. There was no French version of Erhard, though some liberals looked back to Turgot as the model of a liberal statesman-economist (Bilger 2003: 28; Commun 2016). The French liberals who most closely identified themselves with German Ordo-liberalism were Bilger, Rougier, and Rueff. At the Mont Pèlerin meeting in 1967, Bilger and Rougier made explicit their identification with Ordo-liberalism in their papers for the session on the fundamental constitutional problems of
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 329 liberalism (Steiner 2007: 92). Bilger advocated ‘intelligent constitutionalization’ of economic policy to establish and safeguard a liberal order. The challenge was to democratize economic rights in a spirit of solidarity (ibid.: 91). Rougier’s outline of the seven conditions for an ‘institutional order of the market’ placed him close to sociological Ordo-liberals like Röpke (ibid.: 90; Rougier 1967). Much earlier, Rueff began championing monetary reform and economic liberalism on the model of German Ordo-liberalism. He criticized the French state for failing to take the Ordo-liberal path (Rueff 1953a, 1953b; Chivvis 2010: 130–1). Rueff was closest to Röpke (see letter of Röpke to Rueff, 16 July 1952, in Röpke Papers, Institute for Economic Policy, Cologne University).
The French Stabilization Tradition: Charles Rist, Jacques Rueff, and Raymond Barre and the ‘Hard Franc’ The strength of post-war opposition to conservative liberalism was exhibited as early as 1945 when the minister of economics, Mendès-France (1907–82), proposed a radical anti-inflationary stabilization plan to address the severe indebtedness of France. However, de Gaulle supported the finance minister, who pointed to the strength of cross-party and finance ministry opposition and to potentially adverse electoral consequences. Mendès-France resigned. The opposition to rad ical stabilization was later evident in the scale of the opposition to the agenda of fiscal rigour, liberalization, and credit policy reform that Rueff advocated in the early years of the presidency of de Gaulle. Nevertheless, despite the problems of French liberalism in general, and often intense institutional and political opposition, French conservative liberalism reasserted itself in times of crisis. French political economy retained a distinct, if marginalized, stabilization tradition that centred on addressing the causes of monetary and financial disorder. This tradition drew inspiration from certain economists and monetary officials, notably Colson at the École Polytechnique, Rist at the Banque de France, Rueff, and later Raymond Barre. It found expression in various landmark stabilization plans: the Poincaré Plan of 1926; the Reynaud sta bilization of 1938; the Pinay Plan of 1952; the Pinay-Rueff Plan of 1958; the Armand-Rueff report of 1960; and the Barre Plan of 1976. Rueff was involved with the first five of these plans. His ‘notes for the minister’ between 1934 and 1938 revealed his continuing battle against what he termed demagogic and extravagant policies, fought from his ‘sanctuary’ in the finance ministry (Minart 2016: 116). The French stabilization tradition was distinguished by its own form of histor ical memorizing. Its supporters looked back to the dramatic events of 1924–6 and to the subsequent monetary and financial stabilization reforms of 1926–8, during the premiership of Poincaré. The main intellectual contribution had come from
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330 Conservative Liberalism, Ordo-Liberalism, and the State Rist and his former pupil Pierre Quesnay (1897–1937), both at the Banque de France. The stabilization reforms committed France to the discipline of a return to the gold standard, whilst seeking ways to avoid outright deflation by linking stabilization to a depreciation of the franc. Rueff (1925) had already developed a tough approach to stabilization. Following his involvement with the 1926–8 reforms as a member of Poincaré’s personal cabinet, he continued to have close personal links to Rist (Chivvis 2010: 62–3; Minart 2016). Later, in the 1930s, from his position at the heart of the French state, Rueff used letters and memos to various ministries to spread his message of financial discip line. The fundamental fear that haunted French thinking in the Banque de France and the Trésor during this period was of a return to the situation in 1924–6 (Jackson 1985: 14–15). This fear was dramatized in popular newspapers like Le Figaro and in various journals. In 1938 under finance minister Reynaud, Rueff provided the guiding principles of the stabilization programme (Minart 2016: 108–13). Notably, given his later involvement in the 1958–9 stabilization, he worked in 1938 alongside Maurice Couve de Murville in the Trésor and Michel Debré who was then in the prime minister’s office (ibid.: 111–13). Forty-two decrees to liberalize the economy were issued in November 1938. During the Fourth Republic, the stabilization tradition found its main political expression in the National Centre of Independents and Peasants (CNIP), a conservative-liberal party. The CNIP advocated an ‘anti-ideological’ stabilization programme. For a period in the 1950s, it recruited the support of Rueff, who formed close links with its leading politicians, above all Antoine Pinay (1891–1994). Pinay and Rueff shared a conservative-liberal mind-set (Minart 2016). As prime minister and finance minister in 1952, Pinay pushed through a stabil ization plan to rein in inflation. However, to the disappointment of Rueff, Pinay was excessively cautious in pressing for reforms. He lacked the qualities of heroic leadership that Rueff was to identify in de Gaulle who was more prepared to confront vested interests where they could be shown to stand in the way of his conception of French grandeur (Jackson 2018: 638–9). The collapse of the Fourth Republic in 1958, the appointment of de Gaulle as president, his massive referendum victory, the successful parliamentary elections, and his temporary power to legislate by ordinance opened a new opportunity for Rueff. Rueff made active use of this opportunity in 1958–9 and continued to attempt to align his stabilization agenda with de Gaulle’s ‘idea of France’ up to his resignation from the presidency in 1969. During this Gaullist period his involvement centred on the Pinay-Rueff Plan, the Armand-Rueff report, and later as a visiteur du soir and unofficial advisor to the president. De Gaulle and Rueff had much in common. Their conception of leadership as about more than ‘mechanic ally organized intelligence’ drew inspiration from Bergson (Jackson 2018: 83). They were unorthodox rebels in their different institutional milieus. They believed that—through a combination of intelligence, instinct, and impulse—man could
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 331 shape history. Also, they both drew from their shared experience of the fragility of liberty the lesson that society needed strong, stable institutions (Minart 2016: 207–9). The difference was that de Gaulle had a less fixed set of economic beliefs. He retained a profound mistrust of a priori thinking. De Gaulle’s approach to economic policy was essentially tactical. He would adopt and resolutely pursue whichever ideas best served his conception of French grandeur and independence (Jackson 2018: 566–7). De Gaulle was fundamentally a conservative nationalist, whose economic thinking blended liberal Catholicism, social Catholicism, and an ascetic stoicism that he had imbibed from his family and educational background. In the 1960s de Gaulle was to shift away from his early enthusiasm for Rueff and to embrace the idea of modernization through national planning and strategic intervention (ibid.: 637–41). Rueff ’s opportunity stemmed from de Gaulle’s early determination on returning to power in 1958 to respect the deadline for implementing the Treaty of Rome without invoking an opt-out clause. Getting rid of France’s high tariff barriers threatened potential disaster in an economy burdened by high inflation, budget deficits, and huge balance-of-payment deficits. De Gaulle recognized that tough domestic reforms were required and soon discovered that his new finance minister, Pinay, was reluctant to act boldly. On 10 June 1958 Rueff sent Pinay a note on ‘a programme for economic and financial reform’. The aim was to cure France of the ‘demons’ of inflation by the restoration of a stable French currency. Rueff referred to his experience of stabil ization programmes in Bulgaria, Greece, and Portugal under the League of Nations in 1927–8 (Rueff 1977: 64). However, Pinay reacted cautiously. The catalyst for what became the Pinay-Rueff stabilization plan of December 1958 came from the cabinet of president de Gaulle. Pinay favoured a more limited operation. Rueff coordinated the work of the Pinay-Rueff committee, which met thirty-nine times. The Pinay-Rueff Plan of November 1958, which Rueff drafted, had three objectives: to stabilize the budget; to consolidate the currency; and to prepare France for competition in a more open economy with the new European Economic Community (EEC), established in 1958. Its first draft opened with words that were calculated to appeal to de Gaulle: ‘This programme cannot be that of a group or a party but only that of all the French who want their country to continue to exist’ (Rueff 1972: 153–4, author’s translation). Rueff faced huge opposition from the finance ministry, the Banque de France, French employers, and the trade unions. The plan, which centred on a new stable French franc, was attacked as socially unjust, deflationary, and uncertain of success. It faced ‘profound hostility from ministers’ who regarded it as a high-risk political strategy (Jackson 2018: 502). Farmers and veterans were protected by powerful lobbies and were amongst the hardest hit. Pinay was far from enthusiastic. The impasse was only broken when de Gaulle, who was greatly impressed by Rueff ’s defence,
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332 Conservative Liberalism, Ordo-Liberalism, and the State threatened to resign if the plan was not adopted by the government (Chélini 2001: 119). De Gaulle could intervene decisively because the Algerian crisis had created a sense that he was indispensable at a time of national emergency and because a brief window of opportunity existed to govern by ordinance. The circumstances were, in short, exceptional (Jackson 2018: 503). The Pinay-Rueff Plan was one of the main projects of de Gaulle’s new presidency, all of them designed to shore up France’s power on the world stage. In his press conference the president justified the stabilization plan of December 1958 in disciplinarian terms: ‘Without an effort to put our house in order . . . we will trail behind, oscillating perpetually between drama and mediocrity’ (Institut Charles de Gaulle 1988). Conservative liberalism was harnessed to de Gaulle’s pursuit of ‘grandeur’ and independence. However, the Pinay-Rueff Plan was the high point of Rueff ’s influence. Thereafter, the main centre of power was the Elysée advisors. The prime minister, Georges Pompidou, and the finance minister, Valéry Giscard d’Estaing, were less sympathetic to Rueff. On 10 June 1959 Rueff sent a note to Pinay on ‘some necessary reforms’, calling for comprehensive structural reforms and reforms to credit policy. Having received no reply, on 20 August he wrote a long letter to de Gaulle, complaining about the loss of zeal for reforms since December 1958. The Armand-Rueff committee was established under the presidency of the prime minister, Debré, with Rueff and Louis Armand as the two vice-presidents. Once again, the guidelines emanated from Rueff. However, to Rueff ’s frustration, credit policy was excluded as a matter for the Banque de France. The Armand-Rueff report (1960) on the obstacles to economic growth outlined an extraordinarily ambitious liberalization programme to prepare the French economy for the challenges of European integration. It provided an inventory of the rigidities in the French economy, including the sources of blockage to growth, the distortions to costs and prices, and the mentalities and behaviour that were inimical to change (ibid.: 13–20). Emphasis was placed on pressure groups whose actions misunderstood the requirements of the general interest (ibid.: 23–4). The advice and recommendation were very detailed (ibid.: 31–91). There were proposals dealing with employment and working time; with administrative reform; and with the ‘closed’ trades and professions, including lawyers, chemists, bakeries, taxis, shipbrokers, and flour-milling. The Armand-Rueff report anticipated the debates that were to recur across the next decades and into the twenty-first century. Given the scale of opposition, it was to be more a moral than an operational reference. The supporters in the Gaullist government in 1959–61 were relatively few. The most important were Couve de Murville, the foreign minister, and Jean-Marcel Jeanneney, the industry minister. Couve de Murville was a protégé of Rueff and a former colleague in the Trésor. Jeanneney was an economist and had been a member of the Pinay-Rueff
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 333 committee. Later, in November 1968, he was important in helping persuade de Gaulle to resist calls for the devaluation of the franc. Rueff estimated that only 25 per cent of the reforms proposed in 1958–61 was implemented (Minart 2016: 249). The French stabilization plan of 1963 was another example of de Gaulle’s intervention against the wishes of his prime minister and finance minister. However, it owed less to Rueff, who wrote directly to de Gaulle on the need for anti-inflationary measures, than to lobbying by his Elysée staff. The biggest failure was in credit policy where he had faced strong opposition from Wilfrid Baumgartner, the governor of the Banque de France. Their rivalry went back to their time in the Trésor in the 1930s. Rueff regarded Baumgartner as superficial and lax in credit policy; Baumgartner complained that Rueff was out of touch with reality. In a speech in December 1961 Rueff pressed for radical reform to create a large money market, stressing the danger of a return to inflation (ibid.: 212). He conceived of credit policy reform as the third pillar of his stabilization plan. However, he was blocked by the Banque de France, which on this occasion was protected by president de Gaulle. Between 1963 and 1969 Rueff ’s influence took the unofficial form of a visiteur du soir to president de Gaulle. His most influential contribution was his critique of the international monetary system—the so-called Bretton Woods system which turned the US dollar into the privileged reserve currency—and of the lax policies of the US administration—exporting inflation to the rest of the world by printing dollars. In a press conference on 4 February 1965 de Gaulle took up Rueff ’s plea for a return to the gold standard (Fabra 1993). Rueff ’s critique provided the president with a useful tool to challenge the United States’ monetary hegemony. However, de Gaulle was less concerned with Rueff ’s economic analysis than with his own political analysis of the problem of American financial leverage. Rueff ’s thinking faced opposition from the prime minister, Pompidou, and the finance minister, Giscard d’Estaing. The stabilization tradition resurfaced with the breakdown of the Bretton Woods system in 1971–3 and international monetary cooperation, the oil crisis, the ominous combination of inflation with stagnation and rising unemployment, and further signs of the deterioration of France’s economic performance relative to Germany. Its main representative during this period was Barre; its main landmarks the Barre Plan of 1976 and the negotiation of the European Monetary System (EMS) in 1978–9. Barre was a well-known and respected university economist, who had written a major textbook on economics in the 1950s. He had also served as the European commissioner for economic and financial affairs during the first debate about the launch of economic and monetary union (EMU) before, during, and after the Werner report of 1970 (on which Dyson and Featherstone 1999: 99–112). Barre’s appointment by president Giscard d’Estaing as both prime minister and finance minister in 1976 was welcomed by conservative liberals amongst senior
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334 Conservative Liberalism, Ordo-Liberalism, and the State officials. He worked closely with de Larosière, director of the Trésor and previously head of Giscard d’Estaing’s private office, as well as with Bernard Clappier, governor of the Banque de France. Despite an eclecticism in his sources, Barre’s approach rested on a set of principles that were classically conservative liberal: combating inflation, bringing down public debt, embracing a firm external anchor, avoiding devaluation, pursuing structural reforms, and taking a longterm inter-generational view on economic policy (Boissieu 2010: 21–5). Barre’s period in office coincided with the EMS negotiations and France joining the European Exchange Rate Mechanism (ERM). He was a firm believer in fixed exchange rates and saw the ERM as a valuable disciplinary device. The ERM was a belated response to the collapse of the Bretton Woods system, in French eyes a ‘Bretton Woods for Europe’. Subsequent crises of the French franc within the ERM, notably in 1983, led to a renewed strategy of rule-based stabilization. It took the form of the ‘hard franc’ (franc fort) policy, underpinned by fiscal and monetary ‘rigour’ (rigueur), by competitive disinflation, and by measures to create a large money market—measures that Rueff would have welcomed (Dyson and Featherstone 1999: 147–51). The ‘hard franc’ was to become the chief symbol of French commitment to stabiliza tion under the governments of president François Mitterrand (1981–95) and president Jacques Chirac (1995–2007). It was designed to strengthen France’s bargaining power internationally and vis-à-vis Germany within Europe (ibid.). Historical memorizing of the stabilization tradition proved easier for those on the Right. They could look back to Poincaré, Rist, Rueff, and Barre. Its memorizing by the Left was much more problematic. It was possible to point to MendèsFrance in 1944–5—along with his friend and advisor Georges Boris (1888–1960)—and his resignation as economics minister because of the unwillingness of de Gaulle’s post-Liberation government to tackle inflation by a policy of rigour and discipline. Mendès-France and Boris had advocated a democratic socialism that was founded on monetary stabilization alongside state planning and intervention according to Keynesian principles. However, the dominant memorizing on the Left focused on the harsh economic, social, and political consequences of the collapse of the ‘Cartel of the Left’, in the face of the far-Right riots of February 1934, and on the ‘gold bloc’ policy and savage deflation in 1934–6. Advocacy of stabilization through discipline and rigour was associated with the collapse of the Popular Front government and the accusation that it had been engineered by the economic and financial establishment, notably the Banque de France. To add to the Left’s problems with stabilization, conservative liberals could not claim a heroic role in the French wartime resistance. For the Left, as for the Right, rehabilitating stabilization was primarily framed as a response to threats to French power. These threats were pictured as originating, externally, from Anglo-Saxon financial capitalism and from German economic liberalism and, internally, from Marxist Left political economy. The ‘hard’
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 335 franc was viewed as an instrument for strengthening French negotiating power on the European and international stages. This argument for stabilization from national interest gathered momentum with the widening scope and deepening of European economic integration from the 1980s, including the rolling-out of the single-market programme and EMU. It gave rise to a powerful elite-driven narrative that endured to the final launch of EMU in 1999. This French variant of conservative liberalism was domestically contested but justified at elite levels as an essential precondition for gaining German agreement to monetary union (Dyson and Featherstone 1999). It meant French endorsement of institutional arrangements and rules that many considered to breach republican tradition: central bank independence, the primacy of price stability, binding fiscal rules, and provisions to protect against collective risk-sharing. EMU—as it emerged in the Maastricht Treaty in 1991—corresponded more closely to the kind of European integration envisaged by Rueff than by either Keynesian-minded or libertarian French economists. Interconnected European and domestic policy developments seemed to have reversed the situation that had been described by Villey in 1964. Economic liberalism seemed no more a ‘museum piece’ in France. France had imported economic liberalism, mostly on German Ordo-liberal terms. These terms would have been welcomed by Rueff, who from the 1950s had criticized the failure of the French state to take the German Ordo-liberal path (Chivvis 2010: 130–1). However, intellectually and ideologically, there remained a deep distrust of conservative liberalism within France. This distrust surfaced in the domestic critiques of the Maastricht Treaty, the SGP, and the euro area fiscal compact treaty, spilling over into a wider critique of the EU as a ‘neo-liberal project’ rather than a social project. These critiques were to be found in different forms amongst French technocratic engineer-economists, the socialist Left, the far Right, and libertarian French university economists. The eminent French philosopher Pierre Bourdieu (1996) exemplified the critique from the Left. In an interview he attacked German insistence on a strict interpretation of the convergence criteria for entry into the final stage of EMU as the death-knell for social Europe. After 2009, the euro area crisis intensified French calls for new institutional frameworks to flank monetary union: fiscal union, including a counter-cyclical euro area budget; banking union; capital market union; and the construction of a safe euro area asset. Fear grew that monetary union was locking Europe into a vicious cycle of over-saving (by Germany), low wages, and insufficient domestic demand. By 2018 populist mobilization against conservative liberalism had not reached the proportions evident in Italy. Nevertheless, feelings of political disenchantment, resignation, and cynicism, directed against domestic elites and against the EU, had gathered momentum. The triggers that had empowered conservative liberalism in France since the 1980s had become objects of public resentment, anger, and outrage. These negative feelings were channelled into the electoral gains
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336 Conservative Liberalism, Ordo-Liberalism, and the State made by the National Front of Marine Le Pen and by Jean-Luc Mélenchon on the Left in the French presidential elections of May 2017 (Lechevalier 2017: 23). Mélenchon targeted the Ordo-liberal credo. The attempts of some conservativeliberal elements in the Republican party (Les Républicains) to present themselves as Ordo-liberal did not prove an electoral advantage.
Conservative Liberalism in Italy Costantino Bresciani-Turroni and Luigi Einaudi were the two leading conservative liberals in Italy, and both were closely involved in post-war reconstruction (Bini 1992; Costabile 2010; Faucci 1986; Giordano 2006b). They were deeply immersed in the literature of European political economy. Bresciani-Turroni was very familiar with German economic thought and practice. His studies in Germany gave him an intimate knowledge of the German hyperinflation of 1923 and its consequences. He became a strong advocate of the view that inflation was a monetary phenomenon that required domestic control of credit and money supply, a position like that of Walter Eucken in the 1920s (Bresciani-Turroni 1937; Bini 1992). In contrast, Einaudi was a more eclectic liberal economist who drew prolifically on English, French, and Scottish as well as Italian sources (see Einaudi 1942a). He began to engage actively with German Ordo-liberal literature only late in his career, in 1942 at the age of sixty-eight. Einaudi’s contribution to Ordo-liberalism lacked the originality of his friend Wilhelm Röpke. It was, however, important because he was the ‘star’ Italian economist of his generation. Also, Einaudi’s engagement with Ordo-liberalism coincided with the crucial foundation years of the new post-war Italian Republic and the early years of reconstruction. During this period, he published volumin ously and was very active in public debate and politics. He found in Ordoliberalism the inspiration to flesh out his thinking on a new, renovated, liberal, and more truly united Italy—the second Risorgimento (e.g. Einaudi 1945, 1977/1944, 2010/1944). In seeking a rejuvenated post-war national unifying myth, Einaudi looked once again to the model of Adam Smith as moralist and historian, and not just as economist (Forte and Marchionatti 2012). He characterized his theory of economic policy as one of ‘good governance’ (Buongoverno). ‘Good governance’ had to be founded on discipline. According to Einaudi (2010/1944: 275, author’s translation): ‘Without discipline, civil society cannot exist; what basically are the civil code, the penal code, the commercial code if not a system of discipline?’ Röpke’s (1942) thinking about the ‘third way’ between laissez-faire liberalism and collectivism struck a chord with the Christian humanism that Einaudi shared with many Italian intellectuals. His writings offered an opening for Einaudi— along with the journalists Panfilo Gentile (1889–1971) and Ernesto Rossi
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 337 (1897–1967)—to re-examine ethical liberalism as a unifying civil religion for a new post-war Italy. Röpke suggested a way in which the liberal market economy could be reconciled with the moral values that derived from Classical philosophy, the Renaissance, and Christianity. These humanistic values were already deeply embedded in Italian intellectual life. Einaudi’s thinking evolved in a way that corresponded closely both to Röpke’s economic humanism and Alfred MüllerArmack’s concept of the social market economy (Felice 2008; Forte 2009; Forte and Felice 2010). For Einaudi (2010/1944: 68), the fundamental purpose of the renovated liberalism was ‘the perfectionism, the elevation of the human person’. This definition went beyond the notion of the individual economic agent. The market mechan ism worked with ‘admirable perfection’. However, it was an impassive tool, insens ible to justice, morals, and charity, all of which are human values (Einaudi 1977/1944: 182).
Bresciani-Turroni: Lesson-Drawing from Germany Bresciani-Turroni was influenced by his legal and economic studies in Padua with Achille Loria. Loria (1902) was then at the height of his popularity and author of a book on the ‘economic foundations of the social constitution’. He drew the attention of Bresciani-Turroni to the ‘historical economics’ of Germany and to the importance of examining the economic order in the context of morality, law, and political institutions. German influences were reinforced when he went to study economics in Berlin with Gustav von Schmoller and Adolph Wagner in 1903–5 (Bini 1992). He became an expert on German monetary and economic problems, including the hyperinflation of 1923 (Bresciani-Turroni 1937). Bresciani-Turroni (1942, 2006/1945) did not make use of German Ordo-liberal sources in his two major books. Nevertheless, there was an affinity between his ethical liberalism and that of the German Ordo-liberals. He adopted a construct ivist approach to the competitive market economy. The competitive market order required a legal order managed by the state. Like Einaudi, he rejected the Austrian view of the competitive market as a natural, self-correcting phenomenon (Bini 1992: 184; Bresciani-Turroni 2006/1945: 83–4). The state had to challenge monopoly power. It also had to ensure monetary stability; to favour a prosperous middle class and small and medium-sized enterprises; to promote savings; to intervene on behalf of social goals, like reducing inequality through inheritance tax, in ways that did not interfere with the price mechanism; to ensure an equal distribution of ‘sacrifice’ in economic adjustment; and to ensure educational and cultural enhancement. Bresciani-Turroni looked to the state to provide economic prosperity and human flourishing.
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338 Conservative Liberalism, Ordo-Liberalism, and the State
Einaudi’s Re-Examination of Ethical Liberalism From the 1930s, during fascist rule, Einaudi had begun to re-examine and systematize the philosophical foundations of his liberalism. This process led him to place a stronger emphasis on the indispensable humanistic and moral basis of a liberal order; to stress the vital role of the competitive market order in securing individual rights; to critique the self-sufficiency of the market as an adjustment mechanism; to justify limiting market processes where they threatened the fundamentals of a liberal society; to argue for the kind of political elite that would use the state as an agency of moral improvement by diffusing liberal ideas; and to emphasize the role of intermediary institutions like provinces, local authorities, neighbourhood bodies, and churches in activating civil society (see his corres pond ence in Luigi Einaudi-Ernesto Rossi 1988; Einaudi 1942a: 56–7, 1946: 135–40; Faucci 1986: 307; Giordano 2010: 320). In a way that echoed the earlier radicalism of Loria (1902), Einaudi attacked plutocracy, monopoly privileges, and the large estates. He sought to commit the new post-war Italian Liberal Party (Partito Liberale Italiano, PLI) to decentralize power, to strengthen small and medium-sized firms, to encourage saving, and to spread property ownership (Einaudi 1945). By these measures, Einaudi hoped to promote a new economically independent class that would support the ‘third way’. The strength of his convictions was evident in the Constituent Assembly in 1947. Einaudi denounced the barriers to competition in Italy. However, his proposal for an anti-monopoly clause in the new constitution was rejected. Five factors helped to stimulate Einaudi’s re-examination of liberalism. First, the tightening grip of Italian fascism led him to redirect his work to the safer ground of the history of economic thought. Under the veil of history, he could address contemporary issues like protectionism and corporatism (Chartier 1989: 259). Eventually, in 1943–4, Einaudi fled—old and sick—to Switzerland, where he met, and deepened his friendship with, Röpke whom he had first encountered in 1923 (details in Faucci 1986: 315–29; Giordano 2006b: 148–67; also Hennecke 2005: 141). A second factor was the prospect that the Italian Communist Party would make big electoral gains in post-war Italy and prove the enemy of a genuine liberal order. It was necessary to prepare for post-war polit ical struggles by crafting a new national unifying liberal mythology. Third, Einaudi was led to reflect about the foundations of liberalism by his long debate in the 1930s with the eminent Italian philosopher Benedetto Croce (Luigi Einaudi-Benedetto Croce 1988; also Faucci 1986: 294–302). Einaudi (1954/1931, author’s translation) rejected Croce’s view that a liberal society could exist without a liberal economic order: The historical conception of ‘economic liberalism’ affirms that liberty cannot exist in an economic society that does not know a rich and varied flourishing of
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 339 individuals living according to their own virtues, independent of one another and who are not required to submit to a single will.
On this essential point, Röpke supported Einaudi in a letter of 17 November 1943 to Croce: a liberal economic order was an indispensable foundation of the kind of society in which all three of them wished to live (Röpke Papers, Institute for Economic Policy, Cologne University). The Italian philosopher Carlo Antoni, a disciple of Croce, embraced the position of Einaudi and was to become one of the most dedicated supporters of Röpke in Italy and one of Röpke’s most prolific correspondents (see correspondence in ibid.). A fourth stimulus to Einaudi’s reflections on liberalism was his reading of Röpke, especially his Die Gesellschaftskrise der Gegenwart (1942) and Civitas Humana (1944). Einaudi had been in close correspondence with Röpke since 1934 and remained so until 1961 (see the Röpke file in the Historical Archive of the Fondazione Luigi Einaudi, Turin; also Giordano 2018). He took a close interest in the publication of the 1942 book in Italian by his son’s publishing house and gave it a long and enthusiastic review (Einaudi 1942a). Later, Einaudi invited Röpke to speak at PLI meetings and continued to promote his thinking about a ‘third way’ between laissez-faire liberalism and collectivism (e.g. Einaudi 1948). The extensive correspondence between Einaudi and Röpke reveals their many shared views: their discomfort with American hyper-capitalism, with its commercialization of society and standardizing effects; their critique of positivism and the dehumanization of economics; their doctrine of the indivisibility of economic and political liberalism; their concern about centralized power; their respect for the aristocratic liberalism of Burckhardt and Le Play; their aversion to the ‘creditinflating’ tendencies in Keynes’s work and to president Roosevelt’s experimentalism; and their uncompromising opposition to communism (see Einaudi Papers, Historical Archive of the Fondazione Luigi Einaudi, Turin and the Röpke Papers, Institute for Economic Policy, Cologne University; also Faucci 1986: 300–2). The consistency of thinking between Einaudi and Röpke was apparent as early as 1931 in their reflections on the origins and nature of the Great Depression. They stood for a middle way between Hayek and Keynes (Magliulo 2012: 165, 2013). Both rejected as too simplistic Keynes’s interpretation of the Great Depression as a problem of over-saving (Einaudi 1933; Röpke 1936, 1937). In Einaudi’s view, the Great Depression was caused by over-investment—his point of agreement with Hayek and the Austrians. However, it had degenerated into a crisis of over-saving and needed confidence-building measures by the state, including a public-works programme (Einaudi 1931: 36–7). Röpke had arrived at a similar conclusion whilst working for the Brauns commission on unemployment in 1931 (see Chapter 11: 381–2). Einaudi and Röpke rejected the fundamentalist faith of Hayek and Mises in market self-correction. It was not enough to simply wait for deflation to do its work (Einaudi 1931; Röpke 1931, 1936).
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340 Conservative Liberalism, Ordo-Liberalism, and the State Crucially, however, Einaudi and Röpke saw these measures of reflation as a temporary, special case, not as the basis for a Keynesian general theory. BrescianiTurroni shared this view (Bini 1992; Magliulo 2012: 173–5). Opposition to Keynes was to be the fifth stimulus to Einaudi’s re-examination of the ethical foundation of the liberal order (Einaudi 1933). Keynes (1963/1930) had looked forward optimistically to a new world of leisure in which individuals would have the time to enjoy the art of life itself. This new world had been made possible by the long-term power of accumulation by compound interest. Einaudi’s response illustrated the moral tone in his economic thinking. He argued that: ‘Everything is precarious on this earth without work and without saving’ (Einaudi 1932: 46, author’s translation). In the absence of work and saving, wealth cannot be created or sustained. Einaudi identified in Keynes ‘scorn for those who toil and accumulate . . . That is why the average English person is right to feel disgust and rage after reading some brilliant pages of Keynes’ (ibid.: author’s translation). He regarded Keynes as brilliant but out of touch and superficial, as endorsing ‘the rogues who live off other people’s work’. For Einaudi, savings— made possible by work—were the key to escape from the crisis. Einaudi’s ethical liberalism was not grounded in the Lutheran and Kantian traditions that helped to shape the Freiburg School. It drew its principles from a Christian humanism, which took its inspiration from Classical philosophy, the Renaissance, the Enlightenment, and Catholic thought. With respect to the development of economic science, Einaudi saw the eighteenth-century Enlightenment as the key event (Einaudi 1942a; Chartier 1989). However, like Bresciani-Turroni, he was less concerned with strict adherence to rules than with whether the substantive outcomes of the economic order accorded with higher moral values (Parisi and Solari 2010; Solari 2017: 85). This position meant that Einaudi and Bresciani-Turroni were closer to the sociological Ordo-liberalism of Röpke and the social market economy of Müller-Armack than to Eucken. Like Röpke, they were more willing to abandon strict fiscal and monetary rigour in a deep selfreinforcing deflationary crisis (e.g. Einaudi 1931). Bresciani-Turroni (2006/1945) advocated cautious liberalization because he feared the effects of rapid deindustrialization on social balance. Doing the right thing to protect human dignity was more important than rule-observance (Einaudi 1942b). Economic liberalism had to be based on the moral principle of the material and spiritual flourishing of the individual.
Luigi Einaudi and Costantino Bresciani-Turroni: Post-War Reconstruction and Stabilization Einaudi enjoyed a personal authority, public presence, and longevity as a model economist in Italy that eclipsed Hawtrey, Knight, Rougier, and Rueff in their
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 341 respective countries. His eminence stemmed from his combination of roles: as an academic patron, a highly involved public intellectual with a gift for communication, a publisher and editor, a liberal activist, and a policy maker. From the 1890s to the 1930s he built Turin economics as the most prestigious school in Italy. Einaudi was involved in his son’s publishing company which published translations of Johan Huizinga in 1936, Lippmann in 1945, and Röpke in 1946. He commented profusely on contemporary issues in the newspapers La Stampa (1896–1902) and Corriere della Sera (1903–35), as well as in prestigious Italian journals. Einaudi enjoyed the support of active, philosophically minded liberal journalists like Gentile (1955) and Rossi for the advocacy of a ‘third way’. He was politically involved as an Italian senator and in helping to establish the PLI in 1944–5. Not least, Einaudi occupied the key post-war roles of first governor of the Banca d’Italia (1945–8), deputy prime minister and budget minister (1947–8), and second Italian president (1948–55). The measure of his public and inter national status was that—as with Croce—he was tolerated by the Italian fascists. Like Erhard in Germany, Einaudi understood the scale of the problem of economic ignorance in the building of a truly liberal and united Italy. For this reason, he attached enormous importance to the transmission of liberal economic know ledge through networks, institution-building, and not least the press (Chartier 1989: 258; Marchionatti, Cassata, Beccio, and Mornati 2013). The difficulty he faced was captured by Röpke (1961b): Was Luigi Einaudi, the great Italian economist and Christian who saved his country from ruin after the last war, not right when he once asked that all priests in Italy should be obliged to go through a course in economics?
Bresciani-Turroni was similarly a prestigious technical economist who was admired for his expertise in monetary policy, international economics, and statistics. However, in part because of his long exile in Cairo, he did not establish a school of thinkers in the manner of Einaudi or of Eucken in Germany. He was considered for various post-war roles: as Treasury minister in 1945; as an executive director of the International Monetary Fund; and as governor of the Banca d’Italia in 1948. Bresciani-Turroni gained none of these posts. Nevertheless, he played a prominent role as an unofficial advisor in the post-fascist monetary sta bilization process (Costabile 2010). Caution is required in assessing the degree of affinity between German Ordoliberal thinkers and the ethical liberalism of Einaudi and Bresciani-Turroni. Einaudi’s earliest and most enduring influences were not German but English, Scottish, and French liberal political thought and neo-classical economics (Chartier 1989; Faucci 1986; Einaudi 1942a, 1946, 1960). He was typical of the cultivated liberal intelligentsia of Piedmont. His aristocratic liberalism drew on Huizinga, Le Play, Charles de Montesquieu, and Alexis de Tocqueville, and his
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342 Conservative Liberalism, Ordo-Liberalism, and the State economic liberalism on the French Physiocrats and the Scottish Enlightenment (Forte 2009). At the same time, the correspondence between Einaudi and Röpke shows the similarity in their cross-national sources of inspiration and in their mind-sets. The nature of the conservative liberalism of Einaudi and Bresciani-Turroni was displayed in their attitudes to post-war stabilization and recovery. They shared the domestic ‘home-based’ approach. However, they differed in their diagnosis of the nature of the problem and in their prescriptions. In their earlier attitudes to the Great Depression, they had—like Röpke and unlike the Austrians—shown a sensitivity to the outcomes of economic and monetary policies. Both had argued that, in exceptional circumstances of self-reinforcing depression, counter-cyclical measures were necessary to soften the social costs of painful economic adjustments (Bini 1992: 184; Magliulo 2012). In 1945–6 Einaudi advocated an orthodox ‘home-based’ stabilization through fiscal balance, sound monetary policy, and disciplined credit policy of the banks. He argued that controlling the ‘ghost’ of inflation would reverse the Italian competitiveness problem and thus solve the balance-of-payments problem (Barucci 2008; Faucci 1986: 348–56). In contrast, Bresciani-Turroni argued for a gradualist and ‘governed’ approach to reconstruction. He identified the competitiveness problem as structural; pointed to the depth of the domestic problems; emphasized the acute shortages; and stressed the dangers of the premature dismantling of protective measures and of a disorderly opening of foreign capital flows. Too strong an emphasis on tight monetary policy, credit restrictions, and public expenditure cuts would precipitate deflation and lead to accusations of the unfair distribution of the ‘sacrifices’ of adjustment. Devaluation was to be preferred to deflation, which in the context of structural problems would prove ineffective and socially ‘painful’. BrescianiTurroni saw a necessary bridging role for foreign aid and credit in financing the external deficit. A gradual policy of trade liberalization and exchange-rate stabil ization was required to take account of Italy’s structural problems and the size of the external deficit. Also, in the context of acute shortages, it was essential to recognize the importance of the social dimension. Bresciani-Turroni’s arguments were to carry weight in the final decisions about how to proceed with domestic monetary stabilization in 1947 (Costabile 2010).
Liberalism and the ‘Bad Beasts’ of Italy: A Small, Embattled Elite In a letter to Antoni on 17 November 1947, Röpke expressed his belief that the ‘Einaudi experiment’ would fall victim to Italian politics (Röpke Papers, Institute for Economic Policy, Cologne University). Looking back, Einaudi (1959) noted that his years of hard work in combating economic ignorance had proved little
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 343 more than ‘useless sermons’. Conservative liberalism remained the preserve of a small, embattled, and cosmopolitan Italian elite within academic economics, the political parties, the state administration, and the wider economy of banking, employer, and industrial associations. Historically, economic liberalism had been associated with the liberal bourgeoisie of Piedmont and the North, who looked back to Camille de Cavour for inspiration. Despite Piedmont’s leadership of Italian unification, within a decade liberal economists like Francesco Ferrara (1810–1900) were attacking the interventionist and protectionist policies of governments (Mingardi 2017: 26). The period 1914–22 proved strikingly painful in the historical memorizing of liberals. It highlighted to Einaudi how seriously inflation could poison society and persuaded him of the value of an independent central bank dedicated to monetary stability (Forte and Marchionatti 2012). In 1920–1 the government of Giovanni Giolliti (1842–1928) broke apart under the weight of opposition from Left and Right to his stabilization policies of financial rigour, paving the way for the fascist March on Rome in 1922 (Forsyth 1993: 195–285). This failed stabilization in difficult post-war circumstances, and not least its disastrous political aftermath, increased the risk-aversion of Italian democratic elites. The influence of conservative liberalism suffered from the wider historical and ideological fragmentation within Italian liberalism. In 1874 Ferrara, Italy’s foremost liberal economist of the nineteenth century, launched an attack on the eth ical liberalism of Luigi Luzzatti for promoting the ‘economic Germanization of Italy’ by ‘canonizing’ the state (Ferrara 1972/1874: 555–91). Conflict about the nature of liberalism resurfaced later between Einaudi, an admirer of Ferrara, and Croce, a fellow founder of the PLI. Croce argued that a liberal market economy was not essential for a liberal social order (Luigi Einaudi-Benedetto Croce 1988). Conflicts were further spawned by the enduring questions within Italian liberalism about how far to integrate Catholic social teaching, if at all, and, within eth ical liberalism, about the right balance between liberalism and conservativism. In the post-1945 period conservative liberalism suffered from loss of its centrality within Italian academic economics. From the 1960s, neo-classical economics, which had been the basis of the political economy of Einaudi (1942a, 1954/1931) and Bresciani-Turroni (1942), ceded place to Keynesianism in mainstream university teaching. This process was driven, in part, by Americanization of the economics profession, with many like Mario Draghi studying in the United States; by the prestige of Cambridge economics amongst left-wing economists; and by international pressures for national accounting (de Cecco 1989). The Keynesianism of the Nobel Prize-winner Franco Modigliani (1918–2003) at MIT and of Piero Sraffa (1898–1983) in Cambridge gained a high profile amongst Italian economists (ibid.). A practical policy-oriented Keynesianism seemed attractive because well adapted to addressing the key Italian challenge of regional imbalance between North and South. It proved notably appealing in southern
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344 Conservative Liberalism, Ordo-Liberalism, and the State Italy (Maes 2008). In addition, a more fundamentalist Keynesianism was adopted by many left-wing academic economists as part of their critique of capitalism and as part of a programme directed at reducing inequality and poverty in Italy (Porta 1997). Conservative liberalism suffered from the further disadvantage of lacking firm party-political roots. Its main party-political home was the PLI, in which Croce and Einaudi were leading figures. Its early prospects as an agency of liberal reform seemed bright. Einaudi was an active figure in the Constituent Assembly of the new Italian Republic and from 1945 to 1948 as governor of the Banca d’Italia and then budget minister. The ‘Einaudi experiment’ in stabilization of 1947 received considerable international attention (de Cecco 1972; Graziani 1989; Porta 1997). Its emphasis on the domestic ‘house-in-order’ approach to reconstruction was based on reduction of money supply, credit restriction, and spending cuts. It ran counter to mainstream international thinking in this period (Costabile 2010). However, the prospects of the PLI were very soon eclipsed by the rise of the Christian Democratic Party. The Christian Democratic Party devised its own political and economic policy strategy to counter unemployment and boost economic growth. It positioned itself strategically around Catholic social thinkers like Guido Menegazzi and Giuseppe Toniolo. The Christian Democrats recognized the electoral appeal of the concept of solidarity in addressing the North/ South imbalance. They also sought policies that would help in the political containment of a strong domestic communist Left, by presenting the Cold War as an internal as well as external issue. As early as the Constituent Assembly of 1946–8, the strength of Marxist and Catholic social thought had been evident to Einaudi and others. The dominance of Christian Democracy, which continued up to 1992, meant a more interventionist, discretionary approach to political economy than Einaudi had envisaged for the PLI. The PLI proved a negligible electoral force; Einaudi’s involvement with the PLI diminished as president of Italy between 1948 and 1955; and the party split in the late 1960s. Liberalism remained fragmented in party-political terms. Christian Democracy functioned from the 1950s to the 1980s as a shield for domestic protectionist policies. Tax rebates, subsidies, and easy credit were used to counter a shift to the Left in the 1960s and then in the 1970s to absorb shocks from the collapse of the Bretton Woods system and oilprice rises. The counterpart to this fiscal profligacy was steeply rising fiscal def icits and public debt. A key difference between Erhard in Germany and Einaudi was that Einaudi lacked the support of a big centre-Right political party whose ideological outlook suited his conservative-liberal mind-set. Conservative liberalism faced the additional problem of a malfunctioning Italian state, of which Einaudi, Gentile, Rossi, and Luigi Sturzo were major critics. There was a lack of coordination in fiscal policy and deep resistance to structural reforms from vested interests. Within the state administration, the citadel of
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 345 conservative liberalism remained the Banca d’Italia and, from the 1980s, the Treasury. The divorce of the Banca d’Italia from the Treasury in 1981 changed the dynamics of monetary and exchange-rate policies by empowering the central bank to resist political pressures to finance fiscal deficits. However, the burden of adjustment continued to fall mainly on monetary policy, at least until European monetary union in 1999. Thereafter, the problem of fiscal policy coordination was more salient not just in Italy but also within the European Union (EU). The small citadel of conservative liberalism was embattled within a state administration that suffered from fragmentation, bribery and corruption, and inefficiency. Pervasive clientelism—the exchange of favours for political support—contributed to these problems. The para-state institutions like the huge holding companies that were inherited from the fascist period offered rich opportunities for clientelism to proliferate. Powerful patrons helped to fend off liberal economic reforms. These outcomes had been feared by Einaudi (1945) and Sturzo (Felice 2003; Sturzo 1946). At the root of many of these problems was the penetration of the state administration by the political parties (partitocrazia). The characteristics of the Italian party system were carried into the functioning of the state. The party system exhibited an extreme pluralism of parties, ideological polarization, and a politics of outbidding and over-promising. This context was highly unfavourable to conservative liberalism. From the 1950s to the 1980s conservative liberalism also lacked strong support from the banking, employer, and industrial associations. The banking system was characterized by interlocking directorates; the proliferation of favouritism and inefficiency in lending practices; and heightened risk from non-performing loans. The big Italian holding companies became bound up in the partitocrazia. Many companies were beneficiaries of subsidy and protection. Competitive devaluation helped to absorb external shocks and protect these structural rigidities. Hence corporate lobbying for economic liberalization reforms proved weak. Sturzo (1946), the Sicilian Catholic priest, intellectual, and political activist, had warned that individual liberty would be threatened if ideas and practices from pre-fascist and fascist Italy endured within the new Republic. The paramount task was to moralize the Italian state by ridding it of its three ‘bad beasts’— the partitocrazia, ‘statism’, and the squandering of public money. Sturzo, who had been the founder of the Italian People’s Party in 1919, and a long-term exile from fascism, found inspiration in the social market economy of Müller-Armack and in the economic ethics of Röpke. Their arguments helped him to reconcile his belief in a liberal order of independent individuals with Catholic social thought. He advocated a personalist anthropology that identified liberty, creativity, responsibility, and reciprocity as the defining features of man and the organizing prin ciples of the economic order (Felice 2003). However, by the end of the 1950s, he had despaired of what he termed a ‘sinister’ Italian Christian Democracy. It had
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346 Conservative Liberalism, Ordo-Liberalism, and the State fed and fattened Italy’s ‘three bad beasts’ instead of constructing a German-style social market economy (Felice 2008).
The ‘Good’ and ‘Bad’ Souls of Italy: Relying on External Discipline Despite its small and embattled character, conservative liberalism retained influence within Italy. This influence was attributable to the initial impact of the Einaudi experiment in establishing a substantial degree of independence for the Banca d’Italia, in stabilizing the currency, and in committing Italy to becoming an open, export-oriented economy (de Cecco 1972). Einaudi established an enduring reputation as the ‘star’ Italian economist. During the 1950s, as the PLI declined, liberal public intellectuals and journalists like Gentile and Rossi con tinued the fight for his cause of a ‘third way’ between laissez-faire liberalism and collectivism (Giordano 2010; Luigi Einaudi-Ernesto Rossi 1988). Rossi was a close and loyal friend and student of Einaudi (Faucci 1986: 318–22, 391–5, 462–4, 479–81). Both were ardent believers in, and campaigners for, a federal Europe, a cause that attracted wide endorsement in early post-war Italy. At the height of the Italian crisis in 2011–13, Einaudi was the most cited economist in the Corriere della Sera and La Repubblica (Poettinger 2014: 21–2). Einaudi remained a source of inspiration to later liberal reformers like Nino Andreatta, Guido Carli, Draghi, Mario Monti, and Mario Sarcinelli (Graziani 1989). None of them offered ‘pure’ Einaudi, let alone Eucken-type Ordo-liberalism. They were more eclectic and Americanized in their economic references. Nevertheless, Einaudi offered a model of steadfast conduct under intense pressure. He was a reminder to later reformers that, in the final analysis, a domestic ‘house-in-order’ approach was indispensable to stabilization. Carli (1993: 3–7), who was a protégé of Einaudi, compared Italy to the two souls of Faust in Goethe’s drama. Einaudi represented, for Carli, the ‘good soul’ of Italian political economy and, as such, was an enduring point of reference when thinking about reform. Some reformers, like Andreatta and Carli, had studied law in Padua where ethical liberalism was strong. Francesco Forte, who had also studied law in Padua, and was former holder of the Einaudi chair at Turin University, praised Einaudi as the advocate of a ‘third way’ between dogmatic laissez-faire liberalism and Keynesian interventionism (Forte 2016; see Einaudi 1942a: 64). He noted that this ‘third way’ corresponded more closely with the sociological Ordoliberalism of Röpke than with the Freiburg variant of Ordo-liberalism. External conditions were the key to the influence of conservative liberalism on Italian political economy. Conservative liberals within the Italian technocratic elite identified Italy’s main problem as a dismal long-term productivity perform ance, which began to become evident in the 1980s and intensified from 2000. They recognized that it could only be addressed by structural reforms, tax
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 347 reforms, increased investment in human capital, higher research and development spending, public-sector reform, and good-quality infrastructural investment. At the same time, they were pessimistic about the quality and effectiveness of the political class in delivering the necessary reforms. This assessment led the technocratic elite to embrace Carli’s conception of an external discipline (vincolo esterno) as the best means of making the political class face up to the challenges and keep its ‘house in order’ (Carli 1993). The Bretton Woods system had fulfilled this role until its collapse in 1971–3. Thereafter, the main triggers for domestic empowerment of conservative-liberal thinking were globalization and Europeanization, which gathered pace from the 1980s. The pressures emanating from the EC’s single-market policies, competition policies, and the mechanisms and rules of European monetary integration and union provided welcome external disciplines for liberal reformers (Dyson and Featherstone 1996). Italian economists provided intellectual support for this external binding-of-hands by reference not to Einaudi but to US-centred credibility and time-consistency theory. In this way, Giavazzi and Pagano (1988) helped to justify adherence to the ‘hard’ ERM. At the same time, ‘tying hands’ fitted with the Einaudi legacy. Carli (1993) saw it as an instrument to face down domestic protection and subsidy—the ‘evil soul’ of Italian political economy. European integration had been established as the guarantee of Italy’s vital national interest in having a shaping role in the inner circle of European diplomacy. This overriding strategic purpose had been enthusiastically promoted by Einaudi, Rossi, Carli, and others. It enjoyed widespread elite and public support and could be used to promote economic ideas of conservative liberalism (Dyson and Featherstone 1996, 1999). Reformers could point back to Einaudi’s advocacy of European economic and political union, alongside his conservative liberalism (Faucci and Marchionatti 2006). However, the problem for conservative liberalism was that the sources of these pressures for reform could—and did—become the objects of political disenchantment in Italy. This disenchantment followed from Italy’s poor long-term economic performance; from the prolonged recession and high unemployment, especially youth unemployment, during the post-2008 economic and financial crisis, above all from 2011; and from the ineffectiveness of the political establishment in reforming Italy. Globalization, the EU, the euro area, and conservative liberalism were transformed into objects of negative feelings, which ranged from disappointment, through resignation and alienation, to angry rejection. Optimism about Italy, the EU, and liberal reforms gave way to widespread pes simism. By 2018 over 50 per cent of Italian members of parliament represented euro-sceptic parties and Italy had a Five Star/League government, many of whose leading members expressed contempt for EU rules. Criticism centred on the unjust outcomes from the design and functioning of the EU and the euro area and from ‘top-down’ authoritarian austerity. Italian euro-sceptics pointed to
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348 Conservative Liberalism, Ordo-Liberalism, and the State mounting inequality, stagnant or falling living standards, increasing poverty, chronic unemployment, and diminishing opportunities. There was a sharp drop in trust in the traditional political parties on the Left and Right, in the Italian state, in the EU, and in support for the euro. As the search for external scapegoats intensified, criticism of the strategy of external discipline mounted. This evolving climate of negative feelings took shape within the context of post-Christian-Democratic politics after 1992. Italy sought a new national unifying myth that would restore credibility to a political class that had been severely compromised by corruption and scandal. It was all the more necessary in a new post-Cold-War world where anti-communism had lost relevance and value as a mobilizing myth in domestic politics. Euro-scepticism became an integral feature of the way in which the new Forza Italia party of Berlusconi on the Right sought to portray itself as a vigorous and assertive defender of Italian interests. It was boosted further by the rise of the League and later of the Five Star Movement. Populist mobilization spread across Left and Right. It was directed against German authoritarianism, imperialism, and ‘will to power’ in Europe and the social costs of imposed austerity. On 3 August 2012, il Giornale ran as its headline ‘The Fourth Reich’; whilst in 2013 the left-wing La Repubblica demonized German chancellor Angela Merkel (details in Poettinger 2014). The political climate became deeply hostile to conservative liberalism and encouraged the rise of ‘populist economists’ like Alberto Bagnai and the colum nist of the Corriere della Serra, Pierluigi Battista (Solari 2017: 80–5). In addition, many mainstream Italian economists who had been identified with conservative liberalism began to point to the unsustainable equilibrium in the operation of the euro area and to advocate more discretionary state action. They called for an increase in aggregate demand to offset an exceptional shock to the Italian economy and to ease the social and economic costs of structural reforms. Perhaps the most notable example was Paolo Savona (1936–), who had been a former close colleague of Carli and became Europe minister in the Five Star/League government in 2018. He suggested that the German fixation on balanced budgets and neglect of the social costs of austerity was fomenting conflict, hatred, and tragedy in Europe (Savona 2014: 53). The calls for radical reform extended deep into the heart of Italian technocracy. Ignazio Visco, the governor of the Banca d’Italia, called for radical reforms of the architecture of the euro area, including the full completion of banking union through collective deposit insurance and the cre ation of a euro area safe asset to flank monetary union (in a speech at the Banca d’Italia, November 2019). He reflected a widespread fear that the euro area was locked into a vicious circle of low growth, increasing distrust, and mounting social and political tensions. In an interview in L’Espresso on 30 November 2010, the Italian economist Luigi Spaventa summarized Italy’s dilemma with the euro by reference to Martial, Epigram XII, 46: ‘I can live neither with you, nor without you’. Fundamentally,
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CONSERVATIVE LIBERALISM IN FRANCE AND ITALY 349 Italian economic thought remained deeply impregnated by the concept of soli darity as a national unifying myth but one that took different forms under the shaping influence of ideology. Those who embraced conservative liberalism faced a difficult challenge in this historical and intellectual context. Meeting this challenge induced them to be concerned about the justice of economic outcomes as well as about rule-compliance. For this reason, Italian conservative liberalism tended to have, at best, an ambivalent relationship with German Ordo-liberalism in its Eucken and Hayek forms. In turn, economists like Savona drew rebuke from Ordo-liberals who thought in these modes. Savona echoed the thinking of Bresciani-Turroni about post-war stabilization in 1945–7.
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11
How Ordo-Liberal Is Germany? Ordo-Liberalism in Post-War National Unifying Mythology I learnt from my work in the federal economics ministry that it’s only useful for economic policy to draw on the results of scientific work, if this work is prepared to take account of the facts and data that the economic policymaker cannot avoid and that compel him to compromises . . . It is not easy to conduct economic policy as Ordnungspolitik. Alfred Müller-Armack (1971: 55–6), author’s translation The significance of Ordo-liberalism in post-war German economic policy was bound up with the question of what academics, officials, and politicians made of it. Müller-Armack’s retrospective remarks highlight the analytical distinctions between fundamentalism and realism in Ordo-liberalism and between the philosopher-economist and the statesman-economist. His comments bring out the changing challenges of economic statesmanship that faced successive generations of Ordo-liberals. They had to grapple with new knowledge and experiences that accompanied post-war German reconstruction and its aftermath, including from 1989–90 German unification. Not least, Ordo-liberals had to deal with fast-changing realities like the evolving process of European economic, monetary, and political integration, enormous cross-national concentrations of corporate power, rapid technological change and its impact on market structures, increasing environmental threats, and heightened public expectations of collective welfare provision and the question of its sustainable financing. With the new millennium, they were confronted with the long and complex aftermath of German unification, economic and financial crisis in the euro area, the unconventional monetary policies of the European Central Bank (ECB), emerging national populism in the political arena, and the effects of fragmentation and polarization in the party system. Ordo-liberalism retained a set of shared features (see Chapter 4: 103–5). However, over time it was far from static. In the ORDO Yearbook (Jahrbuch), Herbert Giersch (1959), like Müller-Armack a statesman-economist, captured some of the implications in his ‘theory of the Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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How Ordo-Liberal Is Germany? 351 best-possible’ in conducting Ordnungspolitik. It was not a theory that was elcomed by many Ordo-liberals. w The tensions within Ordo-liberalism stem from its dual and ambiguous nature. On the one hand, it evolved as a study of the institutions and practices of economic policy. In one manifestation, Ordo-liberalism inhabited its own largely self-referential academic microcosm, like that around the Freiburg School and the ORDO Yearbook. On the other hand, the thinking of some Ordo-liberals unfolded whilst working with others, nationally and cross-nationally, on practical policy issues within institutional structures and policy processes. As statesmeneconomists, they engaged and argued with others and, in the process, were challenged to take seriously what others were saying. They took on some of the attributes of the anthropologist. Their practical immersion in policy processes helped them to become conscious of variations in cultural and social practices; of the importance of shared symbolic commitments in reconciling interests and sustaining community; and of the need to find sustainable consensus. MüllerArmack identified with Ordnungspolitik. However, he raised issues that other more fundamentalist-minded Ordo-liberals rejected. Ordo-liberals provided examples of adaptive and creative learning as they engaged with new challenges. An early example was Wilhelm Röpke’s work on unemployment in the Brauns Commission of 1931. Whilst retaining a commitment to a long-term stability perspective, he offered support for a job-creation programme. Röpke’s concept of ‘secondary’ depression provided the basis for his endorsement of the Lautenbach Plan in 1931 for an immediate fiscal and monet ary stimulus. A second example was the role of Ernst-Joachim Mestmäcker after the entry into force of the Treaty of Rome. He was important in developing Ordoliberal thinking about the abuse of market dominance by emphasizing how exclusionary practices and expansion into neighbouring markets can damage ‘undistorted’ competition. This thinking found expression in the Continental Can ruling of the European Court of Justice (ECJ) in 1973 (Mestmäcker and Schweitzer 2004: 405). In a third example, in opposition to Milton Friedman’s monetarism in the 1970s and more generally to functional thinking about money, Otto Veit stressed the need for an active credit policy by the central bank not just on economic grounds (controlling the demand for money) but also on moral grounds (encouraging responsibility). Müller-Armack stands out as the archetypical Ordo-liberal statesman-economist. In the mid-1950s he worked to adapt Ordo-liberal thinking to the challenge of economic coordination and then to develop a multilateral stabilization policy (Konjunkturpolitik) capacity at the European level in response to the new challenges of financial and trade interdependency. Strikingly, in talking about economic policy, he preferred to use the terms ‘model’ (Leitbild) and ‘guidelines’ (Leitlinien)—to be practically applied—rather than to emulate Walter Eucken in
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352 Conservative Liberalism, Ordo-Liberalism, and the State attempting to precisely enunciate principles (Müller-Armack 1976b/1960; also Kowitz 1998). Assessing the significance of Ordo-liberalism in Germany involves historical analysis of its role in the circumstances of post-war reconstruction of a national unifying myth in the wake of the horrors of the Third Reich; close attention to the role of Ludwig Erhard; taking account of the tensions between fundamentalism and realism within Ordo-liberalism; examination of the relationships with other attempts to provide a national unifying mythology, like social partnership and civilian power; investigation of the complex relations between myth and reality in the development of German economic and monetary policies; and case studies of the endeavours of Ordo-liberals to play innovative—and often neglected—roles in addressing economic policy challenges.
Myth and Reality of Ordo-Liberal Intellectual Capture of Germany Ordo-liberalism as economic statesmanship played a more important role in the new Federal Republic of Germany than in post-war Britain, France, Italy, and the United States. Translated into the public arena as the ‘social market economy’ (a term of Müller-Armack’s), it succeeded—along with the D-Mark and Bundesbank—in becoming a key element in the search for a new ascendant national unifying myth for the post-1949 Federal Republic. This development amounted to a revolutionary process. German unification under Prussian leadership in the nineteenth century had been characterized by the failure of liberalism to establish itself as part of the founding national unifying myth. National unity owed more to revolution from above—by traditional extra-parliamentary forces—than from below. Tragically, liberal failure had not been reversed by the Weimar Republic after 1918–19, with cartelization a defining feature of the German economy. The success of liberalism as Ordo-liberalism after 1945 came from three factors. Ordo-liberals offered a new form of liberalism that claimed to have learnt from past failures. They could also compete to occupy the domestic space that had been vacated by the total collapse of the Third Reich. The success of Ordoliberals was facilitated by a domestic institutional context that was less constraining than the authoritarian structures that had faced German liberals in 1848, 1870–1, and 1918–19. In addition, their ability to play a leadership role—at least intellectually—was assisted by the trust—though not always agreement—that they enjoyed with the American, British, and French Allied Occupation author ities. This trust stemmed from their association with academic resistance to the Nazi regime and their unqualified hostility to Soviet policies. In addition, the Ordo-liberals offered a distinctive, independent German vision of political economy at a time of deep national humiliation,
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How Ordo-Liberal Is Germany? 353 demoralization, and uncertainty. They helped to shape a new post-war economic identity that was distinctive in three ways. It offered an alternative to the cartelized and protectionist political economy that had been ascendant before; to what Ordo-liberals saw as the collectivist and illiberal policies of the three Western Occupation authorities; and, not least, to the Soviet command economy in the East (see the correspondence of Eucken and Röpke with each other and with Friedrich Hayek 1945–50, in their archives). The scepticism towards the United States was captured in a letter from Röpke to Paul van Zeeland on 16 June 1941 (Röpke Papers, letters 1940–2, Institute for Economic Policy, Cologne University). He questioned whether the United States would prove intellectually and morally mature enough to take on the new post-war role of arbiter mundi. In a letter of 15 September 1949 Röpke castigated the American Occupation as a disaster (in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Ordo-liberalism nudged post-war German identity-shaping in an historically new and distinctive direction. It helped to establish new standards of legitimacy for a stability-based market order and to mobilize support for new modes of governance. The relative ease with which it could do so reflected the effects of the emigration of so many left-wing-inclined academic economists from Nazi Germany after 1933 and the fact that few of their leading thinkers chose to return (Hagemann 2011). Looking back at the period of reconstruction in which he had been involved, Müller-Armack (1974: 124, author’s translation) concluded: If one wants to describe what really happened in the years 1945 to 1948, it lay in intellectual clarification and debate and not so much in what concretely happened . . . there was an intellectual and scientific effort to which a small number of academics contributed—it was the academic economic elite which had the real influence on the decisive decisions.
The idea of an Ordo-liberal intellectual capture of German economic policy was encapsulated in the political myth of Erhard as ‘the father of the economic miracle’, heroically pursuing economic liberalization and fighting against pressures for a welfare state and a culture of entitlements. Memorialization personified the post-war triumph of liberalism as ‘the social market economy’ and its identification with the electoral success of the new Christian Democratic Union (CDU) and its Bavarian sister-party, the Christian Social Union (CSU). This narrative was not without substance. The inroads of economic liberalism could not be taken for granted (Issing and Koerfer 2019). Erhard faced the strength of Catholic social thought and the trade-union wing in the CDU. He also had to contend with the tactical and utilitarian approach of Konrad Adenauer, the CDU chair, to economic policy. The early strength of the social wing of the CDU was exhibited
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354 Conservative Liberalism, Ordo-Liberalism, and the State in the collectivist approach to economic policy that had been adopted in the Ahlen programme of February 1947 in the British zone. The Free Democratic Party (FDP)—not the CDU—was to prove pivotal to Erhard’s appointment as economics director of the new Economics Administration in Frankfurt (Nicholls 1994: 157–8). Making the case for the social market economy—and getting it adopted in the CDU’s Düsseldorf Principles of July 1949—required huge effort, diplomatic talent, willingness to compromise with the social wing of the CDU, and, above all, resilience on the part of Erhard. By October 1952 an opinion poll was still showing that more respondents rejected rather than supported the social market economy, with many seeing it as linked to the Social Democratic Party (SPD) (Kowitz 1998: 233–4). It took several years for German public opinion to shift to support of central bank independence (Löffler 2010b). In 1947–8, recognizing the distrust towards him as an outsider, Erhard remained cautious in CDU circles about his commitment to liberalism, emphasizing their shared ethical principles (Nicholls 1994: 236–9). Moreover, later, in initiating Ordo-liberal reforms, he relied heavily on his officials and associates, adopted their ideas as his own, and gave them his distinctive rhetorical treatment. Erhard received intellectual support from a wide range of sources, not least the scientific advisory council (wissenschaftlicher Beirat) of the federal economics ministry in the critical early years. Although he sought—successfully—to place himself as the orchestrator of a new liberal Germany, other economic liberals had frequent differences of view with him about policy priorities and details and were often critical of his performance. Nevertheless, Erhard could count on a relatively small but strategically placed set of supporters who aligned their interests with his. Leonhard Miksch was Erhard’s key ‘ideas-man’ in 1947–9. He was important in pushing through price and wage liberalization in 1948 from his position in the special office for money and credit (Sonderstelle für Geld und Kredit), attached to the Economics Administration of the Bi-Zonal Economic Council under Erhard (Dathe 2015a). Later, Müller-Armack had a privileged position as chief ‘ideas-man’ in Erhard’s federal economics ministry from 1952 to 1957, sending memos on housing construction, rent subsidies, capital markets, liberalization of prices in the heavy industries, the family wage, co-determination law, and currency convertibility to increase export opportunities (Kowitz 1998). Ordo-liberal positions were resolutely promoted by long-serving officials in the ministry’s new economic policy division (Grundsatzabteilung), notably two ‘Freiburgers’—Robert Gocht and Otto Schlecht—who went on to be division heads (Löffler 2003). The ministry’s scientific advisory council also contained many Ordo-liberal-minded figures, including Erwin von Beckerath, Franz Böhm, Fritz Meyer, Müller-Armack, and Erich Preiser (ibid.). In a letter of 2 March 1950 to Hayek, Eucken stressed the import ant role of this body in countering the Allied High Commission’s opposition to
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How Ordo-Liberal Is Germany? 355 Erhard’s policies of liberalization (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). The scientific advisory council’s first report on 1 April 1948 corresponded closely with Erhard’s priorities. It argued strongly for the removal of price controls: The currency reform only makes sense if it is combined with a fundamental change in the economic management of the economy. As an isolated, purely technical measure, it would be worthless, if not dangerous. (Der wissenschaftliche Beirat beim Bundeswirtschaftsministerium für Wirtschaft, 1973: 1, author’s translation)
Erhard also gained important support from outside the federal economics ministry. His emphasis on tax reform was given new impetus when Fritz Erler became federal finance minister in 1957. Fritz Schiettinger, Erler’s chief economic advisor, strengthened the ministry’s economic policy role (Nützenadel 2005: 264–5). Walter Strauss, the long-serving state secretary in the federal justice ministry, was another Ordo-liberal-minded official whose anti-cartel view reached back to his time as an official in the imperial economics ministry during the Weimar Republic. He also had a predilection for working with academic economists. In 1947–8 Strauss had played an important role in the establishment of what was later to become the scientific advisory council of the federal economics ministry. In the 1950s he gave strong backing to corporate law reform, an area neglected by the founding Ordo-liberals (Dietrich 1996: 226–9, 315–19). In addition, Erhard gained public support from think tanks like the Action Group for the Social Market Economy (Aktionsgemeinschaft Soziale Marktwirtschaft, ASM), founded in 1953. Alexander Rüstow was closely involved in its activities, for instancing lobbying on anti-cartel law and pension reform. Its comprehensive action programme of March 1958 was a call to arms against feeble and timid politicians who were failing the cause of economic liberalism. Erhard was also able to communicate his key messages through a range of publishers and economic journalists, notably in the Frankfurter Allgemeine Zeitung and the Neue Zürcher Zeitung (Kutzner 2015; Riedl 1992). He felt a distinctive debt of gratitude to Röpke for his social vision. Röpke—unlike Eucken—remained Erhard’s favoured intellectual (Hentschel 1996). Erhard’s contact with Eucken was mainly mediated through Miksch, Eucken’s former student (Wünsche 2015a: 6). In addressing the question of whether Erhard was an Ordo-liberal, one should not forget that Eucken’s principles were never the measuring-stick by reference to which Erhard focused his work as a stateman-economist. Erhard regarded Eucken’s devotion to perfect competition as unrealistic (ibid.: 14–15). He did not consider himself to be an exponent of Freiburg School thinking (Commun 2004).
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356 Conservative Liberalism, Ordo-Liberalism, and the State
Ludwig Erhard: An Ordo-Liberal Statesman-Economist? Assessing the role of Erhard represents an initial difficulty in tracing the significance of Ordo-liberalism. Part of the difficulty stems from the cult of memorialization that surrounds Erhard, his connection to Ordo-liberalism, and his leadership role in the social market economy and the economic miracle. Memorialization of Erhard’s role serves inter alia the political purpose of developing a critique of German political and policy developments after Erhard and of renewing a sense of lost liberal purpose within the CDU. Later developments, notably rising public debt and the slow speed and paucity of structural reforms, are contrasted with the image of Erhard as heroically pushing through ideas of economic liberalization and as heroically fighting ‘soulless collectivism’, ‘mechan istic bureaucracy’, and the expansion of the welfare state. He is remembered for his advocacy of personal responsibility and his opposition to the creation of a culture of entitlements that burdens future generations and depresses long-term economic growth (e.g. Koerfer 2017; Wünsche 2015a). The myth is not without some substance. Despite being a Lutheran outsider who invited suspicion within the CDU, and despite lacking an internal powerbase, Erhard displayed a remarkable staying-power in office and ability to withstand crises, for instance in 1950–1. He also succeeded in positioning himself as the great hope of Ordo-liberal reformers and as at the centre of a web of liberal activists. However, historical evidence on Erhard’s background and his thinking in its context offers a much more complex and differentiated picture of his relationship to Ordo-liberalism, his leadership style, and how they were seen by his close colleagues at the time. This picture is far from surprising given the huge burden of expectation that he carried. The historical record shows that his leadership on Ordo-liberal principles was selective rather than comprehensive; his endorsement of the thinking of Röpke and Rüstow did not lead him to identify with a practical programme of fundamental social reform; his public attacks on the welfare state and on the form that European integration was taking were not matched by consistent and decisive action in these areas; he was inclined to leave the administrative and political donkey-work to others; his political friends complained of his occasional ineptitude, smugness, and naivety; and he disappointed most of the founding Ordo-liberals who looked to him (details strikingly presented in Hentschel 1996). Intellectually, Erhard was very much a lone figure, with a background rather different from that of Eucken, Röpke, and Rüstow (details in Mierzejewski 2004: chapters 1 and 2). As far as formal academic economics was concerned, Erhard was no Einaudi or Rueff. He was an academic outsider. He lacked the intellectual background and talents of the founding Ordo-liberals, whilst drawing selectively on them to give respectability to his arguments. Although he gained a familiarity
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How Ordo-Liberal Is Germany? 357 with their work during the Second World War, he was slow to identify as Ordo-liberal and never subscribed to it in its totality (Hentschel 1996: 60–7). Erhard’s background was in a liberal-minded family with its own textile business, in the experience of how his family had suffered during the hyperinflation, and in the study of financial and social economics. From 1928, and during the Second World War, he was involved with sectoral and consumer research at the Nuremberg Institute for the Observation of German Finished Products (Institut zur Beobachtung der deutschen Fertigwaren). In this role Erhard was drawn into contract work for the Nazi regime. However, the wartime memos with which he was linked show no traces of enthusiasm for Nazi ideology. The report of 1941 on market and corporate structures in the incorporated eastern territories suggested improvements in the living and working conditions of Poles, including a widening of opportunities. It was rejected as unacceptable in 1942 because of inconsistency with the political priorities of the regime (available in the Ludwig Erhard Zentrum, Fürth; see also Issing and Koerfer 2019). As director of the Nuremberg Institute, Erhard wrote a memorandum on war financing and debt consolidation which dealt with the future economic order and how to create normal market mechanisms after the war (Erhard 1997/1943–4: 250–68). Its unstated premise was that Germany would lose the war. The memorandum called for radical measures to tackle the suppressed inflation which anticipated later German thinking about currency reform in 1947–8, notably in its emphasis on compensation to individuals for damage and losses (Lastenausgleich). This social emphasis on a just distribution of costs was to form a difference in German and American attitudes to post-war currency reform. The memorandum was striking in two ways. It showed that Erhard remained at a distance from a regime that he rejected; and that the social element was already present in his conception of the market economy. Erhard drew two lessons from his practical business background. He identified cartels as an historic burden on the German economic and political orders, a point of agreement with Franz Böhm. At the same time, he recognized the value of large oligopolistic firms. His views about competitive markets meant that he had an ambivalent relationship with the mainstream Freiburg Ordo-liberals, who sought outright abolition of cartels and tough action against oligopolies (Berghahn 2010). In the early post-war period, when he taught economics at Munich University, Erhard argued for the protection of large German companies from their big American rivals. Large firms were the essential motor of German reconstruction (ibid.: 8). In this way Erhard was more closely aligned with American than with Freiburg thinking about competitive markets. Erhard also recognized the political value of continuing to protect the craft and small business sectors against the cold wind of competitive markets. His attitude accorded with the political interests of the CDU, with which he had come to identify himself. It was qualified by the belief that rising prosperity would later ease the
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358 Conservative Liberalism, Ordo-Liberalism, and the State social and political costs of price liberalization in these sectors. Erhard was critical of Eucken’s principles, notably his devotion to ‘complete’ competition, as dogmatic and unrealistic (Wünsche 2015b: 14–15). Erhard’s thinking was distinct from the Ordo-liberals in another sense. In the light of German history, he was sceptical of calls for the ‘strong’ state as the source of morals and the basis for the freedom and dignity of the individual. Instead, influenced by his reading of the Historical School and of Adam Smith’s The Theory of Moral Sentiments (1759), Erhard argued that freedom derived primarily from the moral convictions that grew up, and needed to be fostered, within society, including the norm of reciprocity. The state was not to be trusted to safeguard individual freedom (Wünsche 2015b: 13–14). In contrast to reliance on the ‘strong state’, Erhard adopted the concept of the ‘formed society’ (formierte Gesellschaft) to characterize his notion of a civilized moral order in which polit ical ly enlightened and economically literate individuals would voluntarily cooperate in the general interest. Awareness of the inescapable interdependence of individuals would help a liberal society to avoid the perils of egoism, con sumerism, and materialism (Habermann 1988: 40–1). Erhard’s relations with Ordo-liberals were revealing. In 1948 he met Röpke in Geneva and corresponded with him. In the same year, Erhard began working with Miksch on economic liberalization. He was much more attracted to Röpke as a social philosopher and critic than to Eucken as an economist. Erhard regarded Röpke as a ‘spiritual brother’, someone with whom he had a shared sense of what was right and wrong. Erhard identified with his broad worldview and borrowed his vivid vocabulary, for instance in his attacks on the ‘termite-state’ (Termitenstaat) and on ‘capitalist freebooting’ (kapitalistisches Freibeutertum). In contrast, he regarded Eucken’s economic thought as far too formalistic and abstract to be useful in designing practical policies for reconstruction. They met only once at a meeting of the special office for money and credit in November 1947, and their relationship remained very distant. In a letter of 28 November 1947 to Eucken, Röpke criticized him for not becoming more involved in pressing and urgent economic issues. In reply Eucken argued that there was an equal need for longer-term, more fundamental thinking about liberalism (in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Erhard’s background and his leading role in reconstruction from 1947, and from 1949–63 as federal economics minister, taught him to focus on the practical possibilities in given situations and to focus on what was deliverable. This trait made him sceptical of fundamentalist-minded Ordo-liberals, who in turn could be highly critical of him. Even Müller-Armack, a fellow statesman-economist and chief advisor in the federal economics ministry, criticized Erhard for being vacillating and unreliable. He claimed that Erhard was averse to administrative work and to complex and difficult negotiations, notably over the European Economic Community (EEC); that he caused confusion by making concessions and then
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How Ordo-Liberal Is Germany? 359 retreating to hard-line positions; that he shielded himself behind his state secretary Ludger Westrick; and that Erhard was undermining his self-respect (see letter to Erhard, 15 July 1958, and memo to Erhard, 22 January 1960, Nachlass MüllerArmack, Archiv für Christlich-Demokratische Politik der Konrad Adenauer Stiftung; also Hentschel 1996: 354, 536; Koerfer 1988: 137; Müller-Armack 1971: 112). In private correspondence (not to Erhard), Röpke was even harsher in his assessment of Erhard (see Chapter 8: 245 and 256). He was ‘intellectually completely self-reliant’ and unamenable to a sensible exchange of views (letter to Hans Ilau, 15 February 1953, in the Röpke Papers, Institute for Economic Policy, Cologne University).
Fundamentalism and Realism: Ordo-Liberalism and Post-War Crises Assessing the significance of Ordo-liberalism is complicated by the way in which events could throw up cracks in its intellectual edifice. Ordo-liberal statesmeneconomists risked becoming trapped within crossfire as soon as they began to engage with post-war reconstruction and crises. On the one hand, German opponents of Ordo-liberalism continued to rail against their ideological inflex ibility and blinkered conception of social justice (e.g. Streeck 2013). On the other, fellow Ordo-liberals—not just those outside the policy process but also sometimes other statesmen-economists—came to suspect ideological impurity and pragmatic manoeuvring at a cost to fundamental principles. Freiburg Ordoliberals distanced themselves from Müller-Armack’s advocacy of economic policy coordination in the mid-1950s. They also rejected his earlier stress on an active redistributive role for the state in social policy and his advocacy of spatial planning (Lange-von Kulessa and Renner 1998; Wünsche 2015b: 8–9). For them, good economic policy—one that supports personal responsibility—was good social policy. Müller-Armack’s (1974: 258) defence was that one could not be a purist in applying the principle of market conformity. Exceptions in certain areas, like agriculture and transport, and tactical flexibility in handling the complex political environment of policy choices, did not mean abandoning the pursuit of a competitive market economy based on economic and monetary discipline. Under the pressure of post-war events and crisis, Ordo-liberalism tended to fracture more visibly towards two poles, with various intermediate positions. The more fundamentalist-minded Ordo-liberals placed their trust in the self-healing capacity of the market economy; in the enforcement of the principles of economic order in all circumstances; in the principle of personal responsibility in social policy; and in the outright abolition of cartels and monopolies. The more realistminded Ordo-liberals believed that, beyond a certain point, a deflationary crisis cannot just be left to ‘burn itself out’; that in certain circumstances the state must
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360 Conservative Liberalism, Ordo-Liberalism, and the State engage in expansionary stimulus to avoid descent into a vicious circle of financial, economic, and political collapse; that a measure of collective insurance is necessary in social policy; and that cartels and monopolies must be regulated rather than prohibited. The neat bipolar picture of fundamentalists and realists is made complicated by the way in which individual Ordo-liberal statesmen-economists varied in their flexibility and in the differing combinations of features they could adopt. Within the federal economics ministry Gocht, a former student of Eucken, opposed Müller-Armack on policies towards the European Payments Union (EPU), on economic policy coordination, on the EEC treaty negotiations, and on a European Stabilization Board (details in Löffler 2003). The resignation of Jürgen Stark from the executive board of the ECB in 2011 illustrated that for some Ordo-liberals adaptive learning has its limits. According to Stark (2011, 2013), there are ‘red lines’—in this case, respecting the distinction between monetary and fiscal policies—that should not be crossed. In 2019 Sabine Lautenschlâger, the only German on the governing council of the ECB, resigned following her unhappiness with its ‘ultra-loose’ monetary policy. Polarization towards fundamentalist and realist positions was most evident in times of existential crisis when the foundations of the liberal economic, social, and political order were perceived as under threat. The substantial degree of postwar unity in Ordo-liberalism was assisted by the absence of the kind of crises that beset the Weimar Republic, like the hyperinflation of 1923 and the descent into the Great Depression in 1931–3. The economic crises that surfaced were different in scale and in domestic and international context. Even so, polarization within Ordo-liberalism was triggered by the early German payments crisis in 1950; the issues of cartel power, pension law, and European integration in the 1950s; Karl Schiller’s reforms to introduce ‘global steering’ into the social market economy in 1966–7; the monetarist revolution in the 1970s; European economic and monet ary union (EMU) in the late 1980s and 90s; and, above all, the euro area crisis, post-2009. Crucially, however, the absence of Weimar-type existential crises meant that polarization within Ordo-liberalism remained manageable. It also meant that the place of Ordo-liberalism as part of the ascendant founding mythology of the Federal Republic remained secure. The euro area crisis precipitated discord within Ordo-liberalism to a new degree. It led to a sense amongst many fundamentalist-minded Ordo-liberals that Germany had assumed more responsibilities and liabilities with EMU than it could hope to manage. They responded with a burst of public activism, criticizing the assumption of collective liability for indebted states, demanding the strictest possible conditionality in assistance, and attacking the unconventional monetary policies of the ECB. They feared a drift—under pressure from other member states—towards existential crisis for the German and European economic and political orders and for Ordo-liberalism itself. The problem stemmed from
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How Ordo-Liberal Is Germany? 361 perverse incentives. EMU was being used to transfer liability for public and bank debt to Germany by member states that could, in this way, escape taking tough domestic stabilization measures (e.g. Sinn 2011, 2012a, 2014a). Germany, and the euro area, was becoming exposed to moral hazard. Polarization between more fundamentalist-minded and more realist-minded Ordo-liberals emerged in the form of counter-manifestos produced by German academic economists; new party formation; legal battles; and a more explicit identification of the Bundesbank with traditional Ordo-liberal principles. The manifestos surfaced in response to the Maastricht Treaty provisions on EMU in 1991, to the launch of the final stage three of EMU in 1998–9, to the decision to move towards European banking union in 2012, and to the ‘ultra-loose’ monetary policy of the ECB in 2019 (Gros and Steinherr 1992; Ohr and Schäfer 1992; Frankfurter Allgemeine Zeitung 1998, 2012, 2019). European banking union acted as the catalyst for some fundamentalist Ordo-liberals to take leading roles in the formation of the new Alternative for Germany (AfD) party in 2013. The AfD was then to transform towards a far-Right party, from which many founding Ordoliberals dissociated themselves. Also, fundamentalist-minded Ordo-liberals were prominent in seeking constitutional review of the Maastricht Treaty, the Lisbon Treaty, aid to Greece, the European Stability Mechanism (ESM), and the ECB’s Outright Monetary Transactions (OMT) programme (Bundesverfassungsgericht 1993, 2009, 2011, 2012a, 2012b, 2014a). The Bundesbank took on the role of the leading hawk in the ECB governing council, citing the defence of Ordo-liberal stability-oriented principles (e.g. Weidmann 2012, 2014a, 2014b). Two former chief economists at the Bundesbank, both of whom had served on the executive board of the ECB, expressed their grave reservations about ECB activism in the euro area crisis (Issing 2010a, 2010b, 2011, 2013; Stark 2010, 2011, 2013). In 2019 Issing and Stark were co-signatories—along with Helmut Schlesinger, president of the Bundesbank at the time of the Maastricht Treaty negotiations—of an appeal for the ECB to desist from its ultra-loose monetary policy. They argued that it had been based on a mistaken diagnosis of deflation; served to protect highly indebted governments from an increase in interest rates; raised the prospect of ‘grave social tensions’; made it likely that the next crisis would be more serious than after 2008–9; and called for a return to the founding principle of no monetary financing of governments (Frankfurter Allgemeine Zeitung 2019). Despite post-war crises, the Federal Republic of Germany avoided either a prolonged ‘primary’ depression or descent into a ‘secondary’ depression with systemic banking and financial crisis and collapse of the credit mechanism. Two factors played a key role. First, the post-war context of steady export-led economic expansion had benign consequences for Ordo-liberalism. It meant that macro-economic policy could focus on the challenge of long-term stabilization— the agenda of Ordo-liberalism—rather than on the state attempting activist
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362 Conservative Liberalism, Ordo-Liberalism, and the State demand management of the economy. Germany could paradoxically benefit from Keynesianism. Its export-led expansion was assisted by other states pursuing Keynesian policies of domestic expansion—whilst Ordo-liberals could continue to criticize these policies. It could be a passive beneficiary of others’ Keynesianism. At the same time, in the 1960s and again in 2008–9, German economic policy proved flexible in heading off prolonged primary depression by special measures to stimulate domestic demand (on 2008–9, see Steinbrück 2011, 2012). Export-led economic expansion assisted the anchoring of Ordo-liberalism as part of the unifying national myth of the Federal Republic. It meant that, by 1952–3, Germany had begun to develop its position as the major net creditor state in Europe. As a net creditor state, German elite definition of national interest shifted to fit closely with the Ordo-liberal principle that ‘stability begins at home’ (Röpke 1954, 1959). In a speech to the Mont Pèlerin Society in September 1953, Erhard claimed that the EPU had become an ‘intolerable institution’ that enabled some states to consume more than they produced (Hentschel 1996: 202). His correspondence with Röpke revelled in the fact that others had come to fear him (Röpke Papers, Institute for Economic Policy, Cologne University). In a speech to the Action Group for the Social Market Economy in November 1953, Erhard argued that debtors had to be ‘compelled to order’, preferably by a speedy move to currency convertibility (Hentschel 1996: 203). The Dutch Het Financielle Dagblatt responded on 10 November 1953 that Erhard ‘was brandishing a German political whip over Europe’. The Ordo-liberal principles that ‘stability begins at home’ and that liability must be enforced were regularly invoked in German policies towards European crisis management. In November 1968 Schiller proved intransigent at the Group of Ten meeting in Bonn in the face of French pressure for a German revaluation of the D-Mark. By 1968–9 he favoured a flexible exchange rate for the D-Mark and was backed by an initiative of Herbert Giersch. Schiller’s tough line provoked a similar angry response in the French press to that in the Dutch press in 1953. Le Monde claimed on 23 November 1968 that, for the first time in the post-war period, a concerted approach by the three Western Allies had led to a ‘rout’. Germany had taken the place of France as the leader in Western Europe. The same pattern was discernible in French, Greek, and Italian responses to German resistance to pressures for measures of collective liability to deal with the euro area crisis from 2009. German negotiators insisted that other member states must first put their own domestic houses in order. On this basis, they rejected any fixed pre-commitment to euro bonds, to collective bank deposit insurance, and to a euro area budget that would lead to a transfer union (Dyson 2014). Any EU or euro area financial assistance must be linked to strict conditionality about fiscal consolidation and structural reforms.
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How Ordo-Liberal Is Germany? 363
Social Partnership and Civilian Power as National Unifying Myths The significance of Ordo-liberalism was qualified by two other sets of ideas that contributed to post-war national unifying mythology and that had their own institutional defenders. Domestically, Ordo-liberals did not have a free hand in shaping post-war German economic identity. In the first place, they had to contend with ‘social partnership’, with which Ordo-liberalism had a complex and difficult relationship. The concept of social partnership played a key role in helping to shape the post-war national unifying myth. If Ordo-liberalism represented the cold face of the social market economy, its warm face was social partnership. At the heart of social partnership was the idea of a new culture of social reconcili ation and peace through ‘social balance’. Practically, it involved the participation of employees and their representatives in the works councils and supervisory boards of companies (co-determination). It also meant developing policies that enabled employees to participate, alongside shareholders, in the benefits that came with improving company profitability. Sociologically, social partnership was anchored in the organized working class, in reformist social democracy, and in the Catholic wing of the CDU and the CSU. Institutionally, it was promoted by the federal and the state (Land) ministries of labour and social affairs; by the bodies governing social insurance; and by a network of think tanks and academics. Intellectually, social partnership had strong roots in Catholic social teaching (Blüm 2006). With the post-war loss of the East to Soviet control, Catholicism became the majority religion of the new Federal Republic. It lent support to collectivist and interventionist social and economic policies with which Oro-liberals tended to be deeply uncomfortable (Manow 2020). In this sense, social partnership qualified the position of Ordoliberalism in post-war national unifying myth. However, like Ordo-liberalism, social partnership begged questions about the correspondence between its role as national unifying myth and reality. This correspondence became increasingly problematic as—from the 1970s—trade-union power declined in a fast-changing economic structure and as later the political unity of the Left in the SPD began to erode. In this same period, Ordo-liberalism was able to gain intellectual ground from the ideological shift towards US-based conservative liberalism, from the competitive pressures unleashed by the European single market programme from 1986, and from the negotiations about the architecture of European economic and monetary union from 1988 (Janssen 2006; Dyson and Featherstone 1999). The single market and, above all, monetary union offered an opportunity to reassert Ordo-liberalism as part of the fundamental identity of Germany. At the same time, however, it proved more difficult to gain popular political ground because German unification—and, in the East, the strength of the new Left party and later of the AfD—proved a catalyst for
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364 Conservative Liberalism, Ordo-Liberalism, and the State a shift to support for greater social justice in economic outcomes through more collectivist provision and intervention. More widely across Germany, there was a sense of the very differential spread of the pain and costs of economic and social reforms that had come with the opening of the German economy to new sources of international competition. The concept of civilian power evolved to give Germany a new foreign-policy identity in the wake of the catastrophic effects of the two world wars. Its leitmotif was security through the commitment to multilateralism and fostering of good neighbourliness. By working with and through international and European institutions, it was possible to build and defend a rule-based order of good conduct and avoid vulnerability through isolation and encirclement in the centre of Europe. Intellectually, the notion of civilian power as a new national unifying myth became deeply grounded in German academic foreign-policy analysis and in a range of think tanks. Institutionally, it was anchored in the federal foreign ministry and in the foreign and European policy staff in the federal chancellor’s office. Again, as with social partnership, civilian power had an ambivalent relationship to Ordo-liberalism in post-war national mythology. On the one hand, the notion of civilian power privileged an economic over a military identity for Germany in international relations (Kundnani 2011, 2014). Ordo-liberalism could be a diplomatically serviceable instrument of power through its association with a strong German economy. It was consistent with presenting Germany as a model pupil in a rule-based international economic order. In consequence, German diplomats were hesitant in encroaching on the work of the German institutions—like the Bundesbank and the federal finance and economics ministries—in defining German economic interests, for instance in EMU negotiations. This hesitancy stemmed also from the strength of the departmental principle in the rules of working of the federal government and from the constraints of coalition party government. On the other hand, diplomats who identified with the civilian power concept could be uncomfortable when Ordo-liberal-based arguments were conducted in an abrasive and hectoring style. They were keen to avoid hostile responses from neighbouring states, to prevent the resurfacing of unwelcome images of a past brutal Germany, and to ensure that unscrupulous populists were denied oppor tunities to revive these images. The outcome of this concern with how style and process could affect wider German political interests was a delicate balance in fashioning German negotiating positions. Consequent compromising on prin ciples could leave fundamentalist-minded Ordo-liberals frustrated (Dyson 2016 on Hans Tietmeyer in EMU negotiations). This tension between civilian power and Ordo-liberalism was also evident in German reliance on geo-economic power. In projecting German economic power, the deployment and use of brand-names of the German world of big
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How Ordo-Liberal Is Germany? 365 corporate giants in diplomacy could trump appeals to Ordo-liberalism. German federal chancellors and federal economics and finance ministers placed considerable reliance on the support of bankers and industrialists who had little substantial knowledge of, or commitment to, Ordo-liberalism.
Institutional Appropriation of Ordo-Liberalism The significance of Ordo-liberalism in Germany can be addressed in three different ways. First, to what extent has there been a process of instrumental appropri ation of Ordo-liberalism by certain individuals and institutions to provide standards of legitimacy for their interests and to mobilize elite and public support? Second, how much correspondence is there between Ordo-liberal ideas and the reality of economic policy development? And, third, to what extent can causal significance in German economic policies and outcomes be attributed to Ordo-liberalism? The Federal Republic has had three strong institutional self-identifiers with Ordo-liberalism: the Bundesbank, the federal cartel office, and the economic policy division of the federal economics ministry. With the transfer of key functions from the federal economics ministry in 1972 and 1998, the economic policy division and the European division of the federal finance ministry also became self-identifiers (confidential elite interviews, 2013–16). This pattern of instrumental appropriation was closely linked to the salience of engagement by the founding Ordo-liberals with monetary policy and with competition policy and— in the case of Müller-Armack—with European economic integration. In contrast, the Freiburg School had tended to neglect fiscal policy, tax policy, capital market policy, corporate law, and wealth policy, as well as sectoral policies in, for instance, energy and telecommunications. Institutional appropriation was also most evident at times when the Bundesbank, federal cartel office, and federal economics ministry and federal finance ministry officials were dealing with foundational issues of the architecture of competition policy or monetary policy. It was also sparked by recurrent efforts of the Bundesbank and federal cartel office to justify their independence and their special privileged role within German economic governance (e.g. Möschel 1997; Weidmann 2014a, 2014b). Identification with Ordo-liberalism assumed an added value to the Bundesbank at a time when German negotiators were sacrificing the D-Mark, a key part of post-war national unifying myth, to strengthen European integration through monetary union in the wake of the anxieties produced by German unification. The public associated the D-Mark with ‘strength’, ‘success’, ‘security’, and ‘prosperity’ (Löffler 2010b: 148). The ascribed role of the Bundesbank in the negotiations was to ensure that the future European single currency was ‘at least as strong as the D-Mark’ (Dyson and Featherstone 1999). The strategy of the federal
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366 Conservative Liberalism, Ordo-Liberalism, and the State government was to bind in the Bundesbank during the complex EMU negotiations (ibid.: 371–86). In this way the mythology surrounding Ordo-liberalism was sustained. At the same time, in the regular routine functioning of these policy domains, Ordo-liberalism functioned largely as a background factor, part of the institutional culture into which officials were socialized (confidential elite interviews, 2013–17). The Ordo-liberal emphasis on rules was self-evidently appealing to an officialdom which was in key areas, like competition policy, key parts of European policy, and the federal justice ministry, still dominated by lawyers. In the federal economics ministry in 1957, for instance, 68.5 per cent of the top officials were lawyers, and just 13 per cent economists, though a considerable number of the lawyers had done economics dissertations (Löffler 2003: 137–8). A survey of top officials in the federal finance ministry in the period 2002–13 showed that 60 per cent were lawyers; the per centages of lawyers in the federal chancellery and the foreign ministry were 48.4 and 59.2, respectively (Veit and Bach 2014). In 2005 lawyers still accounted for 60.8 per cent of the federal administrative elite (Schwanke and Ebinger 2006: 233–4). However, the significance of Ordo-liberalism was not synonymous with officials, lawyers or not, having read Ordo-liberal canonical texts (confidential elite interviews). More generally, the institutional appropriation of Ordo-liberalism was attract ive for the theoretical ballast it provided for German interests as a major net creditor state in International Monetary Fund (IMF), European Union (EU), and euro area negotiations about rescue programmes for states in crisis (e.g. Röpke 1954, 1959; also Dyson 2014). It shaped the kind of hegemonic role that Germany sought to play in European economic governance, based on building stability at home and on enforcing liability. However, Ordo-liberalism’s significance in this respect was contingent on the continuity of Germany as a net cred itor state.
Correspondence of Myth and Reality The discrepancy between myth and reality was apparent from the outset. The founding Ordo-liberals faced difficulties with the Occupation authorities over the desirable scope and speed of liberalization. Eucken and Röpke felt alienated from the mainstream ‘Anglo-Saxon’, Keynesian economic thought which they thought animated the policies of the American and British authorities (e.g. Eucken letter to Röpke, 9 March 1949, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken; Röpke letter to Eucken, 28 March 1949, in the Röpke Papers, Institute for Economic Policy, Cologne University). These policies were collectivist and interventionist, far from the economic liberalism they espoused.
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How Ordo-Liberal Is Germany? 367 The problems of the founding Ordo-liberals were compounded by the domestic opposition they encountered from academics, politicians, officials, and industrial lobbies in their attempt to fill the policy space that had been created by total defeat. There was an intense domestic political debate—stretching into academic economics—about the desirable post-war economic order. The structure of this debate was influenced by the large-scale dismissals of Left-inclined academic economists from 1933 and the emigration of leading thinkers to the United States (details in Hagemann 2011: 645–8). Those appointed to succeed them were of lesser quality and typically opportunists and fellow travellers. This post-war context offered favourable terrain to construct a Freiburg legacy in German academic economics, imparting to it a conservative-liberal outlook (see details in Chapter 4: 108–11). However, by the late 1950s, the Keynesian presence in German academic economics was over-shadowing the Freiburg legacy (Nützenadel 2005). In the mid1960s, Ordo-liberals like Erich Hoppmann and Friedrich Lutz were aligning themselves with Schiller’s reforms to strengthen economic coordination and counter-cyclical policy mechanisms (ibid.). From the 1970s, Ordo-liberalism seemed to have a new opportunity to rejuvenate by absorbing US-based monetarism and then credibility and time-consistency literature, situating itself in the international mainstream of monetary policy (cf. Goodfriend 2007). However, this academic shift did not translate into significant new investment in Ordoliberal teaching and research. By 2010–11 there was a sense of a crisis of identity within German academic economics, caused by the marginalization of Ordoliberalism in traditional centres like the University of Cologne (details in Caspari and Schefold 2011). Ordo-liberalism also faced an intense political battle inside the CDU, which culminated in its adoption of the social market economy as central to its party programme. A further battle was waged against the SPD, which—until the adoption of its Bad Godesberg programme in 1958—emphasized public ownership and more interventionist economic and social policies. Erhard’s position was threatened by early public doubts about whether his liberalization reforms would work. Once the federal government took office in 1949, he faced institutional friction within the federal government, including from the federal ministries of finance and of labour and social affairs, as well as from the federal chancellor, Konrad Adenauer (details in Koerfer 1988). He was constrained by the ‘departmental’ principle and the ‘chancellor’ principle, both of which—alongside the weaker ‘cabinet’ principle—were enshrined in the Basic Law of 1949. Erhard was also drawn into conflicts with international institutions, like the EPU and later the European Commission, over plans to strengthen European economic governance and who bears the burden of adjustment to economic imbalances and crises (Dyson 2014). He also encountered the brute facts of an economic reality of big banks and industrial corporations. This aspect of
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368 Conservative Liberalism, Ordo-Liberalism, and the State reality was less of a problem because, like the Americans, but counter to the founding Freiburg Ordo-liberals, Erhard accepted that the support of the big banks and corporations was essential to early and rapid reconstruction and to containing Soviet ambitions (Berghahn 2010). The problem of the lack of correspondence between Ordo-liberalism and German economic institution-building and policies was compounded by the absence of a ‘constitutional imperative’. If Ordo-liberalism was part of a post-war national unifying myth, this advantage was not translated into constitutional terms in 1948–9. Unlike the commitment to European unification, it did not have the status of a constitutional imperative. There was no reference to the social market economy in the Basic Law of 1949, though Ordo-liberals could take consolation from the inclusion of the rights to property, inheritance, and occupational freedom in its unamendable articles. Central bank independence and the duty to safeguard the currency depended only on amendable legislation. In contrast, the Single European Act of 1986 enshrined the single market in superior treaty law, whilst for the first time the Maastricht Treaty gave constitutional status to central bank independence. Despite Ordo-liberal reservations about EMU, EMU helped to push the narrative about German economic policy in an Ordo-liberal direction. Tietmeyer (1999), president of the Bundesbank and a committed Ordo-liberal, argued that EMU provided Germany with an extra disciplinary mechanism in managing the fiscal burden that had been created by German unification. Moreover, through the European route of constitutionalizing a ‘stability community’, the rulings of the Federal Constitutional Court began to reflect Ordo-liberal-style reasoning in a much more overt way than before (e.g. Bundesverfassungsgericht 1993, 2009, 2011, 2012a, 2012b, 2014a, 2014b). In its ruling on the Maastricht Treaty, the Court noted: ‘This concept of the monetary union as a community of stability is the basis and the object of the German law giving assent to it’ (Bundesverfassungsgericht 1993: C.II.e). The constitutionalizing of the ‘debt brake’ in 2009 represented a further discip linary step in German fiscal policy. The aim was to complement the fiscal stimulus in 2008–9, in the wake of the Lehman investment bank collapse, with a longer-term pre-commitment to fiscal balance over the cycle. The ‘debt brake’ limited structural new borrowing of the federal government to 0.35 per cent of GDP and, from 2020, prohibited the federal states from structural new borrowing. A related aim of the ‘debt brake’ was to bolster German negotiating strength within EMU as an EU ‘model pupil’. Subsequently, German negotiators succeeded in uploading the ‘debt brake’ into euro area treaty law through the so-called ‘fiscal compact’ of 2012. Euro area treaty commitment to the balanced budget rule was a trade-off for German acceptance of the treaty establishing the ESM in 2011. Member-state ratification of the ‘fiscal compact’ treaty and its transposition into national law were made a precondition for the granting of ESM assistance. For fundamentalist-minded Ordo-liberals, this trade-off was at best a mixed blessing.
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How Ordo-Liberal Is Germany? 369 After the discrediting of Germany as a military power, Ordo-liberalism was able to offer a way of giving substance to a new role for Germany as a ‘model pupil’ in Europe and the world. From the early 1950s German negotiators began to use domestic discipline as a resource to strengthen their effectiveness in European negotiations (see Müller-Armack 1971: 92). Domestic discipline, taking national responsibility for stability-oriented policies, enabled them to exercise power as a ‘model pupil’. This approach was consistent with Ordo-liberalism. It had been in evidence in Germany’s early exit from its EPU assistance programme in 1950–1 and in Germany’s tough approach to the operation and reform of the EPU in the 1950s (Kaplan and Schleiminger 1989). The emphasis on domestic discipline continued in the German approach to the design and functioning of the European Monetary System (EMS) as a de facto ‘D-Mark zone’ from 1979 (Dyson 1994). It was reflected in the German influence on the final content of the Delors Report on EMU in 1989, on the final agreement on the terms of EMU in the Maastricht Treaty of 1991, and on the substance of the Stability and Growth Pact (SGP) of 1997 (Dyson and Featherstone 1999; Heipertz and Verdun 2010). The prerequisite for sustainable European economic and monetary integration was risk reduction by member-state action. This message informed German insistence on the ‘fiscal compact’ treaty in 2012; on placing the onus of adjustment on deficit states in the macro-economic imbalance procedure (MIP) of 2011; and on the German veto of euro bonds and any early move to collective deposit insurance in European banking union (Dyson 2013a, 2014). The modelpupil approach helped to inspire the successful efforts of federal finance minister Wolfgang Schäuble to achieve fiscal surpluses and reduce the public debt/GDP ratio towards the 60 per cent reference value in the Maastricht Treaty. The federal coalition agreements in 2013 and 2017 contained the commitment to no new public debt. They were designed to help protect and strengthen German negotiating power in complex and difficult debates about euro area reform (confidential elite interviews). Ordo-liberals themselves were quick to notice the imperfect correspondence between Ordo-liberalism and post-war policies (e.g. Müller-Armack 1976a/1959; Röpke 1976). Many like Röpke saw 1957 as a turning-point: the cartel law, the pension law, and the Treaty of Rome were judged major setbacks for Ordoliberalism. Liberalization of capital markets had proceeded slowly. The Bismarckian social insurance system was reinstated in opposition to Ordo-liberal views about social policy which emphasized personal responsibility (Abelshauser 1987). Health insurance reform increased the privileges of suppliers at the expense of cost-efficiency. The tax structure was too complex and made dysfunctional by numerous privileges that reflected the power of special interests. The large-scale fiscal transfers within the federal structure reduced incentives to economic reform at the state (Land) level and created a dependency mentality, in contradistinction to Ordo-liberalism (Koerfer 2017; Kronberger Kreis 2010). In addition, European policy was a major source of disappointment to Ordo-liberals.
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370 Conservative Liberalism, Ordo-Liberalism, and the State Röpke (1958a, 1959, 1961a) took a leading public role in attacking the Treaty of Rome as a narrow and highly imperfect form of integration. He deemed the common agricultural policy (CAP) and the European Coal and Steel Community to be economically irrational and bureaucratic. His views were shared by Gocht in the federal economics ministry and on occasion expressed by Erhard.
Competition Policy Assessment of the correspondence between competition law and Ordo-liberalism is complicated. Ordo-liberalism was neither monolithic nor static with respect to competition policy, either at the outset or later. Unresolved tensions remained between ‘free’ and ‘fair’ competition and about whether the central organizing principle should be prohibition of market dominance or action against the abuse of market power. Over time, Ordo-liberal conceptions of competition have evolved in a more refined and nuanced way with new knowledge and experience. Hayek’s conception of competition as a dynamic process of discovery displaced the idea that ‘perfect competition’ should serve as the model. In the process, Ordo-liberal conceptions of competition policy moved away from the early Freiburg thinking. They also extended beyond the early preoccupation with the problem of cartels in the 1940s and 50s to look at issues like abuse of market dominance and merger-control (Emmerich 2014a). There was a recognition that market power was a pervasive feature of real-world markets. The challenge was to ensure that it was not abused to the detriment of consumer choice. By the 1980s to 90s, later Ordo-liberals had come to understand market liberalization in a different way. At the same time, Ordo-liberalism retained a vital core of continuity of beliefs. Competition policy is in the service of individual rights. Its role is to protect competition in order to extend and secure consumers’ choice. However, it should focus on the rules of the game and not attempt to measure the effects of individual corporate strategies. In this respect, enforcement of competition rules is fundamentally different from prescriptive state intervention. Böhm’s (1933) belief that freedom to compete is the most effective instrument of disempowerment remained common ground within Ordo-liberalism. His model was an economy without cartels and based on the principle of independence. This principle made him an enemy of cartels, whether they involved big or small firms. He was opposed to granting permission to cartels of medium-sized firms (see below). However, there was initial disagreement about how the object ive of disempowerment was to be achieved. Böhm and Eucken wanted a proactive policy through a strict prohibition on cartels and rigorous market liberalization. Abuse of market dominance was accordingly less central in their thinking. The model of an economy of small and medium-sized businesses (the Mittelstand)
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How Ordo-Liberal Is Germany? 371 was very much at the heart of their thinking about a competitive market economy. In contrast, Miksch (1937, 1948) favoured a focus on the regulation of monop olies and oligopolies on the ‘as-if ’ principle of what a competitive market would look like. Ordo-liberals tended to reject this approach as creating an opening to state intervention in markets (e.g. Möschel 2015: 53–60). By the 1950s Ordoliberals were moving beyond these early positions and arguments to an acceptance of corporate power and to distinguishing between its good and its bad use, notably as an exclusionary device. Mestmäcker (2003) sought to challenge French thinking about European competition policy by crafting a distinctive Ordoliberal approach to the abuse of market dominance. He argued that Article 85 of the Treaty of Rome was primarily about prohibiting exclusionary behaviour rather than just exploitation. For the Ordo-liberals, the challenge was to put in place a competition law that would ensure the political credibility of the market order and its compatibility with a state ruled by law (Rechtsstaat). The main location of this challenge changed over time. Initially, notably for Böhm, the power of the cartels was a historical problem that had to be resolved through their complete and comprehensive prohibition (Mestmäcker 1978: 6–7). The problem was that the oligopolistic features of the pre-war German economy were carried over into the post-war structure (Berghahn 2010). The powerful industrial lobbies, like the Federation of German Industry (Bundesverband der deutschen Industrie, BDI), mounted strong opposition to the anti-cartel thinking of the Ordo-liberals. The effects of industrial lobbying continued to be felt in the debates about cartel law, about mergercontrol law, and later about power in the digital economy. The law against restraints on competition of 1957 followed long and bruising battles going back to 1949 and represented a weakening of many earlier drafts, the first of which—the Josten draft, on which Böhm had worked—had been recognizably Ordo-liberal (Freyer 2006: 264; Hansen 2009: 264–8). Positively for Ordo-liberals, it contained a prohibition on cartels that they could welcome as a new historical direction. On the other hand, its provisions were a deep disappointment to Böhm, then a CDU parliamentarian. The law did not contain merger-control provisions and included major exemptions for cartels in agriculture, banking, insurance, energy, and transport. Moreover, despite the creation of the federal cartel office as an autonomous institution, the law did too little to prevent politicization of implementation. The federal economics minister appointed its president and could give general or individual directions based on the national interest. The federal cartel office could temporarily authorize ‘rationalization cartels’ to promote technological progress and ‘structural crisis cartels’ where businesses were suffering from a temporary decline in demand. Böhm (1961) worried that the cooperation guide (Kooperationsfibel) of the federal economics ministry increased the risk that small and medium-sized firms would be able to protect themselves against competition (Emmerich 2014b; Nörr 1994). Cartel law was
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372 Conservative Liberalism, Ordo-Liberalism, and the State strengthened, notably in 1973. Nevertheless, the power of the big banks and of the energy companies remained contentious political issues, along with recurrent evidence of cartel-like behaviour in, for instance, the automobile and steel sectors. By the 1960s to 70s merger-control law had emerged as the central battleground for Ordo-liberals in ensuring the credibility of the market order. As European and international competition intensified, German corporations acted to exploit and protect their market positions (Schlecht 1992: 329–30). In response, from 1973 there was a continuing strengthening of German merger-control law. However, the monopoly commission’s rulings were non-binding in the context of invoking the procedure for ministerial permission. There was also a growing recognition that the effectiveness of merger-control depended on developing European law. With the new millennium Ordo-liberals had to confront the new challenges from the digital economy. Platform businesses like Apple, Google, Facebook, and Uber created a radically new business model that spurred innov ation and was welcomed by their investors, employees, and consumers. However, Ordo-liberals worried about their monopoly power and its use to restrict consumer choice, as well as privacy and data protection issues. Their response was to reject the idea that these platform businesses were simply benign monopolies and to call for an active enforcement of competition law to protect rights at German and European levels. Through all these debates about cartel law, merger-control law, and regulation of the digital economy, Ordo-liberals continued to exhibit worry that competition policy was too politicized at German and, less so, European levels. They wished to insulate them better from the power of special interests and from considerations of macro-economic policy (e.g. Schlecht 1992). By the 1990s Ordo-liberals were expressing alarm that the independence of the federal cartel office was being undermined as the federal economics ministry began to make more active use of ministerial permission in major merger cases on grounds of macro-economic significance (e.g. Möschel 1997). Globalization, notably the challenge of China, reawakened interest in German- and European-level industrial policy in what were regarded as sensitive sectors. The high-level political backing for major cross-national mergers, like Alstom and Siemens in train manufacture, posed new challenges for Ordo-liberal ideas of competition policy. In January 2019 the federal cartel office raised serious doubts about the effects of the Alstom/Siemens merger on the signalling and high-speed-train markets. Ordo-liberals were not just divided about the right approach to competition policy. They faced a difficult ethical question about the relationship between freedom of competition and fair competition. This question drew out the tension between the individualistic and social-ethical dimensions of Ordo-liberalism. The dominant Ordo-liberal view was dualistic: the law against restraints on competition of 1957 and the law against unfair competition, dating back to 1896, were complementary. Unfair competition law helped to promote social solidarity.
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How Ordo-Liberal Is Germany? 373 According to Böhm’s conception of a civil-law society, it was legitimate to act against cheating, fraud, and abuse of market power as means of gaining undue competitive advantage. However, Mestmäcker (1984) pointed to the anti-competitive effects that arose from the 1896 law’s prohibition of business conduct contrary to ‘good morals’ (gute Sitten). Critics of unfair competition law (Lauterkeitsrecht) argued that its ethical and mercantilist approach protected competitors, not competition. It could be used to obstruct entrepreneurship by outsiders and hollow out competition law (Emmerich 2014b). In addition, the high degree of regulation of the huge German crafts sector was another source of continuity that raised issues about market access and effects on entrepreneurial freedom (Habermann 1990).
European Integration and Competition Policy The question of the correspondence between European competition law and Ordo-liberalism is complicated by the different views taken by fundamentalist and realist Ordo-liberals and by the way in which Ordo-liberal conceptions of competition evolved over the generations (Emmerich 2014a). For the German negotiating team, market integration through law was a fundamental principle and competition policy was a key element in the Treaty of Rome. It was vital in offsetting the French efforts to develop the EEC as an instrument of central planning and intervention. Some fundamentalist-minded Ordo-liberals in the federal economics ministry, and connected to the older Freiburg School thinking, were unhappy about what they saw as the excessive concessions made to the French in negotiating the competition provisions in the treaty article 85, and to a lesser extent article 86 (Löffler 2003). Their dissatisfaction centred on the principle of control of abuse of dominant market position and the attempt to distinguish between the good and bad use of corporate power. As realist Ordo-liberals, German negotiators like Müller-Armack and Hans von der Groeben had no ser ious reservations about this compromise. For some Ordo-liberals, however, the competition provisions in the Rome Treaty and the German law of 1957 were the two parts of a defeat. Importantly, the Treaty of Rome acted as a stimulus for second-generation Ordo-liberals like Mestmäcker to develop their thinking about abuse of market dominance at German and European levels. They began to focus on ensuring that competition did not become distorted, for instance through exclusionary practices (e.g. Mestmäcker and Schweitzer 2004). These Ordo-liberals tried to get their thinking into the European directorate-general for competition policy— where German officials retained a strategic position into the 1980s—and into the rulings of the ECJ, with considerable success. They also sought to ensure a close fit with German competition law (Emmerich 2014a). In addition, later
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374 Conservative Liberalism, Ordo-Liberalism, and the State generations of Freiburg Ordo-liberals like Erich Hoppmann and Viktor Vanberg took from Hayek the notion of markets as dynamic, evolutionary, discovery processes. In short, Ordo-liberals adapted to monopoly power and market domin ance by focusing on the concept of abuse, differentiating exploitative and exclusionary abuses. In the early years of the European Commission, competition policy became a German domain. Mestmäcker’s presence as special advisor to the German commissioner, von der Groeben, offered Ordo-liberals some reassurance that rules could prevail over political discretion in European competition policy. Over time, Ordo-liberals developed a dualistic view of European competition policy. On the one hand, they welcomed its strengthening through rulings of the ECJ, through the single market programme, and through the more resolute action against state aid. European competition policy was popular as an increasingly important factor in merger-control and as a major source of pressure to liberalize German banking, energy, and telecommunications markets. On the other hand, Ordo-liberals were concerned about the shift in European competition policy from a legalistic rights-based style to a dynamic US-style ‘economic-effects’ approach. The activities of dominant companies should be assessed for their impact on competition and consumer choice, for instance through exclusionary practices. Competition policy should not seek to measure the allocative and efficiency effects of individual business strategies. The European Commission was accused of advocating a post-Chicago approach that led to an over-lenient conception of ‘market dominance’ and privileged certain players (Gerber 1994, 1998). Simultaneously, the federal government complained that the European Commission’s liberalizing initiatives—in areas like coal subsidies, shipbuilding, public-sector banking, car distribution, and book-pricing—showed a failure to understand the nature of Germany’s industrial base (Rhodes 2003). These German complaints reflected the limits of Ordo-liberal influence within Germany.
Economic and Monetary Union The correspondence between Ordo-liberalism and EMU was another area in which fundamentalist-minded and realist-minded Ordo-liberals held different views. The fundamentalists looked to the Bundesbank to safeguard a tough approach, emphasizing Ordo-liberal principles of avoiding moral hazard and of enforcing liability on member states. In 1978 the Bundesbank succeeded in getting the agreement of the federal government that its interventions to support the Exchange Rate Mechanism (ERM) would in no way constrain, or take precedence over, its statutory responsibility to safeguard the D-Mark. The Bundesbank also worked hard to ensure that the European currency unit (ECU) did not become the reference currency in the new ERM.
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How Ordo-Liberal Is Germany? 375 The Maastricht Treaty was even more challenging for fundamentalist-minded Ordo-liberals. In June 1992 sixty-two German economists signed a public letter that claimed that the Maastricht Treaty provisions on EMU were too weak to safeguard a stability-oriented economic policy (Ohr and Schäfer 1992). The convergence criteria governing entry were too lax; a consensus around price stability was not evident; transfer mechanisms would prove necessary because of differences in competitiveness and lead to moral hazard; and setting a final date was too hasty given unclear evidence about commitment to convergence. Subsequently, many Ordo-liberals were disappointed that the German government had failed to secure full automaticity in the procedures of the SGP (confidential interview, German Bundesbank, April 1997). Its implementation would be politicized and lax. In 2003 the German government was attacked by Ordoliberals for precipitating a crisis of the SGP by flouting its rules and for being coresponsible for softening its rules in the 2005 reform (Issing 2008: 199; more generally, Heipertz and Verdun 2010: 140–53). Ordo-liberal critique mounted with the euro area crisis from 2009. The flashpoints were the Greek bail-out in 2010; bond-buying by the ECB, above all in the case of excessively indebted states; the creation of the ESM; the plan for a collect ive deposit insurance pillar of European banking union; and the growing TARGET2 imbalances and their implications for German liability in case of a euro area exit or break-up (Böckenförde 2010; Issing 2010a, 2011; Mestmäcker 2011, 2012; Schmidt 2013; Sinn 2011; Stark 2010, 2011, 2013). The ECB’s mounting engagement in ‘ultra-loose’ monetary policies, the blurring of the boundary with fiscal policies, and aspects of its expanded role in banking and financial stability led Ordo-liberals to argue that it could no longer be credibly seen as ‘the Bundesbank writ large’. In many decisions of the ECB governing council the Bundesbank appeared as a lonely ‘hawk’, with few reliable friends. The federal government and the ECB were held responsible for allowing elem ents of collective liability to creep into the design of the euro area, thereby weakening incentives for states in crisis to undertake structural reforms. They were criticized for policies that offended against Eucken’s Ordo-liberal principles by encouraging moral hazard and by transforming the euro area into a liability union (Haftungsverbund). Reforms had to establish a clear connection between liability and control and, in recognition of member-state responsibility for economic and fiscal policies, take measures to reinforce financial-market discipline. Ordo-liberal proposals included a treaty-based state insolvency procedure, legally mandating who bears the costs; regulations to strengthen financial stability by ending the risk-free status of sovereign bonds through strict limits on bank holdings; and banking union in the form of stronger capital-adequacy requirements on banks (e.g. Feld 2012: 13, 21–5; Kronberger Kreis 2011; Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung 2011, 2012; Weidmann 2013, 2014b; Wissenschaftlicher Beirat 2011a). The euro area required
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376 Conservative Liberalism, Ordo-Liberalism, and the State a new framework of order (Ordnungsrahmen) for public debt and for the banking and financial system.
Gaps in Ordo-Liberal Thinking To add to problems of correspondence between myth and reality, there were gaps in the founding Ordo-liberals’ thinking on important issues, as well as differences about whether and how these gaps should be filled. The gaps were many and notable with respect to fiscal policy, counter-cyclical stabilization, European economic governance, tax policy, capital market policy, corporate law, wealth policy, social investment, and reform of the public services. In these key areas, officials in the federal ministries attempted to play a creative role in trying to fill some of these gaps on terms broadly consistent with Ordo-liberalism as they interpreted it. In the 1950s Strauss was important in pushing through corporate law reform in the federal justice ministry, though it was long delayed. Schiettinger, with finance minister Etzel, played the central role in the major tax reform after 1957. In the federal economics ministry Müller-Armack pushed strongly for wealth policy in the forms of encouragement of private savings and share ownership. However, his proposals failed to enlist the strong and enduring support of Erhard (details in Dietrich 1996). Fiscal policy was neglected in Ordo-liberal thinking. Eucken (1923: 78–80) identified the inflationary potential of fiscal deficits very early in his career. However, later he had little specific to say on this key topic, unlike Rueff in France (Chapter 10: 320). An early flashpoint was Müller-Armack’s proposal of 1955 for a new inter-ministerial coordination committee for stabilization. Erhard was deeply reluctant to engage, less on Ordo-liberal grounds than out of concern that this committee would serve as a device to curtail his autonomy of action. Later, the 3 per cent fiscal deficit/GDP rule and the 60 per cent public debt/GDP rule in the Maastricht Treaty of 1993 had no basis in seminal Ordoliberal texts, although in general terms Ordo-liberalism and its notion of a stability-based economic policy could be used domestically as a justification for a rule-based approach (see Dyson and Featherstone 1999). The design of the German proposal for a stability pact in 1995 to strengthen fiscal discipline within European monetary union—later the SGP—was traceable to the creative role of economists at the Institute for the World Economy (Institut für Weltwirtschaft) in Kiel and to officials in the federal finance ministry (Heipertz and Verdun 2010: 95). It had two purposes: to counter public doubts and hostility towards monetary union and to secure a binding self-commitment of member states to stability-based economic policy. Ordo-liberalism’s role was essentially in the background as a source of justification, not in offering a clear prescriptive model.
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How Ordo-Liberal Is Germany? 377 The tensions between Erhard and Müller-Armack highlighted another problem. Erhard was unenthusiastic about developing the institutional framework of EEC economic governance. He staunchly opposed Müller-Armack’s proposal of 1959 for the institutional development of European economic governance (Müller-Armack 1971: 254–7). More fundamentally, Erhard was indifferent to Müller-Armack’s attempts to develop the concept of a second phase of the social market economy. Consistent with his two principles of market conformity and social balance, Müller-Armack sought to place greater stress on reform of the public services (especially in education, health, and housing), on social investment, on improving the working environment, on strengthening spatial planning, and on encouraging personal independence by incentives for saving and by diffusing property ownership (ibid.: 273–87). These two examples illustrate the variability in the way in which gaps in Ordo-liberal thinking were perceived. To complicate the question of correspondence, Ordo-liberal policy prescriptions often left room for differences of emphasis. Just how far was the logic of the competitive market order to be taken? Did the craft sector, the free professions, and small businesses merit continuing protection and, if so, on which grounds? Röpke and Rüstow emphasized their value as barriers against the dangers of ‘massification’ and ‘proletarianization’. Under Erhard the federal economics ministry emerged as a bastion of protection for these sectors. It was possible to hold contrasting views about whether these policy sectors corresponded with Ordoliberalism. More broadly, did Ordo-liberalism require the sort of radical social reforms that were envisaged by Rüstow, like policies to favour a wider distribution of wealth? In this case, Erhard proved very cautious, adopting the dogmatic position of his division for money and credit rather than the innovative proposals from Müller-Armack (Dietrich 1996: 238–41, 293). Federal economics minister Schiller’s attempt in 1966–7 to identify the SPD with a new conception of an ‘enlightened’ social market economy revealed further divisions amongst Ordoliberals. The idea of counter-cyclical ‘global steering’ of the economy drew forth Ordo-liberal opposition, for instance from Kurt Biedenkopf (1969), Gocht, and Erhard. However, it was supported at the time by Hoppmann, Lutz, and Schlecht, all ‘Freiburgers’, as well as by Müller-Armack (1971: 254–5). Former students of Eucken—Gocht, on the one hand, and Lutz and Schlecht, on the other—stood on opposite sides of the divide.
The Causal Significance of Ordo-Liberalism Attributing causal significance to Ordo-liberalism in the post-war economic miracle is also problematic. Central bank independence in 1948 owed more to internal practical lesson-drawing from the 1920s by long-serving German central bankers and to American pressure than to Ordo-liberalism (Dickhaus 1996).
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378 Conservative Liberalism, Ordo-Liberalism, and the State The historical archive of the Bundesbank offers no evidence that the founding officials of the Bank deutscher Länder (BdL) sought to ground their justification of central bank independence in Ordo-liberal thinking. In any case, whilst Eucken and Erhard gave primacy to price stability, they did not regard central bank independence as its prerequisite (Bibow 2013). The currency reform of June 1948 was—until the ‘fall of the Wall’ in November 1989—the most memorized post-war event at the level of West German public opinion (Löffler 2010b: 138). However, neither its timing nor its design followed the Freiburg proposals, tabled by Adolf Lampe, or any one of the many other German proposals, including the Homburg Plan of 18 April 1948 that had been prepared by Erhard’s special office for money and credit. Emminger (1986: 23), the German central banker, noted that ‘only an occupying force could undertake such a drastic monetary reform’. The contents reflected Allied leadership, principally the American Plan of May 1946, with some additional ideas from the special office for money and credit (Kindleberger and Ostrander 2003; Meardon 2014; Möller 1976; Wünsche 2015b: 4–5; on the Lampe Plan, see Möller 1961: 349ff.). German experts were invited to the Rothwesten working group, which met some twenty times over a period of forty-nine days in April to May 1948 (Kindelberger and Ostrander 2003: 189). It examined some thirty German plans, including the Homburg Plan (Möller 1976). However, under the guidance of its American chair, the working group’s contribution was mainly technical, to translate American thinking into German legal terms (details in Hans Möller Archiv, Institut für Zeitgeschichte, Munich; also Buchheim 1988). Ordo-liberals played a minor role, and Erhard’s special office was marginalized. As Otto Pfleiderer (1973a), one of the leading German officials in the Rothwesten working group, later concluded, the German participants did not realize their aim of a more socially balanced approach to currency reform (see also the Erhard memorandum of 1943/4, p. 357 above). They had sought a more favourable conversion rate with the old Reichsmark and greater burden-sharing between the wealthy and others. Later mythology of the currency reform hid the extent to which it had depended on what Kindleberger and Ostrander (2003: 189) called the ‘benevolent despotism’ of the Allied authorities in inflicting ‘necessary financial surgery’ (also Emminger 1986). Central bank independence and price stability, the currency reform, and the accompanying economic liberalization and end of rationing played their parts in the post-war economic miracle (Giersch, Paqué, and Schmieding 1992). However, none of them was based simply on the implementation of Ordo-liberal prescription. Miksch has been identified as the Ordo-liberal sponsor of rapid economic liberalization in 1948–9 (Dathe 2015a). However, in a memo of February 1948, he expressed his scepticism about the premature ending of rationing and too fast a liberalization of prices (Möller 1961: 378). Erhard echoed this message in a speech on 21 April 1948: ‘We regard total abolition of controls, with currency reform or
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How Ordo-Liberal Is Germany? 379 after, as neither possible nor practical . . . we shall have to proceed circumspectly’ (Kindleberger and Ostrander 2003: 184). Miksch was also sceptical that German public opinion would tolerate central bank independence. Members of the special office for money and credit believed that economic policy would be primarily by credit policy. This belief led them to worry that the government’s economic policy would be undermined by an excessively independent central bank. Crucially, the economic miracle was supported by a benign constellation of factors that had nothing to do with Ordo-liberalism. Post-war Germany benefited from substantial Marshall Aid funding; early credits from the new EPU to ease its payments crisis; generous external debt relief in 1953 that gave major fiscal relief; the impact of large-scale migration in containing wage-cost increases and providing a highly motivated and well-skilled workforce; the strength and macro-economic restraint of the trade unions in collective bargaining; and, not least, the legacy of a stock of capital and labour and of technologically advanced manufacturing (e.g. Abelshauser 1983, 1987; Giersch, Paqué, and Schmieding 1992; Hall and Soskice 2001; Hentschel 1989). Later, the increasing scope and speed of German competition policy reforms owed more to external pressures from the EU, especially with the post-1986 single market programme, than directly to domestic Ordo-liberalism (Emmerich 2014; Mestmäcker and Schweitzer 2004). German export-led growth benefited from various factors. It was supported by a real devaluation of the D-Mark in a fixed nominal exchange-rate system, backed by low inflation. It also reflected the benign fit between Germany’s inherited strengths in high-skill manufacturing engineering and the kind of demand that was created by European reconstruction. Not least, it was able to profit from the policy decisions of key trading partners to pursue the type of Keynesian-style policies of economic expansion of which Ordo-liberals were critical (Bofinger 2016). Later, internationally active German banks were able to benefit from ‘bail-out’ measures—opposed by Ordo-liberals—that helped facilitate credit repayments by euro area member states in crisis. The ‘bail-in’ of bondholders that was called for by prominent Ordo-liberals threatened interests within the German financial system (e.g. Issing 2010b). The variation in the causal significance of Ordo-liberalism had much to do with its perceived relevance to the issues at hand and whether it offered clear guidance; to the intellectual commitment of those who held authority; to the constellation of political and institutional forces at a given time; to the degree of fit with international and European institutions; and to brute material factors, like economic and financial structures and the privileged and powerful actors they throw up. These considerations suggest that, in general, constraints on heroic Ordo-liberal economic statesmanship—like that of Erhard—proved powerful and needed to inform expectations of what could be achieved. They are also likely to manifest themselves differently across policy sectors and issues, creating vari ations in opportunity to shape outcomes.
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380 Conservative Liberalism, Ordo-Liberalism, and the State
Ordo-Liberalism and the Great Depression: The Brauns Commission and the Lautenbach Plan We are in danger which we will not overcome without danger. Closing remark of Eucken’s intervention at the secret meeting of the Friedrich List Society, Wednesday 16 September 1931 (Borchardt and Schötz 1991: 148) Post-war German Ordo-liberals did not have to seriously contend with the challenge of deflation, at least until the post-2009 financial and economic crisis and the existential crisis of the euro area. However, the height of the Great Depression in 1931–2 offers insight into how the founding Ordo-liberals had attempted to deal with a gathering sense of existential political and constitutional crisis. The liberal order was consuming itself before their eyes. On Monday 13 July 1931 the government was forced to shut down the entire financial system and to impose exchange controls to limit the outflow of currency. Heinrich Brüning’s government took the first steps away from parliamentary democracy in the name of austerity. The troubled and conflicted responses of the founding Ordo-liberals combined an enduring emphasis on caution with a lack of the dogmatism that characterized those in and close to the Austrian tradition. On the one hand, the founding Ordoliberals shared a belief in the need for the state to act and to do so with integrity (Röpke letter to Eucken on 16 July 1931, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Röpke argued that a temporary stimulus would help to avert economic and political disaster. On the other, the founding Ordo-liberals reflected aspects of liberal economic orthodoxy. According to Wilhelm Lautenbach at the List Society conference in September 1931, their thinking was constrained by an ‘inflation psychosis’, which he dated back to the early 1920s (Borchardt and Schötz 1991: 170). The founding Ordoliberals were worried about how to finance investment and credit expansion; about further deterioration in the foreign-exchange markets, leading to state bankruptcy; and—with the temporary exception of Röpke (1932: 121)—about the dangers of devaluation (Klausinger 1997: 9–12). This ambivalence suggests that the founding Ordo-liberals were far from being ‘proto-Keynesians’ in 1931–2. Their attitude to economic stimulus was that it had to remain consistent with the long-term, rule-based framework of a liberal economic order (Eucken 1951; Röpke 1932, 1933b, 1936; also Feld, Köhler, and Nientiedt 2018). In defining their positions on the causes of the crisis and its solution, the founding Ordo-liberals were clear about their enemies. They were critical of the irresponsible financial policy in 1926–8, blaming both the Weimar governments for their fiscal deficits and the monetary policy of the Reichsbank. They also attributed blame to the increase in real wages as the result of irresponsible behaviour by the trade unions and by the employer cartels (e.g. Rüstow letter to Eucken,
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How Ordo-Liberal Is Germany? 381 3 April 1930, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). In thinking about solutions, the founding Ordo-liberals strongly rejected the ‘protectionist nationalists’, whom they regarded as a danger to free trade and jobs (e.g. Röpke letter of 16 July 1931 to Eucken, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). International trade was part of the solution. They opposed any notion of breaking free from international constraints by a Germany-first national expansion plan. The caution of the founding Ordo-liberals was to a considerable extent mirrored in the Lautenbach Plan of August 1931, making its acceptance easier. In contrast, the founding Ordo-liberals attacked the irresponsibility of the Wagemann Plan of January 1932. Ernst Wagemann, president of the imperial statistical office, generated a political storm when he advocated a bold credit expansion through complete restructuring of the German monetary and financial system, including an end to the Reichsbank’s independence (e.g. Rüstow’s letter to Eucken, 19 April 1932, in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Wagemann fitted the Ordo-liberal image of the ‘protectionist nationalist’ and soon drifted into the orbit of National Socialism. The caution of the founding Ordo-liberals also surfaced in their later criticisms of Keynes’ general theory. Their attitudes in 1931–3 to the debate about an economic stimulus were in no sense an anticipation of the theoretical insights of Keynes’ general theory (Feld, Köhler, and Nientiedt 2018). Eucken (1951) stressed that the unemployment problem must be understood against the background of the economy as a totality. It was best to avoid discretion in trying to manage business-cycle fluctuations in favour of focusing on the long-term, rule-based framework of economic policy. This view was shared by Röpke (1936), who later regarded Keynes’ theory as one for special circumstances and not as a general theory. Röpke stands out as the main Ordo-liberal statesman-economist. In 1931 he was appointed to the high-profile commission on unemployment, chaired by Heinrich Brauns, the main architect of Catholic Centre Party social policy in the Weimar Republic. Here he worked with its advisor, Lautenbach. Röpke played an important role as an economic expert in deflecting the commission away from job-creation through public investment, in a manner that reflected a consistency with orthodox Austrian rather than Keynesian business-cycle theory. The Brauns Commission opted for a mixture of foreign long-term credit to fund job-creation with fiscal orthodoxy to retain market confidence (details in Röpke 1931). Röpke’s work in the Brauns Commission was pivotal in his intellectual development towards a more sociological Ordo-liberalism. He took away the lesson that, in addressing the unemployment problem, social and political as well as economic factors were important (Commun 2018: 126). In its immediate aftermath he was also forced to confront a huge German banking crisis and the reality that a foreign loan on the scale required would not
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382 Conservative Liberalism, Ordo-Liberalism, and the State be available. He began to edge towards a more pragmatic approach to the business cycle and to accept that a more ambitious approach was needed (Fèvre 2018). Röpke’s departure from orthodoxy was also bound up with the desire to distance himself from those he regarded as social reactionaries, blind to the political implications of neglecting the moral foundations of a market economy (Schüller 2003). The moral foundations of a market economy were later to be a central preoccupation of his work. In relation to the Brauns Commission, Röpke (1931: 451, author’s translation) noted: ‘If the collapse of the economy spreads . . . to the internal and external polit ics of the country . . . then it seems that . . . nothing can prevent it falling into disaster’. Similarly, in a letter to Eucken on 8 May 1931, Rüstow pointed out that, in the absence of a substantial inflow of capital before winter, Germany could not avoid catastrophe (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Looking back, Eucken (1951: 59) echoed these thoughts: ‘If the [Brüning government] had accepted [Lautenbach’s] proposals, there might perhaps never have been a National Socialist revolution’. Founding Ordo-liberals were acutely aware of the potential political costs of continuing to support deflation (Feld, Köhler, and Nientiedt 2018). Röpke’s (1932) importance lay in distinguishing between ‘primary’ and ‘secondary’ depression. The tipping-point arises when the ‘normal’ process of market self-adjustment through deflation leads to depression entering a second phase, when it takes on a self-reinforcing, degenerative character. In a secondary depression, deflation creates a vicious circle. The frantic pursuit of a balanced budget through expenditure cuts and tax increases reduces demand (see also Eucken memo of August 1932 on the Lautenbach Plan, in the Thüringer Universitätsund Landesbibliothek, Jena, Nachlass Walter Eucken). Contracting production means that practically all investment is unprofitable, practically all wages are too high, practically all banks are at risk of insolvency, and the credit mechanism dries up. A ‘secondary’ depression was not, in Röpke’s view, the right time to attempt a one-dimensional policy of nominal wage cuts. In these circumstances, the argument for a time-limited ‘kick-start’ (Initialzündung) to restore confidence gains force (Röpke 1931: 458). The difficult, judgemental question remained whether, and if so when, this shift to secondary depression had occurred (Borchardt 1982; Klausinger 1997: 6). At what point does the danger threaten to become existential? In September 1931 Eucken sought to persuade Miksch to drop his opposition to the economic stimulus in the Lautenbach Plan and to try to convert his colleagues, notably Erich Welter, at the Frankfurter Zeitung to do the same (Miksch diary, Freiburg). Their discussion makes clear that Eucken was very well informed about the political issues at stake (see also the correspondence between Lothar Erdmann and Eucken, Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). By January 1932 Miksch had adopted Eucken’s
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How Ordo-Liberal Is Germany? 383 position: the state had a short-term responsibility to avert an excessive deflation, whilst safeguarding the long-term framework of economic order (Dathe 2015a: 16). The founding Ordo-liberals continued to share the views of the Austrians like Hayek and Mises about the causes of the crisis in high real wages, low investment, and irresponsible financial policy. However, they diverged over how best to manage the crisis. The orthodox view was that the crisis must ‘burn itself out’ by allowing market forces to stage a ‘natural recovery’ (Klausinger 1997, 2001; Machlup 1934). This process entailed restrictive monetary policies, fiscal balance, benefit reductions, and wage cuts: in short, deflation. By this means Germany would be able to remain on the gold standard, to meet its reparation payment obligations, to liquidate debts, and to restore confidence, after which reflation would be possible. The fundamentalist deflationary position was adopted by the chancellor, Brüning (March 1930 to May 1932), and by the president of the Reichsbank, Hans Luther. They believed that deep structural reforms were required before the state could actively intervene to boost economic expansion. Too early a fiscal and monetary stimulus would stifle the impetus for reforms, as well as weaken inter national support for the abolition of reparations (Patch 1998). They endorsed the view that the crisis had a ‘cleansing’ function (Reinigungsfunktion). Credit cre ation and devaluation were rejected as leading to inflation. Germany needed to lower its cost structure. This orthodoxy was, with reservations, promoted by Gustav Stolper and Carl Landauer in the influential weekly journal Der Deutsche Volkswirt (Klausinger 2001). In 1932 the founding Ordo-liberals distanced themselves not just from the Wagemann Plan (on the Right) but also from the trade-union-backed WTB (Woytinsky-Baade-Tarnov) Plan (on the Left) (Klausinger 1997). Their key point of reference remained the plan authored by Lautenbach, a senior official in the imperial economics ministry and one of its few good economists. Lautenbach had consulted with members of the Kiel School, notably Gerald Colm and Hans Neisser, in the search for an alternative economic and political solution. He communicated the ideas of the Kiel School to Röpke. Against the advice of Hayek, Röpke (1931) had endorsed the Brauns report’s proposal for an expansionary employment programme of public works (Hayek letter to Röpke 1931, Röpke Papers, Institute for Economic Policy, Cologne University). In doing so, he recognized the tight constraints on German policy. It was acutely difficult to find the domestic and foreign capital to finance public projects when Germany lacked creditworthiness in international bond markets. Germany’s currency was acutely vulnerable in international money markets. Restoring creditor confidence and expediting domestic reforms seemed to depend on perseverance with a deflationary course. Nevertheless, Röpke believed that these constraints did not rule out a temporary expedient to kick-start the German economy through infrastructural
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384 Conservative Liberalism, Ordo-Liberalism, and the State investments. He hoped that such a programme would restore market confidence, attract long-term loans to Germany from abroad, and avert a major political crisis. The Lautenbach Plan of 24 August 1931 (revised version 9 September) was more ambitious than the two Brauns reports of March and April 1931. It emerged out of a process of inter-ministerial discussion in a fast-deteriorating context. The French government had been successful in blocking ambitious British plans for using the new Bank for International Settlements (BIS) to create international liquidity, above all to support Germany (Dyson 2014: 572–5). The subsequent German banking crisis from July 1931 had led to a serious deterioration in the economic situation in Germany. These developments encouraged Hans Schäffer, state secretary in the imperial finance ministry, to initiate a search for policy alternatives (Patch 1998). Schäffer had been head of the economic policy division of the imperial economics ministry (1923–9), was an expert on reparation issues, and—as a Jew—was deeply concerned about the drift of German politics to the Right. He sought to enlist the interest of Luther and gave his support to the group around Lautenbach. The central feature of the Lautenbach Plan was a twin-track approach to managing economic expansion through investment and credit expansion (Lautenbach 1991a, 1991b; Stützel 1952: 137). It was designed with reference to two goals: safeguarding the currency and avoiding even higher unemployment. The plan chose a middle way of combining ‘negative’ and ‘positive’ measures. This approach was intended to avert the dangers of a one-sided policy and to take account of what was recognized to be the constrained room for manoeuvre. The plan noted that ‘a policy of wage reduction should under no circumstances be pursued in isolation, but only in the framework of a comprehensive programme [including work-creation]’ (Stützel 1952: 141). Measures to liberalize prices and wages and thus reduce costs were necessary for a healthily functioning market and to encourage investment. However, they needed to be flanked by the kind of measures that had been proposed in the second Brauns report, above all investment in road and rail projects. A generous credit provision by the Reichsbank for this purpose would also help stabilize the financial sector (ibid.: 146). At the plan’s core was the notion that the crisis was best tackled by measures to strengthen the productive capacity of Germany, using a combination of demand-centred and supply-oriented policies. At the same time the Lautenbach Plan remained cautious. It raised questions about the availability of adequate financing and about the risks of inflation. These questions were to be taken up by its opponents. Moreover, it questioned neither Germany’s participation in the gold standard nor the obligation to honour repar ation payments. It seemed clear that American, British, and French public opinion ruled out a key part of the solution—the comprehensive and simultaneous write-down of war debts and reparations. The central concern of the Lautenbach Plan was to reconcile regaining the confidence of creditors with action to increase
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How Ordo-Liberal Is Germany? 385 employment. Its caution was grounded in recognition of the acute vulnerability of the German economy and of the entrenched institutional and political strength of the economic orthodoxy it faced. The Lautenbach Plan was discussed at a secret meeting of the Friedrich List Society on 16–17 September 1931, convened by the president of the Reichsbank, Luther (detailed minutes in Borchardt and Schötz 1991). The meeting brought together senior officials from the Reichsbank, the imperial economics ministry, and the imperial finance ministry, along with sixteen distinguished academic economists, including Eucken and Röpke. It included Luther, Rudolf Hilferding (former imperial finance minister), Schäffer, and Welter of the Frankfurter Zeitung. At the meeting, supporters of the plan were put on the defensive by the opening interventions of Luther, Edgar Salin, and Hilferding. It became clear very soon that several participants were hostile to the Lautenbach Plan. The two founding Ordo-liberals adopted a position of cautious endorsement. Both stressed the risks, whilst not rejecting the overall conception. Röpke was troubled by the criticism that the plan could provoke international hostility as a German attempt to ‘go it alone’ in economic policy. In his intervention Eucken placed weight on the ‘negative’ measures: liberalization of prices and wages were indispensable if Germany was to adapt to market conditions. It was essential, in his words, to ‘free the steering-wheel of the economy’. Eucken’s cautious approach was spelt out in detail in a memo of August 1932 (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). He made two points that summarized his attitude to the Lautenbach Plan. First, a counter-cyclical stimulus was only possible under the condition of a re-orientation in German economic policy towards a more flexible, competitive market economy. A stimulus created the risk that special interests, above all monopoly power, would be strengthened. The stress on flexibility of prices and wages, and critique of the intransigent behaviour of the cartels and the trade unions, was a point of common ground with Hayek. It had also been emphasized in a letter of Eucken to Rüstow on 28 October 1931 (Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Second, Eucken developed a point that had played a major role in the Friedrich List Society meeting. Germany was not an isolated state. A stimulus created the additional danger of severe difficulties in the foreign-exchange markets and of deterioration in already vulnerable foreign-exchange reserves. Only a shift in foreign policy that would ease the reparation burden would help ease this difficulty. Despite these two reservations, Eucken continued to argue that financing a deficit through bank credit offered a way out for Germany and was preferable to state insolvency. Rüstow had been well informed of the Lautenbach Plan and the Friedrich List Society meeting by his brother who worked in the imperial economics ministry. His activism in early 1932 was stimulated by his disappointment at the official
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386 Conservative Liberalism, Ordo-Liberalism, and the State response to the Lautenbach Plan and by what he saw as the irresponsibility of the Wagemann Plan. He played a leading role in the foundation of the new German Association for a free economic policy (Deutscher Bund für freie Wirtschaftspolitik). Its core themes were rejection of protection; retaining fixed exchange rates; and opposition to the extension of state power in the economy. In a letter to Eucken on 19 April 1932, Rüstow sought to recruit him—and, in another letter, to recruit Röpke—to this new association of economic liberals (details in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). Both Eucken and Röpke joined its executive committee, alongside Götz Briefs, Rüstow, and Adolf Weber. In May Eucken spoke at its conference on the dangers of protectionism. The association’s programme was classically Ordo-liberal (details in the Thüringer Universitäts- und Landesbibliothek, Jena, Nachlass Walter Eucken). It rejected a return to ‘Manchester liberalism’ and set as its goal ‘the strong national state as the just guardian of a healthy economy’. It stood for ‘unconditional defence of the stability of the German currency and return to the gold standard’. And, not least, it was committed to ‘fight against romantics, demagogues and doubters’. In a further letter to Eucken on 25 June 1932, Rüstow justified the new association as a substitute for the bankrupt political parties which had failed to bring together economic liberals. The German Association for a Free Economic Policy was the last, failed attempt by the founding Ordo-liberals to take a pro active approach to the crisis. The central problem for the founding Ordo-liberals was how to finance an expansionary programme in the absence of the prospect of a foreign loan (which had been envisaged by the Brauns Commission), of a functioning domestic cap ital market, and of the imminent threat of state insolvency. Eucken and Röpke recognized that any action would have to be cautious and step-by-step to avoid damaging international confidence in Germany. In addition, proposals for credit creation hit the barrier of what Lautenbach (1952) called a German ‘inflation psychosis’. After the hyperinflation of 1923 there was a macro-economic consensus forged around fear of inflation. Devaluation was ruled out as potentially inflationary, though for a time Röpke dissented from this view (Klausinger 1997: 17). A further constraint stemmed from Brüning’s political obsession with securing Germany’s release from the straitjacket of reparations. He turned this release into a precondition for resolving the crisis, an extremely high-risk political strategy. Both fear of inflation and the reparations issue were used by the government and its political and expert supporters to justify the continuation of orthodox policies (Klausinger 1997: 20). They used these two issues to tie their own hands and reduce the domestic space for economic policy alternatives. Luther’s exceptional convening of the List Society meeting was designed less to inform and educate the Reichsbank about economic policy alternatives than to inform and educate
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How Ordo-Liberal Is Germany? 387 academic economists about the constraints on executive power and the difficulties of departing from current orthodoxy. Its aim was to placate opposition. Despite all these grounds for caution, and despite the way in which the government and the Reichsbank constructed the crisis, Eucken and Röpke were very sensitive to the political gravity of the economic crisis. They came to recognize the dangers of doing nothing. Röpke’s key argument was that Germany was slipping into a ‘secondary’ depression and a vicious downward spiral. In the absence of the preferred option of coordinated international action, it was necessary to set in motion a positive chain of domestic events that would help lift German confidence. Röpke was to be highly critical of the failure of the Brüning government to implement the Lautenbach Plan. He stated that German economic policy in 1931–2 was a copy-book example of how not to resolve a crisis (Röpke 1976: 93). As a senior economics official who had supported Lautenbach, Schäffer had good reason to feel regret at the effects of the blocking tactics of Brüning and Luther. Looking back, he concluded: . . . you must understand how hard it is for someone in a responsible position to bear the sight of this crisis ‘burning out’ when he sees what burns up with it every day. (Quoted in Patch 1998: 204)
Ordo-Liberalism: Central Bank Independence, Monetary Reform, and the ‘Monetarist Revolution’ To establish the monetary system internationally . . . requires . . . an international monetary order [that is] constructed based on strict rules and functions as automatically as possible. Walter Eucken (1952: 257) This belief of Eucken in the virtue of automaticity in monetary policy was consistent with that of his internationally most famous pupil and former research assistant Friedrich Lutz (1936, 1949: 207) and of Veit (1950), an ‘honorary’ member of the Freiburg School, who was president of the state central bank of Hesse in the 1950s. They were variously attracted over time to a return to the gold standard, to new variants of automatic device, and to firm rules restricting bank credit cre ation, like the Chicago Plan (see Chapter 9: 294–5). Schlesinger, the long-serving chief economist of the Bundesbank and later its president, was influenced by Lutz’s work in the 1930s on the process of money creation in the economy under the influence of the banks. Broadly speaking, the Ordo-liberals and post-war German central banking shared a commitment to the Currency School of monetary policy (see Chapter 3: 84).
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388 Conservative Liberalism, Ordo-Liberalism, and the State However, the debates and papers of the council of the BdL, and its post-1957 successor the Bundesbank, about post-war monetary theory and policy offer no direct evidence that Eucken’s work played a significant role (the historical archive of the Bundesbank; also, confidential elite interviews in the Bundesbank). Eucken had made no serious original contribution to monetary theory since his Kritische Betrachtungen zum deutschen Geldproblem in 1923. In opposition to the Knapp state theory of money and to the ‘real-bills’ doctrine of the Banking School, he had argued that reduction of inflation must be the first goal of monetary policy. An end to artificially low interest rates was—alongside balancing of the budget— the precondition of an early return to the discipline of the gold standard (Eucken 1923: 38, 58, 139). ‘Any diversion’ from the goal of reducing inflation was to be avoided (ibid.: 79). In this respect, there was a correspondence between Eucken and the BdL/Bundesbank’s enduring insistence that internal price stability must be the foundation of external stability. The post-1914 errors of the Reichsbank were to be avoided at all costs. Eucken’s emphasis on the determination of the economic process by monetary policy led later to his principle of ‘the primacy of monetary policy’. However, whilst this principle was strategically useful to German central bankers, it offered little practical advice on policy instruments and their use. Moreover, Eucken’s thinking on central bank independence remained undeveloped and highly qualified. His proposal for an ‘automatic monetary stabilizer’ paid homage to the Chicago Plan but lacked its originality or specificity. Strikingly, Eucken believed that an automatic monetary mechanism was preferable to central bank independence and to a managed currency. It was a defence against the economic ignorance and susceptibility to flawed theories of political leaders and against their weakness in the face of interest groups and public opinion (Eucken 1952: 257). This preference also reflected his attitude to the conduct of the Reichsbank in the 1920s. He had little confidence in relying on the personal qualities of central bankers. However, central bankers did not always react well to this attitude. Eucken’s unpublished memorandum ‘on the nationalization of the central bank’ did not influence central bank discussions (see the Thüringer Universitätsund Landesbibliothek, Jena, Nachlass Walter Eucken; also Bibow 2013: 15–16). Here he expressed his fear that ‘an all too independent and weakly controlled central bank is difficult to fit into the structure of the state. It will be tempted to pos ition itself in opposition to the general economic policy of the state. A pluralism will easily develop that would jeopardize the unity of state policy’. The central bank should be ‘an autonomous institution, with monopolistic privileges’, and subject to ‘precisely specified state control, which would make it impossible for it to conduct its own economic policy against the state’. Bibow (2013: 16–17) argues that Eucken’s conception of a balance of power between the government and the central bank suggests an acceptance of policy coordination and of some flexibility in monetary policy. The evidence suggests that there is no clear relationship
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How Ordo-Liberal Is Germany? 389 between Eucken’s principles and central bank independence as it evolved in post-war Germany. Similarly, Eucken was a peripheral figure in the internal Bundesbank debates about the ‘monetarist revolution’ in the period 1970–4 (historical archive of the Bundesbank). In thinking about the post-war reconstruction of monetary policy, German central bankers drew their own practical policy lessons from their experience of the monetary disasters of Germany’s recent past. Many of them had been directly involved. One lesson was that central banking was an art that had to be entrusted to individuals who possessed the credibility that came from long experience, superior technical expertise, high personal integrity, and resolute independence of mind. This conception of central banking was not receptive to the notion of automaticity. It was embodied in figures like Karl Bernard, Wilhelm Vocke, Pfleiderer, and later Otmar Emminger. Between 1950 and 1964 Eduard Wolf, head of the economics division, emerged as the legendary spiritus rector of the German central bank (Rieter 2009: 156–66). This role was then taken on by Schlesinger, his more theoretically minded successor. In the minds of practically inclined central bankers, monetary rules and grasp of monetary theory were not enough. In his acceptance speech on the award of the Alexander Rüstow medal in 1994, Schlesinger stressed that ‘the central bank must be able to say no . . . courage is the most important virtue of a central bank head’. This courage was soon exemplified. In 1950–1, at the time of the Korean War and the German payment crisis, Germany lacked reserves and depended on credit from the new EPU. The BdL made clear to the new federal government that retaining the independence that had been granted by the Allies was the crucial question (Schicksalsfrage) if trust in the new D-Mark was to be secured (letter of Bernard, president of the BdL to Fritz Schäffer, German finance minister, 23 September 1950, in the historical archive of the Bundesbank). The crisis came to a head on 26 October 1950 when Adenauer, Erhard, and Schäffer attended the BdL council meeting. Adenauer pressed the BdL not to raise the interest rate. However, in a gesture of independence, the BdL council decided to do so (details in the historical archive of the Bundesbank). The difficult relations between Adenauer and the BdL were demonstrated again in 1956, when the federal chancellor—concerned about the forthcoming federal elections—used his Gürzenich speech to openly criticize the central bank for incurring the risk of a recession. His criticisms extended to his economics and finance ministers for their public support of the restrictive monetary policy, without consulting the cabinet. Adenauer’s intervention sparked a major backlash from academic economists, the liberal press, and even the trade unions. His retreat showed that, in taking a tough stand, the BdL could count on broad expert and public support (details in Issing 1993). German central bankers had the advantage of having been able to demonstrate their value before the new federal government took office in 1949. The Allies had
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390 Conservative Liberalism, Ordo-Liberalism, and the State established the BdL in 1948 as independent from the German authorities of the time. They had also structured it around the state (Länder) governments, which in turn gained a vested interest in protecting their rights in future centralizing central bank reform. The EPU payments crisis and the Korean War were used to strengthen the position of the BdL in German economic policy and the position of its directorate vis-à-vis its council (Dickhaus 1996: 128–37). However, Ordoliberal arguments were not in evidence. Another lesson of the past monetary disasters was that monetary policy was a human and psychological phenomenon (Schmölders 1959: 945–7). It was essential for central bankers to distrust politicians and the public, whose commitment to currency stability was at best fragile. The central bank had to prioritize its communication and publicity work, connecting directly to the public. Its officials at all levels had to give primary importance to continuously educating the unreliable German public into the merits of a ‘healthy’ currency and not rely on politicians to do so (e.g. Vocke 1956 for his collected speeches and essays; Emminger 1986; also Lindenlaub 2010). The core message was ‘currency stability’. Later from the early 1990s, ‘stability culture’ entered Bundesbank discourse in the context of the Maastricht Treaty commitment to European monetary union (Howarth and Rommerskirchen 2013). Protecting the stability culture in Europe against threats became the mantra of the Bundesbank, above all after the onset of the euro area sovereign debt crisis in 2009. It implied a set of concerns that went beyond the quantitative measure of price stability to look at the underlying motives of mon etary policy. Veit was rare amongst founding Ordo-liberals in being both a monetary theor ist and, in the early years of the Federal Republic, a central bank practitioner (Solf 1988). He remained a hawk in monetary policy and regarded central bank independence as a weak substitute for the loss of the automaticity of the gold standard (Veit 1958: 115). Veit’s reflections on automaticity echoed the influence of Eucken (ibid.: 267–71). At the same time, his intellectual curiosity, for instance about the sociology of money, and his engagement as a statesman-economist led him to articulate ideas about monetary policy that were more widely shared amongst key figures in German central banking. Money was a moral and not just an economic issue. In committing the Bundesbank to the task of ‘safeguarding the currency’, the law of 1957 perpetuated a debate about how this task was to be understood. Veit’s writings captured how early practitioners interpreted this task (e.g. Veit 1958). Monetary theory and policy were to undergo some profound changes, especially in the 1970s, and the Bundesbank was to be successful in narrowing the inter pretation of ‘safeguarding the currency’ to price stability. In case of conflict with exchange-rate stability, price stability was to prevail. Nevertheless, certain ways of speaking and writing had become institutionalized in the Bundesbank. They gave it a distinctive character in the world of central banking. This character was not to
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How Ordo-Liberal Is Germany? 391 be directly and simply attributed to Ordo-liberalism. The Bundesbank was Ordoliberal to the extent that there was a correspondence of ideas and to the extent that Ordo-liberalism offered a justificatory framework at key moments. However, the thinking that underpinned the currency reform in 1948, central bank independence in the 1950s, and the ‘monetarist revolution’ in the 1970s did not derive directly from Eucken. In the early period, German monetary theorists like Wilhelm Gerloff (1950), Günter Schmölders (1959, 1968, 1970), and Veit (1950, 1954, 1968, 1970) discussed monetary policy in introverted German terms rather than with reference to Anglo-American theorizing (Rieter 2009: 160). Lutz, who had studied and worked in Anglo-American universities, was a striking exception. Money was defined as a thing with its own value and not, as in functional theory, simply a dependent variable or, as in real theory, what the state or banks choose to do (Veit 1958: 267–71). Like Eucken, Veit (1970: 509–11) rejected what he saw as the detrimental influence of Knapp’s (1905) state theory of money amongst German economists, state officials, and central bankers. It had provided a justification for the right of the state to create money to fight the First World War and then to manage the reparation problem through the great inflation. Veit argued that the purchasing power of money and the value of money were not to be confused (also Schmölders 1968). Money’s value was not synonymous with any measurable price index. As an intrinsic part of the larger economic and social order, money carried moral as well as economic weight (Veit 1950: 90–103, 290). Seen in these terms, ‘safeguarding the currency’ was not concerned simply or even mainly with a quantitative target of price stability. The central bank’s duty was to promote the morally responsible use of money, including prudence in consumption and in savings, so that the long-term liquidity, solvency, and productive capacity of the economy was secured. This comprehensive conception of monet ary policy was what Vocke (1956), the first president of the BdL, had in mind when he stressed the need for a ‘healthy’ currency. In a similar vein, Ordo-liberal commentators in the 1950s referred to the Bundesbank law as ‘the Basic Law of the economic constitution’ (Rieter 2009: 162). Scepticism about measuring the price index endured. Later, the Bundesbank joined internationally mainstream monetary policy commitment to measured price inflation and took on board complex mathematical economic modelling. Even so, this legacy of moral attitudes to money endured in the way that German central bankers continued to talk and write about monetary policy. The so-called ‘monetarist revolution’ in the 1970s provided further evidence of the limits of Ordo-liberal influence within the Bundesbank. Gocht, Bundesbank director from 1967 to 1975, and Veit were lone Ordo-liberal voices in this debate. The collapse of the Bretton Woods system in 1971–3 served as the catalyst to rethink Bundesbank monetary theory and policy. The Bundesbank had to decide which monetary instruments it would use to discharge its statutory mandate to
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392 Conservative Liberalism, Ordo-Liberalism, and the State ‘safeguard the currency’ and to assert its independence in the new context of exchange-rate flexibility and imported inflation. The Bundesbank council met on several occasions between July 1970 and April 1974 to discuss fundamental questions of monetary policy. The discussions centred on papers from Leonhardt Gleske, Gocht, and Schlesinger. The discussions were about how to respond to the monetarist ideas of Friedman, Karl Brunner, and Alan Meltzer. In October 1970 the Dresdner Bank hosted a debate between Friedman and Veit. Friedman rejected the traditional reliance of the Bundesbank on interest-rate and credit policy; the source of inflation was too fast a growth in money supply. Veit opposed money-supply targeting, arguing that money supply was a symptom. The cause of inflation was an excessive demand for credit. Emminger, the Bundesbank’s vice-president, opposed Friedman on the grounds that the Bundesbank did not have the capacity to directly control the monetary supply (details in the historical archive of the Bundesbank). Three Bundesbank officials played key roles in introducing monetarist thought: Schlesinger, Horst Bockelmann, and Manfred Neumann. From 1970 all three were regular attendees at the Konstanz seminar on monetary theory and policy, organized under the Swiss economist Brunner (Janssen 2006). The seminar diagnosed serious failings in German monetary theory since the 1950s, introduced rational expectations theory, and popularized the notion of controlling the mon etary base (Brunner 1971). These ideas were taken up by the German Council of Economic Advisers (Sachverständigenrat) in 1972 and then by the Bundesbank which began to publish annual money-supply targets from the end of 1974. Schlesinger was determined to establish the Bundesbank at the centre of mainstream international debates about monetary policy. His approach to monetary policy bore a closer affinity with Lutz than with any other Freiburg Ordo-liberals. Lutz had earlier helped to draw Schlesinger’s attention to the money-creation power of the banks and the challenge it posed to central banking. However, the Bundesbank was soon criticized in monetarist circles, notably by Brunner, for being insufficiently true to principles. By the mid-1980s Schlesinger referred to its approach as pragmatic monetarism, one that paid close attention to monetary aggregates but took a flexible approach to money-supply targets (Marsh 1992: 193). Later, the Bundesbank opposed the monetary policy strategy of inflation targeting, which became mainstream in central banking from the mid-1990s and relied on forecasting models that gave little attention to money supply (Issing 2012). The two-pillar monetary strategy of the ECB, as originally conceived in 1998 –9, retained key features of Bundesbank pragmatic monetarism in the form of a monetary pillar and an economic pillar (ibid.). In his first paper to the Bundesbank council on ‘The New Monetary Theory and Its Implications for Monetary Policy’ in July 1970, Schlesinger avoided taking up a final position (historical archive of the Bundesbank). However, the paper was notable in drawing on US-based theorizing and ignoring German theorizing.
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How Ordo-Liberal Is Germany? 393 The responses of Gleske and Gocht defended traditional Bundesbank views. Gleske rejected Friedman’s deep mistrust of discretionary monetary policy as too pessimistic and his views of controlling money supply as too optimistic. Gocht pointed out that post-war German monetary policy had always been about more than just interest rates and suggested that the quantity theory of money had never been out of fashion. Thereafter, Gocht sought to lead the debate by advocating radical new credit policy measures of the central bank to control money creation: ‘the current monetary system was too inherently unstable’ (e.g. Bundesbank council meeting of 18 January 1973, ibid.). The key Bundesbank council debate took place on 18 April 1974 (historical archive of the Bundesbank). Gocht presented his twenty-four-page paper ‘Fundamental Questions of the Monetary Order’ (Grundsatzfragen der Geldordnung). It offered a historical and theoretical overview, leading to a radical critique of the failings of the monetary system for its one-sided Keynesian emphasis and calling for a completely new monetary order. The objective should be an ‘ordered’ international monetary system with fixed exchange rates and ‘well-ordered’ national currencies. Above all, private money creation by the banks had to be ended, with money increasing strictly in line with the real growth potential of the economy. This aspect of the paper recalled the Chicago Plan of the 1930s and the support it had received from Eucken and Lutz. In the debate that followed, Gocht found himself isolated. Schlesinger argued that central bank control of the money supply would itself impose limits on money creation. He opposed any attempt to fall back into traditional administrative regulation of individual bank credit as under the BdL. Emminger, president of the Bundesbank, summarized the general sense that Gocht’s diagnosis was broadly right but that his proposals were unrealistic in the current international context. He concluded that a money-supply target would help set limits on ‘strong inflationary social forces’. At the same time, the Bundesbank would not abandon the position that discretionary elements must be retained in monetary policy (historical archive of the Bundesbank). The outcome was very much a victory of the US-based ‘monetarist revolution’. It was accompanied by broad assent to the notion that the ‘monetarist revolution’ must enable the central bank to strengthen its authority over money creation by commercial banks (see the review of Gocht 1975 in Pfleiderer 1978; also Pfleiderer 1973b). In contrast to the marginality of Ordo-liberalism in the ‘monetarist revolution’, Bundesbank thinking about European monetary integration seemed to shift towards a closer correspondence with Ordo-liberalism. In 1951–3 and again in 1970 the central bank took up positions that clearly diverged from Ordoliberalism. The issue in 1951–3 was whether the new EPU was fit for purpose. Erhard favoured the hardening of the EPU and rapid liberalization, including a speedy move to free convertibility of currencies by those states that wished to do so. His Ordo-liberal view that pressure must be exerted on the net debtor states
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394 Conservative Liberalism, Ordo-Liberalism, and the State was backed by Gocht in the federal economics ministry. In contrast, the BdL argued that the problem was the ‘extreme creditors’ and that pressure must be increased on them to reduce their surpluses. Emminger pointed out that the automatism of the gold standard in the interwar period had put too much pressure on the net debtor states and too little on the net creditor states (Dickhaus 1996: 128–9). The BdL sided with France in wanting to strengthen the supra-national dimension of the EPU to better control the creditors and opposed a premature shift to convertibility. In contrast, Lutz was commissioned to write a report on convertibility by the federal economics ministry as part of a concerted push for liberalization (ibid.: 170–1). Gocht and Lutz shared the view that Belgium, Britain, Germany, the Netherlands, Switzerland, and perhaps Italy could proceed to early convertibility outside the EPU, along with adopting flexible exchange rates as a temporary expedient. Their argument was that convertibility was a condition for European integration. It was strongly opposed by the BdL as risking chaos and, for political reasons, by Adenauer (ibid.: 133–7). The BdL wanted to retain exchange controls to steer external trade during the period of liberalization; favoured fixed exchange rates and loyalty to the Bretton Woods system; and gave primacy to European market integration. Again, internal deliberations about the work of the Werner Committee on Economic and Monetary Union in 1970 illustrate the limits of Ordo-liberal influence. The Bundesbank council meeting of 5 February 1970 was devoted to the ‘stages plan’ of federal economics minister Schiller (historical archive of the Bundesbank). Gocht had a deep Ordo-liberal aversion to Schiller’s belief in discretionary ‘global steering’ of the economy. He argued in the council meeting that a step-by-step Community coordination and harmonization of economic policy and monetary policy in parallel was impractical. Community-agreed interventions to harmonize economic development were doomed to fail. His proposal was Ordo-liberal: a rule-based system, analogous to the gold standard, to limit the money supply of member-state central banks. Both Gleske and Pfleiderer rejected the idea of a rule-based mechanism. The broad consensus was that the key was an independent Community monetary body, not rules. In 1988 the Bundesbank council and the economics division of Schlesinger were kept at a distance from the Delors Committee on Economic and Monetary Union. Its president, Karl-Otto Pöhl, was appointed to the committee ‘in a personal capacity’ and had serious reservations about allowing what he termed ‘provincial-minded’ members of the Bundesbank council to restrict his freedom of action. The economics division provided him with papers on individual questions like fiscal rules but lacked a comprehensive overview (confidential elite interviews in the Bundesbank). Pöhl was no Ordo-liberal. Nevertheless, the Pöhl paper that was presented to the Delors Committee corresponded closely with Ordo-liberalism. It emphasized the principle of an independent European central bank, with a single mandate, and binding rules in fiscal policy (details in Dyson
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How Ordo-Liberal Is Germany? 395 and Quaglia 2010: 375–81). However, the paper drew on US-based credibility and time-consistency literature, which was very influential in the economics division, rather than on Ordo-liberalism (confidential elite interviews in the Bundesbank). This literature informed the stress on a consistent, long-term, and rule-based approach, with an overriding commitment to maintain the stability of the value of money (ibid.). Without this monetary superstructure, the credibility of EMU would be imperilled. For Schlesinger, Ordo-liberalism was important as part of a set of ideas with which to persuade other EU member states to accept German good practice and to reassure the German public. He did not see it as a description of the German economy and how it worked. Credibility and time-consistency literature—rather than Ordo-liberalism per se— offered a basis for readily establishing a cross-national consensus amongst Community central bankers in EMU negotiations. In its communications policy, the Bundesbank was adept at using internationally mainstream monetary theory in EMU negotiations to expedite technical-level agreement. At the same time, in dealing with the domestic audience, Bundesbank officials drew on more traditional moral arguments about the importance of a sound currency in a way that emphasized German distinctiveness. In this way, from the 1980s, EMU witnessed a correspondence of mainstream monetary theory with Ordo-liberalism around the primacy of monetary policy, the importance of clear and firm rules and their consistent application, and the enduringly moral character of money. The Bundesbank developed a self-conception as the stability anchor and conscience of the euro area. It became a critic of the lapses of the federal government, notably in precipitating a crisis of the SGP in 2003; an advocate of the importance of the ‘money’ pillar within the ‘two-pillar’ monetary strategy of the ECB; and a hawk in ECB council meetings.
Ordo-Liberalism and European Economic Governance: MüllerArmack and the European Stabilization Board We face the task of creating a counter-cyclical stabilizer for Europe, which reconciles the concerns of individual states with the requirements of international cooperation.
Müller-Armack, Entwurf für einen Europäischen Konjunkturboard, 8 July 1958, first version: 8 (Nachlass Müller-Armack, Archiv für Christlich-Demokratische Politik der Konrad Adenauer Stiftung, author’s translation)
Eucken’s death—before the process of European economic integration was fully launched—left a gap in Ordo-liberal thinking on this subject that was filled by two other founding figures: Müller-Armack and Röpke. Both took strikingly different approaches to European economic integration; both competed for the
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396 Conservative Liberalism, Ordo-Liberalism, and the State ear of Erhard; and both were to be disappointed by Erhard. On European integration, Erhard was to prove intellectually closer to Röpke than to his own chief official on European policy, Müller-Armack. Hayek was more of an outsider in German debates about European integration. Nevertheless, his approach was strikingly similar to that of Röpke and, moreover, had been developed in the intellectual phase when he was closest to Eucken’s variant of Ordo-liberalism. For Hayek and Röpke European integration was a liberalization mechanism. Hayek (1952/1939) envisaged a customs union with free movement of capital, goods, and people, a step that—by unleashing competition—would narrow the scope and depth of economic intervention by member states. Moreover, member-state measures that created negative external ities would not be tolerated by the European federal union. For this reason, there would have to be a monetary union (ibid.: 328). However, the crucial counterpoint to this development was avoidance of any shift of interventionist policies to the new European level. According to Hayek (ibid.: 335), ‘if a [European] federation is to be practically possible, there would have to be less government in total’. Federation would mean unavoidable liberalization. It would make it more difficult for member states to tax their citizens, to regulate such matters as working hours and conditions of work, and to require compulsory social insurance (ibid.: 329, 332). It would also undermine the monopoly powers of trade unions, cartels, and occupational associations (ibid.: 330). In short, European federation was about the simultaneous overcoming of nationalism and of socialism in favour of a rule-bound polity that served an agenda of liberalization. For later critics like Wolfgang Streeck (2013: 148), the creation of this ‘Hayekian Europe’ represented the triumph of market justice over social justice. Röpke (1957b: 162) wrote of himself as a ‘European patriot’. He was no apologist for national sovereignty (Röpke 1954, 1959). His view of European integration was coloured by the Swiss federal model (Röpke 1942: 266, 1959: 5). From the Swiss example he drew three conclusions: federalism meant the highest degree of decentralized powers possible; integration had to develop from below; and the political had primacy over the economic in integration. Integration rested on joint assertion against an external threat to freedom—in this case, the Cold War and the collectivism that the Soviet threat implied. Röpke’s European patriotism took a solidly Ordo-liberal form. He opposed protectionism, isolationism, and collectivism and argued that effective domestic monetary and financial discipline was the precondition for European integration (Röpke 1959: 8–9, 16, 212, 265; also Feld 2012: 4). The defining principle was that order begins at home. Röpke’s European patriotism had its limits in his conception of economic rationality and in his scepticism about the economic and political virtue of many European states. In contrast to Müller-Armack, he could be very polemical. At a meeting of the ASM in November 1957, Röpke delivered a scathing attack on the
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How Ordo-Liberal Is Germany? 397 newly negotiated EEC (paper in the Röpke Papers, Institute for Economic Policy, Cologne University). He condemned it as protectionist and dirigiste. It was a force for inflation, ‘social harmonization’, and ‘bureaucratic collectivism’. The EEC represented ‘Little Europe’, ‘dynamite instead of cement’ for European unity, and a structure through which ‘the sick might contaminate the sound’ (ibid.). European integration should be built around a free-trade area, with states adopting monet ary and financial discipline and freely convertible currencies and jointly lowering their customs barriers (also Röpke 1957b, 1958a, 1959). Most controversially, he suggested that if the EEC meant a permanent breach with free-trade countries like Britain and Switzerland, Germany should be prepared to leave it. Röpke alternated between trying to strengthen Erhard in his lonely and critical approach to the kind of European integration that was unfolding—with the CAP, ideas of medium-term economic programmes, and policies of top-down harmonization—and attacking him for his failure to engage in a tough and consistent manner. Müller-Armack’s thinking on European integration differed from that of Erhard and Röpke in three dimensions. He favoured an institution-building over a functionalist approach. He also advocated a stabilization policy capacity at European as well as national levels. Not least, his style was conciliatory. He sought workable compromises that retained the maximum possible Ordo-liberalism. Müller-Armack remained aware of the dangers of a badly conceived multilateral stabilization policy. It would fail if it was too focused on full employment and too reliant on ‘the drug of credit growth’. Its outcome would be ‘inflationism’, leading to dirigiste measures of price, wage, and capital controls, to trade restrictions, and to the unwinding of international economic cooperation (Müller-Armack 1971: 47). Access to external stabilization support would depend on the state in question making a clear commitment to tackle domestic inflation (Müller-Armack, ‘Entwurf für einen Europäischen Konjunkturboard’, 11 May 1959: 12, Nachlass Müller-Armack, Archiv für Christlich-Demokratische Politk der Konrad Adenauer Stiftung). Müller-Armack sought to distance himself from domestic criticism as a Keynesian convert by arguing that the proposed European Stabilization Board was compatible with the two key principles of Ordo-liberalism: price stability and a free and open competitive market order. Müller-Armack’s innovative engagement with European economic integration marks him out as a constructive and independent-minded Ordo-liberal economic-statesman. As head of the economic policy division of the federal economics ministry, his position on the nature and reform of the EPU and on currency convertibility placed him close to Emminger and the BdL. Erhard and Gocht favoured faster trade liberalization, free convertibility, and flexible exchange rates, with the net creditor states moving ahead of the others (Dickhaus 1996: 130–7). Müller-Armack saw this course of action as risking the integrity of the Bretton Woods system and European market integration. Germany would be pursuing ‘a leap in the dark’ rather than acting as a factor of order in Europe. He stood for a
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398 Conservative Liberalism, Ordo-Liberalism, and the State slow, step-by-step approach to strengthening the EPU with the aim of reconciling the interests of both net creditor and net debtor states around ‘healthy’ policies. During the negotiation of the Treaty of Rome in 1955–7, Müller-Armack worked hard to strengthen the institutional content of the German negotiating position. In this respect, he was closer to the thinking of Adenauer and of the foreign ministry than to that of Erhard. Like Erhard and Röpke, he sought free trade and as big a Europe as possible, a commitment that was underlined when he resigned over Adenauer’s support for the French veto of British entry. However, Müller-Armack (1976f) wanted to place European integration on the irreversible basis of a customs union and a common market with enforceable rules (Koerfer 1988: 136–7). He was also quick to see that an EEC institutional framework was required to meet the new macro-economic challenges that would follow from trade and financial integration (Müller-Armack 1976c). Müller-Armack’s irritation, frustration, and disappointment with Erhard came to a head in his letter of 15 July 1958 to Erhard over his appointment as the first ever state secretary for European affairs in the federal economics ministry (Nachlass Müller-Armack, Archiv für Christlich-Demokratische Politik der Konrad Adenauer Stiftung, ACDP 1-236-029/4). Erhard had shown no serious interest in his proposals for a second phase of the social market economy; for his advocacy of a mechanism of stabilization coordination in Germany; for his arguments in favour of institutional deepening of European integration; or for his proposal that he should combine the new European division with the economic policy division. MüllerArmack was convinced that the Treaty of Rome did not go far enough. In the letter he made clear that he felt unable to rely on Erhard. He used the letter to complain about Erhard’s contradictory and confusing behaviour over European integration. He stressed the damage that was caused by Erhard’s alternation between making concessions and then retreating to take up hard-line positions. Erhard feared that the EEC would undermine his domestic liberalizing reforms by harnessing Germany to a political project that would be driven by France. He viewed France as a country addicted to planning and intervention in market processes through controls and subsidies. His experiences of the unwillingness of French political leaders to countenance EPU conditionality attached to special credits had served to justify his deep suspicion of French economic thinking. This suspicion was fortified when, in the negotiation of the Treaty of Rome from July 1955 to March 1957, the French tried to insist on ‘social harmonization’ as a precondition. Erhard’s views were forcefully incorporated in two cabinet papers of 14 January and 2 October 1956 (Wilkens 1997: 817–22, 852–6). Although he voted in cabinet for the Treaty, he expressed his serious reservations in the Bundestag on 21 March 1957. In the words of Müller-Armack (1971: 99), Erhard did not have ‘an unconditional disposition to European integration’. Müller-Armack shared many of Erhard’s concerns. Like Erhard, he believed that priority should be given to a ‘big Europe solution’, which included Britain
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How Ordo-Liberal Is Germany? 399 and sought to draw in Canada and the United States. This belief led them to prefer the Organisation for European Economic Co-operation (OEEC) over the EEC as the venue for economic policy coordination. Also, Erhard and Müller-Armack were alert to the risks attendant on attempts at better coordination of fiscal, mon etary, and credit policies between the OEEC and the EEC states (Kowitz 1998: 326–77; Müller-Armack 1971: 205–22). Müller-Armack was to harbour deep mental reservations about the then current membership and construction of the EEC. He also subscribed to the federal economics ministry’s view that the Rome Treaty must avoid the commitment to a ‘shared economic, financial and countercyclical policy’. He favoured the ‘goal of a coordination of national economic, financial and counter-cyclical policies’. Müller-Armack pursued an intellectually independent course after his appointment as state secretary for European affairs in January 1958, heading up the new European division. With respect to the detailed institutional arrangements for European economic governance in the new EEC, he saw himself as ‘manoeuvring between the fronts’ (Müller-Armack 1971: 97). His thinking on European economic integration was influenced, in part, by his advanced university thesis (Habilitation) of 1925 on the economic theories of counter-cyclical policy and, in part, by the lessons he drew from the Great Depression about the nature and role of stabilization policy. His thesis had questioned reliance on the self-healing powers of economies and on patience in awaiting recovery. It stressed the need for an armoury of measures to fight recession, including job-creation (MüllerArmack 1971: 15–16). The lesson he drew from the 1930s was that the pursuit of independent stabilization policies had proved incompatible with the market order and open trade. The market order was best protected by a new post-war phase of multilateral stabilization policy (Müller-Armack, ‘Entwurf für einen Europäischen Konjunkturboard’, ibid.: 6). In addition, Müller-Armack regarded the post-war emphasis in international economic coordination on payments equilibrium as failing to tackle the deeper roots of Europe’s economic problems. It was essential to develop a new phase of international economic coordination that would address both the underlying problem of domestic inflation and the risks of deflation in a context of wage, tax, and interest-rate rigidity. ‘The age of domestic inflationism had to give way to an international stabilization policy’ (ibid.: 7). He stressed the weaknesses of the new Treaty of Rome. Its common market could only be protected by common currency, credit, and fiscal policies. Firm rules—‘a code of sensible behaviour’—were required to ensure domestic stabilization (Müller-Armack 1976d). They were all the more necessary because of the stimulus that the common market would impart to European trade and financial integration. Müller-Armack (1976e) argued that the need for international and European macro-economic stabiliza tion policy coordination—and, in an emergency, for liquidity provision—had not been fully heeded in the negotiations leading to the Rome Treaty. His approach
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400 Conservative Liberalism, Ordo-Liberalism, and the State had been influenced by his detailed work in the German team that had negotiated the Treaty of Rome. In the negotiations he had displayed a more pragmatic approach than Erhard and the group around Gocht in the economic policy div ision of the federal economics ministry (Kowitz 1998: 277–305; MüllerArmack 1971: 104–20). However, in assessing the role of Müller-Armack, it is important to remember that the internal divisions on European economic integration were more about priorities and methods, especially institutional deepening, than about basic economic principles of the market order. The negotiating team and, from 1958, the European officials in the federal economics ministry were singing from an Ordoliberal script. They opposed the idea of supra-national institutions in European economic governance. They also resisted sector-by-sector integration in energy and transport in favour of enshrining in treaty form commitments of principle to promote competition, end discrimination, and remove subsidies (MüllerArmack 1971: 99ff.). At the core was the idea of a common market with a customs union and the belief that restrictions on competition were as incompatible with the common market as duties and quotas. But Müller-Armack occupied something of a middle ground in the federal economics ministry on the issue of how best to apply Ordo-liberal principles in the treaty negotiations. On one side was the entrenched scepticism and less compromising style of Gocht. On the other was the ‘European avant-garde’, which was represented by Hans von der Groeben, who in 1958 became the first European competition commissioner. Like von der Groeben, Müller-Armack (1971: 99) believed that it was essential to base European integration on the firm basis of a shared institutional framework and to move beyond a customs union to an economic union. Functional cooperation was not enough. Under Müller-Armack, the new European division took on the roles of European think tank and advocate within the federal economics ministry. He did not believe it was enough simply to ward off French and European Commission initiatives. Germany had to take an active leadership role. This belief inspired his fifteen-page proposal for a European Stabilization Board in July 1958 (Nachlass Müller-Armack, Archiv für Christlich-Demokratische Politik der Konrad Adenauer Stiftung). Its purpose was to provide the missing institutions and policy instruments that would be needed to fulfil the two new commitments in the Treaty of Rome: to treat counter-cyclical and exchange-rate policies of the member states as matters of common concern (Articles 103 and 107); and to provide mutual assistance for member states in balance-of-payments difficulties (Article 108). The proposal sought to show how the European Stabilization Board could secure continuing and balanced growth with a high level of employment, longterm price stability, and balance-of-payments equilibrium. Europe required a ‘counter-cyclical stabilizer’ (p. 8).
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How Ordo-Liberal Is Germany? 401 Müller-Armack envisaged a European Stabilization Board with its own ministerial council, a board of directors with an elected president, and a secretariat (p. 5). It could be located under the auspices of the OEEC or the EEC. The proposal expressed a clear preference for the OEEC as a much larger body, comprising twenty states, as opposed to the six of the EEC, with Britain, Canada, and the United States as members (p. 14). Müller-Armack remained a supporter of close collaboration between the EEC and OEEC in stabilization policy. The European Stabilization Board would have two functions (pp. 1–5). First, it would coordinate member-state stabilization policies in two ways. ‘Internal’ coordination would require member-state hearings to ensure individual policy measures were compatible with the macro-economic position of the member state. For this purpose, the Board would require powers of investigation and recommendation. ‘External’ coordination would focus on the compatibility of domestic stabilization policies with the European macro-economic position. The Board would seek to promote cooperation of the independent central banks in credit policies; make recommendations on budgetary policies, based on prin ciples and rules; offer advice on stability-oriented employment and wages policy; and promote coordination in trade policies. The second function of the Board was to complement and correct memberstate stabilization policies by using its own financial reserve, the Stabilization Fund. This function would evolve at a later stage once the coordination function was well established. Various modalities of financing this initiative were outlined: member-state budgetary contributions according to an agreed formula; mediumand long-term loans on the international credit markets; open-market offerings in agreement with central banks; and, in a severe deflation, central bank creation of credit for the Fund. Pooling of central bank reserves was not mentioned. The Fund could support stabilization measures by one or more member states; prepare Europe-wide investment programmes; provide credit guarantees; and/or act to help plug gaps in supply of investment goods, raw materials, and labour. It could, for instance, use its resources, perhaps alongside those of the new European Investment Bank, to finance European energy and transport infrastructure. The key was long-term stabilization. In times of recession the Fund would mobilize resources for investment programmes. It would also encourage, in exceptional circumstances, national central banks to step in to provide credit. In times of boom the Fund would act to reduce liquidity. Müller-Armack’s radicalism invites comparison with the American-Belgian economist Robert Triffin’s proposal for a European Reserve Fund in December 1957. The main difference was in Triffin’s stronger focus on exchange-rate stabil ization and on the pooling of central bank reserves. The extent to which MüllerArmack was prepared to think radically was apparent in his memorandum on European monetary policy in October 1960 (Nachlass Müller-Armack, Archiv
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402 Conservative Liberalism, Ordo-Liberalism, and the State für Christlich-Demokratische Politik der Konrad Adenauer Stiftung). He argued that ‘the European monetary committees’ (he meant in the EEC and OEEC) could only be the prelude to a European central bank, on the model of the US central bank (strikingly, not the Bundesbank). However, he also noted that the creation of a European central bank presumed the creation of a European currency, for which the European states were not ready (also Commun 2001: 184). Müller-Armack’s proposal went through several revised versions in the attempt to take on board domestic criticisms before it was presented to the European Commission in May 1959 and to the OEEC in October 1959 (the account below is based on the records in the historical archive of the Bundesbank and in the Nachlass Müller-Armack, Archiv für Christlich-Demokratische Politik der Konrad Adenauer Stiftung). The warmest reception came when it was presented to the federal chancellor’s office in October 1958. It was also endorsed in a report of the scientific advisory council of the federal economics ministry in March 1959. Adenauer stressed the importance of giving the European Stabilization Board a supra-national status, with its own executive powers. The scientific advis ory council pushed for the new body to be extended to include the whole OEEC and the United States. Otherwise, the proposal received heavy criticisms. In a letter to Müller-Armack on 8 August 1958, Emminger expressed his private view that the Bundesbank would reject it as ‘immature’ and impractical with respect to credit policy coord ination. On 11 November Karl Blessing, the Bundesbank president, wrote to Walter Hallstein, the European Commission president, to express serious reservations about the creation of a new fund. The Bundesbank’s scepticism was evident in its position paper of 9 May 1959. A new version of the proposal was presented to a division-heads’ meeting in the federal economics ministry on 20 January 1959. Here criticism focused on the Stabilization Fund and more generally on the ‘fund-itis’ that had infected debate about European economic integration. MüllerArmack was warned that the proposal would not be acceptable without the support of the Bundesbank and of the federal finance ministry. In June 1959 the federal finance ministry made clear that the Stabilization Fund had no serious hope of finding German acceptance. It noted that, though the French finance minister was broadly supportive, he was deeply suspicious of the Stabilization Fund. Between August and September three meetings were held in the federal economics ministry to try to hammer out a common position. The September meeting included Emminger and Wolf from the Bundesbank and Friedrich Vialon, head of the economic policy division in the federal chancellor’s office, as well as two finance ministry officials. By the time of his formal meeting with the European Commission on 15 June 1959, chaired by Robert Marjolin, the European commissioner for economic and financial affairs, Müller-Armack was distinguishing between a ‘minimal programme’—the code of good economic policy behaviour—and a ‘maximal
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How Ordo-Liberal Is Germany? 403 programme’—the Stabilization Fund. In the subsequent discussion it was clear that Commission officials were cautious in the face of the sensitivities that arose with respect to such issues as sovereignty, differences in economic policy priorities, and central bank independence. It was also noted that the EEC Monetary Committee was sceptical about creating a new body, arguing that it was already equipped to do the work envisaged in the proposal. Müller-Armack stressed that he was not proposing direct supra-national intervention in domestic economic policies, only ‘strengthened cooperation’ in the form of a permanently active institution. The Commission’s cautious response reflected its sense of the diminishing political possibilities for supra-national institution-building in economic policy in the wake of the election of Charles de Gaulle as French president in December 1958. The German delegation to the OEEC warned that the non-EEC states in the OEEC might become suspicious that Germany was playing a double game in which the real intent was being hidden from them. In a letter of 1 August 1959 to Müller-Armack, the German delegation begged him to avoid a ‘discriminatory’ treatment of the OEEC. By the time that Marjolin chaired a second Commission meeting on 4 September 1959 he had already dropped the idea of the Stabilization Fund so that the proposals to the EEC and OEEC were very similar. This EEC meeting agreed to focus on Müller-Armack’s ‘minimalist programme’ and defer the idea of a Stabilization Fund to a later stage. The priority should be a proposal for a European economic policy committee to strengthen coordination of member-state policies and to facilitate information exchange about proposals and intentions. Solidarity was to be built without infringement of sovereign rights. Also, the central banks were to be left out of this process. On 28 January 1960 a meeting at the federal economics ministry was held to coordinate German pos itions on the Commission proposal for an economic policy committee. At this meeting Müller-Armack stressed that Germany had been the ‘intellectual promoter’ of the Commission proposal. Emphasis was placed on agreeing ‘rules of behaviour’ and on preventing the Commission from gaining too many powers in economic policy coordination. Müller-Armack was to be the first chair of the EEC economic policy committee. By the time that the OEEC considered the European Stabilization Board proposal in November 1960, it had been considerably watered down. German prediscussions centred on Müller-Armack’s paper of 25 October—‘Suggestions for the Development of a Code of “Good Behaviour” in Economic Policy’. On pages 11–12 he elaborated ‘special principles and rules of behaviour for creditor and debtor countries’. ‘Extreme balance of payment surpluses or deficits represent a continuing threat to the balance in Europe and the rest of the world’. Creditor states in this position should commit to increasing domestic demand, including the liberalization of imports. On pages 8–10 he spelt out principles and rules in times of depression.
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404 Conservative Liberalism, Ordo-Liberalism, and the State Emminger was sharply critical. He argued that it was asking too much of the OEEC to expect it to come up with detailed rules of the game at this stage. He noted that Britain, the Netherlands, and the United States were sceptical about the possibility of codifying rules in detail and that France was reserving its pos ition. He advocated focusing on general principles. Crucially, Emminger objected to Müller-Armack’s rules for being formulated in a one-sided way that placed the burden on net creditor states (and thus Germany) and on credit policy. In reply, Müller-Armack argued that it was essential for Germany to show to others that it was not only requiring good behaviour from them but also prepared to submit to rules itself. The domestic pre-discussions led Müller-Armack to weaken or exclude some sections of the text, to stress at the OEEC meeting that he was offering only his personal views, and to emphasize that the proposed rules were just ‘illustrative examples’ and in no way binding. At the 3 November meeting eighteen of twenty OEEC states approved the principles for cooperation in economic policy. However, in the face of the entrenched opposition of Britain, they did not agree on any new institutional structures or contemplate legally binding rules. The early radicalism of Müller-Armack’s proposal was blunted for two main reasons. The first was the much less favourable political context in the EEC following de Gaulle’s election as French president. Gaullist aversion to loss of sovereignty over economic affairs was to recur, for instance in 1970–1 when French Gaullists blocked progress with the Werner plan for the realization of EMU. The second factor was the strength of domestic criticism from fundamentalist Ordoliberals who sought to defend Germany’s interests as a net creditor state. Backed by Erhard, they argued that Müller-Armack was subordinating core Ordo-liberal principles to political pressures for closer European coordination. The European Stabilization Board was seen within key parts of the federal economics and finance ministries and of the Bundesbank as a Trojan horse for French ideas of planning and intervention. The proposal for a European Stabilization Board reflects the connection between the new practical challenges of building European integration and Müller-Armack’s interest in developing a ‘second phase of the social market economy’ in Germany. He sought to strengthen the focus on the challenge to stabiliza tion policies as the European economy became more complex and interdependent. In the process Müller-Armack (1971: 111) was breaking with the narrowly functionalist and sceptical views of Erhard and other leading Ordo-liberal economists about European integration. Even earlier, before the Messina conference in 1955 and the negotiation of the Treaty of Rome, Müller-Armack had recognized that European integration needed firm institutional foundations, including a European university and a ‘European financial institute’ (Löffler 2003: 555–6, 569). He was a driving force behind the establishment of the European Investment Bank (EIB) (Kowitz 1998: 295–300). Here again he went beyond official German
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How Ordo-Liberal Is Germany? 405 thinking. He wished the EIB to develop beyond ‘narrow’ banking into a fund that might be built using the currency reserves of EEC member states and that would play a role in macro-economic stabilization at the European level (Müller-Armack 1971: 203–4). Müller-Armack (ibid.: 194) stressed the need for ‘the courage of constructive innovation’, not for economic dogmatism.
The Significance of Ordo-Liberalism in Germany Germany stands out in the history of conservative liberalism because of the part that Ordo-liberalism played in the construction of a new post-war national unifying mythology. It became an early integral part of the attempt to provide Germany with a new and distinctive economic identity and with a set of values that was consistent with a new international and European rule-based order. Ordo-liberalism enshrined traditional German bourgeois values and reconciled them to the search to be accepted as a constructive and reliable partner in European and world affairs. Its economic roots were in a continuously powerful German Mittelstand of independent, small, and medium-sized businesses; its cultural and social roots, in a conservative-liberal bourgeoisie; its academic roots, in a German economics that had lost so many of its most powerful left-wing voices as a consequence of dismissal and emigration in the Nazi period; and its political roots, in the FDP and parts of the CDU/CSU. The CDU/CSU provided the federal chancellor for fifty of the first seventy years of the Federal Republic. For periods the FDP was able to play the king-maker role in federal government formation. In addition, Ordo-liberalism had its defenders in key parts of the federal economics and finance ministries, in the Bundesbank, and in the federal cartel office. However, Ordo-liberalism faced important challenges. Domestically, it had a tense and uneasy relationship with Catholic social thought, not least within the CDU/CSU. It was similarly uncomfortable with the concept of social partnership in industry, with the corporate world of giants like Deutsche Bank, Siemens, Thyssen, and Volkswagen, and with the various manifestations of organized cap italism. Ordo-liberalism experienced a sense of marginalization with the rise of Keynesianism, quantitative methods, and model-building within German academic economics as it sought to locate itself within an Americanized international mainstream. More generally, Ordo-liberalism, and the social category of conservative-liberal academics from which it sprang, were considered less intellectually fashionable. The rapid expansion of higher education coincided with a new left-wing intelligentsia whose cultural and social criticism had different roots from those of Ordo-liberalism. The Ordo-liberal outlook found weak support in the SPD and trade unions. To add to its problems, party-system fragmentation and polarization began to undermine the ‘king-maker’ role of the FDP in federal
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406 Conservative Liberalism, Ordo-Liberalism, and the State coalition-government formation and to encourage the CDU/CSU leadership to think of more varied coalition options. The consequence of these multiple domestic challenges was a striking contrast between German external projection of Ordoliberal principles and the reality of the German political economy. There was an imperfect correspondence between myth and reality. Amongst the factors that have sustained the significance of Ordo-liberalism, and its role in the external projection of German policies, perhaps the most powerful has been Germany’s structural position in the European and inter nation al political economy as a net creditor state. The institutions that are entrusted with protecting German interests as the most systemically significant net creditor state in Europe are the ones that have most vocally adopted and adapted the language of Ordo-liberalism—the Bundesbank and the federal economics and finance ministries. The debates about EMU were prefigured early in the period when Müller-Armack was the leading official in European policy in the 1950s. They were about how Germany should conduct itself as a net creditor state in Europe and became debates within Ordo-liberalism. Müller-Armack and Gocht differed on German policy to the EPU. Müller-Armack and Emminger disagreed about the European Stabilization Board. Müller-Armack’s retrospective remark on the difficulties of conducting economic policy as Ordnungspolitik—quoted in the introduction to this chapter— applied on the European and international as well as domestic levels. Over time, the widening scope and increasing depth of European integration, alongside an enlarging and more heterogenous membership of EU and euro area institutions, made these difficulties increasingly apparent. In order to maximize influence across a widening range of issue-areas, German governments had to accept sub-optimal outcomes in areas that often mattered greatly to Ordo-liberals. There was a sense that Germany was being gradually drawn into collective insurance and beyond that into potentially hugely expensive transfer mechanisms that would work to deter reckless EU governments from making necessary structural reforms. Moreover, negotiating to establish EMU proved different from negotiating within the framework of European monetary union (Dyson 2014: 5-6, 26). Argumentative and bargaining power was less asymmetrically biased in German favour when reforming the institutional and policy arrangements of the euro area than it had been when those arrangements were initially created (cf. Dyson and Featherstone 1999; Heipertz and Verdun 2010; Dyson 2014). German bargaining power had been greater when its agreement was the essential prerequisite for a monetary union. Within a monetary union, the threat of exit lost credibility because the economic, political, and technical costs were too high. The Bundesbank’s authority was sharply reduced. Under the presidencies of Mario Draghi and then of Christine Lagarde, the ECB looked less and less like ‘the Bundesbank writ large’. Earlier, Europeanization of competition policy—another core issue-area for Ordo-liberals—had led to the erosion of the ascendancy of Ordo-liberal thinking
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How Ordo-Liberal Is Germany? 407 in the European Commission’s directorate-general for competition policy and to a less central role for the federal cartel office. Pressure to stay close to the inter national mainstream—whether in competition or monetary policy—had meant Americanization. Americanization was often on terms—like unconventional monetary policies of the ECB and narrow efficiency-based competition policy— that Ordo-liberals found uncomfortable. However, in one important sense, Americanization helped to rejuvenate Ordoliberalism both within Germany and wider Europe. German academic economics fell under the spell of US-based credibility and time-consistency literature by the 1980s. This literature helped to give fresh substance and self-confidence to German Ordo-liberalism. At the same time, its wider dissemination in Europe provided a shared point of reference between German and other EU academic economists, finance ministry officials, and central bankers. The idea of a rulebased order formed the basis for a shared cross-national elite discourse and an elite consensus that helped make EMU possible. The Maastricht Treaty was grounded in a shared conservative liberalism at elite levels rather than in any imposition or transfer of German Ordo-liberalism. US-based credibility and time-consistency theory and Ordo-liberalism formed a symbiosis in providing a background to German negotiating positions on EMU. In combination they gave coherence, conviction, and leverage to German negotiators. German negotiators could situate themselves in an international mainstream of economic thought (cf. Goodfriend 2007). They could seek domestic legitimation by using Ordoliberal discourse to justify EMU as protecting German economic identity. At the same time, they could pursue European-level legitimation by using the shared language of credibility and time-consistency literature. The Ordo-liberal type of argumentation provided great intellectual coherence to German negotiating positions. At the same time, it contained various risks for German negotiating strategy. Its principle-based approach led readily to fundamentalism and to the erection of strict ‘red lines’ in negotiations that constrained room for manoeuvre in euro area crisis negotiations. A strongly didactic style threatened to impede agreement other than on terms that could prove humiliating to others and provoke resentment and anger. It posed the big question of whether Ordo-liberalism could provide a self-contained and fair basis for making complex moral judgements that commanded wide agreement within the EU and the euro area. If one wishes to continue living together in a shared currency area, such judgements necessarily involve reciprocity and the mutual adjustment of interests. Reciprocity suggests that the ‘solidarity of effort’ that is required of net debtor states must be balanced by the ‘solidarity of collective insurance’ through European banking, fiscal, and macro-economic policy union, as well as through the ECB’s non-conventional monetary policy operations like quantitative easing and the OMT programme. A statesman-like German approach to euro area risk reduction and risk management faced the challenge of making an intellectual leap
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408 Conservative Liberalism, Ordo-Liberalism, and the State beyond Ordo-liberal fundamentalism and, crucially, carrying along elite and public opinion in this process. It was a leap that Müller-Armack had sought in vain to make in the very early years of the EEC. Nevertheless, German support for the process of European economic and monetary integration did not waver. The elite narrative of embedding German power within a united Europe prevailed. At the level of ‘high’ politics—of fundamental national interest—a broad rather than narrow conception of stability prevailed. The lesson of history—according to the German foreign-policy establishment—was that Germany must avoid isolation in Europe. This lesson was central in the discourse of federal chancellor Helmut Schmidt. The Bundesbank protocol of the meeting of its council on 30 November 1978 records the closing words of his speech to its members: Besides, his own political position depends on German success in ensuring stability in its broadest sense, that means with respect to price stability, social stability, domestic and external stability. He was no gambler and had no intention of letting this success in ensuring stability be put in danger. (Bundesbank council file, 1978, historical archive of the Bundesbank, p. 15 of the protocol, author’s translation)
A leading member of the Bundesbank directorate at the time judged this speech as a masterful effort at reassuring the central bank about the implications of the ERM for currency intervention whilst framing the ERM in a larger historical narrative (confidential elite interview). However, in retirement, Schmidt could be blunter towards Ordo-liberals. In an open letter in November 1996 he accused Tietmeyer, then president of the Bundesbank, of lacking strategic acumen in the negotiations on the transition to the final stage of EMU (Schmidt 1996). Germany must avoid a narrow view of EMU. Schmidt represented another distinctive strand in German argumentation and style: the appeal to a historically conditioned German moral responsibility to promote peace and stability in Europe through its unification (Schmidt 2013). Ordo-liberalism was conceived as being part of a larger national unifying myth that rested fundamentally on promoting European political unification. The decisive change with the euro area crisis was the vastly higher stakes than in previous EU crises, like the ERM crises of the 1980s and 90s. In autumn 2012 chancellor Merkel’s backing for Draghi’s pledge to ‘do whatever it takes’ to save the euro and for the ECB’s subsequent OMT programme proved a decisive moment. This move contravened a basic strategic principle of German risk management on EMU: namely, to ‘bind in’ the Bundesbank so that it could not emerge as an outside critic, inflicting political damage on the federal government. This principle acted to safeguard German Ordo-liberal values. Merkel’s assessment of the risks to Germany from the crisis widening to engulf Italy and Spain differed
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How Ordo-Liberal Is Germany? 409 from that of the Bundesbank. For the federal chancellor, limiting financial contagion—and risk to the unity of the EU—took precedence over moral hazard. The significance of Ordo-liberalism was affected by the way in which German policy had become embedded within the dense institutional frameworks of the EU and the euro area. It was also bound up with the deep integration in banking and financial markets that had followed from freedom of capital movement, the single market in financial services, and—not least—monetary union. Intense elite interaction within EU and euro area institutional frameworks, along with the scale of cross-national capital flows and the depth of financial integration, distinguished the exercise of German hegemonic power from that of net creditor-state predecessors like Britain and the United States. Debate about how this power should be exercised is locked into these processes which have a distinctive pathdependent character, and which in turn suggest that other historical models are of limited value in providing clear prescriptions for how Germany should manage euro area crises. This context helps to make sense of Merkel’s pragmatic crisis management of ‘learning by doing’. She studiously avoided entrapment in the belief that there was a ‘magic bullet’. Merkel adopted a detached attitude of suspicion towards experts who proffered simple answers. This attitude made her few friends amongst Ordo-liberals (e.g. Koerfer 2017). After the 2017 federal elections, Merkel’s final term as chancellor raised new questions about just how effectively Germany could exercise its net creditor-state power; project Ordo-liberal values; and safeguard those values at home. These questions arose because, for a long period, traceable back to the 1980s, a process of fragmentation and polarization had begun to take shape in the German party system. In 2017, for the first time, a far-Right party, the AfD, gained a sizeable presence in the Bundestag, as well as in state parliaments. A party system of seven parties introduced new challenges into domestic government formation, stability, and effectiveness and into external power projection. The outcome was a new uncertainty about the direction of travel in German politics with respect to economic and social policies and European integration. Nominal stability, measured in federal chancellor and government longevity, had camouflaged signs of structural instability. Over time, German unification in 1990, the euro area crises from 2009, and the post-2015 refugee and asylum crisis had inflicted new divisions on German politics and stronger incentives to over-promise in economic and social policies. Nevertheless, the tendency of parties—including a part of the AfD—to subscribe to economic liberal values bore testament to the continuing broad desire to endorse Germany’s position as Europe’s strongest net creditor power.
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12
The Historical Significance and Contemporary Relevance of Conservative Liberalism and Ordo-Liberalism: A Hollow Promise? Just as we need air if we are to breathe, and light if we are to see, so we need noble people if we are to live . . . They take us out of the mire of everyday life, they inspire us to fight against the bad, they nourish in us the belief in the goodness in people. Ricarda Huch, ‘Public Appeal on Behalf of the Martyrs of Freedom’, February 1946, in Huch (1955: 320), author’s translation Called by Thomas Mann the First Lady of Germany, the poet, novelist, and cultural historian Ricarda Huch (1864–1947) was a prolific author and major cultural figure. She was nominated for the Nobel Prize in Literature three times from Germany and from Switzerland: in 1928, 1936, and 1946. She was also a close friend of the Eucken family and the mother-in-law of Franz Böhm, with whom she enjoyed a close intellectual symbiosis (Hansen 2009: 25–35). Her letters remain one of the best sources on the thinking of Böhm; on the intimidation and threats that he and Walter Eucken faced in the 1930s; and on the nobility of character that they and other figures displayed in the terrible years of Nazi tyranny and barbarity (Huch 1955: 319–36; Hansen 2009: 176–80; Rosen 1998: 56–7). Ricarda Huch’s conception of liberalism was deeply influenced by her reading of Martin Luther, Johann Wolfgang von Goethe, and Friedrich von Schiller (e.g. Huch 1920). She was the first woman to be awarded the Goethe Prize. Central to her conception of liberalism was the idea of cultivating character and the moral qualities that make trustworthiness possible. She saw liberalism and civilization as coterminous, both depending on the enrichment of the inner life of the individual, aesthetically, culturally, and intellectually. Liberalism was about releasing the individual from social and economic bondage. Its purpose was to free the imagination and show how free will could be exercised for human betterment. This viewpoint connects Ricarda Huch closely to the conservative liberalism and Ordo-liberalism with which this book is concerned. It also draws attention to Conservative Liberalism, Ordo-Liberalism, and the State: Disciplining Democracy and the Market. Kenneth Dyson, Oxford University Press (2021). © Kenneth Dyson. DOI: 10.1093/oso/9780198854289.001.0001
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The Historical Significance 411 a difficulty that faces this way of thinking about liberalism. It is easier to identify the external disabling conditions that block individuals’ development, and to identify them as targets for reform, than to show individuals how they can best go about creating themselves. ‘Interior becoming’ takes place in a shadowy world. Ricarda Huch, like many other conservative liberals, was convinced that this purpose was best served by encouraging emulation of individuals who serve as models of moral strength, who have demonstrated a capacity to overcome their limits (see also Böhm 1934). She was aware that in this respect the humanities, imaginative literature, and historical biography had an essential role to play in rejuvenating liberalism. Like the Eucken family, she stressed the possibilities in human nature, what individuals might make of themselves. For the founding thinkers of conservative liberalism and Ordo-liberalism, disciplining markets and democracy had an enabling function that went beyond establishing the conditions in which character could be cultivated. They were also concerned about external disabling conditions. A rule-based order was necessary to serve the interests of those who were disempowered by the structure of market competition. In addition, conservative liberals sought to overcome the limitations of democratic space. Democratic choice was territorially limited and time limited. A rule-based order could address the potentially negative externalities of democracy and markets. Not least, it could seek to ensure that the well-being of future generations was taken seriously in contemporary morals. In this sense, the founding conservative liberals and Ordo-liberals had a moral, paternalistic, and didactic character. They sought to protect liberal elites in both politics and the economy against inadvertent self-harm through lack of empathy, excessive greed, shortsightedness, hubris, and complacency by spelling out what they needed to do for their own good. They warned against the dangers of a liberalism that fell victim to moral relativism. Conservative liberals and Ordo-liberals attempted to show how democracy and the market might be in order to better serve human flourishing and enable a prosperous, worthwhile, and sustainable life. The question was whether their conception of external disabling conditions was too narrow to ensure human flourishing. From the 1960s, the heroic age of conservative liberalism, and of Ordoliberalism as a constituent part, seemed to have passed. They struggled to assert themselves against their main liberal contenders—laissez-faire and libertarian liberalism, social liberalism, and Pragmatic liberalism—and against the strength of the constituencies that supported them. Laissez-faire liberalism received a boost from the efficient-markets hypothesis: that prices fully and instantly reflect all available information and that no profit opportunities are left unexploited. This hypothesis provided a justification for a heady combination of freedom of capital movement with financial market deregulation from the 1970s/80s. In the United States context, laissez-faire liberalism also benefited from large-scale
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412 Conservative Liberalism, Ordo-Liberalism, and the State corporate support for a range of think tanks like the Foundation for Economic Education, the Cato Institute, the Liberty Fund, and the Mises Institute. Corporate support was also vital in assisting the spread of a libertarian Christianity that saw markets as the basis for the spiritual testing and improvement of the individual (Kruse 2015). The powerful range of economic, social, and political actors behind the resurgence of laissez-faire liberalism had little or no sympathy for the longterm disciplinary approach of conservative liberalism. Social liberalism generated another set of growing constituencies: those who had benefited from higher education; those working in the knowledge economy; and those who were employed in the public sector, notably in social services. This strengthening of support for laissez-faire liberalism and for social liberalism went along with a diminished resonance for the conservative-liberal message of primacy for a long-term discip linary framework for democracy and markets. The problem of resonance was further increased by the strength of the constituencies supporting socialism and national populism, both of which tend to prioritize short-term economic stimulus. In much of continental Europe, social Catholicism continued—if in an increasingly background way—to colour attitudes to questions of political economy (see Chapters 7 and 8). Recurrent financial, economic, and political crises—and challenges of demog raphy and climate change—threw into relief the ambivalence at the heart of conservative liberalism and Ordo-liberalism. Their ambivalence stemmed from the problems of containing the perpetually effervescent energy of democracy and capit alism in a long-term framework of stability. In the realm of action, conservative liberals and Ordo-liberals found themselves having to manoeuvre in a narrow corridor (Buchanan 1975). On the one hand, their judgement had to take account of the economic and political costs of containing this energy. They were reluctant to undermine the collectively beneficent creative powers of democracy and markets and the innovations and material prosperity they could generate (notably Hayek 1960: 22–38). On the other hand, conservative liberals and Ordo-liberals had to consider the costs to the sustainability of liberalism from failing to tame the energy of democracy and markets. They recognized the potentially coercive power of political majorities and the consequences of market malfunctioning, especially in financial markets (Buchanan 2009, 2010a). Conservative liberals and Ordo-liberals were alert to the inherent instability of financial markets and the huge collective economic and political losses that could follow. Speculation and herding behaviour could generate mispricing of risks and asset-price bubbles and crashes. An ambiguity also ran through their attitudes to social policy. These attitudes gravitated between, on the one hand, the advocacy of greater individual choice and assumption of personal responsibility and, on the other, a paternalism in matters of education, health, social insurance, and a minimum of subsistence for those not able to look after themselves (e.g. Hayek 1960: 257–8 on the welfare state). Friedrich Hayek—and, to an even greater extent, Wilhelm Röpke and
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The Historical Significance 413 Alexander Rüstow—accepted that certain services needed to be provided outside the market. However, Hayek (ibid.: 348) argued that the general problem of poverty could only be solved by the general rise in incomes that only a market economy made possible. Subsidizing the poor through public housing, interventionist town planning, and highly prescriptive building regulations undermines this capacity (ibid.: 349–57). This chapter attempts to offer a balanced interpretation of conservative liberalism and Ordo-liberalism in the larger context of liberalism by examining five questions. Why have they been marginalized? How have their ideas fared in Germany, the epicentre of Ordo-liberalism? What is the position of conservative liberalism and Ordo-liberalism in the intellectual history of political economy? What are their prospects in a new transformational crisis of liberalism? Are they likely to prove no more than a ghostly shadow in liberal political economy? Or can they act as a source of liberal rejuvenation? Finally, do conservative liberalism and Ordo-liberalism offer no more than a hollow promise of disciplining capital ism and democracy? Do the gaps in their thinking—their focusing illusion—disable them as a source of intellectual insight and as a relevant influence on debate, institutions, and policies? Or do they contribute to the overall strength and resili ence of liberalism by complementing the contributions of social liberalism and laissez-faire liberalism?
The Marginalization of Conservative Liberalism and Ordo-Liberalism The world of the founding thinkers of conservative liberalism and Ordoliberalism appeared remote from later liberal thinking about religion, social hierarchy, the family, gender, sexuality, and race. In a more secularized age, many of the cultural and social structures and practices that they valued—like the ordering role of the churches—began to be more widely recognized as a ‘cage of norms’, limiting individual freedom. In addition, the changing demographic context associated with the decline of the extended family and population ageing posed new questions for liberals about the ethics of care, notably in the design of fiscal and social policies. Conservative liberalism and Ordo-liberalism experienced a revival in their economic thinking and impact from the 1970s through James Buchanan and Hayek and through credibility and time-consistency literature. However, they failed to dominate the mainstream of academic discourse about cultural and social questions. Conservative liberalism and Ordo-liberalism went through their own processes of memorialization, forgetting, and reinvention in response to wider changes in society, economy, and politics, as documented in Chapter 4. Nevertheless, attempts at adaptation and rejuvenation could not—at least in the short term—reverse the
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414 Conservative Liberalism, Ordo-Liberalism, and the State forces that were marginalizing conservative liberalism and Ordo-liberalism. The social, cultural, and intellectual props on which the founding thinkers of conservative liberalism had rested their claims to legitimacy weakened—aristocratic liberal thought, ethical philosophy, and ascetic and austere forms of religious belief (see the concluding sections of Chapters 5–7). New types of justification— by reference to the technical economics literature on credibility and timeconsistency—lacked the strongly moral foundation on which the early thinkers had rested their claims to legitimacy. The cultivated bourgeois intelligentsia, which these thinkers represented and to whom they appealed, suffered a decline in the social respect that it could elicit. It experienced greater competition for social status from other expanding groups within the bourgeoisie, commercial and industrial, as well as from critics of bourgeois values, over criteria of worth and merit. The cultural power of the cultivated bourgeois intelligentsia provoked contention and counterclaims to social esteem. As the Introduction suggested, the foundational mystique of conservative liberalism and Ordo-liberalism had given way to la politique, according to a process described by Charles Péguy in 1910 with reference to French republicanism. The question—as liberalism faces new transformational crises—is whether la politique has devoured la mystique. The roots of the marginalization of conservative liberalism and Ordoliberalism were in part internal, in part external. Internally, they laboured under the enduring tensions and conflicts within liberalism itself; the early, untimely deaths of Walter Eucken and Henry Simons and a subsequent loss of intellectual momentum; the eclipse of Ralph Hawtrey by John Maynard Keynes in British academic economics; the gradual loss of potency of historical memory of the interwar crisis; and the attractions of political opportunism and the concessions that liberals proved willing to make in striving for office. The interwar crisis of liberalism bore a resemblance to that at the start of the new millennium. They shared a sense that liberalism was eroding from within and was in urgent need of rejuvenation. In responding, conservative liberals and Ordo-liberals seemed to be afflicted with a pronounced problem in the arts of translating their ideas into terms that resonated with the everyday experiences of individuals and mobilized their attention. This problem stemmed from the social basis of this type of liberalism in a cultivated bourgeois intelligentsia that was highly self-referential rather than deeply immersed in gaining legitimacy through engagement in the complex and fast-changing processes of social communication. Its members were deeply uncomfortable in a world of celebrity media that they held in low esteem. In addition, at a deeper level, the marginalization of conservative liberalism and Ordo-liberalism was linked to larger structural changes. They suffered with liberalism in general a reputational loss from evidence that suggested the descent of the market economy into oligarchic, anti-competitive crony capitalism and the
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The Historical Significance 415 failure of states to exhibit strength and resilience in acting impartially to safeguard the wider public interest. A widening inequality of wealth and income offered further support for the argument that democracy and capitalism were being hollowed out by the rise of privileged, predatory elites who were indifferent to the jobless, the relatively poor, and neglected communities. Environmental degradation and the mounting existential threat from climate change could also be further traced to predatory elite behaviour, notably in resource extraction and usage. Liberalism was vulnerable to accusations of breeding cynicism and hypocrisy, of fostering a new ‘gilded age’ of self-absorbed monied elites, and of presiding over the erosion of both social solidarity and cultural standards. In some respects, this reputational loss was unfair to conservative liberalism and Ordoliberalism, which had offered a powerful critique of cartel power. However, they did not advocate economic equality. Hayek (1960: 93, 1948/1946: 16) referred to the evil of envy and drew a distinction between treating people equally and attempting to make them equal. A liberal society should not countenance envy by camouflaging it as social justice. The conservative variant of liberalism faced guilt by association with ‘neoliberalism’, which evolved to become a pejorative term to describe a rampant and anti-social capitalism. This accusation was in many ways more directly applicable to laissez-faire liberalism of the kind propagated by the Austrian and new Chicago traditions. Nevertheless, its use to characterize conservative liberalism and Ordoliberalism gained cogency from the argument that they offered no more than a hollow promise to discipline capitalism, whose character they did not fully comprehend. Their vulnerability to this accusation was increased by the nature of memorizing within Ordo-liberalism, which had neglected the type of moral critique of capitalism that was to be found in the works of Alfred Müller-Armack, Röpke, and Rüstow (see Chapter 4). This moral critique had encapsulated the founding conservative-liberal belief that capitalism must be saved from its own excesses by the strong, impartial state. Once conservative liberalism lost its clear link to this kind of moral critique, it became vulnerable to association with the pejorative sense of neo-liberalism.
Germany, the European Union, and the Withering of Ordo-Liberalism The position of Ordo-liberalism in Germany has a special significance in the history of conservative liberalism, given its role in post-war national unifying mythology and the role attributed to Germany in European economic and monetary union (EMU). Germany exemplifies the way in which the withering of Ordo-liberalism was a long-term phenomenon. As early as the 1950s,
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416 Conservative Liberalism, Ordo-Liberalism, and the State Ordo-liberalism was on the defensive within German academic economics, political science, and law, as well as in domestic anti-trust and pension reforms (Abelshauser 1987; Manow 2020; Nützenadel 2005). The withering of Ordo-liberalism was notable in German academic economics. Herbert Giersch (1959), who was to become one of the leading post-war German economists, argued that Ordo-liberalism should adopt a ‘theory of the best possible’, rejecting the dogmatism than was associated with its early idealistic form (Chapter 4: 120). Hayek, who succeeded to the chair in Freiburg, advocated a principle-based Ordo-liberalism that differed from that of Eucken. At its heart was the notion of competition as a discovery procedure, one that recognized the dynamics of how markets evolved as their most important contribution to freedom (Hayek 1967a, 1967b). By the 1970s Giersch and Hayek were closer to the centre-ground of German academic economics than the Ordo-liberalism of Eucken. A key turning-point occurred in 2009 when the University of Cologne, the former home of Müller-Armack, Hans Willgerodt, and Christian Watrin, took the highly controversial decision not to fill vacant chairs in economics with Ordo-liberals. This decision, which was supported by a national appeal of 188 ‘modernizers’, sent a signal to young German economists that investment in Ordo-liberalism was not a good career move (Hien and Joerges 2018: 17–18; Kirchgässner 2009b). In addition, the Ordo-liberal stress on the ‘strong state’ had little attraction for a young generation that, from the 1960s, embraced new social movements as agencies of democratic renewal and change. Younger German historians and political scientists questioned the relevance of old anti-democratic conservative ideas that, they argued, had contributed to the fall of the Weimar Republic and to justification of the Nazi period. Moreover, the credibility of the conception of the state as the monopolist of power lost credibility with the emergence of new modes of ‘multi-level governance’ and ‘network governance’, not least in a federal and European context (Dyson 2009/1980: xxx–xxxiii). The private sector gained new prestige as the model of managerial efficiency for the state. There was little fit between the underlying constitutional thinking of the founding Ordo-liberals and the wide diffusion of power in post-war Germany that combined coalition governments, federalism, and Europeanization in a ‘negotiated democracy’. Political scientists characterized Germany as a semi-sovereign state, far removed from the founding Ordo-liberals’ conception of the strong state (Katzenstein 1987). From the 1960s state was in retreat as a central organizing concept in German legal and political reflection (Dyson 2009/1980: xxviii–xxix). The sense of deep failings in the intellectual and political history of Second Empire, Weimar, and Nazi Germany meant that the idea of returning to the ‘old certainties’ of the state tradition had little appeal. Post-war historical memorizing focused on how Carl Schmitt (1931, 1932, 1934), the ‘crown jurist’ of Weimar and early Nazi Germany, had used the concept of the state to discredit both liberalism and democracy
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The Historical Significance 417 (Hoffmann 1992; Maschké 1995; Streeck 2015). In short, there was a striking parallel between the withering of the heroic age of state theory and the defensive posture of Ordo-liberalism (Dyson 2009/1980: xxiii–xxiv). From the early post-war years, the Federal Constitutional Court also proved reluctant to rely on Ordo-liberal arguments as the basis of its rulings (details in Hien and Joerges 2018). The pressure to do so mounted with EMU and, above all, with the euro area crisis and reforms when numerous appeals were made to it. However, at least up to 2019, it hesitated to challenge the discretionary crisis management being practised by EU and euro area institutions by insisting on a strict legalistic interpretation of what Germany could assent to under the treaties, with the main exception of provisions on involving the Bundestag. One key insight to emerge from Part III is the existence of stabilization trad itions in France and Italy that bear a striking correspondence to German Ordoliberalism. This correspondence helps make possible, in certain circumstances, a cross-national elite consensus about economic policies. It means that German negotiators can find readily persuadable partners within the process of European economic and monetary integration. The circumstances in EMU negotiations from 1988 became favourable because economic and monetary elites across EU states shared a common commitment to the insights of credibility and timeconsistency theory. Ordo-liberal arguments were more relevant for the German domestic audience. However, as the euro area crisis demonstrated, the domestic ally contested nature of the stabilization traditions in France and Italy made cross-national elite consensus fragile and difficult to sustain. In competition policy, the early German attempt to give EU policy an Ordo-liberal legal basis gave way to an approach closer to that of the efficiency, consumer-welfare model of the Chicago School. However, whilst this approach differed from that of Böhm, it was more clearly aligned with the new Freiburg conception of competition as a discovery procedure, identified with Hayek. In asking ‘how Ordo-liberal is the EU?’, one must recognize that the answer depends in part on whether one is referring to Eucken/Böhm (Freiburg 1) or to Hayek (Freiburg 2). Seen from the perspectives of both Eucken and Hayek, empirical evidence casts doubt on the validity of the concepts of an ‘Ordo-liberal Germany’ and an ‘Ordo-liberal Europe’. They are too one-dimensional. They capture only a part of a much more complex and changing reality. From the outset, Ordo-liberal influence in Germany was bounded and constrained by the heritage and resilience of other German traditions. Catholic social thinking left a deep imprint in early post-war Germany (Manow 2020). The Bismarckian welfare state was resurrected as a pillar of the post-war German social order (Abelshauser 1987). Rhineland capitalism offered an alternative model of economic efficiency and export-led growth, more comfortable with corporate power and based on the cooperative ethos of social partnership. The fiscal equalization system within German federalism helped support the principle of equality of living conditions, again on terms
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418 Conservative Liberalism, Ordo-Liberalism, and the State that subverted German Ordo-liberal principles. These features of post-war Germany—along with the dispersal of power in the federal system and complex coalition governments—had a problematic relationship to Ordo-liberalism. At the European level, the two key tests of Ordo-liberal influence— competition policy and EMU—presented a mixed picture from the beginning. Over time both policy areas evolved in ways that suggested the decline of Ordoliberal influence (details in Chapter 11). In the final analysis Ordo-liberalism mattered both in Germany and in German European policy more for what it symbolized as part of attempts to devise a national unifying myth than for what it achieved in institution building and policies. It offered an encompassing moral discourse that sought to appeal—rightly or wrongly—to long-standing values that were deeply rooted in German cultural tradition (e.g. Schäuble 2015b; also Chapter 7). These values were strongly Lutheran and represented what was considered best in man’s character and what had been exemplified by Germany’s post-war achievements. However, the realities of negotiating power in European policy meant that the leverage Germany had possessed in initially agreeing EU competition policy in the 1950s and later EMU in the 1980s/90s diminished once Germany had to share power in institutional and policy development and faced the high costs of exit (Dyson 2014:5-6, 29).
Conservative Liberalism and Ordo-Liberalism in the History of Political Economy Assessing the place of conservative liberalism and Ordo-liberalism in the history of political economy is made difficult by the internal complexity and contradictions that are revealed by selective processes of memorialization, forgetting, and reinvention (see Chapter 4). The difficulty is compounded by the way in which some commentators pursue ideologically conditioned arguments that selectively cite and quote authors and texts and take them out of their historical context. The situation becomes more complicated because what people have thought and argued (and perhaps misunderstood) about conservative liberalism and Ordoliberalism becomes part of their reality as a tradition. In the final analysis, the place of conservative liberalism and Ordo-liberalism in political economy rests on a paradox: they are both problem-solving and problem-creating. This paradox is illuminated when one goes beyond the focus on ideas and institutions to look at how states and markets work in practice (see Chapters 8–11). Empirical examination brings out the contingent and fragile nature of liberalism in general and of conservative liberalism and Ordo-liberalism in particular. It shows that liberalism, and its varieties, cannot survive unless it successfully addresses the fears and insecurities of elites and publics and offers them hope.
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The Historical Significance 419
Conservative Liberalism and Ordo-Liberalism as a Problem-Solving Tradition The striking characteristic of conservative liberalism and Ordo-liberalism as a problem-solving tradition is their formalism at the level of ideas and institutions. Their corresponding weakness is their vulnerability in the face of empirical, historical, and comparative examination of political economies. Within political economy, they can claim a continuing relevance and importance as a set of formal beliefs about the distinctive and normative character of public power (Dyson 2009/1980: xxiv). This claim stresses the importance of the state for a rule-based liberal order, for using in full measure the power that the rules afford, and for improving the rules. The depersonalized nature of public power is expressed in the state’s autonomy and its distinctiveness from both ruler and ruled, from government and public opinion. It rests on an ordering framework of rules that addresses a series of problems: the problem of the limits of knowledge in guiding policies; the problem of rent-seeking by powerful organized interests; the problem of how to reflect in policies long-term societal interests as they are shared with future generations; and, more broadly, the problem of how to sustain trust so that cooperation remains possible. Conservative liberalism and Ordo-liberalism stress a rule-based order as a way of correcting market dysfunctions, of constraining the use of both democratic power and market power, and of countering the incentive to practise short-term political expediency. According to their founding thinkers, the rule-based order serves as the better conscience of society. It legitimates the values of public service in ensuring that the liberal order is safeguarded: legality, integrity, impartiality, predictability, and long-term sustainability. In their conception rules were as much enabling as constraining. They were enabling in considering the interests of future generations and those outside a specific, limited democratic space. They were enabling for those who were excluded from, or disadvantaged within, markets. They also helped to safeguard the quality of the deliberative process in a democracy. However, a series of empirical questions arise about the relevance and practicality of conservative liberalism and Ordo-liberalism and yield uncomfortable answers. Conservative liberalism and Ordo-liberalism retain a heroic conception of elite behaviour with which the workings of elite self-interest are not necessarily—or even usually—consistent. Faced with the mundane complexity of policy issues and with the limits of their knowledge, elites may look for guidance not so much to general rules as to outside management and financial consultants who bring their own special interests and outlooks to bear. Rulemaking and rulecompliance easily become matters negotiated with special interests which thereby become privileged and protected. The idea of the ‘strong’ state erodes in the face of empirical evidence of new modes of governance and of the co-creation of law
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420 Conservative Liberalism, Ordo-Liberalism, and the State through public and private actors. The state emerges as a strategic and tactical manager rather than as the monopoly of public power. More insidiously, the proneness of elites to intellectual as well as regulatory capture increases as they reflect on their future career opportunities and those available to their families, friends, and supporters. Empirical political science has not proved kind to the formal problem-solving claims of conservative liberalism and Ordo-liberalism. Their credibility is bound up with rule-compliance which in turn raises issues of will and capability of both state and societal actors. Comparative research reveals the variation in state legal and fiscal capacity and the extent of rent-seeking behaviour, with major implications for tax and spending and for the effectiveness of banking supervision and market regulation. Against this background, the very processes of transparency and accountability that are so intrinsic to liberalism create the risk that the notion of the autonomy and impartiality of public power and of the rule-based order lose credibility as rent-seeking and intellectual and regulatory capture are made public. In short, liberalism can suffer reputational loss as the hypocrisy of those who act on its behalf is revealed. Despite these serious problems, conservative liberalism and Ordo-liberalism retain an appeal as a substantive problem-solving tradition to those who wish to reconnect liberalism to a past that they view as having been safer and more honourable than the present. This wish stems from a sense that something vital has been lost with the withering of aristocratic liberalism, ethical philosophy, and religious belief: namely, what is ‘best’ and ‘true’ in human nature and beyond historical contingency. Conservative liberalism and Ordo-liberalism can seem attractive as a means of offering a sharp traditional moral critique of how markets and democratic politics operate. They point to the potential long-term costs to the liberal order and to human flourishing from the dysfunctionality of capital ism and democracy. Conservative liberals and Ordo-liberals inhabit an uncomfortable and difficult universe of political economy. Their ‘new’ liberalism seemed paradoxical. In flight from an unattractive present, they were caught between the desire to reach out to new generations of political economists and the sense that they were viewed as outdated nostalgists for a lost order. Their situation was made more precarious by empirical evidence that suggested the harmony and inclusiveness of this lost order was imaginary and that tradition could serve as a cage of norms repressing individual freedom. Moreover, from the 1950s, Keynesianism—with its emphasis on counter-cyclical stabilization through active fiscal policy—proved a more attractive problem-solving tradition to a fast-growing Left-leaning, socially liberal intelligentsia (cf. Piketty 2018). The open question was whether historical memorizing and reinvention of conservative liberalism could compete with a highly adaptable, revitalized Keynesianism in providing a source of creativity in dealing with the central
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The Historical Significance 421 problems of political economy in liberalism’s new transformational crisis. Conservative liberalism and Keynesianism offered competing claims to provide the best prospects for a reinvigorated liberalism in the new millennium.
Conservative Liberalism and Ordo-Liberalism as a Problem-Creating Tradition Within conservative liberalism, Ordo-liberalism has been an object of sustained critique from different ideological positions—laissez-faire and social liberals, conservatives, social democrats, Marxists, and national populists. There is no single, unified, authoritative critique. Five strands of critique stand out as influential in shaping attitudes to the historical significance and contemporary relevance of conservative liberalism and Ordo-liberalism. They are united by the theme of its hollow promise, whilst seeing the roots of this failure in different ways. Ordo-liberals are attacked as interventionist thinkers, who are undermining liberalism from within (e.g. by Ludwig von Mises). They are written off as ‘singlemovement’ thinkers, who underestimate the social and political dynamics at work in democratic capitalism (e.g. those following Karl Polanyi). They are identified as technologists of social control, making individuals complicit in their own suppression through internalizing rules of conduct (e.g. by Michel Foucault). They are condemned as ‘authoritarian liberals’, who have been unable to escape the ‘long shadow’ of Schmitt (e.g. by Dieter Haselbach), and as failing to provide precision and detail about the political order. And they are criticized as outmoded Old Testament ethical dogmatists, with deficient insights into the moral complexities of economic life (e.g. by Tim Geithner). With the exceptions of the Austrian, the libertarian, and the new Chicago traditions, these critiques were closely associated with the endorsement of the Keynesian tradition. The attraction of the Keynesian tradition resided in its flexibility and adaptability in accommodating diverse combinations of centre-Left, socially liberal ideological positions.
Ordo-Liberals as Interventionist Thinkers: The Influence of the Austrian, the Libertarian, and the New Chicago Traditions Some of the intellectually most damaging critiques came from within liberalism itself. The Austrian tradition, associated with Mises, libertarians like Murray Rothbard, and the new Chicago tradition associated with Milton Friedman, had different epistemological positions (see Chapter 6). However, they converged in identifying the greatest threat to liberalism as stemming from belief in the state, not from belief in the unfettered market (e.g. Friedman 1962; Mises 1949, 1958; Rothbard 1962/2004). In the United States the libertarian Foundation for Economic Education, which was founded in 1946 and was closely associated with Henry Hazlitt and Leonard Read, maintained a long-term link to Mises. In the
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422 Conservative Liberalism, Ordo-Liberalism, and the State period 1950–2016 it took over the publication of the anti-statist The Freeman. In 1982, the Mises Institute was founded, with major roles for Hazlitt and Rothbard. Libertarian economics gained a strong foothold in the United States, not least through libertarian Christianity and its condemnation of the ‘pagan state’ (Chapter 9: 267–8; Kruse 2015). Its growing role in the Mont Pèlerin Society from the 1950s marginalized the Ordo-liberals and conservative liberals of the old Chicago tradition. By 1962 Friedman’s position had evolved significantly from his earlier proximity to Ordo-liberalism (Friedman 1951). He had come to regard uncontrolled private monopoly as a ‘lesser evil’ than state-regulated or publicly owned monopoly (Friedman 1962: 169). Not least, Friedman wished to prohibit the ‘detailed’ regulation of banking. Market concentration—as a result of technological advances—was welcomed as a force for efficiency and lower prices. This argument was strengthened by the efficient-markets hypothesis. By the 1970s the US-centred shift in anti-trust philosophy within liberalism, away from the position of Louis Brandeis, had placed Ordo-liberalism on the defensive, not least within the Mont Pèlerin Society (Plickert 2008: 372–5). The new Chicago tradition’s association with unfettered competition was unwelcome to the Ordo-liberals and—in the United States—to the intellectual heirs of Brandeis and Simons. However, it bore a close resemblance to Mises’s longerstanding argument that competition policy was redundant if the state refrained from any intervention in the market and permitted free trade. Mises (1927) had feared an ‘intervention spiral’, in which one state intervention would create problems that would lead to calls for further corrective interventions. The Ordoliberals fell into Mises’ category of interventionists. Hayek’s conception of competition policy as an evolutionary process of discovery of adequate general rules offered the prospect of a bridge between the new Chicago tradition and a re-invented Ordo-liberalism (Hoppmann 1967, 1988). Nevertheless, the intellectual gap remained.
Ordo-Liberals as ‘Single-Movement’ Thinkers: The Influence of Karl Polanyi Karl Polanyi, a Hungarian-born intellectual, wrote about the history of political economy from a cosmopolitan and reformist socialist perspective. His most influential book was not directly concerned with Ordo-liberalism (Polanyi 1957). Nevertheless, his depiction of political economy as a dynamic ‘double movement’ offers an insight into contradictory features in the development of states and markets that are imperfectly captured by Ordo-liberalism. The double movement occurs with the emergence of political forces to protect the social fabric against what are experienced as arbitrarily destructive market forces (ibid.: 134). These forces attempt to correct the ruinous consequences of appealing to impersonal devices (like the gold standard) and objective factors (like the threat of financial market panic) to exert deflationary discipline on the economy and to limit the
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The Historical Significance 423 freedom of action of organized labour. In this historical perspective, Ordoliberalism can be accused of failing to understand the source of the recurring political strength behind calls for fiscal and monetary stimulus, for nonconventional monetary policies, for collective risk-insurance, for minimum wage legislation, and for other forms of social legislation (ibid.: 177, 192–5). Polanyi pointed to ‘authoritarian interventionism’ at the end of the Weimar Republic as having decisively weakened democratic forces (ibid.: 234). In Polanyi’s analysis, the exercise of state power was caught up in the stresses and strains between two sets of social and political forces. On the one hand, there were forces pushing for self-regulating markets and their associated privileges. On the other, there were protectionist ‘counter-movements’ seeking to resist the subordination of society to market forces. Polanyi’s historical analysis of these stresses and strains casts doubt on the credibility of the Ordo-liberal conception of the ‘strong’ state underpinning the market order. The state is more likely to manifest deep intellectual incoherence in its economic policies (cf. Woodruff 2016 on the euro area crisis). Polanyi’s analysis also suggests that one might expect a cyclical rise and fall in the self-confidence and influence of Ordo-liberalism. The cyclical character of its significance reflects the course of the dynamic double movement. In short, Ordo-liberalism fosters a myopic perspective in political economy. Polanyi highlights the vulnerability of Ordo-liberalism to ideological critique because of its association with a political programme of marketization of goods, services, capital, and labour. It risks falling victim to the political reactions to the ‘commodification’ of the economy and to the ‘dis-embedding’ of governing elites—political and expert—from the wider society. As Chapter 4 argues, the focusing illusion of Ordo-liberals makes them prone to one-sidedly misread debtors, to overlook deeper structural sources of disadvantage, to lack empathy for the plight of those who feel marginalized, ignored, and excluded, and to fail to anticipate the counter-mobilization that can follow. Polanyi identifies as most politically sensitive the conception of labour as a commodity, to be valued simply as a price. Treating labour in this way provokes political countermovements to strengthen social solidarity through protectionist interventions by the state. Many of the later criticisms of Ordo-liberalism latch on to the core theme of Polanyi: the ongoing and fundamental conflicts between market efficiency, social cohesion, and political legitimacy. In assessing these criticisms, one must bear in mind that some Ordo-liberals—like Müller-Armack, Röpke, and Rüstow— displayed a keen sense of these conflicts and the urgent need for Ordo-liberalism to address them. They recognized that neither a pure market economy nor a purely government-controlled economy is compatible with a sustainable liberal order. Liberalism could only hope to endure as part of a larger ‘meaning-providing’ system of discourse and practice.
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424 Conservative Liberalism, Ordo-Liberalism, and the State
Ordo-Liberals as Technologists of Social Control: The Influence of Michel Foucault The character of left-wing ideological critique owes much to the five lectures on Ordo-liberalism by the eminent French philosopher Michel Foucault (2004), delivered at the Collège de France in 1978–9 (also Goldschmidt and Rauchenschwandtner 2007; Tribe 2009). Foucault focused principally on Eucken and the Freiburg School as the ‘real’ neo-liberalism and as the progenitor of Germany as ‘the radical economic state’, its hegemonic status resting on its economy (Foucault 2004: 86). The work of the Freiburg School represented a mutation of Classical economic liberalism and its understanding of the market as an autonomous sphere from the state, ‘the site of truth’ (ibid.: 32, 40–7). Ordo-liberalism’s innovatory contribution to liberalism rested, according to Foucault, in its understanding of the market. The competitive market was a ‘denaturalized’ phenomenon. It was dependent on its constitution and stabilization by the state if it was not to prove fragile (ibid.: 134–50). This constitutive role of the state in the market economy was the basis of its claim to legitimacy (ibid.: 80–4). Ordo-liberalism generated a discourse of governing centred on the foundational principle of ‘de-naturalized’ competition. It provided a new political rationality or ‘regime of truth’, distinctive from that of Classical economic liberalism, and serving as a way of guiding and limiting the process of governing (ibid.: 17–20, 34–7). Foucault depicted Ordo-liberalism as a powerful disciplinary and de-politicizing technology of government. It formed part of the apparatus of security, as one way in which the disciplinary society made itself manifest. However, Foucault (ibid.: 168) argued that Ordo-liberalism’s political rationality and its image of the state and its legitimacy disguised the reality. The state was under the supervision of the market rather than the market under the supervision of the state (Biebricher 2011, 2013; Biebricher and Vogelmann 2012). In other words, in its fundamentals, Ordo-liberalism did not differ from Anglo-American neo-classical liberalism. Talking about regulatory reform of markets could not disguise that society was being organized according to the principles of market competition (Foucault 2004: 207). In the final analysis, Ordo-liberalism represented an agenda of marketization that extended across society, that claimed the epistemic authority of science, and that led individuals to become the agents of their own discipline and oppression. It offered, in short, a hollow promise. Foucault served as a central reference point in developing later centre-Left ideological critique of Ordo-liberalism as just another legitimating device for the market economy. He drew attention to the difference between the idea and the reality of Ordo-liberalism: its role as camouflage for powerful corporate interests. Later critics—not least in Germany—went further in stressing the illiberal features in Ordo-liberalism (e.g. Biebricher 2011; Biebricher and Vogelmann 2012; Solchany 2015; Tribe 2009). Broadening out to focus on the work of Röpke and
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The Historical Significance 425 Rüstow, they noted their use of biological and medical metaphors. The state and the ‘social body’ were characterized in organic terms as healthy or, more usually, as ‘sick, rotten and frail’ and as ‘poisoned’ (e.g. Röpke 1944: 158, 248; Rüstow 1950–7 Band 3: 266). These critics identified in Ordo-liberalism a deeply conservative desire to regulate society in order to conserve the male-breadwinner family model as the moral anchor of the market economy. Symptomatic of this illiberal conservative outlook was the advocacy of such measures as cutting child benefits and even prohibiting mothers of young children from employment (Rüstow 1963b: 85). In this sense Ordo-liberalism was, in the mind of its critics, the expression of what Foucault had termed ‘bio-politics’, the attempt to develop a technology of social control over the whole population that reduced the citizen to a ‘docile body’. It harboured a deeply patriarchal and hierarchical social model. Hence Ordo-liberalism was vulnerable to feminist ideological critique as perpetuating ‘gendered’ injustices by disadvantaging women—economically, culturally, and politically—and by neglecting the ethics of care in thinking about fiscal and social policies (e.g. Fraser 2009, 2013). This kind of critique pointed out that social welfare programmes, in which women had a strong interest, were typically prime victims of ‘austerity’ policies. Feminist critiques tended to link more closely to the Keynesian tradition and to a substantive concept of a fiscal justice that centred on care.
Ordo-Liberals as Authoritarian Liberals: The Shadow of Carl Schmitt The highly controversial legal theorist Carl Schmitt cast a long shadow over views about Ordo-liberalism, associating it with the continuity of certain undesirable legal and political ideas from Germany’s catastrophic past. Schmitt had been a vociferous and sustained opponent of the Weimar Republic. He had then served as an apologist for the Hitler state and its ‘leadership principle’, according to which the sovereign makes law (Hoffmann 1992; Maschké 1995). Schmitt’s arguments fitted into a wider right-wing critique of the Weimar Republic for feebleness in the face of the challenges of ‘mass’ democracy, ‘proletarianized’ society, and mob rule. His prescription was the ‘executive state’ (Regierungsstaat), which would reverse the process by which society had occupied the state. This institutional arrangement of state power was designed to restore authority and respect for values and crucially to enable the state to act in exceptional times against its enemies (Schmitt 1931: 78–9). Schmitt (1934: 946, author’s translation) offered legitimation of unlimited dictatorship of the leader: The leader protects the law from the worst misuse when, by virtue of his leadership, he directly creates law in an instant as the highest judicial authority . . . The true leader is always also judge. From leadership flows law.
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426 Conservative Liberalism, Ordo-Liberalism, and the State Later critics of Ordo-liberalism compared the relative silence of its founding thinkers with respect to Schmitt with the attack of the eminent German legal scholar Hermann Heller (2015/1932). Heller’s target was Schmitt’s (1932) speech on the ‘healthy economy in the strong state’. Schmitt had argued for the ‘executive state’ that was pledged to the principle of absolute neutrality in the sense of nonintervention (also Schmitt 1931: 79). The ‘executive state’ stood above and beyond all social forces and thus could restore the liberal state. Heller wrote against the immediate political background of the dissolution of the Prussian government and as a deeply concerned Social Democrat. He accused Schmitt of advocating ‘authoritarian liberalism’ (Heller 2015/1932). According to Heller (ibid.: 300–1), Schmitt’s advocacy of the ‘strong state’ provided justification for the harsh policies of the von Papen government, which was dismantling social policy, cutting real wages, and reinforcing the power of the big banks and cartels. Heller pointed out, all too presciently, that the retreat of the state from the economy, as advocated by Schmitt, would increase inequalities of economic and political power, foster political extremism, and place the Weimar Republic in existential danger. Heller’s active engagement against Schmitt in 1932, and his use of the term ‘authoritarian liberalism’ in this context, was to inform later critical assessments of Ordo-liberalism (e.g. Streeck 2015). Dieter Haselbach (1991) and later Werner Bonefeld (2012, 2015) pointed to the similarities between Schmitt’s speech—and his book of 1931—and the thinking of Eucken (1932a) and Rüstow (1963c/1932) about the strong state in the same year. Both referenced Schmitt’s work in their seminal writings on the economic dimension of the crisis of the Weimar Republic. Eucken (1932a: 316) deplored the ‘interventionist economic state’ and called for the state to find the strength (Kraft) to liberate itself from the influence of the masses. Rüstow’s speech of September 1932 to the prestigious German Association for Social Policy (Verein für Socialpolitik) used Schmitt’s characterization of ‘plur alism of the worst sort’ to picture ‘the state as loot (Beute)’. Similarly, MüllerArmack (1932: 110, 1933: 76) drew on Schmitt in two books, in his case pleading for a strong state on the Italian fascist model. Eucken’s fears about democracy as expressed in Staatliche Wandlungen und die Krise des Kapitalismus in 1932 were, if taken as standing alone, open to interpret ation as anti-democratic and hostile to the Weimar Republic. This interpretation could be bolstered by reference to his earlier, if brief, membership of the rightwing conservative German National People’s Party (Deutschnationale Volkspartei, DNVP) in 1919–20 and of the June Club (Juniklub) of right-wing radicals in the early 1920s. Within Ordo-liberalism, there was a pronounced fear of popular majorities, misled by what its founders judged to be false ideas. As the Ordo manifesto of 1936 makes clear, Ordo-liberals displayed a profound faith in intellectuals. A pro ductive economy and a humane society depended on respect for ‘men of science . . . the only objective, independent advisers capable of providing true insight
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The Historical Significance 427 into the intricate interrelationships of economic activity’ (Böhm, Eucken, and Grossmann-Doerth 1989/1936: 15). This fear of popular majorities was also pronounced in the case of Hayek, who argued that mass democracy could lead to tyranny (Hennecke 2000). The elitism of Ordo-liberals remained controversial amongst democratic the orists. Richard Bellamy (1994) criticized Hayek for seeking to ‘dethrone politics’ by restricting popular sovereignty and the domain of majority rule. Ordoliberalism was identified as having a pronounced anti-democratic character, rooted in the Weimar period. It was a prime culprit in the ‘hollowing-out’ of democracy in Europe (e.g. Bonefeld 2012; Ptak 2004; Streeck, 2013, 2015). Its critics argued that the outcome of its institutionalization in Germany and in the European Union (EU) was the enthronement of a corporation-dominated market economy, the dethronement of democratic politics, and the progressive market ization of society. Under the pressure of financial and economic crisis, the euro area had succumbed to ‘authoritarian managerialism’ (Joerges 2010, 2014). The critique of Ordo-liberalism as ‘authoritarian liberalism’ is in certain respects inaccurate and unfair because taken out of its historical context and the larger body of writings by Eucken, Hayek, and Rüstow (cf. Berghahn and Young 2013; Dathe 2015b; Feld and Köhler 2011). Worries about popular major ities were not confined to Ordo-liberals. They continued to be reflected in contemporary concerns about the quality of democratic deliberation and consent and about the preconditions for a sense of fairness. Eucken’s brand of the liberal tradition was not alone in its regard for experts, evidence-based research, and rational evaluation. John Maynard Keynes too retained a great faith in the cap acity of intellectuals to shape the world and a scepticism about popular majorities (Harrod 1951: 192–3). For Keynes, as for Eucken, civilization represented a thin veneer. Democracy did not necessarily yield liberty, justice, or quality consent. The spirit in which it was conducted was vital and depended on mutual respect for the rules of engagement in debate. The specific historical, political, and intellectual contexts of Eucken and Keynes, and their conceptions of justice, were different. Nevertheless, they embodied the values and attitudes of a cultivated bourgeois intelligentsia. In the words of Skidelsky (1992), Keynes represented ‘the economist as saviour’; the term could be applied to Eucken. In contrast, Hayek took a more distinctive pos ition. His caution about the ‘pretence of knowledge’ applied not just to popular majorities and democratically elected leaders but also to the academic economics profession (Hayek 1989/1974). Hayek rejected economic ‘scientism’ in general. In this sense, he differed from Eucken’s constructive rationalism and belief in the intelligence of experts to design the economic order. Hayek’s words of caution were applicable to both Eucken and Keynes. The relationship between founding Ordo-liberals and the Third Reich needs carefully differentiated contextual assessment. In no sense did Böhm, Ludwig
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428 Conservative Liberalism, Ordo-Liberalism, and the State Erhard, Eucken, Hayek, and Röpke desire or welcome the triumph of the Third Reich. Their relationship to the rise of the NSDAP was conditioned by their contempt as cultivated bourgeois intellectuals for the nativist populism and rabblerousing of the Nazis, for their cult of intimidation and violence, for their anti-Semitic rhetoric, and for their enthusiasm for national protectionism. The Nazis posed a threat to their own professional ethics, social status, and livelihoods, as well as to their deep-seated liberalism and sense of the dignity of man. Erhard was involved in consultancy work for the Third Reich and not active in the resistance. However, he was closer than Eucken to Carl Goerdeler. Archival evidence suggests that Erhard was far from complicit in Third Reich policies (Chapter 11: 357). Eucken exemplifies this profound distaste for the Nazis. In his Freiburg lectures of 1932 Eucken attacked Nazi economic thinking (Dathe 2009b: 73). His differences from Schmitt became clearer in his ‘Religion—Economy—State’ art icle (Eucken 1932b). In this article, Eucken pointed to the way in which trad itional liberalism was losing its meaning as the revolutionary leader exploited popular insecurities to construct the ‘total state’ (ibid.: 83–5). The difference from Schmitt is evident in Eucken’s expressed admiration for Hans Luther (1879–1962), a non-political figure from an administrative background at the local rather than at the central level. Luther had served as an energetic finance minister in the wake of the hyperinflation of 1923 and then as imperial chancellor of a ‘government of experts’ in 1925–6. Nevertheless, the overall picture of the founding Ordo-liberals with respect to the rise of the Nazi party to power remains mixed and messy. Their writings and behaviour are open to cherry-picking of evidence and to multiple interpretations. With exceptions like Röpke, many founding thinkers carried their own varying shares of responsibility for failing to come more resolutely to the defence of the Weimar Republic. Some founding thinkers were, at least for periods, collaborators. Leonhard Miksch, for instance, had been a militant opponent of the Versailles Treaty and of reparations, like the young Eucken. He had also been a Nazi party member in 1923–5 and had flirted with radical anti-Semitism (Dathe 2015a: 12–13). As an economic journalist with the Frankfurter Zeitung in the 1930s, he was cautious in commenting on Nazi policies. His break with the Nazi regime did not come until 1943 after his visit to the Warsaw ghetto. Initially, both Miksch and MüllerArmack (1932) had identified positive features in the new Third Reich (Dathe 2015b; Goldschmidt 2015; Kowitz 1998). Müller-Armack had flirted with fascist ideas from 1924, welcomed the Nazi take-over, and joined the Nazi party in 1933 (Kowitz 1998). His support seems to have been, in substantial part, opportunistic. Hans Grossmann-Doerth published anti-Semitic texts in 1943, leading Eucken to break off relations with him (Eucken 2014: 74). In the light of Nazi barbarity, the
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The Historical Significance 429 attitudes of some founding thinkers of Ordo-liberalism detract from confidence in the solidity of their moral and political judgement. In contrast, other founding thinkers of Ordo-liberalism were spurred to engage in resistance. The main trigger was events from 1938 onwards, with the intensification of discrimination against, and violence towards, Jews (Dathe 2015b). Böhm stuck firmly to his liberal principles, rooted in his family and political background in Baden. In the September 1930 election, like Ricarda Huch, he voted for the Left-liberal Deutsche Staatspartei, which had evolved out of the Deutsche Demokratische Partei (Dathe 2014: 149). Böhm’s publications in the 1930s were an implicit rejection of the views of Schmitt. He refused to enter words of endorsement of the Nazi regime in the preface or introduction of his published work. In 1938, in consequence of his privately expressed criticism of Nazi policy towards the Jews, Böhm’s permission to teach was revoked (details in Hansen 2009: 88–128; Roser 1998). At this time, he contacted and met with Carl Goerdeler, former mayor of Leipzig and an arch-resistance leader against the Nazi regime, principally over its policy towards Jews (Hansen 2009: 140–6). This step entailed very great personal risks. Böhm’s diagnosis of the ills of the Weimar Republic focused on the weaknesses of a democracy that was based on the proportionality principle as opposed to the majoritarian principle. He stressed the need to strengthen the centre-ground of politics. His first seminal article was in the journal Justiz, published by the repub lican association of judges and edited by Gustav Radbruch, a close friend of Ricarda Huch (Böhm 1928; Hansen 2009: 20). Eucken (1932a) looked back for inspiration to the ‘orderly’ nineteenth-century Europe of Otto von Bismarck and Clemens von Metternich. In contrast, Böhm’s model was the early nineteenth-century Prussian reformer Freiherr Karl vom Stein (1757–1831). His thinking was grounded in vom Stein’s concept of ‘freedom from below’, as embodied in Prussian reforms to enshrine the right to engage in business (Gewerbefreiheit) and rights of local selfgovernment (Mestmäcker 1978: 3). It also chimed with the political views of Ricarda Huch, who sought inspiration in both vom Stein and the medieval imperial idea, the world before Bismarck (Bendt and Schmidgall 1994: 333–4). In assessing the founding Ordo-liberals and the Third Reich, it is important to bear in mind that the key period in its intellectual development came after the Nazi seizure of power in 1933. The substantive content of Ordo-liberalism was fleshed out as the horrors of National Socialism unfolded and the folly of Schmitt became increasingly and shockingly apparent. Schmitt’s formalistic conception of law was very different from the way in which the Ordo-liberal conception of law evolved as a body of substantive principles in the hands of Böhm and others. Their vision of ‘constitutionalizing’ the economy and their growing enthusiasm for linking liberalism to the natural law tradition had nothing in common with either Schmitt or National Socialism.
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430 Conservative Liberalism, Ordo-Liberalism, and the State The lesson that the founding Ordo-liberals drew from this German and European catastrophe was that academics needed to be actively and ethically engaged. In the 1930s Eucken looked to Kantianism and the ‘ethical activism’ of his Nobel Prize-winning father, Rudolf, whom he venerated. In 1934 he firmly resisted the attempt to affiliate the Eucken Association (Euckenbund) with the Nazi party, even at the risk of splitting the membership (Dathe 2015b; Dathe and Goldschmidt 2003). Three of Eucken’s closest colleagues in Freiburg, including Constantin von Dietze, were arrested by the Gestapo (Röpke 1976: 81–2). The position of Eucken and these colleagues was radically different not just from that of Schmitt but also from that of many members of the Historical tradition like Werner Sombart (Schäfer 2014). Eucken attempted to place Ordo-liberalism in a historical line of noble and heroic intellectual resistance that he traced back to Socrates, Cicero, and Galileo (unpublished papers in the Thüringer Universitätsund Landesbibliothek, Jena, Nachlass Walter Eucken). The difficulties of assessing the founding Ordo-liberals and the rise of the Nazi party are illustrated by Rüstow. He had travelled to the political Right since his days as a radical socialist in the early 1920s. His seminal address on ‘the free economy—strong state’ to the German Association for Social Policy in 1932 suggested ideological affinity with Schmitt. According to Rüstow (1963c/1932), the state must find the strength ‘to set itself free from the influence of the masses’. It must establish its superiority through ‘authority and leadership (Führertum)’ (ibid.: 252–8). His language about the ‘strong’ state was clearly directed at the Weimar Republic, to whose interventionist policies and support for cartels he attributed the crisis. It fitted in well with Nazi propaganda. Nevertheless, Rüstow was more ideologically distant from the Nazis than Schmitt, for instance in his critique of the cartels (Hennecke 2005). For Ordo-liberals like Rüstow, as well as Böhm and Eucken, the strong state was about curbing the privileges of the big banks and cartels. It was different from the laissez-faire economic liberalism that was espoused in Schmitt’s speech. They advocated the constitutionalizing of the market economy in order to prevent the capture of public power by rent-seeking special interests. Eucken (1932a: 306) warned against a dictatorial ideal of the state that was becoming a ‘substitute for religion’ (Religionsersatz): ‘Many Germans see the total state of the future as a supra-human, all-capable entity’. He looked to the concept of the ‘strong state’ as a protection for the individual against the oppressive power of governing elites (ibid.: 337). Eucken’s worries about the state reflected the importance of religion in his worldview and that of other founding Ordo-liberals (Chapter 7). His fears about the implications of the decline of religion were also reflected in MüllerArmack’s (1948a, 1949) concerns about secular idolatry. Arriving at a balanced assessment of the founding Ordo-liberals and the Third Reich is difficult. On the negative side, their record was compromised by the failure of almost all of them to come in a timely way to the active defence of the
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The Historical Significance 431 beleaguered Weimar Republic. Eucken and Rüstow could be accused of spreading an air of defeatism about the ‘real’ democracy of the Weimar Republic at a time of existential threat in 1932–3. However, in this respect, they shared a responsibility that was widespread amongst the German professorial elite in this period (Bruford 1975; Ringer 1969). Their intellectual cultivation, and sense of good form and appropriate behaviour, did not equip them to deal with the fanaticism, vulgarity, and violence that National Socialism represented. The rise of National Socialism confirmed their widely shared belief that the rise of the ‘masses’, and an associated materialism and philistinism, had been a prime factor in the political crisis of the early 1930s. This experience helped to consolidate their conservative and elitist conception of democracy and their belief in the primacy of an inner ‘spiritual revival’ (e.g. Eucken 1926a, 1932b, 1933a). The Tatwelt, the journal of the Eucken Association, embodied this belief (Dathe 2015b; Goldschmidt 2009; Renker 2009). On balance, the record of the founding Ordo-liberals was more one of resistance to, than of collaboration with, the Nazi regime. Röpke was abruptly dismissed from Marburg University by the Nazis (details in Schüller 2003). Like his friend Rüstow, he emigrated in 1933, hardly the behaviour of a sympathizer. In contrast, Böhm and Eucken stayed. Eucken became an active and vocal opponent of his university’s new rector, Martin Heidegger, who sought to align the university with Nazi principles. He supported his father’s old friend the philosopher Edmund Husserl, who suffered isolation and discrimination at the hands of the Nazis because of his Jewish background. Along with Böhm and von Dietze, Eucken was shocked by the anti-Semitic rhetoric and policies of the Nazi regime and spurred to action by the events of Kristallnacht. From December 1938 he became involved in the resistance to National Socialism as part of the Freiburg Circles (Chapter 7: 216–17, 221–2). Böhm, Eucken, and von Dietze provided the Freiburg resistance with an Ordo-liberal memorandum on social and economic reconstruction in a post-war and post-Nazi Germany. It was expected to serve as the blueprint for the regime that would follow the July 1944 putsch against Hitler. The behaviour of founding Ordo-liberals was consistent with a general disdain for mass democratic politics amongst German professors after 1918 (Bruford 1975; Ringer 1969). Again, to contextualize their attitudes: elitist theor ies of democracy were commonly held amongst European intellectuals at the time. There was a widespread sense of a ‘crisis of civilization’ and of the need for ‘spiritual renewal’ that found echo in Eucken (1926, 1930, 1932a), Müller-Armack (1933, 1948a), Röpke (1942, 1944), and Rüstow (1945, 1950–7). They appear to have been caught up in the momentum of a ‘herding’ pattern of intellectual behaviour in turning to the ‘strong’ state and to a benevolent elite as saviour. Even so, historical assessment of both the founding Ordo-liberals and their context is likely to remain critical. The progress of events was to show them as politically
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432 Conservative Liberalism, Ordo-Liberalism, and the State naïve in underestimating the appalling danger that the National Socialists posed for Germany and for Europe. Here again, however, they were not alone. The critique of Ordo-liberalism as ‘authoritarian liberalism’ is not without foundation. Ideologically, it is distinguishable from fascism. But it has a darker side which springs not so much out of its liberalism as out of its conservatism and the risks to which conservatism is exposed in times of acute turbulence. The conservative strand in Ordo-liberalism represents a potential point of connection to right-wing milieus. It creates a vulnerability to forms of discourse that many lib erals find uncomfortable. This conservative/far-Right cross-over becomes more marked in times of deepening insecurity and uncertainty when systemic crisis is seen to beckon, pessimism takes root, and the past seems to be a better place in which to find consolation and hope. It was visible at the onset of the Great Depression in 1929–33, with the rise of fascism, with war in 1939–45, and later with the threat of war—as in the post-1947 Cold War. From the late 1940s the chief threat to liberalism was increasingly seen as coming from the Left rather than from the Right. Röpke’s shift to the political Right was accentuated by the Cold War. The Cold War added a new and pronounced emotional aspect to his rejection of the evils of collectivism and to his worries that Germany was exhibiting ‘moral degeneration’ (Plickert 2008: 326). Ordoliberalism became caught up in a wider Cold-War liberalism of fear. A conservative/ far-Right cross-over was also evident in Ordo-liberal responses to the student revolutions of the 1960s and the new social movements they spawned (e.g. Rougier 1969). The events of 1968 in Paris and across university campuses led the Mont Pèlerin Society to try to recruit more conservatives like Irving Kristol, who spoke of a new spirit of nihilism (Plickert 2008: 328). Hayek too began to embrace more conservative positions, stressing the value of tradition, custom, and strong institutions (Hennecke 2000).
Ordo-Liberals as Ethical Dogmatists: The Debate about the Moral Economy Ordo-liberalism raised difficult ethical issues in both formal and substantive senses. Formally, it was unclear what precise role principles or rules were to play in economic reasoning. Many working within Anglo-American liberal philosophy were opposed to using them in strict deductive reasoning about what should be done. Economic and social policies remained matters of judgement, taking account of a complex range of factors. This type of critique was not just associated with utilitarianism and the criter ion that what matters is how far people’s wants are satisfied. The major American liberal philosopher John Rawls (1921–2002) argued that fundamental constitutional principles of public reason were essential as the basis for a ‘reasonable plur al ism’. However, according to his private papers in the Harvard University archives, he shunned deductive reasoning in favour of principles as a ‘guiding framework’. Their application should take account of variations in social practice
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The Historical Significance 433 and in what competent individuals would judge appropriate (Bevir and Gališanka 2012: 712, 722). Principles enabled people to reason against a shared background by telling people what to look for (ibid.: 723–4). Rawls suggested that principles were indispensable in identifying the morally relevant considerations in individual cases and in pointing out what sorts of facts will be relevant (ibid.: 714). Ultimately, however, they could only help to reduce, not eliminate, disagreement. According to Rawls, the exercise of moral judgement could not be avoided in adjudicating conflicting claims. This argument—which was influenced by Rawls’ reading of Ludwig Wittgenstein—was close to that of Frank Knight (1951). Knight’s criticism of excessive dogmatism in pursuing principles shows that conservative liberalism was not inexorably committed to deductive reasoning about what should be done. Jens Weidmann, a German Bundesbank president who identified as Ordo-liberal, pointed out that, whilst Eucken’s principles were a compass, they did not provide an exact roadmap to follow (Weidmann 2020: 8). They served as a caution against creating perverse incentives. Substantively, Ordo-liberalism remained ethically controversial in its commitment to the interests of wise consumers, thrifty savers, and responsible credit ors—to what Röpke (1944: 377) termed the ‘healthy’ middle class. Controversy centred around two questions. First, Ordo-liberalism could be accused of exaggerating the role of individual culpability in creditor–debtor relations. It was open to the criticism that it erected a morality myth around debt, picturing it as evidence of a profligate lifestyle or of mendacity. It neglected the role of misfortune in creating debt problems. Misfortune takes the form of sudden external events that overpower the capacity for responsible financial management, including debt repayment, in the lifecycle of individuals. They include involuntary unemployment, painful divorce, sudden family bereavement, onerous family care responsibilities, enduring mental and physical health problems, and personal accidents. A moral political economy must be able to deal sympathetically with these forms of misfortune by accepting that policy should enable victims to lead a worthwhile life (Dyson 2014: chapter 3). This injunction suggests that an ethics of care is integral to a moral economy. Within Ordo-liberalism, an ethics of care is seen as preeminently a matter for civil society: the family, church, and community. There is less attention than in social liberalism to how an ethics of care might inform fiscal and social policies of the state. A one-dimensional Ordo-liberal emphasis on moral hazard, and on applying formal legal rules strictly, risks creating ethically questionable outcomes. Good faith and fairness in creditor–debtor relations can be understood, in contrast, as a matter of cooperative adjustment around the reconciliation of competing prin ciples. It involves a willingness to renegotiate contractual relations in the face of new knowledge, changed circumstances, and the dangers of collateral damage and systemic risk. Assessing good faith and fairness in this context also includes recognition of the role played by the erosion of lending standards on the part of
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434 Conservative Liberalism, Ordo-Liberalism, and the State creditors. Critiques of Ordo-liberalism identify the neglect of the plights that face misled, misused, and ill-fated debtors. The problem follows from moralizing the issues in an ‘Old Testament’ fashion as saintly creditors versus sinful debtors (ibid.). Ordo-liberalism risks reducing economic policy to a morality play, a theodicy of the market, one that rewards and reinforces the good fortune of some and punishes the misfortune of others (cf. Weber 1948/1922–3). The second source of ethical controversy about Ordo-liberalism stems from the question of the adequacy of an insistence on formal rights without attending to the capability of individuals in different economic and social circumstances to exercise these rights effectively (e.g. Plant 2012; Sen 1989, 1993). Social liberalism’s claim to represent a superior form of moral economy rests on its concern with capability, with how society and the state can support individuals so that they are best able to make good use of their rights. Human flourishing is recognized to be context dependent. This issue highlights the importance of measures to address poverty, disadvantage, discrimination, low educational standards, lack of appropriate skills, poor health, inability to move location because of problems in the housing market, and problems of access to affordable communications and transport infrastructures. As outlined by Eucken, Ordo-liberalism lacked a theory of public goods and put its faith optimistically in the capacity of the market order to solve social problems. Many founding Ordo-liberals sought to address the question of how to provide liberalism with an overarching structure of meaning and with the means to avoid association with adverse outcomes, not least for the less well off. They recognized that human flourishing depended on having larger attachments within which individual freedom could be framed and enriched. The market alone would not deliver social solidarity. It might even undermine it. Institutions outside the market were fundamentally important, above all family life, religious faith, public service, pure science, and the provision of a wide range of cultural goods. Müller-Armack (1947/1974, 1976b/1960, 1962/1974) laid stress on the ‘social’ in the social market economy, turning his attention later to quality-of-life issues including environmental standards, working conditions, and sharing in asset accumulation. Rüstow (1963a, 1963b) emphasized the need for policies to promote a conservative form of communitarian society (Vitalpolitik). Knight, whose outlook bore a close family resemblance to Ordo-liberalism, summarized the ethical problem in political economy in his fear that competitive markets would create ‘economized’ characters: While men are ‘playing the game’ of business, they are also moulding their own and other personalities, and creating a civilization whose worthiness to endure cannot be a matter of indifference. (Knight 1935a: 47)
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The Historical Significance 435 In a social order where all values are reduced to the money measure in the degree that this is true of modern industrial nations, a considerable fraction of the most noble and sensitive characters will lead unhappy and even futile lives. (ibid.: 66)
Ordo-liberals, and conservative liberals like Buchanan, were strongly opposed to rent-seeking behaviour. However, they were constrained in thinking about social solidarity. Policies had to be compatible with a competitive market order that rewarded achievement (Leistungswettbewerb). Götz Briefs (1930: 107) and Hans Tietmeyer (1999) stressed the fatal consequences for the capitalist economy if social policies followed their own dynamic. Conversely, it was by no means obvious to all that the meaning-providing system needed to be that of conservativeliberal communitarian ideology. Family, religion, public service, science, and cultural activity could be framed in ways that departed from traditional hierarch ic al and paternalist social models. They could reflect a shared, cooperative approach to caring that was gender-neutral and that would seek to develop selfexpression and worth through a portfolio of forms of work, paid and unpaid, including voluntary work and study work. For some critics of Ordo-liberalism, and especially of laissez-faire liberalism, the problem resided in markets themselves. This critique had various strands. It drew on Immanuel Kant’s imperative that others must never be treated as simply means to an end. It gained inspiration from Polanyi’s (1957) identification of the origin of contemporary social, economic, and political crisis in the ‘fictitious’ commodification of labour, land, and money. It also took account of Elinor Ostrom’s (1990) warning of the dangers to the ‘commons’ when collective rules gave way to individual exploitation, leading all to suffer. Additional sources of moral critique derived from Catholic social ethics (e.g. Gaburro 1997); Scholasticism, with reference to Aristotle and Thomas Aquinas; the theological anthropology of Emil Brunner (1943); and the personalist anthropology of Max Scheler (1961/1928, 1973, 2008). Theological critique of markets was closer to conservative ideological thinking about the crisis of capitalism (Donohue-White, Grabill, Westley, and Zúñiga 2002). Whatever their precise origins, these critiques found common ground in rejecting the conceptualization of markets in Classical economic theory as founded on individual self-interest. This conceptualization of the market was condemned as undermining instinctive moral impulses and the dignity of individuals. In consequence, it led crucial institutions—including the market itself—to work sub-optimally. The moral problem in a market-based economy resided in the ‘crowding out’ of social preferences and the erosion of attachment to certain common goods that are the necessary conditions for individual advantage (Bowles 2016). In this view, markets are not so much the product of self-interest as of structures that produce
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436 Conservative Liberalism, Ordo-Liberalism, and the State selfish impulses. These structures can in turn deprive selfless motives—like caring for others and exercising one’s gifts for the benefit of others—of their essential place in human life. In this view, the moral economy depends on more than just incentives to reduce cheating and fraud. It involves nurturing a cultural background of fellowship, goodwill, reciprocity, and trust. It rests on caring for the dignity of others, on encouraging mutual respect, and on recognizing a duty to reciprocate in giving to others. Seen in this way, markets work best, and are at their most creative, when they exhibit a high level of social obligation; foster the virtues of good citizenship rather than simply relying on good incentives; and support, and are supported by, prudent collective social insurance. For many in the centre-Left, and especially the Marxist Left, the question of capability to exercise formal rights was bound up with very different conceptions of social justice and solidarity from those typically held by Ordo-liberals (Plant 2012; Sen 1989, 1993). Social justice was inseparable from the notions of fairness, mutual assurance, and reciprocity. It meant extending the opportunities, and enriching the life experience and well-being, of the congenitally disadvantaged and the less well off. Solidarity had an intrinsic value. It involved feelings of altruism, expressed in interest in the well-being and the care of others (Fraser 2013). It was a matter of fellow feeling. The manifestation of solidarity was the willingness to bear some significant personal cost to address the misfortunes of others. It involved collective risk-sharing. This type of appeal to solidarity and inclusive social justice led to a more expansive conception of social and state obligation than was to be found in Ordoliberalism and in laissez-faire liberalism. It took misfortune seriously as a matter of genetic inheritance, family and community circumstances, and fluctuations in the lifecycle of individuals. State and social actors had to accept an obligation to strengthen the capability of individuals to exercise their formal rights and to develop their human potential. Seen in a European and an international perspective, it translated into the obligation to strengthen the capability of individual states to address misfortune and to strengthen their collective and individual capabilities. The EU becomes no longer merely or even primarily a project of market competition. It is a project of building social solidarity and justice—a ‘social Europe’.
Transformational Crisis of Liberalism: Justifying a Rule-Based Order in the New Millennium By the first two decades of the new millennium there was a growing sense that the values of liberalism in general were under new and mounting threat. In the case of conservative liberalism and Ordo-liberalism, the threat seemed acute. Liberalism’s future as an international norm of rule-based conduct was as shaky
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The Historical Significance 437 and open-ended as at any time since the 1920s and 30s. Its values were challenged by a dangerous cocktail of developments that seemed to usher in a new trans formational crisis of liberalism. The challenges included the rise of intolerant Islamic fundamentalism and of terrorism and the climate of insecurity that followed; the rise of a globalized ‘knowledge economy’ that is geographically clustered and sits alongside former industrial workers, who feel that they, their families, and their communities are abandoned and entrapped; the reputational costs of the biggest financial and economic crisis since the Great Depression and its opening-up to public scrutiny of the scale of rising inequality and the self-serving use of market power by liberal elites; the extent of environmental damage caused by the irresponsible use of market power and the existential threat from climate change; the new geostrategic vulnerability of liberal societies to the shifting balance of power in inter national political economy from West to East and to state-sponsored forms of competition; the new-found confidence of authoritarian leaders across the world, projecting new illiberal models of civilization; the growth of a far Right that exploits public disillusionment and anger, that equates democracy with an exclusive identity-based, inward-looking nationalism, and that foments a national populism that pits the ‘real’ people against a ‘failed’ liberal establishment; new political pressures for protectionism and more broadly for state economic intervention; and, in the digital age, the enhanced technological capacity of states to conduct surveillance and of populists to manipulate information, spread fake news, and polarize debate. On the international level liberalism encountered competition from different, newly confident conceptions of civilized society that rejected the universalistic claims of liberalism. When viewed in a longer historical perspective of centuries and millennia, liberalism appears even more exceptional and vulnerable. Authoritarianism has proved a much more common form of rule, even if highly unstable. Liberalism might trace deep historical roots, tracing back to the Ancient World. However, in its modern bourgeois form, it was very much a post-1750s development. Moreover, since its origins, liberalism has faced major transformational crises, out of which sprang the conservative liberalism with which this book has been concerned (Koselleck 1972). Historically, liberalism appears contingent and fra gile, often a thin veneer over turbulent societies. Conservative liberalism was just one element in this veneer. Moreover, liberalism’s capacity to mobilize a distinct social constituency was further hampered by internal divisions between its various manifestations. After Buchanan and Hayek, conservative liberalism did not generate a new maître à penser, at least in the short term. The closest candidate was the British philosopher Roger Scruton. However, he lacked their firm foundation in political economy. The question was whether a new transformational crisis for liberalism would spark opportunity for the rejuvenation of conservative liberalism and
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438 Conservative Liberalism, Ordo-Liberalism, and the State Ordo-liberalism and its place within liberalism. For some, notably social liberals and Marxists, they were implicated as a source of the crisis in liberalism. They had institutionalized fiscal austerity, notably in the euro area reforms, served to wreck social provision and destabilize societies, and generated new anger and hostility towards liberalism (e.g. Streeck 2013, 2015). For others, conservative liberalism and Ordo-liberalism had regained relevance as part of the solution to the crisis of an unfettered liberalism, of ‘casino capitalism’ (e.g. Sinn 2009, 2014b). They provided a more robust, rule-based framework for a sustainable international liberal order than their liberal competitors. The laissez-faire variant of liberalism that had prevailed in an age of globalizing banking, finance, and trade had proved inherently destabilizing and destructive of order. The social variant created a heightened risk of unsustainable levels of debt, narrowing future fiscal and monetary options to deal with crisis, as well as of self-defeating market interventionism, leading to diminishing potential for economic growth. The notion of a rule-based economic order continued to attract those of a conservative-liberal ideological disposition as a superior means of safeguarding liberalism. A clear and firm long-term disciplinary framework, embodied in a law higher than statutory law, offered a defence against both the ideological enemies of liberalism in general and the flaws of laissez-faire liberalism and social liberalism. It could help to mitigate the damage inflicted by economic policies that are driven by the epistemic hubris of experts; by the rent-seeking of organized special interests; by the expediency, opportunism, and over-promising that can be engendered by party and electoral competition; and by the neglect of inter-generational equity and negative territorial spill-over effects from domestic policies. Signs of rejuvenation from the 1980s owed much to the intellectual stimulus from developments in US-based conservative liberalism. These developments offered an opportunity to reinvent and modernize Ordo-liberalism so that it fitted more closely to international mainstream economics, at least the rational expectations, time-consistency, and public-choice elements within the mainstream. Alignment with cross-national conservative liberalism offered a means for Ordo-liberals to escape the label of Germanic, Old Testament, ‘authoritarian liberalism’ and to become less defensive in the face of critiques like those from Dieter Haselbach (1991) and Gebhard Kirchgässner (1988). The financial, economic, and sovereign debt crisis that engulfed Europe, the United States, and the wider world from 2008 provided once again an opportun ity to argue the need to restore the credibility of the notion of a rule-based economic order. The crisis could be attributed to the way in which economic and financial elites and governments had designed weak rules, circumvented them through various forms of fiscal gimmickry, and gamed them in ways that suggested greed, deceit, and incompetence. Conservative liberalism and Ordoliberalism had an opportunity to re-emphasize how liberalism could be destroyed
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The Historical Significance 439 from within by elites who inflicted self-harm as well as harm on others. In highly globalized financial markets, there was an urgent need for internationally coord inated rules covering such matters as financial conduct, capital adequacy, and bank holdings of their own domestic sovereign debt. For Ordo-liberals, the reference point was the liability principle: the corollary of reaping gains was bearing the losses (Eucken 1952: 279; Weidmann 2020: 7). Costly public bail-outs of banks and governments could be prevented by prudential rule-based supervision. Conservative liberalism and Ordo-liberalism were on more difficult ground in justifying the rules to govern creditor–debtor relations. Röpke had justified a rule-based European and international order by reference to the primacy of the creditor. He pointed to the dangers that faced an economic system in which cred itors become impotent in the face of the demands and machinations of debtors (Röpke 1959: 83). In his view, European integration could not just depend on the patience of creditor states (ibid.: 232). It required debtor states to put their own houses in order. ‘Stability begins at home’ was the Ordo-liberal motto. It required the same virtues to be found in the ‘good household’. The danger was that the design of fiscal consolidation measures, and potentially of currency reform, to reduce the burden of public debt could create the impression of a disembodied, cosmopolitan, liberal elite who maximized their own gains from transnational capitalism whilst ignoring the fate of large sections of the population, notably the most disadvantaged and vulnerable (Crouch 2004, 2011; Dyson 2014: chapter 3). The economic and financial crisis, and its manifestations within the euro area, made visible the extent to which conservative liberalism and Ordo-liberalism had functioned one-dimensionally as an ideology of creditor-state power. A lesson of the crisis was that governments, both creditors and debtors, needed to operate in a framework of rules that were consistent with maintaining and strengthening social solidarity through a sense of fairness. Such a framework would recognize that debt—wisely incurred—could serve to support human flourishing. It would also accept that unserviceable debt might be the result of forces outside the control of the debtor (Dyson 2014). Injustice threatened when creditors were identified with a moral rhetoric of ‘saints’ and debtors with ‘sin’. Such easy sound bites overlooked the role of luck and misfortune in human affairs. In consequence of this one-dimensionality, the post-2008 financial and economic crisis unleashed forces that were unfavourable to the appeal of conservative liberalism and Ordo-liberalism. More generally, the case for economic liberalism became difficult to make in the face of accumulating negative empirical evidence. Public attention was drawn to mis-selling and rigging in financial markets; to a widening of economic and social inequality; to the spread of political cynicism, resentment, and anger; to their successful exploitation by populist politicians with authoritarian tendencies who claimed to represent the ‘authentic’ people against corrupt elites; and to a fragmentation of party systems that
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440 Conservative Liberalism, Ordo-Liberalism, and the State reflected the erosion of support for centrist politics and potentially less stable governments (Frantz 2018). There was a deep-seated sense that customary notions of fairness were being ignored. Emotional sentiment shifted away from economic liberalism. For the first time since the interwar period, liberalism seemed at risk of being eaten out from within by elite hubris and complacency, by the effects of populist politics within as well as between parties, and by a shift to nationalist assertion and protectionism. The ‘supra-majoritarian’ institutions that serve as the ultimate defence of the liberal order—like the independence of the legal system, central banks, and news reporting—became objects of distrust and found themselves challenged. Their expertise as specialized, professional delib erative forums was reframed as cover for partisan positions, for corrupt and collusive elite behaviour, and for incompetence and neglect. The rise of social media helped to speed the decline of trust in authorities and experts in favour of reliance on peer groups. Ultimately, the justification of a rule-based order rests on its basis in, and its contribution to, the quality of democratic deliberation. In this way, it gains acquiescence and respect and elicits compliance. The quality of the deliberative system depends on its scope and its depth. In the first place, the constitutional rules of the game that govern the economy need to provide for a broad deliberative process that involves the institutions of the state, civil society, and the broader public sphere. The rules must embody the notion that economic and political governance is a cooperative venture, which seeks to establish and enshrine the common interests of consumers, shareholders, employers, employees, and citizens. These common interests include the prevention of public harm from the pursuit of egoistic interests; the provision of benefits that cannot be readily delivered through the market; and safeguarding long-term financial, economic, and environmental sustainability. The quality of the deliberative process also depends on its depth. Constitutional rules need to support a deliberative process that leads the various interests to recognize their interdependency and the values of reciprocity and fairness in social relations. The deliberative process must strengthen the capacity to create amongst individuals a more enlightened sense of self-interest. It needs to provide a setting within which the excesses and costs of economic and social inequality and the consequences of a lack of mutual recognition and respect are more likely to be identified and tackled. This capacity depends on the extent to which the delibera tive process recognizes and makes use of expertise and evidence-based research that rests on long-term analysis. In this way, conservative liberalism and Ordoliberalism are well placed to add quality to public deliberation. The new digital age presented fresh challenges to the liberal order in competition policy and in the quality of democratic deliberation. It highlighted once again the problem of economic power, the problem that had been so central to the thinking of Böhm and Eucken. Digitalization had acted as a spur to
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The Historical Significance 441 competition. However, the rise of digital platforms, notably in social media and in online marketing, had been accompanied by a powerful concentration process as new conglomerates exploited network effects. Conservative liberals and Ordoliberals pressed for the strengthening of the authority of competition authorities to tackle misuse of market power and for new institutional arrangements to make it easier for individuals to protect their data and control its misuse (Weidmann 2020: 9–11). In addition, the new digital age posed a challenge to the quality of democratic deliberation. A proliferating and dense web of social media offered new oppor tunities to spread ‘hate’ speech, to inflict online abuse, and to impart misinformation and false images and stories. The liberal order faced increased risks of a debasement of standards of debate and a narrowing of processes of opinionformation into social and political silos. Social media created a mismatch between the requirements of quality deliberation and the modes of discourse they facilitated. The dynamics of social media raised questions about the sustainability of the liberal order. Conservative liberalism and Ordo-liberalism could draw on a rich heritage of concern for cultural standards to contribute to the debate about the governance of the internet.
Just a Hollow Promise or a Vital Contribution to Liberalism? Building on Foucault, Polanyi, and libertarian thought, as well as social liberalism, academic commentary on conservative liberalism and Ordo-liberalism tended to marginalize it as outmoded, oppressive—even dangerous. Empirical evidence about how states behave, and how capitalism functions, begged the question of whether the promise of the strong and impartial liberal state, capable of disciplining markets, was a hollow one. The claim that the state can discipline markets in the long-term public interest seems exaggerated in the face of evidence of political clientelism, crony capitalism, and the privileges accumulated by selfenriching predatory elites. The promise that conservative liberalism and Ordoliberalism can discipline democracy in the long-term public interest also appears to be fraught with difficulties. Democracies show a predilection of political parties for pursuing short-term political advantage and a collective vulnerability to over-promising and the misleading claims of opportunistic and demagogic politicians, eroding trust and destabilizing politics in the longer term. The claims of conservative liberalism and Ordo-liberalism to provide discipline seem to lose credibility in the face of the perpetually effervescent and often misguided energies of democracies and markets. However, the failings of conservative liberalism and Ordo-liberalism need to be placed in context. In providing a critical tool, this form of liberalism offers a morally driven narrative about what democracy and the market economy might
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442 Conservative Liberalism, Ordo-Liberalism, and the State be. In a formal theoretical sense, the failings of conservative liberalism pale in comparison with those of laissez-faire liberalism. Liberalism in general is vulnerable to the extraordinary accumulation of privileges of wealth, income, and access to office that characterize the workings of democratic capitalism. Widening inequality risks rendering hollow the formal claims of liberalism to offer justice. Such liberal claims can only be credible if they are backed by the recognition of the importance of common goods for human flourishing. They require an institutional and a discursive context within which mutual recognition, respect, and social trust can flourish. The possession of abstract rights in a liberal society has little meaning and relevance if that society is not organized to help people acquire the capacity to make good use of their rights and come to feel that they belong (Sen 1989, 1993). People need accessible and affordable childcare, family support, education and training, health services, housing, transport, and digital infrastructure. In recognizing the force of this argument, social liberalism has been more politically successful than other forms of liberalism in building a strong constituency of support. If conservative liberalism and Ordo-liberalism are to make a vital contribution to rejuvenating liberalism in the new millennium, they will have to address challenges that their founding thinkers did not adequately address. They include a reexamination of issues like corporate governance, financial and economic crisis management, economic justice, climate change and environmental policy, and the quality of public discourse. Anti-trust is not an adequate stand-alone policy position in an age of radical technological change, global competition, and the need for large-scale investment, notably in research and development. A central challenge for conservative liberalism and Ordo-liberalism in a corporation-dominated and globalizing market economy is the character and quality of corporate governance, including accountability and transparency. Structures of corporate governance need to enable corporations to contribute better to the long-term welfare of society by taking stakeholders seriously, beyond the short-term interests of shareholders and management in maximizing their returns and income. The rules of corporate governance needs to address issues like remuneration. They need to be accom panied by robust internationally agreed rules on tax liability that accord with the principle of fairness. Conservative liberalism and Ordo-liberalism must also pay closer attention to the lessons learnt from European and international financial and economic crisis management after 2007–8. One such lesson is that financial stability and the avoidance of contagious meltdown is a public good. In more complex, fast-changing, and financially interdependent markets, one-dimensional crisis management, strictly applying the principle of moral hazard, risks precipitating contagious, systemic breakdown. In the interest of its own sustainability, liberalism needs to strike a measured balance between the avoidance of moral hazard and the
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The Historical Significance 443 prevention of contagion. Deductive reasoning from the principle of moral hazard must give way to the recognition that crisis management is fundamentally a matter of carefully calibrated economic and political judgement about the fair distribution of burdens of adjustment. Protecting and compensating the innocent and most vulnerable should weigh heavily in designing rules of crisis management and in judging how they are applied in the interests of fairness. Conservative liberalism and Ordo-liberalism arguably face no more pressing an existential challenge than that from environmental degradation, climate change, and the associated threats to natural habitats, public health, and quality of life. Designing a new rule-based order at international, European, and national levels begs questions about the distribution of the costs of adjustment, notably to a zero-carbon economy. This challenge raises sensitive issues of economic justice. Conservative liberals might be expected to support a rule-based process of adjustment that gives knowledge, voice, and power to those adversely affected and to favour rules that encourage conservation and restor ation. They might also be expected to harbour scepticism about relying too much on the capacity of new technologies, innovation, and market-based solutions to tackle the scale and urgency of the crisis and to do so in a way that is compatible with the principle of fairness. Democracies and markets need to be encouraged to meet higher standards of virtuous and responsible behaviour in their relations with nature through a judicious combination of rules with market incentives. Rules on corporate governance, remuneration, tax liability, crisis management, and climate change and environmental degradation touch on the fundamental moral question of economic justice. Conservative liberalism and Ordo-liberalism put individual responsibility at the centre of their conception of economic justice, stressing that envy is not one of the sources of discontent that a liberal society can eliminate (Hayek 1960: 93). Nevertheless, it is hard to see how the sense of economic justice can be sustainably connected to liberalism in the absence of rules that compensate those who lose out from events beyond their control and that enable all potentially to live worthwhile and, where possible, economically pro ductive lives. It suggests endorsement of clear, firm, generally applicable rules that govern carbon emissions, redistributive collective social insurance, large-scale social and infrastructure investment, and support for caring. This requirement becomes more pressing in liberal societies that face huge technological and employment disruption, alongside rapid demographic changes. Social provision is required that can offer security over the lifecycle of individuals. For conservative liberals this type of support would—in the absence of congenital disability— be conditional on demonstrating willingness to contribute to the community. Subject to this proviso, conservative liberalism needs to accept the case for rules that promote high levels of social investment in childcare, in education and training, and in health and social care. Tax rules should also promote economic justice
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444 Conservative Liberalism, Ordo-Liberalism, and the State by encouraging the wider ownership of capital assets and by rewarding product ive but unmarketable work. In addition to climate change, there are fewer, more fundamental challenges for a liberal society than the quality of public discourse. In an age of social media, conservative liberalism and Ordo-liberalism can promote the value of rules designed to improve the individual’s access to reliable, evidence-based sources of information, to challenge ‘fake news’ and ‘fake images’, to counter ‘hate’ speech, and to foster awareness of inter-generational justice in deliberation. A key aspect is the accountability and transparency of the Big Tech giants. As this book has emphasized, concern for the quality of public discourse is deeply rooted within conservative liberalism and Ordo-liberalism and can be traced back to such figures as Goethe, Friedrich Schiller, and Alexis de Tocqueville. The relevance of conservative liberalism and Ordo-liberalism depends on addressing these challenges, and other challenges, in a way that can command consent. Empirically, liberal societies are very imperfect and as much—if not more—at risk from the hubris, greed, and complacency of their elites as they are from their enemies (see Dyson 2014). The failure of these elites to internalize a sense of social obligation, to take seriously the moral issues at stake in economic life, and the lack of restraint in pursuing what they regard as rightful individual claims slowly erode the foundations of liberal society. They make a mockery of aspirations for the strong, impartial liberal state. Many of the problems of conservative liberalism and Ordo-liberalism in contributing to the renewal of liberalism stem from the ideological blinkers that give rise to their distinctive focusing illusion (see Chapter 4: 99, 100 and 113–14; also Kahneman 2011). They possess an inbuilt tendency to highlight certain aspects of political economy at the expense of others. They incline towards a onedimensional, binary view of political economy. They prefer rules over discretion, predictability over experimentation, avoidance of moral hazard over prevention of systemic risk, and the interests of creditors over debtors. These biases incline them to underestimate short-term risks to long-term stability. Conservative lib erals and Ordo-liberals also tend to overlook or minimize the structural roots of social and economic disadvantage. In thinking about macro-economic policy, conservative liberals and Ordoliberals are inclined to fall back on ideologically loaded readings of Keynes and a conflation of Keynes with Keynesianism. These readings ignore the differences between the cautious and discriminating policy judgements of Keynes in the late 1930s and early 1940s and the more radical views of some of his later disciples (on which Dyson 2014: 79). Keynes was all too aware of the danger that accumulating a high level of public debt could narrow down fiscal policy options. The problem is compounded when ‘Keynesians’ select and interpret texts of Keynes to support arguments whose inspiration owes little, if anything, to a more nuanced reading of Keynes. The tendency to ‘either–or’ thinking within political economy
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The Historical Significance 445 is often at the expense of recognizing and accepting—as Hyman Minsky (1986) did with reference to banking and financial markets—the complex dynamics and inherent imperfections and instability of market economies. As Keynes argued, the complex nature of the material of economics limits the value of abstraction and the search for internal consistency. This point would apply as much to formal mathematical reasoning and model-building by later Keynesians as to the morphological method of Eucken. In attempting to become relevant to contemporary issues, conservative liberals and Ordo-liberals share a problem with economists in other liberal traditions. They are caught up in a difficult relationship with governing elites that blunts their efforts at influence. This relationship involves a great deal of mutual blameshifting. Governing elites, including Erhard, tended to blame the excessive abstractions of conservative-liberal and Ordo-liberal economists and their divorce from reality for their marginal influence (see Chapter 11: 358). The limited and often disparaging way in which governing elites commonly conceive of the role of economists was captured in the remark of Montagu Norman, governor of the Bank of England, to Henry Clay, the Bank’s economic advisor: ‘You are not here to tell us what to do but to explain to us why we have done it’ (Kynaston 2017: 358). The founding Ordo-liberals experienced the same attitude from the president of the German Reichsbank at two key meetings of the Friedrich List Society. Their advice was sought in 1928 on reparations and in 1931 on the Lautenbach Plan. On both occasions it was disregarded as inconsistent with prior political decisions (details in Chapter 11: 385 and 386–7). Ordo-liberals were left in the position of being able to blame subsequent policy failures on the economic illiteracy of governing elites and their failure to listen to and understand economic reasoning.
A Conclusion In drawing up a balance sheet, it is important to remember that the founding figures of conservative liberalism and Ordo-liberalism had a didactic, moral purpose. This moral purpose found expression in a stress on the fragility of liberalism without the foundations of secure and supportive legal, political, social, and economic orders; in pointing to duties as the corollary of the claim to rights; in warning against moral relativism; in rejecting a narrow, egoistic conception of the individual; in emphasizing the possibilities in human nature, deriving from the individual’s capacity to deliberate, to show empathy, and to act for mutual advantage; and in showing what democracy and the market economy might become, rather than just documenting their deficiencies. Amongst economic liberals, they were the least likely to fall into the errors of economic and structural
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446 Conservative Liberalism, Ordo-Liberalism, and the State determinism; to succumb to the temptations of historical determinism; to detach the exercise of rationality from the sense of moral judgement; and to drift into moral relativism. Conservative liberals and Ordo-liberals were alert to the essential openness and indeterminacy of history. They were characterized by their principle-based conception of economic policy. However, they did not have an absolute commitment to deductive reasoning as the one basis for deciding what should be done. Hayek (1960: 330–3) summed up the general attitude of conservative liberals and Ordo-liberals that, from a long-term point of view, it was doubtful that deflation was more harmful than inflation. The short-termism of politics meant that, of the two errors, inflation was the more likely to be committed. However, the attitude of many conservative liberals and Ordo-liberals to deflation was far from absolute (including later Hayek 1975a). Müller-Armack, Röpke, Jacques Rueff, Henry Simons, and Paul van Zeeland had a nuanced approach. They sought to ensure that economic policy delivered price stability in a manner compatible with retaining and fostering a strong society that was not attracted to extremism. Röpke stood out in his attack on ‘business-cycle nihilism’ and his advocacy of a ‘positive’ economic policy (Röpke 1931: 450, 1944: 28, 40; see Chapters 1: 25 and 11: 381–2). The question is whether the reconstruction of liberalism by the founding figures of conservative liberalism and Ordo-liberalism remains fit for purpose and retains practical value. Aspects of their thinking reveal the spirit of their times: the patriarchal model of the family and social relations; their belief in an aristocracy of knowledge and wisdom; their austere, stoic, and puritanical model code; and their respect for custom, tradition, family, and neighbourhood as bases of social trust and belonging. The question is whether their principles can be disentangled from this context and retain a more durable and general value. The polit ics of the early twenty-first century suggested that custom, tradition, family, and neighbourhood continued to have a deep social resonance. The problem for liberalism was that these values were adopted by national populists to advocate a form of discourse that proved deeply uncomfortable for liberals in general. The stress of the founding conservative liberals and Ordo-liberals on the individual’s ‘interior becoming’, and on models of how individuals can overcome their limits, inexorably creates an opening for others to argue that they neglected certain key external disabling conditions. They can be criticized for the inadequacy of their conception of economic justice. Human flourishing depends on access to resources and capability to exercise formal rights. In this sense, distributive just ice matters. Hayek (1960: 306–15) rejected progressive taxation as an instrument of redistribution because it involved arbitrary democratic discrimination against minorities, including but not limited to the upper classes. Instead, he proposed a rule that the maximum admissible rate of direct taxation should be fixed at that percentage of the total national income that the government takes in taxation
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The Historical Significance 447 (ibid.: 323). The argument against arbitrary discrimination recurred in his hostility to the welfare state as a tool of redistribution (ibid.: 257–60). Hayek limited comprehensive social provision to security against ‘severe physical privation’ through a rule that guaranteed an equal minimum income for all (ibid.: 259). It interfered with liberty when it extended to assurance of a given standard of living. This conception of economic justice begged questions about deep-seated structural sources of deprivation and their implications for a liberal society and about whether this view of taxation and public expenditure was compatible with individuals having effective choices in such matters as health and education. The founding conservative liberals and Ordo-liberals are also open to criticism for failing to provide as much detail about the kind of political order that they sought as about the economic order. Böhm looked to measures to limit the principle of proportionality in electoral systems, to strengthening the political executive vis-à-vis the legislature, and to judicial independence in safeguarding individual rights (Dathe 2014a). Röpke (1944, 1945, 1954) took inspiration from the Swiss model of a federal order. Hayek (1960: 104–5, 183–6) argued that one should not be deceived into thinking that, because democracy was a good thing, its extension was always a gain for mankind—whether through widening the electorate or extending the range of issues to be decided by democratic proced ure. Constitutional principle should focus on protecting liberalism against the potentially coercive power of democracy. He stressed the importance of restraining legislatures through two principal devices, federalism and the constitutional guarantee of individual rights, with reference to the US Constitution. In Hayek’s view, democracy will not last long unless it preserves the rule of law (ibid.: 248). In a general sense, conservative liberalism and Ordo-liberalism share the practical limitations that attach—in different forms—to other traditions of political economy and that are rarely acknowledged. These limitations stem from each tradition’s distinctive focusing illusion and ideological blinkers which marginalize or exclude certain aspects of complex economic and political phenomena and their associated interests. The practical value of conservative liberalism and Ordo-liberalism can also be said to suffer from the seductive, simplifying intellectual power of binary modes of thought that take inadequate account of the complex and dynamic reality of markets, politics, and societies. Keynes, Polanyi, and Schumpeter were more acutely aware of this dynamic quality. The fate of conservative liberalism and Ordo-liberalism matters to liberalism in a wider sense. Liberalism stands to suffer if its various forms fall into the danger of defending their own static conceptions, turn inwards, and make hubristic claims for what they can achieve on their own. As it confronts transformational crises in the new millennium, liberalism will need to display a new dynamism and regain strength through stressing and building on the complementarities between its variants. Conservative liberalism and Ordo-liberalism retain a strong claim to be one element in a wider metamorphosis within liberalism. Their
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448 Conservative Liberalism, Ordo-Liberalism, and the State focusing illusion, and the intellectual gaps that follow, do not vitiate their claims to play a role in the processes of rational evaluation that seek to inform institutional functioning and public policy and to improve the quality of consent. In the final analysis, the acceptance of conservative liberalism and Ordo-liberalism requires a consensus in the population that supports what they view as virtuous, responsible, and honourable and displays a disposition to endeavour to meet those standards. Conservative liberalism and Ordo-liberalism contribute an indispensable focus on long-term sustainability and on the moral foundations of economics. They argue robustly for general principles and rules and for the role of independent, ‘supra-majoritarian’ institutions in safeguarding those rules. Conservative liberals and Ordo-liberals warn that these institutions risk losing their reputation for competence, and ultimately their independence, when they take on duties they cannot master. This concern is reflected in their fears that central banks will stray into fiscal policy through non-conventional measures like sovereign bond purchasing. Conservative liberals also retain the notion that there is a vital place in public life for ‘the great and the good’, recruited for their character, their expert ise, their experience, and their qualities of judgement. They celebrate the moral qualities of character over charisma, celebrity, and public relations skills. They argue that the concept of the morally solid and responsible citizen remains vital to the sustainability of the liberal order. The position of conservative liberalism and Ordo-liberalism within the history of political economy remains paradoxical. Their most important role has been as a critical tool in asking questions about how markets and democracies work; about how they measure up to certain normative principles that help to safeguard the quality of the deliberative process and of consent to policies; and about the importance of a disciplinary framework of rules in safeguarding the liberal order. In a constitutional sense, conservative liberalism and Ordo-liberalism stand for rules that can contribute towards the creation and fostering of an environment in which rational evaluation and reasoned argument prevail over the mere counting of votes and the loudness with which opinions are expressed. They wish to ensure that a long-term perspective, beyond the economic cycle and the electoral cycle, gains a clear hearing. In an economic sense, conservative liberals and Ordo-liberals justify rules as enabling, not just constraining. Rules can serve to ease the burden on future generations by making debt sustainable. By limiting public indebtedness, rules can expand the space for future fiscal and monetary policies to act in a countercyclical or even emergency fashion. Counter-cyclical economic management that is driven by short-term electoral advantage and political opportunism carries the risk of cumulatively narrowing down future options. By constraining certain forms of economic activity, like carbon emissions, rules can help prevent environmental degradation and threats to habitats, retain biodiversity, and improve
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The Historical Significance 449 public health. Crucially, conservative liberalism and Ordo-liberalism broke with laissez-faire liberalism in stressing that the central issue was not the market against the state but the market with the state, a position it shared with social liberalism. The difference with social liberalism related to the scope and depth of the interaction of the market with the state. Liberalism’s great collective strength rests in its internal variety and flexibility, in its potential to exploit its complementarities, in the broad constituencies of support it can mobilize in its different forms, and in the role that the expansion of tertiary education and the knowledge economy can play in enlarging its basis of support. Faced with new transformational crises in liberalism, the case can be made that the rule-based order of conservative liberalism and Ordo-liberalism retains value and relevance to rejuvenating liberalism, within certain limits. They become pernicious when pushed too dogmatically beyond those limits. The potential for rejuvenation of liberalism has been illustrated in the way in which thinkers can migrate across porous borders, both within liberalism and to adjacent bodies of thought (see Chapter 4). Part of liberalism is the creative capacity to combine and recombine ideas in different forms as individuals follow their curiosity and adapt to changing circumstances of knowledge and experience. Conservative liberalism and Ordo-liberalism pose existential questions that liberalism cannot avoid. Though democracy may abandon them, they are much more likely to find friends in democratic than in authoritarian societies (Hayek 1960: 248). This conclusion leaves other questions open as liberalism faces new transformational crises. How much discipline can a democracy bear, given its individual cultural and institutional inheritance, the way that events have borne down upon it, and its distinctive political opportunities and constraints? How much discipline is feasible, given the perpetually effervescent energy of capitalism and its self-aggrandizing and self-enriching properties? At what point do conservative liberalism and Ordo-liberalism create enemies when they most need friends? And how far can they go in making friends in other ideological camps without forfeiting their rationale and putting the sustainability of liberalism in question? In the final analysis, a viable liberal society is an ongoing test of whether its governing elite and public can achieve a workable balance between releasing the effervescent energy of democracy and the market and providing the discipline that makes democracy and a market economy work to enable successive generations of individuals to live fulfilling and worthwhile, as well as prosperous, lives. As Böhm (1980: 115) and Hayek (1989/1974: 7) recognized, sustaining liberalism requires its constant cultivation in the face of chan ging and challenging conditions. Despite their historical contingency and fragility, it would be premature to claim the demise of conservative liberalism and Ordo-liberalism. One should not underestimate their enduring cross-national cultural resonance, bound up in part with the secularization of religious values (on which Chapter 7). The withering of
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450 Conservative Liberalism, Ordo-Liberalism, and the State conservative liberalism and Ordo-liberalism did not amount to their death (cf. Hien and Joerges 2018). Aristocratic liberalism, ethical philosophy, and religious values continued to have a background presence. There was an ongoing sense of concern about the quality of democratic deliberation and about the intellectual limitations of Anglophone analytic philosophy. The desire for a firm moral compass retained an appeal in more secular societies, not least in troubled times and while their memory was still fresh. Publics proved—at least in certain circumstances—receptive to appeals to order and stability and to individual responsibility, hard work, thrift, and working for mutual advantage There was at least a residual recognition of the importance of independent institutions and of the dangers of ignoring technical expertise. Governing elites who aligned themselves with values of sound money, sound finance, and social order had the capacity to inspire confidence, to stabilize markets, to gain a reputation for governing competence, and in this way to win elections. This capacity was most evident in Baltic, Dutch, German, Scandinavian, and Swiss cultural spaces that had been shaped by Lutheran and Reformed Protestant values (Chapter 7: 220 and 235). Moreover, conservative-liberal and Ordo-liberal values could gain heightened appeal across ideological divides in times of crisis. They could be colonized by centre-Right parties, like the French Gaullists in 1958–61, and be pragmatically adopted by the centre-Left, as in France and Italy (see Chapter 10: 330–1 and 334–5). Two developments offered new prospects for conservative liberalism and Ordo-liberalism. From the 1980s, they were intellectually nourished by developments in academic economics, notably credibility and time-consistency theory and public-choice theory. Economic theory helped in the forging of a new cross-national elite consensus that facilitated EMU. In addition, the rise of the knowledge economy and expansion of higher education led to an increasing proportion of educated, aspirational, and politically engaged people in advanced economies. They were drawn to support those who offered economic competence and widening opportunities and provided a natural and growing constituency for liberalism. The open question was in what proportions they would identify as conservative, social, or pragmatic liberals. As with other traditions of political economy, conservative liberalism and Ordo-liberalism remained historically open to reinvention, to neglect, and to forgetting. Their position within liberalism was not historically determined.
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Index of Names For the benefit of digital users, indexed terms that span two pages (e.g., 52–53) may, on occasion, appear on only one of those pages. Acton, Lord John 46, 95, 132, 134–6, 138–9, 145–6, 166, 223, 293 conservative liberalism, legacy to 145–6 democracy, brought up to regard as political disease 146 founding Ordo-liberals, influence on 145–6 Adenauer, Konrad 63, 65–6, 110, 236–7, 353–4, 367–8, 389, 393–4, 398 Albert, Michel 71 Allais, Maurice xviii, 3, 14–15, 22, 45, 62–3, 77–8, 130–1, 178, 200, 318, 322–7 “liberal debacle”, pointed to 45 “organized competitive economy”, called for 3 Althaus, Paul 225 Andreatta, Beniamino “Nino” 346 Aquinas, Thomas 156, 213, 224–6, 230, 435 d'Argenson, Marquis 25 Aristotle 150, 179–80, 435 Armand, Louis 332 Armand–Rueff report 329–33 Arnold, Matthew 62–3, 134–5, 153 Audard, Catherine 308–9 Auger, Pierre 197–8 Augustine, Saint 224–5 Bachelard, Gaston xix, 156, 169, 196 Bagnai, Alberto 348 Barre, Raymond 77–8, 329–36 Barro, Robert 56, 297 Barry, Brian 251 Barth, Hans 263 Barth, Karl 223–4 Bastiat, Frédéric 250, 318, 325–6 Battista, Pierluigi 348 Baudin, Louis 302, 318 Baudrillart, Henri 250 Baumgartner, Wilfrid 333 Beckerath, Erwin von 354–5 Beckmann, Martin 109–10 Bell, Clive 202 Bellamy, Richard 427
Benda, Julien 27, 49, 58, 134–6, 153–8, 171, 196 democracy, reservations about 155 intellectual tradition against modernity, stood for 156 legacy of 153–8 Trahison des clercs 155–6 Benedict XVI 170, 228, 231–2, 234–5 Benrubi, Isaak 170–1 Bentham, Jeremy 107, 153, 174, 202–5, 293 Bergson, Henri 58, 62, 153, 156, 163–5, 168, 170–2, 176–7, 190, 192–3, 195–200, 211, 323–4, 330–1 creative evolution, theory of 199 élan vital 176 Kant’s conception of ethical duty, critical of 171 liberalism, stressed form that overcame egoism and avoided self-absorption 171 philosophy of action 171–2 Two Sources of Morality and Religion 163–4 Berlusconi, Silvio 313, 348 Bernanos, Georges 310–11 Bernard, Karl 389 Beveridge, William 23, 269 Biedenkopf, Kurt 35, 112, 231, 377 Bilger, François 63–4, 81, 262, 313, 318, 326, 328–9 Bismarck, Otto von 38–40, 50, 148, 186, 222, 429 Blackett, Basil 280–1 Blessing, Karl 402 Blüm, Norbert 229, 231 Bockelmann, Horst 392 Böhm, Franz ix–xi, xiii–xiv, xvi, 7–8, 10–11, 19–20, 24, 30–4, 36–8, 46–51, 56–60, 65–6, 74, 77–81, 87–9, 91, 93–4, 104, 106–8, 112–13, 115, 121–2, 126, 130–2, 135, 163, 166, 169, 173–4, 177, 180, 184–5, 189, 213–14, 216–17, 219–22, 228–31, 263, 278, 294, 298–9, 302, 354–5, 357–8, 370–3, 410–11, 417, 426–31, 440–1, 447, 449 Adam Smith, views on 173
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502 Index of Names Böhm, Franz (cont.) anti-Semitic rhetoric and policies of Nazi regime, shocked by banks and cartels, advocated curbing privileges of 430 cartels, power of, regarded as historical problem to be resolved via prohibition 370–1 CDU parliamentarian 371–2 centre-ground of politics, stressed need to strengthen 429 “civil-law society”, concept of 107, 372–3 Competition and the Fight against Monopoly 107 Economic Order as Historical Task and Creative Legal Achievement 107 freedom to compete as most effective instrument of disempowerment 370–1 garden metaphor, use of 55–6, 88–9 “Jewish question”, convened meetings of Jena professors to discuss 221–2 Jews, Nazi policy on, subjected to disciplinary procedure for criticising 65–6 law and power, seminal article on 80 medical metaphor, use of 91 moral courage of 65–6 Nazi regime, refused to endorse 429 Ordo Manifesto and Order of the Economy 94 “philosopher-lawyer” 49–50 “Problem of Private Power” 107 resistance circles, Freiburg, participated in 65–6 Schiller’s reflections, drew from 47–8 Swiss intellectuals, fondness for 135 Böhm-Bawerk, Eugen von 180 Bonaparte, Napoleon 62, 143–4, 147–8, 150, 313–14 Bonefeld, Werner 71, 221–2 Bonhoeffer, Dietrich Bonhoeffer Memorandum and Ordo-liberalism 221–3 turned to Freiburg Circle to help draft principle-based conception of post-war German state 222 Bonn, Moritz Julius 23–4, 48–9 Bonnet, Georges 314 Bork, Robert 299–300 Bourdieu, Pierre 68, 335 Bourgeois, Léon 23, 310–11 Brandeis, Alice 74, 76 Brandeis, Louis ix–x, xiii–xvi, xviii–xix, 5, 7, 23–4, 26–7, 62–3, 74, 76–81, 134–5, 140, 152–3, 247, 267–9, 298–301, 422 American corporate and money trusts 78–9
“bigness, curse of “ 79 business as part of social organism, conceived of 26–7 Classical Greek and German literary references, drew on 62–3 intellectual roots 298 legacy of 299–300 monopoly power, big corporations, and mass consumerism, opposed to 298–9 moral aloofness and strength of purpose 62–3 Roosevelt, close links to 299 US anti-trust movement, heroic figure in the history of 298 US Progressive movement, central figure in 299 victimization of women as major social and political problem, identified 76 Brauns, Heinrich 381 Brentano, Franz xix, 23, 167, 169, 179–81, 191 founding thinker in phenomenology 180 Brentano, Lujo 23 Bresciani-Turroni, Costantino xix, 14–15, 53–4, 259, 336–44, 348–9 monetary stabilization, arguments regarding 342 reconstruction and stabilization, post-war 340–2 Bretscher, Willy 263 Briand, Aristide 149 Briefs, Götz xiv, 54, 60, 93–4, 116–17, 125–7, 214–15, 229–31, 385–6, 435 rule-governed order, belief in 230 “socially sensitive capitalism”, advocated 117, 229 “sociological” Ordo-liberalism, identified with 93–4 Brittan, Samuel 271 Broglie, Louis de 197–8 Brüning, Heinrich 380, 383, 386–7 Brunner, Emil 219, 224, 391–2, 435 Gerechtigkeit 224 Brunner, Karl 8, 78, 214–15, 219, 224, 391–2, 435 Buchanan, James xviii–xix, 43, 71–2, 77–8, 85–8, 95, 118, 123, 128, 160, 169, 212, 220, 236, 248–9, 254, 257–8, 260–1, 275–6, 289–90, 294–6, 303, 305–6, 412–13, 435, 437 balanced budgets and restraints on government power to borrow, called for 304–5 “constitutional economics” 56–7, 123, 303 “engineering and control” mentality of Keynesians, opposition to 55–6, 303
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Index of Names 503 financial and economic crisis as “constitutional failure” of rules 304–5 fiscal rules, advocacy of 305 normative individualism 303–4 rent-seeking behaviour, opposed to 435 “rules of the game”, analysis of 248–9 Simons’ Chicago Plan, return to 305 Bultmann, Rudolf 221 Burckhardt, Jacob 27, 39–40, 52, 58, 132, 134–7, 139, 146–8, 293, 339 French Revolution and Napoleon, analysis of 147 history as reciprocal interaction of state, religion, and culture 147 legacy 146–8 moral nobility, admiration for 147 utilitarianism, aversion to 148 Burke, Edmund 95, 145, 166, 276 Caesar, Julius 150 Calvin, John 213–14, 220, 234 man as active in the world, conception of 234 Reformed Protestantism of 212–15, 218–20, 235, 252, 450 Cameron, David 274, 276 Cannan, Edward xviii–xix, 95, 275, 277–80 Economic Problem 95 economics at LSE, lectures in 277–8 economist as mature moralist, conception of 278 Carli, Guido 259, 346–8 Cavour, Camille de 343 Chirac, Jacques 334 Chodorov, Frank 23, 268 Cicero, Marcus Tullius 234, 430 Clappier, Bernard 333–4 Clay, Henry 445 Clemenceau, Georges 149, 313–14 Coleridge, Samuel Taylor 153 notion of “clerisy” 201 Colm, Gerhard 182, 383–4 Colson, Clement 176–7, 195–6, 314–17, 329 Commun, Patricia 262 Comte, Auguste 150, 195 Condorcet, Marquis de 26 Constant, Benjamin 21, 82–3, 137 Coutrot, Jean 328 Couve de Murville, Maurice 330, 332–3 Croce, Benedetto 338–9, 343–4 Currie, Lauchlin 277 Daladier, Édouard 321 Debré, Michel 330, 332 Delos, Joseph 312
Descartes, René 195 Dewey, John 167–8, 302 Dietze, Constantin von xvi, 34, 56, 65, 94, 216–17, 220–3, 430–1 anti-Semitic rhetoric and policies of Nazi regime, shocked by 431 Freiburg University, as rector of 216–17 Gestapo, arrested by 430 Dilthey, Wilhelm 179 Director, Aaron 293 Dollfuss, Engelbert 227 Draghi, Mario 12–13, 260, 274, 343–4, 346, 406, 408–9 Drexl, Josef 112 Drèze, Jacques 259–60 Duguit, Léon 23, 199 Durkheim, Émile 23, 199 Einaudi, Luigi xvi, xix, 9–10, 14–15, 28, 32–3, 41–2, 45–6, 54–5, 75–6, 77–8, 80, 89, 93, 96, 110, 128–36, 143–4, 148, 156–7, 243, 259, 262, 272, 316–17, 336–47, 342–7, 338–42, 356–7 Banca d’Italia and budget minister 344 Christian humanism, drew principles from 340 Constituent Assembly of Italian Republic, active figure in 344 earliest influences 341–2 Einaudi “experiment” 344, 346 Enlightenment as key event 340 ethical liberalism, re-examination of 338–40 fascism, fled from 45–6, 338 First World War, affected by experiences of Europe during and after 45 “home-based” stabilization, advocate of 342 industrial revolution, criticized 89 Italy, president of 344 Keynes, opposition to 340 liberal order, humanistic and moral basis of 338 liberal reformers, source of inspiration to 346 moral flourishing requires liberal society, argument for 133–4 Ordo-liberal thought engaged via reading of Röpke 93 plutocracy, monopoly privileges, and large estates, opposition to 338 reconstruction and stabilization, post-war 340–2 Risorgimento 336 “star” Italian economist, reputation as 346
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504 Index of Names Einstein, Albert 323–4 Emmerich, Volker 108 Emminger, Otmar 378, 389–94, 397–8, 402, 404, 406 Erasmus 254 Erdmann-Macke, Elisabeth 49 Erhard, Ludwig xiii–xvi, 10, 35, 38, 63, 65–6, 77–8, 110, 124–5, 236–7, 243–5, 247–8, 256, 262–3, 312, 315, 328, 341, 344, 352–59, 362, 367–70, 376–9, 389, 393–400, 404–5, 427–8, 445 academic outsider 356–7 business background, lessons drawn from 357–8 EPU, hardening of, and rapid liberalization, in favour of 393–4 “Erhard brigade” included academics, politicians, and journalists 263 Eucken, contact with, mediated through Miksch 355 Eucken’s principles, critical of 357–8 Freiburg Ordo-liberals, ambivalent relationship with 357–8 Freiburg School, did not consider himself exponent of 355 fundamentalists, sceptical of 358–9 German “economic miracle”, father of 77–8, 353–4, 356 international institutions, drawn into conflicts with 367–8 journalists and publishers, able to communicate key messages via range of 355 liberalizing reforms, feared EEC would undermine 398 Müller-Armack, tensions with 377 Nazi ideology, no enthusiasm for 357 Nuremberg Institute, director of 357 Ordo-liberals, relations with 358 reconstruction, leading role in 358–9 social-market economy, leadership role in 356 “strong” state, sceptical of calls for 358 Erler, Fritz 355 Etzel 376 Eucken, Irena 75, 210–11 Eucken, Rudolf xvi–xvii, xix, 27, 58–9, 62, 75, 163–5, 168–72, 175–9, 185–95, 219, 224, 235 Bismarck, critical of 186 ethical principles 170 German idealist tradition, product of 185 imprints of 183–95
key figure 176 message of cultural crisis in Europe 188 Netherlands and Nordic countries, links to 235 noological method of abstraction and reduction 175–6, 187 Prolegomena 163–4 religious metaphysics and ethical activism of 185–7 spiritual problem of modern life, insight into 177 “spiritual” positivism, looked to 185–6 Eucken, Walter x–xi, xiv–xvii, 8–15, 19–20, 23–5, 29, 31–8, 39–43, 46–50, 52–4, 56–8, 60–1, 63–7, 71, 73–8, 80–1, 84, 87–9, 91–6, 99–101, 103–4, 106, 108–13, 115–27, 130, 132–5, 137–42, 144, 147–8, 156, 163–8, 170, 174–9, 181–9, 162–3, 208–17, 219–29, 242–3, 246–9, 252–3, 256, 262–3, 271–3, 275, 278–9, 284–9, 292–4, 297, 301–2, 304, 318–19, 328, 336, 340–1, 346, 348–9, 351–8, 360, 366, 370–1, 375–8, 380–3, 385–91, 393, 395–6, 410–11, 414, 416–18, 424, 426–34, 438–9, 440–1, 444–5 Anglo-American economics, emphasized his alienation from 271 anti-Semitic rhetoric and policies of the Nazi regime, shocked by 431 automaticity in monetary policy, belief in virtue of 387 avoiding moral hazard and of accepting liability, principles of 12 Beveridge Plan, lamented influence of 272 cartels and rigorous market liberalization, sought prohibition on 370–1 central bank independence, not an advocate of 10 constitutive principles, regulative principles, and principles of state action, distinguished between 108 death 33, 395–6, 414 economic order, constitutive principles of 108 economic policy and structure of the economy, identified link between 273 ethical relativism and political opportunism, condemned 56 Eucken Association (Der Euckenbund) xvi–xvii, 60, 75, 163–4, 168, 170, 184–7, 430–1 Eucken Circle 60, 163–4 Eucken Institute 34–5, 37, 118–19
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Index of Names 505 Eucken School 99–100, 105, 118, 120, 123, 262, 278–9, 304 Foundations of Economics 94–5, 108 Freiburg School, leading integrative figure in 184–5 “Gedanken zur Geschichte” 56 Goethe’s morphological studies, interest in 138 Grundlagen der Nationalökonomie 49 Grundsätze der Wirtschaftspolitik 247–8, 319 Heidegger’s efforts to align Freiburg University with Nazi regime, opposed 64 Historical School and Gustav Schmoller, critique of 56 hyper-inflation, blamed Banking School for failings in policy that led to 84 “idolatry” of “economism” and “scientism”, attacked 89 influence 94–5, 109–10 intellectual leader of Freiburg School, role as 9 “isolating abstraction” 115 isolation, intellectual 247–8, 271 Kantianism and “ethical activism” of Rudolf Eucken, looked to 184–5, 430 Kapitaltheoretische Untersuchungen 56 Keynes, disagreement with 25 Keynesian “illusion”, lamented influence of 138 Kritische Betrachtungen zum deutschen Geldproblem 53–4, 388 Krugman, Paul 274 Miksch, criticized for pro-Nazi sentiments 64 Mises, clashes with 43 monetary policy, determination of economic process by, emphasis on 388 morphological approach 115–16, 119, 175–6, 187 morphological reasoning, views on 188 Nationalökonomie—wozu? 56 Nazi party, resisted attempt to affiliate Eucken Association with 430 Nazi regime, profound distaste for 428 Ordo Manifesto and Order of the Economy 94 “philosopher-economist”, example of 49 philosophical conviction, intellectual power, and unconditional reliability, firmness of 63–4 Principles of Economic Policy 37, 94–5, 108, 112–13 “qualitative” economic policy, theory of 35–6 reception of 286–9 reconstruction in post-war Germany, pessimistic about 243
regulative principles 108–9 religious convictions 210–12 resistance circles, Freiburg, participated in 65–6 “saint of economic theory”, described as 63–4 Schiller’s reflections, drew from 47–8 socialism, critique of 170 Staatliche Wandlungen und die Krise des Kapitalismus 426 “Struggle of Science” 64 “Thoughts on History” 57 Tocqueville, conception of freedom shaped by 144 Eucken-Erdsiek, Edith xvi–xvii, 75 Euripides 79 Eyskens, Gascon 260 Fabra, Paul xvi, 309, 315, 333 Fassbender, Siegfried 65 Feld, Lars xvii, 25, 37, 68, 71, 99–100, 118–19, 375–6, 380–2, 396, 427 Ferrara, Francesco 343 Ferrero, Guglielmo 27, 134–5, 149–51, 153 anti-fascist, virulent 149–50 European civilization, warned against illusion about the strength of 150 “Germanized” Italian intellectuals, critic of 150 healthy and sick states, insights into 150 legacy of 149–51 Montesquieu and Tocqueville, inspired by 150 “sages of the West”, one of Rougier’s 149–50, 153 Fichte, Johann Gottlieb 185 Fikentscher, Wolfgang 112 Fisher, Irving 282, 294–5 Flandin, Pierre 149 Forsthoff, Ernst 107 Forte, Francesco 80, 93, 130–1, 336–7, 341–3, 346 Foucault, Michel 71–2, 128, 165, 169, 196, 313, 424–5, 441 “bio-politics” 425 Eucken and Freiburg School as “real” neo-liberalism, view of 424 influence of 424 Ordo-liberalism, work formed basis for wide-ranging critiques of 67–8 Fourastié, Jean 328 France, Pierre Mendès 23 Francis, Pope 234–5 Frankfurter, Felix 23–4, 299
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506 Index of Names Franklin, Benjamin 220 Freud, Sigmund 72–3, 163–5 Friedman, Milton 8, 23, 31–2, 36, 46, 51, 78, 80–1, 85, 121, 128, 236, 257–8, 268–9, 276–7, 289, 293–5, 297, 351, 421–2 Fry, Roger 202 Gabriel, Sigmar 36–7 “Speech on the Principles of the Social Market Economy” 37 Galileo 64, 430 Gauck, Joachim 36–7 de Gaulle, Charles 32–3, 134–5, 149, 171–2, 313–14, 329–34 Bonapartist features of 324 Catholic background led him to emphasize idea of state as committed to solidarity 310–11 economic policy, flexible and tactical approach to 310, 331 French President, election as 402–4 Gaullism 310–12 Geithner, Tim 12, 274 Stress Test: Reflections on Financial Crises 274 Gentile, Panfilo xix, 336–7, 340–1, 344–6 George, Henry 268 George, Stefan 75 Georges Boris 334 Gerloff, Wilhelm 391 Gestrich, Hans 182 Giavazzi, Francesco 297, 347 Giersch, Herbert 120, 252–3, 362, 416 Giolliti, Giovanni 343 Giscard d’Estaing, Valéry 332–4 Gladstone, William 145 Gleske, Leonhardt 391–4 Gocht, Rolf 262–3, 354–5, 360, 366–70, 377, 391–4, 406 “Fundamental Questions of the Monetary Order” 393 Bundesbank views, traditional, defended 392–3 Müller-Armack's policies, opposed 360 Schiller’s belief in discretionary “global steering” of the economy, aversion to 394 Goerdeler, Carl 427–8 Goethe, Johann Wolfgang xii, 7, 50, 52, 62–3, 79, 90–1, 134–8, 140–4, 146–7, 156, 160, 164–5, 175–6, 185–6, 219, 226, 308, 346, 410, 444 craft occupations, admiration for 141–2 Dichtung und Wahrheit 140 Faust 50, 138, 140–2
freedom, conception of 141 French Revolution and industrialization, response to 50 German Ordo-liberalism, influence on founding thinkers of 140 Hermann and Dorothea 140, 142 inner freedom, importance of 26–7 inner life, genius lay in emphasizing problems of 140 Italy and Latin Europe, reflections on 308 moderation, respect for custom, a sense of duty, and order, stressed 141 morphological studies 175–6 political economy, cited by Ordo-liberals to illuminate their arguments about 140 political economy, views on 140–3 “real” types as opposed to “abstract” types, reflections on 175–6 veneration of 138 Wilhelm Meisters Wanderjahre 140, 142 Goetze, Roger 309 Gogarten, Friedrich 219 Gollwitzer, Helmut 221–2 Gordon, David 56, 297 Gorski, Philip 220 Götz, Hans Herbert 93–4, 116, 229–31, 263, 385–6, 435 Grimond, Jo 275–6 Groeben, Hans von der 400 Grossekettler, Heinz Georg 9, 67, 94 Grossmann-Doerth, Hans 19–20, 56, 64–6, 94, 184, 426–9 Ordo Manifesto and Order of the Economy 94 published anti-Semitic texts 428–9 Guardini, Romano 135–6 Guizot, François 197 Haberer, Jean-Yves 309 Haberler, Gottfried von 169 Hallstein, Walter 402 Hannoun, Hervé 309 Hapgood, Norman xv–xvi, 7, 26–7, 298–9 Hartmann, Nikolai 52, 107, 163–5, 168–70, 176, 183–95 critical realism 193–5 Ethik 163–4 imprints of 183–95 ontological realism 194 reality, posited four levels on structure 194 technical philosophy, confined his work to 193–4 values, phenomenological description of 194 Haselbach, Dieter 438
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Index of Names 507 Hauriou, Maurice 77–8, 105, 195–200, 321–2 institutions, theory of 321–2 liberalism, pointed to ways in which law contributes to 78 Hawtrey, Ralph xiii–xiv, xviii–xix, 13–15, 58, 62, 77–8, 82, 88–9, 92, 95, 106, 157–8, 167–8, 178, 183, 200–8, 247–9, 262, 270, 275–7, 280–6, 288–9, 291, 294–6, 304, 340–1, 414 active monetary management by central banks, advocacy of 248 Austrian tradition, intellectual distance from 286 Bretton Woods system, critique of 282 Cambridge Apostles, membership of 204–5, 280–1, 283 capitalism, critique of 205–6 code of sound finance, emphasis on 285 conservative liberal in ideological outlook 205 conservative liberalism rested on faith in power of monetary policy, conception of 284–5 Currency and Credit 284 currency expert, reputation as 284 Economic Destiny 205–7 Economic Problem 205 Economic Problem 206–7 economic welfare, critical analysis of 206 ethical and political problems of markets, worked on 95 fiscal judgement, on art of 285 gardening metaphor, use of 88–9 “inherent instability of credit”, emphasized 284–5 Keynes, disputes with 282 Keynes’s “quick and clever talk”, distrust of 204 Keynes’s plans for international creditcreating institution, attacks on 282 Keynes’s plans for international currency union, led Treasury arguments against 283 Keynes’s proposed programme of public works, led Treasury arguments against 283 macro-economist, sixth most-cited 280 “managed gold standard”, advocacy of 282 Moore’s conception of universal intrinsic values, devoted to 178 Moore’s ethical principles, sought to apply to economics 205 Moore’s rejection of utilitarianism, influenced by 203 moral seriousness 284 principle of sound currency, priority for 281–2
Right Policy: The Place of Value Judgements in Politics 205–6 stability-oriented monetary policy and central bank independence 248–9 Thoughts and Things 201, 205 thrifty and prudent man, conception of 283–4 “Treasury View” on monetary and fiscal policies 168 “Treasury View”, principal architect of 281 US monetary thought and practice, interest in 286 utilitarianism and Darwinian doctrine of natural selection, condemned influence of 205 Hayek, Friedrich von ix–xi, xvi, 7–8, 10–11, 14, 19, 22–3, 25, 28–9, 31–4, 40, 43–4, 46, 50–2, 57, 62–4, 66–7, 72–3, 75–6, 81–4, 87–9, 93–5, 99–101, 103, 115–18, 123, 125–8, 130–1, 134–40, 143, 145–6, 159, 162, 164–7, 169, 173–5, 180–2, 198, 207, 213, 231, 236, 243, 246–9, 269, 271–2, 276–80, 282, 286, 288–9, 293, 297, 301–2, 317–18, 322, 324, 339–40, 348–9, 352–5, 370, 373–4, 383–5, 396, 412–18, 422, 426–8, 432, 437, 443–4, 446–7, 449 “Actonian Revival”, sought to play role in 145 Christianity, on dangers that liberalism faced if it did not build bridges to 213 competition as dynamic process of discovery, conception of 370 Constitution of Liberty 95 “economic scientism”, critique of 123 envy, referred to evil of 414–15 European integration as liberalization mechanism 396 extended democracy and preserving rule of law Freiburg University, inaugural lecture at 99 Freiburg University, period at 118 Freiburg, move to 33–4 Freud and Marx, views on 164–5 Freud, attacked influence of 72–3 garden metaphor, use of 55–6, 88–9 liberal rather than conservative, sought to identify himself as 100–1 “Individualism: True and False” 95 London School of Economics 145 market as ongoing discovery procedure 181, 373–4 Mill as model for renewing post-war liberalism, warned against 138 Road to Serfdom 66–7, 75–6, 93, 95, 134–40, 248, 280 socialism, critique of 181–2
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508 Index of Names Hazlitt, Henry 23, 66–7, 139–40, 243, 268, 272, 421–2 Hegel, George Wilhelm Friedrich 173–4, 180–2 Heidegger, Martin 64, 80 Heinemann, Andreas 112 Heller, Hermann 426 Hensel, Karl Paul 109–10, 228 Herriot, Édouard 149 Heuss, Ernst 109–10 Heuss, Theodor 65–6 Hilferding, Rudolf 182, 385 Hitler, Adolf 40, 80, 135, 221–2, 425, 431 Hobbes, Thomas 173–4 Hobhouse, Leonard Trelawny 23 Hobsbawm, Eric 120 Hobson, John Atkinson 23 Höffner, Joseph 126, 213–15, 217, 225–6, 228–31 Hoppmann, Erich 33–4, 118, 123, 367, 373–4, 377, 422 Huch, Ricarda 49–50, 59–60, 64–6, 74–6, 135, 140, 221–2, 410–11, 429 Hueck, Alfred 112 Huizinga, Johan 27, 45–6, 49, 52, 129, 134–6, 340–2 Humboldt, Alexander von 92 Humboldt, Wilhelm von 21, 139–40 Limits of State Action 47 Hume, David 126, 172–3 Hunold, Albert 256 Husserl, Edmund xix, 27, 52, 58, 61–2, 156, 163–4, 166–70, 176–81, 183–95, 216–17, 219, 431 “crisis in science”, suggested way to end 187 Crisis of European Sciences and Transcendental Phenomenology 163–4 imprints of 183–95 Nazis, persecution by 177–8, 187 ordering role for state, law, and intellectuals 188–9 phenomenology and the heroism of reason 187–9 “rebirth of Europe”, called for 189 utilitarian and pragmatic understandings of ethics, condemned 188 Hutt, William 14–15, 247, 262, 270, 275, 277–80 consumer sovereignty, concept of 279 Mont Pèlerin Society, member of 280 Plan for Reconstruction 279–80 Ilau, Hans 256 Issing, Otmar xvii, 68, 353–4, 357, 361, 375, 379, 389, 392
Jacob, François 197–8 James, William 151, 156, 163–4, 172, 211, 251, 290–1 secularization and scepticism 211 Varieties of Religious Experience 163–4, 172 Will to Believe 163–4 Janssen, Albert-Edouard 182–3, 252, 259, 363–4, 392 Jeanneney, Jean-Marcel 332–3 Jefferson, Thomas 298 Jewkes, John 63–4, 242, 286–9, 292 Eucken, response to 287–8 This Unsuccessful Age or the Pains of Economic Progress 286–7 John Paul II 170, 231–2 Centesimus annus 227 John XXIII 223 Mater et Magistra 227–8 Joseph, Keith 271, 276–7 Kamitz, Reinhard x, xiii–xv, xix–xx, 6, 14–15, 40, 77–8, 96, 243–4, 258 association with Nazi party 40 Kant, Immanuel 21, 27, 47, 49–50, 52, 56, 107–8, 140, 156, 163–4, 166, 171, 174–81, 185–6, 202–3, 210, 219, 226, 291–2, 435 Critique of Practical Reason 47 ethical duty, conception of 171 ethics as founded on a priori principle of practical reason, conception of 202–3 freedom through law, notion of 107 Groundwork on the Metaphysics of Morals 47 Kantianism 9, 81, 104, 107, 116, 175–7, 179–81, 196, 203, 224, 233–4, 340, 430 metaphysics 203 moral principle, legacy of search for 163–4 neo-Kantian idealist philosophy, influence of xix neo-Kantianism 156, 174–5, 305–6 philosophy, transcendental aspects of 185 “scientific idealism” 81, 116 Kasner, Horst 219 Keller, Gottfried 137 Die öffentlichen Verleumder 135 Keynes, John Maynard 23, 25, 28, 31–3, 80, 137, 157, 175, 200–2, 204–5, 207, 213–14, 262, 269, 277–8, 280–3, 285, 288, 291, 339–40, 414, 427, 444–5, 447 Bloomsbury circle, detached from 204 business-cycle theory 381 counter-cyclical policies 25, 91, 258 “credit-inflating” tendencies 339
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Index of Names 509 discretion in macro-economic policy, ideas of 312 domestic expansion, policies of 361–2, 379 economic outcomes, obsession with controlling 87 economic reforms 35 fiscal deficits and public debt, cautious attitude to 80–1 full-employment policies 66–7 General Theory of Employment, Interest and Money 207, 283, 290, 301, 381 German academic economics, influence in 367 Great Depression, interpretation of 339–40 Hawtrey, disputes with 282 Hawtrey’s work on credit as determining factor in price disturbances, influenced by 283 Hayek, feud with 288 international credit-creating institution, plans for 282 interventionism 346 investment in public works, short-term attitude to 138 “Keynesian illusion” 66–7, 138, 271 “Keynesian message” 35–6 “Keynesian revolution” 35, 208–9, 276, 283 Keynesianism 6, 33, 35–6, 87, 116, 134–7, 208–9, 257–61, 264, 267, 270–6, 288–90, 296, 301, 312, 327–8, 334, 339–40, 343–4, 361–2, 405–6, 420–1, 425, 444–5 Keynesians 36, 84, 103–4, 207, 303 laissez-faire, traced back to Marquis d’Argenson in 1751 25 liberalism 275–6 mass politics, adopted aloof and detached attitude to 137 Moore’s attachment to rule consequentialism, critical of 204 My Early Beliefs 204 negative references to 138 “neo-classical synthesis” version of Keynesianism 288 opposition to 340 popular majorities, sceptical about 427 post-war international currency union, plans for 283 “proto-Keynesians” 380 Treatise on Money 283 Kirchgässner, Gebhard 118–19, 438 attacks Ordo-liberal doctrine and methodological weaknesses of Freiburg School 118–19
Kirchner, Ernst Ludwig 75 Knapp, Georg Friedrich 388, 391 Knight, Frank 7, 13–15, 32–3, 49, 51, 58, 62–4, 77–8, 81, 87–90, 92, 95, 128, 130, 139–40, 157, 167–8, 172, 211, 220, 236, 248–51, 267, 270, 277–8, 288–93, 296, 300–1, 303–6, 321, 340–1, 432–4 aesthetic, intellectual, and spiritual tastes, emphasized cultivation of 291 Ancient Greece, Christianity, and Kant, inspired by 291–2 Benthamite Utilitarianism, Social Darwinism, and Pragmatism, opponent of 220, 290–1 collectivism and Roosevelt's New Deal, opponent of 291 “commercialization of culture” 291 ethical defects of liberalism based on individualism, sought to address 290–1 ethical standards in economics, analysis of 248–9 game metaphor, use of 56 “good life”, conception of 292 methodological individualism of Chicago colleagues, critique directed against 291 paradoxical figure 292 principles, criticism of excessive dogmatism in pursuing 432–3 Reformed Protestantism, born into 220 “sickness of liberal society” 51 “star” Chicago economist of the 1930s 32 Koch, Eckhart 108 Kohl, Helmut 231 Krelle, Wilhelm 109–10 Kristol, Irving 432 Krüger, Herbert 107 Kydland, Finn 56, 78, 84 La Follette, Robert 299 Lacoin, Maurice 328 Lagarde, Christine 12–13, 406 Lamfalussy, Alexandre 84 Lampe, Adolf 56, 94, 378 Lampe, Arnold 34, 216–17, 222 Landauer, Carl 383 Larosière, Jacques de 309, 333–4 Laski, Harold 145 Lautenbach, Karl 125 Lautenbach, Wilhelm 182, 380 Lautenbach Plan 14, 351, 380–7, 445 Lautenschläger, Sabine 360 Lawson, Nigel 271 Lazarus, Moritz 137
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510 Index of Names Le Bon, Gustav 55–6, 58, 135–6, 148–9, 197 crowd, concept of 135–6, 149 Orleanist tradition and French conservative liberalism 148–9 Psychologie des foules 149 Le Pen, Marine 197, 335–6 Le Play, Frédéric 27, 75–6, 133–5, 137, 310–11, 316–17, 339, 341–2 Leibniz, Gottfried 219, 226 Leo XIII 227 Liefmann-Keil, Elisabeth 75 Lippmann, Walter xiv–vi, xviii, 22–4, 32–3, 46, 55–6, 58, 60, 62, 77–8, 93, 96, 139–40, 151–3, 167, 247–8, 267, 278–9, 289–91, 300–3, 322–3, 340–1 Essays in the Public Philosophy 152 fascism and socialism, took aim at 301 Good Society 46, 96, 152, 247–8, 301–2, 322 Great Depression, views on 302–3 Hayek and with Röpke, relations with 301 intellectual and journalist 96 intellectual with celebrity status 300–1 Keynes, attracted to the thinking of 290 Lippmann Colloquium 3, 22–3, 43–4, 96, 153, 156, 246–7, 300–3, 316–17, 322–5 New Deal, criticism of 302 power of prejudice and stereotypes over the public mind, work on 152–3 Preface to Morals 151–2 “regenerated liberalism” 301–2 socialist, began as 301 “transient popular majorities”, concerns about 301 Lloyd George, David 269 Locke, John 95, 107 Loria, Achille 337–8 Louis Napoleon 313–14 Louis-Philippe, King 197 Lucas, Robert 56 Luther, Hans 383, 385, 387, 428 Luther, Martin 137, 185, 213–14, 410 Lutz, Friedrich xvii, 10–11, 36, 46, 54, 65, 84, 246–7, 249, 286, 367, 377, 387, 391–4 Luzzatti, Luigi 343 Macauley, Thomas 145 Machlup, Fritz 43, 169, 383 Macron, Emmanuel 313–14 Mann, Golo 4, 264 Mann, Thomas 49–50, 74–5, 410 Marjolin, Robert 402–3 Marshall, Alfred 206, 277–8 Marshall, Arthur 175 Marx, Karl 138, 163–5, 173–4, 181–2
Meade, James 252–3 Mélanchon, Jean-Luc 335–6 Melanchthon, Philip 226 Meltzer, Allan 78, 391–2 Mendès-France, Pierre 328–9, 334 Menegazzi, Guido 214–15, 226, 344 Menger, Carl 175, 179–81 Merkel, Angela 36–7, 110, 133, 219, 236–7, 313, 348 chancellor, final term as 409 crisis management, pragmatic 409 Draghi’s pledge to “do whatever it takes” to save euro, backing for 408–9 Ordo-liberalism, forthright in praising 38 Merleau-Ponty, Maurice 169, 196 Messner, Johannes 227 Mestmäcker, Ernst-Joachim ix–x, 57–8, 67, 106–8, 111–12, 126, 166, 169, 173–4, 351, 370–5, 379, 429 Metternich, Clemens von 429 Meyer, Fritz Walter 109–10, 354–5 Miksch, Leonhard xi, xiii–xiv, xvi–xvii, 8, 10–11, 28, 40, 54, 64, 94, 354–5, 358, 370–1, 378–9, 382–3, 428–9 anti-Semitic ideas, attracted to 40, 428–9 central bank independence, sceptical that German public opinion would tolerate 378–9 competitive monetary order, proposal for 10–11 journalist with Frankfurter Zeitung 428–9 monetary policy, views on 10–11 Nazi party, member of 40, 428–9 Nazi regime, break with 40 pro-Nazi sentiments 64 regulation of monopolies and oligopolies, favoured focus on 370–1 “socially blind” liberalism, opposition to 28 Weimar Republic, expressed opposition to 40, 428–9 Mill, John Stuart 138, 144, 153, 174, 202–5, 207, 293 Minsky, Hyman 78, 261, 294–6, 444–5 Mises, Ludwig von 8, 19, 22–3, 25, 40, 43–4, 63, 117–18, 128, 136–7, 139–40, 166, 169, 180–3, 198, 268, 277–80, 288, 291–2, 301–3, 317–18, 322–3, 339–40, 383, 411–12, 421–2 Eucken, Rueff, and Rüstow, clashes with 43 market as natural evolutionary order, conception of 22–3 Miksch, accuses of “totalitarian lines of thought” 8
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Index of Names 511 Mises Institute 128, 268, 411–12, 421–2 Röpke as member of Mont Pèlerin Society, discomfort at 8 socialism, critique of 181–2, 278–9 Mitterrand, François 334 Moch, Jules 328 Modigliani, Franco 260, 343–4 Moeller, Hero 29 Molina, Ludwig 225 Möller, Hans 11 Monnet, Jean 328 Monod, Jacques 197–8 Montesquieu, Charles-Louis de 21, 134–5, 137, 156, 341–2 Monti, Mario 346 Moore, George 60–1, 163–4, 167–8, 178, 200–8, 280, 283, 286 “Apostolic ethic” 201 ethical theory 204–5 ethics of 204 goodness as rational end of human action and “sole criterion of social progress” 202 intrinsic value, conception of 178, 200–8 knowledge, attributed special value to 202–3 “naturalistic fallacy” at heart of empiricism 60–1 Principia Ethica 163–4, 200–2 “purity of heart” 200–1 utilitarianism of Bentham and Mill, critique of 203 Möschel, Wernhard 108, 365, 370–2 Mötteli, Carlo 263 Müller-Armack, Alfred xi, xiii–xiv, xvi, 10, 13–15, 28, 37–8, 40, 50, 52, 58, 60–1, 68, 77–8, 89, 93–4, 110–12, 115–16, 118–20, 122, 124–7, 137, 140–1, 157, 161, 166–7, 170, 177, 186, 189–90, 192–4, 208, 211, 214–15, 217, 219–21, 223, 226, 229, 231–2, 243, 247–8, 262–3, 298–9, 336–7, 340, 345–6, 350–5, 358–60, 365, 369–70, 373, 376–7, 395–408, 415–16, 423, 426, 428–32, 434, 446 “big Europe solution”, believed priority should be given to 398–9 Das Jahrhundert ohne Gott 137 economic order, regarded market freedom as inadequate basis for legitimacy of 192 economic policy coordination, advocacy of 359 “economic style”, conception of 115 EEC economic policy committee, first chair of 403
Erhard, tensions with 377, 398 ethics and economic policy, duality in thinking about 190 European economic governance, reflections on 119–20 European economic integration, worked on 68 European integration, recognized need for firm institutional foundations 404–5 European integration, thoughts on 397 European Stabilization Board 395–405 fascist ideas, flirted with 40, 428–9 Genealogy of Economic Styles 189–90 good economic policy behaviour, on code of 402–3 humankind, recognized both natural and spiritual aspects 166–7 “idolatry of humanism” 211 “idolatry” and secularization, attacked 89 legacy of 110–11 liberalism, offered disciplinary form of 189–90 Nazi party, member of 40, 428–9 neo-Hegelian conception of the state, attracted to 189 reconciliation between contending belief systems, promoted strategy of 192 secular idolatry, concerns about 430 social balance and social peace, preoccupied with problems of 10 social market economy, concept of 28, 122, 336–7 “sociological” Ordo-liberalism, identified with 93–4 Third Reich, identified positive features in 428–9 wealth policy, push for 376 Munchau, Wolfgang 274–5 Murville, Maurice Couve de 330, 332–3 Mussolini, Benito 227 Naumann, Friedrich 23, 48–9, 74–5 Neisser, Hans 182, 383–4 Nell-Breuning, Oswald von xiv, 93–4, 116–17, 125–7, 214–15, 228–31 Catholic social thought with Ordo-liberalism, sought to engage 230 economy, structural analysis of 230–1 “socially sensitive capitalism”, advocated 229 “socially sensitive capitalism”, took up notion of 117 “sociological” Ordo-liberalism, identified with 93–4
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512 Index of Names Neumann, J. Manfred 110, 392 Niebuhr, Reinhold 139–40 Nietzsche, Friedrich 138, 142, 153, 156, 163–5, 174–5, 213–14 Nock, Alfred Jay 23, 268 Norman, Montagu 281, 445 Noyer, Christian 309 Oakeshott, Michael 297 Oberender, Peter 110 Oppenheimer, Franz 23, 118 Ortega y Gasset, José 27, 52, 55–6, 58, 61, 104–5, 134–7, 153–8, 161 Diagnose unserer Gegenwart 137 German “high” culture, admirer of 156 “hyper-democracy”, critique of 157 legacy of 153–8 “mass-man”, concept of 157 Religion und Wirtschaft 137 Revolt of the Masses 156 Orwell, George 84–5, 160 Osborne, George 274 Ostrom, Elinor 435 Pagano, Marco 297, 347 Pareto, Vilfredo 134, 175 Peacock, Alan 77–8, 269, 271, 275–6 Pébereau, Michel 309 Péguy, Charles 1–2, 310–11, 414 Pesch, Heinrich 226 Pestalozzi, Heinrich 135 Pétain, Marshal Henri Philippe 315, 319, 324 Pfister, Bernhard 109–10 Pfleiderer, Otto 378, 389, 394 Piettre, André 318 Pigou, Arthur 200–1, 206, 280–2 Pinay, Antoine 330–2 Pinay-Rueff Plan 244–5, 329–33 Pius XI 223, 227 Plato 156, 224–5 Pöhl, Karl-Otto 394–5 Poincaré, Henri 148–9, 176–7, 195–6 Poincaré, Raymond 313–14, 329–30, 334 Polanyi, Karl 128, 421–2, 435, 441, 447 influence of 422 Polanyi, Michael 113 Pompidou, Georges 332–3 Popper, Karl 139–40 Preen, Friedrich von 135, 146–7 Preiser, Erich 221–2, 354–5 Prescott, Edward 56, 78, 84 Primo de Rivera, General Miguel 156 Proudhon, Pierre-Joseph 310–11
Quesnay, François 325–6 Quesnay, Pierre 329–30 Rad, Gerhard von 221 Radbruch, Gustav 429 Raico, Ralph 128, 268 Rand, Ayn 268 Ratzinger, Josef 228–9 Rawls, John 251, 306, 432–3 distributive justice, principle-based theory of 305 influence of 306 neo-Kantian 305–6 Raynaud, Philippe 308–9 Read, Leonard 66–7, 139–40, 272, 421–2 Reagan, Ronald 268, 270 Reed, Leonard 23, 268 Reger, Max 75 Renan, Ernest 148–9, 156, 233 Renard, Georges 312, 321–2 Renouvier, Charles 156 Renzi, Matteo 314 Reuther, Dieter 108 Reynaud, Paul 149, 314, 321, 330 Ricardo, David 175, 277–8 Rist, Charles 77–8, 251, 322, 329–36 Ritter, Gerhard 56, 216–17, 222 Rittner, Fritz 38 Robbins, Lionel xviii–xix, 31, 262, 276–9, 282, 286–9, 291, 322 economics, conception of 288–9 Eucken’s method of abstraction, critical of 288 intellectual shift 288–9 Mont Pèlerin Society, resigns from 288 “neo-classical synthesis” version of Keynesianism, shifted to 288 Principles of Economic Analysis 286–8 Robertson, Dennis 200–1, 280–2, 288 Roosevelt, Franklin Delano 23–4, 257, 291, 299–302 Röpke, Eva 75–6 Röpke, Wilhelm vii, x–xi, xiii-xvii, xix, 7–10, 13–15, 19, 22–5, 29, 31–3, 43, 45–6, 49, 50, 52, 54–5, 57–8, 60, 63–4, 66–7, 72–3, 75–8, 80–1, 88, 90–1, 93–4, 96, 101, 104–5, 108–12, 116–20, 122, 124–34, 137–40, 142–3, 145–8, 150, 156–7, 159–63, 181–2, 192, 200, 205, 208–9, 212–14, 216–19, 223–4, 226–9, 231–6, 243–5, 247–8, 256, 258, 262–3, 271–2, 282, 290, 294, 301–3, 316–17, 319, 322–5, 328–9, 336–43, 345–6, 351–3, 355–7, 358–9, 362, 366, 369–70, 377, 380–7, 395–8, 412–13, 415, 423–5, 427–8, 430–3, 439, 446, 447
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Index of Names 513 “artistic construction and an edifice of civilization”, market as 43 Beveridge Report, mounted scathing attack on 125 Brauns Commission, work on 351 business-cycle policy “nihilism”, attacks 25 Civitas Humana 339 “combating Keynes-Islam”, referred to 138, 271 communitarian action in economic affairs, stressed importance of 25 creditor-led construction of international monetary order, developed notion of 258 deflation, reflections on in 119–20 dismissed and exiled 45–6, 63 economic humanism 336–7 “educational Jacobinism”, condemned policy of 72–3 EEC, attack on the newly negotiated 396–7 European integration as liberalization mechanism, viewed 396 European integration coloured by Swiss federal model, view of 396 European integration, writings on 90 “European patriot” 396–7 First World War, affected by experiences of Europe during and after 45 “fragility of high culture”, recognized 234 Gesellschaftskrisis der Gegenwart 9, 150, 339 gold standard as disciplinary device, argued for 54–5 “healthy” middle class 433 influence of 109–10 intellectual, major European 63 international and European order, texts achieved canonical status 109 International Ordnung—Heute 54–5, 108 Lautenbach Plan, critical of failure to implement 387 liberal international and European economic order, focused on requirements of 108 liberal market economy in Germany, disappointment with progress towards 256 Lutheran and Roman Catholic social thought, sought to build bridges between 223 medical metaphors, use of 90 Mont Pèlerin Society, resigns from 128 Mont Pèlerin Society, role in 110 Nazi barbarism, highlighted liberal intellectuals' silence in the face of 49 Ordo-liberal statesman-economist 381 political Right, shift to 432 “primary” and “secondary” depression, distinction between 382
role, viewed in theatrical terms akin to that of chorus in Greek tragedy 57 “secondary” depression, concept of 351 “secularized saints”, wrote of need for rule by 217 “sociological” Ordo-liberalism, identified with 93–4, 125 South Africa, support for apartheid in 160–1 Swiss model for international and European order, favoured structure of 109 “termite-state”, referred to 8 “third way” between laissez-faire liberalism and collectivism 339 Treaty of Rome, took leading public role in attacking 369–70 United States, scepticism towards 352–3 Rossi, Ernesto 336–7, 340–1, 344–7 Rothbard, Murray 23, 43, 128, 268 Rougier, Louis xii, xiv–xv, xviii, 3, 9, 13–15, 22, 32–3, 41, 50, 55–6, 58, 62–3, 72–3, 77–8, 87, 92–4, 96, 104–6, 124, 131, 133–4, 148–50, 153, 155–7, 159, 164–5, 168–9, 177–8, 183–4, 195–200, 211, 215–16, 220, 232–4, 262, 301–2, 315, 321–9, 340–1, 432 Ancient Greece and Rome, inspired by 215–16, 233 atheist 233 Bergson’s ontological conception of philosophy, rejected 177 Cartesian concept of universal reason, rejection of 196 Centre International pour la Rénovation du Libéralisme, active leadership role in 322 Christian dogmas, critique of 215–16, 233–4 “concert of nations” 197 conservative-liberal political thinking 197 “constructive” liberalism, contrasted with four types of economic mystique 323 economics as science emphasizing creative role of human agency in political economy 169 Ferrero’s departure to Geneva from fascist Italy, helped organize isolation and neglect by French economists and philosophers 324 La Mystique Démocratique 148–50, 196–7, 324–5 Les Mystiques Économiques 196–7, 322–5 Les Mystiques Politiques Contemporaines 196–7 liberalism had lost its way, argued that 323 logical empiricism, devotee of 196 London, abortive secret mission to 324 Mont Pèlerin Society, engagement with 325
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514 Index of Names Rougier, Louis (cont.) Mont Pèlerin Society, membership vetoed 324–5 nationalism and racism, spoke out against 41 Pétain regime and Far Right, tainted by association with 41 philosopher before economist 168 physics of relativity, enthusiasm centred on 196, 323–4 Promethean foundation of the market order, conception of 233 Roman Catholic Scholasticism, attacked influence of 233–4 rule-based “constructive” liberalism, conception of 321 sociological liberalism, expounded 325 Thomist philosophy, critique of 324 Rousseau, Jean-Jacques 138, 173–4 Royce, Josiah 151 Rueff, Jacques ix–x, xiii–xiv, xvi, xviii–xx, 3, 6, 10, 11, 13–15, 32–3, 43, 50, 54–5, 58, 77–8, 80, 92–4, 96, 101, 104–6, 124, 135–6, 156–7, 168–72, 176–8, 183, 195–200, 208, 213, 233, 244–5, 247–9, 262, 272, 282–3, 301–3, 308–10, 314–36, 340–1, 356–7, 376, 446 “anti-Keynes”, reputation as 316 Armand-Rueff report 329–33 Courtin report 319 deflationary policies of French Third Republic, suffered from involvement with 32–3 economic order, focus on principles of 318 economics as science emphasizing creative role of human agency in political economy 169 French Resistance, undertook secret work for 319 French thinking about political economy, substantial contribution to 195 Hayek’s conception of market as spontaneous order, rejected 317–18 “institutional market”, coins term 3, 326 international court of accounts and supreme court of justice, envisaged 320 Keynesianism, associated with “rise of mass civilization” 136 L’ordre social 96, 101, 247–8, 318–21 Mises, clashes with 43 outsider, sense of being 317 philosophical insights of natural scientists, influenced by 197–8 Pinay-Rueff Plan 244–5, 329–33 Poincaré, Bergson, and Colson, inspired by 195–6
“Promethean Mutation” 199–200 rule-based fiscal policy 248–9 social integration and regulation, ideas on mechanisms of 198 social order, conscious of fragility of 321 “true” rights and “false” rights, distinction between 320 unemployment, preoccupied with causes and nature of 316 Ruffini, Nina 75–6 Russell, Bertrand 136, 139–40, 153–8, 160–1 cognitive principles 153–4 eugenic conditions in public policy, recommended application of 154–5 legacy of 153–8 meritocracy that worshiped utilitarian values, concerned about 154 Principles of Social Reconstruction 154 social order, enumerated two principles of 154–5 Rüstow, Alexander xiii–xvi, 3, 7–8, 10, 13–15, 19, 24–5, 25, 31–2, 40–1, 43–6, 48, 50–2, 54, 58, 60, 62, 77–8, 80–1, 90–1, 93–4, 101, 112, 116, 118, 122, 124–8, 132, 135–7, 140, 146–7, 156–7, 161, 163–6, 173, 177, 182, 186, 192, 200, 225, 210–11, 213, 215–17, 223, 225, 229, 232–4, 243, 253, 291, 296, 301–3, 319, 325–7, 355–7, 377, 380–2, 385–6, 389, 412–13, 415, 423–27, 430–2, 434 Ancient Greece and Rome, looked back to ethical heritage of 234 anti-Christian attitude 234 banks and cartels, advocated curbing privileges of 430 Bismarck’s Prussia, looked back nostalgically to 40 cartels, critique of 430 communitarian action in economic affairs, stressed importance of 25 “communitarian” state, favoured 40 dictatorship “within the limits of democracy”, backing for 41 Great Depression, views on 302–3 “high culture” through European history, recognized fragility of 234 Istanbul, exile in 45–6 laissez-faire liberalism had led to degenerated form of economy, view that 50–1 medical metaphors, use of 90–1 Mises, clashes with 43 Mont Pèlerin Society, resigns from 128 Nazi party, ideologically distant from 430 Ortsbestimmung der Gegenwart 137, 146–7, 234
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Index of Names 515 “Palaeolithic liberalism”, dismisses 3 religious thought in pre-Christian Classical world, looked back to 216 “sociological” Ordo-liberalism, came to represent 93–4, 125 von Papen government, lent support to measures of 48 Saint-Simon, Claude-Henri 87, 195, 250, 328 Salin, Edgar 385 Salin, Pascal 43, 274, 318 Samuelson, Paul 252–3 Santayana, George 27, 52, 151–3, 160–1, 266 anti-Semitism and tolerance for fascism, reputation suffered from accusations of 160–1 Character and Opinion in the United States 266 Classical liberalism of Ancient Greece, drew inspiration from 152 Harvard University, professor of philosophy at 151 legacy of 151–3 Life of Reason 151 moral disinterestedness, emphasis on 152 outsider and critic of modern liberalism 151–2 Saraceno, Pasquale 259 Sarcinelli, Mario 346 Sarkozy, Nicolas 313 Sartre, Jean-Paul 156 Savigny, Friedrich Carl von 173, 179 Savona, Paolo 245, 260, 264, 313, 348–9 Say, Jean-Baptiste 144, 315–17, 325–6 Schacht, Hjalmar 182, 290 Schäffer, Fritz 389 Schäffer, Hans 384–5, 387 Scharpf, Fritz 68 Schäuble, Wolfgang 38–9, 236–7, 274, 369 euro-area crisis, defence of German approach to 274–5 Greek exit, belief that euro area could be strengthened by 274 Lutheran values, linkage of principles to 39 principles of responsibility, reliability, and solidity 39 Scheler, Max xix, 27, 52, 58, 60, 62, 137, 156, 163–4, 166–70, 172, 176–7, 181, 183–95, 214–15, 231–2, 241, 246, 264–5, 435 Catholic upbringing, early views shaped by 190 ethical personalism 189–93 Formalism in Ethics and Non-Formal Ethics of Values 163–4
imprints of 183–95 modernity, critique of 191 philosophical anthropology developed through work in historical sociology 192–3 philosophical reflections 246 responsibility and social solidarity, stressed importance of 191 social market economy, concept of the 193 spiritual and religious energy, recognized role of 193 Schiettinger, Fritz 355, 376 Schiller, Friedrich von xii, 21, 27, 47–8, 50, 56, 64, 134–6, 138–41, 147, 175, 185–6, 410, 444 On the Aesthetic Education of Man 47, 64, 140 Schiller, Karl xvii, 35–6, 91, 360, 362, 367, 377, 394 “Freiburg imperative”, aligned closely with 36 “global steering” reforms for social market economy 360 Keynesian counter-cyclical policies compared to drug used for short-term pain relief 91 “Keynesian revolution” and concept of “global steering” 35 “vulgar Keynesians” held in contempt 36 Schlecht, Otto xiv, 88, 91, 262–3, 354–5, 372, 377 Schleicher, General Kurt von 48 Schlesinger, Helmut xvii, 361, 387, 389, 391–5 Schmidt, Helmut 70, 375, 408 Schmitt, Carl 40, 65–6, 80, 107, 173–4, 189, 425–6, 429–30 “Religion—Economy—State” 428 strong state in which all crises could be solved politically, conception of 253 Schmölders, Günter 390–1 Schmoller von, Gustav 56, 179–82, 337 Schuknecht, Ludger 38–9 Schumpeter, Joseph 31, 213–14, 447 Schweitzer, Heike 108 Scipio the Younger 216 Scruton, Roger 437 Sen, Amartya 305–6 Senior, Nassau William 144 Sens, William of 92 Sidgwick, Henry 201–3, 293 Methods of Ethics 163–4, 201 rational egoism and hedonism of 203 Simons, Henry 14–15, 246–7, 249, 267, 270, 293–8, 302 Chicago Plan 305 Chicago, faced by hostile intellectual environment in 293 competitive market order 294
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516 Index of Names Simons, Henry (cont.) death 31–2, 414 federal fiscal policy 295 Freiburg School, affinity with 294, 297 “future of our civilization hangs in balance” 45 influence and legacy 296 interventionism of 296 Keynes’s General Theory 290 Knight, owed intellectual debt to 293 laissez-faire policy as historical mistake 29 legacy 297 liberal political credo 293 market economy, emphasized inherent instability of 294–5 monetary policy, rule-based conception of 248–9, 286 monetary stability, rule-based constitutional framework for 294–5 monopoly justified public ownership, view that 295–6 pillars of rule-based conservative liberalism 294–5 Positive Programme for Laissez Faire 46, 95, 247–8 Sinn, Hans-Werner 38–9, 68, 70, 110, 261, 360–1, 375, 438 Skidelsky, Robert 427 Smith, Adam 21, 27, 47, 49–50, 85–6, 126, 163, 166–9, 172–5, 180–1, 185, 213–14, 271, 277–8, 293, 303, 305–6, 336, 358 Theory of Moral Sentiments 47, 173, 214, 358 Wealth of Nations 173 Socrates 64, 156, 430 Sombart, Werner 118, 179, 182, 189–90, 192, 430 Sorel, Georges 90–1 Sorley, William 106, 112–13 Spann, Othmar 179 Spaventa, Luigi 260, 348–9 Spencer, Herbert, evolutionary thought of 203 Spiethoff, Albert 118, 179, 189–90 Spinoza 156 Sraffa, Piero 343–4 Staël, Madame de 21 Starbatty, Joachim 111 Stark, Jürgen 68, 209, 360–1, 375 Stein, Freiherr Karl vom 429 Stein, Friedrich von 50 Stein, Lorenz von 222 Stigler, George 128, 295–6 Stiglitz, Joseph 274–5 Stolper, Gustav 383 Strachey, Lytton 202
Strauss, Walter 355, 376 Streeck, Wolfgang 68, 396 Streit, Manfred 33–4 Sturzo, Don Luigi xix, 226, 235, 344–6 Sturzo, Luigi 235, 344–6 Taine, Hippolyte 148–9 Thatcher, Margaret 269–70, 276–7 Thünen, Johann Friedrich von 166, 175–6, 187 Tietmeyer, Hans xii, 37, 88, 122, 166–7, 228–9, 236–7, 262–3, 364, 368, 408, 435 Tocqueville, Alexis de 21, 27, 39–40, 52, 56, 131–2, 134–9, 143–50, 166, 223, 266, 293, 341–2, 444 Acton-Tocqueville Society 134–40, 293 distrust of the masses and contempt for bourgeois commercial spirit 143–5 ideas, sentiments, and moral feelings, recognized role of 144 opposed centralization of power as the route to despotism 143–4 political economy of 143–5 “unlimited democracy” and “majoritarian omnipotence”, pinpointed threat from 143 Toniolo, Giuseppe 214–15, 226, 344 Triffin, Robert 101, 260, 401–2 Troeltsch, Ernst 118 Trump, Donald 268 Tucker, Paul 84–5 Tullock, Gordon 297 Turgot, Anne-Robert-Jacques 325–6, 328 Van der Groeben, Hans 373–4 Van Zeeland, Paul 6, 55–6, 244, 252 Vanberg, Viktor xvii–xix, 10–11, 33–4, 43, 67, 71–2, 88, 93, 118–19, 123, 126–8, 160, 169, 236, 303–4, 373–4 Veit, Otto xiii–xv, 10–11, 50, 52, 54, 58, 84, 108, 126, 130, 138, 140, 142–3, 156–7, 164–6, 170, 173, 177, 186, 193–4, 213, 216–17, 219, 224–6, 230, 351, 366, 387, 390–2 Flucht vor der Freiheit 142 Nietzsche as arch anti-hero 164–5 Tragik des technischen Zeitalters 156 Vialon, Friedrich 402 Villey, Daniel 63–4, 213, 223, 228–9, 308–9, 318, 326–7, 335 Vining, Rutledge 56–7, 303 Vocke, Wilhelm 389–91 Voltaire 26 Wagemann, Ernst 381 Wagner, Adolf 179, 337 Watrin, Christian 111, 416
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Index of Names 517 Weber, Adolf 385–6 Weber, Alfred 23 Weber, Max 116, 118, 137, 166–7, 175–7, 187–90 Wedgwood, Veronica 66–7, 272 Weidmann, Jens 36–7, 68, 112–13, 236–7, 261, 361, 365, 375–6, 432–3, 438–41 Weidmann, Jens 36–7, 110, 112–13, 236–7, 432–3 Welter, Erich xv–xvi, 213–14, 263, 382–3, 385 Werner, Pierre xix–xx Wieser, Friedrich von 180 Willgerodt, Grete 63–4
Willgerodt, Hans xiv, 63–4, 67, 70, 88, 110–11, 188, 236, 416 Wilson, Woodrow 79, 299 Wittgenstein, Ludwig 116–17, 432–3 family resemblance, concept of 91–2, 119 Wolf, Eduard 389, 402 Woolf, Virginia 202 Young, Allyn 277 Zeeland, Marcel van 244 Zeeland, Paul van 55–6, 211–12, 252, 260
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Subject Index For the benefit of digital users, indexed terms that span two pages (e.g., 52–53) may, on occasion, appear on only one of those pages. abuse, online 441 academic lineage, complex, multi-faceted nature of 111 academic power structures 106–12 activism, ethical 185–7 accountability academic elite 249–50 corporate governance 442 democratic society, in 296–7 fiscal balances, for 320 issues of 84–5 liberalism, intrinsic to 420 tech giants 444 Action Group for the Social Market Economy 263, 355 Acton-Tocqueville Society 134–40 Adam Smith Institute 271 administrative culture, role of 112–14 advertising influence of 62 press, negative effect on 151–2 taxation of 296 aesthetic, -s and cultural programmes and values 60, 89–90 and ethical renewal 45, 51–2 and intellectual values of creativity 292 and intellectual values, debasement of 27 and moral capacity 52 and moral philosophy 200–1 and moral response to crisis 89–90 and nourishment of the inner life 26, 86 aristocracy 152 conservative liberalism and Ordo-liberalism, attachments within 212 critique 50–1 culture 47–9 enjoyment, pleasures of 202–3 intellectual, spiritual, and material tastes, cultivation of 291 taste, refinement of 132 Africa, South 160–1 Agricultural Adjustment Act (AAA) 299 Alabama 128 Algerian crisis 331–2
Alstom 372 Alternative for Germany (AfD) party 256–7, 361, 363–4, 409 Amazon 299–300 American Economics Association 292 American Pragmatism 174, 251 Americanization and financial markets 259–62 Americanization of economics 259–60, 343–4, 405–7 analytical philosophy 165 anarchic attitudes 164–5 anarcho-capitalism 128 anarchy 132 Ancien Régime 143–4, 310–11 Ancient World of Greece and Rome 21, 50, 62–3, 131, 150, 215–16, 223, 232–4, 291–2, 437 Anglo-American capitalist model 264 economic thought 271 financial capitalism 306 philosophy 175 liberalism 222, 310 anthropology, philosophical 189–93 anti-cartel and competition policy 256 anti-liberal values among intellectuals 49 anti-Nazi propaganda 138–9 anti-Semitism 40, 75, 135, 160–1, 427–9, 431 anti-trust law 268–9, 299–300 anti-trust movement 298 anti-trust philosophy 299–300, 422 apartheid 160–1 “Apostolic ethic” 201 Apple 372 aristocracy, “natural” 90, 134 aristocratic culture 129 aristocratic liberalism 10, 12, 19–20, 30, 108, 129–61, 249–51, 339 Classical humanism, outlook formed by 132 demise of 250–1 democracy, concern to limit 246–7 descent to “mass-man” 143 heritage of 30 influence of 134–5 modernity, problematic relationship to 132 “patron saints” of 137
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520 Subject Index aristocratic republic 149–51 Armand-Rueff committee 332 Armand-Rueff report 329–33 ascetic stoicism 331 Asquith tradition 266, 275–6 Athens 215–16 audience attention, competition for 159–60 austerity 14, 274–6 Austria Austrian People’s Party (ÖVP) 244 Austrian School 22–5, 40, 84 Austrian tradition 8, 92–3, 104, 116–18, 128, 134, 136–7, 178–82, 206, 278–9, 286, 288, 291–2, 323, 380, 421 Austro-Hungarian empire, collapse of 53 economics 43, 175 liberalism 51–2 philosophy 180 post-war economic policy 243–4 “authoritarian liberalism” 425–7, 432 authoritarianism 28–9, 51, 227, 318, 437 authorities and experts, decline of trust in 439–40 authority, principle of 150 Bad Godesberg programme 367 Bad Pyrmont conference 182 Baden, Grand Duchy of 31 Baltic States 220, 235, 252 Banca d’Italia 341, 344–6 bank and capital market law 103 Bank deutscher Länder (BdL) 377–8, 388–91, 393–4, 397–8 Bank for International Settlements (BIS) 384 Bank of England 205, 273, 281, 286, 445 bankers, social trust in 84–5 banking collapses 55, 299–300, 368 banking law 8 banking reform 299 Banking School 84, 388 banking, central, as an art 284–5 banks, behaviour of 83 banks, saving, German (Sparkassen) 254–5 Banque de France 244–5, 251, 308–9, 329–34 Barre Plan 329, 333 Belgium 14–15, 211–12, 243–4, 259–60 Belgian Christian party 252 Brussels 55–6 Catholic social thought in 252 economic crisis 55–6 party politics 244 Rexist Party, rise of 55–6 social unrest 55–6
belle époque 149 Benthamism 154, 207 Benthamite utilitarianism 220, 290–1 Berlin 25, 38, 53, 221–2, 337 Berliner Zeitung 38 Beveridge Plan 272 Beveridge Report 125 “Big Society” programme 276 Big Tech companies 83, 299–300, 444 “big” government 269 “bigness, curse of ” 298–300 Bildungsbürgertum 59 “bio-politics” 425 Bloomsbury circle 200–2, 204–5 Bocconi University 260 Bolshevism 53, 66, 90–1 Bonhoeffer Memorandum 65–6, 215–17, 221–3 Bonn 109–10, 243, 362 border conflicts 53 bourgeois intelligentsia 59–62, 72, 162, 232–3, 245–6, 308, 414 bourgeoisie, rising 21 bourgeoisie, unenlightened commercial 132 Brauns Commission 125, 339–40, 351, 380–7 Bretton Woods System 70, 109, 121, 124, 257–8, 282, 333–4, 344, 347, 391–4, 397–8 Britain 5, 9, 14–15, 23, 51–2, 62, 72–3, 156, 262–3 as centre of international financial capitalism 273 British Banking School 84, 388 centre-Left 273 City of London 273, 306 conservative liberalism in 245–6 conservative liberals, post-war marginalization of 276 Conservative Party 266, 269, 276 Conservative–Liberal Democrat coalition government 276 Labour Party 269, 273, 275–6 Liberal Party 145, 266, 275–6 London School of Economics (LSE) 145, 260, 262, 276–80 New Labour 269 search for new national unifying myths in 306–7 Treasury 77–8, 82, 95, 168, 178, 204–5, 273, 280–3, 286, 306 Brussels 55–6 Bulgaria 331–2 Bundesbank, German 11–13, 36–7, 110, 112–13, 120–1, 236–7, 254–5, 258, 361, 364–6, 368, 374–5, 387–95, 402, 404–6, 408–9, 432–3
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 521 Bundestag, German 31, 91, 106–7, 122, 256–7, 263, 409, 417 business cycle, monetary theory of 288 Calvinism 148, 151, 196, 254 man as active in the world, conception of 234 Reformed Protestantism 212–15, 218–20, 235, 252, 450 thought 213, 220 values and virtues 220 Cambridge 60–1, 200–1, 276, 280 “Apostles” 163–4, 178, 200, 204–5, 283 economics 276–8, 280–1, 343–4 economists 206, 280–2, 288 Kings College 138–9 philosophers 60–1, 106, 201 Trinity College 200 Cape Town, University of 280 capital market law 107 capital markets, liberalization of 369–70 capitalism anarcho-capitalism 128 and democracy, interwar crisis of 5 Anglo-American 264, 339 corrupted 62–3 crisis in 9, 170 “crony” 85–6, 306 “democratic” 23–4, 28 “disorderly” 9 excesses of 26 “freebooting” 358 hyper-capitalism 339 laissez-faire 70, 289 monopoly 80 Rhineland 417–18 self-serving 24 shortcomings of 51 “socially sensitive” 117 carbon emissions 83, 443–4, 448–9 care, ethics of 433 Cartel law 50–1, 107, 111, 371–2 cartelization 104, 228, 352 Cartesian concept of universal reason 196 Catholicism 104, 145, 186, 199, 215, 217–19, 225, 228, 232, 234–5, 312, 363 building bridges to 223–4 Centre Party 381 Church 170, 213 economic thought 218, 226–7 humanism 254 humanist intellectuals 235 Marxist “prophets” 228–9 Scholasticism 180, 211–15, 224, 226, 233–4 social 32–3, 104, 331, 411–12
social doctrine 219 social ethics 435 social policy 217–18 social teaching 33, 104, 192, 215, 226, 231–2, 343, 363 social theory 252–3 social thought 30, 218–19, 223–31, 234–5, 242, 251–2, 255–6, 311, 327–9, 340, 344–6, 353–4, 405–6 solidarism, concept of 226 theologians and Ordo-liberalism 229–31 theology 170, 229–31 thinkers 214–15, 224, 231, 344 university professors 226–7 wing of CDU and CSU 363 Cato Institute 268, 411–12 celebrity culture and politics 158–60 centralizing state power 22, 62, 339 Centre for Policy Studies 271 Centre International d’Études pour la Rénovation du Libéralisme (CIRL) 302, 322 Centre Paul Hymans Colloquium 43, 317 centrist politics, erosion of support for 439–40 “cherry-picking”, process of 120–1 Chicago economists 8, 128, 289–90, 294–6 Freiburg link 249 Law School 293 liberalism 51–2, 78, 104 Plan 84, 305, 387–8, 393 School 5, 7, 23, 36, 51, 85–6, 117–18, 249, 260–1, 268, 289–90, 293, 295, 299–300, 303, 417 tradition xiv, 6, 8, 31–2, 51, 77–8, 104, 116–17, 121, 128, 134, 142, 236, 257–8, 261, 277, 286, 289–91, 295–6, 303–6, 415, 421–2 University 139, 259–60, 290–1, 293 China 372 Christianity 23, 39, 165, 196–7, 291–2, 336–7 churches, ethical role of 73 culture 234 dogmas 233–4 ethics 89, 236 humanism 340 moral and social teaching 220 Protestants; see Protestantism. Roman Catholics; see Catholicism. social ethics 13, 112, 117, 216–22, 231–3 values 142, 223 world 194 Christian Democratic parties (CDU/CSU) 31, 37, 106–7, 133, 255–6, 353–4, 356–8, 363, 367, 405–6 Christian Democrats, Italian 344
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522 Subject Index citizenship civic values 276 models of 99 civil religion 234–7 civil wars 53 civilization as process of rationalizing discipline 82 crisis of 60, 62, 431–2 civilized society, intellectual foolishness as threat to 153 “civil-law society”, concept of 107 class 132, 155–6 Classical Age 13, 215–16, 234 divine fate, notion of 216 economic theory 126, 203, 206, 225, 230, 435 economics 175–6, 213, 279 education 130–1 Greece and Rome 21, 50, 62–3, 131, 150, 215–16, 223, 232–4, 291–2, 437 heroic discipline, values of 57–8 history and mythology 50 humanism 52, 132, 215–16, 234 liberalism 24–5, 27, 29, 37, 61, 139, 151–2, 172, 202, 204–5, 214–15, 277–8, 316–18, 328, 424 literature and culture 74 philosophy 176, 234, 336–7, 340 political economy 303 references 216 thought 216 world 52, 166, 194, 216 Cleveland Plain Dealer 79 clientelism 312, 345 climate change 2, 443–4 cognitive values 80–1, 132, 153, 155–7 Cold War 53, 66, 217, 260, 267–8, 344, 396, 432 collectivism 22–5, 27–8, 50–1, 103–4, 223, 293, 301–2, 396, 432 hostility to 29 in British economic and social policies, shift to 276 politics 25, 37 social policies 255 spread of 72–3 Collège de France 424 Cologne School 262–3 Cologne University 110–11, 243, 328–9, 367, 416 Columbia University 259–60 commercialism 27, 132, 151–2, 159–60 commercialization of culture and society 276–7, 291, 339
common agricultural policy (CAP) 369–70 communism 51–2, 60, 92, 132, 144–5, 147, 185, 223, 339 Italian Communist Party 338 rise of 22, 218–19 seizures of power in eastern Europe 53 communitarian ideas of social policy 276 community, nostalgia for 60 company law 107 competition law 8, 71, 107–8, 370–4 competition policy 7, 370–4 Confessing Church 221–4 conservative liberalism 134–40, 280–6, 305–7 aesthetic attachments within 212 ambivalence in attitudes to 256 American, British, French, and Italian thinkers, convergence of 247 and humanism 215–16 and morality critics 163–5 and Ordo-liberalism 45 and problem of unelected power 81–6 as civil religion 234–7 as disciplinary revolution 26–8, 77 as Germanic tradition 241 as problem-creating tradition 421–36 as problem-solving tradition 419–21 as social and cultural order 129–31 catastrophe of liberalism, shaped by 45 changing fortunes of 158–61 conservative and liberal ideologies, marriage of 245–6 conservative cultural critique of modernity, grounded in 27 cross-national character and significance of 241 crowding-out of 272–4 cultural openness to 312–14 differences in significance of 249–63 distinctive features of 41–4 economic, financial, migration, and refugee crises 256 fear and pessimism in 66–7 features of 42–3 financial, economic, and sovereign debt crises, implications of 258 French 148–9 historical significance and contemporary relevance of 410 imagery of 86–91 in American and British political economy 266 in Britain, marginalization of 276–7 in French and Italian political economy 308 in history of political economy 418–36
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 523 institutions and rules to stabilize political and market expectations, argument for 54–5 intellectual influences, attributing 165–9 intellectual roots of 129 Italian 336–49 marginalization of 413–15 moral outlook, driven by 26 moral seriousness, promoted 28 morally disciplined population, desire for 19–20 mythology, national unifying 267–71 “neo-liberalism”, guilt by association with 415 nineteenth-century liberalism, exaggerated degree of break with 27 openness to 241–3 origins and nature of 14 Orleanist tradition and 148–9 pre-Christian religious values in 232–4 religion in genesis of 216–18 rule-based order seen as enabling 55 rules, consensus about 81–2 significance of 43, 246, 253–5, 257–60, 263–4, 410 task to stabilize liberal economic, social, and political orders 54 transformative events in history of 53–7 vocabulary of 27–8 Conservative Party, UK 266, 269, 276 Conservative–Liberal Democrat coalition government 276 constitutional economics 303 constitutive principles of economic order 108–9 consumer law 103 consumer sovereignty, concept of 279 consumer welfare 417 consumerism xii–xiii, 158, 298–9, 358 continental ethical philosophy 208–9 conventionalism 195–6 corporate organizations 62 corporate power, misuse of 51–2, 350–1 corporatism 22–5, 27 corporatist and collectivist political practice 37 Corriere della Sera 346, 348 counter-cyclical “global steering” of economy, idea of 377 countercyclical macro-economic policy 25 Court of Justice of the European Coal and Steel Community (ECSC) 317–18 Courtin report 319 credit expansion 283 creditor–debtor state relations 246, 258–9, 313 crises
civilizational 62 culture 164–5, 188 euro-area 36, 39, 67–8, 209, 245, 274–5, 350–1, 360–1, 409 events and 257–8 financial and economic 22–3, 28–9, 73, 84–5, 258, 264, 304–7, 439 in liberalism 19 in moral and aesthetic philosophy 200–1 in science 187 interwar 54–5, 129 migration 73 of care 76 of civilization 60, 431–2 of liberalism 66–7 of meaning 61 of modernity 52, 57–8, 62, 133–4 of relativism 61 of social solidarity 60 “of the Western world” 57 of values in capitalism 170 post-war, Ordo-liberalism and 359–63 refugee 73 sovereign-debt 67–8, 84–5 supply-side 124 critical realism 183–95 Croix de Feu 55 crony capitalism; see capitalism. culture aristocratic 129 biases in outlook 130 commercialization of 291 crisis 164–5, 188 destruction of 72–3 elite 159 ethics as essential part of 50 of entitlement 276 plebeian 129 proletarian 132 rule-based administrative 114 currency reform 439 Currency School 84, 387 currency stability 390 currency union 283 Darwinian doctrine of natural selection 118, 196, 205 debt “brake” 368 causes of 258–9 debtor states 258–9 morality myth around 433 public 25, 37, 80–1 social causes of 258–9
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524 Subject Index deflation 14–15, 32–3, 55–6, 68, 115, 119–20, 122, 124–5, 207–8, 244, 281, 283–5, 316–17, 319, 329–32, 334, 339–40, 342, 359–61, 380, 382–4, 399–401, 422–3, 446 Delors Committee on Economic and Monetary Union 69, 394–5 demagogues 22, 42, 75, 92, 131, 141–2, 151–2, 234, 292, 306, 311, 386 democracy and market power 19–20 aristocratic liberal concern to limit 246–7 conceptions of 245 constitutionally limited 115 elitist theories of 431–2 “hyper-democracy” 157 insensitivity to 130–1 interwar, collapse of 5, 318 unlimited 7, 92, 130, 143, 146–7 “democratic capitalism” 23–4, 28 democratization 39–40, 159, 250 depersonalized society 60 destitution, escalating 55 determinism 7, 170–1, 323–4, 445–6 Deuteronomy, Book of 213 Deutsche Bank 405–6 Deutsche Demokratische Partei 429 Deutsche Staatspartei 429 Der Deutsche Volkswirt 383 Der Spiegel 38–9 Der Staat seid Ihr 74–5 D-Mark 352, 362, 365–6, 369, 374, 379, 389 dictatorships 40–1, 84–5, 150, 156, 259–60, 317, 425 Die Tatwelt 75, 168, 170, 184–7, 222 digital revolution 159–60, 440–1 dirigisme 87, 177, 310–11, 317, 322–3, 328, 396–7 discipline 39, 83, 85–6, 133 economic 82 financial and monetary 109 discourse, public, narrowing 60–1 distributive justice 30, 126–7, 305, 446–7 diversity and individuality, dissolution of 132 divorce 159, 258–9, 433 Dresdener Bank 391–2 Dreyfus Affair 149, 155 Düsseldorf Principles 353–4 Dutch Republic 254 École Polytechnique 195, 251, 315–17, 328–9 economic and monetary union x, 67, 124, 297, 333, 360, 363–4, 374–6, 394–5, 415–16 economic governance 395–405 economic liberalism and social conservativism, connection between 7
and social solidarity, erosion of 60–1 restoring via return to discipline of Christian ethics 89 economic order constitutive principles of 108–9 order, morphological approach to characterizing 115–16 order, rule-based 293–8 Ordnungsökonomik 33 pillars and foundations of 132–4 Economic and Social Research Group 327 economics Americanization of 259–60, 343–4, 405–7 Anglo-American and Ordo-liberalism 271–2 constitutional 303 crisis in 178–83 dehumanization of 58, 339 moral seriousness in 28 economy feudalization of 24 low-wage, precarious-employment 76 Swiss, as model of good practice for Europe 133–4 education and state theory, ideas on 135 higher 159 intervention in 305–6 participation, expansion of 72 permissive 72–3 egalitarianism, principle of 159 egoism 188, 358 “Einaudi experiment” 344, 346 elite, -s contempt for 268 cultural 26, 159, 201 intellectual 72–3 negative feelings towards 159 predatory, self-serving 19, 22 privileged 73, 131 recruitment, patterns of 245 self-confidence, decline in 160 socially mobile 72 empiricism 61–2, 152, 170–1 employment practices 83 precarious 76 “engineer-economists” 327–9, 335 English as lingua franca 259–60 “enlightened” social market economy, conception of 377 Enlightenment 21, 26, 142, 194, 196, 215–16, 340 Scottish 166, 341–2 enterprise, culture of 125
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 525 entitlement, culture of 276 entrepreneurship 136, 267–8 environmental degradation 83, 443–4 “Erhard brigade” 263 L’Espresso 348–9 étatiste, concept and tradition 250, 310 “ethical activism” 60, 185–7 ethical dogmatists, Ordo-liberals as 432 ethical duty, conception of 171 ethical foundation of political economy 67 ethical liberalism, re-examination of 338–40 ethical personalism 189–93, 231–2 ethical philosophy 10, 12, 19–20, 129, 162, 164, 169–70, 204, 208–9, 246–7, 251 European 129, 162, 164 ethical principles 170 ethical problems 163–4, 434 ethical relativism 30, 60–1, 72–3, 224 ethical vagueness 165 ethics and the “visible hand” of the law 172–3 culture, as essential part of 50 legitimacy and accountability, issues of 84–5 of care 433 practical 172, 188, 204 religious social 10 structuring and ordering 194 utilitarian and pragmatic 188 Eucken Association xvi–xvii, 60, 75, 163–4, 168, 170, 184–7, 430–1 Eucken Circle 60, 163–4 Eucken Institute 34–5, 37, 71, 118–19 Eucken School 99–100, 105, 118, 120, 123, 262, 278–9, 304 eugenics 154–5, 160–1 euro area 12, 20, 261, 264, 347–8, 366, 409, 427, 439 crisis 36, 39, 67–8, 209, 245, 274–5, 350–1, 360–1, 409 Eurobonds 68 Europe, Southern 235 European banking union 110, 361 European Central Bank (ECB) 12–13, 274, 297, 350–1, 360–1, 375, 392, 395, 401–2, 406–9 European Coal and Steel Community 369–70 European Commission 299–300, 367–8, 374, 402–3, 406–7 European competition law 373–4 European Court of Justice (ECJ) 351, 373–4 European currency unit (ECU) 374 European currency, creation of 401–2
European Economic and Monetary Union (EMU) x, 67–70, 297, 333–5, 347, 360–1, 363–6, 368–9, 374–5, 394–5, 404–9, 415–18, 450 European Economic Community (EEC) 331–2, 358–60, 377, 396–9, 401–5, 407–8 as instrument of central planning and intervention 373 French veto of British entry 398 Germanic conception of 114 institutional framework 377, 398 launch of 69 Monetary Committee 402–3 represented “Little Europe” 396–7 Rome, Treaty of 70–1, 331, 351, 369–71, 373–4, 398–400, 404–5 treaty negotiations 360 European economic governance, Ordoliberalism and 395–405 European economic integration 68, 258, 334–5, 350–1, 365, 395–6, 400 European Economics Association 260 European empires, collapse of 53 European ethical philosophy 162 European Exchange-Rate Mechanism (ERM) 68, 297, 333–4, 347, 374, 408–9 adherence to 347 as “Bretton Woods for Europe” 308 as valuable disciplinary device 333–4 crises 69, 408–9 European federal union 396 European integration 12–13, 15, 54–5, 67–9, 90, 99–100, 110, 124, 190, 232, 245, 256, 282, 313, 328, 332, 334–5, 347, 356, 360, 365–6, 373–4, 376, 390, 393–4, 396–8, 400, 404–6, 409, 439 European Investment Bank (EIB) 401, 404–5 European Monetary System (EMS) 69, 333, 369 creation and launch of 69–70 German approach to design and functioning of 369 negotiation of 333–4 European Payments Union (EPU) 109, 282, 360, 362, 367–9, 379, 389–90, 393–4, 397–8, 406 European Reserve Fund 401–2 European single market 70, 311, 334–5, 347, 363–4, 368, 374, 379, 409 European social state 68 European social union 232 European solidarity 102, 242 European Stability Mechanism (ESM) 361, 368, 375 European Stabilization Board 360, 395–406 European unification 368, 408
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
526 Subject Index European Union (EU) and deepening euro-area crisis 274 and the withering of Ordo-liberalism 356–9 as “neo-liberal project” 335 competition law 71, 418 cynicism directed against 335–6 economic and monetary elites across 417 entry, challenges of 352 European Commission 299–300, 367–8, 374, 402–3, 406–7 European Court of Justice (ECJ) 351, 373–4 euro-sceptics 347–8 fiscal policy coordination, problem of 344–5 Germany as EU “model pupil” 368 heterogenous membership of 406 integrity of 261 Ordo-liberal-design, German pursuit of 102 single market 70, 311, 334–5, 347, 363–4, 368, 374, 378–9 Stability and Growth Pact (SGP) 264, 318, 335 technocratic elites in 124 unity of, risk to 396–7, 408–9 European university 404–5 Europeanization 121, 347, 406–7, 416 Evangelical Church 220, 223, 236–7 Council of 232 shifted ideologically towards the Left 232 subordination to Nazi regime 221 exceptionalism, US 267–8 exchange rates 54, 83, 109, 333–4, 385–6, 393–4, 397–8 existentialism 156, 164–5 Exodus, Book of 213 Expressionism in art 164–5 “extreme creditors” 393–4 Fabianism 154 Facebook 299–300, 372 “fake” news 159–60, 444 family as chief agency of moral authority and social stability 133 cohesion, decline in 72–3 disintegration as threat to civilized society 133 law 103 resemblance 95, 118–19, 247 traditional, loss of relevance 159 fascism 45–6, 53, 60, 66, 92, 338, 432 as contending mystique 196–7 as form of collectivism 92 as secularized religion 60 clientelism, proliferation of 345 dictators 150
economic planning, forms of 104–5 existential crisis of living under 272 ideas, flirtation with 40 intellectually discredited 66 Italian 40, 45, 80, 149–50, 160–1, 227, 301, 338, 340–1, 343, 345–6, 426 March on Rome 343 regimes, interwar 227 rise of 22, 51, 155, 218–19, 432 violent sub-cultures 53 Federal Cartel Office, German 371–2, 405–7 Federal Constitutional Court, German 417 Federal Economics Ministry, German 37, 124–5, 371–3, 376–7, 393–4, 398, 400, 402–6 Federal Finance Ministry, German 37, 376, 397–8, 402, 404–6 Federal Justice Ministry, German 376 federalism 90, 396, 416 female suffrage 76 feminism 76, 161, 425 financial and economic crises 22–3, 28–9, 73, 84–5, 258, 264, 304–7, 439 financial and monetary discipline on German and Swiss models 109 financial capitalism, Anglo-American 306 financial conduct 83, 438–9 financial conglomerates, global 306 financial markets and Americanization 259–62 financial stability as public good 261 Financial Times 271, 274–5 First World War 2, 22, 45, 52–3, 58–61, 150, 154–6, 171, 281, 391 fiscal and monetary stabilization, disciplinary conceptions of 257 “fiscal compact” 368 fiscal deficits 80–1, 124 fiscal order, rule-based 318–21 fiscal policy 83 fiscal prudence 80 Five Star Movement 313, 348 Flammarion 149 Forza Italia party 348 Foundation for Economic Education (FEE) 66–7, 268, 411–12, 421–2 France Algerian crisis 331–2 Ancien Régime 143–4 Banque de France 244–5, 251, 308–9, 329–34 belle époque 149 “Cartel of the Left” 334 Collège de 424 conservative liberalism in 148–9, 245–6, 312, 314–17, 326
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 527 Croix de Feu 55 étatiste concept and tradition in 250, 310 ethical debate in 169–72 European Exchange Rate Mechanism (ERM), joins 333–4 far-Right riots of February 1934 334 Fifth Republic 311, 313–14 Fourth Republic 32–3, 255, 311, 319, 330–1 franc, devaluation of 332–3 franc, hard 329–36 Franco-Prussian war 149 Gaullism 255, 310–12, 315, 404, 450 “gold bloc” policy 334 grandeur, conception of 330–1 Jacobins 143–4 July Monarchy 197 liberalism, problems of 325–6 myth of the providential saviour 314 mythology, post-war unifying 309–10 National Centre of Independents and Peasants (CNIP) 330 National Front 335–6 Orleanist tradition 148–9, 197 Paris 43, 145, 149, 302, 432 Paris Commune 149 party system 255, 312 philosophy of science 195–200 Physiocrats of pre-Revolutionary period 325–6 political economy 308 Popular Front government, fall of 321, 334 Resistance 309, 315, 319 Revolution 21, 47–8, 50, 60, 62, 90–1, 132, 141–2, 149–50, 311, 314 Revolutionary tradition 149, 250, 326 Saint-Simonian dirigiste political economy in 87 stabilization tradition 244–5, 329–36, 417 Third Republic 32–3, 55, 149, 222, 310–11, 314, 325–6 Trésor 308, 330, 332–4 Vichy Regime 32–3, 41, 155, 315, 324, 328 Frankfurt University 31–2 Frankfurter Allgemeine Zeitung 13, 110, 263, 355, 361, 382–3, 385, 428–9 Free Democratic Party (FDP), German 255–7, 353–4, 405–6 free trade 27, 109 freedom and social solidarity, conflict between 50 Freeman (right-wing magzine) 23, 268 Freiburg Circles 34, 216–17, 221–2, 431 Freiburg School 9–10, 12–13, 15, 19–20, 31–2, 34, 37, 39, 57–8, 64, 78, 80–1, 88, 91–5, 105–6, 110, 116–19, 122–4, 126, 179,
184–5, 189–90, 192, 216–17, 228, 230, 232, 246–7, 260–3, 294, 297, 328 American economists, borrowed selectively from 260–1 defenders of 189, 232 early 10 Foucault's view of 424 “Freiburg 1” 123 “Freiburg 2” 123 “Freiburg 3” 123 Freiburg Circles, not synonymous with 217 Harvard School of 1930s, shared common traits with 247 identity and identity change 123–4 “imperative” 35–6 key questions, disunited on 10–11 Kirchgässner attacks methodological weaknesses of 118–19 Lutheran and Kantian traditions helped to shape 340 manifesto 19–20, 56, 65, 184 Nazi intimidation and student protest, members exposed to 45–6 Nazi regime, centre of resistance to 34 Ordo-liberal thinking and practice, identified as “mainstream” in 34 origins and nature of xvi–xvii, 57–8 policies neglected by 365 reinvention and evolution of 123 rejuvenation, attempts at 169 rule-governed order, belief in 230 “sociological” Ordo-liberals, comparison with 116 Freiburg University xvi–xvii, 13, 31, 33–6, 64, 118, 260–1 attracted prestigious speakers 36–8 “brand” 34–6 Chicago link 249 Dietze as rector of 216–17 economists based at 33–4 Hayek’s inaugural lecture at 99 Hayek’s period at 118 Lutheranism felt strongly in 221–2 National Socialism, role of academics in resistance to xvi, 221–2 Nazi regime, efforts to align with 64 Ordo-liberalism, connection with 13, 31 Third Reich period, isolation during 9 Freikorps 53 Friday Club 201 Friedrich List Society 182, 385–7 frugality 28, 39, 133 fundamentalism and realism 359–63
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528 Subject Index game theory 260 Gaullism 255, 310–12, 315, 404, 450 gender blindness and insensitivity 130–1, 133, 160–1 gender justice 76 gender roles 159 Genesis, Book of 213 Geneva 45–6, 133–4, 358 genocide 53, 211, 236 Germany Action Group for the Social Market Economy 263, 355 Alternative for Germany (AfD) party 256–7, 361, 363–4, 409 Association for a Free Economic Policy 385–6 Association for Social Policy 53–4, 426–30 Bank deutscher Länder (BdL) 377–8, 388–91, 393–4, 397–8 banking, energy, and telecommunications markets, liberalization of 374 banks, saving 254–5 Berlin and Munich, left-wing uprisings in 53 Bishops’ Conference 232 Bonn 109–10, 243, 362 bourgeois values 405 Bundesbank 11–13, 36–7, 110, 112–13, 120–1, 236–7, 254–5, 258, 361, 364–6, 368, 374–5, 387–95, 402, 404–6, 408–9, 432–3 Bundestag 31, 91, 106–7, 122, 256–7, 263, 409, 417 Catholic social thought in 252 Catholic thinkers and theologians 214–15, 229 Christian Democratic parties (CDU/CSU) 231, 234–5, 255–6 conservative liberalism as Germanic tradition 241 Council of Economic Advisers 392 creditor state 109, 409 deflation, descent into 125 Democratic Party 74–5 Deutsche Bank 405–6 Deutsche Demokratische Partei 429 Deutsche Staatspartei 429 Der Deutsche Volkswirt 383 D-Mark 352, 362, 365–6, 369, 374, 379, 389 division of 217–18 Dresdener Bank 391–2 Economic Administration of Bi-Zonal Economic Council 354–5 economic and monetary reform 11 economic identity 407 “economic miracle” 67, 77–8
ethical debate in 169–72 euro area, policies on 12 Europe, benign power in 102 European economic and monetary integration, support for 408 European Economic Community (EEC), conception of 114 Expressionism 190 Federal Cartel Office 262–3, 365 Federal Constitutional Court 368 Federal Economics Ministry 113, 120–1, 262–3, 354–5, 358–60, 364–6, 369–70 Federal Finance Ministry 113–14, 120–1, 364, 366 Federation of German Industry 371 fiscal policy 368 Foreign Ministry 366 foreign-policy identity 364 Free Democratic Party (FDP) 255–7, 353–4, 405–6 Freikorps 53 Gestapo 56, 430 Historical tradition of economics 92–3, 116 hyperinflation in 53–4, 84, 360, 428 idealism 152, 181–95 Imperial 170, 355 Imperial Economics Ministry 106–7, 383–6 Imperial Finance Ministry 384–5 Institut für Weltwirtschaft in Kiel 376 Institute for Economic Policy in Cologne 110 Institute for Economic Research in Munich 38–9 intellectuals, persecution of 53 Left Party 256–7 liberal market economy in, progress towards 256 market-oriented Allied policies in 272 monetary and financial discipline, model of 54–5 National People’s Party 426 nationalism 80 Nazi period 74, 301, 405, 416–17 Ordo-liberalism 264, 318, 350, 415–16 “orthodoxy”, perceived threat from 71 payments crisis 360, 389 philosophy 170–1 reconstruction 15, 29, 35–6, 67 Reformed Protestantism 252 Reichsbank 84, 182, 380–1, 383, 385–8, 445 Ricardians 182 “Röhm-Putsch” 79 rule-based administrative culture 114 Second Empire 416–17
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Subject Index 529 Social Democratic Party (SPD) 35–7, 182, 255–6, 353–4, 363–4, 367, 377, 405–6 Third Reich 9, 57, 187–8, 352, 427–31 trading and political interests 261 unification 350–1, 363–6, 368, 409 university patronage, infrastructure of 262–3 Weimar Republic 39–41, 48–9, 54, 104, 222, 352, 355, 360, 380–1, 416, 422–3, 425–31 Gestapo 56, 430 “Gilded Age” 299–300, 414–15 Gladstonian rules of public finance 281 “global steering” 35, 360, 377, 394 globalization 73, 121, 242–3, 276, 347–8, 372 gold standard 27, 54, 80, 207–8, 277–8, 282, 284 “good-household” economy 133 Google 299–300, 372 governing parties, unpopularity of 264 governmental and corporate power, misuse of 51–2 grandeur, conception of 330–1 “great antimony” and Ordo-liberal identity-building 178–83 Great Depression 15, 22–4, 45, 51, 55, 84, 125, 257, 267, 273, 289, 299, 302–3, 305, 339–40, 360, 380–7, 399, 432, 437 Greece 39, 331–2, 361 Ancient 152, 196–7, 215–16, 223, 232–4, 291–2 bail-out 375 crisis 274 exit 274 Hellenic science 233–4 philosophy 233, 291–2 rationalism 196 Group of Seven (G7) 274 Group of Ten 362 Harvard University 31, 151, 259–60, 277, 283, 432–3 “hate” speech 441, 444 “hedonistic utilitarianism” 203–5 heroic entrepreneur, cult of 267–8 Hesse, state central bank of 387 Het Financielle Dagblatt 362 historical development, Marxian belief in laws of 178 historical materialism 174–5 historical memorizing, selective processes of 102 Historical School 56, 179, 182, 358 historical selectivity 124 religion, historical sociology of 40, 89, 189–90, 192–3 Historical tradition of economic thought 178–82, 187–8, 430
historicism 61, 179 history Classical 50 Marxist idea of 174–5 openness of 263–5 Homburg Plan 378 housing, state intervention in 23, 305–6 “humane order” 184 humanism 13, 132, 155–6, 211, 215–16, 336–7 humanistic and moral basis of liberal order 338 humanistic critiques of radical individualism 92 humanistic philosophy of the Classical world 52 humanity, love of 170 “hyper-democracy” 157 hyperinflation 53–4, 84, 257, 336–7, 357, 360, 386, 428 “ideal utilitarianism” 203 idealism 52, 93–4, 151 idealism German 183–95 Hegel’s brand of 147, 174 Kantian 116 phenomenology, and critical realism 183–95 pragmatic 169–70 scientific 81 traditional 185–6 identity change 121, 123 identity politics 2, 73 ideological polarization 312 idolatry, secular 430 il Giornale 348 Imperial Economics Ministry, German 106–7, 383–6 Imperial Finance Ministry, German 384–5 individualism anti-social 60 cult of 203 methodological 58 of Classical liberalism 204–5 radical 58, 92, 158, 188, 250 rights-based 250 individuality, dissolution of 132 indivisibility of economic and political liberalism, doctrine of 339 industrial and urban society 62 industrial bourgeoisie 21 Industrial Revolution 21, 89, 132, 141–2 industrialism 133, 151–2 industrialization 27, 50, 60, 147, 219, 226 inequality 8, 26, 51, 72–3, 82–3, 122, 125, 151, 160, 173, 205, 266–7, 270, 291, 293, 299–300, 306, 310–11, 337, 343–4, 347–8, 414–15, 437, 439–42
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
530 Subject Index inflation 25, 53–4, 124, 283 hyperinflation 53–4, 84, 257, 336–7, 357, 360, 386, 428 inheritance, taxing 125, 154–5, 299, 302, 326–7, 337 injustice, economic 154–5 injustice, “gendered” 425 “inner man” as recurring theme in Ordo-liberal tradition 143 Inquisition, the 64 insolvency law 103 Institut für Weltwirtschaft in Kiel 376 Institute for Economic Policy in Cologne 110 Institute for Economic Research in Munich 38–9 Institute of Economic Affairs (IEA) 271, 313 institutions increasing distrust of 264 non-majoritarian 43, 84–5, 103, 130, 220–1 supra-majoritarian 20, 439–40, 448 theory of 321–2 “instrumental” values 202 “integration by law” 114 intellectual foolishness as threat to civilized society 153 intellectual influence, attributing 165–9 intellectual proletariat, emergence of 72–3 intellectual property law 8, 103, 107 intellectual scepticism 64 intellectual values 27, 129 intellectuals anti-liberal values among 49 blind to the threat of tyranny 153 persecution of 53 intelligentsia bourgeois 59–62, 72, 130, 162 cultivated 130 European 61 liberal 53, 341–2 International Monetary Fund (IMF) 341, 366 international monetary order, collapse in 281 internet, governance of 441 “interventionism, liberal” 25 interventionist policies 263 interwar crisis 5, 47–8, 53–5, 129 intolerance 53, 145, 213 intrinsic value, conception of 200–8 “invisible hand” of the market 163, 173, 278 Iowa, University of 293 Islamic fundamentalism 437 isolation and neglect, post-war 324–5 Istanbul 45–6, 234 Italy Banca d’Italia 341, 344–6 Catholic social thought in 252
Christian Democratic Party, rise of 32–3, 344 clientelism 345 Communist Party 338 conservative liberalism in 245–6, 336–49 euro-sceptics 347–8 fascism 40, 45, 80, 149–50, 160–1, 227, 301, 338, 340–1, 343, 345–6, 426 Five Star Movement 313, 348 Five Star/League government 347–8 Forza Italia party 348 “good” and “bad” souls of 346–9 intellectuals, persecution of 53 Italian Communist Party 338 League, the 348 liberalism and the “bad beasts” of 342–6 myth and reality in 311–12 mythology, post-war unifying 309 North/South imbalance 344 Partito Liberale Italiano (PLI) 255, 338, 343–4, 346 partitocrazia 345–6 party system 255, 345 party system, ideological polarization in 312 political economy 308 political favouritism in 312 post-war political economy 259 Rome, fascist March on 343 social thought erected barrier to conservative liberalism 312 stabilization traditions in 417 Treasury 341, 344–5 unification 343 J.P. Morgan 78–9 Jacobins 143–4 Jena University 49–50, 63, 65–6, 74–5 Jews 56, 65–6, 74–5, 221–2, 429 journals Deutsche Volkswirt 383 Die Tatwelt xvi–xvii, 75, 168, 170, 184–5, 186–7, 222, 430–1 Freeman 23, 268, 421–2 Justiz 429 ORDO Yearbook 9, 29, 33–4, 69–70, 94–5, 111, 223, 263, 326, 350–1 Web of Science 68–9 July Monarchy 197 justice, distributive 30, 305 justice, social 76 Justiz 429 Kantianism 9, 81, 104, 107, 116, 175–7, 179–81, 196, 203, 224, 233–4, 340, 430 “Kapp Putsch” 53
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 531 Keynesianism 6, 33, 35–6, 87, 116, 134–7, 208–9, 257–61, 264, 267, 270–6, 288–90, 296, 301, 312, 327–8, 334, 339–40, 343–4, 361–2, 405–6, 420–1, 425, 444–5 ascendancy 270 counter-cyclical policy, efforts to rehabilitate 258 “illusion” 66–7, 271 interventionism 346 presence in German academic economics 367 revolution in macro-economic theory 276, 283 Keynesians 36, 84, 103–4, 207, 303 Kiel School 383–4 Kiel, Institut für Weltwirtschaft in 376 Kingdom of the Two Sicilies 145 Knapp state theory of money 388 knowledge “economy” 437 aristocracy of 129–31 defending value of 153–8 Königswinter Circle 229 Korean War 389–90 Kristallnacht 56, 221 Kulturkampf 186 labour law 103, 106–7, 275–6 Labour Party, UK 273, 275–6 labour relations 8, 62 laissez-faire capitalism 70, 289 economics 23–6, 76, 84, 260–1, 279, 284–5 liberalism 2–3, 8, 19, 23–4, 27, 43–4, 51–2, 80, 104–5, 177, 261, 268, 277–80, 346, 436 state 24–5, 28–9, 37 Lautenbach Plan 14, 351, 380–7 law as discipline 78–80 competition 8, 71, 107–8, 370–4 ethics and the “visible hand” of 172–3 labour 103, 106–7, 275–6 rule of 21, 109 League of Nations 331–2 League, the 348 Left Party, German 256–7 Left, shift to 159 “left-liberalism” 37 legal realists 293 legitimacy, and accountability, issues of 84–5 Lehman Brothers, collapse of 299–300, 368 Leipzig 94 Leuven, University of 6, 211–12, 252, 260 liberal intelligentsia 21, 53, 341–2 “interventionism” 25
order 84–5, 338 Party, Italian (PLI) 255, 338 Party, UK 145, 266, 275–6 society, “sickness” of 290–3 values 22 liberalism and “bad beasts” of Italy 342–6 and Catholicism, conflicts between 33 Anglo-Saxon 222 aristocratic 10, 12, 19–20, 30, 108, 129–31, 133–4, 137, 158, 249–51, 339 as potentially fragile construct 20 capitalism and mass democracy, crisis in relationships with 22 catastrophe, shaped by 45 challenges, confronting 2 Classical 152 Cold War 22 conservative crisis in 2, 19, 28–9, 62–3, 72–3 critique of 151–3 disciplinary revolution in 28 discipline in the history of 80–1 discredited and jeopardized by privileged interests 19 economic 89 ethical 338–40 fortunes of 158–61 French 325–6 harm and self-destruction, fears of 21–2 historical transformations in 21–2 laissez-faire 2–3, 8, 19, 23–4, 27, 43–4, 51–2, 80, 104–5, 177, 261, 268, 277–80, 346, 436 libertarian 19, 411–12 Manchester 43–4, 54, 80, 104–5 market 26 mythology of purpose, identity, and solidarity 28 “neo-liberalism”, attempt to relabel as 24–5 new 22–4 nineteenth-century 27 of the Left 43–4 positive 43–4 pragmatic 26 rise of 21 safeguarding, question of balance in 20 separate groups, division into 80 social 2–3, 19, 23–4, 26, 43–4, 48–9, 80, 433–4 terminology, differences on 43–4 transformational crisis 46–50, 436–41 under threat 28–9 views from within 62–6 vocabulary of 27–8 “vulgar” 50–2
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
532 Subject Index liberals authoritarian 425 clashes amongst 43 conservative 19 Weimar 48 libertarian Christianity 23, 411–12 liberalism 19, 411–12 tradition 8, 19, 421 libertarians American 43 French 43 Liberty Fund 268, 411–12 liberty, death of 144–5 Librairie de Médicis 96 “life-community” 191–2 “life-world” philosophy 184–6 Lippmann Colloquium 3, 22–3, 43–4, 96, 153, 156, 246–7, 300–3, 316–17, 322–5 Lisbon Treaty 361 List Society 380, 386–7 living standards, falling or stagnant 264 logical empiricism 196 logical method 180–1 logical positivism, influence of 251 London School of Economics (LSE) 145, 260, 262, 276–80 London, City of 273, 306 Lutheranism 212–15, 218–24, 235 civic virtue and moral discipline, conceptions of 212 German elite, common characteristic of 219 religion 129 social ethics 112, 192, 218 social theory, decline of 252–3 social thought 213, 223, 226–7 theology 224 thinkers and theologians 214–15, 219 traditions 218 values 39, 450 views 226 Lutherans 226–7 Maastricht Treaty 68–9, 110, 297, 313–35, 361, 368–9, 375–6, 390, 407 Macmillan Committee on Finance and Industry 283 macro-economic imbalance procedure (MIP) 369 macro-economic theory, Keynesian revolution in 276, 283 majoritarian non-majoritarian institutions 43, 84–5, 103, 130, 220–1 omnipotence 143
principle 429 supra-majoritarian institutions 20, 439–40, 448 majority, tyranny of 132 “Manchester liberalism” 43–4, 54, 80, 104–5 Marburg University 31, 45–6, 109–10 March on Rome 343 “marginal ethics” 230 market as evolutionary phenomenon 22–3, 81, 118, 181 as legitimate sphere of activity 21–2 behaviour, dynamism and instability of 54 “conformity”, principle of 192 correcting measures 109 dominance, abuse of 370–1 fundamentalism 263 “invisible hand” of 163, 173, 278 liberalism 26 manipulation of 22 power 19–20, 80–1 “radicalism” 6, 70 rule-based order 115, 181 marketing, influence of 62 Marxism 29, 51, 128, 155, 161, 174–5, 177, 242, 293, 344, 421 “mass” society 62 Massachusetts Institute of Technology (MIT) 259–60, 343–4 “mass-man”, concept of 157 materialism 27, 60–1, 130–1, 173–5, 188, 358 mathematics, “idealization of ” 62 Max Planck Institute 108 meaning, “crisis of ” 61 mechanization 58, 132, 181–2, 185, 310 media dissemination 262–3 intrusive 22, 159–60 law 107 politics, portrayal of 159–60 social 1, 159–60, 439–41, 444 twenty-four-hour and ratings-driven 159–60 memorialization 39, 100 memorizing and forgetting 102, 124–6 merger-control law 372 meritocracy 132 meritocrats, new 61 Messina Conference 404–5 metaphors 86–8 architectural 88 artistic 87 engineering 87 game 87 garden and horticultural 87–9
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 533 medical 88–91, 424–5 religious 88–9 theatrical 88 metaphysical philosophy 62 metaphysics and ethical activism 185–7 Methodenstreit 181–3 methodological “dispute” 181–2 metropolitan values 72 Microsoft 299–300 migrants 91–4 and natives 91–4 and refugee crisis 73 militarism 154, 186 Mises Institute 128, 268, 411–12, 421–2 modernity, crisis of 52, 57–62, 133–4 monarchical principle 150 Le Monde 315, 362 monetarism 261, 351 monetarist “revolution” 360, 388–9, 393–4 monetary and economic theory 246–7 monetary and financial discipline on the German and Swiss models 54–5, 109 monetary policy international consensus about 5 “stability consciousness” in 53–4 monetary reform and “monetarist revolution”, Ordo-liberalism and 387–95 monetary stability 28 monetary stabilization 257, 281–2 monetary theory of the business cycle 288 monetary union 70–1, 396, 409 Delors Committee on Economic and Monetary Union 69, 394–5 design of 12–13 economic and 374–6 money “anarchy” 305 cult of 62 Knapp state theory of 388 “pillar” strategy 395 “religion of ” 295 saving 254–5 supply 83 monopoly capitalism 50–1, 80 monopoly power, challenging 154–5 Mont Pèlerin Society 6–8, 22–3, 29, 31–3, 43, 45, 63–4, 93, 96, 109–10, 113, 117, 128, 139–40, 212–13, 223, 248, 263, 280, 286–7, 290–1, 297, 301–2, 304, 318, 324–9, 362, 421–2 aims of 326–7 Anarcho-capitalism never became dominant force in 128 as discussion forum 8 establishment and launch of xiv, 8, 96, 139–40
first meeting of 45, 63–4, 139–40, 212–13, 286–7, 290–1, 293 institutional networks of xv libertarian economics, growing role of 421–2 membership of 6 Ordo-liberalism, key institutional venue of 7 Ordo-liberalism, promotion of 31–2 post-war 322 second meeting of 8, 43 moral and aesthetic philosophy, crisis in 200–1 moral authority 19–20, 133 moral decay and degeneration 219, 432 moral disinterestedness 151–3 moral economy 432, 434 moral philosophy 174, 185 moral problem of political economy, solution to 127–8 moral relativism 64, 165 moral “revolution” 148–9 moral seriousness in economics 28 moralistic condemnation of debtors 258–9 moralistic narrative of disciplinary liberalism 236–7 morality and religious faith 172 corrupted by political demagogues and corporate players 92 critics 163–5 “honour and manners”, codes of 82 relativist conception of 163 traditional, undermining 72–3 morphological approach to characterizing economic order 115–16 Munich 11, 145 Institute for Economic Research in 38–9 left-wing uprisings in 53 Münster 228–9 Les Mystiques Économiques 196–7, 322–5 myth, -s national unifying 28, 264–5, 267–71, 306–7, 309–12, 338, 348, 350 Classical 50 of morality around debt 433 of providential saviour 314 of US exceptionalism 267–8 Promethean 196 National Centre of Independents and Peasants (CNIP) 330 national community, idolatry of 56–7 national debt 281 “national liberalism” 37
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
534 Subject Index national narratives, post-austerity 306–7 national populism 73, 268, 313, 350–1, 421 national protectionism 22, 54–5 National Recovery Administration (NRA) 299 National Socialism 46, 55, 74–5, 135, 196–7, 234, 301, 381, 428, 430–2 as “cult of subservience” 234 as contending mystique 196–7 economists xvi–xvii, 56 economy amounted to “state slavery” 57 favouritism, opportunists and beneficiaries of 46 German professorial elite unequipped to deal with 430–1 Germany 74, 80–1, 353, 416–17 horrors of 429 ideology 357 intimidation 45–6 Jews, policy towards 56, 74–5 liberalism, disrupted exchange of ideas about future of 46 Nazi Party (NSDAP) 74–5, 427–31 period 177–8, 223–4, 405, 416 persecution 45–6 power, seizure of 31, 48, 55–7, 63, 65–6, 429 press, interference in 75 regime 40, 50, 65–6, 211–12, 221, 315 resistance to xvi, 34, 56, 352, 431 university reforms 106 violence of 56 national unifying mythology 28, 264–5, 267–71, 306–7, 309–12, 338, 348, 350 nationalism 2, 41, 80, 132, 155–6, 264, 278 nation-building 254–5 natives and migrants 91–4 “natural aristocracy” 134 naturalism 62, 169–71, 175 nature, mechanization of 58 “negativism, sceptical” 169–70 Negroes 65, 160–1 neo-liberalism 3–4, 6, 24–5, 43–4, 192, 302 neo-Thomists 233–4 Netherlands 220, 235, 252, 260 networking 262–5 Neue Zürcher Zeitung 110, 263, 355 New Deal 23–4, 103–4, 257, 261, 263, 267–8, 270, 272–3, 290–1, 299, 301–2 New Labour, UK 269 New York Times 274–5 news, “fake” 159–60 Newsweek 66–7, 243, 272 nihilism 142, 164–5, 174–5, 213–14, 432 “no liability without control”, principle of 68
Nordic countries, Reformed Protestantism in 252 “nostalgia for community” 60 Nuremberg Institute for the Observation of German Finished Products 357 Obama Presidency 274 OEEC 401–3 OMT programme 407–9 online abuse 441 opposition, unity in 173–5 “order of actions” (Handelnsordnung) 33–4 “order of rules” (Rechtsordnung) 33–4 orders, thinking in 231–2 Ordnungspolitik 35–6, 38, 69–71 Ordo and Catholic social thought 224–9 and religious traces, theological foundations of 210 concept of 224–9 Manifesto 94, 184 Yearbook 9, 29, 33–4, 69–70, 94–5, 111, 223, 263, 326, 350–1 Ordo-liberal tradition xix, 6, 9–10, 13–16, 29–32, 41–2, 57–62, 72, 89, 91–5, 99–100, 103–8, 111–14, 116–20, 122–8, 140, 142–3, 146, 173–4, 176, 178–81, 183–4, 218, 224, 231–2, 253–4 as explicit and as tacit knowledge 105–14 complex and multi-faceted 183 conservative face of 126 critical analysis of 125 family resemblance 91–2, 116–19, 176 historical analysis of authenticity and invention in 120 identity, distinctiveness of 100–1 ideology, role of 126 “inner man” as recurring theme in 143 internal coherence within, problem of 100 invention and reinvention, as process of 13 Lutheran theological epicentre of 224 modern world, ambivalence and pessimism about 62 opponents of 128 paradox, embodiment of 119–20 post-war structural changes unfavourable to 72 public power, emphasis on 105, 253–4 religion played foundational role in 89 selective memorialization of 14 shared features 92 Ordo-liberalism aesthetic attachments within 212 and neo-liberalism 3–4
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 535 Anglo-American critiques of 274–5 Anglo-American economics and 271–2 aristocratic liberalism, conservative liberalism, and 134–40 ascendancy of 12–13 “authoritarian liberalism” 427, 432 Bonhoeffer memorandum 221–3 Catholic theologians 229–31 causal significance of 377–80 central bank independence, monetary reform, and the “monetarist revolution” 387–95 changing fortunes of 158–61 citizenship, model of 99 civil religion 234–7 civilizing and disciplining role of 57 comparative and historical perspective 19 concepts 39 creditor–debtor relations 433 critics, vulnerability to attack from 161, 425 critiques of 6, 67–8 cross-national characteristics 91–2 debt, erected morality myth around 433 eclecticism in 23–4, 92–3, 166, 169, 183, 189, 292, 333–4, 336, 346 economic policy, risks of reducing to morality play 433–4 economics, promoted moral seriousness in 28 Europe and the United States, drew on sources in 246–7 European economic governance 395–405 European political economy, key term in critical analysis of 68 European social state, threat to 68 fear and pessimism recurrent features in 66–7 feminist ideological critique, vulnerable to 425 financial, economic, and sovereign debt crisis 67 German “fixed idea” 102 German politicians cautious in commitment to 38 Germanic phenomenon, reputation as 34 Germany, intellectual capture of 352–6 Great Depression 380–7 humanism 215–16 identity and boundaries of 91–4 identity-building 178–83 ideology 99 institutional appropriation of 365–6 intellectual foundations eroded 254 intellectual roots 129 interest in, growth of 69 laissez-faire capitalism, reference point from which to challenge 70 liberalism, search for new 19
liberalism, shaped by catastrophe of 45 mainstream, notion of 94 marginalization of 413–15 memorializing 34–9 metaphors employed in 86–91, 424–5 modernity, civilizational crisis of 57–62 monetary reform 387–95 monetary thinking 53–4 moral bias 12 morality critics 163–5 morphological approach to characterizing economic order is essential feature of 115 openness to 241–3 orderly market economy, formative role of state in securing 103 Ordolibéralisme 69–71 Ordoliberalismo 69, 71 Ordoliberalismus 69, 71 Organization for European Economic Cooperation 398–9, 401–4 originality, claims to 5 origins and nature of 14 pathologies of market power, focus on 80–1 patriarchy 73–6 patron saints of 129–210 political economy, history of 418–36 post-1945 structural changes 72–3 post-war crises 359–63 post-war economic miracle 377–8 post-war Europe 66–72, 350 predatory elites, essential discipline on 19 principles, failure of German politicians to uphold 37 problem-creating tradition 421–36 problems of 73 problem-solving tradition 419–21 public goods, lacked theory of 434 reception of 245–6 religion in genesis of 216–18 religion, social ethics, and 213–15 religious values in 232–4 rules, consensus about 81–2 significance and relevance of 43, 263–4, 405–10 social ethics and 213–15 “sociological” 93–4, 116–17, 125 Sonderweg, association of 102 “special path” 102 “stability begins at home”, principle of 362 “strong state”, premise of, and stress on 3, 14, 24, 29, 39–41, 45, 48, 53–7, 71–2, 94, 104, 109, 132, 173–4, 230, 253–4, 286, 319–20, 326–7, 358, 416, 419–20, 423, 426, 430–2 term, origin and occurrences in different languages 28–31, 68–71
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
536 Subject Index Ordo-liberalism (cont.) thinking, gaps in 380–7 transformative events in history of 53–7 types 49 vocabulary of 27–8 withering of 356–9, 415–16 Ordo-liberals Anglo-American utilitarianism viewed as inadequate basis for moral philosophy 174 anti-liberal values, encountered widespread 49 Aristotle, embraced scientific realism of 179–80 as authoritarian liberals 425 as critical minority 30 as ethical dogmatists 432 as interventionist thinkers 421 as “single-movement” thinkers 422 as technologists of social control 424 “back to fundamentals” 57 character of 62–6 Classical history and mythology, work littered with references to 50 competition policy, divided on right approach to 372–3 conservative cultural critique of modernity, grounded in 27 cultural effects of Roman Catholic social teaching, ambivalent about 104 cultural, social, economic, and political trends diagnosed as hostile 62 democratization, negative views on 39–40 ethics viewed as essential part of culture 50 historical inevitability of liberalism, dismissive of claims about 4 hostility to 30 intellectual aristocracy, part of 61 intellectual erudition and aesthetic sensibility x–xiii intellectual influences 9, 92–3, 118, 132, 165–9, 187–90, 199, 318, 341–2 intimidation and suffering of 45–6 journalists by profession xvi Lautenbach Plan, reactions to 14 “life-world of 183–4 meaning, search for 50 Methodenstreit 181–3 moral qualities considered essential attributes in governing elites 79 Pragmatism, opposed to 174 “protectionist nationalists”, opposed to 54 self-healing capacity of market economy, placed trust in 359–60 “sociological” 116–17
welfare state, aversion to 125 Ordo-liberals, founding aristocratic liberalism, influence on 134–5 as “authoritarian liberals” 40–1 civilizing mission, self-belief in 130–1 Classical Age and Enlightenment, inspired by 215–16 Classical philosophy and economics, sought to align themselves with 175 criticism, vulnerable to 131 deflation, aware of potential political costs of continuing to support 382 fascist ideas, flirtation with 40 gender blindness of 130–1 Kantianism, influenced by 9 Keynes’ general theory, criticisms of 381 Marxist idea of history, rejection of 174–5 mass democratic politics, disdain for 431–2 moral principles, steadfast in 49 Nazi regime, failure to comprehend and anticipate the evil of 40–1 Nazi regime, generally more in resistance to, than in collaboration with Nazi regime, resistance to 429 Nietzsche and Marxian historical materialism, united in condemnation of 174–5 paternalism of 130–1 perceived aloofness of 131 politically isolated 131 politically naïve regarding danger posed by National Socialists 431–2 preoccupation with social and political theory, characterized by 137 relationship between state and economy, conceptualization of 103–4 religion vital in understanding 210 social origins 130 Switzerland, admiration for 130 Third Reich, relationship with 427–31 utilitarianism and materialism, opposition to 130–1 Wagemann and WTB plans, distanced themselves from 383–4 well-ordered family home, core belief in 130–1 Organisation for European Economic Co-operation (OEEC) 398–9 “organized capitalism” 182 Orleanist tradition and conservative liberalism 148–9 Outright Monetary Transactions (OMT) 361 “outsider”, fear of 73 Padua 337, 346 Paläoliberalismus 3
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 537 papal critique of collectivist economic organization 228 papal encyclicals 227, 229 Paris 43, 145, 149, 302, 432 Commune 149 events of 1968 in 432 parties and party systems 255–7 Partito Liberale Italyo (PLI) 255, 338, 343–4, 346 partitocrazia 345–6 party factionalism 256 party system, fragmentation and polarization in 256, 350–1 paternalism 130–1 patriarchy 73–4, 133, 160–1 as basis of social order 75–6 Ordo-liberalism as 73–6 social model 73 values 72 patriotism 170 patron saints of Ordo-liberalism 129–210 patronage, academic 264–5 patronage, think tanks, and media dissemination 262–3 permissive attitudes 72–3, 159 personalism 117 phenomenology 180 phenomenology and heroism of reason 187–9 German 183–95 “philosopher-economist” 49, 158, 327 “philosopher-lawyer” 49 philosophical anthropology 117, 189–93 philosophical legacies 208–9 philosophy American 151 analytical, shift to 165 Anglo-American 175 Classical Greek and Roman 233 crisis in 178–83 ethical 10, 12, 19–20, 129, 162, 209, 246–7, 251 European 129, 163 French 169 German 152, 170–1 humanistic 52 “life-world” 184–5 metaphysical 62 neo-Kantian 176 of action 171–2 of life 170–2, 176–7, 190 of science 176–7, 195–200 ontological conception of 177 Romantic Movement in 175
physics of relativity 196 Physiocrats 325–6, 341–2 Piedmont 341–3 pillars and foundations of economic order 132–4 Pinay-Rueff committee 331–3 Pinay-Rueff Plan 244–5, 329–32 Poincaré Plan 329 polarization, ideological 312 policy process 280–6 political and market behaviour, dynamism and instability of 54 political demagogues; see demagogues. political economy 195–6 American, conservative liberalism in 266 British, conservative liberalism in 266 Club 285 declining impact of religion on 252–3 distinctive way of thinking about 103–5 ethical foundation of 67 French 308 Italian 308 Keynesian narrative of 270 mainstream philosophy of 251–2 solution to moral problem of 127–8 political elite, social trust in 84–5 political life, trivializing 60–1 “political money” 305 political organization, centralized 27 political parties, modern 27 political science 159 political short-sightedness 85 political symbolism 122 political tyranny 64 political values 132 politicians, German, cautious in commitment to Ordo-liberalism 38 politicians, unscrupulous 22 politics celebrity 159–60 clientelist 312 collectivist 25 demagogic; see demagogues. democratization of 250 identity 2, 73 of fear and hate 2 socially inclusive 48–9 populism 2, 28–9, 73, 242, 264, 268, 306, 308, 313, 335–6, 348, 350–1, 421 Portugal 331–2 positivism 60–1, 339 debate about 195–200 positivist philosophy of science 93–4 spiritual 169–70
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
538 Subject Index post-war corporatist and collectivist political practice 37 crises, Ordo-liberalism and 359–63 division of Europe 53 German reconstruction, role of Ordoliberals in 15 isolation and neglect 324–5 national-unifying mythology, Ordoliberalism in 350 reconstruction and stabilization 340–2 power absolute, doctrine of 173–4 abuse of 64, 80–1 asymmetries 230–1 cartel 50–1 civilian, concept of 364 communist seizures of 53 democratic and market, shackling 20 legitimate when hedged by moral restraints 27–8 market, pathologies of 19, 80–1 private monopoly, hostility to 29 state, centralizing 22 structures 106–12 unelected, conservative liberalism and 81–6 practical ethics 188, 204 pragmatic idealism 169–70 pragmatism 62, 153, 174, 251 press, deficiencies of 152–3 Princeton University 259–60 private and public spheres, distinction between 21–2 privileged capitalist class, emergence of 24 privileged interests used to discredit and jeopardize liberalism 19 proletarian taste and culture 132 “proletarianization” 125, 219, 224 proletariat 72–3, 144–5 Promethean mentality 104–5, 233, 325 “Promethean Mutation” 199–200 Promethean myth 196 “Promethean social order” 233 propaganda, anti-Nazi 138–9 property 23, 90, 136 protectionism 22, 54, 306–7 Protestantism 213–14, 216–21 Reformed 212–15, 218, 220, 235, 252, 450 “providential man” 134 Prussia 40, 220 Prussian Academy of Arts 74–5 psychoanalysis 164–5 psychology, “descriptive” 180 public debt 25, 37, 80–1
public discourse, narrowing 60–1 public expenditure 136 public finance, Gladstonian rules of 281 public opinion 146 public taste 62 public works 283–5 “Puritan virtues” 212 Quadragesimo Anno 223, 227–9 “Raab-Kamitz course” 243–4 race and racism 41, 56, 132, 155–6 radical empiricism 152–3, 180 radical feminist theorists 76 “Reaganomics” 268 realism 62, 179–81, 183–95, 359–63 reason, Cartesian concept of universal 196 reconstruction and stabilization, post-war 340–2 Reformation 39, 50, 185–6, 213–15, 217, 237 refugee and asylum crisis 73, 409 regulative principles 108–9 Reichsbank 84, 182, 380–1, 383, 385–8, 445 relativism 169–70, 188 “crisis of ” 61 ethical 30, 60–1, 72–3, 224 moral 165 reliability 39, 132, 155–6, 252–3 religion civil, conservative liberalism and Ordo-liberalism as 234–7 declining impact on political economy 252–3 in genesis of conservative liberalism and Ordo-liberalism 216–18 in intellectual roots of conservative liberalism and Ordo-liberalism 211 loss of emotional and aesthetic attraction to values imparted by 211 “of money” 295 on the ethical and strategic roles of 211–13 played foundational role in Ordo-liberal tradition 89 social ethics, and Ordo-liberalism 213–15 vital in understanding founding conservative liberals and Ordo-liberals 210 Wars of 196–7 religious belief 12, 19–20 faith and morality, interdependence of 172 fundamentalism 2 heritage 245 metaphysics and ethical activism 185–7 social ethics 10 traces, theological foundations of 210 values, pre-Christian 232–4
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 539 Renaissance 336–7, 340 renewal, “spiritual” 431–2 La Repubblica 346, 348 Republican Party, US 266, 268 Resistance, French 309, 315, 319 respect, values of 133 responsibility, personal 28 Revolution, American 21 Revolution, French 21, 47–8, 50, 60, 62, 90–1, 132, 141–2, 149–50, 311, 314 revolutionary individualism 309 revolutionary syndicalism 149 revolutions and counter-revolutions 53 student 432 Rexist Party 55–6 Reynaud stabilization plan 329 Rheinische Merkur 110 Rhineland 252, 417–18 Ricardians 182 Right ambivalence in attitudes to conservative liberalism 256 national populist, rise of 55, 73 think tanks and magazines 23 rights-based individualism 250 risk-taking and heroism, values of 72–3 Rockefeller oil dynasty 299 “Röhm-Putsch” 79 Roman law ix–x, 6, 253–4 Roman order 196, 215–16 Romantic Movement in philosophy 175 Rome Ancient 21, 150, 196–7, 215–16, 223, 232–3 March on 343 Treaty of 70–1, 331, 351, 369–71, 373–4, 398–400, 404–5 Rothwesten working group 378 rule-based administrative culture 114 rule-based order 83, 293–8, 318–21, 436–41 rule-compliance as indispensable attribute of sustainable liberal order 82–3 rules advocacy of 84–5 as basis of order 105 binding, acceptance of 26 choice, design, and use of 83 credibility of 83 governance according to 20 government within 82–3 guidance of 81–2 monetary, fiscal, and competition policy 85 political function of 82–3 rationale for 81–2
reliance on 81–2 versus discretion, debate about 84 within conservative liberalism and Ordo-liberalism 81–2 Russia 152–3 Bolshevism 53, 66, 90–1 empire, collapse of 53 Revolution 6, 53 Soviet Union 66, 153, 196–7, 217, 223, 352–3, 363, 367–8, 396 “sages of the West” 149–50, 153, 197 sanctions 70, 83, 209, 213–14, 320 Scandinavia 51–2, 220, 235 scepticism 64, 188, 211 Schmollers Jahrbuch 56 Scholasticism 216, 224–30, 233–4, 435 science, philosophy of 93–4, 195–200 “scientific idealism”, Kantian 81 scientific realism 179–80 Scottish Enlightenment 126, 166, 341–2 Second World War 53, 143, 211, 254–5, 267, 277, 309, 318, 356–7 secularization 58, 60, 62, 89, 132, 163, 211, 235–7, 430 Seelisberg 8, 43 self-interest and duty, conflict between 201 self-reliance 39 self-restraint x, 28, 223, 258–9 sexuality 159, 413 Siemens 372, 405–6 Single European Act (1986) 368 single market, European 70, 311, 334–5, 347, 363–4, 368, 374, 378–9 social and cultural order 129–31 social and political studies of Ordo-liberalism 71 social attitudes 72, 249 “social balance” 363 social Catholicism 32–3, 104, 331, 411–12 social conservativism 7, 73 Social Darwinism 290–1 Social Democratic Party (SPD), German 35–7, 182, 255–6, 353–4, 363–4, 367, 377, 405–6 social distress 53–4, 144–5, 289 social divide, deepening 73 social ethics 13, 112, 117, 213–15, 218–21 social inequality 293, 439–40 social insurance provision 22–3 social integration and regulation, mechanisms of 198 social justice 76, 436 social liberalism 2–3, 19, 23–4, 26, 43–4, 48–9, 80, 433–4
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
540 Subject Index social market economy xiii, 28, 35, 37, 110, 122, 189–90, 192–3, 213, 232, 234–5, 298–9, 313, 336–7, 340, 345–6, 352–4, 356, 360, 363, 367–8, 377, 398, 404–5, 434 social media 1, 159–60, 439–41, 444 social mobility, promise of 159 social order, inclusive 125 social order, new liberal 277–80 social partnership and civilian power as national-unifying myths 363–5 social policy eugenic principles in 154–5 interventions 115 reform 256 social problems 115 social provision 76, 91, 323, 327, 437–8, 446–7 social relations and cultural practices, alterations in 159–60 social responsibility 133, 188–9 social sciences, intellectualism in 72–3 social solidarity 7, 15, 23, 28, 50, 58–61, 72, 85–6, 93–4, 96, 103, 116–17, 125, 133–4, 148–9, 170, 173–5, 188–9, 191–2, 214–15, 226–7, 231, 256, 270, 276, 301, 303, 306–7, 309–13, 328–9, 344, 348–9, 372–3, 414–15, 423, 434–6, 439 social stability 133, 408 social status, competition for 72 social structure, “proletarianized” 125 social suffering 131 social, economic, and political life, trivializing 60–1 social-choice theory 305–6 social-democratic welfare state 270 socialism xii, 6, 42, 66, 74–5, 92, 101, 103–5, 118, 132, 138–9, 144–5, 147, 150, 154, 168, 170, 181–2, 185, 188, 192, 210–11, 214–15, 217–18, 224, 226–8, 234, 278–9, 288, 301, 309, 334, 396, 411–12 socialization xi, 59, 102–3, 111, 130, 162, 245, 276 social-liberal critique of the mainstream 51–2 ideological mind-set 315 tradition 103–4 socially mobile elite 72 “socially sensitive capitalism” 117 society commercialization of 339 fragmented and depersonalized 60 solidarism, concept of 226, 251 Sophists 64 sound bites, culture of 159–60 South Africa 160–1
Southern Europe 235 sovereign debt crisis 67–8, 84–5, 258, 438–9 sovereignty 109, 150 Soviet Union 66, 153, 196–7, 217, 223, 352–3, 363, 367–8, 396 command economy 352–3 communism 217, 223 expansionism in Europe 66 policies, hostility to 352 threat 396 Spain 156, 235, 252, 254 specialization 132 spheres, private and the public, distinction between 21–2 spiritual positivism 169–70 “spiritual Reformation” 185–6 “spiritual renewal” 431–2 “spiritual” positivism 185–6 Stability and Growth Pact (SGP) 70–1, 297, 318, 335, 369, 375–6, 395 “stability consciousness” in monetary policy 53–4 “stability culture” 390 stabilization programmes 309, 312–13, 331–3 “stagflation” 264 La Stampa xv, xxix, 341 Stanford University 259–60 state action, principles of 109 and civil society, distinction between 21–2 bureaucratic 132 freedom and 107 intervention 22–5, 48–9, 51, 85, 128, 157, 216–17, 228, 231, 252, 267–8, 272, 316–19, 325, 327, 370–1, 422 power, centralizing 22 “strong”, Ordo-liberal premise of, and stress on 3, 14, 24, 29, 39–41, 45, 48, 53–7, 71–2, 94, 104, 109, 132, 173–4, 230, 253–4, 286, 319–20, 326–7, 358, 416, 419–20, 423, 426, 430–2 “statesmen-economists” 68, 119–20 “stem-family” 133 stoicism 216, 233 student revolutions of the 1960s 432 subjectivism 164–5, 169–70 Sudeten crisis 204 supply-side crisis 124 supply-side policies 36 Swabian housewife, model of 133 Swiss model of monetary and financial discipline 54–5, 109, 133–4, 148
OUP CORRECTED AUTOPAGE PROOFS – FINAL, 21/08/20, SPi
Subject Index 541 Switzerland 9–10, 220, 235, 252 symbolism, political 122 système des principes 82–3 taste and culture 62, 132 inheritance 125, 154–5, 299, 302, 326–7, 337 law 8, 294 progressive 23, 275–6, 296, 302, 446–7 rates 83, 296–7 reform 256, 258, 346–7, 355, 369–70, 376 “termite-state” 8, 358 terrorism 2, 437 texts, key 94–6 Thatcherism 269, 276–7 theology, Catholic 170, 229–31 think tanks 262–5, 411–12 Third Reich 9, 57, 187–8, 352, 427–31 Thirty Years War 50, 217 Thomists 224, 324 Thyssen 405–6 Time and Tide 66–7, 272 time-consistency literature, credibility and 5, 13, 81, 83, 84, 87, 88, 93, 102, 124, 257, 258, 261, 270, 275, 296, 297, 347, 367, 395, 407, 413, 414, 417, 450 torture 45–6, 53, 56 totalitarianism 24–5, 84–5, 318 trade unions xiii–xiv, 27, 226–7, 244, 278, 294, 322–3, 331–2, 353–4, 363–4, 379–81, 383–5, 389, 396, 405–6 transcendentalism 151 transport, intervention in 305–6 Treasury, Italian 341, 344–5 Treasury, UK 77–8, 82, 95, 168, 178, 204–5, 273, 280–3, 286, 306 “Treasury View” 168, 205, 281 Treasury, US 12, 273–4, 306 Trésor 308, 330, 332–4 Trinity College, Cambridge 200 Turin University 346 “two-pillar” monetary strategy 395 tyranny 53, 80–1 tyranny of the majority 132 political 64 threat of 153 tyrannical regimes 53 Uber 372 unemployment 23, 53, 55, 124, 264 United States 5, 9, 14–15, 23, 28–9, 36, 62, 72–3, 95, 156, 158, 235, 262–3 United States American Economics Association 292 American Pragmatism 174, 251
Americanization of economics 259–60, 343–4, 405–7 Calvinist virtues in 220 conservative liberalism in 245–6 cultural and economic influence of 158 economics, hegemon in 259–60 Federal Reserve Bank 84, 306 financial capitalism, international centre of 273 Foundation for Economic Education 272 Harvard School 247 myth of exceptionalism 267–8 myth, national 249 myths, national unifying, search for new 306–7 New Deal 23–4, 103–4, 257, 261, 263, 267–8, 270, 272–3, 290–1, 299, 301–2 Reformed Protestantism in 252 scepticism towards 352–3 think tanks, proliferation of corporate support for 263 Treasury Department 12, 273–4, 306 West’s security, prestige enhanced as ultimate guarantor of 260 universal intrinsic values, conception of 178 universal reason, Cartesian concept of 196 university patronage 262–3 university reforms, Nazi 106 “unlimited democracy” 7, 92, 130, 143, 146–7 Unservile State Group 275–6 urbanization 27, 60, 132, 147, 219, 226 utilitarianism 60–2, 130–1, 148, 153, 169–70, 188, 203, 205, 220, 277–8 values anti-liberal 49 bourgeois 405 Christian and Western 142 civic 276 cognitive 80–1, 132, 153, 155–7 entertainment 159–60 in capitalism, crisis of 170 intrinsic 200–8 Lutheran 450 metropolitan 72 moral and intellectual 129 patriarchal 72 phenomenological description of 194 political 132 pre-capitalist 62 Reformed Protestant 450 universal intrinsic 178 Versailles Treaty 54, 74–5 Vichy Regime 32–3, 41, 155, 315, 324, 328 victimhood, rhetoric of 313