Ludwig Erhard: Creating an Economic Revolution

Anyone living in the mid-1960s, when Ludwig Erhard was chancellor of Germany — more specifically, chancellor of West Germany — would probably have been surprised to hear him mentioned as a ‘revolutionary.’ The fact that he was seen as a representative of the status quo, however, attests to the success of his revolution.

While the public of 1966 might not have viewed Erhard as a revolutionary, the public of 1948 most certainly did.

Erhard radically disassembled the notion of planned economy and the view of the individual as a submissive cog in the machinery of the macroeconomy. In the decades prior to Erhard’s ascendancy, the economic empowerment of the individual was discouraged, as Ulrich Horstmann and Stephan Werhahn write:

Nach der Beendigung des Zweiten Weltkriegs war Ludwig Erhard der entscheidende soziale Revolutionär, der den im planwirtschaftlichen Denken verhafteten Deutschen einen neuen Weg wies. Entschlossen ging er gegen den Untertanengeist vor. Er war in der Spätphase der wilhelminischen Gesellschaft des Deutschen Kaiserreichs, das 1918 endete, und vor allem im nationalsozialistischen Führerstaat (1933–1945) staatsprägend, aber auch in der sogenannten »Ostzone«, nach dem Zweiten Weltkrieg »DDR« (1949–1990). Der Einzelne war zu einem Rädchen im System verdammt. Feigheit und Duckmäusertum wurden anerzogen.

Even before Erhard became the Bundesminister für Wirtschaft in September 1949, he had been radically transforming the German economy. The near-total destruction of the nation’s physical infrastructure, combined with the equally devastated condition of the national economy, created a historical moment known as Stunde Null, a ‘zero hour’ which was a massive rebooting of the financial system.

The Nazi government was not only responsible for the deaths of millions of people, but it had subjected the German people to the injustices of high tax rates, wage controls, price controls, and government ownership of various industrial sectors. Also horrifying was the degree to which commerce and manufacturing were regulated by the Nazi regime.

In this respect, it is worth remember that ‘Nazi’ means “National Socialist.”

Erhard was ‘revolutionary’ in the sense that he did the precise opposite of the National Socialist policies.

Where the Nazis raised taxes, Ludwig Erhard lowered taxes. Where the Nazis controlled wages, Erhard gave freedom to workers and employers to negotiate wages. Where the Nazis controlled prices, Erhard gave liberty to customers and merchants to find mutually acceptable prices. Where the Nazis gave ownership of industries to the government, Erhard gave ordinary citizens a chance to buy shares of companies. Where the Nazis regulated and controlled businesses, Erhard gave them the freedom to experiment with new products and new services.

In mid-1945, Germany held the status of a third-world developing nation. Food supplies kept the population on the brink of starvation — indeed, some people did die of hunger that year. Fresh running water, functioning sanitary sewer systems, bridges, roads, telephones, etc., were very rare.

A decade later, Germany was presented to the world as a Wirtschaftswunder — an economic miracle. By the mid-1950s, Germany was a world leader in manufacturing and exporting. Germany standards of living for ordinary citizens went from the lowest in Europe to the best in Europe.

The economic recovery of Germany — radical, revolutionary, explosive, dramatic, skyrocketing — is due largely, if not exclusively, to the ideas and policies of Ludwig Erhard.

The Emergence of Modern Social Justice: Ludwig Erhard and the Freiburg School

The phrase ‘social justice’ is somewhat ambiguous. Historians are not clear about when, exactly, it was first used. The concepts behind the phrase are even more inexact.

From the times of Plato to the present, much has been written about society and about justice, and about the various possible connections between the two. Various views, even opposing views, have been labelled as ‘social justice’ ideas.

In the twentieth century, a more precise definition of social justice movements is possible. The formative moment seems to have occurred among the members of two groups, the Freiburg Kreis and the Freiburg Schule. The two groups formed in the 1930s in order to oppose Hitler’s National Socialism.

The Freiburg Kreis was a group of anti-Nazi resistance thinkers who wanted to create a vision for how society would be rebuilt in postwar Germany. The Freiburg Schule was a group of anti-Nazi theoretical economists who wanted to lay the financial foundations for a postwar society which would embrace the ideas which the Nazis attacked.

Both groups sought social structures which would honor the value of each human life, protect individual freedom and personal political liberty, and would do so by restricting the government, honoring property rights, and allowing people the ability to make uninhibited economic decisions.

The ideas of the two Freiburg groups would find application largely in the policies of Ludwig Erhard, an academic economist who was a member of neither group but friendly with both. As Minister for Economic Affairs, he supervised the recovery of Germany after World War II.

Erhard was in contact with, and influenced by, a number of thinkers from the two groups, as Alfred Mierzejewski writes:

We can say the same thing about the influence of other members of the loose Freiburg school. Erhard was aware of the ideas of Franz Böhm, a lawyer who published an important book calling for the dismantling of cartels in 1933. He met Alfred Müller-Armack, an advocate of free markets supervised by the government early in the war. However, it is unlikely that Müller-Armack influenced him, at least at this stage. Müller-Armack was a Christian reformer, which Erhard was not, who saw the market as a tool that could be used to achieve goals shaped by Christian ideas of social justice.

When the war ended in May 1945, Germany was physically shattered: infrastructure of all types was almost completely lacking: telephones, roads, bridges, electrical power, sewage, water supply pipelines, etc. Food and clothing were scarce, and some people even died from starvation.

Beyond the material damage, of course, millions of German had died on battlefields, in cities subject to aerial bombardment, and in concentration camps. The survivors had been subjected to twelve years of Nazi economic terror: the meaning of the word ‘Nazi’ is ‘National Socialist.’

If any nation needed social justice, it was postwar Germany. Erhard and the thinkers of Freiburg understood how to create social justice, as Mierzejewski reports:

A freely functioning price system, a marketplace in which neither the government nor private interests set prices, alone made it possible for growth and social justice to be achieved.

The National Socialists had imposed governmental wage and price controls; Ludwig Erhard opposed them with the freedom of individuals and groups to negotiate prices and wages.

In the face of National Socialist high tax rates, Erhard cut taxes.

Where Hitler’s National Socialist had forced the state ownership of various industries and businesses, Erhard allowed for individuals to collectively and freely purchase stock and ownership of companies.

Erhard’s political allies were in two postwar political parties, the CDU and the FDP. In 1949, a document was written to express Erhard’s ideals, which had already begun to have a healing effect on the nation:

The program, which became famous as the Düsseldorf Principles, stated that the goal of CDU economic policy was a free people living in an order that promised a maximum of economic utility and social justice with safeguards for the weak.

While the phrase ‘social justice’ has been used over the centuries in a broad and general way, this phrase in its more precise and specific sense obtained its concrete meaning in the 1930s in Freiburg. This definitive meaning of ‘social justice’ lasted up through the 1960s, when Germany had largely recovered, and had shaken off the trauma which the National Socialists had inflicted upon it.

After the era of Ludwig Erhard, the phrase ‘social justice’ once again became diffuse. It continues to be used, but in a confused and ambiguous way, which robs it of a clear definition.

The Freiburger Schule, the Freiburger Kreis, and Ludwig Erhard constitute most crystalized and definite instance of social justice in both theory and application.

Ludwig Erhard, the Perpetual Pioneer: An Economic Loner

The economic thoughts which eventually made Ludwig Erhard famous, and which eventually gave birth to Germany’s meteoric rebirth as a free nation after World War II, were shaped in the stressful and dangerous days of the late 1930s and early 1940s.

After the Nazis perpetrated the pogrom of November 1938, it became clear that an organized resistance was necessary. Individuals associated, directly or indirectly, with the University of Freiburg in southwest Germany organized themselves into two groups: the Freiburger Kreis and the Freiburger Schule. The Freiburger Schule was primarily an economic group. Its members advocated a view called Ordoliberalismus. The economist Walter Eucken was a leading theorist in the group. Opposing the Nazi government’s direct intervention into the economy, the Freiburger Schule saw the government’s proper role as ensuring an unbiased neutrality in the marketplace.

Mindful of the fact that ‘Nazi’ means ‘National Socialist,’ Eucken and the others rejected Hitler’s economic practices: the Nazis had raised taxes, rigidly controlled wages and retail prices, and instituted government ownership of businesses.

An enthusiastic proponent of anti-Nazi economic theories, Ludwig Erhard knew and associated with many members of the Freiburger Schule. Yet he declined to become an active member of the group. Alfred Mierzejewski analyzes this somewhat paradoxical aspect of Erhard’s character:

Erhard viewed himself as an independent advocate of a set of ideas, an ideal, that he thought was best both for his homeland and the world. Although he did not develop the major components of these ideas himself, he was not beholden to those who had. One of the key features of his personality was his independence. This shaped his relationship with other economists.

The Freiburger Kreis had several members in common with the Freiburger Schule, Walter Eucken among them. The Freiburger Kreis had a more explicitly spiritual emphasis: it saw opposition to the National Socialists as a Christian duty.

Loosely networked with other anti-Nazi groups like the Bekennende Kirche, the Freiburger Kreis deliberately rejected the inhumanity, pride, hubris, racism, power claims, misuse of power, and leader worship of the National Socialists. It most adamantly rejected the Nazi’s attempts to disguise themselves as Christians.

Such opposition to the National Socialists was dangerous, and members of the group were arrested; some were murdered. Ludwig Erhard placed himself into danger by associating with members of the group and by espousing their views.

Yet Erhard again did not clearly join the group, despite his passionate advocacy of its views. He embraced the group’s ecumenical model, in which Lutherans, Catholics, and other types of Christians united and worked together to oppose the murderous horror of National Socialism.

Although he faced the risks entailed by his anti-Nazi views, Ludwig Erhard did so often alone. Alfred Mierzejewski reflects on Erhard’s autonomous nature:

Erhard was not a member of any economic school, certainly not that in Freiburg which had gathered around Walter Eucken. He admired Eucken’s ideas, but was temperamentally much too individualistic to consider himself a follower of that clearheaded thinker. Erhard was not a joiner, not, in the English tradition, a “party man.” He was not a member of any professional group or of any interest representation. He advocated consumer interests out of conviction, mindful of the fact that everyone is a consumer.

The Freiburger Kreis is often cited in the plural - the Freiburger Kreise - because it had two subgroups: one group worked on a Denkschrift, a document about the organization of postwar German society, replacing the National Socialists strict control with a Gewissensfreiheit and the liberty of each individual to worship and express faith in a variety of ways.

In stirring words, the document described power as a ‘demon’ and explained that the right to oppose and resist governments was both a Christian right and a Christian duty.

The other subgroup worked on a more specifically economic plan for the postwar era. They proceeded from the assumption that Germany would lose the war. This assumption alone would be enough reason for the National Socialists to murder anyone associated with the group.

The economic subgroup wrote of the need to replace the Nazi’s planned economy with a market economy. Again, Ludwig Erhard agreed strongly with the group, yet did not officially become a part of it.

When the war ended in May 1945, the work of the Freiburger Kreis and the Freiburger Schule came into the spotlight. Over the next decade, these thoughts would decisively shape postwar Germany. The economic principles of a market economy, and the spiritual principles of defending the value of each human life by empowering personal political liberty against the government, would transform the nation from a psychologically defeated and physically destroyed country into a world leader.

Ironically, the individual who played the greatest role of transforming the Freiburg principles from thought into action was the same individual who stubbornly refused to join the groups, despite his heartfelt embrace of their principles: Ludwig Erhard.

The Nazis had attacked the Christian ideals of the groups. The Nazis were gone, but those ideals endured: dedication to equality, personal freedom, humaneness, individual political liberty, service to one’s neighbor, and an opposition to government power.

Postwar Germany epitomized both the power of the market economy to repair a devastated land and the power of a spiritual commitment to honor the dignity and value of each human life. Ludwig Erhard and the groups from Freiburg gave the postwar world a chance to regain honor.

Ludwig Erhard and Postwar Germany: Free Markets Promote Human Welfare

By mid 1945, Germany was in the condition of a third-world nation. Its infrastructure had been physically destroyed by the war, millions of young men had died in battle, civilians had died in aerial bombing attacks, and innocent people had been murdered in concentration camps. The country was decimated physically, psychologically, politically, and economically.

Millions of families were homeless. There were shortages of clothing, paper, electricity, fuel, clean water, and nearly everything else. The food supply was on the very brink of a mass famine, and in fact, some people did die from pure starvation.

What partially contributed to creating these conditions, and what was solely responsible for keeping these conditions in place, were the brutal economic policies of Hitler’s National Socialist government. Nazi economics oppressed the ordinary people and kept them in poverty.

What were the policies which the Nazis used to brutalize the population? High rates of taxation; prices for retail goods set and enforced by the government; wages set and enforced by the government; government-organized monopolistic ‘cartels’ of industrial firms; and an ever increasing number of state-owned businesses and institutions gradually replacing private-sector businesses and institutions.

These measures, taken by Hitler’s government, flowed organically from Nazi ideology: The word ‘Nazi’ means ‘National Socialist.’

When the war ended in May 1945, the National Socialists, their government, and their policies were gone, but the damage remained. How could Germany recover? How would it rise above its third-world condition?

Although there were many people involved in re-thinking the nation’s economy, and millions of people involved in re-building it, a few key individuals provided a powerful vision to lead the effort. Chief among them was Ludwig Erhard.

One aspect of Erhard’s logic was simple and obvious: undo what the Nazis had done. Where the Nazis had wage and price controls, Erhard opted for free choice by individuals to negotiate. Where the Nazis had high taxes, Erhard opted for low taxes. Where the Nazis had monopolistic cartels, Erhard freed the businesses to act independently of each other, to compete, and thereby to offer better products at lower prices. Where the Nazis favored government-owned industries, schools, and businesses, Erhard allowed for private-sector ownership of businesses and institutions.

The effects of Erhard’s policies were significant and immediate. Wages and standards of living rose quickly, and rose most for the lower- and working-class. Low taxes and unregulated free markets offered opportunities for the unemployed and for blue-collar workers. Alexander Kluy, writing in the Frankfurter Rundschau, notes:

Friedrich von Hayek, de[r] Theoretiker einer radikal freien Marktwirtschaft, soll ihn einmal nach seinem Konzept gefragt haben und berichtete, dass Erhard antwortete: “Ich hoffe, Sie missverstehen mich nicht, wenn ich von der sozialen Marktwirtschaft spreche. Ich meine, dass der Markt an sich sozial ist, nicht dass er sozial gemacht werden muss.” Erhard konkretisierte diesen Gedanken: “Je freier die Wirtschaft, umso sozialer ist sie auch.”

The creation of equal opportunity is intrinsic to a market economy. Equal opportunity inherently favors the lower classes, inasmuch as the upper classes don’t need opportunities, having already had theirs.

Erhard saw that a free market economy would create prosperity for all social classes. When buying, selling, and hiring were continuously happening in millions of individual decisions, with individually negotiated prices, wealth circulated more freely to various parts of the economy.

Oddly, the western Allies (England, France, and the United States) at first wanted to keep West Germany under a continuation of Nazi policies. Erhard had to convince not only his own fellow Germans to adopt freer policies, but he also had to convince the occupational governors.

Regulations, and government-dictated wages and prices, kept wealth from flowing through different sectors of the economy. Erhard worked with great focus to increase every aspect of economic freedom, as Alexander Kluy reports:

Nur der Markt könne den Wohlstand gerecht verteilen. Dies war der freiheitliche Grundgedanke, den er mit enormer Energie und unbändigem Optimismus zwischen 1946 und 1949 gegen Widerstände von allen Seiten durchfocht, selbst gegen die Alliierten, die sämtlich lieber eine gelenkte Volkswirtschaft gesehen hätten als eine Umsetzung von Erhards Vision, seinem Glauben an freies Unternehmertum und Deregulation und seine Ablehnung von Planung und wettbewerbsfeindlicher Kartelle.

The results of Erhard’s policies – he was appointed minister of economics by Germany’s first postwar chancellor, Konrad Adenauer – were so profound that they were called the Wirtschaftswunder - the ‘economic miracle.’

It is no exaggeration to say that, at its worst, Germany’s status was that of a third-world nation. From late 1945 until early 1948, Germany’s economy and standards of living could have quite accurately been compared to some of the most desperate regions of Africa, Asia, and South America.

Ludwig Erhard was began implementing his policies in late 1948 and early 1949. Within a decade, Germany’s economy had risen to be one of the top five in the world. It was a major exporter and importer. Its working class enjoyed a high and ascending standard of living. Ironically, Germany’s economy surpassed those of England and France.

Erhard demonstrated that a free market not only creates prosperity, but it does so with a sense of justice for the blue-collar workers of the middle and lower classes.

Morphemes in Kafka: The Guilt Particle

The standard reception of Kafka notes the theme of guilt and debt. The German noun Schuld denotes both financial debt and moral guilt. Kafka develops this theme both with Biblical allusions and with personal psychology.

While Schuld is a standalone noun, it is also a morpheme in compound words. These occurrences of Schuld are not always obvious in an English translation.

The text of Die Verwandlung is relatively short, yet it contains several instances of this morpheme. Early in the narrative, Gregor Samsa is laying in bed, thinking to himself:

Nun, die Hoffnung ist noch nicht gänzlich aufgegeben; habe ich einmal das Geld beisammen, um die Schuld der Eltern an ihn abzuzahlen – es dürfte noch fünf bis sechs Jahre dauern – , mache ich die Sache unbedingt.

In this first use of the word, Kafka shows two aspects of Schuld: It is hereditary, and it is his to pay. The connection to the Biblical concept of original sin is unmistakable.

The morpheme appears a second time, as Gregor ponders the humiliation he experiences when his employer sends someone important to inquire about his absence, instead of sending merely an errand boy:

Genügte es wirklich nicht, einen Lehrjungen nachfragen zu lassen – wenn überhaupt diese Fragerei nötig war – , mußte da der Prokurist selbst kommen, und mußte dadurch der ganzen unschuldigen Familie gezeigt werden, daß die Untersuchung dieser verdächtigen Angelegenheit nur dem Verstand des Prokuristen anvertraut werden konnte?

Here, the qualities of the guilt are reversed: the family is unschuldig, and should be protected in this state. Gregor has so internalized the inherited guilt that he sees the family, who transmitted the guilt to him, as guiltless. If the family is innocent, then perhaps Gregor has become the source of guilt.

A question presents itself about the distinction between being guilty, and being perceived as guilty.

Gregor’s father says that the man from Gregor’s employer wants to enter the room and speak with Gregor personally. To dispel any hesitance of Gregor’s part, the father indicates that the man would certainly overlook any disorder in the room:

Er wird die Unordnung im Zimmer zu entschuldigen schon die Güte haben.

To ‘overlook’ the clutter in the room is to ‘de-guilt’ it: entschuldigen.

Analyzing his family’s actions, he likewise ‘de-guilts’ their behavior, because it’s caused by ‘uncertainty.’ To ‘excuse’ is again to ‘de-guilt’:

Aber es war eben die Ungewißheit, welche die anderen bedrängte und ihr Benehmen entschuldigte.

Once again the family is the locus of guilt, and they need to be ‘de-guilted.’

Gregor’s sister harbors dreams of studying, and when Gregor mentions the topic, which his parents don’t like, he proceeds to defend himself by saying that his comment was guiltless:

Öfters während der kurzen Aufenthalte Gregors in der Stadt wurde in den Gesprächen mit der Schwester das Konservatorium erwähnt, aber immer nur als schöner Traum, an dessen Verwirklichung nicht zu denken war, und die Eltern hörten nicht einmal diese unschuldigen Erwähnungen gern; aber Gregor dachte sehr bestimmt daran und beabsichtigte, es am Weihnachtsabend feierlich zu erklären.

With the next instance of the word, Gregor’s thoughts have come full circle, and the parents are again the locus of guilt. The focus is sharper this time, and the father is the specific bearer of guilt.

This corresponds both to Kafka’s own problematic relationship with his father, and to the classic formulations of original sin, which focus on Adam rather than Eve.

Eigentlich hätte er ja mit diesen überschüssigen Geldern die Schuld des Vaters gegenüber dem Chef weiter abgetragen haben können, und jener Tag, an dem er diesen Posten hätte loswerden können, wäre weit näher gewesen, aber jetzt war es zweifellos besser so, wie es der Vater eingerichtet hatte.

Kafka’s concept of guilt is fluid and ubiquitous. Fluid, inasmuch as source or focus of the guilt seems to alternate between Gregor and his parents. Ubiquitous, inasmuch as it seems to eventually involve everyone everywhere.

When Gregor sees himself as the bearer of guilt, his neurotic imagination hypothesizes that this would perhaps kill his mother:

Gregor war nun von der Mutter abgeschlossen, die durch seine Schuld vielleicht dem Tode nahe war.

Gregor is not the only one thinking about guilt. Gregor seems to have long feared the contents of his father’s thought. The father makes his opinion about Gregor explicit: the father attributes guilt to Gregor.

Gregor war es klar, daß der Vater Gretes allzu kurze Mitteilung schlecht gedeutet hatte und annahm, daß Gregor sich irgendeine Gewalttat habe zuschulden kommen lassen.

Gregor describes the father’s attitude toward the lodgers: he owes them respect. Because ‘guilt’ and ‘debt’ are both Schuld, to ‘owe’ something is the verb schulden.

The three lodgers, with their significant full beards, may be symbols for Judaism. Kafka’s relationship to Judaism was complex. Like the lodgers, Judaism was in Kafka’s environment, in his family. Yet, like the lodgers and their aloof behavior, Judaism remained just out of Kafka’s grasp, un-internalized.

Just as Gregor’s father ‘owes’ respect to the lodgers, Kafka’s fathered owed respect to Judaism. Kafka was disappointed that his father was not pious or observant; he was disappointed that his father hadn’t done a more thorough job of passing this spiritual heritage on to his son.

Der Vater schien wieder von seinem Eigensinn derartig ergriffen, daß er jeden Respekt vergaß, den er seinen Mietern immerhin schuldete.

The final instance of the Schuld morpheme is at the end of the story. Gregor is dead, and family has decided to take a day off, and go outdoors for some recreation.

The father, mother, and sister each write a letter of excuse to their respective employers. A ‘letter of excuse’ is ‘de-guilting letter’:

Und so setzten sie sich zum Tisch und schrieben drei Entschuldigungsbriefe, Herr Samsa an seine Direktion, Frau Samsa an ihren Auftraggeber, und Grete an ihren Prinzipal.

These ten occurrences of the Schuld morpheme are located throughout the narrative, and support the standard reading of Die Verwandlung. Moral guilt, often symbolized by financial debt, remains a principal theme in the text.