Ludwig Erhard’s Soziale Marktwirtschaft — Why Is It Ignored Today?

Economics, properly pursued, is a complex discipline built around equations and graphs. Economic policy, by contrast, is a political pursuit, and therefore a media pursuit, built around perceptions and emotions. It is therefore unsurprising that misperceptions abound.

While there is a temptation to place all the blame on the public, because of its impatience with the dry academic calculations which are sometimes a part of economics, one can excuse some of the public’s ignorance on messaging it receives from political leaders, the news media, and academia.

Recent surveys in the Federal Republic of Germany indicate that the average citizen is not clear, or misinformed, about the differences and similarities between a freie Marktwirtschaft and a soziale Marktwirtschaft. To be sure, these contrasts and comparisons are sometimes subtle and not easy to articulate.

Likewise, the difference between sozial and sozialistisch is intuitively clear in most cases, and yet many Germans can’t give a precise conceptual definition when asked about this difference.

Given the tenuous information on these words and concepts, it is no surprise that the public offers some quirky results to pollsters, as Martin Zeil writes:

Glaubt man jüngsten Umfragen, so haben nur noch weniger als die Hälfte der Bundesbürger eine gute Meinung von der Sozialen Marktwirtschaft. Auf dem Höhepunkt der Weltwirtschaftskrise 2008/2009 waren es sogar bisweilen nur noch ein Drittel. Das Wort »Neoliberalismus« ist zum negativen Kampfbegriff in der politischen Auseinandersetzung geworden und wird dabei mit »sozialer Kälte« und »schrankenlosem Kapitalismuslraquo; gleichgesetzt. Unsere Gesellschaft, unsere Wirtschaftsordnung werden von vielen als »zu wenig gerecht,« als »nicht mehr sozial« empfunden. Vor diesem Hintergrund finden gesetzliche Eingriffe wie Mindestlöhne, Mietpreisbremse oder kostspielige Zusatzbelastungen künftiger Generationen wie Mütterrente oder Rente mit 63 in Umfragen Zustimmungsquoten von über 70%.

Some clarifications may help to clarify the muddying thinking: The difference between a freie Marktwirtschaft and a soziale Marktwirtschaft are not as great as may be supposed. The distinction is more about the perspective than about the reality of the macroeconomy. The freie Marktwirtschaft views this particular type of economy from the perspective of its process — what happens in the economy. The soziale Marktwirtschaft views this economy from the perspective of its results — which outcomes does this economy produce?

Scholars return repeatedly to these words from Ludwig Erhard:

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’s meaning is that a market economy, as opposed to a command economy or a planned economy, is inherently sozial — its very nature causes it to act in accord with the intuitive concepts of social justice. In order to maximize profits, producers and retailers are constantly competing with each other to offer more and better products at lower prices: raising the standards of living for the working classes.

As a corollary to this principle, Erhard adds:

Je freier die Wirtschaft, umso sozialer ist sie auch.

Quantified and graphed on a cartesian plane, economic liberty and social justice increase along the same curve. It would be a complicated task to quantify liberty and justice, of course; it may even be impossible. In any case, however, the direct correlation holds.

Summarizing Ludwig Erhard’s thoughts, Alexander Kluy writes:

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.

Erhard’s thoughts were more than abstractions and hypotheses: In the postwar decades, measurable and observable economic indicators moved in ways which benefited the working class. The journey from Stunde Null to Wirtschaftswunder was the real-world application of Erhard’s imperatives. Lowering tax rates, deregulating commerce, and privatizing industries took bluecollar Germans from the brink of starvation in mid-1945 to higher standards of living than their European neighbors a decade later.

Both educational institutions and the media have quietly set serious economic thoughts aside. If more were known about Ludwig Erhard and his achievements, it is probable that the public would react more favorably to words like Marktwirtschaft.

Searching for a More Durable Form of Democracy: Building a Freedom-Based Postwar Society

After 1945, the immediate challenge for Germany was to rebuild its physical infrastructure, its economy, and its manufacturing base — almost all of which had been thoroughly destroyed during the last year of the war.

A long-term goal was to rebuild German society. A generation of young people had been shaped by an ideology which demanded total obedience to the government: an ideology which taught citizens gladly to be controlled by the government, even to seek the government’s control over them.

The Germans needed to rebuild the concept of liberty.

Ludwig Erhard was instrumental in expanding freedom in postwar Germany. Erhard avoided partisan loyalties as much as possible: even through political parties like the CSU, CDU, and FDP sought him, he delayed party membership for years, as historian Hans Jörg Hennecke writes:

In March 1948, at the suggestion of the CDU and FDP – and despite the resistance of the SPD – Erhard was elected director of the Economic Council of the Bizone (as the combined American and British zones of occupation were called) with a small but significant majority. In this role, Erhard not only oversaw the long-planned currency reform of 20 June 1948, but also introduced market-oriented economic reform when – literally overnight – he abolished price controls on a wide range of goods.

From that point, Germany began to move into its famous Wirtschaftswunder phase, years during which economic liberty enjoyed a powerful synergy with social and political liberty. Civil rights and prosperity developed in a virtuous cycle, each encouraging the other, and bringing democracy and financial stability to postwar Germany.

Yet danger still lurked. How is it that, people who enjoy the fruit of political liberty and experience a flourishing of justice such as Germany had in the 1950s, can yet be lured away into the confines of an anti-democratic government? This problem confronts any truly free society.

Economist Joseph Schumpeter, an influential economist who pre-dated Ludwig Erhard by several years, “had suggested in 1942 that free market capitalism and democracy sow the seeds of their own destruction,” in the words of historian Alfred Mierzejewski.

Schumpeter meant that when people become used to prosperity, they are less tolerant of the occasional economic crash, which is part of the natural cycle of the macroeconomy resetting itself as it seeks equilibrium. Accustomed to prosperity, people tend to see small problems as big problems, because the big problems have gone away. Intolerant of small problems, they embrace government intervention into the economy as a way to fix these problems: but in reality, such intervention will dismantle the free market which produced prosperity, and much larger problems will result.

In the comfort of prosperity, citizens forget that high taxes, price controls, and wage controls are not creative instruments for adjusting the economy and addressing problems, but rather that they are the sources of large-scale human misery, as Mierzejewski explains:

People become so accustomed to the rewards of the free market that they come to take them for granted and then abuse them, ultimately putting them at risk. Similarly, people disdain political freedom and turn to authoritarian government to pursue mirages such as economic equality and social justice. The result is dictatorship and poverty, or, as another liberal economist put it, serfdom.

The use of the word ‘serfdom’ is an allusion to economist Friedrich Hayek, winner of the Nobel Prize, and author of a book titled The Road to Serfdom.

The lesson which must be learned and relearned is this: that a planned economy or a command economy solves no problems and simply creates worse problems — wage controls, price controls, and high taxes generate only human suffering, and that this economic suffering leads inevitably to social suffering. Any successful democracy which produces justice and a humane society can only be the result of a free market.

Diversity Among Germans: The Germans Under the Microscope

If one travels around Germany — and even more, if one travels around the German-speaking regions of the world — remarkable differences will reveal that it is truly difficult to make generalizations about the “Germans” and their ways of life.

In terms of language, the differences between local dialects spoken in Flensburg in the North and Klagenfurt in the South are so great that they are mutually unintelligible. In this way, Germans are by far more diverse than Americans.

The differences between rural Germans and urban Germans is likewise pronounced. Life in the center of Berlin or Hamburg is significantly different from life in a remote and small village in Sachsen or in Baden-Württemberg.

As authors Uwe Oster, Paul Widergren, and Carol Gratton write:

What do we see if we examine the “Germans” under a microscope — a caricature of a German warrior wearing a helmet, full beard, and sword? No, it’s not that simple. “Germans,” in a sense, do not exist. The various people who live in Germany are as diverse as the many different German landscapes which run from the Alps to the North Sea.

It is natural to make generalizations about nations and ethnic groups. But in the case of Germans, as with many other groups, it is usually inaccurate to do so. Under careful examination, most generalizations fall apart.

It is possible to report extensively about any nation, including the Germans, and to do so in an informative and factual manner: this is done by specific and concrete descriptions of what some people do, and resisting the urge to make sweeping statements.

The Death of Friedrich Schiller: Romanticism, Enlightenment, and Idealism

The history of literature is ever plagued by ambiguities, especially when it tries to sort various authors into various movements, schools, and eras. The roots of imprecision are necessarily rooted deeply in the method of sorting authors into these types of groupings, because the groupings themselves are constructs: they are generalizations made after the fact, and subject to a necessary amount of inexactness.

In discussing the career of Friedrich Schiller, and in describing the influences in his environment, some scholars use a bewildering flurry of terminology, including: Romanticism, pre-Romanticism, proto-Romanticism, Classicism, neoClassicism, Sturm und Drang, Weimar Classicism, and Enlightenment.

Each of those words is alleged to describe some literary trend. Yet when examined carefully, the ambiguities and indistinctnesses multiply. Where do the boundaries of these groupings fall? Which characteristics are defining for these groups? Do these movements overlap each other, include each other, or exclude each other?

There is a clear distinction in methodology: one can compare and contrast two texts, examining the observable concrete details of each, or one can compare and contrast two constructs, muddling through ever more ambiguous generalizations. One can compare and contrast Herder’s Christliche Schriften with Goethe’s Dichtung und Wahrheit, or one can attempt to compare and contrast Weimar Classicism with the Enlightenment. The former can yield well-articulated conclusions, which, even if false, nonetheless have clear content, while the latter will produce merely increasingly vague generalizations about generalizations.

Two scholars, Julius Maria Roth and Paul Schulmeister, describe the death of Friedrich Schiller:

Als Friedrich Schiller (1759-1805) mit nur 46 Jahren in Weimar verstarb, waren die Ärzte, die für die Obduktion des Dichters zuständig waren, höchst verwundert — vor allem darüber, »wie der arme Mann so lange hat leben können«. Seine Lunge hatte sich fast aufgelöst und war mit den verknöcherten Rippen und dem Herz verwachsen; das Herz selbst war laut medizinischem Bericht ein »leerer Beutel«, fast ohne Muskelgewebe; ähnliche Befunde lieferten Niere, Milz und Gedärme. Woher hatte Schiller überhaupt die Energie, zu schreiben, genommen? Die Antwort lässt er seinen Wallenstein geben: »Es ist der Geist, der sich den Körper baut.«

Note the transition from precise concrete details to generalized constructs as these same two scholars continue, in their next paragraph:

In der Aufklärung rückten vor allem die erzieherischen und selbsterzieherischen Aspekte in den Vordergrund: Die Distanzierung von den Affekten und leiblichen Dringlichkeiten, von Naturzwängen und Trieben wurden als Emanzipation verstanden. Die Freiheit des Geistes sollte in jedem entfacht werden und ihn zu einem mündigen Bürger machen. Schiller ist der leibhaftige Beweis, dass es sich dabei um mehr als nur leere Worte und windige Ideen handelt.

It is not merely the use of abstractions which characterizes the second paragraph, but rather the exclusive use of abstractions, and specifically abstractions which have no clear method of verifiability. The second paragraph probably contains some specific meanings, but a great deal of interpretation would be necessary to distill those meanings and to relate them to any observable or concrete phenomena — even the phenomena found in a literary text.

Abstractions can be used in salutary ways, and are not to be banished from all writing. But abstractions carry more meaning, and carry it better, when connected to concrete features of a text or of a historical event.

A grammatical analysis might reveal features in Schiller’s texts: how often verbs are used in the imperative mood; how often in the passive voice. A semantic analysis might reveal how often concrete nouns are used in comparison to abstract nouns; how often the subject of a sentence is specified; how often the metrical structure of a poem is maintained or violated.

It requires a great deal of self-discipline for a scholar to confine herself or himself to the concrete details of a text or the concrete details of an author’s historical context. The generalizations of constructs about movements and genres is ever enticing and seductive.

The Temptation to Dismiss Humanity: Sophie Scholl Wrestles with Despair

As an individual with an extraordinary level of dedication and commitment to a just cause, Sophie Scholl observed with great disappointment how easily and how frequently many people failed to be compassionate or loyal to their fellow human beings, and how they succumbed to the temptation to undertake unethical actions which benefitted themselves even if at the cost of others.

Sophie was understandably tempted at times to dismiss as hopeless the entire human race.

Fritz Hartnagel was Sophie’s fiance. She wrote to him in a letter dated May 29, 1940:

Ich könnte heulen, wie gemein die Menschen auch in der großen Politik sind, wie sie ihren Bruder verraten um eines Vorteils willen vielleicht. Könnte einem da nicht manchmal der Mut vergehen? Oft wünsche ich mir nichts, als auf einer Robinson-Crusoe-Insel zu leben.

Hartnagel was an officer in the army, and passionate supporter of the same resistance movement that Sophie served. He used his position as an insider in the military to aid the resistance secretly. He and Sophie shared their thoughts deeply and frequently, speaking in person, and writing when apart.

He’d joined the army in 1936, and remained in the army until the war’s end, surrendering in April 1945, more than two years after Sophie’s execution at the hands of the National Socialists.

Sophie points out that it is difficult, perhaps impossible, to live in society and not be affected by the exploitation which people habitually inflict on one another. She sees that much of the time, many people regard everyone and everything primarily as potential instruments for their own advancement. People are seen as instruments.

This objectification — some might use the word ‘othering’ — of people is a primary evil, from which secondary evils can arise.

The ‘othering’ here is not based on a variable about the person being made into an instrument — i.e., is not based on the usual socio-demographic variables of skin color, ethnicity, etc. — This is a different type, a more elemental type of othering, based purely on the fact that the other can be used to one’s advantage. In this type of othering, the other might be quite similar to the self, across all those variables, and yet be objectified; while someone quite different by those same metrics might be left in peace.

So ubiquitous is this tendency to see others as mere instruments that Sophie ponders the possibility that one would need to be “bad in order to remain alive,” that this evil corrupts all who live in society — hence to previous musing about living alone on a desert island.

Manchmal bin ich versucht, die Menschheit als eine Hautkrankheit der Erde zu betrachten. Aber nur manchmal, wenn ich sehr müde bin, und die Menschen so groß vor mir stehen, die schlimmer als Tiere sind. Aber im Grunde kommt es ja nur darauf an, ob wir bestehen, ob wir uns halten können in der Masse, die nach nichts anderem als nach Nutzen trachtet. Denen, um ihr Ziel zu erreichen, jedes Mittel recht ist. Diese Masse ist so überwältigend, und man muß schon schlecht sein, um überhaupt am Leben zu bleiben. Wahrscheinlich hat es bisher nur ein Mensch fertig gebracht, ganz gerade den Weg zu Gott zu gehen. Aber wer sucht den heute noch?

Yet Sophie sees that her view of humanity is so negative especially when she is especially tired, and especially when she is surrounded by the very worst of people.

Presumably — she does not quite explicitly state it — at other times, she is able to have a more merciful view of humanity: not ignoring or excusing its evil, but rather to note that each person’s mission is to be “on the way to God,” and that people make indirect routes with detours.

The challenge for Sophie, and for all people, is to have no illusions about the grave evil which is afoot in the world, and yet at the same time not to give up on the human race: not to dismiss humanity as hopelessly corrupt. One meets this challenge by being “on the way to God” in one’s own imperfect manner.

Sophie Scholl Blends Theory and Practice: Grappling with Eternity

A little more than a month prior to her death — prior to her brutal execution at the hands of the National Socialist government — Sophie Scholl already understood well the risks and dangers in her life. She faced them directly in her thinking.

As an active member of a resistance movement, Sophie could not engage in spiritual thoughts either as a purely intellectual exercise or as simply maintaining a familial or cultural tradition. In her environment, good and evil were concrete and specific factors in daily decisions; the intersection of life and death was never far away.

So it was that she, in journal entries probably intended only for her own eyes, could choose not to be drawn into long threads of speculative thought. Her extensive education made her well aware of historical debates about topics like ‘predestination’ and ‘foreknowledge’ and their complexities.

Sophie Scholl chose, however, to avoid the debate, and for the sake of practical action, to embrace the mystery. ‘Mystery’ and ‘practical’ may seem like odd partners. Yet accepting mystery frees the agent from complex argumentation — frees the human to act with full agency.

So it was that, on January 12, 1943, she wrote:

Die Prädestination und der freie Wille, diese beiden anscheinend nicht vereinbaren Gegensätze — jetzt machen sie mir eigentlich nicht mehr viele Schmerzen, obwohl ich sie so wenig erklären kann wie vorher. Daß Gott allwissend ist, daran glaube ich, und die notwendige Folgerung daraus ist, daß er auch von jedem einzelnen weiß, was nach seiner Zeit mit ihm ist, und von uns allen weiß, was nach der Zeit ist. Dies verlangt auch seine Eigenschaft als unendlicher Gott. Meinen freien Willen fühle ich, wer kann ihn mir beweisen! Doch was ich nicht verstehe, ist die Hölle, der Lazarus im Schoße Abrahams, der dem Reichen in der Hölle den Tropfen kühlenden Wassers aus seiner unendlichen Fülle verweigert.

Yet she was also willing to wrestle momentarily with the metaphysical concept of time. Too easily and too frequently people can forget, or forget to account for, what it might mean to be outside of time.

Concepts like predestination and foreknowledge are intrinsically temporal, and for this reason must be grasped in different ways, depending on whether they are being applied inside time or outside time.

Ich glaube, es ist schon ein Unterschied zwischen Vorbestimmen und Vorauswissen. Vorbestimmung läßt sich für mich viel schwerer, fast gar nicht eigentlich, mit dem freien Willen vereinbaren. Vorherwissen viel eher, obwohl es noch unbegreifliches Geheimnis bleibt. Übrigens ist »Vorherwissen« menschlich gesprochen, da Gott ja nicht an unsre Zeit gebunden ist, man müßte die Vorsilbe »Vorher« streichen und nur Wissen sagen.

Sophie Scholl knew well the probability that her actions would end with her own death. Only weeks prior to that death, her journal entries reveal how clear-eyed she saw that finality. She did not deny or avoid the thought of her destiny. She also did not get lost in an intellectual maze debates about the concepts of predestination and foreknowledge.

Instead she drew strength from meditations like these — strength which empowered her to continue her resistance work until the very end, despite all dangers.

Hans Scholl at Easter Time — Reflections on His Inner Condition in 1940

The reader will be aware of Hans Scholl, his sister Sophie, their friends at the Universität München and elsewhere, how they formed Die Weiße Rose, and how they worked heroically in that resistance group.

At the university, Hans met Hellmut Hartert. The two became friends, working together both at the university and in the army. On weekends and vacations, they sometimes stayed with Hellmut’s family in Bad Tölz, which was conveniently located near Munich.

Hans wrote to his mother in a letter dated March 22, 1940, about his experiences of Easter:

Meine liebe Mutter,
Da Du mir ein Deinem letzten Briefe so sehr ermahnende schöne Worte gesagt hast, muß ich Dir berichten, wie ich Karfreitag begangen habe. Du meintest, ich solle in irgendeiner Kirche das heilige Abendmahl empfangen. Das konnte ich nicht. Denn die Geste macht den Menschen doch nicht frei von aller Sünde. Es ist doch diese Handlung nur eine Äußerlichkeit, deren Sinn ich wohl zu verstehen glaube und die ich billige, da sie sehr viele Menschen eine gewisse Erlösung zuteil werden lassen kann. Nun habe ich am gestrigen Todestag Christi die Matthäus-Passion erlebt. Ich vermag in Worten den Eindruck dieses Musikwerkes nicht wiederzugeben. Auch ist verfehlt, über tiefe religiöse Gefühle zu sprechen. Doch Du wirst ahnen, daß diese Musik sehr tief in mich drang und manches umpflügte und erlöste, wenigstens für die Zeit des Zuhörens. Und nachher ging ich beglückt nach Hause, denn ich wußte, daß, obwohl der Leib gestorben ist, der Geist am dritten Tag wieder auferstehen wird von den Toten. —
Morgen werde ich hier in der Bergeinsamkeit Ostern feiern.

This letter reveals that Hans was still clarifying for himself some of these thoughts; they have not yet been worked out into a final form. He seems to be wrestling with what is merely symbolic and what has an actual power; what is external and what is internal.

Hans encountered the limits of human language. He has experienced things that can’t be put into words.

In any case, such experiences and such thoughts are almost certainly part of what prompted him and the others to start Die Weiße Rose and what empowered them to persevere in that work.