Professor Walter Eucken worked at the University of Freiburg. When Hitler came to power in early 1933, Eucken began telling university administrators that Hitler’s policies, which affected the daily operations of the university, were wrong.
Among the university’s students, a small but vocal group were committed Nazis. They protested Eucken’s lectures.
After the horrors of Kristallnacht, Walter Eucken joined a group of clergymen and professors who explained that anyone who considered himself a follower of Jesus was morally obligated to oppose Hitler. This group was called the Freiburger Kreis and was ecumenical, meaning that it contained both Lutherans and Roman Catholics.
This resistance group in Freiburg had contacts with leaders of the nationwide resistance. Walter Eucken was in contact with Dietrich Bonhoeffer, who was leading both the efforts to smuggle Jews out of Germany to safety and the effort to assassinate Hitler.
As an economist, Eucken saw that genocide carried out by the Nazis was founded on their fiscal system. The Holocaust was based Hitler’s control of the nation’s finances. Eucken’s group formulated an economic opposition, called Soziale Marktwirtschaft, as historian David Henderson explains:
Eucken was the leader of a school of economic thought, called the Soziale Marktwirtschaft, or “social free market,” based at Germany’s University of Freiburg. Members of this school hated totalitarianism and had propounded their views at some risk during Hitler’s regime.
The Nazi economic system was based on the government’s ability to control how people earned their money, and how they spent it. The members of the Freiburger Kreis resistance group understood that this was how Hitler would finance his genocidal schemes.
The Freiburger Schule - the economic school of Eucken and his colleagues - understood the liberty was antipode of the Nazi government. The word ‘Nazi’ itself is an abbreviation for ‘National Socialist.’
Companies were ‘nationalized’ by Hitler’s government, meaning that individuals were not allowed to own, or make decisions about, businesses. The economy was ‘socialist’ because it had high rates of taxation, because healthcare and education were state owned and state operated, because the government dictated the exact price at which nearly everything was bought and sold, and because the government dictated the wages which people earned at any and every job.
Walter Eucken, the Freiburger Schule, and the Freiburger Kreis all saw the connection between individual political liberty and free markets. Only in a free market environment could the dignity of human life be respected.
Deregulation and lower rates of taxation would erase the foundations on which the Holocaust was carried out. As historian Henry Wallich writes,
During the Nazi period, the school represented a kind of intellectual resistance movement, requiring great personal courage as well as independence of mind. The free market doctrine protested against the dominant conditions of the times. It sought to construct an ideal system that would embody the opposites of these conditions and guard against relapses. The most oppressive condition was totalitarianism.
Three core ideas would effectively erase the horrors of Naziism: first, personal freedom and individual political liberty; second, eliminate government planning and control; third, eliminate cartels and monopolies.
When planning and controls are eliminated, the people who work in a factory can decide if they want to build 5000 or 6000 cars next year. The people in the bakery decide if they want to produce 400 or 500 loaves of bread per day.
This same flexibility would extent to setting prices and wages. Such flexibility and autonomous decisionmaking allows the economy to explore new options, respond to changing circumstances more quickly, and fine-tune itself with more nuance. Henry Wallich writes:
Freedom therefore is the prime tenet of the doctrine, and its program is designed to safeguard freedom. Planning and controls were a second major aspect of the contemporary scene. The free market doctrine rejects all planning and controls except those needed to insure competition. A third important fact of German economic life was cartelization of industry. The free market doctrine opposes all restraints upon competition.
Walter Eucken and his colleagues in Freiburg saw how the Nazi economic system led to monopolies and cartels. Cartels are groups of companies in the same industry which effective function as monopolies, setting prices and enforcing those prices because they are collectively the sole source of the product.
Monopolies form and exist only because of the government’s collusion in their formation and continued existence. David Henderson writes:
The school’s members believed in free markets, along with some slight degree of progression in the income tax system and government action to limit monopoly. (Cartels in Germany had been explicitly legal before the war.) The Soziale Marktwirtschaft was very much like the Chicago school, whose budding members Milton Friedman and George Stigler also believed in a heavy dose of free markets, slight government redistribution through the tax system, and antitrust laws to prevent monopoly.
The powerful ideas of Walter Eucken and the Freiburger Schule influenced Ludwig Erhard. Appointed by Konrad Adenauer, Erhard shaped the German postwar economic system, and succeeded Adenauer as chancellor in 1963.