Economic Liberalism and (Re)Building Europe after WWII.

It is important to understand that economic recovery and growth in Europe after World War II is not as tied to Keynesianism, unfunded welfarism, and corporatism as is sometimes assumed.

The Glorious Thirty Years of European recovery from world war and subsequent growth were not due to ‘Keynesianism’ etc. The Thirty Years ended because the influence of liberal policies had weakened and the costs of other policies had accumulated to create an obviously dysfunctional system. Left-wingers (and communitarian-corporatist conservatives) who think ‘market fundamentalists’ overthrew a well functioning social and economic settlement which was behind all the economic growth and associated institution building (post-war national recovery and European Union construction) are in error. It is a major error to ignore the influence of Austrian School liberals (see the discussion by a leading current practitioner of Austrian economics, Peter Boettke) and the related Ordoliberalismus of the Freiburg School.

My remarks on what the major terms and schools in this paragraph refer to have become uncontrollably long, so they are relegated to the bottom of the post. I hope readers will have the patience to reach them.

The key points are that the German post-war Economic Miracle came from Ordo-liberal policies, while economic growth in France after Charles de Gaulle came to power for the second time in 1958 comes from the policies of Jacques Rueff, a civil servant, judge, and economist who participated in the 1938 Walter Lippmann Colloquium in Paris, a decisive event in the revival of liberal economic thinking attended by Hayek and many other notable liberal thinkers.

Such ideas have had a lot more influence in France than lazy propagators of clichés about statist France and liberal America understand. Of course, if we look at the French and American economies we can see notable ways in which the US economy is more liberal, but that should not obscure the reality that France has had good economic times and that these have come about because liberal economic policies were applied, even where, as under de Gaulle, the political narrative of the government was not liberal. The France of 1958 and after was able to stabilise institutionally after a real danger of the collapse of constitutional democracy and have a good economic period because of neoliberal economic ideas.

Some on the left think the relative revival of market liberalism in the 1970s can be rooted in the Chilean Coup of September 1973, after which economic policy was to some degree influenced by Chilean economists with doctorates from the University of Chicago. This revival of market liberalism is known as neoliberalism, a potentially useful term which came out of the Lippmann Colloquium (see below) that has unfortunately collapsed into an empty term of abuse for any kind of market thinking in government policy, wherein even the most modest accommodation of economic rationality is labelled ‘neoliberal’ and therefore extreme, authoritarian, and based on the narrow greed of the rich. It is sometimes accompanied by attempts to read enlightenment liberals as somehow ‘really’ left-liberal, social democratic, or even socialist.

The reality is that neoliberal ideas were first obviously influential on the economic policies of Ludwig Erhard, the centre-right economist and politician most associated with the economic revival of Germany after the National Socialist period. Erhard defied the US and British occupation authorities to unilaterally liberalise price controls that were supported by New Deal-type ‘liberals’ in America like John Kenneth Galbraith. The refoundation of Germany on a democratic basis with a dynamic economy comes from neoliberal, that is Ordo-liberal, ideas adopted by Germans against American intervention and ‘advice’. Oddly, given Michel Foucault’s popularity with large parts of the intellectual left, the story in this paragraph is roughly equivalent to what Foucault says in The Birth of Biopolitics (a series of lectures on neoliberalism), but there is a big issue about political interpretations of Foucault that I hope to return to later.

Both Ordoliberalism and the neoliberalism of Rueff and other French policymakers influenced by the Lippmann Colloquium (which influenced French economic thinking through the Centre International d’Études pour la Rénovation du Libéralisme) had a major impact on the construction of European institutions. Rueff was a judge in the European Community Court of the European Iron and Steel Community, the first version of the European Union, making the Community Court the forerunner of the European Court of Justice. The Confederation and then the European Economic Community were designed at the time Erhard was finance minister of the Federal Republic of Germany, and so bear the mark of Ordo-liberal thinking.

Exactly how far the design of the European Union reflect Ordo-liberal thinking is a matter of debate, but the single market and the Euro clearly reflect assumptions that pan-European free trade and political cooperation are intertwined, while institutions should exist relatively independent of short term political pressures in order to guarantee currency stability along with limits to debt, as well as the existence of a single market with freedom of movement for both capital and labour. These are broadly Ordo-liberal assumptions in an institutional design which entrenches competitive markers and financial rectitude.

The EU has problems with over-regulation and weaknesses in communicating with public opinion, but the over-regulation is not the product of Ordo-liberalism and if the EU is to succeed it must have some barriers to economic and other forms of populism, such as Ordoliberalism provided for German rebuilding. The need for the EU itself and member states to reorganise to deal with the current wave of economic protectionist, anti-globalist, anti-liberal, communalist, and nationalist populism should not lead to the abandonment of Ordoliberal economic constitutional constraints. Ordo-liberalism needs to keep evolving and given that in its original form it was closely associated with Christian conservative thinking, though of a kind which opened lines of communication with liberal individualism, I am certainly happy to see Ordo-liberalism reinvent itself in line with my own atheist, secularist, socially liberal, and republican tendencies. Again, this is an issue I hope to return to later.

For those who have decided that the Eurozone is an obvious disaster which the UK was fortunate to escape, a widespread assumption in the UK, I point out that Eurozone economic growth has been above that of the UK for several quarters. The economic disaster in Greece has not invalidated the Eurozone as often assumed. It’s a national self-inflected disaster in one of the smaller countries of the EU with terrible human costs but it is not in itself proof that the Euro is dysfunctional.

Greece has started to recover and Ireland has made an impressive recovery, so that both its GDP growth and GDP per capita are above that of the UK. Promised disasters in Italy and Spain, which if they happened could certainly destroy the Euro, have not materialised. The populist tendencies of the current Italian government are worrying with regard to responsible management of public finances, but so far it seems to be stopping short of a rupture with the Eurozone rules and certain plans to create a parallel Italian currency.

If the Eurozone is an economic disaster, what is the UK, which never joined the Eurozone and is currently leaving the EU? A catastrophe? The apocalypse?

Schools and Concepts

Very briefly, the Austrian School begins with Carl Menger‘s contribution to the late 19th century Marginal Revolution followed by Eugen Böhm-Bawerk‘s major critique of Marxist economics. The Austrian School became a major presence in 20th century economic thought through Ludwig von Mises and most importantly, at least in terms of public profile, Friedrich Hayek. Another associate of the Austrian School, Joseph Schumpeter, has had great influence on the economics profession and public debate, though he is less associated with ‘Austrian’ thought than Mises and Hayek. His work is certainly worth the attention of any one concerned with the development of liberal thought in ways true to its Enlightenment-era origins.

The Freiburg School takes its name from its origins amongst legal thinkers and economists in the faculty of Law and Economics at the University of Freiburg in southwest Germany, particularly Walter Eucken, Franz Böhm, and Hans Großmann Doerth. Doerth died on the eastern front during World War II, so missed the post-war public influence of Eucken and Böhm. The Freiburg School was very close to the more conservative parts of the German Resistance to Hitler, so to the circles associated with Claus von Stauffenberg and the Valkyrie conspiracy, activated on July 20th 1944, to assassinate Hitler and overthrow the Nazi regime.

Eucken and Böhm founded the journal ORDO in 1948 to promote their views in support of an ‘economic constitution’, that is a liberal democratic constitution oriented towards economic stability, competition, and property rights. The Austrian School was an influence on the Freiburg School and Hayek himself joined the Faculty for 6 years in the 1960s. The best known name associated with Ordo-liberalism, as an all round economic thinker is probably Wilhelm von Röpke, who was not associated with the Freiburg Faculty (he spent most of his career in Switzerland after 4 years in Istanbul during the 1930s).

I emphasise unfunded welfarism for the following reasons. I believe the state has a legitimate and necessary role in protecting the economic conditions of the poorest in society. This becomes a problem where welfarism both expands beyond this goal, which is a process inevitably accompanied by a growth of social spending beyond current taxation or the funds provided by contributory funds. I don’t want to say much about this as I am far from a specialist in social policy, but it seems to me the solutions involve policies along the lines of compulsory private insurance and savings funds subsidised by the state for those on a low income, along with state funded vouchers for access to education. State funded vouchers might be appropriate to the purchase of private insurance, but I am already pushing at the limits of my competence in this field.

Corporatism of course refers to state intervention in the economy which in its extreme version takes the form of state-sponsored cartels and monopolies. More generally, it can be applied to regulation and interventionist activity beyond the promotion of clearly defined and limited public goods. It is a phenomenon which is very likely to result in cronyism, rent seeking (super normal profits through market rigging), and outright corruption.

Keynesianism may not be the same thing as the economic theories and favoured policies of John Maynard Keynes. Given his death in 1944, there are obvious difficulties in determining the relation of state Keynesianism with what he would have welcomed. In any case, ‘Keynesianism’ was developed after his death, most influentially as far as I can see by Paul Samuelson. What it came to mean, most centrally, was deficit spending as a means of restarting the growth of economy and a general faith in macroeconomic instruments, with regard to consumption and investment, to promote growth and restrain inflation.

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