Ludwig Erhard: A Biography

LUDWIG ERHARD

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LUDWIG ERHARD A BIOGRAPHY BY ALFRED C. MIERZEJEWSKI

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The University of North Carolina Press Chapel Hill and London

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© 2004 The University of North Carolina Press All rights reserved

Designed and typeset in Melior by Eric M. Brooks Manufactured in the United States of America The paper in this book meets the guidelines for permanence and durability of the Committee on Production Guidelines for Book Longevity of the Council on Library Resources. Frontispiece: “Erhard does what he promises: Prosperity for all through the Social Market Economy.” Election poster, 1957. Bundesarchiv Koblenz. Library of Congress Cataloging-in-Publication Data Mierzejewski, Alfred C. Ludwig Erhard: a biography / by Alfred C. Mierzejewski. p. cm. Includes bibliographical references and index. ISBN 0-8078-2863-7 (cloth: alk. paper) 1. Erhard, Ludwig. 2. Heads of state — Germany (West) — Biography. 3. Germany (West) — Politics and government. 4. Germany (West) — Economic policy. I. Title. DD259.7.E7M54 2004 943.087'6'092 — dc22 2003021780 08 07 06 05 04 5 4 3 2 1

Disclaimer: Some images in the original version of this book are not available for inclusion in the eBook.

CONTENTS

Acknowledgments ix Introduction xi Abbreviations xv 1

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Education of an Economist, 1897–1945 1

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Ludwig Erhard’s Ideas 27

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Breakthrough, 1945–1949 43

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Politics against Economics, 1949–1953 87

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The Perils of Prosperity, 1953–1957 121

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Gliding Downward, 1957–1963 155

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Disappointment, 1963–1966 181

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The Unpolitician 205 Notes 213 Bibliography 247 Index 273

ILLUSTRATIONS

Election poster, 1957 frontispiece Erhard during World War I 6 Erhard as director of the Administration for Economics, 1948 63 Erhard as director of the Administration for Economics, 1949 78 Erhard as federal minister of economics, 4 November 1958 157 Erhard with Fritz Berg 163 Erhard in front of his home on the Tegernsee, December 1959 174 Adenauer makes a point to Erhard 178 Erhard as federal chancellor 183 Erhard with French president Charles de Gaulle, Bonn, 3 July 1964 189 Erhard with President Lyndon B. Johnson at the White House, 26 September 1966 200

ACKNOWLEDGMENTS

I would like to express my heartfelt thanks to the Ludwig Erhard Foundation and especially to that institution’s general secretary, Herrn Dr. Horst Friedrich Wünsche, and his scholarly assistant, Herrn Andreas Schirmer, for their help and stimulating conversations during my visits. I would also like to thank Herrn Hagner, who was responsible for the files of the Federal Ministry of Economics when I used them at the wonderful Bundesarchiv in Koblenz. Frau Nägele-Dreher and Herrn Axel Schmidt were more than helpful during my stay in that archive’s reading room. Frau Martina Caspers provided me with easy access to the Bundesarchiv’s extensive collection of photographs depicting Erhard. At the Archiv für Christlich-Demokratische Politik in Sankt Augustin I was ably assisted by Frau Dr. Angela Keller-Kühne. I would not have been able to gain access to the extensive literature concerning Erhard without the help of Dr. Robert Burkhardt and Dr. Eugene Shockley of the Athens State University Library. I would also like to acknowledge the assistance that I received from the excellent staff of the Heard Library at Vanderbilt University. At the University of North Texas, the interlibrary loan staff has been most helpful. I would also like to express my gratitude to Dr. Arthur J. Goven, vice provost for research at the University of North Texas, and his assistant Mrs. Darlene Boles for financial assistance. Finally, I would like to thank Herrn Dr. Hans-Werner Martin for providing me with materials, particularly those relating to the German retirement pension system, and for his many years of friendship.

INTRODUCTION

On 9 November 1918 Adolf Hitler lay in a military hospital in Pasewalk, recovering from injuries that he had sustained in an Allied gas attack at Wervick, south of Ypres, on the night of 13–14 October 1918. When he heard the news of Germany’s defeat, he was shocked. He then conjured up a vision of a new Germany organized on a racist foundation that would launch a cataclysmic war of revenge and conquest to smash the Jewish-Bolshevik world conspiracy that he thought was to blame for his country’s humiliation. Beginning in 1933, Germany followed Hitler’s warped vision for twelve years, leading to death and destruction both for itself and for Europe.1 On that very same 9 November 1918, Ludwig Erhard was also lying in a military hospital. He was recovering from severe wounds that he had suffered on 28 September 1918, just two and a half weeks before Hitler was gassed, when he was struck by fragments from an Allied artillery shell at Ypres, not far from where Hitler had been wounded. After seven operations, with his left arm permanently shortened and his left leg weakened, Erhard finally emerged from the hospital in the spring of 1919. Unlike Hitler, whose wounds were far less serious, Erhard did not turn to radical solutions for his and Germany’s problems. He did not project his own misfortune onto the nation. Instead, he retained his essentially optimistic, tolerant, middle-class views and calmly went about putting his life back together. In 1948 Erhard became the most important economic policy maker in western Germany, a position that he retained for eighteen years. He helped steer Germany toward prosperity, democracy, and peace. The contrast between the result of his policies and those of Hitler’s could not be greater. A mountain of books and articles devoted to Hitler and every conceivable aspect of his nefarious rule weighs down the bookshelves. In stark contrast, only a trickle of German-language books concerning Erhard and his policies has appeared. Strikingly, only a handful of Englishlanguage works discusses his actions in any detail, the most prominent being the excellent study of the origins of the social market economy xi

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written by Anthony J. Nicholls.2 But its broad scope means that it does not concentrate on Erhard. In a number books and articles, Volker Berghahn describes the evolution of Erhard’s ideas and his struggle against cartels.3 But he does not present a complete analysis of Erhard’s career and does not make use of archival sources. Moreover, although he presents some interesting background information, Berghahn’s views on the influence of the United States on Erhard and the West German economy as a whole have been overtaken by more recent research.4 Other treatments in English, such as the books by Wallich and Kramer, either do not reflect current research because of their age or misinterpret the effects of Erhard’s policies.5 Moreover, neither concentrates on Erhard. Consequently, the English-speaking audience lacks a complete, concise, and reliable account of this remarkable man’s career. The current book is intended to begin to right that balance. It is based primarily on the existing secondary literature in German, amplified by research on selected topics of particular importance in light of Erhard’s goals. These include Erhard’s struggle against cartels, his role in the debate over the pension reform of 1957, and the origins of his economic ideas. In comparison with the German literature, it provides a more realistic portrait of Erhard than Volker Hentschel’s recent, comprehensive, but hostile biography.6 It also rejects the view presented by Werner Abelshauser that there was no economic miracle and that Erhard’s policies were ineffective. Instead, it affirms the traditional interpretation that Erhard’s initiatives of June 1948, along with those of the western Allies, marked a major change in direction that led to prosperity in West Germany.7 However, this account does reflect Abelshauser’s view that the anticompetitive, corporatist economy persisted in West Germany despite Erhard’s efforts to defeat it. Hopefully, it will take its place alongside the biography written by Volkhard Laitenberger as a positive but critical account of Erhard’s public life.8 In contrast to all of these works, the present account offers a new view of Erhard’s early years and the influences that shaped his economic ideas. It also provides a new, more positive assessment of his foreign policy as federal chancellor based on an examination of the documentary record. This biography of Ludwig Erhard is intended for the general audience, though it is hoped that it will also prove valuable to specialists. For the latter, the narrative addresses the major controversies concerning Erhard’s career, while a bibliographical essay surveys the sources. This book is intended to help expand the literature on postwar Germany available to the English-language reader, which, while growing, remains

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woefully thin. In addition, it is written with the intention of familiarizing readers with an alternative vision of German history, one based on freedom and individual responsibility in contrast to the academic consensus that stresses collective solutions. This biography of one of the most successful practitioners of liberal politics seems particularly necessary in light of the revival of competitive market ideas during the 1990s, and the misunderstandings surrounding them. Moreover, it puts into perspective the economy of the Federal Republic of Germany as it has evolved over the past thirty-five years, a system frequently described using Erhard’s term, “social market,” but which bears little resemblance to his vision. It shows what he really meant by the word “social.” Erhard was an unusual man. He was not a part of the Wilhelmine, nationalist, militarist, statist mainstream. He was not embittered by World War I. Later, he did not become part of the reformist, essentially weak Weimar system. Nor did he buckle under the pressure to conform exerted by the Third Reich. Throughout the years of his education, he did not become part of the economic consensus that became increasingly centralist, planning-oriented, and Keynesian. He also did not become part of the German liberal movement, which had abandoned freedom and embraced the state and cartels.9 He did not flirt with socialism, racism, or other fashionable radical solutions. Instead, he remained loyal to his petty bourgeois, individualist roots. As Nicholls has repeatedly pointed out, Erhard was his own man.10 At a critical turning point in German history, Ludwig Erhard stepped forward with a real, workable, moderate alternative to the policy prescriptions propagated by the ideological extremes. He advocated freedom and sovereignty for the average person. He was opposed by both the left and the right, including many who benefited from his policies. At times, the Allies also stood against him. He was brought into politics by the Americans, but he was not their creature and did not simply apply the American model to German circumstances. Real change did indeed take place in western Germany after 1945, especially beginning in 1948. However, the direction of that change was not foregone. Erhard had to fight to achieve his goals. He did not win all of his battles, but the end result of his struggle was a fundamentally different Germany. Erhard did not represent any special interest. He did not enter politics to make a career. He was not ambitious for himself. He was not the most adept politician. He consistently promoted the ideal of freedom. Just as he was a common man, he struggled to improve the lives of all of his countrymen. Throughout, he remained an optimist. This psyxiii

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chological trait differentiated him not only from Hitler, but also from most of his contemporaries, including Konrad Adenauer and Kurt Schumacher. Erhard represented a genuine “third way.” He offered an alternative that not only would transform Germany internally but would fundamentally alter its relationship with the rest of the world, ending the time when Germany was a menace to peace. This book is the story of how this unusual, common man, this ultimately tragic figure, attempted to change his country. He was only partially successful, but to the extent that he was, Germany became a better place.

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5 1 POLITICS EDUCATION OF AGAINST AN ECONOMIST ECONOMICS 1897–1945 1949–1953

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ermany at the end of the nineteenth century was a dynamic, powerful, and unstable country. It had come into existence only thirty years earlier as the result of a series of three victorious wars. Its government consisted of a combination of authoritarian and democratic elements with the authoritarian predominant. The head of state was the young and unstable Kaiser Wilhelm II, who relied on the traditional Prussian military elite, the Junkers, to rule. Although the national legislature, the Reichstag, was elected through universal manhood suffrage, it did not effectively share power with the emperor and his allies. The majority parties did not form the government. Instead, the kaiser chose ministers to please himself. At the same time, Germany was industrializing rapidly, making it one of the wealthiest nations in the world. That industrial growth caused both domestic and foreign problems. At home, the expanding working class demanded a real share of wealth and power expressing its will through labor unions and the Social Democratic Party (SPD). The rise of labor sparked fear among the ruling groups and the middle class. The latter had not won a share of political power or social 1

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standing commensurate with its economic position. Yet it was alarmed by the growth of organized labor more than it resented its lack of influence and allied with and aped the traditional elites. The result was increasingly bitter social and political conflict as the twentieth century dawned. Abroad, Germany attempted to assert itself as a world power, leading to collisions with the other great powers, and especially with Britain.1 The advocates of free markets and small government were a distinct and shrinking minority in turn-of-the-century Germany. Only the Liberal People’s Party (Freisinnige Volkspartei) led by Eugen Richter advocated ideas in the classical liberal tradition. Since the middle part of the nineteenth century the majority National Liberal Party had increasingly advocated policies that favored government intervention in the economy and the formation of cartels. Indeed, there were very few people in Germany who would have been recognized as liberals by Adam Smith.2 Rather, German economic thought was dominated by the Young Historical School, the “Kathedersozialisten” (socialists of the chair), which advocated state manipulation of the economy both to increase the government’s power and to defuse social conflict. At the same time, the industrial sector increasingly organized itself into cartels that severely limited competition. Overall, imperial Germany in the years before World War I was characterized by increasing social and political tensions, expanding state intervention in economic and social matters, private organization of the economy, and the search by both the government and the opposition for new directions. Ludwig Erhard was born into this unstable situation in the north Bavarian city of Fürth, adjacent to Nuremberg, on 4 February 1897. But he was remarkably unaffected by it. His father, Wilhelm, was the son of a peasant family that had lived for generations in the north Franconian village of Rannungen near Bad Kissingen. Born in 1859, Wilhelm Erhard was part of that massive movement of people from the countryside to the cities that played such an important role in changing German society during this initial period of its industrialization. In 1885, at age twentysix, Wilhelm moved to Fürth seeking to improve his circumstances. However, unlike many of his contemporaries, rather than simply contenting himself with a factory job, he established a business of his own. In 1888 he opened a clothing store in Fürth. In the same year, he married Augusta Hassold, the daughter of a family of master craftsmen, glass blowers and goldsmiths. Wilhelm Erhard’s business prospered. While by no means wealthy, he became a member of the solid middle class that made

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its living through hard work and satisfying the burgeoning consumer demand of the period, rather than by lobbying for government subsidies or protection as many Junkers did to preserve their farms and many industrialists did to fend off foreign competitors. These early years of Erhard’s life played a decisive role in shaping his character and his political views. His father was a Catholic while his mother was a Protestant. His tolerant, easygoing father allowed his mother to raise Ludwig, his two brothers, and his sister, Rose, with whom he became especially close, as Protestants. Wilhelm Erhard was an extrovert who was a follower of Eugen Richter and his small liberal party. The elder Erhard relished debating his more conservative business associates on issues of the day. Ludwig Erhard recalled these debates during the 1960s, a clear indication that his father’s liberal, small-business leanings had profoundly and lastingly influenced him.3 In his third year, Erhard suffered a bout of infantile paralysis leading to the deformation of his right foot, forcing him to wear orthopedic shoes for the rest of his life. It was for this reason that Erhard was not given to physical activity as a youth. His mother nursed him back to health, leading to the formation of a particularly close bond between the two. In contrast to his father, Erhard’s mother, Augusta, was a quiet, shy woman, who nevertheless had a strong character. Erhard’s personality reflected these traits throughout his life. He always preferred home life and developed few really close friends. He valued his privacy. For him, later in life, politics was always secondary to his family and to his theoretical interests. During these early years at home, close to his mother, but influenced by his tolerant father, Erhard developed an interest in music. His favorite composers were Bach, Mozart, Händel, Beethoven, Chopin, Gluck, and Richard Strauss. His ambition was to become a successful conductor. This dream highlights Erhard’s desire for harmony and the fact that he sensed that he should implement the conceptions of others. He did not, after all, seek to become a composer. These early years and interests also decisively shaped Erhard’s work style. He relied more on intuition and inspiration, focusing on big, fundamental issues rather than on detail. In short, Erhard developed a distinctly un-German way of doing things. This would unsettle many of his colleagues later but gave him an important advantage in overcoming the defeat suffered by Germany in 1945 and in addressing the country’s resultant problems. It made it easier for Erhard to keep his balance.4 In 1903, at age six, Erhard entered the Volksschule, the primary school, in Fürth. He made little effort and received mediocre grades as a result. 3

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He was much more influenced in this period by what he experienced at home. Moreover, his tolerant father did not press him to apply himself more rigorously.5 In 1907 Erhard enrolled in Fürth’s Royal Bavarian Vocational High School (Königlich Bayerische Realschule mit Handelsabteilung). Again, Erhard made little effort and received no better than satisfactory grades, although he did realize that he had a gift for public speaking. He was perfectly satisfied with the prospect of following his father into the clothing business. Consequently, the vocational school was well suited to him. It was by no means an elite institution and did not confer the coveted Abitur, the school-leaving certificate that entitled one under the German educational system to a place at a university. Not only was the Abitur an essential prerequisite to academic advancement but it was frequently also a ticket to entry into the cultural elite.6 In 1913 Erhard was awarded his Einjähriges, his secondary school certificate, and embarked on an apprenticeship with the Georg Eisenbach textile company in Nuremberg. He worked ten-hour days, six days a week to learn his trade. He traveled home on Sunday to spend the day with his parents in nearby Fürth. Erhard was content with his occupation. There is no sign that he was distracted by the increasing international tensions of this last peacetime year. He also had nothing to do with the strong and growing German youth movement, participating in neither the Wandervogel nor one of the young socialist groups nor one of the many völkisch organizations that populated the German cultural landscape at that time. Erhard enjoyed the last peacetime year unaware of the momentous developments building around him, unaffected by its Zeitgeist.7 The outbreak of World War I caused Erhard to look at life seriously for the first time. He was too young to be called to the colors, so he continued his business training. However, he questioned the wisdom of the imperial government and the kaiser. Contrary to the official propaganda line and the feelings of many of his contemporaries, Erhard hated neither Britain nor France. Nevertheless, out of patriotic feelings, he volunteered for military service in 1916. He was assigned to the 22nd Royal Bavarian Artillery Regiment and was trained as a gun aimer, a process that Erhard experienced as a kind of sport. He was then assigned with his unit to the Vosges, a quiet sector on the southern part of the western front. His regiment was next sent to Romania, again a theater with little fighting. Erhard contracted a case of typhus, at that time almost always a fatal disease, and was sent back to Germany. Surprisingly, he recovered fully and volunteered to return to his unit. By then, it was on the western front,

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where Erhard experienced some of the heaviest fighting of the war as the German army struggled to halt the steady advance of the Allies. On 28 September 1918 near Ypres, Erhard was badly wounded by an Allied artillery shell. He was rushed back to the military hospital at Recklinghausen in the Ruhr. His left shoulder and side were severely wounded, as well as his left leg. Erhard remained in the hospital until June 1919, undergoing seven operations. His left arm atrophied and became shorter than his right one. Later, in February 1929, the Welfare Office in Nuremberg pronounced Erhard 25–30 percent disabled and granted him a pension. While recuperating, Erhard realized that his world had disintegrated. He also understood that Germany had been changed permanently. However, he was not bitter. He did not accept the stab-in-the-back myth. Unlike Hitler, he did not embrace a radical solution for Germany’s massive problems. Instead, he retained his equilibrium, remained loyal to his family’s liberal values, and looked for a way to rebuild his life.8 In November 1918 Kaiser Wilhelm II abdicated the German throne, leading to a change not only of ruler but of regime. The leaders of the SPD in the Reichstag proclaimed a republic but were unwilling to conduct a social revolution. Instead, they attempted to orchestrate an orderly transition, including the writing of a new, democratic constitution. These moderate reformers had to contend for power with revolutionary Marxists to their left and radical nationalists and racists to their right. The moderate forces proved unable to follow a clear political line, simultaneously catering to the nationalism of the right while attempting to build a welfare state to satisfy the demands of the labor unions to the left. At the same time, the new regime was compelled to sign a peace settlement that was rejected by the vast majority of the German population. The Weimar Republic never gained the loyalty of a majority of the German population and certainly never enjoyed the undivided support of the country’s elites. The bitterness over the lost war and the sense of betrayal as a result of the peace settlement hobbled the new regime throughout its existence. Successive Weimar governments, even those based on center-right coalitions, expanded the country’s welfare system, raised taxes, cooperated in the politicization of the mechanism for setting wages, and supported the further cartelization of the economy. The years 1919 to 1933, from the creation of the Weimar Republic to its collapse and replacement by the Nazi dictatorship, saw a decline in faith in free elections and free markets and a growth in interest in authoritarian political solutions, innovative cultural ideas, and corporatist economic organizations. Erhard became aware of these developments and their 5

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Erhard during World War I as gun aimer in the field artillery. Ludwig-Erhard-Stiftung (Ludwig Erhard Foundation), Bonn.

theoretical background, although he did not participate in any of the many political movements of the era or directly engage in the political debate until its very end. He was particularly influenced by the inflation that ravaged the economy early in the decade, witnessing firsthand how it damaged his father’s business.

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In 1919 Erhard was too weak to work in his father’s store. He was casting about for something to do when he learned about the opening of a new business college in nearby Nuremberg. Entrance did not require possession of the Abitur, so in September 1919 he attended a lecture just to see what it was like. He enjoyed it so much that he enrolled in the school’s business program. Initially, he had difficulty, since he was not enamored of accounting and business math. However, during his fourth and fifth semesters, he found himself, mastered the material, and began to develop an interest in economic theory, and especially money and currency issues. He then made rapid progress and passed the program’s exit exam on 22 March 1922, receiving a degree in business administration (Diplomkaufmann). He wrote a thesis that dealt with the macroeconomic implications of the newly appearing forms of cashless payment. He concluded that such instruments would facilitate business activities but would not lead to an expansion of the economy.9 Erhard was drawn to one of the professors who taught business economics and economic theory, Wilhelm Rieger. Rieger, who founded the school and was its first director, remembered Erhard as an energetic student who devoted himself entirely to his studies. Erhard absorbed everything that he was given and asked for more.10 Rieger was a professor who had much to give. While not a charismatic teacher, he was well versed in liberal economic theory and was thoroughly familiar with competing socialist ideas. Rieger approached economic issues in a clear, methodical fashion. He transmitted to Erhard his solid knowledge of both macroand microeconomic theory, especially the ideas of the classical, marginalist, and neoclassical schools, and trained him to think in a logical fashion. Rieger’s influence on Erhard was greater than is generally realized. His ideas complemented those that Erhard had inherited from his father and the business environment in which he had grown up. Erhard later wrote that he owed his liberal economic and political convictions to Rieger. Surely, Erhard had imbibed the liberal spirit at home. But it was Rieger who made him conscious of the tenets of the liberal position and gave him a systematic theoretical foundation in them. From Rieger he learned the importance of the price mechanism, that the market price was the only just price, that firms existed to make money and that risk was an essential component of the economy, that industry organizations such as cartels were designed to undercut the competitive market, and of the transformative influence of new technologies.11 In effect, Rieger reinforced and elaborated the ideas that Erhard brought with him. Erhard never abandoned these basic values. Especially during the 1930s, he at7

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tempted to reconcile them with his station in life and the position of Germany, but he always returned to them and ultimately embraced them without reservation.12 Rieger also helped Erhard move forward professionally. Erhard did not have an Abitur and had earned what amounted to a college degree from a school that was not allowed to confer conventional bachelor’s degrees. Yet he wanted to continue his studies in graduate school. Rieger convinced Erhard’s father that his son should pursue academic studies rather than devote himself to the more practical ends of the family business. Rieger also intervened with the authorities at the University in Frankfurt am Main and with the new professor of economics and sociology there, Franz Oppenheimer, with whom he was acquainted, to gain access for his pupil. Erhard entered the graduate program in Frankfurt in the fall semester of 1922. Here, as before and again later in life, Erhard did not build a large circle of friends. He concentrated on his studies and stayed away from the entertainments of the big city as well as its political turmoil.13 However, this did not stop him from getting married and from forming a lifelong bond with his dissertation director, Franz Oppenheimer. While at the Nuremberg business college, Erhard had renewed the acquaintance that he had made as a child with Luise Schuster, or as she was named then Luise Lotter. She had lived in Erhard’s neighborhood and had played with his sister, Rose. Luise had married Dr. Friedrich Schuster, a lawyer, in 1914. Schuster was killed at the front in the following year. Luise then returned home and lived with her parents. In fall 1919 she enrolled in the Nuremberg business college and soon encountered Erhard. They became friendly and graduated at the same time, she with a degree in business management and accounting. On 11 December 1923 she and Erhard married. Luise brought with her one daughter from her first marriage, Eleonore, and bore Erhard another daughter, Elizabeth. Luise was a good economist in her own right but subordinated her ambitions to those of her husband. Throughout their married life, she provided Erhard with a stable, warm home. She never interfered with his professional activities, and he remained unswervingly loyal to her.14 At school, Erhard came under the influence of Oppenheimer. Indeed, the two became good friends, with Erhard frequently visiting his adviser’s home along with other students and intellectuals to discuss economic and sociological theory and politics. But it would be wrong to conclude that Erhard simply absorbed uncritically Oppenheimer’s ideas. As always, Erhard retained his independence of mind. Oppenheimer ad-

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vocated an idiosyncratic theory that he called “liberal socialism.” Heavily influenced by Marx, Oppenheimer had begun his professional life as a doctor in Berlin. He was so appalled by the conditions under which the workers lived that he abandoned his practice and became an economist. Oppenheimer believed that property in land had been accumulated through violence. He was also convinced that all land was under some form of ownership, creating an effective monopoly of property. As a result of the bourgeois revolution that began in 1789, he argued, the serfs were granted their political and legal freedom. But they were not given land. Therefore, they migrated en masse into the cities to seek employment in the newly created manufacturing industries. There they faced employers at a distinct disadvantage, forcing them to take jobs at low wages, leading to high profits for the capitalists. Oppenheimer proposed to break this cycle and to create a true socialist society of the “free and the equal” by making land ownership available to peasants. This would stop the exodus of workers to the cities and thereby end the domination of the capitalists. The system would then run itself under a regime of free competition, overseen by the state. Oppenheimer contended that a competitive market economy was not the cause of the workers’ woes because it had never existed. The powerful had always used violence to prevent competition and thereby ensure themselves excess profits.15 Erhard did not accept Oppenheimer’s theory. However, he did take away from his time in Frankfurt some valuable ideas, all of which fit his own basic viewpoint. Oppenheimer, like Rieger before him, was thoroughly familiar with all of the important economists of all camps. Erhard’s theoretical education was, therefore, deepened and expanded while studying under Oppenheimer; of that there can be no doubt. Erhard’s opposition to monopolies and cartels, inherited from Richter through his father and strengthened by Rieger, was given greater precision and analytical depth. Indeed, Erhard’s later opposition to interest groups and his attempt to build a society free of their influence can at least partially be traced to his education by Oppenheimer. Erhard’s tolerant and inquisitive attitude was also reinforced by Oppenheimer. As Erhard put it later, Oppenheimer approached problems with a cool head and a warm heart.16 Erhard certainly fit that mold. This approach would serve him well in his political career. In essence, Erhard left aside the quirky aspects of Oppenheimer’s thought and strengthened his aversion to economic interest groups, especially cartels and monopolies, and his support for competition. He was also convinced of the need for widespread property ownership while in Frankfurt. 9

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Erhard completed his dissertation in the summer of 1924, just as Germany’s economy was being restructured after the collapse of its currency in late 1923. Erhard wrote once again about money and the concept of value. He contended that money was necessary for the circulation of goods but had no intrinsic worth. He still held to a labor theory of value, contending that goods were the incorporation of the labor necessary to produce them, an idea that he would jettison later. He warmly supported the free movement of goods in an economy and free trade among nations. He also pointed out that economic activity was not an end in itself.17 Oppenheimer took his time in reading Erhard’s work. Finally, in 1925, he invited Erhard to join him on a ski trip in the Engadin to discuss the dissertation. The actual defense took place in a ski lift at over 9,000 feet. After a surprisingly brief discussion, Oppenheimer accepted Erhard’s thesis. Erhard formally received his degree on 12 December 1925.18 After earning his degree, Erhard, like many other academics, found himself unemployed. He helped a bit with his father’s business but was not really interested in it. In 1928, at age sixty-six, Wilhelm Erhard closed his clothing store and retired. Ludwig Erhard breathed a sigh of relief.19 Soon, a more interesting but at the same time troublesome opportunity came his way. Apparently due to the intercession of Rieger and Oppenheimer, Erhard was offered a position as a part-time research assistant at the Institute for Economic Observation of the German Finished Goods Industry (Institut für Wirtschaftsbeobachtung der deutschen Fertigwaren) in Nuremberg.20 Erhard’s two professors were familiar with the chief of the institute, Wilhelm Vershofen. The job quickly developed into a full-time engagement and Erhard gradually worked his way up the institute’s administrative ladder. However, Erhard’s tenure at the Vershofen institute was not entirely happy. During the 1950s Vershofen testified to Erhard’s equitable nature, how his new assistant made every effort to smooth over differences among his colleagues, and how Erhard always seemed to be in a good mood. He was struck by how Erhard never seemed to promote himself and how he was constantly evolving both his character and his ideas.21 Yet Erhard was separated from Vershofen by deep philosophical differences. During his stay at the institute, Erhard struggled to reconcile his philosophy with that of Vershofen but, ultimately, was unable to do so. Wilhelm Vershofen came to the Nuremberg business college in 1923. He brought with him a research organization that he had formed while working for the German porcelain industry. He reorganized it and renamed it the Institute for Economic Observation of the German Finished

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Goods Industry in 1925. Vershofen had been a member of the constituent assembly that had written the new Weimar constitution as a delegate of the German Democratic Party.22 This group was a survivor of the split that had taken place among German liberals before World War I over issues of national unification. The Democratic Party supported constitutional government and the rule of law, but it was hardly an advocate of free markets. In fact, it had reconciled itself to the private organization of the economy by cartels. Vershofen’s institute was intended to provide information to industry concerning consumption trends. Far from being consumer-oriented, it was very much in the service of business. Vershofen created his organization to feed information to business so that it could organize markets more effectively. Using his reports, companies could set prices without running the risk of allowing the market to do so. In effect, Vershofen hoped to promote the further cartelization of the German economy by undermining the price mechanism.23 Vershofen was, like Oppenheimer, a prolific author. But unlike Oppenheimer, who proclaimed himself the enemy of all established interests and schools of thought, Vershofen had evolved a justification for the status quo. He published a variety of works including novels, poetry, economic analyses, and theoretical economic discourses. Far from applying American consumer concepts to Germany, he was highly critical of the American system in its fundamentals. During the war, he had written a parable of U.S. economic behavior that condemned the alleged inhumanity of the free American economy.24 Later, after the Treaty of Versailles, he employed the obsolete foreign exchange theory to explain Germany’s inflation and accused both the United States and Britain of using the peace to continue the economic war that they had been waging against Germany for years.25 While Erhard worked for him, Vershofen published two theoretical works that included ideas that Erhard must have found extremely difficult to accept. Vershofen contended that business organizations, such as cartels, were beneficial both to producers and consumers because they eliminated uncertainty from the market. He equated markets with chaos and rejected liberal competition theory. Vershofen proposed a more stable economy guided not by Smith’s invisible hand but by the very visible hand of industrial cartels and associations. These organizations would benefit all by ensuring that no one would fear that they had not obtained the best possible deal in any transaction. Because prices would be controlled, people’s innate jealousy would not be given scope for causing social mischief. Because the collectivity had a life of its own and 11

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was more important than the individual, cartels and associations would serve to reconcile the interests of consumers and producers, assuring social peace. Vershofen thought that traditional laissez-faire capitalism had seen its day because it caused too much social tension. However, he was also convinced that socialism could not work. Therefore, industry should organize markets for the good of all subject only to limited regulation by the government.26 Vershofen also wrote a handbook on market surveys that demonstrates clearly that his views owed nothing to contemporary American practice. Instead, he had been most heavily influenced by the Dutch market researcher Ferdinand M. Aspeslagh. Furthermore, he thought that the spread of highly productive industrial structures made the rise of consumer economies inevitable, not some mythical diffusion of American influence. In this book, published in 1940, there is evidence that Vershofen attempted to accommodate his ideas to the prevailing Nazi command economy.27 In short, Vershofen was no friend of free markets and competition. He also seemed to try to rationalize contemporary developments, whether they were corporatist in nature, as during the 1920s, or authoritarian, as in the 1930s. Clearly, this type of behavior, leaving aside the specifics of the theory involved, was anathema to Erhard. In one of his novels, Vershofen also presented a very unflattering picture of a medieval county official whom he named Erhart. Whether this was intended to be a veiled criticism of his subordinate is unclear. While praising the character’s efforts to develop a local economy, Vershofen also criticizes Erhart for being crude, pushy, and lacking deep ideas.28 It seems unlikely that Vershofen chose to include in his novel a character bearing a name very close to that of one of his subordinates without intending to make some sort of point. However, because the book is rambling and in many sections murky and because we have no record of Erhard commenting on the matter, we must remain unsure. In any case, this incident hints that all may not have been well between the chief of the institute and his bright young colleague. Whatever Vershofen’s view of Erhard, he quickly brought his subordinate into a position of greater responsibility. In 1929 Erhard assisted in founding the journal Der Markt der Fertigware (The finished goods market), published by the institute.29 The organ was intended to publicize the research findings made by members of the organization. Having his name appear on the masthead certainly did Erhard’s career prospects no harm. Initially, Erhard saw his position at the institute as a stepping-stone

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toward an academic position, possibly even a professorship. For that reason during the early 1930s, he wrote a Habilitationsschrift, the second dissertation required by German universities for appointment to a position as professor. In this work, apparently written around 1931, Erhard addressed the contemporary problem of unemployment. He attributed the depression to the excessive concentration of capital in heavy industry. This accumulation of assets had been undertaken by business leaders to increase the technological efficiency of their companies, resulting in overproduction. In essence, the production apparatus had not been scaled properly to consumer demand. Erhard thought that the solution to the problem was to break up the cartels and monopolies that had caused the overcapitalization and for the government to support industries that would produce consumer goods. The government should allow prices to find their own level, and, to prevent the abuse from repeating itself, it should limit returns on investment. In other words, it should prevent companies from accumulating excessive hoards of cash, hidden reserves, by taxing them away and redistributing the funds to industries that would use them to serve consumer needs more directly. It should also prevent companies from expanding their production capacity beyond the needs of the market. Here Erhard was advocating a middle way. He rejected the Marxist solution of nationalizing industry but did not want to give industry free rein to do as it pleased. Fundamentally, Erhard was advocating the same solution that he would prescribe in a more sophisticated and purer form in 1948.30 Erhard recalled that his dissertation was going to be accepted by the university in Nuremberg, the former business college having been elevated to a doctorate granting institution. By the time that it was scheduled to be considered formally, the Nazis had come to power and Nuremberg was one of their strongholds. Erhard was called on to join the Nazi Party and the Nazi professors organization, which he steadfastly refused to do. This, he claims, was the reason why his second dissertation was never accepted, and therefore why he was forced to transform himself into an adviser to business and public organizations, straddling the boundary between the scholarly world and politics.31 One may surmise, though, that Vershofen was not entirely pleased with this dissertation. Certainly, weaker dissertations had been accepted because there was no shortage of professors who were willing to sign works with which they had ideological sympathies.32 Having failed to achieve his goal of becoming a professor, Erhard pursued his career as a public intellectual and consultant within the con13

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fines of the Vershofen institute. He began by writing articles on matters of economic policy. In August 1931 he published an article in Das Tagebuch, a journal of contemporary political commentary, in which he proposed a policy of reflating the German economy by putting money in the hands of consumers. In effect, Erhard advocated a policy of stimulating consumer demand in line with what was later proposed by John Maynard Keynes. Erhard suggested this step only because of the depth of the emergency in which Germany found itself. He thought that at other times such a policy would run too great a risk of causing inflation.33 This initial publication demonstrates that even at this early stage, Erhard was no doctrinaire theorist. When Erhard wrote his second dissertation and his first article, Germany was mired in a deep economic crisis. The country was more severely affected by the Depression than any other nation in Europe. Only the United States sustained a greater decline in industrial activity. The center-right government of Chancellor Heinrich Brüning followed a policy of trying to end reparations and of deflating the German economy. It also initiated a program of deficit spending on capital projects using government enterprises that were off its own books, enabling it to claim that it was following a policy of fiscal rectitude. The social disruption caused by a second major economic crisis in a decade helped pave the way to power for the Nazis. Erhard hoped to prevent the application of an extreme solution from either the right or the left. In advocating a policy that anticipated the suggestions of Keynes, it should be borne in mind that he, like Keynes, hoped to preserve capitalism, though in modified form.34 Erhard’s next article clearly demonstrated his rejection of the economics of the radical right. Former Reichsbank president Hjalmar Schacht had formed an alliance with extreme right-wing politicians. In 1932 he published a book in which he proposed an authoritarian solution to Germany’s economic problems. In August, Erhard responded with a sarcastic demolition of Schacht’s ideas. Erhard claimed that Schacht’s proposals were opportunistic, intended only to help the big business interests that he served. Erhard repeated his assertion that big business was already overcapitalized.35 In another article published later in 1932, he developed his theme that the route out of the depression was through the consumer. Erhard advocated providing short-term credits and pay subsidies to consumer goods industries to stimulate production of goods that the mass of the people would be eager to buy. This would get the economy rolling again. He also called on the government to take action to pre-

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vent abuses by cartels and monopolies, especially those in the capital goods industry.36 The last government before Hitler’s, that of General Kurt von Schleicher, appointed Günther Gerecke commissar to create jobs in December 1932. Gerecke proposed distributing subsidies to industry to produce capital goods and spending on public works projects to improve the country’s infrastructure. Erhard, consistent with his earlier articles and his second dissertation, argued in a piece published in 1933 that the plan was built on a faulty basis. Industry needed no new capital, and government programs could not solve the depression. Instead, credits should be given to consumers and consumer goods industries to restart the economy.37 Erhard’s publication efforts bore fruit as he was invited to join the managing board of the Vershofen institute in 1933. In the same year, he was appointed editor in chief of the Wirtschaftspolitische Blätter der deutschen Fertigwarenindustrie (Economic policy newsletter of the German finished goods industry), another house organ of the Vershofen institute. He also assumed greater responsibility for the daily management of the institute, directing the work of about eighty researchers, and broadened the institute’s contacts with business.38 Erhard also used his new position to expand his own web of contacts. With the accession to power of Hitler in January 1933, government intervention in the economy increased. In effect, the Nazis allowed private property to continue to exist but determined how it would be used, eliminating the remnants of the free market. One of the steps taken by the Nazi regime in this direction was to compel all companies to join a cartel if they had not already done so. The Nazis also appointed a variety of commissioners and plenipotentiaries to solve various economic problems. One was Carl Goerdeler, lord mayor of Leipzig, who was made responsible for controlling prices. Goerdeler was a conservative with a nationalist and authoritarian bent. As such, he was initially prepared to cooperate with the Nazis. In his role as price commissioner, Goerdeler traveled the country and thereby came in contact with the Vershofen institute and Erhard in 1934. Erhard struck up a friendship with him that would last for a decade. Through Goerdeler, Erhard was later introduced to the chief of staff of the German army, General Ludwig Beck, who became an opponent of Hitler. Erhard had occasion to travel to Berlin during this period, which led him to strengthen his relationship with Karl Guth, the husband of his sister Rose, and business manager of the nazified industry peak organization, the Reich Group Industry (Reichsgruppe 15

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Industrie, or RGI). Erhard also met the businessman and future central banker Karl Blessing and the political scientist Theodor Eschenburg, who was working for the button cartel at its headquarters in Berlin.39 At the same time, Erhard made the acquaintance of Alexander Rüstow, who was working for the machine industry cartel, also in Berlin. This was ironic because Rüstow was a strong advocate of free markets. Soon after, Rüstow left the country and took up a position as a professor at the University of Istanbul. One of Rüstow’s friends was the free market economist Wilhelm Röpke. Erhard did not meet Röpke before 1948. However, he was familiar with Röpke’s works. Rüstow, who agreed with Röpke on most issues, liked Erhard.40 During the 1930s, Erhard’s duties at the Vershofen institute also left him time to read the works of other economists. He studied the publications of Emil Lederer and Georg Gothein, both on the left, and the free market advocates Josef Schumpeter, whose publications he had been following since the early 1920s, and Walter Eucken, an opponent of cartels.41 The middle and late 1930s brought additional professional advancement for Erhard and led to the further development of his ideas. In 1935 Erhard assisted in creating an important new dimension to the Vershofen institute’s activities. He played a critical role in organizing the annual courses concerning aspects of consumer economics that the institute began to offer. The first featured Erhard’s acquaintance Carl Goerdeler as guest speaker.42 Also in 1935, Vershofen and Erhard founded the Consumer Research Company (Gesellschaft für Konsumforschung), headquartered in Berlin, with Erhard taking a seat on the board of directors. Its location in the national capital was calculated to give the Vershofen institute access to the increased activity caused by the economic expansion triggered by the government’s rearmament drive. It also afforded Erhard an opportunity to make additional influential contacts. He built connections with leaders in the consumer goods and wholesale industries such as Philipp Reemtsma, head of the large tobacco company and a member of the advisory council of the Reichsgruppe Industrie, and Wilhelm Rudolf Mann of IG Farben. Through his brother-in-law, Karl Guth, he met Wilhelm Zangen, the powerful chief of the RGI and general director of the Mannesmann Tube Works, and Rudolf Stahl, the assistant chief of the RGI and general director of the Salzdetfurth concern. Erhard also established ties with the management of the big Berlin electrical company Siemens und Halske.43 In 1936 the sales course was organized around the theme of delivering goods of adequate quality to satisfy consumer demand. Erhard also pub-

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lished an article in February concerning the role of industry organizations as promoters of quality production. He contended that cartels that promoted improved quality were acceptable. Only cartels in commodity industries, markets with little product differentiation, were harmful. Cartels in other industries either did not hinder or actually promoted competition, especially on quality, if not on price. Erhard argued that in the consumer goods industries, with their highly varied lines of products, cartels could not prevent competition. He did state clearly that government action to stifle entrepreneurial initiative should be avoided, arguing that markets should be as free as possible.44 In this article, Erhard strained to find a line compatible both with his own anticartel, free market ideas and those of his employer. This difficult balancing act, if anything, underscores the pressure under which Erhard labored and shows that he had not abandoned his fundamental commitment to free markets. In January 1937 the guest speaker at the sales course was once again a friend of Erhard, indeed his relative. Karl Guth discussed the relationship between the market order as it had been shaped by the Nazi regime and the difficulties of selling consumer goods in the resulting business environment. Erhard published an article on the same topic a few months later. In the same year, he was promoted to the position of assistant director of the institute, second only to Vershofen. In spite of the philosophical differences that separated the two men, Vershofen clearly still thought enough of Erhard to entrust him with greater authority. In 1938 the sales course was organized around the theme of selling in a controlled economy. Erhard’s friend, Theodor Eschenburg, was the keynote speaker. The remainder of the year was taken up with managing the institute’s extensive business and adjusting to momentous events — the first instances of Nazi aggression, the unification with Austria in March, and the occupation of the Sudentenland in October. By this point, the Nazi regime was urgently pushing rearmament. It regulated wages and prices, allocated labor and raw materials, steered investment, and subsidized the production of synthetic products. At the same time, it had virtually cut Germany off from international trade, relying instead on bilateral barter agreements with countries in southeastern Europe. The Nazis had gone a long way toward creating a highly politicized command economy in which prices meant little and the consumer occupied a distinctly inferior position. Reflecting the expansion of the Third Reich, the sales course was next held in Vienna in January 1939. The topic was Austria’s role in the greater German economy. Erhard delivered a paper on sales problems in 17

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Austria that made a favorable impression on the region’s Nazi leader, Josef Bürckel. The Gauleiter convinced Erhard to become his informal adviser on consumer goods matters. In August 1940 Bürckel was transferred to Lorraine. Erhard maintained his relationship with him and took responsibility for supervising the region’s glass industry. Years later, the owners of the companies in the branch remembered Erhard’s tenure as particularly lax and collegial.45 Erhard’s relationship with Bürckel, a violent political schemer and anti-Semite, seems to imply that Erhard accommodated himself to the Nazi regime. Nothing could be further from the truth. Erhard could see no prospect of the Nazi government disappearing in the foreseeable future. Therefore, in his role as an economic expert, he decided to give what he considered appropriate advice within the parameters of the situation.46 Erhard was never a member of Bürckel’s staff and continued to refuse to join either the Nazi Party or any of its affiliated organizations. In 1939 Erhard published two articles, both of which demonstrated his continued interest in consumer economics and his difficult attempt to come to terms with his situation. He contributed a chapter to a book on market research that was essentially technical in nature. Then, he wrote a chapter in a book, which he also coedited, published to honor Vershofen on his sixtieth birthday. In this piece, Erhard pointed out that under the prevailing circumstances, prices had become essentially irrelevant. Consequently, rationing of consumer goods would soon follow. He noted correctly that since consumer desires could not be known in this environment, planning to fulfill them had to fail. In any case, the consumer remained the central factor in the economy.47 This article represented a barely concealed jab at the increasingly interventionist policies of the Nazi regime, and indirectly at the honoree of the volume, Vershofen. In spite of everything, at his core, Erhard remained committed to a free market with a functioning price mechanism. The war forced the suspension of the annual sales courses. In an environment in which any semblance of a free economy had disappeared, Erhard concentrated on the internal management of the institute. As Vershofen neared retirement, Erhard also hoped that he would be chosen as his logical successor, foreshadowing a similar situation that would emerge in the late 1950s. Erhard did find time to contribute a chapter to a book published in honor of the economist Wilhelm Kalveram in 1942. Here Erhard discussed ideas that were being raised by Walter Eucken concerning the nature of an economic order and its place in society overall. He did not discuss free markets themselves, just the broader theoret-

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ical issue of market order. Erhard clearly retained his interest in fundamental theoretical matters and had also been influenced by the ideas of Eucken. In the summer of 1942, as the German armies marched toward their fateful encounter with the Red Army at Stalingrad, Erhard suffered a deep disappointment at the Vershofen institute. It became clear to him that he would not succeed to the leadership of the organization. Instead, Erich Schäfer was called from the business college in Leipzig to be groomed for the position. Apparently this sparked a dispute between Vershofen and Erhard during which the theoretical and philosophical differences between the two came out. Erhard resigned in October 1942. The mayor of Nuremberg and chair of the board of the foundation that governed the institute, Willi Liebel, having heard of Erhard’s criticisms of Vershofen’s views, successfully pressed a libel suit against the departed economist. Contributing substantially to Erhard’s exit was his continued refusal to join a Nazi organization. This had apparently become a particular point of friction as the party pressed Erhard and other prominent individuals to repair this lapse and as Vershofen continued to accommodate himself to the powers in command.49 Erhard’s departure from the Vershofen institute gave him greater independence to express his views. But it also raised the difficulty of obtaining an income. His friends in industry, particularly his brother-in-law, Karl Guth, business manager of the Reichsgruppe Industrie, and Philipp Reemtsma, solved this problem. The RGI provided funds for Erhard to form the Institute for Industrial Research (Institute für Industrieforschung). The new organization had offices in Berlin, Nuremberg, and later Bayreuth and consisted of just Erhard and his secretary, Ella Muhr. Money was funneled to Erhard from the German Industrial Promotion Association (Fördergemeinschaft der Deutschen Industrie). Erhard was also responsible for distributing money from the RGI to other organizations and individuals doing business research and coordinating their activities.50 After leaving the Vershofen institute, Erhard continued to work for Bürckel. Indeed, in January 1943 he received the war service cross second class, apparently on the nomination of the Gauleiter. Later in the year, Erhard wrote a study outlining ways to increase production in the province of the Rhineland-Palatinate for which Bürckel was responsible.51 Yet such initiatives became increasingly unrealistic. It had already become apparent to many that it was unlikely that Germany would win the war. Consequently, planning began in industrial circles and in some 19

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government quarters for a postwar economy without Nazi influence. This was risky because it violated an order prohibiting postwar planning promulgated by Hitler in January 1942. During the summer of 1943, the RGI asked Erhard to write an analysis of the steps that would be necessary to convert the German economy back to peacetime production. At the same time, industry was involved in an all-out effort to stave off defeat led by Albert Speer. The Nazi armaments minister expanded and refined the control system created by his predecessor, Fritz Todt, leading to vastly increased armaments production. He built a centralized steering apparatus and delegated authority for implementing his plans to business executives. One of the reasons why Speer’s system was so successful was that it was very familiar to the managers who participated in it. In effect, it was a corporatist solution to production problems well within the German industrial tradition. It prevented competition among companies and controlled industrial production by setting priorities and allocating steel. Money considerations, prices, were essentially irrelevant. Erhard had nothing to do with this system and found it repugnant. Erhard’s study was ready for his industrial backers in March 1944 at the same time that the Red Army was driving into Poland, the Allied armies were preparing to land in France, and Allied bombers were pummeling German industries. It built on the ideas that he had expressed in his second dissertation and which he had developed during his school years. It jettisoned the compromises that he had expressed in his articles during the 1930s. Erhard set the tone for his discussion in its introduction when he wrote, “I was and am of the opinion that the best method for satisfying public needs remains a competitive market.”52 However, Erhard knew that the circumstances after a war, which he expected Germany to lose, would not favor an immediate establishment of a free market. Consequently, he proposed a gradual elimination of state controls and establishment of competition. He also hoped to distribute the burdens of the war fairly among the German people. The Nazi regime had secretly taxed the population by requiring banks, insurance companies, and other institutions to purchase Reich bonds and had vastly increased the volume of currency in circulation. The result was an enormous government debt and a bloated money supply, effectively an inflation hidden by wage and price controls. To solve this problem, Erhard proposed a drastic reduction in the volume of currency in circulation. He suggested that the government issue bonds to the German people that it would gradually redeem over an extended period. Payment to the beneficiaries would be scaled and timed to help those who had been hurt

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most by the war, those who had suffered the loss of breadwinners, seen their homes destroyed by bombing, or had lost other assets. The government and industry would orchestrate the transition from controls to a free market. Demobilized soldiers would be directed to jobs in consumer goods industries, which would receive government credits to help them begin production. Erhard’s overall goal was to increase production of consumer goods as soon as possible and as much as possible. This would facilitate overcoming the damage and disruption caused by the war and would begin the process of restructuring German industry by moving it away from its emphasis on the production of capital goods to serving consumers. In time, this process would lead to the creation of a free market supervised by the government to prevent abuses. In other words, Erhard had no desire to stage a laissez-faire free-for-all, but he also wanted to move decisively away from any form of collectivist solution. In the conclusion to his memorandum, he emphasized this last point when he wrote, “Never again will the state be restricted to the role of night watchman because even a free market economy, and especially this, needs an organ for setting and overseeing the observance of rules.”53 However, he left no doubt as to where the emphasis should be placed: “[I]n any case the desirable goal remains the free market economy based on real competition with the regulation inherent to such an economy.”54 Erhard’s ideas were greeted skeptically by his industrial supporters. They were clearly unsettled by his call for free competition. Rudolf Stahl and Ferdinand Grünig, chief of the Section for Central Economic Observation in the Reich Economics Chamber, gave the report an initial reading and had doubts about it. They called on Günter Keiser, head of the statistical section of the Economic Group Private Banking Industry and editor in chief of Bank-Wirtschaft (Banking business) to prepare an evaluation of Erhard’s ideas. They agreed that Erhard’s paper should be revised to take a broader view of the economy and of money and financial issues in particular. Erhard then prepared a revised and shortened version of his paper during the summer of 1944. Keiser wrote a study providing an alternative to Erhard’s concept. The two papers would be discussed by a committee headed by Stahl in the fall.55 Stahl and his colleagues were in contact with various government agencies that were interested in postwar planning, in spite of Hitler’s prohibition against it. Through this connection, Erhard’s ideas were brought to the attention of Otto Ohlendorf, chief of the general policy section of the Reich Economics Ministry in late October or early Novem21

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ber 1944. Ohlendorf had developed a concept for a form of governmentsteered economy for the postwar period that retained private property. He had also commanded one of the Einsatzgruppen that had entered the Soviet Union behind the invading German army and murdered 92,000 Jews in 1941 and early 1942. Ohlendorf was impressed by Erhard’s ideas and asked to learn more about them. Stahl convinced Erhard to send Ohlendorf a full copy of his memorandum. Then, on 14 November 1944, Stahl forwarded a new memo written by Erhard to Ohlendorf. Erhard then apparently met Ohlendorf to discuss his ideas sometime later in November.56 Although Ohlendorf and the RGI continued their postwar planning until the end of the Third Reich, there is no record of further contact between them and Erhard. This connection, along with his ties to Bürckel and big business, may have prevented Erhard from being swept up in the aftermath of the failed attempt to assassinate Hitler by Colonel Claus Schenk Count von Stauffenberg and his confederates on 20 July 1944. One of the plotters was Erhard’s friend, Carl Goerdeler. Erhard had maintained contact with the former price commissioner through the war years. In early 1944, as a part of the conspiracy’s planning for the post-Hitler era, Goerdeler asked Erhard to describe the economic and fiscal measures that would be necessary to restore Germany to economic health. In July, Erhard sent Goerdeler a copy of his war finance study using the regular mail. In early August, while in hiding to evade capture by the police, Goerdeler wrote a memorandum concerning a reformed post-Hitler Germany in which he endorsed Erhard’s ideas and mentioned him by name. In the wake of the failed attempt on Hitler’s life, Erhard hurriedly destroyed what he feared would be incriminating evidence, including his correspondence with Goerdeler, and prepared to seek shelter in an out-of-the-way village.57 In the event, no harm came to him and by the end of the year he was openly propagating his free market ideas again. In between writing the war finance memorandum and preparing the study for Bürckel, Erhard had time to continue his reading of the economic literature. Eschenburg called to his attention a new book by Wilhelm Röpke bearing the title Die Gesellschaftskrisis der Gegenwart (The social crisis of our time) that he had obtained while on a business trip to Switzerland. Erhard procured a copy for himself through clandestine means. He later also gained access to Röpke’s next two books, Civitas Humana and Internationale Ordnung—heute, published in 1944 and 1945 respectively.58 Röpke’s books were not conventional scholarly monographs. Rather, they were impassioned, wide-ranging economic and cul-

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tural critiques intended to point the way, a third way, for Germany to take after the war. Erhard told Eschenburg that he completely agreed with the ideas expressed by Röpke in the first book and later told of how he had avidly read the other two.59 Röpke condemned the Nazi dictatorship and its barbarous assault on civilization. He advocated free markets and a romantic conservative view for a reformed Germany and Europe. He broadly proposed a competitive economy built on private property regulated by a strong government. Röpke rejected laissez-faire but also feared collectivism. Therefore, he proposed using the government as a referee to prevent market excesses while allowing people the maximum freedom to structure their own lives and run the economy. The government would intervene to relieve suffering caused by economic transitions but would do so in a way that would not disrupt the price mechanism — what Röpke called “conformable intervention.” It would break up monopolies and cartels. Where this was not possible, it would supervise their activities to ensure that they behaved as if there were competition in their markets. An exception to this would be agriculture, which Röpke thought had a special mission to preserve sound social and cultural values. Röpke sought to create a society of small producers and numerous property owners. He admired the models of his adopted homeland, Switzerland, and the eighteenth century. He contended that every viable society was built on social hierarchy, adherence to eternal Christian values, and reverence for the elites who ran the government on behalf of the people. Röpke reviled big cities and the Prusso-German power state centered in Berlin, going so far as to call for the transformation of Germany into a confederation. On the international plane, Röpke called for free trade and restoration of the gold standard. Erhard experienced Röpke’s works as an emotional reinforcement to his own free market values. This was especially so because he read them while Germany was suffering through defeat and the Nazi regime was reaching its repressive climax. However, it would be incorrect to jump to the conclusion that Erhard adopted Röpke’s ideas wholesale or uncritically. The reading of Röpke’s trilogy stiffened Erhard’s commitment to the free market, free trade, a stable currency, and the role of the government as umpire—in effect, a third way between unrestrained capitalism and socialism. However, Erhard ignored Röpke’s call to return to the gold standard and to dismantle the powerful German central government. He also put aside Röpke’s cultural critique, never expressing a fear of big business or a dislike of big cities and modern technology and art. Again, 23

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Erhard held to a core of ideas that was his own, which he had developed since his childhood, and accepted stimulus from others as he saw fit.60 A similar relationship developed with the ideas of Walter Eucken. Eucken had gathered about himself a group of like-minded thinkers at the University of Freiburg in southwestern Germany. The group, which came to be known as ordo-liberals and the Freiburg school, met privately to discuss its ideas and published theoretical pieces in specialized journals. It could not openly propagate its theories because of the hostile atmosphere that prevailed in Nazi Germany. Like Röpke, and Oppenheimer, and indeed Erhard, Eucken rejected both unbridled capitalism and collectivism. He called for completely free competition within a framework created by a strong government. Like German liberals for over a century, Eucken, Oppenheimer, Röpke, and Erhard did not visualize a small, weak, passive government. In Eucken’s case, this was because he was convinced that markets did not appear spontaneously, as the paleoliberal economist Friedrich von Hayek contended, nor could they operate automatically. Government supervision was necessary to prevent abuses by powerful private interests. Eucken was particularly insistent that monopolies, cartels, and dominant firms be broken up in order to ensure completely free competition, although he did not see large firms as problems in themselves. Eucken had no moral objection to companies earning profits and called for maximum growth as a means for solving social problems. In effect, Eucken called for a government-supervised, competitive, consumer-oriented economy. His work was not burdened by the cultural commentary and romanticism that marred Röpke’s. Erhard followed Eucken’s periodical publications and read his Grundlagen der Nationalökonomie (Foundations of the national economy).61 His ideas on free markets and especially on the need to break the power of special interest groups and business organizations were very similar to those of Eucken and may well have been influenced by them. Moreover, his more modern, more eclectic cultural and social views accorded more closely with those of Eucken than of Röpke. In effect, the reading of Eucken’s works reinforced and caused Erhard to amplify the ideas that he had gained from Richter through his father, from Rieger, and from Oppenheimer. 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 un-

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likely that Müller-Armack influenced him, at least at this stage. MüllerArmack 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. He had much less confidence in the free market as such than Erhard did. At the same time that he was exposed to the ideas of Müller-Armack and Böhm, Erhard continued reading the works of Josef Schumpeter and Max Weber, both advocates of free markets, but with significant differences between them. In short, in 1944 Erhard was not a member of any school, though he had been influenced or at least encouraged by Eucken’s and Röpke’s publications.62 He had developed his own combination of ideas based on a liberal core. He remained loyal to concepts of a “liberally minded small man from a shopkeeping background.”63 The fact that he did not come from an elite family, like Eucken and Röpke, probably made it easier for him to select ideas that suited his predilections and made him immune to social pressures to conform.64 In spite of the disaster bearing down on the country, he remained optimistic about Germany’s future. That Erhard was not merely the mouthpiece for the ordo-liberals is clear from the ideas that he expressed in two articles published in Keiser’s Bank-Wirtschaft in early 1945. Erhard presented in condensed form the concepts that he had discussed in detail in his war finance memorandum. He proposed that the Reich government issue debt to the German people, which it would repay gradually over decades to compensate them for the involuntary loans that they had given it during the war. The debt would be repaid in steps according to social need. The emphasis of the economy would be shifted to the consumer goods sector through government loans. This would facilitate recovery from the damage suffered during the war and begin to point the German economy in a new direction, a path oriented toward the consumer. The economic controls imposed by the Nazis would only be lifted gradually in order to shield the people from the shock of the transition. That transition would lead to a free competitive economy in which the focus would be consumer welfare and the emphasis would be on growth. Government finances would be kept in balance, avoiding Keynesian demand management through deficit spending.65 This was another statement of the practical program that Erhard had been advocating in various forms since the early 1930s. It clearly was not an ordo-liberal trumpet call but was compatible with much of what Röpke and especially Eucken proposed. When the war ended in Germany’s total defeat in May 1945, Erhard 25

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was in Fürth. He had connections, but in the prevailing circumstances of confusion and uncertainty, it was unclear how much value they had. Far more important was Erhard’s record. He was free of involvement with Nazi crimes and had consistently and publicly advocated free market, liberal ideas. Erhard, above all, was an independent agent. He had not been part of the intellectual or social mainstream during the Wilhelmine Empire before 1914, indeed had only been dimly aware of public affairs. During the Weimar Republic of the 1920s and early 1930s, he had also stood aside from the main currents of thought, eschewing the trend toward increasing state intervention in economic and social affairs and rejecting the corporatist organization of the German economy. During the twelve years of the Third Reich, he had explicitly rejected the command economy and had continued to advocate ideas that were distinctly out of favor. This very independence, this lack of baggage, would serve him and his country well. Ludwig Erhard was well positioned to influence the struggle to transform Germany that began in 1945.

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5 2 POLITICS LUDWIG AGAINST ERHARD’S ECONOMICS IDEAS 1949–1953

L

udwig Erhard is difficult to characterize because he was unique. He was a man with economic training who was active in politics but who did not consider himself a politician. Erhard saw himself as an intellectual who understood how the economy functioned and who, therefore, could offer prescriptions to the German public to solve its economic problems. He had developed ideas over almost five decades based on the values transmitted to him by his liberal, tolerant parents. These ideas had been shaped but not fundamentally changed by his education and his professional experience. Yet, as Erhard was the first to admit, he was not a theorist or an original thinker.1 Some have criticized Erhard for this, attempting to minimize his accomplishment.2 Yet there is no reason to accept this critique. Many prominent theorists, not the least of them Karl Marx, have developed their theories based on ideas borrowed from others. Moreover, originality, by itself, is no guarantee of insight. Erhard advocated a set of ideas, unlike Marx and his followers, and unlike the theorists of the right, based on practical experience and a sound understanding of human behavior. Moreover, unlike any of them, his ideas were effective. Just as im27

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portant, they threatened no one and made no provision for violence or the domination a particular group. Erhard advocated ideas that — whatever their imperfections, whatever their internal contradictions, and they were few—were intended to improve the lives of all and to direct Germany toward a peaceful relationship with its neighbors. 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. Erhard was not a member of any economic school, certainly not that in Freiburg which had gathered around Walter Eucken.3 He admired Eucken’s ideas, but was temperamentally much too individualistic to consider himself as a follower of that clearheaded thinker. Erhard was not a joiner, not, in the English tradition, a “party man.”4 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. For the same reason, Erhard was not a political person.5 This expressed itself in two ways: he was not interested in politicking either for himself or even his ideas and he was not interested in gaining personal political power. Erhard, again, considered himself the advocate of a political ideal. He would attempt to realize this ideal in public office and by dealing with politicians, but he would not descend to their level. He would not compromise his ideas for the sake of pleasing someone or gaining a place for himself. Some observers have mistaken this for naiveté. They could not be more wrong. Erhard understood politics; therefore, he rejected it. He was especially incensed by the power of interest groups to subvert well-intentioned and well-conceived policies. Ideas, his ideas, should ride above these petty, personal concerns.6 This insight explains much of Erhard’s behavior while in office. He seemingly did nothing to promote himself. But that was not his aim. Bypassing the politicians and ignoring the party structure, he appealed directly to the German people through his public utterances. He saw himself as an educator who would teach the German people the virtues of the free market and democracy. For the same reason, he avoided administrative routine, refusing to read piles of memoranda, staying away from the office for days on end, while he pursued the much more important mission of selling the idea of freedom to the German people.7 Moreover, as a public servant, he was convinced that if he remained above the scramble for

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personal advantage, he could coolly survey the economic situation and propose policies that would be best suited to improve the lives of the German people.8 Erhard’s refusal to become a member of a school or of a political party was a result of his lack of personal ambition. As he put it at the peak of his success, on 21 June 1948, “I have no political ambition, especially of a party political nature.”9 Erhard was not interested in building a loyal group of followers around himself or of seizing control of one of the existing parties. He was not interested in personal wealth or fame. Indeed, he mistrusted power. In an illuminating moment in January 1962, he said, “In my eyes power is always dull, it is dangerous, it is brutal and ultimately even dumb.”10 As an intellectual, as someone who lived in a world of ideas, Erhard was convinced that ideas, the right ideas in particular, were more powerful than brute force. For this reason, he consistently placed ideas above power political considerations.11 He was certain that right ideas would ultimately prevail. Put differently, he was convinced that being right was of supreme importance. If he could be right, and he was absolutely sure that he was, then everything else would fall into place. It was for this reason that Erhard clung so tightly to his ideas when they were under heavy attack and why he devoted so much energy and time to preaching them. What were those ideas? Erhard was one of the many people in Germany searching for the “third way.” By 1945 he was certain that he had found it. Above all, Erhard was an optimist.12 He thought people were fundamentally good. He was sure that if the proper framework were created, people would behave well, that they would respect each other and live responsible, dignified lives. Because he was certain that people would use their freedom wisely, it followed that freedom itself would prevail. There was a psychological aspect to his optimism as well. Erhard did not lose confidence in himself or in the German people when times were bad, when crises seemed to threaten their very existence. Instinctively, he knew that many crises could be overcome by doing nothing. Most of his critics failed to grasp this truth. Like other seekers for the “third way,” Erhard had examined the alternatives on the two extremes of the ideological spectrum and had rejected them. Erhard thought that Marx was wrong.13 At the most basic level, Erhard was convinced that human beings, individual people, played a decisive role in shaping history. Therefore, Marx’s deterministic view of reality was false. Although Marx described a utopia on earth, Erhard correctly saw the practical outcome of his prescription as dictatorship. Er29

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hard recognized Marx and all collectivists as deadly enemies of human freedom. Therefore, he directed his most severe criticism in their direction. Based on his knowledge of the Soviet economy and his experience of the Third Reich, Erhard concluded that state planning must fail. The state simply lacked the knowledge necessary to steer an entire economy effectively. No single human being, no group of human beings, however intelligent, however well informed, could anticipate the wants of all consumers and deliver what they demanded when they wanted it. This task simply exceeded the capability of human intelligence.14 State planning, because it had the power of government behind it, the police and the armed forces, was also a threat to human liberty. Consequently, because they were both ineffective and dangerous, Erhard rejected collectivism and state planning. Erhard was also suspicious of mixed economies. He opposed in principle the creation of state enterprises. The state, because of its very nature, its concerns, could not act effectively as an entrepreneur. It lacked the drive and the self-interest and was too subject to interest group pressure to succeed.15 Moreover, it would try to expand its sphere to the detriment of all. Yet Erhard also rejected the opposite pole, the unrestricted free market. He did not fall into the error of thinking that the cure for a faulty policy was its opposite. His rejection of laissez-faire capitalism was based on an understanding of its record. Erhard recognized the abuses that had taken place during the early days of capitalism. He condemned the exploitation of women and children in factories, the milking of companies by businessmen to reap dishonest gains, and the shortchanging of consumers by selling shoddy goods. He considered these early capitalists as “freebooters.”16 Yet the “third way” did not have to embrace laissez-faire. Based on the insight that markets did not create themselves, Erhard proposed that the state stage the market. The state would set the ground rules for competition and then supervise the functioning of the system, but it would not participate in or attempt to steer the market itself. The market that Erhard visualized would yield its benefits of maximum consumer satisfaction without the abuses of the early industrial period.17 Erhard chose free markets as the mechanism to deliver goods and services to consumers because they were by far the most efficient ways of doing so.18 Only free markets could effectively filter information that would enable consumers and producers to come together to the maximum benefit of both. Moreover, the record showed Erhard that market economies were simply more productive than centrally steered econo-

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mies. They could produce more goods and services than any other form of economic organization. The realization that free markets had greater productive potential led Erhard to embrace growth as a solution to social problems. As he put it, “It is much easier to give everyone a bigger piece from an ever growing cake than to gain more from a struggle over the division of a small cake, because in such a process every advantage for one is a disadvantage for another.”19 A growing economy would make possible the fulfillment of social needs and allow the society to pursue its real goals.20 Implicit in this reasoning was Erhard’s lack of interest in equality. His goal was to raise the standard of living of every citizen, and growth was the economically and politically easiest way to do so. In short, Erhard saw material plenty as the prerequisite to achieving social goals, although equality was not one of them. Erhard referred to the economic system that he helped build after 1948 as the social market economy. Many critics, especially on the left, have contended that the use of the word “social” in connection with the word “market” was a cynical manipulation of the workers for the benefit of big business, but the charge is false. Erhard sincerely believed that a free market supervised by a strong government was the most socially responsible economic system. Erhard’s version of the market economy was social because it benefited consumers, that is to say, everyone.21 Again, “The solution lies not in the division, rather in the multiplication of the social product.”22 Need would be overcome through growth. Inequality would become irrelevant through growth. The market, because it provided people’s needs, because it raised their standard of living, was social.23 Erhard was once asked about this concept by the free market economist Friedrich von Hayek. Erhard responded saying, “I hope you don’t misunderstand me when I speak of a social market economy. I mean that the market as such is social not that it needs to be made social.”24 Summarizing this idea neatly, Erhard said “the freer the economy, the more social it is.”25 Only the market, Erhard contended, could distribute wealth justly.26 Erhard did not consider the social market economy as an end in itself. It was for him a part, a decisively important part, of a larger whole. “Democracy,” wrote Erhard, “and a free economy logically belong together, like dictatorship and a state economy.”27 The free market economy—in its modified form, the social market economy — was a prerequisite for the establishment of democracy in Germany. Erhard was acutely aware of how a government that did not respond to the demands 31

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of its people, both under the Wilhelmine Reich and Hitler’s Third Reich, had led to disaster both for the German people and many others. He knew that Germany’s first attempt to create a democratic political system had failed. He attributed this failure not just to weaknesses in the political system itself but also to flaws in the economic order. In Erhard’s view the Weimar economy had not been free enough. Both the government and private groups had infringed on the freedom essential both to satisfy consumer wants and to ensure political freedom. “Every state control and every corporatist steering of the economy,” he asserted, “meant ultimately a restriction of the essential democratic constitutional guarantees of basic human rights and an erosion of the right of the free development of the individual.”28 Freedom was indivisible.29 Any violation of it, whether by a government or by a private interest group, was equally dangerous and condemnable. Yet, like Eucken, Erhard saw the solution to the problem in a strong state, but a new state that behaved differently from its predecessors. Erhard was no friend of the power state that had evolved in Germany and other industrialized countries in the nineteenth and twentieth centuries. “We suffer not from too little government, but from too much government.”30 Erhard visualized a state that left its citizens alone as much as possible. “Where the citizen is directly addressed by the state,” he said, “there is something wrong.”31 However, the state had an essential role to play in the smooth functioning of society. The state was responsible for creating and maintaining the market system, for observing the social effects of economic development, for assuring prosperity and stability, and for promoting both growth and free trade.32 Clearly, Erhard did not support the idea of the “minimal state.” The state had a vital role to play in ensuring that the market functioned properly. The state, again, should not engage in business activity itself, but it could provide infrastructure necessary for business to prosper.33 By infrastructure, Erhard meant utilities, schools, and a system of laws, very much in the spirit of Adam Smith and Walter Eucken. The balanced structure that Erhard conceived would serve larger human goals. Erhard fully accepted the notion that the objective of economic activity was social well-being.34 Economic activity was not a goal in itself. Accumulating economic goods was, in Erhard’s eyes, a means of freeing people from mundane problems so that they could pursue more lofty ends. Erhard wanted people to be independent and to participate as fully as they wanted in the intellectual and cultural life of the country. Relieving them from grinding poverty, the monotony of work, and daily

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cares and giving them comfort and security would make this possible.35 For Erhard, the vehicle for achieving these ends was the free market. Erhard was clear about how a market should function and what was necessary for it to do so. He summed up his view by saying that “There is no free market economy without free prices.”36 In order for the price system to function properly, competition was necessary. Erhard expressed this relationship by saying that “Competition is the motor and the price, that is to say the free price, the control mechanism of the economy.”37 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. Erhard knew that the price system sent essential signals to market participants that allowed them to make decisions best suited to their needs on a decentralized basis. The price system forced entrepreneurs to correct their mistakes, to invest in factories that would permit them to produce items that consumers really wanted at prices that they were willing to pay. In this way, the optimum of consumer welfare, Erhard’s goal, would be achieved.38 Politically, a free price system was necessary to gain the people’s confidence in the social market economy. It would show them that the economy was not being run for the benefit of a few rich capitalists and that they, through their purchasing decisions, actually had a decisive voice in shaping the economy.39 In order for the price mechanism to perform its assigned role, no one could interfere with its operation. Clearly, the government could not set prices. But, just as important, private interests could not be allowed to manipulate the price mechanism to their benefit either. For this reason, Erhard was an energetic opponent of cartels. In fact, Erhard considered the battle against cartels to be his most important task after the liberalization of the economy in 1948. “I consider this question Number 1,” said Erhard in 1949.40 Later, he referred to his proposed anticartel law in a letter to federal chancellor Konrad Adenauer as the “constitution of the German economy.”41 Erhard condemned cartels in no uncertain terms, saying that they were as bad as state planning.42 He was convinced that cartels distorted the economy, reducing the overall volume of production as well as consumer welfare. Cartels artificially increased their share of economic activity, reducing the portion of the market open to competition. This led to lower output, higher prices, and the misallocation of capital. Contrary to the arguments of their advocates, Erhard thought that cartels made overcoming economic slowdowns more difficult by reducing the flexibility of the economy. He also contended that they slowed 33

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technological progress, again by limiting competition and by allowing inefficient producers to remain in existence. At the same time, they promoted unnecessary technical advances, elegant solutions, that appealed to engineers and managers, but which yielded no real benefits to consumers. He also pointed out that cartels hurt medium-sized, middleclass firms. They posed barriers to entry into markets and made it difficult for new companies to obtain capital.43 Erhard considered cartels an abuse of the right to the disposition of private property. In effect, they represented an effort by some to use their property rights to infringe on the rights of others. “No one may have the right,” he declared, “in the name of freedom, to limit the freedom of another. Never may an interest group be given the right to decide what freedom is or should be.”44 While Erhard was a consistent and strong opponent of cartels, he recognized that some sectors of the economy were not suitable at all times for competition. Consequently, he recognized the need for exceptions to any ban on cartels. Like most economists, he admitted that in some areas, natural monopolies exist. He called for their regulation by the state so that they would behave as if they faced real competition. He also saw that the free market could not be allowed to shape the agricultural sector and, at least initially, the housing and fuel markets.45 In the case of agriculture, Erhard accepted the argument that geographical and topographical factors made it impossible to liberalize the food production sector, at least in the early years of the Federal Republic.46 He did hold out the hope that agriculture, the capital market, and housing could be freed some time in the future. Similarly, he never proposed privatizing the post office and most utilities.47 He also accepted the argument that producers of branded, packaged products should be allowed to stipulate retail prices.48 This would prevent discounters from lowering prices to increase sales volume. Erhard adopted this position out of concern to maintain the quality of products. For the same reason he supported the German handicraft industry. Clearly, both positions were significant breaches in his free market principles. Erhard also did not accept the argument of free marketeers to his right that large companies in themselves were objectionable and doubted that the concept of market power was viable. He did not think that any usable standard of measurement of market power could be formulated.49 Philosophically, he found the entire concept of dominant firms unacceptable. “It seems to me a breach in logic if I preach free competition and demand the highest efforts and proof of one’s worth, but then label as a dangerous ‘economic power’ the successful, growing enterprise.”50 So long as a

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company grew because it provided superior satisfaction of consumer wants, Erhard saw no reason to regulate it or break it up. The free market could not function if businesspeople were robbed of the rewards of success. The incentive to innovate and satisfy consumers would be removed. The foregoing discussion makes clear that Erhard placed the consumer at the center of his considerations. “Our economy serves the consumer, he alone is the standard and judge of economic activity.”51 In contrast to many others in government, when Erhard became minister, he did not see his primary objective as automatically protecting the interests of West German business. Instead, he saw his mission as ensuring that 50 million West German consumers got the maximum benefits from economic activity.52 For this reason, Erhard tried to change the emphasis in the German economy toward the consumer goods industry.53 In doing so, Erhard made a significant break with Germany’s economic past. Up to 1945, heavy industry—coal, iron, steel, machine building, and chemicals—had dominated the German economy. Erhard wanted to change that not only to increase consumer satisfaction and political power but also to demilitarize the German economy. This change in emphasis had another dimension as well. Traditionally, the economy had been seen in Germany as a source of jobs. By emphasizing the consumer, Erhard demonstrated that work for its own sake was meaningless, that the purpose of economic activity was the satisfaction of wants. Because wants may be of a noneconomic nature, jobs cannot be an end in themselves. This view was extraordinarily unsettling both to employers and to workers and their representatives, the trade unions. Erhard was trying to revolutionize the German mentality, to shift it toward a Western consumer outlook. This consumer society had been attacked by social critics, including Röpke, for decades. But this is what Erhard had in mind, a change in outlook that promised to transform Germans’ view of themselves and their relationship with Western culture. An important part of this change in outlook and life-style was the spread of property ownership. Erhard wanted as many people as possible to own property, in particular to own their homes.54 As he said in 1961, maybe indelicately, “Property makes you free” (Eigentum macht frei).55 He wanted the German people to obtain property by saving, not by receiving it as a grant from the state.56 Erhard also wanted as many people as possible to own stock in companies. Erhard’s objective in preaching the need for widespread property ownership was his realization that private property yielded enormous social and political benefits. Home ownership gave people a feeling that they had a stake in the society as a 35

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whole and provided them with a sense of independence. These feelings would contribute to making them responsible citizens and make them less vulnerable to political demagogues who offered quick, simple solutions to complex problems. A large number of property owners would contribute to the growth and stability of political democracy, a major consideration after the collapse of the Weimar Republic and the foundation of the new Federal Republic. They would also at least partially offset the power of big business. In short, Erhard considered private property essential for democracy. Without widespread property ownership, the future of democracy in West Germany would be doubtful.57 Based on his and Germany’s experience of the early 1920s and mid1940s, Erhard stressed the need for stable prices and monetary values. This would protect savers and prevent the social upheaval that came with inflation.58 It would also promote social fairness, because not everyone suffered equally from inflation and some even benefited.59 Erhard was so serious about this that he called for “currency stability to be accepted as one of the basic human rights.”60 A critical factor in assuring that the currency remained solid was a balanced government budget. While Erhard was responsible for a governmental budget only during the last three years of his political career, he called for a “clean” and “clear” fiscal policy from the beginning. Only if tax revenues were available, could the state spend money.61 Going even further, Erhard demanded that the standard for domestic policy both in the Federal Republic and in other European countries had to be a balanced budget.62 Erhard was a vigorous advocate of free trade from the beginning of his public life. As we have seen, in his war finance and debt memorandum of March 1944, Erhard recommended that Germany return to the world marketplace. In May 1946 he again called for the western zones to be allowed to conduct foreign trade. This would both strengthen the consumer goods sector and prevent the rise of another dictatorship.63 One of his first initiatives after becoming economics minister in fall 1949 was to propose that West Germany work to liberalize trade within Europe.64 Free trade would help West Germany become prosperous by allowing the import of goods not produced domestically and by opening the German market to competitors, thereby keeping domestic prices as low as possible.65 Exports would also allow Germany to earn foreign exchange necessary to buy raw materials that it needed for its manufacturing industries.66 Closely related to his desire for free trade was Erhard’s call for the free convertibility of currencies. Governments had been controlling

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the movement of their currencies across their borders since the 1930s. The result was the politicization of this important aspect of international economic relations. This subordination of economic considerations to strategic calculations meant higher prices for consumers and heightened international tensions. The free convertibility of currencies would go a long way toward creating a single market throughout Europe and ultimately the world, all to the benefit of consumers in West Germany and elsewhere.67 These specific policies carried with them major political and social implications. They pointed to the fact that Erhard wanted a society in which the individual could live in dignity and self-respect.68 This is one of the major reasons why Erhard wanted as many people as possible to own their own homes. He also demanded the decontrol and deregulation of the economy for the same reason. He wanted to free people from the tyranny of petty officials. He painted a picture of just how oppressive things had become for the mass of citizens when he said, “I find nothing more unjust, loathsome, and inhumane than that a person who has worked honorably must show an official behind a window that his pants pockets are empty just to get a ration slip.”69 What Erhard wanted above all, and this was the ultimate aim of his economic policy, was that people could live free, dignified lives, secure from the intrusion of authorities either public or private and shape their lives as they saw fit.70 He wanted a society of free people who accepted moral responsibility toward the society as a whole.71 Flowing from this view, Erhard rejected the concept of distributive justice. He condemned a society in which “everyone had his hand in the pocket of everyone else.”72 He was especially aware of the German “hereditary evil,” as he called it, of envy and ill will toward anyone who seemed to be better off.73 He feared that every intervention by the government opened the door to further interventions that would lead eventually to tyranny.74 Consequently, Erhard generally opposed government programs to redistribute income.75 This was a logical corollary to his policy of economic growth. Yet, he never proposed dismantling existing social welfare programs or the progressive income tax. As we will see in a later chapter, he did not mount an energetic campaign against the expansion of the social welfare system during the mid-1950s either. Erhard wanted to strengthen the role of the individual in German society. But he was no egalitarian. He visualized a society built upon free individuals who lived in dignity and respected their fellow citizens. For this reason, he opposed pluralist interest group politics and the redistri37

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bution of income. For the same reason he opposed one of the most cherished goals of the labor movement, codetermination.76 He was convinced that a free enterprise system with a functioning market and private property was incompatible with the sharing of responsibility for decision making in the firm. Only the owner of the property could accurately assess risks. If the owner did not do so, then, because he alone bore responsibility for those decisions, he must suffer the consequences. Erhard understood that the market was a mechanism for selecting those businesses that best fulfilled consumer wants. If labor shared responsibility for management decisions with the owner, this mechanism would be disrupted. Inefficient or incompetent firms would be kept in existence to preserve the jobs of their employees, leading to a waste of resources and a reduction of consumer satisfaction. Similarly, Erhard opposed ensuring entrepreneurs against risk. There was a powerful tradition in German business of seeking protection against the vagaries of the market either from the state or in private organizations such as cartels. These demands rested on the Christian concept of the “just price” culminating in business’s call for sales at guaranteed prices sufficient to cover its production costs. Erhard considered the just price nonsense. No earthly authority, neither a church nor a body of learned economists, could determine what the just price was. Consumers did that through their purchasing decisions in the market.77 Consequently, Erhard rejected the idea that entrepreneurs had a right to recover their production costs. He pointed out that production costs had nothing to do with the price that a good commanded in the market. Prices are determined by consumers’ desire for particular goods. This also implied that Erhard rejected the traditionalist and socialist concept of the labor theory of value. Believers in this idea contend that the value of a good derives from the amount of human labor invested in its production. Both Adam Smith and Karl Marx fell victim to this erroneous notion. Instead, Erhard, following in the footsteps of Ludwig von Mises, was convinced that the price of a good reflected demand for it.78 Business, therefore, had to brave the challenges of the market, had to satisfy consumers, in order to earn a living.79 Erhard’s rejection of the “just price,” the guaranteed return to entrepreneurs, and the labor theory of value fit well with his emphasis on the centrality of the individual and the sovereignty of the consumer. Yet free people could not live without restraint. It was necessary for them to accept responsibility both for themselves and for society as a whole.80 To ensure this, Erhard thought that people should not express their de-

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sires as members of interest groups, an idea that had been developed by Eucken.81 Doing so would lead them to become dependent on the government for their livelihoods, a corrupting state of affairs that would ruin both the market and democracy.82 “Democracy is not haggling among interests and means more than the coexistence and competition among groups. Democracy is also not a struggle of powerful associations to control the state.”83 In advocating this view, Erhard placed himself in opposition to one of the major trends of twentieth-century democracy. Erhard considered the pluralist politics and distributive programs that had gained currency in the United States during the Roosevelt administration and which came to dominate the politics of the western European democracies as obstacles to the construction of a healthy society. They encouraged people to become irresponsible, to pursue narrow selfinterests, and thereby forget the needs of the society as a whole.84 The popular model was far inferior to his vision of a society of sensible citizens, not beholden to any interest group, who made decisions on their own, and therefore lived in self-respect, equality, and dignity.85 Erhard’s ideal was of a civil society of individuals whose relations were mediated by a competitive market, supervised by a powerful government. His goal was to depoliticize the economy and to reduce the scope of political action. Consequently, his chief concern was domestic affairs. Yet, his inwardly focused view had foreign policy implications. Erhard drew upon his domestically oriented concepts to propose policies for the international arena. Fundamentally, he wanted the free market to shape relations among states. The fact that no entity existed that could perform the role among sovereign states that government did within a country did not trouble him. As we have seen, Erhard advocated international free trade and the free convertibility of currencies. He foresaw a system that would run itself in all essentials. Consequently, he opposed the creation of large, bureaucratic international organizations.86 For that matter, he reviled large domestic bureaucracies as well. For this reason, Erhard was very suspicious of the drive to create European institutions leading ultimately to a united Europe. He simply could not see the need for such a contrivance. Any such creation would inevitably be highly bureaucratic, in his view. Moreover, there were so many differences among the various European peoples and among the places where they lived that a single economic or fiscal policy for the entire continent would inevitably fail.87 Not only that — any central European bureaucracy would promote planning, a bogey that had already failed whenever it had been tried.88 39

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These opinions put Erhard into conflict with a very powerful group of government officials, intellectuals, and politicians. These advocates of the European idea condemned any opposition to a common market or a politically united Europe as sacrilegious. They saw common institutions as Europe’s only salvation from dictatorship. Erhard also opposed tyranny. He rejected nationalism and the balance of power as well. But, he did not consider foreign relations as an end in itself. Consequently, he rejected the traditional notion, which had been dominant in German statecraft since Frederick the Great and which had been reinforced by Bismarck, of the primacy of foreign policy.89 Erhard embraced the classical liberal alternative of free trade among sovereign states and the decentralization of power among and within them. If all people could exchange goods freely among themselves, then there would be no need to conquer territory for economic advantage and consumers everywhere would benefit from the ingenuity of their fellow citizens of the world. Consequently, the mantra of European cooperation for its own sake found no support from Erhard.90 He feared that European cooperation would in fact result in the restriction of trade. He thought that a European bureaucracy would create barriers to entry to the European market for goods and services produced by countries outside of the organization. Erhard’s fear in this regard was based on his conviction that it was essential both for Germany and continental Europe to maintain close economic relations with the United States, Britain, and the European neutral states. Because these countries shared many of the values held by West Germans, and because their participation in the market would make available to German consumers the benefits of a wider division of labor, Erhard advocated the broadest possible definition of European institutions, culminating in the elimination of trade barriers throughout the world. The particular target of Erhard’s criticism was France. The French government was too centralized for Erhard’s liking and relied too heavily on economic planning. He thought that the French demand to “harmonize” social expenditures and labor costs was just a means for them to compensate for their own policy mistakes by having others pay for them. The call for “equal start chances” throughout Europe was unrealistic, in his estimation.91 France, in fact, was following a highly nationalistic, anti-American policy that was harmful to West Germany.92 As an alternative to creating supranational organizations, Erhard called for adoption of the subsidiarity principle in international relations. In effect, he wanted decisions to be made at the lowest possible

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level, thereby preventing the growth of a large European central bureaucracy.93 Again, applying his domestic prescription to the foreign policy arena, he said that Europe did not need a planning program but an order program.94 In the spirit of creating an international order, possibly to the surprise of some, Erhard advocated foreign aid. He contended that this assistance should take the form of money and technical help and also, just as important, advice on how to create free markets. Erhard wanted to use foreign aid to school countries in the working of the free market so that they could eventually rid themselves of inherited colonial bureaucracies, avoid the embrace of new international bureaucracies, and share in the wealth being created by the dynamic market economy. Again, just as at home, the key would be growth. An ever increasing national product, fortified with participation in international trade, would allow the standards of living of everyone to rise. This, in turn, would allow people to lead fuller lives and to reduce both domestic and international tensions.95 By the end of World War II, Ludwig Erhard had evolved a set of economic principles that guided him throughout the remainder of his life. When he departed from them, it was not due to a change of attitude but to political ineptitude or weakness. He had built an intellectual edifice around the individual. Individuals would prosper and live wholesome, rewarding lives by participating in free markets. Yet, because there were always some who abused their freedom, a strong state was necessary to oversee their behavior, ensuring that no one violated the freedom of anyone else. Consequently, the state had a vitally important role to play. Erhard was not a laissez-faire liberal. He was not a traditional conservative. He most especially was not a statist, a social engineer who sought to create heaven on earth. He was an optimistic but hardheaded thinker who wanted to free people to realize their own potential, while accepting that neither markets nor democracies functioned automatically. He had developed his own vision of the third way. In 1945 he began to try to make it a reality.

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5 3 POLITICS BREAKTHROUGH AGAINST 1945–1949 ECONOMICS 1949–1953

I

n May 1945 the Third Reich collapsed with a resounding crash, leaving in its wake a shattered economy and a bewildered people. Production fell dramatically due to the disruption of transportation and communications, the confusion caused by the movement of people to avoid the advancing Red Army and to return to their homes, and the physical destruction caused by ground fighting, bombing, and Nazi demolitions. In the first quarter of 1946, the German economy only produced 28 percent of the goods and services that it had generated in 1936. Since distributing this meager fare was difficult, malnutrition spread throughout the country. In Munich, Stuttgart, and in the Ruhr people, including manual workers in heavy industry, received only a fraction of the minimum daily caloric requirement. Making the situation even more difficult was the stream of refugees from the east that swelled the population in western Germany. In 1945 and 1946, the number of people in the western occupation zones grew by 12 percent. Even if Germany had not suffered a devastating defeat, accommodating these people would have been difficult. However, because about 40 percent of the area’s housing was unlivable due to 43

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war damage, accommodating even the region’s native population was impossible.1 The defeat also caused Germans to think deeply about the direction that their country would take in the future. This consisted only partly of remorse for the death and destruction that their government had caused. The people who stepped forward to shape the postwar Germany had not participated in the government of the Third Reich and so did not feel directly responsible for the war crimes and crimes against humanity that it had committed. They did, however, want to prevent such a disaster from ever happening again. Consequently, they immediately began planning, debating, and organizing to shape Germany’s future in competition with the Allies and their ideological opponents. One of these people was Ludwig Erhard. The intellectual atmosphere that prevailed in Germany immediately after the defeat was distinctly unfavorable to Erhard’s free market ideas. There was a long tradition of anticapitalist sentiment in Germany that had been reinforced by the widely held view that the era of capitalism had ended with the Depression. Many if not most Germans thought that big business had actively collaborated with the Nazis. Some on the left considered the Nazis the puppets of big business. Consequently both Marxist and Christian thinkers advocated a turn away from free markets and individualism toward state planning and collectivism.2 The views of Eugen Kogon provide a good illustration of the attitude that prevailed in the years immediately after the end of the war. Kogon, a left-wing Christian socialist journalist and survivor of the Buchenwald concentration camp, thought that a new phase of history was beginning. He thought that the age of individualism was over and that capitalism was dying. He doubted that the Americans would be able to save capitalism and expected that some form of socialist regime would be formed.3 For moderates like Kogon, as well as for exponents of free markets on the right, advocating anything other than a “social” agenda was political suicide. In a very real sense the vaguely defined word “social” was trumps in the years after the war.4 Only collectivist solutions that protected people from competition had any chance of gaining popular support. In many ways, this represented a return by the Germans to a traditional form of Gemeinwirtschaft, or a commonweal economy. There was a long history of state control or steering of the economy for the common good in Germany. Although private property would be preserved, its owners would not be able to do anything they pleased with it. The state would ensure that they used their property in what was seen to be a socially responsi-

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ble manner. Moreover, the state would engage in planning for the entire economy and operate enterprises itself to ensure that social needs were satisfied.5 This attitude was in marked contrast to the view prevailing in the Anglo-Saxon countries where no such tradition of state paternalism existed. “[T]here was little of the gut rejection of state action common among Anglo-Saxon businessmen.”6 Price fixing and dividing markets by private business were sanctioned by the state in Germany and, indeed, had been coordinated by the state for centuries. German business leaders expected to be both guided and protected by the state. Consequently, due both to well-entrenched tradition and the magnitude of the recent catastrophe, opposition to the ideas espoused by Erhard and others such as Röpke and Eucken was very strong. In contrast, socialism, loosely defined, was very popular in postwar Germany. State planning and the socialization of big business enjoyed wide support.7 Right across the political spectrum, support for a collectivist solution was strong. The Social Democrats called for planning and public control of large enterprises. The new Christian parties, the Christian Democratic Union (CDU) and the Christian Social Union (CSU) in Bavaria aimed at curbing capitalism. Even the party most closely tied to business, the Free Democrats (FDP), was ambivalent about free markets.8 Not surprisingly, the SPD had the most far-reaching plans to collectivize the economy. The Social Democrats wanted to anchor a system of economic planning in whatever constitution was written for the new Germany. They sought a complete break with the past, including the end of capitalist domination of the economy. They wanted a strong political and economic democracy. The government would formulate plans for all economic activity and would gain support for them through democratic mechanisms. This thrust was reflected in the constitutions of the newly formed state governments written in 1946 and 1947. The SPD controlled these governments and drafted the constitutions. All of them included provisions for state economic planning.9 Kurt Schumacher, the heroic leader of the SPD, who had suffered terribly in Nazi concentration camps, thought that Germany was entering a new phase of its history. Schumacher had been badly wounded on the eastern front near Lodz in October 1914, losing his right arm and suffering intense pain afterward. He entered the SPD soon after he left the hospital and worked for a social revolution. In marked contrast to Erhard, Schumacher was an acerbic character who was further embittered by his brief war experience. He was averse to compromise and attempted to degrade rather than debate his opponents. In 1945 he was certain that the country was about to ex45

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perience a social revolution that would lead to the abolition of capitalism and the establishment of a socialist state. For this to succeed, Schumacher was convinced that the SPD had to defeat the Allies and the German capitalists and bankers who would try to preserve the old order. Schumacher believed in class warfare while rejecting Stalinism. His goal was to liberate people from the oppression of big business and create a democratic and socialist commonwealth. He advocated the socialization of key industries and a planned economy.10 Viktor Agartz, another prominent leader of the SPD, also shaped the party’s economic program. Agartz was appointed by the British as chief of the Central Office for Economics in their occupation government based in Minden. He hoped to establish a central administration that would plan the country’s economic future. Like Schumacher, Agartz advocated the widespread socialization of industries.11 Astonishingly, and ominously from Erhard’s perspective, the main opposition to the SPD—the CDU and CSU — also advocated the socialization of the economy in the years immediately after the war. Anticapitalism was the dominant view among the Christian parties and their followers. This was the result of the strength of the critique from the left, the need to compete with the left for support, and the sincere belief that capitalism was morally unacceptable. Consequently, a Christian socialist movement had developed that powerfully influenced the CDU and CSU. Christian socialism drew support from a wide variety of politically involved Christians, not just union activists. The Christian socialists thought that the collapse of Germany signaled the end of an historical era. They hoped to make a new beginning. Jakob Kaiser, one of the leaders of the CDU in Berlin, and one of Erhard’s most powerful antagonists, wanted to put an end to traditional bourgeois society. He believed that the capitalist era would be replaced by a period of labor domination leading to a completely new social and economic order. Fatalistically, Kaiser was sure that the new order would be socialist. However, he and his followers rejected the idea of class war and the violent overthrow of the existing order. They sought a harmonious, classless society, with freedom for individuals and the socialization of natural resources and key industries.12 The Christian socialist agenda was not as well defined as the Marxist program of the SPD. Consequently, heated debates took place among the Christian union politicians as to just how their parties’ programs should be shaped. In October 1945 Johannes Albers of the Cologne wing of the CDU advocated “extensive nationalization” of industry.13 At a meeting in

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Bad Godesberg in December 1945, the Christian Democrats passed a resolution that included the declaration that “the time of economic liberalism had passed forever and the Union supports a socialism of Christian responsibility.”14 Christian socialism was part of the effort, in which the SPD also participated, to find a “third way.” In the context of defeat and occupation, this meant a path between Stalinism and laissez-faire capitalism. For both Schumacher and many Christian socialists, it also meant an attempt to have Germany act as a bridge between East and West, as well as left and right, thereby preserving Germany’s political independence and unique political culture.15 It was for the same reason that the CDU rejected both “economic liberalism” and the “egotistical capitalistic profit economy” as well as “collective economics” at its Bad Godesberg meeting. It called for the adoption of a “middle way between doctrinaire liberalism and doctrinaire socialism.”16 Consequently, Christian socialism evolved into something different from the socialism of the SPD but was still incompatible with the very different vision of the “third way” advocated by Erhard. By 1946 and 1947, when the future shape of the German economy remained very much in doubt, the Christian socialists wanted to reform the economy on “Christian” grounds, while rejecting Stalinism. They were less interested in changing institutions than in altering attitudes. They were now prepared to tolerate the continuation of private property if its use were heavily influenced by the government. They advocated worker participation in management and in economic self-administration bodies such as chambers of commerce and industry associations. They hoped to create a cooperative economy that would pursue the common good. They saw individualism as antisocial and as harmful to Christian morals. In a mixture of Catholic social teaching and trade union anticapitalism, the Christian socialists attacked the core of the competitive free market economy that Erhard supported. They feared that the individualism that he thought was essential could not be accepted as the highest social good because it endangered ecclesiastical authority and social harmony.17 The culmination of this line of thinking was the Ahlen Program adopted by the CDU of the British occupation zone in February 1947. The program was written by Konrad Adenauer, the leader of the CDU in the British area. Adenauer was not a Christian socialist. However, he temporarily accepted Christian socialist views in order to unite the party for an approaching election to be held in the region’s largest state, North Rhine-Westphalia. He was convinced that the program, and the attitudes behind it, could be changed in time. The Ahlen Program included a ring47

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ing condemnation of capitalism: “[T]he capitalistic economic system . . . does not correspond to the state and social needs of the German people.”18 It called for the nationalization of heavy industry, for the government to engage in economic planning, and for codetermination for workers. In effect, it expressed the Christian desire to return to a precapitalist situation in which people would be represented as members of social orders and receive care and protection from a benevolent government acting on Christian principles.19 It would be easy to jump to the conclusion that the western Allied occupying powers advocated transforming Germany into a competitive capitalist state on the Anglo-Saxon model. That, however, would be a mistake. The Allies did not agree among themselves about how to handle the conquered Germany. Their governments at the time were following widely divergent policies in their own countries. These differences were reflected in their occupation policies. The Soviets sought to extract the maximum in reparations from their occupation zone in the east to help repair their own war-ravaged land. They began doing so as soon as they occupied eastern Germany and had no intention of allowing the western Allies to stop them. They also began immediately to socialize industry and redistribute land, effectively abolishing private property and market competition. For the Soviets, the only question was whether and to what extent they would be able to obtain reparations from the western occupation zones. For these reasons, the issue really lay in the west. Here the British and the Americans followed markedly different approaches. Moreover, there were disagreements within their occupation governments, especially on the U.S. side. In the immediate aftermath of the war, the British national unity government led by Winston Churchill was defeated in an election. Labour formed the new cabinet led by Clement Atlee. Because Labour followed a policy of creating a welfare state and nationalizing key industries at home, it pursued a similar policy in the British occupation zone of Germany. If free market capitalism were to be implanted in Germany, therefore, it would have to be done by the Americans. That they would do so was not clear. U.S. occupation policy was set by a memorandum approved by the U.S. Joint Chiefs of Staff, JCS 1067, and sent to General Eisenhower in April 1945. The primary economic objective laid down by the joint chiefs was to prevent Germany from launching another war. The U.S. occupation government, therefore, would decentralize the German economy, dismantle German war-related industries, and denazify German

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business leadership. The standard of living of the German people would not be allowed to exceed that of their neighbors. Steps could be taken by the occupation government to prevent starvation and the spread of disease in order to avoid social unrest. However, no action would be taken to rebuild the German economy. The Germans would have to look after themselves. The Americans would help to repair infrastructure such as railroads and the telephone and telegraph systems because they were essential to the occupation. They would also abolish the German industry associations and cartels and remove the Germans from international cartels. Ownership of German industry would be dispersed. The system of rationing and wage and price controls that had been imposed on the country by the Nazis would be continued and would be administered by Germans under American supervision.20 This policy was essentially confirmed by the informal agreements reached by the Allies at the Potsdam conference in July and August 1945. The Allies agreed to treat Germany as an economic unit and to collect reparations. However, they were unable to agree on exactly how to go about these things.21 The result was that each of the Allies addressed the economic problems that arose in its respective zone in its own way. As it became clear that the Germans could not feed themselves and would not be able to restore production on their own, the Allies began to improvise solutions. They took responsibility for running the Nazi system of economic controls themselves when the Germans proved unable to do so. Consequently, the black market grew to encompass about half of the economic activity that took place in the country. At the same time, they continued to dismantle industries, both for reparations and to eliminate Germany’s war potential. The separation of the country into four occupation zones disrupted the geographical division of labor that had shaped the German economy over the preceding century. The industrialized west, especially the British zone, was dependent on food deliveries from the east, which was either occupied by the Soviets or had been given to the Poles. The U.S. zone in the south produced a food surplus, but could not compensate for the loss of deliveries from the east and could not produce enough manufactured goods to satisfy its own needs. Prior to 1933, Germany had been a heavy exporter of manufactured goods. The weakness of the domestic economy and the restrictions placed on international trade by the Allies prevented the Germans from resuming exports and therefore from importing either raw materials or food. The British attempted to socialize the economy in their zone, seizing and reorganizing the industries of the Ruhr in August 1946. The 49

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Americans also tried to control the economy in their area. However, it became increasingly clear to them during the course of 1946 that the policy set out in JCS 1067 would not work. Consequently, the commander of the U.S. occupation zone, General Lucius D. Clay, who was sympathetic to the free market, began to revive the German economy under the cover of the provision to prevent starvation and disease that had been provided by the JCS directive.22 By late 1946, then, the situation in the western occupation zones was very much in a state of flux. The British had tried to promote the collectivization of industries in their zone, disrupting production and endangering the lives of those who lived there. The Americans had realized that a punitive policy was self-defeating. In the Allied administration, among the new German political institutions, and especially among the general public, the realization was spreading that government economic controls did not work. This change in attitudes, incomplete though it was, provided Erhard with an opportunity. He did not let it pass. Many historians have propagated the myth that Erhard was incapable of promoting himself. They contend that he was the fortunate beneficiary of forces that came to his assistance and propelled him into a prominent position in German public life.23 In fact, Erhard’s meteoric rise to power and prominence can be explained in much more prosaic terms. Armed with knowledge gained from experience, a program, and ambition, he acted energetically to push himself to the fore. That some luck was involved, and that he received help from others, does not change the picture. Other prominent politicians benefit from these forces as well. Erhard saw an opportunity and moved forcefully to seize it. On 18 April 1945 Erhard was in Fürth-Dambach, living with friends after his own home had been destroyed by Allied bombing when units of the Third U.S. Army occupied the city. On the very next day, Erhard presented himself to the American military authorities and offered his services.24 The Americans gave Erhard the mission of restoring industrial activity in Fürth and of reorganizing the municipal economic office.25 He moved ahead briskly with these tasks. By the end of May, he had written a memorandum for the U.S. authorities in which he recommended steps that should be taken to revive the German economy as a whole. He contended that a currency reform was essential but could only be undertaken after production resumed, the transportation system had been repaired, and the economic unity of Germany had been restored. Until these conditions applied, it would be better for the state to control the economy to prevent suffering by the population. Ultimately, he argued, a

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free market should be established to bring the country back to prosperity.26 Shortly after Erhard submitted this proposal, he was promoted to economic adviser to the military government for central Franconia, the region that included his native Fürth and much of northern Bavaria.27 Erhard’s administrative style had not changed since his days at the Vershofen institute. Foreshadowing how he would operate later in much more responsible positions, Erhard concentrated on “the big picture” while leaving administrative details to others. One of his friends, and a future subordinate in the Federal Ministry of Economics, Roland Risse, visited Erhard in Fürth in the summer of 1945 and has left a vivid picture of how Erhard operated. Risse dropped in on Erhard’s office and immediately noticed that Erhard ran it in a completely unorthodox manner. While Risse was there, Erhard was called to the office of an American officer in Nuremberg who was responsible for the economy in the area. After his return, Erhard related what happened. The officer had asked him what should happen with the factories in the area, implying that they should gradually return to work. Erhard responded matter-of-factly that he had already given them permission to resume producing.28 Clearly, in spite of Germany’s total defeat, Erhard was not in awe of the Americans, had a very clear idea of what to do, and was willing to act on his own responsibility. The Americans were pleased with Erhard’s performance and when the time came to form a government for Bavaria, they decided to place him in it. In mid-September 1945 the Americans interviewed Erhard on short notice, just to make sure that he had the right views, and appointed him minister of economics in the new cabinet being formed by the socialist Wilhelm Hoegner. Apparently, the U.S. occupation government saw Erhard as a counterweight to Hoegner because of his free market policies. Erhard assumed his duties on 22 October 1945.29 We have another glimpse of Erhard from one of his friends shortly after he took up his new duties. Theodor Eschenburg, who had read his memorandum in Berlin in 1944, visited Erhard in his new office in Munich in December. He had not seen Erhard since January and was not sure what had happened to him. Sitting in Erhard’s office in the Prinzregentenstrasse in downtown Munich, Eschenburg immediately noticed that, unlike in Berlin, Erhard was now very talkative. He asked Erhard if he had come to any harm due to his subversive memo. Erhard answered dryly, “Nothing happened. As you can see, I’m sitting here.”30 Because of the chaos reigning in the Bavarian economy due to the disruption caused by the war, the rationing system, and the splitting of Ger51

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many into occupation zones that were not allowed to trade with each other, there was little that Erhard could do to stimulate economic activity. But he was resolved not merely to administer shortages. He took what action he could and sought to propagate his ideas. In September 1946 he attended a meeting of representatives of the British and American occupation zones to choose the head of the Administrative Office for Economics. This was one of the first steps undertaken by the Allies to unite the British and U.S. zones. Viktor Agartz was proposed by the British for this important post. Erhard loudly opposed him as a socialist, a planner, and a centralizer. Once Erhard and others successfully headed off Agartz’s appointment, they placed Rudolf Mueller in the position. In January 1947, however, as a result of the SPD gaining control of all of the state governments in the newly formed Bizone, Mueller was overthrown and Agartz put in his place.31 Erhard, as Bavarian economics minister, became a member of the Administrative Council for Economics in the U.S. zone that was formed by Clay in September 1946.32 He used this forum to call for greater German responsibility for managing the economy. He opposed American efforts to dismantle industry in the U.S. zone and in Bavaria in particular. On 30 September 1946 he wrote a report for the occupation government advising against the dismantling of BMW. He stressed that BMW was a privately owned company, not controlled by the Reich. Because it was important to the peacetime economy of the region both as an employer and as a source of export earnings, at least some of BMW’s machine tools should be left in its plants.33 In the event, BMW was given contracts by the U.S. Army and revived. Erhard also became involved in a controversy with the Allies over the decartelization of German industry. As we have seen, Erhard was a strong opponent of cartels and monopolies. However, he wanted the Germans to solve the problem themselves. In December 1946 the Americans proposed a draft cartel law to the Council of States (Länderrat) that they had created in October 1945.34 Erhard opposed this law in a letter that he sent to the council on 4 December. He stated here at the outset the position that he would later follow in the cartel debate. He doubted that large companies by themselves were a problem. He also rejected the argument that German big business was the cause of German aggression in the twentieth century. He pointed out that divesting firms simply because they were large would weaken the incentive to innovate and to accumulate wealth to the detriment of the entire society. He also thought that arbitrary definitions of dominant firms based on market share, sales, or

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number of employees would have the same counterproductive results. While criticizing the crude American approach, Erhard also made his opposition to cartels absolutely clear.35 The upshot of this letter was that Erhard was appointed by the Council of States to a committee to study subsequent U.S. decartelization proposals.36 This was the beginning of Erhard’s intensive involvement in the cartel issue that would last until 1957. While serving as Bavarian economics minister, Erhard wrote articles in which he sought to gain support for his policies. In January 1947 he published a piece in which he advocated economic controls as a temporary measure until the economy recovered sufficiently to introduce a free market.37 At the same time, he praised the British and American merger of their two zones into the United Economic Area (Vereinigtes Wirtschaftsgebiet), commonly known as the Bizone, a step that he had supported since at least April 1946. He opposed Schumacher’s effort to give the Bizone a strong central administration, advocating instead the devolution of power to the states. He also strongly advocated placing the headquarters of the Bizone in the U.S. occupation zone to counteract the centralizing and planning tendencies of the economic bureaucracy of the British administration in Minden.38 As Bavarian economics minister, Erhard also took initiatives to strengthen the economy of his state. He prevented county and town administrators and mayors from treating their localities as small sovereign states and hoarding resources for themselves at the expense of others. He repeatedly called on the Allies to relax economic controls so that the self-healing powers of the market could have their effect. His ministry controlled the rationing system in Bavaria and did economic planning. But Erhard regarded these as necessary evils of a temporary nature. He staged a fair of Bavarian products that were suitable for export in Munich in May 1946. In August he organized an even larger trade fair featuring a wide variety of goods produced by the Bavarian economy.39 While performing his public duties, Erhard was also heavily engaged in politics. As early as December 1945, Dr. Everhard Bungartz of the FDP contacted Erhard about possibly joining the party. Bungartz had known Erhard during his time at the Vershofen institute in Nuremberg.40 Erhard, now as later, resisted joining a formal political party. However, he did join less binding organizations both to maintain political contacts and to engage in the debate on economic issues. In 1946 he belonged to a working group that discussed economic ideas whose members included Professor Fritz Terhalle, the Bavarian finance minister, Erwin Heschler, a 53

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member of the Munich municipal council, Max Schönwand, a wellknown auditor, and Professor Adolf Weber of the University of Munich.41 These contacts came in handy when the Hoegner cabinet fell as the result of an electoral defeat on 21 December 1946.42 Erhard remained in a caretaker role until the new government took its place in mid-January 1947. He then went into political unemployment. He had performed reasonably well as economics minister. However, his first experience holding public office was given a bad aftertaste by an investigation of him that followed. Erhard had difficulty manning his ministry due to the lack of qualified people who had not cooperated with the Nazis and because he ignored considerations of the highly particularistic Bavarian political scene. In general, Erhard was more interested in broad policy issues than in administration or management matters.43 The state secretary in Erhard’s ministry, an appointed civil servant who ranked immediately below the minister, Georg Fischer, was a communist who opposed Erhard. He secretly collected information that cast Erhard’s personnel policies in a bad light. Early in June 1946, Fischer was dismissed by the Americans, taking the incriminating information with him. Soon after the new government took office in Munich in January 1947, the SPD called for an investigation of Erhard’s handling of his office based on the Fischer documents and other information. The Bavarian state legislature then set up an investigating committee to look into alleged abuses in Erhard’s ministry and in the local and regional economics offices. The investigation dragged on into the fall. When it finally ended, it cleared Erhard of any wrongdoing, although it criticized him for being a poor administrator.44 Although he no longer held public office, Erhard remained active. He maintained his political ties and continued to participate in the economic debate. He had taught economics at the University of Munich prior to becoming economics minister and now returned to the school. He was a member of the Economic Working Group for Bavaria (Volkswirtschaftliche Arbeitsgemeinschaft für Bayern) consisting of politicians, businessmen, and academics interested in promoting the economic development of their state. He was also a member of the Committee for Economic and Finance Policy of the Munich Labor Unions (Ausschuß für Wirtschafts- und Finanzpolitik der Münchener Gewerkschaften). His contacts with industry led to his being named the chair of the Economic Political Society (Wirtschaftspolitische Gesellschaft), the first industry association that encompassed all of western Germany, in October 1947. In November he was named an honorary professor of economics at the

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University of Munich. But by that time, Erhard had returned to the political arena where bigger challenges awaited him. While Erhard had been tending his political connections, the debate leading to the reshaping of postwar Germany had continued. Relations between the western Allies and the Soviets had deteriorated, leading the Americans and the British to take additional steps to consolidate their zones of occupation and to move toward a reform of the German currency. In late June 1947 the Economic Council (Wirtschaftsrat), established by the Allies as a form of parliament for the Bizone, decided to create an office to provide the council with advice concerning the pending currency reform and to try to influence the Allies to carry out the reform in a way acceptable to the Germans. This Special Office for Money and Credit (Sonderstelle Geld und Kredit) was formed with the agreement of the occupation authorities during the summer and met for the first time on 10 October. Its members were nominated by the Economic Council and were approved by the Bipartite Board of the occupation government. It was subordinated to the director of the Administration for Finances of the German Bizone regime for housekeeping purposes and met in Bad Homburg near Frankfurt am Main, where the Bizone administration was located. It was independent concerning policy matters.46 The Americans wanted the board to include people who were sympathetic to free markets. Consequently, they brought Erhard’s name into the discussion of potential members. Erhard, Weber, and Terhalle of the group at the University of Munich had submitted a paper on currency reform to them in late July 1947. Moreover, Erhard’s industry friends and Bungartz of the FDP also wanted him on the new special committee. Bungartz formally proposed Erhard to the Economic Council, which appointed him to the office. At the Special Office’s first meeting, Erhard was nominated to be its chair, possibly because he was the only one who had the time to fill the post.47 This position was tailor-made for Erhard. It involved virtually no administrative work while providing him with a forum for wide-ranging discussions of political and economic issues. It also afforded him a base from which he could try to influence Allied and German economic policy and nurture his contacts with the country’s nascent political parties. The discussions in the Special Office for Money and Credit provide an insight into Erhard’s views and a clear indication of just how isolated he was. They also show that Erhard, while exploring many alternative policies, knew what he wanted to do and made no secret about it. Essentially, Erhard made clear that he wanted the emphasis in the German 55

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economy to shift toward the consumer goods industry, which should lead the postwar recovery. He wanted to deregulate and liberalize the economy as soon as possible, preferably in association with the currency reform. Walter Eucken advised the members of the office to do just these things on 7 November 1947.48 As would be the case when he later became a cabinet minister, Erhard made no attempt to attend all of the Special Office’s meetings. When he did come, the discussion became particularly interesting because many of its members, such as Günther Keiser, opposed his free market orientation. The discussion became especially heated on 12 November. Members of the office suggested that rationing should be continued in modified form even after the monetary reform. Erhard opposed this. He said that the market would be better able to satisfy any possible consumer needs that arose.49 Responding to Keiser’s proposal to return to global planning for the economy, especially the allocation of a minimum supply of consumer goods to each person, Erhard countered that rationing had to be abolished completely.50 The discussion then turned to the socialists’ concern about income inequality that might arise after the monetary reform, with some members even suggesting taxing luxury goods. Erhard also hoped that great inequalities would not arise, but he thought that it would be preferable to give the wealthy incentives to invest their money in industry to aid the recovery, rather than taxing it away from them and giving it to government bureaucracies that were not capable of using it properly.51 Keiser responded by calling for a retention of the ration card system and the continuation of controls to foster investment. Erhard objected, saying that no controls were necessary in the capital goods market. A careful finance and credit policy would satisfy the country’s investment needs far better than government allocations. Moreover, consumer needs were more urgent at that moment.52 Overall, Erhard wanted individuals to have as much economic freedom as possible. This would lead to a fair and adequate distribution of the country’s scarce resources.53 While participating in the debates of the Special Office, Erhard used the authority of his position to try to influence public opinion through speeches and publications. On 15 November he attacked the Allied dismantling policy in an article printed in Der Wirtschaftsspiegel (The economic mirror). He recognized Germany’s moral obligation to pay reparations. However, he opposed dismantling industries because doing so destroyed capital which was badly needed for economic recovery and encouraged economic planning rather than the free, organic growth of a

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consumer-oriented economy. Ironically, Erhard opposed reparations in kind and preferred payment in cash. The Allies had chosen the opposite course. Drawing what they thought were the lessons of the experience with reparations after World War I, they emphasized reparations in kind, both through dismantling factories and from current production. As Erhard realized, in the very different situation prevailing after 1945, it was preferable for the Allies to leave Germany’s factories in place so that they could support the domestic recovery and earn export income to fund food and other imports. The latter would relieve the burden on the American and British taxpayers who had to subsidize German foreign food purchases, especially during 1946 and 1947. In an article published on 1 December 1947 in Die Neue Zeitung, like the Der Wirtschaftsspiegel a newspaper sponsored by the American occupiers, Erhard called on the Allies to carry out the currency reform as soon as possible. With the worthless Reichsmark, there was little incentive for people to work at legitimate jobs and every incentive for them to spend their time on black market activity. He also stressed that increased output, especially of consumer goods, was essential. This greater production would in turn reduce the need for government intervention.55 In essence, Erhard advocated a policy of growth to pull the economy of western Germany out of its misery. The meeting of the Special Office on 14 January 1948 brought the issue of how government policy could best foster growth into sharp focus. Erhard asked the members of the group to perform a simple comparison. He suggested that they try to imagine the damage that would be caused by an immediate conversion to a free market and whether this damage would be greater than a continuation of the system of rationing and controls. In light of this comparison, he contended that one must come to the conclusion that a market economy with free prices had to be introduced at the same time as the currency reform. No one on the committee agreed with him.56 Instead the overwhelming view was that even after the currency reform, rationing would have to continue. Erhard responded that after the currency was converted no additional coupons would be necessary. One could go directly to the experiment of introducing the free market. Again, his suggestion was met with incredulity by the other members of the panel.57 A month later, the Special Office invited representatives of the trade unions to express their views on how the currency reform should be handled. Erhard tried to reassure them by expressing sympathy for their fears. But he also tried to convince them that freedom was much more in 57

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their interests than controls and planning. The union representatives expressed the wish that the initial distribution of the new currency should be adequate to support the workers and their families. Erhard explained that the initial payment would be just sufficient to keep people going and to get the economy back in motion. This did not satisfy the union representatives. They were primarily interested in preserving jobs, the traditional German view, rather than increasing their welfare as consumers. Therefore, they advocated a plan for forced saving to expand capital assets— that is, to build more factories and to buy more machine tools. Erhard rejected their suggestion. Instead, he said that it would be better to use Marshall Plan money and other foreign aid to rebuild rather than expand industry, a process that he presciently predicted would take five to ten years to complete. It would be more useful to the workers if the emphasis in the German economy shifted toward consumer goods industries. This could best be accomplished by freeing the economy and allowing the market to allocate resources. As Erhard put it, “But we must do the currency reform in such a way that, if everything goes smoothly, we can go in the basic direction of the free market economy.”58 Erhard pointed out that their needs were so serious and the flexibility of a market economy so great, with its possibilities for substitution of goods and processes, that it would be far more effective than planning. One union representative expressed the fear that the market would lead to inequalities that would harm some workers. Erhard told him that he understood that the free market entailed some disadvantages but reminded the union leader that planning was even worse. He offered to institute programs to help workers, such as ensuring that they received a minimum of essential food and clothing items. He was prepared to be flexible, not dogmatic. As he put it, “One does not give up the principle of free prices if one continues rationing in a few sectors.”59 The union representatives then expressed their misgivings about a free price system, fearing that inflation and profiteering by ruthless capitalists would hurt them. Erhard again reminded them that the system of government-set prices that they had at that moment, combined with inflated black market prices, was even worse. “In my opinion, there are no accurate prices in Germany at the moment. They are all wrong. Every price is wrong and the relationships between all prices are wrong.”60 Erhard reassured the unionists that free market prices would eventually stabilize and reflect accurately the value of goods and their labor. Erhard then gave the union representatives what turned out to be a very accurate picture of what

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would happen after the currency conversion. He predicted that unemployment would rise as the real cost of labor became clear, but this unemployment would only be temporary. He would consider government work programs to smooth the transition. Once prices stabilized, however, he expected output to rise and unemployment to fall.61 The Special Office also met with representatives of the Allied occupation governments responsible for the currency reform. On 20 November 1947 Edward A. Tennenbaum visited Bad Homburg to learn the Germans’ ideas.62 They were in general agreement concerning what should be done. However, the Special Office, including Erhard, proposed that greater consideration be given to the equalization of burdens in light of the losses suffered by individuals as a result of the war. They also suggested a slightly different conversion ratio than the Americans. In January 1948 Erhard delivered a currency reform proposal to the Allies, referred to as the Homburg Draft. It called for a twenty-to-one reduction in the purchasing power circulating in the German economy.63 This plan was used at the meeting of German currency experts with the Allies at Rothwesten in April 1948, a meeting that Erhard did not attend. It included provisions for the reduction of purchasing power and for a very generous equalization of burdens. Under the plan, 80 percent of liquid assets would be transformed into liquidation shares, 15 percent into frozen bank accounts, and 5 percent into new currency. Every German would receive fifty new marks on the day of the conversion. Property owners would relinquish up to 80 percent of their capital gains earned since 1 January 1940 and half of their other assets to a balancing account to be used to equalize burdens in western Germany. The Allies rejected this plan, particularly its equalization provisions, for which Erhard later criticized them.64 In one of his last actions as chief of the Special Office, Erhard met with General Sir Brian Robertson, the chief of the British occupation government, and with Clay on 31 March 1948. He impressed upon them his view that the Marshall Plan aid had to be tied to the currency reform and that the reform should come as soon as possible. He also feared that Allied efforts to gain Soviet cooperation would delay matters. The Allied commanders assured him that they would not be held back by the Soviets. The currency reform would be implemented soon, whatever the Soviets did.65 Even at this stage, Erhard was convinced that his currency conversion plan was superior to the Colm-Dodge-Goldsmith Plan adopted by the Allies. He was especially concerned that hoarded goods 59

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come onto the market without coercion. In other words, he wanted the free market to get off to a good start so as to show manufacturers and farmers that they had every incentive to produce for it.66 Events over which Erhard had no control, but of which he was a very interested observer, gave him the opportunity to exert greater influence on western Germany’s economic future. Johannes Semler of the Bavarian CSU was elected the first director of the Administration for Economics (Verwaltung für Wirtschaft, or VfW) of the Bizone on 24 July 1947. Semler supported private property and a market economy, although he was much less committed to the free price mechanism and competition than was Erhard. He foresaw a long period of state control before a free market would be possible. He was critical of the anarchy of the economic process under liberalism and preferred a program of social balance achieved by government steering of the economy. He opposed direct state control of enterprises, advocating instead the use of credit policy to direct investment into channels that would accomplish the government’s social and political goals.67 Semler was a patriot with a Bavarian tinge. He was critical of American food aid to Germany and of Allied attempts to reshape the German economy. He gave vent to his frustrations in a CSU state committee meeting in Munich in January 1948. Semler felt safe in this setting and spoke his mind freely. He referred to the American food aid disparagingly as “chicken feed” (Hühnerfutter). Word of his crude expression quickly reached General Clay. After assuring himself that Semler had actually used these words, and after consultation with his British colleague, Robertson, Clay dismissed Semler on 24 January.68 The ouster of Semler occurred at the same time as the Allies undertook a reform of the Bizonal government. The size of the Economic Council was doubled and a State Council (Länderrat) was added. The Executive Council was replaced by an Administrative Council (Verwaltungsrat). A chief (Oberdirektor) of the Administrative Council of the Bizone would be chosen at the same time as a replacement for Semler would be found. This opened a period of intense political activity in which Erhard played a significant part. Erhard actively campaigned for the position of director of the Administration for Economics. He had been flirting with the FDP since the fall of 1947, implying in a conversation with Thomas Dehler, leader of the party in Bavaria, that if the party nominated him for the position, he would join it. During the winter of 1948, he built a relationship with Franz Blücher, the head of the Committee for Finances and Taxation in the Economic Council and leader of the FDP delegation in that body. Er-

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hard used his position as chief of the Special Office for Money and Credit to enhance his prestige and as a platform to establish contact with the Free Democrats. When the time neared for the nomination of a new director of the Administration for Economics shortly after 20 February 1948, Erhard traveled to Frankfurt to be near the center of the action. He met with Blücher and another FDP leader, Viktor Emanuel Preusker, in the Hotel Metropol and, in a single intense conversation, came to agreement with them over his candidacy. It is not known what if any concessions Erhard made, but his economic position was near theirs in any case. Preusker then contacted Franz Böhm of the CDU, who agreed with Erhard’s economic views, and Theodor Blank, a leader of the CDU’s labor wing. They both expressed their readiness to support Erhard’s candidacy within their party. The FDP leader also had a difficult conversation with Erich Köhler, the chairman of the Economic Council, in which Köhler reluctantly withdrew his reservations about Erhard and agreed to support his nomination. In meetings held on 1 and 2 March, the CDU delegation to the Economic Council attempted to agree on candidates for the position of director of the Administration for Economics and the Oberdirektor of the Administrative Council. For the former position, it considered a total of eight men, including Erhard. The leading candidate was Hans-Christoph Seebohm of the German Party (Deutsche Partei, or DP), who supported private property but not competitive free markets. Apparently, the powerful head of the CDU in the British zone, Konrad Adenauer, also supported Seebohm. But Adenauer was with his dying wife in Bonn, and therefore could not play a role at this crucial juncture. Because the CDU delegation could not agree on a candidate, Robert Pferdmenges, a banker from Cologne and a close friend of Adenauer, proposed that a commission be formed of FDP and CDU representatives to hammer out a compromise. The delegation agreed and Pferdmenges chaired the commission himself. In heated discussions lasting into the night of 1 March and the early morning of the next day, the CDU finally agreed to nominate Erhard for the position of director of the Administration for Economics and Hermann Pünder, a member of the CDU and mayor of Cologne, for the position of Oberdirektor. This was by no means a deal since the FDP later ran its own candidate, Hermann Dietrich, for the position of Oberdirektor of the Administrative Council. Later on 2 March, the full CDU delegation to the Economic Council approved the nomination of Erhard. He spoke to them afterward and gained at least some sympathy for his economic plans. When the vote took place in the Economic Council later 61

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that day, 2 March 1948, the debate was once again quite vigorous, with the SPD in particular objecting to Erhard. Erhard was elected with all forty votes of the CDU delegation and all eight votes of the FDP contingent. The SPD cast forty-nine blank ballots, which it intended to be considered as no votes. However, the CDU and the FDP agreed that they should be counted as abstentions, leading to the election of Erhard. Then the CDU’s Pünder was elected Oberdirektor with forty votes. The State Council next confirmed Erhard’s and Pünder’s election by a vote of fourteen to two, with the CDU casting five votes, the FDP two and seven votes from renegade SPD representatives.69 Erhard concluded his business with the Special Office for Money and Credit and shifted his activities the short distance from Bad Homburg to Frankfurt am Main. He officially assumed his duties as director of the Administration for Economics on 2 April 1948. Edmund Kaufmann was appointed his assistant. As would happen again later with Erhard’s other deputies, a warm relationship developed between the two men. Erhard had the ability to win the loyalty of those closely associated with him. The staff of the VfW included a member of the Social Democratic Party, Leonhard Miksch, who shared many of Erhard’s views.70 The administration also had an Advisory Council (Beirat) that had been created for it in January 1948. It included neoliberals such as Franz Böhm, who had helped Erhard win election to his new post, Walter Eucken, Miksch, and Alfred Müller-Armack. It also counted among its members the socialists Gerhard Weisser, Hans Peters, and Karl Schiller. Otto Heinrich von der Gablentz and Oswald von Nell-Breuning were Christian socialists while Walter Hallstein and Ludwig Raiser were moderates who could accommodate themselves to Erhard’s position.71 The key was that Erhard was not alone in this crucial position. He enjoyed both the moral support and expert advice of people who shared his basic approach. Once again, just as he had in the Special Office for Money and Credit, Erhard made no secret of what he intended to do. In a conversation with the economics ministers of the states at Königstein on 19 April, Erhard made clear that he would relax the rationing system. He only intended to set guidelines and let the market find its level within them. He did not want to strengthen the industry associations, correctly seeing them as enemies of the free market. Instead, the state administrations and free independent businesses would take the lead in reviving the economy of western Germany. In the long run, his goal was to create a free market. This invitation to go down the road of freedom and prosperity was greeted with skepticism by his listeners. They remained prisoners of the

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Erhard as director of the Administration for Economics, 1948. Hermann Pünder, Oberdirektor of the Economic Council, sits at the far left in the foreground. Bundesbildstelle, Berlin.

German tradition of state paternalism.72 Erhard could expect little support from them. Erhard then described his policy before a full meeting of the Economic Council on 21 April 1948. In this crucial speech, Erhard gave a clear picture of his economic priorities and what he intended to do. The reaction to it indicated that the battle lines over the future economy of western Germany were drawn. Erhard wasted no time in emphasizing that he intended to allow the consumer goods industry to lead the industrial revival, abandoning the traditional German emphasis on heavy industry. He hoped to increase labor productivity through improved incentives and better food supply. He stressed that “the final purpose of all economic activity can only be consumption.”73 This was a clear break 63

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with the production- and employment-oriented priorities of the past. Erhard stated clearly that his mission was not to improve controls but to reduce and eventually to eliminate them. The currency reform would provide the opportunity to do so. It had to be conducted in a socially responsible fashion, meaning that the state would take measures to protect the weak and that burdens would be shared as equally as possible. He also meant by this that the free market itself would be a socially desirable measure. Indeed, Erhard pointed out that growth, not redistribution of wealth, would lead to greater social justice. He indicated that he would reduce the size of the economic administration, saving the government money. Again, he underlined his intention not to return to the “liberal economic forms of the past.” He also appealed to his opponents in the SPD and the labor wing of the CDU when he said, “Even if we do not completely agree on our goals, the direction that we have to take is still clear—liberation from the state command economy.”74 More freedom for both the consumer and the producer would lead to a higher standard of living for all. Regulations that he would introduce would prevent abuses, but they would not be so extensive as to stifle private initiative. State direction of the economy, he emphasized, “is one of the tragic mistakes of world historical proportions.”75 They simply could not continue in this direction. Instead, they should follow his policy of gradually returning to the free market and price competition. He rejected egalitarianism, throwing down the gauntlet to the SPD. Differences in performance, he stated boldly, should be reflected in differences in income. For this to happen, the price system simply had to work, including the price system for labor. For Erhard and the German people, the return to the price system meant a return to morality. He also intended to abolish as many subventions to industry as soon as possible.76 The reaction to Erhard’s speech was unenthusiastic.77 His ringing call for freedom and prosperity was not understood by many and feared by others who only knew the comfortable limits of state controls. In the subsequent debate, the labor wing of the CDU tried to weaken his commitment to the free market and win support for union participation in the management of companies.78 Clearly, Erhard’s task and the road to economic freedom in western Germany would be a rocky one. Undaunted by either lack of support or criticism, absolutely certain that his policy was correct, Erhard pressed on and began making preparations for the currency reform that he knew must be nearing. Not only were the Allies planning to introduce a new currency, they also favored a reduction in economic controls and rationing. The Bipartite Control

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Office (BICO) of the Allied Bizonal administration had issued instructions as far back as 3 October 1947 that economic controls should be reduced to a minimum and sent the Executive Council, what was then the highest administrative organ of the German Economic Council, a letter to that effect.79 Consequently, although Erhard enjoyed little support from among his countrymen, the Allies, who, after all, still had the final say, were sympathetic. At the same time, despite the opposition to his speech in the Economic Council, Christian socialism was weakening in the CDU. The Ahlen Program was a dead letter and supporters of free markets were gaining ground in the party’s inner councils.80 Knowing that the crucial moment, the currency reform, was approaching, Erhard’s administration consciously used its authority to permit the hoarding of goods that would be available when the new money was introduced and, as Erhard planned, restrictions were removed. This would increase the chances of success of the reform. He also ceased applying existing rationing regulations, since they were ineffective anyway.81 In May 1948 Erhard began drafting a law that would permit him to free prices. Leonhard Miksch provided him with the most assistance in this endeavor, and the final legislation bore the imprint of Miksch’s ideas. Müller-Armack and Kaufmann also commented on the draft. Otherwise, it was not sent through the normal staff channels, clearly an effort on Erhard’s part to retain its ideological purity and to speed its completion.82 Leonhard Miksch had been influenced by the ideas of the neoliberals during the 1930s and had contributed to the development of their thought. He was a member of the staff of the economic administration in the British zone in Minden, where he clashed repeatedly with Agartz. When that body was used as the foundation for the new Administration for Economics, Miksch came to Frankfurt along with it. In January 1948 he contributed an article to the Wirtschaftsspiegel in which he contended that the free market was better at allocating resources than state planners. He went further and pointed out that planning was a threat to the democracy that the Allies and German reformers were trying to create in Germany. However, he rejected the idea of a spontaneous order. The free market would not emerge on its own and would not function by itself. State supervision was necessary. Like Eucken, he also advocated the abolition of monopolies or their supervision in sectors where they were unavoidable.83 In mid-February 1948 Miksch composed a memorandum for the VfW in which he set out the basic principles for economic policy in the pe65

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riod after the currency reform. Miksch began by highlighting the precondition for prosperity: “The essential market price mechanism had to be restored.”84 He supported a price ceiling to protect consumers from profiteers but opposed price floors in the expectation that prices would fall as the market allocated resources more efficiently than the planners had, leading to an increase in consumer welfare. To protect the weak during the transition, the state should control prices in markets for staple foods, essential consumer articles, textiles used to produce clothing, rents, and goods sold in noncompetitive markets. The state, working with industry associations, would intervene when socially necessary to prevent abuses of the market. The government would also take steps to keep wages as stable as possible.85 In short, Miksch proposed a socially responsible entry into the rigors of the free market. While Erhard and Miksch were drafting the liberalization legislation, Erhard continued to struggle with the Allies to free the economy and to press forward with the currency reform. In a meeting with the military governors on 15 March, Erhard again expressed his concern that the western Allies’ efforts to maintain a cooperative relationship with the Soviets would delay the essential reform of the Bizonal economy. He suggested that a currency reform could indeed be carried out in all four zones. But a reform of the economic order would be impossible because of the Soviets’ ideology. The collective economy of the eastern zone would defeat the market economy of the west because it would seduce people, already receptive to its message, into believing that their salvation lay in passively accepting planning from above.86 Again the Allies reassured him. In a newspaper article published the same day, Erhard again made the point that a currency reform without a fundamental shift to a free economy would fail.87 In a subsequent meeting with the military governors of the Bizone, Erhard sounded one of his other major themes, that the Germans should have greater influence over the currency reform. He especially asked that the Germans be allowed to shape the equalization of burdens that would accompany the introduction of the new currency. Clay then informed him that the Allies would handle the currency reform alone. The Germans themselves would solve the problem of compensating people for war losses and the disadvantages arising from the currency reform itself.88 Erhard was greatly relieved by this news. Over the next month, it became increasingly apparent that the currency reform was drawing near. Erhard had his staff inform the economics ministers of the states that the rationing and control mechanism

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would be abolished when the new currency was introduced.89 At the same time, he and Miksch completed drafting legislation that would allow him to free prices. This “Guiding Principles Law” (Leitsätzegesetz) was necessary because existing legislation did not allow Erhard to take the action that he thought necessary. The Economic Council had passed a law that permitted him to abolish rationing and other controls. On this basis, Erhard’s staff prepared decrees that would end the cumbersome and ineffective rationing system. However, the existing Price Law did not allow him to free prices, an essential step if the market mechanism was to function effectively. Consequently, the Leitsätzegesetz was necessary.90 On 25 May 1948 Erhard discussed the draft Leitsätzegesetz in a regularly scheduled meeting with the other directors of the Bizonal administration. He made clear that the purpose of the proposed law was to free prices. Exceptions would be the markets for food, clothing, rent, and raw materials. He would also prepare a law to abolish cartels and monopolies and create an organization that would supervise the prices charged by those monopolies that had to remain and the prices charged by oligopolies. Wages would be kept stable to prevent an inflationary wage-price spiral. With a sound, hard currency, there should be no inflation. He would also eliminate as many subventions as possible because they distorted the economy and corrupted farmers and industrialists alike. The directors agreed to consider Erhard’s proposals.91 Erhard formally submitted the draft Leitsätzegesetz to the directors on 1 June 1948. He also proposed a simpler piece of legislation that would confirm his ability to change the rationing system. The directors approved the law to abolish price controls (the Leitsätzegesetz) and tabled the rationing bill.92 This latter development did not hurt Erhard. The important thing was that the Guiding Principles bill moved forward. On that very day, the Leitsätzegesetz was formally submitted to the Economic Council. It called for the loosening of the government’s management of prices, though not the complete abolition of price controls. Again, exceptions were provided to protect the economically weak, to ensure the completion of the government’s reconstruction program, and to prevent the exploitation of shortages by monopolists. Overall, the bill bore a marked similarity to Miksch’s proposal of February.93 The Guiding Principles bill was debated for the first time in the Economic Council’s committee for economics on 10 June 1948. After Erhard introduced the bill’s main provisions, the SPD representatives launched a massive attack against it. The Social Democrats were convinced that freeing prices would lead to disaster under the prevailing circumstances. 67

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They feared that serious deflation would occur immediately after the currency reform, similar to what had recently happened in Austria. Illogically, they then called for legislation that would set maximum prices. They also pointed out, quite cogently, that if prices were freed, then wages should be freed at the same time. The proposed allowance for 15 percent increases in wages would be inadequate. The SPD representatives also thought that the bill was unconstitutional in its existing form. Nevertheless, the draft passed its first reading by a vote of seven to four with the SPD in opposition.94 In the meantime, the Allies had decided to implement the currency reform. Erhard and a few other representatives of the German Bizonal administration were called to Clay’s office at half past nine on the morning of 15 June. Their meeting with the Allied military governors was delayed until quarter of two in the afternoon due to disagreements between the French and the British and the Americans. Finally, Clay and Robertson emerged and informed Erhard that the currency reform would be announced on 18 June and be implemented on 20 June. Clay asked the Germans which initial terms they preferred. He asked them to choose between two options: a distribution of sixty of the new deutsche marks (DM) immediately, crediting 5 percent of savings account deposits immediately, a further 5 percent in three months, and an additional 10 percent held in reserve for possible use later; or an immediate distribution of thirty deutsche marks, 8 percent of savings being freed immediately and 12 percent later. They had eight minutes in which to make up their minds. Erhard immediately chose the first option because it would eliminate the most excess purchasing power, thus purifying the price system and creating a favorable situation for the economic reforms that he was preparing. He convinced the other members of the German delegation to follow him. Clay and Robertson returned and heard Erhard’s response. Then they left the room without saying exactly what they would do. On the following morning, 16 June, at quarter past nine, Robertson met the Germans again and informed them that the final decision had been made. A modified form of the sixty deutsche marks plan would be implemented: every German would receive forty deutsche marks immediately and a further twenty deutsche marks within two months. He further announced that 5 percent of savings would be deposited in new savings accounts and be available for use immediately; an additional 5 percent would be freed within ninety days. The remainder of people’s cash assets, the excess purchasing power created by the Nazis, would be destroyed. Erhard was pleased, because 80 percent of the excess pur-

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chasing power that swamped the economy would now disappear.95 On the other hand, he realized that he had only two days in which to pass the Guiding Principles bill. He thought that he had a chance to move it through the German legislative system, but he doubted that he could shepherd it through the Allied bureaucratic maze. Erhard then concentrated on gaining approval of the Leitsätzegesetz by the Economic Council. The bill was raised for its second reading in the committee of the Economic Council on 17 June. The SPD again claimed that the bill was “unconstitutional.” It also proposed adding a provision for a supervisory committee. This would enable the Economic Council to keep an eye on what the ambitious Director of the Administration for Economics was doing. With this amendment, the Leitsätzegesetz passed its second hurdle.96 The bill was then rushed to the full Economic Council, which, after another heated debate, passed it in the early morning hours of 18 June 1948.97 The bill still had to be approved by the State Council and the Allies, but there was no time for that. On 18 June the Allies announced their intention to reform the German currency as planned. The new currency, the deutsche mark, would be distributed on 20 June and become legal tender the following day, 21 June. Erhard decided to use his powers under existing law to end rationing for household articles made of wood and glass, typewriters, sewing machines, automobiles, bicycles, tires, radios, clocks, agricultural machinery, textiles, and shoes. Other important items that were in short supply, including coal, iron, electricity, gas, water, synthetic fertilizers, oil, rental housing, and public transportation, would remain under control. He then had his press secretary, Kuno Ockhardt, announce these measures and imply that prices would be freed at the same time in a radio speech given on the evening of 20 June.98 This last step resulted in Erhard being called to Clay’s headquarters in the IG Farben building in Frankfurt the following day. He was accompanied by Viktor Emanuel Preusker of the FDP. Earlier, Clay had already begun to think about doing the same thing that Erhard was now doing. On 24 May he had told his economic adviser, William Draper, that economic controls would have to go. Then, due to the press of business, Clay had not pursued the matter. Now, Erhard had acted. Robertson approached Clay and objected to Erhard’s initiative. After all, Britain remained under rationing. Erhard encountered severe criticism from Clay’s staff, which he fended off. He was then sent into Clay’s office, little suspecting that the American sympathized with him. Clay criticized Erhard for acting without authorization from the occupation authorities. 69

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Erhard was unimpressed with the charge of insubordination. He was much more interested in the substantive issue. Clay realized that if Erhard had acted properly, the British would probably have vetoed his action, so he dropped that part of the issue. Robertson, having saved face, never raised the matter again. On the economic substance, Clay pointed out to Erhard that all of his advisers opposed Erhard’s action, to which Erhard replied, disingenuously, that his did too. Erhard then emphasized that in abolishing the rationing system he was acting within his authority, which Clay had to admit. Clay then decided to let Erhard take his calculated risk on the free market. Erhard had survived, and the economy of western Germany had its chance.99 On the same day, the State Council approved the Guiding Principles Law.100 That evening, Erhard gave one of the most important speeches of his life and one of the most important in western Germany’s postwar history. He announced the gamble on the free market, a bet that he was sure Germany would win. He presented himself as an independent economic expert who wanted only what was best for his people.101 He told his listeners that the “the decisive break from the principle of the state’s coercive economy was the precondition for the success of the [currency] reform and our return to economic health.”102 He expected prices to fall, leading to a general improvement in consumer welfare. Anticipating the fantasies of the future, he said, “I am unable to believe in miracles in the area of economics. Therefore, I consider it as a social requirement, in principle, to abolish price controls of all kinds, and to give room to competition and the falling prices that would result from that.”103 He then attacked businessmen who had benefited from the command economy, calling them “state pensioners.”104 His reforms would end this abuse and give the ultimate power of decision making in economic matters to consumers. The free market would give German citizens their full dignity for the first time, and free them from pleading with faceless bureaucrats in dark offices for what was their due. The introduction of the free market, he stressed, was part of Germany’s democratic renewal.105 The process that Erhard had started then followed its course. On 25 June many prices were freed in the British and American zones. On 30 June the British and the Americans approved the Guiding Principles Law, and many rationing regulations expired.106 The French, while introducing the new currency, did not liberalize the economy in their area, condemning its inhabitants to months of privation until they too adopted Erhard’s program. The Law for Guiding Principles after the Currency Reform began with a preamble that asserted that the currency

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reform would restore the relationship between work and reward. Rationing would be loosened and the free market would come into play. “Economic and social necessities thereby go hand in hand.” The liberalization of the market would be limited by the need to protect the weak, complete government programs in the public interest, and prevent monopolies from exploiting shortages. The actual guidelines were included in an appendix. The first stated that “The end of rationing was to have precedence over its retention.” The economy would be freed but not completely. The second stated that food and raw materials would remain under control. Third, grain, potatoes, meat, coal, iron, and steel prices and supplies would be freed only with the express permission of the Economic Council. Fourth, textiles, clothes, shoes, and soap would continue to be rationed. Fifth, the government could intervene in the raw materials and semifinished and finished goods markets if the need arose. Sixth, government intervention would be kept to a minimum in those markets where rationing continued. A second set of principles set out how prices would be handled. Freeing prices had priority over controlling prices. Prices for staple foods, raw materials, and rents, though, would continue to be regulated. The government could only set maximum prices and would observe the movement of all freed prices. In a third set of principles, the law stated that competition was to prevail in all unregulated markets. Monopolies would be abolished whenever possible. An anticartel and antimonopoly law would be prepared. The Administration for Economics would monitor the credit market. Finally, wages and salaries should be freed as well. Clearly, the Guiding Principles marked a major change in emphasis in western Germany’s economic policy.107 However, it did not signal a wager on laissez-faire. Markets would be liberalized, but the government would retain extensive powers to control the distribution of goods and set prices. Large segments of the economy remained under government control. There was no free market in food, rental housing, or transportation. Nevertheless, Erhard’s bold but limited liberalization of western Germany’s domestic market yielded dramatic results, so dramatic that the uninitiated saw them as a miracle. Their refusal to follow Erhard’s admonition against believing in the supernatural was proof that his policy was correct. Soon after the currency reform and the market liberalization, the Allies also enacted a series of extensive tax cuts that were complemented by additional cuts passed by the Economic Council. With their Military Law No. 64, the Allies reduced the burdensome income tax rates that they had set in 1946. Rates were reduced most for lower-income earners, 71

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by over half, but they were also cut for middle- and upper-level income groups by about a quarter. Erhard had called for even greater reductions. As a concession to him, the Allies added exemptions for income that was saved and invested. Also included in the law were accelerated depreciation allowances for business designed to encourage capital investment. Shortly afterward, the Bizonal administration of western Germany enacted further tax cuts including the exemption of overtime wages from the income tax. All of these measures were intended to increase the willingness of western Germans to work and invest.108 The battle to free the German economy was not won with the Allied currency reform, tax cuts, and Erhard’s liberalization. These were only the first rounds in a bitter struggle that Erhard fought for another eighteen years, and with ever diminishing success. In the weeks after the currency reform and the economic liberalization, the Bizonal economy returned to life. Goods appeared on the shelves of stores in quantities that had not been seen in more than a decade. Vendors could now obtain valuable money for their goods. The same applied to the labor markets. Even though wages were not decontrolled until November 1948, the revived market economy revealed more accurately than its controlled predecessor the true value of labor. Employees no longer spent long hours away from their jobs engaging in black market trading or searching for goods. The black market disappeared. It now paid to work again. By the same token, employers could no longer afford to keep useless or unproductive people on their payrolls. The result was a period of adjustment in which the market found the value of goods and services. Prices rose, outpacing wages even after they were freed and useless employees were released, causing unemployment to rise. These developments caused a mounting clamor of criticism against Erhard’s policies. Erhard was virtually alone in the Bizonal government in retaining faith that these problems were just part of the transition and that soon people would be back at work and prices would fall. He was sure that in a few months prices would accurately reflect the scarcity of goods and services. The discontent that swept the population after the excitement and astonishment of the days immediately following the reform reinforced Erhard in his desire to explain the workings of the market to politicians and citizens alike. He hoped to infect all of them with his optimism and confidence. To do this, he adopted the phrase “social market economy” for the first time in a speech delivered to the Economic Council on 17 August 1948.109 The expression “social market economy” had been coined by Alfred Müller-Armack in 1946. Erhard adopted it be-

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cause it accurately reflected his conviction that the market economy was social and because it reassured the people. Nevertheless, the opposition to Erhard mounted. On 16 August, the Social Democrats introduced a no-confidence motion against Erhard in the Economic Council. In the ensuing debate, they called for the restoration of price controls. The motion was defeated by a vote of 47 to 36. Support for Erhard from the CDU, however, was lukewarm.110 In the face of rising prices and unemployment, the Rhein-Echo wrote on 12 October 1948, “The opposition against Erhard’s economic policy has grown into an avalanche during the last eight days. . . . One expects in Frankfurt that Professor Erhard will not be able to resist the criticism brought against him for long.”111 Erhard’s situation became so precarious that the CSU called for his resignation on 28 October.112 The left then launched a massive attack on Erhard in early November. The SPD introduced another no-confidence motion against Erhard on 10 November. On this occasion, Theo Blank swung his support behind the director for economics. The strongest backing for change came from the FDP. Erhard won with a vote of 51 to 43, just an 8-vote margin.113 In spite of this setback, the SPD and the trade unions called a one-day general strike for 12 November to heave Erhard out of office. On the evening before, Erhard gave a radio speech in which he went on the offensive. He condemned the general strike as unnecessary. He assured his listeners that the economy was growing and that unemployment and prices would both fall soon. He also announced that he was preparing the “Everyman Program” to bring basic consumer goods to market at reasonable prices.114 The strike took place as planned, but Erhard remained in office. As always, he was unintimidated by criticism. He was certain that he was right and had the utmost confidence in his ability to predict economic developments. He was so sure of himself that he agreed to engage in a public debate with Erik Nölting, one of the leading intellectuals of the SPD, on 14 November. Nölting raised the familiar arguments about the alleged virtues of government economic planning and appealed to the audience’s atavistic desire for equality. Erhard bravely asserted that a controlled economy could not deliver prosperity. They had just experienced that firsthand a few months ago. He explained that no government could know enough to allocate resources adequately to achieve prosperity in every sector of the economy. Mistakes were inevitable. Indeed, no human agency could gather, let alone process effectively, the vast array of data necessary to steer an economy properly. Only a market economy with decentralized decision making could accomplish that.115 Given the 73

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hostility of the audience, it would probably be wrong to claim that Erhard won the debate with Nölting. But he more than held his own, gaining the respect of his listeners, even the diehard opponents among them, and made his case for those who were willing to think. Nevertheless, the drumfire from the left continued unabated right into the summer of 1949 when the government of the new Federal Republic of Germany took shape. Kurt Schumacher, the fiery leader of the SPD, went so far as to label Erhard’s Administration for Economics an “instrument of the class war from above” and claimed that as a result of Erhard’s policies, “the poor were being made poorer and the rich richer.”116 Erhard did not sit still, idly waiting for the market to do its work. He adopted policies in conformity with the market that would guide it in a socially acceptable direction and educate the German people on how to function in a free market environment, something that they had not done since the Nazis had frozen wages and prices in 1936. In a memorandum concerning the rise in prices written on 3 December 1948, Erhard stated that it was necessary to stop inflation for social and political reasons. The setting of maximum prices by the state had been ineffective. The problem, in his view, was that retailers were marking up prices excessively. They were taking advantage of temporary shortages to reap high profits. Erhard’s response was to allow manufacturers of branded products to set retail prices. At the same time, the government should avoid setting minimum prices because that would remove the incentive for producers to become more efficient and to pass the savings on to consumers. He also realized that minimum prices promoted monopolies, one of his main enemies. In effect, he proposed using a traditional German business practice, retail price maintenance, while modifying it to suit current circumstances.117 In speeches and articles presented to the public in the winter and spring of 1949, Erhard repeatedly reassured them that no recession would take place, even though prices would begin to decline. The economy was simply adjusting itself to the new situation.118 Erhard followed a three-pronged strategy to rein in prices: the Everyman Program, the publication of lists showing fair prices, and cooperation with the Bank of the German States (Bank deutscher Länder, BdL) in restricting credit.119 As Erhard readily admitted, the Everyman Program was not an original idea of his. It had been used elsewhere, for example, in Britain. He adopted it as a precautionary measure to help people on fixed incomes during the transition to a stable price system. It created a protected market segment by fixing prices and by taking advantage of

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price declines for essential consumer goods. The program went into effect in September 1948. It involved allocating raw materials to companies that agreed to cooperate by offering their finished goods at prices established as fair by the government. This flew in the face of Erhard’s philosophy, but he saw it as a temporary evil to protect the weak and to educate the public. Items such as clothing, shoes, and kitchen utensils were made available at prices above cost, ensuring the manufacturers a profit, but far below prices prevailing in many markets where they were short.120 The range of goods included in the program varied as the situation changed. The program was finally ended in 1951 as prices stabilized and prosperity prevailed. The price lists (Preisspiegeln) were intended by Erhard to educate consumers not to buy goods at just any price but instead to shop around. The German consumer was accustomed to accepting goods at the price and quality offered. Under the new, freer circumstances, prices and quality varied. If consumers exercised their freedom of choice, they could obtain better bargains and could influence producers to offer the products that they wanted at prices that they considered appropriate. In other words, Erhard tried to educate people to use the price mechanism to their advantage to communicate their preferences to producers. Erhard also cooperated with the Bank of the German States, which had been created by the Allies to coordinate the policies of the banks of the states. The BdL, the forerunner of the Bundesbank, was an enemy of inflation. Using techniques such as the manipulation of the amount of money available for loans to companies and consumers, and changes in the interest rate and reserve requirements, it sought to steer the economy toward growth without inflation. It was remarkably successful and was a consistent ally of Erhard. Erhard’s policy of reducing the role of the government in the economy caused him to collide repeatedly with the Allied occupation authorities. Although the Americans in particular supported the free market philosophically, in practice they engaged in a considerable degree of planning and demanded that the German authorities do the same. This tendency to plan was in part a result of the military mentality that stressed control and the avoidance of risk and the influence of New Dealers in the American occupation government. The British favored planning because they were busy socializing their own economy. Erhard opposed the British effort to impose their planning procedures onto their zone.121 He also continued to oppose the Allies’ policy of dismantling. He joined a group of state reparations officials meeting at Königstein to pass a resolution condemning dismantling on 13 August 1949. He then sent a letter to the 75

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minister presidents of the states supporting their position on the issue. He recommended that the new Federal Republic refuse to accept any new economic responsibilities until dismantling was ended. Moreover, the Germans themselves should select which machines and facilities would be handed over to the Allies under the terms of reparations.122 Erhard also attacked the bureaucracy of the Joint Export Import Agency about the “dollar clause” that restricted German foreign trade and about its interminable procedures.123 Yet Erhard’s most serious differences with the Allies arose as a result of their efforts to help the Germans. In Erhard’s estimation, they went about their business in a way that was counterproductive, reinforcing the tendency toward government planning rather than freeing markets. He considered the Allied planners just as dangerous as the SPD in this respect. Erhard was particularly critical of the Marshall Plan bureaucracy. He welcomed the aid offered by the Americans through the Marshall Plan’s Economic Cooperation Administration, but he rued its bureaucratic, interventionist approach.124 Indeed, the SPD and the unions tried to use the Marshall Plan to reintroduce government planning into the German economy.125 To satisfy the Allies, Pünder, the chief of the Bizone’s German administration, proposed creating a special office for the Marshall Plan. Erhard objected, arguing that Marshall Plan issues could be handled adequately by his office.126 Erhard successfully prevented this new planning initiative and addition to the German bureaucracy. The Allies also called upon the German administration to prepare an economic plan for 1948. Erhard, supported by Pünder, avoided delivering a detailed blueprint. They saw their response as only a set of guidelines that could be altered as necessary in light of actual economic developments.127 Giving the Allies the appearance of what they wanted without the substance cost Erhard and his staff a good deal of effort that could have been better used on other matters. Erhard was given the opportunity to express his criticisms directly to the American special representative for Europe, W. Averell Harriman, on 1 July 1948. Erhard told Harriman that Marshall Plan deliveries were critical to increasing the supply of consumer goods to the German people. However, they would be insufficient by themselves. He called upon Harriman to free German trade with the rest of Europe so that prices in the western zones could be driven down, employment in the German machine-building industry increased, and the standard of living improved and so that the Germans could earn the foreign exchange necessary to pay for their imports. Harriman did not respond to Erhard’s re-

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marks. He simply said that the best way to assure the value of the German mark was to allow the Germans to export.128 This was certainly a hopeful sign from Erhard’s standpoint, but its Delphic quality left him unable to take any particular action. Erhard was given another opportunity to press his views on the Americans a little over a month later when he spoke with the U.S. assistant secretary of the army, Tracy S. Voorhees. This meeting developed more favorably from Erhard’s standpoint because it took the form of a real conversation. After stressing the importance of Marshall Plan funds, Erhard expressed his desire to use them flexibly, that is, without having to adhere to a rigid plan agreed upon months in advance; in fact, the effectiveness of the program could be enhanced by simplifying and quickening its procedures. Speed, he stressed, was essential for success. Voorhees agreed with Erhard and promised to raise Erhard’s recommendations when he met with Allied military occupation officials and the ECA administrator, Paul Hoffman.129 Erhard hammered home his point again in a meeting with the Allied occupation authorities in the IG Farben building in Frankfurt on 13 August. He said that the VfW was dutifully preparing an economic plan for 1952 to satisfy the requirements of the Marshall Plan authorities. But, he told them bluntly, he did not like planning, especially when he had no control over the implementation of his plans. He said that he could not prepare a balanced plan for the country’s foreign trade up to 1952. There were too many uncertainties and restrictions due to Allied regulations. He called for greater flexibility in handling Marshall Plan deliveries and wanted greater German influence over them. Sir Gordon Macready, chair of the economic control council of the Bizone, told him, just as bluntly, that such changes were impossible.130 Eventually, as the German economy grew and as the Cold War deepened, the Allies came around to Erhard’s view. On 10 February 1949 the BICO issued vague guidelines for economic planning under the Marshall Plan, leaving Erhard considerable room for maneuver, to the disappointment of the SPD. The BICO had come to see the wisdom of Erhard’s approach.131 But the victory was only partial and temporary. These constant disputes made Erhard unpopular with the Allies, especially the British. One British official, Con O’Neill, in a confidential report typified Erhard as “a tough character,” remarking that “their criticism seems to leave him pretty well unmoved.” He was a man “with a strong but remarkably narrow mind . . . utterly lacking in any political sense . . . completely devoid of tact or skill in negotiation, and frequently 77

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Erhard as director of the Administration for Economics, 1949. Süddeutscher Verlag/Dokumentations- und Informationszentrum München GmbH (DIZ).

spoils even a good case by presenting it in a manner which is at once plaintive and aggressive. . . . Like the Fat Boy, whom physically he so much resembles, he asks incessantly for more, and if he gets it he appears to regard the giver not with gratitude but with contempt.”132 Christopher Steel, an adviser to Robertson, wrote, “He is a nasty, fat bullying German and I would like to see him crash, but not at the expense of Western recovery.”133 Remarkably, most Germans who dealt with Erhard, when these comments were made in 1948 as well as earlier and later, all considered him a polite man who was easy to get along with, someone who avoided conflict. The Britons’ reaction to him may have been due to his constant struggle to assert the Germans’ autonomy and against the

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controls that the Allies were trying to impose on his recently liberalized economy. Erhard also clashed with the Allies over one of the issues that he considered most important, the abolition of cartels and the regulation of monopolies. As we have seen, the American occupation government was commanded by JCS 1067 to abolish cartels and monopolies and to decentralize control over German business. The decartelization officers who came to Germany with the U.S. military government were fired by the antitrust philosophy that had influenced U.S. economic policy since the Progressive Era and which had been continued by Roosevelt’s New Dealers. Using the ideas of Louis Brandeis and Thurman Arnold, the antitrust advocates in OMGUS were convinced that big companies were necessarily harmful. They were also convinced that the German cartels had conspired during the 1920s and 1930s to subvert the disarmament provisions of the Treaty of Versailles and to prevent or delay U.S. defense preparations. They contended that German cartels had created an excessively large heavy industrial sector in Germany that necessitated massive exports. When export markets could not be won through the creation of international cartels, German big business brought Hitler into power and directed his war of aggression to gain Germany the markets and raw materials that organized big business required. Consequently, cartels, monopolies, and dominant firms in Germany had to be abolished. The Potsdam declaration called for the decentralization of the German economy, authorizing the American antitrust advocates to pursue their objectives.134 The Allies moved quickly to achieve the Potsdam objectives. In November 1945 they seized the large chemical combine IG Farben, impounded its bank deposits, and ousted its management. They dismantled its plants engaged in armaments production.135 The British abolished the Rhenish-Westphalian Coal Syndicate, the largest in Germany, which controlled the production and marketing of coal mined in the Ruhr, Germany’s largest coal-producing region. Coal and coke production were separated from the steel companies and an allied agency was created to manage the region’s heavy industry.136 The large banks in the U.S. zone were also broken up.137 While the Allies pursued their objectives, the new German authorities in the western zones also took steps to curb or eliminate cartels and monopolies. The state council for the American zone in Stuttgart appointed a committee of neoliberals led by Paul Josten to write a draft law that would abolish cartels and divest dominant firms. Franz Böhm was a 79

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member of the committee.138 At the same time, the Central Office for Economics in Minden, responsible for the British zone, also prepared an anticartel law with the assistance of Leonhard Miksch.139 The Decartelization Branch of the U.S. military government prepared its own draft law, which it submitted to Clay and Robertson in December 1946.140 As we have seen, Erhard opposed this draft. So did Clay.141 The British and Americans amended their draft and, without consulting the Germans, issued a cartel law on 12 February 1947. Its objective was to prevent renewed German aggression by breaking up big business in Germany. Excessive concentrations of economic power would be dissolved, and an enforcement agency would be created. Monopolies, cartels, combines, syndicates, trusts, and associations aimed at restricting trade were abolished. Only public utilities such as the German National Railway, the Reich Post Office, and electricity, gas, and water companies were exempt.142 Soon after, Allied and especially U.S. policy toward the German economy changed. The emphasis shifted toward helping the Germans rebuild their economy, reducing the burden on American and British taxpayers, and strengthening the West in the sharpening confrontation with the Soviet Union. This policy was expressed in the directive JCS 1779 sent to Clay on 11 July 1947. The directive contained provisions calling for the prohibition of cartels.143 However, this aspect of Allied policy also changed less than a year later. In March 1948 Clay ordered his subordinates to relax their attack on German big business. In his opinion, and that of the Pentagon and State Department, it had gone too far, threatening the German economy and the West’s ability to defend itself.144 In August the BICO ordered the Economic Council to form an office that would be subordinate to the Bipartite Decartelization Commission, to assist the Allies in decartelizing German industry.145 Erhard opposed this initiative, arguing that the proposed office should be created within his Administration for Economics and that he should be responsible for decartelization. The Germans delayed naming both the members of the committee and its head for almost a year.146 Erhard also told an investigating committee created by the U.S. War Department under pressure from Congress that German cartels and large companies were not responsible for starting the two world wars. In fact, the Nazis had used the companies.147 The Allies partially conceded Erhard’s and the Germans’ demands. In a directive issued on 29 March 1949, the Allies charged the Economic Council with preparing a draft cartel law. Pending approval by both the

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Economic Council and the State Council on the one hand and by the Allies on the other, it would replace the British and American laws issued in 1947. Then the Germans would assume responsibility for decartelization. The Allies would retain responsibility for deconcentration.148 This was a welcome development from Erhard’s standpoint. It gave him the opportunity to shape a piece of legislation that he considered extremely important. The draft cartel law prepared by the Josten committee now assumed greater importance. Erhard was sympathetic with the strong anticartel stance taken by the panel, but he rejected its attempt to divest dominant firms. Moreover, the Josten draft had been leaked to the press triggering a storm of criticism. With the transition from the Bizonal administration to the Federal Republic in the offing, combined with his own reservations, Erhard felt that he could not seek legislative approval for the Josten concept. Consequently, he dropped it in the summer of 1949 and had his staff begin drafting a new anticartel law. Unfortunately, this brought him into conflict with the Allies. The Americans especially wanted the new cartel law passed before the Federal Republic came into existence. The result was a series of sharp encounters between the Allies and especially the American decartelization officials and Erhard in the spring and summer of 1949. The situation became so serious that the British accused the Germans of intentionally delaying the process.149 While sparring with the Allies, Erhard also sought a sound domestic political foundation upon which he could pursue his policies. It had become clear to him that the FDP, although it agreed with his ideals and had helped him gain an influential position, was simply too small to provide him with a sufficiently strong base for achieving his ultimate goals. Consequently he cultivated his contacts with the Christian union parties. This led to his building a relationship with the leader of the CDU in the British zone, and the most powerful politician in the Christian camp, Konrad Adenauer. Adenauer had been mayor of Cologne from 1917 to early 1933, when he was dismissed by the Nazis. He was briefly appointed mayor again by the Americans, who liberated the city in March 1945. The British then replaced the Americans, since Cologne lay in their occupation zone. Shortly afterward, their military governor relieved Adenauer for incompetence. He then devoted his energies toward building a new Christian party that would unite Lutherans and Catholics in a struggle to resist socialism and revive Germany using Christian principles. Adenauer was an effective political organizer and ruthless advocate for his party who enjoyed enormous prestige. In spite of his advanced age (he was seventy-two years old when the currency reform and 81

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liberalization were carried out), he was the central figure in the CDU. Adenauer supported private property and market economics. However, he was not an enthusiast for the free market. Adenauer wanted an end to the government control of the economy in order to free its productive forces to create prosperity. He opposed large concentrations of wealth and advocated the widest possible ownership of property. He especially wanted as many workers as possible to own their homes. However, because his highest priority was maintaining political power, Adenauer was quite prepared to intervene in the economy. He supported a mixed economy in which the government would own and operate many enterprises, such as utilities, and cooperate with business in other areas. As he had demonstrated as mayor of Cologne, he was quite ready to run up large budget deficits to finance public works projects.150 This pragmatic, not to say opportunistic, set of views made it possible for Adenauer to cooperate with Erhard, especially in this crucial formative stage. However, it also meant that conflict between the two was almost inevitable later. When one considers the very different personal styles of the two men, the bitter disputes of the late 1950s and early 1960s become understandable. Particularly after Erhard became director of the Administration for Economics, Adenauer began to take notice of him. His political contacts provided him with information about Erhard’s economic ideas and his actions as economics minister in Bavaria. The first recorded instance of Adenauer mentioning Erhard came on 2 May 1948. In a letter to Maria Meyer-Sevenich, Adenauer wrote, “Concerning Herr Erhardt [sic] I have said that Herr Erhardt is considered by many as exceptionally competent but lacks administrative experience. Therefore, he should be given an experienced state secretary.”151 This clearly reflected the controversy over Erhard’s performance in Munich, and it foreshadowed Adenauer’s concern with Erhard’s administrative practices as minister during the 1950s. The first contact between the two men came in a telephone conversation in April 1948. Neither raised controversial issues. Adenauer then wrote a letter to Erhard on 20 May 1948. Again, Adenauer raised no major issues. They apparently met for the first time in Frankfurt on the occasion of a meeting of the CDU/CSU delegation to the Economic Council. Again, this was an initial contact with no noteworthy outcome.152 A short while later, Adenauer began to try to influence Erhard’s policy. Worried that rising prices would drive voters into the arms of the SPD in the approaching elections in the state of North Rhine–Westphalia, Ade-

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nauer appealed to Erhard to take action against profiteers on 9 August 1948.153 Adenauer, at the very outset of his relationship with Erhard, exhibited the priorities that would cause him to clash repeatedly with Erhard during the 1950s. Adenauer was more interested in gaining and retaining political power than in the theoretical purity of economic policy. The Christian union parties were badly split over economic issues. Adenauer feared that unless they could resolve their differences, they would fare badly in the first elections for the legislature of the new Federal Republic of Germany. He anticipated that these elections would take place in the spring of 1949. Therefore, it was necessary for the Christian parties to resolve their differences. To accomplish this, a meeting of Christian political leaders was held at Königswinter on the Rhine on 8 and 9 January 1949. Adenauer opened the meeting with a long speech in which he described the vulnerable position that CDU and CSU were in due to their disunity and disorganization. Despite Adenauer’s pleas, serious disagreements erupted between the business and labor wings of the parties. Erhard appeared on the second day of the meeting and gave an impassioned speech in which he advocated his free market policies, referred to them as the social market economy, and openly identified himself with the CDU and CSU. He proposed a resolution in which the union would state its support for the social market economy and its opposition to government planning. In the debate that followed, Johannes Albers, one of the leaders of the left wing of the CDU, along with prominent figures such as Heinrich von Brentano, opposed Erhard’s resolution. However, once again, the labor leader Theodor Blank supported Erhard. Crucially, so did Adenauer. Erhard’s resolution was passed. The CDU/CSU had positioned itself squarely behind Erhard and the social market economy, and Erhard had committed himself to the CDU.154 Erhard considered himself an independent figure who specialized in economic issues. This was acceptable to Adenauer because it meant that Erhard would not challenge his dominance of the Christian parties. However, Adenauer did attempt to influence Erhard’s policies. On 12 February 1949 Adenauer wrote to one of his allies in Frankfurt, Friedrich Holzapfel, asking that he pressure Erhard. In this letter Adenauer’s shortterm, electoral perspective is again apparent: “I can say to you quite openly that Herr Erhard surely has outstanding characteristics but that he is inclined to run off after new tasks. The issue of prices and pay is, however, the most important, and you must tie him with iron chains to this mission during the next months.”155 With the approach of elections in many of the states and, most impor83

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tant, for the first federal parliament, the Bundestag, the CDU of the British zone moved to establish a clear party platform. To this end another meeting was held at Königswinter on 24 and 25 February 1949. Erhard gave a speech in which he described his policies in detail and attacked the SPD. He began by asserting that government planning had led to the problems that beset the German economy. The solution was freedom. Prices in particular had to be free for the economy to grow and for a fair distribution of wealth to occur. He proclaimed that the social market economy was the only path to economic improvement. Again, he explained that he did not mean by this a return to primitive liberalism but rather an economic order in which the government supervised competition. “The planned economy,” Erhard exclaimed, “is the most unsocial of all. Only the market economy is social.”156 The share of national wealth devoted to consumption was always greater in a market economy. “Every planned economy,” he warned, “rests on the assumption that some bureaucracy can be so wise and that it has such a large apparatus with statistics, that it is possible for it to decide better than the people what they need. . . . The result is not the social consumption of a people but complete economic nonsense. And what comes at the social level is not harmony but chaos and tyranny. . . . Whoever takes the welfare of the people to heart, cannot long for a planned economy but must want the social market economy.”157 Erhard suggested to his listeners that the economy should serve the needs of consumers. Consequently, there was no need to emphasize investment in heavy industry, the traditional German policy that many in the room supported. Instead, the consumer goods sector should be expanded. This would not only satisfy real demand; it would also go a long way toward democratizing German society. To accomplish this, the people should be permitted to save in ways that they saw fit. Erhard contended, “[T]here is only one sensible and just means in which the saver can really come to enjoy the fruits of his sacrifice of consumption, and that is the freedom to save and to accumulate wealth. Market principles show themselves here to be the most socially just.”158 Like Adenauer, Erhard wanted small savers, workers in particular, to accumulate wealth, giving them a stake in society, a stake that they had never enjoyed before. He also reassured those who feared that the economy was overheating and that there was a limit to growth. There was no limit to growth in a market economy, he told them. The potential for generating wealth was endless. Many in the audience were carried away by Erhard’s rhetoric. But others had their doubts. Adenauer intervened in this tense situation. Imme-

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diately after Erhard concluded his remarks, Adenauer said laconically “that the principles that Herr Erhard has described to us and by which he works and operates are really good principles.”159 A committee was then appointed under Franz Etzel to work with Erhard to transform his remarks into a party program. After the committee accomplished this in the spring, the party formally accepted the new program on 15 July 1949. 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. Consumers would be sovereign and there would be real competition for their favor. The government would ensure an orderly monetary system so as to prevent inflation. This would enable the price mechanism to allocate goods in an effective and fair manner. The state would establish and maintain the economic order, protecting the rights of individuals and promoting competition; would intervene using monetary, trade, tax, investment, and social policy; would prohibit cartels and supervise monopolies; and would work to establish free international markets. The new federal constitution would assure freedom of choice in the pursuit of business opportunities and careers, ensure private property, and provide for supervision of the monetary supply. The program underscored the view that entrepreneurial freedom came with entrepreneurial responsibility to the society as a whole. The government would not interfere in the negotiation of labor contacts. The principles said nothing about welfare programs or the redistribution of wealth.160 They were an expression of Erhard’s conception of economic growth through free competition as the route to solving social problems. Erhard’s version of the “third way” had been formally accepted by the CDU as its policy. The CDU had committed itself to the social market economy. Erhard had committed himself to the CDU, even though he did not actually join the party. The acceptance of the Düsseldorf Principles, and the election campaign for the first Bundestag, also marked the highpoint of the relationship between Erhard and Adenauer. Adenauer was dry and far better at operating in closed meetings. Erhard was a colorful speaker with a message to communicate. He quickly became the most popular CDU campaigner. This bothered Adenauer, who determined to rein in his valuable comrade as soon as possible.161 Erhard campaigned as often with the FDP as he did for the CDU. His decision to run for the Bundestag under the banner of the CDU rather than the FDP was difficult and disappointed his friends in the latter party. But Erhard realized that the CDU offered a 85

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much better foundation on which to promote his vision than did the small FDP. Consequently, Erhard ran as a direct candidate for the CDU in Ulm/Heidenheim, in the southwestern state of Württemberg-Baden. In the Bundestag elections of 14 August 1949, he was elected with 40 percent of the vote in his district. A new phase of his political career had begun.

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t would be wrong to say that after June 1948 Ludwig Erhard spent the rest of his career on the defensive. But it would not be far from the mark. He scored no further breakthroughs after this point. He did achieve a good deal, but nothing on the scale of the liberalization of June 1948. He also suffered a number of serious setbacks. The reason for this disappointing result is clear. Erhard remained isolated. Very few people among the German public—and, more important, among professional politicians —accepted his economic philosophy. Most did not even understand it. Significantly, he never enjoyed majority support within the CDU. Adenauer only supported Erhard when things went well; when problems arose, Adenauer was ready to change course without hesitation. Erhard was motivated by his convictions. Adenauer, in contrast, was moved by short-term domestic political considerations and, increasingly as time went on, by foreign policy worries. The result was that, although Erhard wanted to move forward, he spent much of his time defending the ground that he had already won. As one of his subordinates in the Economics Ministry put it years later, “We often had the impression that eighty percent of our energy was directed toward preventing mischief.”1 87

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Erhard cooperated closely with Adenauer in forming the first cabinet for the federal government. This was not easy. There was a strong group on the left wing of the CDU led by Karl Arnold of North Rhine–Westphalia, Peter Altmeier of Rhineland-Palatinate, and Christian Stock of Hessen that wanted a great coalition with the SPD. Because a democratic political system requires voters to make choices between parties with differing political views, and because the CDU and its allies had won a majority, although a small one, forming a grand coalition made no sense if West Germany were to develop a viable democracy. Adenauer opposed forming a great coalition with the SPD because he wanted his party to dominate the new government and because he considered the SPD antiChristian. Erhard supported Adenauer, though for his own reasons. Erhard embodied an economic philosophy that was totally incompatible with the collectivist ideals of the SPD. He quite correctly contended that a vote for the CDU in the recent elections had been a vote for his economic policies. Consequently, a coalition involving the SPD was inconceivable to him. This meant that the two leading figures in the CDU, Adenauer and Erhard, both followed the same line. Adenauer used Erhard’s clear rejection of the great coalition idea to help maneuver himself into power. When, early in the cabinet negotiations, Adenauer made clear that he wanted Erhard to be his minister of economics, Erhard readily agreed. He hoped to establish himself in a dominant position over all forms of economic policy, but Adenauer had no intention of allowing one of his ministers to compete with him for authority and prestige. Moreover, Adenauer had every intention of bending Erhard and his other ministers to his will. They would serve Adenauer, not their own aims. When it became clear that CDU participation in the government meant that Erhard would be minister of economics, the SPD voluntarily went into the opposition, a decision that would have much longer-lasting consequences than Schumacher anticipated. Meanwhile, in meetings in Bonn on 19 August 1949 Adenauer had met with his closest political associates and won their approval for the Erhard appointment. On the following day, Adenauer and Erhard traveled to Frankfurt am Main for further negotiations on the shape of the cabinet. They met with Hans Ehard, leader of the CSU and minister-president of Bavaria and others from the southern state. They quickly agreed that Adenauer would become chancellor, Erhard economics minister, and Theodore Heuss would be nominated to become federal president. Throughout this and the preceding talks, there had been no opposition to Erhard. Adenauer then completed his preliminary maneuvers. On 21 August

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1949 he invited about thirty prominent CDU and CSU personalities to his home in Rhöndorf. Both he and Erhard stressed that a coalition with the SPD was impossible. Adenauer explicitly supported Erhard’s social market economic policies. The participants then agreed that Erhard should become economics minister and Adenauer chancellor and made their selections for the other cabinet appointments. In essence, the shape of the first federal cabinet had been set before the formal voting took place at the initial meeting of the Bundestag. Just to ensure that no surprises came from any of the state groups, at the end of the month Erhard and Adenauer met with the minister-presidents, state party chairs, and presidents of the state legislatures to explain their policies. Erhard again opposed forming a great coalition and was particularly strong in his criticism of the SPD. After some additional maneuvering, Erhard was appointed federal minister for economics in the first Adenauer government on 20 September 1949. His objectives for his first term were to achieve the convertibility of the deutsche mark in order to facilitate free trade, to promote capital accumulation and finance reconstruction of industry, and to pass an anticartel law.2 Erhard had great difficulty in achieving his legislative aims. In part, this was due to his changed relationship with Adenauer. Once the government was formed, Adenauer asserted his authority. Adenauer respected Erhard as an economist but, as we have seen, doubted his administrative ability and did not hesitate to use him politically. In contrast, Erhard admired Adenauer as someone who supported his social market economy and who had helped him achieve political prominence. Erhard did not understand that Adenauer was a pragmatist. The chancellor was not concerned with promoting Erhard’s free market philosophy at the expense of his own authority or of the political future of the cabinet. In the latter regard, Adenauer was determined that Erhard submit to his authority and manage his ministry in a way that Adenauer thought proper. Consequently, the relationship between the two men began to deteriorate immediately. Erhard recognized only with difficulty that he was now just one among a group of cabinet ministers, all of whom were supposed to bend to Adenauer’s dictates. One of the most important factors that separated Erhard from Adenauer was the way in which Erhard went about his business. Adenauer had built his career on sober diligence. He succeeded in Cologne and later in the CDU not through brilliant insight but through careful study of files and thorough preparation before taking action. He was also a master at wooing or cajoling reluctant party colleagues into supporting his 89

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policies. In short, Adenauer had fashioned his career through hard work, attention to detail, and ruthlessness. Erhard operated in a completely different way. As Kuno Ockhardt noticed when he worked under Erhard as press secretary of the Special Office for Money and Credit in 1948, “The unusual thing about the working relationship was that Ludwig Erhard was not a man to issue orders or directives. He expressed wishes, gave suggestions, and let everyone go about their business in the way that they saw fit.”3 In contrast to Adenauer, Erhard shunned desk work. He avoided reading memoranda. He was interested in the big philosophical and theoretical issues concerning the overall direction of the economy. He let his subordinates handle the paperwork, the details of reports and memoranda, and staff meetings. He was not interested in preparing programs, studies, and organizational plans. His philosophy steered him away from these things. Not only did Erhard have no inclination or aptitude for micromanagement; he thought that it was wrong. Erhard valued freedom for the individual. Therefore, plans were unnecessary. Because he thought that government planning must lead to economic disaster, he saw no need to prepare such plans himself and avoided technocratic and econometric methods of reporting and planning. If government planning had been the cause of the German economy’s problems, then why continue it? Erhard wanted to reduce government planning to the minimum and allow individual households and companies to plan for themselves. Erhard’s critics, both at the time and later, never understood that his seeming incompetence or indolence had sound philosophical roots. State planning was the problem, not the solution. It was far better for him to spend time propagating his free market message to the public rather than wasting his time reading reports.4 Temperamentally, Erhard was incapable of the political horse-trading that was essential to building a solid government majority and at which Adenauer excelled. Erhard was not even a member of the CDU. He did not disdain the backbenchers of the party; he was simply not interested in them because they had very narrow viewpoints. Moreover, he wanted to maintain his political and philosophical independence. This caused him to collide with Adenauer repeatedly. Erhard would seemingly endorse or tolerate a policy in a cabinet meeting, only to criticize it in public. He also attacked his cabinet colleagues in public, a practice that Adenauer found particularly disturbing. Adenauer was much more interested in cabinet discipline and maintaining at least the illusion of internal harmony than in being philosophically “right.”5

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These peculiarities of Erhard’s behavior go a long way toward explaining his failure to achieve his legislative goals. In negotiation with opponents, he would frequently make concessions in order to preserve harmony, or he would minimize the differences between himself and his interlocutors. This frequently led opponents to think that Erhard had adopted their position, when in fact he had not. Moreover, Erhard often made real concessions on what he considered secondary matters in order to preserve the philosophical kernel of his program. This, too, led to misunderstandings, delays, and setbacks. In general, Erhard’s opponents and friends alike quickly marked him as someone who would not press his view in a dispute, as someone who was ready to compromise when faced with determined opposition.6 Erhard never changed his basic way of doing things. But he quickly realized that he and Adenauer had different, incompatible personalities. As he put it to his state secretary, Ludger Westrick, Adenauer was a man of Gothic temperament, while he was of the Baroque.7 When Erhard became economics minister, he faced a whole new series of challenges. As a member of the Versofen institute, as economics minister in Bavaria, and then as head of the Special Office for Money and Credit and director for economics in the Bizone, Erhard had faced internal bureaucratic challenges. But these experiences were nothing compared with the fierce infighting that occurred in the federal cabinet. Some of his colleagues, such as the Bavarian Fritz Schäffer, the minister of finance, were past masters at intrigue and stubborn, self-centered opposition. They reveled in memorandum wars and turf battles, precisely what Erhard detested. Consequently, Erhard had to fight a number of troublesome battles to preserve his ministerial authority. Adenauer did not construct his cabinet along clear functional lines. Rather, he built it to reflect the division of political power in his coalition. Erhard’s first disappointment came in relation to one of his acquaintances from the FDP, Franz Blücher. To satisfy the FDP in the coalition negotiations, Adenauer had created a ministry for the Marshall Plan as a place to put Blücher and as a way of clipping Erhard’s wings. Adenauer also named Blücher vice chancellor. Erhard was upset that he was not given responsibility for dealing with the Economic Cooperation Administration, the bureaucracy in Paris that was responsible for managing the Marshall Plan. He quite logically argued that how the Marshall Plan was handled would have a major influence on the evolution of his social market economy. This was especially the case because the Allies demanded extensive planning, while Erhard thought government planning was a 91

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plague. Consequently, on 24 November 1949 Erhard sent a letter to Adenauer in which he recounted his accomplishments and described his competence as an economist. This, he thought, should convince Adenauer to transfer responsibility for the Marshall Plan to him, or at least to subordinate Blücher to the Economics Ministry.8 For political reasons, of course, nothing of the kind happened. At the same time, Erhard had to defend himself against an initiative by Blücher to create a cabinet committee to coordinate economic policy, chaired, not surprisingly, by Blücher. In principle, Erhard favored the creation of such a committee, but he wanted to chair it himself. The dispute between the two ministers was so heated that Adenauer took no action on the matter until later. Erhard went so far as to assert to Adenauer that only he could implement the social market economy.9 This was not an unreasonable claim. Blücher represented organized business that supported the FDP. Business was no friend of competition. Others in the cabinet and in the CDU were quite willing to resort to government planning to achieve socially desirable goals and to redistribute income, both of which were anathema to Erhard and incompatible with his understanding of the social market economic order.10 Most important, Erhard became involved in a bitter dispute with Finance Minister Fritz Schäffer for responsibility over money and credit policy. Erhard opened his assault in November 1949. He reasoned, again quite correctly, that it would be impossible for him to achieve his objectives if he could not also shape money and credit policy. Interest rates and exchange rates were essential tools that he hoped to manipulate to steer the economy in the direction of growth, free prices, and free trade. Moreover, Erhard enjoyed overwhelming support for his view. Traditionally, the economics minister had been responsible for these areas. The chief of the Bank of the German States, Wilhelm Vocke, endorsed Erhard’s claim. A group of influential politicians within the coalition, called the Niederbreisiger Circle, also backed Erhard’s demand. It included Hugo Scharnberg and Frantz Etzel of the CDU, Viktor Emanuel Preusker and Hans Ilau of the FDP, and Christian Kuhlemann of the DP. Majorities in both the Bundestag and the Bundesrat also supported Erhard. But Adenauer hesitated. He was convinced that the Economics Ministry could hardly handle the matters for which it was already responsible, let alone the additional work that Erhard wanted for it. Consequently, the struggle spun out for over two years. Finally, in March 1952, Adenauer gave Erhard responsibility for money and credit matters after the West German economy had surmounted a crisis in 1950 and 1951.11

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In the months following the election, Erhard faced a series of issues that directly impinged on his economic ambitions and also served to illustrate just how little support he had. Erhard’s approach to these problems sparked criticism from every point on the political compass. During late 1949 and early 1950 inflation slowed in the West German economy, but unemployment remained uncomfortably high. Erhard was certain that this problem would disappear in time as the economy grew. But the Allies were not so sure. The ECA and the Allied High Commission both criticized Erhard for not doing enough about unemployment. On 19 April 1950 the American high commissioner, John J. McCloy, explicitly expressed his grave reservations about Erhard’s policies.12 Sensitive about maintaining smooth relations with the occupying powers, Adenauer joined the attack against Erhard. Adenauer’s doubts about Erhard became so serious that he sought the opinion of an outside expert. Adenauer maintained extensive contacts among businessmen, such as Robert Pferdmenges, his longtime friend, and Hermann-Josef Abs, a director of the Deutsche Bank. On this occasion, though, he turned to a prominent economics professor whose newspaper articles he found particularly enlightening, Wilhelm Röpke. After examining West German economic policy and the development of the economy, Röpke delivered his report to Adenauer in April 1950. It was a ringing endorsement of Erhard’s approach. Röpke said that responsibility for economic policy should be concentrated in the hands of the economics minister, thereby supporting Erhard in his claims to handle money and credit issues. He asserted that the economic recovery that West Germany was experiencing was due primarily to Erhard’s liberalization of markets. The currency reform by itself would have been insufficient without the freeing of prices. Röpke called Erhard’s policy a “tremendous success.”13 Yet the drumfire of criticism, even with support from prominent figures such as Röpke, made it difficult for Erhard to put his program in place. Erhard sought responsibility for monetary matters because he considered the deutsche mark overvalued. The high value of the mark made it hard for German companies to win export contracts, while raising the prices of German imports. These two factors combined made it difficult for West Germany to balance its foreign trade account. Consequently, Erhard wanted to devalue the mark. His demand was given greater impetus by the British decision to devalue the pound sterling by 30 percent in early September 1949. Erhard proposed devaluing the mark by about 20 percent. Adenauer favored bringing down the value of the mark by a quarter. The French objected that such as large devaluation would place 93

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their exporters at a competitive disadvantage. The Americans backed the French. Consequently, West Germany devalued the mark by 20.7 percent on 24 September 1949. The mark was then worth 23.8 cents, or 4.2 marks to the U.S. dollar. Erhard was completely satisfied with this change.14 There was an important footnote to this move, though. To prevent a feared rise in the price of bread, Erhard agreed to provide subsidies to West German farmers, showing once again that he was not rigid in his opposition to government intervention in the market.15 Another thorny issue that faced Erhard in the months immediately after the formation of the government was unemployment. As companies readjusted to the situation with a solid currency, learning the real value of labor, and as refugees continued to stream into West Germany from the Soviet zone, unemployment rose. In September 1949, when Erhard took office, the jobless rate stood at 8.8 percent. By February 1950 it had climbed to 13.5 percent.16 This development led to severe criticism of the government’s policies by the SPD and the ECA. The Allies feared that unemployment would lead to unrest that would culminate in social revolution. Consequently, Erhard was forced to cobble together a program to create jobs. In early 1950 he put together a package consisting of existing programs involving the construction of homes, building by the Federal Railway (Deutsche Bundesbahn, or DB) and the Federal Post Office, supports for exports, and assistance to small and medium-sized companies. The Bank of the German States eased credit to reinforce these injections of money into the economy. Erhard had initially opposed these measures but reluctantly agreed to them in order to overcome what he was convinced was only a short-term crisis and to avoid difficulties with the Allies. Two jobs programs were passed, one in February 1950 and a second in June. Of the total of 3.5 billion DM budgeted for the two programs, only 950 million was new money.17 This was another example of Erhard doing as little as possible based on his conviction that the market could allocate resources far more effectively than the government and that the problem would be solved shortly by doing nothing. It also illustrated the depth of the faith in government action to address short-term economic problems that existed among the Allies and the Germans, including Adenauer. Ironically, before the programs could have an effect, and before the stimulus of the Korean War appeared, employment began rising again.18 A second labor-related issue also caused Erhard difficulty. The unions, organized into the national umbrella group, the German Union Federation (Deutscher Gewerkschaftsbund) led by the formidable Hans Böckler, wanted a share in setting corporate policy. This was based on their con-

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viction that value was created by labor. The unions had been pursuing this goal since the early 1920s. They made some progress toward full codetermination (Mitbestimmung) but had been stopped short of their goal by the collapse of the German currency and the change in government policy that took place in late 1923 and early 1924. Now, with the economy reviving and fearing an increase in power by the business owners, they returned to the issue. Erhard opposed codetermination. He was convinced that those who owned property, the ones who took risks to create and expand it, should have full control over it. He rejected what would later be called “stakeholder rights.” Indeed, he rejected the whole concept of stakeholders other than the owners. He was convinced that codetermination was incompatible with a free market system.19 Nevertheless, placing political and Christian considerations above economic rationality, Adenauer negotiated a compromise with Böckler on 11 January 1951. Adenauer’s goal was to preserve social peace and win at least some worker support away from the SPD. A codetermination law was passed in May that gave workers five seats on the boards of directors of coal and steel companies. Erhard opposed this law and then opposed extending its provisions to other industries. He was defeated again in 1952, when codetermination was granted to workers in other sectors.20 Erhard was much more successful in implementing his ideas in the arena of tax policy. He was able to do this in spite of the stubborn opposition of Fritz Schäffer, the minister of finance. Schäffer was interested primarily in maintaining a balanced budget, which Erhard heartily supported, and in raising government revenues, which Erhard did not. Schäffer sought to create a reserve fund to insulate the government from economic uncertainty and to pay for the creation of West German armed forces at some time in the future. Erhard saw this as unnecessarily cautious and the accumulation of a surplus as a diversion of scarce capital away from industry. Between 1949 and 1951 federal tax policy was designed to promote internal financing by companies in order to facilitate capital spending. Then, as the economy strengthened, from 1951 through 1953, tax policy promoted external financing, that is, the contraction of loans and the sale of stocks and bonds, through differential taxation of corporate profits.21 A law passed in August 1949 regulated the way that companies listed assets on their new balance sheets as necessitated by the currency reforms. The law allowed them to undervalue assets and depreciate them quickly, freeing cash for investments and lowering their effective property taxes. In April 1951 the federal cabinet cut income taxes. Unfortunately, the Al95

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lied High Commission vetoed this move. Schäffer then proposed raising the sales tax on luxury goods to increase revenues. Erhard did not oppose him, and the proposal won cabinet approval and was later enacted into law. Business and turnover taxes were then increased in June 1951 as fears grew that the economy was overheating. Government expenses rose as legislation was passed to benefit pensioners, people hurt by the war, and other social groups. Schäffer proposed new consumption taxes to prevent the budget from falling into deficit in October 1951. Erhard opposed Schäffer, arguing that there was no need to reduce consumption. However, the cabinet sided with Schäffer and passed the tax increase. As the economy grew, unemployment fell, and inflation remained low, Erhard’s position strengthened. This enabled him to convince the cabinet to cut income taxes by 15 percent in June 1953. Over the preceding three years, Erhard and Schäffer had used various tax exemptions from corporate and individual income taxes to promote savings and investment. The Equalization of Burdens Law, for example, which was designed to help people who had lost property and wealth as a result of the war and the currency reform, included a provision to provide tax breaks to refugees from the east and many others. The result of all of these tax cuts, clearly intended to promote economic growth, and in spite of Schäffer’s consumption tax increases, was that investment more than doubled between 1950 and 1955.22 The West Germans had one of the highest saving rates of any Western industrialized country. This was all the more remarkable in light of the fact that German savers had lost their holdings twice in recent memory, in 1923 and again in 1948. No stronger sign of the faith of the West German people in the new government and in Erhard’s policy can be imagined. Another area in which Erhard won considerable success was in the liberalization of international trade. Between the fall of 1949, when the federal government took office, and June 1950, when the Korean War interrupted his efforts, Erhard greatly reduced tariff barriers to German trade. Effective 3 November 1949, half of all goods were freed for multilateral trade. Erhard and his subordinates pressed the negotiation of bilateral free trade agreements and sought membership in multilateral trade organizations. Erhard also supported increasing trade with eastern bloc countries so long as that remained within the bounds set by Adenauer for the country’s foreign policy. This stance led Erhard to propose tax cuts for companies that did business in the East. Schäffer and the Allies considered this step discriminatory, leading to a long delay while a committee examined the idea. Erhard also supported the formation of

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an East Committee (Ostausschuß) by the Federal Association of German Industry (Bundesverband der Deutschen Industrie, or BDI) to promote trade with the East in October 1950. Erhard saw trade with the East not only as resuming traditional commercial relationships but also as a means of obtaining goods that West Germany needed while avoiding using scarce dollars.23 This policy was hampered by the tensions that existed between the Soviet Union and the Allies and West Germany’s desire to be recognized as the sole representative of Germany’s interests on the international scene and its attempts to isolate East Germany. Doing business with the DDR would clearly undercut that policy. For these reasons, trade with the East did not develop as Erhard wanted. Nevertheless, by the spring of 1950, West Germany had freed 60 percent of goods for unhindered movement across its borders, and Erhard planned to increase this proportion. This difficult but relatively simple situation became much more complicated with the outbreak of the Korean War. The attack by North Korea on South Korea on 25 June 1950 unleashed a series of events that deeply affected the West German economy. It caused serious problems in that it prompted the Allies to call for the reimposition of controls, threatening Erhard’s reforms and the social market economy. At the same time it greatly increased the demand for West German goods, substantially accelerating the growth of the German economy. This latter development was not seen as an unalloyed blessing. Many in West Germany feared that the rapid economic expansion would rocket out of control, leading to inflation and social unrest. Erhard was aware of these dangers and would have preferred that the economy grow without the distortions caused by the war. The Korean War unleashed a wave of panic buying in western Europe as people feared that the communist attack in the Far East was the prelude to an assault on West Germany by the Soviets. They were seemingly justified in this fear by the U.S. claim that the North Korean attack was part of a worldwide effort coordinated from Moscow to defeat the free world. At the same time, the United States and its allies expanded their defense effort to support military operations in Korea. This led to a major increase in demand for raw materials and manufactured goods. Orders flowed to West German companies, leading them to bid up the prices of raw materials, energy, and labor. The general result of these simultaneous phenomena was a significant increase in prices. For West Germany, they led to a rise in exports and to an even greater increase in imports. That in turn led the Allies, the SPD, and many members of the ruling 97

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coalition to call for government intervention in the form of price controls and the allocation of factors of production. There appeared what one FDP member of the Bundestag called a “hunger for programs.”24 Erhard was acutely aware of the dangers as well as the opportunities posed by the situation. In a memorandum to his subordinates in the Economics Ministry written in mid-September 1950, he presciently described what would happen. Erhard wrote that the fear of inflation would lead to calls for changes in the economic order. The solution to West Germany’s problems, however, was to raise exports by at least half. That would keep domestic prices from rising and avoid balance of payments problems. The key long-term goal was to avoid the reimposition of government planning and to protect the free market. This would require flexibility.25 Even at this juncture, Erhard saw no need to manage shortterm economic developments. He only sought to ensure that the economic order remained appropriate. The market itself would handle allocation problems.26 During the latter part of 1950, production rose dramatically and unemployment fell. Exports jumped, but imports shot up as well.27 This led to a balance of payments crisis. Just weeks before, on 1 July 1950, a new organization had been formed to help the European countries handle their foreign exchange problems. The European Payments Union (EPU) was designed to overcome the lack of free convertibility of currencies by clearing balances from international trade among European countries. This would encourage commerce among its seventeen members, reducing their need to trade with the United States and other countries that denominated their balances in dollars.28 One of the persistent problems in the first years after the war was a lack of dollars in the accounts of European countries resulting from their inability to sell goods and services to the United States. That in turn made it difficult for them to buy items from the United States. Many accumulated deficits in their dealings with U.S. companies, leading to what was called the “dollar gap.” The problem was the result of the technical and managerial backwardness of many European exporters, but also American import restrictions and U.S. regulations requiring that transactions be in dollars. By overcoming the inability to exchange any currency for any other, itself the result of protectionist policies followed by many countries, and the shortage of dollars, the EPU should have promoted trade. Each country’s balance was cleared with all others monthly. In addition, members were granted a line of credit to carry them over those occasions when clearing could not result in the settling of all accounts. Some countries accumulated large sur-

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pluses in their EPU accounts. Others fell deeply in debt. The Federal Republic of Germany was one of those that fell in arrears. The West German trade deficit had been declining in early 1950 as its economy grew. However, it began to grow again in the summer of 1950, reaching a peak in the last quarter of the year. West Germany had a trade quota of $320 million and a $200 million multilateral line of credit. By early fall, it was about to exceed its quota.29 Allied and West German policy makers reacted to these changes slowly. As we have seen, Erhard was aware of the impending problem. He did not regard the new situation as justifying a departure from his free market order. But he was prepared to take action to prevent the economy from overheating. In midsummer 1950, he and Vocke of the Bank of the German States agreed that it would be necessary to restrict credit. They hoped that by maintaining stable domestic prices, West Germany would gain an export advantage.30 Consequently, the BdL began tightening the money supply by raising the minimum reserve requirement for banks effective 1 October 1950. The ECA switched its policy from one of pump priming to restriction at the same time. Two weeks later, the BdL then imposed limitations on imports, requiring companies that wished to buy abroad to make a 50 percent prepayment in foreign exchange on their orders. At the same time, it further tightened credit. The Allies became increasingly fearful that West Germany would exceed its trade quota, leading to inflation, restrictions on imports, and social unrest. Consequently, on 20 October 1950 the EPU appointed Alec Cairncross of Britain and Per Jacobsson of Sweden to examine West Germany’s economic policy. They submitted a report a month later supporting Erhard’s line, suggesting that the problem would solve itself in time. Erhard could not have put it better. Nevertheless, because the Allies were worried and calling for action, Adenauer now intervened on the domestic side. He arranged to attend a meeting of the Central Bank Council of the Bank of the German States along with Erhard in Bonn on 26 October 1950. During that meeting, he split once again with his economics minister. Erhard and the directors of the bank proposed an increase in interest rates to prevent overheating of the economy. Still more concerned about unemployment, Adenauer opposed them. By mid-November 1950, the West German balance of payments problem had become acute. The Allies, and now Adenauer, feared the worst. Erhard remained calm. He was sure that the problem would be solved with the help of the EPU along with the growth of the German economy and especially of its exports. On 14 November the EPU extended a spe99

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cial credit to West Germany to tide it over the balance of payments problem. In return, to Erhard’s disappointment, the Germans were required to submit to the EPU a plan to stabilize their economy. Erhard responded promptly, delivering his scheme by the end of November. The EPU then extended West Germany’s trade quota and loaned it $120 million until the end of April 1951.31 Throughout, Erhard saw no need to panic and focused on protecting what he had created over the previous two years. In a speech delivered to members of the CDU on 22 October 1950, Erhard assured them that the restrictions on credit and imports were temporary and were intended to protect the social market economy.32 Four days later, in a memorandum for circulation within the Economics Ministry, Erhard laid out a fourpronged strategy. He proposed expanding depreciation allowances for exporters, cutting taxes on profits earned from export business, increasing the turnover tax credit, and helping companies by reducing or advancing to them the tax on foreign exchange. Schäffer opposed all of these measures, but Erhard thought that they were necessary for the Federal Republic to grow its way out of the foreign exchange problem. He also wanted the export industry to change its emphasis. Virtually laying out a road map for West Germany’s later export success, he called for a shift to the sale of finished consumer goods that would command premium prices. These high-value-added goods would increase export earnings and corporate profits, leading to more jobs and greater economic stability. He wanted the country to double its exports and offered government assistance to help it do so.33 Erhard presented this policy to the cabinet on 7 November. Blücher supported him, but Schäffer, ever wary of losing tax revenues, opposed him.34 With the extension of the EPU credits and the expansion of West German exports, Erhard thought that the foreign exchange problem was under control. But it was not. West German imports grew so rapidly that by mid-February 1951, the Bank of the German States was forced to warn Erhard that the EPU line of credit was practically exhausted. This forced Erhard and the BdL to take additional forceful action. Reluctantly, Erhard reversed the liberalization of trade, placing some items back on the restricted list. In early March, Erhard submitted a revised stabilization plan to the Organization for European Economic Cooperation (OEEC), a product of the Marshall Plan. The OEEC approved the plan in June and helped the West Germans increase their exports and restrict their imports. By the end of March 1951, West Germany had accumulated a $451 million deficit with the EPU.35 The worsening balance of payments prob-

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lem compounded difficulties in the West German coal industry. Erhard had not considered the difficulties in this sector as serious. The Allies and Adenauer did. Coal production had not been liberalized during Erhard’s reforms of June 1948. The Ruhr coal industry in particular remained under state control, specifically by the Allies. In addition, West Germany’s other major coal-producing region, the Saar, was under French administration. Coal prices were fixed, keeping profits low and therefore restricting investment. Allied regulations set production volumes and required the West Germans to export specific amounts of coal to fulfill their reparations obligations. At the same time, the Allies were attempting to restructure Ruhr heavy industry by breaking up firms and separating coal mining from iron and steel production. As a result of these circumstances, there was no free market in coal, the single largest source of energy in West Germany. The result was a coal shortage that, in turn, limited the production of iron and steel. In fact, this was a classic case of what Erhard considered the inevitable result of government planning. Nevertheless, he was blamed for the resulting shortage of coal. Erhard attempted to address the problem, at least in the short term, by appealing to the Allies to reduce the requirement to deliver coal to them by 15 percent. In a meeting held on 9 December 1950 Erhard was only able to win a 5 percent decrease, which was insufficient to overcome the crisis. In the meantime, supplies to homes had fallen badly and some plants were forced to stop production due to lack of fuel, threatening social upheaval. Erhard proposed to modify his policy of favoring investment in the consumer goods industry by taxing consumers to create an investment fund for the coal, iron, and steel sectors. The cabinet rejected his plan, and Erhard rejected direct subsidies.36 The government then gave him authority that he did not want. Erhard was given the power to ration raw materials in a law passed on 9 March 1951. In the meantime, Adenauer had suggested that industry itself take the lead in reallocating capital to the heavy goods sector. Erhard opposed using private organizations to perform public functions on principle, but in this case he chose to let industry take the lead. He reasoned that it would be preferable for private enterprise to solve its problems, even if it abridged the free market, since government intervention would be even worse. He was confident that whatever measures were taken by business would be temporary. Therefore, he agreed to the appointment of Otto A. Friedrich of the Phönix Rubber Company as raw materials adviser to the government on 9 March. Then, on 15 March, Adenauer met with industry lead101

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ers to determine what they would be willing to do. In April, industry, through its peak organization, the Federal Association of German Industry, proposed a plan to Adenauer. It would form an organization that would channel capital from consumer goods industries to the coal, iron, and steel producers. Erhard quickly dropped his own forced saving plan and threw his support behind the industry scheme. Ultimately, 1 billion DM were reallocated by this private mechanism. Ironically, the money began to flow only in the summer of 1952 due to delays arising from the BDI and other organizations having been forced to smooth over disputes among their members. Opposition from among the consumer goods manufacturers was especially fierce. The BDI and its allies also wanted their action covered by a law, which did not go into effect until 18 January 1952. The irony of all of this, which was not lost on Erhard, was that these quasi-governmental measures all became effective after the coal shortage had passed.37 The whole affair concerning the coal shortage and the reallocation of capital by corporatist mechanisms was a defeat for all concerned. The measures were implemented too late to make a difference in the crisis that they were supposed to solve. By reverting to traditional cooperative measures by industry, Erhard’s effort to free the economy from collusive business influence suffered a significant setback. Not surprisingly, Erhard’s simultaneous campaign to pass a law banning cartels and limiting the power of dominant firms encountered severe opposition from industry and gained little support from Adenauer. However, the affair did prove Erhard’s argument that planning, whether attempted by the government or private special interest groups, was ineffective. He simply lacked the political ability to take advantage of this philosophical victory. In fact, it turned into a practical political defeat for him. It slowed his drive to achieve a really free market in West Germany and caused the social market economy as it existed in reality to depart one more step from what he wanted to achieve in theory.38 The clashes over the foreign exchange and coal problems led the Allies, and especially the Americans, to launch a massive assault on Erhard’s free market policy. That, in turn, caused a very serious confrontation between Erhard and Adenauer. That the Americans should have led the charge against Erhard should come as no surprise. Their own government had intervened with increasing frequency in the American economy since the early 1930s. Roosevelt’s New Deal, the economic steering mechanisms installed to increase production during World War II, and Truman’s Fair Deal had all led to a reduction in the scope of the free mar-

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ket in the United States. In part this was the result of the growing influence of social engineers among what were called “liberals” in the United States, people who were mild social democrats in German terms. It was also the result of the pervasive influence of a technocratic, engineeringderived view that human problems could be managed. All of this was anathema to Erhard. Erhard told a German radio audience in September 1950 that he considered the philosophical and political attacks on the social market economy as more threatening than rising raw material prices.39 The Allies, however, continued their drumfire of criticism. In mid-October, the Allied High Commission specifically criticized Erhard’s policies concerning the foreign trade deficit.40 Erhard defended his position by pointing out in a newspaper article that planning had failed everywhere it had been tried. Only primitive minds could still suggest that the solution to the current problem could be found in more planning.41 In another radio address, he openly expressed doubts that the price controls that the Americans had imposed on their own economy would be effective. Out of loyalty to them, he hoped that they would succeed, but he doubted that they could.42 Clearly, Erhard was not intimidated. The Americans then fired a gigantic salvo across Erhard’s bow. On 6 March 1951 John J. McCloy, the American high commissioner for Germany, sent a letter to Adenauer calling on the Federal Republic to create an administration to steer its economy in order to increase the production of armaments and related goods. Specifically, he demanded the allocation of scarce items and the control of strategic goods and imported raw materials that were used in the defense effort. He also called for the creation of priority systems for the import of essential goods and for the export of items necessary for NATO defense. He demanded that the federal government use all of its power to assure supplies to the occupying forces. Finally, he required the Germans to restrict domestic credit in order to ensure that only essential projects were undertaken.43 Adenauer reacted promptly and began planning measures to satisfy the Allies’ demands. Erhard, while supporting the Allied war effort in Korea, did not abandon his economic ideals so quickly. In a Bundestag debate on the government’s economic control legislation on 14 March, Erhard defended the free social market economy. He stressed that basic democratic rights such as freedom in choosing a job and in spending one’s money had to be preserved. He then asserted boldly that the shortages about which the Allies complained were the result of their own controls. He admitted that some steps would have to be taken by the government, but 103

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these would be temporary. Moreover, in direct opposition to the spirit of McCloy’s letter, he argued that the war was an unwanted interruption and that the principles of the free market had to be defended.44 Adenauer was stunned. In the days that followed, Erhard’s ministry in coordination with other ministries and Adenauer’s office stitched together a response to McCloy. It sent him a long, detailed plan on 27 March 1951. It included mention of the law that granted Erhard powers to intervene in the economy, powers that he did not want and, in the event, did not use. It also mentioned the creation of a federal office to observe the flows of goods in the West German economy and an interministerial committee to coordinate economic policy. A priority system would be created to ration imports, and credit would be restricted. Trade liberalization would be reduced and a priority system would be established to ensure that the Allied occupation armies in West Germany were adequately supplied.45 The remarkable aspect of this letter was that it was more cosmetic than substantive. Most of the measures listed either had already been taken or were being planned already. Erhard had sidestepped McCloy’s blow. He followed a policy of doing as little as possible, in effect waiting until the market solved the problem itself.46 Dodging Adenauer’s lunges would be more difficult. As we have seen, Adenauer had never been convinced that Erhard was an effective administrator and had become increasingly uneasy about both Erhard’s economic policies and his methods since late 1949. A draft of the law to ban cartels that Erhard’s ministry was preparing had leaked to the press, prompting Adenauer to write personally to Erhard that “I have the impression that your ministry is not so organized and manned that peaceful, steady work in accordance with the intentions of the federal government can be guaranteed in your absence.”47 Adenauer did not attack Erhard directly, but the meaning was clear since Erhard traveled a good deal. On 17 October 1950 Adenauer returned to the theme of Erhard’s repeated travels in an open session of the cabinet, although Erhard was in Italy at that very moment. He related how he had been told by a highranking American officer in the Allied High Commission that Erhard was not meeting Allied requirements concerning the deconcentration and decartelization issues. The commission called on Adenauer to declare his position since they had lost confidence in Erhard. Adenauer then ordered Schäffer to look into the affairs of the Economics Ministry.48 Later, at the height of the foreign exchange and coal crises, Adenauer told the

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national committee of the CDU that he wanted to solve these problems using any means necessary.49 This was a clear if implicit step away from Erhard. Shortly after, he wrote a letter to Heuss in which he stated, “The optimistic predictions of Minister Erhard have not been born out. His ministry has not sufficiently anticipated economic developments and taken the necessary countermeasures.”50 At the end of the month, Adenauer made his displeasure known directly to Erhard. He told the economics minister to be more careful about his public utterances. He also thought that Erhard was too optimistic about the coal problem and repeated his criticism about the inefficiency of the Economics Ministry.51 Adenauer finally took action at the end of February 1951. He wanted someone in the Economics Ministry who would improve its efficiency and who would keep an eye on Erhard. Adenauer chose Ludger Westrick to become Erhard’s state secretary. Westrick had a long and successful career in industry with the United Aluminum Works and as finance director of the German Coal Mining Administration. He had earned a reputation for steadiness and discretion.52 Unfortunately for Adenauer, Westrick was impressed by Erhard, though he was clear about his new chief’s weaknesses. Westrick became a loyal subordinate of Erhard and refused to report to Adenauer about him. Adenauer also returned now to the idea of creating a cabinet committee to coordinate economic policy. On 16 February 1951 Adenauer told the cabinet that he wanted to create a coordinating committee for economic affairs. Its chair would be Friedrich Ernst, a Berlin banker who had criticized Erhard’s policies. This would reduce Erhard’s power and transfer authority into the hands of someone he could trust. The cabinet greeted Adenauer’s committee idea favorably but had doubts about appointing Ernst to chair it. As Erhard pointed out, it would be wrong for an independent appointee of the chancellor to have authority over cabinet ministers. Adenauer accepted this argument and appointed Ernst as chief of an office for economic affairs in the Federal Chancellor’s Office. Ernst quickly faded from the scene. Adenauer then suggested that Blücher be named chair of the new ministerial committee. Erhard opposed this idea arguing, instead, that Adenauer himself should head the committee.53 In a letter to Erhard, Adenauer accepted this objection on 4 March 1951.54 Since Adenauer rarely attended, the vice chancellor, Blücher, usually chaired the committee’s meetings, which took place in his ministerial building. There the matter rested for two weeks. Erhard then gave a speech before the Chamber of Commerce and Industry in Frankfurt am Main in which he defended his 105

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claim to be the sole authority on federal economic policy. This prompted Adenauer to write one of the most remarkable, most biting, most severely critical letters to a subordinate imaginable. He began, “Your whole conduct is impossible. I must express to you my serious displeasure.” He continued by telling Erhard that no minister had the right to criticize either the government’s policy or other ministers in public. He blamed Erhard for the country’s economic problems and accused Erhard of failing to anticipate the coal shortage, of mishandling the decartelization of industry, and of running his ministry badly. This was why he had not given Erhard responsibility for money and credit and why he could not chair the coordinating committee. He ordered Erhard to reorganize the Economics Ministry, to spend more time on his ministerial responsibilities, and to exercise greater moderation in his speeches. It was at this point that Adenauer appointed Westrick state secretary.55 Erhard wasted no time in defending himself. The striking aspect of his behavior is that he did not resign immediately. Not only had Adenauer lost confidence in him, the chancellor had also insulted him. Erhard decided to stay on because he was convinced that his policies were correct and that he had the unique ability to see them through to success. In a letter sent to Adenauer the very same day, Erhard denied that he was responsible for leaks and that his public remarks contained anything new. He reasserted his claim to responsibility for money and credit matters and attacked Schäffer as the real source of the problem. He volunteered to resign if Adenauer wanted him to do so. But he reminded the chancellor that it was his policies that had transformed the German economy, that he had unmatched expertise in economic matters, and that he had a concept that would assuredly work.56 On the following day, just before a cabinet meeting, Adenauer assaulted Erhard verbally. Erhard refused to resign and refused to change his policies. He absented himself from the meeting. Adenauer backed down. He did not call on Erhard to resign. The cabinet meeting then formally created the ministerial committee to coordinate economic policy. Erhard sent Adenauer a letter in which he objected. The committee met for the first time on 19 April 1951, and Erhard attended.57 By that time the situation had changed dramatically. Erhard had been proved right. Both the economy as a whole and exports in particular had grown rapidly. The index of industrial production had risen from 107 (1936 = 100) in the second quarter of 1950 to 137 in the same quarter of 1951. It continued to expand rapidly, reaching 160 by the end of 1953. Unemployment fell as the demand for workers soared. In the second

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quarter of 1951, the foreign trade balance turned positive. Within a few years, from being one of the largest debtors in the European Payments Union, West Germany became one of its biggest creditors and amassed a gigantic foreign trade surplus.58 In October 1951, as a sign of the improved situation, the Federal Republic joined the General Agreement on Tariffs and Trade. At the same time, monetary policy was eased by the Bank of the German States. In January 1952 Erhard resumed trade liberalization. By April 1952, 77 percent of goods could pass the country’s borders duty-free.59 Despite his successes on the trade, foreign exchange, and investment issues, Erhard still faced major challenges. One of his most important legislative initiatives, a measure that he regarded as his highest priority and essential to the realization of his economic ideals, encountered serious difficulties. As we have seen, Erhard considered the banning of cartels as essential to building a free market in which consumers would receive the full benefits of their purchasing decisions. The Allies had promulgated a law banning cartels and providing for the breakup of dominant firms. They had called upon the West Germans to prepare a law of their own to replace the Allied statute. This process had begun even before the first federal government was formed. However, Erhard had decided to scrap the initial draft prepared by Josten and other neoliberals. Now the process of drafting a piece of legislation that had a real chance of passage and which satisfied Erhard’s desires began. He was under no illusions about the challenge that he faced, particularly among the coalition parties. As he put it, “I stand alone.”60 Work on a new draft began in early October 1949 and was completed by the end of the month. This new version lacked a strict prohibition against cartels. Consequently, Erhard described his priorities to his subordinates in a memorandum completed on 4 November. He told them that it was “high time” that a bill banning cartels was submitted to the Bundestag. He confided to them that he had preferred the Josten draft with its strict prohibition to a law aimed merely at preventing the abuse of cartels. However, political realities had compelled him to withdraw it. Now he wanted a draft that would establish the principle of banning cartels while disarming the opposition. He concluded, “I regard this question as the number one problem and therefore will give it my strong personal attention.”61 Industry resisted immediately and powerfully. On 17 November 1949 Erhard met with representatives of big business to discuss the cartel issue. Erhard asked them to cooperate in drafting the cartel legislation. 107

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The industry representatives responded by lashing out at Erhard’s ideas, introducing all of the arguments that they would use over the next seven years. They warned Erhard against trying to apply his theories dogmatically. They openly stated their preference for the legal situation that had prevailed before the Nazis came to power, under which the government could only prosecute cartels that abused their positions. The definition of abuse had been vague. The business representatives contended that cartels protected small and medium-sized enterprises, a powerful argument in Germany. They also said that cartels were necessary to enhance the country’s international competitiveness, another strong argument because it was timely. They explicitly rejected government regulation of cartels and pointed to agriculture, which Erhard had not liberalized in June 1948, as a model for how manufacturing should be treated. In essence, business considered cartels good, contending that they abused their positions only in exceptional cases. In those instances, when selfregulation failed, then the government could intervene. Business wanted to be left alone to restrict competition at will. Erhard stuck doggedly to his position, reminding his listeners that cartels distorted the market. The draft that his ministry was preparing would be based on the principle of freedom. Restrictions on trade would be the exception, not the rule. He would reject any other type of law. The industry representatives then took refuge in the argument that property rights gave them the power to conclude contracts as they saw fit, including those that restricted competition. Erhard responded that such a solution was politically impossible. The West German market had to be free, and a law to free it had to be passed as soon as possible.62 The battle lines were drawn in this conversation. Industry preferred no cartel law at all, or, if there were to be one, a loose rule that would permit cartels and only ban their abuse. For the industrialists, property rights were more important than free markets. Erhard preferred the outright elimination of cartels. He was not concerned with divesting dominant firms, but he absolutely wanted a competitive market with a functioning price mechanism. He agreed that private property had to be protected but not at the expense of the consumer. Therefore, he advocated competitive markets. A remarkable situation had appeared in which Erhard opposed his business allies in order to create the social market economy. He collaborated with these allies against the SPD, the trade unions, and even against the Allies on most issues. Not surprisingly, their consternation was great when he refused to support them in their attempts to restrain trade in their own favor.

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Erhard was acutely aware of the lack of understanding for his policies among the professional politicians of the coalition parties. The FDP was closely aligned with business and many members of the CDU and CSU were as well. The labor wing of the CDU saw business organization as a means of making the economy more socially responsible. Therefore, Erhard devoted considerable energy and time to winning the support of the public and of Adenauer personally. The fact that Adenauer had close ties to Rhenish-Westphalian industrialists made Erhard’s task all the more difficult. Shortly after his meeting with the industry representatives, Erhard wrote a letter to Adenauer explaining his position on the cartel law. He stressed the benefits of free, competitive markets and made no secret of the obstacles that lay ahead. Yet he was determined to pass a cartel law that had teeth in it. As he put it, “It is instead my task to force people to their fortunes even against their will.”63 In public, he assured the people that the draft that his subordinates were writing would be a German law, not just an unthinking attempt to compel them to accept American practices. But it would also differ from the socialist approach being taken in Britain and the state planning methods being used in France.64 Erhard’s staff was at work on the third version of their draft by the time that he uttered these words. It was based primarily on German traditions and experience and the ideas of the ordo-liberals, but it also took into account U.S. experience and lessons learned in other countries and incorporated features of new international regulations such as the Havana Charter.65 In a cabinet meeting held on 10 January 1950, Adenauer placed passage of the cartel bill at the top of his legislative agenda.66 A draft of the bill, now the fifth, was shown to the cabinet on 13 January. It provided for a ban on cartels by removing their enforceability in courts of law and would place dominant firms under government supervision. The draft was then sent to interested ministries for comment.67 This led to new difficulties, as many asked for exceptions to the prohibition. The Transportation Ministry asked that the Federal Railway be exempted. The Agriculture Ministry demanded that farmers be excluded. The Finance Ministry called for an exemption for banks and insurance companies. The Labor Ministry wanted labor unions to be excepted. At the same time, the SPD called for the bill to be brought before the Bundestag as soon as possible. The SPD resolution bore a remarkable resemblance to Erhard’s own preferences, foreshadowing the tacit alliance that it would form with him to pass a bill years later.68 Erhard and his subordinates then became bogged down in a series of meetings with ministerial and business representatives in which de109

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mands for weakening the ban were brought forward. In public, the ground under Erhard was weakened by a speech made by the French high commissioner for Germany, André François-Poncet. Reflecting the French government’s sympathy for economic planning, François-Poncet called for the coordination of production and sales of goods throughout Europe in accordance with a grand plan. He contended that the free market had ceased to exist and that cartels were useful to order production.69 A few weeks later, the British then signaled that they too would not support a ban. In a meeting with Erhard’s subordinates, they made clear that they would accept any bill, even one that provided for compulsory cartels.70 In short, only the Americans supported Erhard’s aim to ban cartels, but they objected to his methods. On 18 February 1950 Erhard’s subordinates met with the members of the American cartel office. Roland Risse informed the Americans that Erhard now supported excluding agriculture from the ban. The Americans objected, saying that too many industries had already been exempted. They noted that transportation, the banks, and labor unions had recently been excluded. The chief of the U.S. office, Grant Kelleher, stressed that Erhard had to resist the powerful pressure groups and warned that if Erhard agreed to any more exceptions, there would be no need for any law at all.71 In a meeting with the Americans a month later, Erhard tried to explain to them the need for the exceptions. He emphasized his commitment to free markets but pointed out that conditions in Germany differed from those prevailing in the United States. The Americans warned Erhard that granting so many exceptions would make it very difficult to enforce the law.72 The doubts expressed by the U.S. representatives apparently had an effect on Erhard for he ordered a change of policy in May. He staked out a harder position, without returning to the ideals of the initial Josten draft. He ordered that cartels should be banned. However, he allowed exceptions for export and technical rationalization cartels to facilitate passage of the law. He also agreed to allow producers to set retail prices, a practice called retail price maintenance in the United States. Dominant firms would be regulated and a federal cartel office would be formed.73 This led to the writing of the ninth draft of the anticartel law. Industry then stepped up its attack on Erhard’s cartel legislation. The chair of the Federal Association of German Industry, Fritz Berg, sent a letter to Erhard objecting to the course that the economics minister was taking on 22 June 1950. He again expressed his fear that Erhard was unthinkingly attempting to apply U.S. antitrust principles to the very dif-

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ferent conditions prevailing in West Germany. Berg contended that companies had to be allowed to reach agreements to divide the market in order to prevent the creation of just a few large firms. He closed by expressing his preference for the French cartel law.74 Erhard responded that, contrary to Berg’s fears, he was trying to prevent the Americans from imposing their own cartel law through the Allied High Commission. He asked the BDI to stop weakening his negotiating position by attacking him in public. At the very moment that Berg launched his attack on Erhard, a committee of experts appointed by Erhard at the suggestion of BDI leader Otto Friedrich was in the United States looking into American antitrust practices. It later concluded that there was little in American law or organization that was applicable to West German circumstances.75 While Erhard’s cartel office in the Economics Ministry struggled with a new draft, and while a competing draft was circulated by the Ministry of Justice, the patience of the Americans began to wear thin. On 11 July 1950 the Allies asked Adenauer when the draft cartel law would be ready.76 When they did not receive an immediate reply, they sent the Germans a set of guidelines to be followed in drafting such a law. According to these rules, the objective of the law should be to dissolve excessive concentrations of economic power in order to ensure free markets both in West Germany and internationally and to prevent business from threatening democracy. As long as the West Germans did not pass such a law, the Allies would continue to apply their own laws against cartels, monopolies, and dominant firms. The Allies also thought that membership in trade associations should be voluntary and that they should be run according to democratic principles. Anyone who wanted to engage in a business should be free to do so without passing qualification examinations or surmounting other hurdles. The high commissioners emphasized that the West Germans would not be given full responsibility for decartelization and deconcentration until they showed that they accepted the Allies’ principles and that they had passed the requisite legislation.77 In mid-September, Erhard met yet again with the American decartelization officials. Again, he attempted to defend the many exceptions to the ban on cartels that were included in the new draft law. The Americans opposed the exceptions in no uncertain terms and rejected the argument that antitrust had led to concentration in U.S. industry. Erhard pleaded with the Americans to understand his position. He was trying to create a new, free market spirit in Germany against powerful opposition. He said that he agreed with the Americans in principle, but as a practi111

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cal matter he could not do everything at once. It would take time and a change in attitudes among his countrymen to eliminate cartels completely. However, any attempt by the Americans to impose a law of their own would make the situation even worse.78 Officials of the cartel section in the Economics Ministry, working with the Ministry of Justice, produced a new draft, which they discussed with the Allies on 17 October. They were shocked by the Allied reaction. The Allies told them that they had the impression that the exceptions in the law were more important than its feeble prohibition. The rights of consumers would not be protected.79 Shortly afterward, the BDI unleashed another salvo at Erhard. It published a resolution claiming that the draft law would discriminate against industry and that it would weaken entrepreneurial initiative, threaten the social market economy, and put Germany at odds with the rest of Europe, which only punished cartel abuses. The BDI warned Erhard that the law would lead to the creation of a massive bureaucracy and threaten private enterprise. It called for a law that would only prohibit abuses, not cartels as such.80 Erhard met with BDI representatives early in January 1951 to respond to their fears. He reiterated his principled opposition to cartels. However, he said that he would allow certain exceptions to the ban and promised to consult with the BDI before his draft was formally submitted to the Bundestag.81 After so many delays, with so many exceptions, the Americans finally lost patience and sent a draft anticartel law of their own to the Adenauer government.82 By this time, Erhard’s team was on its fourteenth draft. Adenauer waited another two months before intervening. In July 1951, he told the cabinet that he wanted the anticartel bill submitted to the Bundestag as soon as possible. He did not want the SPD to take the initiative on the matter, and most certainly did not want the American law to be imposed on the country. He then made the mistake of appointing a committee to look at the competing concepts of a complete ban or the regulation of abuses. The result was another deadlock.83 Shortly afterward, the Allies rejected the latest draft produced by Erhard’s subordinates. In a stinging criticism, they said, “The Allied High Commission has the impression that the law serves to permit rather than ban cartels.”84 Clearly, Erhard’s initiative had bogged down. He faced opposition from all sides, enjoyed no direct support from Adenauer, and made too many concessions to his German opponents. Despite a heavy investment in time and energy on his part, he was running the risk of failing to achieve one of his primary legislative objectives. Therefore, fending off additional calls for exceptions from within the cabinet itself, Erhard decided

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to plunge forward. On 7 November 1951, he submitted a draft, the fifteenth, to the cabinet, winning its approval. He then sent it to the Allied High Commission. The Allies responded with a draft of their own which differed in many important respects from Erhard’s. Negotiations followed in which Erhard and his assistants won Allied acceptance of most of their formulations. By the end of January 1952 the final differences had been resolved and the revised version of the bill, now the seventeenth, was submitted to the cabinet for approval. This was gained on 22 February 1952.86 The bill was sent next to the upper house of the national legislature, the Bundesrat. After discussion and modification, it was accepted on 15 May. The bill was then, finally, submitted to the Bundestag on 13 June. Its first reading occurred on 26 June. The bill was then sent to committee, where it languished until February 1953. The BDI and its pugnacious chief, Fritz Berg, now led the opposition to the cartel legislation in a public campaign combined with delaying tactics by its friends in the Bundestag. Erhard responded with an open letter to Berg in which he refuted the industrialist’s criticisms. Erhard began by staking out his basic position that a free market was a social market. Since business opposed free markets, it was unsocial. He then went on to propose ten theses. 11] A free market could not exist without free prices and free competition. 12] The attempt to use cartels to offset the fluctuations of the market could only end in state economic planning and the death of the very free enterprise system that Berg thought he was defending. 13] Cartels weakened business by preventing the collapse of unsound companies. 14] Although prices fluctuated more in a free market than in a regulated one, they would also reach a healthy, stable level more easily. 15] Without a free economy, business would cease to exist. 16] Fixed prices would lead to codetermination and thus to the loss of owners’ control of their firms. 17] The market price was the only fair one and could not be calculated by anyone, not government bureaucrats, not business officials. 18] Consequently, the prohibition of all cartels was logical. 19] The demand to use the freedom of contract to destroy free competition was absurd. 10] A cartel ban would only yield a massive enforcement bureaucracy if business systematically violated the law on a huge scale.87 113

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Berg was unaffected by Erhard’s logic. Berg’s priority was to protect the position of industry. He rested his case on the very point that Erhard had rejected, that freedom of contract, property rights, should be used to deny free markets. In other words, the freedom of some, those with property, should be used to deny freedom to others who had less property or none at all. Berg accused Erhard of simply being the puppet of the Allies. He contended that free prices did not always lead to the best economic performance and that “psychological considerations,” which he did not specify, sometimes overrode the need for free prices. He went on to justify the need for cartels by pointing to government intervention in the economy that caused unnecessary fluctuations and the effects of stateowned enterprises that distorted the market. Entrepreneurs required security in order to develop their businesses properly. Therefore, they needed cartels. Berg also contended that cartels charged the same prices and behaved in the same ways as they would if the market were free due to the constant threat of new entrants into the market and the substitution of similar goods for cartel products. He went on to argue that cartels were necessary to preserve midsized companies, around which a considerable mythology of efficiency and innovation had been built. A law against abuses would protect these companies while also serving consumers. He then contended that cartels performed a socially useful role in maintaining employment. He said that cartels smoothed economic fluctuations, enabling companies to retain employees whom they really did not need during bad times. This kept those workers off the streets and welfare rolls, promoting social peace and harmony. He then made the telling argument that the proposed law would discriminate against manufacturing industry. He quite correctly pointed out that with so many sectors excluded from the liberalization of June 1948 and protected by exemptions under the proposed law, virtually the only ones subject to the law would be manufacturing companies. Berg appealed to Adenauer by contending that cartels were instruments of European integration. Finally, he warned again of the growth of an oppressive bureaucracy if the cartel bill were passed. He proposed instead a law that would simply require cartels to register with the government, which would monitor their behavior. Any cartels that abused their positions by “unduly” restricting trade could be dissolved.88 Berg’s letter was a clear challenge to Erhard. In essence, he posed the power of private capital against the power of elected government. The BDI followed up this broadside by attempting to influence Adenauer directly. Guido Ziersch, a competition expert with the BDI, wrote

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to the chancellor personally on 13 January 1953. Berg then met with Adenauer and asked him to kill the cartel bill.89 Erhard responded by writing to Berg again and rehearsing his arguments, to little effect.90 Sensing that the Allies were relinquishing their authority over West Germany, the BDI’s friends in the Bundestag worked to delay discussion of Erhard’s cartel bill. At the same time, the BDI asked for additional concessions from Erhard. When he granted some of them, they raised new demands.91 This strategy bore fruit. At this crucial moment, the Americans began to weaken their stand against cartels. They had caused Erhard a good deal of difficulty, but they were potential, if tricky, allies against Berg. In November 1952 the Americans began to withdraw their objections, first to price fixing, then to the various exceptions. In March 1953 they asked Erhard if he would like to take responsibility for enforcing the Allied cartel statutes. He refused. Finally, in April, the Americans informed Erhard that they could no longer enforce the Allied cartel statutes. This was the result of changed priorities, budget cuts, and the expectation that West Germany would be granted greater internal sovereignty in the near future. They again asked Erhard to enforce their cartel laws. Again, he refused.92 With this, Allied and especially American pressure on Erhard to pass a law banning cartels ended. By this time, the elections for the next session of the Bundestag were fast approaching. Sensing that he lacked legislative support to pass his bill, and disenchanted with its many exceptions, Erhard decided to withdraw his draft from consideration.93 It was a major defeat. Erhard had failed to achieve what he himself considered to be his most important goal. There were a number of reasons for this. Clearly, he faced massive opposition, both from those who thought that he was going too far, and from those who thought that he was not going far enough. In effect, he faced the weight of German anticompetitive tradition while having to contend with the Americans and their unproven and highly questionable antitrust theories. Yet he also misplayed his hand politically. He relied too heavily on his ability to sway public opinion in his favor and use it against the entrenched opposition of industry. He trusted too greatly in the power of his arguments. He also failed to play off the Americans against the BDI. Lacking strong support from Adenauer, Erhard ran out of time. He would try again in the next legislative session. There can be no doubt that Erhard was fully committed to free markets, to the free play of the price mechanism, deregulation, and decentralized, private planning based on the ownership of private property. 115

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But, as he said many times before the end of the war, he did not favor the night watchman state. He opposed a simple return to laissez-faire. He supported state action in conformity with the market to accomplish socially desirable goals. The problem, as he well knew, was in defining what was socially desirable. Because knowing the common good is inherently impossible, one is left to use one’s own preferences influenced by expediency to determine what should be done. Erhard was no different in this than those he criticized. The result was that Erhard’s social market economy included a surprisingly high level of state spending, intervention, regulation, and public enterprise.94 In part this was Erhard’s own doing; in part it was the product of forces that were beyond his control. As early as October 1949, Erhard proposed to the cabinet that the government spend 199 million DM to subsidize the economy of West Berlin.95 In spite of Adenauer’s and Schäffer’s doubts, the cabinet accepted Erhard’s proposal. Between December 1949 and August 1951, the government passed or renewed seven laws that extended subsidies and other forms of economic assistance to various social groups and industries.96 In response to the dire shortage of housing caused by the war, immigration from East Germany, and the lack of investment capital, the government enacted a housing construction law, supported by Erhard, providing for the expenditure of millions to build apartments and homes for low-income families. As a result, the government intervened massively in the housing market and quickly came to dominate it, a situation that Erhard never criticized. Indeed, the solution to the postwar housing shortage was the result of these state efforts, not the free market. In the decade beginning in 1950, 5.7 million homes were built. More than half of them, 3.2 million, were erected by the state for lower-income people.97 Rents in all apartments, whether built by the government or private developers, were controlled by the state, ironically, a policy that always leads to shortages and drives out private investment. In presenting the 1951 fiscal year budget to the cabinet on 29 August 1950, Erhard made an eloquent case for providing support for the handicraft industry. Adenauer warmly seconded him. Erhard also asked for additional money to promote research and development and to help money-losing coal mines.98 In February 1952 Erhard went so far as to advocate in the cabinet extending guarantees to exporters against losses due to price fluctuations.99 While this was part of his campaign to boost West German exports and thereby improve the country’s balance of payments position, it certainly did not accord with his views on the price mechanism.

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In addition to these measures, Erhard either supported with his vote or did nothing to oppose legislation that expanded the welfare state piecemeal during the first Adenauer administration. This included laws to compensate those who had lost assets due to the war and related attempts to equalize the burdens of war costs. While these measures certainly had strong moral justification, they could not be fit into a free market philosophy. Other benefits were extended to families with children, farmers, refugees, and users of public transportation. The federal government operated the railway, the national airline, the telephone system, and the telegraph network and subsidized all of them. None of them could pay their operating costs from their own revenue, to say nothing of their capital expenditures. State enterprises accounted for 70 percent of West German aluminum production and almost half of zinc output. A government-owned factory, Volkswagen, accounted for 40 percent of the nation’s automobile production. The net result was that the Federal Republic had one of the highest levels of taxation in the Western world.100 Indeed, in 1950, the share of the country’s gross domestic product taken by the government through taxes was higher than in the United States or any other country in Europe, including Britain.101 The government’s share of national wealth had only been higher during the Nazi armaments effort during World War II.102 Moreover, during the four years of the first Adenauer administration, it had grown. In the midst of the Korean crisis, social welfare spending was increased. Of the federal budget totaling 20.8 billion DM in 1951, fully 6.3 billion, 36.5 percent, was devoted to addressing social needs.103 While tax cuts were enacted, tax revenues rose. This was the result in the explosion of the economy. This seemingly paradoxical development enabled the government to increase spending while stabilizing both its share of the national product and tax rates. Growth, as Erhard had predicted, was raising all boats and solving social problems deriving from poverty. In effect, Erhard’s program of growth made possible the expansion of the welfare state. This begs the question, raised by many critics in retrospect, of whether there was an economic miracle, a “Wirtschaftswunder,” and if so, what caused it. The main advocate of the thesis that there was no economic miracle is Werner Abelshauser. In a series of pathbreaking works published in the 1970s and 1980s, he argued that the currency reform, Erhard’s liberalization of consumer markets, and the Marshall Plan had no effect on the West German economy. Abelshauser’s thesis has been adopted by many other authors since it first appeared.104 If Abelshauser and his followers are right, then Ludwig Erhard’s significance is greatly diminished. In117

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deed, if Abelshauser is correct, then Erhard is the buffoon portrayed recently in an ambitious biography written by Volker Hentschel.105 Abelshauser contends that the economy of the western occupation zones began to grow before the reforms of June 1948. In the autumn of 1947, according to Abelshauser, the western German economy began a period of growth that did not cease until the mid-1960s. That growth was possible because the war damage inflicted on the capital assets of the west was less serious than initially thought. Allied bombing had not caused extensive, lasting damage to machine tools. In fact, the main obstacle to resuming high-volume production was the disruption of transportation by bombing. Once this had been overcome, according to Abelshauser, the main impediment to economic recovery had been removed. Moreover, the West German economy had at its disposal a large and growing body of well-trained, highly motivated people in part because of immigration of refugees from the east. West Germany was rich in human capital. Against this background, the West German economy entered a reconstruction phase that led it back to its long-term, historic growth trend. Abelshauser bases his argument on the long-term trend analysis of Franz Jánossy. From this perspective, the West German economy was simply returning to its normal growth path after the interruption of the war and defeat. Initially, growth rates were higher than the historical average because damage had to be repaired and ground had to be made up compared with the situation in other Western economies. This initial growth spurt, the reconstruction period, continued until the mid-1960s. Then, growth slowed substantially as the economy returned to historical growth rates.106 There are a number of flaws in Abelshauser’s analysis that make it impossible to accept and which reaffirm the importance of Erhard’s reforms, incomplete though they were. Abelshauser’s estimates of overall output based on the production of electricity contain numerous mistakes that render them useless.107 An examination of production statistics shows that the West German economy was, indeed, growing in 1947. No one, least of all Erhard, has suggested that it was not. The problem was that growth was slow and that there was no prospect that it would accelerate or even continue. This was due mostly to the confusion caused by the government control apparatus. Then, after the reforms, the economy began to grow at a much higher rate and continued to grow rapidly into the late 1950s. This was due to the fact that the new, stable currency and the liberalization of many markets made it possible for both households and businesses to plan effectively by providing them with reliable mar-

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ket data, that is to say, with clear, stable prices. It also gave them incentives to participate in the legal, open market. In contrast, at the same time, the Soviet zone of Germany, where a currency reform was also carried out, experienced no similar growth. The key reason why the Soviet zone did not grow was its very different economic order stressing state control. If the trend applied to Germany before the war, it should have applied to all of it after. It clearly did not. Similarly, the French zone did not experience the explosive growth enjoyed by the British and American zones because, initially, although they did introduce the new currency, the French chose not to free prices and end rationing. When they did, their zone also grew rapidly. Erhard’s liberalization was the critical difference. There are also problems with Jánossy’s theory, which he himself later admitted. It is based on the assumption that the decisive factor in an economy is labor, particularly its qualifications. This is a form of a labor theory of value, a theory that informs Marxist analyses and which has long been known to be untenable. Even Jánossy conceded that changes in the economic order could have substantial effects on economic performance. He pointed to the example of continued rapid growth in Japan after the supposed reconstruction phase ended. Abelshauser accepted Jánossy’s theory uncritically and ignored the qualifications that Jánossy subsequently attached to it. There is no theoretical or practical reason to accept Abelshauser’s analysis when neither the data that he uses nor the theory on which he bases his interpretation is viable. If we rely on classical market analysis, either in its original form as developed by Adam Smith and his successors from David Ricardo to Alfred Marshall, or in the modified form developed by the Austrian economists such as Ludwig von Mises and Friedrich von Hayek, we reach a conclusion favorable to Erhard. According to classical liberal theory, stable money, lower taxes, and reduced regulation must result in an increase in growth because the share of national wealth available for investment increases. Confidence among investors and entrepreneurs rises, leading them to found new businesses and expand old ones. Because prices become more reliable indicators of consumer wants, investors and managers can respond to the needs of the population more effectively. Because the Allies and Erhard together provided a solid currency, freed many prices, and cut taxes, all at about the same time, one would expect the economy to boom, and boom it did. Other economies at other times have responded to similar stimuli in the same way. As we will see, contrary to Abelshauser, growth slowed in the late 1950s and the early 1960s 119

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not because the West German economy returned to an imaginary longterm trend line but because the burden of social welfare spending, taxes, and government intervention had increased sufficiently to inhibit it. The “tax wedge” expanded, narrowing the slice of money available for capital investment. At the same time, the share of wages in the economy increased, further reducing resources available for investment. No hazy theory is needed to explain what happened in the West German economy in the late 1940s and 1950s. No faith in any intellectual construct such as a trend line is required. Specific actions by particular people were responsible for explosive growth and its ebb. Ludwig Erhard, along with the Allies, opened the door to economic growth. As Erhard said, the boom was not a miracle. It was the logical result of policies that he and the Allied currency reformers had considered carefully in advance. The fact that Erhard’s reforms were incomplete and that they did not pull a long train of government plans, regulations, and bureaucrats in their wake does not prove either that there was no boom or that Erhard was not responsible for it. It simply proves that such things were not necessary. Less government action really did lead to more growth.

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chumpeter’s theory of growth may not be an adequate explanation of the economic boom experienced by the Federal Republic after the reforms of June 1948. But another of Schumpeter’s theories does explain what happened next. The economic boom made possible the expansion of the welfare state by Adenauer and the very CDU that supported Erhard. Simultaneously, the explosive growth of the 1950s led to a change in attitudes among the West German population. Increasingly, people felt that there was less need to sacrifice, that competition was bad, poverty unnecessary, and inequality wrong. They demanded that the government take action to solve social problems and to allow people greater leisure. Schumpeter had suggested in 1942 that free market capitalism and democracy sow the seeds of their own destruction.1 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.2 Erhard’s economic suc121

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cess led to a change in the psychological atmosphere in West Germany that endangered his accomplishment and made it increasingly difficult for him to achieve even greater liberalization. When one adds to this Adenauer’s inclination to use the wealth created by the boom to smooth the way toward electoral victories, one can see that Erhard’s task was extremely difficult. Just as important, because Erhard himself did not fully understand the social changes that his reforms had triggered, he had increasing difficulty in communicating his message of freedom. Erhard threw himself into the campaign for the Bundestag election that took place on 6 September 1953. His appearances at numerous campaign rallies throughout the country always drew heavy turnouts. Most likely, his listeners did not understand the full implications of his free market message. However, they were inspired by his optimism and associated him with the country’s newfound prosperity. Erhard was the most popular politician on the coalition side, indeed in West Germany overall. He was helped in achieving this status by the favor that he enjoyed from most of the press. The Economics Ministry worked closely with the newspapers to publicize the minister’s actions and to propagate his ideas. Erhard was one of the first West German politicians, along with Adenauer, to make use of public opinion polls to help him fine-tune his speeches. Informally, a group of business journalists and Bundestag members gathered around Erhard to help him spread his message. They began meeting with him for lunch to discuss free market concepts and gradually began to work together to sell his ideas to the German public. They were informally dubbed by other members of the press the “Erhard Brigade,” in a loose allusion to a Freikorps unit that had attempted to overthrow the German government in 1920. Also helping Erhard was the Action Association for the Social Market Economy (Aktionsgemeinschaft Soziale Marktwirtschaft), which had been formed by businessmen, journalists, and academics to promote free market ideas in May 1952. The group published a magazine called Die Waage (The scale) in which they explained Erhard’s policies in simple terms accessible to those unschooled in the intricacies of economic theory.3 All of these efforts helped Erhard in his mission of educating the West German public in market economics and democracy.4 As before, Erhard did not identify too closely with any party. Rather, he saw himself as an advocate of a set of ideas. The popularity of these ideas seemed to be confirmed by the victory won by the CDU/CSU in the elections. The party’s share of the vote increased from the 31 percent gained in 1949 to 45.2 percent. This victory enabled Adenauer to form a coalition with the FDP and two

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smaller parties of the right from a position of strength. Erhard, despite the upsets of 1951, was the only one considered to fill the post of economics minister. The middle years of the 1950s saw a spectacular boom in the West German economy. Both domestic and export demand rose sharply. The result was that the economy grew at a high annual rate, peaking in 1955 at 12 percent. This explosive growth caused unemployment to decline as the economy generated enough jobs to employ most of those seeking work, whether they were longtime residents of the country or immigrants from the east. The boom led to the first attempts to recruit foreign labor in 1955. Initially coming from Italy, the flow of foreign workers, especially from Turkey, soon became a flood. They were indispensable to the continued growth of the West German economy. By mid-1955, the rapid economic expansion caused fears of inflation to spread among policy makers. The result was that Erhard and the Bank of the German States took a series of measures to moderate growth, leading to a decline in the rate of expansion in 1956 and 1957. In the late 1950s, only the Japanese economy grew more rapidly. West Germany continued to enjoy the fastest rate of growth of any European economy until 1961, when it was overtaken by France.5 Inflation remained low throughout. The excellent record achieved by the West German economy did not mean that there was no controversy concerning economic policy. Business differed with Erhard and the BdL over how to respond to the boom, and Adenauer allied himself with his business friends. Soon after the new cabinet was formed, Erhard issued a report on the status of the economy with his prescription for what should be done to improve it. He noted that the economy even then was growing at an unusually high rate. He attributed this to heavy consumer spending. He also noted that the performance of the West German economy was heavily influenced by economic events in the United States. Therefore, they would have to be watched closely. He went on to criticize the excessive regulation of the housing market and recommended integrating it into the social market economy by freeing it. One step that could be taken to achieve this, he noted, would be to liberalize the credit market. He recommended that the government stop its practice of setting the interest rate for bonds at 5 percent; however, he did not think that it would be possible to end controls on rents or subsidies to renters soon for political reasons. In his report, Erhard also called on the government to reduce taxes. He proposed ending the double taxation of profits from stock ownership as a way of stimulating the capital market. He contended that, in general, 123

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the best results on the capital markets were achieved through the least government regulation. He proposed abolishing the two major laws enabling the government to regulate capital markets by the end of 1953. He also recommended a general reduction of taxes. The progression of the income tax rate should be reduced and the burden of taxation should be shifted from direct to indirect levies. Erhard pointed out that simplifying the tax structure would both reduce administrative costs and promote competition. Erhard also placed great emphasis on passing his anticartel legislation. In addition, he wanted to eliminate import restrictions. He calculated that both measures would increase competition in the West German domestic market, benefiting consumers. He also wanted to begin negotiations at the international level to liberalize agriculture, another one of the areas that was not freed by the reforms of June 1948. Erhard then proposed attacking some of the government’s sacred cows. He doubted that the regulation of the transportation market, including the division of the market between the German Federal Railway and the truckers, was effective. He suggested liberalizing the tariff system of the DB, ending the preferential treatment that it received from the government, recognizing that its monopoly of the land transportation market had ended and admitting that such a monopoly was undesirable anyway. He especially wanted the DB’s tariffs to lose their commonweal function. He doubted that the need to fund the expansion of the federal armed forces would require any special measures that would reduce market freedom. Finally, he called for the free convertibility of the mark, regardless of what other countries did with their currencies, and for the reduction of tariffs.6 Erhard discussed his assessment and recommendations in the cabinet meeting of 4 November 1953. He told his colleagues that he did not fear a slowdown in the United States. The West German economy was solid and could adjust to any contraction in America. He then emphasized the need to reorder the capital market and predicted that the economy would grow at an annual rate of 4.5 to 7 percent, with the high figure the more likely.7 As the economy grew quickly with no inflation and with rapidly declining unemployment, no disputes arose over the government’s economic policy. In July 1954 Erhard reassured Adenauer that all was going well. He saw no need for an economic stimulus package, as some of the chancellor’s friends in industry proposed. He took this opportunity to lash out at interest group politics, reminding Adenauer that the purpose

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of the social market economy was steady growth with a minimum of government interference. He would use money, credit, trade, tax, and capital policies to guide the economy in the right direction. He especially wanted to eliminate controls on the international movement of money.8 In the fall, Erhard achieved one of his aims when the tax code underwent a major reform. Not only was it simplified, but rates were reduced as well.9 Early in 1955 Erhard saw no major problems confronting the economy. Prices had begun to rise, but reductions in import tariffs would prevent significant inflation. Erhard also reduced government spending on construction and cooperated with the Bank of the German States to raise interest rates.10 Nevertheless, rapid growth created strong demand for labor. That, in turn, led to wage increases and the possibility of inflation. The result was that economic policy became a controversial matter again in the spring of 1955. Erhard criticized both the unions that demanded wage increases that exceeded productivity gains, and the employers who granted them. He also had serious reservations about the five-day workweek, one of the major demands of the labor unions. Erhard pointed out that factories had to be kept running a certain number of hours weekly in order for investments in machinery to pay dividends. Bearing in mind that few Germans were willing to work nights or even on the second shift, he feared an overall decline in output. Erhard also opposed the unions’ demand that the workweek be shortened without a corresponding reduction in pay. What Erhard overlooked was that productivity was improving so rapidly over the long term that such gains for labor could be funded, although, in the short term, they did lead to a rise in prices. Erhard suggested that more women enter the labor force to satisfy the demand for labor. He thought that this could be accomplished by producing more labor-saving home appliances that would free them to work outside of the home. He proposed that these appliances be depreciable against families’ income tax liability.11 By the fall of 1955, many commentators, business leaders, and politicians, particularly Adenauer, began to worry that the economy was growing too rapidly, risking inflation and all of its harmful consequences. Erhard, however, was not convinced there was a problem. He proposed talking with labor and business leaders to convince them to moderate wage increases, a process that was called Seelenmassage. He repeated that the goal of the social market economy remained increased consumer goods production and more competition. Yet, he too wanted to smooth violent fluctuations in economic developments. Therefore, he proposed an eleven-point program to stabilize prices that centered on cutting sales 125

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taxes, cutting tariffs and liberalizing trade, reducing government construction spending, recruiting foreign workers, and passing his cartel law and a law against profiteering.12 The other ministers saw the boom as an opportunity to increase spending. The transportation and housing ministers especially requested additional money. Erhard responded by demanding that they cut expenditures.13 In January 1956 Erhard finally accepted that the economy was overheating and decided to take steps to cool it. He attributed the rapid growth and price increases to excessive wage settlements. However, he was unable to take direct action to prevent such increases.14 Instead he would have to use indirect measures. Erhard supported the BdL’s proposal for another increase in interest rates. Adenauer opposed this policy, fearing that industry would suffer as a result and hoping that the booming economy and high employment would help the coalition in the next election. Adenauer called for bringing the Bank of the German States under the authority of the government, with all of the risks of inflation that such a move entailed.15 The chancellor then attacked his economics minister. He accused Erhard of not coordinating his policies effectively with the minister of finance, Fritz Schäffer, the BdL, and the state banks. He then returned to the old theme of Erhard’s administrative inefficiency and the ineffectiveness of the Economics Ministry. Finally, he claimed that he could not identify a clear, consistent line in Erhard’s policy.16 Just four days later, on 21 March, Adenauer returned to the attack. In what must have been a painful criticism for Erhard to hear, he accused the economics minister of not grasping the problems created by prosperity as they had been described by Wilhelm Röpke. He also said that Erhard should reduce his travels and concentrate more on his ministerial responsibilities. Adenauer told Erhard to strengthen the Economics Ministry and wondered aloud whether he had not made a mistake in granting Erhard responsibility for money and credit issues. Reflecting the views of his friends in industry, Adenauer expressed doubts that inflation was a real problem and rejected Erhard’s tax cut proposal.17 Erhard responded in a long, tough letter on 11 April. He took Adenauer to task for undercutting his economic policies. He then pointed out that “For economic policy there is neither a generally applicable recipe book nor a schedule according to which the course of events can be controlled.”18 He would take measures as the situation demanded in accordance with the principles of the social market economy. He would try to preserve a maximum of freedom of action for the government. Adenauer mistook this for inconsistency, but it was really a flexible policy in

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accordance with his free market principles. He then warned that Adenauer’s willingness to spend money to gain electoral support would lead to inflation. He also pointed out that his many trips to speak to the public were necessary to educate the people about the workings of free markets and were one of the reasons why the social market economy had been such a great success.19 In effect, Erhard told Adenauer not to intervene in matters about which he knew nothing. The letter won Erhard only a brief respite and certainly did not change Adenauer’s mind. Indeed, on 15 May 1956, Adenauer told the cabinet that “Economics is only a function of overall policy.”20 Clearly, more battles with the chancellor were looming on the horizon. In line with Adenauer’s desires, Erhard met with Schäffer and the chief of the BdL, Wilhelm Vocke, in Bonn to coordinate policy on 7 May 1956. They agreed that it was necessary to cool down the economy and endorsed a policy of raising interest rates, reducing government spending, and cutting import tariffs. In a press statement announcing these policies, they indicated that they would meet on a regular basis in the future to discuss economic policy. Adenauer was infuriated by this development. On 16 May he denied to the press that such meetings would take place again and condemned the policies to which Erhard, Schäffer, and Vocke had agreed. He was especially critical of Erhard’s desire to cut tariffs.21 Operating behind the scenes was Erhard’s opponent from the anticartel law debate, Fritz Berg of the Federal Association of German Industry. Erhard had a difficult, contradictory relationship with the BDI and its leader. On the one hand, they were allies against the SPD and supported tax cuts and economic growth. On the other, they were bitter enemies concerning free markets and government stimulus of the economy. Erhard was particularly upset that Adenauer consulted Berg and other business figures in his absence concerning economic policy. It seemed to Erhard that Adenauer was unaware that these men were pursuing their own narrow self-interest. In the cabinet meeting of 5 October 1955, Erhard openly criticized Adenauer for speaking with Berg and condemned the BDI leader’s excessive influence on the chancellor’s policies. Adenauer responded lamely that he did not identify with Berg’s views; he was simply seeking a second opinion.22 In fact, Adenauer was concerned not to alienate an important constituency that provided the CDU with campaign funds. Indeed, on 18 May 1956, he arranged a meeting with Berg and Pferdmenges to discuss Erhard’s initiatives.23 Erhard presented his economic policy to the cabinet’s economic coordinating committee on 17 May 1956. Its overall goal was to stabilize the 127

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value of the currency. Erhard told the ministers that he saw a real possibility of inflation. He proposed measures to reduce investment and consumer spending. Credit would be restricted, depreciation allowances would be reduced, government construction would be cut by 10 percent, and tax incentives to promote saving would be increased. While damming up demand, Erhard also looked at the other side of the equation, supply. He intended to increase the volume of goods available to West German consumers. To do so, he proposed cutting tariffs by 30 percent and eliminating import restrictions on many goods altogether. He would restrict subsidies for imports and capital investment. He would try to convince the unions and the employers to limit wage increases and would bring more foreign workers into the country to increase the labor supply. He would also encourage people to work until age sixty-eight. Finally, he warned of the harmful inflationary consequences of increased federal spending planned for 1957. These “election gifts” would most likely cause a budget deficit and would undercut his measures to limit inflation.24 On the following day, Erhard and Schäffer attended a meeting of the Central Bank Council, the policy-making body of the BdL, where a decision was made to raise the discount rate. Erhard publicly defended the step, although he was fully aware of Adenauer’s opposition. On 19 May the BdL announced the increase in the discount rate, this time to 5.5 percent.25 It was not high by historical standards, but high enough to call forth objections from industry. Erhard, thinking that he was satisfying Adenauer’s call for greater coordination of economic policy and that he was following policies that were sure to succeed, had been stung by Adenauer’s criticism of 16 May. On 22 May, he wrote Adenauer to defend himself, saying that the chancellor’s crude criticism of his tariff cuts had offended him. He also claimed that he detected the influence of the BDI in Adenauer’s remarks. He made it clear that, in his opinion, Adenauer’s public comments hurt both the economy and the government and hinted that he was ready to resign.26 Adenauer responded on the same day. He rejected the very thing that he had called for just a few weeks earlier, coordination between the economics and finance ministers and the Bank of the German States. He moaned that in his entire time in office he had never been bypassed in such a way by subordinates. He demanded that he be consulted in advance about any major economic measures planned by his ministers.27 Adenauer then continued his attack in public on the following day, 23 May. He gave a major address to the annual meeting of the BDI at the Gürzenich Hall in Cologne in which he sarcastically criticized

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Erhard’s economic policy and openly took the side of industry.28 Then, on 24 May, Adenauer attacked Erhard in the cabinet. He criticized both the increase in interest rates and Erhard’s tariff reduction. He openly expressed his concern that his authority was being undermined. Erhard, for once, did not hold back. He rejected Adenauer’s Gürzenich speech. He stressed that he had always been loyal to the chancellor but that he would under no circumstances advocate policies that he knew would damage the economy. Adenauer did not retreat. He condemned Erhard’s and Schäffer’s consultations with Vocke and said that Berg had asked him to help business. In a heated exchange, Erhard then offered his resignation.29 Knowing full well Erhard’s value to the coalition in electoral terms, Adenauer did not accept it. Erhard was not intimidated by Adenauer. In the next cabinet meeting he once again defended his policies. He explained that demand both for goods and labor exceeded supply, threatening inflation. He would try to convince both management and labor to moderate wage increases. To help the unions, he would take steps to slow the increase in food prices. The best step to take, he emphasized, was to cut tariffs and, in particular, abolish the tariff on home heating oil. The minister for agriculture, Heinrich Lübke, called for price controls on food processors to increase the profit margins of farmers. Erhard reminded him that direct price controls enforced by the police had not worked in the past and would be ineffective in the future. It would be far better, Erhard stressed, to free the agricultural market.30 In another cabinet meeting held on the following day, Erhard argued forcefully for limits on government spending. The agriculture, transportation, and housing ministers all opposed him. Yet, when it came to a vote, Erhard won.31 Over the next few weeks, Erhard staunchly defended his program to cool the economy by raising interest rates, cutting tariffs, and restricting government spending. Yet resisting persistent calls from industry for support proved difficult. In the cabinet meeting of 19 June, he took a step back. Erhard proposed ending the accelerated depreciation allowances for manufacturing industry that had been granted earlier in the 1950s. He only wanted to reduce them by a quarter, and then only temporarily. Yet Adenauer opposed him, defending the interests of his friends in the BDI and elsewhere in industry. There followed another bitter clash between the chancellor and the economics minister. Schäffer and the minister for economic cooperation, Franz Blücher, both supported Erhard. Then, for no apparent reason, Erhard retreated. He gave up the reduction in the depreciation allowance.32 We can only speculate as to why Erhard con129

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ceded his position. Undoubtedly, part of the reason was his desire to avoid conflict, especially in the cabinet. But he may also have been reluctant to increase industry’s expenses, because he was generally in favor of tax cuts and economic expansion. In any case, this step backward was not the only one that Erhard made on important issues during the mid-1950s. Erhard surveyed the government’s economic policies before the Bundestag on 22 June 1956. He pointed out that interest rates had been raised three times. He had cut tariffs twice, reduced some sales taxes, cut longdistance telephone charges, and lowered government construction expenditures. He condemned the shortsighted policy advocated by industry, and incidentally by Adenauer at the Gürzenich meeting in May, of unlimited economic expansion. His policy for the future was to continue to restrict demand and investment, promote imports, do nothing to promote exports, call for moderate wage settlements, and attract foreign workers to West Germany. The government should avoid budget deficits.33 By the end of July, Erhard was able to tell the economic policy committee of the cabinet that the economy was beginning to cool slightly. He cautioned that it was too soon to ease his policies and rejected the calls by some companies to stimulate the economy again.34 The economy slowed markedly by the end of the year, though it was still growing quite briskly. The Suez crisis in the fall had not led to panic buying, and Erhard had encouraged his countrymen not to be concerned.35 In January 1957 Erhard was able to claim that his policies had been effective. Although prices were still rising, their rate of growth had slowed. Moreover, inflation was lower in the Federal Republic than in any other industrialized country.36 This situation gave West Germany an advantage in export markets. Erhard’s efforts to prevent excessive, inflationary growth had succeeded. He had withstood the attacks of industry and Adenauer and preserved the economic order that he had created in 1948. Yet, he was unable to extend it. Although his powers as an economic forecaster and policy maker had seen him through the battle over short-term economic policy, he was unable to win further victories in the struggle to reform the West German economy. Erhard’s failure as a reformer was clearest in relation to the initiative that he considered the most important, the law against restrictive trade practices, the anticartel law. Erhard knew that he was fighting a lonely battle against the vested interests of industry, circles that had benefited from his liberalization policies. But he was convinced that breaking up the cartels would be so beneficial to the West German people that they

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and their representatives in the Bundestag would support him when the crucial vote on the bill finally came. The public would defeat the special interests and support Erhard. Again, though, he was under no illusions about the difficulty of the task that faced him. As he put it in a speech before a meeting of the German Industry and Trade Congress in April 1955, “To put it plainly, we are going in the wrong direction. I will never tire of fighting for the free market economy. But I stand alone.”37 Immediately after the election, Erhard staked out a strong position on the cartel issue. On 16 September 1953, in a speech delivered at his alma mater, the Nuremberg Business College, he reinforced the themes that he had been stressing since the end of the war. He stated that competition and a viable price mechanism were essential for a free economy. They would make it possible to pursue the objective of all economic activity, the delivery of maximum benefits to the consumer. He denied that business had a right to a particular price or even to recover its production costs. Consequently, there was no need for cartels. He condemned cartels as “foreign bodies in the market economy.”38 He demolished the cartel advocates’ argument that they had a right to associate as they pleased by pointing out that the freedom of one could not be used to restrict the freedom of another.39 Berg rejected Erhard’s reasoning. On 2 October he repeated the claim that property rights ensured that business could organize the market as it pleased without government interference. Unrestricted competition would only harm everyone and lead to chaos, whereas industrial selfadministration, including the prevention of abuses by industry itself, would benefit everyone.40 Berg also proposed privately to Adenauer that a working committee be formed to resolve the differences between the BDI and Erhard.41 Under pressure from Adenauer, Erhard accepted this proposal.42 The result was the loss of over a year. Having made this concession, Erhard then returned to the attack and criticized the cartel movement in a speech before the Action Association for the Social Market Economy in Bad Godesberg on 19 November 1953. In this talk, he made some particularly caustic remarks about entrepreneurs who shunned competition.43 Berg fired a countersalvo in early December at a meeting of the chamber of commerce in Hagen. Incredibly, Berg asserted that the period of rapid economic growth was over. He saw a new phase of intensified competition that would threaten the existence of many companies. He then bitterly attacked the economic theorists who argued that cartels harmed the economy. They, in his opinion, knew nothing about the real world of business. They knew nothing of the 131

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struggle of all against all that implementation of their academic pipe dreams would call forth. Berg’s critique culminated in the contention that price competition was not always a good thing. Amazingly, he claimed that it would lead to reduced consumption. He thought that a competitive crisis existed that had created chaos in the markets, destroying strong and weak companies alike. Berg and the BDI wanted government policy to protect medium-sized companies owned, in his estimation, by the middle class. In other words, he wanted the government to follow a social rather than an economic policy to protect his own group. He went on to argue that price competition was obsolete. It had to be tamed. Competition should focus on the quality of products, service, and technical development. He and the BDI wanted an orderly domestic market without destructive forces. Put differently, he wanted existing companies to be protected. They would then cooperate among themselves to deliver technological advances that they thought consumers wanted at prices that they thought consumers should pay and would preserve their own social position.44 Three days later, Erhard warned Adenauer that Berg and his friends were again trying to undermine the cartel law. Their arguments, he assured the chancellor, were wrong. The cartel law would benefit all West Germans. Moreover, it was based on ideas developed in Germany that were suited to German circumstances. It was not a crude attempt to impose American practices on the Federal Republic. The cartel law was the “heart of the social market economy.”45 Adenauer was not convinced by Erhard’s logic. Later that month, he met personally with Berg, who promoted his ideas of coordinated markets and negotiating a cartel law to suit business preferences.46 The talks with industry began on 14 January 1954. The delegation from the Economics Ministry was led by Erhard with the assistance of Alfred Müller-Armack, who had been appointed to the position as head of the office for fundamental policy issues by Erhard in October 1952. Müller-Armack ably represented Erhard’s position in these negotiations and later in talks concerning the European Economic Community. Erhard began the session by making a crucial tactical error. He agreed with Berg that a tax reform that would include cutting rates should have legislative priority over the anticartel bill. Apparently, Erhard hoped that by giving industry something that it wanted, he would gain at least its acquiescence on the cartel bill. He was badly mistaken. Berg and his friends happily collected the gift that Erhard gave them and then dug in their heels on the anticartel initiative. They agreed that the current ver-

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sion of the cartel bill would be submitted to the cabinet in order to accelerate the approval process. In the meantime, the two sides would discuss possible changes.47 Berg misunderstood this, thinking that the draft would only go before the cabinet after the changes that the BDI wanted had been made to it. Erhard did exactly as he said he would and submitted the draft cartel law to the cabinet on 25 January 1954. Berg heard, incorrectly, that the bill was about to be debated by the cabinet and cabled Erhard in protest. He wanted the draft changed before it was discussed by the government. Guido Ziersch then met with Adenauer and again explained the BDI’s position in favor of a law that would only prohibit cartel abuses. The cabinet then approved the bill on 17 February, clearing the way for it to be sent to the Bundesrat. Berg, incensed, then sent a telegram to Adenauer protesting that industry had not been given an opportunity to express its opinion and claiming that he had been personally insulted. In an extraordinary demonstration of industry’s influence, Adenauer then ordered that the bill not in fact be forwarded to the Bundesrat and that the working committee resolve the differences that remained between industry and the Economics Ministry.48 Erhard complained that the government should not pass laws only after the BDI had approved them. Doing so would subvert representative constitutional government.49 Berg and Erhard then met with Adenauer on 5 March, but neither made concessions. They agreed only to pursue the talks in the working committee.50 The actual negotiations in this phase were led on the Economics Ministry side by Müller-Armack. They provide a revealing glimpse into industry’s undemocratic attitudes. In a meeting on 20 March 1954, one industry representative outlined to Müller-Armack how the price mechanism was of limited utility because it did not always lead to the “sociologically correct price.”51 Consequently, in order to avoid social tensions, business should be allowed to make the necessary adjustments, not the government. The BDI representatives then repeated all of their familiar arguments, particularly that the cartel bill was nothing but an attempt to force American ideas on to the German economy by unrealistic professors who had no idea of how the economy actually worked. MüllerArmack, as one of those “unrealistic” professors who had developed the concepts behind the social market economy, denied that it was simply a translation of American ideas into a German form or that it was the unadulterated expression of the theories of the Freiburg school. He then refuted all of the economic arguments made by the BDI and reaffirmed the government’s commitment to free markets.52 133

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Erhard responded in public to the argument made by the BDI that it was better suited to assure social peace than the government. He did so in a forum where he was sure that his ideas would be heard, at the annual meeting of the BDI itself. As in the case of the Nölting debate in 1948, Erhard was once again prepared to go into the lion’s den and bravely face his most bitter opponents head on. Erhard stated bluntly that the state was responsible for the economy, businessmen for their companies. The state set the economic ground rules that business would have to follow. The state would guard the system of free competition. He called for economic growth, which would benefit business owners as well as their employees. He closed with the ringing affirmation that “The ground on which we stand is freedom.”53 In the meantime, Adenauer’s advisers in the Federal Chancellor’s Office had come to realize the game that the BDI was playing. They reported to Adenauer that the changes that the BDI wanted would eliminate the prohibition of cartels that was the basis of the draft. They suspected, correctly, that the BDI would propose additional changes while maintaining its opposition to the law whatever concessions Erhard made. The BDI’s obvious plan was to win as many concessions as possible and then claim that the government’s draft was so different from the one initially proposed that it would be easier for all concerned not to pass the bill at all and to return to the 1923 law. Barring this, they would string out the talks, hoping that, once again, the legislative session would expire before the bill could pass.54 Erhard tried to convince Adenauer that the BDI’s position was harmful to Germany and that the BDI represented only a minority of West German businesses. He was sure that there was a majority in the Bundestag to pass the bill. He added that the British had also rejected cartels. Finally, he expressed his pity for the many business leaders who supported cartels out of reverence to tradition and fear about their own ability to compete, overlooking the fact that a competitive economy was their salvation.55 Berg returned to the fray soon after in a letter that he sent to Adenauer on 6 July 1954. He repeated the argument that competition in a modern economy should be ordered by business itself. With amazing arrogance, he then told the chancellor that because the bill did not conform with industry’s ideas, if it were passed it would lead to a massive regulatory burden for the proposed federal cartel office, implying broadly that industry would flout the ban on cartels.56 On the very next day, Erhard reminded Adenauer that granting the BDI what it wanted would lead to the disintegration of democracy in West Germany.57 Two days later, Erhard pro-

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vided the cabinet with a summary of the cartel debate in which he reinforced this point. He emphasized that German business did not trust itself to compete fairly. It only knew cutthroat competition. He reaffirmed the state’s role as the protector of the common good, something that no private organization could pretend to do. “The unrestricted unfolding of entrepreneurial initiative,” he stated, “has its limit where it touches the legal and living spheres of others, and where an economic power position (and in some cases a market position) is no longer achieved through individual entrepreneurial achievement, but through collective arrangements and artificially created power positions.”58 It was the government’s responsibility to protect the weak, those with little or no property, those who could not use big organizations with advertising budgets, lobbyists, and direct contact with the chancellor, against those who enjoyed these advantages. At this juncture, Erhard received welcome support from within the business community itself. A large group of business leaders met at the Petersberg and passed a resolution supporting Erhard’s cartel bill on 17 July 1954. Among the companies represented were famous names like Klöckner, Robert Bosch, and Salamander.59 Meanwhile, in the revived working committee talks, the BDI returned to its old strategy of playing for time. Adenauer’s patience then began to run out. He warned Berg that the delays had to stop and encouraged him to negotiate with Erhard in good faith.60 Berg ignored the chancellor’s admonition. The working committee negotiations dragged on. Berg frequently appeared himself, repeatedly expressed his willingness to compromise, and continually demanded more concessions. For the sake of agreement and finally to bring the bill before the legislature, Erhard made more concessions. He consoled himself that he had preserved the essence of the ban on cartels, but he increasingly realized that he was losing the fight. Erhard and Berg agreed that he would bring the government’s draft before the cabinet without the changes negotiated by the working committee. Then, the BDI and its allies could propose those changes in the Bundestag economic policy committee meetings. The government would not object.61 This procedure was necessary because the Bundesrat had already approved the bill in 1953. Erhard hoped that doing things this way would make it possible for the bill to move directly to the Bundestag. In the absence of Adenauer, the cabinet then approved the draft anticartel bill on 19 January 1955.62 It then went to the Bundestag, where it was debated for the first time on 24 March, a delay of more than two months. In an impassioned speech, Erhard appealed to the deputies to make no more changes; 135

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enough had been made already. Too many exceptions to the prohibition on cartels had already been written into the bill. He made no secret of his disapproval of any cartel. He then, once again, attacked the heart of industry’s position. He emphasized that the state alone was responsible for maintaining the economic system, for observing the social effects of economic events, for assuring prosperity and stability, and for maintaining national competitiveness and access to world markets. He asserted emotionally that business freedom was limited by human rights and rejected the economic exploitation of the weak by the strong. Erhard concluded, “Free competition is . . . a basic element of our democratic and economic order and therefore may not be circumvented by private organizations.”63 Yet while Erhard spoke, industry was preparing to destroy the bill. Eberhard Günther, Erhard’s subordinate in the Economics Ministry responsible for the cartel bill, learned that industry planned to kill the bill by having it bog down in committee. A competing bill more to industry’s liking would be proposed by a representative from Bavaria. If this failed, then Erhard’s proposed legislation would be discussed, but slowly, with the aim of seeing it die with the end of the legislative period. Then, just before the Bundestag adjourned for the election, BDI forces would slip through a bill that would restore the very favorable 1923 law.64 Using its connections, industry then prevented committee discussion of the anticartel law until October, a full six months. In the meantime, the BDI achieved one of its goals. With the negotiation of full internal sovereignty for the Federal Republic, the Allies could no longer enforce their anticartel laws. For patriotic reasons, Erhard refused to do so either until his own bill was passed.65 In the economic policy committee of the Bundestag, the debate on Erhard’s cartel bill proceeded slowly and painfully. Many of the exceptions demanded by the BDI were incorporated into the draft. However, some sections were strengthened, especially those concerning dominant firms. The changes prompted Berg to write a letter to Erhard expressing his displeasure concerning the direction that the bill had taken in committee.66 In July 1956 the cabinet agreed that passing the anticartel bill would be its main legislative priority in the next year.67 Adenauer became exasperated. Because the bill seemed to enjoy more support from the SPD than from the coalition parties, he feared that this would hurt the image of the government. He also worried that failure to pass the bill again would harm the coalition’s chances in the federal elections scheduled for September 1957. He therefore instructed the CDU party whips to marshal support for the bill and to get it passed. With Adenauer behind

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it, the bill then moved out of the Bundestag committee and was finally passed by the full house on 3 July 1957. Because so many changes had been made to it, the Bundesrat had to reconsider it. Again, Adenauer drove the bill forward, leading to its passage on 19 July. It was then signed by the federal president, Heuss, in late July and went into effect on 1 January 1958. The anticartel bill that was eventually passed bitterly disappointed Erhard. It established the principle that cartels were illegal; however, it allowed so many exceptions to this prohibition that it was far less effective than he had hoped that it would be. The number of cartels in West Germany actually increased after the bill was passed, having declined as a result of Allied and especially American action after 1945. Later modifications of the bill made it more effective. Over the long term, competition in the West German economy increased, but clearly Erhard had been forced to make many serious compromises.68 He achieved so little because organized business was still very powerful and enjoyed direct access to Adenauer. Moreover, there was no majority either in the West German population or in the Bundestag for a highly competitive economy. The support for the social market economy was shallow, resulting mostly from the prosperity that it brought rather than any widespread, deep understanding of its principles. Even more important, Erhard never had the support of Adenauer. The chancellor only threw his weight behind the bill to avoid further political embarrassment. What could happen when Adenauer wholeheartedly supported a piece of legislation was demonstrated by the pension reform law that was passed almost simultaneously, but much more quickly. Many observers suspected that there was a hidden relationship between the two bills. Industry disliked both. However, it did not energetically oppose the pension reform. Indeed, the BDI remained virtually silent about the pension bill, an initiative that would cost it billions in increased taxes. There is no proof, but many contemporary observers speculated that Adenauer gave the BDI most of what it wanted on the anticartel law in return for its acquiescence on the pension bill.69 Erhard did not play a leading role in the debate over the reform of the West German pension system during the mid-1950s. However, he was interested in that debate because the outcome would have a major effect on his economic policies. This was so for two reasons. If a reform were enacted that greatly increased government expenditure, that would have a significant impact on the economy. Moreover, if benefits were substantially expanded, if the welfare state grew, that would be a blow to his de137

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sire to create a society composed of free, self-reliant citizens. In light of the organization of the cabinet, the leading figures in the pension debate would be the minister for labor and social affairs, Anton Storch, and the minister of finance, Fritz Schäffer. Erhard would be involved, but he would not be at the center of the discussion. In addition, as we have seen, he was fully occupied trying to shepherd his anticartel bill through the legislative process. He did not oppose having a social safety net, but his priorities lay elsewhere.70 The Federal Republic had inherited the social welfare system that had existed at the time of the collapse of the Nazi regime. It had been built since the 1880s when Bismarck had introduced the concept of government-sponsored social insurance. In the press of business, the Adenauer government had addressed individual problems in the system and tried to account for the needs created by the lost war and the division of the country. The result was a patchwork of laws and greatly increased expenditures.71 Adenauer was aware of the inconsistencies and complications in the social welfare apparatus of the Federal Republic. He wanted to create a comprehensive social welfare system while avoiding paralyzing individual initiative and responsibility.72 In his policy speech given at the opening of the second Bundestag, Adenauer made reforming the social welfare system one of his highest priorities. Like Adenauer, Erhard thought that a thorough rationalization of the system was necessary. He supported providing assistance to those who needed it, but he opposed a general increase in benefits. Erhard also supported Adenauer’s desire for an expedited solution to the problem.73 Storch then did nothing. He opposed Adenauer’s desire to reform the entire social welfare system, advocating instead simply an increase in pension benefits. Storch particularly wanted to index pensions to economic growth and price changes. Erhard rejected this idea. He supported a thorough social reform but opposed indexing. He also wanted the delivery of benefits to be based on need. Just as important, he opposed compelling the self-employed to participate in the government system. He feared that forcing them to do so would weaken their entrepreneurial drive.74 While he wanted the social welfare system to be rationalized and benefits increased, Adenauer also feared that the country was becoming a welfare state, with all of the negative consequences that implied. He expressed his anxiety in a letter to all of his ministers dated 16 January 1955. He thought that “The state should only intervene where the powers of individuals and particular groups did not suffice. Every other pol-

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icy would lead to a situation in which the individual will was crippled and the overall responsibility for his existence will be shifted to the state. Such a development should be avoided through the resuscitation of the self-help powers of the individual and society.” The chancellor went on to say that “It is the essential task of the coming social reform at least to stop the tendency toward the social state in the area of social security.”75 He called on his ministers to give him their views by the end of February. He wanted a list of existing benefits delivered by the government and of the demands for new benefits. Erhard could certainly agree with the chancellor’s opinion. He too was concerned about the growth of the state and how it was stifling individual initiative. He responded in public to Adenauer’s ideas at the beginning of May and then in writing to the chancellor, three months late, at the end of the month. At the same time, he submitted a paper that described what he considered to be the fundamental ideas that should shape the social welfare system. In a public address in Munich on 6 May, Erhard said that he wanted to protect the free people of the middle class against a loss of identity and decline into collectivism. Yet he also criticized those members of the middle class who sought security in collective arrangements. In his view, they were digging their own graves. He went on to imply that the government was already doing too much to ensure equal opportunity. The government could not change people’s natural gifts. He closed by warning his listeners that the more the law was used to direct their lives, the greater the danger of collectivism.76 Erhard built on these basic ideas in his letter to Adenauer at the end of May 1955. He told the chancellor that he too feared the slide of West Germany into a welfare state that survived only by delivering favors to various constituencies. He attributed the calls for government support to people’s desire to overcome the losses caused by the war and the residue of National Socialist ideas. He went on, “The development toward the welfare state is also promoted in no small measure by the German tendency toward excessive orderliness and legal perfectionism, leading to the advance of the state into an ever increasing number of areas of private life, culture, and business.”77 He called for the reduction of all subsidies. He supported helping those in real need but opposed a compulsory system that would include professionals. Preserving the freedom of the independent professions was especially important for Erhard: “When the security and pension attitude prevails in all social and professional groups, that is when everyone taxes everyone else, then it will be too late to see that one has destroyed the social order and that no 139

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one has gained. The final result would be state compulsory insurance and the ruination of a people in the questionable harmony of growing poverty.”78 At the same time Erhard offered Storch ideas as to how the social reform should be carried out. He stressed that he was interested in the matter because the government was spending 20 billion DM on social welfare annually. That had a significant effect on the economy. He established the principle that the social reform should not restrict economic growth or productivity gains. Whatever final shape it took, it had to conform to the free market order. Specifically, Erhard advocated rehabilitating those who had been injured so that they could return to work rather than becoming state pensioners. Most important, he was concerned about a massive increase in spending over the long term with no clear means of funding it. He argued that no money from general tax revenues should be channeled into the system. It should be funded strictly on a pay-as-you-go basis by contributions from the employees. Only a modest reserve should be accumulated to smooth out business cycle fluctuations. He feared that a large reserve would give too much market power to those responsible for investing it. He also insisted that the new system apply only to workers, leaving the self-employed professions free to make their own arrangements. He wanted both premiums and benefits scaled to give people an incentive to work. The monthly payments should not be so crushing and the benefits should not be so comfortable that it would be rational to quit a paying job and go on the dole. He accepted the notion that future generations had a responsibility to help those who had suffered as a result of the war. He anticipated that national income would rise in the future, making it possible to fund a system organized along the lines that he visualized.79 Having stated his position, Erhard then concentrated on moving his cartel bill through the Bundestag and fending off the new threat of the creation of a supranational European economic authority that would stifle free trade. Adenauer pressed the social reform forward. On 13 July 1955, he resurrected the idea of a ministerial committee to debate the social reform that had been raised initially by Storch in 1954. He stated that he wanted at least the basis of the reform to be completed in the current legislative period. This would give the coalition a powerful campaign advantage. He appointed Erhard, Schäffer, and Storch to the new nine-member panel.80 Over the course of the next few weeks, Storch successfully opposed Adenauer’s idea of enacting a comprehensive reform of the social welfare system, contending that such an aim was too com-

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plicated and would therefore be too time-consuming. Instead, Storch succeeded in steering the process toward a reform of pensions only, especially for the aged. His aim was to increase benefits substantially. The next major turning point in the pension reform struggle came in December 1955. Adenauer had been alerted by his son to the ideas concerning old-age pensions of Wilfrid Schreiber of the University of Bonn. Paul Adenauer provided the chancellor with a copy of a memorandum written by Schreiber describing his plan. Adenauer was so impressed that he invited Schreiber to present his ideas to the ministerial committee on social reform. Schreiber described a scheme under which pensions would be adjusted for changes in the standard of living. He proposed separating the welfare system from the pension system because pensions were a contract between generations, while other welfare services were purely current obligations. Therefore, the current working generation should pay taxes to fund the pensions of the retired generation. In other words, he advocated a pay-as-you-go arrangement. This funding method, along with the adjustment of benefits, would integrate the aged into the society, not merely prevent them from starving. He had no worries about funding such a system during economic downturns because the government would simply incur debts to keep it afloat. Schreiber closed by warning that the social reform could very easily get out of control and lead to the unlimited welfare state that Adenauer feared.81 Erhard responded to Schreiber’s comments in the ensuing discussion. Other members had suggested that a capital fund be used to support the pension system rather than the pay-as-you-go system proposed by Schreiber. Erhard supported Schreiber, pointing out that a major economic collapse was unlikely and therefore the system should be able to fund itself. However, he repeated his warning not to include selfemployed in the system. He also emphasized again that benefits must not be set so high as to discourage people from working and saving.82 Schreiber addressed the objections raised during the committee meeting, including those of Erhard, in a memorandum completed on 31 December 1955. He wrote that he was glad that Erhard supported his funding method and that Erhard recognized the ethical justification for the generations supporting each other. However, he still thought that including professionals would be necessary and moderated the method for adjusting payments to once every three years.83 Schreiber was convinced that his plan was morally responsible, that it was fiscally sound, and that it would hinder the growth of the welfare state. He certainly did not advocate the socialization of the West German economy. However, once 141

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his plan passed through the legislative process, it promoted these very trends. Erhard quickly realized that a major threat to the economic order was Schreiber’s proposal for the adjustment of benefits in accordance with changes in the standard of living, in effect indexing them. In the next meeting of the ministerial committee in January 1956, he attacked this crucial point. Erhard agreed that pension benefits should be adjusted periodically but not automatically. He feared that the indexing of pensions would reinforce the inflationary effects of the pay increases won by unions for current workers and would not only take into account the effects of inflation but be used to anticipate them, thereby making them worse.84 Erhard renewed his criticism at the committee’s next meeting, in February. He feared that the massive increase in pension payments that would result from Schreiber’s reform would stimulate consumption without a corresponding increase in output, thereby causing inflation. He also suggested changes in the basis for calculating benefits, arguing that anticipating a period of thirty-three years of contributions by each worker was unrealistically low. Forty years would be preferable. The pensions, he argued, should not exceed two-thirds of the worker’s net income. Erhard also proposed dropping the term “dynamic pension” to describe the adjustment of benefits. Adenauer agreed and suggested instead “productivity pensions.”85 Under intense pressure from Storch and interest groups, Adenauer agreed that white-collar employees be included in the pension system. Their premiums would make a major contribution to keeping it solvent. Erhard opposed this. However, before he could take action, the government announced its decision.86 Erhard then attacked the indexing of pensions with greater determination at the next meeting of the ministerial committee. He succeeded in making changes in real output the basis for adjustment. The real purchasing power of pensions would be assured, but they would not rise every time the unions won a favorable wage settlement. Moreover, benefits would be adjusted only every five years and only after a decision by the cabinet. A social council that Storch had inserted into the plan would no longer have the final decision on benefit adjustments. Erhard would have preferred to have eliminated the social council entirely, fearing that it might evolve into an economic council.87 Such an organ had existed during the Weimar Republic and had been ineffective. Yet Erhard had still achieved a good deal. The selfemployed were now safely excluded from participation, although whitecollar workers were now securely included. The new method of calcu-

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lating pension adjustments would greatly reduce the threat of the system contributing to inflation. But it would still be very expensive. Erhard’s victory was short-lived. On 23 May 1956 in the full cabinet, the adjustment of pensions uncorrected for inflation was partially restored. However, the cabinet retained final authority in the matter, and the adjustment period remained five years.88 It was a partial, but important, defeat. Erhard resumed his public opposition to the pension reform in October 1956. He circulated a memorandum among the CDU delegation in the Bundestag in which he criticized the revised way that pensions were to be adjusted, asserting that it would contribute to inflation. In effect, Erhard reopened the debate of May. Adenauer would have none of it. From his perspective, the time to the next parliamentary election was becoming uncomfortably short. He criticized Erhard for not falling into line and Schäffer and Storch for not resolving their differences, which were serious.89 Erhard did not retreat. He reminded Adenauer in a letter written three days later that he had objected to adjusting pensions according to changes in nominal indices. He proposed again that they be changed in light of prices stripped of inflation.90 Erhard’s criticism was overshadowed by Schäffer’s proposal for a fundamental revision of the government plan on 17 October 1956. Curiously, Erhard did not support the finance minister directly. Instead, he followed his own line, objecting to the social and economic dangers inherent in the proposed reform, while ignoring Schäffer’s fiscal worries.91 It does not seem to have occurred to him that if it could be shown that the pension increase would lead to a massive rise in government spending, very possibly causing a budget deficit, that opposition to the bill might be strengthened. It is more likely that Erhard realized that Adenauer did not worry about government deficits and that he was convinced that the economy was so strong that in the short term it could, indeed, support the increased expenditure. Whatever his reasoning, Erhard continued his independent line of criticism. In the process he committed a major public blunder. In a talk to representatives of the insurance industry in Cologne on 25 October, Erhard claimed that he had personally seen to it that the “greatest poison,” the indexing of pensions, had been removed from the bill. Instead, pensions would be adjusted only when needed and only in accordance with measurements of real productivity growth — that is, they would be deflated. He also said that benefits should only provide a minimum for existence and cover emergencies.92 Adenauer reacted immediately. On 26 October he sent Erhard two letters, one for the record and one pri143

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vately in which he was unsparing in his criticism of the economics minister. Adenauer told Erhard that if he had really said that only a bare minimum for existence should be provided by the pension system, then he was wrong, both morally and in terms of the content of the bill. He had also inflicted serious political damage on the government. The CDU would officially distance itself from his remarks.93 Erhard had overestimated his influence. In fact, the indexing of pensions to current prices remained in the bill. Hugo Scharnberg, a leader of the private insurance industry, pointed this out to Erhard in a letter written on the same day as Adenauer’s two biting missives. Scharnberg directed Erhard’s attention to the exact paragraph in the bill that included the unadjusted indexing of pensions. He then criticized Erhard for not doing enough within the CDU to win support for his own position and not following a consistent line. Scharnberg pointed out that he had publicly criticized parts of the plan for which he had voted in the cabinet, and then planned to travel to South Africa at a crucial moment in the debate. Erhard then had to give a news conference in which he explained that he had been misunderstood, that in fact indexing remained in the bill.94 This was not the first time that Erhard was accused of inconsistency, lack of attention to party work, and excessive travel. Adenauer had highlighted these behaviors before. Now one of Erhard’s industry allies had done so. Adenauer was especially upset at Erhard’s behavior because he was in the process of ramming the pension reform bill through the legislature. On 23 May 1956 he had sent the bill to the Bundesrat for consideration. In contravention of parliamentary procedure, he then submitted it to the Bundestag before it had been approved by the upper chamber. He was criticized by the president of the Bundesrat for doing so, but the bill moved on. The pension reform bill was passed by the Bundestag on 21 January 1957 and the Bundesrat two weeks later. It was signed into law by the federal president on 23 February, and went into effect retroactively on 1 January 1957. The pension reform law was a major turning point in the social and fiscal history of the Federal Republic. As Erhard had predicted, it led to massive increases in federal spending and taxes. Premiums for active blue-collar workers rose by 65 percent and for active white-collar workers by 71.9 percent. From 1955 to 1958, government pension collections rose by 75.9 percent, or from 2.9 billion DM to 5.1 billion DM. In the same period, actual pension disbursements increased from 2.19 billion DM to 4.82 billion DM or by 120.1 percent.95

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One of Adenauer’s most important goals was to reorient German society from the east to the west. Above all, he wanted to end permanently the old, deadly rivalry between Germany and France. Adenauer was willing to sacrifice a great deal to gain his objective, including economic considerations. He was prepared to achieve his goal by small steps if a single major breakthrough proved impossible.96 In the aftermath of the First World War, Adenauer had flirted with the idea of a Rhenish state within the united Germany. Even more seriously, he had canvassed the idea of merging, or at least finding some means to achieve the close cooperation between, the heavy industries of the Ruhr and France. He hoped that such an arrangement would contribute greatly to the pacification of the two country’s relations. At the time, as mayor of Cologne, Adenauer was not in a position to implement his ideas and the majority of the French were not receptive to them anyway. Now, in the 1950s, the circumstances were very different. Adenauer was the leader of a western German state and the French proposed an arrangement very similar to the one that he had imagined thirty years earlier. In late 1949 and early 1950, West Germany became involved in a process intended to lead to the economic and then the political integration of western Europe. The Petersberg Agreement of November 1949 had created an international authority to supervise the heavy industries of the Ruhr. Then, in early 1950, Jean Monnet, a French businessman and civil servant with extensive international experience, proposed to the French foreign minister, Robert Schuman, a plan to link the coal and steel industries of northwest Europe, including those of the Ruhr. Schuman adopted Monnet’s idea and presented it to Adenauer, who quickly saw its potential and accepted it. This led directly to the creation of the European Coal and Steel Community, the Montan Union, on 18 April 1951. In the background, another thrust for European cooperation and integration had developed out of the Marshall Plan. A major component of the plan had been the American demand that the Europeans work toward economic and political unification. One consequence of this had been the creation of the Organization for European Economic Cooperation, with West Germany becoming a member soon after it was founded. Erhard initially approved of these efforts. He anticipated that they would facilitate the lowering of trade barriers and the development of the international division of labor. Erhard wanted a federal Europe, not a centralized one. He saw no need for large supranational bureaucracies that would intervene in the economic and political affairs of member 145

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countries. He considered free trade and the free convertibility of currencies as sufficient. The market would see to the rest of the integration process. It would result, ultimately, in a single large European market with a single currency.97 The defeat by the French national assembly of the plan for a European defense community in August 1954 began a new phase in the effort to integrate Europe. Erhard hoped that economic integration would continue despite the French decision.98 But, by this time he had also become dubious of French motives and methods. He suspected that the French really did not want integration among equals. Instead, they wanted other countries to adopt their policies. Erhard explicitly rejected the French policy of government direction of private industry. The French had developed a system called “planification” under which the government planned the country’s economic development and steered companies in the direction that it chose. It selected national “champions,” companies that would lead the development of particular technologies or penetrate selected markets under government direction. Erhard rejected this as a violation of the free market. No one, not even the best-equipped bureaucracy, could foresee which companies or which technologies would be winners. Only the market could do that. He was not surprised that the French effort to control their economic development had led to massive government deficits and numerous technological failures. In a speech delivered in Paris in December 1954, he sketched his competing vision for an integrated Europe of sovereign states with free people. Their economies would be integrated by free markets with freely convertible currencies, and a minimum of planning and bureaucracy. Erhard termed his model “functional integration.”99 The competing French concept became known as “structural integration.” The two ideas became intertwined with parallel visions for political integration, the Atlanticist, championed by Erhard, and what was later called the Gaullist, favored by the French and Adenauer. Coalitions emerged in the Federal Republic around these two sets of ideas, differing on domestic political and personal matters as well. Erhard’s remarks in Paris had been made in response to movement by the west European powers to rejuvenate the integration process in late 1954. In October and November, representatives of nine European states met in London to decide what they would do in the wake of the French rejection of the European defense system. This led to an agreement reached in Paris to include the Federal Republic in Western defense arrangements and to seek ways to integrate further the European

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economies. After much preliminary discussion, the foreign ministers of the west European states met at Messina, Sicily, in early June 1955 and agreed to work toward creating a European common market and a European organization to promote the development of atomic energy. Erhard was not pleased by the direction that these talks took. He feared that the integration of particular markets, such as coal and steel or atomic energy, would delay the process of creating a large free market spanning all industries in western Europe. He also worried that the process was becoming unnecessarily bureaucratic and tending toward state planning and control, the bogies that he thought that he had defeated in West Germany in 1948.100 In principle Adenauer supported Erhard. But he thought, correctly, that the creation of a large free trade area would take a long time. It would be far quicker, and therefore far better, to proceed immediately with the integration of particular markets, if necessary in a limited number of countries.101 This set the stage both for the next step in West German European policy and for another clash between the chancellor and his economics minister. That collision came on 6 July 1955. In a cabinet meeting Erhard once again expressed his opposition to the integration of just certain branches of industry. Adenauer countered that even such imperfect measures were necessary for the sake of European integration.102 The process had to move forward. The “European idea” was important in itself. Despite the chancellor’s clear rejection of his line, Erhard continued to fight against what had become a powerful trend. Erhard publicly condemned the bureaucratic direction that European integration was taking. He called for free international markets in goods, services, and currencies as cheaper, faster, and more humane vehicles for achieving European integration. Tariff reductions within General Agreement on Tariffs and Trade (GATT) and the expansion of the European Payments Union would accomplish more than a new organization with only a few members. He expressed increasing fears that Europe would become a small bloc of nations that would close itself off from the rest of the trading world, including the United States and Britain, to its own detriment.103 Put simply, less bureaucracy would lead to more integration and prosperity. In late 1955 and early 1956, Erhard concentrated his criticisms on EURATOM, an organization conceived by Jean Monnet to coordinate the development of atomic energy throughout western Europe. Erhard had become suspicious of any idea coming from Monnet. He considered the Frenchman an inveterate planner, obsessed with increasing state control of the economy. He also thought that the French were using EURATOM 147

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to hinder real economic integration. Erhard proposed to the cabinet that the common market be created first, then a means for cooperation on atomic energy issues. Adenauer overrode him with the objection that progress had to be made.104 This prompted Erhard to send a long letter discussing in detail his views on European integration to Adenauer on 11 April 1956. He was highly critical of the course that European integration was taking. He made clear to Adenauer that any integration was not good integration. Partial solutions would only compartmentalize the west European economy, causing more harm than good. Partial solutions would postpone the creation of the common market. The best results would be achieved by working closely with the British and the Americans.105 Adenauer responded acidly to Erhard two days later. He told the economics minister that he entirely missed the point. He explained that European integration was necessary for West Germany to become a player that would be taken seriously in European politics.106 By being part of the action on this important issue, West Germany could gain influence on other matters. At a deeper level we can see that Erhard had violated two of Adenauer’s concerns. Erhard wanted the cheapest, most effective economic integration. Free markets provided that. Adenauer wanted to integrate West Germany politically and psychologically with the West. The arrangements proposed by Monnet and others would achieve that aim, however irrational they might be from an economic standpoint. Similarly, resolving the old dispute between France and Germany was more important to Adenauer than free trade and the international division of labor. Erhard approached the issue from a rational, somewhat narrow standpoint. Adenauer was thinking in broad terms and for the ages. Erhard persisted. In September he reiterated his arguments to Adenauer. He insisted that there was too much planning and too little room for the free market in the designs emerging for the common market. He blamed the French for this. He asserted, with a good deal of evidence to support his case, that the French demand for the creation of equivalent labor costs in all of the member states of the proposed common market was unrealistic. The differences among the various economies were vast. In Erhard’s view, the French had committed domestic policy errors and embarked on costly social experiments and now wanted others to join them in their mistakes in order to help them pay for theirs. He also contended that equalizing economic starting positions for people throughout Europe was impossible. He preferred, instead, the liberalization of trade, capital movements, and labor.107

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Erhard was given an opportunity to promote his viewpoint when the British proposed a comprehensive European free trade area in October 1956. In the same month, a conference of European foreign ministers made little progress on the common market and EURATOM issues. Erhard returned to the attack. On 5 October he called for restraint in the common market negotiations to allow time to explore the British proposal. Adenauer disagreed. He did not trust the British and wanted a quick resolution, especially with the French. Erhard again criticized the French attempt to impose their social system on the rest of Europe. Adenauer offered a concession to Erhard in that he would try to negotiate a rule requiring a two-thirds majority on any policy vote in the common market council. This would make it possible to override French initiatives. Erhard then pressed his advantage and advocated eliminating protection and subsidies to French farmers. Adenauer agreed to this as well. Erhard next called for a quicker transition to the common market and for the liberalization of trade regulations within the common market to the greatest extent possible. Adenauer also supported him in these measures. Erhard then called for eliminating a provision that the French had inserted into the common market treaty under which individual states could unilaterally pull out of sections of the agreement that they considered harmful to their interests. He also called for the free movement of capital and labor among member countries and a prohibition of government intervention to protect domestic industries from common market liberalization measures. Adenauer supported these ideas and agreed to allow Erhard to attend the next meeting of foreign ministers that would discuss integration so that he could press his ideas.108 Erhard seemed to be making progress. Erhard participated in the discussions in Paris as agreed on 20 and 21 October 1956. The talks went badly as the French differed with the other European states on many issues. Moreover, no agreement could be reached on how to respond to Britain’s proposal. The result was that no progress on the common market was made. The German delegation agreed only to a set of basic principles, not on detailed rules for harmonization as the French had wanted. Privately, Erhard was pleased that the talks had failed. They had gone too far for his liking, even though they had accomplished little, and their failure had opened the door for the British.109 Then the issue changed course once again. The British played their hands in the European negotiations badly, the Soviets intervened in Hungary, and a crisis involving the British and the French had erupted 149

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over Egyptian nationalization of the Suez Canal. On 31 October, against this troubling background, Adenauer convinced Erhard that agreement on the common market had become a political necessity. Erhard, his anticommunism overshadowing his economic judgment, swallowed his doubts and agreed to support the chancellor. He would endorse the common market consisting of just six countries.110 As he had so often in the past, Erhard then attempted to reverse ground. In a letter to Franz Etzel on 16 November, he denied that he had caved in to Adenauer and renewed his assault on the economic integration of just six states. He again called it too small, exclusivist, and too bureaucratic and interventionist. He typified the common market based on French harmonization concepts as “economic nonsense.”111 But Etzel was not taken in by Erhard’s volte-face. In his response to Erhard on 3 December, he mercilessly demonstrated that Erhard had thrown his support behind the chancellor. Changing tack now raised questions about Erhard’s credibility.112 Etzel had laid his finger on one of Erhard’s character flaws, his desire to avoid conflict that led him to contradict himself. He seemed to have no scruples about saying one thing to one person, even an important one like Adenauer, and then something completely different to another. In spite of his capitulation to Adenauer, Erhard continued his opposition to the common market as a group of six continental countries excluding Britain. In the cabinet meeting of 15 January 1957, a prolonged and bitter dispute erupted because of Erhard’s criticisms. Erhard began disingenuously by saying that he regretted that he had not been given greater opportunity to influence European policy during the preceding seven months. He then unabashedly said that he did not like the compromises that had been made in the recent negotiations. He especially criticized France for trying to evade competition. He feared that West Germany would be sucked into France’s inflation. He then proposed adding a clause to the draft that would provide for future revision of the common market treaty in light of changed circumstances. The cabinet supported him. He then expressed doubts that the French would meet their obligations under the treaty and joined Schäffer in opposing inclusion of France’s African colonies in the common market. As an aside, he said that it was unbearable that France was constantly raising new demands. When the debate was resumed on the following day, Erhard again attacked the French demand for social harmonization, that is, the universal adoption of French labor and social legislation. The cabinet accepted Erhard’s proposal that another clause be added to the treaty in-

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dicating that harmonization could not threaten balanced budgets and currency stability. Returning to the colonial issue, the cabinet also accepted Erhard’s suggestion that France agree to inform other members of the common market when it planned to make major investments in its colonies. It also supported his demand that common market trade policies be as liberal as possible and that West German tariffs would not increase as a result of common market action. The cabinet supported him once more when he opposed allowing the membership of the common market’s economic and social council to reflect social groups proportionally and that academic and business experts be added to it.113 Overall, once again, Erhard had been able to shape West German policy on an important issue by gaining support within the cabinet. If he did not reverse himself in another forum, and if he lobbied for support among the members of the coalition faction in the parliament, he could very well achieve his goals. Fundamentally, his aim remained an unbureaucratic free trade area, with as many members as possible, especially including Britain, that would lead ultimately to the elimination of all trade barriers throughout the world.114 In the cabinet meeting of 15 February 1957, Erhard attempted to press his advantage. He again criticized French policy and advocated a free trade area as superior to the common market. Now Adenauer, supported by the foreign minister, von Brentano, opposed him, underscoring the political importance of a united Europe. Erhard warned that Britain might go its own way, weakening Europe as a whole. Adenauer and Brentano pushed aside his objections, arguing that the small Europe of the six was close at hand and should be grasped.115 Events now moved out of the control or even influence of Erhard. European integration, which he supported in principle, developed in a way that he opposed. The European foreign ministers met in Rome and resolved their remaining differences, signing a treaty creating the European Common Market on 25 March 1957. In the subsequent debate over ratification of the treaty in the Bundestag, Erhard loyally supported Adenauer, though he made clear his reservations. The treaty breathed fear of competition, protection, and discrimination against those who had been left outside. But these weaknesses did not stop him from endorsing it.116 The Bundestag ratified the Rome Treaty on 5 July 1957 and West Germany became a member of the European Common Market when it was formed on 1 January 1958. Notable throughout this series of events was the lack of support for Erhard’s free trade stance by the United States. Despite his many differences with Adenauer — in fact, despite the se151

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rious clashes that had occurred between them, and despite the fact that he was still not a member of the CDU or any other party — Erhard campaigned energetically for the party before the parliamentary elections of 15 September 1957. The way that Adenauer and the CDU prepared for the election caused Erhard to worry deeply. Adenauer unabashedly took advantage of the budget surplus that had accumulated and the prosperity that had caused tax revenues to mushroom to distribute favors to interest groups, opinion leaders, and constituents in the months before the election. Indeed, in 1956 the CDU/CSU formed a panel to distribute these favors that was called informally the “cake committee.” The government handed out millions of marks worth of subsidies, tax cuts, expanded social services, and building projects, to say nothing of the massive pension increase.117 Erhard spoke at over eighty election events, more than any other politician from the union parties. He also made numerous radio and television appearances. Die Waage continued to propagate free market ideas. Advertisements supporting Erhard, not the CDU, appeared in 250 newspapers. An election magazine that focused on Erhard and his accomplishments and ideas was mailed to 12 million homes. Making this independent effort possible was the fact that Erhard, alone among the union politicians, had his own campaign fund, filled by contributions from sympathetic business leaders.118 The election was a smashing success for the CDU and CSU. For the only time in German electoral history, a single party won an absolute majority in the national parliament. Erhard’s campaign efforts, and the prosperity that was attributed to him by the public, were among the most important factors leading to this stunning victory. Overall, the years 1953 to 1957 saw Erhard lose momentum in his struggle to transform postwar Germany. He had pressed forward the process of liberalizing the country’s foreign trade and had helped to shape the policies that had maintained a stable currency. Above all, his policies had facilitated the unmatched economic growth that characterized the period. But in many other respects, Erhard had failed. Most important, he had been unable to stop or substantially modify the pension reform, which triggered an explosion of government expenditures that would continue for decades. The passage of this bill can reasonably be considered to be the end of the social market economy. It marked a decisive shift of policy away from the market toward the creation of the welfare state. The passage of a weak cartel bill was also a defeat for Erhard. It was not what he had visualized in 1949 and did little to restrain cartel activity.119 At most, it can be seen as a basis upon which later, more

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effective legislation was built. Finally, the passage of the European Common Market treaty marked the beginning of a journey toward an interventionist, undemocratic, bureaucratic regime that contradicted everything for which Erhard stood. Deep beneath the surface, and making these developments possible, was the profound lack of understanding of free market economics by the vast majority of the West German people. All they knew was that Erhard seemed to create prosperity. What they did not realize, and Erhard himself only dimly grasped at the time, was that his defeats, the increasing intervention of the federal government in all areas of German life, and the increase in government spending meant that the period of rapid growth was approaching its end.120 The economic signs of this sea change were remarkably faint in 1957. The share of the national wealth that the government took was actually lower in 1958 than it had been in 1953. This was due to the fantastic expansion of the economy in the same period. Erhard was right — growth had enabled the government to address social problems and had increased the standard of living of everyone. But the federal budget had grown from 20.8 billion DM in 1950 to 35 billion in 1957. The social component of that budget, even though the West German federal armed forces had been created in 1955, grew enormously. This was a trend that would bear poisonous fruit in the future.121 The economic explosion of the 1950s led to social and cultural changes that Erhard did not fully grasp. West Germany was exposed to Western and American influences as never before. Increased wealth allowed people to spend money on discretionary items and luxuries to a greater extent than ever before in German history. The country began to move in the direction of a consumer economy and a free time society in which people placed greater importance on personal satisfaction than on achieving collective goals. Agriculture and formal religion declined in importance for a middle class that was more concerned with sports such as soccer, buying automobiles, and going on vacation. Youth increasingly threw off the respect for authority that Adenauer’s and Erhard’s generations had taken for granted. The basic priorities of a growing number of West Germans changed, making them less receptive to Erhard’s message.122 Ironically, it was Erhard’s reforms, his social market economy, incomplete and imperfect as it was, that triggered these changes.123 Erhard complained about these developments without fully understanding their causes. He bemoaned the growing materialism and selfishness of his countrymen. He regretted their continued search for solutions in collectivism.124 But once again Adenauer disagreed with and corrected 153

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Erhard. He reminded Erhard that they had both encouraged the people to make greater demands on life. They were the ones who had called forth the new life-style that Erhard now criticized. They could not now realistically ask people to restrain themselves. He then called on Erhard to provide for more growth before the next election.125

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rhard emerged from the 1957 Bundestag election greatly strengthened, at least politically. The union parties won a majority, making it unnecessary for them to negotiate with coalition partners, especially the troublesome Free Democrats. Consequently, the postelection maneuvering centered on satisfying the various claimants for cabinet positions within the CDU and CSU. Adenauer attempted to create a new ministry for the European community for Franz Etzel, hoping to groom him as a successor, and thereby block Erhard. However, Erhard, working with Foreign Minister Heinrich von Brentano, was able to defeat this gambit. Both the economics minister and the foreign minister would have lost responsibilities and personnel to the new ministry. Erhard was also able to prevent the CSU’s Fritz Schäffer from becoming the chief of the economic cabinet. Instead, Erhard now assumed that position and became vice chancellor. Consequently, Erhard achieved real gains in political power, enabling him to promote his free market agenda more effectively and to position himself as the most likely successor to Adenauer.1 Since the rift between the two men had become serious during the 155

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early 1950s, Erhard had developed ambitions to succeed the aging chancellor. He was encouraged in this by his advisers and by the group of sympathetic journalists and Bundestag members, the Erhard Brigade. Yet, Erhard was losing his grip. He had never been a conscientious administrator. He had always viewed himself as an advocate of an economic and political philosophy and not as a politician. He had learned how to play the political game more effectively, though he was still not among the best at it. He remained an independent figure, not having joined the CDU yet. But his powers were waning. At sixty years old, he was twenty-one years younger than Adenauer. However, he was much less energetic. His powers of concentration had begun to wane and his intellectual energy to ebb. Erhard had not changed his ideas, but his ability to implement them was reduced. Not only was he losing energy, by the late 1950s, as we have seen, public attitudes were leaving him behind, and the federal government and the parties had evolved into systems for delivering favors and benefits to interest groups. Adenauer had actively promoted this development in order to enhance the CDU’s electoral prospects. Erhard had opposed it but could do little to prevent it. The result was that the growth rate of the economy slowed, not as the result of a return to a long-term trend, but due to increased government spending and regulation. Erhard was also aware of the fact that most West Germans did not share his ideas. They did not understand why they were so well off. In a speech that he delivered in 1960, he said, “I would like to say, and this should give us pause, that in spite of an endorsement for the market economy from the polls, so strong that it surprises even me, it is also clear that the people overestimate the government’s willingness and ability to influence the economy, something that they greatly desire. To put this another way, people agree with the principle of the preservation of freedom, but people fear the dangerous consequences of the play of forces in the economic arena so much that they want a net under themselves.” But this was mistaken. Erhard, as he had since the mid-1940s, still saw the solution in growth. “I understand this longing for security very well, but I also see that it is not generally understood how the free order of a forward-moving economy especially offers the best security not only for individual people but also for the delivery of public services to the whole.”2 Clearly, Erhard was not opposed to the provision of social services by the government. But the extent to which the government did so, in terms of its share of the national wealth and the extent to which it relieved people of responsibility for their own lives, caused him to

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Image Not Available

Erhard as federal minister of economics, 4 November 1958. Bundesarchiv Koblenz.

worry. Erhard feared that the government was going too far. But there was little that he could do within the government to reverse this trend. Therefore, he continued to try to educate his countrymen about the workings of the free market system in his public speeches. He did not abandon the fight for free markets and limited government, but the days of great successes in this field were behind him. Erhard’s physical and psychological energies were waning and he became bogged down in a struggle with Adenauer over the succession. A recent biographer of Erhard has argued that Erhard had little to do with economic policy after the third parliamentary election and especially after 1959.3 This is not entirely correct. He did devote considerable attention to economic matters, though with limited success and involving many compromises. The currency issue was one on which he expended considerable energy. Erhard had advocated the free convertibil157

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ity of currencies since the late 1940s. That goal was achieved at the end of 1958, thought not entirely through Erhard’s doing. The British had proposed the creation of a free trade area including all of the countries of western Europe soon after the Common Market was formed in 1957. In early October 1958 British prime minister Harold Macmillan visited Bonn to promote the idea. Erhard supported him while Adenauer was cool, though not opposed. The noncommunist European countries had formed a committee to study the concept. Alfred Müller-Armack represented West Germany on this body. It seemed to him and the others on the committee that agreement had been reached by late October 1958 on means to create a comprehensive free trade area that was compatible with the Common Market. The French in particular, who were anxious to protect their farmers, had agreed to the concept. Therefore on 23 October 1958 the committee proposed a scheme to create a large European free trade area. Now that the talks entered a more serious phase, the British proposed including the Commonwealth in the arrangement. The French opposed this and, reversing their position, added that they could not agree to the scheme. On 26 November 1958 Adenauer and Erhard met French president Charles de Gaulle at Bad Kreuznach in the western part of the Rhineland. Erhard repeatedly tried to raise the issue of the free trade area but was rebuffed by de Gaulle. Shortly afterward, the Soviets threatened West Berlin with isolation from the West. This caused Adenauer to drop his weak support for the free trade area concept in order to ensure French support for the defense of the beleaguered city. This turn of events opened a conflict that would continue until Erhard left executive office in December 1966. De Gaulle refused to consider British entry into the Common Market or the creation of a free trade area including both Britain and the Common Market countries because he saw Britain as a conduit for U.S. influence. De Gaulle’s goal was to increase French power in Europe at the expense of the Americans. He would not attempt to destroy European institutions such as the Common Market or NATO. However, he would try to prevent them from either increasing U.S. influence in Europe or reducing the sovereignty and identity of individual European nations, particularly France. De Gaulle supported cooperation dominated by France but not integration among equals. In doing so, he distanced himself from the ideas of his countryman, Jean Monnet. To achieve his objective, de Gaulle sought closer relations with the Federal Republic. He did not want West Germany to be France’s equal, but he did want it to be France’s friend. In effect, de Gaulle tried to compel the West Germans to choose between the United

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States and France as their primary ally. Adenauer gradually leaned toward France. Erhard rejected France as a haven for economic planners and adhered to the United States.4 Having killed the free trade area, the French unwittingly did Erhard and German consumers a favor. Because the British went ahead with their plans to form the free trade area, the possibility arose of there being two currency blocs in Europe, making trade between them difficult. Therefore, Britain and France negotiated the free convertibility of their currencies to avoid this problem. The other members of both groups quickly followed suit. The result was that West Germany and all of the other European countries proclaimed the freedom of movement of currencies and the end of foreign exchange controls and rationing on 29 December 1958.5 With essentially no effort on his part, at least in the last phase, Erhard achieved one of his major objectives. He was fully aware of the significance of this cheap victory for consumers and its political implications. On 28 December Erhard explained in a radio address that, “of all of the imaginable forms of integration of the free world, the convertibility of currencies is the most fruitful. It could also relieve us of the unpleasant struggle between the Common Market and the free trade zone.”6 For little or no bureaucratic effort, the benefits of integration could be made available to all. In Erhard’s view, this really was a case where less was more. A second struggle over currency matters arose at the end of 1960. West Germany had consistently earned foreign exchange surpluses since the early-1950s. In contrast, by the end of the decade, the U.S. economy was running balance of payments deficits in the midst of a boom. One of the causes of the deficit was the undervaluation of the deutsche mark. Erhard attempted to slow the growth of the West German economy in response to this export demand and feared that inflation would appear in the autumn of 1960. Erhard and the leaders of the Bundesbank, the West German Federal Bank, both advocated a revaluation of the mark. On 4 August 1960 Adenauer and Erhard met with Karl Blessing, the chairman of the board of the Bundesbank, and Erhard’s old enemy from the cartel law debate, Fritz Berg. The BDI leader denied that there was a risk of inflation. His constituents enjoyed the low value of the mark because it made their goods cheaper in other countries, giving them an export advantage. Therefore, he opposed revaluing the mark upward. In early September, Erhard again called on Adenauer to support the revaluation of the mark. Doing so would cheapen imports, lowering the price level in West Germany and thereby lessening the risk of inflation. A week later, 159

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on 14 September 1960, Erhard appealed to Adenauer’s electoral preoccupations by pointing out that inflation in the period before an election (parliamentary elections were scheduled for September 1961) would hurt the government’s chances. He also warned about the selfish influence of interest groups. Berg then launched a massive attack against him in a speech at the Bonn Press Club on 29 September 1960. Berg claimed that a revaluation of the mark would be a catastrophe for German industry. Then, emboldened by his success in weakening the cartel law, he said, “I only need to go to the chancellor once and the whole upward revaluation of the mark is permanently off the table, off the board.”7 Erhard hoped to defuse the criticism from the Americans by offering to pay $357 million of the U.S. occupation costs incurred in West Germany and to spend another $357 million on foreign aid to offset the trade surplus. The United States was not impressed by this proposal. Erhard then called again for revaluing the mark. Importantly, he was supported by Etzel and Pferdmenges, both of whom were close to Adenauer. Shortly after, the United States formally asked the West German government to increase the value of the deutsche mark due to its extraordinarily large balance of payments surpluses. In a meeting held on 28 February 1961, Erhard, Pferdmenges, Etzel, and Blessing convinced Adenauer to revalue the West German currency. Adenauer did not want to risk alienating the Americans over this issue. The cabinet and the central committee of the Bundesbank approved the revaluation on 3 March. Adenauer, however, influenced the degree to which the mark was revalued. Erhard and Etzel had advocated pegging the mark at 3.9 to the dollar. Adenauer suggested 4 to the dollar because it was a nice round number. This was the rate at which the mark was revalued on 6 March 1961.8 In a radio speech given that day, Erhard told the German people that the revaluation was necessary to cheapen imports in order to prevent inflation. He hoped that wage increases would slow and that the economy would cool off.9 In political terms, the revaluation of the mark was a success for Erhard. He defeated the special interests and convinced Adenauer to change his position. In economic terms, the success was significant, though not of the same proportions as the liberalization of June 1948. Yet it demonstrated that, in his area of expertise, Erhard still carried weight. Due to changes in technology, expensive wage settlements, and the sheer age of the mines, the Ruhr coal industry was becoming less competitive on both the world and domestic markets. The mines were old, forcing them deeper into the earth, which raised costs. Improved mining and transportation technologies made it economical to import coal from

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the United States. In addition, oil had emerged as a serious competitor on the West German domestic fuel market. Indeed, Erhard had encouraged the conversion from coal to oil. Incredibly, the coal industry had responded to its lagging sales by raising prices. This was motivated in large part by the very generous wage and benefits settlements that the miners’ unions had been able to win from it. Erhard appealed to the unions and the mine owners to moderate wage increases. He also warned them that the government would take steps to ensure that competition kept coal prices from rising.10 Nevertheless, the crisis in the coal industry deepened. In 1957, as the economy boomed, many industries signed contracts to purchase large amounts of cheap American coal. This reduced demand for German coal as the economy slowed a bit in 1958. German coal exports fell because of the high price demanded by the Ruhr mines. At the same time, many industries were converting to oil.11 Rather than reacting to the signals that the price mechanism was sending them by cutting costs, the Ruhr coal mine owners appealed to the government for protection. Erhard preferred to let the coal mining companies solve their problems on their own. He hoped that inefficient mines would be closed and labor and capital move to other industries. Adenauer, however, saw the mines’ plight as a political problem. He pressured Erhard to take action to save the dying industry. In September 1958 Erhard reluctantly imposed restrictions on coal imports. But he did no more, to the displeasure of Adenauer and the coal industry. Adenauer then compelled Erhard to negotiate a cartel between the coal industry and the oil importers in early 1959. The two groups agreed to divide the West German energy market. The oil companies consented not to sell below the world market price and not to gain market share until stockpiles at the mines fell by half.12 This settlement was a bitter pill for Erhard to swallow and, quite characteristically, he opposed it publicly while implementing it officially. In a speech to members of the CDU on 10 April 1959, he repeated his opposition to protecting coal from technological change. He warned his listeners against becoming nervous about the normal process of economic adjustment. Then he loosed a general condemnation of cartels and their effort to evade the judgment of the market.13 Fortunately for Erhard and West German consumers, the energy cartel was ineffective and was canceled in August 1959. As always happens, some members of the cartel had tried to undercut the established price in order to gain business. Erhard then proposed a package of measures to help the coal industry adjust. Among other steps, he suggested imposing a tax on heating oil that would be used to fund the rationalization of the coal industry 161

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by closing mines and retraining miners. Although Erhard was not enthusiastic about imposing a new tax that would affect consumers directly, he reasoned that this market conforming measure would be less damaging in the long run than the cartel. It would ultimately solve the coal problem by eliminating excess capacity in the industry.14 Not surprisingly, no one in the coal industry understood what Erhard was trying to do. The miners could only see that they would lose their traditional form of work and could not imagine doing anything else, while the owners feared competition. Berg opposed the oil tax plan and advocated a renewal of the compulsory cartel including all coal and oil companies. He saw no reason why the coal mining industry should shrink. When it was pointed out to him by Hans Götz of the Frankfurter Allgemeine Zeitung, one of the most prominent newspapers in West Germany, that the market was telling him that too much coal was being cut, he responded crudely, “Then I shit on the market economy.”15 The coal miners traveled to Bonn and conducted a silent protest march outside of the government offices on 26 September 1959. Erhard attempted to reassure all concerned by saying in a radio speech that coal would continue to provide the bulk of energy consumed in the German economy, though less than in the past. He added that the adjustment to the new situation could be made without pain through government assistance.16 Despite considerable pressure on Adenauer from Berg and other industrialists, Erhard convinced the cabinet to approve his oil tax plan on 16 September 1959, with the tax going into effect on 1 May 1960.17 This was another victory for Erhard, both politically, because he had defeated the special interests, and also economically, because his policy did less harm to the market economy than the proposed cartel would have. In the long run, however, Erhard was unable to control the outcome of this dispute as he wished. Although the coal tax was extended to electricity, the coal industry and the miners unions continued to resist restructuring, leading to new coal surpluses, social distress in the Ruhr, and continued expensive subsidies to the industry. Another area in which Erhard achieved some success was in extending property rights to workers and in reducing direct government involvement in business activity. In the 1957 parliamentary elections, Erhard had called for making it possible for everyone to own property. Workers should own their own homes and should be able to own stock in companies, giving them a stake in the market economy and allowing them to share in its benefits. In December 1959 the Bundestag passed a law that changed the rules for how stock was handled. Most important,

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Erhard with Fritz Berg (far left), president of the Federal Association of German Industry. Bundesbildstelle.

it allowed for the issuance of stock in smaller denominations than were usual in Germany and the sale of stock to employees of companies at a discount. The latter were called Volksaktien, or people’s stock. Only a very small proportion of the West German population actually owned stock, far smaller than in the United States. Erhard hoped that this legislation would change that and demonstrate that workers too could benefit from the free market, not just a few rich capitalists as the socialists contended. With this change, Preussag, a large energy and manufacturing conglomerate owned by the federal government, was privatized and parts spun off in the spring of 1959. As a result of these offerings, 100,000 people who had not previously owned stock bought shares in the privatized companies. In early 1961 Volkswagen was privatized. The Volksaktien played a major role in this action as more than 1 million people, includ163

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ing many VW employees, bought shares. The privatization of VW was only partial, however, because the state of Lower Saxony bought a large block of shares.18 Erhard also attempted to encourage the accumulation of wealth by workers by supporting a tax reduction on savings, which passed in May 1959.19 He followed this up with a reform of the tax system that included effective cuts in June 1961 and the so-called 312-DM Law of July 1961 that gave workers even greater opportunity to accumulate wealth by giving them an exemption on interest earnings. The two major privatizations were a real step forward in Erhard’s view. However, although other privatizations would follow, the process did not go as far as he had hoped. Most Germans considered stock ownership too risky, thereby reducing the democratic influence of the market on corporate management. The large banks and the leaders of the big companies were still able to divide markets and evade competition, even without violating the cartel law. Clearly, Erhard’s success in this area also was limited. Closely related to these measures was Erhard’s attempt to liberalize the housing market. Since 1949, the federal, state, and local governments had engaged in a massive building program to overcome the shortages of living space that had prevailed after the war. By the late 1950s the emergency had long been overcome as millions of new dwellings had been built. Erhard decided that the time had come for the government to get out of the housing business. Against the opposition of the SPD, he successfully shepherded through the Bundestag the Law to End the Government Control of Housing and Concerning a Social Rent and Housing Order on 23 June 1960. The law was intended to allow the market to allocate building capacity and living space. To reflect the real value of housing, a 15 percent increase in rents went into effect on 1 July 1960. A year later, government rationing of living space came to an end. Finally, rents were decontrolled on 1 November 1963. Generous provisions were included in the law to protect renters against arbitrary eviction and rent increases.20 Erhard had successfully brought one of the country’s largest and most important markets into the realm of competition. At the same time that Erhard tried to bring more people into the ranks of property holders and open additional sectors to competition, he opposed the efforts of the trade unions to raise wages faster than productivity growth and to reduce the length of the workweek without a corresponding reduction in pay.21 Erhard did not oppose the forty-hour workweek. He simply cautioned that it was effectively a pay raise and therefore should be coupled with productivity increases. He stressed that continued productivity improvements were essential and economic

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growth was the foundation of the improved standards of living of workers. Against this background, he thought that contemporary wage increases were excessive.22 Erhard also criticized the unions’ efforts to obtain greater benefits for their members, another form of pay increase. He rejected their demands for social justice, delivered in the form of increased pay and benefits, as unjustifiable. Social justice was a false concept that would lead to the destruction of the very market economy that had improved their standard of living. In a radio address given in March 1962, Erhard warned that, “even though I am ready to concede flaws in the distribution of wealth, I must really fight hard against the craziness of those, who in the massive excesses of their demands on the social product, cause a cost inflation which must reduce and ultimately destroy our German competitiveness.”23 Erhard had seen this before. Union leaders, motivated by ideas of class struggle as in the Weimar era, were again trying to use labor contract settlements to destroy capitalism from within. Such selfish special interest policies based on collectivist fantasies seemed to have gained the upper hand in the Federal Republic, endangering all that he had accomplished and opening the prospect of a dark future for the country. Erhard tried to reverse this trend by appealing to economic reason. In 1957 Erhard had proposed to Adenauer the creation of a council of experts that would provide the country with advice on economic policy. Adenauer had rejected the idea. Erhard brought it up again in March 1962, hoping to gain backing for his efforts to limit wage increases. On this occasion, Erhard was able to marshal sufficient support to win passage of a bill on 14 August 1963. The experts committee met for the first time in the spring 1964. Erhard intended that the body issue reports showing that the wage demands made by the unions and the settlements granted by employers were harmful to the economy. His expectations were not entirely fulfilled, not because the experts’ reports did not support him, but because the unions and the employers, supported by the SPD and parts of the CDU and CSU, ignored them.24 In a similar move, Erhard also gained approval in February 1963 for the preparation by the Economics Ministry of an annual economic report and a national accounting. This shows how far Erhard was moving from the ideas that he had expressed in the late 1940s. While he hoped that these reports would strengthen his hand against the unions and the employers, they came perilously close to the economic planning that he opposed. Indeed, his successors would use them for precisely that purpose in the late 1960s and after. 165

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The performance of the West German economy reflected the gradually changing priorities of the government and, in doing so, Erhard’s waning influence. The economy continued to grow during the late 1950s and the early 1960s, peaking in 1960. Then, the rate of growth declined so that in 1961 France actually overtook West Germany as the fastest-growing economy in Europe. From then until 1965, the French and West German economies grew at similar rates, with France decisively pulling ahead in 1966. Throughout the years 1957 to 1963, the West German economy grew quite respectably in the range of 3 to 9 percent per year. However, this was lower than in the years 1948 to 1957.25 Again, some observers have suggested that this was caused by the exhaustion of the easy gains of the reconstruction period. West Germany had simply returned to the long-term trend. Yet such trends are not inflexible channels set by a supernatural power that limit the growth of an economy. Theoretically, there are no limits to economic growth since growth is not a function of physical assets. It is the result of how people use opportunities. For this reason, the changes in government policy, the failure of Erhard’s cartel legislation, the electoral gifts distributed by Adenauer, the pension reform with its provision for indexing benefits, and the continuous increase in federal spending, all coming in the late 1950s, can be seen as the real reasons for the slowing of the growth of the West German economy. Erhard was aware of the impending danger. In July 1960 he estimated that government spending was taking about 40 percent of the gross domestic product. He could see it rising to 45 or even 50 percent and feared the consequences.26 Until that point, government spending had increased substantially but had been outpaced by the expansion of the economy. By the early 1960s that had begun to change.27 Then, the cumulative effects of more than a decade of government spending growth began to come home to roost. Erhard was unable to deflect them. Another development also took a dangerous turn in Erhard’s estimation, at the same time that the government took a greater share of the national wealth in West Germany. The movement toward European integration gained momentum in the years 1957 to 1963. For Erhard, this raised the prospect of the creation of a large, interventionist bureaucracy at the Common Market headquarters, the split of western Europe into competing economic camps, the alienation of the Common Market members from the United States, and the infection of the West German social market economy with central planning concepts, called “planification,” from France. As we have seen, Erhard opposed the creation of the Common Market and preferred the foundation of a free trade area encom-

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passing all of capitalist Europe and eventually, he hoped, the entire world. Because he could not prevent the foundation of the European Economic Community (EEC), Erhard attempted to infuse it with his free market ideas and to widen it to include as many European countries as possible. In September 1957 Erhard called for the elimination of the restrictions on trade between the Common Market and the rest of Europe. He contended that coordination of social policies and legal systems was unnecessary. No large, interventionist bureaucracy was needed. The free convertibility of currencies and the maintenance of balanced budgets by all countries would suffice.28 Erhard reinforced this message in a speech that he gave in Rome in November 1957. He contended that the first priority for members of the Common Market should be price stability, followed closely by the free convertibility of currencies. He stressed again that harmonization was unnecessary. He warned his listeners against the damaging influence of planning and of trying to coordinate particular segments of economies.29 The European integration issue was transformed by the return to power of Charles de Gaulle in France in June 1958. Erhard clashed with de Gaulle over integration immediately. That, in turn, led to a split within the West German government. De Gaulle intended to use the EEC to achieve the political coordination of the six members. De Gaulle opposed integration and supported instead a Europe of nations that harmonized their policies. To this extent, Erhard might have supported him. However, because de Gaulle sought to use the Common Market and other European institutions to establish French predominance, and to exclude the influence of the Americans and the British, and because the economy of de Gaulle’s France was distorted by government planning and social legislation, Erhard became de Gaulle’s bitter opponent. Erhard harbored no ill will toward France and was every bit as anxious as Adenauer to end the generations old conflict between the French and the Germans. But, as we have seen, he was not prepared to do this at the expense of an economic order that he was convinced was vastly superior to the one being built in France. Erhard loosed a salvo at both de Gaulle’s policy and the vaunted concept of European integration in a speech that he delivered in Rome, the city where the EEC treaty was signed, before the Italian Center for the Study of International Reconciliation on 23 March 1959. Many leaders of the Italian government were present, lending the occasion added importance. Erhard called for bridging the differences between the Common Market and the rest of Europe by creating a large free trade area. He 167

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pleaded especially for understanding of the British position, this in the wake of de Gaulle’s criticisms of it. He underlined how free Europe could not afford to split in the face of the Soviet threat: “Europe cannot allow itself in this political situation the luxury to march in an economically separated area, while trusting to the power of political unity.”30 He then openly attacked the “European” myth: “There has arisen in Europe a kind of mysticism! One acts as if existing institutions are untouchable or must be entirely immune from any criticism. Can we really assume that these treaties correspond to godly wisdom?”31 Adenauer reacted to this fusillade immediately. On 24 March he wrote to Erhard telling him not to criticize the EEC. He also stressed that West Germany needed France. Adenauer then brutally attacked MüllerArmack, who represented Erhard in that day’s cabinet meeting. He told Müller-Armack bluntly that he did not want Erhard to say such things again.32 Erhard was unimpressed by Adenauer’s threats and continued to speak publicly as he saw fit. In October 1959 he conducted a publicity campaign in major West German newspapers consisting of advertisements with the simple message: 6 + 7 + 5 = 1. This signified his idea that the six Common Market countries, the seven members of the European Free Trade Association (EFTA), and the five other European countries that belonged to neither should join together to form one free trade zone.33 He then advocated his position in public speeches. In one, he contended that circumstances had changed since the time of Metternich, meaning that cabinet diplomacy was obsolete and that trade policy could not be separated from foreign policy.34 In an article in the prominent Frankfurter Allgemeine Zeitung, he criticized harmonization. In fact, he pointed out, differences made possible a division of labor that benefited everyone. Harmonization would reduce the competitiveness of European countries, hurting consumers. He warned that “The desire to organize and to harmonize leads, on the contrary, almost certainly to disaster.”35 In a piece written in honor of Wilhelm Röpke at the end of 1959, Erhard argued that “The recognition of the principle of harmonization meant that the economies that moved together would have to adopt the worst economic, financial, and currency mistakes of their partners, instead of working together to eliminate them.”36 He also warned that harmonization would lead to dictatorship: “The belief that the economies that wanted to integrate should follow a single social standard for their plan to succeed would have an absolutely destructive effect, because it would give the strongest country the absolute power, while the weak would be given up to extinction.”37

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Yet Erhard’s economic reasoning, however sound, was not accepted by Adenauer. The chancellor had become increasingly wary of both British and American policy concerning Germany. He feared that the Americans in particular were prepared to postpone German unification indefinitely in order to avoid a confrontation with the Soviet Union in Europe. He did not trust the Americans to defend the Federal Republic if the cost would be the incineration of U.S. cities by Soviet nuclear weapons. Nor was he convinced that the Americans would defend Berlin. De Gaulle seemed to offer an alternative. France under de Gaulle appeared to be prepared to do just what Adenauer wanted. Therefore, Adenauer began to lean increasingly toward his neighbor to the west. While de Gaulle certainly had no intention of abandoning West Germany in a crisis, as he demonstrated repeatedly, he was following a policy designed to enhance France’s prestige and not intended to strengthen the Federal Republic. He, too, was unwilling to press the issue of German unification and wanted West Germany to recognize the Oder-Neisse line as Germany’s eastern border. He also had no intention of allowing West Germany access to nuclear weapons, something that Adenauer badly wanted. Moreover, whatever de Gaulle’s intentions, France simply could not generate as much military force as the Americans, a point underestimated by Adenauer. De Gaulle wanted to force West Germany to choose between France on the one hand and the United States and Britain on the other. Between 1960 and 1963, Adenauer became increasingly willing, possibly out of desperation, to align West Germany with France. Erhard, recognizing that the United States was inherently much more powerful than France, doubting that the Americans really intended to abandon either West Germany or western Europe, and seeing that the American economy was much closer to the model that he favored than was the French economy, never wavered in his support of the American option. Even if the Americans favored policies such as a nuclear test ban and nonproliferation and supported the political status quo in Germany, ultimately they had the ability and the will to defend the Federal Republic. Whatever de Gaulle’s promises, France was a weak reed. Nevertheless, Adenauer overruled Erhard’s objections. On 13 September 1960 he wrote to his economics minister that “This is not an economic matter, but rather it is a political issue of the highest importance.”38 Consequently, the tilt toward France would continue. Erhard refused to be silenced. In the prominent liberal weekly newspaper Die Zeit, he published an article favoring Atlantic economic integration to accompany the Atlantic military alliance. He explicitly op169

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posed splitting Europe into two trading areas and separating them from the United States and Canada.39 The very situation that Erhard had hoped to avoid had in the meantime been created. The European Free Trade Association was formed in November 1959. The British soon realized that they had made a mistake to remain out of the Common Market and signaled in the summer of 1961 that they would apply for membership. Coincidentally, when the EEC ministerial council met next, on 10 October 1961, Ludwig Erhard was its president. In his opening speech Erhard warmly welcomed the British application.40 In a speech at the well-regarded business college in St. Gallen in Switzerland on 15 January 1962, Erhard called on the Common Market to accept Britain’s application and suggested that the other EFTA states also be welcomed as members or as associates. He also emphasized the need for cooperation with the United States.41 In essence, he called for the depoliticization of the Common Market and a deemphasis of power considerations. Everyone would benefit, he argued, especially consumers in all countries, if free trade became the norm. De Gaulle’s priorities were very different. He thought primarily in power-political and prestige terms. He wanted Europe to be dominated by the Europeans, not the Americans, and to be led by France. In his frequent consultations with Adenauer, he stressed the reliability of France and the historic opportunity to overcome ages of conflict that the two leaders faced. Yet, the Federal Republic still found it difficult to weaken its ties to the United States. In December 1961 and January 1962, it attempted to square the circle by making concessions to France on agricultural policy, agreeing to greater protection for French farmers, in the hope of winning French acquiescence for Britain’s entry into the Common Market. But De Gaulle remained adamant in his opposition. While Adenauer edged closer to de Gaulle, Erhard launched a blistering attack on the French economic system. Undoubtedly, the French economy had begun to grow; indeed, it had caught the flagging West German economy. Yet Erhard was convinced that this growth was bought at an excessive cost and could not be sustained. In a courageous speech before the European Parliament, a hostile forum indeed, Erhard condemned the excessive concentration of authority in the European Commission. Instead, he argued, the EEC should adhere to the federal principle, particularly because it complemented the free market. Planning, including French “planification,” in contrast, was primitive and at root centralistic. He opposed steps to reduce differences in standards of living between countries. Trying to do so would simply lead to higher expenses and protec-

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tionism. He opposed guiding private investment into particular areas, picking winners, as the French did. The government should stay out of labor disputes and should not redistribute income. He condemned binding long-range plans, such as those used in France. “One knows that quantitative plans are never fulfilled,” he said.42 Plans never kept up with reality and always led to trouble. Therefore, the French model, the model of the social engineers and planners, had to be rejected.43 Erhard’s plea was ignored by de Gaulle and Adenauer. The chancellor was anxious to cement the tie with France. He wanted to ensure that after his retirement the friendly relations that he had established would not be reversed. Therefore, he negotiated a treaty of cooperation with de Gaulle when they exchanged visits in the summer of 1962. Having gotten what he wanted, de Gaulle then unilaterally vetoed Britain’s application to join the Common Market on 14 January 1963. Despite this snub, Adenauer signed the Elysée Treaty in Paris eight days later. Erhard immediately opposed the treaty in the cabinet and considered resignation. In all of the cabinet debates, and later in the discussions in the CDU directorate, only Erhard called for a hard negotiating position on ratification of the treaty. He did not oppose ratification but did make clear that the small Europe of the six enshrined in the treaty was not in West Germany’s interest. The entry of Britain into the Common Market would much better suit the country’s needs. He demanded careful evaluation of the treaty before ratification.44 In a cabinet meeting on 30 January, Erhard led the opposition. Using the strongest language, he argued that de Gaulle was attempting to throw a yoke over Europe every bit as oppressive as Hitler’s. He proposed a resolution that would weaken the treaty. When the debate did not go his way, he walked out of the meeting, twice. On both occasions, he was brought back by Adenauer. Eventually, the cabinet resolved to continue the policy of European integration. But it also expressed its pleasure that Britain intended to persist in its effort to become a member of the Common Market and stated clearly its desire that Britain should join. The cabinet supported Erhard, dealing Adenauer a clear defeat.45 This affair showed that Erhard could indeed be an effective parliamentary politician when he chose. Erhard, his ministry, and the Erhard Brigade then engaged in a campaign, along with sympathetic members of the Bundestag and the business community—people who did not want to exclude the United States from Europe and who did not want French dominance — to pass a preamble to the treaty that would effectively emasculate it. In an interview given to Hans Ulrich Kempski of the important Munich newspaper, the 171

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Süddeutsche Zeitung, on 5 February 1963, Erhard expressed his regret that France had rejected the British application for EEC membership. He then emphasized that West Germany’s ties to the United States had to remain strong. He added that he would accept a nomination to become chancellor.46 With his last comment, Erhard raised the domestic political stakes in the dispute and responded in kind to Adenauer’s personal attacks. Privately, Erhard was even more scathing in his critique of Adenauer and de Gaulle. On 23 February 1963, he wrote to Röpke expressing his disgust with the development of the European integration struggle. Erhard thought that the best policy would be to create the greatest freedom. He shared Röpke’s fear that the EEC would only strengthen protectionism, splitting the free world. He wanted the depoliticization of the Common Market and its extension to include all European noncommunist countries, including the neutrals. He also wanted to reinforce the connection with the United States. He feared that the economic controllers (dirigistes) and economic mechanics would dominate the integration process.47 In a speech in Stockholm a month later, he expressed similar fears. Here he warned about the dangers of Europe being shaped by lawyers and social engineers. Again, he called for the representatives of all European countries, including his Swedish hosts, to participate in economic and political unification and to cooperate with the United States.48 Erhard offered a clear alternative to the chauvinistic ideals of de Gaulle. In the event, Erhard won a stunning victory over de Gaulle and Adenauer. Those with doubts about the Elysée Treaty, and there were many besides Erhard, succeeded in attaching a preamble to the draft that incorporated the objections expressed in Erhard’s cabinet resolution of January. The preamble stated that the treaty would not weaken the partnership between Europe and the United States, NATO, or the effort for European integration (which included Britain). Adenauer accepted this preamble, even though he understood that it undid his work. He hoped that by seeming to be reasonable on this matter, he would gain political influence that he could use to block the nomination of Erhard to be his successor.49 In that too, he would be disappointed. The struggle over European integration between Erhard and Adenauer brought into stark relief the depth of the conflict between the two men. Erhard thought in economic terms, was expansive and inclusive, and looked to the long term. Adenauer was increasingly motivated by doubts about the United States and old animosities toward Britain, fear of the

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Soviets, and short-term domestic political considerations. Clearly, Adenauer wanted what was best for Germany. His accomplishment in building friendly relations with France was extremely important. But Erhard also wanted friendship with France. He was just not prepared to pay any price for it and saw through de Gaulle’s German and European policies. But the conflict went even deeper. Adenauer disliked Erhard as a human being. Erhard, though, did not reciprocate. He was slow to see that Adenauer was his enemy and even then refused to stoop to a low level to defend himself. Adenauer’s dislike of Erhard was thorough and absolute. The aged chancellor was not above attacking Erhard in public or behind his back in party circles. Adenauer thought Erhard completely incompetent in the realm of foreign relations, mistaking Erhard’s different views for stupidity. He was negatively impressed by Erhard’s unwillingness to engage in political treachery. Many around Adenauer and many historians since have fallen into the same trap. This underestimation of Erhard by Adenauer was in part the result of their very different personalities. While Adenauer was in many ways an ascetic, avoiding excessive eating and alcohol consumption altogether, Erhard was notorious for enjoying both. He relished good meals accompanied by plentiful quantities of beer. He also loved pastries, the production of which is an art form in Germany, and enjoyed having a whiskey in the evenings to “help the digestion.” He frequently remained home in the evening and played cards with his wife. He also listened to recordings of classical music, being especially partial to Mozart operas. He went home every noon to have an ample lunch with his wife, after which he had a nap. He then returned to his office to do additional work. Erhard was interested in sports and was an avid fan of soccer, especially the team from his native Fürth. He liked fast cars, drove them enthusiastically, and suffered many serious accidents. He also smoked cigars, a habit to which he was introduced by his wife. Erhard was no traditionalist. He was attracted to modern architecture and art. In addition to economic literature, he enjoyed reading travel books, frequently to prepare himself for his numerous journeys. All of this fit Erhard’s style as someone who was interested in big issues, theoretical and philosophical matters, not the daily minutiae of the government, and one who certainly would not micromanage his ministry. Adenauer detested all of this. He abhorred Erhard’s long monologues on economic issues. He did not like Erhard’s careless dress and the cigar ashes that Erhard allowed to collect on the lapel of his jacket. He especially loathed the smell of smoke in which Erhard liked to surround himself. He was morally outraged at Erhard’s indulgence in alcohol. Finally, 173

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Erhard in front of his home on the Tegernsee, December 1959. Photo Number 7492/6. Bundesbildstelle.

he was disdainful of Erhard’s frequent expressions of self-pity.50 Adenauer was a detail manager who wanted to control all who worked for him. He was a person of regular, moderate habits. He engaged in no heavy reading, even when he was out of office. He was a political professional who wanted himself and his party to remain in power. While he did have political values, drawn especially from Christian belief, he was essentially a pragmatist. Most important, he had a very low opinion of human nature, in complete contrast to the optimistic Erhard. The clash between these two men, one who considered himself above the fray, an advocate of lofty ideals, the other, who devoted himself to party and office, was correspondingly bitter. While Erhard continued to be an effective politician, as his successes on the currency convertibility, coal tax, and Elysée Treaty issues show, he was weakening. He had been in office continuously since the winter of 1948. One would not be surprised if he had become a bit stale or tired. Also, his health was deteriorating. In January 1960, he was forced to return early from a trip to Egypt, apparently due to a heart attack. In the

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months before this event, and in the years after, he was moody, frequently listless. When in Bonn, he slept as much as possible and lived a quiet life of steady habits. He regularly visited spas to lose weight.51 It is impossible to say the extent to which these ailments affected Erhard’s political judgment. Yet they may at least in part explain Erhard’s seeming acquiescence in the growth of government spending, both in the last years of the Adenauer administration and during his brief chancellorship. Adenauer was convinced that Erhard should not under any circumstances become chancellor. At the same time, by 1959, Erhard had begun to feel that he had a right to succeed Adenauer. From having no political ambitions in 1948, Erhard now hoped to occupy the nation’s most powerful office. Why Erhard changed his attitude is not clear. A decade’s exposure to power and the spectacle of Adenauer’s unprincipled maneuvering may have convinced him that he could do better. Alternatively, given his economistic outlook, he may have felt that because he was most responsible for the Federal Republic becoming a rich, stable country, that he was best suited to lead it. Undoubtedly playing a role were his advisers. The Erhard Brigade, consisting in 1959 of Gerd Buccerius, who was also publisher of Die Zeit, Curt Becker, Matthias Hoogen, and Ernst Müller-Hermann, all CDU members of the Bundestag, and Hermann Höcherl of the CSU, along with Wolfram Langer, Karl Hohmann, and Dankmar Seibt, very much wanted their man to assume the reins of government. It is entirely conceivable that they convinced Erhard that he had a right to succeed Adenauer based on his services to the country.52 Adenauer moved to prevent Erhard’s dream from being fulfilled. In 1959 federal president Theodor Heuss would complete his second term in office and had no desire to serve a third. The CDU/CSU government was anxious to place one of its own in this position, particularly since, enjoying an absolute majority in the parliament, it did not need to please a small coalition partner such as Heuss’s FDP by agreeing to let it have the position. The resulting maneuvering in the union parties was correspondingly intense. The succession to Heuss was tied to the replacement of Adenauer. Many thought that the eighty-three-year-old chancellor must surely be nearing the end of his time in office. Logically, he might have moved to the presidency to end his career in genteel glory or even retired. However, Adenauer felt no need to retire; he felt perfectly fit. Moreover, he could not leave the field to Erhard. Yet, it was clear that the majority of parliamentary deputies of the CDU and CSU wanted Erhard to succeed him as chancellor. Gerhard Schröder, the interior minister, suggested a solution to the problem. He proposed that Er175

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hard become federal president. He consulted Erhard who reluctantly allowed his name to be mentioned. However, Erhard would only accept the nomination if duty compelled him to do so. He much preferred to become chancellor.53 Schröder raised the possibility of an Erhard candidacy to Adenauer, who seized upon the idea. On 4 February 1959, after a strained telephone conversation with Erhard, Adenauer decided that Erhard should be nominated for the office of federal president. This could have been a turning point in Erhard’s career. Clearly, both Schröder and Adenauer were trying to move Erhard out of the way, to “kick him upstairs,” in order to promote their own ambitions. For Erhard, this might have been an opportunity to move out of the political line of fire, to escape the painful political controversies that he disliked anyway, and to move into a position where he could maintain his independence while promoting his ideas. The weakness in this line of reasoning is that Erhard would have lost direct influence over the country’s economic policy. This last factor led him to withdraw his name from consideration on 3 March 1959. Adenauer now scurried to find an alternative. After a month’s contemplation, he nominated himself. The old chancellor thought that even if Erhard became chancellor, an event that he still hoped to prevent, he could still control policy from the president’s office much in the same way as de Gaulle dominated the French government as president of the Fifth Republic. Adenauer, who played a significant role in shaping the federal Basic Law, West Germany’s constitution, should have known better. The federal president had few powers. The chancellor was the dominant figure in the government. After two months additional reflection, Adenauer admitted to himself that he had miscalculated and realized that he could not prevent Erhard from succeeding him. Therefore, on 5 June 1959, he withdrew his candidacy.54 It might be thought that Adenauer’s gyrations on such an important issue would have hurt his standing. But whatever losses he suffered were short-lived. He immediately set about finding an alternative candidate. He and his advisers settled upon Heinrich Lübke, who was then minister for agriculture. Adenauer also mounted a vicious public campaign against Erhard aimed at permanently discrediting the economics minister.55 The denouement of this unseemly affair was a significant gain in prestige for Erhard. He behaved honorably throughout and was perceived as the injured party by public opinion.56 The presence of Lübke in the president’s office, though, was disadvantageous to Erhard in the long run. Lübke opposed Erhard’s free market policies and favored protection

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of agriculture in particular. He would play a role in Erhard’s fall as chancellor in 1966. The question of the succession to Adenauer arose again in connection with the parliamentary elections of September 1961. Erhard threw himself into the campaign with great energy, appearing at more than 180 campaign events. Especially in Bavaria, he was the most prominent union candidate. He also benefited indirectly from Adenauer’s mishandling of his own campaign. The erection of the Berlin Wall on 13 August 1961 took place in the midst of the most heated phase of the race. Erhard expressed solidarity with the Berliners, but as economics minister could do little more.57 Adenauer chose not to go to Berlin, hoping not to inflame the atmosphere further. Instead he adhered to his planned campaign schedule and launched a series of scurrilous personal attacks against the SPD chancellor candidate Willy Brandt, who was then mayor of West Berlin. The impression created in the minds of West German voters by Adenauer’s crude remarks was negative, leading to a loss of support for the CDU. In this campaign, Adenauer also shamelessly distributed favors to supporters and potential voters. Erhard criticized Adenauer’s policy as dangerous and irresponsible but was powerless to alter it.58 In the event, the CDU/CSU won the election but lost its absolute majority. This made it necessary to form a coalition. That in turn raised the question of Adenauer’s future. Many in the CDU favored a great coalition with the SPD, a line that Erhard vehemently opposed. The Bavarian CSU pressed Erhard forward to succeed Adenauer as chancellor. However, Erhard hung back. The logical coalition partner for the Christian union parties was the FDP, with which they had formed governments in 1949 and 1953. However, the FDP, led by Erich Mende, wanted Adenauer out. It, too, hoped that Erhard would join them in forcing the aged chancellor into retirement. Adenauer maneuvered furiously to retain his position. He flirted with the SPD in order to intimidate the FDP. After difficult and prolonged negotiations, the SPD dropped out of contention and talks centered on making an arrangement with the FDP. Still Erhard hung back. He and the other potential chancellor candidate from within the CDU, Eugen Gerstenmaier, the president of the Bundestag, both refused to run against Adenauer. They both wanted to be offered the position without a bloody internal party struggle. This enabled Adenauer to squirm out of the corner in which he found himself and come to an arrangement with Mende. The FDP leader, however, was deeply and permanently disappointed in Erhard. He concluded that Erhard simply lacked the courage to drive from office the man who had been torment177

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Adenauer makes a point to Erhard. Bundesarchiv Koblenz.

ing him for over a decade. Erhard admitted as much when he said, “That’s the way it is, I have the courage of a dove, I lack the gall.”59 There then followed difficult negotiations concerning the distribution of cabinet seats. Not surprisingly, Erhard suffered a defeat in this round. A ministry for foreign development aid was created to accommodate the FDP. This meant a loss of responsibility for Erhard’s Ministry of Economics. Moreover, Erhard had crafted a well-articulated position on the matter in a series of speeches and articles going back to 1955.60 Consequently, although he had emerged from the election strengthened, his mishandling of the coalition negotiations caused Erhard a serious loss of prestige immediately afterward. As part of the coalition talks with the FDP, Adenauer had agreed to relinquish the office of chancellor halfway through his term, without stating a specific date. Consequently, the next two years saw a long, dirty struggle behind the scenes in the CDU and CSU, and frequently in public over who would succeed Adenauer. Erhard remained the leading candidate, but others emerged as well. Gerhard Schröder, who had moved to the Foreign Ministry in 1961, campaigned for the office. Gerstenmaier was still supported by some. The brash Franz Josef Strauss of the CSU also entertained ambitions. The young CDU politician Rainer Barzel also

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seemed to have a chance, particularly since Adenauer appeared to be grooming him for the future. Some of these men supported Erhard to succeed Adenauer in the expectation that he would soon fall and clear the way for one of them. Adenauer did his best to demolish Erhard both in confidential party circles and in public. Erhard, as we have seen, pursued his policy objectives, not avoiding confrontations with Adenauer, and even defeating the chancellor on major issues such as the Elysée Treaty. However, he did not actively campaign for the chancellorship. This led even his loyal followers in the Erhard Brigade to doubt his ambition.61 In 1962 the coalition fell into a deep crisis owing to the actions of Adenauer and Strauss in relation to an article that the news magazine Der Spiegel published concerning West German defense readiness. This controversy eliminated Strauss from consideration as a chancellor candidate and badly hurt Adenauer. The government was reorganized after the FDP withdrew in protest against civil liberties violations committed by Strauss in attacking Der Spiegel. As the two-year mark approached, demands in the CDU for Adenauer’s resignation grew louder. The party formally nominated Erhard to become West Germany’s second chancellor on 22 April 1963. Adenauer delayed long enough to ensure the ratification of the Elysée Treaty. Finally, Adenauer resigned on 11 October. Erhard was elected federal chancellor by the Bundestag five days later. Certainly, no one, not even Erhard had expected this outcome when he entered national politics in 1948. In the meantime, much had changed in the West Germany that Erhard himself had helped to create. The question now was whether Erhard’s free market vision was relevant to the very different situation that faced him in 1963.

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hen Ludwig Erhard became federal chancellor, he genuinely thought that he had a chance to continue the transformation of Germany that he had begun in 1948. He intended to make major changes in West German society by altering the way economic affairs were conducted and by fundamentally changing how the government went about its business. Erhard sought to create a collegial atmosphere in the government in Bonn, replacing the “chancellor democracy” established by Adenauer. In practical terms, this meant that the new chancellor would issue far fewer orders than his predecessor, would consult with his cabinet rather than manipulate it, would listen to the opinions of experts outside of the government, and would establish close ties with the people. Erhard knew that conditions were changing both in the Federal Republic and in the world. He realized that the German question had become less important to the major powers and that democratization was progressing in Germany. He explicitly wanted to lead and shape these changes.1 One of the areas that Erhard altered immediately was the way that the 181

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federal chancellor’s office operated and how it related to the ministries. Adenauer had used the chancellor’s office to exert tight control over the ministries, going so far as to insert spies in them who would provide him and his secretary, Hans Globke, with confidential information that they could use to correct the official reports sent by the ministers. Erhard put a stop to this. He and his state secretary, Ludger Westrick, who came with him from the Economics Ministry, kept no informants in the ministries and let the ministers go about their business.2 Erhard was not a micromanager like Adenauer. He set the overall direction of policy after consultation with his ministers and advisers and then left them to execute those policies on their own. This fit Erhard’s philosophy of government, which he derived from his economic concepts. The government should establish the economic order but not manage the economy itself. So too with the daily affairs of the government. Moreover, Erhard did not conceive of government as the engine for change in Western society. Change arose from the dynamic industrial economy. Consequently, although Erhard had distinct ideas as to how he wanted West Germany, Europe, and the world to develop, he did not have a well-articulated program of government action. He saw no need for one. As when he was economics minister, his style was to react to problems as they arose and to solve them in line with his free market ideas.3 This approach led to political problems. Erhard’s noninterventionist method was theoretically sound but was inappropriate to the conditions prevailing when he was in office. From the beginning, he was criticized by journalists and politicians for being a weak leader. Their criticisms betrayed a lack of understanding of Erhard’s approach. In effect, Erhard offered them freedom, and they demanded control. Erhard faced a people, and certainly a political class, that was accustomed to direction from above by a strong personality. When Erhard refused to provide that direction, there was dissatisfaction and, within his own party and government, dissension and disloyalty.4 In a very real sense, the qualities that made Erhard a successful economics minister and gave him such reliable insights into economic developments made him unsuited to be chancellor under the prevailing conditions. The result was that Erhard did not achieve his goals and was ultimately toppled by his own party. While Erhard was a polite, friendly man, he had never surrounded himself with a circle of political or philosophical friends. He was preoccupied with his own ideas. This caused him to be isolated. That was not unusual among leading politicians. Neither de Gaulle nor Adenauer had

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Erhard as federal chancellor. Ludwig-Erhard-Stiftung (Ludwig Erhard Foundation), Bonn.

many close friends either. However, both at least did have political followings. Erhard did not have that either.5 This self-imposed isolation is illustrated by two incredible incidents that took place while Erhard was chancellor. On 22 November 1963, Erhard was in Paris making his introductory visit to the French government under Charles de Gaulle. At a dinner given in honor of the French president Georges Pompidou that evening, Erhard gave a speech. Just before he concluded his remarks, Pompidou collapsed over the dinner table, having taken too much cold 183

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medication. People rushed to the aid of the French president. Erhard, in contrast, simply stopped speaking and sat down. Pompidou recovered in a few minutes. But Erhard’s behavior showed the remarkable distance that he maintained from other people.6 A similar incident occurred on his birthday, 4 February 1966. A small celebration was held for him in the chancellor’s office. After his staff congratulated him and began to eat, drink, and talk, Erhard sat down and began to read newspapers, ignoring the party going on around him. He behaved in a similar fashion at receptions for diplomats. After exchanging a minimum of pleasantries with them, he would simply stroll from the room and go home to his wife for lunch. Frequently, at receptions given for him, he was among the first to leave.7 Erhard also became increasingly isolated intellectually. The free market ideas that he advocated were held by an ever shrinking number of economists, businesspeople, and politicians. Keynesian macroeconomics with its interventionist prescriptions dominated economic and political thought in Britain and the United States and was making inroads into the German economics profession, the SPD, and even in his own CDU. It fit well with German traditions of using the government to steer the economy to accomplish socially desirable results.8 Erhard rejected this approach, causing him to lose allies. The new chancellor’s disdain for politics also put him at a distinct disadvantage. Erhard considered himself an advocate of certain ideas who had allied himself with a party that would help him implement those ideas. Consequently, he had not joined the CDU. As it became clear that he would succeed Adenauer, he realized that he could not avoid joining the party any longer. Consequently, on 24 April 1963, Erhard quietly joined the CDU. The entrance date in his records was backdated to 1 March 1949.9 Formally, this solved the problem, but in practical terms it did not. Erhard had no ties with any of the factions in the CDU. He could not rely on a group of members of the Bundestag that would vote for his legislation. This was especially important because the CDU lacked a tight national organization. It was a collection of regional, confessional, and interest group factions that cooperated once every four years to win elections. Few of its members agreed with Erhard’s free market philosophy. However, they chose him as chancellor because they were convinced that he could lead them to electoral victory. This set of circumstances placed Erhard in a very precarious position. Because he did not regard himself as a conventional party politician, because he considered himself a people’s chancellor who did not need to worry

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about parties, cabals, and interest groups, he was ill equipped to handle his own party. Compounding the problem, Erhard foolishly chose not to become chairman of the CDU, incredibly, allowing Adenauer to occupy that position. He also decided not to oppose the renomination of Heinrich Lübke as federal president in 1964. In making these decisions, Erhard allowed two of his strongest and bitterest opponents to occupy positions of enormous influence. Both Adenauer and Lübke opposed Erhard’s foreign policy and advocated a great coalition government with the SPD.10 Because the office of federal chancellor required Erhard to make decisions on many issues, not just economics, he was dependent on his advisers. Under the circumstances, Erhard was preoccupied with foreign policy matters, which made him particularly reliant on his foreign minister and the experts in the Chancellor’s Office. The foreign minister, Gerhard Schröder, agreed with Erhard’s desire to admit Britain into the Common Market and to oppose de Gaulle’s efforts to establish France in a dominant position in Europe. Yet many of the other officials who worked in the foreign policy arena were followers of Adenauer, leading to clashes and bureaucratic infighting. Erhard was not good at choosing advisers and subordinates, a major flaw in a leader. Alfred MüllerArmack left Erhard in 1963 when Erhard became chancellor after a series of disagreements with him on European and economic policy. MüllerArmack also advocated a degree of government intervention in the domestic economy that Erhard could not accept. However, Müller-Armack’s advice was consistently of high quality. Although he maintained contact with Erhard after he returned to the University of Cologne, Erhard suffered from his absence. Erhard created an in-house think tank, called the “Special Circle” (Sonderkreis), to provide him with ideas. It was proposed by Karl Hohmann, who led it. Among its other members were Rüdiger Altmann, Johannes Gross, and Rudolf Wildemann.11 All were intelligent, hardworking, and loyal to Erhard. But none had the insight of a MüllerArmack, to say nothing of a Walter Eucken, Alexander Rüstow, Franz Oppenheimer, or a Wilhelm Röpke. Consequently, the ideas that they offered lacked the originality and weight of the concepts that had inspired Erhard in the years before 1945. He suffered from this lack of stimulation. Another factor that may have affected Erhard’s performance as chancellor is more difficult to assess. Erhard did not age as well as Adenauer. He clearly lost physical and intellectual energy during his sixties. He spent increasingly lengthy and more frequent vacations at his new home 185

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on the Tegernsee in Bavaria. Frequently, when in Bonn or on foreign trips, he seemed tired or his attention appeared to wander. Particularly when discussing diplomatic or strategic issues, he seemed weak. This was not due to a lack of intelligence or interest. It may very well have been the result of fatigue occasioned by age. Overall, Erhard’s philosophy, his style, his disdain for detailed political work, his comparatively weak team of advisers, and possibly his health made it difficult for him to function effectively as chancellor. Erhard’s approach to government made him unsuited to diplomatic activity. He was interested only in broad policy issues. He avoided detailed examination of treaties and disputes about small details. He frequently had subordinates represent him at meetings concerning European integration. Because Erhard did not like to study correspondence or briefing papers, he was frequently inadequately prepared for negotiations. He remained an expert on economic issues and could hold his own with anyone on such matters. De Gaulle, in particular, avoided discussing economic issues with Erhard for that reason. Yet, on other topics he was far less sure. This need not have been a problem since he could have confined himself to setting the basic policy and allowing subordinates to handle the details. However, the dissension among West German officials about the direction that the country should take meant that this approach often led to trouble. Moreover, Erhard, honest man that he was, lacked sufficient guile to negotiate effectively with hard-bitten characters like de Gaulle and Lyndon B. Johnson. By openly, unconditionally, and immediately tying himself to the United States, he lost leverage with the Americans, damaged relations with France, and contributed to the split in the Christian parties over foreign policy. Erhard could have followed his chosen policy in a different way and met with more success and faced less sniping.12 The Elysée Treaty that Adenauer had negotiated with de Gaulle provided for regular meetings between the West German and French leaders every six months. These discussions proved to be the arena where Erhard’s and de Gaulle’s different foreign policies collided. De Gaulle wanted to make France the dominant power on the continent at the expense of the United States. Erhard correctly perceived de Gaulle’s ultimate purpose through the clouds of the French leader’s rhetoric and maintained the Federal Republic’s close ties with Washington. Moreover, Erhard continued to object to France’s economic policies. The result was the substantial cooling of the Franco-German relationship during Erhard’s administration.13

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Erhard met de Gaulle for the first time as chancellor in Paris on 21 November 1963. He hoped to discuss Common Market agricultural policy, the Kennedy Round of international trade liberalization, and an initiative that he had begun to improve European cooperation and defense matters. De Gaulle insisted on concessions to French farmers on grain prices. After some hesitation, Erhard gave de Gaulle what he wanted in hopes of earning French support on other issues. This concession was accompanied by subsidies to West German farmers that cost billions of marks, but Erhard thought that the bargain was worthwhile. De Gaulle then immediately began his effort to split Erhard and West Germany from the United States. He argued that the Americans could not be relied upon to defend the Federal Republic from a Soviet attack but that France could be. Erhard made clear his loyalty and trust in the United States.14 The November visit was regarded by de Gaulle as introductory. Therefore, Erhard returned to Paris for two days in February 1964. Once again, de Gaulle pressed his policy of a European Europe on Erhard, and once again Erhard resisted. De Gaulle declared, disingenuously, that he wanted Europe to follow an independent but not an anti-American policy. He openly sought German friendship to this end, but Erhard refused to move closer to Paris. Erhard especially wanted to include the British in the more unified Europe, something that de Gaulle could not accept. When de Gaulle again questioned American resolve to defend Europe in a nuclear conflict, Erhard expressed his full confidence in Washington. When de Gaulle called for the coordination of French and German financial, social, and tax policies in the Common Market, Erhard refused, criticizing the French planification approach. In short, Erhard disagreed with de Gaulle on virtually every issue. But the meeting closed on a friendly note, nonetheless.15 The split between Erhard and de Gaulle came clearly into the open during the French president’s visit to Bonn on 3 and 4 July 1964. In their initial conversation, de Gaulle immediately went on the offensive. He asserted that the United States was overburdened in attempting to meet its international obligations. Consequently, Europe had to pursue an independent though not anti-U.S. policy. He also expressed his regret that Franco-German cooperation had not developed to a greater extent. Erhard saw through de Gaulle’s smoke screen of words and explained that West Germany was not a vassal of the United States. However, its interests were best served by maintaining close ties with the Americans. At the end of the meeting, Erhard met with Pompidou while de Gaulle met Adenauer. Incredibly, de Gaulle prolonged his talk with the former chan187

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cellor and opponent of Erhard and arrived for the next scheduled meeting with Erhard ten minutes late. On the following day, the last of the meeting, de Gaulle delivered an impassioned speech calling for closer Franco-German cooperation. He predicted that the United States would drift away from Europe and move toward the USSR due to the rise of a powerful China. He also claimed that the Americans would never help the Germans reunify their country. Erhard did not respond. Many people in the room were embarrassed, and some thought that he had missed a unique opportunity to forge closer ties with France. However, in light of de Gaulle’s snub of the previous day and the fundamental objections that Erhard had to de Gaulle’s policies, policies that Erhard understood were intended to enhance French power, not to help West Germany, and the fact that de Gaulle was responding to Erhard’s introductory remarks by repeating arguments that he had already made frequently, Erhard’s silent rejoinder is understandable. De Gaulle, overlooking his own behavior, was offended and the French left at the end of the conference disappointed.16 This meeting is frequently portrayed as a failure by Erhard. It is more accurate to see it as Erhard defending his position and rejecting a thinly disguised French attempt to subordinate the Federal Republic to its diplomatic and economic policies, neither of which was well conceived. The next meeting in January 1965, which saw Erhard visit de Gaulle at Rambouillet, went much more smoothly, primarily because de Gaulle recognized that he had not convinced Erhard to shift the emphasis in West Germany’s foreign relations from the United States to France. De Gaulle opened the conversations with expansive, windy remarks about German history to which Erhard did not reply. He then attempted again to split West Germany from the United States. Again, Erhard was not convinced. De Gaulle also, quite perceptively, pointed out that German hopes for reunification were hurt by the Federal Republic’s desire to have at least indirect access to nuclear weapons. Adenauer had attempted to win West German participation in the NATO nuclear deterrent in order to enhance the country’s prestige and to ensure that it would be defended by nuclear weapons even if the United States weakened its commitment to Europe. The Americans had tried to fend off this demand by proposing a Multilateral Force consisting of submarines and surface ships equipped with nuclear-tipped ballistic missiles and manned by mixed crews provided by all NATO members. Thus, the West Germans could participate in the nuclear deterrent without actually having the authority to decide whether to launch missiles with nuclear war-

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Erhard with French president Charles de Gaulle, Bonn, 3 July 1964. Bundesbildstelle.

heads, the power to do so remaining with the Americans. Erhard and Schröder inherited and continued this policy. Like Adenauer before them, they failed to recognize that because of Germany’s commission of war crimes and crimes against humanity during World War II, West German access to nuclear weapons was unacceptable to any of its allies, to say nothing of the Soviet Union and the people of eastern Europe. Consequently, they pursued a hopeless policy on the Multilateral Force for years after the Americans had effectively dropped the program. This was 189

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especially surprising in light of Erhard’s sensitivity to perceptions of German guilt relating to the Holocaust and the state of Israel. For domestic political reasons, Erhard and Schröder followed similarly doomed policy toward the U.S. initiative for a nuclear nonproliferation treaty. They attempted to use these negotiations to win concessions on reunification, a policy that the Americans simply brushed aside.17 The Rambouillet meeting ended with de Gaulle showing Erhard a film about undersea life. This was a sign that de Gaulle had abandoned his efforts to convert Erhard to his position. Erhard mistakenly interpreted it as a gesture of personal trust. But no harm was done. The core of his position had been preserved.18 De Gaulle visited Bonn on 11 and 12 July 1965. The major point of contention at this meeting was European agricultural policy. No agreement was reached. Again, de Gaulle stated his view that the United States would not fight to defend Europe, while Erhard expressed his confidence that it would. De Gaulle also signaled his opposition to NATO integration, foreshadowing the withdrawal of French forces from the alliance in 1966. Interestingly, he also said that he was convinced that the Soviets no longer wanted to attack western Europe. No one on the German side picked up on this insight, which was later proved correct. Had they, then the relationship between the United States and West Germany might have changed dramatically.19 Erhard’s loyal defense of West Germany’s close relationship with the United States was not rewarded with support from Washington. Lyndon B. Johnson, the U.S. president, was a tough politician who was concerned about his own interests and saw the Federal Republic as a subordinate to be used to achieve his and America’s goals. Erhard’s policy toward the United States was weakened by his idealistic view of America. He was influenced by his unrealistic conception of the Americans’ free market economy and by the support that the United States had provided at the time of the Berlin Blockade in 1948 and 1949. He committed West Germany too quickly and too clearly to the United States, losing leverage as a result. Completely lacking guile, he never attempted to maneuver between the United States and France to gain concessions from either or both. He and Schröder also failed to see that the international situation was changing in ways that did not favor the Federal Republic. For both superpowers, the division of Europe had become convenient. Therefore they had no incentive to change it. Neither wanted to pursue German unification or change the status of Berlin. Yet reunification was a core issue of Schröder’s foreign policy, fully supported by Erhard. In failing to

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see that the German question had become a subordinate matter, Erhard and his foreign minister wasted energy and made themselves vulnerable to U.S. and French demands in other areas.20 Erhard began his relationship with the Americans in a friendly way that, unfortunately, weakened his negotiating position. He met with the U.S. secretary of state Dean Rusk in Bonn on 25 October 1963. In their conversation, he said that West Germany would be lost without the United States.21 This gratuitous remark made it clear to the Americans that they would not have to make concessions to the Erhard government. Erhard continued in this vein during his first visits to the United States. He attended the funeral of John F. Kennedy and met with Johnson on 25 November 1963. Johnson kept him waiting for half an hour. Erhard emphasized West Germany’s friendship with the United States and Johnson reassured him that the Americans would keep their defense commitments in Europe.22 Erhard returned shortly afterward to stay at Johnson’s ranch in Texas on 28 and 29 December. Johnson was very friendly to Erhard during this sojourn, treating him to a full dose of Texas hospitality. However, the wily politician also raised issues that would ultimately lead to a major clash with Erhard and contribute to the German chancellor’s fall. Johnson said that he wanted the West Germans to meet their offset obligations and to increase their contribution to west European defense. In 1961 the West Germans had agreed to purchase weapons and other equipment in the United States to offset the money spent by U.S. forces stationed in the Federal Republic. The U.S. economy was accumulating foreign trade deficits and the cost of the country’s far-flung defense commitments was rising. Some members of the U.S. Senate had begun to clamor for a reduction of the U.S. military commitment to western Europe to save money. This seemed especially appropriate in light of the prosperity that the Europeans had enjoyed for over a decade. Erhard responded that he would fulfill the offset commitment to the extent that he could without unbalancing his own budget. This was an important reservation that the Americans forgot as their own expenses soared due to the Vietnam War. Johnson responded by hinting that it might be necessary to withdraw some troops from West Germany. In the final meeting between the two leaders, Johnson made clear his commitment to détente with the Soviet Union and that he did not want West Germany to obstruct that process. In response, Erhard adhered to the traditional anti-Soviet position shaped by Adenauer in the 1950s. Significantly, Johnson left the room before the translation of Erhard’s statement was completed. Still, Erhard 191

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thought that he had established a strong personal bond with the American president.23 Erhard next visited the United States to receive an honorary doctorate at Harvard in June 1964. He met briefly with Rusk and Johnson and again expressed his loyalty to the United States. Johnson raised his demands, asking not only for full and timely offset payments but for a West German military hospital to be sent to Vietnam. Erhard was not troubled by Johnson’s more extensive requests and did not respond to them.24 He had a similar brief meeting with the American president a year later when he received an honorary degree from Columbia. That conversation yielded no major results.25 Erhard’s trip to New York in 1964 highlighted another problem with which he had to wrestle. On 13 June he was approached by Nahum Goldmann and other Jewish leaders who demanded more money from the Federal Republic in compensation for the crimes committed against Jews by Nazi Germany. Erhard refused that request but was generally sympathetic to the needs of Jews and of Israel.26 Erhard was convinced that West Germany bore a moral responsibility to make restitution for the crimes committed by its racist predecessor. However, he did not think that Germany had forfeited its moral standing for all time. As he told de Gaulle on 19 January 1965, “We can not give up our entire national pride and our national dignity just because of Hitler.”27 Erhard himself had not joined the Nazi Party and had refused to cooperate with it. Therefore he felt no personal guilt for the crimes committed by Hitler and his followers. Moreover, unlike his predecessor, Erhard did not tolerate former Nazis in his administration. When he formed his first cabinet in October 1963, he appointed Hans Krüger as minister for deportees. Krüger had been Nazi chief of the Polish town of Chojnice and had participated in war crimes and crimes against humanity. Erhard had asked him if he had anything to hide. Krüger said that he did not. Then, on 25 November 1963, Josef Streit, chief prosecutor of the East German government, sent Erhard a letter indicating that documents in Polish archives proved that Krüger was implicated in Nazi crimes. Erhard apparently did not see the letter. However, the West German newsmagazine Der Spiegel publicized the matter. Krüger denied any wrongdoing. Erhard was then informed by his staff and suspended Krüger on 21 January 1964. By the end of the month Krüger was out of office.28 This affair illustrated how Erhard, unlike Adenauer, was unwilling to tolerate former Nazis, even small fry, in his administration. Erhard’s moral commitment to justice for Jews was then tested in con-

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nection with two important issues. In 1963 West German prosecutors began a series of trials of people who had served at the infamous Auschwitz death camp. Erhard was very impressed by the evidence of Nazi criminality that came to light during the court hearings. The statute of limitations in such cases would expire on 8 May 1965. Erhard wanted it suspended for Nazi crimes. However, a majority of his cabinet opposed him. On 4 November 1964 the FDP members of the cabinet led a group that out-voted Erhard on the issue. Erhard continued to press his case and readily adopted a compromise proposed by Adenauer. The former chancellor suggested that since no German government had existed between the fall of the Third Reich and the creation of the Federal Republic in September 1949, the period for the application of the statute of limitations should be measured from the latter date. The Bundestag accepted this construction, which was less far-reaching than what Erhard wanted, but which would enable prosecutions to continue, on 25 March 1965.29 In the meantime, Erhard was forced to deal with an issue concerning Israel that he inherited from his predecessor. In 1952 Adenauer had negotiated the Luxemburg Agreement calling for the Federal Republic to provide restitution to Israel. This commitment was expanded when the Federal Republic agreed to supply Israel with arms secretly in 1957. The Arab states quickly learned of these deliveries but took no action to stop them other than to lodge protests with Bonn. In 1964, as part of the offset agreement with the Americans, the Erhard government consented to provide Israel with 150 American M-48 tanks. This deal was quickly exposed in the press, leading to a controversy in West Germany. At the same time, the Soviets had negotiated an economic assistance agreement with Egypt. As part of this deal, the Egyptian president Gamel Abdel Nasser invited the East German leader, Walter Ulbricht, to visit Cairo. This threatened to violate the Hallstein Doctrine because it could be taken as the effective recognition of East Germany by Egypt. The Hallstein Doctrine, in effect since 1955, provided that the Federal Republic would sever diplomatic relations with any state that recognized East Germany. The Egyptian invitation to Ulbricht unleashed a controversy in West Germany both in the government and the press. Foreign Minister Schröder advocated ending the arms deliveries to Israel and maintaining relations with Egypt. Erhard wanted to recognize Israel and end the arms supplies in accordance with the Federal Republic’s policy of not selling weapons to states in crisis regions. He was undecided about what to do concerning Egypt. Erhard carefully considered the arguments raised by the various sides in the dispute in 193

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West Germany. Some at the time and after saw this as evidence of indecisiveness. In fact, Erhard was simply being careful in an area in which he knew that he lacked expertise. West German diplomats also tried unsuccessfully to convince Egypt to cancel the invitation to Ulbricht. On 24 February 1965 Ulbricht arrived in Alexandria and was welcomed as a head of state. In response, on 5 March, Erhard sent a representative to negotiate a change in relations with Israel. He decided to end economic assistance to Egypt, to end the arms support to Israel, and to open formal diplomatic relations with the Jewish state. In the event, twelve Arab states severed their ties with Bonn, but none recognized East Germany.30 Erhard had clarified West Germany’s relations with Israel, ending their clandestine aspects, fulfilled a moral obligation to Israel, and had not suffered the feared setback in terms of recognition of East Germany. He had acted circumspectly throughout and achieved a success. Despite all of the controversy over Erhard’s foreign policy, especially between the Atlanticists, who favored close ties with the United States, and the Gaullists, who preferred closer ties with France, domestic issues caused Erhard the most trouble and eventually led to his fall. Ironically, a major part of the problem was the economy. The patronage and expansion of social services of the Adenauer era led to a budget deficit and an economic slowdown that Erhard was unable to overcome. Erhard began his administration with the objective of reducing the government’s role in the economy. He especially wanted to limit the power of interest groups. He wanted to maintain the desire to perform that the competitive economy encouraged in people as opposed to the fear of competition fostered by the welfare state. He warned that the government had to stop dissipating resources on satisfying special interest groups. He condemned the concepts of “social” and “just.” He reminded the Bundestag and the German people that freedom entailed responsibility. He also cautioned them that persistent calls for the federal government to pay for social services were deceiving. The government paid for nothing. Ultimately the taxpayers, all citizens, paid for everything. Instead of more social programs being instituted, more government enterprises should be privatized and more people should own property. While he supported social legislation to protect people from real dangers, he did not support protecting them from competition. He preferred a competitive economy in which the middle class would thrive and in which stable prices would protect everyone’s property. He proposed writing the federal budget for four-year terms to aid private business in its own planning. Erhard realized that such a step risked returning to government

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planning for the entire economy if it were abused. But he condemned such planning and explicitly rejected the system of “planification” being employed in France.31 Yet Erhard was unable to implement his economic plans. The industry organizations, the unions, and the special interest groups and their friends in the Bundestag were too powerful. Only one significant privatization took place during Erhard’s term as chancellor, the divestiture of Veba, a conglomerate, in 1965. Laws were passed in the same year to make stock ownership and capital accumulation easier for lower-income people. But that was all.32 In the meantime, because of increased government spending, the economy became less stable. From mid-1963, exports grew strongly, leading to greater investment in production facilities. In this heady environment, the social wing of the CDU proposed a major expansion of welfare, health, and pension benefits. Erhard supported them.33 A tax cut for low- and medium-income families went into effect on 1 January 1965.34 The combination of increased spending and the tax cut led the government’s share of the output of the economy to grow, reaching 39 percent in 1966.35 For the first time since 1949, government was growing faster than the economy, acting as a drag on further growth.36 Politically, Erhard was dependent on economic growth. His support among the populace was based on his reputation for delivering prosperity, not on an understanding of the principles of the social market economy. If growth slowed or ended, his public support would evaporate quickly. When that happened, his party, the CDU, would flee from him. This chain reaction now began to take place. In 1965 economic growth accelerated, but inflation increased due to excess demand and tight labor supplies. The rapid growth in government spending made the problem worse. At the same time, the West German economy suffered a foreign trade deficit and the federal budget fell into deficit for the first time. By the second half of the year, the economy began to slow noticeably.37 Fear then spread that an inflationary spiral similar to that of the early 1920s would lead to the destruction of the currency and that a deep depression reminiscent of that of the 1930s would cause mass unemployment. In this overheated atmosphere, elections for the federal parliament approached in September. Erhard advocated spending cuts and higher taxes and supported the Federal Bank’s increases in interest rates to cool the economy and fend off inflation. But many members of the coalition opposed these policies, preferring to promote high employment. Erhard diagnosed a deeper difficulty than mere inflation. He considered the problems of the economy to be temporary and fairly mild. What 195

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troubled him more were the profound attitudinal changes that threatened to make these problems permanent. Therefore he proposed a wideranging plan to overcome them. On 31 March 1965 Erhard introduced his idea of the “formed society” at the CDU national convention in Düsseldorf. He wanted a new organization of West German society to reflect the social and economic changes that had taken place over the past decade and a half. In the tradition of Oppenheimer, Erhard saw a competition between the economy and politics that was damaging the economy. This idea was then developed by the “Special Circle” led by Rüdiger Altmann, assisted by Karl Hohmann, Johannes Gross, Rudolf Wildemann, and six others.38 Erhard hoped that the “formed society” would have the same impact as the “social market economy” had in 1948. He hoped that it would give the CDU an electoral advantage over the SPD, but, more important, that it would build on the social market economy and take West Germany to a new stage of social and economic development. He also hoped that it would finish the work begun so imperfectly by the cartel law of 1957. The “formed society” was intended to prevent interest groups from seizing control of West German society. It would create a situation in which a nation of free, dignified people would act as individuals and deal directly with the government. This would break the power of the interest groups and enable the economy to resume rapid growth. Erhard also proposed a German Common Enterprise (Deutsches Gemeinschaftswerk) that would undertake projects that the market would not, such as the construction of schools and roads. It would also make possible the coordination of expenditures by the federal, state, and local governments. Erhard wanted people to take a more direct role in their own governance and to develop, thereby, civic virtues that would counteract the increasing materialism that he saw corrupting public morals. Erhard hoped that the “formed society” would promote civilized behavior, the readiness to assume responsibility, and high morality by all.39 It was a noble vision that was ignored by virtually everyone.40 The mass of the people saw prosperity solely in material terms, while the political class was absorbed in jockeying for power. The moral transformation that Erhard sought never occurred. Instead, the country became mired in power struggles and recriminations. Erhard, without a political power base of his own, was above these struggles but was unable to direct the country out of them. In this situation, Erhard led the government into the parliamentary elections of September 1965. He threw himself into the campaign with his customary energy and commitment. But he was displeased with how

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his coalition approached the campaign. The federal budget had slid into deficit. Erhard wanted to cut spending to bring it back into balance. On 14 July 1965 the cabinet met to discuss proposals to do so. The minister of finance, Rolf Dahlgrün, had warned that the usual election gifts threatened to worsen the budget situation. He predicted that the federal deficit would grow to 5 billion DM by the end of 1966 and mushroom to 8 billion by the end of 1967. After a lengthy and heated discussion, the cabinet could not agree on what to cut and by how much. Erhard condemned costly electoral favors but was unable to muster enough support to use his constitutional authority to make cuts on his own. The only outcome of the meeting was an agreement to discuss the matter again.41 This represented a major failure of Erhard’s leadership. The Bundestag passed a total of fifty-six spending bills in the first half of 1965. Three-quarters of these bills had been proposed by the government itself. They increased current and future spending and cut taxes further. The cabinet met again on 12 August to discuss budget cuts but was again unable to reach a consensus.42 Overall, the government spent 6.5 billion DM on electionrelated gifts to retirees, farmers, mothers, schoolchildren, and the wardamaged.43 Clearly, the CDU and the CSU valued electoral success above fiscal responsibility, and there was nothing that Erhard could do to change them. Despite this failure, and against the expectations of the press, the campaign went well for Erhard. The great mass of the voters, particularly the middle class, people in small towns and rural areas, were attracted to the jovial bringer of prosperity. He traveled extensively around the country by train and appeared at more than 300 events. Yet there were dissonant voices as well. Within the coalition, prominent figures, including Adenauer, openly spoke of the possibility of forming a great coalition with the SPD, an idea that Erhard found anathema. Erhard appealed to the epic of the reforms of 1948, placing himself at the center of the story. His speeches focused on himself, effectively asking the voters to elect him based on his past performance. He presented no new ideas. Many younger voters, who took prosperity for granted, were not attracted by this message. They and many intellectuals gravitated to the SPD led by its young, charismatic chancellor candidate, Willy Brandt. This movement led Erhard to clash openly with the intellectuals during the campaign. Erhard was particularly irritated by Rolf Hochhuth, who wrote sensational pieces for Der Spiegel, and the author Günther Grass. He criticized them, quite justifiably, for not knowing what they were talking about when they attacked his economic policies. However, he did so in 197

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a crude way that damaged his prestige. Playing on the reputation of Germany for being the land of “poets and thinkers” (Dichter und Denker), he lashed out at them saying, “Where the poet stops, the tiny pinscher begins that gapes in the dumbest way.”44 These mistakes did not prevent Erhard from winning a substantial victory. On 19 September, 47.6 percent of the voters chose the CDU and CSU, compared with 39.3 percent who voted for the SPD. Consequently, a coalition with the FDP, which gained a disappointing 9.5 percent of the vote, was the logical next step.45 The election was a tremendous personal triumph for Erhard. He had won on his own, not under the shadow of Adenauer. Indeed, one might even say that he won against Adenauer in light of the former chancellor’s public criticism of him. Erhard had not won an absolute majority, but he had attracted more votes than the pollsters had predicted. Consequently, he was in a strong position to enter into negotiations to build a new cabinet. Construction of the new government proved to be much more difficult than Erhard anticipated. This was the result of vicious maneuvering by rivals who hoped to succeed him in the near future, his own lack of a political base, and the fractious nature of the CDU. Erhard had hoped to reduce the number of ministries, which had risen to twenty, lower the average age of ministers, and in the process ease out the Adenauer supporters. He was unable to do any of these things. Adenauer immediately began to campaign for a great coalition, supported by the federal president, Lübke, while politicians such as Barzel and Strauß plotted Erhard’s demise. Particular difficulties arose concerning the retention of Schröder at the Foreign Office, the role of Strauß and the CSU, and the position of the FDP and its leader Erich Mende. Erhard was able to defend Schröder against the attacks of Adenauer and the other advocates of closer relations with France at the expense of relations with the United States. He placated Strauß by offering him the Interior Ministry, which Strauß then refused. This restored Strauß’s prestige after the Spiegel affair of 1962, while making it possible for the FDP to sit in the cabinet. Mende was given the ministry that he wanted, inter-German affairs, but his party had to cede one cabinet post to the CSU. This reflected the loss of votes by the Free Democrats and the gains registered by the Bavarians. The cabinet negotiations stretched out for six weeks, not an unusually long time. But the perception among the public and political observers was that they had lasted too long, costing Erhard support. Overall, Erhard won the election but lost his advantage in the coalition talks. Little had changed in the cabinet, and his political opponents within his own party were

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closing in on him. In this dangerous situation, it was essential that Erhard solve the country’s budgetary problems and establish the orientation toward the United States in foreign relations as the country’s undisputed policy. Success in these areas would enable him to silence the advocates of a great coalition. The three issues were interrelated. Their resolution would determine Erhard’s political fate.46 Unfortunately for Erhard, he received no help in solving his problems. He had clear ideas about how to balance the budget, which, if implemented, would have been effective. His preference for the United States was based on his perception of the superiority of the American economic model and military might. His expectation that a great coalition would lead to a socialist government that would ruin the free market economy was born out by events. Yet, despite the accuracy of Erhard’s analysis, he was defeated on all three issues. The American president did absolutely nothing to help Erhard, convinced as he was that his own problems were more serious than those of his German counterpart. There can be no doubt that Johnson’s difficulties in Vietnam and with race relations in the United States were severe, but dunning the West Germans did nothing to solve them. Erhard visited Washington on 20 and 21 December 1965. He arrived well prepared, hoping to discuss nuclear issues and to gain a reprieve on the offset issue. Instead he received treatment from the president that was undeserved and embarrassing to the United States. Johnson made it clear that he was not interested in the German chancellor’s concerns. He pressured Erhard to pay the offset in full, indeed to deliver a payment of $100 million before the end of the year. He also called on Erhard to support the United States in Vietnam by sending German military medical personnel to the southeast Asian country. Erhard replied that he intended to cut his budget by 10 percent, making it unlikely that West Germany could pay as Johnson wanted. He also pointed out that the United States now had a trade surplus with West Germany, undercutting the very logic for the offset. As for sending troops to Vietnam, Erhard reminded the president that the German constitution, the Basic Law, forbade him from sending armed forces outside of the NATO area. Johnson persisted. After the festive dinner, he took Erhard into a small room in the White House and subjected the chancellor to the same treatment that he had used to shakedown used car dealers in Austin, Texas, when he was working his way up the political ladder. Johnson demanded that the Federal Republic make an immediate $100 million payment plus hand over an additional $50 million that would be used to support the U.S. war effort in Vietnam. 199

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Erhard with President Lyndon B. Johnson at the White House, 26 September 1966. LBJ Library, Austin, Tex.

He also insisted that the West German military, the Bundeswehr, send 200 medics and 1,000 engineers to Vietnam. When Erhard objected that he had budget problems and that he was constitutionally barred from sending troops into combat outside of NATO, Johnson attempted to intimidate him physically and verbally. To his credit, the shocked Erhard refused to submit. After fifteen minutes the entire disgusting affair was over, and Erhard was allowed to return to the guest house. Even Johnson’s advisers who were present, Under Secretary of State George Ball and the U.S. ambassador to West Germany George McGhee, were amazed and embarrassed.47 Erhard’s inextinguishable optimism did not serve him well in this case. Soon after he returned to Bonn, he convinced himself that Johnson was still his personal friend and would help him out of his difficulties. He was rudely disappointed when he visited Washington for the last time in September 1966. Erhard badly needed a delay in the offset payments to help him balance the federal budget. He had convinced himself that Johnson would grant his request. Most of his advisers doubted that Johnson would do any such thing and counseled him to cancel the trip. Possibly to escape the rancid atmosphere in the federal capital, Erhard

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went anyway. In preliminary talks with the U.S. defense secretary Robert McNamara, Erhard offered to make a partial payment on West Germany’s offset bill and requested a delay in paying the remainder and a reduction of the Federal Republic’s obligation in the future. McNamara refused. He then met with Johnson who also refused, knowing that this made Erhard extremely vulnerable to his opponents in Bonn. Erhard had defended his position as well as he could have under the circumstances but had still failed. The American president was apparently quite willing to sacrifice his most loyal ally on the altar of his hopeless war in Vietnam.48 Erhard’s relations with de Gaulle and France were much less dramatic during his last year in office. This was due to de Gaulle’s recognition of the fact that he had been unable to convince Erhard to adopt his policy. The two leaders met in Paris in February 1966 without major results. During de Gaulle’s visit to Bonn in July, Erhard agreed that French troops could remain in West Germany even though de Gaulle had ended French military participation in NATO.49 The net result of these meetings was that the debate between the Atlanticists and Gaullists in Germany was not resolved but was also not exacerbated. Because the Americans would not help Erhard on the offset payments, he was forced to try to solve his budgetary and economic problems alone. During the second half of 1965, the West German economy weakened. Growth continued to slow in 1966. At the same time, inflation continued to rise, leading the Bundesbank to increase interest rates. Slowing growth lowered tax revenues at the same time that expenditures rose due to electoral largesse and expansion of the social welfare system.50 Erhard was aware that prices were rising. He proposed restricting government spending to those projects that it could actually afford — in other words, balancing the budget. This would also reduce inflation. He opposed the unions’ demand to shorten the workweek and even suggested that the workweek be lengthened. “We must pull back our demands or work more,” he said.51 “Generosity in the subvention policy,” he continued, “giving in to protectionistic demands means economic luxury, which we cannot afford.”52 Subsidies had to be systematically reduced and uncompetitive industries had to be shut down to make way for new ones. Erhard also warned against extending the social welfare system, not just because doing so would be expensive but because it would reduce the people’s willingness to work and to innovate.53 Erhard had remained true to his core free market ideas. But those around him, even in the conservative CDU and CSU, were quite ready to use the government to solve economic problems and, indeed, to use it in 201

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shortsighted ways. Strauß called on Erhard to join France in building walls against American competition and subsidizing industrial research and development. Barzel advocated loosening monetary policy, in effect promoting inflation to create jobs. Alfred Müller-Armack, from his academic position outside of the government, also suggested increased government spending to stimulate the economy. He claimed that the failure of the market justified government intervention. Erhard was not swayed by any of this advice. In his view, the market had not failed. It had been prevented from working by increased government economic intervention. Therefore, the prescription should have been to cut government spending. He also saw no reason to exclude U.S. investors from Europe. They would bring new technology and management methods with them and spur German and other European businesses to a competitive response.54 When looked at in perspective, it becomes clear that neither the economic nor the budgetary situation was as serious as the critics contended. The West German economy grew 5.6 percent in 1965 and a respectable 2.9 percent in 1966. Unemployment was less than 1 percent in both years. Inflation was only 3.1 percent in 1965 and just 3.7 percent in 1966. Even the government debt was modest in comparison to other European countries and the United States.55 The panic that gripped the political classes and some segments of the public, in particular journalists, was the result of irrational fears of a repetition of the disasters of the 1920s and 1930s and the resulting political radicalization of the country, and a lack of confidence in Erhard personally among the political elites. In a very real sense, there was no economic crisis, just a normal cyclical slowing of the economy. Moreover, Erhard’s prescription to address it was sound; it just did not accord with the dominant Keynesian consensus. With the perception that Erhard had lost his magic in economic affairs, with the budget in the red, and with the country’s foreign relations in apparent disorder, the elections in West Germany’s largest state, North Rhine–Westphalia, set for 10 July 1966, were seen by political observers as a test of Erhard’s political strength. Erhard accepted the challenge and campaigned vigorously in the state dominated by the Ruhr, the home of the country’s traditional heavy industries. Erhard advocated rationalizing the coal and steel sectors by closing unprofitable mines and consolidating steel firms. He was prepared to provide government assistance to smooth the transition by helping retrain and relocate workers. The unions opposed this policy. They demanded government subsidies for existing mines and mills and refused to contemplate their members mov-

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ing elsewhere to do some other type of work. Erhard was again faced by hecklers during his campaign speeches. Nevertheless, the pollsters predicted that the CDU would do well in the Catholic state. The electoral result was in fact a defeat for Erhard and the CDU, though not a devastating one. The SPD won a plurality of the votes with 49.5 percent, while the CDU sank to 42.8 percent. Consequently, it was possible for the CDU to retain control of the state by forming a coalition with the FDP.56 However, the psychological and political effects of the defeat were much more serious. The CDU rank and file and the party’s backbenchers in the Bundestag had supported Erhard because they thought that he could win elections. Now that he had seemed to have lost his touch, and their pork barrel and perks were in danger, they abandoned him. The loss of the election in North Rhine–Westphalia set in motion the process that resulted in Erhard’s resignation. With Erhard’s electoral spell broken, the conspirators in the CDU and CSU set to work with a will. Now Erhard’s long unwillingness to control the CDU, to engage in the tedious work of building personal support, proved fatal. When he became chancellor, Erhard had chosen not to assume the chairmanship of the party. Foolishly, he allowed Adenauer to occupy that crucial position. In March 1966, when Adenauer indicated that he would not serve another term, Erhard had repaired that mistake by taking the position for himself. In the process, however, he allowed Rainer Barzel to become first vice chairman of the party. Barzel was not loyal to Erhard and, in fact, hoped to replace him. Yet Erhard again refused to involve himself in the daily affairs of the party, delegating the handling of them to Barzel.57 Consequently, when the final assault on Erhard began, he had no allies. The occasion for Erhard’s fall was the debate on how to balance the federal budget. The cabinet discussed the budget proposal for 1967 in October 1966. Erhard proposed raising taxes along with spending cuts. The Free Democrats opposed raising taxes and left the cabinet on 27 October. After intense behind the scenes maneuvering, the CDU and the CSU both called on Erhard to resign on 2 November 1966. Erhard scrambled for support but found none. The FDP began to move away from the union parties and announced that it would join the Social Democrats in passing a no-confidence motion against Erhard on 7 November. Over the next few days, the CDU and the CSU settled on a replacement for Erhard, the minister-president of the state of Baden-Württemberg, Kurt Georg Kiesinger, and decided to enter into a great coalition with the SPD to confront the perceived economic crisis. With no alternative, Erhard 203

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agreed to step aside, while heading a caretaker government until the parties could form a cabinet. Erhard formally resigned on 1 December 1966.58 What had caused Erhard’s fall? His own party. That is the short answer. It is also completely adequate. Not Erhard’s bitter, longtime opponents, the Social Democrats, but his own party, possessed of ambition, selfishness, and economic ignorance, had toppled him. Adenauer had never ceased attacking Erhard. The old chancellor had retained considerable influence after he left office, so his views carried weight, hurting Erhard. In addition, the FDP no longer wanted to work with the Christian parties. This was a result of the Free Democrats’ changing views on policy toward East Germany and the Soviet bloc. Clearly, the visit to the United States in September 1966 also contributed greatly to Erhard’s political demise. Not only did Johnson refuse to help the German chancellor with his budgetary difficulties, he also cut the ground from under Erhard’s policy of unswerving loyalty to the United States. This weakened Erhard in his dispute with the Gaullists in the Federal Republic, led by Adenauer and Strauß, his bitter opponents on other grounds. In addition, Erhard was unable to adjust to changing international circumstances. His insistence of keeping alive the German question and participation in nuclear decision making was out of step with the super powers’ desire for peace in Europe through the maintenance of the status quo. More important than any of these factors was the vicious political maneuvering that dominated the fractious CDU. Erhard had never stooped to engage in petty party politics. But even if he had, one can still legitimately wonder if he would have been able to survive without forfeiting his intellectual and moral integrity. Erhard recognized that holding office was not everything. That put him at a disadvantage against the likes of Adenauer, Strauß, and Barzel, who thought that it was. Operating in the background, but exerting a powerful influence, was the social transformation taking place in the Federal Republic, a transformation that Erhard had helped stimulate, but which he did not like.59 Erhard had increasingly become an anachronism by the 1960s. Perhaps, it was better that he resigned when he did. It enabled him to keep his honor.

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rhard relinquished office quietly. His farewell address was honorable, tinged by bitterness only at the very end. He denied that his policies were mistaken, retaining his confidence in his free market concepts.1 Indeed, in the years that followed, Erhard remained true to the ideas that he had followed throughout his life. In his last speech, delivered on 14 December 1976, he sounded the familiar themes of free markets, growth, the dangers of inflation, and the hopelessness of socialism. Yet, having seen how his country had evolved since he left office, he was not optimistic.2 The great coalition consisting of the union parties and the Social Democrats yielded quickly to a center-left alignment led by the SPD and its magnetic leader Willy Brandt. Brandt’s economics minister, Karl Schiller, implemented many of Erhard’s ideas, without having to worry about dissension within his own party. Schiller coordinated the budgets of the federal, state, and local governments and used the four-year federal budget to try to steer the economy. However, he went much further than Erhard down the road of economic planning and government intervention in the economy.3 205

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Brandt consciously probed the limits of the market to sustain social programs, causing Schiller to resign in 1971. Erhard, however, did not play a prominent role in the debates about Schiller’s economic policy or any other issue. He quickly faded from the political scene in Bonn. He continued to occupy a seat in the Bundestag and did so until he died. But he spoke only infrequently. He also relinquished the chair of the CDU in May 1967. He refused suggestions that he allow himself to be nominated to become federal president twice, in 1967 and in 1968. Office did not interest him. He was more concerned with propagating his ideas, so he traveled extensively, gave advice to leaders of developing countries, granted interviews, wrote articles, and delivered speeches. He attended meetings of the free market Mont Pélèrin Society and gave papers occasionally. In October 1967 he called for the foundation of a Ludwig Erhard Foundation to promote free market ideas. After more than a decade in which money could not be found, largely because of the lack of support for free market economics in West Germany, Karl Hohmann managed to collect sufficient funds to make a start. Erhard’s last public appearance occurred when he attended the CDU national party convention in Düsseldorf on 9 March 1977. Leaving the meeting, his driver collided with another vehicle. The man had consumed excessive amounts of alcohol before the accident. Erhard suffered a broken rib and a fractured chest vertebra. He attempted to go to his vacation retreat on the Tegernsee, but the pain was too great. He returned to Bonn to undergo medical treatment. This aggravated the circulation problems from which he had been suffering for years. His condition became so serious that he was admitted to the hospital on 24 March. He lost consciousness on 3 May and suffered a heart failure on 5 May 1977. Erhard received a state funeral on 11 May and was buried beside his wife, who had died in 1975, in Tegernsee.4 To the end, Erhard had been a loner. What did this unusual man accomplish? There can be no doubt that Erhard decisively influenced the struggle to transform Germany in the years after the Second World War. He effectively fended off the planners and interventionists in the years 1948 to 1951, the years of his greatest accomplishments. However, he was unable to maintain the momentum of liberal change. As the situation in the Federal Republic normalized during the mid-1950s, the forces that wanted to use the government to distribute largess and the groups that wanted to run their affairs without reference to the market gained strength. They were helped by Erhard’s

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refusal to engage in the political dirty work and bureaucratic drudgery that were so essential to political success. Adenauer reveled in these matters and so was much more effective in gaining support for his policies, even though he had fewer and inferior ideas than Erhard. Ironically, Erhard was most successful in defeating the interventionists on the left of the political spectrum. It was the interventionists on the right, in the industrial interest groups, who successfully resisted him. Erhard’s greatest accomplishment was the liberalization of the Bizonal and later the West German economy in June 1948. He was able to make this breakthrough because the parliamentary system, with all of its potential for the exertion of influence by interest groups, was not fully developed at that juncture. Later, when the parliament functioned normally and when the interest groups reappeared, Erhard was much less able to implement his program. A turning point came in 1951, ironically at the peak of his success. Contrary to the expectations of the left, the economy was booming, unemployment was falling, and personal income was rising. However, because of the intervention of the Americans, Erhard was forced to suspend his liberalization program and resort to private steering of the economy through industry peak organizations. This strengthened those organizations, allowing them to oppose his other measures more effectively. There then followed the expansion of the state as the CDU and the CSU attempted to create a Christian social regime and as Adenauer and his allies distributed favors to help the coalition win elections. Government spending expanded, though until the end of the 1950s the economy grew even faster. Yet, a dangerous trend had been established, and Erhard could do nothing to reverse it. Erhard then suffered the first major defeat of his career. The most important component of his effort to limit the power of interest groups, the law against restrictions on competition, was emasculated by the Federal Association of German Industry. When the law was finally passed in 1957, it was a shadow of what Erhard had wanted. Erhard had been defeated by an interest group of the right. More ironic was the fact that these very industrialists had benefited from his liberalization of the economy, although they would not admit it, or maybe they did not realize it. And they had benefited from Erhard’s program of tax cuts. They practiced a classic policy of biting the hand that fed them. All that Erhard accomplished in passing the adulterated cartel law was to set a foundation upon which others could build later. In the short-term, the Federal Republic remained a commonweal, corporatist economy in which competition was limited by interest group regulation sanctioned 207

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by the government. Viewed in broader historical context, Erhard could not change the deep-seated collectivist traditions in German culture. As Lucius Clay had remarked, the Germans had a tendency toward socialism, and Erhard had not been able to overcome it.5 Erhard, following in the footsteps of Oppenheimer, had tried to make economics transcend politics. The hothouse atmosphere of Adenauer’s Bonn, rife with personal rivalries and interest group competition for favor, a situation welcomed by the chancellor, defeated Erhard. Erhard’s second major reverse was the passage of the social reform, the massive extension of old-age pensions, in 1957. Erhard staked out an equivocal position on this matter. He opposed many of the provisions of the proposed pension reform but not the reform itself. His moderate, tolerant, conciliatory approach led him to try to modify the legislation to preserve the professional, self-employed middle class. He was aware of the fiscal and economic implications of the bill and made known his fears about them, but allowed the finance minister to lead the opposition. In retrospect, against the background of the massive growth of the state, budget deficits, slow growth, and unemployment that followed, all of which Erhard foresaw, his reticence can be seen as a mistake. The passage of the pension bill was a major defeat for Erhard and his vision of a dynamic free economy. It marked the turning point in West German history toward the welfare state and away from the social market economy as understood by Erhard. In surveying these events, one can see that Erhard’s own economic philosophy, sound as it may have been, contributed to his failures. Erhard advocated doing nothing in most economic circumstances. This was not due to sloth, or incompetence, but the product of his faith in the market and suspicion of government. However, voters elect politicians to office to do things. Consequently, Erhard’s approach opened him to criticism for doing nothing, even if that was the right thing to “do.” Less is more is a hard case to make, particularly to a people accustomed to strong, active government, with a tradition of intervention in the economy. Moreover, preaching self-responsibility, hard work, and the decisive importance of performance could easily be portrayed as cruelty by critics on the left and among socially oriented circles on the right. Erhard wanted to strengthen the individual. He mistrusted bureaucracy. He was especially suspicious of interest groups. He was a traditional liberal individualist in a pluralistic age. Erhard was an anachronism. This, as much as his personality, explains his isolation. Erhard was not responsible for foreign policy until he became chan-

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cellor. Then, his approach, laudable as it was for its honesty and openness, was disadvantageous to him. His image of the United States was unrealistic. He was too open with the Americans, too honest, and he expressed his views about them to them too soon, costing him leverage. The result was that the hard-nosed Lyndon Johnson did not reward him for his unswerving loyalty. Erhard was also sympathetic to the British, and largely for the same reasons as he leaned toward the Americans. Britain was historically a free, democratic, market-oriented country. Erhard never fully grasped the changes that had taken place there since World War II, just as he overlooked the changes that had taken place in the United States beginning with the New Deal. Consequently, although his policies of maintaining close ties with the United States and trying to bring Britain into the Common Market were laudable, his way of pursuing them was inept. Erhard rightly suspected the French. He rejected their domestic economic policies on sound grounds and correctly suspected that de Gaulle’s appeals for friendship concealed a desire to dominate the Federal Republic. Overall, Erhard’s handling of de Gaulle and France was far more effective than his critics have realized. Erhard’s handling of the recognition of Israel and the extension of the statute of limitations on prosecution of Nazi crimes was also much better than his critics contend. In both cases he moved deliberately in the face of substantial internal opposition and staked out positions that were morally praiseworthy. Ultimately, Erhard’s handling of these matters greatly enhanced the prestige of the Federal Republic on the world stage. Ludwig Erhard was a mild-mannered man, primarily interested in ideas, who became involved in politics in order to see those ideas bear fruit. As he put it, “I was not a born politician. It is correct that I myself . . . was really shaped as a scholar, but through accident and outside influences became increasingly trapped in politics.”6 From his youth, Erhard had avoided personal conflict. This alone made him unsuited to be a politician and placed him at an extreme disadvantage when faced by tough customers such as Adenauer and Johnson. Erhard thought that the rightness of his ideas would carry the day. He was sure that, when given the chance, people would do the right thing, a classical liberal notion par excellence. Unfortunately for him, he did not convince enough people of the superiority of the free market. It is doubtful whether a majority of West Germans ever understood or supported Erhard’s social market economy. All they knew was that times were good. When the economy seemed to weaken, they discarded him. 209

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In part, again viewed in broad perspective, Erhard’s fall was due to his inability to develop a new idea to follow the social market economy. Erhard was not an original thinker. This is not a criticism since many great thinkers are not original. Erhard did not develop the idea of the social market economy. Others such as Eugen Richter, Wilhelm Rieger, Franz Oppenheimer, Alfred Müller-Armack, Walter Eucken, and Wilhelm Röpke provided the parts that became the whole in Erhard’s mind. The social market economy as it actually emerged conformed to the ideas of no one. It evolved in the political struggle of the late 1940s and early 1950s. With events moving in a direction that filled him with apprehension, Erhard was unable to generate a new idea on his own and found no new idea that he could use. The “formed society” was his attempt to take a step beyond the social market economy, but it was a hazy concept that partially contradicted its predecessor and ran against social trends. Consequently, it received scant support. In short, in the latter part of his career, Erhard could not develop a new idea, and no one else did it for him. Lacking a new idea, even though his existing free market concepts remained sound, Erhard lost influence because he did not have the sheer desire for power that enabled Adenauer to remain in office for so long. This was only partially the result of a flaw in Erhard’s character. Erhard was philosophically suspicious of concentrations of power. His attacks on interest group and government power were genuine. Having condemned these power centers, he did not wish to build a new one around himself. A more serious fault was Erhard’s cavalier approach to administration. The criticism often heard that he ran his official affairs like a “creative artist” was to the point and had serious implications.7 Erhard ignored administrative detail, concentrating on propagating his ideas. This made it more difficult for him to achieve his objectives. In effect, Erhard, again following the lead of Oppenheimer, wanted to transcend parties and interest groups. He wanted a society of free, responsible individuals. Again, though, his policy of less is more was politically unworkable. His constituents wanted things done, and they wanted the impression that the government was in efficient, sure hands. Ignoring administration created the opposite impression, making it more difficult for Erhard to do what he really wanted. In effect, Erhard was an antipolitician who never fully understood the implications of his own ideas. Erhard refused to play the political game, but he was not tough enough to try to end it, to try to destroy the interest groups and decisively weaken the parties. He was not a revolutionary.

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He confined himself to fiery rhetoric. He shied away from taking the hard political action that would have been necessary for him to accomplish his goals. The single heroic act of 1948 could not be repeated. Circumstances changed. Erhard did not. For that reason, Erhard may be seen as a tragic figure. Erhard’s most important legacies were his economic philosophy and his ethic of fair play. His greatest contribution to changing Germany, to making it different from what it had been under the princes, the kaiser, the Weimar politicians, and Hitler, was his liberalization of the German economy. This sweeping economic initiative made possible both prosperity and economic and political freedom. Erhard’s risky step provided the foundation for Adenauer’s reorientation of Germany toward the West. The prosperity that Erhard’s policies produced allowed participatory democracy to take root on German soil for the first time in modern history. Just as important, the overwhelming success of Erhard’s liberalization, incomplete as it was, set a model for those in the future who opposed government intervention, from the left or the right, inside or outside of Germany. The free market really did yield prosperity for everyone. In 1945 Hitler left Germany in ruins surrounded by heaps of dead, including 6 million Jews, millions of eastern Europeans, and many of his own people. When Erhard relinquished office in 1966, he left a country that was incomparably richer than it ever had been. In no small measure due to his efforts, it had embraced humanitarian ideals and had no designs on its neighbors’ territories. In the following decades, the Federal Republic’s leaders increasingly departed from Erhard’s vision. But the eighteen years during which he had shaped West Germany’s economic development had lasting effects. Erhard’s ideals remain as relevant now as when he proclaimed them in the dark days of 1948.

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NOTES

Abbreviations In addition to the abbreviations found in the text, the following abbreviations are used in the notes. AAPD

ACDP BAK BMWi DIDEC dpa DWP HICOG LES NE TOP

Akten zur auswärtigen Politik der Bundesrepublik Deutschland (Documents on the Foreign Policy of the Federal Republic of Germany) Archiv für christlich-demokratische Politik (Archive for Christian Democratic Politics), Sankt Augustin Bundesarchiv Koblenz (Federal Archives, Koblenz) Bundesministerium für Wirtschaft (Federal Ministry of Economics) Decartelization and Industrial Deconcentration Commission in HICOG Deutsche Presse Agentur Erhard, Deutsche Wirtschaftspolitik Allied High Commission for Germany Ludwig-Erhard-Stiftung (Ludwig Erhard Foundation), Bonn Nachlaß Erhard (Erhard Papers) Tagesordnungspunkt (Agenda Topic)

Introduction 1 See Kershaw, Hitler 1889–1936: Hubris, 96–105, for a discussion of Hitler’s injury and experience in the hospital at Pasewalk. It is noteworthy that Hitler endured only a short convalescence, being released from the hospital on 19 November 1918. For more on Hitler’s ideas, see Kershaw; Fest, Hitler; Bullock, Hitler, a Study in Tyranny; Hitler, Mein Kampf; and Jäckel, Hitler’s World View: A Blueprint for Power. 2 Nicholls, Freedom with Responsibility. 3 Berghahn, Americanisation, and “Ideas into Politics.” 4 Herrigel, Industrial Constructions. 5 Wallich, Mainsprings; Kramer, West German Economy. 6 Hentschel, Politikerleben. 7 Abelshauser, “Ansätze”; Langen fünfziger; Wirtschaftsgeschichte. A recent expression of Abelshauser’s interpretation can be found in Lindlar, 213

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Wirtschaftswunder. Abelshauser’s assertions are effectively demolished by Klump, Wirtschaftsgeschichte, and Ritschl, “Währungsreform.” 8 Laitenberger, Nationalökonom. 9 Nicholls, “Erhard.” 10 Ibid., 416; Nicholls, Freedom with Responsibility, 76.

Chapter 1 1 For accessible overviews of the situation in Germany at the turn of the century, see Craig, Germany, 1866–1945, chaps. 8 and 9; Mommsen, Imperial Germany; and Berghahn, Imperial Germany. 2 Sheehan, German Liberalism, 85–86, 112, 256–57; R. Hahn, Sozialromantik, 14–15. On Richter, see Raico, Die Partei der Freiheit, and Lorenz, Eugen Richter. 3 Lukomski, Mensch, 17; Rüdiger Altmann and Johannes Gross, “Gespräch über Erhard,” in G. Schröder et al., Beiträge, 23. 4 On Erhard’s early years and personality, see Lukomski, Mensch, 10–18; Laitenberger, Nationalökonom, 10; Altmann and Gross, “Gespräch über Erhard,” 23; Koerfer, Kampf, 18. 5 Lukomski, Mensch, 15–16; Laitenberger, Nationalökonom, 11. 6 Lukomski, Mensch, 15–16; Laitenberger, Nationalökonom, 11. 7 Lukomski, Mensch, 18–20; Laitenberger, Nationalökonom, 9. 8 Lukomski, Mensch, 21–22, 24, 28; Laitenberger, Nationalökonom, 12; Hentschel, Politikerleben, 12; Caro, Volkskanzler, 18. 9 Laitenberger, Nationalökonom, 12–14; Lukomski, Mensch, 28; Hentschel, Politikerleben, 14. 10 Lukomski, Mensch, 31. 11 Rieger, Einführung, 1, 4–5, 10, 15, 17, 34, 126, 135. Lukomski, Mensch, 29–30; Caro, Volkskanzler, 22; Wünsche, Erhards Konzeption, 147–49, 153, 170; and Laitenberger, Nationalökonom, 13, all make much of Erhard’s interest in the ideas of the prominent contemporary Germany economist and monetary theorist Georg Friedrich Knapp. Rieger studied under Knapp and Erhard read his popular book, Staatliche Theorie des Geldes. Yet, an examination of Rieger’s publications and Knapp’s book and consideration of Erhard’s subsequent views must lead to the conclusion that Knapp’s influence on Erhard was temporary at best. Knapp argued that money was a creation of the state, not a controversial contention except for gold bugs. He does not make strong statements against either inflation or government debt. Consequently, there is no need to attribute Erhard’s conservative fiscal views to Knapp. Erhard saw the damaging effects of inflation and uncontrolled state spending for himself and drew the same conclusions that the majority of other Germans did. For an assessment that puts Knapp in proper perspective, see Schumpeter’s History of Economic Analysis, 1090–91. 12 Erhard, Gedanken, 795; Erhard, Kriegsfinanzierung, viii; Laitenberger, Na-

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13 14 15

16 17

18 19 20 21

22 23 24 25 26 27 28 29 30

31 32

tionalökonom, 12–14; Lukomski, Mensch, 29–31, 35; Nicholls, Freedom with Responsibility, 73; Metz, Ungleichen, 30. Laitenberger, Nationalökonom, 15. Lukomski, Mensch, 32, 38; Laitenberger, Nationalökonom, 14. Oppenheimer, Wert und Kapitalprofit, vi, 29, 34, 36, 90–93, 104, 106, 118–19; Kapitalismus—Kommunismus—wissenschaftlicher Sozialismus, iii–iv, 1, 27, 36–37, 86–87, 186, 193–94, 209, 214, 218; Weder, 80, 85–86, 90, 196–97, 219, 223; Erlebtes, 136–37, 143–44, 150, 240; Erhard’s introduction, “Geleitwort,” to Erlebtes, 5–6, also available in Gedanken, 858– 74. See also Lukomski, Mensch, 36–38; Laitenberger, Nationalökonom, 15–18; Wünsche, Erhards Konzeption, 56–57. Erhard, “Geleitwort,” in Oppenheimer, Erlebtes, 6; Erhard, Kriegsfinanzierung, vii. Erhard, “Wesen und Inhalt der Werteinheit,” 153–59, LES NE 01; Lukomski, Mensch, 37; Laitenberger, Nationalökonom, 15, 17; Wünsche, Erhards Konzeption, 156. Lukomski, Mensch, 37–38; Laitenberger, Nationalökonom, 17; Hentschel, Politikerleben, 17. Laitenberger, Nationalökonom, 18; Metz, Ungleichen, 31; Lukomski, Mensch, 39; Hentschel, Politikerleben, 17. Metz, Ungleichen, 31; Lukomski, Mensch, 39. Lukomski, Mensch, 56; Laitenberger, Nationalökonom, 20; Metz, Ungleichen, 31; Walter Henkels, “Von May bis Marx und Malthus,” in G. Schröder et al., Beiträge, 553–54. Laitenberger, Nationalökonom, 19. Vershofen, Marktverbände, 132–33. Vershofen, Amerika. Vershofen, Aussenhandelsbilanz, 10, 13–15, 18, 24–25, 31, 35–36. Vershofen, Marktverbände, 11, 23–24, 27, 31–34, 122–23, 149, 155–56. Vershofen, Schicksal, 23, 37–38, 43, 45, 128–29, 144–46, 149, 151, 183, 189, 198–200, 213, 228, 235, 266, 278, 280, 316, 327, 334, 342. Vershofen, Handbuch, 66, 155, 164–65. Vershofen, Poggeburg, 37–60. On Erhard’s time at the Vershofen institute, see Laitenberger, Nationalökonom, 18–22; Metz, Ungleichen, 33. Erhard, Arbeitslosigkeit, 4–5, 7, 11–12, 29, 40, 36, 69, 73–74, 81, 92–93, 103, 137, 140, LES NE 01; Erhard, Kriegsfinanzierung, ix; Wünsche, Erhards Konzeption, 159–68; Laitenberger, Nationalökonom, 21–24; Metz, Ungleichen, 32, 39–40. Caro, Volkskanzler, 29. Edinger, Schumacher, 20, 43, recounts how Kurt Schumacher’s makeshift dissertation was sent for approval to a professor who was sympathetic with his politics. Both this example and a reading of Erhard’s work undercut the biased conclusion reached by Hentschel, Politikerleben, 22–23, that the Habilitationsschrift was inadequate. 215

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33 Erhard, “Ein Notweg,” Das Tagebuch 12 (1931): 1205–11, in Gedanken, 22–29. 34 See Skidelsky, John Maynard Keynes, 484, 486, 506, 521. 35 Erhard, “Herrn Schachts ‘Grundsätze,’” Das Tagebuch 13 (1932): 1300– 1306, in Gedanken, 30–36. 36 Erhard, “Wirtschaftsbelebung von der Verbraucherseite,” Der deutsche Oekonomist, 7 October 1932, 1323–25, in Gedanken, 37–42. 37 Erhard, “Der Reichskommissar für Arbeitsbeschaffung und der GereckePlan,” Wirtschaftsdienst (1933): 44–45, in Gedanken, 43–47. 38 Metz, Ungleichen, 33. 39 Erhard, Kriegsfinanzierung, x; Laitenberger, Nationalökonom, 30. 40 Erhard, Kriegsfinanzierung, xv; Nicholls, Freedom with Responsibility, 76. 41 Joachim Starbatty, “Soziale Marktwirtschaft als Forschungsgegenstand: Ein Literaturbericht,” in Wünsche, Weichenstellung, 67; Koerfer, Kampf, 23. 42 Laitenberger, Nationalökonom, 32. 43 Herbst, Der Totale Krieg, 383–84; Herbst, “Krisenüberwindung,” 522; Metz, Ungleichen, 35, 41; Laitenberger, Nationalökonom, 27. 44 Erhard, “Marktverbände als Förderer des Qualitätsgedankens,” Deutsche Handels-Warte 24 (February 1936): 97–104, LES NE 01. 45 Laitenberger, Nationalökonom, 33–34. 46 Ibid., 29. 47 Ibid., 30–31. 48 Ibid., 31–32. 49 Ibid., 33–34; Lukomski, Mensch, 51; Metz, Ungleichen, 34. 50 Erhard, Kriegsfinanzierung, xi; Laitenberger, Nationalökonom, 35–36; Lukomski, Mensch, 52; Herbst, Der Totale Krieg, 384–85. 51 Lukomski, Mensch, 57–58; Metz, Ungleichen, 35. 52 Erhard, Kriegsfinanzierung, ix. 53 Ibid., 264. 54 Ibid. For the contents of the memorandum discussed here and commentary on it, see Erhard, Kriegsfinanzierung, 15, 108, 111, 231, 233, 250–52, 260–61, 264; Laitenberger, Nationalökonom, 39–43; Herbst, Der Totale Krieg, 424–30; Herbst, “Krisenüberwindung,” 314–15, 336–37; Nicholls, “Erhard,” 401. An excerpt from Erhard’s memorandum is available in Erhard, Gedanken, 48–52. 55 Herbst, Der Totale Krieg, 384–87, 427–29. 56 Ibid., 386–91; Laitenberger, Nationalökonom, 38; Schumann, “Nachkriegsplanung in der Reichsgruppe Industrie im Herbst 1944,” 290–96. 57 Lukomski, Mensch, 52; Laitenberger, Nationalökonom, 37; Metz, Ungleichen, 38. 58 W. Röpke, Die Gesellschaftskrisis der Gegenwart, translated as The Social Crisis of Our Time; Civitas Humana, translated as The Moral Foundations

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59

60 61 62

63 64 65

of Civil Society; and Internationale Ordnung—heute (there is no Englishlanguage translation of the last book). Erhard had also read earlier Die Lehre von der Wirtschaft, available in English as Economics of a Free Society. On Eschenburg’s recommendation, see his introduction to Erhard, Kriegsfinanzierung, xvii. Erhard to Röpke, Bonn, 22 May 1950, LES NE I 4)59; Erhard to Röpke, Bonn, 7 October 1959, LES NE I 4)59; Erhard to Röpke, Bonn, 23 February 1963, LES NE I 4)59; Erhard, “Organisch und unorganisierte, harmonisch und harmonisierten,” in Hunold, Gegen die Brandung, 12. Berghahn, “Ideas into Politics,” 184. Die Grundlagen der Nationalökonomie. Eschenburg, Jahre der Besatzung, 426; Alfred Müller-Armack, “Wirtschaftspolitiker zwischen Wirtschaft und Politik,” in G. Schröder et al., Beiträge, 473. Nicholls, Freedom with Responsibility, 76. Eucken’s father Rudolf was a philosopher who won the Nobel Prize in 1908. Röpke’s father was a doctor. Laitenberger, Nationalökonom, 38–39, 41.

Chapter 2 1 Erhard, “Was jünger Leute wissen sollten,” 1 March 1961, in Gedanken, 667. See also Wünsche, Erhards Konzeption, 32; Rüdiger Altmann and Johannes Gross, “Gespräch über Erhard,” in G. Schröder et al., Beiträge, 23, 25; Lukomski, Mensch, 66; Soell, in Krane, Nach-Denken, 31. 2 Hentschel, Ludwig Erhard, die “Soziale Marktwirtschaft und das Wirtschaftswunder.” Historisches Lehrstück oder Mythos?, 13. 3 Eschenburg, Jahre der Besatzung, 426; Alfred Müller-Armack, “Wirtschaftspolitiker zwischen Wirtschaft und Politik,” in G. Schröder et al., Beiträge, 473. 4 Nicholls, “Erhard,” 416. 5 Hildebrand, Von Erhard, 34; Koerfer, Kampf, 8–9, 423. 6 Hildebrand, Von Erhard, 233; Wünsche, Erhards Konzeption, 26. 7 Koerfer, Kampf, 33. 8 Ibid., 37. 9 Erhard, speech, 21 June 1948, reprinted in DWP, 68, and Gedanken, 126. 10 Erhard, “Neue Aufgaben der europäischen Zusammenarbeit,” speech, Handelshochschule Sankt Gallen, 15 January 1962, in DWP, 618. 11 Klaus Hildebrand, “Ludwig Erhard: Kanzler zwischen Politik und Wirtschaft,” in Krane, Nach-Denken, 13. 12 Johannes Gross, in Schwarz, Epochenwechsel, 15. 13 Erhard, “Freiheit und Verantwortung,” speech to Evangelischen Arbeitskreis of the CDU, Hamburg, 2 June 1961, in Gedanken, 680. 14 Erhard, “Frei Wirtschaft und Planwirtschaft,” Die Neue Zeitung, 14 October 1946, in Gedanken, 70–71; Erhard, “Ausblicke,” Deutsche Zeitung 217

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15 16 17 18

19 20 21 22 23

24 25

26

27 28 29

30 31 32

33

und Wirtschaftszeitung, 17 May 1946, in Gedanken, 46; Erhard, “Sprachverwirrung um die Wirtschaftsordnung,” Die Neue Zeitung, 23 June 1947, in Gedanken, 74–75; Wünsche, Erhards Konzeption, 121. Erhard, Wohlstand, 138. Erhard to Adenauer, Bonn, 24 November 1949, LES NE I 1)1; Erhard, “Sprachverwirrung,” 77. Hildebrand, “Ludwig Erhard,” 373. Erhard, “Wirtschaftliche Ordnung nicht nach Polizeigewalt,” radio speech, 8 December 1945, LES NE 854, also in Gedanken, 57; Erhard, Kriegsfinanzierung, ix. Erhard, Wohlstand, 10. Ibid., 137. Ibid., 159. Ibid., 216. Erhard, “Freiheit und Verantwortung,” 682; Christian Watrin, “Die Tradition freiheitlicher und sozialer Politik,” in Wünsche, Weichenstellung, 14; Lukomski, Mensch, 125. Quoted in Ebenstein, Friedrich Hayek, 242. See also Hayek, Studies, 194. Erhard, speech to the second meeting of the Aktionsgemeinschaft Soziale Marktwirtschaft, Bad Godesberg, 19 November 1953, p. 20, LES NE 459A and 459B. Erhard, “Kartelle im Blickpunkt der Wirtschaftspolitik,” Der Volkswirt, 16 December 1949, in Gedanken, 217, and Wohlstand, 162. See also Abelshauser, “Erhard oder Bismarck?,” 378; Abelshauser, Langen fünfziger, 32; Abelshauser, Wirtschaftsgeschichte, 72; Berghahn, “Ideas into Politics,” 185; Berghahn, Otto A. Friedrich, 156–57; Eschenburg, Jahre der Besatzung, 440; Heinz Lampert, “Wohlstand für alle. Gründzüge der sozialen Marktwirtschaft,” in Krane, Nach-Denken, 58; Volker Hentschel, “Ludwig Erhard — Mann und Mythos,” in Krane, Nach-Denken, 114. Erhard, Wohlstand, 14. Erhard, “Wirtschaft und Wirtschaftsordnung in der modernen Politik,” chapter in Festschrift for Jacques Rueff, 6 June 1966, in Gedanken, 1016. Erhard to Fritz Berg, “Zehn Thesen zur Verteidigung der Kartellverbotsgesetzgebung,” 10 July 1952, Wirtschaft und Wettbewerb 1–2 (1951–52): 733, LES NE 1 4)36, in Gedanken, 354, and DWP, 208. Erhard, “An die eigene Kraft glauben,” speech, 26 April 1953, in Gedanken, 366. Erhard, “Markenwesen und Wettbewerb,” Der Markenartikel, December 1954, 8, BAK B136/703, f. 56. Erhard, “Unternehmer, Staat und Wirtschaft,” speech, Essen, 17 May 1954, in Gedanken, 397–98; Erhard, “Die Ziele des Gesetzes gegen Wettbewerbsbeschränkungen,” speech, Bundestag, 24 March 1955, in Gedanken, 434–35. Erhard, “An die eigene Kraft glauben,” 365.

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34 Erhard, “Zusammenschluß und Wirtschaftssicherheit,” Die Neue Zeitung, 23 September 1946, in Gedanken, 68. 35 Erhard, “Soziale Ordnung schafft Wohlstand und Sicherheit,” speech, Cologne, 26 April 1961, in DWP, 572; Mai, “Erhard’s Social Market Economy,” 334. 36 Erhard, speech to the second meeting of the Aktionsgemeinschaft Soziale Marktwirtschaft, Bad Godesberg, 19 November 1953, p. 13, LES NE 459A, 459B, and NE 80. 37 Erhard, speech, “Freies Unternehmertum und Kartellgesetz,” 16 September 1953, pp. 1–2, LES NE 459A, 459B. 38 Erhard, speech to the second meeting of the Aktionsgemeinschaft Soziale Marktwirtschaft, Bad Godesberg, 19 November 1953, p. 16, LES NE 459A and 459B; Erhard, speech, Hannover, 10 April 1959, pp. 6–7, LES NE 459B; Erhard, Wohlstand, 174. 39 Erhard to Berg, Bonn, 21 January 1953, pp. 1–2, LES NE I 4)36. 40 [Erhard], “Betr. Kartell- bezw. Monopolgesetz,” 4 November 1949, BAK B102/17076/1. 41 Erhard to Adenauer, “Kartellgesetz in binnen- und aussenwirtschaftlicher Betrachtung,” Bonn, 1 July 1954, p. 1, LES NE I 1)3. 42 Erhard, “Kartelle im Blickpunkt der Wirtschaftspolitik,” Der Volkswirt, 16 December 1949, in Gedanken, 217, and Wohlstand, 162. 43 Günther, draft, “Niederschrift über eine Besprechung zwischen Vertretern der Industrie und Prof. Erhard am 17.11.49 in Bonn,” Bonn, 18 November 1949, p. 7, BAK B102/17076/2; Erhard, “Der Stand der Kartelldebatte,” Bonn, 9 July 1954, pp. 5, 7, BAK B102/17084/2; Erhard, “Kartelle im Blickpunkt der Wirtschaftspolitik,” Der Volkswirt, 16 December 1949, in Gedanken, 219–21; Erhard, “Zehn Thesen,” LES NE I 4)36, in Gedanken, 343, and DWP, 202. 44 Erhard, speech, “Freiheit und Dissens,” Aviemore, 1 September 1968, p. 10, LES NE 827. 45 Erhard in meeting of Verwaltungsrat für Wirtschaft on 14 January 1948, quoted in Laitenberger, “Auf dem Weg,” 32. 46 Erhard, “Soziale Ordnung schafft Wohlstand und Sicherheit,” in DWP, 580. 47 Erhard, speech, “Freies Unternehmertum und Kartellgesetzgebung,” 16 September 1953, in Nürnberger Abhandlungen, Heft 4 (Berlin, 1954), 7, in LES NE 80 and 459A. 48 Erhard, “Markenwesen und Wettbewerb,” 3, BAK B136/703, f. 54. 49 Erhard, “Gesetz über ‘Verhinderung wirtschaftlicher Machtzusammenballungen,’” 4 December 1946, p. 3, BAK Z1/650, f. 27. 50 Erhard, speech, “Freies Unternehmertum und Kartellgesetz,” 16 September 1953, p. 22, LES NE 80 and 459A. 51 Erhard, Wohlstand, 65, 133, 171. See also Erhard, “Freies Unternehmertum und Kartellgesetz,” 7. 219

]

N O T E S T O PA G E S 3 5 – 3 7

52 Erhard for Industriekurier, Düsseldorf, 21 December 1953, p. 1, LES NE 459C. 53 Erhard, “Rangordnung der volkswirtschaftlichen Aufgaben,” Die Neue Zeitung, 18, 22 August 1947, in Gedanken, 81. 54 Erhard, “Soziale Ordnung schafft Wohlstand und Sicherheit,” in DWP, 574. 55 Erhard, “Gestern — Heute — Morgen,” recording, 9 June 1961, in Gedanken, 700. It should be emphasized that Erhard supported restitution to the state of Israel and individual Jews living elsewhere and fought a lonely battle to extend the West German statute of limitations for the prosecution of Nazi war criminals. 56 Erhard, “Soziale Ordnung schafft Wohlstand und Sicherheit,” in DWP, 587. 57 Erhard, “Ausblicke,” in Gedanken, 63. 58 Erhard, article in Süddeutsche Zeitung, 12 November 1955, quoted in Wohlstand, 90. 59 Erhard, Wohlstand, 15. 60 Ibid., 16, 90. 61 Erhard, speech, “Kühle Köpfe — starke Herzen,” Goslar, 22 October 1950, in DWP, 146–48, and Gedanken, 252–57. 62 Erhard, speech, “Europäische Einigung durch funktionale Integration,” Paris, 7 December 1954, in Gedanken, 418. 63 Erhard, “Ausblicke,” in Gedanken, 63. 64 Kabinettsprotokolle. Band 1. 1949, 11 October 1949, TOP 1, 114–15. 65 Erhard, “Kühle Köpfe,” in Gedanken, 147–48. 66 Erhard, “Gefahren auf dem Weg zum freien Aussenhandel,” in DWP, 155–59. 67 Erhard, speech, “Zu Fragen der Europäischen Zahlungsunion,” Paris, 30 October 1953, in Gedanken, 390; Erhard, Rückkehr, 5–10. 68 Erhard, “An die eigene Kraft Glauben,” in Gedanken, 367; Eberhard Günther, “Gesetz gegen Wettbewerbsbeschränkungen—Entstehung und Auswerkungen,” in G. Schröder et al., Beiträge, 113, 118. 69 Sonderstelle Geld und Kredit, “Stenographische Bericht der Sitzung vom 19.2.1948,” p. 15, BAK Z32/100, f. 90. 70 Erhard, speech, “Die Arbeit einen Sinn geben,” Hamburg, 14 May 1957, in Gedanken, 503. 71 Erhard, radio speech, “Besinnung und Verantwortung in der Volkswirtschaft,” 12 March 1956, in Gedanken, 474; Erhard, “Wirtschaft und Bildung,” Der Volkswirt, 17 August 1957, in Gedanken, 514. 72 Erhard, Wohlstand, 248. 73 Erhard, speech, “Handwerk hat Zukunft,” Cologne, 2 July 1960, in Gedanken, 629. 74 Wünsche, Erhards Konzeption, 107. 75 Nicholls, Freedom with Responsibility, 394.

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N O T E S T O PA G E S 3 8 – 4 1

76 Erhard, “Zehn Thesen,” LES NE I 4)36, NE 16, also in Gedanken, 351. 77 Erhard, “Soziologie des Kartellproblems,” Deutsche Monatsblatt, 15 February 1954, in Gedanken, 393. 78 Erhard, “Freies Unternehmertum,” 8; Erhard, Aktionsgemeinschaft speech, 17; Deutscher Bundestag, “Kurzprotokoll der 188. Sitzung des Ausschusses für Wirtschaftspolitik (13. Ausschuß) am Donnerstag, den 26. Februar 1953,” Bonn, pp. 7–8, BAK B102/17083/1. 79 “Ludwig Erhard antwortet Otto A. Friedrich, Hamburg, und mit ihm der deutschen Wirtschaft,” Die Welt, 4 January 1950, in Gedanken, 225; “Stenogramm über die Besprechung der Vertreter des Ruhrkohlenbergbaus mit Herrn Bundeswirtschaftsminister Erhard am 1.10.57,” reprinted in Abelshauser, “Kohle und Marktwirtschaft,” 505. 80 Erhard, speech, “Mensch und Fortschritt,” Brussels, 17 April 1958, in Gedanken, 534–35. 81 Erhard, “Die Arbeit einen Sinn geben,” in Gedanken, 498. 82 Erhard, “Die wahren Feinde des deutschen Volkes,” Frankfurter Allgemeine Zeitung, 27 August 1960, in Gedanken, 638. 83 Erhard, “Massenmenschen aus eigener Schuld,” Die Wähler, 1 June 1952, in Gedanken, 343–46. 84 Erhard, “Mensch und Fortschritt,” in Gedanken, 534–35. 85 Hildebrand, Von Erhard, 38, 240. 86 Erhard, speech, “Das Projekt der Freihandelszone,” Paris, 12 February 1957, in Gedanken, 486–87; Erhard, Wohlstand, 280. 87 Erhard, in Hunold, Gegen die Brandung, 15–16; Enders, “Integration oder Kooperation?,” 163. 88 Erhard to Röpke, Bonn, 10 December 1957, LES NE I 4)59. 89 Erhard, “Haben wir aus der jüngsten Geschichte gelernt?,” Die Zeit, 5 December 1961, in Gedanken, 719. 90 Erhard to Adenauer, Bonn, 11 April 1956, p. 15, LES NE I 1)3; Erhard, “Kontinuität,” conversation with William R. Hearst Jr., 20 December 1962, in Gedanken, 781–86. 91 Erhard to Röpke, Bonn, 23 February 1963, pp. 4–6, LES NE I 4)59; Erhard to Adenauer, Bonn, 25 September 1956, LES NE I 1)3; Erhard, “Wer ist ein guter Europäer?,” Deutsche Korrespondenz, 21 July 1955, in Gedanken, 442–45. 92 Kabinettsprotokolle. Band 9. 1956, 620, TOP 1; Erhard, “Europäische Einigung durch funktionale Integration,” in Gedanken, 418. 93 Erhard, speech, “Planification — kein Modell für Europa,” Straßburg, 20 November 1962, in Gedanken, 771–73. 94 Ibid., 779. 95 Erhard, “Not und Elend sind nicht unabänderlich,” Frankfurter Allgemeine Zeitung, 10 November 1976, in Gedanken, 1060–62; Erhard, “Neue Aufgaben der finanziellen Entwicklungshilfe,” Politische-Soziale Korrespondenz, 15 November 1960, in DWP, 516–21; Erhard, speech, “Danken 221

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N O T E S T O PA G E S 4 4 – 5 1

George Marshall,” Frankfurt/Main, 27 October 1963, in Gedanken, 847– 53; Erhard, “Der Mutlose wird stranden,” Bonner Information aus erster Hand, 8 July 1960, in Gedanken, 631–34.

Chapter 3 1 Backer, Priming the German Economy, 188, table 6.1; Erhard, Wohlstand, 62; Görtemaker, Geschichte, 29; Weimer, Wirtschaftsgeschichte, 12, 17– 19. 2 Nicholls, Freedom with Responsibility, 43, 131; Hughes, Shouldering, 26. 3 Ambrosius, Durchsetzung, 15. 4 Ibid., 25; Hughes, Shouldering, 131. 5 Ambrosius, Durchsetzung, 20. 6 Nicholls, Freedom with Responsibility, 15–16, 21. 7 Weimer, Wirtschaftsgeschichte, 56. 8 Nicholls, Freedom with Responsibility, 131. 9 Ambrosius, “Marktwirtschaft,” 93; Nicholls, Bonn Republic, 38; Eschenburg, Jahre der Besatzung, 246–47. 10 Edinger, Schumacher, 10, 15–16, 78–84. 11 Ambrosius, Durchsetzung, 62. 12 Ibid., 14; Görtemaker, Geschichte, 32. 13 Schwarz, Adenauer, 1:2. 14 Ambrosius, Durchsetzung, 15–16; Schwarz, Adenauer, 1:346. 15 Ambrosius, Durchsetzung, 20–21. 16 Ibid., 16. 17 Ibid., 16–18, 33–35; Nicholls, Freedom with Responsibility, 237. 18 Ambrosius, Durchsetzung, 15, 39; Eschenburg, Jahre der Besatzung, 197– 98. 19 Ambrosius, Durchsetzung, 15, 17; Schwarz, Adenauer, 1:374; Weimer, Wirtschaftsgeschichte, 57; Nicholls, Freedom with Responsibility, 234. 20 U.S. Department of State, Germany, 1947–1949, 22–26, 29–30; Görtemaker, Geschichte, 24, 28. 21 Nicholls, Bonn Republic, 12–15, 53. 22 Birke, Nation ohne Haus, 127. See also Backer, Priming the German Economy; Gimbel, The American Occupation of Germany; Balabkins, Germany under Direct Controls. 23 For an example of the mistaken views on this subject, see Caro, Volkskanzler, 105, and Hentschel, Politikerleben, 39. 24 Lukomski, Mensch, 59; Caro, Volkskanzler, 69; Laitenberger, Nationalökonom, 45. 25 Lukomski, Mensch, 59; Laitenberger, Nationalökonom, 44. 26 Erhard, Gutachten zum wirtschaftlichen Wiederaufbau (1945), 30–31, in Gedanken, 53–54, and in LES NE 729; Laitenberger, Nationalökonom, 45. 27 Laitenberger, Nationalökonom, 46. 28 Roland Risse, “Alltag mit Erhard,” in G. Schröder et al., Beiträge, 593.

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29 Laitenberger, Nationalökonom, 461; Lukomski, Mensch, 60–61; Eschenburg, Jahre der Besatzung, 81. 30 Erhard, Kriegsfinanzierung, xxi. 31 Eschenburg, Jahre der Besatzung, 379–81. 32 Lukomski, Mensch, 65. 33 BAK, Akten zur Vorgeschichte, vol. 1, p. 1113, doc. no. 45B. 34 Robert, Konzentrationspolitik, 97. 35 Erhard, “Gesetz über ‘Verhinderung wirtschaftlicher Machtzusammenballungen,’” 4 December 1946, BAK Z1/650, ff. 27–30. 36 “Comment of the Laenderrat Economic Council on the draft law of the American Military Government regarding ‘Prohibition of Excessive Concentrations of Economic Power’ (re letter RGO, dated 19th November 1946),” BAK Z1/650, ff. 7–9. 37 Ambrosius, Durchsetzung, 109. 38 Laitenberger, Nationalökonom, 50. 39 Ibid., 48–51. 40 Metz, Ungleichen, 54. 41 Lukomski, Mensch, 63. 42 Laitenberger, Nationalökonom, 52. 43 Ibid., 47. 44 Ibid., 47, 53; Lukomski, Mensch, 73. 45 Hentschel, Politikerleben, 42; Metz, Ungleichen, 58, 62; Laitenberger, Nationalökonom, 54–55. 46 Laitenberger, Nationalökonom, 56–57; Metz, Ungleichen, 61. 47 Metz, Ungleichen, 61–62. 48 Laitenberger, Nationalökonom, 58–60; Laitenberger, “Auf dem Weg,” 39. 49 Sonderstelle Geld und Kredit, “Protokoll über die 15. Sitzung vom 12.11.1947,” p. 2, BAK Z32/2, f. 61. 50 Ibid. 51 Ibid., pp. 3–4, ff. 62–63. 52 Ibid., p. 4, f. 63. 53 Ibid., p. 5, f. 64. 54 Erhard, “Deutung der Demontage,” Der Wirtschaftsspiegel, 15 November 1947, 425–26, in Gedanken, 83–90. 55 Erhard, “Bestimmungsgründe des deutschen Lebensstandards,” Die Neue Zeitung, 1 December 1947, in Gedanken, 91–94. 56 Sonderstelle Geld und Kredit, “Protokoll über die 34. Sitzung vom 14.1.1948,” pp. 14–15, BAK Z32/4, ff. 15–16. 57 Ibid., p. 15, f. 16. 58 Sonderstelle Geld und Kredit, “Stenographische Bericht der Sitzung vom 25.2.1948, Morgen,” p. 13, BAK Z32/10, f. 88. 59 Ibid., p. 19, f. 94. 60 Ibid., p. 20, f. 95. 61 Ibid., p. 25, f. 100. 223

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N O T E S T O PA G E S 5 9 – 6 7

62 Laitenberger, Nationalökonom, 57. 63 Lukomski, Mensch, 79. 64 Hughes, Shouldering, 33, 38, 51; Laitenberger, Nationalökonom, 61; Hentschel, Politikerleben, 50. 65 Sonderstelle Geld und Kredit, “Stenographische Bericht der Sitzung am 31.3.48. Beginn 9.30 Uhr,” p. 4, BAK Z32/11, f. 96. 66 Ibid., pp. 7, 15, ff. 99, 107. 67 Ambrosius, Durchsetzung, 119–20. 68 Hentschel, Politikerleben, 51. 69 Laitenberger, Nationalökonom, 62–64; Metz, Ungleichen, 59, 111–14, 120–21. 70 Laitenberger, Nationalökonom, 64. 71 Eschenburg, Jahre der Besatzung, 427; Metz, Ungleichen, 122. 72 Länderrat des Vereinigten Wirtschaftsgebietes, “Protokoll der 7. Besprechung der Wirtschaftsminister mit dem Direktor der Verwaltung für Wirtschaft am 19.3.1948,” Frankfurt/Main-Höchst, p. 2, BAK Z4/9, f. 57; G. Hardach, Marshallplan, 249. See also BAK Z13/68. 73 Erhard, “Der Weg in die Zukunft,” in Gedanken, 98. 74 Ibid., 110. 75 Ibid., 111. 76 Ibid., 112–13. 77 Ambrosius, Durchsetzung, 163. 78 Ibid., 161. 79 Ibid., 128. 80 Ibid., 98, 107, 109. 81 Ambrosius, “Marktwirtschaft,” 100–101. 82 Eschenburg, Jahre der Besatzung, 431; Metz, Ungleichen, 125; Ambrosius, Durchsetzung, 173. 83 Miksch, “Das Problem der künftigen Wirtschaftsformen: Gedanken zur Wirtschaftsordnung,” Der Wirtschaftsspiegel (January 1948): 2–7, BAK Z8/23, ff. 1–4. 84 Miksch, draft, “Grundsätze der Wirtschaftspolitik für die der Währungsreform folgende Uebergangsperiode,” II B 1, (Höchst), mid-February 1948, pp. 1–2, BAK Z8/23, ff. 7–8. 85 Ibid. 86 BAK, Akten zur Vorgeschichte, vol. 1, p. 393, doc. no. 35. 87 Laitenberger, “Auf dem Weg,” 38. 88 BAK, Akten zur Vorgeschichte, vol. 4, p. 457, doc. no. 43. 89 Länderrat, Hauptreferat für Wirtschaft und Verkehr, “Kurzbericht über die Besprechung der Stellvertreter des Herrn Wirtschaftsminister und Senatoren des Vereinigten Wirtschaftsgebietes am 20. Mai 1948,” Jt/Fa, Frankfurt/Main, 21 May 1948, p. 1, BAK Z4/9, f. 33. 90 Laitenberger, Nationalökonom, 67–68. Article 2 of the First Implementa-

[ 224

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91 92 93

94

95 96 97 98 99 100 101 102 103 104 105 106 107 108

109 110 111 112 113 114 115

tion Order of the Rationing Law gave the director for economics the power to end rationing of consumer goods. BAK, Akten zur Vorgeschichte, vol. 4, pp. 517–21, doc. no. 51. Ibid., 552–54, doc. no. 55. Wirtschaftsrat Drucksache Nr. 331, “Antrag des Verwaltungsrats. Entwurf eines Gesetzes über die wirtschaftlichen Leitsätze nach der Geldreform,” Frankfurt/Main, 1 June 1948, BAK Z4/7. Jüngst, Länderrat, Hauptreferat für Wirtschaft, Verkehr und Arbeit, “Kurzbericht über die Sitzung des Ausschußes für Wirtschaft des Wirtschaftsrates am 10.6.1948,” p. 2, BAK Z4/11, f. 133. Hentschel, Politikerleben, 69–70. Haffner, “Sitzung des Ausschusses für Wirtschaft,” 17 June 1948, p. 2, BAK Z4/11, f. 11. Laitenberger, Nationalökonom, 67–72; Metz, Ungleichen, 125; Hentschel, Politikerleben, 69. Laitenberger, Nationalökonom, 69. Ibid., 71; Koerfer, Kampf, 49; Lukomski, Mensch, 94; J. Smith, Lucius Clay, 485–86. Hentschel, Politikerleben, 73; Laitenberger, Nationalökonom, 72; Ambrosius, Durchsetzung, 183. Erhard, “Der Neue Kurs,” radio speech, 21 June 1948, in Gedanken, 126. See also Erhard, Deutsche Wirtschaftspolitik, 62–68. Erhard, “Der Neue Kurs,” 121. Ibid., 123. Ibid. Ibid., 124. Laitenberger, Nationalökonom, 72–73; Ambrosius, “Marktwirtschaft,” 102; Ambrosius, Durchsetzung, 183. Ludwig-Erhard-Stiftung, Die deutsche Wirtschaftsordnung 50 Jahre nach dem Leitsätzegesetz, 117–19. Also in BAK Z4/569, ff. 142–44. Erhard, Wohlstand, 29; Kramer, West German Economy, 148; Wallich, Mainsprings, 70; Weimer, Wirtschaftsgeschichte, 44–45; Abelshauser, Wirtschaftsgeschichte, 74–75; Webber and Wildavsky, History of Taxation, 535–38. Laitenberger, “Auf dem Weg,” 29 n. 3. Metz, Ungleichen, 136–37; Hentschel, Politikerleben, 75. Mensing, Adenauer Briefe 1947–1949, p. 609, no. 984. Ambrosius, Durchsetzung, 185–87. Metz, Ungleichen, 165. Erhard, “Generalstreik zur Rettung eines unhaltbaren Dogmas,” radio speech, 11 November 1948, in Gedanken, 162–65. Erhard, “Im Streitgespräch mit Erik Nölting,” Frankfurt/Main, 14 November 1948, in Gedanken, 166–81.

225

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N O T E S T O PA G E S 7 4 – 8 0

116 Görtemaker, Geschichte, 82. 117 Erhard, “Memorandum betreffend vertragliche Festlegung der Verbraucherhöchstpreise,” 10521, 3 December 1948, BAK Z13/937. 118 Erhard, “Die wirtschaftliche Lage zu Beginn des Jahres 1949,” radio speech, 25 January 1949, in Gedanken, 182–85; Erhard, “Das Ende der Improvisationen,” Der Tagesspiegel, 23 April 1949, in Gedanken, 201–5. 119 Abelshauser, Langen fünfziger, 117. 120 “Sitzung des Ausschusses für Wirtschaft am 18. Januar 1949,” Frankfurt/ Main, Protokoll no. 34, pp. 4–5, BAK Z4/12, ff. 109–10; Ambrosius, Durchsetzung, 184. 121 Nicholls, Freedom with Responsibility, 130. 122 BAK, Akten zur Vorgeschichte, vol. 5, p. 1063, doc. no. 78, n. 20. 123 Nicholls, Freedom with Responsibility, 208, 211. 124 G. Hardach, Marshallplan, 250–51. 125 Ambrosius, “Marktwirtschaft,” 100. 126 BAK, Akten zur Vorgeschichte, vol. 4, pp. 410–11, doc. no. 37. 127 Ambrosius, “Marktwirtschaft,” 99. 128 Dr. Martini, “Besprechung über den Marshall-Plan vom 1.7. im I. G. Gebäude,” Frankfurt/Main, 1 July 1948, BAK Z14/4; G. Hardach, Marshallplan, 252. 129 “Vermerk über die Besprechung mit dem Staatssekretär im Armeedepartment in Washington Mr. Vorhees [sic] vom 9. August 1948 im I. G. Gebäude,” Frankfurt/Main, 17.4 [sic] 1948, p. 2, BAK Z14/4. 130 Dr. Martini, “Vermerk über die Besprechung im I. G. Haus vom 13.8.1948,” Frankfurt/Main, 14 August 1948, p. 2, BAK Z14/4. 131 Ambrosius, “Marktwirtschaft,” 107. 132 This remarkable statement was unearthed by A. J. Nicholls. See his Freedom with Responsibility, 221. 133 Ibid., 222. 134 E. Günther, “Entwurf,” 26; Robert, Konzentrationspolitik, 86; Gillen, Deconcentration, 5–10, 23–24; Martin, All Honorable Men, 6–7, 13–16, 28– 37, 155–56; Clay, Papers of General Lucius D. Clay, 126; Stokes, Divide and Prosper, 43–44, 46. 135 Martin, All Honorable Men, 178. 136 Balabkins, Germany under Direct Controls, 129. 137 Martin, All Honorable Men, 190. 138 E. Günther, “Entwurf,” 23–24. 139 Ibid., 25. 140 Ibid., 26; Gillen, Deconcentration, 24; Martin, All Honorable Men, 199. 141 E. Günther, “Entwurf,” 28. 142 LTC G. H. Garde to military governors, “Military Government Law Entitled ‘Prohibition of Excessive Concentration of German Economic Power,’” Law No. 56, 10 February 1947, BAK Z1/735, ff. 128–30; Gillen,

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143 144

145

146

147

148

149

Deconcentration, 26–30; E. Günther, “Entwurf,” 28. Also in U.S. Department of State, Germany, 1947–1949, 344–48. U.S. Department of State, Germany, 1947–1949, 34–35, 37–38; Robert, Konzentrationspolitik, 91. Garland S. Ferguson to Kenneth C. Royall, “Report of the Committee Appointed to Review the Decartelization Program in Germany,” Washington, 15 April 1949, 63, National Archives, Washington, D.C., RG 331, box 6339; Martin, All Honorable Men, 257–61; Gillen, Deconcentration, 51–52, 63; Peterson, The American Occupation of Germany, 129. G. N. Macready, C. L. Adcock to chair of Verwaltungsrat, “Decartelization,” BICO/Memo (48)58, Frankfurt/Main, 4 August 1948, BAK Z13/936 and 937. Erhard to Pünder, “Konzernentflechtung, Hier: Errichtung einer deutschen Abteilung des Zweimächteausschusses für Dekartellisierungsfragen,” I B 5 (L401443/48), Frankfurt/Main-Höchst, BAK Z13/936 and 937; “Besprechung der Militärgouverneure mit bizonalen Vertretern in Frankfurt/ Main,” 15 September 1948, BAK, Akten zur Vorgeschichte, vol. 4, p. 796, doc. no. 85; “Besprechung der Militärgouverneure mit bizonalen Vertretern in Frankfurt/Main,” 15 November 1948, BAK, Akten zur Vorgeschichte, vol. 4, pp. 944–45, doc. no. 99; Sahm to Krautwig, “Dekartellisierung,” Frankfurt/Main, 27 July 1949, BAK Z13/937. Eberhard Günther, “Interner Vermerk über eine Besprechung zwischen dem Ferguson-Comitee zur Untersuchung der Tätigkeit der amerikanischen Militärregierung in Deutschland und Herrn Prof. Dr. Erhard am 21.12.1948 im IG-Hochhaus,” I B 6, Frankfurt/Main-Höchst, 22 December 1948, BAK Z13/936. Wirtschaftsrat des Vereinigtenwirtschaftsgebietes, Drucksachen 1949, no. 1093, 9 April 1949, “Mitteilung der Militärregierung, 29 March 1949, BICO/Memo (49)30 to president of Wirtschaftsrat and chair of Länderrat, ‘Deutsche Teilnahme an der Entkartellisierung,’” BAK B102/17073. Also in BAK B102/17071/4, B102/17076/1, B102/17083/2, B102/17088, and G. N. Macready, C. L. Adcock to chair Bizone Verwaltungsrat, Länderrat, “German Participation in Decartelization,” 29 March 1949, BAK Z13/937; E. Günther, “Entwurf,” 29. Eberhard Günther, “Vermerk über eine Besprechung betr. Die Vorlage eines deutschen Gesetzes gegen Handelsmißbrauchs und die Einrichtung einer deutschen Durchführungskommission zu diesem Gesetz am Mittwoch, dem 18.5.49 in der ‘Insel,’” Vertraulich, I B 6/Dr. Gü/Bru, Frankfurt/Main-Höchst, 20 May 1949, pp. 2–3, BAK B102/17076/1; Günther, “Vermerk einer Besprechung über eine Besprechung über die Schaffung eines deutschen Kartellgesetzes am 28.6.1949 im Rektorat der Universität Frankfurt,” Frankfurt/Main-Höchst, 30 June 1949, pp. 6–7, BAK B102/ 17071/3, also in BAK B102/17076/1; Günther, “Vermerk über zwei Be-

227

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150

151

152 153 154 155 156

157 158 159 160 161

sprechungen mit dem Leiter des amerikanischen Dekartellierungs-Abteilung Colonel Bronson über die Grundlage des deutschen DekartellierungsGesetzes,” I B 6, Dr. Gü/Schw, Frankfurt/Main-Höchst, 22 July 1949, BAK B102/17076/1. Ambrosius, Durchsetzung, 26–28, 96–97; Schwarz, Adenauer, 1:356, 373; Eschenburg, Jahre der Besatzung, 149, 436–37; Köhler, Adenauer, 1:79, 142, 397–98. Adenauer to Maria Meyer-Sevenich, 2 May 1948, in Mensing, Adenauer Briefe 1947–1949, 224–25, no. 835. Meyer-Sevenich, who began her political career as a Marxist, was a cofounder of the CDU in Hessen and a member of the state legislature in Lower Saxony for the SPD at the time that this letter was written. See Mensing, Adenauer Briefe 1945–1947, 607. Metz, Ungleichen, 132–33. Adenauer to Erhard, 9 August 1948, in Mensing, Adenauer Briefe 1947– 1949, 287, no. 919. See also no. 964, 4 October 1948. Metz, Ungleichen, 175–78. Adenauer to Friedrich Holzapfel, 12 February 1949, in Mensing, Adenauer Briefe 1947–1949, 406, no. 1085. Erhard, “Grundlagen der deutschen Wirtschaftspolitik,” speech before the Zone Committee of the CDU of the British zone, Königswinter, 25 February 1949, in Gedanken, 192–93. Ibid., 193. Ibid., 197. Metz, Ungleichen, 186. Hentschel, Politikerleben, 84–85. Eschenburg, Jahre der Besatzung, 529, 535; Koerfer, Kampf, 59; Schwarz, Adenauer, 1:423.

Chapter 4 1 2 3 4

5 6 7 8 9 10

Hans-Herbert Weber, in Wünsche, Korea-Krise, 146. Metz, Ungleichen, 234–40; Lukomski, Mensch, 126. Metz, Ungleichen, 131. Eschenburg, Letzten Endes, 172; Klaus Hildebrand, “Ludwig Erhard: Kanzler zwischen Politik und Wirtschaft,” in Krane, Nach-Denken, 19; Rüdiger Altmann and Johannes Gross, “Gespräch über Erhard,” in G. Schröder et al., Beiträge, 28–29; Hentschel, Politikerleben, 42. Koerfer, Kampf, 794. Wolfram Langer, “Ohne Erhard sähe Deutschland anders aus,” in Wünsche, Weichenstellung, 191–92. Schwarz, Gründerjahre, 41. Laitenberger, Nationalökonom, 85. Kabinettsausschuß für Wirtschaft 1951–1953, 21. Sitzung, TOP 7, note 15, p. 52. Hentschel, Politikerleben, 94; Metz, Ungleichen, 244.

[ 228

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11 Hentschel, Politikerleben, 117; Laitenberger, Nationalökonom, 98–99, 105–6. 12 G. Hardach, Marshallplan, 287–88; Schwarz, Adenauer, 1:499. 13 Röpke, Ist die Deutsche Wirtschaftspolitik richtig?, 10, 18–19. 14 Schwarz, Gründerjahre, 61; Lukomski, Mensch, 127–28; Hentschel, Politikerleben, 98–102. 15 Kabinettsausschuß für Wirtschaft 1951–1953, 80–81. 16 Schwarz, Gründerjahre, 77. 17 Ibid., 85; Erhard, Wohlstand, 45; Hentschel, Politikerleben, 112–17; Laitenberger, Nationalökonom, 91–92; Abelshauser, Langen fünfziger, 20; Abelshauser, Wirtschaftsgeschichte, 66–67; Lukomski, Mensch, 129. 18 Abelshauser, Wirtschaftsgeschichte, 64, table 11. 19 Erhard, “Zehn Thesen zur Verteidigung der Kartellverbotsgesetzgebung. Offener Brief an den Präsidenten des Bundesverbandes der deutschen Industrie Fritz Berg,” 10 July 1952, in Gedanken, 351, and in LES NE I 4)36 and NE 16; Hentschel, Politikerleben, 142. 20 Schwarz, Gründerjahre, 129; Lukomski, Mensch, 151. 21 Ehrlicher, “Deutsche Finanzpolitik seit 1945,” 6. 22 Erhard, Wohlstand, 47, 63–64, 67; Abelshauser, Wirtschaftsgeschichte, 73–75; Schwarz, Gründerjahre, 86; Kabinettsprotokolle. Band 4. 1951, 289, TOP 1, 681–82, TOP 1; Webber and Wildavsky, History of Taxation, 535–38. 23 Matthias Schmitt, “Aussenwirtschaftsprobleme der Bundesrepublik während der Korea-Krise,” in Wünsche, Korea-Krise, 56–57; Schlarp, “Das Dilemma des Westdeutschen Osthandels und die Entstehung des Ost-Ausschußes der Deutschen Wirtschaft 1950–1952,” 232–34, 237–38, 262–63; Kabinettsprotokolle. Band 4. 1951, 806–7. 24 Kabinettsausschuß für Wirtschaft 1951–1953, 17. 25 Erhard to subordinates, “Zur wirtschaftspolitischen Lage,” 15 September 1950, LES NE 185A, reprinted in Wünsche, Korea-Krise, 185–90, doc. no. 2. 26 Hentschel, Politikerleben, 171. 27 Ibid., 97; Laitenberger, Nationalökonom, 131. 28 Weimer, Wirtschaftsgeschichte, 89–90. 29 Hentschel, Politikerleben, 134. 30 Erhard to Vocke, “Geld- und Kreditpolitik,” 2 August 1950, LES NE I 4)71, reprinted in Wünsche, Korea-Krise, 183–84, doc. no. 1. 31 G. Hardach, Marshallplan, 299–305; Laitenberger, Nationalökonom, 100– 101. 32 Erhard, “Kühle-Köpfe — Starke Herzen,” speech to CDU national congress in Goslar, 22 October 1950, in Gedanken, 252–67. 33 Erhard, “Vermerk zu der Frage, ob steuerliche Maßnahmen zur Förderung der Ausfuhr erforderlich sind,” 26 October 1950, BAK B134/3268, reprinted in Wünsche, Korea-Krise, 199–201, doc. no. 6. 229

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N O T E S T O PA G E S 1 0 0 – 1 0 5

34 Kabinettsprotokolle. Band 3. 1950 Wortprotokolle, 806–7; also reprinted in Wünsche, Korea-Krise, 205–6, doc. no. 8. 35 G. Hardach, Marshallplan, 306; Hentschel, Politikerleben, 147–48. 36 “Besprechung zwischen Ludwig Erhard (Bundesminister für Wirtschaft) und dem Wirtschaftsausschuß der Allierten Hohen Kommission (Vorsitz General McReady) auf dem Petersberg bei Bonn,” 19 October 1950, BAK B102/12580/2, reprinted in Wünsche, Korea-Krise, 197–98, doc. no. 5; Erhard to Adenauer, “Vorlage betr. Aufbringung von Mitteln für die unerläßlichen Investitionen in den deutschen Grundstoff- und Schlüsselindustrien,” 7 February 1951, LES NE I 1)2, reprinted in Wünsche, Korea-Krise, 248–55, doc. no. 16; Adenauer to v. Brentano, in Mensing, Adenauer Briefe 1951–1953, 42, no. 15; Erhard, Wohlstand, 54; Volkhard Laitenberger, “Einführung,” in Wünsche, Korea-Krise, 162; Laitenberger, Nationalökonom, 101–3; Hentschel, Politikerleben, 146–48, 154; Nicholls, Freedom with Responsibility, 282; Abelshauser, Langen fünfziger, 23. 37 Laitenberger, Nationalökonom, 101–3; Hentschel, Politikerleben, 146–48, 154. 38 G. Hardach, Marshallplan, 313; Abelshauser, “Ansätze,” 726–27; Abelshauser, Langen fünfziger, 23; Abelshauser, Wirtschaftsgeschichte, 82. 39 Erhard, “Korea,” radio speech, 15 September 1950, in Gedanken, 242–47. 40 Kabinettsprotokolle. Band 2. 1950, photo 7, also in Mensing, Adenauer Briefe 1949–1951, 297–98, no. 335. 41 Erhard, “Rückblick und Ausblick,” Rheinischer Merkur, 1 January 1951, in Gedanken, 269–73. 42 Erhard, “Zum amerikanischen Lohn- und Preisstop,” radio speech, 27 January 1951, in Gedanken, 274–77. 43 McCloy to Adenauer, Bonn, 6 March 1951, BAK B102/12580/1, reprinted in Abelshauser, “Ansätze,” 734–38, doc. 1, and in Wünsche, Korea-Krise, 288–92, doc. no. 27. 44 Kabinettsausschuß für Wirtschaft 1951–1953, 13, also in Erhard, Gedanken, 278–92, and Wünsche, Korea-Krise, 301–29, doc. no. 33. 45 Adenauer to McCloy, Bonn, 27 March 1951, BAK B102/12580/2, reprinted in Abelshauser, “Ansätze,” 739–49. 46 Roland Risse, in Wünsche, Korea-Krise, 92; Ottmar Emminger, “Ordnungs- und währungspolitische Probleme während der Korea-Krise,” in Wünsche, Korea-Krise, 23, 144. 47 Adenauer to Erhard, Bonn, 30 November 1949, in Mensing, Adenauer Briefe 1949–1951, 140, no. 148. 48 Cabinet meeting of 17 October 1950, Kabinettsprotokolle. Band 3. 1950, 44–46. 49 Kabinettsausschuß für Wirtschaft 1951–1953, 20. 50 Ibid. 51 Adenauer to Erhard, Rhöndorf, 24 February 1951, in Mensing, Adenauer Briefe 1949–1951, 351–52. Original in LES I 1)2.

[ 230

N O T E S T O PA G E S 1 0 5 – 1 0

52 Hentschel, Politikerleben, 150. 53 Erhard to Adenauer, “Koordinierung der Wirtschaftspolitik,” 2 March 1951, LES NE I 1)2, reprinted in Wünsche, Korea-Krise, 282, doc. no. 24. 54 Adenauer to Erhard, “Koordinierung der Wirtschaftspolitik,” 4 March 1951, LES NE I 1)2, reprinted in Wünsche, Korea-Krise, 283, doc. no. 25. 55 Adenauer to Erhard, Bonn, 19 March 1951, LES NE I 1)2, reprinted in Wünsche, Korea-Krise, 341–42, doc. no. 37, and Mensing, Adenauer Briefe 1951–1953, 26–32, no. 3. See also Schwarz, Adenauer, 1:566–67; Laitenberger, Nationalökonom, 104–5. 56 Erhard to Adenauer, Bonn, 19 March 1951, LES NE I 1)2, reprinted in Wünsche, Korea-Krise, 343–45, doc. no. 38. 57 Kabinettsausschuß für Wirtschaft 1951–1953, 19–25. 58 Abelshauser, Wirtschaftsgeschichte, 64, table 11; G. Hardach, Marshallplan, 294, table 8; 298, table 9; Weimer, Wirtschaftsgeschichte, 91–93. 59 Erhard, Wohlstand, 60–61, 64; Erhard, Deutschlands Rückkehr, 148–49, 234–35; Laitenberger, Nationalökonom, 101; Matthias Schmitt, “Aussenwirtschaftsprobleme der Bundesrepublik während der Korea-Krise,” in Wünsche, Korea-Krise, 59–61. 60 Lukomski, Mensch, 160. 61 [Erhard], “Betr. Kartell- bezw. Monopolgesetz,” 4 November 1949, BAK B102/17076/1. 62 Günther, draft, “Niederschrift über eine Besprechung zwischen Vertretern der Industrie und Prof. Erhard am 17.11.49 in Bonn,” Bonn, 18 November 1949, BAK B102/17076/2. 63 Erhard to Adenauer, Bonn, 24 November 1949, p. 2, LES NE I 1)1. 64 [Erhard], statement to Bundestag on third draft of cartel law, late November 1949, BAK B102/17076/4. 65 BMWi, “Unterschiede des Gesetzesentwurfs zur Sicherung des Leistungswettbewerbs (Josten-Entwurf) und des Gesetz gegen Wettbewerbsbeschränkungen (Entwurf Günther, Petrick, Sievers),” Frankfurt/MainHöchst, 5 December 1949, BAK B102/17075 and 17078/1. On the relationship to U.S. antitrust law, see Mierzejewski, “America as Model?,” 220–21. 66 Kabinettsprotokolle. Band 2. 1950, 118. 67 Ibid., 125–26. 68 Ollenhauer u. (SPD) Fraktion, Antrag, “Entwurf eines Gesetzes gegen den Mißbrauch wirtschaftlicher Macht,” Drucksache Nr. 405, Bonn, 18 January 1950, Anlage 6 to Petrick, Sievers, “Bericht,” Düsseldorf, 25 October 1950, BAK B102/17083/2; Robert, Konzentrationspolitik, 140, 143. 69 “Auszug aus der Rede des Botschafter und Hohen Kommissars der Französischen Republik in Dortmund, Herrn André François-Poncet in Kassel am 24. Januar 1950,” BAK B102/17095. 70 Günther, “Vermerk über Besprechungen bei der Decartelization und Industrial Deconcentration Commission der HICOG am 17. März 1950,” 231

]

N O T E S T O PA G E S 1 1 0 – 1 2

71

72

73

74 75

76 77 78

79

80

I B 6 - 363 002 - 648/50, Frankfurt/Main-Höchst, pp. 1–2, BAK B102/ 17090. Günther, “Aktenvermerk über eine Besprechung bei DIDEC (US) am 18.2.1950,” I B 6 - 362 002/363 001 - 497/50, Frankfurt/Main-Höchst, 22 February 1950, BAK B102/17090. Günther, “Vermerk über eine Besprechung mit dem Chief Legal Division der amerikanischen Hohen Kommission (20.3.1950),” I B 6 - 363 002/706/ 50, Frankfurt/Main-Höchst, 21 March 1950, BAK B102/177090. BMWi, “Richtlinien für den Entwurf eines Gesetzes gegen Wettbewerbsbeschränkungen,” May 1950, reprinted in E. Günther, “Entwurf,” 39–40, Anlage 4. Berg to Erhard, “Gesetz gegen Wettbewerbsbeschränkungen,” Altena, 22 June 1950, LES NE I 4)36. Erhard to Berg, Bonn, 3 July 1950, LES NE I 4)36. On the trip of the cartel law study group to the United States, see Mierzejewski, “America as Model?,” 221; Institut zur Förderung öffentlicher Angelegenheiten e.V., “Vortrag von Reg.-Direktor Dr. Eberhard Günther über ‘Erkenntnisse aus der Amerikareise der Kartellkomission,’” 13 November 1950, Frankfurt/ Main, BAK B102/17097/3; “Bericht der deutschen Kommission zum Studium von Kartell- und Monopolfragen in den Vereinigten Staaten,” reprinted in Platow-Brief, 23 August 1950, BAK B102/17096; Franz Böhm, “Vorläufiger Bericht der deutschen Kommission zum Studium von Kartell- und Monopolfragen in den Vereinigten Staaten,” 29 December 1950, BAK B136/700, ff. 329–40. See also Berghahn, Friedrich, 112–13; Berghahn, Americanisation, 168–69; and Berghahn, “Amerikanisierung,” 243, 248–49. L. Handley-Derry to Dittmann in Bundeskanzleramt, AGSEC(50)1459, Bonn, Petersberg, 11 July 1950, BAK B102/17095. Office of the American High Commissioner in Germany, “Decartelization and Industrial Decentralization,” 28 July 1950, BAK B102/17090. Günther, “Vermerk über die Besprechung bei der Decartelization and Industrial Deconcentration Commission in Germany (amerikanischer Teil) am 14.9.1950 in Frankfurt/M,” I B 5 - 363 003 - 1644/50, Bonn, 22 September 1950, BAK B102/17090; “Von Dr. Günther am 14.9. telefonisch durchgegeben. Besprechung am 14.9.1950, 10:00 Uhr, im IG. Hochhaus,” BAK B102/17090. Günther, “Vermerk über die Besprechung mit Vertretern der Allierten Hohen Kommission am 17.10. auf dem Petersburg über den Entwurf eines Gesetzes gegen Wettbewerbsbeschränkungen,” I B 5 - 363 006 - 1770/50, Bonn, 18 October 1950, BAK B102/17090, B136/700, ff. 197–203; Robert, Konzentrationspolitik, 133. BDI, “Entschliessung des Bundesverbandes der Deutschen Industrie zum Entwurf eines Gesetzes gegen Wettbewerbsbeschränkungen,” Cologne, 9 November 1950, BAK B136/700, ff. 342–47.

[ 232

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81 Epphardt, “Kurzvermerk über eine Besprechung mit Präsident Berg, Dr. Jung, Dr. Beutler, Dr. Niemeier und anderen Herrn des Bundesverbandes der deutschen Industrie über den Kartellgesetzentwurf,” Bonn, 31 January 1951, BAK B102/17076/4. 82 Robert, Konzentrationspolitik, 97. See also BAK B102/17081/4. 83 Kabinettsausschuß für Wirtschaft 1951–1953, 85–86, 7. Sitzung, 6 July 1951, TOP 7. 84 Günther, “Vermerk. Btr.: Besprechung über den Entwurf eines Gesetzes gegen Wettbewerbsbeschränkungen mit Vertretern der Decartelization und Industrial Deconcentration Division der HICOG am 13.8.1951 in Frankfurt/M., IG-Hochhaus,” I B 5 - 363 003, Bonn, 14 August 1951, p. 3, BAK B102/17079/2. 85 Kabinettsausschuß für Wirtschaft 1951–1953, 123–28, 14. Sitzung, 24 October 1951, TOP 3. 86 Kabinettsprotokolle. Band 4. 1951, 743–44, 184. Sitzung, 7 November 1951, TOP 5; Günther to Rust, Bonn, 17 January 1952, BAK B136/701, ff. 120–22; Günther, “Vermerk über eine Besprechung mit Brigadier Oxborrow über allierte Änderungswünsche zum Entwurf eines Gesetzes gegen Wettbewerbsbeschränkungen,” I B 5, Bonn, 24 January 1952, BAK B102/ 17090; Kabinettsprotokolle. Band 5. 1952, 120–22, 203. Sitzung, 22 February 1952, TOP 4; Robert, Konzentrationspolitik, 158, 161–63. 87 Erhard, “Zehn Thesen zur Verteidigung der Kartellverbotsgesetzgebung. Offener Brief an den Präsidenten des Bundesverbandes der deutschen Industrie Fritz Berg.” 88 Berg to Erhard, 6 October 1952, printed in Wirtschaft und Wettbewerb (1952): 857–69, LES NE 16. 89 Guido Ziersch to Adenauer, Wuppertal-Barmen, 13 January 1953, BAK B136/701, ff. 366–69; Kabinettsprotokolle. Band 6. 1953, 124–25, 270. Sitzung, TOP A. 90 Erhard to Berg, Bonn, 21 January 1953, LES NE I 4)36. 91 [BMWi], “Änderungserfordernisse zum Kartellgesetzentwurf,” Vertraulich, 18 April [1953], BAK B102/17083/1; Günther to Ulrich Meyer-Cording, 24 February 1953, p. 2, BAK B102/192483. 92 Günther, “Vermerk über eine Besprechung mit Mitgliedern der Amerikanischen Hohen Kommission am 25.11.1952,” I B 5, 27 November 1952, BAK B102/17090; Günther, “Vermerk über eine Besprechung mit dem Leiter der amerikanischen Kartellabteilung bei HICOG über Fragen der Preisbindung der zweiten Hand am 5.3.1953 in Mehlem,” I B 5, Bonn, 9 March 1953, BAK B102/17090; Günther, “Vermerk über eine Besprechung mit Vertretern der amerikanischen Hohen Kommission in Mehlem am 23.4.1953, 9.30 Uhr,” I B 5, 28 April 1953, BAK B102/17090. 93 Robert, Konzentrationspolitik, 227. 94 Lindlar, Wirtschaftswunder, 220; Hughes, Shouldering, 28. 95 Kabinettsprotokolle. Band 1. 1949, 132–34. 233

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N O T E S T O PA G E S 1 1 6 – 2 6

96 97 98 99 100 101 102 103 104 105 106

107

Ibid., 44. Hockerts, “Integration der Gesellschaft,” 35. Kabinettsprotokolle. Band 2. 1950, 651–53. Kabinettsausschuß für Wirtschaft 1951–1953, 142–43, 17. Sitzung, 21 February 1952, TOP 2. Lindlar, Wirtschaftswunder, 221; Lukomski, Mensch, 156. Lindlar, Wirtschaftswunder, 218, table 5.9. Sommariva and Tullio, German Macroeconomic History, 55, table 1.24. Schwarz, Gründerjahre, 85, 327–28. Lindlar, Wirtschaftswunder, 49, 334–35; Hentschel, Politikerleben, 165– 70; Ambrosius, Durchsetzung, 182. Hentschel, Politikerleben. Abelshauser, Wirtschaftsgeschichte, 24, 32, 44, 46–47, 51, 63, 86–92, 94– 98. See also the rebuttal in Klump, Wirtschaftsgeschichte der Bundesrepublik Deutschland, 29–53. For proof of this, see Ritschl, “Währungsreform.”

Chapter 5 1 Schumpeter, Capitalism, Socialism and Democracy, 131–63. 2 Hayek, The Road to Serfdom. 3 On Die Waage, see Spicka, “Gender, Political Discourse, and the CDU/ CSU Vision of the Economic Miracle, 1949–1957,” and “Selling the Economic Miracle: Public Opinion Research, Economic Reconstruction, and Politics in West Germany, 1949–1957.” 4 Erhard, Wohlstand, 240–42; Hentschel, Politikerleben, 194. 5 Nicholls, Freedom with Responsibility, 362, tables 4 and 5; Erhard, DWP, 622–23; Schwarz, Gründerjahre, 320–21. 6 BMWi, “Bericht über die wirtschaftliche Lage und die wirtschaftspolitischen Probleme und Aufgaben in der Bundesrepublik,” Bonn, 31 October 1953, BAK B136/1358. See also Hentschel, Politikerleben, 201. 7 Kabinettsprotokolle. Band 6. 1953, 492, TOP 1. 8 Erhard to Adenauer, Bonn, 7 July 1954, LES NE I 1)3; also in ACDP I-236029/2. 9 Schwarz, Gründerjahre, 324–25. 10 Kabinettsausschuß für Wirtschaft 1954–1955, 322, TOP 1; Erhard, Wohlstand, 94. 11 Erhard, “Ein wirtschaftliches Gebot,” radio speech, 7 September 1955, in Gedanken, 446–50; Erhard, “Zur Arbeitszeitfrage,” Bunte Illustrierte (May 1955), in Gedanken, 440–41; Kabinettsausschuß für Wirtschaft 1954– 1955, 374–75. 12 Erhard, “Regierungserklärung zur konjunkturpolitischen Lage,” 10 October 1955, in DWP, 291–301; Kabinettsprotokolle. Band 8. 1955, 621–22, TOP D. 13 Kabinettsprotokolle. Band 8. 1955, 647–48, TOP D 5.

[ 234

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14 Kabinettsprotokolle. Band 9. 1956, 96–97, TOP A. 15 Ibid., 243, TOP 2. 16 Adenauer to Erhard, 17 March 1956, in Mensing, Adenauer Briefe 1955– 1957, 166–68, no. 124. 17 Adenauer to Erhard, 21 March 1956, in ibid., 169–71, no. 126. 18 Erhard to Adenauer, Bonn, 11 April 1956, p. 2, LES NE I 1)4. 19 Ibid., p. 13. 20 Kabinettsprotokolle. Band 9. 1956, 352, TOP 1. 21 Koerfer, Kampf, 112–13. 22 Kabinettsprotokolle. Band 8. 1955, 548–49, TOP D. 23 Adenauer to Pferdmenges, 18 May 1956, in Mensing, Adenauer Briefe 1955–1957, 201, no. 158. 24 Kabinettsausschuß für Wirtschaft 1956–1957, 530–33, appendix 1, doc. 5. 25 Koerfer, Kampf, 113. 26 Erhard to Adenauer, 22 May 1956, LES NE I 1)4, reprinted in ibid., 113– 15. 27 Adenauer to Erhard, Bonn, 22 May 1956, in Mensing, Adenauer Briefe 1955–1957, 203–4, no. 160. 28 Schwarz, Gründerjahre, 323. 29 Kabinettsprotokolle. Band 9. 1956, 377–82, 24 May 1956, TOP 1. 30 Kabinettsausschuß für Wirtschaft 1956–1957, 180, 184, 5 June 1956, TOP 1. 31 Kabinettsprotokolle. Band 9. 1956, 399, 6 June 1956, TOP 4. On the controversy stemming from Adenauer’s criticisms in spring 1956, see Köhler, Adenauer, 2:368–74. 32 Kabinettsprotokolle. Band 9. 1956, 434–40, 19 June 1956, TOP 2. 33 Erhard, “Regierungserklärung zur konjunkturpolitischen Lage,” 22 June 1956, in DWP, 311–27. 34 Kabinettsausschuß für Wirtschaft 1956–1957, 232–33, 27 July 1956, TOP 1. 35 Erhard, “Zur Suez Krise,” radio speech, 30 November 1956, in DWP, 328– 32. 36 Erhard to State Secretary in Federal Chancellor’s Office, “Preisentwicklung in der Bundesrepublik,” I B 1 - 8672/56, Bonn, 19 January 1957, BAK B136/769, 346–50. 37 Quoted by Albrecht Düren, “Ludwig Erhards Verhältnis zu organisierten wirtschaftlichen Interessen,” in G. Schröder et al., Beiträge, 61. 38 Erhard, “Freies Unternehmertum und Kartellgesetz,” speech, Nuremberg, 16 September 1953, p. 10, LES NE 459A, also in NE 80. 39 Ibid., 15–16. 40 Ernst-Joachim Mestmäcker, “Konstituierung und Sicherung der Wettbewerbsordnung,” in Wünsche, Weichenstellungen, 58. 41 Müller-Armack to Erhard, “Entwicklung der Kartellfrage,” I B 5 - 363 001, Bonn, 9 July 1954, p. 5, BAK B136/702, f. 232. 235

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42 Epphardt to L 2, “Gesetzesvorhaben —hier: Entwurf eines Gesetzes gegen Wettbewerbsbeschränkungen,” Bonn, 29 October 1953, BAK B102/192483. 43 Erhard, speech to the second meeting of the Aktionsgemeinschaft Soziale Marktwirtschaft, Bad Godesberg, 19 November 1953, LES NE 459A and NE 459B. 44 “Rede Präsident Berg bei der Industrie- und Handelskammer Hagen am 4. Dezember, (1953) 17.00 Uhr,” BAK B136/701, ff. 388–99. 45 Erhard to Adenauer, Bonn, 7 December 1953, LES NE I 1)3. 46 Haenlein to Globke, “Entwurf des Kartellgesetzes,” Bonn, 17 December 1953, BAK B136/701, 400; Berghahn, Otto A. Friedrich, 121. 47 Müller-Armack, “Vermerk über den Verlauf der Verhandlungen mit dem Bundesverband der Deutschen Industrie zur Einbringung des Kartellgesetzes,” Bonn, 2 March 1954, p. 1, BAK B102/17084/2; Hüttenberger, “Wirtschaftsordnung,” 301. 48 Müller-Armack, “Vermerk,” pp. 1–4; Haenlein, “Weitere Behandlung des Kartellgesetzes,” Referat 6 - 61010 - 300/54II, Bonn, 24 February 1954, BAK B136/702, f. 84; Berg to Erhard, Altena, 6 February 1954, BAK B102/ 17084/2, also in B102/17085/1; Guido Ziersch to Adenauer, WuppertalBarmen, 8 February 1954, BAK B136/702, ff. 44–46; telegram, Berg to Adenauer, 18 February 1954, BAK B102/17084/2, also in B102/17085/1; Seibt, “Telefonische Durchgabe für Herrn Minister über Herrn Prof. Dr. Müller-Armack,” 23 February 1954, BAK B102/192483; Seibt to MüllerArmack and Erhard, “Kartellgesetzentwurf,” L1-L4-2/302/54, Bonn, 23 February 1954, BAK B102/17084/2, also in BAK B102/17085/1. 49 Berghahn, Otto A. Friedrich, 123. 50 Müller-Armack to Erhard, “Entwicklung der Kartellfrage,” I B 5 - 363 001, Bonn, 9 July 1954, p. 5, BAK B136/702, f. 232. See also Hentschel, Politikerleben, 205. 51 Kamberg, “Vermerk. Besprechung mit dem Arbeitskreis der Industrie über den Entwurf eines Gesetzes gegen Wettbewerbsbeschränkungen am 20. März 1954,” I B 5, Bonn, 21 April 1954, p. 1, BAK B136/702, f. 97. 52 Ibid., p. 3, f. 99. 53 Erhard, “Unternehmer, Staat und Wirtschaft,” Essen, 17 May 1954, in Gedanken, 404. 54 Haenlein to Globke, “Stand der Verhandlungen über das Kartellgesetz,” Bonn, 23 June 1954, BAK B136/702, f. 202. 55 Erhard to Adenauer, “Kartellgesetz in binnen- und aussenwirtschaftlicher Betrachtung,” Bonn, 1 July 1954, LES NE I 1)3. 56 Berg to Adenauer, 6 July 1954, BAK B102/17085/1. 57 Erhard to Adenauer, 7 July 1954, LES NE I 1)3, also in ACDP I-236-029/2. 58 Erhard, “Der Stand der Kartelldebatte,” 9 July 1954, Bonn, p. 9, BAK B102/17084/3. 59 Erhard to Adenauer, Bonn, 14 July 1954, BAK B102/17085/1, also in BAK

[ 236

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60

61

62 63 64 65

66

B136/702, f. 25, and LES NE I 1)3; Ziervogel to Berg, Essen, 13 July 1954, BAK B102/17085/1. Hornscher to Haenlein, “Kartellgesetz. hier: Besprechung mit den Vertretern des Bundesverbandes der Deutschen Industrie am 22.7.1954, 10,00 Uhr im Bundeswirtschaftsministerium,” 6-61010-1504/54 II, Bonn, 22 July 1954, BAK B136/702, ff. 252–53; Berghahn, Otto A. Friedrich, 126. Epphardt to [Erhard], “Besprechungen mit dem Arbeitskreis Kartellgesetz des Bundesverbandes der Deutschen Industrie,” I B 5, Bonn, 16 October 1954, p. 1, BAK B136/702, f. 303; Epphardt, “Vermerk, Betr. Besprechungen mit dem Arbeitskreis Kartellgesetz des Bundesverbandes der Deutschen Industrie über den ‘Entwurf eines Gesetzes gegen Wettbewerbsbeschränkungen,’” I B 5, Bonn, 18 October 1954, BAK B102/17084/2; Berg to Erhard, Altena, 29 October 1954, BAK B102/17084/1, ff. 531–32; BDI, “Formulierungsvorschläge. Arbeitskreis Kartellgesetz BDI” [on or before 15 November 1954], BAK B102/192498. Kabinettsprotokolle. Band 8. 1955, 88, 19 January 1955, TOP 4; Hüttenberger, “Wirtschaftsordnung,” 304. Erhard, “Die Ziele des Gesetzes gegen Wettbewerbsbeschränkungen,” speech in Bundestag, 24 March 1955, in Gedanken, 434–35. Günther to Erhard, “Gesetz gegen Wettbewerbsbeschränkungen,” confidential, 29 March 1955, BAK B102/192484. Günther, “Vermerk über eine Besprechung mit dem amerikanischen Hochkommissar Prof. Conant am 1 Oktober 1953 in Mehlem,” Bonn, 2 October 1953, BAK B102/17090; Günther, “Vermerk über eine Besprechung mit M. Bernard, Mitglied der DIDEG, am 3.11.1953 in Bonn,” Bonn, 6 November 1953, BAK B102/17090; Epphardt, “Vermerk, Betr.: Außerkrafttreten des II. Teiles des Überleitungsvertrages (Dekartellierung und Entflechtung),” Bonn, 9 October 1954, BAK B102/17090; “Welche Beschränkungen bleiben?,” Handelsblatt, 11 October 1954, BAK B102/ 12476a; Epphardt to Hohmann, “Weggang von Mr. Disney,” Bonn, 7 December 1954, BAK B102/17090; Kabinettsausschuß für Wirtschaft 1954– 1955, 307, 14 February 1955, TOP 3; Erhard to state secretary in Federal Chancellor’s Office, “Anwendung der Kartellgesetze; hier: Schreiben der Bundestagsabgeordneten Dr. Dr. Müller und Dr. Alexander Ellbrächter,” I B 5 - 1666/55 1667/55, Bonn, 21 July 1955, BAK B102/192484; Günther, “Vermerk, Beantwortung der Briefe der Abgeordneten Dr. Dr. Müller und Dr. Ellbrächter an den Herrn Bundeskanzler,” I B 5 - 1666/55, Bonn, 26 July 1955, BAK B102/192484; Hornschu to Haenlein, “Gesetz gegen Wettbewerbsbeschränkungen,” Bonn, 8 October 1955, BAK B136/703, f. 86. Günther to Erhard, “Sitzung des wirtschaftlichen Ausschusses der CDU . . . am 4.9.1956,” I B 5 - 2735/56, Bonn, 31 August 1956, appendix 2, “Stand der Beratungen des Entwurf eines gesetzes gegen Wettbewerbsbeschränkungen,” BAK B102/192485; Berg to Erhard, Altena, 10 January

237

]

N O T E S T O PA G E S 1 3 6 – 4 1

67 68 69 70

71 72 73

74

75

76

77 78 79

80 81

82 83

1957, LES NE I 4)36; Bethusy-Huc, Demokratie und Interessenpolitik, 68, 73. Kabinettsprotokolle. Band 9. 1956, 480, 11 July 1956, TOP 7. Hüttenberger, “Wirtschaftsordnung,” 295, 306–7; Robert, Konzentrationspolitik, 182, 374, 381, 386; Berghahn, Otto A. Friedrich, 133. Koerfer, Kampf, 153; Schwarz, Gründerjahre, 335. Koerfer, Kampf, 138; Hentschel, Politikerleben, 260. See also Hentschel’s mistaken assertion that Erhard thought that social policy was an error in Lehrstück, 40. See Hockerts, Sozialpolitische Entscheidungen, 91, 176, 181, 186, 190, 208–9. Ibid.; Hockerts, “Adenauer als Sozialpolitiker”; Hockerts, “Integration der Gesellschaft,” 36–38. Erhard to Storch, “Rentenaufwertung,” II A 3-5737/53, Bonn, 22 December 1953, BAK B136/1358; Erhard to Storch, “Rentenaufwertung,” Z A 3616/54, Bonn, 5 March 1954, BAK B136/1358; Hockerts, “Integration der Gesellschaft,” 37; Hockerts, Sozialpolitische Entscheidungen, 265. Erhard to State Secretary in Federal Chancellor’s Office, “Altersversorgung der freien Berufe,” Z A 1-871/54, Kabinettssache, 23 September 1954, BAK B102/8301; Hockerts, Sozialpolitische Entscheidungen, 266–67. “Auszugsweise Abschrift aus dem Protokoll über die 63. Kabinettssitzung,” 14 December 1954, BAK B136/1385; also in B102/40896 and Kabinettsprotokolle. Band 7. 1954, 562–63, TOP 1; Adenauer to cabinet ministers, “Entwicklung zum Versorgungsstaat,” 7-810000-201/55, Bonn, 16 January 1955, BAK B102/40896 and B136/1281, ff. 55–56. “Aus der Rede des Bundesministers für Wirtschaft Professor Dr. Ludwig Erhard anläßlich der Eröffnung der Handwerkmesse am 6. Mai 1955,” BAK B102/8301. Erhard to Adenauer, “Entwicklung zum Versorgungsstaat,” Bonn, 24 May 1955, p. 5, BAK B102/40896, also in BAK B102/8301 and B136/1385. Ibid., p. 4. Erhard to State Secretary in Federal Chancellor’s Office, “Grundgedanken zur Gesamtreform der sozialen Leistungen,” Z A 3-564/55, Bonn, 21 May 1955, BAK B136/1879, ff. 77–84. Ministerausschuß für Sozialreform, 27. Wilfrid Schreiber, “Existenzsicherheit in der industriellen Gesellschaft,” Bonn, 13 December 1955, BAK B136/1384, ff. 77–98, reprinted in Ministerausschuß für Sozialreform, 127–31. Ministerausschuß für Sozialreform, 132–33. Wilfrid Schreiber, “Zur Reform der gesetzlichen Rentenversicherungen. Memorandum zur Ergänzungen meines Referats vor dem ‘Ministerausschuss für die Sozialreform’ zu Bonn, am 13. Dezember 1955,” 31 December 1955, BAK B136/760, ff. 3–34, reprinted in Ministerausschuß für Sozialreform, 296–311.

[ 238

N O T E S T O PA G E S 1 4 2 – 4 7

84 Ministerausschuß für Sozialreform, 143; Hockerts, Sozialpolitische Entscheidungen, 327–28. 85 Ministerausschuß für Sozialreform, 154–59; Hockerts, Sozialpolitische Entscheidungen, 333. 86 Pühl, “Vermerk für die Kabinettssitzung. Betr.: Entwurf eines Gesetzes zur Neuregelung des Rechts der Rentenversicherung der Arbeiter und der Angestellten (Rentenversicherungsgesetz),” Bonn, 14 May 1956, p. 1, BAK B136/756, f. 211. 87 Pühl to Adenauer, Globke, “Entwurf eines Gesetzes über die Neuregelung der Rentenversicherung der Arbeiter und der Angestellten (Rentenversicherungsgesetz — RVG),” Bonn, 19 May 1956, BAK B136/756, ff. 261– 62; Hockerts, Sozialpolitische Entscheidungen, 348–49. 88 Hockerts, Sozialpolitische Entscheidungen, 350–51. 89 Ibid., 401–2. 90 Erhard to Adenauer, Bonn, 8 October 1956, LES NE I 1)4. 91 Hockerts, Sozialpolitische Entscheidungen, 404. 92 dpa 101 id, “Erhard: ‘keine Bindung der Renten, an Löhne und Preise,’” Cologne, 25 October 1956, BAK B136/758, f. 270; Hockerts, Sozialpolitische Entscheidungen, 405. 93 Adenauer to Erhard, personal-private, Bonn, 26 October 1956, BAK B136/758, f. 280, also in LES NE I 1)4; Adenauer to Erhard, Bonn, 26 October 1956, BAK B136/758, ff. 281–82; Hockerts, Sozialpolitische Entscheidungen, 407. 94 Hugo Scharnberg to Erhard, Hamburg, 26 October 1956, LES NE I 4)65. 95 Hockerts, Sozialpolitische Entscheidungen, 422–23; Schwarz, Gründerjahre, 335–36; Statistisches Bundesamt, Statistisches Jahrbuch für die Bundesrepublik Deutschland 1959, 355, table 6. Overall social insurance spending by the state increased 24.96 percent from 1955 to 1958. See Statistisches Bundesamt, Statistisches Jahrbuch für die Bundesrepublik Deutschland 1968, 391, table 1. 96 Kabinettsprotokolle. Band 7. 1954, 310, 13 July 1953, TOP B. 97 Brenke, “Europakonzeptionen im Widerstreit,” 627; Enders, “Integration oder Kooperation?,” 154; BMWi, “Bericht über die wirtschaftliche Lage und die wirtschaftspolitischen Probleme und Aufgaben in der Bundesrepublik,” Bonn, 31 October 1953, pp. 22, 24, BAK B136/1358; Erhard, Rückkehr, 149–50; Erhard, “Die deutsche Wirtschaftspolitik im Blickfeld europäischer Politik,” speech, Zürich, 6 February 1952, in Gedanken, 338. 98 Erhard, “Nach dem Scheitern der Europäischen Verteidungsgemeinschaft,” Bulletin, 22 September 1934, in Gedanken, 405–8. 99 Erhard, “Europäische Einigung durch funktionale Integration,” speech at Les Echos club, Paris, 7 December 1954, in Gedanken, 418, 412–22. 100 Enders, “Integration oder Kooperation?,” 148. 101 Adenauer to Erhard, 13 April 1955, in Mensing, Adenauer Briefe 1953– 1955, 263, no. 232. 239

]

N O T E S T O PA G E S 1 4 7 – 5 3

102 Kabinettsprotokolle. Band 8. 1955, 405–6, TOP V [D]. 103 Erhard, “Wer ist ein guter Europäer?,” Deutsche Korrespondenz, 21 July 1955, in Gedanken, 442–45; Schwarz, Gründerjahre, 338. 104 Kabinettsprotokolle. Band 9. 1956, 191, 10 February 1956, TOP 1; Schwarz, Adenauer, 2:230. 105 Erhard to Adenauer, Bonn, 11 April 1956, p. 15, LES NE I 1)4. 106 Adenauer to Erhard, 13 April 1956, in Mensing, Adenauer Briefe 1955– 1957, 184–82, no. 142; Koerfer, Kampf, 144. 107 Erhard to Adenauer, Bonn, 25 September 1956, LES NE I 1)4. 108 Kabinettsprotokolle. Band 9. 1956, 620–29, TOP 1. 109 Schwarz, Adenauer, 2:240–41. 110 Ibid.; Enders, “Integration oder Kooperation?,” 159. 111 Erhard to Etzel, 16 November 1956, reprinted in Enders, “Integration oder Kooperation?,” 161–62. 112 Etzel to Erhard, 3 December 1956, reprinted in ibid., 164–71. 113 Kabinettsprotokolle. Band 10. 1957, 92–109, TOP 3. 114 Erhard, “Das Projekt der Freihandelszone,” statement before the ministerial council of the OEEC, Paris, 12 February 1957, in Gedanken, 486–89, also in DWP, 333–36. 115 Kabinettsprotokolle. Band 10. 1957, 143–44, TOP E. 116 Koerfer, Kampf, 148–49. 117 Schwarz, Gründerjahre, 322, 325–26. 118 Hentschel, Politikerleben, 302–3; Schwarz, Epochenwechsel, 23. 119 Robert, Konzentrationspolitik, 349. 120 Carlo Mötelli, “Ludwig Erhard und der Liberalismus,” in G. Schröder et al., Beiträge, 156–57. 121 Schwarz, Gründerjahre, 326–28; Sommariva and Tullio, German Macroeconomic History, 55, table 1.24; Lindlar, Wirtschaftswunder, 218, table 5.9. 122 Schwarz, Gründerjahre, 375–464; Schissler, The Miracle Years, especially the articles by Volker Berghahn, “Recasting Bourgeois Germany,” 326–40; Arnold Sywottek, “From Starvation to Excess?: Trends in the Consumer Society from the 1940s to the 1970s,” 341–58; Uta G. Poiger, “A New ‘Western’ Hero?: Reconstructing German Masculinity in the 1950s,” 412– 27; Kaspar Maase, “Establishing Cultural Democracy: Youth, ‘Americanization,’ and the Irresistible Rise of Popular Culture,” 428–50; Diethelm Prowe, “The ‘Miracle’ of the Political-Culture Shift: Democratization between Americanization and Conservative Reintegration,” 451–58. 123 Prowe, “‘Miracle’ of the Political-Culture Shift,” 452. 124 Erhard, “Besinnung und Verantwortung in der Volkswirtschaft,” radio speech, 12 March 1956, in Gedanken, 471–75; Erhard, “Der Christ und die Soziale Marktwirtschaft,” foreword to a book by Patrick Boarman, 1955, in Gedanken, 426; Erhard, “Soziale Marktwirtschaft und Materialismus,” Sonntagsblatt, 29 January 1956, in Gedanken, 466–70.

[ 240

N O T E S T O PA G E S 1 5 4 – 6 6

125 Adenauer to Erhard, Bonn, 6 February 1956, in Mensing, Adenauer Briefe 1955–1957, 154–55, no. 109.

Chapter 6 1 Schwarz, Epochenwechsel, 23–24. 2 Erhard, “Die Wirtschaftspolitik in der öffentlichen Meinung,” radio speech, 28 November 1960, in Gedanken, 652. 3 Hentschel, Politikerleben, 326. 4 On De Gaulle’s foreign policy, see Bozo, Two Strategies for Europe, chaps. 1–4; Lacouture, De Gaulle: The Ruler, 1945–1970, sec. V; Werth, De Gaulle, 305–54; Williams, The Last Great Frenchman, 431–57. 5 Laitenberger, Nationalökonom, 152–53; Hentschel, Politikerleben, 319–21. 6 Erhard, “Deutsche Mark frei Konvertierbar,” radio speech, 28 December 1958, in Gedanken, 569. 7 Koerfer, Kampf, 527. 8 Laitenberger, Nationalökonom, 153–56; Hentschel, Politikerleben, 371–73. 9 Erhard, “Zur Aufwertung der D-Mark,” radio speech, 6 March 1961, in Gedanken, 671–75. 10 Erhard, “Mußte der Kohlepreis erhöht werden?,” radio speech, 25 September 1957, in DWP, 359–62. 11 Koerfer, Kampf, 226. 12 Ibid., 226–30; Hentschel, Politikerleben, 3235–326. 13 Erhard, “Die Soziale Marktwirtschaft in der gedämpfte Weltkonjunktur,” speech, 10 April 1959, in DWP, 421, 425–27. 14 Koerfer, Kampf, 397; Hentschel, Politikerleben, 348. 15 Koerfer, Kampf, 400–401. 16 Erhard, “Die Sorgen des Steinkohlenbergbaues,” radio speech, 10 September 1959, in DWP, 441. 17 Koerfer, Kampf, 404. 18 Weimer, Wirtschaftsgeschichte, 141–42; Abelshauser, Langen fünfziger, 54–55; Schwarz, Epochenwechsel, 158–59; Görtemaker, Geschichte, 178. 19 Görtemaker, Geschichte, 178. 20 Weimer, Wirtschaftsgeschichte, 144–45. 21 Erhard, “Nicht alles zur gleichen Zeit,” radio speech, 13 January 1958, in Gedanken, 526. 22 Erhard, “Nochmals: Leistungsanstieg und Lohnpolitik,” radio speech, 21 January 1958, in DWP, 384–86. 23 Erhard, “Maßhalten!,” radio speech, 21 March 1962, in Gedanken, 729–37. 24 Norbert Kloten, “Makroökonomische Stabilisierungspolitik—Erhards Positionen und Vorbehalte,” in Wünsche, Weichenstellung, 120; Laitenberger, Nationalökonom, 157; Koerfer, Kampf, 662–64. 25 Mitchell, European Historical Statistics, 417–18, table J 1. 26 Erhard, “Das Handwerk hat Zukunft,” speech, 2 July 1960, in Gedanken, 628. 241

]

N O T E S T O PA G E S 1 6 6 – 7 6

27 Lindlar, Wirtschaftswunder, 218, table 5.9; Sommariva and Tullio, German Macroeconomic History, 55, table 1.24; Schwarz, Gründerjahre, 327; Ehrlicher, “Deutsche Finanzpolitik seit 1945,” 5. 28 Brenke, “Europakonzeptionen im Widerstreit,” 606. 29 Erhard, “Grenzen der Teilintegration,” speech, Rome, 8 November 1957, in DWP, 363–70. 30 Koerfer, Kampf, 264–65. 31 Ibid. See also Lappenküper, “Wirklich,” 93. 32 Koerfer, Kampf, 265–66. 33 Lappenküper, “Wirklich,” 93. 34 Erhard, “Wir leben nicht mehr in Metternichs Zeiten,” Die Zeit, 25 December 1959, in Gedanken, 592–95. 35 Erhard, “Harmonie durch Harmonisierung?,” Frankfurter Allgemeine Zeitung, 31 December 1959, in DWP, 464. 36 Erhard, in Hunold, Gegen die Brandung, 16. 37 Ibid. 38 Koerfer, Kampf, 512. 39 Erhard, “Die Atlantische Gemeinschaft,” Die Zeit, 11 November 1960, in Gedanken, 646–48. See also Erhard, “Europäische Zwischenbilanz,” speech, Vienna, 8 February 1961, in DWP, 554–55, 558. 40 Erhard, “England gehört zu Europa,” speech, Paris, 10 October 1961, in Gedanken, 709–11. 41 Erhard, “Neue Aufgaben der europäischen und atlantischen Zusammenarbeit,” speech, St. Gallen, 15 January 1961, in DWP, 608–9. 42 Erhard, “Planification — kein Modell für Europa,” speech, Straßburg, 20 November 1962, in Gedanken, 777. 43 Ibid., 773. 44 Laitenberger, Nationalökonom, 146–47; Schwarz, Epochenwechsel, 292. 45 Koerfer, Kampf, 751. 46 Erhard, “Das französische Veto,” interview with Hans Ulrich Kempski, Süddeutsche Zeitung, 5 February 1963, in Gedanken, 787–93. 47 Erhard to Röpke, Bonn, 23 February 1963, pp. 4–6, LES NE I 4)59. 48 Erhard, “Europa und Schweden,” speech, Stockholm, 23 March 1963, in Gedanken, 807. 49 Koerfer, Kampf, 761; Schwarz, Epochenwechsel, 292–93, 295–96. 50 Hentschel, Politikerleben, 13–14; Lukomski, Mensch, 48; Koerfer, Kampf, 135, 425. 51 Hentschel, Politikerleben, 354; Görtemaker, Geschichte, 420. 52 Schwarz, Epochenwechsel, 180–81; Schwarz, Adenauer, 2:283; Koerfer, Kampf, 154–56, 245–46, 345. 53 Schwarz, Epochenwechsel, 179; Koerfer, Kampf, 309. 54 Koerfer, Kampf, 312–15; Köhler, Adenauer, 2:468–87. 55 Koerfer, Kampf, 341. 56 Schwarz, Epochenwechsel, 192.

[ 242

N O T E S T O PA G E S 1 7 7 – 8 7

57 Erhard, “Berlin und wir,” speech, Berlin, 14 October 1961, in DWP, 599– 604. 58 Koerfer, Kampf, 481–82. 59 Ibid., 595. 60 Ibid., 606–16; Schwarz, Epochenwechsel, 225–36. On Erhard’s foreign aid policy, see Erhard, “Marktwirtschaft ist gute Entwicklungshilfe,” speech, Istanbul, 13 September 1955, in Gedanken, 452–55; Erhard, “Zur politischen und sozialen Problematik der Hilfe für Entwicklungsländer,” Die Zeit, 5 December 1957, in DWP, 376–79; Erhard, “Asiatische Eindrücke,” radio speech, 24 November 1958, in Gedanken, 556–67; Erhard, “Die Entwicklungshilfe auch multilateral stärken,” speech, Washington, D.C., 30 September 1959, in Gedanken, 578–82; Erhard, “Der Mutlose wird stranden,” Bonner Informationen aus erster Hand, 8 July 1960, in Gedanken, 631–34; Erhard, “Gedanken zum Aufbau Afrikas,” speech, Bonn, 21 October 1960, in Gedanken, 639–45; Erhard, “Neue Aufgaben der finanziellen Entwicklungshilfe,” Politische-Soziale Korrespondenz, 15 November 1960, in DWP, 516–21; Erhard, “Frühe initiation für die Dritte Welt,” Das Parlament, 29 August 1962, in Gedanken, 767–69; Erhard, “Aussenpolitik beginnt zu Hause,” Außenpolitik (January 1961), in Gedanken, 662–66. 61 Koerfer, Kampf, 724.

Chapter 7 1 2 3 4

5 6 7 8 9 10 11 12 13 14

Hildebrand, Von Erhard, 20, 60. Teschke, Hitler’s Legacy, 206. Hildebrand, “Ludwig Erhard,” 372; Hildebrand, Von Erhard, 37. Hildebrand, Von Erhard, 23; Osterheld, Aussenpolitik, 50–51, 112–13; Hentschel, Lehrstück, 22–23; Rüdiger Altmann and Johannes Gross, “Gespräch über Erhard,” in G. Schröder et al., Beiträge, 28. Osterheld, Außenpolitik, 79; Görtemaker, Geschichte, 427; Lacouture, De Gaulle: The Rebel, 1890–1944, 113. Osterheld, Außenpolitik, 29. Ibid., 287. Norbert Kloten, “Makroökonomische Stabilisierungspolitik—Erhards Positionen und Vorbehalte,” in Wünsche, Weichenstellung, 128. Mensing, Adenauer Briefe 1955–1957, 524 n. 1; Koerfer, Kampf, 873; Hildebrand, Von Erhard, 33. Hildebrand, Von Erhard, 140, 239; Osterheld, Außenpolitik, 114. Laitenberger, Nationalökonom, 193; Schwarz, Epochenwechsel, 181; Hildebrand, Von Erhard, 121. Koerfer, Kampf, 200–201; Osterheld, Außenpolitik, 68, 129; Hanrieder, Deutschland, Europa, Amerika, 190; Hanrieder, Stable Crisis, 164. Görtemaker, Geschichte, 408; Hanrieder, Deutschland, Europa, Amerika, 294; Hanrieder, Stable Crisis, 62. Erhard, “Europäische Weichenstellung,” Bundestag speech, 2 December 243

]

N O T E S T O PA G E S 1 8 7 – 9 6

15 16

17

18 19 20 21 22 23 24 25 26 27 28 29 30

31 32 33 34 35 36

37 38

1964, in Gedanken, 902–7; Osterheld, Außenpolitik, 28–31; Hentschel, Politikerleben, 443–49; Lappenküper, “Wirklich,” 101–20. Hentschel, Politikerleben, 470–79; Osterheld, Außenpolitik, 64–72. AAPD, vol. 2, 713–24, doc. no. 180, 768–76, doc. no. 188, 783–85; the De Gaulle–Adenauer conversation is reproduced in doc. no. 184, 749–55; Hentschel, Politikerleben, 498–507; Osterheld, Außenpolitik, 94–107. Osterheld, Außenpolitik, 57, 142, 217–18, 231, 349; Hanrieder, Deutschland, Europa, Amerika, 48; Hanrieder, Stable Crisis, 25–26, 29, 30. For background on West German nuclear policy, see Köhler, Adenauer, 2:404– 5, 422–28. Hentschel, Politikerleben, 547–49; Osterheld, Außenpolitik, 138–43; Görtemaker, Geschichte, 40. Hentschel, Politikerleben, 566–69; Osterheld, Außenpolitik, 199–207. Osterheld, Außenpolitik, 230, 387; Hanrieder, Deutschland, Europa, Amerika, 49, 182; Hildebrand, Von Erhard, 88; Görtemaker, Geschichte, 397–98. Osterheld, Außenpolitik, 21. Hentschel, Politikerleben, 450. Ibid., 456–63; Osterheld, Außenpolitik, 44–47; Laitenberger, Nationalökonom, 182; Görtemaker, Geschichte, 427–31. Hentschel, Politikerleben, 494–97; Osterheld, Außenpolitik, 88–91. Hentschel, Politikerleben, 565–66; Osterheld, Außenpolitik, 194–96. Osterheld, Außenpolitik, 90–91. Ibid., 139. Teschke, Hitler’s Legacy, 147–48. Ibid., 315, 338, 348; Laitenberger, Nationalökonom, 189–91; Hentschel, Politikerleben, 555. Görtemaker, Geschichte, 409–12; Laitenberger, Nationalökonom, 186–89; Hentschel, Politikerleben, 550. For Erhard’s views, see Erhard, “Israel,” Bundestag speech, 17 February 1965, in Gedanken, 908–14. Erhard, “Politik der Mitte und Verständigung,” Bundestag speech, 18 October 1963, in Gedanken, 816–18, 829–45. Görtemaker, Geschichte, 178; Abelshauser, Langen fünfziger, 54–55. Hentschel, Politikerleben, 468. Hildebrand, Von Erhard, 123. Ehrlicher, “Deutsche Finanzpolitik seit 1945,” 5. The West German GDP grew 15.9 percent from 1963 through 1966. In the same period federal tax receipts increased 25.9 percent, Länder (state) tax receipts by 22.2 percent, and overall government collections by 23.9 percent. See Mitchell, European Historical Statistics, 418, and Federal Statistical Office, Handbook of Statistics for the Federal Republic of Germany, 1967, 143, table 3. Hentschel, Politikerleben, 614–16. Ibid., 561; Altmann and Gross, “Gespräch über Erhard,” 34; Hildebrand, Von Erhard, 38, 163.

[ 244

N O T E S T O PA G E S 1 9 6 – 2 1 0

39 Erhard, “Formierte Gesellschaft,” speech, 31 March 1965, in Gedanken, 915–27; Erhard, “Neue Aufgaben,” speech, 22 March 1966, in Gedanken, 978–99; Hentschel, Politikerleben, 562; Hildebrand, Von Erhard, 121, 165–66; Laitenberger, Nationalökonom, 193–95. 40 Hildebrand, Von Erhard, 164; Hildebrand, “Ludwig Erhard,” 374. 41 Osterheld, Außenpolitik, 211. 42 Hentschel, Politikerleben, 574–75. 43 Hildebrand, Von Erhard, 125. 44 Ibid., 149; Hentschel, Politikerleben, 572–73; Laitenberger, Nationalökonom, 199–201. 45 Laitenberger, Nationalökonom, 202. 46 Ibid., 202–4; Hildebrand, Von Erhard, 152–60; Hentschel, Politikerleben, 579–88; Osterheld, Außenpolitik, 254. 47 AAPD, 1965, vol. 3, 1920–29, doc. no. 466, 1938–42, doc. no. 469; Osterheld, Außenpolitik, 266–71; McGhee, At the Creation of a New Germany, 183–85; Hentschel, Politikerleben, 590–92. 48 AAPD, 1966, vol. 2, 1242–52, doc. no. 298, 1263–68, doc. no. 302; Osterheld, Außenpolitik, 348–60; Görtemaker, Geschichte, 427, 430; Laitenberger, Nationalökonom, 212; Hentschel, Politikerleben, 633–36. 49 Osterheld, Außenpolitik, 280–86, 328–32; Hentschel, Politikerleben, 596, 612–13. 50 Hentschel, Politikerleben, 615–16. 51 Erhard, “Sparsamkeit und Nüchternheit,” Bundestag speech, 10 November 1965, in Gedanken, 948. 52 Ibid. 53 Ibid., 949–62. 54 Hentschel, Politikerleben, 622–26. 55 Laitenberger, Nationalökonom, 209; Weimer, Wirtschaftsgeschichte, 174, 178. 56 Hentschel, Politikerleben, 618–22; Hildebrand, Von Erhard, 207, 209. 57 Hentschel, Politikerleben, 596–97; Osterheld, Außenpolitik, 78. 58 Hildebrand, Von Erhard, 222–32. 59 Ibid., 13–14, 232.

Chapter 8 1 Erhard, “Abschied als Bundeskanzler,” television speech, 30 November 1966, in Gedanken, 1021–25. 2 Erhard, “Verantwortung für das ganze Deutschland,” Bundestag speech, 14 December 1976, in Gedanken, 1069–72. 3 Hentschel, Politikerleben, 649. 4 Ibid., 653–64; Laitenberger, Nationalökonom, 219–24. 5 Clay, Decision in Germany, 210; see also Lukomski, Mensch, 81. 6 Koerfer, Kampf, 29. 7 Eschenburg, Letzten Endes, 175. 245

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BIBLIOGRAPHY

In 1983 Hans Peter Schwarz wrote: “We have been pestered for decades by countless accounts of the Second World War and the depressing Hitler years. This research certainly was and is of great interest. But now maybe it is slowly becoming time to turn full attention to a period of German history in which that sensible, functioning pluralistic society and that stable democracy was built which by the end of the coming decade (hopefully) will already have existed as long as the Kaiserreich that lasted from 1871 to 1918” (Schwarz, Epochenwechsel, 384). The Federal Republic of Germany has indeed outlived the Wilhelmine Empire, to say nothing of the Third Reich. Recently, scholars seem to be moving in the direction pointed out by Schwarz as the number of publications concerning the Federal Republic has increased. But many questions remain to be answered. Not least among them are those concerning the early years of the Bonn Republic when critical decisions with long-term implications were made. Because Erhard made or influenced many of these decisions, examination of his career promises rich rewards. Moreover, because his ideas and actions have not received adequate attention in the English-speaking world, the need for more work on Erhard is clear. The research basis for studying Erhard’s public life is more than adequate. The archival sources concerning Ludwig Erhard and the German economy from the mid-1940s to the mid1960s are quite extensive and barely used. There are two archives in particular that provide access to the essential documents concerning Erhard’s policies. The Ludwig Erhard Foundation in Bonn houses a large collection of his correspondence and writings. The files containing his exchanges of views with Adenauer are especially enlightening because they provide a clear impression of Adenauer’s highly critical stance toward Erhard and Erhard’s feelings toward the chancellor. Moreover, because Erhard sent long letters to Adenauer explaining his policies, these files also offer valuable insights into Erhard’s economic philosophy. The second important archival repository is the magnificent Bundesarchiv Koblenz. The files of the Federal Ministry of Economics are extensive and have not been fully exploited by historians. This collection reflects the administrative disorganization of Erhard’s ministry. But it is complete, extensive, and full of useful information. The files of the Federal Chancellor’s Office complement those of the Economics Ministry, containing mostly the same materials, but

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also some not included in the ministerial files. The Federal Chancellor’s Office files are particularly valuable for information concerning the reform of the pension system, a matter on which the Economics Ministry records are less informative. The Bundesarchiv also holds collections from the period prior to the formation of the Federal Republic. The most important of those relating to Erhard is that of the Special Office for Money and Credit, which contains long transcripts of meetings in which Erhard stated his views quite clearly. The Müller-Armack files at the excellent Archiv für christlich-demokratische Politik in Sankt Augustin provide a glimpse into the relationship between Erhard and one of his chief advisers. They also offer Müller-Armack’s different perspective on economic policy and a rare insight into Erhard’s relationship with the Mont Pélèrin Society. Published collections of archival documents relevant to Erhard’s public life are also available. Probably the most important is the compendium of Erhard’s speeches and articles published by the Ludwig Erhard Foundation as Gedanken aus fünf Jahrzehnten. Because Erhard devoted so much energy to propagating his ideas publicly, this collection is indispensable. The Akten zur Vorgeschichte der Bundesrepublik Deutschland includes some material relevant to Erhard but is dominated by more general political documents. The Wörtliche Berichte und Drucksachen des Wirtschaftsrates, similarly, offers transcripts of Erhard’s speeches, but the most important of those are more readily available in Gedanken. Of much greater importance are the excellent compilations of the minutes of cabinet meetings and the meetings of the special cabinet committees for economic affairs and social reform published under the auspices of the Bundesarchiv. These volumes make clear that Erhard was much more effective in cabinet debates than his recent critics have contended. The collection of letters to and from Adenauer edited by Mensing is also very worthwhile, particularly as a supplement to the files held at the Ludwig Erhard Foundation. The Clay Papers contain little of value for the Erhard story. Horst Friedrich Wünsche’s Die Korea-Krise als ordnungspolitische Herausforderung der deutschen Wirtschaftspolitik: Texte und Dokumente contains materials from the federal government as well as the Allies, along with an introduction and reminiscences from figures who knew Erhard. Concerning West Germany’s foreign relations, the collection of documents published by the United States Department of State offers a convenient and complete source of relevant policy directives relating to the occupation. The Akten zur auswärtigen Politik der Bundesrepublik Deutschland series contains an extensive range of minutes of meetings and correspondence concerning Erhard’s dealings with de Gaulle and Johnson that should correct the generally accepted view of his foreign policy and his effectiveness as a diplomat. Many biographies of Erhard have appeared over the past four decades, but only a few are worth mentioning. In some ways the best was written by the American journalist Jess Lukomski, Ludwig Erhard. Der Mensch und der Politiker. While Lukomski’s book suffers from all of the defects of popular con-

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temporary biographies in that it lacks distance from its subject and provides no documentation, it benefits from the author’s access to Erhard. Lukomski presents a surprisingly accurate picture of Erhard’s mentality and his emotional and intellectual development. Not surprisingly, the book does not provide detailed accounts of the struggles over legislation that Erhard fought as economics minister, or of the controversies that erupted during his time as chancellor. Nevertheless, it remains well worth reading. Michael Caro wrote his biography of Erhard, Der Volkskanzler Ludwig Erhard, at the same time as Lukomski was at work. Caro does not show the economic and human judgment that sets apart Lukomski’s work, and he commits some factual errors. Volkhard Laitenberger benefited from easy access to Erhard’s papers at the Ludwig Erhard Foundation in Bonn and used other archival materials in preparing his short Ludwig Erhard, der Nationalökonom als Politiker. He delivers a balanced, reliable account of Erhard’s career that raises all of the major issues and judges them fairly. The overview by Karl Hohmann, Ludwig Erhard (1887–1977). Eine Biographie, sponsored by the Ludwig Erhard Foundation, presents an adequate outline of its subject’s career and a useful bibliography, but it suffers somewhat due to its author’s close association with Erhard and the political nature of the foundation. In the mid-1990s, Volker Hentschel wrote a massive, extensively researched biography of Erhard, Ludwig Erhard: Ein Politikerleben, that presents its subject as a well-intentioned bumbler whose policies were mistaken in virtually every case. The primary virtue of Hentschel’s account is its completeness. It contains information on virtually every action undertaken by Erhard once he entered public life. However, it is misleading concerning Erhard’s intellectual development and his conduct as chancellor, in particular his foreign policy, and implicitly criticizes Erhard for not adhering to Hentschel’s own Keynesian and Gaullist views. As Hentschel’s biography implies, there is no shortage of critics of Erhard. Probably the most important is Werner Abelshauser. Abelshauser argued in his dissertation and in a series of publications that appeared in the 1970s and 1980s, most especially in Wirtschaftsgeschichte der Bundesrepublik Deutschland 1945–1980, that Erhard was not responsible for the spectacular growth of the German economy in the 1950s and that, indeed, such growth was not as exceptional as it seemed at first glance. Abelshauser contended that the economy of the western occupation zones had begun to grow before the currency reform and liberalization of June 1948, and that the subsequent rapid expansion was due to the country returning to its historic economic growth trend. In addition, he argued that Erhard did not thoroughly liberalize the economic system. Instead, as he showed in “Ansätze ‘Korporativer Marktwirtschaft’ in der Koreakrise der frühen fünfziger Jahre,” the traditional anticompetitive, corporatist structure that had existed prior to the war was restored in 1951. Abelshauser’s assertion that there was no economic miracle and that Erhard’s policies were ineffective has long since been exploded by Rainer Klump and Albrecht 249

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Ritschl. However, his claim that German industry continued to resist competition has more validity. A number of more specialized works deal with parts of Erhard’s career or issues related to it. By far the best is Anthony J. Nicholls’s Freedom with Responsibility. In this well-researched book, Nicholls presents an insightful account of the emergence of the neoliberal school of economists in Germany. He also offers a discussion of the opposition to competitive markets from the SPD and the Christian socialists. Nicholls stresses, as his well-chosen title indicates, that Erhard’s policies were not an irresponsible return to the abuses of the mid-nineteenth century but were a balanced form of the “third way” sought for so long by so many German thinkers. Klaus Hildebrand, in two short pieces, but most especially in the volume that he contributed to the history of the Federal Republic of Germany, delivers a sensitive and probing portrait of Erhard. Hildebrand’s account of Erhard’s chancellorship is more than a chronological listing of political events. It provides a deep analysis of Erhard and his opponents, a discussion of how the world, both inside and outside West Germany, was changing around Erhard, and how Erhard had difficulty coping with that change. Volker Berghahn discusses Erhard’s policies and the environment in which he attempted to implement them in a number of articles and books. His analysis of the origins of Erhard’s economic ideas and his relationship with the Freiburger school, “Ideas into Politics: The Case of Ludwig Erhard,” offers sound conclusions. In contrast, his assessment of the Americanization of the West German economy is weaker. Berghahn assumes that the growth of a consumer-oriented economy in West Germany was the direct result of the conscious application of specific policies developed in the United States. He then builds an analysis on that shaky foundation. As this book shows, Erhard did not derive his ideas from any American thinker, and Wilhelm Vershofen in particular rejected the American economic model and borrowed ideas concerning market research from a Dutchman. Vershofen also thought that the consumerrelated changes that took place in the German economy after World War I were due to general economic and technological developments. Useful counterweights to Berghahn’s view can be found in Dan Diner’s America in the Eyes of the Germans: An Essay in Anti-Americanism, Richard Pells’s Not Like Us, Gary Herrigel’s Industrial Constructions, and Jonathan Zeitlin and Gary Herrigel’s Americanization and Its Limits, especially the introduction. Andreas Metz, in Die ungleichen Grunderväter, provides a short comparative account of the rise of Erhard and Adenauer. Based mostly on secondary sources, Metz delivers interesting insights into the differing personalities of these two men, both of whom were very important to the development of the young Federal Republic. Metz also offers useful new information on Erhard’s relationship with the Free Democratic Party in 1947 and 1948, throwing light on Erhard’s choice of the Christian Democratic Union as electoral ally rather than the liberals.

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The political journalist Daniel Koerfer in Kampf ums Kanzleramt gives an exhaustive account of the conflict between Erhard and Adenauer over the succession to the chancellorship. Beyond detailing the political struggle, he also discusses the philosophical and personal issues that separated the two men. Koerfer’s portrayal is based on a wide range of primary and secondary sources. Hans-Peter Schwarz gives a broad history of the Adenauer era in his two volumes of the Geschichte der Bundesrepublik Deutschland. They cover all phases of the history of the Federal Republic between 1949 and 1963. Consequently, along with the volumes contributed by Eschenburg and Hildebrand, they are essential to the study of Erhard’s years in office. Schwarz’s massive two-volume biography of Adenauer also provides important background to Erhard’s public life. However, the more recent two-volume biography of Adenauer by Henning Köhler should be read as a critical corrective to Schwarz. Theodor Eschenburg discusses Erhard’s career and personality in a number of publications, most notably the first volume of the extensive, multivolume history of the Federal Republic of Germany published in the 1980s. The long section that he presents there as well as an introduction to the reprint of Erhard’s war debt study shows Erhard in a sympathetic light. Later, especially in the second volume of his memoirs, Letzten Endes meine ich doch, Eschenburg became more critical of Erhard, particularly of his political and administrative laxness. Gerold Ambrosius’s discussion of the critical years between the Nazi defeat and the creation of the Federal Republic in Die Durchsetzung der Sozialen Marktwirtschaft in Westdeutschland 1945–1949 provides extensive detail and useful insight into the struggle among competing political groups and their ideas in the years immediately after the war. It illuminates the environment in which Erhard operated and makes clear the strength of the opposition to him. His book is particularly thoroughly researched. Ludolf Herbst describes Erhard’s role in the planning for a post-Nazi economy in his well-documented article “Krisenüberwindung und Wirtschaftsneuordnung.” He places Erhard’s activities in a larger context in his thoroughly researched book on the transition of the German economy from the Nazis to a westernized system, Der Totale Krieg und die Ordnung der Wirtschaft. These two publications provide the most detailed accounts available of the genesis of Erhard’s war debt memorandum and his relationship both to the Nazi regime and to its opponents. Three economic treatments are worth mentioning, one old and two relatively new. During 1954 Henry Wallich wrote an analysis of the West German recovery, Mainsprings of the German Revival, that remains quite illuminating. An economist at Yale, Wallich discussed the ideas and values that motivated the actors on the West German economic scene, described the development of the economy by looking at key sectors and by examining its development over time, and assessed policy in critical areas such as taxation, credit, and foreign trade. Although written close to the events that it treated, Wallich’s book re251

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mains a reliable source of insight. In his Das mißverstandene Wirtschaftswunder, Ludger Lindlar also approaches Erhard’s policies from the perspective of an economist. He offers a number of interesting observations but ultimately falls victim to Abelshauser’s errant argument. Recently, Wolfram Weimer, an economic journalist, has written Deutsche Wirtschaftsgeschichte, a straightforward, balanced history of the West German economy. Although based on secondary sources, it provides valuable discussions of all important issues set in a moderate ideological framework. Rüdiger Robert’s history of Erhard’s effort to pass an anticartel law, Konzentrationspolitik in der Bundesrepublik, is thorough, based on extensive reading of the primary sources, and comprehensive. The author’s obsolete concept of monopoly does not detract from the fundamental value of his account. Hans Günter Hockerts’s history of the passage of the pension act of 1957, Sozialpolitische Entscheidungen im Nachkriegsdeutschland, is equally well researched and comprehensive in its treatment. Although the author lacks an adequate appreciation of the macroeconomic effects of the law, his book remains an essential source of information concerning this important event in West German economic history. Horst Osterheld’s memoirs of his years as foreign policy officer in the Federal Chancellor’s Office provide a unique insight into Erhard’s conduct of international relations. Osterheld was a professed admirer of Adenauer and the tilt toward France. If the reader adjusts for this bias, his comments on Erhard’s personality and his foreign policy reasoning supply a useful enhancement to the collections of official documents. Horst-Friedrich Wünsche’s Ludwig Erhards Gesellschafts- und Wirtschaftskonzeption offers an extensively researched and carefully considered discussion of the sources of Erhard’s economic ideas. Wünsche correctly concludes that Erhard was no mere follower of Röpke and Eucken, but in his exegesis he goes too far. He jumps to conclusions about the influence of other thinkers on Erhard, such as Georg Friedrich Knapp, reads too much into their writings, and ignores the chronological development of Erhard’s views. Placing Erhard in the German liberal tradition can be helped by consulting the following four works. James Sheehan’s German Liberalism in the Nineteenth Century gives an overview of the gestation of the liberal movement. It concentrates on the development of political parties and provides less information on the evolution of liberal ideas. Konrad Jarausch and Larry Eugene Jones’s introduction to In Search of a Liberal Germany does not fill this gap, but it does give a good summary of the development of the literature on the subject. That book contains a chapter by Anthony J. Nicholls on Erhard that does a good job of placing its subject in historical context. Dieter Langewiesche’s Liberalism in Germany is another political and institutional history that has little to say about liberal economic theory. The author seems to disapprove of liberalism. Ralph Raico, in contrast, has written a very positive history of German liberalism from its origins to the Weimar era, giving particular

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attention to Eugen Richter. Raico, a member of the Austrian school of economics, illuminates Richter’s ideas based on a thorough study of his writings and speeches.

Archives Archiv für christlich-demokratische Politik, Sankt Augustin I-105. Paul Binder Papers I-236. Alfred Müller-Armack Papers Bundesarchiv Koblenz B102. Bundesministerium für Wirtschaft B136. Bundeskanzleramt Z1. Länderrat des amerikanischen Besatzungsgebietes Z3. Wirtschaftsrat des Vereinigten Wirtschaftsgebietes Z4. Länderrat des Vereinigten Wirtschaftsgebietes Z8. Verwaltung für Wirtschaft (VfW) des Vereinigten Wirtschaftsgebietes Z13. Direktorialkanzlei des Wirtschaftsrats des Vereinigten Wirtschaftsgebietes Z14/4. Berater für den Marshall-Plan Z32. Sonderstelle Geld und Kredit in der Verwaltung für Finanzen des Vereinigten Wirtschaftsgebietes Ludwig-Erhard-Stiftung, Bonn Nachlaß Erhard National Archives and Records Administration, College Park, Md. Record Group 331. Records of Allied Operational and Occupation Headquarters, World War II

Published Documents Bundesarchiv, Institut für Zeitgeschichte. Akten zur Vorgeschichte der Bundesrepublik Deutschland 1945–1949. Vols. 1–5. Edited by Walter Vogel and Christoph Weisz. Munich: Oldenbourg, 1976–83. Clay, Lucius D. The Papers of General Lucius D. Clay: Germany, 1945–1949. Edited by Jean Edward Smith. Bloomington: Indiana University Press, 1974. Erhard, Ludwig. Bundestagsreden von Ludwig Erhard. Edited by Rainer Barzel. Bonn, 1972. ———. Kriegsfinanzierung und Schuldenkonsolidierung. Faksimiledruck der Denkschrift von 1943/44. Frankfurt/Main: Propyläen, 1977. ———. Ludwig Erhard. Gedanken aus fünf Jahrzehnten. Edited by Karl Hohmann. Düsseldorf: Econ, 1988. ———. Das Sagte der Bundeskanzler. Ludwig Erhard in Reden und Interviews. Edited by Rolf Osang. Munich: Osang, 1966. ———. Wirken und Reden. Edited by Walter Hoch. Ludwigsburg: Hoch, 1966. Germany (West), Auswärtiges Amt. Akten zur auswärtigen Politik der Bun253

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desrepublik Deutschland 1964. Band 2. Edited by Wolfgang Hölscher and Daniel Kosthorst. Munich, 1995. ———. Akten zur auswärtigen Politik der Bundesrepublik Deutschland 1965. Band 3. Edited by Mechthild Lindemann and Harald Rosenbach. Munich: Oldenbourg, 1996. ———. Akten zur auswärtigen Politik der Bundesrepublik Deutschland 1966. Band 3. Edited by Matthias Peter and Harald Rosenbach. Munich: Oldenbourg, 1997. Germany (West), Bundesregierung. Die Kabinettsprotokolle der Bundesregierung. Band 1. 1949. Edited by Ulrich Enders and Konrad Reiser. Boppard am Rhein: Boldt, 1982. ———. Die Kabinettsprotokolle der Bundesregierung. Band 2. 1950. Edited by Ulrich Enders and Konrad Reiser. Boppard am Rhein: Boldt, 1984. ———. Die Kabinettsprotokolle der Bundesregierung. Band 3. 1950 Wortprotokolle. Edited by Ulrich Enders and Konrad Reiser. Boppard am Rhein: Boldt, 1986. ———. Die Kabinettsprotokolle der Bundesregierung. Band 4. 1951. Edited by Ursula Hüllbüsch. Boppard am Rhein: Boldt, 1988. ———. Die Kabinettsprotokolle der Bundesregierung. Band 5. 1952. Edited by Kai von Jena. Boppard am Rhein: Boldt, 1989. ———. Die Kabinettsprotokolle der Bundesregierung. Band 6. 1953. Edited by Ulrich Enders and Konrad Reiser. Boppard am Rhein: Boldt, 1989. ———. Die Kabinettsprotokolle der Bundesregierung. Band 7. 1954. Edited by Thomas Trumpp and Ursula Hüllbüsch. Munich: Oldenbourg, 1993. ———. Die Kabinettsprotokolle der Bundesregierung. Band 8. 1955. Edited by Michael Hollmann and Kai von Jena. Munich: Oldenbourg, 1997. ———. Die Kabinettsprotokolle der Bundesregierung. Band 9. 1956. Edited by Ursula Hüllbüsch. Munich: Oldenbourg, 1998. ———. Die Kabinettsprotokolle der Bundesregierung. Band 10. 1957. Edited by Ulrich Enders and Josef Henke. Munich: Oldenbourg, 2000. ———. Die Kabinettsprotokolle der Bundesregierung. Kabinettsausschuß für Wirtschaft. Band 1. 1951–1953. Edited by Ulrich Enders. Munich: Oldenbourg, 1999. ———. Die Kabinettsprotokolle der Bundesregierung. Kabinettsausschuß für Wirtschaft. Band 2. 1954–1955. Edited by Michael Hollmann. Munich: Oldenbourg, 2000. ———. Die Kabinettsprotokolle der Bundesregierung. Kabinettsausschuß für Wirtschaft. Band 3. 1956–1957. Edited by Ralf Behrendt and Uta Rössel. Munich: Oldenbourg, 2001. ———. Die Kabinettsprotokolle der Bundesregierung. Ministerausschuß für die Sozialreform 1955–1960. Edited by Bettina Martin-Weber. Munich: Oldenbourg, 1999. Germany (West), Statistisches Bundesamt. Handbook of Statistics for the Federal Republic of Germany. Stuttgart: W. Kohlhammer, 1967.

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———. Statistisches Jahrbuch für die Bundesrepublik Deutschland 1959. Stuttgart: W. Kohlhammer, 1959. ———. Statistisches Jahrbuch für die Bundesrepublik Deutschland 1968. Stuttgart: W. Kohlhammer, 1968. Hitler, Adolf. Mein Kampf. Translated by Ralph Manheim. 1943. Reprint, Boston: Houghton Mifflin, 1971. Mensing, Hans Peter, ed. Adenauer Briefe 1945–1947. Berlin: Siedler, 1983. ———. Adenauer Briefe 1947–1949. Berlin: Siedler, 1984. ———. Adenauer Briefe 1949–1951. Berlin: Siedler, 1985. ———. Adenauer Briefe 1951–1953. Berlin: Siedler, 1987. ———. Adenauer Briefe 1953–1955. Berlin: Siedler, 1995. ———. Adenauer Briefe 1955–1957. Berlin: Siedler, 1998. Wörtliche Berichte und Drucksachen des Wirtschaftsrates des Vereinigten Wirtschaftsgebietes 1947–1949. Band 2 (1.–22. Vollversammlung). Edited by Institut für Zeitgeschichte. Munich: Oldenbourg, 1977.

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Backer, John H. Priming the German Economy: American Occupational Policies, 1945–1948. Durham, N.C.: Duke University Press, 1971. Balabkins, Nicholas. Germany under Direct Controls: Economic Aspects of Industrial Disarmament, 1945–1948. New Brunswick, N.J.: Rutgers University Press, 1964. Barre, Raymond. “Ludwig Erhard, le miracle allemand et l’économie sociale du marche.” Revue des deux Mondes (1984): 3–10. Barzel, Rainer. Im Streit und umstritten: Anmerkungen zu Konrad Adenauer, Ludwig Erhard und den Ostverträgen. Frankfurt/Main: Ullstein, 1986. Beckerath, Erwin von, Fritz W. Meyer, and Alfred Müller-Armack, eds. Wirtschaftsfragen der freien Welt. Festschrift zum 60. Geburtstag von Ludwig Erhard. Frankfurt/Main: F. Knapp, 1957. Benz, Wolfgang. Die Geschichte der Bundesrepublik Deutschland. Band II. Wirtschaft. Frankfurt/Main: Fischer Taschenbuch Verlag, 1989. ———. Die Gründung der Bundesrepublik. Von der Bizone zum souveränen Staat. 5th ed. Munich: Deutsche Taschenbuch Verlag, 1999. ———. Von der Besatzungsherrschaft zur Bundesrepublik. Stationen einer Staatsgründung. 1946–1949. Frankfurt/Main: Fischer Taschenbuch Verlag, 1984. Berghahn, Volker. The Americanisation of West German Industry, 1945–1973. Cambridge: Cambridge University Press, 1986. ———. “Ideas into Politics: The Case of Ludwig Erhard.” In Ideas into Politics, edited by R. J. Bullen, H. Pogge von Strandmann, and A. B. Polonsky, 178–92. London: Croom Helm, 1984. ———. Imperial Germany, 1871–1914: Economy, Society, Culture, and Politics. Providence: Berghahn Books, 1994. ———. Otto A. Friedrich: Ein politischer Unternehmer. Frankfurt/Main: Campus, 1993. ———. “Resisting the Pax Americana?: West German Industry and the U.S., 1945–1955.” In America and the Shaping of German Society, edited by Michael Ermarth, 85–100. Providence: Berg, 1996. ———. Unternehmer und Politik in der Bundesrepublik. Frankfurt/Main: Suhrkamp, 1985. ———. “West German Reconstruction and American Industrial Culture, 1945–1960.” In The American Impact on Postwar Germany, edited by Reiner Pommerin, 65–82. Providence: Berghahn Books, 1995. ———. “Zur Amerikanisierung der westdeutschen Wirtschaft.” In Vom Marshallplan zur EWG, edited by Werner Bührer, Ludolf Herbst, and Hanno Sowade, 227–53. Munich: Oldenbourg, 1990. Bethusy-Huc, Viola Gräfin von. Demokratie und Interessenpolitik. Wiesbaden: Steiner, 1962. Birke, Adolf M. Nation ohne Haus. Deutschland 1945–1961. Berlin: Siedler, 1998. Blatt, Rudolf. “Wissen, Lehren, Handeln. Wo sind heute Wirtschaftsminister

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INDEX

Page numbers in italics refer to illustrations. Abelshauser, Werner, xii, 117–19 Abs, Hermann-Josef, 93 Action Association for the Social Market Economy, 122, 131 Adenauer, Konrad, xiv, 33, 61, 83, 103, 171, 178, 179, 187; background of, 81–82; and cartel law, 109, 112, 131, 132, 134; and economic affairs, 47–48, 99, 124, 125, 165; and Erhard, 82–83, 84–86, 87, 88, 89–91, 93, 102, 104–5, 106, 126–27, 128–29, 143–44, 148, 153–54, 169, 172–74; and Erhard’s fall, 203, 204; and European integration, 147, 149, 150, 169; and federal president controversy, 175–77; and Gürzenich Hall speech controversy, 128–29; and pension reform, 139, 143; and Ruhr coal industry, 101, 161 Adenauer, Paul, 141 Agartz, Viktor, 52 Ahlen Program, 47–48 Albers, Johannes, 46 Allied High Commission, 103, 104, 112 Altmann, Rüdiger, 185, 196 Altmeier, Peter, 88 Arnold, Karl, 88 Arnold, Thurman, 79 Atlee, Clement, 48

Bad Godesberg Program, 47 Bad Kissingen, 1 Ball, George, 200 Bank of the German States, 74, 75, 99, 100, 107, 123, 126 Barzel, Rainer, 178, 198, 202, 203, 204 Beck, Ludwig, 15 Becker, Curt, 175 Berg, Fritz, 127, 159, 163; and cartel law, 110–11, 113–14, 131–32, 133, 135–36; and Ruhr coal industry, 160, 162 Berghahn, Volker, xii Bipartite Control Office (BICO), 64–65, 77, 80 Bismarck, Otto von, 138 Blank, Theodor, 61, 73, 83 Blessing, Karl, 16, 159 Blücher, Franz, 60, 61, 91, 92, 100, 129 BMW, 52 Böckler, Hans, 94–95 Böhm, Franz, 24, 25, 61, 62, 79 Brandeis, Louis, 79 Brandt, Willy, 177, 205 Brentano, Heinrich von, 83, 155 Brüning, Heinrich, 14 Buccerius, Gerd, 175 Bundesbank, 159, 195, 201 Bundesrat, 113, 137 Bundestag, 134, 137, 162 Bungartz, Everhard, 53, 55 Bürckel, Josef, 18, 19 273

]

INDEX

Cabinet economic subcommittee, 105–6, 155 Cairncross, Alec, 99 Cartels, 1, 5, 9, 13, 16, 33–34, 52, 71, 79–81, 107–15, 130–37, 152, 207–8 Christian socialism, 44, 46–47, 65 Churchill, Winston, 48 Clay, Lucius D., 50, 52, 59, 60, 66, 68, 69, 70, 80, 208 Codetermination, 38, 94–95 Colm-Dodge-Goldsmith Plan, 59 Commonweal economy, 44 Consumer Research Company, 16 Currency reform, 68–70 Dahlgrün, Rolf, 197 Decartelization, 52–53, 79–81 De Gaulle, Charles, 158, 167, 169, 170–71, 186, 189, 201, 209 Dehler, Thomas, 60 Dietrich, Hermann, 61 Dismantling, 56–57, 75–76 Draper, William, 69 Düsseldorf Principles, 85 Economic Cooperation Administration, 76, 91, 94, 99 Ehard, Hans, 88 Elysée Treaty, 171–72, 179, 186 Equalization of Burdens Law, 96 Erhard, Eleanore, 8 Erhard, Elizabeth, 8 Erhard, Ludwig: and Adenauer, 82–83, 84–86, 87, 88, 89–91, 104–5, 106, 126–27, 128–29, 143–44, 148, 150, 153–54, 169, 172–74; and Americans, 50–51; appointed Federal Minister of Economics, 88, 91; and balance of payments crisis, 98–101, 107; as Bavarian economics minister, 51–54; and budget, 36, 197, 201; and cartels, 33–34, 52–53, 79–80,

[ 274

107–15, 130–37, 152, 207–8; and Christian Democratic Union, 61–62, 73, 85–86, 87–88, 90, 152, 156, 177, 184–85, 195, 197, 198, 203, 204, 206; and coal industry, 101–2; and codetermination, 38, 94–95; and consumers, 35; and convertibility of currencies, 157–59; and council of experts, 165; and currency reform, 68–70; death of, 206; and de Gaulle, 167, 170–71, 186–90, 201; and democracy, 31, 39; as director of Administration for Economics, 62–86, 63, 78; and dismantling, 56–57, 75–76; education of, 3–4, 7–10; and Eucken, 24; and European integration, 39–40, 145–51, 167– 72; fall of, 202–4; and federal elections, 86, 122, 152, 196–98; and federal president controversy, 175–77; and foreign aid, 41; and foreign policy, 186–94, 199–201, 209; and formed society, 196; and Free Democratic Party, 53, 55, 60–62, 73, 85–86, 177–78, 193, 203; and freedom, 37; and free trade, 36–37, 40, 96–97, 167; and economic growth, 31, 57, 195; and growth of government, 166–67; Habilitationsschrift of, 13; health of, xi, 3, 5, 174–75; and housing issue, 164; ideas of, 3, 7–11, 14, 15, 16, 17, 20–21, 23–25, 27–41, 56, 58, 63–64, 84, 184; and Jewish issue, 192–93; and labor theory of value, 10, 38; and Lyndon B. Johnson, 190–92, 199–201; and Marx, 29–30, 38; military service of, 4–5; and money, 36; and Nazis, 13, 19; and pension reform, 137–44; personality of, xiii, 3, 5–6, 9, 77–78, 90–91, 172–74, 182–84, 208, 210; and politics, 28–29; and prices,

INDEX

33, 36, 38; and privatization, 162–64, 195; and property, 35–36; and revaluation of deutsche mark, 159–60; and Röpke, 23–24; and Ruhr coal industry, 101–2, 160– 62; significance of, xiii–xiv; at Special Office for Money and Credit, 55–59, 61, 62, 90; and the state, 32, 33; and subsidies, 115– 17; and unions, 164–65; at University of Munich, 54–55; at Vershofen institute, 10–19; youth of, 2–4 Erhard, Luise, 8 Erhard (Guth), Rose, 8, 15 Erhard, Wilhelm, 2, 3, 4, 10 Erhard Brigade, 122, 156, 171, 175, 179 Ernst, Friedrich, 105 Eschenburg, Theodor, 16, 17, 51 Etzel, Franz, 92, 150, 155, 160 Eucken, Walter, 16, 18, 24, 25, 28, 32, 39, 45, 56, 62, 185, 210 EURATOM (European Atomic Energy Community), 147, 149 European Coal and Steel Community, 145 European Common Market, 153, 158, 159, 166 European Free Trade Association, 168, 170 European Payments Union, 98–101, 107 Everyman Program, 73, 74–75 Federal Association of German Industry (BDI), 97, 102, 128, 129; and cartel law, 110, 112, 113–15, 133–34 Federal Bank, 159, 195, 201 Federal Ministry of Justice, 111, 112 Fischer, Georg, 54 “Formed society,” 196, 210 François-Poncet, André, 110

Frankfurter Allgemeine Zeitung, 162, 168 Free Democratic Party, 45, 60–61, 62, 69, 81, 122 Freiburg school, 24, 28, 133 Friedrich, Otto A., 101, 111 Fürth, 2, 26 Gablentz, Otto Heinrich von der, 62 General Agreement on Tariffs and Trade, 107, 147 Gerecke, Günther, 15 German Federal Post Office, 94 German Federal Railway, 94, 109, 124 German Industrial Promotion Association, 19 German National Railway, 80 Gerstenmaier, Eugen, 177 Globke, Hans, 182 Goerdeler, Carl, 15, 16, 22 Goldmann, Nahum, 192 Gothein, Georg, 16 Götz, Hans, 162 Grass, Günther, 197 Great Britain, 48; occupation policy of, 49–50 Gross, Johannes, 185, 196 Grünig, Ferdinand, 21 Guiding Principles Law (Leitsätzegesetz), 65–66, 67–68, 69, 70–71 Günther, Eberhard, 136 Gürzenich Hall speech controversy, 128–29 Guth, Karl, 15, 16, 17, 19 Hallstein, Walter, 62 Harriman, W. Averell, 76–77 Hassold, Augusta, 2, 3 Havana Charter, 109 Hayek, Friedrich A. von, 24, 31, 119 Hentschel, Volker, xii, 118 Heschler, Erwin, 53–54 Heuss, Theodor, 88, 105, 137, 175 275

]

INDEX

Hitler, Adolf, xi, xiv, 20, 211 Höcherl, Hermann, 175 Hochhuth, Rolf, 197 Hoegner, Wilhelm, 51 Hoffman, Paul, 77 Hohmann, Karl, 175, 185, 196, 206 Holzapfel, Friedrich, 83 Homburg Draft, 59 Hoogen, Matthias, 175 IG Farben, 79 Ilau, Hans, 92 JCS 1067, 48–49, 79 JCS 1779, 80 Jacobsson, Per, 99 Jánosy, Franz, 118–19 Junkers, 1 Johnson, Lyndon B., 186, 190–92, 199–200, 200, 204, 209 Josten, Paul, 79 Kaiser, Jakob, 46 Kalveram, Wilhelm, 18 Kaufmann, Edmund, 62, 65 Keiser, Günther, 21, 56 Kelleher, Grant, 110 Kempski, Hans Ulrich, 171 Kennedy Round, 187 Keynesianism, xiii, 14, 202 Kiesinger, Kurt Georg, 203 Knapp, Georg Friedrich, 214 (n. 11) Kogon, Eugen, 44 Köhler, Erich, 61 Korean War, 97–98 Kramer, Alan, xii Krüger, Hans, 192 Kuhlemann, Christian, 92 Laitenberger, Volkhard, xii Langer, Wolfram, 175 Lederer, Emil, 16 Liberal People’s Party, 2 Liebel, Willi, 19

[ 276

Lorraine, 18 Lotter, Luise (Schuster), 8 Lübke, Heinrich, 129, 176, 185, 198 Ludwig Erhard Foundation, 206 Macmillan, Harold, 158 Macready, Gordon, 77 Mann, Wilhelm Rudolf, 16 Marshall, Alfred, 119 Marshall Plan, 58, 59, 76, 77, 117 Marx, Karl, 27, 29–30, 38 McCloy, John J., 93, 103–4 McGhee, George, 200 McNamara, Robert, 201 Mende, Erich, 177, 198 Meyer-Sevenich, Maria, 82, 228 (n. 151) Miksch, Leonhard, 62, 65–66, 80 Mises, Ludwig von, 38, 119 Monnet, Jean, 145, 147, 158 Mueller, Rudolf, 52 Muhr, Ella, 19 Müller-Armack, Alfred, 24–25, 62, 65, 72, 132, 133, 158, 185, 202, 210 Müller-Hermann, Ernst, 175 Multilateral Force, 188–89 Nasser, Gamel Abdel, 193 National Liberal Party, 1 Nell-Breuning, Oswald von, 62 Nicholls, Anthony J., xii Niederbreisiger Circle, 92 Nölting, Erik, 73–74 North Atlantic Treaty Organization, 172, 188 Ockhardt, Kuno, 69, 90 Offset issue, 191–92, 199–200 Ohlendorf, Otto, 21–22 O’Neill, Con, 77–78 Oppenheimer, Franz, 8–10, 11, 24, 185, 208, 210

INDEX

Organization for European Economic Cooperation, 100, 145 Peters, Hans, 62 Pferdmenges, Robert, 61, 93, 160 Pompidou, Georges, 183, 187 Preusker, Viktor Emanuel, 61, 69, 92 Preussag, 163 Pünder, Hermann, 61, 62, 63, 76 Raiser, Ludwig, 62 Rannungen, 2 Reemtsma, Philipp, 16, 19 Reich Post Office, 80 Reichsgruppe Industrie, 15–16, 19, 20 Rhenish-Westphalian Coal Syndicate, 79 Ricardo, David, 119 Richter, Eugen, 3, 210 Rieger, Wilhelm, 7–8, 9, 210, 214 (n. 11) Risse, Roland, 51, 110 Robertson, Brian, 59, 60, 68, 69, 70, 78, 80 Röpke, Wilhem, 16, 22–24, 25, 45, 93, 126, 168, 172, 185, 210 Rusk, Dean, 191 Rüstow, Alexander, 16, 185 Schacht, Hjalmar, 14 Schäfer, Erich, 19 Schäffer, Fritz, 91, 92, 95–96, 100, 104, 106, 116, 126, 127, 128, 150, 155; and pension reform, 139, 140, 143 Scharnberg, Hugo, 92, 144 Schiller, Karl, 62, 205–6 Schleicher, Kurt von, 15 Schönwand, Max, 54 Schreiber, Wilfrid, 141–42 Schröder, Gerhard, 175–76, 178, 185, 189, 193

Schumacher, Kurt, xiv, 45–46, 53, 74, 88, 215 (n. 215) Schuman, Robert, 145 Schumpeter, Joseph A., 16, 25, 121 Schuster, Friedrich, 8 Schuster, Luise. See Lotter, Luise Seebohm, Hans-Christoph, 61 Seelenmassage, 125 Seibt, Dankmar, 175 Semler, Johannes, 60 Smith, Adam, 1, 11, 32, 38, 119 Social market economy, xiii, 31 Soviet Union, 48 “Special Circle,” 185, 196 Special Office for Money and Credit, 55–59, 61, 62, 90 Speer, Albert, 20 Speigel, Der, 179, 192, 196 Stahl, Rudolf, 16, 21 Stauffenberg, Claus Schenk Count von, 22 Steel, Christopher, 78 Stock, Christian, 88 Storch, Anton, 139, 140, 142, 143 Strauss, Franz Josef, 178, 179, 198, 202, 204 Streit, Josef, 192 Süddeutsche Zeitung, 172 Taxes, 71–72, 95–96, 120, 126, 128, 129–30, 195, 197 Tennenbaum, Edward A., 59 Terhalle, Fritz, 53, 55 “Third way,” xiv, 13, 29, 30–31, 47 Ulbricht, Walter, 193, 194 United States, 48 Veba, 195 Vershofen, Wilhelm, 10–12, 18 Vocke, Wilhelm, 92, 99, 127 Volksaktien, 163 277

]

INDEX

Volkswagen, 117, 163–64 Voorhees, Tracy S., 77 Waage, Die, 122, 152 Wallich, Henry C., xii Weber, Adolf, 54, 55 Weber, Max, 25 Weimar Republic, 5 Weisser, Gerhard, 62

[ 278

Westrick, Ludger, 91, 105, 182 Wildemann, Rudolf, 185, 196 Wilhelm II (kaiser), 1, 5, 211 Young Historical School, 2 Zangen, Wilhelm, 16 Zeit, Die, 169, 175 Ziersch, Guido, 114–15, 133