Erhard and Wirtschaftswunder

The IG Farben building lies in the northern outskirts of the German city of Frankfurt. The site completed in 1930 became the corporate headquarters of the IG Farben conglomerate. Despite significant bomb damage to the surrounding area during the Second World War, the building remained largely intact and became the headquarters of the US occupation forces. The ousted IG Farben management team were on trial for war crimes at Nuremberg. Among other things, one of the subsidiaries of IG Farben had produced the gas Zyklon B which was used at a number of Nazi concentration camps to exterminate mostly Jews.

Despite this dark history, the boardroom at IG Farben has since become something of a landmark in the post-war revival of liberalism. At a meeting there in July 1948, Ludwig Erhard, the director of the economic council of Bizonia, and General Clay, the military governor of the American Zone, had been discussing Erhard’s decision to abolish rationing, as well as removing wage and price controls. Such a dramatic shift in economic policy by Erhard in such a short space of time raised serious questions by the occupying powers.

Clay addressed the German official. “Herr Erhard, my advisers tell me that what you have done is a terrible mistake. What do you say to that?”

“Herr General,” Erhard replied. “Pay no attention to them! My own advisers tell me the same thing” (Hartrich, 1980: 4).

Erhard went on to pitch his idea of the social market economy, an economic system that used markets but required the state to intervene to maintain the competitive functioning of those markets thereby generating fairer voluntary exchanges. Erhard had been influenced by the ordoliberal movement. Indeed, Walter Eucken and Franz Böhm were both members of Erhard’s advisory council.

The foundation of West Germany is of interest due to its superior economic performance during the 1950s under Erhard’s leadership, and because it is one of the intellectual sources of the ordoliberal policy debate. This chapter explores whether there was anything distinctly ordoliberal about this period, and the underlying reasons for West German economic success. This taps into the polarized debate between contemporary neoliberals who have asserted this success was due to Erhard’s adherence to the market, and those in favour of a more redistributive outlook who argued it would have happened anyway due to post-war reconstruction.