Live After Quit

Mises and the German Neo-liberals

The 1947 Mont Pèlerin Society meeting [in Switzerland] was enough to satisfy Mises’s curiosity about Europe and European scholars for quite some time. Europe lay in shambles, even Paris was in rags. He did not even wish to think about traveling to Austria. All that was good and memorable about Europe was in the past. No need for him to return to the old continent just to witness the misery induced by those very statist follies he had spent a lifetime fighting. When he was invited to the next Mont Pèlerin Society meeting, scheduled for July 1949 in the Swiss town of Seelisberg, he declined.1

But his American friends at the Volker Fund thought it was crucial to have him on board, lest the interventionists have a free hand. The Mont Pèlerin Society provided American libertarians not only with some cosmopolitan flair, but it also put them in touch with a mass of intellectuals close to their cause that could not be found at home.

Moreover, in one of the great ironies of history, liberal principles had just been applied with overwhelming success in Germany, and a thorough acquaintance with Ludwig Erhard and the intellectual leaders of the German reforms promised to be helpful for American libertarians in their struggles at home. Nobody in the States knew the reformers, and curiosity was great. Prompted by the news from Germany, Leonard Read asked Mises about Erhard. The reply:

The only fact I know about Professor Erhard is that he is the chairman of the Economic Advisory Board. This council is moderately interventionist and opposes the radical New Dealism of the German political parties and of the outright socialist British Military Government. It is possible that the Board’s firmness in this matter is an achievement of Erhard’s uncompromising attitude and the persuasiveness of his exposition of the principles of—true liberalism.2

The only way to find out, however, was to go to Europe and meet the man and his supporters. But from Luhnow’s point of view, this would only be worthwhile if men like Mises could be brought along to give the meetings the right orientation. Through the intermediation of Herbert Cornuelle and Loren Miller, Luhnow urged Mises to attend the Seelisberg meeting. Mises accepted. It would be his second return to Europe after emigration.3

He left New York City at some point in June, and then went to Seelisberg from July 3 to 10. The meeting was supposed to deal in particular with questions relating to the labor market.4 But as was to be expected, it was entirely overshadowed by the discussion of recent events in West Germany.

In March 1948, Ludwig Erhard had been appointed the director of the economic administration of the British-American occupation zone. A disciple of the social-liberal sociologist Franz Oppenheimer, Erhard was unknown in the world of libertarianism—which was probably why he got the job in the first place.5 But Mr. Nobody lost no time setting out for a liberal coup. Three months after his appointment, he made two bold decisions. Against the intentions of the British military government, he (1) abolished virtually all price controls and (2) introduced a new currency: the Deutschmark.

The next day the stores and shops were filled with merchandise. Businessmen had cut back production during the postwar years, and retailers held back commodities, reserving them for sales on the black market, where higher prices could be obtained. This lamentable state of affairs had resulted, of course, from the Nazi system of price controls, which had made profitable production impossible and turned the open market into a black market. The allied occupation forces had maintained this senseless system at the behest of a small group of influential left-wing economic advisers, for whom central planning and government controls was the state of the art.6 Erhard overthrew this system, thus creating the economic foundations of the (western) Federal Republic of Germany, which came to be established in the fall of 1949. More than that, he had put into practice a classical-liberal alternative to the Marshall Plan for postwar reconstruction.

A year before the Erhard reforms, on 5 June 1947, Mr. Marshall had presented his proposal for the economic reconstruction of Europe through the large-scale spending of U.S. taxpayer money.7 In subsequent years and decades, the story of the Marshall Plan has been told and retold from the point of view of its sponsors, thus becoming part of modern welfare-state mythology. High school students in all western countries learn that Marshall Plan-funded government spending initiated a new phase of economic growth after World War II.

In the cold light of economic reasoning, however, we can see that the Marshall Plan was in essence a scheme for postponing the bankruptcy of socialism and the welfare state. In private correspondence, Mises pointed out that the European countries had already “nationalized railroads, telegraph, electric power, telephone, mines, and many factories,” and he went on to add:

They have already expropriated by taxation all higher incomes and cannot expect any additional revenue from pushing further the policy of soaking the rich. Thus they want the American taxpayer to foot the bill for the deficits incurred by their glorified socialization policy. They call this scheme the Marshall plan.8

While Erhard’s reforms compared very positively with the abortive Marshall Plan, they were still far from being satisfactory from a libertarian point of view. Moreover, Erhard and his advisers were not staunch defenders of laissez-faire, but champions of middle-of-the-road policies.9 This was far more serious than any political inability to put into practice a more sweeping program.

In December 1948, when Leonard Read asked him for his opinion on Erhard, Mises did not know the man. In the following years, however, he familiarized himself with the writings of Erhard and found that they closely reflected the opinions of his advisers: Cologne professor of economics Alfred Müller-Armack, as well as Wilhelm Röpke and Walter Eucken. During the 1950s, Mises realized that the very success of Erhard’s free-market reforms was liable to be used against the market economy, because the reforms were “sold” in terms of interventionist rhetoric. He therefore honored the German reformers with a lengthy comment in his most prominent book:

[The] supporters of the most recent variety of interventionism, the German “soziale Marktwirtschaft,” stress that they consider the market economy to be the best possible and most desirable system of society’s economic organization, and that they are opposed to the government omnipotence of socialism. But, of course, all these advocates of a middle-of-the-road policy emphasize with the same vigor that they reject Manchesterism and laissez-faire liberalism. It is necessary, they say, that the state interfere with the market phenomena whenever and wherever the “free play of the economic forces” results in conditions that appear as “socially” undesirable. In making this assertion they take it for granted that it is the government that is called upon to determine in every single case whether or not a definite economic fact is to be considered as reprehensible from the “social” point of view and, consequently whether or not the state of the market requires a special act of government interference.

All these champions of interventionism fail to realize that their program thus implies the establishment of full government supremacy in all economic matters and ultimately brings about a state of affairs that does not differ from what is called the German or the Hindenburg pattern of socialism. If it is in the jurisdiction of the government to decide whether or not definite conditions of the economy justify its intervention, no sphere of operation is left to the market. Then it is no longer the consumers who ultimately determine what should be produced, in what quantity, of what quality, by whom, where, and how—but it is the government. For as soon as the outcome brought about by the operation of the unhampered market differs from what the authorities consider “socially” desirable, the government interferes. That means the market is free as long as it does precisely what the government wants it to do. It is “free” to do what the authorities consider to be the “right” things, but not to do what they consider the “wrong” things; the decision concerning what is right and what is wrong rests with the government. Thus the doctrine and the practice of interventionism ultimately tend to abandon what originally distinguished them from outright socialism and to adopt entirely the principles of totalitarian all-round planning.10

Mises’s reservations did not grow weaker through personal contact with representatives of the German “Ordo” school of neo-liberalism. Quite the contrary: in private correspondence from the mid-1950s, he stated, “I have more and more doubts whether it is possible to cooperate with Ordo-interventionism in the Mont Pèlerin Society.”11

1. Apparently he also declined an invitation to lecture at the University of Vienna in a U.S.-sponsored program in 1948. Fritz Machlup took part. See Thieberger to Mises, 18 April 1948; Grove City Archive: Thieberger files. 2. Mises to Read, letter dated 4 December 1948; Grove City Archive: FEE files. 3. In March 1950 he said that he had been to Europe twice, but not to Austria. See Mises to Ernest Neurath, letter dated 13 March 1950, Grove City Archive: Neurath file. 4. See Miller to Mises, letter dated 26 March 1949; Grove City College Archive: MPS files. See the front-page report in Neue Zürcher Zeitung (25 July 1949). In June 1949, Mises was in Europe. See Margit von Mises to R. Ziegler; Grove City Archive: Cluett, Peabody & Co. file. 5. On Franz Oppenheimer’s influence on his student Erhard, see for example the interview with Erhard in Deutsche Zeitung (30/31 December 1961), p. 20. During the Nazi era, Erhard had worked for two economic research institutes. After the war, he became the Bavarian minister of the economy and also attended the private seminar of Mises’s friend, Adolf Weber, who in those days was probably the most “Austrian” professor of economics (see Der Spiegel, 16 October 1963, mentioned by Gibson to Mises, letter dated 3 March 1964; Grove City Archive: “G” file). Weber championed a theory of the market process and of consumer sovereignty that was virtually indistinguishable from Mises’s views; see for example, Weber, Weltwirtschaft, pp. 86, 102, 106, 108. It was probably under the impact of the discussions in the Weber circle that Erhard received the vision and inspiration for his reforms of June 1948. 6. In those days, Walter Eucken, one of the intellectual leaders behind the Erhard reforms, wrote to Mises about the need for further deregulation: “The German authorities, with whom I am in constant touch, try everything to this effect. But American economic policies in Germany are still essentially based on central planning.” Eucken to Mises, letter dated 25 June 1948; Grove City Archive: Read files. 7. See Adolf Wittkowski, Schrifttum zum Marshallplan und zur volkswirtschaftlichen Integration Europas (Bad Godesberg: Bundesministerium für den Marshallplan, 1953). 8. Mises to Mark Jones, letter dated 31 March 1948; Grove City Archive: Jones file. 9. A few years later, the banking theorist Heinrich von Rittershausen speculated in private correspondence with Mises that Gemeinwirtschaft had laid the foundation for Erhard’s success, “because all the significant young people have read it carefully in the 12 years without readings.” Rittershausen to Mises, letter dated 22 August 1957; Grove City Archive: Rittershausen file. Of all postwar monetary theorists in Germany, Rittershausen was probably most sympathetic to Mises’s views. 10. Mises, Human Action (3rd ed., Chicago: Regnery, 1966), p. 723–24. Until the mid-1950s, Mises was apparently reluctant to even meet with Erhard. Röpke thought this was because Mises was under the influence of his closest German intellectual ally, Volkmar Muthesius, a sharp and relentless critic of Erhard’s economic policies. See Muthesius to Mises, letter dated 2 January 1954; Grove City Archive: Muthesius file. 11. Mises to Muthesius, letter dated 1 June 1955; Grove City Archive: Muthesius file.