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Ordoliberal thinking did not abandon the gold standard and the principles informing it easily. In the inter- and post-war periods, however, the historical situation could not be ignored and the question of the general economic and political conditions of the monetary order had to be confronted (Lutz 1989 [1935]: 21915_{). In response to this,}

ordoliberals developed an approach which sought to reintroduce the principles of the gold standard through an authoritative political decision.

For ordoliberals, the structural connection between the monetary order and “the overall economic system” (ibid.) is decisive. The question of monetary order must be addressed in relation to the wider socio-economic order. The principles governing each aspect of the general order must not conflict. In this regard, the primary principle of the gold standard is its automaticity, it “is a mechanism,” a “machine” (ibid: 220). Properly conceived and supported, the gold standard eliminates political discretion in relation to monetary policy. “[T]he essence of the gold standard” (ibid: 225-6, emphasis added) is an impersonal and apolitical mechanism. It is a “strict order of international finance” in which political discretion is constrained by a mechanism that ensures that the money supply is always “‘appropriate’” to the needs of the economy and “almost nothing at all is left to the planning initiative of [central] bank managers.” In contrast to Keynesian monetary policy, the gold standard “makes few rather than many demands on the human intellect” (ibid: 226).

The automatic monetary system, however, can only emit signals to guide government action. The implementation of those signals rests on public authority. But the freedom of public authorities to interpret those signals is constrained and government cannot, “with impunity” (ibid: 236, emphasis added), affect core variables of economic policy in a manner contrary to those signals. Keynesian economic

15 _{Published originally under the title “Goldwährung und Wirtschaftsordnung.” Friedrich A. Lutz was}

a student of Eucken, who develops a similar approach in Grundsätze der Wirtschaftspolitik, albeit based an international commodity basket of consumer and industrial goods. The principles and effects of such a system would be similar to the gold standard except that “the value of money would not depend on one commodity – that is, gold – but would be linked to the value of several commodities” (Eucken 2004 [1952]: 262, emphasis in original, my translation).

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planning, therefore, presents “an irreconcilable antithesis” to the automatic monetary order because it is

based on the idea of conscious organization by a central authority. Its aims and methods originate … in a totally different world based on a fundamentally different view of the structural principles of the economy (ibid., emphasis added).

For a general economic order to function, then, there must be a coherence between the principles governing all aspects of policymaking. The question of monetary order must therefore be answered in the context of the broader question of the political- economic order a society wants for itself (ibid: 226-7).

The choice between different monetary orders – a managed and an automatic – is a general choice between different approaches to governing the economy. This, in turn, is a choice that involves sacrifices. Whereas the managed monetary order involves the sacrifice of monetary stability, the automatic entails the sacrifice of the government prerogative to respond discretionarily to domestic political concerns: “If the rules are not observed” the automatic monetary system “ceases to be a system and chaotic conditions result” (ibid: 229). Governments must therefore not succumb to popular pressures for stimulus during a trough. The government ought, rather, to support the market in correcting the structural problems of the economy that led to the crisis in the first place. Only this will be an authentic and sustainable response to any given crisis. The international and automatic monetary system thereby promises to introduce a mechanism to enforce market discipline on government policy.

The Economic Constitution

The necessity of aligning the principles governing monetary and economic policy, demands a political commitment to allow “the price mechanism to take effect” (ibid: 231), as only the price mechanism can translate ‘real’ economic developments into intelligible signals for economic actors. This is one of the central tenets in ordoliberal economic theory: the price mechanism constitutes the central allocative device that allows the large industrialised economy to function smoothly and with a minimum of distortions (Eucken 1951 [1939], 1989 [1948], 2004 [1952]). As Franz Böhm (1989 [1966]: 53) put it, “the controlling force of the signals [of the market price system] consists in the fact that they co-ordinate the partial plans of all participants on the basis of decisions which are made by these participants.” It is a system of economic decision- making which requires no governing central authority. The price mechanism operates

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as a “scarcity gauge” or a “calculating machine” and aides otherwise disassociated economic actors in the determination of “how to combine factors of production to produce what is required” (Eucken 1989: 27-8).

To perform its role the price mechanism must not be disturbed. It therefore demands general price stability, since price developments that reflect conditions other than the relative scarcity of different goods and factors of production in the free market distort its functioning. In order protect the price mechanism, the ordoliberal order requires a strong state both to establish the necessary framework conditions and protect them from corruptive forces arising from the market or society (see Foucault 2008; Bonefeld 2015; Streeck 2015; Wilkinson 2015a). It is a strong state, however, in a particular sense. As the bearer of “volonté générale,” the state’s tasks must “include anything connected with the realisation of free market conditions” (Böhm 1989: 55). It must be endowed with a wide degree of discretion for evaluating and acting on what it perceives as the conditions necessary for realising the free market economy (see White 2017a). However, the “task of government consists merely in creating the conditions enabling this control mechanism [of the market] to operate in accordance with the constitution” (Böhm 1989: 64, emphasis added). The state must refrain from going beyond its role as an enabler and protector of the economic constitution. It is strong in the sense that it must be afforded broad powers to ensure the workings of an automatic mechanism that disciplines not only others but also itself. The strong state thus subjects itself to qualitative limits but at the same time the automaticity of the monetary system reinforces such constraints by ensuring that breaches of the economic constitution are ‘punished’ automatically. The internationality of the monetary system reinforces this punishment mechanism and thereby becomes a core feature of the domestic constitutional order of constrained government.

The price mechanism of the market is, like the deist God, a weak ‘sovereign.’ It works through the natural laws of the economy, but these are corruptible and the market needs state power to enable and enforce its ‘will.’ In this political theology (see Manow 2001), the immanent order of nature does not emerge spontaneously in its perfect form, as “the classical economists” thought (Eucken 1989: 38). It is, rather, the task of “economic policy … to bring about the free, natural order that God intended” (ibid: 34; see also Eucken et al 1937). In this order, economic policy must be considered in its entirety to prevent incongruities between different parts of it. As such, “[m]onetary policy, policy on cartels, trade policy, policy towards small businesses et

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cetera” should not be “seen as separate specialised areas to be dealt with discretely”

(Eucken 1989: 39) but constituent parts of a general whole. The problem of politics is thus pivotal to ordoliberal thinking in that political authority presents a perennial threat to the ‘natural’ order – through its potentially corrupting influence on the workings of the market – while at the same time being inescapably necessary for bringing it about and protecting it. This inherent paradox between the artificiality and naturalness of the market economy means that political authority is always both necessary and unwanted. The question, then, is how the paradox is to be addressed.

The ordoliberal paradox of political authority is a variant of Rousseau’s ‘paradox of politics’ (Honig 2009), i.e. the problem that good laws come from good politics but good laws being a precondition for good politics. The problem is that social life does not emerge ex nihilo but is always situated historically and in concrete constellations of power. Any limited reform within the specific historical situation is inescapably insufficient or even counter-productive because it cannot adequately take the whole range of its consequences into account. Introducing the gold standard alone in the historical situation of Weimar Germany, for instance, would be bound to fail unless the comprehensive economic and political order were to be reconfigured along with it. Conversely, as Eucken (1989: 32) notes, “[t]here is little point in devising national constitutions in the modern world without regard for the economic system.” And in the face of structural economic changes, “[t]he constitution of the country [may remain] unchanged, but because of the shift in economic power the governmental decision-making process undergoes a change” (ibid.). The monetary system or the economic constitution must not, in other words, be addressed in isolation but in conjunction with the wider consideration of the constitutional relation between state and society (see Böhm 1989).

In order to address this problem and overcome the problem of unintended consequences of partial and discretionary political initiatives, a ‘naturally’ occurring or artificially induced break with the past must be sought. In 1922, Carl Schmitt (2006) introduced his concept of the decision in and on the state of exception as the political equivalent of the miracle in Christian theology to address this problem and the ordoliberals in large part adopted this notion in their political theory (see, e.g., Böhm 1989: 63). In Constitutional Theory, Schmitt refined the concept of the political decision and, by fusing it with the concept of the constituent power, arrived at a conception of the constitution as being derived from “the political will, whose power or authority is

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capable of making the concrete, comprehensive decision [Gesamtentscheidung] over the type and form of its own political existence” (Schmitt 2008 [1928]: 125). This constituent decision, in turn, defines the constitution in its entirety and “[t]he validity of any additional constitutional rule is derived from the decision of this will” (ibid.).

In their so-called ‘Ordoliberal manifesto,’ the ‘founding fathers of ordoliberalism’ – Eucken, Böhm and Hans Großmann-Doerth (1937: xix/1989: 24) – adapted the language of the ‘comprehensive decision’ to their own intellectual programme. In this, ‘the economic constitution’ (Wirtschaftsverfassung) is described as “a general political decision [Gesamtentscheidung] as to how the economic life of the nation is to be structured.”16 _{The manifesto calls for energetic legal-political action, but it}

rejects the Schmittian nihilism of the constituent moment. The economic constitution- making process should instead “bring scientific reasoning, as displayed in jurisprudence and political economy, into effect for the purpose of constructing and reorganising the economic system” (Eucken et al 1989: 23; see also Eucken 2004: 250- 253; Müller-Armack 1978). The economic constitution should therefore be constituted by “men of science” who “by virtue of their profession and position” are “independent of economic interests” and, therefore, “the only objective, independent advisers capable of providing true insight into the intricate interrelationships of economic activity and therefore also of providing the basis upon which economic judgements can be made” (Eucken et al 1989: 15; see also Biebricher 2014: 97). The realisation of ‘God’s intended order’ needs legal-political action as its midwife and the “comprehensive decision on the political order [Die ordnungspolitische Gesamtentscheidung] has to stand before individual economic policymaking acts” (Eucken 2004: 250, my translation). The latter, in turn, must conform to ‘the principle’ [Prinzip] enshrined in the economic constitution.

The question of the monetary system is thereby inscribed within the wider question of the principles informing the basic economic and political constitution of the state. The monetary problem thereby becomes “merely one part of the fundamental matter of the principles by which economic life should be governed” (Lutz

16 _{See also Müller-Armack (1978: 328), who saw the job of “shaping an economic order” as requiring}

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1989: 235). The problem of monetary order is thus an integral part of the general problem of how a political community governs itself.

The internationality of currency systems such as the gold standard (and later the euro), however, introduces an additional difficulty. Precisely because they are international, their functioning and maintenance requires “confidence in political stability at home and abroad and, barely distinguishable from this, confidence in the maintenance of the currency” (ibid: 233, emphasis added). If there are concerns about the stability of the political system at home or abroad, economic activity ceases to be governed by ‘pure’ economic motives such as profit and productivity and becomes determined by political considerations concerning “the real or supposed general security or financial security of the countries concerned” (ibid.). The question of a particular government’s willingness to make the necessary sacrifices to maintain the currency system thereby becomes a concern for every other member of the system (ibid: 234). The internationality of the currency system thereby transforms the internal affairs of any member into a domestic political concern for every other member. As such, an international monetary system requires embedding not only in a national economic constitutional order but in a transnational one based on a comprehensive political decision in a constituent moment.

The Role of the Central Bank

Although underdeveloped in ordoliberal thought, the transnational dimension of the ordoliberal economic constitution has a direct bearing on the question of the euro and the ECB. I will return to this in chapters 4 and 6. For now, it is worth considering in more detail what the role of the central bank is within the ordoliberal economic constitution.

As discussed above, ordoliberals hold that the monetary system cannot “be considered in isolation” or “from the perspective of monetary technique only” (Lutz (1989: 236-7; see also Lutz 1962 [1936]: 94-95). It must be considered from the perspective of the basic principle of “the whole economic system.” Like all other governmental institutions, then, the central bank must follow ‘the rules of the game’ and, in line with the general view of the role of the central bank under the gold standard, “not much is expected of a central bank” because its operations are “simply derived from the application of general economic principles to the monetary system” (Lutz 1989: 236). This does not render central banks superfluous, but it means that

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they must not exert a conscious, independent influence on monetary policy. “[T]hey must,” rather, “work in the same direction” as the monetary system (ibid: 229). The automaticity of the system thereby provides the central bank with “an indicator of the need for action and of the end to be achieved” (Macmillan report as cited in Lutz 1989: 229). Any intervention by the central bank must, in other words, follow Alexander Rüstow’s principle of ‘liberal interventionism’: it must “work in the same direction as the rules of the market, not against them” (Lutz 1989: 241, n. 7).

The principle of liberal interventionism has a direct bearing on the question of central bank independence:

there can be no question of any ‘independence of the human intellect’ … it is not for the [central bank manager] to command but to obey even if this means obeying in the manner of a highly intelligent servant who deduces only from certain indications what his master wishes and then does the right thing without any express command (ibid: 230).

The market is the ‘master’ whose signals the central bank must head faithfully and the ‘monetary constitution’ (Lutz 1962) must ensure the “automatic functioning” of monetary policy so that it does not depend on the “day-to-day decisions of political bodies” (Eucken 2004: 262, my translation). Monetary policy thereby becomes an exercise in applying the rules and principles of the economic constitution without independent agency. Monetary policy is rendered outside ordinary politics through the initial comprehensive political decision on the economic constitution, but its conduct is not left to an independent central bank. In fact, “an all too independent and weakly controlled central bank is difficult to fit into the structure of the state. It will be tempted to position itself in opposition to the general economic policy of the state” (Eucken 1946 as cited in Bibow 2009: 170). The ordoliberal economic constitution does thus not provide a justification for central bank independence, quite the contrary (see also Bibow 2009).

While the ‘primacy of monetary policy’ [Primat der Währungspolitik] (Eucken 2004: 255) is a core aspect of ordoliberal thought, it is so in the limited but important sense of monetary stability being the essential precondition for a functioning price mechanism, without which the competitive market economy is unthinkable (ibid: 256). Because the gold standard had been the historically most successful means of securing monetary stability, the ordoliberals sought the reintroduction of its principles by other means. They did so, however, by providing a political theory of its foundations in a comprehensive political decision on an economic constitution. When adherence to the

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gold standard was no longer a political necessity, it had to be made part of the constitutional choice between a “Free economy” and a “planned economy” (Lutz 1989: 241). The government of money, then, would take place on the basis of the primacy of the constitution. Within the constitutional order, politics ought to play as minor a role as possible and public authority should be employed mainly for protecting and sustaining the constituted system. The constituent political decision, in other words, ought to eliminate the role of politics in governing money and economic life in general.