The nature and intentions of Nazi economic policy are once again being hotly contested, although on a new set of terms.Footnote ¹ No longer is the German bourgeoisie's complicity in the Nazi “seizure of power” or the capitalist underpinnings of Hitler's subsequent aggressions at the center of the discussion.Footnote ² Rather, recent scholarship has chosen to grapple more carefully with the dynamic interplay between economics, race, and social policy in the Third Reich.Footnote ³ As David Schoenbaum contended forty years ago, the Third Reich's apotheosization of “national community [Volksgemeinschaft]” led to an array of welfare programs, educational reforms, and “meritocratic” values that may in fact have produced a modern “social revolution.”Footnote ⁴ To be sure, a number of subsequent studies have highlighted longer-term continuities, suggesting that the Nazi Sozialstaat was indebted in some part to the legacy of the Weimar Republic and in other respects presaged the social policies of the Federal Republic of Germany (FRG).Footnote ⁵ Historians likewise continue to debate the relative improvement in living standards experienced by the average German under Hitler. Virtually all scholars agree, however, that, regardless of its efficacy, the underpinnings of Nazi social policy are to be located in the Third Reich's drive to construct a racial utopia at home while securing popular support for wars of conquest abroad.Footnote ⁶

There is no question that völkisch ideology profoundly influenced the direction of German domestic and foreign policy after 1933. A certain teleology nonetheless persists in the tendency to view political economy in the Third Reich as exclusively the function of an illiberal obsession with building a racially superior Volkskörper on the one hand and a politically acquiescent Volksgemeinschaft on the other.Footnote ⁷ On the contrary, many aspects of Nazi social and economic policy prior to World War II, including an alternating mix of capitalism and welfarism, of corporatism and competition, echo the progressive traditions of German left liberalism.Footnote ⁸ At least in economic matters, many Nazi leaders tended to rely upon liberal businessmen, politicians, and intellectuals, from the industrial magnate Robert Bosch and two-term Reichsbank President Hjalmar Schacht to the architect of the Federal Republic's “social market economy,” Ludwig Erhard, in “a process whereby the party's own vague ideology was given new precision and purpose by the reforming energies the regime was able to absorb and attract.”Footnote ⁹ Indeed, the twin goals of “Volksgemeinschaft and Leistungsgemeinschaft,” observes Mark Roseman, “were sufficiently vague to accommodate energetic middle-class groups who sought to achieve a more efficient and egalitarian social order.”Footnote ¹⁰ This cooperation between Weimar liberals and National Socialists, it is important to add, was no mere capitulation to fascism, but represented the culmination of longer-term “national-social” trends within bourgeois liberal politics after 1890.Footnote ¹¹

A number of monographic studies have noted the sociological––and more recently the ideological––affinities between liberal and Nazi voters. As early as the September 1930 elections, the Nazi movement began to mirror the Protestant middle-class constituencies that had traditionally voted for Germany's two major liberal parties, from farmers and small-town shopkeepers to bourgeois entrepreneurs, intellectuals, and urban professionals.Footnote ¹² Little wonder that the Nationalsozialistische Deutsche Arbeiterpartei (NSDAP) faced many of the same social and economic contradictions—between export-oriented industry and protectionist small businessmen; between Besitzbürgertum and Mittelstand––that helped to undermine German liberalism in the preceding decade.Footnote ¹³ Conventional wisdom suggests that the Nazis were able to deal with these contradictions better than their liberal predecessors due to a unique combination of radical integrative nationalism and violent repression.Footnote ¹⁴ But perhaps the Nazis succeeded where the liberals failed because the Third Reich came closer to uniting the multifarious elements of Friedrich Naumann's antebellum National Social movement.Footnote ¹⁵ While Naumann supported large-scale collective bargaining and interventionist state welfare, such as universal health care and unemployment insurance, his movement differentiated itself from the proletarian left through its “liberal” belief in individualist, “market-conforming (along lines later articulated by the ‘Ordoliberal’ Alexander Rüstow)” “self-help [Selbsthilfe]” embodied by job-training and placement agencies. Naumann welded together these three elements of progressive liberalism through a nationalist vision of sociobiological solidarity (Volksgemeinschaft) and imperialist drive for resources that might help to foster political consensus at home.Footnote ¹⁶

Naumann's liberal imperialist vision of Germany's mission in central Europe (Mitteleuropa) was not dissimilar from the Third Reich's later pursuit of “living space” in the east. According to Naumann, Germany would fulfill its geopolitical destiny by unifying central Europe through economic might, superior civilization, and political will, more closely incorporating—if not necessarily annexing––the territory of Slavic minorities along the way.Footnote ¹⁷ By Naumann's own admission Mitteleuropa could only be the “the fruit of war.” And like Hitler's “Greater German Reich [Großdeutsches Reich],” inclusive of all ethnic Germans, it privileged German hegemony in continental Europe over the traditionally imperialist “world policy [Weltpolitik]” prevailing in most conservative nationalist and Pan-German circles. Rather than challenge British rule at sea or focus on acquiring colonies in Africa and Asia, Germany would extend her influence in central and eastern Europe, uniting all Germans in one state, displacing the multiethnic Russian and Austro-Hungarian Empires, and superseding France as Europe's greatest continental power.Footnote ¹⁸

Despite the geopolitical parallels between Mitteleuropa and a Großdeutsches Reich, Naumann's imperialist program was quintessentially liberal in many respects. Like Friedrich Ratzel's concept of “living space” that was later (mis)appropriated by the Nazis, Naumann's Mitteleuropa was premised less on massive racial resettlement and ethnic cleansing than a typically liberal drive to secure economic markets and ensure German national self-determination.Footnote ¹⁹ Anyone who wished to create a functional Mitteleuropa, Naumann asserted, must incorporate Jews and Slavs as viable, equal, “state-supporting [staatsbildend]” members.Footnote ²⁰ In fact Naumann's Mitteleuropa was often taken up by Wilhelmine Progressives as a counterpoise to the radically racist and annexationist demands of the Pan-Germans.Footnote ²¹

Still, like the contemporary American concept of “manifest destiny,” which Hitler greatly admired, Mitteleuropa was infinitely malleable and equally susceptible to appropriation by völkisch nationalists.Footnote ²² Given a more favorable outcome to the war, many Germans would have been satisfied with the kind of liberal, multilateral, primarily economic union Naumann proposed. The war did not turn out well, however, and the Versailles Treaty caused even many liberal democrats to fall back on a more chauvinist and irredentist vision of Mitteleuropa, a “Greater Germany [Groß or Gesamtdeutschland]” that sought the (re)incorporation of Europe's ethnic Germans with little regard for their Slavic or Baltic neighbors. This vision bore more than a surface resemblance to the imperialist economic and foreign policy conceptions of the NSDAP.Footnote ²³

That left liberals invoked Naumann's “National-Social” views with increasing frequency over the course of the Weimar Republic is no coincidence. The economic interventions and social leveling of the war years, punctuated by the November 1918 revolution and Versailles Treaty, had pushed the entire German political spectrum to the left on social questions and to the nationalist right on foreign policy issues. Nowhere was this new “national-social” paradigm more apparent than the Hugo Stinnes-Carl Legien Pact, in which big business conceded numerous demands to labor. Meanwhile, former Naumannites in the resurgent German Democratic Party (DDP) saw this as an opportunity to open left liberalism to the working classes. Although rudely interrupted by hyperinflation, this brief period of relative stability yielded four years of liberal consensus, characterized by a functional if tenuous corporatist arrangment between capital and labor.Footnote ²⁴

Neither the Weimar Sozialstaat nor this tentative liberal consensus would survive the Great Depression. Well funded, better organized, and more politically connected than their left-leaning counterparts, laissez-faire liberals such as Schacht, Hermann Dietrich, and Hermann Höpker-Aschoff initially saw Germany's salvation in a regime of economic austerity, one that rejected the corporatist Ausgleich mentioned above. At the same time, a powerful coterie of social liberals, led by Bosch, Anton Erkelenz, and Gertrud Bäumer, advocated a more progressive course between free-market capitalism on the one hand and a socialist planned economy on the other.Footnote ²⁵ As is well documented, Chancellor Heinrich Bruening and his Minister of Finance, the Democrat Dietrich, pursued the former, deflationary course, starving German industry of capital, exacerbating unemployment, and deepening the recession.Footnote ²⁶

But by late 1930, even Dietrich was beginning to recognize the inadequacy of these policies. Within two years, Weimar Democrats on the right as well as left would begin to coalesce around a National Social(ist) “New Deal” “anticipated by Naumann's circle already before the First World War as a kind of ‘third way’ alternative to liberal-capitalist as well as Marxist-socialist designs.”Footnote ²⁷ That is, while the NSDAP moved to the right in terms of political economy after 1930, becoming friendlier to middle-class business interests, the laissez-faire wing of German liberalism moved to the Naumannite left, appearing to develop an economically interventionist, socially progressive consensus within the incipient Third Reich. Hence the period between the onset of the Great Depression and the apex of Hjalmar Schacht's influence as Finance Minister in 1936 might be characterized as one of growing convergence, not only between laissez-faire and progressive liberals, but between German liberalism and National Socialism as well.

We should not mistake these social and economic affinities between German left liberalism and National Socialism after 1930 for totalitarian tendencies within the liberal bourgeosie.Footnote ²⁸ The relationship between liberalism and Nazism, as I try to make clear below, was dynamic, reflecting periods of political convergence and divergence. As illiberal economic interventions and war mongering accelerated in the late 1930s, so did German liberals' skepticism toward, in the words of Gertrud Bäumer, a “National Socialism without individual freedom … propaganda instead of honesty—in truth the diabolical perversion of that which Naumann strove for as a political and social goal.”Footnote ²⁹ Despite their growing distrust of National Socialism after 1936, however, the liberals never abandoned their efforts to develop a “third way” in the Third Reich, efforts that eventually bore fruit in the “social market economy” of the postwar Federal Republic.

Left Liberal Political Economy Before 1933

As early as the Kaiserreich, the left liberal Progressive People's Party (FVP) possessed distinct “left” and “right” wings. The left wing, which drew generously on Friedrich Naumann's earlier National-Social Association, supported higher taxation and government spending, desired a worker-friendly social policy (unemployment insurance, disability insurance, collective bargaining, strong unions, etc.), was positively inclined toward women's rights, and believed the state should take an active role in financing health care and education. What differentiated National-Social liberals most starkly from moderate Social Democrats was the former's belief in the merits of economic competition, a dedication to building a classless Volksgemeinschaft, and an unabashed liberal imperialism. This liberal “left wing” included leading Wilhelmine intellectuals, publicists, and social reformers such as Naumann himself, Max and Alfred Weber, Gertrud Bäumer, Paul Rohrbach, Theodor Heuss, Wilhelm Heile, and Anton Erkelenz.Footnote ³⁰ The more laissez-faire “right wing” of left liberalism included anti-imperialist free traders such as Georg Gothein and Theodor Tantzen as well as pro-business nationalists such as Otto Fischbeck and Julius Kopsch. In December 1918 this “right-wing” was strengthened when a number of laissez-faire National Liberals, including the above-mentioned Schacht, Höpker-Aschoff, and Dietrich, merged with the FVP to form the German Democratic Party (DDP).Footnote ³¹

Always a point of contention, these disparities between economically interventionist and free-market liberals on the one hand, ethnic nationalist (völkisch) and cosmopolitan (“universalist”) DDP on the other, became increasingly divisive after 1919.Footnote ³² As a governing party in coalition with the SPD, left liberals were no longer able to elide such differences in more or less unanimous opposition to conservative Imperial government. They were also confronted with successive social and economic crises––from hyperinflation to mass unemployment––that called into question the very premises of liberal capitalism. Faced with these unprecedented challenges and desperate not to alienate their bourgeois constituency, the DDP vacillated between left and right, eventually losing support to both sides of the political spectrum.

Emblematic of the diverse social and economic perspectives that characterized the left liberal ranks in the early years of the republic is the fact that two of the Democratic Party's cofounders, the Reichsbank President Hjalmar Schacht and the Weimar Vice Chancellor, Finance and Justice Minister Eugen Schiffer, withdrew in the mid-1920s because they could no longer tolerate the DDP's ostensible drift to the left in matters of political economy. Meanwhile social progressives such as Anton Erkelenz and Hans Robinsohn simultaneously attacked the DDP's center-right coalition with the conservative DNVP, abandoning the party in the wake of the Great Depression because of its failure to work constructively with the SPD to preserve the Weimar welfare state.Footnote ³³

In addition to these deep-seated socioeconomic discrepancies, the DDP was increasingly divided between ethnic nationalist (völkisch) and universalist worldviews.Footnote ³⁴ As I have argued elsewhere, this ideological disparity in regard to “national” and foreign policy questions did not necessarily conform to traditional left-right socioeconomic differences. Many former Naumannites believed in progressive social policies as well as ethnic nationalism, imperialism, and anti-Semitism. Some of these “national-social” liberals had drifted into the German Nationalist People's Party and eventually the Nazi camp before 1933. Conversely, some “right-wing,” laissez-faire liberals, especially Jewish liberals such as Eugen Schiffer and Robert Friedberg, gravitated to the universalist left after the war in defense of civil rights and the liberal Rechtsstaat.Footnote ³⁵

These ideological complexities help to explain the Democratic Party's merger with the völkisch-social paramilitary group known as the Young Germans (Jungdeutschland or Jungdo) to form the German State Party (DStP) in 1930. While “national-social” liberals such as Bäumer, Alfred Weber, and Ernst Lemmer defended the DDP-Jungdo merger, more universalist (and often Jewish) democrats such as Hans Robinsohn, Ludwig Bergstraesser, and Erich Lüth abandoned the DStP for the republican or socialist left. Telling in this regard is the fact that some economically “conservative,” laissez-faire liberals such as Gothein and Tantzen refused to join the “right-wing” State Party because of its underlying nationalism and anti-Semitism. In the meantime, laissez-faire democrats such as Dietrich and Höpker-Aschoff supported the alliance with the anti-plutocratic Young Germans precisely because they wanted to open Weimar liberalism to the nationalist right.Footnote ³⁶

Thus, insofar as the DStP represented a move to the “left” in socioeconomic questions, its foreign policy platform and views on anti-Semitism suggest a shift to the nationalist right.Footnote ³⁷ Or as the historian Rudolf Heberle observes, “Within the ideology of the progressive Liberals one can discern certain attitudes and sentiments which later on facilitated the conversion of broad masses of middle class elements to National Socialism: There was a combination of anti-capitalistic, anti-plutocratic sentiments … with an attitude of social solidarity that favored progressive labor legislation or Sozialpolitik.”Footnote ³⁸ Indeed, despite the long-standing political antipathies between left liberal and Nazi camps, exacerbated by the fact that they appealed to the same bourgeois Protestant constituencies, the two movements' convergence in “national-social” terms is undeniable.Footnote ³⁹

Recognizing both the dangers and opportunities for liberalism inherent in these national and social affinities, the DDP member Wilhelm Wilms wrote a colleague shortly after Hitler's appointment as Reich chancellor, “It is a great error if it is widely believed that liberalism has fulfilled its task … The struggle of National Socialism against liberalism, whose achievements they made good use of in the election campaign and in all of public life, shows how little great segments of the population have understood the essence of liberalism [emphasis added].” For, “free market liberalism, as it has existed until now, can no longer be tolerated. We must succeed in creating a new economic doctrine applicable to all that corresponds to community spirit… . the idea must be accepted that economics is not only a private matter but a matter of the people, indeed, that it serves people's necessities in the first place and profit motives in the second. And that seeking profit may not come into conflict with popular morality. Today only social liberalism can persist in the economic realm.”Footnote ⁴⁰ The electoral victory of National Socialism, Wilms suggests, confirmed the obsolescence of classically liberal, laissez-faire doctrines. But Naumannite social liberalism was still a viable alternative to Hitler's National Socialism.

Like many erstwhile National Social colleagues, Wilms disagreed with the “right wing” of the Democratic Party. Former Democratic ministers such as Schacht, Höpker-Aschoff, and Dietrich had sacrificed social welfare and unemployment benefits on the altar of fiscal austerity, one of the chief reasons that the Nazis had attracted so many former liberal voters. If the German people preferred national-social(ist) policies, Wilms concluded, why couldn't the DDP reclaim their own legacy?Footnote ⁴¹ Many of Wilms's colleagues likewise believed that the Nazis had undercut the DDP electorally in great part by appropriating and repackaging the party's own Naumannite legacy.Footnote ⁴² If this realization caused some resignation in DDP circles, it also galvanized many left liberals to approach the Third Reich as an opportunity, a chance to resolve the paralyzing conflicts between capital and labor that undermined the Weimar Republic.

Hjalmar Schacht's “New Plan”: From Laissez-Faire to Keynesianism

Prior to 1933, few DDP members embodied the traditions of free-market liberalism better than Hjalmar Schacht. Born in Tingleff, Schleswig-Holstein, Schacht studied political economy in Berlin, Munich, Kiel, Paris, and London. He worked as a young man in various economic organizations before becoming a centrist National Liberal before World War I and a “right-wing” DDP member thereafter. As a former National Liberal, Schacht had always been skeptical of the progressive left's penchant for economic intervention and social experimentation. He had no interest in nationalizing industry, as some left-wing Democrats demanded, and felt that guaranteeing additional rights to trade unions would only encourage economic stalemate. Leaving the DDP in 1926, Schacht resigned his position at the Reichsbank in 1930 after the Weimar coalition of Socialists, Liberals, and Catholics accepted the American “Young Plan,” which helped to restructure but nonetheless reaffirmed German reparation payments. Henceforth Schacht aligned himself with an amalgam of traditional conservative (DNVP) and radical right-wing (NSDAP) forces that opposed all sanctions resulting from the Versailles Treaty. In 1933 Schacht was rewarded for his support when Hitler reappointed him Reichsbank president. In August 1934 he added the Economics Ministry to his portfolio.Footnote ⁴³

Initially Schacht opposed extensive regulation or deficit financing as an antidote to unemployment and recession, as he had during the Weimar Republic. But his profound desire to reinvigorate German industry, not to mention a growing admiration for Roosevelt's New Deal, caused Schacht to modify his laissez-faire views. In September 1934, shortly after taking over the Economics Ministry, Schacht announced his New Plan. A concerted attempt to jump-start the German economy by stimulating public consumption, the New Plan favored exports and restricted imports, while strictly managing the allocation of foreign exchange to control the deficit and facilitate rearmament. It also commissioned an ambitious number of public works to reduce unemployment and used ingenious financial measures, such as Mefo bills––credit notes issued by the German government in the name of a fictitious holding company, Metallurgische Forschung––to pay industrialists without expending hard currency or issuing government debt.Footnote ⁴⁴ Possessing near dictatorial control of German economic policy, Schacht was not averse to using reactionary measures eschewed by Roosevelt but favored by Hitler. Because he saw the high cost of labor as one the main hurdles preventing Germany's recovery, Schacht turned back the clock on some of Weimar's friendlier labor policies. His bilateral clearing agreements assuring Germany raw materials for bargain prices also made virtual satellites out of Bulgaria, Hungary, and Romania.Footnote ⁴⁵ Schacht's tenure as finance minister was nevertheless characterized by steady economic growth, millions of new jobs, and rising wages, buttressed by an increasingly generous array of social programs.Footnote ⁴⁶

At first many Democrats resented Schacht's betrayal of his free-market principles, which they saw as the only way to resuscitate world trade.Footnote ⁴⁷ In a series of articles in the liberal Frankfurter Zeitung, Theodor Tantzen attacked the Third Reich's protectionist agricultural policies, which, by preventing cheap imports of animal feed, would deeply retard the future of German stockbreeding.Footnote ⁴⁸ Meanwhile the former Weimar Treasury Secretary Georg Gothein and his colleague Joseph Williger wondered how a brilliant liberal economist such as Schacht could possibly take direction from a megalomaniacal, “socialist” crackpot such as Hitler, and mocked the government's investment in unnecessary building projects and the costly worker incentive program, Strength Through Joy: “The worker embarks with strength through joy in the Mediterranean [Mittelmeer] and the employer has neither strength nor joy nor any more means [noch Mittel mehr].” According to Williger, Schacht's attempt to create jobs and stimulate demand through debt financing was unwise, because the inevitable increase in taxes would “rob” the German middle classes of their already precious capital.Footnote ⁴⁹

For some time, a number of liberals also worried that Hitler's seizure of power would lead to the nationalization of industry. As Gothein wrote in February 1933, the NSDAP, “as the name already suggests, is an expressly socialist party. Indeed, it proclaims to struggle against Marxism as its most important task. But the programmatic demands of its theoreticians are in all economic and social questions purely socialist.” Like the KPD, the Nazis had called for “eliminating the currency, nationalizing banking and large industries, expropriation of all income above 12,000 RM, and increasing social expenditures to a financially insupportable level.” The “socialist” NSDAP and conservative DNVP coalition might “exhaust itself in complaining about the earlier system,” but they had little else in common. It was only a matter of time before the Nazis created a “coalition with other parties that share their socialist wishful thinking, which was openly hostile to business.”Footnote ⁵⁰ Gothein criticized in particular the excessive deficit financing of capital projects, currency manipulations, and high protective tariffs that characterized Schacht's New Plan.Footnote ⁵¹ In 1934 the former Democratic Finance Minister Höpker-Aschoff agreed, writing in Naumann's old left liberal journal, Die Hilfe, that Schacht's interventionist policies and unwillingness to reduce government spending would lead not to economic recovery, but to a bankrupt, totalitarian state.Footnote ⁵²

Yet this skeptical attitude on the part of laissez-faire liberals slowly began to change as the German economy rebounded in the mid-1930s. In 1936 Höpker-Aschoff publicly shifted course, praising Schacht for being the first European Finance Minister to understand and apply successfully the principles expounded in Keynes' recently published General Theory of Employment, Interest, and Money.Footnote ⁵³ Soon other prominent laissez-faire Democrats began to defend Schacht's New Plan against Hitler and Göring's push for economic autarky and accelerated rearmament, embodied in the so-called Four-Year Plan.Footnote ⁵⁴ By 1937 even Gothein admitted that he was impressed by Schacht's inventive response to changing economic circumstances. Despite the announcement of Göring's Four-Year Plan, Gothein held out hope that Schacht would prevail; when he and Williger heard in September 1937 that Goebbels's underling Walther Funk had replaced Schacht as Reich Economics Minister, they expressed outrage and disappointment.Footnote ⁵⁵

Left-wing social liberals were equally ardent in their support for Schacht. Wilhelm Heile, who represented the “Naumannite” left wing of the DDP and who had criticized Schacht as editor of Die Hilfe, came out in support of the New Plan and even applied to work under Schacht in the Reich Economics Ministry in 1936.Footnote ⁵⁶ As a young, progressive Democrat in the early 1920s, Hans Robinsohn never liked Schacht's prominence in the Democratic Party and was relieved when he abandoned the DDP in 1926. Robinsohn nonetheless observed in 1937 that the Reichsbank president was the last truly “civilian” minister and was duly impressed that Schacht had forced Hitler's hand by refusing to support Göring's Four-Year Plan on sound liberal grounds. Without Schacht's leadership there would be no one to apply the brakes on the “Caesaristic madness for new construction,” while “the army will get any toy it desires––without a critical thought about the cost.”Footnote ⁵⁷

To be sure, since he was acquitted at the Nuremberg trials, historians have rightly questioned Schacht's assertion that he always tried “to prevent the worst excesses of Hitler's policies.”Footnote ⁵⁸ At least as far as his liberal contemporaries were concerned, however, Schacht tempered Hitler's imperialist drive toward autarky with what might be called a socially liberal, moderately interventionist economic program.Footnote ⁵⁹ Indeed, according to Robinsohn, it was “conservatives” such as Göring and Blomberg who convinced Hitler that Schacht was wasting resources on private consumption and social outlays that might be better used to accelerate full-scale rearmament. Hitler nevertheless remained impressed enough by Schacht's financial acumen (and sufficiently worried about bourgeois public opinion) to keep him on as Reichsbank president until early 1939 and as Minister without Portfolio until 1943.Footnote ⁶⁰

When Hitler did finally dismiss Schacht from the Reichsbank, he blamed it less on Schacht's liberal economic policies and more on his liberal political predilections, which constituted an even greater liability in an increasingly totalitarian Third Reich. “You simply do not conform to the general National Socialist framework,” the Führer complained, and “you have refused to allow your civil servants to be evaluated by the party.” Hitler was particularly frustrated by the fact that Schacht continued to employ left-wing Weimar Democrats such as Heile in the Finance Ministry.Footnote ⁶¹ No sooner had Hitler deprived liberals of their chief advocate, Robinsohn noted, than one could begin to discern a palpable “strengthening of the political opposition.” Only weeks later, Reinhard Heydrich's Security Service (SD) made similar observations.Footnote ⁶² Whether Schacht could have done more to resist the Third Reich is open to question. But in the limited realm of economic policy, there is little doubt that he helped to formulate a left liberal consensus whose legacy would outlive the Third Reich.

Robert Bosch, Josef Winschuh, and “Social Capitalism”

A successful scientist and entrepeneur, Robert Bosch was chairman of one the largest chemical and engineering companies in the world. He was also a Naumannite social liberal whose workers enjoyed high wages, a strong union, and one of the most generous private insurance programs in Europe. Like his Swabian friend and party colleague, the future president of the Federal Republic, Theodor Heuss, Bosch possessed a radical democratic streak that ran directly counter to Hitler's authoritarian policies.Footnote ⁶³ Nevertheless, like many progressive liberals who came of age in the Kaiserreich, Bosch initially feared “agrarian conservatism … as a greater danger than National Socialism.”Footnote ⁶⁴ Bosch's firm likewise benefited from the Third Reich's investment in infrastructure and armaments, which led to a significant increase in demand for motorized vehicles. In spring 1934 Bosch wrote optimistically, “If years are coming in which the economy blooms, then everything will turn out all right.”Footnote ⁶⁵ Consequently, the success of German economic recovery, not to mention Hitler's early foreign policy successes, presented Bosch “with a dialectical situation, which combined indecision and inner resistance in a strange fashion and gave the impression to others that his fundamental liberal convictions” had begun to dissipate.Footnote ⁶⁶

Yet Bosch's early political concessions to National Socialism were neither abject nor uncritical. Bosch was not blind to the coercive aspects of Hitler's domestic policy, which replaced the Socialist and left liberal trade unions with Robert Ley's much more docile German Worker's Front (DAF). He was especially frustrated by the DAF's attempts to undermine his firm's own generous health and unemployment insurance (Boschhilfe), wage, and worker education policies with rival Nazi welfare programs (Volkswohlfahrt). As a liberal, Bosch was certainly wary of Nazi encroachments on political freedom, exemplified in his continued financial support for numerous liberal newspapers, to the great frustration of the regime.Footnote ⁶⁷ In this particular case, however, Bosch was largely motivated by a pragmatic desire to preserve his firm's organizational autonomy and retain his highly skilled workforce. Once it became clear that Schacht and even Göring had little sympathy for Ley's attempts to undermine entrepreneurial autonomy, Bosch's initial criticisms of Nazi economic interventions subsided.Footnote ⁶⁸

In fact, Bosch applauded the Third Reich's apparently successful corporatist arrangement between capital and labor, and truly believed the workers were better off under the Third Reich than they had been in the Weimar Republic. Initially fearful of an “economy autarchized to death,” he was reassured by Schacht's efforts to rein in inflation and reintegrate Germany into the world market. As a capitalist entrepeneur, he was furthermore impressed by the Third Reich's ability to alleviate the divisive class conflicts that appeared insoluble only a few years earlier. By virtually guaranteeing full employment, rising wages, and a social safety net, Bosch argued, the Third Reich ensured labor productivity and therefore long-term economic growth.Footnote ⁶⁹ This emerging Nazi program of “social capitalism” may have lacked the explicit guarantee of individual freedom that informed Naumannite liberalism, but by the mid-1930s it did seem to serve the interests of both industry and labor better than the Weimar Republic.Footnote ⁷⁰

It is only after the announcement of Göring's Four-Year Plan in September 1936 that Bosch began to accept the argument of the conservative economist and anti-Nazi resistance leader Carl Goerdeler––whom Bosch hired as a financial advisor in 1937––that the Third Reich envisioned “war not only as last resort, but as a goal” in itself. The resulting transition toward economic autarchy and the decision to favor capital over consumer goods, Bosch agreed, reduced overall levels of productivity and competition on which any successful capitalist economy was based. If the Four-Year Plan was not abandoned, Bosch suggested, Germany would face runaway inflation, stagnating wages, and economic implosion. Unlike the more conservative Goerdeler, Bosch maintained his progressive commitment to state intervention and “social liberal accommodation in the sense of Friedrich Naumann.” Both men nonetheless agreed that such doctrinal differences were immaterial in the wake of the Four-Year Plan, which would benefit neither labor nor capital if it meant plunging Germany into an unwinnable war.Footnote ⁷¹ Hence Bosch's antipathy to the Four-Year Plan had less to do with a principled opposition to economic intervention per se and more to do with the regime's goals of accelerated rearmament and an imperialist war of aggression.

Still, more self-consciously imperialist Democrats such as Gertrud Bäumer, Paul Rohrbach, and, in particular, Josef Winschuh viewed the Four-Year Plan as a logical continuation of pursuing interventionist “social capitalism” on the one hand and a Greater German Empire in Mitteleuropa on the other.Footnote ⁷² A leading German economist, publicist, and member of Gustav Stresemann's right liberal German People's Party (DVP) during the middle years of the Weimar Republic, Winschuh joined the DStP in 1930 because he preferred the new party's combination of ardently nationalist and socially liberal views.Footnote ⁷³ An early convert to Keynesianism, Winschuh embraced Schacht's interventionist path, even surpassing Bosch, Bäumer, and many Naumannites in his enthusiasm for the Third Reich's mix of organized capitalism and welfarism.Footnote ⁷⁴ In a series of articles in the mid- to late 1930s, Winschuh exalted industrialists with a social conscience, particularly Bosch, who exemplified a new kind of entrepeneur: capable of maintaining productivity through his technical and organizational genius, without sacrificing quality or wages.Footnote ⁷⁵

Of course the success of Bosch, Alfred Krupp, Fritz Thyssen, and other German industrialists would have been impossible, Winschuh contended, without favorable monetary policies, an unwavering commitment to full employment, proliferating government contracts, and “the socialism of research [and development].” Winschuh singled out the Nazi armaments minister Fritz Todt for his “worker-friendly” policies and praised Hitler as “the social Bismarck.” While an increase in state intervention, price controls, and resource allocation had led, admittedly, to a noticeable “shrinking of the private sphere,” these changes had simultaneously contributed to “a true economic upswing.”Footnote ⁷⁶ Foreign observers might disparage the Four-Year Plan as “state capitalism” on the one hand or “state socialism” on the other, Winschuh continued, but the fact remained that no other major industrial nation had created such a symbiotic corporatist arrangement between the state and entrepeneur, capital, and labor.Footnote ⁷⁷

Winschuh was particularly impressed by the expansion of health care, social security, and full employment in the late 1930s. All German citizens were assured health insurance and, with the onset of war, “the German health care system spread throughout Europe … guaranteeing foreign laborers fundamentally the same health insurance [Krankenversicherungsschutz]” as German workers.Footnote ⁷⁸ German economic policy, Winschuh observed, was premised on the fact “that social security, the emancipation of men from that suffocating anguish that crises of capitalism have produced, is tied to full employment.” Again, the lifelong liberal recognized that full employment and social security involved some “incursions into liberty, namely the acceptance of state intervention in the economy and consequently [a regrettable] bureaucratism.” But in the age of mass politics, “the organization of the economy can no longer be determined solely by the liberty of the individual person, but … by social freedom, by the security of the masses.”Footnote ⁷⁹ Only a “worker's party” such as the NSDAP, one that embraced capitalism as well as socialism, could lead its citizens down “a German path that led between the capitalist self-importance of the entrepeneur and socialization, between Detroit and Moscow.”Footnote ⁸⁰

Such cooperation between capital and labor, public and private sector, was especially crucial in times of war, when entrepeneurs had to take even more responsibility for creating jobs and keeping people employed.Footnote ⁸¹ In fact, Winschuh viewed World War II as a catalyst for propagating National Socialist economic principles abroad. Seemingly oblivious to the atrocities occurring on the eastern front, Winschuh presented the case for a federally organized “Greater German Economic Sphere [großdeutscher Wirtschaftsraum]” along lines very similar to Naumann's Mitteleuropa. Germany would act as the “lead state [Leitstaat]” and the Reichsmark would serve as the common currency in a central European tariff union. Like Naumann, Winschuh envisioned German and Slavic entrepreneurs working in concert with labor to ensure productivity as well as fair wages and social welfare.Footnote ⁸² Anyone who doubted the inevitability of the German economic model, Winschuh added, need only examine the “socialist” reforms that were occurring in the great “free market” nations of Britain and the United States. The 1942 Beveridge Report and Roosevelt's “War Deal” (Winschuh's sarcastic term for the “New Deal”) proved that the Anglo-Saxons had finally accepted the National Socialist idea that long-term productivity and political solidarity were impossible without fair wages and social security. Whatever the war's outcome, Winschuh concluded, the victory of National Socialism as a principle of economic organization was inevitable.Footnote ⁸³

The Ordoliberals and the Foundations of the “Social Market Economy” in the Third Reich

More than any Weimar democrats, the “Ordoliberals” have come to embody the left liberal synthesis of free-market capitalism and state intervention known in the Federal Republic as the “social market economy.” Indeed, as Konrad Adenauer's minister of economics and his successor as West German chancellor, the Ordoliberal Ludwig Erhard is almost universally regarded as the chief architect of the FRG's “Economic Miracle.”Footnote ⁸⁴ Yet few historians have traced systematically the development of Ordoliberal positions during the Third Reich.Footnote ⁸⁵ One reason for this lacuna is the fact that the Ordoliberals––Walter Eucken, Alfred Müller-Armack, Alexander Rüstow, Wilhelm Röpke, and Erhard most prominent among them––were variously engaged during the 1930s. Some, such as Röpke and Rüstow, worked diligently in exile.Footnote ⁸⁶ Eucken, whose defense of Jewish colleagues at the University of Freiburg did nothing to endear him to the regime, remained academically influential but politically marginal.Footnote ⁸⁷ Still others, such as Ludwig Erhard and Alfred Müller-Armack, flourished politically and professionally, contributing in concrete ways to the course of German social and economic policy in the Third Reich.Footnote ⁸⁸

Even if the Ordoliberals did not coalesce into any kind of school until after the war, their most important ideas had matured by the end of the Third Reich.Footnote ⁸⁹ Like their Naumannite colleagues, the Ordoliberals encouraged economic competition, private ownership, and “a certain degree of economic self-reliance.” Walter Eucken's list of principles for a well-functioning economy––free and open competitive markets, monetary stability, private ownership of the means of production, and freedom of contract––are in many regards classically liberal. But these preconditions were “supplemented by regulating principles: an antimonopoly policy, some correction of income distribution, and measures to correct substantial market failures.” “Ordo-liberals also accept the need for a social security system … for dealing with poverty,” wrote Eucken, “while stressing the ‘social’ content of a well-functioning market economy, whose success may be judged in part by the lack of those who need such help.”Footnote ⁹⁰ Thus, like Schacht, Bosch, Winschuh, and the Naumannites, the Ordoliberals sought to develop a third way “between capitalism and communism,” in their case a “consciously, indeed socially managed market economy.”Footnote ⁹¹ Most importantly for our purposes, they worked out the major components of this model between 1933 and 1945, in concert with Nazi colleagues and Reich institutions.

The Ordoliberal Manifesto, published by Eucken, Franz Boehm, and Hans Grossman-Doerth in 1936, for example, reflects implicit satisfaction with Schacht's Keynesian course. The three authors vigorously rejected state socialism, but simultaneously took issue with the classical liberal position that the integrity of markets cannot be improved through state intervention.Footnote ⁹² Because contemporary economic theory has proven “inadequate in the face of great antimony” between free-market capitalism and state socialism, Eucken observed, “we must question matters in especially radical fashion, analyze the factual situation in a new way, and not simply continue the status quo.” Keynes was correct, Eucken continued, in recasting the foundations of classical liberal political economy in the midst of the Great Depression.Footnote ⁹³ Writing in 1938, Eucken looked back positively on Schacht's economic policy, observing that only the state could simultaneously ensure competition, growth, and social equity.Footnote ⁹⁴ “Like Röpke, [Franz] Oppenheimer, and indeed Erhard,” writes Erhard's biographer Alfred Mierzejewski, “Eucken rejected both unbridled capitalism and collectivism. Eucken, Oppenheimer, Röpke, and Erhard did not visualize a small, weak, passive government … Government supervision was necessary to prevent abuse by powerful private interests.”Footnote ⁹⁵

Although less influential than Eucken in theoretical terms, Ludwig Erhard was more politically engaged in shaping a “third way” in the Third Reich.Footnote ⁹⁶ Prior to the Nazi seizure of power, Erhard, like Eucken, inclined toward laissez-faire policies and famously criticized Schacht for relinquishing his liberal principles in an effort to placate Hitler.Footnote ⁹⁷ Within two years of the October 1929 crash, however, Erhard had started to view the Great Depression as the “unavoidable result of the capitalist system.” Doctrinaire adherence to laissez-faire capitalism, Erhard concluded, “was incompatible with social harmony and national political necessities.”Footnote ⁹⁸ More specifically, Erhard believed that the Depression was a result of “excessive concentration of capital in heavy industry” to the detriment of “industries that would produce consumer goods.” His solution, as expressed as early as 1931, was to tax heavy industry and “redistribute the funds to industries that would use them to serve consumer needs more directly.” In this way “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.”Footnote ⁹⁹

In following this Keynesian trajectory, Erhard's career took off during the first five years of the Third Reich. He quickly rose to the top of the Vershofen Institute, an economic think tank that gained considerable prestige in the wake of the Nazi seizure of power. In 1938, the institute was given its independence from the German university system to help the Third Reich reconceptualize the economic basis of a “greater German [economic] sphere.” Chastened by the effects of the Great Depression, Erhard argued that “that the state must not only organize the economy, but also intervene; or to put it another way, socioeconomic organization and state intervention are conceptually one and the same.”Footnote ¹⁰⁰ “Erhard had no desire to stage a laissez-faire free-for-all,” adds Mierzejewski, “but he also wanted to move decisively away from any form of collectivist solution … [writing] ‘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.’”Footnote ¹⁰¹ In this regard, Erhard appreciated the NSDAP's apparent desire to rescue the working and lower-middle classes from the mass homogenization (Vermassung) and proletarianization (Proletarisierung) that characterized an advanced industrial economy.Footnote ¹⁰²

Still, the future architect of West Germany's “economic miracle” never relinquished his conviction that market forces and consumer choice were the foundations of national economic life.Footnote ¹⁰³ Like Bosch, Schacht, and other prominent liberal business leaders, Erhard was skeptical of the Four-Year Plan and became openly critical of German economic policy in the wake of World War II, which had come to abandon market price mechanisms and the consumer sector in favor of centralized allocation of resources and heavy industrial special interests.Footnote ¹⁰⁴ In fact, Goerdeler and other conservative members of the Kreisau Circle sought to recruit Erhard in large part due to his openly critical attitude toward wartime inflation and price controls. Lest we confuse this critique of wartime economic policy with political opposition, we should recall that Erhard's iconoclastic views impressed leading Nazis who were equally skeptical of “National Bolshevist” tendencies within the party leadership. In 1939 the rabidly anti-Semitic Gauleiter of the Rhineland-Palatinate, Josef Bürckel, invited Erhard to become his informal economic advisor, an offer Erhard accepted. After parting ways with the Vershofen Institute in 1942, Erhard joined the influential Reichsgruppe Industrie (RGI), a political lobby run by his brother-in-law Karl Guth, the prominent industrialist Rudolf Stahl, and tobacco magnate Philip Reemtsma. He simultaneously accepted a prestigious position as consultant for I.G. Farben.Footnote ¹⁰⁵

Then, in 1944, Erhard published his most famous and provocative academic work, War Finances and Debt Consolidation (Kriegsfinanzierung und Schuldenkonsolidierung). All but presuming that Germany would lose the war, War Finances began by attacking Minister of Armaments Albert Speer's statist production techniques. It then specifically recommended issuing bonds to the worst-hit citizens to provide disposable income and diverting demobilized soldiers into the consumer sector instead of armaments. Far from marginalizing Erhard, the book caught the attention of Deputy Director of the Reich Economics Ministry, SS-Gruppenführer and infamous commander of Einsatzgruppe D, Otto Ohlendorf. Agreeing that the war was lost and that the German economy had moved too far from its free-market foundations, Ohlendorf enlisted Erhard in a working group aimed at rebuilding the postwar economy on a more entrepreneurial basis.Footnote ¹⁰⁶

Erhard was not the only Ordoliberal whose ideas were embraced by leading Nazis. After the fall of France in 1940, in the expectation that the war would soon be over, Economics Minister Walther Funk founded an institute “For Research on the Völkisch Economy” to provide “advice” for restoring a peacetime economy to the Reich Economics Ministry. Eucken's Grundlagen “stood in the center of the discussion” and became “the point of departure for the discussion of the foundation and conceptions of a new German economic theory.”Footnote ¹⁰⁷ Promoted to professor in 1940, Müller-Armack soon became the director of the Westphalian Institute for Economics and Social Sciences. His ideas gained additional influence through his ranking position in the Research Institute for General and Textile Market Economy (Forschungsstelle für Allgemeine und Textile Marktwirtschaft).Footnote ¹⁰⁸

One can draw a number of interesting conclusions about the impact of the Ordoliberals during the Third Reich. First, their views clearly fall into the “progressive” tradition of German left liberalism. While they valued freedom highly, the Ordoliberals insisted that the state had a moral obligation to encourage fair competition, ensure social justice, and provide a basic level of public welfare for all citizens along Naumannite lines.Footnote ¹⁰⁹ Second, they were clearly active and influential throughout the Third Reich, “collaborating” with the Nazi regime on numerous aspects of social and economic policy. Third, they understood the interventions undertaken by the Nazi regime as a logical response to the rampant economic dislocation and proletarianization of the Great Depression as well as the Weimar Republic's failure to deal effectively with endemic problems of deflation and overproduction. That is, even while they remained skeptical of Hitler or Göring's political motivations, they tended to acknowledge that Schacht's essentially pragmatic approach to economic policy helped to preserve the balance between state intervention and social outlays on the one hand and individual initiative and market mechanisms on the other––at least until Speer's more autocratic regime of armaments production asserted an unfortunate level of centralized planning and state intervention midway through World War II.Footnote ¹¹⁰

Thus, as Rüstow suggested in his seminal 1945 book, The Failure of Economic Liberalism, both peacetime National Socialism and Ordoliberalism were attempts to navigate “between capitalism and communism” in order to find “the political economy of the third way.”Footnote ¹¹¹ “It must, in fact, be remembered,” Röpke recalled in the early 1960s, “that the [social] market economy in Germany, whose revival has proved to be a great blessing, was not a legitimate child of democracy … It was rather an illegitimate child which was adopted only later on, after ever increasing signs of affection, by the German democracy.”Footnote ¹¹² Unlike Schacht, Bäumer, and other prominent Weimar DDP members, the Ordoliberals easily shrugged off their loose associations with the Nazi regime to become enormously influential during the early years of the Federal Republic. The fact remains, however, that Erhard and his colleagues had already begun “advocating a middle way” in the Third Reich, “the same solution that he would prescribe in a more sophisticated and purer form in 1948 … a policy of stimulating consumer demand in line with what was later proposed by John Maynard Keynes.”Footnote ¹¹³