Now, in April 1948, a Scientific Council formed alongside the German economic administration in what was called the Bi-Zone, that is to say, the Anglo-American zone, presented a report which laid down the following principle: “The Council is of the view that the function of the direction of the economic process should be assured as widely as possible by the price mechanism.” It turned out that this resolution or principle was accepted unanimously. And the Council voted by a simple majority for drawing the following consequence from this principle: We call for the immediate deregulation of prices in order [to bring prices in line with] world prices. So, broadly speaking, there is the principle of no price controls and the demand for immediate deregulation. We are in the realm of decisions, or of demands anyway, a realm of proposals that, in its elementary simplicity, calls to mind what the physiocrats called for or what Turgot decided in 1774. This took place on 18 April 1948. Ten days later, the 28th, at the meeting of the Council at Frankfurt, Ludwig Erhard—who was not in charge of the Scientific Council, for it had come together around him, but of the economic administration of the Anglo-American zone, or at any rate of the German part of the economic administration of the zone—gave a speech in which he took up the conclusions of this report. That is to say, he laid down the principle of no price controls and called for gradual deregulation, but he accompanied this principle, and the conclusion he drew from it, with a number of important considerations. He says: “We must free the economy from state controls.” “We must avoid,” he says, “both anarchy and the termite state,” because “only a state that establishes both the freedom and responsibility of the citizens can legitimately speak in the name of the people.” You can see that this economic liberalism, this principle of respect for the market economy that was formulated by the Scientific Council, is inscribed within something much more general, and this is a principle according to which interventions by the state should generally be limited. The borders and limits of state control should be precisely fixed and relations between individuals and the state determined. Ludwig Erhard’s speech clearly differentiates these liberal choices, which he was about to propose to the Frankfurt meeting, from some other economic experiments that managed to be undertaken at this time despite the dirigiste, interventionist, and Keynesian ambiance in Europe....What was at stake, and the text itself says this, was the legitimacy of the state.
What does Ludwig Erhard mean when he says that we must free the economy from state controls while avoiding anarchy and the termite state, because “only a state that establishes both the freedom and responsibility of the citizens can legitimately speak in the name of the people”? Actually, it is fairly ambiguous, in the sense that I think it can and should be understood at two levels. On the one hand, at a trivial level, if you like, it is simply a matter of saying that a state which abuses its power in the economic realm, and more generally in the realm of political life, violates basic rights, impairs essential freedoms, and thereby forfeits its own rights. A state cannot exercise its power legitimately if it violates the freedom of individuals; it forfeits its rights. The text does not say that it forfeits all its rights. It does not say, for example, that it is stripped of its rights of sovereignty. It says that it forfeits its rights of representativity. That is to say, a state which violates the basic freedoms, the essential rights of citizens, is no longer representative of its citizens. We can see what the precise tactical objective of this kind of statement is in reality: it amounts to saying that the National Socialist state, which violated all these rights, was not, could not be seen retrospectively as not having exercised its sovereignty legitimately. That is to say, roughly, that the orders, laws, and regulations imposed on German citizens are not invalidated and, as a result, the Germans cannot be held responsible for what was done in the legislative or regulatory framework of Nazism. However, on the other hand, it was and is retrospectively stripped of its rights of representativity. That is to say, what it did cannot be considered as having been done in the name of the German people. The whole, extremely difficult problem of the legitimacy and legal status to be given to the measures taken [under] Nazism are present in this statement.
But there is [also] a broader, more general, and at the same time more sophisticated meaning to Ludwig Erhard’s statement that only a state that recognizes economic freedom and thus makes way for the freedom and responsibility of individuals can speak in the name of the people. Basically, Erhard is saying that in the current state of affairs—that is to say, in 1948, before the German state had been reconstituted, before the two German states had been constituted—it is clearly not possible to lay claim to historical rights for a not yet reconstituted Germany and for a still to be reconstituted German state, when these rights are debarred by history itself. It is not possible to claim juridical legitimacy inasmuch as no apparatus, no consensus, and no collective will can manifest itself in a situation in which Germany is on the one hand divided, and on the other occupied. So, there are no historical rights, there is no juridical legitimacy, on which to found a new German state.
But—and this is what Ludwig Erhard’s text says implicitly—let’s suppose an institutional framework whose nature or origin is not important: an institutional framework x. Let us suppose that the function of this institutional framework x is not, of course, to exercise sovereignty, since, precisely, there is nothing in the current situation that can found a juridical power of coercion, but is simply to guarantee freedom. So, its function is not to constrain, but simply to create a space of freedom, to guarantee a freedom, and precisely to guarantee it in the economic domain. Let us now suppose that in this institution x—whose function is not the sovereign exercise of the power to constrain, but simply to establish a space of freedom—any number of individuals freely agree to play this game of economic freedom guaranteed by the institutional framework. What will happen? What would be implied by the free exercise of this freedom by individuals who are not constrained to exercise it but who have simply been given the possibility of exercising it? Well, it would imply adherence to this framework; it would imply that consent has been given to any decision which may be taken to guarantee this economic freedom or to secure that which makes this economic freedom possible. In other words, the institution of economic freedom will have to function, or at any rate will be able to function as a siphon, as it were, as a point of attraction for the formation of a political sovereignty. Of course, I am adding to Ludwig Erhard’s apparently banal words a whole series of implicit meanings which will only take on their value and effect later. I am adding a whole historical weight that is not yet present, but I will try to explain how and why this meaning, which is at once theoretical, political, and programmatic, really was in the minds of those who wrote this discourse, if not in the mind of the one who actually delivered it. Michel Foucault, 31 January 1979, translated by Graham Burchell, Lecture 4, The Birth of Biopolitics. 80-3
The long, extraordinary passage is introduced by Foucault as an example of "German neo-liberalism" which is the more "important" kind of contemporary liberal governmentality (79). The other kind is the American type. In the interest of space, I defer exploring why Foucault claims, although it is vital to understanding his intentions related to the fact that for him "he state is nothing else but the mobile effect of a regime of
multiple governmentalities." (77)
The "elementary simplicity" that drove Turgot's decision-making led, via famine and state bankruptcy, to the French revolution. By contrast, Erhard's decisions led to the Wirtschaftswunder.Foucault strongly implies that the contrasting fortunes between otherwise similar policies can be explained not just in terms of contrasting historical and economic contexts, but also in terms of the (for lack of a better word) political conceptualizations that accompany them.
Before I get to the content of Foucault's analysis, I note that he repeatedly treats Erhard's words as "apparently banal" (87). It's also in the French. Now, 'banale' is a term Foucault throws around quite a bit in the lectures. So, I don't want to claim that the pairing with Arendt's Eichmann is deliberate. Even so I think the use of 'banale' is quite deliberate. For, Foucault is explicit that whatever Erhard's intentions, the significance of his words came later and are added by Foucault ("I am adding a whole historical weight that is not yet present"). Erhard is treated as a functionary, who is delivering words that echo the Ordo doctrines (and it is, despite the mention of the Austrian school just before in the lecture, quite clear to Foucault that the Freiburg Ordo theorists who "wrote" it).
Foucault makes an uncharacteristic mistake both in setting himself above the historical agents he is characterizing and in treating Erhard as a mere instrument. Under Nazism, Erhard showed more independence of mind as can be readily ascertained by reading his (1943/4) War Finances and Debt Consolidation (Kriegsfinanzierung und Schuldenkonsolidierung), which dangerously anticipated German defeat and also sheds light on some of his commitments.
I mention this, in part, because when Erhard undertook his economic reforms he was almost certainly exceeding his legal authority to do so. And so we must recognize that the very effect he was trying to achieve, re-establish, perhaps establish for the first time, "juridical legitimacy" (82) in Germany, required an act of statecraft, of a gambling will, if one so wishes, that can only be legitimated in some sense by its effects. That is to say, this is no mere functionary, who merely repeats liberal piety of the past. As he puts it at the start of the 1948 speech Foucault quotes, "I am not preaching a return to the liberalist economic patterns of historic tradition." (27)
Okay, with that in place, let's turn to Foucault's interpretation. For Foucault Erhard claims that the state maintains its legitimacy and representative character when it guarantees the basic rights of its citizens. And, indeed, Foucault is surely right that in addition to rejecting marxist planning, and Keynesian interventionism, Nazism is the more fundamental target here. It is worth emphasizing, however, that Erhard also explicitly rejects "anarchy." This is a defense of the role of the state in guaranteeing basic rights. I don't think Foucault misses this, for he is clear that German liberalism presupposes such a state role.
The nature of representation that Foucault recognizes is in a strange way one of output legitimacy. For, the legitimacy of the new German state will be ground in both the effective protection of rights. And, in virtue of such legitimacy the state can represent, speak and authorize on behalf of, its citizens. This is not the usual notion of representation, so Foucault is right to emphasize it.The 'consent' involved is extremely indirect. We may say that only later, once basic rights are secured, did output legitimacy shift toward a focus one economic performance.
This is not to deny that Erhard himself presents these basic "human rights" primarily in terms of freedom of choosing one's occupation and consumptions:
Any system which does not leave completely intact an individual's free choice of occupation and of consumption contravenes human rights and harms the very social classes for whose protection these spurious measures were conceived. Who, for example, would deny today that the present controlled economy- rejected though it may be by all concerned - has brought most suffering to the weak and the poor or that this class of the community entertains the profoundest hate of all for a system which has oppressed and humiliated them. (28)
Crucially, and Foucault oddly misses this, Erhard relies on a kind of soft, proto-difference principle that the political order must, as a necessary condition, at least also promote the interests of the "weak and the poor." That is to say, the test of legitimacy, the gaining of the representative character, is really two-fold: it's both the protection of human rights (relatively narrowly understood) and the promotion of the interests even dignity of the "weak and the poor." And this concern, with a kind of bottom up fairness is very much on display in the earlier 1943/44 discussion, which is also framed in terms of the rough perceptions of fairness of those subject to economy policy. That is to say, more than actual fairness, what matters is the political acceptance of the vulnerable and least powerful. He captures this point in 1947 in terms of the "spirit of democracy."
Now, I happen to think that this social economy (soziale Marktwirtschaft) brings Erhard (who was a Christian-Democrat) rather close to Smith, despite the distance to versions of late nineteenth century liberalism. I don't mean to deny that Erhard's position evades complex questions about how to measure and gouge such perceptions. What's crucial for my present purposes is that in virtue of missing this second feature, Foucault reduces the German form of governmentality to a defense and state construction of the market. And while I understand why for his larger narrative this might make sense, and that in this reductionist interpretation, Foucault echos the most misguided defenders of liberalism, it is important to see that the defense of the market is presented in a larger moral-political order that is worth revitalizing.
*My Marxist intellectual friends tend to ignore that a planned economy tends to be experienced by the vulnerable as open-ended series of humiliations.
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