Nazism and Neoliberal Mythmaking, Part I: German Reconstruction as State-Phobia


In a previous series of pieces about the origins of neoliberalism (available here: Part I, Part II, Part III and an interview) I put forward the idea that neoliberalism – and its extremist offshoot, libertarianism as represented by the Austrian School – was founded on a very specific myth. This myth I called “Hayek’s delusion” and it holds that any sort of economic planning will inevitably lead to totalitarianism. Thus even well-intentioned Keynesian policies of economic planning contain within them the seeds of the next Third Reich.

In the first part of that series I tried to show that this myth had its origins in the thoughts of one man desperately struggling to make sense of Hitler’s rise to power. That man was, of course, Friedrich von Hayek and the manner in which he made sense of this trauma was simply a projection of his own a priori ideology onto a past which he himself had lived through. To repeat the general theme of that piece, but not to belabour it, Hayek ignored the fact that Nazism was largely an anomaly which was given fertile soil to sprout by the fierce reparations payments demanded by the Allies after the First World War together with other humiliating conditions set out in the Treaty of Versailles and finally gained power due to austerity policies enacted under Heinrich Brüning after the Great Crash of 1929.

Hayek’s delusion is, of course, preposterous and it was probably taken up and established as the founding myth of neoliberalism by people who simply wanted to push their ideological agenda. However, it may perhaps be worth exploring the idea that economic planning inevitably leads to totalitarianism in a little more detail, if only to bring to the surface its historical and logical nonsensicalness. In order to do this we must turn once more to the German ordoliberals – whom we encountered in the third part of the previous series – and the part they played in the reconstruction of the German state after the end of the Second World War.

The Founding Myth of the Modern German State

In 1995 the BBC aired a series by the British filmmaker Adam Curtis – probably the finest filmmakers and perhaps even one of the finest thinkers of our time. The series was called The Living Dead and it examined how those in power manipulate our sense of collective memory in order to exercise power. In the first film Curtis scrutinised how the Allies at once created the myth of the “good war” and at the very same time buried Nazism. The latter was undertaken, according to Curtis, by using public events like the Nuremberg Trials to turn the leading Nazis into monsters. Curtis makes the case that what was done after the war was to single out certain individuals and turn them into quasi-mythic figures that came just about as close to anything a modern person might consider a demon or some other unworldly entity.

The leading Nazis, to this day, continue to hold this rather unusual aura around their ghostly historical presence. Perhaps, of course, this is not without reason but for anyone interested in the way supposedly rational people continue to hold beliefs that we usually associate with more primitive cultures it is truly fascinating. (The lesson, of course, being not that we should paint as absurd those who think Hitler a manifestation of a sort of otherworldly evil but that we should probably think twice before snickering at the Pacific Islander who claims that the leader of the enemy tribe who brutally murdered his family members is actually a demonic entity placed on earth by bad spirits.)

Curtis’ case is a good one and my intention is not to dispute it but instead to complement it by taking a slightly different angle. How did those within the German state reconstruct this past, what did it result in and what was the past that it repressed? We must understand that this particular instance of political mythmaking was an altogether delicate operation. After all, if we take real history – as opposed to myth – as our guide then we know that Nazism was largely the result of the Allies’ policies toward Germany after the First World War. However, it was precisely bitterness over this that had led to Hitler. So to have this true history as the foundation stone for the new German state may well have risked once again sparking off this bitterness and the effort at reconstruction might have proved entirely self-defeating. A metanarrative or Grand Myth was thus needed. Some sort of logic had to be identified as being responsible for the rise of Nazism. In positing such a logic it could be fought by the new politics. The new German state could primarily constitute itself as an attempt to fight against this terrible logic. This may have been a puppet fight but it was likely better than a truth that may have derailed the entire process of reconstruction.

Germanic Left Anti-Statism and Germanic Right Anti-Statism

After the war two such logics were offered, both by German émigrés who had by then returned from exile. One such logic came out of the Frankfurt School and is generally today known as Western Marxism. The Frankfurt School reasoned that Nazism was, in fact, the inevitable result of a degenerate capitalism in its last stages of decay. The Frankfurt School – who were anti-Soviet communists – were not given a voice until protestors clashed with police in the streets across Europe in 1968. The police, in the case of Germany, were defending a state founded on the logic of the other group of German émigrés. This group was known as the Freiburg School or ordoliberals and as I showed in the series on neoliberalism they were firmly tied to the Austrian School through the Mont Pelerin Society.

The ordoliberals, as discussed in the third part of our previous series, were similar in many ways to their Anglo-Saxon neoliberal cousins who would rise to power in the late-1970s and early-1980s. However, they tended to allow for strong state institutions and they believed that labour unions had a firm place in civil society – albeit one which was mainly geared toward the suppression of wages. The ordoliberals also rose to power far quicker than their neoliberal cousins. While most of the rest of the advanced Western world was being governed by broadly Keynesian-style economic planning, the German economic minister, later Chancellor and member of the neoliberal thought collective the Mont Pelerin Society Ludwig Erhard, was trying with some success to push the anti-Keynesian line in West Germany after the war. Erhard was never completely successful, of course, and Germany developed into a social market economy, but the ideas he laid out – especially those related to so-called “competitiveness” – essentially form the base of Germany’s export-led economy today.

Most importantly for our purposes is what the ordoliberals said about Germany’s past. If the Frankfurt School claimed that Hitler was the end result of a degenerate capitalism what myth were the ordoliberals trying to propagate? In fact, the ordoliberals essentially made the exact same claim as Hayek and the Austrians. They claimed that Nazism was the result of statism gone mad. They said that when the state is given power over economic planning its power begins to grow and grow and soon its desired reach becomes infinite and we get Nazi totalitarianism. As already stated this is pure nonsense – Nazism was largely a reaction to the Versailles treaty and the poor government response to the severe economic downturn in Germany after 1929. However, there is another aspect of history that shows this up for the silliness that it is and that is the theory and practice of Nazism itself. In the second part of this series we will examine this in detail.


About pilkingtonphil

Philip Pilkington is a macroeconomist and investment professional. Writing about all things macro and investment. Views my own.You can follow him on Twitter at @philippilk.
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9 Responses to Nazism and Neoliberal Mythmaking, Part I: German Reconstruction as State-Phobia

  1. in my economy history course i read that the germans export-led economy started since the reunification (i mean, the second half of XIX century) and it was mostly directed toward france.
    is it true?

    ty 4 the time.

  2. Pingback: Nazism and Neoliberal Mythmaking, Part II: The State as Killer | Fixing the Economists

  3. Pingback: Nazism and Neoliberal Mythmaking, Part III: The Descent into Primitivism | Fixing the Economists

  4. Pingback: Nazism and Neoliberal Mythmaking, Part III: The Descent into Primitivism | Fixing the Economists

  5. strambotik says:

    You claim that the Austrian School is an extremist offshoot of neoliberalism. I disagree with that characterization. I too am very critical of both the Austrian School and neoliberalism. However the Austrian School does have a couple of good ideas, depending on which economist we are talking about. Specifically Hayek, despite his delusions, did make a valid contribution to economic theory through his concept of a market as a system whereby information is transmitted among economic actors, and thereby, as he stresses, obviating the need for central planning. I think if Che Guevara had read Hayek he would have avoided many of his blunders as minister of the economy in Cuba, where overcentralization wrought havoc on the economy.
    But the Austrian School does not merely provide a critique of socialism — it also provides a critique of neoliberalism, and largely for the same reason. Neoliberalism, being a creature of the parasitical financial oligarchy, relies on exactly the same sort of reckless aggregation of economic data as does central planning. For example the Capital Asset Pricing Model, the mathematical models associated with a mathematician called Sholes, on which Long-Term Capital Management relied and that led to its downfall, and countless other aggregation tools that are central to the neoliberal financialized approach to the economy, are all firmly rejected by the Austrian School on exactly the same grounds as those they invoke to reject central economic planning (and I am using the term “central economic planning” in its strict sense, namely that a central planning boards determines years in advance the manufacture, distribution and consumption of the very last tiddlywink, as opposed to the propagandistic use of the term by flea-market capitalism fetishists to denote and denounce ANY kind of government planning. They do this merely in order to invoke Hayek’s use of the term to designate the final Stalinist stage of his crackpot model according to which all government intervention in the economy inexorably leads to totalitarianism.)
    And the grounds the Austrian School invokes to reject this aggregation frenzy is that only decentralized economic actors have enough information available to make sound business decisions, since they are in close contact with their respective economic environments, which involve parameters that are difficult to quantify and are consequently not susceptible to aggregation, as well as because such conditions vary from place to place and from time to time. Of course “decentralized economic actors” need not mean private capitalists. They can also be state-owned or municipal enterprises, cooperatives, and so forth. And Hayek’s concept of the market does not rule out macroeconomic planning, or industrial policy either. As a matter of fact Hayek is on record as advocating a state welfare safety net!
    Consequently the Austrian School has saving graces that neoliberalism lacks

  6. strambotik says:

    As for the ordoliberals around Walter Eucken, they were a left-wing heresy of the Austrian School, and I consider at least two of their key ideas to be sound:
    1. to prevent by all means capitalists from influencing government policy. In other words they opposed lobbying and revolving-door staffing, which nobody can object to, and
    2. the state should ensure competition and fight monopolies. This was a position that the hard core of the zuzn School namely Ludwig Mises, disparaged. Mises wrote that the state should not act as an arbiter, and that only government monopolies were bad, while private monopolies were good.

  7. strambotik says:

    On the subject of ordoliberals, I just read an interview in German with Lars Feld, who is currently the chairman of the German economic advisers council and a prominent ordoliberal. I found his remarks on current German economic policy quite sensible and not the least bit neoliberal-extremist. He approves of extra German government spending on raising wage subsidies for part-time workers in connection with the epidemic, and other Keynesianoid measures.
    Source: «Wirtschaftsweiser» Lars Feld: «Es lohnt sich politisch nicht, liberal zu sein»

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