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Fro­­m Ordoliberalism to Neoliberalism and Back Again?

Daniel Russo

23 May 2023

Since the late 70s, the fashionable understanding of contemporary capitalism is that we are in a neoliberal era, ruled by neoliberal economic logics and neoliberal governments. What are the roots of neoliberalism, and is the concept still an appropriate lens for the analysis of capitalism and the economy in 2023?

Following Michel Foucault’s genealogy as articulated in Birth of Biopolitics, we see that neoliberal theory has its roots in 18th century Europe, where the study of political economy was undertaken by state officials and intellectuals to better understand and manage the intricacies of a territory (particularly population, land, and wealth). Managing the economy meant managing the health and strength of the nation, protecting the nation’s interests, and it was generally accepted that the sovereign state had both the right and obligation to regulate in order to protect itself.[i]

However, Foucault notes that a strand of thought emerged in which it was considered better for the state to not intervene– even if it had the right. This new minimalist view came from the Physiocrat movement, and it was rooted in the belief that a market economy filled with rational, self-interested individuals could solve its problems by itself. Physiocrats felt that constructing and protecting the market economy should be the state’s primary purpose. If only this construction was achieved, competitive logics would ‘naturally’ bring wealth to the nation, while harmonizing its population and resources. Not only this, but there was also the belief that whatever way the market solves the problem is the ‘natural’ way; a good result in and of itself because of its naturalness. This is the ‘truth of the market,’ natural law.

Influential in its own right over the next 175 years or so, this intellectual legacy was taken up eagerly by German economists dealing with a battered economy after WWI, and, amidst the Great Depression. However, these economists took issue with the Physiocrat’s assumption that economic agents were naturally rational in their engagement with markets. To them, rational actors were the ideal rather than an already-existing character of the social body. Therefore, beyond the state’s primary task of protecting markets and private property, it also has to institute a range of mechanisms that make citizens more rational, in order to artificially construct perfect market conditions.

Synthesizing intellectual influence from economists like Hayek, phenomenologists like Husserl, and sociologists like Weber, this conception of a coordinated market economy stems from German political economists writing in the journal Ordo (roughly between 1930 and 1950), and for this reason it has been called ordoliberalism.

While their program may sound a bit like neoliberalism, it doesn’t go quite as far in extending competitive market principles to the general management of society. Instead, it finds market utility in state institutions that make individuals more rational. The most original and vivid example of ordoliberal society is post-WWII Germany.

From 1948 through the ‘50s, under the expertise of ordoliberal economists, Germany attempted to establish an ‘entirely economic society.’ This is an exceptional example because it marks one of the few times in history where an economically liberal society was being set up without political liberalism. In the immediate aftermath of WWII, Germany was under the occupation of the Allies, especially U.S. forces, and for the moment lacked the representative institutions of liberal democracy.

The Allies had the goal of stabilizing and re-establishing Germany as a major Western country, particularly as the Western world faced Communist pressures from the East, whose capture of power would dramatically threaten economic liberalism in the region (e.g., market economies; opportunities for profit extraction and general capital growth). The Allies did not risk setting up a representative democracy in Germany right away because of the two-fold threat of a return to Nazism or the rise of socialist politicians, if not outright Communist Party adherents, through popular election. Instead of political freedom, the Allies sought to focus on economic freedom. In this sense, it was an excellent opportunity to experiment with the ordoliberal’s dream of an ‘entirely economic society.’

The German ordoliberals immediately focused on building a state-regulated market economy, state-regulated in the sense of using the power of the state to ensure that markets were functioning as they should in theory, with ‘perfect competition’ and ‘perfect prices’ that arise from natural market processes. However, ordoliberals understood that markets would only work well if the population was healthy, relatively financially stable, incentivized, rational in their decisions about where to work and what to consume, and generally capable of being productive members of society. Far from these ideal conditions being in place after a devasting war, the ordoliberal government built up social security and pension programs among other forms of welfare. This, they believed, would help make individuals the economically rational agents that liberal theory imagines as an ideal.

But beyond this, the state would not intervene directly in the economy. They will intervene at the level of society, at the level of individual and population health, but the ordoliberals did not want to intervene in the economy—they sought to make it radically free.

Four establishing acts took place. The first step in instituting this free economic society was to eliminate price controls on goods, services, rent, etc. The market would determine the appropriate prices. Coupled with this step was the push to reduce business taxes. The third step involved the privatization of previously nationalized enterprises. All three steps were put forth as strategies for resolving serious burdens against economic freedom and the prosperity of both individuals and enterprises. This would allow, they hoped, the possibility of competitive markets to efficiently meet the demands of production and consumption.

Crucially, none of this could happen without first destroying the former German currency - which suffered an excess supply and, thereby, hyperinflation of prices - and then establishing a new one. This requires a central bank that can print and distribute the currency. As such, the central bank was the real first step, the first national institution set up in post-WII Germany (through the June 1948 Currency Reform, as Cato recalls with delight). Stripped of a government of their own for the time being - as they were still occupied - the German central bank essentially became a new kind of national sovereign that capitalist nations around the world watched with great interest.

In other words, ordoliberalism sees great importance in, and in fact requires, the role of central bank monetary policy meant to keep currencies and markets stable. We are getting quite close here to what we experience today, especially with the U.S. Federal Reserve’s use of interest rate policy to control the interdependent concerns of liquidity circulation, inflation, investment activity, and thereby, production and labor.

As in the U.S. today, when post-war Germany finally moved back to representative democracy, one of the legislative branch’s main responsibilities became to ensure tax revenues can pay for crucial government expenses for the population’s welfare, as we are told the central bank is not to be considered a tool for paying for social services, but rather, only meant for regulating the supply of money within market economies.

Tax revenues must pay for government expenses rather than central banks, for fear of inflation via the artificial creation of money (something which elsewhere – the use of artificial money creation programs not for social services but to ensure cheap credit for financial markets and liquidity circulation in the real economy - becomes a major necessity and concern by the early 1980s, which I tried to sketch out in my last Sublation article). Yet, high taxes on business were declared a threat to economic liberalism and the growth potential of capital, so the burden was dispersed across society. In this sense, despite the institution of social security and pensions (among other social benefits), German ordoliberalism’s treatment of business and the (labor) population was like a conservative version of social democracy or the welfare state.

In fact, like the social democrats, ordoliberals saw social justice as a great concern. But they largely framed it as achievable through what the market can produce. And interestingly, ordoliberal theory and the largely social democratic Frankfurt School critical theory share a similar Weberian tradition of critiquing the rational-bureaucratic state for its variety of apparatuses that more or less regulate people’s lives. This was at least one of the ordoliberal’s major justifications for insisting on stripping away a number of state institutions and services. Further, ordoliberals and most FS critical theorists held much less pessimism about the so-called self-destructive contradictions residing within capital market logics. They were less prone to believe that capitalist societies were unsustainable in the long-run.

This is, of course, counter to Karl Marx’s view. In Capital volume 1 (chapter 32) Marx lays out the view that the capitalist mode of production produces its own negation in its process of sustaining itself. But the ordoliberals and FS critical theorists argued that Marx was wrong by not considering the way that both the state and finance capital would save it. Though, this is a straw-figure of Marx, as there are number of his works, especially (1) Capital volume 3 (chapters 25-34) which discuss the increasing role of credit and financial speculation, or, what Marx called fictitious capital, (2) Grundrisse, which discusses what may happen when capital “presses to reduce labor time to a minimum, while it posits labor time, on the other side, as sole measure and source of wealth,” and (3) The Eighteenth Brumaire of Louis Bonaparte, which explores the ways in which the French state saved capitalism by restraining it (Teo Velissaris has an excellent analysis here, in Sublation, on the rise of Bonapartism). Such an unstable set of statist and financializing band-aids for managing crises of productive capital accumulation may very well result in eventual system collapse. Or asTed Reese notes, following the line of thought laid out in Capital v. 1, perhaps we’re already experiencing a gradual transition into a socialist mode of production. Though, other Marxists such as Jodi Dean and Michael Hudson suggest its precisely the opposite – we’ve already transitioned into a neofeudal age due to the reliance on a rentier class and broader transnational capital class (TCC) whose elite power is equivalent to that of aristocrats and kings (not to mention the system’s increased reliance on private military-security forces and technologies of mass surveillance, behavioral modification, and death; see Necropolitics and Surveillance Capitalism).

Regardless of this future trajectory, ordoliberalism imagines itself as something of a compromise between labor and capital on the one hand and between state and private power on the other. At its root is an attempt to sustain a capital-driven economy through the centralized management of contradictions that lead to crisis, whether that centralization is state- or private-based. And even when it tries to carry out a program of social justice or freedom, it views the competitive market as the main vehicle for achieving it; markets are seen as more superior for bringing justice/freedom than the classical liberal dream of democratic representation in state governments and institutions.

So, then what about neoliberalism?

Finally, we can turn to neoliberalism. We should understand neoliberalism as an extension of ordoliberalism’s focus on market logics into realms outside of pure economics. Where ordoliberals found it necessary to provide a safety net to citizens in order that they could best move about as economically rational actors, that thing necessary for markets to work in their ideal form, neoliberals argued that markets could take care of the health and rationality of individuals just as well, if not better, than the state. Not only did neoliberals lower business taxes and remove price controls like ordoliberals had, it also offshored a hefty chunk of social services like pensions to private 401ks, and even some state prisons to private prisons and some state military operations to private operations. Generally, they saw the market as a way to deal not just with economic production/consumption but also social reproduction: the market resolves not just the economy but also population and social health in general.

We can therefore establish that ordoliberals and neoliberals share conceptual roots regarding the belief that markets, in their ideal conditions with economically rational actors, not only provide social stability but also increased freedom. However, the two diverge on how to achieve those ideal market conditions. Ordoliberals believe that the market must be coordinated by central legislative, bureaucratic, and monetary institutions. Neoliberals paradoxically argue that markets themselves are the means to achieving ideal market conditions (supply/demand equilibrium, ‘true’ prices). Thus, they spend most of their time in government attempting to roll back spending and economic interventionist mechanisms, or pass legislation that protects business interests and market functionality while hurting labor interests.

Yet in having to work within a coordinated economy and welfare state upon entrance (even if quite a bare one), neoliberal policy has had to bypass its nominal principles in attempts to reach its ideal state. In the process, it’s ended up looking more like ordoliberalism, mainly because although it has used the state to increase privatization – in line with typical understandings of neoliberalism – it has also accepted central bank sovereignty, built up various centralized apparatuses for population regulation, and even made occasional compromises to the welfare state, all to induce favorable market conditions.

Ordoliberalism is more of a welfare state, and more centralized, than neoliberalism. The point here is not that we should be happy because ordoliberalism is ever so slightly better than the neoliberalism ideal. The point is that ordoliberalism seems to be what happens when neoliberals get into power, simply because capital demands it. This is, we might say, neoliberalism’s ordoliberal compromise.

Neoliberal regimes continue to falter on their promises to solve socio-political problems through the market, and they’ve blamed the personal responsibility of individual actors for causing market failures: It is the irrational population’s fault, not the market economy. As long as we remain under this strange ordo-neoliberal order, the modus operandi of the state will remain relegated to fixing individuals for the economy rather than fixing the economy for individuals.


[i] Michel Foucault, The Birth of Biopolitics: Lectures at the College de France, 1978-79, Michel Senellart ed., Graham Burchell trans., Palgrave Macmillan, 2008.

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