David M. Woodruff Ordoliberalism, Polanyi, and the theodicy of markets Book section Original citation: Originally published in Hien, J; Joerges, C, Ordoliberalism, law and the rule of economics. Oxford, UK: Hart Publishing, 2017. © 2017 Bloomsbury Publishing Plc This version available at: http://eprints.lse.ac.uk/87464/ Available in LSE Research Online: April 2018 LSE has developed LSE Research Online so that users may access research output of the School. Copyright © and Moral Rights for the papers on this site are retained by the individual authors and/or other copyright owners. Users may download and/or print one copy of any article(s) in LSE Research Online to facilitate their private study or for non-commercial research. You may not engage in further distribution of the material or use it for any profit-making activities or any commercial gain. You may freely distribute the URL (http://eprints.lse.ac.uk) of the LSE Research Online website. This document is the author’s submitted version of the book section. There may be differences between this version and the published version. You are advised to consult the publisher’s version if you wish to cite from it. Section IV The Moral and Normative Dimension of ‘ the Economic ’ and the Ordoliberal Tradition 13 Ordoliberalism, Polanyi, and the Theodicy of Markets DAVID M. WOODRUFF ABSTRACT Though they are seldom paired, there are important points of contact between the thought of ordoliberals like Eucken and B ö hm and that of the idiosyncratic social democratic theorist Karl Polanyi. Like Polanyi, the ordoliberals recognised the crucial historical and contemporary role of the state in creating and sustaining market economies, and the consequent emptiness of the laissez-faire slogan. Some of Polanyi ’ s inter-war analyses of the political use of state power to create monopolies show signifi cant parallels with ordoliberal diagnoses. There were points of contact in moral perspectives as well: both Polanyi and the ordoliberals emphasised that inter-war markets were producing manifestly unjust outcomes, incompatible with any notion of desert. Their reactions, of course, were very different. To put it in Polanyi ’ s terms, ordoliberals accepted that laissez-faire was planned, and argued it needed to be re-planned: more consistently, with the state mobilised to structure markets in ways that ensured market earnings refl ected desert. Polanyi, for his part, felt that the state structures underpinning any market order made the very idea of individual desert unintelligible and a barrier to clear thought about how society ought to be organised. This chapter will analyse these parallels and distinctions, and discuss the ways in which Polanyi offers signifi cant resources for analysing ordoliberal positions. I. INTRODUCTION TARTING IN THE interwar period, ordoliberals sought both to diagnose the failings of classical market liberalism and draw conclusions about what should Sfollow. At the same time, very similar issues preoccupied the idiosyncratic social democratic theorist Karl Polanyi. Both Polanyi and the ordoliberals recog- nised the crucial historical and contemporary role of the state in creating and sus- taining market economies, and the consequent emptiness of the laissez-faire slogan. Their analyses of the political and economic origins of interwar upheavals likewise prove to have signifi cant parallels. In moral perspectives, too, there were points of 216 David M. Woodruff contact: both Polanyi and the ordoliberals emphasised that interwar markets were producing manifestly unjust outcomes. They agreed, in particular, that these out- comes were incompatible with any notion of desert (understood here and through- out as what people deserve as a matter of morality). Their reactions to this morally unacceptable circumstance, however, were very different. Ordoliberals shared the ideas encapsulated in Polanyi ’ s famous assertion that ‘ [l]aissez-faire was planned ’ . Indeed, the burden of their programme was that laissez-faire needed to be re-planned: more consistently, with the state mobilised (and constrained) to structure markets in ways that ensured market earnings refl ected desert. This sort of morally appropriate market order, I argue below, was the cen- tral aim of the reforms in society, economy, and polity that ordoliberals proposed. Polanyi, by contrast, rejected the notion of desert as a barrier to clear thought about how societies and economies ought to be organised. He argued that because state structures underpin any market order, the very idea of individually deserved distri- butional outcomes under such an order is unintelligible. This chapter seeks to use the contrast between the two projects to bring into sharp relief both the enduring moralism of ordoliberalism, and the function of this moral- ism in the ordoliberal project of replanning laissez-faire. (The reader will already have noted that I permit myself to speak of ‘ ordoliberalism ’ as a coherent whole. I believe that there was enough overlap and consistency in ordoliberal thought in the period that I discuss, running from the 1930s to the 1950s, that such a collec- tive reference is justifi ed. In what follows, I draw particularly on Walter Eucken but also refer to Alexander R ü stow, Franz B ö hm, and Wilhelm R ö pke). The chapter is divided into two sections. In the fi rst, I discuss how Polanyi and the ordoliberals analysed the rise and fall of laissez-faire. The second focuses on the ordoliberals’ efforts to replan laissez-faire and how a ‘ theodicy of markets ’ — an account of how the outcomes of properly structured market competition have moral signifi cance — became crucial to this effort. II. STATE AND MARKET: TWO ACCOUNTS OF THE ‘ DOUBLE MOVEMENT ’ The degree to which Polanyi and the ordoliberals can be seen as in implicit dialogue with one another is perhaps unsurprising. After all, Polanyi emphasises that his account of the rise and fall of what he terms the ‘ self-regulating market ’ differs from that of liberal writers more in interpretation than in historical content. 1 Polanyi defi nes the self-regulating market as one in which ‘ order in the production and distri- bution of goods is ensured by prices alone ’ , which marked a radical departure from prior ways of organising the economy. 2 This price-governed market was not the 1 Among liberals, he mentions, inter alia, Ludwig von Mises, whom Walter Eucken also cites in a simi- lar context. Karl Polanyi , The Great Transformation: The Political and Economic Origins of Our Time , ( Boston MA : Beacon Press , [ 1944 ] 2001 ), p 148 ; Walter Eucken , Grunds ä tze der Wirtschaftspolitik , ( T ü bingen : J.C.B. Mohr , 2004 ), p 28 n 1. 2 Polanyi, n 1 above, p 147 and 71. Ordoliberalism, Polanyi, and the Theodicy of Markets 217 end-point of an evolutionary process of de-centralised exchange, Polanyi contends, but rather the product of a conscious design: an effort to mould an economy operating with the same sort of de-centralised, spontaneous mechanisms that balance popula- tions of predators and prey. Polanyi sees Joseph Townsend ’ s (1786) Dissertation on the Poor Laws as the crucial programmatic document of this transformation. Townsend ’ s deployment of blood-drenched naturalistic metaphors to claim the pres- tige of science enabled indifference to the massive suffering involved in the move to a self-regulating market. 3 The origins of this suffering lay in the irreversible damage that market price fl uc- tuations could do to the ‘ human and natural components of the social fabric ’ , com- prising labourers and productive organisations on the human side and land on the natural one. The predictable result was ‘ an urge on the part of a great variety of peo- ple to press for some sort of protection ’ from the indiscriminate destruction wreaked by markets. 4 These protective efforts, he argued, arose spontaneously, in multiple contexts and under multiple political banners, prompted by the manifest arbitrari- ness with which the market economy gouged at the social fabric. Polanyi draws on liberal writers for his descriptions of the wave of restrictions on the operation of the price mechanism dating from the latter third of the nineteenth century. But whereas liberals, he suggests, saw these measures as deriving from the ‘ sinister interests of agrarians, manufacturers, and trade unionists ’ , or a ‘ collectivist conspiracy ’ , Polanyi insisted that they instead represented the ‘ realistic self-protection of society ’ . 5 By re- purposing von Hayek ’ s absurdly polemical equation of all efforts to shape or tame markets with ‘ planning ’ , Polanyi is able to sum up his distinctive interpretation in epigrammatic form: ‘ laissez-faire was planned; planning was not ’ . 6 Liberals ’ analytical failures, in Polanyi’ s view, were not limited to misunderstand- ing the motives underpinning the ‘ protective countermovement ’ . 7 Polanyi also zeroes in on what he sees as liberal hypocrisy regarding the role of the state. As a blueprint for constructing a new form of society, one comprehensively subordinated to the price mechanism, laissez-faire implied not ‘ legislative quietism ’ , but state activity along a broad front. 8 A paradigm of such state activity was the 1834 Poor Law Amendment Act, which did not simply abolish the Speenhamland system of locally administered wage support, but created a new system of workhouses under ‘ dictato- rial central supervision ’ . 9 Moreover, state activism in the era of the ‘ self-regulating market ’ did not cease with its inception. Polanyi suggests that ‘ the introduction of free markets, far from doing away with the need for control, regulation, and inter- vention, enormously increased their range. Administrators had to be constantly on the watch to ensure the free working of the system ’ . 10 To deny that this watchful 3 ibid, pp 117 – 118 and 132. 4 ibid, p 156 and 136 – 137. 5 ibid, p 148 and 158. 6 ibid, p 147. 7 ibid, p 148 and 151. 8 ibid, p 126 and 146 – 147.