Ludwig Erhard: A Biography

By Alfred C. Mierzejewski

In the first English-language biography of one of the most important figures in postwar German history, Alfred C. Mierzejewski examines the life and service of Ludwig Erhard (1897-1977), West Germany's first minister of economics and second chancellor. Erhard liberalized the German economy in 1948 and is generally considered the father of West Germany's "economic miracle--the period of extraordinary growth in jobs and improvement in the standard of living in the 1950s that helped stabilize Germany's first successful democracy.

While recent scholarship has dismissed Erhard's influence on Germany's economic recovery, Mierzejewski returns to little-cited German analyses and Erhard's own record and concludes that Allied currency reform and Erhard's liberalization of the economy were crucial triggers for Germany's unprecedented economic boom. Mierzejewski provides insight into Erhard's policies, his ideas, his character, and his relationships with Konrad Adenauer and Charles de Gaulle. By offering a fresh account of Erhard's career as a leader in postwar West Germany, Mierzejewski provides a deeper understanding of Germany's economy as well as its democracy.

• Language: English
• Publisher: The University of North Carolina Press
• Release date: Dec 15, 2005
• ISBN: 9780807863688

Alfred C. Mierzejewski

Alfred C. Mierzejewski is professor of German history at the University of North Texas. His previous publications include The Most Valuable Asset of the Reich: A History of the German National Railway (Volumes 1 and 2) and The Collapse of the German War Economy, 1944-1945: Allied Air Power and the German National Railway.

Book preview

Chapter 1: Education of an Economist 1897–1945

Germany at the end of the nineteenth century was a dynamic, powerful, and unstable country. It had come into existence only thirty years earlier as the result of a series of three victorious wars. Its government consisted of a combination of authoritarian and democratic elements with the authoritarian predominant. The head of state was the young and unstable Kaiser Wilhelm II, who relied on the traditional Prussian military elite, the Junkers, to rule. Although the national legislature, the Reichstag, was elected through universal manhood suffrage, it did not effectively share power with the emperor and his allies. The majority parties did not form the government. Instead, the kaiser chose ministers to please himself. At the same time, Germany was industrializing rapidly, making it one of the wealthiest nations in the world. That industrial growth caused both domestic and foreign problems. At home, the expanding working class demanded a real share of wealth and power expressing its will through labor unions and the Social Democratic Party (SPD). The rise of labor sparked fear among the ruling groups and the middle class. The latter had not won a share of political power or social standing commensurate with its economic position. Yet it was alarmed by the growth of organized labor more than it resented its lack of influence and allied with and aped the traditional elites. The result was increasingly bitter social and political conflict as the twentieth century dawned. Abroad, Germany attempted to assert itself as a world power, leading to collisions with the other great powers, and especially with Britain.¹

The advocates of free markets and small government were a distinct and shrinking minority in turn-of-the-century Germany. Only the Liberal People’s Party (Freisinnige Volkspartei) led by Eugen Richter advocated ideas in the classical liberal tradition. Since the middle part of the nineteenth century the majority National Liberal Party had increasingly advocated policies that favored government intervention in the economy and the formation of cartels. Indeed, there were very few people in Germany who would have been recognized as liberals by Adam Smith.² Rather, German economic thought was dominated by the Young Historical School, the Kathedersozialisten (socialists of the chair), which advocated state manipulation of the economy both to increase the government’s power and to defuse social conflict. At the same time, the industrial sector increasingly organized itself into cartels that severely limited competition. Overall, imperial Germany in the years before World War I was characterized by increasing social and political tensions, expanding state intervention in economic and social matters, private organization of the economy, and the search by both the government and the opposition for new directions.

Ludwig Erhard was born into this unstable situation in the north Bavarian city of Fürth, adjacent to Nuremberg, on 4 February 1897. But he was remarkably unaffected by it. His father, Wilhelm, was the son of a peasant family that had lived for generations in the north Franconian village of Rannungen near Bad Kissingen. Born in 1859, Wilhelm Erhard was part of that massive movement of people from the countryside to the cities that played such an important role in changing German society during this initial period of its industrialization. In 1885, at age twenty-six, Wilhelm moved to Fürth seeking to improve his circumstances. However, unlike many of his contemporaries, rather than simply contenting himself with a factory job, he established a business of his own. In 1888 he opened a clothing store in Fürth. In the same year, he married Augusta Hassold, the daughter of a family of master craftsmen, glass blowers and goldsmiths. Wilhelm Erhard’s business prospered. While by no means wealthy, he became a member of the solid middle class that made its living through hard work and satisfying the burgeoning consumer demand of the period, rather than by lobbying for government subsidies or protection as many Junkers did to preserve their farms and many industrialists did to fend off foreign competitors.

These early years of Erhard’s life played a decisive role in shaping his character and his political views. His father was a Catholic while his mother was a Protestant. His tolerant, easygoing father allowed his mother to raise Ludwig, his two brothers, and his sister, Rose, with whom he became especially close, as Protestants. Wilhelm Erhard was an extrovert who was a follower of Eugen Richter and his small liberal party. The elder Erhard relished debating his more conservative business associates on issues of the day. Ludwig Erhard recalled these debates during the 1960s, a clear indication that his father’s liberal, small-business leanings had profoundly and lastingly influenced him.³

In his third year, Erhard suffered a bout of infantile paralysis leading to the deformation of his right foot, forcing him to wear orthopedic shoes for the rest of his life. It was for this reason that Erhard was not given to physical activity as a youth. His mother nursed him back to health, leading to the formation of a particularly close bond between the two. In contrast to his father, Erhard’s mother, Augusta, was a quiet, shy woman, who nevertheless had a strong character. Erhard’s personality reflected these traits throughout his life. He always preferred home life and developed few really close friends. He valued his privacy. For him, later in life, politics was always secondary to his family and to his theoretical interests. During these early years at home, close to his mother, but influenced by his tolerant father, Erhard developed an interest in music. His favorite composers were Bach, Mozart, Händel, Beethoven, Chopin, Gluck, and Richard Strauss. His ambition was to become a successful conductor. This dream highlights Erhard’s desire for harmony and the fact that he sensed that he should implement the conceptions of others. He did not, after all, seek to become a composer. These early years and interests also decisively shaped Erhard’s work style. He relied more on intuition and inspiration, focusing on big, fundamental issues rather than on detail. In short, Erhard developed a distinctly un-German way of doing things. This would unsettle many of his colleagues later but gave him an important advantage in overcoming the defeat suffered by Germany in 1945 and in addressing the country’s resultant problems. It made it easier for Erhard to keep his balance.⁴

In 1903, at age six, Erhard entered the Volksschule, the primary school, in Fürth. He made little effort and received mediocre grades as a result. He was much more influenced in this period by what he experienced at home. Moreover, his tolerant father did not press him to apply himself more rigorously.⁵ In 1907 Erhard enrolled in Fürth’s Royal Bavarian Vocational High School (Königlich Bayerische Realschule mit Handelsabteilung). Again, Erhard made little effort and received no better than satisfactory grades, although he did realize that he had a gift for public speaking. He was perfectly satisfied with the prospect of following his father into the clothing business. Consequently, the vocational school was well suited to him. It was by no means an elite institution and did not confer the coveted Abitur, the school-leaving certificate that entitled one under the German educational system to a place at a university. Not only was the Abitur an essential prerequisite to academic advancement but it was frequently also a ticket to entry into the cultural elite.⁶

In 1913 Erhard was awarded his Einjähriges, his secondary school certificate, and embarked on an apprenticeship with the Georg Eisenbach textile company in Nuremberg. He worked ten-hour days, six days a week to learn his trade. He traveled home on Sunday to spend the day with his parents in nearby Fürth. Erhard was content with his occupation. There is no sign that he was distracted by the increasing international tensions of this last peacetime year. He also had nothing to do with the strong and growing German youth movement, participating in neither the Wandervogel nor one of the young socialist groups nor one of the many völkisch organizations that populated the German cultural landscape at that time. Erhard enjoyed the last peacetime year unaware of the momentous developments building around him, unaffected by its Zeitgeist.⁷

The outbreak of World War I caused Erhard to look at life seriously for the first time. He was too young to be called to the colors, so he continued his business training. However, he questioned the wisdom of the imperial government and the kaiser. Contrary to the official propaganda line and the feelings of many of his contemporaries, Erhard hated neither Britain nor France. Nevertheless, out of patriotic feelings, he volunteered for military service in 1916. He was assigned to the 22nd Royal Bavarian Artillery Regiment and was trained as a gun aimer, a process that Erhard experienced as a kind of sport. He was then assigned with his unit to the Vosges, a quiet sector on the southern part of the western front. His regiment was next sent to Romania, again a theater with little fighting. Erhard contracted a case of typhus, at that time almost always a fatal disease, and was sent back to Germany. Surprisingly, he recovered fully and volunteered to return to his unit. By then, it was on the western front, where Erhard experienced some of the heaviest fighting of the war as the German army struggled to halt the steady advance of the Allies. On 28 September 1918 near Ypres, Erhard was badly wounded by an Allied artillery shell. He was rushed back to the military hospital at Recklinghausen in the Ruhr. His left shoulder and side were severely wounded, as well as his left leg. Erhard remained in the hospital until June 1919, undergoing seven operations. His left arm atrophied and became shorter than his right one. Later, in February 1929, the Welfare Office in Nuremberg pronounced Erhard 25–30 percent disabled and granted him a pension. While recuperating, Erhard realized that his world had disintegrated. He also understood that Germany had been changed permanently. However, he was not bitter. He did not accept the stab-in-the-back myth. Unlike Hitler, he did not embrace a radical solution for Germany’s massive problems. Instead, he retained his equilibrium, remained loyal to his family’s liberal values, and looked for a way to rebuild his life.⁸

In November 1918 Kaiser Wilhelm II abdicated the German throne, leading to a change not only of ruler but of regime. The leaders of the SPD in the Reichstag proclaimed a republic but were unwilling to conduct a social revolution. Instead, they attempted to orchestrate an orderly transition, including the writing of a new, democratic constitution. These moderate reformers had to contend for power with revolutionary Marxists to their left and radical nationalists and racists to their right. The moderate forces proved unable to follow a clear political line, simultaneously catering to the nationalism of the right while attempting to build a welfare state to satisfy the demands of the labor unions to the left. At the same time, the new regime was compelled to sign a peace settlement that was rejected by the vast majority of the German population. The Weimar Republic never gained the loyalty of a majority of the German population and certainly never enjoyed the undivided support of the country’s elites. The bitterness over the lost war and the sense of betrayal as a result of the peace settlement hobbled the new regime throughout its existence. Successive Weimar governments, even those based on center-right coalitions, expanded the country’s welfare system, raised taxes, cooperated in the politicization of the mechanism for setting wages, and supported the further cartelization of the economy. The years 1919 to 1933, from the creation of the Weimar Republic to its collapse and replacement by the Nazi dictatorship, saw a decline in faith in free elections and free markets and a growth in interest in authoritarian political solutions, innovative cultural ideas, and corporatist economic organizations. Erhard became aware of these developments and their theoretical background, although he did not participate in any of the many political movements of the era or directly engage in the political debate until its very end. He was particularly influenced by the inflation that ravaged the economy early in the decade, witnessing firsthand how it damaged his father’s business.

Erhard during World War I as gun aimer in the field artillery.

Ludwig-Erhard-Stiftung (Ludwig Erhard Foundation), Bonn.

In 1919 Erhard was too weak to work in his father’s store. He was casting about for something to do when he learned about the opening of a new business college in nearby Nuremberg. Entrance did not require possession of the Abitur, so in September 1919 he attended a lecture just to see what it was like. He enjoyed it so much that he enrolled in the school’s business program. Initially, he had difficulty, since he was not enamored of accounting and business math. However, during his fourth and fifth semesters, he found himself, mastered the material, and began to develop an interest in economic theory, and especially money and currency issues. He then made rapid progress and passed the program’s exit exam on 22 March 1922, receiving a degree in business administration (Diplomkaufmann). He wrote a thesis that dealt with the macroeconomic implications of the newly appearing forms of cashless payment. He concluded that such instruments would facilitate business activities but would not lead to an expansion of the economy.⁹

Erhard was drawn to one of the professors who taught business economics and economic theory, Wilhelm Rieger. Rieger, who founded the school and was its first director, remembered Erhard as an energetic student who devoted himself entirely to his studies. Erhard absorbed everything that he was given and asked for more.¹⁰ Rieger was a professor who had much to give. While not a charismatic teacher, he was well versed in liberal economic theory and was thoroughly familiar with competing socialist ideas. Rieger approached economic issues in a clear, methodical fashion. He transmitted to Erhard his solid knowledge of both macroand microeconomic theory, especially the ideas of the classical, marginalist, and neoclassical schools, and trained him to think in a logical fashion. Rieger’s influence on Erhard was greater than is generally realized. His ideas complemented those that Erhard had inherited from his father and the business environment in which he had grown up. Erhard later wrote that he owed his liberal economic and political convictions to Rieger. Surely, Erhard had imbibed the liberal spirit at home. But it was Rieger who made him conscious of the tenets of the liberal position and gave him a systematic theoretical foundation in them. From Rieger he learned the importance of the price mechanism, that the market price was the only just price, that firms existed to make money and that risk was an essential component of the economy, that industry organizations such as cartels were designed to undercut the competitive market, and of the transformative influence of new technologies.¹¹ In effect, Rieger reinforced and elaborated the ideas that Erhard brought with him. Erhard never abandoned these basic values. Especially during the 1930s, he attempted to reconcile them with his station in life and the position of Germany, but he always returned to them and ultimately embraced them without reservation.¹²

Rieger also helped Erhard move forward professionally. Erhard did not have an Abitur and had earned what amounted to a college degree from a school that was not allowed to confer conventional bachelor’s degrees. Yet he wanted to continue his studies in graduate school. Rieger convinced Erhard’s father that his son should pursue academic studies rather than devote himself to the more practical ends of the family business. Rieger also intervened with the authorities at the University in Frankfurt am Main and with the new professor of economics and sociology there, Franz Oppenheimer, with whom he was acquainted, to gain access for his pupil. Erhard entered the graduate program in Frankfurt in the fall semester of 1922. Here, as before and again later in life, Erhard did not build a large circle of friends. He concentrated on his studies and stayed away from the entertainments of the big city as well as its political turmoil.¹³ However, this did not stop him from getting married and from forming a lifelong bond with his dissertation director, Franz Oppenheimer.

While at the Nuremberg business college, Erhard had renewed the acquaintance that he had made as a child with Luise Schuster, or as she was named then Luise Lotter. She had lived in Erhard’s neighborhood and had played with his sister, Rose. Luise had married Dr. Friedrich Schuster, a lawyer, in 1914. Schuster was killed at the front in the following year. Luise then returned home and lived with her parents. In fall 1919 she enrolled in the Nuremberg business college and soon encountered Erhard. They became friendly and graduated at the same time, she with a degree in business management and accounting. On 11 December 1923 she and Erhard married. Luise brought with her one daughter from her first marriage, Eleonore, and bore Erhard another daughter, Elizabeth. Luise was a good economist in her own right but subordinated her ambitions to those of her husband. Throughout their married life, she provided Erhard with a stable, warm home. She never interfered with his professional activities, and he remained unswervingly loyal to her.¹⁴

At school, Erhard came under the influence of Oppenheimer. Indeed, the two became good friends, with Erhard frequently visiting his adviser’s home along with other students and intellectuals to discuss economic and sociological theory and politics. But it would be wrong to conclude that Erhard simply absorbed uncritically Oppenheimer’s ideas. As always, Erhard retained his independence of mind. Oppenheimer advocated an idiosyncratic theory that he called liberal socialism. Heavily influenced by Marx, Oppenheimer had begun his professional life as a doctor in Berlin. He was so appalled by the conditions under which the workers lived that he abandoned his practice and became an economist. Oppenheimer believed that property in land had been accumulated through violence. He was also convinced that all land was under some form of ownership, creating an effective monopoly of property. As a result of the bourgeois revolution that began in 1789, he argued, the serfs were granted their political and legal freedom. But they were not given land. Therefore, they migrated en masse into the cities to seek employment in the newly created manufacturing industries. There they faced employers at a distinct disadvantage, forcing them to take jobs at low wages, leading to high profits for the capitalists. Oppenheimer proposed to break this cycle and to create a true socialist society of the free and the equal by making land ownership available to peasants. This would stop the exodus of workers to the cities and thereby end the domination of the capitalists. The system would then run itself under a regime of free competition, overseen by the state. Oppenheimer contended that a competitive market economy was not the cause of the workers’ woes because it had never existed. The powerful had always used violence to prevent competition and thereby ensure themselves excess profits.¹⁵

Erhard did not accept Oppenheimer’s theory. However, he did take away from his time in Frankfurt some valuable ideas, all of which fit his own basic viewpoint. Oppenheimer, like Rieger before him, was thoroughly familiar with all of the important economists of all camps. Erhard’s theoretical education was, therefore, deepened and expanded while studying under Oppenheimer; of that there can be no doubt. Erhard’s opposition to monopolies and cartels, inherited from Richter through his father and strengthened by Rieger, was given greater precision and analytical depth. Indeed, Erhard’s later opposition to interest groups and his attempt to build a society free of their influence can at least partially be traced to his education by Oppenheimer. Erhard’s tolerant and inquisitive attitude was also reinforced by Oppenheimer. As Erhard put it later, Oppenheimer approached problems with a cool head and a warm heart.¹⁶ Erhard certainly fit that mold. This approach would serve him well in his political career. In essence, Erhard left aside the quirky aspects of Oppenheimer’s thought and strengthened his aversion to economic interest groups, especially cartels and monopolies, and his support for competition. He was also convinced of the need for widespread property ownership while in Frankfurt.

Erhard completed his dissertation in the summer of 1924, just as Germany’s economy was being restructured after the collapse of its currency in late 1923. Erhard wrote once again about money and the concept of value. He contended that money was necessary for the circulation of goods but had no intrinsic worth. He still held to a labor theory of value, contending that goods were the incorporation of the labor necessary to produce them, an idea that he would jettison later. He warmly supported the free movement of goods in an economy and free trade among nations. He also pointed out that economic activity was not an end in itself.¹⁷

Oppenheimer took his time in reading Erhard’s work. Finally, in 1925, he invited Erhard to join him on a ski trip in the Engadin to discuss the dissertation. The actual defense took place in a ski lift at over 9,000 feet. After a surprisingly brief discussion, Oppenheimer accepted Erhard’s thesis. Erhard formally received his degree on 12 December 1925.¹⁸

After earning his degree, Erhard, like many other academics, found himself unemployed. He helped a bit with his father’s business but was not really interested in it. In 1928, at age sixty-six, Wilhelm Erhard closed his clothing store and retired. Ludwig Erhard breathed a sigh of relief.¹⁹ Soon, a more interesting but at the same time troublesome opportunity came his way.

Apparently due to the intercession of Rieger and Oppenheimer, Erhard was offered a position as a part-time research assistant at the Institute for Economic Observation of the German Finished Goods Industry (Institut für Wirtschaftsbeobachtung der deutschen Fertigwaren) in Nuremberg.²⁰ Erhard’s two professors were familiar with the chief of the institute, Wilhelm Vershofen. The job quickly developed into a full-time engagement and Erhard gradually worked his way up the institute’s administrative ladder. However, Erhard’s tenure at the Vershofen institute was not entirely happy. During the 1950s Vershofen testified to Erhard’s equitable nature, how his new assistant made every effort to smooth over differences among his colleagues, and how Erhard always seemed to be in a good mood. He was struck by how Erhard never seemed to promote himself and how he was constantly evolving both his character and his ideas.²¹ Yet Erhard was separated from Vershofen by deep philosophical differences. During his stay at the institute, Erhard struggled to reconcile his philosophy with that of Vershofen but, ultimately, was unable to do so.

Wilhelm Vershofen came to the Nuremberg business college in 1923. He brought with him a research organization that he had formed while working for the German porcelain industry. He reorganized it and renamed it the Institute for Economic Observation of the German Finished Goods Industry in 1925. Vershofen had been a member of the constituent assembly that had written the new Weimar constitution as a delegate of the German Democratic Party.²² This group was a survivor of the split that had taken place among German liberals before World War I over issues of national unification. The Democratic Party supported constitutional government and the rule of law, but it was hardly an advocate of free markets. In fact, it had reconciled itself to the private organization of the economy by cartels. Vershofen’s institute was intended to provide information to industry concerning consumption trends. Far from being consumer-oriented, it was very much in the service of business. Vershofen created his organization to feed information to business so that it could organize markets more effectively. Using his reports, companies could set prices without running the risk of allowing the market to do so. In effect, Vershofen hoped to promote the further cartelization of the German economy by undermining the price mechanism.²³

Vershofen was, like Oppenheimer, a prolific author. But unlike Oppenheimer, who proclaimed himself the enemy of all established interests and schools of thought, Vershofen had evolved a justification for the status quo. He published a variety of works including novels, poetry, economic analyses, and theoretical economic discourses. Far from applying American consumer concepts to Germany, he was highly critical of the American system in its fundamentals. During the war, he had written a parable of U.S. economic behavior that condemned the alleged inhumanity of the free American economy.²⁴ Later, after the Treaty of Versailles, he employed the obsolete foreign exchange theory to explain Germany’s inflation and accused both the United States and Britain of using the peace to continue the economic war that they had been waging against Germany for years.²⁵

While Erhard worked for him, Vershofen published two theoretical works that included ideas that Erhard must have found extremely difficult to accept. Vershofen contended that business organizations, such as cartels, were beneficial both to producers and consumers because they eliminated uncertainty from the market. He equated markets with chaos and rejected liberal competition theory. Vershofen proposed a more stable economy guided not by Smith’s invisible hand but by the very visible hand of industrial cartels and associations. These organizations would benefit all by ensuring that no one would fear that they had not obtained the best possible deal in any transaction. Because prices would be controlled, people’s innate jealousy would not be given scope for causing social mischief. Because the collectivity had a life of its own and was more important than the individual, cartels and associations would serve to reconcile the interests of consumers and producers, assuring social peace. Vershofen thought that traditional laissez-faire capitalism had seen its day because it caused too much social tension. However, he was also convinced that socialism could not work. Therefore, industry should organize markets for the good of all subject only to limited regulation by the government.²⁶ Vershofen also wrote a handbook on market surveys that demonstrates clearly that his views owed nothing to contemporary American practice. Instead, he had been most heavily influenced by the Dutch market researcher Ferdinand M. Aspeslagh. Furthermore, he thought that the spread of highly productive industrial structures made the rise of consumer economies inevitable, not some mythical diffusion of American influence. In this book, published in 1940, there is evidence that Vershofen attempted to accommodate his ideas to the prevailing Nazi command economy.²⁷ In short, Vershofen was no friend of free markets and competition. He also seemed to try to rationalize contemporary developments, whether they were corporatist in nature, as during the 1920s, or authoritarian, as in the 1930s. Clearly, this type of behavior, leaving aside the specifics of the theory involved, was anathema to Erhard.

In one of his novels, Vershofen also presented a very unflattering picture of a medieval county official whom he named Erhart. Whether this was intended to be a veiled criticism of his subordinate is unclear. While praising the character’s efforts to develop a local economy, Vershofen also criticizes Erhart for being crude, pushy, and lacking deep ideas.²⁸ It seems unlikely that Vershofen chose to include in his novel a character bearing a name very close to that of one of his subordinates without intending to make some sort of point. However, because the book is rambling and in many sections murky and because we have no record of Erhard commenting on the matter, we must remain unsure. In any case, this incident hints that all may not have been well between the chief of the institute and his bright young colleague.

Whatever Vershofen’s view of Erhard, he quickly brought his subordinate into a position of greater responsibility. In 1929 Erhard assisted in founding the journal Der Markt der Fertigware (The finished goods market), published by the institute.²⁹ The organ was intended to publicize the research findings made by members of the organization. Having his name appear on the masthead certainly did Erhard’s career prospects no harm.

Initially, Erhard saw his position at the institute as a stepping-stone toward an academic position, possibly even a professorship. For that reason during the early 1930s, he wrote a Habilitationsschrift, the second dissertation required by German universities for appointment to a position as professor. In this work, apparently written around 1931, Erhard addressed the contemporary problem of unemployment. He attributed the depression to the excessive concentration of capital in heavy industry. This accumulation of assets had been undertaken by business leaders to increase the technological efficiency of their companies, resulting in overproduction. In essence, the production apparatus had not been scaled properly to consumer demand. Erhard thought that the solution to the problem was to break up the cartels and monopolies that had caused the overcapitalization and for the government to support industries that would produce consumer goods. The government should allow prices to find their own level, and, to prevent the abuse from repeating itself, it should limit returns on investment. In other words, it should prevent companies from accumulating excessive hoards of cash, hidden reserves, by taxing them away and redistributing the funds to industries that would use them to serve consumer needs more directly. It should also prevent companies from expanding their production capacity beyond the needs of the market. Here Erhard was advocating a middle way. He rejected the Marxist solution of nationalizing industry but did not want to give industry free rein to do as it pleased. Fundamentally, Erhard was advocating the same solution that he would prescribe in a more sophisticated and purer form in 1948.³⁰

Erhard recalled that his dissertation was going to be accepted by the university in Nuremberg, the former business college having been elevated to a doctorate granting institution. By the time that it was scheduled to be considered formally, the Nazis had come to power and Nuremberg was one of their strongholds. Erhard was called on to join the Nazi Party and the Nazi professors organization, which he steadfastly refused to do. This, he claims, was the reason why his second dissertation was never accepted, and therefore why he was forced to transform himself into an adviser to business and public organizations, straddling the boundary between the scholarly world and politics.³¹ One may surmise, though, that Vershofen was not entirely pleased with this dissertation. Certainly, weaker dissertations had been accepted because there was no shortage of professors who were willing to sign works with which they had ideological sympathies.³²

Having failed to achieve his goal of becoming a professor, Erhard pursued his career as a public intellectual and consultant within the confines of the Vershofen institute. He began by writing articles on matters of economic policy. In August 1931 he published an article in Das Tagebuch, a journal of contemporary political commentary, in which he proposed a policy of reflating the German economy by putting money in the hands of consumers. In effect, Erhard advocated a policy of stimulating consumer demand in line with what was later proposed by John Maynard Keynes. Erhard suggested this step only because of the depth of the emergency in which Germany found itself. He thought that at other times such a policy would run too great a risk of causing inflation.³³ This initial publication demonstrates that even at this early stage, Erhard was no doctrinaire theorist.

When Erhard wrote his second dissertation and his first article, Germany was mired in a deep economic crisis. The country was more severely affected by the Depression than any other nation in Europe. Only the United States sustained a greater decline in industrial activity. The center-right government of Chancellor Heinrich Brüning followed a policy of trying to end reparations and of deflating the German economy. It also initiated a program of deficit spending on capital projects using government enterprises that were off its own books, enabling it to claim that it was following a policy of fiscal rectitude. The social disruption caused by a second major economic crisis in a decade helped pave the way to power for the Nazis. 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.³⁴

Erhard’s next article clearly demonstrated his rejection of the economics of the radical right. Former Reichsbank president Hjalmar Schacht had formed an alliance with extreme right-wing politicians. In 1932 he published a book in which he proposed an authoritarian solution to Germany’s economic problems. In August, Erhard responded with a sarcastic demolition of Schacht’s ideas. Erhard claimed that Schacht’s proposals were opportunistic, intended only to help the big business interests that he served. Erhard repeated his assertion that big business was already overcapitalized.³⁵ In another article published later in 1932, he developed his theme that the route