Investigating the Intellectual Origins of Euroland’s Macroeconomic Policy Regime: Central Banking Institutions and Traditions in West Germany After the War

This paper investigates the (re-) establishment of central banking in West Germany after 1945 and the history of the Bundesbank Act of 1957. The main focus is on the early emphasis on the ‘independence’ of the central bank, which, together with a ‘stability-orientation’ in monetary policy, proved a lasting German peculiarity. The paper inquires whether contemporary German economic thought may have provided a theoretical case for this peculiar tradition and scrutinizes the political calculus that motivated some key actors in the play. Contrary to a widespread presumption, Ordoliberalism, the dominant contemporary force within the German economics profession widely held to have shaped the new economic order of West Germany called ‘Soziale Marktwirtschaft’ (social market economy), is found to have had no such impact on the country’s emerging monetary order at all. In fact, important contradictions between the postulate of central bank independence and some key ideas underlying Ordoliberalism will be identified. Nor can an alternative – more Keynesian – policy regime and model of central bank independence that was developed in the mid 1950s by the Economic Advisory Council of Ludwig Erhard, West Germany’s famous first economics minister, claim any credit for the eventual legal status of the central bank that became enshrined in the Bundesbank Act of 1957; a regime that subsequently remained untouched despite the (Keynesian) ‘Stability and Growth Act’ of 1967. It appears that, while contemporary economic theory had no decisive influence on the outcome, the central bank’s role as a political actor in its own right and in carving public opinion should not be underestimated in explaining a peculiar German tradition that was finally exported to Europe in the 1990s. Key words: central banking, central bank independence, Ordoliberalism, Keynesianism, monetarism JEL classifications: B22, B31, E50