Ordoliberalism
Encyclopedia
Ordoliberalism is a school of liberalism
that emphasised the need for the state to ensure that the free market
produces results close to its theoretical potential (see allocative efficiency
). The theory was developed by German
economists and legal scholars such as Walter Eucken
, Franz Böhm
, Hans Grossmann-Doerth and Leonhard Miksch from about 1930-1950. Alexander Rüstow
and Wilhelm Röpke
(who spent the Nazi
period in exile
in Turkey
) are associated with this theory. Ordoliberal ideals (with modifications) drove the creation of the post-World War II
German social market economy
and its attendant Wirtschaftswunder
. In the beginning, many Ordoliberals called themselves Neoliberals
(“new Liberals”) to separate themselves from old school classical liberalism
. However, ordoliberals promoted the concept of the social market economy, and this concept promotes a strong role for the state with respect to the market, which is in many ways different from the ideas who are nowadays connected with the term neoliberalism. The term Ordoliberalism was coined 1950 by Hero Moeller referring to the academic journal ORDO
and was immediately recognized as a more accurate term.
Ordoliberal theory holds that the state
must create a proper legal environment for the economy
and maintain a healthy level of competition (rather than just "exchange") through measures that adhere to market principles. This is the foundation of its legitimacy
The concern is that, if the state does not take active measures to foster competition, firm
s with monopoly
(or oligopoly
) power will emerge, which will not only subvert the advantages offered by the market economy
, but also possibly undermine good government, since strong economic power can be transformed into political power.
Quoting Stephen Padgett: "A central tenet of ordo-liberalism is a clearly defined division of labor in economic management, with specific responsibilities assigned to particular institutions. Monetary policy
should be the responsibility of a central bank
committed to monetary stability and low inflation
, and insulated from political pressure by independent status. Fiscal policy
—balancing tax revenue
against government expenditure—is the domain of the government, whilst macro-economic
policy is the preserve of employers and trade unions." The state should form an economic order instead of directing economic processes, and three negative examples ordoliberals used to back their theories were Nazism
, Keynesianism, and Russian socialism.
Ordoliberalism is centered around the academic journal
ORDO
. It is also associated with Alfred Müller-Armack
.
Wilhelm Röpke
considered Ordoliberalism to be "liberal conservatism," against capitalism
in his work Civitas Humana (A Humane Order of Society, 1944). Alexander Rüstow also criticized laissez-faire
capitalism
in his work Das Versagen des Wirtschaftsliberalismus (The Failure of Economic Liberalism, 1950). The Ordoliberals thus separated themselves from classical liberals like Ludwig von Mises
and Friedrich Hayek
.
Michel Foucault
also notes the similarity (beyond just historical contemporaneity) between the Ordo/Freiberg school and The Frankfurt School of Critical Theory, due to their influence from Max Weber. Broadly, this influence is in recognizing the "irrational rationality
" of the capitalist system, but not the "logic of contradiction
" that Marx
recognized. Both groups took up the same problem, but in vastly different directions. For their political philosophy, Ordoliberals were influenced by Aristotle
, Tocqueville
, Hegel
, Spengler
, Karl Mannheim
, Max Weber
, and Husserl
.
Economic liberalism
Economic liberalism is the ideological belief in giving all people economic freedom, and as such granting people with more basis to control their own lives and make their own mistakes. It is an economic philosophy that supports and promotes individual liberty and choice in economic matters and...
that emphasised the need for the state to ensure that the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
produces results close to its theoretical potential (see allocative efficiency
Allocative efficiency
Allocative efficiency is a theoretical measure of the benefit or utility derived from a proposed or actual selection in the allocation or allotment of resources....
). The theory was developed by German
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
economists and legal scholars such as Walter Eucken
Walter Eucken
Walter Eucken was a German economist and father of ordoliberalism. His name is closely linked with the development of the "social market economy".-Life:...
, Franz Böhm
Franz Böhm
Franz Böhm was a German politician, lawyer, and economist.-Early Life:Franz Böhm was born on 16 February 1895 in Konstanz...
, Hans Grossmann-Doerth and Leonhard Miksch from about 1930-1950. Alexander Rüstow
Alexander Rüstow
Alexander Rüstow was a German sociologist and economist. He originated the term neoliberalism meant as a synonym for Ordoliberalism but the term has undergone a change of meaning. He was one of the fathers of the "Social Market Economy" that shaped the economy of West-Germany after World War II...
and Wilhelm Röpke
Wilhelm Röpke
Wilhelm Röpke was Professor of Economics, first in Jena, then in Graz, Marburg, Istanbul and finally in Geneva, and the main spiritual father of the German social market economy, theorising and collaborating to organise the post-World War II economic re-awakening of the then destroyed German...
(who spent the Nazi
Nazi Germany
Nazi Germany , also known as the Third Reich , but officially called German Reich from 1933 to 1943 and Greater German Reich from 26 June 1943 onward, is the name commonly used to refer to the state of Germany from 1933 to 1945, when it was a totalitarian dictatorship ruled by...
period in exile
Exile
Exile means to be away from one's home , while either being explicitly refused permission to return and/or being threatened with imprisonment or death upon return...
in Turkey
Turkey
Turkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
) are associated with this theory. Ordoliberal ideals (with modifications) drove the creation of the post-World War II
World War II
World War II, or the Second World War , was a global conflict lasting from 1939 to 1945, involving most of the world's nations—including all of the great powers—eventually forming two opposing military alliances: the Allies and the Axis...
German social market economy
Social market economy
The social market economy is the main economic model used in West Germany after World War II. It is based on the economic philosophy of Ordoliberalism from the Freiburg School...
and its attendant Wirtschaftswunder
Wirtschaftswunder
The term describes the rapid reconstruction and development of the economies of West Germany and Austria after World War II . The expression was used by The Times in 1950...
. In the beginning, many Ordoliberals called themselves Neoliberals
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
(“new Liberals”) to separate themselves from old school classical liberalism
Classical liberalism
Classical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....
. However, ordoliberals promoted the concept of the social market economy, and this concept promotes a strong role for the state with respect to the market, which is in many ways different from the ideas who are nowadays connected with the term neoliberalism. The term Ordoliberalism was coined 1950 by Hero Moeller referring to the academic journal ORDO
ORDO (journal)
ORDO — Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft is a peer-reviewed academic journal created by German economists Walter Eucken and Franz Böhm in 1948...
and was immediately recognized as a more accurate term.
Ordoliberal theory holds that the state
State (polity)
A state is an organized political community, living under a government. States may be sovereign and may enjoy a monopoly on the legal initiation of force and are not dependent on, or subject to any other power or state. Many states are federated states which participate in a federal union...
must create a proper legal environment for the economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
and maintain a healthy level of competition (rather than just "exchange") through measures that adhere to market principles. This is the foundation of its legitimacy
Rational-legal authority
Rational-legal authority is a form of leadership in which the authority of an organization or a ruling regime is largely tied to legal rationality, legal legitimacy and bureaucracy...
The concern is that, if the state does not take active measures to foster competition, firm
Corporation
A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members. There are many different forms of corporations, most of which are used to conduct business. Early corporations were established by charter...
s with monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
(or oligopoly
Oligopoly
An oligopoly is a market form in which a market or industry is dominated by a small number of sellers . The word is derived, by analogy with "monopoly", from the Greek ὀλίγοι "few" + πόλειν "to sell". Because there are few sellers, each oligopolist is likely to be aware of the actions of the others...
) power will emerge, which will not only subvert the advantages offered by the market economy
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
, but also possibly undermine good government, since strong economic power can be transformed into political power.
Quoting Stephen Padgett: "A central tenet of ordo-liberalism is a clearly defined division of labor in economic management, with specific responsibilities assigned to particular institutions. Monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
should be the responsibility of a central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
committed to monetary stability and low inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
, and insulated from political pressure by independent status. Fiscal policy
Fiscal policy
In economics and political science, fiscal policy is the use of government expenditure and revenue collection to influence the economy....
—balancing tax revenue
Tax revenue
Tax revenue is the income that is gained by governments through taxation.Just as there are different types of tax, the form in which tax revenue is collected also differs; furthermore, the agency that collects the tax may not be part of central government, but may be an alternative third-party...
against government expenditure—is the domain of the government, whilst macro-economic
Macroeconomics
Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of the whole economy. This includes a national, regional, or global economy...
policy is the preserve of employers and trade unions." The state should form an economic order instead of directing economic processes, and three negative examples ordoliberals used to back their theories were Nazism
Nazism
Nazism, the common short form name of National Socialism was the ideology and practice of the Nazi Party and of Nazi Germany...
, Keynesianism, and Russian socialism.
Ordoliberalism is centered around the academic journal
Academic journal
An academic journal is a peer-reviewed periodical in which scholarship relating to a particular academic discipline is published. Academic journals serve as forums for the introduction and presentation for scrutiny of new research, and the critique of existing research...
ORDO
ORDO (journal)
ORDO — Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft is a peer-reviewed academic journal created by German economists Walter Eucken and Franz Böhm in 1948...
. It is also associated with Alfred Müller-Armack
Alfred Müller-Armack
Alfred Müller-Armack was a German economist and politician.He was professor of economics at University of Münster and University of Cologne. Müller-Armack coined the term "social market economy" in 1946....
.
Wilhelm Röpke
Wilhelm Röpke
Wilhelm Röpke was Professor of Economics, first in Jena, then in Graz, Marburg, Istanbul and finally in Geneva, and the main spiritual father of the German social market economy, theorising and collaborating to organise the post-World War II economic re-awakening of the then destroyed German...
considered Ordoliberalism to be "liberal conservatism," against capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
in his work Civitas Humana (A Humane Order of Society, 1944). Alexander Rüstow also criticized laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....
capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
in his work Das Versagen des Wirtschaftsliberalismus (The Failure of Economic Liberalism, 1950). The Ordoliberals thus separated themselves from classical liberals like Ludwig von Mises
Ludwig von Mises
Ludwig Heinrich Edler von Mises was an Austrian economist, philosopher, and classical liberal who had a significant influence on the modern Libertarian movement and the "Austrian School" of economic thought.-Biography:-Early life:...
and Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...
.
Michel Foucault
Michel Foucault
Michel Foucault , born Paul-Michel Foucault , was a French philosopher, social theorist and historian of ideas...
also notes the similarity (beyond just historical contemporaneity) between the Ordo/Freiberg school and The Frankfurt School of Critical Theory, due to their influence from Max Weber. Broadly, this influence is in recognizing the "irrational rationality
Rationalization
Rationalization may refer to:*Rationalization , the means of transition from a traditional society into a rationalized one*Rationalization , the process of constructing a logical justification for a decision that was originally arrived at through a different mental process*Rationalization , an...
" of the capitalist system, but not the "logic of contradiction
Dialectical materialism
Dialectical materialism is a strand of Marxism synthesizing Hegel's dialectics. The idea was originally invented by Moses Hess and it was later developed by Karl Marx and Friedrich Engels...
" that Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...
recognized. Both groups took up the same problem, but in vastly different directions. For their political philosophy, Ordoliberals were influenced by Aristotle
Aristotle
Aristotle was a Greek philosopher and polymath, a student of Plato and teacher of Alexander the Great. His writings cover many subjects, including physics, metaphysics, poetry, theater, music, logic, rhetoric, linguistics, politics, government, ethics, biology, and zoology...
, Tocqueville
Alexis de Tocqueville
Alexis-Charles-Henri Clérel de Tocqueville was a French political thinker and historian best known for his Democracy in America and The Old Regime and the Revolution . In both of these works, he explored the effects of the rising equality of social conditions on the individual and the state in...
, Hegel
Georg Wilhelm Friedrich Hegel
Georg Wilhelm Friedrich Hegel was a German philosopher, one of the creators of German Idealism. His historicist and idealist account of reality as a whole revolutionized European philosophy and was an important precursor to Continental philosophy and Marxism.Hegel developed a comprehensive...
, Spengler
Oswald Spengler
Oswald Manuel Arnold Gottfried Spengler was a German historian and philosopher whose interests also included mathematics, science, and art. He is best known for his book The Decline of the West , published in 1918, which puts forth a cyclical theory of the rise and decline of civilizations...
, Karl Mannheim
Karl Mannheim
Karl Mannheim , or Károly Mannheim in the original writing of his name, was a Jewish Hungarian-born sociologist, influential in the first half of the 20th century and one of the founding fathers of classical sociology and a founder of the sociology of knowledge.-Life:Mannheim studied in Budapest,...
, Max Weber
Max Weber
Karl Emil Maximilian "Max" Weber was a German sociologist and political economist who profoundly influenced social theory, social research, and the discipline of sociology itself...
, and Husserl
Edmund Husserl
Edmund Gustav Albrecht Husserl was a philosopher and mathematician and the founder of the 20th century philosophical school of phenomenology. He broke with the positivist orientation of the science and philosophy of his day, yet he elaborated critiques of historicism and of psychologism in logic...
.
See also
- ORDOORDO (journal)ORDO — Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft is a peer-reviewed academic journal created by German economists Walter Eucken and Franz Böhm in 1948...
- Freiburg SchoolFreiburg SchoolThe Freiburg School is a school of economic thought founded in the 1930s at the University of Freiburg.It builds somewhat on the earlier Historical school of economics but stresses that only some forms of competition are good, while others may require oversight. This is considered a lawful and...
- Liberal conservatismLiberal conservatismLiberal conservatism also known as progressive conservatism is a variant of political conservatism which incorporates liberal elements. As "conservatism" and "liberalism" have had different meanings over time and across countries, the term "liberal conservatism" has been used in quite different...
- Social liberalismSocial liberalismSocial liberalism is the belief that liberalism should include social justice. It differs from classical liberalism in that it believes the legitimate role of the state includes addressing economic and social issues such as unemployment, health care, and education while simultaneously expanding...
- NeoliberalismNeoliberalismNeoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
- Social market economySocial market economyThe social market economy is the main economic model used in West Germany after World War II. It is based on the economic philosophy of Ordoliberalism from the Freiburg School...
External links
- Aktionsgemeinschaft Soziale Marktwirtschaft - German Ordoliberal association
- Walter Eucken Institute - Walter Eucken InstitutWalter Eucken InstitutThe Walter Eucken Institut is a German ordo-liberal economic think tank based in Freiburg im Breisgau, Baden-Württemberg, Germany.The Institute was founded in 1954, four years after the death of economist Walter Eucken, by a number of his friends and pupils. The Institute's creation was supported...
, German research institute in the tradition of ordoliberalism - Centro Studi Tocqueville-Acton - Italian Centre Studies on Social Market Economy and liberal tradition in the light of Catholic social thought