Evolution of the Social Market Economy

  • Hans Otto Lenel
Part of the Trade Policy Research Centre book series (TPRC)


The work on the theory of economic systems and on the resulting policy in Germany as well as its outcome can only be fully understood by considering the situation of economics and economic policy at the beginning of the 1930s and during the following decade. In economics, the influence of the ‘Historical School’ and the accompanying neglect of theoretical thinking had passed its peak by the end of the 1920s.2 A number of German economists—only a few to begin with—had recognised that the economist cannot do justice to his task without sufficient theoretical training. Walter Eucken, Wilhelm Röpke, Alexander Rüstow and others searched for a new approach to economic problems. They were also encouraged to undertake this search by the discontent with German economic policy, which was at that time being pursued without any clear idea or sufficient analysis of underlying forces.


Public Sector Economic Policy Market Economy Economic System Private Property 
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Notes and References

  1. 2.
    See Joseph A. Schumpeter ‘s remarks about the necessary requirements for becoming an economist in Germany in his’ History of Economic Analysis (New York: Oxford University Press, 1954) p. 804.Google Scholar
  2. 3.
    The book is still of great importance, although some topics are seen differently today, 39 years after Walter Eucken’s death. See, for example, Erich Hoppmann, ‘Die Funktionsprinzipien und Funktionsbedingungen des Marktsystems’, in Lothar Wegehenkel (ed.), Marktwirtschaft und Umwelt (Tübingen: J. C. B. Mohr [Paul Siebeck], 1981).Google Scholar
  3. 4.
    Alfred Müller-Armack, ‘Konjunkturpolitik als Voraussetzung der Währungsreform’ and ‘Das Grundproblem unserer Wirtschaftspolitik. Rückkehr zur Marktwirtschaft’; in Genealogie der Sozialen Marktwirtschaft, 2nd edn (Bern and Stuttgart: Paul Haupt, 1981) p. 42 and p. 260.Google Scholar
  4. 5.
    Müller-Armack, ‘Konjunkturpolitik als Voraussetzung der Währungsreform’, loc. cit., p. 257. Whoever experienced the desperate situation at the time can really only be astonished that it is disputed by the economic historian, Werner Abelshauser, in ‘West German Economic Recovery 1945–51: a Reassessment’, in Three Banks Review, Edinburgh and London, No. 135, 1982. He puts the date of the economic revival at the end of 1947 and claims, among other things, that the capital stock in industry in the areas occupied by the British and Americans had increased by 20 per cent from 1936 to 1945. He claims that in 1948, the capital stock amounted to 111 per cent of the 1936 figures (p. 35) and that German industry had been well equipped with tangible assets in 1945 (p. 37). It seems to me that his essay is a comment on the fallibility of statistics (which, in this case, are mostly Werner Abelshauser’s estimates) rather than a contribution to the interpretation of the economic history of that time. See also Walter Eucken’s remarks on the situation in his book Grundsätze der Wirtschaftspolitik (Bern and Tübingen: Francke and J. C. B. Mohr [Paul Siebeck], 1952) p. 368Google Scholar
  5. and the penetrating critique of Werner Abelshauser’s theses by Rainer Klump, Wirtschaftsgeschichte der Bundesrepublik Deutschland (Wiesbaden: Franz Steiner, 1985).Google Scholar
  6. 6.
    The first reports were published in Göttingen by Otto Schwartz & Co. in 1950 and reveal the intellectual work done on the reshaping of the system. Walter Eucken and Franz Böhm, among others, belonged to the Advisory Council during the crucial time before, and shortly after, the currency reform and the lifting of price controls in 1948.Google Scholar
  7. 7.
    The Restraints of Competition Act was amended so that mergers and takeovers came under the control of the Federal Cartels Office.Google Scholar
  8. 8.
    Walter Eucken, Die Grundlagen der Nationalökonomie, 8th edn (Berlin, Heidelberg and New York: Springer, 1965) p. 238. The corresponding section in the English translation is on p. 313 but this passage has been omitted.CrossRefGoogle Scholar
  9. 9.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., p. 373.Google Scholar
  10. 10.
    Eucken, Die Grundlagen der Nationalökonomie, op. cit., p. 239. The corresponding section in the English translation is on p. 314 but this passage has been omitted.Google Scholar
  11. 11.
    Thus, Bruno S. Frey in Theorie demokratischer Wirtschaftspolitik (Munich: Vahlen, 1981) p. 264, writes that ‘free market competition as a mechanism for the regulation of economic problems’ is ‘recommended’ by ‘neo-liberal supporters’ of Ordo-liberal policy. ‘Alternative decision-making system are thereby not seriously taken into consideration’.Google Scholar
  12. In Walter Eucken’s Die Grundlagen der Nationalökonomie, Bruno Frey could have seen how thoroughly Eucken had dealt with such systems. Bruno Frey’s last sentence quoted above is not supported either in Grundsätze der Wirtschaftspolitik. Perhaps it is no accident that Frey recommends to his readers an essay by Hajo Riese as a ‘modern critical appraisal of Ordo-liberal policy’ without mentioning the, in my opinion devastating, criticism of it by Franz Böhm in his essay ‘Eine Kampfansage an Ordnungstheorie und Ordnungspolitik’, in Ordo, Vol. 24, 1973.Google Scholar
  13. 12.
    A ‘purely spontaneous’ system is dealt with later. The word ‘purely’ has been added, because Friedrich von Hayek uses the word ‘spontaneous’ for any system where rules ‘should put individuals in a position … to find their own place by themselves’, Friedrich A. von Hayek, ‘Arten der Ordnung’, Ordo, Vol. 14, 1963, p. 15. That does not rule out the possibility that these rules are improved ‘in organized efforts’ and that compliance with them is enforced, von Hayek, loc. cit., p. 13. On p. 18, von Hayek continues: ‘We have it in our power to bring about the formation of such an overall system, which has certain characteristic traits, but only if we do not attempt to determine the shaping of the details of this system’. In interpreting this sentence it must be borne in mind that von Hayek delimits the use of ‘system’ in a similar way to Eucken; he does not use the word for the system of rules of behaviour realised at any one time, as is frequently the case. For my purpose it seems better to distinguish between different types of spontaneous system in von Hayek’s sense.Google Scholar
  14. 13.
    von Hayek, ‘Die Ursprünge und Wirkungen unserer Moral’, Neue Zürcher Zeitung, No. 111, May 1984.Google Scholar
  15. 14.
    Böhm, loc. cit.Google Scholar
  16. 15.
    Eucken, The Foundations of Economies, translated by Terence W. Hutchison (Edinburgh: William Hodge, 1950) p. 83.Google Scholar
  17. 16.
    An attitude surely not taken by anybody.Google Scholar
  18. 17.
    Christian Watrin, ‘Marktwirtschaft’, in Handwörterbuch der Volkwirtschaft (Wiesbaden: Gabler, 1978).Google Scholar
  19. 18.
    Böhm, ‘Die Idee des Ordo im Denken Walter Euckens’, in Ordo, Vol. 3, 1950, p. 52.Google Scholar
  20. 19.
    Not only Friedrich von Hayek but also, among others, Franz Böhm, have pointed this out. Böhm adds in his paper ‘Privatrechtsgesellschaft und Marktwirtschaft’, in Ordo, Vol. 17, 1966, that rules which have been in existence ‘for a long time already … have been cared for, investigated and developed by whole generations of sharp-witted legal scholars’. That can no longer be classed as ‘pure’ spontaneity.Google Scholar
  21. 20.
    Böhm, Die Ordnung der Wirtschaft als geschichtliche Aufgabe und rechtsschöpferische Leistung (Stuttgart and Berlin: W. Kohlhammer, 1937).Google Scholar
  22. 21.
    Röpke, Economics of the Free Society (Chicago: Henry Regnery, 1963). Translated by Patrick M. Boarman from the German Die Lehre von der Wirtschaft (Zürich: Eugen Rentsch, 1943).Google Scholar
  23. 22.
    Röpke, Unpublished manuscript, 1953.Google Scholar
  24. 23.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., p. 360.Google Scholar
  25. 24.
    Watrin, op. cit.Google Scholar
  26. 25.
    See Eucken, Grundsätze der Wirtschaftspolitik, op. cit., ch. XII on the problematical character of this view.Google Scholar
  27. 26.
    Gérard Gäfgen, ‘Theorie der Wirtschaftspolitik’, in Werner Ehrlicher et al. (ed.), Kompendium der Volkswirtschaftslehre, Vol. 2, 4th edn (Göttingen: Vandenhoek & Ruprecht, 1975).Google Scholar
  28. 27.
    See Gäfgen, op. cit., who counts neo-liberalism among the ideologies on which he places a negative value.Google Scholar
  29. 28.
    See Hans Otto Lenel, ‘Does Germany Still have a Social Market Economy’, in the companion volume of translations, Germany’s Social Market Economy: Origins and Evolution (London: Macmillan for the Trade Policy Research Centre, 1989).Google Scholar
  30. 29.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., pp. 213–25.Google Scholar
  31. 30.
    In this connection see Röpke, Ist die deutsche Wirtschaftspolitik richtig?’ (Stuttgart and Cologne: W. Kohlhammer, 1950).Google Scholar
  32. Professor Balogh’s judgment of the currency reform in 1949 is contained in Terence W. Hutchison, ‘Notes on the Effects of Economic Ideas on Policy: the Example of the German Social Market Economy’, in Zeitschrift für die gesamte Staatswissenschaft, Tübingen, Vol. 135, 1979.Google Scholar
  33. 31.
    Eucken, Die Grundlagen der Nationalökonomie, op. cit., p. 2.Google Scholar
  34. 32.
    Lenel, ‘Walter Eucken’s ordnungspolitische Konzeption, die Wirtschaftspolitische Lehre in der Bundesrepublik und die Weltbewerbstheorie von heute’, in Ordo, Stuttgart, Vol. 26, 1975.Google Scholar
  35. 33.
    Israel Kirzner, Competition and Entrepreneurship (Chicago and London, University of Chicago Press, 1973) pp. 69 and 218.Google Scholar
  36. 34.
    Friedrich A. von Hayek, ‘The Use of Knowledge in Society’, in von Hayek, Individualism and Economic Order (London: Routledge & Kegan Paul, 1949) p. 79.Google Scholar
  37. 35.
    Lenel, ‘Bemerkungen zur ordnungstheoretischen Diskussion in den letzten vier Jahrzehnten’, in Lenel, Liberalismus—nach wie vor. Aus Anlass des zweihundertjährigen Bestehens der Neuen Zürcher Zeitung (Zürich: Buchverlag Neue Zürcher Zeitung, 1979) p. 256 et seq.Google Scholar
  38. 36.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., p. 144.Google Scholar
  39. 37.
    On the subject of conformity with the system see also Karl C. Thalheim, ‘Zum Problem der Einheitlichkeit der Wirtschaftspolitik’, in Thalheim, Beiträge zur Wirtschaftspolitik und Wirtschaftsordnung (Berlin: Duncker & Humblot, 1965) p. 23 et seq. Thalheim has taken over the term ‘marktkonform’ (conformable to the market) coined by Wilhelm Röpke and has applied it to the system.Google Scholar
  40. 38.
    Gäfgen writes of a ‘vast multitude’ of conceivable forms of economic system, but then limits the ‘scope of order policy’ without mentioning criteria for this limitation. See Gäfgen, op. cit., p. 61.Google Scholar
  41. 39.
    Henry M. Oliver, ‘German Neoliberalism’, Quarterly Journal of Economics, Cambridge, Massachusetts, Vol. 74, 1960, p. 140, unjustly doubts that Ordonnerais gave equal status to the aim of a system which ‘respects human dignity’, because Eucken treats it in less detail. The appropriate ‘Kantian’ considerations are not in my opinion ‘at least far in the background’. The experience of a system which did not respect human dignity after 1933 was sufficiently plain.Google Scholar
  42. 40.
    Eucken, This Unsuccessful Age (Edinburgh: William Hodge, 1951).Google Scholar
  43. 41.
    Alexander Rüstow, ‘Zielgemeinschaft tut not’, in Rede und Antwort (Ludwigsburg: Martin Hoch, 1963).Google Scholar
  44. 42.
    Watrin, ‘Der neue Leviathan- über Gefahren einer Selbstzerstörung der freien Gesellschaft’, in Ludwig Erhard Stiftung Symposium VIII (Stuttgart and New York: Gustav Fischer, 1982).Google Scholar
  45. 43.
    Müller-Armack, Wirtschaftslenkung und Marktwirtschaft (Hamburg: Auerdruck, 1946) pp. 100 and 106.Google Scholar
  46. 44.
    Ibid., p. 109. Emphasis added by this author.Google Scholar
  47. 45.
    For him it is also part of the social character of a market economy that competition policy, monetary policy and anti-cyclical policy are pursued. See Alfred Müller-Armack, ‘Stil und Ordnung der Sozialen Marktwirtschaft’, in Müller-Armack, Wirtschaftsordnung und Wirtschaftspolitik, op. cit., p. 234.Google Scholar
  48. 46.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., p. 313; Müller-Armack, Wirtschaftslenkung und Marktwirtschaft, op. cit., p. 131.Google Scholar
  49. 47.
    Müller-Armack, ‘Soziale Marktwirtschaft’, in Wirtschaftsordnung und Wirtschaftspolitik, op. cit. and ch. 6 in the companion volume of translations, Germany’s Social Market Economy: Origins and Evolution, op. cit.Google Scholar
  50. 48.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., p. 318.Google Scholar
  51. 49.
    Eucken wrote that the concern ‘of social justice cannot be taken seriously enough’, in Eucken, Grundsätze der Wirtschaftspolitik, op. cit. Alexander Rüstow strives for an initial equality of wealth and in this respect differs from Eucken. Apart from that their concepts of social policy are similar to each other. See Rüstow, ‘Zwischen Kapitalismus und Kommunismum’, in Ordo, Vol. 2, 1949, pp. 122–46.Google Scholar
  52. 50.
    Oliver, loc. cit., p. 130.Google Scholar
  53. 51.
    Rüstow, ‘Wir fordern eine zielklare Wirtschafts- und Sozialpolitik’, in Rede and Antwort, op. cit. and Hans Willgerodt, ‘Die Krisis der sozialen Sicherheit und das Lohnproblem’, in Ordo, Vol. 7, 1955Google Scholar
  54. and ‘Das Sparen auf der Anklagebank der Sozialreformer’, in Ordo, Vol. 9, 1957.Google Scholar
  55. 52.
    Wolfgang Stützel, ‘Ohne Konzeption im Bereich des Sozialen’, in Wolfram Engels, Armin Gutowski et al. (eds), Die Wende (Bad Homburg: Frankfurter Institut für wirtschaftspolitische Forschung, 1984).Google Scholar
  56. 53.
  57. 54.
    Carlo Mötteli, a sharp-witted Swiss observer wrote as early as 1961 that the burden of contributions to social insurance could not be pushed up any higher. At that time the contribution to the old-age pension scheme was 14 per cent and the contribution to sickness insurance on average was 8.5 per cent of gross wages. Since then, however, the rates of contribution have risen considerably, for example, to 19.2 per cent in the case of the old-age pension scheme in June 1985. Licht und Schatten der Sozialen Marktwirtschaft (Zürich: Eugen Rentsch, 1961) p. 111.Google Scholar
  58. 55.
    Erich Hoppmann, Freiheit und Ordnung in der Demokratie, Festschrift für Gerhard Winterberger (Bern: Stämpfli, 1982).Google Scholar
  59. 56.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., p. 365.Google Scholar
  60. 57.
    Röpke, Unpublished manuscript.Google Scholar
  61. 58.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., p. 289.Google Scholar
  62. 59.
    Böhm, ‘Privatrechtsgesellschaft und Markwirtschaft’, in Ordo, Vol. 17, 1966. See the companion volume of translations, Germany’s Social Market Economy: Origins and Evolution, op. cit.Google Scholar
  63. 60.
    The importance of competition is not mentioned although the other aspects of private property are clearly presented in an essay by H. Jörg Thieme und Reinhard Steinbring, ‘Wirtschaftspolitische Konzeptionen kapitalistischer Marktwirtschaften’, in Dieter Cassel (ed.), Wirtschaftspolitik im Systemvergleich (Munich: Vahlen, 1984) p. 53.Google Scholar
  64. 61.
    Eucken, Grundsätze der Wirtschaftspolitik, op. cit., p. 275.Google Scholar
  65. 62.
    Reinhard Blum, Soziale Marktwirtschaft. Wirtschaftspolitik zwischen Neoliberalismus und Ordoliberalismus (Tübingen: J. C. B. Mohr [Paul Siebeck], 1969) p. 85.Google Scholar
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    Walter Hamm, Entartet die Soziale Marktwirtschaft? (Tübingen: J. C. B. Mohr [Paul Siebeck], 1975) p. 11.Google Scholar
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    Eucken, Grundsätze der Wirtschaftspolitik, op. cit.Google Scholar
  68. 65.
    Adam Smith, The Wealth of Nations (London: Methuen, 1961).Google Scholar
  69. 66.
    Gernot Gather, ‘Reform der Patentgesetzgebung’, in Ordo, Vol. 2, 1949.Google Scholar
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    Watrin, ‘Ordnungspolitische Aspekte des Sozialstaates’, in Bernhard Külp, Soziale Probleme der modernen Industriegesellschaft, Schriften des Vereins für Sozialpolitik, New series Vol. 92/II (Berlin: Duncker & Humblot, 1977) p. 983.Google Scholar
  71. 68.
    The expression comes from Ernst Forsthoff. See in this connection Ernst Rudolf Huber, ‘Vorsorge für das Dasein’, in R. Schnur (ed.), Festschrift für Ernst Forsthoff zum 70. Geburtstag (Munich: Beck, 1972)Google Scholar
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    Watrin, ‘Markwirtschaft’, loc. cit.Google Scholar

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© Trade Policy Research Centre 1989

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  • Hans Otto Lenel

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