Abstract
Social Market Economy (SME) has been the economic order in Germany since 1948. Its establishment was not an easy task. Germany was more a land of cartels than of a real market economy. The shift to SME was confronted with support (USA) and impediments (France, UK) on the side of the Western Allied Forces. Moreover, it met opposition from national parties, enterprises and its associations, trade unions and in early stages skepticism from the majority of the citizens. The reasons for the great success of SME and its broad acknowledgement is not restricted on Germany. The realization of SME was a core determinant for the successful European integration. Moreover, the theoretical foundations of SME have been contributing essentially to the modern theory of liberalism. One can even say: SME can be regarded as the only concept of liberalism which is globally applicable.
This is a preview of subscription content, log in via an institution.
Buying options
Tax calculation will be finalised at checkout
Purchases are for personal use only
Learn about institutional subscriptionsNotes
- 1.
It should be noted that February 4, 1897 was the birthday of Ludwig Erhard who implemented Social Market Economy beginning in 1948 and the German competition law in 1958 which—as its main rule—prohibited the organization of cartels. For more details concerning this development, see Böhm (1948, pp. 197–213).
- 2.
It was the Free Democratic Party (FDP) which proposed Ludwig Erhard in early 1948 as Director of the Administration for the Economy (Verwaltung für Wirtschaft) of the United Economic Regions (Vereinigte Wirtschaftsgebiete). Since March 2, 1948 Ludwig Erhard was responsible for the German-side economic policy.
- 3.
France introduced 1945 as a consensus of the political parties forming the coalition-government the system of “planification” which included a lot of nationalization and direct state involvement in economic policy and the market performance of enterprises. The Labour Party government in Great Britain favoured nationalization of various industries and a state policy of global demand based on Keynesian ideas for full employment.
- 4.
- 5.
For all persons being involved in the design and implementation of SME, see for more information Hasse et al. (2008, pp. 27–77).
- 6.
See Oswalt (2005).
- 7.
Many of these conclusions are summarized in the two main books of Eucken ([1939], 1982). See also Vanberg (2004).
- 8.
For a shorter survey, see Hasse et al. (2008). The naming and a broad presentation of the concept of Social Market Economy were first published in 1946/47. Brief selections from the voluminous literature contributed by these authors are given in the section with the references.
- 9.
Misunderstanding still exists which is mainly based on a one-sided interpretation of “social”. The majority of these liberals refer to F. A. Hayek and his wording that “social” is a “weasel word” and causes destructive effects to a market economy due to the behaviour of politicians to prefer short-term welfare policies. Nevertheless this criticism is analytically deficient because it does not differentiate between a conceptual requirement and a political misbehaviour.
- 10.
This is the dominant assumption of models in political economy. In this regard, see Rodrik (2014).
- 11.
Leighton and Lopez (2013) acknowledge that incentives influence the actions of individuals especially when these incentives are introduced by credible institutions. But behind these activities and these institutions must be “political entrepreneurs” to design incentives by ideas. Especially in cases of concurrent ideas/ideologies ideas rule the actions—with positive or negative economic results. See also; Hayek (1949).
- 12.
Information about these persons and their contribution to Social Market Economy: Hasse et al. (2008, pp. 27–77).
- 13.
The conflict about this cautious wage policy was solved by the trade unions by isolating the representative in favour for a class-oriented, aggressive wage-policy, Victor Agartz.
- 14.
This policy was enlarged by co-determination in the supervisory boards of bigger companies. The Works Constitution Act is the most important innovation in labour relations offering the trade unions special competencies but as well responsibility in organizing production processes and hiring and sacking affairs.
- 15.
Please note that L. Erhard never went to Brussels or to negotiations about European integration because he did not favour regional integrations due to their trade diversion effects and their possible barring the international liberalization of trade. In a special intra-governmental agreement arranged by A. Müller-Armack all participants decided to pursue both targets by insisting on an open Common Market with a declaration in the treaty to support the international liberalization of trade. This was codified in Art. 110 of the EEC-Treaty.
- 16.
The administrative order of the EEC followed the French benchmark.
- 17.
- 18.
Based on: Heinz Grossekettler (1987), Der Beitrag der Freiburger Schule zur Theorie der Gestaltung von Wirtschaftssystemen. Volkswirtschaftliche Diskussionsbeiträge der Westfälischen Wilhelms-Universität Münster, Nr. 90, Münster, S. 12a.
References
Blumenberg-Lampe, C. (1986). Der Weg in die Soziale Marktwirtschaft. Referate, Protokolle, Gutachten der Arbeitsgemeinschaft Erwin von Beckerath 1943–1947. Stuttgart: Klett-Cotta.
Böhm, F. (1948). Das reichsgericht und die Kartelle. ORDO, Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, 1, 197–213.
Eucken, W. (1952). Grundsätze der wirtschaftspolitik (6th ed., pp. 115–131). Tübingen: Mohr [Excerpts in English translation: Stützel, W., et al. (1982). A policy for establishing a system of free enterprise].
Eucken, W. (1989). Grundlagen der nationalökonomie, 9th ed. Berlin: Springer [(1st ed. 1939); English Translation (1992), The foundations of economics—History and theory in analysis of economic reality. Berlin: Springer; Reprint of the first edition (1950), published by William Hodge, London].
Grossekettler, H. (1987). Der Beitrag der Freiburger Schule zur theorie der gestaltung von wirtschaftssystemen (Volkswirtschaftliche Diskussionsbeiträge der Westfälischen Wilhelms-Universität Münster, Nr. 90, S. 12a). Münster
Hasse, R. H., & Quaas, F. (2002). Wirtschaftsordnung und gesellschaftskonzept. Zur Integrationskraft der Sozialen Marktwirtschaft (pp. 309–352). Zum 100. Geburtsjahr von Alfred Müller-Armack. Bern. (With the complete bibliography of the writings of Alfred Müller-Armack, compiled by Mathias Rauch).
Hasse, R. H., Schneider, H., & Weigelt, K. (Eds.). (2008). Social market economy. Principles and implementations. Economic policy from A to Z (2nd ed.). Singapore: Konrad Adenauer Stiftung.
Hayek, F. A. (1949). The intellectuals and socialism. University of Chicago Law Review, 16(3), 417–433.
Leighton, W., & Lopez, E. (2013). Madmen, intellectuals and academic scribblers: The economic engine of political change. Stanford: Stanford University Press.
Ludwig-Erhard-Stiftung. (1997). Soziale Marktwirtschaft als historische Weichenstellung, Bewertung und Ausblicke. Eine Festschrift zum Hundertsten Geburtstag von Ludwig Erhard (1897–1997). Düsseldorf: ST Verlag.
Müller-Armack, A. (1948). Wirtschaftslenkung und marktwirtschaft, 2. Aufl. Hamburg. Published also in: Beiträge zur Wirtschaftspolitik, E. Tuchtfeldt (Ed.) and published by Paul Haupt, Bern-Stuttgart.
Müller-Armack, A. (1971). Auf dem Weg nach Europa. Erinnerungen und Ausblicke. Tübingen: Wunderlich.
Müller-Armack, A. (1976). Wirtschaftsordnung und Wirtschaftspolitik, 2nd ed.
Müller-Armack, A. (1981a). Genealogie der Sozialen Marktwirtschaft, 2nd ed.
Müller-Armack, A. (1981b). Religion und wirtschaft, 3rd ed.
Oswalt, W. (2005). Liberale Opposition gegen den NS-Staat. Zur Entwicklung von Walter Euckens Sozialtheorie. In N. Goldschmidt (Ed.), Wirtschaft, Politik und Freiheit. Freiburger Wirtschaftswissenschaften und Widerstand. Untersuchungen zur Ordnungstheorie und Ordnungspolitik (Vol. 48, pp. 315–353). Tübingen: Mohr Siebeck.
Peacock, A., & Willgerodt, H. (1989). Germany’s social market economy: Origins and evolutions. London: Macmillan.
Peacock, A., Willgerodt, H., & Johnson, D. (1989). German neo-liberalism and the social market economy. London: Palgrave MacMillan.
Quaas, F. (2008). Social market economy: Social irenics. In R. Hasse, H. Schneider, & K. Weigelt (Eds.), Social market economy, history, principles and implementation—From A to Z (pp. 416–418). Johannesburg: Konrad-Adenauer-Stiftung.
Rodrik, D. (2014). When ideas trump interests: Preferences, worldviews, and policy innovations. Journal of Economic Perspectives, 28, 189–208.
Röpke, W. (1937). Die wirtschaftlichen Elemente des Friedensproblems (1st ed.). Zürich.
Röpke, W. (1942). Die Gesellschaftskrisis der Gegenwart (1st ed.). Zürich.
Röpke, W. (1944). Civitas humana. Grundlagen der Gesellschafts- und Wirtschaftsre form (1st ed.). Zürich.
Röpke, W. (1945). Internationale Ordnung (1st ed.). Zürich.
Röpke, W. (1947). Die Krise des kollektivismus (1st ed.). Zürich.
Rüstow, A. (1950). Ortbestimmung der Gegenwart. Eine universalgeschichtliche Kultur-Kritik (Vol. 1). Zürich: Ursprung der Herrschaft.
Rüstow, A. (1952). Ortbestimmung der Gegenwart. Eine universalgeschichtliche Kultur-Kritik (Vol. 2). Zürich: Wege der Freiheit.
Rüstow, A. (1957). Ortbestimmung der Gegenwart. Eine universalgeschichtliche Kultur-Kritik (Vol. 3). Zürich: Herrschaft oder Freiheit.
Stützel, W., Watrin, C., Willgerodt, H., & Hohmann, K. (1982). Standard texts on the social market economy. Stuttgart: Ludwig-Erhard-Stiftung.
Vanberg, V.J. (2004). The Freiburg School: Walter Eucken and ordoliberalism (Freiburg Discussion Papers on Constitutional Economics, No. 4/11). Freiburg: Walter Eucken Institut.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Appendices
Annex 1
Eucken’s Principles for Economic Policy
-
Fundamental Principles—Rules Footnote 17
-
Striving for market prices in contested markets
-
Primacy of price stability
-
Principle of open markets
-
Preference for private property as a means of allocation and distribution
-
Principle of freedom to contract (in conformity with competition rules)
-
Principle of responsibility and liability; keeping the unity of the power to dispose and being liable for the results
-
Consistency and continuity for reliable economic policy
-
Unity of the fundamental principles: to keep a consistent economic constitution
-
Regulatory and Principles for Process Policy
-
Competition Policy by means of control: checking and prohibiting excessive market power
-
Principle to correct external effects
-
Principle to correct inverse market reactions
-
Redistribution of income to correct societally unsustainable income distribution
-
Potential Supplements Footnote 18
-
Principle of reluctance for global demand policies
-
Keeping the rule state aid for regaining self-responsibility
-
Principle for Governments 2
-
Principle to control and restrain the influence of interest groups
-
Keeping the principle of subsidiarity in cases of state interventions in markets and between different governmental decision levels: municipality, state, central state
Annex 2
Annex 3
Rights and permissions
Copyright information
© 2017 Springer International Publishing AG
About this chapter
Cite this chapter
Hasse, R. (2017). The German Concept of Market Economy: Social Market Economy. Its Roots and Its Contribution to Liberal Economic Orders in Germany, Europe and Beyond. In: Bitros, G., Kyriazis, N. (eds) Democracy and an Open-Economy World Order. Springer, Cham. https://doi.org/10.1007/978-3-319-52168-8_7
Download citation
DOI: https://doi.org/10.1007/978-3-319-52168-8_7
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-52167-1
Online ISBN: 978-3-319-52168-8
eBook Packages: Political Science and International StudiesPolitical Science and International Studies (R0)