Encyclopedia of Law and Economics

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Ordoliberalism

  • Stefan KolevEmail author
Living reference work entry

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DOI: https://doi.org/10.1007/978-1-4614-7883-6_618-3

Abstract

The purpose of this entry is to delineate the political economy of a group of authors related to ordoliberalism, the German variety of neoliberalism. To reach this goal, a history of economics approach is harnessed. First, the historical background around the time of its inception is presented. Second, an overview of the substantive core and of the heterogeneity across the different strands of ordoliberalism is reconstructed. Third, its historical impact on and current potential for political economy are evaluated. While this entry focuses on the general patterns of ordoliberal political economy, separate entries delineate the specificities in the research programs of Walter Eucken, Wilhelm Röpke, and Franz Böhm.

Introduction

A multifaceted group of scholars with a research program at the intersection of political economy, law, and social philosophy has become famous since 1950 under the name of “ordoliberalism” (Moeller 1950). The intellectual history of this group has received much attention, as ordoliberalism has ever since unfolded a seminal impact in Germany, Central Europe, and beyond. This entry has a threefold purpose: first to delineate the history of ordoliberal thought, second to present the overarching research agenda of the ordoliberals, and third to assess its impact and potential for today. Given the heterogeneity and the implicit division of labor within the group, this overview is complementary to the entries on Walter Eucken, Franz Böhm, and Wilhelm Röpke which present the specificities as detailed in the respective primary literature.

“Ordoliberalism” is sometimes used synonymously with the term “Freiburg School,” which is imprecise. While the Freiburg School around Walter Eucken (1891–1950) and Franz Böhm (1895–1977) constitutes the core of ordoliberal group, also authors who strictly speaking do not belong to the Freiburg School have been perceived as representatives of ordoliberal thought. Among them, the most prominent are Wilhelm Röpke (1899–1966), Alexander Rüstow (1885–1963), and Alfred Müller-Armack (1901–1978), but also F.A. Hayek (1899–1992) at certain stages in his evolution can be seen as contributing to the ordoliberal research program (Oliver 1960, pp. 118–119). Despite all cultural and biographical differences, it is important to note that these thinkers broadly belong to the same generation and also share a common goal in the 1930s and 1940s: to revitalize liberalism whose standing and relevance at that point are at an all-time low. For understanding the inception of ordoliberalism and its particular substantive core, a twofold perspective is necessary: one which sheds light on the specificities of German economics in the 1930s and another which embeds the group in the general movement of international scholarship, self-depicting itself around 1938 as “neoliberalism.”

Formative Years

German economics was in a deplorable state in the early 1930s. The academic landscape was largely characterized by the ruins of the Younger and the Youngest Historical Schools (Rieter 2002, pp. 154–162; Goldschmidt 2013, pp. 127–129). The tragedy of the discipline became most evident in its lacking capability to provide solutions to the extremely pressing problems of economic life, the hyperinflation in the early 1920s as well as the Great Depression in the early 1930s. Instead, many German economists still fought methodological battles or collected empirical evidence, often lacking the theoretical underpinnings for such inquiries. Dissidents to this development constituted in the 1920s the group of the so-called Ricardians, a collection of younger scholars who intended to re-link the discipline back to modes of systematic theorizing – with Rüstow, Eucken, and Röpke among the most active members of the group (Janssen 2009, pp. 34–48; Köster 2011, pp. 224–228). Even though the annus horribilis of 1933 physically separated them – with Rüstow and Röpke leaving as exiles to Turkey and Eucken staying as a “half-exile” (Johnson 1989, p. 57) in Germany – the intellectual ties remained and even solidified over the decades to follow. In the immediate aftermath of 1933, Eucken formed a scholarly community at Freiburg with Franz Böhm and another law professor, Hans Großmann-Doerth (1894–1944), which became the core of what would later be called the Freiburg School of Ordoliberalism or the Freiburg School of Law and Economics (Vanberg 1998, 2001). In 1936, the three published a manifesto under the title “Our Mission” (Böhm et al. 2008). Eucken and Böhm opposed National Socialism in manifold academic contexts, among others vis-à-vis the 1933–1934 rectorate of Martin Heidegger as well as in diverse intellectual resistance groups preparing for the age after National Socialism, later to be called the Freiburg Circles (Rieter and Schmolz 1993, pp. 95–103; Nicholls 1994, pp. 60–69).

The overarching goal of the Freiburg School and its 1948-founded publication organ, the “ORDO Yearbook of Economic and Social Order,” is the search for an order which entails a minimum of power, considering all forms of power relations – stemming from the state, from the market, and from other social orders (Sally 1998, pp. 110–117; Foucault 2008, pp. 129–158). The seminal analytical distinction of the Freiburg School is between “order” and “process”: while the level of economic order is one of the “rules of the game,” the level of economic process is one of the “moves of the game” (Wohlgemuth 2013, pp. 157–159). Building upon this distinction, the Freiburg School conceived a term which until today is considered by many its trademark – “Ordnungspolitik.” Based on his theory of orders and the above distinction, Eucken formulated the task for the power-fighting state: to set the “rules of the game” by “Ordnungspolitik” (translatable as “order-based policy” or, more broadly, as “rule-based policy”) for enabling Eucken’s normative vision of the “competitive order” but to abstain from intervening in the “moves of the game” which are the protected domain of the private individuals with their interactions. With this, Eucken aimed to draw the border to interventionism which disregards such constraints and arbitrarily intervenes in the “moves of the game” of the economic process for improving the performance of the economy – instead, his theory and his perspective on economic policy are very much in line with the “problem of constitutional choice, i.e., as a question of how desirable economic order can be generated by creating an appropriate economic constitution” (Vanberg 2001, p. 40).

Complementary to this agenda at Freiburg, the exiles Röpke and Rüstow developed a strand in ordoliberalism which would later be called “sociological liberalism” (Renner 2002, p. 61). Their inquiry was focused on the question how social stability and cohesion are possible amid the challenges of “enmassment” of modern society with its uprooting of the individuals from their traditionally cohesive small groups (Friedrich 1955, pp. 512–525; Kolev 2015, pp. 426–427). Just as Eucken and his associates, Röpke and Rüstow understood the economy and its framework as being embedded into the other social orders, but unlike Eucken they saw the task of economists to also look beyond the context of the economic order and to explicitly theorize its interrelationship to the other social orders, as the potential sources of instability within such an interdependent system of social orders can lie well beyond the economic order (Zweynert 2013, pp. 116–120). The task for a political economist is also to be aware of one basic property of the economic order: that it tends to use up its own stability resource, so that these resources and pillars (called by Röpke “anthropological and sociological” prerequisites) have to be permanently checked and, if necessary, stabilized anew by the state and other players in civil society (Kolev 2013, pp. 133–136).

Impact in Later Decades and Relevance for Today

The quests of the ordoliberal exiles and “half-exiles” are also to be contextualized within the broader intellectual perspective of Europe and the United States at their time. Freiburg was not completely isolated – Röpke, Rüstow, and Hayek stayed in touch with Eucken, in Röpke’s case even well into the year 1943. Even though Eucken did not attend the Colloque Walter Lippmann in 1938, Röpke and Rüstow were among its most active participants, proposed the term “neoliberalism” for the movement of revitalizing liberalism, and also had severe debates on what neoliberalism should mean along the maxims of ordoliberal political economy, in particular with Ludwig von Mises (Gregg 2010, pp. 82–86; Burgin 2012, pp. 67–78; Kolev 2016, pp. 14–17). Hayek’s evolution is of special interest here, as in the late 1930s and in the 1940s, his incipient political economy, including “The Road to Serfdom,” displayed strong similarities to the ordoliberal research program (Streit and Wohlgemuth 2000; Kolev 2010, 2015, pp. 432–436). Interestingly, a research program with yet again strong similarities to the one in Freiburg came up in Chicago of the time (Van Horn 2009; Köhler and Kolev 2013), later to be called by James M. Buchanan the “Old Chicago” School (Buchanan 2012), and it was Hayek who let Freiburg and “Old Chicago” meet in the session on the potential of the competitive order to become an alternative to laissez-faire at the very first meeting of the Mont Pèlerin Society in 1947 (Kolev et al. 2014, pp. 15–20).

The influences to and from ordoliberalism are not confined to the realm of academic economics. All ordoliberals named above were not of the ivory-tower scholar type – their political economies explicitly aimed at becoming tools for practical economic policy. The ways for channeling their theories into practical economic policy were different: Müller-Armack’s 1946-coined term of the Social Market Economy became a successful device for introducing the market economy to capitalism-skeptical German postwar society (Dornbusch 1993, pp. 881–883; Watrin 2000) but has later been used in countries as diverse as Chile, Belarus, or the European Union to frame the economic policy agenda of different administrations. Eucken’s “Ordnungspolitik” is until today a powerful rhetorical tool in Germany to introduce market-oriented reforms or to block interventionist policy proposals as being “Ordnungspolitik”-incompatible. Röpke’s countless appearances in Swiss, German, and international media made him the most active public intellectual of all ordoliberals and until today he is an authority in economic policy matters quoted especially often in Switzerland. Böhm made a longer digression into the realm of parliamentary politics and, after several years of intense debates especially with the Federation of German Industry, was a principal figure in introducing the “Act against Restraints of Competition” (GWB) in 1958, later to become a leading norm for the formulation of antitrust law in the European Union (Giocoli 2009). Until today, also macroeconomic issues like the optimal monetary policy of the European Central Bank or the fiscal policy debt-brake legislation in European Union countries have been discussed with reference to the rule-based approach of “Ordnungspolitik” (Dullien and Guérot 2012; Kundnani 2012; Wren-Lewis 2012; Feld et al. 2015; Bofinger 2016).

In addition, there have been attempts not only to perceive ordoliberalism as a history of economics artifact or as a guiding tool for practical economic policy, but also to connect it to new rule-based approaches in institutional and constitutional economics (Vanberg 1988; Ebeling 2003; Leipold and Wentzel 2005; Boettke 2012; Zweynert et al. 2016). Considering the multiple economic crises of our time but also the multiple crises of today’s economics as an allegedly useless academic discipline in the eyes of the general public and of many politicians, students, and neighboring social sciences, ordoliberalism’s rich heritage can be one of the sources necessary to revitalize the discipline and to regain the confidence of its currently dissatisfied “customers.”

Cross-References

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Authors and Affiliations

  1. 1.Wilhelm Röpke Institute, Erfurt and University of Applied Sciences ZwickauZwickauGermany