22-12-5 German Development Model: Rise, Merkel, Ru, Crisis, Scholz, Xina - gtbt > .
The German Economic Miracle -- Wirtschaftswunder -- took place in the aftermath of the destructive World War, when West Germany was still occupied by the Allied powers. Germany rose up on the back of the so-called ordoliberalism and the American Marshall Plan.
The era of economic growth raised West Germany and Austria from total wartime devastation to developed nations in modern Europe. At the founding of the European Common Market in 1957 West Germany's economic growth stood in contrast to the struggling conditions at the time in the United Kingdom.
Ordoliberal theory holds that the state must create a proper legal environment for the economy and maintain a healthy level of competition 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, firms 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.
According to 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. The Ordoliberal idea of a social market economy is often seen as a progressive alternative beyond left and right and as a third way between collectivism and laissez-faire liberalism.
While the ordoliberal idea of a social market is similar to that of the third-way social democracy advocated by the likes of the New Labour government (especially during the premiership of Tony Blair), there are a few key differences. Whilst they both adhere to the idea of providing a moderate stance between socialism and capitalism, the ordoliberal social market model often combines private enterprise with government regulation to establish fair competition (although German network industries are known to have been deregulated), whereas advocates of the third-way social democracy model have been known to oversee multiple economic deregulations. The third way social democracy model has also foreseen a clash of ideas regarding the establishment of the welfare state, in comparison to the ordoliberal's idea of a social market model being open to the benefits of social welfare.
Ordoliberals are also known for pursuing a minimum configuration of vital resources and progressive taxation. The ordoliberal emphasis on the privatization of public services and other public firms such as telecommunication services; wealth redistribution and minimum wage laws as regulative principles makes clear the links between this economic model and the social market economy.
The historical school of economics was an approach to academic economics and to public administration that emerged in the 19th century in Germany, and held sway there until well into the 20th century. The historical school held that history was the key source of knowledge about human actions and economic matters, since economics was [viewed as] culture-specific, and hence not generalizable over space and time. The school rejected the universal validity of economic theorems. They saw economics as resulting from careful empirical and historical analysis instead of from logic and mathematics. The school also preferred reality, historical, political, and social, as well as economic, as opposed to mathematical modelling.
Most members of the school were also Sozialpolitiker (social policy advocates), i.e. concerned with social reform and improved conditions for the common man during a period of heavy industrialization. They were more disparagingly referred to as Kathedersozialisten, rendered in English as "socialists of the chair" (compare armchair revolutionary), due to their positions as professors.
The historical school professors involved compiled massive economic histories of Germany and Europe. Numerous Americans were their students. The historical school had a significant impact on Britain, 1860s–1930s. Although not nearly as famous as its German counterpart, there was also an English historical school, whose figures included Francis Bacon and Herbert Spencer. This school heavily critiqued the deductive approach of the classical economists, especially the writings of David Ricardo. This school revered the inductive process and called for the merging of historical fact with those of the present period. Included in this school are: William Whewell, Richard Jones, Walter Bagehot, Thorold Rogers, Arnold Toynbee, and William Cunningham.
Inflation ..
Monetarism ..
Ordoliberalism (Wirtschaftswunder) ..
The German Economic Miracle -- Wirtschaftswunder -- took place in the aftermath of the destructive World War, when West Germany was still occupied by the Allied powers. Germany rose up on the back of the so-called ordoliberalism and the American Marshall Plan.
Wirtschaftswunder ((
listen), "economic miracle"), also known as the Miracle on the Rhine, describes the rapid reconstruction and development of the economies of West Germany and Austria after WW2 (adopting an ordoliberalism-based social market economy). The expression referring to this phenomenon was first used by The Times in 1950.
listen), "economic miracle"), also known as the Miracle on the Rhine, describes the rapid reconstruction and development of the economies of West Germany and Austria after WW2 (adopting an ordoliberalism-based social market economy). The expression referring to this phenomenon was first used by The Times in 1950.Beginning with the replacement of the Reichsmark with the Deutsche Mark in 1948 as legal tender (the Schilling was similarly re-established in Austria), a lasting era of low inflation and rapid industrial growth was overseen by the government led by West German Chancellor Konrad Adenauer and his Minister of Economics, Ludwig Erhard, who went down in history as the "father of the German economic miracle." In Austria, efficient labor practices led to a similar period of economic growth.
West Germany had a skilled workforce and a high technological level in 1946, but its capital stock had largely been destroyed during and after the war. This small capital stock was compounded by the difficulty in converting the German economy to the production of civilian goods, as well as rampant monetary and regulatory problems, leading to an unusually low economic output during the first post-war years.
These initial problems were overcome by the time of the currency reform of 1948, which replaced the Reichsmark with the Deutsche Mark as legal tender, halting rampant inflation. This act to strengthen the West German economy had been explicitly forbidden during the two years that JCS 1067 was in effect. JCS 1067 had directed the U.S. forces of occupation in West Germany to "take no steps looking toward the economic rehabilitation of Germany".
At the same time, the government, following Erhard's advice, cut taxes sharply on moderate incomes. Walter Heller, a young economist with the U.S. occupation forces who was later to become chairman of President Kennedy's Council of Economic Advisers, wrote in 1949 that to "remove the repressive effect of extremely high rates, Military Government Law No. 64 cut a wide swath across the German tax system at the time of the currency reform." Individual income tax rates, in particular, fell dramatically. Previously the tax rate on any income over 6,000 Deutschmark had been 95 percent. After tax reform, this 95 percent rate applied only to annual incomes above 250,000 Deutschmark. For the West German with an annual income of about 2,400 Deutschmark in 1950, the marginal tax rate fell from 85 percent to 18 percent.
These initial problems were overcome by the time of the currency reform of 1948, which replaced the Reichsmark with the Deutsche Mark as legal tender, halting rampant inflation. This act to strengthen the West German economy had been explicitly forbidden during the two years that JCS 1067 was in effect. JCS 1067 had directed the U.S. forces of occupation in West Germany to "take no steps looking toward the economic rehabilitation of Germany".
At the same time, the government, following Erhard's advice, cut taxes sharply on moderate incomes. Walter Heller, a young economist with the U.S. occupation forces who was later to become chairman of President Kennedy's Council of Economic Advisers, wrote in 1949 that to "remove the repressive effect of extremely high rates, Military Government Law No. 64 cut a wide swath across the German tax system at the time of the currency reform." Individual income tax rates, in particular, fell dramatically. Previously the tax rate on any income over 6,000 Deutschmark had been 95 percent. After tax reform, this 95 percent rate applied only to annual incomes above 250,000 Deutschmark. For the West German with an annual income of about 2,400 Deutschmark in 1950, the marginal tax rate fell from 85 percent to 18 percent.
The era of economic growth raised West Germany and Austria from total wartime devastation to developed nations in modern Europe. At the founding of the European Common Market in 1957 West Germany's economic growth stood in contrast to the struggling conditions at the time in the United Kingdom.
Ordoliberalism is the German variant of economic liberalism that emphasizes the need for the state to ensure that the free market produces results close to its theoretical potential. Ordoliberal ideals became the foundation of the creation of the post-WW2 German social market economy and its attendant Wirtschaftswunder.
The term "ordoliberalism" (Ordoliberalismus) was coined in 1950 by Hero Moeller, and refers to the academic journal ORDO. Ordoliberal ideals (with modifications) drove the creation of the post-WW2 German social market economy. They were especially influential on forming a firm competition law in Germany. However, the social market economy was implemented in economies where corporatism was already well established, so ordoliberal ideals were not as far reaching as the theory's economic founders had intended.
The term "ordoliberalism" (Ordoliberalismus) was coined in 1950 by Hero Moeller, and refers to the academic journal ORDO. Ordoliberal ideals (with modifications) drove the creation of the post-WW2 German social market economy. They were especially influential on forming a firm competition law in Germany. However, the social market economy was implemented in economies where corporatism was already well established, so ordoliberal ideals were not as far reaching as the theory's economic founders had intended.
According to 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. The Ordoliberal idea of a social market economy is often seen as a progressive alternative beyond left and right and as a third way between collectivism and laissez-faire liberalism.
While the ordoliberal idea of a social market is similar to that of the third-way social democracy advocated by the likes of the New Labour government (especially during the premiership of Tony Blair), there are a few key differences. Whilst they both adhere to the idea of providing a moderate stance between socialism and capitalism, the ordoliberal social market model often combines private enterprise with government regulation to establish fair competition (although German network industries are known to have been deregulated), whereas advocates of the third-way social democracy model have been known to oversee multiple economic deregulations. The third way social democracy model has also foreseen a clash of ideas regarding the establishment of the welfare state, in comparison to the ordoliberal's idea of a social market model being open to the benefits of social welfare.
Ordoliberals are also known for pursuing a minimum configuration of vital resources and progressive taxation. The ordoliberal emphasis on the privatization of public services and other public firms such as telecommunication services; wealth redistribution and minimum wage laws as regulative principles makes clear the links between this economic model and the social market economy.
The Ordoliberal model implemented in Germany was started under the government administration of Konrad Adenauer. His government's Minister of Economics, Ludwig Erhard, was a known Ordoliberal and adherent of the Freiburg School. Under Adenauer, some, but not all, price controls were lifted, and taxes on small businesses and corporations were lowered. Furthermore, social security and pensions were increased to provide a social base income. Ordoliberals have stated that these policies led to the Wirtschaftswunder, or economic miracle.
Since the 1960s, ordoliberal influence on economics and jurisprudence has significantly diminished. However, many German economists define themselves as Ordoliberals through the present day, the ORDO is still published, and the Faculty of Economics at the University of Freiburg is still teaching ordoliberalism. Additionally, some institutes and foundations such as the Walter Eucken Institut and the Stiftung Ordnungspolitik are engaged in the ordoliberal tradition.
Ordoliberals separate themselves from classical liberals. Notably Walter Eucken, with Franz Böhm, founder of ordoliberalism and the Freiburg School, rejected neoliberalism.
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 connected to the term neoliberalism. Ironically, the term neoliberalism was originally coined in 1938, at the Colloque Walter Lippmann, by Alexander Rüstow, who is regarded as an ordoliberal today.
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 connected to the term neoliberalism. Ironically, the term neoliberalism was originally coined in 1938, at the Colloque Walter Lippmann, by Alexander Rüstow, who is regarded as an ordoliberal today.
Most members of the school were also Sozialpolitiker (social policy advocates), i.e. concerned with social reform and improved conditions for the common man during a period of heavy industrialization. They were more disparagingly referred to as Kathedersozialisten, rendered in English as "socialists of the chair" (compare armchair revolutionary), due to their positions as professors.
Thorold Rogers (1823–1890) was the Tooke Professor of Statistics and Economic Science at King's College London, from 1859 until his death. He is best known for compiling the monumental A History of Agriculture and Prices in England from 1259 to 1793 (7 vol. 1866–1902), which is still useful to scholars. William Ashley (1860–1927) introduced British scholars to the historical school as developed in Germany.
In the United States the school influenced the institutional economists, such as Thorstein Veblen (1857–1929) and especially the Wisconsin school of labor history led by John R. Commons (1862–1945). More importantly, numerous aspiring economists undertook graduate studies at German universities, including John Bates Clark, Richard T. Ely, Jeremiah Jenks, Simon Patten, and Frank William Taussig.
Canadian scholars influenced by the school were led by Harold Innis (1894–1952) at Toronto. His staples thesis holds that Canada's culture, political history and economy have been decisively influenced by the exploitation and export of a series of "staples" such as fur, fishing, lumber, wheat, mined metals and coal. The staple thesis dominated economic history in Canada 1930s–1960s, and is still used by some.
After 1930 the historical school declined or disappeared in most economics departments. It lingered in history departments and business schools. The major influence in the 1930s and 1940s was Joseph Schumpeter with his dynamic, change-oriented, and innovation-based economics. Although his writings could be critical of the school, Schumpeter's work on the role of innovation and entrepreneurship can be seen as a continuation of ideas originated by the historical school, especially the work of von Schmoller and Sombart. Alfred D. Chandler, Jr. (1918–2007), had a major impact on approaching business issues through historical studies.
Canadian scholars influenced by the school were led by Harold Innis (1894–1952) at Toronto. His staples thesis holds that Canada's culture, political history and economy have been decisively influenced by the exploitation and export of a series of "staples" such as fur, fishing, lumber, wheat, mined metals and coal. The staple thesis dominated economic history in Canada 1930s–1960s, and is still used by some.
After 1930 the historical school declined or disappeared in most economics departments. It lingered in history departments and business schools. The major influence in the 1930s and 1940s was Joseph Schumpeter with his dynamic, change-oriented, and innovation-based economics. Although his writings could be critical of the school, Schumpeter's work on the role of innovation and entrepreneurship can be seen as a continuation of ideas originated by the historical school, especially the work of von Schmoller and Sombart. Alfred D. Chandler, Jr. (1918–2007), had a major impact on approaching business issues through historical studies.
The school was opposed by theoretical economists. Prominent leaders included Gustav von Schmoller (1838–1917), and Max Weber (1864–1920) in Germany, and Joseph Schumpeter (1883–1950) in Austria and the United States.
Allocative efficiency .
Dirigisme .
Freiburg School .
Liberal conservatism .
Radical centrism .
Social market economy .
The Freiburg School (Freiburger Schule) 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 legitimate role of government in a democracy in the Freiburg School. The School provided the economic theoretical elements of ordoliberalism and the social market economy in post-war Germany.
Because of the connected history, ordoliberalism is also sometimes referred to as "German neoliberalism" (the Freiburg school of economics was called 'neoliberalism' until Anglo-American scholars reappropriated the term). Equivocation led to frequent confusion and "mix ups" of terms and ideas in the discourse, debate and criticism of both economic schools of liberalism until in 1991 the political economists Michel Albert with Capitalisme Contre Capitalisme and in 2001 Peter A. Hall and David Soskice with Varieties of Capitalism aimed to separate the concepts and develop the new terms liberal market economy and coordinated market economy to distinguish neoliberalism versus ordoliberalism.
Because of the connected history, ordoliberalism is also sometimes referred to as "German neoliberalism" (the Freiburg school of economics was called 'neoliberalism' until Anglo-American scholars reappropriated the term). Equivocation led to frequent confusion and "mix ups" of terms and ideas in the discourse, debate and criticism of both economic schools of liberalism until in 1991 the political economists Michel Albert with Capitalisme Contre Capitalisme and in 2001 Peter A. Hall and David Soskice with Varieties of Capitalism aimed to separate the concepts and develop the new terms liberal market economy and coordinated market economy to distinguish neoliberalism versus ordoliberalism.
Japanese Economic Miracle: https://youtu.be/6IIvo2KOASk .
Dirigisme .
Freiburg School .
Liberal conservatism .
Radical centrism .
Social market economy .
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Econometrics .
JEL classification codes .
History of economics .
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