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
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.
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.
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 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.
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.
professors involved compiled massive economic histories of Germany and Europe. Numerous Americans were their students. The historical school had a significant impact on
s. Although not nearly as famous as its German counterpart, there was also an
. This
. 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:
.
