Fathers of Ordnungspolitik
The founders and leading representatives of the Freiburg School of Economics, as well as various representatives of the Austrian School of Economics, can be considered the "fathers of Ordnungspolitik." Based on classical liberalism and the negative experiences with laissez-faire economy, these scholars developed the concept of a "institutional framework for market-based systems."
Their theoretical framework is therefore also called "Ordoliberalism." In addition to Walter Eucken's fundamental contribution, Franz Böhm and Hans Großmann-Doerth, as well as the economists Wilhelm Röpke and Alexander Rüstow, contributed to Ordoliberalism in particular. The same applies to the "Austrian" economist Friedrich August von Hayek. The work of all these scholars focuses on "thinking in terms of orders," whereby the legal order should be designed to protect competition, as the desired economic order, and the individual freedom of citizens.
Later, the ideas of ordoliberalism formed the basis for the concept of the "Social Market Economy," which was introduced in West Germany by Ludwig Erhard and Alfred Müller-Armack in 1948. Like almost all industrialized nations, Germany faces major challenges today. "Thinking in Orders" in the spirit of ordoliberalism is therefore highly relevant.
Franz Böhm (1895-1977)
Franz Böhm was born on February 16, 1895, in Konstanz. After serving in World War I, he studied law and political science in Freiburg and, following his final exams, was appointed public prosecutor in Freiburg in 1924. From 1925 onward, he gained practical economic policy experience as a consultant in the antitrust department of the Reich Ministry of Economics in Berlin. In 1926, he married Marietta Ceconi, the daughter of Ricarda Huch. He received his doctorate from the University of Freiburg in 1932 and qualified as a professor the following year with a thesis on "Competition and Monopoly Struggle."
In 1936, Franz Böhm, together with Walter Eucken and Hans Großmann-Doerth, founded the series "Ordnung der Wirtschaft" (Economic Order), the first volume of which was his own seminal work, "Die Ordnung der Wirtschaft als gehistorischliche Aufgabe und Rechtsschöpfische Leistung" (The Economic Order as a Historical Task and Legal Achievement). Because Franz Böhm also acted as a representative of fellow citizens of the Jewish faith during the 1930s, he was not offered a professorship in Freiburg, contrary to his previous plans. In Jena, where Böhm had since begun working, his teaching license was revoked in 1940 for criticizing the National Socialist system. It was not until 1945 that he received a call to Freiburg, and later to Frankfurt am Main. As early as 1945, Franz Böhm briefly served as an advisor to the US headquarters on issues of decartelization in Germany. Later, he worked on the expert commission of the Länderrat in the Bizone, drafting a new antitrust law. Within the Commission, which also included Walter Eucken and Ludwig Erhard, he particularly advocated the rapid introduction of a comprehensive “competition order” and a currency reform.
From 1948, Franz Böhm served as a member of the "Scientific Advisory Board at the Administration for Economic Affairs in the United Economic Area," which shortly thereafter became the "Scientific Advisory Board at the Federal Ministry of Economics." From 1953 to 1965, Franz Böhm served as a member of the German Bundestag for the CDU. There, he advocated for the "Law Against Restraints of Competition"—even against strong opposition from his own party. Böhm also actively participated in the German-Israeli dialogue. From 1955 to 1965, he even served as deputy chairman of the Bundestag Committee on Reparations. Franz Böhm was also co-editor of the "Zeitschrift für die gesamte Staatswissenschaft" (Journal for the Entire Science of Political Science) and the yearbook "ORDO" for many years. He died on September 26, 1977, in Rockenberg. The "competition order" and the threat posed by cartels were always at the center of Franz Böhm's academic and economic policy work. This makes him one of the key pioneers of Ordnungspolitik.
Quotations on Ordnungspolitik
The market economy
"One can say that the market economy is a remarkably indestructible system. And unfortunately, it is this quality that has challenged humanity throughout history to sin by intervening against this market economy, to such an extent that we doubt whether world history is truly the Last Judgment. In the market economy, it is certainly a Last Judgment whose wheels grind incredibly slowly and ultimately always strike completely different people than those who have sinned."
From: Böhm, Franz (1958) Freedom of Competition and Cartel Freedom, ORDO, Vol. 10, pp. 167-203.
The functions of the competition
"First of all, we must be clear that competition within the framework of the market economy is twofold: firstly, an actual state, a so-called market form, and secondly, a subjective right, a freedom. The subjective right, freedom of competition, is granted so that competition becomes a reality as an objective market form. [...] Only when freedom of competition is exercised can competition emerge as an objective form of economic cooperation, and only when competition arises can competitive prices emerge, and only these competitive prices control production and distribution as they should be controlled according to the conception of this order. [...] Competition is a constitutional institution. If no competition, or insufficient competition, occurs, then the constitutionally desired steering power of market prices is impaired. The production and distribution of goods are directed in an undesired direction. But this misdirection of economic cooperation is not even the decisive factor. Even more serious is the disruption of the social justice content of the free market economy system. Power arises in the hands of private individuals that enables them to sets, indeed forces, the free economy to pursue market strategy, i.e., to intervene in the free economy, thus doing something that is essentially economic policy, a government function, not merely private economic disposition. This power has the nature of a feudal property: free citizens are subjected to the domination of other free citizens and must tolerate coercive interventions in their professional and consumer destinies from these fellow citizens, interventions that they would not have to accept from their government."
From: Böhm, Franz (1958) Freedom of Competition and Cartel Freedom, ORDO, Vol. 10, pp. 167-203.
Freedom from competition and antitrust
"Competition is a central institution of the free economic order, and if it is permitted to restrict competition through contracts, if the courts protect such contracts, then the consequence is not only that the contracting parties themselves restrict their freedom to compete—this is usually even advantageous for them—but also that the economic fate, the market fate, and the freedom of third parties, i.e., persons outside the contract, and generally a great many, are interfered with, to their greater or lesser detriment. […] Every degree of power in markets must be constantly secured and defended through more or less brutal interventions in the competitive freedom of other individuals. All of this involves an artificial and, in most cases, violent scarcity of supply, i.e., the blatant opposite of the principle of meeting demand. Ultimately, it is always the lowest strata of society who pay the price. This is precisely what distinguishes monopoly rent from the entrepreneurial profits earned through competition."
From: Böhm, Franz (1958) Freedom of Competition and Cartel Freedom, ORDO, Vol. 10, pp. 167-203.
Ludwig Erhard (1897-1977)
Ludwig Erhard was born on February 4, 1897, in Fürth. He is considered the founder of the social market economy and, in particular, of the "German economic miracle," which he made possible through his consistent Ordnungspolitik.
Erhard initially completed a merchant apprenticeship in Nuremberg before joining his father's textile business as a retail salesman. As an artilleryman, he was so severely wounded at the end of the First World War that he could no longer practice his profession. Therefore, he first studied economics and business administration at the Nuremberg Graduate School of Management, and then, from 1922 onward, business administration, economics, and sociology at the University of Frankfurt am Main. He received his doctorate there in 1925 with a thesis on monetary policy on "The Significance of World Unity" under Franz Oppenheimer.
Erhard began his professional career as managing director of his parents' business, but was soon drawn back to academia. From 1928 to 1942, he worked first as an assistant and then as deputy director of the Institute for Economic Observation at the Nuremberg Graduate School of Management. There, Ludwig Erhard was responsible, among other things, for publishing the association's monthly journal, which featured a notable economic policy section addressing current issues of practical economic policy. During the Great Depression, Ludwig Erhard intervened in the current economic policy debate for the first time by calling for a revival of consumer goods production. Contrary to the general opinion of economists at the time, he advocated a competitive economy and free market pricing.
Since Erhard was unfit for military service due to his injuries sustained during World War II, he was given responsibility for overseeing the Lorraine glass industry. In addition, he founded a private institute for industrial research in 1942. On behalf of the Reich Industry Group, he worked on postwar planning. In 1943/44, his memorandum "War Financing and Debt Consolidation" was published, which also attracted attention within the resistance and was viewed as the basis for postwar reconstruction.
In the first post-war years, Ludwig Erhard, who had never considered a political career, quickly rose to high political office as a politically untainted scientist and non-partisan economist. From 1945 to 1946, he served as Bavarian State Minister for Trade and Industry (Minister of Economic Affairs). In 1947, he simultaneously became an honorary professor at the University of Munich and head of the "Special Office for Money and Credit" at the Finance Administration of the United Economic Area (Bizone). This body was intended to support the Allied military government in the preparation and implementation of a currency reform. In March 1948, the Economic Council—a parliament composed of members of German state parliaments—elected Ludwig Erhard as "Director of the Economic Administration of the United Economic Area." This corresponded to Erhard's later position as Federal Minister of Economic Affairs. In this capacity, Ludwig Erhard implemented the currency reform in the three western occupation zones of Germany on June 20, 1948. In doing so, he succeeded—without first obtaining the approval of the military governments—in combining the monetary reform with a comprehensive economic reform, thus initiating the transition to a market economy in West Germany. With this courageous step, Ludwig Erhard enabled and established the “German economic miracle”.
In 1949, Ludwig Erhard was one of the founding fathers of the ifo Institute in Munich. In the same year, he was elected to the German Bundestag for the first time as a member of the CDU. In 1950, he was also made an honorary professor at the University of Bonn. From 1949 to 1963, he served as Federal Minister of Economics in the cabinet of Chancellor Konrad Adenauer. During these years, with the support of Alfred Müller-Armack, he implemented the "social market economy" in West Germany. Of particular note in terms of Ordnungspolitik are the Act against Restraints of Competition (1957), the Federal Bank Act (1957), and the Foreign Trade Act (1961), which were all based on Erhard's initiative. During his 14 years as Federal Minister of Economics, Ludwig Erhard became an iconic figure in German politics. This period was particularly characterized by high growth rates of gross domestic product, remarkable wage increases with stable prices, high social security with balanced public budgets, full employment and a sustained improvement in the German foreign trade balance.
This enabled Ludwig Erhard to become the second Chancellor of the Federal Republic of Germany, after Konrad Adenauer, from 1963 to 1966. However, he was less fortunate in this position, as he lacked any real power within the CDU. When the first severe recession hit the Federal Republic in 1966, Erhard's reputation faded, and he was forced to resign as both Chancellor and CDU party leader. He remained in the German Bundestag, however, and opened its sessions as the oldest member of the Bundestag in 1972 and 1976. Ludwig Erhard died in Bonn on May 5, 1977.
Ludwig Erhard always rejected being called the "father of the German economic miracle." Instead, he repeatedly emphasized the fundamental principles of his consistent economic policy: the creation of a functioning market economy that promotes economic efficiency and its maintenance through a system that also improves the social situation of the population, thus spreading "prosperity for all."
Quotations on Ordnungspolitik
Free competition
"The harmony of a market economy is based on the free functioning of forces tending toward balance and equilibrium. In this way, the quantitative and qualitative correspondence between demand and supply is brought about. While other systems attempt to achieve this goal through collective control measures, the market economy achieves this effect through the functioning of the free market. However, one can only speak of such a market if and as long as free competition based on performance and free pricing are the driving force and control means of the economy. Competition is thus an inextricable component, indeed the innermost element of a market economy, so that its elimination, impairment, or obstruction would inevitably lead to the destruction of the system itself. The same applies to the function of the free price. It alone makes services measurable and comparable, and only through the barometer of price developments can the correctness or errors of entrepreneurial dispositions be revealed. Only from prices can one determine whether too much or too little, whether the right or the wrong thing, has been produced in a particular case. For this reason, the continuous adaptation of production to the changes in the Consumption is only possible through free prices. Therefore, all measures that lead to price fixation or rigidity must be consistently rejected as incompatible with the nature of the market economy."
From: Erhard, Ludwig (1992) The objectives of the law against restraints of competition [speech in the session of the German Bundestag on 24 March 1955], in: id.: German economic policy, Düsseldorf, pp. 267-275.
Welfare state and “social subject”
"The social market economy cannot thrive if the intellectual attitude underlying it, that is, the willingness to take responsibility for one's own destiny and to participate in honest, free competition out of the pursuit of increased performance, is condemned to extinction by supposed social measures in neighboring areas. [...] A liberal economic order can only survive in the long run if and as long as the highest degree of freedom, private initiative, and self-provision is guaranteed in the social life of the nation. If, on the other hand, the efforts of social policy are aimed at guaranteeing people complete security against all adversities of life from the moment of their birth, that is, at wanting to shield them absolutely against the vicissitudes of life, then one can simply no longer expect such people to develop the degree of strength, performance, initiative, and other best human values that is crucial for the life and future of the nation and, moreover, provides the prerequisite for a "social market economy" based on individual initiative. […] This is not to deny that even the best economic policies in modern industrialized countries require supplementation by social policy measures. On the other hand, however, the overarching principle holds that any effective social assistance can only be made possible on the basis of a sufficient and growing national product, and that means precisely an efficient economy. It must therefore be in the very best interest of any organic social policy to ensure an economy that is both expansive and stable, and to ensure that the principles by which this economy is organized are preserved and further developed. […] The growing socialization of income distribution, the pervasive collectivization of life planning, the far-reaching disenfranchisement of the individual, and the increasing dependence on the collective or the state […] must be the consequences of this dangerous path toward the welfare state, at the end of which will lie the social subject and the patronizing guarantee of material security by an all-powerful state, but equally the paralysis of economic progress in freedom."
From: Erhard, Ludwig (1957) Prosperity for all, Düsseldorf, Chapter 12 [Welfare State – the modern madness], pp. 256-274.
Good social policy requires monetary stability
"It is a grand error for a nation or a state to believe it can initiate and pursue an inflationary policy while simultaneously protecting itself against its consequences. This is tantamount to trying to pull itself up by its own hair. Conversely, all efforts must be concentrated on preventing inflation and denouncing before the public any culpable behavior that could lead to an inflationary development, thereby preventing it. Inflation does not come upon us as a curse or a tragic fate; it is always caused by reckless or even criminal policies."
From: Erhard, Ludwig (1957) Prosperity for all, Düsseldorf, Chapter 12 [Welfare State – the modern madness], pp. 256-274.
Unemployment and collective bargaining autonomy
"I have repeatedly stated that, under the given circumstances, it seems relatively easy to reach an agreement between the collective bargaining partners regarding higher wages and higher prices—but at what price would this be achieved? The price would be that those social classes furthest from production would be disadvantaged, and the last few would be left with the dogs. But these are precisely the people to whom our full concern must be directed, namely the millions of welfare recipients, social pensioners, war victims, widows and orphans, and others, and I, for one, am not willing to let their fate be a matter of business as usual. [...]"
From: Erhard, Ludwig (1992) The objectives of the law against restraints of competition [speech in the session of the German Bundestag on 24 March 1955], in: id.: German economic policy, Düsseldorf, pp. 276-281.
Walter Eucken (1891-1950)
Walter Eucken was born on January 17, 1891, in Jena, the son of Nobel Prize winner Rudolph Eucken. After studying economics in Bonn, Kiel, and Jena, where he earned his doctorate, Eucken served as a frontline officer in World War I. In the postwar period, he worked for the Reich Association of the Textile Industry, among others. In 1925, he was appointed professor of economics in Tübingen, and in 1927 he moved to Freiburg, where he remained until his death. Walter Eucken stayed in Germany during the Nazi dictatorship and was involved in the resistance. Among other things, he worked with the Bonhoeffer Circle.
With his ideas on establishing a “competitive order” as the basis for a free but orderly market economy, he created the theoretical foundation for the “social market economy” in Germany after 1945. Together with Franz Böhm and Hans Großmann-Doerth, Walter Eucken founded the Freiburg School and thus German ordoliberalism. As Eucken explains in his posthumously published work “Principles of Economic Policy,” seven constituent and four regulatory principles are an essential part of a competitive order. These include, in particular, a functioning price system, currency stability, open markets, freedom of contract, private property, liability, and an active anti-monopoly policy. With this approach, Walter Eucken established the regulatory economics approach in modern economics, which does not view the economic order as independent of the legal and social order, but rather assumes an “interdependence of orders.” After 1945, Walter Eucken served on various scientific advisory boards, in particular that of the Federal Ministry of Economics. He died on March 20, 1950, in London, where he had been invited to give a guest lecture.
Quotations on Ordnungspolitik
The constituent principles 1: The basic principle
"The establishment of a functioning price system of perfect competition [is] made the essential criterion of every economic policy measure [...] It is not acceptable to pursue an economic policy which, under the impression of a momentary emergency, hinders or paralyses the functioning of the price system: for example, through foreign exchange controls, credit expansion and the like. Nor should tax policy, e.g., through sales tax or the structure of corporate income tax, promote the process of concentration and thus favor the advance of monopolies. [...] The basic principle requires not only that certain economic policy measures be avoided, such as government subsidies, the creation of state-imposed monopolies, general price freezes, import bans, etc. Nor is it sufficient to simply ban cartels. The principle is not primarily negative. Rather, a positive economic policy is necessary, aimed at developing a market form of complete competition and thus fulfilling the basic principle. [...] Once again: the main thing is to make the price mechanism functional. Any economic policy that fails to do so is doomed to failure. This is the strategic point from which the whole can be controlled and on which all forces must therefore be concentrated [...]."
From: Walter Eucken (1952/90) Principles of Economic Policy, 6th revised edition, Tübingen, Chapter XVI: The Policy of the Competitive Order – The Constituent Principles, pp. 254–291.
The Constituent Principles 2: Primacy of Monetary Policy
"The principle of assigning monetary policy a special status within the framework of economic policy has [...] a regulatory purpose. Acting in accordance with this principle does not sacrifice the economy to the currency. The opposite is true: a certain stabilization of the value of money makes it possible to incorporate a useful steering instrument into the economic process. If it were possible to equip the monetary constitution with a stabilizer for the value of money, then one could hope that the tendency toward equilibrium inherent in the competitive order would take effect, instead of, as in the past, turning into a constant cycle of economic ups and downs, i.e., inflation and deflation, due to the inadequate design of existing monetary constitutions. However, a good monetary constitution should not only be designed to keep the value of money as stable as possible. It should also fulfill another condition. Like the competitive order itself, it should function as automatically as possible [...]."
From: Walter Eucken (1952/90) Grundsätze der Wirtschaftspolitik (Principles of Economic Policy), 6th revised edition, Tübingen, Chapter XVI: The Politics of the Competitive Order – The Constituent Principles, pp. 254–291.
Constitutive Principles 3: Open Markets
“Indeed [...] competition mechanics can become effective within closed markets. Nevertheless, for economic policy the basic rule must be to implement the opening of markets, because when they are closed there is an acute danger of hindering complete competition. Two points are decisive in this respect. First, closing supply and demand greatly facilitates the formation of monopolies. [...] Equally important is a second point: even if complete competition emerges in individual closed markets, the closure disturbs the connection between markets, and the overall system of complete competition cannot fully function. [...] Therefore the principle applies: for the constitution of the competitive order, the opening of supply and demand is necessary. Only a few exceptions exist, such as granting an exclusive privilege of note issuance to a central bank. [...]”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVI)
Constitutive Principles 4: Private Property
“Private property under complete competition therefore means:
a) power of disposal and freedom of disposal in the service of the national economy;
b) impotence to restrict the power and freedom of disposal of other property owners at the expense of the community. Under complete competition, there is a balance of economic power among the private owners of enterprises. […] However, this only applies insofar as the character of private property is genuinely compatible with competition. It does not apply if supply and demand monopolies emerge in their various forms. Such power structures distort the economic meaning of private property and, contrary to the intentions of the overall system, lead to serious damage to the economic process. Then private property actually acts unsocially. [...] Private ownership of the means of production requires control through competition. At this point, the interdependence of all economic policy measures is particularly important. If the other principles that enable the realization of the competitive order are actually observed, then private ownership of the means of production and free disposal thereof have an eminent order-policy and social function. But if the other principles are not respected and monopolies arise, if there is no control by competition, then the power of disposal over private property must be restricted.”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVI)
Constitutive Principles 5: Freedom of Contract
“Firstly: it is indispensable. Without free individual contracts, which arise from the economic plans of households and businesses, a steering of the everyday economic process through complete competition is not possible. Steering the economic process through “commands” — for example through compulsory service, allocations, production directives, confiscations — excludes steering through complete competition. Secondly: the limits have also become clear, which must be drawn so that freedom of contract serves the constitution of the competitive order [...] Freedom of contract must not be granted for the purpose of concluding contracts that restrict or abolish freedom of contract.”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVI)
Constitutive Principles 6: Liability
“Liability has major functions in the structure of the overall economic order if the overall order is to be a competitive order. It is intended to enable or facilitate the selection of enterprises and leading personalities. It should also ensure that the disposition of capital is made carefully. Investments are made all the more prudently, the more the person responsible for these investments is liable. Liability thus acts prophylactically against the squandering of capital and forces careful market testing. Furthermore, liability is important for the competitive order because it hinders the annexation of other enterprises motivated by power ambitions. [...] Limited liability company forms have greatly contributed to the formation of corporate groups. As universal application of liability as possible thus acts against concentration. – Liability helps to establish the competitive order and to prevent market forms alien to the system. At the same time, liability is necessary to make the competition of performance within the competitive order functional. Both effects are significant. The competitive order cannot function without personal responsibility of individuals, just as it cannot function without adequate market forms or monetary systems. [...] Liability limitations are therefore only acceptable in corporate law where a capital provider is not or only to a limited extent responsible for management: for example, the small shareholder or the limited partner.”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVI)
Constitutive Principles 7: Consistency of Economic Policy
“A certain consistency of economic policy is necessary in order to stimulate sufficient investment activity. Without this consistency, the competitive order would not be functional either. The competitive order is able to coordinate investments properly in the long term. Because it possesses, with its price mechanism, the instrument to identify and ultimately correct disproportions. In this, it is superior to all other orders. [...] If, however, economic policy does not have sufficient consistency, then even the competitive order cannot function fully. The long-term setting of taxes, trade agreements, of monetary units, etc. is of considerable importance. If this is lacking, there will not be a sufficient willingness to invest. The economic plans would lack the temporal depth necessary to develop and maintain the modern industrial production apparatus. [...] The nervous restlessness of economic policy, which often discards today what was valid yesterday, creates a great deal of uncertainty and, together with distorted price relationships, prevents many investments. The atmosphere of trust is lacking.”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVI)
Regulating Principles 1: The Monopoly Problem
“[…] in the competitive order there will […] be monopolies that do not serve to maintain it, but rather disturb and endanger it. Certain positions of power arise even with complete application of the principles. For example, a gasworks in a city has a supply monopoly on its market. […] Experience shows that it is beyond the power of a modern state to conduct effective monopoly oversight in an economic order in which large parts of industry are monopolized. Here, the political influence of interest groups is too strong, and monopoly problems are too numerous. […] But the situation is quite different in the competitive order. Here, the main thrust is carried out in another direction: the emergence of monopolistic power structures is prevented. And not just through cartel bans, but — much more importantly — through an economic and legal policy that brings the strong forces of competition present in the modern economy to bear through application of the constitutive principles. In this way, the state largely frees itself from the influence of private power groups. […] Only for the named, unavoidable monopolies is the problem of monopoly oversight in the competitive order relevant. […] Monopoly oversight should […] be entrusted to a state monopoly supervisory office. In order to protect it from the always dangerous (even if weakened in the competitive order) influences of interest groups, it should be an independent agency subject only to the law. It should therefore not, for example, become a department of the Ministry of Economic Affairs, which is much more exposed to pressure from interest groups.”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVII: The Policy of the Competitive Order – The Regulating Principles, p. 291–304)
Regulating Principles 2: Income Policy
“It was possible to show that the distribution of the social product through the price mechanism of complete competition — despite many shortcomings — is still better than distribution on the basis of arbitrary decisions of private or public power bodies. […] But even this distribution mechanism leaves questions open and requires correction. There are considerable differences in the distribution of purchasing power, which leads production toward meeting relatively insignificant needs, while urgent needs of other income groups remain unsatisfied. The inequality of incomes results in luxury production already taking place while urgent needs of households with low incomes are still unmet. Here, therefore, the distribution that takes place in the competitive order requires correction. […] Tax policy can, for example, be used to implement some of these corrections.”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVII)
Regulating Principles 3: Economic Accounting (External Effects)
“The system works very precisely, but it does not take into account the feedback effects that individual economic plans and their implementation have on macroeconomic data — if these feedback effects are not noticeable within the individual company’s own planning area. […] Think, for example, of the destruction of forests in America […]. Therefore, even in the competitive order, it is necessary in such precisely identifiable cases to limit the planning freedom of companies.”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVII)
Regulating Principles 4: Anomalous Supply Behavior
“So-called anomalous supply behavior, especially in labor markets, was very carefully considered by older economic policy. […] This economic and social policy problem is, however, already significantly alleviated and in many cases solved in the competitive order by applying the principles presented. With freedom of movement and occupational mobility of labor, switching to other occupations is made easier. The creation of a state on the labor markets which corresponds to complete competition makes it impossible for wage pressure to occur as it does under the rule of private or public power groups. […]”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVII)
The Interdependence of Orders
“All principles — both constitutive and regulating — belong together. By consistently acting according to them, economic policy builds and makes functional a competitive order. Each individual principle only gains meaning within the framework of the general blueprint of the competitive order. The investigation repeatedly arrived at this result — whether it was about freedom of contract, the principle of money creation, or any other principle. The individual principles complement each other, they are complementary.”
(Walter Eucken, Principles of Economic Policy, 6th revised edition, Tübingen 1952/90, Chapter XVIII: The Policy of the Competitive Order — The Interdependence of
Economic Order Policy, p. 304–324)
Note: A complete bibliography can be found on the homepage of the Walter Eucken Institute (Freiburg).
Hans Grossmann-Doerth (1894-1944)
Hans Grossmann-Doerth was born on September 9, 1894. He studied law in Munich and Hamburg. In 1923, he received his doctorate with his dissertation "The Consequences of Guilt in Future Criminal Law." He then found employment as a district judge in Hamburg. In 1928, Großmann-Doerth completed his habilitation under Hans Wüstendörfer with his highly acclaimed work "The Basic Forms of Overseas Purchases." In 1930, Großmann-Doerth accepted a chair in civil and commercial law at the German University in Prague. In 1933, Großmann-Doerth moved to the Albert Ludwig University of Freiburg im Breisgau as a tenured associate professor of commercial, business, and labor law, as well as civil law. In his inaugural lecture on May 11, 1933, he spoke on the topic of "Self-Created Economic Law and State Law," in which he presented the core tenets of his own approach—theses that would later become central to the concept of the Freiburg School. In the following years, he developed an intensive collaboration with Walter Eucken and Franz Böhm.
On July 18, 1939, Großmann-Doerth was drafted into military service. He died of his severe injuries on March 5, 1944, at the age of almost 50, in the Königsberg military hospital. Due to his early death, Hans Grossmann-Doerth has received little attention in academic literature to date, but he can be considered, along with Walter Eucken and Franz Böhm, as the founder of the Freiburg School. He advanced the work within the Freiburg group and gave his own impetus to ordoliberal thought. He also explored the idea of a strong state capable of effectively fending off the particular interests of individuals. His writings are characterized by a comprehensive consideration of legal practice and an emphasis on the personal responsibility of economic entities. Due to the meticulous recording and evaluation of commercial customs and unwritten law in practice, his habilitation thesis became a standard work in which “law in action” is presented in contrast to “law in the books”.
Friedrich August von Hayek (1899-1992)
The famous Austrian economist Friedrich August von Hayek was born into an academic environment in Vienna on May 8, 1899. After his military service in the First World War, Hayek studied law from 1918 to 1921, then political science at the University of Vienna until 1923, where he earned his doctorate in law and a doctorate in politics. In 1927, together with Ludwig von Mises, he founded the Austrian Economic Research Institute, which he also served as director until 1931. In 1929, he qualified as a professor with a lecture on the topic "Is there a contradiction in saving?" Hayek's reflections on epistemology and the concept of humanity date from these early years, although he did not present them publicly until 1952 in "Sensory Order." Of particular note here are the subject-dependence of knowledge and the significance of unconscious knowledge, which is expressed in traditions.
For the next two decades—until 1950, to be precise—Friedrich August von Hayek worked as a professor of economics and statistics at the London School of Economics and Political Science, where he critically examined socialist, Keynesian, and neoclassical thought. Hayek's preoccupation with socialism and its theoretical foundations soon led to the devastating verdict that socialism was synonymous with a progressive abuse of reason.
During this creative period, he wrote, among other things, his most famous book, "The Road to Serfdom" (1944), which was shortly afterwards published in Switzerland in German ("Der Weg zur Knechtschaft" (1945) with a foreword by Wilhelm Röpke). From 1950 to 1962, FA von Hayek was a professor of social sciences at the University of Chicago. There he wrote, among other things, "The Constitution of Liberty" (1960/71). In 1962, he accepted a call to the chair of economic policy at the Albert Ludwig University in Freiburg/Breisgau. Shortly thereafter, he was elected to the board of the Walter Eucken Institute. In the following years, he made contributions to the theory of spontaneous orders, which are particularly important for Ordnungspolitik. These include, in particular, the theory of complex phenomena, the theory of pattern recognition and prediction, and also his reflections on "competition as a discovery process." Based on these considerations, Hayek contrasted the neoclassical equilibrium theory with a theory of cultural evolution. As he himself puts it, "[i]n particular, when we have to explain economic aspects of large social systems, it is not a question of explaining a hypothetical state of equilibrium determined by known data, but of explaining a flow that is constantly adapting as a whole to changes in circumstances, of which each individual participant in such systems knows only a small part." His preoccupation with questions of cultural evolution and the development of free markets also led Hayek to become a warning against the destructive consequences of overestimating human reason.
In 1967, Hayek became professor emeritus, but continued to hold his chair for two more years. After a subsequent stay of several years as an honorary professor in Salzburg, Hayek returned to Freiburg in 1977. During this time, he completed his trilogy "Law, Legislation, and Liberty," which contained his proposals for a "reconstruction of democracy" aimed at preventing the prevalence of the welfare state and the eventual triumph of socialism. Reflecting his criticism of the beliefs of "socialists in all parties," he titled his last work "The Fatal Conceit" (German 1996: "Die verhängnisvolle Annehmung. Die Fehler des Sozialismus"). On March 23, 1992, F. A. von Hayek died in Freiburg. He was buried in his hometown of Vienna. F. A. von Hayek's findings also met with opposition and incomprehension in the academic world. Because his thinking was novel and unique, he became a revolutionary in economic theory and a driving force for new theories. The significance of Friedrich August von Hayek's work is reflected not least in the fact that he was awarded the Nobel Prize in Economic Sciences in 1974, which he ironically had to share with Gunnar Myrdal, a fervent socialist and father of the Swedish "people's home."
Sources:
Butler, Eamon-Hayek. His Contribution to the Political and Economic thought of our Time, London 1983.
Habermann, Gerd - Philosophy of Freedom. A Friedrich August von Hayek Breviary, Thun 2001.
Raybould, John - Hayek. A Commemorative Album, Adam Smith Institute, London 1998.
Streit, Manfred - Knowledge, Competition and Economic Order - In Memory of Friedrich August von Hayek, in: Hans-Hermann Funke (ed.): Economic Individualism and a Liberal Constitution - Memorial Academy for Friedrich August von Hayek, Rombach-Verlag 1995.
Quotations on Ordnungspolitik
The results of human action, but not human design
"The belief in the superiority of conscious ordering and planning over the spontaneous forces of social coexistence first penetrated European thought in a clear form through Descartes' rationalist constructivism. [...] Finally, in reaction against this Cartesian rationalism, the English moral philosophers of the eighteenth century, starting from both the theory of common law and that of natural law, developed a social theory that made the unplanned results of individual actions its central object and, in particular, provided a comprehensive theory of the spontaneous order of the market. [...] The pivotal point, which was not fully understood for a long time until Carl Menger finally brought it to clear attention, was that the problem of the origin or formation and that of the functioning of social institutions are essentially one and the same: institutions developed in a certain way because the coordination of actions in the sphere they secured proved more effective than that through alternative institutions with which they competed and which they had displaced. The theory of the evolution of tradition and custom, which enables the formation of spontaneous orders is therefore closely related to the theory of the evolution of special kinds of spontaneous orders which we call organisms; and it has, in fact, furnished the essential ideas on which the latter is based."
From: Friedrich August von Hayek (1969) The results of human action, but not of human design, in: Freiburger Studien, Tübingen, pp. 97-107.
Principles of a liberal social order
"It is the central conviction in liberalism that a spontaneous order of human actions of far greater complexity than could ever be created by deliberate ordering will form itself as soon as universal rules of conduct are enforced, ensuring a clearly defined private sphere for each individual—and that, therefore, the coercive measures of government should be limited to the enforcement of such rules. [...] This is the first peculiarity of spontaneous order: we can indeed use its ordering powers (i.e., the regularities in the behavior of its members) to achieve an order of far more complex phenomena than could ever be achieved by deliberate ordering; however, in doing so, we simultaneously relinquish some of our power over the details of the order. In other words, when we use the above principle, our influence extends only to the abstract character, not to the concrete details of the order. Equally important is the fact that, unlike organization, spontaneous order serves no particular purpose. To choose it, no agreement on concrete goals to be achieved by it is necessary. necessary; because it is not tied to a specific purpose, it can be used to achieve many different, divergent, even conflicting goals. The market economy, in particular, is not based on any common objectives, but on reciprocity, i.e., on the balancing of different interests for the mutual benefit of the participants. Therefore, concepts such as the common good or public interest can never be defined in a free society as the sum of specific goals to be pursued, but only as an abstract order that, as a whole, is not oriented toward any concrete goals, but merely offers each randomly selected individual the best opportunity to successfully use their knowledge for their personal purposes. [...] The great significance of spontaneous order, or nomocracy, lies in the fact that it enables peaceful cooperation for the mutual benefit of people beyond the small circle of those who pursue the same concrete goals or serve a common master; in other words, that it enables the formation of a Great or Open Society. [...] Finally, the fundamental principles of a liberal society should be summarized as follows: in such a society, all coercive functions of government must be guided of the paramount importance of what I like to call the three great negatives: peace, justice, and liberty. To achieve them, it is necessary that the coercive power of the government be limited to the enforcement of such prohibitions (formulated as abstract rules) as are equally applicable to all, and to the collection of the costs, to be levied according to the same uniform rules, for the non-coercive services which the government undertakes to provide to its citizens with the aid of the material and human resources thus raised."
From: Friedrich August von Hayek (1969) Principles of a Liberal Social Order, in: Freiburger Studien, Tübingen, pp. 108-125.
Competition as a discovery process
"It is useful to recall that wherever we resort to competition, this can only be justified by the fact that we do not know the essential circumstances that determine the actions of those in competition. [...] Therefore, I would like [...] to consider competition systematically as a process for discovering facts that, without its existence, would either remain unknown or at least not be used. That competition always involves such a process of discovery may at first seem so obvious that it hardly deserves emphasis. From this explicit statement, however, immediately follow conclusions that are by no means so obvious. The first is that competition is important only because and insofar as its results are unpredictable and, on the whole, different from those that anyone could have consciously sought, and also that its beneficial effect must manifest itself in the fact that it frustrates certain intentions and disappoints certain expectations. The second conclusion, closely related to the first, is methodological. [...] Where we do not already know, we cannot determine how effectively it leads to the discovery of all the relevant circumstances that could have been discovered. What can be empirically verified is no more than that societies that use competition for such a purpose realize this result to a greater extent than others—a question to which the history of civilization seems to me to emphatically affirm. [...] The costs of the discovery process we use are considerable. But we do an injustice to the performance of the market if we judge it 'top down,' as it were, by comparison with an ideal standard that we cannot attain in any known way. If we judge it, as the only permissible way seems, 'bottom up,' that is, by comparison with what we can achieve by any other method at our disposal, especially by comparison with what would be produced if competition were prevented— [...] then the performance of the market must appear considerable. [...] In modern language, we can say that we are playing a non-zero-sum game whose rules aim to maximize the dividend (in the proper sense of what is to be divided), but which leaves the share of each individual partly to chance."
From: Friedrich August von Hayek (1969) Competition as a Discovery Process, in: Freiburger Studien, Tübingen, pp. 249-265.
A notice: A comprehensive bibliography of Hayek's work can be found online at "The Friedrich Hayek Scholars' Page" or on the website of the "Friedrich A. von Hayek Society"
Alfred Müller-Armack (1901-1978)
Alfred Müller-Armack was born Alfred August Arnold Müller in Essen on June 28, 1901, the son of a plant manager at the Krupp company. He was an important economist and cultural sociologist, coined the term "social market economy," and was Ludwig Erhard's closest collaborator in introducing this economic system in Germany after 1948. Müller-Armack (he only began using this suffix in 1926) studied political science in Giessen, Freiburg, Munich, and Cologne. He received his doctorate in political science in Cologne in 1923 with a thesis on "The Crisis Problem in Theoretical Social Economics" and qualified as a professor in economics in 1926 with a thesis on "The Economic Theory of Business Cycle Policy." He subsequently became a private lecturer and, from 1934 to 1938, an associate professor at the University of Cologne.
Initially sympathetic to the National Socialist movement, he increasingly distanced himself from it from 1933 onwards, primarily due to his rejection of the racist and anti-Christian stance of the Nazi Party. In 1936, the government prevented him from offering him a professorship in Frankfurt. From 1938 onwards, Müller-Armack taught economics in Münster, and from 1940 onwards, he held a chair in economics and cultural sociology. At the Research Center for General and Textile Market Economy (FATM), which he founded, he worked during the Second World War on a market-based post-war economic order. This also led to a collaboration with the Freiburg School.
From 1950 until his death in 1978, Müller-Armack taught as a professor of economic policy in Cologne. He founded and directed the Institute for Economic Policy there. From 1952 to 1958, he also headed the Economic Policy Department and the Policy Department at the Federal Ministry of Economics. During this time, important decisions on Western integration, the convertibility of European currencies, and German competition law were made, largely thanks to Müller-Armack in close cooperation with Ludwig Erhard, the Minister of Economics. From 1958 to 1963, he served as State Secretary for European Affairs and was active in various European bodies, including as a member of the Board of Directors of the European Investment Bank (1958-1977) and as Chairman of the Economic Committee of the European Economic Community (1960-1963). His services to European integration were recognized in 1965 with an honorary doctorate (Dr. jur. hc) from the University of Vienna.
After the failure of the EEC accession negotiations with Great Britain in 1963, Müller-Armack resigned from his position and concentrated on his academic work and new responsibilities. From 1966 to 1968, he served as Chairman of the Supervisory Board of Rheinische Stahlwerke in Essen, and from 1977, Chairman of the Ludwig Erhard Foundation. Of Müller-Armack's numerous books and essays, his 1947 book "Wirtschaftslenkung und Marktwirtschaft" (Economic Control and Market Economy) became particularly well-known. It contained the basic principles of the social market economy, which were then largely implemented by Ludwig Erhard from 1948 onwards, and by himself from 1952 onwards. Müller-Armack also published on economic research, social policy, European integration, and the sociology of economics and religion. He shared this broad interest with other representatives of Ordnungspolitik of his time, as opposed to the narrow, specialized approach of modern economists. In 1974, at a time when the original idea of the social market economy had already been significantly watered down, he summarized the regulatory foundations of this economic type in a collection of essays entitled "Genealogy of the Social Market Economy." He died in Cologne on March 16, 1978.
Quotations on Ordnungspolitik
The principle of market conformity
"Through its economic policy, the state undertakes social restructuring and social interventions, which, however – and this is, to put it simply, the basic idea – are geared to the system of the market economy by being subject to the principle of market conformity, that is, that behind the interventions of state economic policy, the functioning of the market remains visible, that this functioning is not disturbed and, if possible, even improved."
From: Alfred Müller-Armack – Genealogy of the Social Market Economy: The Social Market Economy after a decade of testing.
Balance in a market economy system
"Only in a market economy are consumers, who encompass all social classes and are also weakly secured in their market position, able to steer the economy according to their needs. [...] This orientation towards consumption already represents a social achievement of the market economy. In the same direction, the increase in productivity secured and continually enforced by the competitive system acts as a social improvement [...] In addition to this social function inherent in the competitive system itself, economic policy offers further possibilities for the social design of the economic order. First and foremost, one should think here of the institutional safeguarding of competition demanded by neoliberalism. Its purpose is to make restrictions on competition impossible, to control monopolies, oligopolies, and cartels, and thereby to make competition as effective as possible in the interest of the consumer. By giving competition the greatest possible elasticity, a competitive order simultaneously fulfills social functions. The idea of the social market economy, however, is not limited to merely making the instruments of competition socially functional. The market-based income process offers social policy a solid foundation for state income diversion, which takes the form of welfare benefits, Pension and equalization payments, housing subsidies, subsidies, etc., correct income distribution. It would be a misunderstanding of the social content of the social market economy if one ignored this diversion process in the social assessment of the market process by which it is supported."
From: Alfred Müller-Armack – Social Market Economy: in: Handbook of Social Sciences (HdSW), p. 390.
Wilhelm Röpke (1899-1966)
Wilhelm Röpke is considered one of the most important and widely read representatives of neoliberalism, which sought during and after the Second World War to renew the economic and social order threatened by totalitarianism from both the left and the right. After the Second World War, he defended the Social Market Economy as introduced in Germany by Ludwig Erhard and Alfred Müller-Armack, but over time also pointed out the watering down of this concept by interest groups.
Röpke was born on October 10, 1899 in Schwarmstedt on the edge of the Lüneburg Heath and grew up in this rural environment, which shaped him throughout his life. In 1917, he began studying law and political science in Göttingen, and after military service and injury in 1917–1918, as well as studying economics in Tübingen and Marburg, he was already able to complete his doctorate in 1921. Röpke became an assistant to his doctoral advisor, Professor Walter Troeltsch in Marburg, and just a year later, in 1922, he qualified as a lecturer. In 1924, he received a call as the youngest German professor to the University of Jena. In 1928, he moved to Graz and just one year later returned to Marburg.
In the turbulent times of the late 1920s and early 1930s, Wilhelm Röpke was not only a productive scholar — including as a visiting professor for the Rockefeller Foundation — but also actively involved in economic policy advice, for example in the Brauns Commission to overcome the economic crisis of the early 1930s. He clearly expressed his rejection of National Socialism, which he accused of destroying Western culture “back to the old jungle,” in pamphlets and lectures. After the National Socialists took power, he was initially granted leave and then forcibly retired. Under the pseudonym “Ulrich Unfried” (a mocking name aimed at his National Socialist opponent Ferdinand Zimmermann, aka Ferdinand Fried, who criticized the market economy in favor of the new National Socialist order in the magazine Die Tat), he published writings against National Socialism in the liberal Frankfurter Zeitung. In 1934, Wilhelm Röpke went into exile at the University of Istanbul, where various German exiles had found refuge, including the sociologist Alexander Rüstow, with whom he worked and who later himself became one of the fathers of the Social Market Economy. Röpke founded and headed the Social Science Institute at the University of Istanbul, thereby contributing to the development of the Turkish higher education system.
In 1937, he published his most important textbook, Economics Explained, which was translated into more than a dozen languages. In 1937, Röpke was appointed professor of international economic affairs at the Geneva Graduate Institute (Institut universitaire de hautes études) where he taught until his death. During the Second World War, Röpke wrote his widely read trilogy: The Social Crisis of Our Time (1942), Civitas Humana (1944), and International Order (1945). In these works, he not only drew up a counter-image to National Socialism, but also to totalitarianism and collectivism of any kind. These books were among the most widely read works of political economy of their time.
In 1947, Wilhelm Röpke became one of the co-founders of the Mont Pèlerin Society, which also dedicated itself to the fight against collectivism. Among the founders were F. A. von Hayek, Karl Popper, Milton Friedman, Ludwig von Mises, Walter Eucken, and Ludwig Erhard. After the Second World War, through his tireless publishing work — not only in books but also in newspapers and magazines — Röpke made the idea of a market-oriented order popular, despite headwinds from collectivism in the East, which also found many supporters in Western Europe, including among a certain group of economists. His contact with Ludwig Erhard, who, like Konrad Adenauer, greatly valued Wilhelm Röpke, culminated in praise for the economic policy of the Social Market Economy in Is German Economic Policy Right? (1950). Wilhelm Röpke paid particular attention to the international economic, trade, and monetary order. As a convinced free trader, he advocated for complete most-favored-nation treatment and multilateral free trade. However, he rejected the chosen path of European integration, which began with “market orders,” i.e. sectoral collectivism for coal and steel, and later extended this to the important agricultural sector as well as to labor markets, even though he was a convinced cosmopolitan. He saw concentration and centralism as the main sins of economic policy — a conviction that is still highly relevant today, both nationally and within the European Union. Röpke was always more than “just” a national economist; his concern was the restoration of a natural, structured order. In Switzerland, where he lived and taught until his death, he saw this largely realized. On February 12, 1966, he died near Geneva. His writings remain influential today on questions of national and especially international economic order.
Quotations on Ordnungspolitik
On Decentralization
“When the liberal thus elevates decentralization in all spheres to a program, he acts out of a wisdom that has all human experience on its side. In this way he becomes an advocate of the separation of powers, of spheres free from the state, of the ‘corps intermédiaires’ (Montesquieu), of intellectual freedom, of property as the normal form of people’s economic existence, of economic and social decentralization, of the small and the medium, of economic and intellectual competition, of small states, of the family, of the universality of churches, of social differentiation. Thus he becomes the irreconcilable opponent of political, economic, and intellectual centralism, of the colossal, of monopolies (including those of the state or the trade unions), of collectivism, of giant structures, of massification, of megacities, of the accumulation of wealth, of imperialism.”
(Röpke, Wilhelm (1950), Measure and Middle, p. 22–23)
The Drive toward Collectivism
“Our civilization, so the thought goes, has become so desperately entangled in almost unsolvable problems — and increasingly so — because it simply no longer manages the elementary task of a functioning economic order. And it fails at this task because, lacking principled thinking, it does not even recognize what the real issue is. And because it does not recognize this, it throws itself into the arms of the state, helplessly for some, fervently for others. Entrusting responsibility for economic life to the state means: collectivism.”
(Röpke, Wilhelm (1950), Measure and Middle, p. 88–89)
What is Neoliberalism?
“One immediately notices the tendency common to most reformulations of liberalism to unite two things: the trust in the freedom of markets and the insight that this freedom requires a comprehensive policy that strictly defines the field of economic freedom like a playing field, carefully determines its conditions — so to speak, the rules of the game — and enforces respect for this framework of the market economy (the field as well as the rules) with impartial rigor. Freedom and restraint are thus combined in such a way that one seeks to determine the social place that applies to one and the other principle.”
(Röpke, Wilhelm (1950), Measure and Middle, p. 142)
Against Concentration
“It is not merely a matter of freedom, but at the same time of order, of genuine community, of the resilience of individual existence, of a return to moderation, proportion, and what is natural. We know that all these problems can be derived from one major root evil of our time: concentration. But we are also now familiar with the fact that problems arising from concentration are not solved, as collectivists curiously believe, by pushing concentration to its extreme, which is precisely where the collectivist program leads. Concentration can only be overcome through decentralization — political, intellectual, social, economic.”
(Röpke, Wilhelm (1950), Measure and Middle, p. 157)
Alexander Rüstow (1885-1963)
Alexander Rüstow, who came from an old Prussian officer family, was born on April 8, 1885, in Wiesbaden. He is considered a co-founder of ordoliberalism and fought for a social market economy throughout his life, giving the adjective "social" increased significance through him. In 1903, A. Rüstow completed his school leaving examination early at the Bismarck-Gymnasium in Deutsch-Wilmersdorf near Berlin. From 1903 to 1908, he studied classical philology, jurisprudence, mathematics, economics, physics, and philosophy in Göttingen, Munich, and Berlin. In 1908, Rüstow received his doctorate under Paul Hensel at the University of Erlangen with his thesis "The Liar – Theory, History, and Resolution." The problem addressed in the thesis later became known as the "Russellian Paradox." From 1908 to 1911, A. Rüstow worked as head of the scientific department at the Leipzig publishing house BG Teubner. From 1911 onwards, A. Rüstow worked on his habilitation thesis on the epistemology of Parmenides.
However, after the outbreak of the First World War in 1914, he interrupted his work and volunteered for the army. The war tore him away from his traditional worldview, and he returned, as he himself put it, "as a radical socialist and Marxist." In 1918, A. Rüstow was appointed advisor to the Reich Ministry of Economics for the nationalization of the coal industry in the Ruhr region. During this time, A. Rüstow increasingly realized that he could find only the ideals in socialism, but not the path to realizing them. As a result, he did not support efforts toward a socialist planned economy, but rather efforts to prevent the formation of cartels and monopolies. In 1924, A. Rüstow was dismissed from the Reich Ministry of Economics.
As a result, A. Rüstow took a position as legal counsel and head of the economic policy department at the Association of German Mechanical Engineering Institutes (VdMA). From this point on, A. Rüstow became a liberal on the side of entrepreneurs, championing the interests of the middle class and opposing the "oligopolistic and protectionist forces in the coal and steel industries and, beyond that, in large-scale industry in general, as well as among the Junkers and other protectionist agrarians." This development led to heated discussions among his political friends, who had joined him in 1920 to form the "Kairos Circle." Among them were Paul Tillich, Adolf Löwe, and Eduard Heimann. Their common starting point had been "religious socialism," from which A. Rüstow was now increasingly distancing himself.
Their positions became completely irreconcilable when Rüstow delivered his famous speech to the Social Policy Association in 1932. At that time, Rüstow had already joined the circle around Walter Ecken and Franz Böhm. Rüstow's speech on the topic of "Free Economy – Strong State" was already in the spirit of the newly emerging ordoliberalism. In his speech in Dresden, A. Rüstow argued that "the current German crisis was caused to a considerable extent by interventionism and public subsidies" and criticized the state for not actively but merely "reactively" resolving disruptions to economic life; it acted "reactionarily" in both the literal and the counter-reactionary sense. In contrast, Rüstow called for "a strong state that stands above the groups, above the interested parties, a state that extricates itself from entanglement with economic interests [...]." This speech, along with Walter Eucken's essay "State Structural Transformations and the Crisis of Capitalism," published in the same year, is considered a manifesto of early ordoliberalism. The Kairos Circle was taken aback by the "oratorical success in Dresden." Nevertheless, Rüstow remained connected to his old friends thanks to their shared social commitment and thus always committed to his socialist ideal. Nevertheless, the speech delivered in Dresden in 1932 could no longer have any practical impact. Rüstow put it this way on December 30, 1932: "In economic policy terms, the year closes against a rapidly and threateningly darkening horizon."
In 1933, Rüstow was forced to emigrate because, among others, Schleicher had nominated him to serve as Minister of Economics in a shadow cabinet set up to prevent Hitler's rise to power. In Turkey, Rüstow was appointed to a chair of economic geography and economic history at the University of Istanbul. It was here that he also wrote his magnum opus, "Ortsbestimmung der Gegenwart," a universal-historical critique of culture. In 1950, A. Rüstow was appointed full professor of economics and social sciences at the University of Heidelberg. Until his retirement (winter semester 1955/56), he was director of the Alfred Weber Institute and its first chairman from 1951 to 1956. He later became honorary chairman of the German Association for Political Science, a partner and trustee of the FAZIT Foundation of the Frankfurter Allgemeine Zeitung, and chairman and later honorary chairman of the Action Group for the Social Market Economy (ASM). On June 30, 1963, Alexander Rüstow died in Heidelberg at the age of 78.
Quotes by Alexander Rüstow
“The first and most essential of those sociological-institutional conditions to which the benevolent workings of the market mechanism are in fact subject is the elimination of all obstructive competition and the strict limitation of market freedom to pure competition based on performance.”
From: A. Rüstows (1945/50), The Failure of Economic Liberalism, p. 68.
“The publicly stimulated overdevelopment of the size of businesses and companies with the help of the obstructive competition tolerated and even supported by the state had the inevitable consequence:
1. a rapid and excessive decline in the number of independent, economically and socially sound small and medium-sized enterprises, which have been despised by the megalomaniac public as backward and have been nurtured into an inferiority complex in their own self-confidence;
2. A corresponding surge in the vast numbers of proletarianized working masses, who were, moreover, quite needlessly crammed into metropolitan tenement blocks: The record-breaking self-confidence of every large, giant, and mammoth city grew proportionally to its population. The result was an ever-increasing proletarianization and massification, with mass uprooting, mass misery, and ultimately political mass movements as revolutionary exponents of these inhumane and unbearable conditions.
From: A. Rüstows (1945/50), The Failure of Economic Liberalism, p. 72.
"In our conviction of the unsustainability of capitalism and the necessity of overcoming it, we completely agree with Marxists and socialists, and we consider, like them, the proof that capitalism, taken to its extreme, must inevitably lead to collectivism to be a complete success and a brilliant achievement of their master. Recognizing this seems to me to be a requirement of intellectual honesty. What we oppose are the errors that Marx inherited from historical liberalism. And if we, together with the socialists, reject capitalism, then we reject collectivism as capitalism taken to its extreme. And our most serious accusation against capitalism is precisely that—as the collectivists themselves teach—sooner or later it inevitably leads to collectivism."
From: A. Rüstows (1945/50), The Failure of Economic Liberalism, p. 78.
"We have no choice but to search, with the courage of desperation, for the 'third way,' which, between the collapse of historical liberalism and the threat of collectivism, will lead humanity to a new possibility of living humanely and with human dignity. This 'third way,' as an unspoken program, has always been the basis of our critique of the old liberalism and its weaknesses and errors. For this very reason, we will now attempt to outline the program of the 'third way' in positive terms, as best as the necessary brevity allows. Since, as has already become clear, this involves a radical and fundamental renewal of liberalism, its transformation and rebirth, it will be simplest to maintain the procedure used so far, starting with a critique of the old liberalism and its capitalist misrepresentation."
From: A. Rüstows (1945/50), The Failure of Economic Liberalism, p. 90 and following.
Quotes about Alexander Rüstow
Heinz Lampert, in a letter to the editor: "One can only hope that a 'Rüstow Renaissance' will come about in order to overcome the revisionist neoliberalism and ordoliberalism rampant in the current economy and to return to the roots of ordoliberalism."
“Rüstow by no means stops at the diagnosis, but rather aims, out of inner scientific and political responsibility, at a ‘therapy’.” Cologne Journal of Sociology
"Rüstow never tired of clarifying the profound moral conditions of a free economic order and emphatically advocating the demands that this foundation must place on day-to-day politics. In doing so, he clarified the hierarchy of values and, at the same time, established the importance of a free economy. The politician Rüstow saw economic freedom as the necessary, indispensable foundation of political freedom, of human freedom." Frankfurter Allgemeine Zeitung
"A firework of brilliant ideas, analyses, representations, and future perspectives of a political, economic, and cultural nature that will astonish you. His broad overview and the depth of his analysis need not shy away from comparison with the works of Toynbee or Spengler. Rüstow is a fighter against the rule of the strongest in favor of freedom and humanity." Richard von Weizsäcker