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Revisiting the Roots of the Little Known Social Market Economy
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The crisis which has hit Greece, and now even Portugal and Spain, would not have occurred if the European Union would have considered the fundamentals of an economy based on competition (instead of limiting itself to simple monetary and fiscal rules detached from these principles) as it drafted and then enacted the Maastricht Treaty. This crisis which involves the very credibility of the European Monetary Union (even to the point of an excessively negative valuation) would not have happened if a number of countries, such as the above mentioned, had not based their politics on growth through consumer demand, while ignoring factors such as competitiveness in the market, the necessary foundation for investments, the flexibility of labor agreements, a welfare state and taxation in accord with the market system and a cost of living commensurate with available resources. At the root of the present difficulty is the over expansion of the banking industry which has been allowed to act without rules or policies for its government, which, in order to combat the crisis, now finds itself in debt. The market does not work without adequate rules. Among these rules are limits on the economic power of large groups, because economic power often translates into political power, and control over the power of expanding credit on the part of the banking system, which is a monetary power. Not a proposal for a new interventionism, but rules for free market competition, based on ethical principles. For this a “liberalism of the rules” exists, a topic to which we have already dedicated an anthology.
The anthology presents the economic thought of the greatest exponents of the “Ordoliberal” German tradition and of the two schools of thought which are attached to it: that of the humanistic liberalism of Wilhelm Röpke and that of the social market economy vision of Alfred Müller-Armack.
Of particular interest is the essay “Economic and Social Order”, a valuable text unpublished until 1979, yet written in 1943 at the request of the Lutheran pastor from Berlin, Dietrich Bonhöffer, which formed part of a group of studies on the principles of the Christian order which would have governed Germany had the coup staged against Hitler been successful. A copy of the manuscript was found among the papers of one of the organizers of the 1944 attack against Hitler who was known to be supported by Bonhöffer. Diezte and Lampe were arrested by the Gestapo, Eucken was subjected to harsh interrogation yet during which he gave no proof that he had participated in drafting the document (which was therefore connected with Bonhöffer) and he himself was not imprisoned.
The foundation for the theory of “Ordo” is a system of constitutional rules to ensure the functioning of market economy inspired by “classical liberal principles”. The need for this was explained in the “Ordo” manifesto of 1936 entitled “Our Task”, which spoke of the nature of and reason for the Ordnung der wirtschaft, or better, “the Regulation of the economy”. Economist Walter Eucken and the two lawyers Franz Bˆhm and Hans Grossmann-Dˆrth set out in this new direction “against the tangle of historicism, relativism and fatalism”.
For our particular historical moment in Italy, we believe that this analysis is quite relevant in the field of economic-constitutional, administrative, penal, civil and commercial law, in relation to the so-called “legal left” that is affirmed in “Marxist theory of law” and has therefore found new and different historical expressions. If the vision of the three authors of the Ordo’s “manifesto” is correct, the system regulating the competitive market and freedom have need of certain, stable, written rules and of judges who do not interpret them liberally. The “liberation” methodology of the “legal left” which supports a new form of law based on the power of judges to make laws leads to a situation which seems to have reproduced, in a different way, the disorder against which the creators of the “Ordo” fought.
At the heart of the concept of “Ordo” there is a free competitive market, essential so as to ascertain a freedom which is not only economic. Without regulation which conforms to such principles, the market cannot function correctly or sustain economic growth while providing the base for equitable distribution. After the Second World War, the Ordoliberal program offered the theoretical foundation for the development of the so-called “social market economy”. The libertarian sector of the Austrian school of thought has argued that there is incongruency between the aims of the social sphere and that of the market. Yet this criticism does not concern the social market economy, but rather a type of “economy of the social market” which is different from the former in that it conceives of social policies as an interfering correction of the state in the market. In contrast, the social market economy relies on the ability of a free market to achieve objectives and collective action in the best interest of society, not necessarily and not only on the side of the state, but operating on the principles of subsidiary, in accord with the market. It is worth noting the correspondence between this idea and the tradition of the social doctrine of the Church, starting with Rerum Novarum of Leo XIII up until Caritas in Veritate of Benedict XVI, including (among others) Pio XI’s Quadragesimo Anno and John Paul II’s Centesimus Annus.
For Röpke and Müller-Armack, “social policy” is a constitutive and integral part of the concept of the economy of the market for the free development of individuals in the “civitas humana”. For this reason the anthology concludes with Luigi Einaudi’s review of Röpke’s book, “The Social Crisis of our Time” (1943) Röpke and Einaudi see the confusion between historical capitalism and the competitive economy as the source of the problem that has had disasterous effects on Europe in the twentieth century. Monopolies, cartels, authoritarianism and collectivism are the mortal enemies of economic competition. The solution Röpke and Einaudi offer are “liberalism of the rules” for the “civitas humana”. A theme which Einaudi will take up again shortly after in his “Lessons of Social Policy”, in which he lays out the rules for a social policy in line with the market.
Flavio Felice is an adjunct fellow at AEI. Francesco Forte is Professor Emeritus at the University of Rome “La Sapienza.”
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