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The purpose of this entry is to delineate the political economy of Walter Eucken. To reach this goal, a history of economics approach is harnessed. First, the entry concisely reconstructs Eucken’s life, intellectual evolution, and heritage. Second, it presents the specificities of his “theory of orders” and his “order-based policy” gateway to a rule-based political economy.
KeywordsWalter Eucken Institut Freiburg School Ordoliberalism Principal Policy Adviser Constitutional Political Economy
Walter Eucken (1891–1950) was doubtlessly one of Germany’s most important twentieth-century economists, especially in the field of political economy. The Freiburg School, which he co-initiated in the 1930s as an interdisciplinary group of economists and legal scholars, has had a crucial impact on the evolution of postwar German economics and legal scholarship, but also on the practical trajectory in the economic policies of the Federal Republic and of European integration. This introduction aims at embedding Eucken in his time and at depicting his role in several contexts in science as well as at the interface between science and society, before subsequently turning to his contributions to political economy.
Eucken was born in Jena into the family of the philosopher and later Nobel Prize laureate Rudolf Eucken. He studied a combination of history, economics, law, and administrative science at Kiel, Bonn, and Jena and was heavily influenced in his socialization in economics by the Younger Historical School, even though his teachers were not totally hostile to theorizing (Goldschmidt 2013, pp. 127–129). Having completed a dissertation (at Bonn) and a habilitation (at Berlin) on historicist grounds, he received a call to Tübingen in 1925 and subsequently to Freiburg in 1927, where he remained for the rest of his life. What would later become famous as the Freiburg School of Ordoliberalism came into existence in the early 1930s, when Eucken formed a scholarly community with the law professors Franz Böhm (1895–1977) and Hans Großmann-Doerth (1894–1944), also attracting talented younger scholars like Friedrich Lutz (1901–1975) and Leonhard Miksch (1901–1950) to Freiburg (Goldschmidt and Wohlgemuth 2008a). The cooperation of Eucken with Böhm and Großmann-Doerth steadily intensified, with the book series “Order of the Economy” initiated in 1936 as a milestone – its introduction under the title “Our Mission” became the programmatic manifesto of the incipient ordoliberal understanding of the role of law and economics in science and in society (Böhm et al. 2008; Goldschmidt and Wohlgemuth 2008c). In the adverse intellectual climate of the time, Eucken and Böhm actively rejected National Socialism in theory and in practice, with Eucken openly opposing Martin Heidegger’s rectorate policies in the university senate in 1933 (Nicholls 1994, pp. 60–67; Klinckowstroem 2000, pp. 85–88). Eucken was also among the very few who remained openly loyal to Edmund Husserl until his death in 1938, with his own epistemology heavily influenced by Husserl’s phenomenology. Also, in the late 1930s and early 1940s, Eucken was an active participant in intellectual resistance groups, later to become known as the Freiburg Circles (Glossner 2010, pp. 31–38). Despite the isolation particularly during the war, Eucken remained connected to intellectual allies like F.A. Hayek and Wilhelm Röpke and in the immediate postwar years became a seminal figure in the international revitalization of liberalism, among others during the founding years of the Mont Pèlerin Society (Kolev et al. 2014). Simultaneously, Eucken was one of the principal policy advisors to the allies in Germany and also to Ludwig Erhard’s increasingly influential policy strategy, later to become famous as the Social Market Economy (Goldschmidt and Wohlgemuth 2008b, pp. 262–264; White 2012, pp. 233–238). Eucken passed away in March 1950 while giving a lecture series at the London School of Economics upon Hayek’s invitation.
While the relevance of ordoliberalism for postwar Germany and Europe is discussed in the entry dedicated to ordoliberalism, the impact of Eucken’s heritage as a person deserves special attention. In 1954, the Walter Eucken Institute was founded by friends, colleagues, and students in the house of his family in Freiburg and is until today an influential research institute and think tank. Eucken’s personality still attracts paramount attention: in 2014 Federal President Gauck delivered an address in Freiburg upon the 60th anniversary of the Walter Eucken Institut, in 2016 Chancellor Merkel delivered an address in Freiburg upon Eucken’s 125th birthday, while today’s economists argue about “Walter Eucken’s long shadow” in the German policy responses to the Euro crisis (Feld et al. 2015; Bofinger 2016) and his relevance for related rule-based research programs like Constitutional Political Economy (Vanberg 1988; Buchanan 2012; Köhler and Kolev 2013).
Order, Science, and Policy
As described above, Eucken lived in a time as hostile as possible to liberty – and in a time which was characterized by extreme degrees of arbitrariness and chaos. This is one of the reasons why Eucken and his associates focused their political economy and social philosophy on the concept of “order” – a term which is among the most complex and most multifaceted in intellectual history (Anter 2007, pp. 127–158). Eucken’s specific research program took shape relatively late in his life – it “matured slowly” (Hayek 1951, p. 337) – and can be interpreted as concentrating upon two central goals: first to enable a higher degree of order for designing economic theory and second to enable a higher degree of order for conducting economy policy. These two goals are also the focal points of two key terms in Eucken’s system and of his two major books: Ordnungstheorie as his contribution to economic theory, presented 1940 in The Foundations of Economics (1992), and Ordnungspolitik as his contribution to economic policy, presented 1952 in his posthumous Principles of Economic Policy (2004). Important to underscore and to show below, both Eucken’s theory and his perspective on economic policy are very much in line with the “problem of constitutional choice, i.e., as a question of how desirable economic order can be generated by creating an appropriate economic constitution” (Vanberg 2001, p. 40). The two domains of theory and policy offer a helpful structure for continuing this exposition.
Theory of Orders: An Alternative to the Ruins of Historicism and Pure Abstraction
German economics has been famous, and at times notorious, for its inclination toward extensive methodological and epistemological debates. The notoriety stems from periods like the Weimar Republic, when many economists continued fighting about methods and epistemology without being able (or willing) to tackle the pressing problems of economic life (Köster 2011, pp. 41–60). Eucken’s project was targeted at the very opposite: with his “Foundations” he attempted to identify a solid methodological and epistemological basis for theorizing not as an aim in itself, but rather to enable such kind of theorizing which can alleviate the immense problems of the age after National Socialism. This section focuses on those theoretical concepts that have direct practical impact and are thus indispensable for understanding Eucken’s political economy.
First and foremost, the separation between “order” and “process” is crucial: “economic order” for Eucken is to be understood as the sum of market forms and monetary systems which frame the interactions of the individuals, whereas “economic process” stands for the interactions themselves. Synonymous for the framework of the economic order are “the rules of the game,” whereas the economic process can be translated as “the moves of the game” (Eucken 1992, pp. 223–232, 2004, p. 54). An additional cornerstone of Eucken’s system is “the interdependence of orders” – a concept emphasizing the embeddedness of the economic order within the other social orders, notably the law and the political order of the state. This is of special relevance since it shows that even though the different social orders have their own individual logics, these orders have to be thought in their diverse interrelations. Also, the combinability of economic, legal, and political orders is not arbitrary, i.e., specific combinations like a centrally planned economy and rule of law are hardly stable in the long term. At the same time, he underscored that having a well-developed rule of law is not a sufficient condition for a well-ordered market economy – rather, it is through the cooperation of economists and legal scholars that specific principles of the rule of law will be identified as indispensable preconditions and prerequisites for the market economy (Eucken 1992, pp. 85–90). Eucken’s theory of orders thus made it possible to do away with the ruins of atheoretical or even antitheoretical historicism left by the Younger and the Youngest Historical Schools well into the 1930s, but at the same time he warned that abstract theorizing can be dangerous if its results are applied to any orders without carefully considering their specificities of time and space (Eucken 1992, pp. 41–44).
Order-Based Policy: An Alternative to Laissez-Faire, Central Planning, and Interventionism
The careful and systematic shaping of the economic order (synonymously: of the economic constitution) is at the core of Eucken’s political economy. The above theoretical distinction of “order” and “process” enabled him to coin his famous Ordnungspolitik. A term difficult to translate precisely into any other language, it has been translated into English with the general term “rule-based policy” or with the more specific one “order-based policy.” Its central target is a clear-cut conceptual alternative to laissez-faire, to the centrally planned economy, and to interventionism, using two criteria which Eucken distilled as essential for judging the merits of economic orders: the material criterion if an order is productive (i.e., overcoming scarcity as much as possible), and the ideal criterion if an order is humane (i.e., enabling a life in self-determination for the individuals) (Eucken 1992, pp. 239–241). Neither a laissez-faire regime nor a centrally planned economy fulfill these two criteria – a laissez-faire regime is deficient in terms of the framework of its economic order (with the implied belief in its automatic self-generation), while a centrally planned economy is deficient in terms of the properties of its economic process (and the impossibility of a self-determined life in it) (Eucken 1948). Eucken’s “order-based policy” aims at optimally setting the rule-based framework of its economic order by a strong state envisioned as a referee impartial vis-à-vis vested interests, a state which (unlike the arbitrariness of interventionism) abstains from interventions into the economic process except in well-defined exceptions (Giersch et al. 1992, pp. 28–32). Such a policy is aimed at fighting the first and foremost evil of social life: according to the Freiburg School, this evil is always the phenomenon of power in all forms of power relations – stemming from the state, from the market, and from other social orders (Eucken 2004, pp. 175–179; Foucault 2008, pp. 129–158). As first presented by Böhm and discussed in the entry covering his work, the ordoliberal instrument against power is competition. Eucken’s contribution here is to specify the kind of principles a “competitive order” – the order conforming both to the “productive” and to the “humane” criterion – has to follow (Oliver 1960, pp. 133–140). He devised two sets of principles, which are at the core of this “competitive order”: the “constitutive” and “regulating” principles. The former comprise a functioning price system, a sound currency, open markets, private property, freedom of contract, liability, and constancy of economic policy, while the latter aim at additionally curbing monopoly power, income inequalities, externalities, and problems of the labor market (Sally 1998, pp. 111–114; Kolev 2015, pp. 428–430).
Many of these problems may seem almost trivial today, but at the time of Eucken’s death, they were anything but trivial – not in Europe and not in the United States, as the parallels between Eucken’s endeavor and the project of the “Old Chicago” School clearly indicate (Van Horn 2009; Buchanan 2012; Köhler and Kolev 2013). Other problems, especially the issues of power in the digital age, the lack of liability in large sections of the political order and the financial system, or the search for maxims how to avoid the arbitrariness of interventionism and instead to base economic policy on rules, have lost nothing of their relevance.
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