Outline:
01st
Introduction
02nd
The Laissez-faire liberalism
03rd
The Ordoliberalism
04th
The popular capitalism
05th
The welfare state
06th
The overall control
07th
The Planning
08th
The concerted action
09th
The nationalisation of the key industries
10th
The market socialism
11th
The Yugoslav model
12th
The centrally administered economy
01st
Introduction
Order
conceptions determine the rules by which economies are directed. It is
necessary to clarify who has the right to set up economic plans - only the
state or all private enterprises and households - and how to resolve the
conflicts of interests appearing between the individual economic units.
In
the course of recent history, quite different order concepts have been developed,
with almost all concepts being based on the two opposing economic systems of a
centrally administered economy on the one hand and a market economy on the
other. Most of the order proposals are understood as variants of these two
basic conceptions or as an attempt to mediate between these two extremes.
At
the beginning of modern times developed the mercantilism the economic order
system of the absolutism. Within the framework of mercantilism, the state
attempted to lead the development into an industrial society by means of dirigiste influence on the enterprises. The strong
interventions in the entrepreneurial decisions led then, especially in
In
In
the manner, in which liberal and physiocratic
doctrine founded their conceptions and sought borrowings from the thriving
natural sciences, these to schools differed, though. While physiocratism
understood the economic system as an organism operating in a manner similar to
a human body and in which, similarly to the human blood system, a cycle of
goods and banknotes regulated economic activity, the liberalism of England took
borrowings from mechanics; thus in particular it was spoken of the balance of
supply and demand, and this was compared with the balance of the forces which
determine the motion of the individual objects.
Very
soon it came to the abolition of barriers, in particular to external trade and
also to the domestic economy, which led to an enormous economic upturn, but
subsequently to extremely bad working conditions also. It is therefore not surprising
that this economic form of "laissez-faire"
also provoked
criticism. On the one hand, criticism came up from Marxism, a movement which
propagated a state planned economy and the abolition of commercial private
property.
On
the other hand, reform movements also arose from the liberal side; in particular
Friedrich List, who was certainly a representative of a market economy order,
held the view that a national economy in the initial phase of its development
would have to receive special protection in form of educational tariffs against
those countries which had already been further developed and which could offer
goods at much lower prices due to the elimination of development costs.
Also
with regard to the domestic economy, proposals were made by the so-called
academic socialists to relieve the distress of the employees by means of state
corrective measures. The name 'academic socialist' was chosen by the Marxists,
in order to indicate that these were purely theoretical, non-serious proposals that
were lacking practical.
The
academic socialists were economists who were led by the concept that human
action could not be enlightened by the methods of exact natural science, that
knowledge could only be formed in this field by a historical description of the
economic processes. At the same time, this group stood up also for social reforms,
though. That is why there is the term "academic socialists"
for this group of economists.
The
two world wars on the one hand as well as the inflationary symptoms and the
global economic crisis on the other hand, led to the fact that market economy
orders were being increasingly corrected by governmental economic elements and got
undermined finally.
It
is clear that in times of war all resources must be used for the defence of a
country, and that the signals that are the result of the decisions of the
consumers would only impair this objective. This influence on the part of the
consumers could only be prevented in a state planned economy.
Whereas
in times of inflation the results of a pure market, uninfluenced by the state,
lead to ever-increasing injustices, so that the state feels increasingly compelled
to demand maximum prices at least for the most vital goods, in order to prevent
that the poorer income groups can not even buy the existentially necessary
goods with their income.
Out
of the criticism of the punctual and dirigiste
intervention in the economic order during the Weimar Republic and against the
controlled economic methods during the National Socialist regime, a renaissance
of liberalism emerged in the Ordoliberalism,
especially in the immediate period after the Second World War under the
leadership of Walter Eucken.
This
neo-liberalism recommended a restoration of a market economy order which,
though in contrast to the old liberalism, conferred a leading role to the state
not only for the establishment but also for the permanent defence of a market-economic
order. These regulatory tasks of the state were recorded in the so-called
constituent and regulating principles of a market economy.
In
the following, we like to outline a systematic overview of the most important
variants of an economic order, starting with the "laissez-faire" conception of the classical liberalism and
concluding with the idea of a centrally administered economy in its purest
form.
At
the development of a system of order, three fundamental questions are of particular
importance. These basic questions relate to the aims, the means and the lead
executing agencies of economic policy.
First
question:
Which
basic aims are pursued and how are the individual basic aims weighted?
Second
question:
Which
policy measures are permitted for the realisation these aims?
And
finally third question:
To
which lead executing agencies are the political tasks conferred?
Here
it gets evident that the main difference between the individual conceptions of
order is the question of how the conflict between the aims of individual freedom
on the one hand, and social security and justice on the other hand should be
resolved. The most important differences refer to a different weighting of the
aims, a different definition of the aims and finally a different assessment of
the efficiency of the measures to be implemented.
2nd The
Laissez-faire liberalism
In
1776, Adam Smith, developed in his 'Wealth of Nations' a very optimistic
concept of the free development of a national economy exempt from the state, he
offered hereby not only the basis for the emergence of modern economics, but
furthermore laid the foundations of a modern economic conception for the defence
of liberal opinions.
Jeremy
Bentham (1789: An Introduction to the Principles of Morals and Legislation) and
others came from the Enlightenment and transferred these ideas also to economic
facts. The Enlightenment was directed primarily against intellectual
paternalism by the official church and by the state, appealing to the human reason
and to the infinite possibilities of an enlightened human. Thus the movement of
the utilitarianism emerged which postulated the utility as the measure of economic
action and called for a maximisation of this utility for everyone.
This,
however, meant not only -as often bewailed- the departure of moral values. Of
equal importance is the fact that with the liberal movement for the first time
it was refrained from identifying the welfare of the national community with
the welfare of the absolutist ruler. The public welfare was now equated with
the welfare of the individual citizens of this national community. And this
change certainly represented an enormous progress against medieval and
absolutist ideas.
Bernard
de Mandeville created the basis for a liberal economic order in 1714 with his
famous Fable of the Bees. According to this, even vices, like luxury and envy,
lead to an increase in the general welfare, thereby that they give incentives
to enterprises to do exactly what is in the interest of the public, that is the
public welfare.
The
laissez-faire liberalism sees the individual freedom of choice threatened
primarily by the state. It assumes that only the market knows a functioning coordination
mechanism in order to align the production with the consumer wishes. The most
important aim of liberalism is therefore the granting of the individual freedom
of every citizen.
Freedom
is understood in the sense of freedom of choice, here. The free market, on
which competition prevails, is considered to be efficient with regard to the
consumer wishes. The prices reflect the scarcity conditions; the competition between
the enterprises ensures automatically that the entrepreneurs maximise their
profits just when they produce the goods that are demanded most by the
consumers.
The
aim of social security is subordinated to the aim of the greatest possible
freedom of the individual; Interventions in the market are - if at all -
accepted (as e.g. at John Stuart Mill) at most to secure the minimum
subsistence level. Social policy aims are only recognised as far as the fight against
poverty is concerned.
However,
a supplementation of the market by welfare facilities is certainly affirmed.
However, the market can principally also solve security problems, namely in the
context of private insurance. There are considerable doubts as to whether a
state bureaucracy can yield more security than the market.
This
liberal attitude was criticised primarily for the fact that the liberalism is
characterised by too much confidence in the market. The fact that there are
market deficits is recognised only very much later in the scope of the Ordoliberalism. A certain justification for these
convictions can indeed be made by the fact that also for the state bureaucracy
a policy failure can be determined.
The
reference that market systems contain defects does not naturally lead to the
conviction that a free market economy has to be replaced by a state planned
economy.
It
must always be expected that the state planned economy also shows deficiencies.
Only the verification which deficiencies, these of the pure market economy or
that of the state planned economy, are stronger on balance, provides the basis
for which order system should be preferred.
03rd The Ordoliberalism
In
the aftermath of the Second World War a renaissance of the liberal idea arose,
one of the main representatives of this neo-liberalism was Walter Eucken and
the Freiburg School.
Like
the classical liberalism, also Walter Eucken was convinced that the free market
alone is capable of efficiently aligning the production to the needs of consumers.
And for this orientation of the production to the wishes of the consumers,
Walter Eucken as well as Adam Smith regarded the competition among the
enterprises as essential.
In
contrast to the classical liberals, Walter Eucken, however, was convinced that
individual freedom was not only threatened by the state, but also that entrepreneurs
and private interest groups were striving to evade the competition necessary
for the functioning of the market economy by way of monopolistic mergers.
Hence
it would be insufficient that the state establishes a competition regime in a
one-off act, but it applies to always defend this rule by active competition
policy, too. It is precisely for these reasons that Walter Eucken campaigns,
among other things, for a cartel prohibition.
Neo-liberalism
calls for a strong state, which confines itself to market-compliant measures,
though. While the classical liberalism rejected any intervention, with few
exceptions, in the market economy by the state; Walter Eucken considered it
quite necessary that the state takes economic measures which must always be
market-compliant, though.
Walter
Eucken speaks of a market-compliant measure whenever the state does not
intervene directly in the market process, but only tries to achieve its economic
policy aims indirectly by influencing the economic data. In the economic data
Walter Eucken included the needs of the individuals, the stock of the three production
factors: labour, land and capital, current technical knowledge and the
governmental framework.
It
would be essential that the actual economic decisions remained with the private
participants of the market. A satisfactory production could only be expected if
the private entrepreneurs decided by themselves which types of goods and
quantities should be produced at which prices, with which technology and at
which location.
If
e.g. the state fixes a minimum price and thereby overrules the decision of the individual
entrepreneur, then this would be a market-non-compliant measure. If, however,
the state would strive to cover its financial requirements by means of a
turnover tax, it also affected the result of the market process, but the actual
economic basic decisions remained with the individual entrepreneurs, so that
one could speak here of a market-compliant measure.
Even
if the state forbids single private activities, which are contrary to general
morality, and thus reduces the number of permitted alternatives, there still remains
a - perhaps indeed limited - scope for private decisions. Theft, corruption and
blackmail may potentially increase the entrepreneurial profit; they are to be
forbidden in any case as they contradict to the general moral laws.
Although
they reduce the number of alternatives, they still give the entrepreneur the
freedom to choose between different options. It is not the prohibition to take
certain actions, but the commandment to make quite certain economic decisions
which overrides the market process.
Even
if the state would prohibit all possible alternatives apart from a single one,
which would formally correspond to a commandment, the prohibition regulation
would be superior to the commandment regulation, since in this case entrepreneurs
would certainly be able to look for new, previously unknown alternatives which,
precisely because they are new, could not have been forbidden on the part of
the state either.
In
order for the market to be able to fulfil its tasks, Walter Eucken believes
that it requires an order that is politico-economically guaranteed by the state
(Ordo). Walter Eucken has named seven constituent principles, which are
indispensable for the functioning of a market economy.
The
actual basic principle of any market economy system has to be a functioning
price system. Only if a free price mechanism is given, independent of state
influences, it is also guaranteed that production is aligned with the needs of
individuals the best possible way. An optimal allocation requires that the
individual prices reflect the scarcity relations and this is only the case if a
free price mechanism is allowed.
The
further 6 constituent principles serve ultimately to enable a functioning price
mechanism. Firstly, the primacy of monetary policy serves this purpose. Only if
the monetary value is stable, the price relations reflect the scarcity of the
resources. According to Walter Eucken can this aim only be realised, as we have
already seen, if the public central bank is given a supply monopoly.
Secondly,
the price mechanism presupposes competition, whereby it is only guaranteed that
no monopolies emerge if the markets are kept open both inside and outside of
the country.
Private
ownership, freedom of contract and full liability are further prerequisites
therefore that on the one hand the operating persons have sufficient incentives
to apply the most efficient production methods in each case, but that there is
on the other hand no possibility of limiting the freedom of the market partners
and to pass on costs without justification on third parties.
After
all, a stable economic order can only be maintained if economic policy is based
on a constant and consistent policy, which is the only way to ensure that
confidence develops, which is a prerequisite that the entrepreneurs are also
willing to accept the risks associated with innovation and investment.
In
addition to the constituent principles which determine the establishment of a
market order, economic policy has always the task on the one hand to inhibit
the internal erosion of the once established competition regime and on the
other hand to prevent undesirable market results. For this purpose serve the
regulating principles.
The
most important regulating principle sees Walter Eucken in an active competition
policy, which shall prevent the formation of monopolies. We already spoke about
this. The other three regulatory principles serve to rule out market failure as
far as possible.
Within
the framework of an income policy, a minimum standard of living shall be
guaranteed for all people, whereat the principle still has to apply that the distribution
of income is to be coordinated essentially by the market, but can be
supplemented by state subsidies.
External
effects would have to be internalised in "exactly ascertainable
cases" by state intervention. Even if an abnormal behaviour of the supply
on the labour market would have to be feared, a state intervention would be
necessary.
Within
the scope of criticism of the ideas of Walter Eucken we have to distinguish two
different directions. Criticism can once be directed against the principles of
this order itself; this criticism is addressed in the discussion of the order
concepts which will be discussed below.
On
the other side, criticism can also take place within the framework of the order
sketched out by Eucken; the criticism here refers to individual definitions of
the economic order. So it was criticised, among others, by B. Steinmann that
the criterion of market conformity refers one-sided only to the principle of a
functioning price mechanism; it was proposed to measure the market compliance
of a measure on all 7 constituent principles.
Or
else it was ascertained by Theodor Pütz that the
question of whether a measure was still market compliant depends on the nearer
circumstances and, moreover, the extent of the applied measure.
So
generally a monopolistic market form is rejected because monopolists try to
increase their profit by artificially shortening the supply and are thus in
contrast to the basic aim of all economic action: mastery of scarcity.
Nevertheless, most liberal economists have been convinced that the creation and
supply of banknotes should be reserved for a single central bank. In this case,
a competition between several existing issuing banks would lead to an, by an
increase in the quantity of goods justified, expansion of money supply with the
result that the general price level would rise sharply and thus inflation would
be effected.
It
was only Friedrich Hayek who argued that a competition between several central
banks would lead to a monetary stabilisation since every central bank should
have a strong interest in preserving the value of its own currency so that even
under competitive conditions there would be no risk that the money supply would
be expanded too much.
Even
if these considerations are also convincing, such a regulation seems hardly
practicable. It would lead to a not bearable risk for employees because employees
would always have to fear that the wages paid to them would be decimated when
just the banknotes in which the wages were paid out would be devalued after the
payment of wages to the employees.
As
an example for the fact that it can also depend on the extent of a policy
measure, whether this measure can be classified as market compliant; the increase
of the amount of money on the part of the issue bank can be mentioned, which
can be increased by a few percentage points on the one hand or by a doubling or
even tripling of the circulating money on the other hand.
We
assume generally that a slight increase in the amount of money seems likely to
lead a national economy successfully out of a cyclical trough, whereas a doubling
or tripling of the money amount in a relatively short period of time would
inevitably lead to a galloping inflation, and hence in general to a collapse of
the whole economic system.
Friedrich
von Hayek finally objected to the proposal for a cartel ban, that the power of
private interest groups often had to be traced to a deficient foreign trade
policy, that at Walter Eucken it would be paid too much attention to the actual
market compliance; it would be neglected that a competition sustaining effect
would also emerge from a potential competition from abroad.
However,
this criticism of Walter Eucken is not entirely justified, since Walter Eucken,
as already shown, held the view that a free trade improves the competitive
situation.
Thus,
if a monopolistic position was to be accrued to domestic enterprises, this was
usually simply the case because the state had previously inhibited the competition
of domestic enterprises with foreign enterprises by a restrictive customs
policy.
If
the state had allowed by renouncing of the levying of import duties that also
foreign enterprises can offer goods in the inland, then also enterprises which
would have a monopoly position in the inland as the only supplier would be exposed
to the foreign competition.
If
they now attempted to raise the price by an artificial scarcity of their
supply, they would have to fear that the foreign enterprises would import their
goods more and more, and that therefore a part of the existing customers of the
offer monopolist would migrate to these foreign competitors. The attempt of the
domestic monopolist to raise prices would have failed here. This example makes
it clear that in the case of free trade the domestic monopolists can not play
their monopoly power.
04th The
popular capitalism
Capitalist
systems are characterised, according to widespread opinion, by the fact that
while they contribute to a high growth, they benefit only a small upper class.
Here, the idea is to take the advantages of the capitalist system: the high
growth rates, but to change the system the way that the material advantages
benefit all.
This
is the idea of a popular capitalism, a system in which nearly the entire people
become 'capitalists'. Such ideas were widely disseminated in the public and
they also have different sources, one of these tendencies originates from the Christian
social teaching.
The
popular capitalism also affirms the market economy, since this assures the
individual freedom of choice. For reasons of social policy, though, a reform of
the property regime is striven, which is based on a broader distribution of the
assets If employees also dispose over
assets, then the income distribution is improved in favour of the employees.
Besides his wage income, the employee receives in this case also an interest
income, thus his total income increases.
Furthermore
it is valid that the individual still disposes over income, even during a
temporary loss of his ability to work and the relating loss of the regular wage
income, namely interest income. Thus, he is also protected against the social
risks by his assets. If necessary, the additional costs associated with the occurrence
of a social risk (e.g. illness) can also be compensated thereby that parts of
this property are dissolved.
In
the case of the participation of the employees in the national economy occurs
an integration of the employee into the enterprise at the same time, provided
that a form of redistribution of the assets is chosen, at which the employee becomes
a co-owner of the enterprise in which he is employed. Therewith one of the most
important criticisms of a market economy regulation, namely that the labour was
heteronomous, is avoided, though.
It
is necessary to note critically that the role of private property for the
solution of the security problems and distribution problems is overestimated
here. First of all, it is valid to note that the existing institutions of
social security allow a much more effective protection in the event of the
social risks of illness, accident, disability, age and unemployment.
On
the one hand, it can not be assumed that the mass of employees is able to accumulate
so many assets that they are in this way completely protected against the
social risks. On the other hand, the protection which is enabled by insurance
enterprises is though always much cheaper than covering the risks by way of
private assets. A full protection is only granted in the case of a purely
individual provision if the reserves created by savings correspond to the
maximum risk, whereas in the case of protection within the scope of an
insurance pool it has to be covered always only the substantially lower average
risk with the insurance contribution.
Secondly,
it must be considered that an improvement in the distribution of income by
means of assets participation is only to be expected if the amount of the wage
income does not decline in the course of these reform measures. If we take the
distribution theory developed by Nicholas Kaldor as a basis, an increase in the
total income of the employees can only be expected to the extent that the savings
rate of the employees increases.
If
the employees are involved in commercial economic assets, there is always the
risk that the previous savings of the employees will be liquidated, so that
there occurs no increase at all, but only a reallocation of the savings (from
savings on saving accounts to participations in the enterprises).
It
should also be considered that only those employees who are employed in a
commercial economic organisation can also be involved in the operational enterprise.
All employees that are employed by the state or by associations (thus at
non-commercial organisations) could not participate in this form of wealth distribution
by definition.
Thirdly,
the risk appetite of the employees is overestimated in these plans. There are
basically two ways of acquisition of regular income. You can work as a
self-employed person or as an employed person.
The
mass of employees decides predominantly to remain employed because the
profession of the self-employed is associated with a high income risk. To the extent
that the individual employees are involved in the assets of the enterprises in
which they are employed, they assume a part of the entrepreneurial risks, which
should be avoided precisely thereby that the employee has decided for employment.
To be
continued!