Ordoliberalism - Wikipedia, the free encyclopedia

Ordoliberalism - Wikipedia, the free encyclopedia

Ordoliberalism (also called German neoliberalism) is a school of liberalism emphasizing the need for the state to ensure that the free market produces results close to its theoretical potential (see allocative efficiency). The theory was developed by German economists and legal scholars such as Wilhelm Röpke (who spent the Nazi period in exile in Turkey), Walter Eucken, Franz Böhm and Hans Grossmann-Doerth from about 1930-1950; Ordoliberal ideals (with modifications) drove the creation of the post-World War II German social market economy and its attendant Wirtschaftswunder.

Ordoliberal theory holds that the state must create a proper legal environment for the economy and maintain a healthy level of competition through measures that adhere to market principles.^[1] The concern is that, if the state does not take active measures to foster competition, firms with monopoly (or oligopoly) power will emerge, which will not only subvert the advantages offered by the market economy, but also possibly undermine good government, since strong economic power can be transformed into political power. Quoting Stephen Padgett: "A central tenet of ordo-liberalism is a clearly defined division of labor in economic management, with specific responsibilities assigned to particular institutions. Monetary policy should be the responsibility of a central bank committed to monetary stability and low inflation, and insulated from political pressure by independent status. Fiscal policy—balancing tax revenue against government expenditure—is the domain of the government, whilst macro-economic policy is the preserve of employers and trade unions." The state should form an economical order instead of directing economical processes.