German "ordnungstheorie" from the Perspective of the New Institutional Economics
Abstract: German “Ordnungstheorie” relates essentially to Walter Eucken who attempted to strike a balance between the economics of the German Historic School, still relevant in Germany of the 1930s, and its opposing neoclassical analysis. The paper starts with a brief description of Eucken’s morphological approach, his “isolated abstraction,” as an analytic method that is focusing on a description of the institutional framework of the analysed economy with only vague assumptions on human wants, behaviour, behavioural constraints etc. Target of Eucken’s Ordnungspolitik is to minimize power instead of striving for Pareto efficiency. Eucken’s questioning of the regulative ability of laissez faire anticipates (instinctively) the consequences of Olson’s logic of collective actions. Eucken, together with the other members of the Freiburg school, demand from the state the establishment and guarantee of an economic constitution of a free market economy based on David Hume’s principles of natural law: private property, freedom of contract and personal liability. This paper continues with a neoinstitutional discussion of Eucken’s ordo-liberal principles of Ordnungspolitik, which served as basis of the West German Wirtschaftswunder after the currency reform of 1948. It ends with a critique of Eucken’s deliberations and some reflections on Douglass North’s “adaptive efficiency” as another substitute for the empty concept of “Pareto efficiency”.