Constitutional Principles

Ordnungspolitik is led by seven constitutional principles that are mentioned in Walter Eucken’s book Grundprinzipien der Wirtschaftspolitik (Basic Principles of Economic Policy), published posthumously in 1952. These constitutional principles are:

  1. The basic principle of a functioning pricing system. Politics should avoid all measures that distort relative prices through i.e., subsidies, tariffs or non-tariff trade barriers, monopolies, etc.
  2. With the primacy of the monetary policy, price stability should be achieved. This principle is also the lesson learned from the hyperinflation in 1923.
  3. The principle of open markets in order to avoid the establishment of monopolies or cartels. This principle includes the necessity of free trade.
  4. The principle of private ownership defines property rights and acts as an incentive for market participants.
  5. The freedom of contract is a prerequisite for competition though it is limited in the view of the Ordoliberals (those who believe in Ordnungspolitik), since it may not be abused to reduce competition.
  6. The principle of liability is an incentive for market participants because only if they can be held accountable for their contractual agreements will they act responsibly.
  7. A steady economic policy engenders people’s trust in the existing economic order. Steadiness reduces risk in the decision-making process for entrepreneurs, investors, and consumers. Like the primacy of monetary policy, this rule is based on Europeans’ historic experiences in the first half of the twentieth century.

As one could expect from a democracy, Germany frequently violated these principles in its economic policies over the last sixty years. However, especially in the beginning of the Federal Republic of Germany, the Freiburger Schule was very influential in shaping institutions such as the Bundesbank and policies such as the competition law with the creation of the Federal Antitrust Agency. The primacy of monetary policy is also a founding pillar for the European Central Bank, supporting the Bank’s independence and its goal to guarantee nothing but price stability.

The Current State of Ordnungspolitik in Germany and Abroad