A socially responsible free market economy : Ludwig Erhard’s model

Abstract

The assignment undertaken in this doctoral thesis was to identify the original Erhardian concept from the applied economic policy of the Social Market Economy in West Germany. Thereafter the Applied Erhard was to be modelled, in order to isolate the Pure Erhard as Ludwig Erhard originally intended, and through an intensive analysis to ascertain what is pertinent for today’s economic policy in a globalised market. This scientific research is based on the analysis of Ludwig Erhard’s model of the Social Market Economy, with an examination as to Germany coming into a position of political and economic power after World War II. Moreover, on a personal level, an inquiry into West Germany’s unexpectedly becoming a pivotal strategic partner of the free world revealed how Erhard gained a powerful position in the post-war transitional process. Half a century after the end of World War II, unified Germany, and the widened European Union, are confronted with the challenges of the intensifying economic competition triggered by opened markets, permitting free trade throughout the world. Ludwig Erhard aspired purposefully, in 1943, for Germany, as well as for the rest of the world, to recover and reconstruct, to rise from the ruins of a partly destroyed, partly distorted economy, to a globalised society. The research reveals that Erhard relied on a Leitbild – intellectual guidelines, together with profound professional experience. The question arose whether it was possible to update Erhard’s Leitbild, again to attain “Prosperity for All”, realized through “Prosperity from Competition” as the centrepiece of an up-to-date model of Social Market Economy. Intensive studies reveal that, although Erhard did not leave a unified conceptual whole in writing, he however had a comprehensive and systematic concept in mind, which, as he himself said, emerged in the background of all his decisions. Chapter III explains the history prevailing, and the reason why, the success of Social Market Economy after World War II is no longer adhered to, and how the Erhardian Era of Social Market Economy ended. Erhard's model became apparent, after having evaluated his political decisions and by disenchanting the myth of the economic miracle. By recognizing the economic order that Erhard had in mind, i.e. the essentials of his paradigm of economic policy, and fitting the facts together, the true picture of both the Applied Erhardian Model (Chapter IV), and the Pure Erhardian Model (Chapter V) comes into view. The research also reveals that Erhard, from the onset, had in mind a model based on his view of history and the consequences drawn from his knowledge and from historical experience, especially the periods between World War I and World War II, the fate of the Weimar Republic, and the collapse of the Third Reich. Erhard’s primary conceptual objective was not only personal freedom as a basic right, but also the free playing of forces, along with a socially committed market economy, giving responsibility to the individual, where the importance of the person is valued above all and the benefits from their performance is acknowledged. While bearing in mind the awareness of the merit of the market economy, the tracing of the history of the “Applied Erhard” and describing the application of the Erhardian Model, resulted in understanding the true meaning of Social Market Economy as applied in West Germany after World War II. In conclusion, the message of a Socially Responsible Free Market Economy (SRFME) and a new culture of stability, even though the Social Market Economy is referred to by economists and historians with either admiration for, or generous neglect of, is that Ludwig Erhard and his ideas are still relevant after half a century. The research reveals that the principles and objectives are still applicable today. The capability of serving as a model, spanning time and space, is illustrated, and how a revitalization of Erhard’s basic concept can be comprehended as an example, making allowance for the substantial change both of national economies in transition and for liberalization on a supra-national level in the world economy. This applies to countries such as unified Germany, in the centre of the European Union, the freed national economies behind the former Iron Curtain, or South Africa with its new constitution and political system, as a pacemaker on the way to establishing Africa’s place in the global community within the New Partnership for Africa’s Development (NePAD). The renowned economist John Kenneth Galbraith, as a former economic adviser of US President Franklin Delano Roosevelt, qualifies the quality of Erhard’s performance by saying of the guiding idea: “German Economics Minister Ludwig Erhard had turned the plan into practice. The result was a prompt and impressive resonance” (Galbraith 1995:168). As “an eyewitness”, as the subtitle of his book says (Galbraith 1995), and moreover “as ac active, interested observer (Galbraith 1995:11) through economic time”, he wrote: “This miracle would have turned out much less wonderful if it had not been accompanied by an effort which also remarkably, stood in contrast to economic policy after WWI” (Galbraith 1995:169). Erhard had created ”a period of positive surprise. In such a period, today’s success is the fuel for a greater tomorrow” (Siebert 2005:3).