ABSTRACT OF PAPER
Title: "The end of Laissez-Faire" - Keynes and the Freiburg School
Author: Chaloupek Günther
Keynes proclaimed the “end of laissez-faire” in lectures held in Oxford (1924) and in Berlin (1926), published as pamphlet almost simultaneously in English and in German in that same year. Some ten years later, German economists who became known as Freiburg School of ordo-liberalism after World War II began to write about the “failure of laissez-faire”(“Scheitern des laissez-faire”). Both, Keynes in the UK, and Walter Eucken, Alfred Müller-Armack et al., for post-war Germany, called for a fundamental re-orientation of economic policy. They shared the preference for individualism, political liberalism, and the market economy, rejecting centrally planning and socialism as an alternative to crisis-ridden capitalism. Keynes argued that the case which had been made for laissez-faire and against state intervention by the philosophers of enlightenment rested on economic conditions which economists had failed to prove. Keynes lists six “complications” resulting from real economic conditions which in the end render the doctrine of laissez-faire untenable. In a similar thrust, Eucken argued that this doctrine had failed in its aim “to solve the problem of establishing an economic order through free play of economic forces”. But the conclusions about which kind of changes were needed are quite different. In order to fulfil the “functions which fall outside of the sphere of the individual” Keynes called upon the state to establish a framework for control of macroeconomic aggregates such as savings and investment through instruments of monetary and fiscal policies. Within this strategy, the state should make deals with public corporations and large private concerns (i.e., monopolistic and oligopolistic enterprises) which would be able to base their decisions on long term perspectives. The case for state intervention made by the Freiburg School of ordo-liberalism was significantly different from Keynes’. Competition was its preferred form of Wirtschaftslenkung (“steering the national economy by the state”). Eucken, Wilhelm Röpke and their colleagues called for a radical anti-trust policy to establish and ensure full (perfect) competition wherever possible. At the domestic level, legal instruments relevant in this context, above all competition policy, but also patent law, company law, banking law, laws of taxation, etc. should be subordinated to this goal. At the international level, free trade should ensure open markets. The paper will examine the differences and the similarities between the two versions of the end of laissez-faire in some detail, and will also try to relate them to the differences in theoretical and especially historical background between Great Britain and Germany.
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