A Responsible Market Economy - Principles Foundations

van Suntum U, Böhm T, Oelgemöller J, Ilgmann C

Abstract

Walter Eucken was the head of the Freiburg school of economics, a circle of German ordoliberal scholars of the interwar period, whose thoughts were highly influential in the immediate post war period. Being disillusioned by what he called the "age of experiments"- the failure of both classical liberalism and socialism - he formulated eleven principles of institutional design for what he called a market economy, in which competition would not only limit the extent of private economic power, but also lead to an efficient allocation of resources and hence to economic prosperity. Although the principles never received much international attention, in light of recent economic research on both institutions and welfare economics, the essence of Eucken's work appears to be very modern in-deed as it includes aspects such as well-being, individual freedom and sustainability. This paper highlights these parallels and proposes a reformulation of Eucken's principles against the back-ground of modern economic theory. Based on this reformulation, in a second step we attempt to create an index on the institutional efficiency, which encompasses a broader set of institutions. We thus attempt to make a contribution to the current debate on the efficient design of those institu-tions that shape economic activity on markets.