Robert Sugden has recently elaborated upon the case for a normative standard of freedom as “opportunity” that is supposed to cope with the problem of how to realign normative economics – with its traditional rational choice orientation – with behavioral economics. His approach however lacks psychological substance.
The paper analyzes the political economy of capitalist transformation in nineteenth century Germany. The emergence of capitalism after 1806 gives an example that economic freedom can precede political freedom, leaving the political power of the “dominant coalition” intact. The paper argues that the German capitalist transformation was instigated by competition among the European states. Primarily it was conducive to the monopolization of the coercive power of the state. As a result competition among the states drove a wedge between the interests of the monarch and his supporting dominant coalition (landed gentry). The increasingly independent public administration in Prussia which was influenced by Adam Smith’s liberal ideas organized a political bargain which established economic freedom in various sectors but took the economic interests of the landed gentry into account. In various aspects the sweeping institutional change was Pareto-superior for groups, which made capitalism also acceptable for the elite group.
The paper argues that there are certain parallels between the ideas of ordoliberalism and the framework of limited and open access order (LAO/OAO) as developed by North, Wallis, Webb and Weingast (NWWW): Both approaches focus on the “interdependence of orders”, and both share an emphasis on state capacity in processes of social transition. I also argue that the ideas of the ordoliberals might give impulses for the further development of the LAO/OAO research agenda. Firstly, whereas NWWW mainly deal with the transition process from LAO to OAO, the members of the Freiburg school intensely dealt with the danger that an OAO might revert into an LAO. Accordingly, they spent much effort on developing policy proposals that aimed at preventing such a ‘re-feudalisation’ (Franz Böhm) of society. Secondly, especially when it came to the issue of accomplishing reforms, they also considered the role of informal institutions and beliefs, a topic somewhat neglected in the LAO/OAO-framework in its present form.
In this comment on Martin Binder, Christian Schubert rejects the view that as a general rule, evolutionary economists should be cautious regarding “libertarian paternalism” as a new and highly influential policy approach. All that is needed is a constrained version of it.