Volume 58, Issue 1

The European Union, based on a monetary and economic union, calls for new answers to the old question of legitimacy of dominion. Touchstones for its legitimacy are the eco­nomic freedoms that constitute the internal market and the system of undistorted competi­tion. Contrary to a criticism, that is inspired by anti-neo-liberalism, the community’s legal order is no mere superstructure for uncontrolled and uncontrollable economic processes. Its very purpose is to subject governmental and private power positions to the rule of law. The EU proves the important contribution of economic freedoms to social cohesion. It is the political accomplishment of the EU, its Member States and its citizens to integrate so far separate national economies and markets through open markets and free competition. Tins political achievement is possible only in the context of a legal order, the rules of winch and its sanctions in case of infringements are respected. As community institutions and member states alike are bound to common aims including the strict rules of the monetary union, the internal market and the system of competition, tins system can be interpreted as an economic constitution. There are new challenges and even dangers flowing from the new Art. 13 EC Treaty and the policy of anti-discrimination directives.

Central banks were frequently used by their governments as instruments for a monetary policy reducing national debt by inflation. On the other hand it must be seen that central banks as lenders of last resort helped to prevent and contain financial disruptions. Perceiving this role - and avoiding inflationary pressures - two conditions must be fulfilled, a technical and especially an institutional one. Technically die banks must be tied to the cen­tral bank. Institutionally the central bank needs political autonomy in pursuing exclusively assigned objectives, especially price stability. In this paper it will be shown that the institu­tional prerequisites of the Eurosystem are superior to those of the US Federal Reserve System.

The latest reform endeavours in European competition policy primarily aim at realizing a more economic approach. Taking merger control as an example, we ask whether the new approach actually promises an improved competition policy. In merger control, the European Commission intends to realize the more economic approach drawing on precise evaluations of single cases, implying an enhanced role for the rule of reason. It is argued that tins reform might be very costly because the Commission dispenses with the advantages closely connected to per se rules like transparency, predictability and lower transaction costs. The new approach would only be more economical if its benefits - for instance a higher quality of the merger decisions - were higher than its costs. It is argued that this appears unlikely. This critical evaluation is supported by the first cases in which the m|ore economic approach played a role, namely in Sony/BMG. We thus conclude that the more economic approach should put more emphasis on stable and well grounded economic rules.

The EU policy of enlargement through the accession of new members while at the same time persuing the institutional deepening of the Union will prove unsustainable if and because, in the trade-off between the costs and benefits of expanding integration areas, the rising costs of heterogeneity exceed the economies of scale generated by enlargement. A deepening strategy in the sense of the centralisation and harmonisation of an increasing number of policy fields, together with the extension of powers granted to the Community institutions that is inherent in such a policy, raises the heterogeneity costs of enlargement. Yet these costs must be lowered so that in spite, or because, of the EU`s inclination towards further enlargement the economies of scale gained by enlargement may dominate. However, this means counteracting the extension of Community institutions` activities into fields of policy, in accordance with the subsidiarity principle, are a matter of national or regional responsibility. With every round of enlargement, the EU would then grow closer to an endogenously self-decentralising integration area and develop towards a structure of competing overlapping jurisdictions that reduce the heterogeneity costs caused by enlargement because they have a high level of proximity to citizens` preferences. Accordingly, every enlargement would mean the EU moving further away from the finality of a more rather than less centralised construction. There seems to be an inherent tendency to focus more and more on the wealth-increasing effects attributable to the free trade area of the Internal Market.

The paper addresses the need for more flexibility in the integration process of the European Union after its recent eastward enlargement. Due to the increasing number of decision-makers and the increasing heterogeneity of economic structures, societal preferences, and political interests, European integration based on the uniformity principle is hardly feasible. In order to avoid a slow down of integration, the European Union introduced the possibility of so-called “enhanced cooperation” between a subgroup of the entire Union (“clubs within the club”), which appears to be an appropriate instrument to be applied if not all member countries are willing or able to participate in further integration yet. Furthermore the Draft Constitution for the European Union includes for the first time the right of secession of its member states. Applied to subclubs of the EU it is shown that clubs within the club provided with flexible entry and exit options may contribute to reduce the trade-off between deepening and enlarging of the EU.

The relationship between liberalism (in the European sense) and the state is one of the most ambivalent problems of modern history. It cannot be discussed without taking into account previous experiences with totalitarian regimes. Some radical liberals regard the state as their natural enemy, but have to admit that rules of behaviour need to be accepted and enforced in order to avert chaos and irrational anarchy. Therefore, even these liberals are obliged to accept some common values, irrespective of the intraliberal discussion about the importance of certain political procedures and their results. Free societies can be self-regulating to a large extent, comparable to a healthy human body, but they are not perfect under all conditions. Can the state be useful and play the role of a social therapist, at least in emergency situations? The author discusses the limited knowledge of governments, resistance to reasonable proposals, the function of reliable information and the social function of the state. Total self-regulation of legal and institutional developments by spontaneous processes is shown to be defective, if not insufficient. Nevertheless, the concentrated and dangerous power of the state must be controlled by law and restricted as far as is reasonable. Total privatisation of all state functions, however, is shown to be irrational. During the 19th century, the state became more liberal, more restricted in its powers, and therefore more efficient. This induced the ruling forces to start the military and political catastrophes of the 20 th century. However, after the Second World War, a limited return to liberal principles proved to be both unavoidable und successful. This was the result of the return to sound liberal principles while at the same time specific concepts developed by liberals for the reformation of the state were successfully applied.

The economic concept of Neoliberalism is commonly reproached as maximizing liberty of individual decisionmaking as an end in itself. This assertion, however, is not correct. It is shown that in fact the writings of Eucken and of most other theorists of the neoliberal Freiburg school of economics are ultimately based on an ethical principle of universalization which is not individualistically justified itself. Neoliberalism, hence, may be considered as a variant of Christian social ethics rather than of (individualistic) liberalism.

The contractarian approach is derived from utilitarianism, and its ethical implications are examined. At the level of the social contract, Buchanan’s and Harsanyi’s critique of Rawls is developed further. At the level of private transactions, it is shown that the homo oeconomicus does not only benefit others without intending it. Even his intentions are not purely selfish because he maximizes his utility under the legal and ethical restriction that he must not act against the interests of others whose contractual assent he needs. This “ethics of attentive selfishness” is compared with Christian, Jewish and philosophical ethics. The author argues that notably Kantian ethics - insistence on “the good will” and the “categorical imperative” (universalisability) - are incompatible with the ethics of the contractarian approach.

The essay is based on the traditional rivalry between the state claim to sovereignty and the private rights and autonomy of the family. Social constructivism (socialism) seeks essentially to replace the family through the offer of state benefits or public goods. The German welfare state is not this extensive to date, but it does demonstrate a tendency to repress the economic independence and private rights of the family and to assume its function, for example, through state financed support systems. This is in particular the objective of ‘Family Politics’, which manifests itself as bourgeois-conservative or socialist in nature, but in both cases dissipates solidarity and weakens the family. The author appeals - as the third type - for liberal restraint of the state on the matter of the family, which is best served when the state allows it to keep - or returns - its property and responsibility.

In this article it is argued that the extension of early childhood education and care, as currently pursued by both the German federal government and the federal states, cannot be justified by standard economic criteria of government action. Some recent results of empirical research indicate that early child care carries both benefits and risks for infants and toddlers. In addition, potential external gains for society as a whole, especially for parents, are not large enough to justify federal state involvement in child care provision. Finally, early childhood education programs may be expected to fail to improve the situation of children in economically disadvantaged families. Taking into account the incentives provided society might experience welfare loss rather than gain.

Since economics is considered to be an applied theory of choice or of decisions, a corresponding treatment of the knowledge problem allows to organize this essay as follows: In the first part the use of knowledge, available to decisions, as it is modelled in neoclassical economics, will be assessed. In part 2, it will be asked, how such knowledge will be acquired. This leads to perception which has a neurobiological dimension (part 3). In part 4, attention will be paid to the process through which knowledge is disseminated in a market system. The findings of economics related to the processing, acquisition and dissemination of knowledge will be critically assessed by drawing on corresponding views of F.A. Hayek.

Dieter Schmidtchen has provided a detailed critical appraisal of my institutional-evolutionary antitrust model. Three kinds of arguments come into fore in this reply of mine. Firstly, I show with the aid of methodological arguments that the competition between research programmes is desirable also in the case of the theory of competition. In a second step the normative foundations of the model are illustrated and it is argued that the principle of critical examination should be applied to issues of antitrust analysis. I plead finally for a rule-based competition policy that aims at the protection of competition as its objective

Alesina´s and Spolaore´s „The Size of Nations“ is often seen as an important contribution to recent progress in economic research. But is this assessment really justified? An application of the widely accepted concept of empirical scientific progress to central arguments of the book „The Size of Nations“ reveals substantial weaknesses. The normative assessment of the integration and secession of states by Alesina und Spolaore suffers from an almost complete neglection of the concepts of fiscal federalism and systems competition, while the positive analysis disposes only of weak empirical support and is not convincing in treating free trade as exogenous variable. As a consequence of the general approach Alesina and Spolaore are unable to derive meaningful suggestions for institutional improvements and the goal of empirical scientific progress is largely scarified for pure theoretical progress. This largely reduces the contribution of „The Size of Nations“ to scientific progress in economics.

This necrology is devoted to Gerard Radnitzky, the distinguished and widely renowned philosopher of science and political philosopher, who died, aged 84, in March 2006. It focuses on two things: firstly, on Radnitzky’s gradual change from a Hayekian-type classical liberal to a strict libertarian in the style of Anthony de Jasay, and secondly, on the reasons that might have lead him finally to give priority to ordered anarchy over spontaneous order. Against this background, the obituary tries to sketch Radnitzky’s development as political philosopher and argues that this process is the result of an interplay, namely an interplay of his endless endeavour to promote knowledge based on a precise problem analysis on the one hand and his collisions with collectivism of all sorts that he had experienced in his lifetime as a “learned displaced person” on the other hand.

In the early thirties of the last century Karl Friedrich Maier was, like his contemporary Friedrich A. Lutz, a student of Walter Eucken and later on his friend. Besides managing his own firm he was one of the founders and promoters of the Walter Eucken Institute at Freiburg (Germany) and for many years in charge of its research program. After the Second World War he started a teaching career at the University of Freiburg. K. F. Maier was a master of micro-economic theory. The subject of his habilitation thesis was the explication of the mighty flow of gold into France in the years 1928 - 1930. Not being satisfied with the existing tools of economic theory he developed a micro-economic theory of money. He conceived gold flows between countries as flows of money. Their origin he located in an excess demand for or an excess supply of cash balances by individual households and firms in a particular country. As early as 1935 he had got hold of the essential elements of what in the sixties and seventies was developed mainly by H. G. Johnson and R. A. Mundell as the monetary approach to the balance of payments. K. F. Maier later refined considerably the theory of the demand for money by individual households and firms. Besides monetary theory he tackled interest theory and the explanation of business cycles. In all these fields he trod new paths. His aim was to integrate monetary and interest theory and the explanation of business cycles into the theory of general equilibrium. He also made some lucid contributions to the problem of stabilizing the economic process and to the theory of economic order (Ordnungstheorie) in the spirit of the Freiburg school.