Volume 61, Issue 1

The author discusses the somewhat confused political and mental situation in the Federal Republic of Germany. During the world-wide economic crisis there was no destabilizing behaviour of the German population in general, but there is a dominating lack of principles to be declared, applied and defended in practice by the leading political and intellectual class. One example is the so-called family policy. Other problems discussed in this article are normal cases and rules as against exceptions for special cases. Another point raised is the problem of legal stability connected with the details of quality, duration and intensity of political measures.

The aim of the following paper is to examine the complementarities (and divergences) between the ‘Paleo-liberal’ Adam Smith and the Ordoliberal Walter Eucken. Following the hypothesis that Smith is among the forerunners and predecessors of Ordoliberalism and Social Market Economy, we try to provide the reader with an insight into the socio-political philosophy of Smith and Eucken pointing at similarities and differences alike. Therefore, we base our examination on a systematic primary source text analysis comparing the books and essays written by Eucken and Smith. The paper tackles these questions in two main steps: The first part highlights Smith’s and Eucken’s complex and interdependent system of natural liberty. The second section reviews Smith’s and Eucken’s philosophy of the state.

This essay tries to explain German attitudes towards freedom by historical and geographic factors. If freedom, scientific progress and the industrial revolution in Europe - in short, the “European Miracle” - arose due to political fragmentation and competition among rulers, this “miracle” should have been most spectacular in Germany, Europe’s most fragmented language area. Why was it not? I show that competition among the princes favoured freedom and economic development in Germany as well. But there were other factors special to Germany which counteracted these effects. In the first place, German states were involved in more destructive wars due to their precarious location in the centre of Europe and their lack of natural borders. Moreover, since worldly power was more fragmented, the power of the Church was more pervasive. The Church has an ambivalent attitude towards economic freedom. What distinguishes Germans from their neighbours is, therefore, the deep conflict between the freedom required by external conditions and their moral preferences inherited from the past. After World War II, West Germany imported a number of freedom-enhancing economic policies from the US. My analysis shows that only two of the seven components of this American heritage have been kept unimpaired.

The current economic and financial crisis has developed into a fundamental crisis of economics. One of the fundamental reasons for this crisis could be seen in the growing ignorance of economics about its philosophical foundations. Hence, the main aim of this essay is to show that there are good reasons for re-establishing close cooperation between economics and philosophy - and, that is, between economists and philosophers.

Real or alleged crises in economics often give rise to ask whether the naturalistic manner in economics - mathematics, econometrics and that all - can be the proper way to gain essential and useful knowledge of an economy. Instead to search for economic or social laws economists should try to understand the cultural basis and cement of economic behavior and economic relationships. The proper method to do economics has to be the method of hermeneutics (comprehensive understanding). To this proposal of Steffen Groß I comment in some detail. My starting point is the work of the philosopher Hans Albert who has written much to analyse critically the scope and method of economics. I refute the thesis of the antinaturalists that there cannot be proper laws in the economy or society citing some examples: Tocqueville’s Law, the Law of Corruption and Alchian’s Fundamental Law of Economics. Further I argue that economic models entail lawlike propositions besides some simplifying assumptions. To demonstrate my third category of lawlike propositions i.e. fundamental insights in the nature of societies and markets I cite some ideas from Hayek, Albert and North. In order to apply economics properly in alien societies it is often necessary to understand the character of the foreign culture. In this sense a proposed method of hermeneutics might be of great practical utility. Yet, as I argue, hermeneutics is no substitute for the naturalistic approach to explain economic or social events or processes even if Searle’s thesis of the absolute free will is true.

Starting point of this contribution is the Observation, that the theory and policy of the economic order is critically judged within universities as well as well from the policy towards universities and to scientific education. The purpose of this contribution is to reveal the scientific potential of the criticized discipline by demonstrating its connections with neighbouring disciplines like institutional economics, constitutional economics and public choice as well as last but not least with the science of law.

Modern happiness research has flourished during the last couple of years and has produced a number of valuable insights. At the same time, however, the observer occasionally gets the impression that happiness research is heterogeneous and suffers from a lack of orientation with the consequence that the overarching aim of the research program and the significance of the results remain obscure. Starting from an analysis of the preconditions and methods of modern happiness research, this article critically discusses some fundamental questions and the possible significance of happiness research for economics.

While constitutions assign an utmost authority to the conscience as an institution guiding individual behaviour only very few economic contributions deal with this concept in an explicit way. The impression that economics ignores a key ethical authority contributes to the criticism of a one-sided and biased economic modelling of human behaviour. Hence, this study addresses the question to which extent economists already or potentially may contribute to a full understanding of the concept and functioning of conscience. The overriding hypothesis is that economics offers powerful analytical instruments also with respect to this ethical concept and is able to enrich the interdisciplinary dialogue by specific insights. The contribution identifies four fields for the economics of conscience: the analysis of norm restricted behaviour, the modelling of the conscience as intra-personal interaction, the analysis of self-interest as a determinant of norms and the treatment of the supply side of the market for ethical norms.

Even some economists supported recently the suggestion that happiness should become a major goal of public policy. The reason is that empirical research on happiness revealed several substantial flaws in people’s private pursuit of happiness. To shed some light on the question whether public policy should enhance citizen’s happiness, the opposing positions of Karl Popper and Richard Layard are presented first. After this, governmental paternalistic interventions to support or to suppress individual preferences are analyzed more thoroughly by considering the theory of internalities. This theory explains why individuals fail to pursuit happiness. As a case in point, smoking is examined as a potential source of illness and unhappiness. Supposing that smoking is harmful, it is analyzed whether public interventions to suppress smoking can be justified according to Karl Popper and the internalities theory.

Happiness research in economic science focuses on life satisfaction and happiness instead of gross domestic product and per capita income, since the former is not guaranteed by material wealth. It dreams of being able to scale fortune by using an electronic “hedonometer” or a “brain scan”. Insofar it adheres to the classical methodology of measuring and comparing, which is not appropriate to the subject of happiness. But, in defining the parameters of happiness, there are several common interests with Christian Social Ethics: The interpersonal relations, above all the family, self-employment with a sufficient income, and a liberal political environment are of similar importance - although Christian Social Ethics do not focus on happiness but on the success of human life. If this object is not to be lost sight of, the topos of the Homo oeconomicus has to be amended by the one of the Homo benevolens.

Fiscal competition between different government entities is known as “fiscal federalism” and has been an important element of the economic theory of federalism since the 1950s. Jurisprudence has only recently discovered the competition between organs of sovereign power. However, in jurisprudence, the idea of transferring conclusions from market analysis to state action meets several objections. Whether this reluctance is justified depends on to what extent competition - most importantly, fiscal competition - is inherent to the federal structure of a state. Constitutional theory offers to build a bridge between jurisprudence and economic research on fiscal federalism. Therefore two basic alternatives present themselves: competitive and cooperative federalism. The question of which assumption is closer to “real” federalism with respect to fiscal competition between the member states of a federal union is discussed on the basis of historical examples and comparative law. With that the three models of open competition, elimination of competition, and differentiated competition are illuminated. Differentiated competition proves to be the best model. It legitimizes the federal structure of the state and serves as a model for reform.

Progress in technology such as digitalisation and the convergence of media will revolutionize the media industry and the nature and mission of public broadcasting. From an economic point of view, a public, state-sponsored broadcaster is not needed; especially in a changing media landscape which is about to bring fiercer competition and broader diversity of opinion. Nonetheless, from a pragmatic and political point of view, it is clear that state-aided broadcasting in Germany will not disappear, so the least economists can do is to offer ideas on how to make public broadcasting fit the age of digital media and how to make public intervention as efficient as possible. This paper suggests ideas on how to make public broadcasting more efficient in the age of digitalisation.

The statutory health insurance in Germany is financed on a pay-as-you-go basis with income-based premiums. It is argued that this system is neither sustainable nor intergenerational fair. Quite the contrary, it reduces the investment in human capital and constitutes a large burden for the next generation. As intergenerational redistribution is overdrawn a new balance between solidarity and equivalence has to be found. It is shown that a mixture of flat premiums and capital funding in the form of ageing reserves can reduce the occurring problems and increases sustainability and intergenerational fairness in Germany’s statutory health insurance. To cope with the problem of intragenerational redistribution an inverse relationship between human capital investment and ageing reserve contributions is proposed.

The financial situation of most municipalities has deteriorated significantly in 2009 and 2010. Municipal representatives and local politicians demand financial support from federal and state governments. However, there are efficient strategies for municipalities to save themselves from their predicament. Most municipalities fail to introduce relevant measures on their own accord, and neither the federal nor the state governments require financially weak municipalities to use all available opportunities to solve the problem themselves. This article discusses a wide range of institutionally desirable measures which could be introduced to strengthen the primacy of self-help over the dependency on outside assistance“.

This paper elaborates on the importance of mutual ownership of joint-stock companies and corporations in general for the current financial crisis. Because corporations own and are owned by other corporations, in most boards of directors paid managers are effectively controlling themselves. The resulting economic dependencies and the possible implicit coordination within this comparatively small group allows managers to determine their own pay. As will be shown in the following, this fact has contributed considerably to the genesis of an incentive structure, which is generally aimed at short term profits. Given that especially for financial intermediaries there exists trade-off between long-run and short-term profit maximization due to the high correlation of risk and possible profits, the existing incentive structure has played a considerable role in the inadequate risk management of banks, the latter being one of the main reasons for the current crisis.

By what means could the transition towards a democratic system be more readily facilitated? A number of scholars argue in favor of development contracts, proposing to provide development aid only in exchange for democratization. However, from the vantage point of constitutional political economics, two free rider problems can be identified. These two complicating factors make such exchanges difficult, if not impossible to arrange. To overcome both problems, this paper sketches a hypothetical mechanism of global governance, consisting of several strategies of commitment. The solution suggested here implies creating “development competition” between the governments of target countries in order to encourage processes of endogenous democratization.

Economics discuss the new regionalism in the “building vs. stumbling blocs” debate. The main question is whether the new regional trade agreements are building blocs or stumbling blocs for a further multilateral liberalization in world trade. The goal of this article is not only to give a detailed overview of the debate but also to find out the problems of the whole debate. First, this article shows the empirical trends of the new regionalism. Second, the “building vs. stumbling blocs” debate will be classified in its theoretical context and divided in different approaches. Third, the models of the different approaches will be presented so that the weaknesses of the debate can be worked out at the end which can be solved by an interdisciplinary approach.