Volume 6, Issue 2

Economics and historical analysis have much to learn from each other, a fact more and more neglected in research and theory building, and especially in university instruction in German-speaking countries. The lecture tries to illustrate this by demonstrating that certain economic relationships like Gresham’s law asserting that bad money drives out good with fixed exchange rates have been valid at least since Aristophanes. Similarly, it is also shown that the substitution of bad by good money (Thiers’ law) and that similar magnitudes of overshooting of exchange rates, given flexible rates, during high inflation, have been present for at least four centuries. These results refute the hypothesis asserted by some well-known historians that there can be no economic laws valid in different and distant periods of history. And second, the evidence proves the usefulness of putting the hypotheses of economics to the test of history. For instance the observation that the maximal overshooting of flexible currencies showing moderate inflations has been about 30% since the seventeenth century casts doubt on modern theories asserting that such deviations are a consequence of the huge increase of capital movements in recent decades. Moreover, many open questions in economics can only be answered by looking at events which occurred in earlier historical periods. One such question is at which rates of inflation Thiers’s law begins to operate, since it obviously does not work at moderate rates of inflation.

According to a popular belief, West Germany’s post-war economic system constituted a clean break with the structures of the Third Reich. The present article takes a critical look at this myth, and examines the continuity between the economic framework of the Third Reich and the Social Market Economy. In a whole array of sectors of the German economy, regulations from the Nazi period continued to be in force after the war, or were even reintroduced. To accommodate these regulations, the Anti-Cartel Act of 1957 defined these areas as exempt from its general ban on cartels. In this sense, Germany’s current reforms may be viewed as the laborious transformation of an economic system whose substance originated not in the Social Market Economy of the 1950s, but rather in the command economy of the 1930s. The findings of this article confirm that the impact of the Third Reich on the economic policies of post-war Germany was significantly greater than hitherto known. Albrecht Ritschl 170

In the presence of downwardly rigid nominal wages, low inflation may lead to higher equilibrium unemployment by hindering real wage adjustments. This article surveys and analyses the growing evidence on downwardly rigid nominal wages. We not only deal with assessments of the existence and extent of downward nominal wage rigidity, but also discuss its possible explanations and macroeconomic consequences. We conclude that downward nominal wage rigidity does exist, that its extent is substantial and that very likely the real consequences at low, closeto- zero inflation are non-negligible. The results of this strand of research should therefore be taken into account in the formulation of optimal inflation targets.

The article provides a critical account of the situation of schools and universities in Germany. Based on this, the allocation of responsibilities for education policy in Germany’s federal system is scrutinized. Hopes and fears associated with a more competitive, decentralized provision of education are discussed, referring to empirical studies. In conclusion, competition among states in a federation is advocated as a device for promoting policy innovation.

One of the most pertinent reform discussions in Germany is found in the debate on the local business tax. During the last year, two basic reform proposals, a revitalisation of the current local business tax and its replacement by a surcharge on personal and corporate income taxes, intensively competed. Finally, none of these alternatives was realised. The federal parliament and government could only agree to introduce temporary financial relief for local jurisdictions. In this article, the continuous need for a fundamental reform of local government finances is emphasised. After a discussion of the basic alternative reform models against the background of characteristics of economically reasonable local government finances, the simulated impact of a local surcharge on income taxes is compared to the tax rate differences at the local level in Switzerland. The surcharge model would lead to smaller tax rate differentials than currently exist at the Swiss local level. The resistance against such a reform is explained by the fact that political actors at the local level oppose the implied higher political responsibility when citizens face local income tax rates as prices for local public services.

The welfare state of the future will have a new look. It will be more streamlined and more efficient with much greater emphasis on its key issues. For economic reasons the current range of security measures in the social field will be reduced, and those elements no longer covered will be taken over by private providers. In particular, the state will dispense with the expensive coverage of old age, illness and nursing care. However, in the unemployment sector it will remain the main provider, although the „product“ will be better, offering greater differentiation, with a more favourable price-performance ratio. Moreover, the welfare state will adjust its hitherto inefficient and non-transparent policy of redistribution of income to bring it in line with the current economic situation. It will in the future concentrate on better helping the genuinely needy; to achieve this there will be an emphasis on finding decentralised, local solutions to the problems at hand.

Using a generational accounting approach, we analyse the sustainability of the German Statutory Social Health Insurance. Due to the future double aging process, the current level of health benefits can only be maintained through a massive increase in the contribution rate. Additionally taking into account the medical-technical progress would severely worsen the long-term stance of the German Health Insurance Scheme. To restore a sustainable situation, we suggest a reform proposal, the so called „Freiburger Agenda“. This reform contains a minimum franchise, the privatisation of the entire dental care as well as the introduction of more market forces thus intensifying competition between e.g. hospitals and insurance companies.

Organ transplantation is traditionally regarded as a part of law and ethics, but it embodies fundamental economic problems. 1,500 patients die as a consequence of organ shortage in Germany every year. Government regulation is not aimed at closing this gap by facilitating donors and receivers to match. Both are regulated separately. Alternatively it is proposed to allow every person to declare: „I dedicate my organs post mortem primarily to patients who are willing to dedicate their organs too“. Such a declaration serves as a signal for others to do likewise so that organ shortage may decline in the long term.