Printer Friendly

A perspective on US and German socioeconomic policies.

The objective of socioeconomic policies may best be quoted by Alfred Marshall: "The well-being of the whole people should be the ultimate goal of all private effort and public policy" (1961, p. 47). This holds true for all of the founders of schools of economic thought from Adam Smith to Karl Marx, through John Maynard Keynes to Walter Eucken. Differences among them arise in how to achieve this end, not in the end itself.

Most, if not all, of the major economists began with a genuine concern for existing socioeconomic conditions, especially with problems arising out of the status quo, and presented alternatives to that status quo (Cochran, 1979). (Cochran deals primarily with Adam Smith and Keynes.) They were especially concerned with the question of how to eliminate poverty which they viewed as the primary social problem with potentially destructive consequences. This view is also expressed by Robert Reich, Secretary of Labor: "We can't let millions of workers live on the edge and not expect trouble. We've got to challenge that. It's our biggest challenge" (Greer, 1995).

The classical economists, as represented by Adam Smith, saw the answer in a perfectly competitive economy, without government interference, but also without concentrations of economic power in the hands of giant corporations, powerful labour unions, or big government. Exclusive privileges and practices which interfered with the market were to be prevented or eliminated. Then, competition would not only assure economic growth to lift everyone up, but would also result in greater socioeconomic equality. They relied on "rational sympathy" combined with proper self-respect to bring about effectual institutions to resolve questions of social justice.

Neo-classicists, such as Marshall and Walras, and also contemporaries including Keynes and Eucken, were of the opinion that the achievement of this goal is conditioned on the attainment of "social justice". (For example, Marshall thought of inequalities in the distribution of wealth as a serious flaw.) Happiness of life, to the extent that it depends on material conditions, begins when the basic necessities of life are met; thereafter it increases directly with income. It was the duty of society, therefore, to provide opportunities for people not only to become efficient producers but also to develop their higher nature (Marshall, 1961). They recognized that unrestrained laissez faire leads to imperfect competition, and that economic growth, by itself, does not make the distribution of income and wealth more equal; it may make it more unequal. They also concluded that ethical norms tend to be endangered in a market economy; the temptation to deceive is ever present, as Adam Smith already observed. Therefore, they devised different theories and models to improve the market system through strengthening the price mechanism and tackling the problems of poverty and justice. (Jensen (1977) gives a good account of these issues.)

Solutions to imperfect competition were sought in institutional reforms, to protect price competition where it existed and to recreate it where it had vanished. The aim is the "good life" in a "good society" with attributes such as personal freedom, love and trust, self-respect, security, contentedness, and a sense of purpose, to mention a few (Ritschl, 1977).

This is essentially Eucken's approach. Like Keynes, he believed that economic forces, without the guide of a "functional" institutional flamework, do not evolve by themselves for the welfare of the people, except for those in positions of dominance. Eucken recognized, as many present-day economists do, that monopoly power and special privileges are sought by the major participants in the economic process. Hence, unrestrained laissez-faire evolves into economic power, concentrated in monopolies and oligopolies, threatening not only freedom but also the allocation of resources. Prices then no longer function as efficient allocation and rationing devices, leading to increasing intervention by government in the economy. That is, contemporary monopolistic capitalism cannot be viewed as being synonymous with a free market economy, as envisioned by the advocates of freedom and democracy. Eucken's solution, therefore, was to establish a "functional" market economy. The guiding flamework he defined in terms of "structural" and "regulating" principles, based on concepts of freedom, liberty, human dignity, and social justice. (Eucken, 1948, 1949; Karsten, 1985)

Germany's socioeconomic system is essentially based on Eucken's paradigm of a social market economy. This is essentially reflected in the first paragraph of Germany's Basic Law, the Grundgesetz:

Die Wurde des Menschen ist unantastbar. Sie zu achten und zu schutzen ist Verpflichtung aller staatlichen Gewalt. [The dignity of man is inviolable. To respect and to safeguard it is the duty of the state.]

This illustrates the close connection between politics and economics in the German socioeconomic system. The phrase: "Die Warde des Menschen", i.e., the dignity of man, is reflected in the word "social" in the label of the "social market economy". On the one hand, it exemplifies how the German socioeconomic system is anchored in law. On the other hand, it provides the constitutional as well as the moral obligation for a social safety net. It needs to be pointed out, however, that the word "social" was not part of Eucken's label of a market economy. It was added on the insistence of Alfred Muller-Armack, who played a pivotal role, together with Ludwig Erhard, in putting the paradigm of a "social market economy" into practice (Muller-Armack, 1989).

Similarly, the Preamble of the US Constitution states:

We the People of the United States, in order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States.

The same degree of emphasis and interpretation of the "dignity of man" is not found in the US socioeconomic paradigm as compared to that of Germany. What is meant by domestic tranquility, social and economic justice, and by general welfare? It appears that these concepts, which essentially define the fundamental premiss of the paradigm of a social market economy, form the "imaginary" battleground between the so-called conservatives and liberals, or between monetarists and Keynesians.

Nevertheless, the premises of social and economic justice, however defined, that each citizen should be able to lead a "productive" life, that inflation, unemployment, an unsatisfactory rate of economic growth, poverty, and a polluted environment, to mention only some, are undesirable, are just as much accepted in the USA as they are in Germany. Where the disagreement arises within the USA, and also between the US and German systems, is how to solve socioeconomic problems and challenges.

James Fallows presented an interesting analogy between the Anglo-American and German views on how to address socioeconomic challenges. The Anglo American approach is anchored in Isaac Newton (modern science), Jean-Jacques Rousseau or John Locke (liberal political theory), and Adam Smith (laissez-faire economics). In contrast, the German orientation took its direction from Hegel (for Rousseau and Locke) and from Friedrich List (for Adam Smith). Fallows points to several major differences between these approaches (Fallows, 1993).

* "Automatic" growth versus deliberate development. The Anglo-American approach essentially is to follow Adam Smith's "invisible hand"; i.e., if each individual pursues his own interest, society will benefit and prosper. In the light of the "unpredictability and unplannability of economics", the best way to guide the socioeconomic system is to let people adapt themselves to changing socioeconomic conditions. In comparison, the German strategy addresses more intensely the question of market failures (e.g., pollution and health care), which are inherent in market economies, and the role of government to set and to enforce standards. Roepke (1992) argued that these are justifiable as long as they do not paralyse the "nerve centres of the price mechanism", do not increase competitive conditions, and do not discourage long-term investment and productivity.

* Consumers versus producers. The Anglo-American view tends to equate social well-being with society's level of consumption, which was over-emphasized during the Reagan and Bush administrations. List's view, on the other hand, was that the wealth of a nation is to be found not in its level of consumption but in its capacity to produce. A manifestation of this can be observed in the higher rate of savings in Germany.

* Process versus result. Anglo-American thinking has concentrated on fair rules of how the economy should function. Whatever people choose to do under these rules will, by definition, generate the best results for society, regardless of who wins or loses. On the other hand, the German conception does not accept without question that people will always pursue those economic activities which turn out to be most beneficial for society as well as for them. Hence, government should be concerned with both the process and the potential results.

* Individuals versus the nation. The Anglo-American perspective places less emphasis on solidarity than does the German system. The former focuses on the prosperity of individuals as consumers and the whole world as a trading bloc. It does not tend to promote the idea of community, i.e., of the interrelationship of the individual with society, to the same extent that the German system does. The latter pays more attention to the welfare of people in a group, or community. That is, it is believed that the individual cannot prosper unless society is prosperous and vice versa. For example, according to Muller-Armack (1989).

The concept of a social market economy may therefore be defined as a regulative policy which aims to combine, on the basis of a competitive economy, free initiative and social progress (p. 83).

In other words, the objective of the paradigm of a "social market economy" is, by infusing social and normative values into a socially-blind market mechanism, to put a human face on a capitalistic socioeconomic system.

* Business as peace versus business as war. In the context of a world economy, the Anglo-American way of thinking follows that of Adam Smith and David Ricardo, that in trade everyone can win and prosper at the same time. The German view tends more towards a "zero sum game"; some nations win, others lose. Furthermore, there is greater concern that economic power may also lead to political power.

* Morality versus power. In the Anglo-American way of thinking, the danger exists that their socioeconomic model is the best possible one. Hence, any nation which disagrees with its axioms and does not play by its rules is a "cheater", which appears to find its ultimate expression in the trade disputes with Japan, the European Community, and other nations. The German conception seems to be less concerned with "right" or "wrong" and more with "strong" versus "weak". One major problem is that the premises of the German socioeconomic system, especially the theories of Eucken and of the social market economy, are almost unknown in the USA.

John Maynard Keynes' publication of his General Theory in 1936, had a similar impact on economics as to that of Adam Smith's Wealth of Nations. Keynes took issue with the natural state assumption of "self-equilibrating, full-employment stability and social harmony" of the classical and neo-classical schools. Furthermore, as he demonstrated, income rather than the interest rate is the main economic parameter. Although the emphasis has shifted from fiscal to monetary policies, the validity of Keynes' analysis still holds in the 1990s.

In Keynes' perception, the major fault of the US economy could be defined in terms of its inability to provide full employment and an equitable distribution of income (1935, pp. 254, 372-4). He thought that depressed economic conditions have a tendency to linger and to moderate only gradually. An activist government economic policy, therefore, is called for to assist in mitigating, incurring, and also in preventing economic downturns. This necessitates a proper balance between supply-side and demand-side policies.

The general public, most politicians, and perhaps even economists tend to identify Keynes' suggested demand management of the economy primarily with increased government spending to supplement private expenditures for consumption and investment. Certainly, that has been the major manifestation of demand management of the economy since the Second World War. However, another aspect of Keynesian economics is that deficits should not be used as the main tool of economic policy, except during recessions. Moreover, serious attempts should be made to balance the budget over the course of a business cycle.

Misconceived political opinion in the USA, however, has ignored the successful thrust of these policies. Real gross domestic product (GDP), in 1987 dollars, increased from $1,419 billion in 1950 to $3,776 billion in 1980, i.e. by an average of 5.54 per cent per year. By 1992 real GDP had risen to $4,923 billion, reflecting average annual increases of 2.53 per cent from 1980 to 1992. Tables I and II exhibit a declining trend in the average annual rates of growth in real per capita GDP since the 1960s (US President, 1994). (Since a major ideological shift occurred during the 12 years of the Reagan and Bush administrations, the data are analysed for 1950 through 1992 (US President, 1991; 1992; 1994).)

Real per capita disposable income (1987 dollars) grew from $6,190 in 1950 to $12,005 in 1980, i.e., by 94 per cent or by 3.13 per cent per year on the average. By 1992 it had reached $14,221, showing average increases of 1.54 per cent per year from 1980 to 1992. Similarly, real per capita consumption increased from $5,742 in 1950 to $10,746 by 1980, i.e., by 2.90 per cent per year, and to $12,974 in 1992 or by 1.73 per cent per year during the 1980s and early 1990s. Whereas during the three decades from 1950 to 1980 real per capita disposable income grew faster than consumption, e.g., 3.13 per cent versus 2.90 per cent per year, this was not the case in the 1980s and early 1990s: 1.54 per cent versus 1.73 per cent, respectively, pointing to excess consumption during that period and insufficient investment in plant and equipment as well as in the infrastructure. [TABULAR DATA FOR TABLE I OMITTED] [TABULAR DATA FOR TABLE II OMITTED] One of the Reagan administration's basic assumptions, about producers' and consumers' basic behaviour patterns, did not materialize. It was believed that tax cuts would induce businesses and people to save and to invest more. As the President's Economic Report graphically illustrates (US President, 1992, p. 263), and as Tables I and II depict, the economy has experienced a declining trend in real net fixed business investment as a ratio to GDP over from 1980 to 1992.

Real per capita net investment in plant and equipment was actually lower in the 1980s and early 1990s than in the 1970s. Average annual rates of change in non-farm business productivity also were lower in the 1980s and early 1990s than in the previous three decades. Although average annual real per capita after-tax profits were somewhat higher in the 1970s, they were lower than in the 1960s - see Tables I and II. Similarly, the average annual ratio of after-tax profits to sales was lower during the 1980s and early 1990s than in the decades from 1950 to 1980. Although the average annual ratio of after-tax profits to stockholders' equity was not too different from that of the 1950s and 1960s, it was significantly below that for the 1970s.

The average percentages of disposable personal income saved were significantly smaller in the 1980s and early 1990s than in the preceding three decades. Another statistic, the rate of increase in real per capita national wealth, was lower during the last 12 years than in the 1960s and 1970s - see Tables I and II.

As Table III reveals, the federal government's deficits and interest payments, as percentages of GDP, display a rising trend over the last three decades and were significantly higher in the 1980s than in the 1970s and 1960s. Despite the Reagan administration's stated objective to downsize the federal government, the ratios of both federal revenues and expenditures to GDP were higher in the 1980s and early 1990s than in the 1970s and 1960s.

Although complicating factors come into play, which are beyond the scope of this paper, the empirical evidence indicates that the US economy performed significantly better, on the average, from 1950 through 1980 than since 1980. Analysts at the Federal Reserve Bank of New York concluded that "on balance, changes in US fiscal policy since the early 1980s have been detrimental to the growth potential and long-run economic performance of the economy" (Akhtar and Harris, 1992, p. 2). It appears that economic growth, business spending for plant and equipment, and savings were greater with higher and not with lower tax rates for corporations as well as for individuals. Contrary to the Reagan and Bush Administrations' assumptions, government revenues, as a percentage of GDP, had not increased as expected in response to lower tax rates, resulting in the largest peacetime deficits and buildup of the national debt. Hence, the USA could actually be operating below, and not above, its optimal tax rate that the Laffer Curve theory claimed in support of the tax cuts of the 1980s.
Table III. Selected federal budget statistic (average annual ratios)

                                  1960-69      1970-79      1980-92

Real federal deficit as a
percentage of GDP 1987$               0.22         1.74         3.73

Real federal interest payments
as a percentage of GDP 1987$          1.23         1.43         2.92

Federal government receipts      1960:18.9    1970:19.3    1980:20.4
as a percentage of GDP           1965:17.9    1975:18.6    1985:19.5

Federal government outlays as    1960:18.2    1970:20.6    1980:22.6
a percentage of GDP              1965:17.7    1975:23.0    1985:24.0


Data based on the 1991, 1992 Economic Reports of the President and
the Survey of Current Business, August 1993.

The above statistics lend further credence to arguments that American society is rather under-taxed. For example, total tax revenue (national, state, local, and social security) as a percentage of GDP amounted to 37.7 per cent for West Germany in 1990 and 29.9 per cent for the USA, the latter being at the bottom of nine industrialized nations (Atlanta Journal and Constitution, 1993). Insufficient investment in a nation's infrastructure as well as in its people negatively affects not only private investments in productive capacity but also government revenues. Moreover, as Herbert Stein observed, a higher tax rate, which would have reduced the government deficit, would have led to higher investment spending. Furthermore, assuming a given tax rate, reducing government spending does not necessarily increase the rate of economic growth. "Everything depends on what the government expenditures are for" (Stein, 1986, p. 15). David Stockman, then Director of the Office of Management and Budget and one of the architects of the tax cuts of 1981, is now of the opinion that the root of the problem (structural deficits) is to be found in the "July 1981 frenzy of excessive and imprudent tax cuts which shattered the nation's fiscal stability". In essence, the country had been left to handle expenditures of the 1980s with a revenue base of the 1940s (Stockman, 1993).

Congressional Budget Office data (USNews and WorldReport, 1992) indicate negative growth rates for average after-tax family incomes for the period from 1977 to 1989 for the first three quintiles of the income distribution: -10.4 per cent, -10.0 per cent, and -5.2 per cent, respectively. Positive growth rates of 2.2 per cent and 9.4 per cent are registered for the top two quintiles. For the 91-95th and 96-99th percentiles, income rose by 14 per cent and 24.4 per cent, respectively; 102.2 per cent for the top 1 per cent of the distribution.

Similarly, the 1995 Economic Report of the President points out that:

The median real hourly wage fell by 6 per cent from 1973 to 1993. The middle of the income distribution was hurt more by the slowdown than the top, largely reflecting a dramatic shift in the rewards offered in the labor market against those without a college degree or a high level of skill (US President, 1995, pp. 174, 178).

The median family income ... grew a meager 0.2 per cent in the entire 20 years between 1973 and 1993 ... An important reason why median family income rose slightly while the median wage was declining is that married women now work more hours for pay.

Partly as a result of these developments, the distribution of income has become less equal since 1968, a trend which accelerated during the 1980s. For example, "the share [of income] received by the lowest quintile rose from 5.0 per cent in 1947 to 5.7 per cent in 1968, and then fell to 4.6 per cent in 1990. The share for the highest quintile fell from 43.0 per cent in 1947 to 40.5 per cent in 1968 before rising to 44.3 per cent by 1990" (US President, 1992, p. 124). Peterson (1992) labels this situation the "silent depression" (based on changes in real weekly earnings in the private non-agricultural sector, in median family income, and the path of productivity). On the basis of real family incomes, he argues that the US "economy has been in a depressed state since 1973".

An undesirable consequence of these developments has been the rising incidence of poverty:

From 1960 to 1973 the nation's overall poverty rate fell from 22 per cent to 11 per cent; it then rose to 15 per cent in 1993. Poverty rates for children have been even higher: 27 per cent in 1960, 14 per cent in 1973, and 23 per cent in 1993. The observed rise in poverty remains even after taxes and transfers are accounted for ... A large portion of the rise in poverty is due both to the increase in wage inequality ... and to the rise in the proportion of female-headed households (US President, 1995, p. 178).

One may get different numerical results depending on the types of data and adjustments made, which are beyond the scope of this paper. However, these and similar trends led the Census Bureau to conclude that, whereas 71 per cent of the people could be classified as living in middle-income class households in 1969, by 1989 that was only the case for 63 per cent of Americans (Teegardin, 1992). One study, defining the "middle-class society" as the "per cent of population with incomes between 33 per cent less than the national median and 50 per cent more than the national median", claimed that by 1990 the USA ranked at the bottom of ten countries, with 53.7 per cent of its people being in the middle class behind West Germany's 70.1 per cent and Japan's 90 per cent (Atlanta Journal and Constitutions, 1992). It further points out, that "between 1972 and 1990, America had the slowest growth rate in [the] standard of living - measured by wealth per citizen - of the major industrialized nations". Furthermore, if the earning power had risen at the same rate after 1973 as before, incomes would be about 50 per cent higher than they are today (US President, 1995, p. 172).

These developments point to a narrowing of the real income base for 60 to 80 per cent of the population, on which the economy, the business sector, government, and people depend - for a better standard of living, for greater profits, and for greater government revenues and less government expenditure, especially in the area of income maintenance.

When the distribution of income becomes more unequal, i.e., as a greater proportion of all incomes is concentrated in a smaller segment of the population, the base of consumer demand is narrowed and economic growth is curtailed, as indicated above. US News and World Report (1992, p. 56). concluded in an article: "It is time we faced up to the fact that something enormous and unattractive is happening to what we still imagine to be a middle-class nation". This is also of concern to the business sector. William Woodside, CEO of American Can Company, remarked: "... over the longer term, I don't think that democratic institutions can survive a two-tier economy comprising the very rich and very poor, and that's what we are rapidly becoming" (Fortune, 1987).

One may get the impression that American politicians are practising a form of neo-mercantilist and neo-Malthusian policies. The former held that low wages and a prosperous nation are compatible, whereas the German cameralism thought that for a nation to flourish its population had to be prosperous. Conservatives look for the solution to the above-indicated developments in a strategy of laissez-faire and non-interventionism on the part of government in the economic process, for which Adam Smith's "invisible hand argument" provides the moral justification (Smith, 1776). Adam Smith, however, assumed the existence of a natural order such that those who pursue only their own self-interest are led by the "invisible hand" "to make nearly the same distribution of the necessaries of life which would have been made had the earth been divided into equal portions among all its inhabitants" (Smith, 1759, pp. 264-5).

There is another aspect of Adam Smith's Wealth of Nations to which sufficient attention is not paid. As Max Lerner points out in his Introduction, "There runs through The Wealth of Nations a strain of partisanship for ... the lowly and oppressed everywhere, ... it becomes a revealing document showing Smith's concern for the common man" (Smith, 1776, 1937 ed., p. x). For example:

Is [an] improvement in the circumstances of the lower ranks of the people to be regarded as an advantage or as an inconveniency to the society? ... But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole.

The liberal reward of labour ... increases the industry of the common people.... Where wages are high ... we shall always find the workmen more active, diligent, and expeditious, than where they are low (pp. 78-9, 81).

Very few, if any, would argue that it is morally indefensible to provide for universal education, for example. Similarly, moral values and considerations of socioeconomic efficiency and social as well as political stability, intensify the demand for social justice and the dignity of man. Hence, it is questionable whether some members of society should benefit disproportionally through cost-shifting ("hidden taxes") and tax expenditures instead of all of them sharing "responsibilities" fairly and equitably. As Adam Smith observed:

All the members of human society stand in need of each other's assistance, and are likewise exposed to mutual injuries. Where the necessary assistance is reciprocally afforded ... the society flourishes and is happy.

Society may subsist, though not in the most comfortable state, without beneficence; but the prevalence of injustice must utterly destroy it (1759, pp. 124-5).

Furthermore, Adam Smith wrote: "The wise and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest ..." (1759, p. 346) in essence endorsing the principle of social solidarity. Moreover, as Pope John Paul II (1991) declares: "There exists something which is due to man because he is man, by reason of his lofty dignity".

The above observations, with emphasis on the individual and human dignity, call for policy recommendations for equal opportunities, for better education, training, and research and development, and for greater productivity and competitiveness - all of which are essential for a prosperous middle class, for business profits, and for social peace and harmony. Perhaps the German socioeconomic approach is more substantive in this regard than that of the USA. In many respects the German and US economies tend to perform very similarly, perhaps reflecting their interrelationships with the global economy. For the three decades from 1960 to 1990, Figures 1-3 depict a remarkable degree of correlation in the movements of the three key economic variables with which any nation is constantly concerned with. For example, the rates of growth of real GDP [ILLUSTRATION FOR FIGURE 1 OMITTED] between the two countries move very closely together and the differences between the two growth rates is, generally speaking, very small. Although the discrepancies between the unemployment rates [ILLUSTRATION FOR FIGURE 2 OMITTED] and the inflation rates [ILLUSTRATION FOR FIGURE 3 OMITTED] are much more pronounced, they nevertheless tend to move in the same direction with almost perfect timing.

Present social and political trends call for vital economic growth through injecting new vitality into the market system. This essentially has three implications, namely greater equality in the distribution of income, the achievement and maintenance of satisfactory rates of economic growth, and reduction of government deficits.

In a capitalist democracy no special interest group has the right to impose its values on others. Neither does a competitive market assure monopoly-type profits to certain groups nor does society have an obligation to do so. The responsibility of the state is to set the framework within which society is able to progress on a path of long-term and viable economic growth and a higher standard of living for all people.

Ethical, economic, political, and social issues are all interconnected. People tend to favour a socioeconomic system which provides for human freedom, justice, economic security, and efficient economic processes to the maximum extent possible. In other words, a healthy and dynamic free enterprise economy needs to be complemented by an efficient and humane public sector. These are the ideals of Germany's social market economy as well as of Keynesian economics. The lessons which the 1980s and 1990s so far have taught us is that socioeconomic policies need to incorporate a greater balance between private interests and public purpose. Brzezinski (1994) warned of a "global crisis of the spirit", including the USA. As the US Catholic Bishops posit: "The dignity of the human person, realized in community with others, is the criterion against which all aspects of human life must be measured" (National Conference of Catholic Bishops, 1986).

Not enough attention is paid to the fact that human freedom and dignity are greatly enhanced through meaningful employment and well-paying jobs, which are essential for domestic peace and tranquillity. Having a job means to be an active partner in the socioeconomic process; it bestows on the employed man and woman a sense of dignity and inner peace. In the words of Peterson (1994): "While economic justice has many dimensions, none are more crucial than decent jobs and a fair distribution of income and wealth". This is the great challenge for all advanced industrialized countries during this decade and for the twenty-first century. If society sees it as too expensive to take measures to enact universal health care, better education, to create meaningful jobs, etc., it will end up paying much more in reduced productivity and competitiveness, lower consumer demand, and in greater social conflict.

If socioeconomic policies are evaluated and enacted within the contexts of the principles of community, solidarity, love, and compassion, all members of society will benefit and prosper, consumers as well as businesses. It is in this light that the US administration's attempted major policy initiatives such as deficit reduction, job creation, child immunization, health care reform, education/ national service, apprenticeship programmes, etc., need to be evaluated.

The dilemma which the USA faces, and Germany to a much lesser extent, is the growing inability or lack of determination to separate economic policy-making from the political process, i.e., by the politicizing of economic affairs. The moral problems in modern-day capitalism are to be found primarily in the short-term interests of politicians and special interest groups, corruption, imbalanced budgets, in the non-complementarity of economic and ethical principles, and in an imbalance in the solidarity principle. Wilhelm Roepke (1960) argues that as a precondition for competing in a market its participants possess "self-discipline, a sense of justice, honesty, fairness, chivalry, public spirit, respect for human dignity, and firm ethical norms".

The common weal encompasses all aspects affecting social welfare, including the infrastructure, cultural policies, social security, health care, education, technological developments, to mention a few. In terms of Marshall's redefinition of laissez-faire, the "principle of common welfare" encourages government "to do that work which is vital, and which none but government can do effectively". That is, "the function of government is to govern as little as possible; but not to do as little as possible" (Pigou, 1966).


Akhtar, M.A. and Harris, E.S. (1992), "The supply-side consequences of US fiscal policy in the 1980s", Federal Reserve Bank of New York Quarterly Review, Spring, pp. 1-20.

Atlanta Journal and Constitution (1992), "The shrinking middle", Atlanta Journal and Constitution, 9 June, p. A19.

Atlanta Journal and Constitution (1993), "How much they tax", Atlanta Journal and Constitution, 28 February.

Brzezinski, Z. (1994), "Crisis of the spirit", Interview, American Legion, January, pp. 28-9, 58-62.

Cochran, K.P. (1979), "Why a social economics?", Review of Social Economy, Vol. 37, April, p. 123.

Eucken, W. (1948), "Policies towards organizing the market in an efficient manner", Ordo-Jahrbuch far die Ordnung yon Wirtschaft und Gesellschaft, Vol. 1, pp. 56-90.

Eucken, W. (1949), "Competition policy and its realization", Ordo-Jahrbuch far die Ordnung von Wirtschaft und Gesellschaft, Vol. 2, pp. 1-99.

Fallows, J. (1993), "How the world works", Atlantic Monthly, December, pp. 61-87.

Fortune (1987), "Seven wary views from the top", Fortune, 2 February, pp. 58-63.

Greer, C. (1995), "We can save jobs", Parade Magazine, 21 May, pp. 4-5.

Jensen, H.E. (1977), "Economics as social economics: the views of the founding fathers", Review of Social Economy, Vol. 35, December, pp. 239-40.

John Paul II (1991), Centesimus Annus, Libreria Editrice Vaticana, Vatican City, 1 May, p. 67.

Karsten, S.G. (1985), "Eucken's 'social market economy' and its test in post-war West Germany", American Journal of Economics and Sociology, Vol. 44, April, pp. 169-83.

Keynes, J.M. (1935), The General Theory of Employment, Interest and Money, Harcourt, Brace and World, New York, NY.

List, F. (1916), The National System of Political Economy, Translated by Sampson S.L., Longmans, Green and Co., London, 1916, pp. 108-12.

Marshall, A. (1961), Principles of Economics, (9th ed.), MacMillan and Company, London, pp. 714, 717, 720.

Muller-Armack, A. (1989), "The meaning of the social market economy", in Peacock, A. and Willgerodt, H. (Eds), Germany's Social Market Economy: Origins and Evolution, St. Martin's Press, New York, NY, pp. 82-6.

National Conference of Catholic Bishops (1986), "Pastoral letter on Catholic social teaching and the US economy", Economic Justice for All, United States Catholic Conference, Washington, DC.

Peterson, W.C. (1992), "The silent depression", Challenge, July-August, pp. 29-34.

Peterson, W.C. (1994), "Silent depression: cause, consequences, and cure", paper presented at the Annual Meeting of the Southwestern Economic Association, San Antonio, TX, April.

Pigou, A.C. (Ed.) (1966), Memorials of Marshall, Augustus M. Kelley, New York, NY, pp. 159-63, 336, 363.

Ritschl, H. (1977), "The social ethical foundations of a free economic system", Review of Social Economy, Vol. 35, December, pp. 398-9.

Roepke, W. (1960), A Humane Economy, Gateway Editions, South Bend, IN.

Roepke, W. (1992), The Social Crisis of Our Time, Transaction, New Brunswick, NJ.

Siebert, H. (1992), Introduction to Economics, Vol. 11. W. Kohlhammer, Auflage, Stuttgart.

Smith, A. (1759), The Theory of Moral Sentiments, republished 1966, Augustus M. Kelley, New York, NY, pp. 264-5.

Smith, A. (1776), The Wealth of Nations, The Modern Library, New York, NY, p. 423.

Stein, H. (1986), "Should growth be a priority of national policy?", Challenge, March-April, pp. 11-17.

Stockman, D. (1993), "Grand old pinocchios", Atlanta Journal and Constitution, 9 March, p. A9.

Teegardin, C. (1992), "Census says middle class on decline", Atlanta Journal and Constitution, 20 February, pp. A1, A4.

US News and World Report (1992), "Disparity and despair", US News and World Report, 23 March, pp. 54-6.

US News and World Report (1992), "A very rich dessert", US News and World Report, 23 March, pp. 52-3.

US President (1991, 1992, 1994, 1995), Economic Report of the President, Government Printing Office, Washington, DC.
COPYRIGHT 1997 Emerald Group Publishing, Ltd.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Karsten, Sigfried G.
Publication:International Journal of Social Economics
Date:Jun 1, 1997
Previous Article:Michael Polanyi's interpretation of history: three revolutions that changed the world.
Next Article:Geschichte der Deutschen Volkswirtshaftslehre, vol 1.

Terms of use | Privacy policy | Copyright © 2019 Farlex, Inc. | Feedback | For webmasters