CDS (II) 2022 General Knowledge · Question 117 of 120

Correct — A, Germany. Soziale Marktwirtschaft, the social market economy, is a German idea and a German policy. Alfred Müller-Armack of the Cologne school coined the term in a publication in December 1946; Ludwig Erhard, then Director of the Administration for Economics, set it out as policy before parliament on 21 April 1948; and after Konrad Adenauer's Christian Democrats won the election of August 1949 it became the organising principle of West German economic policy. The 1950s is when it delivered — the Wirtschaftswunder, the economic miracle, built on free prices and competition together with co-determination in industry, housing subsidies and a dynamic pension system. The intellectual root is the ordoliberalism of the Freiburg school around Walter Eucken, but Müller-Armack's version differed from it in a way worth remembering: where the ordoliberals wanted the state to set the rules of the market and then stand back, the social market economy gives the state an active responsibility to improve market conditions and to pursue social balance at the same time.

• (b)France — France's distinctive post-war model was dirigisme with indicative planning under the Commissariat général du Plan set up by Jean Monnet in 1946 — the state steering investment through plans, which is a different idea from the German one.
• (c)United States of America — The American post-war settlement had no comparable doctrine. Its nearest reference points are the New Deal of the 1930s and, later, the Great Society programmes of the 1960s, neither of which is a social market economy in the German sense.
• (d)United Kingdom — Britain's post-war model was the Beveridge welfare state with nationalisation of major industries under the Attlee government — universal social insurance and public ownership, not a market order deliberately paired with social balance.

The social market economy is a middle path between laissez-faire and central planning. Prices, competition and private ownership do the allocating, but the state is charged with keeping competition genuine — breaking up cartels and monopolies — and with securing a social settlement through insurance, pensions, worker participation and housing. The claim behind it is political as much as economic: that a market order survives only if its results are socially bearable, which is why co-determination and social insurance were built in from the start rather than added later.

The item is straightforward once the German association is fixed, and the mnemonic is a pair of names — Müller-Armack, who named it, and Erhard, who carried it out. One honest qualification on the stem's date. The term dates to 1946 and the policy to 1948, so 'emerged in 1950s' is loose; the 1950s is the decade in which the model matured and produced the German economic miracle, not the decade in which the idea first appeared. The country in the question, however, is unambiguous, and no option other than Germany is defensible. The concept remains live: the social market economy is written into German law and, through the Treaty on European Union, the European Union commits itself to a highly competitive social market economy as an aim.

• Alfred Müller-Armack coined the term Soziale Marktwirtschaft in a publication in December 1946.
• Ludwig Erhard introduced it as policy in the German parliament on 21 April 1948.
• It became the economic doctrine of Adenauer's Christian Democrats after their victory in August 1949.
• It grew out of the ordoliberalism of the Freiburg school around Walter Eucken, but gives the state an active social role.
• Its instruments included co-determination in industry, housing subsidies and a dynamic pension system, underpinning the 1950s Wirtschaftswunder.

• Reading 'social' as socialist; the model keeps private ownership and market pricing throughout.
• Attaching the term to Scandinavia, whose welfare states are a different tradition.
• Taking the 1950s in the stem as the date the idea was coined — it dates from 1946, and 1948 is when it became policy.

As a country-to-concept identification, or as a match between post-war economic models and the states that adopted them.

• practice — not a real PYQ

  The economist most closely associated with implementing the social market economy in West Germany after 1949 was

  • (a)Walter Eucken
  • (b)Ludwig Erhard
  • (c)Wilhelm Ropke
  • (d)Konrad Adenauer

  Answer(b) Ludwig Erhard — economics minister from 1949 and later Chancellor; Eucken and Ropke were theorists of the ordoliberal school and Adenauer the Chancellor who backed the policy.

• practice — not a real PYQ

  Post-war French economic policy is best described by which one of the following terms?

  • (a)Indicative planning under dirigisme
  • (b)Laissez-faire with minimal state involvement
  • (c)Central command planning on the Soviet model
  • (d)Currency board with fixed convertibility

  Answer(a) Indicative planning under dirigisme — the state steered investment through national plans drawn up by the Commissariat général du Plan without abolishing the market.