5. The Role of Democracy in a Social Market Economy

Germany’s post war economic system is typically referred to as a Social Market Economy. Both the Social Market Economy and the so called “economic miracle”, that is the rapid economic recovery following the devastating World War II, are almost part of the charter myth of Germany’s post war society. Walter Eucken, the perhaps most prominent intellectual mentor of the Social Market Economy, postulated a broad range of interdependent effects of the various political and economic institutions on the degree of a country’s level of both prosperity and freedom (Eucken 1952). While he remained somewhat vague on the question as to how close this interdependence might be and as to what the causal relations were, most commentators argued that liberal economic and political institutions would be both stable and prosperity enhancing only when operating hand in hand, thereby reinforcing each other. Perhaps the most frequently considered interdependence between institutions is the one between the institutional setting of a market economy on the one hand and that of a democratic polity on the other.