“The End of Laissez-Faire”: Keynes and Ordoliberalism

Keynes proclaimed the “end of laissez-faire” in lectures held in Oxford (1924) and in Berlin (1926). Some 10 years later, German economists who became known as Freiburg School of ordoliberalism after World War II began to write about the “failure of laissez-faire”. Both, Keynes in the UK and Walter Eucken et al., called for a fundamental re-orientation of economic policy. They shared the preference for individualism, political liberalism, and the market economy, rejecting central planning and socialism. Keynes argued that the case which had been made for laissez-faire by the philosophers of enlightenment rested on economic conditions which economists had failed to prove. In a similar thrust, Eucken argued that this doctrine had failed in its aim “to solve the problem of establishing an economic order through free play of economic forces”. The conclusions about which changes were needed are quite different. Keynes called upon the state to establish a framework for control of macroeconomic aggregates such as savings and investment through instruments of monetary and fiscal policies. The Freiburg School called for a radical policy to establish and ensure full (perfect) competition wherever possible. The paper also investigates differences in theoretical and historical background between Great Britain and Germany.