Abstract
AbstractThe paper interrogates the argument put forward by Acemoglu and Robinson or Northet al.that capitalism and democracy are supportive to each other. It analyzes the development of political and economic institutions in Germany before and after World War I. It is shown that the lack of democracy in Imperial Germany furthered a liberal economic order and gives reasons why the transition to full-scale parliamentarianism would have impaired the quality of economic institutions. This also explains why such a transition was not completed. The Weimar Republic established a modern democracy but was unable to secure the quality of economic institutions achieved before. Not only in Germany did the politicization of the economy impair the economic order. This empirical outcome helps to explain why Eucken and other liberals identified democracy as part of the economic problem during the interwar period. It also gives reasons to rethink the complex relationship between capitalism and democracy.
Highlights
Recent approaches in institutional economics emphasize a positive link between capitalism and democracy
It is striking that the mixed economy after World War II (WWII) maintained many elements of the economic order of the inter-war period, namely the gradual expansion of state expenditures including the welfare state, while countries were plagued by the cost of the war as well
The introduction of democracy based on universal suffrage coincided with the weakening of capitalist institutions even though prices remained the key device for coordination. This challenges recent approaches which too straightforwardly claim the correspondence of democracy and the market economy by mutually reinforcing each other
Summary
Recent approaches in institutional economics emphasize a positive link between capitalism and democracy Thereby they revise earlier views suggested by Olson, Hayek and others who argue that political competition in democracy tends to undermine the market order because distributional coalitions are striving for rents.1 North et al (2009) coin the term ‘open access order’ by which they mean that free access of all members in society rules both the market sphere and politics. The radical introduction of democracy combined with the elimination of traditional political institutions through the centralization of the German state after the abolishment of the sub-monarchies made the liberal order much more vulnerable than the pre-WWI order had ever done This change removed the balance of power between political bodies and monopolized the legislative power of parliament.
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