Introduction: Conceptual Preface – What Is an Economic Constitution ?

The main goal of this paper is to trace the idea of an economic constitution throughout parts of neoliberal discourse over time. This task is complicated by the fact that the terminology of ‘economic constitution’ is not entirely free of ambivalence, therefore the first step in this reconstructive endeavor is to spell out the various meanings the term may have. Based on this brief terminological preface, I will scrutinize where the notion (even in the absence of the explicit wording) of an economic constitution has a more or less pronounced presence in neoliberal discourse and trace the respective developments. In short, at the age of the neoliberal inception shortly before and after World War ii, the idea of the economic constitution enjoyed a remarkable level of popularity in neoliberal discourse. Invented by the ordoliberals of the Freiburg School in the interwar years,¹ the notion was disseminated, particularly by the influential Walter Eucken, in the post-war era and adopted by neoliberals from Friedrich August Hayek to Milton Friedman. The second phase of the development I aim to map begins around 1960 when shifts in neoliberal discourse as well as other factors lead to a relative decline of thinking in terms of an economic constitution, notwithstanding some prominent exceptions such as Ernst-Joachim Mestmäcker, who manages to combine genuinely ordoliberal tenets with Hayekian elements and emerges as an important figure in shaping what may be called the economic constitution of the European Union.² The third and final phase I will analyze sees the merging of an already Hayekianized ordoliberal tradition with the neoliberal current of the Anglo-Saxon world most akin to ordoliberalism as well as the idea of an economic constitution, namely the Constitutional Political Economy (cpe) of James Buchanan and what some commentators call the Virginia School of neoliberalism founded by him. Buchanan would even be named honorary president of the Walter Eucken Institute in Freiburg eventually, but the crucial figure building the theoretical bridges to pave the way for this merger of traditions is Viktor Vanberg, a long-time collaborator of Buchanan who became a Professor of Economic Policy in Freiburg in 1994, inhabiting the same Chair that Hayek held when he joined the university in Freiburg in 1962. I will close with some concluding reflections.

But first, when it comes to a notion such as an economic constitution it is important to clarify what we are referring to and let the reader know whether the following examination operates with a rather broad or more restrictive meaning of this term.³ In my view, it might be most instructive to treat the notion of an economic constitution less as a strictly circumscribed concept with a clearly demarcated definition but rather as a motive upon which there might be different variations. In other words, I opt for a broader, more encompassing understanding of economic constitution. Still, in order to make sure that this does not leave the concept in utter vacuity, let me proceed to spell out at least some of its (potential) meanings and thus give a more determinate account of my interpretation of it identifying four ambivalences.

Starting with a very simple semantic analysis, we can already see without having to mobilize any major theoretical background knowledge that an ‘economic constitution’ can refer to two somewhat different phenomena. First, it can denote a constitution for the economy, understood as some kind of framework, but, secondly, it could also refer to a constitution that is crafted according to strictly economic considerations, based, possibly, on an economic analysis of law. To be sure, both will coincide in the focus that is placed on the economic effects of a constitution, but this convergence point notwithstanding, there remains a difference between wondering about the appropriate framework of markets and the kinds of analyses that are carried out in the Chicago tradition of Law and Economics. While my analysis will clearly touch on the convergence point of these two ways of spelling out the meaning of economic constitution, the economic effect of constitutions, it will largely bypass the latter tradition of Law and Economics, not the least, in order not to lose focus while exploring the vast universe of it.

The second ambivalence in meaning is related to the meaning of constitution. Here the question is how strictly we ought to interpret the term constitution, and whether only a constitutional framework of the economy in the literal sense of the term qualifies as such. In my view, this would seem overly restrictive; while there is textual evidence of examples where the economic constitution is understood as just that, it may be more helpful to opt for a more expansive understanding that points to a high level of legal codification of economic affairs, which exhibits at least a certain degree of inertia and is not subject to any kind of majoritarian whim or a presidential executive order. In other words, in this understanding it would also be acceptable to refer to a more or less implicit economic constitution that can be reconstructed as a (considerable) number of individual legal norms that amount to something like a comprehensive framework for the economic sphere. Importantly, though this constitutional order must still display the typically Janus-faced nature of constitutions, which are both, enabling and restricting in their effects. In other words, a legal framework that simply enforces contracts and ensures property without any explicit restriction of economic activities short of fraud and theft would not be labeled an economic constitution. Finally, with respect to this dimension of ambivalence, we should note that even among jurists it is unclear whether the meaning of constitution should be strictly confined to a legal document, i.e. a collection of norms, or broadened to include conventionalized practices of implementing said document somewhat at variance with the letter of the law. In the German tradition there is the widely referred to distinction between Verfassungsnorm and Verfassungswirklichkeit, which also introduces some normative considerations, but more broadly speaking one might refer here to the notion of a lived constitution. In sum, what is at stake here is a restrictively legal and codified understanding of constitution in contrast to a broader understanding that may encompass non-legal spheres and includes practices in addition to norms.

The third level of ambivalence touches on what was described as the semantic ambivalence of economic constitution. Here, it is not the vagaries of the term constitution but rather the many meanings of ‘economic’ and what it can refer to. Concretely, is an economic constitution only in place when there is a comprehensive (legal) framework for the entirety of the private economy or is it appropriate to refer to it also in cases where only certain sectors of the private economy are ‘constitutionalized’? Both seem possible, if the latter case is qualified as selective constitutionalization or something along these lines. Arguably more importantly, though, is that we cast a critical light on the notion of a strict separability of the various objects of such a constitution, as if it was possible to distinguish meaningfully between a constitution for the private economy and constitutional rules for state action that have effects on that private economy (and this is the point of convergence of the first ambivalence discussed initially). When we talk about an economic constitution the double attributes of constraining and enabling clearly accrue to both private economic actors as well as the state, e.g. when it regulates market action but also when it uses its power to tax.

Finally, we ought to distinguish between a strictly empirical and typically broader use of the term and a normative one where considerations go beyond understanding and analyzing economic constitutions and aspire to (help) identify the economic constitution that stands out normatively, justified and legitimated by various means, that is deemed superior to alternative arrangements.⁴

As initially mentioned, I believe it to be helpful to cast a rather wide net in the following and trace different variations of the theme of an economic constitution along the lines laid out in the preceding paragraphs, although some variations, i.e. meanings will be encountered more frequently than others, which in itself might be considered an instructive finding.

Based on these preliminary remarks aimed at clarifying the various dimensions of the terminology of an economic constitution, let us now delve into the history of neoliberal thought and highlight the significance of this concept.

1 Phase i: When Neoliberalism Spoke in Ordoliberal Terms

When we inquire into the status of the economic constitution in neoliberal discourse it is obligatory to explicate the meaning we attribute to this heavily contested term. Neoliberalism nowadays is an almost toxic word smearing both those who use it and those whom it is used to portray, but that was not always the case. As is well established now, while there were plenty of neoliberal ideas avant la lettre floating around in Chicago, London, Vienna and Freiburg, to name only but the most important hubs of neoliberal discourse, the ‘official’ birth date remains the Colloque Walter Lippmann, taking place in Paris in August 1938. In the records of the meeting, the term is first introduced⁵ and from the discussions in Paris and the writings of the participants and others in close proximity of theirs we can gain a glance at what meaning the first generation of neoliberals attached to their shared project: As the schedule of the Colloque shows quite clearly there was a heightened sense of crisis among the participants and a perception prevailed that liberalism was either going to fall into oblivion or reform and reassert itself – the former being the prerequisite of the latter. Still, despite a broad agreement on the need to modernize liberalism and widespread aversion to what the participants frequently dubbed Manchesterism, i.e. laissez-faire capitalism and the idea that markets would and should regulate themselves, no fully coherent politico-economic philosophy would emerge from this – either at the Colloque or ever afterwards. Therefore, it is hardly a surprise that the concept of neoliberalism has been mired in controversy ever since; there simply is not a coherent positive set of doctrines. Rather, what unites neoliberal thought is a set of shifting political and intellectual antagonists that prominently include collectivism and, later on, Keynesianism or the welfare state but also the advocates of laissez-faire. So while they are all adamant defenders of markets and their superiority based on the functioning of the price system, which must be protected at all costs, this requires certain conditions to be in place and hence, the smallest common denominator of neoliberal discourse, a number of shifts over time notwithstanding, was and remains the problem of what these necessary conditions of functioning markets are (the epistemological part of the problem) and how they possibly could be put into place and maintained (the political part of the problem).

Now let us take a closer look at how the idea of an economic constitution was inserted into neoliberal discourse defined in this way. While considerations along the lines of a comprehensive framework for the economy were not entirely absent from other institutional centers of early neoliberal thought, especially with thinkers belonging to the ‘first’ Chicago School, such as Knight or Simons, the strongest evidence is definitely found in the formative stages of ordoliberal thought in Freiburg.⁶ Its central figure, political economist Walter Eucken had already published smaller texts that would come to be seen as foundational for ordoliberal thought but the latter’s opening salvo aimed at a broad audience came in 1936 when he published an op-ed in the Frankfurter Zeitung together with the Freiburg jurists Hans Großmann-Doerth and, importantly, Franz Böhm, originally entitled ‘Our Task’ (Unsere Aufgabe). Here the three sketched what they considered the decline of political economy and law as sciences that had largely lost the political clout they used to command and thus can no longer deliver at their actual task: “[l]aw and political economy were once formative forces which exercised considerable influence – for instance, on the reconstruction of the legal and economic system which has taken place in all civilised countries since the end of the eighteenth century”.⁷ This diagnosis already contains a hint at the constitutional dimension of this agenda, referring to the legal and economic system. For the future ordoliberals, the point lay in the constructive contribution that a properly understood science of economics and law respectively could make to the task of ordering and which only had been forfeited due to some questionable intellectual trends such as the historicism of Schmoller and others, as well as the ‘fatalism’ of Marx and his followers. Both led to sciences confining themselves to register developments and abdicate their presumptive ability to shape these: “[i]t might be said that they lost the Archimedean Point from which reality can be comprehended”.⁸ “Confronted with such a fatalistic attitude the lawyer can only adjust to the economic conditions. He does not feel that he has the strength to shape them”⁹ – but that is clearly the ambition of the ordoliberals. Here we already see that the intertwinement of the economic and the legal will be a cornerstone of the Freiburg brand of ordoliberalism and it would only take another year until the notion of an economic constitution is officially introduced at great length in Franz Böhm’s The Order of the Economy as Historical Task and Legal-Creative Achievement (Die Ordnung der Wirtschaft als historische Aufgabe und rechtsschöpferische Leistung), which was published as the first volume of the series The Order of the Economy, edited by the three ordoliberals jointly, with their op-ed from the year before serving as Editor’s Introduction.

Böhm’s treatise offers arguably one of the most elaborate and also most intriguing conceptualizations of the economic constitution. Böhm sets the legal bar relatively high, explicitly pointing out that not just any legal ordering of the economy will qualify as a constitution. We can only speak of the latter “where a politically-established will prescribes a particular mode and form of economic production for the community”.¹⁰ The constitution is not an empirical snapshot of de facto economic processes but a set of norms and, in addition, this cannot be a somehow emergent conglomerate of legal norms but rather it must indicate that the “state knowingly adopts systematic pursuit of an economic policy”.¹¹ In other words, and this attests to the widespread influence of (Schmittian) decisionism at the time,¹² the constitution must be “founded in a clear and unassailable expression of political will” that aims at a substantive goal and, conversely, “decisions which lack a specific, substantive ideal and which leave the economic process untroubled by a clear goal and technical order, do not amount to an economic constitution”.¹³ Thus, what we have on display here is a comprehensive understanding of a constitution, which does not only enable economic activity but also necessarily curbs some according to some kind of substantive ideal. It is also specified in the sense that it ought to pertain to the “national economic totality” and not just a particular sector and for the most part, Böhm thinks of it as a body of legal norms (which might be different in the case of the political constitution he distinguishes from its economic counterpart). The constitution is, crucially, the coherent expression of one single political will and is thus generated “by an authoritative leadership decision founded in expert knowledge”,¹⁴ as the op-ed already demanded, which appears to point the way towards a fairly anti-pluralist kind of technocracy. We will inquire into the substantive details of this constitutional order shortly, for the moment it is worth noting, though, that Böhm’s account exhibits an ambivalence that relates to one mentioned in the opening section as well, although, strictly speaking, this is yet another level. While he emphasizes the prescriptive nature and the cohesiveness of a set of norms pertaining to the totality of the economic in order to be called a (economic) constitution he still recognizes that in reality this might be too ambitious: “[c]learly, the chosen system might be piecemeal in its genesis, and full of exceptions” – so, in a way, the economic constitution in such cases characterizes the empirical status quo but it also defines the normative vanishing point of its thrust; i.e. its telos.

Böhm was true to the ordoliberal commitments and had dealt with economic issues from a legal perspective going back as far as the late 1920s.¹⁵ But while he was reluctant to refer to constitutions specifically, it was clearly Walter Eucken who offered the most comprehensive design of an economic constitution, the substance of which was in almost complete congruence with Böhm’s view. Eucken typically prefers to speak of orders but where he still uses the language of constitutions, the definition hardly differs from Böhm’s: “[b]y an ‘economic constitution’ we mean the decision as to the general ordering of economic life of a community”, but also adding: “[o]f course, there are partial constitutions: for example, for the monetary system…”.¹⁶ Still, in principle, Eucken agreed that economic constitutions were supposed to be a matter of deliberate design, based on a unitary will, pertaining to the totality of the economy and informed by the only authority that could grasp that totality, namely the science of political economy: “[n]aïve pre-scientific observation cannot give an understanding of an actual economic system […] Only by scientific investigation can questions about the structure of economic system be answered”.¹⁷

While Eucken still distinguished between an economic constitution and an economic order in the Foundations of Economics, the former being a prescriptive, the latter a purely descriptive concept, this would change in his posthumously and immensely influential other magnum opus entitled Principles of Economic Policy where the most elaborate description of his idea of an economic constitution, namely, the competitive order, can be found.

The competitive order comprises the institutional framework of what Eucken calls an exchange economy (Verkehrswirtschaft) and it includes legal regulations but also goes beyond the strictly legal realm. Eucken’s description focuses on several constitutive as well as (fewer) regulative principles underlying the competitive order. If implemented properly, this competitive order would ensure that only a particular type of competition would take place on markets, namely “performance competition”,¹⁸ that makes it imperative to offer better prices and/or quality for consumers in order to make a profit. The constitutive principles are a functioning price system, sound money, open markets, private property, freedom of contract, and unlimited personal liability. This is the enabling dimension of the economic constitution, which literally constitutes markets and the economy as such. Crucially, however, Eucken did believe that economic constitutions also had to contain a constraining dimension, i.e. the regulative principles. Markets are not considered self-sustaining and if it is true that the basic principle of the competitive order is competition as Eucken spells out elsewhere, precautions have to be taken that markets remain sites of performance competition, which is the function of the regulative principles. Thus, the state has to intervene whenever there are instances of market power, e.g. monopolies or trusts, but it also may have to step in to ameliorate externalities and it might even have to consider redistributive measures and – in extreme circumstances – a minimum wage.

There is no space to discuss all of these principles here; but let us note three general points. First, it is worth pointing out the somewhat heterodox nature of the regulative principles. To be sure, the first is the signature characteristic of ordoliberalism, but especially the last two are only rarely acknowledged in the conventional self-descriptions of contemporary ordoliberalism. Second, this is an economic constitution that is obviously normative in nature, since it enables an exchange economy, which Eucken thought was the only viable economic order in accordance with what he considered human nature. Finally, and arguably most importantly, Eucken himself was wary of the effects of such a constitutionalization of economic policy broadly speaking. To be sure, it was also Eucken who had continuously chastised economic policy during the interwar years for being a wayward sequence of experiments that contributed heavily to economic turbulences in his view, which is why constancy in economic policy was an end in itself: “[i]f, however, economic policy does not exhibit a sufficient degree of constancy, the competitive order also cannot become fully functional”.¹⁹ Furthermore, he did emphasize the holistic nature of the competitive order, making it imperative to preclude loopholes and exceptions. Nevertheless, Eucken was aware that this might place economic policy in a Procrustes Bed of strictly rule-based policy and thus he explicitly points out that neither rigorous rule-following nor case-to-case pragmatism is up to the task. Rather the principles of the economic constitution need to be applied with a view to the concrete situation: “[t]he sought-after order will only be established if these principles are likewise applied within the context of the concrete historical moment”.²⁰

The Freiburg School within German ordoliberalism was thus the driving force to establish the economic constitution as a crucial concept in the context of a renewed and modernized liberalism that had been envisaged at the Colloque Walter Lippmann. What is arguably more surprising than this, however, is the fact that the Freiburg call did resonate with a number of crucial representatives of neoliberalism. While a more comprehensive survey of neoliberal discourse remains beyond the scope of this contribution, it is worth noting the selective uptake Eucken’s idea of a competitive order received in the early post-war years.

Eucken had been acquainted with Hayek since before the war and the latter made it no secret that he considered Eucken’s work to be of premium intellectual quality as well as political importance. Eucken had been barred from attending the Colloque by the Nazis²¹ who kept very close tabs on him at this point, but when neoliberalism was born the second time at the founding of the Mont Pelerin Society in 1947, Hayek went out of his way to make sure that Eucken could attend despite difficulties entering Switzerland as a German national in the immediate post-war era. Much later, when Hayek took up his professorship in Freiburg, he would reminisce on his acquaintance with Eucken and recalled what an impression Eucken had made at Mont Pelerin: He was the only attendee from Germany and his reputation at the time was immense. It was not the least Hayek himself, who would later call him one of the most serious German thinkers in the 20th century, who seemed to be enthralled by Eucken, judging from the positions he embraced at the founding meeting of the Mont Pelerin Society. Not only did he make it clear in his opening statement that the new liberal agenda had to be modernized and get rid of outdated laissez-faire vocabulary, which was a cause that the ordoliberals in particular had been championing at the Colloque and before, his own presentation could be seen as testimony to the influence of Eucken’s ideas.

Let us not forget that Hayek had been a fairly unreconstructed liberal in the Misean cut throughout the better part of the 1930s when he battled Keynes for intellectual hegemony over how to interpret and deal with the Great Depression. Only in the final years of the decade did his position begin to become more malleable, but only three years before the Mont Pelerin meeting he had published the Road to Serfdom, which is mostly considered a visceral attack on any attempt to constrain market activity – although at closer inspection it is hardly that. In fact, Hayek’s own presentation picked up exactly where he left in the Road to Serfdom pointing out the defensive struggles of liberals in an overall climate favorable to ‘planning’ and, possibly, even socialism, which was exacerbated by the inability of liberals to present a viable alternative. Hayek continued to argue that this alternative was not the demand for a return to ‘free markets’ – not the least because this was an utterly futile course under the given circumstances. What emerged as an alternative in his talk, interestingly, was a vision not all too different from Eucken’s ideas.

While he was still hedging his bets rhetorically in these formulations only minutes later he put the cards on the table: “It is this fact which I have wished to emphasize when I called the subject of this discussion ‘Free Enterprise and Competitive Order’. The two names do not necessarily designate the same system, and it is the system described by the second which we want”.²³ Hayek, in other words, was willing to commit himself to the ordoliberal version of an economic constitution along the lines of what Eucken had laid out in the post-war years. Eucken’s standing with Hayek is further attested to by the fact that he was invited to London for a series of lectures in 1950 – during the course of which Eucken died unexpectedly.

And it was not only Hayek who was impressed by the agenda of an economic constitution that would take the form of the competitive order. The young Milton Friedman had joined the Economics Department at the University of Chicago in 1946 and in the following year joined his fellow Chicagoans Knight, Viner and Simons on their transatlantic voyage to the founding meeting of the Mont Pelerin Society. In his personal recollections Friedman described the meetings, which he would come to attend regularly while also rising to a rather prominent status within the Mont Pelerin Society, as a fountain of liberal youth that would replenish the energies and convictions of the gathered participants as some of the few remaining bastions of (neo)liberal reason in an uphill battle against a world bent towards collectivism. And to be sure, the overall climate in the post-war era was not particularly favorable to free market orthodoxy à la Mises; a fact that needs to be taken into consideration because the neoliberal distancing from unreconstructed laissez-faire might also involve a measure of strategic repositioning in the light of these circumstances.

Even beyond the sheer terminology of the competitive order this is a succinct description of the agenda Eucken had been developing up to 1951 as we know from the exposition above. It is worth noting that the personal encounter between Friedman and Eucken at the meeting in 1947 gives no indication of the ordoliberal imprint that was temporarily left on Friedman’s thinking. Judging from the records, Eucken’s session focused strongly on the immediate post-war situation in Germany and what to do about it, with Friedman injecting several of what Innset calls “highly theoretical comments”.²⁷ But Friedman may have still heard of Eucken’s vision of a competitive order if only in a somewhat strange context, when Eucken as the chair of a session on liberalism and christianity got into a skirmish with the fervently anti-religious Knight and declared that the competitive order was essential from a Christian viewpoint.²⁸ But even if it is difficult to establish conclusively the Euckian influence, the fact remains that Friedman’s characterizations correspond to the Freiburg script in a remarkable fashion and so we can conclude that up to the 1950s the idea of an economic constitution spelled out along broadly ordoliberal Freiburg lines may not have been in any way hegemonic within neoliberal discourse but it was certainly a common frame of reference shared between Freiburg (Eucken, Böhm), London (Hayek) and even Chicago (Friedman).

2 A Period of Decline

Still, the notion of an economic constitution understood as a deliberately designed and established (legal) framework that would grant the state important functions in maintaining competition was not to last – which, however, does not imply that neoliberalism in general relapsed into blatant laissez-faire. But throughout the 1960s and 1970s neoliberal discourse experienced a number of shifts that also had an impact on the standing of the idea of an economic constitution. First, the overall climate with regard to economic policy began to change. What Friedman was already claiming to have detected in 1951 in what was a typical gesture of neoliberal thought rather than plain wishful thinking really came underway during the 1960s and 1970s, namely a change in the intellectual climate, notwithstanding that the political world was indeed still lagging behind: the Goldwater Campaign, an early harbinger of what was to come, crashed spectacularly at the polls of 1964. But Friedman, who had advised the campaign and others realized that the tide was indeed beginning to turn and when the 1970s experienced the stagflationary downturns that threw Keynesianism into an epistemological crisis the neoliberals were ready to position themselves more forcefully and with less sensitivity to an erstwhile market sceptical Zeitgeist.

Furthermore, and possibly related to this overall climactic shift, there was a notable shift in the balance of power within the Mont Pelerin Society, which continued to be an important relay structure for the diffusion and promotion of neoliberal ideas inside and outside of the organization. As is well chronicled, when Hayek stepped down as the chairman and the German ordoliberal Röpke ascended to the helm of the Society, it ushered in a period of internal strife, all the specifics of which need not concern us here. What is important, though, is that it fractured the organization along Anglo-American and continental European lines, with Milton Friedman leading the charge against the Röpke ally and long-time financier of the Mont Pelerin Society Albert Hunold. Friedman described the latter as representing “the most reactionary and status quo ante influences in the society” and committed to a “determined movement by a group of us to get rid of Hunold as European secretary”.²⁹ The final outcome was the resignation of Hunold along with Röpke, his fellow ordoliberal Alexander Rüstow and several others in 1961. This left the Society bereft of any major genuinely ordoliberal influence as they entered the 1960s and in the oblique rivalry between what Röpke had already described in 1955 as the proponents of “paleoliberalism” and “neoliberalism” the former had obviously prevailed.³⁰

True, Friedman still introduced various principles for public policy but aside from the fact that they often turned out to be principles in name only upon closer inspection,³² it would be a real stretch to view them as the building blocks of something like an implicit economic constitution in Friedman’s thought. The first Chicago School and the Freiburg Ordoliberals still shared significant areas of common ground – Friedman’s trajectory (and that of the entire Economics Department at Chicago) put significant distance between these two institutional hubs of neoliberal thought.

And Milton Friedman was not the only former adherent of ordoliberal constitutional thinking whose support turned out to be fleeting. In Hayek’s case this was all the more worth noting as he accepted a professorship at the Economics Department in Freiburg right at the time when he was openly beginning to distance himself from the genuinely Euckian line of ordoliberalism – although it would be overstated to say that he broke with it.

In his inaugural lecture in Freiburg in 1962, there were the expected and probably genuinely felt pleasantries regarding the Freiburg tradition in general and Eucken’s legacy in particular.³³ And we must not forget that Hayek’s opus magnum The Constitution of Liberty had only come out two years before, affirming that he was someone who belonged to those who thought in the constitutional framework. But Hayek was already on his way elsewhere – which may have been in part an effect of the twelve years he had spent in Chicago, albeit not at the Economics Department which denied him a position. It had certainly changed his position regarding the problem of monopoly along rather Friedmanite lines. In the Constitution of Liberty we find the laconic assessment: “Monopoly is certainly undesirable, but only in the same sense in which scarcity is undesirable; in neither case does this mean that we can avoid it”.³⁴ This is a far cry from the ordoliberal activism in battling economic power which was one of the primary rationales of the economic constitution aiming at a maximization of effective competition. Still, this in itself would not be sufficient evidence to conclude a decline in economic constitutional thought on behalf of Hayek.

But there is indeed more to suggest a divergence between his frame of thinking and that associated with his new home institution, and it would come to the fore not too long after his arrival. In 1963 Hayek published an article, which at first sight seemed like a courtesy to his new environment: it was published in the central organ of ordoliberal thought, the journal ordo, founded by Eucken and Böhm, and it dealt, appropriately, with the problem of order. But Hayek used the opportunity to prominently point out a distinction that would become increasingly important for him and that signaled a departure from orthodox ordoliberal thought. In Types of Order (Arten der Ordnung) Hayek distinguishes between orders that are deliberately designed and implemented with a particular goal in mind on the one hand, and spontaneous, catallactic orders on the other, the latter not being the result of anybody’s design.³⁵ Hayek left no doubt about the need to make use of both kinds of order in society, however, starting with this article, the importance of the two types respectively would continue to shift towards the spontaneous one more and more. This is certainly related to Hayek’s turn towards evolutionary theory but it is unclear what is cause and what is effect in this relation. But be that as it may, there is an increasing scepticism detectable in Hayek’s thought when it comes to imagining the deliberate design of encompassing constitutions – in contrast to specific organizations – for society. At best, it seems, one can aim to cultivate an overall environment in which it becomes more likely for beneficial (constitutional) orders to emerge but with this view Hayek, who had claimed adamantly that he was not a conservative in the famous Postscript of the Constitution of Liberty, found himself in increasingly closer proximity to Burkean, and thus somewhat conservative views on the merits of institutions emerging and growing almost organically over time. In principle, this might still be reconcilable with a constitutional approach if interpreted along the lines of the British tradition of an ‘unwritten’ constitution, common law and an emphasis on historical precedent. At the very least, though, this is a decidedly different view of an economic constitution from what Eucken and Böhm in particular had put forward in the formative years of ordo- and neoliberalism.³⁶

And speaking of Böhm, it is finally worth mentioning that Hayek’s presence in Freiburg also seems to have had some impact on his views. Consider an example from a text originally published in ordo in 1966. Here Böhm speaks of signalling systems, e.g. markets, that “over the span of entire historical periods have been polished and ground more or less without any input from a planning state authority, even without conscious human insight by the unconsciously intelligent everyday action of countless generations of individuals”.³⁷ This is much more reminiscent of Hayekian descriptions of spontaneous orders than what Böhm had had to say about the authoritative setting of deliberately designed constitutions in 1937 and a long time after that. Still, it was one of Böhm’s students, Ernst Joachim Mestmäcker, who would most emphatically carry on the tradition of the idea of an economic constitution in a time of overall decline of such a notion. Mestmäcker would explicitly raise the question as to “how to concretize the principles of the rule of law in a theory of the economic constitution”³⁸ and he would do so first and foremost with respect to the European Union and the Common Market³⁹. Mestmäcker would come to play a prominent role in shaping European competition law and thus provides one of the more important personified channels through with ordoliberal ideas were injected into European Union (legal) structures. It is worth pointing out that just as in Böhm’s case, Mestmäcker’s thinking of the economic constitution had adopted a discernable Hayekian inflection, but nevertheless he represents by far the most ambitious attempt to connect to the traditional ordoliberal approach to the economic constitution during an era in which such themes appeared to be in decline within neoliberal discourse, albeit at times in an altered, supranational context and not without shifts and revisions.

3 Coda: The Renaissance of Constitutional Thought – Viktor Vanberg and James Buchanan

The Renaissance of constitutional thought within neoliberal discourse is largely albeit far from exclusively attributable to the rise of what is sometimes referred to as the Virginia School of Political Economy or the Virginia School within neoliberal thought, shaped decisively by James Buchanan. Buchanan’s agenda is best characterized as Constitutional Political Economy and this already indicates of course the overarching importance of constitutional thinking for his entire work. The genesis of Buchanan’s thought need not concern us here;⁴⁰ suffice it to say that by the mid 1960s and possibly long before he had arrived at a fairly unique point of view that blended Wicksellian elements on public finance with ingredients from respective Italian traditions and developed a perspective on political economy that put a premium on the crucial distinction between choices within a set of rules and choices between different (sets of) rules, the latter being the constitutional level, which was the level Buchanan’s work tended to focus on for the rest of his career. With view to the distinctions and ambivalences laid out in the opening section, what was of prime interest to Buchanan was the (economic) effects different kinds of rule sets, i.e. constitutions with varying properties, would have on the choices made by actors. These actors were at least initially modelled along the lines of the behavioral model of homo oeconomicus and Buchanan’s crucial theoretical move was to assume that this was also an appropriate model to analyze the behavior of political actors from elected officials to appointed bureaucrats. With this innovative if controversial agenda, Buchanan rose to prominence inside and outside the institutionalized neoliberal network of the Mont Pelerin Society: not only was he the Society’s president from 1984 to 1986, at the end of his tenure he also received the ‘Nobel’ Prize for Economics in 1986. Thus, the influential stature of Buchanan within neoliberal discourse and the Economics profession is undisputed.

Still, the fact that he was considered to be a ‘constitutionalist’ – not the least by himself – does not determine yet, what kind of a constitutionalist he was according to the differentiations developed in the opening section. We have already mentioned that Buchanan obviously was interested in the economic effects of constitutions but he also subscribed to the notion of an economic constitution in the other sense of the term, offering what amounts to an economic analysis of varying constitutional orders, albeit not carried out in a strictly Chicago style Law and Economics fashion. Regarding the second ambivalence, it seems plausible to say that while Buchanan emphasized explicitly legal regulations and rules, such as – prominently – the balanced-budget amendment, his overall understanding of a constitution included less tangible cultural or moral factors as well. In contrast to Thomas Hobbes, one of his virtual interlocutors, and despite the heavy emphasis on homo oeconomicus characterizing his work up to the 1980s, the later Buchanan would concede that law by itself could not rein in ‘deviant’ behavior in the long run and began to introduce the notion of a ‘moral order’ as an integral aspect of what he considered a ‘good society’. Conversely, the problem of public finance and an overspending as well as overtaxing state was not just self-serving politicians and bureaucrats but also the erosion of a fiscal morality due to the corrosive influence of Keynes in particular.

Moreover, when we consider the third ambivalence, Buchanan was talking about constitutions in the broad sense of the term, which meant that this included partial constitutions not necessarily pertaining to, for example, the economy in its entirety, as used to be the ambition held by classical ordoliberals. More importantly, though, one could make the case that the object of Buchanan’s constitutional endeavors is not so much markets or certain aspects of them at all but rather the state. Needless to say, this will have any numbers of effects on markets and private actors, which is why, initially, we explicitly included such an emphasis in the concept of an economic constitution, but it is worth pointing out that Buchanan is primarily concerned with a set of rules pertaining to state economic and financial policy, e.g. a “tax constitution”⁴¹ but also the distribution of the power to tax between various levels of government, to stay with the example of fiscal policy.

Finally, Buchanan’s concept of an economic constitution in the broadest sense can be used in a largely descriptive manner, referring – quite broadly – to any set of ‘rules of the game’ including a less easily pinpointed ‘ethical’ dimension. Still, two points bear mentioning. First, Buchanan was clear that just about any constitution would be preferable to anarchy and in that sense he was a Hobbesian, albeit with the strong qualifier that the entire point of Buchanan’s agenda is to restrict what he also would come to refer to as ‘Leviathan’. Second, there is clearly a normative aspect to Buchanan’s constitutional theorizing, the normative criterion being that of a strict normative individualist: between two constitutional orders it is the one that can gather ideally unanimous support from those subject to it that ought to be adopted; there is no extrinsic normative value that would have to be taken into consideration.

As we approach the end of the paper we must eventually address the relation between the ordoliberal conception of the concept of an economic constitution and the Virginia conception, which is an intriguing issue, not the least because both paradigms would come to be fused to a significant degree at the hands of one of Hayek’s successors at Freiburg, Viktor Vanberg.

Vanberg was trained as a sociologist but always had exhibited an individualist orientation as far as methods and normative commitments are concerned, citing the thought of Hans Albert as one of his prime inspirations. Vanberg had already worked on both Buchanan and Hayek, defending their respective individualist approaches to explaining social phenomena when the three of them met in what must be described as a fateful encounter in Freiburg of all places, where a conference organized by the Liberty Fund took place. Vanberg, who was working at Mannheim University at the time, was the discussant of Hayek’s talk and his own paper focused on the relation between what he called Hayek’s liberal evolutionism and Buchanan’s contractarian constitutionalism. Even more importantly, Vanberg in his talk submitted what he thought might be a theoretical bridge between the two paradigms, reconciliating what Buchanan criticized in Hayek as the latter’s evolutionary fatalism and what Hayek undoubtedly criticized as Buchanan’s rationalist constructivism, i.e. the attempt to deliberately design constitutions along the lines discussed above. There is no space to go into the details of Vanberg’s suggestions, which, as should be noted, found tentative agreement from both, Buchanan and Hayek, rather let us focus on the rapprochement it would set off over the coming two decades.

Subsequent to the Freiburg meeting, Vanberg was invited to the Center for the Study of Public Choice in Virginia by Buchanan where he ended up spending five years in different positions, working closely with Buchanan and also publishing jointly. Interestingly, it was only during his time in Blacksburg and later Fairfax (Virginia) that Vanberg became really interested in ordoliberalism; “a tradition in German economics I had known about but that I had not paid much attention to before coming to the Public Choice Center”.⁴² His engagement with ordoliberalism resulted in a crucial paper that would also become an agenda for the coming years and was aptly published in ordo in 1988. In “Ordnungstheorie as Constitutional Economics. The German Conception of a ‘Social Market Economy’” Vanberg for the first time undertook a systematic comparison between the Freiburg and the Virginia framework and pointed out the significant overlap between their respective constitutionalisms as well as their complementarities.⁴³

Vanberg continued to explore the relation between Constitutional Political Economy and other frameworks, not the least the one of Hayek,⁴⁴ and this turned into a full-blown agenda when he assumed the Chair in Economic Policy formerly held by Hayek in Freiburg in 1994. From there on, Vanberg went at great length to devise what might be called a great synthesis between not only ordoliberal thought and Constitutional Political Economy but also these two paradigms and Hayek’s evolutionary thought. We are already familiar with one of the main fault lines between Hayek’s and Buchanan’s perspectives but while there was significant overlap between Freiburg and Virginia, their reconciliation was not to be taken for granted either. After all, the Freiburg view was that science was capable and obligated to assist politics in designing and maintaining an economic constitution, i.e. the competitive order, while Buchanan’s public choice commitments led him to believe that this kind of consultancy to wholly opportunistic politicians would be at best naïve and at worst dangerous.

But aside from these outright conflicts, Vanberg rather focused on the complementarities between the two paradigms and where they could prove mutually beneficial, which was, not the least, in the relative focus of the economic constitution. What Vanberg thought ordoliberal constitutionalism had to adopt from Buchanan was a strictly individualist normative orientation. That is to say, while the classic ordoliberals were inclined to believe that the functional and normative justification of the competitive order could be ensured with reference to scientific expertise, this clearly technocratic and elitist attitude became more and more difficult to maintain, in the eyes of Vanberg. Instead, the citizenry and their consent should be the sole arbiter of the normative acceptability of the economic constitution, although we must leave aside the question as to what kind of procedure should be seen as appropriate and sufficient to establish this will, the options ranging from the strong, i.e. a referendum, to the weak, i.e. tacit consent in conjunction with the ability to leave and thus “vote with one’s feet”. Conversely, Vanberg noted a complementarity that we have already indicated implicitly, when characterizing Buchanan’s conception of an economic constitution with its almost exclusive focus on state policy. As Vanberg notes, Public Choice in the Virginian mold had “primarily focused on the issue of how the political process may be constrained by suitable rules to be responsive to citizens’ interests, the principal focus of the Freiburg school has been on the institutional prerequisites for a market order that is responsive to consumer interests”.⁴⁵

Thus, the emerging paradigm of what its representatives would begin to call Ordnungsökonomik instead of Ordoliberalismus sought to bring in a stringently applied Virginian normative individualism to Freiburg constitutional thought while at the same time combining Virginian attempts to bind Leviathan through an economic constitution with the Freiburg emphasis of regulating markets with their version of an economic constitution – and all of this with a good measure of Hayekian belief in spontaneous orders evolving evolutionarily sprinkled on top.⁴⁶

Conclusion

In this contribution I have tried to trace the lineage of the concept of an economic constitution as it is found in some currents of neoliberal discourse. Within the early years and even decades of this discourse ordoliberalism has a significant presence in it and, concomitantly, the idea of an economic constitution and, more specifically, the competitive order was at least a point of reference even in quarters with no direct linkage with the Freiburg School. Hayek and Friedman may not have agreed on the specifics of what Eucken and Böhm had in mind in their version(s) of economic constitutionalism but the overall notion of a regulatory framework of markets with legal characters seems to have been acceptable and even appealing up until the 1950s. As chronicled in the paper, this heyday is followed by a period of decline with a number of factors located on different levels contributing to this overall effect. Finally, we have pointed to the renaissance of constitutional thought broadly speaking due to the rise of the Virginia School of Constitutional Political Economy spearheaded by James Buchanan. The end point of this reconstruction being the curious convergence between Freiburg, Hayek and Virginia orchestrated by Vanberg during his tenure in Freiburg from 1994 to 2010 – and beyond.

Two avenues for research going beyond and possibly building on this reconstruction are quite obviously the following. First, while this reconstructive endeavor has touched what I consider to be important sectors in the field of neoliberal thought, i.e. pertinent to a genealogy of the idea of an economic constitution, it goes without saying that his hardly provides a comprehensive map of what might be other lineages between other varieties of neoliberal thought.

Furthermore, what deserves much closer scrutiny than what can be offered here is Vanberg’s synthesis of the various frameworks as it pertains to the idea of an economic constitution along the lines hinted at in the final paragraphs of the papers. Part of such an examination would have to address the stability of the paradigm of ‘Ordnungsökonomik’ in the years after Vanberg’s tenure and to what extent the successor generation has managed to maintain whatever cohesiveness there might have been to this paradigm in the first place or whether the delicate balance between the various ingredients collapses to the benefit of some and at the expense of others. In other words, is Ordnungsökonomik actually a cohesive intellectual framework and to what extent might it then be considered the most important intellectual resource for the idea of an economic constitution within neoliberal thought?