Social market economy

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A social market economy, also known as Rhine capitalism (named after the river Rhine) or social capitalism, is an economic system which consists of two components: the central elements of a free market (free trade, exchange of goods and free formation of prices) and a welfare state (universal health care, old-age pension and unemployment insurance) as part of an extensive social security system to help eliminate the harmful effects of a laissez-faire system; thus it can be classified as a mixed economy, coupling high economic freedom with a degree of government regulation to prevent abuses of private power.[1][2]

The social market remains one of the primary features of many nations in Central Europe, admired by many political parties in the political center.


The term "social market economy" (German: soziale Marktwirtschaft) originated during the 1930s amongst a group of economists that originated the Freiburg School (the ordoliberalsWikipedia) of economics, from the University of Freiburg (Freiburg in Breisgau, in the German state of Baden-Württemberg). Sent into exile by the Nazi regime, they developed the social market theory in response to fascism, seeing an open market was essential to democracy, but at the same time requiring the state to halt the emergence of social Darwinism (as it would threaten universal freedom).[3]

After World War II (1939-1945) and the split of Germany into Western and Eastern sectors (1949-1990), ordoliberal thought was quickly implemented in Bonn, especially by Konrad Adenauer (Chancellor from 1949 to 1963) and by Ludwig Erhard (Federal Minister of Economics from 1949 to 1963) under the auspices of the Christian Democratic Union of Germany. The result was the Wirtschaftswunder ("economic miracle")[4] that helped re-establish the economy of western Germany.

Comparisons to the Third Way and social democracy[edit]

While the social market economy is similar to the Third Way and social democracy in providing a moderate stance between capitalism and socialism, there are a few key differences:

Collective bargaining practices can also vary in social market economies: in Canada, trade unions still negotiate with individual companies (with limited government intervention), while in some European nations it is done on a national level between employer's organizations and worker's groups.

See also[edit]

External links[edit]


  1. Social and Ecological Market Economy: Principles in German Development Policy
  2. Germany's orderly 'social market', BBC News.
  3. Believe it or not, they also had ties to the Austrian school (compare the nature of American/British and German economies today and you can see what happened to those ties).
  4. See the Wikipedia article on Wirtschaftswunder.