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Reassessing the dependence of capitalism on democracy – the case of Imperial Germany and the Weimar Republic

Gerhard Wegner

Journal of Institutional Economics, 2020, vol. 16, issue 3, 337-354

Abstract: The paper interrogates the argument put forward by Acemoglu and Robinson or North et 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.

Date: 2020
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Handle: RePEc:cup:jinsec:v:16:y:2020:i:3:p:337-354_6