Market economy and social market economy

In short: In a market economy firms and households themselves decide on production and consumption; prices form on the market. The social market economy in Germany adds social balance and state rules.

In more detail: The counterpart is the planned economy, in which the state sets production and prices.

In detail

• Private property and competition: Foundations of the market economy (monopol-oligopol-und-wettbewerb).
• Freedom of contract: Everyone may conclude contracts freely.
• Social balance: Social insurance, minimum wage, protection against dismissal (sozialversicherung-die-fünf-säulen-in-deutschland).
• Ludwig Erhard and Alfred Müller-Armack: Shaped the concept after 1945 (“prosperity for all”).
• State tasks: Protecting competition, infrastructure, environmental rules.
• Planned economy: Central plans, often shortages and little innovation (e.g. the GDR).
• Criticism and reform: Debates on inequality, sustainability and the size of the welfare state.