In concluding his review of Stackelberg's (1934) Marktform und Gleichgewicht, John R. Hicks (1935) wrote: "And so we end with a paean to the Corporate State!" Stackelberg was not amused (Möller, 1993) by this throwaway remark, and reacted sharply (Stackelberg, 1938): "Such an allegation is, of course, serious; it is serious not because the corporate state might not deserve a 'paean', but because a theoretical investigation should if at all possible be free of 'eulogies'. I have, however, not succeeded in finding such a 'paean' in my writings. Should we treat theoretical analyses of market based or plan based economic models as 'paeans' if they are more than just stepping stones to a negative judgement of these models?"This episode is significant in more than one way. It reveals that Stackelberg drew a sharp line between contributions to theory on the one hand, and contributions to policy on the other. Issues of political judgement would be acknowledged, but not granted a place in scholarly discussions or exchange. Second, the models of competing economic systems were to be taken seriously and to be discussed in their own right, separate from political judgement that might be passed on their underlying political credos. Yet, third, and this is evident in his lecture to the Freiburg seminar, Stackelberg also acknowledged the field of the theory of economic policy next to and distinct from economic theory. His article on "Limits and possibilities of economic planning"[1] is a contribution to the theory of economic policy, not to economic theory. Fittingly, it was published in ORDO, the "research annual devoted to the order of economy and society".The question of how exactly Stackelberg conceived of his contribution to the theory of economic policy is the topic of this article. The issue is discussed with respect to three different topic areas. Accordingly, the first section deals with the choice between economic systems, the centrally planned economy and the decentralized market economy. Part II is devoted to Stackelberg's attempt at finding a functional theory of economic policy instruments. This issue has become a mainstay of ORDO theoretic work. Third, Stackelberg's theory of economic policy implies a specific (i.e. functional) approach to public finance. This is the subject of the third part. The essay concludes with a summary and final assessment.
The choice between economic systemsAlthough Stackelberg already gave similar hints in the final chapter of his Grundlagen [2] (1943, revised 1945), the treatment in the 1943 lecture is much