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15 April 2023

Financial markets

„Accepting the challenge: A liberalism for tomorrow“

Lecture by Christian Lindner, German Federal Minister of Finance, at Princeton University on April 14, 2023

  • Date 14 April 2023

Professor Brunnermeier,
Dear students,
Dear guests,
Good evening everyone!

Thank you very much for inviting me to Princeton. An institution where so many leading scholars have studied, researched and taught – and continue to do so today. Important German-speaking economists – such as Friedrich Lutz and Oskar Morgenstern – came to this university in the late 1930s, where they found refuge from the Nazi regime. A fact, that at the same time reminds us of the darkest hours of German history and of the liberal character of Princeton.

It is an honor to be here today in the company of so many bright students and other distinguished guests.

For Germany, it is a matter of pride that one of the influential professors in Princeton is a compatriot. I owe this invitation to speak to you today to Markus Brunnermeier. Thank you for this opportunity.

Of course, he invited me less because of who I am as a person, and more because of the office I hold as the Finance Minister of Germany. And I imagine that could also be the main reason you are here too. Which also means it would have been obvious for me to talk to you about current international financial policy.

I won’t do so.

I am not only a Finance Minister, I am also an advocate of the idea of freedom. And even if it entails a risk for the success of this event today, I feel that a different focus is more urgent.

The United States has always been a global beacon of freedom. You will doubtless be familiar with the words: "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness".

The 1776 Declaration of Independence is one of the most important documents for the liberal philosophy of government. Of course, U.S. politics has always been subject to controversy, but for some time now the liberal order itself has been questioned and challenged as never before. Let's put it this way: Liberalism is said to be failing – politically and intellectually.

This is why I decided to speak to you today as an advocate of the idea of liberty, and as someone who earlier studied political science and philosophy. I want to sketch out why and how liberalism has a future as an idea for structuring human coexistence by addressing the major attacks that are made against it. And I also want to talk about why the future of human coexistence should be shaped by the idea of liberalism.


Just to avoid any misunderstandings: Many of you will have heard the term “liberalism” in a different context. So, I kindly ask you to put U.S. domestic policy discussions aside. The semantics of the term “liberalism” are not the same in the United States and in Germany. In this country, my impression is that some in the political public sphere do not use the adjective "liberal" as a compliment. Rather, it is used to describe the left-wing role of a state that actively corrects the market. The German understanding is closer to what might be called "classical liberal".

In terms of the history of ideas, however, I think this is a negligible semantic problem for the purpose of my lecture today. Is there any liberal doctrine that is widely shared in all its facets? Hardly. But at least one undeniable characteristic can be gleaned from Scottish philosophy, the French Revolution, the German Enlightenment, the aforementioned American independence movement, and all that followed: While liberalism places the individual center stage, other philosophies follow collectivist values. Communism, for example, sees individuals primarily as part of their class. Republicanism calls for a common will, communitarianism for a traditional community of values, and ecological thinking focuses on nature.

This means that today we are talking about individualism. And from the notion of individualism it follows that freedom is a necessary condition. Because a life in dignity under the dictate of others would be unthinkable. Self-determination over our own lives, freedom of speech and property are rights that are guaranteed for all individuals in a liberal order. Individuals have equal rights; where they differ is what they make of their rights. This means a free society can therefore never be homogeneous. On the contrary, the idea of homogeneity would be an authoritarian one.


It would take too much time here to present all the attacks and literature against liberalism. It is simply boundless.

In brief, we can say that the left accuses liberalism of being responsible for exploitation, poverty and inequality. This is why it has an anti-democratic effect by virtue of the economic power it unleashes and natural resources it consumes. And that the right accuses liberalism of destroying traditions and cohesion, as well as cultural and national identities.

We should not dismiss these criticisms lightly. Yes, some are simply absurd. But others describe social developments that are wrongly attributed to the liberal order, although we liberals should rightly be rejecting them as well. Unfortunately, liberalism has a number of real opponents as well as false friends who want to turn it into an entrenched ideology. But what lies at liberalism’s core is its capacity to learn, and its faith in progress as an incremental process of human civilization.

Let us first take a look to the criticism from the left.

Norberto Bobbio once ordered the left-right scheme based on the ideas of egalitarianism and anti-egalitarianism. Leftist thought, then, is concerned with material inequality. The gap between rich and poor is growing. What emerges is an aloof and privileged upper class that no longer has anything to do with the lives of the majority. Indeed, in many societies we can see such a proliferation. Not only in capitalist systems, by the way, but also among systemic rivals.

Certain voices in liberal literature tend to shrug this off. If you have a constitution that guarantees the freedom of contract and property, so they say, then you just have to accept inequality. The liberal order is a process; moral aspirations are alien to it. This position was mobilized in particular to put it at a distance from John Rawls, whose "Theory of Justice" could not be ignored in political philosophy, and certainly not at Princeton, where he began his academic career.

An order that is not perceived to be just by those who belong to it cannot be expected to be stable. If political theory is not convincing in practice, people will reject it at the polls or vote with their feet. For Adam Smith, one of the founding fathers of liberalism, ethical sentiment played an important role at the level of the individual. He dedicated his first work to this. It was only later, in “The Wealth of Nations”, that he presented the work that, with the concept of the “invisible hand” of the market, laid the foundations of economic theory. The inner connection of both books in Smith's thinking remains a subject for the history of philosophy. In any case, political practice has provided the empirical evidence. And economics has long since distanced itself from the concept of the ruthless utility maximizer.

Two aspects of Rawls' theory of justice are important for my considerations today. First, his emphasis on equality of opportunity. In my words, social positions are assigned according to merit and not origin. And second, the principle of difference, which accepts inequality, again in my words, when the dynamics of the order produce so much wealth that even the weakest member of society still benefits. In other words, nothing is gained if everyone is equal but everyone is desperately poor.

What do you think? My impression is that, by these standards, liberals still have a lot of work to do. Equality of opportunity has not been achieved. In Germany, for example, your family background shapes for your path in life. By contrast, it would be fair if differences in talent, diligence, and willingness to take risks where the factors that determined a person’s place in society, rather than – as Rawls says – the "natural lottery” of birth.

I am convinced that access to education is the essential resource in this regard. And we need to invest more in cases where people are particularly disadvantaged from the outset because of their background. Because education improves social mobility. This is where state intervention has to place its focus, so that the differences that arise later as a result of life choices are generally perceived as fair.

I would like to take this opportunity to welcome Stefan Kolev – not least because I think his biography provides us with a useful illustration of what it means not to capitulate to the “lottery of life”.

I’ve known Stefan Kolev for a long time. We’re from the same generation. But we grew up in completely different worlds. He was born in Bulgaria under the Communist regime.

Today, he is a professor in Germany. He is also the academic director of the Ludwig Erhard Forum for Economy and Society in Berlin. Last semester, he was here at Princeton as a Visiting Fellow in the Department of Politics.
Dear audience,

Looking at Rawls’ second principle, the current situation of the weakest members of society indicates that many liberal orders around the world are failing to live up to this aspiration.

The great German liberal social scientist and politician Ralf Dahrendorf once demanded that no ceiling should be set for individuals, but that all should stand on a common floor. I am convinced that such a common floor includes, for example, access to health, protection in cases of personal misfortune, and the guarantee of a material subsistence level that enables people to participate in society.

This means the state has to provide such social balance where the market does not. A liberal state also levies taxes, the revenue from which must be paid by the stronger members of society according to their ability to pay. In fact, in my opinion, it is only fair that the high performers also contribute a higher percentage of their income. Their success is derived from stable conditions, opportunities for cooperation, and shaped by the civilization that they were born into, and not the one that they have individually created. This limits the material differences which arise from the market process to a socially acceptable level.

Since there are German journalists present who can probably hardly believe their ears when I express this conviction, I must add for their benefit that in Germany, the level of social equalization is more than adequate.

Many positions on the left also confuse liberalism with a laissez-faire or anything goes philosophy. The Chicago Boys are associated with an image of so-called neoliberalism that accepts unlimited greed if it is pursued in conformity with the free market. There is no question that such positions exist. But this is a misunderstanding. Real liberalism is not a pro-business ideology, but a pro-market conviction.

In 1932 Alexander Rüstow spoke of a “new liberalism”, in contrast to what I will call Stone Age liberalism for short. And this “new liberalism” was in favor of a state that regulates the market through rules. More precisely, he called for “a strong state, that stands above the groups, above the interested parties, a state that breaks free from its entanglement with economic interests". I have no doubt that the audience at that time witnessed the birth of what we can now refer to as the German school of liberalism – called ordo-liberalism.

Only a few months ago, the Chicago economist Luigi Zingales called for a return to the spirit of this German liberalism, especially because it makes a case for general rules as a challenge to the quest on the part of some individuals for ever more privileges in business and society.

We need this form of reflection. Because freedom is threatened, for example, by the concentration of economic power, where platform businesses partly determine the success of others in an autocratic manner, and to which the state needs to respond by enforcing rules. The state should act as a referee, not a player. The state needs to side with the newcomers and outsiders who need to be given access to markets and opportunities to create innovative upheaval. To this end, we need to have antitrust law in place that has a real ability to prevent the accumulation of economic power. In the data economy, this is a prerequisite that I can only highlight here.

As Finance Minister, I also have to look at the capital markets and the banks. Without going into details, the principle of responsibility is of particular importance here, as I am indeed convinced is the case everywhere. Responsibility means being liable for the free decisions we take. If a business decision works well, it is not for us to view that success with envy. But if a business decision fails, those that took the decision must be held accountable. The principle of the greatest possible level of individual liability for decisions is not only an ethical imperative. It serves as a natural deterrent to risk-taking that would endanger the system as a whole if the risks were to occur. In the capital markets, on the other hand, we have for too long accepted a situation where profits were privatized and losses were passed on to the general public – in other words, to all of us.

Now let's look at the criticism from the right.

Liberal individualism is blamed for destroying communities and traditional institutions such as the family. You don't have to go back to Pope Pius IX, who condemned liberalism as an aberration as early as 1864. You will find plenty of literary voices from our own time.

Emancipation, to use the Latin root, means to free people from the hand of others. The village of earlier eras, which formed a tight-knit community but also confined people to a social role almost from birth, may evoke romantic feelings in some. But it was a hard enclosure that set narrow limits on self-determination. Emancipation and liberality, on the other hand, have opened a horizon for many to live out their own needs.

Nevertheless, it is not in human nature to spend our lives like Robinson Crusoe. It is not about isolation as liberal atoms floating without ties. Rather, we need to create conditions that make self-selected communities possible. The basis for this are commonly accepted values of co-existence, especially respect for other people’s life plans, and new social institutions that provide new and reliable boundaries. I cannot elaborate on this point today, but I would like to give you one example of a new social institution that has brought diversity and social coherence together: gay marriage.

We have to find more new boundaries like this. Given that the plurality and diversity of our modern societies have grown so extensively, I am convinced that it is only liberalism that is capable of holding us together and fostering social peace. Ideas that try to restore the orders of the past would provoke severe social conflicts and cleavages.

Nonetheless, we need to be vigilant. Some are transforming the idea of liberal individualism into a form of identity politics. When people identify themselves as part of a group rather than as an individual, they underestimate the unique character of every biography. And naturally, we must resolutely oppose racism and other forms of discrimination. But we must not allow restrictions to be placed on our fundamental rights to express our opinions and thoughts.

The James Madison Free Speech Initiative here at Princeton is an important instrument in terms of promoting the freedom of thought and free expression. It is a characteristic of democracy and academia that we have the freedom to engage with different opinions and therefore enter into a dialog about them. Universities in particular are places that protect opinions. But they do not protect people against opinions.


Let's imagine that we had turned this ambitious liberal agenda which I have set out today, into a reality.

In this scenario we have developed freely, with fair opportunities in our tolerant, prosperous societies. Would that satisfy the aspirations of a liberal? By no means. Because if our aspiration really is to place each and every single individual, his and her dignity and freedom, at the center – could we then disregard those who do not live in our political context, but in other regions of the globe? Or those people who are not yet born? Their dignity and freedom also constitute an obligation on our part.

Which means we have to broaden our perspective – in geographical and temporal terms – towards a universality of liberal values.

While we develop thoughts and ideas here in peace and freedom, in Ukraine, people in mortal danger are fighting for exactly that – for peace and freedom.

The last time I was in Kiev was before the corona pandemic. I had many conversations there. The main impression I had was as follows: The Ukrainians are a people:

  • who decided against a future as a satellite of Putin's Russia and in favor of the community of liberal democracies of the West;
  • who decided against Putin's oligarch capitalism and in favor our liberal market order;
  • who decided against Putin's authoritarian form of society with censorship, oppression and anti-pluralism, and in favor of democratic diversity and tolerance.

Of course, there was then, and still is, a need for reform in Ukraine. No one knows this better than the Ukrainians themselves. Nevertheless, I am convinced that Putin's Russia attacked Ukraine last year precisely because of these decisions. And that is precisely why we, as liberal democracies, are committed to solidarity with the Ukrainian people. This is the standard by which we must be measured in political terms on a daily basis.

We live in a reality in which many societies do not share our ideas of human rights and freedoms. In our eyes, it looks like they even trample them underfoot. The concept of the universality of liberal values could therefore suggest the need for a form of interventionism that means we are constantly obliged to engage on ethical grounds. Perhaps even by means of military force and with the aim of regime change. There is no scope here to go over the controversial theoretical debates that have been held over the past decades about possible liberal interventionism. In reality, we experienced in Afghanistan, for example, that the pursuit of regime-change all too often fails. Practical considerations advise us to exercise caution with regard to interventionism.

Allow me to illustrate an alternative approach using an analogy between the global order and the internal order of liberal societies. Just as we operate on the basis of the individual’s right to self-determination in our societies, we in the international community must assume that each of its parties has a right to self-determination. But that doesn’t justify silence or inaction. On the contrary.

The idea of international law, a liberal world order, common institutions, mutual agreements and connections grows out of the principle of self-determination of peoples. Regardless of any one peoples’ power and size, all have the same rights and dignity. In this context, I recall a joke made by a former Luxembourg head of government who once met a Chinese head of state and said: “We are powerful politicians. Together we govern a billion people.” Of course, of these one billion, Luxembourg had “just” 640,000 inhabitants.

So: No one rules over any of the others. Institutions such as the International Monetary Fund, whose Spring Meeting in Washington I just attended, must exhibit the same commitment to all their members and to balancing diverging interests. Of course, in practice, power politics are still present within these organizations. But the conflicts are contained within the framework of rules and collective decision-making processes.

Therefore, in this sense, maintaining, strengthening and – where possible – reforming the United Nations, the World Health Organization and World Trade Organization, international judiciary and other bodies, are priorities of liberal policymaking. And in situations where such international law is being violated, as is happening in such a horrific manner in Ukraine, no member of the international community can look the other way. For ethical considerations. And in their own interest. Because they could be the next ones to be affected.

If our societies give all of our members fair opportunities to develop their freedoms, this should also be our agenda at the international level. In terms of the universality of liberal values, however, we cannot stop here. We have to serve as a desirable role model for other societies. Changes in civilization can be supported through dialogue and cooperation, which, in the long term, create more dignity and freedom for individuals.

On the world stage there are major differences in terms of economic development. Wealth is extremely unequally distributed. We should all be concerned about that. The Global South has also been particularly hard hit by the current economic eruptions – for example, by the increased prices of food on the world markets or the problems associated with over-indebtedness in times of higher interest rates. On the one hand, this currently requires our support, as in the case of the restructuring of high national debt.

On the other hand, to achieve better long-term prospects, it is not support and solidarity that are needed, but cooperation. Globalization is often identified by the political left in particular as the cause of poverty. The narrative is that others are being exploited to ensure our prosperity. In fact, the global division of labor has already improved the living conditions of hundreds of millions of people around the world in recent decades. So, our choice is not to reject globalization, but to work towards a more mature kind of globalization.

I am convinced that a reciprocal globalization model opens up sustainable opportunities for development. This model utilizes the division of labor in that we not only export our goods and services, but also in that we open our markets to the products and services from other markets in return. And by creating the framework conditions that allow our companies to invest and create jobs in these other markets.

De-globalization and a reduction in the worldwide division of labor in of the sense of fragmentation would not create any new opportunities for individuals. Of course, this is also a challenge for our economy. This is because certain sectors would face competition and evolve if the market were liberalized fairly. I am thinking, for example, of the agricultural sector, which often makes a strong case for its interests.

Nevertheless, major differences in values will remain, some of which are a cause for embarrassment to us as members of liberal societies. I only have to think of gender equality and social diversity. If practical reason also leads us to reject interventionism from outside that seeks regime change, that does not mean that we have to remain silent.

What we need to do is to engage in dialogue about precisely these values with challenging interlocutors. And to do so at every opportunity. Liberal voices within these societies need our attention and support to bring about change in civilization from within. That requires staying power. But we have to prove we have it. Despite having free trade, we must not allow free values to be disregarded.

In order to avoid being misunderstood, I must add that the acceptance of different social systems in the world community finds its limit where genocide is systematically carried out in a state, as was once the case in Rwanda. This is where the entire global community’s’ responsibility to protect comes into play and justifies the need for intervention.

It is not only in terms of geography that the responsibility of the liberal extends beyond his or her own sphere. The responsibility also extends in a temporal sense too. Because our descendants should have the same dignity and freedom as we do, we need to think about their rights today. Liberalism has inter-temporal responsibility.

In the German forestry industry, the idea of sustainability was developed centuries ago. In line with this principle, forest owners only felled the same number of trees that they could plant and grow in their lifetimes. This was done so that the owners’ descendants could also live from the yield of the wood. By the time of the industrial revolution at the latest, humanity had stopped adhering to this philosophy. We do not just fell more wood than can grow back. We even burn the underground forests that grew millions of years ago as coal, gas and oil. In doing so, we are not only consuming humanity’s absolutely finite resources, we are also provoking global warming that is potentially deadly for future generations. The German philosopher Peter Sloterdijk speculates that Prometheus, who according to Greek mythology brought fire to humankind and was thus the founder of civilization, must now feel remorse.
The use of finite resources is probably inevitable as part of the process of civilization, because knowledge about alternatives first has to be developed. However, the use of alternatives is only sustainable if progress produces technological innovations which later enable other and equivalent forms of living and economic activity. This applies not only across time, but also within the world community: The developed economic nations, with their historical and still high emissions, thus have a kind of obligation to innovate in respect to other regions of the world.

Combating global warming is a question of survival for humanity. It will require far-reaching changes in our way of life. I am convinced that technological progress in the field of decarbonization will allow to combat it without sacrificing freedom and prosperity. In Germany, for example, we have set ourselves the task of switching our energy supply largely to renewable energies such as solar and wind, which I therefore call “freedom energies”. Freedom energies in two senses. Because they make us independent of gas imports from Russia, for example, and protect the interests of future generations.

The transformation of the economy and society provokes conflicts. Jobs could be lost in certain sectors. Companies still want to continue to make profits with fossil technologies. And the purchase of new technologies, new cars or heating systems puts a burden on households. With noble motives, climate activists nevertheless advocate massive restrictions on freedom and the need for restraint. This approach not only endangers support for measures that are necessary to protect the climate; this approach also carries with it the risk of a change to our liberal society.

The German sociologist Ulrich Beck stated a few years ago that "his friends from the environmental and climate movement" possess a fatal proximity to authoritarian Chinese state capitalism – a sympathy for control from above.

More recently, we hear calls for democratically elected parliaments to be supplemented or replaced by councils determined by the drawing of lots, and which then make decisions after consultation with and facilitated by experts. What sounds like friendly deliberation is in fact the replacement of democratic representation, based on the participation of each individual, through the subtle exertion of influence and the possible distortion of majority voting.

Liberals must offer alternatives. Combating climate change and protecting the environment are liberal concerns, but at the same time the path must be compatible with liberal values. Two things follow from this:

If we weren’t ambitious about climate protection today, as the German Constitutional Court argued some time ago, the pressure to adapt would be unbearable for our descendants. Global warming and the consequences of global warming mean that, in order to ensure survival, even greater restrictions on freedom would become inevitable later on.

However, contrary to what is sometimes said in the political debate in Germany, it does not follow that we have to accept massive restrictions on freedom ad hoc in the present. Rather, what we need is a fair distribution of change across generations. I am convinced that technological change, which is already demonstrating exponential progress, will facilitate the balance. Because we are laying the foundation for innovation today, this means we can present people with the prospect of affordable alternatives for their free life choices. In doing so, we simultaneously secure the democratic majority's support for climate protection measures.

What we need to do is see the process of the adaptation from a longer-term perspective. And in order to adapt – and this is the second liberal position – we must mobilize knowledge. The competition of ideas that exists in the market economy is the most effective instrument for producing superior and efficient solutions.

If CO2 emissions become a scarce commodity as a result of issuing certificates, their price will rise. There is thus a direct incentive to make economic decisions and find technological solutions to reduce CO2 emissions and ultimately avoid them altogether. This means policymakers do not need to get involved in the choice of technology, but can restrict themselves to defining targets. The European Union has embarked on this path with the trading of such emission rights. Now all it would need to do is trust the instrument already chosen, which is admittedly still only partially the case.


I have attempted to describe the contours of liberalism in keeping with the times. It is a frame of thinking that has a future if it takes the arguments of its opponents seriously. But without giving in to them at the same time. In the end, however, the core remains: namely, the commitment to the dignity and freedom of the individual. I hope I have succeeded in making it clear that the starting point of individualist liberalism is nevertheless not "I" but "you". The ethical quality lies in the fact that we grant others the same rights that we grant ourselves. When asked what is at issue, the liberal will answer: "You. Your right to be happy in the here and now. Your opportunity to take your life into your own hands."

This is the way.