The Free Market 15, no. 2 (February 1997)
The fame of the Austrian School in the 1920s and 1930s rests on its fierce resistance to the main intellectual currents of the time: welfarism, collectivism, and central planning. The Austrian economists battled these trends, made the case for the genuinely free society—necessarily based on private property and capitalism—and paid a heavy personal price.
The best known of these economists are Ludwig von Mises and F.A. Hayek, and their fame justly grows year by year. But Wilhelm Röpke also ranks among the greats, and not only for his voluminous intellectual output. He played a heroic role in the history of European political economy, and had a profound impact on the intellectual development of the post-war American right.
As with other economists of the “old liberal” school, the rise of Nazism forced Röpke out of Germany and into intellectual exile. After the war, however, he made a triumphant return as adviser to finance minister Ludwig Erhard, another unsung hero of the period. Erhard repealed Germanys wartime economic controls and set the stage for the postwar boom. For this reason, Röpke is often called the brains behind the German economic miracle. He also became the most articulate opponent of European political integration.
Since his death in 1966, however, a strange thing has happened to Röpke’s reputation. His intellectual legacy has been seized on by detractors of the free market to show that not all economists of the Austrian School were “dogmatic” or “extreme” in their opposition to government intervention. Röpke, it is said, was rightly skeptical of the free market and the cultural effects of business competition.
In one version of this tale, advanced in the writings of Russell Kirk, Röpke rejected the conception of man as “homo economicus,” driven solely by dividends, technology, and paychecks. Röpke was said to believe that a laissez-faire economy is as “materialist” as a communist one. Instead, man is a spiritual being who requires a “humane economy,” a “third way” between capitalism and socialism.
Leave aside the caricature of capitalism and its defenders that this implies. The critique takes a slap at the other Austrians, especially Mises and Murray N. Rothbard. The not-so-subtle message: don’t read these extremists, much less accept their economic claims. Röpke was an Austrian economist who rejected the excesses of the School, and showed us there is a middle ground between Marx and Mises.
There’s an even more insidious element to this false understanding of Röpke. Germany today has one of the largest welfare states in the world. In a kindly gloss taken from the socialist lexicon, Germany has a “social market,” a phrase similar to one used by Röpke: ergo, Röpke must approve of the welfare state. So, right-wing social democrats, hold your head high under the Röpkeian banner.
Not that there is any evidence given. Like much conventional wisdom, this view of Röpke was adopted through repeated assertion, not proof or even argument. It culminated when he was enlisted, during the 1996 election season, in a protectionist cause that would have been anathema to him.
Will this nonsense ever end? Yes, thanks to Ivan Pongracic, professor of economics at Indiana Wesleyan. Writing in The Review of Austrian Economics (10:1), Pongracic explores Röpke in depth, and proves that the revisionists are way off base. Opponents of the market are no more justified in claiming Röpke than Mises.
Pongracic begins by showing that Mises and Röpke had much in common, including their belief in individualism, capitalism, and free competition, and their opposition to inflation, regulation, and the welfare state. They both wrote on business cycles in the thirties and decried credit expansion as the source of instability. For example, James Grant’s new book The Trouble with Prosperity uses a 1933 work by Röpke to understand the evils of central banking. Finally, both Mises and Röpke believed that market logic, not mathematics, should be the main tool of every economist.
Seeming to address the revisionists, Röpke condemned the “overweening arrogance” of those who disparage “things economic,” since that shows “ignorant neglect of the sum of work, sacrifice, devotion, pioneering spirit, common decency, and conscientiousness upon which depend the bare life of the worlds enormous and ever growing population! The sum of all these humble things supports the whole edifice of our civilization, and without them there could be neither freedom nor justice.”
He did promote what he called the “third road,” but this required no compromise with a pure free market. He was referring to deep culture, and the moral problems that admit no economic solution, but require a conversion of hearts. Röpke himself provides the most clarifying remark: “in the absence of the market economy these problems are, in fact, insoluble; only such an economy can guarantee us order in freedom, without which all the rest are in vain.”
Thus the “third road” has nothing to do with the state, which is the markets “most immediate and tangible threat.” “I champion an economic order ruled by free prices and markets...the only economic order compatible with human freedom.”
Röpke frequently condemned the “boredom” of mass society. But he goes on to say that it is only the free market, “with its variety, its stress on individual action and responsibility,” that is powerful enough to “counteract” the tedium of industrial life.
But didn’t he reject the idea of “economic man”? Of course, and so did all his Austrian contemporaries. Human motivation is too complex to sum up in such a rigid formulation. Mises called homo economicus ”a phantom of a spurious armchair philosophy,” a phrase Röpke would heartily endorse. The entire Austrian tradition stands behind the idea of homo agens or acting man, driven by motives as varied as life itself.
There remains only one unrefuted claim about Röpke. Did he pave the way for the “social market” of the German welfare state? Here is where Pongracic’s research pays its highest return. Röpke not only fought for radical post-war reforms, but thought they did not go far enough. “Residues of collectivism,” he wrote later, “such as rent control, were scattered about the market economy like unexploded mines.”
He fought the growth of the German welfare state, explaining that “our economic system stands or fails with competition, since only competition can tame the torrent of private interests and transform them into a force for good.” Sadly, his warnings were not heeded, and Germany is now paying the price with a full-blown welfare-state crisis. “The history of German economic policy since 1949,” he wrote in summary, “has proved that economic freedom is like any other freedom: it must, as Goethe says, ‘be conquered anew each day.’”
As this small sampling shows, Röpke was a passionate thinker with a flair for writing. He loved the spirit of enterprise and condemned the stifling effects of state intervention, making a unique contribution with insights into the interaction among social mores, economic behavior, and the scope of government power.
Pongracic has rescued Röpke from his supposed friends. But how could he have been enlisted in the anti-market cause in the first place? Even if we never get a clear answer to that question, we are now in a much better position to appreciate and learn from the life and work of this great economist of the Austrian School.
Jeffrey Tucker edits The Free Market.
