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Wilhelm Röpke: Architect of Liberty

Mises Daily: Tuesday, January 08, 2002 by

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Born in 1899 in Schwarmstedt, Germany, Wilhelm Röpke would become one of the most distinguished economists of his day. Acknowledged as a peer by such eminents as Ludwig von Mises and Friedrich von Hayek, Röpke was a key intellectual architect of postwar prosperity in Europe. Ludwig Erhard, economic director in postwar western Germany[1] (and later Chancellor of the Federal Republic), unabashedly credited Röpke as the most formative single influence on his policies.

In the ruined Germany of 1948, when expert opinion, the largest German political parties, most of the Allied Occupation officials, and even a majority of Germans were calling for socialism and the planned economy, Ludwig Erhard rejected the popular wisdom. His administration halted a disastrous postwar inflation and stagnation by issuing in 1948 a new, sound currency--the Deutschmark--and abolishing at one stroke the wage and price controls which had survived the fall of the Third Reich. This launched the West German polity as a federal, free-market democracy. It sparked a rebirth of that shattered nation which astonished the world--and inspired similar reforms in Italy, France, and other countries.

Erhard's economic reforms are now widely acknowledged as masterstrokes--more important to German prosperity than the aid received through the Marshall Plan. In these decisions, Erhard followed the principles which Röpke had explained in major theoretical works and reinforced in a flurry of articles from the late 1920s on through the postwar crisis.

In the darkest hours of Hitler's war, when Erhard worked as an obscure adviser to a cigarette company, he schooled himself in market economics on Röpke's works--which, banned by the Gestapo, had to be smuggled in from Switzerland. Speaking in 1967 at a memorial service for Röpke, Erhard would sum up what he'd gained from his friend and mentor:

Wilhelm Röpke exhausted himself offering--to those trapped in socialist-collectivist thought, to those unable to escape such thought, to all those involved in the constitution or glorification of the totalitarian state, to those who have comfortably excused themselves from responsibility and pangs of conscience--words of transformation, offering them once more firm ground under their feet and an inner faith in the value and blessings of freedom, justice and morality. [2]

Ludwig von Mises, the grand theoretician of Austrian economics, wrote this at Röpke's death:

For most of what is reasonable and beneficial in present-day Germany's monetary and commercial policy credit is to be attributed to Röpke's influence. He--and the later Walter Eucken--are rightly thought of as the intellectual authors of Germany's economic resurrection. . . . [A] fearless man who was never afraid to profess what he considered to be true and right, in the midst of moral and intellectual decay, he was an inflexible harbinger of the return to reason, honesty and sound political practice.[3]

A Renaissance Man

Wilhelm Röpke made it his life's work to help construct and defend the free society, to diagnose the ills of capitalism, and to suggest concrete solutions. Like a stern country doctor--his father's profession-- Röpke was never shy about criticizing the abuses of the body politic which endangered its health and rendered it defenseless against infections from far Right and far Left. Röpke was blunt, even caustic, when he wrote about the abuses that had encrusted two centuries of capitalist practice, culminating in the crisis of the Great Depression. He sharply criticized the probusiness parties of Weimar Germany that supposedly stood for economic freedom but relied on the state to impose protectionism and shore up monopolies. These groups, more than anyone else, had given credibility to the Marxist charge that market economics was merely an ideology, a rhetorical construct that served the class interests of the bourgeoisie, who violated its principles the moment they proved inconvenient.

Röpke found common ground both with socialists and libertarians in exposing the inconsistencies of contemporary capitalism. He shared with socialists their outrage at hypocrisy, intellectual subterfuge, and social injustice; along with libertarians, he held a deep respect for the wealth-creating free market. But he departed from both in his analysis of where the West had gone astray, and what measures must be taken to restore Europe to health. Unlike most free-market advocates, Röpke seconded complaints made by counterrevolutionary thinkers on the Right. He too was appalled at the brutality and suddenness with which old lifestyles and mores had been uprooted through the political and economic revolutions that swept Europe after 1789. Röpke infused his detailed analyses of modernity with a sensitive respect for the values of tradition and religious faith, and their critical importance in building social and economic order.

Because of his intellectual openness, Röpke's work eludes easy categories, and repays careful reading and rereading by students of history, economics, and culture, regardless of where their intellectual sympathies may lie. Röpke was a master of many languages and vernaculars; well-versed in technical economics, romantic poetry, classical literature, and the history of science, he has aptly been called a Renaissance man.[4] While signs of this learning bejewel his books--including lengthy Latin and French quotes given in the old style, untranslated--they never seem pretentious. His broad, humane erudition--which Röpke betrays incidentally, while simply trying to make a point--may well have saved him from the intellectual extremes to which so many of his fellow social reformers fell prey. It also partly explains the breadth of his influence among educated Europeans--such as Ludwig Erhard.

One of the first writers exiled by the Nazis for his ideas, Röpke subsequently worked in Turkey and Switzerland, writing books that helped preserve the spark of free thought in Germany and throughout occupied Europe. After the war, Röpke was one of the founding thinkers of the newly created Christian Democratic movement, the strongest European voice for resistance to the next totalitarian menace, the expansionist Soviet Union. While remaining a strong advocate of the free market, Röpke was also a keen critic of its abuses, and an advocate for minimalist, effective intervention by the state to preserve vital social goods neglected by markets. Indeed, it was Röpke who first coined the (later much-abused) term "the Third Way" to denote a market-friendly, socially responsible economic policy--one aimed at encouraging the widespread ownership of property, capital, real estate, and small businesses throughout the population.

Appalled by all forms of monopoly, Röpke considered the economic power of colossal corporations almost as dangerous as the political might of collectivist governments. Always a cosmopolitan, Röpke favored untrammeled free trade, regional liberties, and respect for traditional peoples and ways of life. (For instance, he was an outspoken advocate of allowing Japan to retain her monarchy after the Second World War.) Ever a foe of nationalism, Röpke pointed to the eighteenth century as the zenith of European civilization--before ideas were branded by their country of origin and yoked to the service of intolerant nation-states.

On the other hand, suspicious as any Swiss peasant of imperial governments, Röpke opposed attempts to abolish borders and concentrate power in the hands of transnational bureaucracies. Just as the market economy had been built by small businessmen, farmers, inventors, and entrepreneurs--at the expense of monopolists, mercantilist kings, and rationalist philosophes--so Röpke saw international order and liberty as arising from free regions federated within nation-states, whose relations must be governed by standards (written or unwritten) of international law and enforced by a balance of power.

In light of the tragic failure of the post-Versailles commissions appointed to protect ethnic minorities in Europe, Röpke saw extra-governmental institutions (such as churches, civic, and social organizations, often maintained by local elites) as the best defenders of human dignity against oppression by intolerant majorities. In this as in many other questions, he was inspired by the example near at hand--the healthy diversity and peculiarity of Switzerland, whose liberties had grown not from international guarantees or utopian schemes, but from concrete institutions, alliances of convenience, and ancient privileges fiercely guarded by peasant militias over centuries.

Instead of a multinational currency administered by a central authority (like today's Euro), Röpke favored a worldwide gold standard that offered a single touchstone of value for many currencies--and wrested the critical power over the money supply from the hands of politicians and financial elites, leaving it to move spontaneously with the billions of daily decisions made by free men and women in free markets.

Röpke was a successful popularizer, making clear the workings of the market economy in writings aimed at the educated layman. His works went through many editions and were swiftly translated into French, English, Hungarian, even Japanese. American editions of his major works have remained in print for decades, and several neglected titles have been or soon will be reprinted in English. Unlike some other free-market advocates, Röpke understood that economics had been irreversibly politicized; there was no going back to the old, nineteenth-century view that had placed the function of a nation's productive capacities entirely beyond the reach of popular sovereignty.

The growth of mass democracy, the mobilization of millions of men of every social class during the First World War, rising nationalist sentiment, and class mistrust--all these currents had joined to overwhelm the levee behind which classical liberals had hoped to protect economic life from the turbulence of politics. No longer would it be enough to convince the economics professors, the king's ministers, and the responsible classes of the virtues of a free market.

The Liberal Tradition

Röpke began his academic career with very definite views about the tradition in European intellectual history with which he identified. Like many who rejected fascism and statist socialism, Röpke considered himself a good liberal. Sadly, this term had become so broad even by the 1930s that when used without qualification it conveyed very little. Indeed, "liberal" is currently used to describe thinkers as disparate as Montesquieu, Rousseau, Thomas Jefferson, Lord Acton, Alexis de Tocqueville, Herbert Spencer, Walter Lippmann, Francis Fukuyama, Christopher Lasch, and Michael Lerner. [5]

Röpke employed the word "liberal" in a very different, and considerably more specific, sense. In the Continental parlance of his day, "liberalism" could be taken in at least two ways:

1) As referring to the general movement away from feudal institutions, toward greater social mobility and personal freedom.

2) As pointing to the particular form which that movement took in the nineteenth century--specifically, the advocacy of laissez-faire capitalism, a radically individualist view of the social order, and a government whose role was to serve as a "night-watchman," deputized to defend property rights and national borders-and to do little else.[6]

Even as a young scholar, Röpke embraced "liberalism" in the first sense, and rejected it in the second. Because of the profound confusion which had been caused in the minds of Europeans--to the detriment of true liberalism, he would point out--by this dual meaning, Röpke became ambivalent about the very word. While he began his career with a wholehearted embrace of the liberal tradition, he would soon feel the need to modify the term, to qualify his loyalties and make clear that he did not identify with the caricatured form which liberalism had attained historically. Hence, terms such as "neo-liberal," and, later, "social market[7]," "humane economy" and "Third Way," which Röpke and his allies would adopt to describe their programs.

In an unfriendly age, during which the most influential intellectuals set their courses by the stars of Stalin, Trotsky, and even Hitler in pursuit of revolutionary transformations of society and human nature, Röpke made himself the champion of dustier, less glamorous ideals, such as individual liberty, political moderation, international cooperation, and ethnic tolerance. Few thinkers in this century have better understood the interaction between economics and culture than he.

Röpke knew that if true liberalism--including its economic component, the free market--was going to survive after the First World War, or be restored where it had collapsed, it would only be where its partisans could win over the voter. Therefore, Röpke reasoned, economists would have to make the case, over and over again, that prosperity and justice, freedom and progress, would be best served by the preservation of individual economic freedom, within the limits of social order and the common good.

This social and economic synthesis Röpke called his "Third Way" between collectivism and historical capitalism. In using this term, Röpke did not mean a welfare state or mixed economy, but rather a free-market system which did not rely solely upon economics as the source of order. In that reliance lay the great mistake of nineteenth-century apologists for capitalism (such as Herbert Spencer), as Röpke would argue over the course of his career; in fact, only a solid social structure predicated upon individual virtue, cohesive families, and local communities could counterbalance the frequently disruptive side-effects of the dynamic, highly efficient market system. A decay in those fundamental building blocks of social order must lead to atomization, alienation and ever increasing demands for state control over the economy.

Röpke's critique of modernity mirrored in some respects that of G.K. Chesterton, Hillaire Belloc, and Pope Pius XI.[8] (This makes for a curious irony, since Röpke was the scion of a long line of Lutheran pastors, and chose to make his home in the Protestant capital, Geneva.) Röpke sought to allow the maximum economic freedom and self-determination for each citizen. He also saw that the boundaries of this autonomy must exclude actions that weaken the social order and undermine the civic foundations of the market system.

His thought left room for state interventions in the economy, provided that they did not radically distort the incentives that drove private enterprise. It was Röpke's view that prudence and politics must sometimes dictate the behavior of statesmen in economic matters. So rather than offer a "purist" position, Röpke laid down strict principles such as those given above, and then in his voluminous works provided criteria by which his readers could judge each case of possible intervention on its own merits.

However, Röpke rejected as "incompatible" with a free market every kind of intervention which:

by paralysing the price mechanism . . . creates a situation which immediately calls for further and even greater intervention, transferring the regulating function so far carried out by the market to a government agency. If the government introduces rent ceilings, the divergence between supply and demand in the housing market grows ever greater as rents remain below the level which is necessary to promote construction and lessen demand. Consequently, the state is forced to go further and ration housing, as at the same time building activity collapses under these conditions, it must finally take over housing construction under its own management. In addition, this tends to lead to a "freezing" of the housing situation--everyone clinging to the home which he was lucky enough to get hold of, without making any adjustments if his family should decrease--and to a progressive diminution of mobility. This should teach us that the price mechanism is an essential part of the mechanism of our whole economic system and that one cannot do away with it without in the end being forced down a path leading to pure collectivism. (The Social Crisis of Our Time, p. 161)

Röpke did more than explain the benefits of a market economy to the general public. More important, he suggested ways in which modern life in a market economy could be made more congenial to man, more natural, less inimical to his family and cultural life. His constant touchstone for political and social reform was not abstraction or ideology but experience, the historical experience of real countries--such as Switzerland and the United States before the advent of the welfare state--that have enjoyed a growth of freedom and prosperity.

As Röpke never tired of pointing out, these goals are usually attained through evolution rather than revolution, through the slow exertions of thousands of yeomen at hundreds of Swiss or New England town meetings, rather than the oratory of a demagogue or the wrath of a Jacobin mob. More ominously, these goals are usually endangered by the growth of bureaucracies--especially multinational commissions responsive to elites.

Röpke warned early and often against the creation of a European "super-state." The citizens of the spurious new nations now encompassed in "Euro-Land" ought to take heed, as their leaders trade away their sovereignty piecemeal. Submerged peoples from the Basque country to Kurdistan have learned that nationhood is one good it is bloody hard to reclaim.

Notes:

[1] Erhard helped administer the Anglo-American "Bizone" of occupation.

[2]Erhard, Ludwig, "Veröffentlichung von Wilhelm Röpke," in In Memoriam Wilhelm Röpke, Ed. by Universität Marburg,Rechts-und-Staatswissenschaftlice Fakultät, p. 22 ff. Unpublished translation prepared by Dr. Paul Joseph Chu specially for this volume.

[3] Mises, Ludwig von, "Wilhelm Röpke, RIP," National Review, Mar. 8, 1966, p. 200. Quoted by Richard M. Ebeling in "Wilhelm Röpke: A Centenary Appreciation," The Freeman, Oct. 1999, p. 20.

[4] As Russell Kirk wrote in his Foreword to SCOT: "Röpke seemed to have read everything in the field of social thought. He was familiar, for instance, with the political writings of Calhoun and of Fenimore Cooper--of which most American university graduates are thoroughly ignorant. He knew history and poetry, ethics and religion." (p. ix)

[5] In popular parlance, this has rendered the L-word almost as meaningless as the F-word, "Fascist," now a term of indiscriminate abuse generally used to indicate a reprehensible person whom one wishes generally to discredit.

[6] A similar semantic confusion arose during the Cold War. The totalitarian regimes in the Soviet Bloc styled themselves "socialist," in accordance with Marxist theory--which viewed the "communist" state as under construction. Parties and their programs might style themselves as "Communist," but the states were invariably referred to as "socialist." This caused some confusion with the programs of those on the moderate Left, who increasingly adopted the title "democratic socialist" or "social democratic." This concealed the fact that many of them, especially the German SPD, had long kept ties to Marxist theory--even as their members became increasingly appalled at "socialist" reality as practiced in the East.

[7] This term was invented by Alfred Müller-Armack in 1947, reports Patrick M. Boarman, "Apostle of a Humane Economy: Wilhelm Röpke," Humanitas XIII: 1, 2000.

[8] As he got older and more pessimistic about the effects of modernity on European man, Röpke came increasingly to cite conservative thinkers such as Edmund Burke, G.K. Chesterton, Hillaire Belloc and Christopher Dawson.