All Commentary
Tuesday, September 1, 1970

A Reviewer’s Notebook – 1970/9

On a recent journalistic junket to West Germany the group with which I was traveling had a mass interview with Ludwig Erhard, the former Chancellor who, as Dr. Adenauer’s Minister of Econom­ics in the first post-World War II government of his country, was responsible for the “German eco­nomic miracle.” The talk turned to the young who, in West Germany as elsewhere, have been confusing freedom with anarchy. I had one particular question I wanted to ask Dr. Erhard: “Do the young, in the German universities, study any of your old masters in eco­nomics such as Wilhelm Röpke?”

The answer, which came with a sort of weary benignity, was that the young economics students didn’t seem to be interested in the principles of the “free social mar­ket.” They were interested in re­ducing economics to mathematics. Personalities such as Mises, Men­ger, and Röpke were not in the fashion. If it had been that way when he was a student, said Dr. Erhard, he would never have be­come an economist. He would not have been able to pass examina­tions.

This business of reducing eco­nomics to mathematics is part of the disease of the Western world. The modern economist tends to think in terms of “input” and “output” and “aggregates.” The question of who directs and dis­poses the “input,” and how title to the “output” is acquired or allo­cated, is dismissed as irrelevant to the problem of seeing that “ag­gregate” purchasing power, or “aggregate” investment, is kept at a “full-employment” level. The whole business of human incen­tives, the question of the human will, tends to disappear from the subject of economics; the individ­ual is lost in the sea of statistics.

Paradoxically, this can have a tremendous effect on the integers that go to make up the statistical totals, for the mathematical econ­omist, by making the human terms of “input” irrelevant, may be striking most deleterious blows at individual creativity. It can mat­ter much to the inventor in his shop, or the chemist in his labora­tory, that he be allowed to seek support from individuals rather than faceless bureaucrats. The be­guiling break-through that ulti­mately develops into a new “ladder industry,” capable of lifting a na­tion out of depression, is never a “statistic” at its birth; the quan­tifying economist only catches up with it after a lot of qualitative things have happened.

A Prominent Role

This is what Dr. Erhard was trying to tell the visiting U.S. journalists through the fog of translation. It so happened that I had been reading Wilhelm Röpke’s Against the Tide (Regnery, $7.50, translated by Elizabeth Hender­son) before coming to Germany. My question to Dr. Erhard had been prompted by a passage in Gottfried Dietze’s foreword to the Röpke essays. “Röpke,” says Dietze, “… warned against the advocacy of a planned economy and expressed the fear that plan­ning and collectivism would pre­vent the economic recovery that he felt was inevitable under a free economy. The correctness of his opinion was first demonstrated in Germany. His friend Ludwig Er­hard… has told how during thewar he illegally got hold of Röpke’s books, the contents of which he `devoured like the desert the life-giving water.’ Erhard repeatedly emphasized his debt to Röpke when, against the opposition of the military government, he intro­duced the market economy in West Germany… the enormous success of the ‘socially responsible mar­ket economy’… deprived West­ern socialist programs of their ap­peal…. After the success of that economic system had been demon­strated in Germany, Röpke’s friend and colleague Luigi Ein­audi, the first President of post­war Italy, imitated the German economic policy in his country…. Other nations… followed suit. A continent that after World War II lay dying recovered in free­dom.”

Röpke, then, played a part in twentieth century history that was of the first magnitude, comparable to the role of a Lenin after World War I, though with a different end in view. An individual who talked in terms of qualitative decisions, he had an effect on “input” and the “aggregates” of investment and consumption in West Ger­many, Italy, and elsewhere that surprised and flabbergasted the Keynesians and the neo-Marxists. He gave socialism its first big set­back and thereby may have changed the course of history.

“Intellectuals and Capitalism”

Against the Tide represents many facets of Röpke’s intellec­tual armory. Some of the essays are dated; the long discussion of “the transfer problem in interna­tional capital movements,” whicl opens the book, becomes burden­somely technical, and despite the fact that it was written in pre­Hitlerian 1930, it could hardly have been an example of the Röpke that stimulated Dr. Erhard to face down the American Key­nesians who tried to keep the fret market from re-emerging in post-Hitler 1948 in the shattered Rhine­land.

But the second essay, “The In­tellectuals and Capitalism,” dated 1931, is Röpke at his best. Röpke was combatting the German ver lion of Rexford Tugwell’s idea that capitalism must die when the economy becomes “mature.” In pre-Nazi Germany economics had become crossed with geopolitics to produce a theory that national salvation resided in a certain “space’ in the Danube countries and the Ukraine. If this space could not be seized, Germany would die for lack of markets and sources of raw ma terial. The members of the Tat circle spoke of expanding in spate to create a “want-satisfactior economy,” an “organic economic community,” which would help “the mass of the unpropertied people growing into the State.” Röpke punctured this whole tissue of catch-phrases by observing that small countries such as Denmark, Holland, and Switzerland managed to do very well without “space,” or “space-building.”

In another essay, “The Secular Significance of the World Crisis,” written in 1933 when an “end-of­ the-world” mood prevailed in both Europe and America, Röpke doubted that there were struc­tural, as contrasted with cyclical, reasons for the depression. The hy­pothesis that capitalism had failed. because of a shortage of gold “was faulted from the outset by its failure to explain why, never­theless, the volume of money and credit was able to expand so much immediately before the outbreak of the crisis.” (As William Graham Sumner had said long before Röpke, the amount of money in a country is sufficient to do the work of the country.)

As for the theory that declin­ing populations meant a declining capitalism, Röpke remarked that this was to “confuse people with Reichsmarks and dollars.” Ob­viously, purchasing power depends on the money in people’s pockets, and a small, rich population makes a better soil for capitalism than a huge, poverty-stricken mass such as one finds in India or China. Röpke admitted that some needs are inelastic. The number of Christmas trees that can be sold is determined by the number of families who celebrate Christmas. “On the other hand,” so Röpke said, “the value and amount of presents lying under the Christ­mas tree vary from one family to another in accordance with the bread-winner’s income…. Even if the production increased a hun­dred times, it would still fail to raise the incomes of the masses to a level that is regarded as neces­sary to the high-income brackets today.”

Faulty Understanding of the Economics of Freedom

If lack of geographical space, or lack of precious metals, or a fall-off in population, couldn’t ex­plain the depression, what did? Röpke decided that the world’s troubles in 1933 were due to a faulty understanding of the eco­nomics of freedom. He held to this opinion during his long period of exile from Germany in Turkey and Switzerland. And, when the op­portunity presented, he managed to convince Dr. Erhard that he was right and the Tugwellians and the Keynesians were wrong. Not even World War II had re­sulted in the “end of an era.”

The later essays in Against the Tide attack the problem of infla­tion, which seems inseparable from the growth of the welfare state. Röpke is not against a basic humanitarianism; he doesn’t want to see helpless people starving. But he sees little sense in “rob-Ding Peter to pay Paul” when Paul is just as capable of supporti­ng himself as Peter. “We are in the predicament of the sorcerer’s apprentice,” he wrote a few years before he died; “almost any­where we turn our horrified eyes, we see that the welfare state has built-in, irresistible tendency to further growth.” The welfare state, he said, operates without a Drake or a reverse gear.

Unfortunately, welfarist ideas Are still careening down the high­way with as much dangerous mo­mentum as was the case when Röpke was still alive. The more reason, then, to repeat the ex­perience of Dr. Ludwig Erhard when he devoured Röpke “like the desert the life-giving water.”


THE UNHEAVENLY CITY by Edward C. Banfield (Boston: Lit­tle, Brown and Company, 1970) 308 pp.

Reviewed by Robert M. Thornton

This book, by Harvard’s professor of urban government, is a celebra­tion of city living which, the au­thor contends, is better today than ever before. Is there urban congestion? Well, up to a point, that’s what makes a city, Banfield ob­serves: a heavy concentration of business, industry, and workers’ homes. Is there poverty and crime in the city? Of course, but the in­herent tendency in cities is the steady transformation of poverty into prosperity—automation and technological change being, in the long run, part of this movement. And crime, despite popular opinion to the contrary, is not an inevitable consequence of low income and a slum environment. Cities have nev­er been “heavenly,” of course; but until political reformers, master planners, and utopians began tink­ering with city life by unwise legis­lation and infusions of tax money, cities provided a good life for countless millions of people. And cities might continue in their civil­izing role if we don’t kill or cripple them by our mistaken policies.

Parts of this book remind one of Clarence Carson’s The War on the Poor. Banfield, like Carson, argues that government interventions in the economy designed to increase prosperity or to in some way help the poor, are not only wrong in principle but also fail to accom­plish their advertised purpose. Government intervention in the cities has aggravated existing problems and created new ones.

For example: Public transit and taxi franchises restrict competition, and the public is poorly served; occupational licenses ham­per and discourage the small busi­nessman; the Federal expressway system and the loan policies of the Veterans Administration and the Federal Housing Administration encourage and assist people to move out of the cities sooner and in greater numbers than would other­wise be the case; the dole, on the other hand, encourages the lazy and shiftless to move to the cities; farm subsidies tend to force small operators off the land and into the cities. These and other legislative interferences are mainly respon­sible for the plight of our cities.

Banfield speaks out strongly against minimum wage laws which create unemployment for those whose labor is not considered worth the price set by the govern­ment. He strikes out forcefully against child labor laws and laws making young people stay in school when they lack interest or ability. He criticizes labor union monopo­lies whose practices have similar results: preventing young people, who have had all the schooling they want or can take, from going to work. A sixteen-year-old earn­ing his living is less likely to be breaking laws or creating disturb­ances than one forced to sit in a classroom all day, bored silly.

Like Martin Anderson and Jane Jacobs, Banfield comes out emphatically against the Federal “urban renewal” program which destroys more housing than it constructs, hurting mostly the poor. He questions the use of the word “ghetto” to describe an area simply because of a heavy concen­tration of a particular race or so­cial class; a ghetto, says Banfield, means an area in which people are legally confined. He cites instances where Negroes have had a chance to get out of the city into a pleas­ant suburban community but re­fuse because they prefer to be with their own people; he has wise words on the so-called color prob­lem.

Banfield sees society as consist­ing of two broad classes: the pres­ent-oriented and the future-ori­ented. The former live for the mo­ment and have no long-range goals. Schooling, saving, and such do not interest them. The latter, on the other hand, look ahead and postpone present pleasures for fu­ture satisfaction. In a tough-mind­ed analysis, the problem of pov­erty is not so much something ex­ternal to the individual person as an internal condition. Some per­sons, Banfield reminds us, simply do not care much about being re­sponsible, independent citizens; they do not attach much impor­tance to privacy or education or a steady job or an attractive home, and no amount of government in­terference is going to change them; in fact, handouts will only encourage them in their ways.

There are, of course, many prof­fered “solutions” for some of these city problems, but they all smack of dictatorship the totalitarian state. Better to settle for the “un­heavenly city,” concludes Banfield. What is to be done? Just what writers in THE FREEMAN have preached for years: more freedom, which, Banfield says, “may well be the best course of action in the long run.” 

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.