All Commentary
Monday, July 1, 1963

A Reviewers Notebook

Wilhelm Roepke’s Economics of the Free Society (Regnery, $4.95, translated by Patrick M. Boar-man) is an interesting and im­portant book which has had an in­teresting and important history. It was written in the nineteen thirties when its author, then an exile from his native Germany, was teaching at the University of Istanbul in Turkey. First pub­lished in Vienna, it was suppressed after the Hitler takeover of Austria. A Swiss edition was openly available for Swiss readers, but the French edition had, so to speak, to lead a clandestine life under the Nazi occupation. Thus the book slumbered for the decade when the totalitarians were rais­ing havoc with the system of econ­omics which Roepke supports and celebrates and explains with his incomparable lucidity.

Released for German readers after the war, Economics of the Free Society presumably played some part in guiding Roepke’s dis­ciple, the Bonn government’s Min­ister of Economics Dr. Ludwig Erhard, in the sparking of what has been called the “German miracle.” Dr. Erhard has praised Roepke as “a great witness to the truth.” This truth, as Erhard sees it, consists of a doctrine that calls for “freedom in the realm of goods, discipline in the realm of money.” The quotation is from Economics of the Free Society, but the identical bit of wisdom, phrased in various ways, is to be found in all of Roepke’s books. “Free goods,” of course, refers to free choice in the market, not to any giveaways.

Building on the “free goods, disciplined money” idea, the West German government made it pos­sible “in a few years for a war-devastated rump state, swollen with refugees, whose cities had been destroyed to the extent of 50 per cent and more, to develop a `hard,’ fully convertible cur­rency, to become the chief creditor of Europe, and finally, even to be found worthy of helping the lead­ing power of the free world, the United States, out of its balance of payments difficulties with credits of one kind or another. German foreign trade, after hav­ing fallen to zero during and after the war, expanded within a decade to the point where Germany as­sumed the number two position in world trade (after the U.S.). Later, Japan—using the same recipes—achieved similar results.”

The foregoing bit in quotes is part of an additional section of Economics of the Free Society that was written long after the war. But it rams home by con­trast everything the author had to say in the chapters written in the thirties about the vicious results of the “repressed inflation” of the Fascist economies. History, in twenty years of tumultuous over­turns, has added its pragmatic en­dorsement of all of Roepke’s “free goods, disciplined money” theory.

A Basic Textbook

Much of Economics of the Free Society moves on the level of a basic textbook, and to recapitulate it in a review would simply amount to restating modern mar­ginal – utility – marginal – produc­tivity theory. But what makes this textbook different from most texts is its verbal felicity. It is particu­larly telling when it comes to pointed antitheses. There is, for example, the contrast between the economist and the engineer. “Forthe economist,” says Roepke, “the total quantity of means is fixed; his task is to discover the best use that can be made of them. The job of the engineer, on the other hand, is to achieve a given end…. here, differently than in econ­omics, the end is given, while the means must be found.” Modern governments, it might be added parenthetically, are dominated by the engineer mind.

Aside from its verbal felicity, Economics of the Free Society differs from other basic texts in its insistence that economic ac­tivity always takes place in a moral and legal context. To have a functioning free international system, nations must subscribe to common legal, monetary, and moral values. If such values exist and have wide acceptance, a UN will work. But, by the same token, a UN in such circumstances would be largely superfluous. On the other hand, a UN whose members do not accept congenial ideas about legality, morality, or mone­tary standards and practices will be a place of bickering and at­tempted bullying. In short, it will be a place of battle-short-of-war. Part of Roepke’s life crusade for the truth has been the effort to reconstitute the fabric of interna­tional society that existed in the West before the two world wars of the twentieth century. He is tired of a perpetual battle-short-of-war.

Carrying through with his in­sistence that a good economics system depends on its moral and legal framework, Roepke com­pares the views of two giants of economic theory, Adam Smith and John Maynard Keynes. Smith, at the dawn of the modern era, viewed economics as an organic part “of the larger whole of the intellectual, moral, and historical life of society.” Keynes, coming in the twilight of the humanistic age when a “mathematical-me­chanical universe” was being sub­stituted for Smith’s “living order” under an “invisible hand,” was a “representative of the geometric spirit.” Where Smith thought in terms of freeing men, Keynes thought in terms of manipulating them as one would manipulate statistics to make a desired point.

Where Smith’s values result in a society in which enterprisers try to combine the factors of produc­tion in the most efficient—i.e., economical—manner, Keynes’s values lead directly to arbitrary selection and the rule of force. Roepke does not deny that force can accomplish things. But it does so wastefully, and with terrible frictions. “Equilibrium” is estab­lished in “command societies” by such things as killing off kulaks, or putting old-fashioned liberals into concentration camps, or build­ing walls and stringing up barbed wire to keep a slave labor force from escaping. “Command socie­ties” can put sputniks into orbit, just as they can employ armies of human ants to build pyramids, but while the sputniks spin aloft, 50 per cent of the “commanded” population will be standing in the furrows of inefficient collective farms to watch the passage of one or two favored birdmen through the skies. The “command society” does not know how to combine factors of production into a harmoniously functioning whole, for it has no rational methods of calculation at its disposal.

The Third” Way

When Roepke was writing Eco­nomics of the Free Society, the world was worried about the “deadening” implications of mass production. And, quite in keeping with the spirit of the nineteen thirties, this book retains its author’s old fears of a “proletar­ianized, centralized, mass-type so­ciety.” We must, he says, have a “policy—going beyond cyclical policy—which seeks to mitigate the sensitivity and instability” of our mass society “through decen­tralization, de-proletarianization, the anchoring of men in their own resources, encouragement to small farmers and small business, increased property ownership, and the strengthening of the middle classes.” Well, Roepke is right in fearing “proletarianization” and “centralization.” But do his fears apply in countries that have passed through the earlier phases of mass production?

In the United States the evi­dence is that “proletarianization” is something that is being forced by the very people who profess most loudly to abhor it. The more that the federal government tries to “do something” for individuals, the more it tends to by-pass states, cities, and small voluntary organizations. And, instead of freeing the individual to be some­thing more than a mass-man, it binds him to a passive role in life. He ceases to think and work for himself, and he really becomes “mass.”

Meanwhile, in spite of central­izing politics, other individuals in America fight to be themselves. Freed by automation from pro­duction line “serfdom,” the true individual becomes a motel keeper, a garage proprietor, or a tree sur­geon. He buys a boat, he joins a bowling league, he takes up camp­ing or fishing or skating or skiing or curling. He becomes a leisure-time student, one of the twenty-five million Americans who, ac­cording to a survey made recently by the National Opinion Research

Center of the University of Chi­cago, are taking adult education courses in something or other. Thus it is entirely possible that Roepke’s fears of “bigness” and “mass” and “proletarianization” are misplaced. One wishes he would have a second go at his sec­tion on what he calls “the third road.”

The Enterprising Americans: A Business History of the United States by John Chamberlain. (New York and Evanston, Illinois: Harper & Row. 282 pp. $5.95.)

Reviewed by K. S. Templeton, Jr.

The myth of the “Robber Barons” dies hard. Taking their cues from Ida Tarbell, Gustavus Myers, Matthew Josephson, and scores of other journalists since the 1890′s, American historians have found it difficult to shake off a congenial, and perhaps even con­genital, anticapitalist mentality. In their debunking of the business­man, they have found additional comfort in the anti-industrialism of a long procession of Southern agrarian writers stretching back to the early nineteenth century. And finally, in more recent decades, Catholic and Protestant leaders of the Social Gospel have added their weight to the unbalanced scales of the historians.

Addressing the Newcomen Society in Chicago late in 1943, one distinguished historian, Stanley Pargellis, warned his profession about its partisan writing. At the same time, he urged businessmen themselves to open their company records for the benefit of new his­torical research. Pargellis’ criti­cism had been anticipated in 1941 by the publication of R. Gordon Wasson’s The Hall Carbine Affair, which minutely documented the historians’ and journalists’ distor­tion of J. P. Morgan’s Civil War financial dealings. Shortly after Wasson published a second edition of his case study in 1948, Profes­sor F. A. Hayek brought together critical essays by several economic historians in a book titled, Capi­talism and the Historians. By this time the first of a flood of com­pany histories and “revisionist” biographies of businessmen began to appear. Unfortunately, many of these recent studies erred in the opposite direction from the earlier ones by either making angels of mere men or lauding their sub­jects for the worst reasons possi­ble—”unbusinesslike” conduct, or presumed concern for the general welfare as opposed (falsely) to company profits!

Drawing on this revisionist work in business history as well as on studies by a few economic historians who have been more judicious than the general run of their colleagues, John Chamber­lain presents in The Enterprising Americans a dramatic story of the pioneers in American business from colonial times to the present. While he focuses on the contribu­tions of some of the great entre­preneurs in our history, the book in its full dimensions actually charts the evolution of American capitalism against a backdrop of the politics and general economic conditions of the times. Chamber­lain skillfully accentuates the drama of business developments that were truly dynamic, sparked as they were by men whose vigor and creativity have too often es­caped the student exposed primar­ily to “Robber Baron” journalism and the textbooks written by pro­fessional historians. Although it may be many years before Ameri­can history texts avoid the anti­capitalist ruts they have become bogged down in for the past gen­eration, Chamberlain has suc­ceeded in giving us the textbook antidote which he says in his in­troduction he hoped to produce.

Yet a word of warning is in order: its critics notwithstanding, this book is anything but an apology for American business­men and their role in the develop­ment of a distinctively “American system” of values and ways of doing things. This is a story of enterprising Americans—outstanding inventors, innovators, and entrepreneurs—but it is not the story of freedom of enterprise in America. Chamberlain has made no attempt to portray his leading characters as great de­fenders, either in word or deed, of the underlying principles and arrangements which he, Cham­berlain, thinks have contributed most significantly to our economic progress, namely, the market econ­omy operating under a new form of limited government. In many instances, the entrepreneurial de­velopments Chamberlain recounts are intertwined with wars and other governmental interventions covering the full range of tradi­tional statist and mercantilistic practice. By his own account, Chamberlain has gone a long way toward modifying his introduc­tory observation that the first several decades of the Republic “gave the principles of The Wealth of Nations their first great trial run.” While a variety of factors contributed to an expansion of laissez faire and general economic freedom, there were many coun­terstrokes, including those actions of some of the very “enterprisers” Chamberlain describes, to achieve their business ends by means of political power and manipulation rather than through the economic competition of the market place.

This is not to say that the per­sistence of mercantilism in the nineteenth century means that the “Robber Baron” view of business activity is valid after all. In some ways, “social gains” are likely to be made under all but the most impossibly perverse systems of economic organization, even if the “social costs” of socialism are dif­ficult to calculate, or if the regres­sive effects of state intervention are disguised by misleading ap­pearances of progress. But this much must be said: first, business­men themselves cannot be auto­matically hailed as the best cham­pions of the market economy and of consistent anticollectivist thought and action; and second, it will not serve the cause of free­dom to expose Marxist mythology and then erect, in a fashion far too popular among today’s con­servatives, an equally tortured historical and philosophical myth about an “American way of life” which never did exist—and prob­ably never will! Certainly one can show aspirations toward ideals, but this is no excuse for depicting utopias of national purpose and direction which have never been a reality no matter how earnestly they were desired by some men at some times.

By all means, let us be rigorous in seeking principles of freedom, to be strengthened in thought and action, so that we may recognize heresy when it appears. But let us not be so deluded by myths of our own making that our antagonists may hang us on a scaffold of trea­son—against America!—that we ourselves have unwittingly fash­ioned. Libertarians will be well advised to leave chauvinism and imperialism to perennial collectiv­ists of whatever self-designated stripe, liberal or conservative. As individuals, we clearly have a long way to go to overcome the collec­tivist virus in ourselves and there­by enhance freedom in the United States, without presuming that we as a nation have an “American

tradition” of freedom to offer the rest of the world. If we might have once boasted a little more than others, it is a delusion when we do so now, as indeed a few reflective critics such as Garet Garrett warned us some time ago.

Hopefully, The Enterprising Americans will succeed in dispel­ling myths to the “Left,” and at the same time it can illuminate for us the errors of myths to the “Right.” The libertarian under­standing of freedom should not rest on pleasant historical fictions which are as warped as Marxism itself.



Ideas on Liberty

Monopoly of the Mails

The University of Chicago Law School’s 1961 Journal of Law and Economics carries a most interesting account by Professor Ronald Coase of the nineteenth century running battle between “The British Post Office and the Messenger Companies.” These private messenger companies were offering a superior postal service—at a profit, to boot—thus depriving the Post Office of business and revenue.

The problem came to a head in 1891 when the Postmaster General, in effect, ordered the private companies to cease and desist their illegal infringement of the governmental monopoly and announced that the Post Office would start a messenger service of its own.

This aroused considerable public controversy. One correspond­ent, in a letter to The Times, found it “highly entertaining to see this sluggish and somnolent department thus goaded by pri­vate competition into clumsy and reluctant imitation.” Another citizen, unamused by the situation, concluded that “the role of an official… is (1) to do nothing (2) to prevent anyone else from doing anything (3) to invent reasons for (1) and (2).”

  • 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.