All Commentary
Friday, January 1, 1988

Book Review: Two Essays by Wilhelm Ropke: The Problem of Economic Order, and Welfare, Freedom and Inflation ed. by Johannes Overbeek

University Press of America, 4720 Boston Way, Lanham, MD 20706 1987 • 103 pages • $19,25 hardback, $8.50 paperback

Wilhelm Röpke was one of the most respected and influential German economists in Europe, both before and after the Second World War. In 1933 he delivered a blistering lecture fight after Adolf Hitler became Chancellor of Germany; he warned that National Socialism meant the death of culture and humanity in his German home land. He was given the honor of being one of the first university professors expelled by Hitler. After several years in Turkey, he finally settled in Geneva at the Graduate Institute for International Studies, where he taught until his death in the early 1960s.

During the war he wrote several books, The Social Crisis of Our Time, Civitas Humana, and International Order and Economic Integration, in which he set out the moral ideal and economic principles of the free society. These and other works of R6pke’s bore fruit through their influence on those who implemented the market-oriented policies which led to the “German miracle” of the post-war era.

Two Essays by Wilhelm Röpke reprints two of the best of R6pke’s shorter works. “The Problem of Economic Order” is the text of four lectures delivered at the National Bank of Egypt in 195!. In a brief space, R6pke brilliantly analyzes the alternative meanings of socialism, discusses the nature of the “economic problem,” contrasts the market economy with socialism, and criticizes the premises and consequences of Keynesian inflationary policies.

But what is crucial in this essay is how R6pke views the nature of the problem. What he is interested in looking at are not the specifics of particular policy proposals. Rather, the task is to look at the economy in “fundamental terms.” Those fundamental terms revolve around the question, “How shall the activities of a vast number of people in a diverse system of division of labor be coordinated so the economic prosperity of the community is assured?” The alternatives, R6pke explains, are market competition or political command. And since socialism is unworkable there is no alternative to the market economy, in which competitive prices serve two functions: to disseminate information so individuals are guided into the correct production activities, and, as income incentives, to harness self-interest to the public interest.

The essay “Welfare, Freedom and Inflation” is the text of a monograph written by R6pke in the mid-1950s. Röpke saw the establishment of the Welfare State as an historical paradox. Prescribed as a remedy to the supposed hardships and traumas of the Industrial Revolution, its implementation in the 20th century occurred at the time when the market economy had overcome its initial 19th century birth pangs. Just when the market was developing the financial wherewithal and economic situations to enable individuals to plan and finance their own welfare requirements, the State interfered and prevented the market solution.

The Welfare State was emerging as a moral and financial monstrosity, according to Röpke. Rather than fostering self-reliance and self-responsibility, society was degenerating into a circular process in which everyone tried to live at the expense of everyone else, through the agency of the State. And as this monetary merry-go- round speeded up, the burden of government expenditures multiplied.

This process always leads to inflation, said R6pke. As government spending exceeds what the populace will tolerate in the form of taxation, the State resorts to the printing press. But in the process, inflation distorts production, destroys the value of existing savings and the incentive for future saving, weakens the economic and moral link between work and reward, and opens the economy to the pressures of special interest groups as each tries to win from the inflationary environment at the expense of others.

The first decade after the Second World War was one of great pessimism for proponents of the market economy, and that pessimism is visible in R6pke’s essays. But besides the clarity and soundness of R6pke’s arguments, these essays stand as examples of integrity to principle and truth regardless of the apparent intel lectual and political odds.

  • Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.