POLITICAL IDEAS: by Professor Dermot QuinnNews Weekly
Crisis of credibility that has shaken the world
, May 2, 2009
The writings of a neglected 20th-century economist and political thinker Wilhelm Röpke could show us a way out of our current economic woes, suggests American historian Professor Dermot Quinn.
It was not supposed to end this way. In the glory days, when you could get a house with nothing down and almost nothing to pay, anything seemed possible. A new car every year? A trip to the sun? College tuition? Watch the house balloon and let the good times roll.
The recipe was simplicity itself. First you find a physicist to tell you that gravity has been abolished on Wall Street. Then you hire a banker to slice and dice your derivatives. Then you promote a political class to bless the baloney before eating it. Finally, you ask China to underwrite the debt, happy to own half your house so that you don't insist that it get its own house in order. What could go wrong?
No one noticed that when even bankers laugh all the way to the bank, something must be wrong. No one cared that multiplying derivatives is the fiscal equivalent of the miracle of the loaves and fishes. No one doubted the benediction of a political class that had been bought and paid for many times over.
But now that houses and jobs and pensions have disappeared in a puff of smoke, we remain oddly amnesiac as to the cause. Washington DC's Economic Stimulus plan, the Mortgage Foreclosure Plan, the Bank Rescue Plan, the Debt Until the Crack of Doom Plan: trust me, says the president, they promised this was quite safe in the 12-step program. Then the program director asked me for some more money.
Fecklessness and stupidity are nothing new, but even by American standards of giantism this latest iteration of boom and bust takes some beating. Yet none of it need have happened had we listened to Wilhelm Röpke.
Two generations ago, when postwar Germany lay in ruins, Röpke helped to lay the foundation of its extraordinary renewal. To be sure, that postwar "miracle" owed something to American generosity, even to the very statism (in the form of the Marshall Plan) that Röpke otherwise distrusted. But in the Age of Obama, when all our calculations have gone cock-eyed, an economist who seems to know what he is doing is worth a second look. Better than that, he knew the limits of economics itself as the means and measure of human happiness.
Röpke was born in Hanover in 1899 and died in Geneva in 1966. In between, he fought in World War I, studied and taught economics in Marburg, Istanbul, and Geneva, befriended Ludwig von Mises and Friedrich Hayek, helped establish the Mont Pelerin Society, and advised Konrad Adenauer on social and monetary policy.
Such a life mixed the conventional and the bizarre. No one who had known the world before 1914, he said, could fail to be horrified by how it collapsed. Where once there was "confident ease, an almost unimaginable freedom and optimism" now came a world war, crushing inflation, the Great Depression, an even more terrible war, a mushroom cloud in the east, Communism on the march. The funeral pyre of Western civilisation was lit by Western man himself.
Initially, Röpke's inclinations were socialist. If the Great War was the result of capitalist imperialism, he reckoned, the way to prevent another war was to embrace a bigger state, more planning and loftier ambitions descending from on high. It was the standard dream of the interwar years. For the New Deal read the Five-Year Plan: conceptually there was little to choose between the two.
But Röpke abandoned the dream faster than most, convinced by Mises's 1919 book Nation, State and Economy
that most statist thinking was simply inept and crass, economically and humanly illiterate.
In books such as Economics of the Free Society, The Moral Foundations of Civil Society,
and A Humane Economy
, Röpke outlined an alternative vision, attacking the "bloated colossus" of the state, the "pocket-money" world of welfare, the vanity of the clipboard crowd telling us what to do.
After World War II, when everyone was a planner of one sort or another - from little Clement Attlee to ludicrous LBJ - it took courage to go against the crowd. But Röpke had plenty of courage, and besides, he never much cared for crowds anyway. Given a choice between conventional wisdom and a village reputation, he would have taken the village any day.
The key to Röpke's thinking is freedom, which he experienced before the catastrophe of 1914, thought all human beings desired and deserved, and felt sure could be recovered if certain principles of political economy were understood by those entrusted with the guardianship of the state. But his notion of freedom was profoundly communitarian, rooted as it was in certain moral understandings of man and the good life, of human beings living together in honourable interdependence, of families being free because obliged to each other.
Röpke was no libertarian any more than the Adam Smith of The Wealth of Nations
and The Theory of Moral Sentiments
was a libertarian. Liberty, both men knew, comes with limits, and it imposes those limits on itself. Röpke delighted in boundaries - the fence, the front door - recognising that they make us free. Without a playpen there is no play. Without scales and minims there is no music. Röpke thus understood economics in deeply religious terms, as a kind of magnificent participation in creation itself:
"What I reject in socialism is a philosophy which ... places too little emphasis on man, his nature and his personality. ... I see in man the likeness of God. I am profoundly convinced that it is an appalling sin to reduce man to a means (even in the name of high-sounding phrases) and that each man's soul is something unique, priceless, in comparison with which all other things are as naught.
"I am attached to a humanism which is rooted in these convictions and which regards man as the child and image of God, but not as God himself, to be idolised by a false and atheist humanism. These are the reasons why I so greatly distrust all forms of collectivism."Market is made for man
Notice that easily missed word: he distrusted all forms of collectivism. Röpke was an equal opportunity individualist. He feared the tendency even of capitalism to instrumentalise human beings, to turn the "market" or the "state" or "the forces of history" into things in themselves, crushing the very freedom it claims to admire. The market is made for man, not man for the market.
Freedom, then - rightly understood as obligation - is at the core of Röpke's thought. But why should freedom work and socialism fail? Because it understands man not as an embodied appetite but as a soul. Our deepest need is not for things but for each other. He wanted a society in which
"... wealth would be widely dispersed: people's lives would have solid foundations; genuine communities, from the family upward, would form a background of moral support for the individual; there would be counterweights to competition and the mechanical operation of prices; people would have roots and not be adrift in life without an anchor; there would be a broad belt of an independent middle class, a healthy balance between town and country, industry and agriculture."
An Aristotelian preference for balance and variety, a Burkean delight in the little platoons, a Chestertonian love of the local and the down-to-earth - that was Röpke.
This is all very well, you might say, but where are the economics? Actually, Röpke's technical work on credit, monopoly, the business cycle, interest rates, inflation, employment and the gold standard was of a very high order. He could wield graphs with the best of them. He did more than complain about Keynes: he out-argued him.
To be sure, he insisted on the complexity of his subject because he understood the complexity of the world it sought to explain, parting company with his Austrian colleagues when he thought they overstated the scientific side of economics. "A very inefficient way of producing vegetables," Mises famously remarked to him as the two men walked by some allotments after the war. "Perhaps", Röpke memorably replied, "but a very efficient way of producing human happiness."
That was his answer to economics as mere technique, as applied science. Even Madame Obama, digging for victory in the White House garden, seems to intuit the wisdom. There she is, a peasant in Prada, urging us onward to spinach Nirvana. Good for her, but even better were she and her husband to understand the point. Röpke might have helped them. The significance of that famous exchange with Mises is that Röpke was epistemologically modest, knowing that the most rational thing about rationality is that it knows its own limits. When even sensible economists forget they are dealing with human beings, we should forget them.
That insight is at the core of his economics. Röpke was appalled by the sheer vastness of the modern state, its absurd omnicompetence, its unerring ability to do badly what it shouldn't be doing at all. He offered, instead, the more modest proposal that self-reliance - "the individual taking care of himself and his family" - was the foundation upon which all economics and politics should be built.
We need to recover an intelligent and unapologetic localism, the kind of wisdom that sees the value of having local banks locally owned and locally answerable to local people. (Now there's an idea that might have saved us some trouble.)
We need to find again "the virtues of diligence, alertness, sense of duty, reliability, and reasonableness". Modern economic activity, Röpke proposed, "can only thrive where whoever says 'tomorrow' means tomorrow and not some undefined time in the future". He believed, in other words, in telling the truth. What a strangely old-fashioned idea. I wonder if it will ever catch on.
For that, surely, is the real "credit crisis", the crisis in credibility that has shaken our world to its core. Truth from our political masters, from our bankers, from our brokers: have you heard much of it lately? Instead, we have had only lies - that too much borrowing requires even more borrowing; that some banks are too big to fail; that we have a moral duty to subsidise the feckless; that a bigger state means a better life. Any society that lies to itself so systematically and so seductively is doomed to fail. That failure, dear reader, is all around you.
The good news is that it could be worse. The bad news is that it will be worse. Of all the mischiefs that arise from financial prodigality, Gladstone wrote over a century ago, none is more dangerous than the fact that "they creep onwards with a noiseless and a stealthy step... they commonly remain unseen and unfelt until they have reached a magnitude absolutely overwhelming".
There is our story in a nutshell. And how do we propose to resolve our current mischief? With even more financial prodigality, with one last bender to bring us to our senses. Sound money? I like the sound of that, says our clownish commander in chief. Let's print lots and lots of it.
Gladstone died the year before Röpke was born. A way of life died a few years later. Röpke's world collapsed in August 1914. Our world collapsed in September 2008. Both, we can now see, were doomed long before they fell. Out of the ruins what shall we build? Another Tower of Babel, another building too big to fail? Perhaps, if we are wise, we might try smallness for a change. Happiness happens that way.- Dermot Quinn is professor of history at Seton Hall University and a fellow of the James Madison Program at Princeton University. This review is reproduced here by kind permission of The American Conservative magazine (April 20, 2009 issue).
Web site: www.amconmag.comThe following two books are available from Freedom Publishing (see page 21 for ordering details):
A Humane Economy: The Social Framework of the Free Market
John Zmirak,Wilhelm Röpke: Swiss Localist, Global Economist