Book Reviews

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 mar ket." They were interested in re ducing economics to mathematics. Personalities such as Mises, Men ger, and Ropke were not in the fashion. If it had been that way when he ,vas a student, said Dr. Erhard, he would never have be come an economist. He would not have been able to pass examina tions. This business of reducing eco nomics to mathematics is part of the disease of the vVestern world. 'rhe modern economist tends to think in terms of "input" and "output" and "aggregates." The question of who directs and dis poses the "input," and how title to the "output" is acquired or allo cated, is dismissed as irrelevant to the problem of seeing that "ag gregate" purchasing power, or "aggregate" investment, is kept at a "full-employment" level. The whole business of human incen tives, the question of the hum8.n will, tends to disappear from the subject of economics; the individ ual 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 econ omist, by making the human terms of "input" irrelevant, may be h71 572 THE FREEMAN Septembm striking most deleterious blows at individual creativity. It can mat ter much to the inventor in his shop, or the chemist in his ·labora tory, that he be allowed to seek support from individuals rather than faceless bureaucrats. The be guiling breakthrough that ulti mately develops into anew "ladder industry," capable of lifting a na tion out of depression, is never a "statistic" at its birth; the quan tifying 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 visi ting U.S. journalists through the fog of translation. It so happened that I had been reading Wilhelm Ropke's Against the Tide (Regnery, $7.50, translated by Elizabeth Hender son) before coming to Germany.

My question to Dr. Erhard had been prompted by a passage in Gottfried Dietze's foreword to the Ropke essays. "Ropke," says Dietze, ". . . warned against the advocacy of a planned economy and expressed the fear that plan ning and collectivism would pre vent 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 Er hard ... has told how during the war he illegally got hold of Ropke' E books, the contents of which he 'devoured like the desert the life giving water.' Erhard repeatedly emphasized his debt to Ropke when, against the opposition of the military government, he intro duced the market economy in West Germany ... the enormous success of the 'socially responsible mar ket economy' . . . deprived West ern socialist programs of their ap peal. ... After the success of that economic system had been demon strated in Germany, Ropke's friend and colleague Luigi Ein audi, the first President of post war Italy, imitated the German economic policy in his country ....

Other nations . . . followed suit. A continent that after World War II lay dying recovered in free dom." Ropke, 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 Ger many, Italy, and elsewhere that surprised and flabbergasted the Keynesians and the neo-Marxists. He gave socialism its first big set back and thereby may have changed the course of history.

1970 AGAINST THE TIDE 573 "Intellectuals and Capitalism" Against the Tide represents many facets of Rapke's intellec tual armory. Some of the essays are dated; the long discussion of "the transfer problem in interna tional capital movements," which opens the book, becomes burden somelytechnical, and despite the fact that it was written in pre Hitlerian 1930, it could hardly ha ve been an example of the Ropke that stimulated Dr. Erhard to face down the American Key nesians who tried to keep the free market from re-emerging in post Hitler 1948 in the shattered Rhine land. But the second essay, "The In tellectuals and Capitalism," dated 1931, is Rapke at his best. Rapke was combatting the German vel".. sion of Rexford Tugwell's idea that capitalism must die when the economy becomes "mature." In pre-N azi Germany economics had become crossed with geopolitics to produce a theory that national sal vation 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 space to create a "want-satisfaction economy," an "organic economic community," which would help "the mass of the unpropertied peopIe growing into the State." Rapke 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, Ropke doubted that there were struc tural, as contrasted with cyclical, reasons for the depression. The hy pothesis that capitalism had failed, because of a shortage of gold "was faulted from the outset by its failure to explain why, .never theless, 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 Rapke, the amount of money in a country is sufficient to do the work of the country.) As for the theory that declin ing populations meant a declining capitalism, Ropke remarked that this was to "confuse people with Reichsmarks and dollars." Ob viously, 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.

Rapke admitted that some needs 574 THE FREEMAN September 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 Ropke said, "the value and amount of presents lying under the Christ mas tree vary from one family to another in accordance with the breadwinner's income. . .. Even if the production increased a hun dred times, it would still fail to raise the incomes of the masses to a level that is regarded as neces sary to the high-income brackets today." Faulty Understanding 01 the Economics 01 Freedom If lack of geographical space, or lack of precious metals, or a fall-off in population, couldn't ex plain the depression, what did? Ropke decided that the world's troubles in 1933 were due to a faulty understanding of the eco nomics of freedom. He held to this opinion during his long period of exile from Germany in Turkey and Switzerland. And, when the op portunity 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 re sulted in the "end of an era." The later essays in Against the Tide attack the problem of infla tion, which seems inseparable from the growth of the welfare state. Ropke is not against a basic hu manitarianism; he doesn't want to see helpless people starving. But he sees little sense in "rob bing Peter to pay Paul" when Paul is just as capable of support ing himself as Peter. "We are in the predicament of the sorcerer's apprentice," he wrote a few years before he died; "almost any where we turn our horrified eyes, we see that the welfare state has a built-in, irresistible tendency to further growth." The welfare state, he said, operates without a brake or a reverse gear. Unfortunately, welfarist ideas are still careening down the high way with as much dangerous mo mentum as was the case when Ropke was still alive. The more reason, then, to repeat the ex perience of Dr. Ludwig Erhard when he devoured Ropke "like the desert the life-giving water."

• THE UNHEA VENL Y CITY by Edward C. Banfield (Boston: Lit tle, Brown and Company, 1970) 308 pp. $6.95. Reviewed by Robert M. Thornton THIS BOOK, by Harvard's professor of urban government, is a celebra tion of city living which, the au thor contends, is better today than ever before. Is there urban conges1970 OTHER BOOKS 575 tion? Well, up to a point, that's what makes a city, Banfield ob serves: a heavy concentration of business, industry, and workers' homes. Is there poverty and crime in the city? Of course, but the in herent 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 nev er been "heavenly," of course; but until political reformers, master planners, and utopians began tink ering with city life by unwise legis lation and infusions of tax money, cities provided a good life for countless millions of people. And cities might continue in their civil izing 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 accom plish 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 ham per and discourage the small busi nessman; 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 other wise 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 respon sible 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 govern ment. 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 monopo lies 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 earn ing his Iiving is less likely to be breaking laws or creating disturb ances than one forced to sit in a classroom all day, bored silly. Like Martin Anderson and Jane Jacobs, Banfield comes out em576 THE FREEMAN September pha tically 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 concen tration of a particular race or so cial 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 pleas ant suburban community but re fuse because they prefer to be with their own people; he has wise words on the socalled color prob lem.

Banfield sees society as consist ing of two broad classes: the pres ent-oriented and the future-ori ented. The former live for the mo ment 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-mind ed analysis, the problem of pov erty is not so much something ex ternal to the individual personas an internal condition. Some per sons, Banfield reminds us, simply do not care much about being re sponsible, independent citizens; they do not attach much impor tance to privacy or education or a steady job or an attractive home, and no amount of government in terference is going to change them; in fact, handouts will only encourage them in their ways. There are, of course, many prof fered "solutions" for some of these city problems, but they all smack of dictatorship - the totalitarian state. Better to settle for the "un heavenly 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." , the Freeman VOL. 20, NO. 10 • OCTOBER 1970 Foreign Investmentvs. ForeignAid Henry Hazlitt 579 Government-to-government aid promotes socialism and waste and prolongs the poverty it is designed to cure. A Youthful Purpose James W. Muller 594 Look not to the welfare state but to freedom, urges this young man. Hyperinflationin Germany Hans F. Sennholz 598 The German experience with runaway inflation after World War I should serve to warn those who advocate inflationary policies today. The Tragedy of the Commons C. R. Batten 608 To avoid the waste of resources "owned in common," they need to be brought under private ownership and control. Profits and Profit MakersWhat Does the Public Think About Them? Lawrence Fertig 610 How the distorted view of the innovator's function disrupts the economy.