Wilhelm Ropke; R. Ebeling

Ropke told his audience that Germany was in the grip of a "revolt against reason, free dom and humanity." The National Socialists under Hitler were now the dominant force in an attack against the fundamental principles of liberalism and Western civilization. Liber alism, correctly understood, represented a 2,000-year-old intellectual heritage of politi cal, civil,- and economic liberty. Liberty required the rule of reason, resting on "truth fulness instead of obscurantism, clarity instead of hysteria, the advancement of knowledge instead of sensationalism for the masses, logic instead of wallowing in moods and emotion. . . . It is only the liberal ideal of the use of Reason in the service of truth that has engendered science ... that alone has lib erated Europe from the stupor and wretched ness of barbarism." An additional element in the philosophy of liberalism, rightly understood, Ropke explained, was the idea of humanity. "The idea of humanity is seen in all its full signifi cance when conceived as the rejection of the Richard Ebeling is chairman of the economics department at Hillsdale College, where he is the Lud wig von Mises Professor ofEconomics.

19 principle of violence in favor of the principle of reason. Violence is relegated to the very bottom of the scale of value; its use is admit ted only as a last resort and with the utmost reluctance. This, ultimately, is the essence of civilization." But Nazism was the culmination of Ger many's sinking into "illiberal barbarism," Ropke said, the elements of which were based on: (1) "servilism," a "longing for state slav ery," with the state becoming the "subject of unparalleled idolatry"; (2) "irrationalism," in which "voices" in the air called for the Ger man people to be guided by "blood," "soil," and a "storm of destructive and unruly emo tions"; and (3) "brutalism," in which "The beast of prey in man is extolled with unexam pled cynicism, and with equal cynicism every immoral and brutal act is justified by the sanc tity of the political end." Ropke warned that, "a nation that yields to brutalism thereby excludes itself from the community of West ern civilization." He hoped Germany would step back from this abyss before its people had to learn their mistake in the fire of war.1 Ropke also spoke out against the Nazi dis missal of Jewish professors and students from German universities, which began in April 1933.The Nazis denounced him as an "enemy of the people" and removed him from his pro fessorship at the University of Marburg. After an angry exchange with two SS men sent to "reason" with him, Ropke decided to leave Germany and accept exile rather than live under National Socialism.2 20 THE FREEMAN/IDEAS ON LIBERTY • OCTOBER 1999 Leading Figure Wilhelm Ropke was a leading intellectual figure of twentieth-century Europe. He com bined conservatism with classical liberalism to develop a political philosophy he called a market-oriented "middle way" between nineteenth-century capitalism and twentieth century totalitarian collectivism. He also became a spiritual guide and political-eco nomic architect of Germany's "social market economy" in the post-World War II era. As Ludwig von Mises wrote when Ropke died in 1966 at the age of 66, For most of what is reasonable and benefi cial in present-day Germany's monetary and commercial policy credit is to be attributed to Ropke's influence. He-and the late Walter Eucken-are rightly thought of as the intellectual authors of Germany's economic resurrection ....

[T]he future historians of our age will have to say that he was not only a great scholar, a successful teacher and a faithful friend, but first of all a fearless man who was never afraid to profess what he considered to be true and right. In the midst of moral and intellectual decay, he was an inflexible harbinger of the return to reason, honesty and sound political practice. 3 Ropke was born October 10, 100 years ago in Hanover, Germany. He grew up in a rural community of independent farmers and cot tage industry craftsmen. His father was a country doctor. That upbringing can be seen in his later belief that a healthy, balanced, small community is most fit for human life. The event, however, that shaped his chosen purpose in life was his experience in the Ger man army in the First World War. War was "the expression of a brutal and stupid nation al pride that fostered the craving for domina tion and set its approval on collective immorality," Ropke explained. The experi ence of war made him decide to become an economist and a sociologist when the cannons fell silent. He entered the University of Mar burg, from which he earned his doctoral degree in 1921. At first, Ropke thought that socialism was the answer to the world's problems. But he soon discovered that the only realistic solutions were to be found in classi cal liberalism and the market economy.4 Among the most important influences in that discovery were the writings of Austrian econ omist Ludwig von Mises. "It was his book, Nation, State and Economy (1919) ... which was in many ways the redeeming answer to the questions tormenting a young man who had just come back from the trenches," Ropke wrote. And it was Mises who "rendered me immune, at a very early date, against the virus of socialism with which most of us came back from the First World War."5 In 1922, Ropke became an adviser to the German government on the problems of repa ration payments resulting from the Treaty of Versailles. From 1924 to 1928 he was a pro fessor at the University of Jena, spending part of the time, in 1927-1928, in the United States studying American agrarian problems under the auspices of the Rockefeller Founda tion. After returning to Europe he was a pro fessor of economics at the University of Graz, Austria, in 1928-1929. In 1929 he was appointed professor of economics at the Uni versity of Marburg, a position he held until his expulsion by the Nazi regime in 1933. He also served as a member of the German National Commission on Unemployment in 1930 and 1931, and as an adviser to the Ger man government in 1932.

After leaving Germany in 1933 he accepted a position at the University of Istanbul, Turkey, which he held until 1937,·and during which he undertook the reorganization of its department of economics. He also founded and was the first director of the Turkish Insti tute of the Social Sciences. Teaching Career in Geneva In 1937 he was invited to become a profes sor of international economic relations at the Graduate Institute of International Studies in Geneva, Switzerland, a position he retained until his untimely death on February 12, 1966. The Graduate Institute had been founded in 1927 by the famous economic historian Paul Mantoux and the internationally respected economist, political scientist, and leading WILHELM ROPKE: A CENTENARY ApPRECIATION 21 classical liberal William E. Rappard. In the Graduate Institute's comfortable building overlooking Lake Geneva, Ropke took up his teaching duties. He was in the company of such colleagues as Mises, the eminent Italian historian Guglielmo Ferrero (an exile from the fascist regime in Italy), the Polish free market economist Michael Heilperin, and the Austrian legal philosopher Hans Kelsen.

After the German occupation of France, Ropke was three times offered a teaching position at the New School for Social Research in New York (in 1940, 1941, and 1943) as a means of escape from Nazi occupied Europe. But each time he turned down the invitation to leave neutral Switzer land, having decided to continue to be a voice for freedom and reason in a totalitarian dominated Europe. In the immediate after math of the Second World War, Ropke circu lated a memorandum offering a "plan for an international periodical" that would be devot ed to the restatement and defense of classical liberalism and the freemarket economy against all forms of political and economic collectivism. The journal was never estab lished, but the ideas conveyed in the memo randum served as support for F. A. Hayek's successful founding of the Mont Pelerin Soci ety in 1947, an international association of scholars and opinion makers dedicated to the philosophy of freedom. Ropke served as the society's president from 1960 to 1962.

In the 1950s, he was an economic adviser to the government of West Germany. He also was one of the leading figures of a group of market-oriented German economists who in the postwar period became known as the Ordo-liberals; their purpose and goal was the construction of a "social market economy" that assured both an open, competitive order and minimal social guarantees.6 Business-CycleTheory In the 1920s and for part of the 1930s, a pri mary focus of Ropke's writings was business cycle theory and policy. His most significant work in this field was his 1936 volume Crises and Cycles, which summarized and elaborat ed on his earlier writings, mostly in German, on the subject.7 Ropke argued that a complex division of labor with a developed structure of roundabout methods of production, held together by the delicate network of market prices for finished goods and the factors of production, had the potential to occasionally suffer from the cyclical waves of booms and depressions. The cause of such cycles was periodic imbalances between savings and investment in the economy. While not com pletely following the "Austrian" theory of the business cycle, Ropke's approach moved along similar lines, arguing that a monetary expansion that kept the market rate of interest below the level that could maintain a balance between savings and investment would feed investment projects and cause misdirections of labor and resources into production processes in excess of the savings available to sustain them in the long run.

Ropke's particular contribution to the analy sis of the business cycle was his theory of what he called the "secondary depression." When the boom ended, an economic downturn was inevitable, with the investment excesses of the upturn having to contract and be readjusted to the realities of available savings and the market-based patterns of supply and demand. But while serving on the German National Commission on Unemployment in 1930-1931, he came to the conclusion that there were neg ative forces at work at that time far beyond any normal type of post-boom adjustment. The failure of cost prices to promptly adjust down ward with the decline of finished-goods prices was causing a dramatic collapse of production and employment. Rising unemployment result ed in declining incomes that then created a new round of falling demands for goods in the economy, that in tum brought about another decrease in production and employment.At the same time, growing unprofitability of industry made businessmen reluctant to undertake new investments, resulting in the accumulation of idle savings in the financial markets. Such a sequence of events generated a cumulative contraction in the economy that kept feeding on itself.

Ropke concluded that this secondary depression served no healthy purpose, and the downward spiral of a cumulative contraction 22 THE FREEMAN/IDEASON LIBERTY • OCTOBER 1999 in production and employment could only be broken by government-induced credit expan sion and public-works projects. Once the gov ernment introduced a spending floor below which the economy would no longer go, the market would naturally begin a normal and healthy upturn that would bring the economy back toward a proper balance.8 In 1933, when Ropke published in English an article explaining the findings of the Ger man Commission on Unemployment, John Maynard Keynes expressed to Ropke his "great satisfaction" that German economists were reaching the same conclusions as he had, namely, that government needed to take an active role in steering the economy. But Ropke had no sympathy for Keynes's belief that the market was inherently unstable and permanently in need of government manage ment of "aggregate demand." In Ropke's view the Great Depression represented a "rare occurrence" of an "exceptional combination of circumstances" that required "a deliberate policy of additional 'effective demand' into the economic system." But, Ropke continued, Keynes's construction of a "general theory of employment" based on the exceptional cir cumstances of the early 1930s was a "counsel of despair" and an extremely dangerous one, because it created a rationale for continuous government tinkering and a strong inflation ary bias harmful to the stability of the market economy in the long run.9 Indeed, Ropke became a leading critic of Keynesian eco nomics after World War 11.10 The CrisisofWestem Civilization But the central issue that absorbed almost all of Ropke's intellectual and literary efforts in the 1930s and 1940s was what he consid ered the crisis ofWestern civilization, the most stark and terrible symptom of which was the rise of totalitarian collectivism as represented by Soviet communism, Italian fascism, and German National Socialism. He devoted all his efforts to opposing and challenging this horrible trend in a series of important and highly influential books. In 1937 he published Economics of the Free Society, a treatise on economic principles that not only explained and defended the market economy, but also strongly criticized the ideas of socialism and interventionism.11 This was followed in 1942 by International Economic Disintegration, in which he detailed the disastrous consequences that collectivist economics produced by destroying the international division of labor through trade restrictions, exchange controls, govemmentplanning, domestic interventions, and policies of national self-sufficiency.12 But the heart of Ropke's critique of the decay of Western civilization and the path for its renewal was in a trilogy published during the war: The Social Crisis of Our Time, Civi tas Humana (later reissued as The Moral Foundations of Civil Society), and Interna tional Order.13 This was followed at the end of the war by The Solution of the German Problem (1945).14 And a further reformula tion of his conception of a properly ordered and balanced society was offered in A Humane Economy: The Social Framework of the Free Market (1958).15 The achievements of the eighteenth centu ry, in Ropke's view, were the use of reason for a balanced understanding of both the natural and social world; the awakening of an insight into the possibilities of a free, spontaneous order of market relationships; a conception of man that looked at him in proportionate human terms; and a sense of humanity in appreciating and wanting to improve the human condition. Out of these insights came the physical and biological achievements of modern science and medicine; a freemarket order that both liberated man from the status and caste society of the past and dramatically improved his standard of living; and the liber al, democratic ideal in which the individual possessed rights to life, liberty, and property,

and in which peace and tolerant political plu ralism replaced imperial violence and politi cal absolutism. But as Ropke saw it, many of these achieve ments and successes had been twisted in the nineteenth century. The use of reason had become "unreasonable," as there emerged a hyper-rationalism that claimed to have the power to discover the secrets for social engi neering. The triumphs of the natural sciences in mastering the physical world had fostered a WILHELM ROPKE: A CENTENARY ApPRECIATION 23 "cult of the colossal," in which there was a worship of the things of the material world and the desire for the creation of objects big ger than human life. The grand accomplish ments of the market economy had not only freed man from his previous social restraints, but cut him loose from all the societal moor ings of family, community, and the harmonies of local life, and in its place reduced man to a proletarianized "mass" in an anonymous, impersonal urban existence. And the ideal of democratic pluralism had been undermined and reduced, increasingly, into an arena of special-interest political plunder.

"Termite State" The loss of traditional human connections, the dehumanization of man in mass society, and the corruption of the political and eco nomic marketplaces, Ropke argued, had cre ated the sociological and psychological condi tions for the emergence of and receptivity to the collectivist idea and its promise of a new community of man, a transformation of the human condition, and a better society designed according to a central plan. All these were false promises and hopes. Collectivism, whether of the fascist or communist sort, meant the end of a rational economic order, threatened the loss of freedom and the end to human dignity, and required the reduction of man to the status of an insect in what Ropke often referred to as the socialist "termite state." Ropke was uncompromising in his insis tence that only the market economy was con sistent with both freedom and prosperity.

Only the market, with its system of private property rights, provided the framework to harness individual incentives and creativeness for the benefit of society. Only the market could generate the competitive process neces sary for the formation of prices that could successfully coordinate supply and demand. Only the market gave each individual the free dom to be an end in himself while also serv ing as a voluntary means to the ends of others through the mechanism of exchange.l6 Yet in Ropke's view the market by itself was not enough. The humane society required going "beyond supply and demand," to the construction of an institutional order that incorporated the market in a wider social set ting. It was in this context that Ropke pro posed the distinction between "conformable" and "nonconformable" interventions in the market. Nonconformable interventions went against the natural workings of the market through the introduction of price and produc tion controls, which disrupted the normal coordinative processes of market competition.

Conformable interventions influenced the underlying supply and demand conditions, and the institutional arrangements on which those conditions are based, for the purpose of modifying the results that competitive process would generate. Ropke, for example, believed that: antitrust laws were necessary and desirable as a method of limiting some private industrial concentration; urban development restrictions were needed to limit the growth of city size and foster a retention of rural life; income redistribution was legitimate to narrow signif icant income inequalities; and moderate and limited welfare "safety net" programs were consistent with a humane society that remained essentially market-oriented. In fair ness to Ropke it should be pointed out that in the wake of the Great Depression and the growing appeal of socialist planning, a large number of market-oriented economists at the time accepted a greater degree of interven tionism and welfare-statist programs than many freemarket economists would consider legitimate nowadays.17 But by the 1950s, Ropke began to have serious second thoughts about the welfare state and its tendency to grow beyond the nar row bounds that he considered reasonable.l 8 Ropke agreed with his German liberal col league Alexander Rustow, who in a paper delivered at a Mont Pelerin Society meeting in the 1950s referred to the welfare state as "the other road to serfdom." Ropke feared that the welfare state, in a democratic system open to the pressures of special-interest groups, threatened to grow to monstrous proportions and create an increasing dependency on the paternalistic state. Furthermore, the costs of funding the welfare state and Keynesian "full employment" policies acted as an engine for 24 THE FREEMAN/IDEAS ON LIBERTY • OCTOBER 1999 worsening inflation as government resorted to the printing press to pay its bills. 19 Finally, Ropke argued that the growing politicization of economic and social life through an expanding interventionist-welfare state undermined the possibility for a success ful international order based on peace, mutu al prosperity, and a rational allocation and use of the resources of the world. International order required countries to practice sound policies at home: respect for private property, enforcement of contracts, protection for for eign investments, limited government inter vention, and noninflationary monetary poli cies. Networks of international trade and investment would then naturally and sponta neously connect the world through private market relationships.20 For this reason, Ropke was doubtful that European economic and monetary integration could be successfully imposed as long as the member states were unwilling to follow the necessary domestic policies of limited government and open, competitive market capitalism. Tensions and conflicts were inevitable in an age dominated by collectivist and interventionist ideas. 21 Wilhelm Ropke was more than just an economist. During some of the darkest decades of the twentieth century, he sounded more like an Old Testament prophet warning of the dangers from a loss of our moral com pass. Collectivism had few opponents in our century with as much of a sense of ethical purpose. Precisely because he was an econo mist by training, Ropke understood the indi visibility of personal, political, and economic freedom in a way that many other critics of socialism in its various forms could never articulate. The appreciation of history and the historical context in his analyses only enriched the persuasiveness of his message.

The rebirth of the market economy in Ger many and in other parts of Europe after 1945 owes a great deal to his intellectual efforts and legacy. 0 1. WilhelmRopke, "End of an Era?" [1933] in Against the Tide (Chicago:Henry Regnery, 1969),pp. 79-98. 2. Wilhelm Ropke, The Solution of the German Problem (New York: G. P. Putnam's Sons, 1947),pp. 59-60; and J. Kaufmann,"In Memoriam,Wilhelm Ropke: HumanisticLiberal," Nieuwe Rotter damsche Courant, February 19, 1966. 3. Ludwigvon Mises,"WilhelmRopke, RIP," National Review, March 8, 1966, p. 200; also, F.A. Hayek, "Tribute to Ropke," in Peter G. Klein, ed., The Collected Works ofF. A. Hayek, Vol. 4: The Fortunes of Liberalism (Chicago: University of Chicago Press, 1992),pp. 195-97. 4. WilhelmRopke,"The EconomicNecessityof Freedom,"Mod ern Age, Summer, 1959, pp. 227-36. 5. Wilhelm Ropke, "Homage to a Master and a Friend," The Mont Pelerin Quarterly, October 1961,p. 6.

6. For an accountof the GermanOrdo-1iberalsand Ropke's con tributionto their ideas and policies, see AnthonyJ. Nicholls, Free dom with Responsibility: The Social Market Economy in Germany, 1918-1963 (Oxford:ClarendonPress, 1994); for a criticalcompari son of the Ordo-liberalswith the Austrian economists, especially Mises, see my "The Limitsof EconomicPolicy:The AustrianEcon omistsandthe GermanORDO Liberals,"in RichardM. Ebeling,ed., The Age of Economists: From Adam Smith to Milton Friedman (Hillsdale,Mich.: HillsdaleCollegePress, 1999),pp. 145-66. 7. WilhelmRopke, Crises and Cycles (London:William Hodge Co., 1936). 8. WilhelmRopke, "Trends in German BusinessCycle Policy," The Economic Journal, September1933,pp. 427--41. 9. WilhelmRopke,"KeynesRevisited,"National Review, March 26, 1963, pp. 239-41. 10. Wilhelm Ropke, "The Economics of Full Employment" [1952],reprintedin HenryHazlitt,ed., The Critics ofKeynesian Eco nomics (Princeton:D. Van NostrandCo., 1960),pp. 362-85.

11. WilhelmRopke, The Economics of the Free Society (Chica go: Henry RegneryCo., 1963 [1937]). 12. Wilhelm Ropke, International Economic Disintregration (Philadelphia: Porcupine Press, 1978 [1942]); also "International Economicsin a ChangingWorld," in WilliamE. Rappard, ed., The World Crisis (Freeport,N.Y.:Books for Libraries,1969 [1938]),pp. 275-90; "Fascist Economics," Economica, February 1935, pp. 85-100; and "Totalitarian'Prosperity,' Where Does It End?" Harp er's Magazine, July 1939,pp. 165-70. 13. Wilhelm Ropke, The Social Crisis of Our Time (New Brunswick:N.J.: TransactionPublishers, 1992 [1942]); The Moral Foundations of Civil Society (New Brunswick, N.J.: Transaction Publishers, 1996 [1944]); International Order and Economic Inte gration (Dordrecht,Holland:D. Reidel Co., 1959 [1945]). 14. WilhelmRopke, The Solution ofthe German Problem (New York: G. P. Putnam's Sons, 1947 [1945]);also "The GermanDust Bowl," The Review ofPolitics, October 1946,pp. 511-27.

15. Wilhelm Ropke, A Humane Economy: The Social Frame work ofthe Free Market (Chicago:Henry Regnery, 1960 [1958]). 16. WilhelmRopke, "The Problemof EconomicOrder" [1951], reprintedin JohannesOverbeck;ed., Two Essays by Wilhelm Ropke (Lanham,Md.: UniversityPress of America, 1987),pp. 1-45. 17. Among Americanmarket-orientedeconomistsin the 1930s and 1940swho sharedsome of Ropke 's viewson thesepolicyissues wereHenrySimonand JacobVinerat the Universityof Chicago,and Frank Graham at PrincetonUniversity;in Europe the group includ ed F. A. Hayek and Lionel Robbins at the London School of Eco nomics, Walter Eucken and many other market economistsin Ger many, and Eli Heckscherin Sweden. 18. Wilhlem Ropke, "Is the German Policy the Right One?" [1950]in WolfgangStutzel,ChristianWatrin,Hans Willgerodt,Karl Hohnmann, eds., Standard Texts on the Social Market Economy (New York: GustavFischer, 1982),pp. 37--48.

19. WilhelmRopke, "Welfare Freedomand Inflation"[1964] in Overbeck,pp. 49-103; also "RepressedInflation"Kyklos, vol. 1, no. 3, 1947, pp. 242-53; "Inflation-Hot and Cold," National Review, January 18, 1956, pp. 15-17; and "The Creeping Inflation of Our TimesandValues,"Freedom and Union, September1961,pp. 12-15. 20. WilhelmRopke,"EconomicOrderand InternationalLaw," in Recueildes Cours, vol. 86, pt. II, 1954,pp. 202-71. 21. WilhelmRopke,"PoliticalEnthusiasmand EconomicSense: Some Commentson EuropeanEconomicIntegration,"Modern Age, Spring 1958,pp. 170-76;A World Without a World Monetary Order (Johannesburg: South African Institute of International Affairs, 1963); "European EconomicIntegrationand Its Problems"Modern Age, Summer 1964, pp. 231-44; "European Prosperity and Its Lessons,"South African Journal ofEconomics, September1964,pp. 187-98; and "The Place of the Nation: Beyond the One World,"

Modern Age, Spring 1966, pp. 119-30.