Liberty vs. Leviathan

Chronicling Liberty's battle against Leviathan

Evangelist for Freedom

Wilhelm Röpke was a man whose life and work we all should be familiar with during these days of economic turmoil. With the recent bank interventions and bailouts, government controlled bankruptcies of automotive companies and calls for energy independence, his voice needs to be heard again. Fifty years ago Röpke penned a short memoir, entitled “The Economic Necessity of Freedom”, which outlined the development of his thought over the years. Even fifty years removed, his observations still ring true and he provides wisdom for the challenges of the day.

Born in 1899 in Schwarmstedt, Germany, and a descendant of a long line of devout Lutherans, Röpke came into a world on the brink of disastrous global change. He once described his childhood as an idyllic existence of “confident ease…unimaginable freedom and almost cloudless optimism” and viewed himself as a “…true child of the 19th century, though with one foot in the 20th”. It would all come to an end though during his teens. Serving in the German army during World War I, Röpke received the Iron Cross for bravery. After the war he became an economist and spoke against the economic policies of postwar Germany. Similar to today, “[i]t was a struggle against economic nationalism, the groups that supported it, or the particular strategies it employed – a struggle against monopolies, heavy industry, and large-scale farming interests, against the inexcusable inflation, whose engineers obscured what they were doing with fantastic monetary theories, against the aberrations of the policy of protective tariffs, against the final madness of autarky.” In 1933, he characterized the Nazi rise to power as a “new form of barbarism” which resulted in a self-imposed exile to Turkey and eventually Switzerland. From Switzerland he helped provide the intellectual foundation and encouragement upon which Germany could be rebuilt after World War II.

As with many of his era, Röpke marked 1914 as a turning point globally and personally. Globally, the First World War was the “cataclysm” that shaped the first half of the 20th century. On a personal level, it was the horrors of the war which conceived his life’s mission and directed the studies and labors of his adult life.

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Röpke on inflation

Wilhelm Röpke‘s Economics of the Free Society was first published in 1937 in Germany. The English translation that we have was, regrettably, not published until 1963, based on the 9th German edition. Nevertheless, Röpke still has given us ample warning of what may lie ahead if the present administration and the Federal Reserve continue with current economic shenanigans.

Röpke had a front row seat of Germany’s hyperinflation in the ‘20s, Hitler’s rise to power in the ‘30s (he eventually fled Germany for his life) and the rebuilding of Germany in the late ‘40s. We ignore his warning at our own peril.

From a section on inflation in Chapter IV – Money and Credit (all emphasis added)…

Our generation, which recalls the despair caused by the inflations in the post World War I era and which was required to undergo the self-same catastrophes following World War II, needs no instruction concerning the fact that the worst disease with which a monetary system can be afflicted is that kind of inflation which is caused by a deficit of the government budget. The German inflation of the years 1920-23 will always remain as a horrible example of what happens when a government attempts to cover its budget deficits by resorting to the deceitful and irresponsible expedient of the printing press. What in Germany began as “deficit financing” ended in a series of catastrophic price rises which caused the shameless enrichment of some at the cost of the hopeless  impoverishment of others, and in a serious undermining of the whole economic and social structure. But the inflationary creation of money caused by the budget deficits of government need not necessarily lead to the economic and social disorders attendant on an open inflation of the kind that followed World War I. Beginning in 1933, National Socialist Germany demonstrated that a determined government can change an open into a repressed inflation by placing the country in the economic strait jacket of a command economy. Rationing, the imposition of stringent controls on wages, consumption, capital investment, rates of interest, and similar measures aimed at restricting the free use of the increasing amount of purchasing power may succeed in containing for an indefinite period the mounting inflationary pressure on prices, wages, exchange rates, stock prices, etc.

Since Hitler has shown how far and how long a government can neutralize an inflation by means of the command economy, we may well ask ourselves whether from now on there will be any government which will not follow the same road when it disposes of a functioning coercive apparatus. The greater the inflationary pressure the stronger will be the counterpressure of the command economy needed to repress it. By the same token, the command economy must resort to ever more comprehensive and ruthless controls if it is to effectively contain the mounting forces of inflation. This leads logically to the question of whether such a command economy is possible without totalitarian slavery (of which the Third Reich was such a repellent example).

The experience of Germany demands that we consider a little more closely this peculiar phenomenon of repressed inflation. As we have seen, it consists, fundamentally, in the fact that a government first promotes inflation but then seeks to interdict its influence on prices and rates of exchange by imposing the now familiar wartime devices of rationing and fixed prices, together with the requisite enforcement measures.  As inflationary pressures force up prices, costs, and exchange rates, the ever more comprehensive and elaborate apparatus of the command economy seeks to repress this upward movement with the countermeasures of the police state. The repressed inflation can be conceived of, then, as the deliberate maintenance of a system of coercive and fictitious values in which, economically speaking, there is neither rhyme nor reason. Such a system is an inevitable feature of a collectivist economic regime and is to be encountered wherever socialism has gained control of influence (Soviet Union, National Socialist Germany, Austria, Great Britain, Sweden, and some other European countries). Where this repressed inflation leads was shown with tragic incisiveness in the complete disintegration of the German economy, a process which was arrested only by the comprehensive economic and monetary reform which restored a free price system in which actual rather than fictitious supply-demand relationships were reflected (Summer, 1948). The prolongation of a policy of repressed inflation means that all economic values become increasingly fictitious, and this in a twofold sense: (1) stated values correspond less and less to actual scarcity relationships and (2) fewer and fewer transactions are completed on the basis of such values. The distortion of all value relationships which accompany the division of the economy into “official” and “black” markets, and the struggle between the directives of the market and those of the administrative authorities finally lead to chaos, to a situation in which any kind of order, whether of the collectivist or the market economy type, is lacking.

We see, then, that a repressed inflation is worse than an open one because, in the end, money loses not only its function as a medium of exchange and as a measure of value (as happens in the last stages of an open inflation), but also its even more important function as a stimulus to the production and distribution of maximum quantities of goods. Repressed inflation is a road which ends inevitably in chaos and paralysis. The more values are raised by inflation, the more will the authorities feel compelled to use their machinery of compulsion. But the more fictitious the system of compulsory values, the greater will be the economic chaos and the public discontent and the more threadbare either the authority of the government or its claim to be democratic. If the repressed inflation is not stopped in time it will, drawing strength from its own momentum, lead to the dissolution of economic activity and perhaps even of the state itself. This modern economic disease is one of the most serious of all; it is doubly pernicious since it tends to be recognized only when it is in an advanced stage.

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Röpke and the “New Bretton Woods”

In “No More Bretton Woods” at Public Discourse, Samuel Gregg examines the weekend’s “new Bretton Woods” through the eyes of Wilhelm Röpke who “…reminds us that there is an alternative to the top-down strategy likely to be implemented in forthcoming months…cit[ing] Röpke himself, ‘The outlook is bad . . . if nations strive after international order while at home they continue to pursue a policy contrary to what is required for it.’”

For more on Röpke see The Western Confucian’s collection of posts, John Zmirak’s collection at Taki’s Magazine or this blog’s Wilhelm Röpke page.

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Röpke at FEE

Added to the Wilhelm Röpke page a link to an article at the Foundation for Economic Education“Wilhelm Röpke: A Centenary Appreciation”.

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Rockin’ Surfers and Röpke

Several years ago I became a Switchfoot fan when I heard “This is Your Life”. Since then, one of my sons has joined the club, learning much of their music on guitar and bass and even letting the “old man” tag along with him to a concert. What I like about their music even more than their style (Remember, “its got a good beat and easy to dance to”?) is that their lyrics are introspective and searching without resorting to hopelessness. There’s often a dissatisfaction with the way things are, but along with the dissatisfaction, a view towards something higher. From what I can tell this stems from their Christian faith.

Now, I have no idea if Jon Foreman has read Röpke or not, but he might like to. “American Dream”, one of my favorites, is a rejection of the mass society and mass democracy that Röpke warned of in A Humane Economy.  And while I can’t imagine Röpke going along with this style of music, I can’t help but wonder if he would chime in with the sentiment.

I want out of this machine
It doesn’t feel like freedom

(chorus)
This ain’t my American dream
I want to live and die for bigger things
I’m tired of fighting for just me
This ain’t my American dream

(Complete lyrics here)


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The “Röpke Guy”

The “Röpke Guy”, Thaddeus McCotter, (R – Michigan 12th District) on the floor of the house…

Here’s the end of Pres. Jackson’s veto message Oh, that our leaders politicians would act with such principled conviction today.

It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society — the farmers, mechanics, and laborers — who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. In the act before me there seems to be a wide and unnecessary departure from these just principles.

Nor is our Government to be maintained or our Union preserved by invasions of the rights and powers of the several States. In thus attempting to make our General Government strong we make it weak. Its true strength consists in leaving individuals and States as much as possible to themselves — in making itself felt, not in its power, but in its beneficence; not in its control, but in its protection; not in binding the States more closely to the center, but leaving each to move unobstructed in its proper orbit.

Experience should teach us wisdom. Most of the difficulties our Government now encounters and most of the dangers which impend over our Union have sprung from an abandonment of the legitimate objects of Government by our national legislation, and the adoption of such principles as are embodied in this act. Many of our rich men have not been content with equal protection and equal benefits, but have besought us to make them richer by act of Congress. By attempting to gratify their desires we have in the results of our legislation arrayed section against section, interest against interest, and man against man, in a fearful commotion which threatens to shake the foundations of our Union. It is time to pause in our career to review our principles, and if possible revive that devoted patriotism and spirit of compromise which distinguished the sages of the Revolution and the fathers of our Union. If we can not at once, in justice to interests vested under improvident legislation, make our Government what it ought to be, we can at least take a stand against all new grants of monopolies and exclusive privileges, against any prostitution of our Government to the advancement of the few at the expense of the many, and in favor of compromise and gradual reform in our code of laws and system of political economy.

I have now done my duty to my country. If sustained by my fellow-citizens, I shall be grateful and happy; if not, I shall find in the motives which impel me ample grounds for contentment and peace. In the difficulties which surround us and the dangers which threaten our institutions there is cause for neither dismay nor alarm. For relief and deliverance let us firmly rely on that kind Providence which I am sure watches with peculiar care over the destinies of our Republic, and on the intelligence and wisdom of our countrymen. Through His abundant goodness and their patriotic devotion our liberty and Union will be preserved.

ANDREW JACKSON

UPDATE

The Daily Paul has a transcript of the speech here.

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Do Not Resuscitate

The Johnstonian is ready to “…let the beast die…” and looks to Mises, Röpke and the Austrian school for answers to the current “crisis”.

He also uncovers this gem from 1999 that warns of the consequence of “taking on significantly more risk” and identifies many of the parties involved in blowing the housing/mortgage bubble. The culprits include:

  • Fannie Mae CEO Raines
  • Fannie Mae shareholders
  • Clinton administration
  • Financial industry
  • Department of Housing and Urban Development

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Röpke in DC

Vox Day posts an interview with Rep Thaddeus McCotter (R – MI), who so forcefully challenged the bailout bill.  In it he claims to be a “Röpke guy”.  When asked why there’s so much support in Congress for the Fed he again goes to Röpke:

I think that the argument that is made is probably because, as Roepke pointed out, people seem to think that inflationary periods are quite pleasurable until they realize that there’s a deflationary period to match it when the market corrects itself. Plus, the more government under the Keynes model has a role within people’s economic lives, the more important government is, the more powerful it is. In short, you’re asking people to refrain from using their publicly entrusted subservient positions, as members of Congress or members of the government, from interfering in a marketplace to make themselves popular for a short period of time.

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Weekend Updates

Some weekend changes:

  • Added the Liberty Must Reads link section with free pdf books
  • Picked the low hanging fruit for the Röpke page and reformatted it

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Wilhelm Röpke

I added a Wilhelm Röpke page today.  My intent is to make it a clearinghouse for everything written by him or about him that’s on the web.  Enjoy!

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