Originally published: 1957
261 pages
Chapter 33

A HUMANE ECONOMY


Wilhelm Ropke

As an economist and a student of the free-enterprise system, Wilhelm Ropke understood, perhaps more acutely than most theorists, that the foundation of a free society is a moral one. This was a personal lesson initially learned in the deadly trenches of World War I's battlefields. Later, while enduring the Great Depression and World War II, his comprehension of this fact sharpened and became an imperative in his work. That did not turn him into a preacher, or a scold, but it did make him understand the dual necessity of encouraging man's potential while deflecting our darker side.
     When Ropke writes of a moral society he doesn't just mean "Thou shalt not steal" must guide us; he sees a larger frame of reference wherein our institutions need to be morally designed and effected. He argues that if we (and that includes our government) are not encouraged and allowed to act in an honest, honorable, and humane manner, then our society must become burdened with rules and the power of government to enforce them. For Ropke, that which is humane recognizes human dignity and the integrity of human interaction unencumbered by ubiquitous legal or bureaucratic oversight as the starting point. Government intervention in individual lives, no matter how well intended, ultimately leads to both frustration and the insidious undermining of freedom. Government causes this reaction for one simple reason: it makes decisions for us-decisions that are almost always different from what our own choices would be.
     Ropke deals with several concepts in this book. In the main, he discusses how government must adapt itself to man's inherent nature

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rather than rely upon man to conform to idealistic government. This does not necessarily mean giving in to our darkest impulses and then excusing them with a bureaucratic c'est la vie (such is life) nod and wink. In every way possible we must assist people in learning, and relearning in successive generations, the true foundations of a free community's social, economic, and governmental interrelations.
     While politics is the art of the possible, two things are not possible: the perfection of human beings or the universal and precise assimilation of social imperatives by the individuals who comprise society. As we aim at the possible, according to Ropke, we ought to postulate two additional comprehensions: a clear understanding of how ethical behavior is fostered, and that it is necessary that government be designed around both our frailties and our potential. In other words, if there is too much government-to correct our failings-that same government will stifle our potential. The balance between too little government (anarchy) and too much government (collectivism and totalitarianism) is delicate.
     An appraisal by Ropke of his previous work, The Social Crisis of Our Time, written shortly after World War II, appears early in A Humane Economy. Looking back, he intended to reassert in the present volume what he now saw was permanently valid from the body of his work, while using current examples to support his contentions. Even at that early date he was particularly interested in the economic, political, and social success of the open and free post-World War II West Germany, as contrasted with the closed and paranoid East Germany. (At the end of the war
Germany was divided into two separate nations: the West was administered by the U.S., Britain, and France, the East by the Soviet Union.) Recall that A Humane Economy dates from 1957, twelve years after the end of the war but four years prior to the construction of the Berlin Wall. The Wall was the death zone built by the Soviet Union that physically enforced, by means of weapons, guards, concrete barriers, and barbed wire, a ban prohibiting all interaction along roughly 100 miles of the border between East and West Germany. It is estimated that 1,245 people were killed trying to flee from East to West Germany during the time the Wall was in place and roughly five thousand successful escapes were achieved. The clear separation the Wall imposed could not have been better designed to demonstrate the ultimate consequences of a closed society compared to an open one. The lessons learned from the juxtaposition of these two countries and their diverse economic systems (both before and after the Wall was

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constructed, and then once it was torn down in 1989) formed much of the template for both A Humane Economy and the twentieth-century political and economic success of capitalistic enterprise on one side and the failure of state socialism on the other. (For an in-depth discussion of this template, see The Commanding Heights [Chapter 29].)
     As important to Ropke as the components of a sound economy are the ingredients in a sound government. In this arena reside his concerns regarding a broader and more ephemeral and emotional issue: impulsive and often naive political reactions to some of life's inequalities. In particular, Ropke pursues a critical investigation of Christianity's charitable impulse, often misrepresented in public conversations about government's aim and its capabilities through a literal presentation of the Bible's narration. In the hands of the politically astute, it can be claimed that Christian charity directs us to socialist thinking that promises equalitarian results by means of an economic reordering. That this is a factual and philosophical misrepresentation of Christian tenets is one thing; that these concepts won't work over time, regardless of any religious foundation, is quite another.
     Although equalitarian ends are simplistically presented as philosophically laudable and superficially satisfying in theory, Ropke intones that they can be achieved in a modern complex society only through ceding dictatorial powers to the government. This is primarily because citizens have shown they will not or cannot embrace literal Christian charity and its equalitarian vow of poverty on their own. This is not the result of an excess of self-interest but is a reflection of man's innate being-the need and drive for self-preservation. It is simply a given that Christian charity begins at home. If equalitarian authoritarianism occurs in the public sector it ensures that real social and economic progress that helps reduce the need for charitable efforts and increases the spread of human dignity will not be achieved. Put simply, freedom mostly eliminates the need for people to rely on the charity of others. And for those who cannot survive without such charity it is true they are more easily cared for when freedom creates resources and impetus to do this.
     That only totalitarian government can effect equalitarian ends is clear from the manner in which human nature operates; human beings are simply not capable of voluntary social indulgence on a level that will achieve equal economic results for all members of society. Ropke's point is that to force that result by means of collectivist practices-whether comprehensive socialism or state welfarism-in

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the face of the human condition will result only in failure. Charity is and should remain a personal and private matter, not a government function. When charity is turned on its head and becomes a government mandate and is implemented through necessarily oppressive taxation to
achieve its goals, not only does its character change (it can no longer even be termed charity), its effectiveness does as well. In this vein, Richard Cornuelle's Reclaiming the American Dream (Chapter 30) and Bertrand de Jouvenel's The Ethics of Redistribution (Chapter 28) explore public assistance as a government enterprise versus private benevolent initiatives. Both authors conclude, as does Ropke, that government drives out private care; government does so at such great cost that to pursue this course is to invite inefficiency at best and indiscriminate social dependence at worst-which was exactly the result achieved in certain sectors of American society at the beginning of the twenty-first century.
     From a strict economic standpoint, publicly sanctioned and enforced equalitarian "charity" ultimately denies any fuel to its source. It inevitably consumes a greater and greater part of the public economy as more and more "inequalities" are found (since clearly, inequality is limitless). Eventually the self-sufficient stand up when the product of their efforts is taken in greater and greater measure. At that point the economic engine implodes and social repercussions grow. This result is not inherently uncharitable, there is no value judgment attached to it; it is intrinsic in human nature and the economic system that creates the excess wealth by which magnanimity is supported in the first instance. These two aspects of the human personality-self-preservation and charitable inclinations-are not mutually exclusive, but they are only complementary; they do not work in exact tandem. Most importantly, they work together only voluntarily. When excessive and compulsory generosity is introduced, real charity, and more importantly, real results, disappear.

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As his investigation proceeds, Ropke takes a step back from dissecting the existing functions of government and contemplates the governed. He does this in order to determine how a government should be designed. He reaffirms what the Founders of the American system declaimed, that governance should begin at the bottom with the citizen and his freedom; not at the top with the ruling class and its control. As

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his title explains, he is attempting to formulate not just a free society, but one that is humane. To Ropke that means employing a government that looks after the citizen's best interests, mostly by leaving the populace to order their own lives; one that neither panders to humankind's inherent weaknesses nor stifles its most worthy capabilities.
     Ropke understood that men can learn the lessons of a humane economy only through education and experience, through trial and error. To aid in the education of the citizenry, Ropke harks back to Edmund Burke's belief in the value of tradition as a learned and tested set of "rules" or prescriptions (Chapter 36). Writing from the perspective of the mid-1950s, Ropke was first offended and then disheartened by our tendency toward collectivist mass society, which seemed to deny all that we had so painstakingly discovered about individuality from the time of Burke to the defeat of fascism during World War II. He expresses his concerns regarding these lessons in strong language with vivid imagery, and he offers counter-arguments, based on individual freedom of choice and expression, that lead to a sound and moral society.
     Once Ropke sets the stage, by first defining what we can learn from the past and next outlining the socialist construct then extant, he assesses modern economic thinking. He offers a comprehensive insight into the economic realities of a free or "liberal" society. (Note that Ropke, a European, uses the word liberal in the Old World manner, which equates with conservative or
classical liberal as they are generally used today in the U.S.) When Ropke views the tension between a free society (that centers on the individual) and a controlled one (that focuses on the state), he observes:

               The rights of the community are no less imperative than those of the
               individual, but exaggeration of the rights of the community in the form
               of collectivism is just as dangerous as exaggerated individualism and
               its extreme form, anarchism.

     In spite of the things he knew to be true and rational, as Ropke surveyed the mid-century social landscape he saw the path turning inexorably toward collectivism; first because socialist equalitarianism seemed to offer so much utility, and then because he thought society could not readily retreat once the path to socialism was chosen-no matter how economically absurd it was. Ropke seems guilty of Joseph

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Schumpeter's error (expressed in Capitalism, Socialism and Democracy [Chapter 38]) of assuming that socialism and collectivist governmental policies would continue after World War II simply because they had worked during the war and people had become accustomed to them. They both felt that continuity was more likely than reassessment. Neither author was able to embrace the view that future circumstances could and would change people's methods and goals. In point of fact, once the citizenry had suffered the excesses and failures inevitably resultant from the collectivist progression during and subsequent to the war, they were willing to discard these methods and move back toward their core values-most notably those centered on individual freedom. Practically speaking, the war effort was collectivist, but out of necessity. Once the war was concluded, the individual again became the focus of social interaction. That individualism would revive after the collectivist urgency of wartime expired is obvious now, but it seems it was largely hidden from both Ropke and Schumpeter.
     What is perhaps most interesting in Ropke's case is the value of, and the certitude with which he views the potential of the human spirit in some instances, and the destitution of hope he exhibits in others. As he considers the totalitarian impulses that sought to achieve an alleged greater good and then recalled the necessity of freedom to achieve such ends, he seems to become schizophrenic. On the downside, these see-saw feelings, certainly not novel in Ropke's era, were evidence of the paucity of fiscal and psychological integrity in most political discourses produced by the socialist intelligentsia, conversations that worked against rational thinking in economic matters. These maledictions were followed, almost inexplicably (even in England), by actual mass political movement toward collectivism-as if Tinkerbell had sprinkled pixie dust on everyone's oatmeal and then commanded fealty to a false equalitarianism. On the positive side, Ropke knew the power of ideas and facts, thus his pessimism may have been cautionary only; pessimistic but not really conclusive.
     Ropke dissects the socialist/equalitarian impulse by seizing upon the arrogance and dissonance of the idealistic utopians who to him are

               people who pride themselves on their generosity at others' expense.

And when Ropke uses the word expense he means it in all senses, not just the obvious economic impact of forced collectivism and social

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welfarism, but the human cost as well. To Ropke, inflicting this damage on the citizenry in an attempt to reach a chimerical goal is inhumane. Ropke believes in
the tested and proven methods of the free market, where the moral behavior so necessary to a sound economy is required for success at every level. It is not competition alone that guides the actors; it is also the recognition by each individual that he must seek his success by serving the market. A person subject to the free market's discipline will do well only if he meets the needs of others, not if he demands that others accept whatever he judges they should accept-as is the case in collectivist societies. The very act of serving the market necessarily requires any individual to commit himself to the market's rules-that pay back as much as they exact a cost. These rules apply (work) only in a quid pro quo society, a society that is morally grounded and founded in enlightened self-interest.
     Obviously, such a society cannot require that integrity be enforced; people understand that an absence of integrity would leave them without a foundation on which to base their community, including its economy and government. Ropke argues that the state exists to enforce the fulfillment of commitments when they are violated, but this is necessary only infrequently. The state decidedly should not exist to determine what commitments are to be created in the first place. As many of the synopses in First Principles make clear, the foregoing truths must be learned by each succeeding generation. Readers may consult George Gilder's Wealth and Poverty (Chapter 27, written in 1981, twenty-five years after A Humane Economy) to see the same laments and hopes and rules as proffered by Ropke repeated in a more recent incarnation and from a U.S. perspective.
     Once Ropke defines the primary issue-the psychological fallacy and human cost of collectivist government-he notes that there are two additional inevitabilities that result from collectivism and exacerbate its economic follies. The first is the monetary and human price of chronic inflation, the inevitable consequence of socialistic enterprise. The second is the size, distance, and disconnection of government centralized at higher and higher levels from the citizens to be served.
     Ropke finds that the concentration of power at higher levels is often a consequence of collectivist-driven economic failure on the local level. When economic energy flagged in the socialistic setting, managers and politicians assumed (really hoped) that bigger enterprises would be more efficient. Larger, top-down ventures, of course, would not solve the problems of socialistic production because it was the stifling of

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human incentive that made collectivist enterprises fail-not some lack of efficiency or size. In this context, Ropke reprises age-old arguments against distant rulers, a necessity in the top-down governing requisite to socialistic endeavors. His conclusions, cogently framed in a modern context, remain as apt as when his predecessors drew them centuries before. It is a simple equation: the further a government is from the governed and perforce the greater its size, the more it can do to the people, often without the population even knowing it until well after the fact, and the less the people can do to protect themselves.
     The consequence of the failure of collectivist enterprise-revenues that do not meet government obligations or the promises of utopian material abundance-results in a government need to print money to pay its bills. This new currency is mostly used to buy foreign goods imported to make up the shortfall in government managed production. This obviously causes runaway inflation and eventual economic collapse. Inflation is the bitterest thief of all, no matter the era, for it is insidious and relentless and no respecter of people. Ropke's portrayal of inflationary tendencies and problems and their causes and solutions is a core economic exposition in this book. Inflation, although not a complicated subject, is nevertheless often wholly misunderstood in its origins, its
mechanisms, and its consequences. Ropke's analysis helps the average reader understand this problem, especially as he explains the need for independent monetary policies (such as the U.S. Federal Reserve banking system), which are unfortunately only a partial solution to combat government (legislative) irresponsibility in the welfare state.

*      *      *

Ropke takes a long look at social welfarism, the political heir of collectivist economic designs. He observes that welfare programs no longer function to help the weak and needy as a form of social insurance and public assistance. He comments that welfare was being increasingly used as

               a social revolution aiming at the greatest possible equality of income
               and wealth. The dominating motive is no longer compassion . . . .

This development still poses a decisive question in twenty-first-century America; i.e., what are the motivations and the objectives of the

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welfare impulses in our political arena? Is there an understanding of what welfare means and is to accomplish?
     When Ropke dissects what he sees in the 1950s, he concludes, as so many economists of that era did, that welfarism is socialism under a new label. The welfarist paradigm eventuated to solve what liberals saw as an intractable problem, human differences, and the traditionalists saw as human nature simply using opportunity. Tendencies toward equalitarian government constructs are found at all levels of the welfare system. The biggest difficulty with welfarism is that the successful are required to sustain the unsuccessful in indiscriminant fashion, thus further impeding the chance the less prosperous will have any motivation or opportunity to help themselves. By using law, taxation, and bureaucracy to control social policy (rather than socialist confiscation of the means of production and distribution), the political leaders attempt to achieve by stealth what they cannot achieve directly at the ballot box or the point of a gun.
     What Ropke fears most is the extension of public assistance to ever more classes of people and the eventual refusal of any such class to forego for any reason the largesse they have come to expect. He sees the middle-class as too timid to call the actions of the equalitarians to account; they fear that they will be seen as miserly, selfish, or narcissistic if they deny the needy something to which they might be "entitled." The liberal media seems happy to reinforce these thoughts.
     On the other side of this equation, it is clear that extensive welfare is equally pernicious for the recipient because it almost irresistibly tempts people to become dependent on public assistance, sacrificing their integrity and self-reliance. As Ropke revisits these basic insights, he argues that it is far better that people and governments prevent the creation of entitlements in the first instance because they are too often morally harmful and economically unsustainable claims on the public coffers. Obviously this is easier to say than do because the creation of entitlements is so politically useful.
     All of this goes to the core of what Ropke means by a moral society and a humane economy. A humane economy is one that does not destroy the essence and the dignity of the individual by conflating the difficulties of individual self-sufficiency with manufactured, destructive, wholesale
social obligations. Social welfarism does just this; it takes the idiosyncratic difficulties of the individual and makes them the rule, and then visits the force of government on the "problem" to ensure this result can never be suffered by anyone again. It is truly the use of a

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sledgehammer to knock down the house to find the fly and then kill it. The paradox is that the impulse that drives welfarism achieves exactly the opposite of the end it seeks. It is inhumane to lock someone into a system of receiving something he does not earn (and may not need [a politically incorrect thought]), while preventing him from attaining it by his own efforts. It destroys both the individual and the society at once. According to Ropke, the danger of the welfare state is

               that there is nothing in its nature to limit it from within.

Thus the duty falls again to the integrity and intentional acts of the electorate and the control they exert over their representatives.
     Ropke notes that the desire for security, whether economic security or social security or national security or personal security, is natural and legitimate. However, when it becomes an obsession, when an intention to remove risk is evident and when the quest for security feeds upon itself, it inevitably demands payment in the form of lost liberty and individuality on a personal level and lost economy on the public level. The inverse equation is patent: the more security we seek, the less liberty we have.
     One of Ropke's most discerning and practical observations revolves around high taxes imposed on the most productive members of society. The demagoguery that was skillfully used for the alleged social purpose of helping the less successful he reveals to be merely misguided politics as usual:

               Very many people imagine that taxation of the higher income brackets
               merely implies restriction of luxury spending and that the purchasing
               power skimmed off from above is channeled into "social" purposes down
               below. This is an elementary error. It is quite obvious that larger incomes
               have so far mainly been spent for purposes which are in the interests of
               all. They serve functions which society cannot do without in any circum-
               stances. Capital formation, investment, cultural expenditure, charity may
               be mentioned.

     The first effect of personal consumption by wealthy individuals is that it provides fodder for the media and the liberal demagogues, who remain a significant source of economic misinformation (and unfortunately, disinformation). While personal consumption is overt and

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can readily be sensationalized, personal spending for non-investment purposes by the highly successful consumes only a small portion of their income, and even that spending obviously has broadly positive economic consequences. The wealthy invest, or keep invested, most of the remainder of their capital.
     Somehow, somewhere, even if it's only sitting in a bank account, wealth serves to create something-jobs, opportunities, research, construction, culture, education, etc. It is the investment of excess income-above needs for food, shelter, clothing, health, and education-that drives any free-enterprise economy. And it is the chance for success that motivates the entrepreneur. If the opportunity to work toward and enjoy one's success is removed, progress wanes, then stops. It is a
simple truth: capital formation sustains every economy-capitalist, socialist, communist, fascist. In capitalism, private investment resources are forged when income is allowed to exceed expenses (including the expense of taxation) through economic freedom. If profits are consumed for social purposes by means of excessive taxes on income, that capital is irretrievably lost. To replace this forfeited resource requires new, but redundant, effort. As is clear, human beings will not operate either long or well in a society that denies incentive.
     The obvious result of predatory taxation, particularly in the case of the highly successful, is that of killing the goose laying those golden eggs. As Ropke notes, profit is necessary not as a goal, but as a fuel. If this elemental reality is not embraced by an open society, then that society will bankrupt itself within a generation and destroy itself within two.
     As is equally obvious, if wealth cannot be created, there will be nothing to tax. If there is nothing to tax, there is not only no welfare state, there is no state at all-only residual anarchy. Thus, as most economists have recognized, taxation used for social engineering, especially confiscatory levies on higher levels of income, achieves exactly the opposite result than its proponents intend.
     It is a well-established economic pattern: the higher the level of taxation, the more quickly negative economic consequences will present themselves, and vice versa. To offer a modern example of these economic realities: income and capital gains taxes were reduced in the United States beginning in 2003. During the next four years the American economy created just under ten million new jobs-an unparalleled rate of economic growth (Wall Street Journal, April 9, 2007, p. A13). The correlation between the incentive of lower taxes and the opportunity

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to create is inescapable. Concomitant with the creation of the new employment opportunities and business activities, federal revenues increased in that same period in spite of the lower tax rates (see Wealth and Poverty [Chapter 27] for an expanded discussion of these issues). The opposite inescapable conclusion is that if tax rates are now raised again, especially on the entrepreneurial class (which is not made up, in large measure, of only the country's wealthiest citizens, but as well consists of those in the middle economic strata), an economic downturn will occur. That downturn will hurt the entrepreneurs, certainly, but it will hit hardest those least able to afford economic distress-the people who work in those now at-risk ten million new jobs, and those who follow them who will be looking for work as well.

*      *      *

At one point Ropke makes an intellectually interesting tangential journey: he defends the economist's professional worth after he notes that there is always a delay between

               some economic or social claim and its demagogic exploitation on the
               one hand, and the moment, on the other, when the price of its fulfillment
               can no longer be concealed.

     This observation appears to be Ropke's effort to ask for serious consideration of what he and his fellow economists see. Essentially, he is contending that economists earn their keep when they expose political chicanery and explain the remedial measures necessary to achieve a sound economy. Although his call seems somewhat self-serving, it is not. His concern is for the larger
effort, and it is an honest summons. He understands that the long-term consequences of short-term policy can be devastating. He is asking that that case be heard-publicly.
     Toward the end of his book, Ropke attempts to offer definitions distinguishing liberals from conservatives, individualism from collectivism, and liberalism from socialism, but he finds these words already too freighted to be useful. He offers centrism versus decentrism as his dividing line. But, whatever the words the concepts change little. Ropke's characterization of the Jacobin republicans at the time of the French Revolution of 1789 and their spiritual heirs over the last two centuries went to the core of what he saw happening when democracy was used as a tool (or even a weapon) rather than a principle:

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               The idea of democracy is seen, not in a well-articulated state with
               balanced and therefore mutually limiting powers, but in centralized
               power of a kind which is unlimited in principle and can in practice be
               wielded all the more freely as it is supported by the fiction of the
               sovereign will of the people.

Democracy is but an instrument in governance, one part of a recipe that yields an elegant dish so long as all the ingredients are present in proper measure. Ropke's discernment of democratic components and how they must necessarily fit together in a logical economic construct is the theme of the latter portion of his volume. Ropke sought more than just a material benefit for society's citizens-he knew that was not enough. He also sought an understanding of man's higher being as it intersected with community. An important companion to Ropke's observations is Bertrand de Jouvenel's On Power (Chapter 15). In it the nature and consequence of unbridled fealty to democratic egoism and the mythical general will of the people (discerned by prescient legislators) is exposed. Taken together, these two works explain the balance necessary for a humane economy and society to exist.

About the Author
Born in Hanover, Germany at the very end of the nineteenth century, Wilhelm Ropke-the man and the philosopher-was a product of twentieth-century excesses. The son of a physician, his upbringing was grounded in traditional Protestant teachings whose influence on his thinking appears over and over in his work. He fought as a soldier in the trenches during World War I; as a result of that brutal experience he sought to understand the causes of such devastating conflicts, thus he pursued the study of economics and sociology. (To understand how the same circumstances could lead to a completely opposite personal course that also had profound public consequences, see Witness [Chapter 41] by Whittaker Chambers, a contemporary of Ropke.) Upon receiving his doctorate Ropke became a professor in Germany.
Ropke's reputation as an individualist thinker was well earned. He was not afraid to look at first causes; his ability and drive to do so marked his career and works. He taught in Germany until he was forced to leave the country in 1932 because of his outspoken opposition

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to Nazism. He resided in Istanbul and taught at the university there from 1932 until 1937. He then returned to Europe and began a career at the Institute of International Studies in Geneva, Switzerland, where he embarked on a collaborative professional life with Ludwig von Mises. Although von Mises emigrated early in World War II, Ropke remained in Geneva throughout the Second World War and for the rest of his academic life.
     Ropke, along with von Mises, Frederich von Hayek, Milton Friedman, and others who were ultimately awarded Nobel Prizes in economics, formed the Mont Pelerin Society in Switzerland in 1947. Their intent was to publicize the folly of collectivism and to decry socialist ideology and its increasing erosions of liberty. The philosophy of the Mont Pelerin Society succeeded in spite of the fears of its founders and exceeded even the most optimistic of its members' expectations. Ropke married in 1924 and raised three children with his wife, Eva. He died in 1966.

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