Sustainable Economics: An appreciation of Wilhelm Ropke’s A Humane Economy

Painting by Camille Corot: General View of the Town of Saint-Lo (1833)
Camille Corot: General View of the Town of Saint-Lo (1833)

The reduction of a fundamentally natural, organic world to a composition of rigid mechanical systems and processes is a phenomenon that rose out of the authority of natural science in epistemology. This empirical epistemology has revolutionized the study of economics in particular. Wilhelm Ropke’s masterpiece, A Humane Economy, exposes the fundamental misconceptions of this way of thinking. He reminds and cautions Hipsters and Conservatives everywhere that economics is a foundationally human science.

A Humane Economy: The Social Framework of the Free Market
By Wilhelm Ropke
ISI Books, 3rd edition (1999)
261 pages, cloth, $24.95

From the first Ropke is a champion of the necessarily organic features of economic life. In a moving section he reinforces the precedence of the principles and virtues beyond the mere calculations and functions of supply and demand to show that economics is made for man and not man for economics. Repeatedly Ropke emphasizes those un-bought graces and virtues praised by Edmund Burke as the goals of any proper and sustainable economy. While his primary concern is the historical context of the struggle between Communism and Capitalism during the Cold War, Ropke provides explicit and implicit arguments for a sustainable free market economy that show a middle way the line between the oppressive ideology of socialism and the chaotic ideology of anarcho-capitalism.

Ropke roots his arguments in the rich soil of human dignity and variety within the imago dei. A Humane Economy takes this as its starting point:

My picture of man is fashioned by the spiritual heritage of classical and Christian tradition. 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, irreplaceable, priceless, in comparison with which all other things are as naught. (5)

This idea of man is the starting point for Ropke’s arguments and conclusions. In Communism, Ropke sees the opposite of respect for human dignity and variety; instead he sees mass society reducing men to mere equal pawns on the economic chessboard. Human eccentricity and variety is sacrificed on the altar of the economic machine to the god of equality. Ultimately, instead of economics being made for man, man has become a mere cog in the economic machine, or a variable in the mathematical equation. In the words of Allen Tate, man is a function, not man.

This mass culture and mass society is immediately repugnant to anyone who values the human soul, the individual, communities, and tradition. Ropke firmly warns that even things as wonderful as life and as sobering as death begin to lose their significance in the context of mass society. Death and burial recede from the eye of society into hospitals and nursing homes (11). Hospitals become bleak factories of impersonal mass medicine leaching humanity out of health care refashioning physicians to technicians to maintain the cogs of the economic machine (41). Education no longer pursues excellence, but rather mediocrity. It is enough to simply be able to read and write, while what is being read and what is written no longer matters (59). Tocqueville’s grim description of America is coming true as government seeks to engineer egalitarianism by averaging out the masses:

[The government] covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd. (159)

Dynamics as fundamental as population growth lose their significance when the motive for bringing life into the world is forgotten and growth can only be measured as mere demand for consumption and demand for labor in the great economic machine. The arts suffer when quantity of art takes precedence over quality because the masses must be constantly entertained. Art can no longer help navigate the human soul to truth and beauty because the artists are like lost sailboats without the anchor of tradition in a sea of mass opinion and appetite. This mass opinion and appetite are desperate attempts by humans to find a foundation through which they may attain personal and communal contentment and meaning in this life. However, the masses fail to realize that by destroying the imago dei they destroy their only way to contentment and meaning, because by destroying the individual each human becomes insignificant to the aggregate sum of humanity and its “standard of living.” The cult of standard of living promises relief to the masses yet the standard rises ever higher each passing day and thereby drowns the individual. Ropke warns,

The disappearance of so many things, great and small, which lend charm, dignity, and poetry to life deprives writers and artists of rewarding and stimulating subjects and so explains the undeniable impoverishment of modern art, literature, and painting alike. (87)

Ropke recognizes that the standard of living has no use for beauty but only utility. When utility replaces beauty creativity, ingenuity, and originality drown in this sea of mass. Ultimately art no longer speaks to the soul but only temporarily confuses and thereby sedates the masses.

Ropke also argues how another result of the decline of culture and society into mass is that power trickles ever upward, to concentrate more completely in the state (32). As the individual fades into the mass, the responsibilities held by the individual must be placed elsewhere. These responsibilities cannot be placed upon the family because with the loss of the individual comes the loss of the family. Likewise, with the loss of the family, local communities fade into the mass society. With nowhere else to go, the responsibilities that used to belong to individuals, families, and communities falls at the feet of the state. Through this combination of mass society and more powerful government, the chaos of Jacobin democracy or oppression of Communism take over. Therefore Ropke sees the restoration of individual responsibility as the answer to the concentration of power.

Ropke’s answer to human reductionism is clear: responsibility. “The individual and his sense of responsibility constitute the secret mainspring of society…” (163) He first demands responsibility on the part of the “econocrats:” those economists who make policy and then conveniently disappear when their best laid plans fail. Ropke then calls for responsibility in the economy’s participants, from the consumer to the producer. Ropke’s conception of responsibility is fundamentally based in human’s dependency on others, the creation, and ultimately God, as created beings. This idea is complemented by Martin Heidegger’s view of causality, who postulates that all created things have a material cause, which is partially responsible for the creation of the thing: “[a chalice is] indebted to, i.e., owes thanks to, the silver for that out of which it consists” (Heidegger, The Question Concerning Technology and Other Essays, 7). Therefore man has a debt of gratitude to that which composes him and helps him survive. Thus with this foundation of human dependence and gratitude Ropke’s view of responsibility necessarily leads to respect and love for yourself, your neighbors, the creation, and God. C.S. Lewis also recognizes this sort of responsibility when he writes:

There are no ordinary people. You have never talked to a mere mortal. Nations, cultures, arts, civilization—these are mortal, and their life is to ours as the life of a gnat. But it is immortals whom we joke with, work with, marry, snub, and exploit (C.S. Lewis, “The Weight of Glory,” 9).

Not only does this idea of responsibility demand that you respect yourself, your neighbors, and your community, it demands that you take responsibility for yourself and acknowledge your responsibility to your neighbors, and your community. Through your responsibilities are based in a debt of gratitude, this is the good, proper, and free way to live: “The debt of gratitude flows from the debt of love, and from the latter no man should wish to be free” (Thomas Aquinas, Summa Theologica, II-II, q. 107, a. 1.).

The way to re-establish the responsibilities of communities, families, and individuals in economics is through the restoration of property over profit. In a world of engorged entitlement, where the government makes the hard choices of life, the only thing left to the masses is their desires and appetites. This necessarily translates into rampant materialism based on profit and income. Ropke warns against this materialism and gives the rise of labor unions, the rise of credit, and the decline of savings as tangible evidence of this philosophical shift. Additionally, he argues that all three of these results contribute to the chronic inflation of our age of economic profitism.

Think of the recent bailouts of the banks and auto-manufacturers by the federal government. Those events are pristinely foul examples of the emphasis of profits over property in modern economics. Instead of being held responsible for the mismanagement of their own property and production, as well as the damage they caused to consumers’ property, these companies sold their responsibility, i.e. property, to the government for the promise of more profits and revenue. In one massive transaction the government and multiple CEO’s concentrated economic power even further and subverted the economic and moral law of responsibility.  Ropke thoroughly condemns this problem of preferring profit and income to property and ownership. He states,

All of these protagonists of social rationalism – socialists and circular-flow technicians alike – have a common tendency to become so bemused by aggregate money and income flows that they overlook the fundamental significance of ownership. The market economy rests not on one pillar but on two. It presupposes not only the principle of free prices and competition but also the institution of private ownership… But ownership is not only a condition of the market economy, it is of the essence. (94-95)

Ultimately, while even the greatest weight of currency fails to incite responsible behavior, private property requires that the owner be responsible for his own property and act responsibly with respect to his neighbor’s property. These responsibilities translate into moral behavior that are beyond the scope of supply and demand but are absolutely critical in a sustainable economy.

Starting with this foundation of private property, Ropke illustrates how economists have lost their way in the rapid and wide industrial expansion of the economy. Economic planners seek to maximize production for profit and consumption through income in the name of the material standard of living. Ropke suspects the Industrial Revolutions and the resulting explosion of mass production is a primary economic cause for the rise of mass society and decline of individual and community economic influence. According to Ropke, economists merely promote material wealth and prosperity on an egalitarian basis as their measure of economic success and accomplishment. The more TVs, computers, and other consumables everyone has, the better off we all are. In their praise of a system that seeks the best possible material standard of living in the most efficient way possible, economists forget that humans are often “all too human”. An economy is not a machine that can be controlled and predicted. It is organic.  Ropke illustrates three economic consequences that come from this rise of the masses: toxic individualism, the welfare state, and inflation. The first of these relates directly to the extreme of Anarcho-Capitalism. Ropke has this to say about individualism:

…Mass man is individualistic because of the loosening of the social fabric and the disintegration of community. One of the least well understood aspects of the process of enmassment is that it detaches the individual from his natural social fabric and leaves him to his own resources… [individualism] also became one of the most corrosive of spiritual acids, dissolving the organic structure of society and thereby contributing to the formation of mass society and mass democracy. (p. 70)

Individualism has fostered a toxic sort of competition where everyone seeks to “one up” the other, similar to the mercantilist competition found between nations of the Age of Exploration and Colonization. In an ironic turn of events, as the West has adopted the enmassment of Communism they have become the evil Capitalists that Marx and Engels warned about. Life becomes a zero-sum game where your neighbor’s loss is your own gain. Finding ways to subvert the system and cheat your neighbor replaces hard work and virtuous behavior. Instead of living as man is created, as the imago dei in gratitude of one’s neighbors and the creation, man adopts the will to dominate (Mark Mitchell, “Grateful Creatures, Ungrateful Gods”). Ropke describes the end result best:

It is not good if all the sons of peasants and bakers should become, or wish to become, physicians, clergymen, or clerks. It is true, now as always, that it is highly desirable that men should have the happy feeling of being in the place where they belong – indeed, it is truer than ever in our age, when this feeling has become so rare because of the ideal of the race of all against all. (p. 232-233)

The feeling of discontent in one’s own position leads to the condition which is the other characteristic of individualism: widespread boredom. Ropke notes that during his lifetime, as never before, people had become increasingly bored. As the West emerged into a Post-Industrial economic age life had been overly saturated with novel experiences and goods so that nothing was new or big enough (78). Mankind had also been relieved of responsibility and averaged down to simpletons and means to ends. In the resulting boredom and discontent philosophers develop a new system of existentialism known as angst (79). Fantastic experiences and novel pleasures were the only things that could break modern man’s boredom and satisfy his discontent. Finding the next quick fix was the only way to survive for standardized man in a standardized world. Forgotten were Aristotle’s good life and Burke’s un-bought graces. Anxiety and the inability to live in the present take their places:

They are those evil spirits of which the Gray Woman, Care, spoke to Faust:

“Whomsoever I possess,
Finds the world but nothingness;
Gloom descends on him for ever,
Seeing sunrise, sunset, never;
Though his senses are not wrong,
Darknesses within him throng,
Who – of all that he may own –
Never owns himself alone.
Luck, ill luck, become but fancy;
Starving in the midst of plenty,
Be it rapture, be it sorrow,
He postpones it till to-morrow,
Fixed upon futurity,
Can never really come to be.”

Fear and anxiety can destroy man only when the meaning and purpose of his life have become blurred or escape him. (79)

This gloom and despair is where mass individualism takes mankind.

The welfare state is the infrastructure that makes mass society possible. The fundamental goal of the welfare state in today’s economy is to standardize man as an average. This is measured through the “standard of living.” The standard of living is an economic measure of the minimum material quality of life everyone should have. Under this system, helping everyone stay above this line of material wealth is the ultimate goal of economics. The means by which this standardization of living is accomplished are unbridled so that income redistribution and the welfare state become necessities for economic success. One of the classic examples of this is the Beveridge Plan of 1942 (153). In this economic plan the ultimately goal was the “abolition of want.” Ropke condemns this plan and the welfare state in general as morally harmful and economically unsustainable:

Few people can still close their eyes to the contrast between the extraordinary successes of a social and economic order relying on the regulating and stimulating forces of the market and free enterprise, on the one hand, on the other the results of a continuous redistribution of income and wealth for the sake of equality. It is a contrast which is intolerable in the long run. (153-154)

Ropke, acknowledges that welfare began with good intentions and within acceptable boundaries (154). However, as the rise of egalitarianism grew, welfare began to obtain a more widespread and permanent place in society. Its role shifted from helping the destitute to raising the standard of living of everyone to a certain material average. The fundamental motivation for this shift was a move from compassion to envy (156). This widespread welfare was also an attempt at replacing the communities that existed before the proletarization of society (164).

Upon the basis of envy and thereby the demand for economic equality, the welfare state continues to grow in size and power. Ropke likens it to a car: “The welfare state not only lacks automatic brakes and not only gathers impetus as it moves along, it also moves along a one-way street in which it is, to all extents and purposes, impossible or, at any rate, exceedingly difficult to turn back” (162). On the other hand, he also claims that the welfare state is unsustainable and must eventually break down to the detriment of all its passengers. He unequivocally asserted that it was impossible and undesirable to adhere to Keynes’ economic theories about deficit spending to fund the welfare state. In addition, Ropke mourned the loss of the basic economic principles of having spending covered by production and investments covered by savings under Keynes’ new system (180). It is for this reason that he views the welfare state as economically unsustainable.

Ultimately, the most fundamental reason Ropke takes issue with the welfare state is that it replaces a sense of responsibility with the expectation of entitlement. Like a prophet seeing the future, he foresaw how this ideology of entitlement would cause major harm to our economy through the areas of housing, education, and health care (159-160). All three of these topics are the current hot button issues and economic bubbles of our time. Just as he predicted, the housing bubble has burst, currently the health care bubble is being tested, and the education bubble is, for now, continuing to expand. The growth and boom of a welfare economy is not sustainable and one day it must end either through economic miscalculation, immoral action, or inflation.

Inflation is the third and final result of mass society and culture. Inflation is the devaluation of a nation’s currency. Like any other product, currency depends on supply and demand. When the demand for a currency becomes higher than the actual supply of that currency then the nation in charge of the currency will produce more currency to meet and equalize the increased demand for the currency. Ropke largely blames John Maynard Keynes’ economic theories for postwar inflation (192). Ropke recognizes that many postwar economists feared a potential massive deflation of currency if the demand for currency far exceeded the supply of currency. In response they developed new, untested economic theories to prevent deflation. Ropke strongly believes that deflation is significantly less likely than inflation and that deflation is significantly easier to recover from than inflation.  He lists about four specific types of inflation: fiscal inflation, imported inflation, investment inflation, and wage inflation (198-216). All together, these four varieties of inflation are not products of supply and demand but result from corruption of the things beyond supply and demand.

Fiscal inflation is the most basic sort of inflation and has recently become exceedingly massive after Keynes and the rise of the welfare state (Ropke, p. 198). Fiscal inflation is achieved through deficit spending. In fact the way the welfare state was first built and established in the New Deal of FDR and The Great Society of Lyndon Johnson was through peacetime deficit spending, which had been unheard of before Keynes’ economic theory. Today, the welfare state is continued through deficit spending. In 2011 the deficit was close to 1.3 trillion dollars, the second biggest deficit in the history of the United States following the biggest of 1.4 trillion dollars in 2009.

Imported inflation occurs when currency is traded between two countries and the countries turn the money into their own currency. If the exchange rates are changed to account for changes in the supply and demand of each currency then inflation will not occur in either nation. However, if the exchange rate remains the same, inflation can occur in one or both nations. A modern example of this sort of inflation would be China pegging the Renminbi to the dollar. Imported inflation would be worse for the country with the most centralized and widespread currency; for instance, if China and the US pegged their currencies to the Euro all of Europe would feel pretty significant imported inflation. Ropke considered imported inflation to be the least significant especially during the 1950s (199).

Investment inflation happens when credit and investment outrun savings and actual purchasing power. This means that the actual goods and services do not match the recorded supply of money, and thus prices must rise. Ropke summarizes this sort of inflation, “Such an excess of investment over saving constitutes additional demand not covered by goods; it overstrains the economy, and, as always, the economy responds with inflation.” (200). Ropke believes investment inflation is one of the fundamental pillars of inflation that plagues the economy because it ultimately finds its source in the corruption of the things beyond mere supply and demand. Nowhere in the world is this investment inflation more realized than in Wall Street. Ropke would have hated what Wall Street has now turned into with its financial gymnastics of credit and investment. In addition this sort of inflation appears attractive to the mass passions and desires because it encourages the attitude of profitism. Lastly investment inflation discourages saving by encouraging spending, credit, and investment. Ropke firmly believes that this sort of inflation is intimately tied to the welfare state. Ropke warns that the only way to have a sustainable economy, which abolishes this sort of inflation, is through savings:

. . . The very freedom of economy and society depends upon sufficient voluntary savings. . . .  The causes of the diminution of saving are indeed novel; they have never happened before. . . . [they are] the result of profound moral and social changes.” (202, 203)

Wage inflation is investment inflation’s fraternal twin. Wage inflation occurs when incomes rise and cause an increase in demand of goods and services with a corresponding rise in prices of those goods and services, but these are not accompanied by a rise in saving nor the increase of supply of goods and services. Ropke blames this inflation on the labor unions of proletarianized man. Ropke sees this sort of inflation as merely an extension of the “profitism” attitude of the day. His solution is simply to let wage increases match productivity increases (208-209). In addition, he recognizes that this sort of inflation goes hand in hand with the faulty expectation of full employment (214). He does not seek full employment because full employment is not the goal for any sustainable economy. For a sustainable economy, he realizes that there are hard choices to be made between stable money, full employment, and wage increases: “…we cannot have all three… We have to sacrifice one in order to preserve any combination of the other two.” The preferred combination for any sustainable economy in the long run must be either “stable money and full employment without major wage increases, or stable money and wage increases without full employment…” (211). The constant is stable money.

Ropke also mentions two tools that can be used to fight inflation and hold government accountable. The first is the gold standard. With the gold standard, government could not commit fiscal inflation because gold maintained a certain level of value for currency. However, now that the gold standard is gone the only check left is the independence of the central bank. According to Ropke, “the independence of the central bank is invaluable, and so is a management which intelligently and vigorously takes advantage of its independence.” (215) Ropke advocates that the best way for the bank to express its independence is to be a bulwark against the shortsighted passions and demands of the masses, as well as maintaining distances from the politics and politicians’ schemes and abuses (214-215). Setting sound credit policy through interest rates by loosening and restricting credit when necessary, and printing money only when necessary is how any good central bank should behave in order to create a sustainable currency and an overall sustainable economy.

Ropke’s humane economy is concerned more with things apart from supply and demand. Socialists, anarcho-capitalists, and utilitarians seek merely the most efficient way to produce and consume goods and services, thereby maximizing the laws of supply and demand but also reducing human beings to mere cogs in their economic machine. This leads to what Thomas Sowell would call a fundamental difference in visions. For Ropke the difference is as basic as the struggle of the organic and natural verse the machine:

The difference in social outlook closely resembles another difference between two modes of thought: one which has a strange predilection for everything contrived, man made, manufacture, organized, and intricately constructed, for the drawing board, blueprint, and ruler; and another which prefers what is natural, organic, time tested, spontaneous, and self-regulating, and which endures through long eras. (227)

Ropke maintains that the goal of any economy should not be simply material wealth, but rather a rich cultural wealth planted in the rich soil of tradition. Conscious of eternity, mankind will never be satisfied with the momentary, transient pleasures of materialism based in an attitude of entitlement. Instead we need eternal truths and virtues for the nourishment and happiness of our eternal souls.

So we see that even the prosaic world of business draws on ethical reserves by which it stands and falls and which are more important than economic laws and principles. Extra-economic, moral, and social integration is always a prerequisite of economic integration, on the national as well as the international plane… the market, competition, and the play of supply and demand do not creat these ethical reserves; they presuppose them and consume them. These reserves have to come from outside the market, and no textbook on economics can replace them… Self discipline, a sense of justice, honesty, fairness, chivalry, moderation, public spirit, respect for human dignity, firm ethical norms – all of these are things which people must possess before they go to market and compete with each other. These are the indispensable supports which preserve both market and competition from degeneration. Family, church, genuine communities, and tradition are their sources. It is also necessary that people should grow up in conditions which favor such moral convictions, conditions of a natural order which promote cooperation and respect for tradition and lend moral support to the individual. Ownership and reserves, and a feeling for both, are essential parts of such an order… It is an order which fosters individual independence and responsibility as much as the public spirit which connects the individual to the community and limits his greed… We have, a little earlier, characterized such an order as “bourgeois” in the broadest sense, and it is the foundation upon which the ethics of the market economy must rest (125).