Wilhelm Roepke and the Original "Third Way"
Wilhelm Roepke and the Original "Third Way"

Wilhelm Roepke and the Original "Third Way"

September 1 st 2002

Austrian economists Friedrich Hayek and Ludwig von Mises are often credited as the spiritual godfathers of the Reagan-Thatcher revolution and the subsequent revival of free market economics. Their German-Swiss contemporary, Wilhelm Roepke, is far less known today. Yet his ideas remain highly relevant in a world in which politicians are searching for a "third way" between liberal capitalism and statist socialism, or a "compassionate conservatism" that marries the free market with social conscience.

Roepke was a free market economist acutely aware of the failures and inequities of unfettered capitalism. His own writing proposals call for a "third way" to build a "humane economy." Though a youthful socialist after serving at the front in the First World War, his study of economics and the writings of Mises turned him against socialism, nationalism, and other statist ideologies.

As a young academic, Roepke fiercely criticized the rise of communism and Nazism in Germany, denouncing Hitler in a university lecture only days after he became chancellor in February 1933. He and his family went into exile, moving to Turkey and eventually settling in Switzerland.

In his years abroad, Roepke wrote eloquently in defence of the free market and sound monetary policies but also in favour of reforms to the capitalist system. In such works as The Social Crisis of Our Times , Civitas Humana , and International Order and Economic Integration, Roepke propounded his vision for the reconstruction of Europe. His vision was both "conservative in insisting on the preservation of continuity in cultural and economic development, making the defence of the basic values and principles of a free personality its highest, immutable aim" yet "radical in its diagnosis of the disintegration of our 'liberal' social and economic system, radical in its criticism of the errors of liberal philosophy and practice."

Roepke's writings, along with other economists of what is known as the Ordo Liberal school, deeply influenced Ludwig Erhard, Germany's postwar finance minister, and contributed greatly to the creation of Germany's "social market" economy. The idea of the social market was not a welfare statist compromise between capitalist production and socialist redistribution, but rather a thoroughgoing free market economy within a humane social framework maintained by a vigilant state.

At its heart lay a vigorous defence of free markets and prices and of a non-inflationary monetary policy based on a sound currency. But Roepke broke with classical economic liberals in acknowledging that these measures were not enough. He did not accept that the market was governed by an "invisible hand" that would resolve all conflicts and lead to the best possible outcomes for all if left to its own devices. On the contrary, he believed that a competitive market economy was a highly unstable and historically contingent reality that could only survive if undergirded by strong religious, social, legal, and political institutions which provide its moral foundations.

Roepke believed in state intervention in limited areas—the provision of essential infrastructure and public goods, prudent fiscal and monetary policy to ensure non-inflationary growth, and acting as a "vigorous umpire" within the economy to ensure that legal rules and economic morality are adhered to and that there is competition between enterprises. He was especially concerned about protecting family farms, artisans, and small businesses from the depredations of giant corporations. Roepke supported firm anti-monopoly laws and a decentralized federal form of government. In his support for a thorough decentralization of economic and political power, his skepticism towards technology and economic rationalism, and his rejection of the "cult of the colossal," he anticipated later writers, such as E. F. Schumacher, and could be considered the prototypical "green capitalist."

Although he supported social assistance to ensure that the poor and needy were not reduced to destitution, Roepke was wary of the welfare state policies of Britain and Scandinavia, which he worried would sap incentive and self-sufficiency. Instead, he called for measures of "deproletarianization," which would allow workers to enjoy greater self-sufficiency through home ownership, and measures such as the creation of community gardens to allow people to grow their own produce. He regretted that the trade union movement was not interested in "deproletarianizing" workers, or ensuring that factories remained at a human scale, but was solely interested in increasing the money wages of its members, even though this often undermined workers' actual purchasing power through inflation.

From 1948 to about 1960, Roepke's program was followed closely in Adenauer and Erhard's Germany: a strong Deutschmark, deregulated markets and prices, a limited welfare state, and an economic reconstruction that focused on small- and medium-sized businesses. The result was an economic boom almost unprecedented in history, the success of which cannot be attributed to the Marshall Plan, which gave vastly more aid to allied countries such as Britain and France, whose more controlled, Keynesian economic path saw much slower recoveries.

By the time of his premature death in 1966, Roepke was warning against Germany's expanding welfare state and increasing corporatism. He would not have been surprised by Germany's subsequent slowdown relative to other economies.

From the 1980s onwards, both poor countries seeking to develop their economies rapidly and wealthy nations seeking to overcome sluggish growth have turned to the more radical cures suggested by Roepke's Austrian School contemporaries and their Chicago School followers. But perhaps today in a world that is looking to find a path to sustainable development, and to avoid both the inefficiencies of a discredited socialism and the inequities of casino capitalism, the time has come for a rediscovery of the original "third way" of Roepke and the Ordo Liberal school.

Topics: Markets
Mark Cameron
 
Mark Cameron

Mark Cameron is the Director of Policy for Canadian Prime Minister Stephen Harper. Prior to that, he was the Ottawa director of the High Park Group, a Toronto and Ottawa-based public policy consulting firm.

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