Economics of the Free Society

The reader will have noticed that this popular description of our economic system has been employed only seldom in our text, and as a rule in quotation marks. There are good reasons for this. As coined and circulated by Marxism, the term has retained up to the present so much of its hate-filled significance and class-struggle overtones that its usefulness for the purposes of scientific discussion has become extremely questionable. In addition, it provides us with only a very vague notion of the real essence of our economic system. Instead of promoting understanding, it merely arouses the emotions and obscures the truth. Walter Eucken deserves especial credit for his efforts to arrive at a clear definition of the economic system and thereby of the term capitalism as well; see his The Foundations of Economics (London, 1951). See also: Alexander Rüstow, Ortsbestimmung der Gegenwart, Vol. 3 (Erlenbach-Zurich, 1957), pp. 159 ff.; W. Röpke, Civitas Humana (London, 1948).

The problem of competition—its function, its conditions, its institutional framework and its evolutionary tendencies—is being given an ever-increasing amount of attention in the most recent literature, and rightly so, since it is this central problem which gives rise to all the other symptoms of the present crisis of our system. Increasingly, the confusion erected about this key question of our economic system by some confused persons, and by some very unconfused monopoly interests, is being summarily dispelled. Hearteningly, it is now recognized—in opposition to alleged ineluctable processes of evolution—that our economic system can in the final analysis continue to exist only as a competitive system. See: F. Böhm, Wettbewerb und Monopolkampf (Berlin, 1933); F. H. Knight, The Ethics of Competition (London, 1935); C. J. Ratzlaff, The Theory of Free Competition (Philadelphia, 1936); W. H. Hutt, Economists and the Public, a Study of Competition and Opinion (London, 1936); L. Einaudi, “Economia di concorrenza e capitalismo storico. La terza via fra i secoli XVIII e XIX,” Revista di Storia Economica (Turin), June 1942; W. Eucken, Wettbewerb als Grundprinzip der Wirtschaftsverfassung (Munich, 1942); Monographs of the Temporary National Economic Committee (Washington, D. C; 1940/41); J. M. Clark, Alternative to Serfdom (New York, 1948); T. W. Arnold, The Bottlenecks of Business (New York, 1940); C. v. Dietze, “Landwirtschaft und Wettbewerbsordnung” Schmollers Jahrbuch, 1942, No. 2; W. Röpke, The Social Crisis of Our Time (Chicago, 1950); W. Röpke, Civitas Humana, op. cit.; Walter Lippmann, The Good Society (Boston, 1937); L. Miksch, Wettbewerb als Aufgabe (2nd ed.; Godesberg, 1947); C. D. Edwards, Maintaining Competition (New York, 1949); C. E. Griffin, An Economic Approach to Antitrust Problems (New York, 1951); ORDO, Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft (published annually since 1948, Düsseldorf), with important articles by F. Böhm, W. Eucken et al.; see also W. Röpke, article “Wettbewerb-Konkurrenzsystem,” Handwörterbuch der Sozialwissenschaften.

The ideas outlined in the text have been developed at greater length by the author in his short papers Die Krise des Kollektivismus (1947) and The Problem of Economic Order (Cairo, 1951) and in his book Mass und Mitte (Zurich, 1950). On the problem of order see also: L. Robbins, The Economic Problem in Peace and War (London, 1947); J. M. Clark, Alternative to Serfdom, op. cit.; John Jewkes, Ordeal by Planning (London, 1948); Henry C. Simons, Economic Policy for a Free Society (Chicago, 1948).

The pioneer works studying the claims and realities of the Soviet economy are: G. Warren Nutter, The Growth of Industrial Production in the Soviet Union, (Princeton, 1962); Colin Clark, The Real Productivity of Soviet Russia, (printed for the use of the Internal Security Subcommittee, Committee on the Judiciary, U. S. Senate, Washington, 1961); Naum Jasny, Soviet Industrialization 1928-52, (Chicago, 1962); and Abram Bergson, The Real National Income of Soviet Russia Since 1928, (Cambridge, [Mass.], 1962).

A fascinating study of the Western contribution to the construction of the Soviet industrial and agricultural base has been made by Werner Keller in his book, recently translated from the German, East Minus West Equal Zero, (New York, 1961).

The German experiment in monetary discipline and economic freedom may be studied in detail in the following works: Ludwig Erhard, Prosperity through Competition (New York, 1958); The Mainsprings of the German Revival (New Haven, 1955); David McCord Wright, Post-War West German and United Kingdom Recovery (Washington, D. C: American Enterprise Association, 1957); Egon Sohmen, “Competition and Growth: West Germany” in American Economic Review, December 1959, and the subsequent discussion thereon, American Economic Review, December 1960; W. Röpke, “Das deutsche Wirtschaftsexperiment—Beispiel und Lehre” in the Symposium Vollbeschäftigung, Inflation und Planwirtschaft (Erlenbach-Zurich, 1951; W. Röpke, Ein Jahrzehnt sozialer Marktwirtschaft in Deutschland und seine Lehren (Cologne, 1958); W. Röpke, Ist die deutsche Wirtschaftspolitik richtig? (Stuttgart, 1950). On the technique of the monetary reform of 1948 see: F. A. Lutz, “The German Currency Reform and the Revival of the German Economy” in Economica, May 1949.

In the text the author has remained true to his early thoughts on this topic as developed in his article “Staatsinterventionismus,” Handwörterbuch der Staatswissenschaften, 4th ed., supplementary volume, (1929). There too an outline of a theory of economic policy may be found. See also: A. C. Pigou, The Economics of Welfare (4th ed., London, 1932); M. St. Braun, Theorie der staatlichen Wirtschaftspolitik (Leipzig-Vienna, 1929); L. Mises, Planned Chaos (Irvington-on-Hudson, N. Y., 1947); O. Morgenstern, The Limits of Economics (London, 1937); H. Laufenburger, L’intervention de l’Êtat en mattère économique (Paris, 1939); C. Bresciani-Turroni, Economic Policy for the Thinking Man (London, 1950); Th. Pütz, Theorie der allgemeinen Wirtschaftspolitik und Wirtschaftslenkung (1948); William A. Orton, The Economic Role of the State (London, 1950); W. Eucken, Grundsätze der Wirtschaftspolitik (1952).

For a complete statement of the author’s program of a “third road,” ranging far beyond the purely economic factors see: W. Röpke, The Social Crisis of Our Time, op. cit.; W. Röpke, Civitas Humana, op. cit.; W. Röpke, International Order and Economic Integration (Dordrecht, Holland, 1959); W. Röpke, Mass und Mitte, op. cit.; W. Röpke, A Humane Economy (Chicago, 1960).

9. (p. 258) Essence and Method of Economics

Instead of defending economics in detail against the attacks to which it is continuously being subjected, the author has preferred in this book to let economics speak for itself and thus to give the reader the opportunity of making his own judgment as to whether this science is really as impractical, unmodern, reactionary, socially noxious, or rationalistic as its despisers so untiringly declaim. The economist must learn not to be dissuaded from his real task by such attacks, and to recognize that he will remain unloved by the special interests and political adventurers. On methodological problems see: W. Eucken, The Foundations of Economics, op. cit.; L. Robbins, An Essay on the Nature and Significance of Economic Science (2nd ed., London, 1935); O. Morgenstern, op. cit.; L. von Mises, Human Action (New Haven, 1949); A. Rüstow, “Zu den Grundlagen der Wirtschaftswissenschaft,” Revue de la Faculté des Sciences Économiques de l’Université d’Istanbul, 1941; L. v. Mises, Grundprobleme der Nationalökonomie (1933); W. Röpke, A Humane Economy, op. cit.