In my personal reading time, which is just a very few minutes a day, I'm reading Wilhelm Röpke's A Humane Economy, having only become aware of his writings in the last few months. As I read, I'm having one of those Yogi Berra moments in that it feels like "déjà vu all over again." I'll explain why in just a bit, but first let me set the stage.
Eleven years ago this just passed Easter, I was received into the Catholic Church. Several years prior to that, when I began, what I now know was my journey into the Church, I was introduced to the early century writings of the first Church leaders who are known as the Early Church Fathers. I was stunned to learn in great detail about the sacraments and liturgy of the Church from men who had been taught by the apostles. I can still feel the sting of betrayal I felt at the realization that this historical record of the Church had been ignored in my own tradition. While I was delighted with my discovery, I was also incensed that no leaders of my denomination had ever passed along the complete Church history. I was left wondering, other than because the facts did not fit with my tradition's precepts, why had this history been abandoned and ignored at the expense of the spiritual health of the flock?
This is where the "déjà vu" comes in. I have once again felt the sting of betrayal as I work my way through Röpke. Here's a man who played a pivotal role in raising Germany from the ashes of World War II and yet the typical economics student has no idea of who he is. Over fifty years ago he was warning the post-war Western world of the dangers of a mass culture, mass society and mass man; where the soul of man is neglected in pursuit of material gain; where the dignity of man is sacrificed on the altar of efficiency; and where the media is employed for the dissemination of economic and political propaganda aimed at directing and controlling the masses. Yet the masses have not heard nor heeded his warning.
In A Humane Economy, Röpke makes the case that the free market is not only critical but, in fact, essential to liberty, both spiritual and political. It is not, however, a sufficient foundation upon which to build an economy unless it is also built on a moral framework; a framework that honors the dignity of man and allows man to pursue not only material gain but also his higher calling. A framework too where the government is only minimally involved in the market for such things as enforcing contracts. Without this framework the market inevitably collapses into a collectivism that is manifested in the welfare state.
The following passage, from a section titled "The Spiritual and Moral Setting," was in my reading recently. It's from a discussion arguing that the free market pricing system, more than any other economic system, works to focus and coordinate the interests of the individual towards the interests of the community.
We know the mechanism of this adjustment. The individual is forced by competition to seek his own success in serving the market, that is, the consumer. Obedience to the market ruled by free prices is rewarded by profit, just as disobedience is punished by loss and eventual bankruptcy. The profits and losses of economic activity, calculated as precisely and correctly as possible by the methods of business economics, are thus at the same time the indispensable guide to a rational economy as a whole. Collectivist economies, of whatever degree of collectivism, try in vain to replace this guidance by planning.
Coincidently, just minutes before reading this, I had read Karen De Coster's blog entry on the Foreclosure Prevention Act of 2008. The analysis she provides exposes the homebuilders' Iron Triangle and gives a current example of how the government has interfered in the free market pricing process that Röpke described and violated the moral framework that he championed.
First, the homebuilding, real estate and financial industries reaped huge profits when the Federal Reserve Bank artificially lowered interest rates; thus the firms and their customers did not have free market prices for their products, but instead artificial prices that steered them all to malinvestments. Once the rates were raised, the boom ended and the market sought to wield the punishment of losses. But now that the damage from the artificially low rates has been done, the government seeks to interfere again. It seeks to minimize the damage and losses it has wrought by its interference. If this bill passes, the taxpayer will subsidize the losses of the homebuilders and other businesses.
What this amounts to is the vain collectivist central economic planning that Röpke was writing about. The Federal Reserve with its monetary policy of artificially low rates was trying to direct economic growth by stimulating the housing market and all its associated industries. Now that the plan has failed, Congress is trying to use fiscal policy to relieve businesses of their losses. This relief will be paid for with monies collected from the taxpayer. On both counts the moral framework that was Röpke's passion has been violated. In the first case, the Federal Reserve gave businesses and consumers what wasn't rightfully theirs — low prices in the form of low interest rates — at the expense of the saver, the consumer and those living on fixed incomes. In the second case, Congress now seeks to give again the same businesses and consumers what isn't rightfully theirs — essentially a rebate on their losses at the expense of the taxpayer.
By interfering in the market in these fraudulent ways, the government, in the form of the Federal Reserve and the Congress, is contributing to the erosion of the moral framework that Röpke says is essential to our economic, spiritual and political liberty. Röpke relates a conversation with a contemporary in which he argued that "…the economy was the front line of the defense of liberty and of all its consequences for the moral and humane pattern of our civilization." He continues with a call to economists to take up the "…task, both arduous and honorable, of fighting for freedom, personality, the rule of law, and the ethics of liberty at the most vulnerable part of the front." It seems to me the battle lines are collapsing and it's time for all patriots, whether they are economists or not, to join the fray.