Those who, like the Swiss economist Wilhelm Röepke, dislike both a laissez faire economy and a planned or state-manipulated one usually hope for a “Third Way” skirting both. Originally published in 1942, this thoughtful, richly textured work is Röepke’s first formulation of the “Third Way.”
Röepke saw causes ranging from Christianity’s decline, the rise of ideology and the “cult of the colossal” to the surge in population combining to produce “the social crisis of our time”: the rise of “mass society” and large-scale economies, in which families disintegrate and individuals become powerless.
A fierce opponent of collectivism, Röepke knew state intervention in the economy was usually harmful, and socialism necessarily meant tyranny.
He preferred a market economy, but laissez faire also troubled him. Its more sanguine advocates, he aptly observed, “tended to pass over the frictions and adjustment difficulties in the economy with a grand gesture.” And people simply can’t bear the uncertainty and tension it entails.
In this, his criticism of the social assistance state, and much else, Röepke’s viewpoint resembles the Pope’s in Centesimus Annus, a resemblance meriting exploration by economists and theologians.
Recognizing that population growth made return to a simpler life unacceptably painful, and hence limited reform possibilities, Röepke instead wanted economic activity put on a human scale. His Third Way featured small-scale enterprise and a balanced way of life “based on private property and a self-chosen occupation,” giving people “inward and, as much as possible, outward independence, which enables them to be really free.” To implement this, he wanted decentralization, antimonopoly legislation, promotion of a broad distribution of property, supervision of the market to ensure fair play, etc., with state intervention limited to what is sensible and necessary.
A decentralized economy with small towns and medium-sized cities would be a great improvement over the status quo, and Röepke was right to deplore the dehumanizing effects of an economics blind to our social and spiritual nature. Alas, Röepke’s yearning for the Third Way undermined his desire to keep intervention limited, as illustrated by his view of a free economy’s essence as merely “the price mechanism and competition,” which allows a broad array of “compatible intervention.”
Indeed, he endorsed income redistribution and subsidies, arguing that they “are not measures which touch the core of the market economy itself.” One desiring limited intervention should specify a broad core, including property rights and incentives (both of which redistribution devastates), which narrows the field of legitimate intervention accordingly. And the interventionist state’s historical expansion supports Ludwig von Mises’s contention that one intervention requires others, hence a middle way is “merely the slowing down of the march toward socialism.”
But Röepke’s diagnosis and insights outweigh his errors. His towering merit is in bringing a generalist, spiritual perspective to economics. The Social Crisis of Our Time deserves reflective reading–and is especially timely in light of Centesimus Annus. Readers should also see Civitas Humana and A Humane Economy where he elaborates further on the market’s social and moral prerequisites.