Competition’s Tree

If one wishes to capture the fundamental aspect of the cultural friendship between the two economists Luigi Einaudi (1874-1961) and Wilhelm Röpke (1899-1966), it’s important to refer to what Einaudi wrote about the German economic miracle and the Röpkianan doctrine of the social market economy.

Einaudi wrote that the term "social" was merely a filler, since it did not imply that interventions were "inconsistent with the market", that is, designed to distort the free market system, but simply actions that conform to the market, in order to realize it.

It is based on the crucial issue of the relationship between economics and law rather  than between market institutions and market culture (ethics), and on the difference between "market economy" or "competition" and "historical capitalism" that we can understand the cultural friendship between those two great economists.

With reference to the market, Röpke argued that legal and moral orders are essential as they provide the conditions of the market: in their absence, the market itself could neither exist nor survive – and these conditions even act as a limit.  Such limitations, to the extent that they become part of the culture of a person or a society despite coming from an outer sphere to the economic order, comes to enliven the culture of a given market by complying it and helping to distinguish between a certain liberalism and another, between capitalisms, markets, businesses and welfares.

It was Einaudi himself in 1942 who highlighted the theoretical trait of the peculiar friendship in the essay-review of Röpke’s volume “The social crisis of our time.” The essay was published in the “Journal of Economic History” under the title: "Economics of competition and historical capitalism. The third way between the eighteenth and nineteenth centuries." The most interesting outcome of the intellectual encounter between Einaudi and Röpke concerns the so-called "theory of conform actions." It is widely believed that it constitutes the basic principle through which are shown the boundaries of a free market economic policy liberally oriented that, however, wishes to coherently keep distance from the pure laissez-faire approach.

According to Röpke, conforming to a market economy and a competition system are "those procedures that do not suppress the mechanism of self-government and the market price so obtained, but that are inserted, as ‘new data’ and are consequently treated. On the contrary, those not in accordance with the market, destroy the price mechanism and should therefore replace it with another economic order, that is collectivistic."

In addition to the theory of conform interventions, Einaudi appeared to agree also with the historical analysis of Röpke and his distinction between "economic competition" and "historical capitalism."

However, Einaudi commented that the higher intangible spiritual fruit of market economy was to make economy free from the dirigism of the political power. Namely, the decisions on what, how, when and how much to produce depend on the consumers who hold the scepter on the throne of the market.

Therefore, "economic competition" and "historical capitalism" are the two aspects of liberalism that, according to Röpke, Einaudi, and indeed Luigi Sturzo in his essay entitled “Ethics of economic laws” in 1958, have been often confused between each other. Now, in the historical transformation of '"economic competition" into "historical capitalism," they discern the reasons of the disease that disastrously affected the twentieth century Europe.

The solution proposed by Röpke, and shared much by Einaudi and Sturzo, refers to the principles of the "liberalism of rules," that of '"Ordo-liberalism," developed by the interpreters of the Freiburg School. In other words, our authors propose to reform the economic system, creating a competitive economy around a legal order conform to it.

We can conclude by stating that it is rooted in our authors the awareness that freedom produces extremely fragile instruments, but that are the only at the level of human dignity, and that competition is not the product of case, but an artifact that is a result of centuries of civilization.

Paraphrasing the British liberal Catholic historian Lord Acton, Röpke, Einaudi and Sturzo shared the idea that "The plan of competition" is a delicate fruit, whose birth made way for a contribution of generations of women and men. It is our duty to nourish it today, to support and to defend from possible attacks, from attempts trying to suppress it, from everlasting temptation to do without it, by recurring to shortcuts dictated by the predominance of special interests.

Monopolies, cartels, authoritarianism, collectivism are the very mortal enemies of economic competition. According to Einaudi, Röpke recognized the merit of having produced a critical analysis of economic concepts, enabling the distinction between economic competition and historical capitalism: the first step towards a possible re-establishment of social order. An order in which the economic problem is brought within its bed, and through which we recognize the limitations and assumptions of the market.

These were the problems that, from late 1920’s up to middle 1960’s, some intellectuals in various parts of Europe believed to have to face from a clear theory of the political and economic order. They didn’t want to abdicate to a self-sufficient populism, to an aggressive totalitarianism and to liberticidal protectionism, as they loved their own freedom more than anything else, and loved their homeland.

They were aware that no bureaucratic order - either public and private - can avoid nor neglect the reality that there is always something, as stated in the spiritual testament of Röpke, that goes "beyond supply and demand." Such a thing is central to the human being: an ethical order that nowadays needs to be urgently addressed and understood in depth if we do not want to risk sacrificing the economic dynamism to the stagnation of collective agreements, or to the anarchism of individual interests. Such stagnation and anarchism are respectively sons of a corporatist logic or of an optimistic disregard towards the reasons of the social order and of the "civitas humana," at the point to sacrifice free individual choices on the altar of the Big Planner's "Fatal Conceit."

Flavio Felice is Adjunct Scholar American Enterprise Institute and President of the Tocqueville-Acton Centre Studies

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