Was Wilhelm Röpke Really a Proto-Keynesian?

Within a broader perspective, the study directed by Peter E. Hall (1989) on The Political Power of Economic Ideas: Keynesianism Across Nations showed how Western countries’ countercyclical fiscal policies combatting unemployment were developed primarily without any reference to Keynes. Franklin D. Roosevelt’s New Deal is an obvious example, but other examples can be found in Sweden, France, and Italy (see also Bateman, 2006, pp. 283–286).

Between 1932 and 1936, a series of publications—Röpke (1933, 1934, 1935a, 1936c, 1936d)—can be traced where he specified certain aspects of his business cycle theory.

For a recent account, see Hagemann (2013, pp. 45–47).

If Röpke “cannot help feeling deep sympathy with the general trend of ideas of the psychological school” of which Arthur C. Pigou is the main exponent (Röpke 1936a, p. 97), he rejected it as a proper explanation of the business cycle on the basis of two interrelated arguments. First, psychological factors do not concern the ultimate causes of the ups and downs of the cycle but constitute mere adjunction to oscillations. Second, the ultimate causes are to be found in fluctuations in “real facts of economic life” (such as the value of money, costs or prices, income structure, etc.) and the “real task consists in showing how these psychological events connect up as a whole” (Röpke 1936a, p. 96).

Röpke (1936c, p. 325) gave credit especially to John M. Clark (1917) for having developed this concept.

For the controversy between Hayek, Sraffa, and Keynes following the publication of Prices and Production, see Kurz (2000).

Röpke gave a good explanation of that plan in his “Trends in German Business Cycle Policy”: “What in effect the plan amounted to was that the most burdensome taxes (business taxes, turnover tax, etc.), while not actually abolished, were transformed into liquid assets. The whole system was rather complicated, but its meaning can be summed up by saying that in the place of certain taxes, a forced loan was instituted, the titles to which, thanks to the collaboration of the banking system, could be sold or employed as collateral. In other words, a certain amount of taxes were virtually abolished, but the financial burden of this abolition was temporarily shifted from the state to the banking system, which would expand credit to the corresponding extent. This assumed that business men would employ their Steuergutscheine, not for paying off or consolidating old debts—improving their own liquidity, as it were—but for making new investments in working or in fixed capital” (Röpke 1933, p. 432, emphasis in the original).

For the search for consensus in the business cycle theory in the 1930s, see Boianovsky and Trautwein (2006).

See also Ellis (1938).