Saving Free Markets in America
America is now in a moment of choosing. Our markets are under siege from interventionist proposals on both the left and right, coupled with impending fiscal, entitlement, and regulatory crises bequeathed by a legacy of such policies. They also face threats from identity politics as manifested in environmental, social, and governance (ESG) investing and the push for diversity, equity, and inclusion (DEI). Despite recent setbacks, these movements have set down deep roots in corporate America, academia, and government. Failure to confront these challenges on the level of political economy will turn America into a different kind of nation. The country will still exist, of course, but absent a dynamic capitalist economy, the republic of freedom and opportunity it has represented for two and a half centuries will be lost.
The problems plaguing free markets today come in different forms. There are the conventional afflictions of an overweening state, which include government overspending, excessive and arbitrary state interventionism, and out-of-control deficits and public debt. These issues curb American ambition and independence, imprisoning us in our failure to control our government as it spends money far beyond its revenues.
Other afflictions facing American markets are of a moral and cultural character; they weaken the entrepreneurial spirit upon which market capitalism relies. Entitlement spending, for example, has ballooned over the past four decades, particularly in the means-tested category. This raises the question: Have we effectively decided that the fundamental norm of standing on one's own two feet no longer applies to entire segments of the American citizenry? If so, then America will continue its slide into becoming just another European-style social democracy opting for managed decline.
The identity-politics threat to free markets presents a different problem, though one not wholly disconnected from our entitlement crisis. As much as the movement aims to pull down the free economy by undermining some of its fundamental pillars — primarily the rule of law and the principle of rewarding individual initiative regardless of race or sex — its success is aided by an entitlement culture and the way that culture distorts incentives to succeed. As increasing numbers of Americans never experience what it means to work, let alone start a business, we should not be surprised at their indifference to markets or their openness to the siren songs of collectivism and tribalism coming from the left as well as parts of the right.
These problems go far beyond both technical economics and the legal and constitutional dimensions of economic life. They suggest we need to remind ourselves of some of the basic moral and cultural prerequisites of free markets — that is, foundations that take the nature of human beings and civil society seriously, and appreciate their significance for economic life. Here, the thought of the German classical-liberal economist Wilhelm Röpke has much to offer us.
THE MESS WE ARE IN
Before turning to these questions, we must fully comprehend the nature and scale of the present challenges to free markets in America. In this respect, our recent presidential election is instructive: Both candidates' policies reflected attitudes toward the market that ranged from the confused to the decidedly adverse.
For the Democrats, Kamala Harris and Tim Walz endorsed the $5 trillion in tax increases that appeared in President Joe Biden's proposed 2025 budget, which featured a 28% federal corporate-tax rate. According to the Tax Foundation, Harris also embraced taxing "high earners' capital gains at 28 percent" and raising the net investment-income tax to 5%, thus increasing "the top [combined] tax rate on capital gains to 38.3 percent — the second highest" in the Organization for Economic Co-operation and Development. Under Harris's endorsed plan, individuals in the highest federal income-tax bracket, when combined with the income-tax rates in the 10 highest income-taxed states, would pay taxes of over 49% of their income. To say this isn't a recipe for growth would be a gross understatement.
Then there are the ways Harris sometimes spoke about corporations — as if they were vampires who colluded to subvert market prices and extract resources from unsuspecting consumers. Despite the hard lessons of history and a near-universal consensus among economists about the futility of price controls, Harris promised a price-control plan administered by the Federal Trade Commission to give Americans back their dignity as shoppers. On top of all this, she pledged to continue the Biden administration's turn to industrial policy, offered 1 million "fully forgivable" loans of up to $20,000 to "black entrepreneurs and others" to start businesses, and proposed extending Medicare to help families with high home-care costs.
The Republican ticket of Donald Trump and J. D. Vance was, at best, only marginally better. Trump promised to maintain current federal income-tax rates and touted his commitment to deregulation. But he also proposed several gimmicks rooted in bad economics and political pandering, including "no taxes on tips," dramatic increases to tariffs, price controls on credit-card interest payments, the removal of taxes on Social Security benefits and overtime pay, a repeal of the federal cap on state and local income-tax deductions, reductions to the corporate-tax rate for companies that make their products in America, and tax-deductible interest payments on car loans. These policy proposals reflected a view now widespread among American conservatives: that the U.S. economy is deeply unfair for many blue-collar working Americans, and that the federal government must redress this problem through extensive economic intervention.
Like Harris, Trump's proposed economic agenda entailed more deficit spending. Moreover, neither Trump nor Harris outlined specific plans to reduce entitlement spending — the biggest driver of our metastasizing public debt — through which we borrow against the future to fund entitlement recipients' present-day consumption. Here, both candidates responded to an American electorate certain to reject any politician who proposes any cuts to entitlement programs. The expectations and assumptions associated with the New Deal and the Great Society have become part of many Americans' way of life.
The empirical evidence bears this out. As Nicholas Eberstadt has observed, the share of Americans in households receiving means-tested benefits more than doubled between 1985 and 2016, from 15% to 36%. Never, Eberstadt wrote, "have so many Americans been dependent on poverty-conditioned, means-tested benefits." Large numbers of children, he added, live in single-parent households or with their grandparents, and the prime-age work rate for men remains close to what it was at the "tail end of the Great Depression."
The view that all this is the fault of globalization, trade liberalization, and everything else lumped together under the "neoliberal" moniker is now regnant among populist conservatives as well as progressives. This is reflected in a growing interventionist consensus between the two groups. Both favor tariffs, industrial policy, handouts for families, and entitlement spending. They argue that, since capitalism has failed American workers and their families over the past 40 years, the federal government now has a responsibility to compensate them.
CORPORATE AMERICA'S LEFT TURN
Another dimension to America's ongoing abandonment of free markets that bodes ill for economic liberty concerns business's relationship with progressive politics.
Since the 1980s, there has been no shortage of business leaders stating that they were "fiscal conservatives" and "social liberals." By this, they generally meant that they favored pro-market positions on issues like taxes, spending, regulations, etc., but moderate-to-liberal policies on subjects ranging from drug legalization to abortion. In some cases, this mirrored particular conceptions of the nature of freedom held by some libertarians. In others, it suggested a desire by some progressive-minded CEOs to acknowledge and celebrate the noticeable and positive impact that free-market policies have had on America from Ronald Reagan's presidency onward while distancing themselves from a social conservatism they associated with an agenda of social control.
Implicit in this view was the notion that the freedom of choice, so crucial to free-market capitalism, should be applied to every socially controversial question. For many, this made great sense. Progressive economic policies were woefully out of date: Who wanted to pay pre-Reagan tax rates or wind back the deregulation policies pursued starting in the late 1970s? A live-and-let-live consensus seemed to be prevailing in both the economy and society, aided by the fact that many of those who supported easy access to abortion often expressed sentiments that recognized the moral weight of the decision (such as the claim that the practice should be "safe, legal, and rare").
By the 2010s, however, it was apparent that progressive views had a way of seeping over into how some American business leaders thought and spoke about commerce and the economy more generally. Corporate America started to drift left in surprising ways, embracing identity politics and promoting DEI priorities and ESG investment schemes.
These policies have now become standardized and institutionalized within corporations, thereby compromising the free-market idea that the prime responsibility of business is, as Milton Friedman stated, to increase its profits. This shift was exemplified by the Business Roundtable's 2019 Statement, which relativized its signatories' commitment to shareholder value and instead elevated the well-being of potentially infinite numbers of stakeholders as a priority for companies. While some businesses with more conservative clientele have backed away from DEI programs and ESG principles, the pull of identity politics on corporations will remain our reality for years to come — not least because progressives have sought to integrate DEI and ESG criteria into regulatory-compliance rules issued by agencies like the Securities and Exchange Commission.
How much corporate America believes in ESG and its underlying identity-politics ideology is unclear. In many cases, it is surely regarded as just another cost of doing business in a highly charged political environment — especially in large cities that are effectively progressive one-party states. Many American business leaders have concluded that if they engage in the right amount of virtue signaling that affirms progressive values and priorities, they will be left alone to make money. They fail to grasp that negative views of business and markets are simply part of the modern American left's DNA; most progressives will never be satisfied with anything that American businesses voluntarily do to advance progressive ends. For them, government intervention to secure progressive goals in the realm of sex and race is a political imperative grounded in their understanding of the world.
Making matters worse, corporate America's dalliance with progressive causes has engendered a political counter-response that threatens to leave business politically friendless and at risk of even more regulation. Corporations' embrace of progressive messaging and campaigns, as well as their apparent indifference and even hostility to those millions of Americans who aren't obsessed with race and sex, has infuriated conservatives. This has produced consumer boycotts of brands like Bud Light and Target that have cost these businesses millions, as well as successful political efforts in red states to counter ESG investing and the adoption of DEI programs by publicly traded corporations.
More generally, the progressive turn of much of corporate America has helped transform the Republican Party into an entity less interested in protecting the economic freedom of American business against an interventionist state. This dynamic was illustrated in a Senate Judiciary Committee hearing in November 2022, where Kroger CEO Rodney McMullen sought Republican support for his company's merger with Albertsons — a merger blocked by officials in the Biden administration. Republican senator Tom Cotton responded almost in amusement to McMullen's testimony. Kroger had recently fired two employees at an Arkansas store for refusing to wear an apron displaying an LGBTQ+ symbol during their shift. Cotton replied to McMullen in a deadpan voice:
You know, this situation reminds me a little bit of the situation Big Tech companies have found themselves in in recent years. They've come to Washington because they fear regulation from our Democratic friends, or action by the Biden administration, and they expect Republicans, who are traditionally more supportive of free enterprise, to come to their defense. And I've cautioned them for years that if they silence conservatives and center-right voters...if they discriminate against them in their company, they probably shouldn't come and ask Republican senators to carry the water for them whenever our Democratic friends want to regulate them or block their mergers....I'll say this: "I'm sorry that's happening to you. Best of luck."
BACK TO FOUNDATIONS
These broader trends in the economy — and the attitudinal shifts they reflect — indicate growing doubts about the essential economic and moral rightness of free markets.
This is not the first time Western societies have witnessed severe erosion of public faith in markets. After World War I and the Great Depression, Westerners flocked to movements of the left and right that, for all their differences, were hostile toward capitalism and embraced varying expressions of collectivism (command economies, social democracy, corporatism, etc.). This shift in economic views paralleled the spread of tribalistic understandings of human beings. Given their reduction of everything to questions of race or class, neither fascists nor Marxists had any time for the notion of the individual.
Classical-liberal economists writing in the 1940s, '50s, and '60s invested considerable effort in understanding why so many people across the political spectrum had turned to collectivism. In books like The Road to Serfdom, F. A. Hayek drew heavily on Alexis de Tocqueville's thesis that modern democracy risks facilitating a Faustian bargain between legislators and voters whereby people cede increasing amounts of power to the state in exchange for increased benefits from the government. Hayek consequently spent much of the second half of his career outlining the type of legal and constitutional frameworks that he thought would impede such developments.
Other economic liberals engaged in more explicitly moral and cultural analyses of the rejection of market capitalism. Perhaps the most prominent was German economist Wilhelm Röpke. Famed for his principled resistance to national socialism and communism, Röpke achieved international prominence in the 1940s for his defense of liberal order in books like The Social Crisis of Our Time and his role in liberalizing the post-war West German economy.
Like Hayek, Röpke stressed the importance of rules and institutions in protecting economic freedom from mass movements and special interests. Capitalism, Röpke argued, had fallen into disrepute because interventionism — proceeding from the exploitation of state power by sectional interests — had corrupted competition. Many 19th-century classical liberals, Röpke believed, had failed to see that "a market economy needs a firm moral, political and institutional framework" capable of resisting "the unbridled rule of vested interests" who had proved adept at co-opting state power to get their way.
Nonetheless, Röpke considered it equally important to identify the type of moral and cultural habits that would enable capitalism to resist both hard and soft collectivist impulses, as well as help limit the government's economic responsibilities to a small number of clearly defined roles and prevent interest groups from using state power to escape the disciplines of market competition. As he wrote in his last book, A Humane Economy:
The market economy, and with it social and political freedom, can thrive only as a part and under the protection of a bourgeois system. This implies the existence of a society in which certain fundamentals are respected and color the whole network of social relationships: individual effort and responsibility, absolute norms and values, independence based on ownership, prudence and daring, calculating and saving, responsibility for planning one's own life, proper coherence with the community, family feeling, a sense of tradition and the succession of generations combined with an open-minded view of the present and the future, proper tension between individual and community, firm moral discipline, respect for the value of money, the courage to grapple on one's own with life and its uncertainties, a sense of the natural order of things, and a firm scale of values.
The sets of values, norms, habits, expectations, and outlooks identified in this paragraph are in fact far more than "bourgeois" virtues. They draw on ancient, religious, and Enlightenment sources given expression in customs, institutions, and moral codes not designed by the state. Hayek made a similar point in his Constitution of Liberty:
There probably never has existed a genuine belief in freedom, and there has certainly been no successful attempt to operate a free society, without a genuine reverence for grown institutions, for customs and habits and "all those securities of liberty which arise from regulation of long prescription and ancient ways." Paradoxical as it may appear, it is probably true that a successful free society will always in a large measure be a tradition-bound society.
CIVIL SOCIETY AND HUMAN NATURE
If such constellations of values and traditions are key to maintaining economic freedom, we must ask ourselves where they are nurtured. For Röpke, the answer was in families and those associations and communities that, taken together, are called "civil society."
In civil society, Röpke believed, we find the social and cultural ecology in which people can be inculcated into the moeurs and habits that serve us well in the marketplace, help us grasp the deeper importance of the rules and institutions that protect economic freedom, incline us to disapproving dependence on government, and encourage us to take on responsibilities to others that go beyond those laid down in contracts. According to Röpke:
Self-discipline, a sense of justice, honesty, fairness, chivalry, moderation, public spirit, respect for human dignity, firm ethical norms — all of these are things which people must possess before they go to market and compete with each other. These are the indispensable supports which preserve both market and competition from degeneration. Family, church, genuine communities, and tradition are their sources. It is also necessary that people should grow up in conditions which favor such moral convictions, conditions of a natural order, conditions promoting co-operation, respecting tradition, and giving moral support to the individual.
Röpke suggested that the welfare state's steady growth before, during, and after World War II had already weakened many of the associations and communities he had in mind.
Some of the strongest condemnations of the welfare state by a 20th-century classical liberal are to be found in Röpke's writings. Not only did Röpke explain how welfare states consume ever-growing proportions of GDP and expand the power of government in society, he was one of the first free-market economists to show how expansive welfare programs corrode civil society and the idea of personal responsibility, leading to a dysfunctional culture and politics. For Röpke, this was part of the nature of the welfare state:
If it is true that the modern welfare state is nothing but a steadily spreading system of government-organized compulsory providence, it must obviously compete with the other forms by which a free society provides for itself: self-providence by saving and insurance and voluntary aid through family and group. The more the compulsory system spreads, the more it encroaches upon the area of self-providence and mutual aid. The capacity to provide for oneself and for members of one's family or community diminishes and, what is worse, so does the willingness to do so.
If Röpke is correct, it follows that revitalizing the moral habits and attitudes capable of sustaining economic freedom in America will necessarily involve significantly shrinking the welfare state. Doing so would create space for the type of civil society that promotes respect for economic liberty and prepares people for life in dynamic market economies.
It is impossible to overestimate how politically challenging such an exercise would be in contemporary America, given that the left and now much of the right are committed to maintaining and extending entitlements. The extent to which so many Americans rely on some type of state assistance only compounds that challenge. Yet the conclusion is inexorable: Absent major reductions in the welfare state, revitalizing the market in America will be extremely difficult.
Röpke's emphasis on civil society aligned with another theme he believed relevant to restoring markets in America: his conviction that markets represent the economic system that best accords with human nature. Indeed, part of markets' essential legitimacy, Röpke believed, derives from how they reflect certain universal truths about the human condition — truths we defy at our peril. In his later writings, he drew attention to features that distinguish humans from all other creatures, among them reason, free will, and insight, and thus the capacity for creativity. To Röpke, this suggested that any economic system that represses liberty or discourages economic creativity is bound to run into trouble.
Markets, according to Röpke, not only enhance liberty and encourage ingenuity, they also bring together human individuality and sociability in ways that generate wealth and enable us to overcome the problem of scarcity. Röpke recognized that humans are individuals insofar as each person is unrepeatable and unique, but he combined this recognition with an understanding that humans are also social beings who need relationships with others if they are to flourish. In an economy based on free exchange and the division of labor, there can be no Robinson Crusoes. However, that same economy's dynamism depends on the unique insights and creativity of entrepreneurial individuals.
Finally, Röpke pointed to another element of human nature that should incline us to embrace market economies: the fact that people tend to act in their own self-interest. Markets, Röpke emphasized, have a remarkable capacity to align human liberty and self-regard with a society's progress toward a more prosperous state of economic well-being. As people pursue their self-interest and respond to market incentives, unintended but beneficial economic consequences for others — including the creation of new jobs, the generation of greater societal wealth, contributions to technological development, and the provision of the material resources that allow us to be generous to others — naturally follow.
Taken together, how should we understand Röpke's vision of the ethical foundations of markets? In A Humane Economy, he provided an answer:
At what ethical level, in general, must we situate the economic life of a society which puts its trust in the market economy?
It is rather like the ethical level of average men, of whom Pascal says: "L'homme n'est ni ange ni bête, et le malheur veut que qui veut faire l'ange fait la bête." To put it briefly, we move on an intermediate plane. It is not the summit of heroes and saints, of simon-pure altruism, selfless dedication, and contemplative calm, but neither is it the lowlands of open or concealed struggle in which force and cunning determine the victor and the vanquished.
From this standpoint, the moral foundations of the market economy are derived from a realist conception of human beings — realist in the sense that they are true to what humans are. They recognize that humans are simultaneously individual and social beings who possess reason and free will; who are creative and self-interested; and who are fallible but also capable of realizing virtues of the commercial, classical, and religious variety. In this sense, there is nothing abstract or artificial about markets: They simply take human beings as they are.
CONSERVATIVE LIBERALISM REDUX
Tocqueville's observations of the America he visited in the 1830s, with its bustling entrepreneurial activity, echo the themes Röpke stressed in his work.
In Democracy in America, Tocqueville noted the tendency of pre-commercial societies to despise the pursuit of self-interest. In the new post-aristocratic world of America, by contrast, all people, rich and poor, believed that "by serving his fellow man he serves himself and that doing good is to his private advantage."
Indeed, far from objecting to the pursuit of self-interest, Americans "do all they can to prove that it is in each man's interest to be good." They recognize that self-interest, when properly understood, sets people against what might be their own narrowly selfish concerns. "Every American," Tocqueville observed, "has the sense to sacrifice some of his private interests to save the rest."
Self-interest in America thus exerted a "discipline" that "shap[ed] a lot of orderly, temperate, moderate, careful, and self-controlled citizens" and made "gross depravity" less common. Americans' understanding of self-interest was, in Tocqueville's view, a moral outlook peculiarly suited to "men of our time," as well as their "strongest remaining guarantee against themselves."
Today's America is a far cry from the nation Tocqueville encountered in the 1830s. Though there remain beacons of economic liberty, they coexist uneasily alongside the state's extensive and ever-growing presence in the economy — a presence bolstered by policies and ideas grounded in very different conceptions of human beings than those Röpke outlined and showing little interest in revitalizing the type of civil society Röpke considered crucial for fostering the habits that no market economy can survive without.
We may not be facing the outright socialism and other forms of hard collectivism that confronted figures like Röpke, but his critique of socialism is just as applicable to the soft-collectivist policies that American politicians on the left and right advocate today. "The great error of socialism," Röpke declared,
is its steadfast denial that man's desire to advance himself and his family, and to earn and retain what will provide his family's wellbeing far beyond the span of his own life, is as much in the natural order as the desire to be identified with the community and serve its further ends.
Identity politics and welfare policies, too, deny this truth. They also deny the solution to such errors — which, according to Röpke, was "to regard the individual, with his family, relying on his own efforts and making his own way, as a course of vital impulses, as a life-giving creative force without which our modern world and our whole civilization are unthinkable."
Röpke's understanding of the market involved societies' committing to maintaining economic liberty and the rules and institutions that bolster it. It also underscored a certain view of human beings and morality that takes seriously our capacity for virtue and the importance of non-state institutions in nurturing such habits. To this extent, Röpke's view of market freedoms brings together classical-liberal and conservative emphases. Likewise, Röpke's critique of the welfare state ties classical-liberal concerns for liberty to conservative concerns about the destruction of civil society and the weakening of the family via the state.
Röpke was often described in his lifetime as a "conservative" liberal — and for good reason. His writings remind market liberals that the turn to economic interventionism proceeds from more than just bad economics. At the same time, they remind social conservatives of the fact that economic interventionism degrades both families and civil society.
To revive a robust market economy in America, we need to rebuild a society in which liberty and virtue are taken seriously. We need a society grounded in an understanding of human beings that stands opposed to the ideologies underlying the identity politics, economic nationalism, and welfare dependence that have thoroughly corrupted the American economy. Good economics, it turns out, is essential but insufficient for markets to flourish; it must be combined with respect for the truth about human nature — and what this tells us about our limitations and our moral and economic potential.
