Franz Oppenheimer — The Law of Transformation and Social Market Economy

by Stephen I. Ternyik*

Franz Oppenheimer (1864-1943) was a German-Jewish physician, economist and sociologist, mainly known for his noted book The State: Its History and Development Viewed Sociologically (1908/1920) and for laying the foundations for Zionist cooperative settlements.
Franz OppenheimerFranz Oppenheimer would become the first full professor of sociology in Germany (1919-1929, Frankfurt University), but his research interest into ‘social laws’ was awakened as practicing physician (1884-1895) in the poverty ridden zones of the German capital. His first publication on communal settlements (Oppenheimer 1896) for poverty alleviation formed the foundation of his sociological ambition which is marked by the methodical application of natural science, i.e. the circumspection or caution of a careful physician. The nucleus of this study project contains Oppenheimer’s transformation law for cooperative human communities, most probably based on the Prussian colonial experiments with village-like settlements in the Eastern territories which worked well for centuries, until the dawn of industrial capitalism.
Around the years of 1900, Oppenheimer developed a significant empirical and historical influence on Theodor Herzl who immediately realized the immense scientific input for Zionist practice; Oppenheimer used all available public Zionist channels, private enterprises like the ‘Jüdische Orient-Kolonisations gesellschaft / Shaare Zion’ (Jewish Society for the Colonization of the Orient) and profound interpersonal communications with Zionist leaders to further his cooperative ideas about communal settlements to alleviate poverty and misery. Oppenheimer viewed communal settlements and working cooperatives as an effective tool to better the living conditions for a mass of people, under the economic conditions of earning wages in the capitalist monetary system. Applying his scientific knowledge to the special case of the Jewish people, he preferred to test his approach on the German countryside in Prussia or Galicia (Austria) via a pilot model community for later dissemination in the land of Israel. The Kishinev Pogrom (1903) – an anti-Jewish massacre  that aroused worldwide attention on the persecution of Jews, converted Franz Oppenheimer into a committed Zionist who wanted to help his fellow Jews (in Eastern Europe) out of misery and persecution.
Oppenheimer’s Law of Transformation can be read as the paradox of cooperative economics and it refers to macro-social dynamics: the beginning of a cooperative group endeavor will end up in a capitalist calculation enterprise or cease to exist as long as the macro-social conditions are based on capitalist monetization and accounting. Knowledge is about predictability and wisdom is about outcome: the later Kibbutzim were from the Oppenheimer viewpoint a survival mechanism which will be inevitably followed by economic means of privatization. 
Oppenheimer’s circumspection is inspired by the caution of the careful physician and the transformative law of communal settlements does not exclude dynamic efficiency, i.e. the successful integration of short-and long-term economic sustainability. Of course, many other social scientists — Nikolai Bukharin, Karl Polanyi, Joseph Schumpeter, and Oskar Lange — have grappled with transformative questions; however, Oppenheimer clearly formulated the prospect that as long as the macro-economic accounting system is governed by private capital calculation, no communal settlement can survive without adapting this economic model. Oppenheimer’s circumspection is confirmed by the material history of capitalism. All of our economic accounting systems derive from the 5000 years old Sumer-Babylonian calculation model to expand privatized property via monetary exchange, credit and interest; industrial capitalization, since about 500 years, extended technically the ancient feudal limitations of natural land and human labor, but our economic formulae are socially still based on property relations and transactions, measured in monetary units. It is also interesting to note that Oppenheimer viewed the institution of a state as a means to protect the economic interests of the dominant property owners (rentiers), i.e. as a social reflection of the ownership structure on a given territory.
One other important decisive impact of Oppenheimer’s scientific approach is the social market economy in Germany which was modelled by Ludwig Erhard (1897-1977) who was a doctoral student of Franz Oppenheimer and who pragmatically transformed the deep insights of his teacher into political practice; such is the interplay of social science and human praxis. The eminent intellectual influence of Theodor Hertzka (1845-1924) and Henry George (1837-1897) on Oppenheimer, concerning the decisive role of land rent and monetary interest on economic production, must be mentioned here, to remember the central reform ideas of free land (free from rent) and free money (free from debt) before the turn of the century. Oppenheimer’s circumspection, however, enabled him to look around the corner of macro social dynamics and to envision a free market society; cooperative economics is a tool for universal human emancipation and he was aware of the fact that such social transformations do come in gradual instalments, i.e. social systems evolution cannot be forced, but has to be studied profoundly and human action has to be cautious, to avoid nonvoluntary side effects.
The paradox of cooperative economics can be balanced by improving the accounting methods of human exchange; land (natural resources), money (measurement unit for calculations/payments/exchange) and economic valuation (price formation) are vital factors of human living chances that depend on the basic principle of resource allocation efficiency. The cooperative idea of communal settlements as an alternative lifestyle has a definite future for a critical mass of people, especially under the participatory agenda of ecological democracy for land, labor and money, but we should indeed try to formulize the transformative laws as cautious working tools and memorize Oppenheimer’s circumspection for prospective enterprises.

— Barkai, Haim. 1999. “Franz Oppenheimer’s transformation law and the recent trend towards privatization in the Kibbutz”. In Wirtschaft und Gesellschaft: Franz Oppenheimer und die Grundlegung der Sozialen Marktwirtschaf, edited by Elke V. Katowksi, Julius N. Schoeps and Bernhard Vogt. Berlin: Philo.
— Russell, Raymond, Robert Hanneman and Shlomo Getz. 2015. The Renewal of the Kibbutz: From Reform to Transformation. New Jersy: Rutgers University Press.

— Oppenheimer, Franz. 1896. Die Siedlungsgenossenschaft. Leipzig: Duncker/Humblot.
— Palgi, Michal and Shulamit Reinharz (ed). 2014. One Hundred Years of Kibbutz Life. NJ: Transaction.
— Polanyi, Karl. 1944.  The Great Transformation. London: V. Gollancz.

* Stephen I. Ternyik is an economist, educator and entrepreneur who pursued studies in social science in Berlin, Tokyo, New York and Jerusalem.

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