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September 25, 2011
David Warsh, Proprietor


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Tales of the Neoliberal Thought Collective

Presidential aspirant Ron Paul stopped by The Washington Post last week.  As Dana Milbank reported in the Post, barely fifteen minutes into his question-and-answer session, Paul was speaking Austrian.

“I mean, how many people have read Human Action?” the former obstetrician asked, referring to a 1949 treatise by Ludwig von Mises. “How many people have studied Mises and Hayek and Rothbard and Sennholz? … A lot of people just flat out don’t understand what I’m talking about.”

The candidate proceeded to expound, as Milbank related, “the need for a gold standard, the problem with energy-efficient light bulbs, why Greece should declare bankruptcy, why Grover Cleveland was his favorite president, and how our economy is collapsing, ‘just like the Soviet system.’”

The same day the Republican leadership sent a letter to Federal Reserve chairman Ben Bernanke, warning him not to take further steps to improve the US economy before the election.

Two very different skeins of thought were in conjunction here – in the one case, an unusually candid argument from political dogma; in the other, a purely practical gambit having to do with the ascendancy to power of the Tea Party since the 2010 Congressional election.

They are connected, of course, connected, too, to a third edifice, one that is the subject of a fascinating book, The Road from Mont Pélerin: the Making of the Neoliberal Thought Collective, edited by Philip Mirowski, of the University of Notre Dame, and Dieter Plehwe, of the Social Science Research Center in Berlin.

Readers may already know something of the founding of the Mont Pélerin Society, in a little Swiss village of that name above Lake Geneva in April 1947.  Organized by Austrian refugee Friedrich Hayek, bankrolled by the Foundation for Economic Education, an early think tank in Irvington-on-Hudson, NY (at which Hayek’s fellow refugee Mises was employed), the weeklong session attracted thinkers from around the world who were worried about post-war tendencies to bureaucratic planning and technocratic socialism.

Among them: Hayek, Mises, Karl Popper and Fritz Machlup from Vienna; Lionel Robbins from the London School of Economics; Frank Knight, Aaron Director and Milton Friedman from the University of Chicago; Frank Graham from Princeton; Wilhelm Röpke and Walter Eucken from Germany;  Maurice Allais and Bertrand de Jouvenel from France; as well as journalists John Davenport (Fortune)  and.Henry Hazlitt (Newsweek).

What Hayek had in mind was an association of scholars involved in “an international academy of political philosophy.” What he produced was something more.  From a tiny band of dissidents, apparently without influence in a sphere of public policy world then dominated by economists John Maynard Keynes, Joseph Schumpeter, Gunnar Myrdal and political scientist Harold Laski, members of the society grew in stature and influence until they, not the planners whom they criticized, had become the source of the dominant political orthodoxy in much of the world.

And that is more or less the situation as it stands today – except, of course, that, at least for a little while longer, Barack Obama is president of the United States.

What is Mont Pélerinism?  Mirowski equates its agenda developed over the years with what in the 1990s became known as “the Washington consensus” (privatization, fiscal discipline, openness to investment and global trade).  Following a long-standing tradition, he designates it as “neoliberalism.”

Plehwe characterizes it as a “thought collective,” a great web of embedded ideas and visceral reactions that members fashioned, and which now are propagated by universities, foundations, think tanks and mass media in such a way as to condition choice in pursuit of global hegemony. And, sure enough, anyone familiar with the way broadcaster Glenn Beck turned Hayek’s 1944 manifesto, The Road to Serfdom, into an Amazon.com best-seller can doubt that the Mont Pélerin Society has come as long way?

The Mirowksi/Phlewe volume delves deeper into the origins of the Mont Pélerin Society, tracing its origins to France, Britain and Germany on the eve of World War II, as various factions sought to come to grips with communist ideologies, both international and home grown (though neither the Soviet Union, communism, nor the various theorists associated with its impressive thought collective merit an index entry in the book).

Neoliberalism’s early preoccupation with the work of American political theorist Walter Lippmann is discussed.

Its growing association with economists at the University of Chicago is elucidated, including the circumstances in which Milton Friedman’s highly successful tract Capitalism and Freedom came to be published in 1962 (financed mainly by an ardent Kansas City, Mo., foundation named the Volcker Fund (after a furniture company, not the former Fed chairman).

The arguing-out of several of neoliberalism’s strategies is described, in connection with trade unions, corporate law, business conservatives.

Its extensions into development economics are traced, particularly in Chile and Peru.

A schism within neoliberalism’s ranks gets short shrift, but it doesn’t matter, for Karen Vaughn provided a good account of it fifteen years ago in Austrian Economics in America: The Migration of a Tradition.  The Austrian tradition in its modern form goes back to the “calculation debate” about the possibility of central planning that followed the German bureaucracy’s near-success in prosecuting World War I.

In the 1950s and ’60s, the planning question provoked a highly productive debate in technical economics that led to serious thinking about the structure of economic incentives. In the ’70s the Austrian tradition rekindled interest in the role of entrepreneurs in market processes.  In the ’80s it found a home at George Mason University, on the outskirts of Washington, DC, and since then it has contributed a steady stream of new ideas to the profession, forever on the verge of mutating into something else.

But by the time of its rejuvenation as a political program, following a week-long conference in 1974 in South Royalton, Vermont, Austrian economics had produced a libertarian political platform as well, with non-regulated free banking, the gold standard and an abhorrence of government safety nets at its core This libertarian ideal was Austrian economics as presented by presidential candidate Paul at The Washington Post last week, and by Texas Gov. Rick Perry in the Republican debate, as opposed to the technocratic neoliberalism of Mitt Romney.

In this connection, James Buchanan’s presidential address to the society in 1986 is quoted twice in The Road from Mont Pélerin, to underscore the division in the neoliberal camp.  Buchanan, of George Mason University, who was also recognized with a Nobel Prize that year, said:

 Among our members there are some who are able to imagine a viable society without a state…. For most of our members, however, social order without a state is not readily imagined, at least not in any normatively preferred sense. … Of necessity, we must look at our relations with the state from several windows, to use the familiar Nietzschean metaphor…. Man is, and must remain a slave to the state.  But it is critically and vitally important to recognize that ten percent slavery is different from fifty percent slavery.

There is, of course, another side to human sensibilities, one that more or less splits the difference between ten and fifty and considers thirty percent of GDP spent mostly on defense, healthcare and retirement security to be the price of civilization (and continued growth), not slavery. The tension between this  sensibility and militant individualism is presumably the basis of the dependable cycles of public purpose and private involvement, innovation and conservatism, that have been observed in American history – at least until now.  Whether they will continue in the face of entrenched and implacable opposition to proponents of one emphasis by the other is an interesting question.

What to call this other tendency?  Labels associated with the losers of the last great battle between thought collectives – collectivism, socialism – have a musty air. Adherents recently have experimented with describing these ideals as communitarian.  Institutions that often emphasize communitarian ideals include the Democratic Party, the Catholic Church, trade unions, Scouting organizations, the professions, the military and police.

(The medical profession in particular is rife with examples of situations in which the liberty of individuals mus bet, or, rather, should be, subordinated to some extent to the well-being of the group – vaccination requirements, medical records, compulsory insurance, compensable injuries, standardized treatments based on outcomes research.  Never happen?  The Department of Homeland Security is testimony to the fact that personal liberty doesn’t always trump considerations for the safety of the group.)

What hope for those of us who are caught between two great thought collectives, the discredited socialist ideal of the first half of the twentieth century, the single-minded individualist ideal of the second half, the latter so clearly insufficient in its appeal at the beginning of the twenty- first century, at least for many of us?

Well, my thoughts turn to another intricate thought collective, one  that The Road from Mont Pélerin  leaves out, namely university-based economics. Not that Mirowski has much use for it, although he is an economist himself. In Machine Dreams: Economics Becomes a Cyborg Science, he writes off its history since World War II as the extension of an instrument of entrenched power.

Yes, the discipline is still considerably underdeveloped. But technical economics – scientific economics – may yet provide a stable platform for the discussion of these urgent matters of personal convictions, preferences and tastes far more capacious than either central planning or the program that issued from Mont Pélerin.

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3 Comments

  1. Their program succeeded in undermining the managed economy recommended by socialism due to the necessity of property rights and prices for humans to possess both the incentive and ability to plan economic actions. It did not succeed at limiting appropriation of the rewards of that planning and action, Nor did they succeed in undermining the use of monetary policy and the Keyensian aggregates. They succeeded only in stating what would NOT work – planning. They did not succeed in answering the problem of culture and politics. They did not succeed in stating what alternative could work – in sufficient detail that it could be implemented as policy in a democratic polity – that like all, consists primarily of proletarians.

    They failed to provide a solution that takes advantage of the ability of citizens to concentrate capital, or to provide insurance to one another. They failed to articulate the fact that calculability and incentives apply to all facets of life, and that privatization solves the problem of ‘pooling’ of ‘aggregates’ of ‘insurance’, and of ‘bureaucracy’. They failed to articulate a course of action that would privatize all but the courts and the ‘insurer of last resort’. They failed. They failed to articulate what would happen if the government appropriated all status signals from the upper classes, and how those upper classes would abandon the society because of class war.

    It appears in retrospect that many of Friedman’s recommendations for privatization would solve many political problems. It appears in retrospect that hayek’s requirement for rules based governance (hard constitutionalism) was correct. It appears false that hard money will solve the financial problem – only the bureaucratic one. It appears false that democracy and freedom are the desire of the majority of people, or that democracy in it’s current sense is even a benefit – it is simply an uncommon luxury good.

    On the other side of the house, there is precious little evidence to date that the aggregate quants have done other than expose asymmetry of information, and provide explanation to economic activity without adding to knowledge of what we should or should not do. The quants are winning still. The libertarians have won much of the political battle on moral grounds. But they have lost the administrative battle on argumentative grounds.

    So we are still stuck at a conflict, between those people who are leftists, statists, monetarists, and urbanists, that are completely ignorant of anthropology, history and politics, and who have an idealistic view of human nature unsupported by evidence. And those on the middle and right who are knowledgeable of anthropology, history, politics and technology, who argue that the problem is more one of polity than economy, and that economic myopia leads to political fragility and economic decline.

    While the Mont Pelerin’s and the Libertarians have tried, they have failed. I would argue that Hoppe does the best job of explaining why, but that might simply be my frame of reference. His conclusion is that the problem is not resolvable because the west has given up on it’s heritage. And I think I agree.

    Monday, September 26, 2011 at 3:28 pm | Permalink

  2. Just for the record, although Mises and Hayek supported the gold standard, many Mont Pelerinians did not (e.g. Milton Friedman), and few modern Austriand do. On that one, Ron Paul is just out to lunch.

    I have not read Phil’s latest book, but the division he writes of is important. It was there at the beginning, with Walter Eucken exiting fairly early. He was the father of the “social market economy” idea of West Germany that said one could combine a pretty much free market economy with a pretty extensive welfare state, as one sees there today (and in the Nordic economies as well). Mises was down on Eucken.

    The later version of this came after Misss died and Hayek said a few bad words, leading to a nasty Misesians vs Hayekians fight that goes on today. It is in a sense symbolized by the fact that Hayek supported social insurance, including national health insurance in The Road to Serfdom, while more libertarian Misesian-Rothbardians have no use for such effluvia.

    Monday, September 26, 2011 at 4:28 pm | Permalink

  3. Barry wrote:

    ““the Washington consensus” (privatization, fiscal discipline, openness to investment and global trade). ”

    Where ‘fiscal discipline’ means ‘the elites look; the rest are harshly disciplined’.

    Monday, October 3, 2011 at 5:30 pm | Permalink

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