We are living in a world of the anti-liberal counter-attack against individual liberty,
free markets and limited government. Prominent voices for the free society in the 20th century, like the Austrian economists, Ludwig von Mises and Friedrich A. Hayek, are among the targets that opponents of free market liberalism are taking aim. In doing so, the anti-liberals distort the facts and twist the historical record. It is necessary to clarify those facts and set the record straight.
For most of the last quarter of a century, many took it for granted that the case for socialism had been defeated. With the fall of the Berlin Wall in 1989, the end of the Soviet Union in 1991, and the shift in several remaining communist countries – China in particular – to market-oriented policies, it was presumed that “socialism” as an economic system was dead. Who seriously wanted to retain or restore comprehensive socialist central planning as an alternative to a relatively free and functioning market economy?
In this sense, the “Austrians” had won, that is to say, the criticisms of socialist central planning made by Ludwig von Mises and Friedrich A. Hayek in the 1920s, the 1930s, and the 1940s, had been shown to be correct. Without private property in the means of production and a competitive market process with a functioning price system, there could not be effective economic calculation for efficient cost-accounting, consumer-directed production decision-making, and on-going coordination of a complex system of division of labor reflected in the patterns of market supply and demand.
The Persistence of the Socialist Critique of Capitalism
But it is also clear in these early decades of the 21st century that socialism had not passed into the dustbin of history. Instead, it had taken refuge in the ivory towers of academia and related intellectual circles. What had not been abandoned and was still sulking in the corners of society was the socialist critique of market, or capitalist, society. Market outcomes were “unfair,” “unjust” and “unequal.” Private production for profit left the “social needs” of society unfulfilled, such as health care and job security. Capitalism not only mistreated and exploited “the workers,” but various racial and gender, and other social minority groups, as well.
The financial crisis of 2008-2009 and the slow and lopsided recovery for much of the last ten years offered the opening in the door for all the old criticisms of capitalism to once more seem timely and relevant, especially when clothed in the latest fads and fashions of ‘political correctness.”
In some ways, the advocates of socialism are back to where they were more than a century ago before the First World War. This is the case not only with their moral fervor and self-righteous certainty that capitalism and liberalism are evils that must be done away with, but in the practical uncertainty of which of the competing forms of economic collectivism should replace the current market economy. Should it be central planning with nationalized industry? Should it be worker-managed syndicalism? Should it be a form of economic fascism in which not all industry is taken over by the government, but under which the government controls, directs and restricts how private enterprises may go about their business for the “social good”? Or shall it be some peculiar combination of all three?
All the competing socialist visions strongly believe in the need and necessity for greater income and wealth redistribution to bring about social and economic “equality.” There is an unreflective presumption on the part of many of these critics of liberal capitalism that all the social “safety nets,” infrastructure projects, and environmental protections can be funded simply by taxing “the rich” and the large corporations, as if they are self-renewing bottomless wells of money to be extracted in any amount and at any time.
Progressives: Democracy Mystically Good, Neoliberalism Despicably Evil
These critics of capitalism and advocates of some form of government-managed or planned economic systems rhetorically use terms to categorize all that they consider to be “good” and “evil.” These terms, respectively, are: “democracy” and “neoliberalism.” Democracy and “democratic socialism” have become verbal expressions of all that “progressives” consider to be right and just for the world.
Democracy is treated as a hallowed word, a word representing “the masses” of society insisting upon and ready to establish a “better world” through the willpower of a voting majority. Unchecked and unrigged, the new generation of collectivists knows that the democratic process will bring about the progressive and socialist world they long for, dream of, and fight for.
If the electoral process does not produce it, it must be because “the system” is perverted and manipulated. Either “the rich” have used their wealth to bribe people and politicians to preserve the present system of injustice; or fascist-like demagogues have confused too many of the people with hateful references to national greatness or racist sentiments; or the existing electoral procedures prevent the will of the majority from determining who wins high political office because of archaic constitutional rules.
In all of this, “democracy” has taken on a mystical, almost religiously sacred quality to be held in awe and reverence. Democracy is the gateway to an earthly nirvana.
Democracy’s nemesis is neoliberalism. Into this term is poured everything that progressives, socialists and anti-capitalist thinkers in general consider to be wrong with existing society. Neoliberalism is the political ideology of unrestrained capitalism guided by nothing but the self-interested profit motive; it is the camouflage behind which the “rich” and the corporate “powerful” are trying to maintain and extend their exploitation of workers, women, racial and gender minorities, and the physical planet; it is the false consciousness of thinking that “free markets” mean freedom when, in fact, it means control over the many by the few; it represents the use of government to assure the power of “capital” over “labor.”
Economic Liberals as Globalist “Enemies of the People”
Prominent members of the Mont Pelerin Society – an international association of friends of freedom established in 1947 in Mont Pelerin, Switzerland – have been among the targets of such accusations and attacks in works that purport scholarly detachment and archival detail. But a bit of scratching beneath the surface of their texts throws doubt upon the charges and the claims.
One of the recent ones is by Quinn Slobodian, in his book, Globalists: The End of Empire and the Birth of Neoliberalism (2018). His chosen narrative is to demonstrate that neoliberalism emerged out of the wreckage of World War I due to the challenges faced by existing economic elites who had controlled and managed the world for their own benefit through the European Empires starting in the 19th century. In the interwar period of the 1920s and 1930s these empires were facing disintegration, along with the passing of belief and confidence in the old liberalism of laissez-faire and limited government.
A new market-based globalism needed to be rationalized and designed to preserve the existing power structure of “capital” against the democratic wishes of people both in the West and in the awakening colonial areas around the world. Dr. Slobodian, a professor of history at Wellesley College in Massachusetts, argues that the intellectual focal point for the creation of a neoliberal defense to hold back the winds of change and to create a new international system for the existing, though challenged, elite power structure can be found among the faculty and visiting scholars of the Graduate Institute of International Studies in Geneva, Switzerland in the interwar period.
The Geneva Graduate Institute: Liberal Haven for Refugees from Tyranny
Founded in 1927 under the joint directorship of William E. Rappard and Paul Monteux, in the 1930s the Graduate Institute became a haven for market-oriented liberal economists, historians, political scientists, and legal scholars, many of whom were escaping from or threatened by the fascist regimes in Central Europe. These included Ludwig von Mises, Wilhelm Röpke, Michael Heilperin, Guglielmo Ferrero, Hans Kelsen and others. (See my article, “William E. Rappard: An International Man in an Age of Nationalism”.)
In the 1930s, the Graduate Institute was frequently visited by market-oriented academics who delivered guest lectures on liberal economic and political themes. These included Friedrich A. Hayek, Lionel Robbins, Louis Rougier, Gottfried Haberler, Fritz Machlup, Bertil Ohlen, Moritz J. Bonn and many others. A good number of these names should be familiar because several of them were leading members of the Mont Pelerin Society, including some who were at the founding meeting in 1947. (On Louis Rougier, see my article, “The Political and Economic Mystiques of State Power”.)
Reading Professor Slobodian’s words, he lives in a world of conceptual realism and institutional anthropomorphism. That is, the analytical concepts created by the theorist are assumed to have real existence. Thus, he speaks of neoliberals wishing to create a world order that would secure and protect “the rights of capital” against people’s democratic expressions for redistribution of wealth.
He speaks about “capitalism” securing the needed institutional forms so “it” can exist. These are more than short hands. Yes, clearly there are owners of capital who wish to go wherever they want around the world in pursuit of profits. But he expresses this in various places as if the capitalist system has a life of its own and that it is struggling to protect and secure itself from “the people’s” wishes and desires for a more socially just society (pp. 4; 12-13; 16).
Mises Falsely Portrayed as Handmaiden of Capitalist Tyranny
In this drama Ludwig von Mises and Friedrich A. Hayek are starring players determined to “save” capitalism and the “rights of capital” from the democratic desires of those clearly harmed by the system of private property. In telling his narrative, Professor oSlobdian takes both Mises and Hayek’s ideas and words grievously out of context and in fact frequently distorts what they said and what they advocated.
Looking at events in the Vienna of the 1920s and 1930s, Mises is portrayed as an active proponent of the Austrian state using dictatorial means to violently crush the workers who merely wanted a better life; Mises’s role was as a good servant of “business interests,” in his position as a senior economist analyst at the Vienna Chamber of Commerce during much of the interwar period. Following Professor Slobodian’s footnotes, however, soon shows that things that he says Mises said are sometimes not to be found in the passages referenced. Even giving the benefit of the doubt by searching for the quote somewhere on another related page also finds no results. (See my article: “The ‘Other’ Ludwig von Mises: Economic Policy Advocate in an Interventionist World”.)
Professor Slobodian sneers at Mises’s defense of democracy (p. 118). Why? Because all that Mises is concerned with, he says, is a “minimal” equality of all before the law; but if “democracy” went beyond this, then “it was perfectly legitimate to suspend it and enforce order by other means,” i.e., dictatorship and violent repression. This is, in fact, the exact opposite of what Mises argued. And if the government’s policing authority did use force to prevent or suppress violent labor union or mob actions against persons or property, Professor Slobodian then claims that Mises believed in “the right to kill with impunity” in defense of “capital” (p 45). Talk about twisting a person’s ideas to fit the conclusion the author wants!
Mises’s Defense of Democracy and Against Demagoguery and Dictatorship
In reality, in his Memoirs (1940), Mises discusses the growing tensions between the Austrian Christian Social Party that controlled the national government of the country and the militant Social Democratic Party that controlled the city government of Vienna. Both political parties had their own separate paramilitary forces that in numbers were two or three times larger than the Austrian army in the late 1920s and early 1930s. Mises explains that some of his acquaintances argued that only an alternative “anti-socialist” paramilitary could stand up to the physical threats from the Social Democrats. He said he watched these developments “with horror.” The paramilitary forces organized to oppose that of the Social Democrats were manned, Mises goes on, with “adventurers without education and desperados . . . Their social ideal was a military state in which they alone could give orders” in a fascist corporativist system, with which Mises had absolutely no sympathy. (p. 75)
Likewise, in his 1927 book, Liberalism: The Classical Tradition, Mises insisted that neither demagogic deceptions nor non-democratic (that is, dictatorial) means could save the free society. Only a victory in the battle of ideas could assure a prosperous and stable society based on the liberal principles of individual liberty and private property on competitive markets. Democracy must be preserved and defended because it is the only viable institutional mechanism that makes violent revolution unnecessary for political change. The only legitimate and lasting weapons for ideological and public policy change were reason and persuasion. (pp. 119-120)
Another instance of such a distortion of the facts is Professor Slobodian’s discussion of Mises’s proposal for a political and economic federation among the countries of Eastern Europe in the post-World War II era as a bulwark against nationalistic wars among the member nations and a unified force against any threats in the future by either Germany or Soviet Russia.
Misinterpreting Mises’s Plan for Postwar Eastern Europe Peace
In the detailed outline that Mises offered for what he called the “Eastern Democratic Union” of nations, there would be a strong central government that would limit the domestic discretion of the member national governments. Their budgetary powers would be restricted, there would be private education instead of public schools, and domestic regulations within the member countries would be narrowly confined as well. The central government of this Union would assure unrestricted freedom of trade, and free movement of people and capital among the member nations (See Ludwig von Mises’s, “An Eastern Democratic Union: A Proposal for the Establishment of a Durable Peace in Eastern Europe” , in Selected Writings of Ludwig von Mises, Vol. 3, pp. 169-201).
What conclusion does Professor Slobodian reach from all of this? “The constituent nations of the union would bear all the outward marks of sovereignty, yet this sovereignty would be ornamental, undermined by the authority of the central government,” he states. This would create “an invisible government of the economy first, and a visible government of neutered nations second.” (p. 112). In Professor Slobodian’s view this Union is designed to thwart the democratic decision-making of the citizens of the constituent nation-states on the altar of the unhampered interests of “capital” and unimpeded markets.
An Eastern European Union for Liberty, Prosperity and Minority Rights
But, in fact, what concerns motivated Mises to propose such a political system and structure? The entire interwar period had seen the emergence of both political and economic nationalism. Borders were closed; protectionism reduced the opportunities and benefits from the international division of labor, and thus all experienced lower standards of living compared to what could have been under greater freedom of trade and investment. In addition, in an environment of hyper-nationalism based on language or “race,” governments, particularly in Central and Eastern Europe, used their regulatory powers to discriminate against ethnic or linguistic minorities unable to prevent majoritarian oppression.
If, for instance, members of the minority are alone engaged in a specific branch of business, the government can ruin them by means of customs provisions. In other words, they can raise the price of essential raw materials and machinery. In these countries, every measure of government interference – taxes, tariffs, freight rates, labor policy, monopoly and price control, foreign exchange regulations – was used against minorities. If you wish to build a house and you use the services of an architect from the minority group, then you find yourself beset by difficulties raised by the departments of building, of health and fire. You will wait longer to receive your telephone, gas, electric, and water connections from the municipal authorities. The department of sanitation will discover some irregularities in your building. If members of your minority group are injured or even killed for political reasons, the police are slow in finding the culprit. (Ludwig von Mises, “Postwar Reconstruction” , Selected Writings of Ludwig von Mises, Vol. 3, p.13)
Mises’s proposal for restraints on national majorities in the member countries in his idea for a European Democratic Union was precisely to protect and defend the linguistic and cultural and ethnic minorities from majoritarian discrimination, abuse, and obliteration. Thus, when in a different passage, Professor Slobodian suggests that liberals such as Mises did not have the freedom of the individual as their “core value,” (p. 24), what can be more of a concern with the autonomy of the individual than a desire to assure people’s personal choices and decisions concerning the cultural and linguistic values they wish to preserve and cultivate peacefully and voluntarily among themselves, free from the coercing hands of intolerant majorities using the state against those unable to ever secure on their own fifty-one per cent of the votes in the country in which they live?
Mises’s additional proposal for private education over public schooling was equally based on the observed practice in these Eastern European countries during the interwar period of using compulsory attendance laws as a way to impose the majority group’s language, history and cultural heritage on the children of linguistic and ethnic minorities, whose parents could not refuse to send their sons and daughters to government-mandated schooling.
Removing politics from the social and economic spheres, Mises reasoned, reduced the possibility of using government against some to benefit the economic, cultural or ideological purposes of others who were more successful or more numerous in using the democratic process to have their compulsory way.
The democratic mystique was less than awe-inspiring for those who were the victims of its cruel use to undermine their individual and minority senses of identity and belonging. Professor Slobodian and others like him seem to turn a blind eye to the dark-sides of unrestrained majoritarian democracy, the dangers from which others like Mises pointed out; precisely in the name of justice and fairness to individuals and minority groups it was necessary to impose constitutional limits on what majorities may indiscriminately do. Protections for individual liberty and freedom of association should inhibit the intolerant and coerced impositions of majorities, argued Mises. One feels that the good professor needs to take the time to re-read central parts of John Stuart Mill’s essay On Liberty devoted to the dangers from the tyranny of the majority.
Misinterpreting Hayek’s Proposal for an Economic Federation
Friedrich Hayek becomes Professor Slobodian’s target when it comes to the issue of national democratic autonomy versus a peaceful and prosperous international order. In his eyes, Hayek worshiped at the altar of a world order of open international trade, investment and migration, with the suppression of the democratic wishes of the peoples in the nation-states. The political authority of national governments in a partial or fully global federation of countries would be held in check against any attempts by them to implement interventionist and welfare statist policies that democratic majorities in those nations might want to implement to protect themselves from the capitalist global elites.
All could be sacrificed for the global capitalist good. This meant that “the ‘solidarity of interests’ that naturally cohered when groups of people having the same economic interests” would be undermined and kept in check. “The goal of [Hayek’s] federation was to break the link between political citizenship and economic ownership” (p. 102) and “The nation-state must not be allowed its full independence” (p. 112).
By why did Hayek propose an international structure of institutions and law that would restrict the autonomy of national governments? Was it a ruse to allow the unbridled movement of “capital” so the few could exploit the many, in a world system of property over people? That’s how it reads, reading Professor Slobodian.
The Lost Liberal World of Peace, Prosperity and Liberty
The context, in fact, was the world in the wake of World War I. For the generation that was old enough to remember the world before 1914, the world after 1918 was jolting and horrifying. The institutions, values and beliefs of the twilight years of the earlier liberal epoch were in stark contrast to the reality of the interwar period. Let us hear the forlorn words of the anti-fascist Italian philosopher, Benedetto Croce, in 1932, who while a political and cultural liberal was not a supporter of economic liberalism or laissez-faire:
We remember the old Europe with its riches, its flourishing trade, its abundance of goods, its ease of life, its bold sense of security; we see today the new Europe – impoverished, discouraged, crisscrossed with high tariff walls, each nation occupied with its own affairs, too distraught to pay heed to the things of the spirit and tormented by the fear of worse to come . . . Impatience with free institutions, has led to open dictatorships, and, where dictatorships do not exist, to the desire for them. Liberty, which before the war was a faith, or at least a routine acceptance, has now departed from the hearts of men even if it survives in certain institutions.
Especially in Central and Eastern Europe, the political nationalism of the new nations created out of the dismembered German, Russian and Austro-Hungarian Empires was complemented with economic nationalism: high and often prohibitive tariff barriers, attempts at autarky (national economic self-sufficiency), nationalized or heavily regulated industry and enterprise in the name of national interests, discriminatory fiscal policy, and confiscations of foreign properties.
These led to tensions, animosities, and threats of military conflict due to territorial disputes over borderlands with mixed ethnic or linguistic populations. Political and economic nationalism threatened wars, and reduced senses of international solidarity for common causes and against common dangers from larger surrounding aggressor nations.
For liberals like Hayek, once World War II was over, unless something was done to calm the international scene, the cycle of nationalistic confrontation and conflict would raise its dangerous head all over again. More wars, more economic barriers against international collaboration and material betterment, more antagonisms among and between peoples due to the atavistic ideas of racial, linguistic or cultural identity imposed through government coercion and command; more national socialism through economic planning for national “greatness.”
Hayek’s Federation Limits State Power to Assure Peace and Prosperity
This is the backdrop to Hayek’s essay on “The Economic Conditions of Interstate Federalism” (1939) and the chapter on ‘The Prospects of International Order’ in The Road to Serfdom (1944, pp. 223-236), to which Professor Slobodian draws the reader’s attention. The goal was to devise ways of reducing, if not eliminating, the factors and forces making for international war and economic conflicts. For Hayek, the primary means for doing so was the depoliticizing of economic life, to end the pattern of private market rivalry among competitors who happened to reside in different countries becoming matters of, “for reasons of state.” The task was to reduce the arbitrariness of national borders becoming the basis of international antagonisms and disputes over “national honor” that required governments to use their interventionist powers and policies to prevent foreign producers and products from “invading” the home country. (See my article, “Is America Still on F.A. Hayek’s ‘Road to Serfdom’?”.)
Whether Hayek’s conception of how and with what specific authority such a regional or global federation should be organized and operated is a separate issue. The fundamental point is, what guided and directed his thinking along these lines? And the answer to that question is a universal principle of freedom, peace, prosperity, and justice for humanity as a whole. He was not against local self-government or national democratic decision-making. Indeed, he insisted that without it a proper sense of responsible citizenship for the preservation a free society could be lost (1944, p. 234). But it was necessary to reduce special interest groups of all sorts – labor unions or private enterprises wanting government privileges and favors – from using political means (democratic or not) that threatened the peace and possible prosperity both within or between countries. (1939, p. 258-261)
Professor Slobodian clearly believes that unless national populations control their own economic destinies through democratic decision-making concerning planning, regulation and income redistribution, then the malevolent forces of international “capital” will enslave “the people.” Denied democratic means of fighting back, “the people” are unarmed against an ethereal “capitalism” that menacingly haunts the world.
Professor Slobodian and others sharing his views implicitly create this feeling of a Rousseauian “general will” through an unrestricted democratic voting process that is separate from and superior to the wills of the individuals comprising society. Somehow, if everyone is voting with the greatest latitude of decision-making power as a collective body, with no restrictions or restraints concerning individual liberty, or private property rights, or rights of free association, the higher and “real” good of the community as a whole will be expressed and be transformative in bringing about that better collectivist social order.
But there is no “general will,” or higher communal or collective good. There are only individuals with their own ideas, beliefs, values and visions of what is good, better or best. In spite of the near- mystical aura around which the idea of democracy is enveloped by Professor Slobodian, it is merely a political mechanism for, as the phrase goes, “counting heads, rather than breaking them.”
The benefit of a free society with limited government is that it is not necessary for everyone or even many people to agree about what is better or best to do in any of the mundane or momentous aspects of life. Individuals and small or large groups sharing similar values and agreeing amongst themselves about what seem to be the better or best means to attain them may, each, go their own way. That is the benefit and value of voluntary and market-based human association. It enables a diversity-generating system of “participatory democracy” with proportional representation, outside of and independent from political power.
It separates “economy” from the “state.” This may be anathema to Professor Slobodian and he clearly considers it a terrible thing (pp. 133-135), but it actually frees and liberates people by enabling them to live their lives peacefully and cooperatively with others without their resorting to coercion over others to get their way, or fearing that others will use such coercion to make them conform to what the others insist they want. By extension, separating economy from the state reduces the causes for and the likelihood of wars or economic conflicts between governments; wars and conflicts that reduce the possibilities for human cooperation for mutual benefit through the avenues of peaceful international trade and investment.
For economic liberals like Mises and Hayek, the task of informed public policy was to reduce the use of government coercion in both domestic or international affairs so as to minimize the bases of conflict and maximize the possibility for peaceful cooperation through market association and exchange. Attempting to use political democracy for collaborative purposes necessarily requires the will of the voting majority to be compulsorily imposed on the losing electoral minority.
For as Hayek emphasized, the more the government extends into regulatory or planning activities within a society, the more it must decide upon a common hierarchy of ends or values to which all in the society will have to conform if the goals reflected in that common scale are to be achieved. But the more complex and diverse the interests, purposes and preferences of the members of that society, the more the individuals’ ranking of ends may diverge from the over-arching one in the government’s planning or regulating schema. So, the government must make those of the individuals’ in the society subservient to the politically established collective one.
Or as Mises expressed it more directly and succinctly in his treatise, Human Action (1966):
It is important to remember that government interference always means either violent action or the threat of such action. Government is, in the last resort, the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom (p. 719).
So, unfortunately, there are still socialists and anti-liberal interventionists, actively working to challenge and undermine the rationales and ethical basis for a liberal free market society. But as “scholarly” works such as Quinn Slobodian’s Globalists demonstrate, the anti-capitalists and anti-liberals are also determined to make and win their case through factual fabrications and scandalous misinterpretations of what classical liberals such as Ludwig von Mises and Friedrich A. Hayek really said and advocated. This makes the defense of liberty not only a battle of ideas, but also an intellectual combat in the name of truth.
(This article is based on a paper delivered during a session at the annual Mont Pelerin Society meeting held in the Canary Islands, September 30-October 6, 2018.)
This article was originally published by The American Institute for Economic Research.