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"Market Democracy"

Friedrich von Hayek, the father of neo-liberalism.

The Austrian economist Friedrich von Hayek is stubbornly attempting to discredit economic regulation claiming that is too complex to try to organize it. His theory of the "minimum State" became a sort of religion for the Republican Party in America in opposition to both the "New Deal" of the Democrats and to Soviet Marxism. His school, financed by foundations of large transnational companies has been structured around the Sociedad del Monte Peregrino, has obtained seven times the Nobel Prize in Economy and has served as a source of inspiration for Pinochet, Reagan and Thatcher.

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The economic and political thinking of Friedrich A. von Hayek has been imposed as an ideological basis for liberal order. It constitutes both the result of a particular history and of a network of relations developed under the umbrella of large US foundations.

Hayek was born in Vienna in 1899. His Austrian youth is characterized by a difficult political environment during which massive strikes will paralyze the country. He witnessed the disorganization of the regimen under a double threat: one from populism, usually anti-Semite the other from revolutionary socialism turned radical by the introduction of Marxist thesis. Within this context he embraces the thesis of the Fabian Society, a British reformist trend, created by Beatrice and Sidney Webb, fostering a spiritual revolution. On a parallel level the philosophy of Ludwig Wittgenstein began, the main “conductor” of the Circle of Vienna.

Hayek participated in seminars organized by economist Ludwig Von Mises, who gathered around him students that shall contribute to the diffusion of good liberal thought in France, such as Jacques Rueff, advisor to General De Gaulle; in Italy, Luigi Einaudi; in Germany, Wilhelm Röpke and Ludwig Erhard; and to a lesser extent in the US, Murria and Rothbard.

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Ludwig von Mises

At that time Mises defends ideas contrary to the ones dominating Austrian intellectual life and Havek called him an “intransigent and isolated liberal”. He is the pioneer in criticizing planning which, according to him, can not constitute a proper economic solution due to the complexity of economic calculus and to the lack of information. In his main work, Socialism, he predicts the failure of socialist experiences: planning can only lead to chaos or stagnation.

Mises, who worked as a professor in Vienna (1913-1938) and afterwards in New York (1945-1969), is the founder of the neo-Austrian trend developed during the 70’s and he is close to American networks in Western Europe (the Rockefeller Foundation and the National Bureau of Economic Research financed two of its books published in 1944, Omnipotent Government: the Rise of the Total State and Total War and Bureaucracy).

In trying to spread his theories and with the support of industrialists and foundations, Mises, built a non-official organization, a sort of sketch of the Sociedad del Monte Peregrino, represented by its alumni in different countries of Western Europe.

The neo-liberal political theory

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Hayek, giving continuity to the liberal tradition initiated by Adam Smith, defines a minimal concept of the State. Its special contribution refers to the radical criticism to the idea of “social justice”, concept that according to him, disguise the protection of corporate interests from the middle class. It foster the elimination of public social and economic interventions.

The minimal State is a means to escape from the power of the middle class that controls the democratic process with the aim of obtaining a redistribution of wealth through the public treasury. His program is presented in La constitution de la liberté (1960):to eliminate ruling, to privatize, to decrease the amount of programs to fight unemployment, to eliminate subsidies to housing and the control of rents, to reduce the expenditures in social security and finally to limit trade-union power. The State can not ensure redistribution, mainly to serve a criteria of “social justice”.

Its function is that of providing a legal framework that guarantees elementary rules of exchange. In 1967 he even suggested the elimination of the nationalization of the currency, that is to say, the privatization of national central banks to submit the monetary production to world markets. Considering one of his stands one could think he is offering different tonalities of Socialism. One of his positions attempts to provide different perspectives to the radicalism embedded in his liberalism; for example, it refers to the creation of a minimal income, but this proposal should be seen as a rehabilitation of the British law for indigents and not as a peculiarity of a “Hayekian type of Socialism” [1].

The theory developed by Hayek is based in a believe, shared by all liberals, dating back from the classics and including those in favor of the Austrian thesis. The metaphor of the “invisible hand” that ensures according to Adam Smith’s theory a proper relation between offer and demand in different markets, perfectly illustrates this common believe which many try to demonstrate using different theories: the general equilibrium of Walras, developed by Pareto: spontaneous order in the market or catalaxy according to the Austrian school, the result of non-concerted actions rather than the result of a conscientious project. It is spontaneous, it is not something you want, it is not planned within the market.

This concept on the economy is used to justify criticism to interventionism as a generator of unbalances and problems in catalaxy. Hayek considers that Keynesians transform the State into “an economic dictator”. At the end, the political philosophy of Hayek is quite close to the thesis developed by Locke. The State defends the natural right of property and it is limited by individualist clauses of a hypothetical founding contract.

Then, law is transformed into the protecting instrument of the spontaneous order in the market. So, what is basically important is to defend economic liberalism. Any political element is absorbed. Democratic ideas go to a second place, provoking in Hayek statements with hints of a provocation. According to his words, democracy does not constitute an infallible political system: «essentially is a means, a utility procedure to safeguard internal peace and individual freedom» [2]. It is rather preferable to have a non-democratic regime that shall guarantee the spontaneous order of the market than a planning democracy. This is the type of thinking that justify the presence of the “Chicago boys” in Chile. Hayek thought is a mixture of conservadurism (a critic to a type of democracy inspired in the denounce of the French Revolution by Edmund Burke) and of liberalism (Adam Smith).

It draws an alert against unlimited democracy that leads, inevitably, to the kingdom of a totalitarian democracy [3].

In fact Hayek is obsessed with medium-level classes holding control of democratic regimes: «There is some truth in the formula stating that fascism and national-socialism are sort of medium-level class socialism» [4]. On the other hand, he is afraid of the poor since their reactions can not be forecast. He is in favor of a minimum income «although only in the interest of those pretending to be protected from the desperado reactions of the needing ones». [5]. Hayek, although having rejected the idea of social justice, develops a special notion on justice, that is liberal while remaining conservative, as seen in his article titled: Pourquoi je ne suis pas conservateur?

Radical ideas in Hayek, his attacks against economic interventionism will not be understood unless you go back to the historical context of the post-war times: the drafting of a new version of liberalism belongs to a total criticism of triumphing Keynesianism. Hayek, inspired on the economic thinking of Mises, rejects both the collectivism acknowledged by State Marxism and the economic intervention in capitalist societies. By going back to Mises’ ideas he criticizes the possibility of planning the economy given the fact that its complexity is opposed to any rational estimate.

His position against the “third democratic and social way” symbolized by Roosevelt’s New Deal and British Laborite explain the marginalization of ultra-liberals at the beginning of the 50s, especially within the most powerful anticommunist cultural organizations, the Congress for Freedom in Culture.

Hayek outside of the «cultural cold war»

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Hayek is given a job as professor in the London School of Economics in 1931 and after in Chicago in 1950. In 1962 works as professor of Political Economy in West Germany ... This university tour is not done by chance: the London School of Economics, financed by the Rockefeller Foundation and the Chicago University are bulwarks of liberal economy. Thus it is an international political and intellectual network able to gather British and American liberals and conservatives, but their theories have also been propagated through all Western Europe. Close to Raymond Aron [6], who made popular his thesis in France, the attempt is to attain an “intransigent liberal” committed to work at the same time against Soviet followers and against Fascism.

The anti-totalitarian rhetoric constitutes once again the privileged ideological instrument for committed intellectuals with the Congress for the Freedom of Culture, organization directed by the CIA from 1950 to 1967. Nevertheless, after 1955, the ultra-liberals headed by Hayek are put aside when confronted to “laborites” which represent a social-democrat “third way” contributing to the redefinition of the ideological orientations issued by the Congress for the Freedom in Culture. And this is how a new program emerged at the International Conference held in Milan [7].

Josselson, in Paris, with the support of the Rockefeller Foundation, recruits and finances participants. The list of opponents is approved by a committee formed by Raymond Aron, Michel Collinet, Melvin Lasky, Sidney Hook, Denis de Rougemont... Five speakers are co-opted [8]. They are the one entrusted with setting the guidelines for the anticommunist ideology of the Congress for the Freedom of Culture in its inaugural session.

The conference held in Milan proved the division between two trends. The architects of the organization, mostly New York intellectuals coming from Trotsky followers, try to group all liberals, especially from the non-communist left (such as Leon Blum in France). In 1955, the Congress goes openly into the social-democrat way; the inaugural speech delivered by Hugh Gaitskell, a British labor leader, corroborated this. According to his words the Welfare State is non-compatible with political democracy, a thesis in frank contradiction with the Austrian theories of Mises. The fourth speaker, Hayek, speaks on behalf of the ultra-liberals and recalled that the only right worthwhile to defend is the right to property, clearly referring to social rights mentioned by Hugh Gaitskell [9]. The Milan conference concluded with the ideological victory of “laborites” and with the marginalization of ultra-liberals that retreat into the think tanks, organizations entrusted with the task of converting economic elite to neo-liberal philosophy.

From the Walter Lippman colloquium to Sociedad del Monte Peregrino: the birth of an international think tank

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Walter Lippman

The Walter Lippman colloquium [10] (1938), with the participation of Mises and Hayek, provided the opportunity of gathering liberal university professors hostile to fascism, communism and to all forms of State economic interventionism. The book by Walter Lippman [11], The Good Society, constitutes the temporal manifesto waiting for the appearance of La route de la servitude by a group of intellectuals relatively marginalized during the period of triumphing Keynesianism.

According to Walter Lippman, collectivism is the common root of both fascist and communist totalitarism. Governments in Western democracies, upon committing themselves to economic recovering policies yield to the temptation of planning, since there is no “medium way” - and this idea constitutes the key of Austrian philosophy initiated by Mises- between liberalism and collectivism. Louis Rougier [12], a professor of philosophy at Besançon University and main organizer of the meeting declared: «The moral drama of our times is the blindness of the left in dreaming with a political democracy and with economic planning without understanding that planning entails a totalitarian State. The moral drama of our times is the blindness of the right that wholeheartedly admires totalitarian regimes, while accepting the advantages of a capitalist economy without taking notice of the fact that a totalitarian State will devour private fortune, equals and instill bureaucracy in all forms of the economic activity in the country». Both the right and the left are rejected using a single argument: planning is totalitarianism. Hayek thought is based in the same principle propagated in his well-know book La route de la servitude.

This reasoning justifies the creation of a liberal vanguard capable of waging an intellectual battle (during certain time) against the hegemony of practices inspired in Keynes’ thinking. The Walter Lippman colloquium paved the way to an international project for the promotion of liberalism. Lippman, Hayek and Röpke undertakes the creation of organizations in the USA, Great Britain and Switzerland. In 1947, according to the logic in the Lippman plan, Hayek took active part in the foundation of the Sociedad del Monte Peregrino, which to a certain extend “constitutes the main office of neo-liberal think tanks” [13]. A Swiss entrepreneur, Albert Hunold, helped to put in concrete terms the proposals presented by Hayek, who wished to create an “international liberal forum” and those of Wilhem Röpke, who wanted to launch an international magazine. Hunold groups Swiss industrialists and bankers in order to finance the liberal think tank [14].

He groups intellectuals coming from different trends who share the same believe in the spontaneous balance of the market: money experts such as Milton Friedman [15], members of the Public Choice school (James Buchanan), as well as personalities associated to the neo-Austrian trend. International meetings are financed, at first, by the Relm and Earhart foundations [16].

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Pascal Salin
Former president of the Sociedad del Monte Peregrino.

The Sociedad del Monte Peregrino receives afterwards the support of the following ultra-conservative institutions: the John Olin Foundation, the Lilly Endowment, the Roe Foundation, the Scaife Family Charitable Trust and the Garvey Foundation. The Sociedad del Monte Peregrino obtained no results along twenty-five years. The neo-liberal ideologists remained isolated within an interventionist consensus. It would be necessary to wait until the crisis of Keynesianism to see the ideas of Hayek gaining momentum among the political elite. Great Britain will be the field for implementing the expressed measures.

The Institute of Economic Affairs (IEA), founded in 1955, worked to propagate Hayek’s thesis and monetarism having as main objective the employers (who for a long time were suspicious) and the financial means. Ralph Harris, who was director of the organization, is magnified since 1979 by Margaret Thatcher. So as to support this dynamic of liberal conversion, members of the Conservative Party (including among them Margaret Thatcher and Keith Joseph) created in 1974 the Center for Policy Studies.

In 1977 another organization emerged: the Adam Smith Institute. Great Britain enters into a stage of “conservative revolution”. The victory of Thatcher in 1979 gave renown to neo-liberal think tanks. Members of these organization such as Geoffrey Howe and Nicholas Ridley were the pillars of conservative governments [17].

Pascal Salin former president of the Sociedad del Monte Peregrino

The British “conservative revolution”

By the end of the 60s the first symptoms of the social crisis provoking the “conservative revolution” in Great Britain headed by Margaret Thachter were seen. The stagflation, a newly combination of unemployment and inflation, provokes the questioning of the Keynesian paradigm (specially the Philips equation as mediator between inflation and unemployment). With the crisis, the theories of the Sociedad del Monte Peregrino and of the IEA were developed and received a favorable welcoming in the employers and political means.

Both organizations diffused the primacy ideas of the battle against inflation, of the utopia character of the policies of full employment, of the trade-union superpower and of the nefarious consequences of the economic policies. In 1970 the IEA published the quantitative thesis of the Milton Friedman money thesis that constitutes a radical condemnation to the Keynesian monetary policy. Friedman speaks about the reduction of the State deficits in order to control the increase in the monetary total.

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Alain Madelin
A French politician, pronounced his first conference in the Sociedad del Monte Peregrino in 1992 with the theme: «From providence democracy to humanist democracy».

In the 60s, which are the years of the conversion of several British politicians, we witnessed a getting closer of conservative and liberals, a marriage between the inheritors of Burke and Smith. This rapid history of the neo-liberal think tanks stresses the political force of the economic conceptions of Hayek. He, from the Sociedad del Monte Peregrino, managed to impose his idea of the minimal State (minimal, without any economic intervention power) and of the market («laissez-faire»).

As a token of his intellectual hegemony he gets the Nobel prize in 1974, and afterwards it was attributed to six of his ultra-liberal friends: Milton Friedman (1976), George Stigler (1982), James Buchanan, Maurice Allais (1988), Ronald Coase (1991) and Gary Becker (1992). In away it is the program sketched in its work "La constitution de la liberté" that was imposed as "a unique economic thinking" by the end of the 20th Century.

[1] Gilles Dostaler, Le libéralisme de Hayek , Editorial La Découverte, Paris 2001

[2] F. A. Hayek, La route de la servitude, Presses universitaires de France, Paris, 1946, p. 56-57

[3] These themes are taken from Austrian philosopher Karl Popper, author of Misère de l’historicisme and La société ouverte et ses ennemis. His epistemological work constitutes the theoretical basis of the Austrian critique to Marxism. Havek, admirer and friend of Popper, invites the “Master” to the London School of Economics. He is given the title of Knight in 1965. He is the source of inspiration for George Soros, who launched the idea of “Open society”

[4] Ibid., p. 86-87

[5] F. A. Hayek, La constitution de la liberté, Litec, Paris, 1994, p. 285

[6] Raymond Aron, in 1951, takes part in the fourth international meeting of the Sociedad del Monte Peregrino (in Beauvallon, France); title of his paper «Du préjugé favorable à l’égard de l’Union soviétique»

[7] The Milan International Conference (1955) is the fifth meeting of this type after the ones held in Berlin, Brussels, Bombay and Hamburg

[8] Hugh Gaitskell, Sidney Hook, Michael Polanyi, Raymond Aron and Friedrich Hayek. Pierre Grémion, Intelligence de l’anticommunisme, Le Congrès pour la liberté de la culture, Paris, 1950-1975, Fayard, 1995, p. 161

[9] The speaker said «Upon reading the papers circulated I have suffered a shock, every time freedom is threatened, there is a large group that, instead of defending it, try to define new freedoms. By doing so we lose track of what constitutes the basis for our fundamental freedoms. I am of the impression that a doctrine hostile to property, so common in our times, has completely ruined the understanding of the essential conditions of freedom». By Pierre Grémion, Intelligence de l’anticommunisme, p. 174

[10] The colloquium gathered twenty-six different speakers. Raymond Aron, a philosopher, meets Hayek, at that time professor at the London School of Economics, together with his guide Mises, professor in Geneva. These contacts will be confirmed during the Congress for the Freedom of Culture

[11] Walter Lippmann was born in New York in 1889. He was a diplomat prior to becoming one of the most famous journalist in his time. In 1917 he participated in the Democrat administration and in the drafting of Wilson’s fourteen points. In 1920 he initiated the New Republic and later on he becomes the editor of the New York Herald Tribune. Since the beginning of the 60s he writes for Newsweek. Its liberal and conservative political thought exerted influence on the intellectuals at the Congress for the Freedom of Culture

[12] Louis Rougier and Jacques Chevalier, minister of National Education and later on of Health in 1940 and 1941, jointly negotiated the Churchill-Pétain secret agreements. La France de Vichy, 1940-1944, by Robert O. Paxton, Seuil, 1973. (p. 133)

[13] Keith Dixon, Les Évangélistes du marché, Editing house Raisons d’agir, France

[14] The Sociedad del Monte Peregrino was also financed by the William Volker Charities Trust. The organization, created by a wealthy wholesale businessman of Kansas City played an important role in the creation of a specifically anti-interventionist school; the credits granted by William Volver made possible the trips by Mises to the New York University Business School, those by Hayek to the Committee on Social Thought from the Chicago University and of Aron to the Law School in Chicago. Dorval Brunelle, Hayek and Pinochet, ultra liberalism and political terror, a lecture offered on September 11, 2003

[15] Young professor Milton Friedman accompanied a group of economist from the Chicago University (Frank Knight, George Stigler). They will be the main architects for disseminating the Hayekian thesis around the United States. Since 1944, La route de la servitude is published by the editing house of the Chicago University. The works by Milton Friedman were financed by the Hoover Institution on War, Revolution and Peace, an organization founded in 1919 with its seat in Stanford. His thesis have been the “Bible” for the generation of the Chicago Boys, that have provided advisory services to heads of state such as General Pinochet. George Susan, «Mythologies contemporaines, Comment la pensée devint unique», Le Monde Diplomatique, August 1996

[16] Between 1957 and 1986, the Relm and Earhart Foundations transferred 245.820 dollars to Sociedad del Monte Peregrino

[17] François Poirier, «Génération Thatcher, La culture politique de l’Angleterre», magazine Culture et société

Denis Boneau

French journalist, member of the French section of Voltaire Network.

 
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