View source for The Origins of Neoliberalism, Part II – The Americanisation of Hayek’s Delusion

<!-- you can have any number of categories here -->
[[Category:Philip Pilkington]]
[[Category:The Origins of Neoliberalism]]
<!-- 1 URL must be followed by >= 0 Other URL and Old URL and 1 End URL.-->
{{URL | url = http://www.nakedcapitalism.com/2013/01/philip-pilkington-the-origins-of-neoliberalism-part-ii-the-americanisation-of-hayeks-delusion.htm}}
<!-- {{Other URL | url = }} -->
<!-- {{Old URL | url = }} -->
{{End URL}}
{{DES | des = How [[Friedrich Hayek]] recruited bankrollers through the [[Mount Pelerin Society]], and eventually brought about an Americanized [[Road To Serfdom]]: [[Capitalism And Freedom]] by [[Milton Friedman]]. | show=}}
<!-- DPL has problems with categories that have a single quote in them.  Use these explicit workarounds. -->
<!-- normally, we would use {{Links}} and {{Quotes}}  -->
{{Quotations|The Origins of Neoliberalism, Part II – The Americanisation of Hayek’s Delusion|quotes=true}}

{{Text |
Shared psychotic disorder, or folie à deux, is a rare delusional disorder shared by two or, occasionally, more people with close emotional ties. An extensive review of the literature reveals cases of folie à trois, folie à quatre, folie à famille (all family members), and even a case involving a dog.

– Medscape Reference

In the previous part of our series on the origins of neoliberalism, we saw that the vigour mustered to start the movement on its way was generated by an enormous repression undertaken by the Austrian political philosopher Friedrich Hayek. When Hayek saw his intellectual position, a position in which he had invested most of his emotional energy, falling to pieces due to contemporary economic events, political happenings and theoretical debates, he opted to seal himself into his own mind and reject reality. Instead he began pushing a political philosophy and a metaphysics that he set to work constructing and disseminating. In this part of the series we explore in more detail the fruits of his labour in America.

In the following two parts of the series we draw extensively on the excellent work which a number of historians of science have undertaken and published collectively in the volume The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective. We cannot recommend enough that the interested reader searches out this volume for more details of this extremely important institution which, in a very real way, has come to shape our political discourse today.

The Road to Serfdom: American Edition

A major concern of the American members of the Mont Pelerin Society, most of whom were based out of the now infamous Chicago School of Economics and Law, was to make Hayek’s delusion more palatable to the American public. During the Second World War many New Deal institutions had solidified and become popular with the public and after the war the majority of Americans did indeed think that their country, while definitively capitalist, was nevertheless one in which the government played a rather large and constructive role.

The political right found themselves completely flummoxed by such a situation. More practical men, like President Ike Eisenhower, jumped on board, while fringe elements, like Joe McCarthy, fled into paranoia, attacking many prominent liberals as Communist agents. Already in the wartime planning era of the 1940s, when Keynesianism loomed large in America, those economists at the Chicago School and elsewhere in the US who had read and absorbed Hayek’s delusion knew that they needed to change the terms of the debate. But how they were to do this proved a daunting question.

In 1945 Hayek conceived that there should be a sister book of The Road to Serfdom written for an American mass audience. Hayek and the Chicago School economists knew that the original was too refined for American tastes. After all Europeans like their propaganda filled with lofty philosophical notions, while Americans are more content with sound bites that chime with certain trigger words that have been circulating since the revolution of 1776. It is the evolution of what effectively became the American edition of The Road to Serfdom that Philip Mirowski and Rob Van Horn explore in their paper “The Rise of the Chicago School of Economics and the Birth of Neoliberalism,” included in the volume mentioned at the beginning of this piece. The evolution of this book was particularly important because it gave rise to a specifically American strain of neoliberalism.

The problem for the Mont Pelerin members was basically as follows: classical members of the Chicago School, like the economist Henry Simons, were, like Hayek, fairly tied to certain ideas that existed in the older liberal school of political economy. Among these ideas was the notion that monopoly and oligopoly were twin evils that conspired against the public and caused inefficiencies in the market. Simons was arguably more tied to this idea than Hayek mostly because Hayek had developed, as we have seen in the previous part of this series, a pathological obsession with planning as it related to forms of government. For this reason Hayek thought that most forms of monopoly were the result of government planning. But whatever his views were, the implications were clear: this sort of ideology was not going to fly in an America that was now dominated by large corporations with substantial ties to the state.

Mirowski and Van Horn make this case apropos of the Volker Fund, a charitable foundation set up in 1932 by home furnishings mogul William Volker, which was then converted into a bankroller of libertarian propaganda by Volker’s nephew Harold Lunhow upon the former’s death in 1947. They write:

The politics of postwar America presumed not only a powerful state, but also a configuration of powerful corporations whose international competitors had mostly been reduced to shadows of their former selves. In promoting “freedom,” they were primarily intent on guaranteeing the freedom of corporations to conduct their affairs as they wished. Thus, the Volker Fund was not interested in bankrolling a classical liberal economic position resembling that of Henry Simons, for it did not adequately correspond to their objectives. American corporations did not fear concentrations of power and generally favored the existence of a powerful Cold War state. It is our contention that the Volker Fund pushed for a reformulation of classic liberalism in the American context to conform to its Cold War antisocialist agenda. The participants in the Free Market Study [an offshoot of the Mont Pelerin Society], and even eventually Hayek, would just have to learn to adjust to the emergent characteristic doctrines of neoliberalism.

The money men loved Hayek’s message that government interference and economic planning would lead to tyranny, but they were not so keen on his purist free market ideas. Fortunately for them, however, Hayek himself was less concerned with constructing a pure free market system than he was with fighting the ghost of what he called “socialism”. Thus a union was accommodated and the child of this marriage was to be Milton Friedman, who would pen the American edition of The Road to Serfdom, which came to be called Capitalism and Freedom.

Before turning to this, however, we should briefly highlight this emergent anti-socialist trend – or, more accurately, this ideological trend constructed against what a fringe group of people thought to be “socialism”. It is this we hear when we stick our ears into the right-wing echo chamber in America today. Many are perplexed with how right-wingers and vulgar libertarians completely change the meaning of the English language and denounce centrist and centre-left politicians and commentators as “socialist” when these people have no interest in having the state seize control over the means of production – which is the definition of the term “socialism”. Now perhaps we can more clearly see that the roots lay buried in the dominant aspect of Hayek’s delusion; which was the aspect taken up and bankrolled by certain right-wing corporate interests in the 1940s and 1950s.

Consolidation of the American Neoliberal Doctrine

As the American Mont Pelerin Society began to accommodate their corporate bankrollers, the discourse of American neoliberalism proper began to crystallise out from Hayek’s original delusion. The state and big corporations were no longer to be feared, as they may have been by classical liberals. Rather they were to seen as guardians of the neoliberal order. Every society needed its networks of power and the goal now became to ensure that these networks of power were populated by people who were initiated into Hayek’s delusion.

This made neoliberalism a far more potent political ideology than the purely negative anti-government sentiment implicit in Hayek’s The Road to Serfdom were it left standing alone. Here was an ideology that politicians could buy into because it secured them a place in the schema. They were to become the handmaidens of corporate interests and were absolved from any need to institute proper government reforms – after all reforms were evil. Thus the neoliberal doctrine gave the politicians a very easy job and, most importantly, one from which they could largely absolve themselves from blame should the situation go awry. After all, they were not in charge – the free market was. Again, Mirowski and Van Horn summarise this situation well:

The starting point of neoliberalism is the admission, contrary to classical liberalism, that its political program will triumph only if it acknowledges that the conditions for its success must be constructed, and will not come about “naturally” in the absence of concerted effort. This notion had direct implications for the neoliberal attitude toward the state, the outlines of what they deemed a correct economic theory, as well as the stance adopted toward political parties and other corporate entities that were the result of conscious organization, and not simply unexplained “organic” growths. In a phrase, “The Market” would not naturally conjure the conditions for its own continued flourishing, so neoliberalism is first and foremost a theory of how to reengineer the state in order to guarantee the success of the market and its most important participants, modern corporations. Neoliberals accept the (Leninist?) precept that they must organize politically to take over a strong government, and not simply predict it will “wither away.”

Again, it is worth stepping out of our narrative here for a moment and pointing out that this makes sense of where we are today regarding the US political scene. On the one hand, we have the Democrats who largely support the neoliberal agenda both in public and behind the scenes, although they still defend the remnants of a welfare state which largely promote dependency on elites. On the other hand, we have the Republicans who support the neoliberal agenda behind the scenes but sell it in public by peddling Hayek’s original delusion to attack the now crumbling remnants of a welfare state which was originally designed for a full employment economy, and which has now in the era of neoliberalism degenerated into a minor tyranny thus providing a false microcosmic confirmation of Hayek’s delusion.

The American edition of The Road to Serfdom took some time to appear. This was because, as we have said, there was a large amount of consolidation going on in the American segment of the neoliberal movement. It took a while for various political realities to be integrated into the doctrine to make it more palatable for elites. Finally, however, in 1962 Milton Friedman published Capitalism and Freedom.

Capitalism and Freedom is a vulgar work. No more nor less propagandistic than The Road to Serfdom, but certainly sanitised and written for a distinctly different audience. Friedman was soon to go on and create monetarism, which would give policymakers a positive program for how to run the economy, but for now he was content with consolidating neoliberalism as a doctrine and ensuring that American elites were not put off by the more radical musings of Hayek. Friedman, in sterile prose, writes of every societal institution as if it were either a natural market or an institution that might encroach on otherwise efficient markets – a highly simplistic “good versus evil” narrative couched in pseudo-scientific terminology. More importantly still, he chalks up monopoly and corporate power as being due to nefarious government interference and even then he dismisses this by evoking his infamous “as if” approach to methodology, thus neutralising the problem altogether:

I have become increasingly impressed with how wide is the range of problems and industries for which it is appropriate to treat the economy as if it were competitive.

And so the road was paved for the American version of neoliberalism which many live under today. Hayek’s delusion had begun to spread in the US by the 1960s. First among a few emotionally and ideologically close individuals (for ideological proximity is the next best thing to emotional closeness), but soon it was to be spread to the population at large by a charming actor named Ronald Reagan who would prove a master at emotional manipulation. Folie à deux, folie à trois, folie à quatre and so on.

In the next part of the series we will explore the emergence of the European version of neoliberalism, also born from Hayek’s delusion, but more accommodative to the trade unions that wielded, and continue to wield, significant power in Europe. This can be read as a spreading of Hayek’s delusion among the institutions of the centre-left, which would then become a steadfast pillar of neoliberalism and a bulwark against a phantom socialism.

}}