Mises Wire

Mises Against the Neoliberals

In his essay on the pervasive evil of “neoliberalism” George Monbiot demonstrates confusion similar to that of Philip Mirowski in his book More Heat than Light: Economics as Social Physics, Physics as Nature’s Economics

In a lengthy review of Mirowsky’s book, Philipp Bagus notes that Mirowski is rightly critical of many aspects of neoclassical economics, including the Chicago school. But Mirowski runs into trouble when he must display a greater understanding economic schools of thought. Either out of laziness or ignorance, Mirowski is incapable of distinguishing between the Chicago School and the Austrian School, to list one example. Moreover, as Bagus notes, the differences between the Chicago School and the Austrians are significant on matters such as spontaneous order, entrepreneurship, government planning, “efficiency” business cycles, and many other topics. These differences produce sizable disagreements in terms of favored policies and world views in general. 

You wouldn’t know any of this from reading Mirowski, or from reading Monbiot for that matter, who simply classifies anything other than Eduard-Berstein-style democratic socialism as “neoliberalism.” 

This becomes immediately apparent as Monbiot speaks of Ludwig von Mises and Milton Friedman as more or less ideologically indistinguishable. Monbiot also implies that the Mont Pelerin society is essentially Misesian in its outlook since Monbiot begins with a discussion of the Society by pointing out that Mises was one of the founders. 

Factions at the Mont Pelerin Society 

Of course, in real life, Mises quickly became uneasy with the MPS due to significant ideological differences between the laissez-faire liberals (namely, Mises) and the neoliberals such as Ludwig Ehrhard. Jorg Guido Hulsmann notes in his essay “Against the Neoliberals”:

The coexistence within the Mont Pèlerin Society of groups with such different orientations was well known by its members.It was also fairly obvious even for newcomers. A case in point was Jean-Pierre Hamilius, a young professor of business and economics in Luxembourg, whom Mises knew through correspondence. Hamilius had recently discovered the literature of classical liberalism, which he devoured and translated into French and German. Mises had him invited for the 1953 Mont Pèlerin Society meeting in Seelisberg. Hamilius immediately noticed that the society was divided along the lines of ideological orientation and language into “different groups and clans.” He himself felt closest affinities to the American group of Mises, Hayek, Hazlitt, Morley, Fertig, and Miller. From the other participants, who did not know that he had gotten his invitation through Mises, he heard reservations about “the old guard (Mises, Hayek, … )” who were sometimes called the “old conservatives.” The young professor from Luxembourg was eagerly taking notes and discussing the interventionist schemes of various members who were not yet part of the old guard. Thus John van Sickle proposed taxing rich heirs, Wilhelm Röpke favored subsidies for homeowners, and Otto Veit argued that heavy taxation would not deter entrepreneurs from working.

Monbiot ignores all of this and makes no distinctions at all between the third-way interventionists — which, according to Hulsmann, Mises regarded as “hardly better than the socialists he had fought all his life” —  and the laissez-faire libertarians. 

For a journalist like Monbiot, these differences are possibly assumed to be personality conflicts, but anyone with actual training in economics knows that it’s absurd to classify people who support central banking and people who oppose central banking into a single category. 

Naturally, one of the most obvious and major fault lines between neoliberals and actual liberals are the divergent views on central banking. These differences also cause a sizable divergence of views on business cycles and monopoly. 

Monbiot appears blissfully unaware of all of this. In his essay, Monbiot notes (correctly) that neoliberalism played a significant part in the 2008 financial meltdown, but then goes on to label Ludwig von Mises a neoliberal, signaling that Monbiot doesn’t know that Mises and his intellectual heirs are thoroughly opposed to neoliberal views on business cycles and recessions, and the role of central banks in such crises. Does Monbiot even know, for example, that the neoliberals reject the view of Mises and the Austrians on the causes of the Great Depression? These are not minor personality disagreements since how one views the Great Depression has immense implications for how one views economic crises today. 

These oversights help explain why, for Monbiot, neoliberalism is simply code for “free-market capitalist” in spite of the fact that neoliberals from Ehrhard to Friedman (as noted by Mises) endorse a wide range of very sizable interventions in the markets. 

To hear Monbiot tell it, though, you’d think the views of Mises are triumphant today, and that everywhere regimes are becoming less interventionist, are lowering taxes, and generally becoming dominated by free-market radicals. Monbiot claims that the Labour Party and Democratic Party were “once part of the left” but have today been co-opted by right wing, free-market, laissez-faire zealots. 

Perhaps Monbiot simply hasn’t noticed that was was once considered “left wing” such as government healthcare, government pensions, and widespread regulation of business at every level, is now just mainstream and no longer the far-off dream of leftist utopians. 

Or perhaps Monbiot imagines that the United States is some kind of social-darwinist free-market free-for-all when, in reality, the US has a massive welfare state and spends more government money on health care than all but three countries

Monbiot’s Nostalgic Pessimism 

Monbiot has a list of social ills that have been caused by the triumph of imagined hard-core laissez-faire non-interventionism: 

[Neoliberalism] has played a major role in a remarkable variety of crises: the financial meltdown of 2007‑8, the offshoring of wealth and power, of which the Panama Papers offer us merely a glimpse, the slow collapse of public health and education, resurgent child poverty, the epidemic of loneliness, the collapse of ecosystems, the rise of Donald Trump. But we respond to these crises as if they emerge in isolation, apparently unaware that they have all been either catalysed or exacerbated by the same coherent philosophy; a philosophy that has – or had – a name. What greater power can there be than to operate namelessly?

Except for ”the epidemic of loneliness” which is apparently to be blamed on tax rates being too low, Monbiot provides no links or documentation of the “resurgence” of child poverty, “the collapse of ecosystems” or the other ills listed. Child poverty is resurgent compared to when, exactly? Compared to the 19th century? That’s a laughable assertion, as is the idea that poverty is more grinding in Latin America today than it was 50 years ago before the free-marketers supposedly established their death grip worldwide. Ecosystems are collapsing because of neoliberal triumph in recent decades? Monbiot obviously isn’t aware of what the Cuyahoga River looked like 50 years ago

Indeed, reading Monbiot’s essay, I got the feeling that I had encountered the same thing somewhere else. And then I realized: Monbiot has the same world view and ideology as Pope Francis. The Francis view is relentlessly pessimistic and devoted to the idea that everything it getting worse everywhere all the time. Monbiot also apprently shares Francis’s unsupportable view that the world economy is primarily dominated by essentially unregulated markets. As I noted about Francis’s views in 2015: 

According to Francis, the world is very nearly falling down around us. The poor are getting poorer, he claims. The inequalities between rich and poor are worse than ever, he says. Pollution is making us sicker than ever, he implies. And the basic requirements for sustaining human life are becoming more inaccessible than ever. These claims serve a purpose: to illustrate that the rise of industrialization and market economies (a modern phenomenon) are the cause of these social and environmental ills ... In painting a picture of a world that Francis says resembles “an immense pile of filth,” Francis is ignoring a wealth of empirical data through which his assertions can be shown to be simply and factually wrong.

Under Neoliberalism, Free Markets Win a Partial Victory 

Unlike the Marxists, laissez-faire liberals do not have to assert that their ideology, only partially applied, makes things worse. For example, when Marxism is applied, a decline in the standard of living is usually observed. This occurred under Lenin who — in order to avoid mass starvation — quickly had to retreat and implement the New Economic Policy allowing some market activity within the soviet economy. For Marxist purists, the failure of the “pure” Marxist economy was to be blamed on the fact that Marxism was not applied enough. That is, if any remnants of the old bourgeois society is allowed to remain, Marxism won’t work. Only total and pure Marxism will actually make people better off. 

Laissez-faire liberals have never had to claim this since only a partial movement toward freer markets can be shown to increase standards of living, ceteris paribus. This was certainly the case in China after Mao, and in Eastern Europe after the USSR. In neither place was liberalism applied “fully,” as both places are today dominated to varying degrees but government interventionism and government sponsored monopolies. We might also see this at work in Latin America as in comparisons between Chile and Venezuela. Neither Chile nor Venezuela are “free-market” regimes by any sttretch of the imagination. However, the difference in relative economic freedom between the two countries is significant.  

Neoliberalism’s Many Faults 

Neoliberalism’s support for central banking, huge corporate bailouts, and the regulatory state are indeed damaging and the source of much poverty. These neoliberal policies contribute to business cycles while rewarding politically-favored firms and industries at the expense of ordinary taxpayers. 

Pundits like Monbiot see this in reverse, though. The problem with neoliberalism isn’t the movement’s support for huge monopolists like the central banks and their favored crop of bailed-out commercial banks. For the Monbiots of the world, the problem is too much economic leeway granted by governments to be entrepreneurial, to be innovative, or to exercise freedom. 

Unfortunately, neoliberalism, being a third-way ideology, is a mix of government intervention and limited laissez-faire. For anyone lacking a grounding in sound economy theory, then, one could see that neoliberals are indeed influential in many areas, and then walk away drawing any conclusion that happens to support one’s existing biases. 

In other words, if one seeks to find a correlation between the existence of poverty in some areas and the existence of neoliberalism, then that won’t be difficult. If one wishes to find a correlation between the existence of neoliberalism and a rising standard of living, one could do that as well. 

The problem is that correlation does not show causation, and the only way out of this is to get back to examining core economic principles. 

Monbiot doesn’t do this, of course. He constructed an interesting historical and sociological theory — sans any economic arguments — in which the rise of neoliberalism has created many social ills. If we rely on Monbiot’s analysis, though, what aspects of neoliberalism have caused these alleged problems is anybody’s guess.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
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