The origin of neo-liberalism

The authoritarianism of the Market

Fernando Flores
Extracts from

Marco Antonio Moreno

http://mamvas.blogspot.se/2007/11/el-origen-del-neoliberalismo.html

Kenneth Minogue
http://online.wsj.com/news/articles/SB10000872396390443995604578002432460754000?mg=reno64-
wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10000872396390443995604578002432460754000.html

Preventing the Abuses of Democracy: Hayek, the Military Usurper and Transitional Dictatorship in Chile?
^ Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism, pp. 164169, Macmillan, 2008, ISBN 0-312-42799-9 .

1
 Walter Lippmann's Inquiry into the Principles of the
Good Society

The publication of Walter Lippmann's Inquiry into the

Principles of the Good Society in 1937 sent seismic
waves through the Depression era's nascent network of
academic supporters of free markets.

Through his column "Today and Tomorrow," syndicated

in more than 100 newspapers and read by more than
ten million Americans, Lippmann had become, in one
reviewer's terms, the nation's "genial companion of
the breakfast table," a role that garnered his opinions
an extraordinary breadth of influence.

2
 Walter Lippmann
(1889 1974) was a
reporter, and political
commentator famous
for being among the
first to introduce the
concept of Cold War.

Lippmann won two

Pulitzer Prizes, one for
his syndicated
newspaper column
"Today and
Tomorrow.

3
 For economists and political theorists who remained
acutely aware of the unpopularity of their views and
their inability to gain a foothold in the popular
imagination, Lippmann's apparent embrace of free-
market principles and repudiation of economic
planning were transformative events.

Decades later, on the cusp of the publication of The

Constitution of Liberty, Friedrich Hayek declared the
magnum opus of his political philosophy to be "the
final outcome of a "trend of thought which may be
said to have started twenty-two years ago when I
read The Good Society. "

4
 Paris in August 1938
The first international gathering to discuss neoliberal" ideas was
held in Paris in August 1938, in celebration of the publication of a
French translation of Lippmann's book. ("Colloquy Lippmann.)

In subsequent years the Centre International d'Etudes pour Ia

Renovation du Liberalisme was founded in Paris;

the Free Market Study was established in association with the

Economics Department at the University of Chicago;

and Friedrich Hayek prepared the groundwork for the first meeting
of what became the Mont Pelerin Society in Switzerland in 1947.

https://www.montpelerin.org/montpelerin/index.html

5
The origin of the term neoliberal
Although the participants in the "Colloquy Lippmann"
are often referred to as neoliberals, the precise
meaning of the term has long remained unclear.

Jamie Peck has observed, "Neoliberalism was a mix of

prejudice, practice and principle from the get-go.

It did not rest on a set of immutable laws, but a

matrix of overlapping convictions, orientations and
aversions, draped in the unifying rhetoric of market
liberalism.

6
 It is extremely difficult to treat in a
sophisticated manner a concept that cannot
be firmly identified or defined.

For many years attempts to do so remained

the province primarily of social scientists, who
overwhelmingly focused on the period of
increasing neoliberal influence over economic
policy that began in the early 1970s.

7
The group of Mont Plerin
In April 1947 in the
foothills of the Mont
Plerin in the Swiss Alps,
Friedrich von Hayek
Mont Pelerin

brought together a group
of intellectuals of the
right to express their
rejection to the New Deal
and Keynesianism which
at that time dominated
the world economy.

https://www.montpelerin
.org/montpelerin/mpsAb
out.html

8
 The first meeting of the Mont Pelerin Society, in 1947, was chaired by F.A. Hayek (left). Ludwig
von Mises is seated in the front row, third from right. (Mont Plerin Society Records, Envelope
J, Hoover Institution Archives.)

9
 Hayek gathered together a variety of academic
believers in freedom to a conference in Switzerland in
1947 and thus established the Mont Pelerin Society, a
group of freethinkers in every sense of the word.

The people that Hayek brought together were a

talented but quarrelsome group, who could not even
agree on how to name the core principle they stood
for.

The society was a trans-Atlantic project, driven by

professors at the London School of Economics and the
University of Chicago, and "neoliberalism"a belief in
free trade and free marketsseems to be the term
that best captures the outlook they espoused.

10
 The society faced many crises, and as Hayek became
disillusioned with its prospects of success, the public face
for such free-market ideas came to be Milton Friedman,
who had an enormous charm with a genius for pedagogical
explanations.

The aim of Hayek, Friedman and the thirty entrepreneurs

and invited politicians, among them Karl Popper - who had
just published, The Open Society and its Enemies, was
laying the ideological bases for a reduction in the state
apparatus

which with the revolution of the British economist John

Maynard Keynes had had gained new impetus in the
leadership of the economic performance.

11
 The importance of Keynesianism bothered Hayek because of the
possibility to establish and legitimize socialism, which would be a
true road to serfdom to the civilized world.

His criticism of the State planning was: "cannot constitute an

economic solution due to the complexity of the economic
calculations".

For Hayek the planning of the State "can only lead to stagnation or
chaos".

This vehement political and theoretical reaction against State

interventionism and Social Welfare State, is known as the origin of
neoliberalism,

ideological movement that creates and develops - through the think

tanks-models of attack to any limitations imposed by the State to
the market mechanisms.

12
 Thatcher, Reagan and Pinochet
After World War II an "iron curtain" divide Europe. The origins of
the cold war opened for a radical criticism of socialist ideas.

Hayek sensed that the decision-making role of the State, validated

by the ideas of Keynes, can lead to countries the same disaster that
German Nazism.

Hence the book that serves as founding of neoliberalism was

Hayeks The road to Serfdom, (1944),

Some years later, Margaret Thatcher (1979) would take this book as
her economic "Bible".

13
 In April 1947 in the foothills of the Mont Plerin the
group developed the economic counter-revolution to
order the impact of Keynesian ideas.

Mark Hartwell, Economist and member of the society

said that this initiative "produced around the world
institutions that spread economic liberalism"
contributing to the change of policies in Governments
through the role of its members as direct advisors or
creators of internal policies.

Industrial, bankers and the Rockefeller Foundation

funded the operation whose aim was to convert an
important generation of intellectuals to the creed of
liberalism touted by Adam Smith.

14
 Hayek and Friedman argue that this "equal"
socialist State destroy the freedom of citizens and
of the vitality of the competition, two factors
which depend on the general prosperity.

Noteworthy is that Hayek and Friedman see the

inequality a positive value, which requires the
company to move forward and grow.

This is not anything other than the thesis of

savagery and the natural selection of Spencer, in
which only the most suitable species manage to
adapt to and survive the changes.

15
 Nixon and the financial collapse of Viet Nam

It took a quarter of a century to make the theses of Hayek

and Friedman could jump to the fore.

And the causal relationship was the Viet Nam war. So great
was the fiscal deficit of the Nixon administration by the cost
of the war, and so the international liquidity of Europe in
dollars, that the Bretton Woods agreement collapsed.
Richard Nixon ordered the inconvertibility of the dollar
into gold on 15 August 1971, in an act that had disastrous
consequences for international economy.

And the crisis that became as a result of the unilateral

decision by the American Government destabilized
markets around the world.
16
 This situation generated a widespread crisis and led to
a global recession that burst with the oil crisis in 1974.

Inflation and unemployment have climbed, situation

which allowed driving the arguments of Hayek and
Friedman.

With such a project in mind, Milton Friedman visited

Chile in April 1975, to light the way that Pinochet
should take to avoid the debacle.

And his thesis was clear: "there is only one, and only
one way to stop inflation: reduce the money supply,
reduce spending, make a policy shock."
17
 Neo-liberal politics
In 1979 Margaret Thatcher, in England, publicly
committed to implement the neoliberal agenda.

In 1980 Ronald Reagan, did the same,

and in 1982 it was followed by the Christian-

Democrat Helmuth Kohl in Federal Germany.

Japan, Argentina, Mexico and other countries,

adopted the model in the mid-1980s.

18
 What were the characteristics of the neoliberal policy?

raising interest rates,

cut taxes on higher incomes,

abolish controls on financial flows (entry and exit of foreign

exchange),

strongly raise the unemployment rate (to crush strikes and

remove power to trade unions),

imposing strong cuts in tax expenditures and,

began an extensive program of privatization.

19
 The results of the application of strength of these
measures of the neoliberal hegemony as ideology
being the world to a polarization in terms of
social exclusion.

The elevation of the unemployment rate, known

as a natural and necessary mechanism for the
effective operation of the model, was its most
convincing victory.

The increasing and systematic expansion of the

gap between rich and poor was understood as a
mechanism of development.
20
 The ideology of market
Free-market ideology : allow business to do what it wants. Reduce
taxes and regulations on business, and the economy will prosper.

Put up no government barriers to the free market, and the benefits

of the unleashed free market will drop down from the rich, who
create the jobs, to the rest of us.

This means that lower taxes and fewer regulations will create
greater economic activity, generating the revenue that will offset
what is lost by lowering the taxes.

In the 1980s until the 2000s this was tried, and it failed. The budget
deficits created by this policy, became astronomical.

21
 Hayek in Chile
Hayek visited Chile in the 1970s and 1980s during the
Government Junta of general Augusto Pinochet

During these visits he accepted being named Honorary

Chairman of the Centro de Estudios Pblicos.

For Hayek, the unfair way in which the international media

treated Pinochets Chile amply demonstrated that
international hypocrisy was endemic.

As Hayek noted, he had met many members of the

government during his initial visit to Chile in 1977
educated, reasonable, and insightful men.
22
 For Hayek, the international propaganda campaign against Chile
(and also that against South Africa)the systematic distortion of . .
. [the facts about these countrieswould have serious
consequences: politicians in Western countries. . . . increasingly
bow to this false public opinion

and their representatives at the United Nations had voted in favor

of the international arms embargo against South Africa.

These actions, Hayek argued, could ultimately lead to the

wholesale destruction of the international economic order.

Hayek was highly critical of the United Nations and argued that
the imposition of boycotts and similar measures against individual
countries (Chile and South Africa) had been made on an arbitrary
basis rather than in accordance with binding rules that had been
set and announced prior.

For Hayek, the United Nations had been seduced into adopting
such measures . . . by insensitive vote-catching. (Hayek 1978b:
44). 23
Transitional dictatorial government
For Hayek, the supposedly stark difference between authoritarianism and
totalitarianism has much importance

and Hayek places heavy weight on this distinction in his defense of

transitional dictatorship.

A dictatorship may be a necessary system for a transitional period.

At times it is necessary for a country to have, for a time, some form or other of
dictatorial power.

As you will understand, it is possible for a dictator to govern in a liberal way.

And it is also possible for a democracy to govern with a total lack of liberalism.

24
 Personally, I prefer a liberal
dictator
to a democratic government
lacking in liberalism.
My personal impression . . . is that in Chile . . . we will
witness a transition from a dictatorial government to a
liberal government . . . during this transition it may be
necessary to maintain certain dictatorial powers, not as
something permanent, but as a temporary
arrangement (Hayek 1981a: D9, emphasis added).

25
 Hayek provided several examples of the type of supposedly transitional
dictatorial government he had in mind (1981a: D9):

England under Oliver Cromwell (1599-1658; Cromwells Protectorate

supposedly providing a vital transitional way-station between absolute
royal power and the limited powers of constitutional monarchies),

the example provided by the Portuguese dictator Oliveira Salazar.

(Antnio de Oliveira Salazar (1889 1970) dictator of Portugal from 1932
to 1968. )

Hayek had sent Salazar a copy of Hayeks The Constitution of Liberty (1960)
in 1962 and Hayeks accompanying note to Salazar is particularly revealing:

Hayek hopes that his bookthis preliminary

sketch of new
constitutional principles may assist Salazar in
his endeavor to design a constitution which is proof
against the abuses of democracy (Hayek 1962).

26
The End

27