Tuesday, March 30, 2010


Edited by Philip Mirowski and Dieter Plehwe

Harvard University Press, $55, 480 pages

Reviewed by Greg Kaza

Idealists committed to the idea of an open society faced serious obstacles in 1945. Two world wars and the 20th century’s worst economic contraction - the Great Depression - within three decades, left many Western intellectuals doubting the viability of market-based capitalism. Extreme socialism made major inroads in Europe: France and Italy had strong Communist parties, a Greek civil war raged and an Iron Curtain descended upon half the continent. Germany was divided, its economy in shambles.

Into this void stepped Friedrich A. Hayek (1899-1992), later (1974) a Nobel laureate. Hayek wrote the 1944 best-seller “The Road to Serfdom,” which popularized his academic work that found socialist economic calculation was implausible; an idea pioneered by fellow Austrian economist Ludwig von Mises. Hayek, at World War II’s end, organized a voluntary group, the Mont Pelerin Society (MPS) to debate neo-liberal concepts like peace and free trade.

Neo-liberalism is used here in its original, European meaning. Postwar free world leaders like West German Chancellor Ludwig Erhard, British Prime Minister Margaret Thatcher and President Reagan were keenly aware of Hayek’s ideas. But Hayek’s lasting legacy is the realm of ideas, not politics, and his substantial organizational skills underlie this book, which examines the MPS, a private academy that has met on every continent except Antarctica since its first session in 1947 at Vevey, Switzerland.

Editors Dieter Plehwe, a Berlin researcher; Phillip Mirowski, a University of Michigan graduate; and nine contributors attempt to deconstruct MPS-style neo-liberal ideas and their dissemination via a worldwide network of think tanks and universities. They face an apparent moving target.

“Neo-liberalism,” Mr. Plehwe notes, “is anything but a succinctly, clearly defined philosophy.” The MPS, he observes, “mostly sail under the flags of libertarianism and conservatism.” But neo-liberal intellectuals, Mr. Plehwe writes, were “never parochial, “and “deeply suspicious of the opportunistic pragmatism of postwar business leaders, many of whom had embraced corporatism and planning.”

Mr. Mirowski acknowledges neo-liberalism is “not a conspiracy.” It is “cosmopolitan,” yet “a radical leveling philosophy, denigrating expertise and elite pretensions to hard-won knowledge, instead praising the wisdom of crowds.” This apparent contradiction is unresolved.

Chapters on Europe trace the Society’s roots to the Colloque Walter Lippmann, an international conference in 1938 in Paris. Francois Denord notes Wilhelm Ropke, a key figure in the MPS’ early history, was one participant. “Ropke and Walter Rustow (both exiled from Germany by the Nazis), violated disciplinary boundaries in an effort to provide the socio-cultural foundations necessary for a liberal economic order,” Ralf Ptak observes. “They argued persuasively that a regulatory order comprised of legal and state institutions was not sufficient to properly embed the market economy in society.”

Ropke, Rustow and fellow German ordo-liberals developed an alternative solution: the social market economy. Ropke worked with MPS member Ludwig Erhard, then-minister of economics, to achieve “market-oriented economic reforms” (currency reform and the end of price controls) in the late 1940s. These reforms, Mr. Ptak writes, “were to a great extent stabilized and politically accepted because they were intellectually wedded to the concept of the social market economy,” which included the “independent middle strata” of German society as crucial to stability.

Two complaints: The book’s treatment of European neo-liberalism should extend to the eastern half liberated from Soviet socialism; and is it asking too much to use the word matryoshka, not “Russian” dolls when discussing Wikipedia?

MPS members are associated with market-based think tanks. British think tanks, especially the Institute for Economic Affairs in London, became a fixture in public administration under Mrs. Thatcher, Keith Tribe notes, “cutting out academic economists and diminishing their authority.”

Jennifer Bair observes the Heritage Foundation in Washington criticized the U.N. Center on Transnational Corporations, an abortive regulatory scheme. Kim Phillips-Fein explores the different strategic approaches of American business conservatives and European neo-liberals, and their disagreements. Hayek, through private diplomacy, held the idea initiative together.

Mr. Plehwe, in one of the book’s best chapters, finds “a growing self-confidence within the neoliberal camp” in the early MPS with regard to Third World economic development. MPS member Peter Bauer condemned foreign aid, and “clarified,” Mr. Plehwe writes, “the neoliberal vision with regard to foreign aid.”

Bauer “overcame the previous lack of confidence in entrepreneurship and market relations in the developing world” among neo-liberal scholars, and “documents a neoliberal reasoning in which economic considerations are no longer subordinate to security concerns.”

Other chapters explore Peru’s urban property rights movement, and the privatization of Chile’s social security system, a “window of opportunity” that opened during the 1975 recession. Other neo-liberal policy advances occurred when conventional Keynesian economic interpretations, in periods of recession or above-average inflation proved inadequate.

One example: the United States circa 1973-82. The book explains differences between market-based schools (Chicago, Austrian and Virginia). But it does an inadequate job of exploring monetary policy’s importance to the MPS over a multidecade period. Milton Friedman, another Nobel laureate, was a founding MPS member, and few topics received more attention than monetary policy.

The creation of a broad, stable middle class is crucial to market economies, whether postwar Germany (late 1940s), Eastern Europe (post-1991) or Latin America (today). Credible monetary policy, a neo-liberal goal, is important to prevent hyperinflation, which destabilizes the middle class.

A greater weakness is the description of the MPS as a “thought collective.” This phrase, if meant as a double entendre, falls flat. A close reading reveals diversity within the MPS on a broad range of topics. Chicago and Austrian school economists disagreed about floating- and fixed-exchange rates. Hayek and Ropke diverged on unions. Both supported a broader social safety net than their American counterparts. Thought initiative is a more apt MPS descriptor.

Ultimately, the book fails to come to terms with the historical context and reasons why the MPS was established. Mr. Plehwe, of all contributors, is perhaps best capable of overcoming this shortcoming. He might begin by considering an apparent enigma: Why were the ideas of the Mont Pelerin Society, whose original membership lacked practicing Catholics, embraced by German Christian Democrats and other Christians seeking to rebuild Europe, a continent ravaged by the horrors of depression and war?

Greg Kaza is executive director of the Arkansas Policy Foundation, a Little Rock think tank founded in 1995.

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