Chicago Economics, Simons, American Irresponsibility, and World System

If multiple collectivism or large-scale nationalisms promise everything bad, no mongrel system is likely to give us much peace. Peace is the limiting case at both extremes. Rejecting more government and more power concentration as the cure for our ills, we must move far toward the other extreme to find security. However, an extreme application of traditional liber­alism, if hard to attain, is not politically impossible. It involves the kind of order in which the democracies can most easily assume their places. It affords the only kind of world system congenial to democracies, and the only kind they can hope continuously to operate and to control. While its establishment does not permit gradualist measures or diffident procedure, it requires initially the close adherence of only a few democratic nations. A democratic, free-trade block comprising the United States, Great Britain and the Dominions, the Low Countries, Norway, and Sweden would represent a magnificent and ade­quate beginning. Adhering to the rule of equal or nondis­criminatory treatment and inviting the widest national par­ticipation, it need not and should not induce other nations to form rival and hostile blocks. Moreover, other nations need only be asked, in return for free access, to maintain equal ac­cess and to avoid gross discrimination. Along these lines may be established an economic and political integration of nations which, resting on dispersion of power and responsibility, is indefinitely extensible and capable of enlisting all nations, either as full partners or as increasingly responsible par­ticipants.
The essence of this postwar program, in its crucial economic aspect, is free trade among nations. On the political side, inci­dentally, a major purpose should be that of preserving and protecting small autonomous nations. The Low Countries and Norway and Sweden rather than great national states are the ideal elements or nucleus for world organization. It is our great good fortune that such nations will now demand and attain an important role in postwar reconstruction. In them democratic institutions have their deepest roots and free-trade tradition remains relatively uncorrupted.

The important specific features of a liberal world program are fairly obvious and familiar. Four requirements may be noted as fundamental and minimal: 

1. Dismantling of tariff barriers by all the democracies, and elimination of quota restrictions, import preferences or discrimination, export subsidies, and bilateral or barter trading.
2. Organization for co-operative or united action in matters of monetary and fiscal policy.
3. Preparation and execution, by parallel and united national measures, of effective antimonopoly policies, involving systematic industrial decon­centration, dissolution of giant corporations and cartels, and effective prohibition of private monopolistic restraint of enterprise and trade.
4. Establishment of inclusive, supranational government, limited in its sphere of action but strong within that sphere, and designed specially and primarily (a) to prevent military aggression or resort to force in connec­tion with international disputes and (b) to promote parallel action and to implement united action in the three areas of policy listed above.----Henry C. Simons (1943) "Postwar Economic Policy" originally published in the American Economic Review, Supplement reprinted in Economic Policy for a free Society (Chicago 1948), pp. 242-244.

Ever since Adam Smith proposed (recall) an Atlantic parliament unite and equalize the United Kingdom, Ireland, and the American colonies, and to prevent war with the colonies, and, I suspect inspired by Smith, Kant (recall) proposed regional federations of free trading, liberal democracies (he called them republican), a strain of liberal thought (recall also Mazzini) has embraced interstate federation as either a means to peace, or presupposing peace.* After the failure of the Wilsonian League of Nations, I had assumed that liberal hopes in the 1930s had retreated toward plans for (partial) European federations (recall this post on Mises; this one on Hayek; and, looking ahead in time, Buchanan). There were ambitious, cosmopolitan plans for world federations in the 1930s and 40s [proposed, for example by Lionel Curtis and Clarence Streit--then both quite famous], but these tend to assume Angl0-Saxon exceptionalism and superiority.**   

These days "world system" connotes neo-Marxist ideas associated with (the recently deceased) Immanuel Wallerstein underdevelopment, and exploitation of the periphery by the so-called core. In the 1930s and early 1940s, the term was not common. And while there are Marxist usages of the phrase in the period, "world system," also often involves (non-Marxist) discussion of trade economics (see here for a very interesting and pertinent one by K.W. Rotschildt), or balance of power politics, or the failure of WWI settlement. 

Simons, who helps (recall for the complexity of this claim) originate the Chicago school of economics, was clearly not immune from reflections on world system. (The term is not indexed, although it's used again in the chapter.) The particular proposal is notable because it is explicitly designed to preserve and protect "small autonomous nations." This fits with Simons' broader understanding of liberalism, which is oriented toward devolution to the lowest political unit (preferably the provincial or local  units (see "A Political Credo" in Economic Policy for a free Society, pp. 12-13)). Unlike some other liberals of the day, there seems to be no racial motive for this (but see below).

Simons does not argue from a right or fact of national self-determination. Rather, his motive is political; he thinks the moral consensus required to facilitate collective action is more like at the smaller (more homogeneous) political level (p. 12). He also conjoins to this commitment (a) historical and normative claim(s): "

Democratic process is an invention of local bodies. It has been extended upward and may be extended gradually toward world organization. In any case, modern democracy rests upon free, responsible local government and will never be stronger than this foundation. Free, responsible local bodies correspond, in the political system, to free, responsible individuals or families and voluntary associations in the good society. A people wisely conserving its liberties will seek ever to enlarge the range and degree of local freedom and responsibility. In so doing, it may sacrifice possible proximate achievements. (13)

Simons thinks about local democracy as a kind of Lockean voluntary association of individuals or families (he routinely freely moves back and forth between family and individual without commenting on the waffle). This means there is a right to exit. But he does not emphasize this.+ He is explicit that where there is a trade-off between local democracy and, say, (supra)-national efficiency, the collective action should strengthen local democracy. Not unlike other liberals of the 1930s, Simons is quite worried about the capture of the national and supra-national institutions by economic, special interests (he calls them "articulate minorities), he is firmly committed to democracy. In this he sounds a bit like Lippmann, except (recall) that Lippmann is more enamored of large national government with its system of checks and balances (and here).

Simons is self-consciously foreseeing that American might will "determine" (258) the post-war "world system." The problem he faces squarely is that "America, save in gravest crisis, is irresponsible." (259) For, he thinks that the US was very much responsible for the economic and political collapse of the 1930s. Now, like other neo-liberals of the day, he hopes that supranational institutions will help constrain national practices (he offers anti-trust and patent law as examples). But he does not rely on this.

Rather, he wants the US and the UK to federate with the Low Countries and Norway and Sweden in particular because "democratic institutions have their deepest roots and free-trade tradition remains relatively uncorrupted." That is to say, he hopes that in virtue of collaborating with the smaller states, the US and UK will become better players on 'team democracy.' So, somewhat unusually, and not together plausibly, Simons hopes that economic and political exchange will allow the weaker and smaller states to moralize the more powerful ones. It is notable that unlike Hayek's celebration of British common law, Simons does not flatter his audience here. 

I close with two observations. First, Simons  is ignoring that Holland and Belgium ran rather large colonial empires in the 1930s. Interestingly enough, if we look again at the list of countries included in his democratic free trade block, we note that "Great Britain and the Dominions,"(in 1943) de facto includes, "Canada, Australia, New Zealand, Newfoundland, South Africa, and the Irish Free State," but not other (less Anglo-Saxon) parts of the British empire. So, while Simons' argument is different from the ones articulated by Curtis and Streit, it is not wholly dissimilar in outcome. 

Second, Chicago did not create the post-WWII settlement. But if we look at Bretton Woods, then we may say that its failures and demise in the early 1970s are, in large part, due to the fact of allowing the United States with unique ability and flexibility to wage war and to undermine common monetary and fiscal policy. Here Simons seems prescient. With the United States returning to illiberal policies, we can expect the world system to unravel; collapse may come suddenly. 

 

*Recall, I don't mean to conflate the attitudes toward peace and trade in Kant and Smith.  

**I don't mean to deny that this also draws on ideas -- (recall) about moral superiority and progress of civilizations -- embraced by Victorian liberals like J.S. Mill. (See also below.)

+The reason he does not emphasize this is that unlike say Mises, he does not think there is a right to free movement among states. He thinks that free immigration "would level [down] standards." (251) He also thinks there are sociological and "political problems of assimilation." But when it comes to "immigration policies, the less said the better." (251) I read this as Simons' unwillingness to discuss views that may be abused by racists and nationalists. (On this last point, see Bright on the Logical Empiricists (here).)