Digressions&Impressions

14 March 1979: Foucault on Social Contracts, the welfare state, and American Neoliberalism (XXVI)

The second contextual element is of course the Beveridge plan and all the projects of economic and social interventionism developed during the war. These are all important elements that we could call, if you like, pacts of war, that is to say, pacts in terms of which governments—basically the English, and to a certain extent the American government—said to people who had just been through a very serious economic and social crisis: Now we are asking you to get yourselves killed, but we promise you that when you have done this, you will keep your jobs until the end of your lives. It would be very interesting to study this set of documents, analyses, programs, and research for itself, because it seems to me that, if I am not mistaken, this is the first time that entire nations waged war on the basis of a system of pacts which were not just international alliances between powers, but social pacts of a kind that promised—to those who were asked to go to war and get themselves killed—a certain type of economic and social organization which assured security (of employment, with regard to illness and other kinds of risk, and at the level of retirement): they were pacts of security at the moment of a demand for war. The demand for war on the part of governments is accompanied—and very quickly; there are texts on the theme from 1940—by this offer of a social pact and security. It was against this set of social problems that Simons drafted a number of critical texts and articles, the most interesting of which is entitled: “The Beveridge Program: an unsympathetic interpretation,” which there is no need to translate, since the title indicates its critical sense. Michel Foucault, 14 March, 1979,  translated by Graham Burchell, Lecture 9, The Birth of Biopolitics, 216

I have deliberately gone slowly through Birth of Biopolitics because I did not want to skip straight to Foucault's discussion of 'American neo-liberalism,' (215-216; especially the celebrated treatment of Becker). In this I echo Foucalt's deliberate procedure. When he arrives at lecture nine, he announces, at its start, "Today I would like to start talking to you about what is becoming a pet theme in France: American neo-liberalism." Foucault knows -- and we have seen him repeatedly remind his audience -- that what he has to say about ORDO-liberalism is of little interest to his audience, which he often castigates as being in the grip of cliches. Their real interest is to take on the new ascending, intellectual hegemony located in Chicago and in the public eye associated with Pinochet, etc. Foucault never mentions Pinochet or the Chicago Boys. His interest is not to contribute to cold-war dialectics; he want, as he says repeatedly through the lecture course, more immanently, discuss liberal govermentality toward which liberal democracies are -- and here Foucault exhibits the political sensitivity of a poet -- already moving. And while Milton Friedman has already won the first of the Chicago nobels, in 1979, Thatcher's first election victory is still a few weeks away, it is by no means obvious that a discussion of Chicago, Becker, and Hayek is then simultaneously prophetic.

In the 'banal' (216) part of his lecture, Foucault ties American-neoliberalism to the Chicago school. He writes, "The first, fundamental text of this American neo-liberalism, written in 1934 by Simons, who was the father of the Chicago School, is an article entitled “A Positive Program for Laissez-Faire.” (216) The first remarkable feature here is that Foucault will define the school in terms of a set of fundamental texts. This is a natural move for a philosophical historian, of course. But it is odd claim for somebody focused on practice (i.e., the art of governmentality). So, for example, Foucault ignores the two features of Chicago method, that, in its early self-understanding, can be said to define it as a school: (i) Chicago price theory (the same term is used for a famous introductory course and text-book);* (ii) a commitment to Marshallian partial equilibrium. 

The second remarkable feature is that Frank Knight is completely effaced from the narrative of Chicago. Given Foucault's interests this is no surprise. But it is worth noting: the Chicago legacy of focusing on uncertainty and a kind of meta-methodological sensitivity toward, and the political embeddedness of, the limitations of economics as a science are completely effaced. I don't mean to suggest that the focus on Simons (recall here; here), who was by then long dead and undoubtedly obscure to a European audience, is a mistake.**

The passage quoted at the top is the second of "three" (banal) contextual "elements" against which american neo-liberalism is defined: "Keynesian policy, social pacts of war, and the growth of the federal administration through economic and social programs—together formed the adversary and target of neoliberal thought, that which it was constructed against or which it opposed in order to form itself and develop." (217) But as usual with Foucault, his asides are incredible illuminating. 

It may seem that to oppose the Beveridge plan is to oppose social planning. And undoubted social planning -- collectivism in the jargon of the age -- is one of the targets. But Foucault recognizes that the legitimacy of social planning is ground in a new kind of social contract. In Foucault's presentation the need for a social contract is felt by the elites, who recognize that after a decade of economic suffering calling people up for war may require justification that  goes beyond ordinary war propaganda. 

As an aside, Foucault here subtly historicizes the renewal of the social contract tradition then a decade underway by those who had been foot-soldiers (Rawls) in that great war. Rather than focusing on Rawls' religious roots, one can better understand this renewal as a (renewed) demilitarization of the social contract.

Be that as it may, to oppose Beveridge is not just to oppose social planning, but to oppose the very terms of the war-time social contract. For this social contract trades the non-negligible risk of death (or the death of a loved-one/breadwinner) in war for an obligation toward other forms of (social) security.+ That is to say, to criticize Beveridge is not just to criticize economic policy, but the very conceptualization of the polity. 

Why might one wish to do so? For one, in this hostile perspective (and it seems Foucault kind of endorses it), the very conceptualization of the welfare state is a war-state. This is a trope going back to the Vienna critic of Neurath (and Bismarck), but here it is part of the very conceptualization of the legitimacy of the welfare state. Second, it is by no means obvious that this social contract is liberal. And the problem is not so much the welfare state side of the equation (the benefit), but the war-side (the cost). The very point of a liberal state is the preservation of (bare) life. This is why, as Nick Cowen alerted me, life becomes before "liberty and the pursuit of happiness!"

In his rhetorically charged polemic, Simons (1945) presciently himself calls attention to this, "Written by a nominal Liberal, radical-reactionary in its substantive proposals, libertarian in its rhetoric, thissecond Beveridge Report may forecast or largely determine the course of British postwar policy." (212) Part of Simons' ire is that Beveridge is clothed as liberal, but substantively it is an odd mix of radicalism (that is, as Foucault had already explained in lecture 2, Benthamite utilitarianism) and reactionary-ness (that is, committed to war and hierarchy). And, indeed, Simons recognizes that for all its noble social ends, Beveridge plan is also a contribution to survival of (declining) political imperialism, "England's commercial power is to be mobilized and concentrated, to improve her terms of trade, to recruit satellites for a tight sterling bloc, and to insulate herself and them from unstable, unplanned economies, i.e., from the United States." (Simons 1945: 213)

That is to say, on the Simons interpretation of Beveridge, which Foucault shadows even amplifies beyond Simons' own rhetoric (notice the language of the "demand for war"), American neo-liberalism understands itself not merely as a critique of the welfare state, but it understands itself as a critique of an illegitimate social contract that underpins it; for from a truly liberal perspective, one cannot really, if one has minimal Hobbesian intuitions (one cannot contract away the natural right to mere self-preservation), consent to the pact inscribed in Beveridge. And, in fact, Simons is clear that if executed fully, the Beveridge plan would involve in open-ended trade wars leading to the real kind (Simons 1945: 227-228).** The point had been foreshadowed in lecture 5 (see what Foucault says about Ropke on p. 110).

Let me close with a remark. In what follows, Foucault is largely uninterested in Friedman (the focus is on Becker then still much more obscure). But the 'banal' point he has made in terms of Simons' criticism of Beveridge helps explain the increasing popularity of Friedman in the 60s and 70s. For Friedman was one of the most eloquent and visible critics of the draft (during the Vietnam war). His argument (inspired by Simons but not identical) was as much economic as it was political, "large armed forces plus the industrial complex required to support them constitute an ever-present threat to political freedom."   

 

 

On Ellsberg's defense of Knightian Uncertainty, Arrow, and Ambiguity (II)

In most of this literature, the term ‘ambiguity’ has been treated as a synonym for what Knight called ‘uncertainty’ namely the fact that relative likelihoods are not characterized by well-defined numerical probabilities. The standard method of dealing with ambiguity in decision theory is to endow the decisionmaker with multiple priors as in Gilboa and Schmeidler (1989). This approach may be combined with a variety of preference models, notably including the maxmin model of Gilboa and Schmeidler (1989) and the smooth model of Klibanoff et al. (2005).
For a non-specialist this is puzzling; there is no obvious link to the ordinary meaning (or meanings)1 of ambiguity as a characteristic of propositions with more than one interpretation. In its normal usage, ambiguity is a linguistic concept, but in decision theory it is typically treated as a property of preferences.
The now-standard usage is quite different from that in Ellsberg’s (1961) original article. Ellsberg treated ambiguity, not as a property of preferences or relative likelihoods, but as a property of the information on which judgements of relative likelihoods might be based.

“Responses from confessed violators [of the expected utility (EU) axioms] indicate that the difference is not to be found in terms of the two factors commonly used to determine a choice situation, the relative desirability of the possible payoffs and the relative likelihood of the events affecting them, but in a third dimension of the problem of choice: the nature of one’s information concerning the relative likelihood of events. What is at issue might be called the ambiguity of this information, a quality depending on the amount, type, reliability and ‘unanimity’ of information, and giving rise to one’s degree of ‘confidence’ in an estimate of relative likelihoods.”

---Simon Grant, Ani Guerdjikova, John Quiggin "Ambiguity and awareness: a coherent multiple priors model." (17 April, 2020) [quoting p. 657 of Ellsberg's (1961) "Risk, Ambiguity, and the Savage Axiom]

In Yesterday's post I noted that while writing in defense of Knight, Ellsberg (1961) innovatively identified Knightian uncertainty with a class of decisions that can be specified precisely as empirical violations of the (Ramsey-)Savage axioms.* In particular, in such instances (when the formalization is violated) there is "no way to infer meaningful [subjective] probabilities for those events from their choices, and theories which purported to describe their uncertainty in terms of probabilities would be quite inapplicable in that area." (646; [parentheses added].) This identification was an innovation made possible and intelligible by formalization.  

As I remarked, Ellsberg noted that it is possible to treat the very same formalization as a [A] normative standard for a certain kind of ideal/idealized agent or [B] as a device to make predictions about agents. Ellsberg recognizes that Savage was (primarily) tempted by the normative interpretation whereas Ellsberg was primarily focused on the empirical interpretation. In particular, he wanted to identify classes of choice circumstances in which the possible rationality (669) of one's decision could not be articulated in or explained by reference to the Savage axioms. 

The Savage formalization allows the attribution to agents of precise subjective probabilities about distributions in the world. That is, in certain choice circumstances, the formalism allows for an interpretation of behavior that reveals if not inner states than at least structures that are compatible with such inner states. (It may be useful to compare this with the Samuelsonian strategy of revealed preference.)

With that in place, let's turn to ambiguity. As Grant/Guerdjikova/Quiggin note, in much of decision theory 'knightian uncertainty' is treated as synonymous with 'ambiguity' and has come to mean the absence of well-defined quantitative probabilities.+ And as they correctly note this is not quite what Ellsberg had in mind (and about that more in a second). Before I get to Ellsberg and ambiguity, it is worth noting that the absence of well-defined quantitative probabilities is indeed what Knight meant by uncertainty in the contrast between risk and uncertainty.

However, what the literature means by the absence of well-defined quantitative probability is (and now I quote Gilboa and Schmeidler (1989)) circumstances in which one "considers a set of priors as possible." (emphasis in original). It is important that this set is limited. Now, this is not quite what Knight, generally, intended to mean  by the contrast between risk and uncertainty.  In paradigmatic cases of uncertainty for Knight (and Keynes), we really have no right to make claims about the priors let alone treating them as well defined possibilities.

As an aside, this is not to deny that, as Richard Pettigrew noted to me, that "there are situations in which your evidence and/or current stage of scientific theorising is not going to deliver a unique probability assignment over the states you consider" but in which one has reasons to limit one's subjective probabilities to a set of possible distributions. And if forced to choose one may well come to think of your own (again quoting Pettigrew) as "your best subjective probabilities and use those while knowing that it would be equally compatible with your evidence to adopt an alternative set of probabilities."** If you and the other involved are experts in more or less the same situation, we can call this situation 'reasonable expert disagreement.' In fact, Savage himself noted (without having to contemplate violations of his axioms) that that “we must be prepared to find reasoning inadequate to bring about complete agreement.”  (1954 [1972]:7; see also 3, 67ff.) This is not trivial in the historical context, as I have noted elsewhere, in which the very idea of science involves the arrival of expert consensus. 

Now, as Grant/Guerdjikova/Quiggin note, Ellsberg thought ambiguity something else: namely it is a property of the "nature of one’s information."  And throughout the paper, Ellsberg goes on to deny that this feature "cannot be conveniently described in terms of a sample distribution." (659) Rather the point of using ''ambiguity" is to try to describe circumstances "when there are questions of reliability and relevance of information, and particularly where there is conflicting opinion and evidence." (659) So, one measure , but it is only one such measure, that one's information is ambiguous in Ellsberg's sense is the kind of reasonable expert disagreement [that is, situations one knows an expert's subjective probability about a distribution is compatible with another expert adopting an alternative set of probabilities.] But it is only one such measure because ambiguity itself cannot (to repeat) be reduced to and articulated in one distribution or another. As Ellsberg noted (660), Savage (57-60), too, had tried to characterize the nature of such ambiguity; Savage had explicitly acknowledged that formal theories known to him lacked resources to do so in satisfying ways.

Now, so for Ellsberg ambiguity is a "subjective variable" (660) about the nature of one's information. But the circumstances under which it arises can be characterized objectively. The proxy he uses to characterize these circumstances are violations of the Savage axioms can be predicted to occur and, perhaps, thought (somewhat) reasonable.

But that is not all of it (and this connects to Gilboa/Schmeidler).*** In circumstances of ambiguity one has, according to Ellsberg, some subjective grounds to "eliminate" some "possible distributions," but not all such possibilities. (661) For, Gilboa/Schmeidler (and the Bayesian literature) that is treated as the occasion to look for solutions to decision problems in terms of sets of priors as opposed to unique priors. In so doing, they end up echoing what I have called the displacement strategy of Knightian uncertainty. 

It is worth noting that there is an interesting difference of emphasis between trying to characterize an optimal decision strategy (in the manner of Gilboa/Schmeidler), say because one must choose or wish to guide policy-makers, and between wishing to promote understanding of how to think about or study one's information about possible distributions. (I have jokingly called the latter modal economics.) Ellsberg is clearly less interested in the former, and more interested in the latter.  Ambiguity in Ellsberg's sense does influence choice (664); yet Ellsberg is interested in finding out when and how, and to create "testable propositions" about such states [669], not to tell you what strategies to use in choice.

That is to say, Knight thought of uncertainty in terms of not knowing the (range and nature of) possible distributions. Ellsberg thinks we can develop rigorous thought  about what a theorist taught me to call intermediate circumstances in which we have some information about the possibilities. Somewhat surprisingly, according to Ellsberg -- and here he refers also to Chipman's experiments++ -- this thought has to be developed not from normative first principles, but rather experimentally ((655) within what in reviewing Donald Davidson, Suppes, and Siegel, he calls (in 1957) "the new field of experimental economics;" (1009). Of course, Ellsberg soon got preoccupied by different concerns. But that's really for another occasion.

So, Ellsberg has been remembered as generating a "paradox" in subjective expected utility theory. (This seems to be due to Harry V. Roberts.) This way of thinking about him says more about the economists' attitude toward their own past than Ellsberg. We have seen that alone among the responses to Knight that are still acknowledged by contemporary mathematical economists, Ellsberg wrote to vindicate Knight.+++ But he did so by using the canons of rational decision-making to specify when some circumstances of true uncertainty might occur. We could call them Ellsberg circumstances. These Ellsberg circumstances are characterized by constrained decision options in which information about world has the character of what he called ambiguity. In Ellsberg circumstances one grasps, we might say, the possible contours of the underlying distributions. Whether, in Ellsberg circumstances, it might pay to take bets on these contours is a tough challenge (one may well be in context of what he called "treacherous possibilities." (666)) He then opened the door not to better decision rules, but rather to the epistemology of information, which uniquely he thought ought to be explored experimentally.  

 

 

 

On Ellsberg's defense of Knightian Uncertainty, Arrow, and Ambiguity (I)

There has always been a good deal of skepticism about the behavioral significance of Frank Knight's distinction between "measurable uncertainty" or "risk," which may be represented by numerical probabilities, and "unmeasurable uncertainty" which cannot. Knight maintained that the latter "uncertainty" prevailed - and hence that numerical probabilities were inapplicable - in situations when the decision-maker was ignorant of the statistical frequencies of events relevant to his decision; or when a priori calculations were impossible; or when the relevant events were in some sense unique; or when an important, once-and-for-all decision was concerned.' Daniel Ellsberg "Risk, Ambiguity, and the Savage Axioms," The Quarterly Journal of Economics, Vol. 75, No. 4 (Nov., 1961), pp. 643-669* 

Before Daniel Ellsberg become a household name for leaking the Pentagon Papers, he was already known among economists and subsequently philosophers for a paper, published after his service as  marine and during his graduate study, that has become associated with a 'paradox'  because it is seen as a challenge to Subjective Expected Utility theory, despite the fact that 'paradox' is not to be found in the paper. And, so, while paradoxes naturally attract attention, I'd like to focus the attention of this digression on Ellsberg's way of motivating and situating his own paper. 

The quoted paragraph is the first in the essay. After citing Knight's Risk, Uncertainty and Profit, the identity of the main skeptic toward Knight's distinction is identified as Arrow in Ellsberg's first footnote: "see Arrow's comment: "In brief, Knight's uncertainties seem to have surprisingly many of the properties of ordinary probabilities, and it is not clear how much is gained by the distinction. . . Actually, his uncertainties produce about the same reactions in individuals as other writers ascribe to risks." Ellsberg is quoting an important and lengthy (1951) review article by Arrow that both helped discredit Knight among mathematically inclined economists and also was key in creating the (recall Alchian inspired; and here) identification of uncertainty with randomness that became central in theories used in risk and price models in finance. So, the question I wish to pose is in what sense is Ellsberg vindicating Knight?

He is responding, in particular, to those who think  that, and Ellsberg is now quoting Ramsey's great (1926) "Truth and Probability," "for a "rational" man all uncertainties can be reduced to risks.3"  That is to say, Ellsberg's paper is meant to meet those who prefer to displace uncertainty with probable risk (and so eliminate true uncertainty) on their own ground. In particular, it is meant to engage those who think that (our gambling) "choices are influenced by, or "reflect," differing degrees of belief...[and] to infer those beliefs from the actual choices." It's at this point that Savage's postulates are introduced because these help distinguish systematically in the analysis of observed outcomes whether they track "relative expectations...[or] relative preferences for outcomes." As Ellsberg puts it, "if one picks the right choices to observe, and if the Savage postulates or some equivalent set are found to be satisfied, this distinction can be made unambiguously, and either qualitative or, ideally, numerical probabilities can be determined." (645)

At this point Ellsberg notes that Savage's postulates/axioms can be interpreted normative and empirically. They can be treated as a rational standard for how one ought to behave and as an empirical prediction of how people with "plenty of time to reflect" (646) will generally behave or (as Ellsberg puts it "the rules will be commonly satisfied." (645)) As others have noted, in the 1950s both approaches were not unusual, although in general, as Wade Hands has noted, when Savage was writing alone he tended to emphasize the normative interpretation in terms of an ideal agent. By contrast Savage's sometime co-author, Milton Friedman, tended to treat these as a useful (as-if) device for making predictions.** (More recently, as Hands notes, the normative interpretation has predominated.)

At this stage one may well wonder what the previous paragraph has to do with Knightian uncertainty for we seem to have drifted into an interpretation of rational choice theory. In fact, it is crucial: Ellsberg's strategy is to suggest that "the meaning" of true or Knightian uncertainty  "would be that with respect to certain events they did not obey, nor did they wish to obey - even on reflection - Savage's postulates or equivalent rules." In such circumstances "the postulates failed to be acceptable in those circumstances as normative rules, or that they failed to predict reflective choices." (646) Ellsberg adds that he is primarily interested in failures of prediction (and notes that Savage himself is more interested, "no doubt" in their status as "normative rules"). 

That is to say, Ellsberg's intention, or strategy, is to identify Knightian uncertainty with a class of decisions that can be specified precisely as empirical violations of the Savage axioms. Again, on may wonder, why would that count as an instance of Knightian uncertainty? And the answer is: "there would be simply [a] no way to infer meaningful probabilities for those events from their choices, and [b] theories which purported to describe their uncertainty in terms of probabilities would be quite inapplicable in that area." (646; [parentheses added].) This [a-b] is true, as Ellsberg notes, absent "different operations for measuring probability." (646; [emphasis added.])  Here, Knightian uncertainty is associated with well defined choice circumstances in which it is impossible to attribute (with the Savage postulates) subjective probabilities to agents.

There is an instructive irony here. As mentioned above, Ellsberg noted that Arrow was a fierce critic of Rawls. When, later in 1973, (recall) in reviewing Rawls' Theory of Justice in the Journal of Philosophy, Arrow (correctly) discerned Rawls' adherence to Knightian uncertainty, but he misdescribed Knight's position as resting not on the denial of subjective probabilities (in the axiomatic tradition of "Ramsey and by L. J. Savage"), but on the denial of "objective probability." So, from Arrow's later (1973) perspective, Ellsberg can't be seen as defending Knight at all!+  I mention the irony because while the later (1973) Arrow is reductive about Knight, it is true that Knightian uncertainty was not limited to the class of interest to Ellsberg (subjective probabilities).

At this point, I am in the position to explain the relationship between Knightian uncertainty and what Ellsberg called ambiguity. But before I get to that (in a future post, alas), I need to spell out why the irony is instructive. One ground on which Arrow (1951) had criticized Knight is that his "analysis" is "lacking in formal clarity." (416) And in larger context, the implication is that without such formal clarity, Knight's position ought not be taken seriously. In fact,  in 1951 Arrow's hopes that then recent "developments"  in "the formalization of the theory of choice under uncertainty and its relation to many business phenomena" represent "dramatic breaks in continuity and have given hopes of a much clearer understanding of the problem." (405)++ That is to say, the formalization presents "a revolution in though" (to quote Samuelson, who in turn echoes J.N. Keynes anticipating Kuhn)  that is, the "Mathematical-Economics Revolution." 

While framed as a defense of Knight, Ellsberg's contribution is in the spirit of the Arrow-Samuelson hopes for economics. For, in fact, Ellsberg makes the very intelligibility of Knightian uncertainty dependent on a prior formalization (e.g. Savage's postulates). For, Knightian uncertainty can in his hands only be constituted by choice instances where this formulazation, when treated as a means to assign subjective probabilities to thoughtful (and willing to bet) agents,  is empirically falsified or (if one dislikes the Popperianism) inapplicable. For, Knightian uncertainty now just is or is constituted by the very violation of the (particular) formalization. Whatever one thinks of that it's pretty clear this far removed from Knight's (and Keynes's) own ideas about the nature and epistemology of uncertainty even if it clearly is a case of Knightian uncertainty. Obviously, as Ellsberg notes, the violation is itself also a research opportunity to develop other formalizations that may be predictive of such choice situations, or their systematic violations.*** 

 

How 'Neoliberalism' came to refer to Everything I reject

Neoliberalism is in the first instance a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets and free trade. The role of the state is to create and preserve an institutional framework appropriate to such practices. The state has to guarantee, for example, the quality and integrity of money. It must also set up those military, defence, police and legal structures and functions required to secure private property rights and to guarantee, by force if need be, the proper functioning of markets. Furthermore, if markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary. But beyond these tasks the state should not venture. State interventions in markets (once created) must be kept to a bare minimum because, according to the theory, the state cannot possibly possess enough information to second-guess market signals (prices) and because powerful interest groups will inevitably distort and bias state interventions (particularly in democracies) for their own benefit” David Harvey (2005) A brief History of Neoliberalism, p. 2

It is generally thought that the "neo-liberalism" was coined at the 1938 Lippmann colloquium in Paris. And in what follows when I speak of 'true' or 'authentic neoliberalism,' I mean the cluster of ideas that became prominent within liberalism since that colloquium. They jointly constitute an important stream within what I call (here and here) the second-wave of liberalism (in brief: first long wave: 1776-1914; second wave: 1945-2009).*

Of course, scholarship by Stefan Kolev (see especially section 2) and Karen Horn (in this newspaper article) plausibly argue it was a term of art already in the 1890s. This suggests that throughout its history strands of liberal thought understood itself as open to renewal.  It was an actor's category used by liberals and critics alike.  Even so, unlike 'liberalism,' the term neoliberalism was not used very often, and only started to gain wider currency after 1990, that is, the end of the Cold War. (See the graph at the bottom of this page before the fold.)

Last month I quoted Milton Friedman (ca 1951) on his understanding of Neoliberalism which, in its American flavor, he took to be a associated with the views of his mentor Henry Simons. Friedman treats neoliberalism as a cluster of commitments and doctrines. It has commitment to (quoting from Friedman)

• (i) the fundamental importance of the individual (which it shares with the older liberalism);
• (ii) it embraces  a competitive economic order as the means to promote individualism (where the nineteenth century had laissez-faire).
• (iii) "It would seek to use competition among producers to protect consumers from exploitation, competition among employers to protect workers and owners of property, and competition among consumers to protect the enterprises themselves."
• (iv) "The state would police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress."
• (v) "The citizens would be protected against the state by the existence of a free private market; and against one another by the preservation of competition."
• (vi) The state maintains "law and order" and of engages in “public works;"
• (vii) The state "would have the function of providing a framework within which free competition could flourish and the price system operate effectively."
• (viii) "The freedom to establish enterprises in any field, to enter any profession or occupation."
• (ix) "the provision of monetary stability.'

These nine features are not all on the same conceptual level, but let's leave that aside. One thing missing here (although it may be implied in (vi)) that, say, Ordos or natural-law libertarians would emphasize is (x) the system of individual (natural/human) rights. Alerted to this, we can notice that unlike Simons, Friedman does not emphasize here the set of institutions associated with political freedom (competitive elections, a free press, representative democracy, federalism, etc.) Of course, Friedman did embrace these elsewhere (Capitalism and Freedom); although because of the Pinochet affair his commitment to these are subject of controversy (see my paper for this material).

One additional point to make, which Foucault emphasizes, is that in the embrace of competition (and the rejection of laissez faire), there is also (xi) another non-trivial shift from a focus on exchange (in the analysis of classical political economy) to competition. But other than that Friedman's list is fairly representative of the broad sweep of neoliberalism. And while there are tensions within the list, it represents a broadly coherent program. It is also vague enough to allow for plenty of differences on matters of substance and tactics within neoliberalism. One thing I wish to emphasize is that in an important sense all of neoliberalism accepts the importance state capacity and state aims independent from market actors.

Let me turn to Harvey's Brief History. It is extraordinarily widely cited (see here). This was undoubtedly aided by the Great Financial Crisis, but it should be noted that it made a nearly instantaneous impact on scholarship and discussion. It clearly contributed in non-trivial fashion to the vastly broader uptake of 'neoliberalism' or it became (one of the central) the vehicle(s) of it.

At the start of the book Harvey gives what looks like a definition or description of a "doctrine" and a set of arguments he associates with "neoliberalism" quoted above. There are three key features of it that I wish to emphasize here. First, what is immediately notable is that he gives neoliberalism a Schumpeterian twist. (See also the focus on 'technological change' on p. 64.) The main mechanism to promote individual well-being is (xii) a process of liberating individual entrepreneurial freedoms and skills.

 Schumpeter is not a neoliberal. But as such this is not silly because the significance of entrepreneurs to the economy was emphasized by Israel Kirzner in his widely cited (1973) Competition and Entrepreneurship. (This built on earlier papers prominent in the 1960s.) Kirzner is an important representative of the American branch of the Austrian School of economics, which is a central to the development of true neoliberalism. And while there are interesting questions about how to fit entrepeneurs into standard economic models, at least since Knight entrepreneurs help explain the nature of profit in it.  

As an aside, as Tyler Cowen has shown (in a philosophically subtle article with a lovely treatment of Kant's aesthetic and Vico) that in many ways Kirzner stands far removed from Schumpeter, and we should see  G.L.S. Shackle's account of the creative entrepreneur (in his account of economic choice) as more authentic Schumpetarian. (Shackle died in 1992. Regular readers know I have a soft spot for Shackle, who ably defended the significance of Knightian uncertainty within economics.) 

Be that as it may, it is notable that Harvey emphasizes the significance of entrepeneurship so much that on his view of neoliberalism, that it becomes the main "role of the state" to "create and preserve" its possibility and practice. There is good reason to think this decision distorts Harvey's analysis of neoliberalism. But before I get to that let me note a second characteristic feature of Harvey's description.

Second, Harvey argues that neoliberalism is committed to the thought (xiii) that when "markets do not exist (in areas such as land, water, education, health care, social security, or environmental pollution) then they must be created, by state action if necessary." There can be no doubt that in the last few decades this (xiii), and (xiv) the process of privatization of state enterprises, have become associated in the public mind with neoliberalism. To be sure, not all privatization involves the development of new markets where the previously were none both because (a) there were already markets in this area or (b) privatization involves the development of a (de facto) private monopoly. I mention this because (b) is de facto incompatible with a core commitment of neoliberalism (namely the embrace of genuine competition). 

It is notable that while (xiii) can be compatible with neoliberalism it is not required by it. Note also (vi) above, for example, where Milton Friedman without hesitation recognizes the states role in providing public works (in the sense classical liberalism entailed). 

Third, Harvey completely dissociates neoliberalism from an interest in individual right and political freedoms. In the book, this allows him to strongly associate neoliberalism with the reforms of (prominently) Deng Xaioping and (less prominently) general Pinochet. And this is signaled in his description of neoliberalism by his insertion of "by force if need be." As regular readers know I think Hayek quite clearly flirted with a model of Enlightenment despotism to bring about neoliberal outcomes (at least as a second best option). So, Harvey is not all wrong about this. But it is quite noticeable that in Harvey's hands neoliberalism becomes, frankly, essentially, illiberal. Obviously, from a certain vantage point, all talk of consent within liberalism is intrinsically ideology to cover over the violence at the heart of it. In the book Harvey treats talk of individual freedom as a trojan horse on the way to 'incorporation into the neoliberal fold.' (41; so he is unable to take emancipatory projects connected to gender, sexuality, ethnicity/race, seriously in their own terms.)** 

That is to say, in Harvey's hands neoliberalism does not merely serve the class interests of capital, it is fundamentally reduced to it. And this means that where a sincere neoliberal might see evidence for her claim that the democratic political process is vulnerable to massive and deplorable rent-seeking and the protection of well connected special interests, Harvey treats this as a feature not a bug of neoliberalism which is just a new way to fight class warfare. By contrast, for, from the vantage point of the neoliberal, the interests of entrepreneurs are just one of many and often at odds with those of consumers and even the state itself. Again, while it is not silly to point to political coalitions between business interests (not all of them entrepreneurial at all) and neoliberalism, Harvey's conflation between the ends up treating 'neoliberal' as a way to describe the wrong party in class warfare.

Now, Harvey is not very interested in or especially careful in connecting his claims to neoliberal theorists. He is much more focused on governance, and practice. Even Harvey recognizes that there is a "significant departure" from "neoliberal" theory to neoliberal "practice" as he understands it (see, e.g. 64). But because he does not really take theory distinct from practice seriously, he does not stop to consider the meaning of this. And so one can safely predict that in years to come those influenced by Harvey will point to many practices and treat them as instances of neoliberalism that those of us who wish to renew liberalism (in an utopian-seeming third wave) will deny have anything to do with liberalism in any sense at all. 

 

 

 

 

On Milton Friedman's Neo-liberalism; legislating policy forty years ahead, and Basic Income

In his magnificent book, Law and Public Opinion, A. V. Dicey distinguished between the trend of legislation on the one hand and the trend of opinion on the other. Legislation, he argued, is dominated by the underlying current of opinion, but only after a considerable lag. Men legislate on the basis of the philosophy they imbibed in their youth, so some twenty years or more may elapse between a change in the underlying current of opinion and the resultant alteration in public policy. Dicey sets 1870 to 1890 as the period in which public opinion in England turned away from individualism (Manchester liberalism) and toward collectivism; yet he points out that economic legislation was not strongly affected by the new trend of opinion until after the turn of the century.
In most of the world, legislation is still largely dominated by the trend of opinion toward collectivism that Dicey documented some forty odd years ago. True, there have recently been a whole series of elections in which the Right has gained at the expense of the Left—in Australia, England, the United States, and continental Europe. But even if a political trend to the right were to develop out of these small beginnings, which is by no means certain, it would probably mean simply collectivist legislation of a somewhat different kind to be administered by different people. The men of the conservative parties, no less than those of the left, have been affected by the underlying current of opinion. Men may deviate in emphasis from basic social values and beliefs but few can hold a thoroughly different philosophy, can fail to be infected by the intellectual air they breathe. By the standards of nineteenth century individualism, we are all of us collectivists in smaller or greater measure....

I do not mean to argue that it makes no difference which party is elected, which side gains votes. It clearly makes a difference of degree if not of kind and offers the opportunity to begin a drift in a new direction. My point is rather that the direction this drift takes will be determined not by the day-to-day shifts in political power or the slogans of the parties or even their platforms but by the underlying current of opinion which may be already — if only we could penetrate its mysteries — determining a new direction for the future--Milton Friedman (1951) “Neo-Liberalism and its Prospects” Farmand, 17 February 1951, pp. 89-93. [HT: Joseph Christian Agbagala]

According to Friedman, at any given time there is what he calls the (a) "trend in legislation;" there is also (b) "the trend in underlying public opinion;" (c) there is the internal development of (policy) science; (d) a "faith" (this reminds us the religiosity of neoliberalism found in Lippmann) that generates a particular orientation behind the trends. On his view, at bottom legislation is determined by the center of underlying public opinion, as articulated by an "intellectual class," but with a delay of a generation, say, about twenty years. The idea being that present public opinion is a consequence of exposure to ideas when one was young and the effects of the often very slowly evolving conventional wisdom that is responsive to cumulative experience or decisive seeming episodes. The change in public opinion can seem glacial in lots of periods, and then after a period of (what Friedman following Dicey calls maximum cross-currents) can undergo a remarkable shift.

On Friedman's view "ideas have little chance of making much headway against a strong tide; their opportunity comes when the tide has ceased running strong but has not yet turned." After the fact, the new conventional wisdom itself seems long-held and robust. (In my life-time something like this happened with perceptions of gay marriage (recall this post))

In this piece (but, recall, not elsewhere) Friedman ignores the ways legislation can itself shape public opinion downstream. (But he does recognize that foreign affairs -- like the cold war or real wars -- can also influence the trend.) It is the role of certain kind of public intellectuals to develop the teachings, which combine science and a faith, that can be taught to the young who may one day be the intellectual carriers of public opinion, even legislation. Friedman's career can be understood as contributing to both the internal development of science in light of his faith, and the development of the faith itself. In fact, the development and articulation of such faiths has its own rhythm(s). Friedman's lecture is devoted to one such articulation: 

The doctrine sometimes called neo-liberalism which has been developing more or less simultaneously in many parts of the world and which in America is associated particularly with the name of Henry Simons is such a faith. No one can say that this doctrine will triumph. One can only say that it is many ways ideally suited to fill the vacuum that seems to me to be developing in the beliefs of intellectual classes the world over. Neo-liberalism would accept the nineteenth century liberal emphasis on the fundamental importance of the individual, but it would substitute for the nineteenth century goal of laissez-faire as a means to this end, the goal of the competitive order. It would seek to use competition among producers to protect consumers from exploitation, competition among employers to protect workers and owners of property, and competition among consumers to protect the enterprises themselves. The state would police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress. The citizens would be protected against the state by the existence of a free private market; and against one another by the preservation of competition...The state would of course have the function of maintaining law and order and of engaging in “public works” of the classical variety. But beyond this it would have the function of providing a framework within which free competition could flourish and the price system operate effectively. This involves two major tasks: first, the preservation of freedom to establish enterprises in any field, to enter any profession or occupation; second, the provision of monetary stability.

What is notable about Friedman's analysis is how close his interpretation of Simons' doctrines (recall here) is to a standard interpretation (say Foucault's) of ordoliberalism (recall here; here). As he makes clear, what is characteristic of neoliberalism is that it treats the generation and maintenance of competition among producers and consumers as the key means to promote the emancipation of individuals.  And not unlike the Ordos, Friedman insists that all government powers should be "limited in scope and capable of being exercised by general rules applying to all. They are designed to permit government by law rather than by administrative order."

While the focus is rather economic, the neoliberal state on Friedman's view has responsibility for monetary stability, public works, anti-trust law, the removal of barriers to entry, law and order, and (not unlike Hayek) a minimum safety net. For Friedman the safety-net should not interfere with the workings of the market. But he thinks it is legitimate to provide cash-transfer to "people because they are poor." For those familiar with Friedman's later role in developing the negative income tax this is, perhaps, not much a surprise. But here in 1951, Friedman insists that according to neoliberalism, "there is justification in trying to achieve a minimum income for all." Friedman does not tell us what this justification is.** 

I close with two observations. Not for the first time (recall) I notice that Friedman's Simons inspired neoliberalism (of the 1950s) is really distinctive from the way Chicago later developed in the hands of Becker and Stigler. But Friedman has little interest in the constitutional and cultural elements of Simons' analysis. Second, Friedman's interest in establishing basic income predates his more famous work on the negative income tax. The two points are connected because later Chicago understands income (as Foucault also emphasizes) as a return to (human) capital or work whereas Friedman treats access to some income as a human entitlement. One wonders if this is an idea whose time has come in an age when, as I think has happened, the trend of public opinion is rejecting much else of neoliberalism.

On Milton Friedman, Political Realist, and American Empire; On Brouillette on Melinda Cooper

Most important of all, floating rates would enable us to separate issues and determine our national policies on the right grounds. Monetary and fiscal policy could be directed toward pursuing internal stability without being hamstrung by the. balance of payments. We could decide how much foreign aid to give in terms of our resources and our values, not by the irrelevant consideration of the currency in which it is expressed. We could instruct the military to buy in the cheapest market and keep the real costs to a minimum—not turn them into a foreign exchange authority. We could conduct foreign policy in terms of our true national interests—not in terms of the effect on gold flows. We could behave in foreign trade like a great nation, not like a mendicant, by unilaterally moving toward freer trade without having to be concerned about balance-of-payments problems.
This last point perhaps deserves a slight digression. Not the least of the advantages of floating rates, in my opinion, is that it makes it so much easier for the layman to understand the merits of free trade. With rigid rates, the first effect of a reduction in tariffs is an increase in imports without any immediate effect on exports. It looks as if imports have simply displaced domestic products and so produced unemployment. It takes a subtle chain of reasoning to show that this is only part of the story, that the increase in imports will have indirect effects that will ultimately lead to an expansion of exports so that the final result is an increase in foreign trade not an increase in unemployment. And, indeed, with our present nearly paralyzed adjustment mechanism, the indirect effects may be long delayed and highly unreliable.

With floating rates, a reduction in tariffs will also produce an attempted increase in imports. But how can this be realized? Only if the importers can get some foreign exchange. To do so they will bid up its price which immediately makes exports more attractive to foreigners. The first effect of a reduction in tariffs is thus a rise in the price of foreign exchange and a simultaneous increase in imports and exports. There is not even a temporary importation of unemployment.--Milton Friedman (1967), "First Lecture" in The Balance of Payments: Free versus Fixed Exchange Rates, American Enterprise Institute, 17-18

The passage above caught my attention for a number of reasons. First, the slight digression shows Friedman's sense that, in a democracy, public policy relies on public opinion. And he assumes that perceptions of policy X (free floating exchange rates) can influence perceptions of policy Y (free trade). (A further assumption is the Humean one that people are more easily swayed by direct perception than long or subtle chain of reasoning.) And that he sees clearly the linkages among distinct policy aims. Public support of X can lead to public support of Y. We see Friedman here showing his policy-sensitive skill of playing chess on multiple connected boards. To be sure, Friedman's support of X is not merely instrumental. Most of the lecture offers distinct arguments for it. 

Second, Friedman's argument in the first quoted paragraph is very much couched in terms of national greatness and national interest. (It is not obvious these always point in the same direction, but for great powers they do.) This is very much a realist rhetoric meant to appeal to the national statesman. Friedman is far removed from the attacks on nationalism one can find, say, in neoliberals like Mises. 

To be sure, Friedman is also committed to the idea that gains from trade and free floating exchange rates are mutual. So, he is not advocating polices that necessarily make other states poorer. But he is advocating removing a clear constraint -- concern over balance of payments -- on American freedom to maneuver in foreign affairs and so be able to pursue its national interests. 

This matters also for the critics of neoliberalism. In her perceptive review of Melinda Cooper's Family Values (a book I have recently praised here (see also here)), Sarah Brouillette notes that the age of the Fordist family wage to which many critics of neoliberalism seem to pine "was also hugely resource extractive and suburbanizing. The capacity to redistribute wealth more evenly in the US was, in addition, contingent upon broader economic transformation that required dispossessions, expulsions, enclosures, primitive accumulations, US hegemony propped up by global wars, and the origins of the whole phenomenon of US industrial triumph after WWII in wartime accumulation and relative devastation across Europe."+ 

The question is to what degree US Hegemony was the cause of the capacity to redistribute wealth more evenly in the US or an effect of such domestic Fordist/racialized egalitarianism or both were the effect of economic might. Brouillette assumes  that "the accumulation of wealth requires these devastations." But that's to say not jus the marxists were right (exploitation is endemic to capitalism), but the mercantilists were right all along. There is no possibility of mutual gain. Here I do not intend to resolve this. Just register my skepticism.

Rather, Brouillette is right to note that behind the debates over the ways in which neoliberals displaced the efforts to extend the Fordist family wage to other groups, is a wider debate over foreign policy. Or to be precise, Friedman saw that getting domestic policy right was also a means to American hegemony. Any reckoning of neoliberalism, its virtues and vices, must (recall) confront its role in facilitating empire. 

On Mestmäcker; Ordoliberalism (vs Libertarianism), and the EU

The rhetoric of Bentham's critique must not prevent us from recognizing the very real difficulties that go with the implementation of individual rights limiting or modifying the binding force of legislative acts. Bentham points out uncertainties of interpretation and application that, to this day, trouble judges and law-makers. They concern the applicability of human rights in private law relations, particularly in family law and labour law; the limits of human rights where strict discipline is required as a matter of law as, for example, in the military; and finally, the balancing of legislation by majority rule and the power of courts to interfere with or declare void, specific legislation.
To take these objections seriously does not mean that they are dispositive. Experience shows that, on balance, the benefits of protecting individual rights justify its costs. One reason is foremost in this context. It is the protection of minorities and of individuals against the majority. "Even in republics", James Madison observed, "a danger to the minority arises from opportunities tempting a sacrifice of their rights to the interests real or supposed of the majority" Just as relevant is the finding that even the most conscientious and equal-handed legislator is unable to foresee the actual effects his legislation is going to have upon individual liberties. Those effects are dependent upon a great variety of present and future circumstances. Judicial review of these effects in individual cases is the only effective remedy.

These observations are directly relevant for the jurisprudence of the Strasbourg institutions on human rights. The difference to individual rights recognized in the EC is one of degree only. Some of these protect personal interests similar to human rights in general...Although European law is based upon international agreements and its source is still the sovereignty of Member States, it is no longer the instrument of implementing the will of national sovereigns. In the light of these developments, Community law may be defined as a federalized and functionally limited legal system. Ernst-Joachim Mestmäcker (1994) "On the Legitimacy of European Law" The Rabel Journal of Comparative and International Private Law, 625-626 [emphasis added!--ES]

As I have said before (recall here. here, here), Quinn Slobodian's Globalists introduces a significant number of interesting and sometimes influential twentieth century neoliberal thinkers which do not ordinarily figure in the polemics surrounding neoliberalism. One of these is the Ordoliberal jurist Ernst-Joachim Mestmäcker, who was a "special adviser to the Commission of the EEC from 1960 tpo 1970." Now, it turns out I had encountered his name before, in 2005, when I was starting to research my paper on Milton Friedman and the Chicago Boys (in Chile). At the time, I wrote Bruce Caldwell -- the world's leading Hayek scholar -- for some leads.*

In his email response to me, Bruce kindly gave me some advice and offered some background. This background included the circumstances of an invitation to Hayek to Chile in order to be (now quoting from his 2015 article with Montes) "Honorary President and Council Member of the newly formed Centro de Estudios Públicos (CEP, or Center for Policy Studies)."+ CEP also hosted a conference which included some of its other foreign council members. In his 2005 email to me, Bruce wrote (and I quote with his generous permission), "The others who attended were Theodore Schultz, Armen Alchian, Ernst Mestmacker (I don't know him), and Chiaki Nishiyama." With the benefit of hindsight I am struck by Bruce's candor of ignorance about Mestmäcker and my own lack of further curiosity. As it happens I did investigate Alchian, who has (recall here and here) ended up important in my story about the displacement of Knightian uncertainty. I write this not to make fun of Caldwell. It is just to note that knowledge about the Ordos that played an important role in the Bonn republic and the development of the EU was really relatively scarce even among specialist scholars (like myself) in the English speaking world. (Much of what I know about the Ordos has been taught by Stefan Kolev.) 

Okay, now let's turn to the texts. At the end of the quoted passage, Mestmäcker mentions a theme discussed throughout his writings. For Mestmäcker the original source of legitimacy of European treaties can be found in the democratic sovereignty of the member states. (This was especially so when each of the member states had a veto power.) These express a kind of general will. Now, to be sure, Mestmäcker is no fan of Rousseau's doctrine of the general will, but he recognizes that in social and historical context Rousseau's views are a kind of shared background commitment in European liberal democracies. And he recognize the significance of such commitments. But the treaties tend to be too vague (or too full of compromises) and, like all law, encounter new circumstances. So, in practice, European courts develop (much like the common law tradition) the treatises into European law on a case by case basis. Mestmäcker thinks this is a good thing. In fact, let me quote one of his most characteristic passages (from another (1972) article):

The historical and political importance of the Rome Treaty lies not least in the fact that it has provided the hundations for progressively restraining economic power through the development of Community law. Against the background described, this attempt is of value as a model for the development of international economic law not only in Europe. (621)

That is to say, and this echoes the preamble of the treaty of Rome ("ever closer union"), Mestmäcker sees the EU as an unfolding work in progress in which developing law functions (a) as a means of integration. It is also, simultaneously, an exemplar to other such regional integrations. Mestmäcker, too (recall), is inspired by Kant's Perpetual Peace! But this means that as law develops away from its original source democratic control and so legitimacy is reduced. That's a feature not a bug. To see why, we need to realize there is a second function of law: it is explicitly aimed at (b) "restraining economic power," that is, cartels and other rent-seeking economic elites (Mestmäcker often writes of multinational businesses and unions in this way; today he would surely include oligarchs). In so far as law does so, and becomes impartial, and -- as part of an economic constitution -- generates a kind of second order output legitimacy. This output is both economic (growth, no concentrated economic power) and legal-moral (human rights are protected in an impartial, rule-governed way). 

I don't mean to suggest that democratic legitimacy cannot be renewed. In the European context, treaties end up being updated and refreshed rather regularly by the (sovereign) member states. So, there is a kind of tacit democratic and explicit ongoing legitimacy to law as developed by the European courts. 

Yet, the point of (b) raised an important issue. Mestmäcker understands politics as a realm of competing interests from which one is unlikely to expect neutral legislation. He rejects both the tacit idealism about politics and its black-boxing of the earlier (recall here and here) generation of neoliberals. But it also means the treaties themselves are going to be sub-optimal from the perspective of, say, protecting minorities. I return to this below.

In the passage quoted above the post, Mestmäcker rejects the Benthamite critique of rights on empirical, even cost-benefit grounds. As it turns out, societies that protect rights may incur some costs, but also gain, in the right circumstances, many considerable benefits (moral, legal, and economics). Many human rights can also good for the economy over time. 

While some readers may be made uncomfortable by Mestmäcker's pragmatic defense of  rights, I want to close with a different issue. In the passage that I highlighted above ("Judicial review...is the only effective remedy"), Mestmäcker tacitly rejects a number of alternative remedies against the rent-seeking and other oppressive practices by majorities: 1) compensation of the minority by the majority; 2) moral appeals by the minority to the majority; 3) medium term effects of economic competition; 4) exit.** We may say that the first two are much beloved by democratic theorists, while the latter two are beloved by folk with sympathy for libertarianism (with an economic flavor).  Mestmäcker' does not expect much from the political arena to redress wrongs it generates, but he is equally unlikely to expect the market to solve them.

So, for Mestmäcker,  judges must, when they do their job, find ways to make the law more impartial and side with the vulnerable against majorities. This is a normative desideratum that Mestmäcker puts on them. The problem is not that judges may lack democratic legitimacy (although Mestmäcker does worry about it). Rather, that the judges are themselves products of particular political cultures (if not indirectly simply political appointments in disguise). This tension seems to me unresolved in his thought, and difficult to resolve. 

 

On Haberler, Bretton Woods, Keynesianism vs Neoliberalism, reconsidered

The recent movements toward integration are often regarded as an entirely new development which has been envisioned and proposed by many but has never before made headway on a significant scale. I submit that this is true only in a formal and narrow sense. Looking over the evolution of the world economy during the last two hundred years or so, we can clearly discern three big waves of integration-preceding and dwarfing the regional integration movements of the last ten years. The secular trend toward integration and growth of the world economy was interrupted by one period of sharp decline and disintegration...

The first wave was the internal integration of the economies of the nation states which we find today on the map of the world. The economy of Great Britain was the first to be unified and integrated, the French and American followed soon after. Later came other Continental European and overseas countries.
The second wave overlapping or, if you prefer, superimposed upon the first was the free trade movement that reached its high point at the end of the 1870's. The movement towards freer trade was reversed in 1878, but despite the fact that in most countries tariffs became higher and higher, world trade continued to grow rapidly up to World War I. For the underlying forces of rapid technological progress in transport and mass production, as well as massive migration of labor and capital toward the regions of "recent settlement" in the Western Hemisphere, Oceania, and South Africa, still dominated over increasingly protectionist commercial policies in many parts of the world...

The third wave of world-wide integration and growth started soon after the end of World War II, gathered momentum after 1948, and is still in progress. It has been centered on and propelled by the spectacular recovery and rapid growth of all industrial countries, including the United States and United Kingdom, notwithstanding their recent troubles and their lower growth rates compared with the Continent of Europe and Japan. Contrary to what is often said, the prosperity of the "industrial centers" of the world economy did spread, though not as rapidly and fully as one would wish, to the "periphery" of the less developed countries, to use Raul Prebisch's picturesque designation of the two areas. This wave of world-wide integration has had more powerful and beneficial effects than the much more advertised and talked-about series of regional integrations.--Gottfried Haberler Integration and Growth of the World Economy in Historical Perspective, The American Economic Review, Vol. 54, No. 2, Part 1 (Mar., 1964), 2-3

One of the really great features of (recall) Quinn Slobodian's (2018) Globalists : The End of Empire and the Birth of Neoliberalism, is his recovery and insistence on the significance of people associated with so-called Geneva school of neoliberalism. A central figure in his narrative and, this school, is Haberler (who spent most of his professional life at Harvard--the quoted lecture is a Presidential address of the AEA.) A key point Slobodian makes is that by working through international institutions, the guided development of international law became a means to constitute a neoliberal order. I think this is right, and also helps explain much about the contemporary global order and the European Union.

Now, if we turn to the quoted passage Haberler, he offers a stylized historical account of three waves of world integration.* Haberler thinks such world integration is a good thing. In the first, the mercantile state creates national markets with freedom of movement of people and goods. In the second, such (partially liberal) states create (relatively) free, globalizing trade regime as part of their imperial projects. There is much to be said about the role of illiberal agents producing liberal outcomes.

Crucially, for my present purposes, Haberler thinks he is (ca 1964) living through the third such wave of world integration. As my students noted, this entails that he views the Bretton Woods regime as a positive era of world integration. Since they associate Bretton Woods with the age of Keynesianism, they were surprised by this because they tend to see neoliberalism and keynesianism in contrasting terms. 

But upon reflection Haberler's on balance positive evaluation of the Bretton Woods regime is not surprising because it has many characteristics that neoliberals pined for during the disintegrating age between 1914-1945. In particular, Bretton Woods operates under a (modified) gold standard and is committed to free trade with the lowering of barriers that prevent it). Haberler plays a crucial role in developing the GATT framework that facilitates this latter point.

As an important aside, I do not mean to suggest only neoliberals could endorse this. After all, Haberler's famous (1958) report, Trends in International Trade, was co-authored with Jan Tinbergen (later the first Nobel laureate in economics), who was no neoliberal (but social democrat) and James Meade (another Nobel laureate) also no neoliberal. (The fourth co-author Roberto de Oliveira Campos is harder to classify, but I am willing to grant he may be thought neoliberal.)

That is to say, it makes sense to see the Bretton Woods system as, in part, a neoliberal project because that is how people like Haberler see it. But one that also fit the aspirations of cosmopolitan social democrats and neo-Keynesians in many ways. (I don't mean to suggest all neoliberals would agree with all elements of Bretton Woods.) When Bretton Woods collapsed, neoliberalism had to reinvent itself or at least it opened the door to more radical policies (now associated with names like Milton Friedman and even Hayek). But if we see Bretton Woods as neoliberal, then we can discern how over time the EU became a kind of mini Bretton Woods. But about that some other time more.

One final observation (connected to the thought I just left hanging): the polemical point lurking in Haberler's ideal-type history is worth mentioning: he thinks regional integration -- such as the one associated with European Union -- risks undermining world integration. And his lecture can be understood as a plea for sticking with the global multilateral project as distinct from both nationalist protection, which he thinks is a recurring temptation Stateside, and regional integration, which he thinks risks protectionism at the expense of exports of the developing world.

On Milton Friedman and Hayek on Consensus

I venture the judgment, however, that currently in the Western world, and especially in the United States, differences about economic policy among disinterested citizens derive predominant from different predictions about the economic consequences of taking action - differences that in principle can be eliminated by the progress of positive economics - rather than from fundamental differences in basic values, differences about which men can ultimately only fight.--Milton Friedman (1953) "The Methodology of Positive economics" in Essays in Positive Economics, p. 5

Friedman relies here on [A] a tacit distinction between basic values and not-so-basic values. When there is (fundamental) disagreement over these society returns, we can say, to the state of nature. So, not unlike one of his Chicago mentors, Henry Simons, he relies on the idea (recall) that states presuppose considerable consensus. (I have noted the somewhat disastrous afterlife of this idea in Chicago economics elsewhere; e.g.  here and here.) Another, no less consequential, distinction he relies on [B]  is that between disinterested and (ahh) self-interested citizen. Presumably the disinterested citizen advocates the public or common interest, whereas the self-interested citizen promotes a self/sinister interest. 

This means that in a functioning political unity -- i.e., one with considerable background consensus -- if we encounter public disagreement, there are for Friedman three possible sources of controversy: (i) disagreement over likely outcomes of policy; (ii) disagreement over which no-so-basic value to prioritize [in the context of major agreement]; (iii) people advocating their own interest as opposed to public interest. In principle, and this is the point of Friedman's essay, (i) can be eliminated as positive (that is empirical) economics progresses. This suggests, and again this is no surprise, that for Friedman a mature positive economics will be characterized by consensus over the relationship between policy and outcomes. In addition, in principle, (ii) can be eliminated as normative economics progresses. Friedman does not spend much time on this, and it is unclear if he agrees with Robbons who does not expect such convergence in normative economics, or with later more optimistic professional philosophers.

An important consequence of Friedman's stance is that it entails that if, one agrees with him and understands oneself as a policy-scientist (and Friedman often does), one can model public policy debates with representative agents who exhibit public spirit. For these will all agree on the common good. For those who think of 'Chicago' as a bastion of self-interest this is surprising. It is worth noting this because it makes clear that the subsequent public choice (Buchanan/Tullock) and rent-seeking (George Stigler, etc.) revolution (by his Chicago trained contemporaries) also impacts Friedman's own program. 

Another important consequence of Friedman's stance is that one cannot assume that public spirited representative agents will agree across space and time, especially as they become culturally more distant. This has obvious consequences  when one aims to do comparative policy work.

I could end here, but I want to call attention to a feature in Hayek's thought (ca 1945). Consider the closing two sentences, in particular, from the following passage from a justly famous essay:

The price system is just one of those formations which man has learned to use (though he is still very far from having learned to make the best use of it) after he had stumbled upon it without understanding it. Through it not only a division of labor but also a coordinated utilization of resources based on an equally divided knowledge has become possible. The people who like to deride any suggestion that this may be so usually distort the argument by insinuating that it asserts that by some miracle just that sort of system has spontaneously grown up which is best suited to modern civilization. It is the other way round: man has been able to develop that division of labor on which our civilization is based because he happened to stumble upon a method which made it possible. Had he not done so he might still have developed some other, altogether different, type of civilization, something like the "state" of the termite ants, or some other altogether unimaginable type. All that we can say is that nobody has yet succeeded in designing an alternative system in which certain features of the existing one can be preserved which are dear even to those who most violently assail it-such as particularly the extent to which the individual can choose his pursuits and consequently freely use his own knowledge and skill. F Hayek (1945 "The Use of Knowledge in Society," 528

In the paper, Hayek treats the price system as a natural machine with a clear purpose: "We must look at the price system as such a mechanism for communicating information if we want to understand its real function." (526) This is compatible with the thought (a) that the price system has many derivative functions and (b) that the real function can be undermined or obstructed. (For Hayek's argument, (b) is very important.) And one can easily see, that the gap between Hayek and Ordoliberalism is fairly small, if Hayek were to grant the Ordos that (c) one of the key functions of the state is not just not to interfere with, but to maintain actively the conditions that enable the proper functioning of the price system.

Now, one may well wonder, why Hayek assumes that there is one and only one "real function" of the price system. I think he helps himself to this claim without argument. But let's stipulate he is right about this, and that it's methodologically kosher to attribute functions to social systems at all. Even so, one may well wonder what function the communicating of information serves. In this paper he is rather silent about this more fundamental end. And here it is clear that whatever it is, not unlike Friedman later, Hayek relatives this more fundamental function to "our civilization."

And somewhat surprisingly, not unlike Simons and Friedman, Hayek also assumes considerable agreement over what Friedman calls basic values.  This is clear from his response tho those who reject the price system as privileged machine. To them he de facto says, 'we agree about some of these fundamental ends -- which may call in short-hand individual 'freedom' and 'autonomy' -- and any replacement of the price-system will have to secure these, too.' My interest here is not whether this is an accurate claim about either the status of these ends in our civilization nor the extent to which illiberal critics of the price-system would endorse these. (I am, it should be clear, skeptical of both.) But rather that Hayek, too, ends up suggesting that if there is any disagreement over the functioning of the price system, it will not be due to disagreement over fundamental ends. And this suggests, that if there is disagreement, the other side(s) is/are engaged in special pleading. 

Not for the first time I am struck by the lack of space for genuine pluralism over ends in twentieth century liberalism. As regular readers know I think this plays no small role in the predicament it finds itself today.

 

Kant, Neo-Liberalism, and Migration

This a libertarian must believe, for war is the great threat to his kind of society. There is simply no democratic answer to the problem of external defense, save indefinite extension of federalism, first, into a predominantly powerful supranational federation, and then gradually into inclusive world organiza­tion of all nations capable of responsible participation. Here the important next steps must be taken in the field of com­mercial policies; and the next conspicuous institutional innova­tion will be an international court with compulsory jurisdiction, albeit only among some Western democracies at the start. Libertarian democracy can survive without world order but not without secular movement toward such order.--H. Simons (1948) Economic Policy for a Free Society: A Credo, pp. 15-16 

First, a terminological point. Simons' use of 'libertarian' is a bit confusing. It means, for him, in "the English-Continental sense" liberal (given that in the US context 'liberalism' became associated with the New Deal). In contemporary discourse he would be considered a bleeding heart libertarian. Either way, my interest in Simons (recall) is that he helped shape the Chicago school of economics in crucial fashion.  And that he is one of the founding thinkers of the constitutive schools of twentieth century neo-liberalism, which was at the heart of what I call the second wave of liberalism (roughly 1945-2008).

So, I was a bit surprised to see such a clear statement of the  Kantian program (recall) for perpetual peace. Kant thought that growing regional federated commercial liberal democracies (which he called 'republics' because the term 'democracy' was still reserved for direct rule by the people) were the key to world peace. (The idea that liberal democracies don't fight with each other can also be traced back to Kant and Addison.) 

Simons is clear that such supranational federations -- the idea anticipates the EU -- would be committed to internal free-trade and, ideally, to external free trade. A free trade regime will generate international policy coordination and international laws. That is to say, Simons thinks that international institutions will develop functionally out of a joint commitment to free trade among like-minded peoples. I put it like this to do help explain his relativizing the scheme to 'Western Democracies.'

The point is not that Simons thinks non Western peoples are incapable of democratic federation. Rather, Simons thinks any such democratic, liberal and commercial supranational federation presuppose a"moral consensus." So, shared values are presupposed in any stable government. (This idea has a powerful afterlife in the ideas of his students, Milton Friedman and George Stigler.) While tacitly drawing on Max Weber (Simons' Chicago colleague (recall) Frank Knight had introduced Weber to US readers), he puts it as follows: 

The basic function of central government is to sustain domestic peace. Internal order is prerequisite to external defense and, of course, is the essence of world federation. The good central government will represent a monopoly of violence; it must sustain that monopoly against both its constituent political units and all extra-governmental bodies. It must promote all kinds of peaceful intercourse, intellectual and commercial. It must articulate the prevailing moral consensus and promote enlargement of that consensus by organized, free discussion and legislative-judicial experimentation. (16)*

That is to say, one of the goals of the liberal state (itself ideally a federated state) is to promote moral consensus by being the site of reasoned debate, and by engaging like-minded states to create the international infrastructure that will facilitate more trade and more moral consensus, including a legal regime.

Now, Simons is clear that these are ideal types. The real world is messy and imperfect. And he explicitly acknowledges that liberalism must be possible without it existing everywhere. But he does think movement toward such a Kantian order is required to keep faith in liberal progress. The EU has internalized this idea in its ordinary self-conception. The fact that Brexit has become truly thinkable will be an interesting test case for the survival of this idea (and the EU).

That liberalism must be possible without it existing everywhere is not obvious. Because Simons is clear that the very possibility of war is a threat to a liberal state. For it requires considerable preparedness; and such preparedness involves planning and subordinating individual freedoms to collective survival. The idea is worked out at greater length in an earlier text by Von Mises (1927; unmentioned by Simons), who is clearly indebted to Kant (whom he cites in relevant context a few times in the text):

One would think that after the experience of the [first] World War the realization of the necessity of perpetual peace would have become increasingly common. However, it is still not appreciated that everlasting peace can be achieved only by putting the liberal program into effect generally and holding to it constantly and consistently. "Liberal Foreign Policy" in Liberalism: in the Classical tradition (110-111)

This would be a natural place to end. 

But Mises also complicates the situation. One may well wonder, and critics of Liberalism have wondered, why if Liberalism promotes peace the first wave of liberalism ended in the disaster of first world war.+ Mises himself suggests that it is the rise of nationalism and zero-sum colonial competition that is to blame.+ Mises is quite capable of divorcing colonial/imperial projects from liberalism. But the situation is not so easy when it comes to liberalism's relationship to nationalism:

As long as nations were ruled by monarchical despots, the idea of adjusting the boundaries of the state to coincide with the boundaries between nationalities could not find acceptance. If a potentate desired to incorporate a province into his realm, he cared little whether the inhabitants—the subjects—agreed to a change of rulers or not. The only consideration that was regarded as relevant was whether the available military forces were sufficient to conquer and hold the territory in question. One justified one's conduct publicly by the more or less artificial construction of a legal claim. The nationality of the inhabitants of the area concerned was not taken into account at all.
It was with the rise of liberalism that the question of how the boundaries of states are to be drawn first became a problem independent of military, historical, and legal considerations. Liberalism, which founds the state on the will of the majority of the people living in a certain territory, disallows all military considerations that were formerly decisive in defining the boundaries of the state. It rejects the right of conquest. It cannot understand how people can speak of "strategic frontiers" and finds entirely incomprehensible the demand that a piece of land be incorporated into one's own state in order to possess a glacis. Liberalism does not acknowledge the historical right of a prince to inherit a province.

To simplify: while nations pre-exist liberalism, liberalism makes nationalism politically feasible. (It is worth comparing (recall) Mises with Herzl.) As Mises points out (on the next page) the key mechanism is the plebescite or referendum. Moreover, where national identities must co-exist, and mutual trust is low, the democratic impulse of liberalism also makes nationalism a permanent political problem. Mises is quite frank about this. For Mises cultural and ethnic pluralism is a source of tension. 

Mises' solution to the problems of a multi-national democracy is to double-down and to suggest minimizing government functions to bare (liberal) necessities (rule of law, defense of property rights, and some coordination functions, etc.) such that gaining power becomes of little value to people of ill will. As regular readers know I don't think Mises, nor any of his modern libertarian heirs, can explain how in the eternal presence of rent-seeking, one can attain such a nightwatchman state without a massive change of popular opinion (and the political dis-empowerment of those that benefit from spoils and rents who are by definition very well organized politically). So I view this as unstable. 

But, where liberalism generates homogeneous nation states, and has what Simons will call moral consensus, Mises allows that public provision of public goods (like education) need not cause internal strife. I think this helps predict and explain why in relatively homogeneous liberal democracies welfare states are less controversial (than in the more pluralistic ones). In homogeneous states the moral consensus can be broader. But if they engage in free trade and maintain a liberal economy, these tend to be wealthy and growing and so become, as Mises emphasizes, very attractive to immigrants and, thereby, become multicultural/national. So, by Mises' own lights -- he is for open borders [Simons is more reserved about this]-- this is a recipe for more internal tension and so turns out not to be stable either.**

I have gone on long enough. But the problem is that the early neo-liberals did not develop a genuinely pluralist conception of moral and political life; and so their commitment to open borders and democratic liberalism are a source of tension.