…the Hayek Road to a Humane Economy vs the Neoliberal Road to Serfdom
As pointed to in the earlier Blog The Two Roads to Serfdom, F.A. Hayek (1944) had hoped to bring a new and improved version of laissez faire capitalism into play, working to avoid The Road to Serfdom guaranteed by the bad isms of communism and extreme socialism, or by fascism (so, there were really Two Roads to Serfdom). It seems Hayek fully understood that returning to the kind of capitalism of the early-1800s depicted by novelist Charles Dickens in the 1843 Christmas Carol in pointing to Scrooge (and Scroogism), the “robber baron” era of the late-1800s, and the Scroogism revealed again in the Great Depression of the 1930s, was not going to keep people from turning to consider the other “isms.” The resentment over what was built by the Neoliberal Thought Collective giving content to the The Neoliberal Order starting in 1970, with the crash in 2008, was expressed in the 2016 US election. An outright revolt caused by The Neoliberal Order was demonstrated in the violent attack on the US Capital after the 2020 election.
The following draws on The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective … (Edited by Mirowsky and Plehwe 2015). Hayek had hoped the Road from Mont Pelerin would take people away from all the bad-isms, including bad laissez faire capitalism. Well, it does not appear The Neoliberal Thought Collective wants to do so, and, Hayek would not be pleased. Also, I have not finished reading all 11-Chapters, by 11-different contributors, so, stay tuned, as the Blog will evolve as the reading continues!
Essence: The 11-Tenets of Neoliberalism (from Mirowsky 2015) Focus Strictly on Incentive
1. “The starting point of neoliberalism is the admission, contrary to classical liberal doctrine, that (the Neoliberal) vision of the good society will triumph only if it becomes reconciled to the fact that the conditions for its existence must be constructed and will not come about ‘naturally’ in the absence of concerted political effort and organization (p. 434).”
2. “…assertion of a constructivist orientation raises the pressing issue of just what sort of ontological entity the neoliberal market is, or should be. … (the Chicago School) has made its name attempting to reconcile one idiosyncratic version of neoclassical economic theory with this ‘nonnatural’ orientation … Misean wing of Austrian economics attempted to ground the market in a purely rationalist version … Hayek himself … (the market) is posited to be an information processor more powerful than any human brain, but essentially patterned on brain/computation metaphors (p. 435).”
3. “… though the market is not treated as existing independently of the social and cultural framework, and there was no consensus on just what sort of animal the market ‘really’ is, the neoliberals did agree that for purposes of public understanding and sloganeering, market society must be treated as a ‘natural’ and inexorable state of humankind (p. 435).”
4. “A primary ambition of the neoliberal project is to redefine the shape and functions of the state, not to destroy it (p. 436).”
5. “Skepticism about the lack of control of democracy is offset by the persistent need to provide a reliable source of popular legitimacy for the neoliberal market state. Neoliberals seek to transcend the intolerable contradiction by treating politics as if it were a market and promoting an economic theory of democracy … Everything is fair game for marketization (p. 437).”
6. “Neoliberals extol freedom as trumping all other virtues; but the definition of freedom is recoded and heavily edited within their framework … Freedom is not the realization of any political, human, or cultural telos, but rather is the positing of autonomous self-governed individuals, all coming naturally equipped with a neoclassical version of rationality and motives of ineffable self-interest … Freedom cannot be extended from the use of knowledge in society to the use of knowledge about society… (p. 437).”
7. “Neoliberals begin with a presumption that capital has a natural right to flow freely across national boundaries. (The free flow of labor enjoys no similar right.)(p. 438).”
8. “Neoliberals see pronounced inequality of economic resources and political rights not as an unfortunate by-product of capitalism, but as a necessary functional characteristic of their ideal market system. Inequality is not only the natural state of market economies, but it is actually one of its strongest motor forces for progress (p. 438).”
9. “Corporations can do no wrong, or at least they are not to be blamed if they do. This is one of the strongest areas of divergence from classical liberalism, with its ingrained suspicion of joint-stock companies and monopoly stretching from Adam Smith to Henry Simons.”
10. “The market (suitably reengineered and promoted) can always provide solutions to problems seemingly caused by the market in the first place (p. 439).”
11. “The neoliberals have struggled from the outset to make their political/economic theories do dual service as a moral code (p. 440).”
Details: Metaeconomic Analysis of the 11-Tenets Points to the Key Role of the Ethic in Tempering the Incentive. Neoliberalism Misses It.
The Neoliberal Tenets, which also underlay Chicago School of Economics styled Single Interest Theory (SIT) in Microeconomics – ineffable self-interest only - in effect deny any substantive role for what Adam Smith framed as the Moral Sentiments, the ethics representing what the other can go along with. At best, the ethic in play only serves the narrowly defined self-interest, as in the max U of SIT: pseudo-philosopher Ayn Rand claimed extreme greed was moral. Adam Smith would not agree, never saying greed was good. It is likely Hayek would have agreed with Smith not Ayn Rand. Taking each Tenet in turn, making sense of each using Dual Interest Theory (DIT) in Metaeconomics (after Lynne 2020), which sees joint self & other(shared)-interest, joint incentives & ethics:
1. The Government run by the Neoliberals constructs the system, forcing it onto the road 0G to serfdom of laissez faire (See Figure 1 in The Two Roads to Serfdom blog at https://www.metaeconomics.info/post/the-two-roads-to-serfdom ). In DIT terms, the shared other-interest supporting laissez faire is constructed by the Neoliberals, working in illiberal, largely authoritarian ways. The Neoliberal frame does not acknowledge the key role of an inclusive, representative, power-sharing Democracy in building a humane liberalism, understanding said Democracy must also avoid the excesses (again, see Lynne 2020). Rather, the double truth doctrine is applied: “…necessity of repressing democracy, while the masses would be regaled with ripping tales of ‘rolling back the nanny state’ and being set ‘free to choose’— (Mirowski and Plehwe 2015, p. 444)." It is about authoritarians using wealth to power in building a laissez faire system to benefit own-self while convincing the gullible masses said power is about giving ordinary people the liberty and freedom to choose, not making clear it is presumed by The Neoliberal Thought Collective that “… freedom itself must be as unequally distributed as the riches of the marketplace (p. 445).”
2. Using DIT to clarify, constructivism in play means a few - the Mont Pelerin Society (MPS) to include think tanks like the Cato Institute and the Heritage Foundation, and conservative as well as libertarian propaganda machines associated there with - define the content of the underlying institutions that see only consumers seeking self-interest in the Market, but with a very limited choice set. It is anything but free to choose, as freedom is now in proportion to how much money one has available to spend in the Market, now deemed the only legitimate Forum. And, on the Market Forum as information processor: The Hayek insight on how thousands, perhaps millions of ordinary people could most easily bring the bit of information about which each has knowledge into play through price P is powerful. The insight, however, does not obviate the need to also see that information comes into a humane liberalism from thousands or perhaps millions of people in Other Forums, as in Community: Government, too, bringing value V into play to temper price P. Also, if only the Market Forum is deemed the information processor, then only people in the Market Forum count: People who operate in, and contribute to Other Forums are left out.
3. Well, it serves the self-interest. Neoliberalism sees only self-interest, with no need for bounds on it. So, sure, it is primal, natural in that sense, as the core of the evolved Human brain is reptilian, like “cold-blooded Wall Street trader.” And, Neoliberals are not short on self-interest, being ego-dominant thinkers and framers. No empathy-within the Neoliberal mind, with Scroogists favored over Socialists, when what is really needed is a striking of good balance in Scroogism & Socialism, ego & empathy, incentives & ethics, perhaps more like in Norway and Sweden.
4. Because of favoring a substantive role for Government-control, Neoliberalism leads to a continual pressure to turn all Government services and functions into Market-like provision of same, like eliminating public schools, shutting down the US postal service. It is a small wonder the military has not been turned into a Market-provided mercenary force. Neoliberals encourage citizens to stop paying taxes for the public good, while turning citizens into consumers focusing only on the private good, even using tax dollars to buy same, like in using ESA school vouchers to pay for private schools.
5. Citizens are replaced with consumers. The redefined citizen now simply buys what were formerly public goods with tax t, treated like a price P, and benefiting only the citizen-consumer. The public good is of no concern. There is no longer value V, only a price P and tax t for private payoff.
6. The self-interest only frame eliminates any consideration of the shared interest, the other (shared, while internalized within the own-self)-interest. Also, then, only selective information is collected by, and used by people to serve self-interest. With no public good, public information has no value. Only private good and private information matters. So, things like tenure for researchers in public universities is opposed (in fact, Milton Friedman, a major player in University of Chicago School of Economics claimed that all the state universities be sold, and that all public education be privatized), as well as investigative journalism. Tenured researchers - especially in the public universities - and investigative journalists might be asking questions and doing research to produce information that serves the public good but does not serve the Neoliberal self-interest in the private good, only.
7. Sure: Whatever serves self-interest, with shared other-interest with how labor is fairing, or any other entity (the natural system) on the Spaceship, well, it is of no concern. And, immigration is supported only if serves the self-interest of the Neoliberals, as in cheap and plentiful labor.
8. No ethic here. It is just about incentives, not about incentives & ethics. Scrooge is favored in building a Scroogism. And, Neoliberals do not acknowledge the fact that economic performance is brought down because of it. Economic performance depends upon optimal inequality - adequate incentives & ethics - an empathy-based ethic guiding the compensation system over the entirety of the income ladder. Extreme greed leading to extreme concentration of wealth and the power it buys is not extremely good as the Neoliberals claim, without any foundation for the claim.
9. So, any kind of anti-trust movement is abhorrent. Monopoly power is to be encouraged. Corporations, the bigger the better, are even given the frame of being some kind of living being, one that can make unbounded political contributions to cronies. Destroying the Spaceship on which everyone Travels, and within which production and wider economy is embedded? Sure, as long as it serves self-interest, do it.
10. Prime example: After the natural system has been made dysfunctional from overuse and abuse, well, privatize the natural system. Turn all the public property resources of the Spaceship into private property, so, privatize the hydrologic cycle if not just the water it produces. Move to buying and selling pollution rights, with the water and air owned by a private entity. No public good is acknowledged. No role for public property is acknowledged.
11. Ayn Rand, a libertarian, comes to mind: Only self-interest based extreme greed can be moral. Only Scrooge is moral and ethical. Quoting Hayek: “…individual freedom … most appropriate to regard as a moral principle of political action … Like all moral principles, it demands that it be accepted as a value in itself (Mirowski 2015, p. 440).” Fine. It does not follow that the only source of said value is price P from a Market. Actually, Hayek was not so extreme as to presume all moral and ethical value V came from price P, seeing the need to square Neoliberalism with religion which is primarily about value V. At least price P has been dampened a bit, as by Martin Luther working to stop the price P purchase of less time in purgatory! Also, it may be questionable when religions get tax t (price P in the form of tax t) breaks while pushing political and religious frames? Just asking. To Hayek, in effect, if a religion would lead to an ethic the other could go along with, something to help avoid serfdom, it could be good. Unfortunately, the Neoliberals bring religionism into play by allowing the fundamentalist religionists to apply authoritarian, fascism, and totalitarian forces in such matters as abortion: “It took a lot of effort, but the intellectual accommodation of the religious right and the theocons within the neoliberal framework has been an ongoing project at the MPS, although one fraught with contradictions that have dogged the liberal project since the Enlightenment (Mirowski 2015, p. 440).” The Heritage Foundation working to eliminate reproductive rights stands out as a glaring example of double truth: Authoritarian, fundamentalist, religionists dictating what is to be done. Free to choose for whom, exactly? Just the fundamentalists, it seems.
Metaeconomics Postscript
Regarding the Two Roads, referring back to the Dual Interest Theory (DIT) figures in the earlier Blog The Two Roads to Serfdom (https://www.metaeconomics.info/post/the-two-roads-to-serfdom ), The Road from Mont Pelerin taken by the Neoliberal Thought Collective is road 0G which leads to the very problem the Neoliberals are supposedly trying to solve. An unfettered, do-as-you-please-without-bounds laissez faire ensures cronyism (see Munger and Villarreal-Diaz 2019). Resentment then sets in, with some political con coming along promising to fix it, as represented in authoritarianism often with a flavor of fascism, or communism. The way to avoid such isms is to build a humane liberalism on road 0Z.
And, because The Road from Mont Pelerin has been especially directed, paved, and given supposed academic credibility by the Chicago School of Economics, it is essential to keep in mind that said kind of economics “… it turns out, is just political ideology in disguise” (Bromley 2019, p. 27). It is the political ideology of the Neoliberal Thought Collective, and it, along with Econ 101 styled Single Interest Theory (SIT) in Microeconomics, about the Econs not the Humans, puts the system on the road 0G to Serfdom.
Said form of economics brings SIT in Microeconomics forward with supposed scientific credentials. Said form of economics is actually cargo-cult science lacking in scientific substance (McCloskey 2021; see Blog https://www.metaeconomics.info/post/bettering-humanomics ), not based in science & humanities. The Neoliberal Ideology is also, then, cargo-cult in nature, lacking in substantive grounds on which it is built. Said form of economics, based in Neoliberal Tenets, does not see the key role of joint incentives & ethics. Humanomics (McCloskey and Carden 2020; see Blog https://www.metaeconomics.info/post/leave-me-alone-and-i-ll-make-you-rich and the Review in Lynne 2023) does see the jointness: Humanomics is an economics with “ the humans and their ethics left in (McCloskey and Carden 2020, p. 176).” Metaeconomics is a Humanomics with DIT at the core of it, with Humans striking good balance in the joint incentives & ethics.
Bring Some Form of The New Deal Order Back? Try Viking Economics?
Both The Road to Serfdom and The Road from Mont Peleron fail to make clear that the unfettered, laissez faire capitalism of the kind in place prior to 1848 (McCloskey and Carden 2020 point to 1848 as the turning point in the move away from classical liberalism toward the bad isms highlighted in Hayek 1944) and still blossoming in the late-1800s, also leads to Serfdom. And, while tempered by The New Deal Order 1930-1980, The Neoliberal Order of unfettered laissez faire was brought back in the period 1970-2020. The relentless effort then and now by the Neoliberal Thought Collective to bring it on-line ensures taking the system toward Serfdom, as indicated by the political economic chaos it has caused, starting especially after the 2008 crash, and taking hold around 2016. And while the isms of communism and extreme socialism, or fascism are clearly inferior, unfettered laissez faire capitalism is not the solution.
Like Churchill said about democracy “… it has been said that democracy is the worst form of Government except for all those other forms that have been tried..” The same can be said about an economy built on principles of classical liberalism, it bringing the worst form of economy except for all those other isms that have been tried. Yet, there is hope: The Humane Liberalism form of classical liberalism as envisioned by Adam Smith, one built using Humanomics not the Economics of the Neoliberal Thought Collective, holds the most promise.
Metaeconomics makes clear that something more like The New Deal Order 1930-1980 in the US, and perhaps even something more akin to Viking Economics (Lakey 2016), works better. Both are forms of humane liberalism, based on sufficient reason to work on pragmatic (not utilitarian) grounds. Both forms point to finding the best road 0Z (see Figure 1 in the Two Roads to Serfdom Blog), one with adequate incentives while tempering the excesses, with said incentives tempered down to what the other can go along with. Said forms point to joint incentives & ethics. A humane liberalism considers both price P from the Market Forum and value V from the Other Forum(s) of Communty: Government (see Figure 2 in the Two Roads to Serfdom Blog).
Serious and Systematic Inquiry into Economic History Points to a Humane Liberalism
The 2980-pages in 7-books by Deirde McCloskey (see Reviews in Khachaturyan and Lynne 2010; Lynne 2023; Lynne in process, as well as several other Blogs herein), a serious and systematic inquiry (using both science & humanities) into economic history, also confirms it. The 7-books look into what gave rise to the rapid increase in per capital income on the Spaceship starting around 1780 – from $3/capita/day to as high as $220/capita/day in Viking Economy Norway, at least Factor 16 Spaceship wide – giving support to the key role of the ethic at play. The McCloskey story is that the liberty and freedom, dignity and equality accorded ordinary people to have a go at betterment, as represented in the ethic embedded in the Bourgeois Deal that was well in play by 1780, led to the Great Enrichment.
The Neoliberal Thought Collective gives short shrift to the role of the ethic, the role of the Bourgeois Deal in a truly humane liberalism in contrast to a laissez faire form of it. So, it also gives short shrift to the need to temper the excesses, as made clear in Lynne (2020). The Neoliberal Collective ensures Another Road to Serfdom, back to 1780, and not traveling on the Best Road from Mont Pelerin. The Best Road is one built on tempered excesses in a Humane Liberalism, as DIT in Metaeconomics makes clear.
Also, it is not about conservative framing on the political right: As McCloskey says about the frame of reference in the 7-books about the ethic in the Bourgeois Deal that is essential to the Great Enrichment made possible with a humane liberalism, staying away from the bad-isms: "Not ‘conservative’! I’m a Christian classical liberal, practicing humanomics (about the human and their ethics left in; see https://www.deirdremccloskey.com/ ).” Metaeconomics is a humanomics with DIT at the core.
And, Final Thought: Hayek Would Also Not Likely Find Much in Common with the Conservative Right
Hayek (1944) makes a point to clarify that the version of classical liberalism brought to the attention of the Mont Pelerin Society in 1947 is not something from the conservative right: “Conservatism, though a necessary element in any stable society, is not a social program; in its paternalistic, nationalistic, and power-adoring tendencies it is often closer to socialism than true liberalism; and with its traditionalistic, anti-intellectual, and often mystical propensities it will never, except in short periods of disillusionment, appeal to the young and all those others who believe that some changes are desirable if this world is to become a better place. A conservative movement, by its very nature, is bound to be a defender of established privilege and to lean on the power of government for the protection of privilege (pp. 45-46)… (in contrast) The essence of the (classical) liberal position … is the denial of all privilege, if privilege is understood in its proper and original meaning of the state granting and protecting rights to some which are not available on equal terms to others (p. 46).” Classical liberalism is not conservativism.
Classical liberalism, especially in the humane liberalism form of it as envisioned by Adam Smith, moves the system away from privilege, giving ordinary people a go at betterment. It dampens hierarchy and privilege. It seems Hayek had said frame of mind, in contrast to what evolved on The Road from Mont Pelerin giving content to The Neoliberal Thought Collective which is all about privilege of the authoritarian elite – wealth buying political power to take and remain in charge. It is demonstrated in the double truth doctrine (see Mirowski and Plehwe 2015) brought forward in The Neoliberal Thought Collective and being applied in The Neoliberal Order operating in the US over the period 1970-2022, with the relentless pursuit of it to the current time. Again, something more akin to The New Deal Order 1930-1980, a new and improved version while looking forward not backward, will likely be closer in content to what Hayek would find reasoned.
References
Bromley, Daniel W. 2019. Possessive Individualism: A Crisis of Capitalism. Kindle ed. New York: Oxford University Press.
Hayek, Fredrich A. 1944/2007. The Road to Serfdom: Text and Documents - The Definitive Edition. The Collected Works of F.A. Hayek, Volume 2. Edited by Bruce Caldwell.. Chicago: The University of Chicago Press.
Khachaturyan, Marianna and Gary D. Lynne. 2010. "Review of McCloskey, D. N. The Bourgeois Virtues: Ethics for an Age of Commerce. Chicago, IL: The University of Chicago Press, 2006, 616 pp." Journal of Socioeconomics (now Journal of Behavioral and Experimental Economics) 39:610-612.
Lakey, George. 2016. Viking Economics: How the Scandinavians Got It Right - and How We Can, Too. Brooklyn, New York: Melville House Publishing,
Lynne, Gary D. 2020. Metaeconomics: Tempering Excessive Greed. Palgrave Advances in Behavioral Economics. New York: Palgrave Macmillan.
Lynne, Gary D. 2023. “Review of McCloskey, Deirdre Nansen and Art Carden. (2020). Leave Me Alone and I’ll Make You Rich: How the Bourgeois Deal Enriched the World. Chicago: The University of Chicago Press.” Journal of Behavioral and Experimental Economics (in press)
Lynne, Gary D. (in process). Cargo-Cult Economics to Metaeconomics: Toward a Humanomics with a Theory, under consideration for publication in the Review of Behavioral Economics
McCloskey, Deidre Nansen and Art Carden. 2020. Leave Me Alone and I'll Make You Rich: How the Bourgeois Deal Enriched the World. Chicago: The University of Chicago Press.
McCloskey, Deidre Nansen. 2021. Bettering Humanomics: A New, and Old, Approach to Economic Science. Chicago: The University of Chicago Press.
Mirowsky, Philip. 2015. Postface: Defining Neoliberalism in Mirowski, Philip; Plehwe, Dieter (Editors). The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective, With a New Preface. Cambridge, MA: Harvard University Press.
Mirowski, Philip and Dieter Plehwe (Editors). 2015. The Road from Mont Pèlerin: The Making of the Neoliberal Thought Collective, With a New Preface. Cambridge, MA: Harvard University Press.
Munger, Michael C. and Mario Villarreal-Diaz. 2019. "The Road to Crony Capitalism." Independent Review: A Journal of Political Economy 23, 3: 331-44.