Mont Pelerin: 1947–1978, The Road to Libertarianism

The Mont Pelerin meeting covered a wide range of subjects. In addition to presenting material to appear in the third volume of Law, Legislation and Liberty, F.A. Hayek presented a postscript on “The Three Sources of Human Values.” He examined the errors of sociobiology, the evolution of self‐​maintaining complex structures, rules of conduct, the discipline of freedom, and the reemergence of suppressed primordial instincts; and criticized both Marx and Freud. Papers were also presented on the family and the state, evaluation of teamwork, intercultural conflicts, and regionalism versus nationalism. Interesting comments were made by Pedro Schwartz, John O’Sullivan, Peter Duignan, Stephen Mulholland, David Henderson, Alvin Rabushka, John Greenwood, and Sudha Shenoy. Especially important were the contributions of Jean Pierre Hamilius and Rhodes Boyson. M.E Hamilius invoked libertarian principles in defense of cultural nationalism and self‐​determination. Boyson espoused parliamentary democracy as the best road to a free society and examined the three markets—economic, moral, and cultural—which provide non‐​political solutions to problems. He emphasized that the moral and cultural markets had been given by default to the advocates of the political means. He urged advocates of a free society to concentrate on the social traditions and moral sensibilities of each individual country.

Most of the participants seemed to be accustomed to investments and thus did not have any reason to make them a subject of conversation. This made them pleasurable company compared to some libertarians whose conversation revolves around purchases of silver, “controlled substances” and dried peas. And unlike some libertarians who seem more interested in how to profit from the coming inflation, the Mont Pelerinists exhibited sounder economic views and talked about how to fight inflation. This economic stability showed itself powerfully during the session on “Monetary Problems and Policies” chaired by Gottfried Haberler. The session became a debate between the monetarist position, for which Milton Friedman was the spokesman, and the Misesian position, for which the spokesman was John Exter, former vice‐​president of the First National City Bank of New York. Exter presented a severe challenge to the realism of the monetarist position, placing it clearly on the defensive. Friedman seemed annoyed with the membership of the society after its enthusiastic and prolonged applause for Exter’s critiques of monetarism, perhaps because it indicated how much progress the Misesian monetary analysis had made as a result of the economic reality of inflation.

Friedman said that he was tired of trying to define money, that he believed government intervention in money was inevitable, and that therefore, the proper role of an economist was to advocate sensible interventions. He was enthusiastic about the tax‐​revolt in the United States, and advocated a constitutional amendment which would establish the rules that the monetary authority should follow. Friedman insisted that “We are doomed” if we believe that de‐​statizing money is the only answer. He argued that there is no way to dc‐​statize money, and therefore that this strategy cannot prevent the destruction of our civilization. Friedman hoped that it would be possible to convince the public to pressure governments into introducing monetary stability in the face of increasing inflation and destability. Would the government obey the public? Friedman accepted George Stigler’s formulation of Aaron Director’s Law: the state redistributes income to those who control the state.

Donald Kemmerer noted in reply that the greatest lesson of economic history is that fiat money does not work. But this understanding has been lost, he said, due to the elimination of the study of gold from money courses. F.A. Hayek then rose from the audience to answer monetarism. He noted that the gold standard historically was the only discipline on governments. He reaffirmed his own opposition to all monopoly on money and to all government control of money. He presented what he calls his revolutionary program—monetary competition in each country after denationalization or destabilization of money. The private issue of money, he argued, is the only answer.

Hayek set the atmosphere for the rest of the meeting by his optimistic attitude toward the change in the intellectual climate. The intellectual world, he said, is witnessing a reversal of the dominance of collectivist ideas. Hayek feels that it is now time to undertake a strong counter‐​offensive in favor of freedom, an offensive which would serve to win and consolidate the support of the growing body of young intellectuals in Europe and America which is disenchanted with socialism but lacks a clear vision that the alternative is not traditionalism, but rather the radicalism of classical liberalism or libertarianism. One of the most interesting aspects of the 1978 Mont Pelerin meeting was the speakers’ widespread use of the words “libertarian” and “libertarianism” to describe the Mont Pelerin society and its members.

Hayek’s new optimism is in sharp contrast to the mood in which the Mont Pelerin Society was founded in April, 1947. Hayek’s Road to Serfdom, dedicated to “Socialists of all parties,” had brought him to the forefront of post‐​World War II debates between collectivists and liberals. Hayek and Ludwig von Mises had been associated with Louis Rougier and Jacques Rueff in the late 1930s, in an attempt to bring together European and American liberals on the basis of the success of Walter Lippmann’s The Good Society, a book which defended the principles of liberalism against the threat of collectivism. Finally, in 1947, after publication of The Road to Serfdom, almost fifty scholars gathered at Mont Pelerin, above Vevey near Montreux on Lac Leman. In addition to Rueff, Rougier, Hayek, and Mises, the American participation was strong and included Felix Morley, F.A. Harper, Leonard Read, Henry Hazlitt, and Milton Friedman.

The name “Mont Pelerin” Society was chosen in place of Hayek’s earlier nomination of the “Acton‐​Toqueville” Society. The founders of the society issued a statement of aims which noted that the “position of the individual and the voluntary group are progressively undermined by extensions of arbitrary power,” which had been “fostered by the growth of a view of history which denies all absolute moral standards.” Freedom’s preservation was viewed as rooted in the widespread ownership of private property. The founders called for further study of “the contemporary crisis”; the functions of the state; the rule of law; and “methods of combatting the misuse of history for the furtherance of creeds hostile to liberty.” Concern was expressed for the “problem of the creation of an international order conducive to the safeguarding of peace and liberty and permitting the establishment of harmonious international economic relations.”

The Mont Pelerin Society has met five times in Switzerland, three times each in Italy, Germany, Great Britain, the Low Countries, twice in France, and once each in Austria, Hong Kong, and the United States. The 1958 meeting was held at Princeton University, and was inaugurated by papers on “Liberty and Property” by Ludwig von Mises, “Why Liberty?” by Pierre Goodrich, and “The Meaning of Freedom” by Felix Morley. Among the scholars participating in the Princeton meeting were: Jean‐​Pierre Hamilius, W.H. Hutt, Frank Knight, Bruno Leoni, John U. Nef, Benjamin Rogge, Murray Rothbard, Massimo Salvadori, Helmut Schoeck, and Daniel Villey.

That program featured sessions on “Underdeveloped Countries” with P.T. Bauer, and on “Inflation” with Milton Friedman, Henry Hazlitt, Jacques Rueff, and Bertrand de Jouvenel. M. de Jouvenel noted that the Central Banks’ “orthodoxy” trying to manage money to keep the unit of currency convertible into a given collection of goods and services was a heresy of classical economics:

As Charles Rist mentions in his famous Histories des Doctrines Relatives au Credit et a la Monnaie, the suggestion that convertibility into a given collection of goods should be the essential and defining feature of the currency unit was advanced already in the XVIIIth century by Sir James Steuart, and it has been repeatedly championed up to Irving Fisher’s better known advocacy. Ricardo opposed this idea.

Jacques Rueff declared: “There can be no liberal revival so long as inflation goes on. Inflation is a far greater threat to liberty throughout the world today than Marxism.” And Milton Friedman noted:

A Third world war is the most obvious threat to the preservation of a free society. If this may be optimistically put to one side, the most serious threat is, I believe, inflation. Inflation is a threat less because of its direct effects than because of the measures that are likely to be taken by government to control the inflation and the effects of inflation on the competitive structure of the economy.

A somewhat similar analysis was presented at the 1978 meeting. Harold Demsetz noted the growth of government military expenditures in opposition to the Soviet Union, a phenomenon which he sees as having major consequences for inflation and for government involvement with private sector firms. Any demand for increased military spending could be satisfied only by refusing to increase spending on other government programs. The only other means of blunting (his source of increasing governmental involvement in the economy would be to achieve real arms control. Demsetz concluded:

I believe that those basic economic forces that have propelled government expansion in the past are no longer a serious source of continued growth in the relative size of the government sector in the United States. But the ability to capitalize on this depends very much on how adroitly we control unemployment and inflation, including inflation linked co increased defense expenditures, and how successful we are in arriving at real arms control.

Demsetz spoke during a panel on “Is the Tide Turning?” In his talk he proposed that the tide has been slowed in the United States but the trend to growth of government has not been stopped. He attributed the slowdown to three movements: the middle class opposition to taxes, the equal rights movement (which has led to the reduction of interventions injurious to women, those who engage in illicit sexual relations and drug use, and young people generally—those most affected by conscription and public education), and finally, the deregulation movement.

George Stigler, in his presidential address, was critical of existing theories explaining the rise of statism. He was especially doubtful about the “mistaken behavior theory” whereby intellectuals influence the public to accept damaging state interventions. Stigler does not believe that intellectuals are the cause of socialism; he believes they are merely responding to the demand of the public in the same way that the automobile industry responds to demand. He notes that it is not the socially backward or uneducated part of the public which provides the chief support for statism.

Stigler also criticized the theory that the political process is by its nature biased toward collectivism. He states:

The bias in the process is this: we are presented with two kinds of policies: those which greatly benefit the few and slightly injure the many, and those (including repeal of the first kind of policy) that benefit the many slightly and injure the few greatly. Hence for almost every individual policy proposal of a socialist variety, there will be a cohesive, well‐​financed, articulate special group to support it, and a large, poorly‐​informed majority that, if it is informed correctly, will be weakly opposed, and often will be simply unaware of the proposal.

Stigler concluded that the growth of government is the result of the purposeful use of public power to increase the incomes of particular groups in society. In explaining why it is easier in the twentieth century for the state to be used to redistribute wealth, he pointed to the corporate form of business organization, the proliferation of written records, and the decline of the single proprietor, making taxation possible at rates that John Stuart Mill had declared to be impossible.

Much of the discussion on “Is the Tide Turning?” concerned the sociology of knowledge and the role of intellectuals in the creation of public opinion. Henry Maksoud of Brazil subtitled his address: “The Quest for an Ideology.” Maksoud noted that Mises had emphasized that statist ideologies

owe their power to the fact that all means of communication are surrendered to their supporters and almost all dissenters have been virtually silenced. Thus, these ideologies were propagated from the chairs of universities and from the pulpit, disseminated by the press, by novels and plays, the movies, radio, and more recently, television.

For Mises, “to turn the flood one must change the mentality of the intellectuals. Then the masses would follow.”

Ralph Harris, discussing England’s renaissance of free market ideas, both in the universities and in the press, referred to the concepts Hayek had expressed, following the foundation of the Mont Pelerin Society, in “The Intellectuals and Socialism”: “once the majority or at least the most active part of the intellectuals have been converted to certain beliefs, the process by which they become generally accepted is almost automatic and irresistible” Harris concluded with the admonition of David Hume: “Though men be much governed by interests, yet even interest itself, and all human affairs, are entirely governed by opinion.”

Henri Lepage reported that an intellectual revolution is occuring in France, a revolution which sees freedom doomed by government intervention in the functioning of society. The challenge of the “New Philosophers” to statism, he said, is matched by that of the “New Economists.” Led by Jean Jacques Rosa, these French economists stress the new liberalism against traditional Keynesian conservatism. In addition, Lepage saw as a promising development “the coming out of a French libertarian movement’, whose ideas will appear very mild to some American ’anarcho‐​capitalists’, but whose mere existence, even if it is yet mostly informal, is also proof that something is changing in France.” Indeed, a major event at the Mont Pelerin meeting was a special session on the libertarian movement around the world. Altogether, the extensive interest in libertarianism at the Mont Pelerin meeting and the intensive enthusiasm of the younger participants for an active libertarian movement was one of the clearest ramifications of the Hong Kong meeting.

Leonard P. Liggio is an Associate Editor of LR.