As I embark on Part III of this examination of Neoliberalism, I finally find myself in the odd position of wanting to defend some ideas I know I must now criticize, even condemn.
This conflict stems from the fact that in my 20s, I read (quite literally) all of Ayn Rand's novels. I even had clients – collectors of my art in the very early days – who were ‘Objectivists,’ and as a result, I attended a number of discussions on this subject. It all made perfect sense, in that youthful and idealistic time of life, and I still feel that many of Rand's ideas are valid. Unfortunately, we ‘producers’ cannot go on strike, as in Atlas Shrugged, and set up an alternate gold-based, sound-money system in our own ‘Galt's Gulch.’ I would head there in a minute though, if I felt that were a possibility.
Opening scene from Part III of the 2011 film, Atlas Shrugged – Galt’s Gulch.
As prescient as Rand was, the crazy outside world today is even crazier than the dystopian wasteland-future she describes in this work; and the technocrats running things now pose far more serious a threat to hardworking, creative, freedom-loving people everywhere. If only the technocrats were as clueless as the character James Taggart.
It will seem like I'm little off topic here, but Rand's work is fundamental to this story, and Galt's Gulch maybe the perfect analogy for our times. (but this, I must expand on later.) What is difficult for me, is to see ideas I felt held such promise – which I still believe hold promise (I haven't yet lost all of my youthful idealism) – being subverted, appropriated and repurposed, to destroy whatever good might have been there at the beginning. Neoliberalism is the economic/political ideology of the postmodern era; appropriating and repurposing, of course, is what postmodernism is all about.
The proponents of what was to become neoliberalism realized they needed to move beyond Classical Liberalism and laissez-faire capitalism. Returning to the system Keynesian economics had so thoroughly usurped was not an option, but what would a replacement look like? The inquiry might have begun with good intentions, and some good ideas, but neither Rand nor Henry Hazlitt – the founding vice president of America's first ‘think tank’ for free-market ideas – or many of their private business backers, understood much about monetary theory (it would appear). Their banker friends, such as Chase National Bank's Benjamin Anderson, would have undoubtedly instilled an understanding of money and monetary issues in line with the banker's interests. We find the Rockefeller's influence, if somewhat indirect, from the very beginning of this story, but there was more to it than this.
Perhaps Henry Hazlitt, sums it up best in his own words (while making another point):
‘Every man knows there are evils in the world which need setting right. Every man has pretty definite ideas as to what these evils are. But to most men one in particular stands out vividly. To some, in fact, this stands out with such startling vividness that they lose sight of other evils, or look upon them as the natural consequences of their own particular evil-in-chief.’
The ‘particular evil-in-chief’ at this time of course, and back to the twenties really, was the ‘Red Menace.’ This drove Rand, and it drove many other Americans, and for good reason. Yet it's clear there are other evils in the world. The Second World War had seen one menace replaced by yet another; and in this new era, anything that could be framed as socialist was immediately suspect – “The Reds are under the bed.”
This single-minded obsession set the stage; and losing sight of those other evils, I would suggest, is what brought us to this point (this, and no small amount naked greed). Fascism had gone underground, but bankers and other unscrupulous private business interests – more obviously – began to cozy up to this radical new movement. As Milton Friedman noted, in his 1962 Capitalism and Freedom (pg22):
‘For advocacy of capitalism to mean anything, the proponents must be able to finance their case. . . Radical movements in capitalist society. . . have typically been supported by a few wealthy individuals.’
Even with the lives of everyday people, immeasurably improved during in the post war boom, Keynesian economics and the New Deal were, nevertheless, seen as a slippery slope. This economic system – the ‘post-war consensus’ or ‘embedded liberalism’ as it was also know – had to be done away with. Or so someone thought. At this point in time though, our cast of characters didn't appear to be part of this ‘conspiracy.’
With the aim of protecting individuals from the menace of collectivism, Friedman (whose name is synonymous with neoliberalism) wrote the following in his 1951 work, Neo-liberalism and its Prospects:
‘[Neoliberalism] 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.’
It is debatable how realistic these goals were, nevertheless, he goes on to write:
‘The state would police the system, establish conditions favourable to competition and prevent monopoly, provide a stable monetary frame work, and relieve acute misery and distress. The citizens would be protected against the state by the existence of a free market; and against one another by the preservation of competition.’
In the fullness of time, arguably, we have seen precisely the opposite outcome in every case. I must return to this later, but to highlight quickly: a social safety net (of sorts) is suggested. It is also recommended that the rights of both workers and property owners be protected, and that monopolies be prevented. Almost none of this is neoliberalism however; what Friedman describes here is a system which embodies all those ‘reasonable and well-intentioned ideas,’ and this system existed – in post-war Germany, of all places – in the form of ‘Ordo Liberalism.’ What's interesting here, is just how ‘socialist’ this might seem; certainly when seen from the Libertarian perspective today.
Though I have always been draw to the no nonsense practicality of Libertarianism, for a long time I've worried that Libertarians might actually be the ‘useful idiots’ of the right. Just as the Communist ‘useful idiots’ worked to promote a system they believed would uphold their ideals (despite ample evidence to the contrary). These may seem harsh words, but Libertarianism springs out of the same intellectual ferment as neoliberalism, and the early promoters of this political movement appear to have been instrumental in the actual hijacking of neoliberalism. I don't think that is too strong a word (but you may connect the dots for yourself later). Some Libertarians, certainly, have a more nuanced understanding (I've heard a lot of explanations of over the past couple of years) but at this point in time, everything was still evolving.
To say these economists were ‘making it up as the went along’ is by no means an insult, this flux was productive and necessary; but the fluidity of ideas is what makes it all appear like a ‘dismal science.’ It's why opinions frequently changed, making the whole thing very confusing, at first glance.
For Ludwig von Mises to have called his colleagues Socialists, may have seemed uncalled for, but it wasn't entirely unjustified. Relations were often more collegial though, even among different schools of thought. Hayek and Keynes, for instance, are on record praising each other’s work. Within this small world, these economist moved from place to place, institution to institution, and very often worked together, and in ways you might not imagine.
During the Second World War, for instance, Hayek and Keynes were based in Cambridge, and spent nights together on ‘fire watch’ (which often meant sitting atop buildings, such as King's College, watching for incendiaries dropped from aircraft). Keynes, in fact, secured the lodgings for Hayek and his family during this time; so it is fair to say these men were friends, as well as adversaries in this ideological struggle.
It was the Austrian economists, primarily, who challenged Keynes and his ideas, but the story soon relocates to Chicago, from Cambridge, the London School of Economics and elsewhere in Europe.
This was all part of the great re-centering of culture, undertaken as a result of the Second World War, by organizations such as the ‘American Committee for Cultural Freedom’ (ACCF) and the ‘Congress for Cultural Freedoms’ (CCF). Culture is at the root of all things, and if you want to control the world, you must control culture. It was time, therefore, to relocate the center of culture (which had moved from Paris to London following the First World War) to New York, now that the United States was the unquestioned superpower of the world.
Another connection of Hazlitt's, was Sydney Hook – philosopher of pragmatism, and political theorist – who invited (some might say ‘recruited’) Hazlitt into the ACCF.
‘Hook. . . was at this time promoting the Committee's interests with the CIA director Walter Bedell Smith (whom Allen Dulles replaced in 1953), and Gordon Gray, first director of the Psychological Strategy Board (meetings which failed to merit a mention in Hook's autobiography).’
Who Paid the Piper? The CIA and the Cultural Cold War. Pg 158
All of this, of course, is a story for another time, but if you haven't read Frances Stonor Saunders brilliant 1999 work on this subject, it is a must. Knowing that all of modern culture, from the time of the above mentioned Psychological Strategy Board's 1952 ‘Doctrinal Program’ (PSB D-33/2), has been one giant PsyOp, is helpful in understanding why so many people have so many stupid ideas. . . that they simply cannot see, let alone free themselves from.
Who Paid the Piper? The CIA and the Cultural Cold War.
Back to our cast of characters though. Enter: Harold Luhnow (Shortly after Hayek arrives in America for a book tour based on his Road to Serfdom).
Luhnow was the nephew of a successful furniture salesman in Kansas City, William Volker. Volker had started the fund to do local charity work, but when Luhnow took the reigns, he began funding political movements and think tanks instead. He had read the Reader's Digest version of The Road to Serfdom, and jumped at the opportunity to meet the author in person.
Today, of course, Luhnow is known primarily as an activist. Let me cite a little from his Wikipedia page here, as this one paragraph summarizes a lot of points, rather more succinctly than I might:
‘Luhnow used Volker Fund assets to support bringing schools associated with the Austrian School of economics to U.S. institutions. He paid [Ludwig von] Mises's salary at New York University; he paid F. A. Hayek's salary at the University of Chicago; he funded lectures that Milton and Rose Friedman turned into Capitalism and Freedom. . . Luhnow earmarked Volker Fund money to support Leonard Read and agreed to fund the establishment the Foundation for Economic Education, which became the first major post-war libertarian think tank. The following year [1947] he funded the founding conference of the Mont Pelerin Society.’
Neoliberalism had found its one stop shop, for all its funding needs (for the moment). Now Friedman's wife, Rose, was an accomplished economist in her own right, and the sister of economist Aaron Director. These ties all underscore just what a small world this was. It was Director, who had met Hayek in the UK, who convinced the University of Chicago press to publish The Road to Serfdom. The two men, along with Henry Simons, led the previously mentioned, Free Market Study, which really was where all of this started.
Just one more direct quotation, from Simons’ Wiki page this time, to bring this story to his mysterious death, in 1946:
‘The Free Market Study had at first centered on Simons's traditional conservatism and opposition to monopolies, but his death in 1946 opened the door for a more radical conservatism.[3] In 1950, Director still sympathized with Simons's economic philosophy, and as a result, Luhnow threatened to remove him from the Free Market Study.’
It is easy to see here, who held the power, and directed the work of these economists. Economics appears to be even more ‘dismal’ a science, than we could have imagined. I'd always wondered why economist simply refuse to think about the nature of money, and will not admit that it might be anything but a ‘neutral agent.’ Perhaps the most important observation our sad age:
‘It Is Difficult to Get a Man to Understand Something When His Salary Depends Upon His Not Understanding It.’
— Upton Sinclair
The world is not likely to improve either, until this reality is changed (we can apply this to any profession we chose – medicine and politics most notably). Clearly these economists’ jobs (perhaps more than their jobs) depended on them understanding only what they were told to understand.
It is said that Simons commit suicide because he was despondent that Director's position, and tenure, had not been approved at the University of Chicago. The University later claimed that wasn't the case; that it had been a ‘misunderstanding.’ Are we to believe this? No one, apparently, seems to have questioned this most sketchy of tales; but everyone in this world, clearly, only saw what they were told to see. So was this a question of tenure then, or just another coercive ploy to bring an uncooperative Director in line with the wishes of those who paid the bills? Not only does the ‘profession’ of economics look like a complete sham at this point, the Universities too, lose all credibility. In this neoliberal world, it seems everyone, and everything, is bought and paid for.
But what else did Simons’ ‘economic philosophy’ include, beyond ‘traditional conservatism and opposition to monopolies,’ which were widely accepted views to this point?
The reason Simons had to be ‘removed’ from this program, I would suggest, is because he was the lead figure in the early Chicago School monetary reform ideas that advocated for abolishing the Federal Reserve. He also promoted the idea of full reserve (100% reserve) banking, which removed the ability of banks to create money (taking away the major source of their profits and power, reducing them to financial intermediaries only – which is, or should be, their only role).
Simons seems to have understood that the banks’ ability to actually create money is the real driver of inflation in modern economies – the direct result of their being able to create a ‘secondary money’ which, to most people, is indistinguishable from actual 'sovereign' money.
Who could imagine this kind of talk from the Austrian School folk today? This is because almost everyone, at one point or another, was forced to drink the banker's Koolaid. So when Chase National Bank propaganda was being fed to Henry Hazlitt, and possibly to Ayn Rand too, they would have be using the term ‘private money.’ Hazlitt and Rand would have been thinking gold or gold-backed money, in private hands (in the Galt's Gulch manner), while the banker would be thinking, private bank credit, circulating as money and earning interest for the bank; in both scenarios this is private money, but clearly, these are two very different things.
It would have been difficult, certainly if the argument were being made to Ms. Rand, to argue the merits of anything other than gold-backed sound-money, or gold itself. The banker would have pointed out, I imagine, the impracticality of gold as money, and made a case for the banks; explaining just how much more ‘efficient’ and ‘profitable’ money would be, if people just let the banks handle things. “It is the government that creates inflation, after all (he might say), banks just take care of your honest, hard-earned dollars, and put them to work for you.”
“So there's no harm in the banks. You deposit your money with us, and we lend it out for you, to entrepreneurs – other ‘producers’ like yourselves – and we keep just a very small spread in return for this valuable service, and the convenience to you.”
Oh, to have been a fly on the wall!
I realize now, I will have have to return with a Part IV, to wrap up this introduction to the ‘invisible ideology,’ and explain why the narrative above is a complete and utter misrepresentation. You must decide for yourself what happened to Henry Simons, and why. There are also a few other loose ends here, as you’ll recall.
We’ll return to Galt’s Gulch next time, and see why Ayn Rand fascinated so many. Is it possible that the Rockefellers actually saw themselves in the heroic role of John Galt? That statue of Atlas was deemed an appropriate symbol for Rockefeller Plaza, after all. Were those prophetic words from the opening scene of Atlas Shrugged – “I will stop the motor of the world” – the inspiration for another ‘LOCK STEP’ scenario, a way to usher in ‘The Future of Technology and International Development’ ? Or did neoliberalism’s motor just seize up on its own. Alan Greenspan was also a great admirer of Ayn Rand, and he struggled with an explanation for this after the last economic crisis.
The world has a lot of rebuilding to do, and perhaps one more chance to get it right, because we know what is waiting in the wings, if we don’t.
‘Scenarios for the Future of Technology and International Development’ The Rockefeller Foundation
Thank you for your continuing interest,
David
We know what is waiting in the wings? The fall of republics (USA) replaced by the Caesars? Decentralized direct democracy?
The 2030's ushers in a new style of government. For the GenX and late cohort boomers direct democracies may be a form of governance that could keep the Technocratic Caesars in check. For the Millennials who have watched the American dream remain outside their grasp, who have been massaged/messaged with the notion that capitalism is the root of all evil, Authoritarianism with a moral code (justification) of altruism (Virtue) must seem the likely path forwards. The 2K checks during lockdown the 0% IR environment (debt is an asset on the personal balance sheet) these were dry runs to see if the new socialism -properly incentivized- could garner votes. So here we are at the crossroads of history, generations colliding, those at the top of the food chain or closest to the corridors of power (Cantillon effect) will watch their wealth and power grow/consolidate. The middle class, the creative producers will be dragged down and their political voice no longer heard ( think of what happened to the landed gentry in New England in the 1776 era- Oliver Wiswell is a great novel to understand this point of view). Change is coming, the Rubicon has been crossed, are- Musk, Bezos, Gates, Zuckerberg, Thiel, et al- are these the new Techno Caesars? Many are sleepwalking as we watch the fall of republics and parliamentary democracies take place in real time. Plan A's and B's need to be drawn up. I have no idea which way we will move politically in this fourth turning( Bifurcation along red/blue lines?) yet to remain passive or worse yet to go full on Ostrich is not the path forwards if you value freedom and the right to self determination. Thanks for the effort you have put into this series DW, I am enjoying it and I hope others are as well.