The Battle on Lake Geneva—Mises vs. the Statists at Mont Pelerin

Published on November 12, 2024

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Adrian Shephard
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Europe was slowly, painfully recovering from WWII. Liberalism—which had seemingly won the day against fascism in the West—was seeking to revitalize itself. It had tried before the war—through the Walter Lippmann colloquium—to moderate itself back into relevance. Many of the figures from the colloquium were intent to try again, with lessons learned from the war. One attendee—Ludwig von Mises—had no intentions of moderating, and was even more convinced that such a road led to destruction.

In late 1946, Friedrich von Hayek was offered money from the Volcker Fund (the generous sponsors of Mises’s stay in America) to host a summit of the prominent liberals of the world. After much careful thought, invitations were sent out to dozens of liberal thinkers, mostly economists, but also historians and other intellectuals. Thirty-nine were able to attend the meeting, set in a resort town on Lake Geneva. Much negotiation had to take place for many of the attendees. Mises, for his part, was initially totally against the plan, first because of his utter pessimism in the future of Europe, “I have seen enough decline already.” Additionally, the inclusion of fellow Lippmann alumnus Wilhelm Röpke gave Mises pause. Röpke was a man Mises referred to as an “outright interventionist.” He was eventually convinced to attend despite his reservations. This was his first trip to Europe since he left in 1940—a winding, dangerous bus ride from Geneva to the France-Spain border after the French capitulation in early July.

He returned as a naturalized American citizen, and with him were prominent friends who really did believe in the Misesian style of liberalism. Henry Hazlitt, Loren Miller, Leonard Read of the Foundation of Economic Freedom (FEE), F.A. “Baldy” Harper, Orval Watts, and Felix Morley were part of the American cohort. They made the US contingent, by sheer magnitude, the most stalwart anti-interventionist section.

As we will see, however, other American contributors were less appalled by the idea of middle-of-the-road policies. The Chicago School of Economics provided Aaron Director, his brother-in-law Milton Friedman, George Stigler, and Frank Knight, the co-founder of the school. Norway was fortunate in having a singular contribution in Trygve Hoff—a man Mises greatly admired as he had come to an independent understanding of the economic calculation problem of socialism and was just as convinced of the need for economic freedom as Mises. Additionally, Hoff ran a magazine, “Farmand,” full of free-market radicalism, which happened to be the first magazine banned (“forever”) in 1940 during the German invasion. Hoff was thrown in prison for a time. The rest of the European contribution, however, was predictably full of the same type of people as came to Paris in August 1938.

Following a very friendly and ecumenical introduction by Hayek, the first major discussion topic was “‘Free Enterprise’ and Competitive Order.” Hayek seemed to have absorbed much from the Walter Lippmann Colloquium as he showed in his introduction. Laissez-faire had to be replaced, in Hayek’s view, with an active state that promoted competition and countered monopoly. As an aside, he attacked patents and trademarks, but on antitrust grounds (lightyears from the position of Stephan Kinsella). A person familiar with Hayek’s warning about state encroachment and support for spontaneous order might be shocked to read his paper in which he supports antitrust action, taxation to aid “social mobility,” and criticizes another long-held libertarian position:

We cannot regard “freedom of contract” as a real answer to our problems if we know that not all contracts ought to be made enforceable and in fact are bound to argue that contracts “in restraint of trade” ought not to be enforceable.

He was followed by Chicago Schooler Aaron Director, who went even further, arguing the “competitive order” includes a universal basic income, but also laws restricting union power. Most Austrians are certainly not fans of unions, and Mises wrote very effectively against their theoretical ability to increase labor’s income. But the “competitive order” saw capital and labor both as powers to be balanced by a strong state.

It was during the second session—open to broad discussion—that Mises finally spoke:

If it is true as has been suggested, that I am defending orthodoxy of the 18th century, then it is true that I am defending it against the orthodoxy of the 17th century. Interventionists all wanted different types of interventionism. Therefore they thought they were in opposition.

Mises here is pointing to the fact that the forces of conservatism—the main opposition to liberalism during the 18th and 19th century—were indeed “socialist” in the sense that it opposed freedom of contract, of trade, of property. Mises went on to castigate the idea that the state was fit to or even desired to stop monopolies:

We are discussing monopolies from the viewpoint that governments are against monopoly. But they are not! Governments are monopoly-governments. They don’t like cartels if they are not owned by the government. But they are enthusiastic about commodity control agreements.

Most of the attendees were unsatisfied with Mises’s answers, even if they had little to show in terms of counterarguments. They wanted a plan for a controlled liberal order, while Mises countered that such a policy program was contradictory. To quote Aaron Director: “I don’t think we shall ever get anywhere in defining what the rules of the game should be, if we don’t know whether there should be any rules at all.” Bertrand de Jouvenel—a French philosopher whose book On Power was well received in the liberal world and made a good companion to The Road to Serfdom—asked Mises pointedly if corporations should be treated as individuals. Mises replied,

Should society be based on public ownership, or private? There is nothing between them which is possible for a permanent society. I am in favor of private enterprise. If consumers buy something, so that a firm increases in size, I don’t want someone to come along and prevent them from enjoying the results of this.

As during the Walter Lippmann Colloquium, Mises was unmoveable when it came to middle-of-the-road policies.

In a later session on what a “liberal” agricultural policy would look like, there was much special pleading by different attendees justifying their own countries’ support for farmers. This was even justified in one case by Swiss economist William Rappard by saying it was the only way to get farmers on the side of the liberal order, as farming was inherently incentivized against economic liberalism. This would have been very surprising to the free trade small farmers who were integral parts of the liberal political parties of the world from Sweden to America to Australia throughout the 19th and 20th centuries. Mises’s ally Loren Miller had a pithy response to all these positions: “What would be the sum of all the interventions which have been suggested during the conference? Wouldn’t that be a planned economy?” Hayek, to his credit, concurred with this point.

Another session of note was “counter-cyclical policy,” or how to avoid or alleviate the impact of business cycles. It is interesting to note that, while the Chicago School had not yet had a shift away from the heavily interventionist policies we see here from Director to the kind of policies Milton Friedman advocated on TV in the 1980s, they were supportive of a monetary program at this time much closer to a Rothbardian perspective. The Chicago Plan of 1933 wanted a 100% gold reserve system where banks would be only for deposits and could no longer create credit artificially, with independent lending companies filling that role. This would drastically curtail the monetary problem at the heart of ABCT theory—artificially-low interest rates. Sadly, the Chicago School drifted from the full-reserve policy and Austro-libertarians remain the only major economic school that largely opposes fractional reserve banking.

The conference ended with a session on what to name any organization that would come out of this meeting. The Acton-Tocqueville Society was proposed by Hayek, an admirer of these two liberals; one Anglo-German, one French. However, no consensus could be reached on a name. The next meeting in 1949 was simply titled the “Mont Pelerin Society,” despite Karl Popper dismissing this title as “meaningless.”

Mises had been cajoled by Hayek and his American friends to attend this next meeting, which largely focused on the “German Miracle,” that the Ordo-Liberals—like Röpke, Alexander Rüstow of the MPS, and Walter Lippmann Colloquium—had achieved after the suspension of Allied control over West Germany’s economy. However, Mises was unimpressed with these middle-of-the-roaders, and returned to America, and to his work mentoring the rising American Austro-libertarian movement, of whom we are the intellectual children. Our thanks must be to Mises for his indefatigable defense of true liberalism despite incredible pressure to cave to “reasonableness.” Long live Liberalism!