What is "Neoliberalism" anyway?

A viral video by young lawyer Riana Te Ngahue is doing the rounds purporting to explain (for her aunties) something called Neoliberalism.

'A' for effort. 'F' for content. As libertarian Alberto Mingardi observes, very few who use the term have actually taken the time to define it correctly and to trace back its origins. She does take the time, but just like the folk she notes in her video (Tamitha Paul, Chloe Swarbrick, et al) Ms Te Ngahue fails to either define or understand where it came from. 

To be fair, it's not clear. Neoliberalism is like "trickle-down" in economics, or "austerity" in political economy: a term used almost exclusively by critics to characterise and critique a whole ill-defined whole cluster of policies and people, none of whom actually exist. (Take a look at Phil Magness for example explaining 'Why I Am Not a Neoliberal.') "Capitalism" of course was famously one of those words too -- used initially by French socialist Louis Blanc and anarchist Pierre-Joseph Proudhon -- before being taken up by capitalism's supporters. A bit like "queer."

But (apart from Scott Sumner, who thinks it's "awesome") there's no sign of that happening with "neoliberalism."

As Jeffrey Tucker explained way back in 2016, "We need a fix on what this term means. Is there a founding thinker, book, or meeting?" Or, in other words:

What is "Neoliberalism" anyway?

by Jeffrey Tucker

The term “neoliberalism” is being flung around everywhere these days, usually with a haughty sense of “everyone knows what this is.” But do we really? You may think you know, but there’s very little agreement among everyone else.

Is there a founding thinker, book, or meeting? The most common search phrases on Google are these: “definition neoliberalism,” “what is neoliberalism,” and “define neoliberalism.”

The confusion is understandable. Sometimes the term is used approvingly by the mainstream press, as for example to describe France’s Emmanuel Macron. Or Javier Milei. (As if there were much in common between the two.)

More often the term is used as a pejorative by the far left and the alt-right. Here it is said with a sneer to be a synonym for capitalism, globalism, elite rule, ruling-class privilege, and the administrative state.

It's true that there's more doubt around these days about cradle-to-grave government.

What are the reasons for this change?

First, there is the rather obvious fact that government management has failed to live up to its promise. People are far more likely to dread than appreciate any real-world contact with the state. Where would you rather be: the DMV or McDonald’s? The school-district office or a local bar? A military base or a car plant? The courthouse or the shopping mall? Want to deal with a government cop or a private security guard?

Second, private enterprise has turned out to produce far more amazing improvements in our lives; health, prosperity, education, transportation, security, and all the other “commanding heights” of life have been well-served by innovation stemming from entrepreneurship and commercial exchange. Pick your example, but a favourite one is how much transportation alone has improved with ride-sharing technology.

Third, a quiet intellectual revolution has been taking place in the postwar period, with generations of outstanding scholars having rediscovered, then improved, then propagated the insights of classical economics. To be sure, it is now conventional wisdom on the Left that this “neoliberal” intellectual shift is a result of an elite conspiracy dreamed up by billionaires and pushed by well-funded institutions and public intellectuals.

But there is a simpler explanation: the ideas of classical liberalism explain the world better than any alternative. Whether the intellectual change is the prime cause of the shift or incidental to it is unknowable. But this much is true: the shift in ideas is both real and necessary for a change in the paradigm.

Still, a classical liberal is not a neoliberal. We need a firmer fix on what this term "neoliberal" means. Is there a founding thinker, book, or meeting?

Liberalism Needed a Champion

The answer is yes. The thinker is the American journalist Walter Lippmann (1889-1974). He is often called the founder of modern American journalism. Also, if any writer/thinker can be called the founding father of neoliberalism, it is he. His life and times roughly overlap with both Mises and Hayek, the twentieth century’s two most prominent proponents of the classical idea of liberalism. Unlike Lippmann, there was nothing particularly “neo” about either of them. 

In fact, Mises himself had already written the definitive book to champion liberalism in the classical form in 1929. But it was published in Austria, in German. Lippman, as a New Yorker, would never have seen it.

Lippmann was not a professor, though he had an elite education and his brilliance was unmistakable. He was one of the most famous public intellectuals of his time, and a paragon of what was called liberalism in the Progressive Era and through the New Deal. As a founding editor of the New Republic, he was a defender of civil liberties, a proponent of peace, and opponent of socialism and fascism. No one would call him a dissident intellectual but he did resist the totalitarian winds of his time.

The Ideological Crisis

In the interwar period, this class of intellectuals had a sincere concern for the preservation of all the gains of liberty in the past, and sought to find a way to protect them in the future. The situation they faced was grim both in the United States and Europe. Two main extremist factions were struggling for control: the communists/socialists and the fascists/Nazis, which, Lippman realised, were two sides of the same authoritarian coin. The New Deal seemed to be borrowing from both while trying to hold on to certain liberal ideals. It was an unstable mix.

Where was the opposition? In Europe, the U.S., and the U.K, there was also a rise of what might be generally called Toryism or conservatism (or, in the American South, agrarianism). This was not a positive program but rather a reactionary or revanchist pose, a longing for the order of days gone by. In Europe, there were waves of nostalgia for the old monarchies and, with it, the desire to roll back the legitimate gains of liberalism in the 19th century. And with this pose comes a series of demands that are absolutely incompatible with modern life and contemporary human aspirations. 

Lippman knew that some form of liberalism had to be the way forward. But not the old liberalism, which he believed had failed (it led to economic depression and social instability, in his view). His goal was a renovated liberalism. He never used the term neoliberalism (that was invented by a colleague), but that is what it came to be called.

The Good Society

Lippmann’s great book – and it truly is a great book and very much worth a read – appeared in 1937: The Good Society. The book celebrated liberalism and thus rejected socialism, fascism, and Toryism. However, it also rejected laissez faire with equal passion, although you have to get pretty deep into the book to discover this. Lippmann had very casually accepted the bulk of the Keynesian criticism of free markets. He tried to thread the needle: opposing statism, loving liberty, but innovating what he regarded as liberal ends through quasi-statist means.

The book made such an impact that it inspired the calling of a hugely important scholarly colloquium held in Paris in August 1938, in the midst of a growing conflict in Europe and the world. Six months later came the German annexation of Austria, and one year before the Nazi invasion of Poland. These were extremely volatile times, and these intellectuals believed they had a responsibility to do something about righting what was going wrong in the world.

The “Walter Lippmann Colloquium” was organized by French liberal philosopher and logical positivist Louis Rougier. It was attended by Lippmann, and included several other leading French intellectuals, including the great monetary theorist Jacques Rueff. Also in attendance Michael Polanyi from the UK, as well as Germans Wilhelm Röpke and Alexander Rüstow. Most notably Friedrich Hayek came from London, and Ludwig von Mises arrived from Geneva where he was then living in sanctuary after having fled the Nazi invasion of Vienna. 

In short, this was a high-powered group, consisting of the world’s most important liberal intellectuals in the year 1938. It was at this event that Alexander Rüstow coined the term "neoliberalism" to label what they favoured. It was intended to apply only to Lippmann’s vision.

Hayek: neither neoliberal, nor conservative

Again, this was a new way of thinking about liberalism. It was democratic, tolerated a wide degree of regulation, plus welfare states, public education, and public provision of healthcare and infrastructure. But it maintained the core competitive processes of the market economy. The hope was to come up with some stable mix of policies that would lead to rising prosperity and bring about a general public contentment with the social order such that the demand for extremist ideologies like fascism and socialism would be kept at bay. The rising progress and demand for new technologies among the public would similarly outcompete revanchist and conservative sentiments in the political marketplace.

That was the hope in any case. I’m not aware of a report of precisely what took place in this Colloquium but one can imagine that both Mises and Hayek were alternatively pleased and unhappy about being pressed to agree with this view.

Hayek was emerging as the main opponent to John Maynard Keynes, while the other participants had made their peace with Keynes. For his part, Mises held the view that any mixture of state management into the market mix only diminishes the individual’s range of choice, slows economic growth, and introduces distortions that cry out for some political fix at a later date. Neither were believers in the great new Lippmann/Rüstow vision.

The Ur Text

To really understand this vision, let’s take a look at Lippmann’s treatise. It is not shabby. In fact, it is an excellent tutorial in the history of liberty. If only it had stuck with that. Still, the rhetoric is powerful and inspiring. You get a flavour from this passage:

Everywhere the movements which bid for men’s allegiance are hostile to the movements in which men struggled to be free. The programmes of reform are everywhere at odds with the liberal tradition. Men are asked to choose between security and liberty. To improve their fortunes they are told that they must renounced their rights. To escape from want they must enter a prison. To regularise their work they must be regimented. To obtain great equality they must have less freedom. To have national solidarity they must oppress the dissenters. To enhance their dignity they must lick the boots of tyrants. To realize the promise of science they must destroy free inquiry. To promote the truth they must not let it be examined. The choices are intolerable. 

Absolutely wonderful! And for the most part, the book continues in this lovely spirit, enough to feed the soul of the most radical libertarian. You have to get pretty far into the book to discover the “neo” part of neoliberalism. He believed that “liberalism must seek to change laws and greatly to modify property and contract” in a way that rejects laissez faire, a term and a system he completely counterposes to his own.

Neoliberalism includes public provision of education, health care, environmental protection, financial regulation, fiscal policy management, monetary control, and more. In fact, “the purpose of liberal reform is to accommodate the social order to the new economy; that end can be achieved only by continual and far-reaching reform of the social order.”

What Lippmann wanted was a new constitution for a “free state.” What he was rejecting was a state that is neutral to social outcomes – the “nightwatchman state” that the old liberals believed in.

Whereas the original liberals wanted law to be stable and general, pursuing only the most limited functions, the neoliberal vision is of a state that is an active part of the guarding, maintaining, and promoting liberty itself, as understood by a particular vision of what should be. It asserted that liberalism is so important that it must be the primary goal of the state to see it realised. 

In practice, there are no limits to how far this can go.

As an example of a state neutral to outcomes, consider the US Constitution. It is a framework for government and law. It specifies what various branches can do and why, and spells out what they cannot do and why. It contains no great aspiration for how society should look (well, perhaps the “general welfare” clause might apply) but mostly sticks to creating a framework and letting the people take it from there.

Neoliberalism instead wants a living state that is not only adaptive but even aspirational. It should take an active role in the lives of people with the expressed purpose of helping them live freer, flourishing, more fulfilling lives. The state must never lord it over the population but rather be the people’s partner in building prosperity and living out the promise of liberalism.

Where Lippmann Goes Wrong

All of this is interesting, but mostly fantasy. In his many chapters on the liberal state, Lippmann lays out all the ways in which his vision of an expansive state does not trend authoritarian. The official and the citizen are just people and there are no royal prerogatives. Bureaucracies aren’t issuing commands such much as behaving like publicly held corporations, always responsive to the public. There are all kind of intermediate institutions between the individual and the state. The public sector is humane, hospitable, adaptive, creative, and why? Because their power comes from the people, not the dictator or king.

All of this is interesting, but it is mostly fantasy.

Lippman, writing in 1938, was blind to important developments that took place in liberal theory, mostly in response to his vision.

The first is that crucial Hayekian point concerning epistemic humility. Lippmann writes as if he knows for sure how to achieve and judge social results that accord with his vision. It is a normal presumption of most intellectuals. Hayek’s innovation was to see that the knowledge necessary for the right ordering society is not accessible in whole to intellectuals and much less to presidents, legislators, or bureaucrats. It is deeply embedded in social processes themselves, and, in turn, in the minds of individuals making the choices that constitute the driving parts of that process.

The second point completely overlooked by Lippmann is that the players within the state itself have their own interests and designs, just as market actors do. They pursue their own interests. They seek to maximise their welfare. They look for more power, more funding, more prerogatives, and those they serve are the interest groups who can bring them more of it.

The idea that a public bureaucracy can be consistently much less permanently directly toward serving the genuine public interest is lacking in evidence. In other words, Lippman was blind to how the truths that would later be associated with the Public Choice school of economics might impact his vision of liberty.

A third problem is the one Mises identified: neoliberalism chooses the wrong means to realise its ends. Legislating higher wages does not actually raise wages; it throws people out of work. Regulating to protect the environment doesn’t end in doing so; it only devalues property which leaves it to be ravaged by irresponsible stewards. Instituting single-payer health care guts the sector of its signaling systems, its incentives for innovation, and its capacity to be rolled out to ever broader sectors of the population. And because intervention doesn’t achieve its stated ends, it becomes the pretext for ever more meddling in the market process.

These problems doom his system to be as much a fantasy as the authoritarian ideologies he opposed.

The Dangers of Neoliberalism

It was in response to Lippmann that both Hayek and Mises crafted many of their arguments over the coming years. Mises never stopped pointing out that laissez faire does not mean “let soulless forces operate,” as Lippmann seems to suggest. It means letting individuals make the choice over what kinds of lives they want to live, and let those choices drive forward the path of social evolution. Mises’s book Human Action was as much a response to Lippmann as it was to Keynes, Marx, and all the other anti-liberals.

Let’s just posit that we have a state that is determined to advance the cause of liberty – not a state neutral to outcomes but one directed at a certain end. Where will this lead us? It could lead to another form of top-down planning. It can result in practices such as social insurance schemes, heavy regulation in zoning and the environment, taxes and redistribution with the aim of bringing more effective liberty to ever more people. In an imperial state, it can lead to the imposition of planning on foreign nations: the IMF, the World Bank, the so-called Washington Consensus, and the United Nations Declaration on the Rights of Indigenous Peoples. 

It can be the excuse for wars for “spreading democracy” and nation building abroad.

You can say that all these policies are well intentioned. In fact, neoliberalism is the very embodiment of good intentions: we shall free all people! In the best case, neoliberalism gives us a post-war German economic miracle. But it could just easily land in Pinochet’s Chile, often cited as a neoliberal state. In foreign policy, neoliberalism can inspire beautiful reform (Japan after the war), or create a destructive terror state that seethes in resentment (see Libya, Iraq, and Afghanistan).

All of which is to say: the neoliberal can quickly become the anti-liberal state. There is no institutional reason why it would not be so. A state with a social mandate is a roaming beast: you might hope for it not to do bad things but you wouldn’t want to be alone with it in a dark alley.

To be sure, the world owes a debt to neoliberalism. It was this formulation that inspired many countries to liberalise their economies, and even been a reason for many of the loosening of controls in the United States. It led to the reforms in Latin America, China, and even Eastern Europe after the collapse of socialism. Neoliberal ideology is partially responsible for the liberation of billions of people from suffering, poverty, and tyranny.

The downside is also present: the continuation of colonialism by other means, the spread of global bureaucracy, the entrenchment of the welfare state, and the rise of deep-state control over culture, society, and the economy. It is also not politically stable. These institutions feed public resentment and fuel populist extremism, which is the very opposite of what Lippmann wanted. 

At the same time, genuine liberals (often called libertarians today) absolutely need to understand: we are not neoliberals. The great part about neoliberalism is the noun not the modifier. Its primary value is not in what it innovated but what it recaptured. To the extent that it diverges from the beautiful system of liberty itself, it can be the source of the opposite.

Neoliberalism Today

That the term is strewn throughout viral videos and public discourse today is a tribute to the power of an idea. This little seed planted in 1938 has grown into a massive global presence, mostly embodied in international bodies, public bureaucracies, political establishments, media voices, and pretexts for every manner of foreign, domestic, and global action. 

And what has been the result? Some good but a vast amount of highly conspicuous bad. Huge public sectors have held back economic growth. Large bureaucracies have compromised human freedom. It gave life to what is called "crony capitalism" today. Global control has bred nationalist blowback, while corporate monopoly has fed socialist longings.

We are again faced with the same problem today that confronted Lippmann in 1938. Everywhere there are ideologies that seek to put men in chains. We do need an alternative to socialism, fascism, and Toryism. We need to get it right this time. Let’s take the neo out of liberalism and accept nothing less than the real thing.

Freedom is not the correct implementation of a public policy plan. It is not the condition of appointing high-minded and intelligent social and economic managers. It is not the result of sound intentions from a fleet of ruling class intellectuals and major economic stakeholders.

Freedom exists when a people, an economy, and a culture, undirected and unmolested by administrative elites with power, are permitted to live and evolve in peace according to the principle of human choice in all areas of life.

* * * * * 

Jeffrey Tucker is the founder and president of the Brownstone Institute, organiser of the Great Barrington Declaration, and a former Director of Content for the Foundation for Economic Education, where his post first appeared. 

"To Fix Economics, Try *Teaching* Economics"

 

"Economics education has major problems. Doctoral programmes are churning out applied mathematicians and statisticians with little to no knowledge of price theory. At the undergraduate level, social control ('market failure!') and activism ('inequality!') have replaced careful reasoning about markets and politics. Very few programmes instil in students an appreciation for the power and universality of the economic way of thinking."

~ Alexander Salter from his article 'To Fix Economics, Try Teaching Economics'

Double standards

"[T]he whole 'public food' [and 'public good'] argument hinges on a giant case of double standards.
    "Presented with evidence that corporations do bad things, it concludes that the inherent logic of capitalism demands badness.
    "Presented with evidence that governments do bad things, it concludes [however] that if we just put some nice people in power, everything would go great.
    "Why is that?"

~ Scott Alexander form his article 'Contra Robinson on Public Food' [hat tip Kevin Corcoran from his post 'Why I, too, Am Skeptical of Market Failure Corrections']

3 questions for a regulatory reform minister

 

So let's say you're a minister in a reforming government, a rare enough beast. And that you're someone who has both the job and the intention of reforming regulations. (An even rarer animal in any political environment!)

Economist Jon Murphy offers 3 simple questions to guide your work. And they start with Ronald Coase ...

As many economists have been pointing out since at least Ronald Coase’s famous 1960 paper 'The Problem of Social Costs,' we exist in a complex world of pre-existing social, economic, legal, and legislative arrangements. These arrangements influence our actions. Like Chesterton’s Fence, we cannot pretend they do not exist, nor discard them because we do not understand their purpose.
    And yet, many interventionists do ignore current arrangements.

Many interventionists simply load new intervention upon old intervention, assuming either the new intervention will fix the unintended consequences of the old intervention — or, worse, ignoring altogether that the old interventions exist!

But let's assume our political reformer is honest as well (an even rarer beast in politics!) Then your first question would be:

Question 1: What is the current state of affairs?

... Of course, it is impossible to articulate every single aspect of the current state of affairs. Rather, one should focus on the most salient (eg, direct laws, institutions, etc). ... There are all sorts of preexisting arrangements that influence [affairs]. These preexisting arrangements, as Coase pointed out, are crucial. If they are misunderstood, then interventions can make the situation worse.
    Answering this question also helps understand why existing patterns are what they are.

As Hernando de Soto liked to point out, if you see people doing insane things, then that's your clue there are some bad laws against which people are trying to just do their best. Talking about the developing world's shanty towns, for example, he pointed out it's no surprise that folk there tend to build their furniture before their roof: the reason being that the laws give them no chance to get secure land title, so their lounge suite will always be more secure than their shelter. People respond to incentives, even if bad law only encourages shitty ones.

Which leads us to the next question.

Question 2: Why have pre-existing arrangements failed?

If the answer to Question 1 leads one to conclude that there is indeed a failure, now we need to understand why that failure has occurred. Is there something about the current state of affairs that triggers that failure? What are the actual causes of the failure? What are the incentives people face?

Understanding those shitty incentives is the key here. And Do Soto's example is still on point: we should assume that people making apparently bad decisions are acting rationally. It's not they are irrational; it's the incentives they face that are irrational. So, in our example, our reforming political animal should examine  how poor property rights protection encourages these poor property decisions.

Here at home, he could do worse than start with the bad outcomes of the RMA and the Building Act.

And then consider ...

Question 3: Is your proposed solution the best method achievable?

Hopefully, by this point, [our enlightened political beast] has a pretty good understanding of the current state of affairs. Now is the time to start considering proper interventions. Note that this question actually has two elements to meet: 

1. the intervention is the best method to achieve the goal, and
2. the intervention is achievable.

... What is "best" may not be a positive intervention (meaning that one takes a new action) at all. Indeed, while investigating Questions 1 and 2, one may discover that the best thing to do is remove an existing intervention! 

Given the encrustation of existing legislation and regulation, that would be an enlightened first option.  

The second element relates back to our first question. Whether or not some intervention is achievable will depend on the current institutions. ...

And more crucially, will depend on the principles and political agility of the reformer, and the support they can garner for their goals.

My own suggestion would be to always head in the direction of more freedom, however small the increment, just as long as there is no new impediment to freedom imposed. That would be a principled, practical approach to reform. More white with no new black.

Or set off one or two small steps that would self-initiate many more, such that the liberating process might be unstoppable. (This was Hernando De Soto's approach with title registration in South America.)

We've seen more than one pinstriped "reformer" end up preening their ego rather than doing the work. But if the reformer's motivation were to remain sound, great things could be achieved even in small steps.

"Market Failure": Definition

 

Market Failure | ˈmɑːkɪt ˈfeɪljə | alleged noun |

1. When free people un-coerced by government produce an outcome that Philosopher Kings don't like

2. (Related) When perverse incentives imposed by government cause perverse behaviours leading to perverse outcomes, which Court-Economists mislabel

    See also: Government Failure. Orig: Keith Weiner

 

Javier Milei to the WEF: "You're all a bunch of parasites -- long live freedom, dammit!"

 

Javier Milei's speech overnight (translated) to Klaus Schwab's World Economic Forum. 

"This is actually wild to listen to. It sounds like a libertarian

podcast but its the main stage at the bloody WEF!"

NB: Presentation starts at 4:00, speech starts at 5:45

Argentine president Javier Milei went to the WEF's event in Davos, and told them they are a bunch of parasites.

And they deserved it.

But he had something infinitely more important to say: 

that the western world is in danger, and it's in danger because those who are supposed to defend the values of the west are co-opted by a vision of the world that inexorably leads to socialism, and thereby to poverty....

Leaders of the western world have abandoned the model of freedom ... We're here to tell you that collectivist experiments are never the solution to the problems that afflict the citizens of the world .... the key to prosperity is freedom.

Yesterday, Milei said he wanted "to plant the ideas of freedom in a forum that is contaminated by the 2030 socialist agenda." Today, he did just that — and more.

A fuller summary below of his speech, courtesy of @MileiExplains --  but first, a quick overview:

Today I am here to tell you that the western world is in danger, and it's in danger because those who are supposed to defend the values of the west are co-opted by a vision of the world that inexorably leads to socialism, and thereby to poverty.

Unfortunately, in recent decades, motivated by some well meaning individuals willing to help others, and others motivated by the desire to belong to a privileged class, the main leaders of the western world have abandoned the model of freedom for different versions of what we call collectivism.

"We are here to tell you that collectivist experiments are never the solution to the problems that afflict the citizens of the world, rather they are the root cause.

The problem with neoclassical (economists) is the model they love so much does not match reality, so they attribute their own mistakes to the supposed market failure, rather than reviewing the premises of their model.

On the pretext of the supposed market failures, regulations are introduced, which only create distortions in the price system, preventing economic calculation, and therefore, also prevent savings, investment, and growth.

Not even supposedly libertarian economists understand what the market is, because if they did understand it, they would quickly see that it's impossible for something alone the lines of market failure to exist.

Talking about market failure is an oxymoron, there are no market failures, if transaction are voluntary the only context where it can be a market failure is coercion, and the only one that is able to coerce is the state.

Faced with the theoretical demonstration that state intervention is harmful, and the empirical evidence that it has failed, the solution proposed by the collectivists is not greater freedom but rather greater regulation. Greater regulation which creates a downwards spiral until we are all poor, and the life of all of us depend on a bureaucrat sitting somewhere in a luxury office.

Whenever you want to correct a supposed market failure, inexorably, as a result of not knowing what the market is, or as a result of having fallen in love with a failed model, you are opening up the doors to socialism and condemning people to poverty.

Given the dismal failure of collectivist models, and the undeniable advances in the free world, socialists were lead to change their agenda. They left behind the class struggle based on the economic system, and replaced it with other supposed social conflicts, which are just as harmful to life as a community, and to economic growth.

Today's states don't need to directly control the means of production to control every aspect of the life of individuals. With tools like printing money, debt, subsidies, control of the interest rate, price controls, and regulations to correct the so called market failures, they can control the lives and fates of millions of individuals.

They say that capitalism is evil because it's individualistic and that collectivism is good because it's altruistic, of course with the money of others.

 Those who promote social justice, they advocate the idea that the whole economy is a pie that can be shared in better ways, but that pie is not a fixed given, it's wealth that get generated in what Israel Kirzner for instance calls a Market Discovery Process.

 If the state punishes the capitalists when they are successful, and gets in the way of the (Market) Discovery Process, they will destroy their incentives and the consequence is that they will produce less, and the pie will be smaller, and this will harm society as a whole.

Collectivism, by inhibiting the (Market) Discovery Process and hindering the appropriation of discoveries, ends up binding the hands of entrepreneurs and preventing them to provide better goods and services at a better price.

Thanks to free-enterprise capitalism, the world is now living its best moment, never in all of mankind's or humanity's history there has been a time of more prosperity than today. Today's world is more free, more rich, more peaceful, and more prosperous than in any other time of human history. And this is particularly true for those countries that respect economic freedom and the property rights of individuals.

The capitalist, the successful entrepreneur, is a social benefactor, who far from appropriating the wealth of others, contributes to the general well-being of all. Ultimately, a successful entrepreneur is a hero.

Libertarianism is the unrestricted respect for the project of life of others, based on the non-aggression principle, in defense of the right to life, to liberty, and to property. With its fundamental institutions being: Private property, markets free from state intervention, free competition, the division of labor, and social cooperation. Where you can only be successful by serving others with goods of better quality at a best price.

The impoverishment produced by collectivism is no fantasy, nor it is fatalism, it's a reality that we in Argentina have known very well for at least 100 years. We have lived through it, and we are here to warn you about what can happen if the countries in the western world -that became rich through the model of freedom-, stay on this road to serfdom.

We come here today to invite other countries in the western world to return to the path of prosperity. Economic freedom, limited government, and the unrestricted respect for private property, are essential elements for economic growth.

In concluding, I would like to leave a message for all entrepreneurs and business people here, and for those who are not here in person but are following from around the world: 

• Do not be intimidated either by the political caste nor by parasites who live off the state. 
• Do not surrender yourself to a political class that only wants to perpetuate itself in power and keep their privileges. 
• You are social benefactors, you are heroes, you are the creators of the most extraordinary period of prosperity we have ever seen. 
• Let no one tell you that your ambition is immoral. If you make money, it's because you offer a better product at the best price, thereby contributing to the general well-being. 
• Do not yield to the advance of the state. The state is not the solution, the state is the problem itself. 
• You are the true protagonists of this story. 
• And rest assured that starting today, you can count on Argentina as an unconditional ally. 

Long Live Freedom, Dammit!

Watch at the end. The audience response was something like: "Was that real?!"

Philip Bagus, The leading economist in the Spanish-speaking world of the Austrian economics school summed up Milei's speech this way:

And by the way, he didn't fly there by private jet. He went cattle class. 

And he paid his own way.

[Hat tipsAlex Tabarrok, Mauricio Ríos García, agustina vergara cid, Ryan Bourne, Milei Explains, The Vigilant Fox, Creative Deduction, DutchLibertarian]

Have Argentine voters truly voted to overturn their destructive economic past, and to rediscover liberty? As these four guest posts point out (including one from Milei's adviser Jesús Huerta de Soto), President-Elect Javier Milei has the credentials, and has offered as much liberty as (it seems) the Argentinian people are willing to accept. Will it be a revolution of liberty? History will only tell....

Have Argentine Voters FINALLY Chosen Liberty? Time Will Tell

Guest post by Octavio Bermudez

A historical event has taken place, not only for the libertarian movement but for the history of the world. The first libertarian president has been elected in none other country than Argentina.

The Argentinian people faced a dichotomy, either continue with the socialist road to serfdom embodied by the ruling Peronist regime or adopt a radical change towards liberty, the leader of said change being Javier Milei, self-proclaimed Rothbardian and anarcho-capitalist. Finally, with more than 55 percent of the votes, Argentinians elected Milei as their new president.

Argentina’s situation is critical and the people know it. 142,7 percent accumulated inflation this year, 40 percent of the population under poverty levels and at least 80 percent of public debt in terms of GDP, just to mention some of the main economic problems. Crime -which is rampant in many parts of the country- is the other main concern of the public that Milei has had to address in his campaign. He has done so mainly through his vice-president Victoria Villarruel, expert on defense and security matters.

Argentinians chose a free market path, a liberty road towards prosperity and justice.

Now, besides the celebration and enthusiasm that such an occasion merits, we libertarians (especially Argentinian libertarians) must draw upon the wisdom of the British economist Alfred Marshall who said that one must stay on our toes to keep our heart warm. Milei has introduced many libertarians’ ideas to Argentinian political discourse but not all of them have been received favorably by the general public or the media. Milei has had to engage in retreatism due to backlash regarding some free market-oriented ideas such as a voucher system for education, eliminating gun regulations, 100 percent bank reserves and privatising both education and the health system.

Milei has offered as much liberty as the Argentinian people are willing to accept. Socialist and collectivist ideals still prevail in major parts of the population, it would be an error to affirm that even half of the electors that choose Milei are full libertarians. Milei’s upcoming administration will be a test, if it succeeds in pushing for a libertarian program, then more people will rally behind the Gadsden flag and Argentina will serve as a beacon of freedom in Latin America.

Even more important is the cultural shift that has taken place due to Milei’s political activism. Books by the Austrian School of Economics and libertarians can be found in any bookstore (before Milei, those works were harder to access, almost clandestine) and liberty friendly universities and programs are now more frequented. Being a classical liberal or a libertarian is no longer a cultural crime in Argentina.

A libertarian hardcore has been formed and continues to grow, they are the vanguard of the movement, convincing lay people to support Milei’s reforms. True enough, many times they may not convince everyone to embrace libertarianism but at least they persuade them not to oppose it. That’s how the libertarian spirit in Argentina can grow.

Milei’s plan is a moderate one if seen through ideal lenses but as I have already pointed out, it is the most libertarian program that could be advanced upon without being ostracised by the public and mainstream media. Compromises were made after the general elections. The Libertarian-Republican alliance was formed to confront the Peronist regime in the ballot boxes, Milei allied himself with his former competitor Patricia Bullrich and former president Mauricio Macri to rally the necessary votes to win in the ballotage against the leftist Peronist candidate Sergio Massa. The alliance succeeded in calling for the votes necessary to win. It was an epic campaign, thousands attended Milei’s rallies crying out “Liberty!” In many parts of the country, shouts of joy and relief were heard when the Peronist candidate recognized his defeat on live TV. I of course joined the people in the cries for victory.

Bearing in mind the compromises made in the alliance to defeat Peronism, the most crucial libertarian proposals such as slashing public spending and taxes, deregulating the economy and labor market, free trade, privatization of public companies (like the oil company “YPF” and the state airline “Aerolineas Argentinas”) and abolition of the central bank are going to be implemented, at least on paper. Milei, although an anarcho-capitalist has had to moderate in order to gain office, once taking the reins of the state we shall see how much of the freedom program he proposes is implemented.

Will it be a revolution of liberty? History will only tell.

The Economics of Javier Milei

Guest post by David Howden

The election of Javier Milei brings the first libertarian/anarchocapitalist world leader in history. Although prolific in the Spanish-speaking world, English speakers know very little of the Argentine´s views. The fact that he heads the Libertarian Party of Argentina certainly hints at what direction his politics run.

Earlier this year, Philipp Bagus and I edited a two-volume book in honour of Jesús Huerta de Soto [see Bagus's and de Soto's post below.]. Milei wrote a chapter entitled “Capitalism, Socialism, and the Neoclassical Trap.” To my knowledge, it is Milei's only writing made directly in English for an English audience.

If anyone doubts Milei´s credentials, the chapter is a scathing critique of neoclassical growth theory. It also offers a full-blown Rothbardian alternative. Mises's work on interventionism and Hayek's knowledge problem form the basis of his analysis.

Milei identifies a crucial rationalistic error in neoclassical economic analysis:

Note that whenever situations arise that do not match the mathematical structure [modelled by the neoclassical analysis], they are considered “market failures,” and that is where the government appears to correct those failures. However, to successfully solve this problem, it is assumed that the government knows the utility function of all individuals (preferences) for the past, the present, the future, the time preference rate and knows the state of the current technology and all future enhancements, along with their respective amortization rates. In short, to solve the problem in question, the government should be able to master a significant amount of information that, by definition, individuals themselves ignore or are not able to handle, which exposes that the idea of the welfare state acting on the market to correct failures is a contradiction.

Furthermore, Milei concludes that:

when it is made clear that the correction of market failures by the government as proposed in the neoclassical paradigm is conceptually invalid, taking into consideration that the only ones who can internalize those effects are individuals, once the artificial separation of decision-making processes is eliminated, there will no longer be any reason for government intervention, which will not only stop the socialist advance but will also allow us to counterattack.

This is not your grandfather´s South American leader who politicises under the influence of neoclassical "Chicago Boy" economists. Milei is a full-blown libertarian. His Libertarian Party won yesterday´s run-off election by carrying nineteen of twenty-two Argentine states and 56% of the popular vote. After decades of socialism, a plurality of Argentine voters must surely be fed up with it.

A Statement on Javier Milei from Spanish Libertarians 

Guest post by Jesús Huerta de Soto and Philipp Bagus

Senior Mises Institute Fellow Jesús Huerta de Soto and Fellow Philipp Bagus write:

In our own name and in the name of the rest of the Spanish libertarians and anarcho-capitalists we want to send Javier Milei our most enthusiastic congratulations. Today is a historic day for liberty only comparable to the fall of the Berlin Wall and communism. For the first time in history an anarcho-capitalist has won the Presidency of a country as important as Argentina. This shows that in the end the ideas of liberty against statism, left or right, end up prevailing. Mises, Hayek, Rothbard and the great thinkers and theoreticians of liberty planted the ideas that Milei have had the enormous merit of making attractive to the broadest layers of the population and, especially, to the most vulnerable who are always the main victims of the manipulations of socialists and interventionists of all stripes. We are now advising him closely especially on the necessity to establish a 100 per cent reserve ratio on his dollarisation process to avoid any new "corralitos." Viva la libertad carajo.

Milei's Long-Term Victory Depends on Him Winning in the Battle of Ideas

Guest post by Ryan McMaken

Last Sunday, Javier Milei was elected president of Argentina by a comfortable margin, with 56 percent of the vote. He will be sworn in as president on December 10.

Over the past year, however, Milei has made a name for himself as an extremely vocal critic of socialism, central banks, and many types of government intervention in general. He has become memorable for fiery commentary condemning the Left's ideology and tactics while expressing an interest in immediate (i.e., not gradualist) change. He has said he seeks to abolish Argentina's central bank and introduce the US dollar as the country's dominant currency.

His fiscal policy is far more in the free-market direction than any other head of state in a country as large as Argentina (with 46 million residents). Milei has expressed admiration for the work of Murray Rothbard, F.A. Hayek, and a variety of economists who are more centrist than Rothbard and Hayek, but which we might reasonably describe as more-or-less free market. Moreover, Milei self-identifies as a supporter of the Austrian School of economics.

If Milei remains committed to reining in (or abolishing) the central bank, lowering taxes, and cutting government spending, Milei has the opportunity to push through real economic reforms that could provide relief to the beleaguered Argentine middle class. These people have suffered greatly under decades of easy-money-induced price inflation, and an ever-growing burden of taxation and regulation.

Many libertarian supporters of Milei (both inside and outside the country) have responded to Milei's candidacy with celebratory enthusiasm. Some have declared him the next Ron Paul, and many others seem to assume that his election will translate into actual implementation of his stated policies. That could happen, but unfortunately, the hard part has only begun.

It is entirely possible that Milei is sincere in his stated goals and in his apparent commitment to radical opposition against the disastrous status quo in Argentina. If so, that is excellent news. After Milei's election comes the real test, however. Assuming that Milei is sincere right now, that doesn't mean he won't later be unwilling to carry out such policies if they prove to be unpopular as his administration unfolds. Given his short history of serving in political office, we have little to suggest a likely outcome one way or another.

Another possibility is that we may find that he lacks the political skill necessary to harness and exploit what free-market sentiment in the country presently exists. He will have to do this to actually push through any of these reforms. What political skills are necessary? Milei must be able to convince a sizeable portion of the voting public that his policies will work or are working. This doesn't necessarily mean a majority have to be enthusiastically with him at all times. But he at least has to be able to use public opinion to pressure the legislature and powerful interest groups. Since Milei will not be a dictator as president, he will be forced to somehow squeeze concessions out of countless socialists and interventionists in government who quite literally hate him and his policies.

This is not just a problem in countries with democratic institutions. Not even dictators can simply enact radical policies at will. As absolutist monarchs and countless military dictators have found in their days, chief executives meet fierce opposition from entrenched interests within the state in all types of regimes—except, perhaps, in fully totalitarian ones. The sorts of reforms Milei wants will hurt many interest groups who have benefited from inflation and high government spending. The productive class may suffer greatly under these policies, but there are also millions of politically active voters who believe they benefit from Peronist-style economic policy. Those who think they stand to lose from reform will resist.

No Victory Is Possible without Progress in the Battle of Ideas

For the sake of argument, however, let's say that Milei is both sincere in his views and is also among the most skilled politician we've seen in decades. Let's say he is skilled at the tricks successful politicians employ to confound adversaries and build coalitions.

Ultimately, not even these skills can bring about the successful implementation of true radical free-market reforms if Milei and his supporters lose the battle of ideas in the meantime. Milei can only succeed if the public agrees that Milei's policies are "worth it." After all, as Milei tries to push through reforms such as tax cuts or limits on monetary inflation, his political opponents will flood the media with explanations of how Milei is hurting ordinary people, destroying the economy, or is somehow "a threat to democracy." Milei's intellectual opponents will trot out economists to explain how high taxes and inflation are actually good. The public will hear from various "experts" about how Milei is wrong, and that the usual socialists and interventionists have it right.

These tactics are especially dangerous in the short term because efforts by Milei to cut spending and rein in price inflation will be sure to cause plenty of short-term pain in the economy. Cuts in government spending and an end to easy monetary policy tend to pop financial bubbles and drive government-dependent industries into decline. Surging unemployment results in the short term as bankruptcies spike. That, of course, is bad news for any elected politician.

Unless the public can be convinced that this pain will lead to better days ahead, the public is likely to abandon Milei and his policies in short order. Then, four years form now, the Peronists will return to power and the status quo will proceed as if nothing ever happened.

The only antidote to this is to relentlessly fight the battle of ideas in academia, in the media, and with the public. Free-market intellectuals, activists, columnists, and speakers must never tire of endlessly recapitulating the truth about freedom, free markets, and peace. So long as a sizeable portion of the public thinks the Peronists "get it right," no free-market reformer can win.

After all, the only reason any people—including Milei—quote Austrian School economists or appreciate the wisdom of free-market classical liberals is because those people learned those ideas from some teacher, publication, or organisation. Without scholars like Rothbard, Hayek, and the others that Milei says he admires, there would be no Milei campaign as we know it. Without organizations like the Mises Institute, it is a safe bet we would not be hearing Milei call for the abolition of a central bank. Without hardcore classical liberals like Mises, Rothbard, Hayek, Molinari, and Bastiat, there would be virtually no one, anywhere, calling for radical cuts to taxes, spending, and state power overall.

Those who wage these battles of ideas provide the foundation for the political movements that build upon the ideas. Yet, these movements can only succeed if the public learns—to at least some extent—why fiat money is bad, why state power is a problem, and why high taxes are disastrous. The public doesn't need to know the technical details behind these arguments, of course, and is probably not interested. But the public must believe on some level that freedom and free markets are good things.

It remains to be seen if the voting public is willing to give Milei a chance to try beyond the very short term. Much of that will depend on whether or not Argentine libertarians have managed to sufficiently preserve or advance some lingering measure of pro-liberty sentiment. If they have not, Milei will fail politically, regardless of his political skills. If that happens, free-market activists and intellectuals will have to simply keep up the fight until the political situation again favours a viable free-market candidate.

The situation is no different for those of us in the rest of the world.

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CONTRIBUTORS:

Octavio Bermudez is an Argentinian student and Austro-libertarian interested in Austrian economics, political philosophy, and history.

David Howden is Chair of the Department of Business and Economics, and professor of economics, at Saint Louis University at its Madrid campus.

Jesús Huerta de Soto is a Spanish economist of the Austrian School. He is a professor in the Department of Applied Economics at King Juan Carlos University of Madrid, Spain and a Senior Fellow at the Mises Institute. His website is here.

Philipp Bagus is professor at Universidad Rey Juan Carlos. He is a Fellow of the Mises Institute, an IREF scholar, and the author of numerous books.

Ryan McMaken is an economist and writer living in Colorado where he has taught political science since 2004. He has degrees in economics and political science from the University of Colorado and is an Associated Scholar of the Ludwig von Mises Institute in Auburn, Alabama.

These posts first appeared at the Power & Market blog.

You would think that when serious problems exist in the world, the world would be desperate to understand the causes. Yet causality, as a field of inquiry, is in decline. The great tragedy, as Finn Andreen explains in this guest post, is that discovering the real and underlying causes for social and economic problems is too often deemed unnecessary (and far too often wilfully ignored), and the public’s support instead is too often for easy, simple, and wrong-headed statist solutions ...

Libertarianism and the Importance of Understanding Causality

by Finn Andreen

Even though support for the free market has become stronger in the last decades, and a self-proclaimed libertarian just elected to President in Argentina, libertarianism itself can still only be considered a fringe movement. Most people still believe that many social problems are due to “market failure” and therefore require state intervention to be “solved.” Despite the obvious flaws of modern socialism—with its unlikely combination of a redistributive welfare state and globalist crony capitalism—and despite libertarianism’s robust philosophical and empirical foundations, the liberalism of Ludwig von Mises is still far from enjoying the majority support that it so amply deserves.

There are many reasons for this. Of course, media bias and public education prevent the dissemination of the ideas of freedom in society and limit the understanding of the free market. However, an often overlooked, yet equally important, reason is a general disregard for causality. When the real and underlying causes for social and economic problems are unknown or misunderstood, the public’s support for wrong-headed statist solutions to these problems is not surprising.

The Importance of Causes

The importance of causes to human inquiry has been grasped since early antiquity, crystalising with Aristotle and his still seminal theory of causality. Following in this tradition, Herbert Spencer considered the discovery of causal laws the essence of science; those who disregard the importance of the identification of causes, he argued -- whatever the subject matter -- are liable to draw erroneous conclusions.

In the Twilight of the Idols, Friedrich Nietzsche chastised modern society for still making errors of causality, namely, “the error of false causality,” “the error of imaginary causes,” and “the error of the confusion of cause and effect.” Unfortunately, these errors are made all too frequently in economic and political life.

In the realm of international relations, for instance, a disregard for contemporary history has led to an ignorance of the real causes of serious political events. Today’s conflicts could arguably have been avoided if their many and deep causes had been soberly and objectively considered by decision-makers. When George Santayana said that “those who cannot remember the past are condemned to repeat it” and when George Orwell wrote in his masterpiece 1984 that mastering the past is the key to mastering the present, both had in mind the crucial importance of knowing the actual causes of political events.

Nietzsche considered the error of the confusion of cause and effect to be the most dangerous one; he called it the “intrinsic perversion of reason.” This was not an exaggeration, considering the impact of this all-too-common reversal of causality. For example, this error happens when the state is absolved of the nefarious consequences of its previous actions, thereby empowering the state to legitimise policies that “solve” problems for which the state was itself originally responsible.

Examples: Recessions, Inflation, and Unemployment

As an example, it is possible to mention the boom-and-bust cycles of the typical state capitalist economy. The original cause for this cycle is the state, through its monopolistic monetary policy. As Murray Rothbard wrote, “The business cycle is generated by government: specifically, by bank credit expansion promoted and fueled by governmental expansion of bank reserves.”

Yet, during hard times—because this original cause of recessions is not generally recognised—the state itself is looked to by society to “save” the economy through measures such as bailouts or interest rate reductions (which mostly benefit big banks and strategic industries). This in turn sets the stage for the next artificial boom, and the cycle continues.

The problem of high inflation and high unemployment may be seen in the same way. Price inflation is caused by the state when its central bank increases the money supply to pay for its chronic budget deficits, with the added benefit of reducing the relative size of its enormous debt. Yet, when prices increase in the economy because of such actions, then the central bank itself is expected to come to the rescue—for instance, by artificially imposing price controls or hiking interest rates, thus slowing economic activity—to the further detriment of society.

High unemployment is also a phenomenon caused by the state, of course, when it imposes rigid labour laws and high taxation on companies, while redistributing “generous” unemployment benefits. Yet, when unemployment becomes “too” high because of these actions, then the state itself is expected to solve the problem—for instance, by providing tax incentives to companies for hiring low-skilled workers or by hiring more civil servants.

The Fallacy of “Market Failure”

It seems counterintuitive to believe that an agent responsible for social problems should also be the one to solve those problems. The only reason this flawed logic continues to be accepted is because of errors of causality. The real causes for economic problems are not well understood by the general public and are often confused with its consequences. In economics, this disregard for causal connections has probably wrecked as much damage upon societies as the international conflicts mentioned earlier by giving free rein to those who see few limits to the state’s regulation of economic and social life.

The same reasoning is applicable to an aspect that is usually blamed on the free market: so-called “externalities,” or the “external” costs that third parties sometimes bear. The extreme case of this is the concept of the “tragedy of the commons,” which is often used to justify the many globalist “green” initiatives to “fight” climate change. Quite apart from whether there are apocalyptic grounds to support such extreme social top-down policies, the libertarian view is that the real cause of many “externalities” is generally that private property rights have not been adequately defined.

Since causality is disregarded, social and economic problems such as those mentioned earlier are generally attributed to so-called “market failure,” thereby reducing the credibility of libertarianism among the general public. Indeed, libertarianism is usually rejected by the majority as a political and economic system because social problems are attributed erroneously to an incapability of the free market to provide solutions. There is rarely any perception that the real causes of these problems are statist interventions in the free market in the first place.

Libertarians have always recognized the importance of causality, as per the title of Mises’s magnum opus Human Action. Carl Menger, the founder of the Austrian School of Economics, explicitly mentioned that, as an important means of gaining insight into economic processes, he had “devoted special attention to the investigation of the causal connections.” Importantly, this was not only the position of the Austrian School at the time: “the search for these causal laws of reality was very much an international enterprise among economists in the last quarter of the nineteenth century and up to World War I.” However, for several sad and tragic reasons, this focus on causal connections in economic research was then lost.

As this article has tried to show, it is essential for causality in both economics and politics to be better understood -- by politicians, economists, and the general public. 

This is key to rein in the authoritarian inroads from governments that are taking place in all areas of life. 

And by demonstrating that the market only fails when it is constantly disrupted by state intervention, a better understanding of causal connections would also lead to an increase in the appreciation and popularity of libertarianism.

In fact, it would improve the standard of thinking all round.

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