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The Battle of Lake Geneva—Mises vs. the Stats of Mont Pelerin

Online Niel November 13, 2024

Europe was slowly and painfully recovering from World War II. Liberalism – which had apparently won the day against fascism in the West – was looking to revitalize itself. He had tried before the war – through the Walter Lippmann colloquium – to moderate himself back to relevance. Many of the figures at the colloquium intended to try again, with the lessons learned from the war. One of the participants — Ludwig von Mises — had no intention of moderating and was even more convinced that such a path leads to destruction.

In late 1946, Friedrich von Hayek was offered money from the Volcker Fund (the generous sponsors of Mises’ stay in America) to host a summit of the world’s leading liberals. After much careful thought, invitations were sent to dozens of liberal thinkers, mostly economists, but also historians and other intellectuals. Thirty-nine people were able to attend the meeting, which was held at a resort on Lake Geneva. Much negotiation had to take place for many of the participants. Mises, for his part, was initially totally against the plan, first because of his utter pessimism about Europe’s future: “We’ve already seen enough decline.” Additionally, the inclusion of Lippmann’s fellow graduate Wilhelm Röpke gave Mises pause. Röpke was a man whom Mises referred to as an “outright interventionist”. He was eventually persuaded to participate, despite his reservations. This was his first trip to Europe since he left in 1940 – a winding and dangerous bus journey from Geneva to the French-Spanish border after France surrendered in early July.

He returned as a naturalized American citizen and with him were prominent friends who truly believed in the Misesian style of liberalism. Henry Hazlitt, Loren Miller, Leonard Read of the Foundation for Economic Freedom (FEE), FA “Baldy” Harper, Orval Watts and Felix Morley were part of the American cohort. They made the US contingent, by size, the most powerful anti-interventionist section.

As we shall see, however, other American contributors were less horrified by the idea of middle ground policies. The Chicago School of Economics offered Aaron’s directorship, his brother-in-law Milton Friedman, George Stigler, and Frank Knight, the school’s co-founder. Norway was fortunate to have a singular contribution in Trygve Hoff—a man whom Mises greatly admired, because he had come to an independent understanding of the problem of the economic calculation of socialism, and was as convinced as Mises of the necessity of economic freedom. In addition, 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 jail for a while. However, the rest of the European contribution was probably full of the same type of people as those who came to Paris in August 1938.

After a very friendly and ecumenical introduction by Hayek, the first major topic of discussion was ““Free enterprise” and competitive bidding.” Hayek seemed to have absorbed much of the Walter Lippmann Colloquium, as he showed in his introduction. Laissez-faire had to be replaced, in Hayek’s view, by an active state that promoted competition and countered monopoly. Separately, he attacked patents and trademarks, but on antitrust grounds (light years from the position of Stephen Kinsella). A person familiar with Hayek’s warning of state encroachment and support for spontaneous order might be shocked to read his work in which he advocates antitrust action, taxation to aid “social mobility” and CRITICAL another long-standing libertarian position:

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

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

During the second session, open to wide-ranging discussion, Mises finally spoke:

If it is true, as has been suggested, that I am defending eighteenth-century orthodoxy, then it is true that I am defending it against seventeenth-century orthodoxy. All interventionists wanted different kinds of interventionism. Therefore, they thought they were in opposition.

Mises shows here that the forces of conservatism—the main opposition to liberalism during the 18th and 19th centuries—were indeed “socialist” in the sense that they opposed freedom of contract, of commerce, of property. Mises went on to criticize the idea that the state was appropriate or even want to stop monopolies:

We discuss monopolies from the point of view that governments are against monopoly. But I’m not! Governments are monopoly governments. They don’t like cartels unless they are owned by the government. But they are enthusiastic about commodity control agreements.

Most of the participants were unsatisfied with Mises’ answers, even though they had little to show in the way of counterarguments. They wanted a plan for a controlled liberal order, while Mises countered that such a political program was contradictory. To quote Aaron Director: “I don’t think we’ll ever get anywhere in defining the rules of the game unless we know whether there should be any rules.” Bertrand de Jouvenel—a French philosopher whose book In power he was well received in the liberal world and made a good companion for The road to Serfdom— Mises pointedly asked whether corporations should be treated as individuals. Mises replied:

Should society be based on public or private ownership? Between them there is nothing possible for a permanent society. I am in favor of private enterprise. If consumers buy something so that a business grows in size, I don’t want someone to come along and stop them from enjoying the results of that.

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

In a later session on what a “liberal” agricultural policy would look like, there were many special pleas from various participants justifying their countries’ support for farmers. This was even justified in one case by the Swiss economist William Rappard saying that it is about only way to bring farmers over to the side of the liberal order, since agriculture was inherently incentivized against economic liberalism. This would have been very surprising to the small, free-market farmers who were integral parts of the world’s liberal political parties, from Sweden to America to Australia, throughout the 19th and 20th centuries. Mises’s ally, Loren Miller, responded to all these positions: “What would be the sum of all the interventions that were suggested during the conference? Wouldn’t that be a planned economy?” To his credit, Hayek agreed on this point.

Another session of note was “countercyclical policy” or how to avoid or mitigate the impact of business cycles. It is interesting to note that while the Chicago School has not yet undergone a shift from the heavily interventionist policies we see here from the principal to the kind of policies Milton Friedman advocated on television in the 1980s, they have advocated 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 for deposits only and could no longer artificially create credit, with independent lending companies fulfilling that role. This would drastically reduce the monetary problem at the heart of ABCT theory – artificially low interest rates. Unfortunately, the Chicago School has moved away from full reserve policy, and the Austro-libertarians remain the only major economic school that is largely opposed to 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 rejecting this title as “nonsense”.

Mises had been persuaded by Hayek and his American friends to attend the next meeting, which focused largely on the “German miracle” that the ordo-liberals—like Röpke, Alexander Rüstow of the MPS, and the colloquium Walter Lippmann—had achieved after the suspension Allied control over the West German economy. However, Mises was unimpressed by these middlemen and returned to America and his work as a mentor to the rising American Austro-libertarian movement, of which we are the intellectual children. Our thanks must go to Mises for his tireless defense of true liberalism in the face of incredible pressure to yield to “reasonableness.” Long live liberalism!