[Review] Stephan Schulmeister - The Road to Prosperity - The Counter Movement

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Addendum 202y-06-09:

The Review has been updated.

Siehe auch:
[Rezension] Stephan Schulmeister - Der Weg zur Prosperität - Die Gegenbewegung

Stephan Schulmeister is an economist and lawyer from Austria who has little in common with the economically liberal so-called Austrian school. The economist born on August 26, 1947 was a research assistant at the Austrian Economic Research Institute (Österreichisches Institut für Wirtschaftsforschung/WIFO) for forecasts, economic development, financial markets and international trade from 1972 to 2012. The focus of his work is on the conflicts of interest between employees, employers from the real economy and the financial markets or financial capital.
According to Schulmeister the orientation of the economic order fluctuates permanently between real capitalism and financial capitalism. Long upswings are caused by an alliance of interests between employees and real capital and long downswings are caused by an alliance of interests between real capital and the financial markets or financial capital.

The two key aspects identified by Schulmeister in his 2018 work "The Road to Prosperity" are the organized counter-movement and the shift in the rules of the game. The Bretton Woods system did indeed foster unprecedented economic development. But the counter movement which Schulmeister describes as an aggregation of allied currents successfully undermined and dismantled the Bretton Woods system and its achievements.

  1. The Mont Pelerin Society and the Counter Movement
  2. An opposing Mont Pelerin Society

The Mont Pelerin Society and the Counter Movement

For Schulmeister the conflict between the demand-oriented and real capitalist model according to John Maynard Keynes and the demand-oriented and economically liberal model according to Friedrich A. von Hayek and Ludwig von Mises has been representative of economic development since 1945. On the one hand there is the demand-oriented and real capitalist model by Keynes and its success. This success was so great that Keynes won the competition with von Hayek. And on the other hand there is the deregulated and supply-oriented economic policy according to von Hayek and von Mises and its failures. According to Schulmeister this economic policy was and is propagated through deliberate manufacturing of consent by an organized countermovement. [1, p.58-74 , p.75-103]

Von Hayek and von Mises and later various other economists have organized themselves for this manufacturing of consent. In 1927 von Hayek and von Mises jointly founded the Austrian Institute for Business Cycle Research (Österreichisches Institut für Konjunkturforschung) which later became the Austrian Institute for Economic Research (Österreichisches Institut für Wirtschaftsforschung/WIFO). In 1931 Hayek became a professor at the London School of Economics. And last but not least Hayek became Keynes' greatest opponent.
In 1938 von Hayek and von Mises met in Paris with 28 other liberals including Raymond Aron, Wilhelm Röpke, Alexander Rüstow, Jacques Rueff, and Walter Lippmann for the "Colloque Walter Lippmann". The participants were united by a fear of totalitarianism a category in which they included not only communism and fascism but also Roosevelt’s New Deal. It was there that the participants coined the term "neoliberalism" to distinguish themselves from the more radical and unpopular "Manchester liberalism" while simultaneously upholding the principles of liberalism. [1, p.75-76]

"The Road to Serfdom" from 1944 is considered to be Hayek's Opus magnum and the standard work of economic liberals and libertarians. And in the closing remarks of "The Road to Serfdom" von Hayek writes that his work is supposed to have a long-term influence. And in 1947 von Hayek and von Mises met with like-minded people to found the Mont Pelerin Society.
At the time, Hayek sought to build upon the "Colloque Walter Lippmann" and establish a closed society accessible only to those who shared the relevant fundamental convictions. Among the like-minded individuals were Maurice Allais, Milton Friedman, George Stigler, Walter Eucken, Frank Knight, Fritz Machlup, Michael Polanyi (the economist's brother), Karl Popper, Lionel Robbins, and Wilhelm Röpke, among others.
According to Schulmeister this was followed by a manufacturing of consent in favor of this countermovement by institutions such as the "Foundation for Economic Education", the "Liberty Fund", the "Heritage Foundation", the "Fraser Institute" or the "Center for Policy Research". Schulmeister distinguishes three main currents in this countermovement. [1, p.82-86 , p.96-97]

  1. " The "Austrian School" emphasizes the limited nature of human knowledge. Price changes send signals/incentives and thus control supply and demand. At the center of the analysis are (therefore) market processes and not equilibria. The dimension of time - also in the form of history - was given great importance (the "Austrians" in Mont Pelerin in 1947 were Hayek, von Mises and Machlup). "
  2. " The "neoclassical school" (its center became the University of Chicago) works with mathematical equilibrium models and therefore extremely unrealistic assumptions (Homo oeconomicus etc.). Temporal processes and thus evolutionary processes are not "foreseen" in the model. In addition to Milton Friedman, Aron Director and George Stigler represented "neoclassical neoliberalism" at the founding meeting. "
  3. " The "ordoliberal school" focuses on economic policy guidelines. In general the state should prevent an unregulated market economy from abolishing itself through the formation of monopolies and cartels. Issues of ethics in ordoliberalism are also of greater importance. His influence was and is limited to Germany. Ordoliberal founding members of the Mont Pelerin Society were Walter Eucken, Willhelm Röpke and Alexander Rüstow. "
[1, p.84]

These currents do not always share the same scientific positions in fact they sometimes contradict one another. However Schulmeister explains that their opposition to Keynesianism, the welfare state, trade unions, and socialists of all stripes is far stronger. Consequently their shared external opposition outweighs the contradictions existing among them. Given the success and dominance of Keynesianism the project appeared doomed to failure. Yet the long-term aim was to cultivate "intellectual leaders" leveraging the herd effect and the opportunism of intellectuals to exert influence over time. A hierarchy was to be established in which various individuals at different levels would advance the same goal through these diverse currents. According to Schulmeister a distinction must be made here between "original thinkers" and "second-hand dealers in ideas". While the former are responsible for generating useful ideas the latter are tasked with disseminating them. [1, p.82-86 , p.94-99 , p.358-367]

The stage is set for the growth of a new current of opinion to replace the old, to provide the philosophy that will guide the legislators of the next generation even though it can hardly affect those of this one.

Milton Friedman, 1951 [1, p.382(76)]

For "neoliberals" freedom is the highest value. Freedom is understood as minimizing restrictions on personal scope for action particularly those imposed by the state. Moreover freedom takes precedence over all other values such as equality, justice, solidarity, or even democracy. Even a social welfare state is invariably viewed as a stepping stone toward totalitarianism. In addition von Hayek had the Warsaw Pact member states as an example of how badly the state's competencies can be exceeded. Furthermore any pursuit of socio-political goals is equated with a planned economy and, consequently, with harmful action. [1, p.76-81]

According to Schulmeister this counter movement has propagated the stability of free financial markets, the harmfulness and dispensability of state regulations, general state failure and the futility of full employment. According to Schulmeister the proponents of a real capitalist and demand-oriented economic policy according to Keynes were too confident and ignored the countermovement for too long. This dynamic is already known from previous publications and appearances by Schulmeister. [1, p.58-74 , p.75-103]

An opposing Mont Pelerin Society

Schulmeister is not only averse to the counter-movement and its successful manufacturing of consent. Schulmeister also has a certain admiration for their success. According to Schulmeister the representatives of a real capitalist and demand-oriented economic policy according to Keynes could at least change this. The title alone is a nod to Hayek's "The Road to Serfdom" by swapping the goal. [1, p.58-74 , p.75-103 , p.115 , p.116]

Ein bedeutender Unterschied zu frühen Gesellschaftskrisen besteht darin, dass es derzeit keine von den meisten "Anti-Neoliberalen" akzeptierte Wirtschaftstheorie gibt, die den Weg Europas von Prosperität in die große Krise konkret erklären und damit auch den Weg zu ihrer Überwindung weisen konnte.
...
Den neoliberalen Ökonomen ist es trotz der hervorragenden Performance der keynesianisch-realkapitalistischen Spielanordnung in der Prosperitätsphase gelungen, ihre Weltanschauung durchzusetzen. Die "Keynesianer" hingegen schafften es trotz der miserablen Performance der neoliberal-finanzkapitalistischen Spielanordnung nicht, eine alternative Theorie zu entwickeln.

A significant difference to early social crises is that there is currently no economic theory accepted by most "anti-neoliberals" that can explain Europe’s path from prosperity to the great crisis in concrete terms and thus also shows the way to overcome it.
...
Despite the excellent performance of the Keynesian-real capitalist arrangement in the prosperity phase the neoliberal economists managed to dominate with their worldview. The "Keynesians" on the other hand were unable to develop an alternative theory despite the miserable performance of the neoliberal financial capitalist arrangement. [1, p.115]

It is obvious that Schulmeister wants an opposite Mont Pelerin Society. According to Schulmeister real capitalist and demand-oriented economic policy according to Keynes is superior to supply-oriented economic policy according to von Hayek and von Mises. And Schulmeister explains why the countermovement took place and was why it was successful. [1, p.58-74 , p.75-103]

Preview:

Src:
[1] Stephan Schulmeisters Buch - Der Weg zur Prosperität- ISBN 978-3711001481
[2] Welche Aufgaben kommen für die Sozialdemokratie? Schulmeister und Max Lercher 2018-05-07
https://youtu.be/iJzheZwCtV0
[3] Der Weg zur Prosperität Stephan Schulmeister Buchvorstellung WU in Wien 2018-06-08
https://youtu.be/_s2SJIKk204
[4] „Wir sind in gefährlicher Nähe zu den 1930er-Jahren.“ Stephan Schulmeister im Gespräch 2018-06-18
https://youtu.be/tL0kaHQTByA
[5] Stephan Schulmeister - Europas Weg in die Krise und zurück zur Prosperität 2018-06-22
https://youtu.be/cKy4Y5Zk8ig
[6] Märkte als Religionsersatz? | Stephan Schulmeister bei quer.denken. 2019-02-07
https://youtu.be/EUCGzOkfBtc

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