"First the bad news. Chase Manhattan has merged with the Polish Central Bank. Do you want to hear the good news?"
"Good God, yes."
"The Poles are going to run it."
This joke, told to me with gloomy relish by a British journalist at the opening banquet of the Mont Pelerin Society's recent general meeting, symbolized the grim international background against which the society's deliberations began. The background was not so grim, of course, as when this group of free-society advocates first met in 1947 at Mont Pelerin, in the Swiss Alps. But as this year's meeting commenced in Berlin, there was a half-hysterical atmosphere abroad of bankruptcies and rumors of bankruptcies, of less-developed countries threatening to default if the International Monetary Fund insisted on attaching conditions to its bailouts, of major banks unable to persuade the market to accept their paper, of blue-chip corporations tottering into the abyss of depression and dragging banks and the rest of us after them.
Chief among the culprits of this hypothetical crash would undoubtedly be the Mont Pelerin Society's original favorite remedy for the inflation of the 1970s—namely, monetarism as preached by Prof. Milton Friedman (one of the original members of the MPS). Had not the French minister of planning, Michel Rocard, recently described the professor as "the assassin of our civilization, no less"?
But there was precious little sign of gloom at the society's meetings. When three days later I ran into my journalist friend, Graham Turner of the Sunday Telegraph, who had spent his time searching for Cassandras, he admitted that he had encountered instead two divergent schools of optimists. There were the conservatives (in the MPS context, this means monetarists, supporters of the "social market" or "corrected market" economy, and, er, conservatives) who believe that, in most advanced countries, prudent monetary policies had at last been instituted and that, though there might be a temporary period of high unemployment and a few spectacular bankruptcies, world inflation would continue falling and production begin to recover shortly in Britain and the United States. In an interview with Turner, Milton Friedman rated the prospects of a world banking collapse as "practically zero." All we are likely to see, he argued, is "large conferences of commercial bankers in pleasant spa spots" trying to reschedule their loans.
The other optimists were the smaller band of radicals (again in the MPS context, this means Austrian school economists and libertarians) who wanted to see a few banks allowed to go bust since this would signal that governments are in earnest in their fight against inflation. And anyway, if bad banks aren't allowed to fail, then the result will be more bad banks. The extreme, or "gold bug," wing of the radicals went further and predicted a complete collapse of credit, which they regarded equably as an excellent opportunity to sweep away the interventionist-inflationist state and start again.
There was, however, another reason for the lack of pessimism. The Mont Pelerin general meeting is, among other things, a very social affair. It opens with a formal banquet and closes with a ball, and in between there are day trips, receptions, a visit this time to the local Charlottenberg Palace (welcoming address by the mayor), cocktail parties, dinners, and all the fun of the fair. Wives, sisters, cousins, aunts, and in some cases husbands are in attendance.
The photographer is kept busy recording the meetings of humble society members with the great, the results shortly to appear in company magazines and faculty newsletters with such captions as: "Dr. X discussing the international monetary crisis with Professor Friedman" or "Professor Hayek congratulating Mr. Y on his recent monograph." Indeed, it is a nice judgment whether the conference should be covered by an economics correspondent or a society reporter. And the editor of REASON (who is a shrewd judge of form) may have thought he had solved the conundrum when he commissioned this report from me.
Personally, I neither carp nor cavil at the sight of people enjoying themselves. Inevitably, however, the social high jinks have led some to complain that the society's general meetings are too large and thus academically unfocused. But there is one unambiguously encouraging reason for the large numbers. In contrast to 10 years ago, when the younger European members came mainly from West Germany and Britain, there now attend quite a few refugees from the future—from Scandinavia, socialist France, the Benelux countries (now enjoying a revival of libertarianism), Spain, and Italy. Further, the intellectual leadership of the society, which not long ago seemed permanently fixed in American or expatriate European hands, now shows signs of recrossing the Atlantic as Continental scholars like Roland Vaubel of West Germany, Antonio Martino of Italy, and Pedro Schwartz of Spain emerge as major figures.
Some of the younger Europeans made their mark in the discussions on Marxism and socialist thought that opened and closed the conference. These sessions began with excellent papers from Renato Miele and Hans Gotz, detailing the hidden inflation, declining productivity, and sheer economic incoherence that are part and parcel of Marxist economics in practice as well as in theory. But were these sessions really necessary? The second was entitled "The Challenge of Socialist Thought," provoking in me the query, What challenge? With the Berlin Wall only a few kilometers away, it scarcely seemed necessary to refute Marxism for the umpteenth time.
Not that Marxism deserves to escape intellectual enquiry altogether. Although socialist thought is today nugatory, socialism carries on winning not simply military but ideological battles for the minds of men. Socialism is like a zombie—dead, mindless, but apparently invincible. What we therefore need—and what the MPS might next turn its attention to—is a public-choice analysis of Marxism in Western society. Renato Miele hinted at this when he said that the Soviet failure was "not a happy conclusion for many individuals. It meant…damage to certain vested interests, not only of the intellectual type."
It is not just the topics that the MPS might reflect upon for future meetings. They might also consider how their meetings are to be conducted. The traditional format of academic paper followed by several comments from the platform followed by floor discussion is excellent for those occasions when the society is exploring new ground or establishing fine distinctions of opinion. There was just such a session on "the failure of government to perform its proper task," which elicited three fine papers from Charles Rowley, Henry Manne, and Shirley Letwin.
"Can government reform itself?" was the question at issue and, as with public-choice theory, the answers were discouraging. Letwin's beautifully written examination of the British campaign for a Bill of Rights reached the particularly depressing conclusion that some major proposals for reform—in particular, constitutional reform—are actually a means whereby politicians evade correcting specific, ill-judged legislative measures. (The application is surely obvious.) It was left to Professor Manne to restore our spirits slightly by pointing out that the mere existence of the Mont Pelerin Society (and, by extension, other groups promoting freedom) is itself a restraint on the expansion of government since "it is part of the natural pattern of creation of human interests."
What of those topics, however, on which there is a strong and passionately felt division of opinion within the MPS? Here, surely, the best method of discussion is the traditional debate that allows both sides to be evenly matched. Sometimes, of course, a debate arises spontaneously, anyway, and did so this year on the topic "The European [Economic] Community: Friend or Foe of the Market Economy?" Between them, Milton Friedman and Victoria Curzon-Price, who is an expert on EEC industrial and commercial policy (that is, she is against it) established that the EEC had diverted, rather than created, trade; had encouraged high-cost production in steel and agriculture; had set up in Brussels an economic bureaucracy with an intrinsic tendency to solve economic problems by central intervention; had not so much abolished tariffs as replaced them with subsidies, nontariff barriers, and investment controls; had encouraged companies not to specialize production since a company with plants scattered everywhere now has political influence everywhere; and had led to the deliberate creation of cartels, compulsory minimum prices (with fines for firms that breach them), and regulations requiring the daily submission of output and sales information.
These were fighting words, and the "Europeans" struck back. Mr. Arthur Seldon of the Institute for Economic Affairs in London argued that the EEC is an obstacle to any national government that wishes to "socialize" its economy. But Curzon-Price had already pointed out that "a common commercial policy will rapidly generate a far higher level of protection than individual countries responding to the same pressures." And what is true of protection is also true of internal economic organization, cartels, and so on. It is far more plausible to argue that the EEC will prove an obstacle to any national government that wishes to liberalize its economy.
There was less excitement than might have been expected in the session on defense. This is a subject that usually brings out the conservative/libertarian split within the MPS, and it has not been covered for some time. But no great disagreements emerged, perhaps because attention was directed to the "free rider" problem with NATO. Neither libertarian nor conservative could really deny that there are free riders riding high and wide in NATO. What was interesting was that, apart from a young Norwegian's criticism of American defense and foreign policy, few Europeans denied it either. There was a general belief among conservatives and libertarians, Americans and Europeans, that if the Europeans (and the Canadians) are serious about their own defense, they must provide more of it themselves.
Still odder, there was no European anger at President Reagan's pipeline embargo. Joachim Maitre seemed to express the general view when he concentrated on the favorable credit terms offered to the Russians by West European governments and attacked the project as an unusually perverse example of foreign aid. If the focus of discussion had been restrictions on strategic trade in general, more controversy might have erupted.
We returned to the dominant issue of the day, "The Problem of Inflation," toward the end of the conference. In a carefully argued paper, Allan Meltzer examined various aspects of monetary reform, including two favored by some MPS members—free banking and the gold standard—that he found wanting. "A free competitive banking system," he argued, "has higher resource cost, higher monitoring cost, and greater cost of uncertainty than a monetary rule that fixes the growth of inconvertible paper money." And he laid out a great deal of historical evidence suggesting that fluctuations of output under the gold standard were considerably greater, not less, than under the present monetary regime.
After Professor Meltzer had sat down, speakers arrived at the rostrum and advocated a return to gold as if he had never spoken. It seems probable that the majority of economists in MPS share Meltzer's skepticism about gold, as I do, and would agree with Martino that it is a "trite controversy" about a monetary system that "does not have a chance of being adopted." But if we are to succeed in addressing the monetary and banking confusion of the present world without being constantly distracted, then perhaps for the next MPS meeting a morning should be set aside so that the gold standard can be thrashed out in detail in a discussion—no, I mean a debate.
John O'Sullivan is the editor of Policy Review.
This article originally appeared in print under the headline "The Free Marketeers".