Reinventing Liberalism Early Neoliberalism in Context, 1920 – 1947 Ola Innset Thesis submitted for assessment with a view to obtaining the degree of Doctor of History and Civilization of the European University Institute Florence, 27 September 2017 European University Institute Department of History and Civilization Reinventing Liberalism Early Neoliberalism in Context, 1920 – 1947 Ola Innset Thesis submitted for assessment with a view to obtaining the degree of Doctor of History and Civilization of the European University Institute Examining Board Professor Marie-Laure Salles-Djelic, Sciences Po Dr. João Rodrigues, University of Coimbra (external advisor) Professor Youssef Cassis, European Universiy Institute Professor Lucy Riall, European University Institute (supervisor) © Ola Innset, 2017 No part of this thesis may be copied, reproduced or transmitted without prior permission of the author Researcher declaration to accompany the submission of written work Department of History and Civilization - Doctoral Programme I Ola Innset certify that I am the author of the work “Reinventing Liberalism” I have presented for examination for the Ph.D. at the European University Institute. I also certify that this is solely my own original work, other than where I have clearly indicated, in this declaration and in the thesis, that it is the work of others. I warrant that I have obtained all the permissions required for using any material from other copyrighted publications. I certify that this work complies with the Code of Ethics in Academic Research issued by the European University Institute (IUE 332/2/10 (CA 297). The copyright of this work rests with its author. Quotation from it is permitted, provided that full acknowledgement is made. This work may not be reproduced without my prior written consent. This authorisation does not, to the best of my knowledge, infringe the rights of any third party. I declare that this work consists of 91259 words. Statement of language correction: This thesis has been corrected for linguistic and stylistic errors. I certify that I have checked and approved all language corrections, and that these have not affected the content of this work. Florence, 27/9 - 2017 Acknowledgements: Over the four years that I have worked on this thesis I have benefitted enormously from the help and advice of countless people. We often think that modern-day academe is fraught with individualism, competition and people whose main concern is their own carreers. On the contrary, I have found that academe is a place where an upstart PhD student can write e-mails to some of the most outstanding researchers in a field and receive helpful answers and invitations to meet in person. For their advice, comments and tips along the way, I would especially like to thank Philip Mirowski, Simon Reid-Henry, Edward Nik-Kah, Tiago Mata, Robert Lepenies and Simon Jackson, none of whom are in a any way responsible for the contents of this thesis. I have benfitted greatly from a number of research seminars, workshops and conferences held at the European University Institute during my time there, both at the Department of History and Civilization, but also in the Department of Law. I would especially like to thank the participants of the interdisciplinary working group on neoliberalism, and the workshop “Why Neoliberalism?”, which I co- organized in 2015 and 2016 with Julia Rone and Liam McHugh-Russell. I would also like to thank the History Department at Stanford University for having me as a guest researcher in 2014 and the corresponding department at the University of Oslo for allowing me the same privilege in 2016 and 2017. My work would have been impossible without helpful archivists at the Hoover Institution, Yale University Library, Het Liberaal Archief in Gent, Friedrich Naumann Stiftung in Gummersbach, King’s College Archives at Cambridge, the LSE Archives, the Rubenstein Library at Duke University and Riksarkivet in Oslo. I would like to thank my second reader Youssef Cassis, and especially my supervisor Lucy Riall, who expressed enthusiasm for my project at a time when it was badly needed and who has used her tremendous experience as a historian in guiding me towards completion of the thesis. Huge thanks are owed also to my external advisor João Rodrigues, who has shared his expertise in a most generous way and advised me through several re-writes of this thesis. Marie-Laure Salles- Djelic was the last member of the examining board, and provided excellent advice and criticisms for which I am most thankful. Lastly, I would like to thank Dorothy Hahn, without whose efforts both in 1947 and in 2015-2016, this thesis would not exist. She was the secretary of the Mont Pelerin Conference in 1947 and agreed to let me interview her in her home in Cambridge twice during the work on this thesis. I am very grateful to her. The thesis is dedicated to my whole family, near and far, and especially to my wonderful wife, Elizabeth Morris Innset. Florence, 27/9, 2017, Ola Innset Funding provided by the Norwegian Research Council, project nr. 231807. Table of contents Introduction 10 Neoliberalism – Methodology – The Mont Pelerin Society – Reinventing liberalism – Laissez-faire vs. social liberalism – The dual argument PART I – The dual argument (1920 – 1947) Chapter 1 – The Socialist Calculation Debates 34 Red Vienna – Mises’ argument – The emergence of Hayek – From socialism to business cycles – Collectivist Economic Planning – A new phase in the debate – The challenge of market socialism – The knowledge argument – Differing accounts – A new vision of markets 7 Chapter 2 – The Lippmann Colloquium 65 The rise of fascism – The popularity of economic planning – The totalitarian enemy – The good society – The importance of Hayek – The colloquium – The price mechanism – Ordoliberalism – The myth of laissez-faire Chapter 3 – The Economic Consequences of the War 92 Hayek in the Blitz – The Road to Serfdom – The contested definition of economic planning – Other versions of the dual argument – Against “scientism” – War and planning – Liberals in wartime – Individualism True and False – The Acton–Tocqueville Army PART II – The first meeting of the Mont Pelerin Society (1947) Chapter 4 – An army of fighters for freedom 134 Previous scholarship – Introducing neoliberalism – The attendees – Demographics – Liberalism and economics Chapter 5 – Using the state 165 Hayek’s welcome – Hayek peeling oranges – “Free Enterprise” or Competitive Order – Support from Freiburg and Chicago – Discussion 8 Chapter 6 – A new Europe 190 Postwar – The beginning of the Cold War – The post-war right – The future of Germany – Discussion – The Problems and Chances of European Federation – Discussion – Exploring Roots Chapter 7 – The second week 220 Economic policy – Agricultural policy – Statement of Aims – Summary – Speaking time – A neoliberal cadre Conclusions: What is neoliberalism? 259 The importance of context – Think tanks – Conclusion List of figures and pictures 276 Primary sources 277 Secondary sources 278 9 Introduction “… the scope of the liberal tradition expanded during the middle decades of the twentieth century, such that it came to be seen by many as the constitutive ideology of the West. This capacious (and deeply confusing) understanding of liberalism was a product of the ideological wars fought against “totalitarianism” and assorted developments in the social sciences. Today we both inherit and inhabit it.” Duncan Bell, “What is liberalism?” (2014) What is the relationship between politics and the economy? Between democracy and the market? What is the economy and how are we to relate to it as a body politic? These are questions that should be of great interest to us in a time of social unrest, in which loosely defined entities like “the market” or “the economy” appear in political discourse with great frequency, but lesser clarity. These questions were the main interest also of a group of 37 European and American intellectuals who gathered in the Swiss mountain village of Mont Pèlerin from April 1st to April 10th in the year 1947. The group was hand-picked by Friedrich von Hayek, 1 an Austrian émigré economist who had recently 1 In the following I will mainly use the aristocratic “von” only the first time I refer to Austrian, German or French thinkers with that or other aristocratic prepositions in 10 experienced great success with his 1944 book The Road to Serfdom. They met to discuss liberalism and how to change it. This thesis tells the story of that ten- day meeting in 1947, and engages with the questions and ideas that animated Hayek and his fellow travellers. Neoliberalism Several scholars and commentators attempting to understand recent developments, such as the 2007/2008 financial crisis and the rise of so-called New Public Management, have written about these issues under the rubric of neoliberalism. In recent years the academic discourse surrounding neoliberalism has come under severe criticism, due to the many incompatible definitions and usages of the word.2 Neoliberalism is indeed the concept that permeates also this work, which unlike most treatises on the subject primarily falls under the category of intellectual history. The reason for this choice is two-fold. The first reason is simple: At the Walter Lippmann Colloquium in Paris, 1938, the group of thinkers who are the subject of this thesis themselves decided to name their intellectual and political project neoliberalism.3 The word was suggested by the German economist Alexander von Rüstow (1885 – 1963), and François Denord has written retrospectively that “To be ‘neoliberal’ was supposed to imply the recognition that ‘laissez-faire’ economics was not enough and that, in the name of liberalism, a modern their surnames. Hayek himself used his name both with and without the “von” interchangeably after leaving Austria. 2 Rajesh Venugopal, ‘Neoliberalism as Concept’, Economy and Society 44, no. 2 (2015): 165–87; Terry Flew, ‘Six Theories of Neoliberalism’, Thesis Eleven 122, no. 1 (2014): 49–71; Loïc Wacquant, ‘‘Three Steps to a Historical Anthropology of Actually Existing Neoliberalism’, Social Anthropology 20, no.