The British economist John Maynard Keynes and “Keynesian Economics” were foundational to the Bretton Woods Agreement and to the world it created. Keynesian Economics is an economic theory that encourages the government to intervene actively in the economy—and not just let the market run its course— to control inflation, recessions, and other economic crises. The Bretton Woods world was Keynesian through and through (though many argued not Keynesian enough) and, during the Wonder Years, it worked, not perfectly, but well enough; not equally for everyone, but better for almost everyone than for people today.
Within the post-1970’s global world, Keynesianism no longer worked. Any one country could try to use Keynesian remedies to control and moderate its economic problems, but since its economy was now fully connected to and influenced by the other economies in the world, such interventions had little chance of working. Furthermore, no one could control the financiers as they bet on numbers flowing across all borders at lightning speed in computers.
As Keynesianism died, there was no other economic theory ready and waiting to be implemented, save a theory called—most often only by its critics— “neoliberalism”. Neo-liberalism arose in the 19th and early 20th Centuries and was known then as the “Austrian School”. It was pioneered by Ludwig von Mises (1881-1973) and Friedrich Hayek (1899-1992). Hayek, in particular, carried out fierce academic debates with Keynes. However, at the level of implementation in state policies, Austrian School ideas were largely irrelevant until the 1970s. Before that they stood squarely in Keynes’s shadow.
The Austrian School argued that free markets correct themselves, ultimately reaching a point of equilibrium between production and demand. They believed that government interventions in the economy never work and often make things worse. Economies, they argued, are much too complex to be “fixed” by politicians and Keynesian remedies. In fact, they argued that the Great Depression would have been shorter had Roosevelt not intervened and just let the economy run its course.
The Austrians also connected free markets to free people. They believed that each human being had a right to make his or her own choices free from the constraints of government beyond the role of government to ensure a fair playing-field and protect the liberty of each person. Constraining freedom of markets or of people led to “serfdom” for the many and power for the few, the Austrians believed.
Milton Friedman (1912-2006) was an American proponent of the Austrian School, though very much in his own guise. He won the Nobel Prize for Economics in 1976 (yes—note the year!). Friedman was vastly influential, in part, because the United States used his economic theories to underwrite U. S. military and economic interventions in South America, all of which led to violence and ultimately failed (see Naomi Klein’s The Shock Doctrine, a must read on this topic).
While it is true that post-1976 much of the developed world claimed to accept neo-liberal economic policies—later popularly associated with Ronald Reagan and Margaret Thatcher—this was largely for two reasons. First, there was pretty much no other well-developed economic theory available after the fall of Keynesianism. And, second, neo-liberalism became both an argument for, and an exoneration of, policies that elites, corporations, investors, and politicians— freed of the constrains of Bretton Woods and unions—wanted to implement in any case.
Neo-liberalism of the Austrian School sort is a form of strong free-market theory. However, if we restrict ourselves for a moment to the United States, the U. S. has rarely, if ever, had or supported free markets. It certainly does not do so today.
In the 19th Century, the famed capitalist “Robber Barons” (J. P. Morgan, Andrew Carnegie, Andrew W. Mellon, John D. Rockefeller, and others), far from approving of free markets, decried them. They saw corporate consolidation as the way out of the chaos free markets caused. Corporate consolidation replaced the laws of the free market with centralized control over prices, production, technology, raw materials, transportation, marketing, and distribution. This centralized control was exercised by one or a small set of powerful corporations (“cartels”). As Steve Fraser (2015: pp. 61-62) has pointed out in The Age of Acquiescence:
… Rockefeller, for one, had nothing but contempt for free market competition, scorning “academic Know-Nothings about business” who prated on about its virtues. “What a blessing it was that the idea of cooperation, with railroads, with telegraph lines, with steel companies, with oil companies, came in and prevailed.” He was a believer in the genius of monopoly and managerial control, not shy about pronouncing that “the individual has gone, never to return.” Rockefeller’s oil combine, Armour’s meatpacking supremacy, Carnegie’s steel dominion, Frick’s coke and coal mine empire, among others, all emerged first out of the ruins of the catastrophic depression that lasted through the heart of the 1870s.
Today, it is little different. The U. S. has few, if any, free markets. Rather, it has oligopoly, a system where a very few companies dominate a market (the modern cartels). The term is unfamiliar because we tend to use the word “monopoly” (which strictly means “one”, but is often used to mean one or a very few). Consider, this quote from Derek Thompson’s article “America’s Monopoly Problem” in the Atlantic Daily (2016):
To comprehend the scope of corporate consolidation, imagine a day in the life of a typical American and ask: How long does it take for her to interact with a market that isn’t nearly monopolized? She wakes up to browse the internet, access to which is sold through a local monopoly. She stocks up on food at a superstore such as Walmart, which owns a quarter of the grocery market. If she gets indigestion, she might go to a pharmacy, likely owned by one of three companies controlling 99 percent of that market. If she’s stressed and wants to relax outside the shadow of an oligopoly, she’ll have to stay away from ebooks, music, and beer; two companies control more than half of all sales in each of these markets. There is no escape—literally. She can try boarding an airplane, but four corporations control 80 percent of the seats on domestic flights.
Or, consider this remark from Carter Bales (Harvard Business School MBA 1965), cofounder of New World Capital Group, a very successful businessman (quoted in Duff McDonald, The Golden Passport, 2017, p. 7):
The claim that we live in a free market is a crock. What we have is free subsidies and implicit monopolies and collaborative action in oligopolistic situations.
The trend is the same in many other countries, though this hardly matters. Since corporations are global today, they exert their monopoly power worldwide. They kill free markets wherever they go, oddly enough often in the name of “neo-liberalism”, a theory of free markets.
So, the claim that free-market practices have taken over the United States and the world is false. It may be true that many people today advocate for governments not to intervene in markets, that is, to drop Keynesian ideas. But, they do not really do so in the name of free markets, therefore not in the name of Austrian School ideas. They do so in the service of a few players dominating and crushing competitors, free markets, and fair prices (or they claim that corporate consolidation is good because it is efficient, see: Robert Bork’s highly influential 1978 book, The Antitrust Paradox.).
It is true today that a great many of our institutions have changed dramatically and in unfortunate ways, both from my point of view and from that of neoliberalism’s many critics. These institutions include corporations, businesses generally, schools, universities, hospitals, prisons, churches, and governments. But a proliferation of free markets cannot account for this. There has not been—and will not soon be—such a proliferation.
So, we are left in the woods. The common culprit—neo-liberalism—is a fantasy. The real culprit has gone unidentified. What happened was that the economic harmony that used to be embedded in a synchronized set of Bretton-Woods countries died. In the Bretton Woods world, these countries moderated their competition with each other and followed the lead of the United States. Business and corporations were, at least in strong part, tied to, and reliant upon, national, state, and local workers, stakeholders, and leaders. After 1976, corporate consolidation and control moved to global control and consolidation. Corporations became untied from nation and locality. They were worldwide and located as much in a flow of numbers in computers as in “real” places.
…to be continued…