Listener: 26 April, 1986
Keywords: History of Ideas, Methodology & Philosophy;
A number of readers have asked me to write about ‘right wing’ economics. The trouble is that ideological labels tend to be misleading. For instance, it is usual to place monetarists on the political right, but it is possible to be a leftish monetarist.
In fact, monetarism in its technical sense belongs to the ‘mainstream’ of economics, just like Keynesianism. The confusion in part arises because of the term ‘mainstream’. The main river of economics is more like the Waimakariri than the Waikato – a braided river in which the various streams join and separate. There are, of course, left and right banks, and there is a vigorous debate about which channel is correct (I almost wrote ‘right’). Interestingly, there is a very important convergence under way between Keynesian and monetarist theories, each adopting some of the approaches of the other.
One name for the ‘mainstream’ is ‘pragmatic liberalism’. In economics ‘liberalism’ is associated with a respect for the efficacy of the market. ‘Pragmatic’ refers to the eclectic use of the economist’s tools on a problem. The political counterpart of pragmatic liberalism is social democracy or democratic socialism, depending on whether one is nearer the right or left bank.
To the right of the main river of economics is an approach which can be called ‘dogmatic liberalism’, although there are many other names for it, When people refer (angrily) to right wing economics it is likely that this is the approach they mean.
Dogmatic liberalism can be sumrnarised by three characteristics in policy advice: a maximum freedom of choice and action for consumers and producers; a minimum tax, welfare, and interventionist state; a stable, rule-bound institutional framework, particularly for some monetary policy.
The first two principles are obvious enough. The third might be illustrated by the current New Zealand debate with regard to funding the Government’s budget deficit. The Government uses a rule that the deficit should be ‘fully funded’, that is, the Government should sell debt to cover exactly its deficit. The critics favour partial funding, that is, only part of the deficit should be funded by debt sales, the remainder by a monetary injection. The balance would be determined by pragmatic consideration.
The two great intellectual centres of dogmatic liberalism are the ‘Austrian School’ led by Friedrich von Hayek, and the ‘Chicago School’ led by Milton Friedman. The approach of the University of Chicago economist is popularly associated with right wing economics. Because they are monetarists, monetarism thus tends to be thought of as extreme right wing.
The most important institution of the dogmatists is the Mont Pelerin Society, founded by von Hayek in 1947, at a place of that name in Switzerland. Friedman has also been a president. A Pacific branch was set up at a conference in Sydney last August, sponsored by the Australian Centre for Independent Studies. One of the notable speakers was John Stone, previous Secretary of the Australian Treasury.
The 400 membership of the society is highly selective and includes ‘high government officials, men [sic] of affairs, journalists and scholars’. It describes itself as ‘composed of persons … [who] see danger in the expansion of government, not least in state welfare, in the power of trade unions, and inflation’.
The 1947 statement of aims saw a danger in many parts of the world to ‘the central values of civilisation’ from the abuse of power and denial of human dignity and freedom of thought and expression. The statement said: ‘The group holds that these developments have been fostered by the growth of a view of history which denies all absolute moral standards and by the growth of the theories which question the desirability of the rule of law’ It holds further that they have been fostered by a decline of belief in private property and the competitive market; for without the diffused power and initiative associated with these institutions it is difficult to imagine a society in which freedom may be effectively preserved.’
Inevitably pragmatic liberals have paid attention to such critiques, weighed them carefully and incorporated parts in their own analysis. Some of the dogmatic liberals have been less open-minded. For instance, in the mid-1970s the Chilean universities sacked all the economists who were not Chicago aligned.
Melvin Reder, professor of the University of Chicago, in the extremely scholarly Journal of Economic Literature, writes that on matters of the universal suffrage (ie, ‘one man, one vote’), Chicago economists are ‘wobbly’. Some have advocated ‘qualitative selection’ for the electoral franchise.
More generally, one is aware within the economic debate of a tendency which is intolerant of alternative ideas, even personally abusive and which offers extreme policy prescriptions without reference to pragmatic issues (or, as has been described, ‘recalcitrant reality’). But it would be wrong to say this was true for only Chicago economists, or even all Chicago economists.
I am not sure how important such right-wing economic ideologies are in New Zealand. If they add to the richness of the economic debate they are to be welcomed. One hopes they do not add to the intolerance of what can already be an intolerant society. Whether they will be adopted by a majority of our politicians is a matter for the people to decide.