The Mont Pelerin Society; G. Kaza

It was against this backdrop of events that Austrian economist Friedrich Hayek orga nized the first meeting of the Mont Pelerin Society. In 1944, Hayek wrote a seminal book, The Road to Serfdom, which argued that government central planning inevitably led to the rise of the totalitarian socialist state. Marxists maintained that fascism was a form Greg Kaza serves in the Michigan House of Repre sentatives (42nd District) and is also an adjunct professor at Northwood University. of decaying capitalism, but Hayek's book also included a trenchant critique of Nazism as a form of socialism. Mter writing The Road to Serfdom, Hayek toured the United States. The trip contributed to his decision to issue a call to free-market advocates to meet at Mont Pelerin. "I have been surprised," Hayek said in his opening address to the Mont Pelerin Society, "by the number of isolated men whom I found in different places, working on essentially the same problems and on very similar lines.

Working in isolation or in very small groups they are, however, constantly forced to defend the basic elements of their beliefs and rarely have opportunity for an interchange of opin ion on the more technical problems which arise only if a certain common basis of con viction and ideals is present.,,2 Hayek explained, "The need for an inter national meeting of representatives ... seemed to me especially great as a result of the war which not only has for so long disrupted many of the normal contacts but also inevitably, and in the best of us, created a self-centredness and nationalist outlook which ill accords with a truly liberal approach to our problems."3 The First Meeting A visitor to Mont Pelerin is immediately struck by the breathtaking, panoramic view. A broad piazza overlooks Lac Leman (Lake 347 348 THE FREEMAN • JUNE 1997 The first meeting of the Mont Pelerin Society took place in breathtaking Alpine splendor, overlooking Lake Geneva.

Geneva) and the alpine Dents du Midi, which are visible in the distance. Across the lake is Evian-Ies-Bain, France, a spa world renowned for its bottled water. One nearby resort town is Montreux, home of a well known international jazz festival. From Vevey, a funicular railway travels up the mountainside to Mont Pelerin, a quiet, semi rural setting conducive not only for reflection, but for hiking as well. One can hike ten minutes from the railway and stand in a rural field, surrounded by cows and lush green grass. In fact, many of the original Pelerinians, including Hayek, were accomplished hikers and mountaineers. 4 Pelenn is the French word for pilgrim. "Pilgrims," remarked American journalist John Davenport, one of the participants, "usually have an idea of the direction they wish to go, though not always agreed on how to get there. Nor is it given to them to know the adventures that will beset them on the road."s So it proved to be here. The partici pants at the Society's first meeting were a diverse group, a mix of American libertarian economists and European free-market mod erates. Disagreements were apparent during the session. One was between Chicago School monetarists and adherents of the Austrian School, another between theists and agnos tics. At the Society's 1984 meeting at Cam bridge, England, Davenport elicited a laugh by observing that the original Pelerinians could agree on everything save the subjects of God and gold.6 The original participants included Hayek and Ludwig von Mises, the dean of the Austrian-school economists; Wilhelm R6pke, who played a key role in the great German currency reform of 1948, along with Walter Eucken, an anti-Nazi pursued by the Gestapo during the war. Others were philosopher Karl Popper, American journalist Henry Hazlitt, and Lionel Robbins of the London School of Economics. Participants from the newly es tablished Foundation for Economic Educa tion (FEE) were Leonard E. Read, F.A.

"Baldy" Harper, and V. Orval Watts. The THE MONT PELERIN SOCIETY'S 50TH ANNIVERSARY 349 F. A. Hayek at the first meeting. emerging Chicago School was represented by Milton Friedman, his brother-in-law Aaron Director, Frank H. Knight, and George J. Stigler.7 The Apprentice Conservative Stigler later devoted a chapter of his book Memoirs of an Unregulated Economist to the Society's first meeting.8 "The popularity of Hayek's book," he wrote, "led a conservative midwest foundation, the Volker Fund, to contribute to the support of a meeting he called in Switzerland.... I had never met Hayek but my Chicago teachers certified my eligibility for the coming totalitarian firing squads. It showed my lack of inner conviction of the imminence of totalitarianism that the thought never entered my mind." "It was a revealing first visit," Stigler wrote, "for the younger participants, including Mil ton Friedman and me. En route we were depressed as much by the austerity of the British economy as by their food (if an ersatz sausage is indeed food). We were instructed as well as embarrassed by the casualness of French life: We did not learn until we left France that we required food ration tickets.

I concluded that the British obeyed all laws, the French none, and the Americans obeyed those laws that deserved obedience-in ret rospect, something of a simplification. Indeed the black market was a boon to French economic life; it allowed prices to perform their functions." Stigler continues, "I was instrumental, for the only time in my life, in instructing Fried man on monetary affairs. We sought to con vert some dollars into francs at the unofficial exchange rate rather than the officialrate that greatly overvalued the franc. I undertook the exchange and approached the clerk at the Grand Hotel, where we were staying. 'Could you direct me to the closest outlet for the black market in currency?' I asked. 'Go no further, gentlemen' was the response as he extracted a wallet from his jacket."g The discussions at the meeting were at a high level, and were not always harmonious. "The protection of agriculture.and of agricul tural classes generally had strong supporters and opponents," Stigler wrote. "The gold standard was the cherished goal of the older members, but not of the younger economists.

On the last day Hayek proposed a set of basic principles, not as a doctrinaire creed but as a common ground. The first was that we be lieved in the dignity and cherished the free dom of individuals. The second was that we believed in the institution of private proper ty." Alas, Stigler wrote, "a viper in our midst protested!" French economist Maurice Allais believed at the time "that private ownership of land was untenable ... [Allais's] fear turned on the fact that if the interest rate went to zero, as he feared it would, land would become infinitely valuable." Stigler noted, "Allais subsequently abandoned his capital theory and this fear."lO One of Stigler's fondest memories involved Eucken, who had opposed the Nazis and yet remained in Germany during World War II. "I remember," Stigler wrote, "the delight with which [Eucken] ate his first orange in five 350 THE FREEMAN • JUNE 1997 years."ll Friedman also remembers Eucken's "simple pleasure in eating the fruit."12 The German Economic Miracle Eucken and his fellow Germans were "to prove to be the surprise package of the con ference," accordingto Davenport. "Most econ omists present were theoreticallycommitted to the free market and a civilizedorder in which the pricing system organizes economic activity and allocates physical and human resources.

But few if any had tasted at first hand a situation where such a system had completely disappeared and where a once great economy had been reduced to primitive barter. The Germans had experienced such a catastrophe, and had a hair-raising story to tell."13 The German currency was virtually worth less at the end of World War II, cigarettes having emerged as the preferred medium of exchange. In many cases, Eucken told the conference, farmers refused to sell their food stuffs for any kind of currency. If you lived in a city and wanted food, you packed your furniture and carted it to a farm in search of potatoes. Barter was not merely theory in postwar Germany. The underground econ omywas economic fact. Moreover, the United States and British military authorities were not disposed to give West Germany a sound currency, or to let free prices and wages restore incentives and a free-market eco nomic order. On the contrary, they attempted to run the nation through a flood of paper directives and allocations, which Eucken termed Der PapierKrieg (the paper war). The paper ordinances were no sooner promul gated than they were disregarded by the German people. In session at the first Society meeting, Eucken pled for sound currency and the lifting of wage and price controls.14 Eucken was no doctrinaire libertarian. The free-market partisans around him outlined a program for a return to free trade-"liber alism" in Europe-without its seeming polit ical flaws. The terms "neo-liberalism" and "ordo-liberalism" (meaning support for a free economy operating within an "orderly struc ture") were coined by the Freiburg University School around Eucken. In the totalitarian climate of the Nazi period a small group of thinkers developed the doctrine of what be came known as the SozialeMarktwirtschaft,or the socially conscious free-market economy.

Under the Nazis the school was a kind of intellectual resistance movement, requiring great personal courage as well as indepen dence of mind. The free-market doctrine rose in opposition to the dominant conditions of Hitler's National Socialist regime. It sought to construct an ideal system that would embody the opposites of its authoritarianism and guard against relapses. But the world the Frei burg School painted was not of c1assicalliber alism with its laissez-faire ideal. The Eucken group supported some government action.1S Another participant, Wilhelm Ropke, helped persuade Eucken's pupil Ludwig Er hard, then economics minister in West Ger many's provisional government, to abolish price controls, and so make possible the famous German economic miracle of the postwar era. Erhard lifted regulatory controls over a weekend, only to be threatened with jail by the Allied military authorities. Erhard replied, "Ah yes, General, you may put me in prison, but you cannot imprison prices."16 Ludwig von Mises at Mont Pelerin The Austrian School was also represented at the Society's first meeting. The dean of the Austrian economists was Ludwig von Mises, another refugee from Nazi totalitarianism.

His views provided a sharp contrast to those of the Chicago School and the Freiburg School. Mises was the first economist to demon strate that socialism could not possibly work because of the absence of a price system. In "Economic Calculation in the Socialist Com monwealth" (1920), he had shown that with out the guiding hand of the price system, there was no way to allocate scarce resources in telligently. Mises remained an implacable foe of government economic intervention; this steadfastness brought him into conflict with many of the other attendees, particularly over the role of gold in the monetary system. To Mises, a monetary system based upon THE MONT PELERIN SOCIETY'S 50TH ANNIVERSARY 351 FEEfounderLeonardE. Read(foreground)andotherMont Pelerin conferees. fiat paper currency under the control of the government was a dangerous and unnecessary concession to government economic interven tion. He advocated, rather, a gold-based mon etary system. This brought about a vigorous debate with the Chicago School monetarists.

Having grown up under the gold standard and having seen the economic destruction brought by unrestrained issue of paper money in Germany after World War I, Mises, as Davenport puts it, was "not above snubbing those who doubted the efficacyof the yellow metal as a medium of exchange and more importantly as a store of value.,,17 Mises also clashed with participants who were willing to concede to the government some role in the redistribution of income. This topic led to some spirited discussions. According to Friedman, Mises walked out of one of the meetings, declaring, "You're all a bunch of socialists.,,18 Looking Back-and Ahead The legacy of the Mont Pelerin Society is substantial. It helped to keep alight the lamp of classical liberalism and free-market thought at a time when the damp winds of socialism and interventionism threatened to extinguish it. Pelerinians Hayek, Friedman, Stigler, and James Buchanan (and four oth ers) have won the Nobel Memorial Prize in Economic Science. Many others have played key roles in advising governments worldwide on how to move their economies toward the free-market ideal. Asked to assess the Soci ety's place in history, Milton Friedman an swered, "That is an open-ended question we cannot answer... . It certainly played a part." 19 Indeed it did. At age 50, the Mont Pelerin Society is still going strong, boasting as mem bers some of the best minds working in the realm of economics. Inspired by their illus trious predecessors, they will, I am confident, continue to keep that lamp burning brightly.

D 1. According to Milton Friedman, only three survive from the original group of 36: Friedman and Aaron Director of the United States, and Maurice Allais of France. 2. Friedrich Hayek, OpeningAddress to a Conference at Mont Pelerin. Hayek delivered the address April 1, 1947, the first day of the proceedings. Published in Hayek's Studies in Philosophy, Politics and Economics (Chicago: University of Chicago Press, 1967). 3. Ibid. 4. John Davenport, "Reflections on Mont Pelerin," The Mont Pelerin Society Newsletter, July 1981. 5. Ibid. 6. John Chamberlain, "Hayek Returns to Cambridge," Na tional Review, January 11, 1985. 7. Others attending the original conference were Carlo Antoni, Rome; Hans Barth, Zurich; Karl Brandt, Stanford, Calif.; Stanley R. Dennison, Cambridge; Erick Eyck, Oxford; H. D. Gideonse, Brooklyn, N.Y.; ED. Graham, Princeton, N.J.; T.J.B. Hoff, Oslo; Albert Hunold, Zurich; Bertrand de Jouvenel, Chexbres, Vaud; Carl Iversen, Copenhagen; John Jewkes, Manchester; Fritz Machlup, Buffalo, N.Y.; L. B. Miller, Detroit, Mich.; Felix Morley, Washington, D.C.; Michael Polanyi, Manchester; William E. Rappard, Geneva; Herbert Tingsten, Stockholm; Fran~ois Trevoux:,Lyon; and Miss C. V. Wedgwood, London.

8. George Stigler, Memoirs of an Unregulated Economist (New York: Basic Books, 1985). Chapter 9 ("The Apprentice Conservative") discusses the Society's first meeting. 9. Ibid. 10. Ibid. 11. Ibid. 12. Author interview with Friedman, March 1996. 13. Davenport,op. cit. 14. Ibid. 15. See, e.g., Henry Wallich, Mainsprings of the German Revival (New Haven: Yale University Press, 1955). 16. Davenport,op. cit. 17. Ibid. 18. Ibid. 19. Author interview with Friedman. Readers may also wish to consult R. M. Hartwell's A History of the Mont Pelerin Society (Indianapolis: Liberty Press, 1995), for additional information.