Wages Stopped Rising: Unraveling the Libertarian Movement

The first well-developed statement of libertarianism, An Agreement of the People (1647), was produced by the radical republican Leveler movement during the English Civil Wars (1642–51). Presented to Parliament in 1649, it included the ideas of self-ownership, private property, legal equality, religious toleration, and limited, representative government. Libertarian is not a single viewpoint, but includes a wide variety of perspectives. Classical liberalism rests on a presumption of liberty – that is, on the presumption that the exercise of liberty does not require justification but that all restraints on liberty do. Libertarians have attempted to define the proper extent of individual liberty in terms of the notion of property in one’s person, or self-ownership, which entails that each individual is entitled to exclusive control of his choices, his actions, and his body. Libertarians can range from market anarchists to advocates of a limited welfare state, but they are all united by a belief in personal liberty, economic freedom, and skepticism of government power. 

Like Ludwig von Mises and F. A. Hayek, Ayn Rand demonstrates the importance of immigration not just to America but also to American libertarianism. Mises had fled his native Austria right before the Nazis confiscated his library; Rand fled the Communists who came to power in her native Russia. When a heckler asked her at a public speech, “Why should we care what a foreigner thinks?” she replied with her usual fire, “I chose to be an American. What did you ever do, except for having been born?” In 1943 Rand wrote her first novel, The Fountainhead. The book is about the conflict between those who think for themselves and those who allow others to dominate their lives. Hayek published his book, The Road to Serfdom, in 1944 with new ideas, sounding the alarm that the West was rapidly abandoning its inheritance of individualism. Since its publication it has been an influential and popular exposition of market libertarianism.

Ludwig von Mises, a monetary theorist and author of a book-length critique of socialism, became Friedrich Hayek’s mentor. Hayek, with Mises’s assistance, became the director of the newly founded Austrian Institute for Business Cycle Research in Vienna. In 1931 Hayek joined the London School of Economics, and immediately became embroiled in a debate with University of Cambridge economist John Maynard Keynes over their respective theories about the role and effect of money within a developed economy. Hayek wrote a lengthy critical review of Keynes’s 1930 book, A Treatise on Money, to which Keynes forcefully replied, in the course of which he attacked Hayek’s own recent book, Prices and Production (1931). The term “neoliberal” was adopted at the Walter Lippmann Colloquium, held in Paris in 1938, with Mises and Hayek in attendance. When, in 1947, Hayek founded the first organization that would spread the doctrine of neoliberalism – the Mont Pèlerin Society – it was supported financially by millionaires and their foundations.1

The economics of information is now an important area of economics, and many theorists (among them, Leonid Hurwicz, Sanford Grossman, and Joseph Stiglitz) credit Hayek with being among the first to emphasize the role of market prices in conveying information. In the 1970s, Hayek handed the presidency of the Mont Pèlerin Society over to Milton Friedman. Friedman became an advisor to Republican President Ronald Reagan and Conservative British Prime Minister Margaret Thatcher. In 1973, the year General Pinochet began implementing a Friedman free market economic system with minimal intervention reforms; Chile’s unemployment rate was 4.3%. In 1983, after ten years of free-market modernization, unemployment reached 22%. Real wages declined by 40% under Friedman reforms. In Road to Serfdom Hayek stands in opposition to the idea of a partnership between government and business in state capitalism. It is an important book today because now economists and politicians are debating how to solve underemployment and long-term disequilibrium in the financial markets.

Floyd Arthur Harper (1905–1973), a member of the Mont Pèlerin Society, was present at the group’s first meeting in 1947 along with Friedrich Hayek, Ludwig von Mises, Milton Friedman, and Karl Poppe. He helped start up the Foundation for Economic Education, and founded the Institute for Humane Studies. The unique thing that Harper brought to the table was a social Darwinian account of human progress. Harper believed that progress was generated by the “variation,” i.e. the bell curve distribution, which “seems to pervade the universe”. Everything exists on this “normal” distribution, and social progress is achieved when the exceptional men at the end of the curve are free to do as they please. Harper became disturbed by the wage increases of his era. He related this to progressive inflation “that will surely end in the destruction of capitalism unless we can resolve the problem…” His book, Why Wages Rise, written in 1957 which lays out strategy and practice for the libertarian movement, is where Harper’s influence is visible today.

Charles Koch read Why Wages Rise as a young man, and calls Harper’s book “life-changing”. The Koch brothers first entered politics as the financiers of the nascent Libertarian Party in the 1970s that was formed in response to Barry Goldwater’s 1964 defeat. Reagan’s smashing political success pushed libertarianism in new directions. The Kochs focused their funding on institutions such as the Cato Institute and the Institute for Humane Studies, to promote ideas on neoliberalism – minimize the role of government, regulations and unions – to create wealth. The main difference between libertarianism and neoliberalism – a controversial term that refers primarily to the 20th century resurgence of 19th century ideas associated with laissez-faire economic liberalism, is basically, neoliberalism has a lower threshold of government ability to cope with problems. Their support for a largely uncompromising libertarian philosophy and politics helped to create the modern Republican Party – and therefore indirectly lay the groundwork for the triumph of Trumpism.2

The core of Ayn Rand’s philosophy – that unfettered self-interest is good and altruism is destructive – is the ultimate expression of human nature, the guiding principle by which one ought to live one’s life. To many of Rand’s readers, a philosophy of supreme self-reliance devoted to the pursuit of supreme self-interest appears to be an idealized version of core American ideals: freedom from tyranny, hard work and individualism. It promises a better world if people are simply allowed to pursue their own self-interest without regard to the impact of their actions on others. Rand’s books first appeared when no one seemed to support freedom and capitalism, and when even capitalism’s greatest defenders seemed to emphasize its utility, not its morality. It was often said at the time that socialism is a good idea in theory, but human beings just aren’t good enough for socialism. It was Ayn Rand who said that socialism is not good enough for human beings.

For decades Ayn Rand was the most frequent point of entry to the libertarian movement. Now, 38 years after her death, she remains a polarizing figure – but there is no question that her works are enormously influential. College students, professors, businessmen, Rand Paul, the rock group Rush, and Hollywood stars have all proclaimed themselves fans of Ayn Rand. Republican pundit David Frum claimed that the Tea Party, founded in 2009, was reinventing the GOP as “the party of Ayn Rand.” During 2009 as well, sales of Atlas Shrugged tripled, and GQ magazine called Rand the year’s most influential author. A 2010 Zogby poll found that 29% of respondents had read Atlas Shrugged, and half of those readers said it had affected their political and ethical thinking. Rand’s optimistic cruelty, contempt and indifference of human inequality along with a culture of greed, supports the legitimacy of neoliberal policies.

What’s different in 2020 – and what the Kochs were surely been told more than once – is that a rise in productivity is no longer enough. It’s no longer true that wages will rise with labor productivity as night follows day. Indeed, it stopped being true about four decades ago – political libertarianism is not much of a guide to real-world politics.  Modern history has shown that activist democratic governments, ones that provide public goods and help for the poor, do not really threaten liberty. In Scandinavia, for example, where the governments are much more activist than in the United States, democracy is very vibrant and far less corrupt than in the U.S.  In fact, by keeping mega-income under control, the Scandinavian countries have avoided the kind of plutocracy – government by the rich – that has engulfed Washington. If Harper were writing today, he’d have to title his book “Why Wages Don’t Rise.”

The neoliberal form of libertarianism is definitely an efficient tool to create wealth, however, it is not very good at distributing it. It took Donald Trump to show that the libertarian emperor had no clothes. He had never been active in movement circles, and hence did not know that one had to bow before the economic beliefs the Koch brothers had created. His ideas were crudely put but were essentially the antithesis of their views – a clarion call for government action in trade, immigration, infrastructure and preserving entitlement spending. Trump exploited the gap between GOP elite thinking and GOP voter preferences and wiped out the entire field. Trump’s daily assaults on core American values are genuinely too numerous to name. The future of the Republican Party also looks increasingly inhospitable to libertarianism. The Koch version of the libertarian movement has been shown to be a paper tiger.

1 Hayek’s Intellectual Contribution. https://www.britannica.com/biography/F-A-Hayek/Hayeks-intellectual-contributions

2 Timothy Noah. (30 Nov/2015) Charles Koch, Listen to Your Guru https://www.politico.com/magazine/story/2015/11/charles-koch-favorite-book-libertarian-stagnating-wages-213385

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