Saturday May 18 we organized our Spring Meeting in Utrecht! Within the CSS theme of prosperity our guest was Lex Hoogduin, professor of economics at the University of Groningen and former director of the Dutch Central Bank. He spoke with our own Christiaan van der Kwaak and others present about the differences between classical liberalism and neo-liberalism, and the implications of this for our economic policy.
Scroll down for a report of what has been discussed!
What did we discuss?
Classical liberalism and neo-liberalism are often swept together, and in public discourse neo-liberalism is portrayed as the ultimate market discourse. But there is a big difference of opinion about the precise definition of “neo-liberalism”. Can a thinker like Keynes be included within the liberal tradition, or is his model of government control and intervention too far removed from liberal core values? Where does neo-liberalism end and do social democracy and classical liberalism begin? These questions were discussed at length.
When we speak of classical liberalism in the economy, we refer to the Austrian school of Menger, Mises and Hayek. They believed that market forces were almost always the best economic coordination mechanism, and were major opponents of government intervention and monetary policy by central banks. Neo-liberalism, on the other hand, is somewhat more elaborate in its defense of the free market. The current originated in the 1930s, when global capitalism was in a major crisis and the liberal economic order was threatened by fascism and socialism. Thinkers such as Röpke came up with ideas that could be used to save liberalism from itself, including government investment, government regulation and monetary policy by central banks. This could be used to combat the supposed excesses of capitalism and to steer the economy in a certain direction. According to some, even political leaders such as Thatcher and Reagan, often seen as strong free market advocates, given their own public statements, operated in practice within this neo-liberal framework. After the 1980s Western governments continued to steer the economy through all sorts of interventions.
In addition to this more historical-philosophical review we also discussed the most recent economic crisis, its causes and settlement, and the current macro-economic situation. The influence of low interest rates on the pre-crisis situation was criticized: low interest rates conceal risks – which are therefore taken too much. According to some, this creates an “artificial” demand that drives prices and production to an irresponsible level. This would create economic bubbles and tempt countries to create large sovereign debt. The result would not only be financial instability, but also the loss of information that is normally produced by a financial market. Unprofitable companies benefit from low interest costs, there is not enough creative destruction, and capital is not efficiently allocated, at the expense of innovation and growth.
What may we conclude?
Whether you are in favor of classical liberalism, neo-liberalism or other -more interventionist- economic formulas, it is important to use correct terminology. Neo-liberalism is not “market fundamentalism,” as it is so often described, but an “updated” version of classical liberalism, within which there is room for government investment, management and regulation. Post-war economic policy has been predominantly neo-liberal, and has never really seen a return to classical liberalism.
