Intellectual Shift

Many of the posts on this blog are written with the idea of countering arguments in support of the great tide of statism that rolled across the globe in the past century. Personally, I wish to avoid traveling along The Road to Serfdom.

As described in The Industrial Counterrevolution :

In the wake of the Industrial Revolution and the arrival of mechanized mass production, a powerful new idea began to take hold and remake the world in its image. That idea, reduced to its bare essence, was that the economic revolution of industrialization both enabled and required a revolution in social organization: the eclipse, partial or total, of markets and competition by centralized, top-down control. The intellectual and political movements spawned by this idea emerged in the last quarter of the 19th century and utterly dominated the first three-quarters of the 20th.

In analytical terms, the common intellectual thread that runs through all of these movements -- namely, the rejection or demotion of market competition in favor of top-down control -- represents a direct assault on the principles of social order that gave rise to industrialization and are truest to its full promise.

According to Deepak Lal in Reviving the Invisible Hand (p.65):

There had been some extension of government intervention in the late nineteenth century with the passage of antitrust legislation following populist attacks against the “robber barons.” But it was Roosevelt’s New Deal which led to “an ideological shift – from widespread skepticism about the ability of the central government to improve the functioning of the economy to widespread faith in the competence of government.”

Rockoff argues that the Depression in itself could not have been responsible for this shift, as there were earlier crises in the 1830s and 1890s, with severely depressed incomes and high unemployment which did not lead to a dirigiste response. He argues that a change in the dominant ideology among intellectuals and opinion-makers was responsible. As George Stigler was first to point out, this change in opinion was not based upon any hard empirical evidence. The European move to dirigisme, their construction of the welfare state, and the supposed success of Stalinist planning in transforming an underdeveloped Russia, were the dominant factors in the change of opinion. This process was aided by the development of Keynesian economics and welfare economics, which, as Myint noted, with its: “emphasis on market failures, externalities, and the divergences between social and private costs, has for many decades been a powerful intellectual force behind interventionist policies.”

Not till the stagflation of the 1970s did opinion shift toward the more skeptical view of government of the nineteenth century. This had been presaged by the growing recognition that, because of problems related to information and incentives, planning and Keynesianism were not the touted panaceas, while the “new” political economy showed how most welfare programs would be capture by the “middle classes.”

Many intellectuals are still denouncing the more recent movement towards greater economic freedom in the world. I wish to counter their peddling of defective ideas.