Michael Hudson, Karl Polanyi, and a Critique of Mont Pelerin School Economics
Unmasking the Mont Pelerin Society: A Critique through the Lens of Michael Hudson and Karl Polanyi (Part 2)
…continued from Part 1 (https://substack.com/@czarnicholasiii/p-147818930)
The Rejection of Social Solidarity and the Erosion of Democratic Institutions
Both Hudson and Polanyi offered scathing critiques of the Mont Pèlerin Society's rejection of social solidarity and its role in eroding democratic institutions. They argued that the society's emphasis on radical individualism and unbridled market supremacy dismantled the very foundations of collective action necessary for fostering social and economic stability.
Michael Hudson particularly highlighted the shift from industrial capitalism to a financialized rentier economy, which he viewed as a central feature of the Mont Pèlerin Society's economic agenda. This transformation, he argued, marked a fundamental departure from an economy driven by production and labor toward one dominated by financial interests and the extraction of economic rents. Hudson contended that this shift empowered the financial sector at the expense of the productive economy, enabling a small elite of rentiers to accumulate wealth through speculation, interest, and property claims rather than through productive investment. This change, Hudson argued, weakened the broader economy by diverting resources away from:
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What was applauded as a post-industrial economy has turned into a financialized economy. The reason you have to work so much harder than before, is to carry your debt overhead. You’re unable to buy the goods you produce because you need to pay your bankers. And the only way that you can barely maintain your living standards is to borrow even more. This means having to pay back even more in years to come…
…Industrial capitalism was based on increasing production and expanding markets. Industrialists were supposed to use their profits to build more factories, buy more machinery and hire more labor. But this is not what happens under finance capitalism. Banks lend out their receipt of interest, fees and penalties (which now yield credit card companies as much as interest) in new loans.
The problem is that income used to pay debts cannot simultaneously be used to buy the goods and services that labor produces. So when wages and living standards do not rise, how are producers to sell—unless they find new markets abroad? The gains have been siphoned off by finance. And the financial dynamic ends up in austerity.
To make matters worse, it is not the fat that is cut. The fat is the financial sector. What is cut is the bone: the industrial sector. So when writers refer to a post-industrial economy led by the banks, they imply deindustrialization. And for you it means unemployment and lower wages:1(fn 7 in the original)
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As financial capital gained ascendancy, Hudson noted the corresponding decline in the living standards of the laboring classes. The society's policies, which promoted deregulation and market-centric reforms, systematically weakened labor unions, which had long served as the bulwarks of workers’ rights. By undermining the collective bargaining power of labor unions, the Mont Pèlerin Society's economic agenda precipitated a significant decline in wages and working conditions. Hudson observed that this decline was not merely incidental but a deliberate strategy to tilt the balance of power in favor of capital over labor, ensuring that financial elites could exploit labor without facing organized resistance. Writing and speaking at around the time of the 2008 financial crisis and The Great Recession, Hudson remarked:
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Finance is what makes today’s economy different from that of 1945. We are at the end of a long cycle. Back in 1945 the private sector in every country was relatively free of debt. There was little civilian output for consumers to buy during the wartime years. Companies had little reason to invest, except for the government’s military demand. So most families had little debt—and a lot of savings, and good job opportunities after the return to peace. But today the economy is in reverse. Savings have been run down and consumers, real estate and industry are left in debt.2(footnote 8 in the original)
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Furthermore, Hudson emphasized that the erosion of workers' rights and the weakening of social safety nets were interconnected. The Mont Pèlerin Society's policies sought to dismantle the social protections that had been painstakingly built throughout the 20th century, including public health systems, pension plans, and welfare programs. By framing these protections as impediments to market efficiency, the society effectively stripped away the economic security that had been guaranteed to the working class. The result, Hudson argued, was a society increasingly divided by wealth inequality, where the concentration of wealth and power in the hands of a few led to widespread economic insecurity and social unrest.
Karl Polanyi, on the other hand, focused on the broader societal and political implications of the Mont Pèlerin Society's agenda. He argued that the society’s Austrian economics promoted a form of market determinism that subordinated democratic institutions to the whims of the market. In Polanyi’s view, the society’s vision of a self-regulating market was inherently incompatible with the principles of democracy. He posited that economic decisions, once they became dominated by market forces, were increasingly insulated from public scrutiny and control. This shift, Polanyi warned, effectively eroded the democratic process, as governments became more beholden to the interests of financial capital rather than the needs and desires of their citizens.
Polanyi further argued that this erosion of democratic institutions would inevitably lead to a rise in authoritarianism. As societies struggled to protect themselves from the destabilizing effects of unchecked market forces, they would likely turn to strongman leaders who promised stability at the cost of democratic freedoms. Polanyi observed that this pattern had historical precedents, particularly in the interwar period, when the failures of market liberalism contributed to the rise of fascist regimes in Europe. The Mont Pèlerin Society’s agenda and those of the proto-neoliberals of his time, Polanyi argued, risked repeating this dangerous cycle by stripping away the protections that democratic institutions offered against the excesses of the market. In so doing, political problems related to regulation of the currency and sound structuring of a labor market that protected the interests of the working classes mounted. Currency problems and their harmful political percussions in the post-WW1 era in continental Europe—which was by then relegated to the economic periphery— far predated the 1929 Wall Street crash and the worldwide depression that had fully metastasized after protectionist interventions following the Crash of 1929. As Polanyi writes:
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In Austria in 1923, in Belgium and France in 1926, in Germany in 1931, Labour Parties were made to quit office “to save the currency.” Statesmen like Seipel, Francqui, Poincaré, or Brüning eliminated Labour from government, reduced social services, and tried to break the resistance of the unions to wage adjustments. Invariably the danger was to the currency, and with equal regularity the responsibility was fixed on inflated wages and unbalanced budgets. Such a simplification hardly does justice to the variety of problems involved which comprised almost every question of economic and financial policy, including those of foreign trade, agriculture, and industry. Yet the more closely we consider these questions the clearer it must become that eventually currency and budget focused the issues pending between employers and employees, with the rest of the population swinging in to the support of the one or the other of the leading groups.3(footnote 9 in the original)
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Both Hudson and Polanyi’s critiques of the Mont Pèlerin Society emphasize the profound dangers of subordinating social and democratic institutions to market forces. Hudson's analysis reveals how the shift towards a financialized economy, driven by the Mont Pèlerin Society’s economic agenda, systematically weakened the broader economy by prioritizing financial elites over productive labor. The erosion of workers' rights and the dismantling of social protections were not mere side effects but deliberate strategies to entrench the power of capital. Hudson's critique underscores the consequences of this shift: a society increasingly divided by wealth inequality, with a hollowed-out industrial base and a populace burdened by debt, all contributing to economic instability and social unrest.
Polanyi, on the other hand, focused on the broader societal implications of this market determinism. He argued that the Mont Pèlerin Society's vision of a self-regulating market was inherently incompatible with democratic principles, as it insulated economic decisions from public control and eroded the democratic process. Polanyi warned that this erosion would inevitably lead to the rise of authoritarianism, as societies, destabilized by unchecked market forces, would seek refuge in strongman leaders who promised stability at the cost of democratic freedoms. His historical analysis, particularly of the interwar period, highlighted the dangers of repeating past mistakes, where the failures of market liberalism contributed to the rise of fascist regimes. 21st century commentators often forget that WW1 and WW2 could easily be seen as one broader Thirty Years’ War—not unlike the 17th century religious wars between the pro-Catholic and multiple Protestant factions which culminated in the formal secularization of exoteric politics and the instantiation of the Westphalian nation-state system for organizing the peoples and states of Europe. The 1920s in Europe were NOT marked by the Jazz Age hedonism and pleasure of the Roaring Twenties remembered so in the United States. Rather, they were periods of darkness, poverty, suffering, unrest, and economic deprivation continent-wide as virtually no continental power overcame the shock of the collapse of the old Ancien Regimes (especially Wilhelmine Second Reich Germany, the Habsburg Austro-Hungarian Empire, and the Czarist Russian Empire) for:
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the nations of Europe never overcame the shock of the war experience which unexpectedly confronted them with the perils of interdependence. In vain was trade resumed, in vain did swarms of international conferences display the idylls of peace, and dozens of governments declare for the principle of freedom of trade—no people could forget that unless they owned their food and raw material sources themselves or were certain of military access to them, neither sound currency nor unassailable credit would rescue them from helplessness. Nothing could be more logical than the consistency with which this fundamental consideration shaped the policy of communities. The source of the peril was not removed. Why then expect fear to subside?
A similiar fallacy tricked those critics of fascism—they formed the great majority—who described fascism as a freak devoid of political rationale. Mussolini, it was said, claimed to have averted Bolshevism in Italy, while statistics proved that for more than a year before the March on Rome the strike wave had subsided. Armed workers, it was conceded, occupied the factories in 1921. But was that a reason for disarming them in 1923, when they had long climbed down again from the walls where they had mounted guard? Hitler claimed he had saved Germany from Bolshevism. But could it not be shown that the flood of unemployment which preceded his chancellorship had ebbed away before his rise to power? To claim that he averted that which no longer existed when he came, it was argued, was contrary to the law of cause and effect, which must also hold in politics.
Actually, in Germany as in Italy, the story of the immediate postwar period proved that Bolshevism had not the slightest chance of success. But it also showed conclusively that in an emergency the working class, its trade unions and parties, might disregard the rules of the market which established freedom of contract and the sanctity of private property as absolutes—a possibility which must have the most deleterious effects on society, discouraging investments, preventing the accumulation of capital, keeping wages on an unremunerative level, endangering the currency, undermining foreign credit, weakening confidence and paralyzing enterprise. Not the illusionary danger of a communist revolution, but the undeniable fact that the working classes were in the position to force possibly ruinous interventions, was the source of the latent fear which, at a crucial juncture, burst forth in the fascist panic.
The dangers to man and nature cannot be neatly separated. The reactions of the working class and the peasantry to market economy both led to protectionism, the former mainly in the form of social legislation and factory laws, the latter in agrarian tariffs and land laws. Yet there was this important difference: in an emergency, the farmers and peasants of Europe defended the market system, which working-class policies endangered. While the crisis of the inherently unstable system was brought on by both wings of the protectionist movement, the social strata connected with the land were inclined to compromise with the market system, while the broad class of labor did not shrink from breaking its rules and challenging it outright.4 (footnote 10 in the original)
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And the Great Depression and WW2 which followed and concluded in 1945, like the Treaty of Westphalia of 1648, instituted the bi-polar world where the British colonial empire collapsed and the rest of the continent of Europe was made vassals (or even colonies) of the two surviving superpowers, the United States of America and the Soviet Union. And it is this order, now only led by the United States since the beginning of the 1990s, which is itself collapsing and bringing about a rhyme, if not a repeat, of the 1920s and 1930s here in the 2020s.
Together, Hudson and Polanyi’s critiques underscore the importance of maintaining social solidarity and protecting democratic institutions from the corrosive effects of unfettered capitalism, lest we risk repeating the darkest chapters of the 20th century. Perhaps, given the increasingly atomized and fractious nature of late neoliberal consumer capitalist societies—we might need to even reconsider new forms of government that can more effectively protect the demos than “representative constitutional republics” increasingly populated evermore by inchoate cultural, ethnic, and confessional / credal groupings only united by their ability to consume goods produced in the rapidly fraying globalist capitalist economy. Re-runs or reboots of liberal democratic capitalism much less analogues Fascism or National Socialism from the 20th century; or worst of all, a reappearance of Bolshevism under corporate technocratic / digital control might only guarantee the extinction of civilization, much of the planetary ecology, if not Homo sapiens as a species.
Conclusion
The Mont Pèlerin Society's reboot of Austrian economics had a profound impact on the globalization process and the spread of neoliberal policies. Both Hudson and Polanyi critiqued the role of Austrian economics in shaping the neoliberal agenda that dominated global economic policy from the late 20th century onward. Hudson argued that the society's ideas facilitated the global spread of financialization, leading to a concentration of wealth and power in the hands of a few global elites.
Polanyi, in turn, analyzed how the neoliberal policies inspired by Austrian economics led to the disintegration of national economies and the erosion of social safety nets. He argued that these policies, underpinned by the society's market fundamentalism, disregarded the needs and realities of individual nations and their populations. The result, according to Polanyi, was a world increasingly divided by economic inequality and social unrest.
The critiques offered by Michael Hudson and Karl Polanyi remain relevant as the world continues to grapple with the consequences of the Mont Pèlerin Society's reboot of Austrian economics. Their analyses provide a crucial counterpoint to the dominant economic narratives that have shaped global policy for decades. By exposing the flaws and dangers inherent in the society's economic doctrines, Hudson and Polanyi offer alternative visions for a more just and equitable economic order.
The Mont Pèlerin Society's revival of Austrian economics, while influential, has not gone unchallenged. Michael Hudson and Karl Polanyi have provided robust critiques, exposing the dangers of financialization, market fundamentalism, and the erosion of social solidarity and democratic institutions. As the world faces ongoing economic challenges, their critiques offer valuable insights into the need for a more revised and balanced approach to global economics and related policy.
Tags: #MichaelHudson #KarlPolanyi #FriedrichHayek #Capitalism #RentierEconomics #Rentier #Neoliberalism #Liberalism #Progressivism #Progressives #WW1 #WW2 #GreatDepression #InterwarYears #Capital #Capitalism #FinanceCapitalism #Labor #Democracy #Democratic #SocialUnrest #SocialUpheaval #MontPelerinSociety
(footnote 7 in the original): Michael Hudson, Finance Capitalism And Its Discontents: Interviews and Speeches, 2003-2012 (Baskerville: ISLET-Verlag, 2012), E-book, Pages 12-13.
(footnote 8 in the original): Michael Hudson, Finance Capitalism And Its Discontents: Interviews and Speeches, 2003-2012 (Baskerville: ISLET-Verlag, 2012), E-book, Page 17. Note this remark was taken from the Chapter entitle: “Productivity, compound interest and poverty” at Modern Money Theory: Teach-in on February 24, 2012 at Rimini, Italy.
(footnote 9 in the original): Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, with a new introduction by Joseph E. Stiglitz (Boston: Beacon Press, 2001), Page 386.
(footnote 10 in the original): Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time, with a new introduction by Joseph E. Stiglitz (Boston: Beacon Press, 2001), Page 335.