David Warsh: We continue to live with 'cameralism'

F.A. Hayek (1899-1992), the famed European philosopher and economist, hated what MIT economist Paul Samuelson dubbed the “modern mixed economy.’’

SOMERVILLE, Mass.

From its beginnings, in 1947, the Mont Pelerin Society sensed a problem, which its members understood better than most.  In the aftermath of World War II, amid the smoldering ruins of Europe, it was impossible not to be repelled by the two familiar examples of government planning, Hitler’s National Socialism and Lenin’s Bolshevik Revolution.

But the philosophers, historians, economists and journalists who formed the market advocacy group Mont Pelerin Society knew that the roots of government planning went much deeper than that.

In 1727, The King of Prussia established a chair of “Oeconomie, Policy, and Kammer-Sachen” at the University of Halle, at a time when, across the North Sea, Adam Smith was three years old.  In his address on the occasion, the chancellor of the university noted that the concerns of the new discipline went far beyond what was to be found in Aristotle.

“What happens in the fields, meadows, ponds, woods, gardens or relate to planting; how to treat cattle in their stalls; how to increase manure; how to brew and sell corn; the task of a husbandman on every day of the year what reserves to lay by and how to stock a storeroom; how to properly organize kitchen and cellar; what to keep and what to distribute: not a word of this appears in Aristotle.”

“Kammer-Sachen” means something like legislative and judicial matters, the word Kammer meaning chamber, as in the private office of a judge. The idea of a science of governmental planning – oversight of what today its critics call “the administrative state” – was an Enlightenment project, shaped by the ideals that took hold in the years before the French Revolution. Conceptions of husbandry – of the systematic promotion of good order and happiness within the state – is older than classical economics.

You can follow the development of cameralism – meaning, loosely, government planning and oversight – in Strategies of Economic Order: German economic discourse 1750-1950 (Cambridge, 1995), by Keith Tribe, an independent economic historian  and author of several well-received books. You may need the occasional help of a good German-English dictionary.

Cameralism is, roughly, what Adam Smith labeled mercantilism, or “the commercial system,” in contrast to his own market-based “system of natural liberty,” which he laid out in 1776 in An Inquiry into the Nature and Causes of the Wealth of Nations.  Smith defined mercantilism as an export-oriented and monetary strategy, managed by the state, in cooperation with well-ensconced business interests, in competition with other states.

In Friedrich List’s critique of The Wealth of Nations, published in English in 1846 as The National System of Political Economy, cameralism sounds more like a heavy-handed version of today’s macroeconomics – a true political economy, journalist List wrote, as opposed to Smith’s cosmopolitan economics.

In nine painfully erudite scholarly chapters, Tribe traces the course of the German persuasion from List through Max Weber, Ludwig von Mises and Otto Neurath to F. A. Hayek, organizer of the Mont Pelerin Society. He finishes with an analysis of the Nazis’ grand plans for Europe, noting its similarities to, and differences from, the European integration that eventuated after 1945.

Some of this background, but not much, is to be found in The Great Persuasion: Reinventing Free Markets since the Great Depression (Harvard, 2012), by Angus Burgin, of Johns Hopkins University.  (There is only so much an author can tell in one book.) A chapter on “moral capital” elucidates fears in the 1970s among neoconservatives – Irving Kristol, for example, a socialist in his youth – that libertarian capitalism was eroding “traditionalist” values. This was, in effect, living off the “accumulated moral capital” of social philosophies that it had supplanted, Kristol wrote, in declining an invitation to join the Mont Pelerin Society.

Already in 1935, while living in London, Hayek was sufficiently alarmed by the drift of things to collect several of his essays in Collective Economic Planning (Routledge, 1935). In “The Nature and History of the Problem,” he put his diagnosis most clearly.

“If we are to judge the potentialities aright, it is necessary to realize that the system under which we live choked up with attempts at partial planning and restrictionism is almost as far from any system of capitalism which could be rationally advocated as it is different from any consistent system of planning.  It is important to realize in any important investigation of the possibilities of planning that it is a fallacy to suppose capitalism as it exists today is the alternative. We are certainly as far from capitalism in its pure form as we are from any system of central planning. The world of today is just intervention chaos.”

Not much changed in Hayek’s views between then and the time he wrote The Road to Serfdom, in 1944, still living in England.  He had declared firm opposition to what, in 1948, would be described in the United States, in Paul Samuelson’s introductory textbook, Economics, as “the modern mixed economy.”

It doesn’t take more than a high-school diploma to recognize that much of America’s institutional mixture had been borrowed from German culture, some of it recently – from kindergarten to research universities and business schools, from government civil service to industrial safety, from rural electrification to road-building, from social insurance (retirement, medical, disability) to wage-bargaining and bank regulation.

Hayek may have longed for systemic purity, but it was Milton Friedman who put into action plans to purge its elements of cameralism, with two books of his own. Capitalism and Freedom, in 1962, espoused the economics of Barry Goldwater’s 1964 campaign.  Free to Choose, in 1980, set out what Friedman hoped would be Ronald Reagan’s platform for governing.

For example, in 1962, Friedman proposed to dismantle discretionary central banking, fixed exchange rates, public education, conscription, anti-discrimination policies, corporate social responsibilities, trade unions, professional licensing and compulsory social insurance, including the Social Security System.

Friedman had stupendous success as a cultural entrepreneur. Many of the measures he proposed have been adopted.  Final returns are far from in on many of them – the all-volunteer military, for example. But one major strut may have already turned out to be disastrous, at least for one prominent company in the news.

In an influential essay in the New York Times Sunday magazine, in 1970. Friedman argued that “The Social Responsibility of Business Is to Increase Its Profits.” Business leaders who promoted desirable “social” ends – providing employment, eliminating discrimination, avoiding pollution “and whatever else may be the catchwords of the contemporary crop of reformers” – were “preaching pure and unadulterated socialism.”

A publicly owned corporation had only one ‘‘social’’ responsibility, Friedman concluded: “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” That meant increasing share prices, a goal easily measured and properly rewarded by compensating executives who achieve good results.

The doctrine of shareholder sovereignty is mentioned only in passing on page 474 of Jennifer Burns’ biography, Milton Friedman: The Last Conservative. (Farrar, Straus and Giroux), 2023. But from Friedman’s argument to today’s problems at Boeing Co. seems to me a straight line of descent. At Airbus, in Europe, the legacy of cameralism flies on.

David Warsh, a veteran columnist and an economic historian, is proprietor of Somerville-based economicprincipals.com, where this column originated.