What Caused the Financial Collapse? Book Review: Meltdown by Thomas Woods, Jr.

For an American, the two most momentous national events of this decade have to be the terrorist attack on 9/11 and the financial meltdown in September 2008. The consequences of these two events will be with us for a generation or more, and are deeply engraved in our memories. When Lehman Brothers went bankrupt exactly one year ago today, the stock market tanked on the following Monday, September 15, 2008. Since the financial meltdown, I’ve been reading numerous books and articles, in an effort to understand how it all happened. I’ve read David Smick’s The World is Curved, read articles and seen talks by Barry Ritholtz, author of Bail Out Nation, and resumed studies of economics and monetary policy, particularly by Austrian economists. But nothing has had more explanatory power for me personally than Thomas Woods’ Meltdown: A Free Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailouts Will Make Things Worse (Washington, DC: Regnery Publishing, 2009). The left has blamed the financial collapse on Bush, and the de-regulation of Wall Street promoted by the Republicans. (While there’s some truth to this, it’s also true that Clinton was President during some of this deregulation, and if you follow the reasoning in this article, you’ll see why I don’t think it explains the collapse.) Nixon’s phrase, “We’re all Keynsians Now,” headlines a January 18, 2008 Wall Street Journal article, when Bernanke trotted out the plans for the first fiscal stimulus package, well before the collapse in September 2008. Bush, Paulson, and Bernanke, in true Keynsian fashion, tried to stimulate (spend) America out of the financial crisis, as the Depression economic policies of the British economist John Maynard Keynes suddenly came back into vogue. (Coincidentally, contrary to the myth that he did nothing, Hoover also tried to stimulate America out of the Great Depression, and was roundly criticized for doing so during the 1932 Presidential campaign, according to Woods, p. 99). Of course FDR, once elected, massively outdid Hoover’s stimulus expenditures with his New Deal programs.

Obama basically won the 2008 Presidential race because the Democrats were able to cast blame for the economic collapse on the Republicans (that and McCain’s rather inept campaign). The only problem with Bush’s approach according to Obama and company was that he did not stimulate (spend enough money) the economy enough, and leftist Keynsian economists like Paul Krugman want Obama to spend even more, as he nationalizes banks, auto companies, healthcare (in the works), and God knows what else. A Newsweek article by John Meachem and Evan Thomas exuberantly proclaimed on February 7, 2009, “We’re All Socialists Now.” Well, not quite. Enter Thomas Woods, Jr.

So the conventional, Keynsian wisdom seems to be that when the economy collapses, the only way out is to spend more money and accumulate more debt. It’s an interesting concept. Try this thought experiment: next time you get into financial straits and face bankruptcy, just spend more money and accumulate more debt. Doesn’t work? Woods doesn’t think so either. It’s amazing how long a myth can last despite evidence to the contrary. For example, many Americans still believe that Roosevelt’s New Deal saved America from the Great Depression, when the evidence seems to indicate that Roosevelt’s policies may have caused the Great Depression: In other words, Roosevelt may have turned a rather short-term though severe recession into a major depression. Two UCLA economists, Harold L. Cole and Lee E. Ohanian completed a study in 2004 that showed that because “Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages,” he implemented a policy that kept prices and wages artificially high, the consequences of which prolonged high unemployment rates (up to 25% and in double digits for over a decade) (see “Study: FDR Policies Prolonged Depression,” Newsmax.com, Tuesday, October 7, 2008. According to Cole:

The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes. . . . . Ironically, our work shows that the recovery would have been very rapid had the government not intervened.

The Cole and Ohanian article was called “New Deal Policies and the Persistence of the Great Depression” and appeared in the Journal of Political Economy 112 (August 2004: 813).

So did capitalism cause the recent financial collapse? George Reisman has written: “The news media are in the process of creating a great new historical myth. This is the myth that our present financial crisis is the result of economic freedom and laissez-faire capitalism” (“The Myth that Laissez Faire Is Responsible for Our Financial Crisis,” October 21, 2008). As Reisman points out in his article, when you consider that government spending at the time was forty per cent of GDP, or when you consider that we have “fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with housing, transportation, healthcare, education, energy, mining, agriculture, labor, and commerce,” or that we have an alphabet soup of “one hundred federal agencies and commissions” to monitor every aspect of our individual and economic lives, the charge that the financial collapse was a result of laissez-faire capitalism is ridiculous, absurd, and bordering on the delusional. But then nobody said that the perpetrators of the conventional wisdom were smart, did they?

So what did cause the financial collapse? Woods cites several culprits that contributed to the subprime mortgage crisis, such as Fannie Mae and Freddie Mac (despite Barney Frank’s claims in 2003 that Fannie and Freddie were sound, Woods, p. 16); the Community Reinvestment Act, “a Jimmy Carter-era law that was given new life by the Clinton Administration” (p. 17), encouraging affirmative action in lending; the government’s artificial stimulus to speculation, such as relaxed standards for lending and adjustable rate mortgages (ARMs); and the “pro-ownership” tax codes. And then there was the “too big to fail” mentality. When you have Federal Deposit Insurance (FDIC) insuring accounts up to $100,000 (temporarily, up to $250,000) at one end, and the government ready to bail out large banks with the “too big to fail” mentality at the other, where’s the moral hazard? With such a combination, Woods writes, “banks will take on considerably more risk than they would if they were subject to genuine market pressures” (p. 46).

But while contributive, none of the above factors caused the financial meltdown, according to Woods. The real culprit was the Federal Reserve and its inflationary monetary policies, most recently the easy money policies following the dot.com bubble and meltdown of 2000, and the 9/11 attack in 2001. To understand why the economy crashed in 2008 it is necessary to understand the boom and bust business cycles that created the conditions for a collapse. The Fed created the boom by increasing the money supply (inflation); that excess liquidity had to go somewhere so a bubble was created, this time within the housing sector. (Inflation can be defined as “an increase in the quantity of money and/or credit, relative to goods available for purchase” (see my “Inflation, the National Debt, and Monetary Reform” for a more detailed explanation.) During the boom phase, Woods contends, “the artificial lowering of interest rates causes the misdirection of capital and the initiation of unsustainable investments” (p. 72). The damage is done during the boom phase with the misallocation of resources, which is followed by the inevitable bust or collapse. However, instead of letting the market correct itself with a mild recession, Keynsian economists advise the government to stimulate consumption by spending more money, which only postpones the pain into the future (deficit spending). Woods quotes the Austrian economist and Nobel Prize winner, Friedrich Hayek: “To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means [inflation] that brought it about” (p. 71). The inevitable pain that our national leaders are postponing into the future can even be measured: by our $11 trillion dollar National Debt. Wood argues that “nobody likes unemployment and bankruptcy . . . but they would not have been necessary had the artificial boom not been stimulated in the first place” (Ibid.). Thus great harm is done to the people and to future generations by doing the same thing that got us into this predicament in the first place, inflating the money supply. This argument so far doesn’t even address the fact that the Obama administration has used their stimulus packages not to rejuvenate the economy but rather to pay off their cronies in what can only be called a political spoils system.

A fallacy at the core of the argument for stimulating the economy in a recession is the belief that flooding the economy with more money for consumers to spend will increase the supply of real resources, or goods and services (Woods, p. 128). This is a fallacy: increasing the money supply will only lead to higher prices; in other words, inflation (an increased quantity of money) results in higher prices (reflected in the Consumer Price Index, or CPI). The public often mistakenly thinks that higher prices are inflation, instead of an effect of inflation. This mistaken belief is often abetted by the media in their disingenuous search for scapegoats to blame, such as oil companies, greedy businessmen, or speculators (Ibid., p. 125).

While the Fed, the government, and their lackeys in the press profess to fear deflation much more than inflation, there is a ready explanation for this also. Hayek has written that while “moderate inflation is generally pleasant while it proceeds, . . . deflation is immediately and acutely painful” (The Constitution of Liberty, p. 330). Governments love inflation because it allows them to spend money recklessly in the present, while the painful consequences can be postponed into the future until the inevitable day of reckoning when the economy collapses. As Hayek observed, “there is more than a mere superficial similarity between inflation and drug-taking” (Ibid.). In addition to causing a boom-bust business cycle, inflation also has several other deleterious effects: it makes it nearly impossible for people of moderate means to save enough for retirement; it encourages people to go into debt instead of save because of the time-value of money; it’s destructive of the middle class, widening the gap between rich and poor; it encourages short-term thinking; and it increases the dependence of the individual upon the government (Ibid., pp. 338 – 39). Regarding inflation’s effect on savings: Before the creation of the Fed in 1913, with its inflationary monetary policies, individuals with moderate income could save enough money for old age in low risk savings or CD accounts. Gold-backed money actually appreciated in value. With the excessive inflation of the past century however, this was no longer possible. Thus savings, to keep up with inflation, had to be invested in higher risk equities, which also accounts for the two decades long bull market in the stock market.

But if governments advocate inflationary policies, why would they do so if the result is an inevitable economic collapse? First of all, as Keynes so aptly put it:

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. (The Economic Consequences of the Peace, London, 1919, p. 220)

In other words, most people are fairly ignorant of economics and monetary theory (and most politicians too), so they are easily dissuaded from casting blame at the correct target. But also, as Hayek has argued, Keynes wrote his General Theory of Employment, Interest, and Money in 1935 in the midst of the Great Depression. One of his assumptions at the time was that you couldn’t lower wages because of labor unions, yet full employment was his primary goal. If wages are too high, full employment is not possible. So the only way to reduce actual wages, and guarantee full employment, was to inflate the money supply and devalue the currency. This really created the contemporary boom- bust business cycle; the inflationary spiral was the result of Keynesian economic theory (see Hayek, A Tiger By the Tail: The Keynsian Legacy of Inflation, 1979, San Francisco: Cato Institute, pp. 59 – 62, 101 – 02).

Another fallacy that contributed to the Keynsian theory that the way out of a recession is to stimulate the economy is the belief that “consumer spending drives the economy.” But this is true, Woods argued, only in the sense that consumer spending determines what businesses should produce and in what quantity: “their wishes are what motivates the production decisions of producers.” But wealth is not “generated by the mere fact of our spending” (p. 142). No country ever became rich “simply by using things up”: “Before things can be used up, they must be produced” (p. 143). This gets to the root of America’s huge trade deficit: We have become a nation of consumers; we consume more than we produce. This can last only so long. Nations become rich by producing goods and services, like China today and the U.S. in the past, not by consuming things.

One final point on why government stimulus packages don’t work: They don’t work for the same reason that socialist command economies like the Soviet Union didn’t work; they have no feedback mechanism (prices) to determine how to allocate resources. As Woods argued,

Government . . . has no non-arbitrary way of knowing how much of something to produce, where to produce it, using what materials and which production methods. Private firms use a profit-and-loss test to gauge how well they are meeting consumer needs. If they make profits, the market has ratified their production decisions. (p. 78)

Government is just as likely to build a bridge to nowhere or a one million dollar plus emergency operations center for homeland security in a rural town of 2,000 with seven law enforcement officers.

To conclude: The point of this article is not to argue that some targeted regulation of the financial industry is not needed. Certainly, the lax lending standards (or lack thereof), such as the creation of NINA (No Assets, No Income) loans, were contributive factors in the meltdown. But the bottom line, according to Woods, is that the housing bubble never would have occurred without the inflationary monetary policies of the Fed that flooded the system with excess liquidity, looking for a place to invest trillions of dollars when interest rates were practically zero. But nobody dares cast blame on the real culprit, the Fed, which is both the elephant in the middle of the room and the Emperor with no clothes. The question is: Is the Fed the guarantor of our economic stability, or is it actually the cause of our economic instability and collapse?

Whither to Afghanistan?

George Will’s recent column, “In Afghanistan, Knowing When to Stop” September 1, 2009 has drawn quite a lot of heat from fellow conservatives, such as Bill Kristol, who wrote: “Will is urging retreat, and accepting defeat." With very little NATO support our troops slog on there, in a rather hopeless attempt at nation-building. According to Will, “The Brookings Institution ranks Somalia as the only nation with a weaker state.” After all, we won the war there, what else could we be doing? Will wonders: “Creation of an effective central government? Afghanistan has never had one.” As David Harsanyi has said, in support of Will, “Or is victory achieved when we finally usher this primitive tribal culture, with its violent warlords and religious extremism, from the eighth century all the way to modernity? If so, we're on course for a centuries-long enterprise of nation building and baby-sitting, not a war. The war was won in 2002.” Haven’t we learned anything from the failed Soviet attempt to control this tribal culture on some of the most inhospitable terrain imaginable? Will wasn’t the first conservative to raise the issue of whether or not we had overstayed our rationale for being in Afghanistan. Diana West wrote in, “Let Afghanistan Go,” on April 23, 2009:

This is not to suggest that there is no war or enemies to fight, . . . there most certainly are. But sinking all possible men, materiel and bureaucracy into Afghanistan, as the Obama people and most conservatives favor, to try to bring a corrupt Islamic culture into working modernity while simultaneously fighting Taliban and wading deep into treacherous Pakistani wars is no way to victory -- at least not to U.S. victory. On the contrary, it is the best way to bleed and further degrade U.S. military capabilities. Indeed, if I were a jihad chieftain, I couldn't imagine a better strategy than to entrap tens of thousands of America's very best young men in an open-ended war of mortal hide-and-seek in the North West Frontier.

West, by the way is an outspoken critic about the dangers of Islamic jihad, so she’s definitely not a pacifist or defeatist. West interview retired Maj. Gen. Paul Vallely who said: "There's nothing to win there. . . . What do you get for it? What's the return? Well, the return's all negative for the United States." Vallely went on to recommend a strategy of the using

"the maximum use of unconventional forces," such as Navy SEALS and other special forces, who can be deployed as needed from what are known in military parlance as "lily pads" -- outposts or jumping-off points in friendly countries (Israel, Northern Kurdistan, India, Philippines, Italy, Djibouti ... ) and from U.S. aircraft carrier strike groups.’ Such strike groups generally include eight to 10 vessels "with more fire power," the general noted, "than most nations." These lily pads become "bases we can launch from any time we want to," eliminating the need for massive land bases such as Bagram Air Base in Afghanistan, by now a small city of 20,000 American personnel who continuously need to be supplied and secured at enormous expense.

"There's no permanent force," the general said. "That's the beauty of it." We watch, we wait and when U.S. interests are threatened, "we basically use our strike forces to take them out, target by target." This would work whether the threat came from Al Qaeda, Pakistani nukes or anything else.

He continued: "This idea that we're going to go in and bring democracy to these tribal cultures isn't going to work. If we have a problem with terrorist countries, like Iran, it's a lot cheaper to go in and hit them and get back out."

In other words, don't give up the battle; just give up the nation-building. "It's up to somebody else to build nations," the general said. "Not us."

While, like most Americans, I was in favor to invading Afghanistan after 9/11, it might be time to reassess our strategy there, and in the rest of the Middle East. American capabilities have been badly wounded by the financial collapse and we don’t seem to be learning from history: Most great empires (including reluctant empires like the USA) collapse after overextending themselves militarily, like Rome and Great Britain, and by living off past productivity and going into debt. While I thought the Iraq War was a strategic mistake, things change. Iraq seems like a more feasible location for any hubris of nation-building. Maybe we should focus where there’s at least a slim chance of a pay off.

The Conservative-Libertarian Debate: An Historical View

Part II (See September 6th post for Part I)

The Conservatives

On the conservative side, we have Russell Kirk and Robert Nisbet. The title of Kirk’s contribution, “Chirping Sectaries,” is taken from T. S. Eliot’s term for a “chirping sect,” which Kirk defines as “an ideological clique forever splitting into sects still smaller and odder, but rarely conjugating” (Freedom and Virtue, p. 120). Kirk adamantly rejects libertarians, accusing them of a “fanatic attachment to a simple solitary principle . . . the notion of personal freedom as the whole end of the civil order, and indeed of human existence.” As previously noted, none of the libertarians cited above would agree with Kirk’s contention. He states further that the only thing they share with conservatives is “detestation of collectivism” (Ibid., p 113). Towards the end of his short essay, Kirk lists several areas of disagreement with libertarians, which indicate that in some cases, he is sparring with a straw man, or an extreme version of libertarianism: 1) conservatives believe in a “transcendent moral order” whereas libertarians are materialists; 2) order is the primary need of a society and must precede the establishment of liberty; 3) libertarians view self-interest as being the “cement of society,” whereas conservatives find it in friendship (Aristotle) and Christian love; 4) libertarians believe in the goodness of human nature whereas conservatives view humans as sinful, fallen, and imperfect; 5) libertarians view the state as “the great oppressor,” whereas in the conservative view “the state is ordained by God”; 6) “The conservative regards the libertarian as impious” (pp. 121 – 122). While all or some of Kirk’s claims could be true of extreme libertarians, he makes some rather sweeping assumptions. For example, a libertarian could believe in a transcendent moral order; a limited government libertarian could believe in the importance of law and order for establishing a civil society where the freedoms of others are respected; and the Founding Fathers based the Constitution on self-interest rather than virtue because they believed, considering man’s imperfect nature (#4 above), it was more practical (see George Carey, “How Conservatives and Liberals View The Federalist, The Intercollegiate Review, Fall 1989, p. 8). Kirk’s rationale for his position is that if a libertarian “believes in an enduring moral order, the Constitution of the United States, free enterprise, and old American ways – why, actually he is a conservative with imperfect understanding of the general terms of politics” (p. 119). Kirk has a point, if one defines libertarian as someone who belongs to the rather left leaning Libertarian Party, or an advocate of anarcho-libertarianism, but his rather rigid definition of libertarian seems also to give evidence of an “imperfect understanding of the general terms of politics.”

Some of Kirk’s more interesting observations have to do with tolerance, or what Burke has called “licentious toleration.” Those who have read Allan Bloom’s The Closing of the American Mind (1987) may be reminded of his point that “tolerance” and “openness” are considered to be the primary virtues in modern liberal democracies. Kirk writes:

It is consummate folly to tolerate every variety of opinion, on every topic, out of devotion to an abstract “liberty”; for opinion soon finds expression in action, and the fanatics whom we tolerated will not tolerate us when they have power.” (p. 116)

In a post-9/11 world with Islamic jihadists subverting Western culture from within in Europe and America while demanding the protection of our laws, when in fact, once they are in power, they will deny us the protection of their law, Kirk’s comment seems prescient. The nineteenth-century French writer, Louis Veuillot, wrote the following: “When I am the weaker, I ask you for my freedom, because that is your principle; but when I am the stronger, I take away your freedom, because that is my principle” (Quoted in James Burnham, The Suicide of the West, p. 237). This is rather obviously true in radical Islam’s war against the West: They see Western law and multiculturalism as a weakness and vulnerability that they can exploit until the day that Sharia law can be imposed upon Western democracies. While freedom of speech is foundational for a free republic, does that right extend to our enemies who are trying to destroy us, and replace our free institutions with despotism? Or even closer to home, will the left tolerate the free speech of the right, now that they are in power? They surely haven’t allowed freedom of speech at university campuses where leftists prevail. The free speech of the opposition to Obama’s healthcare plan has come under increasing attack from the left, although the left’s dissent against the Iraq War was surely tolerated during the Bush administration.

Finally, I wouldn’t be doing Kirk justice if I didn’t mention the emphasis he places on tradition. For example, he wrote: In our time, the real danger is that custom and prescription and tradition may be overthrown utterly among us . . . by neoterism, the lust for novelty, and that men will be no better than the flies of summer, oblivious to the wisdom of their ancestors . . .” (Ibid., p. 116). As the philosopher Alasdair MacIntyre has argued in Whose Justice? Whose Rationality? (1988), a tradition of thought is not a dead dogma, but rather a living body of thought that is constantly being replenished by new interpretations. The danger arises, as Kirk points out, when our fascination for novelty and current fads leads to a quality of thought that lacks depth and historical continuity, becoming obsolete in a generation or less instead of withstanding the tribulations of the ages.

Robert Nisbet’s piece, “Uneasy Cousins,” is certainly more conciliatory than Kirk’s; after all, he at least refers to libertarians as cousins. He lists four things that conservatives and libertarians share in common: 1) a common dislike of government intervention in the lives of citizens; 2) “equality before the law”; 3) “the necessity of freedom, most notably economic freedom”; and 4) “a common dislike of war,” in particular the “war-society” under Wilson and FDR. Finally, he notes that “there is a shared dislike by libertarians and conservatives of what today passes for liberalism: the kind that is so widely evident in the schools, the established churches, the universities, and, above all, the media” (Freedom and Virtue, pp. 16 – 18).

In Nisbet’s listing of the differences between conservatives and libertarians, perhaps the most significant difference has to do with the libertarian view of “individualism,” which stands in opposition to all or most social structures, and not just the state, whereas to conservatives like Nisbet, intermediate associations, like the family, church, and local associations are believed to foster both freedom and order as a buffer to state tyranny. The conservative view on this issue can be traced back to Burke’s idea of “little platoons” as being the essential building blocks of society: “To love the little platoon we belong to in society, is the first principle (the germ as it were) of public affections” (Reflections on the Revolution in France, 1790, p. 53). But Nisbet, who was mainly influenced by Tocqueville earlier in his career, when he presented the idea of intermediate associations in his The Quest for Community (1953), considered himself to be a classical liberal like Tocqueville. In Democracy in America (1835), Tocqueville wrote admiringly about the American propensity for forming what he called “voluntary associations”: "Americans of all ages, all conditions, and all dispositions constantly form associations” (Vol. 2, p 114). (According to Gary North, it was after reading Kirk’s The Conservative Mind: From Burke to Eliot, also published in 1953, that Nisbet began to identify with the conservative philosophy that can be traced back to Burke (see “Robert Nisbet: Conservative Sociologist,” LewRockwell.com, August 15, 2002). However, according to Brad Lowell Stone, who is more authoritative on Nisbet [see “Robert Nisbet: A True Sociologist,” The Intercollegiate Review, Spring 1998, p. 39], Nisbet was simultaneously influence by Tocqueville and Burke, after returning to UC Berkeley after World War II, and prior to publishing The Quest for Community in 1953.) While Tocqueville was enthusiastic about the tendency of Americans to belong to “voluntary associations,” he was critical of the individualistic and egalitarian tendencies in American democracy. In his critique of American “individualism,” Tocqueville wrote: “individualism, at first, only saps the virtues of public life,” until eventually “it attacks and destroys all others, and is at length absorbed in downright selfishness” (Democracy in America, Vol. 2, p. 104). He believed that individualism would lead “each member of the community to sever himself from the mass of his fellows, and to draw apart with his family and his friends,” and thus, leaving “society at large to itself” (Ibid.).

Tocqueville, unlike most modern libertarians, did not conceive of the individual and the state as being opposed to one another, rather, as Brad Lowell Stone has written, “he describes ‘individualism’ and the centralization of state power as rising in tandem, both rooted in the passion for equality” (“Mediating Structures,” First Principles, 10/09/08). Undoubtedly due to his knowledge of the excesses of the French Revolution, Tocqueville did not consider equality and liberty to be compatible goals in a free society, and in a democracy, he believed that equality would eventually win out: “The taste which men have for liberty, and that which they feel for equality, are, in fact, two different things; and I am not afraid to add that, in democratic nations, they are two unequal things” (Ibid., p. 100). He believed that equality was the passion of his democratic age, and he noted that liberty was more fragile than equality. As we can witness in our own times, to destroy equality, once it’s institutionalized, is quite a laborious process, as Tocqueville recognized – “Its social conditions must be modified, its laws abolished, its opinions superseded, its habits changed” – “political liberty is more easily lost” (p. 101). The purpose of this rather lengthy digression is to point to the history of this notion that, as Nisbet has argued, intermediate associations have served an essential function in both preserving social order and providing a buffer against the intrusions and tyrannies of the state. Without these social structures, the individual is left at the mercy of the state and its laws, which, as a study of history reveals, can quickly become tyrannical without a more diffuse system of power. In more recent times, Peter Berger and Richard John Neuhaus have taken up the cause of intermediate institutions under the banner of what they call “mediating structures” (Brad Lowell Stone, “Mediating Structures”).

Nisbet mentions a couple of other differences between libertarianism and conservatism: For example, different attitudes about authority and about the nation. About the former, Nisbet has observed, “The existence of authority in the social order staves off encroachment of power from the political sphere. Conservatism, from Burke on, has perceived society as a plurality of authorities” (“Uneasy Cousins,” p. 19). As I argued above, Nisbet believed that libertarians were generally opposed to authority residing in the mediating structures of the social order, and with the collapse of all intermediate authority, all authority would have to reside in either the individual or the state. The libertarian assumption would seem to be that liberty is at odds with authority and law, except to the extent that they guarantee individual rights. But can the state be trusted? If it cannot be trusted, are we left with anarchy? As an example of the breakdown of social order (admittedly not the best of orders): J. L. Talmon has written that during the French Revolution, “Liberty was at war with morality and order. There was a danger of anarchy” (J. L. Talmon, The Origins of Totalitarian Democracy, 1952, p. 108). After the destruction of the Old Regime, there was no order or authority in France, leading to violence and anarchy in the streets. There can be no freedom for the peaceful and law-abiding when there’s anarchy and violence because the law of the jungle prevails. Robespierre’s solution was to redefine liberty as conforming to the General Will (of the people) and the Revolution, which in practice meant the will of Robespierre and the Jacobins, and to take over violence as a state monopoly of the Committee of Public Safety, to be used against those condemned as enemies of the Revolution. The point being not that the Jacobins were an example of libertarianism gone awry, but rather that with the breakdown of social order, anarchy will generally prevail until it is replaced by tyranny.

Finally, I’ll turn to what Nisbet conceived to be the difference in attitude towards the nation between conservatives and libertarians. Consistent with what has already been said about intermediate associations, authority, and social order, Nisbet referred to Burke’s love of country and “’the smaller patriotisms’ of family and neighborhood” (Ibid., p. 23). According to Nisbet, nationalism, though it could be excessive, was in a rather “tenuous condition” in America and the nations of the West: “Patriotism, the cement of the nation, has come to be an almost shameful thing” (Ibid.). In more recent times, there has been a disagreement between traditional conservatives and Neo-cons over the definition of the nation. The latter group, which has included Irving Kristol, Bill Bennett, and Jack Kemp, has posited that America is a “creedal” or “propositional” nation. Bennett and Kemp have declared: "The American national identity is based on a creed, on a set of principles and ideas." Defining the nation in more traditionally conservative terms, Pat Buchanan has quoted the French philosopher, Ernest Renan:

A nation is a living soul, a spiritual principle. Two things, which in truth are but one, constitute this soul, this spiritual principle. One is in the past, the other in the present. One is the common possession of a rich heritage of memories; the other is the actual consent, the desire to live together, the will to preserve worthily the undivided inheritance which has been handed down. (Buchanan, “Nation or Notion?” Conservative Resources)

Buchanan also quotes former Senator Daniel Patrick Moynihan as follows:

To be a nation, a people must believe they are a nation and that they share a common ancestry, history, and destiny. Whatever ethnic group to which we may belong, we Americans must see ourselves as of a unique and common nationality in order to remain a nation.

I think it goes without saying that people are more willing to defend with their lives "a common ancestry, history, and destiny" than just a proposition or idea, disconnected from any strong cultural loyalties.

To conclude this section on the conservative position, neither Nisbet nor Kirk was enthusiastic about a conservative-libertarian fusion. But it should be clear from their arguments that both men were arguing against a rather extreme version of libertarianism, either the anarcho-libertarianism of Rothbard, who in his later years became more conservative, or the left-leaning libertarianism of the Libertarian Party. Nisbet said that “conservative-libertarian” was “oxymoronic” (Ibid., p. 18), while Kirk, as we quoted him above, described any libertarian who believed in an “enduring moral order, the Constitution of the United States, free enterprise, and old American ways,” to be actually a confused conservative. So despite the disagreeable (cantankerous?) positions of our conservative exemplars, perhaps there is a little more room for a rapprochement than either thinker would admit.

Conservative-Libertarian Fusionism

Representing fusionist thought in Freedom and Virtue are former North Caroline Senator, John P. East, and M. Stanton Evans, an advocate of Meyer’s fusionism. East summarizes traditionalism, with its classical Greek and biblical roots, as valuing transcendence, and piety as the “preeminent virtue,” while critical of the secularism and religious skepticism of the libertarians. He argues that “man is not self-produced, nor is his fundamental nature malleable” (“Conservatism and Libertarianism: Vital Complements,” Freedom and Virtue, p. 82). He does believe, however, that conservatives and libertarians do have some common cause and that they share: 1) the belief in “the central role of the concept of the individual,” and 2) a “unity in opposition to the egalitarian-collectivist bent of the modern age” and its varieties of statism and totalitarianism (Ibid., p. 85). Although he states his position in objective terms, East clearly sides with Kirk and Nisbet in his emphasis on “a sense of history, tradition, and community,” and when he goes on to say that according to traditionalists, “impiety . . . is the ultimate philosophical error”:

The philosopher is no longer to pursue understanding of the world and to attune himself to it; rather, he is to change it to conform to his heady vision of what ought to be; that is, he is to gain dominion over being. (p. 85 – 86)

Of course, East’s criticisms of modern thought apply doubly to progressives, egalitarians, and statists, who, following the Jacobin lead, aspire to mold man into their image of perfection and virtue, as most libertarians are not big advocates of social engineering. But unlike Rothbard, East does not see Meyer as primarily a libertarian, but rather as a Christian theorist with libertarian leanings: “it is the symbol of the Incarnation which establishes the individual permanently and irrevocably ‘as the ordering principle, the fount and end of social being’” (p. 87). Following Meyer, East claimed that the first principle of American conservatism was “the free man seeking Christian virtue in a community of limited government,” but “coerced virtue was a contradiction in terms” (Ibid., pp. 87 – 88).

M. Stanton Evans, as a follower of Meyer, was the greatest advocate of fusionism during these debates, although Evans considered “fusion” to be a “misnomer” because he thought the separation of traditionalist and libertarian to be an “unnatural” separation of what should be a “natural and necessary unity” (“Toward a New Intellectual History,” Freedom and Virtue, p. 125). And like East, Evans points to the Biblical tradition, particularly the Christian Middle Ages in Evan’s case, as the source of the Western tradition of “individual liberty, limited government, and representative institutions,” which he believed to be rooted in the “ psychological individualism” resulting from the Christian belief in the “immortal, individuated soul” (Ibid., pp. 126 - 27). So Evans’ New Intellectual History was essentially an effort to trace our free institutions to the Christian feudal system that was a “network of contracts” proceeding from the Biblical idea of a covenant, from the Magna Carta to the Mayflower Compact and colonial government in America. He concluded that it was a mistake to consider our libertarian institutions to be the invention of the Enlightenment:

[T]he institutions of limited, representative government, far from being products of secular intuition, were derivative from our religious heritage generally and the political practices of the medieval era specifically. It is a conceit of modernity to suppose that these ideas were invented by the theoreticians of the Enlightenment. (p. 131).

My presentation of Meyer’s fusionism is hampered somewhat by the fact that I’m not directly familiar with Meyer’s work, however Evans, as a close associate of Meyer’s is a reliable exponent of Meyer’s thought. Lee Edwards in “Conservative Consensus” (Heritage Foundation, January 22, 2007, p. 3), has written that Meyer assembled a group of conservative thinkers in 1964, to answer the question, “What is conservatism?” Included in this diverse group were such diverse thinkers as Russell Kirk and Friedrich Hayek, representing the traditionalist and classical liberal poles of the movement. Despite their numerous differences enumerated above, surprisingly enough, they did come to an agreement on several basic tenets as follows:

• They accept “an objective moral order” of

“immutable standards by which human conduct

should be judged.”

• Whether they emphasize human rights and

freedoms or duties and responsibilities, they

unanimously value “the human person” as the

center of political and social thought.

• They oppose liberal attempts to use the State “to

enforce ideological patterns on human beings.”

• They reject the centralized power and direction

necessary to the “planning” of society.

• They join in defense of the Constitution “as originally

conceived.”

• They are devoted to Western civilization and

acknowledge the need to defend it against the

“messianic” intentions of Communism.

Concluding Remarks

One thing that has become clear to me in re-reading these debates is that the conservatives are, in fact, arguing against the more extreme versions of libertarianism, anarcho-libertarianism and the socially leftist libertarianism of the Libertarian Party. The latter is generally perceived as representing the position of libertarianism in America today because of the tendency on the part of the public to equate the Libertarian Party with the voice of libertarianism. There are, however, many small “L” libertarians who do not subscribe to all the positions of the LP. These include followers of the classical liberalism of Hayek, Tocqueville, and some of America’s Founding Fathers. Whatever we call those who have a strong belief in liberty and limited government – classical liberals, libertarians, or conservatives – there does seem to be enough commonality to form an alliance against the radical left and their fellow travelers in America. In fact, I would venture to say that most of those on the conservative right end of the political spectrum have an assortment of beliefs that combine libertarian and conservative elements. It’s only at the extreme, purist range of the spectrum that these uneasy cousins are even aware of their differences for the most part. It is only when libertarianism becomes a doctrinaire belief that isolates liberty from the other ideals of conservatism, or when conservatism downplays the importance of liberty, that the conflicts ensue. There’s also quite a bit of truth to what East and Evans have said: perhaps it was no coincidence that our free institutions arose in the West, with roots in the fertile ground of classical antiquity and biblical traditions, and synthesized in the Middle Ages into a Christian culture, before bearing fruit in the seventeenth and eighteenth centuries.

Why is this important, this fusion or alliance of conservatism and libertarianism? In the words of fellow blogger, Francis W. Porretto:

I hope to see a continuing refinement of libertarian-conservative or “fusionist” thought. I do what I can to advance it. Thomas Sowell, Walter Williams, Larry Elder, and others of greater stature than myself are also working on it, from their particular perspectives. It is the most important effort under way in political thought. Unless it succeeds, and allows us to build a single front—united on critical matters and tolerant of divergence on lesser ones—with which to oppose the statism and special-interest-propelled panderings of the Left, freedom in America is doomed. (Francis W. Porretto, “The Conservative-Libertarian Schism,” Eternity Road, November 23, 2002)

It is important because as Porretto has said, and as I have said in several previous articles, unless conservatives and libertarians can put their differences aside to oppose the statism of the left, “freedom in America is doomed.” Neither conservatives nor libertarians are strong enough to go it alone: United we stand, divide we fall. The left has all the advantages with their control of all the organs of cultural transmission: the media, the universities, the foundations, the schools. All we have going for us is the American people: their common sense, their natural conservatism, and their love of liberty.

The Conservative-Libertarian Debate: An Historical View

Part I

Following up on my recent post, “The Conservative Dilemma: Turf Wars, Fusionism or Alliance?” I re-read Freedom and Virtue: The Conservative/Libertarian Debate (George Carey, ed.), published by the Intercollegiate Studies Institute in 1984. Although as I said in the previous post, few rank-and-file conservatives really care much about Neo-Con/Paleo-Con conflicts or conservative/libertarian disagreements, as Richard Weaver has famously said “ideas [do] have consequences.” The thoughts of those who have formulated these positions do filter down to the masses through the media, journals, and books.

While anti-communism and opposition to welfare-state “liberalism” had provided the glue that held conservatives and libertarians together in the 1950s, their cohesiveness had already begun to rupture when Frank Meyer published his In Defense of Freedom: A Conservative Credo in 1962, in an attempt “to reconcile the libertarian concern for liberty with the traditionalists’ preoccupation with order and virtue” (Carey, “Introduction,” Freedom and Virtue, p. 3). The conflict in the early 1980s, as the above volume assessed the situation, was divided between traditional conservatives such as Russell Kirk and Robert Nisbet and libertarians such as Murray Rothbard and Tibor Machan, with fusionists in the middle, who, like Frank Meyer, believed in a possible melding of conservatism and libertarianism into a hybrid movement.

The Libertarians

In the 1980s, libertarians could be divided into limited government libertarians who believed in the “night watchman” state, and anarcho-libertarians, like Rothbard, who were openly hostile to all forms of government. Libertarians generally trace their intellectual ancestry back to John Stuart Mill’s famous “one very simple principle” from On Liberty (1869), where he stated:

That principle is, that the sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection. That the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.

Both Machan and Rothbard hold that libertarianism is primarily a political doctrine (Machan, “Libertarianism: The Principle of Liberty,” Freedom and Virtue, p. 37): “a political philosophy, confined to what the use of violence should be in social life” (Rothbard, Freedom and Virtue, p. 96). Libertarians are in principle opposed to state coercion of individual behavior unless it is preventative of violence against others. This does not include any right of the state to intrude upon the commission of so-called “victimless” crimes, such as prostitution and drug abuse. Both Machan and John Hospers take a more moderate approach. For example, Machan raises the issue of moral standards and social ethics: If the libertarian is against government coercion to prevent behavior he considers to be wrong, degrading, or vicious, does that mean that he tacitly approves of such behavior? While arguing against state coercion or legal sanctions against such behavior, Machan advocates: “voluntary approaches” including “ostracism, rebuke, boycott,” as societal means of delimiting antisocial behavior (Machan, op. cit. p. 45).

Hospers’ approach is rather conciliatory towards conservatives, and one might say, open to “fusion.” He notes “numerous gray areas” in the application of what has been called the “non-aggression principle.” For example, while generally in favor of drug legalization, Hospers offers that “PCP can turn one into a madman, a danger to everyone in the vicinity” (“Differences of Theory and Strategy,” Freedom and Virtue, p. 60). One wonders what he might think of the current methamphetamine epidemic, a drug which also has the potential to turn one into a violent madman. Significantly, Hospers also raises the issue of those actions that give offense to others: “[I]s there also a right not to be offended?” he asks ((Ibid. p. 61). As political correctness has become the religion of our current establishment, there are now legal sanctions (hate crimes) against giving offense to members of designated victim groups, not to mention the careers that are ruined if even a hint of bigotry is unearthed from a person’s past.

One of the greatest weaknesses of modern libertarianism is in the area of foreign policy, where libertarian options range from defensive wars only to the anarcho-libertarian solutions of private armies or no defense at all. Hospers is critical of libertarian theories of foreign policy, arguing that “many libertarians hid their heads in the sand in matters of foreign policy” (Ibid., p. 67). For example, he criticized libertarians for conveniently underplaying the threat of communism and the Soviet Union, and for actually aiding the process of Soviet “disinformation” perpetuated in the American news media.

In the 1980s, Rothbard presented the most extreme version of libertarianism. In “Frank S. Meyer: The Fusionist as Libertarian Manqué,” Rothbard takes the position that Meyer was basically a libertarian who was conciliatory towards conservatives due to the expediency of putting together a political movement. Rothbard observed that Meyer, like other libertarians, believed that “to be virtuous in any meaningful sense, a man’s action must be free”: “no action can be virtuous unless it is freely chosen” (Ibid., pp. 92 – 93). And while individual freedom was the necessary and highest political end, it was not “the highest end of man per se” (Ibid., p. 95). Thus, Rothbard’s response to conservatives who accused him of holding individual freedom to be the highest value was that he did not (nor did Machan or Hospers): Libertarianism was a political philosophy only that held that freedom of choice was a necessary condition for a moral life and a good society, but it was not a philosophy of life or an end in itself.

Although Rothbard had an antagonistic relationship with traditional conservatives such as Russell Kirk, whose contribution to the above volume, “Libertarians: The Chirping Sectaries,” was dismissive of Rothbard’s view, in the late 1980s Rothbard reconciled with some of the younger members of the new Paleo-Conservative movement, such as Thomas Fleming, editor of Chronicles magazine. This occurred after Rothbard had a falling out with the more establishment (or left leaning) libertarians of the Cato Institute and the Libertarian Party. At some point in the early 1990s, he actually supported the Republican Party. Rothbard died in 1995 leaving leadership of his organization, the Ludwig von Mises Institute, to his associate, Lew Rockwell. In January 2008, Paul Kirchick of The New Republic wrote a piece, “Angry White Men,” exposing the so-called bigoted past of Ron Paul, in which a newsletter with Paul’s byline made some derogatory statements about black Americans, including Martin Luther King. As it turns out, Rockwell was reputed to have been the author of those letters, so after both he and Paul performed their necessary mea culpas to the altar of political correctness, Rockwell is reported to have abandoned Paleo-Libertarianism “the once-promising intellectual movement that stayed true to libertarian principles while opposing open borders, libertinism, egalitarianism, and political correctness” (see Arthur Pendleton, “Lew Rockwell and the Strange Death of Paleolibertarianism,” vdare.com, May 14, 2008).

Next Week: The Conservatives, and Conservative-Libertarian Fusionism