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Commentary :: Social Welfare
From Enlightenment to Counter-Enlightenment
10 Jun 2019
Brilliant minds elevated "the market" into a "higher being" of the post-modern age to which we must submit. The primacy of the market replaced the primacy of politics. Dr. Schulmeister is an economic researcher in Vienna whose latest book is "The Road to Prosperity" (2019).

Brilliant minds elevated "the market" into a "higher being" of the postmodern age to which we must submit. The primacy of the market replaced the primacy of politics. A little contribution to the "new Enlightenment"

By Stephan Schulmeister

[This article published on August 31, 2016, is translated from the German on the Internet, Stephan Schulmeister is an Austrian economic researcher and author of many articles and books critical of mainstream economics. His latest book is "The Road to Prosperity" (2019) that alludes to Hayek's "The Road to Bondage."]

"Enlightenment is the exodus of people from their underage existence of their own making," Kant said. While the theories of Hume, Smith, Kant, Rousseau, Ricardo, Mill, Marx and Keynes are very different, they had a common goal: emancipating people from "higher beings" and their earthly representatives.

Struggling for basic rights through the middle-class revolutions and for the social state through the workers' movement are the most important examples of the emancipation process. A comparison of the workers' situation in the 1970s and the 1870s shows what people can do when they understand themselves as enlightened and solidarity subjects of history.

Today, four decades later, we all must adjust to the new "higher being," "the markets" (mostly the financial markets). "They" demand "structural reforms"; "they" act as judges, punish Greece and reward Germany. "They" live out their feelings on stock exchanges - today friendly, tomorrow euphoric and depressed the day after tomorrow.

Subjects to which we have to submit came out of markets as our (useful) instruments. The "primacy of the market" arose out of the "primacy of politics." How does this unique counter-enlightenment manifest?


This counter-enlightenment began in the 1940s. The success of "General theory" by Keynes (1936) inflicted a grave setback on his adversary Hayek. Hayek knew the heyday of Keynesianism and the welfare state was approaching. Hayek did not give up but devised a great plan: anchoring the principles of liberalism even if it took two to three generations (his estimate) because Keynesianism and the welfare state would lead to "serfdom." The first step of Hayek's plan was his book "The Road to Serfdom" (1944). His basic thesis was that "the development of culture was possible in that people submitted in the past to the impersonal powers of the market." He urged "humility before the market."

The last sentences of "General Theory" stimulated him: "The ideas of economists are more powerful than people usually think. In fact, the world is ruled by nothing else. Persons with practical intelligence are mostly slaves of some faded economists." Hayek and Friedman are faded today but the European elites are still their ideological slaves.

Hayek's model was the anchoring of socialist ideas in the heads of intellectuals by the Fabian Society. His second step was founding the Mont-Pelerin-Society (1947), a network of "original thinkers" (including later Nobel Prize winners like Hayek, Friedman etc), wealthy businessmen and important journalists. The neoliberal "counter-reformation" was prepared - very informally - in its framework.

The third step consisted in the production of anti-Keynesian theories. The thesis that harmful financial speculation was impossible (Friedman, 1953), that politicians only act selfishly ("Public Choice" by Buchanan, Becker, Stigler, 1960), that the market was more efficient than the state regarding "social costs" and environmental pollution (Coase 1960), that the 1930s Depression was caused by (monetary-) policy and not by the stock exchange crash and the austerity policy (Friedman, Schwartz 1963) and that full employment policy is senseless and only inflation increases (Friedman 1968).


The diligence of neoliberals (as they call themselves) is so admirable because they were smiled at condescendingly or ignored by the mainstreams of self-assured Keynesians in these 20 years. The heirs of the workers' movement believed they reached their goals. So Kreisky made fun of Hayek and Co. in the 1970s. Austria did well because we "exported" these economists. They all did not get the message what a brilliantly executed attack occurred (to represent wrong as right, more astuteness was needed to represent what was really true). The fourth step consisted of founding think tanks linked globally by the Atlas Network since 1981. Now there are 451 "free market organizations" in 45 countries.

In the times of the Cold War, neoliberals defined the term freedom and always understood freedom negatively as freedom from (state) coercion. The young today are much less free than 40 years ago if one considers the positive side, freedom as development chances.
The political realization of the counter-enlightenment began with the ending of fixed exchange rates demanded by neoliberals. OPEC reacted to two dollar devaluations with two oil-price shocks. Two recessions, higher unemployment, and higher state indebtedness followed. Neoliberals applied their pre-fabricated theories. The social state had to be dismantled. Wages had to be cut and the financial markets "un-fettered." All this happened "step by step" and led Europe into depression after the 2008 financial crisis.

Business (representatives) adopted neoliberalism as "their" ideology. Neoliberalism actually serves the interests of finance capital, not real capital. The sorcerer's apprentice syndrome strengthens the learned resistance of the elites today.

The situation of Keynesians in the 1980as resembled the situation of neoliberals 40 years before. To Thatcher and Reagan, it was clear the social state was finished. Neoliberals preached individualism but acted collectively. On the other hand, "critical" economists played solitaire.


A doctor whose therapy causes sicknesses cannot understand this. Therefore our elites are in great distress and urge more market and more counter-enlightenment. They no longer believe Europe can lead out of the crisis. What will happen? The intellectual achievers may make the effort to decontaminate the rubbish of the counter-enlightenment from their heads instead of ruminating about a new Enlightenment. This rubbish is the breeding ground of rightwing seducers. To the neoliberal person as only an individual, selfish, rational and competing being, they present their person in the social warmth of national communities, in demarcation from those who are different.


By Stephan Schulmeister

[These theses published in the Vienna Institute for International Dialogue and Cooperation news 14.2010 are translated from the German on the Internet, Stephan Schulmeister is an economic researcher in Vienna. The transition from finance- to a real capitalist economic system began with the "great crisis." This will last years. Finance capitalism increasingly dominant in the last 30 years is full of speculative bubbles and extensive crises based on "money out of thin air" and "letting money work."]
Problems don't disappear when when they are ignored. Deregulation is a collective and political crisis. Language and democracy are endangered when arsonists are called firefighters, when private losses are made into public losses and when crime in the suites is normalized as a business model. Risk-takers and job-creators turn out to be manipulators and fraudsters and public spirit falls by the wayside.

Thesis 1: The great crisis ushered in the slow collapse of finance capitalism. This form of the market economy has spread since the 1970s. The capitalist "nuclear energy," the pursuit of profit, concentrated most strongly on finance-assessment and -speculation (in the real capitalism of the 1950s and 1960s it could only develop in the real economy).

Thesis 2: The breeding ground of finance capitalism is the neoliberal worldview. The task of stable exchange rates together with dollar devaluation, oil price shock, recession and high inflation in the 107-s and their control through a high interest policy along with deregulation of the financial markets and the boom of financial innovations (derivatives) in the 1980s - all this was based on neoliberal recommendations. Economic growth was cut in two; unemployment and state indebtedness soared.

Thesis 3: Neoliberalism uses the problems it creates for the further implementation of its demands. With the state indebtedness, austerity policy and (as a result) the weakening of the social state were justified and with unemployment the deregulation of labor relations, atypical jobs and lower unemployment benefits. Both developments dampen economic growth and increase inequality.

Thesis 4: The neoliberal (reform) policy strengthens the mentality of "let our money work," particularly through promotion of capital "covered," market-based old age provisions as a main goal of politics. This gained the day through the "art of trading" and through fixation on the stock exchange as the lever of the economy. All this promoted a financial boom since the 1990s.

Thesis 5: With the boom on the stock-, raw materials-, currency- and real estate markets, financial assets were created without any real economic cover. The potential for the great crisis was built. That crisis detonated from 2007 through the simultaneous devaluation of stock-, raw materials- and real estate assets. Demand and production collapsed.

Thesis 6: Politics only fought the symptoms of the great crisis with bank- and economic packages while its systemic causes remain untouched. Even worse, the "financial chemistry" booms more than ever, whether through speculation on state bankruptcy, higher raw material prices or euro devaluation. All this was legitimated by the neoliberalism. Thus it cannot be seen by the elites as a cause of the crisis ("sorcerer's apprentice syndrome").

Thesis 7: For over three decades the conversion of neoliberal recommendations has increased unemployment, state indebtedness and poverty, weakened the social state and built up the potential for the great crisis. Now the elites urge those therapies that are part of the sickness: reducing social spending, further privatizations, sparing financial assets and no consolidation help of the wealthy.

Thesis 8: The hardest phase of the great crisis is ahead of us, not behind us. All the sectors try to safeguard their positions through spending cuts - amid recently falling stock prices, higher unemployment, empty state treasuries, EU-wide austerity policy and unstable exchange rates and raw material prices: businesspersons, households, foreign countries and the state. This is material for a crisis lasting several years.

Thesis 9: In such a situation, the state must give long-term impulses to the real economy while simultaneously stabilizing its financial position. There is only one way to do that: "demanding significant consolidation help from the highest incomes, particularly the owners of mammoth financial assets for economic reasons. The "rich" react to (slight) income losses with a restriction of their savings (unlike recipients of welfare benefits), not with a restriction of their consumption. With these funds, an expansive overall strategy could be financed that fights state indebtedness, unemployment, social inequality and climate change "as a whole."

Thesis 10: Such a strategy would join the ("real capitalist") tradition of the social market economy. It would strengthen the cooperation between businesses and unions, put the "financial chemists" in their place and make possible the transition to a real capitalist system where the interests of labor and real capital have priority over the interests of finance capital (8/18/2010).

I described the most important components of this strategy in a compact book "New Deal for Europe - in the Great Crisis" (Picus Verlag publisher, 9.90 E).


Depression as a Consequence - Implosion of Finance Capitalism

[This interview published in: Erziehung und Wissenschaft 1/2012 is translated from the German on the Internet. Stephan Schulmeister is an economics researcher in Vienna. His latest book is "New Deal in Europe in the Great Crisis."]

What are the systemic causes of the Euro crisis? What ideas, developments and political decisions produced the crisis?

The Euro crisis represents the latest stage in the process of the implosion of finance capitalism. This form of the market economy dominant for 30 years shifts the pursuit of profit from the real economy to financial investment and speculation (the pursuit of gain could only be realized in the real economy in the real-capitalist prosperity phase of the 1950s and 1960s). The systemic under-performance of business activity compared to "financial chemistry" generated increasing financial assets without a real-economic background - from over-rated stocks, currencies and raw materials to government bonds. The devaluation of "fictional capital" (Karl Marx) in the course of grave financial crisis (1873ff, 1929ff, 2007ff) ushers in the transition to the depressive phase of the "long cycle" (from 1873 to 1890, from 1929 to 1948 and from 2007 to ???).

Let us sum up the last cycle (1929 to 1948). Finance capitalist euphoria in the 1920s led to a stock boom. The 1929 stock market crash triggered a recession that deepened to a depression for three reasons. Firstly, real estate- and raw material assets were massively devalued, not only stock assets. Secondly, the economic theory of "Laissez-faire" - dominant in finance capitalist phases - encouraged politicians to react to the downhill state finances with austerity policy. Thirdly, countries waged an economic war against each other according to the motto "Save yourself if you can" (especially through currency devaluations).

The consequences of the world economic crisis were so devastating that politics has learned profoundly from the crisis. A new economic theory developed (Keynesianism). A social market economy arose. The pursuit of profit could only be realized in the real economy. Stable exchange rates, stable raw material prices and interest rates below the growth rate were crucial for the success of this model. The result was the so-called economic miracle.


However the real-capitalist "game plan" ultimately broke down in its success. Permanent full employment required an offensive of the unions, particularly in Italy, France and Great Britain. This necessitated redistribution and joint determination and was partly carried out through a massive expansion of strikes. The year 1968 made the rich distraught... The status quo could not continue from their perspective.

The hour of the Renaissance of "Laissez-faire" had come. The theories of the neoliberal "master minds" Milton Friedman and Friedrich A. von Hayek demanded the dethronement of the unions and dismantling the welfare state. These demands became "historically powerful" through the liberalization of the financial markets demanded by neoliberal economists, above all by abandoning stable exchange rates and low interest rates.


Finance capitalism established itself. At the same time economic performance deteriorated:

• Two dollar-devaluations led to two "oil price shocks" (1973 and 1979) that triggered the first two "synchronous" recessions in industrial countries.

• The inflation that rose considerably through the "oil price shock" was fought primarily through a high interest policy at the beginning of the 1980s. Since then the interest rate has been nearly always above the growth rate.

• The development of countless financial derivatives facilitated the speculation that destabilized exchange rates, raw material prices and interest rates.

• Businesses shifted their activities from real to financial investments. Economic growth fell while unemployment and state indebtedness increased.

• Austerity policy since the beginning of the 1990s (Maastricht) put a damper on the growth dynamic while the stock exchanges boomed.

The (self-) destructive forces of finance capitalism detonated in a "quake," the stock market crash of 2000/2003. Its systemic cause, destabilizing speculation on the "freest" markets, could not be seen with "neoliberal glasses."

The final heyday of finance capitalism began afterwards. Stocks, real estate and raw materials boomed and a threefold crash potential developed that first activated real estate and then stock and raw material prices in 2007. From the summer of 2008, these three most important kinds of assets have been simultaneously devalued (for the first time since 1929)... Businesses and households limit their demand and the state deficit increases. Public funds are made available for bank bailouts and economic stabilization.


The state debts grew most intensely in countries where a real estate bubble burst (Ireland, Great Britain and Spain) or the budget deficits were already high before the crisis (Greece and Portugal). The professional "investors" exploited this situation. Speculation with "credit default swaps" increased the loan interests dramatically to 17 percent in Greece and twelve percent in Ireland and Portugal. The interest-epidemic forced the Euro-bailout umbrella. Its help is tied to strict austerity. The afflicted countries shrivel or stagnate the more savings is ordered. As a consequence, bond interests climb higher and the epidemic now seizes Spain and Italy. At the same time leading EU actors reinterpret the finance capitalism crisis as a state-debt crisis.

Germany along with France, Holland and Austria profit from speculation against weak Euro states. An "interest-seesaw" develops. The greater the interest burden of the "miserable" states, the less the burden on the "brave" states. The division within the EU expands: Germany refuses communal solutions like Euro-bonds because the disciplinary effect of the "market" would be cancelled.


Market religiosity is anchored more firmly in Germany than in any other EU country. Germany profits most from speculation against the southern countries.

In the last weeks, the interest-epidemic has dramatically strengthened, also for France, Holland and Austria. Loan interests clearly increased. Germany sits on one side of the seesaw with the rest of the EU on the other side. The economy of the EU countries is simultaneously on the way into recession. This recession will intensify into a "mild" depression lasting several years (businesses, households and the state will reduce their demand). This time Germany acts only as an economic disciplinarian and will be rewarded with interest-rebates "by the mark." On the other hand the situation in other countries worsens through higher interests. In short, we again stand at the beginning of a depressive phase of the "long cycle." Fighting a system crisis caused by the neoliberal ideology with means of neoliberal symptom therapy would destroy many things in Europe.

The German politicians who have to answer for this are convinced Europeans. They mean well. But whoever navigates with a wrong map steers the ship like a mad man.
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