Monday, September 20, 2010

The Excommunicated Neoliberal: Henry Simons' Proposal - The Broad Outline

This post will be the first of a series that sets forth Henry Simons' proposal set forth in his 1934 essay A Positive Program for Laissez-Faire, which Hayek initially praised.  As discussed in Chapter 4 of The Road from Mont Pelerin, Henry Simons played a significant role in founding the modern neoliberal movement.  Simons ultimately was deemed a social democrat by the neoliberal establishment.

Simons' proposal is important because it establishes an example of legitimate "neoliberal" thought at the time the movement was founded and, thus, provides a benchmark for understanding how and why neoliberalism morphed from an attempt to reform classical liberalism into an entirely different animal.

Without further ado, here is Simons' proposal as he outlined it:
The main elements in a sound liberal program may be defined in terms of five proposals or objectives (in a descending scale of importance):

  • Elimination of private monopoly in all its forms
    • Through drastic measures for establishing and maintaining effectively competitive conditions in all industries where competition can function as a regulative agency (as a means for insuring effective utilization of resources and for preventing exploitation), and
    • Through gradual transition to direct government ownership and operation in the case of all industries where competition cannot be made to function effectively as an agency of control
  • Establishment of more definite and adequate "rules of the game" with resepect to money, through
    • Abolition of private deposit banking on the basis of fraction reserves
    • Establishment of a completely homogeneous, national circulating medium, and
    • Creation of a system sunder which a federal monetary authority has a direct and inescapable responsibility for controlling (not with broad discretionary powers, but under simple, definite rules laid down in legislation) the quantity (or, through quantity, the value) of effective money
  • Drastic change in our whole tax system, with regard primarily for the effects of taxation upon the distribution of wealth and income
  • Gradual withdrawal of the the enormous differential subsidies implicit in our present tariff system
  • Limitation upon the squandering of our resources in advertising and selling activities
The case for a liberal-conservative policy must stand or fall on the first proposal, abolition of private monopoly; for it is the sine qua non of any such policy.  Reasonable differences of opinion may appear as to methods; but there can be no intelligent dispute among liberals and conservatives, as to the objective