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Wednesday, December 27, 2023

Reflections on the 2023 Annual Meeting of the Mont Pelerin Society

The conference covered a range of topics, from money to foreign relations to inequality. Here are some of the highlights.

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The Mont Pelerin Society held its 2023 annual meeting at the same venue as the historic 1944 Bretton Woods international monetary conference, the Mount Washington Resort in Bretton Woods, New Hampshire. The conference was held from October 29 to November 1 and I was privileged to attend.

The Mont Pelerin Society was named after the location of its initial meeting in April 1947, the mountain village of Mont Pelerin in Switzerland overlooking Lake Geneva. The original impetus and founder of the group was Austrian-born British economist Friedrich Hayek, who would later win the Nobel Prize in Economic Sciences in 1974. He was concerned about the advance of socialism and totalitarian regimes around the world and the challenge of restoring classical Western principles of human freedom following the end of World War II in 1945. This compelled him to recruit like-minded intellectuals for creating an international group to revive and propagate those principles of freedom.

The first meeting occurred over the course of ten days, April 1-10, 1947, and included 39 participants from 10 countries. In addition to Hayek, other attendees included acclaimed free-market economists Ludwig von Mises and Milton Friedman. Hayek served as the president of the Mont Pelerin Society until 1961 and the Society has held annual meetings almost continuously since then, always in different international locations.

The Mont Pelerin Society’s 2023 annual meeting at Bretton Woods hosted over 30 acclaimed featured speakers covering a wide range of topics, such as economic policy, monetary policy, international trade, foreign policy strategy, classical libertarian philosophy, etc. The conference included 21 panel discussions and four keynote dinner speeches. The American Institute for Economic Research (AIER) did a superb job in organizing the meeting on behalf of the Society.

Some of the most noteworthy speakers included former U.S. Senator and economics advisor/writer, Phil Gramm; former President of the World Bank, David Malpass; economics professor Douglas Irwin of Dartmouth College; former President of the Federal Reserve Bank of Kansas City, Thomas Hoenig; monetary economists Judy Shelton of the Independent Institute and Lawrence White of George Mason University; and foreign policy scholar John Mearsheimer of the University of Chicago.

In an attempt to provide a wide-ranging, high-level sampling of the many great discussions held at the conference, the following provides summaries of two panel discussions and two keynote speeches that I found particularly insightful and relevant to today’s important public policy issues.

Gold, Exchange Rates, and Monetary Systems

In this panel session, Judy Shelton discussed her upcoming new book scheduled for release in August 2024, Good as Gold: How to Unleash the Power of Sound Money. She argues that the United States and other countries flourished under a gold-based monetary system throughout the 19th century and much of the 20th century until President Richard Nixon ended the U.S. dollar’s convertibility to gold with other countries, thereby establishing an international floating exchange rate system based on fiat money, i.e. currencies not backed by any physical commodity. Dr. Shelton believes a fiat monetary system under the control of central bankers and government officials is inherently inflationary, because it can be manipulated and inflated without the discipline of any kind of commodity (gold) backing the money. Thus, fiat money is not inherently sound money or a reliable store of value.

For the above reason, Dr. Shelton proposes a return to some form of a gold-based international monetary system. One of the interesting ideas that she proposes as a means of reintroducing gold into the international monetary system is the creation of a new U.S. Treasury Trust Bond that would be convertible into gold, collateralized by official U.S. gold reserves.

Professor Lawrence White shares many of the same ideas on monetary policy as Dr. Shelton. He is a staunch proponent of allowing the free market to determine monetary systems and the types of money used in economic activity. He argues that an international monetary system based on gold or silver has the following merits: (1) It is apolitical, i.e. not dependent on government central banks or treasuries to issue; (2) it is not dependent on risks that may be associated with an issuer’s solvency, activities, or reputation; (3) stable store of purchasing power value; and (4) allows free cross-border, international banking.

Professor White concludes that in order to restore classical free market ideals, we need to begin considering fundamental reforms in money and banking. These reforms include consideration for the abolition of central banks and government-issued money, i.e. allowing the free market to determine the types of money and banking used in economic activity. The abolition of central banking is now being considered in Argentina after years of hyper-inflation. Professor White’s ideas are further explained in detail in his recent book published in March 2023, Better Money: Gold, Fiat, or Bitcoin.

International Relations From the Cold War To Present

This panel discussion featured three foreign policy scholars with differing views on a grand strategy for U.S. foreign policy. The scholars presenting their views included the aforementioned Professor John Mearsheimer of the University of Chicago, Professor Eugene Gholz of the University of Notre Dame, and Ambassador John Herbst of the Atlantic Council. This was one of the most interesting discussions in the entire conference.

Professor Mearsheimer is renowned for developing the international relations theory of “offensive realism,” which is an extension on the dominant “realism” school of thought in international relations. The realism school of thought holds that international relations around the world lack a central authority and are therefore centered on the decision-making of individual nation-states continually seeking to protect their own self interests in competition with other nation-states. Mearsheimer’s offensive realism accepts some fundamental assumptions of realism, but postulates that nation-states are also inherently power-maximizers concerned with the global balance of power and therefore prone to act in an aggressive, or “offensive,” manner in order to further national self-interest at the expense of other nation-states and within a perceived desired balance of power among nation-states.

In contrast to Professor Mearsheimer’s offensive realism views, Professor Eugene Gholz is a proponent of the “defensive” realism school of thought in international relations. The defensive realism theory postulates that nation-states inherently act in a safe, reserved, or “defensive” manner to avoid conflict with other nation-states and ensure national safety and security. Professor Gholz is also very critical of the United States’ support of Ukraine in its war with Russia. He believes that the United States should be working with other nation-states to achieve a diplomatic solution between Ukraine and Russia rather than an open-ended commitment to supporting Ukraine.

Ambassador John Herbst, a former U.S. Ambassador to Ukraine from 2003 to 2006 and Uzbekistan from 2000 to 2003, has written extensively on Central Asia, Ukraine, and Russia. His ideas on U.S. foreign policy are far different than those of either professors Mearsheimer and Gholz. He has been an advocate of aggressive global interventionism that is dominant in the U.S. foreign policy establishment in Washington. His views are particularly contrary to Mearsheimer and Gholz with respect to the Russia-Ukraine War. Ambassador Herbst has consistently advocated a strong and unwavering U.S. commitment to assist Ukraine in the defeat of Russia on the battlefield and the restoration of Ukrainian control over land lost to Russia in eastern Ukraine.

The Myth of American Inequality

Former U.S. Senator and economics professor Phil Gramm gave a keynote speech on his book, The Myth of American Inequality: How Government Biases Policy Debate, published in September 2022 with co-authors Robert Ekelund and John Early. Senator Gramm’s talk was an eye-opener as it exposed the extraordinary misinformation widely spread by progressive academics, politicians, and the media about American income inequality.

Senator Gramm methodically described how U.S. government data has been used to grossly distort the differences between the top and bottom income earners in the United States. For example, based on basic income data from the U.S. Census Bureau in 2017, the average income of the top and bottom quintiles of American income earners was $221,846 and $13,258, respectively. This calculates to the average income of the top quintile of income earners being 16.7 times greater than the bottom quintile — a massive disparity that provided seemingly credible ammunition for progressives arguing for redistribution of income policies.

But not so fast, progressives. Senator Gramm explained that additional data are needed to properly reflect the reality of income between the top and bottom quintiles of American income earners. These additional data include the massive amount of government transfer payments to the bottom quintile and the income taxes paid by the top quintile. After including the net effect of government transfer payments received and income taxes paid, the adjusted average income of the top and bottom quintiles amounts to $197,034 and $49,613, respectively. This adjustment dramatically reduces the disparity between the top quintile and the bottom quintile of American income earners from 16.7 to 4.0 — an enormous difference that discredits progressives’ case for more income redistribution.

Senator Gramm also highlighted the gross misrepresentation of the American poverty rate based on faulty U.S. Census Bureau data. Based on the Bureau’s 2017 data, the poverty rate in the United States calculates to 12.3 percent. However, the poverty rate is enormously overstated, because it does not properly account for all government transfer payments received by lower-income Americans. When an adjustment is made to properly reflect government transfer payments, the calculated poverty rate drops from 12.3 percent to only 2.5 percent. This adjustment to properly reflect the true American poverty rate also discredits the case for more income redistribution policies.

The Crisis Facing Development

Former President of the World Bank, David Malpass, delivered a keynote speech on the monetary and fiscal policy crisis facing global economic development. President Malpass focused his talk on two primary topics: (1) The Federal Reserve’s misguided policies and need to change direction; and (2) the dangers of extended periods of slow economic growth in developing countries and the need to restore free market economic policies around the world.

President Malpass was highly critical of Federal Reserve policies in recent years. He explained that the Federal Reserve has expanded its authority into three new policy areas since the 2008-09 financial crisis, which include (1) borrowing excess reserves from commercial banks; (2) buying and holding U.S. Treasury bonds and mortgage-backed securities; and (3) implementing broad new regulatory authority with little notice. He characterizes the Federal Reserve’s expanded authority as “post-Monetarism,” meaning that the Federal Reserve has shifted from a monetary policy framework to a regulatory policy framework. He believes this negatively affects U.S. dollar stability.

President Malpass emphasized that the Federal Reserve needs to refocus on its legal mandate of attaining maximum employment and price stability. He explained that the Federal Reserve is on a dangerous path of unsound management of its own balance sheet by borrowing short and investing long. This asset-liability mismatch leads to uncertainty in the future value of the U.S. dollar, which leads to high-risk dollar substitutes, i.e. crypto currencies. He also advocates that the Federal Reserve reverse its recent trend of heavy regulatory involvement in the economy.

He expressed concern over the current U.S. national debt of over $33 trillion and remarked that the current path of deficit spending with an ever-increasing national debt projected to reach 200 percent of national GDP is unsustainable. He believes that the current debt-limit law is badly flawed and needs to be repealed and replaced with a new debt-limit law that is based on the national debt to national GDP ratio that would mandate spending cuts if the ratio exceeds a certain limit.

President Malpass concluded his remarks with an additional concern over slow global economic growth and its particularly negative effect on developing countries. Advanced economies are absorbing more capital with higher interest rates on massive debt levels along with growing entitlement spending on aging populations. For the less developed countries, access to global capital is increasingly difficult as their populations and resource needs for infrastructure grow. But President Malpass believes these concerns can be addressed if governments around the world can begin restraining their spending to lower their debt burdens, reduce regulations, and allow markets to work freely to restore market-based capital flows.

Concluding Thoughts

The Mont Pelerin Society is not well-known by the general public, mostly because it is specifically intended for scholars and policy makers committed to the exchange of ideas on the preservation and advancement of free markets and free societies around the world. The Society already has its next two annual conferences planned with the 2024 and 2025 conferences to be held in New Delhi, India, and Marrakech, Morocco, respectively. More information on the Society and its criteria for membership are provided on the Society’s website.

This article originally appeared in The American Spectator.