Before assuming the dimensions of a veritable politico-institutional system, neoliberalism was an ambitious project for renewing liberalism, conceived prior to the Second World War. From project to institutional system, the story is certainly not one of sheer continuity: a number of elements in the original project were marginalized, or even abandoned, en route, so that the system cannot be understood as the integral, faithful realization of the project or even as its wayward implementation. However, one thing is certain: at the heart of the project from the outset has been a fundamental anti-democratism. It derives from a determination to shield the rules of the market from the policy orientation of governments, by consecrating them as inviolable rules incumbent upon any government, whatever its electoral majority. The most remarkable thing is that this principled hostility towards democracy is readily justified, at least by certain neoliberal dogmatists, through a particular idea of ‘democracy’.
Thus, at the height of the Greek crisis, some political leaders were to be heard solemnly recalling that democracy consisted in a government with an electoral majority honouring its commitments to European and international institutions, whatever the cost. At the same time, however, democracy was invoked ‘to construct an identity between citizens and government’, rendering the former jointly responsible for the debts contracted by the latter.1 Thus the same notion – democracy – has served to assert both the responsibility of citizens for the rulers elected by them and the responsibility of those rulers to institutions that no one has elected. In both instances, what is spirited away is the rulers’ responsibility to their own electorate – and this exclusively in favour of the responsibility of citizen-voters and their rulers to unelected institutions. We might wonder whether such developments, over and above the particular political context they occur in, do not involve a singular conception of democracy, sponsored by the neoliberal project. So today it is important to briefly revisit the substance of that project. For, while the latter was profoundly hostile to democracy from the outset, the neoliberal institutional system as it functions today is an inflexible, methodical system for hollowing out democracy, and by no means an original, unprecedented form of democracy, as some would have us believe.
The ‘democracy’ attacked by neoliberalism is only very distantly related to the original sense of the word: power exercised by the mass of the poor. It is mostly a particular combination of a method for selecting rulers and a policy of redistribution in favour of the impoverished – a combination that became established after the war, under the rubric of the ‘welfare state’ or ‘social state’. By ‘democracy’ we mean ‘a regime which, in the name of its citizens, deploys public authority to modify the distribution of economic goods resulting from market forces’.2 While there is ‘participation’, it involves citizens not in exercising power, but, much more narrowly, in selecting their leaders. In the view of supporters of this type of state, the choice in itself matters less than the social purpose of government intervention. Elected by a popular majority, leaders must govern in favour of that majority and its interests, which authorizes them to intervene in the name of social justice to rectify inequalities created by the market. The state’s capacity to guarantee social rights emerges as the foundation of democracy understood as ‘social democracy’ or ‘mass democracy’.
In complete contrast, a neoliberal like Friedrich Hayek immediately reduces ‘democracy’ to a technical procedure for appointing rulers: the latter are chosen by a majority of citizens and not imposed in authoritarian fashion. This reduction radically devalues democracy by denying it any substantive content. Far from representing a good in itself, it is nothing but a method or procedure that might very well be employed for perverse ends.3 At issue here is the refusal to identify democracy with ‘popular sovereignty’, understood not as the direct exercise of legislative power by the people, but as the promotion of the will of the people to the rank of sole source of legitimacy for the rulers’ activity. Very precisely targeted in that phrase is the ‘absolute power’ that the electoral majority is alleged to possess over the minority by dint of its direct influence upon rulers. In practice, therefore, ‘popular sovereignty’ must necessarily mean the rulers’ submission to the will of the majority, if only via the control exercised over them by the majority’s representatives in parliament.
In truth, this is not a completely new argument. It was developed by one of the founders of neoliberalism – the American journalist Walter Lippmann – in his writings on public opinion, well before the 1938 colloquium that would bear his name. According to him, the weakness and instability of democracies consisted in the fact that rulers regarded themselves as bound to follow majority opinion. To remedy this, instead of allowing them to dictate their conduct, the people’s power over the choice of rulers must be restricted. Intent on systematizing the matter, Hayek went so far as to impugn the very logic of representation as it operates in the case of the legislature. With the majority’s representatives making laws exclusively in its interests, the minority is oppressed by the majority via ‘the omnipotence of the legislative power’. We are thus at the antipodes of John Locke, who made legislative power the ‘supreme power’.4 For Hayek, such power is the sign of an ‘unlimited democracy’ liable to degenerate into ‘totalitarian democracy’. The conventional contrast between ‘democracy’ and ‘totalitarianism’ is thus negated in principle: the origin – popular choice – by no means guarantees a proper use of the power thereby conferred, for proper use depends chiefly on limiting the rulers’ sphere of activity. We can see that this critique derives from a visceral mistrust of representative democracy – the very form favoured by classical liberalism. It is ultimately a matter of assigning non-negotiable limits to representative democracy itself.
The real issue is determining the nature of these limits. They are rules of law that apply first and foremost because of their generality. We need only revisit the inaugural moment of the Lippmann Colloquium to see that the assertion of the pre-eminence of legal rules over the government was widely shared by supporters of the re-foundation of liberalism. In fact, an analogy between such rules and the highway code was taken up by several neoliberal thinkers, from Louis Rougier via Lippman to Hayek.5 But the analogy is too rarely examined in its own right. Since the function of the highway code is to regulate the circulation of traffic on roads, it would be absurd to alter it every four or five years on the pretext of improving it. This is because the stability of the rules is essential to the code’s operation. If they changed periodically according to traffic conditions, drivers would be unable to orient themselves in advance, which would create chaos. The same must apply to the rules of law that are to be imposed on all governments, regardless of electoral outcomes. Constituting literal ‘rules of conduct’ for individuals, they must therefore apply to everyone in all circumstances.
But what sort of rules of law are we talking about? There can be no objection to a simple reminder of the state’s obligation to respect basic human rights – except that this reference to ‘human rights’ does not fit the bill. For the legal rules whose pre-eminence is asserted by neoliberalism are exclusively the rules of private law or criminal law. Such law has validity only in the sphere of private property and market exchange, where contracts assert their particular logic. The generality of legal rules is therefore not purely formal. As Hayek himself put it, ‘for [the market] to function properly, it is not sufficient that the rules of law under which it operates be general rules, but their content must be such that the market will work tolerably well’.6 That is why the rules of private law are fundamentally different from the rules of public law defining the specific organization of the state. According to Hayek once again, ‘the private individual can be coerced only to obey rules of private and criminal law.’7 A fundamental consequence is that the only coercion which the state can legitimately exercise is compelling individuals to respect the rules of private law. But it is difficult to see how the state could perform this role save by showing an example – in other words, imposing those rules on itself, so that ‘government should be under the same rules as every private citizen.’8 While the state is not straightforwardly equated with a private individual, it has to conduct itself like a private person by applying to itself the rules it imposes on private individuals. We thus obtain the neoliberal conception of the Rechtsstaat or ‘rule of law’: defined not by an obligation to respect human rights in general,9 but by the a priori limit imposed by private law on any legislation and any government.
But how are the rules of private law to be elevated above legislature and executive? In modern Western legal thought, as it has developed since the eighteenth century, it has fallen to the constitution as ‘basic law’, or supreme judicial norm, to define the various established or ‘constituted’ powers within the state. According to the principle of the ‘separation of powers’, the state’s various powers (executive, legislative, judicial) must be allocated to different bodies in order to avoid their concentration in the same hands. In the political thought of a Montesquieu, the principle assumes the sense of a ‘balance’ whereby ‘power binds power’.10 However that may be, such a principle in no way prejudges the role of private law, simply because it is not for the Constitution of a state to fix a priori the relationship between the different powers and private law. In its preamble, the Constitution may well recognize property law as a basic law, but it does not have to pronounce on it as such. Private law is out of place in a political constitution.
Neoliberalism breaks with this conception of the Constitution. With it, the rules of private law are accorded a quite unique, utterly unprecedented status as fully fledged constitutional norms. Such, in short, is the project of a ‘Constitution of liberty’ as developed in Hayek’s book of that title. According to him, the failure of all existing constitutions to guarantee individual liberty results from the inability of the separation of powers to prevent confusion between governmental and legislative power.11 Thus he proposes a complex edifice combining three bodies: a constitutional court, a legislative assembly, and a governmental assembly. Formally, these three organs correspond to the three powers contained in any Constitution. However, they are very far from being equivalent: ‘sovereignty’ belongs to the constitutional court, in the sense that no power is superior to it.12 Supreme authority is therefore possessed by a judicial power over which neither the executive power nor the legislative power can exercise any control. Of course, the constitutional court has no power to ‘make’ laws, since it is limited to ruling on the constitutionality of laws passed by the legislature. Nevertheless, it is not in the least ‘checked’, ‘bound’ or ‘counterbalanced’ in the exercise of its own prerogatives by the action of the other two assemblies. This is because the key issue is preventing the supremacy of the legislative power. Ultimately, it is the liberal principle of the ‘balance’ of powers that is sacrificed on the altar of the constitutionalization of private law. We thus have a twofold subjection, of governmental power to legislative power and of legislative power to the higher instance that oversees the constitutionality of new laws. The ideal consists in the replacement of government by people with government by law.
In itself, the formula is not new. Rousseau sought ‘to place the law above man’ and to ‘substitute the law for man’. But he also conceived of the law as an act of the legislature and hence as an act of the popular will. In complete contrast, Hayek’s intention is to cleanly sever the ‘law’ from the popular will, the better to elevate the former over the latter. This is because, so far as he is concerned, a genuine law is never the work of the legislature, but is always imposed on it in the form of a pre-existing custom which judges merely ratify. Laws not being ‘made’ by anyone, what we have is a ‘nomocracy’ or ‘rule of law’. This is sufficient to indicate that governing ‘by’ laws is not to be understood in the sense of governing ‘through’ laws: for the activity of governing, laws thus construed are not means, but exclusively limits. This is what grounds Hayek’s distinction between ‘demarchy’ and ‘democracy’. Whereas the term democracy has assumed the meaning of the absolute power of the people, the word demarchy signifies the limitation of the popular will by the rules of private law. There is nothing innocent about the fact that the very term demarchy replaces kratos by archè: archè is the word for legitimate power, whereas kratos is (as we have seen) the name for the power obtained by a victory over opponents – power deemed illegitimate by the oligarchy.13 That is to say, in demarchy, archè belongs not so much to the people as to the ‘laws’, of which the supreme power in the state must be the guardian. But everyone knows that, by themselves, laws cannot govern and that it is always human beings who must govern, albeit ‘by’ laws.
So-called demarchy is in fact a kratos exercised by a minority of the wealthy and experts (the oligarchy) over the mass of the poor (the demos), in the name of the sovereignty of law. For, on closer inspection, far from being a mere codification of custom, the ‘laws’ of demarchy are determined by judges and experts utterly committed to private property, and real power belongs to them.14 By contrast, purely representative democracy will inevitably tend to favour the ‘private interests’ of a contingent electoral majority, which is why the ‘general interest’ must be constitutionally safeguarded in the form of inviolable general rules. Neoliberalism, in its Hayekian version at least, thus makes social democracy an inexorable trend of representative democracy. If Hayek distrusts the latter, it is because it leads to the former. As Foucault saw, this in no way prevents the Hayekian state from engaging in ‘legal interventionism’.15 But it does so in the sense that it intervenes to compel all private interest groups (among them electoral majorities) to respect private law. It is in this sense that we can speak of a ‘strong state’.
But can we entrust definition of the ‘general interest’ to a spontaneous process, to the extent, like Hayek, of identifying nomocracy with ‘spontaneous order’?16 Does the constitutionalization of private law not instead require active judicial construction, of which the state itself must be the agent? Such is the thesis at the heart of ordo-liberalism (from the Latin ordo, ‘order’), or German neoliberalism. Market order, the competitive order, far from being ‘spontaneous’ as Hayek thought, is the effect of an ‘ordering policy’ (Ordnungspolitik) – a phrase that is to be understood in the strong sense of establishing an order. At the heart of this doctrine is thus an explicit anti-naturalism:17 free competition can only result from a fundamental political choice by the leaders of the state, not from the ‘natural course of things’. The ordo-liberal state is in no wise a minimal state restricted to regalian functions. It must protect the market economy against all kinds of abuse of power, public and private alike, by constructing an institutional framework to foster competition. Hence the importance of what the founder of ordo-liberalism – Walter Eucken – called an ‘economic constitution’.
It must first be pointed out that such a constitution, composed of a set of basic legal rules, is conceived strictly by analogy with a political constitution. Just as a political constitution has the role of guaranteeing, by means of a number of basic rules, the compatibility of the individual rights vested in citizens with the general political interest, so an economic constitution must define the basic economic rules that make it possible to reconcile individual economic liberties with the general economic interest.18 Among the constitutional principles that ground these economic liberties are private property, freedom of contract and free competition. However, public action is required to give effect to the exercise of these individual liberties. Hence the state’s commitment to ensuring currency stability – a commitment that must be enshrined as such in the economic constitution. The issue is a particularly sensitive one for ordo-liberals: inflation seems to them to be predominantly the effect of the baleful influence on politicians of pressure groups defending their own interests (private banks, lobbies, trade-union monopolies). Politicians might be tempted to pursue short-term monetary policies, particularly with the approach of elections, favouring one or another interest group. The objective of controlling inflation must therefore count as a constitutional commitment for governments of all hues, regardless of the narrow time frame of the next election.
Secondly, there follows a crucial consequence for the status of the central bank. Erecting it into a body independent of executive power will enable monetary policy to resist the pressure of private interests. The analogy between monetary order and legal order arrives on cue to justify such independence. It draws on the terminology of classical political constitutionalism by invoking the principle of the separation of powers. Following this line of argument, since democracy in principle bans political power from being both judge and party to the action, and hence a single body having the power both to define the law and to apply it, this interdiction must also apply to the currency: ‘One and the same body cannot both possess regalian rights to define the unit of currency or grant the privilege of issuing it and the power to decide what quantity of money is put in circulation and to whose benefit.’19 In order to forestall the concentration of all these powers in the hands of the executive, the government will be accorded so-called ‘regalian rights’, while the power to determine the quantity of money will be vested in an independent central bank. Thus, the very existence of this institution will be an obstacle to ‘monetary arbitrariness’. Here we have a crucial theoretical argument: to those who object that such independence contravenes the principle of democracy, ordo-liberals respond that it alone can introduce the democratic principle of the separation of powers into regulation of the economy. Clearly, two different conceptions of democracy confront each other here: on one side, it is asserted that the electoral expression of the will of the people must ultimately prevail, including in monetary policy; on the other, the separation of powers is made the fundamental principle, applicable even to the economic system.
The key point is that, in the second conception, the central bank’s independence from executive power entails its independence from the electoral expression of the popular will. In effect, as we have seen, executive power is always suspected of partiality and partisan preferences inasmuch as it derives, more or less directly, from an electoral majority. Obviously, such dependency applies equally, if not more so, to the legislative power. This last point enables us to grasp the true significance of the ordo-liberal analogy between the political constitution and an economic constitution: monetary power in the economic order is the precise analogue of legal power in the political order, so that the independence of the central bank mirrors the independence of the judiciary.20 Examination of the Bundesbank’s discourse on the occasion of certain legal proceedings reveals a highly constitutionalist conception of central-bank independence, which is clearly ordo-liberal in inspiration. Thus, in 1965 and 1979 we find the Federal Constitutional Court requesting the central bank to play the role of neutral expert, even though it (among other institutions) had been challenged in complaints from several taxpayers. In such instances, we can appreciate the unique character of the relationship between the Federal Bank and justice in Germany. In effect, while the independent central bank in the USA is required to justify the methods it employs to fight inflation, ‘the Bundesbank seems by contrast to have a role of arbiter approximate to that of a constitutional court.’21 This is further confirmed in the aforementioned cases, when the Constitutional Court sought the central bank’s opinion on a matter that goes to the heart of the German Constitution – namely, currency stability. The bank is charged by the ‘fundamental law’ with ensuring currency stability, but this constitutional objective involves as such the whole of society and all the powers exercised in it. A true collective responsibility, then, rather than the exclusive responsibility of the central bank, which it would be enough to hold accountable for the results of its monetary policy. Instead, it is up to the central bank to recall this collective responsibility and to identify those economic agents whose behaviour hinders the fulfilment of a common objective.22 Thanks to its role as arbiter, the central bank is therefore in the position, if not of accuser, then at any rate of vigilant guardian of the constitutionality of monetary policy.
But, it will be asked, over and above instantiation of the separation of powers in the economic system, what is the ultimate justification for the constitutionalization of economic objectives? In ordo-liberal doctrine, the economic constitution, which must be transcribed into the positive constitutional law of the state, is supposed to correspond to a contract between the state and citizen-voters. It might be thought that capitalism, not being a state of nature but a social order in search of self-legitimation, invariably implies a social contract in the form of a formal or informal economic ‘constitution’, whose terms are liable to renegotiation in accordance with the balance of forces.23 The strength of ordo-liberalism unquestionably consists in its stress on the need for a formal economic constitution, setting out the non-negotiable rules of law that all parties commit themselves in advance to obey. This highly peculiar contractualism assumes that economic individuals have the same ‘constitutional preferences’, that is, a common interest in choosing the same system of rules – those of a market economy. It might be objected that in reality, individuals have irreducibly divergent economic interests. Ordo-liberals pre-empt this objection by distinguishing between the interests of individuals as producers and the interests of individuals as consumers. Producers cannot have common ‘constitutional interests’ inasmuch as they aim not at uniformly applicable rules, but at privileges of a protectionist kind. In contrast, consumers, by dint of being such, possess a common constitutional interest whatever market they are operating in. In ordo-liberal terms, it will be said that they have the same ‘constitutional preference’ for the process of competition. It is precisely this shared preference that defines a ‘constitutional general interest’ and enables a contract between consumer-voter and government.24
We can now understand how the economic constitution, in consecrating the order of competition, consecrates consumer sovereignty: citizen-voters are ultimately nothing other than citizen-consumers. Reconsidered from this perspective, the celebrated formula of ‘social market economy’ conveys its true meaning – not the mystificatory sense of a social corrective of distribution, but the one given it by its inventor, Alfred Müller-Armack, at the outset: creating a ‘democracy of consumption’ in and through competition.25 From this angle, removing monetary policy from the government and entrusting it to an independent central bank displays its full significance. In effect, it is a question of facilitating control of government action by citizen-consumers. As Franz Böhm put it, such independence ‘makes it possible for individuals to actually exercise their sovereignty and to control the government effectively enough that no pressure group is formed inside government organizations’.26
What, ultimately, should we take from this examination of the neoliberal project in its two main versions? In the first – Hayek’s – the constitutionalization of private law takes the form of the ascendancy of a constitutional court over the legislative and executive powers, which are subject to its control and incapable of counterbalancing its powers. In the second – the ordo-liberals’ – the same constitutionalization takes the shape of a formal economic constitution, enshrining the independence of a central bank that operates as a kind of ‘economic constitutional court’. Real ‘sovereignty’ belongs to the constitution itself, in that it incorporates and enshrines the rules of private law. With this ordo-liberalism revives the old idea of a ‘sovereignty of the Constitution’ defended by the ‘doctrinaires’ during the Restoration and the July Monarchy. Thus Royer-Collard defended the sovereignty of the ‘Charter’. As Carl Schmitt noted, the function of this curious personification of a legal norm consisted in ‘elevating the statute, with its guarantees of bourgeois freedom and private property, over every political power’.27 The issue of the actual subject of sovereignty (the people or the monarch) was thus carefully evaded.
In reality, however, sovereignty belongs less to the Constitution in abstracto than to the concrete persons appointed as its guardians. The originality of ordo-liberalism is that, not content with invoking major legal principles (liberty and private property), it constitutionalizes the principles of any economic policy (currency stability, balanced budgets, etc.). Here, once again, the sovereignty of the Constitution legitimizes the de facto sovereignty of the unelected guardians of the Constitution. In any event, whatever the form taken by constitutionalization, the crucial point lies elsewhere. Even if the principle of it is invoked for purposes of legitimation, the division of powers peculiar to liberal democracy finds itself emptied of substance in favour of a ‘judicial power’ limited by no ‘check’. In each instance, in their different ways, what is at stake is the ‘dethronement of politics’.28 Private law, assured of escaping public deliberation and political choice, is established as the ultima ratio of political and social order.