Rather than baling hay and irrigating, Ramona and I have spent this summer planning the Mont Pèlerin Society (MPS) meeting. This organization hosts the world’s premier Classical Liberals.

Classical Liberalism does not refer to FDR and the big-government New Deal. It originated in the 19th century, committed to limiting political power and supporting individual rights. Contemporary Classical Liberalism advocates minimal government, i.e., provide national defense, enforce property rights and the rule of law, support basic research, and little more.

Here’s a succinct statement illustrating the Classical Liberal philosophy: “[G]overnment does not create jobs or produce economic growth. Free markets, honest competition, America’s entrepreneurial spirit and hard work do that.” Does it come from Ronald Reagan or Milton Friedman? Actually, it’s from “Our Plan for America” by John Kerry and John Edwards. After observing collectivist experiments, most bright, well-informed, and mature Americans claim a Classical Liberal philosophy. However, environmentalism has been the Achilles heel of Classical Liberalism.

This is a serious problem for Classical Liberals. As people become well educated and well off, they turn Green. Environmental quality, like BMWs and foreign travel, is a luxury good. The challenge is to create institutions that harmonize Classical Liberal and Green ideals. There has, in fact, been a great deal of work doing exactly this, much of it in Bozeman. Alas, its subtlety has prevented widespread understanding and acceptance.

Economist Friedrich Hayek established the Mont Pèlerin Society in 1947, in the alpine setting of Mont Pèlerin, Switzerland. Its creation was motivated by the totalitarianism surrounding World War II. Its founders cherished liberty and feared the pervasive erosion of civilized values.

MPS promotes responsible liberty, and fosters open governments and the rule of law. It cherishes individual rights and alerts us to the arbitrary and predatory abuses of governments and other powers. Members meet to discuss and analyze institutions that foster freedom and prosperity. Seven Nobel laureates have been members: Friedrich Hayek, Milton Friedman, George Stigler, Ronald Coase, Gary Becker, James Buchanan, and Vernon Smith.

Milton Friedman is a founding member of MPS. Of all the MPS Nobel laureates, he is the one I know best and most revere. In 1971 Friedman gave an address at the University of Montana. The Bolle Report, a ringing indictment of the U.S. Forest Service (USFS), had just been published. During the Q&A session he was asked for his solution to the management disaster throughout the foundering Forest Service, which manages an area more than twice the size of Montana.

Friedman proposed to sell the national forests to the highest bidders. He proposed full privatization. I objected. His solution, I argued, might be fine if the national forests produced only commodities. But they also provide public goods, e.g. wildlife habitat, watershed protection, and recreation. Most private owners have little incentive to preserve these benefits if rewarded solely for commodities production.

The post-WWII Forest Service is best understood as the world’s largest socialized road-building company. Its budget size depended largely on the miles of roads built for timber sales. The Forest Service predictably responded to incentives. There is more than eight times the miles of roads in national forests than in our entire Interstate Highway System. The reason is simple: Congress responded to constituent pressures and fully funded road requests. In contrast, appropriations for recreation and wildlife were slim. I have long argued that if we want the national forests to respond to ever changing demands, we need to reform the governing institutions.

Back to Milton. On the occasion of his 90th birthday, I suggested Friedman for sainthood. Though he performed two of the three requisite miracles (see the BDC article “Happy Birthday, Uncle Milty” on FREE’s website, www.free-eco.org), even saints aren’t omniscient. Speaking of Eastern Europe’s transition to a market economy, in 2002 Friedman admitted an error: “It turns out that [institutions are] probably more basic than privatization.”

The same logic that applies to Eastern Europe is equally relevant to environmental issues, i.e., institutions matter. The pathologies of the Forest Service exemplify problems inherent to centralized management. Classical Liberal reforms focus on the information and incentives generated by institutional arrangements. Only if we understand this can we harmonize liberty and ecology.