The Libertarian Alliance (Felag frjalshyggjumanna) was founded 8 May 1979, on Friedrich A. von Hayek’s 80th birthday, by a group of young people, mostly students at the University of Iceland. The main purpose of The Libertarian Alliance was to provide information, through lectures, publications and other means of communication, about liberalism in the classical sense, or libertarianism, as expounded by Hayek and other thinkers, such as John Locke and Adam Smith, Alexis de Tocqueville and Lord Acton, Ludwig von Mises, Milton Friedman and James M. Buchanan. The Alliance had seven board members, Fridrik Fridriksson, chairman, Arni Sigfusson, Audun S. Sigurdsson, Gunnlaugur S. Gunnlaugsson, Hannes H. Gissurarson, Hreinn Loftsson and Skafti Hardarson.
The first public event organised by the Libertarian Alliance was a lecture in August 1979 by economist David Friedman on the laws and economics of the old Icelandic Commonwealth (930–1262). Friedman found the Commonwealth to be a remarkable exercise in ordered anarchy where the enforcement of law was essentially private. The second event was a talk in November 1979 by Professor Olafur Bjornsson of the University of Iceland on Ludwig von Mises and the impossibility of economic calculation under socialism.
Friedrich A. von Hayek visited in the spring of 1980. He read two papers to his Icelandic audience. The first one was delivered at the University of Iceland 2 April 1980 on “The Monetary Order”. Hayek held that the only way to contain the abuse of monetary power was to allow competition in the production of money. Hayek’s second paper was at a meeting of the Libertarian Alliance 5 April 1980 on “The Muddle of the Middle.” He argued that the intellectual basis of social democracy or the mixed economy lay in John Stuart Mill’s illicit distinction between the laws of production and the laws of distribution.
During his visit to Iceland, Hayek invited one of the members of the board of the Libertarian Alliance, Hannes H. Gissurarson, to attend the Mont Pelerin Society meeting in Stanford, California, in the autumn of 1980. This was the first time an Icelander had attended a meeting of the Mont Pelerin Society. In the next few years, Hannes H. Gissurarson, Fridrik Fridriksson and Skafti Hardarson attended some more Mont Pelerin Society meetings, and in 1984 Hannes H. Gissurarson, then a postgraduate student at Oxford University, became a member of the Society.
In 1980, The Libertarian Alliance started the publication of a quarterly magazine, called Liberty (Frelsid), under the editorship of Hannes H. Gissurarson. Five prominent Icelandic intellectuals sat on the editorial board, filologist Gisli Jonsson, bank director Jonas Haralz, poet Matthias Johannessen, Professor Olafur Bjornsson and astrophysicist Thorsteinn Saemundsson. Many articles on liberal ideas and their adaptations to Iceland appeared in the magazine in the next few years, including a long exclusive interview with Karl R. Popper written by Hannes H. Gissurarson after a visit to Popper at his home in Penn, Buckhinghamshire. Translations of lectures given by foreign visitors were also published. Hannes H. Gissurarson was editor until 1986, and historian Gudmundur Magnusson in 1987–1989.
In 1981, The Libertarian Alliance published a collection of essays on economics, Ill Fares the Welfare State (Velferdarriki a villigotum), by the prominent Icelandic economist Jonas H. Haralz, director of Iceland’s main commercial bank, Landsbankinn. Haralz was critical of the growth of the “welfare state” in the Nordic countries, including Iceland. He argued that the Keynesian dream of the adviser charting the right course for the politician was unrealistic. The political process was much more complicated than that, for lack of information, wrong incentives, time lags, bargaining costs and so on. In 1982, The Libertarian Alliance published a collection of essays by another Icelandic economist, Professor Olafur Bjornsson, Individual Freedom and Economic Order (Einstaklingsfrelsi og hagskipulag). Ironically, some of them were from a 1945 debate in Icelandic newspapers on Hayek’s message with Jonas Haralz, who then was a socialist.
In 1982, Professor James M. Buchanan of George Mason University in Virginia visited and gave a lecture at the University of Iceland on public choice, or the economic analysis of politics. He argued that the two key concepts in public choice theory were politics as exchange on the one hand and man as a “homo economicus” on the other hand. These were analytical tools however rather than a true description of human nature. Why should a businessman change his character when entering politics? If in business, the individual was modelled to pursue pursue his private gain rather than the common good, surely he had to be modelled in the same way in politics. Buchanan argued that there was a need for constitution reform in Western countries: The founding fathers had made strong provisions for the freedom of speech, freedom of religion and freedom of assembly. But they had not protected the population adequately against the abuse of fiscal and monetary power.
In 1984, Milton Friedman visited, co-hosted by the Libertarian Alliance and the newly founded Jon Thorlaksson Institute. Friedman gave a talk at the University of Iceland 1 September 1984, “The Tyranny of the Status Quo” (I sjalfheldu serhagsmunanna), where he argued that three important interest groups opposed the liberal agenda of reducing taxes, privatising enterprises and placing constitutional limits of government powers: This iron triangle consisted of the political class, the public employees and the beneficiaries from many kind of government programmes. Friedman gave his talk to a full house during a luncheon meeting at a hotel close to the University. In a famous television debate the evening before, an Icelandic socialist, Stefan Olafsson, had challenged Friedman, pointing out that this was the first time in Iceland that an admission fee was charged for a university lecture. Previously, such lectures had been provided free. Undaunted, Friedman pointed out that there was no such thing as a “free” lecture. What was really meant was that people who did not attend, for example the taxpayers, had to pay various costs incurred. In the case of Friedman’s lecture, only those who attended it had to pay the costs, which was a most more satisfactory arrangement. This interesting debate can be seen here.
Friedman’s visit had a great impact in Iceland, not only because of his serious and subtle arguments, but also because of his wit and quickness of mind. He was for example presented to a governor of Iceland’s Central Bank in the beginning of a luncheon party with the words: “Here, Professor Friedman, is a man who would lose his jobs if your ideas were implemented in Iceland.” Friedman was quick to reply: “No, no, he would not lose a job; he would only have to move to a socially more beneficial and profitable job.” When Friedman was asked, at a dinner party that the Icelandic Chamber of Commerce gave for him, who were the worst enemies of economic freedom, he quicly responded: “Look into a mirror! The capitalists are always trying to establish monopolies. They want to protect themselves from competition.”
After five years, in 1984, Audun S. Sigurdsson replaced Fridrik Fridriksson (who had gone to the US to do postgraduate work under James M. Buchanan and Gordon Tullock) as chairman of the Libertarian Alliance. The Alliance operated for five more years, after which the founders thought that it had achieved its purpose: Hayek and Friedman had become household words in Iceland, and the Jon Thorlaksson Institute, with the participation of many distinguished people, stood ready to take over some of the tasks of the Alliance. In 1989 it was decided to disband the Alliance and discontinue the magazine Liberty.