Theories of revived classical liberalism in the 20th century.
The market is the most effective (or least irrational) method of distributing goods and resources, and the role of the state should be limited to the maintenance of necessary order, legality, and stability.
Desmond King, The New Right: Politics, Markets and Citizenship (London, 1987)
An early use of the term in English was in 1898 by the French economist Charles Gide to describe the economic beliefs of the Italian economist Maffeo Pantaleoni, with the term néo-libéralisme previously existing in French, and the term was later used by others including the classical liberal economist Milton Friedman in his 1951 essay “Neo-Liberalism and its Prospects”. In 1938 at the Colloque Walter Lippmann, the term neoliberalism was proposed, among other terms, and ultimately chosen to be used to describe a certain set of economic beliefs.:12–13 The colloquium defined the concept of neoliberalism as involving “the priority of the price mechanism, free enterprise, the system of competition, and a strong and impartial state”.:13–14 To be neoliberal meant advocating a modern economic policy with state intervention.:48 Neoliberal state interventionism brought a clash with the opposing laissez-faire camp of classical liberals, like Ludwig von Mises. Most scholars in the 1950s and 1960s understood neoliberalism as referring to the social market economy and its principal economic theorists such as Eucken, Röpke, Rüstow and Müller-Armack. Although Hayek had intellectual ties to the German neoliberals, his name was only occasionally mentioned in conjunction with neoliberalism during this period due to his more pro-free market stance.
During the military rule under Augusto Pinochet (1973–1990) in Chile, opposition scholars took up the expression to describe the economic reforms implemented there and its proponents (the Chicago Boys). Once this new meaning was established among Spanish-speaking scholars, it diffused into the English-language study of political economy. According to one study of 148 scholarly articles, neoliberalism is almost never defined but used in several senses to describe ideology, economic theory, development theory, or economic reform policy. It has become used largely as a term of abuse and/or to imply a laissez-faire market fundamentalism virtually identical to that of classical liberalism – rather than the ideas of those who attended the 1938 colloquium. As a result there is controversy as to the precise meaning of the term and its usefulness as a descriptor in the social sciences, especially as the number of different kinds of market economies have proliferated in recent years.
Another center-left movement from modern American liberalism that used the term “neoliberalism” to describe its ideology formed in the United States in the 1970s. According to political commentator David Brooks, prominent neoliberal politicians included Al Gore and Bill Clinton of the Democratic Party of the United States. The neoliberals coalesced around two magazines, The New Republic and the Washington Monthly. The “godfather” of this version of neoliberalism was the journalist Charles Peters, who in 1983 published “A Neoliberal’s Manifesto”.
Elizabeth Shermer argued that the term gained popularity largely among left-leaning academics in the 1970s to “describe and decry a late twentieth-century effort by policy makers, think-tank experts, and industrialists to condemn social-democratic reforms and unapologetically implement free-market policies;” economic historian Phillip W. Magness notes its reemergence in academic literature in the mid-1980s, after French philosopher Michel Foucault brought attention to it.
The Handbook of Neoliberalism
Neoliberalism is contemporarily used to refer to market-oriented reform policies such as “eliminating price controls, deregulating capital markets, lowering trade barriers” and reducing, especially through privatization and austerity, state influence in the economy. It is also commonly associated with the economic policies introduced by Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States. Some scholars note it has a number of distinct usages in different spheres:
- As a development model, it refers to the rejection of structuralist economics in favor of the Washington Consensus.
- As an ideology, it denotes a conception of freedom as an overarching social value associated with reducing state functions to those of a minimal state.
- As a public policy, it involves the privatization of public economic sectors or services, the deregulation of private corporations, sharp decrease of government debt and reduction of spending on public works.
There is, however, debate over the meaning of the term. Sociologists Fred L. Block and Margaret R. Somers claim there is a dispute over what to call the influence of free-market ideas which have been used to justify the retrenchment of New Deal programs and policies since the 1980s: neoliberalism, laissez-faire or “free market ideology”. Other academics such as Susan Braedley and Med Luxton assert that neoliberalism is a political philosophy which seeks to “liberate” the processes of capital accumulation. In contrast, Frances Fox Piven sees neoliberalism as essentially hyper-capitalism. However, Robert W. McChesney, while defining neoliberalism similarly as “capitalism with the gloves off”, goes on to assert that the term is largely unknown by the general public, particularly in the United States.:7–8 Lester Spence uses the term to critique trends in Black politics, defining neoliberalism as “the general idea that society works best when the people and the institutions within it work or are shaped to work according to market principles”. According to Philip Mirowski, neoliberalism views the market as the greatest information processor superior to any human being. It is hence considered as the arbiter of truth. Neoliberalism is distinct from liberalism insofar as it does not advocate laissez-faire economic policy but instead is highly constructivist and advocates a strong state to bring about market-like reforms in every aspect of society. Anthropologist Jason Hickel also rejects the notion that neoliberalism necessitates the retreat of the state in favor of totally free markets, arguing that the spread of neoliberalism required substantial state intervention to establish a global ‘free market’. Naomi Klein offers a largely negative definition of neoliberalism, arguing that the three policy pillars of neoliberalism are “privatization of the public sphere, deregulation of the corporate sector, and the lowering of income and corporate taxes, paid for with cuts to public spending”.
Phillip W. Magness
Neoliberalism is also, according to some scholars, commonly used as a pejorative by critics, outpacing similar terms such as monetarism, neoconservatism, the Washington Consensus and “market reform” in much scholarly writing. The Handbook of Neoliberalism, for instance, posits that the term has “become a means of identifying a seemingly ubiquitous set of market-oriented policies as being largely responsible for a wide range of social, political, ecological and economic problems”. Its use in this manner is controversial and has been especially criticized by those who advocate for policies characterized as neoliberal.:74 The Handbook, for example, further argues that “such lack of specificity [for the term] reduces its capacity as an analytic frame. If neoliberalism is to serve as a way of understanding the transformation of society over the last few decades then the concept is in need of unpacking”. Historian Daniel Stedman Jones has similarly said that the term “is too often used as a catch-all shorthand for the horrors associated with globalization and recurring financial crises”.:2 On the other hand, many scholars believe it retains a meaningful definition. Writing in The Guardian, Stephen Metcalf posits that the publication of the 2016 IMF paper “Neoliberalism: Oversold?” helps “put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power”.
Walter Lippmann Colloquium
The Great Depression in the 1930s, which severely decreased economic output throughout the world and produced high unemployment and widespread poverty, was widely regarded as a failure of economic liberalism. To renew the damaged ideology, a group of 25 liberal intellectuals, including a number of prominent academics and journalists like Walter Lippmann, Friedrich Hayek, Ludwig von Mises, Wilhelm Röpke, Alexander Rüstow, and Louis Rougier, organized the Walter Lippmann Colloquium, named in honor of Lippman to celebrate the publication of the French translation of Lippmann’s pro-market book An Inquiry into the Principles of the Good Society. Meeting in Paris in August 1938, they called for a new liberal project, with “neoliberalism” one name floated for the fledgling movement.:18–19 They further agreed to develop the Colloquium into a permanent think tank based in Paris called the Centre International d’Études pour la Rénovation du Libéralisme.
While most agreed that the status quo liberalism promoting laissez-faire economics had failed, deep disagreements arose around the proper role of the state. A group of “true (third way) neoliberals” centered around Rüstow and Lippmann advocated for strong state supervision of the economy while a group of old school liberals centered around Mises and Hayek continued to insist that the only legitimate role for the state was to abolish barriers to market entry. Rüstow wrote that Hayek and Mises were relics of the liberalism that caused the Great Depression while Mises denounced the other faction, complaining that the ordoliberalism they advocated really meant “ordo-interventionism”.:19–20
Divided in opinion and short on funding, the Colloquium was mostly ineffectual; related attempts to further neoliberal ideas, such as the effort by Colloque-attendee Wilhelm Röpke to establish a journal of neoliberal ideas, mostly floundered. Fatefully, the efforts of the Colloquium would be overwhelmed by the outbreak of World War II and were largely forgotten. However, the Colloquium did serve as the first meeting of the nascent “neoliberal” movement and would serve as the precursor to the Mont Pelerin Society, a far more successful effort created after the war by many of those who had been present at the Colloquium.
Mont Pelerin Society
Neoliberalism began accelerating in importance with the establishment of the Mont Pelerin Society in 1947, whose founding members included Friedrich Hayek, Milton Friedman, Karl Popper, George Stigler and Ludwig von Mises. Meeting annually, it would become a “kind of international ‘who’s who’ of the classical liberal and neo-liberal intellectuals.” While the first conference in 1947 was almost half American, the Europeans dominated by 1951. Europe would remain the epicenter of the community as Europeans dominated the leadership roles.:16–17
Established during a time when central planning was in the ascendancy worldwide and there were few avenues for neoliberals to influence policymakers, the society became a “rallying point” for neoliberals, as Milton Friedman phrased it, bringing together isolated advocates of liberalism and capitalism. They were united in their belief that individual freedom in the developed world was under threat from collectivist trends, which they outlined in their statement of aims:
“The central values of civilization are in danger. Over large stretches of the Earth’s surface the essential conditions of human dignity and freedom have already disappeared. In others, they are under constant menace from the development of current tendencies of policy. The position of the individual and the voluntary group are progressively undermined by extensions of arbitrary power. Even that most precious possession of Western Man, freedom of thought and expression, is threatened by the spread of creeds which, claiming the privilege of tolerance when in the position of a minority, seek only to establish a position of power in which they can suppress and obliterate all views but their own…The group holds that these developments…have been fostered by a decline of belief in private property and the competitive market…[This group’s] object is solely, by facilitating the exchange of views among minds inspired by certain ideals and broad conceptions held in common, to contribute to the preservation and improvement of the free society.”
The society set out to develop a neoliberal alternative to, on the one hand, the laissez-faire economic consensus that had collapsed with the Great Depression and, on the other, New Deal liberalism and British social democracy, collectivist trends which they believed posed a threat to individual freedom. They believed that classical liberalism had failed because of crippling conceptual flaws which could only be diagnosed and rectified by withdrawing into an intensive discussion group of similarly minded intellectuals;:16 however, they were determined that the liberal focus on individualism and economic freedom must not be abandoned to collectivism