The Origins Of Neoliberalism

By Kumar David -February 16, 2014 

Prof Kumar David

Masters of the Universe by Daniel Steadman Jones. Princeton University Press, 418 pages, 2011- Book Review

Many people are not clear about the difference between classical economics and neoliberalism; to put it starkly, neoliberalism is classical economics plus a political ideology. While the original version (Smith, Ricardo, Mill, Marshall and Walras) was focussed on economic theory – liaises faire, production & value, exchange & trade, marginal utility – and only a little involved in politics, for neoliberals the principal task is a political crusade to save the world from collectivism – Nazism, Soviet Communism, socialism, Keynesianism, British social democracy and American New Deal liberalism. After the war, to this list of evils was added third world populism and state intervention. Neoliberalism is politics plus an obsessive emphasis on free-markets stirred into classical economics; it makes no theoretical or conceptual breakthroughs or innovations of its own.

In economic theory there is little, just one and a half items, that neoliberalism brings to classical theory; monetarism gets one mark, and the half-mark is for rational-choice theory where market clearing concepts are carried into other domains such as government. Separating neoliberalism from its classical ancestor is an obsessive preoccupation with free-markets. While classical economics created the theory of markets, market clearing, marginal utility and equilibrium theory, and also examined the effects of market distortion (monopoly), it did not suffer from a maniacal obsession with liassez-faire. This is a trademark of neoliberalism since it is a crucial political weapon in the crusade against collectivism and socialism, which are deemed to be mortal enemies of individualism and hence the antithesis of freedom, democracy and Western civilisation.

The birth of neoliberalism

Masters of the Universe by Daniel Steadman Jones. Princeton University Press, 418 pages, 2011.

Neoliberalism, in its early days in the 1930s and 1940s was a political ideology and a philosophy; the side that later came to the fore as neoliberal economics was then a junior partner. The founding fathers were Ludwig von Mises (1881-1973), Freidrich  Hayek (1889-1992) and Karl Popper (1902-1994), all Austrians and all exiles from Nazism. They saw in Nazism, Soviet Communism and Mussolini’s fascism the evil face of collectivism trampling individual freedoms. After the war their critique of collectivism extended to the Beveridge Report (1942) advocating social welfare, Clement Atlee’s (prime minister 1945-51) far reaching social democracy and nationalisations, and Aneurian Bevan’s National Health Service (1948). Their theoretical targets were the paradigms underpinning British social democracy and American liberalism from 1945 to the 1970s, Keynesian economics.

In America they saw a similar danger to liberty in the collectivism built into Roosevelt’s New Deal in several Acts promoting public expenditure, labour unions, social security and fair wages, and later in Johnson’s Great Society and the Civil Rights Movement. War kept them in harness, but afterwards they issued three manifestos – von Mises’ The Road to Serfdom (1944), Hayek’sBureaucracy (1944), and Popper’s Open Society and its Enemies (1945). Thus was launched the essential standpoint of neoliberal philosophy. Crass neoliberal economics of the IMF-World Bank type of the 1970s, the political highpoint in the Regan-Thatcher era, and the gory glory of finance capital in the 1990s, came later; philosophically, these were but crude caricatures of the original discourse.                                  Read More