The intellectual origins of Neoliberalism

This article was originally posted on the Explaining History Patreon in April.

Neoliberalism is a term so over used as it is fast approaching redundancy. Marxists like David Harvey see it as a tool for class retrenchment and the erasing of the modest social democratic gains seen during the post war era in much of the wealthy world (Europe, America, South East Asia). Certain models of neoliberalism such as that of Pinochet’s Chile were achieved through the overthrow of democracy and the introduction of a police state based on murder and torture. In Britain and America democratic instiutions endured and were the means by which a new economic orthodoxy that broke with Keynsianism could be introduced. The economic outcomes were similar, huge transfers of wealth upwards from the poorest to the wealthiest. The Gini coefficient that charts inequality places the twin laboratries of democratic neoliberalism, the USA and Britain, at the top of the index.
The late Tony Judt wrote in his brilliant history of Europe after 1945, Postwar,  that:
‘Every politically significant revolution is anticiapted by a transformation of the intellectual landscape. The European upheavals of the 1980s were no exception.’ (1)
The 1970s, a decade where two oil shocks had brought the faltering post war global economic boom to a shuddering halt, had created an intellectual space for new ideas to emerge. 
In reality the concepts that would become the prevailing orthodoxy from the 1970s to 2008 were in fact not new ideas at all, and had been incubating since the 1930s by economists such as Friedrich Von Hayek, Ludwig Von Mises and Joseph Schumpter. 
All three had seen the rise of two types of interwar fascism in Austria, firstly the Catholic fascism of Dolfuss and secondly the Austrian variant of Nazism which ultimately triumphed with the Anschluss in 1938. 
They formulated seperate but complimentary explanations for the overthrow of democracy in Austria and elsewhere during the 1930s and came to the conclusion that the culprit was always the state and states that grew beyond the minimal role of the ‘nightwatchman’ were antithetical to the concept of freedom. 
States which took a greater role in the workings of the economy, which intervened to correct market failings, which provided goods that the market couldn’t (the three Austrian economists, who took their ideas to America when they fled the Nazis did not believe there was much that markets could not provide), would eventually become totalitarian. 
This view of the origins of Nazism (they were focused also on Stalinism), was almost entirely divorced from any meaningful historical analysis, and it after the war it existed on the fringes of academic discourse for decades. 
The massive wartime expansion of the British and American states and the control over vital strategic industries, the curtailment of civil liberties under various war powers acts had been key to defeating fascism and defending liberal democracy. 
There was a widespread belief in and faith in the power of the state in Britain and America to solve the problems of peacetime and war. Hayek was aware that his ideas had very little traction, and saw the struggle for ‘liberty’ as one that would be generational. It was with this in mind that he helped establish the Mont Pelerin Society in Switzerland in 1947.
David Harvey writes:
‘Neoliberalism as a potential antidote to the threats to the capitalist social order and as a solution to capitalism’s ills had long been lurking in the wings of public policy. A small and exclusive group of passionate advocates – mainly academic economists, historians and philosophers – had gathered together around the renowned Austrian political philosopher Friedrich Von Hayek to create the Mont Pelerin Society (named after the Swiss spa where they first met) in 1947…The group’s members depicted themselves as ‘liberals’ (in the traditional European sense) because of their fundamental commitment to the ideals of personal freedom.’ (2)
Neoliberalism, a term applied by the group’s critics, implied that the ideology was the re-invention of classic 19th Century economic liberalism, which advocated small states, limited taxation and as little regulation as possible on the individual and on the private accumulation of wealth. Two world wars and an economic depression had created the kinds of activist states that the 19th Century bourgeoisie could scarcely have imagined and that Hayek and his fellow travellers sought to curtail. One of Hayek’s most potent legaies and one which now undermines the functioning of democracies in ways that it is doubtful that he intended is the development of the think tank. Hayek encouraged the British right wing businessman Anthony Fisher to found the Institute for Economic Affairs in 1955, believing that it would be a vehicle in his long struggle for ideas. It took two decades for the economic and social conditions for Hayekian ideas to acquire an audience, and the IEA for much of that time was engaged in the slow, patient work of revolutionaries the world over. However, unlike the Bolsheviks, who penned endless treatises and polemics in obscurity and penury and exile, the IEA was able to cultivate a generation of journalists, politicians and academics in the 1960s and 1970s over long lunches and wine receptions. The IEA and a number of similar organisations, funded by wealthy donors, created a framework of a new kind of politics and economics based on the following principals:
Freedom in Britain was close to collapse as a result of socialism (though the idea that Wilson and Callaghan’s governments in the 1970s were examples of socialism was fanciful), and that the redistribution of wealth that had seen inequality decline to its lowest level in a century by 1975 was an attack on enterprise and hard work and the rewarding of idleness and failure.
Taxation represented a form of theft from the individual and that the state had no intrinsic right to tax, instead, wealth belonged to individuals to decide how to spend it.
A commitment to full employment must be abandoned and a degree of unemployment must be tolerated as the price to defeat the great economic scourge of the decade, inflation.
The role of the state was to protect private property primarily and that the state could be harnessed to bring about radical economic solutions to the country’s ills. 
Organised labour in the guise of trade unions were sectional interests concerned with acquiring advantages for their members and as such disrupted the sensitive price signals within the economy by artificially inflating the cost of labour.
All of these ideas evolved from Hayek and the Mont Pelerin Society, which found an unlikely champion in the guise of Margaret Thatcher, whose tolerance for academics was very low. In 1979 there was very little in the Conservative Manifesto that might be thought of as Thatcherite or neoliberal; the signature economic policies that waged a relentless war against the post war economic compact would manifest themselves throughout the 1980s.
Writer Graham Stewart in Bang! his history of the 1980s writes:
‘The irony was that a prime minister with no instinctive respect for or deference towards tenured academics should nonetheless spend so much of her time engaging with intellectuals. Indeed, as the sociologist Paul Hirst put it: ‘The first Thatcher government was unique in modern British history: a oarty ked by a clique of intellectuals with a strong commitment to a radical ideology. This clique was predominantly in Thatcher’s circule rather than in her Cabinet. The intellectual godfathers were remote presences indeed – Friedrich Von Hayek, author of The Road to Serfdom (1944) and The Constitution of Liberty (1960), who had won the Nobel Prize for economics in 1974 and Milton Friedman who had won the same prize two years later and had written the popular book and TV series Free to Choose (1980). They were remote in the literal sense that both Hayek, an Austrian-born British citizen, and Friedman, an American, were living abroad and only infrequently visited Britain. Scarcity boosted their value to the Tory leader. When either man did visit Britain, often at the bequest of the Institute of Economic Affairs, Thatcher could be spotted listening with the rapt attention of a schoolgirl with a crush.’ (3)

  1. Judt, T., 2010. Postwar. Random House, p535
  2. Harvey, D., 2007. A Brief History of Neoliberalism. Oxford University Press, pp 19-20
  3. Stewart, G., 2013. Bang!. Atlantic Books, p67

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