The ‘rebirth of liberalism’: The origins of neo-liberal ideology

Abstract

This article examines the genesis of neo-liberal ideology in the Western world during the first half of the twentieth-century. Neo-liberalism, it proclaims, gets its distinctive identity from its origins as an ideological movement for the ‘rebirth of liberalism’ which was reacting to the various forms of collectivism that it saw sweeping through Western nations during this period, and its subsequent reinvention of the term ‘liberal’. The emergence of neo-liberalism was not a simple revival of classical economic liberalism and a return to the nineteenth-century ideas of free trade, a minimal state and self-help. Neo-liberal intellectuals in the 1930s and 1940s such F.A. Hayek, Ludwig von Mises, Alexander Rüstow and Michael Polanyi argued that liberalism must undergo a major intellectual process of reinvention where classical liberal tenets were stripped of accretions associated with the past and reinterpreted on a new ideological terrain. Their efforts culminated in the formation of the Mont Pelerin Society in 1947 where many of the core tenets of neo-liberalism were originally conceived.

Acknowledgements

I would like to thank Andrew Gamble and Philip Catney and two anonymous referees for their comments and suggestions on an earlier draft of this article. The Economic and Social Research Council generously funded my place on the programme of study for which this research was originally carried out.

Notes

 1. This article sees the rise of neo-liberalism explicitly through a neo-liberal lens. Thus, it uses the term ‘liberal’ and ‘liberalism’ throughout as a neo-liberal expression. Expressions such as the ‘rebirth of liberalism’ and ‘restoring the liberal faith’ are presented as explicitly neo-liberal ones.

 2. In some accounts this strand of twentieth-century liberalism is referred to as socialism. However, to a large extent policies that have been described as ‘socialist’ have often been left-wing liberal. Indeed, the differences between egalitarian liberalism and some theories of social justice are often difficult to discern.

 3. The Mont Pelerin Society's statement of aims is republished in Max Hartwell, A History of the Mont Pelerin Society (Indianapolis: Liberty Fund Inc., 1995), pp. 7–11.

 4. ‘The opening address of the Mont Pelerin Society’, republished in F.A. Hayek, Studies in Philosophy, Politics and Economics, (London: Routledge, 1967).

 5. The synthesis between old and new in so-called ‘new’ ideologies is explored by Andrew Vincent in his ‘New Ideologies for Old?’, The Political Quarterly, 69 (1), 1998, pp. 48–58.

 6. See F.A. Hayek, ‘History and Politics’, in F.A. Hayek (Ed.), Capitalism and the Historians (Chicago, IL: University of Chicago Press, 1954) pp. 3–29. Hayek's argument on the misuse of history is based on the essays in the volume which cover the history of industrialization in Britain and America in the nineteenth-century. The volume of essays argues that respected historians wrote the history of capitalism, but ones with a socialist axe to grind. These historians were not writing about objective facts, but based their interpretation on the biased social commentaries of the time. Hayek concludes that contrary to popular belief the working-class actually benefited from the rise of modern industry.

 7. Here Hayek is referring to Nazi Germany. Hayek admits that is impossible to trace in any great detail the way historians have produced the ideas that rule Germany today, but states with some certainty that ‘even some of the most repulsive features of Nazi ideology trace back to German historians whom Hitler has probably never read but whose ideas have dominated the atmosphere in which he grew up’. See his essay, ‘The Historians and the Future of Europe’ in F.A. Hayek, Studies in Philosophy, Politics and the History of Ideas (London: Routledge and Kegan Paul, 1967) p. 138.

 8. Joseph Schumpeter, Capitalism, Socialism and Democracy (London: Routledge, 1954).

 9. J.M. Keynes, ‘The End of Laissez-Faire’ in his Essays in Persuasion (London: Rupert Hart Davis, 1952), pp. 293–320.

10. Karl Polanyi, The Great Transformation (Boston: Beacon Press, 1944).

11. The rise of collectivism in the West during the early-twentieth-century is well documented in academic literature. See, for example, Michael Freeden, The New Liberalism: An Ideology of Social Reform (Oxford: Clarendon Press, 1986), W.H. Greenleaf, The British Political Tradition: The Rise of Collectivism, Vol. I (London: Methuen, 1983) and James Kloppenberg, Uncertain Victory: Social Democracy and Progressivism In European and American Thought, 1870–1920 (Oxford: Oxford University Press, 1986).

12. See Barbara Wootton, Plan or No Plan (London: Victor Gollancz, 1934). This is the argument later developed by F.A. Hayek in his The Road to Serfdom (London: Routledge, 1944). Hayek declared that the antithesis of totalitarianism was not democracy but laissez-faire liberalism.

13. F.A. Hayek acknowledges these economists and philosophers as ‘liberal’ in his essay ‘Liberalism’ reprinted in his New Studies in Philosophy, Politics, Economics and the History of Ideas (Chicago, IL: University of Chicago Press, 1978), pp. 119–151.

14. F.A. Hayek, ‘The Nature and History of the Problem’ in F.A. Hayek (Ed.), Collectivist Economic Planning: Critical Studies on the Impossibilities of Socialism (London: Routledge, 1935), pp. 1–40. Hayek maintained that only the competitive market could efficiently allocate resources and enable individuals to make as much use of their knowledge as possible.

15. Ludwig von Mises, Socialism: An Economic and Sociological Analysis (London: Bradford and Dickens, 1936), pp. 31–32.

16. Hayek, op cit, Ref. 14, p. 1.

17. Walter Lippmann, The Good Society (London: George Allen and Unwin, 1937), pp. 3–4. Lippmann's work was the most influential of several liberal-minded defences of freedom in the mid-1930s.

18. Lippmann acknowledged that he had freely borrowed the arguments of Mises and Hayek against economic planning. Lippmann's defence of the market order was, however, muted by his rationale for state regulation and the introduction of anti-trust laws to prevent monopoly and preserve free competition.

19. Indeed, there was something of an exile culture building up among liberal thinkers throughout Europe at this time—Isaiah Berlin was forced to flee Russia; in Germany, Alexander Rüstow spent the mid-1930s in exile in Turkey and later Geneva; and Hayek, who had anticipated that throughout the 1930s his permanent home would be Austria, spent the years preceding and during the war in retreat in London and Cambridge.

20. The conference was not attended by Hayek's colleagues from the LSE, Lionel Robbins and Arnold Plant, but their names were put on a list of members for projected meetings. The aim and membership of this gathering has a significant over-lap with that of the Mont Pelerin Society established in 1947. Indeed, Max Hartwell notes that ‘of the twenty-six participants (from eight countries), 12 were later among the early members of the Mont Pelerin Society’. See Hartwell, op cit, Ref. 3, p. 20.

21. Quoted in Richard Cockett, Thinking the Unthinkable: Think-Tanks and the Economic Counter- Revolution (London: Hutchinson, 1995), p. 12.

22. A.J. Nicholls, Freedom with Responsibility: The German Social Market Economy 1916–1968 (Oxford: Oxford University Press, 1994), pp. 96–97. He states that the term neo-liberal originated at the conference through the attempts of the Germans present to create a ‘third way’ between laissez-faire liberalism and collectivism. However, as Nicholls explains, it was not just German economists that sympathized with the neo-liberal position. Interest in a neo-liberal alternative came from America in the form of Lippmann, also from the Italian and French economists Costantino Bresciani-Turroni and Jacques Rueff.

23. Nicholls, Freedom with Responsibility: The German Social Market Economy 1916–1968 (Oxford: Oxford University Press, 1994), p. 49.

24. D. Abel, Ernest Benn: Counsel for Liberty (London: Ernest Benn, 1960), p. 110, quoted in Julia Stapleton, ‘Resisting the Centre at the Extremes: English Liberalism in the Political Thought of Inter-war Britain’, British Journal of Politics and International Relations, 1 (3), 1999, p. 287.

25. R. Skidelsky, The World After Communism: A Polemic for Our Times (Basingstoke: Macmillan, 1995), pp. 61–62.

26. Hayek's biographer, Alan Ebenstein comments that Hayek's goal for The Road to Serfdom ‘was to reach an audience of educated men and women, and, in influencing them, affect public policy’. Ebenstein, however, observes that although Hayek, at the time, was not aware how far he would reach, ‘that he greatly exceeded his expectations is apparent’. See his Friedrich Hayek: A Biography (New York: Palgrave, 2001), p. 115.

27. Hayek, op cit, Ref. 12, p. 31.

28. Hayek, op cit, Ref. 12, p. 63.

29. Quoted in Cockett, op cit, Ref. 21, p. 88.

30. George Orwell, ‘Review: The Road to Serfdom by F.A. Hayek’, in S. Orwell and I. Angus (Eds), George Orwell: The Collected Essays, Journalism and Letters of Orwell, Vol. III, 1943–1945 (London: Secker and Worburg, 1968), p. 118.

31. Certainly Orwell was never a member of the ‘neo-liberal club’. His sympathizes remained on the left, expressed through his concern for the plight of the unemployed and poor, documented most vividly in his The Road to Wigan Pier (Middlesex: Penguin, 1937).

32. The affinities between Popper and Hayek, however, should not be overstated. Jeremy Shearmur points out that there were obvious deep-seated differences in their approaches. Hayek, for instance, expressed a view that commercial society was characterized by disaggregated human action governed by legal rules, habits and customs, and a price mechanism. Popper, by way of contrast, while emphasising their importance, never had the kind of trust in free markets and spontaneous order that Hayek exhibited. Popper held a belief in scientific discussion and rational settlement in democratic policy-making as a means of solving common problems and improving civilization. Shearmur thus contends that from Hayek's perspective, Popper was ‘too much of an optimistic rationalist—albeit a critical one’. See his Hayek and After: Hayekian Liberalism as a Research Programme (London: Routledge, 1996), pp. 191–192.

33. Cockett, op cit, Ref. 21, p. 82.

34. Quoted in Cockett, op cit, Ref. 21, p. 82.

35. John Jewkes, Ordeal by Planning (London: Macmillan, 1948), p. vii. Indeed, as he went on: ‘Everything that I have to say … is to be found in Professor Hayek's masterly Road to Serfdom. Every planner who believes in reason as the guide in social organization, should read or re-read that book now and honestly ask himself whether events are or are not following the course against which Professor Hayek warned us four years ago’, p. ix.

36. Jewkes, Ordeal by Planning (London: Macmillan, 1948), p. viii.

37. Jewkes, Ordeal by Planning (London: Macmillan, 1948), p. 9. In his cautions against state intervention, Jewkes was more of a neo-liberal than Popper. Indeed, during his time working on the draft of the White Paper on Employment Policy in 1944, he was, with Lionel Robbins, quick to criticize the exaggerated claims for economic management; he had close ties with the ordo-liberals in Germany; and he was, for a period, president of The Mont Pelerin Society.

38. See F.A. Hayek, ‘Liberalism’, in his New Studies in Philosophy, Politics, Economics and the History of Ideas (Chicago, IL: University of Chicago Press, 1978) p. 120.

39. Hartwell, op cit, Ref. 3, p. 17.

40. Hayek, op cit, Ref. 7, p. 147.

41. F.A. Hayek, ‘The Intellectuals and Socialism’, in his Studies in Philosophy, Politics and Economics (London: Routledge, 1967), p. 179.

42. Hayek, F.A. Hayek, ‘The Intellectuals and Socialism’, in his Studies in Philosophy, Politics and Economics (London: Routledge, 1967), p. 183.

43. Hayek, F.A. Hayek, ‘The Intellectuals and Socialism’, in his Studies in Philosophy, Politics and Economics (London: Routledge, 1967), p. 194.

44. Hayek's paper on ‘The Prospect of Freedom’, MSPA, quoted in Cockett, op cit, Ref. 21, p. 104.

45. F.A. Hayek, ‘The Road to Serfdom after Twelve Years’, in his Studies in Philosophy, Politics and Economics, p. 224.

46. Hayek, op cit, Ref. 41, p. 194.

47. Hartwell, op cit, Ref. 3, p. 24.

48. Quoted in Robert Higgs, ‘Fifty Years of the Mont Pelerin Society’, Independent Review, 1 (4), 1997, p. 624.

49. This early gathering is significant as it was the first time, since the Paris conference of 1938, that previously isolated liberal thinkers had been able to come together to exchange views and establish personal relations.

50. Cockett, for example, cites the infamous occasion at a later MPS meeting, at which, ‘in a session chaired by Friedman, Mises became so enraged by what he heard that he stormed out, shouting “You're all a bunch of socialists!”’. Cockett acknowledges that, ‘Tempers cloud, and did, become frayed with such combative and opinionated intellectuals as von Mises and his like competing for attention’. See Cockett, op cit, Ref. 21, p. 114.

51. Quoted in Hartwell, op cit, Ref. 3, p. 37.

52. Hartwell, op cit, Ref. 3, p. 32.

53. Hartwell, op cit, Ref. 3, p. 37.

54. Hartwell, op cit, Ref. 3, p. 40.

55. ‘The Mont Pelerin Society Statement of Aims’ reprinted in Hartwell, op cit, Ref. 3, pp. 41–42.

56. F.A. Hayek, ‘Opening Address to a Conference at Mont Pelerin’, April 1, 1947, reprinted in Studies in Philosophy, Politics and Economics, p. 149.

57. ‘Mont Pelerin Society Statement of Aims’, reprinted in Hartwell, op cit, Ref. 3, pp. 41–42. Hartwell comments that whilst agreement existed as to what the general aims of the MPS should be, on more specific questions, such as what goods and services the government should actually provide, disagreement remained, pp. 36–37.

58. Hayek, op cit, Ref. 4, p. 151.

59. Higgs, op cit, Ref. 48, p. 625.

60. Quoted in Ebenstein, op cit, Ref. 26, p. 146.

61. Hartwell, op cit, Ref. 3, p. 192.

62. See, for example, J.E. Powell, Saving in a Free Society (London: IEA, 1960), Keith Joseph, Stranded on the Middle Ground (London: Centre for Policy Studies, 1976) and Nigel Lawson, The New Conservatism (London: Centre for Policy Studies, 1980).

63. Hartwell, op cit, Ref. 3, p. 193. Indeed, Hartwell is cautious to state that whilst ‘ideas and policies are obviously interdependent, in what way, how much, and how quickly policy reacts to changed ideas (or ideas to changed policy) is not a predictable process. Although there is an assumption that generally the causation runs from ideas to policy, it is often plausible to argue the reverse’.

64. Hartwell, op cit, Ref. 3, p. 222.