Neoliberalism

Historical Background

Neoliberalism is considered to be a close descendant of the classical liberalism of the 18th and 19th centuries. Neoliberalism shares classical liberalism's commitment to free markets, free trade, and a night watchman state whose role does not extend beyond securing the institutional conditions for efficiently operating markets. However, there are also significant differences between the two, as classical liberalism emerged as a critique of the feudal aristocratic state in the nascent years of capitalism while neoliberalism emerged as a critique of the social democratic welfare state in late capitalism.

Classical liberalism emerged and was propagated as a political doctrine legitimating the early capitalists' challenge to aristocratic authority and the feudal state. It is associated with the authors John Locke, Jeremy Bentham, Adam Smith, and John Stuart Mill. It advocated the fundamental equality of persons, the primacy of consent as the basis of authority, and belief in rationality as the basis of public decision making. It embraced the view that individuals acting rationally to pursue their greatest happiness was both the most just and the most effective way of organizing society. It is widely credited with initiating the popularization of democracy.

Neoliberalism emerged, in contrast, as a critique of the social democratic states in the middle of the 1900s. The Austrian economist Friedrich von Hayek initiated the movement with his ground-breaking text The Road to Serfdom in 1944. In 1947 he convened the first gathering of the Mont Pelerin Society, a community of scholars committed to the reinvigoration of classical liberal ideas. This group of intellectuals went on to attack the growth of the democratic welfare state and to advocate a greater reliance on free markets. The body of thought emerged along two central prongs, the first being a critique of democratic states and the second in advocating the superiority of markets. The neoliberal framework classically seeks to weigh government failure against market failure, usually concluding that the latter is the lesser evil.

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