"The history of neoliberalism has at least three distinct phases. The first lasted from the 1920s until about 1950. The term began to acquire meaning in interwar Europe as the Austrian school economists and the German ordoliberals sought to define the contours of a market-based society, which they believed was the best way to organize an economy and guarantee individual liberty. “Neoliberal” was embraced by participants at the famous Colloque Walter Lippmann, organized in Paris in 1938 by the French philosopher Louis Rougier to consider the implications of Walter Lippmann’s book, The Good Society (1937). The term was chosen because it suggested more than a simple return to laissez-faire economics. Instead, neoliberalism would reformulate liberalism to address the concerns of the 1930s. Present, among others, were Hayek, Alexander Rüstow, Wilhelm Röpke, and Mises, as well as the French economist Jacques Rueff and the Hungarian British polymath Michael Polanyi. These men, along with others from Europe and America, would later form the Mont Pelerin Society with Hayek, Röpke, and Albert Hunold in 1947.
The influence of Mont Pelerin liberalism was apparent in Milton Friedman’s essay, “Neo-liberalism and Its Prospects,” published in 1951. Though little noticed and in many ways oddly unrepresentative of his thought, Friedman’s article can be seen in retrospect as an important bridge between the first and second phases of neoliberalism, between the concerns of the predominantly European founding figures, located in Austria, London, Manchester, France, Switzerland, and parts of Germany, and a subsequent generation of thinkers, mainly though by no means all American, located especially in Chicago and Virginia. Of course, the “first Chicago school” of economics, comprising Frank Knight, Jacob Viner, and Henry Simons, played its part in neoliberalism’s formation, but most early neoliberals were preoccupied with European concerns.
The second phase of neoliberalism lasted from 1950 until the free market ascendency of Thatcher and Reagan in the 1980s. At the zenith of New Deal liberalism and British social democracy, when neo-Keynesian approaches to economic policy were at their height, much of this period was a superficially lean time for neoliberals. Outside Germany, they lacked concrete political success in the 1950s and 1960s. Instead, neoliberalism generated intellectual coherence and matured politically. It grew into a recognizable group of ideas, and also into a movement. An increasingly confident group of thinkers, scholars, businessmen, and policy entrepreneurs developed and refined a radical set of free market prescriptions and promoted their agenda. Ironically, it was also in this period that the use of “neoliberal” by its proponents became less common. This was odd at a time when American neoliberal thinkers in particular were defining it ever more precisely in the spheres of industrial organization, monetary policy, and regulation. But this was probably because the term meant little in an American context.
Characteristic of the Chicago approach was the “methodology of positive economics,” out of which emerged Friedman’s revival of monetarism and Stigler’s theory of regulatory capture. This empirical bent was allied to new theories and research endeavors, subsidized by sympathetic business finance and developed in the 1950s and 1960s, about the relatively harmless nature of monopoly and the positive role of large corporations. From the Chicago perspective, the more worrying manifestation of monopoly was trade union power. The Chicago approach marked a sharp contrast, however, with European neoliberalism and even with the adherents’ own departmental forebears, such as Frank Knight, Jacob Viner, and, most important, Henry Simons. German ordoliberals, for example, always took the need for robust antimonopoly policies seriously. In parallel with the technical work of the Chicago economists, Friedman’s polemical arguments, put forward in Capitalism and Freedom (1962)—the “American Road to Serfdom,” as Philip Mirowski and Rob Van Horn have called it—presented the market as the means both to deliver social goods and to deliver the ends, the good life itself.
A third phase of neoliberalism, after 1980, was driven by the advance of an agenda of market liberalization and fiscal discipline into development and trade policy. Neoliberalism broke out of the predominantly North Atlantic and Western European confines of elite academia and domestic national politics and spread into many global institutions, especially in the former communist countries and the developing world. Its principles were adopted by economists and policymakers of the International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO), the EU, and as part of the North American Free Trade Agreement (NAFTA). The 1980s and 1990s were notable for the notorious “structural adjustment” policies pursued through these institutions and agreements. These were summarized in 1989 by the British economist John Williamson as the now renowned “Washington Consensus” and included tax reform, trade liberalization, privatization, deregulation, and strong property rights. The certainty with which such policies were introduced has been much criticized by economists such as Joseph Stiglitz and Paul Krugman, as well as by uncompromising opponents of capitalism in the antiglobalization movement, which famously erupted at the WTO meetings in Seattle in 1999."
Daniel Steadman Jones, Masters of the Universe: Hayek, Friedman and the Birth of Neoliberal Policies, Princeton University Press (2012).
