In the wake of the Great Recession of 2008, liberals were dismayed by the economic carnage but could at least rejoice that the dominant ideology of free markets had been exposed as fiction. The deepest vulnerabilities of unregulated capitalism had been cast into sharp relief; the groundwork was now in place for a return to robust regulation of the financial sector and a broader shift to the left.
Yet as subsequent years have made clear, 2008 marked no such inflection point. The downturn helped usher Barack Obama into office, but his presidency has been defined less by liberal realignment than by the emergence of an Ayn Rand–inspired Tea Party movement that voted in a wave of conservative House members. After a moment of uncertainty, libertarian and conservative pundits recovered and blamed government regulation for the crisis. Well-connected Democratic bankers and ex-bankers helped craft a recovery plan that socialized risk, privatized gain, and did little to punish or correct the excesses of Wall Street. The passage of health-care reform was a bright spot, but the battle of ideas appeared lost. If liberals had expected conditions for a new New Deal, they found instead a backlash fiercer than the one endured by Franklin Roosevelt.
Observers of history may have been less surprised by the durability of the free-market consensus. As Daniel Stedman Jones shows in Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics, today’s ideas about capitalism and free markets have been germinating for nearly a century, and they are not likely to disappear overnight. Originally a doctoral dissertation, Masters of the Universe retains some academic stiffness but is also shaped by the cosmopolitan career of its author, a British lawyer who has worked for the London-based think tank Demos (not connected to the New York–based De¯mos, which until recently was the Prospect’s publishing partner). Jones uses the terms “liberalism” and “neoliberalism” in the European sense, referring to the centuries-long liberal tradition of limited government associated most closely with the 18th-century Scottish thinker Adam Smith. He picks up the story in the 1930s, the decade that saw the emergence in America of the modern Democratic Party. Roosevelt’s New Deal and Britain’s New Liberals were transforming the meaning of liberalism, attaching it to social welfare policies that were anathema to classical liberals.
Jones begins with a discussion of three old-school European thinkers who balked at this redefinition. All agreed that the 1930s rise of socialism, communism, and fascism represented a widespread threat, but they identified different causes and cures. In The Road to Serfdom (1944), Austrian economist F.A. Hayek cried that state expansion was endangering Western civilization—yet he advocated welfare measures that would get him labeled a socialist today. Ludwig von Mises, Hayek’s mentor, went further, calling in Bureaucracy (1944) for a stripped-down government that would refrain altogether from intervening in operations of the free market. Near the war’s end, philosopher Karl Popper would take the long view in The Open Society and Its Enemies (1945), developing a historical account of the West rooted in a critique of Plato and a sharp distinction between the individual and the collective that would become a right-wing shibboleth.
All this was mere prelude, however. It took the postwar involvement of American thinkers like Milton Friedman to yield a distinct set of neoliberal ideas, defined as “monetarism, deregulation, and market-based reforms.” Unlike his gloomy predecessors, who’d been traumatized by the hideous events in Europe, Friedman saw his career unfold amid patriotic Cold War rhetoric and the unprecedented postwar economic expansion. He was optimistic by nature and far more confident in the possibilities of capitalism as both an economic and social system. What distinguished neo- from classical liberalism, and what Friedman helped pioneer, Jones argues, is the collapsing of what had previously been understood as two categories into one. In Capitalism and Freedom (1962), Jones explains, “Friedman suggested that the common division of the economic and political spheres was false.” Freedom, in other words, was not simply a matter of the standard rights enumerated in the First Amendment. Equally important was the right of free economic contract and the right of the worker, businessman, or physician to conduct his or her affairs without regulatory interference.
Friedman’s idea was echoed by iconoclastic economists at the University of Chicago, where he taught, and at the University of Virginia who developed public choice theory, and by political scientists who developed rational choice theory. These scholars pushed economic analysis into new domains, suggesting that it could explain the outcome of elections, the behavior of bureaucracies, even an individual’s choice of occupation or marriage partner. At the same time, in 1950s Europe, German proponents of a social-market economy and members of the Mont Pelerin Society—an international group of economists—helped foster a consensus around the desirability of free markets. Alongside Friedman’s initial assertion, their work would ensure that “politics and the provision of public services were increasingly seen in terms of market processes rather than in terms of citizenship rights.”
In his middle chapters, Jones switches from intellectual to political history, as neoliberalism came down from its ivory tower and found a second home in a trans-Atlantic web of think tanks and policy institutes. He details a fast-growing network of academics, politicians, policy entrepreneurs, and businesspeople, drawn together by their conviction that the market must be liberated from the state. Although this network was funded by the same sort of right-leaning business titans we’re familiar with today, the forerunners of the Koch brothers struck little fear in liberal hearts. Instead, they were ignored or treated by the establishment as marginal, extreme—“nutters.” Meanwhile, think tanks and institutes like the American Economic Foundation and the British-based Institute of Economic Affairs ensured that neoliberal ideas thrived. Over time, the introductions and contacts they nurtured would create vital links between the worlds of academia and policy.
The stage was set for triumph—at the hands of some surprising protagonists. Although the cover of Masters of the Universe displays the more familiar visages of Ronald Reagan and Margaret Thatcher, Jones’s most original contribution is to remind us that even before the rise of these conservative heroes, amid the rampant inflation and stagnant growth of the 1970s, President Jimmy Carter and British Labour Prime Ministers Harold Wilson and James Callaghan embraced deregulation, spending cuts, and low inflation as a target more important than low unemployment. Carter, aided by Senator Edward Kennedy and influenced by Friedman’s colleagues at the University of Chicago, proposed legislation that deregulated airlines and trucking; under Carter in 1980, a bill was passed that would phase out interest-rate ceilings for banks. Still, even as Jones implicates Carter and Britain’s Labour leaders in the rise of neoliberalism, he suggests that their exit meant a lost opportunity. Had these figures been re-elected, the neoliberal idea might have remained a temporary and technical response to economic crisis, an expansion of the policy tool kit. Instead, as Jones writes, “the terrible prevailing economic conditions ensured that monetarism, deregulation, and trade union reform acted as Trojan horses for a more polemical neoliberal faith in free markets.”
As it turns out, by its design Jones’s book cannot do much to illuminate this disjuncture between neoliberalism as mere policy and neoliberalism as a larger, guiding faith. Some of this is a function of comparative history, an approach that often compels a focus on the cosmopolitan elites who move between continents and cultures—the people Keynes called the “academic scribblers.” Indeed, Masters of the Universe is a firm brief for the independent, causal power of ideas to shape history. Usefully, Jones highlights the trans-Atlantic emergence of thought and policies celebrating free-market capitalism, showing that this was not just a case of American exceptionalism at work.
Tied to Jones’s argument is a veiled contradiction, though. He emphasizes the rational, economic cast of neoliberal thought and its roots in dispassionate academic discourse. He’s particularly good at detailing how this new set of ideas departed from the revered Adam Smith, even as Smith served as inspiration. Alongside the “invisible hand,” Smith had famously written about “sympathy,” or the innate concern with the welfare of others that was an essential part of the human moral sense. But the neoliberals advanced “a virulent faith in the individual and his economic behavior rather than any conception of cultivated behavior, manner or moral sympathy,” Jones writes. He is less convincing when arguing that neoliberalism was divorced from morality altogether. Neoliberalism did advance a distinct set of values that may sometimes be hard to recognize as such—particularly an embrace of inequality. For neoliberalism’s founders, if people differed at all in their natural endowments, to establish equality as a social goal was to justify state coercion. Conversely, inequality signaled not injustice but the presence of freedom. As Jones himself writes of Hayek, “The idea that redistribution and greater equality were not simply disincentives to initiative but actually morally debilitating emerges as a crucial dimension of neoliberal thought.”
It may be that what Jones draws together as neoliberalism actually represents several strains of thought, some abstract and academic and others pulsing with ideological energy. While he notes the intersection of neoliberal economics with the “traditions and myths of American individualism,” more attention to these cultural resonances would have made it easier to understand the durability and bipartisan political potency of the market solution. On a related note, religion is almost entirely missing from the book. Perhaps this is understandable in a trans-Atlantic intellectual history of economic ideas, yet it is difficult to gain a robust understanding of the rise of free-market thinking in America, at least, without paying attention to how free markets synthesized with Christian belief and how shifts in religious demographics, practice, and theology made the radical idea that government bears no responsibility for the general welfare seem moral.
Jones leaves us with some intriguing might-have-beens. He seems to accept that many of the policy responses to the 1970s economic crisis were legitimate, even necessary. Yet he argues that they need not have presaged a wholesale shift to the market as the measure of all things. In some ways, then, the responsibility for neoliberalism’s rise and dominance lies not only with conservatives but also with the inheritors of New Deal liberalism who failed to properly harness public-policy innovation to a broadly appealing agenda. The 1970s were, after all, years of struggle for the working class, the very demographic New Deal liberals had served for so long. But amid the cultural tumult of the 1960s, liberals had failed to grasp how traditional values of individualism and self-reliance—not to mention social conservatism—would soon surge again to the fore. It was Reagan and not Carter who expertly played these notes to win election in 1980, inaugurating decades of ever-bolder financial deregulation, which Jones calls “an extreme manifestation of the neoliberal faith in markets” and, eventually, a “mantra universally followed by Republicans, Conservatives, Democrats, and Labour Party politicians alike.” Jones’s provocative if disconcerting argument deserves wide consideration. So does Masters of the Universe, which does much to help explain the aftermath of 2008 and the ways in which political responses that might have defined another era seem unthinkable in ours.