Lunatics Take Over the Asylum: Neoliberalism uncut
An investigation into the international movement to persuade us there’s just no money left to invest in health, schools, local government, roads or railways. Who master-minded the economic hokum that distorted reality so comprehensively we believe we’ve maxed the national credit card and we have no option but to live in a society without the morality to care for the needy? This is the side of the 1960s and 1970s we’ve never seen before, the crisis that led to the rule of international finance and ‘the twilight of sovereignty.’
Civil liberty is different from individual liberty. Philosophers have known this since at least the 17th Century. We explore the two fundamental fallacies of neoliberalism to show why neoliberal economics can only bring prosperity to the few, and is incapable of predicting financial crashes. Today in the USA those damaged by neoliberalism have been driven to elect an unhinged criminal...
How did less welfare, less government regulation of business (aka neoliberalism free market) become a global ‘fashion’ without any evidence of its benefits? Something to do with an imposter ‘Nobel’ prize and a PBS TV series funded by American big business?
We look at the roots of free market Neoliberalism and discover that big business in the US has been championing freedom from regulation since 1895, even claiming in 1923 that the anti-child labour movement in America was secretly being run from Moscow…
The breakdown of American post-war consensus in the 60s calls for desperate measures on all sides: a government war in Vietnam, inner-city rioting, sex, drugs and rock and roll. Alarmed, US businesses seek salvation from the previously dismissed economic theory of neoliberal free-market capitalism.
Neoliberalism was welcomed, finally, as a way to tackle what seemed to be a breakdown in American society in the late 1960s. Big business and FBI under J Edgar Hoover felt threatened by Keynsian consensus on welfare and the eradication of poverty. They had plenty to gain by provoking the extremism, and clearing the way for Milton Friedman.
Unbelievable, sinister. Milton Friedman advises apartheid South Africa that neoliberal free-market economics can solve the problems of the Soweto riots, in the same way it delivered a ‘miracle’ of liberty under the brutal dictatorship of General Pinochet in Chile.
We present the final, damming evidence that the neoliberal case for freedom from all government regulation was always a dangerous deceit. It was always intended to make us prisoners of the unaccountable rich, as we are today. This is not liberty. It is not even the twilight of sovereignty. This is Armageddon.
The historiography of Neoliberalism is too vast even to summarise here. All we can do is to map some possible routes into it.
We started with Helga Leitner, Jamie Peck and Eric Sheppard (eds.), Contesting Neoliberalism (New York 2007). Peck’s chapter with Adam Tickell, ‘Conceptualising Neoliberalism, thinking Thatcherism’ makes a useful starting point because it retells the story neoliberals would like us all to believe. In this version, neoliberalism was a bundle of academic theories that proved their worth in the aftermath of the 1970s oil crisis. You’ll come across many versions of this tale. See, for example, Steve Davies, ‘Think-tanks, policy formation and the “revival” of classical liberal economics’, The Review of Austrian Economics 33 (2020), pp. 465-79. Or Marie-Laure Salles Dejic, ‘Building an architecture for political influence’, in Christina Garsten and Adrienne Sörbom Power, Policy and Profit: Corporate Engagement in Politics and Governance (Cheltenham, 2017) pp. 25-40. Or Christopher Muller, ‘The institute of economic affairs: Undermining the post‐war consensus, Contemporary British History’ 10 (1996) pp. 88-110.
We think this interpretation is nonsense. First, the closer we looked, the more obvious it became that neoliberalism was never a serious economic theory. It has always been a species of rhetoric. Start with John D Bone, ‘The Neoliberal Phoenix: the big society of business as usual’, Sociological Research Online 17 (2012), pp. 2-11 which exposes a series of neoliberal myths, for example that there is ‘no alternative’ or that governments need cuts to preserve them from insolvency. Terry Hathaway’s ‘Neoliberalism as corporate power’, Competition and Change 24 (2020), pp. 315-37 goes on to show neoliberalism to be an incoherent ‘bricolage of ideas and practices’ that led to ‘the coercive, non-democratic and unequal reorganisation of societies.’ Neoliberalism in practice ramps up the regulation of pretty much everything except business.
For a sobering exposé of the way this superficial neoliberal ‘bricolage’ has bamboozled the media, look up Michael Blastland and Andrew Dilnot, ‘Review of the impartiality of BBC coverage of taxation, public spending, government borrowing and debt’ (BBC 2022). Blastland and Dilnot reported that the BBC had for years disgraced itself with its ignorant reporting of economics.
Second, this neoliberal rhetoric seems to us to belong to a much longer campaign by businesses to shrug off regulation and social responsibility. The sensationalist title of Naomi Oreskes and Erik M. Conway, The Big Myth. How American Business taught us to Loathe Government and Love the Free Market (Bloomsburg NY 2023) serves as a warning flag. But Oreskes is a Harvard Professor and Conway an historian with the California Institute of Technology. Their specialism is the history of science and this book arose from an earlier study of attempts by business to suppress climate science. The Big Myth brings together a mass of material on American business’s long campaign. If details do occasionally go astray, the overall argument is compelling and the stories are always worth reading. This is history done with passion and cause.
Adding another layer is the disaster of the 1944 Bretton Woods agreement, which was eventually to undermine the postwar Keynesian consensus. On Bretton Woods itself, look no further than Benn Steil, The Battle of Bretton Woods (Princeton University Press 2013). David M. Kotz, The Rise and Fall of Neoliberal Capitalism (Harvard 2015, and with new preface, 2017) then takes us through the extraordinary success of the post-war period of Keynesian economics and its breakdown before Reagan and Thatcher. Follow up with Wendy Wall, Inventing the ‘American Way’. The Politics of Consensus from the New Deal to the Civil Rights Movement (OUP 2008) which sets postwar economics in a wider context.
Don’t miss Daniel R Fusfeld, ‘The rise of the Corporate State in America’, Journal of Economic Issues 6 (1972), pp. 1-22. We use it in the series as an extraordinarily revealing window, opened by a Michigan economist, into the condition of the USA in 1972.
Rebecca E Klatch, A Generation Divided: the new Left, the new Right, and the 1960s (University of California 1999) vividly recaptures the febrile American mood as this postwar consensus collapsed. It is a study of the increasingly embittered student political extremism of the 1960s, reconstructed from vivid interviews with those who took part.
We toy with the possibility that American intelligence might have played a part in ending Keynesianism, if only because the CIA clearly used the Chicago Neoliberals to worm its way into Latin American trade. Check out the essays by Aryeh Neier and Geoffrey Rips, both in Index on Censorship 10 (1981). David Rhode’s chapter on the Church Committee of 1976 in his In Deep: the FBI, the CIA and the truth about America’s “Deep State” (Norton 2020) is also very revealing.
Then read Philip Zelikow, ‘American Economic Intelligence: Past Practice and Future Principles’, in Rhodri Jeffreys-Jones and Christopher Andrew, Eternal Vigilance? 50 Years of the CIA (Cass 1997, Routledge 2013) on the role of the CIA in the US’s international economic policy. Finally, take a look at Daniel Berger, William Easterly, Nathan Nunn and Shanker Satyanath, ‘Commercial Imperialism? Political Influence and Trade During the Cold War’, American Economic Review 103 (2013) pp. 863–896 which uses CIA documents to show covert US interference in the trade of other nations.
Beneath the surface, however, the most powerful force in the ascent of neoliberalism was international finance. Harvey Blutstein’s chapter on Walt Wriston in The Ascent of Globalisation (Manchester University 2015) is essential, hilarious, astonishing reading on a crucial but unaccountably neglected individual. It was Wriston who inspired the eclipse of sovereignty by international finance. (No – really). Other chapters in Blustein’s book – particularly that on Hayek and the think tanks - are also entertaining and revealing.
For more detail on the part played by finance, read David Harvey, ‘Neoliberalism and the City’, Studies in Social Justice 1 (2007), pp. 2-13. It’s an entertaining attack on neoliberalism from the well-informed left. Read it for its account of the 1975 bankruptcy of New York and the boggling figures (drawn from the New York Times) on the wealth of financial institutions on the eve of the 2007 crash. Read Harvey also for his knock-about prose.
To be serious again, consult Aled Davies, City of London and Social Democracy (Oxford 2017) which reads awkwardly like a doctoral thesis, but confirms from the English evidence that neoliberalism was driven not by any corpus of ideas, but by financiers who seized control wholly in their own interests.
You can track more of the English story of Neoliberalism in Daniel Stedman Jones, Masters of the Universe: Hayek, Friedman, and the birth of Neoliberal Politics (updated ed. Princeton 2016). It’s a scholarly account, though you wonder whether, had Stedman Jones been more aware of Davies’s work, he might have told a different story. We decided that the British end of neoliberalism was just too depressing to go into in much detail. But Eric Evans is always worth reading and his Thatcher and Thatcherism (3rd ed. Routledge 2013) is the place to go if you want to see off the myth of the iron lady.
On Friedman himself, you could do worse than dip into his Capitalism and Freedom (Chicago 1962). The economist’s plainly ridiculous arguments do a much better job of discrediting him than anyone else could have done.
Following a hunch, we read John W. Boyer, The “Persistence to keep Everlastingly at it”. Fund-raising and philanthropy at Chicago over the last 130 years’ (University of Chicago 2018) The University of Chicago’s financial difficulties in the 1950s turn out to explain a great deal about the origins of Milton Friedman’s obsessions.
Paul Krugman’s obituary of Milton Friedman in the New York Review of Books 15 February 2007 (available online here) is as thoughtful and illuminating a piece as you’d expect from a distinguished and articulate economist somewhat to the left. Read it with Johan van Overtveldt, The Chicago School. How the University of Chicago assembled the thinkers who revolutionised economics and business (Agate 2007) which gives a wider context on the Chicago school and is more sympathetic to Friedman.
For the whole farce of the fake Nobel Prize in economics, enjoy Avner Offer and Gabriel Söderberg, The Nobel Factor. The Prize in Economics, Social Democracy, and the Market Turn (Princeton 2017). Then Sören Brandes, ‘The market's people: Milton Friedman and the making of neoliberal populism’, in W. Callison & Z. Manfredi (eds.), Mutant neoliberalism: Market rule and political rupture (Fordham University Press 2020), pp. 61–88 gives a revealing account of Friedman’s 1980 PBS series Free to Choose.
You’ll find Sarwat Jahan and Chris Papegeorgiou’ ‘What is monetarism’ in the IMF’s Finance and Development 51 (2014). For the non-economist, it’s as good an explanation and critique of Friedman’s pet theory – and its rapid exposure as a dead end - as you’ll find.
We hint that Friedman’s reputation as a statistician is open to question. For a good examples, look up David Hendry, Stedman Hood and Neil Ericsson, ‘Milton Friedman and data adjustment’, (Centre for Economic Policy Research 2017) which you can find here. Follow their footnotes for more.
We use Murray Friedman, The Neoconservative Revolution. Jewish Intellectuals and the Shaping of Public Policy (Cambridge 2012) as a way of approaching Friedman from another angle. The book is full of telling detail about the thinkers of the third quarter of the twentieth century, told by an author who knew them personally. He has less to say about Friedman himself, but the context he gives – especially on anarchism – is revealing.
On Friedman’s problematic relationship with Chile, start with Sebastián Edwards, The Chile Project. The Story of the Chicago Boys and the Downfall of Neoliberalism (Princeton 2023). Edwards is Chilean-American who knew many of the protagonists – including Friedman. It’s an intriguing, revealing book that veers between sympathy and criticism of neoliberalism, which makes for an uncomfortable journey. Read with care, as much between the lines as along them. Put it alongside Edwar E Escalante, ‘The influence of Pinochet on the Chilean Miracle’, Latin American Research Review 57 (2022), pp. 831-47 and Kristian Gustafson, Hostile Intent : U.S. Covert Operations in Chile, 1964-1974 (University of Nebraska 2007).
We chose to gloss over Hayek’s equally damning relationship with Pinochet’s Chile. But you could try John Meadowcroft and William Kruger, ‘Hayek, Friedman, and Buchanan: On Public Life, Chile, and the Relationship between Liberty and Democracy’, Review of Political Economy 26 (2014), pp. 358-67.
For another intriguing footnote to the Chicago boys, which we also didn’t have space for in the series, see Johanna Bockman, ‘Democratic Socialism in Chile and Peru: Revisiting the “Chicago Boys” as the origin of Neoliberalism’, Comparative Studies in Society and History 61 (2019), pp. 654-79. Bockman argues that Latin American neoliberalism owed a debt not only to Chicago but also to self-management precedents in Titoist Yugoslavia.
We look also at the disgraceful way neoliberalism was used to delay the end of South African apartheid. The book here is Antina von Schnitzler, Democracy’s Infrastructure: techno-politics and protest after Apartheid (Princeton 2016). After a long introduction discussing the philosophy of a free market, Schnitzler takes us into the disgraceful events after the Soweto riots of June 1976.
Herbert Simon, more-or-less the founder of behavioural economics, perhaps gets too little space in our series. Michelle Baddeley, Behavioural Economics: A Very Short Introduction (Oxford 2017) is an excellent, if very short introduction, to a big field. Follow up with Ying-Fang Kao and K Vela Velupillai, ‘Behavioural Economics: Classical and modern’ in The European Journal of the History of Economic Thought, 22 (2015),pp. 236-271, which draws out the contrast between Herbert Simon’s approach and the abortive attempt to model behavioural economics mathematically. Simon’s original paper is still worth looking at - ‘A Behavioural Model of Rational Choice’ Quarterly Journal of Economics 69 (1955) pp. 99-118.
For more of the context to this part of the story, check out Michaël Assous, Olivier Brette, Alexandre Chirat, and Judith Favereau, Herbert Simon’s experience at the Cowles Commission (1947–1954) (University of Nanterre 2022)
Finally two views from France. Vivien A Schmidt, From State to Market. The Transformation of French business and government (Cambridge 1996) traces the course of an economy that never did fully embrace neoliberalism and appears to have been all the stronger for it.
Thomas Picketty’s Capital in the 21st Century (Engl trans Harvard 2014) is as essential a book as it is infuriating. Picketty roundly condemns his fellow economists for the extreme thinness of the data they use. His book is instead filled with graphs and tables representing data that he has painstakingly assembled across many countries and sometimes extending back into the 18th century. You’d need to chase down his footnotes to tussle with the enormous methodological challenges of generating anything reliable on this scale. The results appear to show startlingly clear and consistent trends – particularly growth combined with exceptionally low inequality 1945-75 and a depressingly rapid return since to a Dickensian gulf between rich and poor, under the sluggish economies of neoliberalism. But Picketty’s historical explanations lack conviction (did the First World War really cause mass destruction of property, but no offsetting profits from wartime production?) This is a book to trawl but not necessarily always to trust.