Masters of the Universe:
Hayek, Friedman, and the Birth of Neoliberal Politics
by Daniel Stedman Jones
Princeton University Press, 2012, 432 pp.
“The owl of Minerva,” Hegel famously wrote, “flies only at dusk”: historical events can be theoretically comprehended only in retrospect. Is this the case with neoliberalism? A term ubiquitous in the academy but scarcely used outside it, the concept is difficult to define with precision. A common shorthand identifies it as the economic and philosophical ideology behind the Reagan-Thatcher revolution; it is also often agreed that this ideology contributed somehow to the financial crisis of 2008. Now, with the recession technically over but recovery still ambiguous, two recent books attempt to describe neoliberalism’s historical origins and explore its current political implications.
In Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics, Daniel Stedman Jones charts the rise of neoliberalism, which he defines as the “coherent, if loose, body of ideas” that underwrite our contemporary “market-driven society.” He begins with the intellectual biographies of three exiled Central European thinkers—Ludwig von Mises, Friedrich Hayek, and Karl Popper—who challenged the industrial West’s consensus around social welfare programs, full employment, labor unions, and state intervention. This first, émigré generation (joined by kindred Americans and West Germans) were “neoliberal” in their opposition to central planning, but also “neoliberal” because they sought a reformed liberalism for the middle of the twentieth century, not a simple return to the laissez-faire of the nineteenth. Hayek’s Road to Serfdom, for example, countenanced significant departures from laissez-faire, including universal health care.
Stedman Jones shows that as neoliberalism developed it became “much more simple and reductive”—and also more politically practical. Second-generation figures such as Milton Friedman in the United States and Keith Joseph in the United Kingdom were buoyed by grassroots New Right activism and the patronage of well-organized “business conservatives.” Through transatlantic foundations and colloquia, neoliberal ideas—lower taxes, less regulation, a focus on monetary rather than fiscal policy—spread to politicians and public intellectuals. When the economic crisis of the 1970s confounded Keynesian orthodoxy, neoliberalism offered a coherent alternative attractive even to center-left politicians. By the 1980s the tentative reforms of Jimmy Carter and James Callaghan were succeeded by more strident right-wing governments, and the neoliberal triumph seemed complete.
While he clearly conveys this central narrative, Stedman Jones’s analysis is sometimes superficial. He too often presents economic theory through long quotation rather than synthetic paraphrase, and he lacks the confidence to adjudicate between competing economic claims. This almost total agnosticism keeps him from discussing the deep causes of the crucial 1970s downturn or locating the precise failures in Keynesian thought. He lazily glosses Keynes’s saying “in the long run we are all dead” by repeating the canard that Keynes was indifferent to “long-term requirements.” In fact, as economist Brad DeLong has written, the phrase in context is a technical point about the quantity theory of money and “has absolutely nothing to do with attitudes toward the future.”
Absent a deeper economic analysis, Stedman Jones offers a morality play about moderation, formulaically applicable to any alleged extremism. Neoliberalism is a “faith-based policy” whose exponents subscribed too readily to the lofty abstractions of a total worldview. It follows that neoliberalism’s poisoned fruits—like its nagging tendency “to affect the most vulnerable members of society in the harshest ways”—“probably weren’t . . . . intended effects.” This impulse to acquit neoliberals dovetails with a hostility to Marxists, who are dismissed for believing that neoliberalism emerged as a “fully formed” capitalist conspiracy “to torment the poor.” This is a caricature: David Harvey, the leading Marxist theorist of neoliberalism, describes its decades-long coalescence as “a series of gyrations and chaotic experiments.” In hastily dismissing Harvey, Stedman Jones avoids dealing with his crucial thesis—that neoliberalism was not driven by “the simple power of a firm faith in markets,” but by the dynamics of class conflict.
In Harvey’s argument, a profitability crisis in the 1970s drove capitalists and the state to push back against the postwar gains of an increasingly restive working class. Neoliberalism is best understood as an attempt to restore profitability and elite power. Increasing inequality was the goal, or at least part of it. Thatcher’s adviser Alan Budd, for example, admitted that “the 1980s policies attacking inflation by squeezing the economy and public spending were a cover to bash the workers.” Jimmy Carter’s Federal Reserve chairman Paul Volcker announced his monetarist interest rate hike in 1979 by declaring that “the standard of living of the average American has to decline.” Volcker hailed Reagan’s crushing of the PATCO strike two years later for its “profound” and “constructive” “effect on the climate of labor-management relations.” Stedman Jones claims that monetarism was “theoretically separate” from the rest of the neoliberal program, but these quotations suggest that tight money and union-busting formed part of a single class project.
Neither Volcker’s nor Budd’s words appear in Masters of the Universe, nor does any intimation of class struggle. When he speaks of “the Left,” Stedman Jones means Carter and Callaghan, not wildcat strikers or Rudolf Meidner, whose proposal for the gradual socialization of corporate profits was endorsed by the Swedish trade union federation in 1976. He also avoids discussing Chile’s Augusto Pinochet, whose coup against democratic Marxism provided neoliberals an early laboratory. His praise for Friedrich Hayek’s “reasonable and nuanced views” are unqualified by any examination of Hayek’s avowed willingness to “sacrifice democracy” in order to protect (economic) “liberty.” These omissions whitewash the violently elitist side of neoliberalism, captured in the dark Latin American joke that “people were in prison so that prices could be free.”
Stedman Jones argues for the superiority of his approach on the grounds that, unlike Marxist determinism or capitalist triumphalism, it acknowledges the historical contingency of neoliberalism. He suggests that given certain reasonable counterfactuals (no Iranian hostage crisis, no Falklands War), Carter might have won a second term, and a Labour government might have toppled Thatcher in 1983. In this close possible universe, he suggests, the forward march of neoliberalism might have been halted. But as Stedman Jones himself shows, center-leftists were always implicated in neoliberalism: Carter appointed Paul Volcker and initiated deregulation, while Bill Clinton “ended welfare as we have come to know it” and enthusiastically signed the Glass-Steagall repeal.
Stedman Jones’s personal preference is as uninspiring as his fantasy of a second Carter term: “faith-based policymaking” should be renounced in favor of “reason-based policymaking” that technocratically harmonizes elements of neoliberalism with facets of Keynesianism. This obsession with balance leads to a conspicuous evenhandedness. While admitting neoliberalism’s role in the late financial crisis, Stedman Jones also credulously affirms that the Community Reinvestment Act, a well-known conservative bogey, was a “reason” for the housing debacle. The “classless society” and “the pure free market” alike are dismissed without argument as “illusions.” With such impeccable centrism, Stedman Jones offers little more than conventional wisdom to supplement his historical account.
At first glance, Johanna Bockman’s Markets in the Name of Socialism is a shorter, more academic, and more esoteric work than Masters of the Universe. Bockman’s book is provocatively subtitled The Left-Wing Origins of Neoliberalism, but most of her narrative touches only indirectly on neoliberalism. Her real focus is the relationship between socialist politics and neoclassical economics. As her intellectual and political history deftly illustrates, there is no inherent affinity between neoclassical theory, market institutions, and capitalism. (Here she offers a corrective to Marxists like Harvey, whose key text on neoliberalism conflates it with neoclassical economics.) The pioneers of neoclassical economics recognized the relevance of socialism to their project and assumed that one scientific vocabulary could therefore apply to socialism and capitalism. Some of the founders of the discipline identified themselves as socialists, and later left-wing economists like Oskar Lange devised models of market socialism, which combined social ownership and price signals, using neoclassical tools.
This is a caricature: David Harvey, the leading Marxist theorist of neoliberalism, describes its decades-long coalescence as “a series of gyrations and chaotic experiments.” In hastily dismissing Harvey, Stedman Jones avoids dealing with his crucial thesis—that neoliberalism was not driven by “the simple power of a firm faith in markets,” but by the dynamics of class conflict.
The centerpiece of Bockman’s book is her picture of a transnational Cold War dialogue on socialism and the market, which draws on extensive interviews and research in several languages. She shows how American Sovietology, originally intended to understand the enemy, worked to create intellectual bridges between Western and Eastern neoclassical economists and socialists. As Stalinism thawed and McCarthyism faded, a proliferation of exchange programs and international organizations led economists on both sides of the Iron Curtain to discover they spoke the same mathematical language and had similar questions about the relation between markets and social ownership. In Italy, dissident ex-Communists captured corporate funding to promote a left-wing (though anticommunist) perspective that led, to their liberal funders’ chagrin, to a resulting intellectual ferment around democratic socialist alternatives. Versions of market socialism were implemented in Yugoslavia and Hungary, where worker self-management and market mechanisms combined in a pluralist system that fascinated mainstream neoclassical Americans.
Neoliberalism enters this picture at the end of the Cold War as “a reactive force that exploited” the knowledge produced in an earlier and less rigid transnational dialogue on markets. Bockman argues that neoliberal thinkers and institutions, in sympathy with “transnational capitalist interests,” co-opted these heterogenous intellectual conversations into a simplistic narrative of the inevitability of corporate capitalism. She defines neoliberalism as the simultaneous advocacy of “competitive markets, smaller, authoritarian states, hierarchical firms, management, and owners, and capitalism,” and her goal is to show the reader that these component pieces are logically separable. The dramatic transition of 1989, which many intellectuals expected would begin a novel age of market socialist experimentation, was successfully rebranded as the corporate capitalist terminus to all of history. Thus, her lesson about “the origins of neoliberalism” is a negative one: neoliberalism is not the same as support for markets or the pricing mechanism, nor is it congenitally linked to neoclassical economics.
Bockman argues that conflating the market and capitalism is an ahistorical mistake and an ideological mystification. A strict dichotomy between capitalist markets and socialist planning obscures the fact that the presence or absence of markets is only one dimension of political economy. Just as important as the property question is the institutional question: will markets exist for worker-owned cooperatives, hierarchical corporations, state industry, or individual entrepreneurs? Neoliberal ideology forces us to see the advantages of the market as coeval with capitalism; Bockman suggests that we imagine, as many others have, a way of combining the egalitarian values of socialism with the advantages of market mechanisms. Her argument implicates scholars like Stedman Jones—centrists who define neoliberalism simply as advocacy of “the free market” and propose a balance of “markets” against statism. Such “third way” thinking assumes that the ideal is a bit of capitalism mixed with a bit of socialism. Bockman suggests a more novel hybrid: not markets in spite of socialism, but markets because of socialism.
“The role of thinkers,” Milton Friedman wrote, “is primarily to keep options open, to have available alternatives, so when the brute force of events makes a change inevitable, there is an alternative available to change it.” The persistence of neoliberalism after the “brute force” of the crisis suggests the failure of the alternatives currently available. History books can’t by themselves provide these alternatives, but they can keep a sense of contingency and possibility alive. Though those with informed objections to market socialism (or to socialism altogether) will not be converted by Bockman’s monograph, her research offers an important historical complement to recent attempt to revisit the conventional wisdom about neoclassical methodology, socialist politics, and market economics. If these debates can be sustained and diffused more widely, the left might find a better way to respond to the next crisis.
Tim Barker is the online editor of Dissent.