Neoliberalism is dead again. After the election of Donald J. Trump, political economist Mark Blyth declared the “era of neoliberalism is over,” intellectual historian Samuel Moyn tweeted neoliberalism “RIP,” and Cornel West wrote that “the neoliberal era in the United States ended with a neofascist bang.” Such pronouncements recur with regularity. A quarter-century ago, a Latin American politician deemed neoliberalism “dead” after the election of another US president—Bill Clinton. Obituaries resurfaced as critiques of the Washington Consensus in the wake of the Asian Financial Crisis in 1997, returned on the crest of the Latin American pink tide (Evo Morales declared “neoliberalism is dead” in 2003), and peaked in the wake of the near-collapse of the global financial system in 2008.

Many continue to find it useful to avoid the term—preferring “advanced liberalism,” distinguishing between “financialization” and neoliberalism, or insisting on neoliberalization as a verb rather than a noun. The authors in this book find it perfectly acceptable to use a word with a contested definition. Rather than jettisoning the term altogether, they seek to add precision to its use, examine its conceptual background, clarify important building blocks, and observe its evolution as a result of the interplay of intellectual debate, changing circumstances, and, not least, social struggles.

The alternative narrative according to which neoliberalism is not a suitable analytical category because it changes or because it has multiple and sometimes contradictory meanings amounts to self-defeating denialism, expressing a desire for a neat and simple singular ideology with an ahistorical essence to replace the messy world of competing worldviews. Marxism, liberalism, and conservatism have experienced kaleidoscopic refraction, splintering, and recombination over the decades. We see no reason why neoliberalism would not exhibit the same diversity. Indeed, we can prove that it has. If the loose use of terms was the grounds for expungement, then “socialism,” “capitalism,” “conservatism,” and plain “liberalism” would have long been purged.

New work clarified the importance of the knowledge problem for neoliberals and outlined their project of building a counter-public to the social democratic consensus after 1945. Insights from this literature surfaced during the Eurozone crisis with repeated arguments that the European Union seemed to realize F. A. Hayek's visions for federation from decades earlier. German Finance Minister Wolfgang Schäuble cited Hayek's warnings against "the pretense of knowledge" as he clung to the precepts of austerian orthodoxy, and Chancellor Angela Merkel repeated a term coined by neoliberal Wilhelm Röpke a half-century earlier when she spoke of the need for a "market-conforming democracy." Op-ed columns, social media feeds and academic journals were suddenly alive with pronouncements of the "return of ordoliberalism."

Nine Lives of Neoliberalism places ideas in context and follows them in action. Sites of analysis include the League of Nations' intellectual wing, the Bellagio Group of academics and central bankers, and the California tax and welfare reform movement. Against charges that critical scholars cast neoliberalism as a monolith, Nine Lives of Neoliberalism also emphasizes the diversity and heterogeneity of the neoliberal thought style. Attention is drawn to the deep influence of the philosophy of science on early neoliberalism, the contested nature of behavioral economics in neoliberalism, the divergent stances on the idea of intellectual property rights, and the bitter conflicts within the Mont Pélerin Society (MPS) over what might underpin a global monetary order.

Against the reality of nearly half a century of modifications in neoliberal doctrine, political economists continue to (re)discover the origins of neoliberalism in the US Democratic Party of the 1980s and reduce it to the idea of a “single blueprint” for deregulation and privatization.

If the end goal remains constant—safeguarding what neoliberals call a competitive order and exposing humanity ever more to the compulsions of adjustment according to the price mechanism—the means of arriving at this goal shift with time and place. Only by understanding this flexibility do the nine lives of neoliberalism become explainable.

By definition, theories that postulate free or pure markets per se are not neoliberal, and it is easy for neoliberals to point to the need for the right set of institutions, politics, and nowadays even behavior to allow markets to operate relatively freely, and, more importantly, to set market forces free. The charge of “one size fits all” fails in the face of the documentable shifts in neoliberal approaches to policy problems. Our case studies show that neoliberalism is less a policy orthodoxy than a consistent approach to policy problems. To adapt the famous legal maxim of Ernst-Wolfgang Böckenförde, neoliberals hold that the market lives by prerequisites it cannot guarantee itself. Rather than operate with a belief in the “magic” of a putatively “natural” market, neoliberals are avowed interventionists of their own kind, rethinking policies according to context and showing both a capacity for improvisation and an attitude of flexible response.

The contributions in this book introduce readers to lesser-known but still influential neoliberal thinkers. These include former MPS president Herbert Giersch, described as “Germany’s Milton Friedman”; Fritz Machlup, coiner of the term “the knowledge economy”; the generations of German ordoliberals taught by Walter Eucken; and another former MPS president, George Stigler, who often exists in the shadow of Friedman and Hayek in histories of the Chicago School.

Yet a closer look at the standard-bearers of the right throws this dichotomy into question. We find that many neoliberals are more than willing to find a middle ground between their own principles and those of an exclusionary culturalist, and even racist, right.

In his final book, Hayek referred to Hardin in a section titled “the calculus of costs is a calculus of lives.” Expanding on his ideas of cultural evolutionary progress measured in the quality and quantity of lives, Hayek suggested that humans could be ranked by utility: “The good hunter or defender of the community, the fertile mother and perhaps even the wise old man may be more important than most babies and most of the aged.” “The requirement of preserving the maximum number of lives,” he wrote, “is not that all individual lives be regarded as equally important.”

The far-right strain of neoliberalism deploys a similarly dispassionate calculus of human lives. The national community is not privileged for its transcendent value (in the Herderian sense of the Volk) but because of the utility of cultural homogeneity for stability and the accumulated cognitive capital of the population in industrialized nations. Combining critiques of foreigners and the welfare state with calls for closed borders and private property rights has become standard fare for right-wing neoliberals in the new millennium. A case in point is Erich Weede, sociology professor, MPS member since 1992, and leader of the right wing of the German Hayek Society. In an article from 2016, Weede, who has argued for the genetic basis of differential “human capital” endowments and has correlated economic growth to IQ, called for the closing and fortification of borders to prevent the influx of refugees. Using an intergenerational zero-sum logic, he wrote that “one must not forget that governments are always dispensing other people’s money—or in the case of higher and rising state debts, even the money of underage and yet unborn tax payers. Those who give governments the freedom to do good for foreigners must by necessity take freedom and property away from citizens.” Lifeboat neoliberalism sees empathy as feckless state spending, and openness to foreigners as a downgrading of human capital.

Rather than posing a globalist neoliberalism against a neonationalist and social conservative populism, we must remain mindful of the elasticity of neoliberal norms and principles. Principles of competition, private property, and consumer sovereignty can be tied to human rights, multicultural tolerance, and recognition of minorities as well as exclusionary bonds based in culture and race. Neither left nor right had much affinity to neoliberal-style individualism historically. But the advance of neoliberal worldviews expanded certain ideas at the expense of competing notions of individualism and solidarity. Social democracy has become less concerned with redistribution under the impact of advancing neoliberal understandings of social life, while conservatism has become less concerned with tradition under the impact of advancing neoliberal understandings of competitiveness.

The task at hand is twofold: observe the historical development and expansion of neoliberal ideas, or the morphology of neoliberal world-views in their own right, while also tracking the linkages of elements of those worldviews to competing ideologies, or the mixed morphologies of both conservative-neoliberal and progressive-neoliberal perspectives. Both more progressive and conservative fusions with neoliberalism result in patterns of exclusive solidarity: progressive neoliberals preach recognition but not redistribution, and conservative neoliberals abandon the humanitarian face of social order. Once belief and trust in mutual and comprehensive solidarity is lost, communities of competition constitute themselves against one another: core workforce against peripheral workers, rich communities against poor, and so on.

The current fusion of neoliberalism and right-wing populism is a consequence of the unleashed notion of the competition state, the competition region, and the competitive units of and within the enterprise. The social reproduction of the moral underpinnings of neoliberal order—communitarian notions of self-help and caring, social responsibility for those in close proximity—can be regarded as compensation for social redistribution and welfare, but it may not develop fast enough or at the same speed as the centrifugal notions of selfishness and competitiveness. Only time will tell when neoliberalism will use up its next—or even final—life.

Understanding this history is pressing in light of present-day concerns about “the neoliberal university” and the shift from permanent faculty to adjunct labor, the restructuring of funding in pursuit of patents and other marketable research outcomes, the pervasive discourses of impact, customer (student) experience, and realignment to forms of training rewarded by high post-graduate salaries.

We still know remarkably little about how neoliberals reacted to changes in their own primary places of employment—universities—and what influence, if any, they had on higher education. … In his chapter, Edward Nik-Khah follows one such storyline through Chicago economist George Stigler. Beginning as an advocate of trustees as guardians of academic freedom against the student-as-customer, Stigler shifted after the campus unrest of the late 1960s towards a distrust of trustees themselves. He ended by advocating that research be hived off from instruction. Instead, privately funded institutes should produce knowledge directly respondent to the demands of the broader marketplace.

The recent boom in behavioral economics, marked by the Nobel Memorial Prize for Richard Thaler in 2017, is often described as a refutation of the supposedly one-dimensional models of human behavior native to neoliberal thought. Yet this dichotomy relies on a false contrast and glosses over the many links between the two fields. Rüdiger Graf concentrates on the overlooked case of Günther Schmölders. As a member of the Nazi party and SS from 1933 onward, and MPS president from 1968 to 1970, Schmölders was the proponent of an idiosyncratic strain of behavioral economics in Germany. Graf shows the multiple political uses to which behavioral economic approaches can be put—to both limit state power and extend it into new domains.

Far from being a merely technical discussion relevant only to experts and bankers, the choice about fixed or floating exchange rates had huge consequences for both democratic governance and the volatility of the global capitalist system.

Yet, Matthias Schmelzer shows that, while the core faith in the right of capital to move across borders was shared by all neoliberals, the debate over monetary order split the Mont Pèlerin Society into warring factions in the 1950s and 1960s as the older gold bugs faced off against the younger advocates of floating, including Milton Friedman.

An important case in point is the Atlas Economic Foundation (later Atlas Network), started in the early 1980s by Antony Fisher, the founder of the UK’s Institute of Economic Affairs. Marie-Laure Djelic and Reza Mousavi trace the development of the Atlas Network under the long-term leadership of the Argentine economist Alejandro Chafuen, from a modest network of fifteen think tanks in nine countries in the mid-1980s to a partnership of 457 in ninety-six countries. Beyond strongholds in North America and Europe (both West and East), the network is strong in Latin America and has reached significant membership in the Asia-Pacific Region and even Africa. In only a few decades, Atlas moved from the equivalent of small trade or handcraft to mass production, creating replicable templates for the production and diffusion of neoliberal ideas.

Stephan Pühringer also follows ideas in action, using empirical methods to evaluate the influence of neoliberalism on policy in Germany—a connection more often asserted than proven. Pühringer tracks the institutional affiliation and public impact of 800 German economists from 1945 to 1995. Comparing neoliberal to Keynesian economists, he finds an extremely uneven power structure in the discipline of economics in favor of the former.

The chapters demonstrate varieties of neoliberal epistemology beyond market worship, and proposals for policy beyond a bullet-point list of edicts. They outline a vision of subjectivity beyond the atomized utility-maximizing individual, and of organization beyond the shock doctrine. Grasping neoliberalism in its complexity will help its opponents better identify their antagonist, and its advocates contend both with the departures from classical liberalism and with the absence of a unified theory. … There has, however, certainly been a stronger dose of serious conflict in the neoliberal camp, and we can expect more of it in the face of serious challenges to the competitive order in issues like climate change, growing inequality, and mass human mobility.

Since its inception, the problem space shared by neoliberals has been spread out on a modernist canvas, one which contrasted sharply with conservatives, reactionaries and old-fashioned liberals. During the inter-war period, self-proclaimed neoliberals dismantled and recoded the unpopular laissez-faire liberalism with epistemological ideas adapted from the "new scientific spirit" of the early twentieth century. Breaking with naturalism and empiricism, they espoused a research program inspired by mathematical and physical conventionalism, one that balanced a skeptical epistemology with a commitment to scientific progress and objectivity. To this end, methodological rules were pivotal to the reconstruction of a genuine science of liberalism which had fallen into disrepute. This agenda aimed at regaining the political ground lost to 'collectivism' in the twentieth century by tackling two sets of problems left aside by 'classical' liberals: the positive role of the state and the social question.

Faced with the scientific and rationalist optimism of the unity of science movement as well as much of Marxism, early neoliberals demarcated and defended a liberal science against progressive scientists who promoted science as the midwife of social change. Crucially, they developed a new theory of knowledge-in-society which fused together philosophy of science and political economy into a single set of hypotheses. In these debates, concerns about the role of science in society linked up with the most pressing political question of the day: the rise of fascism and totalitarianism.

Neoliberalism was thus born out of a collision between the controversial importation of the methods and authority of the experimental sciences into politics on the one hand, and the acknowledgement of the social and political conditions for the discovery and justification of knowledge on the other. It made the pursuit of knowledge and truth a political question, and gave the question of social order an epistemological answer: what we can do depends ultimately on what we can know. Nevertheless, this proclivity for epistemological investigations did not imply a unity of views among neoliberals, nor that their conclusions were devoid of political motivations. Moreover, in their contention to reclaiming the mantle of science, neoliberals shared many premises with progressive scientists regarding the position and "function" of science in society.

The early twentieth-century breakthroughs in relativity theory, quantum mechanics, and non-Euclidean geometry had in common an encounter with phenomena from premises which were counterintuitive to a natural or rational picture of the world. Unshackling foundational axioms from fitting any "realist," "naturalist" or "a priori" presuppositions unleashed extraordinary debates and ingenuity in the advancement of these disciplines. While scientists retreated from their pretension to describe the "real" world, their quest for new theories and assumptions, which combined methodological inventiveness and instrumental needs, became boundless.

In 1919, the philosopher and socialist educator Otto Neurath, president of the Central Planning Office in the shortlived Bavarian Soviet Republic, advocated a centrally planned economy in which money would be abolished and exchange would be made in kind. Before the war, Neurath had been a participant in the seminar led by Austrian economist Eugen von Böhm-Bawerk, along with Joseph Schumpeter, Otto Bauer, Emil Lederer, and Ludwig von Mises, who remembered him, in his words, for the "nonsense" he presented with "fanatical fervor."

Neoliberalism owes its scientific imagination to the strong contingent of philosophers of science who participated in its elaboration. Michael Polanyi, Alfred Schutz, Felix Kaufmann, Karl Popper, Ludwig von Mises, and F. A. Hayek, among others, were all refugees and exiles from Austria and Hungary who were immersed in the scientific world and volatile political situation of the interwar period. They unanimously perceived the dissolution of the Austro-Hungarian Empire as a disaster, responsible for the rise of an antagonistic politics pitting nationalism and conservatism against the growing communist movement. At that time, Vienna underwent one of the most radical municipal experiments of the twentieth century with the large-scale social policies promoted by the Austrian Socialist Party.

The refutation of Neurath’s scheme published in 1920 by Mises triggered the Planwirtschaft (planned economy) debate in Vienna, wherein Mises argued that economic calculation was naive and unmanageable without the indispensable role of prices as signals of the relative value of factors of production. Against Neurath’s desire to institute a scientific management of the economy, Mises claimed that the complexity of the economic system made its apprehension in one mind or place so difficult as to be near impossible.

Within both disciplines, the Austrian scientific “culture of uncertainty” was unique in Europe: their embrace of probabilistic theory “was tied to a characteristically liberal and anticlerical rejection of absolute claims,” and “philosophers who challenged certitude often led efforts for social reform and popular scientific education.”

As a matter of fact, Austrian Marxism itself was unique in drawing heavily on the ideas of Ernst Mach as it blended socialist economics with a positivist philosophy of science in the hope of attaining a truly scientific socialism. A rare fluidity existed, then, between the new discoveries of the physical sciences, their impact upon philosophical debates, and their translation into economic theories or social reforms.

In its early days, the logical positivist movement had a distinctly political flavor. Their unified and scientific world conception provided the philosophical and methodological basis for the integration of everyday life with politics and science, aiming at a comprehensive reform of society along egalitarian lines.

Neurath and Carnap were singled out for their defense of physicalism: the view that scientific theories are little more than a formal system of signs with their corresponding rules for application—a "practical analog" to social reality.

The positivist philosophy of science of the Vienna Circle became conflated, in the minds of their opponents, with socialist politics and economics. Neurath's radical politics repelled someone like Hayek, who credited the former's "extreme" and "naive" views on economics with his conversion from positivism. In 1935, Karl Popper published in German The Logic of Scientific Discovery, his epistemological critique of the positivist premises of the Vienna Circle. Neurath and Carnap were singled out for their defense of physicalism: the view that scientific theories are little more than a formal system of signs with their corresponding rules for application—a "practical analog" to social reality. Against their "logical empiricism," Popper proposed that theory and experience constantly modify each other through criticism to such an extent that "the empirical basis of objective science has thus nothing 'absolute' about it." Instead he famously proclaimed that science did not "rest upon solid bedrock" since "the bold structure of its theories rises, as it were, above a swamp." The falsification device favored by Popper to test the validity of theories did not convince the rest of the Vienna Circle, and Neurath remained adamant that Popper's view of science as a permanent revolution neither reflected scientific practice nor served it well.

Paradoxically, Neurath and Popper were much closer to each other than to some other Circle members. Both embraced a revised conventionalism, combining anti-absolutism and non-foundationalism, which discarded the view that scientific knowledge "corresponded" to reality. More importantly, Popper renounced any psychological foundation for knowledge, something which later became important for Hayek's own rupture with Mises's a priori praxeology of human action. In the cases of both Hayek and Popper, the distance they took from their initial intellectual environments entailed an epistemological argument that science could not rely on either deductive apodictic structures nor empirically derived protocols to guarantee its validity. Instead, they reckoned that truth corresponded to the result of an intersubjective process—thereby "socializing epistemology." The heuristics of this process depended on three interrelated provisions: the methodology employed for discovery and justification, the design of its institutions, and the values shared by the participants. In the end, the epistemological conditions of truth and of social order ultimately shared the same foundations: that of conventional rules which could be revised and improved according to an established method.

His portrayal of socialism as a scientific fallacy originated in his early epistemological works in which he rejected the validity of all opodictic truths. Following Henri Poincaré, Rougier proposed that a scientific proposition, instead of being either a rational truth a priori, or an empirical truth a posteriori, could be a “hypothesis” or an “optional convention” picked for reasons of practical or theoretical convenience and tacitly accepted as such by the scientific community. Poincaré’s geometrical conventionalism, once extended to all disciplines, pointed to a “third way” which preserved the possibility of scientific objectivity while acknowledging the artificiality of reasoning and truth.

Despite his close acquaintance with Neurath, with whom he organized in 1935 the First International Congress of Scientific Philosophy in Paris, Rougier’s philosophy and politics were closer to the “right wing” of the Vienna Circle (Moritz Schlick, Friedrich Waismann, Felix Kaufmann) than to the left one.

Rougier’s real foe, however, was not so much rationalism as a philosophical system than as a political doctrine. He contended that the spirit and ideas of the French Revolution, originating in classical rationalism, had ended up “par une sorte de logique immanente” in egalitarian socialism. For Rougier, political principles merely represented useful conventions suggested by experience. Any philosophical attempt to naturalize or rationalize these axioms must employ a metaphysical discourse that is ultimately unsubstantiated.

Rougier and his Viennese colleagues hoped to demarcate a sphere of knowledge sheltered from the metaphysics inherent to any language, and by extension, to any political ideologies. For Hayek, Rougier, and Popper, the application of the methods of empirical science to social phenomena raised methodological dilemmas, which were superimposed onto diverging political orientations. While sharing the same imperative as their Viennese counterparts of demarcating a decontested language of science, neoliberal philosophers of science became skeptical of the powers of scientific method to directly shape social reform. Instead, they aspired to emulate the creative rupture they applauded in the philosophy of physics and mathematics to the doctrine of liberalism.

The idea of a planned economy as the answer to the 'chaos of laissez-faire' circulated as early as 1929 on the fringes of all British political parties, while the Soviet Union implemented its first Five Year Plan in 1928. "Planning is forced upon us," wrote one of its most vocal promoters in 1933, "not for idealistic reasons, but because the old mechanism which served us when markets were expanding naturally and spontaneously is no longer adequate when the tendency is in the opposite direction … The economic system is out of gear," concluded Harold Macmillan, echoing the Zeitgeist of post-1929 England. Such was the pervasiveness of planning that it became defined as the "middle opinion" of the 1930s, paving the way for the post-World War II consensus on the British welfare state. Its popularity owed to the apparent scientificity of its mechanism as well as to the promise of an engineered economy where control and reason would be restored at the hands of the state. The success of the experimental methods in the natural sciences provided a vivid case in point for reformers eager to rein in the growing complexity of the world economy, whereas the discipline of economics was seen to have failed to provide a coherent picture of the crisis or suitable remedies to cure it.

Confronted with the popularity of state controls, F. A. Hayek and Michael Polanyi in England, and Walter Lippmann in the United States, independently reached the same conclusion: the feasibility of economic planning was not solely a technical problem, but called for a much larger understanding of the epistemological foundations of liberalism and its relationship with the market economy.

Resolutely pro-business, their proposal was also fiercely anti-free-market, testifying to how unpopular laissez-faire had become with large sections of the business world itself. Not unlike the rhetoric of the New Deal, “rational capitalism,” “orderly economy,” and “scientific planning” were all terms used in contraposition to the “evils of competition” or the “chaos of overproduction.”

As he emphasized in his inaugural lecture at the LSE, the way forward for liberals was to learn from the failures of free market rhetoric in order to initiate a long-term process of ideological change. He worried that the masses were deluded by the promise of reason and science to direct social reform. While the scientific economist cautioned against government interference, the layman demanded immediate change in society. The lack of legitimacy of a market economy lay precisely with the hidden nature of the economic problem—the invisibility of Adam Smith’s hand.

On the one hand, the signaling function of prices was reliable for economic decisions and forecasts insofar as markets were competitive. Information, as relayed by prices, was not only carried but generated through the market—a crucial insight. On the other hand, this limited the kind of problems that economic science could solve. Widely shared among neoliberals, Hayek’s critique pivoted around one single axis: the (seemingly infinite) cognitive function of markets worked hand in hand with the epistemic limitations of other disciplines and institutions aiming to correct its workings. Knowledge remained irrevocably local, dispersed, and impossible to centralize; the marketplace produced a continuous stream of new data within the confines of a radical skepticism towards intervention.

Like Hayek, Michael Polanyi perceived the obscure workings of economics as demanding both explanation and passivity. After his multiple trips to the Soviet Union as a chemist, he published a detailed study of Soviet statistics demonstrating the failure of the Communist Party to reach the objectives set by their plan. Despite its abysmal record, the genuine support of the population puzzled Polanyi, who spotted in the Soviet propaganda's displays of "public emotion" a "vivid form of social consciousness" which provided clear purpose and direction to the citizens. At the core of the desire for social revolution in Western societies, he concluded, brewed a frustration with the opacity of the market system, a lack of a refined grasp of its concealed mechanisms.

Taking it upon himself to correct the situation, Polanyi produced an educational motion picture expounding the workings of a market economy which aimed at embedding in the public spirit an expert understanding of the economic mechanism. Inspired by Keynes's General Theory, the film centered around the representation of the money belt, streaming from industries, to shops, to consumers, with a central bank regulating the flow of spending and saving. Praising the film's semiotic properties, which allowed an invisible complex structure to be seen and thus understood, Polanyi was optimistic about its educational impact on the lay masses, hoping it would turn them away from central planning and restore their confidence in a market economy. A society so transformed by this effort to publicize the coordinating virtues of markets would fulfil the "promise of liberalism": the social integration achieved in the Soviet Union through public emotion and propaganda could be accomplished in liberal societies through reason and public education.

Commending Polanyi as an "exceptionally gifted observer," Walter Lippmann reflected on the same theme in the opening chapters of his book The Good Society, published in 1937. The complexity of social life appeared to him as an invisible canvas into which our daily interactions were woven. The opacity of the individual psyche veiled a wealth of knowledge which the market artfully and efficiently coordinated. Complete planning, by bringing all the economic processes to the fore, failed to acknowledge the cognitive economy brought forth spontaneously by the division of labor. Once the intrinsic limitations of thought were established, conscious control over social orders became a delusion. "No human mind has ever understood the whole scheme of society," wrote Lippmann, "at best a mind can understand its own version of this scheme, something much thinner, which bears to reality some such relations as a silhouette to a man." The opacity of society to our efforts of scientific probing had become so overwhelming that no science of society could form the basis of its conscious control. Consequently, the legitimacy of the market economy relied on entrenching these invisible processes within public opinion.

Taken together, these arguments against the possibility of planning revolved around the elaboration of two key ideas. First, social knowledge is irremediably divided and dispersed. Second, it is a resource that remains largely implicit and tacit. In his seminal article on “Economics and Knowledge” from 1937, Hayek argued that the assumption of perfect knowledge in economic science was eliding the most important question that the social sciences had to address: “how knowledge is acquired and communicated.” Epistemic limitations deriving from the division of knowledge had both scientific and political consequences for just how much one (e.g. the state; the planning board; the welfare economist) was capable of knowing and thus of predicting adequately. Neoliberals shared the same critique of planning based on the impossibility of centralizing information efficiently, and the necessity of letting horizontal adjustments substitute for vertical decisions. But there existed an additional epistemological limit to planning. It was not only that social knowledge could not be centralized in one place, but also that it remained largely implicit, that is, tacitly embedded in traditions and customs.

First rolled out in the analysis of the economic order, these epistemological ground rules were later extended by analogy to all “spontaneously arising orders”: common law, language, aesthetics, traditions, etc. By the end of the 1930s, the socialist calculation debate had been reframed in terms of the defence of liberalism against totalitarianism, giving political leverage to epistemological arguments which had been originally devised to discredit the idea of economic planning. Far from evident at the outset, this recoding has become a hallmark of neoliberal thinking.

Beyond economics, the 1930s also proved to be a pivotal decade in the discipline of the history of science, a period “when radical historicist messages from Central Europe and the new Soviet Union combined with local antiquarian cultures into historiographical and institutional changes.” The movement for the planning of science gained prominence in the United Kingdom after a Russian delegation led by Nikolai Bukharin stunned the Second International Congress for the History of Science held in London in 1931.32 The audience, largely scientists and amateurs, had been unprepared to hear the discourse of dialectical materialism applied to the history of science. What sounded like a Martian language to some was a revelation to others. Relating scientific discovery to historical processes, Soviet scientists openly challenged the dominant internalist accounts of progress and discovery in science. These birth pangs of the externalist account of the history of science activated an intense scrutiny over the possibility and desirability of planning in science.

This conference, remarked Edward Shils, “led an important bloc of British scientists to support the Marxist theses that all scientific work, however abstruse, is a witting or unwitting response to the practical problems confronting the society or the ruling classes of the society in which the scientists live.” Pure research meant nothing on its own, but constituted a preparatory step to applied science and, ultimately, social change. At the same time, many natural scientists themselves supported a wider application of science to social problems, promoting its rationality and tangibility over the dead-end of partisan shibboleths. The fact that economic planning had been infused with scientific credibility granted a good measure of legitimacy to sympathetic scientists. They were to be the “men of science” or “experts” in charge of rationalising the economy and the administration.

Under the leadership of J. D. Bernal, P. M. S. Blackett, Joseph Needham, and Lancelot Hogben, the “social relations of science movement” put forward a fuller integration of society, industry, and science, in which the latter, rationally planned and emancipated from capitalism, would fulfil its natural object of serving human welfare. They adopted the conclusion of Soviet scientists that “only in a socialist society will science genuinely belong to all mankind.” Capitalism, they thought, had led to a scientific regression, introducing competition between researchers “when what is really needed is more science applied to the convenience of living instead of to profit-making.” Bernal, their most vocal spokesperson, denounced liberalism as the method of chaos, “spontaneously grown,” hindering the use of knowledge in society because innovation was corrupted by private profiteering. On the contrary, communism as a political system bore the closest resemblance to the collaborative method used by researchers.

The challenge of “Bernalism,” and its continuous influence during World War II, vastly influenced the orientation of neoliberalism. Epistemological battles around the scientific method reverberated as a political and ideological argument over the best form of government. The formative political activities of neoliberals during the 1930s were chiefly set against natural scientists promoting socialism and planning as the logical extrapolation of a scientific worldview and organization. They are set to show that the scientific community, far from embodying an archetypal communist society, represented, on the contrary, the incarnation of a liberal order guided by the scientific method.

The gradual alignment of Russian scientific research with the Soviet ideology equally disturbed Polanyi, who set chemistry aside and endeavored to write about the nature of science specifically in reaction to the Vavilov-Lysenko controversy. He condemned the corruption of Russian science, where the authority of science had been replaced “by that of the State,” and advocated the self-government of science to restore the “independence of scientific opinion.” Polanyi argued that both science and truth were lost whenever political liberty fell, as independent thought was subjugated to temporal powers. Therefore, there existed “a common fate between independent science and political liberty.” A free society cultivated science as the boundless quest for new truths whose ultimate uncertainty lay at the core of the liberal values of tolerance and freedom of conscience: science under political direction was thus bound to become an instrument of propaganda.

Both Hayek and Polanyi were looking for ways to defeat the “scientism” and “scientific socialism” which they felt dominated the media and the public intelligentsia, thanks to the well-disposed editorship of Nature and the BBC. … In due course, his Abuse of Reason project laid the groundwork for The Road to Serfdom and prolonged the previous developments of his methodological views. But to a large extent, it amounted to a wartime effort against the left scientists in England who occupied vital positions within the wartime government, continued to influence the general public, and met regularly to discuss their views in the Tots & Quots discussion group.

In the meantime, Polanyi’s own refutation of planning evolved from a defence of pure science towards an epistemological defence of liberalism based on the position of thought in society. … Like his rivals from the left, he dismissed the neutralist position as naive in the face of the “absolute state,” citing the detachment of the scientist as a main cause for concern. … As long as it remained free from state interference, science stood as the perfect example of liberalism in action, demonstrating how individual liberty may be seamlessly reconciled with authority, tradition, and social control.

Despite their irreconcilable political differences, Polanyi and Bernal envisaged in remarkably similar ways the operation of social norms within the scientific community and the paucity of a history of science told as the progressive evolution of intangible ideas. Each argued in their own way “for a social turn in studying the history and philosophy of science.” As a result, the project of recoding liberalism incorporated the growing externalist account of science that sought to reground its history within the social and economic determinants of scientific research and knowledge. Neoliberal philosophers of science largely agreed with the necessity of conceptualizing knowledge and science within their institutional conditions and not as a disembodied process, yet proposed an alternative model for the workings of science which drew its inspiration from economic liberalism: the Republic of Science. In this model, the metaphor of the market played out as the epistemological engine of a largely dispersed and tacit knowledge between individuals, be they scientists, producers, lawyers, or road-users. The rule of law, market regulations, and scientific conventions were conceived as so many analogical methods of social coordination to achieve a liberal social order, as they ensured a variety of ends with minimum direct control. Peculiar to neoliberalism therefore is the strong epistemological bent of its social theory, one where freedom is recoded as instrumental to the activity of separate independent orders working according to analogous principles.

During the Second World War, the polemical use of the term “scientism” by Hayek complemented Popper’s refutation of “historicist” doctrines, Polanyi’s defense of pure science, Lippmann’s call for the restoration of a “liberal science,” and Rougier’s dichotomy of doctrine and mystique. Each demonstrated that liberal principles were concomitant with the proper view of science while a purely instrumental conception served the goals of collectivist ideologies. … From varying angles, they all accused the application of the aims and methods of the natural sciences to power social change of usurping the mantle of science out of sheer intellectual error. The opacity of the “sense-data” in the social sciences made its methods and orientation different than those of the natural sciences, because it could only observe man’s actions—and their undesigned results—without accessing the inner realm of consciousness. Opinions, they believed, constituted the genuine “facts” of the social sciences.

On the one hand, neoliberals argued, any theory of historical development wrongfully applied lawful assumptions to the contingency of history, thereby confusing prophecy and prediction, and mistaking explanation by general principles with the knowledge of deliberate direction. On the other hand, engineers and planners suffered from a "slavish imitation of the method and language of Science" which they used for the purpose of "social midwifery." By denying the fundamental uncertainty in social processes, and the logical impossibility of controlling social wholes, Polanyi contended that their mentality veered towards "utopian engineering," and was the inspiration for "grandiose planning." The application of statistics and mathematics to social problems was inadequate because of epistemological complications linked with the use of probabilities for predictions. To Rougier, "social engineering" and the use of econometrics amounted to a "technocratic conceit," whose method "to put everything into equations" was stimulated by a metaphysical belief in universal determinism incompatible with the fundamental indeterminacy found at the atomic level.

The sophistication of neoliberal sociological thinking owed much to the thought and writings of fellow Hungarian exile Karl Mannheim. Between his arrival in London in 1933 and his death in 1947, Mannheim’s output combined his sociology of knowledge developed in Ideology and Utopia with a dark assessment of the course of European history, where the safeguard of freedom could only be achieved through planning lest the masses fall for totalitarian ideologies. … In the Germany of the 1920s, Mannheim’s sociology of knowledge aimed at creating a scientifically informed politics which could overcome the irrational elements present in ideology. He proposed the "free-floating intelligentsia" as being in a privileged position to achieve the integration of the common denominator present in the various thought-models, thereby actualizing the emancipatory promise of sociology. In the England of the 1930s, however, Mannheim turned towards the idea of "planning for freedom" as a way to pre-emptively safeguard Western civilization, which meant that traditional elites ought to embrace his sociological diagnosis of their failures and apply remedies. He shifted from a conception of knowledge with a catalytic function at the service of a better-informed politics towards a knowledge instrumental for control by the planning elite as a way to counter social disintegration.

Popper, Hayek, and Polanyi all came into contact with Mannheim during his London exile. Hayek and Mannheim were colleagues at the LSE and Mannheim invited Polanyi to participate in The Moot, a Christian discussion circle initiated by J. H. Oldham and attended by T. S. Eliot. They all perceived his sociology of knowledge in the service of scientific politics as deeply antagonistic to the neoliberal project which sought to sever the link between knowledge and social reform. … Equally for Popper, uncovering the "social determination of scientific knowledge" annihilated the basis of free discussion and controversy and the quest for scientific objectivity. The goal of a higher synthesis of dormant elements by an intelligentsia contradicted the process of scientific discovery, which remained always incomplete and subject to modification. Popper identified Mannheim’s utopian vision with that of a closed society which was fundamentally hostile to his own open society based on conjectures and refutations. … "What the 'sociology of knowledge' overlooks," he wrote in Poverty of Historicism, "is … the fact that it is the public character of science and of its institutions which imposes a mental discipline upon the individual scientist, and which preserves the objectivity of science and its tradition of critically discussing new ideas."

Similarly for Hayek, Mannheim’s sociology of knowledge was the latest avatar of “scientism” where the comprehension of the mechanisms of thought would allow the theoretician to predict its development. The “constitutional limitations of the individual mind” proposed by Hayek as the foundation of spontaneous orders solved the problem of coordination and integration that Mannheim was hinting at with his scientific planning.

Mannheim represented one of the most potent intellectual adversaries of early neoliberals because he advertised planning not as a rejection of liberalism but as its most advanced stage, in line with scientific modernity. … From Hayek’s intention to found the Mont Pèlerin Society as a closed group of like-minded individuals to his 1949 article on “Intellectuals and Socialism,” neoliberals embraced a sociology of knowledge at the service of their ideological project. What Hayek identified as the hubris of the sociologist would ironically be the position he aimed at occupying with the Mont Pèlerin Society.

On the theoretical level, early neoliberals sought to distance themselves from the rationalism, empiricism, and naturalism which prevailed in classical liberalism, and to adopt a critical conventionalism, where knowledge and truths were established intersubjectively in a constant process of exchange between theories and the test of experience. As a result, neoliberal thinkers devised a skeptical view of the reach of the social sciences as their prime angle from which to attack competing ideologies promoting an instrumentalist view of knowledge. Paradoxically, they also came to share many premises with the most sophisticated of their adversaries.

The science of liberalism that neoliberals attempted to mend overlapped with the construction of a liberal view of science as these two strands became intimately conjoined in the shadow of totalitarianism. Through their publications and correspondence, neoliberals fortified their epistemological insights and complementary social theory. This was one in which the method of freedom was bound by conventional rules which had to be adopted as articles of faith, that is, as a constitution. Nonetheless, when neoliberalism started taking institutional shape, many of the latent divergences became manifest and its scientific and ideological turf fissured. The first decades of the Mont Pèlerin Society can be seen retrospectively as the impossible attempt to reconcile these diverging views. Many of the polymaths, including Polanyi, left the Society during the first decade of its existence as it relinquished its role as a multidisciplinary intellectual center for the growth of an alternative theory of liberalism venturing beyond economic freedom.

Since its inception, neoliberalism has hinged on two forces tugging in opposite directions: a scientific program based on a strict respect for the scientific method, and strategic appeals to morals and values when results did not point to an agreeable consensus. As a consequence, the neoliberal attempt to recode liberalism left an ambiguous legacy. On the one hand, the neoliberal discourse of the superiority of the market, the rule of law, and the rejection of economic intervention became firmly anchored in a coherent research program. On the other hand, the project to redefine liberalism along the lines of a liberal science collapsed because of its contradictions with the ideological goal of controlling the production and diffusion of theoretical knowledge. Accordingly, the neoliberal ideological project superseded the scientific intuitions advanced by its early promoters. From a critical program designed to contest the opportunity of economic intervention, it had progressed through an epistemological recoding of liberalism. Following the success of The Road to Serfdom, Hayek further elaborated an ideological strategy in which a closed circle of intellectual producers feed their ideas to the public through strategically placed intermediaries. As well as their democratic aspirations, the cognitive capacity of the masses was deemed trivial compared with the intellectual influence of the elites, which neoliberals began to purposefully target.

As a result, neoliberals developed a sociology of knowledge wherein discourses enunciated at different levels preserved the critical philosophy of uncertainty which had been developed in the late 1930s at the core, while frankly embracing an instrumentalist and positivist view of knowledge at the lower end of its channels of distribution. If the epistemological agility afforded by conventionalism eroded some of its founding principles, it nurtured the think tank ideological machines and their capture of the marketplace of ideas. Largely imperceptible, these deliberate epistemic inconsistencies paved the way for the long-term resilience and success of neoliberalism as a social and political ideology.

Importantly, the person who most doggedly pursued the implications of the concept of the marketplace of ideas for the neoliberal project was not Milton Friedman, but his Chicago colleague (who would also serve as president of the MPS), George Stigler. Stigler’s views did not emerge fully formed like Athena from Zeus’s head, but developed over time as he questioned whether and under what circumstances the university upheld the epistemic virtues of the marketplace. He would eventually relinquish an early hope that existing institutions devoted to producing and ratifying knowledge (universities—or, more precisely, an elite subset of them, such as Chicago) could be reconciled to the proper functioning of the marketplace of ideas, in favor of the more hard-edged position that this would require them to undergo radical reorganization. So, too, would Stigler challenge the most prominent activities of his fellow neoliberals: he would reject Friedman’s approach to dealing directly with an obstinate public, and urged his fellow neoliberals to do the same. Popularizing neoliberal economics was at best useless, at worst dangerous.

Viewing neoliberalism through the lens of Friedman has the effect of considering only one possible approach to the neoliberal problem of the public, and thereby introducing a grave misunderstanding about how neoliberalism works. There was, as Stigler argued, more than one way to skin this cat, more than one strategy to triumph over the will of the public. By understanding these strategies we may come to better appreciate the reason neoliberalism itself has had “nine lives.”

Hence, neoliberals felt compelled to contemplate organizing intellectual life in such a way that would respect their developing pro-market creed. They did so in a variety of ways, too many to discuss here. One of the most significant concerned the appropriation of the “marketplace of ideas,” a metaphor previously used by their political enemies to support robust democratic discussion, but now repurposed by neoliberals to rebut an ambition they increasingly regarded as dangerous. Beginning with Aaron Director, MPS members would with increasing frequency place intellectual, political, and trade concepts side by side in their work. Consequently, they came to explore the implications of the metaphor for organizing intellectual life more closely.

Rogge argued that the appropriate way to respect the pro-market creed in the organization of colleges and universities would be to finance all their operations out of student tuition fees. Rogge decried the subsidization of student education on the grounds that it served as an unnecessary and unwarranted intervention into the education market. He found it especially objectionable that people routinely denied the principle of consumers' sovereignty in this market on the grounds that those seeking education were uneducated. Contrariwise, he held that having students pay the full cost of education would force professors to more faithfully attend to the instruction of their students. To subsidize students' education, colleges and universities placed themselves in the position of needing funds from the government, alumni, the wealthy, and corporations. But relying on these groups for funding gave them undue sway over the curriculum, stifling intellectual diversity. Rogge noted, "he who pays the piper will call the tune." He did not begrudge funders for seeking to "call the tune," but he sought to diffuse such power among many more, and diverse rather than organized, tune-callers (the students themselves). A full-cost pricing method would achieve this because the consumers of education—the students—were, in his view, many and diverse. Consequently, full-cost pricing would also supposedly promote intellectual diversity. Specifically, by eliminating the state's funding of professors' activities, full-cost pricing would help to combat "collectivism."

Stigler would come to occupy an unusual position within the intellectual and political crosscurrents of the Cold War economics profession—we might even characterize his position as unique. He was able to combine an interest in formal models of information, orthodox economics, pro-market politics, and the role of the intellectual in capitalism into something approaching a coherent set of views and practices that he then deployed both inside and outside economics—indeed, inside and outside the academy—all the while claiming to uphold the best traditions of science, and gaining a reputation among even his intellectual antagonists for doing just this.

Stigler rejected Rogge's argument. First, he denied that full-cost pricing would necessarily attract a variety of funders and promote intellectual diversity. Research funding already utilized it, he argued; nevertheless, the US federal government and the Ford Foundation managed to exert tremendous influence over research priorities.

Stigler objected to the proposal to promote student sovereignty over higher education. He argued that students lacked the qualifications to judge either the quality of a course or the quality of research. He noted dryly: "At Minnesota, 2 Mt. Pèlerin Members [were] at [the] bottom in 1946." At that time, the University of Minnesota's Department of Economics employed three MPS members: Rogge, Stigler, and Milton Friedman.

In general in intell[ectual] affairs democracy is not a proper system of organizing. The best econ[omics] in the US is not the one the public would elect; a science must impose the standards of an elite upon a profession … Affairs of science, and intellectual life generally, are not to be conducted on democratic procedures. One cannot establish a mathem[atical] theorem by a vote, even a vote of mathematicians. An elite must emerge and instill higher standards than the public or the profession instinctively desire.

Roughly contemporaneously, Stigler complained: "social problems are the creation of the 'intellectual.' The intrinsic importance of a complaint against a social system, as judged by later opinion, has little to do with its effectiveness in shifting opinion. If enough able and determined men … denounce and denounce a deficiency, that deficiency becomes grave." Lurking was a question about what role, if any, economics could play in preventing or at least counteracting the intellectuals' monstrous creations.

I cannot believe that any amount of economic training would wholly eliminate the instinctive dislike of a system of organizing economic life through the search for profits. It will still appear to many intellectuals that a system in which men were driven by a reasonably selfless devotion to the welfare of other men would appear superior to one in which they sought to their own preferment. This ethic is deeply imbedded in the major religions.

A college community—faculty, and their disciples, the students—is a cohesive group, sharing to remarkable degree a common cultural life, similar educational backgrounds, and even fairly similar political views. If this community were to govern the college exclusively (as was true at Oxford and Cambridge for several centuries), the college sooner or later would become “academic” in some undesirable senses—precious, narrow, removed from unpleasant realities, and downright lazy. The trustees are men of affairs, and bring to the college decisions an element of the virility and realism of the non-college world.

If bringing the good deeds of businesspeople to the attention of intellectuals was insufficient to convince them to reexamine their attitudes, then perhaps closer scrutiny of the deep similarities between the marketplace and the intellectual world would do the trick: “The organizing principles of [the marketplace and intellectual world] are the same … Just as real markets have some fraud and monopoly, which impair the claims for the marketplace, so the intellectual world has its instances of coercion and deception, with the coercion exercised by claques and fashion. But again these deviants are outside the logic of the system.” Stigler continued, “the analogies could be pursued much further,” and so one should not read too much into his apparent distinction between “real” markets and the intellectual world. Of course, one could certainly dispute his characterization of monopoly as ruled out by some universal “logic of the [market] system”—many economists of his day would have. Nevertheless, for Stigler, the rationality of science and the effectiveness of the market for goods and services were due to the same organizational principles. Hence, intellectuals should regard the marketplace favorably.

However, Stigler had already argued that one should not trust the academy to regulate itself. Absent some jolt from the outside, a faculty would become “mediocre and complacent.” But this raised a perplexing question. If the organizing principles of intellectual life and markets really were the same, then how could one reasonably hold—as Stigler did—that there was something persistently wrong with the kind of knowledge it produced? Stigler’s answer is worthy of close scrutiny. Markets did give people what they wanted. But this was nothing to celebrate, because most people are instinctively predisposed to hold the wrong views about them. Markets produced the wrong kind of knowledge because they gave people what they wanted.

Stigler complained that the demand expressed by government for science as channeled through the system of publicly funded universities and grant programs had become intertwined with a set of egalitarian concerns, encouraging “diffusion” of talent, leading ultimately to a decrease in the quality of research, entrenching professional consensus. Estate taxes eliminated the possibility of a future Rockefeller, and therefore the establishment of another University of Chicago was out of the question. States had diverted resources to the system of public universities that otherwise would have gone to a Harvard or, better yet, a Chicago. Overall, Stigler was skeptical of the prospects for US higher education, but he held out limited hope that a small set of institutions might yet help to impose the higher standards that he so desired.

Clearly, Stigler and his fellow neoliberals expressed concern for “freedom of inquiry”—particularly the freedom to promote their views of the marketplace within the academy, which they felt to be implacably opposed to their aims. This raised the question about whether it would be possible to promote their interests within existing academic structures, or whether this called for a more radical response.

In 1964, the Austrian economist and founding MPS member, Fritz Machlup, delivered a defense of academic freedom, and in particular its tenure protection (on Machlup see Slobodian's contribution to this volume). At that time, Machlup was serving as president of the American Association of University Professors. In his talk, he focused specifically on how tenure helped "to secure the great benefit of academic freedom and of the fruit it bears."

One incident during my term of office has, more than anything else, reinforced my belief in the importance of tenure. It had to do with a young medical researcher in the last year of his probationary period, who had discovered toxic qualities of a drug distributed by a company which was supporting his university with generous research grants. Should he publish the report of his findings? Would he risk nonrenewal of his appointment if his publication angered the donor and the chairman of the department? As it was, or as I was told, the young man decided to publish and he lost his post … Just think how easy it would have been for this scientist to postpone publication by just one year; and what consequences for the health, perhaps the lives, of many could have been entailed by postponement of such publications by as little as a month.

In order for them to play this important role, professors have to personally sacrifice: "[T]he free competitive market for higher learning would not guarantee all the academic freedom which society ought to provide in the interest of progress; without the interference through the universal tenure system the degree of academic freedom would be only that which professors would be willing to pay for, and this would be much less than what is socially desirable." Machlup portrayed the intellectual marketplace as beset by "externalities." For Machlup, professors produced the fruits of academic freedom. The problem was that they did not reap the full benefits of such freedom, while at the same time they solely bore the costs of it. In forging a binding commitment amongst professors, trustees, and administrators, tenure operated as a corrective for this "market failure."

The Kalven Report was one of the most famous statements on academic freedom produced during that era, and many at the University of Chicago still regard it as authoritative. In light of this, it is revealing that Stigler felt the need to issue a dissenting statement. He took exception with a passage in the report which allowed that, "in the exceptional circumstance," the university might need to consider the compatibility of its business dealings with "paramount social values." Stigler, in dissenting, argued: "The university should not use [its] corporate activities to foster any moral or political values because such use of its facilities will impair its integrity as the home of intellectual freedom."

Hence, by the time of his 1969 correspondence with Machlup, Stigler would not have accepted his argument that an agreement between trustees, regents, administrators, scholars, and teachers would foster intellectual freedom. He would have been skeptical that any one of those groups could be trusted to do so.

Stigler began to contemplate radically reorganizing the dissemination and ratification of knowledge. He came around to Rogge's position of supporting professors' salaries by student fees, but not because he now had more confidence in students' judgments. If anything, he was even more dubious: "Students—even college graduates—are poorly informed judges of teachers and universities." Instead, it was because he was anxious to spin off teaching from research. This would leave most schools in the position of catering entirely to undergraduate instruction: "In a few schools the research function is paramount; in nearly a thousand others teaching is the dominant or exclusive function." This was as it should be. Because undergraduate teaching distracted from both graduate instruction and research, it would be necessary to free elite scientists from such teaching responsibilities. As for the lowly undergraduate professors, they would be subject to the whims of the market—and possibly eliminated by it: "Instruction by direct fore-to-fore methods is an anachronism, left over from the days before books were available. Now the professor is an inspirational guide to the literature—a task which requires few class hours—and can usefully perform this task at numerous universities simultaneously." Following Stigler's blueprint, professors would be uprooted from their home universities, forced to bid for teaching space, and hence would cobble together a full-time teaching load across institutions. Stigler did throw out a suggestion for a nationwide standardized test, to make students more serious about "hiring" quality professors, but he did not devote a great deal of attention to it: undergraduate instruction was mostly a distraction, and so improving it did not concern him.

The faculty of American colleges and universities are composed of two classes. One class are the teachers: they engage in little research, seldom if ever publish, and spend the overwhelming portion of their days on the campus, in the classroom and the committee room. They constitute perhaps 96 percent of the faculty members. The second class is composed of the productive scholars and the academic entrepreneurs. They receive most of the research money, publish almost all the serious research, manage and staff all the major conferences, and hold the offices of the professional societies. They are the other 4 percent.

Academic elites needed to be protected from coercion by students, the state, and the faculty. Stigler regarded the university as unreliable in doing so. Stigler then proceeded to imagine how to leave aside the unproductive 96 percent and provide “care and banqueting” for the productive 4 percent. He posed the question: “Is the university a sensible base of operations for the research scholars?”

On October 20 and 21, 1972, a conference was held at the University of Virginia in honor of Milton Friedman's sixtieth birthday. It coincided with the tenth anniversary of the publication of Capitalism and Freedom, and so the conference was framed as an exploration of the issues raised by that book—of its “Problems and Prospects.” George Stigler took the occasion to express his concern about one troubling feature of the work of his old friend and close colleague: … As I mentally review Milton's work, I recall no important occasion on which he has told businessmen how to behave … Yet Milton has shown no comparable reticence in advising Congress and public on monetary policy, tariffs, schooling, minimum wages, the tax benefits of establishing a ménage without benefit of clergy, and several other subjects … Why should businessmen—and customers and lenders and other economic agents—know and foster their own interests, but voters and political coalitions be so much in need of his and our lucid and enlightened instruction?

Stigler took exception to what he believed to be the confused image of the marketplace for ideas that was implicit in Capitalism and Freedom. If Friedman's popularization of Chicago neoclassical economics in his advice to the public was effective, this would imply that the public “underinvests” in knowledge—a market failure. But if agents maximize in collecting information (since his 1961 paper “The Economics of Information,” Stigler argued that they did), they will already have gathered all the information that it was appropriate for them to have. Friedman's efforts at popularization would be of no use to them. Worse still, Stigler believed any reference to market failure tended to provide intellectual support for objectionable efforts to expand regulation, and so popularizations of neoliberal views might turn out to be politically dangerous.

Stigler posed a provocative question: If markets generally work, then why should this not be the case for the marketplace of ideas? And if the marketplace of ideas works, then why should the public need a Milton Friedman? Or, for that matter, a George Stigler? It was a threatening question for an economist, and Stigler knew it. He had titled one article “Do Economists Matter?” Within it, Stigler insisted that the demand of the community of scholars for science was negligible: “[T]o a scientist educated hands make more melodious applause than ignorant hands, but too often the educated hands seem to be sat upon by educated asses.”

Stigler answered the question affirmatively by adopting something akin to the commonsense view of science as rational and reflecting nature (or, in this case, society), and expressing it in the language of commodity exchange: “A rational society must accept tested scientific findings because they reveal a portion of the inescapable external world. Scientific knowledge must be accepted by men of all parties.” Science was a very special kind of commodity, differing from other information-commodities in its effects. Science is rational, and so is society (albeit in a different way), and therefore a rational society must make use of science. Society did need Friedman’s work—not his popularizations, but his economic science. It needed his Monetary History of the United States, but not his Free to Choose. It needed his scientific work, but it did not need to agree with it, much less comprehend it.

But “society” doesn’t purchase knowledge. People do, and for specific purposes. Students decide from which college or university to purchase knowledge. Patrons of research do much the same: in an unpublished 1977 lecture whose title “To What Tune Does Science Dance?” clearly echoed Rogge, Stigler observed: “[the] huge area of antitrust & I[ndustrial] O[rganization economics] in [the] US [was] generated by both public policy and business defenses against it.” Stigler was in an excellent position to make such an observation. He played an important role in developing a distinctive Chicago approach to industrial organization, and had consulted for firms facing antitrust action. Economists develop ideas in response to consumer demand for them. In Stigler’s words, the economist was a “customer’s man.”

Stigler believed the university was beset by serious problems. He set out to construct an institution exempt from them. He would substitute contract research for tenure, thereby providing a director with clear lines of control in assigning research tasks to junior economists. This private research institute would provide “an authoritarian structure which is appropriate for contract research: there is authority over junior members (more than in the university) and hence a capacity for maintaining and discharging promises.” To view science as thriving on the curiosity of fresh minds called to science as a vocation was for Stigler misguided. Junior scholars would provide the “semi-skilled labor of research.” The best method of producing research would concentrate scholars in a setting freed from teaching obligations, removed from the inconvenient protection of tenure, and placed under the watchful supervision of an “authoritarian” master. In this way, Stigler hoped to impose the standards of an elite upon his profession.

Stigler was keen to persuade his newfound patrons that science’s effects truly were special. In an unpublished 1971 memo proposing a privately funded research institute, he insisted: “The relevance of this work to public policy will be both indirect and decisive … It is essentially and exclusively scientific work, and is intended to work its effects upon the appropriate disciplines (economics and political science) rather directly than on public opinion. The work will often shatter the fond hopes of the scholarly professions.” Stigler argued that using science was the best—indeed, the only—way to achieve the influence that patrons might desire. He proposed using two types of studies to deliver this influence. The first would study the effects of past economic policies to develop techniques for auditing and guiding, and therefore controlling, administrative bodies. The second would study and test hypotheses on the nature of the political process, for the purpose of counteracting the attitudes of political scientists and economists within those academic disciplines. Together, these studies would impose the standards of an economic elite on the social sciences.

By the 1970s, Milton Friedman was surely the most famous US exponent of neoliberalism. He popularized Chicago neoliberal analysis, though sometimes crudely and ineffectively, as when he called for eliminating regulatory agencies. In urging that there were "several ways to skin even a reforming cat," Stigler hoped to draw his fellow neoliberals' attention to that fact that there were alternative means of advancing neoliberal aims. Notwithstanding Friedman's public claims, it was perfectly possible to do so by keeping regulatory agencies in place so long as regulators were forced to follow cost-benefit procedures and neoliberal scholars had identified the relevant costs and benefits for them: The appraisal of the achievements of a regulatory body is not impossible: a whole series of such appraisals is gradually developing an arsenal of techniques for measurement.

The Journal of Law and Economics was the house organ for the neoliberal law and economics movement. The most important use of the arsenal of “measurement” techniques was not necessarily to persuade anyone of anything—but instead to redirect state policy. No longer would regulation be conceived as inevitably bad or inefficacious, but instead as improvable; econometric method was to be deployed not merely for convincing fellow economists, but for effecting this improvement. Through these newly developed neoliberal techniques of auditing, with the promise of more to come, Stigler sought to impose the views of an economic elite on the social sciences, and ultimately regulators.

In short order, his ideas took root. At the University of Chicago, Stigler opened the Center for the Study of the Economy and the State, which dedicated itself to pursuing the plan he outlined in his 1971 memo to achieve “decisive influence” over the conduct of government. Outside of Chicago, Stigler, his students, and those in their close orbit developed relationships with scientists, resulting in a variety of interlinked and coordinated research institutes spanning economics, politics, and even the biomedical sciences. These efforts were significant enough to draw the attention of Michel Foucault who, in his Birth of Biopolitics, not only mentions Stigler’s research by name, but also singles out the work of the American Enterprise Institute’s Center for Health Policy Research as an exemplary instance of the “permanent criticism of governmental policy” so characteristic of neoliberalism.

Neoliberals denied that the scientific community could access knowledge apart from the marketplace. Such efforts gave rise to what amounted to a third skinning strategy: the science used by regulatory bodies should itself be regulated by the marketplace. Neoliberals would now actively encourage the commercialization of science; they also begin to engage in direct intervention into the conduct of science itself, thereby introducing multitudinous ways for regulated industries to harness it.

Well in advance of these developments, Stigler had provided a blueprint for the emerging epistemic regime. A market-governed science should utilize contract research and be conducted outside the structure of academic departments, under close supervision of one empowered to deliver on promises made to patrons. The purpose was not merely to produce “more” science, and certainly not to ensure the freedom of the individual scientist to pursue independent inquiry. Far from it. Instead, it was to free elite scientists from the need to satisfy their students and fellow faculty. If it worked to plan, it would free them from the need to persuade most anyone of anything. Anyone, that is, apart from their patrons, who demanded they produce the “right” kind of knowledge, and justifiably so.

Neoliberalism is often presented as a set of solutions: a ten-point plan to destroy solidarity and the welfare state. John Williamson's Washington Consensus is the most famous example with its edicts to privatize, liberalize, and deregulate. Neoliberals are often said to offer a laundry list, a recipe book, a panacea and a one-size-fits-all rostrum.

Like other authors in this volume, I suggest that we might better understand neoliberalism not as a collection of foregone conclusions and formulae, let alone as the final chapter in human history, but as a set of open-ended problems and questions. Among the unresolved questions faced by neoliberals are those of culture (are all populations equally capable of rational market activity?), of design (can institutions and laws be made or must they grow?), of legitimacy (how can markets survive despite their frequent cruelty?), of leadership (can judges, autocrats, central bankers, or businesspeople offer reliable guardians of order?), and of democracy (can it be contained and directed or must it be escaped?). While the final goal of creating a competitive order immunized from popular demands for social justice remains constant over time, neoliberal strategies for arriving at the goal change considerably.

This chapter concentrates on one of the best examples of a neoliberal problem—that of intellectual property (IP). Since the 1980s, IP rights have moved from the periphery to the center of conflicts over the shape and future of the world economy. The shift of the US economy's competitive edge from manufacturing to entertainment, apparel, pharmaceuticals, and information technology has led policy-makers and corporate interests to seek globally enforceable protection of the often intangible and easily reproducible recipes for drugs or sequences of bits that become movies or software as well as trademarks, designs, circuit board layouts, and other lucrative pieces of information. The last change of the thirty companies in the Dow Jones Industrial Index reflects the ongoing shift in the US economy as the aluminum company Alcoa and telecom giant AT&T made way for Apple and Nike in 2015.

In an epochal transformation occurring within the last generation, IP rights have become binding international economic law with the passage of the Agreement on Trade-Related International Property Rights (TRIPS) as part of the WTO Agreement signed in 1994 and coming into force the following year. IP rights have been extremely controversial, especially around the issues of patenting lifeforms, the prohibitive pricing of potentially life-saving drugs in the Global South, and, less existentially, infringements on cultural and intellectual liberty represented by prohibitions on sharing, adapting, and "remixing" data of text, music, images, and code.

Aggressive IP rights are often assumed to be one feature of the global neoliberal regime snapping into place since the 1970s. According to the dominant reading, because property rights are central to neoliberalism, then IP rights must be too. Yet, as this chapter shows, neoliberals themselves have been far from unanimous on the question of when, how, and even if ideas can be treated as property. If neoliberalism is synonymous with hardline intellectual property rights, what to make of the signatures of MPS members Milton Friedman, James Buchanan, and Ronald Coase on a friend-of-the-court brief opposing the Copyright Extension Act of 1998? How to explain the fact that Richard Posner, the leading figure of the Law and Economics movement and a member of the Mont Pèlerin Society, has not only suggested that there are "too many patents in America" but cites Hayek in his authoritative work on IP law to the effect that "a slavish application of the concept of property as it has been developed for material things has done a great deal to foster the growth of monopoly and … here drastic reforms may be required if competition is to be made to work"? The text is not marginal—it comes from one of Hayek's addresses at the founding MPS meeting in 1947.

Neoliberals were—and are—far from IP fundamentalists in the sense of propagating a reflexive extension of property rights in perpetuity to intangible entities. The overarching goal of securing a capitalist competitive order has sometimes led them to support property rights in ideas and sometimes to oppose them. While a host of Chicago School economists and MPS members including Harold Demsetz, Steven Cheung, and Richard A. Epstein were indeed key figures in shifting the US legal consensus away from antitrust since the 1980s, not all neoliberals took the "shift on patents" tracked by scholars. As alternatives, this chapter looks at the heterodox Austrian approaches of Hayek and his contemporary Fritz Machlup, coiner of both the terms "knowledge economy" and "production of knowledge" and an understudied member of the Mont Pèlerin cohort.

Following his mentor Ludwig von Mises’s idea of the “division of knowledge,” Hayek’s narrative of civilization was one of innovating new means for putting the knowledge of person A into productive contact with persons B through Z and from person B to persons A through Z and so on in an endless, unmappable, and indeed unrepresentable series of branching, splitting and star-bursting nodes and networks. Philip Mirowski has insisted correctly that Hayek saw the market as a “uniquely omnipotent information processor”—but even this metaphor is too concrete, conjuring up the image of an actual piece of hardware as it does—a supercomputer that one can look at. Hayek’s metaphors are more evanescent. The example he uses are the reconfiguration of neurons in the brain or a system of leaky tubes set into a pliable material so that pressure from the tubes creates new channels and rivulets in a constantly shifting and undulating arrangement. This vision of the economy differed starkly from that of Keynesianism visualized in the MONIAC machine designed by the economist Arthur Philips in 1949 to portray the economy as a self-contained hydraulic system of neat reservoirs and volumes responsive to the fine-tuning of the enlightened policy-maker.

In the Keynesian vision, the national economy is contained and money moves through it in broadly predictable and indeed plannable ways. Hayek conceded that his own vision of tubes failed for being too mechanical: it is not one substance that moves through neutral channels but energy, or knowledge, which is released in neurons at every node of connection, or the unlocking of the local knowledge of the “man on the spot” about conditions that perhaps even he could not put into words. Among his favored metaphors were the crystals formed inside of a petri dish or the constellations of iron filings responding to a magnet. As he wrote, such “physical examples of spontaneous orders … are instructive because they show that the rules which the elements follow need of course not be ‘known’ to them.” In the same way, “man does not know most of the rules on which he acts; and even what we call his intelligence is largely a system of rules which operate on him but which he does not know.”

The error that Hayek spent his life diagnosing and denouncing was what he called “the synoptic delusion,” the belief that humans could gain an overview of the economy adequate to plan it effectively. The means to solve the resultant calculation or coordination problem was the combination of laws and prices. Private property rights here were key. Through what he calls the institutions of meum and teum, mine and yours, combined with the free movement of prices, packets of knowledge would find their way to the most productive users. What he calls the “constitutional ignorance” of humans meant that we could only surrender the task to the market. Given an adequate legal framework, we could let the market effectively think for us.

While some scholars sympathetic to Hayek have celebrated the subtle and even mystical quality of these insights, others have condemned their implicit “agnotology” or reliance on a benighted and uneducated set of consumers and producers. What neither side has delved into, however, is the delicacy of the question of intellectual property within Hayek’s framework. If the economy is knowledge before it is property, then the question of how much of that knowledge should be made into property is of critical importance. Private property is not an end in itself. Hayek’s was not an argument based on natural law or Lockean just desert for labor spent. Private property was a means not an end—a means to coordinate dispersed knowledge in conjunction with contracts and the price mechanism.

It follows from a commonsense understanding of neoliberalism that state ownership of property would be inefficient, but it is also true from within neoliberal thought that if you privatize too much or incorrectly, knowledge could also be misallocated, blocked, or left stagnant. MPS president and Bank of Sweden Prize winner James M. Buchanan suggested that expansion of patents on basic scientific research, for example, could lead to a “tragedy of the anti-commons”—where too many competing property claims impeded efficiency and innovation. As scholars point out, there is the danger, even from a utility-maximizing perspective, of “too much property.”

Hayek’s own position shifted little over the decades. In The Road to Serfdom, he suggested that patent law had been one of the measures that had “led to the destruction of competition in many spheres,” and he repeated the statement almost verbatim twenty-five years later. IP law was a specific case because of its potential to block the flow of knowledge. As Hayek wrote in 1960, “Knowledge, once achieved, becomes gratuitously available for the benefit of all. It is through this free gift of the knowledge acquired by the experiments of some members of society that general progress is made possible, that the achievements of those who have gone before facilitate the advance of those who follow.” Obstructing the dissemination of knowledge threatened the very mechanism of advancing civilization itself. For Hayek, patents and copyrights could be a particularly pernicious form of legally sanctioned monopoly.

Machlup found forebears for his own skepticism towards arguments about the need for patents related to natural law ideas of property as well as incentivizing invention and disclosure.

In 1958, Machlup spoke before a US congressional subcommittee considering the question of what was then called “industrial property” as often as intellectual property. In calling patents into question, he cited MPS neoliberals from Mises and Hayek to Plant and Robbins. A striking absence in his discussion was the notion that property rights could apply in a commonsense way to ideas as they did to things. As he wrote in 1962, “If a public or social good is defined as one that can be used by additional persons without causing any additional cost, then knowledge is such a good of the purest type. To seek knowledge, to create, acquire, transmit, or retrieve knowledge—all these activities are ordinarily associated with effort or sacrifice of some sort; that is, they are not without cost. To use existing knowledge, however, may be costless.” … The guiding belief was that economic actors did not have to be incentivized to innovate as competition would do the incentivizing for them. Keeping or gaining the lead in a crowded field would compel companies onward to fund research and development. In the case of patents, it was weaker rather than stronger property rights that would serve the higher interests of the competitive order.

The gist of the research was skeptical about IP rights. Among the project’s products was a talk by German economics student Gerhard Prosi at the Caracas, Venezuela, regional meeting of the MPS in 1969 on “patents and copyrights as obstacles to development.” Prosi argued forthrightly that “no economic justification for the protection of foreign inventions in developing countries can be derived from traditional theories.” Machlup has remained an inspiration to later critics. The most radical opponents of IP in recent years, the economists Michele Boldrin and David K. Levine, frame their book as a long dialogue with the Austrian neoliberal.

While his work on patents was influential, Machlup’s place alongside Hayek as the leading thinker on the knowledge question in neoliberal circles was cemented, above all, with his 1962 book on The Production and Distribution of Knowledge in the United States, where he popularized the terms “production of knowledge,” “the knowledge economy,” and “the knowledge industry” and introduced a means of quantifying knowledge that is used by the OECD up until the present. Machlup’s framework reimagined the economy as a whole, attempting to displace the idea of a three-sector economy—of raw materials, manufacturing, and services—developed in the 1930s, for one with only two sectors: knowledge-producing and non-knowledge producing. In the process he came to the startling conclusion that 29 percent of the US GNP sat in the knowledge industry. Machlup was a pioneer of the epistemic shift, which would follow structural change, from a focus in the US on manufacturing objects to manufacturing—and collecting rent on—ideas.

In measuring the flows of information, Machlup’s emphasis was not on invention or the creation of new knowledge but on the communication of existing knowledge. As he put it, “the ‘knowledge-producing’ occupations include all workers engaged in communication or in any other kind of endeavor related to knowledge transmission: analyzers, interpreters, processors, transformers and transporters of knowledge, as well as original creators.” In this sense, apparent craftspeople like lithographers and typesetters were “knowledge producers” or, as he called them elsewhere, “brain workers.” In Machlup’s model, new knowledge is appended almost as an afterthought. The emphasis is on the extension of the network or the system of knowledge transmission rather than the conditions for knowledge creation. His resistance to strong IP laws becomes legible in this light. The point was not to protect knowledge for its initial producer but to expand its use and circulation in the aggregate.

Hayek cited Machlup on patents and copyrights until his final book published in 1988, and Machlup cited Hayek on knowledge in his three volumes of a planned ten-volume “Knowledge Project” cut short by his death in 1983. … Because of the importance of the latter, IP becomes relatively less important as the use of knowledge always relies on a certain locally embedded set of understandings and inherited practices to be made operational. The benefits of free knowledge-flow generally outweighed the supposedly incentivizing traits of IP rights.

The choice of most neoliberals, especially within the Law and Economics tradition, has been to take a “consequentialist” rather than an “axiomatic” position, working from a pragmatic evaluation of outcomes rather than inflexible first principles. Led by Posner, these economists use both modeling and historical observation to advocate policy based on the conclusion that well-designed patent rights incentivize innovation. This is also the stance taken by latter-day ordoliberals, including the former director of the Kiel Institute, Horst Siebert, and in the pages of Ordo journal, founded by the IP-skeptical Walter Eucken.

The open-endedness of the evolutionary process of capitalism meant that the devising of new frameworks of incentives was also never-ending. For most neoliberals, it is not property itself that is the absolute value but the fluctuating set of human-made laws required to encase the competitive order.

One need look no further than Hayek's first MPS speech when he said that "Patents, in particular, are specially interesting from our point of view because they provide so clear an illustration of how it is necessary in all such instances not to apply a ready-made formula but to go back to the rationale of the market system and to decide for each class what the precise rights are to be which the government ought to protect." One thinks here also of Milton Friedman's description of economics as "a body of tentatively accepted generalizations" rather than ironclad laws of nature (and the neoliberal rejection of naturalism described in Beddeleem's contribution to this volume). By this understanding, the attitude of the neoliberal intellectual is not that of dogmatist but shares some of the traits of alertness they themselves attribute to the entrepreneur (see Plehwe's contribution to this volume).

Linking knowledge and natural resources is not only a poetic choice. In 1974, the UN General Assembly passed a declaration on the New International Economic Order (NIEO) proposed by the G77 coalition of developing nations, approving an ambitious set of demands for global redistribution, increased aid, stabilization of commodity prices, and permanent sovereignty over natural resources. The G77 made demands for collective management and ownership of the seabed, the moon, and Antarctica alongside those for central management of the world’s information. Third World demands for rents for the airspace used by Western satellites circling overhead was only one of the ways that the materiality of information infrastructure met the spaces of the so-called natural world.

While, as shown above, the received economic analysis was about finding the balance between rewarding innovation and throttling it, campaigners for global IP protection wrapped themselves "in the mantle of property rights." The new language of IP in the 1980s figured it as "a system to protect and exclude, rather than one based on competition and diffusion." National competitiveness rather than the competitive order was the watchword, a shift signaled by the Presidential Commission on Industrial Competitiveness created in 1984 and the rise of both competitiveness indices and the competitiveness advice industry.

The WTO's "grand bargain" by which the Global South conceded to trade disciplines in IP and services in exchange for reciprocity on agriculture and textiles ended up favoring the Global North disproportionately.

While the shift of Chicago School economists towards a more charitable perspective on market concentration and monopolies helped lay the intellectual groundwork for the new policies, the global enclosure of ideas took place without consulting the original theorists of the knowledge economy. Under TRIPS, Hayek's sea of ignorance was parceled off into real estate.

In his account, TRIPS was not an economic document nor even a legal document: "It is a political document. The decision to bring cases is a political decision. The decision to push a case in terms of supporting a certain interpretation is a political decision."

The NIEO had made the radical claim that much of the world's knowledge was an inalienable part of the common heritage of mankind. Corporate advocates of IP responded with a claim that was equally radical and equally at odds with mainstream and neoliberal economic discourse: that IP rights were simple analogues of other property rights.

A second form of scholarly explanation, favored in the field of International Political Economy, uses the language of capture. Critics from both sides of the political spectrum use this category to criticize the current global IP regime. Here special interests, usually the wealthiest sectors of society—but also specific industry interest groups, nations, or even individuals such as Charles and David Koch—capture policy through proactive lobbying efforts. The think tank is part of the story but in a supplemental role. Against the political power of economic ideas, this could be called the political power of economic power.

A last mode of explanation follows a methodology emerging, in part, as a backlash against what is seen as an excessive emphasis on the power of ideas. This is a historicization of the rise of neoliberalism based on contingency. Here it is less the political power of economic ideas or economic power but the accumulation of political decisions of ad hoc governance. These scholars suggest that it is a fool's errand to look for theoretical coherence or consistency in historical developments such as the Reagan tax cuts, the fiscal crisis of New York in the 1970s, or the decisions to deregulate financial industry or to build the European Monetary Union. These were all decisions made by harried politicians under acute pressures of management and not according to preconceived plans.

Part of the capacity of neoliberalism to survive a series of what should have been existential crises must be credited to the adaptability of its basic policy prescriptions. Because neoliberals believe that markets are not natural but made possible through human intervention, they also believe that different circumstances require different solutions. Precisely because the unpredictability of capitalist evolution is an article of faith for neoliberals of the Hayekian variety, there can be no final blueprint.

Becker believed that such dramatic changes in the structure of the family had more to do with the expansion of the welfare state in the postwar era than with feminism per se—which could be considered a consequence rather than an instigator of these dynamics. Like many of his contemporaries, both neoliberals and neoconservatives, Becker singled out AFDC (Aid to Families with Dependent Children)—the “poor woman’s alimony”—as one of the primary causes of the breakdown of the family.

Clinton’s welfare reform act is infamous for installing both workfare and marriage promotion at the heart of American social policy. It is less well known that PRWORA essentially federalized a principle of poor relief dating right back to the old poor law tradition—the principle, that is, of private family responsibility for the welfare of dependents. Even less well known is the fact that Ronald Reagan first initiated this project as Governor of California in the 1970s, when he sought to revive the state’s old poor law rules for compelling family members to look after impoverished relatives.

As defenders of the competitive free market order, neoliberals may not have cared much for the active promotion of marriage, responsible fatherhood programs, and faith-based provision of services, all of which were supported by communitarians and social conservatives and included within Clinton’s welfare reform. But neoliberals were certainly in favor of efforts to enforce kinship obligations as an alternative to the redistribution of income by the state. When welfare recipients refused to take care of themselves within the proper structure of the family, neoliberals believed that the state had every right to leverage (or indeed to create) these relationships by force, just as it had every right to compel the long-term unemployed to work. Unmarried mothers who sought welfare from the state should first be obliged to seek support from an “absent father,” via child support orders, before the state disbursed any funds.

At different times and in different contexts, each of the key figures of American neoliberalism can be found invoking the idea that the “natural obligations” of family should serve as a substitute for the welfare state, indeed that the “altruism” of the family represents a kind of primitive mutual insurance contract that we would do well to revive today. From here derives the notion, now pervasive in American welfare practice, that the state has the right to identify and enforce legal obligations of marital support and child custody even when the parties concerned do not consent to or recognize this relationship.

What are we to make of the fact that the same neoliberal thinkers who extolled the virtues of the free market order were also prepared to defend the legal and economic bonds of kinship as inescapable, noncontractual obligations? And should we be surprised to learn that the American neoliberals were stridently opposed to the sexual privacy jurisprudence of the 1970s which turned sexual freedom into a constitutional right and ushered in the so-called sexual revolution in family law? Or that Gary Becker and Richard Posner were opposed to no-fault divorce?

American neoliberalism, as it matured in the 1970s, must be understood as an attempt to revive and reinvent the poor law tradition as a wholesale alternative to the mid-twentieth-century welfare state. This was not a project that was self-evident in the Chicago School of American neoliberalism at its starting point in the 1930s, and indeed it was far from evident as late as 1970, when Milton Friedman could be found collaborating with President Nixon on the project of a basic guaranteed income. Rather, it crystallized in the mid-1970s—a turning point in American politics, when the perfect storm of inflation, unemployment, and the rising militancy of the new left convinced neoliberals they must articulate a much more potent critique of the expansion of welfare under President Johnson’s Great Society.

What is family responsibility? And what is the relevance of the poor law tradition to the history of American social welfare? The principle of family responsibility for welfare has deep roots in the British and North American traditions of public relief and can be traced back to the Elizabethan poor laws of 1601, where it is stated that “the father and grandfather, and the mother and grandmother, and the children of every poor, old, blind, lame and important person, or other person not able to work, being of a sufficient ability, shall, at their own charges, relieve and maintain every such poor person.” The poor laws distinguished between the impotent poor, unable to work and eligible for care in an almshouse; the able-bodied poor, who must be compelled to work in a poorhouse; and the idle poor or vagrants, who could be imprisoned or confined in a House of Correction. But before any recourse to forced labor or incarceration could be activated, all three of these populations were subject to the principle of familial responsibility. In other words, before the parish took any action, family members would be compelled to provide as much support as they could.

The early American colonies imported the poor laws virtually verbatim and they were later incorporated into state legal systems during the early American Republic. These laws were continually reinvigorated and embellished to adapt to what we might call periodic episodes of sexual revolution. That is, at each historical juncture where the legal obligations of family were somehow weakened or threatened by the generalization of divorce, the waning importance of marriage, or the liberation of slaves who had never been married, the poor laws would be reinforced to punish those who threatened to transfer the costs of their welfare onto the state. As divorce became more common in the nineteenth century, the poor laws were modified to require post-divorce child support. When slaves were enfranchised in the 1860s, they were immediately encouraged to enter formal marriages and were subsequently subject to new legal rules of family support and mutual dependence. In many instances, those who failed to comply with family responsibility rules of economic obligation were subject to criminal sanctions such as forced labor or imprisonment. The poor laws helped the state to contain the costs of evolving sexual mores by imposing marital and familial support as an economic obligation.

If the poor were unwilling to enter into binding agreements of marriage and kinship by consent, then the state was quite happy to conjure up these unions out of thin air and impose them as a legal obligation of mutual support. If a male servant refused to pay for the support of his presumptive bastard child, then he would be called upon to perform unpaid labor to pay off his debts to the parish. If recently freed slaves continued to live together outside of wedlock, the state would compel them to marry and threaten them with forced labor if they refused to comply. These laws remained very much in vigor right up until the mid-twentieth century, when they came into conflict with the principles of state-managed social insurance championed by New Deal reformers. In many instances, they were never completely overridden.

The comprehensive forms of social insurance that had been implemented in Germany under Otto von Bismarck as early as the 1880s, and in other European states throughout the following decades, were much slower to be accepted in the United States, where they had to overcome both elite and popular attachment to notions of personal and family responsibility. Throughout the early twentieth century, opponents of social welfare argued that the socialization of risk would destroy the family as a moral institution by displacing economic solidarity among kin. Even public assistance to noncontributing dependents such as widows and the aged was attacked as a threat to the values of family responsibility and self-support.

With the passage of the Social Security Act in 1935, the advocates of social insurance claimed a decisive victory. The New Deal introduced comprehensive forms of social insurance against workplace accidents, unemployment, and aging and definitively removed one class of workers (standard, white, male workers) from the poor law system of family responsibility. Hoping to capitalize on this victory, federal administrators on the Social Security Board launched a vigorous assault on state poor laws over the following years and sought as far as possible to limit their use. Yet, many states resisted these intrusions and continued to enforce family responsibility in public assistance programs for the nonworking and noncontributing poor—including, most notably, Aid to Dependent Children or ADC (later renamed AFDC).

The dividing line between federal social insurance programs and state-governed public assistance became increasingly meaningful in this period. At a time when the government was assuming full social responsibility for standard male workers and their dependents, public assistance claimants were relegated to an older tradition of private (albeit state-enforced) family obligations. When single mothers, the blind, the disabled, the mentally ill, or the indigent claimed public assistance, state welfare departments were authorized to investigate and enforce private family obligations before disbursing any public funds. An adult child could be brought to court to pay for an elderly parent’s nursing home costs; aunts and uncles held accountable for the costs of housing and educating a blind relative; and parents forced to contribute to the care of an insane child. In some states, the welfare department could claim retrospective compensation for benefits paid or seize the estate of a deceased claimant to reimburse the public purse.

During this period of rapid liberalization, the much-maligned AFDC program remained firmly embedded in the poor law tradition. Far from phasing out the family responsibility provisions of AFDC, state legislatures continued to strengthen them after World War II, reinforcing the idea that impoverished women should look to individual men and not the state as sources of support. So-called “substitute father” or “man-in-the-house” rules had been imposed on welfare mothers since the beginning of the program, serving to create a de jure relationship of paternal and marital responsibility where none had been consented to by the parties concerned. From the 1950s onward, many states, including California, extended their family responsibility laws to include “absent fathers”—the former husbands of women who had been separated or divorced or the biological fathers of children who had been born out of wedlock. Now more than ever, women were reminded that their economic welfare depended primarily on their legal connection to a man.

The outcome of these decisions was both to federalize (and thus liberalize) control of welfare and to align its provisions with recent changes in family law. In the King v. Smith case of 1968, Chief Justice Earl Warren ruled that Alabama’s substitute father rule violated the terms of the Social Security Act and was out of touch with family law, which no longer sought to punish extramarital relations and no longer recognized any valid status distinction between legitimate and illegitimate children. In another decision, Justice Brennan opposed child support enforcement as an invasion of privacy. As a result of these rulings, the number of welfare applicants who refused to cooperate with district attorneys in child support matters rose dramatically.

By placing welfare benefits on a more secure footing and ridding them of punitive behavioral rules, the federal court decisions of this era had the effect of liberating women from the confines of private family dependence. The overall message conveyed by these rulings was that the welfare of poor women was a public responsibility on a par with that of standard male workers. Whatever their marital status, sexual history, or race, impoverished women were just as deserving of a social wage as any other citizen. At a time when middle-class women were entering the workforce in growing numbers and achieving some degree of economic independence from men, unmarried women on welfare also appeared to be in reach of a social wage that was no longer mediated through a “substitute husband.”

Public assistance benefits, however menial, were functioning like a social wage for unmarried women—a configuration that had not been envisaged in the Social Security Act, and one that many perceived as a perversion of its original intent. As Stephanie Coontz points out, it was not so much women’s dependence on the state that turned a generation of social reformers against the welfare state tout court; it was rather the growing realization that welfare was making women independent of individual men and freeing them from the obligations of the private family.

This particular challenge to the Fordist family wage system was profoundly unsettling to people from right across the political spectrum, and it is fair to say that it crystallized the enormous welfare backlash of the 1970s. It is in this period that you begin to hear the argument—echoed by both neoliberals such as Gary Becker and neoconservatives such as Daniel Bell and Daniel Patrick Moynihan—that public spending on welfare was making women too independent of presumptive husbands and fathers and thus effectively subsidizing the breakdown of the family. Neoliberals and neoconservatives were united in their opposition to the expansion of the welfare state under the sign of "sexual freedom," although their motivations were very different. Neoconservatives feared that the subsidization of non-normative lifestyle choices by the welfare state would undermine the moral foundations of social order. Neoliberals were primarily motivated by economic concerns: if growing numbers of women were now claiming both equal wages and an independent social wage, the resulting expansion of claims on the state threatened to exacerbate the problem of inflation.

Until this time, Democrats and Republicans alike were committed to the redistributive policies of the family wage, although they were divided on the question of whether or not it should be extended to African American men. By 1969, however, even the Republican President Nixon was convinced that the public assistance program, AFDC, should be made more inclusive and secured on a firmer, federal basis. His proposed new program—the Family Assistance Plan or FAP—promised to extend basic income guarantees to men, to two-parent families, and to those engaged in low-waged work. It also promised to include African American men within welfare benefits for the very first time.

When it was first proposed, Nixon’s Family Assistance Plan attracted an extraordinarily broad alliance of supporters—embracing the Republican president and moderate conservative Richard Nixon, the neoliberal Milton Friedman, the Democrat Moynihan, the liberals and leftists of the National Welfare Rights Movement, and liberal economists such as John Kenneth Galbraith and James Tobin. There were of course clear differences of opinion among those who supported the plan—Friedman, for example, envisaged a more frugal form of welfare redistribution than that favored by liberals or leftists (in private correspondence, he conceded that he saw the negative income tax as a pragmatic step towards the elimination of all social welfare programs). But with the exception of a few dissident, feminist voices in the National Welfare Rights Movement, all agreed that welfare in its existing form undermined the traditional family. And all converged on the necessity of maintaining some kind of redistributive welfare system. In the 1960s, even Friedman recognized the need for a basic income redistribution program to ameliorate the inevitable market failures of private charity.

Friedman conceived of the negative income tax as a way of channeling income redistribution through the federal tax system, thereby eliminating the excessive administrative costs associated with dedicated welfare programs. With each annual tax submission, those whose income fell below a certain threshold would receive a sum of money in return, guaranteeing them an annual basic living wage. By replacing in-kind welfare with the most liquid form of benefit—cash—Friedman thought that the negative income tax would encourage the poor to behave as responsible free market actors. With its minimal but efficient system of redistribution, the negative income tax would bypass the disabling paternalism of the welfare state and undermine the entrenched power base of liberal welfare bureaucrats. It would also eliminate the moral hazards embedded in the old AFDC program—that of promoting nonwork and family breakdown—by extending subsidies to those in low-wage work and intact families.

What defeated the plan, however, was not so much these specific objections as Nixon’s own decision to abandon the politics of consensus on welfare in a context of rising inflation. … By his second year in government, the economic outlook had soured and Nixon was less convinced that this strategy would work. Instead, he decided, behind closed doors, to abandon any attempt to reform AFDC while simultaneously overseeing some of the most generous expansions to Social Security in the program’s history. Social Security was (and still is) one of the New Deal’s less contentious social insurance programs precisely because it remains relatively untouched by the normative issues of race, gender, and family formation that intersect in programs such as AFDC.

Much like Friedman, Gary Becker credits AFDC (along with social insurance programs and public services such as state education) with weakening the bonds of familial obligation. For Becker, the family in its equilibrium state or free market state could be understood as serving a kind of natural insurance function that was fatally disturbed when the welfare state socialized insurance. Writing in the early 1980s, Becker credits the postwar welfare state with destroying the natural altruism of the family, but surmises that the decline in welfare initiated by Reagan will ultimately compel the poor to restore the bonds of kinship as a source of privatized welfare.

In fact, the opposite is true: a scholar such as Richard Posner who otherwise supported the extension of the private commercial contract (in such areas as the trade in drugs, sex and babies) was unequivocally hostile to the idea of a constitutional right to sexual freedom, for the simple reason that it might impose an obligation on the state to actively enable and subsidize the freedoms in question. This was precisely what occurred when sexual privacy jurisprudence was extended to welfare recipients in the 1970s. Instead, neoliberals support the more limited notion that private contractual freedom (as opposed to a constitutional right to freedom) should be extended to all arenas of social and intimate life, on the proviso that the associated costs are fully internalized by the contracting parties. Failing this, neoliberals are no less willing than social conservatives to invoke the necessity of noncontractual obligations in marriage and parenthood and are more than prepared to call on their enforcement by the state.

It is almost universally assumed that neoliberal legal scholars were sympathetic to—perhaps even ultimately responsible for—the jurisprudence of privacy that transformed sexual freedom into a (limited) constitutional right in the late 1960s and 1970s. Thus, a certain kind of left-wing critique of neoliberalism sees it as having inspired the individualist ethics of sexual choice informing such landmark cases as the Roe v. Wade decision of 1973 and by extension all other cases involving the recognition of a constitutional right to sexual liberty. In fact, the opposite is true: a scholar such as Richard Posner who otherwise supported the extension of the private commercial contract (in such areas as the trade in drugs, sex and babies) was unequivocally hostile to the idea of a constitutional right to sexual freedom, for the simple reason that it might impose an obligation on the state to actively enable and subsidize the freedoms in question.

As noted by the Chicago School legal scholar, Richard A. Epstein, the rules of social welfare should “follow the basic pattern of natural obligation as it is perceived to arise within families.” The task of neoliberal welfare reform is “to transform [this] inclination into duty” and thus to “derive an 'is' from an 'ought' “—a precise translation of the poor law philosophy of natural charity within the family.

Posner and Becker were adamantly opposed to no-fault divorce, not out of any overt moral concern with the decline of family life (the rising divorce rates of the late twentieth century were inevitable, Becker insists) but because of the potential social costs involved in supporting dependent women and children. When women and men fail to privatize the costs of their sexual behavior, instead transferring these costs to the state, neoliberals make an exceptional case for the imposition of noncontractual obligations. In cases of marital dissolution then, the legal responsibilities of marital and child support must take precedence over the wishes of the parties involved.

The neoliberal critique of welfare had a profound influence on the subsequent history of American social policy and informed both direct efforts to revive the poor laws and much more general interventions into the realm of fiscal and monetary policy, all of which had the effect of transferring economic responsibility to the family. As Governor of California in the late 1960s and 1970s, Ronald Reagan was one of the first to implement the desiderata of the neoliberals with respect to welfare reform.

As president, Reagan attempted to translate his Californian project in welfare reform onto the federal stage, without success. Instead Reagan's project was brought to final fruition by President Clinton, whose monumental welfare reform of 1996 effectively federalized the poor law tradition, turning America's welfare bureaucracy into an immense national apparatus for policing and enforcing child support obligations amongst the welfare poor.

It can be seen in efforts to repeal the estate tax on inherited wealth, a campaign that was loudly supported by neoliberal thinkers in the 1970s; in the local and state tax revolts that began in California in the late 1970s and then spread throughout the country, placing permanent limits on the power of the state to spend, tax, and most importantly, redistribute wealth; in the war of attrition to replace Social Security and work-based health insurance with private asset accumulation strategies; and in efforts to promote home ownership as a form of "asset-based welfare" under Clinton and George W. Bush. We tend to forget how central the problematic of the family was to each of these campaigns, but it was always front and foremost in the eyes of neoliberal policy-makers, who saw asset-based welfare as a way of replacing the "impersonal bonds" of social insurance with family-based forms of wealth accumulation and transmission.

We can also observe multiple ways in which cuts to public funding in healthcare, education, and welfare have pushed more and more people back towards kinship-based forms of self-care and mutual support and how the expansion of consumer credit has turned household deficit-spending into a substitute for state deficit-spending. Today, family responsibility very often takes the form of intergenerational debt where parents and other family members are actively enrolled in the debt obligations of children, signed up as guarantors or required to post their housing wealth as collateral to fund the social mobility (or simply stasis) of younger generations. Here too neoliberal policy prescriptions have played an important role, as Friedman and Becker were among the first to suggest that investment in “human capital” such as education should be the responsibility of the family, aided and abetted by private credit markets, not the state.

In the late 1950s and 1960s, however, the concept of human capital was much more closely associated with the name of Theodore Schultz, an economist who worked alongside Friedman and Becker at the University of Chicago but who would be more accurately described as a neo-Keynesian of the likes of Paul Samuelson, Robert Solow, and Richard Musgrave. It was Schultz who first popularized the idea that spending on human services such as education should be considered an investment rather than an act of consumption—and therefore that education itself should be considered a form of capital or interest-bearing asset.

Specifically, Schultz believed that investment in education could help explain a hitherto perplexing problem in the calculation of national economic growth, one that had been identified by the founding figure of neoclassical growth economics, Solow. In two seminal articles in the field, Solow reported that only a small part of the rapid economic growth of the United States in the early twentieth century could be attributed to increases in the size of the labor force or physical capital—the sources of investment traditionally thought to account for GDP growth. Schultz thought that the problem could be resolved if one took into account the sustained increase in private and public investments in education that had occurred over this period, an increase that was not the result of any conscious policy decision but that nevertheless had had the desirable effect of greatly improving GDP. Human capital investment, then, was the missing production factor in growth economics.

When Friedman, commenting on one of Schultz's drafts, asked him the critical question of whether returns to investment in education accrued primarily to the individual or the collective, Schultz replied that such investment raised national income and was therefore in the interests of the public as a whole. The public provision of free education, moreover, enabled rich and poor to attend college, independently of family wealth; the corresponding increase in wages for poor students could be justified in the same way as progressive taxation.

From the beginning, Schultz had his critics. Friedman and Becker in particular developed a perspective on human capital which highlighted the value of private as opposed to public returns to investment and led to policy recommendations at complete variance with those of Schultz. In their 1962 publication, Capitalism and Freedom, Rose and Milton Friedman pronounced themselves decisively in favor of private investment in human capital. Here they argued that the returns to investment in education accrued entirely to the individual student and that any ostensible social benefits were merely the summation of private wage gains. The individual student should therefore be held responsible for the costs of his education. The Friedmans concurred with Schultz that there had been massive underinvestment in higher education, but unlike Schultz, believed that this failure could best be remedied through the liberalization of credit. The fact that low-income students were unable to pay for a degree and thus discriminated against in the labor market could be attributed to “imperfections in the capital market,” that is, the absence of a liquid market in private student loans. At best, the Friedmans conceded that the state might play a minimal role in remedying this state of affairs by providing loans repayable through the tax system and contingent on future earnings. But they clearly saw the private credit market as the most efficient source of funding for student loans and thought that government incentives to banks were the best way of stimulating this market.

Becker had a very similar position to Friedman but as a microeconomist was always much more attentive to the intimate, domestic underpinnings of human capital investment and therefore has the merit of rendering explicit what remains unsaid in the work of the other neoliberals. Free public education, Becker argued, could be critiqued on the same grounds as the progressive income tax, which (in his words) “initially narrows inequality” but ends up raising the “equilibrium level of inequality … because families reduce their investments in descendants.” If we could only turn off the spigots of government spending, then families would spontaneously rediscover their natural altruism and start investing in their children again. The argument was improbable and at odds with the evidence but it enabled Becker to identify private credit markets as a logical alternative. In Becker’s ideal world, students would once again look to the family as a source of economic support, and yet the old stratifications of family wealth would simultaneously be deferred and elasticized by expanding opportunities for private debt.

Becker's microeconomic perspective on human capital investment was a mirror image of the more familiar theories of the Chicago and Virginia School neoliberals, who famously argued that public deficit spending and the resulting national debt had the unfortunate effect of "crowding out" private credit markets and discouraging private investment. But whereas Friedman and James M. Buchanan were primarily referring to business investment, what Becker meant by private investment was intergenerational, family investment. If the government would only scale back on its investments in public goods, Becker surmised, then the family would resume its proper role of investing in children. Further than this, the family's traditional economic responsibility in ensuring the welfare of its members would be greatly expanded by the stimulation of appropriate credit markets. With a little help from government, the old poor law tradition of family responsibility could be reinvented in the form of an infinitely elastic intergenerational debt.

Friedman in particular had a direct influence on this trajectory of higher education funding in America. Reagan, a vocal opponent of the Berkeley student movement, invoked Friedman's version of human capital theory to attack the funding structures of the University of California system as Governor of California in the late 1960s. Free tuition, he believed, had destroyed the incentive structures of private family responsibility and in the process stoked the anti-authoritarianism of the student movement. Only a return to private, parental investment in the education of children, he thought, could resolve the fiscal and moral problems associated with public education. A few short days after his swearing in as governor of the state of California in 1967, Reagan seized the opportunity to announce a 10 percent cut to the annual budget of the UC and state colleges and, more controversially, put forward a plan to introduce tuition fees as a way of covering the shortfall.

Reagan's plan to introduce tuition fees was ultimately defeated by the regents in August 1967, although they did allow him to raise the revenue he wanted by increasing existing administrative charges. In economic terms, the difference between Reagan's plan and the regents' eventual compromise solution was minimal. Yet the idea of introducing tuition fees was understood as a devastating symbolic attack on the tradition of free college education. Once tuition was accepted in principle, how could one remain committed to the ideal of free education? And what limits would be placed on annual increases? Reagan's state-level experiment in education reform subsequently served as the blueprint for the massive overhaul of higher education which he undertook as president.

When we look at the subsequent history of higher education funding in the United States, it is astounding how closely neoliberal reforms of the sector have followed the prescriptions set out by Friedman and Becker. Since Reagan's reforms of higher education in 1980, federal policy has tended to diminish the spending power of Pell grants and to push instead for the expansion of federal and private student loans. At the same time, state governments have been chipping away at their investments in public universities so that institutions that were free for state residents before the 1980s have now become effectively private. The effect of this policy drift, as few would be unaware, has been rapidly inflating tuition costs and an enormous expansion in student debt. As movements such as Strike Debt have explained so well, inequality now tends to manifest in the form of differing degrees of debt servitude rather than outright exclusion.

What Strike Debt fails to take into account, however, is the fact that so-called private or personal debt is very often intergenerational, familial debt. As tuition fees have skyrocketed and lending thresholds have been raised, both the federal government and private lenders have pushed students towards loans that are signed by parents in the name of their children and where the obligations between parent and child serve as a kind of substitute for secure collateral. It is not the case then that we might undermine the debt obligations of high finance by valorizing our “debts … to our friends, families, and communities,” as Strike Debt advises us, since the global market in securitized household debt is entirely dependent on our intimate obligations to each other, particularly at the level of the family. The fact that we are unwilling to abandon such obligations serves a highly useful anchoring role for the market in securitized credit, ensuring that consumer debtors will typically remain wedded to a contract much longer than professional market players.

The key figures in American neoliberalism cannot of course be held responsible for the enormous liberalization of financial markets that took place from the 1980s onward. But they were certainly some of the first to advocate private over public deficit spending as a way of financing investment in “human capital,” and the first to call for the subsidization of private credit markets as a way of satisfying the minority desires unleashed by the 1960s’ social revolution. Friedman and Becker could not have foreseen how dramatically consumer credit markets would expand in the following decades, nor could they have anticipated how closely the student loan market would approximate their policy prescriptions. Yet they understood very clearly how private credit markets could perform democratic inclusion without disturbing the economic structures of private family wealth.

Today the effects of this shift in public finance are experientially self-evident. The Federal Reserve recently published a report seeking to explain the fact that a growing number of young adults are living at home with their parents well into their twenties and even thirties—a demographic trend it attributes first and foremost to college debt. The shift from public to private investment in so-called human capital has forcefully reinvigorated the importance of family debt networks and inherited wealth in the shaping of social destinies. The effect of more than three decades of neoliberal economic reform has been to reinstate the legal and economic function of the private family as the first-line provider of welfare, very much in keeping with the policy prescriptions of neoliberals themselves.

Although Davies links Coase and Schumpeter to the contextual changes in competition policies that have been employed since the late 1970s, he remains silent on the paradox of the Schumpeter revival. After all, Schumpeter foresaw the end of capitalism due to the inevitable decline of entrepreneurship in managerial capitalism.

The failure to untangle the process of reviving and revising Schumpeter means that diverse and even contradictory entrepreneurship theories are now presented under the common banner of neoliberalism, although "[t]here is not much left of Schumpeter's entrepreneur in the post-Schumpeterian entrepreneurial theories. Only the conception that the entrepreneur need not be the owner has survived." Critics of neoliberalism are thereby unwittingly complicit in covering up important dimensions of the intellectual history of entrepreneurship and they miss the crux of the matter.

The purpose of the entrepreneurship revival was not only to postulate allegedly universal characteristics of economic humankind. It also morphed into an effort to induce a far-reaching conceptual change in the understanding of both private and public management. Lost in what amounts to a whitewashing of the history of entrepreneurship theory are the ambiguities of Schumpeter's own daimonic understanding of the entrepreneur. The successful integration of Schumpeter in the neoliberal narrative of entrepreneurial management indicates a steadily increasing neoliberal self-confidence. Schumpeter was first defeated symbolically to create room for neoliberal perspectives before the prestige of his name was integrated in a reinvigorated neoliberal perspective on economics, politics, and society.

Schumpeter pointed to the decline of a particular class of entrepreneurs. This reflected a change in the structure of global capitalism, and especially American capitalism, in the 1930s and 1940s. Partly as a result of the advance of socialist planning and the ideological conflict between socialism and capitalism, there was a growing consensus around large-scale, macroeconomic management and planning. Expanding bureaucracies in both the public and the private sector undermined the previous role of individual entrepreneurship and family firms, which Schumpeter had originally led to expect society to become more entrepreneurial. At the microeconomic level, the modernization theme was mirrored by the new theory of the firm in the discipline of management and economics. Replacing the individualism of entrepreneurship, scholars pointed to the largescale organizational dimension and complex management requirements of the multi-divisional business organization, or what Alfred Chandler in 1962 called the "M form." In line with a view to the distribution of responsibility, the secret of economic progress lay not in individualism and entrepreneurship but in management coordination and the cooperation of employees.

Too easily forgotten is Schumpeter's reserved attitude about the role of entrepreneurs in society at large. While considered agents of change, they were neither considered initiators of economic progress per se nor heroes of the Ayn Rand variety.

The rise of giant corporations and bureaucratic management led Schumpeter to predict the end of capitalism. According to him, individual entrepreneurs who were capable of relevant innovations and pushing through new combinations in the marketplace in the face of resistance (due to the inevitable destruction of previously existing market relations) were the true cause of macroeconomic progress. The successful entrepreneur would thereby also yield considerable profit (temporary monopoly), enabling, eventually, the building of lasting (family capital) empires.

For Mises, the entrepreneur was literally everyone. In Human Action, Mises defined the entrepreneur as “acting man in regard to the changes occurring in the data of the market.” At the center of his entrepreneurial function is the anticipation of the future demand of the consumer. Unlike Schumpeter’s focus on innovation and change, for Mises the entrepreneur needs nothing but market relations to perform his or her role in the economy and society. The performance earns profit for the entrepreneur, which is nothing but the acknowledgment of the capacity for making the price function work. This is why Mises reacted with hostility when profits were considered expressions of malfunctioning markets to be overcome by equilibrium. He saw the defense of profit (and loss) opportunity as central to a free economy and society.

Notwithstanding its limited reception in the discipline of economics proper, and the widespread belief in his lack of importance within Mont Pèlerin circles, the work of von Mises ended up contributing to one of the most important and lasting neoliberal projects of the 1960s and 1970s: the revival of the concept of entrepreneurship.

The topic of entrepreneurship arrived rather slowly at the meetings of the Mont Pèlerin Society. It was not discussed explicitly until the Vichy general meeting in 1967, when Israel Kirzner drew on Mises and Hayek in his important paper on “Methodological Individualism, Market Equilibrium and the Market Process” in a session on “The Teaching of Economics at the Present.” Kirzner drew a distinction between “Anglo-American price theory” interested in conditions of equilibrium and “Austrian price theory” interested in the market process. Kirzner suggested that, in contrast to the purely calculating and economizing role of the individual in the Anglo-American equilibrium world, there was an additional entrepreneurial element in the Austrian world of market processes due to the fact that individuals operate under conditions characterized by a lack of knowledge necessary to calculate and economize. “It is the entrepreneur,” he wrote, “who is the prime mover in the market process.”

It is notable that entrepreneurship entered the business school curriculum precisely at the time when some of the key exponents of the new entrepreneurship literature, and Kirzner in particular, started talking about teaching economics. The first entrepreneurship courses in the United States were offered at Stanford and New York Universities in the second half of the 1960s. The first entrepreneurship MBA program in the United States was offered in the early 1970s at the University of Southern California. A decade later, several hundred undergraduate schools and universities featured entrepreneurship courses if not programs in the United States alone.

According to him, the focus of the existing entrepreneurship discussion was on the first—calculative—dimension whereas he conceived of the need to recognize the second dimension as the real entrepreneurial function. Kirzner felt that the difference mattered because Schumpeter and all the other abstract calculation experts failed to recognize the most important concrete dimension of development, namely taking advantage of opportunities presented by the market process.

According to him, Schumpeter's failure to recognize the entrepreneur as a decision-maker, and his exclusive emphasis on disruptive innovation, left market-correcting policies to planners. Kirzner's own concept considered entrepreneurship decisive to explain the equilibrating adjustments over time, replacing static equilibrium by intertemporal equilibrium. Kirzner distinguished two entrepreneurship issues: a) the discovery of the best way of action, and b) actually carrying out activities no matter if best or second or third best. According to him, the focus of the existing entrepreneurship discussion was on the first—calculative—dimension whereas he conceived of the need to recognize the second dimension as the real entrepreneurial function.

Kirzner's observations about real-life entrepreneurs were foreshadowed by neoliberal interventions in the debate over international development. Since the end of the 1950s, development economist and MPS member Peter Bauer had used a sociological perspective akin to Schumpeter to decry the notion of a lack of entrepreneurs in developing countries—a view also shared by important Mont Pèlerin members like Wilhelm Röpke. Ignoring progressive critics who emphasized a shortage of (domestic) capital rather than a lack of entrepreneurs, Bauer's emphasis on the market process and entrepreneurship in the South sought to advance a universal neoliberal economic perspective in the field of development economics.

While Kirzner attacked the eminent economist Schumpeter, he was also eager to stress how close Schumpeter's emphasis on "dynamic disequilibrium" and innovation were to his own concept of "alertness" and to the independence of entrepreneurship from the factors of production. According to Schumpeter, only the owners of capital were bearing risk, which set his reasoning apart from the contributions on uncertainty of Frank Knight at the University of Chicago, for example. Yet unlike Schumpeter, Kirzner emphasized the market process in which the entrepreneur takes a role, rather than the innovative contribution of the entrepreneur himself. He did so for a reason: Schumpeter's wartime observations regarding the decline of heroic, innovative entrepreneurship and, correspondingly, family firms, led him to expect the rise of a version of elite socialism that was difficult to counter in the age of monopoly capital, large organizations, and managerialism. The central weakness of Schumpeter's sociology of entrepreneurship, however, was a tendency to naturalize entrepreneurial talent and quality (the substantive capacity of the class of innovative individuals and the macroeconomic relevance of innovations, respectively). This was no longer needed if the entrepreneur merely reacts to market opportunities rather than having to create them. Kirzner's shift of attention to the simple individual quality of "alertness" and the primacy of market processes which present opportunities redirected the argument to the general system of thought of Ludwig von Mises.

No macroeconomic dimension of innovation was required to meet his threshold of abundant entrepreneurship, and the market process trumped market structure in what became a contingency theory of more or less restricted entrepreneurship. Following this shift, Mont Pèlerin members increasingly directed their attention to the wide range of restrictions on entrepreneurship. Instead of the traditional focus on the monopoly power of firms as an impediment to the market, the subtle move towards market practice enabled the shift of attention to state-related policy issues like taxation and regulation, and trade-union-related collective action, as the primary targets of critique.

The topic of entrepreneurship arrived at the Mont Pèlerin Society in earnest in 1970 when the German economist Günter Schmölders opened the conference on the “image of the entrepreneur” which took place from August 30 to September 5 (on Schmölders and his early contribution to behavioral economics, see Graf in this volume). The content of the Munich MPS conference papers was not a purely academic matter. The focus on the entrepreneur was also part of a strategic agenda-setting effort on the part of neoliberal intellectual circles in close interaction and collaboration with corporate leaders from industry and banking. West Germany’s leading technology company, Siemens, provided office space and logistics. A wide range of medium and large German enterprises provided funding. Schmölders used the Aktionsgemeinschaft Soziale Marktwirtschaft (Action Group for a Social Market Economy) and the Arbeitsgemeinschaft Selbständiger Unternehmer (Association of Independent Entrepreneurs) to obtain funding. The former is a think tank financed by corporate members, which had been originally founded in 1953 to support Ludwig Erhard’s neoliberal version of a social market economy. The latter is a business association of family firms, which had contributed heavily to think tanks. The support from big corporations and family firms suggested cross-sectoral interest in the entrepreneurship theme in Germany. Instead of an opposition between big-firm management and family-firm entrepreneurship, there was an emerging consensus on the need for a common approach to entrepreneurship and entrepreneurial management.

In his opening address, Schmölders made three points to undergird the new focus on entrepreneurs. First, postwar capitalism had been hugely successful, but its very success obscured the foundations of the market system, which were considered old-fashioned or even reactionary by much of the public. This required a new effort to examine the functioning of the system, with entrepreneurs as one of the critical aspects. Second, this effort could help to atone for the longstanding sin of omission, namely the missing focus on entrepreneurs and entrepreneurship in economics. Much like Kirzner, Schmölders argued that attention needed to shift from abstractions like capital or economic laws to the real actors. Third, the public opinion of entrepreneurs was as important as the role of the entrepreneur in the functioning of the economy. Only the deep knowledge of “opinions on facts” allowed responsible politicians and their advisors to develop an understanding of preference formation processes in economic and economic policy questions.

Schmölders thus set the double task of pursuing both research on entrepreneurs as critical agents and research on opinions of entrepreneurship in general. The lineup for the conference followed the dual purpose spelled out by the MPS president. A first group of speakers addressed the relevance and image of the entrepreneur in different countries, and a second group examined particular groups in society and how to improve the image of entrepreneurs. Schmölders himself covered Germany, Lawrence Fertig the United States, Francois Bilger France, Ralph Horwitz the UK, Chiaki Nishiyama Japan, B. R. Shenoy India (complemented by Peter Bauer on developing countries). James Buchanan and G. M. Wattles discussed education in the United States. The roster of speakers on the second theme included Gilbert Tixier on the perspective of French tax collectors, Götz Briefs on trade unions, Jean-Pierre Hamilius on intellectuals, and Erich Streissler on the left. Last but not least, we find Franz Böhm, Milton Friedman and Christian Gandil discussing how to improve the image of the entrepreneur. The 1970 meeting thus placed entrepreneurship firmly on the agenda of the neoliberal intellectual movement both as subject of analytical research and as object of popular promotion efforts.

The unfolding revival agenda at this point in time can be best summarized as an exercise in defensive optimism. Speakers at the 1970 MPS conference observed a decline of owner-entrepreneurs along the lines expected by Schumpeter. Contrasting the concerns and fears voiced in conservative and neoliberal circles during the 1950s and 1960s, the speakers in Munich highlighted surprising sources of optimism with regard to the future of the market economy. Authors pointed to considerable entrepreneurship in large corporations and to the changing behavior of average citizens. Fertig observed that 12 percent of Americans owned shares, for example, and reported a strong increase in the volume of investment funds. The former read like a preview of the "intrapreneurship" and innovation system discourse to be further discussed below, and the latter pointed to the impending expansion of scope of the entrepreneurship discussion.

Böhm suggested that the effort to support entrepreneurs needed to be concentrated on the image of the market order. He offered three reasons for the intellectual opposition to entrepreneurs and the market: resentment, utopian ideas, and lack of knowledge.

After 1970, entrepreneurship was no longer considered doomed due to an inevitable decline of the class of individual entrepreneurs. The essentialist perspective of Schumpeter was increasingly replaced by the political contingency perspective of Mises.

Firstly, neoliberal scholars used survey studies in different countries to direct attention to challenges and to offer solutions to contrast negative images. Secondly, they developed clarity about the need to defend economic freedom and the market system as a whole rather than the individual entrepreneur; the entrepreneurship function rather than the particular person. Thirdly, they clarified the sources of negative images of entrepreneurs, ranging from educators, trade unions, tax officials to intellectuals, which served also to develop agendas adequate to address particular audiences (e.g. teachers, journalists) in addition to the general public. This job was given to the growing army of neoliberal think tanks. Fourthly, authors ascertained the positive roles and functions of entrepreneurs and entrepreneurship both at the micro and at the macroeconomic level.

The 1970 MPS conference thus marked the end of Schumpeterian essentialism and pessimism and a shift in focus to the conditions of economic freedom and entrepreneurship. Apart from delivering clarity about the need for lowering constraints on business transactions, the conference also marked the beginning of revisionism with regard to Schumpeter's innovation entrepreneurship and a new perspective on corporate management.

Herbert Giersch's work marks the reversal of previous approaches of neoliberals to issues of entrepreneurship. While Mises, Kirzner, Schmölders, and many others scrutinized the different constraints faced by entrepreneurs, Giersch turned the tables to emphasize the constraints that entrepreneurs themselves presented to regulators and other enemies of economic freedom at and beyond the scale of the region and nation. The long-time president of the Kiel Institute for the World Economy was at the center of a newfound interest in global competitiveness, innovation, and locational dynamics. Unlike well-known figures such Michael Porter, Jeffrey Sachs, and Paul Krugman, Giersch has been unjustly forgotten in the Anglo-Saxon discussion of new growth economics and new economic geography.

Giersch has been considered a modern Keynesian economist in Germany, but his work displayed a decisive swerve towards supply-side economics and Austrian perspectives from the 1970s onward. Even before this redirection he was personally close to Hayek and maintained a friendship with him throughout his life.

Giersch published his seminal text on the new age of Schumpeter in 1984,40 which marked the end of the age of merely defensive optimism within MPS neoliberalism. Now relying on a selective reading of Schumpeter, neoliberals like Giersch proudly professed a new confidence in greatly expanded notions of entrepreneurship. The age of Keynes and macroeconomic steering had come to an end according to Giersch. Keynes is presented as the pessimist instead of Schumpeter, who is turned into a trusting supporter of capitalist revival right after World War II.

Giersch’s research focus from the second half of the 1970s onward was on structural change in the world economy. This positioned him to address supply-side conditions in general and entrepreneurial activity in particular. He merged the German tradition of marginalist locational economics of Thünen and Lösch with the dynamic evolutionary economics of Schumpeter.

At the heart of Giersch's new economic geography was what he called the "Schumpeter volcano," a center of innovation in a specific location, which would provide the innovating company or business unit with a temporary monopoly. Once the innovation "lava" flowed downward and cooled, competitive advantage was lost. The volcano thus must continue producing new innovations (new technologies) or move to the margins in the process of locational competition (Standortwettbewerb). While established "volcanoes" can maintain their position due to incumbency effects, the framework allows for imitation and the possibility of new centers to emerge and successfully compete with existing firms, business units, and regions.

In line with Mises, innovation thus became a function of enabling factors and actively jumping at chances rather than an essential and rare ingredient of the economic process. The entrepreneurial mindset has to function perpetually or else miss opportunities and pass the command on to others. Giersch quite obviously follows Kirzner without explicit reference to his notion of alertness. To this end, local, regional, and national entities can align policies in favor of competitive practices.

What matters most in present circumstances are the driving forces of economic development. Emphasis, therefore, is on the growth and dissemination of knowledge, on path breaking entrepreneurs and eager imitators, on credit creation for the supply of venture capital, and on Schumpeterian competition (i.e. on innovative monopolistic competition rather than sterile perfect competition, on oligopolistic rivalry rather than collusive equilibria and on aggressive trading rather than arbitrage transactions). In the international economy, which Schumpeter mostly neglected [sic!], emphasis is on free trade rather than fair trade (trade minus competition) and on export orientation rather than import substitution.

Giersch's last point number nine reads: "Entrepreneurial talent is in almost unlimited supply, but it often finds productive outlets only abroad, or less productive (or even counterproductive) use in politics and government, in public and private bureaucracies or in the military." Giersch evidently took his page from Mises. Entrepreneurs are everywhere, both in the public and the private sector: in human action hampered or enabled by the institutional make-up of society. Once decision-makers embrace this understanding, society can be moved towards productive entrepreneurship. Otherwise society will have to live with an exodus of talent to better locations and with sub-optimal application of the remaining talent.

In the 1980s, Giersch divided the world into advanced innovative (Schumpeterian) regions—at the time US and Japan—and less developed Schumpeterian regions like Taiwan and Singapore, and advanced Keynesian and less developed Keynesian regions, which hampered entrepreneurship. Additional regions were categorized as Ricardian, Malthusian, or Marxist.

Giersch's dynamic reasoning has subsequently been vindicated by the collapse of the Soviet Union and the ongoing and massive neoliberal transformation of welfare state capitalism in the OECD world. Dynamics of structural change unsettled most national and regional economies, which ironically became increasingly subject to strategic planning, both public and private, precipitating the neo-nationalist rise of right-wing populism following the global financial crisis. Contrary to anti-statist rhetoric, the (competition) state has been charged with advancing the neoand post-Schumpeterian notions of entrepreneurship through regional, educational, economic, and even social policies.

Unlike Porter, Giersch did not perceive competitive advantages in terms of a local or national combination and allocation of resources. The world market was the key referent, attracting mobile factors of production to the most competitive region: capital and knowledge. Flexible regions are upwardly mobile, and regions marked by rigidity are prone to decline. Local endowments can be more or less favorable to local development, but they do not explain the trajectory.

Contrary to Kirzner’s effort to de-emphasize innovation and the resulting disruption, Giersch reinstated the innovator-entrepreneur without reinstating the small social class of Schumpeter’s elite entrepreneurs. Instead, Giersch adopted the far-and-wide approach to risk and responsibility carrying entrepreneurship offered by Knight and Mises, and the special ability entrepreneur offered by Kirzner, all fellow MPS members. All these elements of an individualist entrepreneurial mindset fed the new perspective of entrepreneurial management, collaboration in innovation systems and “intrapreneurship,” or “Schumpeter Mark 2.” Creative destruction would no longer require the boom and bust of the firm.

Herbert Giersch’s entrepreneurship amounts to the paradox of individualism. The complexity of contemporary capitalism requires a collective effort disguised by a language of entrepreneurship. Individual entrepreneurial behavior aside, the discussion is focused on the firm, on capital, on technological knowledge, and on managerial skill for the entrepreneurial talent to work out. Since it is probably “easier for a person to acquire managerial skills than to accumulate capital, it appears evident that capitalists will normally hire entrepreneurs. In this case, capital becomes the limiting factor and the barrier to entry,” writes Giersch. Note that the person hires managerial skills suddenly rather than entrepreneurial talent.

In any case Giersch declined the invitation offered by several authors to integrate entrepreneurship into the realm of macroeconomic neoclassical equilibrium thinking. The important link between Schumpeter, Mises, Kirzner, Schmölders, and Giersch is the emphasis on market process, dynamic, and change. The vastly expanded vision of individual entrepreneurship we already found in the writing of Mises and expressed by some of the speakers at the 1970 MPS conference was thereby consolidated in a theoretical position, and was ready to be projected to ever wider classes of citizens within corporations (intrapreneurship) and outside. The underemployed and unemployed are turned into self-employed, provided the political institutions are adequately reformed and the incentives are right. Giersch calls this the demand side for entrepreneurship, “the demand permitted, induced or actively provoked by the socio-economic structure and the political and cultural environment.” The demand for entrepreneurship, in other words, depends on the social arrangements in support of economic freedom.

The rise of the German-language literature on the entrepreneurship topic (Unternehmertum) during the 1970s and 1980s was arguably due to the challenges emanating from institutional restrictions like co-determination and corporatist arrangements. Paradoxically, arm's-length-type market relations gave rise to managerialism and planning in the United States, whereas institutions of coordinated capitalism generated a strong sensibility for the role and relevance of entrepreneurs.

But the new entrepreneurial behavior was certainly not just left as a choice for individuals. All kinds of state and private institutions involved in regional and business development, education, and even unemployment insurance and labor exchanges were involved in crafting the new entrepreneurship agendas quite in line with the thinking and advice of neoliberal intellectuals like Herbert Giersch. Take Germany as an example: transfer payments for economic development are no longer distributed evenly across space and population. They are redirected to promising locations and firms. Private companies in turn provide incentives for intrapreneurship: most company units are now organized according to the cost-center principle to simulate market relations within corporations.

Following the Hartz reforms of social security and unemployment insurance, long-term unemployed people in Germany are offered monthly payments to start their own business for up to three years. Hundreds of thousands of new small businesses dubbed Ich-AG (I-corporation) have been funded, albeit with mixed success. In any case it is clear that entrepreneurship and entrepreneurial behavior is not left to natural development or chance. There is a common and clear understanding across the mainstream political parties now to transform public and private institutions in support of entrepreneurship. Only a lack of political initiative and stamina gives reason for pessimism, pace Schumpeter.

Criticizing this approach, the French economist Gilles Saint-Paul argues that the growing influence of the behavioral and social sciences on policy-making might lead to a "tyranny of utility." Referring to F. A. Hayek's The Road to Serfdom, he describes economics as the guardian of individual liberty and the values of the Enlightenment. Recent developments, he suggests, threaten these ideals: "If current trends continue, I foresee a gradual elimination of individual freedom as 'social science' makes progress in documenting behavioral biases, measuring happiness, and evaluating the effects of coercive policies." Whereas Hayek feared social democracy, communism, and National Socialism, Saint-Paul sees tyranny lurking in present-day behavioral policy. Neoliberal critics of state interventionism echo this rejection. In 2014, for example, when Angela Merkel announced the creation of a government unit on behavioral policy (catching up on a development that had already taken place in most other Western countries), Mont Pèlerin Society member Philip Plickert immediately rejected the idea as driven by a paternalistic intrusion into private lives.

In his inaugural lecture at Berlin University in January 1932, Schmölders generalized these findings further, arguing that there was a specific tax morale that differed from conceptions of morality in other fields. This tax morale could easily be undermined if people felt overburdened or treated unfairly or even if the state spent tax revenues unwisely.

After the war, Schmölders repeatedly described the workings of this group as resistance against the Third Reich, especially referring to a conference at which a future conspirator against Hitler, Peter Graf Yorck von Wartenburg, was present. The publication of the proceedings as “Competition as a Means to Enhance Economic Performance and Selection,” which argued that the market mechanism was superior to price controls and state monopolies in stimulating economic performance, was indeed courageous, as any critique was under the conditions of the National Socialist dictatorship. Yet, the contributions hardly amounted to resistance against the Third Reich, as the National Socialists had few fixed views on economic policy, and the book offered suggestions on how to improve it, focusing in particular on the postwar economic order.

It would overlook the nature of the National Socialist dictatorship to take Schmölders’s public utterances at face value and conclude that he was an illiberal advocate of central planning. On the contrary, he was critical of monopolistic and collectivistic tendencies and preferred a market-oriented economic system, as his 1942/43 memorandum for the Kreisauer Kreis on “The Economy and Economic Leadership in a European Bloc after the War” shows. Economic competition in a market economy, Schmölders argued, was ideally suited to increase efficiency and stimulate growth as the price mechanism awarded the best and punished the worst product better than any planning institution. While Schmölders considered it necessary to stimulate and enhance individual economic performance, he rejected plans, orders, and other external incentives. Rather, the innate desire to gain money and achieve social recognition should be set free. While competition was the fundamental principle to engender economic prosperity, Schmölders acknowledged that it could produce inefficiencies and injustice and, therefore, needed a strong state, setting a legal order to guarantee its functioning. In this respect, his vision of the future economic order was in line with fellow ordoliberals like Ludwig Erhard, Alexander Müller-Armack, and the Freiburg School, who later helped to create the “social market economy” in the Federal Republic.

His economic liberalism had apparently no intrinsic connection to civil liberties and democratic political institutions, as will also become clear in his later interventions as a public intellectual.

According to Schmölders and many of his colleagues, a general overhaul of the German taxation system was necessary because the taxation levels that resulted from “dictatorship and the war economy” impeded rationalization and risk-taking. In their report for the German Ministry of Finance, most taxation experts agreed that exceedingly high taxes would undermine the market economy itself. While there were some dissenting voices, arguing that the potential to change the wealth distribution by means of taxation was higher, most experts assumed that above a rather low “psychological breaking point” (using the English term in their report), tax resistance would intensify and tax morale decrease.

In order to understand people’s financial and economic activity, Schmölders argued, it was inadequate to conceptualize them as rational utility maximizers presuming a “primitive hedonism.” In his view, developments in psychology in the twentieth century had rendered such an understanding of human beings obsolete. Moreover, Schmölders criticized the “eclectic psychologisms” put forward by other economists, in particular by John Maynard Keynes, who used concepts like “liquidity preference,” “saving propensity,” “inducement to invest/save,” or “propensity to consume.” Rather, economists should take the full spectrum of emotional attitudes and psychological motivations into account, making use of the most advanced sophisticated psychological techniques they could find in interdisciplinary exchanges. According to Schmölders, depth psychology rendered the idea of the rational homo economicus absurd. He remarked ironically that it was even more absurd to assume a “gladly giving” or a “stupid” human being, a “homo libenter contribuens” or a “homo stultus,” as some policy-makers apparently did. Against these idealizations or even caricatures, Schmölders emphasized the need for empirical research on the actual behavior of economic actors in real-world situations, as was conducted at his Research Center on Empirical Socioeconomics.

In no other field of knowledge, according to Schmölders, was the gap between theory and practice wider than between economic research and economic policy, since economists had withdrawn into an “ivory tower of mathematical abstractions and hypothetical logicisms.” Economic behavioral research was Schmölders’s attempt to bridge the gap and overcome the predicament. He carefully distinguished his approach from a narrower understanding of traditional behaviorism. Economists should make use of all “anthropological sciences” that offered insights into the motives, incentives, and impetuses of economic activity: “psychology of the conscious and unconscious (including its behavioristic branches), biology and brain science, … as well as sociology, history, social anthropology, linguistics and comparative animal ethology and sociology."

In contrast to Hayek, he did not make the argument that economists could “derive from the knowledge of our own mind in an ‘a priori’ or ‘deductive’ or ‘analytic’ fashion an (at least in principle) exhaustive classification of all the possible forms of intelligible behavior.” Rather, Schmölders suggested that economists should use the means of the neighboring social sciences in order to empirically scrutinize the “predictable, regular, and to a certain degree evocable behavior that may be called quasi-instinctive or quasi-automatic."

The first victim of such a “realistic” approach to economic phenomena was the figure of the homo economicus. It was not only modern psychology that rendered it implausible for Schmölders. Ethnographic research also suggested that the variety of economic exchanges in different cultures could be captured more adequately with the assumption of a “homo institutionalis” governed by unwritten customary laws of morality. … Rather, Schmölders suggested that economists should use the means of the neighboring social sciences in order to empirically scrutinize the “predictable, regular, and to a certain degree evocable behavior that may be called quasi-instinctive or quasi-automatic."

The paradigmatic cases for Schmölders's plea to introduce psychological and behavioral insights into economic reasoning came from the realm of public and private finance, focusing on tax morale, trust in money, and the psychology of saving. While these fields formed the core of its research agenda, the Research Center for Empirical Socioeconomics also ventured into other areas. Ten years after the presentation of his research program, Schmölders presented the institute's achievements again in Ordo. Acknowledging that his previous article had failed to spark a debate in the journal, Schmölders proudly presented fifty-seven publications on what he now called "socioeconomic behavioral research" (sozialökonomische Verhaltensforschung) that had been produced in Cologne.

With his non-behavioristic approach to the analysis of empirically observable behavior, Schmölders was a rather solitary figure in the German academic economics of his time. Yet, he was part of a broader international trend of the 1950s to naturalize behavior and analyze it by social scientific means. Especially in the United States, a funding scheme initiated by the Ford Foundation launched a "behavioral revolution," re-organizing large parts of the social and human sciences under the label "behavioral sciences" in order to improve the understanding of all aspects of human behavior.

Neoclassical economists, however, generally shied away from interdisciplinary collaboration on human behavior. An exception to the rule were members of the Cowles Commission at the University of Chicago and protagonists of early consumers' research, such as George Katona. Having already advised the Ford Foundation on its program for the behavioral sciences in particular, Herbert A. Simon formulated a research agenda that resembled Schmölders's economic behavioral research. Having worked on theories of organization and administration, in 1955 Simon suggested to "substitute for 'economic man' or 'administrative man' a choosing organism of limited knowledge and ability. This organism's simplifications of the real world for purposes of choice introduce discrepancies between the simplified model and the reality; and these discrepancies, in turn, serve to explain many of the phenomena of organizational behavior." Simon wanted to develop a theoretical model of "rational behavior that is compatible with the access to information and the computational capacities that are actually possessed by organisms, including man, in the kinds of environments in which they exist."

Schmölders claimed that he had been unaware of Simon and the efforts of the Ford Foundation before the publication of his programmatic piece in Ordo. Yet, afterwards he saw it as a boon to his position. Despite their differences in intellectual scope, theoretical ambition, and style, there were salient commonalities between Schmölders's and Simon's early attempts to establish a research program in behavioral economics. To begin with, both rejected the ideal of the homo economicus as inadequate, while advocating the empirical analysis of the decisions of real people in actual situations. Moreover, deviating from methodological individualism that focused on the individual choice act, they looked for patterns of choice or principles of behavior in larger groups that made individual actions predictable. In addition, they did not consider these behavioral patterns specific to human beings; some of them allegedly were also found in apes or, as Simon would suggest, construed in machines. Characteristically, Simon spoke of "choosing organisms." Finally, both looked at neighboring disciplines for methodological help and theoretical inspiration in order to understand the principles of human behavior, demanding the interdisciplinary opening up of economics. In particular, they advocated the reintroduction of psychology into economics. In contrast to the earlier subjective value theory, however, psychological motives of economic behavior should not be determined by means of introspection but through the most advanced methods of the social and behavioral sciences.

As Günter Schmölders's political statements and interventions clearly show, the assumption of the homo economicus, or rather of rational and self-interested actors, is not a necessary condition for the neoliberal advocacy of market mechanisms. On the contrary, Hayek himself had emphasized repeatedly that the limits to individual knowledge made market mechanisms necessary to allocate knowledge and negotiate supply and demand. Economics, for Hayek, tried to answer the question that he considered central to all social sciences, namely "how can the combination of fragments of knowledge existing in different minds bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?" Focusing not on the economy as a whole but on individual economic actors, Schmölders argued that irrational factors influenced their economic choices, circumscribing their freedom to choose what was in their best interest. Whereas other neoliberals, like Gary Becker, maintained that predictions assuming behavior in line with the homo economicus could still produce valid results, Schmölders argued that explanations could only rarely confine themselves to the hypothesis of economic rationality alone but had to integrate sociological and psychological factors. For Schmölders these non-economic principles of human behavior not only influenced individual economic activity but also, and more importantly, established boundaries for state intervention into the economy.

Referring to the German sociologist Hans Freyer, who had advocated a "revolution from the right" in Weimar Germany and turned conservative again after his disillusionment with National Socialism, Schmölders rejected the belief in the "malleability of everything" (die Machbarkeit aller Dinge). He considered it wrong to conceive of citizens as the mere material of political designs. On the contrary, Schmölders argued that human nature set the boundaries for political interventions into society and economy.

The argument concerning the behavioral limits of state intervention, which Schmölders used repeatedly as a political advisor and public intellectual, had already been implied in his early research on the prohibition or taxation of alcoholic beverages. Here, Schmölders had tried to show that people's customs and habits were stronger than the state's means of influence. Generalizing this position in his financial psychology, Schmölders argued that politicians could not and should not impose taxes that ignored or contradicted the basic principles of "human nature." High taxes would necessarily result in tax evasion, effectively reduce state revenues, and even undermine the citizens' loyalty to state institutions. In an imperfect world, the state and its officials had to consider the "human, all too human" factors, Schmölders argued in Nietzschean terms. He declared that it was a mistake to view citizens only as tax payers whose behavior could easily be changed by setting financial incentives.

In the 1950s and 1960s, Schmölders's institute conducted surveys on consumption and savings behavior of workers as well as lowerand middle-class clerks in order to assess the viability of state programs to encourage private savings. He did not generally oppose these programs but established significant differences in their effects on the accumulation of personal wealth among workers and employees. While both low-income and white-collar workers behaved similarly, spending wage increases for immediate consumption, above a certain level of income they differed. Whereas workers still consumed more, employees started to save money and build up personal savings. Thus, Schmölders concluded that global wage increases would not lead to a buildup of wealth among workers. Accordingly, state policies to encourage the accumulation of private property and savings could only address the middle-income employees because "the masses of the workers and lower employees today do not have the necessary inner prerequisites that would empower them to build up capital; they naturally spend income increases on consumption."

It was impossible, Schmölders maintained, to instill a behavior that had no support in the life worlds of the strata of society in question. Despite looking at the upper classes for behavioral orientation, workers adopted only the openly visible markers of success but not savings behavior. Moreover, according to Schmölders, the many additional benefits such as Christmas or sickness allowances systematically discouraged "responsible savings behavior." Thus, he argued, a mixture of natural, political, social, and cultural factors was responsible for the impossibility of encouraging the accumulation of wealth among workers. "Well-intended" measures neglecting people's behavioral patterns could not succeed in "imposing a certain behavior."

Whereas most of his studies concentrated on economic behavior in the Federal Republic of Germany, Schmölders reached similar conclusions concerning theories of economic development. By the late 1950s, experiences in development policy had clearly established that the injection of capital and technology was not sufficient to instill economic growth. Publicly, Schmölders rejected attempts to explain differences in economic development by theories of race and climate, and acknowledged that talents were equally distributed across different peoples. Yet he claimed that, in analogy to the personal character, there was also a “people’s character” (Volkscharakter), consisting of attitudes, norms, customs, and values that could be ascertained by means of socioeconomic behavioral research. This people’s character could explain the differences in economic development since it determined the “willingness of a majority to leave their accustomed ways of life for more lucrative ones,” to work more and relocate, as well as the ability to appropriate new technologies.

Whereas Schmölders had seen no possibility to influence workers’ savings behavior effectively, he formulated a more ambitious goal for development policy. Behavioral research was supposed to develop methods to “effectively and responsibly influence the motives and attitudes of economic actors.” Besides development policy, Schmölders also advocated further international comparisons of financial psychology in order to distinguish different tax mentalities that would determine the acceptance and effectiveness of various taxes. In his view, there were constant aspects of human behavior that could not be altered at all, and variable parts that were formed and influenced by political, social, and cultural factors that were subject to change and could be changed intentionally.

As noted earlier, as president of the Mont Pèlerin Society, Schmölders suggested the “entrepreneur in modern economy and society” as the theme for the conference he organized in Munich in 1970. Vigorously raising financial support from German companies for the ambitious conference program, Schmölders saw the meeting of the “neoliberal thought collective” as an opportunity to present his research agenda in empirical socioeconomics to an international audience. It was not sufficient to analyze the real function of the entrepreneur within the economy, Schmölders explained in his opening address, but also public opinion, which influenced economic decision-making processes and economic policy. Starting with the findings of Schmölders’s institute, presenters on the first day thus reported on the “image of the entrepreneur” in Germany, the United States, France, Great Britain, Japan, India, South Africa and in “Underdeveloped (Poor) Countries,” before others concentrated particularly on the entrepreneur’s image among certain groups. Schmölders’s success in convincing his fellow neoliberals to follow his research agenda, however, was rather limited.

Whereas freedom is commonly described as the highest neoliberal value, Schmölders’s advocacy of freedom was apparently very selective. Visiting Santiago de Chile he had only witnessed “many police regulating traffic and guaranteeing public order,” but not heard any “cries of those tortured … penetrating the thick walls of the prison” as media reports would have suggested. Yet, at home, even traffic regulation seemed to be too burdensome to endure.

Research in behavioral economics has boomed since the second half of the 1970s. The boom was initiated largely by the studies of Daniel Kahneman and Amos Tversky on the “heuristics and biases” of human decision-making under conditions of uncertainty. Using mostly classroom surveys with simple decision problems, Kahneman and Tversky argued that people’s decisions systematically deviate from the expectations of economic rationality, and not because of mere carelessness. While behavioral economists generally acknowledge Herbert A. Simon as an early precursor, and some even claim that his concept of bounded rationality is superior to the Kahneman/Tversky approach, there are no references to Günter Schmölders’s earlier work. Even in Germany, the recent surge of behavioral economics traces its roots to Reinhard Selten’s reception of American experimental economics and Simon’s concept of bounded rationality. In many ways, the newly emerging form of behavioral economics differs significantly from Schmölders’s approach. While Schmölders tried to describe normal behavior of people in specific economic circumstances, the school originating with Kahneman and Tversky has a specific interest in producing counter-intuitive insights into the deviations from the model of the homo economicus. The latter school applies a stricter mathematical calculus with the aim of conducting basic research on the principles of human decision-making as such. By contrast, Schmölders’s research was much less theoretically ambitious and much more policy-oriented.

Yet, from its beginnings in the 1970s and 1980s, proponents of behavioral economics stressed the relevance of their research for policy-making—not the least to secure funding. In 1986, the editors of the first handbook of behavioral economics claimed that “several studies suggest a new rationale for government intervention in the economy, given the failure of markets to promote a classical optimization due to individual judgment bias.” The acknowledgment that markets might fail to provide for the common good because individuals were unable to act in accordance with the rules of economic logic and their own well-understood interests is remarkable in an age of deregulation when marketization and neoliberalism allegedly triumphed. Simultaneously, behavioral economists promised to offer the means to use and overcome people’s judgment biases by designing the choice architecture of the marketplace. Thus, at a time of increasing welfare costs and shrinking state financial capacities to conduct economic policy, they offered a low-cost and allegedly non-intrusive way to enlarge government intervention. Despite Thaler and Sunstein’s efforts to describe their political program as libertarian paternalism, not diminishing people’s freedom of choice but only rearranging the choice architecture and behavioral environment, to many neoliberals it smacks of old-school paternalism. Whereas for Hayek the limits to individual knowledge offered a reason to assume that only market interaction can produce a desirable outcome, behavioral economists generally accept the government’s capacity to define the desirable outcome and arrange the market accordingly. As P. W. Zuidhof describes the conflict, neoliberals want to secure and govern through markets, while behavioral economists try to offer means to govern markets by directly influencing the actors’ choices.

In recent debates, the application of behavioral insights to public policy appears mostly as a means to widen and strengthen the capacity for state regulation, sparking fears of manipulation and control. As the case of Günter Schmölders shows, however, behavioral economics, or socioeconomic behavioral research/empirical socioeconomics as Schmölders called it, is not necessarily at odds with a neoliberal project. The empirical analysis of economic behavior can serve both as a means to increase state intervention into areas of individual choice that had formerly been considered impenetrable in liberal democracies or as an attempt to define the limits of state intervention. Schmölders intended to empirically establish the principles of human behavior that could not be changed and, therefore, also not be the object of economic policy. In this approach, he was in line with the older German ordoliberals who did not believe in the abstraction of a homo economicus but rather held the view that competitive markets produced the best economic outcomes given the limitations of human knowledge and rationality. Thus, a behavioral approach to economics is politically polyvalent with appeal across the political spectrum, which is one of the major reasons for its recent success in political consulting.

What kind of values should the new liberal order represent? The formation of neoliberal core concepts still needs to be understood more completely. A set of questions facilitating such understanding might be raised regarding the semantics of neoliberal core concepts in the 1930s and the network of actors and institutions in which these concepts matured. In this chapter I look at the normative content neoliberals associated with a “good society” and explore how far the WLC was part of a larger debate.

According to the agenda of neoliberalism agreed on in 1938, the normative “good society” comprised five elements, most of which concerned the role of the state. Beyond its responsibility to, first, protect the price mechanism, the state must, second, put in place and guarantee a legal order to safeguard the market’s development and legally justify any intervention. Third, political liberalism must embrace law as the cornerstone of legitimacy, and the codification of law must be based on representative debates capable of establishing general norms. Fourth, such a legal regime constitutes the liberal method to “control the social”; and fifth, a liberal state is responsible for continuously providing society with five essential elements, for which taxes could be imposed: national defence, social insurance, social services, education, and scientific research.

Although it did not appear on their agenda, early neoliberals also placed the concepts of the “human person” and “human dignity” at the heart of the matter. For many, these were the fundamental concepts and “freedom” was the best means to achieve them, particularly in times of authoritarian regimes and war. Others, like Hayek, saw in “freedom” a fundamental concept in its own right. Hayek surely thought that the dignity of the individual was fundamental, but he rejected—as always—fixed prescriptions about how to secure it or about what freedom should serve exactly. Freedom needed to be seen as a fundamental concept, not as a way to implement other fundamental concepts, he would maintain, for in a free society one also has the choice to act wrongly.

As he asked in the discussion on liberalism and Christianity during the first MPS meeting in 1947: “Does liberalism presuppose some set of values which are commonly accepted as a faith and in themselves not capable of rational demonstration?” Hayek and the other discussants agreed. Hayek then strategically argued that “there is no chance of any extensive support for a liberal program unless the opposition between liberals and Christians can somehow be bridged. This antagonism is an accidental accretion of liberalism, rather than one of the essentials to liberalism.”

Rüstow had developed his position regarding the concept of the human person in a critical dialogue with Carl Schmitt, the legal philosopher who had erected an anti-liberal edifice of thought throughout the 1920s and whom Rüstow had admired for some time. In a letter to Schmitt from July 4, 1930, Rüstow remarked on the relation between a value-based rule of law and a self-limiting notion of “the political.” “It seems to me,” he wrote, “that the idea of a democratic state based on the concept of humanity represents not only a possible, but in a certain way an unavoidable utopia.” Other early neoliberals followed similar arguments, particularly Röpke, who built his “Civitas Humana” on the same fundamental concept, calling it at times “economic humanism” or “humane economy.”

Early neoliberals were unanimous that fundamental values representing a moral order needed to be embraced and placed at the origins of a liberal society. There was disagreement over whether or not the concept of freedom was already a fundamental value or whether it was a means to an end, namely the realization of the fundamental concept of human dignity and the human person, the way in which man can, possibly, live up to his full potential. Hayek would agree on the very construction of society and its basic norms: “Like all other values, our morals are not a product but a presupposition of reason, part of the ends which the instrument of our intellect has been developed to serve. At any one stage of our evolution, the system of values into which we are born supplies the ends which our reason must serve.” He was also deeply impressed by the Catholic liberal philosopher and historian, Lord Acton, who placed human dignity at the heart of his thought. Hayek also defined “true individualism” as being based on the concept of man as a social being rather than a purely self-sufficient and isolated individual. Yet, Hayek did not call his 1960 book The Constitution of Human Dignity, but The Constitution of Liberty. Wary of what proactive jurists might do with the concept—namely, prescribe and spell out what human dignity supposedly was—Hayek always stressed the weight of the concept of freedom as fundamental, not only as a means to an end as it was for many of his fellow early neoliberals.

The human person, its inviolability and dignity, was, however, the dominating global concept at the time, particularly in international law. Any positive law, any constitution, is ultimately based on basic moral presuppositions. Early neoliberalism built its economic and political ideology on the same basic norm. Röpke explicitly said the economy was of “second rank,” the first rank being the imposition of a moral authority. Jacques Rueff could not have agreed more, for, he argued, if man did not impose a moral authority he would not be civilized. To avoid political catastrophes and too much arbitrary political will, the rule of law was conceptualized as a check on politics, taming it and keeping it within a set frame of norms and red lines. The rule of law was seen as the best way to guarantee the inviolability of the human person. Early neoliberals added the price mechanism to the formula: its smooth, unhampered running was the benchmark for the liberal society and economy.

What I call “early neoliberalism” captures the period of self-declared neoliberalism from the 1930s to the 1960s. It is quite different semantically to what one would today associate with the concept when it serves as a critical term pointing at others or at certain conditions and policies as being neoliberal. Yet, at its birth and during its adolescence, neoliberalism was self-referential. Between the 1930s and the 1960s one can follow its proponents in various forums and debates and one still finds the label actively mentioned and defended. As Louis Baudin reminded Röpke and Rueff in 1948 during yet another colloquium, the term was known in the world and one could not take it back.

In order to realize the agenda of liberalism, early neoliberalism rejected the notion of laissez-faire as the preferred means to serve the human individual. Rather, the competitive order, a man-made moral and legal framework within which markets would be as free as possible, was identified as the new means to the end. In addition, early neoliberalism was conscious of social concerns and tasked the state with social responsibilities as well as the protection of the free market order. As the WLC participants argued in a discussion following the agreement on the five essential points of the agenda of liberalism, “maximum utility is a social good, but is not necessarily the only one that must be sought.” Admitting that the economy was shaped to build a society of a certain kind, early neoliberals were engaged in the conscious construction of a state to safeguard the so-called competitive order in both its internal setup and its relations to other states. This competitive order could well be run according to certain social goals and based on certain social convictions, but the operationalization needed to be carried out according to a liberal script. Any state agency had to be based on liberal interventionism, avoiding arbitrary political decisions and case-by-case action. The call was for principled legal and market-conforming intervention that would not endanger the price mechanism.

It is important to emphasize that the main ideas of the Agenda of Liberalism were not originally worked out just at the WLC. The WLC was part of a large, transnational institutional landscape that was erected by and for the League of Nations after the First World War. The workshop itself took place at the International Institute of Intellectual Cooperation (IIIC), a transnational organization and League of Nations consultative body bringing together leading researchers and research institutions dealing with questions of global order and peace. Within the IIIC’s permanent International Studies Conference (ISC), the relation between state and economy in view of its global function was the central topic of the 1930s. The groundwork for the Agenda of Liberalism was prepared within the universe of the IIIC/ISC.

Existing histories of neoliberalism have either struggled to explain the composition of the WLC or focused on a handful of participants, usually the better-known intellectuals and economists. Yet what about the others? What about José Castillejo, a Spanish lawyer? What about a group of French industrialists, bankers, and young scholars like Etienne Mantoux and Robert Marjolin, the latter known for his spell at the OEEC and the European Commission, but less for his neoliberalism? Unable to account for the presence of most participants, existing histories either ignore or simply enumerate them. But if the Agenda of Liberalism represents early neoliberalism, then who were all the other participants besides the well-known protagonists? Were they not neoliberals? After all, they all agreed on the same agenda.

The Walter Lippmann Colloquium bore both resemblances and concrete connections to the International Studies Conferences developed by the International Committee on Intellectual Cooperation (ICIC), established in January 1922, and the IIIC, established in Paris in 1926 as the ICIC's executive branch. From 1931 onward, ISC study groups worked on a chosen topic over a cycle of two years. The chosen study cycles were: “The State and Economic Life” (1932–33), “Collective Security” (34–35), “Peaceful Change” (36–37) and “Economic Policies in Relation to World Peace” (38–39). At the 1939 meeting in Bergen, held at the precise time that Nazi Germany invaded Poland, “International Organization” was the theme agreed upon for the 1940–41 cycle. The WLC was also planned originally to initiate a larger, international conference on the same topic in 1939.

By 1937, thirty-eight National Committees of Intellectual Cooperation (NCICs) were in place. The reach of the system itself was global, as NCICs sprouted in Argentina, China, Cuba, India, Iran, Japan, Mexico, South Africa, and Syria. Experts from affiliated institutions were commissioned to write memoranda on assigned themes and questions. Once the memoranda had all been submitted (they were often quite voluminous) a general rapporteur, appointed by the ISC and funded by the Rockefeller Foundation, would summarize the main points of view in a kick-off lecture setting the stage for the discussions during the conference.

The culture of the meetings was one of open discussion without expectation of unanimity. Dialogue and contestation were expected. The fact that there was agreement on the new “Agenda of Liberalism” at the WLC actually surprised Louis Rougier, the WLC’s organizer, even if its substance was less than novel. The question of legitimate state intervention, in particular, had been mulled over many times before the WLC. At the ISC’s London meeting in 1933, for example, sessions dealt extensively with various “philosophical aspects of state intervention” as well as “practical aspects of state intervention.”

Today, when interpretations of the WLC try to connect the different individuals attending the Paris colloquium of 1938 and make sense of the heterogeneous group of participants, they have failed to look at the institutional framework within which the WLC was realized. The list of participants in Paris included the international mix of experts characteristic of the IIIC who had already been involved with the League in one way or another, including representatives from knowledgeand policy-making institutions and practitioners from banks or large industries. When the list of invitees is broadened to include all those who were not able (or did not want) to attend the colloquium, the weight of the League’s IIIC and the Rockefeller Foundation becomes even more obvious.

The answer may be that Castillejo, who had initiated the foundation (again through co-financing by government and Rockefeller funds) of the Spanish Instituto de Estudios Internacionales y Económicos in early 1931,42 was a longstanding member of the ICIC's Executive Committee and possessed the highest institutional authority among the participants. Tracy Kittredge, finally, was the Assistant Director of the Rockefeller Foundation's European Social Sciences Division office from 1931 to 1942 and participant at a number of ISCs. In 1919, Kittredge was a staff member of the Supreme Economic Council during the Paris Peace Conference.

Marcel van Zeeland acted probably more as a representative of his brother, Paul, Belgian prime minister until 1937 and author of the "Van Zeeland Report" from January 1938, around which Rougier would organize the next colloquium in 1939 (an occasion that received Lippmann's blessing and congratulations, but is otherwise hard to reconstruct empirically so far).

The economists and philosophers Rüstow, Röpke, Mises, and Hayek had all been associated with either the Rockefeller Foundation or the League or both, as in the case of Röpke who received a large grant from the foundation and whose business cycle theory was translated into English on the League's initiative. Rüstow was Röpke's friend from Istanbul, where they shared the experience of exile (and the privilege of founding a whole social science faculty at Istanbul University).

By the late 1930s, Polanyi, the polymath older brother of Karl, had turned away from his core specialty in chemistry to the social sciences. At the time of the WLC, he was shooting his Rockefeller Foundation-funded film on Unemployment and Money. He had also been to the Soviet Union on several occasions in the 1930s, where he had seen the alternative to the liberal way and formed his opinion on both the kind of society he believed in and science's role for that society.

The second major academic figure of importance for Aron was Bouglé's good friend, Elie Halévy, who was a much admired, well-connected philosopher and historian specializing in economic and political thought and deeply devoted to the question as to how the circle of social justice and economic freedom might be squared. In fact, Halévy, who had died from heart disease in 1937, taught the young French WLC participants and they all were enthralled by his intellectual and human capacities.

Critical of a liberal paradigm rooted in laissez-faire and in a philosophy of history based on the interpretation of the concept of nature, Aron, perfectly in tune with fellow early neoliberals (see Martin Beddeleem’s contribution to this volume), argued for a conscious development of values on which society might be built as a consequence of the critique of earlier liberal epistemologies and understandings of the science of history. The CDS was the perfect place for this kind of research and it is another good example of the funding strategy Rockefeller had at the time. Initially financed by the banker Albert Kahn, Rockefeller took over the CDS’s financial support following the financial crisis of 1929. The grant allowed the employment of research assistants, and the foundation had certain ideas regarding the nature of the research to be carried out at the center. Sociology had been identified by Rockefeller as one of the disciplines able to develop “methods for social control” and he was particularly supportive of research in the vein of “inductive sociology.”

Etienne Mantoux was recognized among the circles of early neoliberals as a highly promising scholar, mostly through his essay on Keynes’s claim that Germany could not pay back the reparations demanded after the First World War. He argued the opposite (as did others among the early neoliberal economists, especially Rueff and Heilperin). Educated at Sciences Po in Paris as a student of Halévy’s, whom he admired and visited privately on a regular basis, he moved to London in the mid-1930s to study with Harold Laski and Hayek at the LSE.

Marjolin worked as chief assistant for Charles Rist’s research institute at the time of the colloquium. Rist was certainly among the intellectual influences on Marjolin, who was otherwise inspired in his economic thinking by both Keynes and Hayek as well as Knut Wicksell, Gunnar Myrdal, and John Hicks. At the time of the WLC, Marjolin had just turned twenty-seven and he was already a specialist in macroeconomics and business cycle theory as well as the relation between socially conscious politics and liberal markets.

The second group of WLC participants from France were the industrialists. They were Louis Marlio, Marcel Bourgeois, Auguste Detœuf, and Ernest Mercier. Marlio, though working for the French energy industry, was likely the most academic among them and he also had a background in working for the League of Nations. He was entrusted with the mandate of becoming the first president of the Centre International d’Études pour la Rénovation du Libéralisme (CIRL) in 1939 following the WLC, and together with Baudin and Rüstow probably among the most enthusiastic champions of the term “neoliberalism.”

Baudin was an internationally respected economist during the late 1930s, author of a memorandum for the IIIC, and among the more enthusiastic users of the term neoliberalism, the "basic idea" of which, he explained again after the war in 1953, "is the rescue of the human person."

Bouglé would make sure to enumerate the cooperative movement as one of the key examples for the possible coexistence of free markets with more socially controlled elements of the economy.

More important and influential intellectually and politically was Rueff. A renowned expert on monetary issues, he was the mastermind behind the change from the old to the new franc in 1960. He hammered home the key message of early neoliberalism throughout—that the price mechanism needs to be in place as the decisive element indicative of a liberal society, yet that this price mechanism may well live in peaceful coexistence with certain forms of state intervention (of a liberal kind) and even tariffs. In addition, he was also immensely active as a policymaker and within international organizations. And of course, he was well known as Charles de Gaulle's economic advisor and as an ardent advocate of the gold standard.

While his clarity and strong convictions in this area qualified him for membership in the Mont Pèlerin Society, it was his capacity in the field of macroeconomics avant la lettre that qualified him for the League's roster of economists and the WLC in the first place.

Early neoliberal forms of macro analysis were fundamentally different to that of Keynes's General Theory and to other spin-offs of the new discipline at the time, for example that of Schumpeter. Keynes's focus on crisis amendment—the "bust" side of the business cycle—is diametrically opposed to how early neoliberals approached business cycles. For them, the policies steering the boom are what matters. Intervention needs to act on the framework for growth, and not be based on urgent social needs when the crisis has hit. At the same time, they also acknowledged some of Keynes's ideas, particularly the insight that a purely monetary policy to prevent deflation would not be enough in cases of deep depression. The "how" of the policy then mattered and was disputed.

Austrian business cycle theory was developed by Hayek and Mises in the 1920s, and Hayek's main contribution to the field came out soon after. It argues, in a nutshell, that the reason for any crisis of capitalism lies not in the moment and context of crisis itself. Treatment should be for the boom, not for the bust. Crises, in this shorthand, become malformations of mishandled growth processes and responsibility for them can thus be laid at the doorsteps of politics. As a result of such a position (which Hayek revised throughout the 1930s after a spate of criticism), those suffering from economic crises would be left without any support until markets rebalance and new employment emerges. Beside more obvious critics of such a position, such as fellow macroeconomist and welfare theorist John Hicks, even Milton Friedman later criticized Austrian business cycle theory for its apparent prescription of letting "the bottom drop out of the world."

In 1927, the Österreichisches Institut für Konjunkturforschung (Austrian Institute for Business Cycle Research) began its work with Hayek as director and Mises as spiritus rector. In its early stages, the institute was financed by the latter's contacts at the Chamber of Commerce in Vienna, the Austrian National Bank and the Railway Federation.

In its early stages, the institute was financed by the latter's contacts at the Chamber of Commerce in Vienna, the Austrian National Bank and the Railway Federation. Later, it received support from the Rockefeller Foundation and became one of a string of funded business cycle institutes across Europe, which formed a Standing Committee of Business Cycle Institutes with Charles Rist as its president.

The Business Cycle Institute became particularly important for the League during the Danubian Economic Study project, a large-scale comparison of Danubian countries east of Austria that was proposed to the League by the institute in 1934 and took off after the 1935 meeting of the ISC in Copenhagen.

Reading the Walter Lippmann Colloquium in the context of its time shows that it did not fall from the sky in the summer of 1938 as the first seed of a robust and unchanging worldview of what would later become an ever-growing ideological flora in the Mont Pèlerin Society. It shows that neoliberalism was entrenched from the beginning in transnational elite networks whose goal was (and still is) to define ideas of normative statehood and liberal governance able to keep politics within its "proper limits" while making sure that nation-states share an ideological DNA without being identical.

Early neoliberalism was embedded in the transnational networks of expertise emerging in the 1930s in a number of ways. It was embedded institutionally through the League of Nations, its consultative bodies of the ICIC and the IIIC, and was particularly inspired by the ISC, linked to and developed in dialogue with the newly forming discipline of international studies.

Despite later characterizations of Karl Polanyi and neoliberals as ideological and methodological opposites, the institutional focus of early neoliberals even suggested the embedding of the economy in a sense reminiscent of Polanyi. Of course, Karl Polanyi argued for different forms of embedding, and early neoliberals were clearly in favor of retaining land, labor, and capital as commodities (the root cause of capitalism’s crisis according to Polanyi), but they were also acutely aware that nation-states were here to stay and that national economies had to be embedded politically and socially to fit in with other national economies on a global economic playing field.

Seeing the Walter Lippmann Colloquium in context reveals the importance of a more globally oriented conceptual history that is aware of institutional conditions and possibilities. We must locate the origins of neoliberalism within a contested field of thought rather than track a putatively pure essence. Neoliberalism was born in dialogue with other views and should be studied in such a way too.

Bretton Woods' fixed but adjustable exchange rates, the dominance of Keynesian macroeconomics, and the increasing limitation of the price mechanism's scope by welfare state practices and various plans within the European reconstruction process might have motivated some early neoliberals to purify their doctrine and to gather their strength in the MPS (see Matthias Schmelzer's contribution to this volume), while others remained powerful policy-makers, for example Marjolin, and tolerated a more pragmatic approach. Yet this purification must be seen as one of many possible outcomes of the original Agenda of Liberalism from 1938, not as an ironclad inevitability.

A number of early neoliberals who participated at the WLC continued their careers within global elite networks. Rueff became the first director of UNESCO's International Council for Philosophy and Humanistic Studies. Marjolin became the first director of the OEEC. Auboin continued as general director of the BIS until 1958. Yet new questions arise. For if neoliberalism was already deeply entrenched in global governance networks, why was there a need for the MPS in the first place? One answer is that the embedding enacted with the postwar reconstruction, the Bretton Woods institutions, the UN, and the early European integration process was not the kind of embedded liberalism early neoliberals wholeheartedly supported. While their ideas were mainstream in the late 1930s, they were marginal by 1945.

Who killed Bretton Woods? Scholars have yet to deliver a final verdict on the question of how and why we moved from an age of fixed but adjustable exchange rates and capital controls designed by John Maynard Keynes and others in 1944 to that of flexible rates and free capital movements in which we still live—a shift that proved fundamental for the neoliberal counter-revolution at large. After the Great Depression and well into the 1960s, most economists and policy-makers saw free markets for international capital and currency flows as too destabilizing for a robust and well-functioning capitalism. The neoliberals around the Mont Pèlerin Society (MPS) disagreed and the Bretton Woods order was a deep thorn in their side. In fact, they saw capital and exchange controls as one of the most fundamental threats not only to the market system but to Western civilization itself.

Whereas neoliberalism is often presented as an internally consistent and unified ideology, the case of monetary order belies this impression. While the final message may have been that “there is no alternative,” debates took place first about what that one policy option was, to which there is no alternative. Indeed, the rather complicated, arcane, and seemingly technical question of the international monetary system was the most controversial and divisive among organized neoliberals in the postwar decades. It resulted in the longest and most contentious internal controversy between two fundamentally opposed camps that dominated many of the yearly MPS meetings in the postwar period and threatened to split the emerging neoliberal international in the course of the 1960s. Thus, even as it documents a considerable policy victory, this chapter shows that neoliberals did not always speak with a single voice.

The controversy pitted the proponents of the gold standard led by Ludwig von Mises, Wilhelm Röpke, and F. A. Hayek against advocates of floating exchange rates, most saliently Milton Friedman, Fritz Machlup, and Gottfried Haberler. The advocates of flexible exchange rates eventually prevailed.

After the neoliberal advocates of floating rates won out in the internal debates, they launched a remarkable transnational campaign aimed at convincing key decision-makers and experts of the merits of such a post-Bretton Woods order. The campaign was carried out by both academics and experts from financial institutions. MPS members were prominent in the coordination of the campaign, which involved a concerted communication strategy and sweeping publication efforts on both sides of the Atlantic. It also relied on the organization of the era’s most influential academic conference series on monetary questions aimed at economists, central bankers, and the private banking community. When the Bretton Woods system was on the verge of collapsing in the early 1970s, the flexible exchange rate discourse coalition had built up a powerful international alliance ready with an alternative. It exerted influence through key expert and advisory posts in the Nixon administration, which finally ended the gold parity of the US dollar in 1971 and did not return to a fixed exchange rate regime at the global level thereafter. If not the primary culprits in the death of Bretton Woods, the neoliberals were enthusiastic accomplices in its euthanasia.

While opinions within the neoliberal thought collective of the MPS converged on most issues, the question of the monetary system proved an exception. In his insider's history of the MPS, Max Hartwell observed that the only two topics that sparked continuous controversies were the gold standard and the related question of "fixed versus flexible exchange rates." At the 1984 conference in Cambridge, John Davenport could still draw "a laugh by observing that the original Pèlerinians could agree on everything save the subjects of God and gold."

The gold standard—the liberal economic order that shaped the first phase of globalization between 1871 and 1914, lasted until the outbreak of the First World War, and was resuscitated in the interwar period—was fundamentally anti-democratic. To enable free international capital flows at an astonishingly high level—around 1900 at a similar level to the year 1990 in proportional terms—this system of fixed exchange rates and gold backing posed strict limits to domestic economic policies. Karl Polanyi has given a moving description of what this meant for working people and the poor: if the balance of payments, volatile international capital markets, and the stabilization of exchange rates demanded domestic restraint, then high unemployment and falling wages were condoned. As stated in a standard textbook, the "stability of exchange rates relied on the submission of national economic policies under the diktat of balance of payments adjustment."

Barry Eichengreen has demonstrated how this monetary system of the gold standard grew increasingly dysfunctional with the rise of democracies, strong trade unions, and the rise to prominence of interventionist and (proto-)Keynesian theories and state practices around the world. Under these new circumstances, governments had a hard time aligning their monetary policies solely to stabilize the necessary amount of gold and defend the currency peg when demands such as full employment and economic growth were gaining in importance. The gold standard broke down during the First World War, and all efforts to reinstall a gold exchange standard during the 1920s—that is, all attempts to contain the political power of trade unions and voting people—failed due to a lack of harmonization between central banks, protectionist capital controls, and a new social balance of power.

When a new international economic order for the postwar period was crafted at the Bretton Woods conference in 1944, the agreement was based on a widely held consensus that rejected both the gold standard and free-floating exchange rates in favor of a prioritization of domestic policy goals—most importantly full employment—and the need for widespread capital controls. The mainstream rejection of the two options discussed by the neoliberals demonstrates how far their views were from the economic consensus in the mid-twentieth century and is thus worth explaining at some length.

Circa 1945, the belief in automatically equilibrating market forces and the dangers of government controls of capital movements was widely regarded as historically obsolete. Henry Dexter White, leader of the US delegation to the conference, argued characteristically that objections to interference with capital and gold movements were “hangovers from a Nineteenth Century economic creed, which held that international economic adjustments, if left alone, would work themselves out towards an ‘equilibrium’ with a minimum of harm to world trade and prosperity.” In an influential publication from the League of Nations, Ragnar Nurkse explained the dominant professional opinion of the time that “international monetary policy [should] conform to domestic social and economic policy and not the other way round.”

The rejection of floating exchange rates was equally strong, in particular because the short experience of run-away inflation in the 1920s were interpreted as causally responsible for the Great Depression. Economists argued against the dangers of competitive devaluation and speculative, destabilizing capital movements. Nurkse captured the Zeitgeist when he wrote that “if there is anything that the inter-war experience has clearly demonstrated, it is that paper currency exchanges cannot be left free to fluctuate.” To do, he continued, “would almost certainly result in chaos.” Thus the belief underpinning the Bretton Woods system was that the stability of the international monetary and trade order could only be guaranteed through fixed exchange rates, which had to be managed by central banks—with the support of the International Monetary Fund (IMF)—and through deliberate interventions in currency markets.

Rejecting both the discipline of the gold standard and the instability of floating exchange rates, the international gathering of policy-makers at Bretton Woods established a monetary system that combined two policy goals: on the one hand, enabling sovereign, autonomous, and democratic economic policies aimed at full employment; and on the other hand, fixed but adjustable exchange rates that were pegged to the US dollar, which in turn had a gold parity (gold exchange standard coupled with IMF assistance). The dominant opinion at Bretton Woods was that strict capital controls were needed to make democratic domestic fiscal and monetary policies compatible with fixed exchange rates, and “almost every analyst” regarded “control of capital movements for unlimited time” as a precondition for the restoration of stable international trade.

As indicated by the impossible trilemma developed much later, according to which governments can only realize two out of the three policy goals of fixed exchange rates, free capital movements, and monetary autonomy, the Bretton Woods system sacrificed free capital movements (see Figure 8.1). At the time, this was not perceived as a sacrifice by most economists and politicians. On the contrary, governments were even invited to control all international capital movements. Accordingly, the postwar decades developed into the period with the densest capital controls in the history of international capitalism.

It reveals much about the neoliberal notion of freedom that they saw the most powerful threat to the freedom of individuals and to Western civilization as such in the government regulation of foreign exchange, that is, in regulations instituted in an effort to enhance economic stability and general welfare, which posed little restriction on those not engaged in international investment and trade.

Alongside capital controls, Bretton Woods established an international framework for the domestic interventionist policies of the Fordist regime of “embedded liberalism.” One could argue that this was the international institutionalization of what Hayek had criticized as “monetary nationalism” since the 1930s—the idea that an autonomous and democratic monetary policy was possible within the boundaries of nation-states. Keynesianism and monetary nationalism were “built into the international postwar order,” Hayek claimed in his only publication on these questions during the Bretton Woods era. In the view of Hayek and many of his colleagues from the MPS, the Bretton Woods system practically forced governments on a path of inflationary and expansionist monetary policy, which in turn leads to an expansion of the state apparatus and increases the danger of collectivist and totalitarian developments.

Rather than a global order that allowed for national-economic experimentation and expansion, neoliberals aimed at turning the causal chain around and establishing an international monetary order that would force societies onto a market-liberal and anti-inflationary path. The key question that shaped the neoliberal debates for the coming quarter century was posed by Hayek at the founding meeting of the MPS: “how can monetary policy be automatic, and outside the range of politics?” The classical solution to the twin neoliberal demands of free capital flows and automatic market mechanisms to roll back democratic economic policies had been the gold standard. Yet, after 1945, neoliberals launched an intense and enduring debate, in which the classical solution was criticized as unrealistic and was increasingly displaced by another proposal—that of floating exchange rates.

To properly understand the debates among neoliberals about alternative international monetary systems it is key to situate them in the general intellectual climate of the postwar decades. Even amid a prevailing mood of skepticism towards market forces, the price system, and liberalized and deregulated capital markets, the gold standard and flexible exchange rates were rejected particularly strongly. This situation lasted well into the 1960s. The gold standard was widely regarded as an outdated artifact of the past and was only supported by an extremely small minority of economists—estimates suggest well below 1 percent. One advocate of the gold standard, MPS member Murray Rothbard, described the situation in 1962 aptly: “now [the gold standard] is considered an absurd anachronism, a relic of a tribal fetish.”

In a similar vein, floating exchange rates were almost universally dismissed and ignored, as summarized by US economist Richard Cooper: “Initially Friedman was nearly alone in his views. Most contemporary economists favored fixed exchange rates and feared the instabilities that flexible exchange rates might bring, or reveal.” Until the 1960s, one historian has argued, “it was widely accepted both by academic and IMF economists that floating exchange rates were a species of law-breaking behavior.” This skeptical view was even more pronounced among politicians and businesspeople than among economists. With the exception of France under de Gaulle in the 1960s, who invoked the gold standard idea, and Canada’s experience with its floating currency during the 1950s, both were entirely ignored.

In the beginning, the neoliberals were almost all gold bugs. At the founding MPS conference in 1947, nearly every participant agreed that the reintroduction of the classical gold standard with liberalized capital movements would be the monetary system consistent with the core values of the new society, while flexible exchange rates were regarded as Keynesian, nationalist, and unstable. Yet there was dissent even at this first conference as the renowned Princeton economist Frank Graham presented the idea of a “Commodity Reserve Standard” as a preferable alternative to the gold standard. Graham died in 1949 and could not continue the project further, but it was taken up by Milton Friedman, whose arguments for flexible exchange rates developed in the years following the foundation of the MPS bore a clear resemblance to those of Graham.

In the following years, Friedman, supported by the German economists and former gold standard advocates Friedrich Lutz and Albert Hahn, developed his argument for floating exchange rates, which was discussed at various MPS conferences. In particular, he argued that while the gold standard would function fully automatically in principle and would guarantee “freedom of political control” under the prevalent social and political circumstances, it was questionable whether governments would stick to the rules. He defended the stability of flexible exchange rates through a twofold argument. On the one hand, he reinterpreted the historical experiences of the 1920s by focusing on the “underlying instability of economic conditions.” On the other hand, he criticized the idea of destabilizing currency speculations theoretically, arguing that profitable speculations could actually stabilize the system.

Both sets of arguments—that the gold standard advocates relied on unrealistic assumptions and that flexible exchange rates are a viable and stable alternative—came to shape the debate in the coming decades and were repeated time and again by Friedman and other disciples of floating exchange rates. In many cases, these were combined with an insistence on domestic monetarism as the “logical” counterpart strategy that also aimed at demarcating this policy set from the Keynesian proposals for flexible rates, promoted most notably by James Meade.

By the mid-1950s, advocates of floating seem to have won over the two “American Austrians,” Gottfried Haberler and Fritz Machlup, both former students of von Mises and advocates of the gold standard who became key protagonists in the neoliberal crusade for floating exchange rates. They were joined by others from the German tradition of the Freiburg school of ordoliberalism, including Friedrich Lutz and Fritz Meyer. At the discussions within the MPS, however, the position remained unpopular. As reported from the 1957 meeting in St. Moritz, “the advocates of flexible exchange rates [were a] minority” and were “accused of monetary nationalism by Prof. Heilperin.”

Nonetheless, ever more MPS economists converted to floating exchange rates, partly convinced by the arguments of their peers, partly by real world events such as rising inflation in West Germany and US balance of payments problems. Among these converts was Ludwig A. Hahn, a West German economist, stock trader, and banker, who used his private financial success to gain authority in monetary debates and introduced the argument of “imported inflation” due to rigid exchange rates in hard currency countries such as the Federal Republic.

Far from being a single-minded homogeneous bloc, the neoliberal thought collective was deeply divided. Both camps argued that only their proposal would enable free flows of capital and that their opponents' position was not compatible with liberal core values and was thus secretly supporting dirigiste and collectivist policies.

How can we explain the depth of feeling inspired by the monetary issue? The question of generational differences offers some clues. Looking at age cohorts, one finds that the gold standard was promoted primarily by economists born before 1900, who had experienced not only the functioning classical gold standard but, more importantly, the catastrophic experiences with floating exchange rates in the 1920s, and who had been socialized before Keynesianism began to shape the discipline of economics. Economists born in the first decade of the twentieth century constitute a saddle group, advocating the gold standard until the 1950s or early 1960s before shifting to flexible exchange rates. Younger economists born after 1910 and socialized during the height of Keynesianism and interventionism tended to promote floating rates almost exclusively, which they regarded as more realistic in the face of prevailing circumstances.

The defeat of the proposal to return to the nineteenth-century model of the gold standard offers strong evidence that neoliberalism itself was and is not simply the return of laissez-faire or classical liberalism reborn but a genuinely novel response to changed circumstances. Yet even here the process of creating a common internal opinion was not absolute. As later developments demonstrated, the losing side remained relevant in debates on a monetary union in Western Europe (which was similarly divisive in neoliberal circles) and in discussions about currency boards and dollarization in the Global South. Thus, the debate over monetary order demonstrates both the existence of divergent epistemic communities within the thought collective of the MPS, and also the fact that their commitment to a set of core values still held the group together. It offers an insight into neoliberal thought as a doctrine in a constant process of becoming, not emerging from whole cloth in founding texts of the movement but constantly reworked according to shifting conditions.

When Milton Friedman published his article calling for flexible exchange rates in 1953, fewer than 5 percent of economists worldwide shared his opinion; by the end of the 1960s, approximately 90 percent of economists did, and they were joined by powerful figures within government and the banking community.

Though not in the majority, neoliberals were especially influential because, as initiators, keynote speakers, and organizers, they held key positions and, in contrast to the other participants, acted as an organizationally networked epistemic community. These “ 'vital few' in the great battle for ideas” were supported by an entire network of MPS economists and politicians, all promoting free capital movements and exchange rates with similar arguments at these conferences and beyond, who could be characterized as “the many disciples.”

The importance of these conferences, the related publicity work, and the follow-up process with politicians, central bankers, and the private sector during the rest of the 1960s cannot be overestimated. … As summarized by Triffin: “These discussions undoubtedly initiated a slow but radical evolution in the thinking of our official colleagues, preparing them at least for the decisions that were finally forced upon them by the events rather than as a deliberate choice many years later in 1971 and 1973.”

The policy of floating exchange rates, argued first as a minority position not only within the economic mainstream but even within the neoliberal camp, became reality. A process of persuasion which emerged contentiously among neoliberals helped redefine the monetary order of the world.

An analysis of these persons in their organizational context within the MPS makes the thesis plausible. Indeed, the key economists involved in the process of propagating floating exchange rates were almost all members of a transnational neoliberal network who debated theories and strategies at the regular MPS meetings and who collaborated closely in popularizing their vision for taming democracy and liberalizing capital.

Floating exchange rates largely became the global norm in the following decades, with the remarkable exception of Western Europe. Here, a diverging neoliberal conception became influential through the increasing power of the West German Bundesbank and the creation of the European Monetary System—an experiment which continues to divide neoliberal opinion internally.

Most importantly, the more widespread adoption of flexible exchange rates became the central precondition for the rapid liberalization of global capital movements and thus the explosion of financial markets, which have been adequately described as the lever of the neoliberal counter-revolution in the coming decades.

Unraveling internal debates such as those over monetary order also offers a prophylactic against attributing to neoliberals superhuman or unrealistic levels of internal consistency, party discipline, or foresight. Indeed, part of the efficacy of the neoliberal strategy must be seen in the flexible two-step process outlined here: the MPS offers first a space for fiery internal debate then a base for unified mobilization.

People must have their heroes; or as Thomas Carlyle put it, “Universal History, the history of what man has accomplished in this world, is at bottom the History of the Great Men who have worked here.” Trends in historiography have intermittently warmed and chilled to this proposition since 1840, but it should be obvious that much of the general public continue to prefer to understand their hopes, their worldviews, and their complex personal doctrinal commitments through the biographies of exemplary thinkers. The great mass of people prefer to signal their fealties by testifying their allegiance to a few heroic personages, be they a religious guru, a movie star, a politician, or, in some cases, a ‘public intellectual’. Historians who pander to the bottomless market for biographies of politicians and key intellectuals understand this implicitly. Heroes have always served as placeholders for ideas; none more so than in the case of economics.

Friedman dates the elevation of the prizes in public esteem to the period immediately following World War II, especially in the United States. This timing corresponds to the destruction of German science, the military assumption of science policy in the US, and the fascination with the role of science in the Cold War. Under these dramatic shifts, Sweden sought to realign itself relative to the new world hegemons; the league tables turned definitively in America's favor; this was the period when Nobels were widely promoted to the general public as the canonization of the heroes exemplifying what was best in the human race. It is often said that the Nobels are awarded for achievements, not to people; but both Alfred Nobel's own will and the ceremony surrounding the modern prizes suggest otherwise.

There are no grounds, based on history, for assuring the laureates constitute a unique population of the very best in science; even less so, to impute to them, as a class, the status of genius … The oft-repeated claim that the prize's prestige has reflected the skill of the Royal Swedish Academy of Sciences in picking the right winners simply does not hold up to inspection.

The ersatz prize grew out of an inception that was so controversial that the Nobel Foundation went out of its way to insist that no more new Nobels would ever be countenanced by the Foundation into the future.

In a short paper, he indicated that we should stare intently at the Bank of Sweden as a major protagonist in the inception of the prize, and that the process needed to be understood in terms of the effects it was intended to produce: "this prize does not exist: and moreover, … this so-called 'Nobel prize' is an extraordinary case study in the successful transformation of economic capital into symbolic capital, a transformation which greatly inflates the symbolic power of the discipline of economics in the public mind."

One should not infer that there was a political option of pure central bank independence anywhere else in the developed world prior to the 1970s; rather, different central banks enjoyed varying degrees of being tethered to their respective governments. Until the 1930s, the belief held sway that the ‘gold standard’ rendered any policy independence unnecessary; yet the Bank of England had managed to carve out a modicum of room for maneuver on the grounds that it maintained a private ownership status. The repeated breakdown of the gold standard up to the Great Depression certainly raised the possibility that central banks might perform some more active management role. In any event, there was almost no theoretical tradition of a ‘public interest’ for such banks to serve; mostly, they regarded themselves as guarantors of the interests of their private domestic banks, not as the protagonists of some sort of abstract ‘macroeconomic policy’ informed by economists. Indeed, the shift to a doctrine of the political imperative of central bank independence only dates from the 1980s.

While the bank publicly explored the subsidized publication of a number of commissioned books on economics, Åsbrink began to sound out some key players behind the scenes about the possibility of a dedicated Nobel Prize for Economics organized and funded by the bank. No other political actor at the time thought that such a prize was anything other than a delusion, not to mention a remotely sensible way to spend the revenues accruing to the bank from its restrictive monetary policies. The real Nobels, after all, had been the consequence of a private bequest. Lindbeck, then a professor at the Stockholm School of Economics and a formal advisor to the bank since 1964, reports that he was approached by Åsbrink in 1967 or early 1968 to evaluate the possibility of such a prize funded entirely by the Riksbank out of the surplus. Because it might be unseemly for the chairman of the Riksbank to go skulking about surreptitiously laying the groundwork for such a prize with absolutely no prior political mandate whatsoever, Lindbeck was enlisted as a go-between for Åsbrink and the Nobel Foundation. Lindbeck consulted the chair of the Nobel Foundation, Nils Ståhle, and its financial advisor, Jacob Wallenberg; but the latter felt that adding another Nobel was out of the question. After intense negotiations, a 'compromise' was reached: the bank could fund a 'different' prize that nevertheless looked suspiciously like a real Nobel; that is, a parallel ersatz prize; a "Bank of Sweden Prize in Economic Science in Memory of Alfred Nobel." It was just a slight inconvenience that Alfred Nobel would be spinning in his grave.

Something about the “celebration” did not smell quite right; but the ever-entrepreneurial Åsbrink once more revealed his disdain for rules and protocol, in a manner almost as despotic and high-handed as in the previous cases of the interest rate coup and the Jubilee Fund. In short, the Riksbank bureaucracy resorted to deception and worse in order to steamroller the prize. Almost all the stakeholders were opposed in 1968: the Foundation to some extent, the Nobel family, the existing Nobel infrastructure, and the Parliament. The first trick was to usher the interests arrayed against the prize into an abrupt ambush. While still negotiating in secret, the bank announced the prize’s existence in the press as a fait accompli—two weeks before the agreement was signed with the Nobel Foundation on May 14, 1968! Some of the principals were thus shamed into compliance by not allowing the dispute over an illicit conspiracy to go public. Also, Åsbrink used his regulatory leverage over the Foundation to get them to agree; existing tax rules prevented the Foundation from investing in certain securities, which was causing the endowment to be hemmed in; the bank got the rules applying to the Foundation’s capital management changed in their favor.

Three days before the meeting of April 26, the then director of the Nobel Foundation, Nils Ståhle, met two members of the family and telephonically talked with a third one. Their position was that “it should not become like a sixth Nobel Prize,” but that if the economics prize could be kept clearly separate from the Nobel Prizes then it might be an acceptable idea. On May 10, Ståhle and the president of the Nobel Foundation, von Euler, visited the family’s eldest, Martha Nobel, then 87 years old—with severely impaired hearing but intellectually in good form. They obtained her written approval of the economics prize “under given conditions,” namely that the new prize in all official documents and statements should be kept separated from the Nobel prize, and called the “prize in economic science in memory of Alfred Nobel.” In a telephonic conversation with a nephew, Martha Nobel said that the whole thing was prearranged and impossible to oppose, so that one could only hope that they would keep their pledge that no confusion with the real Nobel prize should occur. There was no approval from the Nobel family as a whole.

Peter Nobel has stated in public this was an unparalleled example of successful trademark infringement; but it was also much more. Members of the organizations formally tasked with judging the real Nobels were left in the dust as the steamroller passed by. A few notables, such as Professor Sten Friberg, rector of the Karolinska Institute, attempted to speak out in opposition, but to no avail. The bank’s third trick was to extend the strong-arm tactics to its nominal owner, the Swedish state. The Riksbank had wandered very far off reservation by mounting this full-court press to create an ersatz Nobel; some sort of approval was required. A special committee pointed out that the bank’s charter limited it to running a banking service, a printing press, and production of bank paper; anything else would require special legislation. A bill was rushed through Parliament, and votes were held with no public debate whatsoever. On April 11, 1969 the first chamber voted 79 in favor, 20 against and 18 abstaining; on April 16, the second chamber voted 152 in favor, 28 against and 28 abstaining. With this last obstacle removed, it became possible for the Riksbank to construct a Nobel which resembled as much as possible as the real thing.

This attempt to render the prize “close but not identical to the real Nobels” was engineered directly by the bank, not by any of the other stakeholders. Lindbeck’s published statement that “the Procedures for the choice of the winner of the economics prize are the same as for the original Nobel prizes” is therefore not strictly correct. If it were true, that would violate the terms of the original agreement that it could not be put on a thoroughgoing equivalent footing with the real Nobels. It is true that the bank managed to get the date of the award to be identical with the other Nobels—December 10—and guaranteed that the Bank of Sweden Prize be bestowed in the very same ceremony as the real Nobels. Outward conformity tends to mask the small but telling ways that signal the ersatz character of the Bank of Sweden Prize. One small sign is that the Bank of Sweden medal, reproduced in Figure 9.1, is of a somewhat different design than the other real Nobel medals.

Far more importantly, the constitution of the prize committee did not parallel that of the other real Nobels. Alfred Nobel’s will stipulated that the prize committees be chosen and staffed for the natural science Nobels by the designated Royal Academies. There was no Royal Swedish Academy of Economics, so presumably this meant that, if it truly mimicked the real science Nobels, the prize would have to be controlled by the Royal Academy of Sciences. However, it seems in retrospect that the bank itself was active in constituting the original Economics prize committee. For instance, one key player in the narrative, Assar Lindbeck, was not a member of the Royal Swedish Academy of Sciences when appointed to the committee; according to his own vita, that did not occur until 1971. Another member, Ragnar Bentzel, was not inducted until 1972. Much of this suggests Academy membership being bestowed as an afterthought to being appointed to the Bank of Sweden committee, to hide the flouting of the rules. Since the composition of the prize committee plays a dominant role in our subsequent narrative, this divergence from the real Nobels was not an insignificant detail. The bank, having gone to such great lengths to institute the prize, was not going to simply withdraw altogether from the stipulation of what sort of economists would benefit from it, at least at the outset.

But I would still like to believe that the economic science today is so developed and established as a scientific discipline, that such caveats cannot be decisive.

Our protagonist gets close to the deep structure of the politics of the prize, but cannot state the obvious. Few people in 1968 would have conceded that economics, as it was then constituted, enjoyed an intellectual stature commensurate with medicine, physics, or chemistry. However, the purpose of the prize was not to 'recognize' that fact, but rather, to conjure the appearance of similar stature by fronting a prize that closely mimicked existing prizes that did enjoy that esteem in the mind of the public. The purpose of the prize was to elevate the stature of the economics profession, not to acknowledge its already hallowed status. Economics was supposed to look like a science to spectators, and the prize was just one means for the makeover.

Cast your eye back over our brief history, and you will discover that Åsbrink, Lindbeck, Lindahl, and Lundberg were all part of a school of thought that was convinced that the Social Democrats and the so-called 'Swedish model' were threatening the economic stability of Sweden, that the distinctive social welfare state that it represented in the minds of foreigners should be curtailed and cut back, and that one immediate way to achieve that end was to render the central bank more independent from its nominal owner, the Swedish state. But that would involve basing the independence of the bank upon the untrammeled rule of experts such as themselves, freed from the fetters of political subordination. In 1968, most Swedes would not have acquiesced in the credo that credentialed economists just naturally knew better than the man in the street how to run the economy without any democratic input. Therefore, it was in the interest of the Swedish Riksbank to indirectly promote the discipline of economics as a vibrant and successful science, so that the general public would eventually come to defer to its expertise, and let the central bank get along and run things unencumbered, the way it saw fit.

Indeed, conveniently, the fortified economics profession turned its macroeconomic cadres to explicitly argue for the necessity of an independent central bank as a prerequisite for rational monetary policy in the 1970s and 1980s. But in a 'virtuous' (or vicious?) cycle, central banks began to hire vast phalanxes of economists as part of their staffs, and, increasingly, even as their governors. After all, the purpose of 'independence' was to actualize expertise. Thus professional economists enjoyed new paths to power unencumbered by political accountability, and the central banks in turn devoted resources to enhancing economists' intellectual credibility. As Forder has pointed out, "The idea of central bank independence and the doctrines surrounding it contribute in significant ways to the standing and self-esteem of the economics profession." Any macroeconomic failures can be blamed on the misdeeds of outsiders, with their tainted political interventions, while the economists deem themselves absolved of all blame. One observes this dynamic in recent exculpatory memoirs of the main protagonists of the erstwhile Great Recession. This symbiotic dependence certainly paid off for the Swedish Riksbank, which managed to attain full political independence from democratic accountability in 1999.

But, returning to the 1960s, we observe that the Nobel dynamic in Sweden existed to promote a certain species of economics, not all possible versions of economics indiscriminately. The legitimate profession had to be constrained to a sharply circumscribed intellectual ambit. This is another fact to which Åsbrink, Lindbeck, and Lundberg could not openly admit. Lindbeck, in his retrospective offered to an American audience, made the smarmy comment that the ideological perspectives of the prizewinners "have, of course, been neglected." It was imperative that the Swedish committee for the ersatz Nobel evade the very thing that outsiders suspected all along was definitely a major consideration. As Lindbeck continued, "Has the selection committee viewed the award as a chance to influence the direction of new research in economics? The answer is definitely no."

It is an error to think that the Nobel Prizes effortlessly represent the distillation of the historical hive mind of the invisible college of scientists distributed across the world; if that were the case, one could simply distribute awards according the highest citation counts and h-indexes, and do away with the rigmarole of nomination rules, committees and consultations, plus the elaborate press briefings and PR that surround the event. Both disciplinary dynamics and local context matter, and never more so than with the Bank of Sweden Prize.

It was therefore foreordained that after the very first prize in 1969 was bestowed upon the Norwegian Ragnar Frisch and the Dutch Jan Tinbergen, the American dominance of the prize hardened rapidly into an unabated trend. It was the rare recipient from thenceforth who did not study at US institutions, or else hold a position sometime during their life at an American university, no matter what their country of birth.

American orthodox neoclassical economics was deemed world benchmark economics by the Bank of Sweden Prize committee, and this had very profound consequences for the trajectory of economics in Europe. In the 1950s and ’60s there were still scattered home-grown schools of economic thought in various countries that generally published the bulk of their research in their home language; some, such as the French regulation school or the Italian neo-Ricardians, were openly hostile to the American version of neoclassical economics. Marxian economics was ensconced behind the Iron Curtain. There were even reputable Brits such as the Cambridge Keynesians who were very skeptical concerning the American ascendancy. Not only did none of these groups ever merit a Bank of Sweden Prize in the opinion of the Swedes; but the prize served to sanction the displacement of the cutting edge of economics in Europe from indigenous traditions to a narrow (and sometimes tone-deaf) construction of the American economic orthodoxy. In some instances, the purge was brutal and quick; but more frequently it took decades of replacing older faculty with youngsters who had read the writing on the wall. Perhaps European economists would have intellectually knelt to the hegemon in any event in the absence of the prize; but one suspects the local politics might have played out very differently.

It is the second, far less visible, trend that will take up the rest of this chapter. It is not at all clear that, initially, the Bank of Sweden consciously sought to elevate the American orthodoxy to primus inter pares as a major consequence of its ersatz prize; but a case can be made that they did seek to skew the prize, and therefore the economics profession, in a far more neoliberal direction than would have been expected in the late 1960s. Thus, the prize provided a fulcrum which permanently moved the Overton Window.

The Swiss banks were also the wellspring of support for a transnational organization of central bankers in the aftermath of World War II. The Bank for International Settlements (BIS), a private coordination institution for central bankers dating from 1930, was another instrument enabling Swiss banks to reintegrate themselves into the postwar global financial system.

Hence it was the great good fortune of the NTC in 1969 to have either actual MPS members or their overt sympathizers conveniently available to be plucked from the Riksbank stables to staff the early ersatz Nobel committee, essentially hand-picked by Åsbrink in the first instance. Far from conforming to some bland notion of "ideological balance," the Bank of Sweden Prize committee had one actual MPS member on board from its inception until 1995, and during the early years was majority dominated by neoliberal economists. For the first six years they were in the majority—which will shortly go some distance in explaining the contentious 1974 prize—and thereafter were represented primarily by Assar Lindbeck, who had an outsized influence on deliberations in the key years from 1974 to 1994. Since that period, their representation has been diminished, and this has had a pronounced effect on the track record of the prize.

3. The consequence of these two trends was the marked expansion of the proportion of neoliberal winners (a category larger than simply MPS members) relative to the cumulative population of total winners. The proportion of neoliberal winners rose from 11 percent in 1974 to 38 percent in 1993. … 5. However, the flow of new neoliberal additions to the prize has been such that the neoliberal representation of the cumulative stock of winners has remained around 38–40 percent since 1993.

MPS members had far fewer winners from 1994 forwards. The only additional member was Vernon Smith in 2002. This slowdown corresponds to Assar Lindbeck’s removal from the committee in 1994, as well as the last actual MPS member cycling off the committee.

Before we deal with the actual sequence of prizes and vexed questions of ideological definition, it is critical to note just how unlikely it would have been that any exclusive club consisting of roughly 300 or so members worldwide during the period under consideration would manage to capture such an outsized proportion of Bank of Sweden Prizes. Conveniently, we have one of the members of the selection committee himself admitting the very same thing in, of all things, an address to the MPS: “There seems to be an overrepresentation in the Nobel Prize Hall of Fame of the MPS group. [Milton] Friedman indicates some kind of political bias against an outspoken Marxist economist when it comes to not awarding the prize. But is there a corresponding positive bias in favour of the other camp?” Furthermore, the neoliberal thought collective has not been shy in trumpeting this extraordinary set of events.

All and sundry treat this as some sort of marvelous confirmation that the Swedish Prize committee miraculously manages to power through all the noise and flummery of “irrelevant” considerations to an objective valuation of the truth in economics; but of course, there is another more historically accurate and ultimately more insightful explanation of these events. It consists of the combination of some elements of pure historical contingency, along with other actions of the most direct and unabashed intentionality. The dose of contingency came in the form of the Swiss Connection to the Swedish central bank, the audacity of Per Åsbrink in pursuing an ersatz Nobel, and the alliance of convenience between Åsbrink and a set of Swedish economists bent upon rolling back the Swedish welfare state. Of course, Swedes harboring those sorts of political ambitions would tend to be familiar with many of the neoliberal protagonists of the MPS in the late 1960s, and indeed would include in their number a few actual MPS members. Once those stochastic preconditions were baked into place, the subsequent sequence of events was more or less due to premeditated planned agendas.

The outsized representation of MPS in the ersatz Nobel was a direct consequence of Per Åsbrink creating the nascent Swedish Prize committee from scratch, and then accessing the same cabal of right-leaning Swedish economists and Riksbank consultants who had helped him get the ersatz Nobel off the ground to staff its bureaucratic structure. These scholars, consisting of Assar Lindbeck, Erik Lundberg, and Ragnar Bentzel, with the tacit cooperation of Bertil Ohlin, sought to bolster the intellectual credibility of their program by initially making the prize seem “apolitical” for the first five years, only then to embark on a number of awards (including one to Ohlin himself) designed to make the hard-right MPS appear as a legitimate orthodox component of world economics. In other words, they laid the groundwork for the program described by Lindbeck: “fiscal discipline and an independent Riksbank in combination with deregulation,” and subsequently pursued by the Riksbank.

First, there was the reorientation of global “orthodoxy” to the new American normal, which meant a commitment to a formal understanding of the centrality of the Walrasian system of equilibrium as constituting the heart of economics, which in turn accounted for the initial prizes bestowed upon Paul Samuelson, Kenneth Arrow, Wassily Leontief, Tjalling Koopmans, and that most Walrasian of Brits, John R. Hicks. The problem faced by the early committee was that this “new postwar orthodoxy” represented by the above roster was pretty uniformly dismissive of the MPS cadre in the 1960s, to the extent of an intransigent unwillingness to allow most of them into the tent named “orthodox economics.” The Nobel committee did end up with a lopsided emphasis on American economics, but they also forced the issue of reconciliation of these two imperatives through a decisive set of awards in 1974–77, as described in the next section.

Another objective of the ersatz Nobel in the 1970s was therefore to raise the level of scientific credibility of the MPS within the postwar economics profession. That is why Lindbeck's subsequent denial that "the selection committee viewed the award as a chance to influence the direction of new research in economics" is utterly unavailing, once one examines the historical record in greater detail. The general level of denial in this respect (usually paired with an unwillingness to acknowledge the ersatz status of the economics "Nobel") has spread throughout much of the modern economics profession, especially after the history of economic thought has been summarily banished from orthodox economics departments worldwide. It has gotten so bad that even Nobel laureates can spout the most misleading rubbish, secure in the conviction that no one will ever call them out on their ignorance: So far as I know, the MPS never produced and distributed an agreed public statement of its program.

The MPS was no more influential inside the economics profession. There were no publications to be discussed. The American membership was apparently limited to economists of the Chicago School and its scattered university outposts, plus a few transplanted Europeans. … But these would have gone on in the same way had the MPS not existed.

The historical materials to support the thesis of this chapter are partly available from scattered sources in the history of economics, and partly hidden in the archives of the Swedish Academy, subject to a fifty-year embargo. The evidence in this chapter is derived in part from the archives of the Mont Pèlerin Society, partly from the archives of selected Bank of Sweden Prize laureates, and partly from the publications of the neoliberal thought collective itself.

One consideration which factors into this statistic is the observation that, while the MPS was once the core furnace of intellectual white heat in forging new ideological principles in the first four decades of its existence, its centrality to the neoliberal project has diminished as we approach the present, and its intellectual heat has cooled appreciably. In effect, the level of practical success of neoliberal politics has resulted in the core now being primarily populated by affluent people who view membership as a status symbol, another Davos to inscribe on the social calendar, rather than joining a hand-picked crew of innovative thinkers cloistered away in intense debate and subtle disputation.

The neoliberal thought collective is far more likely to be found nowadays in the outer rings of its dedicated institutional structures, in the numerous think tanks, news outlets, tied academic units, NGOs and shell foundations which litter the political landscape.

Although the laureates Thomas Sargent, Douglass North, and Michael Spence have never been MPS members, they have enjoyed extended tenure as Hoover Institution Fellows, which in some ways is far more indicative of their modern political and intellectual commitments. … However, one need only read his extensive works to realize that he subscribes to most of the major tenets of a neoliberal theory of finance.

The neoliberal thought collective has been so fascinated by the ersatz Nobel and its implications that they themselves have devoted substantial resources to taking the ideological temperature of each and every prize winner. In effect, neoliberals strive to have summary box scores, in order to gauge whether or not, from their vantage point, they are winning, and by how much. … As in so many other cases of the political sociology of science, one finds that it was the NTC that managed to get there first.

To telegraph the scene to those not aware of Hayek’s biography, he began his career as an Austrian economist attempting to argue against government attempts to offset business cycles, and continued to do so at the LSE long after the 1929 crash. There he was attacked by the Keynesians in the later 1930s and by Gunnar Myrdal for serious errors in his version of monetary theory. Hayek was deeply disheartened by the chorus of disdain, as well as the failure of his next book The Pure Theory of Capital, and turned away from the genre of “economic theory” altogether in favor of philosophy, publishing his popular book on politics, The Road to Serfdom (1944). At that point he was condemned to the status of being “not an economist,” particularly in the American context; so much so that he was denied a position in the University of Chicago economics department, although he was hired to the Committee on Social Thought in 1950.

This long period of wandering in the wilderness of intellectual banishment would have been the first thing to have struck insiders back then about the 1974 prize. Hayek had “lost” status, because he could no longer participate in “scientific economics.” Hence it would seem all the more striking to an outsider like Samuelson that such deference was shown to Hayek in Stockholm, beyond that towards native son Myrdal. Some would say that Myrdal himself had also drifted away from economics in the interim, to something akin to sociology with his work on American segregation and Indian development problems. Yet it was their diametrically opposed politics which drew the most strident commentary.

After the prize was announced, there were all sorts of criticisms of the aberrant behavior of the Bank of Sweden committee; they were forced to defend their choice over and over again. Indeed, the Hayek/Myrdal pairing remained the most controversial award until the 1994 prize bestowed upon John Nash, which caused such a hubbub that the prize committee was itself reconstituted by the Royal Swedish Academy.

The background for the Hayek-Myrdal prize was that the committee was eager to 'finish' the backlog as soon as possible, which resulted in a number of shared prizes during the seventies. That specific prize reflected perhaps, to some extent, also Erik Lundberg's sense of humor! But more seriously, both H. and M. were pioneers in aggregate analysis of output fluctuation by the concepts of aggregate saving and aggregate investment. Both later turned to broader issues of the relations between institutions, economic mechanisms, and political processes. The fact that they came up with contrary policy prescriptions was not regarded by the committee as an obstacle for the prize.

Perhaps the person most disturbed by the prize was its other recipient. Although he did not decline the award, remorse soon set in, and Myrdal went public a few times in subsequent years suggesting he should have renounced it. He openly questioned the pairing of two such diametrically opposed thinkers in the interests of "balance." In a widely reprinted article, he suggested the award to Milton Friedman in 1976 had finally made him see what was really going on. Economics was not a science like those celebrated by the other Nobels; due to the "confused admixture of science and politics, the awarding of a Nobel Prize in economic science will commonly be conceived as a political act of the Academy. This, of course, is what has happened in the case of Milton Friedman."

Yet I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it. One reason was that I feared that such a prize, as I believe is true of the activities of some of the great scientific foundations, would tend to accentuate the swings of scientific fashion. This apprehension the selection committee has brilliantly refuted by awarding the prize to one whose views are as unfashionable as mine are. I do not yet feel equally reassured concerning my second cause of apprehension. It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess.

At first sight, it may seem that Hayek's denunciation (but note well—combined with acceptance) of the prize might seem to contradict the major thesis of this chapter: How could the Riksbank award be skewed to promote the MPS and its doctrines when its most famous member was so disparaging about the functions of the prize at the award ceremony? Here, I think, it becomes necessary to insist once again that neoliberalism and the NTC cannot be reduced to the utterances of Hayek alone. However brilliant Hayek may have been, he was distinctly inferior in his understanding of the sociology of the economics profession than many other members of the NTC, as the quote from Hartwell above implicitly indicates. If he really believed the ersatz Nobel was so deleterious for economic thought, then he should have practiced what he preached and renounced the prize. I think it plain that the wisdom of Lundberg, Lindbeck, and the others ultimately won out: all agree Hayek's stock as an economist began its recovery with the bestowal of the Bank of Sweden Prize. And, validating NTC wisdom, Hayek is second-most cited laureate in the other Bank of Sweden Prize lectures, just after Kenneth Arrow.

There has grown up an urban legend that Myrdal was inevitably in line for a prize, but that the Swedes disliked him to such an extent that they paired him with Hayek to forever make his life (and legacy) miserable. One might think that credible if one restricted one’s gaze solely to that single prize, but the evidence gathered herein about the longer term suggests otherwise. The rival interpretation is that the committee consisting of one MPS member plus three neoliberals tipped their hand as to their second project in the Bank of Sweden Prize: to lend public credibility to the Mont Pèlerin Society in particular and the neoliberal project in general, by inserting targeted awards intercalated with those to the American orthodoxy. The committee could never have bestowed the award on Hayek alone, since that would have put the kibosh on the prize for good; the purely political character of such a singleton would have left no grounds for plausible deniability. So they paired him with Myrdal to disguise what would soon become a striking run of single-person prizes to MPS members. The prize committee was willing to put up with a modicum of grief concerning the Hayek/Myrdal prize, because it broke the global ice dam which had frozen out the MPS from the realm of legitimate economic discourse since World War II. The ploy worked like a charm for Hayek; numerous historians have commented that his ‘rehabilitation’ as an economist dates from the 1974 prize. Myrdal experienced no such similar rehabilitation, and soon realized he had been a cat’s paw for the neoliberals on the committee.

So far we have approached the ersatz Nobel almost exclusively from the vantage point of the Swedes, but another way to gauge the significance and influence of the prize is to briefly examine its consequences from the side of its main beneficiaries, viz., the American economics orthodoxy. Lindbeck’s disavowal that the prize did not affect the subsequent direction of research can be directly refuted by looking at what happened to other economist prizes in the American context.

The historian Beatrice Cherrier has drawn our attention to the fact that both AEA prizes, the Clark and Walker medals, faced criticism and challenge in the first decades of their existence. Perhaps unexpectedly, the Clark medal came in for some disparagement as being too narrow, too theoretical, insufficiently elevating empirical work, and not adequately concerned with public policy. The discontent came to a head at the 1958 AEA meeting, where there was a proposal to mint another medal to highlight the empirical and public policy side of economics, to be named the Wesley Clair Mitchell medal. In the executive committee meeting, a motion was proposed to either pair the Clark medal with the new Mitchell medal, or else discontinue the Clark medal altogether. Some of the membership began to chafe at the "all must have prizes" argument, and controversy broke out about the whole idea of having formal prizes of any stripe sponsored by the AEA.

As we have argued, due to their own geopolitical and intellectual imperatives, the Swedish committee had decided to privilege the nouvelle vague américaine as the future of economics. This became practically apparent by the later 1970s, as did the principle that no other schools of thought than an American neoclassicism or an MPS neoliberalism would ever be graced with a call from Stockholm.

The purpose of the ersatz Nobel was to elevate certain strains of economic thought above their competitors; those strains were an Americanized version of Walrasianism and an MPS-inspired neoliberalism. If the two strains found a stilted hybrid at the University of Chicago, then all the better for Chicago and its global reputation. The Swedes were forward-looking, realizing they were intervening to bring about an outcome that had not yet become a global standard: English-inflected American orthodoxy, tricked out to resemble the natural sciences, with a dollop of neoliberal political theory. The American prizes, by contrast, had been sadly backward-looking; therefore, it was the better part of valor to simply retire the Walker medal with little fanfare.

The role of prizes deserves to be taken more seriously in an expansive social epistemology. Prizes serve to inform and structure the internal dynamics of an intellectual field like economics; and equally, they play an important part in the validation of the doctrines of the field amongst the larger public. But in this case, there is a further consideration that is frequently overlooked. Because epistemology is so very central to neoliberalism, they were well poised to take advantage of the opportunity created by the rogue behavior of the Bank of Sweden to upgrade their standing in the postwar economics profession, through occupation of the newly formed Prize committee, and the elevation of MPS members to the exalted status of ‘winners of the Nobel Prize’.

How the Neoliberal Think TankWent Global: The Atlas Network,1981 to the Present … Since the late 1970s, neoliberalism has transformed the world. It has impacted the structures and strategies of firms and organizations—whether private, public, or not-for-profit. It has influenced policy-making at national and transnational levels. It has transformed our private lives and our very sense of self. The idea of a market society has become performative in the Austinian sense. Yet not all ideas that circulate become performative—only those that are framed, carried, adopted, appropriated, enacted, and institutionalized successfully. Despite the many studies of neoliberalism as a doctrine and way of life, scholars have yet to explain fully how this particular set of ideas was translated into institutions and practices with a global reach.

Atlas was incorporated in July 1981. The founder, Sir Antony Fisher, had created the Institute of Economic Affairs (IEA) in London in 1955, which played a pivotal role in spreading neoliberal ideology within British public opinion, policy, and political circles in the 1970s and 1980s. The success of the IEA meant that Fisher was invited to launch sister organizations in Canada and the US and soon became a “think tank entrepreneur.” In the late 1970s, Fisher was ready to take the next step—to create an organization with the mission to “litter the world with free-market think tanks.” In 1979, he sought formal endorsement from key neoliberal luminaries—Margaret Thatcher, F. A. Hayek, and Milton Friedman, writing “A letter from you … expressing your confidence in the effectiveness of a proliferation of the IEA idea would be immensely valuable.”

Securing the support of this trio allowed Fisher to raise funds and incorporate Atlas. The objective of the new organization was to push for and help the seeding, staffing, and coaching of neoliberal think tanks across the world to “influence public sentiment” and in the process “make legislation possible.” Initially located in San Francisco, Atlas started small with a budget of $150,000. Early donors were the Sarah (Mellon) Scaife Foundation, Fisher’s second wife Dorian, and private philanthropists from the US and Canada. The budget was stable at around $2 million from 1995 to 2005. From that point, it increased rapidly—reaching over $15 million in 2016.

Think tanks are not “member” but “partner” organizations; together they make up a broad transnational network with Atlas as the hub. Atlas was created to institutionalize the process of helping start up new think tanks. And it has played that role, being a catalyst through the years for the setting up and the stabilization of many such organizations. More than half of the think tanks are located in North America and Europe but, as Figure 10.2 shows, the network has a global presence. We identify two distinct but complementary periods in the development of Atlas. During the fledgling years (1981 to 1995), the survival and legitimacy of the organization depended on its capacity to expand the network. The period of expansion and maturity started in earnest in the mid-1990s (1996–2015). Atlas then became an attractor organization and partner organizations needed it more than it needed them.

Economic conditions were bad throughout Latin America in the 1980s. Following the rise in interest rates with the Volcker Shock in 1979, and officially initiated by the Mexican default in 1982, debt crises wreaked havoc in the region. For Atlas, however, this "lost decade" carried a promise and created a window of opportunity for the dissemination and application of neoliberal ideas.

Speaking at the 28th Atlas International Workshop in Istanbul in 1996, Deepak Lal, economist and MPS member, rejoiced that "the intellectual battle was being won." The fall of the Berlin Wall, the acceleration of globalization, and the impact of the Pinochet, Thatcher, and Reagan "revolutions" meant that ever more regions of the world were targets of neoliberal proselytism.

One new focus was Asia. In the mid-1990s, Atlas's footprint in the continent was limited, with a notable exception in the Hong Kong Centre for Economic Research founded in 1987 by Y. C. Richard Wong with the help of Atlas. In the early 1990s, Atlas combined its expertise with the resources of the German Friedrich Naumann Foundation (FNF), which had a presence in China. Together, they organized a workshop in Beijing in 1995. The Atlas team took this opportunity to explore China, Hong Kong, and India. In India, Chafuen met Barun Mitra, a “science writer” with whom he had been in written contact. Mitra founded a think tank in New Delhi the following year, the Liberty Institute, and remained an important contact for Atlas in South Asia.

Another new site of attention was Europe. Europe had historically been Atlas's worst disappointment—Western Europe being “mired in heavy regulation and taxation” and Eastern Europe lacking “a strong rule of law.” Understanding that Europe was not welcoming to the neoliberal “think tank culture,” Atlas leaders decided to enter through academia. Atlas helped the pro-market teaching and research efforts of some European scholars while also encouraging them to establish free market think tanks. From the mid-2000s, Atlas organized regional gatherings in Europe to boost resource sharing and collaboration among the fledgling institutes and isolated academic centers. The hope was also to bridge the East-West divide. The efforts paid off in the new millennium. The European network quadrupled after 2000 (Figure 10.6). Numbers went from a net of nine institutes in 2000 to forty-nine today in Eastern Europe and from thirteen to eighty-one in Western Europe.

Finding individuals willing to subscribe to and champion the cause was a necessary first step to diffusing the think tank model. Initially, the identification of those potential champions was mostly ad hoc—happening through the mobilization of direct and indirect personal networks. In the US, Fisher could rely on his own personal connections to identify the new generation of think tank leaders. In Latin America, however, his personal contacts were limited. Hence he used indirect mechanisms. First he leveraged his contacts within the MPS, of which he had been a member since 1954. When Hayek or Friedman traveled to South America and met interesting prospects, they connected them with Fisher. This was how, for example, Fisher met Hernando de Soto. Fisher spurred de Soto, a Peruvian economist trained in Switzerland, to create his home country's first think tank—the Instituto Libertad y Democracia (ILD) in 1981.

The identification and mobilization of prospective foot soldiers also happened through the organization of workshops. The first workshop took place in 1983, in Vancouver, Canada, and by 1995, Atlas had organized twenty-five. Annual workshops were organized in connection with MPS meetings. This allowed Atlas to piggyback on MPS intellectual resources, renowned members being invited as speakers. The proximity of both events was an attraction for liberal champions from around the world even if the doors of the core were closed; invitation to the Atlas workshop did not carry a parallel invitation to the MPS meeting. These workshops were small (around 100 participants) and co-organized with local affiliate think tanks. This made it easier to attract local participants and gave local think tanks and their leaders legitimacy and visibility.

As the Atlas organizational network expanded, the search for and development of motivated champions could no longer be accommodated by occasional field trips and targeted workshops. Atlas hence fostered the systematic formalization, organization, and branding of its outreach efforts. With a view to systematize and formalize its outreach and scouting efforts, it also created the Atlas International Freedom Corps (IFC) in 2003, as “the free market alternative to Peace Corps.” Through the discovery arm of IFC, Atlas dispatched senior members of the network to “scout for intellectual entrepreneurs in difficult parts of the world.” The potential “freedom fighters” thus identified could be invited to Atlas, as part of IFC’s visiting fellow arm. The fellowships, from several weeks to a few months, allowed newcomers to “learn about think tanks,” prepare for their think tank entrepreneur role and develop a sense of belonging to the Atlas “family.” The fellows then often became themselves effective “scouts.” In the first half of 2000s, Atlas financed five missionary trips to Asia and Africa and hosted thirty-three visiting fellows from Latin America, Europe, Asia, and Africa. These efforts accelerated the expansion of the network and fostered the integration of a core of connected think tanks across different regions of the world.

In 2009, the Cato Institute transferred its internationalization service to Atlas. Tom Palmer, from Cato, became Vice-President for International Programs at Atlas, absorbing the discovery arm of the IFC. Palmer soon became the symbolic figure of Atlas’s missionary and discovery activities. He worked with a team of native speakers (in a dozen languages) and deployed an outreach and discovery strategy for challenging regions. Classic texts were translated and distributed and new material produced and shared through web platforms tailored for a given language. The platforms also organized essay contests and relayed information on initiatives like Freedom Schools or university tours. This online strategy implied “aggressive branding and integration of programs around a website.”

Initially, Atlas scorned universities as “ideological monopolies of the Left.” Vocal in its contempt, it constructed itself as an alternative to academia, contributing to “un-politicized” public policy “based on sound science.” The realization, however, that “many cultures of the world [had] not yet fully embraced the think tank model” imposed a pragmatic reorientation. A key actor here was Leonard Liggio, law professor at George Mason, and veteran of the Institute of Humane Studies, who joined Atlas in 1994. In 1999, the John Templeton Foundation gave Liggio and Atlas a grant to target academia. The International Freedom Project (IFP) financed through this grant aimed at planting “seeds of truth” in academia outside North America. The plan was to fund university professors (ranging from $10,000 to $40,000) to develop free market courses and invite prominent guest lecturers. Between 1999 and 2002, Atlas funded sixty-eight courses in twenty-seven countries, an estimated 1,500 students being reached.

In the mid-2000s, Atlas broadened its academic ambitions. Through the Teach Freedom Initiative (TFI), Atlas helped a select group of professors to sponsor speakers, craft workshops, and find adequate fellowships and internships for their students. Through TFI, Atlas organized conferences to showcase the contributions of free market oriented academic centers—hoping to help along their ultimate transformation into think tanks. The Fund for the Study of Spontaneous Orders (FSSO) was oriented to research designed to support and reward academic scholarship in the tradition of Austrian methodological individualism.

By the late 2000s, these initiatives had lost momentum. Whether due to limited returns on investment or to Liggio’s bad health, the focus on academia receded. This happened as Palmer rose to prominence. Palmer had close ties with Students for Liberty (SFL) networks, which brought together graduates of the Institute for Humane Studies Koch Summer Fellowship Program. In the new approach, academia was bypassed and scorn returned: What Your Professors Won’t Tell You was the subtitle of a series of books edited by Palmer and distributed by SFL. Academic hierarchies were being bypassed and college students became direct targets.

The early expansion of Atlas was rapid but controlled and geographically bounded. The Atlas network grew from eight members in 1981 to 122 in 1995. In the next twenty years the network would be nearly multiplied by four. In these two periods, Atlas deployed tools of intervention that were fitted to the specificities of the network and context.

Initially, Atlas fostered diffusion through practical “venturing” actions. Having identified individual foot soldiers, it worked to empower them by helping them materially and coaching them directly. Atlas then made sure to keep in contact, with a double objective—to stabilize the think tank locally and to tighten its integration into the transnational neoliberal community. When the Atlas team met motivated individuals, it was ready to finance exploratory trips. In 1988, it thus financed one trip to India and two to Ghana.

As Fisher had underscored, “one of the difficulties in setting up an institute is to raise the money in the first place, because usually businessmen don’t know what it’s all about.” Atlas could help through “provision of seed money, which could mean an instant start.” Altas’s first investment was in a French institute—the Institut Economique de Paris. In the US, Fisher put high hopes in John Goodman, a PhD graduate in economics from Columbia. In 1983, with a starting grant of $20,000, Goodman launched the National Center for Policy Analysis (NCPA) in Dallas, Texas. In Latin America, Fisher supported de Soto in establishing ILD. Many other fledgling institutes received seed money from Atlas in that period—in Iceland, Australia, Italy, Spain, Latin and North America, and, in the early 1990s, in Russia, Romania, and the Czech Republic.

Shyam Kamath, a young economics professor from California State University, and Parth Shah, a PhD student, went to India. Kamath had already mobilized potential donors and the objective of the trip was to find “the right individuals to manage and run the institute locally.” Charles Mensah, PhD candidate in economics at George Mason, organized the trips to Ghana. “Incorporation, finding premises, recruiting a board of directors, and seeking financial support were all on his agenda.” The Indian trip only bore fruit in 1997 when Shah returned to India to found the Centre for Civil Society. The African trips proved rapidly successful: IEA Ghana was created in 1989 in a country governed by the military.

Beyond financial assistance, Atlas also provided one-on-one coaching to help institutes develop in unique contexts. The idea was to relay “the experience of the [IEA]” and other first generation think tanks to “advise an ever-growing family of institutes.” Initially, this took the form of personal visits by Fisher. As de Soto later recalled, for example: “It was on the basis of his vision that we designed the structure of the ILD. He then came to Lima and told us how to structure the statutes, how to plan our goals, how to build the foundation, what to expect in the short and long term.”

Fisher did the same for most think tanks created before his death. Building on his experience, he had a clear framework in mind. First, a think tank should stay out of politics and focus instead on building influence. Hence, key targets were the media and policy influencers even more than policy-makers. Second, think tanks should stay away from governmental or political financing. Hence foundation and private funding were privileged. Third, think tanks should work like businesses.

In the early 1990s, the evolution towards the professionalization and manage-rialization of think tanks started in earnest. Private models and templates were transferred to the nonprofit think tanks to ensure efficiency and accountability to funders. In November 1991, the Heritage Foundation organized a workshop on "Fundraising in the New Policy Environment," where Atlas was represented. The workshop was "devoted to the importance of developing clear organizational missions, devising better methods of marketing products and services and refining donor relations."

As the number of initiatives and targeted countries increased rapidly in the 1990s, diffusion mechanisms had to be rethought. Indirect and mediated forms of influence came to complement direct interaction and communication. Initially, Atlas had provided seed money in an ad hoc manner to "worthy" think tanks. From the early 2000s, it moved to distribute general purpose funds through grant competitions. Think tanks filled out a six-page grant application, accessible from the website. Atlas organized the review and selection. Most of the grants went to non-US think tanks (around 85 percent between 2004 and 2013). Grant competitions meant that Atlas could have leverage on and steer the agenda of network members. Whereas initially it had to persuade think-tank leaders to engage with certain debates, through grant competitions it could nudge them towards the issues it deemed important.

Early on, though, Fisher had thought of making the rules for think tank creation and development explicit. In 1983, he circulated a fifty-page text—Some Do’s and Don’ts for Public Policy Institutes. The Atlas team worked to refine and make these recommendations more explicit—producing “recipe books,” modular “management toolkits,” and ultimately a blueprint that became accessible through the website in 2000. … There were start-up guidelines—how to select a name; how to write bylaws; how to define the mission and set up a proper governance. There were functioning guidelines—how to organize everyday activities; how to remain independent from government and political parties; how to conduct market analysis. And finally, there were development guidelines—how to raise funds; how to find and work with authors; how to market and sell ideas; how to project competence and expertise.

After 2000, with an increasingly dense network, Atlas restructured its international operations to create regional sub-networks. Regional networks were an attempt to deal with the difficult question of local inscription. They proved effective in facilitating collaboration, fostering synergies among local institutes, and “hooking” new contacts to the cause. … In the late 2000s, a few successful think tanks were upgraded as Atlas “satellites” to act as regional gatekeepers and relays. The idea was to push some of Atlas’s discovery, organizing, and training operations downstream.

The broad diffusion of intellectual products and the circulation of a small group of so-called freedom intellectuals were also effective mechanisms to strengthen connections between Atlas, think tanks, and the core of the neoliberal community (the MPS). Initially, a handful of neoliberal luminaries did the rounds, including Hayek, Friedman, James Buchanan, and Henri Lepage. Soon, however, the circle expanded to include leaders from older think tanks—Lord Ralph Harris from the IEA, Michael Walker from the Fraser Institute, Ed Crane from the Cato Institute, de Soto from the ILD, and Goodman from the NCPA. Atlas was the connector—putting "freedom intellectuals" and local think tanks in contact and financing the trips.

Atlas also fostered the diffusion of intellectual products across the network, including books, reports, memos, and videos. Convinced that "the widespread availability of pro-market books is a critical element in communicating the principles of a free society," Atlas financed translations of the classics of liberalism, including books by Adam Smith, Hayek, Buchanan, and Friedman. The corpus evolved through time and Atlas also helped translate and diffuse texts produced by members of associated institutes, including de Soto, Goodman, and many others. In the 1990s, those texts championed private and market solutions with a particular focus on healthcare, welfare, and environmental issues.

The newsletter also relayed information on the “Better Government Contests”—a 1991 initiative of the Pioneer Institute in Boston that rapidly spread throughout the network. Soliciting “citizen plans to cut government spending,” these contests mobilized government representatives who promised implementation.

Showcasing the concrete results and successes of institutes made it possible to foster a sense of pride and belonging and heighten the perception of an urgent shared project. There were two main channels—the Atlas Highlights newsletter and the workshops. Atlas Highlights identified concrete initiatives, “showing how the institutes in the Atlas network are redefining the boundaries of ‘politically impossible’ policies worldwide.” For example, the strategies by which Atlas and associated think tanks have weighed in on the healthcare and climate change debates since the mid-1980s were given prominence.

First, the content of the workshops shifted from a focus on policy issues and promotion of the think tank model to discussions of strategies and the sharing of best practices for managing think tanks.

Initially, Atlas workshops had always coincided with the annual meetings of the MPS and the Heritage Foundation Resource Bank in what were “three jam-packed days of free-market networking and programs.” This aggregation of events could hook newcomers “overwhelmed by the magnitude of the vibrant American movement.” As Atlas became ever more central in the neoliberal constellation, it turned the Liberty Forum into a stand-alone event highly attractive in itself. In 2003, 150 participants came from twenty-six countries while the 2014 forum brought 600 participants from fifty-nine countries.

Showcasing and recognition took another turn in 2003 when the John Templeton Foundation underwrote a $2 million pledge to finance the Atlas's Templeton Freedom Awards (TFA). Every year Atlas could award, during the Liberty Forum, two prizes of $10,000 each in eight categories—Free Market Solutions to Poverty, Social Entrepreneurship, Ethics and Values, Student Outreach, Initiative in Public Relations, Innovative Media Award, University-based Centers, and Young Think Tanks. In 2013, the Templeton Religion Trust took over, granting each year a single $100,000 grand prize recognizing "exceptional think tank achievement." New awards have been launched over the years. Recognizing specific achievements, these awards come with monetary rewards and are handed out during official events. They celebrate individuals and organizations but they also serve to integrate the network around its common project and common successes.

Towards the end of the 2000s, particularly with the arrival of Tom Palmer, Atlas started to take advantage of its dense network to encourage cooperation between institutes on the co-production and co-diffusion of contents. Atlas commissioned co-authored "snack box" books featuring plain-language essays promoting free market ideology. The authors include celebrated figures in the network such as Nobel Laureate Mario Vargas Llosa, famous CEOs or journalists, but also young "liberty champions" from around the world. Atlas monitors the writing, translation, and distribution of these books and other produced contents (videos, blog posts …) through its designated outreach channels, including local language websites, organized liberty tours, summer schools, and seminars.

The objective of the ALA is to “apply sound business practices” to the domain of influence building and public policy shaping. As such its training programs progress from basic ideas about the free market to practical business skills: … Freedom is our business: we believe that using the best business methods is the key to advancing the ideas and the policies of freedom. Accordingly, Atlas teams plan strategically, seek the highest value added, engage in competitor analysis, brand our products and use the most suitable marketing techniques to encourage our target markets to “consume” our products, and measure our successes (and our failures).

Initially, Atlas and its few associated think tanks were marginal organizations. They had no chance of recognition from better-established producers and diffusors of knowledge like universities. Their strategy was to play up the position of the outcast and insist on their own singularity. Over time, however, Atlas gained centrality and legitimacy in the transnational neoliberal community, and think tanks became locally institutionalized. As a consequence, a significant evolution took place. Instead of scorning academia, Atlas and the think tanks aspired to and embraced academic legitimacy. This happened first through the co-optation of academics sympathetic to the cause as well as through think tank leaders acquiring academic credentials, usually a PhD in economics.

While the starting point of this chapter was that ideas matter, we have not focused on the nature of those ideas per se. Instead we illuminated the conditions in which ideas can be made to matter. Ideas do not float nor do they do things by themselves. They are championed, carried, inscribed organizationally and institutionally, fought over, appropriated, and interpreted. Only then can they come to have an impact. This chapter has shown the performance of the conditions necessary for ideas to have an impact transnationally—a performance, in large part, comprising organization building, network creation, and community integration. The deployment of an organizational architecture is a necessary precondition for the influence of ideas. Only through the careful work of reconstructing lines of funding, organizing, network building, and influence framing can we understand the globalization of neoliberalism as a coherent body of thought and of self-conscious policy activism.

Economics itself (that is the subject as it is taught in universities and evening classes and pronounced upon in leading articles) has always been partly a vehicle for the ruling ideology of each period as well as partly a method of scientific investigation.

As early as 1936 John Maynard Keynes pointed out that “the ideas of economists and political philosophers … are more powerful than is commonly understood. Indeed, the world is ruled by little else.” F. A. Hayek, one of Keynes’s early opponents, added the caveat that “economists have this great influence only in the long run and indirectly.”

On the level of economic policy, against the political background of the Cold War and then especially after the breakdown of Keynesian economics in the 1970s, the reference to the economic imaginaries of free markets and the free market mechanism served as the theoretical frame for promoting neoliberal policies of deregulation, privatization, and austerity. Although the GFC could have induced a paradigm shift in the field of economic policy, the dominance of neoliberal policies does not seem to be contested. Colin Crouch has described this persistence as the “strange non-death of neoliberalism,” while Mark Blyth has warned of the social and societal consequences of austerity policies.

Some scholars have focused on the (new) hegemonic position of Germany as the central actor in European economic crisis policies—with, e.g., the Fiscal Compact, the eurozone crisis or the European Stability Mechanism (ESM)—due to its economic power and its status as principal creditor. Others have suggested that the European post-crisis economic policies reflect a “return of ordoliberalism” or even an “ordoliberal transformation” or “ordoliberalization of Europe.” Some observers have detected the “long shadow of ordoliberalism” in German economic policies, claiming that especially in the field of macroeconomic policy ordoliberalism can be perceived as the “basis of German economic thinking.” Such claims have been contested by different scholars (Wigger, etc.), inter alia pointing to the limits of an exclusive focus on the Freiburg School of ordoliberals in German neoliberalism.

Yet little work has been done to establish what the networks of ordoliberalism—or, more precisely, German neoliberalism—have been since 1945 and what role they played in German economic policy. This chapter provides evidence that German neoliberal thought had a persistent and strong impact on German economic policy in the postwar period up to the financial and economic crisis policies of 2008 and after. It begins with a reflection on German neoliberalism as a central component in the common neoliberal thought collective, before introducing the category of a “performative footprint of economists” (PFP) in order to operationalize the “external,” non-academic influence of economists. It then highlights the close connections of ordoliberal economists with politics in relation to three important phases, or turning points, in German politico-economic history. The final section uses the PFP methodology to show the persistent dominance of German neoliberalism in German economic policy after World War II compared to Keynesian networks.

The ambivalent role of the state in the ordoliberal version of neoliberalism is present in founding thinker Walter Eucken’s definition of the principles of economic policy. The first principle, Eucken argues, is that “the policy of the state should be focused on dissolving power groups or at limiting their functioning.” The second principle dictates that “the politico-economic activity of the state should focus on the regulation of the economy, not on the guidance of the economic process.” Whereas the first principle stresses the need for a strong state for political engineering (Ordnungspolitik), the second (regarding Prozesspolitik) stresses avoiding interventionist policies against the market mechanism. Ordoliberalism advocated influencing the rules of the game, not the process.

MPS member Joachim Starbatty, a central actor in German neoliberal networks and head of the think tank Aktionsgemeinschaft Soziale Marktwirtschaft, defined the MPS as the "organizational expression of neoliberalism" ("der organisatorische Ausdruck"). He argues further that ordoliberalism should be seen as the "German variety of neoliberalism." With this self-declaration by one of Germany's most prominent ordoliberals in mind, it is safe to define a "network of German neoliberalism" organized in think tanks and institutions around the MPS. In what follows, I define the "German neoliberal network" as comprised of think tanks or institutions in which at least one of the founding or leading members is also a member of the MPS.

In 1962 Hayek was appointed professor of economics at the University of Freiburg and became head of the Walter Eucken Institute. Furthermore, he contributed continuously to ordoliberal publications and was a founding editor of the ordoliberal journal Ordo. In the Quarterly Journal of Economics in 1960, Henry Oliver stated that "in a sense he [Hayek] serves as their [the ordoliberals] leading political theorist." In a similar vein Knut Borchardt stresses the similarities between ordoliberal scholars and Hayek, especially in their emphasis on the role of law, the institutional framework, and the common political will to establish and preserve capitalism. No less a figure than Alfred Müller-Armack, one of the most politically active ordoliberal scholars in Germany from the 1950s to the 1970s, who also coined the term "social market economy," denoted Hayek, together with Eucken, Franz Böhm, Röpke, and Rüstow, as a pioneer of the ordoliberal "theory of economic order" (Wirtschaftsordnungstheorie).

While the diagnosis of a revival or a comeback of ordoliberalism or German neoliberalism in economic policy might hold in the European or maybe even the international context, in the next section I will argue that it is misleading to claim such a “return thesis” for Germany. Although ordoliberalism as an independent economic theory might, in fact, have been “marginalized and thus forgotten,” the infrastructures of German neoliberalism, such as politico-economic think tanks, political institutions, and economic research institutes, remained an influential vehicle for the discursive hegemony of German neoliberalism in German economic policies.

The media coefficient measures the presence of economists (hits for each person) in leading German newspapers and magazines over the whole period analyzed. The media coefficient builds on a weighted average of hits per person in electronic archives, by construing individual reference archives in order to control for different academic life spans. The political actor coefficient operationalizes positions in political institutions (Bundesbank, ministries, Bundestag, political parties, monopoly commission), according to the specific position and the length of time it is occupied, using a classification scheme (see appendix). The political advice coefficient operationalizes positions in economic policy advice institutions like the German Council of Economic Experts (GCEE), the scientific advisory boards of the German ministries of finance and economics, and economic research institutes.

The roots of German neoliberalism date back to the Freiburg School, built around Walter Eucken, Franz Böhm, and Leonhard Miksch in the 1920s and 1930s, and Alexander Rüstow and Wilhelm Röpke, two German economists in close personal contact with Eucken. At the level of economic theory, the central aim of these early ordoliberal scholars was to attack the “ruins of the German Historical School,” which manifested in the idea of the foundation of the “Theoretical Club of Ricardians.” Rüstow suggested also inviting Austrian economists such as Hayek, Haberler, Machlup, and Mises into this club.

Beyond the personal contacts of ordoliberals with Hayek and later proponents of the Chicago School, Köhler and Kolev also stress the similarities in the research agendas concerning monetary policy in Freiburg and Chicago in the 1930s, particularly in the work of Eucken’s pupils Friedrich Lutz and Henry Simons, teacher of Milton Friedman and progenitor of the Chicago School of Economics. Eucken furthermore played a central role in the foundation of the MPS, as evidenced in the fact that Hayek delegated the right to propose German members for the MPS to Eucken.

Although this academic exchange was interrupted in 1933 with the Nazi takeover, which forced Röpke and Rüstow to emigrate to Turkey, both the university of Freiburg and the circle around Eucken in particular remained core centers of economic research in Germany.

The strong academic influence was manifested in the successful academic reproduction of the Freiburg School and especially of Eucken's students. Figure 11.1 shows German professors of economics whose doctoral theses and/or habilitation theses were supervised by Eucken. Although Eucken died rather young at the age of fifty-nine, during a research visit at the LSE (to which he had been invited by Hayek), he was one of the most successful “producers of pupils” in the history of German economics. After the successful reproduction of the first generation of the Freiburg School (Eucken supervised at least eleven pupils who were later to become professors of economics at German universities), Eucken's pupils (in particular, Bernhard Pfister, Karl Paul Hensel, and Fritz Walter Meyer, all of whom later became members of the MPS) proved to be very successful academic supervisors, too.

Beside the academic influence on the course of German economic history in and immediately after World War II, ordoliberal economists were continuously engaged in giving policy advice to the Nazi regime but were also, especially in the 1940s, in contact with the “conservative opposition” to that regime. During the 1940s the “Arbeitsgemeinschaft Erwin von Beckerath” served as a meeting point for ordoliberals, their main objective being to discuss and develop the economic order for postwar Germany.

Four of Eucken's advisees (Pfister, Maier, Hensel, and Lutz) were early members of the MPS already in the 1940s, and seven of the ten advisees indicated in Figure 11.1 later became members of the MPS. Moreover, up to the third and fourth generation after Eucken one can find core proponents of the German neoliberal network, including Hans Willgerodt, Manfred J. M. Neumann, Joachim Starbatty, and Peter Oberender.

Rather than subsuming the different groups of German neoliberals under one Freiburg School, we can follow Ptak who speaks of a confluence of three different strands of thought with a shared political will: first, the Freiburg School with Eucken, Böhm, and Miksch; second, the “sociological wing” of ordoliberalism with Rüstow and Röpke; and third, a group of practitioners consisting of Ludwig Erhard and the longstanding editor of the newspaper Frankfurter Allgemeine Zeitung, Erich Welter. Alfred Müller-Armack could be ascribed to the second and third strands of ordoliberalism.

A second episode in German economic history indicating the continuous political influence of economists organized around the infrastructure of German neoliberalism was the period of the “monetarist turn” in the early 1970s after a short period of “German Keynesianism” in the late 1960s. Janssen analyzed the “counter-revolution in German monetary theory”—i.e. the theoretical debate among German economists about Milton Friedman’s monetarist theory—and found that fifteen, mainly young, German economists introduced monetarism into German economics. He concluded that “the revolt of the thirty-somethings,” especially from 1970 to 1976, initiated the monetarist anti-Keynesian revolution in German economics. This initiative resulted in the monetarist turn of the German Bundesbank, which was the first central bank worldwide to introduce monetarist money supply targeting as suggested by Friedman.

The empirical result partly contradicts Feld et al., who claim that there is no common ground between monetarism and ordoliberalism. At least in the common infrastructure of German neoliberalism, there are connections on both personal and institutional levels.

The influence of German neoliberalism in the Bundesbank and later also in the ECB has manifested itself at both a theoretical and a personal level over several decades. Alesina and Grilli, for instance, stress that “the institutional design of the ECB is more similar to that of the Bundesbank than to any other central bank of the Eurozone.” Furthermore, central actors in the Bundesbank, e.g. Otmar Issing, Hans Tietmeyer, Axel Weber, and Jens Weidmann, are linked to the network of German neoliberalism through both their academic background and their membership in neoliberal think tanks.

In 1981, economics minister Otto Graf Lambsdorff (Free Democratic Party, FDP) published a seminal paper entitled “Manifesto of the Market Economy: Concept for a Policy to Overcome Weak Growth Performance and Reduce Unemployment”—the so-called Lambsdorff Paper—where he stressed that the government interfered too much in the free market and suggested radical labor market reforms, strict budget consolidation, and deregulation policies. … Together with Tietmeyer he authored the memorandum for Otto Graf Lambsdorff. The Lambsdorff Paper marked the end of the social-liberal coalition in Germany and especially of the (Keynesian) economic concept of macroeconomic management (Globalsteuerung). It can therefore be interpreted as inaugurating a politico-economic paradigm shift.

The Kronberger Kreis was organized on the model of a modern American think tank with the objective of influencing public opinion and politico-economic discourse through “organized events, publications, individual policy advice, concrete actions as well as formulated legislative texts.” … After the publication of the Lambsdorff Paper and the end of the social-liberal coalition—later labeled the “ordopolitical awakening of Germany” by executive board member of the Stiftung Marktwirtschaft, Michael Eilfort—the Stiftung Marktwirtschaft and the Kronberger Kreis successfully influenced the public debate with position papers and short statements.

The immediate influence of the Kronberger Kreis, which also indicates the close ideological connection between the intention of the Lambsdorff Paper and the think tank, is reflected in a quote from Otto Lambsdorff’s speech on the occasion of the 25th anniversary of its foundation: “I think I simply copied from the Kronberger Kreis; this was the easiest way because it was always right.”

First, twenty-two economists with a high or medium media coefficient score in their think-tank networks. Twelve out of those twenty-two (55 percent) are linked via the network of German neoliberalism, with the MPS (five connections) and the Kronberger Kreis and the Hayek-Stiftung/Gesellschaft (the Hayek Foundation or Society) (each with three connections) holding central positions. In contrast, one economist with a medium media coefficient score is connected to the union-linked Böckler Foundation, which in contrast to the neoliberal thought collective could be termed a Keynesian-Alternative thought collective.

On the one hand in the bottom and center there is a group of fifteen out of twenty-eight economists (54 percent), connected in a dense network of German neoliberal think tanks and institutions and thus part of a German neoliberal thought collective. On the other hand, as mentioned earlier, Peter Bofinger, who is tellingly often termed by the media the “last Keynesian,” is connected to the union-linked Böckler Foundation as part of a Keynesian-Alternative thought collective.

The analysis of the political and public influence of German economists with professorships in economics from 1954 to 1995 reflects a very uneven power structure in favor of neoliberals. Both the detailed analysis of economists with a high media presence or central policy advice positions, and the overall analysis of influential economists in all five coefficients of the PFP, highlight that the majority of economists with an influence on politics and the public can be assigned to the German neoliberal thought collective. While there also exists a network of economists organized in a Keynesian-Alternative thought collective, indicating a potential countervailing power in politico-economic discourses, the network analyses show that this group is in a marginalized minority position.

Building on this twofold theoretical and methodological basis, the chapter showed that economists organized in a German neoliberal thought collective had a formative impact on the course of German economic policies. Beginning with the foundation of the Federal Republic in the late 1940s, and later during the “monetarist turn” of the Bundesbank in the 1970s and the “neoliberal turn” in economic politics in the early 1980s, economists connected to the infrastructures of German neoliberalism had key positions which allowed them to influence economic policies.

Beside these concrete examples of the impact of the infrastructures of German neoliberalism on the history of economic politics in Germany, the chapter provided personal and institutional network analyses of a sample of 800 post-World War II German economics professors. The main conclusion drawn from these analyses is that, among the group of economists with a high media presence or important positions in policy advice, or even in economic organizations such as the Bundesbank or governmental authorities, a majority can be assigned to the German neoliberal thought collective. In contrast, only a small minority of “influential” economists is connected to the Keynesian-Alternative thought collective. Therefore one can conclude that a densely connected infrastructure of German neoliberalism, organized around neoliberal economists, think tanks, policy advice institutions, and economic research institutes, has over many decades exercised a formative influence on German economic policies.

Popper writes in his autobiography that "the breakdown of the Austrian Empire and the aftermath of the First World War, the famine, the hunger riots in Vienna, and the runaway inflation […] destroyed the world in which I had grown up."

Hayek was also a founder of the "Geist circle" which comprised Herbert Fürth, Friedrich Engel-Janosi, Gottfried Haberler, Fritz Machlup, Oskar Morgenstern, Alfred Schutz, Felix Kaufmann, and Karl Menger. Alfred Schutz elaborated his Phenomenology of the Social World (1932) in discussion with Austrian social theory, as he sought to reconcile Husserlian philosophy with the subjectivist standpoint of the Austrians.

If a wide spectrum of politicians agreed on planning however, no one could reach an understanding as to what it meant and covered: it ranged "from capitalist-sponsored efforts to 'rationalize' industries to market socialism to Soviet-style Gosplanning, with Keynes-inspired fiscal 'planning' often thrown in for good measure."

"There is now an imperative need for a sound, positive program of economic legislation," announced Chicago economist Henry Simons in the opening pages of his Positive Program for Laissez-faire: "in earlier periods, [our economic organization] could be expected to become increasingly strong if only protected from undue political interference. Now, however, it has reached a condition where it can be saved only through adoption of the wisest measures by the state."

Lippmann's criticism of a socialist economy, however, did not originate with the preparation of The Good Society. Already in 1933, he was familiar with the socialist calculation debate and pointed at the same epistemological argument which Hayek and Polanyi had exposed. Quoting the American Austrian economist Benjamin Anderson, Lippmann stated clearly in his column "Today and Tomorrow" from February 27, 1934 that the state was in no position to intervene in a detailed manner in the economy because "to regulate the business of a country as a whole and to guide and control production there is required a central brain of such vast power that no human being can be expected to supply it."

Michel Foucault clearly identified this core element in the neoliberal theory but attributed it mainly to the social theory of Gary Becker. The postulate of a sociological anti-reductionism within neoliberalism was instrumental from the beginning.

Polanyi wrote personally to Mannheim: "As regards the social analysis of the development of ideas, suffice it to say that I reject all social analysis of history which makes social conditions anything more than opportunities for a development of thought. You seem inclined to consider moral judgments on history as ludicrous, believing apparently that thought is not merely conditioned, but determined by a social or technical situation. I cannot tell you how strongly I reject such a view."

25 Such diffusion was a disaster, since science was properly an elite activity: “there are at most fourteen really first class men in any field, and more commonly there are about six.” See Stigler, The Intellectual, 37. This followed straightforwardly from his elitist views about human abilities: “there are natural differences in the quality of both men and acres, unlikely to be eliminated under any social system.” See Stigler, Essays, 280. Egalitarianism was a sin against nature, and a sin against science.

38 In recent years the Kalven Report has been cited in support of divestment from companies conducting business with Sudan, in a proposal to change university policy towards research on human subjects (Shweder, “Protecting Human Subjects”), and, interestingly, in opposition to the establishment of the Milton Friedman Institute.

39 Kalven Committee, “Report.” Stigler’s full statement can be found in a manuscript entitled “The University in Political and Social Movements,” GSRL Box 22. In 1970, when the Kalven Committee was reconvened, Stigler took the opportunity to amplify on his dissent: “Disengagement and specialization are a sane man’s—and a sane university’s—way of living in an infinitely complex world.”

55 The problem was not confined to economics: “What would be the use of intellectuals—meaning people who strongly prefer talking and writing to physical exertion—in a world where men knew their interests and efficiently pursued them?” See Stigler, The Intellectual, 313.

Richard Posner refers to the “insurance function of marriage,” pointing to the fact that marriage is expected to serve as a form of risk protection in those social contexts “where kinship has receded but market and social insurance is not yet common” (or, we might add, has significantly diminished). The “insurance function” of marriage, he writes, “arises from the fact that the correlation of spouses’ health and other welfare factors is less than one, so given a mutual obligation of support and assistance, marriage serves as a form of health, hunger, and life insurance.”

Epstein’s wording closely follows that of a famous family responsibility judgment made by the Illinois Supreme Court in 1896, People v. James W. Hill, 163 Ill. 186 (1896). Here it was stated that the object of both the original Elizabethan poor laws and those enacted by the state of Illinois was “to protect the public from loss occasioned by the neglect of a moral or natural duty imposed on individuals, and to do this by transforming the imperfect moral duty into a statutory and legal liability.”

Only B. R. Shenoy from India told his audience that corporate tax evasion was a real problem and not just a fantasy of socialist propaganda. His chapter arguably comes closest to Schumpeter’s interest in business history. Shenoy offered insight into the historical impact of the caste system and the institutional restrictions on entrepreneurship for members of castes that did not belong to the designated commercial class (Vaishya).

The history of the institutionalization of policy instruments in support of entrepreneurship—such as the Economic Freedom Index, developed by the Canadian Fraser Institute with funding from the Liberty Fund (Indianapolis) during the second half of the 1980s and the early 1990s—remains to be written.

I will use the definition of the neoliberal thought collective offered by Mirowski "to refer to this multilevel, multiphase, multisector approach to the building of political capacity to incubate, critique, and promulgate ideas." Philip Mirowski, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown (London: Verso, 2013), 44.

The Keynesian economist Erich Schneider even labeled the influence of German neoliberals like Wilhelm Röpke during the 1950s and early 1960s a “dictatorship of the liberals.”

The era of “German Keynesianism” was short; the “brief Keynesian experiment” ended in 1972 with the resignation of Schiller as minister of economics and finance.