Both Walpen's and Plickert's MPS histories are truly comprehensive monographs, complementary indeed and rich in archival sources, yet still not translated from the German, unfortunately. Access to truly wide-ranging histories of neoliberalism and neoliberals therefore remains an endemic language problem in the anglophile university universe.

Historians of ideas still prefer individual authors and books over social and conceptual history; sociologists seem to consider other social formations more important than institutionalized neoliberal networks when it comes to their relevance to political change; historians of economics can't let go of their obsessions with Hayek and Friedman; while social geographers foster a keen curiosity for the local Monts, which can come at the expense of interest in the larger community of Pèlerins.

Unlike Angus Burgin's efforts to Americanize and individualize transnational Mont Pèlerin history, Plickert keeps the "neo" of neoliberalism firmly in focus: the organized effort to think at some distance from both traditional laissez-faire and collectivism or socialism. … Plickert (2008, 462) alerts his readers to the strategic dimensions of the neoliberal intellectual program from the Colloque Walter Lippmann onward, to the different wings struggling within the project, and, significantly, to the eventual founding of the competing Property and Freedom Society in 2006, modeled after the Mont Pèlerin Society.

The resulting focused notion of conservative reform is the ultimate strength, not the weakness, of neoliberalism in the face of competition from social liberals who in the meantime seem to have lost faith, commitment, energy, and stamina.

It was no longer the tired binary of state vs. market for them, but rather, the ways in which they were thought to be necessarily intertwined. … What may look like a "compromise" with socialism to the atavistic liberal right wing really is a fundamental insight that neoliberals share with social liberals: There is no such thing as a stable free market or pristine capitalism. … But whereas social liberals consider social and economic inequality the devil of capitalism, neoliberals believe in the need to achieve greater stability under conditions of capitalism and inequality.

Transnational historical social network analysis of individuals, organizations, and ideas can serve as a prophylactic against thinking of ideas in splendid isolation, divorcing them from linkages to politics and business (as Plickert 2008 does unconvincingly, and Burgin 2012 does intermittently).

The Road from Mont Pèlerin may have inadvertently contributed to some of the confusion surrounding the core subject by emphasizing areas of ambiguity, neoliberal pluralism, and historical diversity of actually existing neoliberalism. Yet our effort to get away from cookie-cutter models of neoliberalism was decidedly not an invitation to think of neoliberalism as utterly amorphous.

Some warn against our use of Ludwig Fleck's and Karl Mannheim's notion of a thought collective to deal with neoliberals as a unit, although this was mostly a device to circumvent the widespread tendency to lose sight of the wood for the trees. Although we do not usually gravitate to the center, we consider it truly important to walk the fine line between exceedingly diffuse and monolithic, oversimplified identities of neoliberalism.

Ambiguities of neoclassical economics and general equilibrium models were precisely one of the reasons neoliberal economists expressed reservations about the neoclassical and positivist mainstream in the mid-20th century. Friedman was a neoliberal who rejected Walrasian general equilibrium; Hayek gingerly distanced himself from neoclassical price theory, with the consequence that the very meaning of markets was eventually transformed to wrong-foot the market socialists.

It is therefore salutary to recall that Walras was considered almost as dangerous as Marx by some of the neoliberals involved in the socialist calculation debate, which led Oskar Lange and others to extol the virtues of market socialism.

The hero graphical approach does not explain how and why so many Mont Pélerin intellectuals were so pervasively influenced by each other, and consequently by each of the different and partly contradictory streams of economic, political, and philosophical thought represented within the MPS-spawned neoliberal communities. We have sought to show in The Road from Mont Pèlerin how even certain disregarded elements of neoliberal thought continued to resonate, providing a source of inspiration for other scholars in other times.

Friedman was the fox, not the hedgehog, making strategic arguments in the short term with little concern for long-term vision or consistency. Each of his economics papers held up just long enough to provoke controversy, at which point it would be abandoned for another toy model with some alternative “assumptions” (which were advertised as not mattering, in any event). So-called monetarism barely lasted more than two decades as an intellectual movement. Friedman’s real significance lay elsewhere. Burgin misses the ways in which Friedman, just like Hayek, regularly put himself at the service of the larger group and the common neoliberal cause, mediating between competing camps: such as, for example, the great Mont Pèlerin Society debate on gold standard versus flexible exchange rates. Not the individual intellectual giant, the paladin of collective individualism, but rather the organizational secretary and the political fixer at the service of the networked collective; that was Friedman’s impressive stewardship of the Mont Pèlerin leaders, who then played comparable roles over time for components of the neoliberal thought collective, and for the Mont Pélerin Society in particular.

How and why did a German Hayekian (Herbert Giersch) flourish during the alleged Monetarist takeover of MPS, advancing neoliberalism in the global trade policy and development arenas together with the Indian-born Depaak Lal during the 1980s? Lal conceptualized culture as central to his efforts to make a case for multiple roads to capitalism and neoliberalism, certainly not a key concern for either Friedman or Hayek.

Another related effort to shift attention to problems of "the state" during the heyday of social liberalism was the "law and economics" movement in the United States, prominently promoted by right-wing foundations in support of MPS member Henry Manne. Law and economics was originally developed to turn the perceived hostility of U.S. law toward corporations into a more pragmatic conversation to educate legal scholars and judges (Miller 2006).

Alas, the devilish difficulty of diving in and following complex discussions among neoliberals—even if arbitrarily focusing on the Mont Pèlerin universe of roughly 1,200 card-carrying members—so far has proven quite a challenge. We set out to share the work, trying to divide it into manageable proportions, and think of the endeavor as ongoing teamwork by necessity. Scholars from the American academic universe in particular, for one reason or another, cannot take this project seriously. They seem to suggest something along the lines, “what I cannot do myself cannot be done,” or, “following a large crowd over many years of changing organization and subject matters is too complex, uneven and inconsistent, and therefore cannot be done properly.” The plotline of multivalent thought historically developed between a large number of interlocutors seems as outlandish to them as Hegel’s Geist.

A few such Anglo-American reactions reveal the fears involved in nailing neoliberal pudding to the wall: … Part of the difficulty comes from [an] attempt to both distinguish and write about neoliberal thought and neoliberal politics in one account. And part of it comes from the very nomenclature of Neoliberalism itself, an overtheorized term that lacks a historically specific constituency and has been applied haphazardly to nearly every feature of the globalized modern world. (Burns 2014, 260) … [Angus Burgin's] The Great Persuasion provides the most lucid account available of so-called "neoliberal" ideas that are associated with the Mont Pèlerin Society. . . . Nonetheless, "neoliberalism" has always been a slippery concept. As the term came in and out of use over the course of an oft-interrupted history, its meaning has varied, sometimes flipped on its head, and traded places with any number of alternative labels. (Brick 2014, 875) In .

To understand how a body of thought became an era of capitalism requires more than just intellectual history. (Heideman 2014) Hayek's ambition-to rebuild a modernized Neoliberalism on ethical foundations other than simple individualism-would go nowhere in the MPS .

Hayek's ambition-to rebuild a modernized Neoliberalism on ethical foundations other than simple individualism-would go nowhere in the MPS . . . Outside the economics profession, it was invisible. The MPS was no more influential inside the economics profession . . . Burgin thinks that the MPS had served the purpose of providing a sort of institutional home for the cultivation of neoliberal ideology. I am skeptical . . . (Solow 2012)6 The complaints of historians and anthropologists that neoliberalism somehow doesn't really exist seem to us to display a curious naïveté about the interaction of ideas and political movements in general.

We can sympathize with an impatience for those who use the term “neoliberalism” as a blanket swearword for everything they despise, or a brainless synonym for modern capitalism. The problem of conflating globalized capitalism and neoliberalism after the era of social liberalism amounts to the overspecification problem, and refrains from considering (neoliberal) hegemonic constellations (Plehwe, Walpen, and Neunhöffer 2006). Of course there is no such thing as “pure markets” and therefore “always embedded neoliberalism” (Cahill 2014), but this could be considered a problem with Karl Polanyi’s understanding of markets and classical liberal market ideology, not ours—and as a matter of fact, not of the Mont Pèlerin Society members, either.

Neoliberalism was incubated in recognition of the problems of liberal naïveté. These ways of thinking more and less seriously about capitalism, society, and statehood, moreover, do not begin to cover the dimension of knowledge manipulation advanced by neoliberal agents and agencies, which has frequently evoked the images of the unregulated market to buttress the claim for the public policies “privatization,” “deregulation,” and “liberalization,” of course. Mirowski has addressed this issue as “double truth,” Plehwe calls it “hiding the state.” … Vice versa, those who refuse to observe, dissect, and discuss these seemingly fractious elements of neoliberal thought are easy prey of neoliberal bamboozlement. Our advice: Read some of the papers and proceedings of the global or regional MPS conferences and ask yourself: Did propaganda concerning rolling back the state ever suggest dismantling the army, the courts, and the police? Did it ever suggest that expanding the global sphere of capital accumulation requires no “rule of law?”

If intellectuals and ideas are to be taken seriously, this does not imply adherence to single lines of causality, or disregard of historical structures and institutions. A conceptual history (as promoted by Reinhart Koselleck) traces and reconstructs epistemological developments as social history, the result of larger historical developments, and arguably even more important, social struggles that require and give rise to new meanings. The study of intellectuals and ideas, and the study of the ways they are organized, are a necessary part of the wider study of social transformation; no more, no less.

It is unclear to us how exactly we can best improve the interplay of intellectual, social, and institutional studies of great transformations. But we do think that looking for the links between experts, consultants, and other agents of implementation (think tank professionals; public relations professionals) and lobby or advocacy in its various forms (such as astroturfing, or advocacy coordination entities such as ALEC and Super PACs) helps to bridge the rivers if not oceans that seem to separate important areas of research: intellectual history, interest groups, business and economics, education, and public policy making.

Following The Road from Mont Pèlerin, the study of neoliberal agents and agencies has made some progress. We know more about the larger context of the League of Nations effort to develop a global social science conversation, of which the seminal Colloque Walter Lippmann was a part (Schulz-Forberg 2014), though we still need to gain a better understanding of this institutional dimension of the earliest history of neoliberalism.

Max Bank’s (2013) comparative study of Mont Pèlerin influence in post-WWII Germany tackles the institutionalization of the Bundesbank, the German anti-trust law, and the revaluation of the currency (challenging the Bretton Woods system). Bank details the mixed record of Mont Pèlerin circles in post-war Germany, which combines failure (with regard to anti-trust objectives in particular) with great success (with regard to revaluation).

Nor do we know enough yet about Mont Pèlerin and free trade, the considerable expertise of MPS members in agricultural economics, or the international replication of the think tank model (but see Fischer and Plehwe 2013 on Latin America, and Plehwe and Schlögl 2014 on European think tank networks).

With regard to the global financial and economic crisis, Mirowski (2013) has clarified the agnotological character of much of what has been going on in macroeconomics after the crisis, a story in which many Mont Pèlerin economists play a considerable role. Plehwe (2010) has examined the Mont Pèlerin debates and efforts to cope with the crisis, which essentially amounts to defending the status quo ante crisis.

Recent scholarship has clarified the character of business relations of Mont Pèlerin intellectuals in the UK (Rollings, forthcoming), which is highly welcome material to further examine the relations between Mont Pèlerin, business interests, and struggles within the bourgeoisie, for example. Neither “independence” nor simple “instrumentality” will help to better explain the complicated relations between neoliberals and corporate interests. The strategic payoffs as well as the limits of the relations between neoliberals and capitalists should be more carefully explored.

Neoliberalism is anything but a succinct, clearly defined political philosophy. Both friends and foes have done their share to simplify, if not popularize, neoliberal worldviews. Paradoxically, Margaret Thatcher's “TINA” (there is no alternative) corresponds with the left-wing critique, which posits that neoliberalism is best understood as an economic pensée unique (a concept popularized by Pierre Bourdieu). Growing self-confidence on the right coincided with an increasingly frustrated (old) left during the upheavals of the 1980s and 1990s, with both sides eventually converging on a perspective of a neoliberal one-dimensional man. … This ignores the fact that interdisciplinary Austrian and ordoliberal (German/Swiss) reservoirs of neoliberal thought have been clearly at odds with neoclassical orthodoxy, as are more recent variations of (rational-choice–based) neo-institutionalism. … But contrary to many who readily identify neoliberalism with Austrian economics, Foucault (2004, 112f.) suggested that ordoliberalism has a legitimate claim to the neoliberal title because of its strong emphasis on the social character of economic relations.

Considering the expansion of neoliberalism over the last few decades, Perry Anderson (2000) speaks of a universal ideology. The extent to which neoliberal ideas have been widely accepted, even in nominally hostile environments of Social Democratic parties or formerly communist regimes such as China, requires closer scrutiny if the authority of neoliberal knowledge is not simply taken at face value.

In this volume, we revisit the historical origins of neoliberal knowledge in four countries—France, Germany, the UK, and the United States; we sample some of the key debates and conflicts among neoliberal scholars and their political and corporate allies during the 1950s and 1960s regarding trade unions, development economics, antitrust policies, and the influence of philanthropy; and then we explore the ways in which disagreement has been managed to bolster neoliberal claims to authoritative knowledge in structuring public and private affairs at national and international levels in Chile, Peru, and the United Nations.

Because the neoliberals were never parochial, it would seem prudent for us to imitate their cosmopolitan stance. Diversity of nationalities and disciplines is necessary because neoliberalism remains a major ideology that is poorly understood but, curiously, draws some of its prodigious strength from that obscurity.

Among our members, there are some who are able to imagine a viable society without a state. . . . For most of our members, however, social order without a state is not readily imagined, at least in any normatively preferred sense. . . . Of necessity, we must look at our relations with the state from several windows, to use the familiar Nietzschean metaphor. . . . Man is, and must remain, a slave to the state. But it is critically and vitally important to recognize that ten per cent slavery is different from fifty per cent slavery.

The Mont Pèlerin Society and related networks of neoliberal partisan think tanks can serve as a directory of organized neoliberalism because it is part of a rather novel structure of intellectual discourse. It has been designed to advance and integrate various types of specialized knowledge within and across the confines of philosophy, academic research in economics, history, sociology, and applied policy knowledge in its various forms. … The neoliberal thought collective was structured along different lines from those pursued by the other “epistemic communities” that sought to change people’s minds in the second half of the twentieth century. The international academy Hayek sought was actually designed to create a space where like-minded people who shared philosophical ideas and political ideals could mingle and engage in a process of further education and collective learning dedicated to advancing a common neoliberal cause. The effort of the incipient neoliberal thought collective led to the creation of a comprehensive transnational discourse community.

The MPS community of neoliberal intellectuals was not restricted by a standard (pluralist, apolitical) understanding of a rigid separation of academic disciplines, or by the need to develop knowledge in a few restricted single-issue areas. Instead, the collective effort can be described as transdisciplinary (developing norms and principled beliefs guiding students in different disciplines), interdisciplinary (though mainly involving social scientists), and transacademic (though the endeavors to connect to particular audiences and the public at large were in the main organized indirectly through think tanks and publishers). … Scholars from different disciplines shared their expertise and debated with a select group of journalists, corporate leaders, and politicians, as well as a new breed of knowledge professionals (operating out of the rapidly proliferating neoliberal partisan think tanks). Each of these groups contributed its special resources and competencies to the collective effort. The whole truly was more than the sum of its parts, constituting complex and efficient knowledge machinery.

Though not necessarily running smoothly, over time the neoliberal networks developed an increasingly fine-grained division of intellectual labor, which the strategists of the Institute of Economic Affairs have sometimes described in military terms. According to Frost (2002), partisan think tanks that organize academic production of publications tailored to specific audiences constitute the long-range artillery; both think tanks and journalists dedicated to marketing neoliberal pamphlets (book reviews, interviews, dinner speeches, etc.) are considered the short-range artillery; whereas neoliberal politicians and other activist types are engaged in hand-to-hand combat.

The perception of a need to maintain a radical stance with regard to fundamental change in the long term, rather than opportunistically subscribing to feasible change in the short term, led neoliberals to combine elite scholarship with popular writing and intermittent sophistication with populist simplification. … Upon closer inspection, one can easily detect the neoliberal technologies for the creation of international reputation, including academic honors provided by neoliberal universities such as Marroquin University in Guatemala (Ayau 1990), the Milton Friedman Prize of the Cato Institute, or the Antony Fisher Prize for think tanks. The international reputation of leading members of the neoliberal thought collective has worked wonders in local fund-raising efforts to establish or expand think tanks and other organizations (Goodman and Marotz-Baden 1990; Frost 2002).

Even though neoliberal intellectuals depended on corporate funding, only a few corporate leaders were admitted to the inner sanctum of the neoliberal thought collective. Intellectuals were deeply suspicious of the opportunistic pragmatism of postwar business leaders, many of whom had embraced corporatism and planning. Consequently, among the key tasks perceived by MPS leaders was a neoliberal reeducation of capitalists (cf.

John Williamson did not overlook the MPS. He has recently written some articles in which he acknowledges the role of the MPS in creating neoliberalism, but alas, not without adding tremendously to the existing confusion. Williamson (2003, 2004) has attempted to defend the Washington Consensus (WC) against popular and even professional vilification (Rodrik 1996; Stiglitz 1999). The WC combined a set of macroeconomic policies intended to restore economic stability and a set of liberalization policies aimed at structural reform. The WC’s rallying cries were “structural adjustment” and “getting the prices right.” Williamson’s ten policy instruments included reduction of federal deficits, privatization of state-run enterprises, deregulation of key industries, and trade and financial sector liberalization. Critics outside of the economics profession had taken to equating Williamson’s list with a roster of policies characteristic of neoliberalism.

Williamson rejected this characterization of the WC and has written in rebuttal: “I use the word ‘neoliberalism’ in its original sense, to refer to the doctrines espoused by the Mont Pèlerin Society. If there is another definition, I would love to hear what it is so that I can decide whether neoliberalism is more than an intellectual swear word” (Williamson 2004, 2; emphasis added). Instead of subjecting the aforementioned “MPS doctrines” to closer scrutiny, Williamson maintained that he himself was not an advocate of the “policy innovations” of the Reagan and Thatcher administrations, except for privatization.

We may therefore deduce that Williamson believes that “monetarism, supply-side economics, and minimal government” provide an exhaustive census of MPS doctrines. These doctrines do indeed owe their contemporary existence to key contributions from influential MPS members such as Milton Friedman, Karl Brunner, and Sir Alan Walters, as well as Martin Feldstein, James Buchanan, and Gary Becker, to name just a few of the better known members. But within MPS, neoliberalism was elaborated and promoted by a total thought collective of more than one thousand scholars, journalists, (think tank) professionals, and corporate and political leaders around the globe for more than fifty years; their work can by no means be reduced to these three doctrines.

Leaving aside Williamson's hasty judgment on supply-side economics as a superseded fad, privatization, deregulation, and financial and trade liberalization must assuredly be counted as key "MPS doctrines." For example, consider the theoretical contributions from MPS members such as George Stigler and Richard Posner with regard to regulatory reform ("capture theory"), property rights theorists Armen Alchian and Harold Demsetz with regard to privatization and efficient property rights, and trade theorists Gottfried Haberler and Herbert Giersch with regard to globalization, among many others. Reform is equated not with gross downsizing of the government as much as it is with removing government from those areas where a different sort of discipline is prescribed.

The putatively nonpartisan WC, contrary to Williamson's own protestations, displays many traces of the MPS neoliberalism in its very genes and has been forged with the help (and endorsement) of more than one influential MPS member, even according to Williamson's own account. Clarifying MPS neoliberalism will in any case shed light on some of the largely forgotten origins of many occluded aspects of contemporary mainstream thinking.

Williamson appears to be unaware that Allan Meltzer has been a prominent member of the Mont Pèlerin Society (compare Weller and Singleton 2006). The extent of Williamson's own deference to Meltzer's positions should otherwise have signaled a convergence of doctrines between the WC and the MPS. Elsewhere, Williamson (2003, 11) informed his readers that he owes much of his own economic thinking to his teacher Fritz Machlup, and in that regard he perhaps unwittingly names yet another prominent MPS member who seems to have had a formative influence on his own thinking.

United under the umbrella of the MPS since 1947, neoliberals mobilized for the first time a directed capacity for changing the world under peacetime conditions without the interruptions created by war and emigration. But it is important to recognize the earlier efforts made between World Wars I and II. During the 1930s, concerned liberals felt an increasingly urgent need to confront the perceived evils of planning and the failures generated by the laissez-faire attitudes of fellow liberals.

At that time, Mises and Hayek earned their money at a private business cycle research institute funded by the Rockefeller Foundation to supply economic data to Austrian firms. Later characteristic features of organized neoliberalism can be discerned in the formative life experiences of leading neoliberals during the Viennese “golden” 1920s.

Interwar Vienna presaged certain neoliberal ideas and proto-MPS structures. In particular, it fostered the creation of a certain kind of extra-academic cosmopolitan intellectual formation.

There Ludwig von Mises became a prominent opponent of socialist economics and planning as advocated by leading representatives of Austro-Marxism, such as Otto Bauer and Rudolf Hilferding, as well as a Logical Positivist brand of scientific Marxism represented by Otto Neurath. Mises, then secretary of the Vienna Chamber of Commerce and organizer of one of the most prominent Privatseminars, which included Friedrich Hayek and Fritz Machlup, initiated the “socialist calculation debate,” eventually positioning neoliberal economics as the most important intellectual foe of scientific and technocratic socialism.

Whereas the Mises Privatseminar provided fertile ground for the early attacks against the theoretical foundations of socialism, the critique of classical liberalism as the other face of neoliberalism was not yet apparent in the works of Ludwig von Mises and other Viennese colleagues; neoliberalism, therefore, truly was an offspring of the Great Depression.

Yet another important country that simultaneously gave birth to neoliberalism was Germany, where Walter Eucken, Alexander Rüstow, and Wilhelm Röpke discussed the tasks of a "new liberalism" on the eve of the Nazis' rise to power. Significantly for later developments, Rüstow explicitly called for a "liberal interventionism" (see Ptak, Chapter 3 in this volume).

The incipient emergence of neoliberalism was not altogether free from ambiguity, however, since the term also began to pop up on the left. Frank Knight (1934) in Chicago rejected the mixing of ideologies he perceived in the new social liberalism, though research is needed to better understand the crisscrossing relationships between the left-leaning social liberalism and the right-leaning neoliberalism. How can it be explained that at the London School of Economics and Political Science, founded by Fabian Socialists Beatrice and Sidney Webb, the economics department developed a decidedly neoliberal orientation under the guidance of Edwin Cannan (Apel 1961, 9)? Cannan gathered together a group of young disciples who devoted themselves to a determined rethinking of market solutions to the challenges of the day in opposition to answers given by Keynes(ians) at Cambridge and elsewhere. Foucault (2004, 130f.) focused on Karl Schiller to describe the process of Social Democratic approximation to a neoliberal understanding of economic policy making in Germany21 before entering the federal government at the end of the 1960s. Both during the 1930s and the first decades after World War II, a certain amount of confusion persisted with regard to proper understanding of the political character of neoliberalism.

Another interwar institution that provided an organizational haven for concerned and committed liberals was established in Geneva, Switzerland. In 1927 the Institut Universitaire des Hautes Études Internationales (IUHEI) was launched by William E. Rappard and Paul Mantoux and provided a refuge for Frank D. Graham, Theodore Gregory, Ludwig von Mises, Wilhelm Röpke, Jacob Viner, and a host of others. The most famous representative of the Italian coterie of neoliberals, Luigi Einaudi, fled in 1943 from the fascists to Switzerland, where he was supported at the IUHEI by Rappard (Walpen 2000).

The publication of Walter Lippmann's (An Inquiry into the Principles of) The Good Society in 1937 marked the beginning of a new dawn in the history of neoliberalism. The book was enthusiastically welcomed by the liberal intellectuals in Europe, perhaps even more so than in America (Steel 1980). Lippmann's core message was the superiority of the market economy over state intervention, a principle that was (to say the least) leaning against the wind in the depths of the Great Depression. The book was brimming with insights that would later constitute the conventional wisdom in neoliberal circles, notably: In a free society the state does not administer the affairs of men.

Lippmann anticipated not only some principles, but also elements, of Friedrich Hayek's long-term strategy: Only steadfast, patient, and rigorous scientific work, as well as a revision of liberal theory, was regarded as a promising strategy to defeat "totalitarianism." Significantly, Lippmann's work discussed totalitarianism primarily with regard to the absence of private property, rather than the more commonplace reference to a lack of democracy or countervailing political power.

As Richard Cockett (1995, 12) noted, however, "it was, of course, an inauspicious moment to start founding new international organizations of ambitious intentions." The outbreak of World War II abruptly halted this nascent attempt at organizing (neo)liberal forces. It scattered many of the participants, and of course, gave a tremendous boost to the socialists, thus recasting the enemy as a different species of totalitarian after the war.

Neoliberalism had a diverse number of places of origin (including, but not limited to, Chicago, Freiburg, Geneva, London, New York, and Paris). With regard to the important Austrian roots, and to a lesser extent German, Italian, and French, neoliberalism was a political philosophy developed by uprooted intellectuals in exile following the rise of Nazism, which may explain the intensity of the social bondage among people from different countries and cultures. Metaphors of "birth" are perhaps less apposite here than alternative metaphors of percolation and recombination.

An understanding of neoliberalism needs to take into account its dynamic character in confronting both socialist planning philosophies and classical laissez-faire liberalism, rather than searching for timeless (essentialist) content. It was primarily a quest for alternative intellectual resources to revive a moribund political project. It was flexible in its intellectual commitments, oriented primarily toward forging some new doctrines that might capture the imaginations of future generations. At various junctures, this might involve unexpected feints to the left as well as the right.

Neoliberals started to recognize the growing need "to organize individualism" in order to counter what was perceived as an unfortunate but irreversible politicization of economics and science (Zmirak 2001, 11). To achieve their goal of the "Good Society," neoliberal agents agreed on the need to develop long-term strategies projected over a horizon of several decades, possibly to involve several generations of neoliberal intellectuals.

The Colloque Walter Lippmann helped spread the realization that honoring discrete academic disciplinary boundaries would probably hinder the project. The figures who gathered in 1938 saw the point of ranging widely over the traditional preserves of philosophy, politics, theology, and even the natural sciences. Neoliberals started to recognize the growing need "to organize individualism" in order to counter what was perceived as an unfortunate but irreversible politicization of economics and science (Zmirak 2001, 11). To achieve their goal of the "Good Society," neoliberal agents agreed on the need to develop long-term strategies projected over a horizon of several decades, possibly to involve several generations of neoliberal intellectuals. No single genius or "saviour" would deliver the neoliberals into their Promised Land.

With the conclusion of the war, many forces conspired to bring the neoliberals together once more to try and organize the movement. Under the leadership of Albert Hunold and Friedrich August von Hayek, a number of loosely connected neoliberal intellectuals in Europe and the United States assembled in Mont Pèlerin, a village close to Lake Geneva. From Tuesday, April 1, to Thursday, April 10, 1947, the first gathering took place at the Hôtel du Parc. The internationalist outlook and organizational effort were made possible through some timely corporate/institutional support. The Foundation for Economic Education in Irvington-on-Hudson, New York, which employed Ludwig von Mises, and the William Volker Fund based in Kansas City, provided subsidies. The Volker Fund was led by future MPS member Harold Luhnow, and it provided travel funds for the U.S. participants in the meeting. The Schweizerische Kreditanstalt (today known as Credit Swiss) paid 93 percent of the total conference costs—18,062.08 Swiss francs (Steiner 2007; Walpen 2004b).

What was the rationale for founding the Mont Pèlerin Society? There were at least two salient considerations. First, the (neo)liberals felt isolated and nearly alone: "The present position is one where we nearly despair."

The participants, high in the Swiss Alps, were only too conscious that they were outnumbered and without apparent influence on policymakers in the Western world. All across Europe, planning and socialism seemed ascendant.

Second, Hayek and others believed that classical liberalism had failed because of crippling conceptual flaws and that the only way to diagnose and rectify them was to withdraw into an intensive discussion group of similarly minded intellectuals. … Effective endeavors to elaborate the general principles of a liberal order are practicable only among a group of people who are in agreement on fundamentals, and among whom basic conceptions are not questioned at every step. . . . What we need are people who have faced the arguments from the other side, who have struggled with them and fought themselves through to a position from which they can both critically meet the objections against it and justify their own views . . . this should be regarded as a private meeting and all that is said here in discussion as "off the record." . . . it must remain a closed society, not open to all and sundry. (1967, 149, 151, 153, 158) One can readily appreciate the trickiness of attempting to square the circle of remaining closed and relatively secretive while striving to be cosmopolitan and open to opposing currents, all the while scrutinizing a political doctrine (liberalism) that was at least nominally pitched in favor of diversity, broadmindedness, and open participation.

One index of the MPS's balancing act can be gleaned from comparing the nationalities of the participants in the prewar Colloque Walter Lippmann to those in the society's early postwar conferences. The search to identify scattered intellectuals who could be trusted to advance the neoliberal cause originally concentrated on Western Europe but expanded rapidly to the United States, and eventually beyond the rising superpower. While U.S. participants in the Colloque Walter Lippmann had been a small minority (3 of 84), almost half of the participants in the MPS founding conference in 1947 came from the United States, although three Austrians (Machlup, Haberler, and Mises) reinforced the American numbers (17 of 39).

Contrary to the conviction of many on the left that neoliberalism is an ideology "made in USA," fifteen of twenty-four MPS presidents have been European, and six have come from the United States (see Table I.1). Of the remaining three presidents, two were from Latin America and one from Japan. So far only Europeans have served as secretaries of the MPS, though all of the five treasurers were citizens or permanent residents (Fritz Machlup) of the United States. Twenty-seven general meetings between 1947 and 2004 took place in Europe compared to just four in the United States and one each in Canada, Chile, Hong Kong, and Japan (Walpen 2004a, 389).

Christian Gandil (1986) named several friends he had made among U.S. MPS members and suggested: “the basis for a friendship is to be in agreement concerning outlook of life.” The combination of sometimes even rather close personal ties among people of diverse professional backgrounds provided for a fertile mix of sympathy, respect, and competency prevailing among MPS members, notwithstanding occasional episodes suggesting the opposite.

The composition of MPS members mirrors the overall membership composition of the MPS (Plehwe and Walpen 2006), whereas the official positions are almost exclusively held by the most numerous contingent of MPS members: academics. Very infrequently, corporate leaders (like Manuel Ayau) or think tank officials (like Edwin Feulner) served as MPS presidents. … The “white emigrants” from Austria (Hayek, Mises, Machlup, Haberler, Popper) were key U.S or UK-based academic MPS members until the 1960s. Otherwise, two journalists (John Davenport and Henry Hazlitt) and one think tank official (Leonard Read of the Foundation for Economic Education [FEE]) formed the core of the U.S.-based neoliberal activists. Only during the 1960s did U.S. professors Milton Friedman, James Buchanan, and George Stigler ascend to leading positions, eventually being elected MPS presidents.

The founding conference reflected the mix of academic and professional backgrounds that would come to characterize the Mont Pèlerin Society. A majority of university professors mingled with journalists (like Fortune's John Davenport, Henry Hazlitt from Newsweek, and Cicely V. Wedgwood of Time and Tide), foundation/think tank executives (Floyd A. Harper and Vernon Watts of the Foundation for Economic Education, Herbert Corneulle from Volker), and business executives (Albert Hunold heading the Swiss watch manufacturing association) and publishing houses (George Révay from Reader's Digest). … By 1951 several leading political figures, including Ludwig Erhard and Luigi Einaudi, were accepted, contradicting Hayek's claims of a rather draconian renunciation of political activism.

1. Individual freedom can be preserved only in a society in which an effective competitive market is the main agency for the direction of economic activity. Only the decentralization of control through private property in the means of production can prevent those concentrations of power which threaten individual freedom.

The decline of competitive markets and the movement toward totalitarian control of society are not inevitable. They are the result mainly of mistaken beliefs about the appropriate means for securing a free and prosperous society and the policies based on these beliefs.

The preservation of an effective competitive order depends upon a proper legal and institutional framework. The existing framework must be considerably modified to make the operation of competition more efficient and beneficial. The precise character of the legal and institutional framework within which competition will work most effectively and which will supplement the working of competition is an urgent problem on which continued exchange of views is required.

As far as possible government activity should be limited by the rule of law. Government action can be made predictable only when it is bound by fixed rules. Tasks which require that authorities be given discretionary powers should therefore be reduced to the indispensable minimum. But it must be recognized that each extension of the power of the state gradually erodes the minimum basis for the maintenance of a free society. In general an automatic mechanism of adjustment, even where it functions imperfectly, is preferable to any which depends on "conscious" direction by government agencies.

Political pressures have brought new and serious threats to the freedom of thought and science. Complete intellectual freedom is so essential to the fulfillment of our aims that no consideration of social expediency must ever be allowed to impair it.

Significantly enough, even this relatively nonspecific and anodyne set of neoliberal ten commandments proved too contentious to gain the assent of the individualists gathered at Mont Pèlerin, and so the oxymoronic Committee of Individualists deputed a redraft to Lionel Robbins, who complied and produced the “Statement of Aims” (reproduced below). All those gathered on April 8, 1947, except one (the French economist and Nobel laureate Maurice Allais) fully accepted this rather less informative manifesto, which to this day remains the only “official” statement of the MPS. Thus, our readers should understand that they cannot look to any formal sanctioned publication of the MPS for a convenient definition of neoliberalism. Furthermore, this is precisely what we should expect even if the MPS had been convened in 1947 to construct a new version of liberalism, rather than simply codify what had been received hallowed wisdom.

The central values of civilization are in danger. . . . The group holds that these developments have been fostered by the growth of a view of history which denies all absolute moral standards and by the growth of theories which question the desirability of the rule of law. It holds further that they have been fostered by a decline of belief in private property and the competitive market; for without the diffused power and initiative associated with these institutions it is difficult to imagine a society in which freedom may be effectively preserved. Believing that what is essentially an ideological movement must be met by intellectual argument and the reassertion of valid ideas, the group, having made a preliminary exploration of the ground, is of the opinion that further study is desirable inter alia in regard to the following matters: 1.

Comparison of these two sets of aims reveals a rather striking diminution of more specific content in the MPS manifesto. After all, isn’t the appeal to the need for “further study” the last refuge of academic scoundrels? One can interpret this not only as evidence of a fair amount of dissension within the ranks of the MPS; but also as evidence that the transnational band of participants did not have a very clear idea of where the project was headed in 1947. The only immutable truths to which they were eager to pledge their troth were those of a more general philosophical and normative kind: the fundamental neoliberal values and principled beliefs we can discern in the short list of six major tasks that have guided the neoliberal thought collective. These tasks include economic freedom and individualism, the affirmation of moral standards, and possibly surprising for many critiques: social minimum standards (acknowledging the limits of private charity). Among the principled beliefs were those in positive state functions, a system of law and order, and international trade. Notably absent are the range of human and political rights traditionally embraced by liberals (including the right to form coalitions and freedom of the press).

By the time neoliberalism emerged—during the 1930s—nearly all the Austrian and several important German and French contributors had moved abroad (to Switzerland, the UK, and the United States, for example). … Switzerland also deserves recognition as a particular transnational neoliberal space because of the hospitality of Swiss neoliberal intellectuals and institutions to Austrian, German, and Italian refugee neoliberals. It was certainly not mere coincidence that the Mont Pèlerin Society was founded in this country: only Switzerland provided neoliberal intellectuals the intellectual and institutional space and financial backing needed to organize an international conference of and for neoliberals right after World War II. Until the end of the 1950s, it remained easier for neoliberals to congregate in Switzerland than anywhere else: four of the ten Mont Pèlerin Society meetings between 1947 and 1960 took place in Switzerland.

Whereas neoliberals in France were deeply divided over postwar issues of economic planning and social policy, German neoliberals were able to form a powerful alliance of intellectual, business, and political forces under the banner of ordoliberalism. Ordoliberals succeeded in developing an alternative third way to the Keynesian welfare and planning state right after World War II—the social market economy.

The independent ordoliberal line of neoliberal thought has now nearly disappeared, but many of the more recent neoliberal “discoveries” (i.e., bounded rationality, institutions matter, law and economics) in the Anglo-Saxon world display more than a superficial affinity to what German and Swiss ordoliberals established in the past.

German (and Swiss) ordoliberals in exile were deeply suspicious of certain features of capitalism and democracy, namely, urbanization, large enterprise production, trade unions, and modern mass parties, all of which threatened their ideas about a traditional social order ruled by narrow elites and their romantic idea of individualism and merit-based mobility.

The Austrian input strengthened the British tradition of principled market advocacy led by Robbins and Arnold Plant, which can be regarded as an early instance of the evolution of modern economics into a closed, self-referential system of thought.

Whereas political freedom traditionally was regarded as a prerequisite of economic freedom in the British liberal tradition, economic freedom was now advocated as quintessential to preserve a new kind of political freedom of (limited) individual choice.

Hayek's revisionist history of British liberalism has been accomplished, namely, by way of presenting the increasing weight of government in the British economy as a result of the intrusion of Germanic ideas (Hegel, Marx, List, etc.) rather than as a result of industrialization and imperialism.

Whereas postwar German neoliberalism emphasized a strong state, U.S. neoliberals worked hard to narrowly define the areas in which a strong neoliberal state could ascertain its pro-capitalist power and roll back the New Deal advance of social liberals and trade unionists. Chicago became the key staging ground for forging a lasting alliance between neoliberal intellectuals and the corporate opposition to the New Deal. Contrary to the widespread belief in a continuous history of the Chicago School, Rob Van Horn and Phil Mirowski in Chapter 4 document the central roles played by Henry Simons and Friedrich von Hayek in founding the Chicago bastion of neoliberalism. The combined effort of these two intellectuals succeeded in establishing the Free Market Project in Chicago at the behest of the Volker Fund. Volker's president, Harold Luhnow, hoped to obtain an American version of Hayek's Road to Serfdom and was willing to fund the academic positions of Aaron Director and Hayek, as well as subsidize travel money for American participation in Mont Pèlerin Society proceedings in Europe. But more importantly, a specific Chicago version of young and radical neoliberalism emerged during the 1950s, which differed markedly both from the liberalism of the older generation of Chicago-based scholars like Simons and Knight, and from the Austrian economics and philosophy Hayek promoted. The chapter demonstrates that the second Chicago School and the Mont Pèlerin Society were substantively parts of one project rather than different parallel projects.

While original Chicago School liberals like Simons insisted that the courts apply clear criteria—the rule of the law—rather than the vague rule of reason, the emerging neoliberal law and economics doctrine—developed by MPS member Henry G. Manne and financed by the Olin Foundation (compare Miller 2006)—demanded an entirely new approach. This new approach was at odds with the neoliberal emphasis on the rule of law: judges should instead be educated to apply a rule of (neoliberal) economic reason perspective.

Some of the early neoliberal traditions emphasizing competition have been turned upside down by a specific American current of neoliberal thought. In Chapter 6, Rob Van Horn contrasts German ordoliberal positions to U.S. positions to explain in great detail how the specific Chicago School variety of neoliberalism was developed as a clear departure from traditional liberal concerns about political and economic concentration of power. The Chicago Anti-Trust Project (1953–1957) led by Aaron Director effectively amounted to an apologetic “corporations can do no wrong” perspective, in stark contrast to the classical and the German variety of neoliberalism. … Ordoliberal studies stressing grave problems related to state ownership of railroads in Germany, in comparison with Chicago School research pointing to serious trouble with state regulation of private railroads, served to support one of the central and tenuous conclusions of Chicago School neoliberalism: unregulated private monopoly was a relatively benign phenomenon; the real danger instead emanated from the state and the courts’ lack of economic understanding.

In Chapter 7, Dieter Plehwe observes how the heritage of colonial economics on the one hand and the overriding security concerns of the early Cold War on the other hampered the development of a neoliberal perspective on development. Early on, MPS analysts nurtured doubts both about the opportunity of independence and free markets in the developing world, and not just a few MPS members made a case for continued colonialism both explicitly and implicitly. But modernization theory and (state-led) industrialization strategies were soundly rejected, and it is possible to observe rudimentary forms of the export-oriented development paradigm neoliberals successfully advocated during the late 1970s. … Only toward the end of the 1950s did Peter Bauer clarify a vision of a more complete neoliberal perspective on development: Bauer contradicted his fellow MPS members with regard to the existence of an entrepreneurial class in developing countries and planted seeds of doubt with regard to the effectiveness of providing state development aid in the fight against Soviet expansion. Based on such evidence, Chapter 7 concludes that the neoliberal revolution in development economics observed in the late 1970s and early 1980s had been conceived much earlier; perhaps as early as the late 1950s.

Although the links between General Pinochet and Milton Friedman are fairly well known, and the special relationship between Chicago and Santiago has been better researched than most other neoliberal forays, Karin Fischer in Chapter 9 fills important gaps in the literature by tracking and tracing local and foreign neoliberals in Chile before, during, and after the Pinochet dictatorship. Her examination of the gremialista pillar of the local neoliberal coalition and her account of the role of the economists Hayek and James Buchanan, in addition to the Chicago School neoliberals, demonstrates the extent to which neoliberal knowledge and capacity building extended well beyond the economic sphere. By carefully identifying transnational MPS circles, Fischer also reveals the flexible character of neoliberal cadres who were able to administer important policy shifts during the Pinochet era, and their survival after the end of Chile's military rule.

The earlier emphasis of development experts and political leaders in both developed and developing countries on economic independence and sovereignty has been replaced by a neoliberal understanding of good governance and corporate citizenship expressed by the amicable relations between corporate and political leaders in the UN Global Compact frame.

Many previous political demands in favor of redistribution, foreign aid, and planning enjoyed strong support in diverse UN bodies, and the growing self-confidence of developing countries found expression during the 1970s in the demand for a New International Economic Order (NIEO).

Jennifer Bair in Chapter 10 examines how MPS-related intellectuals and organizations had launched a coordinated attack against the NIEO in general and the effort to regulate multinational corporations in particular.

The Heritage Foundation led by MPS member Ed Feulner should be singled out here because of its capacity to assemble and effectively market the neoliberal expertise that was crucial to undermine the United Nations Center on Transnational Corporations (UNCTC). The UNCTC itself was eventually disbanded when it was unable to withstand the winds of change.

A new drive to identify liberalism in a positive way can finally be detected in the unlikely sphere of antipoverty politics. In Chapter 11, Tim Mitchell reexamines the expertise generated by Hernando de Soto's think tank in Peru in support of titling programs, an alternative promoted by neoliberal forces instead of traditional welfare and antipoverty programs.

The knowledge circuits unveiled in this chapter track the original academic production of property rights theory by MPS member Armen Alchian and his colleague Harold Demsetz to the policy program applied in Peru, as well as its international promotion by the World Bank and subsequent export to a number of countries including Egypt.

Upon closer inspection, much of the evidence in support of the neoliberal scheme leading to a virtuous cycle of ownership and entrepreneurship collapses. Academic research reveals the closed neoliberal circuits, including the branding of program and evaluation by neoliberal think tanks providing textbook material to teachers.

It is important to note that Feulner's strong rhetoric of limited government refers to the welfare state but not to the police or the military. The neoliberal combination of limited government and strong state in defense of capitalism remains typically obscured behind the rhetoric of limited government, which is not identical to a weak state.

As members of the Mt Pèlerin Society we are not interested in the problems of individual nations or even groups of nations. What concerns us are general issues such as personal liberty and private initiative" (Thurn, 1964 meeting records, MPS archive, Liberaal Archief, Ghent, Belgium [henceforth cited as LAMP]; emphasis added).

It is also held that members of Fleck’s thought collectives do not communicate well to members of other thought collectives; for example, physicists are suggested to be ill-prepared to talk to theologians, as Steven Lukes reminded me. The members of the neoliberal thought collective examined in this volume instead disagree on specific issues, and they try hard, and certainly not without success, to convince both intellectuals and the general public of the merits of neoliberal reasoning. Their capacity to jointly develop and widely distribute neoliberal knowledge is due to a set of shared values and principled beliefs, which allow community members to effectively communicate across disciplines and audiences in the pursuit of hegemonic strategies.

Bernhard Walpen decided against participating in this volume after an irreconcilable conflict arose. This is deeply regrettable inasmuch as he was slated to be a coauthor of this introduction, which relies in part on his keynote lecture, “The Plan to End Planning: A Short History of Neoliberalism,” delivered at the New York University / International Center for Advanced Studies conference held April 28–30, 2005 (Walpen 2005). Nobody has contributed more than Bernhard Walpen to critical analysis of the Mont Pèlerin Society (including the development of databases of members and think tanks).

21. Karl Schiller first coined the phrase “planning as much as necessary, competition as much as possible” to reconfigure the traditional Social Democratic emphasis on planning (see Foucault 2004, 130–132).

22. It is important to highlight the seeming contradiction of treating the individual personality as inviolate, and yet eminently subject to manipulation through all sorts of technologies of “governmentality” and vigilant governance.

23. Several European neoliberals shared Lippmann’s emphasis on the absence of economic rather than political freedom (e.g., Rappard and Rougier; compare Walpen 2004a, 56).

A total of 136 MPS members have been identified who work for think tanks and foundations related to the MPS (Plehwe and Walpen 2006, 37).

The emergence of neoliberalism as an intellectual network is partly due to a French initiative. Organized by the philosopher Louis Rougier in 1938, the Colloque Walter Lippmann—an international congress held in Paris, consisting of twenty-six businessmen, top civil servants, and economists from several countries—contributed to the rise of this intellectual agenda. It also led to the creation of a nonprofit organization, the Centre international d’études pour la rénovation du libéralisme (CIRL), which attracted members of the ruling elite seeking an answer to “the crisis of capitalism.” Established against advancing notions of the planned economy and collectivism, the CIRL disappeared when France entered World War II. Nevertheless, this institution provided the model for the Mont Pèlerin Society (MPS), which Friedrich Hayek and Wilhelm Röpke created in 1947.

Whereas in the 1930s this set of ideas could find an audience beyond traditional liberal circles (attracting, for instance, trade-union leaders), this became impossible in the context of the Cold War. Neoliberalism was defended in the 1930s by some of the most renowned economists and businessmen, but its advocates formed only a minority within the intellectual field of the 1960s: French neoliberalism had become radicalized in opposition to the expansion of the welfare state. However, the conceptions traditionally associated with French neoliberalism subsequently spread into other groups. By the time French liberalism enjoyed a revival in the 1970s and 1980s, neoliberalism had already inspired governmental practice but was condemned by new neoliberals for its supposed collusion with social democracy.

Neoliberalism appeared in France at the end of the 1930s. Its development was facilitated by (1) the contestation of the liberal creed in the field of public policy (a consequence of World War I and of the Great Depression); and (2) the economic and political defeat of the Front Populaire, a left-wing government coalition that had failed to radically transform France's economic structures. At the beginning of 1938, in the view of the elites both classical liberalism and socialist planning had been discredited. In this context, a discourse seeking to reconcile not only opponents to the 1936 experiment but disillusioned socialists as well could find support. Faced with growing state intervention and the development of economic ideas that sought to enforce this tendency, neoliberalism seemed to offer an alternative. It promised the building of a liberal state protecting free enterprise and free competition and the retreat of the state away from the economy.

Both Maurois and Baudouin had financed fascist movements such as the Parti Populaire Français (PPF) of Jacques Doriot. Lippmann, who had met Louis Rougier only once before—in Geneva with Ludwig von Mises, William Rappard, and Wilhelm Röpke—became suspicious.

All the participants in the Colloque Lippmann were hand-picked. The Marxist theorist Rudolf Hilferding and the former socialist minister Charles Spinasse, who wished to attend the discussion, were nimbly excluded because they “were [sic] politicians.” The international forum gathered some of the most influential French corporate managers (Auguste Detoeuf, Louis Marlio, Ernest Mercier), senior civil servants (Jacques Rueff, Roger Auboin), and intellectuals (Raymond Aron) as well as members of a rising new generation of liberal economists (Friedrich Hayek, Ludwig von Mises, Wilhelm Röpke, etc.). In retrospect, the participants in the Colloque Lippmann would appear to have constituted a prestigious conclave: its members would later become a Nobel Prize winner in economics (Friedrich Hayek), the general secretary of the Organization for European Economic Co-Operation (Robert Marjolin), the architects of the German social market economy (Wilhelm Röpke, Alexander Rüstow), the director of the Bank for International Settlements (Roger Auboin), the financial adviser of General Charles de Gaulle (Jacques Rueff), the power behind Ronald Reagan’s Star Wars project (Stephan Possony), and so on.

The congress attendees disagreed on many points: Is freedom an end in itself (a position defended by Etienne Mantoux and Louis Rougier) or merely a means (espoused by Louis Baudin, Robert Marjolin)? Is liberalism only the rigorous application of the laws of economics (Louis Marlio) or an ideology (Robert Marjolin)? Does liberalism have to take into account the provision of social security (Louis Rougier, Walter Lippmann) or not (Jacques Rueff)? Clear oppositions surfaced several times. With regard to the question of industrial concentration, it was criticized by the economists, whereas the industrialists defended the trusts. Confronting the problem of money, Jacques Rueff or Louis Baudin did not want to see it “directed,” whereas Walter Lippmann preached its management and condemned the legal statute of companies. Thus, the backers of the Colloque Lippmann were not of one mind along many dimensions.

Neoliberalism was not a unified phenomenon. Even the name of the doctrine was a problem: Louis Baudin preferred “individualism,” Louis Rougier “positive liberalism,” while Jacques Rueff favored “left-wing liberalism.” The term neoliberalism became prevalent only after the Colloque for strategic reasons: “the words ‘neo’ and ‘renovation,’ declared Louis Marlio, . . . “distinguish us from several authors of whom we did not accept all the practical theories and all objections [against] interventions which are accepted by most of us like perfectly normal things. For those who know it, . . . the word ‘neo’ is perhaps not essential, but for those who do not know it, it is totally useful.” To be “neoliberal” was supposed to imply the recognition that “laissez-faire” economics was not enough and that, in the name of liberalism, a modern economic policy was needed.

Consequently, several commentators could point to the existence of two groups within the Colloque. On one side were “those for which neoliberalism was fundamentally different, in its spirit and its program of traditional liberalism” (these included Louis Rougier, Auguste Detoeuf, Louis Marlio, Wilhelm Röpke, and Alexandre Rüstow), and on the other side were defenders of the “old liberalism” headed by Louis Baudin, Jacques Rueff, and the Austrian School (Friedrich Hayek, Ludwig von Mises). Some of the participants directly grappled with this division. Alexander Rüstow went straight to the point: “it is undeniable that here, in our circle, two different points of view are represented. Those who do not find anything essential to be criticized or to change with traditional liberalism. . . . We, the others, who are seeking the responsibility for the decline of liberalism in liberalism itself; and consequently, are seeking the solution in a fundamental renewal of liberalism.” Publicly, Rüstow conformed to the rules of academic propriety, but privately, he confessed to Wilhelm Röpke what he thought of Friedrich Hayek and Ludwig von Mises: their place was in the museum, in the formalin, Rüstow said. It was people of their ilk who were responsible for the great crisis of market legitimacy of the twentieth century. … Some of the conflicts that were to mark the history of neoliberalism in the later years began to become manifest: at the Colloque between “German ordoliberalism” and radical libertarianism; between the acceptance of interventionism and its rejection; between the partisans of a voluntarist liberal policy and those nostalgic for laissez-faire.

Nevertheless, this international meeting became a landmark in the history of liberalism. For the first time, neoliberalism was defined by a set of postulates that constituted an agenda: the use of the price mechanism as the best way to obtain the maximal satisfaction of human expectations; the responsibility of the state for instituting a juridical framework adjusted to the order defined by the market; the possibility for the state to follow goals other than short-term expedients and to further them by levying taxes; the acceptance of state intervention if it does not favor any particular group and seeks to act upon the causes of the economic difficulties. “To be [neo]liberal, said Louis Rougier, doesn’t mean to be a ‘Manchesterian’ who leaves the cars circulating in all directions, if such is their will, which can only result in traffic jams and incessant accidents; it doesn’t mean to be a ‘Planist’ who gives every car its exit time and its route; it means to impose a highway code while admitting that it is not necessary to be the same at the time of the accelerated transports as at the time of diligences.” This metaphor, which Hayek also used in his Road to Serfdom, has an enhanced significance: it supposes that in order to function properly, economic competition requires dedicated institutions. It therefore specifies the type of intervention that is compatible with a liberal economic policy: the state creates the framework within which competition is free. It begins to clarify what a neoliberal state must be: a regulator that punishes deviations from the “correct” legal framework.

In the context of an economic and political crisis, neoliberalism unexpectedly rallied together people who had previously seemed to be irreconcilable. Founded in 1939 after the Colloque Lippmann, the Centre international d’études pour la rénovation du libéralisme brought together classical liberals, neoliberals, corporatists, and disabused planning advocates.

Two aspects distinguished the CIRL from other economic circles that had sprung up in the interwar period. First, it recruited equally among academic economists (Louis Baudin, Gaëtan Pirou, Charles Rist, etc.) and important corporate managers (Auguste Detoeuf, Louis Marlio, Ernest Mercier, etc.). These two groups had been competing throughout the 1930s to establish what should be sanctioned as the legitimate approach to economic problems. To the extent that it gave prominence to legal issues, neoliberalism could convince both economists, who at that time were trained and taught in law faculties, and managers, who promoted industrial rationalization and the building of a legal order in which reasonable planning would be possible.

The second peculiarity of the CIRL was that leaders of the labor union Confédération Génerale du Travail (CGT) (René Belin, Robert Lacoste, Christian Pineau, Louis Vallon) also participated in the discussion of neoliberal ideas. Apparently, this rapprochement between neoliberals and trade unionists, which a member of the CGT found “odd,” took place only in France. Although their attendance did not mean that these trade unionists had necessarily adopted a liberal point of view or that they had formally joined the CIRL, they still took part in the CIRL’s workshops. These reformists doubted the future of economic planning and tried to counter the growing influence of the communists in their trade unions.

This success also had a political foundation: the Daladier government (1938–1940) adopted a liberal economic agenda in contrast with the policy of the Front Populaire. It reduced the public deficit, increased working time, and foiled the general strike organized by the trade unions in 1938.

The disintegration of the group was all the quicker because its existence depended on a few key individuals, particularly Louis Rougier. Initially hesitating between joining de Gaulle or Vichy, Rougier tried, unsuccessfully, to effect a secret agreement between Pétain and Churchill; subsequently, Rougier left France for the United States, where he soon found himself marginalized at the New York School for Social Research after he refused to recognize the legitimacy of France Libre.

World War II put an abrupt end to these experiments. The war economy and the structural reforms planned by the Resistance, or Free French, and the Vichy regime helped marginalize neoliberalism. Faced with the arbitrary nature of the governing authority, the original group of French neoliberals split. A minority joined the Resistance (Raymond Aron, René Courtin, Gaston Leduc, Robert Marjolin), some neoliberals played an important role in the Vichy regime (Joseph-Barthélemy, Emile Mireaux, Henri Moysset), while others preferred not to commit (Charles Rist) or left the country (Louis Marlio). The disintegration of the group was all the quicker because its existence depended on a few key individuals, particularly Louis Rougier.

After the Liberation and the reforms introduced by the republican government between 1944 and 1946 (consisting of nationalizations, social security, and planning), it seemed that neoliberalism had been definitely left in the lurch. Actually, the Liberation had two opposite effects: it marked the institutional defeat of neoliberalism within France, but it also led to a reconfiguration of the political field, which nurtured the rebirth of liberalism.

The postwar period caused divisions within parties and collective shifts between them, with some former left-wing movements, like the Radical Party, joining the center-right. Among the groups that explicitly claimed their liberalism in 1945–1947, the Parti Républicain de la Liberté (PRL) was the most active. It proudly sported the name of its program: neoliberalism. Formed in December 1945 in opposition to the Social Catholics (Mouvement Républicain Populaire, or MRP) and the communists, the PRL recruited both among the Resistance and among the former Petainists.

Neoliberalism thus indirectly benefited from the impact of the Cold War on French politics and from the revival of the right, with all the ambiguities it involved. Obviously, neoliberalism found its main supporters among businessmen. They protested against the growth of the state since the Liberation and against "modernization," whose methods they had been excluded from defining. Neoliberalism constituted a common denominator for many businessmen, whatever their sectors of origin and their divergences of interest. It was thus with the support of the leading authorities of the Centre national du patronat français (CNPF) that the Association de la libre entreprise (ALE) was created in 1947, an organization aiming at "defending and . . . recommending freedom of enterprise from the economic and social point of view with all its consequences." Inspired by the Foundation for Economic Education and maintaining relationships to a score of similar organizations disseminated in Europe and in the United States, the ALE distributed "educational" booklets on the market economy. The objective was simple: "to highlight the misdeeds of state intervention . . . and to denounce it as the cancer of France." The ALE was directed by Georges Villiers, the president of the CNPF, and led by Georges Morisot, an engineer at Michelin. Both were members of the Mont Pèlerin Society.

The AIECP represented companies based on personal capital ("the company based on personal capital is, in all the professions, the one where the Chief, the "Owner" works at the same time with his money, with his brain and often, with its hands"), and as such its goal was to defend the owner-businessmen, heirs or founders of small and medium companies, against the intrusion of the state and the interference of trade unions.

The neoliberalism of the Centre des Jeunes Patrons (CJP) was built on quite different foundations. It was inspired by Social Catholicism and by the ideal of a professional organization. The CJP advocated a "concrete liberalism," while at the same time praising free enterprise, "fair" competition, and scientific management. Unlike trade employers, CJP members accepted nationalizations, if they related to real monopolies, and unlike the liberal Catholics, they supported the cooperation of workers and management via mixed committees.

Between the end of the 1940s and the end of the 1950s, the discipline of economics underwent major transformations: its central role in public policy and the large increase in the number of teaching and research sites helped widen the teaching cadre and diversify its cherished values. Neoliberalism now seemed largely outré.

On the one side, because of its divisions, it had mounted only a small intellectual bulwark against Marxism, Social Catholicism and, to a lesser extent, Keynesianism. On the other side, neoliberal conceptions seeped into consciousness even if the term neoliberalism itself remained unpopular and even if the neoliberals themselves had become marginalized.

At the beginning of the 1960s, the resignation of Raymond Aron and Bertrand de Jouvenel, who no longer accepted the version of liberalism defended by the Mont Pèlerin Society, revealed how difficult it was to get the French neoliberals to work together.

The CNPF of Georges Villiers subsidized the MPS in Europe and sponsored its meetings. The fourth congress of the Society was thus held in France in September 1951. Organized in Beauvallon, on the French Riviera, and bringing together sixty-eight participants, it cost the CNPF nearly 2 million francs (the rough equivalent of 39,000 contemporary euros).

French neoliberals often shared neither the same religious convictions nor the same political opinions, so that they would naturally have contradictory reactions to later major events in the country. Under these circumstances, it is not surprising that it was impossible to create an organization like the Aktionsgemeinschaft Soziale Marktwirtschaft in Germany, which brought neoliberal politicians, economists, and businessmen into one network.

This opposition reflected a more general phenomenon. At the end of the 1950s, French neoliberals were not united. Whereas the creation of the Centre international d’études pour la renovation du libéralisme in the 1930s helped bring together under the neoliberal label an array of individuals with clashing economic conceptions, no institution played a comparable role after 1945. Liberal organizations multiplied without coordinating their action or their proposals.

The French neoliberals discovered they could not even unanimously endorse the term neoliberalism. Whereas Jacques Rueff, who opposed the term in the 1930s, finally ended up accepting it, others refused, finding that the term was either “worn down, compromised . . . by the unhappy destiny of neo-socialism,” or that it was synonymous with an interventionism that compromised the existence of a competitive order. … This disagreement over terms was not just a quarrel over words. When defined as a doctrine aiming to preserve the framework within which a market economy is sustainable, neoliberalism could potentially inspire a form of planning.

Following the Liberation, the question was no longer one of choosing between liberalism and state intervention: only the methods of interventionism remained to be determined. The structural reforms endowed the state with a powerful means of intervention (nationalization of the credit system, energy, transportation); moreover, trade unions now played a significant role, and regulations were pervasive. Nevertheless, the market economy was preserved.

But discrediting liberalism did not mean that socialism was to be defended. The activist policy pursued by the authorities and the search for growth and full employment were used as mandates: “production and productivity, therefore equipment and modernization.” Thus, the Plan Monnet (1947–1952) was the example to be followed because it “was not a bureaucratic work.” The goal was to substitute the old discredited liberalism with a rationalized capitalism: “French planning [was] the search for a middle way reconciling the attachment to freedom and individual initiative with a common orientation of development.”

During the 1950s, neoliberal ideas thus spread beyond traditional liberal circles. France discovered (though not for the first time) English and American economics. The doctrines were circulated without their original context and therefore could be dissociated from their national promoters. The Institut de Science Economique Appliquée (ISEA) led by François Perroux promoted the British version of neoliberalism. Some economists supported the idea of a state that was not economically neutral but intervened in accordance “with the internal logic of . . . the market economy.” German neoliberalism was far less familiar. If it had untiring promoters among businessmen and in the person of Jacques Rueff, it was little studied, but some followers did emerge: neoliberals like François Bilger57 or Social Catholics like André Piettre, who compared German neoliberalism and French planning. Unquestionably, the doctrines of foreign neoliberals circulated, and some economists tried to synthesize them with domestic themes. Such was the case of Raymond Barre. Translator of Hayek and close reader of Walter Eucken and Lionel Robbins, Barre claimed that one of the goals of economics was to define conditions under which intervention in a market economy was viable. He therefore proposed an economic policy combining “planning for competition” (Hayek) and an income-driven policy. For the young economists who studied neoliberalism, this doctrine did not appear incompatible with either the French model of development or the “concerted economy” preached by some planners like François Bloch-Lainé. In his Ph.D. dissertation about neoliberalism, Jacques Cros, who was to become a European civil servant, even established a link between the ideas discussed during the Colloque Lippmann, Keynesianism, and the proposals of the French Social Catholics.

Neoliberal ideas made headway during the 1950s and the 1960s, even if only among a few economists or civil servants who later declared themselves to be neoliberals. This renewal was facilitated by the lack of a credible alternative in economic policy. Keynesianism was introduced in France only under the Occupation. After 1945, it was defended by some socialists, civil servants, and economists affiliated with Social Catholicism (in particular Henri Guitton and Alain Barrère), but it was not generally considered legitimate from a left-wing perspective. For numerous French economists, the lesson of the General Theory was to consider "the growth harmonized by a deliberate policy" as the main economic phenomenon.

In practice, Social Catholicism was more influential than Keynesianism in the economic debates of the postwar period. Alongside of Christian trade unionists and ecclesiastics, academic economists, civil servants, as well as directors of the nationalized sector and large private companies all took part in the conferences organized by the Catholic authorities. The Semaines Sociales de France thus constituted a sort of small-scale model of the world of the "modernisateurs" in the 1950s. Within this framework, the traditional Catholic rejection of liberalism and socialism took on a new significance: at the Semaines Sociales one faction tried "to reconcile planning and freedom" and to associate "economic realism with social progress"; another condemned the planned economy but greeted "the considerable and partially original effort of organization" realized since the Liberation.

The participants in the Semaines Sociales were delighted by the coexistence of capitalism and socialism in France, a position that offered the double advantage of being in conformity with the papal encyclicals and of providing a bulwark against communism. Whereas neoliberalism was officially criticized within Social Catholic circles, this criticism should not obscure the fact that an intellectual proximity existed between the right wing of Social Catholicism and the left wing of neoliberalism. Intransigent liberals still rejected the role Social Catholics granted to the state. André Piettre and Jacques Rueff attempted to find a common ground between neoliberals and Social Catholics, viewing them as "men of goodwill whom . . . vain doctrinal oppositions divided." Some economists belonged to these two parallel universes; among these economists was Gaston Leduc, who became president of the Mont Pèlerin Society in 1974.

European construction also played a significant role: national economic development was anchored in a wider space, that of the Common Market, which served as "an institutional market" (Jacques Rueff) within which a neoliberal policy was rendered possible.

The liberals’ dashed hopes partially accounted for the creation of the Association pour la Liberté Economique et le Progrès Social (ALEPS) in 1966. This organization, initially formed by André Arnoux, an industrialist who wanted to be admitted into the Académie des Sciences Morales et Politiques, organized every year until the middle of the 1970s a “Week of Liberal Thought” in counterpoint to the “Week of Marxist Thought.”

The New Economists are still not devoted to the national roots of neoliberalism (except for Jacques Rueff’s work), and when we compare their agenda to Lippmann’s manifesto, Lippmann could be said to have a socialist agenda.

Their goal was not to give the state an active role in defending free enterprise, but on the contrary, to produce a full-bore reinstatement of laissez-faire economics. Whereas during the 1930s, the French neoliberals rejected the works of the classical liberals such as Frédéric Bastiat or Gustave de Molinari, because for many they meant “laisser souffrir,” these authors turned out to be central for the new generation, in conjunction with American libertarian spokesmen.

This radicalization explains why neoliberalism is often presented in France as if it were a foreign extremist discourse, imported from Great Britain or the United States, and appearing de novo in the 1970–1980s. The New Economist doctrine is, however, the product of a longer history that is partly French and that shows a whole sequence of transformations: those concerning the role of the state and its structures, as well as those of the economic doctrines that took part in this evolution. By reinstalling the state in the liberal theory, neoliberalism offered to its advocates a pragmatist solution to the crisis, especially because its competitors (planning, corporatism) could appear utopian. World War II helped discredit the corporatist hypothesis. With the Liberation, the building of a planned economy, combined with preservation of the principle of the market economy, placed neoliberals in a difficult position. They were faced with a Hobson's choice: either to justify state interventionism or to preach a return to laissez-faire. This second solution was undoubtedly the most intellectually coherent, but just like the left-wing critical discourses of the 1930s, it had the drawback of possessing a certain utopian character. Thus neoliberalism could adopt two very different faces: an administrative face, accepting the compromises and conquering power between the mid-1950s and mid-1970s; and a more radical face, benefiting from the failures of the first version of neoliberalism to overcome the crises of the 1970s, but also from the political victory of the socialists in 1981, which produced a strong electric shock for the right wing. These two versions of neoliberalism supported each other. The durability of the bureaucratic structures inherited from the Liberation masked the progress of the liberal ideas in the area of power. The neoliberal extremism of the 1980s ushered in privatization and deregulation and permitted right-wing politicians to acknowledge their fundamental adherence to neoliberalism.

The Association de la libre entreprise organized a conference that gathered all these organizations in Paris in October 1950 to compare their means of action (booklets, conferences) and their goals (HIA, MPS, Box 31, Folder 8). We can here find an illustration of the “Russian Doll” thesis explained in the Postface to this volume by Philip Mirowski.

For over two hundred years English ideas had been spreading eastward. The rule of freedom which had been achieved in England seemed destined to spread throughout the world. By about 1870 the reign of these ideas had probably reached its easternmost expansion. From then onwards it began to retreat and a different set of ideas, not really new but very old began to advance from the East. England lost her intellectual leadership in the political and social sphere and became an importer of ideas. For the next sixty years Germany became the centre from which the ideas destined to govern the world in the twentieth century spread east and west. Whether it was Hegel or Marx, List or Schmoller, Sombart or Mannheim, whether it was socialism in its more radical form or merely “organisation” or “planning” of a less radical kind, German ideas were everywhere readily imported and German institutions imitated.

Hayek's Road to Serfdom (1944) is a work that has assumed a central intellectual and symbolic importance for British neoliberalism. It was written in Britain during the early 1940s while Hayek, then professor of economics at the London School of Economics, was teaching in the school's wartime home—Cambridge. All of these factors are of importance, positively or negatively; but most readers of the book have misread these polarities. Hayek's chief line of argument is that the classical liberalism on which the liberty and prosperity of nineteenth-century Britain was built was threatened by statist, German ideas that furthered increasingly deliberate regulation of all social life. But while invoking classical liberalism, Hayek signally failed to consider why, by the later nineteenth century, it had already been displaced in Britain by "new liberalism." By midcentury this was also a spent force, because the political forces that had converted "classical" into "new" liberalism—the extension of the franchise, the emergence of the Labour Party, and the political consequences of World War I—had in turn fatally undermined new liberalism by the later 1920s.

Lionel Robbins, professor of economics at LSE from 1929 to 1961, was no simple doctrinaire liberal. During World War II he headed the Economic Section, the principal grouping of economists recruited to advise on the organization of the wartime economy. The policy framework that these economists devised was bequeathed to postwar governments and provided the template for "Keynesian" economic management.

A small number of important British economists were active in the MPS, and Robbins himself drafted its program. During the immediate postwar period, neoliberal academic criticism of welfarism and planning could be directed at the activities of the Labour government; but criticism of the government from the right became more difficult once Labour gave way to the Conservatives in 1951. Academic opinion instead embraced a muted Keynesian synthesis, broadly aligning itself with governments of the day through the ensuing three decades of Conservative and Labour rule.

During this period the neoliberal agenda was instead developed and advanced from new, nonacademic organizations, of which the Institute of Economic Affairs was the first. Except for a brief period in the early 1970s, these institutions found themselves firmly on the fringe of policy and politics. This changed with the election of Thatcher's Conservative government in 1979: what had hitherto been peripheral now became mainstream. British "Keynesian" academics were locked out of policy formation by the new government. They looked on as the government shaped an economic policy inspired by the ideas of monetarist zealots, journalists, and free market ideologues who could broadly be considered "neoliberal" in orientation.

No longer was the extension of state control perceived as an encroachment on individual liberty; instead, each enlargement of the state's authority and activity was now to be judged in terms of its positive or negative impact on personal liberty. Furthermore, the liberties that it defended in this way were increasingly conceived in economic, rather than political, terms: free trade and hostility to the corporatism of both employers and trade unions. Through the twentieth century the transition from political to economic freedom became the signature of a neoliberal agenda.

The novelty of Friedrich Hayek's critique of modernity, The Road to Serfdom, lay in his argument that the demise of the liberal tradition was due to "foreign ideas"—extending and generalizing positions he had already advanced in the mid-1930s concerning the impact of centralized planning on economic life. There he had argued against the view, associated with the writings of Otto Neurath, Emil Lederer, and Walter Rathenau, that "deliberate regulation of all social affairs" was either practicable or efficient, echoing points made by von Mises in the 1920s. The Road to Serfdom was a political tract for the times, not a work of economic analysis; but as a political tract it was strangely silent on the contribution of democratic institutional developments to the demise of classical liberalism.

A great deal of the rhetorical force of Hayek’s book in the English-speaking world derives from this ostensibly “European” cast. Hayek in Road to Serfdom appears to defend an essentially English model of classical liberalism against the corrosive influence of “German ideas.” The road to serfdom, Hayek argues, is a German road, an idea simple to grasp during the early 1940s in more ways than one. Read from a German interwar perspective, however, the rhetorical force of this line of argument collapses. The general principles advanced by Hayek clearly derive from a body of continental interwar literature concerning parliamentary democracy and the state in the first German republic. When placed in this context, the arguments advanced in Road to Serfdom no longer seem so compelling or cogent.

The state should confine itself to establishing rules applying to general types of situations, and should allow the individuals freedom in everything which depends on the circumstances of time and place, because only the individuals concerned in each instance can fully know these circumstances and adapt their actions to them. If the individuals are to be able to use their knowledge effectively in making plans, they must be able to predict actions of the state which may affect these plans.

But however slowly state control of education developed in Britain, from a modern perspective state control of the type so vehemently opposed by Mill was but one, apparently inevitable, part of the development of industrial economies. … What gave effect to such efforts and rendered their execution a responsibility increasingly of central, rather than local, government, was a function of taxation and representation. Universal provision as a right generally meant centralized administration since there was a clear limit to local taxation such as the poor rate, and universal provision implied the standardized services that only central control could assure.

A fiscal base so heavily skewed to taxation on such basic items of mass consumption proved unwieldy in wartime; British war finance therefore had once more to borrow heavily in international markets, with repayment requiring a restructuring toward direct taxation together with a significant increase in the overall tax burden. The fiscal profile of government once again doubled from 1914 to 1920 because of the costs of war. Defense had taken 44 percent of total expenditure in 1913–1914, debt services 14 percent, and social services (education, health, labor, insurance, and pensions) 19 percent. By 1925–1926 these figures had altered to defense 16 percent, debt servicing 46 percent, and social services 24 percent.

There was no especially complicated reason why, in the first half of the nineteenth century, the British state was domestically a "small" state. The wars of the eighteenth century, culminating in the Napoleonic Wars, all but ruined the state finances. Even if central government, such as it was, had sought widespread interference in the social and economic life of the country, it did not possess the financial means to do so. During the period 1822–1831, defense consumed 30 percent of central government resources, while debt servicing took up another 59 percent.

The state based on the rule of law along the lines that Mill articulated in 1859, and which underpins Hayek’s critique of modernity, barely outlasted Mill’s lifetime.

Ricardo’s argument from what was later known as comparative advantage addressed the rate of profit, not popular welfare; economic liberty was merely a condition for the realization of comparative advantages. Economic liberty was central to Smith’s arguments, but not to those of Ricardo. Moreover, Ricardo couched his argument in terms of the trade between England and Portugal in wine and wool (the Methuen Treaty of 1703), making it very easy for nonspecialists to confuse comparative with absolute advantage. This confusion has since been intrinsic to all public discussion of the gains from international trade.

The Road to Serfdom was, as noted earlier, a political, not an economic, tract. Hayek was a professor of economics, but in constructing his argument he made no use of economic reasoning even in its broadest sense. The classical liberalism that the book invoked promoted above all a conception of political freedom, underpinned by a parallel, but weaker, conception of economic liberty. Free markets, in this classical view, were a corollary of political liberty, and not the other way around.

But since manual workers made up the overwhelming majority of the workforce, legislation on the freedom of association, labor contracts, working conditions, and hours of work was, in the nineteenth century, a very important part of "economic liberty," even though such rights are usually understood to be part of the history of the socialist movement.

But just as Hayek failed to consider the developmental tendencies of political life, he also failed to take account of the changing nature of capitalist economies from the later nineteenth to the mid-twentieth century. Consequently, the centralization and bureaucratization that he attacks is an outcome of "foreign ideas," not the internal dynamic of business, welfare, and politics.

Social welfare in Britain was a Liberal innovation, dating from the 1906 election following which Winston Churchill became Liberal President of the Board of Trade. Later on, when the Liberal Party had been eclipsed by the Labour Party, the figures whom Hayek most closely associated with the forces of collectivism, Keynes and Beveridge, were Liberals—not Labour, nor Conservative.

Political theory was never widely debated with any great enthusiasm or sophistication in twentieth-century Britain, and so this internal disconnection in Hayek's argument seems to have gone unnoticed. His work was taken up by individuals who argued almost exclusively in terms of economic, not political, liberties. When set against the history of liberalism in twentieth-century Britain, the placing of such liberal economic arguments within the political landscape is not a straightforward matter. "Liberalism" was a moveable feast. In later Victorian Britain, the Liberal Party was identified with issues such as Irish Home Rule, social and electoral reform, and promotion of the early development of what became the Labour Party, funded by the trade-union movement. Social welfare in Britain was a Liberal innovation, dating from the 1906 election following which Winston Churchill became Liberal President of the Board of Trade. Later on, when the Liberal Party had been eclipsed by the Labour Party, the figures whom Hayek most closely associated with the forces of collectivism, Keynes and Beveridge, were Liberals—not Labour, nor Conservative. The postwar Labour government did of course enact the legislation that created the welfare state, but the reflexes of British business at this time, as of also the Conservative Party, were strongly corporatist. It was a Labour government that in 1949 created the Monopolies (and Restrictive Practices) Commission to report on private-sector cartels and monopolistic firms, making it the first government in Europe to introduce legislation directed to the ending of restrictive practices and the promotion of competitive markets. The Conservative Party remained the party of corporatism through the 1950s and 1960s, with the Liberal Party adopting increasingly social liberal policies. This changed first in 1970 with the election of Edward Heath's Conservative government on an uncompromising free market agenda. But Heath was also a supporter of European integration, later anathema to Margaret Thatcher, who in many respects revived the economic sentiments of postwar Liberals. … In 1997 the Labour Party was reelected under the New Labour banner, and in its second and third terms term began to complete implementation of reforms to health, education, and welfare that Margaret Thatcher had failed to carry through in the 1980s. But the final execution of centralized state planning for health, education, and welfare was achieved during the term of New Labour, building on a policy agenda that was supposedly the essence of Thatcherism. Characteristic of government policy in health and education in the early twenty-first century is a rolling program of reform and marketization in which the language of markets and choice is coupled with micromanagement on the part of central government departments.

It was a Labour government that in 1949 created the Monopolies (and Restrictive Practices) Commission to report on private-sector cartels and monopolistic firms, making it the first government in Europe to introduce legislation directed to the ending of restrictive practices and the promotion of competitive markets. The Conservative Party remained the party of corporatism through the 1950s and 1960s, with the Liberal Party adopting increasingly social liberal policies.

And so it is perhaps little wonder that liberalism has been left to economics, where at least matters seem to be a lot more straightforward.

The transition in the foundation of liberal argument from politics to economics outlined above found support in Britain from academic economists able to articulate clearly these new foundations. This was first made obvious in the dispute over tariff reform leading up to the 1906 election, when proponents of the “new economics” publicly supported free trade, while those economists who did not—William Cunningham, W. A. S. Hewins, William Ashley—are linked by the skepticism with which they viewed the development of contemporary economic thinking. … Representative of his approach is his collection of essays and articles on the conduct of the economy during World War I and after in which he asserts, in his typically forthright style, that “Modern civilization, nearly all civilization, is based on the principle of making things pleasant for those who please the market and unpleasant for those who fail to do so . . . ,” adding “. . . whatever defects this principle may have, it is better than none.”

Cannan had been an Oxford student in the 1880s, part of a generation that with Ashley and Hewins had by the early 1900s turned away from the connection of reformist politics to economics. … Although Cannan’s understanding of economics was by the 1920s generally regarded as rather old-fashioned, the style carried over to many of his students, notable among them being Lionel Robbins and Arnold Plant, two of the later MPS members from Britain.

Robbins had been impressed by the published work of Hayek and von Mises, and their influence is particularly clear in his notorious account of the depression. The American Crash of 1929 had not directly created an international depression, but it undeniably marked the end of a brief period of international economic recovery. Britain departed from the Gold Standard in September 1931 and responded to the growing crisis by electing a new national government the following month. This government proceeded to abandon free trade for protection, introducing commodity boards to promote and subsidize domestic production. These developments led Maynard Keynes to entirely recast his arguments on employment and trade, recognizing that the new policy regime could not simply be wished away. This was an important element in the drafting and composition of his 1936 General Theory of Employment, Interest and Money.

Set against this background, Robbins's Great Depression of 1934 is a doctrinaire tract lacking engagement with contemporary economic problems. This disconnect was noted at the time; the reviewer in the Economic Journal opened by noting that the study was made “from the standpoint of the analytical neo-individualism which has been developing in recent years at the London School of Economics” and further suggested that Robbins's objective was to vindicate “an elaborate and essentially abstract theory of the conditions of equilibrium.” Robbins's general argument was that prosperity would return only if the market were permitted to work without hindrance. He argued that central bankers seeking to promote reflation simply created greater fluctuations; and that the creation of a social insurance system had removed any incentive trade unions might have had to protect their members by agreeing to reductions in wages. Hence Robbins's policy argument was that central bankers should not seek to manage financial markets and that universal social insurance was a bad idea. The longest chapter in the book outlines a blueprint for recovery, which emphasizes the restoration of business confidence through the stabilization of international exchange, hence the restoration of the Gold Standard as the route to renewed growth and prosperity and the consequent reduction of unemployment.

Plant, an expert on modern business who ran the LSE’s graduate school of business, and whose knowledge of modern business practice was probably more extensive than that of any other contemporary academic, would have none of this. He put forward simple free market principles so vigorously that the third participant, Harold Macmillan, the future Conservative prime minister, concluded that he had “never listened to a more hard-boiled conception of free Capitalism than that which he [Plant] advances.” According to Macmillan, these ideas belonged to the nineteenth, not the twentieth, century.

Arnold Plant had constructed similar arguments during the 1920s, drawing on the economic principles he had learned from Edwin Cannan. Plant’s first publication concerned the wage differentials secured by a segregated labor market, whether in South Africa or the American South, translating a denunciation by Lord Bryce of racial discrimination into the language of rent-seeking behavior. Poor whites, he argued, unable to compete on equal terms with blacks, employed political means to place blacks at a permanent disadvantage and hence extract a rent. He maintained that such impediments to the working of the labor market impoverished black workers and reduced overall economic efficiency, and hence the welfare of all. Later, during the 1930s, he wrote two papers on patents and copyrights, which similarly identified these legal instruments as monopolistic in character, secured as a property right created by statute.

During the 1950s and 1960s the London School of Economics was far more representative of mainstream orthodoxy in Britain than either Oxford or Cambridge, and it was also able to project its version of modern economics to a far wider audience. By that time, however, arguments concerning the deficiencies of planning, together with its consequent inefficiencies and infringements of liberty, had moved on, since in the meantime the experience of the British economy in wartime had displaced that of World War I Germany, and the postwar welfare state and program of nationalization presented neoliberals with more immediate targets for their criticism.

Alongside its regular daytime students there were also evening students for whom teaching was duplicated. In addition, as part of the University of London, the school offered its curriculum and courses to corresponding students throughout Britain and the Empire. Arnold Plant also ran a well-funded Commerce Degree Bureau that coordinated distance learning though the circulation of teaching materials and the marking of student essays by LSE staff. The school’s pedagogic reach was therefore far greater than that of Oxford, Cambridge, or even Manchester and was aimed at a wider constituency.

The principles that Plant advanced so ruthlessly were very much part of the twentieth century. They reflected the way in which modern economics was evolving into an apparently closed, self-referring system of thought suitable for teaching to young people and capable of ever-increasing technical elaboration—rather like Ramist logic in sixteenth-century France. Plant’s arguments on labor discrimination and copyright employed very simple economic principles to great effect. But what distinguished the exposition of economic principles at the London School of Economics was a strong normative belief that such classroom principles could be translated unmediated into economic argument and policy agendas. What lent this, for the time, idiosyncratic belief resonance was the school’s position in the expanding educational system.

Economic advice had played very little direct role in the direction of the war economy in Britain during World War I; the World War II experience was to prove very different. Not only were economists recruited to assist in determining priorities, gathering information and generating usable statistics, but it was Robbins who ended up in charge of the main office, the Economic Section. Furthermore, in the later 1930s the government sought to direct productive capacity toward military ends. Aircraft production, for example, was a complex process, encompassing numerous functions and activities ranging from ministerial decisions on the types, qualities, and quantities of aircraft required by the RAF and the Fleet Air Arm, through the design and testing of prototypes by private companies, the evaluation of competing aircraft, the placing of orders, and finally the construction of airframes and engines. As early as March 1938 a formal decision was made to place orders regardless of financial constraint, seeking direct maximization of existing manufacturing capacity rather than working to the budgetary constraints that had earlier hindered the rapid production of modern types. One month before the war began, the government created the Ministry of Supply to coordinate wartime production, and in May 1940 a Ministry of Aircraft Production was formed. At its peak in 1944 aircraft production employed some 40 percent of Britain’s industrial workforce.

In early 1941 the functions of the Service were divided between a new Central Statistical Office, headed by Harry Campion and Ely Devons, and an Economic Section, headed by Jewkes. When Jewkes left for the Ministry of Aircraft Production in September 1941, Robbins succeeded him as head of the Section. Key British members of the MPS like Jewkes and Robbins—Robbins would draft the statement of aims, for example (see Introduction in this volume)—thus had extensive first-hand experience in government. Furthermore, any list of British economists working for the government during the war contains a significant proportion of those who, after the war, would be associated with the MPS; but any such list would have contained very few of the younger generation of economists who became senior academics in the 1950s and 1960s.

However doctrinaire academic economists might have been in peacetime, under wartime conditions they demonstrated a clear understanding of the complexity of economic administration and the delicacy of the interface between the work of government administration and the efficiency of the economy as a whole.

Before the war, aircraft construction had been essentially a craft industry. Part of the prewar program of expansion was aimed simply at the extension of production capacity, so that even obsolete types were turned out so that mass production techniques might be developed in a hitherto craft-based industry. Car firms became component suppliers, and in this way over time familiarity with mass construction to higher engineering standards was transferred to postwar civilian consumer production.

That this experience was not then translated into the postwar modernization of British consumer industries is a complex story involving the return of loaned American machine tools, depleting British plants of the only modern equipment they had, the limited purchasing power of the British public, the diversion of the majority of scientists, engineers, and technicians to employment in the government sector, and, not least, the sheer inability of British management to innovate in the way that their German, French and Italian counterparts did—all of which countries still have domestically owned car firms.

The British wartime economy was run with the assistance of many senior British economists, but the great majority returned to academic life in 1945 and 1946 to rebuild their departments and extend the discipline. Ely Devons returned to teach in Manchester but wrote up his four years' experience in the planning department of the Ministry of Aircraft Production as Planning in Practice. This fascinating work details the increasingly complex business of building aircraft, which, throughout the war, "competed" in a very direct way with German, Japanese, and Italian products.

John Jewkes, Devons's Manchester colleague who had also spent over a year as director of statistics and programs in the Ministry of Aircraft Production, also produced his "memoirs," but his recollections were very different. Acknowledging Hayek's Road to Serfdom, he opened with the following parti pris: … The fall in our standard of living to a level which excites the pity and evokes the charity of many other richer countries, the progressive restrictions on individual liberties, the ever-widening destruction of respect for law, the steady sapping of our instinct for tolerance and compromise, the sharpening of class distinctions, our growing incapacity to play a rightful part in world affairs—these sad changes are not due to something that happened in the remote past. They are due to something which has happened in the past two years. At the root of our troubles lies the fallacy that the best way of ordering economic affairs is to place the responsibility for all crucial decisions in the hands of the State.

So what had happened in the preceding two years, 1946 and 1947, to bring about such a catastrophic state of affairs? The Bank of England was nationalized (March 1946), plans for a National Health Service were announced, the intention to nationalize the steel industry was made public (April 1946), plans for a united, independent India had begun (May 1946), bread rationing was introduced (May 1946), the King David Hotel in Jerusalem was blown up (July 1946), the Muslim League demanded a separate “Pakistan” (May 1946), nationalization of railways, ports, long-distance transport, and canals was announced (November 1946), the coal industry was nationalized (January 1947), the meat ration was reduced (January 1947), and later that same year the Town and Country Planning Act was introduced to place the regulation of land use in the hands of local authorities. Though very selective, this list serves to draw attention to one important fact: owing partly to the experience of the war economy and partly to the international challenges presented by a declining empire, the British postwar government certainly did have an agenda for the extension of the public sector, but it was also faced with managing several other major and intractable problems.

And underlying all these problems was the fact that the clock was ticking on the American loan negotiated by Keynes, which had provided Britain with the dollars to continue its international trade following the abrupt cessation of Lend Lease one week after Japan surrendered. Parliament accepted the terms of the fifty-year loan in December 1946, obliging the British government to return sterling to convertibility within two years. This was duly done on July 15, 1947, and then suspended once more on August 21, 1947 because most of the loan had by that time been expended defending sterling’s parity.

Nevertheless, Bauer was subsequently awarded a life peerage in 1982 by Margaret Thatcher, and in 2002, shortly before his death, he was the first recipient of the Milton Friedman Prize for Advancing Liberty, a biannual prize of $500,000 given by the Cato Institute.

But Bauer did not become well-known because of these works, nor did he refer to them later when arguing against state-directed development aid. Instead, he became famous as a critic of overseas aid in a series of essays and books published from the 1960s to the 1980s whose generality and sheer repetition belies the careful argument of his earlier work. Like Jewkes, the forcefulness of his critique of state and economy is inversely proportional to its substantive merits.

Robbins reflected on the lessons that might be drawn from wartime experience, or “what economic policy can do for the advancement of human welfare.” Noting that free prices had been abandoned early in the war, he nonetheless expressed his belief in the efficacy of free markets in terms that recall Cannan’s remarks some twenty years earlier: … I am inclined to think that the experience of war vindicates completely the doctrine of the textbooks, namely, that with given goods and a given distribution of income and capital—please note this second qualification—there is nothing like the market mechanism for getting the goods into, roughly speaking, the right hands. … The conclusion that he drew from his wartime experience was not that the market was an ineffective mechanism for distributing goods, but that the problem lay in the “configuration of power to demand to which the market responds.” Inequities should be remedied not by interference with the market, but by acting directly upon them through taxes and subsidies. In this way freedom of choice in the market might be maintained, for “good government is no substitute for self-government and it is an essential function of the state to make as much self-government as possible available.”

Robbins drew a clear line between the necessity of wartime regulation, where there was a pressing and an obvious objective, and the functioning of a peacetime economy, where no such objective existed and it was not government’s place to choose one. He was, however, moderate in his assessment of the strains of a transition period, and also in passing disavowed more extreme views expressed in his Great Depression, in which he had overlooked “deep-seated possibilities of disharmony.”

British academic economists were as a whole broad supporters of government policy in the 1950s, during the greater part of which the Conservative Party was in power. Given that political life was configured around business and labor, the only established position from which the Conservative government's policy could be publicly criticized was already occupied by the Labour Party. Each party of course had its shadings, from right to left. But militant criticism of state activity from any other direction would automatically place the critic on the fringes of the existing political spectrum. It was difficult to reconcile such a stance with an academic reputation in the postwar world.

Bauer's international reputation was as a propagandist for economic liberalism, not as an eminent economist; which was why he became Margaret Thatcher's favorite economist. Arthur Shenfield is presented by Hartwell as an "eminent economist," but in the postwar period the measure of eminence had become publication in the leading English-language academic journals, and there is no trace of this achievement for Shenfield.

British neoliberalism therefore became a current of thinking nurtured outside the academy and was not taken very seriously within it. Most significant for the subsequent development of neoliberal thinking was the creation of the Institute of Economic Affairs (IEA) in 1955. The moving spirit behind this organization was Antony Fisher, an entrepreneur and strong believer in free markets who had first attended a meeting of the Mont Pèlerin Society in 1951 and who in 1954 gave a paper on “The British Farmer and the Government.” The work of the Institute was chiefly in the field of economic journalism, publishing pamphlets and seeking influence on public opinion, opinion formers, and politicians.

The Conservative Party continued in power until 1964, so that the advocacy of markets and economic liberty cultivated by Harris and Seldon placed them on the fringes of British politics—perhaps not quite like the League of Empire Loyalists or Moral Rearmament, but not far off. Fifteen years later this picture would dramatically change, of course.

Hardly a week goes by without some conference of teachers, social workers or medical men being told that, for economic reasons, consumers must be charged directly for welfare services. . . . bits and pieces of the New Right’s doctrine appear in various places, from the writings of Enoch Powell or the Bow Group to the propaganda of Aims of Industry, but it is most coherently expressed in the publications of the Institute of Economic Affairs (IEA). The IEA’s output has been considerable.

Collard was prescient indeed in his public warning that a “collective view can be discerned.” He emphasized that the IEA’s publications were directed against the welfare state, that they had been written by respected economists, and that they had begun to find a receptive audience among various professions closely linked to the welfare state—such as teachers, doctors, and social workers. He warned his academic colleagues against underestimating the new right and cautioned against a tendency to discount its significance, for “on the left . . . counter arguments have been based on instinct, sentiment and a vague distaste for the profit motive. In terms of economic theory there is a worthwhile piece of demolition work still to be done.”

Although the academic mainstream may not have been wrong to regard much of this argument as highly problematic, the left chose to ignore Collard's early recognition of the considerable influence of neoliberal doctrine forged jointly by British and foreign MPS members. … Radical criticism of the Labour government came from the left, not the right. Such criticism ultimately served to unseat it, while also opening the Labour Party to an internal radicalization that was to render it unelectable for almost twenty years.

Perceiving the academic establishment to be arrayed on a spectrum from left-liberal to socialist, the Conservative government now turned for advice to individuals associated with the Institute of Economic Affairs and the Adam Smith Institute. Think tanks and external advisers became a fixture in public administration, cutting out academic economists and diminishing their authority. … Neoliberal “economism” increasingly dominated the public domain, a discourse of markets and liberty whose lack of intellectual credibility was no obstacle to its propagation and execution.

The name “Liberal” was first adopted for the Whig Party by Gladstone in 1868, in which year the party won 61.5 percent of the vote. As the electorate extended to all male and female adults, a process completed only in 1928, so its share of the vote declined. In 1935, polling slightly above its numbers in 1868, it won 6.7 percent of the vote.

By 1911, about 78 percent of the British population lived in towns of 3,000 inhabitants and over, as opposed to 35 percent for France, and around 50 percent for Germany. The British urban working class was by far the largest single section of the population, which was one factor that made the British working class unique.

Agitation for free trade in the 1830s and 1840s crossed class boundaries and united both working and middle classes; the class-ridden historiography of nineteenth-century social movements, where the working class is part of the “history of socialism,” and the middle class of the “history of liberalism,” has entirely obscured this linkage between the classes.

I have interviewed several students and teachers who were at LSE during the 1930s and 1940s, and none of them volunteered comments attesting to Hayek’s impact in lecture room or seminar. Nor when directly asked did their remarks suggest that Hayek was a prominent person in the school. The dominating figures were Lionel Robbins and the (subsequently more obscure) Arnold Plant. This is also plain from the correspondence of representatives of the Rockefeller Foundation, whose financial support was so important to the school. Given Hayek’s later eminence, his admirers have assumed that he must have been “always already famous” and their recollections adjusted themselves to suit this assumption.

Plant’s student Ronald Coase inaugurated the transaction cost approach to explain the existence of firms in his 1937 article “The Nature of the Firm.” This filled a neoclassical black box and undermined a prevailing belief in the bureaucratic efficiency of deliberate planning (“organization”) by drawing attention to problems of delegation (principal-agent relationships). The approach has given rise to the critical study of the limits of organizational efficiency and to a search for alternative ways of organizing (e.g., “simulating markets” within firms and public organizations.

The only significant aircraft firm that was nationalized in the course of the war was Shorts of Belfast, and this was mainly for a purely practical reason: to stop it producing its obsolete heavy bomber.

The threat of aerial bombing led to a policy of plant dispersal in Britain, so that there was little incentive to create large firms, and none at all to emulate the large plants typical of the United States.

The lamentable history of the British motorcycle industry is in part based on this problem, as contrasted with the Italian industry. When as a schoolboy in the mid-1960s I worked in two light engineering factories in South London, the mass of the older machinery was British, while the only modern equipment was German.

Problems with tank development were linked to the lack of suitable engine designs and a consequent reliance on available commercial models, and the constraint of the existing railway loading gauge—larger armored vehicles could not be carried on British tracks. It is for this same reason that the Eurostar carriage conforms to British dimensions and is considerably more cramped than Continental carriages.

Shenfield (1909–1990) is a very shadowy figure whose wife had a Who's Who entry, but who, unusually, did not have one for himself. In 1948 he was appointed in Birmingham as assistant lecturer in economics (alongside Frank Hahn), but there is no record of how long he remained in this post. In the mid-1950s he was economic adviser to the Federation of British Industry.

Fisher had ended up in farming and introduced battery hen farming to Britain—an innovation that from today's perspective is suggestive of the priority neoliberals gave to economic efficiency over wider political liberties as articulated in modern debates on animal rights.

Where James Nisbet taught, having been appointed in 1935 and retiring as professor in 1970. Nisbet was a prominent Scottish advocate of laissez-faire, having published A Case for Laissez-Faire (London: P. S. King, 1929).

On p. 34 he divides the world into “liberals and Keynesians,” apparently overlooking the fact that Keynes was a Liberal, as was, for instance, also James Meade. On p. 37, discussing “spiralling wage costs,” he appears unaware that the price level fell in the 1930s and that developments in industrial structure led to a demand for more highly skilled labor, which would command higher wages.

A recent BBC documentary on British neoliberalism, Tory! Tory! Tory!, suggested that the general perception of Harris and Seldon during the 1950s and 1960s was that they were harmless eccentrics with little insight into the workings of government.

Germany's economic model has been frequently described as a coordinated market economy juxtaposed against the Anglo-Saxon liberal market economies of the UK and the United States. For many, Germany's post–World War II “social market economy” in particular constitutes an alternative model to harsher neoliberal systems (Nicholls 1994). A high degree of state interventionism is alleged to be strongly rooted in the history of Germany, which is also frequently held to be deficient in the cultural values of liberal individualism. Indeed, the origins of modern social security systems can be traced back to Bismarck's efforts in the late nineteenth century to protect workers from old age poverty and health-related risks not meliorated by market forces. But the promise of pensions and health insurance was at the same time meant to undermine the rapid rise of the Social Democratic Party in that era. Previous efforts to outlaw the first modern mass party had proved ineffective. Since the strong police state (and the military) were incapable of solving the problem, other means had to be found to limit the appeal of a working-class mass movement, which propagated revolutionary socialism at the time.

Half a century later and after two devastating wars, the original model of a social market economy continued to display these ambiguities: ordoliberal economists, the German members of the larger neoliberal family of thought, conceived the social market economy in order to offset what they considered to be dangerous trends in the postwar economy. In light of the contemporary misunderstanding of the character of the original social market economy, it is difficult to explain why German trade unions, Social Democrats, and communists fought Ludwig Erhard's efforts to institutionalize the social market economy, why Margaret Thatcher propagated the German model on her way into Downing Street (Cockett 1994), and why Milton Friedman recommended the German model to Chile's dictator Pinochet after the coup (see Fischer, Chapter 9 in this volume).

A closer look at the history of German neoliberalism helps to clarify the puzzle. Ordoliberalism is substantially less different from other streams of neoliberal thought than many have thought, although the German tradition of a strong state certainly extends throughout the history of German ordoliberalism. But ordoliberalism had more to offer to the international evolution of neoliberalism than mere reiteration of a parochial German understanding of the state.

Many intellectual histories of neoliberalism tend to juxtapose German ordoliberalism and Austrian neoliberalism in order to emphasize the Germanic state tradition, which is difficult to reconcile with the market radical individualism that has been inspired by the marginalist revolution (most recently, Foucault 2004). A leading German ordoliberal, Hans Willgerodt, alerts his readers to the dangers, when considering the differences between related neoliberal concepts, as more important than what is common to all of them. According to Willgerodt, neoliberals acknowledge the need to complement traditional liberalism with important external alien elements, correct mistakes of the past, and transform doctrine in light of new insights and convictions. A better understanding of the role of the state is considered a key task on which true neoliberals would agree. While competition between liberal convictions may suggest a separation of ordoliberalism from related approaches, Willgerodt maintains that “in reality there exists only a difference in emphasis, and opportunities for an academic and political division of labor” (Willgerodt 2006, 55). Foucault (2004) correctly emphasized that German ordoliberals were indeed the avant garde, and they went further than other members of the neoliberal family in addressing the shortcomings of traditional liberalism. The ordoliberals collaborated in developing a new social theory of the economy, and strongly redoubled efforts to understand the relation between law and economics, for example. But Foucault underestimates the extent to which both German and Austrian neoliberal economists shared a particular (sociological) understanding of economics and fought a narrow econometric/technical understanding.

Although German ordoliberals like to congratulate themselves on their defense of individual freedom and liberty, the history of German neoliberalism clearly reveals the limited, primarily economic understanding of freedom that is the common denominator of the different schools of neoliberal thought.

Along the spectrum of neoliberalism, ordoliberalism is found at a range of frequencies that owes some of its peculiarities to the specific German conditions encountered during the Weimar Republic and under Nazi rule. In contrast to the Austrian and Chicago emphasis on the rather abstract rule of the law, the ordoliberals grant the visibly strong state a much more prominent role in establishing and securing the capitalist market economy. This recognition of the role of the state is at the very center of ordoliberal efforts to theorize an ideal social order of capitalism and to design public policy to this end. The specific term policy of order (Ordnungspolitik) was coined by the Freiburg school, led by Walter Eucken and Franz Böhm, during the second half of the 1930s. Members of this school conceived of the need to theorize the frameworks that effectively structure the relationship between the state, the economy, and society in general. They thereby fostered an early understanding of the important relationship between law and economics, relative to their neoliberal comrades. Their central goal in this task was to secure a socially embedded and well-functioning competitive order.

It turned out to be of signal importance for neoliberalism that Wilhelm Röpke and Walter Rüstow (both exiled from Germany by the Nazis) violated disciplinary boundaries in an effort to provide the sociocultural foundations necessary for a liberal economic order. They argued persuasively that a regulatory order comprised of legal and state institutions was not sufficient to properly embed the market economy in society. In order to give such an order further stability, a more comprehensive complement of sociopolitical concepts was needed.

German neoliberals, insistent on the need to pay strict attention to questions of sociopolitical integration, deserve credit for acknowledging the destructive potential of the market economy. At the same time, this debate reflects a strange mix of steadfast belief in the market on the one hand and of reactionary pessimism with regard to progress and the future on the other. The pure ordoliberal design of a market society was ultimately doomed to fail given these inherent contradictions, which resulted from the combination of economic modernity and antimodern political, social, and cultural ideas.

Wilhelm Röpke had launched broadsides against classical economic liberalism since the early 1940s. He claimed that classical writers had ignored the fact “that the market economy constitutes a narrow sector of societal life only.” Although the market economy was “simply [an] indispensable configuration” in the economic sphere, where it would manifest itself in an “unadulterated and genuine” way, on its own, it would be dangerous, if not indefensible, because for all intents and purposes it would reduce humans to an unnatural existence: “The market economy thus requires a firm framework, which we shall call in short an anthropological-sociological frame” (Röpke 1946, 82f.).

One way to examine the ordoliberal effort to understand social reality in that era is to recognize that it constituted a mix of social scientific observation and metaphysical speculation, which operated on three levels: First, the spiritual-moral crisis was held to have caused the degeneration and structural disintegration of society (Röpke 1979, 22ff.). Second was the crisis of development of the mass society, which Röpke and Rüstow, but also Eucken, as early as the beginning of the 1930s, had identified as the central reason for the demise of the Weimar Republic. This phenomenon gained new prominence in the structural analysis of society under the label of so-called proletarianization (Röpke 1979, 30). Third, the ordoliberals posited a crisis of gigantism and bureaucracy (Röpke 1979, 103ff.; Rüstow 1950, 71) in addition to the critique of the central state, making reference to it in order to harshly attack the impact of technical progress (Rüstow 1951), the development of large-scale enterprises (Röpke 1948a), the rapid urbanization of life (Röpke 1946, 287), and the alleged overpopulation (Rüstow 1951, 389; Röpke 1979, 28).

Both the thrust and the passion of this critique of what the ordoliberals perceived to be the disintegration of the modern capitalist society had a greater affinity with conservative than with classic liberal positions. Röpke (1948b, 226) himself acknowledged the relationship of his thought to “religious-conservative streams.” But even if it seems absurd that the prophets of market economic forces of innovation would castigate the results of the economic dynamism, the antimodernism evident in their social and cultural critique provided the basis for one of the pillars of the ordoliberal program: stability and security for the working class was prerequisite to securing the market economy. This program fundamentally differed from left-wing calls for egalitarian redistribution.

Behind the ordoliberal analysis lurked the promise of a hierarchically structured society, a “natural order” that Eucken, Böhm, and Röpke had all evoked and that had become a quasireligious Ordo talisman of the “new” liberalism in Germany. The basic Ordo mind-set served not only as an ideological backdrop for a hierarchical social model, but also as a way of providing legitimacy for its supposedly irrevocable character. Ordo was regarded as the culmination of Western high culture, defined in classically Eurocentrist fashion as the zenith of human development. Eucken ( 1990, 372) argued that Ordo represented an “order, which accords with the essence of humans; this means an order in which proportion (measure) and balance exist.”

But a number of problems arose as to how this general idea could be translated into concrete political concepts. A few cornerstones of Eucken’s Ordo ideas, such as an estate model of social stratification, elite rather than mass influence with regard to political decision making, protection and expansion of private property, and decentralization and subsidiarity as primary principles for the political and social structure, can be readily recognized in terms of basic doctrine. … Ordoliberalism was challenged to bridge the gap between utopian ideals and the sordid facts on the ground, even when the facts were so unpleasant that many preferred to be dreamers.

While attending to the sound of a humanistic critique of narrow economistic thinking, it is important not to overlook the fact that the attacks were directed mainly against redistributive social and wage policies. Rüstow (1957b, 235) stressed "the origins of the term Vitalpolitik in opposition to a purely material social policy." It was not the demand for higher income, better working conditions, or shorter work time—classical labor movement demands, in short—that was considered to yield the determining indicator of the positive life situation of the "mass," but rather a policy "with an impact on the well being, a feeling of content of the individual human" (Rüstow 1957b, 235). It was possible for Ordos to conceive of a sort of social subjectivism, according to which feelings of satisfaction (to be generated) would replace more mundane material solutions of the social question.

Taken together, Rüstow's social-psychological and ideological approach embodied in his concept of a Vitalpolitik, and Röpke's sociological "structural policy," were the linchpins of the ordoliberal political project. Central to both was an imperative to strengthen the capitalist social structure with the provision of determined and sustained support to small and medium-size enterprises and to family agriculture. The members of the independent middle strata of society were considered the most important recruits for the ordoliberal policy project. They were to constitute the fertile soil ("Mutterboden," Röpke 1946, 224) of the desired order. Although they were extolled as the "healthy" core of an ailing society threatened by industrialization and mass culture, curiously, they were also considered an apolitical and uncompromised quantity still cognizant of "rendering to the king what is owed to the king, but also giving to god what belongs to god" (Röpke 1946, 223). In addition, the function of the middle strata as intermediate rungs in the climb up the social ladder was stressed time and again, not least by Müller-Armack (1947, 127), who referred in a more pragmatic manner to the reconciliation function of the "tremendously important intermediary and middle strata" of society. Thus, liberal ideas about social advance due to meritocracy were to some extent reconciled with considerations of natural hierarchy.

The reliance on a visibly strong state as evidenced by Ordnungspolitik (akin to Nazi ideology based on Carl Schmitt, as discussed later in this chapter) and an emphasis on the sociocultural foundations of individuals in the market economy (a key divergence from the anti-individualism of Nazi ideologies) became constitutive elements of Germany's “new” liberalism. The German ordoliberals sought their own response to the Social Question, in constant fear of what they regarded as the ultimate destructive powers of socialist organizing in mass production and society at large—exemplified by trade-union “monopolies” and the welfare state. They incessantly stressed the importance of sociopolitical integration, which was intended to mitigate the centrifugal forces of a market-oriented organization of society, by offering all and sundry alternatives to the proposals of social liberals and socialists. Whereas authoritarian elements of compulsory integration were emphasized in the first papers written by ordoliberals in the 1930s, this approach had to change after 1945—postwar circumstances no longer allowed embracing national-authoritarian approaches to sociopolitical integration.

Without a doubt, early Anglo-Saxon neoliberal thought was inclined toward a more brazen individualism and tended to impose stricter standards as far as the government's concrete tasks of social policy were concerned, in comparison to German ordoliberal theory and practice. However, neither Hayek's sharp criticism of the frequently quoted weasel-word “social,” nor his skepticism about the term social market economy, should rashly be interpreted as mounting an implacable opposition toward the approach developed by German ordoliberals. Hayek certainly was afraid that using the term social would lead to a tendency to fortify the welfare state against the ordoliberal intention. On the other hand, Hayek and even his “Spiritus Rector,” Mises, were keenly aware that the implementation of the market economy in Germany as a social market economy was a function of the specific political circumstances in West Germany after 1945. For without a flexible and pragmatic political approach, the reintroduction of a market economy would arguably have not even been feasible in the immediate aftermath of the war given widespread public awareness of and concern about the cooperation of capital, academia, and the Nazi rulers.

As German economic historian Knut Borchardt (1981, 36) pointed out, especially with regard to the flexible conceptual approach of the social market economy, the basic agreement of the German ordoliberals with the ideas of Hayek (and vice versa) is mostly underestimated.

The emergence of ordoliberal theory and its relevance as the basis of the social market economy can be factored into different stages of development: The Great Depression, the period of Nazi rule, and postwar reconstruction—stretching from the late 1920s to the early 1950s.

Not until the 1950s can one speak of a more or less coherent theory and practice of “new” liberalism in Germany, expressed by the special relationship between ordoliberalism and the social market economy. Even the term ordoliberalism occurred for the first time in 1950 and has been used as a widely accepted self-description since the late 1950s (see note 1), whereas the term neoliberalism originated in the 1930s and has been used only intermittently and ambiguously ever since (Walpen 2004, 73f.).

The economic base of the Weimar liberals was grounded in competitive new industrial sectors in chemicals and electronics to which the center-right liberal parties were closely allied. A broader political alliance was considered necessary at that time to curtail the economic and political power of the old, primarily inward looking and monopolistically organized steel and coal industries, which generally backed reactionary right-wing parties. Leading steel and coal magnates maintained monarchist and militaristic perspectives, and consequently supported a variety of anti-Weimar movements of the radical right. The political battles between the liberal and reactionary forces were bound up with numerous economic issues. State regulation of prices for coal and steel was proposed by liberals to limit what was regarded as an economic and a political abuse of the existing market conditions, which allowed economic monopolies of Germany’s old industrial core to control prices (Opitz 1973).

The world economic crisis unfolding between 1929 and 1932 marked the explicit starting point for ordoliberalism in Germany, at a time when liberal economists in other countries did not have much reason to expect many liberal impulses from German academic economics. “The only influential and active circle of theorists that until 1933 struggled with great effort, yet to no avail, for a free economy” (Hayek 1983, 12) had been the group of the so-called Ricardians in support of “free trade” who were organized in and around the Verein Deutscher Maschinenbau-Anstalten (VDMA), the lobby of the export-oriented engineering industry. This group, which centered around Rüstow, who had led the VDMA’s Department of Economic Policy since 1925, can be described as the nucleus of the new liberalism in Germany upholding free trade perspectives against the rising sentiment of regionalism and autarchy. Scholars like Hans Gestrich, Otto Veit, Hans Ilau, and Friedrich A. Lutz contributed to the reform of economic liberalism and held influential positions both in business associations and academia. They were to become leading representatives of German neoliberalism after 1945.

Without initially taking too much notice of each other, each of these authors tried to analyze the “crisis of capitalism” that had erupted since the late 1920s and announced a quest for a “new liberalism” (Rüstow 1932, 172). Their discussion focused on revision of liberal approaches to the state. The state was now newly identified as the momentous instrument needed to achieve the principles of a market economy. Despite significant differences in their analytical approach, all the authors were united in their effort to reject the common interpretation of the hitherto most severe crisis of the capitalist economy as proof of the failure of capitalism. However, they also regarded the world economic crisis as a wake-up call to search for a new theoretical and ideological justification for a free market economy, which all of them never doubted was the most effective economic system despite the Great Depression.

These early writings all made the explicit admission that classical theory had underestimated the necessity of a state taking active measures in ideal market economies, combined with scathing attacks on the actual political system of the Weimar Republic. It was largely the tendency toward the so-called Wirtschaftsstaat (Eucken's “economic state”) that was harshly criticized and blamed for shifting political and economic power to various organized interests. Owing to the rise of powerful special interests, the state was considered the easy prey of political parties (“Staat als Beute”: Rüstow 1932, 171). As a consequence, the state was rendered incapable of acting independently for the larger good, at least according to the early ordoliberals. They argued in favor of resurrecting the classical liberal dualism of state and society, but conceived of the need for a positive state authority superior to all the powers present in society. To posit “independent” state authority favorable to the functioning of the market thus required an active role in institutional design, one that resembles the subsequent efforts of public choice theory and rational choice-based neo-institutionalism.

Particularly during the early period, we have ample evidence that the emerging ordoliberal camp was not ready to accept public opinion formation under conditions of parliamentarian democracy, with people freely expressing and mediating diverging interests and economic positions (Ptak 2002). The ordoliberals' prescriptions were constructed according to the ideas of Ordnungspolitik: societal participation in decision making was to be reduced so as to affirm decisions taken on behalf of the public, all in the name of freeing the market economy from destructive group interests, turning it toward a competitive order, and letting it thereby realize its alleged inherent social potential.

In this paper delivered to the Deutsche Hochschule für Politik in Berlin, Rüstow also discussed the question of how to strengthen state leadership against parliamentarian democracy while respecting the Weimar Constitution. Once again referring to Carl Schmitt, Rüstow suggested a version of chancellor dictatorship, which would open up the opportunity to “within certain limits implement measures first, but later-on subject them to discussion in order to maintain democracy.” At this point, Rüstow was apparently convinced of the principle of plebiscitary leadership, although at the same time he did emphasize a temporal character of dictatorship, “so to say a dictatorship on probation” (Rüstow 1959, 99).

Neither Rüstow nor Eucken was keen to repress or disguise their critique of the democratization of the economy and society following the events of 1918–1919 and encapsulated within the Weimar Constitution. Both blamed the introduction of parliamentarian democracy for destroying the dualism of state and society, which in the past had secured a balance between state authority and free individuals. They also contended that through its dependence on political parties and the popular vote the government lost authority and the ability to exert leadership in society. After 1919, government authority was based on the “principle of horse trading,” according to Rüstow ( 1959, 91). He regarded the search for political compromise in the context of the Weimar constitutional state as an effort to evade political responsibility, which deprived the state of its capacity to act.

In addition to this display of an authoritarian bent, the early writings of Eucken, Rüstow, and Müller-Armack demonstrate that ordoliberal identity was mainly fueled by an opposition to major contemporary economic and political ideas, primarily against Marxist positions in general, but also against Keynesian economic theory, which had emerged alongside neoliberalism. “This frontal opposition explains its aggressive element” (Riese 1972, 27)—and has remained inherent in ordoliberalism up until the present day. By masking this negation as the starting point of building a theory, ordoliberalism eventually gained notoriety as a rather dogmatic theory designed to reassign legitimacy to the ideas of competition and the market.

Eucken thus developed his theory of market forms by leaning heavily on Stackelberg, who juxtaposed two basic types of economic systems—a centrally directed economy and a market economy—with a large number of theoretically possible variations. However, Eucken only posited a market economy framed by a political order that he considered economically viable and amenable to human beings.

Eucken's Grundlagen book focused on method and sought to produce a new synthesis of the "great antinomy" of historical and theoretical economics in Germany. Eucken developed pointed abstractions from which he derived ideal types that would help him develop a general theory of economic order, to "recognize the system of order and thus the structure of the economic order of each epoch and every people (Volk)." He believed his method would yield "useful tools" needed to describe the "concrete every day life . . . of every concrete economic order" (Eucken 1940/1943, 254f.; emphasis added).

Erhard’s last personal academic assistant, Horst Friedrich Wünsche (1997, 155), claims that the ordoliberals had no direct impact on his political thought, but this disclaimer is hardly convincing given Erhard’s rather close personal ties with many ordoliberals and the extent to which his theoretical position overlaps with their work. If the theoretical development of the “new” liberalism is fully documented, it is impossible to view Erhard’s concept of a social market economy in isolation. Erhard was an avid participant in the ordoliberal mainstream, although his orientation and focus were geared toward the more practical side.

As early as 1932, in his book Entwicklungsgesetze des Kapitalismus, Müller-Armack had contrasted capitalism with Marxist developmental theory, presenting capitalism as a process open to influence by “action” (Tat) and “will” (Wille). Decisive voluntarism could and would suffice to overcome the mounting crisis of capitalism. … His Das Jahrhundert ohne Gott (Century without god) eventually appeared in 1948, and his Diagnose unserer Gegenwart (Diagnosis of the present time) was published in 1949. The two books marked the timely completion of his transition from a fervent supporter of Italian fascism and Nazi Party membership in Germany during the 1930s to a proselytizer of (Protestant) Christianity as a key source for the postwar value orientation.

The very lack of a consistent economic policy under the Nazis—the Nazis' economic policy oscillated wildly between planning and competition at least until the war—reinforced the ordoliberals' hope of finding a sympathetic hearing for their authority-supported model of competition (Herbst 1982; Abelshauser 1999).

What certainly can be rejected as a mere cover-up is the claim that the ordoliberals who did not emigrate from Germany opposed, or even persistently resisted, the national socialist regime (e.g., Willgerodt 1998; Wegmann 2002, 55–72; Goldschmidt 2005). With the exception of the documented emigrants (Wilhelm Röpke and Alexander Rüstow), such a revisionist history of the wartime ordoliberals is not supported by facts. Papers published in Freiburg between the mid-1930s and the beginning of the 1940s unquestionably reveal that ordoliberal concepts were designed to be implemented under the auspices of a Nazi government.

At the same time, the economists who were on the road to ordoliberalism were not (necessarily) National Socialist economists. In spite of the totalitarian character of Nazi-Germany, it is very important to recognize and understand that different lines of economic thinking coexisted in Nazi Germany. Any analysis should therefore address the question of economics in Nazi-Germany in order to adequately address distance from and complicitness with the ruling powers and philosophies, as well as the changing perspectives and fortunes of individual economists over time. One must consider the multiform ways of relating to the Nazi regime (1) before and after 1933, when parliamentarian democracy and labor movement opposition were eliminated; (2) before and after 1938, when the pogroms against the Jewish population started in earnest; and (3) before and after 1942, which marked both the year when the Holocaust decision was taken and when the war fortunes turned against the Nazis in Stalingrad (Walpen 2004, 93f.).

With regard to more narrowly defined economic issues, the early ordoliberals were continually at odds with other schools of economic reasoning that operated during the Nazi era. As a rather coherent theoretical circle within the ordoliberal spectrum, the Freiburger Schule particular tried to promote a competitive order before and even during wartime. By developing policy advisory roles, they saw a chance to fill the economic theory vacuum in Nazi Germany with an authoritarian competitive order.

In any case, Wegmann (2002) and others who insist that a huge distance be maintained between ordoliberals and the Nazis fail to understand the considerable overlap of ordoliberal and Nazi critiques of parliamentarian democracy, trade unions, and the Communist Party in particular.

Reading the early critiques of parliamentarian democracy in the oeuvre of German ordoliberals and Austrian school neoliberals reveals the obscure authoritarian tendencies that were operating just beneath the surface of many neoliberals. These tendencies have reemerged time and again in eras of perceived danger to the neoliberal cause. These weaknesses for repressive regimes recur in the history of neoliberalism, as evidenced by Hayek's and Friedman's support of “free market economic policies” under the leadership of Pinochet in Chile, for example (see Fischer, Chapter 9 in this volume).

Their decisive advantage over other intellectual trends in the immediate postwar period lay in the ordoliberal nucleus, namely, the Freiburger Schule, which had been able to continue their work during the National Socialist era. Left-wing oppositional economists either had emigrated or been eliminated. … It was the Cold War constellation, however, that cleared the way for the prevailing one-sided representation of ordoliberal opposition to Nazi rulers: nearly everyone was welcome in the alliance against the widely perceived communist threat.

The extensive ordoliberal literature produced between 1945 and the founding of the Federal Republic in 1949 addresses five main themes: first, building an ideological front against collectivism in the form of the Soviet Union and its various Western varieties of economic democracy and planning; second, dissociating ordoliberalism from laissez-faire principles; third, justifying, modifying, and stating more precisely the principles of ordoliberalism (Ordnungspolitik), and applying these economic policies ("arranged" market economy); fourth, developing a frame in search of a community of people directed by market economy principles; and fifth, producing a constructive draft designed to combine society and economy in terms of a third way between capitalism (as a historically outdated order) and socialism (as a current threat), which finally materialized in the social market economy.

After distancing themselves to certain degrees from the ruling strata in the late Nazi regime, ordoliberals endeavored to cooperate with Western Allies at an early stage—before the end of the war (mainly through international contacts in Switzerland). The ordoliberal circle could also take advantage of the clean reputations of Röpke and Rüstow, both of whom had gained international respect as antifascist scientists. Capitalizing on Röpke as one of Erhard's and Adenauer's most influential advisers, but also on Rüstow, who as chairman of the Aktionsgemeinschaft Soziale Marktwirtschaft represented German neoliberalism in public, the Freiburg school benefited from earlier connections. Legitimacy provided by the exiled economists for this line of thought extended to the scholars who had stayed behind in Germany.

Various reasons explain the success of the ordoliberals in influencing the public economic debate. First, the ordoliberals came up with a culturally coherent concept of economic theory at a time characterized by political, economic, and social turbulence. The normative character of the Ordo doctrine sketching a prospective harmony of economy and society was attractive to a largely insecure population; despite their sympathy for anticapitalist positions, people were reluctant to become part of any new experiments. The popularity of ordoliberal concepts was particularly based on an ingrained mistrust of laissez-faire capitalism and partly on a stance that was politically favorable to strict antimonopoly policy. But the popularity was also due to the absence of coherent and persuasively elaborated rival concepts of Keynesian provenance in support of democratic socialism in Germany.

For Phillip Herder-Dorneich (1993, 13), the success of liberal reforms goes back to the German people, “who had experienced three years of social learning while almost starving to death.” Economic planning experienced then reflected a kind of “children’s fear” (Wallich 1955, 13). But the reforms were also facilitated by massive neoliberal propaganda, which denounced all manner of economic planning as another step toward poverty and deprivation.

The market-oriented reforms in postwar Germany were to a great extent stabilized and politically accepted because they were intellectually wedded to the concept of the social market economy. This concept was launched, not least as a result of the campaign launched by the dedicated employer organization Die Waage.

Between 1952 and 1965, large West German enterprises channeled DM 16.11 million for a political publicity campaign, with the purpose of establishing the social market economy according to ordoliberal principles. The campaign proved quite successful, contributing to general election results that were highly favorable to the conservative-liberal parties, which were closely tied to the corporate sector (Schindelbeck and Ilgen 1999; Ptak 2004).

The German neoliberal school managed to distance itself from classical liberalism by accepting authority for the shaping of economic policy, and by having the resources and capacity for design of a postwar new liberal policy for society at large. As far as economic theory was concerned, German ordoliberalism, unlike the Austrian school that emerged around Mises and Hayek, maintained a strong attachment to the neoclassical equilibrium model, as evidenced by Eucken's formalistic market model. This situation may also have been overdetermined, since the American victors were busy inserting "good" neoclassical economics into the reconstructed German universities (Bernstein 2001).

The ordoliberal ideal of a competitive order deprived of political power and working in a steady state of perfect competition could never have served as a blueprint for postwar reconstruction. Ordoliberals perceived neoclassical economics to be in need of further amendment in order to be translated into practical experience. How could the imposition of a free market compel or encourage already existing monopolies and oligopolies to give up their dominant economic position? … The ordoliberal model of a market embedded in various social and political institutions largely failed because of highly unrealistic expectations. Instead of tackling the current societal, social, and political conditions, it remained oriented toward an abstract ideal of society that displayed features of enlightened absolutism and preindustrial social structures.

At this point, the real functional significance of social market economy as a concept comes into play. Bridging the conceptual/practical divide was largely left to Müller-Armack, who turned this seeming deficiency into a thorough practical strategy of implementing a new liberalism in Western Germany. … Müller-Armack's aim was to promote the social market economy as a strategy for transferring the principles of new liberalism into potentially hostile political and societal spheres without neglecting the ultimate neoliberal objective of creating a new kind of strong state.

The fact that the social market economy was first and foremost a tool to attain a certain political objective, rather than a scientific theory per se, reveals why there is (still) no closed theory of the social market economy comparable to the older elaborate ordoliberal system. Aims and objectives were developed step by step in response to concrete political developments, rather than according to logical extrapolations and derivations from ordoliberal theory. Consequently, these aims and objectives display to a large extent flexibility and adaptability toward changing economic, political, and sociocultural conditions in society. Thus, it was because of the evolutionary character of Müller-Armack’s approach that over the years tensions would arise relative to the dogmatic and normative character of ordoliberal theory in practice. “Whilst the ordoliberal concept provides a concrete program for the political caste, Müller-Armack’s concept of Social Market Economy can, in a nutshell, be understood as a methodical principle” (Starbatty 1986, 16).

Indeed, two methodical principles determined the ultimate conceptual development of the social market economy: its evolutionary moment and the so-called irenic (meaning placatory or conciliatory) formula. In this sense, the original version of the social market economy represents an economic concept based on the German variant of neoliberalism, but yielding to political exigencies all the way down its historical path. The irenic formula provided the ideological support deemed necessary to pacify looming class conflict. Yet, Müller-Armack was well aware that the irenic formula would not endure forever as a general conception without continuous adaptations to changing socioeconomic realities and shifting configurations of power. A certain dexterity was required in order to address, preempt, or even dissolve emerging structural conflicts: “Of course, the tense situation, likely to arouse social conflicts, is subject to historical change and requires us to look for respective strategic formulas of this irenic balance again and again. Therefore, the social market economy is,” as Müller-Armack summed up the irenic idea in the early 1960s, “a strategy in the societal sphere; if it is successful and reaches its aim may never be decided exactly” (1962, 13; emphasis added).

Against this political economy background, we can now understand why it is so very hard to grasp the fundamental economic core of economic policy in the social market economy, though a few constants arguably determine Müller-Armack’s evolutionary approach. Starbatty denotes three indispensable invariants: (1) preserving the market economy as a dynamic order; (2) preserving the social balance which maintains the suppression of conflicts; and (3) securing stability and economic growth through competition and financial policies (Starbatty 1982). These imperatives, in a way, characterize a neoliberal program, which is determined by a defensive and pragmatic character and by an extremely high political sensitivity toward uneasy societal circumstances.

Given the range of worldwide neoliberal concepts, ordoliberalism as a specific continental European current was largely formed in Germany—and also in Turkish and Swiss exile—from the 1930s to the 1950s. Its distinctive characteristic is an elaborately developed theory of the state, which is held to be indispensable for the constitution and stabilization of the continuously aspired competitive order. German ordoliberal concepts entail a strong authoritarian element, which is displayed in a fundamental skepticism toward democracy: In this sense, the ordoliberal market society is a morally grounded and socially formed competitive society that is supposed to curb the acknowledged destructive potential of markets and special interests.

On the one hand, this concept can be assessed as a successful local implementation strategy for the transplantation of ordoliberal ideas into the West German postwar society of the 1950s. PR campaigns were successfully employed, in much the same way that one would sell soap or cars, to overcome the widespread skepticism of the West German people toward a market-oriented order of society. … Since the trade unions and the Social Democratic Party learned to use the concept in the same opportunistic way as the ordoliberals, persuading governments to expand the welfare state under continuous reference to the social market economy, the model increasingly lost its original neoliberal content. Thus, the social market economy as a programmatic concept was gradually afflicted with dissolution, first and foremost because of the evolutionary structure and flexibility inherent in its own argument.

The globalization of neoliberalism—powerfully advanced by neoliberal networks within and around MPS—has increasingly blurred the lines of original (German, Austrian, French, American) schools of thought.

Ordoliberalism can in fact be considered an embryonic neo-institutionalist doctrine avant la lettre, though a close examination of the relationship of ordoliberalism and rational choice-based neo-institutionalism has yet to be carried out in any serious way. However, ordoliberalism as a specific German variety of neoliberalism has gradually converged with Austrian economics and Anglo-Saxon versions of neoliberalism, especially in the field of competition theory proper.

According to Becker (1965, 41), the term Ordoliberalismus was first used by Moeller (1950, 224) to identify a specific neoliberal circle, the so-called Ordo-Kreis around Walter Eucken and his Freiburger Schule, which started to publish the Ordo Yearbook in 1948.

During World War II, Miksch, who had received his habilitation from Eucken in 1938, published highly relevant articles on issues concerning the wartime economy in a supplement of the business section of the Frankfurter Zeitung, called Wirtschaftskurve. This periodical is known to have echoed the wartime economy concepts of the planning office at the Ministerium für Rüstung und Kriegsproduktion (Ministry of Armament and Munitions). Immediately after 1945, Miksch became one of Ludwig Erhard’s most influential advisers, initially as political consultant in the public relations department of the Verwaltung für Wirtschaft. In 1948, after having been appointed head of the Grundsatzreferat der Preisabteilung (meaning Miksch was responsible for drawing the main lines at the department for setting and controlling prices), he set up the Leitsätzegesetz, which marked the transition to a market economy in West Germany in the same way as the currency reform did. Furthermore, Miksch is considered to have invented the As-If-Theorem. According to this theorem, state authorities should fix a competition price, if market competition is insufficient or fails completely (Miksch 1948). Miksch had joined the Social Democratic Party and was one of the few Social Democrats who joined the Mont Pèlerin Society.

Dürr’s first systematic analysis of ordoliberalism in fact suggests a complete distinction of ordoliberalism and neoliberalism primarily because of this difference: “The first and foremost difference between ordoliberalism and neoliberalism can be seen in the fact that the latter tries to further a ‘competitive order’ or ‘workable competition’ whereas the continental (German) ordoliberalism aspires to veranstalten a consistently ‘ordered competition.’ Secondly, the measures concerning the distribution of wealth and income display a more social liberal character” (Dürr 1954, 7). Similar efforts to amplify differences are soundly rejected by Wegmann (2002) and Nicholls (1984).

“There is nothing in the basic principles of liberalism to make it a stationary creed, there are no hard-and-fast rules fixed once and for all. The fundamental principle that in the ordering of our affairs we should make as much use as possible of the spontaneous forces of society, and resort as little as possible to coercion is capable of an infinite variety of applications” (Hayek 1991, 13).

7. Rüstow (1950, 50) formulated his opinions in the same vein: “competition pure . . . means complete incoherence, complete shortage of social viscosity where it alone rules social relationships. A fortiori it depends in complementary ways and as a precondition on the counterweight of strong framing forces of a different kind, on ethical and sociological ties that are otherwise secured.”

12. “We owe a great enrichment of our language to the Americans, because they were the ones who coined the characteristic term ‘weasel-word.’ This little predator . . . can allegedly suck the content of an egg without doing any harm to the shell. This reflects the fact that weasel words deprive terms of their actual meaning as soon as they are added. . . . [T]he term ‘sozial’ is the weasel-word par excellence. Nobody knows what it actually means. But it is definitely true that a social market economy is no market economy . . . social justice is not justice—and I am afraid a social democracy is no democracy either” (Hayek 1979, 16).

14. Walter Eucken’s Staatliche Strukturwandlungen und die Krisis des Kapitalismus (1932) and Alexander Rüstow’s Interessenpolitik oder Staatspolitik (1932) are typically referred to as the real founding documents. In addition, Röpke’s contribution on “Maxi-men rationeller Intervention” in his writing on state interventionism (1929) has been given pride of place from prominent neoliberals (see Hayek et al. 1979). To understand the critique of parliamentarian democracy, however, Rüstow’s 1929 paper “Diktatur innerhalb der Grenzen der Demokratie” (dictatorship within democratic confines, published in 1959) is of considerable importance.

Later ordoliberal writers like Willgerodt (1998, 48) are eager to qualify the early ordoliberal critique of democracy: "It is thus not so much a matter of radically rejecting pluralism, but to oppose a wrong way of political participation of economic and social groups from a liberal point of view."

While Reuter (1999, 72) recognizes the agreement of the neoliberal founding papers with Schmitt's analysis of the state, "they did not draw his conclusions." According to Reuter, "the difference is clear: Rüstow demanded the return of the liberal state, which additionally was to be in charge of protecting competition by establishing rules and supervising compliance." Milene Wegmann (2002) completely missed the double meaning of the term total state in her effort to contradict researchers who have correctly emphasized a close relationship between Rüstow's and Schmitt's state theory.

Egon Edgar Nawroth emphasized "that neoliberal academics are not so much interested in a serious controversy about the problems raised but rather in a conversation within their own four walls. This essentially amounts to nothing more than relentlessly repeating one's own theses while ignoring fundamental objections with silence" (Nawroth 1961, 18).

The AfDR economics group, founded in 1940 and headed by Jens Jessen, encompassed a total of nine working groups on the themes of economic history, economic policy, social policy, agricultural policy, money and credit, financial economy, price policy, transport policy, international economics, and a coordinating central caucus on economics. The ordoliberals congregated mainly in the economics and price policy working groups.

The ordoliberals bundled their normative concepts in the idea of a Wirtschaftsverfassung, that is, an organization of market economy under constitutional law. The idea of a kombinierte Wirtschaftverfassung was developed under the influence of Nazi Germany and referred to a combination of two Lenkungsprinzipien (“governing principles”) within the scope of this economic system: on the one hand, indirect governing via competition, and on the other hand—where required—direct governing by the state. This proposal was devised by early ordoliberals and marks a compromise, taking into consideration the National Socialist primacy of politics without dispensing with an economic system dominated by competition.

28. Abelshauser (2004) challenged the ordoliberal interpretation of the “German Miracle” crediting pro-market reforms. High growth rates were rooted in the long-lasting phase of rebuilding the economy after the war, a modern system of production that was less damaged than many thought and in excellent international economic condition in the aftermath of the Korea crisis.

29. First thoughts on liberal criteria for economic interventions were presented by Ludwig von Mises in the 1920s, but they needed systematization according to Röpke (1929; 1979), however, without ever leading to clear-cut positions.

30. This irenic element is borrowed from the German sociology of religion and describes the claim to solve socioeconomic conflicts, inevitably emerging in market economies peacefully, that is, without neglecting social adjustments.

Roth, Karl-Heinz. 2001. "Klienten des Leviathan: Die Mont Pèlerin Society und das Bundeswirtschaftsministerium in den fünfziger Jahren 1999." Zeitschrift für Sozialgeschichte des 20. und 21. Jahrhunderts 16(2): 13–41.

Wünsche, Horst Friedrich. 1997. “Erhards soziale Marktwirtschaft: von Eucken programmiert, von Müller-Armack inspiriert?” In Ludwig-Erhard-Stiftung (ed.), Soziale Marktwirtschaft als historische Weichenstellung. Bonn—Düsseldorf: ST Verlag, 131–169.

Our objective in the present chapter is to relate the sequence of events that led to the rise of the Chicago School of economics. This chapter in many respects is a revisionist story, grounded more directly in archival evidence than in the personal reminiscences that have tended to be the staple of this area in the past. It situates the rise of the school at a very critical juncture of events at a very specific date, namely, 1946. It subverts certain widely held notions about the history of economics, such as the mistaken conflation of the rise of the Chicago School with the larger rise to dominance of neoclassical economics in postwar America, or the supposed continuity of social doctrine that was thought to characterize the preand postwar Chicago School, as well as the belief that it was some “core scientific theory” that provided the backbone of the school, whereas the applications in such areas as law and business only came later. Although space limitations prevent us from giving a comprehensive account of the later shape of the Chicago School, this chapter nevertheless downgrades any idea that some abstract analytical characterization of the economy formed the nucleus around which the school crystallized (such as Reder’s concept of tight prior equilibrium), and replaces it with explicit political orientation, something that weighed very heavily on the minds of all the main protagonists. Indeed, our central thesis is that the rise of the Chicago School must be understood as one component of a specific larger transnational project of innovating doctrines of neoliberalism for the postwar world.

This chapter diminishes the importance of certain figures who have often loomed large in the folklore, such as Frank Knight or Jacob Viner; it reevaluates the role of others, such as Milton Friedman; and it elevates to prime positions some neglected figures such as Friedrich Hayek, Henry Simons, and Aaron Director. The tale is studded with poignant ironies, such as the fact that the prime external contractor for the erection of the Chicago School would not then be accepted as a member in good standing of the Economics Department once it got off the ground; or that the prime architect so despaired of ever convincing the subcontractors to get the foundations laid that he committed suicide.

As part of his larger campaign to warn the Western world about the imminent threat of left-wing totalitarianism, Friedrich Hayek (then still an economist at the London School of Economics) delivered a lecture at the Economic Club in Detroit, Michigan on April 23, 1945.1 He was on a book tour promoting his surprise best-seller, The Road to Serfdom (1944). In Detroit he proselytized: “I think there is a great educational task to be fulfilled. We must make the masses of people learn and understand the problem that is before us, make them capable of discriminating between methods which will achieve the end and methods which are empty promises, and particularly tell them that there may be desperate palliatives like inflationary measures which in the short run may keep employment high, but in the long run make the situation much more difficult than it was before.” Within two days of the event, Hayek met with the businessman Harold Luhnow—then president of the Volker Fund—in Chicago. Luhnow offered to provide financial support for Hayek in his educational quest, since he too had been searching for intellectual weapons to curb the power of government in the postwar era.

Luhnow had become president of the William Volker & Co., a national furniture distribution company and window-shade manufacturer located in Kansas City, Missouri in January 1938. Luhnow was a strident anti-New Deal conservative and was then in the process of converting a philanthropic fund originally intended to help the citizens of Kansas City into something completely different: a foundation to promote a rethinking of liberal politics in America. The Fund, which existed from 1932 to 1965, would play a major role in conservative intellectual politics in twentieth-century America.

At the meeting Luhnow sought to commission Hayek to write The American Road to Serfdom. The original text had been composed with a British audience in mind and perhaps had been pitched at too elevated a level of discourse for American audiences. Subsequently, Hayek in his later book Hayek on Hayek claims that he did not take Luhnow's offer seriously, but says that he spoke at length with his "great friend" Henry Simons about it in Chicago (Hayek 1994, 127). Hayek also claimed that he "had to report to Luhnow in the course of the journey that I couldn't do anything about it," and that he initially declined Luhnow's offer after returning to England. Nevertheless, Luhnow cabled back and gave Hayek the authority to determine the course of the project, including subcontracting the authorship of the revised Road, to which Hayek agreed (Hayek 1994, 127-128). However, an epistolary exchange between Hayek and Luhnow challenges Hayek's personal reminiscences: apparently, Hayek had been much more receptive to the opportunity, because he regarded it as potentially constituting something much more ambitious. Hayek actually wrote Luhnow from Chicago on May 3, 1945, before returning to England: My friend, Mr.

As a sign of the seriousness with which the offer was regarded, other participants in “the first Chicago discussions of the project [included] Jacob Viner, Robert Hutchins, Karl Brandt, and [Dean Robert Redfield],” in addition to Simons and Lutz, and most probably Aaron Director and possibly Milton Friedman. Since he is often thought to have been unsympathetic to the politics of those involved, the early and close participation of Hutchins, the soon-to-be chancellor of the University of Chicago, will prove important. Hayek, however, was not the only one who was ebullient about this prospect; so too was Henry Simons of the Chicago Law School.

Hayek and Simons’s intellectual friendship dated back as early as 1934 when Hayek sent an appreciation of Simons’s Positive Program for Laissez Faire (SPRL, Hayek to Simons, December 1, 1934, box 3, file 40). By 1939, a close comradeship had developed: Simons then commiserated with Hayek over the British political landscape: “For England, however, it seems impossible to hold out even a slender hope. England, to be sure, may still be saved, but not by her own actions—only by the example of a wise and successful liberal program in the United States. So, I welcome your contribution to discussion here and, hoping that you will again write for American readers, I suggest that this may be the most useful contribution you can make toward the cause of liberalism in England and elsewhere.” Hayek had earlier praised A Positive Program for Laissez Faire: “I have the greatest sympathy for the general spirit which it expresses and I feel that it does raise the problems which economists ought to discuss to-day more than others.”

Simons, however, did not make such a seemingly anti-free market proposal on conventional socialist interventionist grounds, but rather on a purely classical liberal basis. Like Hayek, Simons believed that the liberal safeguard of freedom is the most important objective for public policy, and denounced political control unless it was unavoidably necessary to promote a freer market. Yet unlike most post-1946 Chicago School economists, Simons deeply distrusted nearly all concentrations of power as inimical to both political and economic success: “Thus, the great enemy of democracy is monopoly, in all its forms: gigantic corporations, trade associations and other agencies for price control, trade-unions—or, in general, organization and concentration of power within functional classes” (Simons 1948, 43). Concentrations of power posed a threat to the “heart of the contract,” and thus to relative prices, which should adjust freely to reach competitive equilibrium. Because the “heart of the contract” is the sine qua non of freedom, “A monopolist is . . . an implicit thief because his possession of market power leads to the exchange of commodities at prices that do not reflect underlying social scarcities” (De Long 1990, 606). … The role of government, therefore, should be to maintain a propitious market milieu—a legal and institutional framework, a correct level of currency, a definition of private property, an initial allocation of endowments—where competition, the agency of control, can function effectively.

Simons’s “Positive Program” reads today more like a left-leaning attack on corporate prerogatives than anything we might associate with a neoconservative agenda, but in the 1930s it was situated well within the bounds of classical liberalism. After the abolition of corporate monopoly, Simons also proposed the abolition of private deposit banking predicated on fractional reserves; the revision of the tax system to achieve greater equality of wealth and income; and the “Limitation upon the squandering of our resources in advertising and selling activities” (1948, 57). … First and foremost on his reform agenda was “elimination of private monopoly in all of its forms” (1948, 57).

From his marginal position at the Chicago Law School, with Volker's encouragement, Simons soon became the center of gravity for the group of Chicago economists Hayek had begun to imagine as a dedicated cadre to pursue his political goals. This was more than a pipe dream because Simons enjoyed close personal relations with President Robert Hutchins, who would help in multiple ways to facilitate what Simons had come to call “the Hayek Project.” … In the intellectual sphere, Simons and Hutchins shared a certain fondness for Adam Smith, perhaps regarding one another as embattled classical liberals.

Faithful supporters of Hutchins, such as Simons and John Nef, an economic historian, soon embroiled themselves in conflict with the Economics Department. Perhaps because of his warm relationship with Hutchins, Simons entered the fray, upbraiding the “six burghers” for what he thought obstreperous and counterproductive tactics. Apparently, Viner countered with a reprimand of his own, to which Simons rejoined: “You may be right in analyzing my case as a persecution complex. However, . . . you have recruited many dubious, timid, and diffident persons. This augments your power, for timid souls will not desert even though they regret having joined—you probably don’t need them now anyway; and it increases your moral responsibilities.”

By the mid-1940s, Knight and Simons's research had undergone unprecedented divergence, and not just because they were now located in separate departments. Knight, according to Simons, was “increasingly preoccupied with philosophy and philosophies, not to mention historians, theologians, and anthropologists, et al., and is not deeply interested in concrete problems of economic policy.” Partly because of the divarication that now characterized their intellectual relationship, their personal relationship by early 1946 had grown distant and impersonal.

To facilitate and direct the collaboration, Simons wasted no time in drawing up an ambitious plan to recast the Chicago landscape. … I have contrived a project largely for what one might call ulterior purposes: (1) to get Aaron Director back here and into a kind of work for which he has, as you know, real enthusiasms and superlative talents. . . . Moreover, I have deliberately formulated the kind of project for which this University would be the natural location and for which Aaron would be the natural choice as head . . . I am sorry to have organized Lutz out of the picture—and hope he might be “organized in” again from time to time or permanently. He is probably the best choice for your kind of project; but Aaron seems a better choice for mine, if only by the nature off his own preferences and interests—although Lutz, in turn, would be a better choice for my project if it were located at Princeton.

Aaron Director is therefore the third main protagonist in our account of the origins of the Chicago School and represents the other major link to Hayek. After undergoing conversion from leftist politics in the early 1930s at Chicago, Director had been working at the U.S. Treasury. In 1937, Director sailed to England to write a dissertation under Viner on the quantitative history of the Bank of England. When the Bank unexpectedly thwarted his efforts, Director became more closely associated with Arnold Plant and Lionel Robbins at the London School of Economics (LSE). In 1939, Director sailed back to Washington, where he worked until 1946. In 1938, his sister Rose married Milton Friedman.

Director frequently commiserated with Hayek over politics from his own perch in wartime Washington: “In a future war we must give some consideration to economizing the use of authoritarian control, this not so much because it has alternative uses but because the supply of good controlled is very limited, and because its utilization may accustom us to accept it after the war is over” (1940, 360).

Director’s assessment was rather pessimistic, however. Most of the conclave attendants had concurred with Simons’s memo in principle, but all had registered disagreement with Simons’s more elaborate vision of a twenty-year project that aimed to advance the tradition of liberal economic doctrines and influence public policy. There was, for instance, some hesitation about Hayek’s “Austrian” methodological proclivities. Instead, Director and the others “would assign more importance than he does to a certain amount of empirical investigation—directed of course to the central issue of maintaining competitive conditions. An investigation of the economies of scale and inevitability of monopoly suggest itself as an illustration. An incidental advantage of the inclusion of empirical work is greater ‘saleability’ so that it would not be necessary to insist on as on a period as twenty years. Assured existence for 8 to 10 years—perhaps even 5 or 6 years—might in fact imply some assurance of an extension to the maximum period of twenty years."

It is important to realize that, for Hayek, these negotiations over Chicago and the parallel construction of what became Mont Pèlerin were all part of the same common endeavor.

In August 1945 Hayek conceived of the American Road project at Chicago as a subordinate part of a larger and more comprehensive scheme—a political movement to counter the intellectual traditions that would, as Hayek thought, inexorably lead to the emergence of totalitarian regimes throughout the Western world.

Luhnow expressed no interest in it and tellingly objected to Hayek's “International Academy” because “experience has already proven in too many cases that it is almost impossible to keep control of organizations of this sort and, frankly, our main interest is in the proposition we outlined to you.” A modicum of control of any such organization was of paramount concern for its patrons: they were not willing to underwrite just any arbitrary conclave of self-identified political liberals.

Luhnow agreed to underwrite Hayek's trip and emphasized once more that his primary objective was to find someone to compose a text that a layperson could comprehend, a plan for “a workable society of free enterprise.” He suggested the book How We Live by Fred G. Clark (1944) as a stylistic model for the American Road to Serfdom. One doubts if Hayek had ever seen a copy, for if he had, he would have immediately soured on Luhnow. How We Live was a large-print book, with didactic pictures facing each page of “text,” which itself consisted of single-sentence paragraphs written for people who still moved their lips as they read. The quality of argument resembled a fourth-grade civics textbook.

Thus the Volker Fund financially supported and stage-managed Hayek's 1946 American tour; it reimbursed Hayek for all of his traveling expenses while in the United States and arranged for Hayek's sojourns or meetings at various universities.

Hayek thought that negotiations had flagged because Director had wanted to be granted permanent tenure and that negotiation had only regained steam after the Volker Fund offered to pay Director’s law school salary for the first five years. Director later publicly admitted: “It was earlier decided that Chicago was the only place that was likely to accept such a project, and it was also decided that the law school was the only part of the University of Chicago that would accept such a project” (Kitch 1983, 181). Thus, while Hayek depicted the Law School as the intellectually ideal location in correspondence, it was in fact the only serious prospective location for the American Road Show; other universities tended to balk at the level of control that Volker sought to exert as a condition of funding. But this would later prove significant, since it illustrates the important fact that the subsequent “Chicago Schools” of both economics and the law were jointly incubated—one did not simply give rise to the other.

The existing Economics Department, given its wartime depopulation, was in no shape to boast a dominant ideological orientation or to attract external funds. The Cowles Commission, an externally endowed economics research institution, was mostly stocked with self-identified socialists. The department also sported a rump representation of older-style Institutionalist economists. These factions would have surely scoffed at such an openly antistatist-oriented unit: but they were mostly kept out of the loop.

Surely Hutchins’s liberal bent went a long way toward facilitating the logistics for the Free Market Project, as it became known, and his attenuated scruples concerning taking money with strings attached did the rest. Perhaps this was because he was coming off the experience of the Metallurgy Lab in World War II, and as he admitted in an internal memo in June 1946, “It seems likely that within the next five years the Government will become, directly and indirectly, the principal donor of the University.” Hutchins was therefore looking for some private antistatist funding to offset the looming postwar influence of the federal government on Chicago intellectual life and the University at large.

The prospective Free Market Study sought to define the political promise of a new, more economically oriented liberalism: “The free market [is] the most efficient organizer of economic activity—[the Study will] emphasize and explain that the free market is systemic, rational, not chaotic or disorderly—, show how the free market performs some of the more difficult functions, such as allocating resources to their best use and distributing consumption through time.” The project also intended to examine the relationship between the free market and political and personal freedom. For our purposes, however, it is more important to note that under the rubric of “the promise of the free market,” the outline identified both private monopoly and public regulation as “The Menace to the Free Market,” with the latter being deemed more “dangerous.”

Hayek responded to Luhnow with shocking tragic news: Henry Simons was dead; he had committed suicide on June 19. Hayek lamented: "I have just had the sad news that Henry Simons has suddenly died in Chicago. He was so much the intellectual centre of the group I had in mind and the attraction which made Director willing to go to Chicago that I cannot yet see what the consequences of it will be." Hayek continued, "I had become very fond of him. I wish I knew somebody to replace him. But if my scheme collapses as a result I really don't know where to turn." Given the precise timing, it is difficult not to imagine some connection between Simons's suicide and the Director snafu. It thus seemed that the whole plot to pave the American Road had hit an insuperable obstacle.

Director, stunned by the dreadful news, wrote Hayek: "By now you will have learned of the great tragedy which has befallen us. My own loss is great in any event. It is magnified by the regret that I allowed myself to be persuaded to go on with your project. This may have taken Henry Simons' thoughts away from other problems. But rejection of the project by the administration added but another to the many disappointments he received from the University."

Hayek's reassurance must have lifted Director's spirits, for he replied promptly, informing Hayek that he would agree to accept the five-year post without promise of tenure. Director then pledged his allegiance to Hayek: "I need not assure you that I consider your project of the greatest importance, or of my permanent interest in the issues at stake. You know the source of my hesitation. Henry's death has of course accentuated this." Thus, we observe that Hayek played the instrumental role in persuading Director to go to Chicago and in making the Volker project happen; furthermore, Friedman did not play any equivalent role. Director had written Hayek: "Milton Friedman may be in touch with you. I talked with him briefly; he is no longer as enthusiastic as he was, it may be because of his reaction to the practical implications for me." This action, we argue, demonstrates Hayek's indispensable and pivotal role in the creation of the Chicago School.

William Volker Charities Fund, Inc., accepts Dr. Hayek's proposal and we are prepared to contribute $25,000 per annum for three years in the course of which this study is to be completed. In addition, we agree to contribute a further amount of not more than $10,000 per annum for a period of two years to cover the salary of Mr. Director for the period of two years after the investigation is completed. Also we agree to defray the expenses of the members of the Advisory Committee as they are brought to Chicago for a discussion of this study, this also to include the expenses of Dr. Hayek for any trips he makes to Chicago in further supervision of this project.

As soon as the show got on the road, Luhnow moved with alacrity to further assert his prerogatives over the Free Market Study by inserting some of his deputies into the process. After acceptance by Director and the official concurrence by the Chicago administration, Luhnow wrote Hayek: "We presume that the large Advisory Committee will be set up rather promptly and we believe that it should be well thought out and I would like to ask that Leonard B. Read and Loren B. Miller be included on this Advisory Committee." Luhnow also mandated that "the suggested Advisory Committee be submitted to Loren Miller for his examination before it is actually announced." Luhnow thus ensured that men conforming to the Volker Fund's political philosophy would oversee the progress of the Free Market Study project, even from its outset. Hayek had no option but to agree.

Luhnow probably objected to what he considered lackluster libertarian enthusiasm in Schultz. Nevertheless, Hayek insisted that Schultz not be excluded: “If I am not mistaken somebody, contrary to Mr. Miller’s view, had rather singled out Professor Schultz as the only reliable person of my group and I had then explained that he in fact was the one among them who I knew least, but that he was indispensable as head of the department of economics in Chicago. . . . But my impression is that he will be entirely neutral, although he may occasionally plead for compromises which I trust the other members of the committee will reject.” Luhnow later capitulated, and Schultz remained on the Executive Committee. Hayek, who clearly had felt that Friedman did not have a sufficiently influential connection with the Economics Department, insisted on including Schultz as an essential component of the committee. From 1946 onward, Hayek would often exert a commensurate strategic moderating influence wherever coalitions were being recruited to the neoliberal agenda, as in the Mont Pèlerin Society.

In 1946, Leonard Read, a businessman and important figure in the postwar right, had obtained a loan from the Volker Fund to purchase property in Irvington, New York and create the Foundation for Economic Education (FEE), an organization the Volker Fund subsidized for many years. Read tended to see the world in black and white, which was why he had earned Luhnow's trust: "There was no big tent in Read's world. There was only a core group of ideas. You could either take them or leave them . . . ." Not surprisingly, Read advocated an inflexible stratagem for defeating socialism: "to move beyond denunciation to 'upholding its opposite . . . expertly, proudly, attractively, persuasively'" (quoted in Hoover 2003, 188). Apparently, the late Simons was not judged sufficiently infused with political virtue for Read, because he would shortly criticize Simons's posthumously published Economic Policy for a Free Society: Some of us here have carefully gone over the galleys of "Economic Policy for a Free Society" by Henry Simons.

At this crucial juncture, we can observe the major protagonists engaged in intense negotiations as to what it would mean to launch a Chicago School of Liberal Economics. A number of things become apparent, which have been absent from previous historical accounts. First, it was the legacy of Henry Simons that was perceived to be at issue in the nascent formation. The mere fact of a seminar identifying itself as being "pro-free market" was not sufficient for concocting a credo to which all parties could subscribe. Second, Luhnow and the Volker officers were not mere pecuniary accessories to the rise of the Chicago School: they were hands-on players, determined and persistent in making every dollar count, supervising doctrine as well as organization. Third, all and sundry depended on Hayek to keep the project on an even keel: no one else on home ground seemed to possess as much intellectual gravitas or deft punctilio as Hayek. In particular, Frank Knight was nowhere to be seen in the archival records of these negotiations.

After all, the stated objective was to produce an American Road to Serfdom, and this entailed something more than a minor adjustment of accent when transporting the text across the pond. The politics of postwar America presumed not only a powerful state, but also a configuration of powerful corporations whose international competitors had mostly been reduced to shadows of their former selves. In promoting "freedom," they were primarily intent on guaranteeing the freedom of corporations to conduct their affairs as they wished. Thus, the Volker Fund was not interested in bankrolling a classical liberal economic position resembling that of Henry Simons, for it did not adequately correspond to their objectives. American corporations did not fear concentrations of power and generally favored the existence of a powerful Cold War state. It is our contention that the Volker Fund pushed for a reformulation of classic liberalism in the American context to conform to its Cold War antisocialist agenda.

We indeed strenuously dispute this notion, on the basis of the information provided in the first section of this chapter. But beyond the factual error of mistaking Knight for the actual progenitors (Simons and Director and, most of all, Hayek), it is necessary to insist that identification of the founder of the Chicago School makes a profound difference to our understanding of the rise of neoliberal economics in the postwar period. We have our own personal doubts as to whether Knight could have successfully organized and orchestrated a weekend picnic, much less a major transnational intellectual movement; but luckily that question need not be settled here. Rather, the misattribution of founder status to Knight has had two pernicious consequences: it has diverted attention away from the fact that the inauguration and establishment of the Chicago School constituted just one component of a much more elaborate transnational institutional project to reinvent a liberalism that had some prospect of challenging the socialist doctrines ascendant in the immediate postwar period.

Once we acknowledge Friedrich Hayek's pivotal role in getting the Chicago School up and running by the fall of 1946, and then turn our attention to the first meeting of the Mont Pèlerin Society in Vevey, Switzerland, in April 1947, we can begin to appreciate the extent to which the dual start-ups of the two landmarks of the history of postwar neoliberal thought were intimately connected. The MPS is generally regarded as the central locus of the development of neoliberal doctrine in the postwar world. Yet we observe that Hayek provided both the intellectual impetus and the organizational spadework for both the Chicago School and the MPS, while the initial funding for the Swiss meeting came from European funds raised from corporate sources by Albert Hunold and from American support provided mainly by the Volker Fund.

That MPS and the Chicago School were joined at the hip from birth is verified by the fact that most of the major protagonists were present at the creation of both organizations: Director, Friedman, Wallis, and Knight. When the MPS was legally constituted, it was registered as a nonprofit corporation in Illinois, with offices formally listed as located in the University of Chicago Law School; Allen Wallis served as treasurer during the initial phase of 1948–1954 (Hartwell 1995, 45). … Law, religion, history, and scientific philosophy would be as relevant as economics in the search for a rejuvenated liberal creed.

The ultimate purpose of institutions such as the MPS and the Chicago School was not so much to revive a dormant classical liberalism as it was to forge a neoliberalism better suited to modern conditions.

The classical liberalism of the eighteenth-century philosophers was a theory of natural tendencies in human nature, which might have been stifled or misdirected by misguided understandings of the natural order. It took as its benchmark the “obvious and simple system of natural liberty [which] establishes itself of its own accord,” as Adam Smith put it in Book IV of his Wealth of Nations. It was this conception of liberty that Friedman cited as the prior “creed”: a political doctrine so transparent and robust that one did not need either to organize special cadres to argue out its core tenets or to forge cabals to encourage its practice. The previous theorists of classical liberalism had exhibited a tendency to be either such inveterate optimists that they would perceive no need for concerted political and social organization in the interests of liberty, or else curmudgeonly elitists who would feel soiled by participation in actual political activity. The building of political movements and the innovation of lasting institutions for the purpose of spreading liberal doctrines was not a natural part of the heritage of either wing of the tradition.

The term neoliberalism was apparently coined at the Colloque Walter Lippmann in Paris in 1938 (Denord 2001; also Chapter 1 in this volume; Lemke, 2001, 204) to herald the appearance of a new orientation toward the previous liberal tradition. The term was also briefly entertained by Milton Friedman (1951) to indicate the ambitions of Chicago and Mont Pèlerin. Interesting here are the repeated evocations of neoliberalisms before the fact, since it is our impression that much of the content and practice of the new position was in fact progressively worked out over the period 1946–1980, but not exclusively at Chicago and MPS.

A doctrine as protean as neoliberalism resists simple definition, as noted by Dieter Plehwe in the Introduction; but a few salient features especially relevant to Chicago can be sketched here. The starting point of neoliberalism is the admission, contrary to classical liberalism, that its political program will triumph only if it acknowledges that the conditions for its success must be constructed, and will not come about “naturally” in the absence of concerted effort. This notion had direct implications for the neoliberal attitude toward the state, the outlines of what they deemed a correct economic theory, as well as the stance adopted toward political parties and other corporate entities that were the result of conscious organization, and not simply unexplained “organic” growths. In a phrase, “The Market” would not naturally conjure the conditions for its own continued flourishing, so neoliberalism is first and foremost a theory of how to reengineer the state in order to guarantee the success of the market and its most important participants, modern corporations. Neoliberals accept the (Leninist?) precept that they must organize politically to take over a strong government, and not simply predict it will “wither away.”

However, Chicago neoliberalism transcends the classical liberal tension between the self-interested agent and the patriotic duty of the citizen by reducing both state and market to the identical flat ontology of the neoclassical model of the economy. (The situation prevalent at MPS was much more complex.) “Freedom” was recoded to mean only the capacity for self-realization attained through individual striving for a set of necessarily unexplained (and usually interpersonally ineffable) prior wants and desires. Once this new lexicon was firmly set in place, it became impossible within this discourse to regard any economic transaction whatsoever as coercive (Smith 1998, 80), which was a massive departure from prior classical liberal discourse.

The purpose of the MPS and the Free Market Study was to debate possible trajectories for the future of liberalism, not prematurely chisel them in stone. Nevertheless, some striking departures from classical liberalism grew out of the MPS and/or the Chicago School, and these have direct bearing on the widespread impression that there subsisted political continuity with prewar liberals like Simons, or indeed, Frank Knight.

This, in turn, led to one manifestation of the engineering mentality to be co-opted by the neoliberal right, in that ambitious schemes to reengineer the state from within (fixed money growth rules at the Federal Reserve; school vouchers to privatize public education; abolition of the draft; institutionalized corporate oversight of governmental medical and pharmaceutical regulation; flexible exchange rates between national currencies enforced by transnational regulators) tended to displace classical Burkean gradualism and conservatism. In a further imitation of natural science, freedom was redefined as a purely mechanical "choice" that could be exercised in each and every sphere of social life.

Knight, and possibly Hayek prior to the early 1950s, had decided that "science" was having a nefarious intellectual influence that threatened market liberties. But Wallis and Friedman and their Chicago followers soon came to realize that it was a deadly error to set one's political commitments as pitted against science in the era of the Atomic Bomb. Their embrace of statistics and their evocations of the mystique of science thus became one of the major neoliberal calling cards of the Chicago School.

Princeton refused to hire Hayek on such terms as they offered: "In the past, the Institute has not accepted, and in the future it probably cannot properly accept, funds as specifically allocated by the donors as would be implied by your offer." Hayek complained to Viner, who responded, "I think you are going to run into the same situation at any of the respectable institutions."

The possibility was raised of a position within the Economics Department. The deliberations occurred in the fall term of 1948, only two years after the launch of the Chicago School. The Economics Department, however, flatly refused to appoint Hayek. Friedman, by then an active member of the Economics Department, claimed to have had no say in the matter (Ebenstein 2001, 174), but we find this implausible. Others have noted Friedman's uncharacteristic defensiveness when queried about this incident (Caldwell 2004, 297n10). … The Economics Department welcomed his connection with Social Thought, although the economists had opposed his appointment in Economics for years before largely because they regarded his Road to Serfdom as too popular a work for a respectable scholar to perpetrate. It was all right to have him at the University of Chicago so long as he wasn't identified with the economists. (Nef 1973, 237) Ironically, after Hayek had worked so assiduously to bring about the collaboration of liberal-minded members of the Law School, Economics Department, and Business School, not one of these units could find it in their interest to extend Hayek an offer.

Ironically, after Hayek had worked so assiduously to bring about the collaboration of liberal-minded members of the Law School, Economics Department, and Business School, not one of these units could find it in their interest to extend Hayek an offer. Instead, Hayek was relegated to the Committee on Social Thought.

For putative believers in the sanctity of contract, the Chicago cadre was amazingly cavalier about the terms of their agreement. This was no simple imperative to produce a text on time and within budget, or so it seemed; there were no penalties for default. Most notably, Aaron Director did not fulfill his original contractual obligation to finish the American Road by the spring of 1952, nor did he ever. Yet it is important to note that the Volker fund did not withdraw its funding out of dissatisfaction with Director; nor was Director expelled from Chicago for violating the original terms of his employment. Here we observe that, at least for the Chicago players, politics proved stronger than “the market.”

Capitalism and Freedom, a corporate neoliberal version of Road to Serfdom, appears to have finally provided Luhnow with the book he had arguably paid for many times over. The Preface to the book reveals it is a Volker product through and through, although it neglects to mention the Free Market Study, or indeed, any of the rest of events we have related herein. The fact that the author was Friedman, and that publication took so long, reveals the patience, flexibility, and tenacity of the Volker Fund in pursuit of their political objectives. Not only did they get a document that recast conservative politics in a mold much different from that pioneered by Henry Simons, but also one that Luhnow would find more salubrious.

"The wider are the range of activities covered by the market, the fewer are the issues on which explicitly political discussions are required" (p. 24).

If anything, the 1962 book is far more simple-minded than its original inspiration. It claims that "economic freedom is an end in itself" (p. 8), only to absolve itself of ever having to define "freedom" (p. 26). In contrast to Road, it makes no effort to conduct a dialogue with socialists, nor indeed anyone else who might disagree with it. … Market power was simply waved away with the Friedmanite recourse to the notorious doctrine of the as if: "I have become increasingly impressed with how wide is the range of problems and industries for which it is appropriate to treat the economy as if it were competitive" (p. 120).

It appears that the residual hostility in the Economics Department and the alteration in the curriculum of the Law School account for Simons's external appointment.

It will soon become important for our story to realize that Simons's uncompromising vision of classical liberalism as opposition to power in all its guises later proved an embarrassment to the subsequent neoliberal Chicago School.

We must stress that at this juncture the initiative did not come out of the Economics Department, a point central to the larger thesis of this chapter.

Oskar Lange, the economist star of the Cowles Commission in the later 1930s and an avowed socialist, resigned his position at Chicago in 1945 to return to his native Poland. Before leaving, Lange handpicked his successor to run Cowles to be Jacob Marschak.

One should not interpret this as full agreement between the mentioned parties, but rather evidence of Simons promoting Chicago in ways he knew to be only partly faithful to events on the ground.

Simons had been urging the Economics Department to hire Stigler and Friedman since 1944: "Stigler and Hart we need now or very soon. Friedman should be 'kept on the shelf,' against the contingency of our having to replace Lange or Marschak, or against the possibility of Mr. Cowles offering funds for another major joint appointment" (SPRL, Simons to Leland, November 17, 1944, box 8, file 11). There is no evidence that Simons had the support of the Cowles Foundation in this plan. However, one letter suggests that Simons sought to diminish the influence of Cowles in the Economics Department. In August 1945, Simons writes: "If Lange is leaving, we should go after Milton Friedman immediately. It is a hard choice between Friedman and Stigler. We should tell the administration that we want them both." (SPRL, Simons to Leland, August 20, 1945, box 8, file 9).

The Volker Foundation later instituted the "Antitrust Project" at the Law School under the guidance of Director, upon the model of the Free Market Project described herein. This is further explored in great detail in Van Horn (2007) and in Chapter 6 of this volume.

The Volker Fund budget included funds to pay for visiting professors and like expenses. Director made good use of this capacity in the "Anti-trust Project" he ran at Chicago. On this, see Van Horn (forthcoming).

There are a number of documents bearing the names of different authors, which purport to outline the same Free Market Project. However, it is probable that the scheme of May 1946 was roughly identical to the one Director drew up in 1945.

This letter reveals that Hayek's acquaintance with Friedman came late in the process and that he had not been considered the primary partner in the project.

Unfortunately, we do not know the exact source of Director's hesitation; one plausible explanation might be that Director feared this project might taint his career in the same way that the Road to Serfdom had tainted Hayek's, making future academic employment difficult in an American academic milieu. Indeed, this was the interpretation of John Nef (1973, 237). Another plausible explanation might be that Director felt some misgivings about returning to the University of Chicago because in 1934 an animus in the Economics Department toward his outspoken libertarian views may have played some role in prompting him to leave.

We are claiming here that Hayek was especially sensitive to the interpersonal dynamics of building political coalitions in a way that many of the stalwarts of the Chicago School were not, and not that he was especially open to diversity of thought as a sine qua non of a liberal position, as was the case with, say, John Stuart Mill.

The interventions of the Volker staff at the University of Chicago after 1946 are too numerous to be covered in this chapter; see, however, Van Horn (2007).

It is not a fallacy found only on the right: "It was Knight more than any other economist who was instrumental in creating an atmosphere at Chicago conducive to the production and dissemination of libertarian disciples" (Tilman 2001, 1).

The sanctioned internalist history by Hartwell (1995) is distinctly uninformative about such intellectual and social matters. More serious historical work is beginning to appear, such as Walpen (2004); Plehwe and Walpen (2005); and Laurent (2006).

67. HPHI, box 73, folder 14. Simons had initially helped Hayek become better acquainted with representatives of the American foundations, such as the Rockefeller Foundation, for helping with the promotion of his international society: “The main purpose of this letter is to pass along a suggestion of my friend William Harrell, Business Manager of the University. He points out that your scheme for intellectual cooperation with German scholars and historiographers—your Acton-Tocqueville Society—is a ‘natural’ for support by the Rockefeller Foundation” (SPRL, Simons to Hayek, July 2, 1945, box 8, folder 9). Rockefeller had been intermittently subsidizing Hayek since his Vienna days at Mises’s business cycle institute.

George Stigler, who would only join the Chicago Department in 1956, was also present. Stigler (2005) gives an account of this meeting, but misrepresents the purpose of the meeting as a “celebration of classical liberalism.”

The British ambassador to the United States reported in March of 1945: “Wall Street looks on Hayek as the richest goldmine yet discovered and are peddling his views everywhere” (quoted in Hoover 2003, 184). For example, Hayek and Hutchins entertained “Laird Bell, Chairman of the Board of Trustees of the University [of Chicago]; John Ivy, an oil operator from Huston, Texas; Meyer Kestenbaum, President of Hart, Schaffner and Marx; William J. Kelly, President of Machinery and Allied Products Institute; Oscar Mayer, President of Oscar Mayer & Company, meat packers; John L. McCaffrey, President of International Harvester Company; and Hermon D. Smith, Vice-President of Marsh & McLennan, Insurance” (HPHI, Hutchins to Hayek, January 12, 1950, box 55, folder 1).

In their opinion, arrangements between organized labor and capital paved the way to the institutionalization of a quasi-corporatist regime, which implied a terrible threat to the market economy and, in their view, a free society. That is precisely what one of the most prominent of neoliberal thinkers, Friedrich A. Hayek, argued in his famous pamphlet published in 1944, The Road to Serfdom (Hayek: 1993 , 145–148). In fact, Hayek identified this issue as the thorniest question that neoliberals would have to tackle in the postwar world. … Hayek delegated to the MPS the task of formulating "an appropriate program of labor or trade-union policy." As he insisted, "if there is to be any hope of a return to a free economy, the question of how the powers of trade-unions can be appropriately delimited by law as well as in fact is one of the most important of all the questions which we must give our attention" (Hayek 1949, 117).

The Society was an intellectual arena in which theoreticians of particular schools of thought—mainly ordoliberalism, the Austrian School, and the Chicago School—exchanged and confronted each other’s ideas. But the MPS was also a place to hobnob with some luminaries of the intellectual faction of the capitalist elites, persons in close contact with several highly influential businessmen (both in Switzerland and the United States) who supported the Society financially from its foundation. Thus, MPS discussions often began with theoretical issues but rapidly moved on to practical issues in direct connection with the types of problems that the capitalists had to confront, such as the union question.

At the end of the 1940s, one can roughly describe the dominant position on unions within the MPS as entertaining a not unfriendly stance toward them. At the outset, many MPS members were willing to argue that valuable cooperative arrangements between trade unions and employers existed elsewhere, particularly in Europe. From their experience, it seemed that labor leaders could come to understand the ways that their own interests converged with those of their employers. Besides, it could be argued that a nationally centralized wage-bargaining process resulted in certain political benefits for the capitalist class. This faction argued that the unions’ open-minded attitude might permit some form of inclusion in the conduct of the enterprise, at least in several specific areas such as social policy.

Interestingly, the main theme of debate turned out to be the participation of labor in the conduct of enterprise, something that presupposes the existence of an active partnership between the employer and the unions. Like Rappard in 1947, many MPS members were convinced that a program of labor leaders' education in the benefits and necessity of adhering to principles of a free society should be a cornerstone of a neoliberal agenda.

Not unexpectedly, other MPS members found this prospect unappealing. At the same meeting, other members sought to clarify to what extent they would allow unions to be involved in the conduct of the enterprise. For example, Karl Paul Hensel, another ordoliberal, proposed to codify the rights and duties of unions and employers in a sort of "industrial labor constitution." At that time as assistant to Walter Eucken, one of the founding fathers of ordoliberalism, Hensel was very anxious to regulate the conflict between labor and capital at the point where it originated, that is, inside the enterprise, and therefore to improve the legal position of the trade unions, which he described as being as weak as possible in the German context.

Hensel's endorsement of a co-management of social affairs by worker elected councils at the enterprise level was close to the legal stipulations of the Mitbestimmungsgesetz of 1952, though Germany's trade unions eventually succeeded in undermining the efforts to limit trade-union influence to some extent by securing strong ties of individual works council members and the trade unions. Hensel instead aimed at constraining trade-union influence. He never referred to the concept of "co-determination" as such, and he counseled caution regarding the organization of joint labor-management committees that advise management on concrete business issues.

Hensel's enterprise-level representation of workers endorsed a very limited version of co-determination, however, compared to the much further reaching demands of Germany's trade unions of a democratic reconstitution of the capitalist economy. Union proposals for co-determination centered on trade-union influence on economic decision making beyond the enterprise at sector and macroeconomic levels (e.g., directing investment flows), for example (compare Deppe, Von Freyberg, and Kievenheim 1969).

Thus, Hensel prognosticated that neoliberals might make use of this industrial labor constitution to abolish existing ". . . one-sided prerogatives" and to equalize ". . . the rights derived from property in material goods with those derived from the working power within an industrial enterprise" (Hensel 1949, 13); but also to institutionalize the claims of the laboring partners to the net income (Hensel 1949, 16) and the selection of managers (Hensel 1949, 17).

Albert Hunold was not as reluctant as Hensel to appeal to a kind of solidarity (even he would never use such terminology) between employers and employees. During 1949, Hunold served as the MPS secretary and its main fundraiser, but he had also enjoyed close connections with Swiss elites since the 1930s. With regard to European social policy, Hunold was tireless in denouncing increasing state intervention, particularly in Germany, Belgium, Holland, and Switzerland. Yet when it came to the issue of trade unions, he described as legitimate two different types of formal combination between employers and unions in social policy: the first one at the industrial level (community of trade), the second at the firm level (community of enterprise). In both cases, he believed that these combinations would tend to encourage and reinforce labor participation in the conduct of business.

Sharing Hunold's concern was Stanley Dennison, an English economist who along with Hayek shouldered responsibility for preparing the whole 1949 meeting on labor participation. As Dennison argued in his own paper, English joint labor-management control could be considered to be quite successful on one point. It had indeed proved an acceptable way to prevent the arbitrary intervention of the British Ministry of Labor in the conduct of business, which "contains a worst threat to our social order than does a good deal of monopoly in a labour market which is still essentially organised as a balance of opposing forces. . . . Here I find my sympathies in Britain with the trade unions however much their monopolistic tendencies, together with many of their policies, are to be deplored, in the main they are still, in Britain at least, one of our bulwarks against worse evils; and, paradoxically enough they are one of the few remaining props of a market economy in labour" (Dennison 1949, 10).

To them, the “classical” form of unions had changed irreversibly after World War I in Europe, and perhaps since the mid-1930s, even in the United States. From then on, unions were considered to be fully recognized by the law, by employers, and by public opinion. They had attained the status of politically legitimate quasi-public institutions, with indispensable functions for the stability of the social order.

On the fundamental level, a more “friendly” attitude to the unions appeared to be a timely and judicious means to reinforce moderate labor leaders as against their comrades who wanted to radicalize workers’ organizations. Educating those open to persuasion concerning the tenets of a free market society would be the preliminary perquisite of the neoliberal program. Once they were sufficiently indoctrinated, the next level would be to usher them into the antechambers of the conduct of enterprise. Nonetheless, their participation in the structures of management was understood as harboring all manner of dangers. Economically speaking, their interventions could disturb business investment—and thus, earnings—by substituting political criteria (maintaining employment, employee purchase power, etc.) for economic rationality. It would be easy to portray union participation as the Sorcerer’s Apprentice, with the tendency to misallocation of resources inside the enterprise becoming a threat to the entire price system. Thus, it was taken as a necessary corollary that labor’s participation in management had to be limited to social and personnel matters. Above all, safeguards would have to be in place to restrain their presence where their voices could disturb investment choice. All of these ideas, far from being purely theoretical abstractions, formed the ideological basis of the German employer associations’ discourses on co-determination in postwar Germany and during the 1950s.

The neoliberal version of a calculated companionship of mutual interest and integration between unions and employers had been dominant inside MPS circles since the end of 1940s. However, a few key MPS members refused to consider any such alliance as the correct attitude of a refurbished liberalism. Since 1944 Hayek, for example, strongly criticized a “deliberate collaboration between organized capital and organized labor” because it would be conducive to the growth of monopolies and detrimental for the larger community (Hayek 1993 , 148).

In November 1946, he received an offer from William K. Jackson, ACC president and United Fruit Corporation chairman, to deliver a paper on wage determination to an ACC Economic Institute gathering. Jackson signaled: “we strongly believe that nothing today threatens our competitive economy more, at this particular time, than the superficiality with which we generally see the issues in our collective-bargaining controversies” (Jackson to Machlup, November 25, 1946, HIA FMP, 30.14). But Jackson also enlisted Machlup’s help in changing current attitudes toward wage determination prevalent among ACC members. Indeed, the ACC was then divided between firms that had already accepted New Deal policies and labor practices with their consequences for the collective bargaining machinery and nonunion firms that had resisted such a trend. Thus, according to Jackson, this particular ACC meeting was intended to serve as a rallying point for nonunion enterprises, fortifying those who wanted to hear some protolibertarian voices on union policy.

Prompted by Jackson, Machlup agreed to read a paper on "Monopolistic Wage Determination as a Part of the General Problem of Monopoly" at the Economic Institute in January 1947 (Machlup 1947). In this paper, Machlup argued that American unions did not learn the hard lessons from the past: there was no evidence they were ready to moderate their wage demands. To the contrary, he raised the specter of the economic and political danger of spreading syndicalism and of a labor monopoly, in particular on control over real wages. He also looked askance at government regulation of wage rates resulting from collective bargaining. His proposals for reform were to break down large unions to smaller size (by prohibiting industrywide wage bargaining) and to prohibit state intervention during the wage-bargaining process. … To restore full employment, Machlup suggests curbing labor monopoly power in four ways: educating union leaders, prohibiting state aid to unions, eliminating closed shop rules, and, in particular, downsizing the average union. The downsizing proposal, which Machlup considered politically feasible, sought to limit the union size to that of the plant level and to prohibit any combination between different unions.

Machlup retorted by describing as "romantic" Rappard's vision of responsible union leaders restraining their wage increases simply because somebody had taken the time to educate them (Graham 1947, 215). Machlup was also troubled by those who placed their faith in industrial peace: "Industrial peace is something we should be afraid of, as it can only be bought at the cost of further distortion of the wage structure. I am most afraid of Professor Iversen's proposal for wage determination by State, and consider it to be the end of democratic government" (Graham 1947, 215).

In the 1950s, the FEE devoted its efforts to discredit New Deal liberalism and to undermine the power and legitimacy of organized labor (Fones-Wolf 1994, 8; Jacoby 1997, 232, 242; 326–327n.17). During this period, Vernon Watts participated in this campaign by publishing articles and pamphlets, most notably a bitter critique of unions (Watts 1954). In 1947, Watts ardently testified that “concentrations of economic power [are] necessary for incentive purposes” in case of capitalist firms, but interestingly, not for unions. The reason for the differential, wrote Watts, was that the unions have imposed their power by using legalized violence. As for Machlup, dismantling large unions was a matter of neoliberal necessity.

In 1947, Machlup and Watts’s nascent position reflected the first halting steps of a neoliberal literature on unions toward the position that analyzed them in terms of monopoly power and delegitimated this labor monopoly power because it was established by legalized coercion. This important literature emerged in the 1950s, almost all of which was connected with the MPS or its Volker-funded affiliate, the FEE. This literature appeared as the counterpart in economics of the concurrent political assault on American unions and those in business or in government that supported them. For example, these works promoted an extremely critical stance on the national wage-bargaining process, arguing that this machinery was just an attempt from unions combined with compromised employers to manipulate prices to the detriment of consumer sovereignty.

Because of the way the lines were being drawn, it is not surprising that those who financially supported the antiunion economic discourses and those who operated through anticommunist organizations or free market institutions, like the FEE, turned out to be one and the same. It was the case for J. Howard Pew (Sun Oil Company) and Jasper E. Crane (DuPont), two major funders behind MPS activities. In the 1930s, both men initiated the earliest campaigns against the New Deal via the National Association of Manufacturers. Fiercely anticommunist, Pew and Crane invested in FEE and its campaigns in favor of free enterprise ideology (see Chapter 8 by Phillips-Fein in this volume). In 1947, Crane became a MPS member; Pew did as well in 1954. Both had been major donors to the MPS since 1958.

Because of his preeminent role in financing the meeting, Crane sought to intervene massively in the meeting's program to the detriment of Hayek, who served more as a secretary than as an intellectual organizer of this meeting (Steiner 2007, chapter 4). … At Crane's bidding, Hayek organized a full session on the problems of unions, essentially based on the works of Sylvester Petro.

Also invited by Hayek and Crane to give his point of view on the question was Harold Gregg Lewis, who pursued the same theoretical line as Petro (Lewis 1958, 5). According to Lewis, the monopolizing activities of American unions resulted in a wage increase of 5 percent or more each year. In his view, the inflation rate inevitably followed this trend. This “significant labour monopoly problem” illustrates the growing economic influence of unions that tended to be correlated with the growth of union membership after the mid-1930s. “The main cause [of both trends was] a change in public policy toward trade unions” (Lewis 1958, 1) where the turning point appeared to be the Norris-LaGuardia Act. In addition, this change in public policy encouraged “awful” union practices (discriminatory limitation on admission to union membership, closed shop, boycott, and even racketeering).

Proposals to counteract these deleterious consequences were deemed necessary, and Lewis proceeded to explore some of them. He suggested a vast legal reform program to reduce labor monopoly in order “to purge the law of its pro-monopoly features” (Lewis 1958, 6). He called for the elimination of the Norris-LaGuardia Act, the National Labor Relations Act (which provided the legal framework of the National Labor Relations Board), and the legislation, including minimum wage laws, designed to protect or promote labor monopoly. But even that draconian proposal did not seem sufficient to Lewis, who then proposed what he called a “limitist approach” in unionism matters: to prohibit all large-scale concerted action among employers and employees (Lewis 1958, 7). His proposals also encompassed intervention in the organization of unions and prohibition of membership in the union as a condition of employment at the plant level. All of these proposals should be considered as the reorientation of existing structures toward competitive unionism and, eventually, a freely competitive labor market.

Ilau disagreed with proposals for the elimination of the right to strike or the right of self-organization, such as those by Lewis. According to Ilau, “politically it is not conceivable to abolish these institutions in a free society. Therefore the only problem is to endeavor to prevent inflation risk due to the abuse of these rights by labor unions. This seems to me the central point. I do not believe that labor legislation can do much here” (Ilau 1958, 4). Ilau instead saw that the way forward was to domesticate trade-union leaders and thereby accustom labor unions to accept wage moderation, as well as to prevent recourse to strikes, as in the Swiss case since 1937.

But this success was not the primary source of inflation: “the rise of wages in Germany . . . has not been due to coercion by unions, but to the favourable business conditions. . . . Therefore it is more accurate to say that an inflationary situation caused this marked rise of wages than to say that the rise of wages caused an inflationary situation” (Ilau 1958, 3; emphasis mine). Ilau prognosticated that the first cause of an inflationary situation lay in a phenomenon of “imported inflation,” which was a consequence of a too-low German exchange rate. “Therefore I think that monetary policy is a far more important factor for the value of money than labor-relations legislation” (Ilau 1958, 3).

In his view, the legal disarmament of trade unions was not the essence of a free society, but rather its repudiation. Inside the MPS, this perspective tended to disappear in the 1960s, as political “freedom” became increasingly conflated with economic freedom for the capitalist.

Traditionally, Hayek's position on unions has been enshrined as the foundation of the neoliberal standpoint on this question (Schulten 2004, 71–76). According to Hayek, unions are a perversion of the “spontaneous order,” and as such, an exception to the rule of law. Indeed, governments have failed to prevent the unions' use of coercion and violence, since their behavior has been protected by law. This unlimited power allowed unions to occupy powerful positions in the wage-bargaining process, or in some instances, in the conduct of enterprise. In both cases, employers are portrayed as helpless, unable to resist union power and thus forced to accept wage increases. Unions are thus put in the artificial position of being able to manipulate wages in relative terms. However, if wages are distorted in this way, costs and prices will be misallocated. In such a situation, the market, as a device for signaling changes in supply and demand, is disrupted and unemployment results on the labor market. In this manner of framing the situation, unions represent the foremost threat to the economic order and free society. Consequently, Hayek urged a legal disenfranchisement of unions and the restoration of a well-functioning rule of law.

However, Hayek's standpoint reflects only one side of the discussions that occurred in neoliberal circles during the 1950s. In the plurality of neoliberal viewpoints expressed on unions, Hayek opted for the most radical version, the one least tolerant of the very existence of unions. This was the version that scholars like Machlup and Petro, both former students of Mises, supported from 1947 to 1958. As this chapter has demonstrated, this view was fostered primarily in the American context and reflects the political and social interests of an ultraconservative fraction of employers, who regarded existing European practices with disdain. In opting for contempt, Hayek explicitly rejected another potential neoliberal position, which considered that a solidarity of interests between capital and labor could sometimes be appropriate and beneficial. The hostility to this alternative position went far beyond mere disputation over appropriate economic and social theory. Hayek felt it necessary to condemn those comrades who defended it and to describe such an alliance between employers and employees as “the crudest type of socialism, commonly known as syndicalism” (Hayek 1959, 292). In his Constitution of Liberty (chapter 19 on Labor Unions and Employment), Hayek simply omits neoliberal authors who were advocates of the alternative, only referring to “serious” neoliberal authors such as Machlup, Hutt, Petro, and Mises. From that time forward, the Hayekian position became the dominant neoliberal perspective on unions, notably because those who defended a more cooperative view with unions lost their influence in neoliberal circles. This shift is all the more important to consider in the present context, given that in many other theoretical disputes within the MPS, Hayek was not able to prevail.

Interestingly, Hayek proposed inviting Hutt as a replacement for Machlup, who was unable to attend the meeting in 1949 (Hayek to Dennison, February 10, 1949, FAH, 73.10). This proposal came from Machlup, who persuaded Hayek to include Hutt in the Seelisberg meeting (Hayek to Machlup, January 26, 1949, Fritz Machlup Papers (hereafter FMP), Hoover Institution Archives, 36.

Economist Carlo Mötelli was a Swiss journalist at the prestigious Neue Zürcher Zeitung. His friend Albert Hunold, and, to a certain extent, William Rappard, were both largely inspired by ordoliberal theories, particularly the works of Wilhelm Röpke and Alexander Rüstow.

With Gottfried Haberler, Fritz Machlup was Hayek's assistant at the Osterreichisches Institut für Konjunkturforschung, an institute founded in 1927 by Hayek's mentor Ludwig von Mises and financed by the Rockefeller Foundation. Machlup did his dissertation under Mises's supervision. Both Hayek and Machlup were active participants in Mises's Privatseminar in the 1920s.

Also, in 1956, Hayek and Wilhelm Röpke, both MPS founding members, strongly diverged on the role of unions at the Berlin meeting. As reported by a Swiss journalist and MPS member, Ernst Bieri (Neue Zürcher Zeitung), Röpke was unconvinced by Hayek's severe condemnation of unions. To Röpke, they proved their usefulness in the defense of free economy as the Swiss case demonstrated. Condemnation of unions per se was then an absurdity (Bieri 1956).

After the war, he became administrator of the Board of the Rhine Main Bank. In 1958, he was director of the Chamber of Industry and Commerce in Frankfurt.

On unions, another well-known divergence can be seen between Milton Friedman and the other contributors to McCord Wright's book. Friedman argued that the impact of trade unions on wage structure was not generally as important as expected in then-orthodox economics (McCord Wright 1951, 202–259).

"With a more detailed and historical analysis, it becomes evident that the neoliberalism is not singular, but plural. From basis-common elements he knows indeed very various developments. That plurality of neoliberalism is not a weakness, but constitutes a strength in the context of a Hegemony Theory standpoint" (Plehwe and Walpen 1999, 206).

Once upon a time, classical liberals were wary of monopoly as inherently inimical to democracy because in their view it undermined a necessary condition for democratic politics to flourish, namely, a competitive market. In the 1930s, Henry Simons, a respected University of Chicago professor and self-proclaimed classical liberal, described monopoly in all its forms—including large corporations—as “the great enemy of democracy.” As World War II drew to a close, however, the heirs to liberalism—both in Europe and the United States—worried that they needed to create a more robust liberal doctrine to prevent its demise and to stave off the looming threat of totalitarianism.

For MPS members, the issue of monopoly loomed so large primarily because of the way their opponents on the left had framed it. The left had been arguing that since the start of the twentieth century monopoly had been expanding apace throughout the United States and Western Europe, such that the bulk of the economy—owing to this inexorable growth—would inevitably soon be controlled by monopolies. The left predicted that the forces of competition would continue to prove ineffectual in the face of such growth. Consequently, they insisted that the only rational solution was socialist control of the economy. This tenet of the program of the left threatened the very cogency of liberal optimism and was one of the major motivations for the MPS liberals to rethink liberal doctrine.

As the FMS wound down in 1951, Hayek helped secure the funds for another law-school-based project, the Antitrust Project (1953–1957), with Director again at the helm and with Edward Levi—by then dean of the Law School—as second in command. Though it initially aimed to concentrate on the issue of monopoly, continuing where the FMS had left off, the Antitrust Project subsequently enlarged its focus to numerous areas of antitrust law. Nevertheless, it preserved the investigation of monopoly as a collateral but an important aim. This chapter documents the years of painstaking efforts of the Chicago neoliberals—as they would later be called—to reformulate the classical doctrine with respect to monopoly and corporations, and their deployment of these changes to help reinvigorate the liberal position toward antitrust issues.

Given, however, that the MPS project of reconstruction was a transnational effort, the Chicago contingent was not the only group investigating these issues. In 1951, as Friedman observed, "The doctrine sometimes called neoliberalism . . . [had] been developing more or less simultaneously in many parts of the world" (1951a, 91). A German cadre, later known as ordoliberals, or German neoliberals, was also occupied in reconsidering the classical liberal conceptions of monopoly and corporations, and in developing what became known as ordoliberal competition policy. However, unlike the Chicagoans, the Germans had begun their efforts in the mid-1930s (Gerber 1998, 234–235); by the late 1930s, the theoretical foundations of ordoliberalism were more or less in place. Despite the fact that both groups actively participated in the MPS, these two research initiatives turned out to be largely disengaged in practice, each influenced by different institutional and legal components within their respective country.

Given the limitations of space, it is not feasible here to cover both the German ordoliberals and Chicago neoliberals in their quest to redefine monopoly in the immediate postwar period. The primary focus here will be on the efforts of the Chicago group. But before charting the development of the Chicago neoliberals, this chapter compares Chicago's position circa 1947 regarding monopoly and corporations with that of the German ordoliberals. At that juncture, these two groups had relatively similar attitudes toward monopoly and corporations. In order to demonstrate this similarity, I will turn to the first MPS meeting. Its participants included steadfast Chicago defenders of freedom, such as Director and Friedman, and staunch German ordoliberals, such as Walter Eucken and Wilhem Röpke. This turns out to have been the only meeting in the first two decades at which a representative of the Chicago School addressed the issues of monopoly and corporations. Specifically, Director delivered a lecture on the topic, "Free Enterprise or Competitive Order." The aspect that is quite telling about this disquisition is that Eucken and other ordoliberals present voiced no substantial objections to Director's claims. Because scholars typically portray the Chicago position on monopolies and corporations as inherently contrary to the ordoliberal position, this seems to be a surprising occurrence. I will explain the surprising reticence of the ordoliberals by arguing that in 1947 ordoliberalism and the incipient Chicago School shared an important common premise. Both schools of thought lauded and respected the work of the renowned classical liberal Henry Simons.

The third section looks at each individual in turn, showing how his opinion during the later years of the FMS (1950–1952) or during the period immediately following the FMS sharply diverged from his earlier opinions, thus providing evidence of the timing and emergence of neoliberal doctrine at Chicago (at least with regard to these particular topics). Notably, the birth of neoliberal competition theory occurred roughly four years after the FMS commenced; this was a notably short period of time. By contrast with Henry Simons, the triumvirate of Director, Friedman, and Levi began to advocate the idea that monopoly, in all its forms, was almost always undone by the forces of competition; and consequently that a relatively sanguine attitude should be adopted toward both monopoly and large corporations. The corporations were said to have approximated the impersonal ideal of the market, even in what would appear, by conventional measures, to be fairly concentrated markets.

Essentially, Director and Levi (1956) demonstrated an unprecedented skepticism about the extension of monopoly power via exclusionary practices, such as tying arrangements or price discrimination, and a concomitant disdain for adjudication or legislation that regarded these practices as per se deleterious or per se illegal.

As the FMS wound down, in 1951, Jacob Viner—a classical liberal and renowned economist who left Chicago for Princeton in 1946—recollected his experience at a Volker-funded conference headed by Director and Levi at the Chicago Law School: "[Everything] about the conference except the unscheduled statements and protests from individual participants were so patently rigidly structured, so loaded, that I got more amusement from the conference than from any other I ever attended . . . even the source of the financing of the Conference, as I found out later, was ideologically loaded."

Scholars almost invariably portray the Chicago School and ordoliberalism as propounding contrary major premises regarding monopoly. For example, Chicago neoliberals are said to maintain that competition has a self-correcting power, which ensures that monopoly power is short-lived. Ordoliberals, on the other hand, are not champions of self-healing competition: “Ordoliberal policy does not rely exclusively on the long-term process of self-healing of the overall society [through competition], but protects the individual’s economic freedom of action as a value in itself against any impairment of excessive economic power” (Möschel 2001, 5). Although such characterizations are in broad outline correct, they tend to lead to the blinkered generalization that Chicago liberals and German liberals have always been at loggerheads over the issue of monopoly (and the issue of corporations). In fact, in the immediate postwar period, these two schools held relatively similar positions on these issues. One reason was their intellectual inspirations had a common ground: Henry Simons.

Ordoliberalism, like classical liberalism, maintained that a free enterprise system was necessary for a free, prosperous, and equitable society. Unlike classical liberals, ordoliberals advocated that a competitive economic system should be grounded in a specific “constitutional” framework; this, according to Gerber (1998), was the signature contribution of ordoliberalism and its significant departure from classical liberalism. For ordoliberalism’s vision of society to become a reality, society needed both a political constitution and an “economic constitution.” The political and legal decisions that would give rise to society’s economic system would determine the nature of its economic constitution.

Thus, “Government did not ‘direct the process’ of the economy. It merely established the ‘forms’ or structural conditions within which those processes could function effectively” (Gerber 1998, 248). Ordoliberals called this “indirect regulation,” which comprised “constitutive” and “regulative” principles. Constitutive principles—the fundamental principles of economic policy—served to establish the form of the economic system. They included monetary stability, open markets, private property, contractual freedom, liability, and policy consistency. Regulative principles flowed from constitutive principles, functioning to maintain the efficaciousness of constitutive principles.

Ordoliberals considered competition law the keystone of their program: “Monetary and other policies designed to foster competition would have little effect, ordoliberals argued, if firms could act in concert in setting prices or determining output, or if firms with economic power could use that power to foreclose opportunities for competition” (Gerber 1998, 250). Competition law served both to create and protect the conditions of complete competition; “it had to block the anti-competitive mechanisms which society can spawn” (Lemke 2001, 195). It sought to prevent monopoly power, to extirpate existing monopoly power, and—if dissolution was not feasible—to control conduct stemming from monopoly power. Ultimately, it served to eradicate private monopoly power, such as cartels and, importantly, exclusionary practices. In general, in keeping with the classical liberalism exemplified by Director in 1947 and by Simons, ordoliberals sought to eliminate monopolies, minimize “big business,” and support an economy comprised of small and medium-sized firms.

Director supported the idea of a reconstituted liberal: “The theory of liberalism must be extended to include a prescription of the role of the state in making private enterprise the equivalent of competitive enterprise” (p. 77). However, in promoting these changes, Director was adhering to the classical liberalism of Simons.

In keeping with Simons, Director steadfastly believed that the liberal doctrine needed, above all else, to champion freedom by “promoting the dispersion of power necessary for competitive order” (pp. 77–78). Notably, Director observed that a substantial amount of monopoly power existed in the free enterprise system. To create a working competitive order, Director, like Simons, advocated state action on three fronts: (1) preventing private monopoly; (2) controlling combinations among workers and businesses; and (3) providing monetary stability.

Regarding industrial monopoly, although Director maintained that international trade normally provided a check on industrial monopoly, he admonished that this was not a sufficient check. Antitrust law was also needed to play a critical role. Concerning the United States, Director indicated that antitrust law had lessened but not eliminated private monopoly. He suggested that heightened antitrust enforcement and additional policy measures were necessary to deal with the substantial extent of industrial monopoly. For Director, additional policy measures were needed to target patent law and to address the inequality of income and inequality of wealth that stemmed from exercised monopoly power. Regarding patent law, he stated: “A study of the American antitrust cases discloses the crucial importance which patents on inventions have played in creating and maintaining industrial monopoly.” Regarding the inequality of income and wealth, he asserted, “Some of the existing income inequality of income and inequality of wealth reflects the monopoly power of industry.”

Interestingly, Director asserted that antitrust laws were “mere stopgap measures.” Radical corporate reform also needed to be undertaken. He maintained that classical liberalism failed to adequately address the scope of power of corporations and trade unions. … The unlimited power of corporations must be removed. Excessive size can be challenged through the prohibition of corporate ownership of other corporations, through the elimination of interlocking directorates, through a limitation of the scope of activity of corporations, through increased control of enterprise by property owners and perhaps too through a direct limitation of the size of corporate enterprise.

Although Hayek and the Volker Fund had cooperated to bring about the composition of an American Road to Serfdom, Aaron Director—the individual anointed with this primary responsibility—never finished the book by the conclusion of the FMS around 1952. … The first half of the FMS essentially was devoted to debate over several possible trajectories of a reconceptualized liberal doctrine, whereas the last half basically served to consolidate a chosen trajectory. It is evident, however, that from 1946 to 1947 Director and Friedman were more than a little unclear as to how to accomplish this convergence; and that at that point in time Levi still clung to his classical liberal convictions.

Director sought research grounded in empirical analysis and devoted to investigation of the facts underlying economic policy. A palpable corollary of such an analysis would be the facilitation of the development of a more robust liberal policy. Although the FMS could have pursued numerous research avenues, after the first couple of meetings, it quickly narrowed its focus to issues concerning monopoly and corporations. This suggested the FMS members' desire to respond to the left's understanding of monopoly.

Director proffered two alternative explanations for industrial concentration: "Of course we could start from the position that existing concentration has already reached a point which makes it objectional from a political point of view, or again we may start from the position that the existing concentration results in the most efficient use of resources and does not eventuate in significant departures from competitive behavior." In suggesting that the existing concentration was politically objectionable, Director showed he still nurtured a soft spot for classical liberalism. Considering this quote in the light of Director's 1947 MPS lecture, we see that Director leaned more toward the notion that monopoly was more a part of the problem than of the solution.

Addressing the FMS members, Director pointed out that numerous government barriers to entry had been erected, supposedly to protect consumers. He acknowledged that the government restrictions most likely served to encourage adequate standards of performance, and stated, "As the standards are frequently, if not always, promoted by those who have a private interest in restricting entry it would not be surprising if the social interest were subordinated to the private interest." Thus, Director partly indicted corporations and other private firms for responsibility in installing barriers to entry. In effect, he maintained that corporations used their political power to direct government authority. By doing so, Director again revealed a classical liberal bent: conventional liberals tended to fear a concentration of corporate power because it threatened the sovereignty of democratic government. When Director's statement is considered alongside his MPS disquisition—where he strongly objected to the power of corporations and claimed that the government must regulate and restrict their power—it is clear that the source of the problem of such barriers to entry is laid at the doorstep of the corporations, not the government. This position stands in stark contrast with the later Chicago position, which states that corporations capture the regulatory process, and hence government cannot be trusted to devise economic policy.

At one meeting in early January 1947, Friedman proposed that the FMS should devote time and resources to investigating the issue of the separation of corporate ownership and corporate control, mainly because of the social problems that stemmed from this divergence of interest. He stated: "[The] separation of ownership from control has important social disadvantages. It encourages utilization of resources for purposes other than maximization of their return; greatly facilitates the securing of monopoly positions; and gives rise to private economies of scale that are not matched by social economies." Friedman's proposed remedy was to increase the ownership interest of the corporate directors. "By identifying ownership with control," he believed, "the proposal would eliminate many of the present abuses of the corporate form. It would immediately eliminate holding companies . . . it would make mergers more difficult; . . . These effects would themselves retard the tendency (if it exists) toward increasingly large and monopolistic organizations and stimulate the breakdown of existing giant corporations." Thus, in 1947 Friedman advanced a standard premise of classical liberalism: large corporations and monopolies posed a serious social problem that had to be addressed by public policy.

To curtail concentration and monopolization, Levi put forward some policy recommendations, one of which included cracking down on vertical integration. “Usually in an integration case, however, the effort is made to use ownership of one part of an industry to dominate another part—at least that is what separates the integration case from the straight monopolization case” (Levi 1947, 180). Levi recommended: “Here an intent to monopolize may have to be found, and may well be only in a plan recognized as such because of restrictive arrangements, price cutting, or fraud—earmarks of the abuse category” (p. 180). In short, Levi maintained that vertical integration coupled with “abuses,” such as price-cutting, provided sufficient evidence of intent to monopolize, and hence constituted grounds for illegality. After the birth of neoliberalism, however, Levi would come to maintain the contrary proposition.

By 1951 the principal protagonists at Chicago came to see themselves as advocates of a new and distinct version of liberalism. In one instance, they even used the term neoliberalism. This suggests that the principals were conscious that a reformulation had at least begun to materialize (even as the American Road to Serfdom languished).

Although Director never himself employed the term neoliberalism in his scant few publications, his brother-in-law, Milton Friedman, did employ it self-referentially in his 1951 article entitled “Neoliberalism and Its Prospects.” Friedman’s 1951 manifesto did not seek to fully lay out a cogent doctrine of neoliberalism; instead, it pointed toward some salient features of neoliberalism and compared them to the superseded classical liberalism. According to Friedman, nineteenth-century liberals maintained that the state should restrict its activities to the preservation of order and enforcement of contracts. Friedman pejoratively labeled it a negative philosophy in which “Laissez-faire must be the rule” (1951a, 91). One glaring flaw of nineteenth-century liberalism, according to Friedman, was that “it failed to see that there were some functions the price system could not perform and that unless these other functions were somehow provided for, the price system could not discharge effectively the tasks for which it is admirably fitted” (p. 91). Hence, Friedman specified that the state must indeed play a positive role: “Neoliberalism would accept the nineteenth century liberal emphasis on the fundamental importance of the individual, but it would substitute for the nineteenth century goal of laissez-faire as a means to this end, the goal of the competitive order. . . . The state would police the system, establish conditions favorable to competition and prevent monopoly, provide a stable monetary framework, and relieve acute misery and distress” (pp. 91, 93).

Friedman later dropped the terms neoliberal and neoliberalism (for reasons not explored here), but assertions that the principals at Chicago espoused a novel version of liberalism continued apace. For instance, Director suggested something very like this in a nationwide radio broadcast (Director, Brown, and Weaver 1955).

The neoliberal reorientation toward monopoly first made its debut in Director’s book review of Charles Lindblom’s Unions and Capitalism (Director 1950). Director maintained that because of competitive forces emanating from the supply side of the market, competitors would supplant any monopoly that attempted to permanently restrict its own supply. According to Director, the market system through the “corroding influence of competition” (p. 165), has the “effective tendency” to “destroy all types of monopoly” (p. 166; emphasis added). Thus, competition became Director’s philosopher’s stone, and the only way the stone would lose its prodigious powers was whenever government intervened. Director maintained that history had demonstrated that without the intervention of government, “competitive tendencies have triumphed over the exclusive or restrictive tendencies” (p. 166). Among most economists and jurists of the 1950s, however, it would have been an outrageous oxymoron to maintain that competition existed even in the face of monopoly. Therefore, by 1950, Director had become an acolyte of an unprecedented faith in the forces of competition.

Building on the premise that competitive forces undermine monopoly, Director claimed that if the corporate form had contributed to the emergence of a monopoly, it also would have simultaneously contributed to the demise of that monopoly—even if it seemingly facilitated a large-scale organization with monopoly powers. Implicitly conjuring Hayek’s “road to serfdom,” “The road to monopoly even with neutral rules is not a one-way road” (1951, 20). Furthermore, Director maintained that monopoly power did not get projected from one market to another; thus, a monopoly in the product market could not perniciously or selfishly manipulate the labor market or the capital market.

Similarly, Director asserted that a corporation, in spite of its size or the level of concentration of its market, could not hinder free choice in the labor market or any other market. In fact, according to Director, the corporate form was ideal not only because it neither hindered nor promoted monopoly, but also because it approximated the impersonal ideal of the market. Director sanguinely opined that, as with monopoly, the competitive forces would control corporations and ensure they approximated the ideal of competition. According to Director, this even applied to large corporations that gained their size via vertical or horizontal merger.

Less than five years after the FMS began, Director's 1946 speculation about the power of competition—that is, "monopoly tends to disappear and competition to revive even where once dormant"—became for the Chicago School an assertion of fact—that is, competition undermines all forms of monopoly. This marked a crucial watershed in the emergence of neoliberalism at Chicago and a crucial departure from ordoliberalism. Furthermore, in 1951, Director maintained—despite his 1947 claims at the MPS meeting that corporate power needed to be curtailed to foster a competitive order—that concentrated industries, with a full complement of large corporations, tended to be competitive. Unlike Simons and ordoliberals, he claimed that corporations—even big, behemoth corporations—approximated the impersonal ideal of the market. This change in attitude toward large corporations and concentrated industries marked another salient departure from classical liberalism.

In 1947, in keeping with classical liberalism, Friedman had expressed concern about problems with monopoly. He had also expressed concerns about the corporate form that stemmed from the divergence of corporate ownership and control. However, after the lapse of four years, Friedman revealed his newfound neoliberal bent toward monopoly in an article published in France. One aim of his 1951 article was to describe the American free enterprise system to his European audience, who, he felt, mistrusted and misconstrued the American free enterprise system. In the course of doing so, Friedman departed from the classical liberal doctrine in several ways.

Friedman, contravening Edward Levi's 1947 contention that monopoly was ubiquitous in the United States, contended that such a depiction of monopoly was fallacious. Friedman suggested that prescriptions to ameliorate the purported monopoly problem were iatrogenic. By contrast to his 1947 worries, Friedman then maintained that monopoly persists only when it receives open support from government—suggesting that the divergence between corporate ownership and control had a nugatory influence on the persistence of monopoly (1951b, 17). Participation in the FMS seemed to have changed Friedman's mind.

Friedman now argued that actions of monopoly were conspicuous and actions of competition were inconspicuous: "monopoly is highly 'visible,' and draws attention to itself whereas the workings of competition are devious and hidden" (1951, 15). Moreover, like Director, Friedman asserted that competitive forces inherently limited the power of monopoly. As a result, Friedman portrayed the market power of monopoly as relatively benign, stating that "the effective power of [industrial and labor monopoly] over prices and wages tends to be considerably exaggerated" (p. 16). Friedman later stated, "I have become increasingly impressed with how wide is the range of problems and industries for which it is appropriate to treat the economy as if it were competitive" (1962, 120). Moreover, unlike Simons and the ordoliberals, Friedman concluded that private monopoly should be preferred to public monopoly and public regulation of monopoly (p. 28).

Unlike classical liberals who feared the political and economic effects of monopoly power, henceforth Friedman adopted a relatively sanguine attitude. Classical liberals expressed misgivings about the concentrations of power that monopoly represented. With his scope narrowed to economic considerations, Friedman countered that inimical competition curbed monopoly power. The compelling empirical data that had supposedly swayed his opinion was nowhere to be seen. Classical liberals had suggested instead that monopoly eventually suppressed competition. Director and Friedman turned this distinction on its head, asserting that competition eventually suppressed monopoly.

By the mid-1950s, Levi came to propound the opposite viewpoint. In 1956, he and Director wrote, "Since economic theory demonstrates that the presence of monopoly is much more often alleged than confirmed . . . less rather than more regulation ought to be prescribed" (p. 344). Moreover, contrary to Levi's 1947 claim, jointly he and Director also maintained that abuses of the firm, such as price-cutting, cannot create or enhance monopoly power (p. 290). They went so far as to claim, "In point of fact even a firm with complete monopoly power over prices and output cannot both get the advantage of such power and impose additional coercive restrictions on suppliers and customers" (p. 290).

In 1953, shortly after the birth of neoliberalism at Chicago and shortly before Levi's volte-face, the Chicago-based Antitrust Project commenced. This project deserves to be remembered as the first self-consciously applied neoliberal project at Chicago. In 1957, after Levi's transformation, Levi joined the MPS. Since he had begun to participate in the revision of an important aspect of legal and social theory, it became a foregone conclusion that he would be ushered into the transformative intellectual experience at the heart of the "thought collective."

As with other distinctively neoliberal projects, the Antitrust Project had its fair share of MPS members (Aaron Director and John Jewkes) and future members (Edward Levi, John McGee, and William Letwin). Headed by Director and assisted by Levi, the Antitrust Project comprised both postdoctorate and post-juris doctorate students and visiting professors: a Chicago Law School graduate, Robert Bork, a Committee on Social Thought Ph.D. graduate, William Letwin, a former Department of Justice employee, Ward S. Bowman, a Ph.D. graduate from Vanderbilt University, John S. McGee, and a visiting scholar from Britain, John Jewkes43 (Kitch 1983, 201-202). From 1953 to 1957,44 these individuals collaborated to produce a prodigious number of articles and one book: 1.

However, the scope had expanded with alacrity to encompass manifold antitrust law issues, and yet the investigation of the issue of monopoly remained ancillary for the purpose of many of the articles. Despite the broad range of antitrust issues that the Antitrust Project addressed, the leitmotif of most of the articles was that monopoly power could not be extended through a laundry list of "abuses," such as tying arrangements and resale price maintenance. In fact, this was essentially the explicit purpose of Director and Levi (1956)—an umbrella article that incorporated the major premises of other individual specialized Antitrust Project articles. … If there is a 'Chicago school' of antitrust thought, its manifesto is presumably the article by Levi and Director on Trade Regulation" (1963, 55-56).

To comprehend the neoliberal claims advanced by Director and Levi (1956), the sharp departures from the classical liberal doctrine during the course of the FMS must be considered, for the premises of the FMS regarding monopoly and corporations formed the underlying assumptions for the neoliberal premises of the Antitrust Project.

Director and Levi's manifesto was not intended to be a comprehensive statement of the Chicago neoliberal position on antitrust law. Like the canon of the Antitrust Project, it only covered a portion of United States' antitrust law. Moreover, in the 1960s and 1970s, Ward Bowman, Robert Bork, John McGee (all Antitrust Project members), George Stigler, and Richard Posner made important contributions to refine and explicate the Chicago neoliberal position on antitrust law, broadening their analysis far beyond the scope of the initial Antitrust Project.

As Director and Levi (1956) observed, in the first twenty years of the Sherman Act, antitrust lawsuits frequently targeted businesses that were of enormous relative size gained through mergers and acquisitions and that overtly engaged in practices regarded as abusive. The quintessential example of this trend is the classic Standard Oil case. Standard Oil—a gigantic corporation—formed as a result of a number of mergers and acquisitions, and in this 1911 case, the United States government charged Standard Oil not only for being an unlawful monopoly that needed to be broken up into thirty-four independent companies but also for engaging in abusive practices, such as predatory pricing.

After Standard Oil, businesses were more often targeted that were not of great relative size, suggesting that enormous size coupled with abusive practices was not necessary for finding illegality. Instead, as Director and Levi pointed out, various types of practices such as tying arrangements, vertical integration, and exclusive dealing were increasingly declared either per se illegal or highly questionable without the consideration of monopoly power.

Henry Simons—a classical liberal at the University of Chicago—would have generally concurred with the Court: “The problem is that of selecting for proscription certain practices and arrangements, highly useful or essential for restraint of competition, which are not essential or highly useful for the conduct of competitive enterprise. . . . More narrowly, it is a problem of depriving corporations of powers and privileges which were unwisely granted, have been patently abused, and are quite unnecessary for effective organization or efficient operation and management” (1948, 101). Moreover, by maintaining that unambiguous and unequivocal rules of the game should guide antitrust enforcement, Simons repudiated the use of the rule of reason by the courts. Under the rule of reason, the courts had to determine whether an unreasonable restraint of trade occurred. Not surprisingly, Henry Simons lambasted the rule of reason: “There must be explicit and unqualified repudiation of the so-called ‘rule of reason’” (1948, 58). Simons claimed that the rule of reason granted absurd powers to corporations (pp. 42–43).

For Director and Levi, a dangerous implication of the drive for certainty and the reliance on numerous per se rules to help achieve greater certainty would result in the enfeeblement of the common law foundations of antitrust law, thereby precluding the antitrust laws from weathering future possible NRA attempts.

In a nutshell, Director and Levi argued that their understanding of economics did not justify the applications of the antitrust laws in the 1940s and 1950s. They disagreed with what they labeled “the drive for certainty and automaticity” on the part of the courts—particularly in the form of the incipiency doctrine that aimed to catch questionable anticompetitive conduct in its early stages. For Director and Levi, a dangerous implication of the drive for certainty and the reliance on numerous per se rules to help achieve greater certainty would result in the enfeeblement of the common law foundations of antitrust law, thereby precluding the antitrust laws from weathering future possible NRA attempts.

In patent tying cases, for instance, when the courts spoke of this device as an attempt to expand patent monopoly, the courts—according to Director and Levi—misconstrued economic reasoning: “[We] believe that the [tying] practices . . . can be explained best as methods of charging different prices to different customers and not as extensions of monopoly to other areas” … Contrary to Levi's 1947 claim, they maintained that "Vertical integration . . . often appears explainable as a method price discrimination" (p.

Although Director and Levi conceded that their economic analysis did not necessitate a change in the status quo law because the courts may reason that the law has more to do with rules of fair conduct—an alternative to the position of Director and Levi that carried some weight in 1956—than with adherence to economic analysis, they pointed out: “The important point, however, is that the restrictions or abuses will not in most cases carry with them the normal incidents of monopoly” (p. 294). In other words, price discrimination, whatever its permutation, did not adversely influence competition or surreptitiously tend to create monopoly.

Next, Director and Levi briefly turned to the application of the idea of collusion. With regard to collusion, Director and Levi focused primarily on the issue of price-fixing agreements. They acknowledged that when price fixing occurs among members of an industry that control a large market share in terms of sales, the adverse consequences for the market can be predicted with some certainty. However, when price fixing occurs among firms with an insignificant combined market share, “there is less foundation for [illegality]” (p. 295).

The problems are difficult, and the law is not likely to meet them directly. [We do not] mean to suggest that the law must alone move within the confines of changing fashions in such theory. The law indeed can have a life of its own. But in this field of law more than any other, the general presumptions are of such a character that they cannot be readily isolated from the corresponding presumptions which dominate economic theory. We do suggest that in the future there may well be a recognition of the instability of the assumed foundation for some major antitrust doctrines. And this may lead to a re-evaluation of the scope and function of the antitrust laws. (p. 296) In this prescient final paragraph, Director and Levi laid a foundational neoliberal premise, which would develop into a more extreme form in the coming years: Antitrust law should utilize economic theory, and Director and Levi had in mind the special brand of economic theory they espoused-not the versions of imperfect competition theory espoused by the Cowles Commission or MIT (Mirowski 2002).

In this prescient final paragraph, Director and Levi laid a foundational neoliberal premise, which would develop into a more extreme form in the coming years: Antitrust law should utilize economic theory, and Director and Levi had in mind the special brand of economic theory they espoused—not the versions of imperfect competition theory espoused by the Cowles Commission or MIT (Mirowski 2002). That is, when courts decide cases, reformulated Chicago economic theory should be employed as background theory. This implies that notions of rules of fair conduct should not be the sole basis of antitrust law decisions, which included principles such as small businesses should have the right to compete. This neoliberal premise underlay many of the articles of the Antitrust Project.

However, some other important neoliberal developments composed the argument of Director and Levi, and most of these developments were grounded in the major premises of the FMS. This suggests that Director and Levi’s 1956 article is the culmination of not just the Antitrust Project but also the FMS for the version of Chicago law and economics in the 1950s. Director and Levi’s interpretation of the industrial pattern on which they based their analysis dovetails with the FMS contributions of Warren Nutter and Fred Weston. Of course, this interpretation drove Director and Levi’s analysis, which led them to conclude that the economic principles of monopoly no longer applied to most firms of large size in the 1950s—creating a new problem of size for the courts—and implied that large corporations may approximate the impersonal ideal of the market and not threaten relative prices.

Moreover, the fact that Director and Levi justified collusion in the form of price fixing in some instances is a violation of classical liberalism, which argued that prices must adjust freely to reach a competitive equilibrium and reflect underlying social scarcities. A threat to freely adjusting prices was thenceforth treated as tantamount to a threat to freedom.

In a period of just ten years (1946–1956), the contents of liberalism at Chicago underwent a radical transformation. Director and other neoliberal advocates and converts no longer regarded monopoly as the great enemy of democracy, much less a force to be broken up by the hammer of U.S. antitrust law. Rather, they argued that not only was monopoly not deleterious to the operation of the market, but also that it was a negligible symptom attributable to ill-functioning ham-fisted activities of government. Moreover, they no longer regarded large corporations as corpulent political bodies that would not be toppled—even under the pressure of market forces. Rather, they characterized corporations—even behemoth corporations—as relatively benign entities that naturally gave rise to the market conditions that would eventually undermine them. In other words, the string of victories that allowed a large corporation to dominate the market would invariably be pyrrhic victories. In the light of these neoliberal tenets, exclusionary practices—practices typically regarded as pernicious to the operation of the market—were portrayed as basically short-lived price discrimination, ephemeral to the operation of the market.

The ordoliberals, however, held steadfast to their belief that monopoly, large corporations, exclusionary practices, and other concentrations of economic power or utilizations of economic power were harmful to the operation of the market. Like Simons, the ordoliberals feared that economic power perniciously threatened society's freedom by eliminating competition: "For Eucken and his colleagues, history . . . had demonstrated that competition tended to collapse, because enterprises . . . were frequently able to acquire such high levels of economics power that they could eliminate competition" (Gerber 1998, 250). The Chicago neoliberals had no such reservations. In the 1960s and 1970s, when they turned their attention to other areas of law, they gave no weight to considerations of economic power in their analyses.

In this perspective, the collapse of democracy in Germany is not caused by a functioning market economy, but rather the consequence of the fact that such an economy did not exist. From the viewpoint of the Ordoliberals, the Third Reich was the inevitable result of a series of anti-liberal policies" (Lemke 2001, 193).

Two empirical investigations funded in part by the FMS were Nutter (1951) and Weston (1953). Interestingly, the empirical research was published after the neoliberal claims started to emerge. Moreover, the extent to which the empirical research supports the neoliberals' claims is questionable; see Van Horn (2007).

Friedman's article appeared in Farmand, a publication edited by the MPS member Trygve Hoff (1895–1982), who attended the premier meeting in 1947. Incidentally, Hoff published an anniversary edition of Farmand in 1966, which contained articles by numerous MPS members—including Friedman, Stigler, Machlup, Hayek, Leonard Read, and John Jewkes.

Director stated: "I am speaking of the 'older kind of liberals.' These people recognize that, while the democratic method is preferable to other alternative methods, nevertheless the majority decision involves a substantial amount of coercion; and it seems to me, as a consequence of that, if we are interested in maximizing individual freedom, we must keep those activities which are taken on the majority principle to a bare minimum and leave as much as possible—and to me that includes a great deal—to be decided by the voluntary decisions of individuals, singly or in relations with other individuals and groups" (p. 5).

Friedman stated, "Walter Eucken, a noted German liberal, observing public monopoly in German railroads, found the results so distasteful that he concluded public regulation would be a lesser evil. Having learned from both, I reluctantly conclude that, if tolerable, private monopoly may be the least of the evils" (p. 28).

Robert Bork obtained his J.D. in 1953, and he remained with the Antitrust Project for two years. In 1955, he worked at Kirkland, Ellis, Hodson, Chaffetz & Master, a corporate law firm, located in Chicago and New York City. In 1962, with the help of Ward Bowman, Bork obtained a position at Yale (Bork 1977, 235). Eventually, in 1982, Bork would be appointed to the U.S. Court of Appeals for the District of Columbia Circuit. In 1987, President Ronald Reagan nominated Bork for the United States Supreme Court, and the Senate refused to confirm his nomination. Bork's 1978 book, The Antitrust Paradox, has supported the reasoning of numerous Supreme Court cases (Bork 1978; Kovacic 1990; Contemporary Authors 2004).

Although it is unclear when the Antitrust Project formally ended, it is indisputable that the original group dispersed by 1957, with most of the members remaining through 1955.

Simons called for the courts to spurn the rule of reason because “[when] lawyers try to draw a line between lawful and unlawful restraint of trade, they invariably end up with something that looks like the silhouette of a roller-coaster. . . . The purpose may be laudable; but the result is that few people get caught, rather fortuitously, and the growth of monopoly, with perhaps some formal modification, proceeds apace” (101).

The National Recovery Administration (NRA) was an early New Deal piece of legislation that started in 1933 (later abolished by the Supreme Court in 1935). It essentially suspended antitrust law for two years, and it supervised the development of codes of fair competition. Consequently, the common law foundation of antitrust trust law became less important.

In 1943, Henry Simons stated, “The efficiency of gigantic corporations is usually a vestigial reputation earned during early, rapid growth—a memory of youth rather than an attribute of maturity. Grown large, they become essentially political bodies, run by lawyers, bankers, and specialized politicians, and persisting mainly to preserve the power of control groups and to reward unnaturally an admittedly rare talent for holding together enterprise aggregations which ought to collapse from excessive size” (1948, 246).

When a key group of concerned neoliberal intellectuals associated with Friedrich August von Hayek met in 1947 to start up the Mont Pèlerin Society, the “Third World” was not present on the agenda of the founding conference. … “The only major new subject introduced after 1947,” stated MPS member and historian Max Hartwell (1995, 39), “was underdevelopment, about which, especially in the papers of P. Bauer and S. H. Frankel, there was omniscient understanding.”

Pace Hartwell, the purpose of this chapter is to shed light on the ambiguous character of the neoliberal development discourse of the Mont Pèlerin Society. Starting in 1951 at the Beauvallon (France) conference, the group placed the topic of development on the agenda at four of the eight general meetings that took place during the 1950s. … A closer examination allows us a glimpse into the wide spectrum of opinions and the extent of disagreement within this transnational group of intellectuals dedicated to renew liberalism. We can also observe some of the ways in which certain opinions were subject to a strategic selection process, though methods and approaches featured in some discarded works continued to inform a neoliberal core message on development.

Traditional neoclassical economics—at the time still centered on equilibrium theory and full competition—seemed of little use in this field. While its shortcomings with regard to explaining labor market problems provided room for economists inspired by Keynes to inform employment strategies, urgently needed theoretical, conceptual, and empirical information needed to tackle pervasive problems of underdevelopment also emerged from a wide variety of heterodox development economists and seemed to provoke another “Keynesian revolution” of sorts (Hirschman 1981). … Traditional economists in fact objected to the formation of a specialized subdiscipline in principle and looked with dismay at the central roles allotted to “the state” and “planning” by many scholars in development economics.

Exacerbating matters for the scholars and practical men in search of neoliberal identities was the emergence of many new nation-states that, in the process of decolonization, were eager to experiment with extensive state planning. Frequently, these states chose to model their industrial system on the Soviet pattern, though without subscribing to bolshevism. Many Western industrialized countries eager to secure allies against the Soviets regarded such (noncommunist) planning efforts with some sympathy. According to many Western experts, the emerging international development financing and aid regime was to provide crucial funding for state-led development planning in the postcolonial world. In the eyes of (MPS) neoliberals, a dangerous liaison between planning-minded leaders in developing and developed countries threatened to undermine the free market system.

Although dedicated efforts to address development issues from a neoliberal perspective were developed in the early 1950s, their impact was not widely noticed until the late 1970s, and not before the 1980s did neoliberal expertise attain the status of authoritative development knowledge. At this point, worried members of the development community in the field first observed, and critically examined, a contemporary “neoliberal counter-revolution” (Toye 1993). … The constitution of a powerful neoliberal cadre in development economics and politics several decades earlier remains overlooked.

Possibly because of the considerable time lag between the genesis and conspicuous impact of neoliberal development economics, historiographers following Toye (1993) have dated the rise of the alleged neoliberal “counterrevolution” to the late 1970s and early 1980s. By those years, Thatcher and Reagan had been elected, and hence powerful right-wing arguments in favor of free market capitalism were being made in the analysis of the global debt crisis (Colclough 1991; Toye 1993; Leys 1996). Until the late 1970s, even critical scholars like Robert Cox (1979) did not identify a neoliberal camp as such when trying to describe major discourse coalitions in development.

Contrary to widely held convictions about the neoliberal “counterrevolution,” I will argue that neoliberal development discourse emerged together with modernization and radical paradigms, and thus also preceded more comprehensive left-wing theories (dependency theory, world systems theory), which appeared in the 1960s (Leys 1996, 8–11). … Ascher observes the “rise and dominance of a diluted neoclassicism in methodology and epistemology, and an antistatist doctrine that nonetheless is still pursued by and through state institutions” (Ascher 1996, 313; emphasis added). … Partly because of the common failure to better identify and recognize the neoliberal critique of neoclassical economics, his account does not explain the noted paradox of an alleged “antistatist” doctrine underpinning policies “nonetheless” pursued by and through state institutions.

Upon closer inspection, it appears that earlier neoliberal scholars had been severely hampered in aligning their perspectives on development issues owing, first, to a sometimes hysterical anticommunism prevailing during the 1950s. As a consequence, many members of the emerging neoliberal camp relegated questions of development economics to second place behind international security concerns. Second, a strong commitment to colonial economics explains the dominance of conservative intellectual baggage over future-oriented neoliberal perspectives, which can be easily detected in the works of many early members of the neoliberal network.

The remainder of this chapter will closely scrutinize the formative period of development debates in and around the Mont Pèlerin Society to clarify the immense political value of Bauer’s insight and to suggest that the alleged neoliberal “counter-revolution” actually developed parallel to the alleged original “revolution” within development economics in the 1950s.

Beyond local strongholds in different countries (like Germany, the UK, the United States, and France), MPS had an early presence in the developing world (e.g., South Africa, Mexico, Brazil) and a number of intellectual allies in others (e.g., India) as we shall see shortly, which was partly due to the colonial history of these countries. Reliable transnational links dating back to Mises's Privatseminar conducted in Vienna during the 1920s and the results of émigré networking of Hayek in the UK and Haberler in the United States during the 1930s and 1940s (see Feichtinger 2001) were an invaluable asset when MPS members started to examine the field of development economics and politics during the 1950s.

MPS members (at the London School of Economics, in Freiburg and Chicago, for example) were already engaged in the ensuing development debates when the issue was first addressed at the fourth MPS conference in Beauvallon, France in 1951. Similar to the way that the MPS conferences addressed many issue areas ("Liberalism and Christianity," "Liberalism and European Integration," "Liberalism and Socialism," "Liberalism and Agriculture," "Liberalism and Democracy," Liberalism and Racialism," "Liberalism and Colonialism"; see Liberaal Archief 2004), a panel on "Liberalism and the Underdeveloped Countries" was organized to apply "neoliberal norms and principled beliefs" to the field of development. The novel topic was originally proposed by Ludwig von Mises, according to the September 7, 1950 circular on the preceding MPS council meeting (MPS Circular 1950, quoted in Steiner 2005).

It is clear, however, that the ensuing post–World War II development debates were situated at the confluence of a whole range of critical issues (such as the character of the state, the role of international trade, and the influence of socialism), which at the time caused concerned neoliberals sleepless nights.

A critical study of the varieties of neoliberalism present within and around the Mont Pèlerin Society, as evidenced by the speakers and contributions to the Beauvallon and subsequent general meetings, is crucial, however, to understand that earlier MPS scholarship in development did not conform to the particular Mises wing of neoliberalism. Nor was later “neoclassical economic thinking” just “diluted” by absorbing parts of the wisdom generated by structuralist and heterodox thinkers of the left who figured prominently in the field of development economics during much of the post–World War II history of development economics. The development discourse within the Mont Pèlerin Society provides ample evidence of a wide range of opinions within the neoliberal group and sheds light on the historical, institutional, sociological, and anthropological economic traditions of the right that are extremely important to an understanding of certain transformations of neoclassical economics (e.g., with regard to the understanding of competition, labor, knowledge, the law and the state, and dynamics of development and change in general). There exists ample evidence (presented later in this chapter) for the great struggle involved in framing a new perspective based on a fairly clear and sufficiently defined neoliberal worldview. Ludwig von Mises probably did not anticipate that he would open a Pandora’s Box when prompting the topic on the agenda.

The year 1947 marked the serious beginning of the Cold War, with the Truman Doctrine proclaiming a fight against communism wherever. In March 1949, Truman announced what would become known as the point four program to aid developing countries, a program based on a modernization vision of science and technology designed to meet universal development needs around the globe, especially in underdeveloped areas and countries.

Esteva (1992, 6) argues that Truman “invented” the term underdevelopment in the contemporary sense in his presidential address by using the word underdeveloped for the first time in this context, though Cooper (1997) explains the substantive affinities of earlier colonial development discourses in Europe (which had emerged in reaction to anticolonial movements).

Important works directly addressing developing countries and development issues include Prebisch and Singer’s structuralist arguments pointing toward a secular trend of deteriorating terms of trade for primary producers.

Carlo Mötteli's discussion of the meeting for the Swiss daily Neue Zürcher Zeitung omitted the contributions by S. Herbert Frankel, Peter T. Bauer, and Frederic C. Benham to the conference (Liberaal Archief 2004, 23).

In stark contrast to Hartwell's (1995) emphasis on Bauer and Frankel, his summary stated that Louis Baudin, Wilhelm Röpke, and John Jewkes "had the most penetrating analysis to offer of development plans on the collectivist pattern, while Henry Hazlitt . . . criticized President Truman's Point Four program rather severely. The net result . . . may be . . . that there can be no general therapy for the development of under-developed countries. . . . Hasty and ill/considered schemes will merely make things easier for Communism." If it is sometimes difficult to find authors openly professing to neoliberalism, Mötteli was unafraid of displaying neoliberal self-confidence: "But while the old system of laisser faire, laisser aller is as much out of the question in underdeveloped areas as elsewhere, hope exists that the principles and policies of neoliberalism will find a promising field of activity and development there" (Mötteli 1951, 23; emphasis added).

While Benham conformed with Mötteli's caveat about specific local circumstances in the developing world requiring exceptions from any generalized approach, he nevertheless went on to make "some sweeping generalizations in order to bring out . . . some fundamental conclusions, namely that the main road to economic progress for underdeveloped countries is to increase their output per worker in agriculture and to specialize on producing for export those goods and services in which they have a comparative advantage" (Benham 1951, 1). Benham argued that industrialization strategies failed to understand that, historically, industrializing Britain was dependent on the preceding improvement of agriculture. In contrast to the British experience, contemporary developing countries were held to immediately benefit from international trade if they specialized in traditional production for export. Benham rejected diversification strategies (from agriculture to industry), especially if they increased protectionism. He even cast doubt on widely propagated education efforts (alphabetization campaigns, etc.) because they "would be very expensive" and because it is not "clear how a general non-technical education would have any immediate effect on output" (Benham 1951, 5).

Benham stressed overpopulation and a preference for leisure rather than work as intrinsic obstacles to development. Apart from invoking stereotypes typical of Victorian anthropology prevalent in the comparative developmental discourse of nineteenth-century evolutionism (Pieterse 2001, 19), it is not difficult to see Benham developing a systematic counterargument against the emerging industrialization and modernization strategies based on import substitution and selective protectionism. Benham's paper displays an important contradiction in this regard: Given his emphasis on "free trade" (Benham helped translate Haberler's book on international trade), it is interesting that Benham regards a local lack of certain inputs in industrial manufacturing and insufficient local markets as important obstacles to industrialization in developing countries (Benham 1951, 8–9), while emphasizing the benefits accruing to developing countries from international exports of traditional (i.e., agricultural and raw materials) production. Why should developing countries not import missing inputs and export manufactured goods to the larger consumer markets? Hong Kong and Singapore obviously were not yet the neoliberal poster children of export-oriented industrialization.

Benham's thinking basically remained confined within the framework of nineteenth-century colonial economics. The recommended concentration on the primary sector (and export specialization in competitive areas thereof) were strategies that would not challenge the prevailing global division of labor and were thus in line with (conservative) interests in the industrialized countries still in control of colonial territories (securing continued and improved access to primary inputs and avoiding potentially new competition for their own industrial exports to the regions). Although the focus of Benham (and other MPS development experts, as we shall see) was in line with traditional liberal colonial economics on export-oriented agriculture (and other raw materials), it is nevertheless easy to see how his reasoning in opposition to import substitution industrialization (ISI) was an early and rudimentary form of what can be presently regarded as generalized free trade strategies (despite the emphasis on exports displayed in the export-oriented industrialization, or EOI, paradigm that came to displace it). Since lowering barriers to imports is considered quintessential to EOI, international trade, and not national development, was the predominant guiding principle.

Unlike a collection of papers given at the Beauvallon conference on the related topic of "Capitalism and the Historians," which was subsequently published, the plan to publish the papers on "Liberalism and Underdeveloped Countries" failed. While Mötteli's (1951) report on the development discussion does not provide much detail with regard to the content of the first neoliberal deliberations in the development field, we can learn a bit more about the content of the MPS meeting's papers and discussions by reading Wilhelm Röpke's subsequently (1953) published article. It appeared in the fifth issue of ORDO, the premier neoliberal academic journal in Germany (founded by MPS members Walter Eucken and Franz Böhm), and benefited tremendously from the neoliberal network of intellectuals and their encounter at MPS meetings.

Röpke then attacked the "narrow economism/technicism" of development economics, which he defined as a lack of consideration of a wide range of spiritual and moral as well as sociological questions (Röpke 1953, 71). Contrary to liberation theories, he considered decolonization—not colonization—as a historically unique expansion of Western culture around the world at the expense of traditional cultures. Although Western responsibility for the cruelties of colonialism and the prevailing misery in developing countries called for active sympathy, Röpke nevertheless counseled to meet the erroneous beliefs of leaders in developing countries with strong resistance and straightforward criticism (Röpke 1953, 74).

Industrialization strategies were doomed to fail, according to Röpke, owing to the lack of a “liberal tradition” required to succeed in manufacturing. Throughout the Third World, with the exception of some Latin American countries, Röpke thought he observed a lack of punctuality, reliability, the inclination to save and to create—entrepreneurship for short. A successful approach, he believed, would require recognizing the “subtle and complicated process” of development, “flexible adaptation,” “smart connections to the existing,” and “slowly growing”—just the opposite of the goals of planners (all quotes from Röpke 1953, 77).

Röpke pointed out that the overwhelming share of industrial production remained highly concentrated in just a few countries, in spite off the dedicated efforts to industrialize new countries. To back this assertion, he quoted a recent study of his Beauvallon co-speaker and fellow MPS member John Jewkes. Jewkes argued that the inherent advantages of industrialization, science, and technology lead to benefits accruing to industrialized nations, and these had described precisely the reasons for import-substituting industrialization strategies: dedicated efforts were needed in order to break the “vicious cycle of poverty” and to overcome the dependencies resulting from the prevailing global division of labor, according to Myrdal and others. Röpke assured his readers, however, that traditional production was not inferior, and he forecasted improving terms of trade for primary commodities in the long run for those developing countries that dedicated their efforts to this sector. The crisis of raw materials production and trade in the aftermath of the Great Depression was regarded as the key culprit in erroneous thinking (of Prebisch and Singer, without mentioning them) (Röpke 1953, 88–89).

In line with Benham and colonial economists, Röpke thus called for export-oriented traditional production. Instead of industrialization, he recommended diversifying the organizational structure of agricultural producers. Family farms should specialize in export crops without becoming fully dependent on market income. Röpke referred to Peter Bauer's work on rubber regulation in support of his argument. But he also called on the West to remove protective tariffs and on leaders in developing countries to promote land reform (Röpke 1953, 93). Röpke thus rejected contemporary critiques of traditional production (claiming a generally low productivity of agriculture). He suggested that this sector was more likely to absorb large parts of the growing population than any industrial alternatives. Ultimately, Röpke concluded, not much could be done to overcome the fundamental problem: the lack of capital (availability) due to the low propensity to save, the absence of capital markets, and the inadequate banking systems. Consequently, capital would necessarily have to come from the outside. He considered private investment (though beneficial) completely insufficient in terms of what would be needed. The crucial issue was the very condition under which development planning was supposed to occur: according to Röpke, private investment would be undermined by creating political conditions inimical to private investors. He did not trust the international rule of law due to the composition of prospective UN membership: Europe's vote was observed to be outnumbered soon by new developing countries, assisted by the "anti-imperialist screaming" of the Russian representatives of world communism (Röpke 1953, 104).

An examination of Benham and Röpke's contributions reveals the links between a number of scholars and writers in Europe and the United States found within the orbit of the Mont Pèlerin Society, including some of the much later well-known "counter-revolutionaries" (e.g., Haberler and Bauer) as early as 1951. Röpke refers almost exclusively to the work of neoliberals organized in the MPS: Frederic Benham, Peter Bauer, Herbert Frankel, and Henry Hazlitt, as well as John Jewkes and Gaston Leduc. While dismissing with disdain the antiagrarian "mentality" of Manoilesco and a few individuals advancing "socialist propaganda" (Röpke 1953, 85 and 70, respectively), advocates of industrialization and planning strategies mostly remained unnamed. These anonymous writers of international agency and task force reports were reprimanded with evidence presented from the neoliberal pool of individual scholars and practical "experts."

At this point the MPS group displayed an understanding of development economics that still uncomfortably resembled traditional colonial economics underpinned by Victorian anthropology: According to Benham, people lacked the propensity to save, and according to Röpke, there was a lack not only of entrepreneurs, but also of a class and the spiritual-moral preconditions that could eventually generate entrepreneurs. Advancing industrialization strategies thus were considered ill-conceived strategies for various reasons, pursued by a dangerous—Jekyll and Hyde like—alliance of Western socialists and government elites in the developing world.

Neoliberals insisted on the “diversity” of developing countries, objected to industrialization as a universal solution, and displayed an appreciation for frequently neglected issues of agriculture and traditional production … It was not the interest in sociology and institutions that separated Röpke and, say, Myrdal, but rather different varieties of sociology and institutional perspectives alongside a different normative and epistemological understanding of economics.

Whereas Röpke's thinking in particular was nostalgic in some ways, both Benham's and Röpke's reasoning already contained programmatic neoliberal elements of change: conservative reform was prescribed, requiring concessions both from developed countries and from feudal landowners in developing countries. Neoliberal scholarship thus displayed its own moments of critique of the status quo. But we cannot yet observe great confidence in a neoliberal economic perspective. The developmentalist argument was primarily countered with general sociological, moral, and historical arguments.

The Bandung conference “was a result of their frustration with the political logjam surrounding new membership in the United Nations. By 1953/54 no new members had been inducted into the organization since the acceptance of Indonesia in January 1950. The 1955 meeting in Bandung was attended by delegations from 29, primarily new, nation-states or nationalist movements in Asia and Africa” (Berger 2004, 11–12). The political logjam at the UN had resulted mainly from the Cold War rivalry of the superpowers.

Rapid economic development in the defeated nations of Germany, Japan, and Italy was largely credited to the Marshall Plan, the U.S. international credit and aid program that also helped consolidate the Western (North Atlantic Treaty Organization—NATO) military alliance. Beyond Europe and Japan, this apparent economic and political success seemed to validate President Truman’s 1949 “point four” vision to win the ensuing Cold War: improving living standards by helping governments in underdeveloped countries acquire industrial and agricultural equipment and skills. Because the USSR was perceived to be the dominant threat to world stability, the development programs run by various agencies at the time eventually supported many state-led and even socialist development programs in countries such as Nehru’s India that kept a political distance from the Soviet Union.

Decolonization, and concomitantly rising “Third Worldism,” continued to present enormous challenges to neoliberal perspectives. The revolutionary aspirations of the popular masses in the Third World, utopian egalitarianism, an emphasis on a strong and centralized state to accomplish development, and international alliances all combined with rhetorical commitments to transnational unions (pan-Arabism, pan-Africanism, etc.) in favor of regional integration and redistribution (Berger 2004, 34). At home, most neoliberals were worried about a disturbing willingness of leading politicians from both the right and the left to embrace expanded state management of the economy and foreign aid.

At the same time, Rüstow chastised the West for the epoch of discoveries, blaming avarice, addiction to power, and sadism as the strongest motivations of the early expansionism. … In Rüstow's analysis, anything positive weighs "feather light" compared to the crimes committed under the auspices of colonial imperialism, a "seamless chain of heaviest crime against humanity" committed over half a thousand years and continuing to his days of writing (Rüstow 1957, 506).

Subsequently, however, the focus of Rüstow’s contribution shifted considerably. The second Rüstow went on to reject “typical” accusations against colonial powers as allegedly preventing colonial people from attaining a cultural development similar to “ours.” He interprets all progress in this direction as a result of colonization; thus, colonized people might be happier without the external enforcement of civilization, but they would also be left more “backward” (ibid., 516).

Although Brandt had no time to consider the darker sides of colonialism, he did proceed to construct a positive program, and in doing so, he hinted at some persisting problems of colonial history. His perspective on the “political and social goals of the West” included a demand for equal access to education and training, equal pay for equal quality of work, gradual abolition of a privileged status for white people, private property as central precondition for human dignity, and the responsibility of individuals and as the basic incentive (p. 11). In this address, Brandt bequeathed us with a concise statement of core aspects of MPS neoliberalism: “the philosophy of freedom and human dignity, and a market economy governed by social conscience and responsibility of an elite of citizens” (p. 7; emphasis added).

The 1957 conference report in Neue Zürcher Zeitung was written by Helmut Schoeck, the MPS's chief theorist of envy. The Atlanta-based sociologist (Emory University) went beyond the other speakers at the conference in positively defining imperialism as the geographic expansion of a system of order (rule of law, etc.) (Schoeck 1957, 7). He praised colonialism for having brought "about everything" to those areas with regard to political organization and the rule of law. Schoeck subjected Rüstow to harsh criticism, pointing out that Rüstow did not concentrate on the colonial crimes committed by Russian settlers and military. He considered Rüstow's emphasis on Western colonial crimes as possibly more damaging than known declarations against the testing of atomic weapons (Schoeck 1957, 7). According to Schoeck, foreign aid amounted to nothing but misallocation of resources.

Unfortunately, we do not know what Peter Bauer and Herbert Frankel as the most prominent development economists present at the conference had to say with regard to the deliberations in St. Moritz, but Bauer's later writing on colonialism shows the lasting impact of the MPS exercise in revisionism with regard to colonial history. Bauer is certain "that it is untrue that the west has caused the poverty of the underdeveloped world, whether through colonialism or otherwise." Instead he suggested that it was important "to identify groups and sections in both rich and poor Countries who stand to gain from acceptance of the idea of western responsibility for the poverty of underdeveloped countries, and to examine the reasons for their success in propagating this idea, especially in the west" (Bauer 1971, 148).

Gudin described unfavorable geographic and climatic conditions for agriculture in Latin America (with few exceptions, in Argentina). But countering the prevailing perception of price and income instability in the agricultural sector, he made a double distinction between annual and perennial agricultural products, and between durable and perishable products. Such differences and a "higher or a lower price elasticity of demand makes it difficult to speak of 'agricultural produce' in general. Generalization here often leads to confusion, as is also the case when 'Latin American' economic problems are discussed as a whole" (Gudin 1958, 2).

According to Gudin, no "disguised unemployment" (pace Arthur Lewis) was possible in countries where "land is still quite abundant in relation to population" … According to Gudin, disguised unemployment was often confused with low productivity.

Gudin called for agrarian reforms, though he rejected left-wing demands (for radical redistribution of land): Economists would point out the need to increase productivity and the availability of credit to "increase the cake." … But he conceded that (low) credit worthiness of small farmers and (high) risk involved in agricultural lending might require the involvement of government institutions (Gudin, 1958, 6).

With all the cards stacked against industrialization strategies—the "recurrence of the long repeated, resilient and unscientific argument of Manoilesco" (Gudin 1958, 5)—Gudin eventually argued in favor of investment in agriculture (and education and health) as promising areas for rapid development.

Two papers by Peter Bauer26 in a panel dedicated to underdeveloped countries (chaired by Arthur Shenfield) can easily be considered the most important contributions on the topic at Mont Pèlerin conferences up to that point. Bauer's work reflects the completion of the original constitution of the neoliberal discourse: economic arguments no longer appeared to be secondary to security concerns. Bauer's work also more clearly defined the “enemy” (state-led development discourse).

In his Fortune article, Bauer claimed that the new development orthodoxy in the transatlantic world was based on a fallacy. The very division of the world into a developed and an underdeveloped area, he claimed, and the underlying analysis of a “vicious cycle of poverty” requiring special economic development measures were fallacious. He specifically attacked Gunnar Myrdal28 because of the political acceptability his arguments had gained through their sponsorship by the UN and national organizations.

In awareness of prevailing security concerns, Bauer suggested that he neither condemned all government economic assistance nor wanted to minimize the Russian threat. But planning would yield the opposite results of what was aimed for on the one hand, and development should not be reduced to growth, a simple increase of the volume of goods and services on the other: "It is an increase in goods and services that people want and have freely chosen," Bauer argued, "it is a widening of human options. This kind of freedom is obviously jeopardized by systems of statist compulsion" (Bauer 1958a, 142).

Bauer thus introduced a normative dimension in support of capitalist development requiring qualitative analysis. He conceived of a need to distance himself from positivistic measurement because of wealth per capita statistics (which Gunnar Myrdal and other "planners" relied on), which he considered arbitrary in regard to the division of rich and poor, and slighting real income "not subject to easy measurement, especially when human satisfactions are taken into account" (Bauer 1958a, 142). Bauer opposed the notion that developing countries were locked into poverty (as statistics seemed to indicate): "nations, like individuals, are constantly moving up and down in the scale, and it is the final trend that counts" (2). He also argued that statistics were misleading because they misrepresented development progress (better health, etc.) that could lead to worsening per capita income figures. Instead of the "colossal aggregate," he proposed considering the "enormous diversity of the areas in question" (Bauer 1958a, 142–143).

If the "vicious cycle" argument was correct, formerly poor nations could not have advanced, Bauer argued, nor would the "massive accumulation of capital" by poor immigrants in many underdeveloped areas have been possible. He cited the cash crops of the rubber industry in Malaya and West Africa as examples of rapid—though admittedly uneven—growth spurred by private investment. Bauer warned against identifying low-level development with stagnation because of a lack of industry. Though admitting that industrial investment is measured more easily, Bauer argued that agricultural investment is "highly important in the early stages of economic advance" and essential (food) to the fundamental needs in most countries (Bauer 1958a, 143).

Bauer also suggested that agriculture had remained important in many cases, as it had in the United States, Canada, and New Zealand, and that the amount of industry a country needed was specific to each individual case. He held the absence of government intervention rather than the type of economic activity to be important. Despite the lack of raw materials and a small domestic market, Bauer stated, Hong Kong rapidly industrialized through "private initiative and enterprise." "Unfortunately, it is just these forces that advocates of the new orthodoxy seem to distrust" (Bauer 1958a, 194).

Bauer attacked foreign aid, even when it was dedicated to improvement of the infrastructure. Developing countries, he wrote, did not need elaborate infrastructures to enjoy rapid development, though he mostly feared "the propensity of many governments not only to try to finance roads and harbor developments, but at the same time to finance, and indeed own, all kinds of manufacturing enterprises from steel mills to chemical plants" (Bauer 1958a, 195). He presented resulting budgetary and foreign exchange difficulties as the real causes for the request of foreign aid. Although aid could initially be useful to set a process in motion, Bauer objected to supplying aid to countries that subsequently failed to severely limit the sphere of government activity. Bauer also attacked "forced savings" through taxation, because taxation would only lead to the growth of government bureaucracy.

Bauer’s policy for progress suggested funding policies that were diametrically opposed to the recommendations of the alleged new orthodoxy: minimize state ownership and planning, and promote private (foreign) investment instead of suppressing it. He called for professions of faith in the world economy. Strong signs of rebounding world trade and the West’s significant investment in the former colonies augured well for progress. Even more important than trade and investment was what “the people do for themselves”: freed from restrictions, Bauer trusted that “middle-class or ‘bourgeois’ virtues” would prevail.

The impact of wage regulation, Bauer said, had destroyed the major competitive advantage of developing countries: abundance of cheap labor. Bauer contrasted the rapidly growing East Asian economies and India to argue that "contrived scarcity" injured "prospects for economic growth" (Bauer 1958b, 4).

Bauer denied the existence of disparities in bargaining power between capital and labor and the exploitation of workers. Only the absence of "independent competing alternatives" allowed exploitation in his framework: "Even illiterate poor workers will be paid what they are worth, if employers can obtain their services only by competing for them" (Bauer 1958b, 8). Since wage regulation stifled growth and limited employment, employers were denied opportunities to compete and were more likely to be forced to become exploitative (Bauer 1958b, 9).

John Davenport stressed the "positive program" contained in Bauer's work in response to frequent accusations levied against the neoliberal right of "just being negative" (MPS Quarterly 1 1959, 7): Foreign private investment combined with the adequate efforts of developing countries, "which can develop normally and naturally by sticking to well-tested economic principles—the principle of sound money, for instance, and the principle of limited versus unlimited government" (Davenport 1959, 7). However, David McCord Wright felt that in order to not be perceived in a purely negative fashion, "we will have to give some direct aid in addition to the military aid, as a diplomatic move more than anything else" (MPS Quarterly 1, 1959, 8; emphasis added).

Some of the participants were at odds with Davenport's presentation of Bauer's principled position against foreign aid. Gudin did not agree with some statements of Davenport (who apparently had suggested "that blank cheques" were a common foreign aid practice), and he referred to his fellow MPS member Erik Lundberg's position on private foreign investment: "sometimes it is very costly to the country which receives it" (MPS Quarterly 1, 1959, 23), because second-rate machinery had been imported at high interest rates, for example.

Although a lot of work remained to be done on the road to intellectual hegemony, the group of neoliberal development theorists was already well established by 1958. … Although the positions of MPS members like Röpke, Benham, or Bauer diverged in important ways, they heavily relied on each other as seen in their overlapping arguments against state interventionism and planning.

Davenport clarified the way in which an important link between neoliberal and security concerns remained after all. Unlike Bauer's works, Davenport's left no doubt about which international policy the United States should develop. If there had been no communist menace requiring costly military efforts, he wrote, "it might well have been possible to be a little more indulgent toward the Welfare State and some of its experiments. . . . I think, however, that in the grim situation in which we stand we can go much further. We can say, 'The Welfare State is not only wrong in principle. It is, in this setting of the need to maintain a firm military position, a complete impertinence'" (MPS Quarterly 1, 1958, 8).

Looking back at the early MPS conferences, we note a growing self-confidence within the neoliberal camp with regard to the development theme. Although many intellectual and real components and circumstances needed for the subsequent rise to hegemony were still missing, many internal obstacles had been identified and addressed: Peter Bauer in particular clarified the neoliberal vision with regard to foreign aid. Bauer overcame the previous lack of confidence in entrepreneurship and market relations in the developing world within the neoliberal group of scholars and intellectuals steeped in colonial economics. Bauer’s work manifestly documents a neoliberal reasoning in which economic considerations are no longer subordinate to security concerns. Other contributions recognized and addressed specific needs with regard to capitalist agriculture in developing countries, and the manifold battle lines with competing discourses were more readily identified: the neoliberal war of position (Gramsci) could be fought more easily toward the end of the 1950s. At this point in time, organized neoliberals in science and politics had already developed an important network of intellectuals (as well as a few think tanks and corporate and political foundations) across borders, which operated in a more pluralist environment.

Ascher (1996, 314) recognizes the early pluralism when he refers to Hirschman, who argued in 1981 that in the early (and formative) period of the field “neoclassical economics was competing with Marxism, neo-Marxism, and a distinctive development economics,” although neither Ascher nor Hirschman recognized the distinctiveness of the neoliberal participants in the debate. Meier and Seers (1984, 22) came somewhat closer in their effort to describe Western mainstream pluralism of the early days: “Some may choose to summarize the mainstream development economics of the 1950s as being structural, shaped by trade pessimism. . . . But there were crosscurrents, and the period was characterized by vigorous debate over some leading issues. Especially notable were controversies over balanced growth versus unbalanced growth, industrialization versus agriculture, import substitution versus export promotion, planning versus reliance on the market price system. The debates of some of these issues are still unresolved.”

The early formation of the distinctly neoliberal discourse and the transnational social forces nurturing it in any case have escaped due attention. A future analysis of the neoliberal development discourse and thought collective as evidenced by MPS conferences and networks from the 1960s to the present time is likely to yield a better understanding of why many debates of longstanding issues are still unresolved indeed.

Development issues were discussed at sixteen of the thirty-two general meetings between 1947 and 1998 by a total of 110 MPS members and guests (including Anne Krueger and Jagdish Baghwati; see Liberaal Archief, 2004). In addition, a total of thirty speakers discussed development issues at nine of seventeen regional MPS meetings held between 1966 and 1990, according to the conference programs available at the Hoover Institution's MPS archive. While Peter Bauer and Herbert Frankel contributed most frequently to the conferences (six and four times, respectively), Hartwell (1995) fails to help understanding the long-term collective effort.

"Industrialization was not part of colonial economics because the comparative advantage of the colonies was held to be the export of raw materials for the industries in the metropolitan countries" (Pieterse 2001, 5).

This 1954 collection (edited by Hayek) was published "by a commercial publisher, with Society support but without its imprimatur" according to Hartwell (1995, 93). He thus freely admits the hiding away of organizational ties between the contributing scholarly individuals. … The historical revisionism in this area, with particular regard to Marxist accounts of the history of industrialization (aiming to contradict claims about a decline in living standards of workers; see Hartwell 1995, 94), played a prominent role in the development discourse as evidenced in Benham's paper. The interdisciplinary composition of the MPS deliberately sought by Hayek evidently eased the promotion of interdiscourses.

Wilhelm Röpke was an economics professor at Philipps University, Marburg, during the Weimar Republic. An early conservative opponent of the Nazis, he fled Germany for Switzerland (via Amsterdam and Istanbul). After the war, he became a key activist of the neoliberal and neoconservative right. His idea to found a neoliberal journal was eventually merged with Hayek and Hunold's initiative to found the MPS. Röpke frequently contributed to MPS meetings and served as president from 1961 to 1962 when he resigned over the Hunold/Hayek affair (Walpen 2004). Zmirnak (2001) links his heart attack in 1962 leading up to his eventual death in 1964 to the tumultuous ending of his leadership in the MPS.

Apart from the affinities to colonial economics, Röpke's nostalgic reasoning considers industrialization truly a mixed blessing in the West because of its tendency to help destroy the original culture through economic and political centralization. Röpke wanted every man to be a farmer (cf. Zmirnak 2001, 179–180).

Henry Hazlitt (1894–1993) was a highly influential New York-based journalist writing for Newsweek, the Wall Street Journal, the New York Times, the Nation, the American Mercury, the Freeman, and the like. He won fame for his popular scientific Economics in One Lesson (1946). A founding member of MPS and the U.S. Philadelphia Society, Hazlitt contributed five papers to MPS meetings.

Röpke refers several times to Ragnar Nurkse and discusses his work with great care. Nurkse's critique of disguised unemployment, of Keynesian employment strategies, of endogenous capital formation, and of forced savings are all positively noted, though Röpke blamed him for mistakenly assuming a general constraint on profitable expansion of original production (Röpke 1953, 98–100). Despite his association with the structuralist paradigm, Ragnar Nurkse was closely tied to the emerging neoliberal group of scholars. He had participated in Mises's Privatseminar, and the Austrian Institute for Trade Cycle Research financed his 1935 study Internationale Kapitalbewegungen (Feichtinger 2001, 187 and 193, respectively).

Alexander Rüstow (1899-1966), professor of economics, opposed the Nazis in Germany and eventually fled to Istanbul. After World War II, he held a chair in economics and social sciences at the University of Heidelberg, and headed the Alfred Weber Institute. His Ortsbestimmung der Gegenwart (three volumes) is sometimes placed next to Popper's Open Society, Hannah Arendt's "Elemente und Ursprünge totaler Herrschaft," and Adorno and Horkheimer's "Dialektik der Aufklärung." Together with Wilhelm Röpke, Rüstow determined the crisis of liberalism in its economism. The threat of totalitarianism required a complete new beginning in the social sciences, they argued at the founding conference of the MPS (Walpen 2004, 58).

Brandt was one of the 167 academics rescued in 1933 by the New School for Social Research (in collaboration with the Rockefeller Foundation). He eventually joined the faculty of the Food Research Institute at Stanford University (founded in 1921 with financial support from the Carnegie Corporation) and served on President Eisenhower's Council of Economic Advisers (1958–1961). A founding member of MPS, Brandt presented papers or chaired panels ten times between 1947 and 1962. He quit the Society in 1962 and called for its liquidation because its atmosphere of friendship and cooperation had been destroyed and because of the Hunold/Hayek affair (Hartwell 1995, 136–137; Walpen 2004, chapter 3).

Ironically, the Princeton and subsequent Oxford meetings almost witnessed the collapse of the transnational neoliberal community instead of an increasing reputation. Hartwell (1995, 100–103) blamed Albert Hunold's authoritarianism in managing the MPS, but Hunold and others were at odds with Hayek and others on the fundamental tasks of the MPS, pitting political against long-term intellectual goals (see Walpen 2004, 131–138).

E. Gudin (1886–1986), an engineer by training, taught economics and served in the Ministry of Agriculture. He was a Brazilian delegate to the IMF Directorate from 1951 to 1956, and he was vice president of the International Economic Association in 1959. Gudin joined MPS in 1954. Beyond one paper and two further interventions in Princeton, no further record of interventions exists at general meetings. Together with Roberto Campos and José Merquior he was one of the most important neoliberal intellectuals in Brazil (Gros 2003, 123).

Peter T. Bauer (1915–2002) arguably was the most prominent development economist in the ranks of the MPS. Born in Hungary, Bauer came to Cambridge in the UK to study economics in the 1930s. On the basis of his fieldwork in Africa and Southeast Asia, he rejected the "dual economics" (Hirschman) perspective, and he vigorously opposed national planning and foreign aid. Bauer mainly taught at LSE until his death in 2002. Margaret Thatcher awarded Bauer the lordship in 1983 (on a recommendation by Bauer's fellow MPS member Sir Alan Walters (http://politics.guardian.co.uk/politicsobituaries/story/0,1441,710597,00.html). Between 1951 and 1990, Bauer contributed to nine MPS meetings (contributing eight papers and chairing a panel). Bauer eventually received the first Milton Friedman Prize of the CATO Institute, worth half a million U.S. dollars (www.cato.org/special/friedman/bauer/index.html, accessed April 10, 2005).

The MPS Quarterly editor (Hunold) also alerted readers to "another article (by Bauer) . . . published in 'Economic Journal' . . . 1959 . . . , a splendidly written critical analysis of the ideas expressed in three books recently published by Gunnar Myrdal" (MPS Quarterly 1, 1959, 26).

Bauer does not discuss U.S. protectionist measures against Japan (the "voluntary export restraints" established in 1957), which led Japanese investors to start production in Hong Kong (Bonacich et al. 1994).

In general, neoliberal scholars apply a two-level argument: planning and redistribution does not work in principle, but even if the ideal plan could be designed, implementation would be impossible.

32. Bauer used South Africa's skilled white labor force to illustrate his argument. These privileged workers succeeded in fending off new entrants (poor white and black workers) by wage regulation and an “industrial color bar enforced by custom and trade unions” (Bauer 1958b, 12). Apartheid in this perspective was caused in no small measure by the institution of wage regulation, though it would be interesting to understand what Bauer referred to as “custom.” The South African case particularly bolstered his claim of the (negative) effects of wage regulation beyond the economic sphere.

35. Ludwig von Mises seconded the idea of emphasizing the enormous importance of foreign private investment that was not accounted for in Ricardo's trade theory, and Kiuchi reported that planners in Japan had to scrap the first five-year plan because the economy grew much faster than planned (MPS Quarterly 1, 1959, 20 and 15, respectively).

Harper, F. A., F. A. von Hayek, Henry Hazlitt, Leonard E. Read, and Gustavo R. Velasco (eds.). 1971. Towards Liberty. Menlo Park, CA: Institute for Humane Studies.

Hirschman, Albert O. 1981. “The Rise and Decline of Development Economics.” In Albert O. Hirschman (ed.), Essays in Trespassing: Economics to Politics and Beyond, 1–24. Cambridge: Cambridge University Press.

Hunold, Albert (ed). 1961. Entwicklungsländer. Wahn und Wirklichkeit. Erlenbach-Zürich: Eugen Rentsch Verlag. … Hunold, Albert (ed.). 1962. Lateinamerika—Land der Sorge und der Zukunft. Erlenbach-Zürich: Eugen Rentsch Verlag. … Hunold, Albert (ed.). 1965. Afrika und seine Probleme. Erlenbach-Zürich: Eugen Rentsch Verlag.

Pasche, Cécile, and Suzanne Peters. 1997. “Les premiers pas de la Société du Mont-Pèlerin ou les dessous chics du néolibéralisme.” Les Annuelles 8(8): 191–230.

Plehwe, Dieter. 2002. “Neoliberale Ideen aus der nationalen Peripherie ins Zentrum gerueckt: Der Fall Mexiko.” Journal fuer Enwicklungspolitik (Austrian Journal for Development Studies) 18(3): 249–264. … Plehwe, Dieter, and Bernhard Walpen. 2006. “Between Network and Complex Organization: The Making of Neoliberal Knowledge and Hegemony.” In Dieter Plehwe, Bernhard Walpen, and Gisela Neunhöffer (eds.), Neoliberal Hegemony: A Global Critique, 27–50. London: Routledge.

Historians of the conservative intellectual movement in the United States have generally depicted the thinkers who rejected liberalism in the 1940s and 1950s as idiosyncratic and iconoclastic figures on the margins of American life. "What seems, in retrospect, most remarkable about the leaders of this movement in these early years was their tenacity in the face of an often hostile environment," writes historian George H. Nash, in his magisterial 1976 analysis of the rise of conservatism as an intellectual force. This historical judgment largely echoes the beliefs of the participants themselves. Many conservative intellectuals of the early postwar period—a group that includes traditionalist philosophers like Richard Weaver and Russell Kirk as well as the Austrian economists and early libertarians—felt themselves to be sharply at odds with the rest of the modern world, out of step with the commonly accepted faiths of their day. They saw themselves as especially distant from the business world, which they believed had accepted the basic tenets of New Deal liberalism.

But the early history of the Mont Pèlerin Society suggests that intellectual critics of New Deal liberalism—especially those who were most active in developing the network of neoliberal thinkers—did not entirely lack support among businessmen. For within the American business community, opposition to the New Deal and to Keynesian political economy did not cease with the end of World War II. On the contrary, a small community of business leaders who had been ardent opponents of the New Deal during the 1930s continued their political work in the 1940s, the 1950s, and beyond. This group, which included retired executives, businessmen from small companies, and management at larger corporations, tried to fight the power of New Deal liberalism in a variety of ways—by struggling to change labor law to make it less sympathetic to unions; by disseminating strategies companies could use to fight unionization of their employees; and ultimately by supporting candidates who could take their message into electoral politics. This small community of businessmen was delighted to learn of the work of Friedrich Hayek and Ludwig von Mises, and they helped to form a supportive network for the Austrian thinkers in America. A few even became deeply involved with the Mont Pèlerin Society (MPS), providing financial support that was critical for the MPS's growth and development. Although these businessmen were not exactly neoliberal in their orientation—they lacked a high level of theoretical sophistication, and, in general, they did not develop a perspective geared toward using the state to further the power of the market—they found much to identify with in the MPS project and the work of Hayek and Mises.

These business critics of New Deal liberalism supported a wide range of organizations during the 1940s and 1950s. Some of the groups they worked with, like the National Association of Manufacturers, focused on mobilizing businessmen themselves, disseminating antiunion strategies and orchestrating public relations campaigns. Others, like Fred Schwarz's Christian Anti-Communist Crusade, were populist organizations seeking to educate ordinary citizens about the threat of the far left. But one of the most significant areas of activity for business conservatives in the postwar years was in creating and funding conservative think tanks such as the Foundation for Economic Education (FEE) and the American Enterprise Association (AEA—the organization eventually changed its name to the American Enterprise Institute). These think tanks were devoted to articulating an economic philosophy centered on the idea of the free market and disseminating this vision to intellectual elites—journalists, politicians, businessmen, and academics. Such intellectual organizations were, in a sense, the ideal social technology for business conservatives. Through funding think tanks, the business opponents of the New Deal could bring ideas reflective of their broad political views—not simply their immediate interests—into the intellectual life of the nation, and they could do so regardless of whether or not such ideas could command support in elections or compel a mass-based organization. The partisan think tanks functioned almost like a political party, in terms of developing and refining ideology and relating it to matters of immediate concern. Yet their great strength from the standpoint of the businessmen who funded them was that they were able to operate without any real need for a popular organization.

The Mont Pèlerin Society differed in important ways from the FEE and AEA, which sought to popularize free market economic ideas and to intervene in policy debates. By contrast, Friedrich Hayek, the founder of the MPS, wanted to create an organization that would serve as a space of free intellectual inquiry, where social scientists and expert thinkers devoted to the idea of the free market could meet to discuss and refine their thought. The remove of the MPS from the rough-and-tumble world of policy debate, as well as the central roles played by European, non-American intellectuals in the organization, might have seemed to make it an unlikely candidate for support from American businessmen. But the Society, along with the domestically oriented, partisan political think tanks, benefited from the active participation of the network of American business conservatives. This was most evident in the fund-raising drive for the first American meeting of the MPS in Princeton in 1958, which the Society pursued almost entirely at the behest of Jasper Crane, a former executive of the DuPont Chemical Company who did the brunt of the fund raising from other businessmen to raise money for the meeting. Crane's enthusiastic commitment to building the American meeting, as well as the participation of the other businessmen whom he sought to involve in the group, suggests a different view of the Society's history, and in turn, of the intellectual history of the postwar right—one in which the lines between business conservatism and the world of intellectual life cannot be so neatly drawn.

This is not to suggest that the ideas developed by the intellectuals of the MPS were directly influenced by the funding role played by men like Crane, but rather that American business conservatives viewed the development of free market philosophy with great interest, recognizing it as an elegant, sophisticated statement of their world-view. Nor is it to argue that the relationship between the intellectuals and their patrons in the business world was always smooth or easy. On the contrary, the businessmen feared that intellectual organizations would prove insufficiently loyal in the political arena and that their unrestrained agenda would mean that they advanced arguments that did not necessarily help the political cause. Hayek’s relationship with Crane and with his other business supporters was at times rocky and strained, as the Austrian thinker had no intention of allowing his Society to become either a propagandistic organization or a plaything for rich men. By and large, however, both the businessmen and the intellectuals understood their usefulness to each other. The relationship between Hayek and Crane was an early example of a businessman providing financial and political support for free market ideas—as many more would in subsequent years, helping the ideology of the marketplace become ever more prestigious and powerful as the twentieth century went on.

Moreover, the relationship between the MPS and business conservatives suggests the important and often unrecognized role that international thinkers played in the rise of the American right. The conservative movement in the United States is often thought to reflect a distinctly American set of individualistic values and a uniquely American antipathy to powerful central governments. But the history of the MPS and its interactions with the business right indicates that the ascendance of free market ideology cannot be understood solely as an American phenomenon, for it grew in tandem with the development of an international community of economists, political scientists, and other academics committed to the vision of dismantling the welfare state and reconfiguring society to allow the market greater freedom.

In 1934, the du Ponts founded the American Liberty League, an organization that claimed to be devoted to teaching the American people about "the right to work, earn, save, and acquire property and to preserve the ownership and lawful use of property when acquired," and in the process, mobilizing a vast popular movement against the initiatives Roosevelt was undertaking. In reality, the group mostly issued shrill broadsides against the New Deal, warning of the new era of class conflict and government tyranny that was arising in the United States. As one pamphlet put it, the New Deal represented "the attempt in America to set up a totalitarian government, one which recognizes no sphere of individual or business life as immune from governmental authority and which submerges the welfare of the individual to that of the government."

The American Liberty League failed to attract substantial popular or intellectual support. Journalists portrayed it as an organization dominated by a few very rich people, striking out to protect their class interests. Few intellectuals were involved with the League; its speakers were mostly businessmen, lawyers, and Democrats associated with Al Smith (Roosevelt's opponent in the primary election). The organization quietly disappeared following Roosevelt's reelection in 1936. The failure of the League suggests the weakness of conservatism in Depression America, especially as an intellectual force.

Following this dramatic year, which saw not only the advent of the Cold War but the largest strike wave in American history, Crane quickly became active in a variety of organizations, all of which were dedicated to the general proposition that liberalism, even more than Soviet communism, was the gravest danger facing the United States in the postwar period.

In the late 1940s and early 1950s, Crane served as a trustee for the Foundation for Economic Education. He played a central role in the National Association of Manufacturers, where he chaired a Committee on Cooperation with Churches, which sought to dissuade churches from allying themselves with “movements to win greater social protection and advantage for labor.” Along with his friend J. Howard Pew, the president of Sun Oil, Crane took on a leadership position in the National Council of Churches, a lay organization devoted to winning control over the mainline Protestant church back from the liberals and socialists whom they believed had won control over the Federal Council of Churches.

This was not simply a personal mission for him; rather, he felt that it was of the deepest political significance. Ideological incoherence, he thought, was one of the greatest obstacles faced by opponents of liberalism. As Crane wrote to a friend in 1945, he had been deeply impressed by another friend’s idea that “Christianity made little progress until in the Second Century it had the writings of the New Testament; Communism got nowhere until Marx wrote Das Kapital (read by very few people at first but gradually gaining enormous influence); National Socialism needed Mein Kampf to be effective.” Crane was looking, as he put it, for the “New Testament of capitalism,” the “‘bible’ of free enterprise.”

Crane’s response to Hayek indicated his deepening interest in the Society and his willingness to be involved—he even showed a distinct enthusiasm for taking a backseat role to the scholars. He agreed with Hayek that businessmen and dilettantes should not be publicly associated with the Society: “The conclusions reached, the philosophy developed, the suggestions made, and the points raised for further inquiry will have, coming from men of the highest scholarship, profound influence in the realm of ideas.” Perhaps most surprisingly, the specifically nonpragmatic program of the MPS appealed to Crane. The new organization should not, he thought, attempt to get involved in politics, or even to participate in the types of broad ideological campaigns being organized by the National Association of Manufacturers. “To attempt wide propaganda would in my opinion be quite unwise and would indeed weaken the potential usefulness of the society. That, as the need for it becomes manifest, can be carried on by other instruments created for that very purpose."

In June 1947, Crane wrote to Hayek that he was disappointed by reports (likely coming from Leonard Read of FEE) that there were “accepters of collectivism” at Mont Pèlerin: “Are you quite sure that all of the American members, as I know some of them to be, are quite dependable?” Hayek responded with a warning against the “tendency to create an unreasoning orthodoxy which treats traditional liberal principles as a faith rather than a problem on which reasonable people may differ."

In 1949, Crane wrote an angry letter to Hayek about a paper by Frank Knight, “The Determination of Just Wages,” which Knight had written for the Society’s annual meeting. (Knight failed to attend the meeting, so it never was presented publicly.) The paper argued, among other things, that wealth was becoming progressively more concentrated in the United States, a point that Crane denounced as an idea “which stems from Karl Marx."

Yet despite his lingering uncertainty, Crane was not willing to give up on the Society. At the end of 1948, he sent a copy of Hayek’s article, “The Intellectuals and Socialism,” to his close friend and fellow activist, the Sun Oil executive J. Howard Pew. “I am a member of this Mont Pelerin Society,” Crane wrote to Pew. “We will get some things of value from the foreigners, even though they cannot understand our American idea of liberty."

In the early years of the MPS, funds were a perennial source of anxiety. Efforts to raise money to fund travel to conferences frequently failed, leaving the Society dependent on the contributions of small think tanks like the Volker Fund. The conservative businessmen who bankrolled many of the initial think tanks—Lewis Brown of Johns-Mansville, a major roofing and insulation corporation, who founded the American Enterprise Association, and B. E. Hutchinson, a Chrysler executive and NAM regular who gave generously to organizations like FEE—were not interested in the Mont Pèlerin Society. Many conservatives in the business community shared Crane's chariness about giving money to European intellectuals to do nothing in particular except meet and talk to one another. The Rockefeller Foundation declined to make money available to the Society, on the grounds that it would create a precedent for funding requests from “Communist and dirigiste” organizations.

Late in 1948, Hayek wrote to Crane in pointed tones of the difficulties he had faced raising money: “While I see daily how for the international contacts of the leftish groups, and particularly the Communists, almost unlimited means seem to be available and in consequence the closest co-ordination of their systematic efforts possible, I have so far failed to obtain any funds to speak of for similar endeavors on the liberal side.”

In 1956, Crane’s attitude toward the Society shifted. In November 1956, directly following the reelection of President Dwight D. Eisenhower, Crane wrote to Hayek to press him on organizing an American meeting of the MPS, saying he thought it a “very important move.” Through such a meeting, “the American public, and particularly the thinking people, would learn . . . of the widespread advocacy of the liberal philosophy and its strong intellectual foundations.” Hayek responded in language that seemed designed to urge Crane to step up as an organizer, saying that while he, too, thought an American meeting was of the greatest importance—“any further development of the Society, indeed its fruitful further existence, depends largely on the possibility of holding an American meeting”—he himself was unable personally to devote the time to raising money for such a meeting. “Unless some friends will take over the effort of fund-raising for an American meeting, I see no prospect of success.”

In a sharp departure from his 1952 position, Crane agreed to take a leading role in fund-raising for the meeting, assuring Hayek, “I will be ready to make an active effort to secure the necessary financial aid for such a meeting.” He urged Hayek to invite J. Howard Pew (“a sound libertarian and a most generous supporter of worthwhile activities”) to join the Society, especially since Pew would be able to raise and donate money to make the meeting possible, and he again mentioned Sterling Morton, who Crane thought “might be a large financial supporter of the Mont Pelerin Society.” Crane’s suggestions of business supporters reflected a larger desire to change the composition of the Society’s membership and to encourage exchange between businessmen and scholars. It also likely reflected his earliest concerns about the ideological consistency of the group. He concluded his note with a prominent postscript that seemed targeted at Hayek’s early reluctance to include executives in the organization: “While the membership of the Mont Pelerin Society is and should be predominantly academic, I believe a small admixture of dedicated businessmen is desirable. As the European members get to know them, or I suppose I should say us, they may lose some of their distrust of capitalists.”

What accounted for Crane's changed attitude toward the Society and his new interest in raising money for an American meeting? It may have reflected a shift in the nature of business activism following Eisenhower's reelection. Prior to the Eisenhower years, the business opponents of New Deal liberalism hoped that the Republican Party, once back in power, would undo the New Deal. But instead Eisenhower's "moderate Republicanism," which accepted a Keynesian framework sympathetic to limited government involvement in the economy, and which treated liberal social programs and labor unions as necessary bulwarks against economic strife and social disorder, solidified the political transformations of the New Deal era. In the 1940s and early 1950s, business activism had largely consisted of broad public education campaigns regarding the virtues of free enterprise, featuring newspaper advertisements, mass-printed brochures, and other similar efforts informed by the desire to impact political culture as quickly as possible by reaching as many people as possible. They sought to carry out an essentially populist strategy, believing that getting their point of view across was all that was needed to regain the confidence of the masses. In the mid-1950s, however, following the disappointments of the Eisenhower era, conservative activists began to feel that they would be more successful if they tried to shape the opinions of smaller numbers of more influential people. They began to target their projects at academics, clergy, journalists and politicians—people whom they felt would have a disproportionate impact on the larger culture.

Once Crane committed to the plan of an American meeting of the MPS, he at last lived up to Hayek’s hopes as a fundraiser. Crane diligently raised money for a year and a half, sending letters to dozens of prominent conservative businessmen and to small right-wing foundations. His initial pitch sought to persuade businessmen that the esoteric group mattered: … While freedom in economic affairs still seems to be losing ground politically throughout most of the world, there is at least one encouraging sign. Among educators there is more awareness of the concept of freedom, and increased interest in it. Some of them even evidence a retreat from collectivist philosophy, which has so long dominated academic thinking, and a groping toward a better understanding of liberty. This is important, because what the highbrows upstairs talk about today has such a decisive influence on the public opinion of tomorrow.

Many potential donors turned Crane down. But he was able to persuade thirty-three wealthy individuals to contribute to fund the American meeting (he himself contributed $5,000, the very amount that he had deemed too much only a few years earlier). The du Pont family and DuPont executives donated to the meeting. A small conservative foundation named the Relm Foundation gave $5,000, as did J. Howard Pew. New York financier Jeremiah Milbank (who would later play an important role in the small group of businessmen and conservative activists who drafted Senator Barry Goldwater to run for the presidency in 1964), the United Fruit Company, U.S. Steel, the Ford Motor Fund, and the Milliken Foundation (run by Roger Milliken, a textile manufacturer and major backer of Barry Goldwater, who shut down his factories entirely after a union drive won) each contributed $1,000. The Winchester Foundation contributed $3,000 at the behest of wealthy lawyer Pierre Goodrich, and the Frederick Nymeyer Foundation, run by a business consultant, gave $1,000. Smaller contributions came from Henning Prentis (of Armstrong Cork Company), Sterling Morton of Morton Salt, retired Chrysler chair of finance B. E. Hutchinson, the Beech Aircraft Corporation, and Grede Foundries, as well as foundations like the Kennametal Foundation. The total amount collected for the meeting was about $40,000.

Yet Crane's new level of participation, which Hayek had so long sought, was not without its complications. As Crane grew more active as a fundraiser, he also began to try to intervene more directly in the internal life of the Society—leading to a set of conflicts that are entirely absent from the official history of the MPS. Because Crane was raising money, he sought at many points leading up to the meeting to influence the program and even the membership of the group. Commenting on a draft of the program, Crane wrote, "I only hope there is no slip-up by which any compromisers with basic principles would get on the program. That sort of thing seemed to me to be very regrettable at St. Moritz, but using the program that you have laid out it is not to be anticipated at Princeton." He was especially concerned with the chairmen that Hayek would select, writing that he hoped they would be "men of extraordinary competence and soundness." After reading an essay by Wilhelm Röpke, Crane wrote Hayek an anxious letter, expressing fears that Röpke would "attack laissez faire in the American meeting," and urging Hayek to think about how to have the "maximum degree of prevention of attacks on free enterprise in the American meeting."

Other members of the Society felt uncomfortable about the degree to which Crane was attempting to shape the American meeting. Fritz Machlup, a Johns Hopkins professor and treasurer of the society, wrote to Hayek after a meeting of the financial committee, "Crane began with a discussion of your program. I did not like the idea that this Committee should at all get into a matter which is entirely in your prerogative, but I did not say anything as Crane began with a nice statement that he would not like to interfere but he had a great interest in the program because of his assurances to the various donors." Hayek responded, "Crane is sometimes a little bit of a nuisance but on the whole I have been fairly successful at disregarding suggestions from him I did not like."

The FEE, founded in 1946 by Leonard Read, the charismatic former president of the Los Angeles Chamber of Commerce, sought to revive "freedom philosophy," sending polemical newsletters to its mailing list of over 28,000 subscribers and reissuing classic works of market philosophy like Frédéric Bastiat's The Law and the writings of William Graham Sumner. Although Read admired Hayek tremendously and adopted his vision wholeheartedly, Hayek and others in the MPS had long been wary about the FEE and about its strength in the American free-market intellectual scene, viewing the FEE as an overly strident, simplistic organization that alienated as many people as it persuaded. Karl Brandt, for example, wrote that the FEE was "radical" and issued "cheap propaganda." Crane, on the other hand, considered the FEE "Number One in the institutions for the maintenance of freedom."

The source of this discomfort, in Harper's view, was the Society's insistence on appearing to be a space of neutral intellectual inquiry, an attitude that the politicized FEE roundly rejected: "We have acquired the label of intolerance to views differing from our own . . . and the price we must pay for it is a degree of 'cold shoulder,' a strong feeling of suspicion whenever we appear to aggress."

Because he raised the money for the conference, Crane believed that he had the right to ultimately determine its program. As he wrote to his friend Rose Wilder Lane—the daughter of Laura Ingalls Wilder and a conservative writer and activist in her own right with whom Crane conducted a voluminous correspondence—he "had no reluctance at all . . . to insist on sound statements from the speakers at the Mont Pelerin conference." He explained that while he did not want to be "tactless so as to defeat my very purpose," he had told Hayek that "I must thoroughly approve of the program if I am to raise the money for the meeting."

Crane tried to bring businessmen into the Mont Pèlerin Society. In early June, he sent Hayek a long list of people to invite to the conference, including B.E. Hutchinson (a retired chairman of the finance committee at Chrysler and a financial supporter), Charles Hook (the chairman of Armstrong Cork Company), Lammot du Pont Copeland (a DuPont vice president), James Rogers of the Ingersoll Milling Company, Robert E. Woods of Sears, Roebuck, Bradford B. Smith of U.S. Steel, Roger Milliken, Olive Ann Beech (president of Beech Aircraft Corporation), and Bernard Kilgore, president of the Wall Street Journal. Hayek complied in some cases, but in others he drew the line.

“I am exceedingly anxious that they see something of America beside the Atlantic Seaboard, for one of the great values of the meeting of the Mont Pelerin Society is that these foreign economists, political scientists, historians, and other educators, who know nothing of America, should receive on this visit to the United States some idea of the American way of life, cultural values, and philosophy,” he wrote to John Holmes, an executive of the Chicago meatpacking firm Swift & Company.

The American meeting of the MPS took place on September 8–13, 1958, at Princeton. It was the largest conference in the history of the Society, with the most extensive program. … Worst of all, "from the platform he made slurring references to the foolish policies of the United States, hardly becoming one who was a guest in this country," and "his economics seemed at variance with that professed in the aims of the Mont Pelerin Society." Hayek and others blamed many of the failures of the meeting—the lack of publicity, the fact that the Western trip did not come off—on Hunold.

At the 1964 meeting, Milton Friedman and Hayek circulated a prospectus for a book series on “Principles of Freedom,” in which prominent free market intellectuals would write short popular volumes for an audience of undergraduates and lay readers; they had already attracted numerous corporate sponsors for the series, including GE, DuPont, Shell Oil, and U.S. Steel.

While the American meeting gave the intellectuals new reasons to fear the strings that seemed to come with the involvement of donors, the conference at Princeton did not mark the end of the broader relationship between businessmen and the high theorists of the Mont Pèlerin Society. On the contrary, the connections between the business world and that of think tanks and intellectual organizations would only deepen over the years to come. … Free market economists—including Society members—spoke at meetings of the National Association of Manufacturers, the Los Angeles Chamber of Commerce, and the Crotonville School of General Electric. … And while Hayek was not setting labor policy at American corporations, his ideas helped to legitimate the rising tide of antiunion sentiment throughout business in the late 1950s. The ideas and arguments of the neoliberal thinkers helped to transform the opposition to unions and the welfare state from reactionary politics to good judgment in the public mind.

The connections between wealthy donors like Crane—whose participation and imaginative commitment to the MPS went far beyond simply giving money to taking an active role in fundraising and organization for the conference—and intellectuals like Hayek are key to understanding the rise of the postwar right. Recognizing these relationships helps us to see the material basis for the postwar right. Seeing the networks between businessmen and intellectuals demands that we take account of the influence of free market thought on the core group of businessmen who remained critical of New Deal liberalism, and the extent to which they came to understand their antipathy to labor unions and the welfare state in terms of a struggle for freedom against the forces of collectivist tyranny. The motives of businessmen like Crane reflected a broad vision of society and their place within it, and cannot be reduced to short-term economic interest. They were motivated by a broad sense of political values, by a sweeping philosophical program, even more than a sense of immediate financial need.

The leadership role played by individuals who could offer financial support to organizations representing their beliefs, he wrote, was of special importance when it came to supporting unorthodox ideas in “politics, morals and religion.” If “minority views are to have a chance to become majority views,” they would need to rely upon the financial support of wealthy iconoclasts.

For a discussion of the role of money and wealth in building the postwar right, see David Chappell, “The Triumph of Conservatives in a Liberal Age,” in Jean-Christophe Agnew and Roy Rosensweig (eds.), Companion to Post-1945 America (Malden, MA: Blackwell, 2002), 312. The question of whether the business conservatives were “neoliberal” is complicated. They were generally most interested in reversing the New Deal, especially with regard to labor unions, so in the sense of wanting to move society back to an earlier point, they were certainly conservatives. In addition, their sense that they understood a set of underlying social laws and principles about the way that society should operate, and that activists in social movements were ignorant of these, gave them a certain skepticism about labor unions and policies encouraging economic redistribution, and in this respect as well they were akin to conservatives of old. At the same time, they were enthusiastic about capitalism and the market, in contrast to thinkers such as Russell Kirk and Richard Weaver. In addition, they were rarely completely consistent—they were not opposed to various uses of the state to further the interests of business. And Jasper Crane—of special significance for this chapter—wrote that he wished that he could still call himself a “liberal.” For the purposes of this chapter, however, I will refer to them as conservatives, both because of the intellectual logic of doing so and because historically they affiliated themselves with a political movement that had little ambivalence about adopting the word.

Crane to Hayek, October 17, 1949. JCP, box 52. One wonders whether Crane’s religiosity may have fed into his skepticism about the Mont Pèlerin Society.

Crane to Rose Wilder Lane, November 21, 1957. JCP, box 52. This note was in response to a long missive from Lane, with whom Crane kept up a voluminous correspondence, in which she berated him for having any sense that “it is improper for the man who pays the fiddler to dictate the tune.” It was, she said, “a fallacy promulgated by the eggheads—who get the money, but because they cannot earn it in a free market, must affect to despise money, and money-earners, in an effort to protect their own self-respect.” Lane to Crane, November 15, 1957.

Dieter Plehwe, draft of essay, “Reconstructing Neoliberal (MPS) Development Economics and Politics,” 20. The results of this initiative are not altogether clear, and the subject merits attention from future researchers. Another area for future research might be the funding sources of the Philadelphia Society, an intellectual organization that resembled an American branch of the MPS.

The Pinochet regime fostered highly personalized channels of communication with the “economic change team” and allowed it a high degree of autonomy in the pursuit of neoliberal planning activities and structural reforms. This has been confirmed by insiders such as the “godfather” of the Chicago boys, Arnold Harberger: “Given that there was a military government, the idea that they were willing to cede economic authority to a group of technocrats made that transition easier than it would have been in a democratic context of the same time and place” (Harberger 1999). Yet Harberger did not subscribe to the perspective of scholars who argued that a radical break with long-established institutional arrangements and the exaction of high social costs involved in the neoliberal adjustment process necessarily required an authoritarian political system (Foxley 1986; Martínez and Díaz 1996). To counter the position of these scholars, Harberger cited the experience of other countries that had carried out neoliberal reforms: “Then what happened is that one democratic government after another in Latin America adopted virtually identical reforms. . . . So you can’t say that these reforms are inevitably shackled to a military government” (Harberger 1999).

We can, therefore, still subject to further scrutiny the multifaceted mobilization and transformation of knowledge and ideas involved in Chile's economic and social transformation. Although each of the approaches cited above has greatly enhanced our knowledge of Chile's road to neoliberalism, we cannot adequately explain the power and relative influence of neoliberal intellectual entrepreneurship in Chile through theories that elevate "technocracy" (economic professionalism), "domestic institutions" (the military dictatorship), or "interest groups" (power elite networking) to center stage without considering the transnational evolution of Chilean neoliberalism.

I will argue that we need to consider Chile as a crucial site for transnational neoliberal resistance against the dominant postwar development paradigms of state-driven modernization, import substitution, and social reform. In the next section, I will reexamine the networking and coalition-building activities of the different "counter-revolutionary" political and ideological factions in the 1970s. As we shall see, neoliberal intellectuals were embroiled on multiple fronts in the effort to overthrow the socialist government of Salvador Allende. Only later was a Chilean understanding of a "new liberalism" imposed to crystallize this process. In this regard, it is essential to recognize the role of Chilean legal scholars in addition to the local economists.

I will thus argue that neoliberalism in Chile cannot be readily understood on the basis of some clearly defined, prepackaged, one-size-fits-all set of ideas, and then be simply identified with generic antidemocratic authoritarianism. Rather, we need to examine diverse neoliberal intellectuals in terms of their motives, their individual reasoning quirks; and their actions in context; only then can we fully understand how neoliberals and their ideas have been mobilized and adapted so successfully. Both the domestic and international stories can be integrated by always keeping one eye on the international Mont Pèlerin Society, where Chilean and foreign neoliberals worked closely together.

In the 1950s, various programs were initiated to introduce and strengthen Western economics in Latin America's academics. Of particular importance in this regard were U.S. efforts to “modernize” the curriculum in economics and to provide training grants to Latin American students to come to the United States. American resources were deployed with the goal of training new economic personnel, thereby providing a bulwark against Marxist positions, which were accorded considerable importance in the new development discourse established after World War II. Although many academics involved in the U.S. Point Four Program supported what later culminated in Walt Rostow's “modernization paradigm,” the effort also recruited neoliberal strongholds like the University of Chicago, which was hostile to the strong emphasis on state planning that dominated the developmental mainstream in the West at the time.

Chile arguably figured more prominently in the “battlefield of ideas” than other countries, if only because the United Nations Economic Commission for Latin America (ECLA) had been established in Santiago in 1948 and had become a bastion of the structuralist approach to the causes of uneven development. Raúl Prebisch, ECLA's general secretary, promoted the import substitution development strategy. Within this framework, a selective retreat from the world market was prescribed to enhance regional economic cooperation and alter the international division of labor to the advantage of the newly industrializing countries (Prebisch 1950, 1961). ECLA therefore contributed to an intellectual climate that attracted critical development theorists from all over the Americas, including the Chicago School heretic Andre Gunder Frank.

Efforts to nurture neoliberal ideas in Chile culminated in 1956 with the agreement that the economics faculty of the Catholic University of Santiago (Universidad Católica, CU) signed with its counterpart at the University of Chicago. The so-called Project Chile was conceived as part of the U.S. Point Four Program of technical assistance and economic aid to underdeveloped countries. It was conducted by the International Cooperation Administration, or ICA (today the Agency for International Development, or AID) (Fontaine 1988, 23). The origins of the agreement can be traced to the conversations of the chair of the Economics Department at Chicago, Theodore Schultz, with Albion Patterson, director of the ICA and technical cooperation at the Institute of Inter-American Affairs in Chile. Schultz was particularly concerned with education and human capital as they related to economic growth. He accordingly proposed a project entitled “Technical Assistance to Latin America,” and “wanted to use Chile as a laboratory to test his theories.”

A second attempt, launched in 1955, succeeded in overcoming these obstacles and led to Project Chile. Patterson, Chaná, and Ugarte eventually signed a treaty of cooperation, and members of the Chicago department (T.W. Schultz, Earl J. Hamilton, Simon Rottenberg, and Arnold Harberger) traveled to Santiago to work out the concrete terms of a future training program. Despite continuing opposition from some university council members, an agreement with the Economics Department of the University of Chicago was finally signed in March 1956. As a result, approximately thirty Chilean economists were trained in Chicago between 1956 and 1964. The exchange program also attracted graduates from the University of Chile and succeeded in substantially altering the way economics was taught in the whole Chilean University system.

After the official end of Project Chile in 1964, the recruitment and training of students continued with funds from the Economics Department of the University of Chicago, AID, the Ford and Rockefeller Foundations, the Organization of American States, the Chilean Central Bank, and Chile's planning office, ODEPLAN (Oficina de Planificación Nacional). In addition, the Ford Foundation donated $750,000 for a ten-year period to the Center for Latin American Economic Research at the University of Chicago. In the course of three decades, more than 150 Chilean students received their training in Chicago (Biglaiser 2002, 275f.). During the 1960s, Latin American graduate students made up one-third of the total stock of students in Chicago's Economics Department (Harberger 1999).

Such countercurrents notwithstanding, the Chile-Chicago exchange program was very successful in realizing its promoters' expectations. After their return to Chile, the young economists brought their freshly acquired knowledge into the conglomerates or filled academic posts at Catholic University. Economists affiliated with the ruling Christian Democratic Party entered state agencies in the 1960s under President Eduardo Frei. Chicago-trained and other neoliberal economists secured important positions in the Central Bank (e.g., Alvaro Bardón, Carlos Massad, Jorge Cauas), the budget agency, and the supraministerial planning office ODEPLAN. Immediately after the coup, ODEPLAN would become the "operational basis" of the economic change team that designed the economic transformation.

In response to electoral defeat—the Liberals fell from twenty-eight seats to six, and the Conservatives from seventeen to three—Liberals, Conservatives, and nationalist groups founded the National Party in 1966. The new party, exhibiting a style reminiscent of that of conservative governments at the beginning of the nineteenth century, advocated a strong authoritarian nationalism. “Interest group-led” party politics was to be replaced by a government relying on “neutral” experts, with an emphasis on private property and entrepreneurship. The new right thereby tried to distance itself from the traditional right, which was now disparaged as opportunistic and oligarchic, always seeming to be at the service of vested interests (Vergara 1985, 61f.).

At the same time, another radical right-wing movement emerged at the Catholic University. The so-called gremialista movement (“guildism”) became a gathering point for teachers and students, who claimed to rescue the university and society as a whole from the “Christian-Marxist clutch” (Arriagada 1998, 76ff.).

The gremialista movement would ultimately provide an essential recruitment base for the pro-coup coalition. Established by Sergio Guzmán, a law professor at the CU and later one of the intellectual leaders of the military regime, his ideological project was based on corporatist ideas grounded in ultraconservative Catholicism. The gremialists sought to replace party politics with an authoritarian corporatist regime. Business interest groups and professional organizations (gremios) were assigned key roles in a system of functional representation that was to control and moderate the discretionary political power of the state (Teichman 2001, 25; Valdivia and de Zárate 2003, chapter 5).

The battleground at the university brought together the returning Chicago economists, who began to occupy leading positions in student and university bodies at CU, and the gremialistas. Many of the economists who designed the socioeconomic reforms of the post-coup period actively participated in the gremialista movement—the only radical political entity in the fight against what was perceived as a Chilean “road to socialism” inside and outside the campus (Lavín 1986; Huneeus 1998).

In the face of the political shift to the left, with the Frei administration initiating an agrarian reform alongside educational reforms and other redistribution measures, the right-wing forces in Chile began to forge direct contacts and networks within and outside the public sphere. Crucial protagonists in this regard were the representatives of the conglomerates (O'Brian and Roddick 1983; Silva 1996). Many of the top leaders of the conglomerates either were trained in Chicago (Manuel Cruzat, head of the Cruzat-Larraín group, for example) or collaborated closely with the neoliberal economists from the late 1950s onward. On behalf of these powerful groups, the economists conducted courses at SOFOFA (Sociedad de Fomento Fabril / Federation for the Promotion of Industry), the industrialists' association, to win private-sector converts for their ideas. Important public channels were opened by media mogul Álvaro Saieh, who also had a Ph.D. from Chicago, and by the publisher of the influential daily newspaper El Mercurio, Agustín Edwards. The Edwards group was one of the conglomerates involved in the printing, paper, and packing industries, as well as in finance, mining, and consumer goods production (Silva 1996; also see Dahse 1979).

Agustín Edwards founded Chile's first neoliberal think tank CESEC (Center for Social and Economic Studies) whose main task was to attack the mixed-economy perspectives still popular in leading business circles. Members of the think tank drew up the economic program of the right-wing candidate Jorge Alessandri in the 1970 presidential elections, the emblematic figurehead of gremialism. Of course, he could count on the active support of Jaime Guzmán, who also contributed to his election manifesto and led his youth organization. Interestingly, at that time the free market ideas of the CESEC economists were to some extent opposed by Alessandri's political team, which favored the traditional right-wing perspectives of a corporativist closed economy. However, gremialista leader Jaime Guzmán was successfully mediating between the market radical and the corporatist factions backing Alessandri and thereby helped to avoid public disagreements with regard to these issues. Although neoliberal economic ideas were not high on Alessandri's agenda, the campaign was successful in winning important adherents to the Chicago ideas among key businessmen. Moreover, it brought neoliberal economists together with gremialistas in joint concrete action—and forced them to compromise over the common goal (O'Brian and Roddick 1983; Silva 1991, 392).

After Allende's election victory in 1970 and in the face of the nationalization and collectivization of enterprises, SOFOFA, headed by representatives of the conglomerates, stepped up its counteractivities. Moving well beyond mere propaganda work, the supply of daily consumer goods was interrupted in an attempt to provoke backlash. Along these lines, SOFOFA organized entrepreneurial boycotts and a collapse of private transportation. In 1971, the association explicitly dedicated itself to an overthrow of the government; the Chicago-trained economist Sergio Undurruga was charged with coordinating the SOFOFA task groups security, propaganda, and economic policy (Delano and Traslaviña 1989, 23f.; Corvalán Marquéz 2001, 225).

It has been reported that it was Kelly who recommended the neoliberal shock program to Pinochet in 1975 (Fontaine 1988; Arriagada 1998). The Monday Club developed an economic reform program, which eventually gained fame as “El ladrillo,” or “the brick” (CEP 1992). It was implemented after 1975 when the radical market fraction within the Pinochet junta achieved control over economic policy making.

The academics in question did not restrict themselves to the academic sphere. Quite a number of key neoliberal economists were ready and willing to help create political circumstances favorable to testing their ideas in the “real world,” rather than to simply wait for an occasion to do so. Intellectual projects, in their turn, were dependent on crucial external partners in order to succeed. Big business, always an important political actor in Chilean history, provided critical funding and media channels indispensable to influence public opinion and to destabilize the existing system. Last but not least, the military provided the necessary force to overthrow the duly elected Allende government when the right-wing opposition forces lost all hopes of achieving their ends through electoral change.

It is often said that the neoliberal economists and the gremialistas came from totally different intellectual backgrounds, the neoliberal economists being “scientific” free market apologists and the gremialistas being corporatists with Hispanic authoritarian values (see, for example, Silva 1991, 393). Distinguishing the intellectual perspectives of neoliberals and gremialistas is not easily done, however. Many of the economists who reentered the Catholic University upon their return from Chicago in fact actively participated in the gremialista movement. … Among the economists who represented the gremialistas in university bodies or participated actively in the movement were Juan Carlos Méndez, Miguel Kast, Pablo Baraona, and the MPS-members Arturo Fontaine Talavera and Cristián Larroulet. The dean of the economic faculty, Sergio de Castro, was on the list of gremialista candidates; the director of the economic faculty and later finance minister, Jorge Cauas, was also close to the movement (Lavín 1986; Fontaine 1988, 31; Huneeus 1998).

Apart from overlapping membership, the ideology of leading gremialistas can neither be simply juxtaposed to neoliberal worldviews nor be understood in a categorical manner. The leading figure of the movement, Jaime Guzmán, defended the capitalist economy in his writings, which was rather atypical for adherents to corporatism. His explicit defense of capitalism was coupled with a strong antistatism rooted in a traditional Catholicism: in the social doctrine formulated by Pope John XXIII, Guzmán perceived private property rights and private enterprise as timeless and permanent values. He strongly invoked the principle of subsidiarity that is held to protect society against the state. Guzmán’s corporativist capitalism perspective thus shared the antistatism and references to self-organization with neoliberal perspectives. Furthermore, Guzmán’s intellectual development from the 1960s to the 1980s reveals a diminished reference to encyclical and corporatist principles (Vergara 1985; Cristi 2000). This shift may be due to Guzmán’s intensified cooperation with the economic change team. He first encountered neoliberal thinking during the Alessandri election campaign in 1970 when he mediated between the neoliberal economists and Alessandri’s corporatist-minded supporters. In 1971 he joined the Monday Club and the CESEC think tank (Fontaine 1991, 252).

After the military coup in September 1973, it took about two years before the neoliberal faction ascended to positions of authority, which enabled technocrats to advance their far-reaching reorganization program. Some analysts have proposed that the insurrection against Allende was motivated by a prior decision to establish a new type of institutional order in the country. That is far from true. The military coup was based on a coalition of forces, aligned against the Popular Unity government (Martínez and Díaz 1996). Initially, the insurrection only determined that the future of the country would be decided by some combination of different forces represented in the junta.

With regard to a new neoliberal design of the institutional order, signals were mixed during the first two years of the new regime. The economic policy agenda was still dominated by a gradualist strategy advocating a modern "mixed" economy. Internal conflicts within the junta concerning the appropriate response to the economic situation were particularly visible between the navy and the air force, with the air force taking charge of labor and social affairs. The navy had the closest contact with neoliberal cadres, whereas air force commander Gustavo Leigh, Pinochet's principal rival for control of the junta, was the most prominent supporter of corporatist policies and sometimes was even called a Keynesian (Valenzuela 1993; Kurtz 1999, 409). Leigh was eventually expelled from the junta in 1978. Because of the internal differences, in the early years the regime apparently feared that a radical neoliberal shock program would harm important pro-coup social actors and hence threaten the long-term viability of political restructuring (Valdivia and de Zárate 2003, chapter 3).

Though falling short of fundamental institutional reforms, the initiatives launched immediately after the coup already advanced the neoliberal agenda by reversing major economic reforms of previous governments. The junta returned nationalized enterprises to their former owners (approximately 260 domestic firms) and compensated U.S. multinationals affected by expropriation measures. Price controls were eliminated and interest rates were freed. Beyond these privatization and deregulation efforts, the regime sought to stabilize macroeconomic variables in a more traditional fashion.

Navy and army officers rather than air force leaders were assigned leading economic policy positions, and both neoliberal and gremialist academics were called into key advisory positions (see Cañas Kirby 1997, 61f.). The more technical aspects of the ministry’s tasks were designed and carried out by civilian undersecretaries. Pinochet himself made such staffing decisions, and thus the leading civilian positions involved a dual allegiance: to the minister in charge (typically a military man) and directly to Pinochet. This configuration is important in understanding the long-term trajectory of the reform policies instituted under the military regime: Although there were frequent changes at the minister level, the reform team worked continuously in loyalty to Pinochet.

Undersecretaries were often recruited from ODEPLAN, the most pro-market reform institution within the government until the early 1980s. From early on, the planning ministry was accorded a high degree of autonomy within the administration. It thereby assumed the functions of a government laboratory or think tank in charge of researching and coordinating various reform projects in separate policy areas. The guiding force behind ODEPLAN was the gremialista and Chicago economist Miguel Kast. As subdirector (1975) and director (1978), he recruited like-minded economists and other professionals (agrarian engineers, for example) and thereby turned ODEPLAN into an ideologically cohesive think tank with a reliable network of experts who were closely linked to all the important institutions and agencies of the government.

When it became evident that the economy was in a recession in 1975, a window of opportunity for a radical neoliberal transformation opened. First, decision-making powers were further concentrated in Pinochet's hands. He had disempowered the air force and continued purging civil and military officials who were opposed to a radical “shock treatment” approach. The analytical and educational work of the neoliberal economists around Pinochet had apparently borne fruit: Pinochet became convinced that only a radical shock treatment could effectively counter the ongoing crisis. Several sources point to a significant role of MPS members, and Milton Friedman in particular, in providing legitimacy for a radical program of neoliberal shock therapy. Friedman met Pinochet during his first visit to Chile at the end of 1974, and the personal meeting was followed up by an exchange of letters. Friedman recommended a radical program centered on severe budget cuts, monetary reform, and free trade. Pinochet pointed out that much of what Friedman had recommended was part of the national recovery plan proposed by his treasury secretary, Jorge Cauas, who was to become “super minister” in charge of the stability program (Friedman and Friedman 1998, 594). Friedman's trip was funded by Javier Vial, the head of the BHC (Banco Hipotecario de Chile) group, which was close to the Chicago economists (Delano and Traslaviña 1989, 39; González-Rossetti, Chuaqui, and Espinosa 2000, 37).

Just as important for this watershed appears to be the curious fact that Pinochet and his closest advisers distrusted the politicians of the right, whom they considered a serious potential threat to their own position of power. Therefore, they disapproved of demands for a restoration of "oligarchic" order and land tenure (Martínez and Díaz 1996). Neoliberal free market ideas thus meshed nicely with junta calculations of preservation of a monopoly of political power. The Chicago-gremialist coalition of economists also had a competitive advantage owing to its previous work on a coherent economic recovery plan ("El ladrillo"). Apart from these internal factors, a number of external conditions argued for shock therapy. As a result of the ongoing economic crisis, Chile had to rely heavily on the external inflow of capital. Multinational lenders like the Paris Club were reluctant to lend to Chile, however, mainly because of the regime's human rights abuses. The appointment of the economic reform team mitigated this consideration: through their university background, they had personal and professional ties to officials from international organizations, which increased the credibility of Chile's government with lenders. Pinochet's leading academics thus served as "intellectual brokers" between the government on the one side and the International Monetary Fund (IMF) staff and international capital on the other (Teichman 2001).

With Pinochet's decision to adopt a radical shock treatment, the neoliberal economists led by Kelly and Kast at ODEPLAN and by de Castro at the Faculty of Economics occupied the most significant positions of economic responsibility in 1975 (see Table 9.2). The new finance minister, Jorge Cauas, was given additional power over every agency related to the Ministry of Finance as well as over ten other ministries, giving him effective control over economic decision making. The "Pinochet of the economy," Sergio de Castro, was placed at the helm of the Ministry of Economics. Miguel Kast was named deputy director of ODEPLAN, and his staff supervised implementation of ministerial tasks (Fontaine 1988).

The monetarist shock treatment, along with the establishment of a free trade regime, deregulation of finance sector activities, and a second wave of privatizations of traditional (and profitable) state-owned companies, were the primary components of the first neoliberal package (Tironi 1982; Olave Castillo 1997, 53–105). Profound restructuring was further enabled by access to foreign credit, which helped to control the adverse effects of the shock treatment—namely, soaring imports due to overvaluation of the peso, deindustrialization due to import competition, and rapidly rising unemployment.

Beginning in 1976, the economy slowly recovered. At the time, neoliberals claimed credit for the economic recovery, although they would later blame the crisis of the 1980s on the military government's reluctance to heed their advice. Implicitly recognizing that monetarist policies alone could not halt inflation, revaluations of the exchange rate were introduced that successfully forced down inflation under 100 percent. Rising world market prices for copper and a stronger growth of exports improved the country's balance-of-payments position. The new development strategy still included some incentives for nontraditional exports, but the focus was on export sectors with solid comparative advantages. Earlier strategies of import substitution designed to broaden the country's industrial base were rescinded. Chile affirmed its commitment to free trade and financial liberalization by its resignation from the Andean Pact in January 1977 and the removal of obstacles to foreign financial investment (Ffrench-Davis 2003). The traditional import substitution regime was effectively abolished.

In 1978 Pinochet declared that the process of basic economic reconstruction was complete. At the same time, he introduced a new reform agenda, which aimed at extending a market approach to many spheres of society. The new program became known as the seven modernizations and included a new constitution with institutional reforms in labor, education, health, regional decentralization, agriculture, and justice policies. The “whole social structure of the country [was] opened up as a potential field for experimentation, based upon the pure truth of rational choice and the calculus of marginal utility” (Martínez and Díaz 1996, 92).

Whereas the Chicago School’s monetary, regulation, and competition theories served as talismans with regard to Chile’s monetary and fiscal policies, the Virginia School’s public choice theory pioneered by MPS members Buchanan and Tullock (Amadae 2003; Pitt, Salehi, and Eckel 2004) is important in better comprehending Chile’s reform agenda for labor relations and the privatization of the country’s social security and education systems (Stepan 1985). Partly as a result of the “Chicago” focus characterizing Chile’s road to neoliberalism, the Virginia School’s influence has been underemphasized and conflated with that of the Chicago School.

Buchanan and Tullock (1962) identified the state as a central problem of neoclassical economic theory. Whereas traditional neoclassical analysis had little to say about the state, neoclassical welfare economics assumed the existence of a benevolent and efficient state capable of correcting market failures. Buchanan and Tullock then expanded on the Chicago School interest group and state agency models confined to regulatory politics (e.g., regulatory capture theories developed by MPS members Stigler and Posner) by developing a universal economic theory of politics. All policies, including those carried out in the name of the public, are explained by economic interests represented by conspiring coalitions of voters and by the capacity of politicians to shape such coalitions based on their interest in maintaining their positions of power. Inefficient consequences in the political marketplace were solely blamed on the fallacies of political decision making: “We can summarize public choice as a theory of governmental failure” (Buchanan 1979, 178).

Piñera stressed the importance of propaganda work for the military, the staff of advisory bodies, and public servants in general, who needed to be cajoled to implement the reforms. He envisioned the transformation of the entire government into a huge university, featuring continuous conferences, educational meetings, and lectures for the military academies, all generating a high volume of papers (Piñera 1990, 1992; see also González-Rossetti et al. 2000). The neoliberal utopia of a society self-regulated by the market seemed to be just within reach, fostered of course by a military regime with absolute political power.

Existing trade unions were made illegal, and workers were denied the right of collectively bargaining over wages and working conditions. The new law allowed only weak trade unions and forced them to compete with each other rather than to unite in order to improve the competitive position of labor vis-à-vis owners and management. Collective bargaining rights were hampered in several ways. Basic wage increases offsetting inflation were mandated by law, and individuals were granted the right to bargain for wages and conditions regardless of “collective” agreements, although employees in both the public and service sectors were exempted from this rule.

The whole pension system was turned over to private enterprises, although members of the armed forces continued to receive comprehensive state guarantees. Legally mandated security for the investment of individuals provided for a minimal pension only. The government thereby opened up a vast new market. Capital collected on the basis of individual insurance contracts with workers and employees eventually amounted to approximately 20 percent of Chile’s gross domestic product (GDP) after ten years. While the private schemes were presented to the public as a liberating device for the individual, two of the Chilean conglomerates (BHC and Cruzat-Larrain) quickly gobbled up no less than two-thirds of the market (O’Brian and Roddick 1983; Mönckeberg 2001, 209–230).

However, the poor performance of the conglomerates during the 1980s gave even the newly empowered customers the feeling that neither neoliberalism nor the junta could keep the original promises that had been made.

Intellectual doctrines formulated in Chicago were not marginalized during this second phase of neoliberal mobilization of knowledge. With reference to Harberger's ground rent theory, land use and housing in Santiago were relieved of all regulation and subjected to the market mechanism, for example (Oppenheim 1999, 152ff.; Sabatini 2000). As a consequence, the Chilean welfare state was weakened, but the authoritarian state was not. The new social security market was controlled by the conglomerates with the closest connections to Pinochet.

The discussions at the 1981 MPS meeting in Pinochet's Chile kept returning to the concept of freedom. Nevertheless, a critique of the lack of political freedom and democracy in Chile was notably absent from the contributions of MPS members Friedman, Tullock, Watrin, Frickhöffer, Hartwell, Irvine, and Shenfield, all of whom complimented Buchanan and Cáceres on the list of speakers (see CEP 1982). Frickhöffer (1982) affirmatively likened Pinochet's efforts to the post–World War II German efforts to secure a social market economy under Ludwig Erhard. Milton Friedman recommended that other developing countries follow the Chilean example of economic reorganization without mentioning the touchy subject of authoritarian rule.

In a letter to the editors of Frankfurter Allgemeine Zeitung, he suggested that each Pole would be happy if he/she were fortunate enough to escape to Chile (Hennecke 2000, 349). On another occasion, in 1981, when a journalist from Venezuela's Daily Journal asked him about totalitarian governments in Latin America, Hayek answered: “Don't confuse totalitarianism with authoritarianism. I don't know of any totalitarian governments in Latin America. The only one was Chile under (former Marxist president Salvador) Allende. Chile is now a great success. The world shall come to regard the recovery of Chile as one of the great economic miracles of our time” (quoted in Ebenstein 2001, 300).

One year before MPS leaders decided to choose Chile (of all places) for their regional gathering, the military regime enacted a new constitution in September 1980, which was slated to become effective in March 1981. The constitution was drafted by gremialista leader Jaime Guzmán, who from the beginning served as the architect of the legal and constitutional framework of the military government. The constitution was not only named after Hayek's book The Constitution of Liberty, but also incorporated significant elements of Hayek's thinking. Above all else, the constitution placed a strong emphasis on a neoliberal understanding of freedom. Guzmán's version of freedom is intrinsically connected to private property, free enterprise, and individual rights. Individual freedom in his interpretation can only evolve in a radical market order. The constitution was dedicated to guarantee such an order without constraining any economic activities. In order to protect free market conditions and individual freedom against "totalitarian attacks" or "democratic intervention," the constitution stipulated the necessity of a strong central state authority to guarantee the established rule of law, and thus above all is hampered in the application of discretionary governmental power. Exempted were measures to uphold the status quo inasmuch as Guzmán aggressively supported the continuing state of emergency, which legalized the use of whatever discretionary powers were deemed necessary to quell oppositional forces. Human rights typically guaranteed by constitutions were not considered absolute in the Chilean version and were to be severely restricted "when a society undergoes turmoil or heavy challenges."

Guzmán clearly drew on Hayek in distinguishing between authoritarianism and totalitarianism in order to justify a state's use of repressive measures when they are required, and deployed tools to shield a free market order against perceived totalitarian ( = socialist) tendencies. During his second visit in Chile, Hayek had clarified his understanding of (neo)liberalism in this regard in an interview for El Mercurio: "A dictatorship can restrict itself and a dictatorship which deliberatively is restricting itself can be more liberal in its policies than a democratic assembly which has no limits" (Hayek 1981). Not surprisingly, Hayek went to some lengths to bestow legitimacy on the new Chilean constitution, since he had been personally consulted by the Chilean government in the process leading up to the final draft. During his first visit to Chile in 1978, Pinochet had invited him to a personal meeting. Hayek's influence extended beyond the merely personal, however. One member of the commission in charge of drafting the constitution, Carlos Cáceres, was a close follower of Hayek and eventually joined the MPS in 1980 (Walpen and Plehwe 2001).

Vergara (1985, 106–133) has carefully reconstructed the internal discussions and negotiations that led to the final document. Interestingly, nationalists, neoliberals, and the gremialistas agreed on certain key elements—notably, the "necessity" to redefine and limit democracy to a "restricted" or "protected" sphere. While many elements of Hayekian neoliberalism provided the backdrop for an understanding of the Chilean constitution, they were recombined with traditional patriarchal and authoritarian concepts of the state.

Chile’s economic crisis in 1982 was caused by a combination of external and internal factors. Among the external factors, the steep fall of the price for copper due to the global crisis was devastating, given the preponderance of copper in Chile’s total exports. The uncontrolled financial liberalization, in combination with heavy borrowing of the Chilean conglomerates, were large factors in the country’s economic recession. Credit had been incurred overwhelmingly for consumption purposes and for the takeover of enterprises, instead of investment in productive capacity. Rapidly declining growth, a growing balance-of-payments deficit, rocketing interest rates, and the insolvency of hundreds of firms in the manufacturing sector ensued. Sixteen private financial institutions (out of fifty) went bankrupt.

The sharp rise in the price of the dollar forced the government to intervene in the private administration of pension funds and the banking system. The two largest banks, BHC of Vial and Banco de Santiago of Cruzat-Larraín, came under state control. At the beginning of 1983, three financial institutions were liquidated, another five were taken over by the state, and two banks were subjected to a special regime of state oversight. The Central Bank then assumed responsibility for their external debt. Huge amounts of private debt were thus transferred to the state. The state—otherwise considered the biggest threat to humankind in neoliberal and conservative critiques of the welfare state—bailed out the private capitalist class at home and abroad. In the face of looming economic collapse, the regime was forced to redirect economic policy. Nonetheless, the basic features of the neoliberal development model either remained in place or were resurrected after the crisis. What explains the resilience of the neoliberal economic framework and the maintenance of the neoliberal economic cadre?

De Castro was forced to resign from office at the beginning of 1982, as were also the minister of the interior, Sergio Fernández, and the mining minister, José Piñera. They were all replaced by military officers, corporate officers, and neoliberals who had proven more willing and flexible with regard to neoliberal principles in the short run. The regime devalued the currency and introduced various measures to protect domestic business. The new superminister of finance and economics was another MPS member, the Chicago-trained economist Rolf Lüders, who had been vice president of the BHC group before being called to office. Lüders decided to direct government support to indebted enterprises and to save the private banking system by way of state intervention, or, in his own words, “to rescue the financial system but not their owners” (Lüders 1993, 163).

The reluctance of some members of the World Bank’s executive board to lend to Chile because of continuing human rights abuses strengthened the bank’s and the IMF’s ability to ensure orthodoxy: senior officials were willing to risk the disgrace and trouble of being involved in Chilean affairs only if the agreement was “flawless” on economic policy grounds (Teichman 2001, 53, 80).

When economic indicators finally showed signs of recovery in 1985, a new round of privatizations were imposed. The privatization process included firms that were nationalized during the crisis and some of the strategic sectors that had been still excluded in the 1970s. State enterprises in the steel, sugar, and chemical industries, in aviation, energy, and telecommunications, as well as some copper mines, were turned over to the private sector. Everything was sold except for the remaining state copper firm and the state petroleum company. Most of the enterprises had been highly efficient and had so far generated surpluses for the state. Although small investors and employees were invited to purchase shares of the newly privatized enterprises—the regime promoted a propaganda discourse of “popular capitalism”—the process of concentration and centralization of capital resumed. The participation of foreign capital was mostly organized through joint ventures. Debt-for-equity swaps were so popular that, by 1988, nearly $2 billion of hard currency had entered the economy, leading to an intricate intertwining of foreign investors and domestic capitalists through the joint purchase of privatized firms.

Altogether the measures taken to overcome the crisis were conceived as state interventionism designed to rescue the neoliberal model. Pinochet himself (quoted in Martínez and Díaz 1996, 98) considered the period “a case of sidestepping to recover strength.” The measures taken consolidated and deepened the social relations in support of the previously established and promoted export-oriented mode of production.

In October 1988 Pinochet lost the plebiscite, which had been required by the constitution. A union of the center-left parties—the Concertación—won the first elections that took place a year later. The regime’s candidate, Hernán Büchi, was defeated by Patricio Aylwin, a Christian Democrat. The members of the neoliberal team were now barred from high positions in government. Despite the new coalition government and the postdictatorship opportunities, practically all observers concur that the neoliberal model of economic policy by and large remained in place. Why was this the case?

A crucial factor ensuring continuity had been the “pacted transition” between the party leaders of the Concertación and the representatives of the regime. Not only was the legal framework kept in place—the transition took place within the confines of the 1980 constitution—but also the structure of the state in terms of socioeconomic organization remained intact: “What continuismo provided for the democratic administrations was stability. It led to business support for democracy, it brought renovated socialists and Christian Democrats together around an economic strategy, and it provided a set of macroeconomic indicators that were perceived as desirable for further liberalisation” (Barton 2002, 363).

Moreover Chile’s social structure had been substantially transformed in ways that seem to confirm the argument of neoliberals that only a profound change in the culture and value system (rather than more ephemeral institutions) would be able to protect the neoliberal trajectory. The final triumph of the neoliberal thought collective was that former opponents eventually came to embrace it, thereby endowing it with new legitimacy.

The members of the neoliberal team had to vacate most of their posts at the center of power, but they carried on their economic careers, filling important positions in corporations and civil society (see Table 9.3). They developed major activities in the academic world, the media, and international advisory services. Especially important was the establishment of private universities and think tanks. Three weeks after the installation of the first democratic government and his electoral defeat, Hernán Büchi, together with his MPS colleagues Cristián Larroulet and Carlos Cáceres, founded the Instituto Libertad y Desarrollo (ILD). The new partisan think tank soon became the "flagship in the battle of ideas." It covered a wide spectrum of activities ranging from opinion polls, academic publications, and commentaries in the media to conferences and seminars, all designed to influence public opinion in lasting ways.

Chilean history provides us with a rich case study of the multifaceted mobilization and transformation of knowledge, and the effective political strategies of organized neoliberals. What conclusions might be drawn from our account? First, contrary to much of the secondary literature, neoliberalism in action has been more than a rote application of Chicago economic orthodoxy. The Chilean economic transformation was also guided—at different moments—by Virginia School and Austrian approaches. Furthermore, neoliberal scholars have shown considerable flexibility with regard to the “local” adaptation of theoretical approaches as well as political strategy.

The Chilean path to neoliberalism reveals different stages of development consisting of different tasks, theoretical positions, and modes of political rationality. To simplify, the first stage, proto-neoliberalism, covers the period from the mid-1950s to the end of the 1960s. The organized neoliberals focused primarily on projects outside the state. Think tanks, university institutes, and the media served as key institutions to build up cadres and a coherent counter to the dominant Zeitgeist in order to gain influence in the public sphere. The primary task was conceived as an ideological critique of the socialist/import substitution tendencies. The second stage, rollback, was put into effect between 1973 and 1975. The military regime destroyed the fundamentals of the import substitution model and its social relations through repression, the return of the expropriated enterprises, and the abolition of price supports. The next phase, rollout, started in 1975. The vanguard theorists widely entered in state positions, becoming organized state cadres, and implemented the monetary, regulation, and competition theories of the Chicago School. The ultraorthodox measures realized in the period 1975–1978 were aimed at the core of the economy and included the introduction of a free trade regime and the deregulation of the domestic and financial markets accompanied by further privatizations. After the economic reconstruction, the extension and, thus, deepening of neoliberalism as a program were effected between 1978 and 1981. The key reference was to the Virginia School public choice theory, wherein the market approach was extended to other spheres of society (viz., seven modernizations). The crisis of 1982–1983 provided the occasion for a substantiation phase of the neoliberal project under new conditions, requiring a greater amount of concerted state intervention to safeguard neoliberalism. The adjustment to external power relations and the socialization of debt demanded a reshuffling of the economic team, but ensured the continuity of the neoliberal model. The period 1983–1989 can be characterized as the revival phase of neoliberalism. Under Büchi, a state-led structural adjustment of the export-oriented economy was engineered. The path from an administration of the crisis to pronounced neoliberal policies mirrored the explicit demands of the international finance organizations.

Although the regime's proxy candidate for the presidency, Hernán Büchi, lost in the reinstated democratic elections, the institutional framework secured cultural hegemony and the persistence of the neoliberal model. Neoliberalism in Chile (and elsewhere) cannot be equated with authoritarianism and military dictatorship, ignoring continuities during and after the transition to democracy. It is precisely the mutability of neoliberal knowledge and its flexible relationship with power that sustained essential components of the neoliberal model and the neoliberal path in Chile.

Whereas from a purely Chilean point of view, the modification of the internal power structure and the abandonment of some orthodox elements of the neoliberal program in the course of the 1982–1983 crisis might be interpreted as ending a “radical neoliberalism” and opening up a “pragmatic phase” (Silva 1991, 2001), from a global standpoint it was exactly the fine-tuned adjustment to external and internal requirements that ensured the continuity of the neoliberal project. … Under Büchi's aegis, a new regime of state-led export-oriented industrialization was set in motion, without altering the social relations around the development strategy (the seven modernizations) that had been previously implemented. … The state provided the old and new incentives in order to achieve competitiveness in the new nontraditional export sectors and to increase internal savings and investment. Simultaneously, it created favorable conditions on a macroeconomic level through devaluation, temporary tariff protection, regulation of the financial system, and a strict policy of wage controls.

Sergio de Castro was made the scapegoat and his public reputation suffered, but that was not allowed to interfere with the commitment to the overall economic model and to the dominance of the community of neoliberal economists. He took part in the selection of his successors and shortly thereafter again played an important role in debt negotiations and policy formulation. His staying power is further revealed by the fact that Sergio de Castro, the intellectual leader of the 1970s, and Rolf Lüders, the manager of the crisis, shared a common ideological home: they both joined the Mont Pélerin Society in 1982. … When ousted from their state positions, the neoliberal protagonists continued their work from within civil society: provided with channels of communication, think tanks, and public reputation, they continue to influence the transformation of contemporary Chile.

The editors of Frankfurter Allgemeine Zeitung, Germany's neoliberal flagship among the nationwide print media, refused to print an article by Friedrich August von Hayek titled "True Reports on Chile" (Wahrheitsgetreue Berichte über Chile), for example. The daily paper did not even offer space to Hayek in its letters to the editors' section. Hayek eventually published his efforts in defense of economic and social policies under Pinochet in a small booklet published by Hanns-Seidel-Stiftung affiliated with Bavaria's Christian Social Union Party (see Walpen and Plehwe 2001, 67–69 for details).

Hence, one cannot take at face value some of the writings of Milton Friedman, for instance, on the boundaries between "positive" and "normative" economics. For more on this issue, see Van Horn and Mirowski, Chapter 4 in this volume.

Among the first grant holders who went to Chicago were later economics minister (1975–1976) and finance minister (1976–1982) Sergio de Castro, who joined the MPS in 1982, and Ernesto Fontaine and Carlos Massad from the University of Chile. Among the first to achieve the Ph.D. were Rolf Lüders (member of the Legislative Commission 1974–1981, bi-minister of finance and the economy 1982–1983 and MPS member since 1982), Sergio de Castro, Ernesto Fontaine, and media mogul Alvaro Saieh (Delano and Traslaviña 1989, 13–16). They were trained by MPS members Becker, Friedman, Stigler, and Harberger (though Harberger joined MPS later in 1994).

ODEPLAN was created in 1967 during the presidency of the Christian Democrat Eduardo Frei. The office was in charge of coordinating projects across ministries. Among the young economists working at ODEPLAN were Álvaro Donoso, Ernesto Silva, Ernesto Fontaine, Sergio de la Cuadra, and Juan Carlos Méndez (Fontaine 1988, 46; see Tables 1 and 2).

The prominent entrepreneur Jorge Alesssandri had been president from 1958 to 1964. His politics of "technocratic liberalism" (inflationary measures, liberalization of trade, devaluation) was frustrated by the traditional right and the "rentier protectionism" of the entrepreneurial class.

ODEPLAN created numerous cooperation treaties with the Catholic University (thus shifting considerable funds to the Economics Department) and granted scholarships to study abroad. These activities played a decisive part in the building and maintenance of a skilled reform team throughout the military government, and in assuring the allegiance of its members to the regime.

The privatization process (of 507 public firms in 1973, 70 remained in 1976) certainly strengthened the private sector and led to a rapid increase in concentration of private property in the Chilean economy: a handful of conglomerates acquired the offered enterprises at relatively low prices, including financial institutions. However, the transfer of state property to the private sector remained incomplete. At the beginning of the 1980s, the state still owned six of the country's top ten enterprises, all of them in strategic sectors (copper, electricity, oil, and transport; see Rozas and Marín 1988, 1989).

Spanish original: "Una dictadura se puede autolimitar y una dictadura que deliberadamente se autlimita puede ser más liberal en sus políticas que una asamblea democrática que no tiene límites" (Interview with F. A. Hayek, El Mercurio, April 19, 1981).

The exclusion from higher ranks was not complete. A consensual formula between the Pinochet and the incoming governments designated the composition of the board of the Central Bank, for example. Both administrations nominated two members; an economist who gave guarantees to both parties was made president. According to the new finance minister, Alejandro Foxley, this solution "was a way of showing the country, the private sector, and the international financial community that the Concertación is committed to the economic stability of the country" (El Mercurio, December 7-13, 1989, quoted in Montecinos 1993, 35).

Walpen, Bernhard, and Dieter Plehwe. 2001. "'Wahrheitsgetreue Berichte über Chile'—Die Mont Pèlerin Society und die Diktatur Pinochet." 1999. Zeitschrift für Sozialgeschichte des 20. und 21. Jahrhunderts 2, 42–70.

In the context of the recently proclaimed New International Economic Order, the United Nations Center on Transnational Corporations (UNCTC) was established by the UN Economic and Social Council in 1975.1 This New York–based organ of the UN Secretariat was created to assist the work of another new body, the Commission on Transnational Corporations, which was charged with negotiating a code of conduct for multinational corporations. In less than two decades, the UNCTC was defunct, and the Commission’s effort to adopt and implement a code of conduct had been abandoned. Yet in 1999, just a few years after the Center was officially disbanded by the General Assembly, multinational corporations reemerged on the UN scene when Secretary General Kofi Annan announced the launch of a new partnership between UN agencies and international business. This new venture, known as the Global Compact, underscored a dramatic shift in the United Nations’ attitude toward multinational corporations (MNCs); the old debates of the 1970s and 1980s about how efficacious a code of conduct might prove in regulating MNC conduct have been replaced by efforts to leverage what Annan described as “the enlightened self-interest of companies” to developmental and social ends.

Prevailing views on a range of issues relating to economic growth and industrialization were challenged as part of “the counterrevolution in development economics” that occurred during the last quarter of the twentieth century (Toye 1993). As a global debt crisis unfolded over the course of the 1980s, widening the gulf separating First and Third Worlds and casting ever greater doubt on the feasibility of import-substituting regimes, a new orthodoxy was being consolidated. Famously summarized by John Williamson as “the Washington Consensus” (Williamson 2004), this neoliberal model prioritized macroeconomic stabilization, liberalization, and privatization as the prescription for the developmental cure. Rejecting “the dirigiste dogma” (Lal 1985) that had haunted and halted the development efforts of poorer countries, the Consensus promoted a market-led paradigm that proscribed the kinds of interventionist strategies embraced by much of the developing world during its short-lived struggle for the New International Economic Order (NIEO).

Although the relationship between the defeat of the NIEO and the triumph of neoliberalism has received little scholarly attention, John Toye, in an exception to this general neglect, argues that “the threat of an NIEO, particularly one imposed by the South and supported on moral grounds by influential public opinion in the North, acted as a strong spur to the counterrevolution in development policy” (Toye 1993, 180).

The Third World's perceived radicalism generated a sense of alarm in certain quarters that helped mobilize support for positions and policies that were being advocated in some academic and political circles.

Although the New International Economic Order was officially proclaimed in 1974, its declaration at the United Nations was the culmination of a movement that began two decades earlier, with the Bandung conference of non-aligned countries in April 1955. The Non-Aligned Movement was initiated by African and Asian countries to address issues arising from decolonization, but by the second half of the 1950s Latin American states were seeking to join forces at the UN with these new nations for two reasons. First, the sheer increase in the number of UN members diluted the ability of Latin American countries to exercise power in the General Assembly through bloc voting. Second, governments in the region were seeking to enlist broad support among developing countries for the policies being promoted by the Economic Commission for Latin America (ECLA) and its director, Argentine economist Raúl Prebisch.

When representatives from the three regions met in Geneva for the first United Nations Conference on Trade and Development (UNCTAD) during the spring and summer of 1964, they formed the Third World caucus known as the G-77, which proceeded to play an important role in lobbying for UNCTAD’s institutionalization. The creation of UNCTAD as a permanent organ of the General Assembly was established by UN resolution no. 1995 in December 1964, and in early 1965, the General Assembly approved the appointment of Raúl Prebisch as that body’s first secretary-general.

During the fourth summit of the NAM in September 1973, President Houari Boumedienne of Algeria, host of the Algiers meeting, called for a special session of the United Nations “with a view to establishing a new system of relations based on equality and common interests of all states” (Marshall 1994). This meeting, which would take place in spring 1974, was the Sixth Special Session of the General Assembly, at which the G-77 countries officially launched the NIEO project.

In terms of content, the NIEO platform represented more continuity than change, as it contained vague proposals for reform that the G-77 had advocated for some time. However, what was different, and dramatically so, was the international context in which the Third World was making its demands. The vertiginous increase in the price of oil engineered by OPEC in late 1973 created a perception on the part of several key G-77 members that the balance of international power had tilted in their favor.

The NIEO's proponents contended that the gap separating the Third World from the developed countries could only be narrowed if the international trading system were reformed in such a way as to correct the "biases" against developing countries that were alleged to be inherent in it. This rationale for the NIEO's program of structural reform rested largely on the influential work done by Raúl Prebisch while head of the United Nations Economic Commission on Latin America. Much of the research conducted by the economists at ECLA purported to show a historical decline in the terms of trade for primary commodities, which Prebisch argued allowed the rich countries to reap most of the technological advances engendered through industrialization. Prebisch and his colleagues at ECLA thus agreed with the prevailing view of the modernization theorists—that is, that industrialization was the requisite linchpin of any development effort. But they took issue with modernization theory's claims that the primary constraints on successful industrialization in the Third World were institutional and/or cultural. Instead, they argued that they were structural, and rooted in the nature of international trade patterns—that is, the exchange of primary commodities from the periphery for manufactured goods made in the core. On the basis of this analysis, Prebisch concluded that developing countries should pursue autonomous industrialization, and prescribed a regime of import substitution toward that end.

Prebisch's work undoubtedly provided an important justification for the NIEO platform, but his seminal thesis alleging deteriorating terms of trade for primary commodity exporters was published in 1950, more than two decades earlier. Thus in explaining why the NIEO emerged when it did, one must look to contemporary events, and specifically to the Arab oil embargo of 1973. The sense of economic and political dislocation generated by the oil shock, and the portentous predictions of the Third World's coming "resource power" that the energy crisis was thought to augur, were of decisive importance in explaining why the G-77 countries, despite having failed to secure most of the objectives laid out at the first UNCTAD conference ten years prior, nevertheless viewed the Sixth Special Session as an auspicious opportunity to advance their agenda (Doyle 1983).

The period between late 1973 and 1975 was not the germinating stage of the new international economic order advocated by the G-77, but rather the high-water mark of what proved to be a brief and ultimately ineffectual period of reform. While in retrospect it may appear obvious (and to some, inevitable) that this challenge to the existing order would prove unsuccessful, the NIEO's fate seemed far less certain at the time. In fact, when the Seventh Special Session of the General Assembly was held in September 1975, some delegates and analysts judged the NIEO's prospects for success as moderately bright. The tone of the G-77 at the Session was less confrontational than it had been a year prior, as suggested by the Group's decision to omit from the position paper it prepared for the meeting a few of the more controversial items on the NIEO agenda, including permanent sovereignty over natural resources, producers' associations, and control over multinational corporations.

Yet others pointed out that the changes that had occurred between the Sixth Special Session in spring 1974 and the Seventh Special Session in fall 1975 improved the bargaining position of the developed countries at the expense of the G-77. While the former meeting had taken place “in the final moments of a historic commodity boom and in the height of the resource scarcity ‘scare,’ the Seventh Special Session occurred after many commodity prices had dropped precipitously and after the effects of world inflation, recession, and higher oil prices in the less-developed states had become well-documented” (Gwin 1977, 107).

The uncertainty created by growing instability in the global economy at the beginning of the decade was followed by OPEC’s audacious move to regulate petroleum output, and thus control the world market price for oil—an apparent coup in international economic relations that reverberated throughout the developing world and precipitated the G-77’s increasingly assertive posture at the UN. It was in this context that the NIEO was launched, and while in objective terms the obstacles confronting the G-77 were still formidable, the international environment, characterized for the moment by Southern solidarity and Northern apprehension, was perceived by the developing countries as being exceptionally propitious for advancing their agenda of structural reform (Rothstein 1984). However, the window of opportunity that the Third World perceived to have been opened by the events of that winter was brief. Following the initial shock of the oil crisis, the industrial economies adjusted rather briskly to the prospect of paying more for energy, and as Northern confidence returned, Southern solidarity waned, thanks in part to the economic difficulties higher fuel prices caused for the so-called NO-PEC members of the G-77 that found themselves on the wrong side of the “oil divide.”

Although the organizers hoped that the meeting's intimate and unstructured format would encourage a new round of dialogue, the October 1981 summit proved instead to be the NIEO's death knell (Toye and Toye 2004). It is perhaps best remembered for the speech in which Ronald Reagan, foreshadowing the decisive turn in development discourse already under way, exhorted Third World leaders to embrace the “magic of the market.”

Although one can dispute the extent to which the G-77's agenda ever posed a clear and present danger to the existing order, it is evident that dedicated efforts to secure a liberal international economic regime continued well past the point at which the NIEO could be considered a viable threat.

The policies advocated by all three governments on key issues such as international trade and foreign aid were consistent with the market-led, export-oriented development model celebrated in President Reagan's 1981 speech at Cancún. Within a decade, Reagan's vision would be the new orthodoxy, widely diffused across the (after 1989, rather anachronistically named) Third World. Yet as various contributions to this book document, the ideas on which the new international development agenda was based predate neoliberalism's political triumph.

Thus, by revisiting the largely forgotten episode of the NIEO, I aim to provide a different perspective on the making of a neoliberal development model—namely, one that highlights the interaction of both political and economic opportunity structures, as well as the mobilization of intellectual and organizational resources in the articulation and dissemination of a new orthodoxy.

My focus on MPS-connected actors does not imply a causal argument that organized neoliberals are responsible for the defeat of the G-77's agenda at the United Nations, nor do I want to suggest that their efforts explain why policymakers in the global South turned toward the Washington Consensus when they did. An adequate explanation for the wave of economic liberalization that broke over the developing world from Mexico to Morocco during the 1980s must acknowledge the extent to which these reforms were enabled by events in the international political economy, and especially a profoundly destabilizing Third World debt crisis, as Dani Rodrik (1994) has persuasively argued. However, by looking at the arguments and activities of individuals and institutions engaged in the debates of the period, we can add to this conventional, macro-level analysis another layer of understanding, one that is enabled by examining how and where the ideas and positions that orient much of today's development discourse were formulated and fostered, both before and after the relatively brief period of the G-77's campaign for reform.

While Toye dates the counter-revolution from the late 1970s, the material presented in this section, which extends from Gottfried Haberler's 1957 report on the General Agreement on Tariffs and Trade (GATT) to a 2005 article by Deepak Lal, encourages a different periodization. It suggests that the seeds of this transformation were sown well before the specific period of the NIEO, and that the ideas that underlie it continue to be developed by scholars today, who draw on these earlier arguments while also updating them to reflect what are represented as ongoing challenges to the liberal international economic order.

The rationale for such reform rested largely on a contention famously advanced by the first secretary-general of UNCTAD, Raúl Prebisch—namely, that the terms of trade were deteriorating over time for exporters of primary products. The so-called Prebisch-Singer thesis was accepted by many of the economists working at the United Nations, including those serving under Prebisch at the Economic Commission for Latin America and later UNCTAD, but it was regarded as controversial in the discipline at large.

Born in Austria in 1900, Haberler studied in Vienna with two of the principal figures in the history of the Austrian School of economics, Friedrich von Wieser and Ludwig von Mises. He later left the country and took a position in Geneva with the League of Nations' Economics Intelligence Service (EIS) before immigrating to the United States. In 1936 he joined the economics faculty at Harvard, where he taught until 1971. He later became the American Enterprise Institute's (AEI) first resident scholar, and like fellow Austrian economist and MPS member Fritz Machlup, he was associated with AEI until his death in 1995.

In 1957 Haberler was appointed to head a panel of experts commissioned by GATT to assess the terms of trade for primary commodities. The report produced by this commission, published in 1958 under the title Trends in International Trade but universally referred to as the Haberler Report, has been called a “turning point in GATT history” because it called for a range of measures aimed at expanding international trade and the role of developing countries within it (Evans 1968). Among its findings, the Commission confirmed that the prices of primary products had declined 5 percent since 1955, while the prices of industrial goods rose 6 percent over the same period. The Haberler Report also expressed concern about the implications of commodity price fluctuations for developing countries and voiced support for a buffer-stock scheme to help stabilize the earnings of raw material exporters.

Haberler delivered his verdict on the Prebisch-Singer thesis in 1959 during lectures he gave in Cairo to commemorate the fiftieth anniversary of the National Bank of Egypt, and his assessment relied heavily on numerous critiques that had already been made by others. Although he did not dismiss the Prebisch-Singer thesis as impossible, Haberler faulted the analysis as very weak in empirical support. Furthermore, he argued that even if there had been a decline in the terms of trade in the recent past, there was no reason to assume that it would continue in the future, and no justification for basing policy recommendations on that assumption (Toye and Toye 2004, 133–134). In fact, none of the criticisms that Haberler offered of the Prebisch-Singer thesis are inconsistent with the conclusions reached by the GATT-appointed commission one year earlier: The Haberler Report did document a decline in commodity prices relative to those of industrial goods over a several year period in the mid-1950s, but it did not endorse the thesis of a secular decline in the terms of trade for raw material exporters. Its major complaint was not with the qualitative nature of trade between the rich and poor countries, but rather with the quantity of trade, and specifically with the consequences of market barriers constructed by developed-country governments. In “quiet and guarded language,” the report’s authors conceded that there was some merit to the developing-country grievances against the existing trade regime (Michalopoulos 2000), but they maintained that these complaints could be resolved through improved market access, and therefore more trade. The Haberler Report thus offered little in the way of ammunition for the G-77 countries when they appealed to the Prebisch-Singer thesis in making the case for the NIEO fifteen years later.

Karl Brunner was among the most important contributors to the development of monetary economics in the second half of the twentieth century. Several of Brunner's influential publications were co-authored with his former student and fellow MPS member Allan Meltzer (cf. Weller and Singleton 2006), with whom Brunner created the Shadow Open Market Committee in 1973 to appraise (often critically) the policies of the Federal Reserve's Open Market Committee. Yet while he is best known for his contributions to monetary analysis and policy, having coined the term monetarism to describe the approach most closely associated with Milton Friedman and the Chicago School (Brunner 1968), Brunner was also keenly interested in questions of epistemology and philosophy of science.

Another influential initiative that Brunner spearheaded in the 1970s was the annual interdisciplinary series called the Interlaken Seminar on Analysis and Ideology (later renamed the Karl Brunner Symposium). The Interlaken Seminar, which continued throughout the 1980s and early 1990s, provided a forum for participants to explore wide-ranging methodological and epistemological questions across different disciplinary and policy domains. Brunner himself held strong views on such issues. He advocated that all endeavors of social science broadly conceived, not just economics, should accept the postulate of a "resourceful, evaluating, maximizing man"—a slightly modified version of Homo economicus to be contrasted with a sociological view of the subject. Once man's nature is understood as essential and invariant, the challenge for social scientists becomes clear: to design whatever institutional framework "offers the best chance, never an absolute guarantee, that this self-interested behavior will be channeled into socially productive directions beneficial to members of society" (Brunner cited in Laidler 1991, 637).

Brunner considered the NIEO to be an example of the misguided proposals that result when policymakers fail to recognize the importance of designing institutions that encourage the accommodation of individual self-interest with societal good. … Brunner refuted the claim that foreign aid to the Third World could be viewed as a form of restitution for the West's historical sins, since colonization had brought significant material progress to the Third World: "Justification of the NIEO in terms of an established 'right' based on 'past exploitation' should eventually be recognized as a theme without support in reality. It remains, however, a powerful ideological weapon to lure the support of a gullible western intelligentsia for the persistent raids on the wealth of western nations" (Brunner 1996a, 152). Despite all the NIEO's rhetorical emphasis on the right of developing countries to economic sovereignty and self-determination, the leaders of the G-77 were primarily intent on securing their own wealth and privilege. While the ruling oligarchs of the developing world advocate "the establishment of a socialist economy with eroded property rights and a political-administrative machinery replacing markets over a wide range of activities," the policies they endorse would actually worsen instead of improve life for the masses (Brunner 1996b, 183).

Brunner refuted the claim that foreign aid to the Third World could be viewed as a form of restitution for the West's historical sins, since colonization had brought significant material progress to the Third World: "Justification of the NIEO in terms of an established 'right' based on 'past exploitation' should eventually be recognized as a theme without support in reality. It remains, however, a powerful ideological weapon to lure the support of a gullible western intelligentsia for the persistent raids on the wealth of western nations" (Brunner 1996a, 152).

Advocacy of international aid, or what Bauer preferred to call “government to government transfer,” is one of the grave errors for which development economists stand accused. Bauer argues that such aid does not and cannot promote economic growth in the Third World; where development has occurred, foreign assistance played no meaningful role in the process. Given the inefficacy of such transfers, why do arguments for foreign aid persist? Bauer suggested that “Western guilt” was the principal impetus behind such flows (Bauer 1977). In fact, if the Third World transformed itself into a lobbying group for ever greater amounts of assistance, the rich countries are primarily to blame since, in Bauer’s view, the demand for foreign aid was created by the very act of giving it, with the original sin dating back to U.S. president Harry Truman’s misguided Point Four Program of 1949 (Bauer 1984).

Bauer rejects this assertion, concluding that “contact with the West has been the prime agent of material progress in the Third World” (Bauer 1984, 57). The prima facie evidence for this causal argument is the observation that those Third World countries with close historical ties to the First World are better off than other developing countries whose exposure to the West has been less extensive.

Deepak Lal, whose writings on development echo many of the themes championed by Bauer, addressed the question of Bauer’s standing among development economists in his contribution to a 1987 issue of the Cato Journal devoted to Bauer’s work. Attributing Bauer’s marginalization to a conflict between the “Weltanschaung” of Austrian economics, with which Bauer’s work is identified, and that of mainstream economics, Lal laments the methodological narrowness of the latter, which proceeds from “an epistemologically unsound positivist view of economics as a science” and leads many to dismiss the work of figures, like Bauer, who fail to express their findings within the field’s dominant rhetoric of mathematics.

Yet in the same article Lal also acknowledges that Bauer is not only no longer dismissed as a dissenting voice within his field, but that his contributions are being increasingly recognized and celebrated. Indeed, by the time of Bauer’s death in 2002, his views were closer to mainstream development economics than those of Gunnar Myrdal, a frequent target of Bauer’s criticism who received one of two Nobel Prizes awarded in economics in 1974, the same year that the NIEO was declared by the G-77.

In fact, Bauer anticipated many of the most celebrated themes in what Lal (1987) calls the “new political economy”; chief among these is a profound skepticism toward the state, frequently regarded as a self-interested bureaucracy inclined toward predatory behavior, and the argument that government intervention in market processes encourages rent-seeking dynamics that are inimical to productive economic activity and genuine development (Krueger 1974; Bhagwati 1982).

In a body of work that extends from the 1970s through the present, Lal has sought to affirm what he calls the “liberal international economic order” or LIEO (a phrase presumably coined to contrast with the NIEO neologism), most notably in a well-received book, The Poverty of Development Economics.

Yet Lal notes approvingly of aid programs that come in the form of technical assistance, of the sort occasionally provided by the World Bank, for example, and his overall assessment of the dangers of foreign aid are far more measured than Bauer's vehement denunciations: "My conclusion, therefore, is that both the Left and the Right have trained their big guns on a target which at worst does little harm and at best can do, and has done, some good in the Third World" (1985, 57).

Like Bauer, Lal first rejects the argument that the South has a right to aid from the North, since such a moral claim rests on the false assertion that there is an international community bound by a single shared ethical standard. Second, insofar as citizens of the North are concerned about the poverty of their counterparts in the South, there is no guarantee that transfers from rich-country taxpayers to the governments of poor countries will, in fact, benefit the poor.

In a recent article warning of the "threat to economic liberty from international organizations," Lal offers a critical assessment of the World Bank, writing that the institution's "foreign aid arm—IDA—largely serves as an instrument for assuaging Western guilt. A useful analogy is with the money people give to street people, knowing full well that this will be used to fuel their drug habits or alcoholism, as it makes them feel virtuous" (2005, 517).

Whereas Bauer rejects the value of aid entirely, Lal does not dismiss the possibility that it can be used to successfully leverage policy reforms. Indeed, when it is made conditional on the adoption and implementation of desirable policy, Lal views aid as the "catalyst which makes sound academic advice politically effective" (1993, 94).

Lal interpreted the South's aggressive posture in its confrontation with the North as an attempt by developing country elites to mobilize Western ideas (specifically national self-determination and equality) in pursuit of their own ends: "the elites of the Third World remain conscious of their country's vulnerability to any determined exercise of Western military power, and also of the potential threat to their positions vis-à-vis their subjects through subversion by the West. The fear that Western economic power, expressed through transnational corporations, could be used to exert pressure through economic destabilization to sow discontent between the rulers and the ruled, continues to be a serious worry for Third World leaders. Hence their strident calls for respect for national sovereignty and codes of conduct for multinationals" (Lal 1978, 7).

Bhagwati noted the emergence of increasingly prominent critics of the NIEO who sought to discredit the G-77 agenda by denouncing developing country governments: “the argument that 'we cannot allow ourselves to be pushed around into giving aid to an undeserving, corrupt Third World' has several adherents in fashionable intellectual circles in the United States. This attitude of hostility to developing countries has been reinforced by the subtle but propagandistic caricaturing of the positions of developing countries in regard to the NIEO by conservatives and neoconservatives alike in the United States. Ignoratio elenchi is a favorite fallacy of intellectuals who are prominent, rather than eminent; it works very well in its intended purpose, but it must be exposed" (1977, 10). In the event it is not clear which “prominent rather than eminent” intellectuals Bhagwati is targeting in this passage, the reader is referred to a clarifying footnote: “Variations on this basic theme have appeared in articles by Daniel Patrick Moynihan, Peter Bauer, and others, in American magazines such as Commentary" (Bhagwati 1977, 23).

Among the planks of the NIEO platform that Bhagwati considered most reasonable, and indeed necessary, was the regulation of multinational corporations. Concluding that “there is now clearly scope for a code of conduct on multinationals (MNCs) and their activities in developing countries,” he notes that “until now the developing countries that worried about the MNCs were considered to be somewhat bizarre, if not depraved and corrupted by socialist doctrines.” Referring to a series of events, including the dramatic overthrow of President Allende in Chile, Bhagwati goes on to note that “nothing works to cure one of illusions faster than to be proved naïve by unpleasant revelations. Thus the awareness seems to have grown in influential circles in both the developing and the developed countries that MNCs are a good thing but need to have their international conduct regulated by explicit codes and legal sanctions, including the extension of trust-busting legislation to internal operations in the social interest" (1977, 19–20).

It might appear surprising that an economist who has been one of the most eloquent and consistent defenders of the position that globalization and trade benefit the poor (Bhagwati 2005) could have endorsed what seems today to be a decidedly illiberal idea: the regulation of MNC activities in developing countries. Yet Bhagwati's views were widely shared in the late 1970s; Many observers agreed that the increasing size and influence of multinationals warranted some kind of international guidelines to regulate their activity, and several argued that a carefully crafted instrument could benefit multinational corporations as much as the governments that hosted them (McCulloch 1977; Davidow and Chiles 1978). In fact, as early as 1970, two defenders of MNCs had called for the creation of an "agreement based on a limited set of universally accepted principles" (Goldberg and Kindleberger 1970, 323).

When the United Nations Center on Transnational Corporations was created in 1974 by the Economic and Social Council (ECOSOC), it was hailed as “a landmark in the development of the institutions needed for a New International Economic Order” (De Seynes 1976). By that time, multinationals were figuring prominently in academic as well as political debates. The publication of Raymond Vernon’s Sovereignty at Bay had focused attention on the implications of foreign direct investment in the Third World (Vernon 1971), and contemporary events, particularly in Latin America, generated anxiety about the extent to which powerful MNCs were meddling in the domestic affairs of host countries. But it was specific concern about the activities of ITT in Chile that led, in July 1972, to the creation of a Group of Eminent Persons appointed by the secretary general to study and report on the issue of multinationals.

Within the UN Secretariat, primary responsibility for this task was assigned to the newly created Center on Transnational Corporations, which began its work in November 1975 with a staff of twelve. The UNCTC consisted of three branches: an Advisory Services division, which would assist developing country governments in their negotiations with MNCs; an Information Analysis division, which would gather data on multinational companies; and a Policy Analysis division charged with supporting the Commission’s work on the Code of Conduct. The actual drafting of the Code was carried out by a working group composed of experts from the country-members of the Commission.

Reflecting years later on the Code project, Sahlgren remarked that the members of the Group of Eminent Persons, the staff at the Center, and the representatives and experts from different countries who served on the Commission agreed that it was important for the CTC to preserve "a neutral, impartial image in the eyes of its clients, which were both West and South, and also business. . . . The Code gave some concrete content to the NIEO. . . . Now personally I felt, and I still feel vindicated that the NIEO was a naïve mistake. It produced nothing and consumed a lot. Our [UNCTC] exercise could have been a signal to members—to the world, to put it a little bit pompously—that the NIEO could also mean something realistic and useful, like the code, instead of trying to introduce socialist concepts on the global scale" (Sahlgren 2002).

During much of this early period, various corporate leaders (particularly from Europe) had a positive relationship with the CTC staff, as did the International Chamber of Commerce, which, like the major trade union federations, regularly sent delegates to meetings of the Commission. By the late 1970s, however, relations had cooled somewhat, and although meetings between corporate officials and members of the Center's staff conducting research on their enterprises had occurred with some frequency during the CTC's early years, a number of companies displeased with the results of these studies quit cooperating. A few went so far as to visit director Klaus Sahlgren, who listened to their complaints while defending the Center's independence (Mousouris 2003).

One of the stumbling blocks that we never overcame . . . was the question of which law would apply in the case of nationalization and compensation. The host countries said national law. The western countries said international law. Other related problems were issues of jurisdiction, transfer of profits, settlement of disputes, and political intervention" (Mousouris 2003).

There was, first, the fundamental question of to whom the Code would be addressed. Several developed countries proposed that the Code should outline responsibilities for host country governments as well as MNCs. The G-77 countries initially balked at this suggestion, which they felt would elevate multinationals to the status of sovereign states (Dell 1990). By 1980, the developed country-position prevailed, and the Commission proceeded to draft a two-part Code that outlined obligations for MNCs, as well as for the foreign governments that hosted them. … The Southern countries also compromised with regard to the question of the Code's binding versus voluntary nature: While representatives to the Commission from the G-77 countries initially wanted observance of the Code to be obligatory, most quickly realized that only a voluntary Code would have any chance of success.

Nationalization and expropriation proved more intractable issues, however. The OECD countries wanted a reference to what they asserted was “customary international law,” including specific language about the right of foreign investors to “prompt, adequate, and effective” compensation. This position was rejected by several of the G-77 countries, whose representatives insisted that there was no consensus on what constituted “customary international law” in the first place. Furthermore, they argued that no international regulation regarding nationalization could supersede domestic law and be made binding on host country governments in the event of a dispute with foreign investors.

By 1980, members of the Economic and Social Council were expressing dissatisfaction with the pace of the Code-drafting effort, noting in an ECOSOC resolution (1980/60) that “the progress made in the formulation of a code of conduct has not met the expectations of all.” The same resolution went on to urge an expeditious conclusion to the process, concluding that “a universally accepted, comprehensive and effective code of conduct . . . will make an essential contribution to the new international economic order.” Work on the Code continued, at least nominally, throughout the 1980s, but prospects for success were rapidly diminishing (Fatouros 1980; Hamilton 1984). Although agreement on two-thirds of the draft Code had been reached, the distance separating the Northern and Southern positions on the remainder was substantial.

When a full draft of the Code was finally completed in May 1990, a vote on it was scheduled for November of that year. However, the prospects for its adoption did not appear bright. In congressional hearings, U.S. Deputy Assistant Secretary of State Jane Becker testified that the United States would oppose the Code when it was brought to a vote at the United Nations. Characterizing the instrument as “obsolete,” she noted that it would provide “only marginal benefit to the United States and American investors,” and that it did not provide any protections that could not be secured through the more desirable options of bilateral investment treaties and GATT (BNA 1990, 1584–1585).

Negotiation of the Code was formally suspended in 1992. With the Commission that it was designed to support no longer working on the Code, the Center on Transnational Corporations became increasingly embattled, and later that year the UNCTC was dispersed. Some of its staff were relocated from New York to Geneva and folded into UNCTAD’s Division on Investment and Technology, where they helped launch the annual World Investment Report, a new flagship publication that reflected well the change in attitudes at the United Nations toward multinationals (Bair 2007).

One concrete outcome of the work done by the UN on multinationals is the impetus it provided for similar exercises. At the same time that the Code of Conduct on Transnational Corporations was being negotiated, UNCTAD was pursuing two other, more specific projects: the International Code of Conduct on the Transfer of Technology (begun in 1978 and abandoned in the early 1990s) and the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices (adopted in 1980). Perhaps even more notable was the decision taken by the OECD to pursue its own code project, resulting in the OECD Guidelines for Multinational Enterprises, which were adopted by member governments in 1976. This set of recommendations, which encourage multinationals to observe the policies of host country governments, was formulated not long after the UNCTC began its work on a Code of Conduct. Although the OECD guidelines differ in important respects from the UN draft code, there were several meetings between staff members at the UNCTC and the OECD in which ideas and information were exchanged. Even if the OECD project can, and to some extent should, be seen as an attempt to co-opt the UNCTC's work in this area, it is doubtful that the Guidelines for Multinational Enterprises would have been developed and adopted as rapidly without the pressure created by the United Nations' parallel efforts.

Yet if one can point to the OECD Guidelines as a positive legacy of the UNCTC, by the time of the Center's demise in the early 1990s, the entire Code-drafting effort was viewed by some as an unfortunate patrimony of the Cold War. For example, in Sandrine Tesner's recounting of the UNCTC's demise, the Code did not so much fail as fade away from lack of relevance. She describes the "quiet burial of negotiations on the Code of Conduct on Transnational Corporations" in 1992: … Trying not to call undue attention to the failure of these discussions, the president of the 46th General Assembly reported that "delegations felt that the changed international economic environment and the importance attached to increasing foreign investment required a fresh approach." In fact, in the 1980s as negotiations had moved from the charged atmosphere of the NIEO, differences on the content of the code had progressively been narrowed to the point where a text acceptable to all parties was within reach. The legacy of these discussions, however, and the suspicion they inspired because of their historic linkage to the NIEO, made it preferable to give up the entire enterprise. In the 1990s, the CTC gave up its hostile tune to multinationals and began to praise their positive impact on job creation, technology transfers, and the facilitation of access to global markets by developing countries.

In 1973, Ed Feulner and Paul Weyrich, two young staffers working for a Republican congressman in Washington, D.C., decided to establish a new and different kind of think tank in the nation's capital. Feulner and Weyrich envisioned an activist organization with an independent research operation that would be dedicated to influencing policy debates in a way that the venerable and well-established American Enterprise Institute did not. Within a few years, thanks largely to seed money provided by the Coors Foundation, the Heritage Foundation emerged as the first and arguably most effective of a new breed of "advocacy think tanks."

By the time Feulner assumed the mantle at Heritage, he could boast of an impressive resume as a conservative activist. Together with William Buckley, Milton Friedman, and Donald Lipsett, he helped establish the Philadelphia Society in 1964—an effort that grew out of deep disappointment among conservatives over Republican candidate Barry Goldwater's defeat in the U.S. presidential election. The founders of the Philadelphia Society envisioned it as "an American version of the Mont Pèlerin Society, begun by F. A. Hayek in Europe twenty years before" (Edwards 1997, 186). A decade later, at the age of 32, Feulner himself would be made a member of MPS, and two decades after that, in 1996, he would be elected president of that organization.

Upon graduating from Wharton, Feulner decided to continue his studies as a nondegree student at the London School of Economics. Among the professors that Feulner would later name as influences on him during this period were Peter Bauer, whose seminars introduced him to new ideas regarding foreign aid for developing countries, "about which I had previously gotten the conventional wisdom from 'experts' like Walt Rostow" (Feulner quoted in Edwards 1997, 188). While studying at the LSE, Feulner also worked part-time at the Institute of Economic Affairs (IEA), the London-based think tank that was closely associated with the policies pursued by Margaret Thatcher as prime minister. The experience of working at the IEA reportedly taught Feulner about the power of ideas, supported by research, to shape political debates and influence public policy.

Although Feulner reported that MPS was the inspiration for the Philadelphia Society, it was the IEA's tactical and organizational model that Feulner embraced for the Heritage Foundation. In Hayek's vision, MPS was a long-term project: a loose but focused network of individuals dedicated to the development and debate of neoliberal ideas and their advancement in different spheres of society, including academe, the media and the private sector, as well as government. Despite internal disagreements about the extent to which MPS should intervene in a more public way in policy debates, the Society has remained a relatively low-profile organization, albeit with a considerable number of high-profile members. Instead of promoting its agenda via direct participation in the political process, MPS opts for a patient strategy of continually reexamining and renewing neoliberalism in thought and practice (Plehwe, Walpen, and Neunhoffer 2006). … The Heritage Foundation, on the other hand, seeks a more immediate form of influence, paying paramount attention to the marketing of its ideas, chiefly to members of the media in a position to disseminate them, and to public officials, for whom Heritage prepares concise and unsophisticated summaries of key issues that can be digested en route to congressional votes-what Feulner refers to as the organization's "pioneering use of shorter policy papers for busy policy makers" (Feulner 2002, 73).

With an eye to what Heritage's leaders wagered would be a Democratic defeat in the 1980 presidential election, a team began work on the Mandate project in late 1979, around the same time that Ronald Reagan announced his candidacy for the Republican nomination. Consisting of twenty volumes and several thousand pages, the report outlined an inclusive conservative agenda for the new administration. Two days after Reagan's victory in the November 1980 presidential election, Ed Feulner and two of his colleagues from Heritage met with several members of Reagan's staff, each of whom was presented with a copy of Mandate for Leadership.

Several contributors to Heritage's Mandate for Leadership went on to positions in the new administration, including William J. Bennett, who would eventually serve as secretary of education (a cabinet post that Mandate had recommended be eliminated), future Interior Secretary James Watt, and James Malone, who would serve as the head of the U.S. delegation to the United Nations conference on the Law of the Sea. … While the close relationship between Heritage and the Reagan White House was widely noted, the American Enterprise Institute could boast of sending an even larger number of alumni to the new administration.

Among the several books that Heritage published as part of the United Nations Assessment Project is the provocatively titled volume A World without a U.N., featuring a foreword by former U.S. deputy ambassador to the United Nations Charles Lichtenstein. In a chapter discussing the UN and economic development, the authors warn that while “there is little new about NIEO emphases on grant aid, reduction of trade barriers, preferential market access for exports of developing countries, planning, and alleged deterioration of the terms of trade for raw materials exports . . . there is a new, disquieting strain in the NIEO proposals. Article 2 of the Charter of Economic Rights and Duties of States, for instance, is directed toward the regulation of transnational corporations and foreign investment and the authorization of nationalization and expropriation, with compensation to be determined by the courts of the nationalizing country” (Erickson and Sumner 1984, 3–4).

Heritage’s own evaluation of its United Nations Assessment Project is highly favorable. Several specific actions that Heritage had championed, including U.S. withdrawal from UNESCO and the closing of the United Nations Center on Transnational Corporations were achieved. In a 1998 article urging the United States to pay some of its $1.3 billion in outstanding dues to the organization, the Wall Street Journal noted that the UN “has adopted more than half of the specific reforms demanded by the Heritage Foundation’s United Nations Assessment Project in a series of 1983 and 1986 recommendations.

Although it is not surprising that Heritage’s leadership sees evidence of its influence on developments at the United Nations, some skepticism about this account of events is warranted. Corea’s resignation from UNCTAD likely had as much to do with the embattled status of his Integrated Programme for Commodities as it did with any “dressing down” he received from Heritage staff. More generally, the Reagan administration was already warmly disposed toward many of the proposals that would be advanced by the Heritage Foundation’s United Nations Assessment Project, including the closing of the United Nations Center on Transnational Corporations. In fact, U.S. opposition to the UNCTC was most likely a decisive factor in Boutros Boutros-Ghali’s decision to fold the Center into UNCTAD as part of the reforms he made upon becoming secretary general in 1992.

If this transformation seems obvious, the role played by networks of neoliberal intellectuals and organizations in securing it remains an ongoing debate to which this volume aims to contribute, if not resolve. While the success of the neoliberal revolution in the development sphere was fully secured only in the 1980s, and in the context of a Third World debt crisis that dramatically reconfigured the contours of the North-South debate, this chapter has emphasized the agency of individuals and organizations in articulating and promoting the policies and positions that were mobilized against the NIEO.

The transition from past (“the Treaty came to be viewed”) to present tense (“the NIEO operates”) in Kirkpatrick’s remarks is instructive. To suggest that the NIEO functions today through the institution of the General Assembly is to reinscribe the danger that the G-77 agenda poses thirty years after it was declared at the Sixth Special Session, and in so doing to efface the dramatic transformation that has occurred within the international political economy in the intervening three decades.

The policies and positions that Heritage advocates may be more widely recognized as conservative or neoconservative than neoliberal in the domestic political context. The relationship between neoconservatism and neoliberalism in the United States is contested by adherents and opponents of each school of thought.

Lal (1978, 10) argued that the rhetoric of equality mobilized by Third World states as a justification for the NIEO in part “represents the transfer of the Marxist notion of class and class warfare to the international scene.”

Compare Lal’s formulation to Bauer’s oft-cited claim that aid is an excellent method of transferring money from poor people in rich countries to rich people in poor countries.

14. During the course of these hearings, ousted Chilean president Salvador Allende was killed. Amid concerns about the role of ITT in the activities leading up to the military coup preceding Allende's death, the events in Chile had a sobering effect on the Group and its staff (Mousouris 2003).

16. Although it rejected the new international economic order advocated by the G-77, the United States insisted it was willing to entertain discussions about a new international economic order, thus setting in motion a terminological dispute that continued at the UN for several years.

18. The Law of the Sea Treaty (LOST) was an NIEO initiative that the Reagan administration strongly opposed as a particularly misguided and dangerous element of the G-77 platform. President Clinton signed the treaty in 1994, but it has not been ratified by the Senate. See Eckert (1979) for an early assessment of the treaty and Bandow (2005) for a more recent statement of opposition.

20. By 2000, Heritage's budget of $38 million represented well more than half the amount of that year's budget for the United Nations Conference on Trade and Development ($65.4 million). UNCTAD's budget had peaked in 1995 at $79.4 million.

To Friedrich Hayek and his fellow neoliberals, the individualist and none-galitarian society that neoliberalism envisaged was not a natural condition. They did not expect it to emerge spontaneously once the powers of the state were reduced, as nineteenth-century liberals had believed. The neoliberal order was an economic and social project to be built by capturing and reorganizing political power.

To capture political power, they would first have to alter the intellectual climate. … Hayek proposed that political technologies could be developed to engineer changes in the general climate of opinion. These technologies had to operate on those second-tier thinkers he called "intellectuals." In contrast to the "scholar or expert in a particular field," he wrote in an essay published in 1949 in the University of Chicago Law Review, those who perform intellectual functions—principally journalists and school teachers, but also media commentators, film makers, writers of fiction, and many others—are "second-hand dealers in ideas" (Hayek 1949). These people control the distribution of expert knowledge to ordinary members of the population. The task of the neoliberal movement was to design its own network of dealerships. By altering the distribution of ideas among the second-hand dealers, neoliberalism would try to change the world.

As several contributions to this volume explain, an important innovation was the think tank. The prototype for this new instrument of intellectual engineering was the Foundation for Economic Education (FEE), established in 1946.

In London in 1955, another businessmen, Antony Fisher, founded the Institute of Economic Affairs with Hayek’s encouragement, following a visit to the Foundation for Economic Education in 1952. The IEA further developed these methods and then helped establish a number of think tanks in other countries including the United States. Many of these partisan think tanks were founded and run by members of the Mont Pèlerin Society (see Plehwe and Walpen 2006 for an overview). The think tanks transformed neoliberalism from an intellectual philosophy into a set of practical political tools.

Like all sciences, economics faces the task of persuading people that what it says is true. To strengthen its arguments, it must sometimes try and put them to the test. But compared to laboratory sciences, it faces a particular difficulty in establishing empirical evidence. The sociotechnical world that economics describes cannot easily be rendered testable. For this reason, compared to many other sciences, economics attaches less importance to having clear tests and often seems to pride itself on not needing them. The manipulation of statistical data provides the most common way around this difficulty, while experimental economics offers a more specialized approach. Occasionally, however, academic economics employs another method for advancing and testing its arguments. It is sometimes able to use the world as a laboratory.

Among the most ambitious forms of economic experiment in recent decades have been the attempts in numerous countries to reformat the economy as a whole, in programs of neoliberal economic restructuring (see Fischer, Chapter 9 in this volume). The scale of these experiments offers unusual opportunities for putting economic arguments to the test. Such tests are interesting, not so much for the facts they confirm—the evidence never seems complete enough to establish conclusive arguments—as for what they tell us about how neoliberal facts about the economy are produced. They illuminate the relationship between neoliberal economics and the object it studies—including the role of think tanks and other intermediaries in this relationship.

The neoliberal movement has a peculiar relationship to wartime and postwar national projects for making "the economy." On the one hand, neoliberalism came into being as a movement of opposition toward "the economy." If the economy was in part a product of Keynesian and other forms of planning, calculation, and management, neoliberalism opposed this with the rival concept of the market, whose principles of operation were portrayed as an alternative to the administrative management of "the economy." On the other hand, as neoliberal think tanks proliferated and began to circulate and promote the ideas of neoliberal academic economists, they became increasingly involved in economic experiments in the world at large. These experiments took place in a world already formatted with the help of economic expertise, whether in the form of earlier Keynesian economic planning or of more recent neoliberal projects.

The plan was developed from the work of the internationally known Peruvian entrepreneur and development economist Hernando de Soto. Founder of the Instituto Libertad y Democracia (Institute for Liberty and Democracy) in Lima, de Soto became the country's leading advocate of neoliberal reorganization in the 1980s and 1990s. He argued that informal housing and other forms of unregulated and illegal economic activity were a symptom not of economic backwardness but of overregulation by the state. Simplifying the process of registering property ownership would turn dead assets into live capital and transform every home owner into a capitalist entrepreneur (de Soto 1989, 2000).

The program appeared to have a remarkable effect, though not the one anticipated. A number of studies of the Peruvian experiment found that property titles had no significant effect on access among the poor to business credit (Cockburn 2000; Field and Torero 2002; and other studies cited there). Mortgage lending did eventually increase, but only after a new government abandoned de Soto's neoliberal prescriptions and began to subsidize low-income mortgages. However, another study found an unexpected change in the economic lives of those who became formal property owners: they began to work harder.

Obtaining title to their property seemed to increase the average number of hours that members of a household worked by 17 percent. The data suggested that over time, as the effect of titling intensified, the total number of hours worked might increase by 40 percent. There was also a redistribution of labor from work within the home to employment outside and from children to adults. Property titling was associated with a 47 percent decrease in the number of hours worked inside the house and a 28 percent reduction in the use of child labor (Field 2003, 3, 37).

To explain these findings, the author of the study, Erica Field, hypothesized that acquiring formal title freed members of the household to spend more time outside the home, based on the intuition that in the absence of a formal title people had to stay home to protect their property from being seized by others. A further intuition suggested that adults had a comparative advantage over children in defending the home, so in the absence of secure property rights children were more likely to be sent out to work. Once the property was secured with a formal title, children could stay home and adults could take over children’s jobs outside the household (Field 2003, 7–8, 12).

For reasons I will explain, the paper’s findings concerning the impact of property titling seem to me implausible. I will suggest a number of features of Peruvian politics and urban settlement that offer alternative explanations for the apparent increase in hours worked—explanations more closely linked to the implementation of the titling program and to its location within the wider networks of neoliberalism.

The property rights literature provided a way for economists to acknowledge the role of corporations, governments, and other complex arrangements of agency and power, by simplifying them into individual actors governed by rules of property. It identified the absence of private property rights or the existence of communal rights as a source of uncertainty and potential instability. This work of simplification prepared the ground for the development of New Institutional Economics, which became a major branch of neoliberal thought.

(In 2002, the Cato Institute celebrated Bauer's influence by awarding him the second biannual Milton Friedman Prize for Advancing Liberty. Hernando de Soto, who served on the selection committee for the award in 2002, was the next recipient of the prize, in 2004.)

A third reason for the popularity of the paper was that it enabled the sponsors of the project in Peru, the World Bank and the Institute for Liberty and Democracy, to ignore its failures and describe its outcome as a success. The World Bank had to face the failure of the project to produce its intended result, an increase in lending to the poor. It seized on the fact that the project's beneficiaries appeared to be working longer hours as an unexpected but welcome outcome (World Bank 2004, 11). Meanwhile, the Peruvian organization responsible for the original scheme, de Soto's Institute for Liberty and Democracy, had fallen out of favor in Lima and was pursuing opportunities to design and implement similar experiments in other countries, including Mexico, the Philippines, and Egypt. Unable to point to evidence that the original project achieved its promised outcome, the ILD cited the apparent increase in working hours in its efforts to win funding for further projects abroad (Institute for Liberty and Democracy n.d.).

Like all scientists, economists face the problem of how to persuade people that what they say is true. The abstract quality of many economic models can sometimes make them useful as political blueprints but difficult in practice to put to the test. Setting up experiments using human subjects is expensive, complex, and unreliable. The alternative is to use what actually happens in economic life as information against which to test an explanatory model. But this too presents difficulties. Economists readily admit that not everything is observable or measurable. The changes in a variable whose effect one is studying may be due to a factor outside the model. And the agents whose actions one is studying come with different preferences and abilities, which can affect the outcome. For example, in the Peruvian case, those planning to work outside the home might be more inclined to seek property rights, resulting in a process of self-selection (Rosenzweig and Wolpin 2000; Angrist and Krueger 2001).

One answer to these problems is to set up a natural experiment, that is, a situation in which the sociotechnical arrangements whose effect one wants to study are altered as a result of some event or circumstance “beyond the immediate control of the investigator” (McGinnis 1964). The typical case is one in which a change in government policy or legislation affects some members of a population but not others, creating a variation in the data that is random; or, if not random, at least unconnected or “orthogonal” to any unobservable factors that might be affecting the outcome one is trying to explain (Rosenzweig and Wolpin 2000, 828).

Economists who praised and publicized the study of the effects of the property titling program in Peru found it valuable not only for what it discovered about property rights but for the way in which it made the discovery: by using the titling program to carry out a sophisticated natural experiment (Krueger 2003). A study that merely compared the hours worked by people who had formal ownership of their houses with those who had not received title could not produce convincing evidence of the effect of formal ownership on employment. The extra hours that formal owners worked might be due to any number of unobserved factors.

To avoid this problem, the study exploited the variation created by the fact that the titling program was carried out in different stages. It began in certain neighborhoods in Lima and in subsequent years spread in a staggered pattern to other neighborhoods of the capital and to other cities. Rather than compare those households that obtained property titles with those that did not, the study compared the number of hours worked in the year 2000 by households eligible to obtain title (whether or not they actually obtained it) in neighborhoods already reached by the program, with hours worked by those eligible in neighborhoods the program had not yet reached. As a precaution, the author also compared the difference in working hours between those ineligible to obtain title (because they possessed formal title before the program began) in neighborhoods reached by the program and those ineligible in neighborhoods not yet reached, and subtracted this difference from the first.

This was an elegant construction of a natural experiment. It made clever use not just of the household survey data collected by the Peruvian agency responsible for the titling program, but of the staggered timing and other features of the program itself. Among those who singled out the research for praise were scholars such as Krueger and DeLong, who were interested in promoting not a neoliberal political agenda but more empirically supported arguments in the discipline, and in the case of Krueger, strong advocates of the use of natural experiments.

A natural experiment in economics is not an experiment carried out in nature. It is an establishing of facts carried out in a world that has been organized to make it possible for economic knowledge to be made. Latour refers to this organizing work as “metrology,” meaning “the gigantic enterprise to make of the outside a world inside which facts . . . can survive” (Latour 1987, 251; see also Mitchell 2002, chapter 3). Experiments to establish the facts of economics depend on projects carried out in the wider world to create sites where economic knowledge can gain a purchase. These sites, though larger than an ordinary laboratory, are nevertheless quite closely defined spaces—specific neighborhoods in particular cities of Peru, the local offices of a development organization and a neoliberal think tank, the text of a survey questionnaire and its administrators, the offices of a parent organization in Washington that provides the funds. As Latour points out, to provide a secure site for establishing facts, these locations must be well connected to one another. The interconnections establish the routes along which facts can travel and be confirmed. They also shape what kinds of facts can survive. To understand the outcome of the academic experiment in Peru, we must understand these routes created by the larger neoliberal political experiment.

On New Year's day 1980, Hayek wrote a letter to Fisher, to be used for the purpose of raising funds for this expansion. "I entirely agree with you," Hayek wrote, "that the time has come when it has become desirable to extend the network of institutes of the kind of the London Institute of Economic Affairs." With the hyperbole required for fund raising, he added that "[t]he future of civilization may really depend on whether we can catch the ear of a large enough part of the upcoming generation of intellectuals all over the world fast enough. And I am more and more convinced that the method practiced by the IEA is the only one which promises any real results."

By 1981, the fund raising was successful enough for Fisher to establish the Atlas Foundation for Economic Research. He took its name from Atlas Shrugged, Ayn Rand's novel of 1957 depicting the vital role played by experts and men of ideas and the virtues of the right of private property and of a self-interested individualism threatened by the powers of government (see Mühlbauer 2006). The foundation's goal was to coordinate activities and corporate funding among the network of European and American think tanks and to extend it by developing and financing a group of neoliberal organizations outside Western Europe and the United States. De Soto was to be the first and most successful outcome of this initiative.

A Guatemalan businessman educated in the United States, Ayau had discovered neoliberalism at the Foundation for Economic Education, and in 1959 he established the first neoliberal think tank in Latin America, the Centro de Estudios Economico-Sociales, in Guatemala City (Weston 2001). He became a member of the Mont Pèlerin Society in 1964 and in 1978–1980 served as president.

Hayek put de Soto in touch with Fisher. The Atlas Foundation helped set up and fund the ILD, one of the first of a new generation of neoliberal think tanks in the South. "Antony gave us enormous amounts of information and advice on how to get organized," de Soto later recalled. "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" (Frost 2002, cited in Chafuen 2004).

De Soto organized the meeting with Hayek and Ayau in 1979, the year he moved back to Lima. He tells the story of how he initially tried to set himself up in business as the representative of a group of investors who had purchased the rights to gold placer deposits. The mining enterprise failed after the investors went to review their concessions in the rain forest and found hundreds of local people already panning for gold without concessions (Berlau 2003). De Soto had discovered the problem of informal property claims. His contacts in the European and North American neoliberal movement offered an answer to the problem.

De Soto's European background and connections were seldom mentioned by his neoliberal supporters. His credibility and growing authority as a popular development economist came to depend on his identity as a neoliberal from the Third World, willing to describe the poverty of the global South as a self-inflicted injury unconnected to its relationship to the North. "Instead of seeing the developing world as victims of capitalism, Hernando argues, 'We're inflicting our own wounds,'" reported Andrew Natsios, the administrator of the U.S. Agency for International Development. "Since he is Peruvian, he can make this argument credibly" (quoted in Kleiner 2004).

In 1983 neoliberals in the Reagan administration set up the Center for International Private Enterprise, housed within the new National Endowment for Democracy, to support organizations in the developing world advocating neoliberal political programs. CIPE developed a "toolkit" that spelled out the tactics to be used: create an advocacy team, identify key issues relevant to the target audience, research the issues, establish a goal, create a message and an advertising campaign, form grassroots advocates, work with the media, and become part of the governmental process (Center for International Private Enterprise, 2003). The following year CIPE awarded its first grant—to support de Soto's Institute for Liberty and Democracy. To build popular support for neoliberalism, the ILD identified its political issue not as property rights in general, or as the property rights of mining companies or other corporations, but as the problem of informal housing.

Supported from abroad, De Soto's institute grew in size, developed its advocacy campaign, and inserted itself into the processes of government. During the administration of Alan Garcia, in the second half of the 1980s, it became directly involved in policy making. ILD lawyers drew up proposals for property-rights legislation and administrative reforms. To promote the legislation, the ILD produced television commercials that, borrowing from American state lottery commercials, invited people to dream: “What would you do if you had capital?” By 1991, the Institute had a staff of 100. Victor Endo, an ILD lawyer who later worked at the World Bank, claimed that the think tank became “a kind of school for the country. Most of the important ministers, lawyers, journalists, and economists in Peru are ILD alumni” (Kleiner 2004).

In 1987 the ILD published a book based on its research and reform programs, under the title El Otro Sendero (“The Other Path”), subtitled “The Economic Answer to Terrorism.” Its authors were de Soto and two of his collaborators, Enrique Ghersi Silva, a lawyer-economist influenced by the Chicago law and economics movement (see Van Horn, Chapter 6 in this volume) and subsequently a member and director of the Mont Pèlerin Society, and Mario Ghibellini, a writer. De Soto's organization of the team that produced the book exemplified the role of the neoliberal intellectual entrepreneur. “My contribution was that of the businessman,” he explained. “I set my goals, identified my limitations, and obtained the resources to achieve the first and offset the second” (De Soto 1989, xxix).

The neoliberal movement transformed the book and de Soto into an international phenomenon. In 1989 the book was published in English in the United States, with its marketing ambitions reflected in a new subtitle: “The Invisible Revolution in the Third World.” Ghersi and Ghibellini's names were removed from the title page, leaving de Soto as the only named author. The Peruvian novelist Mario Vargas Llosa, an ex-leftist converted to neoliberalism by de Soto, it is said, and about to become the U.S.-backed candidate in the 1990 Peruvian presidential election (Rothbard 1995, 323–33), contributed a preface. The book carried endorsements from President George H. W. Bush, Richard Nixon, and several others. The Atlas Foundation selected the book for its first Sir Antony Fisher Memorial Award, a prize named after de Soto's recently deceased patron. Promoted with prizes, reviews, and endorsements from the network of European and American neoliberal think tanks and foundations, it became a worldwide bestseller.

In 1990 Alberto Fujimori was elected president of Peru. De Soto, who had abandoned Vargas Llosa's faltering candidacy in favor of the populist rival, became his principal political adviser. The new government instituted one of the most drastic neoliberal financial stabilization plans yet seen, and the country fell into recession. In 1992 de Soto resigned from the government, after a dispute over Fujimori's refusal to challenge the armed forces. De Soto pursued his pilot titling program in Lima, with Japanese funds; but by 1994 the breakdown of the relationship between the government and the ILD stalled the project. He looked abroad and embarked on work advocating programs to end world poverty through property titling in Egypt and several other countries (Mitchell 2007). He used this work as the material for his second book, The Mystery of Capital (De Soto 2000). With endorsements from Margaret Thatcher, Milton Friedman, and other prominent neoliberals and prizes from neoliberal organizations, the book became another international bestseller.

In March 1996 the Peruvian government passed a law on property formalization and established an agency, COFOPRI (Comisión de Formalización de la Propiedad Informal), to take over the ILD program and turn it into a national scheme, recruiting members of the ILD team. In 1998 the World Bank stepped in with a loan for the completion of the program. Research funded by the bank showed that the program had failed to achieve its goal: property titling had produced no increase in credit to the poor. Concerned by the failure, in 2000 the World Bank carried out a survey of informal neighborhoods. The survey's primary purpose was to encourage commercial banks to lend money to the neighborhoods by providing them with data that would reduce the cost of assessing the creditworthiness of low-income households. It was this survey that became the basis for the "natural experiment" whose extraordinary results attracted such attention.

This outline of the history of neoliberal experiments in Peru indicates the extensive work involved in reorganizing the country in ways that made the subsequent research experiment possible. Contacts were made, advocacy training was organized, funding was arranged, fieldwork was undertaken, goals were established, political alliances were formed, elections were won, technologies were put in place to survey properties and record their ownership, and questionnaires were distributed and returned. All this experimentation and programming belongs to the work of economics. It organizes the world in ways that provided neoliberal economics with the opportunity to produce its facts.

We can now return to the natural experiment and consider an alternative interpretation of its results, one that is more closely related to the implementation of neoliberal economic experiments whose wider history has just been outlined. This alternative account will follow the work of economics, examining the processes that make some facts possible and not others.

Evidence available in the same World Bank documents suggest a contrary view: Peru’s informal urban communities are described as having very strong collective organizations and a great variety of neighborhood mutual-help arrangements. Typically, a squatter neighborhood was formed by a single village, whose members would plan their relocation collectively in advance, allocate each family a building plot, and reproduce the communal associations of the village in the new location. None of this indicates a situation in which people feel so threatened they must stay home to guard their individual properties. (The World Bank also reports that titling programs tend to weaken these neighborhood associations.)

What makes the intuition plausible is that it resonates with the work of neoliberal institutional economists like Douglas North and neoliberal theorists of development like Peter Bauer. It assumes that a world without formal property rights is anarchic and that once the proper rules are in place a natural spirit of self-interested endeavor will be set free. It derives its plausibility more from the reader’s familiarity with certain texts of neoliberal economics than from any knowledge of informal communities.

It is also significant that the first wave was a pilot project, run by de Soto's Institute for Liberty and Democracy rather than the government. It was intended to demonstrate the feasibility of a rapid formalization program, the centerpiece of the neoliberal reforms adopted by the new government of Alberto Fujimori, whom de Soto initially served as a principal adviser. Anxious to raise both domestic political support and international development funds for the program, there would have been clear incentives to choose the right kinds of neighborhoods for the demonstration. … As we will see, this was only one possible way in which the project's need to demonstrate the truth of neoliberal economic theory entered into the kinds of economic knowledge it later helped produce.

There is a further way in which the political implementation of the titling program affected the sequence in which cities and neighborhoods entered into it. De Soto described the regularization of property rights as El otro sendero, "The Other Path"—or as his book's subtitle explained, "the economic answer to terrorism." The reference was to the Sendero Luminoso, the Shining Path, the Maoist revolutionary movement that in the 1980s controlled large areas of the central Andean highlands of Peru. The populism of de Soto's neoliberal program, emphasizing the virtues of property rights for the poor, was intended as an answer to the more radical property redistribution programs of the revolutionaries—as well as to the problems of large-scale urban migration caused by years of warfare in the countryside between the rebels and the Peruvian armed forces. The war against the Sendero Luminoso and its effect on one particular city shaped both the property rights experiment and the research experiment to which it gave rise.

Located in the central highlands, it is the regional capital of an area of rich farmland and impoverished, mostly Quechua-speaking farmers, which in the 1960s gave birth to both the Sendero Luminoso and Túpac Amaru revolutionary movements. By the 1980s, the region had become a continuous battle zone in the war between government forces and the rebels. Tens of thousands were killed or disappeared, and hundreds of thousands fled the countryside and settled in new informal neighborhoods in Huancayo and other towns.

After the war ended in 1992, two kinds of projects were launched to address the problems in Huancayo. First, international humanitarian organizations set up well-funded aid programs in the city, offering neighborhood soup kitchens, medical services, and other basic relief, and then job-creation schemes based on street-vending, artisanal labor, and other household-based income generation. Second, the government, anxious to draw the refugees back into the countryside, offered an alternative assistance program to support the regeneration of agriculture. … The refugees took advantage of these rural incentives, but typically without moving back to the countryside. As the economic shock caused by Fujimori's neoliberal reforms made waged employment in the city increasingly difficult to find, a majority of migrants began looking to the countryside as a source of urban incomes. Households developed distinctive "mobile livelihoods," traveling to the villages to sow and harvest and for other occasional tasks, sometimes leaving behind one or two members of the household to mind the fields and animals, but the rest returning to the city (Stepputat and Sørensen 2001, 783–786).

The informal urban neighborhoods of Peru are not, it turns out, similar to one another. The migrant communities of Huancayo, the city that provided one-third of the survey sample of households in neighborhoods waiting to be titled (and zero percent of those already reached by the titling program), had a quite distinctive political economy. Impoverished by war and isolation, they had relatively few opportunities for daily employment outside the household. But in the 1990s a plethora of international NGOs supplied food rations and healthcare along with opportunities for home-based income generation, while farming provided urban households with an occasional but significant income. These arrangements suggest a more plausible explanation for how households of similar basic levels of nutrition, literacy, access to municipal services, and other indicators of relative well-being might have very different levels of regular employment outside the home.

First, the possibility of the natural experiment depended on a prior and larger economic experiment. The attempt to test the impact of property ownership on the propensity to work was possible because Peru had become the site of a large-scale neoliberal experiment in the formalization of property rights and the formation of entrepreneurial subjects. Millions of citizens and hundreds of thousands of households had been drawn into an experiment designed to demonstrate that a simple procedure for acquiring property rights would lead to a transformation in economic action and a dramatic improvement in well-being.

The idea of a “natural” experiment is misleading. The so-called natural experiment typically depends on some prior political intervention—in other words, a project or an experiment of some sort, which arranges the sociotechnical world in a way that offers further opportunities for experimentation. This intervention must be beyond the direct control of the investigator. But that does not insulate the second experiment from the effects of the first.

Second, there is seldom only one big experiment going on. The details of the Peruvian case suggest that problems may have arisen from the intersection of a number of related experiments. On the one hand, there was the difference between de Soto's original pilot project, intended to achieve certain local and international effects by demonstrating not so much the long-term benefits of property rights as the immediate viability of a high-speed, low-cost, titling program. Such concerns may have shaped the selection of neighborhoods for the pilot program in ways that affected the later study. On the other hand, there was the intersection of different government and NGO programs to deal with the threat and after-effects of a revolutionary attempt to introduce a very different kind of property experiment. The government and the World Bank justified the titling program in part because the regulation of informal housing offered the state a way to assert its political authority over neighborhoods that had often been beyond its control during the years of attempted revolution. But in Huancayo, the city at the center of the region of insurrection, this project intersected in unpredictable ways with other more urgent interventions. The research experiment, in ways I have indicated, was unable to keep these intersecting experiments from shaping its results.

The property titling program in Peru, moreover, was not just a local experiment in neoliberalism. It was the outcome of a much longer project for the expansion of neoliberal economic arrangements, a project in which Peru and Hernando de Soto, as we have seen, became important relay points.

The outcome of the experiment does not end with the publication and circulation of its findings. These were now available to be folded back into further projects and experiments of neoliberalism, helping to secure the facts of economics.

In 2004 the foundation published on its website a complete teaching unit with ready-made lectures for use in high school classrooms, entitled “Is Capitalism Good for the Poor?” (Foundation for Teaching Economics 2004). The lectures were written by academic economists and reviewed for publication by two of the foundation’s advisers, Douglas North and Milton Friedman. After an introductory lecture on concepts and terms, the first substantive lecture is entitled “Property Rights and the Rule of Law.” The lecture begins by proposing that in developing countries the most significant obstacle to improving the lives of the poor is the absence of clear property rights. The rest of the lecture supports this claim by making three arguments: that property rights create incentives to invest, that they create the means of investing by providing collateral for loans, and that they further promote development by freeing people from protective activities so that they can engage in productive activities. As evidence for the first two points, it cites the work of Hernando de Soto, and for the third point the paper on urban property titling in Peru by Field.

The results of the natural experiment made possible by the programs of neoliberalism were written into further neoliberal projects. The organization of experiments, both caged and in the wild, would continue.

What happens when caged economics meets economics in the wild? One discovers that the world outside is not really a wilderness; it is more like a reservation. This discovery should not be surprising. As we have stated, a “natural experiment” in economics is not an experiment that takes place in nature. It is an experiment that typically takes advantage of certain programs, policies, or political-economic processes that have arranged the sociotechnical world in a way that makes experimentation possible. The investigator does not control these wider experiments, but he or she relies on them. Although the forms of this reliance will be different in different cases, the possibility of economic experimentation depends on the larger programs, which constitute what we call the economy. The experiment works on prior experiments.

This dependence has important consequences. The outcome of the experiment will be shaped by the earlier experiments that made it possible. Not every research project will produce facts as improbable as those examined here. But the prior experiments will make some kinds of data available and not others; will provoke certain intuitions that appear to make sense of them and not others; will suggest one set of arguments derived from these intuitions and not others; will give them the plausibility they need to circulate when other arguments would fail to impress; will provide academic economics with material to promote a more empirical approach to the discipline; and will offer routes to feed the conclusions back into further political projects and programs.

Academic economics often appears extraordinarily abstract and almost indifferent to the practical world of everyday economic calculation. My argument that the work of economics contributes to the making of the economy might appear to attribute excessive influence to such a discipline. The question of what economics does, however, can only be addressed by following it at work. Taking a particular experiment and tracing the narrow but well-signposted paths that connect it to other projects offers the way to a more expansive understanding of the work of economics in general and of the work of neoliberal economics in particular.

Fisher made his wealth by introducing the factory farming of chickens in Britain. He established Buxted Chickens, the country’s first and largest manufacturer of prepackaged, factory-produced poultry, after his visit to the Foundation for Economic Education in New York in 1952. F. A. Harper, who had taught economics at Cornell University, advised Fisher to visit the university’s industrial project for the production of chickens. The profits from Buxted Chickens financed the creation of the IEA (Frost 2002).

The government of Alejandro Toledo, elected in 2001, introduced an emergency economic program, whose centerpiece was the creation of the Fondo MiVivienda, a state subsidy for low-income mortgages from commercial banks and finance companies, designed to create jobs in construction and simultaneously support the country’s ailing commercial banks and construction industry. (See International Finance Corporation 2005, and Fondo MiViviendo n.d.) The World Bank (2004, 10) was then able to report, without explanation, a sudden increase in mortgage lending to the poor as though it were a consequence of its property titling program.

The data consisted of 2,750 households distributed across all eight cities where the titling program was introduced. The survey randomly sampled cluster units of ten households at the neighborhood level within each city. The number of clusters from each city was based on the city’s share of residents eligible to receive title. The survey did not record whether households had actually obtained title under the program (Field 2003, 15–16). This may be because the survey was carried out in response to the failure of property titling to increase the supply of credit to the poor. Its primary purpose was to promote lending by commercial banks and finance companies by collecting information that would reduce the cost of assessing the creditworthiness of potential borrowers (World Bank 2004, 12–13).

The point here is not that de Soto’s cosmopolitan background disqualifies his views. It is that his return to Lima and presentation as a person from the Third World gave his opinions a credibility and a usefulness to the neoliberal movement that they could not have had coming from Geneva.

Following the 1990 “Fujishock,” the proportion of Peruvians living in poverty increased to 54 percent; the percentage of the workforce underemployed or unemployed rose from 81.4 in 1990 to 87.3 in 1993; and real wages fell by 40 percent between 1990 and 1992 (Roberts 1996, 97).

After the Peruvian government began to adopt de Soto’s plans, a series of attacks carried out against the ILD were attributed to Sendero Luminoso, including a car bombing of its offices on July 20, 1992 (de Soto 2002, xi).

When the program ended in 2004, Huancayo accounted for only 2 percent of the property titles it had awarded; Lima and Arequipa accounted for 67 percent (World Bank 2004, 5, map 1).

Peru’s Truth and Reconciliation Commission, which published its final report in 2003, estimated that in the fighting from 1980 to 2000 between 600,000 and 1 million people were displaced and more than 69,000 were killed or disappeared. The Fujimori government was accused of using death squads and of other crimes against humanity. The Sendero Luminosa, which originally struggled for land reform and other social rights, became increasingly totalitarian, driving populations from their villages and creating prison camps that used forced labor (Norwegian Refugee Council 2004).

The U.S. Agency for International Development helped plan and fund both initiatives, as part of a $58 million program (1995–2002) for “Increased Incomes of the Poor” (United States Agency for International Development 1999).

Rosenzweig and Wolpin (2000) acknowledge the problem with the label by introducing the phrase “natural ‘natural experiments’” to distinguish supposedly more natural arrangements, such as the differences among twins separated at birth—never merely a natural event.

As Friedrich Hayek insisted in his opening address to the very first meeting of the Mont Pèlerin Society on April 1, 1947, “Common work on the more detailed outline of a liberal order is practicable only among a group of people who are in agreement on fundamentals, and among whom certain basic principles are not questioned at every step.” There were struggles and even purges along the way (e.g., Hartwell 1995, chapter 5), but that should not disguise the fact that Mont Pèlerin did eventually forge agreement on some fundamentals. Indeed, we can and should come to appreciate the fact that the neoliberal project managed to converge over time on a shared political philosophy and worldview, despite the debates and struggles described in this volume.

“Libertarian” is not the same thing as a neoliberal. Neoliberalism is an economic philosophy, whereas libertarianism is a socio-political philosophy that happens to include support for free-market economics. More importantly, most libertarians are hard-core anti-interventionists! What is called neoliberalism is the same as what most libertarians derisively call “liberventionism.”

As the discussion of Locke in the article states, that paradigmatic classical liberal was a mercantilist: so state intervention in the economy was fine for classical liberals. Hayek liked to present himself as a classical liberal, but he was only able to do so by misrepresenting what classical liberals actually thought about the proper role of the state in the economy.

Actually, the term is considerably older. The first recorded usage (according to the Oxford English Dictionary) dates from 1898, when it was used by the co-operative economist Charles Gide to describe, in a somewhat pejorative manner, the neoclassical economics of Maffeo Pantaleoni.

No. The difficulty in labeling individuals "neoliberal" is precisely an effect of neoliberalism being a diffuse and contested political ideology/project not tied to a single organization. That there are varieties of neoliberalism does not mean that the concept is entirely without merit. It is a political label and an academic label rather than an entity. This does not mean its use implies propaganda rather than simply a pejorative.

Neoliberalism turns out to be anything but an easily and clearly defined contemporary political philosophy once we venture beyond popular representations, such as market radicalism, neoclassical economics, monetarism, or the journalistic mania for attributing coherent thought systems to politicians: Thatcherism, Reaganism, and Howardism, to name but a few. When the Zapatista movement called for global resistance against the NAFTA project in 1994 and sparked resistance to corporate globalization in general, neoliberalism was widely identified with U.S. superpower, unilateralism, and sometimes a forbidding borderless "global empire" (Hardt and Negri 2000). The puckish Slavoj Zizek has glossed neoliberalism as the doctrine, "You are free to do anything as long as it involves shopping." Leading intellectuals of the left thus have frequently, if unwittingly, contributed to the great confusion surrounding neoliberalism. More recently, David Harvey (2005) has simply conflated neoliberalism with neoclassical economics. Earlier, Pierre Bourdieu (1998) and his followers popularized the notion of "pensée unique" or "strong discourse," where neoliberalism amounts to nothing more than a bland version of economism.

Mass media have acted as a pseudo-public sphere. . . . Wikipedia is surprisingly good proof that collaborative work by amateurs can provide balanced and reliable information. . . . A Wikipedia entry is a living and constantly changing organism, reflecting the current state of negotiations between people of vastly differing opinions on a subject. (Aufderheide 2007) Our experience with the "neoliberalism" entry in Wikipedia should alert us that there is an element of wishful thinking in this portrait of the Net Information Commons as a political wonderland.

In the first place, Wikipedia in action is not some democratic libertarian paradise in cyberspace, but rather is predicated on a strict hierarchy, in which higher levels exist to frustrate and undo the activities of participants at lower levels. The notion that “everyone can edit” is simply not true: many controversial pages would not even exist were interventions from those lower down in the hierarchy not blocked.

Although most Wikipedia activity is indeed volunteer work, the great bulk of that work is devoted to either (a) correcting ongoing vandalism, or (b) vicious infighting over the “correct” way to implement deletion policies. In other words, most Wiki-work is a huge Sisyphean waste of time, since the vandalism never stops, almost no entry converges to anything in particular (much less “truth”), and many “deleted” components have the vexing habit of recurring.

Furthermore, these aggregation systems themselves emerge willy-nilly through something resembling evolution, and not from the visions of some rational planner. Knowledge in this schema is frequently treated as though it were a disembodied “thing,” and consequently human progress comes from the accumulation of information at various technological sites, which then serve to convey the relevant stuff to its decentralized user base.

I cannot resist highlighting the irony that Wikipedia, the purported poster child of neoliberalism, cannot even manage to get its own internal entry on neoliberalism straight. But that irony is achieved at too low a price: after all, Wikipedia can’t manage to get much of anything straight for very long (unless it is so arcane and dull that no precocious 12-year-old ever feels tempted to “edit” the entry). What it does manage to do is capture what passes for common knowledge of the median participant on the Internet at some specific point in time. The conviction that the truth “emerges” from random interactions of variously challenged participants in the precincts of Wiki-world (sometimes retailed in the popular press as “the wisdom of crowds”) only holds water if we are allowed great latitude in the definition of “truth.” Neoliberals have great faith in the marketplace of ideas; and for them, the truth is validated as what sells.

But to tamp down the effulgent nonsense that emanates from those drawn to this narcissistic flame, Wikipedia then tries to banish all originality, insisting that everything be traced back to a "conventional" legitimate source, like encyclopedias, newspapers, or professional journals. This has been an inspired stipulation, since by construction everything that is legitimate on Wikipedia comes from somewhere else where someone else actually had to invest valuable time and resources into researching and vetting the results; Wikipedia gets it for free. The Wiki-workers who manage to extract or cut and paste this information in an era of ever-tightening intellectual property are themselves anonymous and slippery, so they can never be reined in or punished for their expropriations. The dynamic becomes more pyrrhic when one observes that the ease of access to Wikipedia has begun to destroy the subscriber base of those very same encyclopedias, journals, and newspapers.

But the success of Wikipedia is nonetheless traceable to how the site fits into the larger business plan of commodification of the Internet. In particular, the symbiosis of Google and Wikipedia goes quite the distance in explaining how it is that Wikipedia has been blessed with exponential growth. Google started out with a good search algorithm coupled to an essentially impossible goal: fast convenient access to everything on the Web. What Google needed for effective search was some other entity to preprocess the vast masses of dreck clogging the Web and cross-reference the refined results in such a way that it would show up early (usually on the first search page) on Google search results. (It was estimated in 2007 that Wikipedia entries show up in 95 to 97 percent of the top ten sites delivered in a Google search.) Conveniently, Wikipedia’s policy of citing everything from other sources exactly meshed with Google’s ranking algorithm. As in so many other instances, Google wanted access to such services for free. Thus Wikipedia materialized as a Godsend for Google’s business plan. Moreover, the supposed Chinese Wall between Google and Wikipedia makes it possible for Wiki-workers to think they are squirreling away for the betterment of humankind, while Google positions itself to be the premier portal for information on the Web and the biggest corporate success story of the “New Information Economy.”

But no matter, since the absolute validity of that knowledge is not the true motive or objective of the exercise, but rather subordination of the overall process to corporate strategic imperatives that provides the real justification of the format, as well as its economic foundation. It adds up to a “double truth” doctrine: one truth for the masses/participants and another for those at the top. Something like the double truth doctrine also holds for neoliberal theories of democracy, as we shall shortly discover. It also holds for the notion of a “constructivist” approach to social reality.

Contrary to the claims of our Wiki-workers, when the early MPS members cast about for a label to attach to the as-yet amorphous doctrine they had set out to construct, more often than not they did resort to the term neoliberalism in the early years of its existence. In French, the term was being used by the circles around the participants in the Colloque Walter Lippmann in the 1930s. Milton Friedman even used the term in the title of an early survey of the efforts of his comrades (1951). What has led so many subsequent commentators astray is the fact that most MPS members stopped using the term some time in the later 1950s. Indeed, at that juncture they ceased insisting that a rupture with the doctrines of classical liberalism was called for. This decision to support a public stance that the liberalism they championed was an effectively continuous political doctrine from the eighteenth century all the way through to their own revisionist meditations (such as endless paeans that it was all in Adam Smith) and therefore required no special neologism, turned out to be one of a number of precarious balancing acts performed in the course of constructing neoliberalism at the MPS.

Consequently, in this volume we made use of the Mont Pèlerin Society network of organized neoliberal intellectuals and closely related roster of neoliberal partisan think tanks as our Rosetta Stone, a handy detection device to identify the relevant actors, and their linkages to other organizations and institutions. At least until the 1980s—when the advance of neoliberal ideas led to a rapid multiplication of pretenders to the title of progenitors of neoliberalism—the MPS network can be safely used as cipher to decode with sufficient precision the neoliberal thought style in the era of its genesis.

This also tended to foster the impression of those “spontaneous orders” so beloved by the neoliberals, although they were frequently nothing of the sort. Yet the loose coupling defeated most attempts to paint the thought collective as a strict conspiracy.

The MPS construction of neoliberalism was anchored by a variety of mainly European and American roots; encompassed a variety of economic, political, and social schools of thought; and maintained a floating transnational agora for debating solutions to perceived problems and a flexible canopy tailored with an eye to accommodating existing relations of power in academia, politics, and society at large. The unusual structure of the thought collective helps explain why neoliberalism cannot be easily defined on a set of 3 by 5 cards and needs to be understood as a pluralist organism striving to distinguish itself from its three primary foes: laissez-faire classical liberalism, social welfare liberalism, and socialism. Contrary to some parochial interests of some corporate captains (including some present in the Mont Pèlerin Society), neoliberal intellectuals understood this general goal to imply a comprehensive long-term reform effort at retatting the entire fabric of society, not excluding the corporate world. The relationship between the neoliberals and capitalists was not merely that of passive apologists or corporate shills. Neoliberals aimed to develop a thoroughgoing reeducation effort for all parties to alter the tenor and meaning of political life: nothing more, nothing less. Neoliberal intellectuals identified their targets, which, in Fabian tradition, had been described as elite civil society. Their efforts were aimed primarily at winning over intellectuals and opinion leaders of future generations, and their primary tool was redefining the place of knowledge in society, which also became the central theme in their theoretical tradition.

But what to the politicians are fixed limits of practicability imposed by public opinion must not be similar limits to us. Public opinion on these matters is the work of men like ourselves . . . who have created the political climate in which the politicians of our time must move. . . . I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. (Quoted in Cockett 1995, 112) One might have added, how much more powerful are ideas consciously forged with the vested interest firmly kept in mind!

One might have added, how much more powerful are ideas consciously forged with the vested interest firmly kept in mind! Not without admiration, we have to concede that neoliberal intellectuals struggled through to a deeper understanding of the political and organizational character of modern knowledge and science than did their opponents, and therefore present a worthy contemporary challenge to everyone interested in the history of science and the archaeology of knowledge.

Although the role of national institutions is indispensable in explaining the advance (or retardation) of specific doctrines across countries, as Peter Hall's (1989) book on Keynesianism has shown, the origins and the advance of neoliberalism cannot be explained without careful consideration of the transnational discourse community created by the founders of the Mont Pèlerin Society. … Whereas leading neoliberals denied any possibility of mere mortals outcompeting the market as processors of highly dispersed knowledge, their own efforts succeeded in constructing and deploying elaborate social machinery designed to collect, create, debate, disseminate, and mobilize neoliberal ideas. By doing so, they greatly advanced the understanding of a modern reengineered division of intellectual labor with proper roles assigned to academic and other professionals, in what amounts to a new technology of persuasion.

The Russian Doll of neoliberal organization was never intended to be transparent; the central core was not supposed to be visible from the think tank perimeter. The way it has evolved over half a century is not very easy to comprehend because neoliberal intellectuals guarded their privacy and prerogatives well. However, both an in-house history (Hartwell 1995) and a critical history (Walpen 2004) have unscrewed the multiple layers to some extent, providing a general overview with regard to the evolution of the neoliberal thought collective.

Neoliberalism is perhaps most tellingly viewed as a sort of caricature of liberalism, where liberal concerns for individual liberty, political equality and human rights have been warped into a purely economic ideology whose concerns lie with the establishment of free markets and in keeping state intervention in such markets at bay. Neoliberalism thus understood is primarily a theory of how the economy ought to be organized, and not a political ideology in the same sense as political liberalism.

Nevertheless, the endeavor here is to provide a concise and necessarily incomplete characterization of the temporary configuration of doctrines that the thought collective had arrived at by roughly the 1980s. It transgresses disciplinary boundaries in precisely the ways the neoliberals have done.

The starting point of neoliberalism is the admission, contrary to classical liberal doctrine, that their vision of the good society will triumph only if it becomes reconciled to the fact that the conditions for its existence must be constructed and will not come about “naturally” in the absence of concerted political effort and organization. As Foucault presciently observed in 1978 (2004, 137), “Neoliberalism should not be confused with the slogan 'laissez-faire,' but on the contrary, should be regarded as a call to vigilance, to activism, to perpetual interventions” [our translation]. The injunction to act in the face of inadequate epistemic warrant is the very soul of “constructivism,” an orientation shared (curiously enough) with the field of science studies. Classical liberalism and Burkean conservatism, by contrast, disavowed this precept. The fact that during one phase of his career Hayek railed against something he called “constructivism” should not obscure this important fact.

This assertion of a constructivist orientation raises the pressing issue of just what sort of ontological entity the neoliberal market is, or should be. While one wing (the Chicago School) has made its name attempting to reconcile one idiosyncratic version of neoclassical economic theory (which predates neoliberalism by more than a half-century) with this “nonnatural” orientation, other subsets of MPS have innovated entirely different characterizations of the market. The Misean wing of Austrian economics attempted to ground the market in a purely rationalist version of natural necessity. Perhaps the dominant version at MPS emanated from Hayek himself, wherein “the market” is posited to be an information processor more powerful than any human brain, but essentially patterned on brain/computation metaphors. This version of the market is most intimately predicated on the epistemic doctrines covered above, which in the interim have become the philosophical position most closely associated with the neoliberal Weltanschauung. From this perspective, prices in an efficient market “contain all relevant information” and therefore cannot be predicted by mere mortals. In this version, the market always surpasses the state’s ability to process information, and this constitutes the kernel of the argument for the necessary failure of socialism. Another partially rival approach emanates from ordoliberalism, which argues that competition in a well-functioning market needs to be directly organized by the state. It is important to see that part of the function of MPS discussions was to explore whether these rather divergent visions of the market might nevertheless lead to more or less identical programs for state intervention in creating and sustaining a market society.

Even though the market is not treated as existing independently of the social and cultural framework, and there was no consensus on just what sort of animal the market “really” is, the neoliberals did agree that for purposes of public understanding and sloganeering, market society must be treated as a “natural” and inexorable state of humankind. What this meant in practice is that natural science metaphors must be integrated into the neoliberal narrative. It is noteworthy that MPS members began to explore the portrayal of the market as an evolutionary phenomenon long before biology displaced physics as the premier science in the modern world-picture. If the market was just an information processor, so too was the gene in its ecological niche. Because of this early commitment, neoliberalism was able to make appreciable inroads into such areas as evolutionary psychology, network sociology, ecology, animal ethology, linguistics, cybernetics, and even science studies.

4. A primary ambition of the neoliberal project is to redefine the shape and functions of the state, not to destroy it. Neoliberals thus maintain an uneasy and troubled alliance with their sometimes fellow travelers, the anarchists and libertarians. The contradiction that the neoliberals constantly struggle against is that a strong state can just as easily thwart their program as implement it; hence, they are inclined to explore new formats of techno-managerial governance that protect their ideal market from what they perceive as unwarranted political interference. Considerable efforts have been developed to disguise or otherwise condone in rhetoric and practice the importance of the strong state that neoliberals endorse in theory. One implication is that democracy, ambivalently endorsed as the appropriate state framework for an ideal market, must in any case be kept relatively impotent, so that citizen initiatives rarely change much of anything (“constrained” democracy instead of the allegedly existing “unconstrained democracy”). Hence, the neoliberals seek to restructure the state with numerous audit devices (under the sign of “accountability”) or better yet, convert state services to be provided on a contractual basis. One should not confuse marketization of government functions with shrinking the state, however: if anything, bureaucracies become more unwieldy under neoliberal regimes. In practice, “deregulation” cashes out as “re-regulation,” only under a different set of ukases.

5. Skepticism about the lack of control of democracy is offset by the persistent need to provide a reliable source of popular legitimacy for the neoliberal market state. Neoliberals seek to transcend the intolerable contradiction by treating politics as if it were a market and promoting an economic theory of democracy. In its most advanced manifestation, there is no separate content of the notion of citizenship other than as customer of state services. This supports the application of neoclassical economic models to previously political topics; but it also explains why the neoliberal movement must seek to consolidate political power by operating from within the state. (This is the topic of our final section.) The spread of market relations is inevitably spearheaded by state actors. The abstract rule of law is frequently conflated with or subordinated to conformity to the neoliberal vision of an ideal market. The “night-watchman” version of the state is thus comprehensively repudiated: there is no separate sphere of the market, fenced off, as it were, from the sphere of civil society. Everything is fair game for marketization.

Neoliberals extol freedom as trumping all other virtues; but the definition of freedom is recoded and heavily edited within their framework. Some members of the neoliberal thought collective (e.g., Friedman) refuse to define it altogether, while others (Hayek) forge links to thesis 2. by motivating it as an epistemic virtue (Hayek 1960, 81). In practice, Freedom is not the realization of any political, human, or cultural telos, but rather is the positing of autonomous self-governed individuals, all coming naturally equipped with a neoclassical version of rationality and motives of ineffable self-interest, striving to improve their lot in life by engaging in market exchange. Education is consequently a consumer good, not a life-transforming experience. Foucault is often strongest on the role of these “technologies of the self,” which involve an elaborate revision in cultural concepts of human freedom and morality. This argument broke out within the MPS in the 1970s, with Irving Kristol accusing Friedman and Hayek of depending on a version of self-realization as the great empty void at the center of their economic doctrines. Freedom can only be “negative” for neoliberals (in the sense of Isaiah Berlin) for one very important reason. Freedom cannot be extended from the use of knowledge in society to the use of knowledge about society, because self-examination concerning why one passively accepts local and incomplete knowledge leads to contemplation of how market signals create some forms of knowledge and squelch others.

Neoliberals begin with a presumption that capital has a natural right to flow freely across national boundaries. (The free flow of labor enjoys no similar right.) Since that entails persistent balance-of-payments problems in a nonautarkic world, neoliberals took the lead in inventing all manner of transnational devices for the economic and political discipline of nation-states. They began by attempting to reintroduce pure market discipline (through flexible exchange rates, dismantling capital controls), but over the longer term learned to appreciate that suitably staffed international institutions like the World Trade Organization, the World Bank, and the IMF are better situated to impose neoliberal policies on recalcitrant nation-states. Initially strident neoliberal demands to abolish global financial institutions were tempered once the neoliberals used them primarily to influence staffing and policy decisions at those institutions, and thus to displace other internationalist agendas. Thus, it is substantially correct to observe an organic connection between such phenomena as the Washington Consensus and the spread of neoliberal hegemony (see Plehwe in the Introduction to this volume).

Neoliberals see pronounced inequality of economic resources and political rights not as an unfortunate by-product of capitalism, but as a necessary functional characteristic of their ideal market system. Inequality is not only the natural state of market economies, but it is actually one of its strongest motor forces for progress. Hence the rich are not parasites, but (conveniently) a boon to humankind. People should be encouraged to envy and emulate the rich. Demands for equality are merely the sour grapes of the losers, or at minimum, the atavistic holdovers of old images of justice that must be extirpated from the modern mindset. As Hayek wrote, "the market order does not bring about any close correspondence between subjective merit or individual needs and rewards" (1967, 172). The vast worldwide trend toward concentration of incomes and wealth since the 1990s is therefore the playing out of a neoliberal script.

By the 1970s, antitrust policies were generally repudiated in America. Neoliberals took the curious anomaly in American case law, treating corporations as legal individuals (Nace 2003), and tended to inflate it into a philosophical axiom. Indeed, if anything negative was ever said about the large corporation, it was that separation of ownership from control might conceivably pose a problem, but this was easily rectified by giving CEOs appropriate incentives (massive stock options, golden handshakes, latitude beyond any oversight) and instituting market-like evaluation systems within the corporate bureaucracy. Thus the modern reengineering of the corporation (reduced vertical integration, outsourcing supply chains, outrageous recompense for top officers) is itself an artifact of the neoliberal reconceptualization of the corporation.

Corporations can do no wrong, or at least they are not to be blamed if they do. This is one of the strongest areas of divergence from classical liberalism, with its ingrained suspicion of joint-stock companies and monopoly stretching from Adam Smith to Henry Simons. In the 1950s, the MPS set out entertaining suspicions of corporate power, with the ordoliberals especially concerned with the promotion of a strong antitrust capacity on the part of the state. But starting with the Chicago law and economics movement (see Van Horn, Chapter 6 in this volume) and then progressively spreading to treatments of entrepreneurs and the "markets for innovation," neoliberals began to argue consistently that not only was monopoly not harmful to the operation of the market, but in any event, it was an epiphenomenon attributable to the misguided activities of the state and interest groups.

The market (suitably reengineered and promoted) can always provide solutions to problems seemingly caused by the market in the first place. This is the ultimate destination of the constructivist orientation within neoliberalism. Any problem, economic or otherwise, has a market solution, given sufficient ingenuity: pollution is abated by the trading of emissions permits; inadequate public education is rectified by vouchers; auctions can adequately structure communication channels (Nik-Khah 2008); poverty-stricken sick people lacking access to healthcare can be incentivized to serve as guinea pigs for clinical drug trials; financial crisis can be rectified by the government auctioning off “toxic assets”; McCarthyism was thwarted by competition between employers (Friedman 1962, 20); terrorism by disgruntled disenfranchised foreigners can be offset by a “futures market in terrorist acts.”

Yet the neoliberals were often tone-deaf when it came to the transcendental, conflating it with their epistemic doctrines concerning human frailty: “we must preserve that indispensable matrix of the uncontrolled and non-rational which is the only environment wherein reason can grow and operate effectively” (Hayek 1960, 69).

The neoliberals have struggled from the outset to make their political/economic theories do dual service as a moral code. First and foremost, the thought collective worshiped at the altar of a God without restraints: “individual freedom, which it is most appropriate to regard as a moral principle of political action. Like all moral principles, it demands that it be accepted as a value in itself” (Hayek 1960, 68). However, Hayek in his original address to the first MPS meeting said, “I am convinced that unless the breach between true liberal and religious convictions can be healed, there is no hope for a revival of liberal forces” (1967, 155). The very first MPS meeting held a session on “Liberalism and Christianity” (Hartwell 1995, 47).

Like all really powerful political movements, neoliberalism attempts to reconcile any number of implacable antinomies by repeatedly squaring the circle. This goes some distance in explaining why, by the late 1950s, the neoliberal thought collective abruptly stopped asserting they were engaged in the construction of a “new liberalism” and subsequently suppressed all notions of a rupture with previous classical liberal doctrines, contrary to all evidence.

[T]he road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism. . . . Administrators had to be constantly on the watch to ensure the free working of the system. Thus even those who wished most ardently to free the state from all unnecessary duties, and whose whole philosophy demanded the restriction of state activities, could not but entrust the state with new powers, organs and instruments required for the establishment of laissez faire. (1957, 140) By the later 1980s, when the MPS members began to smell the tang of victory, they felt free to internally discuss an irony that they could not freely admit out at the nether layers of their Russian Doll: Among our members, there are some who are able to imagine a viable society without a state.

Apparently, one could reconcile oneself to live in a world where quantitatively more state apparat abided with quantitatively less slavery (or serfdom), which should quell the rather naive hand-wringing one sometimes encounters, complaining that a quarter-century of neoliberal ascendancy has done little to reduce the size of the state, no matter how you choose to measure it (Prasad 2006, 7–12).

Neoliberals tamed many of the contending contradictory conceptions by trying to have it both ways: to warn of the perils of expanding the purview of state activity while simultaneously imagining the strong state of their liking rendered harmless through some instrumentality of “natural” regulation; to posit the free market as an ideal generator and a conveyor belt of information while simultaneously prosecuting a “war of ideas” on the ground strenuously and ruthlessly (Blundell 2003); asserting that their program would lead to unfettered economic growth and enhanced human welfare while simultaneously suggesting that no human mind could ever really know any such thing, and therefore that it was illegitimate to justify their program by its consequences (Shearmur 1996); to portray the market as the ne plus ultra of all human institutions, while simultaneously suggesting that the market is in itself insufficient to attain and nourish the transeconomic values of a political, social, religious and cultural character (Megay 1970). “Neoliberal writings on allocation shift back and forth between libertarian and utilitarian vocabularies, with the two sometimes appearing interchangeably within a paper or chapter” (Oliver 1960).

Perhaps the greatest incongruity of the neoliberal thought collective has been that the avatars of freedom drew one of their most telling innovations from the critique of liberalism that had been mounted by totalitarian German and Italian political thinkers from the interwar period. Although a fair number of such writers were important for the European MPS members, the one that comes up time and again in their footnotes was the figure whom Hayek called, "Adolf Hitler's crown jurist Carl Schmitt, who consistently advocated the replacement of the 'normative' thinking of liberal law by a conception of law which regards as its purpose 'concrete order formation'" (1967, 169). It is a watchword among those familiar with the German literature (Christi 1984, 532; Scheuerman 1999, chapter 8) that Hayek reprises much of Schmitt's thesis that liberalism and democracy should be regarded as antithetical: Liberalism and democracy, although compatible, are not the same .

Liberalism and democracy, although compatible, are not the same . . . the opposite of liberalism is totalitarianism, while the opposite of democracy is authoritarianism. In consequence, it is at least possible in principle that a democratic government may be totalitarian and that an authoritarian government may act on liberal principles . . . [in] demanding unlimited power of the majority, [democracies] become essentially anti-liberal (1967, 161).

Since the epistemic innovations covered in our first section informed the MPS thought collective that the masses will never understand the true architecture of social order, and intellectuals will continue to tempt them to intervene and otherwise muck up the market, they felt impelled to propound the central tenet of neoliberalism—that is, that a strong state was necessary to neutralize what he considered to be the pathologies of democracy. The notion of freedom as exercise of personal participation in political decisions was roundly denounced (Hayek 1960, 13): you cannot activate your species being by participation in the polis. Hayek insisted that his central epistemic doctrines about knowledge dictated that freedom must feel elusive for the common man: “Man in a complex society can have no choice but between adjusting himself to what to him must seem the blind forces of the social process and obeying the orders of a superior” (1972, 24). Paraphrasing Walter Benjamin, citizens must learn to forget about their “rights” and instead be given the opportunity to express themselves through the greatest information conveyance device known to humankind, the market. This was not the night watchman state of the classical liberals; this was light-years from John Stuart Mill. The neoliberal thought collective, through the instrumentality of the strong state, sought to define and institute the types of markets that they (and not the citizenry) were convinced were the most advanced. In this contention, they were merely echoing Schmitt’s position that “only a strong state can preserve and enhance a free-market economy” and “only a strong state can generate genuine decentralization, [and] bring about free and autonomous domains” (quoted in Cristi 1998, 31, 34n7). This notion was echoed (without attribution) by Hayek: “If we proceeded on the assumption that only the exercises of freedom that the majority will practice are important, we would be certain to create a stagnant society with all the characteristics of unfreedom” (Hayek 1960, 32).

One can therefore only second the verdict of Cristi that, “In truth, Hayek owed much to Schmitt, more than he cared to recognize” (1998, 23). For Hayek and the neoliberals, the Führer was replaced by the figure of the entrepreneur, the embodiment of the will-to-power for the community, who must be permitted to act without being brought to rational account. While Hayek probably believed that he was personally defending liberalism from Schmitt’s withering critique, his own political solution ended up resembling Schmitt’s “total state” far more than he cared to admit.

In an interesting development that Schmitt did not anticipate, Hayek hit upon the brilliant notion of developing the “double truth” doctrine of neoliberalism—namely, an elite would be tutored to understand the deliciously transgressive Schmittian necessity of repressing democracy, while the masses would be regaled with ripping tales of “rolling back the nanny state” and being set “free to choose”—by convening a closed Leninist organization of counter-intellectuals.

Let’s be clear, I don’t believe in democracy in one sense. You don’t believe in democracy. Nobody believes in democracy. You will find it hard to find anybody who will say that if, that is democracy interpreted as majority rule. You will find it hard to find anybody who will say that at 55% of the people believe the other 45% of the people should be shot. That’s an appropriate exercise of democracy. . . . What I believe is not a democracy but an individual freedom in a society in which individuals cooperate with one another.

Christian Arnsperger (2007) has captured the double truth doctrine nicely by insisting that Hayek had denied to others the very thing that gave his own life meaning: the imprimatur to theorize about society as a whole, to personally claim to understand the meaning and purpose of human evolution, and the capacity to impose his vision upon them through a political project verging on totalitarianism. It was, as Arnsperger puts it, a theory to end all theories; not so different from the end of history scenarios so beloved of his epigones. The doctrine of special dispensation for the Elect is a very powerful source of ongoing attraction of neoliberalism for a certain type of person, the feeling of having surrendered to the wisdom of the market by coming to know something most of the nattering crowd can’t possibly glimpse: freedom itself must be as unequally distributed as the riches of the marketplace.

One notorious incarnation of the neoliberal double truth doctrine was the participation of numerous MPS members and affiliates in the coup that toppled the elected government of Salvador Allende in Chile in 1973. Milton Friedman spends a good chunk of his autobiography attempting to excuse and explain his actions away; afterward Hayek was also pilloried for his role. It was all just an unfortunate set of exceptional events, they intoned; it was not our fault. But Carl Schmitt taught that sovereignty is defined as the ability to determine the exceptions to the rule of law: “Sovereign is he who decides the state of emergency”; deploying the double truth doctrine in Chile showed that the neoliberals had arrogated sovereignty to themselves.

HAYEK: “Evidently dictatorships pose grave dangers. But a dictatorship may limit itself (se puede autolimitar), and if self-limited it may be more liberal in its policies than a democratic assembly that knows of no limitations. I must admit that it is not very probable that this may happen, but even so, in a given moment, it may be the only hope. Not a sure hope because it may always depend on the good will of an individual and one can trust in very few individuals. But if it is the only opportunity in a given moment, it may be the best solution in spite of all. But only if the dictatorial government visibly leads to a limited democracy."

In the same interview, Hayek is reported to have said: “Democracy has a task which I call ‘hygienic,’ for it assures that political processes are conducted in a sanitary fashion. It is not an end in itself. It is a rule of procedure whose aim is to promote freedom. But in no way can it be seen in the same rank as freedom. Freedom requires democracy, but I would prefer temporarily to sacrifice, I repeat temporarily, democracy, before having to do without freedom, even if temporarily.”

These are excerpts from a website last visited October 23, 2006, and are very heavily edited down from a much larger and even more rambling set of texts. Some interesting discussion of the pros and cons of Wikipedia as a source of information are Read (2006); Poe (2006); Scott (2006); and Keen (2007).

But things are getting better of late. Naomi Klein (2007) manages to identify some of the key doctrines, especially when she quotes the German political theorist Carl Schmitt: "Sovereign is he who decides the state of emergency" (p. 131).

Just so we don't lose sight of Mont Pèlerin here, it is striking to observe that the German neoliberal Wilhelm Röpke made essentially the same observation about that organization forty-five years earlier: "To me, there is something so regrettable that verges on the crudely humorous, that a Society organized to further the search for the principles of a voluntary society of free men, should become rocked to its very roots by a contest for power" (quoted in Hartwell 1995, 123).

There is an important conceptual distinction to be made here, brought to my attention by John O'Neill. Hayek himself almost never treated knowledge as a "thing," but instead rather as tacit, local, and embodied—rather similar to the way in which Michael Polanyi described science.

Hayek himself almost never treated knowledge as a "thing," but instead rather as tacit, local, and embodied—rather similar to the way in which Michael Polanyi described science. However, in order to render this proposition coherent with a number of other tenets later developed in the neoliberal thought collective, many subsequent neoliberals found it convenient to recast knowledge as more resembling a thing-like commodity, if only to have it resonate more closely with developments in the natural sciences and economics.

Hayek (1960, 134). As with so much else in Hayek's oeuvre, Carl Schmitt got there first: "Thus the political concept of battle in liberal thought becomes competition in the domain of economics and discussion in the intellectual realm" (2007, 71).

Attacks on “intellectuals” were a common refrain in the history of Mont Pèlerin and were not restricted to Hayek. See, for instance, Hartwell (1995, 161); Friedman (1962, 8). But of course the neoliberals don’t renounce all expertise—just the stuff they don’t like, as explained in this chapter, and in Mirowski (2007; Forthcoming b).

One of the more serious texts to recently commit this error is Thorsen and Lie (2006). James Buchanan clarified the place of economics within the MPS in his presidential address to the 1984 Cambridge meeting: “Professionally, economists have dominated the membership of the Society from its founding, but the whole thrust of the Society, as initially expressed in its founding documents, has been toward elaborating the philosophical ideas without which a free society cannot exist. That is to say, political philosophy is what this Society has been, is, and ought to be all about.

This practice was first advocated in Plehwe and Walpen (2006). One should compare this device to other attempts to define neoliberalism, such as those found in Soederberg, Menz, and Cerny (2005); Cerny (2008); Robison (2006); Boas and Gans-Morse (2006); and Castree (2008) to see how it is necessary to go beyond the ineffectual observation that the neoliberals are “fractured” or otherwise diverse.

See the letter from Smedley to Antony Fisher dated June 25, 1956, quoted in Cockett (1995, 131): “[I]t is imperative we should give no indication in our literature that we are working to educate the Public along certain lines which might be interpreted as having political bias. . . . it might enable our enemies to question the charitableness of our motives.”

"Despite the waste of . . . possibly one billion dollars in endowing chairs of free enterprise, we have been winning in economics for some time now. We have also done well in law, philosophy and political science. . . . History, moral philosophy and literature are a different matter" (Blundell 2003, 44).

Neoliberals tend to perceive democracy as desirable only insofar as democratic institutions encourage the development of the economic system they advocate … We elaborate on this tension in the next section.

The constant bewailing of the size of government as a win-win situation for neoliberals: they complain about recent growth of government, which they have themselves fostered, use the outrage they fan to "privatize" more functions, which only leads to more spending and a more intrusive infrastructure of government operations.

"And what if the 'self' that is 'realized' under the conditions of liberal capitalism is a self that despises liberal capitalism, and uses its liberty to subvert and abolish a free society? To this question, Hayek—like Friedman—has no answer."

This happened even though Hayek himself opposed strengthened intellectual property at various points in his career, and further, did not think all knowledge could be comprehensively articulated.

Interestingly, here is where Hayek rejected the maximization of utility as the standard equilibrium concept in neoclassical economic theory. Markets don’t maximize happiness; rather, “the use of the market mechanism brings more of the dispersed knowledge of society into play than by any other [method]” (1967, 174).

Hayek’s frequent appeals to a “spontaneous order” often masked the fact that it was neoliberal theorists who were claiming the power to exercise the Schmittian “exception” (and hence constitute the sovereignty of the state) by defining things such as property rights, the extent of the franchise, constitutional provisions that limit citizen initiatives. As Scheuerman (1999, 216) writes about the comparison to Hayek, “For Carl Schmitt, the real question is who intervenes, and whose interests are to be served by intervention.”