Mont Pelerin Society

Jones outlines how, after the catastrophes of World War II, Friedrich Hayek convened a group of intellectuals to combat the trend of increasing government intervention in the United Kingdom and the United States and "develop an organizational and intellectual strategy" to "defend the core tenets of...the freedom of the individual."^[3]: 30 This group called itself the Mont Pelerin Society, after the venue of its first meeting in Vevey, Switzerland.^[4] The society set out to develop a neoliberal alternative to, on the one hand, the laissez-faire economic consensus that had collapsed with the Great Depression and, on the other, New Deal liberalism and British social democracy, collectivist trends which they believed posed a threat to individual freedom.^[3]: 33 A distinct neoliberal worldview, Jones contends, emerged "on the foundations of the critique of New Deal liberalism and social democracy" developed by the intellectuals of the Society.^[3]: 85

Jones finds three Mont Pelerin individuals particularly influential: Karl Popper, Ludwig von Mises, and Friedrich Hayek.^[3]: 33 Popper, in his book The Open Society and its Enemies, criticized thinkers from Plato to Karl Marx for valuing the collective over the individual and derided teleological historicism (a theory which holds that history unfolds inexorably according to universal laws) as a threat to individualism—which he believed underpins Western civilization—because it reduces the individual to "a cog in the machine" of history and empowers governments to engage in the sorts of "Utopian engineering" that has motivated communists, socialists, and Nazis.^{[3]: 37–49} Mises, in his book Bureaucracy, argued the superiority of the private market motivated by profit over the bureaucratic management inherent in government.^{[3]: 49–57} Hayek, in his book The Road to Serfdom, argued effective central planning was impossible because no individual or group could ever possess the requisite knowledge to direct the economic activity of millions of people.^{[3]: 57–73}

The early Mont Pelerin Society, Jones notes, had little effect on political policy. Instead, it acted as "a siren call, a warning about the tragic possibilities of moving in the direction" of greater collectivist government intervention "which Western politics, economy, and society seemed to be moving."^[3]: 84 Importantly, Jones argues it helped to "create a transatlantic neoliberal network that would...combat the New Deal and social-democratic political establishments in Britain and the United States", "combat the forces of collectivism", and refine neoliberal thought into a workable set of policies.^[3]: 32

Academic thought

According to Jones: "After 1945, a distinct neoliberal worldview was built on the foundations of the critique of New Deal liberalism and social democracy synthesized in the writings of Ludwig von Mises, Friedrich Hayek, and Karl Popper...Its main tenets—philosophical, political, and economic—were worked out in detail by scholars such as Milton Friedman, George Stigler, Gary Becker, James Buchanan, and Gordon Tullock, as well as Hayek and Mises."^[3]: 85

Jones asserts that the Chicago school of economics, of which Friedman and Stigler were a part, was "perhaps the most influential group in terms of the development of transatlantic neoliberal politics".^[3]: 89 In the 1950s, 1960s, and 1970s Chicago economists published influential works arguing for free market policies and extending free market analyses into new regions (e.g. law and regulation). They painted a hostile portrait of trade unions and presented monopolies as mostly benign.^{[3]: 92–93}

The theories of regulatory capture, public choice theory, and rational choice theory all became influential to neoliberal thought, according to Jones, because they connected the market to politics and the public sector, and helped the neoliberal view of free markets seep into mainstream public and political consciousness.^{[3]: 126–133} The economist George Stigler argued that government regulatory bodies often become captured by private industry, so that these bodies act in the interests of private corporations rather than in the public's interest—a notion known as "regulatory capture". James Buchanan and Gordon Tullock, considered the "fathers of public choice theory", emphasized the imperfections of political institutions and constitutional mechanisms, and argued voters have a tendency to vote their own interest rather than in the public interest.

Milton Friedman and monetarism

Milton Friedman became a leading figure of neoliberal thought and a prominent public intellectual in the 1950s. An American, Friedman was less influenced by the effects of World War II and more by the subsequent Cold War between the United States and the Soviet Union. Jones argues that for neoliberals "the Cold War necessitated the unambiguous advocacy of the superiority of the market", and Friedman framed the "war of ideas" between socialism and free-market capitalism as a "life-or-death struggle."^{[3]: 101, 120}

Jones argues that "Friedman's significant contribution to neoliberal thought was his connection of economic freedom with political freedom", which he made in his popular book Capitalism and Freedom (which Jones describes as the "American Road to Serfdom").^[3]: 116 Friedman argued that free markets and liberal democracy are inseparable, that the market guarantees basic political freedoms by ensuring that alternatives are always available (e.g. alternative employment options or alternative goods), guarantees equality by divorcing economic activities from anything unrelated to an individual's productivity, and protects dissent by separating economic power (i.e. the ability to make money) from political power (in other words, politicians cannot deprive an individual of employment if they express political dissent).^{[3]: 117, 121} Friedman consistently pointed out his view that "increases in economic freedom have gone hand in hand with increases in political and civil freedom and have led to increased prosperity; competitive capitalism and freedom have become inseparable", and pointed to countries like China under Deng Xiaoping and Chile to justify this.^[3]: 121

Jones notes that Friedman was a harsh critic of government intervention in the economy. A key point of Capitalism and Freedom, according to Jones, was outlining government failure, including in the areas of railroad regulation, labor law, monetary reform, agriculture, public housing, social security legislation, foreign aid, urban redevelopment, and income tax.^[3]: 118 In A Monetary History of the United States, Friedman blamed the Great Depression on overly tight monetary policy by the Federal Reserve.^[3]: 202 Friedman linked New Deal liberalism with socialism and communism, while he considered his own ideas as a part of the classical liberal family.^[3]: 119

Friedman's development of the macroeconomic theory of monetarism was particularly influential to neoliberalism. Jones argues that the Keynesian consensus that had dominated political thought in the United States and United Kingdom for decades had prioritized low unemployment over inflation. In contrast, by the 1950s neoliberal thinkers began to emphasize inflation.^[3]: 193 Friedman ultimately developed monetarism, a macroeconomic theory dealing with inflation and the supply of money that suggested that the Keynesian view that government can achieve full employment at the cost of limited inflation was incorrect and would lead to higher inflation in the long run.^[3]: 207 Friedman argued that governments and central banks, rather than focusing on employment, should focus on ensuring a constant and predictable level of monetary growth.^[3]: 207 Jones describes monetarism as "the most consistent, systematic, and significant alternative economic strategy to Keynesian demand management and fine-tuning".^[3]: 201 This, according to Jones, primed neoliberal theory for political acceptance in the United States and United Kingdom, who would experience persistent stagflation during the 1970s. Jones sums it up as such: "Friedman's monetarist analysis and market solutions grabbed people's attention as a ready-made and plausible alternative strategy [to Keynesianism] when the economy began to unravel [in the 1970s] under the weight of stagflation".^[3]: 212

Think tanks

In Britain and the United States, the neoliberal right built a "dazzling array of think tanks", which became the preferred vehicle of neoliberal thinkers.^[3]: 336 Notable among these, according to Jones, were the American Enterprise Institute, the Foundation for Economic Education, the Institute of Economic Affairs, The Heritage Foundation, the Cato Institute, the Adam Smith Institute, and a group of think tanks emanating out of the Atlas Foundation, including the Fraser Institute, the Fisher Institute, and the Manhattan Institute.^[3]: 134 These think tanks brought politicians and businesspeople into contact with neoliberal ideas and thinkers and raised the public profile of free-market policies. In particular, the Heritage Foundation had a significant influence on US president Ronald Reagan—claiming on its website that nearly two-thirds of the proposals they suggested to him in their policy guide Mandate for Leadership were implemented^[6]—while the Adam Smith Institute had appreciable sway with the Thatcher government. Jones notes that many of these institutes were funded by wealthy businessmen, such as Charles Koch and Joseph Coors.^{[3]: 163–164}

Relation to conservatism

Free market economics has been associated with the political right, but Jones emphasizes that it is "but one branch" of it.^[3]: 138 In the United States, he argues that the right had a number of often-competing interests (principally traditionalism, anticommunism, and neoliberalism), but the "distinctive feature of the conservative revival in the 1950s and 1960s was the ability of its disparate elements to unite under the banners of anticommunism and states' rights"—a union that became known as "fusionism".^[3]: 140 This union, which Jones largely credits William F. Buckley Jr. for achieving, led to the growth of a conservative establishment that would, after decades of decline, rival its liberal opponents. This "pave[d] the way for the later electoral successes of Ronald Reagan", which would usher in neoliberal policies.^[3]: 146

Jimmy Carter and Paul Volcker

Jones argues that the implementation of neoliberal policy in the United States began with US president Jimmy Carter, who Jones notes had been strongly influenced by neoliberal economist George Stigler.^[3]: 249 During the Carter presidency (1977–1981) the airline, trucking, and financial industries were deregulated.^[3]: 249

Jones suggests that "perhaps the single most important economic policy decision made by Carter was his appointment of Paul Volcker in August 1979 to replace [George William] Miller as chairman of the Federal Reserve".^[3]: 250 Volcker aggressively and successfully targeted inflation by raising interest rates,^[7] bringing inflation down from a high point of nearly 15% in 1980 to 3%.^{[3]: 252 [8]}

Ronald Reagan

In 1981, Ronald Reagan became president of the United States.^[9] Jones argues that the Reagan administration "followed neoliberal principles influenced particularly by the ideas of Friedrich Hayek, Milton Friedman, George Stigler, and Pat Buchanan".^[3]: 263 This can be seen in the four policy proposals Jones argues Reagan prioritized:^[3]: 263

1. Increased deregulation and market liberalization
2. Tighter control of the money supply
3. Tax cuts
4. Cuts to public spending

The administration lifted economic controls on oil, busted the air traffic controller's union and fired all the striking workers (in the United States most air traffic controllers are employed by the federal government^[10]), and implemented significant tax cuts, including reducing the top marginal tax rate from 70% to 28%.^{[3]: 263 [11]} Jones argues that Reagan's tax cuts were motivated by arguments including the philosophy of limited government promoted by Friedman and other neoliberals; the idea developed by economist Arthur Laffer that tax revenue would increase as tax rates dropped because, as Jones summarized Laffer's argument, "more people would pay taxes and fewer would attempt tax avoidance"; and the belief that lower taxes lead to increased investment by the wealthy, which boosts economic growth and thereby benefits all members of society (a belief that would become known as trickle-down economics).^[3]: 263

Margaret Thatcher

Margaret Thatcher became Prime Minister of the United Kingdom in 1979,^[12] ushering in a broad range of supply-side reforms and monetarist macroeconomic policies.^[3]: 263 Jones contends that "the key early battle for the Conservative government had been driving through a tough slew of measures to bring the deficit under control and create the conditions for economic recovery in the famous budget of 1981".^{[3]: 260–261} The government combined budget cuts with a "reorientation of the tax system to provide greater incentives for entrepreneurship".^[3]: 261

Monetarist policy had first been introduced by the Callaghan Labour government, which had instituted monetary targets and cash limits.^[3]: 242 Monetarist policy was continued under the Thatcher government. Jones places "the major differences, and the real departure in economic terms, between the Callaghan government and the Conservatives lay in their radicalization of microeconomic policy through various market-based supply-side reforms and their importation of market mechanisms into public service provision".^[3]: 262

Effects

Jones believes that the "neoliberal contribution to the political changes of the last third of the twentieth century in Britain and the United States have been massive", and includes not only the considerable reforms that Reagan and Thatcher implemented but also the effects neoliberalism had on introducing "a new economic policy framework...[that] governed the policies and ambitions of Bill Clinton, Tony Blair, Gordon Brown, and Barack Obama".^[3]: 271 Neoliberalism resulted in a "broad breakdown of the characteristic mid-twentieth century belief in the efficacy and moral superiority of government and collective action" in favor of a belief in the efficacy of markets.^[3]: 335 Additionally, he notes that neoliberalism was extended into international development and trade through the structural adjustment policies of the International Monetary Fund, the World Bank, and the World Trade Organization, which were dominated by neoliberal economists in the late 20th century.^[3]: 332 He argues that this ultimately had mixed effects:

"Some of the most powerful insights of [neoliberal] thinkers did help to address pressing social and economic issues by increasing homeownership or stabilizing persistently high inflation. But such successes were not so numerous as to make the effect of transatlantic neoliberal politics anything better than ambivalent...neoliberal policies tended to affect the most vulnerable members of society in the harshest ways.^[3]: 338

During the last two decades of the [20th] century, inequality (the gap between rich and poor), poverty, and homelessness all increased. Unemployment seemingly disappeared as a major problem in the immediate postwar years but returned with a vengeance after the 1970s. Inflation...[was] cowed...by the uncompromising policies of central bankers and pliant politicians in the early 1980s. In Britain, unemployment and inflation returned during another deep recession by the time Thatcher was forced from office in October 1990."^[3]: 330

Furthermore, Jones believes that "the most important reason for the [2008] financial crisis was the direct result of neoliberal policies" of financial deregulation.^[3]: 340 He argues that the neoliberal "faith in markets had become divorced from reality", with crisis-level effects.^[3]: 330