The Concept of 'Neoliberalism' in the 21st Century

Neoliberalism can be historically defined as a modified form of liberalism, tending to favour free market capitalism. Neoliberals have often argued that economic freedoms such as less taxes on the rich and less welfare spending will inevitably lead to and secure political freedoms such as the right to freedom of speech. From a perspective like this, it's quite easy to assume that as the world becomes more grounded on the idea of universal human rights, nation states will follow and establish laissez-fairre economic policy as the norm as Francis Fukuyama predicted in his book The End of History and the Last Man (1992). 
This claim is questionable but this blog isn't about whether neoliberalism is actually put in practise but rather about whether neoliberalism as a theory is changing or evolving?

So what is new about neoliberalism at least in the 21st Century? Pierre Dardot and Christian Laval contend in their book The New Way of the World: On Neoliberal Society that it is now more than just a new economic paradigm as just described -- it is a system for transforming the human subject. Rather than a return to classic liberalism, neoliberalism now envisages the modern corporation as a model for government, conjuring a future in which society is nothing other than a web of market-based relations.

Dardot and Laval discuss in their book neoliberalism in many aspects; its historical background, its gradual evolution as a concept as the modern world progresses, the paradox between political democracy and capitalism, how capitalism commodifies human relations (which Marx and Polanyi highlighted in their works) and how personal liberty cannot exist without a state that guarantees its existence. But more importantly it is discussed in the book how the individual is being further commodified into an enterprise. Dardot and Laval back this up by highlighting how classical liberalism has failed to adapt to reality (individuals aren't just 'fictitious commodities'; they have personal lives, ambitions and career goals); Dardot and Laval argue "neoliberalism now isn't a matter of a man never being reduced to the status of a passive object or recognising that a man at work remains a man, but more a matter of viewing him as an active subject who must participate and engage completely in his professional activity". In this view, neoliberals envisage a new world in the future "where individuals should work for enterprises as if they were working for themselves, abolishing any distance between individuals and the enterprises employing them". They go on further to say "the construction of the market, enterprise and money tends to lead to the idea of 'personal enterprise' and this is all made possible by subtle techniques of motivation, incentivisation and stimulation". Moreover, the role of the government is to promote and teach enterprise at all levels. Margaret Thatcher provided a clear formulation of this rationality: "Economics are the method. The object is to change the soul."

What's most interesting about the arguments in this book is the paradox between political democracy and capitalism as they both progress. Political democracy is meant to be based on pluralism, equality and social cohesion between all classes yet critics often argue that capitalism will generally lead to elitism, inequality and rivalry between the social classes. The rise of populism in the recent decade highlights the backlash from a large portion of society against elitism and unfairness as rich people tend to have more influence on public policy then average or poorer people. Even the American linguist, author and political activist Noam Chomsky has highlighted how dangerous neoliberalism as an ideology is to a fair and just democracy.

Quick Questions:
- Is Neoliberalism relevant/pragmatic today?
- Is The New Way of the World: On Neoliberal Society accurate on its claims about how neoliberalism is changing?
- Are you a Neoliberal?

William Davies; Economics and the ‘nonsense’ of law: the case of the Chicago antitrust revolution

Antitrust laws are a collective of federal and state government laws that regulates the conduct and organisation of business corporations, generally to promote fair competition for the benefit of consumers. They are more generally known as competition laws in the UK, and aim to restrict the formation of cartels and prohibit other collusive behaviours and practices. There long standing mantra is that their function is to ‘defend competition not competitors’.  In the US the first antitrust law was passed in 1890 and called the Sherman Act, it originally focused on illegalising restraints on trade as committed by the larger railroad trusts towards small businesses.

In this article Davies, seeks to trace the pre-history and history of the Chicago ‘revolution’ as well as explain the three areas of transformation which lead to an essentially unchallenged authority for neo-classical economic logic in the decision- making procedure of the US antitrust authorities. He suggests these areas to be, 1; the Law and Economic movement in the University of Chicago during the 1930’s, 2; the change in understanding of economic competition and 3; the adoption of the Chicago paradigm by the antitrust authorities, which began in the Supreme Court in the mid-1970’s.

The Chicago school of economics is regarded as part of the neoclassical school of economic thought, however Friedrich von Hayek, who is considered the father of neo-liberalism was considered to unorthodox to be hired by Chicago's economics depepartment but was hired instead by the Law school, in hindsight he considered one of the key figure heads within the school.  As a school they’re known for their willingness to take neo-classical economics into areas it had previously never been, in this case law.

Until the mid-1970’s antitrust policies had been used to pursue various political and moral goals for example the redistribution of wealth or attacking organised crime, but these were abandoned due to the Chicago definition of efficiency being recognised as the only coherent objective regarding maintenance and regulation of the market. The school’s main critique was that the sole goal of antitrust policies should be economic efficiency. Ronald Coases (a lecturer at the school) is once quoted to have jokingly said when speaking about how sick he was of teaching antitrust, “When the prices went up the judges said it was monopoly, when the prices went down, they said it was predatory pricing, and when they stayed the same, they said it was tacit collusion” implying the courts to be making ‘nonsensical’ decisions.

The Chicago University proposed that some actions that were originally seen as anti-competitive could actually promote competition. For example, a monopoly is in the eyes of the antitrust authorities seen as extremely uncompetitive, however it could actually be an outcome of higher efficiency, in that very efficient firms will inevitably outshine the inefficient ones, or according to Schumpeter, a risk taking firm can create a wholly new market, in which they may have a monopoly purely because they are the first firm to enter said market.

The origins of neoliberalism: Ludwig von Mises

The origins of neoliberalism: Ludwig von Mises

Born in 1881, Ludwig von Mises was an Austrian-American economist, well-known for his essay “Economic Calculation in the Socialist Commonwealth”. In this, Mises provides a damning critique of the socialist model in economics in place at the time of writing and challenged socialists to explain how the pricing system would actually work in practice. In a purely socialist state, there is no private ownership of production meaning that all decisions are made by a central planning authority i.e. a government. However, as no prices for capital goods can be obtained in a socialist economy if the government owns the means of production, the government have no market prices to guide them.  Therefore, what can socialist governments use in place of market prices?

Mises argues that without market prices to guide production, no rational economic calculation is possible, meaning that the rational economic planning of socialism leads to economic chaos and mass inefficiency and this thesis demolished the foundations for the case for central planning and rendered socialist economics redundant.

However, Mises’s essay is not just limited to condemning the impracticality of socialist economy.  In Joseph Salerno’s postscript, writes how the essay “provides the rationale for the price system, purely free markets, the security of private property against all encroachments, and sound money”(1) and indeed, Mises points out the nature and necessity of the price system, particularly in terms of value.  According to Mises, each member of society in an economic system of private ownership must participate in two ways; as a consumer and as a producer. As a consumer, the person must establish a scale of valuation for goods ready for use in consumption, and as a producer the person puts goods of a higher order, i.e. capital goods, into such use which produces the greatest return. Thus, all capital goods are valued in accordance with the immediate state of social conditions of production and of social needs, and through these two processes of valuation, a price will be reached.

Consequences of Mises’s essay?

One of the outcomes of “Economic Calculation in the Socialist Commonwealth” is that it triggered the debate of economic calculation which lasted for decades.  The economic calculation problem is a critique of using economic planning, the resource allocating mechanism used in socialist economies, as a substitute for market-based allocation, and is one of the dominant aspects in Mises’s essay.  The essay has also been viewed by some as the cornerstone of classical liberal economics due to its rejection of socialist economics and approval of the price system and free markets, which follows the principles of economic liberalism. Furthermore, Mises’ theory on rational economic calculation influenced many economists, in particular Friedrich Hayek, a student of Mises, who then went on to further develop the economic calculation problem.

In addition, Mises’s theory continues to be relevant, even today, in understanding why government economic intervention does not always achieve results which are beneficial to society.

A look at Ludwig von Mises' Economic Calculation in the Socialist Commonwealth

Ludwig von Mises' Economic Calculation in the Socialist Commonwealth by Alex Liebman

With the fall of the Berlin wall in 1990, and the subsequent fall of the Soviet Union and Eastern European puppet states, the foresight of Luvig Von Mises' "Economic Calculation in the Socialist Commonwealth" still stuns economists to this day. It was an article written in 1920, after the time of the October Revolution in Russia in 1917, and the November Revolution in Germany in 1918, when the likelihood of socialism spreading across the world seemed very real. His work is a critique of the economy under a socialist state, and looks into issues concerning the socialist state, such as the exchange system under a socialist economy; whether workers will be better off under a socialist system; how central planning will be undertaken; and the problems of nationalised industries. He comes to the conclusion that a socialist economic system is nonviable, and will fail in the long-run with a stagnant economy. Although his work is very important in criticising far-left Socialism such as Marxism, or Marxist-Leninism, it in is ineffective at criticising other strands of Socialism such as Social Democracy, or Democratic Socialism, as his criticism of Socialism is too broad, and does not look into the issues which effect every strand of the broad ideology.

Mises' explains that under the exchange system of a socialist economy consumption is determined by a coupon system, which restricts consumers to certain goods, but consumers may exchange these coupons for coupons for another product. However, he argues "Production goods in a socialist
commonwealth are exclusively communal", so a limited "principle of exchange can thus operate". He argues money may be used as  medium of exchange, but under certain forms of socialist economies it may not be used. He argues this system will narrow the productive capacity of the economy "since the material available for exchange will be narrower, inasmuch as it will be confined to consumption goods", as all forms of capital goods will be brought under public ownership and will not be permitted to be owned by the ordinary public. The argument helps to explain some of the reasons why he believes such a state of affairs will lead to stagnation, however, it does not take into account the possibility that if all forms of production are brought under public ownership, and the resources of the entire community are utilised, it may be the case that the productive potential of the economy would increase, and not narrow.


He then goes on to explain the condition of workers under a socialist system. He argues that workers wages will be determined by the labour theory of value, so workers would receive the income obtained by the production of a good for every hour of work put in. However, the state would deduct from the income of the worker the amount needed for the "the community as a whole (such) as maintenance of the unfit, education, etc". Mises' asserts that due to communal obligations "each worker who had worked a full hour would be entitled only to obtain such amount of the product as really answered to half an hour’s work". This assertion similarly does not take into account the many different ideologies that encompass the broad term Socialism, for instance, in a Marxist society all workers would be paid equal amounts, so deductions would be taken from their wages to pay for the welfare of disadvantaged members of the community, which may mean that workers wages are below the amount that they earn for society, however in a Social Democratic, or Democratic Socialist society, workers will receive differing wages dependent on the work they do for the community, but to ensure they only receive the income that they have earned for the community, a progressive tax system will be created, and the income from this can be used to pay for care for those who are disadvantage in the community.

Mises' finally discusses the problems of a central planned economy and nationalised production. Mises' states that in a centrally planned with no money, economic calculation cannot take place, as money creates a way of calculating value, and "Without economic calculation there can be no economy. Hence, in a socialist state wherein the pursuit of economic calculation is impossible, there can be—in our sense of the term—no economy whatsoever." Therefore he argues that a central planned economy will lead to economic disaster. In nationalised industries or services, Mises' argues "The motive force disappears" as it is the "shareholder, whom it is the aim of all nationalization and municipalization to exclude.", which means that the business no longer strives for
profit, which means the business no longer has as much profit to invest in future increases in production, and any attempt to reform the bureaucratic system will fail as it is "The entrepreneur’s
commercial attitude and activity arises from his position in the economic process" which is lost when he is got rid of. Therefore, in the long-term the business stagnates and if many businesses in the economy are nationalised, the economy stagnates. Although, it could be the case that the idea of profit maximisation is still proposed by the government, and the manager still strives to increase profits, but instead of these profits being given as dividends for shareholders, they are instead reinvested into the company, which would lead to even greater production than before the business was nationalised. In addition, this assertion that Socialism necessarily means nationalisation does not take into account strands of Socialism, such as Social Democracy, where many proponents of it do not believe in nationalisation, for instance a former Labour Chancellor of the Exchequer, in 1924, and 1929-1931, stated in The Daily Herald, a Labour supporting newspaper, on 15 October 1928, "I would like to see the word 'nationalization' banned from the socialist vocabulary."

In all, Mises' view on the Socialist economic system helpfully explains the main issues of a Marxist form of this system with a restrictive exchange system; underpaid workers; and a poorly managed, stagnating economy such as that which occurred in the long-term in the Soviet Union by the time of Brezhnev. However, Mises' ideas do not accept how a Socialist system may improve a country's economy, such as, despite the appalling atrocities of Lenin's and Stalin's time, the New Economic Policy from 1921, and Five Year Plans from 1928, did lead to the Soviet Union rapidly expanding from a backward agricultural economy to a modern industrial economy. In addition his theories do not accept the broad definition of Socialism which encompasses many different ideologies, which means his criticisms do not effectively criticise ideologies, such as Social Democracy, or Democratic Socialism, which are not as radical as far-left Marxism.