Masters of the Universe (book)


Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics is a 2012 book by barrister Daniel Stedman Jones, in which the author traces the intellectual development and political rise of neoliberalism in the United States and the United Kingdom. Originally a PhD thesis, the author adapted it into a book.
According to Jones, neoliberalism began after the Great Depression as a movement of intellectuals committed to protecting liberal values of individual liberty and limited government, which they believed were threatened in Britain and the United States by expanding government. They aimed to construct a distinctly new liberalism by charting a middle way between the laissez-faire economics of the pre-Depression era and the "collectivism" of New Deal liberalism and British social democracy. He argues that between the 1950s and 1970s this commitment evolved into one of greater conviction in the superiority of the free market, such that by the 1980s neoliberal policy proposals centered almost entirely around market liberalization. Modern neoliberalism, according to Jones, is associated with economic liberalism, monetarism, and a staunch support of free market capitalism, and advocates political policies of deregulation, privatization, and other market-based reforms.
Jones structures the book around what he argues are the three phases of the history of neoliberalism. In the first, lasting from roughly 1920 until 1950, he details how early European neoliberal thinkers like Friedrich Hayek, Ludwig von Mises, and Karl Popper, motivated by expanding government and later the rise of totalitarian regimes in Europe during World War II, developed critiques of "collectivism", which to them included British social democracy and American New Deal liberalism. Particularly influential during this time was the formation of the Mont Pelerin Society, which brought together intellectuals committed to the defense of liberalism and individualism.
In the second phase, lasting from roughly 1950 until 1980, the locus of neoliberal thought moved to the United States, where academics like Milton Friedman and George Stigler built upon the earlier neoliberal foundation by developing new academic and political arguments and introducing a range of neoliberal policy prescriptions. During this time, Jones contends neoliberal thought evolved from its more moderate early stance into a "faith" in the power and efficiency of markets. Jones argues that during this period a transatlantic network of intellectuals, businessmen, journalists, and think tanks arose to promote neoliberal ideology, slowly moving neoliberalism out of the political fringes and into the mainstream. The third phase, taking place after 1980, is the period of neoliberal political prominence. After a decade of stagflation in the United States and the United Kingdom, the neoliberal alternative to the Keynesian economic consensus that had dominated politics was adopted by politicians, finding particular influence with US president Ronald Reagan and British prime minister Margaret Thatcher. This era, Jones notes, was characterized by sweeping deregulation, market liberalization, and tax reductions.

Structure

The book is divided into an introduction, seven chapters, and a conclusion.
  • The introduction summarizes the history of neoliberalism and lays out the structure of the book.
  • Chapter one provides context for the rise of neoliberalism by briefly describing the development of embedded liberalism and Keynesianism after the Great Depression.
  • Chapter two discusses the critiques of social democracy by the early neoliberals Karl Popper, Ludwig von Mises, and Friedrich Hayek, and outlines the birth of the Mont Pelerin Society.
  • Chapter three discusses the two Chicago Schools, the relation of Adam Smith to neoliberalism, the early ideas of Milton Friedman, the ordoliberals in West Germany, and the economic theories of regulatory capture, public choice, and rational choice theory.
  • Chapter four discusses fusionism in the United States, conservatism in Britain during the 1950s, the growth of neoliberal organizations and think tanks from the 1950s through the 1970s, and the spread of neoliberal thought to journalists and politicians.
  • Chapter five discusses Keynesianism, American economic policy in the 1960s, and the development of monetarism by Milton Friedman.
  • Chapter six discusses the stagflation of the 1970s in the United States and United Kingdom and how it set the stage for the political rise of monetarism, which ushered in further neoliberal reforms; it continues with a description of the neoliberal policies of British prime ministers James Callaghan and Margaret Thatcher, Chancellor of the Exchequer Denis Healey, US presidents Jimmy Carter and Ronald Reagan, and Chair of the Federal Reserve Paul Volcker.
  • Chapter seven considers the effects of neoliberal policies on housing and urban policy in the United States and the United Kingdom.
  • The conclusion discusses the lasting effects of neoliberalism and lays out the author's belief in the need to return "reason-based policymaking" to political and economic debates.

    Summary

The author divides the history of neoliberalism into three phases.
In the first phase, lasting from 1920 to 1950, Jones contends that the crises of the Great Depression and Second World War produced two competing economic ideologies: Keynesianism and neoliberalism. Keynesianism, developed by economist John Maynard Keynes and motivated by the widespread unemployment during the Great Depression, viewed government intervention in the economy as a means to alleviate economic downturns and achieve full employment. Neoliberalism, promoted by economists like Friedrich Hayek, Milton Friedman, and Ludwig von Mises, and arising out of fears of totalitarian regimes like the Nazis, Soviet communists, and Italian fascists, viewed increasing government intervention as a threat to economic and political freedom. Early neoliberal thought, according to Jones, focused on defending liberalism and critiquing all forms of collectivism, and in particular on critiquing New Deal liberalism and British social democracy, which they believed posed a "grave threat to the continued existence of Western civilization".
In the second phase, lasting from 1950 to 1980, Jones notes that Keynesianism dominated political policy while neoliberal thought was mostly confined to universities and think tanks. However, it was during this time that neoliberal thought was refined and spread, creating a transatlantic network of intellectuals, businessmen, journalists, university departments and think tanks promoting neoliberal ideas. The locus of neoliberal thought shifted from Europe to the United States, with the American intellectuals Milton Friedman and George Stigler, as well as the larger Chicago school of economics they were a part of, becoming increasingly influential. Neoliberal thought evolved: whereas the neoliberalism that had emerged during the interwar years had been a "nuanced response" to war, depression and totalitarian regimes, late-twentieth-century neoliberalism became dominated by market liberalization and globalization, and galvanized around a defense of the superiority of free markets to government economic planning.
The third phase, lasting from 1980 onward, is the period of neoliberal political hegemony. Jones suggests that the high inflation and low economic growth in the United States and United Kingdom during the 1970s chipped away at the Keynesian political consensus, which seemed unable to address the decade's stagflation. Jones argues that the transatlantic neoliberal network provided a compelling alternative economic ideology—one that conveniently included monetarism, an economic theory dealing with inflation. Jones asserts that this led to the widespread political acceptance of neoliberal policies in the 1980s, which brought with it a greater acceptance of neoliberal ideology. Jones maintains that, contrary to the opinion of some observers, the adoption of neoliberal policies was not an inevitability; they were not necessarily the "right" policies for the challenges of the era, but instead found political power through an "unpredictable, patchy" process that had "luck and historical contingency" as central players. The left-leaning Carter administration and Callaghan government were the first to implement certain neoliberal policies, but neoliberalism would find its greatest impact with US president Ronald Reagan and British prime minister Margaret Thatcher, who would each successfully advance agendas of deregulation, tax cuts, and market liberalization. Jones argues that while these incremental policy changes did not require a wholesale acceptance of neoliberal philosophy, by the late 1980s that is exactly what had happened. Neoliberal ideas on the superiority of the market and individual liberty became widely accepted by politicians and academics, and Jones contends that this "boundless belief in markets and deregulation" ultimately led to the 2008 financial crisis.

First phase: Early history (1920–1950)

According to Jones, neoliberalism traces its earliest beginnings to the establishment of the Colloque Walter Lippmann in 1938. The Great Depression left the reputation of economic liberalism in tatters, and the scholars at the society sought to "reconstruct a theory of liberalism" because they believed that "classical liberalism was under assault". They called this reconstruction "neoliberalism" to signify that they were not simply accepting laissez-faire economics but were developing a new vision of economic liberalism. Ultimately, however, the ideas promoted at the colloquium did not take political hold, and at the outset of World War II the colloquium was largely forgotten.
The destruction wrought by totalitarian regimes during World War II would, however, energize a number of liberal thinkers in their opposition to collectivism. From this fear of collectivism emerged the early influential neoliberal texts critiquing social democracy, and led to the formation of a new neoliberal organization by many of the same individuals present at the Colloque Walter Lippman: the Mont Pelerin Society.