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Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan

The term neoliberalism first appeared in scholarly writings on political economy in the period between the two world wars. The instability of the interwar years, plagued by inflation and depression that bred radical ideologies and unleashed devastation on Europe, convinced many intellectuals and politicians that capitalism was untenable. Yet pockets of liberals remained, including a small circle of economists and legal scholars associated with the German Freiburg School. These “new” liberals sought to resuscitate the liberal creed by offering a fundamental overhaul of classical liberalism. As such, they propounded a notion of neoliberalism (also referred to as ordoliberalism) quite different from the connotations the term carries in present-day scholarly discourse.8

Whereas contemporary scholars often equate neoliberalism with market fundamentalism, the Freiburg School’s faith in the free market was moderate and pragmatic when compared to that of nineteenth-century liberals. First, Freiberg School economists argued that for the free market to function, the state must play an active role. The German neoliberals accepted the classical liberal notion that competition among free individuals drives economic prosperity, but they argued that powerful private actors—the monopolies and cartels that decimated Germany’s small businesses in the interwar years—could pose a threat to freedom of competition. To keep private interests in check, the neoliberals supported the creation of a well-developed legal system and capable regulatory apparatus that went well beyond the minimalist, night-watchman state promoted by followers of Adam Smith (Megay 1970: 424–425; Gerber 1994: 36–37). Alexander Rüstow, a prominent German neoliberal, summarized this position in a 1932 essay entitled “Free Economy—Strong State” (Friedrich 1955: 512). In other words, the neoliberals sought to divorce liberalism—the freedom of individuals to compete in the marketplace—from laissez-faire—freedom from state intervention. They argued that a laissez-faire state policy stifles competition as the strong devour the weak (Oliver 1960: 118; Boarman 1964: 25; Gerber 1994: 33).

https://link.springer.com/article/10.1007/s12116-009-9040-5#Sec6
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