Neoliberalism - The Genesis of A Political Swearword
Neoliberalism - The Genesis of A Political Swearword
Political Swearword
Oliver Marc Hartwich
Acknowledgements/Disclaimer
The author wishes to thank those with a common interest in the intellectual
origins of neoliberalism who helped in preparing this paper. All remaining errors
are the authors.
Contents
A ghost story ................................................................................................................ 4
Crisis and neoliberalism ............................................................................................... 5
The pre-history of neoliberalism ................................................................................. 6
The birth of neoliberalism ......................................................................................... 13
Rstows Third Way ................................................................................................ 15
The neoliberal program ............................................................................................. 16
Neoliberalism and the Colloque Walter Lippmann ................................................. 18
Whatever happened to neoliberalism?....................................................................... 20
Rediscovering neoliberalism ...................................................................................... 23
Endnotes ..................................................................................................................... 24
A ghost story
A spectre is haunting the world, just as Karl Marx and Friedrich Engels wrote in
the Communist Manifesto of 1848. This time, however, it is not the spectre of
communism but that of neoliberalism.2 Just as Marx and Engels reported of a holy
alliance to exorcise this spectre, there is once again an alliance, whether holy or
unholy, that has formed to chase the ghost of neoliberalism from the world stage.
In any case, it is a curious alliance that has committed to fighting neoliberalism:
Religious leaders and artists, environmental activists and globalisation critics,
politicians of the left and the right as well as trade unionists, commentators and
academics. They all share a passion to unmask neoliberalism as an inhuman, antisocial, and potentially misanthropic ideology or as a cynical exercise by strangely
anonymous forces that wish to exploit the world to their own advantage.
The members of this colourful alliance against neoliberalism are as united in their
opposition to neoliberalism as they are diverse. This suggests that neoliberalism
cannot be too clearly defined as a concept. Rather, it is a broad umbrella under
which very different groups with various points of view can meet. In the church of
anti-neoliberalism, there is a place for anyone who believes that neoliberalism
stands in the way of reaching his or her political goals. This may also explain the
lack of any clear and coherent definition of neoliberalism among its dissenters.3
Yet the most curious characteristic of neoliberalism is the fact that these days
hardly anyone self-identifies as a neoliberal. In former times, ideological debates
were fought between, say, conservatives and socialists, collectivists and
individualists. While there may not have been any other agreement between these
opposing groups, at least they would have agreed about their respective identities.
A socialist would not have felt offended by a conservative calling him a socialist
and vice versa.
In present-day debates around neoliberalism, on the other hand, most accused of
holding neoliberal views would not accept being called neoliberal. Either they
would insist on being something else (whether it is liberal, classical liberal, or
Furthermore, the first author claims to be a fierce critic of neoliberalism while the
second one is the original inventor of the term neoliberalism.
To solve this riddle, let us lift the curtain and reveal their identities. The first
quotes are taken from the essay The Global Financial Crisis by Australian Prime
Minister Kevin Rudd, which he published in the journal The Monthly in early 2009.
It was seen as Rudds broad sweeping attack on neoliberalism.5
The second commentator is Alexander Rstow, a German sociologist and
economist, and the quotes are from a speech6 he delivered to the Verein fr
Socialpolitik (Social Policy Association), a German economics association, in 1932
and the title of one of his books that was published in 1945.7 It was the very same
Alexander Rstow who, in 1938, coined the term neoliberalism.
If Rudd and Rstow sound so similar, yet one of them rejects the concept of
neoliberalism while the other invented it, then either there must be some sort of
misunderstanding or the term itself has undergone a transformation over the past
decades.
In a way, one could argue that what happened in a small, far-away country almost a
century ago (i.e. early twentieth century Germany) should hardly matter for
contemporary Australian politics. The world has moved on and todays debates are
not the same as, say, those of the 1930s. On the other hand, it is more than just a
vain exercise in intellectual archaeology when we are dealing with the birth of
neoliberalism. We will find some parallels in the economic debates then and now
that were triggered by economic crises of the time. More importantly, we will see
that early neoliberalism recognised both the power of markets and their
limitations. Todays critics of neoliberalism are probably unaware that one of the
defining features of early neoliberal conceptions was to put a check on unfettered
markets and market power. This may well hold some ideas for policy makers today
simply because neoliberals distinguished between areas in which the state could and
should intervene and others in which it should not.
So let us go back almost a century to understand why Rstow and some of his
colleagues came to formulate an idea they called neoliberalism. We shall then be
able to see whether Kevin Rudd was right when he claimed that Neo-liberalism ...
has been revealed as little more than personal greed dressed up as an economic
philosophy.8
The pre-history of neoliberalism
Neoliberalism as a concept has its roots in Germany between the two World Wars.
It is, therefore, necessary to explore the intellectual and political climate of this
period, but also its historical background. In particular, we need to evaluate
whether Alexander Rstow was right to claim that economic liberalism had failed
in Germany. Rstow was a fierce critic of leaving free markets to their own
devices. This is strange because it is very doubtful (to say the least) that such free
markets had ever existed in Germany. For this reason we have to get acquainted
with the history of Germanys economic order.
When we look at the Germany of the 1920s and 1930s, we think of the struggle to
keep the first republic, the Weimar Republic, alive between the political extremes
6
of the left and the right. We also think of Germanys hyperinflation of 1923 and
the disastrous economic effects of the Great Depression, which had unemployment
soaring in Germany to previously unknown levels. Germanys post-World War I
history is usually analysed with regard to the catastrophe of the ensuing rise of
national-socialism, World War II and, ultimately, the Holocaust.
Sometimes this perspective makes Germanys march into the Fhrer state of the
so-called Third Reich look inevitable. It may seem as if the national-socialist
dictatorship had brought the German preference for a hierarchical state, strong
government, and top-down organisation to its logical conclusion. Indeed, some
(usually left-leaning) historians had long argued that Hitler was the unavoidable
conclusion of German history prior to 1933, Germanys alleged Sonderweg
(special path). In the words of Fritz Fischer: Hitler was no industrial accident.9
This is not the appropriate place to discuss (and possibly refute) the thesis of a
German Sonderweg. Unfortunately, though, the discussion about there being any
specifically German inclination towards anti-liberal sentiment has distracted from
the fact there were indeed some important liberal movements, periods and thinkers
in German history. Whether taken together they can rival the great British liberal
tradition of John Locke, David Hume, and Adam Smith may well be disputed. But
that there has been liberal thought in Germany cannot be denied,10 and it would be
desirable if the Germans themselves paid closer attention to the history of their
own branch of liberalism.11
In order to understand the genesis of the conception of neoliberalism in interwar
Germany, we need to understand how this peculiar kind of German liberalism had
previously developed. It is probably right to say that Adam Smiths new system of
economics did not find many supporters in Germany when he first published his
Wealth of Nations in 1776.12 The Prussian Reforms of 1806, which liberalised and
modernised government, were mainly a result of the military collapse of the
Prussian state against Napoleon. But not all these reforms survived the European
Restoration after the Congress of Vienna in 1815. In fact, in some German regions
the reformist trade laws were taken back and the guilds partially reinstated.13
While other countries, most notably of course England, had long embarked on a
process of industrialisation, Germanys economic structures lagged behind. But
when industrialisation finally took off in Germany, it happened at a remarkable
speed. This would not have been possible without the liberalisation of trade laws
and the law of contract. It was further enhanced by the removal of customs barriers
among the fragmented German states. On top of that, the consequences of the
Franco-Prussian War of 187071 had given Germany an economic boost. French
reparations flooded Germany with gold, while the annexed province AlsaceLorraine increased Germanys industrial and mining capacity.
Free enterprise was guaranteed for the North German Confederation with the
Gewerbeordnung of 1869, which two years later was extended to the newly
founded German Empire. Freedom of contract was also introduced in the second
half of the nineteenth century, and the last medieval restrictions on charging
interest were abolished.14 As a legal historian stated in 1910: Everybody may enter
and split into dozens of independent principalities and kingdoms, separated from
each other by tariff barriers.
For the German states to catch up with England in per capita income terms and
industrial production, it was thought necessary to imitate its economic success
story. After the Prussian Reforms of 1806, the idea of modernising and liberalising
market structures had become dominant within the ministerial bureaucracy.
Industrialisation and modernisation were desired, but it had to happen under the
political leadership of the political elites.22
Nevertheless, it took decades until modernisation actually took off, but when it
eventually did around the middle of the nineteenth century, the pace of
industrialisation was fast and economic growth strong. As the economic historian
Werner Abelshauser characterised it, it was a liberal market economy from above.
As such it was the result of the reforms which, after the confrontation with
revolutionary France and the economic challenge of the English industrial
revolution, paved the road to modernity for the German states.23 In any case,
liberalism in Germany did not have centuries to grow as in the case of Britain, and
it was certainly something that did not develop against the wishes of the political
rulers. On the contrary, economic liberalisation happened under the auspices of the
ministerial elites and only to the extent to which it promoted official interests.
As mentioned before, Germanys economy grew strongly in the immediate years
following the countrys unification in 1871. But this extraordinary boom was
short-lived and came to an abrupt end with the Grnderkrise (the founders crisis)
of 1873. The German economy had overheated and built up overcapacities. An
international banking crisis, which also triggered the collapse of a Berlin-based
bank, and the end of French reparations contributed to the sudden end of the
boom years.
Although the following decades are often referred to as the Great Depression, in
modern economic terms it clearly was not. The German economy was still growing
in most of these years, albeit at a reduced rate.24 However, the contrast between the
preceding boom and the comparatively more subdued growth rates undermined the
confidence in economic liberalism and the market economy.25 As a consequence,
economic policy took a different course after 1873, and the German Empire
became more interventionist. It was in this period that the liberal market economy
from above turned into a new kind of corporative or organised capitalism.
The first and most important step in this direction was the change from a free-trade
policy towards protectionism. The economic crisis had strengthened those
industrial associations that had long campaigned for the introduction of protective
tariffs. From the mid-1870s, they had been united in the Centralverband deutscher
Industrieller (Central Association of German Industrials), and they were vocal in
their call for an end to free trade.
Under the impression of these campaigns Germanys Chancellor Otto von
Bismarck, originally a free-trader, changed his trade policy towards protectionism.
He also planned to strengthen the Empires budget through the expected tariff
revenue to make his national government less dependent on contributions from the
German states, which collected most of the taxes and remitted some to Berlin.
9
In the German Parliament, too, the balance shifted away from the previous liberal
trade policy. After the 1878 election for the Reichstag, which the conservative
parties won, the protectionists had a majority and voted for the introduction of a
new tariff regime in 1879just as the Centralverband had demanded.
It was the first visible sign that something important had changed in Germanys
economic order, but the changes did not stop there. As Werner Abelshauser, one of
Germanys leading economic historians, expressed it: Since the year of change
1879 the principle of co-operation replaced the principle of competition in
competition policy, productive mobilisation replaced laissez faire in order policy,
in social policy corporative self-rule took the place of organised self-help.26 The
German Empire as a whole became a corporatist market economy. It was still a
market economy, still a variant of capitalism, but with a much stronger and more
interventionist state. It was a kind of organised capitalism, a term first coined by
the social democrat Rudolf Hilferding, whose main features were the
concentration of capital, market regulation by formal, hierarchical and
bureaucratic administrations, increasing pressure of organised interests to influence
state political decision-making and systematic state intervention in the economy.27
What is important to recognise is that Imperial Germany, despite having
implemented a number of liberal reforms in trade and civil law, had ended the brief
flirtation with laissez faire capitalism by the late 1870s. Economic liberalism, which
had had its heyday in Germany between the early 1850s and the crash of 1873, had
been superseded by a mixed economy model in which the state played an
important role in coordinating and steering economic activity.
One of the consequences of this economic and political arrangement was the
development of dozens if not hundreds of cartels. They first formed after the crisis
of the early 1870s but remained in place thereafter. There are good reasons to
assume that the political situation of the time played a crucial role in the
permanence of the cartel phenomenon. Crucially, the erection of tariff barriers
blocked out foreign competition. Protected by these trade barriers, German
companies could restrict domestic competition. But such restraints of trade would
have been far less successful if foreign imports could have challenged the cartels. In
his History of Economic Order in Germany, Hans Jaeger assessed the importance of
protectionism for market structures as follows: The tariffs that had been
introduced for the Empire since 1879 were an important precondition for the
growth of cartels. Only after the compartmentalisation of the German market
against foreign competition, national cartels could partition business among
themselves.28
Importantly, though, the cartels also fitted neatly into the new structure of
organised capitalism. In his account of the history of competition policy in
Imperial Germany, David J Gerber explained why:
The imperial bureaucracy often favoured cartels because they served its
interests, providing a convenient and low cost means of acquiring information
about and influencing economic developments. Moreover, for the Kaiser and
much of the ruling elite, cartels were not only a means of control, but tools for
the attainment of other political and military ends. Cartels predominated in
those areas of the economyheavy industry and chemicals, for examplethat
10
were most important for Germanys international influence and for the
development of its military potential.29
Seen from this perspective, it is little wonder that Germany became the classic
country of cartels.30 It was not an accident, nor a case of market failure. The
markets were only executing what was politically desired, namely to produce an
economic structure conducive to push industrialisation in Germany to a higher
level. Consequently, the highest courts, including the Imperial Court, gave cartel
agreements their blessing. In a landmark case, the Reichsgericht not only allowed
cartels in 1897 but it also expressly stated that they served public interests.31 The
judges were in line with public opinion and the economic profession of the time.
Cartels were seen as a way to prevent ruinous competition,32 and they were
welcomed by economists like Friedrich Kleinwchter as a way replace the
constructive but chaotic system of Adam Smiths invisible hand with something
more orderly.33
The cartels were only one expression of the principles of organised capitalism.
Others could be seen in the development of numerous industry associations,
chambers of commerce, universal banks, employers organisations, and the like.
The state played a steering role in this complex arrangement of business relations,
and it became increasingly interventionist, partly taking back earlier liberalisations.
Trade and skilled labour were re-regulated in 1897, forcing craftsmen to join trade
associations, which were allowed to prescribe prices.
A traditional interpretation of the change in economic policy that occurred from
the 1870s was that the new interventionism was a return to old structures of
economic organisations. According to Abelshauser, however, this is a misguided
analysis. He rather sees it as the birth of a new kind of market economy that
remained in place throughout the twentieth and into the twenty-first century.34 It is
hard to disagree with this analysis because the continuity in economic structures is
indeed striking.
The peculiar kind of corporatism, the structure of industry, the social security
system, and also the laws governing economic relations that were initiated in the
final quarter of the nineteenth century survived both the German Empire and the
Hitler regime to become essential parts of the so-called Rhineland Capitalism
model of the Federal Republic after 1945. Generally speaking, there is much more
continuity in Germanys economic order throughout the past 130 years than
appears at first sight. A large number of Nazi regulations were kept in place or even
reinstated after 1945, as economic historian Albrecht Ritschl documented a few
years ago.35 But even these Nazi regulations were built on the foundations dating
back to the German Empire.
All in all, the economic order of Imperial Germany moved far from the original
liberal tendencies and paved the way for the development of an economy organised
along corporatist lines. The model of Rhineland Capitalism, which towards the end
of the twentieth century became regarded as a sclerotic arrangement of
interdependent business and political interests (the so-called Deutschland AG), can
11
be seen in its embryonic state at the turn of the nineteenth to the twentieth
century. It is worth quoting Abelshausers poignant summary:
The Germany of Emperor William IIwith its bureaucratic traditions and
extensive administrative apparatus; its capitalist economic order of diverse
organised agencies, that is, large corporations, cartels, syndicates, trade
associations, unions, cooperative associations, chambers, umbrella associations,
and economic councils; its coexistence of pluralistic, state corporatist, and
liberal corporatist interest intermediation (with the latter two forms ever more
pronounced)this Germany bore the features of the coming twentieth century
more than it did the onus of the old order.36
The cornerstone of the countrys economic order had been laid in Imperial
Germany. It is unsurprising that World War I put the economy under even more
direct state control, and this was not a phenomenon limited to Germany. In other
countries like Britain, too, World War I led to a significant increase in the size of
the state and the role of government vis--vis industry, trade and commerce.
Economic structures in the Weimar Republic, which succeeded the German
Empire in 1919, then continued where the Empire had finished. The state grew
even stronger, especially because of increased spending on welfare and agricultural
policy. Per capita state expenditure doubled between 1913 and 1932, and more and
more government owned and run companies were founded.37 On top of that,
subsidies for all sorts of industries became endemic, often lacking specific strategic
vision.
Meanwhile, economic concentration continued and increased. By 1925, no fewer
than 1,539 cartels were registered, compared to 367 only 15 years earlier. Although
a first Cartel Act had been passed in 1923, it did not make forming a cartel more
difficult and thus was no practical tool to reduce the degree of monopolisation in
Germanys economy.38 Quite the contrary, the Cartel Act in effect legalised existing
cartel arrangements that had hitherto only been recognised by the courts. Now
they were protected by a formal Act.39
It is not necessary to present further details in this essay, but the picture painted
here with a broad brush is clear. Although Germany had been practising a variant
of a market economy, it had never had a purely liberal economic order. Even
where liberal reforms had been implemented in Germany, the stimulus usually
came from above, that is from the political and bureaucratic rulers. This is not to
say that there were no liberal reforms in German historyfar from itbut that
Germany has never been a purely liberal country, either. There has never been a
Manchester capitalism, turbo-capitalism or however else one might call a system
of perfect liberty in place in Germany. It is important to keep this in mind when
we will be dealing with the birth of neoliberalismthe birth of a somewhat
curious, but very German, ideological concept. A concept that certainly has its
merits, but whose intellectual underpinnings appear weak in light of the historical
analysis of German liberalism.
12
13
realise that economic planning was incompatible with liberty. On the other hand,
he remained committed to socialisms goals of reducing social and economic
inequalities.
Throughout his own life, Rstow had become a frequent border crosser between
liberalism and socialism. The only constant of his intellectual life, though, was a
great scepticism of all sorts of power, whether they were of a political or an
economic nature. Nevertheless, when we read Rstow today, it is sometimes
difficult to recognise him as a liberal simply because he often does not sound much
like one.
This was the same Alexander Rstow who invented the term neoliberalism, who
popularised it first among his German colleagues, and who eventually even
managed to have an international group of liberal thinkers, including the
liberal/libertarian icons of Ludwig von Mises and Friedrich August von Hayek,
agree on this new term to describe their intellectual movement.
The obvious questions, then, are what was Rstows understanding of
neoliberalism? Where did neoliberalism differ from the old term liberalism? Why
did Rstow feel the need to invent a new term at all? And what happened to
neoliberalism over time?
The year in which Rstow first formulated the neoliberal program was 1932.
Germanys leading economics association, the Verein fr Socialpolitik, had invited
him to its annual conference in Dresden. The Vereins long-serving president was
Werner Sombart, the leader of the so-called Kathedersozialisten (catheder socialists)
from the Historical School of Economics. Sombart, an open supporter of nationalsocialism, lacked any sympathies for liberalism. He had planned to make the
Dresden meeting a rallying cry for his cause. But to his dismay, the relatively little
known Rstow delivered the most noticed speech at the conference, which was
later published and republished many times. Until the present day, it is widely
regarded as the founding document of neoliberalism.45
The speech was titled Freie Wirtschaft, starker Staat (Free Economy, Strong State),
and in these four words we can already see Rstows basic economic creed. Far
from supporting Sombarts national-socialist visions, Rstow blamed excessive
interventionism for the economic crisis. He also warned of burdening the state
with the task of correcting all sorts of economic problems. His speech was the clear
rejection of a state that gets involved with economic processes. In its place, Rstow
wanted to see a state that set the rules for economic behaviour and enforced
compliance with them. It was a limited role for the state, but it required a strong
state nonetheless. Apart from this task, however, the state should refrain from
getting too engaged in markets. This meant a clear No to protectionism, subsidies,
cartelsor what today we would call crony capitalism, regulatory capture, or
corporate welfare. However, Rstow also saw a role for a limited interventionism
as long as it went in the direction of the markets laws.
Throughout his later life as an academic Rstow further developed this vision of
neoliberalism, as he himself called the idea, and published numerous books and
essays in which he elaborated the system of a market economy under the rules of
law and limited government. Many of them were written in exile: After the
14
Gestapo, Hitlers secret police, had searched Rstows home in 1933, he decided to
leave Germany and accepted a teaching position in Istanbul. He remained in
Turkey until he returned to (West) Germany in 1949 to lecture at the University of
Heidelberg.
Rstows Third Way
If we want to understand Rstows neoliberalism, we need to understand his basic
interpretation of economic history. Throughout the 1920s he had been dealing
with market structures and cartels. As we had seen earlier, Germany had become a
country of corporatist capitalism, and the hundreds of cartels were a central part of
this system.
As we have seen, there are good reasons to treat the cartels and the degree of
concentration in late nineteenth and early twentieth century Germany as a direct
result of public policy. That markets became monopolised, that big companies
could collude with their supposed competitors without being disturbed by anyone,
did not happen by accident. It was only possible because cartels were shielded from
international competition through Germanys protectionist system, which had
been in place since 1879. The courts had upheld contracts in restraint of trade with
reference to their desirability from a public policy perspective. Furthermore,
concentrating Germanys industrial structure was in the interests of the Kaiser and
his government, who were aiming to steer the countrys industrial development.
Their ultimate political goals were to catch up with Britains industrial power, rival
her military might, and find Germanys place in the sun in the era of
Imperialism.46
The period in which monopolisation in Germanys industrial structures took off
was a time of (political) mobilisation, not of unfettered capitalism. Where
economically liberal laws like the Civil Code were put in place after 1873, their
ultimate goal was to assist in Germanys economic process of catching up with the
British Empire. Among todays economic historians there is widespread agreement
that Germany was practising a system of organised capitalism, i.e. a politicised
version of capitalism that was using markets to reach political goals.
Rstows analysis differed from this view of Germanys economic history. He also
saw Germanys development into a degenerated market economy: heavily
cartelised, dependent on subsidies, subject to frequent interventions. But to
Rstow, all these phenomena could be ascribed not to some government policy,
but to unregulated markets. He perceived an inevitable tendency of markets to
degenerate if left to their own devices while ignoring the pernicious influence of the
closed economy.
In his book The Failure of Economic Liberalism, Rstow sounded totally
deterministic, like Marx:
We [i.e. the neoliberals, OMH] agree with Marxists and socialists in the
conviction that capitalism is untenable and needs to be overcome. And we also
think that their proof that exaggerated capitalism consequently leads to
collectivism is correct and an ingenious discovery of their master [i.e. Karl
Marx, OMH]. To acknowledge this seems to be required by intellectual
honesty. However, we reject the errors which Marx has adopted from historic
15
liberalism. And if we, together with the socialists, reject capitalism, then we
reject the collectivism which grows out of exaggerated capitalism even more.
Our most severe accusation against capitalism is just this: that it (just as the
collectivists teach themselves) sooner or later must lead to collectivism.47
To Rstow, such market police measures went beyond a simple anti-trust Act. On
the contrary, he assigned the state a far greater role in shaping market structures.
For example, any kind of advertising in newspapers, radio or cinema should be
banned. Not only, as he wrote, because they were vulgar, unproductive, and
playing to the masses, but also because these marketing tools favoured the big
advertisers at the expense of smaller businesses.52 He also argued for corporate
taxation to be progressively linked to business size. In this way, he wanted to make
large companies unviable and reduce them to smaller (or what he presumed to be
optimum) sizes.53 Furthermore, Rstow suggested forcing large companies holding
patents to license them to their smaller competitors.
All of this does not quite sound much like a program that we would call neoliberal
today, but Rstow had even more astonishing ideas for a neoliberal. All utilities, all
rail companies, all companies with an alleged natural or technical monopoly should
be nationalised. The armaments industry should also be nationalised, but for
different reasons.54
For agriculture, Rstows ideas were no less radical. He thought that Germany was
violently overpopulated (which he bitterly regretted), but it should nevertheless
switch to a system of small, healthy, and highly productive farming units. In order
to achieve this, he called for a big, planned and developed network of institutes for
teaching, researching and consulting the entire agricultural sector; a comprehensive
and tight organisation of down-to-earth farming education.55
Rstows attitude to farming shows a strong sympathy for small units, but also for
a quite conservative, romantic lifestyle. Joachim Zweynert recently pointed out
that Rstows ideals were stuck in the past when he remorsefully agreed with the
romantic poet Novalis that todays society was only living of the fruits of better
times. Also, Rstows open hostility to technology is odd. In one place, he calls
the medieval period the optimum of social conditions so far and complained that
technological progress had not served humanity but only resulted from a blind cult
of progress.56
In the fields of social and employment policy, too, Rstow hardly lives up to
todays image of a neoliberal. Although he argued against minimum wages, he
supported temporary wage subsidies (financed through taxes on high wages in
boom times), compulsory unemployment insurance, a government run
employment service. Perhaps even more surprisingly, he called for an active
17
industrial policy in crises to assist and moderate sectoral and structural changes. On
top of that, he was committed to greater social equality, which he wanted to
achieve through high inheritance taxes that should be used to finance some
redistribution and free education for all.57
Although Rstow clearly had an idea how he wanted to organise the economy, he
thought that economic questions, ultimately, should not be the priority of his
neoliberal project. He insisted that our neoliberalism differs from paleo-liberalism
by not reducing everything to an economic question. On the contrary, we believe
that economic affairs must be subordinated under supra-economic matters.58 In
another paper he wrote that the economy must be in a serving position, which
meant that the economy is there for people and not the other way around.59
Finally, his system of neoliberalism could work best under the roof of a Christian
theology. So it is important to see, Rstow said, that there is no incompatibility
between Christianity and neoliberalism and that together they could form a united
front against paleo-liberalism, but especially against communism and bolshevism.60
Neoliberalism and the Colloque Walter Lippmann
The 1930s were a difficult time for liberal-minded thinkers in Europe. The mood
was decidedly anti-liberal and collectivism widespread. But a small group of liberals
wanted to keep the idea of freedom alive and organised an international meeting
that took place in Paris in August 1938.61
The French philosopher Louis Rougier had invited like-minded liberal intellectuals
to discuss the ideas of the American journalist Walter Lippmann. Lippmann had
just published his book The Good Society in which he criticised all variants of
collectivism such as socialism, national-socialism, fascism, but also Roosevelts New
Deal policies.
A group of 25 intellectuals followed Rougiers invitation, among them Lippmann
himself, French philosopher Raymond Aron, Austrian economists Friedrich
August von Hayek and Ludwig von Mises, British-Hungarian philosopher Michael
Polanyi, and the two German economists Wilhelm Rpke and Alexander Rstow.
The discussions in Paris revolved around the question how liberalism could be
renewed. Participants like Rstow, Lippmann and Rougier agreed that the old
liberalism of laissez faire had failed and that a new liberalism needed to take its
place. This was very much the core message of Lippmanns book, as Jrg Guido
Hlsmann points out:
The book appealed to European neo-liberals because Lippmann gave eloquent
expression to their own deeply held views about the roots of the present
political and economic crisis. Those who still called themselves liberals rejected
socialism but did not want to be too strongly associated with the Manchester
doctrine of laissez-faire. Lippmann placed himself in opposition both to the old
liberals and to the contemporaneous socialist agitators. Lippmanns middle-ofthe-road position suited the pragmatic mentality of his countrymen. Americans
tended to take a businesslike approach to political conflicts, seeking to solve
them through negotiation and compromise. Lippmann shrewdly presented both
the socialists and the Manchestermen as stubborn doctrinaires. He contrasted
these extremists with his own practical-minded scheme. This resonated with
the neo-liberal continental European economists of the interwar period, who
18
differed from Lippmann only in the details they envisioned for the Good
Society.62
Other participants like Mises and Hayek were far less convinced, but in the end the
Colloque Walter Lippmann was united in their call for a new liberal projecta
project that still needed a name. Liberalism from the left was one idea; others were
positive liberalism or social liberalism. But the term on which the participants
actually agreed was neoliberalismRstows original recommendation.
The Colloque Walter Lippmann was for some a farewell to classical liberalism,
which was thought to have failed. Rstow had delivered a speech to the conference
under the telling title The psychological and sociological, the political and
ideological reasons for the decline of liberalism, on which the protocol of the
proceedings recorded much agreement. After the speech, Lippmann apparently
passed his business card to Rstow with just one word written on the back:
Bravo. Only Ludwig von Mises accused Rstow of showing a romantic spirit by
glorifying pre-capitalist times.63 Yet not even Mises initially objected to being part
of a neoliberal movement, breaking away from the old tradition of liberalism.
The neoliberalism that came out of the Colloque Walter Lippmann was much in
line with Rstows political and economic theories. It was no longer a conception
of unrestricted liberty, but a market economy under the guidance and the rules of
the state. To quote Rstows seminal 1932 speech, it was the idea of both a free
economy and a strong state.
To continue the neoliberal project, it was decided to turn the Colloque Walter
Lippmann into a permanent think tank. The new Centre International dtudes
pour la Rnovation du Libralisme (CIRL) was meant to be based at the Muse
Social in Paris, and British, American and Swiss branches of the CIRL had also
been planned. Furthermore, it was intended to open the new neoliberal movement
to a wider audience, including Catholic corporatists and trade unionists.
However, World War II rendered all such plans impossible. Apart from a few
meetings in Paris, the CIRL did not manage to establish itself. It is nevertheless
interesting to note that the neoliberals of the late 1930s were not afraid of reaching
out to a non-liberal audience. They were certainly not very dogmatic when it came
to spreading their new vision for liberalism.
The unity among the new neoliberals was as short-lived as the plans for their Parisbased think tank. At the Colloque Walter Lippmann, the differences between the
true neoliberals around Rstow and Lippmann on the one hand and rather oldfashioned liberals around Mises and Hayek on the other were already quite visible.
Mises and Rstow, who were friendly on a personal level, showed irreconcilable
differences in their philosophies.64 For example, Mises directly contradicted
Rstows claim that monopolisation was a consequence of liberalism. For Mises the
state was to blame for monopolies and cartels because such market structures could
only develop under interventionist and protectionist policies. While neoliberals like
Rstow demanded state intervention to correct undesirable market structures,
Mises had always insisted that the only legitimate role for the state was to abolish
barriers to market entry. Such differences, Philip Plickert writes, were not just
19
gradual, but fundamental. They touched the very core of the neoliberal research
agenda.65 Similar differences of opinion also existed in other questions such as
social policy and the scope for interventionism.
It only took a few years for the insurmountable differences between old liberals
and the neoliberals to become unbearable. In particular, Rstow and Mises realised
that they shared fewer beliefs than the Paris meeting may have suggested. Rstow
was bitter that Mises still adhered to an older version of liberalism that he, Rstow,
thought had failed spectacularly. This he labelled paleo-liberalism, as if Mises was
a kind of dinosaur from a long-gone age. In a letter to Rstows close friend
Wilhelm Rpke, he wrote that Hayek and his master Mises deserved to be put in
spirits and placed in a museum as one of the last surviving specimen of the extinct
species of liberals which caused the current catastrophe.66
Ludwig von Mises, on the other hand, became equally critical of the neoliberals
around Rstow.67 Ordo-liberalism, as the neoliberal theory became known in
Germany, amounted to not much more than ordo-interventionism, Mises
complained. In Human Action, Mises opus magnum, he deals with the fallacies of
such Third Way policies in unambiguous words:
[A]ll these advocates of a middle-of-the-road policy emphasize with the same
vigour that they reject Manchesterism and laissez-faire liberalism. It is necessary,
they say, that the state interfere with the market phenomena whenever and
wherever the free play of the economic forces results in conditions that appear
as socially undesirable ... That means the market is free as long as it does
precisely what the government wants it to do. It is free to do what the
authorities consider to be the right things, but not to do what they consider
the wrong things; the decision concerning what is right and what is wrong
rests with the government. Thus the doctrine and the practice of
interventionism ultimately tend to abandon what originally distinguished them
from outright socialism and to adopt entirely the principles of totalitarian allround planning.68
20
constant surveillance by Hitlers secret police, and some of their members were
eventually arrested and sentenced to jail terms. One of them, Friedrich Justus
Perels, was executed for his involvement in the preparations of plans for a post-war
Germany.
The Protestant theologian Dietrich Bonhoeffer is well known to an Australian
audience since Prime Minister Kevin Rudd had named him without doubt, the
man I admire most in the history of the twentieth century in an essay Rudd
published in The Monthly in October 2006.70 Therefore it may be of some interest
to Rudd that Bonhoeffer, too, was connected to the German neoliberal movement.
It was Bonhoeffer who, on behalf of the provisional governing body of the
Confessing Church, asked the neoliberal economists from Freiburg for a concept
for both domestic and foreign policies in Germany after the end of National
Socialism.71 The chapter on economic and social order was written by the Freiburg
economists Walter Eucken, Constantin von Dietze, and Adolf Lampe (all of whom
were deeply religious Protestants72), and it already contained many ideas that would
later influence the social market economy in post-war West Germany.73 After the
failed assassination of Hitler on 20 July 1944, parts of this economic memorandum
were obtained by the Gestapo. Eucken was repeatedly interrogated, Dietze and
Lampe arrested and tortured.74 Bonhoeffer himself had been arrested in 1943 and
was executed shortly before the end of the war, also for his involvement in these
post-war plans.
It may seem ironic that Kevin Rudds most admired man in recent history had
sympathies for neoliberalism, when the same Rudd has subsequently denounced
neoliberalism as an empty philosophy.
After World War II, the neoliberal movement rose from the ashes and gathered
once again, but this time in Switzerland. Just as Rougier had invited liberal
intellectuals to Paris in 1938, Hayek organised a similar meeting in Switzerland. It
took place at Mont Plerin in 1947, and among the participants of the initial
meeting were a number from the Colloque Walter Lippmann, including Ludwig
von Mises and Wilhelm Rpke. They were joined by the up-and-coming American
economists Milton Friedman and George Stigler, who would (like Hayek) both
win the Nobel Prize for Economics, but also by Walter Eucken, the head of the
Freiburg School. The tensions between the old liberals and the neoliberals
remained. At one stage, Mises famously stormed out of a meeting shouting angrily
Youre all a bunch of socialists.
Shortly after the Mont Plerin Society was established (named after the location as
the participants could not agree on anything else), Alexander Rstow joined the
group.75 He became an active contributor to the meetings of the Society, speaking
at its events in 1950, 1953, 1956, 1957, 1960, and 1961.76 Ludwig Erhard, the
German economics minister and later Chancellor, also became a member. It was
Erhard who had made neoliberal ideas popular in post-war Germany, where they
were promoted under the label Social Market Economy (Soziale Marktwirtschaft).
The term social market economy was invented by Erhards adviser Alfred MllerArmackwho also became a member of the Mont Plerin Society.
21
It was in West Germany where neoliberal ideas were first implemented. The
neoliberal economists around Erhard, Rstow, Eucken, and Mller-Armack could
draw on the theories they had developed in the 1930s and 1940s and contribute to
West Germanys reconstruction after the War.77 Price controls were abolished by
Erhard when he was Director of Economics for the British and American occupied
parts
of
Germany.
Later
in
the
1950s,
the
Gesetz
gegen
Wettbewerbsbeschrnkungen (Law against Restraints of Trade) was introduced by
Erhard, fulfilling the neoliberals demand for tough measures against market
power. The result of all these policies was impressive: The West German economy
grew at a remarkable pace in the first two decades of the Federal Republica
convincing vindication of free markets and ordo-liberal policies.
However, the Social Market Economy became more and more socialist (i.e.
redistributionist) over time. Whereas Erhard had always insisted that the market
was inherently social and did not need to be made so, in political practice the
German welfare state grew biggermuch to the dismay of Rstow. He complained
that the German welfare state had developed into an overly complicated system
since it was started under Bismarck.78 Rstow also called for a more restrictive
social policy as a prerequisite of the Social Market Economy. A social policy, he
warned, could well turn into an anti-social policy if it burdened the public with
excessive taxes.79
In Germany, neoliberalism at first was synonymous with both ordo-liberalism and
Erhards Social Market Economy. Over time, however, the original term
neoliberalism gradually disappeared from public discourse. In particular, the
Social Market Economy was a much more positive term and fitted better into the
Wirtschaftswunder (economic miracle) mentality of the 1950s and 1960s. Ordoliberalism, on the other hand, probably better described the institutional research
agenda of those academics working in the tradition of the Freiburg School (which
Hayek joined when he returned from Chicago). While both ordo-liberalism and the
Social Market Economy are until the present day well-established and clearly
defined concepts in Germany, neoliberalism has almost been forgotten as their
common, original root.
Outside Germany, neoliberalism was forgotten even sooner. Although the Mont
Plerin Society in some way continued the work started at the Colloque Walter
Lippmann, the focus shifted from a radical redefinition of liberalism towards
keeping liberal (i.e. classical liberal) ideas alive and spreading them around the
world.
The result was that nobody wanted to self-define as a neoliberal anymore. The
Germans had found other words to express the middle-of-the-road philosophy of
neoliberalism, while the liberals outside Germany returned to dealing with classical
liberal propositions, reducing the need to talk about neo-liberalism.
Whereas in academic literature from the 1930s to the early 1960s neoliberalism was
quite a well-known idea, it sank into almost complete obscurity in the 1970s and
1980s. It remained there until the opponents of liberal reforms started using
neoliberalism as a tool of political rhetoric, clearly unaware of the real meaning of
the word. Some authors have argued that the word neoliberalism resurfaced in
22
23
fact, Rudd explicitly warned not to throw the baby out with the bathwater as the
pressure will be great to retreat to some model of an all-providing state and to
abandon altogether the cause of open, competitive markets both at home and
abroad.
Taken together, the criticism of laissez faire plus the recognition of the power of
markets and scepticism of state power is the core of the neoliberal project as it was
once formulated. This would almost make the Prime Minister a neoliberal in the
original meaning of the word, although he would probably be surprised if he found
out. However, Rudds policies suggest that he is less aware of the limits of
government than he is aware of the limits of markets.
If there is one lesson that we could draw from dealing with the early history of
neoliberalism for our political debates today, it is this: Neoliberalism is a far richer,
more thoughtful concept than it is mostly perceived today. First and foremost, it
emphasised the importance of sound institutions such as property rights, freedom
of contract, open markets, rules of liability, and monetary stability as prerequisites
for markets to prosper and thrive. It seems that the global financial crisis has once
again demonstrated how important these core insights of neoliberalism are.
To those criticising neoliberalism today, the answer may well be just that: We need
more of this kind of neoliberalism, not less. What we would need less of is only the
rhetorical abuse of neoliberalism for political purposes.
Endnotes
1
2
4
5
6
8
9
10
11
12
13
14
Robert H Bork, The Antitrust ParadoxA policy at War with Itself (New York, 1993), 15.
See Michael Wohlgemuth, Das Gespenst des Neoliberalismus, posted on Wirtschaftliche
FreiheitOrdnungspolitischer Blog (Economic FreedomThe Order Policy Blog), 2
September 2007, http://wirtschaftlichefreiheit.de/wordpress/?p=69.
Taylor C Boas and Jordan Gans-More, Neoliberalism: From new liberal philosophy to
anti-liberal slogan, Studies in Comparative International Development (forthcoming).
http://andrewnorton.info/2009/04/non-existent-neoliberals-and-neoconservatives/.
Kevin Rudd, The global financial crisis, The Monthly, February 2009, 2029.
Alexander Rstow, Freie Wirtschaftstarker Staat. Die staatspolitischen Voraussetzungen
des wirtschaftlichen Liberalismus, in Franz Boese (ed.), Deutschland und die Weltkrise
(Dresden: Schriften des Vereins fr Sozialpolitik, vol. 187), 6269.
Alexander Rstow, Das Versagen des Wirtschaftsliberalismus 2nd ed. (Dsseldorf and
Munich, 1950) 1st ed. 1945.
Kevin Rudd, The global financial crisis, The Monthly, February 2009, 25.
Fritz Fischer, Hitler war kein Betriebsunfall. Aufstze. (Munich, 1992).
Ralph Raico, Die Partei der FreiheitStudien zur Geschichte des deutschen Liberalismus
(Stuttgart, 1999).
Oliver Marc Hartwich, Neoliberalismus als Heimatkunde, Die Welt (26 June 2007),
www.welt.de/welt_print/article975211/Neoliberalismus_als_Heimatkunde.html.
Philip Plickert, Wandlungen des NeoliberalismusEine Studie zur Entwicklung und
Ausstrahlung der Mont Plerin Society (Stuttgart, 2008), 27.
Oliver Marc Hartwich, Wettbewerb, Werbung und Recht (Munich, 2004), 19.
Uwe Wesel, Geschichte des Rechts, 2nd ed. (Munich, 2001), 449.
24
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
Justus Wilhelm Hedemann, Die Fortschritte des Zivilrechts im 19. Jahrhundert, Band 1
(Berlin, 1910), 3.
Anton Menger, Das Brgerliche Recht und die besitzlosen Volksklassen (Tbingen, 1890), III.
Otto von Gierke, Die soziale Aufgabe des Privatrechts (Berlin, 1889), 28.
Otto von Gierke, Der Entwurf eines brgerlichen Gesetzbuches und das deutsche Recht, 2nd ed.
(Leipzig, 1889), 59.
Ulrich Eisenhardt, Deutsche Rechtsgeschichte, 3rd ed. (Munich, 1999), 408411.
RGZ 3,67 (Decisions of the Imperial Court in Civil Matters); Helmut Khler, Die
wettbewerbsrechtlichen Ansprche, in Rainer Jacobs, Walter F Lindacher, and Otto
Teplitzky (ed.), UWG: Grokommentar (Berlin and New York, 1991), 9; Oliver Marc
Hartwich, Wettbewerb, Werbung und Recht (Munich, 2004), 2737.
Lujo Brentano, Mein Leben im Kampf um die soziale Entwicklung Deutschlands (Jena, 1931),
73.
Werner Abelshauser, Die Wirtschaft des deutschen Kaiserreichs, in Paul Windolf (ed.),
Finanzmarkt-KapitalismusAnalysen zum Wandel von Produktionsregimen, Sonderheft der
Klner Zeitschrift fr Soziologie und Sozialpsychologie (Sonderheft, 45/2005), 175176.
Werner Abelshauser, Deutsche Wirtschaftsgeschichte seit 1945 (Munich, 2004), 28.
Wolfram Fischer, Deutschland 18501914, in Wolfram Fischer (ed.), Handbuch der
europischen Wirtschafts- und Sozialgeschichte, Band 5 (Stuttgart, 1985), 391392.
Karl Erich Born, Preuen im deutschen Kaisserreich 18711918Fhrungsmacht des
Reiches und Aufgehen im Reich, in Wolfgang Neugebauer (ed.), Handbuch der preuischen
Geschichte, Band 3 (Berlin, 2000), 8794.
Werner Abelshauser, Deutsche Wirtschaftsgeschichte seit 1945 (Munich, 2004), 30.
HJ Braun, The German Economy in the Twentieth Century: The German Reich and the
Federal Republic (London and New York, 1990), 21.
Hans Jaeger, Geschichte der Wirtschaftsordnung in Deutschland (Frankfurt am Main, 1988),
111.
David J Gerber, Law and Competition in Twentieth Century EuropeProtecting Prometheus
(Oxford, 1998), 75.
Volker Emmerich, Kartellrecht, 8th ed. (Munich, 1999), 13.
RGZ (Decisions of the Imperial Court in Civil Matters), vol. 38, 155.
Hans Jaeger, as above, 112.
Achim Knips, Deutsche Arbeitgeberverbnde der Eisen- und Metallindustrie 1888-1914
(Stuttgart, 1996), 37.
Werner Abelshauser, Deutsche Wirtschaftsgeschichte seit 1945 (Munich, 2004), 2934.
Albrecht Ritschl, Der spte Fluch des Dritten Reichs: Pfadabhngigkeiten in der
Entstehung der bundesdeutschen Wirtschaftsordnung, in Perspektiven der
Wirtschaftspolitik, 6 (2005), 151170. German courts proved equally resistant to changing
their jurisdiction after 1945, continuing the influence of national-socialist ideology under
different pretences such as consumer protection: Oliver Marc Hartwich, Wettbewerb,
Werbung und Recht (Munich, 2004), 5758, 465.
Werner Abelshauser, The Dynamics of German Industry: Germany's Path Toward the New
Economy and the American Challenge (Oxford and New York, 2005), 56.
Hans Jaeger, as above, 155156.
Hans Jaeger, as above, 157.
Volker Emmerich, Kartellrecht, 8th ed. (Munich, 1999), 13.
Robert Nll von der Nahmer, Weltwirtschaft und Weltwirtschaftskrise, in Golo Mann,
Alfred Heu, and August Nitschke (ed.), Propylen-WeltgeschichteEine Universalgeschichte,
vol. 9 (Berlin, 1960), 374.
25
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
1,000,000 in parade in Soviet capital, The New York Times, 8 November 1932.
Franklin D Roosevelt, Nomination Address to the Democratic National Convention, 2 July
1932, www.feri.org/archives/speeches/jul0232.cfm.
For short biographical sketches of Alexander Rstow, see Joachim Starbatty, Zur
Einfhrung, Alexander Rstow (18851963), in Nils Goldschmidt and Michael
Wohlgemuth (ed.), Grundtexte zur Freiburger Tradition der Ordnungskonomik (Tbingen,
2008), 417423; Jan Hegner, Alexander Rstow: Ordnungspolitische Konzeption und Einfluss
auf das wirtschaftspolitische Leitbild der Nachkriegszeit in der Bundesrepublik (Stuttgart, 2000),
1526.
Joachim Starbatty, as above, 417418.
Michael von Prollius, Menschenfreundlicher Neoliberalismus, Frankfurter Allgemeine
Sonntagszeitung (10 November 2007), 13; Marc Beise, Das groe Missverstndnis,
Sddeutsche Zeitung (24 November 2008); Bert Losse, Chaos der Beutewirtschaft,
WirtschaftsWoche (9 March 2009), 42; Romanus Otte, Herzlichen Glckwunsch,
Neoliberalismus!, Die Welt (23 August 2008), 9.
A brilliant account of Anglo-German rivalries leading to World War I is given by Robert K
Massie, Dreadnought: Britain, Germany, and the Coming of the Great War (New York,
1991).
Alexander Rstow, Das Versagen des Wirtschaftsliberalismus, 2nd ed. (Dsseldorf and
Munich, 1950), 78.
Alexander Rstow, Zwischen Kapitalismus und Kommunismus, in Nils Goldschmidt and
Michael Wohlgemuth (ed.), Grundtexte zur Freiburger Tradition der Ordnungskonomik
(Tbingen, 2008), 423448.
Alexander Rstow, as above, 430.
Kevin Rudd, Moving beyond Brezhnev or Hayek, The Australian, 4 August 2008; see also
Oliver Marc Hartwich, Clueless road to serfdom, The Australian, 14 August 2008.
Alexander Rstow, as above, 434.
Alexander Rstow, as above, 436.
Alexander Rstow, as above, 435.
Alexander Rstow, as above, 434.
Alexander Rstow, as above, 435.
Joachim Zweynert, Die Entstehung ordnungskonomischer Paradigmenttheoriegeschichtliche
Betrachtungen, HWWI Research Paper 5-2 (Hamburg, 2007), 1014.
Alexander Rstow, as above, 437445.
Alexander Rstow, Rede und Antwort. 21 Reden und viele Diskussionsbeitrge aus den Jahren
1932 bis 1963, hrsg. von Walter Horch (Ludwigsburg, 1963), 73.
Alexander Rstow, Das Versagen des Wirtschaftsliberalismus, 2nd ed. (Dsseldorf and
Munich, 1950).
Alexander Rstow, Paloliberalismus, Kommunismus und Neoliberalismus, in Franz
Greiss and Fritz W Meyer (ed.), Wirtschaft, Gesellschaft und Kultur, Festgabe fr Alfred
Mller-Armack (Berlin, 1961), 70.
Philip Plickert, Wandlungen des NeoliberalismusEine Studie zur Entwicklung und
Ausstrahlung der Mont Plerin Society, (Stuttgart, 2008), 87106.
Jrg Guido Hlsmann, Mises: The Last Knight of Liberalism (Auburn, Alabama: 2007), 735.
Philip Plickert, as above, 100.
Henry M Oliver, Jr, German neoliberalism, The Quarterly Journal of Economics 74:1
(February 1960), 117149.
Philip Plickert, as above, 97.
Philip Plickert, as above, 105.
26
67
68
69
70
71
72
73
74
75
76
77
78
79
80
27
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