At the Origins of Neo-Liberalism: The Free Economy and the Strong State, 1930–1947

Abstract

It is often suggested that the earliest theorists of neo-liberalism first entered public controversy in the 1930s and 1940s to dispel the illusion that the welfare state represented a stable middle way between capitalism and socialism. This article argues that this is an anachronistic account of the origins of neo-liberalism, since the earliest exponents of neo-liberal doctrine focused on socialist central planning rather than the welfare state as their chief adversary and even sought to accommodate certain elements of the welfare state agenda within their market liberalism. In their early work, neo-liberal theorists were suspicious of nineteenth-century liberalism and capitalism; emphasized the value commitments that they shared with progressive liberals and socialists; and endorsed significant state regulation and redistribution as essential to the maintenance of a free society. Neo-liberals of the 1930s and 1940s therefore believed that the legitimation of the market, and the individual liberty best secured by the market, had to be accomplished via an expansion of state capacity and a clear admission that earlier market liberals had been wrong to advocate laissez-faire.