"The interests of merchants always differ from public interests. As a rule, they are interested in deceiving and misusing the general public" (Adam Smith). Keynes established that the market alone cannot ensure the prosperity of everyone.
NEOLIBERALISM OR NEW FREEDOM FOR CORPORATIONS
Instruments of Worldwide Exploitation
By Ulrich Spangenberger
[This 2010 essay is translated abridged from the German on the Internet, www.grin.com/document/143338.]
1. From Laissez-faire Liberalism to Neoliberalism
a) The Laissez-faire Liberalism of Adam Smith
“The interests of merchants of all branches in trade and commerce always differ from public interests and occasionally oppose them (…). Every proposal of a new law or new regulation on trade coming from them (merchants) should always be met with great caution. They should never be adopted without profound and careful, even mistrustful and suspicious scrutiny because the interests of this group of persons never correspond exactly to the public well-being. Rather, as a rule, they are interested in deceiving and even misusing the general public.”
Adam Smith, The Wealth of Nations, p.213
The rapid and continuous reorganization of economic and social relations that began at the end of the 18th century is commonly described as the industrial revolution. The book by Adam Smith (1723-1790) “The Wealth of Nations”) arose in this time.
In his investigations, Smith wrote about the reasons for the wealth of nations. He concluded that the capitalist economic system was the best of all possible social orders. Through it, societies are led to a prosperity in which everyone can share. He regarded the competition of every individual against every other individual as the most efficient engine. According to his theory, the forces of supply and demand regulate the market.
A dramatic sudden change or reversal was connected with the industrial revolution. The impoverishment of whole occupational groups – as in the weaver rebellions and the rural exodus – was the consequence. Through the use and accumulation of machines as means of production – that did not exist before this time -, the possibilities arose of producing a greater number of pieces than could be produced earlier with manual labor.
In this way, a class society was advanced. Capitalist entrepreneurs were the owners of the production plants who alone could heap up profits produced by the workers at the plants.
However, unlike most economists following him, Smith recognized the danger of the inhuman effects in the nascent new world of division of labor. He also warned and urged a strong state that should flank and limit the regulatory measures the power of the market that can be destructive.
With his successors, the social elements were eliminated from their social reflections. The economists convinced themselves only free markets exist in a market economy. No crises as for example unemployment can occur.
The price formation on the market through supply and demand served as substantiation. It was assumed all equipment, all investment and all labor power would be used completely… The promise of this economy described as classical liberalism was optimal prosperity and maximum freedom for everyone. That reality appeared differently in the 19th century than today was entirely ignored and denied.
A rethinking first began after the end of the 1920s with the great crises like the 1923/24 inflation, the worldwide economic crisis, the collapse of the markets and the 1929 stock market crash. Then it was obvious that the market and the laws could not fulfill what they promised.
b) The Genesis and Definition of the Term
Neoliberalism in 1938
It took almost ten years until August 1938 when leading economists and social scientists met in Paris to give a new basis to the economic order.
{How can a system function in which the points are set from above? Why do concerned people never have the possibility to express themselves and determine what they want? As a very simple answer, the system does not encourage speaking and defining from below.}
Scholars recognized the current economic system as the culprit for the chaos and impoverishment in the world. Among academics, the later Austrian Nobel Prize winner von Hayek, a fellow supporter of Milton Friedman after the 2nd World War, proved himself in the government years of Margaret Thatcher. Academics reproached classical liberalism for completely ignoring the social question – long admonished by Adam Smith – and actually saw an economy where the market forces could operate unregulated. They argued in a contrary way. An unregulated economy endangers competition and promotes the formation of monopolies and cartels as in Nazi Germany. It was Alexander Rostow who coined the term neoliberalism with the sentence: the new liberalism (…) requires a strong state, a state above the economy and above interested parties. Thus, the state for these academics was seen and urged as the higher authority.
This description of the tasks and the definition of the neoliberal term were very different than the contemporary view marked by the ideas of Milton Friedman.
2. John Maynard Keynes
The thesis of john Maynard Keynes (1883-1946) was summarized in his 1936 work “General Theory of Employment, Interests and Money.”
Keynes described the teamwork of the state and the economy on the backdrop of the worldwide economic crisis. He concluded a government based on democratic elections and its fiscal- and economic policy must act when the market alone cannot ensure full employment and rising prosperity.
Keynes established that the market alone cannot and will not ensure adequate prosperity when he explained that all things that are produced cannot be sold. That the money supply that is saved or not spent is missing from the economic process is tied to this idea...
Thus, Keynes saw the problem of the “free” market in that wealth is saved and this saved wealth is not reinvested leads to the accumulation of the private wealth of entrepreneurs and top-earners. A gap inevitably arises between the produced and the demanded goods. While wealth arises on the side of the saving parties, increasing impoverishment occurs on the side of those unable to save. For that reason, Keynes concluded, a redistribution of income from top to bottom and regulatory state actions are necessary.
As a means to that goal, Keynes named lowering general taxes, for example the profits tax, or taxes on basic needs and simultaneously levying a “wealth tax”…
Keynes saw another possibility for making investments in a short-term indebtedness of the state. In addition, he proposed hiring the unemployed through borrowing which would lead to more income and increased demand.
A demand-oriented economic policy could generate the wealth of poor sectors of the population. Funds for consumption are possible that would not exist under purely free enterprise criteria. Better social security, schools, youth centers and parking lots could be financed.
Reflections on a modern welfare state face a great obstacle. They can only be realized if the profit claims of corporations and companies are restricted…
3. The Theory of Milton Friedman
Something entirely different than what the founders described in 1938 is understood under neoliberalism today. While neoliberalism’s founders can be compared with the social market economy of the postwar era, Ludwig Erhardt would turn in his grave if he were described as a neoliberal according to today’s understanding.
In the second half of the 1960s, the American “New Deal” (Roosevelt promised more justice through introduction of social security systems in the 1932 American presidential election campaign) and Keynesian economic policy came into crisis after a long time of unabated economic growth…
The cause of the economic downturn that began in 1965 was mainly over-production. Goods were not purchased and private and public investments declined.
Thus, the theories of Keynes apparently hit their limits and the hour of Milton Friedman (1912-2006) struck. Friedman urged a rigid fiscal policy oriented in growth of the money supply as an alternative to the politically-controlled economy with debt-financed economic programs. Withdrawal of the state from the economy and the self-healing powers of the market were appealing.
Milton Friedman and the neoliberalists met in the Mont-Pelerin Society after the Second World War. He was also marked by the spirit of the neoliberal founding fathers. But instead of going back to the roots, he and his Chicago School soon uncoupled from these roots and set the market – a market for suppliers – in the center of their reflections.
Thus, Friedman was a supply-fanatic who willingly polarized and provoked. He wanted to reduce state influence on the economy because he considered this instrument arbitrary and obstructive for a free economy. Lowering taxes and fees for businesses was emphasized in his model. He saw every incursion in the economy – particularly redistribution from top to bottom – as dangerous. For him, the welfare state was the enemy of the “free” market…. With his ideas, Friedman joined the successors of Adam Smith who wanted nothing but pure laissez faire liberalism or pure capitalism.
In his work, Friedman sought a minimal state. He said he was not a neoliberal (at least not in the sense of the Parisian neoliberals). He described himself as a liberal. Friedman’s critics who speak of the terror of the economy and/or the dictatorship of the market laid the foundations for today’s understanding of neoliberalism. The new definition of the term was marked by the critical discussion with the monetarism of the Chicago School.
The main demand of neoliberalism (and neoliberals) can be summarized in a simple formula: market instead of politics! This is nothing but the repeated – and failed – attempt to exchange or buy and sell everything on unregulated markets including health care, education and old age provisions. So the basic drinking water supply of the Bolivian people was covered by private suppliers. Then the price of water skyrocketed 20% and the farmers did not know how they could pay for that. But they were still “free.”