The Keynesian Revolution and the Neo-liberal Counter-revolution

Published on Global, by Dr. Eric Toussaint, July 15, 2009.

As a result of the depression of the 1920s and 1930s, a new wave of critics tackled the neo-classical creed on a largely pragmatic basis. This new wave was international and involved political leaders and economists from differing belonging to various currents backgrounds: enlightened bourgeois thinkers, socialists and Marxists. In a context of mass unemployment and depression, proposals came forward for major public works, for anti-cyclical injections of public money, and even for bank expropriations. Such proposals came from a wide variety of sources: Germany’s Doctor Schacht; the Belgian socialist Deman; the founders of the Stockholm School, backed by the Swedish social democrats; Fabian socialists and J.M. Keynes in Britain; J. Tinbergen in the Netherlands; Frisch in Norway; the Groupe X-crise in France; Mexican president Lazaro Cardenas (1935-1940); adepts of Peronism in the Argentina of the 1930s; US president Roosevelt (elected in November 1932) and his New Deal.   

The entire range of proposals and pragmatic policies was partially summed up in Keynes’s 1936 work General Theory of Employment, Interest and Money.

The Keynesian revolution: …

… Preparing the neo-liberal counter-revolution:

There was a swift reaction to the policies of state intervention aimed at boosting demand and moving towards full employment. From the beginning of the 1930s, Hayek and von Mises set out to demolish Keynes’s proposals.

‘Since 1945, in various academic and business circles, different projects have emerged simultaneously to bring together the qualified defenders of liberalism (neo-classical economics) with the aim of organising a joint response to the advocates of state intervention and socialism. Three centres where this post-War resistance was organised were: the Institut universitaire de hautes études internationales (IUHEI) in Geneva, the London School of Economics (LSE) and the University of Chicago[5]‘.

At the end of the Second World War, Hayek was teaching at the LSE. In 1947, he and Von Mises founded the Société du Mont-Pèlerin. The first meeting was held in April 1947 and brought together 36 liberal luminaries at the Hôtel du Parc at Mont-Pèlerin near Vevey in Switzerland. The gathering was financed by Swiss bankers and industrialists. Three major US publications (Fortune, Newsweek and Reader’s Digest) sent delegates. In fact, Reader’s Digest had just run an abridged version of one of Hayek’s main works, The Road to Serfdom. Among other things, that book said:

‘In the past, man’s submission to the impersonal forces of the market made possible the development of a civilisation which otherwise would not have emerged. It is through submission that we participate everyday in the building of something much bigger than what we can all fully understand[6]‘.

Right-wing economists and philosophers from different ’schools of thought’ participated in the gathering.

‘At the end of the meeting, the Société du Mont-Pèlerin was founded – a kind of neo-liberal Freemasonry, very well organised and devoted to the dissemination of the neo-liberal creed, with regular international gatherings[7]‘.

Among the organisation’s most active members were Hayek, von Mises, Maurice Allais, Karl Popper and Milton Friedman. It became a think tank for the neo-liberal counter-offensive. Many of its members went on to win the Nobel Prize in economics (Hayek in 1974, Friedman in 1976 and Allais in 1988).

Bibliography: … (full text).

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