The Battle of Ideas: Neoliberal Economics and Politics in the 20th Century

Abstract

The first half of the 20th century was a tragic time for classical liberals. Their philosophy, arguing for a limited state and a self-regulated economy, had dominated policies in the 19th century in the Western world. But from the late 19th and early 20th centuries, progressive intellectuals suspicious of capitalism were beginning to play a greater part in public discourse. In the war from 1914 to 1918, the classical liberal world came to an end, politically as well as intellectually. As Hayek (1967 [1951]) later remembered: ‘At the end of the First World War the spiritual tradition of liberalism was all but dead.’ The war had triggered a massive expansion of (military) government. It brought the first large-scale experiments with central coordination of resource allocation, production and distribution, as well as trade restrictions and strong regulation. After 1918, the liberal social order lay in ruins, in Russia and — to a lesser extent –in the Western countries as well. As a result of the huge build-up of public debt for war financing, the end of the Gold Standard and the subsequent rapid expansion of the paper money supply, hyperinflation emerged in Central Europe, with devastating consequences for social stability.