Neoliberalism​ is often conceived as a system of self-regulating markets, shrunken states and crudely rational individuals. Early neoliberals, however, didn’t believe in markets’ self-correcting properties. Instead, as Quinn Slobodian argues in Globalists: The End of Empire and the Birth of Neoliberalism, they were concerned above all with establishing governments, laws and institutions in which markets could be embedded in order to make them work as they should – not only at a national but at a global level. This approach was a response to the fragmentation of empires that began after the First World War, and the popular demands for redistribution and self-determination that surged through the nation-states that took their place. When these demands impinged on the free trade order, neoliberals opposed them as a form of juridical trespass: imperium, the authority of territorial states, must not breach the rule of dominium, the boundless sway of private property. In tracing this dynamic, Slobodian draws an intellectual genealogy of the ‘neoliberal world economic imaginary’ from interwar Vienna to 1990s Geneva, and from the furious debates over economic planning that followed the fall of the Habsburg Empire to those that generated the EEC, the General Agreement on Tariffs and Trade and the WTO.

Slobodian could have spent even longer discussing the ways in which post-imperial Vienna shaped the thinking of the two theoretical economists whose lives spanned the ‘neoliberal century’: Ludwig Heinrich Edler von Mises, born to a politically connected merchant family in Lemberg in Galicia in 1881, and Friedrich August von Hayek, born in Vienna in 1899 to a long line of ennobled industrialists from Moravia. Mises began working at Vienna’s Chamber of Commerce in 1909, and became its secretary in 1918. The Austrian School of economics, in which he and Hayek were trained, had supplied the monarchical state with royal tutors and finance ministers for three generations. Defeat in the First World War brought the empire crashing down, shorn of three-quarters of its territory and four-fifths of its population. The socialist government of the First Austrian Republic, which took office in February 1919, introduced unemployment insurance, the eight-hour working day and other social reforms. Such measures didn’t go much beyond the reforms brought in by the New Liberalism in Britain before the First World War, but for Mises they were ‘Bolshevism’, and would ‘lead Vienna to starvation and terror within a few days’. ‘Plundering hordes would take to the streets,’ he warned, ‘and a second bloodbath would destroy what was left of Viennese culture.’

Mises saw himself as the ‘economic conscience’ of a civilisation on the verge of collapse. He recommended corporate tax cuts, balanced budgets, the violent repression of unions and the cutting of wages, which had risen as a result of the war and had to be reduced ‘far below their prewar level’ to restore competitiveness to Austrian industry on the world market. As finance minister, Joseph Schumpeter, his brilliant and erratic classmate at the University of Vienna, wanted to tackle inflation with a capital levy, which shocked Mises. When the socialist foreign minister, Otto Bauer, another former classmate, put forward a plan for limited state takeovers, Mises tried to sink it by arguing that central planning could never be implemented. Without markets to set prices, he said, there could be no efficient allocation of resources, no tallying of gains and losses; socialist management, he wrote later, would be ‘like a man forced to spend his life blindfolded’.

In 1921, Mises hired Hayek to work on the war reparations demanded by the Treaty of Saint-Germain-en-Laye. After returning home from the Italian front, Hayek had studied law at the University of Vienna, also taking classes in art history, biology and psychology, as well as making nightly trips to the theatre. The members of Mises’s Privatseminar would relocate to Café Künstler in the evenings, drinking, arguing and singing about economics, philosophy and drama until 3 a.m. The picture is at odds with Mises and Hayek’s portrayals of themselves as lonely and powerless. The first neoliberals were deeply involved in the cultural world of Vienna, where the study of economics was defined by political threats from the street.

In July 1927, the acquittal of three right-wing militia members for the murder of a war veteran and a child in a working-class district set off a general strike and demonstrations. Protesters put the Palace of Justice to the torch, and the police fired into the crowd, leaving 89 dead. ‘Friday’s putsch has cleansed the atmosphere like a thunderstorm,’ Mises wrote. ‘The street fight ended in complete victory for the police.’ He believed Mussolini’s victory had for the moment ‘saved European civilisation. The merit that Fascism has thereby won for itself will live on eternally in history.’ Talk of workers’ ‘right to the street’ or of ‘universal, equal and direct voting rights’ was often, he believed, cover for ‘terror and intimidation’. By contrast, he insisted to a group of German industrialists in 1931 that ‘the capitalistic market economy is a democracy, in which every penny constitutes a vote.’ Elected by means of what he called a ‘consumer plebiscite’, the rich depended on the ‘will of the people as consumers’, even when their wealth was inherited, since it could ‘be preserved only by those who keep on earning it anew by satisfying the wishes of consumers’. In 1934 Mises joined the Patriotic Front, launched the year before to rally support for the Catholic conservative and nationalist regime of Engelbert Dollfuss, which banned the Nazi and Communist Parties and forged an alliance with Italy. In February, Dollfuss moved against the socialists, putting down a fitful uprising of workers in Linz, shelling Karl Marx Hof in Vienna, expelling the Social Democrats from parliament and passing a new corporatist constitution. He was assassinated in an attempted Nazi coup in July.

That same year Mises left for Geneva. The Austrians had strong links with organisations in the city. The International Chamber of Commerce, founded in 1919 to bring American and European businessmen together, worked with the Financial Section of the League of Nations to lower tariffs, stabilise currencies and settle outstanding war debts. Mises had become Austria’s representative to the ICC in 1925, and when in 1927 he and Hayek opened the Business Cycle Research Institute in Vienna, they did so in close co-ordination with the League. The aim, Hayek wrote at the time, was to paint a ‘complete picture of the economic situation of the larger region and investigate the mutual dependency of smaller economic areas’: they produced some of the first models of regional and global economies. The Rockefeller Foundation gave $20,000 to the Vienna institute in 1931, and funded others in Bulgaria, Romania, Hungary and Poland. Four years later, the Graduate Institute of International Studies invited Mises to teach in Geneva. Its founder, William Rappard, the director of the Mandate Section of the League, described the institute as a diplomatic training ground for a transatlantic elite, and himself secured $100,000 from the Rockefellers. It became an academic hub for the most globally minded neoliberals, whose position was distinct enough, Slobodian argues, for the group to deserve its own name: the Geneva School.

By now, the Depression had struck, weakening the hand of the neoliberals. Demands for state intervention, and new theories to explain and counteract the crisis, now came not only from socialists but from liberals, many of whom had been allies of the neoliberals at the business summits of the 1920s. To ‘speak of a national, social or world economy’, Hayek later wrote, ‘is one of the chief sources of the most socialist endeavour to turn the spontaneous order of the market into a deliberately run organisation serving an agreed system of common ends’.

Events in Britain showed just how far liberalism had been blown off course. After the First World War, it had slowly and painfully led the world back to free trade, the gold standard and balanced budgets. But the illusion that London could achieve this on its own burst in 1931, when the Kreditanstalt collapse in Austria set off panic selling in the City, a run on the pound and an austerity budget that split the Labour government. To meet the crisis, Keynes (whom Hayek liked, but found curiously ignorant of economics) was willing to countenance all sorts of deviation from liberalism, while still pledging allegiance to it: fiscal stimulus, loose credit, tariffs, even an (ill-defined) ‘socialisation of investment’. Fears that liberalism itself could be co-opted and deformed in this way prompted Mises, Hayek and their allies to revisit and restate their doctrinal commitment to ‘true’ liberalism.

There was one bastion of genuine liberalism left in England: the economics department of the LSE, where Lionel Robbins invited Hayek to speak at the height of the national crisis in 1931, then offered him a post to lead the countercharge to Keynes. Hayek took to his new home, with its comforting social hierarchies and imperial responsibilities; it was ‘like stepping into a warm bath where the water is the same temperature as your body’. Public works and other ‘artificial stimulants’, such as low interest rates, could only make the Depression worse, he argued, since they had caused the crash in the first place. In a typical move, he insisted that what critics took to be a failure of the markets was in fact their true virtue. Equilibrium models erred in assuming a ‘perfect market in which everybody knows everything,’ Hayek told the London Economic Club in 1936. The magic of markets, on the contrary, was that few people knew much at all, but that their ‘spontaneous actions’ could still ‘bring about a distribution of resources which can be understood as if it were made according to a single plan, although nobody has planned it’. Hayek made ‘unknowability’ a central tenet of legal designs that sought to shield this providential planlessness – in which ignorance, error and disappointment all had roles to play – from the hubris of planners.

Two years later, he helped to organise the colloquium in Paris inspired by Walter Lippmann’s Inquiry into the Principles of the Good Society, which had used Austrian ideas to attack Roosevelt’s New Deal, while also urging liberals to move past ‘the fallacy of laissez-faire’ and build a positive legal-political agenda. The German economist Alexander Rüstow suggested ‘neoliberalism’ as a name for their collective project, as a way of indicating their dissatisfaction with 19th-century dogmas. Wide enough to encompass differing perspectives, the prefix also delimited their range: neither New Liberalism, with its record of expanded state assistance in Britain before 1914, nor bad old laissez-faire.

This​ is the conciliatory moment at which histories of neoliberalism often begin. By starting earlier and in Vienna, Slobodian shows that the common periodisations don’t hold up: the notion that neoliberals were, by and large, moderate in tone and inclined to compromise, only to lose their way in the 1970s and 1980s, is chimerical. The foundational intellectual work was radical, and took place before the Second World War.

In 1938, Robbins had blamed the rise of the Nazis on state planners, but as director of the war cabinet’s economic section in charge of food planning, he became a cautious convert to Keynesian macroeconomics. He was the exception. Before the war broke out, Hayek reported, ‘the general opinion in England was that the Nazis were a reaction, a capitalist reaction, against socialism.’ He was ‘so irritated by this’ that he drafted a memorandum for William Beveridge, then director of the LSE, intended to explain to ‘English intellectuals that they were completely mistaken in their interpretation of what the Nazi system meant, and that it was just another form of socialism’. During the war, he expanded this view into The Road to Serfdom. Written between 1940 and 1943, when the independence of the British state was at stake, the book imperturbably conflated fascism and social democracy, spending more time warning of the creeping menace of the latter than the evils of the former. Hayek conceded the need for a social safety net but, as Slobodian points out, only on condition that an interstate federation was in place to limit its growth – an authority above the nascent welfare state, with the power to say no to it.

In Omnipotent Government, published in 1944 in New York, where he had moved after the Fall of France, Mises condemned ‘self-styled liberals’ who were ‘enthusiastic friends of totalitarian methods of economic management’, and whose ‘notion of democracy is just the opposite of that of the 19th century’. He got a job at NYU and a rent-controlled apartment on West End Avenue. There, he developed his plans for postwar Europe, which was to be made safe for liberalism through federation. For the former Austro-Hungarian lands, he proposed an Eastern Democratic Union, ruled from a parliament in Vienna, with French and English commissioners (appointed by the League of Nations) controlling budgets, taxes, monetary policy, loans and police (to ensure timely payment), but coins, flags, anthems and other cultural artefacts left to the component nations. In The German Question, written in wartime Switzerland, Wilhelm Röpke offered another blueprint for Central Europe. In the introduction, Hayek praised Röpke’s ideas for dismantling the state Bismarck had built – a ‘large unit centrally organised for common purposes’ – in favour of decentralised federalism, ‘supplemented by the enforcement of complete free trade, external and internal’. This was not only the ‘most effective economic control’ aimed at preventing Germany from trying to become self-sufficient, but ‘the only kind of control that could not be secretly evaded’.

The international institutions that emerged under American hegemony fell short of these visions. The neoliberals may have been disappointed, but they were also motivated to fight the postwar consensus. From Switzerland, the Mont Pelerin Society, founded in 1947, a group of intellectuals, businessmen and politicians, surveyed the European empires that had survived the war. According to Slobodian, their ‘dream was of decolonisation without the destructive desire for economic autonomy’. In fact, their first choice was a free trade system like the old British Empire’s: facilitating the flow of goods and investment with bills of exchange and the gold-sterling standard, intervening directly when necessary to preserve European lives and property.

Unlike the more clubbable League, The United Nations was never to neoliberal tastes. It seemed to extend what Mises and Hayek distrusted most in modern nation-states: one man, one vote; a forum where poor, newly independent countries could ask for exemptions to the rules of the free market. Were neoliberals naive enough to believe the UN was democratic, when the Security Council gave five of its members a veto over all the rest? If so, the misunderstanding proved useful. They scored a significant tactical victory in 1948, when they sank the International Trade Organisation, meant to be the third pillar of the Bretton Woods system after the IMF and World Bank. Rather than risk the limited exemptions to free trade that Latin American and Asian delegates were seeking in order to industrialise or pursue full employment, the neoliberals torpedoed the whole thing before it even got to the UN for a vote. They did this in part by adapting the language of the Universal Declaration of Human Rights. Michael Heilperin, a founding member of Mont Pelerin, wrote the ICC’s International Code to Protect Foreign Investments, which enshrined the ‘preferential’ standing of foreign investors over the host state. Neoliberals, in other words, deftly promoted the human right of the stateless investor to capital flight.

Such strict conceptions of capital mobility did more than make enemies of developing countries. They antagonised the UK delegation to the ICC. To build the New Jerusalem in a context of postwar scarcity, Britain had to staunch the hot money flows that had wreaked havoc in the 1920s and 1930s. It also needed colonies, not least for their raw materials, which earned it dollars on the world market. When in 1951 Iran nationalised the Anglo-Persian oilfields at Abadan, Britain’s largest overseas asset, Mises showed no sympathy. ‘If it is right for the British to nationalise the British coal mines,’ he wrote, ‘it cannot be wrong for the Iranians to nationalise the Iranian oil industry. If Mr Attlee were consistent, he would have congratulated the Iranians on their great socialist achievement.’ ‘The Mossadeqs’, Röpke later added, were appealing to ‘the Attlees and the Bevans, who have inspired them with the idea of nationalisation’. The Iranians weren’t justified in taking the oil, but Britain could hardly expect better, when it had already violated the principles of private property. The solution was not to decolonise abroad but to denationalise at home.

Colonial subjects demanded the opposite: economic development along national lines and self-determination on the world stage. In resisting them, how important was the category of race for postwar neoliberals? Slobodian says that explicitly ‘racial thinking’ was rare, though Röpke was a major exception. In 1964 he published South Africa: An Attempt at a Positive Appraisal, which argued that apartheid was justified because the ‘South African Negro’ was not only of ‘an utterly different race’ but ‘a completely different type and level of civilisation’. Pretoria ordered 36,000 copies. When foreign students protested in the Neue Zürcher Zeitung against his giving a lecture on Africa in Zurich, he told a friend that ‘these NZZ intellectuals will not be satisfied until they let a real cannibal speak.’ Infuriated by the uneasy response in Western capitals to Ian Smith’s Unilateral Declaration of Independence in Rhodesia, he said: ‘If a white developing country proves that development aid is unnecessary then it has to be destroyed.’

Other neoliberals may not have endorsed this kind of racism, but when demands for equality between the races threatened to result in the redistribution of property, their positions often converged with Röpke’s. Hayek publicly opposed the use of sanctions against apartheid (even an arms embargo went too far), and didn’t favour black majority rule unless the state could first be stripped of its powers to do economic mischief. He confided to his secretary that he liked blacks no better than Jews. In 1976, Milton Friedman spoke up in Newsweek for white minority rule in Rhodesia, and visited the University of Cape Town to explain to its predominantly white, segregated student body his opposition to universal suffrage in South Africa. Echoing Mises, he described it as ‘highly weighted voting in which special interests have far greater roles to play than does the general interest’. William Hutt, an LSE-trained economist and labour specialist whose 1964 book The Economics of the Colour Bar is often still cited as evidence of principled neoliberal opposition to racism, was transfixed by the danger of the ‘tyranny of parliamentary majorities’ in Africa. Hutt suggested using an educational test to weed out black voters, to be followed (at best) half a century later by a weighted franchise that would enhance the value of Europeans’ votes as their share of the total declined. He warned Smith before UDI that such arrangements were essential if his regime was ‘not to be replaced by an era of black domination’.

Slobodian is right to stress that ‘the main stream of neoliberals saw a world of rules, not a world of races,’ but this made their theories attractive to many who saw the world in racial terms. The formal freedoms of the marketplace, of buyers and sellers, have always meant that those excluded from it need not be named. Far from dissolving existing social relations, the neoliberal vision of a depoliticised economy offered ingenious ways to seal them in amber – whether in Austria, South Africa or the American South. Hayek designed constitutions for Salazar in Portugal and Pinochet in Chile – as ‘proof’, he told Salazar, ‘against the abuses of democracy’, and proof, too, that ‘it is possible for a dictator to govern in a liberal way.’

But the most important constitutional breakthrough for neoliberalism did not come in the underdeveloped periphery. As Slobodian demonstrates, it came in Europe, where German Ordoliberals played a decisive role in European integration. At the outset, neoliberal ranks divided over the Treaty of Rome. For the Austrians, concessions made to Paris over agriculture and imperial preference meant the glass was half empty. Not only were inefficient French farmers to be subsidised, but the inclusion of its empire – as well as Belgium’s – wasn’t an extension of free trade so much as a regional cartel. Territorially, 90 per cent of the common market fell outside Europe and negotiations stumbled at the last minute over German demands for tariff-free access to cocoa, coffee and bananas from Latin America.

The Germans actually involved in treaty negotiations were more clear-sighted about the EEC’s potential and helped ensure that its laws on the free movement of the factors of production were ‘directly effective’, applying to both member states and individuals, and enforceable in national courts and the European Court of Justice. This was the legal framework the neoliberals had long sought, in which uniform rules for market activity operated across borders, overriding national legislatures. Robbins, Mises and Hayek had dreamed of regional federations of this kind in the 1930s; as enacted, the EEC surpassed their blueprints. Competition law became the linchpin of this supranational order, a model of ‘multilevel governance’. The EEC started out as an uneasy compromise between German Ordoliberalism and French neo-colonialism, but it wasn’t long before the first had outflanked the second. Later treaties extended its logic. In 1992, Maastricht placed basic elements of sovereignty beyond the reach of states, laying the groundwork for the introduction of the single currency in 1999. In 2012 the Fiscal Compact saw the budgetary rules of the Eurozone written directly into national constitutions.

Against the ‘regionalist’ Treaty of Rome, ‘universalists’ such as Heilperin, Röpke and Gottfried Haberler championed the General Agreement on Tariffs and Trade (GATT) of 1947, for which Haberler wrote a report in 1958 criticising the EEC’s ‘Eurafrican’ clauses as obstructions to free and fair competition. Former colonies at first used the report to complain of the EEC’s discrimination, but many had shifted strategy by 1974, when the UN General Assembly passed a non-binding resolution calling for a ‘new international economic order’ at the behest of developing countries, given temporary clout by a commodities boom. This resolution asserted the right of states to regulate and, if necessary, nationalise multinational corporate assets, with compensation to be settled by domestic courts. Haberler pronounced its demands a deadlier menace to liberty than communism. In Geneva, Jan Tumlir, GATT’s resident ‘philosopher’, and Ernst-Ulrich Petersmann, a former student of Hayek’s, were working on a long-term counterattack, setting out capital-friendly rules for a globalisation no longer just of trade in goods but of intellectual property and services – an ‘economic constitution for the world’. They did so in close dialogue with Hayek, who was busy updating his ideas for the cybernetic age. In Law, Legislation and Liberty he insisted that, even though markets formed a spontaneous evolutionary order, they required a legal framework to function. In 1995, inspired by this vision, GATT was transformed into the WTO: dispute settlement bodies, modelled on the European Court of Justice, would adjust, and adjust to, the signals of a free trade cosmos. If the WTO fell short in practice, it was for a simple reason, Slobodian suggests: its profile was too high, providing anti-capitalist protesters with a clear target in Seattle in 1999. By this point, he has laid to rest one myth about neoliberalism: in its Genevan form, its ‘core value’ was not the freedom of the individual ‘but the interdependence of the whole’.

His book stops here, without examining neoliberalism’s refusal to fall after the crash of 2008, and its continued grip since then – a defiance of intellectual gravity that needs historical explanation. Why has its triumph proved so enduring? From fin-de-siècle Vienna to victory in the Cold War (and the moment when the 92-year-old Hayek stepped up to the White House to accept the presidential Medal of Freedom from George H.W. Bush), it may look as if neoliberalism won by force of argument. There are reasons to doubt this. Much of its rise as a pensée unique was due to the economic crisis of the late 1970s and early 1980s, which we can now see it did little to resolve. By 1979, commodity prices had collapsed, and the Volcker Shock sent interest rates soaring: dollars flooded back to the US, and countries with heavy debts had little choice but to accept the terms imposed by the IMF and World Bank in order to service their obligations and stabilise their currencies.

Slobodian doesn’t have much to say about the phenomenal growth of global finance over the last forty years, or the role neoliberals played in it. But footloose capital has been the ultimate disciplinarian for governments looking to tax, redistribute, nationalise or devalue; the mere threat of bond market volatility is used to scare citizens from voting for such ‘reckless’ policies in the first place. It isn’t much comfort to look back to Bretton Woods as a contrast to the present situation. That system allowed for capital and currency controls, which Britain among others had sought, in order to avoid the speculation and capital flight of the interwar period and build the welfare state. But it was riddled with holes. By the 1950s, the City had found ways around it, welcoming (with Bank of England and Treasury help) the unregulated euro-dollar markets created by US deficits, which unleashed speculative waves against the gold-dollar standard, undermining Bretton Woods from within. The deregulatory dynamics of financialised capitalism arose from the competition for this business, poised between New York and London. Since 2008, no government has dared to restrain or even re-regulate the financial sector, and the fallout has been managed not only on its terms, in the form of bank bailouts and quantitative easing, but by the sector’s own personnel. Whatever taboos Trump has broken in the US, failing to hire former Wall Street executives to lead his economic team has not been one.

What lessons does Slobodian’s book hold for those who wish to break out of neoliberalism’s straitjacket? The Geneva School knew just what it wanted from international laws and institutions, above all in Europe. The same cannot be said for swathes of the left, for whom the idea of Europe remains shrouded in a benevolent mist. The image of the EU held by those who still hope to reverse the Brexit vote is rarely darkened by its actions, from the devastation of Greece under Troika-imposed austerity, to the stagnation of Italy, whose modest fiscal stimulus runs foul of Europe’s draconian deficit and debt rules, to the way it treats those who cross its southern and eastern borders. Membership of such a club may look preferable to exclusion from it, but it’s unclear why there should be much enthusiasm about the choice. Those committed to reforming the EU from the inside may be less complacent about the way it acts, but they seem just as hazy about what it is: not undemocratic, but anti-democratic; not a form of internationalism to be redirected in the interests of society at large, but a maze of legal fortifications built to evade and frustrate such designs. Marx described the workers as ‘storming heaven’ during the Paris Commune; but what would it mean for citizens to take the European Commission or Central Bank? The antidote to neoliberalism on this scale is not technocracy with a human face, but, as a first step, what it has always feared most: state power, in the hands of ordinary people. Whether Tory-led Brexit will eventually lead to that is another question.