Neo-Liberalism vs. Classic Liberalism Essay

August 24, 2021 by Essay Writer

Even though that the socio-economic ideologies of Classic Liberalism and Neo-Liberalism are discursively related, there are nevertheless a number of conceptual differences between them.

Probably the most important of them is concerned with how both of the mentioned ideologies address the issue of what accounts for the main purpose of the society’s functioning. According to the proponents of Classic Liberalism (such as John Locke), the only reason why people do form societies, in the first place, is that it increases their chances to attain the state of self-actualization. In its turn, this can only be achieved under the condition that, while existing as the society’s integral parts, citizens are able to enjoy as much freedom, as possible.

As Locke noted: “Freedom of men under government is, to have a standing rule to live by, common to every one of that society… a liberty to follow my own will in all things, where the rule prescribes not; and not to be subject to the inconstant, uncertain, unknown, arbitrary will of another man” (IV par. 1).

Thus, it will be thoroughly appropriate to suggest that it is namely the idea of one’s essentially unrestricted freedom, upon which the Liberal paradigm is actually based. What it means is that, in the discursive sense of this word, the term ‘Liberalism’ is synonymous with the notion of freedom.

In this respect, Neo-Liberalism is much different. Even though, formally speaking, this ideology does proclaim its adherence to the idea that people should be given the liberty to go about realizing their existential potential in the manner that they consider the most appropriate, it does not quite agree with the Liberal assumption that freedom represents the biggest social virtue of all.

One of the reasons for this is that, unlike what it happened to be the case with Classic Liberalism; Neo-Liberalism refuses to refer to the notion of freedom as an abstract category, which represents the value of a ‘thing in itself’. Rather, it refers to this notion, as such that derives out of the notion of an ‘economic prosperity’. What it means is people are being simply in no position to enjoy freedom, unless they happened to be prosperous enough to be able to afford the luxury in question.

As Friedrich Hayek pointed out: “The word ‘freedom’ was subjected to a subtle change in meaning… Now it was made to mean freedom from necessity, release from the compulsion of the circumstances which inevitably limit the range of choice of all of us. Freedom in this sense is, of course, merely another name for power or wealth” (48).

What it means is that, in the discursive sense of this word, Neo-Liberalism is concerned with the accumulation of wealth, as the main precondition for people to be able to attain freedom, in the first place. Thus, whereas, Classic Liberalism seeks to ‘liberate’ people, Neo-Liberalism is mainly preoccupied with trying to ‘empower’ them.

Although the earlier mentioned difference between both of the discussed ideologies may appear insignificant, this is far from being the actual case. The reason for this is quite apparent – despite the fact that there is indeed a dialectical link between the notions of ‘wealth’ and ‘freedom’, there appears to be very little logic in suggesting (as Neo-Liberals do) that the first necessarily results in the latter.

Quite on the contrary – as the realities of a post-industrial living indicate, the wealthier some Western countries grow, the lesser is the scope of the social rights and freedoms that the affiliated citizens may consider taking a practical advantage of.

This explains why, contrary to what it should have been the case, the adoption of Neo-Liberalism, as the society’s ideological foundation, often produces the outcomes that hardly correlate with the notion of ‘empowerment’ – at least, for as long as the majority of the affected individuals is being concerned.

Another major difference between Classic Liberalism and Neo-Liberalism accounts for the fact that these ideologies do not share the same ground, within the context of how they conceptualize what is the role of the government in ensuring the economy’s proper functioning. According to the advocates of Classic Liberalism, the government should not be allowed to meddle in the country’s economic affairs.

In its turn, this reflects the Liberal assumption that the economy is a self-regulating organism, which never ceases to remain in the state of a continual evolvement. This, of course, implies that there is no need for the government to strive to ‘supervise’ the economy.

The very fact that the free-market economy’s modus operandi is concerned with the assumption of the undisputed supremacy of one’s right to exercise a private ownership over the physical assets, while seeking to make a commercial profit, creates the necessary preconditions for the economy to be functionally ‘independent’ of the government.

According to Locke: “Government has no other end but the preservation of property” (VII par. 18). This, of course, means that the less there are the governmentally imposed regulations, meant to ‘improve’ the economy’s workings, the better.

The proponents of Neo-Liberalism, however, do not quite agree with the above-stated. According to them, there can be certain circumstances, under which the government’s economic intervention can be deemed rather beneficial to the society’s overall well-being. As Hayek noted: “The successful use of competition does not preclude some types of government interference” (46).

The reason for this is that in some situations, the fact that people are naturally inclined to seek the profit-generating opportunities, as the actual purpose of their existence, cannot guarantee that they will automatically make the circumstantially appropriate economic decisions.

For example, it would prove counter-beneficial to the society’s well-being to allow factory owners to operate their businesses in the most commercially effective manner, because this would automatically result in the rapid deterioration of the environmental situation in the area.

Therefore, according to Neo-Liberals, it does not make much of a sense suggesting (as the proponents of Classic Liberalism do) that the notion of an ‘unrestricted economic competition’, on one hand, and the notion of a ‘governmental control’, on the other, are conceptually incompatible. After all, it would be inappropriate to assume that the government’s involvement with the matters of the economy must necessarily be concerned with the promotion of the protectionist (Socialist) agenda, on the governmental officials’ part.

According to Hayek: “Planning and competition can be combined only by planning for competition, not by planning against competition. The planning against which all our criticism is directed is solely the planning against competition” (46). In other words, the government is indeed being in the position to meddle with the country’s economic affairs, for as long as there are good reasons to believe that this will result in the economy growing ever more market-oriented.

This explains why the IMF (the organization that promotes the cause of Neo-Liberalism in the world) often insists that the governments of those countries that seek to receive a financial assistance, cut down on the social programs – the less there are ‘useless’ citizens, the better it is for the economy.

The last major difference between Classic Liberalism and Neo-Liberalism is concerned with how both of these ideologies conceptualize money. According to Liberals, money is the instrument of ensuring the efficient exchange of goods and services between the concerned parties. As Locke suggested: “As different degrees of industry were apt to give men possessions in different proportions, so this invention of money gave them the opportunity to continue and enlarge them” (V par. 35).

What it means is that money simply reflects the objective value of the physical assets in question. As such, money cannot possibly be discussed in terms of a ‘good’, which carries the intrinsic value of its own. Therefore, the process of designing a monetary policy, on the government’s part, may never cease being observant of what accounts for the ratio between the amount of traded goods, on one hand, and the amount of money in circulation, on the other.

Locke goes to substantiate the validity of this suggestion, as such that is being reflective of the fact that the amount of transacted money always equals with what happened to be the money’s nominal worth. What it means is that the price of a particular material asset is being solely concerned with this product’s quantity.

The above-stated, however, is something with which Neo-Liberals could not possibly agree. The reason for this is that, unlike what it happened to be the case with Classic Liberals, Neo-Liberals view money as the economy’s actual ‘fuel’. Therefore, according to the Neo-Liberal paradigm, money can be well used as the instrument of a social engineering: “Money is one of the greatest instruments of freedom ever invented by man.

It is money which in existing society opens an astounding range of choice to the poor man – a range greater than that which not many generations ago was open to the wealthy” (Hayek 62). Moreover, Neo-Liberalism also presupposes that money can be used as the tool for generating wealth out of the thin air – whatever bizarre it may sound.

Nevertheless, despite the idea’s apparent oddness, the realities of today’s living in the West are fully consistent with it. The validity of this suggestion can be illustrated, in regards to the fact that, as of today, the world’s finances can be well deemed in terms of the commodity of its own.

The functioning of what we refer to as the real-estate market confirms the soundness of the above-stated, as it is being largely concerned with the trade of the so-called ‘derivatives’, which are in essence the financial contracts between the two parties, backed by the third party’s financial obligations, which could be bought and sold in the open market.

These ‘derivatives’ continue to spawn the generations of the new ones, backed not by the value of the concerned physical assets, but by the originally issued derivatives. Nevertheless, as it was shown by the financial crisis of 2008-2009, the Neo-Liberal idea that there is some ‘metaphysical’ value to money, which in turn makes it possible to generate wealth without increasing the amount of the physical assets (the value of which money supposedly reflect), is not altogether faultless.