Classical liberalism emerged in the early nineteenth century as an idea explaining society's relevance to issues of poverty and wealth creation and its relationship to existing state political order or governance. In the past, basic human economic needs had been constrained to preserve and sustain social cohesion. The social markets were the preserve of the society and subject to many kinds of regulation and restraint. The intended outcome of classical liberal economic experiment in the mid-Victorian England was to demolish these social constraints, and replace them by free and deregulated markets that operated independently of social needs. The breakdown in England's economic life that ensued has been called the 'Great Transformation' where according to Karl Polanyi "Nineteenth-century civilization has collapsed" (Polanyi, 1944:3). According Polanyi nineteenth-century civilization was constructed on four pillars or institutions. These four constructs were interdependent such that if anyone of the pillars collapsed the others would be also be uniformly compromised. The first of these pillars was the 'balance of power' system that prevented long and destructive wars between main global power blocks. The second was the monetary exchange system embedded in world economy based on 'gold standard'. The third was the system of trade based on self-regulating market that was entrenched in the social welfare of the society - that created unequal distribution. The fourth was the liberal political system of the state governance. Polanyi witnessed and experienced the period of the 'Great Depression' in 1929, which set in motion the collapse of 'gold standard' exchange mechanism system. And long before then, in order to save the 'gold standard' system the other three pillars had already been weakened in trying to prop up a system that was collapsing on all fronts both nationally and internationally. The main driver of the overall state structure was the free and self-regulating market institute. Polanyi notes here that 'such an institution' could not be sustained for any length of time before it destroyed 'the human and natural substance of society'; he stresses that it would completely annihilate the very physical being of man and 'transformed his surrounding into wilderness'. Such an experience and understanding of one of the deepest crisis in man's history appeared to him as the end of '19th century civilization' (Polanyi, 1944, 1957, 2001).
This paper will critically demonstrate how in the contemporary period this transformation has evolved from one of classical liberal economic paradigm into a neo-liberal economic hegemony. It will briefly refer to Adam Smith's famous work 'The Wealth of Nations' (1776) in order to establish its relevance to modern economic practice. The paper will then discuss the relevance of the Keynesian liberal but centralised economic paradigm, which institutionalized international financial systems both under the Atlantic Charter and the Bretton Woods Conference from late 1940's through to the 1960's (Hettnee, 2005:8). It will then discuss the challenges to Keynes on two fronts; one by the school of thought that advocated 'social democracy and central planning' and another led by likes of Frederick Von Hayek and the Chicago School advocating unfettered free-markets which liberated corporate and business power on the one hand whilst re-establishing market freedoms on the other (Harvey, 2005:13). The paper will conclude by critically evaluating the fault lines in neo-liberal policy principles that are currently embedded in the economic prescriptions of the global economy. This paper asserts that what began in the 1970's in the name of Hayekian economic principles actually had very little to do with the classical model. Instead it was merely a politically motivated economic policy-making prescription which had disastrous effects on the global political economy.
The Origins of Classical Liberal Market...
Please join StudyMode to read the full document