WE ARE ALL THIRD WAY:

In the 1930s liberalism was under fire. The world was grappling with the fallout from WWI and the effects of the ongoing Great Depression. Both socialism and fascism were coming to prominence. Understanding that something must be done, intellectuals at the time were individually coming to the conclusion that something must be wrong with the predominant governing ideology of the time: classical liberalism.

Classical liberalism broadly espoused the view that individual rights and liberty were paramount above all else, and that left alone society would naturally organize itself into a utility-maximizing market economy. Alexander Rüstow, a German sociologist, wrote at the time that under classical liberalism, free markets were considered "as natural and divine laws, upon which the same dignity and even the same universality as those of mathematics were conferred."  But following the Great Depression, intellectuals began to question the idea that the market economy captured the "natural order." Instead, they suggested that the classical market economy was the product of man, particularly the legal system. If this was true, then the market economy was not simply the natural order of society. Rather, the free market was the product of an arbitrary legal system opted into by societies. This meant that the free market was unnatural.

As it became clear that the public was not satisfied with classical liberalism, particularly its laissez-faire approach to economic affairs, intellectuals surmised that unless liberalism were reformed to increase state intervention then it would collapse and give rise to totalitarianism. Rüstow was a leader of this movement. A former socialist who had become disillusioned with the ideology after the rise of the Soviet Union, Rüstow wanted to chart a "Third Way" between the laissez-faire approach and socialism.

Rüstow's conception of a third way ideology sounds similar to the same values modern neoliberals uphold. In his speech, Free Economy, Strong State, which would later be regarded as the founding document of neoliberalism, Rüstow decried excessive government intervention in the market but simultaneously called for the state to set and enforce the rules of the economy. He argued that society should seek to maximize freedom, which neither classical liberalism nor socialism was able to do. His prescriptions mirror this attitude. He believed that the state should promote gainful employment. But minimum wages, he argued, interfered with the market too heavily. Instead, he proposed wage subsidies financed through tax revenue, which could provide the same effect as minimum wages without the market-distorting tradeoffs. He called for the government to end "protectionism", "regulatory capture" and "corporate welfare. In later writings, he also proposed several policies that fall well away from neoliberalism's pejorative conception: a ban on advertising because only large companies could afford it, implementing a tax on the size of business to promote competition and nationalization of all utility companies and weapons manufacturers.

Rüstow's neoliberal project was accompanied by the American journalist Walter Lippmann who formalized the growing consensus to reform liberalism in his book The Great Society. In it, he broadly critiqued collectivism, particularly socialism and fascism, but also of laissez-faire economics and the New Deal. Effective freedom in the economic sphere, he wrote, was not possible without government involvement. He proposed the creation of public health authorities, the prohibition of monopolies, increased income taxes, public education, and more.

Lippmann's book became a hit, and in 1938 the Walter Lippmann Colloquium was organized in Paris to discuss his ideas. Twenty-five intellectuals from around the world were in attendance, including Rüstow, August von Hayek, Ludwig von Mises, and Lippmann himself. But the meeting would not merely be a book club. Rather, the theme of the colloquium became the need to put out a positive vision to replace classical liberalism.

By the end, the attendees had come to an agreement on the need to replace classical liberalism with a new form of liberalism. But the agreement was not felt equally by all. The left-liberals, Rüstow and Lippmann in particular, were more enthusiastic about the project than their right-liberal counterparts Hayek and Mises. Rüstow's influence on the colloquium was evident in the name the attendees agreed to call their new project: neoliberalism.

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