An astute professor I know tells his audiences that historical criticism, regarding any topic, relies on a repertoire of two arguments: “It started earlier than that,” and “It's more complicated.” The point is not to deride the significance of these critiques (or a variant of the first: “really, it came about later than that”). Two new books in the history of capitalism and its ideologies, Freaks of Fortune and The Great Persuasion, provide new insights by insisting on precisely these points: from Jonathan Levy, we learn that the forms of “financialization” we associate with the last thirty to forty years of US capitalist development were anticipated by corporate developments of the nineteenth century, and Angus Burgin shows that the prevailing justification for the present order of things, often dubbed “neoliberalism,” evolved through a surprisingly tortuous path of intellectual argument and institution building.

Levy's book dwells on the rise of what the author calls (after William Dean Howells) the “economic chance-world” of modern capitalism (2). The bewildering, discomfiting notion that social affairs unfolded according to mere chance – rather than a recognizable moral logic – made “freaks of fortune” a common and telling locution during the American nineteenth century. It alluded to the “fickle goddess” Fortuna as well as to the literal fortunes, won and lost in ways ostensibly untethered to the merits, faults, or responsibilities of moral actors (17). Notwithstanding our assumptions that Protestant piety, an industrial work ethic, and “producerist” ideology governed the time, Levy argues that Americans were getting used to chance and the ubiquity of “risk”: Sometimes they celebrated freaks of fortune as “the upside of risk” (17–18), while they also yearned to suppress them; that is, to avoid, avert, or moderate “the downside of risk.” Indeed, it is through the somewhat presentist lens of what recent champions of financial innovation call “risk management” that Levy tells a startlingly new story of capitalist development.

According to Levy, risk had, until the early nineteenth century, a limited meaning: the value assigned to a ship's cargo that could be insured against loss due to the perils of stormy seas, piratical theft, or other mishaps beyond the control of the ship's investors or crew. If risk initially applied to things borne on water, the notion of “hedging” risk drew on a land-bound metaphor, namely the history of enclosures (hedges) that served to recast something once noncommercial (such as customary “commons”) as a tradable commodity. Thus, as nineteenth-century “financial entrepreneurs brought the insurance principle inland” (62), first in new forms of “life insurance,” they also extended the principle of enclosures by commodifying one aspect of life, work, and social relations after another. Levy tells this story through brilliant reconstructions of court cases, financial innovations, and debates, enlivened by portraits of individual actuaries and financiers rendered colorfully in their moral agonies and personal quirks. The story concerns economic development but also everyday moral philosophy, for the key “enclosure” of the time lay in the fashioning of the liberal individual according to the principle of “self-ownership” – and consequently the “ownership” of the “risks” of everyday life. Thus the “liberal ideal” of the free individual challenged not only the chattel principle of slavery but also any kind of (extra-market) social guarantees. Life insurers and actuaries found it natural to oppose slavery, while businesses denied responsibility for paying damages to workers maimed on the job, due to the free laborer's self-ownership of risk (unless the worker chose, privately and commercially, to off-load that risk to a provider of newfangled accident insurance).

Step by step – in the abolition of slavery and the white emancipators’ drive to remake freedpeople as wage-earners and depositors in savings banks; in the complete conversion of farming to commercial crops and the accompanying new device of farm mortgages; in the growth of cities inhabited by propertyless workers or salaried middle-class functionaries – one after another means of assuring security outside the market collapsed and was replaced by “liberal” principles of individuals ostensibly autonomous but newly dependent on markets. They could seek security only within the market; that is, by buying “hedges,” taking out insurance policies or mortgages or entertaining other financial options. To be “free” was thus to be bound to the market and hence more subject to “the economic chance-world.” (Marx and Engels wrote likewise in 1845 that “individuals seem freer … [when] in reality, of course, they are less free, because they are more subjected to the violence of things.”Footnote ¹) In this setting, ever new modes of speculation and trading promised to “spread risk” and hence reduce it – from commodity futures, which traders claimed helped smooth out swings in commodity prices, to mortgage debenture bonds that turned western farm mortgages into investment vehicles for easterners, thus inventing what we now call mortgage securitization. The apogee of financial development came with the Progressive Era promoters of corporate mergers, who promised that oligopoly would quash “ruinous competition” and convulsive business cycles – another fancy shattered by the Great Depression.

Levy's account enhances the new history of capitalism on several scores, including slavery's role in American capitalist development. Against old (liberal and Marxist) views that North and South represented distinct modes of production, recent analyses emphasize the integral role of slave production in the development of American capitalism as a whole. Whether that means that the slave South, in itself, counted as fully “capitalist,” remains tricky, and Levy offers an apt and convincing answer: while he occasionally calls the slave South “capitalist,” he notes its distinct “developmental dynamic,” setting it off from the northern political economy primarily because plantation production remained a sort of “safety-first” agriculture, capable of producing for its own diverse needs outside the market both as a matter of course and in emergencies. As a result, the South “was not in the business of accumulating flexible forms of financial capital” (89, 95).

This persistence of extra-market forms of security and lagging financial development were intertwined. The new “liberal” and financial order itself depended for its unbounded expansion on the phenomenon of “all-round market dependence” (as historians Ellen Meiksins Wood and Robert Brenner put itFootnote ²); that is, the creation of masses of people unable to meet their subsistence needs outside the exchange market – i.e. what Marx understood as the dispossession of direct producers and the historical creation of a propertyless working class (and a salaried middle class without independent property as a source of sustenance) – and, correspondingly, the emergence of an imperative drive to cheapen, by productivity gains, the cost of both subsistence and capital goods. Although Levy sometimes implies that “finance” rather than “industry” led American capitalist development, the interrelation of “liberal” individualism, all-round market dependence, and growth imperatives shows that stories of finance and capital–labor “industrial” relations must be understood as mutually implied.

The conclusion of Freaks of Fortune suggests that the crisis of finance capitalism in the 1930s ushered in a new era (or “New Deal order”) in which security became the watchword of public policy – only to be reversed, in turn, by our own age of financial innovation and insecurity. “Risk's nineteenth-century liberal history appears to have a neoliberal doppelganger,” Levy writes (316). Burgin's masterly book, The Great Persuasion, then picks up the story at least of the intellectual origins of that great “return,” i.e. the process of “reinventing free markets since the Depression.” The Great Persuasion provides the most lucid account available of so-called “neoliberal” ideas that are associated with the Mont Pèlerin Society (MPS) first convened in Switzerland in 1947 by Austrian free-market economist Friedrich Hayek; with the “Chicago school” of economists led by Milton Friedman, George Stigler, Gary Becker, and others; and now, colloquially and very generally, with the policies of “deregulation” and “unleashing” markets that have reigned since the late 1970s. Nonetheless, “neoliberalism” has always been a slippery concept. As the term came in and out of use over the course of an oft-interrupted history, its meaning has varied, sometimes flipped on its head, and traded places with any number of alternative labels.

Burgin's account follows those intellectuals, self-consciously marginal and on the defensive when the “age of Keynes” began in the 1930s, who began a decades-long campaign to challenge welfare-state ideology. They aimed to convert public opinion (and policy) back to faith in the pure price system of market exchange, understood both as the fount of “freedom” and as the unsurpassable mechanism of economic order, efficiency, and growth. In seemingly effortless prose, Burgin narrates a complex evolution of ideas, examining their intellectual content as well as the professional networks and institutional apparatus that sustained them. In the mid-1930s, Hayek, fresh from publishing with Ludwig von Mises their argument that socialist planners could never achieve the efficient allocation provided by the free-market price system, took a position at the London School of Economics (LSE), where Lionel Robbins was holding the fort for orthodox principles against the Cambridge Keynesians. Feelers went out to the trio of free-market economists at the University of Chicago – Frank Knight, Jacob Viner, and Henry C. Simons. Then a Paris group of “liberals” opposed to all planisme greeted Walter Lippmann's attack on New Deal centralism and defense of market individualism in his 1937 book The Good Society, as a world breakthrough that promised to rally all opponents of socialism and fascism. Attempts to fashion an international association of fellow-thinkers from these three locales (along with assorted German exiles and Swiss sympathizers) were frustrated by the war – to be revived by Hayek after his book, The Road to Serfdom, made an international sensation in 1945 and 1946 with its argument that economic planning inevitably led to totalitarianism.

Yet times had changed since Hayek's LSE heyday in the mid-1930s. Robbins had decamped to the Keynesians in the late 1930s, Lippmann had drifted away, Frank Knight remained leery of any kind of public advocacy, and hardly anyone in the loose association – excepting the dogmatist von Mises – embraced “laissez-faire.” Even The Road to Serfdom, Burgin reminds us, held

The “neo” of “neoliberalism” in the mid- and late 1940s signaled that the “liberalism” that these market defenders advocated was not a throwback to nineteenth-century “laissez-faire” or the supposed night-watchman state. Instead, they made way for a rather strong state, or, in Henry Simons's phrase, a “positive program” of market-based liberalism replete with appropriate government interventions.

Hayek intended the MPS to be a kind of interdisciplinary venture, guided by the purpose of fashioning an adequate, up-to-date political, social, and ethical philosophy to back up a liberal market order, capable of convincing a public scarred by Depression and war that a free-market system could still sustain a viable, whole way of life. To be sure, the approach to “the public” would be highly guarded: the MPS was a closed society of like-minded people, based on membership by nomination, attempting through intellectual discussion and innovation to create an elite band of advocates who could gain the ear, ultimately, of policymakers. The intellectual elitism was patent, and for many if not most of the members “liberalism” did not mean “democracy”; it implied instead wariness of popular sovereignty. Von Mises held the flame for genuine laissez-faire, and though the younger generation of Chicago economists – Milton Friedman, Aaron Director, and George Stigler, who were all present at the creation – were leaning in that direction, a substantial contingent of Europeans merged their market principles with a kind of traditionalist social ethics linked to the positive state. That group, represented by German economist Wilhelm Röpke, came to be known as “ordoliberals” (with reference to “social order”) who advocated a regulated “social market”; they were driven out of the society by the late 1950s, while other “liberals” who were antistatist but far from market dogmatists, such as philosophers Michael Polanyi and Karl Popper, departed as well.

By then, Friedman rapidly ascended as the leading, crusading figure. Following in his footsteps, the MPS became larger but also more strictly a group of economists, veered away from Hayek's broad theoretical interests, and offered an increasingly explicit avowal of precisely the “laissez-faire” perspective that 1940s neoliberalism claimed to surpass. From the early 1960s, Friedman became a master of public rhetoric, winning over university audiences, writing best sellers, gaining exposure in magazines and on television. What remained of the 1940s “neo” style was Friedman's intention to engage with the “welfarist” biases of his time and argue that his free-market proposals could achieve social amelioration – improved housing, quality schooling, income floors for the poor – better than business regulation or government provision could. His libertarianism appealed to youth, and despite the narrowing of MPS ideology, he held to a kind of “positive program” by continually devising actual policy proposals – most notably the idea of the “negative income tax” as a program to mitigate poverty that was preferable to “welfare” (AFDC or general assistance). Bold, optimistic, often frankly distant from present policy conventions, Friedman's practical plans were designed as halfway measures to his grander goals. His advocacy of “vouchers” helping low-income families pay private-school tuition, Burgin notes, “was a Trojan horse that would enable the gradual extinction of government-run schools” (197). However expansive his apparent antistatism – he would abolish the Food and Drug Administration, the minimum wage, all agricultural subsidies, government disaster relief, and more – Friedman was never an individualist anarchist and managed in any case to gain the ear of policymakers, particularly in the age of Reagan. He had become the “great persuader.”

Due to this contingent, rocky process of development, Burgin warns that the history of so-called neoliberal ideas, both of the 1930s and the 1940s on the one hand and of the 1970s and 1980s on the other, “must resist the temptation of presumed continuities” (82). Interestingly, too, while Burgin holds to the vocation of intellectual history and conviction in the real force of ideas, he does not neglect the role practical interests play. He notes, for instance, that Friedman's views “hardened” around an “absolutist” defense “of the model of perfect competition” and promotion of “the unremitting magic of the market exchange” in the mid- and late 1950s, coinciding with his active participation in a round of conferences sponsored by the die-hard laissez-faire, business-backed Volker Fund (171, 88, 161, 189). Here we see, he writes, “the cascading effect that minor institutional influences can have on the structure of an intellectual career” (174).

While The Great Persuasion offers an extraordinarily compelling account of free-market reinvention, alternative interpretations have some merit. In Never Let a Serious Crisis Go to Waste, historian of economics Philip Mirowski takes a different tack, arguing for a kind of consistency in neoliberal thought and practice over the decades. For Mirowski, the “neo” has real meaning since the spirit of the program, he argues, has remained committed, as its 1940s advocates had it, to a “positive,” indeed “strong,” version of state power fundamentally different from nineteenth-century laissez-faire – Friedman's rhetoric notwithstanding. For Mirowski, an antidemocratic, antipopulist thread runs straight through the tradition, not only in remaining suspicious of popular interference with elite wisdom on economic affairs but also in arguing, on an epistemological level, that a populace simply cannot – any more than a single individual can – gain enough knowledge to rationally debate and devise economic policy, for only “the market” as a “super information processor” can do that. For Mirowski, Hayek's broad philosophical program – political, ethical, and epistemological – indeed survived and gave neoliberalism its keynote. The neoliberals, Mirowski writes, have always recognized the state as the field of action, since government must make or change the rules of the economic game and enforce them. That is, to implement the trading schemes devised by neoliberal economists, government both serves as “market maker” and must impel public acceptance of the consequences (particularly in undermining public services). In Mirowski's view, neoliberal argument is quite literally a shell game, using the cover of libertarian, antistatist (and “laissez-faire”) rhetoric to smuggle in authoritarian, state-mandated measures of converting all social affairs to market exchange.

For Mirowski, “neoliberalism” is not only a coherent ideology but also a pervasive mode of being which has today become nearly inescapable. The answer to any alleged market failure is the creation of yet more (and more complex) market mechanisms, in a never-ending, self-reproducing cycle. And that is exactly how Jonathan Levy described the elaboration of the capitalist finance system in the nineteenth century: with each step in the growing exposure of homeless individuals to the caprice of the market, there's an insurance or financial scheme for that, promising to “manage risk” but really introducing yet another level of unmanageable complexity and threatening insecurity. Levy may have gone too far in assimilating nineteenth-century American capitalism to the present-day neoliberal model that Mirowski depicts, though the analogy aptly suggests the crisis-prone character of a “system” that in fact never achieves systemic “order.” At the same time, Mirowski probably goes too far in claiming the ubiquitous, impervious hegemony of a consistent “neoliberalism.” Burgin's story of the contradictory history of “neoliberal” doctrine, even if he exaggerates the “old laissez-faire” character of the Friedmanite dispensation, offers the salutary lesson that historical affairs are always unsettled and unfinished enough to permit the imagination of real alternatives to what exists. Alongside my friend's two watchwords of historical criticism, this one might be the essential third.