Neo Liberal’s Theories in Keynesian

9 June 2014



The idea of neo liberalism was actually coming from the critique from Adam Smith Classical Liberalism. In his writing that the people should be given a choice on their own of what work should they do and how. Adam Smith is stressing on the self regulating market where let the demand and supply of the market determine the economy. However, as we know that the market were not self regulating as we thought. Competition is unfair and imperfect. According to Michael G.Roskin this is the point that he himself discussed about. Adam Smith also argued “That government is best which govern least” and from this he brought up the liberal economic policy. (William Letwin.1988.p.65). 




Because of this untouchable economic system, there is a gap between the rich and the poor and class of the people. Michael Roskin do mention that,  when they were class, the status and position were largely inherited, for example, children that have a better families will have a better education to stay on the top of the class. Thomas Hill Green also mentions that, it is true that the goal of Liberalism is to create a free society, but he asked that what would happen when economic developments take away freedom. He continues that in liberals we encourage to think “If you don’t like the deal, don’t take it.  However, things would not be the same if the bargaining power of both parties are not same, or the bargaining power of both parties is unequal. It could be bargaining between the rich or poor. Of course that the poor won’t have anything to bargain. In addition, how about the beginning of unemployment its desperado that and does not have any choice but to take the job.  When people have no choice, according to green that was the time where the government should step in and ensure the freedom of people are protected. This is what he mentions as the positive freedom. They are different understanding of the term freedom of and the freedom to. Governments have to step in the economy and economic matters to ensure the freedom are there for the people to choose. (Michael Roskin et al.2010.pp.44).

In comparison, of classic liberalism, the notion of neo liberalism's emphasis was to protect people from a sometimes unfair economic system. Classic liberalism kicks the government out of the people live, however, neo liberalism bring back the role of government, but in a limited way of ensuring the right of the people. John Maynard Keynes writes a book of General Theory that profound new economic thought as neo liberalism. According to Keynes liberal is a continuing tradition of economic debate. He classified “classical theories” is from Ricardo through Marshall and Pigou. John Maynard Keynes as a thinker of pro state that keep mention state as essential in producing the necessary social ,political and economic condition for human well-being. He believes that the rationale of an individual cannot add up to a rational individual on the rational economic outcome on the collective level. He does mention that if we treat the market was an infallible source of wisdom was a huge mistake. Because the market was imperfect. (Robert Garner.2009.pp. 458- 459).

Keynes proposes General Theory according to Bill Gerard that sometimes he reject the classical liberal entirely. Keynes actually focused on the differences between a real-wage economy and a money wage economy. The real wage economy is a cooperative economy where it depends on the factor of production and employment. Keynes argued that classical theories made a quite imprecise decision on how macro economy is behaving as the same as the co-operative (barter) economy. ( Keynes ,1979 citer by Bill Gerard). As what Robbins defines economy, “Economy is the science which studies human behaviour as a relationship between end and scarce means which have alternative uses”.  The subject that the people must understand is that the competition is imperfect. They are an obstacle between the market, labour, and employment. If they are no obstacle, the Classical liberal is the best assumption of the economy. By the existence of monopolies and the oligopoly or imperfect competition, the state must play their role as ensuring people right protected.Neoliberals came from the upgrade of classical liberalism during the Great Depression, when U.S and U.K as a dominant economy faces a huge challenge in maintaining their survival.  According to David M.Kotz, :

Neoliberal theory claims that a largely unregulated capitalist system (a “free market economy) not only embodies the ideal of free individual choice but also achieves optimum economic performance with respect to efficiency ,economy growth, technical progress and distributional justice. “
(David M.Kotz,2000.p.1)
Even Neoliberal intervenes the market, it does not make neoliberal is similar as a socialist state centred economy. The states only play a limited role in the aspect of efficiency, economy and other important matters. However the role of the state largely being suspicious because the intervention usually will create more problem that is solved. (David M.Kotz:1). It is back to the notion that, “Government least, is best government”.  In my opinion, the government itself is imperfect to ensure the perfect equilibrium of markets. Governments are politician that rule by their own interest and needs. It is bad when the politicians itself are attached to the market (some politician is the businessman) and he decides for his self interest. This is what makes people distrust the government intervention. The intervention will always lead to the bigger problem.   How neoliberal state is working are related to the idea of the welfare state with certain sets of action, such as deregulation of business, privatization of public activities and assets; elimination of, or cutbacks in, social welfare programs; and reduction of taxes on business and the inventing class. (David M.Kotz:1) . The neoliberal approach is not a temporary response in order to develop an economy. It is continuous effort to protect the economic equilibriums. This implementation of government in their policy was clearly seen under the U.K Prime Minister and U.S president. At certain points Malaysia under Tun Mahathir also implements neoliberals in order to save Bumiputera at the imbalance economy competition.

However, in order to implement the neoliberals’ they are risk involve. When government intervenes in the market, it will change the competitive structure of capitalism and big business from a supporter of the state into opponent of it. The monopoly that they have enjoyed will be disturbed by the government and it might affect the political structure and government. (David M.Kotz:2).

However, they are some problems of Neoliberals to be implemented in the contemporary Global Capitalism that emerges. Some of the problems are, the neoliberals does not suitable or applicable over the long run and also lower the wages and public spending. Neoliberal needs state to increase spending to help the people. Secondly, that, neoliberals disturb the stability of the macro economy of the state by reducing the effectiveness of “automatic stabilizer” through the reduce function of social welfare programs and less regulation of the financial sectors. The third is that by the government keep helping in ensuring the class transformed, the class between conflict will intensify and may affect the capital investment. (David M.Kotz: 3). David M. Kotz also successfully proves that actually the neoliberal model of rapid capital accumulation.


Some mistakes mention that Neoliberals are the “retreat of the State” where the shift that occurs from being a spender, an investor and a producer, to new role in privatization and disinvestment. Capitalism Marx had shown the relation of production underlying is unclear. For example in the use of labor hidden under the name of custom and tradition. Even in Malacca Sultanate the exploitation of labor happen under the concept of Daulat and Derhaka. The exploitation also occurs under the names of volunteers under the name of national interest. Probate Patnaik mentions that before the concept of Neoliberals occurs, the transparent methods of exploitation to a more complex, impersonal and not directly visible compared to Neoliberals period. (Prabat Patnaik.2003.pp.1-2). Neo liberals are the intervention of government to ensure the capitalist can grow by providing the facilities to the people and guarantee capitalism sustainable. According to Fujio Mizuoka, public transportation plays a significant role in fulfilling this condition. He taking example of Hong Kong , where British build underground railway and Nigeria develop the transportation for business and capitalist activities with government funds and as a means of capitalist regulation.( Fujio Mizuoka.pp.1).

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