The upheavals of the twentieth century cast serious doubt on the core assumptions of classical liberalism. Economic crises, mass unemployment, and social dislocation exposed the limitations of the belief that self-regulating markets, left to their own devices, would naturally produce stability and prosperity. Although elements of classical liberal thought would re-emerge in revised form with the rise of neoliberalism in the late twentieth century, the intervening decades witnessed the ascendance of a different liberal tradition—commonly described as egalitarian liberalism.
The decisive turning point was the Great Depression of the 1930s. Its depth, duration, and global reach shattered confidence in the classical liberal vision of the state as a mere “night watchman.” Leading thinkers such as John Maynard Keynes and Karl Polanyi concluded that markets were neither self-correcting nor socially neutral. Yet these theorists diverged sharply from Marxist interpretations that viewed recurring economic crises as proof of capitalism’s inevitable collapse and the imminent triumph of a revolutionary proletariat. Egalitarian liberals rejected the claim that liberal ideals such as freedom and opportunity were merely ideological disguises for exploitation.
Instead, figures such as Keynes, British Prime Minister Clement Attlee, and U.S. President Franklin D. Roosevelt sought to preserve capitalism by reforming it. They remained committed to individual autonomy and private property, but argued that modern capitalism required active regulation and guidance by a strong, secular state. Their goal was explicitly political: to prevent social breakdown and revolutionary upheaval by addressing economic inequality and insecurity through reform rather than rupture.
Keynes’s contribution was particularly influential. He challenged the classical liberal belief that markets would automatically return to full employment after a downturn. In The General Theory of Employment, Interest and Money (1936), Keynes argued that prolonged unemployment was caused by insufficient private investment and consumer demand, often exacerbated by speculative and short-sighted behavior among investors. To counteract these failures, he advocated large-scale government intervention, especially deficit-financed public spending during economic crises to stimulate demand, create jobs, and restore confidence.
Although Keynes was committed to the market principle, he was explicitly opposed to the notion of an unregulated “free market.” Keynesian economics even accepted limited state ownership of strategically important industries such as energy and transportation, reflecting the belief that some sectors were too vital to be left entirely to private interests. This approach marked a fundamental departure from classical liberalism while remaining firmly within the liberal tradition.
The institutionalization of egalitarian liberalism occurred after World War II. Keynes played a central role in shaping the postwar international economic order at the 1944 Bretton Woods Conference. The resulting institutions—the International Monetary Fund (IMF), the World Bank, and the General Agreement on Tariffs and Trade (GATT)—were designed to stabilize the global economy, promote reconstruction and development, and regulate international trade. These institutions reflected the Keynesian conviction that markets required governance at both national and international levels. The later creation of the World Trade Organization (WTO) in 1995, however, would become a focal point of controversy as neoliberal principles gained prominence.
From roughly 1945 to 1975, Keynesian ideas underpinned what has been described as the “golden age of controlled capitalism.” In the United States, the New Deal and Great Society programs expanded social welfare, strengthened labor rights, and regulated key industries. In Britain, the postwar Labour government constructed a comprehensive welfare state, while Sweden developed a highly influential model of social democracy. Across much of the global North, governments managed capital flows, imposed high taxes on wealth and corporate profits, and invested heavily in public services.
This period was characterized by rising wages, expanding middle classes, and unprecedented levels of social mobility. In the United States, mass production and mass consumption reinforced one another: workers earned enough to purchase the goods they produced, while strong unions—supported by government policy—enhanced labor’s bargaining power. Economic benefits were widely distributed through regulation, subsidies, and public investment in infrastructure, education, and housing. Such was the dominance of Keynesian thinking that even conservative leaders, including President Richard Nixon, could declare in 1970 that “we are all Keynesians now.”
Egalitarian liberalism thus redefined liberalism’s economic meaning. It came to signify support for an active and interventionist state, regulated markets, progressive taxation, and extensive social welfare provision. At the theoretical level, Keynesianism laid the foundation for modern macroeconomics—the study of aggregate economic behavior and the use of fiscal and monetary policy to manage economic cycles. Governments were encouraged to spend during recessions to stimulate growth and to restrain spending during booms to prevent inflation.
While Keynesian egalitarian liberalism would eventually be challenged by neoliberal doctrines in the 1970s, its legacy remains profound. It demonstrated that liberalism could accommodate equality, social protection, and state intervention without abandoning its core commitments to individual freedom and democratic governance. In this sense, egalitarian liberalism represents a crucial chapter in the ongoing effort to reconcile capitalism with social justice in modern political economy.
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