Opposition to the New Deal arose in several quarters. The onus of new regulations such as wage and price controls fell disproportionately on small businesses, whose owners banded together to resist Roosevelt’s alphabet soup of government agencies. In the press, a scattered remnant of classical liberals and Jeffersonians, such as Albert Jay Nock, Isabel Paterson, and Henry Hazlitt, objected to the New Deal not just on economic grounds but also because they saw in Roosevelt’s interventions the first steps toward the kind of regimented social order that had overtaken Europe. Meanwhile, in the academy, economists such as Frank Knight at the University of Chicago and the Austrian émigré Joseph Schumpeter at Harvard bucked the tide of Keynesianism and spoke out against the New Deal.
In the 1940s, two other émigré Austrian economists would provide opponents of Keynesianism and the New Deal welfare state with their most valuable ammunition. Ludwig von Mises, the acknowledged dean of the “Austrian school” of economics, emigrated to the U.S. in 1940, and through such works as Socialism, Omnipotent Government, and his magnum opus Human Action he provided a thoroughgoing defense of free markets and a critique of economic planning. Mises’ younger associate and fellow Austrian-school economist Friedrich Hayek would galvanize even greater popular opposition to statism with his 1944 bestseller The Road to Serfdom, in which Hayek argued that socialism led directly to totalitarianism: without private ownership of the means of production, individuals and civil society would not long remain free.
By the 1950s, with the Depression and World War II long over but the welfare state and the “military-industrial complex” firmly entrenched, two poles of opinion had emerged regarding the relationship of the state to the market economy and to civil society. The one pole, whose adherents ranged from socialists to modern liberals—and indeed “modern Republicans” like Dwight Eisenhower, who pledged to preserve the welfare state—believed in an expansive role for government in structuring the economy and civil society. At the other pole were those who believed that increased state power posed a threat to markets and civil society. Among this latter group, the proper relationship between civil society and free markets was a matter of contention: the classical liberals and libertarians wanted unrestricted markets and saw little conflict between the ethos of the market and the needs of civil society. The “New Conservatives” who were attaining prominence in the 1950s, on the other hand, put more emphasis on civil society and argued that free markets themselves must be undergirded and regulated by a traditional social order—though not by an intrusive national government.
One of the “New Conservatives,” sociologist Robert Nisbet, stated the case well in his 1953 book The Quest for Community, which argued that latter-day preoccupations with individual identity and national community arose from the decline of traditional organic authority and the rise of state power. Nisbet contended that the free market itself developed out of the family and civil society:
There is indeed a sense in which the so-called free market never existed at all save in the imaginations of the rationalists. What has so often been called the natural economic order of the nineteenth century turns out to be, when carefully examined, a special set of political controls and immunities existing on the foundations of institutions, most notably the family and local community, which had nothing whatsoever to do with the essence of capitalism. Freedom of contract, the fluidity of capital, the mobility of labor, and the whole factory system were able to thrive and to give the appearance of internal stability only because of the continued existence of institutional and cultural allegiances which were, in every sense, precapitalist.
A question that would come to the fore rather later was whether or not free-market societies had a built-in tendency to erode the civil-social institutions on which capitalist economies (and liberal democratic political practices) ultimately relied.
In his own work of 1953, The Conservative Mind, a book that did much to rehabilitate “conservatism” as a political designation and a school of thought in the United States, Russell Kirk took great pains to distinguish the conservative tradition from the classical liberal or libertarian one. (For his part, Friedrich Hayek, in his famous essay “Why I Am Not a Conservative,” also tried to clarify the terminology.) Kirk lamented many of the effects that nineteenth-century capitalism had upon civil society, as a “network of personal relationships and local decencies was pushed aside by steam, coal, the spinning jenny, the cotton gin, speedy transportation, and the other items in that catalogue of progress which school-children memorize,” and as “personal loyalties gave way to financial relationships.” Yet this critique of nineteenth-century political economy did not entail support for the twentieth-century welfare state or rejection of the free market—only a belief that markets should have social limits.
Kirk and others of the New Conservatives, later often called “traditionalists,” found theoretical (as well as practical) support for their beliefs in the work of the German economist Wilhelm Röpke and Germany’s postwar “Ordo liberal” school of economics, which included such figures as Alexander Rustow, Walter Eucken, and Luigi Einaudi. In works such as The Social Crisis of Our Time (1942), Civitas Humana: The Moral Foundations of Civil Society (1944), and A Humane Economy (1958), Röpke emphasized the religious, moral, and civil roots of economic freedom—as well as economic freedom’s benefits for the individual and civil society. “There is a deep moral reason for the fact that an economy of free enterprise brings about social health and a plenitude of goods, while a socialist economy ends in social disorder and poverty,” he wrote. “Is the system unethical that permits the individual to strive to advance himself and his neighbor through his own productive achievement? Is the ethical system the one that is organized to suppress this striving?” At the same time, Röpke cautioned that “the defender of a ‘liberal’ economy must make plain that the realm of economy in which self-interest develops, constrained by legislation and competition, is not set against but enclosed within the realm in which is developed man’s capacity for devotion, his ability to serve ends that do not look to his own immediate betterment. Society as a whole cannot be based on the law of supply and demand. . . .”
While popular with right-of-center intellectuals, neither the Austrian school nor Röpke and the Ordo liberals (who did influence policy in Germany) found much support within the economics profession. Ludwig von Mises himself held only a privately supported visiting professorship at New York University’s business school, while the University of Chicago’s economics department refused to extend an appointment to Hayek, who instead found a position with the university’s interdisciplinary Committee on Social Thought. (Hayek would eventually win much deserved recognition when he received the Nobel Prize for Economics in 1974—though even then, he had to share the award with the welfare economist Gunnar Myrdal.) Other free-market economists at the University of Chicago met with more mainstream success, however. The “Chicago school” of economics, founded by Frank Knight and perhaps best represented by Milton Friedman, challenged Keynesian and neoclassical policy prescriptions but accepted mainstream economic methodology—unlike the Austrian school, which adhered to an older method. Another key difference between the Chicago and Austrian schools concerned monetary policy: Chicago “monetarists” believed that central banks should suppress inflation and tame the business cycle through control of the money supply; Austrians, on the other handed, tended to favor a gold standard and to see central banks as contributors to, rather than solutions for, business-cycle downturns.