During the 1970s, the post-World War II economic consensus collapsed under the weight of “stagflation”—a baffling and toxic combination of stagnant economic growth, high unemployment, and soaring inflation. Conventional Keynesian economics, which relied on government spending to manage the economy, offered no solution to this crisis. As inflation ate away at the middle class and American global competitiveness faltered, liberals and policymakers were left disoriented. This severe economic malaise created the perfect opening for a radical counterrevolution in American political economy: the rise of neoliberalism.
The intellectual engine of this shift was the “Chicago School” of economics. The movement’s origins trace back to 1946 when the Austrian economist Friedrich Hayek arrived at the University of Chicago to launch the “Free Market Study”. Hayek, who had recently published The Road to Serfdom, argued that central economic planning—whether by fascists, communists, or New Deal liberals—inherently led to totalitarianism. Backed by millions of dollars from wealthy conservative businessmen like Harold Luhnow and the Volker Fund, the Chicago project expanded under the guidance of economist Aaron Director. Director successfully recruited brilliant thinkers like Milton Friedman and George Stigler, forming a cohesive ideological cadre.
The Chicago School set out to completely dismantle the New Deal framework. They achieved this by inventing a new discipline known as “law and economics,” which used highly mathematized, technocratic jargon to disguise a radical political ideology. Director and his disciples promoted a fundamentally nihilistic view of human nature, asserting that humans were purely atomistic actors seeking solely to maximize their individual welfare. In this framework, they argued, public policy should discard “vague, squishy” democratic notions of justice, fairness, and equity in favor of scientific measurements of “efficiency”.
Crucially, the Chicago School argued that government intervention, not private corporate power, was the true enemy of freedom. They posited that private monopolies were virtually harmless and could only sustain their dominance if they were propped up by the government. In 1971, George Stigler popularized the concept of “regulatory capture,” arguing that government agencies inevitably end up serving and enriching the very industries they are supposed to regulate. Therefore, the neoliberal argument went, attempting to regulate business was futile and destructive; the free market alone should dictate the organization of society.
The most devastating blow to the American democratic tradition was the Chicago School’s successful assault on antitrust enforcement. Since the Progressive Era, antitrust laws were utilized to break up concentrated wealth, precisely because Americans understood that massive economic monopolies inherently corrupted the political system. However, Chicago scholar Robert Bork, primarily through his highly influential 1978 book The Antitrust Paradox, argued that antitrust law was intellectually incoherent and “dangerous to our form of government”.
Bork and his allies completely redefined the purpose of antitrust. They argued that corporate concentration was not a threat to democracy, but rather evidence of superior efficiency and good management. The sole metric for enforcing antitrust, they insisted, should be “consumer welfare”—meaning as long as a monopoly kept prices low for consumers, its size and political power were utterly irrelevant. Through well-funded seminars for judges, corporate backing, and conferences like the 1974 “New Learning” summit at Airlie House, this neoliberal framework systematically conquered the legal establishment, convincing even liberal scholars to abandon their suspicion of corporate concentration.
This intellectual victory became the official law of the land during the Reagan administration. William Baxter, Reagan’s head of the Antitrust Division, openly prioritized economic efficiency over restraining corporate size, dismissing decades of Supreme Court anti-monopoly precedents as “rubbish”. In 1982, Baxter issued new merger guidelines that effectively removed corporate concentration as a factor in antitrust analysis, making it vastly more difficult for the government to block mergers.
The result was a frenzied merger wave in the 1980s that rivaled the original trust-building era of the Gilded Age. Aided by financial deregulation and fueled by Michael Milken’s high-risk “junk bonds,” corporate raiders launched a wave of hostile takeovers. To survive, corporate CEOs abandoned the mid-century model of “stakeholder capitalism”—where businesses balanced the needs of workers, communities, and consumers—and embraced “shareholder capitalism”. Corporations were ruthlessly streamlined to maximize short-term stock prices, which was achieved by busting unions, slashing wages, and moving factories overseas.
By the late twentieth century, the Chicago School had achieved a revolution in American policy. By convincing lawmakers, judges, and the public that government intervention was the problem and that corporate consolidation was the natural, scientific outcome of free markets, the neoliberal turn dismantled the regulatory state. It paved the way for modern mega-monopolies and firmly established a political economy that rewarded a financial elite while stripping average workers of their economic security and democratic power.