English-speakers have used the term "neoliberalism" since the start of the 20th century with different meanings, but it became more prevalent in its current meaning in the 1970s and 1980s, used by scholars in a wide variety of social sciences as well as by critics. Modern advocates of free market policies avoid the term "neoliberal" and some scholars have described the term as meaning different things to different people as neoliberalism "mutated" into geopolitically distinct hybrids as it travelled around the world. As such, neoliberalism shares many attributes with other concepts that have contested meanings, including democracy.
The definition and usage of the term have changed over time. As an economic philosophy, neoliberalism emerged among European liberal scholars in the 1930s as they attempted to trace a so-called "third" or "middle" way between the conflicting philosophies of classical liberalism and socialist planning.:14–15 The impetus for this development arose from a desire to avoid repeating the economic failures of the early 1930s, which neoliberals mostly blamed on the economic policy of classical liberalism. In the decades that followed, the use of the term "neoliberal" tended to refer to theories which diverged from the more laissez-faire doctrine of classical liberalism and which promoted instead a market economy under the guidance and rules of a strong state, a model which came to be known as the social market economy.
In the 1960s, usage of the term "neoliberal" heavily declined. When the term re-appeared in the 1980s in connection with Augusto Pinochet's economic reforms in Chile, the usage of the term had shifted. It had not only become a term with negative connotations employed principally by critics of market reform, but it also had shifted in meaning from a moderate form of liberalism to a more radical and laissez-faire capitalist set of ideas. Scholars now tended to associate it with the theories of Mont Pelerin Society economists Friedrich Hayek, Milton Friedman and James M. Buchanan, along with politicians and policy-makers such as Margaret Thatcher, Ronald Reagan and Alan Greenspan. Once the new meaning of neoliberalism became established as a common usage among Spanish-speaking scholars, it diffused into the English-language study of political economy. By 1994, with the passage of NAFTA and with the Zapatistas' reaction to this development in Chiapas, the term entered global circulation. Scholarship on the phenomenon of neoliberalism has been growing over the last couple of decades. The impact of the global 2008–2009 crisis has also given rise to new scholarship that criticises neoliberalism and seeks policy alternatives.
An early use of the term in English was in 1898 by the French economist Charles Gide to describe the economic beliefs of the Italian economist Maffeo Pantaleoni, with the term "néo-libéralisme" previously existing in French, and the term was later used by others including the classical liberal economist Milton Friedman in a 1951 essay. In 1938 at the Colloque Walter Lippmann, the term "neoliberalism" was proposed, among other terms, and ultimately chosen to be used to describe a certain set of economic beliefs.:12–13 The colloquium defined the concept of neoliberalism as involving "the priority of the price mechanism, free enterprise, the system of competition, and a strong and impartial state".:13–14 To be "neoliberal" meant advocating a modern economic policy with state intervention.:48 Neoliberal state interventionism brought a clash with the opposing laissez-faire camp of classical liberals, like Ludwig von Mises. Most scholars in the 1950s and 1960s understood neoliberalism as referring to the social market economy and its principal economic theorists such as Eucken, Röpke, Rüstow and Müller-Armack. Although Hayek had intellectual ties to the German neoliberals, his name was only occasionally mentioned in conjunction with neoliberalism during this period due to his more pro-free market stance.
During the military rule under Augusto Pinochet (1973–1990) in Chile, opposition scholars took up the expression to describe the economic reforms implemented there and its proponents (the "Chicago Boys"). Once this new meaning was established among Spanish-speaking scholars, it diffused into the English-language study of political economy. According to one study of 148 scholarly articles, neoliberalism is almost never defined but used in several senses to describe ideology, economic theory, development theory, or economic reform policy. It has largely become a term of condemnation employed by critics and suggests a market fundamentalism closer to the laissez-faire principles of the paleoliberals[who?] than to the ideas of those who originally attended the colloquium. This leaves some controversy as to the precise meaning of the term and its usefulness as a descriptor in the social sciences, especially as the number of different kinds of market economies have proliferated in recent years.
Another center-left movement from modern American liberalism that used the term "neoliberalism" to describe its ideology formed in the United States in the 1970s. According to David Brooks, prominent neoliberal politicians included Al Gore and Bill Clinton of the Democratic Party of the United States. The neoliberals coalesced around two magazines, The New Republic and the Washington Monthly. The "godfather" of this version of neoliberalism was the journalist Charles Peters, who in 1983 published "A Neoliberal's Manifesto".
Shermer argued that the term gained popularity largely among left-leaning academics in the 1970s "to describe and decry a late twentieth-century effort by policy makers, think-tank experts, and industrialists to condemn social-democratic reforms and unapologetically implement free-market policies". Neoliberal theory argues that a free market will allow efficiency, economic growth, income distribution, and technological progress to occur. Any state intervention to encourage these phenomena will worsen economic performance.