Commanding Heights: The Battle of Ideas- Episode One (Official Video)

As the 20th century ended, the debate over globalization intensified. Some feared it while others embraced it, stating it improved millions of lives. The events of September 11 raised questions about the global economy’s resilience and the dark side of globalization like terrorism. This narrative traces the birth of the global economy, a struggle over market vs. government control, and the capitalist revolution that followed a shift in ideas.

The debate between John Maynard Keynes, who supported government intervention in wartime economy, and Friedrich von Hayek, who feared it threatened freedom, dominated economic thought. Keynes’ ideas led to Western world economic policies, advocating government intervention when markets failed, while Hayek eventually influenced a shift towards laissez-faire economics.

Both Keynes and Hayek lived through the first age of globalization, which collapsed with WWI. The war and following cataclysms prompted a shift towards socialism and communism, appealing to those disillusioned with capitalism. Post-war Europe grappled with hyperinflation and economic turmoil, discrediting capitalism during the rise of communist and socialist ideologies.

Keynes, a key figure in negotiating peace post-WWI, foretold economic disasters resulting from excessive reparations imposed on Germany. His prediction underscored the fragility and volatility of economies under stringent conditions. Concurrently, Hayek, witnessing the struggles induced by socialism, began advocating for free-market capitalism as a solution to economic and social woes.

In the Soviet Union, Lenin faced economic disaster and introduced the New Economic Policy, allowing private trade and ownership to revive the economy, despite Marxist criticisms. After Lenin's death, Stalin's stricter Marxist approach led to totalitarian central planning. This era showed stark contrasts between Soviet planning and market capitalism, decisions influencing global economics for decades.

Keynes, more than an economist, influenced political and economic thought profoundly. He critiqued the economic sanctions on Germany post-WWI and foresaw the subsequent political destabilization. Keynes advocated for governmental economic interventions especially during crises while adapting policies to prevent depressions, which contrasted with the regulatory approaches of market capitalism.

Hayek, inspired by Mises, challenged central planning in Soviet Russia, arguing that without a functioning price system, socialism was doomed to fail. This era saw Lenin’s critical trade-offs between ideology and economic survival, leading to Stalin's rise and rigid central planning, transitioning the global economic landscape towards ideologies favoring state control despite its inefficiencies.

The Great Depression tested Keynesian and Hayekian economic theories. Keynes’ insights led to advocacy for government spends during recessions to mitigate unemployment and economic stagnation. Roosevelt's New Deal, embodying these principles, aimed to rejuvenate the U.S. economy through regulation and public works, diverging from Hayek's insistence on market self-regulation even amidst economic collapse.

Keynes’ ideas gained traction with Roosevelt’s New Deal and later crystallized during WWII as government spending ended the Great Depression. Keynesian economics, emphasizing deficit spending to manage economies, promised full employment and economic stability. This shifted government policy significantly, although Hayek criticized such interventions as steps towards totalitarianism and economic dependency.

Despite the popular Keynesian consensus during post-WWII prosperity, Hayek warned against extensive government intervention through his work, "The Road to Serfdom," arguing for free markets as proponents of freedom. At Bretton Woods, Keynes’s ideas shaped the economic order with the IMF and World Bank promoting stability to prevent future economic depressions, his influence persisting beyond his lifetime.

Post-war Britain, under a socialist government, embraced Keynesian economics, creating a welfare state with nationalized industries functioning for public welfare. Conversely, Hayek’s ideals gained little traction. Globally, socialist economics spread, especially in post-colonial nations, promoting state intervention to rectify colonial economic imbalances, creating a divide mirrored in the Cold War.

Amidst global socialist trends, the Mont Pelerin Society, founded by Hayek and like-minded thinkers, sought to revive and promote free-market ideals against state control. This counter-cultural intellectual movement aimed to preserve market liberties, inspiring future economic policies worldwide despite the contemporary dominance of Keynesian economic frameworks in governments.

In post-war Germany, Ludwig Erhard’s free-market reforms challenged Allied economic controls, abolishing price controls and stabilizing the currency, spurring the ‘economic miracle’ powered by social market economy principles – a hybrid model combining market dynamics with social welfare. This contrasted with extensive state intervention seen elsewhere, yet initially unnoticed globally.

India, leaving colonial rule, adopted a mixed economy with Soviet-style central planning to stimulate industrialization, a model popular across newly independent states. The statistical approach to planning epitomized confidence in state intervention to steer economies, though contrasting slightly from Hayek’s free-market advocacy largely ignored at that time due to the socialist wave across the developing world.

The University of Chicago became a hub for free-market thinking, cultivating prominent economists like Milton Friedman under an intellectual atmosphere that encouraged rigorous debate over state vs. market economic management. Despite their global ascendency, Keynesian ideas faced intellectual challenges from the Chicago school’s proponents, espousing deregulation and reduced government intervention.

Nixon’s pragmatic political approach sheltered Keynesian economics in the U.S., although his administration did initiate deregulation that later aligned more with Chicago school principles. Despite adhering to economic controls for political favor, the prolonged stagflation of the 1970s invited reconsideration and eventual shift towards market solutions as inflation persisted.

Ongoing economic troubles highlighted the limitations of Keynesian solutions, while Britain's conservative leaders initially followed state-led strategies before rising unemployment and inflation (stagflation) catalyzed the search for fresh economic answers. Keith Joseph’s embrace of free markets started to alter conservative strategies, setting the stage for revolutionized economic thinking and policies.

Joseph’s ally, Margaret Thatcher, shared his market-oriented philosophies influenced by Hayek and Friedman, eventually implementing bold free-market reforms as Britain's prime minister. During the 1970s, global economic conditions and domestic crises pushed political leaders like Thatcher toward new paradigms focusing on liberalizing regulations and shrinking government roles in economies.

Friedman's Chicago school continued influencing the shift from regulation, finding adherents in rising conservative political figures worldwide. Economic downturns tested these principles, leading Thatcher and Reagan to advocate for competitive markets. Deregulation began transforming industries like airlines, exemplifying success in loosening state intervention despite transitional challenges faced by some workers.

By the 1980s, Reagan and Thatcher’s administrations prominently executed Chicago school economic strategies. Deregulation in the U.S. continued, laying groundwork for further global free-market expansions. Market forces, rather than governments, began reclaiming the commanding heights, altering economic and political landscapes internationally, reinforcing private sector roles over public regulatory dominance.

Thatcher’s victory in the Falklands War bolstered political support, allowing further advance of the free-market agenda. Extensive privatization sold state assets to the private sector, diminishing socialist centralized controls in industries, a significant ideological and economic shift. This laid the groundwork for subsequent global economic liberalizations and liberal capitalist models.

Led by market-oriented reforms, Thatcher’s administration transformed Britain's economy. Industries were privatized, nationalized sectors reduced under private ownership, symbolizing a shift away from state-driven economic models. This set a precedent worldwide, encouraging similar privatizations, demonstrating the efficacy of market-driven growth over centralized interventions promoting entrepreneurial growth.