While it may be likely that many neoliberal thinkers endorse the use of (or even emphasize) neoclassical economics, the two terms are not necessarily related. Neoliberalism branches into two separate arguments – one consequential and empirical, the other philosophical and normative. Consequentialist neoliberalism derives many of its arguments from the prescriptions of neoclassical economics, including smaller governments, free trade, private sector deregulation and fiscal responsibility in government.

Neoclassical Economics as Science

The neoclassical model of economic science was the first dominant metatheory in the field. It grew through notable economists such as Frederick Bastiat, Alfred Marshall, Jean-Baptiste Say and Leon Walras.

A few fundamental assumptions are at play in the neoclassical theory that differentiate it from the older classical school. It is assumed that individual economic actors have rational preferences, that individuals seek to maximize utility and that decisions are made on the margin. Neoclassical economics gave birth to the perfect competition models of microeconomics.

Neoclassicalism was the first strongly math-based school of economic thought, and it was eventually replaced by the even more mathematical Keynesian paradigm in the 1930s.

Neoliberalism as Political Philosophy

Neoclassical economics is most closely related to classical liberalism, the intellectual forefather of neoliberalism. In a sense, the neoliberal movement between 1960 and 1980 represented a partial return to the neoclassical assumptions about economic policy and partial rejection of the failed central planning arguments of the 1930s.

As far as public policy is concerned, neoliberalism borrowed from the assumptions of neoclassical economics to argue for free trade, low taxes, low regulation and low government spending. It often deviated in terms of anti-trust and externality arguments.

Neoliberalism does not have a set definition, although it has often been attributed to the policies of Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States. It has also been attributed to 20th century economists Milton Friedman and F.A. Hayek, although both men rejected the label; Friedman considered himself a classical liberal and Hayek argued from an Austrian perspective.