The difference between modern neoliberalism and liberalism is that neoliberalism advocates an idealized "hands-off" free-market system while modern economic liberalism calls for government regulation to control the excesses of free-market capitalism. Modern liberalism, or the "Keynesian school" of economics, named for its main proponent John Maynard Keynes and differing from classical liberalism, developed in the aftermath of the 1930s failure of the free-market system known as the Great Depression. Neoliberalism, sometimes referred to as the "Chicago school" of economics and named after the University of Chicago, rose to prominence in response to the breakdown of the international money system and the fiscal contradictions viewed as inherent in the welfare system.
The term "neoliberalism" has taken on variations in meaning since its first appearance during the 1930s as a "third way" alternative to collectivist central planning and classical liberalism. Neoliberalism now tends to be associated with the economic theories of Milton Friedman and Friedrich Hayek. Ronald Reagan in the United States and Margaret Thatcher in the United Kingdom famously promoted the economic policies of modern neoliberalism. Author Robert W. McChesney has defined neoliberalism as "capitalism with the gloves off."
The term "liberalism" in its various forms has seen an overextension of its use and become a somewhat amorphous identity as an umbrella term. Classical liberalism shares more in common with the laissez-faire concept of modern neoliberalism than it does with the modern Keynesian school of liberalism. In its present context, modern liberalism is generally accepted as a justification for government intervention as a means to reduce the harmful effects of unrestrained free-market capitalism.