There is debate among political scientists as to the extent to which the Neo-Conservative and Neo-Liberal elements that form Modern Conservative ideology can work coherently. This can be seen most poignantly in their Neo-Liberal commitment to economic freedom which directly contrasts the Conservative ideas of stability within society. Neo-Liberal economics have been influenced by Classical Liberalism, including Adam Smith and David Ricardo and Modern Conservative economic policy is merely a re-discoverance of free-market economics.
Post-1945, Keynesianism had been the dominant economic policy, advocating "managed capitalism" but Modern Conservatives believed this was responsible for decline that had occurred in Britain. Their main aim in the late 1970s/early 1980s was to reverse this decline, even if it did cause social instability. Modern Conservatism ideology stipulates that governments cannot deliver economic stability/growth which they believe was the main factor in causing economic decline.
They object to government intervention in the economy, epitomised by planned economies such as that of the former Soviet Union, as it does not allow for the "invisible hand of capitalism" to control the market and ensure it functions using the principles of supply and demand. Friedman explained that intervention causes economic problems because the economy has been over-regulated/inflexible and over-regulation results in stagnation/economic decline. He also described a "natural state of unemployment" which is determined by market forces if they are allowed to function.
Consequently Thatcher's response to unemployment was to not intervene, thus removing regulation from the economy. This demonstrates the Modern Conservative commitment to an economy free from regulation even though it did not solve the problem of unemployment which was a serious social problem at the time as between 1979 and 1983 it rose sharply to a peak of over 3 million. This also demonstrates the Modern Conservative view that the inflation rate is paramount, not full employment.
This is one of the main factors that differentiates free-market economics from Keynesianism as full employment is an important aim of Keynesianism. Modern Conservatives place importance on the rate of inflation because they argue that for trade and markets to occur then there needs to be a stable value of money. Friedman described this as the "health of the economy" and argued that the alternative to a money market, a barter one, is not viable and therefore confidence and faith in the value of the currency is needed for the market to function.
Modern Conservatives also adopted the policy of monetarism in the early 1980s which argues that inflation is caused by an increase in the amount of money in circulation, thus, inflation occurs when the money supply expands faster than the amount of goods/services. Consequently, Modern Conservative ideology identifies a causal link between money supply and inflation and therefore they argue that if the money supply is controlled, then inflation will be.
Following this they believe, Keynesian policies are inflationary because during a recession, Keynes would argue for public spending which Modern Conservatives would view as increasing the money supply and thus, inflation. Based on their believed link between the money supply and inflation they developed two strategies to control the money supply; targets and interest rates. The targets were known as the MTFS but were stopped after 1984 as it was proved they did not work, because from 1979-1984/5 money supply grew faster than the targets but inflation fell.
This left their strategy of interest rates which is now relied upon and the current economy is based on consumer spending. This again demonstrates the Modern Conservative contradictions within their ideology in that the free economy is more important than relative, full employment. This shows that Modern Conservatives place more emphasis on the free economy than social stability as full employment is one condition of social stability which is not regarded as highly as controlling inflation and thus, keeping the economy free.
The ideas and policies of free-market economics conflict those of Keynesianism and many Modern Conservatives argue that Keynes' ideas promote economic decline through the use of progressive taxation. They believe that because Keynesianism increases tax levels it so removes the incentive to wealth-create and impacts on the property rights of the individual, an inherently Classical Liberal principle. They include taxes and regulations, for example minimum wage legislation, in the restraints that discourages entrepreneurialism.
For example, in 1979 the top rate of income tax was 83% and the Thatcher government cut it by 1988, to 40%, therefore making the tax system less progressive and encouraging entrepreneurs to wealth-create. However, critics have argued that the Thatcher government only shifted to tax elsewhere, e. g. increasing VAT to 17. 5% which is more damaging socially because it is regressive. This again demonstrates the Modern Conservative commitment to their free-market economic policy as the Thatcher government risked social damage through a regressive tax rather than a more progressive income tax which may damage the potential for new businesses.
Modern Conservatives also dislike a mixed economy because it includes government intervention in the economy which they argue causes inefficiency as there is no profit motive. They also argue that public sector industries such as the "commanding heights" of British industry post-1945 had become bastions of union power which limit the potential for profit-making and efficiency by enforcing restrictive practices. Thus, the Thatcher government followed a policy of privatisation beginning with BT in 1984, which they referred to as "rolling back the frontiers of the state".
This was mirrored in the USA when the Reagan administration cut the budget of independent, regulating authorities such as the EPA by 50%. Policies such as privatisation of key industries and utilities reflects the emphasis Modern Conservative ideology places on economic freedom above social stability as privatising industries such as coal and steel had a negative social impact, causing unemployment and deprivation. However, Modern Conservative ideology does include some Neo-Conservative ideas on society including perceived social and moral decline.
They argue for moral and social stability to be returned, following the believed decline resulting from the "permissive society" of the 1960s. During this time, young people became more affluent than they had ever been and began to question traditional authority and values which leads to youth culture. Youth culture during the 1960s rejected moral norms such as no pre-marital sex and political norms shown by opposition to the Vietnam War for the first time ever.
Neo-Conservatives viewed this as moral/social decline and want to return to moral/social stability and "Victorian values". This commitment to reversal of perceived moral/social decline demonstrates the contradictions between the Neo-Liberal and Neo-Conservative ideas that form Modern Conservative ideology. The main aspect of Modern Conservative ideology follows Neo-Liberal economics and aims for economic liberalisation. However, the Neo-Conservative aspects state a commitment to a strong state and moral/social standards.
Gamble stated that this contradiction is epitomised in the economy as economic liberalisation causes poverty and inequalities within society and so the state needs empowering to counter this which is exactly what Modern Conservative ideology argues against. Modern Conservative ideas are fundamentally flawed because they attempt to combine aspects of two different ideology with contradicting views of Human Nature at their cores. This is why it is impossible to follow both Modern Conservative free-market economics to their full extent while retaining social/moral stability and standards.