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3: LIBERALISM IN THE GREAT CENTURY - William Dyer Grampp, Economic Liberalism, vol. 2 The Classical View 
Economic Liberalism (New York: Random House, 1965). vol. 2 The Classical View.
Part of: Economic Liberalism, 2 vols.
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LIBERALISM IN THE GREAT CENTURY
The nineteenth century usually is thought to have been the greatest age of economic liberalism, greater than any other, from its origins in Stoicism down to the present time. Economists think of the century as the long afternoon of the ideology. They believe it then meant laisser faire and that laisser faire was the policy of Great Britain, the major economy of the world. In fact, the century was not like that, and historians have tried to tell us so. They have reported the many ways in which the British government intervened in the market. The historians also have said the intervention was inconsistent with liberalism. In this they are, in my opinion, mistaken. The intervention can most of it be explained as an application of the doctrine—not, to be sure, an application of the liberalism of free markets, anarchy, the constable, and the other elements that erroneously and often are taken to be its exclusive meaning. The intervention was an application of what the doctrine had come to be by the nineteenth century. The purpose of this chapter is to explain what that was.
The Importance of the Nineteenth Century
The century was important for a number of reasons: (1) The intellectual authority of economic liberalism was greater than at any other time. (2) Nevertheless its principles were not well understood, were not even clear, and were a matter for dispute among the liberals themselves as well as for their opponents. (3) Its political authority was however immense. (4) The first effort to make a comprehensive statement of its principles was in 1848. (5) There was substantial opposition to economic liberalism throughout the century. (6) The doctrine and its practice had to contend with difficult economic problems.
1. The ideas of economic liberalism, which had been gathering force for centuries, came to their full power in the nineteenth century. They informed the statements about policy made by the orthodox (classical) economists and they were the power with which dissent from orthodoxy had to reckon. No one could write or speak about policy without acknowledging the power. How it influenced the writings of the economists is explained in this chapter. But its influence went much beyond them and extended to the social philosophers, the literary people, the opponents of classical economics, the journalists, pamphleteers, politicians, mass leaders, agitators, and others. Liberalism had many different meanings to these people. But one generalization can be made. To almost all who believed in it and to some who did not, liberalism did not mean laisser faire—that is, it did not mean a policy of nonintervention by the government and of allowing the major economic decisions to be made on unregulated markets. The rejection of laisser faire was one of the few ideas on which there was nearly complete agreement among the economists and between them and the political leaders.
2. About other ideas there was much less agreement. They were moreover unclear and incomplete, especially in the first half of the century. While there was agreement that a state had the right, in liberal doctrine, to intervene in the economy, there was no agreement about what the purposes of intervention should be, about how much was permissible, and what methods could be used. The reason for the disagreement was the unsettled condition of the ideas of policy. Although the classical economists are reputed to have been champions of the free market, they really did not have ideas about policy that were comprehensive enough to make them champions of anything, at least until 1848 (and it may be argued not even then). It is not often noticed that the first comprehensive statement of classical economic policy—or the first effort to make a statement—came only in 1848, almost a century after Hume brought classicism into being (and more than a century if one dates its origin earlier). Smith, Bentham, James Mill, Ricardo, M’Culloch, Senior, and Torrens are the great in the register of the classical school, which, in the popular view, was directed by a faith in laisser faire. But none in fact declared himself for it. What is more interesting is that none of them wrote about policy in a systematic way—that is, in a way that would make clear to their readers just what liberalism stood for, that would be helpful to the public in appraising measures of policy and to legislators in enacting them, or that would enable their followers to bring together their discursive remarks into a synthetic statement. John Stuart Mill was the first to do this—to enunciate a theory of policy—and he did it in his Principles, which was published in 1848. That was two years after Great Britain had taken one of the last steps toward free foreign trade, by repealing the Corn Laws. Mill was not enthusiastic about their repeal, although he was strongly in favor of the very last step, the repeal of the Navigation Acts in 1854.
3. Even though their ideas of policy were not complete or clear, the economists had great influence on the political figures of the period and through them on the public at large. Burke had said of his time that it was the age of the economists, but the nineteenth century was more truly so, from Waterloo to the last government of Gladstone in 1894. There never was a time when the public was on more familiar terms with economics, when opinion was as much under its influence, and when governments were more respectful of its “laws.” Economists were listened to for their political economy—for the purposes of their policy and not only its means. They were not expert advisers or skilled technicians; they were political men. Thomas Tooke was known as the schoolmaster of the House of Commons, and a schoolmaster in the nineteenth century was a man of parts. A prime minister called John Mill the Saint of Rationalism. There were economists in Parliament and cabinets, and economists were called on by Select Committees for their opinion on political goals as well as on the economic means for attaining them. Whether called on or not, they usually expressed their opinions. Also noteworthy is the fact that the leading economists took part in the greatest political movement of the century—the reform of Parliament and the extension of the franchise. The literate world today unfortunately knows little about the political causes with which the economists were associated. They denounced the restriction of civil liberties following the Napoleonic Wars, demanded the right of all to freedom of speech and assembly, insisted that workers should be free to form unions and other voluntary associations, saw world peace as a consequence of free trade, opposed slavery and spoke out against Britain’s intervening on behalf of the South in the American Civil War, and worked steadily to extend the right to vote and to make the House of Commons a completely representative body. If these things were known, there would be less inclination among those outside economics to think of it, if at all, as an apologetic, dull and incomprehensible, and less inclination to show surprise on finding something humane and literate in a work about the subject. And there also might be less inclination for economists to respond to the misconception by pursuing their elegant isolation.
4. Once Mill had stated his theory of policy, he made possible a modification of liberalism that was to have important results. He tried to put together two sets of ideas—one came from the classic liberalism of the seventeenth century and directed policy toward increasing the freedom of the individual and protecting his rights; the other came from utilitarianism and directed policy toward improving the individual. Classical economics had harbored both sets of ideas for nearly a century. They had not gotten in each other’s way, because no one had tried to define the place of each. Mill tried to make policy serve both freedom and improvement, but in the end he made the latter, the utilitarian objective, the more important. It justifies forms of intervention that cannot be justified by classic liberalism. The latter was not opposed to intervention per se, but to its being decided independently of the popular will. After Mill made his statement, the liberal tradition was more noticeably divided into two parts: one part continuing the early and classic ideas of liberalism, and the other enlarging upon his ideas, although often unaware of their origin. Utilitarianism led to a policy of extensive government direction, always in the name of liberalism. Both the policy and its name have pained those who remain in the classic tradition, or in what they believe it to be. Who are the genuine liberals? The question is not, Who better represents liberalism?, because liberalism has two distinct components. It really is a question of who is entitled to the name. By antiquity, those in the classic tradition are, because their ideas are somewhat older. The more important question is whose objectives are preferable? That became the issue in the nineteenth century (and remains the issue today).
5. During the century there was substantial opposition to economic liberalism. The opposition was an acknowledgment of its power. In the first half of the century, the target was Ricardian economics, “that canker of states,” as one critic called it. The opponents were many of them uninformed, unreasoning, and anachronistic. They were not simply against Ricardo’s economics, which few of them understood well enough to criticize. They were opposed to the world it was meant to explain and direct. They were opposed to industrialism and technological change, in their entirety and in each of their aspects, as the M. P. was who said it could not matter less to the nation that the building of railroads would reduce the time needed to transport goods. They were personally offended by the doctrine of overpopulation. Malthus was a bête noir. They not only condemned his doctrine but managed somehow to hold him responsible for the danger it described. When they were bold enough to declare what kind of a world they did want (which Burke was too canny to do), it was a mythical, merry, and rather foolish England. Who were these critics? For the most part their names are unremembered. One finds their attitude among the memoirs of the period, in the Parliamentary debates, in the newspapers, and in the novels. Cobbett sometimes expressed it, and even Disraeli. Despite their anonymity, they deserve notice. They expressed an attitude that is appealing, enduring, and consequential. It is an attitude of anticapitalism and, more basically, one that expresses opposition to individualism. It is found in the twentieth century as well as in the nineteenth, in such diverse figures as D. H. Lawrence, Ezra Pound, and Colin Wilson.
Many of the attitudes were stated in cogent form by Carlyle and Ruskin, and later by an impressive number of writers and artists, among them William Morris, the Pre-Raphaelites, and at times, Matthew Arnold. They were political idealists and hence rejected the first premise of liberalism, which is the right and the ability of the individual to make choices. They made articulate the opposition of the anonymous critics, and although the ideas were no less atavistic they were stated in a more influential way. The attack on liberalism, made by Carlyle, Ruskin and others like them, was more consequential, it can be argued, than that of any other group, more even than that of the Marxists, who in any event came later.
The working-class opposition to liberalism came from a different source and it too was earlier than Marxism. It came first from Robert Owen and the utopian beliefs of those associated with him. Their doctrine was slight, but it had great practical effect, notably in the field of cooperatives. Moreover, some of Owen’s ideas stung the Ricardians. To read only about how the Ricardians felt toward the doctrine of Owen is to get the impression of something quite absurd. It was not that at all. Shortly after Owen began propagating his ideas there developed a socialist version of Ricardian economics, expressed by writers like Piercy Ravenstone and Thomas Hodgskin. They drew what seems to be the obvious ethical conclusion from Ricardo’s theory of value: If labor produces whatever value a commodity has, the commodity clearly belongs to labor. It is interesting that no one seems to have asked why those who produce wealth are entitled to it. Had the question been raised it probably would have been thought foolish. Yet it is not. If those who produce wealth are entitled to it, then those who do not produce are entitled to nothing. If the latter rule had been practiced, a good part of the population would have perished because it consisted of people who owned nothing that produced wealth (children, the aged, the infirm, the indigent, and women). Actually the ethical judgment that was read from the labor theory of value was a judgment that goes far back into history, back beyond Locke and Hobbes to the Old Testament, Genesis, and the idea of original sin—that our bread is the reward of our labor and our labor is the punishment for our disobedience.
There were still others who were opposed to liberalism or to some aspects of it. They were the middle-class and working-class radicals who were not socialists, not atavistic, and not political idealists. They had few ideas of economic policy, but they had a great many policies. The particular object of their opposition was Ricardian economics in certain of its features. They objected to its not recognizing altruism where altruism was a fact; they objected when the Ricardians proposed laisser faire for some markets and they objected when it was not proposed for others. They were not in favor of completely free labor markets and were one of the principal forces in support of the Factory Acts. But in international trade they wanted laisser faire established completely and immediately and they would have none of the qualifications to free trade that the Ricardians accepted. Their opposition was much different from that which others expressed toward Ricardian economics. The radical opposition was qualified, good-tempered, and friendly at heart. The ideas on which it acted were liberal ideas. But the radicals were not principally men of ideas at all. They were campaigners, agitators, propagandists, activists. They were also impatient. When Ricardian doctrine counseled them to be moderate, watchful, and patient—they swept it aside.
6. Liberalism had to contend with quite serious economic problems as well as with doctrinal opposition. The depression of 1819 initiated a cyclical movement that has continued ever since and is unlike the irregular and spasmodic fluctuations prior to the nineteenth century. There were severe depressions in the 1840s, 1870s, and 1890s. Early in its history the cycle acquired an international aspect. In the 1830s, the deflationary measures of President Jackson were one cause of the contraction in Britain—probably the first instance of the exporting of unemployment by the United States. Monopolies were another problem. Before the nineteenth century most of them originated in the grant of exclusive rights by the state. Now they originated in the market, and the classical remedy for them was thereby weakened. The remedy had been, particularly in Smith, to abolish government protection of firms and to allow the market to force them to be competitive. Now it was the harshness of competition itself that was a cause of monopoly.
Still another problem was the growing, or apparently growing, inequality of wealth and income. One aspect was the squalor and brutality of the factory towns, and another was the conditions of work in the factories. Actually the average real income of factory workers and their families was almost certainly higher than that of agricultural laborers. There is other evidence that the industrial growth of the century produced more than the wretchedness for which it is notorious. But squalor and brutality were easily seen and readily imputed to the market. The problem was in fact more complex. One of its causes is the inability of a free market to include in the cost of producing manufactured goods all the incidental effects that manufacturing produces, or, in technical language, the inability of a market always to account for social as well as private cost.
Even if the market had been able to reckon all costs there would have remained another problem. It was the most serious of all. It was the quality of the civilization that capitalism was creating. Men still believed that individual economic conduct contributed to the building of character, but after the middle of the century they began to think there were aspects of character that it neglected. Economic individualism certainly is favorable to the development of self-reliance, diligence, reliability, prudence, a respect for facts, and a form of courage that, however rough and simple, is admirable. But individualism also directs one’s attention to values that are measurable in money and away from those that are not. Usually those that are not measurable in money are those that matter more: those that are in the arts, in imaginative literature, in the search for knowledge as a thing in itself, that are in the feelings people have for each other and in their sense of what is happy and fitting. They are values that are hard to describe, still harder to communicate, and nearly impossible to appraise. They are not ideas about which demonstrable propositions can be made, as they can be made about many of the ideas in economics. But they are what most men always have thought to be important, and only the foolish or the boorish have turned away from them. This is the problem—the problem of noneconomic values—that brought Carlyle and Ruskin to economics. It made Ruskin deny the premise from which Mill had begun his Principles. Mill had said, innocently, that wealth consists of those things measurable in money. “There is no wealth but life,” Ruskin thundered (as or nearly as he could in the prose he wrote) and in time he was listened to.1 This problem has not much interested the Marxists—the other great opponents of liberalism—although they have alluded to it. With the benefit of hindsight, one can see that Marxism was as prosaic in its origins as Ricardian economics was and in practice has turned out to be more materialistic.
For these reasons the nineteenth century was important in the history of economic liberalism, and I wish to bring these studies to a conclusion by describing that period. The information is drawn from what was written and done in Great Britain, because liberalism was more important there than it was in any other country. Other countries had some experience with it, but not in so significant a way. In fact when the nineteenth century is recalled as the age of the free market, Great Britain, and very little more, is what is remembered. That little is curious: the tariff reforms of the autocratic Napoleon III, the free-trade proposals of the slave owners in the United States, and the enthusiasm for laisser faire in the court of Tsar Alexander. Laisser faire has made some disreputable friends and to its embarrassment continues to do so.
In this chapter I wish specifically: (1) To state the principal measures of policy enacted in Britain to about 1860. They help to explain the writing on policy, some of which was about particular enactments, and they show the influence of that writing. By 1860 the direction of government action was clear and was fixed on a course that did not change in any important way until after World War I. (2) To describe the ideas of policy put forward by the economists, the ways in which the ideas were ambiguous and needed to be clarified, and the effort of John Stuart Mill to make a comprehensive statement of the principles of liberal economic policy. (3) To offer a principle that seems to me to reconcile the diverse and apparently contradictory elements of liberal policy both in its ideological and its factual aspects—a principle that integrates both the ideas of the economists and the enactments of the state. I propose a new principle because the usual principles do not seem to be as explanatory.
The Practice of Policy
MEASURES THAT PROMOTED THE MARKET
During the century many measures directly or indirectly promoted free markets and gave the century its reputation for laisser faire (using that term always to mean nonintervention). One of the first, an indirect measure, was the restoration of the gold standard in 1819. It was the outcome of the Bullionist controversy of 1810-11, one of the great debates in the history of economic policy. Those who wanted to restore gold were most of them economic liberals. But except in international trade, they were not necessarily advocates of laisser faire. Throughout the century the liberals, and especially the free traders among them, were in favor of the gold standard and other hard-money measures. The opponents of hard money usually were protectionists and were nonliberal on other issues of economic policy also. Yet on such a basic political issue as Parliamentary reform they agreed with the economic liberals, and both believed it should be advanced in a radical way. The division was personified by Richard Cobden and Thomas Attwood. Attwood stood for protection, paper money, and Birmingham hardware, while Cobden represented free trade, gold, and Manchester textiles (the last without enthusiasm). But both were for Parliamentary reform. An interesting feature of the restoration of gold in 1819 was the behavior of Peel, a Tory, who sponsored it. In 1811 he had voted against the recommendations of the Bullion Report to restore gold, but in 1819 he incorporated them in his own bill. He explained that he hadn’t read the report until 1819 and thereupon was persuaded by it. He was to have another swift change of mind with even more remarkable consequences. That was in 1845, when he abruptly changed his opinion about the Corn Laws and sponsored their repeal.
In 1827 another step was taken toward free international trade. Huskisson, another Tory, inaugurated a program of tariff reform. Protection was to be limited to 30 percent and, it was said at the time, might someday be removed altogether. That is what did happen with the repeal of the Corn Laws and the Navigation Acts.
There were additional measures that promoted laisser faire in domestic or international markets. The Combination Acts were repealed in 1824. They had made trade unions illegal and were the major restraint upon the formation of voluntary organizations by the workers. The usury laws were repealed in 1826. Like the Navigation Acts they had been napproved eve by Smith, causing Bentham to challenge him on the point and apparently to change Smith’s mind. There was a drastic revision of the poor laws in 1834. The change was meant to end the practice of supplementing the wages of agricultural laborers with money from the relief funds. It also intended to make confinement in a workhouse the condition of receiving relief. In 1844 a general law of incorporation was passed, and it removed the necessity of a firm’s securing a charter by specific act of Parliament. The granting of monopoly rights by the government was brought to an end. The East India Company, the greatest of the trading monopolies and the creature of government, was abolished in 1858. One of the principal employes who was thereby retired was John Stuart Mill. Each of these measures was the last step in the movement toward making a particular market free. At the time, some of the measures seemed to be an abrupt reversal of policy, such as the restoration of gold and the repeal of the Corn Laws. But in retrospect one can see that prior to each enactment there had been a sequence of events leading to it. This means that when a free market was established, the decision to do so was not made lightly or unexpectedly. The Statute of Apprentices was repealed in 1814. It was a massive piece of legislation that in 1563 gave the government of Elizabeth comprehensive control over the economy. Had it been enforced until 1814 its repeal would have been momentous, but in fact the enforcement began to diminish after 1688, and the repeal was a formality.
While these changes were being made, they were reinforced by others of a political kind. Together the two increased the freedom of the individual to make decisions, the one in the market and the other in political affairs, although neither kind of enactment necessarily provided the individual with the means of using his freedom. Examples of the political changes were the abolition of the slave trade, the abolition of slavery in the British colonies, and the removal of limitations on the political rights of Catholics and Jews. The Reform Bill of 1832 had an economic effect because it gave business interests some of the representation they wanted in the House and so enabled them to propose measures that, by the middle of the century, were meant to establish free markets.
When all such measures are brought together—and others, of an opposite intention or simply of a different intention are ignored—they do suggest that laisser faire governed the century. The suggestion is strengthened by other things about the period that are well remembered, such as the faith in material progress and the satisfaction with it, the collection of virtues which we know of as Victorian morality, the extension of Darwinism into a social philosophy, the miscellany of notions gotten in the novels from Mary Barton to the Forsyte Saga. There are Carlyle’s definitions of classical economics and laisser faire, even more alarming in French: la science sinistre and l’anarchie avec le gendarme en plus. Just as apposite, though not so familiar, are Cobbett on the Ricardians: “the nasty feelosofers”; Michael Sadler on them: “the pests of society and persecutors of the poor”; and Henry Adams on John Stuart Mill: “His Satanic free-trade majesty.”
All of this can lead one to believe that Britain must have been under the rule of the free market and its apologists, as if the idea of laisser faire had taken hold of the country about 1776, when The Wealth of Nations was published, and informed it with a grand design that was executed in the next century. The idea is not a simple mistake and is not just a misreading by the twentieth century of what happened in the nineteenth. One can go to the worthies of the nineteenth century and find them expressing the same misconception. No less a one than Cairnes was mistaken. He stated that Britain in his day was ruled by laisser faire and that the majority of the people had an “absolute faith” in it. If it had been his faith also, one could explain his mistake as wishfulness. But it was not. He was in fact intensely opposed to it. Much of what has been said against it in this century was anticipated by him in his celebrated lecture on it in 1870. He said:
Or, turning from particular examples to broad results, can anyone seriously consider the present condition of the inhabitants of these islands—these islands where industrial freedom has for nearly half a century had greater scope than in any previous age or in any other country, but where also the extremes of wealth and poverty are found in harsher contrast than they have been ever found elsewhere; where one man consumes more value in a single meal than goes to feed and clothe the family of another for a month; where the entire land of the country is owned by less than a hundred thousand persons out of a population of thirty millions; where one in every twenty persons is a pauper, where the great bulk of the agricultural population look forward with calm resignation to spending their old age in a workhouse, while the artisan population of the towns find themselves about once in ten years in the midst of a frightful commercial catastrophe, which consigns hundreds of thousands to ruin—I ask if any one can seriously consider this state of things, and yet repose in absolute satisfaction and confidence on his maxim of laissez-faire?2
The quotation is instructive in two ways. It shows that the informed as well as the world at large have been mistaken about laisser faire. And it indicates some of the problems—inequality and unemployment—that turned Britain away from completely free markets and made policy different from what Cairnes supposed it to be. He was, one may observe, a minor figure in the classical school but not an inconsequential one. The intensity of the lecture shows that he looked on the problems of his day as serious problems indeed. In this he was not alone. The economists were not indifferent to suffering, and they did not look at it with the cool detachment that today is thought to be the proper scientific manner. If they resemble anyone, they were like the activists of the present: the economists of today who have become personally engaged in the issues of the time, who have declared their political allegiance, and have used their skill to justify their political commitments and to advance them. Today the activists are more likely not to be in the liberal tradition as the term is used here.
Cairnes’ mistake was not unusal. Economists often have been poor historians, just as historians have been poor economists. Both at times have taken the form of things to be their substance. Smith (as noted earlier) was one of the worst offenders. The men who wrote the American Constitution thought they were following the British example when they divided power among three branches of government. Montesquieu had described the British practice in this way, and they had read him diligently. Actually Britain by that time had departed from the practice and had established cabinet government. Another instance is the conception entertained today about the meaning of economic liberalism. The character of that mistake I leave to the reader to ponder after he finishes this book.
MEASURES THAT RESTRICTED THE MARKET
While Britain in the nineteenth century was enacting measures on the principle that the market knows best which goods to produce and how to distribute them, it was at the same time enacting measures on exactly the opposite principle—that the market does not know. It also was enacting a third group of measures that were based on neither principle entirely, but on elements of each. The government taxed personal income during the Napoleonic Wars and retained the power after they were over, using it again in 1842 to restore the revenue lost by the reduction of import duties. The revenue bill of that year was characteristic of the way the political leaders combined principles of policy that seem to be contradictory. By lowering tariffs, the government gave consumers more freedom of choice in the spending of their income. But the government simultaneously levied a direct tax and left them with less income to spend. A later generation would say the net effect was liberalizing, because direct taxes restrict choice less than indirect taxes. The men who made the revenue law may have been familiar with that distinction, but they did not justify their behavior by it. What directed them was the need to make a concession to the free-trade movement and at the same time to find an alternative source of revenue.
The building of the canals and later of the railways had the effect of widening the domestic market and of making it more competitive. The construction was done mainly by private enterprise, although an exception was the Caledonian Canal in Scotland. Bentham approved of the government’s building it while M’Culloch said the money was “little better than thrown away.” Unlike the governments on the Continent, that of Britain wanted neither to own the transportation systems nor to give them subsidies. However, it did not scruple to regulate certain technical aspects of construction (such as the gauge of the railways), to specify the routes, to control the competition between canals and railways, to regulate the consolidation of the latter, and, most important, to fix rates. The Combination Acts were repealed in 1824, as stated above, and the government thereby accepted the principle of voluntary association. But there followed a number of laws defining permissible trade-union activity, the first of them passed the very next year and continuing to the arbitration law of 1896.
That the government was responsible for maintaining employment was not a novel idea in the nineteenth century—it was indeed thought to be reactionary and even archaic. When expressly put before the House in 1848 it was repudiated.3 Still, in 1863 a law was passed that empowered certain public agencies to borrow money in order to provide work for the unemployed or to make direct payments to them. The law clearly was inconsistent with the New Poor Law of 1834. Moreover, in the thirty intervening years there had been no softening of the dogma that charity was unwise. Charity, men believed, was demoralizing because it made the poor dependent and lazy. After 1859, when The Origin of the Species was published, the notion was reinforced by the belief that protecting the weak makes for the survival of the unfit. Actually Britain was well prepared, verbally, to apply Darwinism to social behavior. Mill, for example, had proposed to help the poor by making the receipt of relief so onerous that they would be driven to supporting themselves. He seems not to have been influenced directly by Darwin but he was quite familiar with the ideas of Spencer who was. In any event, he made the proposal eleven years before Darwin’s work was published. And he himself made the best comment on his own proposal in On Liberty, where he said a characteristic of the English is to assert an outrageous principle long after they have given up any intention of practicing it.
The idea that prices and the quality of goods should be controlled was repudiated in the same way as the idea that the government was responsible for maintaining employment. Both ideas were Elizabethan and authoritarian, it was said. Yet the repudiation was contravened by a number of laws, beginning in 1825 with one that provided for the inspection of the food supply. As illuminating gas, then electricity, the telegraph, and the telephone came into being, the government controlled their rates and nationalized the latter two.
In monetary policy, one of the major laws was the Bank Charter Act of 1844, again sponsored by Peel, the major craftsman of economic policy of the century. It was a complex piece of legislation, and in its entirety cannot be described as promoting either laisser faire or the opposite. It prevented the joint-stock banks from issuing paper money and provided that no new rights of issue be given to private banks in the future. In time the joint-stock banks absorbed the private banks, and that left the Bank of England with a monopoly of the right of issue. Cobden supported the monopoly because the conditions of issue were fairly consistent with the gold standard. Mill did not see any importance in the question of monopoly versus competition in the issue of currency. The act did not alter a law of 1826 which had abolished the Bank of England’s monopoly of joint-stock banking. Actually the major economic issue in the debate over the Charter Act was how to regulate the supply of money, and on that issue there were liberal and nonliberal economists on each side.
There was another important aspect of monetary policy, and it deserves more notice than it has received The government, when business firms were in financial distress, guaranteed loans made to them by commercial banks. The Treasury issued Exchequer Bills to the firms, which in turn used their inventories as collateral; the firms then discounted the bills and increased their cash holdings. The purpose was to prevent forced sales of goods and to arrest a deflationary movement. The practice had started in the eighteenth century and always was much favored by businessmen, including those who favored a laisser faire solution to other problems. During the depression of 1836-37 the merchants and manufacturers of Manchester petitioned the government to reform the Corn Laws. The effect, they thought, would be to increase their exports (their argument being that a lower tariff on grain would cause Britain to import more of it, thereby providing foreigners with more British money which would be spent on British goods). In making the proposal, the business community also made some ringing declarations for the principle of free markets. At the same time it asked the government to issue Exchequer Bills. They had been a point in the Bullionist controversy, the gold standard people having opposed them. But their reason was not that the issue of bills was a form of government intervention. It was that the bills increased the monetary instability caused by the suspension of gold payments and contributed to the excessive profits of the Bank of England.
Laws that altered the distribution of income by taxing it, that tried to make transportation more efficient and fairly priced by intervening in its construction and the setting of its rates, that tried to regulate trade unions, settle labor disputes, support employment, fix prices, control the quality of food, that nationalized some public utilities, established a monopoly of the issue of paper money, that tried to prevent deflationary movements—such laws do not support the belief expressed by Cairnes, and many others then and since, that laisser faire was the governing policy of the country and the absolute faith of the majority of the people.
Beyond these laws, older than most of them and more consequential than any, was another form of intervention. It was the regulation of working conditions by the Factory Acts. The stated purpose of the acts was to reduce the hours of work, and that was their direct effect. But indirectly they raised hourly wages. That both changes would occur was recognized quite early, but the acts were not offered by their sponsors as a means of controlling wages. They were in their initial stage not even presented as a means of improving the condition of the laboring classes, except by a few radical businessmen like Owen and workers like David Brook. The first was passed in 1802. The purpose was to make the government attend to its obligations to apprentices, a responsibility it had been given by the Elizabethan Poor Law of 1601. The act of 1802 applied to the textile industry. Among other things, it required the mill owners to provide some education for the children in their employment. Education was also a feature of subsequent acts. In time the state regulated the conditions of work of all children in the textile mills (not just orphan apprentices), then extended regulation to the working conditions of women, then to the working conditions of both women and children outside the textile industry, and finally to men. At the end of the century most of the working population outside agriculture was within the scope of the acts. By then the acts were accepted as much by the descendants of the Manchester school as by the admirers of Lord Ashley, an early sponsor. With similar feelings, both could look back on the early opposition to the laws. It was like that stated in the following excerpt from the minutes of a Select Committee of 1816, appointed by Parliament to examine the proposal to improve the condition of workers:
Is the condition of the people generally comfortable, and are they themselves happy and contented?—They are generally so, as far as I know, if they are not happy, they can leave it.4
That is laisser faire of a purity that is primordial. It is what is supposed to have been common in the nineteenth century. But the Factory Acts were passed, and so were others that modified free markets or eliminated them altogether. There were many more than are noted here. Spencer in 1880 listed several scores.5 But they were less important and do not alter the point I wish to make—that the policy of Britain in the century was a combination of measures, some promoting free markets, some with the opposite intention, and a third group (like the Exchequer Bills) that mixed the two.
THE INFLUENCE OF PARTIES AND INTERESTS
How can the policy be explained, and what shall it be called? Is there a principle to be read from it? Or was it the work of party politics, or of vested interests?
One explanation is that it was all of these things, because, in this view, policy is politics and politics by its nature cannot be consistent (or more than superficially so). The policy of the nineteenth century is looked upon as a collection of diverse measures, each meant to manage a particular problem in whatever way it could be managed: by using some principle or other of economic policy, by the party in power enacting something from its program, or by the government yielding to the pressure of a vested interest. But this is not really an explanation, because it says that what happened is not to be explained in any one way.
What can be said of party behavior as an explanation? The Whigs were associated with economic individualism, freedom of contract, and similar notions ascribed to liberalism, while the Tories were associated with protection for agriculture, a hostility to trade, and a state of mind that disliked the market and its works. But these associations were so flexible, were so often qualified and even contradicted, that they are not helpful as explanations. Let me cite just two facts. Most of the measures here noted—and they were the most important—were approved by majorities in the House in excess of the majority held by the party in office when the laws were passed. The other fact is that when the main features of the policy were established—in the years from 1819 to 1846, between the resumption of gold convertibility and the establishment of free trade in grain—the leading economic statesman was Peel. He promoted measures that cannot be connected with the program of either party any more than they can be connected with laisser faire or its opposite. From the political historians, Peel has received the attention he merits. But the economists have not been as attentive. They are inclined to think it was Gladstone or Robert Lowe who made the critical decisions about policy and gave the century its distinctive features. Gladstone and Lowe are best remembered for some high-minded statements in favor of laisser faire. Yet neither acted, as distinct from spoke, as though he wanted the principle to guide the state. Actually, before they came to power the course of policy had been pretty firmly established by Peel.
How influential were vested interests? They certainly did have influence, but it was not strong or consistent enough to make it the explanation of policy. There were indeed times when Parliament acted as if it wanted to prove it was the official representative of the bourgeoisie. At the time of the Bullion controversy the House heard the petition of the cotton textile workers for relief in the depression of 1811. They wanted a law to limit the number of apprentices. They could not have it, they were told, because the House would not legislate against laisser faire. The point was made strongly by Perceval and Rose, two leaders of the anti-Bullionist group, who were joined by Giddy, a Bullionist. The Members also expressed opposition to the granting of money to the poor, which, they said, was wholly objectionable.
The government at the time was making loans to employers. The workers were turned away in June of that year, and in November the Luddite riots began. In the 1830s the House turned away the handloom weavers when they petitioned for help to relieve their technological unemployment. They were told the House had no power to change the laws of economics. At the same time it listened to the businessmen who asked for (and received) loans to carry their inventories. The textile manufacturers at times acted as if they were illustrating some of the cruder doctrines of imperialism. They repeatedly called on the Foreign Office to use influence and if necessary military power to open foreign markets to them, as when in 1848 they demanded the lifting of the Danish blockade of the Elbe so that cotton goods could be shipped to Germany.
There are, however, far too many examples of the opposite sort of thing, and they cast overwhelming doubt on the notion that policy was the work of vested interests. The Foreign Office often refused the exporters’ requests. Parliament took almost forty years to repeal the Corn Laws. On the great issue of regulating the conditions of work, it acted in opposition to the majority of employers. When one looks into the origin of laws that were detrimental to business, or were thought to be by the business community, one finds they often were promoted by a few unusual businessmen. The Factory Acts are a good example. I am not saying that vested interests on the whole were indifferent to what Parliament did, or that they did not try to use Parliament for their purposes. They often tried and sometimes succeeded. But they did not use political power as often as its use was called for, and when they did, their behavior often was inept and fearful, and they did not often succeed.
These remarks—about the influence of parties and interests—are not offered as conclusive evidence. The reader interested in the point will want much more. To supply it would take me much beyond the purpose of this chapter which is to explain what determined policy and to treat only incidentally of what did not. I believe that a detailed historical study would support the statements I have made.
The Meaning of Economic Liberalism
What determined policy in the nineteenth century was, in my opinion, ideas, and the ideas in their entirety constitute economic liberalism. They were long in developing, as the period of time covered by this book indicates, and when they came to be a full-bodied doctrine it was not a simple or self-evident one. Some of the ideas were fairly explicit propositions that had been made in the writings of the economists and transferred to government enactments. Free trade is an example and it is an example of laisser faire, which was one element of liberalism but not the most important. Some of the other elements were inferences drawn by the economists from what the government actually had done. The regulation of factory labor is an example and it illustrates the idea that some markets should be controlled. Still other elements were the combined product of the observation of economists and the work of political leaders, each looking at a problem from their particular viewpoints, but influencing each other and in the end coming to agreement. Poor relief is an example. These ideas cannot be made consistent in any obvious way. To do that one must go beyond economics and into political philosophy.
Liberal economic policy is deduced from the political principle that free people may do what they will do and are able to do. The statement is abstract, possibly vague and even sententious, but I do not know of any other way to state the principle briefly. What I mean by it is this: (1) A measure of policy to be liberal must be a response to an economic problem which the people believe should be attended to. (2) The measure must be workable, that is, must show some likelihood of being able to solve the problem to which it is directed. (3) The methods it uses must be approved by the people. By “the people,” I mean those persons who are represented in government, whose opinion the government must take for its guide, and who in the end control the government. Their number increased in the nineteenth century, because the franchise was extended and other democratic changes were made. In the eighteenth century, representative government was much more limited. In the twentieth, where it exists, it is more extensive in the sense that more adults are able to vote, electoral districts are represented more nearly in proportion to their population, civil liberties are more universal, and (though hard to believe perhaps) government is less corrupt. Over this period, economists in the tradition of classic liberalism have moved farther from laisser faire and toward more intervention. The movement is, I believe, causally related to the extension of representative government. Where government is by the few, individuals cannot express their choices by means of it, except with great difficulty. In such circumstances the market is a better means. No matter how unequally income may be distributed, and other power as well, the market is impersonal and in the aggregate is predictable. But where government represents the many, it can be a means by which individuals express their choices. It can keep before itself the ideal rule of policy making, which is to obtain for an action the consent of those affected by it. An ideal market also does just that. But private-social cost discrepancies and other limitations prevent markets from being ideal. If such limitations are remediable, they need not, in a representative state, be borne. The people, without jeopardizing their liberties, can direct the government to intervene. The limitations may not be remediable. Obviously that is reason enough for the government not to intervene. But the reason is a mechanical, not an ethical, one. It applies with equal force in a dictatorship.
INTERVENTION AND DEMOCRACY
To say that intervention and democracy developed together in the history of liberalism is not the same as saying that where one is, the other will be found also. Today the countries where government intervenes most are those in which there is least democracy, namely, the Communist countries. What the connection between democracy and intervention means is this: Among countries with representative government today, those which by almost every test provide the greatest political liberty for the individual are also those where the state has intervened most. Examples are Scandinavia and Great Britain. Where the political liberty of the individual is less secure, as I believe it to be in the United States, there is less intervention—and, from a liberal viewpoint, properly so. There is an interesting confirmation of the connection in the Communist countries today. In the writings of some of their economists there are proposals for less intervention and more reliance on the market.6 The reason is that a Communist government, being unrepresentative, cannot discern the choices of individuals. That is a serious failing because even a dictatorial government needs to be guided by individual choices in some matters, such as the composition of consumer output. In other words, where government is bad, whether it is an oligarchy in Britain in the eighteenth century or a people’s democracy” in eastern Europe in the twentieth, individuals can get what they want better through the market. To be accurate, it must be said that the Communists who propose the market do so as a means of improving the efficiency of the economy and not as a means of increasing individual freedom. But that is dust in our eyes, because they implicitly measure efficiency by the way the economy responds to individual choices. Otherwise they wouldn’t propose it be directed by them. Should the Communist countries put the proposal into complete effect, they probably will lessen their political dictatorship, because the need for much of the dictatorship will be removed. We then might see democracy brought into being by laisser faire, as in the West for many years we have seen democracy bring intervention into being—an instance of the dialectic indeed. It is irresistible to speculate about what will happen when the movements intersect: when the West in its movement toward intervention meets the east in its movement toward laisser faire. What then will be the allegiance of the orthodox Marxists, and where will the disciples of von Mises find a home?
WHAT LIBERAL POLICY IS NOT
This much, then, for what the principle of liberal economic policy is. It is, to repeat, that government may do whatever it can do that the people will have it do. Consider what it does not mean. It does not mean that policy must be based on consensus. That very useful word I prefer to use to mean unanimous agreement. That can be taken as the ideal and limiting standard of policy, the measure of absolute popular will, and the goal toward which we should move. But reaching the goal—which means achieving unanimity—cannot be a necessary condition of enacting policy. That is so for two reasons. The practical reason is that unanimity is impossible on most issues, or it is unnecessary, or it takes too long to obtain. Problems are pressing, and solutions must be reached. To make consensus a condition of solving problems is to leave them unsolved, which can be a very expensive practice—as it would be, for example, if the government did nothing about maintaining employment until everyone approved of the thing to be done. The other reason is that government by consensus is a contradiction in terms. Government is coercion and is unnecessary where there is unanimity. People do not have to be coerced into doing something they freely choose to do. To strive for consensus is a commendable thing and a necessary thing, just as striving for virtue is commendable and necessary. I do not write ironically. But to insist upon achieving both is, in practice, to reduce behavior to ineffectuality and, in theory, to produce a contradiction. A religious man sensibly can say we should seek to be angelic as a condition of entering heaven, but to insist that we actually be so is to say that we shall enter heaven only when earth has become like it. A liberal sensibly can say that government should have the consent of as many as possible when it takes action. But for him to say government must have the consent of everyone is to say it should act as if governing were not necessary.
THE NECESSARY AMOUNT OF AGREEMENT
We come next to the question of how much consent or agreement there should be. That depends, it seems to me, on the importance of the measure and on the length of time during which it is being argued or has been in effect. An important measure obviously should command more support just because it affects more people or affects them more deeply. There are ways of sensing what is more and what is less important. If a proposed measure evokes sharp differences, if it agitates the public, it probably is important and does not have sufficient support to justify its being enacted, even though it may have a nominal majority in the legislature. But these observations must be qualified. Controversy can be manufactured, and there will seem to be less agreement than there actually is. Even when real, the controversy may be ephemeral. It is the business of the legislature to decide what is in the public interest in the long run. Its business is not to be guided by the opinion of the moment. If it is wrong about the public interest, the public will correct it at the next election. There can be circumstances in which it legitimately can enact a measure that clearly is against what the public at the time believes to be in its interest. The legislature may do so if it believes the public will change its view once it has experience with the measure. If, however, the opposition is continued, or if the measure is difficult to enforce, or if the public refuses to return to office those who enacted it, then the measure should be repealed. Repeal can be very difficult to effect. Hence it is prudent to reduce the scope of a controversial measure and use it to make marginal rather than fundamental changes. If this is impossible, the measure should not be enacted, and the legislature simply must wait until there is public approval.
These remarks about agreement are not precise, and some readers will be dissatisfied with them. What I am saying is that the amount of agreement necessary for the enactment of a measure of liberal policy is that amount which the legislature judges to be necessary. Therefore it is the judgment of legislators that decides what is and what is not consistent with the popular will. There are many who do not care for legislators. Some do not because they are opposed to representative government and not simply to the legislators who carry it on. The issue between them and me is not whether the legislature can interpret the popular will. The issue is whether popular will should guide policy, or whether policy should be guided by some impersonal force like history, a divine will, natural law, a racial spirit, or even a force like an enlightened few who believe they know what is good for the population better than the population itself knows. Those who oppose the popular will are simply opposed to liberalism in its most fundamental aspect.
There is another group of people. They subscribe to liberalism, but have little confidence in legislators. That is because they have little confidence in government per se. They can marshal evidence of what Spencer called the sins of legislators. But the evidence proves too much—namely, that government should not exist at all, or that it has deprived us of fundamental liberties. The former is not a helpful conclusion, while the latter simply does not correspond to our experience. If it were true that everything the government does, beyond the maintenance of law and order, is an action that deprives individuals of some of their liberty, then we should now feel quite unfree even in normally democratic countries. We should feel restrained by compulsory school laws, public schools themselves, utility regulation, most monetary policies, progressive taxation, and a great many other things that are a common part of our existence. I do not say there can be no reasonable objection to such things. There can be and is. What I am saying is that we do not believe these things place us under restraints that are constantly irksome, chafing, and so objectionable that we would, if we could, throw them off.
THE OBJECTIONS TO INTERVENTION
Actually those who object to these measures do so for three reasons—reasons they do not keep as separate as they should. One is that a particular measure limits the freedom of one group of people for the sake of providing benefits to others, such as the income tax. Is such limitation inconsistent with freedom? Not necessarily. One of the ideas with which classic liberalism began was that government must restrain the exercise of power by individuals in order to make peace and harmony possible among them. There is a great practical difference between the government’s preventing the strong from endangering the lives of the weak and its preventing one man from earning more than thirty times as much as another. But I do not see any reason in principle why, if the physical power of an individual may be limited, his income power may not be also. Both violence and inequality produce what can be called (to paraphrase Henry C. Simons) the ugly society. If government may intervene to prevent the one, it may also intervene to prevent the other, always assuming of course that the people want it to do so and it is able to. A second reason for objecting to a measure is that it does not do what it is represented as doing. One example is agricultural legislation that is represented as helping poor farmers while in fact it helps rich farmers much more. But this reason for objecting has nothing to do with the effect of the measure on individual freedom. If it is the unworkability of the measure that makes it objectionable, then a workable measure should be proposed in its place. If not, even a workable measure would be acceptable, because it restrains individuals, then workability is irrelevant. The third reason for objecting is that a measure helps only one group in the population and injures all others, such as a protective tariff. This in my opinion is the most telling objection that can be brought against government intervention. It says that intervention is bad if it sacrifices the interest of many to the interest of a few. But that is not an objection to intervention per se. It is an objection to intervention that contravenes the public will. The objection in fact is quite consistent with the principle I have offered for appraising policy.
I have said nothing about the common view that detailed intervention in the end must destroy freedom. It is the view put forward in so influential a way by Hayek in The Road to Serfdom. He states that in a centrally directed economy the claims of efficiency must come before those of freedom. His argument is closely reasoned and deductive. It rests on definitions of intervention and of freedom that lead necessarily to his conclusion. The argument is not, in my opinion, supported by such historical evidence as is relevant to it. What is more important is that the meaning he assigns to liberalism is not the meaning I believe is to be read from the economists whom both of us take to be representatives of the doctrine. This is not the place to comment on the details of his argument, and I wish only to add that with some of them I am in agreement.
ALTERNATIVE CONCEPTIONS OF LIBERALISM
Although the principle I infer from liberalism is not all I would like it to be, I can think of none better. It is more helpful than the principles now used by economists who think of themselves as liberal. For the reason given above, the idea of consensus is just not practicable or consistent. To alter it to mean majority rule is not satisfactory. To enact measures that have majority support may not be liberal, because the measures may not respect the legitimate interests of minorities. Moreover, the idea of majority rule is of no help at all in understanding the liberalism of the past. During most of the history of liberalism the idea of majority rule was of no consequence as a standard of policy. When the liberals did notice it, they usually made their opposition to it quite clear.
Another approach is to decide whether or not a measure is liberal by some standard other than individual freedom. The standard most often used is efficiency. In this view a measure is liberal, even though it may restrict freedom, if it produces a more efficient and/or a more complete allocation of resources than can be obtained from a free market. For example, government may intervene to maintain full employment, as it does in the exercise of monetary policy, or to equalize private and social costs, as it does in conserving water resources. But efficiency is a siren song, despite the fact that most American economists heed it. To put it in the place of freedom is to open the prospect of an economy of well-regulated penitentiaries in which, as Jacob Viner once said, there is no unemployment or other inefficiency. American economists, of course, do not really believe in putting efficiency before everything else. Like their British colleagues, they are far too good to put into practice what their beliefs imply. But they ought to say just what the limits to efficiency are to be. In doing so they undoubtedly will consider other values also. The objective of their policy probably will be a mixture of individual freedom, efficiency, equality, security, and growth. In deciding on the proportions in the mixture, they will be brought around to considering what the public wants from the economy. In other words, they will be guided by their estimation of the popular will. And in accepting the guidance, they will be acting on the principle that was used by the liberal economists of the past.
The Ideas of Policy
The writings of the nineteenth century reveal how frequently the liberal economists were guided by their appraisal of the popular will. By this principle the writings became intelligible; and although it does not make them consistent, it does reveal the intent that directed them. If on the other hand the writings are studied for their consistency with laisser faire they disclose as much ambiguity and lack of direction as the practice of policy does. The economists wrote both for and against free markets, and it was not unusual for a single writer to do both. They could be explicit about some measures of policy and obscure about others. On particular problems they could be clear and cogent, while about the principle from which they derived their position they could be superficial, indistinct, or simply silent. They would conform to our notions of British pragmatism if they always had been this way, i.e., attentive to specific solutions and indifferent to the principles they imply. They usually were so about the Factory Acts, declaring themselves for or against a particular act, but not for or against the principle of regulating working conditions. Pragmatism, in this rough and ready sense, is popular among economists today, particularly among those who refuse to commit themselves either to the principle of a free market or to its opposite, and who judge a measure of policy by whether or not it solves the problem to which it is addressed. They do not really believe one solution is as good as another—that, for example, eliminating unemployment by fiscal measures is no better or worse than by forced-labor camps. What they believe is that neither laisser faire nor its opposite is a helpful guide to policy. They believe just what the nineteenth century economists implied that they, too, believed. Unfortunately, neither has been clear about what other principle should guide policy, and the writings of today like those of a century ago often imply there are no other principles.
THE UNCERTAINTY ABOUT PRINCIPLES
In the nineteenth century there was uncertainty about the principles of policy. The reason was not pragmatism. The classicists did not ignore principles. They did not attend only to particular problems. They are, in fact, known—and properly so—for doing just the opposite. They wrote of the principle of free foreign trade and usually declared themselves for it. They also wrote about other principles—about what should govern poor relief, the supply of money, the fixing of prices, etc. Beyond this they wrote about the most general of all principles—that which should direct the state in its relation to the economy. What they did not do was to explain how the principles were related to each other and to the measures of policy that were derived from them. What they especially failed to do was to explain adequately the most general of the principles, namely the principle on which the state should base its economic policy.
The uncertainty was the signal feature of nineteenth-century liberalism until Mill wrote his Principles. It was not, however, a unique feature. It was inherited from the eighteenth century and particularly from Smith. To illustrate the uncertainty, I should like to return to him briefly and to the idea for which he is best known and most misunderstood: the invisible hand. What the idea actually means is, I believe, this: if an individual acts only for himself he may do more for others than if he tries to help them or is compelled to help them by the state. I do not take the idea to mean that selfishness always increases the national wealth, or that individuals always are selfish, or that the state never should tell them what to do. It usually is interpreted to mean one or all of these things. But consider its context and the language in which it is stated. It is in Book IV, “Of Systems of political Oeconomy,” in Chapter 2, “Of Restraints upon the Importation from foreign Countries of such Goods as can be produced at Home.” It follows an examination of the idea that the protection of domestic industries will increase the employment and output of the nation. Smith states that protection “frequently” increases employment in the protected industry. “But whether it tends either to increase the general industry of the society, or to give it the most advantageous direction, is not, perhaps, altogether so evident.” It will be noted that Smith did not unequivocally oppose protection; indeed elsewhere in The Wealth of Nations he stated he favored it under certain circumstances.
The argument continues that total employment depends on total capital and that total output depends on the efficiency with which capital is used. Efficiency is measured by profit, and a large profit indicates that output is large. Smith assumes here (as he does not everywhere) that every man tries to increase his profit. It follows that every man works to increase total output even though to increase it is no part of his purpose. Whatever the rate of profit is, it is more certain in a domestic than in a foreign enterprise because the businessman can attend more carefully to the capital he has at home. If the two rates are about equal, he will use his capital at home and in a way that seems most profitable to him. If he succeeds, employment will increase at home and output will also, even though his private and exclusive purpose had been to increase profit. Then follows the paragraph in which the famous phrase appears:
But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.7
The italics I have added are meant to draw attention to the qualifications. Smith stated that everyone “endeavours” to increase profit; he did not say everyone always does increase it. He did not say that the search for profit necessarily increased employment and output, but that it necessarily is an effort to do so. He said men “generally” do not act in the public interest; he did not say they never do. He said that selfishness is “frequently” more beneficial than altruism; he did not say it always is. The context and language make the statement about the invisible hand a statement that expresses qualified opposition to protection. It certainly does not say that laisser faire should be the principle of policy, because it is not even a statement in favor of complete free trade. When it is related to other ideas of policy in the Wealth of Nations, it is terribly confusing. Elsewhere the opposition to protective duties is qualified even more. As the reader knows from Chapter 1 in this volume, Smith qualified the idea that individuals try to increase profit and also the idea that when they do they act in the public interest.
With so much ambiguity in The Wealth of Nations, the lack of clarity is not surprising in the economists of the nineteenth century. They looked to Smith for direction about policy as they looked to Ricardo for their positive economics.
ON THE PRINCIPLE OF NONINTERFERENCE
The ambiguity was most noticeable in the statements of M’Culloch, whose literal manner revealed aspects of classical economics which the greater minds kept obscure. He was the first professor of political economy at University College of the University of London, a project of the radical Benthamites by which they meant to combat the influence of Oxford and Cambridge. He gave his first two lectures in 1829 and said he proposed “to inquire into the proper bounds of legislative interference with property and trade.” The Morning Chronicle reported: “The laws, he said, which regulated the prosperity and decay of nations, were as certain as those which govern the celestial bodies; but more interesting, inasmuch as man might modify them by his interferences.”
Nevertheless he wrote in his Principles that noninterference should be the guide to policy and that exceptions were permissible only when they clearly could be shown to be of public advantage. The control of child labor was one exception, he believed. He was impressed by the testimony against child labor given before the Sadler committee of 1832 (the same Sadler who called the economists the persecutors of the poor) and he supported the Factory Act proposed in 1833. His support is notable because that bill substantially increased the extent of control. He wrote to Lord Ashley, its original sponsor: “I hope your factory bill will prosper and I am glad it is in such good hands. Had I a seat in the House it should assuredly have my vote. A notion is entertained that Political Economists are, in all cases, enemies to all sorts of interference, but I assure you that I am not one of those who entertain such an opinion.” He made it plain, however, that he did not approve of the control of adult labor, which some of the bill’s supporters hoped would be its eventual outcome. His reason seems to have been the principle of the free agent, which is that individuals should be free to work under whatever conditions they choose. He did not apply it to children, because they do not have “the power to judge for themselves in such a matter.” The principle suggests that M’Culloch believed freedom was the major goal of policy. But he wrote again in the Principles: “Freedom is not, as some appear to think, the end of government.” The end is public prosperity and happiness, and freedom is a means to it and not the only means.8 Just what was the relationship among the alternative means, and how the means were to be selected to serve the end—he did not make clear, no more than Smith had done before him.
Until 1848 most economists viewed the Factory Acts in the way M’Culloch did. They approved of the control of child labor but not of that of adults. The apparent reason for the distinction was that a child cannot make sensible choices. But I do not believe that was the actual reason. They did not consistently make the distinction and initially did not make it at all. In 1818 Lauderdale in the House of Lords had single-handedly secured the withdrawal of an act regulating child labor on the grounds that “the great principle of Political Economy [is] that labour ought to be left free”9 —meaning all labor, not just that of adults. As successive acts raised the age at which children could be employed, more and more exceptions were taken to the great principle. When women were brought within the acts the principle was weakened even more. Eventually the acts covered men also, and by that time the principle (in its application to factory legislation) had been completely repudiated. The economists also repudiated other putative principles. Nevertheless the public continued to entertain what M’Culloch called the notion that political economy meant noninterference.
THE REPUTATION FOR PESSIMISM
The notion the public got from Chadwick and Senior was distinctive and deeply felt. It also was wrong. Chadwick, who had been secretary to Bentham, joined Senior in writing the Poor Law in 1834. More than any other measure of policy it gave economics the name of the dismal science. The law prohibited the use of relief funds to supplement the wages of farm laborers (which were pitifully low because agriculture was comparatively inefficient) and it prohibited relief payments to the poor. They could get help only if they entered a workhouse, where they labored at something or other. There, husbands were separated from wives, and both separated from their children. The law certainly was harsh. However, it was not the work of men dedicated to laisser faire. Wage subsidies caused labor to be misallocated, and relief caused idleness—so it was said—and these were the evils the act was meant to eliminate. But it was never completely enforced, and its objects in time were attained by rising employment. Chadwick became secretary of the enforcing agency and, to everyone’s astonishment, used his authority to increase the welfare activities of the government. That was the finest irony of the period. For writing the law he was called heartless, and for administering it, sentimental; condemned at first for wanting to do too little for the poor, he later was condemned for wanting to do too much. There are several explanations of the episode. One is that Chadwick changed his mind when he got to know the poor, sloughed off his laisser faire notions and allowed his natural humanity to express itself. Another explanation is that the doctrine of Bentham, his mentor, does not imply laisser faire at all, but its very opposite. I suggest the explanation is that Chadwick, like other liberals, did what he believed society wanted done—that, in other words, he acted on the liberal principle.
The explanation applies to Senior also. He wanted the state to do little, while Chadwick wanted it to do much. But they differed over what the state was able to do and what it was wise in doing, not over what it had the right to do. Senior was on the Royal Commission appointed in 1837 to study the condition of the handloom weavers. They were being displaced by power looms and becoming impoverished. The weavers’ distress was brought on by the decline in the demand for their labor, the Commission reported, and went on to advise them to move to other occupations. Except by assisting in their education, there was little, the report stated, the government could do. The report fortified those who believed that political economy when confronted with human distress made a sad face, folded its arms, and explained tendentiously that any effort to improve conditions must make them worse. “Not an amiable faith,” Carlyle remarked, and in the same spirit someone a century later said, “To hell with economics—let’s build a better world.” The remarks are really beside the point. The issue is the factual one of whether or not the state is able to solve certain problems, not whether it has the right to do so. The state probably was able to do something for the weavers, just as in fact it did do something for distressed employers at about the same time.
THE FACTUAL ELEMENT IN POLICY
On factual matters the economists were more often wrong than right, and it makes one uncomfortable to notice that the greater mistakes were made over the problems of the poor. The reason was not that their sympathies were with the rich and the well born—it was that they were still in the coils of the reaction to the optimism of the eighteenth century, to Godwin and Condorcet and the vision of a new Eden. Malthus was the first to react, and his pessimism was shared by others, all of them infusing it with the skepticism inherited from Hume and Smith. Malthus was wrong about the population of England, Ricardo was wrong in much the same way in his iron law of wages, and John Stuart Mill was wrong about the national debt (it must be paid before the coal reserves were exhausted, he warned10 ). Nearly everyone was wrong in believing that a generous treatment of the poor would make them lazy. One could compile an impressive catalog of the mistakes of the nineteenth-century economics (though the catalog need not be confined to that period). If they dwell on error, the histories of economics show where it went wrong on points of theory. The two—theory and policy—are related. The economists were mistaken about policy when their theory was wrong or incomplete or just didn’t exist. The mistakes came from their science, the positive side of theory and not from their politics or their ethics which is the normative side. Most commentaries suppose classical economic policy was determined by the normative side, or that the two are inseparable. Thus we are told that Senior was an enemy of factory legislation because he, like others, was dedicated to the principle of noninterference.
Not so. Senior was mistaken on a point of positive economics in his celebrated Letters on the Factory Act, written about the ten-hour bill that was proposed in 1837 (but passed in a much weakened form). He stated that hourly wages would rise and that output per man-hour would not, that profits would fall and so would employment or real wages. “I have no doubt, therefore, that a ten hours’ bill would be utterly ruinous.”11 The argument is much like that of today’s opponents of wage-and-hour laws. He certainly was right that hourly wages would rise—because he assumed weekly wages would be constant—but he was not right in stating that output would be constant. It could have increased simply because fewer hours were worked and the workers could put more into each hour. It also could have increased by increasing or improving the capital with which each worker was employed (although that is more an argument for increasing investment than for reducing hours). Both did happen during the century, and they have been harsh on Senior’s judgment. But, to repeat, the judgment was factual. It was not a declaration against the right of the state to interfere. Had he thought the facts were otherwise, he undoubtedly would have supported the act of 1837. A few years earlier, before he wrote his unfortunate letters, he had approved of the very important act of 1833. When the letters were put in a second edition he approved of the proposal made in 1841 to restrict child labor still more, and in 1847 he himself proposed still another limitation.
“It is the duty of a Government to do whatever is conducive to the welfare of the governed,” he said in his second Oxford lectures, given between 1847 and 1852. “The only limit to this duty is its power. And as the supreme Government of an independent State is necessarily absolute, the only limit to its power is its moral or physical inability. And whatever it is its duty to do it must necessarily have a right to do.” This expresses Senior’s policy more clearly than his Letters do, and the policy was not laisser faire. Indeed, he said, that was “the most fatal of all errors.”12
Cairnes also believed it to be a great error. His denunciation of it was quoted some pages back. Laisser faire, he said, “must never for a moment be allowed to stand in the way of the candid consideration of any promising proposal of social or industrial reform.” It had done just that, and he, of all the classical economists, was the most scornful. Laisser faire is “totally destitute of all scientific authority” and has no place in economics, no more than communism has. That is so because economics, he said, and thousands have repeated, “pronounces no judgement on the worthiness or desirableness of the ends aimed at in such systems.” Such judgments were more than wrong—they were harmful. “Decrees which are ordinarily given to the world in the name of Political Economy . . . in the main amount to a handsome ratification of the existing form of society as approximately perfect.”13
His scientific detachment did not however prevent him from examining the idea, and its ethical assumptions particularly, more carefully than most others had done. Laisser faire, he said, assumes (a) that the interests of all men are harmonious, and (b) that all men understand and are able to advance their interests. He acknowledged that interests are in fact harmonious but only when they are “well understood.” But, he said, it is not true that men understand their interests properly and are able to advance them. To suppose otherwise is to commit the “fatal” error of which the champions of laisser faire were forever guilty. Actually he did not accept the first assumption any more than the second. By declaring that interests are harmonious when well understood, he implied that only interests which are harmonious are genuine. That in turn implies that something other than interests (or other than “true” interests) is the cause of conflict. His explanation of these points was, it must be said, confusing. Nonetheless a summary statement of it is in order, because it has been repeated many times. It is indeed the model of most refutations of laisser faire.
Another feature of Cairne’s lecture is the relationship he implied between policy and the positive side of economics. The latter, he said, established “natural laws.” They are generalizations from the facts of economic behavior and they are unalterable in the same sense that facts themselves are unalterable. To say the economy is governed by natural law is then to say it is governed by facts. Unfortunately, he continued, the statement has been enlarged to mean the economy is not only governed by facts but that the facts are good and that the economy is therefore good. But for an economist to pass judgment on them is wholly mistaken. The business of the economist is to explain the facts, not to justify (or deplore) them. The economist who champions noninterference (or its opposite) does not understand his job, Cairnes said.
Had Cairnes taken one more step he would have shown that policy is related to science in the sense of being limited by the realities, that is, by the facts, of the economy. (To have done so would have contradicted his assertion that the positive and normative sides of economics are entirely separate; but one more inconsistency would not have mattered.) Had Cairnes taken that step he would have shown that a government, given the popular will, may do only what the facts allow it to do. If he had said that, he would have made explicit the principle on which the policy of the century was based. As it was, he came very near to saying it.
But then he said many other things as well, and they clouded over what I believe was his intention. We know that he denounced laisser faire, that he dismissed policy altogether from scientific economics, that he then recalled it in its factual aspect. In looking for a clear rule to guide the economy, what was the public to make of all this? Actually it did get some plain advice from him. After all of his denunciation of laisser faire, he concluded that it should be the “practical rule” of policy. What is singular is that the advice was not given absent-mindedly, casually, or without enthusiasm. On the contrary. He said that when set against the principle of interference, and when interference is looked at in all of its implications, laisser faire is “incomparably the safer guide.”14
The men whose writing has been examined so far were none of them consistent. Nor were others of the classical school, not even Mill himself although he tried very hard to be. Of all of them, the most ruthless logician was Mill’s father, but James was that way about a theory of government rather than about economic policy. Ricardo, who made more use of the analytical method than others, was not interested in the conceptual side of policy, although he was very attentive to the practice of it. Consistency was not an important element in the classical tradition. It was not disparaged in an overt way, and there certainly were many debates that turned on definition and deduction (like those over the labor theory of value and the theory of rent). But what seems to have mattered more in classical economics is that its ideas should be cogent and relevant than that they should be consistent.
The example of M’Culloch is informative. He is an amusing figure in the history of British economics because of his wooden consistency, his vast solemnity, his reverence for the ideas of Ricardo, and his proprietary manner with them. Taken all together, his qualities made him the archetype of the economist, and he is one of the few ever to be commemorated in a novel. It is Crochet Castle by Thomas Love Peacock, who as a member of the East India Office at the time of the Mills came to know them. Lady Clarinda says: “Well next to him sits Mr. MacQuedy, the Modern Athenian, who lays down the law about everything, and therefore may be taken to understand everything. He turns all the affairs of the world into questions of buying and selling. He is the Spirit of the Frozen Ocean to everything like romance and sentiment. He condenses their volume of steam into a drop of cold water in a moment. He has satisfied me that I am a commodity on the market, and that I ought to set myself at a high price.” Still, when one compares him with the Rev. Dr. Folliott, a bluff, beefy clergyman whom Peacock wanted us to admire, MacQuedy does not come off badly at all. Right or wrong, he did respect ideas and didn’t think that by using his mind he endangered his well-being or committed a social blunder.
One reason why the nineteenth century’s ideas of policy were inconsistent is that policy is a difficult subject. “The manner, occasion, and degree in which the State may interfere with the industrial freedom of its citizens is one of the most debatable and difficult questions of social science,” Jevons said in 1882.15 The question called for more knowledge and a more comprehensive view than positive economics did, and the economist who addressed himself to it needed a philosophic mind or at least would have found such a mind helpful. Not many had it in the century. Bentham did, but his influence was less than that of Ricardo, who did not. When the Ricardians wrote of policy, they necessarily had to consider political values and related issues. But either they did so in a rather superficial way, an instance being Senior’s speculations about the power of government (described in the preceding chapter). Or more commonly they made what Mill called a flying excursion into the field of ethics and a swift return, instances of which are noticeable even today.
SPENCER AND THE PURE THEORY OF LAISSER FAIRE
It is helpful at this point to examine Herbert Spencer’s ideas of economic policy. He usually is not thought of as an economist. Actually he was much more—a philosopher who tried to synthesize all knowledge. In his comprehensive scheme of things, economics was one element, and he knew it very well. In The Man versus the State he set forth his policy, which is significant for several reasons. It is more carefully reasoned than any of the writings of the recognized economists, including even the writing of Mill; it shows that consistency does not necessarily bring with it cogency, but in itself can be an alarming quality; and his policy shows what the liberalism of the classical economists was not.
What was most important to Spencer was the absence of restraint on the individual. That was the meaning he gave to freedom, and his policy was meant to provide freedom of that kind. It was a policy of pure laisser faire, or as pure as it ever is likely to be. Its singular feature was its being derived so closely from empirical psychology or what he called “the science of life.” Its content is the nature of men, in their physical and, especially, in their psychological constitution. Both aspects of their nature are factual. Just as it is the nature of men to respond to their environment physically, so it is their nature to respond psychologically. The responses show a regularity from which generalizations can be made. The idea was not new, although Spencer’s statement of it was. Smith had intimated it in his remarks about natural behavior, like those in the invisible hand passage above. He had gotten it from the natural rights philosophers of the seventeenth century. What all of them wanted to prove (or believe) was that freedom is something which men must have and that to deprive them of it is as unnatural as to deprive them of their physical sustenance. None carried the idea as far as Spencer did. He was a relentless logician, as they were not; he was prepared to accept every implication, however preposterous, so long as it was deducible, but they were not; and living in the age of Darwin, he called on the authority of the new science of life (which in fact he had anticipated) to support his findings about natural rights. It proved their existence. He reasoned that to survive, an organism must have freedom of movement and the power to do those things necessary for its survival. Since the right to survival is indisputable, the right to the means of survival must be also. To deprive an organism of freedom and power is to try to alter the fundamental conditions of its life (and of all life). Such an alteration was indeed possible, he suggested, because by changing the environment of an organism, its nature can be changed. But the new being will be inferior to the old, and hence changing it is an assault on the worth of nature. The great sin of legislators is to worsen the nature of man by restricting his freedom.
There are two difficulties in Spencer’s conception of freedom, and the reader probably has noticed them. The more obvious is that unrestrained freedom is destructive. It is destructive whether all men are equally capable of exercising it or whether they are not. Indeed, the more nearly equal men are, the more protracted their conflict will be—and the more destructive its outcome. Spencer acknowledged the difficulty and granted that some restraint is necessary when men act in groups. When they do, a distinction is made between the positive, or factual, character of their rights, and their ethical character—the distinction being between what they can do and what they may do. He implied, however, that the distinction is something natural to men, citing the ways that primitive groups, without benefit of acknowledged law, impose restraints upon behavior. In this way he tried to give the ethical distinction a positive quality. The reasoning suggests that society does not have to restrain individuals by law, that they themselves can manage transgressions without the aid of a coercive agency, the government. The second of the two difficulties is the inclusion of power in the definition of freedom, so that freedom denotes the possession of means to achieve an end as well as the absence of restraint on the use of them. Spencer used freedom in this sense when he said the individual not only has the right to survive but also the right to the means of survival. Yet in examining specific measures of policy, he used freedom to mean only the absence of restraint—which was the meaning he gave to it at the start of his book.
A legislator who went to Spencer for guidance would come away with laisser faire in the purest form in which it ever has been proposed. Consider Spencer’s enumeration of the laws that he believed restricted the liberty of the individual. Some are what one would expect to find: factory legislation, the provision of direct relief, public ownership of utilities, the subsidizing of rail fares, and such. But the list includes much more. Everything in it is, to be sure, an instance of restraint. But the instances are so unequally important that they could be brought together only by a mind that was dedicated to the policy, a mind that was meticulous and ruthlessly consistent. Included in the list are the regulating of the sale of beer in Ireland and Wales, the inspection of cattle in Scotland, the setting of cab fares in London, the empowering of local boards everywhere to set rates for the hire of horses, ponies, mules, and asses, a bill for the preservation of sea birds (“ensuring greater mortality of fish,” he remarked with ambiguous humor), and so on—a wide net from which nothing escaped. Even the advocates of laisser faire must have had difficulty in getting exercised over every one of these restraints and they must have felt their case could have been strengthened by a shortening of the bill of particulars. Actually the bill had still more in it, and the addition suggests why Spencer’s policy was not the received policy—why, in fact, he had little influence, although in the common interpretation his should have been the prevailing view of the century. His list of restraints included the laws that established free schools, compelled school attendance, made vaccination compulsory, and established public libraries. He did wish it known, he said, that in enumerating the ways in which the state deprived the individual of liberty, “no reflections are intended on the motives” of those who sponsored them.
He said the laws were wrong because they were enacted on the erroneous assumption that all social distress is remediable and that the state is responsible for remedying it. The assumption defied the facts of the science of life. “Reduced to its lowest terms, every proposal to interfere with citizens’ activities further than by enforcing their mutual limitations, is a proposal to improve life by breaking through the fundamental conditions of life,” he said. Liberalism, he contended, means limitation: “the liberty which a citizen enjoys is to be measured, not by the nature of the governmental machinery he lives under, whether representative or other, but by the relative paucity of the restraints it imposes on him.”16 All the state legitimately may do is to prevent the individual from invading the liberty of others. The state may coerce him negatively, but never positively. These ideas set Spencer quite apart from the classical economists. To them a measure of policy was liberal if it was consistent with the popular will. To him a measure was liberal if it was only negatively coercive. For a time Spencer was associated with TheEconomist, and from it more than from any other source the public obtained the idea that liberalism meant laisser faire. But even The Economist never went so far as Spencer did.
An interesting byway in his intellectual history is the influence he had in Japan. His “synthetic philosophy,” as the doctrine in its entirety is called, is said to be closer to Zen Buddhism than any other Western philosophy is. When Japan was opened to the world, he was asked by some Japanese leaders which Western institutions they would be wise to adopt. As few as possible, he told them. There have been even more notable examples of philosophers being called upon to lay down the first principles of practical government. Locke wrote a constitution for the colony of Carolina, and John Adams later said it showed how mistaken even the greatest minds could be about the practice of government. Rousseau wrote a constitution for Corsica, and it was another bad piece of work, although no more reactionary than The Social Contract, of which it was a careful application. In the application of economic ideas, there is a curious episode involving Smith. He is known to have worked in the study of the Chancellor of the Exchequer in London when the budget of 1767 was prepared and he may have had a hand in it. It provoked massive opposition from the merchants in the American colonies and revived the nonimportation agreements that were a step on the way to the Revolution. Actually, the budget reduced some levies on the colonies, but it was accompanied by the Townshend Acts, which provided for its strict enforcement. Among the philosophers and economists who spoke to kings, Spencer was unique. He did not prescribe a course for the Japanese, he proscribed one. Consistent with his doctrine, he was negatively coercive.17
The Theory of Policy in Mill
We come at last to John Stuart Mill. To include still other economists would not alter the point of this chapter or make it any more plain. The point is this: Liberal economic policy authorizes the state to do whatever the people want it to do and it is able to do. For additional evidence that liberalism is not synonymous with laisser faire the reader can consult the informative book of D. H. Mac-Gregor, Economic Thought and Policy. However, that book so emphasizes the opposition to free markets and makes so little of the support for them that the reader is liable to conclude the economists of the nineteenth-century were in favor of the state’s directing the economy. Such a conclusion is quite mistaken. The economists favored neither extreme. How far they wished the state to go toward either was the leading question in their theory of policy.
Mill tried to answer that question. Other writers, he said, had considered only a few measures of policy, such as the Poor Laws or the Factory Acts, and had pretty much neglected the others. Nevertheless they had stated their opinions in the form of very general arguments that were meant to apply to other measures as well. Those arguments revealed a strong bias for either laisser faire or for its opposite. But the writers did not say how far either principle was to be carried nor did they seem to be clear in their own minds on the point. Mill hoped, in the Principles, to provide some help in deciding the limits of laisser faire.
THE OBJECTIONS TO INTERFERENCE
He distinguished two kinds of interference by the government in the economy: authoritative and nonauthoritative. The former is prescriptive or coercive while the latter is suggestive or optional. The government may form a bank and give it a monopoly of all banking transactions. That interference would be authoritative. Or it may operate a bank in competition with banks that are privately owned. That would be nonauthoritative. Of the two forms, authoritative interference presents the greater danger to liberty. Interference of this kind should be more limited in its application and needs a greater necessity to justify it. From some areas, it should be excluded altogether. In a sentence that suggests the great passages in the essay On Liberty that he was to write ten years later, Mill said, “there is a circle around every individual human being, which no government, be it that of one, of a few, or of the many, ought to be permitted to overstep.”18 The question is just what the circle encompasses. It includes, Mill answered, the thoughts and feelings of the individual, the part of his behavior that affects only him, the part that does no injury to others, and the part that affects others only by example. That interference could invade these areas was the first objection to it.
What Mill here insisted on was similar to what the liberals of the seventeenth and eighteenth century meant by the inviolability of natural rights. It was the meaning also of his second objection to authoritative interference. The objection was that each additional responsibility assigned to government added to the total of its powers and hence to the danger of their being used to deprive the individual of his liberty. He warned against thinking that a democratic government (as he defined it) could be trusted with powers that would be dangerous in a dictatorial government. Indeed there was, he said, even more need to limit the powers of democratic government, because it is ruled by public opinion, and from public opinion there is no appeal. Another objection to authoritative interference is that it adds to the total work of government and reduces the efficiency with which any one part is done. The objection was utilitarian, and he meant that most business is done best by the people whose business it is. His final objection—and “one of the strongest”—is that authoritative interference does for the people what they, for the sake of cultivating their “active faculties,” should do for themselves. The greater is the authority of the government, Mill said, the greater is the number of able people who are a part of it. The smaller then is the number outside government who are able to protect the people from it. All of these objections created a strong case against authoritative interference. They led to the conclusion that: “Laisser-faire, in short, should be the general practise: every departure from it, unless required by some great good, is a certain evil.”19
What counted most with Mill were the utilitarian objections. His case for laisser faire is summarized in his statement that the government does not know so well as the people what they want and cannot provide it so well as they can provide it for themselves. Yet when the case is put this way—with the assumptions clearly implied—it invites some questions: Is it a fact that the people always know better than the government what is good for them? Supposing it is a fact, can one say they always can do more for themselves than the government can do for them? And supposing all this to be true, can we be sure that an individual acting freely, in his own interest, will not injure other individuals? Mill met these questions explicitly, and answered—No, these are not always facts. He acknowledged there was a case for intervention, and most of his explanation of the principles of policy is about that case. What he had to say against laisser faire is more interesting and longer than what he said for it.
Individuals do not always know their own interest as consumers, Mill stated, and they are particularly unknowing about those objects of expenditure that “raise the character of human beings.” They are the objects that are the most important in the doctrine of utilitarianism. Mill made education an example. Individuals will not all of them spend enough on it if they may themselves decide what the amount shall be. Some will, but those who need education most will spend the least. “The uncultivated cannot be competent judges of cultivation,” he said. He said also that government without being presumptuous could assume that it was more cultivated than the mass of people. It therefore should provide schools, although it should not prohibit people from providing schools for themselves. Also, it should compel parents to send their children to an elementary school of some kind. The interference would be nonauthoritative in providing schools and authoritative in compelling attendance. Mill justified both kinds of interference by stating that the failure of parents to educate their children was an injury to the children and, because of the effects of ignorance, to everyone else in society as well. That circle drawn around every person within which his rights were private and supreme did not include parental authority in all of its forms. When Mill excepted education from the rule of laisser faire, he was therefore consistent with the premises of his policy.
Something more should be said about his views on education and other forms of consumption. He did not believe that every one of the wants of the individual was beyond the judgment of the economist. Those which were beyond it were placed there by an ethical decision of the economist. He ignored them because he wished to, not because he felt incompetent and hence had to. Mill did not believe it impossible to compare the wants of different individuals or to draw a conclusion about how much a given quantity of consumption satisfied each person. He would have been puzzled and then saddened by the Olympian attitude that today’s economists take toward consumer wants. (But he would have tried very hard to understand it, believing as he did that he could learn something from everyone.) Ruskin said that Mill’s great mistake was that he passed too little judgment on the quality of consumption and production. An economist today would say that Mill made far too many judgments.
Mill’s disposition to make such judgments is an aspect of his ideas and behavior that is not much commented on. It does not square well with his insisting upon tolerance. But it can hardly be missed. It was, it seems to me, a mixture of several things. First, there was his utilitarianism, within which the judging of ends was perfectly in order. One cannot decide what is the greatest good of the greatest number without having first decided what the good is. It could be simply what the greatest number want it to be. But more often it is what men of discernment, like Mill himself, believe it ought to be. There was also in his thinking an element of the Whig conception of freedom. In that view, not all persons were equally capable of freedom, and those who were had an obligation to improve those who were not. When Mill was a young man, some prominent people, mostly Whigs, formed the Edinburgh Society for the Diffusion of Useful Knowledge among the lower classes. James Mill was a member, and the chairman was Lord Brougham, a leading Whig and a contributor of economic articles to The Edinburgh Review. Peacock called it “The Steam Intellect Society” and scored off Brougham in the same novel in which he made fun of M’Culloch. There was still another element in the mixture and the one that is the least pleasing to an admirer of Mill. He was given not only to forming opinions about the behavior of others but of being censorious, to want not only to improve their characters but to meddle and fuss with them, to be at times the maiden aunt or bluenose, or (more charitably) Cato the Censor. This element will surprise those who know Mill only as the champion of individual liberty. But a fair reading of his Principles cannot fail to disclose this element. It may be thought not to count for much, especially when set against his declarations for tolerance and privacy. Indeed in his chapter on the future of the working class, Mill rebuked those who would treat the poor as if they were children, who would think for them instead of encouraging them to think for themselves. Yet in telling the poor some of the things that were good for them, Mill was doing just what he advised others not to do. He may have been helpful in doing this but that is not necessarily a justification for it. Mill was inconsistent to assert both that men are their own masters and that some of them should not follow their inclinations.
He probably would have resolved the dilemma by saying that if the poor are helped now, they in time will become capable of making the proper choices. But the very idea of “proper” is inconsistent with liberalism of the classical and nonutilitarian kind. What counts is whether or not everyone is free to make choices in as rational a manner as he is capable of, together with the corollary that if a choice made by one person will affect another it must have the other’s consent. The act of choice is important, not the thing chosen. Mill did not entirely accept this idea, but he was even farther from rejecting it. His equivocation allowed the officious element to enter his doctrine. To overlook that element is to ignore something that helps to explain a major inconsistency in his economic policy. The inconsistency was to state that what is most important to the individual—as his character undoubtedly is—should be farthest from the power of the state, and then to propose ways in which the state could improve his character. To be sure, Mill tried to remove the inconsistency by saying that the failure of a man to develop his character can be injurious to others. Yet if that is so, even character loses its position as an end and becomes a means to something else (the improvement of the character of others?). Moreover, what meaning is left in the declaration that there should be “some space in human existence . . . sacred from authoritative intrusion”? As Ernest Barker said, the liberal view is that the improvement of a man’s character is the business of no one but himself.
THE EXCEPTIONS TO LAISSER FAIRE
Mill believed the government should restrict more than consumption. He also believed it should place some restrictions on what individuals could do in labor markets, in the conduct of business, and in the making of contracts. His reason was that individuals do not always know what their interest is; that when they do know it, they may not be able to promote it; and that even when they do know their interest and are able to promote it, the interest of some may not be in harmony with the interest of others. On these considerations he based five exceptions to laisser faire, and they were considerably more important than the exception he took to complete freedom of consumption. They were of more practical consequence, more interesting from the viewpoint of the theory of policy, and more instructive about the duties of the government and the governed. They also show the difference between Mill’s method and that of other economists. Where they examined a few outstanding issues of policy and made some swift generalizations, he began with the principle of laisser faire, considered whether or not it should govern all economic conduct, found numerous instances in which it should not, and then generalized about the exceptions. What he said is most clear if we know the point from which he began. It was that “most persons take a juster and more intelligent view of their own interest, and of the means of promoting it” than the government can take. However, there are “some large and very conspicuous exceptions.”20
First, people do not always know their interest. Incapacity and immaturity prevent some from knowing it, and others act for them. The question, then, is how much power the others should be permitted to have. An example is the interest of a child. Mill’s view was that the interest of children could be cared for much better by government than by their parents. He expressed the view forcefully and in language much different from the well-tempered prose for which he is celebrated. He wrote of the “constant abuse” of parental power, of “domestic tyrants,” of children being “brutally ill-treated” and even murdered by their parents, of “the metaphysical scruples” that prevented government from interfering directly with the family, and of other matters that disclose the censorious element in his thinking. (When Mill wrote about the family in any of its aspects, from the authority of husbands and fathers to the number of children, he often was intemperate.) The point of this exception to laisser faire is that it justified child labor laws, which the Factory Acts originally were. In Mill’s day they had begun to control the work of women. Such control was a mistaken application of the exception, he said. Women would be able to take care of themselves very well if the laws were repealed that gave husbands a monopoly of family property, granted them coercive power, permitted moral and physical tyranny, etc.
Second, an individual cannot know just what his interest will be in the distant future. The reason is not incapacity or immaturity but simply the impossibility of perfectly accurate prediction. The point has an important bearing on the freedom of individuals to make contracts. That freedom always is presumed to be an essential feature of liberalism. But in exercising it an individual may impose obligations on himself that in the future will abridge his freedom. This can happen because he cannot know at the time a contract is made whether or not the terms later will become burdensome. Mill did not go so far as to repudiate the principle of leaving contracts free. But he did say the principle should be applied sparingly to contracts in perpetuity. The law, he said, should refuse to enforce them if they impose conditions about which a contracting party cannot have formed a reasonable judgment at the time the contract was made. In other words, an individual should be allowed to break the contract. If however he is not allowed to break it on his own choosing, he should be allowed to do so upon making out a sufficient case before an impartial body.
Third, the interest of one individual may conflict with that of others. If it does, the state should limit the freedom of the few for the sake of the many. From this point Mill developed some quite large economic powers of government, such as the control of corporation directors, the public ownership of enterprise, the fixing of monopoly prices, and the confiscating of monopoly profits. His reasoning is curious. Starting with the idea that individuals know their interest better than government can, he concluded the government should not interfere with the management of private affairs except when it should. It should, he said, when otherwise the affairs of one group would be managed for it by another. The point is similar, perhaps identical, with his first exception to laisser faire. But here he gave the example of the directors of a joint-stock company using their position to the detriment of shareholders other than themselves. Whatever can be said about the inefficiency or dishonesty of government, Mill wrote, can be said with equal force about the behavior of corporate directors. He did not, however, want their work to be taken over by government officials. All of the practical and most of the ethical arguments for laisser faire made him oppose such a solution. It is an odd solution in any event: It was that the government should operate, not merely regulate, a private enterprise, but should not own it.
He mentioned the solution in his remarks about the responsibility of government for the proper conduct of private enterprise. He believed government had that responsibility and he applied the idea to many more things than the supervision of corporate directors. He believed government was responsible for the conduct of monopolies; otherwise they could use their price power to tax the public. Local governments should own some, he said, like gas and waterworks. Others, like canals and railroads, should be regulated. One method of regulation that he proposed was the familiar one of the government’s setting their rates. He also proposed the novel method of permitting the monopolies to use their price power for a limited period after which the government would confiscate and operate them. The implied theory was that the monopoly profits over the allotted time would equal the capital value of the enterprise if its prices were competitive. At the end of the period, the public would acquire ownership of the enterprise it had bought by paying higher than competitive prices for the service. All of this is substantial intervention. But Mill had one more proposal about the monopoly problem. It was that the government in certain circumstances should establish an enterprise and while retaining ownership, give it over to a private company to operate. The proposal was just the opposite of that noted above—and almost as odd. That above was government operation of private enterprise; this was private operation of government enterprise.
In explaining the third exception, Mill continually shifted the argument and made it encompass more and more intervention. He seemed to be asking the reader a series of questions to which the answer always was supposed to be Yes. Is it not true that, if as a shareholder you name a director to manage the business you both own, he may be in a position to increase his income at your expense? If this is granted, does it not follow that we have an instance of self-interest producing disharmony instead of the harmony that laisser faire presupposes? Is it not true that the disharmony would be as great as that produced by government, even a government that is inefficient and corrupt? Does it not follow that government management of a corporation’s affairs would be no worse than private management? Have we not then established a justification for government intervention in order to remove disharmony? (The reader’s “Yes” would be fairly weak at this point.) If the government may intervene in corporate affairs, may it not also intervene in other instances in which there is disharmony? Is not monopoly such an instance? And are there not a number of ways to solve the monopoly problem? Is not government ownership one way, as well as government operation, government regulation, government confiscation of profits? . . . What began as a modest observation about corporate affairs ended in a stunning collection of proposals for intervention.
Fourth, an individual acting alone may be unable to promote his own interest, even though he knows it very well, even though he is acting for himself, and even though what he wants is in harmony with what others want. The reason is that he can get it only if all of the others also act to get it. Mill gave two examples. One was the reduction of working hours without a reduction of daily wages. If all workers wanted this reduction but tried individually to get it, all would fail. If one tried to work ten hours when the working day was twelve, he would lose his job or be paid less than the others. If all agreed to work ten hours but had no way to enforce the agreement, it would break down. Anyone who wanted higher wages could earn them by working twelve hours while the others were working ten. If higher wages rather than shorter hours were what most of the workers really wanted, in time everyone again would be working twelve hours—but at the old hourly wage. To be effective, the agreement would have to be enacted into law.
The other example was the Wakefield system of colonization. It was a piece of ingenuity of the kind that always has fascinated economists. Usually the device contrives to redirect self-interest in an artful way in order to promote a public good. An earlier instance was the mercantilist plan to increase the population by subsidizing marriages and taxing bachelors, the tax to finance the subsidy. (Reversing the plan is a possible remedy for overpopulation.) Another was Ricardo’s optimum tariff on grain: an amount equal to the additional tax burden on agriculture, the result being a proper allocation of capital between it and industry. Still another is the proposal made in this century to fix exchange rates, auction off import licenses, and subsidize exports. Wakefield proposed that the colonial government put a high price on land and use the proceeds to pay the transportation costs of immigrants. The effects would be: (a) to keep the immigrants employed at nonagricultural work until they had enough to buy land, thereby providing a supply of labor for the building of roads, canals, and urban industry; (b) preventing the immigrants from acquiring more land than they could cultivate efficiently; (c) populating the colony while relieving the old countries of crowding. Today, in the economics of development, the plan would be described as a method of securing in an underpopulated country the optimum rates of growth in agriculture, in urban industries, and of investment yielding external economics.
There are significant implications in the examples that Mill used to illustrate his fourth exception. The first example showed the inability of an individual worker to change wages in a competitive market. What it proved was that competition can be restricted only by concerted action that has the support of law. To use the same example to illustrate the inadequacy of self-interest is to imply that competition among producers does not always serve their interest. That is not a novel idea. What is novel is to find it in the last great work of classical economics. One reasonably can ask why the interest of the workers should be placed before that of the rest of the population. One can argue that the workers’ interest should come first, but Mill did not argue this way (except if one wishes to infer the argument from his very general proposition, made near the beginning of the Principles, that while the forces regulating production cannot be changed, those regulating distribution can be; I believe the inference is not justifiable). He simply implied that if something is to the advantage of the workers, they should be assisted in obtaining it—and a predisposition toward the working class is not something usually ascribed to classical economics. All that Mill was careful to say was that the restricting of hours and the raising of hourly wages might cause unemployment and hence not be to the workers’ advantage. Whether or not any particular instance of regulation would be to the worker’s advantage was, Mill said, always “a question of fact.” Here one ought to recall the similarity of Mill’s position to that of Senior.
The example of colonization also illustrated another failing of a competitive market and one of a much different kind. It showed that the total returns from a particular economic act, such as an investment in roads, do not all of them go to the person who makes the investment and that what he does not receive other people do. The marginal private return is less than the marginal social return, it would be said in welfare economics. In a free market, if the (marginal) private cost of investment is greater than the private return, even though less than the social return, the investment will not be made. The economy nevertheless would benefit if it were made, because total output would increase. Government, in Mill’s scheme of things, would contrive to have the investment made.
Fifth, some persons are not permitted to act for themselves, and others must act for them. The reason here is not immaturity, as it is with children, nor that the person voluntarily authorizes someone else to act for him, as a shareholder does. It is that custom or necessity—or both—does not allow a person to act for himself. For example, a person who seeks charity is not allowed to specify the amount or anything else about it. These decisions are made by those who dispense it. The question then is whether the givers alone should determine how charity is to be granted or whether government should specify the procedure. Mill answered in favor of government. It can, he said, make the provision of relief what it should be: absolutely certain to persons in need and the granting of it impersonal, fair, predictable, and respectful of the privacy of the recipient. “The dispensers of public relief have no business to be inquisitors.” That is the tolerant Mill, not the censorious.
In explaining this exception to laisser faire, he stated his view of the Poor Laws. It was that the recipient never should be made as well off as those who supported themselves. The reason was not justice. He did not, for example, argue that those who worked for their living deserved more than those who did not. Nor did he in any other way relate his view to the ethical aspect of the labor theory of value, which was that income earned by labor was ethically superior to that which was not. Mill’s reason was a practical one and exemplified his utilitarianism. It was that relief should be given in such a way as to prompt those who received it to greater exertion and independence so that as soon as possible they could do without it. The idea was derived from a psychological conjecture that runs through the history of economics (and was especially important to the mercantilists)—namely, that in adversity begins industry. Mill carried it a little further and said that adversity must not be so great as to leave people hopeless nor so slight as to make them indolent. There is, it seems, an optimum amount. What he believed were the causes of poverty, hence of the need for relief, also is interesting. They were, he said, the excessively unequal distribution of wealth in his day and the fact that the habits of the people were neither “temperate” nor “prudent” (Cato again). He did not attribute poverty to the structural and cyclical unemployment of his time.
The fifth exception to laisser faire meant the government should control the conduct of people who act for others. Mill applied it to colonies, as well as to poor relief, and the clear implication was that government should direct colonial development instead of allowing it to be determined by individuals acting in their interest as they understand it. A colonist should not be allowed to make an investment that is profitable to him if it retards the development of the colony. In making a long-term investment, he is acting in the interest of others, not only of himself, even though he may be indifferent to the fact. Future generations will be affected by what he does now. Mill said that acts which have consequences extending indefinitely beyond the persons making them, “to the interests of the nation or of posterity,” are acts “for which society in its collective capacity is alone able, and alone bound, to provide.” He could also have argued—as he did in making his second exception to laisser faire—that such acts have the consequences of a long-term contract, because future generations are bound by investment decisions over which they can have no control. After laying down the very broad principle of collective responsibility for the welfare of posterity, the specific application Mill made of it was so modest as to be anticlimactic. The application was the Wakefield system again. Nevertheless, Mill was aware that the principle could be used in many other ways. Indeed it could be used in ways he did not acknowledge. I can think of no reason why it should apply only to investment in colonies. If it is wrong for a colonist to ignore the interests of the future, it also is wrong for an individual in the mother country to do so. If a colonial government may control investment, so may a home government; and that requires control of consumption also. Mill’s idea is a variation on an idea in the theory of growth, namely that a market economy underestimates the value of long-term investment and hence grows less rapidly than an economy in which government controls investment; the government is more effective because it takes a longer view than individuals take. If true, this means that long-term investment made by the market adds less to the income of the near future than it takes from the income of the far future, and it is analogous to the proposition in welfare economics than in some market transactions at any moment of time the gains to those making it are less than the costs imposed on those outside it. Mill could have applied his fifth exception to such instances. He did in fact apply the fourth to them.
THE ARGUMENT FOR UNLIMITED INTERFERENCE
The use to which he did put the fifth exception was something different. Inasmuch as individuals should not be allowed to act in a way that damages the future, they should be encouraged to act in a way that assists it. If they will not do so voluntarily, the government is justified in acting in their place. He therefore came to the conclusion that government was justified (if not obliged) to do anything which was desirable for the future but was not profitable for individuals to undertake in the present. From that Mill went on to say that government also should do anything which was desirable for the present but which individuals in the present did not find it profitable to undertake. The extension of the idea brought him around to Smith’s proposition that government should engage in works of great usefulness that private enterprise would neglect if they were unprofitable. The conclusion is that government may do anything which is to the interest of the present and the future to have done. Lest that be thought an overstatement, the reader shall have it in Mill’s words:
It may be said generally, that anything which it is desirable should be done for the general interest of mankind or of future generations, or for the present interests of those members of the community who require external aid, but which is not of a nature to remunerate individuals or associations for undertaking it, is in itself a suitable thing to be undertaken by government: though, before making the work their own, governments ought always to consider if there be any rational probability of its being done on what is called the voluntary principle, and if so, whether it is likely to be done in a better or more effectual manner by government agency than by the zeal and liberality of individuals.21
The qualification about voluntary action, it should be noted, is itself qualified: government should allow philanthropies to undertake unprofitable but useful work only if they can do it more effectively than government can. That is not consistent with Mill’s view that by acting for themselves individuals become more effective.
At this point a disciple of laisser faire must be troubled over what was made of it by one who is renowned as its great expositor. But there is still more. After concluding his statement of the five exceptions to laisser faire, Mill warned against using them in a way that would prevent government intervention when it otherwise seemed necessary. He wished it known that if intervention seemed to be called for and could not be justified by one of the five exceptions, government should intervene nevertheless. He said: “In the particular circumstances of a given age or nation, there is scarcely anything, really important to the general interest, which it may not be desirable, or even necessary, that the government should take upon itself, not because private individuals cannot effectually perform it, but because they will not.”22 They most likely will not in those places where the rulers are superior in ability and purpose to the ruled, as in a country conquered by a people who are more energetic and cultivated than the natives are. Mill’s remarks at this point would be coldly received by the underdeveloped countries today, but most of them would welcome his rejection of the market as the guide to development. Mill, to be sure, did say that what government does it should do in a way that prepares people to do in time the same thing for themselves. But that time can be very far into the future, and meanwhile government direction may do more to make people dependent on it than to teach them how to do without it. Not unfairly, one may recall Mill to himself. The last sentence quoted above is on the last page of the Principles. On the last page of On Liberty, he said that a state which tried to do everything for the people would find it really could not do very much, because the people in time would not be worth doing much for.
THE AMBIGUITY IN MILL
The ambiguity in Mill is formidable. Among the things that are not clear is what he meant by freedom. As a utilitarian he believed in freedom as a means and not as something that was always worthwhile in itself. He believed men should be free because only by being so could they reach their goals. But if one supposes they may reach their goals without being free, does that mean freedom has no value? One cannot be sure. At other times he wrote that freedom was an end in itself, and then he was not a utilitarian. Another uncertain point is whether freedom, as either a means or an end, meant the absence of restraint or the possession of power. When he made it a means, one is not clear in what order he ranked the purposes it was meant to serve. The ambiguity on these points becomes most noticeable when one brings together all of the arguments for and against laisser faire and examines their relations to each other. Of the four in favor of laisser faire, the first two imply that freedom is an end; but the last two imply it is a means. All of the arguments against laisser faire imply either that freedom is not an effective means to the ends to which it is directed or that the ends are not desirable. Some imply that freedom means the possession of power (the first, second, and fourth exceptions), while the others imply it can be either that or the absence of restraint. When Mill stated the ends that either freedom or intervention was meant to serve, he sometimes made them, abstractly, the moral or mental energies of the individual; sometimes, specifically, qualities like diligence, enterprise, or self-reliance; sometimes, impersonal and abstract, like the efficiency of government or of the economy, or impersonal and specific like the production of particular commodities and services. It is plausible to think he placed the qualities of individuals above the other ends, but that is not prescriptive enough to tell legislators how to make policy or the public how to judge it.
These detailed comments may seem to the reader to be of questionable value. My reason for making them comes from believing that most of what has been written about Mill is too brief or too particular. Some of the histories of economic thought contain a very fair summary of Mill’s arguments for and against laisser faire. But by omitting the details, they give his theory of policy an appearance of completeness and consistency that it really does not have. Particular studies of the theory emphasize one or another aspect to the exclusion of the rest. Robbins shows that Mill was not doctrinaire about laisser faire and that he was sympathetic to socialism. But Mill’s theory of policy was much more than that. MacGregor emphasizes Mill’s opposition to laisser faire, citing among other things his denunciation of the idea in a letter to Carlyle in 1833 (a letter which in my opinion has been rather overworked) and in a speech in the House of Commons in 1868. One would suppose that Mill meant nothing at all when he wrote that “laisser faire, in short, should be the general practise.” The statement is certainly difficult to interpret but not so difficult as to justify its being discarded as meaningless.
There are those who have supposed Mill was in favor of nothing but laisser faire. Most have been of an earlier age, when denouncing laisser faire was not so easy as it has become in the twentieth century. Among them have been the leading American lawyers of the nineteenth century. Benjamin R. Twiss writes about them in his book on the Constitution and laisser faire. He reports that in 1909 Roscoe Pound said that every liberally educated lawyer in America from 1850 onward was required to read in Mill’s Principles the chapter entitled “Of the Grounds and Limits of the Laisser-Faire or Non-Interference Principle.” This is the chapter on which most of my comments are based. Pound said that American lawyers got their extreme view of liberty of contract from Mill. It was a view that carried free exchange as far as possible and then a little farther. Twiss cites the argument, made by railroad lawyers in a rate-fixing case, that to fix prices is to deprive the seller of his property.23 We may recall that in his third exception to laisser faire, Mill proposed that the government set prices in a market where they otherwise would be set by a monopoly. One wonders just what it was that the law students read—an expurgated edition of the Principles or those passages they expected to be quizzed on by teachers predisposed to laisser faire.
THE GENERAL CONSCIENCE AS THE GUIDE TO POLICY
The ambiguity in Mill’s theory of policy is not the point at which one cares to end a commentary on him. One would like to find some idea that helps to bring together the parts of the theory, that dispels at least some of their ambiguity, and that relates the premise of his theory to that of the other liberal economists of the century. I do not know of any idea that does all of this, although it may be somewhere in his writings. However, some help is provided by a remark Mill made about “the general conscience,” by which he seems to have meant the ethical values which all “persons of ordinary good intentions either believe already, or can be induced to believe.”24 The general conscience, he said, was the justification for prohibitory regulations—those forms of authoritative interference that restrict the behavior of individuals. He did not say it justified prescriptive measures—those forms that require individuals to do certain things. But most measures of policy can be stated in either way. Certainly all that Mill proposed can be. What all of them had in common was, I suggest, that they recommended themselves to a man of ordinary good intentions. Or they could be made to do so. Such a man would or should believe that individuals can look after themselves better than government can look after them. Hence, laisser faire would recommend itself to him as a general rule. But he would take exception to it when it produced results not to his liking: poor education, child labor, monopoly prices, long hours of work, and any other of the problems that Mill’s proposals were meant to solve.
The general conscience helps us to understand the principle by which Mill marked off the areas of the economy he believed should be controlled by government and those he believed should not be. It relates the different forms of control to each other by showing what all of them have in common. It also shows why Mill refused to be bound by the principles of economic policy that he himself laid down—why, that is, after carefully explaining the circumstances in which exceptions could be taken to laisser faire he appended an omnibus exception by which control of almost any kind could be justified. That last exception had only one limit—the general conscience. Finally, the idea of the general conscience implies there is no inconsistency in a policy that calls for both intervention and nonintervention or both controlled and uncontrolled markets. The idea does that by implying intervention can increase the freedom of some individuals by adding to their power and can protect others against a loss of freedom by removing conflicts of interest.
The ultimate principle on which Mill based his economic policy, was, I submit, that government may do anything which men of good intentions believe it should do or can be made to believe it should do. His principle was similar to but not identical with that of the liberal economists of the century who were not utilitarians. It was similar in that Mill and the others believed government may do whatever the people want it to do and it is able to do. Mill differed from them in believing that the wants of the people should not be taken as given. He did not believe, as the others did, that government must be limited by what clearly could be established as the opinion of the people. Mill believed the formation of opinion was itself one of the responsibilities of government. It must be so, because in his view government was responsible for improving the people, for strengthening their character, elevating their desires, and enlarging their views. This is the difference that separated the liberals who were utilitarian from those who were not. It is suggested by Mill’s distinction between what people “either already believe” and what they “can be induced to believe.”
The distinction, made so casually and quickly, is enormously important. The utilitarian view allows for much more government intervention than the nonutilitarian (or traditional) view of liberalism. That is so because what people can be induced to believe is almost always more than what they do believe. It also is so because government itself is to the utilitarians an agency that forms beliefs. There are ways (like the market and the polls) of knowing what people do believe and what the general conscience is, even though the ways often are rough and ready. The traditional liberal therefore can specify in a practical way just what is the limit to government power. There is no way of knowing what the general conscience ought to be, because in a liberal society there are no absolutes by which conscience is formed. Those governments that do claim to know what the general conscience ought to be are none of them liberal in either the traditional or utilitarian sense. They are in fact based on some form of political idealism, such as communism or fascism. The utilitarians, to be sure, do propose the rule that government may do only those things that improve the people, but the rule merely restates the problem, because it does not explain what those things are and what improvement is.
Both the traditional and the utilitarian views of liberalism help to explain the measures of economic policy enacted by government in the nineteenth century. In time the utilitarian view enlarged its influence, not to displace traditional liberalism but to compete with and to challenge it. In the twentieth century, governments have been guided more by what they believe the people ought to want and less by what the people clearly do want. My evidence for this is the increase in those measures of economic policy that are controversial, difficult to enforce, divisive, and subject to continual change. In the transition—in both its factual and doctrinal aspects—is the answer to one of the great questions of our day: How did liberalism change from an economic policy of limitation to one of comprehensive control? The answer, put very simply, is that traditional liberalism was replaced by utilitarian liberalism. Those who today propose comprehensive planning in the name of liberalism are utilizing the opportunities that utilitarianism supplies. Those who adhere to the traditional view of liberalism are often pained that the advocates of planning also call themselves liberals. To do so is, in the traditional view, a travesty on the word liberal. But it really is not, because in the nineteenth century liberalism by admitting utilitarian ideas became ambiguous. And the ambiguity explains something more important than the confusion of names. It explains why traditional liberals believe that what the planning liberals propose to do will in the end produce a dictatorial state, and it explains why the latter dismiss the belief. Ironically, about the only figure of the past whom both admire is Mill.
Mill did not begin the transition from traditional liberalism. Utilitarianism is much older. Bentham was a force, and he in turn was influenced by Hume and others. But Mill made the first comprehensive effort to state the utilitarian theory of liberalism. Those who followed enlarged either on his principles of economic policy or on those of the traditional liberals. It is with Mill, therefore, that these studies are concluded.
THE CLASSICAL PSYCHOLOGY OF LIBERALISM
THE POLITICS OF THE CLASSICAL ECONOMISTS
LIBERALISM IN THE GREAT CENTURY
 John Ruskin, “Unto This Last,” Four Essays on the First Principles of Political Economy, Works (New York, 1883), IX, 125.
 J. E. Cairnes, Essays in Political Economy. Theoretical and Applied (London, 1873), pp. 248-249.
Parliamentary Debates, Vol. 101, pp. 638, 650.
Report of Minutes in Evidence Taken by the Select Committee on the State of Children Employed in the Manufactories of the United Kingdom. Session 1816 (London, House of Commons, 1816), III, 10.
 Herbert Spencer, The Man versus the State (London, 1884), pp. 5ff.
 See, e.g., Oskar Lange, “The Political Economy of Socialism,” Science and Society, XXIII (1959), 1-15; and Gyan Chand, “Poland’s New Economic Model,” Indian Journal of Economics, XXXIX (1958), 21-42.
 Adam Smith, The Wealth of Nations, ed. Edwin Cannan (New York, 1937), p. 423.
 J. R. M’Culloch, The Principles of Political Economy, etc. (2nd ed., London, 1830), p. 249.
 William Smart, Economic Annals of the Nineteenth Century (London, 1910), I, 668.
 Speech on the malt duty before the House of Commons, Parliamentary Debates, Vol. 182 (April 17, 1866), p. 1524.
 Nassau W. Senior, Letters on the Factory Act, etc. (2nd ed., London, 1844), p. 10.
 Quoted by Marian Bowley, Nassau Senior and Classical Economics (London, 1937), p. 265.
 Cairnes, op. cit., pp. 251, 244, 256, 260.
Ibid., p. 251.
 W. S. Jevons, The State in Relation to Labour (London, 1882), p. 33.
 Spencer, op. cit., pp. 105, 15-16.
 On Spencer, see David Duncan, The Life and Letters of Herbert Spencer (London, 1908), pp. 319-320.
On Locke, see John Adams, A Defense of the Constitutions of Government of the United States, etc. (London, 1794), I, 365.
On Rousseau, see Kingsley Martin, The Rise of French Liberal Thought, ed. J. P. Mayer (New York, 1954), pp. 209-210.
On Smith, see W. R. Scott, “New Light on Adam Smith,” Economic Journal, XLVI (1936), 404.
 John Stuart Mill, Principles of Political Economy, etc. (London, 1891), p. 604.
Ibid., p. 609.
Ibid., p. 614.
Ibid., p. 627.
 Benjamin R. Twiss, Lawyers and the Constitution. How Laissez Faire Came to the Supreme Court (Princeton, 1942), pp. 141, 75-76n.
 Mill, op. cit., p. 604.