The Online Library of Liberty

A project of Liberty Fund, Inc.

• Foreword
• Economic Liberalism the Classical View
• 1: The Classical Psychology of Liberalism
• 1: The Theory of Moral Sentiments
• 2: The Lectures
• 3: The Wealth of Nations
• 4: The Achievement of Smith
• 2: The Political Ideas of the Classical Economists
• 1: The Political Philosophy of Hume and Smith
• 2: The Paradox of Economic and Political Freedom
• 3: Human Nature, History, and Government
• 4: The Nationalism of the Economists
• 5: The Structure of Government
• 6: Economic Improvement and Social Progress
• 3: Liberalism In the Great Century
• 1: The Importance of the Nineteenth Century
• 2: The Practice of Policy
• 3: The Meaning of Economic Liberalism
• 4: The Ideas of Policy
• 5: The Theory of Policy In Mill

3

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.

THE PRINCIPLE

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.

[6] 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.