[Posted April 20, 2005: See Professor Raico's full audio course on the history of liberalism: CD and cassette]

In this essay, liberalism will be understood to mean the doctrine which holds that society — that is, the social order minus the state — more or less runs itself, within the bounds of assured individual rights. In the classical statement, these are the rights to life, liberty, and property.[1]

This is closer to the French meaning of libéralisme, rather than the meaning that liberalism has acquired in the United States, Britain, Canada, even in Germany and other countries. In this respect, the French have remained true to the original and historical conception of liberalism. It is not by accident that the French term laissez-faire is used throughout the world as a synonym for the freely-functioning economy.

Understanding liberalism as grounded in the self-regulating capacity of society is even, I believe, methodologically necessary, in order to enable us, as Anthony de Jasay writes, to distinguish liberalism from the other ideologies.[2] There is, however, no space to argue for this thesis here.

In recent years there have been some very interesting developments in regard to the treatment of liberalism.

First of all, a massive shift has taken place in scholarly attention away from socialism, and especially from Marxism, towards liberalism. This has to do with some well-known events in world politics, namely, the collapse of "real-existing" socialist regimes. With that has come the general recognition that private property and free enterprise are indispensable for the furtherance of the wealth of nations.

Second, there is a growing awareness of the intimate connection between liberal ideology and what has been called "the European miracle" — that is, the breakthrough to sustained economic growth that has characterized Europe and its offshoots around the world, including America.[3] After decades of enormous effort devoted to scrutinizing the history of socialist fantasies, scholars seem to be waking up to the need to examine in greater depth the institutional foundations of our own society and at the same time the ideas that accompanied the evolution of those institutions.

Finally, there is an enhanced consciousness that liberal ideas have never been limited to English-speaking nations. That used to be the prevailing view in Britain and the United States. To take one example: for a long while, virtually the only French liberal thinker of the nineteenth century who was discussed was Alexis de Tocqueville. Even major surveys of modern political thought — for instance, the two-volume work by John Plamenatz of Oxford[4] — did not even mention Benjamin Constant, and it is only recently that a few of Constant's more important political writings have been made available in English.[5]

And if that is the case with Benjamin Constant, it is easy to imagine how little justice has been done to the Censeur Européen group, to Frédéric Bastiat, Gustave de Molinari, or to the myriad of other contributors to the Journal des Économistes, which was produced in Paris for a century by successive generations of writers — right up to June, 1940 — and which was the greatest liberal journal ever published anywhere.

There is also, for instance, a burgeoning interest among Anglophone scholars in the great tradition of the Late Scholastic thinkers of the late sixteenth and early seventeenth centuries, who laid the foundation for modern economics. Besides the treatment of these mainly Spanish writers in Murray Rothbard's history of economic thought and some earlier pioneering works, we now have the work of Alejandro Chafuen, of the Atlas Foundation, who has highlighted their great importance in his study, Faith and Liberty.[6] One could also mention the growing attention to the Italian liberal economists of the late nineteenth and early twentieth centuries, who contributed importantly to the theories of the school of public choice.

The fact is becoming increasingly evident that the great edifice of the liberal doctrine has been the achievement not only of the British and the Americans, but of many other peoples as well — not least of all, the Austrians.

There has been a growth of interest also in German liberalism. This tradition was unduly neglected for decades, especially after what was seen as its ignominious defeat in the later Imperial period.

Oswald Spengler spoke for the nationalistic-authoritarian school of his time when he wrote: "There are principles in Germany that are detested and disreputable; but on German soil it is only liberalism that is contemptible."[7] Spengler's disgust was seconded by many others, across the political spectrum, a disgust that was in proportion to the consistency arid "doctrinairism" of the liberal principles espoused.

Paul Kennedy, of Yale University, writes of "the sheer venom and blind hatred behind so many of the assaults in Germany on Manchesterism."[8] This term, "Manchesterism," was an abusive label — a Schmähwort. As Julius Faucher, a leader of the free trade party, noted in 1870, it was invented by Ferdinand Lassalle, the founder of German socialism. It then went the rounds of the conservative press, finally, as Faucher wrote, coming to "form the alpha and the omega of political wisdom," even for the Prussian government.[9] For decades it was standard even in the supposedly value-neutral scholarly literature.

It is clear that there can be no question that German liberalism was never the equal of, for instance, French liberal thought. Yet upon examination, the political and even intellectual contributions of German authentic liberalism are evident.

A master-concept used by many historians in recent decades has been of the Germany's Sonderweg — its special or peculiar path of historical development. Whatever heuristic value this concept may have had, there is little doubt that it has been very much over-applied. Germany after all is not Russia. The German experience included: the free towns of the Middle Ages; scholasticism and the doctrine of natural law taught in the universities; the Renaissance and the Reformation; the rise of modern science; and an outstanding role in the Enlightenment of the eighteenth century.

The twelve-year experience of National Socialism, with all its atrocities, was terrible. But it should not lead us to forget that for a thousand years before Hitler, Germany was an integral part of western civilization.

Dietheim Klippel is a leading scholar of German liberalism in the later eighteenth century.[10] He has suggested some of the political factors that have at different periods conditioned the acceptance of either a negatively — or sometimes a positively — charged concept of the German Sonderweg, or special path of historical evolution. In particular, Klippel has effectively criticized the view of Leonard Krieger, author of an influential work on German ideas of freedom.[11] This book, Klippel complains, pitted "a peculiar German attitude towards liberty" against an (undefined) "western" conception. But the fact is, that, besides the publicists and scholars influenced by the French Physiocrats, there existed in Germany in the eighteenth century "a wide stream of democratic and liberal ideas in all possible shadings."

Klippel has paid particular attention to the younger German school of natural law, which succeeded the older, absolutist-oriented natural-law doctrine of the school of Christian Wolff. Methodologically under the influence of Kant and contentatively inspired by John Locke, this school provided a theory of the priority of civil society as against the State; of private property, private enterprise, and competition as the essence of the self-regulating society; and of the need to protect social life against state usurpation.

Klippel emphasizes that the economic-liberal position of these scholars was "aimed directly against the legal position of segments of the bourgeoisie," against the guilds, but equally "against monopolies and privileges of manufactures and mills." Here he highlights a facet of the class struggle that is systematically muddled by authors who draw on the Marxist, rather than the liberal, conception of class conflict.

By the nineteenth century, however, this natural-law school was totally eclipsed by Hegelian and other doctrines.

One key figure in late eighteenth century German liberalism exerted a powerful, if unappreciated, influence on the history of European liberalism in general. This was Jakob Mauvillon, of French Huguenot descent.[12] Among the numerous posts Mauvillon held in his relatively short but very active life, was professor of politics at Brunswick. Although he is usually classified as a Physiocrat, Mauvillon actually took as his model in economic theory the great Turgot, whose Réflexions sur la formation et la distribution des richesses he translated and published.

Mauvillon was, in fact, more "doctrinaire" — a more consistent proponent of laissez-faire — than any of the French writers of the time. He advocated the privatization of the whole educational system from primary schools through to the universities, of the postal system, and of the upkeep of the clergy. He even entertained the idea that, under ideal conditions, the whole apparatus of state provision of security might also be privatized.

Mauvillon was a tireless publicist for his cause, and it is likely that his ideas eventually penetrated to the world of the higher officials in Berlin, who in the 1790s were increasingly attentive to the slogan: Freedom [of Property]: To Possess, to Enjoy, to Earn."

But by far the most important channel of Mauvillon's influence was via a 20-year-old friend from Lausanne who came to live in Brunswick, for whom Mauvillon was a kind of father-figure as well as mentor. That young friend was Benjamin Constant. Kurt Kloocke, in his excellent intellectual biography of Constant, goes so far as to assert that: "It is impossible to overestimate the importance of Mauvillon for Constant's intellectual evolution."[13] From Mauvillon Constant derived the foundation of his idea of freedom as freedom from the state. He took over from the German thinker "the demand for an uncompromising acknowledgment of religion as the basic constituent of a sphere free of the state."

The conceptual cluster of personal freedom, the rule of law, and laissez-faire that was the heart of Constant's liberalism, perfectly reflected Mauvillon's political philosophy, down to the urgent necessity of keeping the educational system free of state involvement.

I have emphasized this episode of the impact of Jakob Mauvillon on the formation of the thinking of Benjamin Constant for a number of reasons.

First, because it is virtually unknown, and besides is of intrinsic interest. In addition, it illustrates the international character of the liberal doctrine, the cross-fertilization of ideas within the common cultural space of western civilization. Finally, because of the great importance of Benjamin Constant. Hayek claimed that the characteristic great liberals of the nineteenth century were Tocqueville and Lord Acton. In my opinion, if one had to choose a single fountainhead of liberalism in the century, it would be Benjamin Constant.

The German Enlightenment produced one of the great classics of liberal thought, translated into English under the title of The Limits of State Action, by Wilhelm von Humboldt. Both Hayek and Mises considered this work to be the finest expression of classical liberalism in the German language. Humboldt's book, as well as the political philosophy of Immanuel Kant, was a principled reaction against the Polizeistaat, the eighteenth century welfare state, which was a central component of the state absolutism of the time.

In the meanwhile, economic liberalism in the form of the ideas of Adam Smith had penetrated the German academic world, especially at Göttingen and at Königsberg, where Christoph Jakob Kraus, a close friend of Kant's, was their chief proponent. The professors played a role in generating the Beamtenliberalismus (Bureaucratic Liberalism) that produced liberal reforms, especially in Prussia, including the reforms of the Hardenberg-Stein era.

Given this flowering of liberal ideas in eighteenth century Germany, what happened to change things? Why did such a reversal of opinion occur in German political culture?

There is no doubt that a major — perhaps the major — reason for the change lies in the political and military history of the period: basically, the attempt of revolutionary France to conquer and rule all of Europe.

The Jacobins who rose to power during the Revolution undertook to force their ideas onto Europe at the point of French bayonets. The rights of man, popular sovereignty, the French Enlightenment with its hatred of the age-old traditions and religious beliefs of the European peoples would be imposed by military might. To this end, the victorious, irresistible French armies invaded, conquered, and occupied much of Europe.

In the nature of things, these invading armies, bringing with them an alien ideology, produced hostility and resistance against that ideology, a militant nationalist reaction. That is what happened in Russia and in Spain. Most of all, that is what happened in Germany. Individualism, natural rights, the universalist ideals of the Enlightenment — these became identified with the hated invaders, who subjugated and humiliated the German people. This identification was a burden that liberalism in Germany had to carry from that time on.

The lesson that one could reasonably draw from that experience is this: if you wish to spread liberal ideas to foreign peoples, in the long run example and persuasion are much more effective than guns and bombs.

By the 1830s and 1840s, the population explosion that affected Germany and other countries was becoming acute. Everywhere there were signs of growing pauperism, which the inherited, still largely mercantilist system could not cope with.[14]

This is the socio-economic background of the rise of the German free trade party.

Free trade, in the sense of abolition of barriers to international trade, had already progressed considerably in the German states, above all, in Prussia. The Zollverein, or Customs Union, led by Prussia, was creating a larger and larger free trade zone within the German Confederation. Moreover, at the time Prussia was more advanced on the road to international free trade than any other European nation, even including England.

The aim of the free trade party was to extend the principles of economic liberalism to all areas of economic life. From the 1840s to the mid-1870s — first in the German states and then in a unified Germany — this movement had a powerful and lasting effect on German institutions. It set the stage for the country's phenomenal economic growth in that period and afterwards.

More than anyone else, John Prince Smith was the creator of this free trade movement and its leading figure from the 1840s until near his death in 1874.[15]  To Wilhelm Roscher, of the "Older Historical School," he was "the leader of this whole [free trade] current," while the British economic historian W. O. Henderson termed him the great rival of Friedrich List.

Prince-Smith, as he was usually referred to in Germany, is an obvious example of the foreign influences on German liberalism, since he was born in London in 1809 of English parents. He moved to eastern Prussia in 1831, where he became a teacher at a gymnasium (lycée). Later he moved to Berlin and became a journalist.

One of the few influences on his thinking which he acknowledged was that of Jeremy Bentham, which was clear both from his pronounced legal positivism and his insistence on treating all economic questions from a strictly utilitarian viewpoint.

However, in a crucial respect Prince-Smith is much closer to the French liberals of the time: to the writers of the Industrialiste school, Charles Dunoyer and Charles Comte; to Bastiat; and to their successors. Where Benthamite utilitarianism was open-ended as to the state's "agenda," Prince-Smith held to a strictly minimal state, laissez-faire position: "To the state, free trade concedes no other task than simply the production of security" ("la production de la securité" was the Industrialiste catch-phrase for the single function they permitted to the government). This rule was necessary, Prince-Smith believed, in order to counter the dynamic of state-expansion, by which the state attempts "to grab as many functions as possible for itself, to tie as many economic interests as possible to its own."

Pursing his aim of establishing a movement on the model of the Anti-Corn Law League, in 1846 — the year of the repeal of the Corn Laws in England — Prince-Smith assembled a number of business leaders and publicists to form a German Free Trade Association; branches of the Association were set up in Hamburg, Stettin, and other north German towns.

It was about this time that Prince-Smith gathered around him a group of bright and idealistic young men with journalistic ambitions, for whom he acted as a mentor in economics. He inspired them with the gospel of free trade, but that was only the starting-point. As one of the most prominent of them, Julius Faucher, put it, free trade was merely the "driving in of the first wedge into the welfare apparatus and happiness-making machine (that the epigones of the eighteenth century on the continent had made of the state)." The state's duties must be restricted to acting as the "carrier and guardian of the force necessary for the defense of justice and of the borders." In other words, to defend against internal and external aggressors. But, Faucher added significantly in the 1860s, "if need be, also for the expansion of the borders."

The 1848 movement for liberal constitutional reform had little effect on Prince-Smith. His efforts continued to be focused instead on economic improvement. Nor did he and Faucher attract attention from the men at the Frankfurt Assembly, who were concentrating on precisely the issues Prince-Smith considered secondary: political freedom and constitutional change.

Prince-Smith quickly recognized the incomparable value of the works of Frédéric Bastiat to his cause, and translated and published Bastiat's Economic Harmonies in 1850. In fact, if there was any "alien" spirit presiding over the German free trade movement, it was not mainly English, but French, in the form of Bastiat's thought.

Prince-Smith had early on demonstrated his disagreements with the pessimistic prognoses of Malthus and Ricardo on the trend of living standards for the working classes and society as a whole. In Bastiat's optimism — which was characteristic of the French school in general — he found a confirmation and amplification of his own views. It has been pointed out that a major reason for the success of the free traders is that they did not present their program as a set of ad hoc demands or piecemeal reforms, but as deductions from an overall, intelligible social philosophy, namely, that of Bastiat's laissez-faire.

Economic science, as exemplified in Bastiat's works, demonstrated that the way to get "idle hands" to fill "empty stomachs" is through capital accumulation. Government interventions and high taxes tended to reduce such accumulation of capital, and so create poverty. A major hindrance was the military budget. Prince-Smith had long held to an anti-militarist position, which was characteristic of Bastiat and the English Manchester school as well.

An interesting sideline is that the methodology of Prince-Smith and his followers was the one traditional in British classical political economy, namely, that of deductive science. They were attacked on this account by the members of the German Historical School. Thus, the famous Methodenstreit, or dispute over the method of economics, that Gustav Schmoller, the leader of the Historical School, waged with Carl Menger, the founder of Austrian economics, was already prefigured in the dispute over method between the historical economists and the German free traders.

A good deal of Prince-Smith's activity in this phase consisted in trying to persuade the German political liberals of the desirability of free trade, as many of the leading liberals of southern and western Germany were protectionists. He also worried that "if the free traders do not provide the popular mind with sufficient nourishment, it will turn to the fare offered by the socialists." In order to proselytize in democratic and radical circles, Prince-Smith's disciples turned to journalism in Berlin, espousing a program that one of them characterized as "of the utmost political radicalism. . . in order to divide the democratic current from the socialist and communist efforts."

In fact, what Faucher and the others had come up with was a form of individualist anarchism, or, as it would be called today, anarcho-capitalism or market anarchism. This was in the 1840s. It is interesting to note that it was at the same time, in Paris, that Gustave de Molinari was proposing, in a more systematic manner, his doctrine of the private production of security.[16] Much later the Molinari position was taken up by Murray Rothbard and, most recently, by my friend Professor Hans-Hermann Hoppe.[17]

This early anarchist interlude of the German free traders — of which Prince-Smith himself did not approve — later proved an acute embarrassment to them when they had become respectable members of the establishment in Imperial Germany.

In 1858, the Congress of German Economists was founded, assembling the chief believers in the cause, many of whom had been led to it by Prince-Smith during his previous twenty years of labor. From 1860 until his death, Prince-Smith was head of the Economic Society, in Berlin; his home was a meeting place for Prussian politicians, among them the leaders of the German Progressive Party and later the National Liberal Party. In 1863, the Quarterly Journal for Economy, Politics, and Cultural History began appearing. The organ of the free trade party, the journal was published for the next thirty years, under the editorship of Faucher, Karl Braun, and others.

The Quarterly Journal, the Berlin Economic Society, the Congress, and the informal influencing of politicians and officials were all elements of the same movement, facets of the same activism, and all inspired, to one degree or another, by the work of John Prince-Smith.

He died in 1875, in the knowledge that he had contributed everything he could to the reality of a Germany united, powerful, and committed to free trade.

As regards political economy, Prince-Smith opposed to the "iron law of wages," proclaimed by Ferdinand Lassalle, what he termed the true "golden law," "which has the effect of raising [the workers] to an increasingly more comfortable mode of life." (Somehow Leonard Krieger, of the University of Chicago, celebrated as a historian of German liberalism, was able to get this point — probably, the single best-known doctrine of Prince-Smith — exactly wrong.) "Capitalization," Prince-Smith declared, "means raising wages."

In the area of historical sociology, Prince-Smith shows a surprising resemblance to Marxist historical materialism, particularly in his early essay, "On the Political Progress of Prussia" (1843).

Prince-Smith's major assertions include the claim that social and political institutions are determined by the "material base"; that in modern society a degree of productivity has emerged "which surpasses by far all previous ones"; that an ever-increasing amount of capital has called into existence a vast class of wage-laborers; and that the capitalist economic order will expand to embrace the whole world. These assertions read like the first pages of The Communist Manifesto, with the signs reversed and five years before the fact.

Prussia, Prince-Smith held, is entering the stage in which the feudal element must necessarily dwindle internally, and peaceful commercial relations become the rule in foreign affairs. This "primacy" of the economic — Prince-Smith's view that the power of economic forces will lead inexorably to a liberal political order — was the premise that underlay the anarcho-capitalist interlude of the young free traders.

This anarchist episode, brief as it was, had serious repercussions on the political stance of the free traders. What remained after they had abandoned anarchism was the disdain for political freedom in the sense of citizenly participation in politics, and the loathing for party-politics as practiced by oppositional politicians.

Through the 1850s, free trade ideas were increasingly seen as a crucial