Mises Daily Articles
The Rise, Fall, and Renaissance of Classical Liberalism
[Freedom Daily, August 1992]
Classical liberalism — or simply liberalism, as it was called until around the turn of the century — is the signature political philosophy of Western civilization. Hints and suggestions of the liberal idea can be found in other great cultures. But it was the distinctive society produced in Europe — and in the outposts of Europe, and above all America — that served as the seedbed of liberalism. In turn, that society was decisively shaped by the liberal movement.
Decentralization and the division of power have been the hallmarks of the history of Europe. After the fall of Rome, no empire was ever able to dominate the continent. Instead, Europe became a complex mosaic of competing nations, principalities, and city-states. The various rulers found themselves in competition with each other. If one of them indulged in predatory taxation or arbitrary confiscations of property, he might well lose his most productive citizens, who could "exit," together with their capital. The kings also found powerful rivals in ambitious barons and in religious authorities that were backed by an international Church. Parliaments emerged that limited the taxing power of kings, and free cities arose with special charters that put the merchant elite in charge.
By the Middle Ages, many parts of Europe, especially in the west, had developed a culture friendly to property rights and trade. On the philosophical level, the doctrine of natural law — deriving from the Stoic philosophers of Greece and Rome — taught that the natural order was independent of human design and that rulers were subordinate to the eternal laws of justice. Natural-law doctrine was upheld by the Church and promulgated in the great universities, from Oxford and Salamanca to Prague and Krakow.
As the modern age began, rulers started to shake free of age-old customary constraints on their power. Royal absolutism became the main tendency of the time. The kings of Europe raised a novel claim: they declared that they were appointed by God to be the fountainhead of all life and activity in society. Accordingly, they sought to direct religion, culture, politics, and, especially, the economic life of the people. To support their burgeoning bureaucracies and constant wars, the rulers required ever-increasing quantities of taxes, which they tried to squeeze out of their subjects in ways that were contrary to precedent and custom.
The first people to revolt against this system were the Dutch. After a struggle that lasted for decades, they won their independence from Spain and proceeded to set up a unique polity. The United Provinces, as the radically decentralized state was called, had no king and little power at the federal level. Making money was the passion of these busy manufacturers and traders; they had no time for hunting heretics or suppressing new ideas. Thus de facto religious toleration and a wide-ranging freedom of the press came to prevail. Devoted to industry and trade, the Dutch established a legal system based solidly on the rule of law and the sanctity of property and contract. Taxes were low, and everyone worked. The Dutch "economic miracle" was the wonder of the age. Thoughtful observers throughout Europe noted the Dutch success with great interest.
A society in many ways similar to Holland had developed across the North Sea. In the 17th century, England, too, was threatened by royal absolutism, in the form of the House of Stuart. The response was revolution, civil war, the beheading of one king and the booting out of another. In the course of this tumultuous century, the first movements and thinkers appeared that can be unequivocally identified as liberal.
With the king gone, a group of middle-class radicals emerged called the Levellers. They protested that not even Parliament had the authority to usurp the natural, God-given rights of the people. Religion, they declared, was a matter of individual conscience; it should have no connection with the state. State-granted monopolies were likewise an infringement of natural liberty.
A generation later, John Locke, drawing on the tradition of natural law that had been kept alive and elaborated by the Scholastic theologians, set forth a powerful liberal model of man, society, and state. Every man, he held, is innately endowed with certain natural rights. These consist in his fundamental right to what is his property — that is, his life, liberty, and "estates" (or material goods). Government is formed simply to preserve the right to property. When, instead of protecting the natural rights of the people, a government makes war upon them, the people may alter or abolish it. The Lockean philosophy continued to exert influence in England for generations to come. In time, its greatest impact would be in the English-speaking colonies in North America.
The society that emerged in England after the victory over absolutism began to score astonishing successes in economic and cultural life. Thinkers from the continent, especially in France, grew interested. Some, like Voltaire and Montesquieu, came to see for themselves. Just as Holland had acted as a model before, now the example of England began to influence foreign philosophers and statesmen. The decentralization that has always marked Europe allowed the English "experiment" to take place and its success to act as a spur to other nations.
In the 18th century, thinkers were discovering a momentous fact about social life: given a situation where men enjoyed their natural rights, society more or less ran itself. In Scotland, a succession of brilliant writers that included David Hume and Adam Smith outlined the theory of the spontaneous evolution of social institutions. They demonstrated how immensely complex and vitally useful institutions — language, morality, the common law, and above all the market — originate and develop not as the product of the designing minds of social engineers, but as the result of the interactions of all the members of society pursuing their individual goals.
In France, economists were coming to similar conclusions. The greatest of them, A.R.J. Turgot, set forth the rationale for the free market:
The policy to pursue, therefore, is to follow the course of nature, without pretending to direct it. For, in order to direct trade and commerce it would be necessary to be able to have knowledge of all of the variations of needs, interests, and human industry in such detail as is physically impossible to obtain even by the most able, active, and circumstantial government. And even if a government did possess such a multitude of detailed knowledge, the result would be to let things go precisely as they do of themselves, by the sole action of the interests of men prompted by free competition.
The French economists coined a term for the policy of freedom in economic life — they called it laissez-faire. Meanwhile, starting in the early 17th century, colonists coming mainly from England had established a new society on the eastern shores of North America. Under the influence of the ideas that the colonists brought with them and the institutions they developed, a unique way of life came into being. There was no aristocracy and very little government of any kind. Instead of aspiring to political power, the colonists worked to carve out a decent existence for themselves and their families.
Fiercely independent, they were equally committed to the peaceful — and profitable — exchange of goods. A complex network of trade sprang up, and by the mid-18th century the colonists were already more affluent than any other commoners in the world. Self-help was the guiding star in the realm of spiritual values as well. Churches, colleges, lending libraries, newspapers, lecture institutes, and cultural societies flourished through the voluntary cooperation of the citizens.
When events led to a war for independence, the prevailing view of society was that it basically ran itself. As Tom Paine declared,
Formal government makes but a small part of civilized life. It is to the great and fundamental principles of society and civilization — to the unceasing circulation of interest, which passing through its million channels, invigorates the whole mass of civilized man — it is to these, infinitely more than to anything which even the best instituted government can perform that the safety and prosperity of the individual and the whole depend. In fine, society performs for itself almost everything which is ascribed to government. Government is no further necessary than to supply the few cases to which society and civilization are not conveniently competent.
In time, the new society formed on the philosophy of natural rights would serve as an even more luminous exemplar of liberalism to the world than had Holland and England before it.
As the 19th century began, classical liberalism — or just liberalism, as the philosophy of freedom was then known — was the specter haunting Europe — and the world. In every advanced country the liberal movement was active.
Drawn mainly from the middle classes, it included people from widely contrasting religious and philosophical backgrounds. Christians, Jews, deists, agnostics, utilitarians, believers in natural rights, freethinkers, and traditionalists all found it possible to work towards one fundamental goal: expanding the area of the free functioning of society and diminishing the area of coercion and the state.
Emphases varied with the circumstances of different countries. Sometimes, as in central and eastern Europe, the liberals demanded the rollback of the absolutist state and even the residues of feudalism. Accordingly, the struggle centered on full private-property rights in land, religious liberty, and the abolition of serfdom. In western Europe, the liberals often had to fight for free trade, full freedom of the press, and the rule of law as sovereign over state functionaries.
In America, the liberal country par excellence, the chief aim was to fend off incursions of government power pushed by Alexander Hamilton and his centralizing successors, and, eventually, somehow, to deal with the great stain on American freedom — Negro slavery.
From the standpoint of liberalism, the United States was remarkably lucky from the start. Thomas Jefferson, one of the leading liberal thinkers of his time, composed its founding document, the Declaration of Independence. The Declaration radiated the vision of society as consisting of individuals enjoying their natural rights and pursuing their self-determined goals. In the Constitution and the Bill of Rights, the Founders created a system where power would be divided, limited, and hemmed in by multiple constraints, while individuals could go about the quest for fulfillment through work, family, friends, self-cultivation, and the dense network of voluntary associations. In this new land, government — as European travelers noted with awe — could hardly be said to exist at all. This was the America that became a model to the world.
One perpetuator of the Jeffersonian tradition in the early 19th century was William Leggett, a New York journalist and antislavery, Jacksonian Democrat. Leggett declared,
All governments are instituted for the protection of person and property; and the people only delegate to their rulers such powers as are indispensable to these objects. The people want no government to regulate their private concerns, or to prescribe the course and mete out the profits of their industry. Protect their persons and property, and all the rest they can do for themselves.
This laissez-faire philosophy became the bedrock creed of countless Americans of all classes. In the generations to come, it found an echo in the work of liberal writers like E.L. Godkin, Albert Jay Nock, H.L. Mencken, Frank Chodorov, and Leonard Read. To the rest of the world, this was the distinctively, characteristically American outlook.
Meanwhile, the economic advance that had been slowly gaining momentum in the Western world burst out in a great leap forward. First in Britain, then in America and western Europe, the Industrial Revolution transformed the life of man as nothing had since the Neolithic age. Now it became possible for the vast majority of mankind to escape the immemorial misery they had grown to accept as their unalterable lot. Now tens of millions who would have perished in the inefficient economy of the old order were able to survive. As the populations of Europe and America swelled to unprecedented levels, the new masses gradually achieved living standards unimaginable for working people before.
The birth of the industrial order was accompanied by economic dislocations. How could it have been otherwise? The free-market economists preached the solution: security of property and hard money to encourage capital formation, free trade to maximize efficiency in production, and a clear field for entrepreneurs eager to innovate. But conservatives, threatened in their age-old status, initiated a literary assault on the new system, giving the Industrial Revolution a bad name from which it never fully recovered. Soon the attack was gleefully taken up by groups of socialist intellectuals that began to emerge.
Still, by midcentury the liberals went from one victory to another. Constitutions with guarantees of basic rights were adopted, legal systems firmly anchoring the rule of law and property rights were put in place, and free trade was spreading, giving birth to a world economy based on the gold standard.
There were advances on the intellectual front as well. After spearheading the campaign to abolish the British Corn Laws, Richard Cobden developed the theory of nonintervention in the affairs of other countries as a foundation for peace. Frédéric Bastiat put the case for free trade, nonintervention, and peace in a classic form. Liberal historians like Thomas Macaulay and Augustin Thierry uncovered the roots of freedom in the West. Later in the century, the economic theory of the free market was placed on a secure scientific footing with the rise of the Austrian School, inaugurated by Carl Menger.
The relation of liberalism and religion presented a special problem. In continental Europe and Latin America, freethinking liberals sometimes used the state power to curtail the influence of the Catholic Church, while some Catholic leaders clung to obsolete ideas of theocratic control. But liberal thinkers like Benjamin Constant, Alexis de Tocqueville, and Lord Acton saw beyond such futile disputes. They stressed the crucial role that religion, separated from government power, could play in stemming the growth of the centralized state. In this way, they prepared the ground for the reconciliation of liberty and religious faith.
Then, for reasons still unclear, the tide began to turn against the liberals. Part of the reason is surely the rise of the new class of intellectuals that proliferated everywhere. That they owed their very existence to the wealth generated by the capitalist system did not prevent most of them from incessantly gnawing away at capitalism, indicting it for every problem they could point to in modern society.
At the same time, voluntary solutions to these problems were preempted by state functionaries anxious to expand their domain. The rise of democracy may well have contributed to liberalism's decline by aggravating an age-old feature of politics — the scramble for special privilege. Businesses, labor unions, farmers, bureaucrats, and other interest groups vied for state privileges — and found intellectual demagogues to rationalize their depredations. The area of state control grew, at the expense, as William Graham Sumner pointed out, of "the forgotten man" — the quiet, productive individual who asks no favor of government and, through his work, keeps the whole system going.
By the end of the 19th century, liberalism was being battered on all sides. Nationalists and imperialists condemned it for promoting an insipid peace instead of a virile and bracing belligerency among the nations. Socialists attacked it for upholding the "anarchical" free-market system instead of "scientific" central planning. Even church leaders disparaged liberalism for its alleged egotism and materialism.
In America and Britain, social reformers around the dawn of the 20th century conceived a particularly clever gambit. Anywhere else the supporters of state intervention and coercive labor-unionism would have been called "socialists" or "social democrats." But since the English-speaking peoples appeared for some reason to have an aversion to those labels, they hijacked the term "liberal."
Though they fought on to the end, a mood of despondency settled on the last of the great authentic liberals. When Herbert Spencer began writing in the 1840s, he had looked forward to an age of universal progress in which the coercive state apparatus would practically disappear. By 1884, Spencer could pen an essay entitled "The Coming Slavery." In 1898, William Graham Sumner, American Spencerian, free-trader, and gold-standard advocate, looked with dismay as America started on the road to imperialism and global entanglement in the Spanish-American War; he titled his response to that war, grimly, "The Conquest of the United States by Spain."
Everywhere in Europe there was a reversion to the policies of the absolutist state, as government bureaucracies expanded. At the same time, jealous rivalries among the Great Powers led to a frenzied arms race and sharpened the threat of war. In 1914, a Serb assassin threw a spark onto the heaped-up animosity and suspicion, and the result was the most destructive war in history to that point. In 1917, an American president keen to create a New World Order led his country into the murderous conflict.
"War is the health of the state," warned the radical writer Randolph Bourne. And so it proved to be. By the time the butchery ended, many believed that liberalism in its classical sense was dead.
The First World War was the watershed of the 20th century. Itself the product of antiliberal ideas and policies, such as militarism and protectionism, the Great War fostered statism in every form. In Europe and America, the trend towards state intervention accelerated, as governments conscripted, censored, inflated, ran up mountains of debts, co-opted business and labor, and seized control of the economy. Everywhere "progressive" intellectuals saw their dreams coming true. The old laissez-faire liberalism was dead, they gloated, and the future belonged to collectivism. The only question seemed to be, which kind of collectivism?
In Russia, the chaos of the war permitted a small group of Marxist revolutionaries to grab power and establish a field headquarters for world revolution. In the 19th century, Karl Marx had concocted a secular religion with a potent appeal. It held out the promise of the final liberation of man through replacing the complex, often baffling world of the market economy by conscious, "scientific" control.
Put into practice by Vladimir Lenin and Leon Trotsky in Russia, the Marxist economic experiment resulted in catastrophe. For the next seventy years, Red rulers lurched from one patchwork expedient to another. But terror kept them firmly in charge, and the most colossal propaganda effort in history convinced intellectuals both in the West and in the emerging Third World that Communism was, indeed, "the radiant future of all mankind."
The peace treaties cobbled together by President Woodrow Wilson and the other Allied leaders left Europe a seething cauldron of resentment and hate. Seduced by nationalist demagogues and terrified of the Communist threat, millions of Europeans turned to the forms of state worship called fascism and National Socialism, or Nazism. Though riddled with economic error, these doctrines promised prosperity and national power through integral state control of society, while fomenting more and greater wars.
In the democratic countries, milder forms of statism were the rule. Most insidious of all was the form that had been invented in the 1880s, in Germany. There Otto von Bismarck, the Iron Chancellor, devised a series of old-age, disability, accident, and sickness insurance schemes, run by the state. The German liberals of the time argued that such plans were simply a reversion to the paternalism of the absolutist monarchies. Bismarck won out, and his invention — the welfare state — was eventually copied everywhere in Europe, including the totalitarian countries. With the New Deal, the welfare state came to America.
Still, private property and free exchange continued as the basic organizing principles of Western economies. Competition, the profit motive, the steady accumulation of capital (including human capital), free trade, the perfecting of markets, increased specialization — all worked to promote efficiency and technical progress and with them higher living standards for the people. So powerful and resilient did this capitalist engine of productivity prove to be that widespread state intervention, coercive labor-unionism, even government-generated depressions and wars could not check economic growth in the long run.
The 1920s and '30s represent the nadir of the classical-liberal movement in the 20th century. Especially after government meddling with the monetary system led to the crash of 1929 and the Great Depression, dominant opinion held that history had closed the books on competitive capitalism, and with it the liberal philosophy.
If a date were to be put on the rebirth of classical liberalism, it would be 1922, the year of the publication of Socialism, by the Austrian economist Ludwig von Mises. One of the most remarkable thinkers of the century, Mises was also a man of unflinching courage. In Socialism, he threw down the gauntlet to the enemies of capitalism. In effect, he said, "You accuse the system of private property of causing all social evils, which only socialism can cure. Fine. But would you now kindly do something you have never deigned to do before: would you explain how a complex economic system will be able to operate in the absence of markets, and hence prices, for capital goods?" Mises demonstrated that economic calculation without private property was impossible, and exposed socialism for the passionate illusion it was.
Mises's challenge to the prevailing orthodoxy opened the minds of thinkers in Europe and America. F.A. Hayek, Wilhelm Röpke, and Lionel Robbins were among those whom Mises converted to the free market. And, throughout his very long career, Mises elaborated and refined his economic theory and social philosophy, becoming the acknowledged premier classical-liberal thinker of the 20th century.
In Europe and particularly in the United States, scattered individuals and groups kept something of the old liberalism alive. At the London School of Economics and the University of Chicago, academics could be found, even in the 1930s and '40s, who defended at least the basic validity of the free-enterprise idea.
In America, an embattled brigade of brilliant writers, mainly journalists, survived. Now known as the "Old Right," they included Albert Jay Nock, Frank Chodorov, H.L. Mencken, Felix Morley, and John T. Flynn. Spurred to action by the totalitarian implications of Franklin Roosevelt's New Deal, these writers reiterated the traditional American creed of individual freedom and scornful distrust of government. They were equally opposed to Roosevelt's policy of global meddling as subversive of the American Republic. Supported by a few courageous publishers and businessmen, the "Old Right" nursed the flame of Jeffersonian ideals through the darkest days of the New Deal and the Second World War.
With the end of that war, what can be called a movement came into being. Small at first, it was fed by multiplying streams. Hayek's Road to Serfdom, published in 1944, alerted many thousands to the reality that, in pursuing socialist policies, the West was risking the loss of its traditional free civilization.
In 1946, Leonard Read established The Foundation for Economic Education, in Irvington, New York, publishing the works of Henry Hazlitt and other champions of the free market. Mises and Hayek, now both in the United States, continued their work. Hayek led in founding the Mont Pelerin Society, a group of classical-liberal scholars, activists, and businessmen from all over the world. Mises, unsurpassed as a teacher, set up a seminar at New York University, attracting such students as Murray Rothbard and Israel Kirzner. Rothbard went on to wed the insights of Austrian economics to the teachings of natural law to produce a powerful synthesis that appealed to many of the young. At the University of Chicago, Milton Friedman, George Stigler, and Aaron Director led a group of classical-liberal economists whose specialty was exposing the defects of government action. The gifted novelist Ayn Rand incorporated emphatically libertarian themes in her well-crafted bestsellers, and even founded a school of philosophy.
The reaction to the renewal of authentic liberalism on the part of the left — "liberals" — more accurately, the social-democrat establishment — was predictable, and ferocious. In 1954, for instance, Hayek edited a volume entitled Capitalism and the Historians, a collection of essays by distinguished scholars arguing against the prevailing socialist interpretation of the Industrial Revolution. A scholarly journal permitted Arthur Schlesinger, Jr., Harvard professor and New Deal hack, to savage the book in these terms: "Americans have enough trouble with home-grown McCarthys without importing Viennese professors to add academic luster to the process."
Other works the establishment tried to kill by silence. As late as 1962, not a single prominent magazine or newspaper chose to review Friedman's Capitalism and Freedom. Still, the writers and activists who led the revival of classical liberalism found a growing resonance among the public. Millions of Americans in all walks of life had all along quietly cherished the values of the free market and private property. The growing presence of a solid corps of intellectual leaders now gave many of these citizens the heart to stand up for the ideas they had held dear for so long.
In the 1970s and '80s, with the evident failure of socialist planning and interventionist programs, classical liberalism became a worldwide movement. In Western countries, and then, incredibly, in the nations of the former Warsaw Pact, political leaders even declared themselves disciples of Hayek and Friedman. As the end of the century approached, the old, authentic liberalism was alive and well, stronger than it had been for a hundred years.
And yet, in Western countries, the state keeps on relentlessly expanding, colonizing one area of social life after the other. In America, the Republic is fast becoming a fading memory, as federal bureaucrats and global planners divert more and more power to the center. So the struggle continues, as it must. Two centuries ago, when liberalism was young, Jefferson had already informed us of the price of liberty.