Home History 203 lecture list Wallace G. Mills Hist. 203 5 Liberalism

Liberalism

- there are different kinds of liberalism and different foci (however, they did share some common or similar concepts about humans and about the nature of the universe). We shall be examining 2 main streams of liberalism— ‘Laisser-faire’ and what I call ‘Reform Liberalism’.

- Laisser-faire focused on economic matters especially while Reform Liberalism had a greater focus on political and constitutional matters, on social and educational matters and on legal matters.

- all forms were derived from the Enlightenment. There was a common belief in a ‘rational universe’ (i.e., one based upon rational principles and operating in accordance with regularities—‘laws’ —therefore one that was predictable).

The tasks and approaches of all kinds of liberalism was the same:

  1. to understand the ‘natural laws’;
  2. to allow the unimpeded operation of the ‘laws’;
  3. to examine the rationality of existing institutions, laws, social and political systems;
  4. to change or reform those elements which are ‘irrational’ or which promote ‘irrationality’.

Laisser-faire liberalism

 - laisser-faire had its origins in Adam Smith’s book, The Wealth of Nations (1779). This was the beginning of the systematic study of ‘political economy’—present day Political Science and Economics.

- Smith was a moral philosopher and his ideas had ethical ramifications. He stated explicitly that his purpose was to inquire into the operation of the ‘natural laws’ (regularities) which govern economic life; people should bring their behaviour into conformity with those laws and alter society to remove obstacles to the operation of these laws.

- the ideas that dominated policies in most European governments at the time are usually called mercantilism; Smith concluded that these policies were bad and should be gotten rid of. Thus, his theory was an attack on mercantilism and an attempt to show that exactly the opposite policies were the ones that should be in place. Thus, we must look at mercantilism first to see what it was that Smith attacked so relentlessly.

Mercantilism

 - mercantilism is a general term to cover a variety of ideas and practices; it involved a body of practices rather than a strongly organised theory. Many of you may have heard about mercantilism in connection with colonial policies, especially those which irked the Americans sufficiently to rebel in the American Revolution. However, the acquisition of colonies was not the ‘end’ of mercantilism, but colonies frequently were seen as a ‘means’ for achieving certain objectives.

Core of Mercantilism

 - mercantilism focused primarily upon national power and upon bullion theory. From the 15th - 18th Cs, wealth and power were virtually synonymous; bullion (gold & silver) could be translated into power; it enabled one:

  1. to hire mercenaries & pay for a standing army;
  2. to purchase guns, ships, equipment, etc.;
  3. to buy allies.

- the idea was that wealth = bullion and wealth = power; therefore, bullion = power. In order to maximise power, maximise one’s quantity of bullion (gold and silver).

- the Spanish hegemony owed much to bullion from New World; the rise of the Netherlands and later England was assisted greatly by their ability to get bullion from the Spanish. Therefore, the major preoccupation of mercantilism was how to acquire bullion and how to hold on to it once you had it.

Ways to acquire bullion:
  1. Mine it if you were lucky or could seize areas with mines (Spanish in Mexico etc.);

  2. Steal it! — e. g.. Sir Francis Drake, et al. the ‘sea dogs’ (this was not the most efficient or best way to acquire bullion; it was costly and led to wars). In fact, it was more counter-productive over the long term.

  3. Trade —achieve a favourable balance of trade (i.e., export more than you import and the balance will be paid in bullion). There were bullion policies as early as 14th C, but they became more widespread in 17th & 18th Cs. This was perceived to be the most efficient way. This led to a variety of policies to achieve a favourable balance of trade.

    a. Stimulate Exports

    • subsidies and protective legislation (e.g., fisheries off Grand Banks & NFLD.);
    • quality control (especially. woollens) to maintain reputation in foreign markets in order to maintain demand from customers;
    • wage controls to keep down costs and thus keep export goods competitive in price;
    • expand trade in exotic products (spices, silks, cottons, etc. from East; sugar, tobacco, indigo, etc. from West Indies; furs from N. America). This often led to foreign involvements and even to acquisition of colonies and empires to ensure and to control the supplies.

    b. Discourage or prohibit Imports

    • tariffs and outright prohibitions (especially on luxury goods and on fully manufactured goods);
    • special incentives, even monopolies, to stimulate domestic manufacture to replace imports (e.g., hatters in England);
    • restrict wages (i.e., wage controls) to reduce purchasing power, especially for imported luxuries;
      - in labour and wage policies, mercantilists attempted to find the right balance: wages should be sufficient to provide the necessities of life but should be low enough to require hard, continuous work throughout the week. This was based upon the belief that most people would work hard only long enough to meet the necessities and then would stop.

    c. Population policies(these were also related to ‘power’)

    - a large population was desirable (it increased the number of soldiers, sailors, workers); thus, policies were put in place to encourage large families (in France, the king gave awards to women who produced a large number of babies).

    - many policies were designed to maximise employment (these often affected colonies; e.g., forbad manufacturing in the colonies; mercantilists wanted these jobs to be preserved at home).

    - there were also restrictions or duties on the export of raw materials with little or none on imports (exactly opposite for finished goods); e.g., in England, much of the wool produced had been exported to the Low Countries (Belgium and the Netherlands) where it was woven into cloth. Mercantilists passed laws to prohibit the export of raw wool in order to stimulate weaving and woollen manufacturing. This, it was felt, would create jobs and improve the balance of trade.

    d. Colonial policies (‘means’ for the Mother Country’s ‘ends’)

    - in mercantilism, colonies could assist in amassing bullion if regulated properly:

    i. colonies contributed to the amassing of bullion
    • by providing raw materials to replace imports from elsewhere and save bullion; e.g., colonies in North America could provide furs;
    • if there was a surplus, it could be sold to foreign markets to earn additional bullion.

    ii. colonies were not encouraged to work up or finish goods from raw materials (this exported jobs from the Mother Country).

    iii. colonies were not to be a drain of bullion (usually they were forbidden to trade with foreign countries or their colonies).

    iv. customers in the colonies were required to buy finished products from the Mother Country.

    v. in Britain, the Navigation Acts required that all goods traded between colonies and Britain be carried in British bottoms; i. e.., mercantilists were trying to reduce ‘invisible’ imports (shipping charges, insurance) being lost to the Dutch; it also provided employment for a large merchant marine which could be converted to a navy in wartime.

Mercantilism summary

 - mercantilism involved elaborate regulation and legislation in many aspects of life:

- to mercantilists, trade was a form of warfare and in fact easily slipped from one to the other; trade was regarded as war by other means. If you increased your bullion and diminished that of your rivals, this was a victory as surely as a military one. In the West Indies and even more in the East, warfare was almost endemic (at times, the Dutch & English were fighting each other in the East while in Europe they were allies!).

- mercantilism was based on the assumption that the quantity of bullion was relatively static; thus one country can gain only at another country’s expense; this is now called a ‘zero-sum game’.

- this was the general climate and thinking which Smith attacked.

Adam Smith (1723-1790)

 - Smith redefined power and wealth:

- Smith analysed the three elements of production—land, labour, & capital (Smith called the latter ‘stock’ and you can more easily understand the excerpts from his work if you substitute the term ‘capital’). National production could be maximised by using all the nation’s resources (land, labour, capital) and by using them in the most efficient manner possible. As we shall see, efficiency was a preoccupation.

How could national production (GDP) be maximised?

 Smith’s answer—Rational Pursuit of Self Interest by Individuals (i.e., by individuals attempting to maximise their own wealth & income).

- as Smith argued, national production was simply the total of all individual productions added together; if individuals increase their production, this necessarily increases national production;

- in this way, the pursuit of individual self-interest (the desire to increase their income and wealth) increased the public good & welfare:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard for their own interest.”—i.e., it is not altruism, but self-interest that motivates.

“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; 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.” (my emphasis).

 - individuals pursuing private gain contribute to the public good; self-interest continually impels men (if given freedom) to increase production and productivity. Most individuals want to become rich or at least, richer than they are; by producing more, they can increase their income; but by producing more, they are adding to the collective or national supply of goods and hence to the national wealth.

- it is a ‘rational pursuit’ because it is natural & rational to want to improve one’s income and standard of living. It is also ‘rational’ in that the drive for efficiency and maximised use of resources is a rational one; producing more usually means more efficiently because there is usually a limit to the time and energy available to produce. An individual has only so much time and energy. Thus, the potential to increase production by working longer & harder is very limited. Thus, it is only by becoming more efficient and by finding ways to supplement one’s energy that production can be increased; e.g., using animals allowed one to do a lot more work in the same time. Machines and non-animate power sources came to do this even more.

- Smith was, therefore, attacking the traditional moral codes which asserted that altruism was a higher, more Christian virtue that selfishness, self-interest and greed (as critics quickly pointed out); recall that Smith was a moral philosopher and his views were revolutionary. [Ayn Rand, a strong proponent of laisser-faire, denounced altruism in her novels, such as, Prometheus Unbound)after Margaret Thatcher and Ronald Regan were in power in the 1980s, Rand’s novels had a new burst of popularity.]

Freedom

 - Smith demanded that individuals should be allowed the maximum, possible freedom to pursue their economic self-interest;

- thus, he began to attack the vast apparatus of control and regulation under mercantilism. He argued that these interfered with the natural laws and created vast inefficiencies; special interests (with monopolies, tariffs, etc.) benefited but the majority suffered. We have heard all these arguments frequently in recent years, especially in the free trade debate, but they were new in the 18th C.

Efficiency and rationalisation of production

 - this was the path to greater wealth and well-being.

- Smith pointed out the benefits of specialisation and of the division of labour in increased efficiency. He used the example of pins to show that specialisation of labour increases efficiency and productivity.

- the production of pins required a number of different tasks; a business employing several different people can arrange production in 2 different ways. Each employee can take the production of pins through all of the successive stages, or each employee specialises in performing only 1 or 2 tasks and the products are passed from one to the other to complete manufacture. Smith pointed out that the group which produced in the second arrangement (i.e., using specialisation and the division of labour) would produce very substantially more pins in the same time as the group producing without specialisation.

- some people do particular tasks better and faster than others; also, when they specialise in only one task, they become more skilled in that task than if they are trying to perform a wide variety of tasks. Therefore, greater efficiency and productivity is achieved if everyone specialises in doing what he or she does best and fastest.

- specialisation also reduces the amount of tools and equipment required; as a result, capital is used more efficiently.

 - specialisation, of course, involves exchange or trade (no one produces most of the things they need— the shoemaker sells or trades his shoes to get other items and food that he needs but does not produce himself, etc).

- no one suffered (according to Smith) and everyone benefited; more was produced by the same number of people than if everybody tried to make everything themselves and because the total amount of goods available for consumption was larger, the standards of living would be higher.

- the same principles applied to nations. Because of climate, national resources, talents of people, etc., some countries can produce certain products better and more cheaply that others.

- France produced good, cheap wine; wine could be produced in England, but the price and quality were not good because the climate and soil were not ideal. On the other hand, England produced excellent wool and woollens. Each nation should produce what it did best (France wine and England wool) and trade the surpluses.

 - in such trade, no one lost and everyone gained because of the greater efficiency and the larger volume of goods produced; this attacked the mercantilist idea of trade as warfare and trying to gain an advantage by selling more than you bought. Smith argued that trade (at least ‘free trade’) was mutually beneficial.

Human nature

 - as indicated, Smith argued that the public good was most advanced when individuals were given the maximum possible freedom to pursue their self-interest. Smith was not oblivious to the fact that self-interest was selfishness and greed and that human nature had potential for evil.

- nevertheless, he believed in the efficacy of the restraints in the universe, the ‘natural laws’, the ‘invisible hand’; the ‘invisible hand’ turned the greedy, selfish pursuit of self-interest into a general benefit —it was like turning base metal into gold!

What was the main mechanism of the ‘invisible hand’? COMPETITION

 - in a number of ways, competition directed the individual pursuit of self interest into the promotion of the public good or general welfare.

- competition enhanced & increased production as well as lowering costs & prices.

- e.g. if someone discovered a new technique or invented a new machine which helped him to be more efficient and lowered his costs, he would tend to make big profits initially (he could sell for a lower price, but because of his lower costs, his profit margin would be higher); however, others would soon adopt the same innovation and their competition would cause the price to fall to a point where producers would be making only a moderate profit; the public benefited by getting more goods, cheaper.

 - specialisation entails dependency (e.g., the shoemaker depends on others to supply his food). There is a potential danger that the producer of food would use other people’s needs to take unfair advantage in charging higher prices. However, competition among food producers and providers prevent that from happening.

- competition also worked on a national basis (this attacked the mercantilist emphasis on self sufficiency —autarchy—and the need for colonies as suppliers of crucial raw materials; Smith assumed that there were always alternative suppliers and that competition would ensure availability).

- competition promoted the efficient use of resources (land, labour, capital)—How?

Note: This of course assumes that resources are readily and easily redeployed; is this entirely accurate? With much small-scale production in Smith’s day, the assumption was not perhaps too far-fetched. As production processes and equipment have become more complex and specialised, plant and equipment cannot be so easily redeployed—an oil refinery cannot be redeployed to produce computers or cellphones for example. Unless it can be sold to another oil refiner, it all has to be scrapped. Nor can people be so easily ‘redeployed’. Specialised training may be prolonged and exacting taking years and a lot of money. We need computer programmers and we have lots of unemployed fishermen, but not many fishermen can be redeployed as computer programmers.

Law of supply and demand

 - Smith was a product of the enlightenment and was in the forefront in developing ‘social science’. Thus, he and his followers were trying to discover and define ‘natural laws’ which controlled and governed human behaviour. This was one such ‘law’ defined in economics.



- the law of supply and demand was an indirect effect of competition;

- if there is an oversupply of a product (i.e., there is more of the product than customers are willing to buy at the going price), competition among producers causes prices to decline and profits will fall; the less efficient will be discouraged from producing more or even forced out of business into another line, thus reducing the amount of the good being produced; also, as the price declines, more people can afford or are willing to buy the good (i.e., demand increases). As a result, production will come back into line with demand, and the price will stabilise as all production is being consumed.

- if the supply is inadequate to satisfy all customers who want to buy the good, the scarcity of the goods brings competition among consumers —prices (and profits) will rise; higher prices will discourage some consumers and higher profits will entice new producers to make the product. As increased supplies match lower demand, prices will stabilise and supply and demand will balance.

 - thus, in a free market where producers and consumers are free to pursue their own self-interest, supply of a good and demand for that good tend to gravitate towards an equilibrium. Price is the regulator, but it is a natural regulator. The free market is self-regulating.

- this is a bare outline; Smith argued that the economic system, if allowed to operate naturally (i.e., without interference especially by government), is self-regulating and self-correcting.

- Smith denounced all laws and regulations by governments which interrupted and disrupted the natural economic laws. Thus, he criticised almost every aspect of mercantilist policies: tariffs, export subsidies, navigation acts, colonies, etc.

- all of these things, he argued, benefited special interests (the minority) at the expense of consumers, of taxpayers and of society generally (the majority).

- he wanted minimal interference with the natural laws in a self-regulating system and maximum freedom for individuals to pursue their self-interests regulated primarily by the ‘invisible hand’ of competition.

COLONIES

 - Smith regarded colonies as a disaster and argued that Britain should get rid of its colonies as quickly as possible:

  1. colonies benefited special interests: planters, ship owners, military, monopoly companies (East India Co., Hudsons Bay Co., etc.).

    - consumers suffered: why pay higher prices for sugar to British West Indian planters when you could buy cheaper sugar from the French? Why buy timber from American colonies when Baltic timber was closer and cheaper? Etc.

    - ‘buy in the cheapest market and sell in the most expensive’ was the way to maximise Britain’s wealth; colonies were irrelevant.

  2. colonies produced other inefficiencies; greater distances to the sources of supply tended to require more ships to carry the same quantity of goods, thus wasting capital and labour (e.g., North American timber vs Baltic timber).

  3. colonies provoked hostilities and led to wars; war was the ultimate waste of resources.

    - large amounts of men and resources were removed from useful production and devoted to destruction; thus there was the waste of destruction itself plus the lost production of useful articles.

  4. colonies required more government and bureaucrats and all government activity was described by Smith as ‘nonproductive labour’.

    - this was another objection to mercantilism—it promoted a large government and bureaucracy; this was very wasteful. Large governments had to levy higher taxes and this siphoned off capital which might otherwise have been put to productive use.

    - also, large numbers of people who might have been employed in productive labour (making consumption or productive goods) were engaged in ‘non-productive’ labour.

Role of Government

 - clearly, Smith wanted government to be as small as possible and regarded government activities which interfered with ‘natural laws’ as inappropriate and bad.

“He governs best who governs least.” The logical extension of this expression is that the best government is no gov’t. Smith never went this far; he was not an anarchist. He did see some tasks and roles for government:
  1. The government must protect the nation and commerce against foreign attack—thus, there was a defensive military/naval requirement.

  2. It must set and enforce certain minimum rules for individual economic freedom:
    1. contracts must be honoured; a deal should be a deal. Free markets need certainty of contracts in order to operate efficiently;
    2. individuals or companies must not use overt violence or force in pursuing self-interest;
    3. there must be the rule of law which applied to everyone (no special privileges or exemptions for the powerful).
    - in other words, government was to ‘hold the ring’ (i.e., prevent outside disruption and act as referee to ensure that basic rules were observed in the free-for-all of economic life). Other than these limited functions, he wanted no gov’t interference or regulation.

- thus, laisser-faire carries an aversion to gov’t regulation of economic activity; instead, it has an almost religious faith in ‘the Invisible Hand’ or in ‘the Market’ and ‘Market Forces’. BUT

Do ‘Market Forces’ provide adequate regulation of economic life?

 - by the early 20th C, there was a growing feeling that they did not. Instead of the large number of small producers and companies of Smith’s day, there were giant corporations. This is important because Smith assumed that levels of power in a free market were relatively equal. But what happens if there is one dominant producer facing a few very small producers; can the dominant producer drive the others out of business or force them to sell to him until he creates a monopoly? Or if there are a small number of producers, can they collude to fix prices at high levels and share the market between themselves? These things happened.

- there was also dissatisfaction with other aspects of the performance of these giant companies, especially their frequent lack of concern for health and safety of customers, of employees and even the general public. ‘Muck-raking’ journalists and investigators revealed a growing list of horrors. Swashbuckling, buccaneering entrepreneurs were fleecing and robbing the public. In the wake of the outrage, a growing body of regulation and inspection was created to protect various publics.

- fighting 2 world wars brought further intrusion of gov’ts into the regulation and control of economic life; also, in the wake of the Great Depression, there was a feeling that gov’ts had important roles in managing the economy and in providing assistance to those hurt by economic fluctuations (UI, etc.).

- this buildup of regulation and involvement of gov’t has been what provoked the renewed outburst of laisser-faire enthusiasm (now being called ‘conservatism’) in the last 2-3 decades. The recent drives for ‘deregulation’, for ‘free trade’, for ‘getting gov’t off the backs of business’, etc. have been almost identical to the efforts of Adam Smith and his followers to dismantle mercantilism in the late 18th and early 19th Cs.

How far can the market be self-regulating?

- proponents of laisser-faire say that in a free market, cheaters and the unscrupulous are found out eventually and will be driven out of business because no one will deal with them. But are we willing to pay the price in the short term (i.e., people may be injured, poisoned or even killed by faulty, unsafe, unhealthy products or they are cheated out their money)?

- ‘deregulation’ in financial services in the US during the 1980s led to the enormous Savings & Loan and banking scandals.

- in June of 1998, the Brit. Columbia gov’t finally has agreed to assist several hundred purchasers of condominiums in Vancouver who paid high prices for buildings that were leaky and shoddy. See my letter replying to Walter Block’s advocacy of ‘free markets’; Walter Block was a senior analyst at the Fraser Institute—a ‘conservative’ (i.e., laisser-faire) think tank in Vancouver. One can only hope that he got one of the condominiums; that would be poetic justice!

Is total deregulation even good for business?

- much spending by consumers is based on confidence. Insofar as regulation and inspection reduce the uncertainty and anxiety about safety and quality, consumers are more likely to have the confidence to purchase. While it may be irksome, for good, conscientious companies, regulation and inspection which prevents fly-by-night operators from cheating consumers is beneficial.

Underlying pessimism—Tendency of Profits to fall

 - this expectation appeared in Smith but was greatly magnified by later laisser-faire writers, although they gave different explanations of why this happened.

- they were talking about the average rate of profit over the entire economy. Because a free market is self-regulating, profits tend to even out over the entire economy. [People in less profitable businesses will switch to more profitable ones. The effects of competition cause profits in less profitable businesses to go up as there are fewer producers competing to sell and fewer products which help prices to rise; because more producers are enticed into the high profit businesses, the increased competition lowers prices and profit levels; thus, profit levels will tend to even out. This process applies to the entire economy and thus, profit levels tend to move towards the average.] This was a very important axiom in laisser-faire thought.

- this belief that the average rate of profit would decline was the ghost that haunted classical economics and also provided hope for Karl Marx because he was certain that capitalism would collapse and open the door for socialist revolution!

- for Smith and his 19th C followers, there was short run optimism (increased efficiency and productivity would increase GDP and perhaps living standards), but over the long run, progress would stop and living standards would drop to bare subsistence for most of the population.

Smith’s explanation

 - increases in productivity and efficiency can only be carried so far (Smith’s emphasis was on the division of labour and some capital improvements; he did not foresee the massive technological innovations that came shortly after). There is a finite limit; one can only divide the production of pins into so many tasks, for example, to increase efficiency. After that, the process no longer increases efficiency and may even start to increase inefficiency.

- large profits were made only in the initial stages of innovation; competition soon reduced profits to ordinary levels as others copied the innovations. High profit levels require a continuing process of innovation and change. Innovation & change require capital and investment to implement.

Where does capital come from?

 - capital is created when some people decide not to spend their entire income on consumer goods; the income not spent (i.e., saved) can then be invested as capital.

Why do people postpone immediate gratification on consumption?

 - because they hope and expect that profits or interest earned on the invested money will allow even greater gratification and consumption in the future.

- but, as one approached the ultimate limits on increases in efficiency (the division of labour could be carried only so far), profits tended to decline as innovation slowed and stopped.

- as profits declined, so did the incentive to save. Eventually, even before the level of zero profits was reached, people would stop saving; without new capital, there could be no further innovations and no increases in efficiency or productivity.

[This was one basis for the law of diminishing returns. Initially, the division of labour produces big increases in efficiency; however, as the process continues, further divisions of labour produce smaller and smaller increases in efficiency. As we’ll see, others provided different explanations, but all classical economists accepted the concept.]

 - at the point where the incentive to save ends, the ‘stationery state’ (i.e., stagnation) would soon be reached and no further progress would be made.

- other economists, especially Thomas Malthus, were even more pessimistic about the long term and ‘political economy’ became known as ‘the dismal science’.

David Ricardo (1772-1823—stockbroker)

 - in his explanation of why profits would tend to decline in the future, Ricardo pointed to varying fertility and productivity of soils.



- in the early days of society when population was small, people needed to cultivate only the best, the most productive land. Later, as the population grew, it was necessary to cultivate poorer, less productive land. Thus, farmers would be forced to use 2nd best, then 3rd best, etc. Eventually, farmers would reach land whose productivity was so low that it did not produce enough to repay the costs in capital or labour; this land was totally unprofitable to cultivate. As cultivation moved to less and less fertile land, the rate of profits would decline. Even before zero profit, a point would be reached where there was no incentive to bring new land into production.

- this depiction was also the basis of Ricardo's theory of rent: property owners could charge rent only because people prefer to use more productive land. As long as there was very productive land available, no one would pay rent. As cultivation moves to less and less productive land, the best lands begin to be desired and people are willing to pay rent to get the use of them. (They do this if they can pay rent and still make more profit than if they cultivate much poorer land. In fact, in Smith’s and Ricardo’s day, a large proportion of farmers did not own the land they farmed, but leased if from the large landowners.)

- Ricardo said this increase in value for rent or sale was an ‘unearned increment’; it is unearned because the landowner might be doing nothing; it is the growth of population and society which makes his land more valuable and allows him to charge rent.

- the idea of the ‘unearned increment’ was a justification for the introduction of death duties (i.e., inheritance taxes) in the 1890s in Britain. The idea was that society should ‘recapture’ some of this increased value. At death when land and estates passed by inheritance or sale to new owners seemed the most appropriate time to bring about this recapture. Please note that this rationale for inheritance taxes was given by a ‘laisser-faire liberal’; therefore, it is not simply a ‘socialist’ or ‘communist’ idea as so many modern day ‘laisser-faire’ proponents argue.

Rev. Thomas Malthus (1766-1834) and his Essay on Population (1797)

 - Malthus’ explanation for the tendency of profits to decline was even more scary about the effects and the future. Although the growth of population had been an assumption in Ricardo’s theory, he had not brought it in as a full variable; Malthus focused on population growth and its effects.

- the core of the problem according to Malthus was that increases in food production and increases in population operated on different scales:

- Malthus tried to show that, unrestrained, population could double about every 25 years. Population could increase much more quickly than production of food.

- however, there were natural restraints or regulators (war, pestilence, famine, plague, etc.) which in practice, usually kept actual increases less than the theoretical possible rate. These restraints were linked to the transcending constraint—the food supply. Lack of food leads to famine and malnourishment which leads to disease & plagues. Shortages can lead to wars.

- human fecundity (human reproductive potential) and human sexual urges caused a continual tendency for population to outrun food supply which sooner or later caused the natural restraints to appear. The excess fertility, Malthus argued, was especially true of the poor who produced too many children.

- with few artificial birth control measures, the only means to restrict the growth in population and thus to avoid the natural regulators was abstinence (i.e., no sex), what Malthus called ‘moral restraint’. We, of course, hear the same thing from the Pope, but Malthus, at least, had the excuse that he did not have alternatives for birth control.

- Malthus recognised that this was tough medicine and only drastic pressures would induce people to accept and practice abstinence.

- he was especially concerned about the Poor Laws (analogous to welfare and unemployment relief); Malthus was writing just as a slightly more generous system of payments (called Speenhamland system) plus an exploding population and unemployment were sending poor rates (local taxes) soaring.

- the Poor Laws, Malthus argued, removed or lessened the consequences of too many children. As long as people were bailed out, they would not exercise ‘moral restraint’. Instead, people should suffer the consequences of their own immoderation; families should be left destitute as an example and incentive to others.

- to the charge that this was inhuman, Malthus argued that to continue was even more inhuman because poor relief compounded the problem; it became twice as big in the next generation, 4 times as big in the 3rd, etc. Sometime the crunch would come; population could not outrun food supplies without producing war, famine, plague etc.

- if society refused to allow people to starve, it should at least make ‘relief’ (welfare) so unpleasant that people would do anything (even abstain from sex) to avoid having to receive assistance. These ideas strongly influenced the New Poor Law in 1836 (Ideas do have effects):

[Some of this is uncannily similar to what we have heard from Premiers Klein and Harris about workfare and cutting welfare.]

 - workhouses were difficult to escape and became like prisons with strict rules, tyrannical governors etc. as described by Dickens in Oliver Twist .

- those who had sufficient money to feed their children, need not deny themselves; Malthus himself had about 6 children although that was not an especially large number at the time. It should be emphasised that this was the peak in Britain population growth (1790s-1810).

[Malthus’ theory is still very contentious. Was he correct?

- in a general sense, he was although it is much more complicated than his analysis and for reasons which he did not anticipate.

  1. Production of food—the ability to expand production of food has turned out to be enormously greater than Malthus imagined or could have imagined: technology, science, plant breeding, etc which has led in some places to the ‘green revolution’. Thus, superficially, he was wrong.

    - a big problem is that the green revolution relies on massive increases in the use of energy (make and run machines, fertilisers & chemicals) which are overwhelmingly derived from fossil fuels; this may be a more important constraint than land. However, the destruction of the world’s rain forests indicates that almost all land is being used.

  2. Distribution is the problem. It is argued that the earth produces enough food for all the population; the problem is distributing it to everyone who needs it. It is true that some areas (Europe and North America) grow substantial surpluses while other areas have deficits.

    - however, distribution is not a simple problem. The pope and others say that it is simply a question of charity and equitable sharing; the responses to appeal for aid to Ethiopia and other disasters show that a certain amount of redistribution can be achieved in this way, but it seems unlikely that this can be a permanent solution.

    - moreover, massive transportation of food from some areas to others means further use of energy.

  3. Limiting population growth—fertility rates began to decline in Britain by 1870. With some ups and downs, that trend (which has spread to most industrialised, developed countries) has continued, especially with the development of the pill and other improved contraceptive techniques since 1960. In fact, many of these industrialised countries are likely to see zero growth or even decline fairly early in the 21st C.

    - nevertheless, demographics show that Malthus’ theory was correct with regard to other areas of the world. At 2.5 % annual growth, the population doubles in 28 years and at 3 %, it doubles in about 23 years. These rates of growth have been happening in Latin America, Africa and parts of Asia frequently and almost continuously since World War 2. Moreover, the base is becoming truly staggering. There are about 5 billion people on the planet and the next doubling would make it 10 billion.

  4. Waste/pollution problem—even if the green revolution and similar solutions could produce enough foodstuffs etc. to feed the massive increase in the numbers of people, waste/pollution problems have been increasing so rapidly and so massively that the planet is in danger of being poisoned, perhaps even made uninhabitable in what is now the foreseeable future.]

 - the New Poor Law was laisser-faire liberalism:

- Malthus rejected the idea of colonies or foreign areas as suppliers of extra food. They could only provide a temporary palliative and, in fact, would compound the problem. The entire world is a finite entity and what applied to a nation would eventually apply to the world.

- the debate between Malthus and Ricardo continued for many years and they reinforced each other. The pessimism became even stronger; the fate for most people would be bare subsistence.

Iron Law of Wages

 - over the long run according to classical laisser-faire theory, wages would approximate bare subsistence (i.e., just sufficient to keep people alive) for the mass of the population. Wages could not for long diverge very far above or below bare subsistence. Thus, poverty and bare subsistence would be the fate of the majority of people; interference with that (such as welfare or minimum income) only made matters worse.

- the law of supply and demand applied to people as well. If people were scarce and in demand, then wages rose and more people were produced (people married younger and, with fewer disincentives, had more children, etc.); eventually as the population grows, the extra supply of people (i.e., labour) causes the value to decrease; competition among labourers would force wages back down towards subsistence.

- if people were too numerous, wages would drop below subsistence; however, people would then be malnourished and disease, etc. would reduce the oversupply of people and wages would tend back towards subsistence.

- in this view, unemployment was regarded as evidence that wages were too high (i.e., if you lower wages—the price of labour—you will increase demand! (Not unlike what we hear nowadays from the laisser-faire camp—solve unemployment by getting rid of minimum wage laws.)

- in any case, the prospect for the future was dismal.

View of Human Nature

- laisser-faire liberals were less concerned about human nature than conservatives; many probably shared their views about the tendency to evil, etc. as this was the traditional Christian view of original sin. They were less concerned because they did not think this was such a serious danger to ordered, civilised society as conservatives did.

- 2 features modified and controlled Human Nature:

  1. Possibility of Reason

    - laisser-faire liberals had more faith in this than most conservatives did.

    - most people understood that they could maximise their self-interest best in an orderly society; also, they recognised the need to restrain their own behaviour (i.e., they could not murder, rape, steal etc. without being vulnerable to similar assaults themselves). Thus the rational appreciation of consequences persuaded most people to agree to rules, laws etc. to govern behaviour.

  2. The ‘natural laws’ of the universe, the ‘invisible hand’, tended to curb excesses and to maximise social advantage; thus, most people, perhaps in spite of themselves, contributed to society and found that they behaved in an acceptable manner regardless of their inherent human nature.


Reform Liberalism

 - prominent among reform liberals were Jeremy Bentham and his followers, the utilitarians; other reform liberals were sometimes called “philosophical radicals”. Like laisser-faire liberals, reform liberals were products of the Enlightenment and they too strove to be ‘scientific’.

- they criticised and rejected most existing institutions and arrangements (social, political, legal,) in society because the past had bequeathed such an irrational jumble:

  1. a large number of superstitions (social and religious);
  2. an irrational and unjust political and legal system;
  3. a society that tended to make the majority worse than they would otherwise have been;
  4. a system which stultified reasoning faculties and then inflicted inhuman punishments on those who violated what were often arbitrary and even unjust laws.

- they also tended to have a deep-rooted hatred for inherited privilege, status and power, and they were very much like the ‘philosophes’ of France and shared many of the same ideas.

Jeremy Bentham (1748-1832) & Utilitarianism

 - Bentham was a political activist and reformer. He developed (along with his close collaborator, James Mill) the philosophy known as utilitarianism.

Principle of Utility (usefulness)

 - in philosophy there has long been a contrast and difference. In ethics, some argued that things (actions, deeds, etc.) were ‘good’ in and of themselves inherently or because God said or made it that way.

- on the other hand, if it was argued that something was ‘good’ because of its effects, this was called ‘utility’. Bentham was not by any means the 1st philosopher to argue that effects and consequences should be the main ethical yardstick; Bentham’s special distinction was that he wanted to make the application of the principle of utility ‘scientific’ and mathematical.

How was “utility” to be determined?

 “The greatest happiness of the greatest number.” This was the great measuring stick by which everything should be assessed and judged. In choosing, whatever produced the greatest utility was to be preferred.

What was “happiness”?

 - happiness was pleasure or the absence of pain. Benthamites were not hedonists, however. By pleasure they were not talking simply about drinking and sex; there are higher and lower orders of pleasure, and drinking and sex were not usually placed in the higher orders. However, Benthamites were not complete killjoys either.

- Benthamites recognised that pleasure and pain could be felt in different intensities—thus, one could draw up a scale (perhaps like one of the examples below):




- Bentham really thought that most issues and decisions could be reduced to mathematical calculations and almost everything and anything could be evaluated. The pleasure or pain of everyone affected could be added or averaged to produce some sort of utility quotient. In trying to make decisions, all one had to do was calculate the utility quotient for the different options and choose the one with the highest.

- in making the calculations, everyone affected had to be included. If I were trying to decide whether or not to hit you, I could not simply include my pleasure; I would have to include your pain and even the pleasure or discomfort of anyone else who was watching. Obviously, bystanders’ pleasure and pain should be weighted much less than the active participants, but it should be included.

- as you can see, Bentham believed that the Utility Principle was applicable to personal morality as well as a measuring stick for public affairs. He believed that everyone should weight the consequences of their actions on other people as well as their own pleasure or pain.

- however, utilitarianism was most applied to society, evaluating laws, institutions and practices and striving to achieve the greatest happiness of the greatest number.

- utilitarians rejected much of their society because they argued so many things produced pleasure for only a few and great pain and misery for the multitude.

- aristocracy and monarchy were denounced as unearned and undeserved privilege; also, they were a product of and perpetuated an inequitable distribution of wealth.

- aristocracy and monarchy were not efficient or effective in many cases. The people involved might lack ability, talent or successful experience. Instead, leadership and authority should be in the hands of people with proven abilities, talents and experience regardless of their birth and family.

- many utilitarians rejected monarchical government and became republicans.

- they attacked laws, prisons and the legal system:

- utilitarians were also leaders in the attempts to reform Parliament; representation was wildly unequal.

Patrick Colquhoun

 - Colquhoun (pronounced ‘Calhoon’) was an advocate of reform of the law and the entire justice system; however, as we shall see, his proposals were even more radical and far-reaching.

- he had earlier (in the 1790s) proposed a “water police” to tackle problems of theft and pilferage on the docks and waterfront; this had achieved a great deal of success. There were no police forces in our sense before this in England.

- he then put forward a scheme for a metropolitan police force for London in a book,Treatise on the Police (1805). This was not a simple ‘law and order’ treatise. The existing system of parish magistrates and ‘runners’ was not effective in apprehending law breakers; in urban areas, parishes were close together so all a law-breaker had to do was run from one parish into another and he would be safe. As a result, it was often left for individuals to apprehend, charge and prosecute the law-breakers themselves. What he proposed was a single police force to cover the entire metropolitan area of London. [Such a scheme was not put into place until the 1820s by Sir Robert Peel; the policemen came to be called ‘Bobbies’ after Sir Robert Peel, but the proposer of the idea was Colquhoun almost 20 years earlier.]

- there are several interesting features and arguments in Colquhoun’s book:

- even now he sounds like a radical social worker. He argued that society had obligations towards its citizens:

Reform liberals

 - these people had an underlying belief in man’s rationality and improvability;

- they tended to see evil and sin as irrationality or the consequences of irrationality; thus, any institutions, laws or society itself which promoted irrationality or inhibited rationality should be changed.

- furthermore, the true aim of society, its laws and its institutions should be to promote individual rationality and improvement.

- thus, many were putting much more emphasis on environment as a factor in moulding human nature (they were not necessarily deterministic, however, and did not go as far as most socialists).

- normally, reform liberals did not reject the basic laisser-faire ideas in economic areas (free trade, etc.).

Two Streams of 19th Century Liberalism

 - while they were in conflict on some issues, they did have some areas of agreement:

Human Nature

 - for laissez-faire liberals, human nature was not a serious concern (individual rational perception of consequences or ‘natural laws’ tended to restrain innate evil);

- reform liberals believed that education and development of individual rational faculties would limit potential evil and develop good characteristics; they often stressed environmental factors in developing evil or good characteristics and this was more under human control.

Status Quo

 - both kinds of liberal were seriously opposed to many features of existing society:

- reform liberals went further; they criticised a wide variety of sins of omission and sins of commission in existing society:

- as a consequence, both groups wanted far-reaching changes and many reforms.

This is where liberals frequently differed and came into conflict with each other.

 - for laisser-faire liberals, the less government the better:

- Reform Liberals accepted somewhat more active roles for government:

Ideal Ordering of Society

 - the two views involve a profound difference of opinion:

John Stuart Mill (1806-1873)

 - he was the son of James Mill, the long time colleague of Jeremy Bentham; John Stuart wrote Utilitarianism, which was the main philosophical statement of Bentham’s theory.

- James Mill and Bentham had esoteric views about education for children and John Stuart was their guinea pig; education of children should cover both ancient and modern learning:

- Mill wrote a book on Political Economy which summarised classical (laisser-faire) economics up to that time (1840s); in it, he tried to reconcile and synthesise the two streams of liberalism.

- he argued that the two streams were not so much in conflict as they operated in different realms.

- he spent his life in advocating reforms some of which would in effect redistribute some wealth in order to provide at least basic opportunity for each individual.

- this included women. Mill was an ardent supporter of female emancipation, education of women to the same level as men, and the granting of equal civil and political rights. In 1868, he introduced into parliament the first bill to grant women the franchise—the right to vote; the vote was not extended to women until 1918, 50 years later (see lecture 13 Britain in the 20th C).

- he did not believe all people equally capable, but each person should be able to achieve his or her maximum potential.

- Mill was one of strongest supporters of individual freedom and civil rights. His book, On Liberty, is one of the greatest defences of freedom of expression, along with John Milton’s Areopagitica.

- Mill argued that society should tolerate the non-conformist, the odd-ball, the deviant. It should do this, not simply because it is right or just, but because it is essential for progress in society.

- odd-balls produced the new ideas; most of these ideas were useless and some might be harmful. Nevertheless, a few were useful. If freedom of expression—speech, debate, etc. —was allowed, the competition would eventually separate the useful from the useless and the bad. The useful ideas thus winnowed out would then be adopted more generally and society would be improved. Thus, he was very much in favour of a ‘free market’ in ideas.

- if society failed to tolerate minorities and deviants, it was cutting off its supply of new ideas and stagnation would result. Thus, toleration was not only just (majorities should not oppress minorities), but it was also essential for progress in society.

The Stationary State

 - Mill accepted the idea of the stationary state but concluded that the outlook need not be as depressing as Malthus and others had made it.

- people were rational; if educated, they could be convinced to take appropriate action: such as to limit the number of children, to be satisfied with enough (i. e., a limited but adequate standard of living); he was also optimistic about the moral improvement of people if given education; he was a great believer in education.

Pacifist Tradition in liberalism

 - this was fairly strong among liberals. We noted Adam Smith’s strong denunciation of the waste of war. Also nations benefited by interchange, but war disrupted trade and interchanges of all kinds.

Richard Cobden(1804-1865) and John Bright (1811-1889)

 these liberals were leaders of the Anti-Corn Law League and opponents of the Navigation Acts; they were attempting to destroy mercantilism and to implement ‘free trade’ (the campaign was successful in the 1840s when both the corn laws—protective tariffs on wheat— and the Navigation Acts were abolished).

- both were pacifists; Bright was a Quaker.

- Cobden believed firmly that free trade would bring abolition of war; in 1855, he was the chief force and negotiator in getting a ‘free trade’ treaty between France and Britain; he thought it was his greatest achievement and that he had ended war possibilities between two nations which had been fighting each other for over 600 years.

Idea of ‘Progress’

- this was important to liberalism:

- we noted previously the long-term pessimism of the classical (laisser-faire) economists; as long as they focused on land, division of labour, etc., this pessimism remained.

- however, by the 1850s, there had been 3 generations of rapidly advancing technology and this promised to postpone the stationary state into the future, perhaps indefinitely. Thus, in the second half of the 19th C, increasingly, innovation was seen as an on-going and possibly unending process. This undercut the pessimism because perhaps the stationary state could be postponed forever.

- the more humans learned, the more opportunities for improvement opened up and the better society might become.

- ‘progress’ involved the idea of change for the better (both societally and individually) as an on-going and continuing process; it embodied a great deal of optimism, always better and higher. It was usually assumed that this improvement (‘progress’) automatically extended to the social and moral state of individuals and society as well as the material state. It included better culture and more ‘civilisation’.

Nationalism

 - nationalism tended to be a liberal preserve, at least until about 1850.

- often, it was invoked in the struggle against autocratic government (especially in England, the concept of the ‘nation’ had been used to curb and limit royal powers; they even executed one king and deposed another—similarly, nationalism was prominent in the French Revolution).

- the concept was important in demanding constitutions (a contract between ‘the nation’ and the rulers).

- in line with ‘social contract’ ideas, liberals tended to argue that the ‘legitimacy’ of a government should be derived from the consent of the governed who collectively were ‘the nation’.

- also, nationalism was invoked where linguistic groups intermixed and some groups were dominated by others; the idea of individual rights was expanded to include collective rights or ‘rights of the nation’.

- as we saw, conservatives like Metternich were opposed to nationalism; he called for international cooperation between monarchs and governments to suppress troublemakers. However, in the second half of the 19th C, conservatives increasingly came to use nationalism as a means to maintain power in mass, industrial society.

- socialists tended to be strongly internationalist—“Workers of the world, unite.” However, as was discovered in 1914, when forced to choose between the internationalist commitments of socialism and the parochial claims of nationalism, almost all chose nationalism!

Civil Liberties and Rights

 - (e.g., freedom of speech, press, assembly, religion; right to equality before the law, due process, etc.)

- generally liberals have been the strongest proponents of civil liberties and rights; some social democrats (moderate socialists) have championed these as well, so it is not an exclusive preserve of liberals.

- as we saw, continental conservatives like Metternich had little use for civil rights.

- British conservatives (Whigs and Tories) were somewhat different; the struggles with the Crown had produced a long tradition of equality before the law, habeas corpus, etc.

- nevertheless, while parliament did allow a good deal of religious tolerance, non-Anglicans faced a number of problems and disabilities (no marriage, baptism, etc. recognised by government unless performed by an Anglican priest; M.P.s and officials had to submit to the Test Act); Catholic emancipation did not come until 1828. The exclusion of Jews from parliament ended only later in the 1870s.

- John Wilks, after a long struggle in 1760s and 1770s seemed to establish freedom of the press.

- however, the French Revolution produced a short reaction with many new laws limiting personal civil rights (press laws, Combination Act [outlawed organisation of workers—unions] etc.).

- moreover, the English conservative tradition (epitomised by Edmund Burke) linked ‘freedom’ to property—property gave people a stake in society and in stability so property owners should have the strongest voice.

- conservatives were much less committed to individual rights for those who had no property (generally agreed with legal rights but usually opposed political rights); property qualifications for voters lasted for men until 1918 and for women until 1928.

 - also, we shall see, socialist concerns about the general or social good taking precedence over private, individual goods could easily slip over into a downplaying of individual rights. If individual rights should clash with the rights of the collectivity, then the social or collective interest could easily be preferred to and could supersede the interests of individuals.

- thus, it is liberals who have generally been most committed to civil rights and liberties.



N. B.: Both streams in the liberal tradition accepted and advocated ‘competition’ as a guiding principle for society.

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