Liberalism
F. A. Hayek
Written in 1973 for the Italian Enciclopedia del Novicento where the
article appeared in an Italian translation.
Reprinted as Chapter Nine of Hayek, F. A., New Studies in Philosophy,
Politics, Economics and the History of
Ideas, Routledge & Keagan Paul, London and Henley, 1982 [1978], pp.
119-151 ORDER THIS BOOK
Since only the 'British' or evolutionary type
of liberalism has developed a definite political programme, an attempt at a
systematic exposition of the principles of liberalism will have to concentrate
on it, and the views of the 'Continental' or constructivistic type win be
mentioned only occasionally by way of contrast. This fact also demands the
rejection of another distinction frequently drawn on the Continent, but
inapplicable to the British type, that between political and economic
liberalism (elaborated especially by the Italian philosopher, Benedetto Croce,
as the distinction between liberalismo and
liberismo). For the British tradition
the two are inseparable because the basic principle of the limitation of the
coercive powers of government to the enforcement of general rules of just
conduct deprives government of the power of directing or controlling the
economic activities of the individuals, while the conferment of such powers gives
government essentially arbitrary and discretionary power which cannot but
restrict even the freedom in the choice of individual aims which all liberals
want to secure. Freedom under the law implies economic freedom, while economic
control, as the control of the means for all purposes, makes a restriction of
all freedom possible.
It is in this connection that the apparent
agreement of the different kinds of liberalism on the demand for freedom of the
individual, and the respect for the individual personality which this implies,
conceals an important difference. During the heyday of liberalism this concept
of freedom had a fairly definite meaning: it meant primarily that the free
person was not subject to arbitrary coercion. But for [132] man
living in society protection against such coercion required a restraint on all
men, depriving them of the possibility of coercing others. Freedom for all
could be achieved only if, in the celebrated formula of Immanuel Kant, the
freedom of each did not extend further than was compatible with an equal
freedom for all others. The liberal conception of freedom was therefore
necessarily one of freedom under a law which limited the freedom of each so as
to secure the same freedom for all. It meant not what was sometimes described
as the 'natural freedom' of an isolated individual, but the freedom possible in
society and restricted by such rules as were necessary to protect the freedom
of others. Liberalism in this respect is to be sharply distinguished from
anarchism. It recognizes that if all are to be as free as possible, coercion
cannot be entirely eliminated, but only reduced to that minimum which is
necessary to prevent individuals or groups from arbitrarily coercing others. It
was a freedom within a domain circumscribed by known rules which made it
possible for the individual to avoid being coerced so long as he kept within
these limits.
This freedom could also be assured only to
those capable of obeying the rules intended to secure it. Only the adult and
sane, presumed to be fully responsible for their actions, were regarded as
fully entitled to that freedom, while various degrees of tutelage were regarded
as appropriate in the case of children and persons not in full possession of
their mental faculties. And by infringement of the rules intended to secure the
same liberty for all, a person might as penalty forfeit that exemption from
coercion which those who obeyed them enjoyed.
This freedom thus conferred on all judged
responsible for their actions also held them responsible for their own fate:
while the protection of the law was to assist all in the pursuit of their aims,
government was not supposed to guarantee to the individuals particular results
of their efforts. To enable the individual to use his knowledge and abilities
in the pursuit of his self‑chosen aims was regarded both as the greatest
benefit government could secure to all, as well as the best way of inducing
these individuals to make the greatest contribution to the welfare of others.
To bring forth the best efforts for which an individual was enabled by his
particular circumstances and capabilities, of which no authority could know, was thought to be the chief
advantage which the freedom of each would confer on all others. [133]
The liberal conception of freedom has often
been described as a merely negative conception, and rightly so. Like peace and
justice, it refers to the absence of an evil, to a condition opening
opportunities but not assuring particular benefits; though it was expected to
enhance the probability that the means needed for the purposes pursued by the
different individuals would be available. The liberal demand for freedom is
thus a demand for the removal of all manmade obstacles to individual efforts,
not a claim that the community or the state should supply particular goods. It
does not preclude such collective action where it seems necessary, or at least
a more effective way for securing certain services, but regards this as a matter
of expediency and as such limited by the basic principle of equal freedom under
the law. The decline of liberal doctrine, beginning in the 1870s, is closely
connected with a re‑interpretation of freedom as the command over, and
usually the provision by the state of, the means of achieving a great variety
of particular ends.
The meaning of the liberal conception of
liberty under the law, or of absence of arbitrary coercion, turns on the sense
which in this context is given to 'law' and 'arbitrary. It is partly due to
differences in the uses of these expressions that within the liberal tradition
there exists a conflict between those for whom, as for John Locke, freedom
could exist only under the law ('for who could be free when every other man's
humour could domineer over Him?') while to many of the Continental liberals and
to Jeremy Bentham, as the latter expressed it, 'every law is an evil for every
law is an infraction of liberty.'
It is of course true that law can be used to
destroy liberty. But not every product of legislation is a law in the sense in
which John Locke or David Hume or Adam Smith or Immanuel Kant or the later
English Whigs regarded law as a safeguard of freedom. What they had in mind
when they spoke of law as the indispensable safeguard of freedom were only
those rules of just conduct which constitute the private and criminal law, but
not every command issued by the legislative authority. To qualify as law, in
the sense in which it was used in the British liberal tradition to describe the
conditions of freedom, the rules enforced by government had to possess certain
attributes which a law like the English
Common Law of necessity
possessed, but which the products of legislation need not [134] possess: they must
be general rules of individual conduct, applicable to all alike in an unknown
number of future instances, defining the protected domain of the individuals,
and therefore essentially of the nature of prohibitions rather than of specific
commands. They are therefore also inseparable from the institution of several
property. It was within the limits determined by these rules of just conduct
that the individual was supposed to be free to use his own knowledge and skills
in the pursuit of his own purposes in any manner which seemed appropriate to
him.
The coercive powers of government were thus
supposed to be limited to the enforcement of those rules of just conduct. This,
except to an extreme wing of the liberal tradition, did not preclude that
government should not render also other services to the citizens. It meant only
that, whatever other services government might be called upon to provide, it
could for such purposes use only the resources placed at its disposal, but
could not coerce the private citizen; or, in other words, the person and the
property of the citizen could not be used by government as a means for the
achievement of its particular purposes. In this sense an act of the duly
authorized legislature might be as arbitrary as an act of an autocrat, indeed
any command or prohibition directed to particular persons or groups, and not
following from a rule of universal applicability, would be regarded as
arbitrary. What thus makes an act of coercion arbitrary, in the sense in
which the term is used in the old liberal tradition, is that it serves a
particular end of government, is determined by a specific act of will and not
by a universal rule needed for the maintenance of that selfgenerating overall
order of actions, which is served by all the other enforced rules of just
conduct.
The importance which liberal theory attached to
the rules of just conduct is based on the insight that they are an essential
condition for the maintenance of a self‑generating or spontaneous order
of the actions of the different individuals and groups, each of which pursues
his own ends on the basis of his own knowledge. At least the great founders of
liberal theory in the eighteenth century, David Hume and Adam Smith, did not
assume a natural harmony of interests, but rather contended that the divergent
interests of the different individuals could be reconciled by the observance of
appropriate rules of conduct; or, as their contemporary, Josiah Tucker,
expressed it, [135] that 'the universal mover in human nature, self‑love,
may receive such a direction ... as to promote the public interest by those
efforts it shall make towards pursuing its own'. Those eighteenth century
writers were indeed as much philosophers of law as students of the economic
order, and their conception of law and their theory of the market mechanism are
closely connected. They understood that only the recognition of certain
principles of law, chiefly the institution of several property and the enforcement
of contracts, would secure such a mutual adjustment of the plans of action of
the separate individuals that all might have a good chance of carrying out the
plans of action which they had formed. It was, as later economic theory brought
out more clearly, this mutual adjustment of individual plans which enabled
people to serve each other while using their different knowledge and skills in
the service of their own ends.
The
function of the rules of conduct was thus not to organize the individual efforts
for particular agreed purposes, but to secure an overall order of actions
within which each should be able to benefit as much as possible from the
efforts of others in the pursuit of his own ends. The rules conducive to the
formation of such a spontaneous order were regarded as the product of long
experimentation in the past. And though they were regarded as capable of
improvement, it was thought that such improvement must proceed slowly and step
by step as new experience showed it to be desirable.
The
great advantage of such a self‑generating order was thought to be, not
only that it left the individuals free to pursue their own purposes, whether
these were egotistic or altruistic. It was also that it made possible the
utilization of the widely dispersed knowledge of particular circumstances of
time and place which exists only as the knowledge of those different
individuals, and could in no possible way be possessed by some single directing
authority. It is this utilization of more knowledge of particular facts than
would be possible under any system of central direction of
economic activity, that brings about as large an aggregate product of society
as can be brought about by any known means.
But
while leaving the formation of such an order to the spontaneous forces of the
market, operating under the restraint of appropriate rules of law, secures a
more comprehensive order and a more complete adaptation to the particular
circumstances, it also means that the particular contents of this order will
not be subject to [136] deliberate control but are left largely to
accident. The framework of rules of law, and all the various special
institutions which serve the formation of the market order can determine only
its general or abstract character, but not its specific effects on particular
individuals or groups. Though its justification consists in it increasing the
chances of all, and in making the position of each in a large measure dependent
on his own efforts, it still leaves the outcome for each individual and group
dependent ‑also on unforeseen circumstances which neither they nor
anybody else can control. Since Adam Smith the process by which the shares of
the individuals are determined in a market economy has therefore often been
likened to a game in which the results for each depend partly on his skill and
effort and partly on chance. The individuals have reason to agree to play this
game because it makes the pool from which the individual shares are drawn
larger than it can be made by any other method. But at the same time it makes
the share of each individual subject to all kinds of accidents and certainly
does not secure that it always corresponds to the subjective merits or to the
esteem by others of the individual efforts.
Before
considering further the problems of the liberal conception of justice which
this raises, it is necessary to consider certain constitutional principles in
which the liberal conception of law came to be embodied.
The
basic liberal principle of limiting coercion to the enforcement of general
rules of just conduct has rarely been stated in this explicit form, but has
usually found expression in two conceptions characteristic of liberal
constitutionalism, that of indefeasible or natural rights of the individual
(also described as fundamental rights or rights of man) and that of the
separation of powers. As the French Declaration of the Rights of Man and of the
Citizen Of 1789, at the same time the most concise and the most influential
statement of liberal principles, expressed it: 'Any society in which rights are
not securely guaranteed, and the separation of powers is not determined, has no
constitution.'
The
idea of specially guaranteeing certain fundamental rights, such as 'liberty,
property, security and resistance to oppression', and, more specifically, such
freedoms as those of opinion, of speech, of assembly, of the press, which make
their appearance first in the [137] course of the American revolution, is, however, only an application of
the general liberal principle to certain rights which were thought to be
particularly important and, being confined to enumerated rights, does not go as
far as the general principle. That they are merely particular applications of
the general principle appears from the fact that none of these basic rights is
treated as an absolute right, but that they all extend only so far as they are
not limited by general laws. Yet, since according to the most general liberal
principle all coercive action of government is to be limited to the enforcement
of such general rules, all the basic rights listed in any of the catalogues or
bills of protected rights, and many others never embodied in such documents,
would be secured by a single clause stating that general principle. As is true
of economic freedom, all the other freedoms would be secured if the activities
of the individuals could not be limited by specific prohibitions (or the
requirement of specific permissions) but only by general rules equally
applicable to all.
The principle of the separation of powers in
its original sense also is an application of the same general principle, but
only in so far as in the distinction between the three powers of legislation,
jurisdiction and administration the term 'law' is understood, as it undoubtedly
was by the early propounders of the principle, in the narrow sense of general
rules of just conduct. So long as the legislature could pass only laws in this
narrow sense, the courts could only order (and the executive only apply)
coercion in order to secure obedience to such general rules. This, however,
would be true only in so far as the power of the legislature was confined to
laying down such laws in the strict sense (as in the opinion of John Locke it
ought to be), but not if the legislature could give to the executive any orders
it thought fit, and if any action of the executive authorized in this manner
was regarded as legitimate. Where the representative assembly, called the
legislature, has become, as it has in all modern states, the supreme
governmental authority which directs the action of the executive on particular
matters, and the separation of powers merely means that the executive must not
do anything not so authorized, this does not secure that the liberty of the
individual is restricted only by laws in the strict sense in which liberal
theory used the term.
The limitation of the powers of the legislature
that was implicit in the original conception of the separation of powers also
implies a [138] rejection of the idea of any unlimited or sovereign
power or at least of any authority of organized power to
do what it likes. The refusal to recognize such a sovereign power, very clear
in John Locke and again and again recurring in later liberal doctrine, is one
of the chief points where it clashes with the now predominant conceptions of
legal positivism. It denies the logical necessity of the derivation of all
legitimate power from a single sovereign source, or any organized 'will', on
the ground that such a limitation of all organized power may be brought about
by a general state of opinion which refuses allegiance to any power (or
organized will) which takes action of a kind
which this general opinion does not authorize. It believes that even a
force such as general opinion, though not capable of formulating specific acts
of will, may yet limit the legitimate power of all organs of government to
actions possessing certain general attributes.
Closely connected with the liberal conception
of law is the liberal conception of justice. It is different from that now
widely held in two important respects: it is founded on a belief in the
possibility of discovering objective rules of just conduct independent of
particular interests; and it concerns itself only with the justice of human
conduct, or the rules governing it, and not with the particular results of such
conduct on the position of the different individuals or groups. Especially in
contrast to socialism it may be said that liberalism is concerned with
commutative justice and not with what is called distributive or now more
frequently 'social' justice.
The belief in the existence of rules of just
conduct which can be discovered but not arbitrarily created rests on the fact
that the great majority of such rules will at all times be unquestioningly
accepted, and that any doubt about the justice of a particular rule must be
resolved within the context of this body of generally accepted rules, in such a
manner that the rule to be accepted will be compatible with the rest: that is,
it must serve the formation of the same kind of abstract order of actions which
all the other rules of just conduct serve, and must not conflict with the
requirements of any one of these rules. The test of the justice of any
particular rules is thus whether its universal application is possible because
it proves to be consistent with all the other accepted rules.
It is often alleged that this belief of liberalism in a justice independent of
particular interests depends on a conception of a law of nature [139] that has been conclusively
rejected by modern thought. Yet it can be represented as dependent on a belief
in a law of nature only in a very special sense of this term, a sense in which
it is by no means true that it has been effectively refuted by legal
positivism. It is undeniable that the attacks of legal positivism have done
much to discredit this essential part of the traditional liberal creed. Liberal
theory is indeed in conflict with legal positivism with regard to the latter's
assertion that all law is or must be the product of the (essentially arbitrary)
will of a legislator. Yet once the general principle of a self‑maintaining
order based on several property and the rules of contract is accepted, there
will, within the system of generally accepted rules, be required particular
answers to specific questions ‑ made necessary by the rationale of the
whole system and the appropriate answers to such questions will have to be
discovered rather than arbitrarily invented. It is from this fact that the
legitimate conception springs that particular rules rather than others will be
required by 'the nature of the case'.
The ideal of distributive justice has
frequently attracted liberal thinkers, and has become probably one of the main
factors which led so many of them from liberalism to socialism. The reason why
it must be rejected by consistent liberals is the double one that there exist
no recognized or discoverable general principles of distributive justice, and
that, even if such principles could be agreed upon, they could not be put into
effect in a society whose productivity rests on the individuals being free to use
their own knowledge and abilities for their own purposes. The assurance of
particular benefits to particular people as rewards corresponding to their
merits or needs, however assessed, requires a kind of order of society
altogether different from that spontaneous order which will form itself if
individuals are restrained only by general rules of just conduct. It requires
an order of the kind (best described as an organization) in which the
individuals are made to serve a common unitary hierarchy of ends, and required
to do what is needed in the light of an authoritative plan of action. While a
spontaneous order in this sense does not serve any single order of needs, but
merely provides the best opportunities for the pursuit of a great variety of
individual needs, an organization presupposes that all its members serve the
same system of ends. And the kind of comprehensive single organization of the
whole of society, which would be necessary in order to secure that each gets
what some authority thinks he deserves, must produce [140] a society in
which each must also do what the same authority prescribes.
12.
Liberalism and equality
Liberalism merely demands that so far as the
state determines the conditions under which the individuals act it must do so
according to the same formal rules for all. It is opposed to all legal
privilege, to any conferment by government of specific advantages on some which
it does not offer to all. But since, without the power of specific coercion,
government can control only a small part of the conditions which determine the
prospects of the different individuals, and these individuals are necessarily
very different, both in their individual abilities and knowledge as well as in
the particular (physical and social) environment in which they find themselves,
equal treatment under the same general laws must result in very different
positions of the different persons; while in order to make the position or the
opportunities of the different persons equal, it would be necessary that government
treat them differently. Liberalism, in other words, merely demands that the
procedure, or the rules of the game, by which the relative positions of the
different individuals are determined, be just (or at least not unjust), but not
that the particular results of this process for the different individuals be
just; because these results, in a society of free men, will always depend also
on the actions of the individuals themselves and on numerous other
circumstances which nobody can in their entirety determine or foresee.
In the heyday of classical liberalism, this
demand was commonly expressed by the requirement that all careers should be
open to talents, or more vaguely and inexactly as 'equality of opportunity'.
But this meant in effect only that those obstacles to the rise to higher
positions should be removed which were the effect of legal discriminations
between persons. It did not mean that thereby the chances of the different
individuals could be made the same. Not only their different individual
capacities, but above all the inevitable differences of their individual
environments, and in particular the family in which they grew up, would still
make their prospects very different. For this reason the idea that has proved
so attractive to most liberals, that only an order in which the initial chances
of all individuals are the same at the start, can be regarded as just, is
incapable of realization in a free society; it would require a deliberate [141]
manipulation of the environment in which all the different individuals worked
which would be wholly irreconcilable with the ideal of a freedom in which the
individuals can use their own knowledge and skill to shape this environment.
But though there are strict limits to the
degree of material equality which can be achieved by liberal methods, the
struggle for formal equality, i.e. against all discrimination based on social
origin, nationality, race, creed, sex, etc., remained one of the strongest
characteristics of the liberal tradition. Though it did not believe that it was
possible to avoid great differences in material positions, it hoped to remove
their sting by a progressive increase of vertical mobility. The chief
instrument by which this was to be secured was the provision (where necessary
out of public funds) of a universal system of education which would at least
place all the young at the foot of the ladder on which they would then be able
to rise in accordance with their abilities. It was thus by the provision of
certain services to those not yet able to provide for themselves that many
liberals endeavoured at least to reduce the social barriers which tied
individuals to the class into which they were born.
More doubtfully compatible with the liberal
conception of equality is another measure which also gained wide support in
liberal circles, namely the use of progressive taxation as a means to effect a
redistribution of income in favour of the poorer classes. Since no criterion
can be found by which such progression can be made to correspond to a rule
which may be said to be the same for all, or which would limit the degree of
extra burden on the more wealthy, it would seem that a generally progressive taxation is in conflict with the principle of
equality before the law and it was in general so regarded by liberals in the
nineteenth century.
By the insistence on a law which is the same
for all, and the con sequent opposition to all legal privilege, liberalism
came to be closely associated with the movement for democracy. In the struggle
for constitutional government in the nineteenth century, the liberal and the
democratic movements indeed were often indistinguishable. Yet in the course of
time the consequence of the fact that the two doctrines were in the last resort
concerned with different issues became more and more apparent. Liberalism is
concerned with the functions of government and particularly with the limitation
of all its powers. [142]
Democracy is concerned with the question of who
is to direct government. Liberalism requires that all power, and therefore also
that of the majority, be limited. Democracy came to regard current majority
opinion as the only criterion of the legitimacy of the powers of government.
The difference between the two principles stands out most clearly if we
consider their opposites: with democracy it is authoritarian government; with
liberalism it is totalitarianism. Neither of the two systems necessarily
excludes the opposite of the other: a democracy may well wield totalitarian powers,
and it is at least conceivable that an authoritarian government might act on
liberal principles.
Liberalism is thus incompatible with unlimited
democracy, just as it is incompatible with all other forms of unlimited
government. It presupposes the limitation of the powers even of the
representatives of the majority by requiring a commitment to principles either
explicitly laid down in a constitution or accepted by general opinion so as to
effectively confine legislation.
Thus, though the consistent application of
liberal principles leads to democracy, democracy will preserve liberalism only
if, and so long as, the majority refrains from using its powers to confer on
its supporters special advantages which cannot be similarly offered to all
citizens. This might be achieved in a representative assembly whose powers were
confined to passing laws in the sense of general rules of just conduct, on
which agreement among a majority is likely to exist. But it is most unlikely in
an assembly which habitually directs the specific measures of government. In
such a representative assembly, which combines true legislative with
governmental powers, and which is therefore in the exercise of the latter not
limited by rules that it cannot alter, the majority is not likely to be based
on true agreement on principles, but will probably consist of coalitions of
various organized interests which will mutually concede to each other special
advantages. Where, as is almost inevitable in a representative body with
unlimited powers, decisions are arrived at by a bartering of special benefits
to the different groups, and where the formation of a majority capable of
governing depends on such bartering, it is indeed almost inconceivable that
these powers will be used only in the true general interests.
But while for these reasons it seems almost
certain that unlimited democracy will abandon liberal principles in favour of
discriminatory measures benefiting the various groups supporting the majority, [143]
it is also doubtful whether in the long run democracy can preserve itself
if it abandons liberal principles. If government assumes tasks which are too
extensive and complex to be effectively guided by majority decisions, it seems
inevitable that effective powers will devolve to a bureaucratic apparatus
increasingly independent of democratic control. It is therefore not unlikely
that the abandonment of liberalism by democracy will in the long run also lead
to the disappearance of democracy. There can, in particular, be little doubt
that the kind of directed economy towards which democracy seems to be tending
requires for its effective conduct a government with authoritarian powers.
The strict limitation of governmental powers to
the enforcement of general rules of just conduct required by liberal principles
refers only to the coercive powers of government. Government may render in
addition, by the use of the means placed at its disposal, many services which
involve no coercion except for the raising of the means by taxation; and apart
perhaps from some extreme wings of the liberal movement, the desirability of
government undertaking such tasks has never been denied. They were, however, in
the nineteenth century still of minor and mainly traditional importance and
little discussed by liberal theory which merely stressed that such services had
better be left in the hands of local rather than central government. The
guiding consideration was a fear that central government would become too
powerful, and a hope that competition between the different local authorities
would effectively control and direct the development of these services on
desirable lines.
The general growth of wealth and the new
aspirations whose satisfaction were made possible by it have since led to an
enormous growth of those service activities, and have made necessary a much
more clear‑cut attitude towards them than classical liberalism ever took.
There can be no doubt that there are many such services, known to the
economists as 'public goods', which are highly desirable but cannot be provided
by the market mechanism, because if they arc provided they will benefit
everybody and cannot be confined to those who are willing to pay for them. From
the elementary tasks of the protection against crime or the prevention of the
spreading of contagious diseases and other health services, to the great
variety of problems which the large
urban agglomerations [144] raise
most acutely, the required services can only be provided if the means to defray
their costs are raised by taxation. This means that, if these services are to
be provided at all, at least their finance, if not necessarily also their
operation must be placed in the hands of agencies which have the power of
taxation. This need not mean that government is given the exclusive right to
render these services, and the liberal will wish that the possibility be left
open that when ways of providing such services by private enterprise are
discovered, this can be done. He will also retain the traditional preference
that those services should so far as possible be provided by local rather than
central authorities and be paid for by local taxation, since in this manner at
least some connection between those who benefit and those who pay for a
particular service will be preserved. But beyond this liberalism has developed
scarcely any definite principles to guide policy in this wide field of ever
increasing importance.
The failure to apply the general principles of
liberalism to the new problems showed itself in the course of the development
of the modern Welfare State. Though it should have been possible to achieve
many of its aims within a liberal framework, this would have required a slow
experimental process; yet the desire to achieve them by the most immediately
effective path led everywhere to the abandonment of liberal principles. While
it should have been possible, in particular, to provide most of the services of
social insurance by the development of an institution for true competitive
insurance, and while even a minimum income assured to all might have been
created within a liberal framework, the decision to make the whole field of
social insurance a government monopoly, and to turn the whole apparatus erected
for that purpose into a great machinery for the redistribution of incomes, led
to a progressive growth of the government controlled sector of the economy and
to a steady dwindling of the part of the economy in which liberal principles
still prevail.
Traditional liberal doctrine, however, not only
failed to cope adequately with new problems, but also never developed a
sufficiently clear programme for the development of a legal framework designed
to preserve an effective market order. If the free enterprise system is to work
beneficially, it is not sufficient that the laws satisfy the negative criteria
sketched earlier. It is also necessary that their [145] positive content
be such as to make the market mechanism operate satisfactorily. This requires
in particular rules which favour the preservation of competition and restrain,
so far as possible, the development of monopolistic positions. These problems
were somewhat neglected by nineteenth‑century liberal doctrine and were
examined systematically only more recently by some of the 'neoliberal' groups.
It is probable, however, that in the field of
enterprise monopoly would never have become a serious problem if government had
not assisted its development by tariffs, certain features of the law of
corporations and of the law of industrial patents. It is an open question
whether, beyond giving the legal framework such a character that it will favour
competition, specific measures to combat monopoly are necessary or desirable.
If they are, the ancient common law prohibition of conspiracies in restraint of
trade might have provided a foundation for such a development which, however,
remained long unused. Only comparatively lately, beginning with the Sherman Act
of 189o in the USA, and in Europe mostly only after the Second World War, were
attempts made at a deliberate antitrust and anti‑cartel legislation
which, because of the discretionary powers which they usually conferred on
administrative agencies, were not wholly reconcilable with classical liberal
ideals.
The field, however, in which the failure to
apply liberal principles led to developments which increasingly impeded the
functioning of the market order, is that of the monopoly of organized labour or
of the trade unions. Classical liberalism had supported the demands of the
workers for 'freedom of association', and perhaps for this reason later failed
effectively to oppose the development of labour unions into institutions
privileged by law to use coercion in a manner not permitted to anybody else. It
is this position of the labour unions which has made the market mechanism for
the determination of wages largely inoperative, and it is more than doubtful
whether a market economy can be preserved if the competitive determination of
prices is not also applied to wages. The question whether the market order will
continue to exist or whether it will be replaced by a centrally planned
economic system may well depend on whether it will prove possible in some
manner to restore a competitive labour market.
The effects of these developments show
themselves already in the manner in which they have influenced government
action in the [146] second main field in which it is generally believed
that a functioning market order requires positive government action: the
provision of a stable monetary system. While classical liberalism assumed that
the gold standard provided an automatic mechanism for the regulation of the
supply of money and credit which would be adequate to secure a functioning
market order, the historical developments have in fact produced a credit
structure which has become to a high degree dependent on the deliberate
regulation by a central authority. This control, which for some time had been
placed in the hands of independent central banks, has in recent times been in
effect transferred to governments, largely because budgetary policy has been
made one of the chief instruments of monetary control. Governments have thus
become responsible for determining one of the essential conditions on which the
working of the market mechanism depends.
In this position governments in all Western
countries have been forced, in order to secure adequate employment at the wages
driven up by trade union action, to pursue an inflationary policy which makes
monetary demand rise faster than the supply of goods. They have been driven by
this into an accelerating inflation which in turn they feel bound to counteract
by direct controls of prices that threaten to make the market mechanism
increasingly inoperative. This seems now to become the way in which, as already
indicated in the historical section, the market order which is the foundation
of a liberal system will be progressively destroyed.
The political doctrines of liberalism on which
this exposition has concentrated will appear to many who regard themselves as
liberals as not the whole or even the most important part of their creed. As
has already been indicated, the term 'liberal' has often, and particularly in
recent times, been used in a sense in which it describes primarily a general
attitude of mind rather than specific views about the proper functions of
government. It is therefore appropriate in conclusion to return to the relation
between those more general foundations of all liberal thought and the legal and
economic doctrines in order to show that the latter are the necessary result of
the consistent application of the ideas which led to the demand for
intellectual freedom on which all the different strands of liberalism agree. [147]
The central belief from which all liberal postulates may be said to spring is that more successful solutions of the problems of society are to be expected if we do not rely on the application of anyone's given knowledge, but encourage the interpersonal process of the exchange of opinion from which better knowledge can be expected to emerge. It is the discussion and mutual criticism of men's different opinions derived from different experiences which was assumed to facilitate the discovery of truth, or at least the best approximation to truth which could be achieved. Freedom for individual opinion was demanded precisely because every individual was regarded as fallible, and the discovery of the best knowledge was expected only from that continuous testing of all beliefs which free discussion secured. Or, to put this differently, it was not so much from the power of individual reason (which the genuine liberals distrusted), as from the results of the interpersonal process of discussion and criticism, that a progressive advance towards the truth was expected. Even the growth of individual reason and knowledge is regarded as possible only in so ‑far as the individual is part of this process.
That the advance of knowledge, or progress,
which intellectual freedom secured, and the consequent increased power of men
to achieve their aims, was eminently desirable, was one of the unquestioned
presuppositions of the liberal creed. It is sometimes alleged, not quite justly,
that its stress was entirely on material progress. Though it is true that it
expected the solution of most problems from the advance of scientific and
technological knowledge, it combined with this a somewhat uncritical, though
probably empirically justified, belief that freedom would also bring progress
in the moral sphere; it seems at least true that during periods of advancing
civilization moral views often came to be more widely accepted which in earlier
periods had been only imperfectly or partially recognized. (It is perhaps more
doubtful whether the rapid intellectual advance that freedom produced also led
to a growth of aesthetic susceptibilities; but liberal doctrine never claimed
any influence in this respect.)
All the arguments in support of intellectual
freedom also apply, however, to the case for the freedom of doing things, or
freedom of action. The varied experiences which lead to the differences of
opinion from which intellectual growth originates are in turn the result of the
different actions taken by different people in different circumstances. As in
the intellectual so in the material sphere, [148] competition is the
most effective discovery procedure which
will lead to the finding of
better ways for the pursuit of human aims. Only when a great many different
ways of doing things can be tried will there exist such a variety of individual
experience, knowledge and skills, that a continuous selection of the most
successful will lead to steady improvement. As action is the main source of the
individual knowledge on which the social process of the advance of knowledge is
based, the case for the freedom of action is as strong as the case for freedom
of opinion. And in a modern society based on the division of labour and the
market, most of the new forms of action arise in the economic field.
There is, however, yet another reason why
freedom of action, especially in the economic field that is so often
represented as being of minor importance, is in fact as important as the
freedom of the mind. If it is the mind which chooses the ends of human action,
their realization depends on the availability of the required means, and any
economic control which gives power over the means also gives power over the
ends. There can be no freedom of the press if the instruments of printing are
under the control of government, no freedom of assembly if the needed rooms are
so controlled, no freedom of movement if the means of transport are a
government monopoly, etc. This is the reason why governmental direction of all
economic activity, often undertaken in the vain hope of providing more ample
means for all purposes, has invariably brought severe restrictions of the ends
which the individuals can pursue. It is probably the most significant lesson of
the political developments of the twentieth century that control of the
material part of life has given government, in what we have learnt to call
totalitarian systems, far‑reaching powers over the intellectual life. It
is the multiplicity of different and independent agencies prepared to supply
the means which enables us to choose the ends which we will pursue.
