Site hosted by Build your free website today!


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








7. The liberal conception of freedom


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.


8. The liberal conception of law


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.


9. Law and the spontaneous order of actions


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.


10. Natural rights, the separation on powers, and sovereignty


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.


11. Liberalism and justice


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.


13. Liberalism and democracy


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.


14. The service functions of government


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.


15. Positive tasks of liberal legislation


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.


16. Intellectual and material freedom


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.