Lecture 1: Classical Liberalism in the Nineteenth and Twentieth Century

Freedom and Society: Classical Liberalism in the Twentieth Century

A Course with Professor Thomas Patrick Burke
Spring 2007

The Philosophy of Liberalism

There are two very different kinds of reason or argument that can be given for liberty. One is based on its utility, that liberty has good consequences for people; for example, that it makes the society wealthier. The other kind of reason has to do with morality, with what is right and just; for example, that individuals have a right to liberty and to restrict it unnecessarily is unjust. The original arguments made for the free society, for example by John Locke, were of the second kind. Locke argues that liberty is a requirement of the natural moral law, which prohibits us from causing harm to others: when government makes laws restricting its citizens’ freedom to perform harmless actions, for example to practise their religion, it is causing them harm and acting unjustly. The arguments used by Adam Smith, on the other hand, were of the first kind: free trade will make people wealthier.

The same two kinds or species of arguments have been used against liberty. After the Second World War, a school of economists friendly to socialism argued that a centrally planned economy was more efficient and so more productive than one where people could do anything they liked. This was the theory of Prof. Harold Laski of the London School of Economics, who educated a generation of influential leaders from developing nations in Asia and Africa. On the other hand the Christian Socialists and their successors argued that competition between workers for jobs was inhumane and unjust. A large part of the attractiveness of socialism for many people has been that it promises a fairer and juster society.

At the present time this is the main argument made in favor of restrictions on the market: they are required by fairness and justice. This was the kind of argument made in support of the Civil Rights Act of 1964. Few people argued it would make our society wealthier. The main arguments in favor of free markets, however, are made by economists: market freedom is more productive. Thus the two sides argue past one another. Socialists accuse capitalism of being hard-hearted; economists accuse socialism of being a path to poverty. My own work as a philosopher has been to make a moral argument for market freedom, whence the title of my book No Harm.

Last semester we saw that the philosophy of liberty had its roots in the ancient world of Greece and Rome, for example in the Stoic doctrine of natural law, and in certain achievements of the middle ages, such as the division of power between state and church. We saw the beginnings of the philosophy itself emerge in England in the seventeenth century in the thought of John Locke, especially in his Second Treatise of Government, and in what is known as the “Glorious” or Whig Revolution of 1688, which subordinated the English monarchy to parliament. The first freedom to be achieved was freedom of religion, argued for in Locke’s Letter Concerning Toleration and implemented initially in the Act of Toleration, both of that year. This freedom led the way to the other freedoms, of association, of speech, conscience and the press, and of the market.

The idea of free trade burst upon the world in 1776 with the publication of Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations. At the time the reigning system was one of national protectionism known as mercantilism. Predicated on the assumption that the wealth of any nation consisted in the quantity of gold and silver it possessed, and that this was increased by exportation and decreased by importation, the aim of the countries adhering to this system was to export as much as possible and import as little as possible. This meant that the commercial interests of each nation were hostile to those of other nations, a belief which resulted in the creation of great protectionist empires, especially of the Netherlands, Great Britain and France, and in more or less constant war between them around the globe. Adam Smith showed, however, that the true wealth of any nation consists rather in the goods and services it possesses, and that these are augmented by any trade at all, but if anything by importation rather than exportation. Trade consists in exchanging one good for another, and this, he pointed out, will take place only when both parties consider that they benefit.

Liberalism as a conscious philosophy and a political movement “took off” throughout the Western world in the wake of Adam Smith’s great work. However, it developed in two rather different forms in England and on the continent of Europe. In Europe, where absolute monarchies reigned, liberalism went hand in hand with the movement towards democracy, and often was chiefly identified with that. In Italy and Germany, which had long been broken up into numerous principalities, dukedoms and kingdoms, it also went with the movement towards national unification. In England, by contrast, liberty was considered something quite separate and distinct from democracy.

The English typically already thought of themselves as free. At the end of the eighteenth century they had freedom of religion except for Catholics (and this restriction was perhaps mainly from fear of Rome’s political power), a large degree of freedom of speech and freedom of association. The system of the Common law meant that their laws for the most part originated from the grass roots up, being made by judges in the course of settling local disputes. Chief Justice Mansfield declared that the free air of England liberated any slave that breathed it. The English had had an elected parliament since the thirteenth century; yet parliament passed relatively little legislation: its main task was to provide the money for the budget. Although there was an established Church, it did not greatly exercise political power and was typically not felt to be oppressive. English liberals tended to be skeptical about the teachings of the church, but they were not opposed to it as an elevating and educating force in society. In 1829 the Catholic Emancipation Act would extend freedom of religion to the members of that church. In 1832 the boundaries of the electoral districts for parliament would be brought up to date. In England, liberalism was not viewed as a revolutionary philosophy but one aiming to increase a freedom considered to exist already. Its focus was directed especially towards free trade. During the nineteenth century England was regarded everywhere as the model of a liberal society.

On the continent, however, the situation was very different. Here there was generally much less freedom than in England. The old legislative assemblies had been largely shunted aside by the growing power of the absolute monarchies. There was no great tradition of individual religious freedom, and therefore not of free speech or freedom of association. The Church, especially the Catholic church, was widely felt, especially among the intellectuals, to be oppressive because it enjoyed independent political power, and its use of this was often considered to be intolerant. Napoleon’s armies had introduced many liberal ideas into the nations he conquered, and although after his departure these were crushed for a time by the conservative backlash instituted by the Congress of Vienna, they remained everywhere under the surface. In Europe the demand for liberty therefore took on a more passionate, and also more intolerant and even violent, character. It opposed both the absolute monarchies and the political power of the church, as well as being skeptical about the church’s teachings. Its heroes were Voltaire and Rousseau.

In 1848 the pressure that had been building up burst out, and almost every nation in Europe experienced a liberal, that is, a democratic revolution. The main aim of these revolutions was to replace the existing absolute monarchies with a written constitution that guaranteed representative government and elections, as well as freedom of speech, religion and the market. (This was also the year when the Christian Socialist movement was founded, which created the concept of “social justice,” and when Marx and Engels published their Communist Manifesto.) In the Papal States, the territory running across the middle of Italy which the pope ruled as an absolute monarch, there was a violent revolution in which the prime minister was assassinated, causing the pope, Pius IX, who had been a celebrated liberal, to condemn liberalism.

The liberal revolutions of 1848 mostly failed. The revolution in the Papal States was crushed by the French army, whom the pope summoned to his aid. But despite that, the liberal philosophy demanding democracy, free speech and free trade made headway everywhere, and by the end of the century the nations of Europe mostly had free economies. Because of its earlier history, however, liberalism took a hostile attitude towards religion. To this day, if you say you are a “liberal” in France, Germany or Italy, you are taken to mean not only that you support free markets but also that you are somewhat hostile to the church. This is a great hindrance to the cause of freedom, and it also does little good to the cause of religion. There is no intrinsic necessity whatever that that should be the case; it is entirely the result of history, and in the view of this writer it is important for the future of freedom as well as for the cause of religion that the two should be reconciled to one another.

The United States did not develop either the explicit philosophy or the political movement of liberalism, because the American people inherited the traditional English freedoms and incorporated them into their Constitution and the Bill of Rights. Although the American economy was protected from the outside world by high tariffs, which in the absence of an income tax were the federal government’s main source of income, within the borders of the U.S. the economy was essentially free. This early start with economic freedom has undoubtedly been the reason for the nation’s outstanding economic strength.

As the philosophy of liberalism and freedom spread throughout the Western world, the industrial revolution, begun in England around 1770, also spread, first to France after Napoleon, then later to Germany and the United States. By the year 1900, liberalism seemed largely triumphant, and at the same time the standard of living of the peoples of the West was higher than it had ever been before.

Then came August, 1914. When the wreckage of Europe was surveyed after the Great War, it was universally pronounced that liberalism was dead. Its place during the remainder of the century was claimed by socialism.

The Turn to Economics

I pointed out at the beginning of this lecture that the first arguments made for the free society with free markets were moral or ethical in nature. Following the work of Adam Smith, however, the science of economics made great progress during the nineteenth century, and during the twentieth century in the wake of the First World War it seems fair to say that the case for freedom and against the encroachments of socialism was made mainly by economists.

Many people find economics boring. But surely if freedom means anything, it should mean the right to earn one’s own living in one’s own way. The way we earn our living has everything to do with our conception of our selves. It is the state of our economy that decides whether it is easy or difficult for us to earn a living, and what possibilities are open to us to realize our potential as human beings and as the unique individuals that each of us are. Marx, amid many errors and the most fundamental misunderstanding of human relationships, made one true observation: the substructure of human life, on which all the rest depends, is economic: all the other achievements of human society, its law, its culture, its family life, its religion, all depend on the fact that we are alive, and therefore on those activities that keep us alive, which we bundle together under the abstract word “economy.” The free market is not a mere incidental addition to the free society: a genuinely free and prosperous society is not possible without freedom in this central area of our lives.


Austrian Economics



action and choice


classical economics: explaining prices. objective value

subjective value

marginal value

a priori