ECONOMIC LIBERALISM THE BEGINNINGS OM~ ~ ~ : ; :: STUDIES IN ECONOMICS r ~ CONSULTING EDITOR: William Lewin MASSACHUSETTS INSTITUTE OF TECHNOLOGY ECONOMIC .> LIBERALISM Yolume I THE BEGINNINGS WILLIAM D. GRAMPP UNIVERSITY OF IllINOIS, CHICAGO RANDOM HOUSE NEW YORK , I r I First Printing C Copyright, I965, by Random House, Inc. All rights reserved under International and Pan- American Copyright Conventions. Published in New 'York by Random House, Inc. and simultaneously in Toronto, Canada, by Random House of Canada Limited. Library of Congress Catalog Card Number: 65-I3760 Manufactured in the United States of Amenca by H. Wolff, New 'York Typography by Betty Anderson TO THE MEMORY OF L. W. G. FOREWORD This book consists of six studies in the history of the idea of economic liberalism-three in the flrst volume and three in the second volume. That may seem like six studies in ambiguity. "Liberalism" has so many meanings-is such a rich source of controversy and inconclusion-that it has be- come nearly an un-word or an antiword, one that means nothing or even less. Nevertheless, I want to use it. Al- though it has been used ambiguously, the idea for which it can be made to stand is not ambiguous. It is a word like those words of ordinary language that the linguistic phi- losophers say we should use, or if it is not like them it can be made so. It has had a meaning in the past, and the his- tory of that meaning can be studied. The economic as- pect of the history is what this book is about. What eco- nomic liberalism means today is not the subject of the book. That is an important question, needless to say, but is one on which the reader will have to do his own thinking. There are some suggestions to help him in the concluding study. As a guide to all of them I would put before him what Berkeley offered to the readers of The Principles of Human Knowledge: Whoevertherefore designsto read the followingsheets, I en- treat him that he would make my words the occasionof his own thinking,and endeavorto attain the sametram of thoughts in readmg that 1 had in wnting them. By this means it will he easy for him to discoverthe truth or falsity of what I say. He will be out of all danger of being deceivedby my words, and I do not see how he can be led into an error by consider- ing his ownnaked,undisguisedideas. FOREWORD I use the words "economic liberalism" to mean the pol- icy that directs a liberal economy, and the words "lib- eral economy" to mean an economy in which individuals decide what is to be produced, how goods shall be dis- tributed, and by what means production and distribution shall be carried on. Decisions of this kind must be made in some way or other in every kind of economic system, no matter how dictatorial or democratic or how rich or poor. What distinguishes one system from another is whether or not individuals have the ultimate authority to make de- cisions. Who has the authority is more important than how it is exercised or for what purpose. In a liberal economy, individuals have the authority. They may exercise their authority individually on the market or outside the market, or they may exercise it collectively and voluntarily in either way. They also may exercise their authority through the government by directing it to carry out the decisions they have made. They may go further and delegate to the gov- ernment the authority to make decisions. What they may not do is to delegate authority in an irrevocable way. They may not tum over to the government, to a voluntary or- ganization, or to another individual the permanent power to make decisions. They must retain the ultimate authority to judge those who act for them. In a liberal economy the choice of how to make deci- sions is not necessarily a choice between government and the market and it is not even a choice among different combinations of government and market. Between the two there are many forms of voluntary collective action such as that of cooperatives, philanthropies, nonprofit organiza- tions, limited-profit firms, quasi-public or quasi-private or- ganizations, and unions. In groups of this kind, individuals can change the composition of the national output, the way it is produced, and the way it is distributed. In the history of economic liberalism, what has been ad- vocated and practiced is a combination of the following three procedures: voluntary individual action on the mar- ket, compulsory action through the government, and collec- tive action in voluntary groups. In deciding how these ':I: Foreword three procedures are to be combined. the critical question usually has been, How much use shall be made of govern- ment? The question, in more familiar language, is, What shall be the economic powers of the government? The question has been answered in different ways by those who have advocated liberalism. But the answers do have a common element. It became apparent m the nine- teenth century in Great Britain and it was intimated much earlier. The conclusion to which my studies have brought me is that in a hberal economy the state may do whatever the people want it to do and that it is able to do. Neither the want of the individuals nor the ability of the state is in itself the limit of economic policy. Together they are. The distinction is perhaps obvious. But I have found, during a long period of readmg about economic policy, that if the writer had made some obvious distinctions, both he and I would have come to the point with less eHort. What a state is able to do, as distinct from what it should do, is some- thing to be learned from positive economics; it is the an- alysis of means for achieving given ends. What the state should do is a question of ethical values. They once were a part of economics, when economics itself was a branch of moral philosophy. That part is normative economics, and today it still engages the interest of economists even though they attend more to the positive side. Both parts supply the ideas on which economic policy is based. Both have led me to my conclusion about the meaning of economic liberalism-a conclusion that is explained in detail in the chapter "Liberalism in the Great Century." It is not a conclusion that will be agreeable to everyone. There will be doubts from my colleagues in the history of ideas, and from general readers who have learned else- where that liberalism was quite another thing from what it is made out to be here, and from those to whom liberalism is an issue of policy today and of more than historic in- terest. All of us become committed to ideas, and ideas, it has been truly said, do rule the world. But the commit- ment can be a vested interest, and ideas can prevent the world and ourselves from learning more. That is why, FOREWORD when we come across an idea that seems eccentric, we ought to try, as Berkeley advised, "to attain the same train of thoughts in reading" as the author had in writing and in this way "to discover the truth or falsity" of what he says. What I have written in these two volumes is about one aspect of the idea of freedom. A particular definition of freedom is implied by the meaning I have ascribed to economic liberalism. Freedom, in the meaning given it here, is both the absence of restraint upon action and the ability to act. These studies in economic liberalism are therefore studies in the expression of this meaning of free- dom. They explain what freedom, in its economic aspect, has meant to particular groups of writers whose ideas have been notably influential. Some of these writers were economists, but most were not. Economics as a distinct study is only about 200 years old, but ideas about the ec0- nomic aspect of freedom go back much further. Most of the men whose writings are explained here were philoso- phers, moralists, historians, politicians, experts in statecraft, and pamphleteers. No one of the six studies describes the idea of' economic liberalism in its entirety, because no single group of writers made a complete statement about it. What each group had to say is best under- stood as a statement of particular aspects of the doctrine. To extend these particulars into a synthetic statement of the doctrine is possible but to attribute the synthesis to all of the groups would be quite wrong. One can, however, make a summary statement of the central idea, and I have done that in the last chapter of Volume II. What is just as interesting is to examine the contributions of par- ticular groups of writers at different periods in the de- velopment of the idea. What follows is a brief commentary on each of the six studies in order that the reader may see the design of the whole. Foreword THE STOIC ORIGINS OF LIBERALISM It was the contribution of the Stoics to explain how indi- viduals must act in order to make their society free. The important feature of Stoicism is the conception of the free individual as a thinking, responsible, and courageous be- ing. But Stoicism was more than a doctrine of individual morality. Political philosophers have long been interested in it, and here I have tried to show the interest it can have foreconomists.