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Mar 28, 2018

No, Classical Liberalism Isn’t a “Fraud”

D’Amato replies to Ryan Cooper’s essay “The Fraud of Classical Liberalism.”

In The Week, Ryan Cooper suggests that the appeal to classical liberalism today is an attempt by conservatives to seem serious and intellectual, the tradition adopted cynically as a branding effort. Citing Karl Polanyi’s The Great Transformation, Cooper believes he has hit on a point that will embarrass classical liberals:

Property, contracts, corporations, stock exchanges, currency, and so on — all the bedrock institutions of capitalism are underpinned and maintained by government laws, or are direct creations of government.

Quite so, yet classical liberals readily acknowledge as much, pointing out that in fact this demonstrates very much the opposite of what Cooper and Polanyi suppose it does: Classical liberals, pioneering class theory, have shown that business and government often partner to serve the interests of the powerful, to create a favorable environment for well-connected industries and companies; importantly, this has never meant promoting or creating an unregulated free market. Classical liberalism struck at the heart of this historical system of elite power and license, arguing that in its place should be a society in which all people are equal before the law, lacking the legal prerogative to create special dispensations, monopoly privileges, and perquisites. Even a perfunctory glance in the direction of classical liberal literature, from Adam Smith and David Ricardo to today, would have revealed to Cooper critical assessments of government’s decisive role in the creation of the modern corporation — indeed corporate power as we know it. In pointing to the depravations of the politically and economically powerful, their joint complicity in a series of historical wrongs, Cooper unwittingly sets out a compelling case for classical liberalism: When individuals act according to their interests within the confines of a system that recognizes legal equality, the inviolability of individual rights, a stable system of private property, and careful limits on the exercise of arbitrary power, market competition does result in social cohesion, order, and widespread prosperity. But when individuals act according to their interests in a system that wrongfully empowers a small group of lawmakers and bureaucrats, allowing them to enact policies that favor those with money and access, the predictable results are social breakdown, corruption, and inequality.

It is, moreover, important to point out that the idea with which Cooper takes issue, that of “the market economy being a sort of freestanding institution” capable of being harmed, or calibrated, or corrected, is among the fallacies most strenuously combated by classical liberals and their present-day successors. Classical liberals understand that the economy is not a unitary phenomenon like an organism, building, or machine. As Friedrich Hayek brilliantly observed, so much of what determines economic outcomes “will hardly ever be fully known or measurable.” The term “the market economy” thus lazily stands in for what is in fact an incalculable sea of causes and effects, of transactions, bargains, and exchanges, one whose operations do not lend themselves to prediction or manipulation. If there is a “liberal orthodoxy” on the subject of the economy, it is this: that no small group of lawmakers or administrators is smarter than the swirling masses of information carried by the tides of said sea. And, in any case, lawmakers and administrators lack the incentives to act as custodians of the public good — rather than using their public offices in the advancement of their own private ends. For, as Cooper may be surprised to learn, “public” officials are no less self-seeking than anyone else. And why should they be? The goal, then, is to channel these indelible incentives in such a way as to make them socially beneficial, not destructive.

Cooper and Polanyi want to have it both ways, at once imprecating curses upon the hated free market and insisting that nothing like a “self-regulated market” has ever existed. They want to ridicule “the utopianism of the unregulated market” even as they array examples of the very kinds of violent intervention that classical liberals oppose. The classical liberal view of markets — and the relationship thereof to policy — is more nuanced and sophisticated than Cooper knows. Indeed, Cooper’s lack of familiarity with classical liberal analyses is all too evident in his argument that “stupendous social carnage” has resulted from utopian thinking about “the self-regulating market,” the cited examples of which are (completely inexplicably) vagrancy laws, the enclosure of common lands, and gunboat imperialism, among others. Could Cooper really be unaware of the fact that classical liberals have been at the forefront of criticizing such interventions — that, again, he is prosecuting our own case? Placing free trade in scare quotes only serves to highlight the fact that Cooper is, apparently by his own admission, not talking about the free trade actually defended by real-life classical liberals. Instead (and significantly), his looks rather like the classical liberal case against coercive intervention. It is remarkable how often this confusion arises within contemporary left-wing circles, how little reflection seems to go into these theatrical jeremiads against the free market. Today’s left may be surprised to find many of its worries articulated more clearly and coherently by classical liberals themselves. For example, in Liberalism, Ludwig von Mises writes, “No chapter of history is steeped further in blood than the history of colonialism. Blood was shed uselessly and senselessly. Flourishing lands were laid waste; whole peoples destroyed and exterminated. All this can in no way be extenuated or justified.” Mises followed in a line of free-trade liberals (see, for example, the work of Richard Cobden) who decried war and imperialism. If Cooper does not know this, it is a serious dereliction of duty; if he does, he is being dishonest, arguing in bad faith.

Classical liberals have never suggested the markets require no laws or rules, magically regulating themselves as if by magic. Quite to the contrary, the stability and durability of rules and institutions is central to classical liberal political philosophy, which is predicated on the notion that individuals possess rights that should not be subject to the vagaries of legislators. Classical liberalism actually says that the rules are rather important: exceptions to the baseline rules, class legislation that gives preferential treatment to this or that lobby or pressure group, should be rare or nonexistent, not just because such a system of special pleading and one-off rules leads to inefficient outcomes, but because it sews cynicism and distrust. Market actors begin to notice that the way to wealth is not service to customers, but petitioning government for favors. Classical liberals, then, appreciate Cooper’s point “that government policy creates the economy in the first place,” or at least creates the conditions under which economic activity takes place. We simply ask, with Hayek, that government policy admit is limitations — that government policy (which is, after all, just a genteelism for physical violence or compulsion) confine itself to the protection of individual liberty.

Truly utopian is Cooper’s idea that those he would so eagerly empower to rule over us will, once empowered, either care about what’s best for us or be able to pursue it. To be sure, classical liberals don’t think corporations are any more altruistic, so we propose to carefully sequester them from the source of special privilege: government. What Cooper seems not to understand (though he seems close at times to grasping it) is that corporations would rather not compete; they’d rather appeal to “the sovereignty of nations,” which, as we have noted, is their originator, to hobble or outlaw their competitors. Classical liberals understood this much better than most contemporary political commentators. Classical liberalism was our first source of class theory, and it remains the best and most insightful. In a more compelling version of his piece, Cooper would have extrapolated his arguments about the role of violence and political power in the historical process of globalization, following them to their conclusions. He would notice rather quickly that the interdependence of political and economic power (indeed, we might not even call it interdependence, which implies that the two have ever been separate in historical practice) has never served some purist liberal orthodoxy or free market, private property, and individual rights. The coercive power of the state has instead served the powerful, the result being the “social carnage” Cooper cites.