# The Basic Tenets of Real Liberalism, Part III: Social Harmony, Free Trade, and Peace

**URL:** <https://www.libertarianism.org/essays/basic-tenets-real-liberalism-part-3>

**By** David Hart, Walter E. Grinder

**Published:** September 1, 1983

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“As soon as the state intervenes to control voluntary relationships, the natural harmony of the market is destroyed and conflict appears.”

## Recommended Reading

Frédéric Bastiat, _Economic Harmonies_ (Princeton, NJ: D. Van Nostrand, 1964).

Richard Cobden, “Free Trade and Reduction of Armaments,” _Free Trade and Other Doctrines of the Manchester School_, ed. Francis W. Hirst (New York: Augustus M. Kelly, 1968).

Ludwig von Mises, _The Free and Prosperous Commonwealth: An Exposition of the Ideas of Classical Liberalism_ Princeton, NJ: Van Nostrand, 1962), trans. Ralph Raico, ed. Arthur Goddard.

William Graham Sumner, “War” and “The Conquest of the United States by Spain,” in _War and Other Essays_ (New Haven: Yale University Press, 1911), ed. Albert G. Keller.

Social conflict and economic class warfare are commonly considered to be endemic to the capitalist system. The antagonisms between black and white, rich and poor, capitalist and worker, appear intractable and impossible to solve. Only state intervention (as in the welfare state) or revolution (to create the “dictatorship of the proletariat”) is believed to be able to reduce or eliminate this class conflict and thus to permit individuals to lead a prosperous and peaceful existence. Such intractable disharmony and conflict between individuals would, on the surface, seem to contradict another of the tenets of Real Liberalism, namely the _harmony of interests_ doctrine. But, as we intend to demonstrate, this contradiction between strife-torn reality and liberal ideals is only apparent.

## Harmony of Interests

The best way to begin unravelling this dilemma is to examine what Real Liberals have meant by the concept of the harmony of interests. No Real Liberal believed that a market system infested with government intervention could possibly be free of social conflict. On the contrary, liberals who addressed the problem of conflict and harmony (in particular Jean-Baptiste Say, Frédéric Bastiat, Richard Cobden, and Ludwig von Mises) were convinced that only in a world where voluntary social and economic interactions remained completely free (i.e., a policy of unrestricted _laissez faire_, _laissez passez_ in the terminology of the Physiocrats) would there be no harmful group conflict. Liberals believed that the market allowed the beneficial results of the harmony of interests to be felt at all levels. As soon as the state intervenes to control voluntary relationships, the natural harmony of the market is destroyed and conflict appears. If allowed to continue uninterrupted, this group and class conflict may gradually worsen until the point of economic stagnation and breakdown is reached. Under certain circumstances the disharmonies created by state intervention may even lead to war and violent revolution.

One could go back to ancient Greek philosophy to find the beginnings of the idea that social interaction produces a harmonious order independent of the intention of the participants. Our brief survey will begin with the Anglo-Dutch physician and social theorist Bernard Mandeville. The importance of Mandeville is that, in the early years of the eighteenth century, he saw that if individuals were able to pursue their self-interest (Mandeville called this “private vice”) the resulting market order would be a harmonious one (what Mandeville called “public benefit”). His writings, especially the delightful essay “The Fable of the Bees” (1714), were considered scandalous by his mercantilist contemporaries because he argued that self-interest could produce a more harmonious social order than the high-minded interventions of politicians or church leaders. In an essay written in 1723 Mandeville made some very suggestive remarks about the greater productiveness of the division of labor and the harmony of the market. His work may well have influenced Adam Smith when he came to write the _Wealth of Nations_ later in the century:

> “The greater the Variety of Trades and Manufactures, the more operose they are, and the more they are divided in many Branches the greater Numbers may be contain’d in a Society without being in one another’s way, and the more easily they may be render’d a Rich, Potent and Flourishing People.”

Bernard Mandeville The early Greek origins of the idea of a harmonious spontaneous order is discussed by Friedrich Hayek in “_Cosmos and Taxis_,” _Law, Legislation and Liberty: A New Statement of the Principles of Justice and Political Economy_. Vol. I: _Rules and Order_ (University of Chicago Press, 1973), pp. 35–54, and “Dr. Bernard Mandeville,” in _New Studies in Philosophy, Politics, Economics and the History of Ideas_ (University of Chicago Press, 1978), pp. 249–66. The extent of Mandeville’s support for _laissez-faire_ is discussed by Jacob Viner, “Introduction to Bernard de Mandeville, A Letter to Dion (1732),” in _The Long View and the Short: Studies in Economic Theory and Policy_ (Glencoe, IL: Free Press, 1958), pp. 332–42; Nathan Rosenberg, “Mandeville and Laissez-Faire,” _Journal of the History of Ideas_ 24, 1963, pp. 183–96; Alfred F. Chalk, “Mandeville’s Fable of the Bees; A Reappraisal,” _Southern Economic Journal_ 33, 1966, pp. 1–16; Albert Schatz, “Bernard de Mandeville (Contribution à l’étude des origines du libéralisme economique),” _Vierteljahrschrift für Sozial-und Wirtschaftsgeschichte_ 1, 1903, pp. 434–80; and Albert Schatz, _L’Individualisme économique et social. Ses origines. Ses évolution. Ses formes contemporaines_ (Paris: Armand Colin, 1907), pp. 61–79. On more general aspects of Mandeville’s thought, see Hector Monro, _The Ambivalence of Bernard Mandeville_ (Oxford: Clarendon Press, 1975); Thomas A. Horne, _The Social Thought of Bernard Mandeville: Virtue and Commerce in Early Eighteenth Century England_ (New York: Columbia University Press, 1978); and H. T. Dickinson, “The Politics of Bernard Mandeville,” in _Mandeville Studies: New Explorations in the Art and Thought of Dr. Bernard Mandeville_ (1670–1733) (The Hague: Martinus Nijhoff, 1975), pp. 80–97.

One of the classic formulations in the nineteenth century of the theory of the harmony of interests can be found in Jean-Baptiste Say’s 1803 _Treatise on Political Economy_ (New York: Augustus M. Kelly, 1964). This work is not only a brilliant economic treatise but also a sophisticated attempt to understand the social order of a free market system. Say was deeply influenced by Adam Smith’s _Wealth of Nations_ and was one of the founders of the theory of industrialism which was more fully developed by his radical libertarian follower Charles Comte, Charles Dunoyer, and Augustin Thierry in the 1810s and 1820s.

## Say

The aspect of Say’s thought that concerns us here is a consequence of his law of markets, an invaluable insight concerning the very nature of the market process. As it is often confusingly interpreted, it simply states that supply creates its own demand. In this crude form Say’s Law cannot stand up to the test of empirical reality. However, when this law is restated in the following way it becomes more comprehensible and meaningful: production, understood as a series of exchanges through time, will create its own demand given a certain amount of price flexibility (i.e., a network of freely adapting relative prices). Only when Say’s Law is understood in this manner does it make sense to talk about supply creating its own demand and markets clearing. Say did not believe that markets would clear if the market system of prices was interfered with. Such interference disturbs the smooth flow of social knowledge contained in a system of changing relative prices. As Friedrich Hayek has shown, prices supply important information which links the knowledge and ability of entrepreneurs to produce with the needs and ability of widely scattered consumers to pay. On the connection between free pricing and the transmission of knowledge, see F.A. Hayek, “Economics and Knowledge,” in _Individualism and Economic Order_ (University of Chicago Press, Midway Reprint, 1980) and Thomas Sowell, _Knowledge and Decisions_ (New York: Basic Books, 1980)

In order to allow the smooth articulation of supply and demand Say called for an economic system of untrammelled _laissez faire_. When state power intervenes to prevent this articulation of supply and demand, the basis is laid for the creation of social conflict and the mismatching of economic and social aspirations with investment and production. Thus Say’s Law is critically important to Real Liberal social theory because it forms the core of the theory of social and economic cooperation and integration via the free market. Out of this integrating function of the market comes the Real Liberal’s conviction that free exchange and production, based on the idea of the harmony of interests of the market’s participants, is the vital prerequisite for peace and prosperity.

## Bastiat

The much maligned French liberal economist, Frédéric Bastiat (1801–50), shared Say’s view that the social and economic interests of _all_ groups, in the absence of intrusions of violence (whether by the state or by private individuals) are compatible and ultimately in basic harmony. The harmony of individual interests and the destructive consequences of state intervention were clearly and wittily set forth in Bastiat’s more popular works, such as the aptly named _Economic Harmonies_ (Princeton, NJ: D. Van Nostrand, 1964), as well as in his political activities with the French Free Trade Association and its weekly paper, _Libre-échange_. In an address to the French Free Trade Association, Bastiat made the opposition between the peaceful order of the market and the violence of state intervention quite explicit.

> “What kind of order can exist in a society where each industry, aided by the law and public force, looks for success in the oppression of all the others…It disturbs the peace between people and breaks the ties which unite them….”
>
> “The State is the great fiction according to which everyone tries to live at the expense of everyone else.”

Frédéric Bastiat Another French liberal, Charles Coquelin, identified the only means whereby peace and order could be maintained. If everyone abjured the use of force and fraud the natural cohesiveness and productivity of the market would operate to everyone’s advantage. This did not mean that individuals had to have identical interests before this coordinating function of the market would begin to function. In fact the opposite was the case. The market works well because of the great differences in individual tastes and needs. The division of labor, the principle of comparative advantage, and Mises’s “Law of Association” (which we have mentioned in a previous issue) mean that the market flourishes best with diversity.

> “All individuals, when they restrict themselves to the limits defined by justice or rights and when they reject the use of force or fraud, contribute to the creation of a common order and even to a common interest, without really being aware of it.” (Coquelin, “Harmonie industrielle,” _Dictionnaire de l’économie politique_, vol. 1, p. 853.)

Bastiat’s economic writings can be found in a modern edition edited by Florin Aftalion: Frédéric Bastiat, _Oeuvres économiques_ (Paris: Presses Universitaires de France, 1983).

Bastiat’s thought and political activity is the subject of a more detailed examination in George C. Roche III, _Frédéric Bastiat: A Man Alone_ (New Rochelle, New York: Arlington House, 1971) and Dean Russell, _Frédéric Bastiat: Ideas and Influence_ (Irvington-on-Hudson, NY: The Foundation for Economic Education, 1969). On the French free trade movement, see Bastiat, _Cobden et la Ligue: ou l’agitation anglaise pour la liberté du commerce_ (Paris: Guillaumin, 1845) and _Paix et liberté, ou le budget républicain_ (Paris: Guillaumin, 1849). Also the many articles in the _Dictionnaire de l’économie politique_, especially A. Clément, “Bastiat” vol. 1, pp. 145–48; Joseph Garnier, “Cobden” vol. 1, pp. 388–89; Gustave de Molinari, “Liberté des échanges” vol. 2, pp. 445–49; Molinari, “Liberté des échanges” vol. 2, pp. 445–49; Molinari, “Liberté du commerce,” vol. 2, pp. 49–63. A guide to the older literature on the history and theory of the nineteenth century free trade movement can be found in Georg Jahn, “Freihandelslehre und Freihandelsbewegung,” _Handwörterbuch der Staatswissenschaften_ (Jena: Gustav Fisher Verlag, 1927), ed. L. Ester et al., vol. 4, pp. 354–71.

## Mill

The dichotomy between free trade and peace on the one hand, and intervention and war on the other, was a central concern of most of the major nineteenth century classical liberals. This thesis is well documented in Edmund Silberner, _The Problem of War in Nineteenth Century Economic Thought_ (Princeton University Press, 1946), trans. Alexander H. Krappe, where the writings of Thomas Malthus, David Ricardo, James Mill, John Ramsay MacCulloch, John Stuart Mill, Jean-Baptiste Say, Frédéric Bastiat, and Gustave de Molinari are discussed. The liberal hostility to war is forcefully shown in the words of James Mill, one of the most radical of the English classical liberal economists:

> “To what baneful quarter, then, are we to look for the cause of the stagnation and misery which appear so general in human affairs? War is the answer. There is no other cause. This is the pestilential wind which blasts the prosperity of nations. This is the devouring fiend which eats up the precious treasure of national economy, the foundation of national improvement, and of national happiness.”

James Mill James Mill was responding to the Napoleonic Wars and some scholars have recently confirmed his view that war diverted wealth from productive pursuits and thereby slowed down industrial expansion. See Jeffrey G. Williamson, “Why Was British Growth So Slow During the Industrial Revolution?” _Journal of Economic History_, 1984, XLIV, 3, pp. 687–712. The wars also prompted many others in England to reassess their attitudes towards warfare as J. E. Cookson shows in _The Friends of Peace: Anti-War Liberalism in England 1793–1815_ (Cambridge University Press, 1982). On the French view of the peaceful nature and consequences of free trade, see the articles by Gustave de Molinari, “Paix-Guerre” and “Paix” (Sociétés et Congrés de la) in _Dictionnaire de l’économie politique_, cited above, vol. 2, pp. 307–15.

## Cobden

There is probably no more important tenet in the Real Liberal doctrine than the causal relationship between the unhampered market system and international free trade, and the peaceful relations among nations which result from it. This linking of peace and free trade is nowhere more clearly stated than in the writings of Richard Cobden, usefully collected in _Political Writings_ (New York: Garland, 1973), 2 volumes, and _Speeches on Questions of Public Policy_, ed. John Bright and J. E. Thorold Rogers (New York: Kraus Reprint, 1970). Richard Cobden and John Bright are best remembered for being the most famous agitators for free trade in nineteenth century England. Cobden was not only a talented businessman, a successful politician, and an organizational genius, but he was also a profound economic and social analyst, a brilliant critic of imperialism, and an indefatigable advocate of free trade. He and John Bright came to public attention during the bitter, but ultimately successful, campaign against the Corn Laws (the agricultural protection tariff) through their brilliant organizational efforts as leaders of the Anti-Corn Law League. In addition, Cobden’s analysis of the beneficiaries of agricultural protection led him to study the power structure which existed in England at the time, a study that has many important insights for libertarian class analysis.

Cobden also directed his attention to questions of foreign policy. His opposition to the expanding British Empire led to insights in the libertarian theory of imperialism. He was also influential in the National Freehold Land Society, which, along with the trade unions of the period, helped raise funds for workers to own real property (a condition for voting in the restricted and corrupt franchise of the time) in order to increase the liberty-oriented voting forces. For more about Cobden’s views on foreign policy, see J. A. Hobson, _Richard Cobden: The International Man_ (New York: Barnes and Noble, 1968).

Cobden’s influence reached both America and France (where he influenced Bastiat and the French Free Trade League) and his name was synonymous with free trade for decades. His rallying cry was “Peace, Retrenchment, and Reform.” By retrenchment Cobden meant that the Empire should be abandoned, an action that he believed would lead to massive cuts in government spending and the ending of sinecures for the powerful landed classes. Cobden believed in a policy of “Little England.” In other words, he and his free trade followers knew that prosperity depended not on the Empire and its military accoutrements, but on making England the “workshop of the world.” This policy called for a dependence on thrift, industry, and above all on international free trade. Cobden’s colleague, John Bright, is well treated by G. M. Trevelyan’s _The Life of John Bright_ (London: Constable, 1913) and the contributions of other members of the so-called Manchester School can be found in _Free Trade and Other Fundamental Doctrines of the Manchester School_, ed. Francis W. Hirst (New York: Augustus M. Kelly, 1968).

## Atkinson

In the United States Cobden’s counterpart in the struggle for Free Trade and against imperialism was Edward Atkinson. This _laissez faire_ businessman was a key figure in the free trade movement and was also a tireless leader of the important Anti-Imperialist League which opposed the Spanish-American War in particular and American imperialism in general. Atkinson’s life and work is covered by Harold F. Williamson, _Edward Atkinson: The Biography of an American Liberal, 1827–1905_ (New York: Arno Press, 1972).

## Sumner

An important ally of Atkinson was William Graham Sumner whose “The Conquest of the United States by Spain” and “The Fallacy of Territorial Extension” in _War and Other Essays_ (New Haven: Yale University Press, 1911) are classic arguments on behalf of free trade and against militarism, imperialism and territorial expansion. In keeping with the Real Liberal tradition, Sumner believed that open borders, a free and industrious population, savings and investment, and international trade make a prosperous society—not the building of military might, standing armies, intervention in other countries’ affairs, and seizure of foreign territory. On the question of free trade, Sumner believed that all intervention by the state amounted to nothing more than direct or indirect expropriation. In Europe, those who expropriated the justly and peacefully acquired wealth of the producers were an alliance of the monarchy, the aristocracy, the military, and the bureaucracy. In America it was the “plutocracy.” See “Liberté des échanges,” in _Nouveau Dictionnaire d’économie Politique_ (Paris: Guillaumin, 1892), ed. Léon Say and Joseph Chailley, vol. 2, pp. 138–66.

Sumner’s solution to the problem of protection and war was

> “I maintain that the way to minimize the dangers to democracy, and from it, is to reduce to the utmost its functions, the number of its officials, the range of its taxing power, the variety of its modes of impinging on the individual, the amounts and range of its expenditures, and, in short, its total weight…”

William Graham Sumner the same as Richard Cobden’s—a massive cutback in the size and functions of the state in order to allow the greatest scope to peaceful industry.

Sumner’s essays are collected in _War and Other Essays_ (New Haven: Yale University Press, 1911), ed. Albert G. Keller; _What the Social Classes Owe To Each Other_ (New Haven: Yale University Press, 1925), ed. Albert G. Keller; and _Essays of William Graham Sumner_, 2 vols., cited above.

## Mises

The classical liberal belief in the natural harmony of the free market found one of its most sophisticated supporters in the great twentieth century Austrian economist, Ludwig von Mises. In one of his earlier political works (1919), after experiencing the catastrophe of the First World War, Mises argues that imperialism and protectionism are the main barriers to eternal peace.

> “He who wants to prepare a lasting peace must, like Bentham, be a free-trader and a democrat and work with decisiveness for the removal of all political rule over colonies by a mother country and fight for the full freedom of movement of persons and goods. Those and no others are the preconditions of eternal peace.” Ludwig von Mises

Mises repeatedly returned to this theme in his later writings, especially in _Socialism: An Economic and Sociological Analysis_ (Indianapolis: Liberty Classics, 1981), where he contrasts the peaceful market with the disruption and warlike tendancies of socialism, and in _The Free and Properous Commonwealth: An Exposition of the Ideas of Classical Liberalism_ (Princeton, NJ: Van Nostrand, 1962), trans. Ralph Raico, ed. Arthur Goddard, where he outlines a pacifist “Liberal Foreign Policy,” pp. 105–154.

Perhaps the most valuable contribution Mises has made to the development of a classical liberal social theory is his analysis of the exact opposite of everything he believed in. Since he lived through a period of history which witnessed the coming to power of socialism and the almost universal acceptance of intervention as a policy tool, it is not surprising that he developed a theory which would explain the nature of these new anti-market societies and the disruptions and disharmonies they created. In _The Clash of Group Interests and Other Essays_ (New York: Center for Libertarian Studies, 1978) Mises shows that not only are social and economic groups harmonious under a system of private property and the free market, but that it is only government action that creates any group conflict. Like James Mill, Richard Cobden, and William Graham Sumner, Mises argues that the state in fact creates classes (he used the term caste), solidifies their existence, and pits those favored with access to state power and privilege against those not so favored.

## Interventionism

Once class begins to disrupt the peaceful operations of the free market a dynamic process is set in motion with leads to further interventions by the state. Mises calls this process “interventionism” and his theory of interventionism is explored in the essay “The Middle of the Road Leads to Socialism,” in _Planning For Freedom_ (South Holland, IL: Libertarian Press, 1962). According to Mises, each intervention in the voluntary and harmonious interactions of market participants leads to unintended, deleterious economic and social consequences, which in turn demand further interventions to “correct” the new problem _ad infinitum_. Mises clearly saw that these interventions would continue until a comprehensive, authoritarian system of control was finally established. Thus, interventionism disrupts the harmony of the market, leading to the command economy or, as Mises termed it, the _Zwangswirtschaft_.

Given the massive state intervention and the resulting conflict and disruption we have witnessed in the twentieth century, Mises’s theory of interventionism is of the utmost importance. With his theory we can understand the social and economic dynamics of government intervention, in particular his insight that government intervention is inherently unstable, requiring more and more controls and regulations in order to overcome the disturbing consequences of previous interventions, and the related contention that only in a fully free market can steady and harmonious economic development take place. We will return to Mises’s theory of interventionism, the antithesis of harmony and prosperous market activity, in part four of “The Basic Tenets of Real Liberalism,” entitled “Interventionism, Social Conflict and War.”

> “Mises’s key insight. . .is: once the state begins to disrupt the peaceful operations of the free market, a dynamic process is set in motion which leads to further interventions. . .”

_David Hart, the editor of the Humane Studies Review, has studied history and political philosophy at Macquarie University in Sydney, Australia; the Johannes Gutenberg Universität in Mainz, West Germany; and Stanford University in California. He is currently working on a PhD in French Liberal Thought at King’s College, Cambridge._

_Walter E. Grinder is Vice President in charge of Academic Affairs at the Institute for Humane Studies and Senior Editor of the Humane Studies Review. He has edited Albert Jay Nock’s essay, Our Enemy the State (New York: Free Life Editions, 1973) and co-authored with John Hagel III, “Toward a Theory of State Capitalism: Ultimate Decision-making and Class Structure,” Journal of Libertarian Studies, 1977, vol. 1, no. 1, pp. 59–79._