Category: Free Society

By Richard Ebeling

Originally published on September 6, 2024 for The Future of Freedom Foundation

Wars, conquest, mass killings, occupation, and plunder have plagued the world for all of recorded history. Primitive tribes fighting over waterholes and hunting grounds. Kings and princes claiming divine right to rule over all those they conquer and impose their violent will upon. Nation-states asserting rights and claims to lands and peoples based on racial, ethnic, linguistic, or cultural assertions of historical or mythical roots over various geographical areas. This is the history of mankind.

Over most of human history, periods of peace have been brief respites between renewed warfare between those possessing political power and the military capacities to initiate and fight them. Wars, conquests, death, and destruction have affected every part of the globe. Economist and historian Thomas Sowell explained in Conquests and Cultures(1999):

At one period of history or another, conquest has encompassed virtually all peoples, either as conquerors or as victims, and the consequences have been far-ranging as well…. Some conquests have been followed by systematic exterminations of the vanquished, as in Rome’s conquest of Carthage. Nor have such draconian policies been limited to major conquerors of historic dimension. The massacres of the Tutsi by the Hutu, and vice versa, in late twentieth century Africa and “ethnic cleansing” in the Balkan wars of the same era clearly show that it does not take a great power to create great human tragedies….

Spontaneous atrocities and deliberate systematic terror have long marked the path of the conqueror. The Mongol hordes who swept across vast reaches of Central Asia, Eastern Europe, and the Middle East cultivated an image of ruthless barbarities, as calculated strategy to demoralize future victims…. Emperor Basil II of the Byzantine Empire in the eleventh century ordered the blinding of 99 of every 100 Bulgarian captives, leaving each 100th man with only one eye to lead the others back home, so to provide graphic evidence of the emperor’s treatment of his enemies….

Twentieth-century conquests have been equally hideous. The Japanese conquest of the Chinese capital of Nanking in 1937 was followed by an orgy of rapes of thousands of women living there, the use of Chinese soldiers and civilians for bayonet practice, and a general wanton slaughter of civilians…. Their allies, the Nazis in Germany, set new lows for brutality and dehumanization, of which the Holocaust against the Jews was only the worst example.

Successes and failures in trying to restrain war

Mankind’s escape from war and violent conflict has been a difficult, discontinuous, and disheartening process. Over the ages, there have been attempts to reduce the frequency or the effects of war. For example, in the eleventh century, the ruin and destruction in parts of France were so severe due to wars between members of the nobility and their paid armies that a group of Catholic bishops declared the Truce of God in 1041, which attempted to forbid armed conflicts from Thursday to Monday. While it remained in force, it raised the cost of conflict, since the nobility had to pay a week of wages to soldiers who could only fight on their behalf two days out of the week.

In the fifteenth century, it became more common for kings and princes to employ professional soldiers, the advantage of which was that their costs of hire only lasted as long as the particular campaigns for which they were being paid. The incentives of both officers and ordinary soldiers hired was to minimize the likelihood of death or injury. As the British historian Thomas Babington Macaulay (1800–1859) argued, “It became left to the conduct of men who neither loved whom they defended nor hated those whom they opposed. Every man came into the field impressed with the knowledge that, in a few days, he might be taking the pay of the power against which he was them employed.” Thus, wars became games of maneuver: advances and retreats, with almost bloodless victories and capitulations, in which the generals of opposing sides sometimes dined together before the next day’s combat. The residents of towns and villages would watch from surrounding hills the war games in the fields below them.

However, for a variety of reasons, greater savagery returned to war in Europe in the sixteenth and seventeenth centuries, with such “rules of war” set aside. Towns were destroyed to the ground, populations were exterminated, and starvation was frequent in combat and surrounding areas. This was especially the case during the Thirty Years War (1618–1648), which combined monarchical political ambitions with the religious fanaticism of the conflict between Catholics and Protestants.

But with the Age of Reason and the Enlightenment in the eighteenth century, the idea of rules of war once again returned. As F. J. P. Veale explained in Advance to Barbarism (1948), it was increasingly frowned upon to act without reason and forethought based on emotion and thoughtlessness. Irrational destruction or thoughtless taking of life seemed inconsistent with the modern “enlightened” understanding of the time. One of the reasons the British officers often so despised the American revolutionaries was that rather than come out in military formation and face their British counterparts like honorable men by the rules of set battles, the colonists would retreat into the forests and shoot the marching British Redcoats from hidden positions. For the British, the Americans were cowards who fought like savages.

The French Revolution and total war

The return to increased brutality and the new notion of “total war” emerged out of the French Revolution. Under the monarchies of Europe, wars were the personal affairs of kings and princes; anyone fighting out of either loyalty or for pay was doing so in the service of one man — he who wore the crown and claimed ownership and personal possession of all lands, livestock, and subjects under his royal authority. This changed with the French Revolution of July 1789 and then with the beheading of Lous XVI, the king of France, in January 1793. When a messenger arrived at the eastern frontier of France to inform the French military forces facing the armies of European monarchs opposing the Revolution that the king was dead, an officer asked, “Then who are we fighting for?” The reply was, “You are fighting for the nation, for the people.”

When the collective nation replaced the single figure of the king, every citizen was seen as obligated to serve and sacrifice for “the common interest of the people as a whole.” It was reflected in the imposition of universal conscription of all the people of France in defense of the Revolution. Said the French revolutionary, Bertrand Barère (1755–1841), in 1794:

Some owe [France] their industry, others their fortune, some their advice, others their arms, all owe her their blood…. The young men will fight; the married men will forge arms, transport baggage and artillery, and provide subsistence; the women will work at the soldiers’ clothing, making tents, and become nurses in the hospitals for the wounded; the children will make lint out of linen; and the old men, again performing the mission they had among the ancients, will be carried to the public squares, there to enflame the courage of the young warriors and propagate the hatred of kings and the unity of the Republic.

Barère added that such forced coercion of all for the national interest included the nationalization of the children of the country: “The principles that ought to guide parents are that children belong to the general family, to the Republic, before they belong to particular families. The spirit of private families must disappear when the great family calls. You are born for the Republic and not for the pride or despotism of families.”

Europe endured 25 years of war from 1792 to 1815, until the final defeat of Napoleon. It represented what was, in fact, the real First World War, given its reach and destruction. British historian Robert Mackenzie (1823–1881) explained in The 19th Century: A History (1882):

At the opening of the Nineteenth Century all Europe was occupied with war. The European people … were withdrawn from the occupations of peace, and maintained at enormous cost, expressly to harm their fellow men. The interests of people withered in the storm; the energies of all nations, the fruits of all industries were poured forth in the effort to destroy. From the utmost North to the shores of the Mediterranean, from the confines of Asia to the Atlantic, men toiled to burn each other’s cities, to waste each other’s fields, to destroy each other’s lives. In some lands there was heard the shout of victory, in some the wail of defeat. In all the lands the ruinous waste of war had produced bitter poverty; grief and fear were in every home…. [The war was] so prolonged that before the close men were fighting in the quarrel who had been unborn when it broke out.

Classical liberalism and individual rights and freedom

With the end to this First World War of 1792 to 1815, new ideas gained hold of people’s minds, ideas that had been germinating beneath the surface of war and destruction. These ideas were those of what we now call classical liberalism and economic liberty. New ideals and appeals for reform and change emerged. First among them, originating in both the American Declaration of Independence in 1776 and the original spirit of the French Revolution in its Declaration of Rights of 1789, was the idea of the natural rights of each and every individual to their life, liberty, and honestly acquired property. Government was to protect and not violate or oppress the rights of the individual under systems of limiting constitutions and unbiased and impartial rule of law.

Resulting from this founding philosophical and political principle came the call for the end to human slavery. All human beings were equal in their universal rights as individuals, regardless of where or who they were. Slavery was the most blatant instance of a violation of the rights and the dignity of the individual human being. Complementary to this was an end to any other inequalities before the law in the form of legal discrimination or bias against anyone due to his religion or ethnicity. One instance of this was the liberation over several decades of European Jews who had long suffered under legal restrictions and economic interventions that prevented Jews from open and impartial participation in social life. All individuals, in other words, should be recognized and protected in their civil liberties of freedom speech and religion and peaceful association, including giving testimony in courts of law even if they were not Christians giving oath on the Bible.

Fundamental to these campaigns for liberty was the case made by classical liberals and the classical economists for freedom of enterprise, commerce, and trade. It was exemplified in Adam Smith’s call for a “system of natural liberty” under which everyone would have the personal freedom to enter into any trade or occupation and peacefully compete for consumer business by offering new, better, and less expense goods and services in free
exchange with their neighbors across the street or around the world. The primary role of government, through domestic police, courts of law, and national defense, was to secure every citizen in their individual rights from the violence and fraud of others.

Restraining conflict and Francis Lieber’s rules of war

One other nineteenth-century classical-liberal campaign was for the end to wars and, when they did occur, to limit their destruction and harm to noncombatants. For instance, British economist James Mill (1773–1836), the father of John Stuart Mill, vehemently argued in his Commerce Defended (1808):

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 national happiness…. In every country, therefore, where industry is free, and where men are secure in the enjoyment of what they acquire, the greatest improvement which the government can possibly receive is a steady and enlightened aversion to war.

One especially notable contribution to this campaign against the cruelty of war was made by the German-American Francis Lieber (1798–1872). Born in Berlin and barely 17, he fought in the Prussian Army against Napoleon in the Battle of Waterloo and was severely wounded on the field of battle. Immigrating to Boston in 1827, he became the first editor of the Encyclopedia Americana in 1829. He taught at the University of South Carolina in Columbia from 1836 to 1856, during which time he wrote several important works on individual liberty and civil government, in particular Manuel of Political Ethics (1838) and Civil Liberty and Self-Government (1853). He taught at Columbia University in New York City from 1856 to 1865, with the title of the first professor of political science in the United States. (See my article “Francis Lieber’s America and the Politics of Today,” Future of Freedom, November 2020.)

During the American Civil War, Lieber was asked by the Lincoln administration to prepare the first modern guidebook for the rules of war, Instructions for the Government of Armies of the United States in the Field (1863). War was a cruel and harsh business in which death and destruction was inescapable for the combating armies and for civilians in the arenas of conflict. But Lieber insisted that in modern civilization, even wars needed to be tamed by rules toward the enemy and civilians caught in the crossfires. Said Lieber:

Military necessity does not admit of cruelty, that is, the infliction of suffering for the sake of suffering or for revenge, nor of maiming or wounding except in fight, nor of torture to extort confessions. It does not admit of poison in any way, nor the wanton devastation of a district … and in general, military necessity does not include any act of hostility which makes the return to peace unnecessarily difficult….

Commanders, whenever admissible, inform the enemy of their intention to bombard a place, so the non-combatants, especially the women and children, may be removed before the bombardment commences….

Public war is a state of armed hostility between sovereign nations or governments…. Nevertheless, as civilization has advanced during the last centuries, so has likewise steadily advanced, especially in war on land, the distinction between the private individual belonging to a hostile country and the hostile country itself, with its men in arms. The principle has been more and more acknowledged that the unarmed citizen is to be spared in person, property, and honor as much as the exigencies of war will permit. Private citizens are no longer murdered, enslaved, or carried off to distant parts, and the inoffensive individual is as little disturbed in his private relations as the commander of the hostile troops can afford to grant in the overruling demands of a vigorous war….

In modern regular wars of the Europeans and their descendants in other portions of the globe, protection of the inoffensive citizen of the hostile country is the rule; privation and disturbance of private relations is the exception…. The law of war imposes many limitations and restrictions on principles of justice, faith, and honor….

Humane treatment even in the midst of war

In his Instructions for the rules of war, Lieber went on to state the ethics and rightfulness of respect for and nonviolation of schools, hospitals, churches, museums, universities, and other institutions of scientific pursuit. He also argued that if a free state was at war with a slave state, then the capture of any slaves should bring about their immediate entitlement “to the rights and privileges of a freeman.” In addition, “all destruction of property not commanded by an authorized officer, all robbery, all pillage or sacking, even after taking a place by main force, all rape, wounding, maiming, or killing of such inhabitants, are prohibited under the penalty of death, or such other severe punishment as may seem adequate for the gravity of the offence.”

After defining the meaning of a belligerent nation and its armed and uniformed military forces in terms of lawful combat and use of force in battle, Lieber also defined the rights of prisoners of war to be protected from cruelty, physical harm, torture, or theft of personal property of most sorts. They are to be fed and clothed and housed in a manner consistent with the circumstances but are not to be deprived of such as an act of revenge or cruelty.

Lieber also designated the meaning and the treatment for escapees, spies, abuses of flags of truce, and a wide variety of other circumstances and actions related to the conditions of war. This included not viewing as belligerent agents all medical doctors, pharmacists, nurses, and those doing charitable work in the fields of combat as long as they were not clearly serving the war ends of the opposing army in their conduct. What stands out is the attempt, guided by the liberal ideas and ideal of the individual separate from the state, and therefore the distinction between soldier and civilian, to minimize the hardships and tragedies of combat, given the inevitabilities of death and destruction once governments go to war with each other.

Underlying Lieber’s rules of war was, again, the liberal idea that the normal and desired condition of man is peace and mutually beneficial intercourse among those who for a time were at war with each other. As he expressed it, “Peace is [the] normal condition; war is the exception. The ultimate object of all modern war is the renewed state of peace.” Hence, the rules of war are seen as having two objectives: to diminish as much as possible the destructiveness and inhumanity of violent conflict and to limit the bitterness and anger in the wake of wars so men may return to the normal state of peaceful association and the mutual benefits of production and trade.

It is not surprising that Lieber was also the author of Essays on Property and Labor (1847) and Notes on the Fallacies of American Protectionism (1870), or that he wrote an introduction for an American translation of Frederic Bastiat’s Sophisms of the Protective Policy (1848). A liberal campaign for humanity even in war was a complement to a case for private enterprise, free competition, freedom of trade, and respect for honestly acquired and applied property and the liberty of human labor.

Francis Lieber’s Instructions for the Government of Armies of the United States in the Field became the inspiration for and the outlines of what later in the nineteenth century became the Hague Conventions on the rules of war, the treatment of prisoners, and the respect for the rights and property of non-combatants, along with restrictions on the means and methods of war on the battlefield. This included his argument for international arbitration of governmental disputes in place of war: “International arbitration, freely resorted to by powerful governments, conscious of their complete independence and self-sustaining sovereignty, is one of the foremost characteristics of advancing civilization — of the substitution of reason, fairness, and submission to justice, for defying power or revengeful irritation,” said Lieber.

The failure of the liberal campaign to end war

The classical-liberal campaign for peace through the ending and mitigating of the effects of war were, unfortunately, not fulfilled in the second half of the nineteenth century. Wars in Europe still occurred, though, admittedly, they were usually short in duration and minimally destructive. What was a dangerous harbinger of things to come were the growing armaments races among the “great powers” of Europe, with every new technological innovation requiring new military expenditures on more and improved instruments of death and destruction. Classical liberals in the latter part of the nineteenth century lamented the costs and warlike spirit behind the expansion of the tools of war. They also criticized their use in the rush for imperialist conquests, especially in Africa.

Tragically, the twentieth century saw the end of the classical-liberal dream and hope of a peaceful world. The First World War (1914–1918) cost the lives of at least 20 million combatants and civilians and the use of poison gases on the Western front by both sides in the conflict. The illiberal ideologies of the interwar period of the 1920s and 1930s resulted in totalitarian systems of planning, the drive for national self-sufficiency through protectionism, and the belief that national prosperity was winnable through war. This culminated, of course, in the Second World War (1939–1945), with an estimated loss of 50 million lives around the globe.

If the horrors of war were not already enough, the American dropping of the atomic bombs on Japan in August 1945 demonstrated the potential of destroying entire national populations in a matter of minutes, with those not immediately killed facing the agonies of radiation poisoning. The world almost crossed this threshold during the Cuban Missile Crisis of 1962, which, fortunately, the United States and the Soviet Union stepped back from.

Now in the twenty-first century, the breakdown of the liberal ideas and partial practices of the rules of war continues. In the new era of drone wars, killing becomes a reality video game, whether practiced by the United States in various corners of the world under the name of “unfortunate collateral damage,” in defense of the American empire, or in the targeting of civilian homes, schools, hospitals and infrastructure to undermine and weaken whole populations, as used by Russia in its war against Ukraine. The humane treatment of prisoners of war and noncombatants disappeared in the blackhole of America’s Guantanamo detention camps during the Afghan war and in the humiliation and torture of captured soldiers inside the prison walls of Abu Ghraib in Iraq. (See my article, “The Dangerous Pursuit of Empire: Russia, China, and the United States,” Future of Freedom, July 2023.)

The liberal ideal of a free and peaceful world without war

Peace, prosperity, and freedom can only be maintained and restored with a return to those ideas and ideals of nineteenth-century classical liberalism — ideas and ideals of individual rights and liberty, respect for private property, and unhampered voluntary and peaceful association of people within countries and across borders around the world. As Austrian economist Ludwig von Mises (1881–1973) explained 70 years ago in Omnipotent Government: The Rise of the Total State and Total War (1944):

Within a world of free trade and [limited] democracy there are no incentives for war and conquest. In such a world it is of no concern whether a nation’s sovereignty stretches over a larger or a smaller territory. Its citizens cannot derive any advantage from the annexation of a province….

In this liberal world, or liberal part of the world, there is private property in the means of production. The working of the market is not hampered by government interference. There are no trade barriers; men can live and work where they want. Frontiers are drawn on the maps, but they do not hinder the migration of men and the shipping of commodities. Natives do not have rights that are denied to aliens. Governments and their servants restrict their activities to the protection of life, health, and property against fraudulent or violent aggression. They do not discriminate against foreigners. The courts are independent and effectively protect everybody against the encroachments of officialdom. Everyone is permitted to say, to write, and to print what he likes. Education is not subject to government interference. Governments are like night-watchmen who the citizens have entrusted with the task of handling the police power….

In such a world it makes no difference where the frontiers of a country are drawn. Nobody has a material interest in enlarging the territory of the state in which he lives; nobody suffers loss if a part of this area is separated from the state. It is also immaterial whether all parts of the state’s territory are in direct geographical connection, or whether they are separated by a piece of land belonging to another state. It is of no economic consequence whether the country has a frontage on the ocean or not. It such a world the people of every village or district could decide by plebiscite to which they wanted to belong. There would be no more wars because there would be no incentive for aggression. War would not pay. Armies and navies would be superfluous. Policemen would suffice for the fight against crime. In such a world the state is not a metaphysical entity but simply the producer of security and peace…. The citizen’s sleep is not disturbed, bombs do not destroy his home, and if somebody knocks at his door late at night it is certainly neither the Gestapo nor the [KGB].

This is the world that all friends of freedom, peace, and prosperity should view as their ideal and their goal, toward which all their efforts should be ultimately directed.

By Richard Ebeling

Originally published on August 7, 2024 for The Future of Freedom Foundation

To discuss the political economy of natural versus contrived inequalities requires some explanation of what is meant by “natural,” “contrived,” and “inequalities.” The use of the word “natural” has had a long, if sometimes controversial, history in economics over the last two and half centuries. When using this term, the French Physiocrats in the eighteenth century meant that along with the physical “natural” order that demonstrated structure, pattern, and forms of self-regulation, the same was discernable in the social world. François Quesnay (1694–1774) who was a physician to the king of France, said that the interdependent self-regulation observable between the organs of the human body had its parallel among the interconnected sectors in the social system of division of labor. This led him to devise his famous Tableau Economique (1758), which every beginning economics student learns in some version in the depiction of the circular flow diagram. For Quesnay and the other Physiocrats, if government does not attempt to interfere with or control the economic system, it will ensure an adaptive coordination far superior to any regulating political hand.

The same idea is seen among the Scottish Moral Philosophers of the second half of the eighteenth century. Adam Smith (1723–1790), for example, spoke of a “natural” order in at least two senses. There is the “system of natural liberty” that “naturally” (spontaneously) takes form when governments perform a set of essential but limited functions, the most important ones being: policing, courts, and national defense. These ensure that each member of the society is secure in his individual rights to life, liberty, and honestly acquired property through voluntary trade with other individuals for mutual benefit.

Natural liberty and the natural price

Given this institutional arrangement, each member of a society can improve his own circumstances in the system of division of labor only by applying his personal knowledge, talents, and the resources under his ownership to producing goods and services that others may be willing to take in exchange for what they desire, because they either cannot manufacture such things themselves or not at a cost as low as their neighbors can. Hence, without central command or control, each individual, as if by an “invisible hand,” will be guided in his own self-interest to serve the ends of others — “society” in general — though it was not his intention and is often far better in its outcome than when someone purposely tries to do good for society. It is most dangerous when the planner has what Hayek called “the fatal conceit” that he is wise and knowledgeable enough to successfully do so. Such an institutional order enables a “natural system of liberty” to exist and function better than when the “man of system” —the social engineer — tries to directly design society and its human patterns.

But Adam Smith and his fellow Scottish philosophers David Hume and Adam Ferguson were also adamant that such a natural system was, itself, an unplanned, evolutionary outgrowth of untold generations of human interactions that generated sustainable institutional arrangements that improved the human condition. Indeed, it was only in retrospect that later generations could turn their inquiring eyes to the past and attempt to trace out and understand the cultural and economic processes that through time resulted in the existing social order, an emerging order that could never be fully understood or significantly imagined by those living centuries earlier, even though their own actions and interactions were slowly helping to bring it about.

The other “natural” element in this economic system, as Adam Smith saw it, was the idea of the “natural” price, which was the price toward which the buying and selling of any commodity would settle in the long run, reflecting the demand for the good on the one hand and the costs of its production on the other. Now, of course, in the eyes of the classical economists, the long-run cost of any particular good was ultimately a reflection of the quantity of labor that had gone into its manufacture. In the short run, fluctuations in the demand for or availability of the good would bring about deviations in that price, but the long-run price is the one around which any short-run movements gravitated.

More generally, the “natural” price was the open, competitive market price established by the existing configurations of supply and demand, and in this sense, both the short-run and long-run prices of marketable goods were “natural.” They were the prices that were chosen in a free competitive market without any direct or noticeable indirect effect of governmental interference with the overall economic processes at work, other than securing those institutional preconditions of safeguarded life, liberty, and honestly acquired property for all members of society.

Natural and contrived scarcities 

The use of the word “contrived” does not seem to have been frequently used by the classical economists in the particular way I am suggesting, though the phenomena was completely known and analyzed by them. That is, government interference with the working of the “natural” competitive forces of the market. I take its use from the British economist William H. Hutt (1899–1988), who made the distinction between “natural” and “contrived” scarcities in a series of articles that he wrote in the 1930s.

Hutt emphasized that at any moment in time and over any given period of time, there are certain “natural” scarcities. That is, given the desired ends and goals individuals would like to attain, there are certain inescapable limits to what extent they may be able to achieve them, since there are only so many available means that are useful and usable for their attainment.

Assuming a completely unhampered, competitive free market, those means will be allocated to their competing uses reflecting the degree of importance those individuals have for the finished consumer goods, as expressed in the prices they are willing to pay on the market for others to supply them. This does not deny that, over time, savings, investment, capital formation, and innovation can successfully increase the quantities of the goods consumers want, thus reducing their absolute and relative scarcities. Nonetheless, the scarcities of the means at any given time in this process limit the abilities to supply what is wanted.

What drives this in a free-market process, Hutt said, is the existence of “consumers’ sovereignty,” a phrase, it seems, that he may have coined or at least greatly popularized in his book Economists and the Public (1936). In their role as consumers, individuals are at liberty to spend their earned incomes in any manner they desire. At the same time, no one may attempt to earn incomes on the supply-side of the market other than by devising ways of producing and offering for sale what others want. Since free-market relationships are based on mutual consent and voluntary exchange, each one in their producer role must direct his activities to try to successfully supply what others desire so they may then reenter the market as consumers to purchase the things they want from some of the very same people they have been serving.

While the total supply of all desired goods and services in their relative amounts are limited by these natural scarcities on a free market, government intervention can bring about situations of contrived scarcities or contrived plentitudes. Government price controls, restrictions, protections, or prohibitions may result in a smaller quantity — a contrived scarcity — of a good or service being available on the market in comparison to the amount that producers and suppliers would have competitively offered if not for government intervention. Or government price controls, subsidies, “bounties,” regulations, or commands may result in a larger quantity — a contrived plentitude — of a good or service being available on the market than would have been the case if not for government intervention.

Either way, both contrived scarcities and contrived plentitudes infringe upon “consumers’ sovereignty,” that is, a pattern of resource use and finished goods different from the relative structure of prices, wages, and production that would have tended to prevail if guided solely or far more consistently with the configuration of consumer demands on a free market. (See my book Austrian Economics and Public Policy [2016], chap. 27.)

Natural inequalities among people

This, now, gets us to the idea of natural and contrived inequalities. Of course, this requires a clarification or defining of what is meant by inequalities among people. Any discussion of this, especially when inescapably brief and inexact as it must be in the context of a short essay, raises a wide variety of controversies and ambiguities. This is particularly the case when it refers to personal, social, economic, or political inequalities and the overlaps that occur between them.

The primary meaning of human inequality may be taken as the most inescapable one: each of us has been born to particular parents from whom we inherit a set of distinct genetic and biological features. Siblings are not interchangeable in spite of the “natural” connection through the same parents; this includes biological twins, each of whom possesses certain distinct characteristics, even if they are not easily distinguishable to the observer’s eye. It has also been discovered that in the study of families that whether a child is first-, second-, or third-born often influences their developmental and personality traits.

These inequalities that may emerge due to which family you have been born in, and when, can be taken as inescapable parts of the “natural order” of things regardless of how much parents and other close relatives try to treat siblings “the same” when they are growing up.

In addition, home environments can greatly differ, with some parents emphasizing reading and studying, while other households give less importance to this in cultivating certain habits and interests in the younger members of the family. But even if books, music, and the arts are part of the home setting, it does not mean that all or even any of the children will be sufficiently inspired to develop certain habits of mind. Many parents who try to do so often end up disappointed and frustrated because of the interests and life-choices their children end up making.

We are also not born into the same political circumstances. Being born and raised in a family in, say, Sudan or Afghanistan or North Korea will often result in a variety of inequalities of situations and outcomes between that individual and someone born and raised in, say, Finland, France, Germany, or the United States. It was a tragic mistake on your part if you had unwisely chosen a parent who was sent to the Gulag in Stalin’s Russia, with you then being marked for life as “a member of the family of an enemy of the people.”

Political equality and individual inequalities

For most of the last 250 years, questions concerning political and economic equality and inequality have consistently dominated discussions, first in the Europe and North America of the eighteenth and nineteenth centuries, and since then virtually everywhere else around the world. Over most of human history, political inequality was taken for granted. From ancient times onward, there were masters and slaves; lords of the manor and those tied to the land he owned; kings with their circle of aristocrats and a much larger number of commoners subservient to them.

The idea of political equality is a relatively new historical phenomenon. The ideas of equality before the law and an equal right to vote by all citizens of a country have become taken for granted only over the last few generations compared to all of human history. With the rise of political democracy, those holding elected political office came to be seen as the agents of and not the master over the citizenry. In the modern Western world, this often arose from a deep Christian faith among many that all of humanity are children of God, made in his image, and all equal in His eyes. No one can read the arguments and pleas of the growing number of advocates of the anti-slavery movement in Great Britain and the abolitionist cause in America in the eighteenth and nineteenth centuries without seeing the religious basis and conviction of many that all men are created equal by their Creator and endowed with a common right to their individual life and liberty. All human beings are the children of God, with distinguishing physical or other characteristics that God bestowed on them, but they remained equal and equally valuable in His eyes.

But while it was taken for granted that each person should have recognized and secured equal rights to life and liberty before the law, there was little presumption that this meant equalities of conditions or outcomes. In America, especially, it was taken for granted that those equal rights provided an equality of opportunity for each person to try his hand in applying his abilities, skills, talents, and experience as he saw fit in the ways he considered best, with no guarantee of success or outcomes similar to any other. Indeed, equal rights were presumed to imply a wide spectrum of unequal social and financial results.

The American experience of equal freedom and unequal outcomes

For instance, the Italian historian and classical liberal Guglielmo Ferrero (1871–1942) traveled widely in the United States in the 1890s and wrote about his impressions of the country, its people, and its open institutions in a chapter of his book Militarism (1899). He did not assert that America was a perfect society, an unblemished Utopia; far from it, and he gave examples to demonstrate these imperfections in American society. Nonetheless, America was a land of freedom and vibrant opportunity for a large majority:

In the United States … the extreme freedom and ease of the individual, not handicapped as we [Europeans] are in changing occupations, habits, social caste, received ideals, and social axioms by a social tradition, become almost sacred; the innumerable opportunities in the midst of such constant material and intellectual change for the association of individual talent and energies; the prodigious rapidity with which these combinations can be formed and dissolved, the frequent return of opportunities brought about by the rapidly revolving wheel of fortune…. These conditions prevailing in America, render it easy to any ordinary intelligent and energetic man to obtain for his work remuneration which errs rather on the side of being beyond than beneath his deserts….

Thanks to the almost complete lack of intellectual protectionism — that is, of academical degrees which ensure the monopoly of certain professions — thanks, in consequence, to the lack of a government curriculum or unprofitable and obligatory studies…. Let him who can do a thing well step forward and do it, no one will question where he learnt it; such is the degree required of an American engineer, barrister, clerk, or employee. And as the opportunities to do well are innumerable, everyone can develop the talents with which Nature has endowed him, changing occupation according to circum-
stances and opportunity.

Natural inequalities in the free market

I suggest that any and all relative incomes earned in such a widely free-market setting, and the differences between them, are examples of “natural inequalities” in remuneration. With legal barriers to entry eliminated in all arenas of employment, investment, and trade, all incomes earned, profits received, and wealth accumulated are based upon freedom of association and mutually agreed-upon terms of trade. Yes, people possess differing characteristics, qualities, and motives, and they all enter the arena of human association with different inherited and acquired abilities, talents, and capacities. But their respective rewards are not due to who their parents were, or what social status they were born into, or where they are from.

The consumers in the marketplace — which means all of our fellow human beings in their economic roles as consumers — judge us by only one essential characteristic: how well we can serve their wants and desires better and more effectively, and less expensively, than others who are also attempting to supply them with what they want as the means of purchasing what those others have for sale in their respective roles as producers.

Our relative incomes and their differences reflect the value and worth consumers place on the services others can render to their well-being, as represented by what they are willing and able to pay for the goods and services they buy. They do this either directly in the form of entrepreneurs who meet the demand for finished goods and services, or indirectly when those entrepreneurs estimate the value of the services individuals in their producer roles can provide in the production process to bring those goods and services to market.

The market reinforces an unprejudiced estimate and appraisement of what we are worth in the eyes of consumers because rarely do the buyers of most goods in the marketplace know anything about the actual individual human beings who have contributed to their manufacture. The person who purchases a suit of clothes, or a pair of shoes, or box of breakfast cereal, or a paint brush to do some home improvements knows little or nothing about those who have participated in the making of the product they have bought. 

Were they male or female? Were they Christian, Jew, Hindu, or atheist? Were they “straight” or “gay?” Were they political conservatives or “progressives?” Were they good, loving parents or deadbeats not paying child support? The anonymity of a complex and global competitive market process reinforces the fact that the natural inequalities of income and wealth have little or nothing to do with anything except the simpler question: who can best serve the consumers?

Government intervention and contrived inequalities

This also leads us to an understanding of what might be considered the “contrived inequalities” in society. Contrived inequalities are the result of political interference with the free, competitive decisions and outcomes of the open marketplace. For most of history, the inequalities of income and social positions have been contrived, that is, not based on an individual’s abilities, talents, skills, and experience in free association and trade with others. They have been based, instead, on political power and plunder. Slavery and serfdom forced most of mankind into positions imposed upon them by coercive powers who threatened physical harm if they refused to do what the ruler demanded of them. Individuals were prevented from rising out of and “above the station in life” assigned to them by those who ruled over them.

The classical-liberal era that began in the eighteenth century and continued into the nineteenth century ended the constraints of many of those contrived inequalities. The repeal of domestic regulations on occupations and enterprises; the removal of many, even if not all, protectionist restrictions on international trade; the abolition of slavery and involuntary servitude; the extension of a greater equality of rights before the law for women, and religious and ethnic minorities; reductions in and less discriminatory taxing systems; all these replaced the contrived inequalities of the past with a political and economic setting in which income-earning differences among individuals and groups in society were due to those natural inequalities among human beings when they are free from political power, plunder, and privilege.

What the twentieth century saw, however, was the return of systems of politically created contrived inequalities with the growth of the interventionist-welfare state. By the 1890s, Italian economist and classical liberal Vilfredo Pareto (1848–1923), writing about his native Italy, had distinguished between two types of socialism: bourgeois socialism and proletarian socialism.

The actual condition of civil society, as it is today, is based not on free competition and respect for private property, but on the intervention of the state. So, the governments of civilized peoples can be defined as bourgeois socialist…. A looser definition could be that socialism wants the intervention of the state to change the distribution of wealth [with socialists] divided into two types: socialists, who through the intervention of the state, wish to change the distribution of income in favor of the less rich [proletarian socialism]; and the others, who, even if they are sometimes not completely conscious of what they are doing, favor the rich [bourgeois socialism].

Or as Frederic Bastiat (1801–1850) called it earlier in the nineteenth century, “legalized plunder.”

Contrived inequalities due to government favors and bureaucracy

The intervention of the state, therefore, is the locus of contrived inequalities. One of the most notorious in the history of economics has been trade protectionism. By imposing import taxes or quota restrictions, the government brings about a higher price for the affected good or commodity than would have been the case under more open and competitive international trade. This brings about greater earned revenues and income for the sheltered domestic producer at the expense of domestic consumers who pay more for a smaller quantity and foreign sellers who otherwise would have received greater revenues and higher incomes from selling more in the protected market.

This, in turn, means that those sectors of the domestic market that would have seen greater export sales due to the greater demand with foreign income earners if they had been able to sell more in the trade protected country have lower incomes than they might have without protectionist policies. Other sectors in the protected country also have contrived increases in their revenues due to the protected manufacturers having higher incomes with which to demand more goods than they would have under freer trade conditions.

The other clear instance of such contrived inequalities is the product of government bureaucracies. Taxation reduces the “natural” relative incomes that private individuals would have earned from free-market transactions in satisfying the demands of others in the marketplace. This contrived reduction in the incomes of these individuals in the private sector means that their standards of living are lowered due to the fact that this government “taking” diminishes the types and the quantities of goods and services they would have purchased if not for the degree of compulsory taxation.

Beneficiaries of contrived inequalities in Washington, D.C.

At the same time, the other side of this process is that the contrived reduction in some people’s incomes from taxation results in the contrived increase in the incomes of those who are employed in government positions of one type or another. It is not too much of an unrealistic assumption to presume that those who apply and accept employment in the government sector do so because such positions in the bureaucratic labyrinth offered net gains in salary and job security than what they thought they could earn in the private sector.

From a relative income perspective, why would they have chosen a government employment and career track if not for the expectation that their private-sector alternatives represented lower opportunity costs than a job in the government? (This sets aside those who might be willing to forego a higher private-sector income because of a personal preference for having the position to run and restrict other people’s lives through the authority of government power.)

But in addition, there is the indirect contrived income inequalities that follow from the taxes extracted and the incomes received by those manning the government’s bureaucracies. One merely has to think about Washington, D.C. Here are apartment complexes generating income for landlords, along with restaurants, cafes, clothing stores, supermarkets and convenience stores, places of nighttime entertainment, and many other business establishments catering to the demands of all the government employees living off other people’s money. All the profits earned and incomes received have raised the income shares of those employed in working for and serving the needs of “the servants of the people.”

If Washington, D.C., were not the national capital of the country, with hundreds of government
bureaus, agencies, and departments employing around 300,000 people in the greater D.C. area (Washington and adjacent Maryland and Virginia), would there be as many businesses located there with comparable incomes earned? The chances are the answer is, No. Hence, many in the greater Washington, D.C., area have higher relative incomes than a good number of them likely would have earned if the federal government were closer to the far more limited functions and smaller size under the original Constitution.

The same logic applies to government taxation and borrowing that enables a redistribution of incomes and wealth away from many in society due to the taxes they pay, and the relatively higher incomes received by others resulting from farm price supports and subsidies for selected businesses and industries, along with defense contractors, many of whom receive anywhere between 50 and 100 percent of their profits and incomes from producing military materiel in the widest sense for the government.

We might add to this the 10,000 registered lobbyists in Washington hired by individuals, businesses, and interest groups to influence legislation in directions favorable for those who employ them. If the federal government did not have the political power and taxing and borrowing authority to spend over

$6 trillion in the current 2024 fiscal year, the relative incomes of many of these lobbyists would likely be lower, along with all those other private-sector recipients of the billions of dollars spent each year due to the lobbying processes.

All of these are examples of contrived inequalities, that is, differences in profits made and incomes earned that are products of government spending, regulating, controlling, restricting, and privileging. If not for this, the social and income inequalities in society would more reflect the “natural” inequalities that come from natural differences between human beings and the market valuations of each and everyone’s worth in directly and indirectly bringing desired goods and services to the market to satisfy the desires of others, based on peaceful, voluntary exchanges that represent agreed-upon mutual gains from trade.

By Richard Ebeling

Originally published on June 18, 2024 for The Future of Freedom Foundation

In 1831, Sir Henry Parnell (1776–1842), a long-time chairman of the Financial Committee of the House of Commons, published On Financial Reform, in which he made the case for freedom of trade at a time when trade protectionism was mostly the order of the day in Great Britain, especially in agriculture:

If once men were allowed to take their own way, they would very soon, to the great advantage of society, undeceive the world of the error of restricting trade, and show that the passage of merchandise from one state to another ought to be as free air and water. Every country should be as a general and common fair for the sale of goods, and the individual or nation which makes the best commodity should find the greatest advantage….

Happily, the time, if not yet arrived, is rapidly approaching, when the desire to reduce the principles of trade to a system of legislative superintendence will be placed in the rank of other gone-by illusions. The removal of obstacles is all that is required of the legislature for the success of trade. It asks nothing from Government but equal protection to all subjects, the discouragement of monopoly, and a fixed standard of money. All that is wanted is to let loose from commercial restriction, protection, and monopoly, the means the country has within itself by force of individual exertion of protecting and promoting its interests, to secure its future career in all kinds of public prosperity.

Sixteen years later, in June 1846, Parnell’s hope came to fulfillment with the unilateral abolition of the Corn Laws that had secured the British landed aristocracy a profitable protection from foreign competition in farming, especially in wheat production. The British prime minister at that time, Sir Robert Peel (1788–1850), had been placed in that office by the Tory Party to assure the continuance of agricultural protectionism against the supporters of free trade. But with the worst crop failures in living memory in 1845–1846, and with growing hardship and threatened starvation among the low-income members of British society, Peel came around to the free-trade position of Richard Cobden (1804–1865) and John Bright (1811–1889). With the support of the free-trade advocates and a sufficient number of Tory members in the House of Commons and the House of Lords, the importation of less expensive foreign wheat and other food products unilaterally became the law of the land on June 26, 1846.

Furious with Robert Peel’s defection, the Tory landowners forced his removal as prime minister. In his last speech before stepping down from his position, Peel declared:

If other countries choose to buy in the dearest market, such an option on their part constitutes no reason why we should not be permitted to buy in the cheapest. I trust the Government … will not resume the policy which they and we have felt most inconvenient, namely the haggling with foreign countries about reciprocal concessions, instead of taking the independent course we believe conducive to our own interests. Let us trust to the influence of public opinion in other countries — let us trust that our example, with the proof of practical benefit we derive from it, will at no remote period ensure the adoption of the principles on which we have acted, rather than defer indefinitely by delay equivalent concessions from other countries.

British unilateral free trade and the beginnings of globalization

Great Britain, thus, became the symbol of a policy of freedom of trade, regardless — indeed, in spite of — any restrictive and protectionist policies maintained or introduced by other countries. Of course, not every tariff was actually reduced to zero or as a modest revenue tariff. But certainly after Britain’s commercial treaty with France in 1860, for all intents and purposes Great Britain practiced what it preached. And soon, a growing number of other European countries followed the British and French examples and lowered their trade barriers.

The idea and ideal of unilateral free trade became the basis of British thinking in the face of any and all proposals for restricting imports in the name of retaliation against the protectionist policies of other countries or waiting for reciprocity before any modification on remaining duties on imported goods. Toward the end of the nineteenth century, its logic was emphasized by Henry Dunning Macleod (1821–1902) in his History of Economics (1896). Trade retaliations and reciprocations merely harmed the citizens of one’s own country far more than they imposed any supposed damage on a protectionist trading partner.

If the present hostile tariffs destroy an incalculable amount of commercial intercourse, a resort to reciprocity and retaliation would destroy it infinitely more…. If foreign nations smite us on one cheek by their hostile tariffs, if we followed the advice of the reciprocitarians, and retaliated, we should simply smite ourselves very hard on the other cheek…. The true way to fight hostile tariffs is by free imports.

As a consequence of these movements toward more universal freedom of trade, the age of globalization truly emerged and encompassed a growing part of the planet. By the end of the nineteenth century, in fact, economists could hail the amazing social, cultural, and economic integration that had occurred — and was occurring — through the internationalizing of commerce, trade, and investment. For instance, the Irish economist Charles Bastable (1855–1945) explained in The Commerce of Nations (1899):

One of the most striking features of modern times is the growth of international relations of ever-increasing complexity and influence. Facilities for communication have brought the closer and more constant intercourse between different countries of the world, leading to many unexpected results. This more intimate connection is reflected in all the different sides of social activity. International law, that two hundred years ago was almost wholly confined to the discussion of war and its effects, now contains a goodly series of chapters treating in detail of the conduct of nations during peace. It draws the bulk of materials from the large and rapidly growing body of treaties that regulate such matters, and form so many fresh links between the states that sign them. Literature, Science and Art have all been similarly affected; their followers are engaged in keenly watching the progress of their favorite pursuits in other countries and are becoming daily more and more sensitive to any new tendency or movement in the remotest nation.

But, as might be expected, it is in the sphere of material relations that the increase in international solidarity has been most decisively marked and can best be followed and appreciated. The barriers that in former ages impeded the free passage of men and of goods from country to country have been — it cannot unfortunately be said removed, but very much diminished; and more particularly during the last fifty years the extraordinary development and improvement of transport agencies both by land and sea have gone far towards obliterating the retarding effects of legislative restraints or national prejudices. So little attention is ordinarily paid to the great permanent forces that govern the changes of societies, in comparison with the interest excited by the uncertain action of minor disturbing causes, that it is eminently desirable to emphasize as strongly as possible the continuous increase of international dealings. In spite of temporary checks and drawbacks, the broad fact stands beyond dispute, that the transfer of human beings from country to country which is known as “migration,” as also similar movement of goods described as “commerce” is not merely expanding, but if periods sufficiently lengthy for fair comparison are taken, expanding at an accelerated rate.

The world was, increasingly, a single market, especially due to the global nature of the British Empire, which served as one, vast free-trade zone. All were more or less welcome to trade, invest, and reside regardless of any individual’s nationality or politics. Following the end of the Napoleonic Wars in 1815, Great Britain and many other European counties did away with the formalities of passports and visas, with the right of freedom to move an increasingly accepted principle in the middle decades of the nineteenth century. It is worth recalling that Karl Marx moved to London in 1849 and lived there for the rest of his life, without any visa requirement or residency or work permits.

The three freedoms of the nineteenth-century globalization

It is true that protectionism was making a return in the 1880s, most especially in Imperial Germany, with Bismarck’s reintroduction of an extensive political paternalism in the form of the institutions of
the modern interventionist-welfare state and tariffs meant to more
directly influence German industrial and agricultural development. Nonetheless, it is not an exaggeration to say that in comparison to the world before the nineteenth century and much that occurred in the twentieth century, the middle and late decades of the 1800s stand out as an epoch of what the German economist Gustav Stolper (1888–1947) in This Age of Fables (1942) called the era of the three freedoms: free movement of men, money, and goods:

The economic and social system of Europe was predicated on a few axiomatic principles. These principles were considered as safe and unshakeable by that age as the average American citizen even today considers his civil liberties embodied in the Bill of Rights. They were free movement for men, for goods, and for money.

Everyone could leave his country when he wanted and travel or migrate wherever he pleased without a passport. The only European country that demanded passports (not even visas!) was Russia, looked askance for her backwardness with an almost contemptuous smile. Who wanted to travel to Russia anyway? The trend of migration was westward — within Europe from the thinly populated agricultural east to the rapidly industrializing center and west, and above all from Europe to the wide-open Americas.

There were still customs barriers on the European continent, it is true. But the vast British Empire was free-trade territory open to all in free competition, and several other European countries, such as the Netherlands, Belgium, Scandinavia, came close to free trade. For a time, the Great Powers on the European continent seemed to veer in the same direction. In the sixties of the nineteenth century the conviction was general that international free trade was the future. The subsequent decades did not quite fulfill that promise. In the late seventies reactionary trends set in. But looking back at the methods and the degree of protectionism built up at that time we are seized with a nostalgic envy. Whether a bit higher or a bit lower, tariffs really never checked the free flow of goods. All they effected was some minor price changes, presumably mirroring some vested interest.

And the most natural of all this was the freedom of movement of money. Year in, year out, billions were invested by the great industrial European Powers in foreign countries, European and non-European…. These billions were regarded as safe investments with attractive yields, desirable for creditors as well as to debtors, with no doubts about the eventual return of both interest and principal. Most of the money flowed into the United States and Canada, a great deal into South America, billions into Russia, hundreds of millions into the Balkan countries, and minor amounts into India and the Far East. The interest paid on these foreign investments became an integral part of the national income of the industrial Powers, protected not only by their political and military might but —  more strongly — by the general unquestioned acceptance of the fundamental capitalist principles: sanctity of treaties, abidance by internal law, and restraint on governments from interference in business.

Globalization before 1914 versus after the world wars

This period before the First World War stands out for two reasons relating to the issue of globalization. First, it was in stark contrast to the world that followed in the 1920s and 1930s. The interwar years saw the rise of political and economic nationalism, along with the emergence of totalitarian regimes that overturned what remained of the prewar era of those three freedoms after the four years of World War I. In their place was a strongly antiglobalization movement, as many governments imposed high tariff walls as part of their systems of domestic control, command, and planning, none of which was in anyway compatible with open and free international trade.

The second reason the globalizing trends before the First World War stand out is that it differed in essential ways from the attempt to restore an international environment conducive to a return to a global economic order of human cooperation after the Second World War. The distinguishing characteristic of nineteenth-century Europe and North America and the globalization that was fostered is that, however inconsistently and imperfectly it might have been practiced, the hundred-year period between 1815 and 1914 can rightly be said to have been the product of the classical-liberal spirit.

The guiding principle that directed much of public policy in most of the countries of the “civilized world” was the depoliticizing of social life. With the triumph of free trade over mercantilism and protectionism in the early and middle decades of the nineteenth century and the elimination of many of the domestic regulations, monopoly privileges, and restraints on private enterprise, the state was dramatically removed from the affairs of everyday life. In its place arose civil society, the blossoming of the “private sector,” an extension of the network of ‘intermediary institutions” of voluntary association and market relationships. As the British classical economist Nassau Senior (1790–1865) expressed it:

The advocate of freedom dwells on the benefit of making full use of our own peculiar advantages of situation, wealth, and skill, and availing ourselves to the utmost of those possessed by our neighbors…. The principle of free trade is non-interference; it is to suffer every man to employ his industry in the manner which he thinks most advantageous, without pretense on the part of the legislature to control or direct his operation.

The liberal ideal of globalization through private enterprise

In especially the second half of the nineteenth century, governments did form international associations and reached various agreements with each other. But for the most part (and separate from various changing political and military alliances), their associations and agreements were designed to facilitate the smooth functioning of private intercourse between citizens and subjects. They included international river commissions, railway and transportation agreements, telegraph and postal unions, health rules and guidelines, procedures for uniform weights and measures, and respect for patents and copyrights. The thinking behind these arrangements was to establish general “rules of the game” to assist in the further globalization of private commercial and cultural exchange.

Within these rules of the game, individuals were to be left free and at liberty to direct their own lives and determine how best they thought the use of their own labor and private property; individuals freely and voluntarily associated and exchanged goods and services, along with investment capital and resource uses. The forms, directions, and effects of globalized trade and investment were matters of individual and private-enterprise decision-making, guided by market prices in determining the coordination of internationally connected and interdependent supplies and demands. It would be an exaggeration to say that governmental “affairs of state” never intruded itself into the private sector, but they were far more the exception than the rule. This was especially the case in Great Britain, as Herbert Feis explained in Europe, the World’s Banker, 1870–1914 (1930):

Like those who carried on industry and trade for their own profit, those who had capital to invest, and those whose business it was to deal in investments claimed the right to carry on their activities without government hinderance and control. Their affairs, they argued, were best run, judged by their own interest and national interest, without government interference. To this laissez-faire argument official opinion subscribed…. Thus, the government attempted no formal regulation of capital investment, except to prevent fraud and to prevent activities judged socially unwholesome…. Save in exceptional instances where some British interest, usually political, seemed to be threatened, there was little wish for formal official interference.

The fundamental premise was that the purpose of production was consumption, that the role of supplies was to meet and satisfy consumer demands in the least costly and most efficient ways, so as to maximize the economic well-being of as many people in society as possible. It was best to leave it to the knowledge and judgments of the individuals in the various corners of the division of labor, who would see to it that the scarce means of production were employed in such ways that a system of absolute and comparative advantage assured the most effective achievement of people’s ends through the employment of means. Not only did this not require the guiding or influencing hand of governments, but as Adam Smith also said, the assigning of any such authority to those in political power, “could be safely trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had the folly and presumption enough to fancy himself fit to exercise it.”

Trade liberalization through managed trade

The policies of the 1920s and 1930s had turned such arguments and reasoning on their head. The state, in both totalitarian and democratic countries, returned to the pre-free-trade notion of the mercantilists that government knew better than all the individuals about how the economic and social affairs of society should be organized and directed. The post–World War II era seemed to be a restoration of a free global international economic order only because in the context of the economic nationalism, protectionism, and autarkic policies advocated and implemented in the interwar and war years, the liberalizing tendencies introduced in the years after 1945 seemed so “liberating” in comparison.

During the Second World War, the Allied countries, led by the United States, decided that a continuation of policies of autarky and economic nationalism would be a disaster. International trade and commerce, global access to raw materials, and the opportunity for foreign investments were essential elements if a new world order was to be constructed. But the new world order that arose out of the ashes of World War II was not like the world order before 1914. Instead, the new globalization was based upon and managed in the context of a set of international governmental organizations. The new system would revolve around three intergovernmental institutions: the World Bank for long-term loans for economic reconstruction; the International Monetary Fund (IMF) for long-term monetary stability through shorter-term loans; and the General Agreement on Tariffs and Trade, out of which has grown the World Trade Organization (WTO), to coordinate trading rules and procedures among the member countries.

Why and how did this new globalization structure come into existence? While proclaiming the belief in free trade and globalized commerce, the world in the postwar period increasingly became enveloped in a spider’s web of welfare-statist programs that required governments to secure redistributive shares of income and market shares for selected and privileged sectors of their respective economies. Given the institutional responsibilities that modern governments took upon themselves in the name of the “social good,” the “national interest,” and the “general welfare,” the state’s use of domestic policy tools to serve special interests feeding at the trough of the government became inevitable.

Those institutions established after 1945 have reflected this ideological, political, and economic trend. Whether it be the IMF, or the World Bank, or the WTO, the purpose has been for governments to oversee, manage and direct the patterns of international trade and investment. The IMF and the World Bank have expanded and extended their activities to more greatly influence the distribution of loanable funds to both governments and private investors, especially in what used to be called Third World, that is, less-developed countries. They have also taken upon themselves the responsibility of tying such loans and credits to guidelines for economic policy reform in the recipient nations.

During their existence, the IMF and World Bank have followed the various interventionist and collectivist fads and fashions that have dominated public policy, whether in developed countries or in the less-developed nations: financial support for nationalized industries or government-privileged “private” enterprises; below-market interest rate loans for loss-making sectors of the economy; billion-dollar credit lines for governments in lesser developed countries; planning schemes to foster politically determined “balanced growth”; and fiscal policies pushing tax increases rather than absolute and consistent cuts in government spending and regulations.

The swings between liberal and illiberal managed trade 

As we saw, in the first several decades of international trade relations after the Second World War, global trade and commerce was noticeably liberalized, with tariff barriers and import restrictions being significantly lowered. Yet this was not the result of an ideology and policy of free trade per se but rather of the particular pattern of politically managed trade agreed upon by the international trading partners. It remained in effect only for as long as the member governments desired to regulate global markets in the direction of freer trade.

However, beginning in the 1970s and 1980s, a different set of ideas about when international trade can be considered “fair” or “just” became dominant. The central problem with an idea like “fair trade” is that it is as empty and ambiguous a term as “social justice” because it can mean almost anything that the user wishes it to. As economist Jaghish Bhagwati pointed out, “If everything becomes a question of fair trade, then ‘managed trade’ will be the outcome, with bureaucrats allocating trade according to what domestic lobbying pressures and foreign political muscle dictate.”

The 1990s saw a partial return to the idea of trade liberalization with the demise of the Soviet Union and the collapse of the socialist central-planning ideal. Socialism-in-practice had brought too much of a social and economic disaster in all the countries burdened with the Marxian ideal, so in China after the death of Chairman Mao in 1976 and then in the Eastern European nations and many of the Third World countries with the end of Soviet socialism, market-oriented institutional reforms introduced more of an economically liberal agenda around the globe.

From illiberal managed trade to a new global central planning

But with the global financial crisis of 2008–2009 and the breaks in the global supply chains due to the national lockdown during the Coronavirus crisis of 2020–2021, new calls were heard for national economic security against similar disruptions of essential resource availability and production capability. This has been exacerbated by the growing political tensions and war fears resulting from Russia’s military aggression in Ukraine and China’s drive for political, economic, and military ascendancy in East Asia and beyond.

Concerns over economic and political conflicts always serve as reasons and rationales for national or regional protectionism against imports and justifications for artificial subsidies and supports for domestic suppliers to provide import substitutions, leading to economic results that are worse than what would be the case if freedom of trade were followed by some or all nations. Humanity is less well off than it could have been.

The most recent danger to global trade and exchange is the reemergence of the central-planning mindset under the name of “stakeholder capitalism,” which is meant to fight climate change and impose a new social order of supposed equity and inclusion. A model for this has been formulated by the World Economic Forum. The intention is to impose a series of controls and commands on every corporation and business enterprise in the world, first through seemingly “voluntary” association but ultimately, as proposed, on the basis of political dictates via national and international governmental authorities. Prices, wages, work conditions, methods of production, and types of output, along with employment quota systems based on racial, ethnic, and gender group classifications and identifications would steer and direct the global economy.

Such a political-economic agenda and the governmental policies to bring it about, if sufficiently or fully pursued could result in a global central planning — regardless of any name officially given to it. It might easily be called Global Fascism — government command and control over private enterprises having little or no real autonomy over their own decision-making.

However, respective national and domestic regulatory, planning, and income-share goals necessarily come into conflict with each other in the arena of international trade, commerce, and investment. Any attempt to coordinate national politics at the international level through a global agenda such as the one proposed by the World Economic Forum would only exacerbate the conflicts due to arguments and dogmas over who gets what share based on a world-wide system of “diversity, equity and inclusion,” plus who will bear the economic costs of “saving the planet,” and by how much in terms of reduced standards of living.

Liberal globalism versus a planned world economy

This is not what was meant by a global economy in the minds of its earlier proponents in the nineteenth century. To the classical liberals of that time, a central purpose for freeing trade from the heavy hand of governments was precisely to take politics out of the marketplace, by making all such interactions private matters of peaceful mutual agreement and association; competition was not to be affairs of political power and military aggrandizement. Global competition in all its forms and facets was meant to be the means and methods for peaceful rivalries in discovering, implementing, and offering more, better, and less expensive goods and services and life opportunities to as many humans as possible. The world was to benefit from everyone’s knowledge, abilities, and talents by precisely leaving individuals at liberty to apply themselves as they thought best through the globalized division of labor and peaceful and productive human association.

These are the two opposing visions and possibilities for globalization in the remainder of the twenty-first century: free trade or managed trade. Only the classical-liberal idea and ideal of free trade is consistent with liberty, peace, and prosperity. Managed trade only offers constant conflicts as governments attempt to bend market outcomes, domestically and internationally, to satisfy power-grabbing visions of planning and regulating promoted by ideologues and special-interest groups desirous of using political power for themselves at the expense of the rest of humankind.

By Richard Ebeling

Originally published on July 25, 2017 for the Foundation for Economic Education

Examples of government control over social and economic life are as old as recorded history, and they always have features that are universal in their perverse effects regardless of time or place. One of the most famous of these collectivist episodes was that of the Incas and their empire in South America.

The Inca Empire emerged out of a small tribe in the Peruvian mountains in the twelfth and thirteenth centuries. Theirs was a military theocracy. The Inca kings rationalized their brutal rule on the basis of a myth that the Sun god, Inti, took pity on the people in those mountains and sent them, his son, and other relatives to teach them how to build homes and how to manufacture rudimentary products of everyday life. The later Inca rulers then claimed that they were the descendants of these divine beings and therefore were ordained to command and control all those who came under their power and authority.

Empire of Conquest and Collectivism

Like most socialist systems throughout history, they combined both privilege and egalitarianism. 

The fourteenth and especially the fifteenth and early sixteenth centuries saw the expansion of the Incas into a great imperial power with control over a territory that ran along the west coast of South America and included much of present-day Peru, Ecuador, Bolivia, Chile, and parts of Argentina and Colombia. The Incas were brought down in the 1530s by the Spanish conquest under the leadership of Francisco Pizarro.

The Inca kings, asserting to be both sons and priests of the Sun god, held mastery of all the people and property in their domains. And like most socialist systems throughout history, they combined both privilege and egalitarianism. When the invading Spaniards entered the Inca capital of Cuzco, they were amazed by the grandeur of the palaces, temples, and homes of the Inca elite, as well as the system of aqueducts and paved roads.  

But having an economy based on slave labor, there were few incentives or profitable gains from advancing technology to raise the productivity of the workforce or reduce the amount of labor needed to perform the tasks of farming and manufacturing. Methods of production were primitively labor-intensive. Thus, the Spaniards, in comparison, were far better equipped to defeat the Incas in war.

The Inca Elite and the “Communism” of the Common People

Inca society was rigidly structured along hierarchical lines of power and privilege. The Incan ruling class, below the Inca Sun-god king, provided the membership for the bureaucratic administrators, the military officer corps, the priests and scholars. Beneath them were the Inca peasants, herdsmen and artisans; they also were used to settle newly conquered lands to assure Incan dominance over the defeated populations.

Below the peasants were the slaves who, according to Inca legend, were originally condemned to death, but out of mercy were reprieved from extermination only to serve as lowly laborers in perpetual bondage.

The Inca rulers imposed a compulsory egalitarianism in virtually all things. In The Socialism Phenomena (1980), the Soviet-era dissident, Igor Shafarevich, (1923-2017) explained:

The complete subjugation of life to the prescriptions of the law and to officialdom led to extraordinary standardization: identical clothing, identical houses, identical roads . . . As a result of this spirit of standardization, anything the least bit different was looked upon as dangerous and hostile, whether it was the birth of twins or the discovery of a strangely shaped rock. Such things were believed to be manifestations of evil forces hostile to society.

To what extent is it possible to call the Inca state socialist?  . . . Socialist principles were clearly expressed in the structure of the Inca state: the almost complete absence of private property, in particular of private land; absence of money and trade; the complete elimination of private initiative from all economic activities; detailed regulation of private life; marriage by official decrees; state distribution of wives and concubines.

The Rigid and Detailed Planning of Everyday Life

An especially detailed description of the nature and workings of the Inca state is found in the classic work, A Socialist Empire: The Incas of Peru(1927), by the French economist and historian Louis Baudin (1887-1964). The Incas ruled through a cruel and pervasive system of command and control. Baudin explained:

Every socialist system must rest upon a powerful bureaucratic administration. In the Inca Empire, as soon as a province was conquered, its population would be organized on a hierarchical basis, and the [imperial] officials would immediately set to work…

They were in general in charge of the preparation of the statistical tables, the requisitioning of the supplies and provisions needed by their group [over whom they ruled] (seeds, staple foods, wool, etc.), the distribution of the production of the products obtained, the solicitation of assistance and relief in case of need, the supervision of the conduct of their inferiors, and the rendering of complete reports and accounts to their superiors. These operations were facilitated by the fact that those under their supervision were obliged to admit them to their homes at any moment, and allow them to inspect everything in their homes, down to the cooking utensils, and even to eat with the doors open…

The Inca bureaucracy cast its net over all it ruled and soon transformed them into docile and obedient subjects through a “slow and gradual absorption of the individual into the state . . . until it brought about the loss of personality. Man was made for the state, and not the state for the man,” Baudin said.

The Incas tried to banish “the two great causes of popular disaffection, poverty and idleness . . . But by the same token, they dried up the two springs of progress, initiative and provident concern for the future.” The Inca government did all the thinking and planning for their subjects, with the result that there was a “stagnation of commerce . . . lack of vitality and the absence of originality in the arts, dogmatism in science, and the rareness of even the simplest inventions.”

An Incan Welfare State

This inertia was fostered through the institutions of the welfare state. “As for the provident concern for the future,” Baudin asked,“ how could that have been developed among a people whose public granaries were crammed with provisions and whose public officials were authorized to distribute them in case of need? There was never a need to think beyond the necessities of the moment.”

In addition, the Inca welfare state undermined the motive for charity and any personal sense of responsibility for family or community:

But what is even more serious is that the substitution of the state for the individual in the economic domain destroyed the spirit of charity. The native Peruvian, expecting the state to do everything, no longer had to concern himself with his fellow man and had to come to his aid only if required by law. The members of a community were compelled to work on the land for the benefit of those who were incapacitated; but when this task had been performed, they were free from all further obligations. They had to help their neighbors if ordered to do so by their chiefs, but they were obliged to do nothing on their own initiative. That is why, by the time of the Spanish conquest, the most elementary humanitarian feelings were in danger of disappearing entirely.

Life was also reduced to a joyless existence of uniformity, security, and order that was imposed and guaranteed by the Inca bureaucracy. Baudin tried to answer the question: Was the average person happy under the rule of the Incan kings?

He labored contently for a master whom he held to be divine. He had only to obey, without going to the trouble of thinking. If his horizon was limited, he was unaware of it, since he knew no other; and if he could not raise himself socially, he in no way suffered on that account, for he did not conceive that such a rise was possible. His life followed its peaceful course, its monotony broken by periodic holiday festivals and by such events as marriages, military service, and compulsory labor service, all in strict accordance with regulations. The Indian had his joys and sorrows at fixed dates. Only illness and death persisted in escaping government regulation. It was a negative kind of happiness, with a few adversities and a few great joys. The empire produced what D’Argenson called the “menagerie of happy men”…

In the Inca state only the members of the ruling class and more especially the chief, could live a full life; outside of him and his family, men were no longer men, but cogs in the economic machine or figures in the official statistics.

It is for this reason that in his own interpretation of the Incas, Igor Shafarevich concluded that, “The Inca state seems to have been one of the fullest incarnations of socialist ideals in human history.”

In our own time, the plague of government control has been no different. The totalitarian collectivist states of the twentieth century certainly matched in intensity and pervasiveness the comprehensively planned society of the ancient Incas. The “democratic” collectivism under which we live in the twenty-first century no less has its marks of similarity.

Political Paternalism Weakens Freedom

Those who man the regulatory agencies in modern society oversee many of our economic affairs. They pry into and then proceed to regulate our personal and family affairs.

They take responsibility for our welfare and our happiness, and try to guard us against all the trials and tribulations of everyday life. They watch over our schooling, care for us when we are ill, find work for us if we are unemployed, and pay us when we are without a job. They are concerned with our mental health, and police what we ingest. They take an interest in the things we read and the amusements and leisure activities we indulge in.

One freedom after another has been incrementally abridged, weakened, and then taken away with the government now responsible for what had previously been the domain of the individual.

But in this, too, the process has been no different from what occurred under the Incas. Louis Baudin pointed out,

The poison [of growing political paternalism] was not given to the Indians in massive doses that would have provoked a reaction, but was administered drop by drop, until it brought about the loss of personality…

And whoever has formed the habit of passive obedience ends by being no longer able to act for himself and comes to love the yoke that is laid upon him. Nothing is easier than to obey a master who is perhaps exacting, but who rules over all the details of life, assures one’s daily bread, and makes it possible to banish all concern from the mind.

In place of a king ruling in the name of a divine Sun god, we have an arrogant intellectual and political “progressive” elite claiming to know what is the “right side of history” to which mankind under their guidance should be moving. In place of privileged Inca princes and priests, fattened at the expense of slaves and obedient Inca commoners, we have networks of special interest groups using the power of political plunder to feed off the productive members of society.

Instead of collectivized land and imposed compulsory work as under the Incas, we have a regulatory spider’s web of controls and commands and prohibitions constraining and dictating how each of us may go about our lives with the private property we supposedly own, but which has been increasingly placed at the discretion of those who administer the interventionist state.

Collective Altruistic Sacrifice Required

The political planners and plunderers of today, like the ancient Inca collectivists of 500 years ago, impose their rule and control through two essential means. As the French classical liberal economist, Yves Guyot (1843-1928), once observed: through “the suppression of private interest as the motive of human actions, and the substitution of altruism” as the rationale for men’s sacrifices and their loss of freedom to be compelled to serve the collective.  

The individual is made to seem small, less consequential compared to the social mass whose imaginary interests come before his.

Many, if not most, modern day “progressives” and “democratic socialists” would, of course, deny any family resemblance to the cruelty, absolutism, and imperialist aggression of the Incas and their collectivist empire. Yet, the essence of the Inca system and the institutional prerequisites for achieving the goals of social engineers remain essentially the same.

They both require the subservience of the individual and his life to the dictates of others who possess the power of coercion to make him bend and obey political authority. They both require the abrogation of an individual’s right to peacefully acquire and employ property and in free market associations with others.

They both require the presumption that the asserted interests of the group, collective or tribe come before and are superior to the purposes and goals of any one individual. The individual is made to seem small, far less than fully consequential in comparison to the social mass whose imaginary interests come before his.

And in both the individual is indoctrinated with the belief that he must sacrifice for that presumed “greater good,” and about which he should feel guilty if he fails to surrender himself to the “general welfare.”

Among the ancient Incas, some were called upon to yield to their own execution as human sacrifices to placate the wishes and demands of the Sun god. In the modern social welfare state, individuals are expected to give up their personal choices to fully live, act, and peacefully interact, while others in military service are sometimes required to sacrifice their lives in the name of the “national interest.”

Fortunately, the human spirit is not as easily and permanently broken as the Incas believed they had succeeded in doing in their empire centuries ago, or the modern collectivists continue to try today. There is something also inside the individual that cherishes self-expression and retains the wish to be free. This inner force, if awakened, assures that liberty will never be completely extinguished.

By Richard Ebeling

Originally published on September 9, 2019 for the American Institute for Economic Research

The fundamental political issue always confronting society is whether human relationships shall be based on free association and voluntary choice, or on governmental compulsion and command. Of course, in most societies there are elements of both, often called the interventionist state or the “mixed economy.” But, nonetheless, the basic institutional alternatives are liberty or coercion. 

This often seems difficult for people to fully appreciate or understand. We select where we live, we accept or not accept a job offering, we decide on the furniture in our home and what (if anything) we will read in terms of books or magazines, or to watch on television. We pick our friends and choose the clubs and associations we want to join. A thousand other everyday choices and decisions reflect our freedom in still much of what we do. 

Political Interference in Market Affairs

Yet, at the same time, we take for granted many aspects and facets of our lives where such decision-making is narrowed or co-opted for us by those in political authority. We are compelled to pay into the government pension system called Social Security; we are taxed to pay for types and degrees of medical and health care that we may or may not desire or consider worth what the government garnishes from our salaries to pay for it before we even see a penny of our earned incomes. 

The government regulates how business is done, under what terms and conditions an employer may hire a worker, what products may be produced and with what qualities, features and characteristics, and sometimes the price at which the good or service may be sold. 

These, too, are taken for granted and presumed to be the appropriate and necessary tasks of government in modern society. Indeed, in many if not most instances, the majority of Americans and the citizens of other countries, as well, don’t or rarely think twice about these roles for the political authority in our daily affairs. In fact, when they are challenged, a good number of people are shocked that it should be even questioned. 

Yet, all these government activities inescapably reduce and restrict our free choices. Think of medical and health care. Increasingly government prevents people from deciding on the health insurance and medical treatment they may receive or purchase on their own. Practically all of the candidates vying for the Democratic Party presidential nomination have said they want to see implemented some form of a “single-payer” system, which, in reality, is socialized medicine under which government centrally plans all medical matters for everyone in society. 

What Of Politically Mandated Euthanasia? 

When friends of freedom raise serious questions about this, including government being handed control over life and death decisions for all of us, in terms of type and duration of medical treatment, they are often scoffed at. Yet, this danger has been warned about for more than a century. In 1916, in the midst of the First World War, a fairly well known British lawyer and classical liberal, E. S. P. Haynes (1877-1949), published a book called The Decline of Liberty in England. He explained how the British government had been encroaching on people’s personal, social and economic freedom in Great Britain for nearly 40 years, and the wartime emergency had merely exacerbated this trend. He wondered how much of all this could or might be reversed once the war was over. 

Haynes reprinted as an appendix a brief article that had appeared in a magazine called, The Free Woman, shortly before the publication of his own book in 1916. The article was on, “Home Life in A.D 2000.” It tells the tale of an old and ill gentleman in the far off future year of 2000, who is waiting for the government to enforce mandatory euthanasia, since government planned and managed medical care dictate treatments and termination of life.  

The gentleman says to his son in this imagined future:

“It really seems a pity that the Medical Control Board won’t let me live a little longer. Of course, there is a good deal of pain for one hour out of the twenty-four, which requires a certain amount of medical attention, but I should not mind paying a little extra for that if the State allowed any doctor or nurse to have a private practice. (However, I daresay I should never have been born under the new Inspection of Parents Act.) The point is that I am quite interested in the morning paper and talking to all of you and seeing a friend sometimes . . . and in old days I could have gone on indefinitely.” 

The son comments that, yes, some are wistful for the “anarchy” of the old days, of around 1900, when people could make those decisions for themselves. But had not his father commented about how excited people were with the Voluntary Euthanasia Act of 1940? The elderly gentleman admits that that is so, “but, of course, it had to become compulsory soon . . .The expenses of the State medical service have been considerably reduced by the power of the Local Board to decide when a patient is not worth further attention.” He then asked his son, “By the way, did you see the official form? Did it give me a week or a fortnight,” before his mandatory termination?

His son read him the official government notice that had arrived:  


“I regret to inform you that my Board have decided to allow you no further medical service after a week from this date, and they are of opinion that you would save yourself and your relations much inconvenience and pain by availing yourself of Section 3 subsection (1) of the Compulsory Euthanasia Act of 1980. Everything can be done at your house, if suitable preparations are made, as our Travelling Euthanasia expert will be in London at that date. You are probably aware that in cases like yours the Board will allow a grant of five pounds towards the cremation expenses, and will accept a preliminary Probate affidavit from yourself for the purpose of assessing death duties. For your guidance I enclose a special form which you must forward within three days to the Inland Revenue Department.”

The old gentlemen tells his son that there was a time when people would have considered such a compulsory ending to human life at the command of the State as against the very idea of a society of free individuals. However, such people who believed in liberty “were all ultimately secluded under the third Mental Deficiency Act,” that is, placed in mental institutions for those with the insane idea that freedom mattered.  

How long ago, he reflects, was that bygone time when people, “swore, drank alcoholic preparations at meals, married without medical permission . . . Why, they actually owned houses and land in perpetuity, and read books which were excluded from the British Museum Catalogue, and wrote quite scurrilously about the Government. Those were indeed turbulent times. Everything was so casual and unforeseen.” 

Finally, the gentleman thinks that he better make sure his will is in order before his mandatory termination, and he mentions to his son that as part of any eulogy, they might mention his important work on legislation relating to the “Better Regulation of Female Underclothing Act,” of which he is clearly very proud. 

British National Health Care Can be an Indirect Euthanasia 

In the first decades of the 20th century, this must have seemed all a fantasyland of “reactionaries” and “anti-social,” old fashioned laissez-faire liberal types. But, in fact, in the years before the First World War, the British government introduced the first legislative elements that eventually became the “single-payer” system under the inspiration of the welfare state already established in Imperial Germany, the very country with which Great Britain was then at war. Britain’s socialized healthcare system only was fully implemented following the Second World War under a socialist government. 

Under the current British system, the government may not order your death after some point due to age or illness, but the stories are notorious concerning the wait times for seriously sick individuals to have access to doctor’s appointments or to the possible treatment that could cure them or at least noticeably prolong their lives. It is merely compulsory euthanasia through indirect means. 

The Friendly Societies Provided Voluntary Social Safety Nets

Throughout the 19th century, a primary means for the provision of what today we call the “social safety nets” was by the private sector outside of government. The British Friendly Societies were mutual assistance associations that emerged to provide death benefits for the wives and children of the breadwinner who had passed away. But they soon offered a wide array of other mutual insurance services, including health care coverage, retirement pension programs, unemployment insurance, savings clubs to purchase a family house, and a variety of others.

A number of scholars who have devoted time to researching the lost history of the Friendly Societies estimate that by the end of the 19th century around two-thirds to three-quarters of the entire British population was covered by one or more of their programs and insurances. The research also discovered that a large majority of the subscribers were in the lower income brackets of the time; precisely because of their more modest financial circumstances, the “working poor” and the lower middle class were very conscious of the need to set aside a certain sum of their limited budgets to anticipate unexpected circumstances, as well as those situations that were inescapable for anyone, such as old age.  

What stands out is that these were all private and voluntary associations and exchanges, in which the government paid little or no role. One part of this system of freedom was charity and philanthropy; that is, the voluntary giving by those better off to assist those who were financially worse off and deserved a helping hand. 

The Generosity of Private Charity was Criticized!

How pervasive was such philanthropy and charity? William Stanley Jevons (1835-1882), one of the leading British economists of the second half of the 19th century, and one of the developers of marginal utility theory, called for the end to private charity and its replacement with a full government system. This was not due to the paucity of private benevolence, but rather due to what he considered its excessive generosity. 

At a meeting of the British Association for the Advancement of Science in September 1870, Jevons criticize the open-handedness of the wealthy and better off in voluntarily helping the poor through various philanthropic endeavors. Private charity was creating a class of permanent poor, he said, which resulted in “the casual paupers [having] their London season and their country season, following the movements of those on whom they feed.” 

The government programs for caring for the poor are “frustrated by the over-abundant charity of private persons, or religious societies.” He even was critical of the over-generosity of the private sector in the voluntary funding of hospitals for the poor and less fortunate. There were so many such charity hospitals, Jevons lamented, that these private medical establishments “compete with each other in offering the freest possible medical aid to all who come.” 

Here was the heart of the problem. Rather than fear that private benevolence would not be enough to assist those unable to fully pay for food or medical treatment, there was too much of it! Jevons prayed, “that we are rapidly approaching the time when the whole of these pernicious charities will be swept away.” Instead, all such charitable matters needed to be shifted to “the supervision of the [government] Poor Law Board,” so bureaucrats could make wiser decisions concerning how much assistance and support the less well off should receive, rather than the uncontrolled generosity of individuals and private associations. 

According to William Stanley Jevons, Great Britain needed more government responsibility for the poor and the unfortunate to bring a halt to the excessive voluntary giving of a free people. Central planning of charity was needed to replace the spontaneous giving of non-governmental civil society. Jevons wanted government imposed welfare austerity, if you will, in place of private philanthropic abundance. So much for the constant hue and cry by those on “the left” that if not for compulsory government welfarism, “the poor” would die in the streets!

Perverse Incentives of the British Poor Law Welfare System

Of course, Great Britain had had a form of the welfare state since the time of Queen Elizabeth I (1533-1603) in the 16th century. But the excessive waste of government redistribution and its perverse incentive effects had become clearly known by the 19th century, and became a point of criticism by the classical liberals of that period, and the basis of their case for reform in the private sector instead, in spite of the type of criticisms made by someone like Jevons. 

For instance, one of the last of the important British classical economists, Henry Fawcett (1833-1884), explained the perverse consequences under the government system of social safety nets in his book, Pauperism: Its Causes and Remedies (1871). Investigations were made in the first half of the 19th century concerning the impact of the Poor Laws, under which taxed wealth was redistributed through the Church of England parishes. 

Fawcett pointed out that illegitimacy was fostered under the government’s welfare state, that government redistribution became viewed as an “entitlement,” and that it created an attitude that taking the money of others through the State was as honest and acceptable as wages earned from a day’s work. Explained Fawcett: 

“Men were virtually told that no amount of recklessness, self-indulgence, or improvidence would in the slightest degree affect their claim to be maintained at other people’s expense. If they married when they had no reasonable chance to being able to maintain a family, they were treated as if they had performed a meritorious act, for the more children they had the greater was the amount of relief obtained. All the most evident teachings of commonsense were completely set to naught . . .

“Population was also fostered by a still more immoral stimulus. A woman obtained from the parish a larger allowance for an illegitimate than for a legitimate child. From one end of the kingdom to the other people were in fact told not only to marry with utter recklessness and let others bear the consequences, but it was also said, especially to the women of the country, the greater is your immorality the greater will be your pecuniary reward. Can it excite surprise that from such a system we should have had handed down to us a vast inheritance of vice and poverty? . . .

“Pauperism often came to be regarded as a paying profession, which was followed by successive generations of the same family.  Thus the Commissioners [of the Poor Laws] tell us of three generations of the same family simultaneously receiving relief . . . The feeling soon became general that pauperism was no disgrace, and that allowance which was obtained from the parish was just as much the rightful property of those who received it, as the wages of ordinary industry. Indolence was directly encouraged, and a spirit of lawlessness and discontent resulted.” 

The Logic and Facts about Welfare Statism Cannot be Denied

Now, a liberal economist such as Henry Fawcett was not a proponent of strict laissez-faire in welfare matters, any more than he was in a number of other government policy issues. But logic and facts were what they are, and could not be wished away. If you pay people not to work, you have more people not working; if you do this long enough a system of intergenerational dependency emerges and recipients used to receiving such redistributed wealth start considering it a “right,” equal to a wage earned from employment in the marketplace. 

Furthermore, if you reward people with larger welfare benefits for having more children including, especially, children out of wedlock, don’t be surprised if those women on welfare become less concerned about the more traditional notions of family responsibility in deciding how many children to have. 

These were some of the consequences that classical liberals in 19th century Great Britain became concerned about, and wished to see alleviated and improved through the private sector alternatives to government compulsion through taxes for redistribution under the older Poor Law system.

Jevons’ Misplaced Concerns and Understandings about Welfare

In response to Jevons’ arguments, we all, no doubt, know parents who are excessively indulgent of their children’s wishes and wants. This sometimes creates an irresponsible attitude on the part of the child that they can and should have anything they want with no thought to the cost or the possibly negative impact on others. A few such children grow up thinking they can get away with murder. 

But this is not generally the case in private households. Even with errors and mistakes along the way, most parents attempt to bring up their children with notions of responsibility and self-supporting habits for their later adult life. It would be absurd and dangerous for the State to declare that it will “plan” the upbringing of children within family households with schedules, detailed procedures, and surveillance of what is going on inside the family all day and night. 

The same is true with private charity and philanthropy by individuals and voluntary associations. First, there is an ethical dimension not really touched upon by Jevons, and that is the morality of those who have honestly earned income and accumulated wealth being considered the rightful owners of it, and who should have the liberty to use and dispose of it as they think fit as a matter of individual right. 

Second, Jevons seemed to be disturbed by the multitude of competing private charities serving the poor in the Great Britain of his time – and, by the way, this was before any notion of a charitable deduction on one’s income tax; it was guided simply by the idea that it was “the right thing to do.” What Jevons missed is that the charitable competition that he considered misplaced wasteful duplication is in fact the very avenue, like all other forms of peaceful rivalry, to discover the best and most efficient means and methods to reach an end or goal in mind. 

And, third, it never seemed to enter Jevons’ mind that those who man and manage government welfare programs are not only as imperfect as the rest of us about how best to assist those in financial and other forms of need, but that those in political power in elected office and in the appointed bureaucracy have their own agendas and purposes that have nothing to do with the stated goals of any government program implemented. 

The self-interests of those administering the government welfare system of that time resisted all change into a less compulsory paternalistic direction.  A leading liberal reformer of the 1830s, Thomas Chalmers, pointed out the resistance to any reduction to government redistributive actions by the administrators of the relevant programs. The proponent of voluntarism, he said, “comes into collision with the prejudices and partialities of those who at present have the right and power of management” of the then-existing Poor Law system. 

That is why it always comes down to that fundamental issue of voluntary choice and free association, including for purposes of social benevolence as well as decision-making in the marketplace, versus, instead, politically imposed force through taxes and compulsory redistribution and regulation of human affairs. 

The tragedy of contemporary politics in America and abroad is that the debates and decisions all concern in what forms and for what purposes compulsion in social and personal affairs will be imposed. Left out of today’s public discourse is the issue that guided classical liberals in the 19th century: should people be free or shall they be coerced to do what others consider to be “the right thing”? 

By Richard Ebeling

Originally published on August 11, 2018 for the Foundation for Economic Education

Liberty is a delicate and easily damaged idea and institution. While people say they want freedom, fight under banners declaring the cause of freedom, and even sometimes die for its desired preservation and advancement, determining what it actually means to be free and to live in a free society seems often to be elusive and controversial.

It is perhaps easier to have a sense of what it means to be free when you are confronted with its clear opposite: tyranny. This was especially the case in the 1930s when freedom seemed to be facing a mortal challenge with the rise of totalitarianism in the various forms of Soviet communism, Italian fascism, and German National Socialism (Nazism).

Totalitarianism Meant the Individual Lost in the Collective

Whether the totalitarian banners had written on them a call to class warfare (communism) or national conflicts (fascism) or racial wars (Nazism), all of them insisted on the end to individual liberty. The individual had neither rights nor areas of life outside of the control and command of the totalitarian state. The interests of the proletarian class or the nation-state or the “master race” came before the individual human being.

How and where you lived; at what you worked and the pay and benefits you might receive; the people with whom you could or had to associate; the books or newspapers you might read;  the media you could consume; places to which you could go for any reason; and the quality of life and its future prospects. All these and many other minute aspects of everyday life were dictated by the totalitarian state in which some people, due to birth or circumstances, found themselves living, and from which escape was often impossible without serious risk to one’s own life.

The Soviet, fascist and Nazi systems all were ruled by one-man dictators.

The Soviet, fascist and Nazi systems all were ruled by one-man dictators—Joseph Stalin in Soviet Russia, Benito Mussolini in fascist Italy, and Adolph Hitler in Nazi Germany—who insisted that they ruled in the name of “the people,” the “nation,” or the “race.” The role of the individual was to follow, obey, and sacrifice for the collective good.

Below the dictators were tightly woven layers of the respective political party structures of the Soviet, fascist, and Nazi regimes. Through them, everything was planned and controlled in the societies over which they ruled. And each had their own secret police, with a knock on anyone’s door by their agents meaning arrest, interrogation, torture, imprisonment, and death.

The Totalitarianism and the Feared Twilight of Liberty

Friends of freedom in the remaining non-totalitarian and democratic countries were horrified by what they saw in these totally collectivized societies. They were truly fearful that the ideal and practice of the free and open society was facing its twilight, with human liberty soon to be extinguished possibly everywhere around the globe.

The following are some of the voices of those friends of freedom from the mid-1930s, to give a sense of how they saw the world in which they lived. The first is William E. Rappard (1883-1858), a distinguished classical liberal Swiss economist and political scientist who was also the director of the Graduate Institute of International Studies in Geneva, Switzerland, from a lecture he delivered in 1934:

“For generations, and in some cases, for centuries, all nations in the orbit of our Western civilization, have, through wars and revolutions, been striving to secure for all their members greater physical and moral security, greater political equality, greater individual freedom… That is, more latitude for the self-expression and self-assertion of the individual in the face of the authority of tradition and the state…

“And such are some of the ideals… through stupidity and cowardice that, sometimes with the blind enthusiasm of mad fanaticism and sometimes with the dull resignation of impotence, [people are] disavowing, renouncing and abandoning. The individual, the family, the local and regional community, everything and everybody are being sacrificed to the State.

“The State itself, once held to be the protector and the servant of the people, is in several countries of our Western civilization being turned into a weapon for oppressing its own citizens and threatening its neighbors, according to the capricious will of one or of a few self-appointed individuals… They are today acclaimed as heroes by hundreds of thousands of European youth, welcomed as saviors by millions of European bourgeois, and accepted as inevitable by tens of millions of European senile cowards of all ages.”

Freedoms Lost with the Totalitarian State

The second voice from the interwar period is that of William Henry Chamberlin (1897-1969), a noted author and international correspondent, who spent eight years in Soviet Russia in the 1920s and early 1930s, followed by reporting from Imperial Japan and Nazi-threatened Western Europe. This is from his 1937 book, Collectivism: A False Utopia:

“BEFORE the [First] World War it would have seemed banal and superfluous to make out a case for human liberty, so far as North America and the greater part of Europe were concerned. Such things as regular elections, freedom of press and speech, security against arbitrary arrest, torture, and execution, were taken for granted in almost all leading countries.

“People could travel freely in foreign lands without worrying overmuch about passports and were not liable to be arrested by the police of one insolvent country if they failed to declare a few bills of the currency of its equally insolvent neighbor at the border. Concentration camps for political recalcitrant and the wholesale conscription of forced labor as a means of getting public works done were unknown.

“The history of the [post World War I] phase in Europe has been one of severe and unbroken defeats for the ideals of democracy and individual liberty. The revolutions of the twentieth century, unlike those of the eighteenth and the nineteenth, have led to the contraction, not to the expansion, of freedom. The two main governmental philosophies that have emerged since the war, fascism and communism, are based, in practice, on the most rigid regimentation of the individual.”

And, finally, as the famous Italian philosopher Benedetto Croce (1866-1952) forlornly lamented in 1932, 

“Impatience with free institutions has led to open or masked dictatorships, and where dictatorships do not exist, the desire for them. Liberty, which before the [First World] War was a faith, or at least a routine acceptance, has now departed from the hearts of men even if it still survives in certain institutions.”

Lessons Still to be Learned: Democracy vs. Liberty

Today, over eighty years after these and many other friends of freedom living through that time wrote such words and expressed those fears, it all seems so far away. They are people long gone, faces in old black and white photos. For many young men and women, that time is just some school classroom video documentaries that as students they had to sit through, which appeared to have little relevance to their lives and circumstances. Just some of that boring history stuff.

But what can still be learned from those now bygone voices? The first is that democracy, by itself, is not freedom. The totalitarian tyrants of the 1930s all proclaimed that theirs were the freest and most democratic societies on earth. “Freedom” was the advancement of the good of the society as a whole. Stalin, Mussolini, and Hitler all insisted that their coercive collectivist means were the most “democratic” methods because they suppressed the narrow, petty, and individual interests of some so the “true” interests of all (“the workers,” “the nation,” “the race”) could triumph for the promised “better world” in the making.

These were sham democracies, with no real freedom, of course. Democratic processes are usually majoritarian procedures for determining how those holding political office will be appointed through elections and for what period of time. It does not say, by itself, what the government will do or for what ends.

Freedom Means the Rights and Autonomy of the Individual

Freedom means the rights, autonomy, and dignity for the individual human being. When William Rappard delivered a series of lectures at the University of Chicago in 1938 on The Crisis of Democracy, he reminded his listeners: 

“What was primary in the eyes of the founders of American independence were the individual rights of equality [before the law] and liberty. Democracy, however important, was but secondary – a necessary means toward an absolute end… Popular government was set up, not so much by reason of any inherent virtues of its own, as because it was deemed necessary to establish and safeguard the fundamental rights of the individual.”

Free societies are those that recognize and respect freedom of speech, freedom of the press, freedom of peaceful and voluntary association and assembly, and freedom of religion. No democratic government should be considered legitimate, Rappard said, that did not arise from the existence and unmolested practice of such freedoms. How can people express their views and values, debate important issues that jointly may matter to them, or organize with others who share their perspectives and interests if these rights are not present and protected?

But more fundamentally than these political prerequisites to effective and functioning democratic systems was the importance of these and related individual rights for the freedom of the individual to live his life as he chooses, selecting his own ends, deciding on the possibly appropriate means to their achievement, and the free association and voluntary exchange between people for their agreed-upon mutual betterment.

As the noted British historian G.P. Gooch (1873-1968) concisely said it in, Dictatorship in Theory and Practice (1935):

“Western civilization in its higher aspects rests on belief of the worth of the individual citizen… The vision of freedom, of the liberation of the human spirit from its primeval bondage, is perhaps the greatest light which has dawned on our horizon… Life, to be worth living, must be a continuous process of self-realization, a fulfillment of the law of one’s being, an unfolding of our aptitudes…

We may say… that the emergence of the individual, the growing recognition of the right to be oneself, is among the main achievements of the modern world. It is this affirmation of personality that has led to universal franchise, to religious equality, to the liberty of the Press, to the freedom of teaching, speculation and research…

This urge of the spirit is frowned on by the totalitarian State… It grips you body and soul, dwarfs your personality, stunts your growth. Its ideal is one party, one pattern, one rhythm, one creed… Dictatorship is [the] cult of violence… For only by violence or the threat of violence can the infinite variety of human types be dragooned into the mechanical unity which the Dictator demands… The totalitarian State stands for force naked and unashamed.”

The Totalitarian Seed in Identity Politics of Race and Gender

If this seems far away from our own times, there are, in fact, petty totalitarians in our midst who, if they were to gain the political power they clearly desire, would result in our facing the same threat that others faced eighty years ago. On many of our college campuses, there has emerged an ideology of identity politics that is no less totalitarian in its premises and its nature.

According to the identity politics ideologues, we are not individuals with our own history, experiences, beliefs, hopes, and dreams to find our own ways to happiness and fulfillment. No, we are a racial group, a gender classification, or a social class, which defines us, determines us, and dictates our place, “privilege,” and prospects in life.

How can there be freedom of speech or freedom of the press when what may be spoken or written must be dictated?

Our minds are to be “re-educated,” our words must be policed, our actions must be under surveillance, so all are made to think one way, have one set of attitudes, and one notion of human associations and identifications. How can there be freedom of speech or freedom of the press when what may be spoken or written must be dictated by and confirmed with what the would-be identity politics dictators of the mind insist upon imposing on all of us?

What freedom of association and exchange can survive when human relationships are, a priori, designated as “privileged” or “unprivileged,” when one’s wealth arising from voluntary and peaceful buying and selling results in you being condemned as an anti-social exploiter or praised as the oppressed victim of economic injustice that may have nothing to do with actual private or political plunder?

But, wait, these are only small, though admittedly vocal and demanding, groups of university professors, emotional and misguided students, and media-charged intellectuals always looking for the latest fashionable political bandwagons to jump on.

They all started as small, often ignored, hardly taken seriously proponents of earlier versions of identity politics. 

Marxist and other socialists all began as small groups of radical dreamers of utopias to come; Italian fascists and German Nazis all began as small groups of nationalists and racists who wanted to make their nation “great again,” or purified of degenerate racial types. They, too, insisted on thinking about and treating all according to who they classified as class exploiter or exploited, or nationalist friend or foe, or racial brother or blood enemy. They all started as small, often ignored, hardly taken seriously proponents of earlier versions of identity politics.

Theirs is, too, a cult of violence, with their call for imposed “safe-spaces,” insisted on censorship of spoken and written words, and demands that those they label as exploiting or “privileged” groups to be expelled, persecuted, and punished. How else can you impose this on others than through private or political use of force?

Meaning of Economic Liberty and Its Totalitarian Rejection

While with a system of identity politics must come an end to personal liberty of thought, word, and action in general, similar tendencies would bring about an end to economic liberty, as well.

What is “economic liberty”? Another friend of freedom in the 1930s, the British economist, Francis W. Hirst (1873-1953), concisely defined it in his book, Economic Freedom and Private Property (1935):

“By economic freedom in a modern State, I mean the right of every individual, under guarantees of equal law and justice, to pursue whatever trade, profession, or calling he likes—as artist, lawyer, journalist, architect, builder, shopkeeper, merchant, manufacturer, farmer, ship owner, etc.; to engage in any lawful employment for wages or profit; to save and invest, and to own property.”

This was the very type of freedom that all the totalitarian systems opposed, and either abolished private enterprise or radically placed it under the control and planning of the government. In the Soviet Union, guided by Marx’s condemnation of private enterprise and the profit-motive, all private property in the means of production was seized and nationalized by the new Communist government, beginning first under Vladimir Lenin and then completed under Joseph Stalin with devastating effect on the lives of tens of millions of people.

Mussolini had government planning of economic activity through the fascist Corporativist State.

In fascist Italy and Nazi Germany, most private property was not widely confiscated, but all private enterprise ended up being made subservient and obedient to the dictates of the totalitarian state. Just as the Soviet Union under Stalin instituted five-year central plans in 1929, Mussolini had government planning of economic activity through the fascist Corporativist State, and after 1936 Hitler’s Nazi planners imposed the four-year central plan on the German economy.

Central planning necessarily meant straight jacketing the actions of all members of society within the dictates of the government’s economic designs. A government central plan requires an overarching hierarchy of values and goals to which all individuals had to submit and fit within. The individual’s preferences are submerged within the political blueprints of the government planners.

Either Individual Plans or One Government Plan Imposed on All

This was a theme focused on by the Austrian economist, Friedrich A. Hayek (1899-1992) in 1939, shortly before the beginning of the Second World War in a monograph on Freedom and the Economic System. In any complex and developed society, he said, there is inescapably a wide diversity and difference of values and desires among all the members of the society.

These variations in people’s purposes and goals are harmonized on a free market through people offering to perform various services and providing numerous goods as the means to peacefully attract others to do things for them. In the free market, each uses the other as means to his own ends: I supply you with the coat you want in trade for the pair of shoes that I desire.

But once a central plan is impressed on all, each is compelled to serve as the economic means to the central planners’ goals and designs. Explained Hayek:

“That comprehensive economic planning, which is regarded as necessary to organize economic activity on more rational and efficient lines, presupposes a much more complete agreement on the relative importance of the different social ends than actually exists, and in consequence, in order to be able to plan, the planning authority must impose upon the people the detailed code of values that is lacking…

Economic planning always involves the sacrifice of some ends in favor of others… The decisions of the planner about the relative importance of conflicting aims necessarily is a decision about the relative merits of different groups and individuals. Planning necessarily becomes planning in favor of some and against others.”

But, again, is this not long ago and far away? This type of comprehensive central planning, about which Hayek was warning, ended with the disappearance of the Soviet Union in the early 1990s. Who calls for such totalitarian planning today, other than in the remaining communist backwaters of North Korea, Cuba, and Venezuela?

Government Intervention as Piecemeal Planning

All forms of government intervention within a market economy are forms of government planning. It is using taxing and regulating power to deflect, change, and redirect the free choices that each of us as individuals would have made if those in political authority had not taxed away a portion of our wealth for reasons having nothing to do with the narrow function of protecting each person’s right to his life, liberty, and honestly acquired property.

Their goal is to modify how people go about their investment and production decisions.

Instead, the government uses its fiscal powers to determine who should be left with less of the wealth they have earned and to whom will some portion of the taxed-away income be redistributed. The same is true with various forms of government regulation. The goal is to modify how people go about their investment and production decisions: what goods and services are marketed, how they go about the producing, where they locate their production facilities, and the methods by which they may market their wares to their prospective customers.

These are forms of partial and overlapping fiscal socialism and regulatory economic planning. When the President of the United States uses his executive authority to impose import taxes on particular goods coming from specific countries, he is trying to plan and influence the types and quantities of goods available to the American public, and the prices they may have to pay to purchase them at home or from one of the foreign sellers. That is, as Hayek said, deciding “in favor of some and against others.”

Extend such fiscal and regulatory intervention in enough directions and with sufficient intrusiveness, and the cumulative effect is the imposing of a network of interconnected government plans, with the loss of economic liberty over these matters over more and more of the society as a whole.

When looked at through the perspective of those friends of freedom of the 1930s who were facing the threat of totalitarian tyranny and all-round central planning, the difference between personal and economic liberty versus government command and control becomes very clear.

But that very clarity, I would suggest, brings into greater relief the nature and dangers from such tyrannical trends as identity-politics tribalism and the losses of freedom through every extension of government control or influence over our individual economic affairs.

By Richard Ebeling

Originally published on June 27, 2023 for The Future of Freedom Foundation

The Congressional Budget Office’s (CBO) February 2023 report, Budget and Economic Outlook, 2023-2033, documents just how serious the fiscal dilemma is facing the United States. In a nutshell, the federal government’s debt is on a dangerous trajectory, future annual budget deficits are huge as far as the eye can see, and the “entitlement programs” — Social Security and Medicare/Medicaid — are heading toward financial unsustainability.

In other words, the chickens are coming home to roost. For decades, the policies of the American interventionist welfare state have been placing the country on a path of economic disaster. Beginning with Franklin D. Roosevelt’s New Deal policies in the 1930s and then reinforced and intensified by Lyndon Johnson’s Great Society agenda in the 1960s, the United States has been on a road of fiscal folly.

From Limited Government to the Expanding State

Throughout the nineteenth century and the early decades of the twentieth century, the U.S. government was relatively small, fairly nonintrusive, and mostly restrained in budgetary matters. The CBO’s Federal Debt: A Primer (2020), contains a diagram showing federal government debt held by the public from 1790 up until early 2020 and then projected to 2030. From the establishment of the federal government under the new U.S. Constitution until the early 1930s, only twice did the government’s debt approach an amount equal to almost 40 percent of Gross Domestic Product (GDP). This occurred during the American Civil War of the 1860s and during America’s participation in the First World War in 1917 and 1918.

Before the Civil War, government debt was practically zero, with the government in Washington, D.C., running balanced budgets or modest budget surpluses to pay off small amounts of debt accumulated during the War of 1812 and the Mexican War of 1846–1848.  Following the end of the Civil War in 1865, the government’s policy was, again, to run balanced budgets or surpluses each year, so that by the beginning of the twentieth century, the national debt was below 10 percent of the GDP of that time.

Government spending and borrowing increased noticeably during the Woodrow Wilson Administration (1913–1921), which included the deficit spending to cover a good part of World War I expenses. But, again, in the 1920s, during the Warren Harding and Calvin Coolidge administrations, budget surpluses reduced the national debt back down to about 20 percent of GDP.

All that changed, however, with the interventionist policies of the Herbert Hoover administration following the stock-market crash in late 1929, and then even more so following Roosevelt’s arrival in the White House in March 1933. Both Hoover and FDR ran large budget deficits in the name of “fighting” the Great Depression through “activist” government spending. The national debt exploded with the government’s expenditures during the Second World War, when it reached about 110 percent of GDP by 1945.

The CBO’s federal debt diagram becomes a bit confusing following World War II, because by the 1960s, the national debt had fallen back to around only 30 percent of GDP. This did not mean that the federal government had stopped its deficit spending and gotten back to balancing its budgetary books. In fact, during the 78 years since the end of the Second World War, the federal budget has had only 12 years of surpluses (in the 1950s and 1990s) and 66 years of budget deficits.

It is just that the budget deficits were modest enough in the 1950s and early 1960s that the national debt grew less than the U.S. economy was growing, as measured by GDP. Though government’s slice of the national economic pie was getting larger each year as an absolute amount, it was growing more slowly than the GDP pie was increasing; hence, the deficits to partly cover this growth in government spending were small and slow enough to result in the national debt becoming a smaller percentage of GDP over most of the 20 years after the Second World War.

LBJ’s Great Society Programs Helped Open the Floodgates

But all this changed with the Great Society programs and the Vietnam War in the second half of the 1960s and the first half of the 1970s. First LBJ and then Richard Nixon were determined to assure the American people both “guns and butter,” that is, growth in domestic government spending and the monies to fund the Vietnam War, with national debt once again growing faster than the increases in annual GDP due to larger budget deficits. It is not too surprising that by the 1970s, Americans saw the highest annualized rates of price inflation as measured by the Consumer Price Index — 11 percent in 1974 and 13.5 percent in 1980 —than had been experienced since the Civil War, more than a century earlier. The Federal Reserve had turned on the monetary spigot to help fund all the deficit spending.

Even during the eight years of the Ronald Reagan Administration in the 1980s, the deficit spending kept pushing up the national debt to well over 45 percent of GDP by the time George H. W. Bush became president in 1989. This was only temporarily reversed when in the mid-1990s a Democrat president, Bill Clinton, under pressure from a Republican-held Congress, declared that the era of big government was over.

This resulted in four years of modest budget surpluses. Some Keynesian economists were deeply frightened at the time, fearing that the national debt actually might be paid off and the Federal Reserve would no longer have U.S. Treasury debt instruments to buy up in the financial markets as a means of creating money in the banking system and the economy as a whole. Oh, the horror! Alas, those Keynesians had nothing to fear. When George W. Bush became president in 2001, the national debt stood at $5.8 trillion. When Barack Obama entered the White House eight years later in 2009, the debt was up to almost $12 trillion. When Obama finished his eight years as president, the national debt had increased to practically $23 trillion. Only four years of Donald Trump as president increased the national debt to over $29.6 trillion. And with less than three years of Joe Biden in the White House, the national debt is way over $31.6 trillion, and growing.

America Facing More Debt and Bankrupt Programs

In the federal government’s 2022 fiscal year (which ended on September 30, 2022), the Biden administration spent more than $6.2 trillion, while taking in $4.9 trillion in tax revenues, leaving a $1.3 trillion budget deficit last year. In its latest Budget and Economic Outlook report, the CBO estimates that 10 years from now, in fiscal year 2033, the federal government will spend around $9.8 trillion, take in $7.1 trillion in tax collections, and have a budget deficit of $2.7 trillion. Over half of that borrowed $2.7 trillion will be used just to pay the interest on the accumulated national debt.

By 2033, due to the annual budget deficits, the national debt will have increased by an additional $20.3 trillion, bringing the total national debt to well over $51 trillion, and still counting! The national debt held by the public will equal nearly 120 percent of GDP.

And it gets worse. In the Congressional Budget Office’s 2022 Long-Term Projection for Social Security (December 2022), the CBO estimated that by 2035, the Social Security Administration (SSA) will not be able to meet all of the agency’s obligations to eligible recipients under current legislation. Since around 2006, Social Security outlays have been greater than Social Security taxes collected from the U.S. labor force. The difference has been made up by the SSA cashing in U.S. government Treasuries that had accumulated on its books during earlier decades when there were Social Security surpluses that were used to fund part of the larger, overall federal deficits.

By around 2034, all of those Treasury securities will have been cashed in. After that point, under current legislation, only monies collected by the SSA from the working population may be used to pay retirees. Benefits would then have to be cut by almost 25 percent. In other words, suppose your Aunt Minnie had been receiving $1,000 a month from SSA. A month will arrive when she opens the mail and finds that her Social Security check is only $750.

Federally funded Medicare and Medicaid and related government health and medical programs face the same fiscal folly. In fiscal year 2022, total federal expenditures on these health-care programs came to $1.6 trillion. In fiscal year 2033, under current eligibility legislation, this spending will have increased to over $3 trillion, or double what it is today.

Overall, total “mandatory” or “entitlement” spending will increase from $4.6 trillion in fiscal year 2022 to around $6.6 trillion in 2033, for an overall increase in these core welfare-state programs by more than 43 percent.

Defense Spending and Foreign Holdings of U.S. Debt

In fiscal year 2022, U.S. defense spending came to $816 billion. Under congressional approval, legislated defense spending in fiscal year 2023 will be around $891 billion. The CBO projects that defense expenditures are likely to be $1.15 trillion in fiscal year 2033, or a nearly 30 percent increase over the next decade.

This, of course, does not include the continuing costs of funding the military expenditures of the Ukrainian government for however long its war continues with Russia. Nor does this contain the higher Defense Department–related spending that might arise if the United States is drawn into a conflict between communist China and Taiwan. This also does not include the possibility of some other foreign interventionist adventures that the Washington global central planners might find it “impossible” to avoid in the name of the “national interest” and the cause of “global democracy.”

As of December 2022, according to the United States Treasury Department and the Federal Reserve, more than $7.3 trillion of the current $31.6 trillion in U.S. government debt is held by lenders abroad. That means that 23 percent of the national debt is held by foreign investors. Japan holds $1.076 trillion, followed by communist China in the amount of $867.1 billion. The European Union countries, together, hold over $1.2 trillion in U.S. Treasuries, with the United Kingdom holding $654.5 billion more. Four of the Persian Gulf-region oil-exporting nations (Saudi Arabia, the United Arab Emirates, Kuwait, and Iraq) hold a combined total of $262 billion of U.S. government debt.

If a global financial crisis or economic panic resulted in any significant amount of this U.S. debt that is held abroad being dumped on the international markets, the fallout, in principle, could be immense.

A Country’s Political History Through its Fiscal Policies

During the First World War, Austrian-born economist Joseph A. Schumpeter (1883-1950) published an essay on “The Crisis of the Tax State” (1918). He said:

The public finances are one of the best starting points for an investigation of society, especially though not exclusively of its political life…. The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare — all this and more is written in its fiscal history, stripped of all phrases. He who knows how to listen to its message here discerns the thunder of world history more clearly than anywhere else….

[T]he budget is the skeleton of the state stripped of all misleading ideologies…. An enormous influence on the fate of nations emanates from the economic bleeding which the needs of the state necessitates, and from the use to which its results are put.

For more than 100 years, America has been moving in a direction away from the spirit of individual liberty, self-responsibility, and freedom of choice inside and outside of the marketplace, including freedom of association in, especially, the economic affairs of everyday life. When this set of ideas still prevailed among a large majority of the people of the United States during most of the nineteenth century, government, by logical extension, had limited duties in the affairs of almost everyone. Government’s role was, primarily, to enforce a legal system premised on the principle of every person’s right to their life, liberty, and honestly acquired property.

Of course, in reality, even during the heyday of nineteenth-century laissez-faire, government did more than this, especially at the local and state levels, though already the federal government was providing various privileges, favors, protections, and subsidies to special interests in association with those in positions of political authority. It is only in comparison with the huge interventionist-welfare state of our own time that the nineteenth century seems so free from the intrusive hand of the state.

Many were the successful attempts to abridge freedom of speech and the press, freedom of movement, and freedom of association and trade in parts of the United States in the decades before the Civil War, particularly when it involved the proslavery mobs wanting to suppress abolitionist voices calling for the end to the human bondage prevailing in the southern states. Even murder would be given a blind eye by judges and juries when it came to acquitting those who killed advocates of freedom. Even after slavery had ended, evil men used the state to enforce segregation laws restricting or prohibiting the freedom of association between people simply due to the color of their skin.

However corrupted the reality of the American experience may have been compared to the ideals expressed in the Declaration of Independence and instituted in the Constitution, it nevertheless remained the case that throughout most people’s everyday life, government was hardly present and left people pretty much alone to guide and manage their own affairs as they thought best in voluntary associations with their neighbors and market partners around the corner or half way around the world.

Self-Responsible People Means Limited Government

When the first edition of The World Almanac was published in 1868, the offices and departments of the federal government covered only one page in the entire volume! It listed the president, the vice-president, a handful of executive cabinet positions, and the ambassadors representing the United States in various foreign countries. The government debt in 1868 came to a bit more than $2.6 billion (less than $80 billion in inflation-adjusted 2023 dollars).

However, over the next several decades, political currents began to change. This was seen and warned about by those still dedicated to the idea and ideal of liberty.

For instance, in 1887, J. Laurence Laughlin, who founded the economics department at the University of Chicago, compared the American philosophy of individual freedom with the growing European philosophy of political paternalism in his Elements of Political Economy:

Socialism, or reliance on the State for help, stands in antagonism to self-help, or the activity of the individual. The body of people certainly is the strongest and happiest in which each person is thinking for himself, is independent, self-respecting, self-confident, self-controlled, self-mastered. Whenever a man does a thing for himself he values it infinitely more than if it is done for him, and he is a better man for having done it…. The man who hews out his own path gains power by so doing, and becomes self-reliant, sagacious, foresighted, and ready for further advance…. He knows that two and two make four….

If, on the other hand, men constantly hear it said that they are oppressed and down-trodden, deprived of their own, ground down by the rich, and that the State will set all things right for them in due time, what other effect can that teaching have on the character and energy of the ignorant than the complete destruction of self-help? They begin to think that they can have commodities which they have not helped to produce. They begin to believe that two and two make five. It is for this reason that socialistic teaching strikes at the root of individuality and independent character, and lowers the self-respect of men who ought to be taught self-reliance….

The danger of enervating results flowing from dependence on the State for help should cause us to restrict the interference of legislation as far as possible…. The right policy is matter of supreme importance, and we should not like to see in our country the system of interference as exhibited in the paternal theory of government existing in France and Germany.

The dangers about which J. Laurence Laughlin wished to warn only continued to grow in the last decades of the nineteenth century and throughout the twentieth century.

Incremental Interventionism Has Led to Big Government

It was easy for many to ignore or discount these dangers. Let’s not take the principle of liberty to an extreme. Are there not some in society who need the helping hand of government to overcome the misfortunes of life? Are there not people who abuse their wealth and economic position in society at the expense of the ordinary “little guy?” Of course, let’s have private enterprise, but let it be “socially aware” private enterprise under “reasonable” government regulations and redistributions of income and wealth. Surely, there is a “balance” between personal liberty in all things and partial paternalism to smooth out the rough edges of laissez-faire.

It has been the appeal and apparent plausibility of incremental intervention and redistribution that has created, decades later, the reality of the current giant governmental machine that oversees, controls, regulates, restricts, insists, dictates, and determines so many aspects of our personal, social, and economic life. Once this paternalist philosophy of man and government gains hold it makes nearly inevitable the expanding size and scope of political involvement in society that we see today.

The more government is expected to do, the more it must siphon off the income and resources owned by and belonging to private individuals to apply them to the growing number of “social purposes” assigned to those in political authority. It may seem a long and complex train of events, ideas, and polices that lead from J. Laurence Laughlin’s fears of European paternalism taking hold in the America of the 1880s to President Biden in 2023 insisting that come hell or high water, there will be no cuts in entitlement programs because they are part of what makes modern America. But the path that America has followed has led from there to here.

Welfare States Have No Limits and Swallow Up Society

Part of the reason is that there are no natural checks or limits on the interventionist welfare state once it has taken root and has come to be politically and culturally accepted as “necessary” and “inescapable” in a modern society. This was emphasized by the German free-market economist Wilhelm Röpke (1899–1966) in A Humane Economy: The Social Framework of the Free Market (1958):

The dangers of the welfare state are the more serious because there is nothing in its nature to limit it from within. On the contrary, it has the opposite and very vigorous tendency to go on expanding…. By its continuous expansion, the welfare state tries to cover more and more uncertainties of life and ever wider circles of the population, but it also tends to increase its burdens; and the reason why this is so dangerous is that while expansion is easy and tempting, any repeal of a measure later recognized as hasty is difficult and ultimately politically unfeasible….

The welfare state not only lacks automatic brakes and not only gathers impetus as it moves along, it also moves along a one-way street in which it is, to all intents and purposes, impossible, or, at any rate, exceedingly difficult to turn back. What is more, this road undoubtedly leads to a situation where the center of gravity of society shifts upward, away from genuine communities, small, human, and warm, to the center of impersonal public administration and the impersonal mass organizations flanking it. This implies growing centralization of decision and responsibility and growing collectivization of the individual’s welfare and design for life.

In a small companion volume, Welfare, Freedom, and Inflation (1964), Röpke pointed out that the growing dependency of more and more people on the welfare state is the opposite of what should be wanted in a free society: self-supporting and self-responsible citizens, rather than wards of the state:

It is all too often forgotten that anyone who is serious about human dignity should measure progress less by what the State does for the masses than by the degree to which the masses can themselves solve the problem of their rainy days out of their own resources and on their own responsibility. This, and only this, is worthy of free and grown-up persons, certainly not constant reliance on the State for assistance which … can, in the last analysis, come only out of the pockets of the taxpayers themselves or from an enforced restriction in the standard of living of those whom inflation really hits. Alternatively, is it really progress if we classify more and more people as economic wards to be looked after by that colossal guardian, “The State”?…

Would it not be much more progressive if more and more members of the broad masses were permitted to reach the status of economic “grown-ups,” thanks to rising income resulting from their own labor?… The yardstick of our accomplishment will be how far we succeed in widening the field of individual provision and mutual assistance … and not the least of our achievements will be out triumph over the very real danger that man may be reduced to the status of an obedient domesticated animal in the State’s big stables, crammed together with other similar animals … fed by the [political] patron.

Only Belief in Liberty and Radical Repeal Can End the Fiscal Crisis

At the end of the day, the only way the hazardous road of welfare-statist fiscal folly can be exited is a radical end to the very rationales and institutions upon which the paternalist state now exists. It may be replied that this is too extreme. Instead it is believed that we must find a way to cut down the interventionist welfare state, to introduce a series of compromise measures that avoid the fiscal disaster America is moving toward with its unending deficits and mounting national debt, on top of burdensome levels of taxation that undermine the incentives and abilities for work, saving, and investment.

But, in reality, there can be no halfway houses, some middle-way between a fully free market society and political paternalism. If the institutions are left in place, then once the fiscal crisis atmosphere subsides, the same policies and the same ideas behind them will pick up where they had left off, and the fiscal rollercoaster will begin its ride again. Only by abolishing the government departments, bureaus, and agencies through which the system of political paternalism operates, and only by releasing all those employed in these parts of the government to find “honest work” in the private sector, can the paternalist danger be finally removed.

Accompanying this, or, indeed, preceding it, must be a radical change in ideas about the meaning and importance of personal liberty, truly limited government, and the value and essentialness of open, competitive, free markets, along with the voluntary institutions of civil society through which “social problems” may find their “solutions” without the power and coercion of the state.

This is, of course, no easy task. It requires determination, articulation, persuasiveness, and, most importantly, courage in the face of others and their arguments against the restoring and refinement of the classical-liberal society of free human beings. But if America is to be saved from the fiscal disaster toward which it is clearly heading, there is no other way.

By Richard Ebeling

Originally published on January 6, 2020 for the American Institute for Economic Research

In the midst of the Second World War, the famous Austrian-born economist Joseph A. Schumpeter (1883-1950), published his famous book, Capitalism, Socialism, and Democracy (1942). He asked the question, “Can Capitalism Survive?” He answered, “No.” He expected some form of socialism, dictatorial or “democratic,” to supersede the private market economy in postwar America. He was proven wrong. Postwar American capitalism may have been increasingly regulated and interfered with by the government, but it was not replaced by socialist central planning. 

Today, the media and a variety of more serious public policy publications are awash in articles and essays insisting that the postwar “neoliberal” era has finally and inescapably come to an end, with a far more “progressive” and socialist system the way of the future. Planetary problems and domestic income inequalities and other social injustices require and demand nothing less than the more direct and guiding hand of government over social and economic affairs for the betterment of humankind, it is argued. “Liberalism” and relatively competitive markets have had their day, its critics insist.

Most of these criticisms and challenges have come from “progressives,” the new “democratic” socialists, and a growing number in the Democratic Party, as well as in the academic community. But criticisms and rejection of domestic and international liberalism have also come from conservatives, who have called for a “new nationalism,” that would require a more “activist” state to serve national interests and identity, and to which the citizen of the nation-state must conform and offer allegiance.

There has also been a number of those who have come around to rejecting classical liberalism and libertarianism, who previously considered themselves to be proponents of these views. They have insisted that classical liberal and libertarian ideas are not in tune with the social problems and “progressive” trends that are inescapably part of the modern world.

Claiming that Classical Liberalism is a Spent Force

Now another voice has offered his view on whether or not classical liberalism and libertarianism can survive in their historical forms of defending individual liberty, free markets, and a government primarily limited to the protecting of people’s individual rights to life, liberty and honestly acquired property without interventionist regulation and compulsory redistribution. And his answer, too, is, “No.”

Tyler Cowen is a prominent professor of economics at George Mason University in Virginia. He has written a number of insightful books devoted to aspects of the economics and culture of a free society, and has written regular columns for both The New York Times and Bloomberg News. He also co-authors the provocative and widely read blogsite, “Marginal Revolution.”

Professor Cowen rang in the 2020 New Year with a blog contribution on, “What Libertarianism Has Become and Will Become – State Capacity Libertarianism.” The gist of his argument is that classical liberalism and libertarianism are out-of-date and passé political philosophies that had their relevance and significance in the 19^th century for advancing the cause of personal liberty and freer markets, and during the first half of the 20^th century as an argument against radical socialist central planning. But society and its problems have moved on and what people want from their government has become more expansive. 

Insisting that the Welfare State is Here to Stay

He expressed part of this argument in an earlier essay on “The Paradox of Libertarianism” before the financial crisis of 2008-2009, in which he said: “The bottom line is this: human beings have deeply rooted impulses to take newly acquired wealth and spend some of it on more government and especially on transfer payments. Let’s deal with that.” Furthermore, “The more wealth we have, the more government we can afford.” He concludes that this is a “package deal.” The more wealth a market-based economy produces, the more government people will want in terms of social welfare programs. That’s just the way it is, Professor Cowen asserts. Live with it and give up the classical liberal and libertarian idea of prosperity and a highly limited government. With prosperity will come bigger government, he asserts. 

The “inevitability” implied in this is, in fact, nothing of the sort. It could be just as reasonably argued that as the members of the society grow in wealth and improved standards of living, they will need and desire less government dependency and support. Rising standards of living enable more people to financially support themselves, as well as providing the means for those gaining in material comfort and ease to have the monetary means to demonstrate more willingness and generosity to assist some who may still be less well off than themselves through avenues of private charity and philanthropy; plus, having the greater leisure time to participate in such endeavors through the institutions of civil society.  

Why any such spirit of private giving and benevolence has diminished in fairly wealthy countries in Europe and in various circles in the United States may be taken as the consequences resulting from governmental redistributive largess and an ideology that has weakened the belief in or the goodness of “self-reliance” and personal responsibility. Ten years ago, the German news magazine “Der Spiegel,” reported that in a survey of leading businessmen in Germany, the vast majority said that private giving was not their responsibility; it was the job of government and its bureaucratic “experts.”  Where did that come from, other than an ideological and intellectual culture that presumes and persuades too many in society that political paternalism is superior to personal responsibility and the voluntary private sector.

Chronological Sequence Does Not Imply Causal Necessity 

It is very easy to see a “trend” in the past and presume that it is inevitable or irreversible. Back in 1968, in reviewing a variety of forecasts and predictions of what the year 2000 was likely to be like, conservative sociologist Robert Nisbet (1913-1996), pointed out that it is easy to fall into the trap that what has chronologically happened in the observed past implies what must continue in the future: 

“We are confusing continuity of chronology with continuity of circumstance and event. We are mistaking our metaphoric reconstructions of the past, by which we assuage the pain of need for temporal order, for causal connection . . .  

“Nothing, I assume, could seem more certain to the individual for whom reality consists of the hard data of atoms, molecules, reflexes, social-security numbers, and the like than that absolute knowledge of the hard data of the present should yield – properly processed in the machines – knowledge of the future. But it won’t and it never will. And the reason, I repeat, is that the present does not contain the future, the far is not to be found in the near, nor was our present ever contained in the past. Not if what we are concerned with is change . . .

“A trend, the dictionary tells us, is the general direction taken by a stream, a shoreline, etc.; it is an underlying or prevailing tendency or inclination. These are all tempting words for the historian or predicter of societal development. How easy it is, as we look back over the past – that is, of course, the ‘past’ that has been selected for us by historians and social scientists – to see in it trends and tendencies that appear to possess the iron necessity and clear directionality of growth in a plant or organism. 

“We think of these ‘trends’ as cumulative movements, as genetic sequences, as actually causal. We forget that they are, one and all, a posteriori constructs, frequently metaphoric in character, always post hoc, propter hoc. But the relation among past, present, and future is chronological, not causal.” 

Nisbet especially emphasized all this is the case in the arena of man and society, because something is at work here that is not present in the world of atoms and molecules, that being human ideas and purposes.

Faulty Reasoning at Work, Not Propensities for More Government

Why do so many people accept the notion that imposing and raising legal minimum wages are good for people at the lower income levels? Do they have some inexplicable “propensity” to demand higher wages for others through government mandate as their own economic circumstances improve? I think the more reasonable explanation is a failure to understand and appreciate all the implications of the logic and reality of supply and demand in labor markets. That is, it is the result of wrong and faulty ideas that are sometimes easier to impress upon people than the often abstract and indirect chains of causation through which market processes operate, including in the demand for labor. 

So, if we observe that as wealth and material betterment have improved in our society, people at the same time have been supporting increases in redistributive welfare programs, the more rational explanation is an educational, cultural and intellectual setting in which academics and opinion makers and writers have been successful in influencing the climate of ideas in socialist and welfare statist directions through their ability to interpret the past and the present through the prism of their collectivist ideas.

Friedrich A. Hayek (1899-1992) once pointed out, in his introduction to Capitalism and the Historians (1954), the underestimated power of historians in society in shaping public opinion by the interpretive schemas they give to historical events. Does Professor Cowen believe that the Great Depression of the 1930s or the financial crisis of 2008-2009 “proved” the failure of capitalism and free markets? Does he believe that a private property, free market economy is inseparable from exploitation and abuse of women and “people of color” by white, male capitalists?  Does he believe that an international “liberal” economic order of free trade and investment is the vehicle by which “capital” oppresses people in less developed countries around the world? 

Well, these are the ideas that have been and are now, certainly, floating around in academic, intellectual and social media circles. If they end up triumphing in the arena of political and economic policy, will Professor Cowen conclude this is how society responded to being wealthier, that is, wanting more government regulation, redistribution and control over domestic and global affairs just because people were materially better off? 

It will have been the success of false ideas about how markets work, how incomes are determined, and what equality under liberty and the rule of law means and offers in a free society. So, Professor Cowen, the welfare state and bigger government is not a “package deal” with growing prosperity. It is the misfortune of the coinciding of material betterment due to the extent to which markets have been able to operate and the influence of misguided and dangerous ideas about man, society, justice and government that have been at work in American society for decades. 

The New “Third Way:” State Capacity Libertarianism

What does Professor Cowen offer as an alternative to the presumed passé paradigm of classical liberalism and libertarianism? He calls for “State Capacity Libertarianism.” Certainly, we have here a catchy phrase that is clearly meant for a movie theater marquee. At least classical liberalism harks back to the idea of something better that should be returned to, like “Classic Coke,” for those old enough to understand to what that refers. 

But State Capacity Libertarianism? What imagery does that conjure up? A State that allows as much liberty as the political authorities are willing to put up with? Perhaps President Xi of China could write the playbook for that one!

What Professor Cowen is searching for is the elusive, I would suggest mythical, “third way,” a system that is neither unrestricted laissez-faire, free market capitalism (which he considers to be a thing of the past, if it ever existed) and a heavily top down centralized planning and regulating system that would stifle entrepreneurial innovation and siphon off through its fiscal burden the financial capacity for longer-term economic growth.  

The State, as he conceives it, needs to be centralized and legally strong enough to maintain the stability and working order of a market-based economic system; but it must also have the power, ability and financial means to perform a wide array of additional tasks that he believes the State can or must do, and which “the people” clearly want to be done by government outside of market supply and demand. 

So what are these additional tasks? Professor Cowen believes that this includes government regulation and direction for solutions to “climate change.” There needs to be a strong (though not tyrannical) State for infrastructure building, exploration of space, better K-12 education, and health issues that threaten the safety of society. There must be subsidies for science, the fostering of nuclear power, intellectual property dispute resolutions, and coordination of various global policies. 

In addition, fearful of terrorist attacks, foreign hacking and hijacking of American elections, the dangers of proliferation of nuclear weapons, and destabilizing wars abroad, Professor Cowen is also a foreign policy interventionist supportive of an activist role for the United States around the world. 

He tries to balance his proposals between those offered by the more radical “progressives” and democratic socialists on the one hand and other moderate libertarians, those labelled “liberaltarians,” who are willing to work and concede too much to the political “left” in terms of State intervention. 

No Logical Limits Once on the Interventionist Highway 

But once you are in the ideological and policy quagmire between free market liberalism and some form of “democratic” socialism with its demands for extensive and intrusive government control and planning, who decides and how do you decide the “right balance,” the correct degree of markets mixed with the interventionist-welfare state? 

The German ORDO Liberals of the postwar period in Germany advocated and attempted to implement what they called a “social market economy,” what one of their leading intellectual mentors, Wilhelm Röpke (1899-1966), called, “the middle way.” Their idea was, as they expressed it, a State strong enough to secure a functioning market economy that offered an accompanying array of limited but essential welfare state safety nets; but which at the same time was a State strong enough to be able to also ward off the attempts of more radically interventionist and socialist-leaning policy advocates from lurching the system too far to “the left.”

But in the late 1950s, Röpke and other ORDO Liberals were already warning of the dangers of that balanced middle way being pushed too far in the interventionist and redistributive direction. As Röpke expressed it, once the State takes on these welfare state responsibilities there was no logical limit, other than fiscal bankruptcy and the danger of inflation as politicians turned to monetary-supported deficit spending to cover the costs of a welfare system the private economy could no longer afford to maintain through taxes alone. 

It is possible to reasonably define the minimal limit below which a laissez-faire liberal system should not be reduced, that being a government restrained but “strong” enough and sufficiently funded to properly secure each individual’s right to his life, liberty, and honestly acquired property through police, courts and defense. But in the real world of modern democratic politics, where is the logical and unambiguous maximum limit to the interventionist-welfare state short of complete paternalistic government control of all social and economic affairs?  

Is it necessary to remind a professor at George Mason University of the insights provided by such economic theorists as James M. Buchanan (1919-2013) that the logic of increasingly constitutionally unrestrained democratic decision-making is a powerful nexus between the three sides of what Milton Friedman (1912-20006) called the “iron triangle” of politicians willing to sell other people’s money in exchange for campaign contributions and election day votes; of bureaucrats interested increasing their budgets and the administrative authority of their departments, bureaus, and agencies for purposes of personal advancement; and the network of special interest groups hungry for regulations and redistributions to improve their own economic circumstances at other citizens’ expense through the power of the State?

Professor Cowen’s State Capacity Libertarianism is merely another fool’s errand in search of the political “holy grail” of a perfect (or far superior) political arrangement just matching the utopian dream of a “mixed economy” society in which government is just the right interventionist-welfare state size: one that is not too small and not too big, but one that is just right. 

Now, on Adam Smith’s Great Chessboard of Society, Professor Cowen would, certainly, leave the human pawns a far wider latitude to move themselves about among the squares on that board in pursuit of self-interested association and mutual betterment. But he points to the “undeniable” gains and improvements from government-healthcare services, infrastructure improvements, and educational opportunities in lesser developed countries that also have degrees of market openness and competition. On the other hand, he frowns upon the disastrous policies in these areas in places such as New York City, for instance. 

So, are we back to the argument that it isn’t the government interventions that are a problem, it’s just that the “right people” were not elected and put in charge to get it right and better?  Isn’t that the rationale we heard throughout the 20^th century every time socialism failed somewhere in the world? It was just “bad people” in power, it was never the socialist idea, itself. 

Political Decision-Making Means Economic Irrationality

Which gets us to another point. If government is to take on various responsibilities under State Capacity Libertarianism far beyond strictly limited government classical liberalism, how will it be decided on the right form and location of infrastructure maintenance and extension? How much and what type of space exploration should be financed? Where and at what cost should nuclear power be developed? What policy strategy should be introduced and funded for dealing with climate change? What public school educational reforms should be implemented and at what expense, even as a waystation to a future privatized education, as Professor Cowen suggests might be a longer-term goal?

There are no rational answers to these and many similar questions once the provision of such goods and services are removed from the arena of market-determined buying and selling at competitively established prices. The year 2020 marks 100 years since the publication of Austrian economist Ludwig von Mises’s (1881-1973), famous essay “Economic Calculation in the Socialist Commonwealth” (1920), in which he demonstrated the difficulties if not impossibilities of rational economic decision-making in an institutional setting in which private property in the means of production have been nationalized, and markets and prices for the factors of production no longer exist.

No doubt, Professor Cowen might reply that to raise this point is a misplaced and extreme exaggeration, since in no way, shape or form is he calling for the abolition of markets and prices. And he would be absolutely correct in giving that reply. I, in no way, wish to make any such accusation. Professor Cowen is a most cogent defender of competitive markets and the price system. 

But, nonetheless, to the extent that the government subsidizes scientific research or development of nuclear power; or directs the forms and locations of infrastructure activities; or determines when and how there may be space exploration; or what reforms will be introduced into public education; or any number of other similar instances of government intervention and planning preempting or replacing private sector provision of such goods and services, the society has lost part of its capacity for market-based, rational decision-making as to what should be done, where, when, and in what forms in these areas of social interest. 

Are such goods and services desired by the public at large, and at what costs in the form of forgone other productions that might have been possible instead, can only be fully known when consumers express their demands for such goods and services on a functioning market; and only when entrepreneurs are left free to best estimate the future prices buyers might be willing to pay as a basis upon which to competitively bid for the use of the factors of production in the face of similar bids by their supply-side business rivals. 

To the extent that tax-based government bids for goods and resources influence the formation of prices, and to the extent that government subsidies and other forms of financial support distort more fully market-determining costs of producing and supplying any such goods and services, to that extent the members of the society make irrational decisions. In this instance, such an element of “irrationality” means the degree to which prices and production decisions are not completely determined by interacting participants in the private sectors of the economy. 

Government “Successes” – Compared to What?

Professor Cowen says at one point, “Public health improvements are another major success story of our time, and those have relied heavily on state capacity — let’s just admit it.” It has never been denied by any classical liberal economist that government can tax the citizenry, direct the use of resources, and generate results, even results that when looked at alone and out of other contexts seem to be “success stories.”

But is that how people, themselves, would have demonstrated their personal and family preferences for health improvements through allocating portions of their own earnings for this purpose compared to using those sums of money for other things that might have been ranked by them as more important, all things considered in their lives?  We don’t fully know because incomes were taxed and those in political authority made these decisions for people. To me, that is not the “positive freedom” of control over one’s own life that Professor Cowen emphasizes as so important to value and preserve in a free society. 

Now, admittedly, unless one is an anarchist, there will always be such irrational decision-making in so far as even in the classical liberal society, government will need tax revenues to perform the minimal functions usually associated with classical liberalism. Decisions will have to be made about how and to what extent police, courts, and national defense will be provided for and supplied. But precisely because non-market-based decision-making is an inescapable element to all government directing activity, the moral of the lesson is an important economic reason why the arena of government activity should be kept to a minimum.

The Need to Make Classical Liberalism an Exciting Vision for the Future

What about Professor Cowen’s starting premise that classical liberalism and libertarianism are out of touch with the contemporary world, that they do not speak to the issues of the day, and that the purpose of a “State Capacity Libertarianism” is precisely to fill this void? In my opinion, all that Professor Cowen’s proposal does is continue America’s drift in political and economic collectivist directions. 

He has conceded all the essential premises of the opponents of classical liberalism. The constitutionally minimal state is unworkable and undesirable. There are numerous economic activities that cannot be left to the marketplace, which means not left to the individual choices and interactions of people themselves. The society needs and must have a wide variety of redistributive “social safety needs” because, well, just because current public opinion wants them. And, implicitly, it is a waste of time to try to buck this “trend” and attempt to argue against it. The welfare state is here to stay; live with it. 

I would argue the exact opposite from Professor Cowen. It is precisely because of the prevailing opinions and views and the pressures that they are placing on public policy decision-making that is it necessary to logically, factually, and morally insist that this is an undesirable and dangerous direction for the country to continue moving in. 

A principled stand for the classical liberal idea and ideal is essential if the collectivist premises of our time are to be challenged and reversed. I know this is not easy. Classical liberals have known for more than two hundred years how difficult the logic of the “economic way of thinking” can be for many to, at first, grasp and understand. They have understood the appeal of “what is seen” from short-term government policies, as opposed to what are the “unseen” longer term consequences. They have appreciated the appeal to emotion compared to calmer reasoning.  

We must do what Hayek called for in his famous essay, “The Intellectuals and Socialism” (1949), we must once more make the case for liberty and the classical liberal order an exciting challenge and attractive vision. That cannot be done, in my view, when the starting presumption is that essential elements of the socialist critique of the market economy is implicitly taken for granted and the core elements of the welfare state have been accepted by default, including the idea that “it’s here to stay.” And, why, according to Professor Cowen? Because people “like it” and when looked at in isolation (that is, without due regard for the opportunity costs of preempting people’s personal choices) it has had claimed “successes.” 

Not Limiting Ourselves to the “Politically Possible”

I would suggest us taking the advice that was offered by British economist, W. H. Hutt (1899-1988) in his monograph, Politically Impossible . . .? (1971), when thinking about the role of government and public policy issues. We should generally ignore, or at least heavily discount, the question about whether or not a social or economic policy is politically possible at the present moment. 

As classical liberal (or libertarian) -oriented economists, we should follow our economic thinking to the conclusions that our reasoning and the historical evidence suggests to us. That is, we should be concerned with truth and validity, not the expediency of to what democratic public opinion seems to confine discussion of a free society at a moment in time. 

Our eye should be on the horizon of the ideal of a truly free (classical) liberal society. Yes, no matter how far and fast we try to move towards that horizon, it always seems to remain in front of us, never approached in an ultimate and final sense; and the terrain through which we travel toward it at any moment may be different than the issues that have had to be confronted in the past. 

But we will never come really anywhere near that beautiful and exciting ideal of the free human being, guiding and directing his or her own life in voluntary and mutually beneficial association with others in all facets of everyday existence, if we stop far short of moving as much toward it as we, otherwise, might by conceding what need not be conceded, and in this instance the self-limiting presumption that the welfare state is here to stay.

By Richard Ebeling

Originally published on June 5, 2021 for the Future of Freedom Foundation

One of the most important classical liberal crusades of the nineteenth century was to at least tame, if not end, the death and destruction of war. From time immemorial, wars have been the scourge of mankind. Huge numbers of ordinary people have been uprooted from their homes and families to be the human sacrifices in battle to serve the purposes of kings and princes, dictators and tyrants, and even democratically elected governments declaring that they represented the peaceful purposes of their citizens.

It is one of the tragic failures of the classical liberal movement that its efforts to bring war to an end did not come to fruition. The liberals of that earlier time — liberals devoted to individual rights and personal liberty, to peaceful and voluntary human association both inside and outside of the marketplace, to impartial rule of law, and to constitutionally limited, representative government — were originally hopeful and confident in bringing an end to military conflict among the nations of the world.

Classical Liberal Attempts to End War

They lobbied governments and reasoned with them to stop arms races, especially among the “Great Powers” in Europe after the awful quarter century of warfare among those nations in the wake of the French Revolution and during the rise of Napoleon with his wars of conquest from the Atlantic to Moscow between 1792 and 1815.

They persuaded political leaders to at least consider and occasionally abide by arbitrations and plebiscites in place of armies set loose to settle political disputes among nations. In the last decades of the nineteenth century, they helped inspire and organize international conventions on the rules of war to treat prisoners more humanely, to respect the lives and property of civilian populations occupied by a belligerent power, and to restrain and demarcate the use of various weapons to minimize the damage done in the midst of battle.

However, as the nineteenth century was ending and the twentieth century was dawning there were those who warned of the dangerous game of open and secret military alliances among “the Powers,” the huge costs of standing armies and navies that always had to be more expensively modernized with the latest technologies of combat, and the emotional fervor of imperialist and nationalist jingoism that found expression in the far-flung colonial empires of those European powers.

The Costs of War to the World and America

Those concerns were more than proven justified. In the twentieth century, wars, great and small, have inflicted terrible consequences on peoples all over the world. It is estimated that 20 million or more men, women, and children were killed during the First World War (1914–1918). An even larger number, upwards of 50 million, possibly perished as a result of the cruelty and mass barbarity of the Second World War (1939–1945). Another 10–15 million or more lives have been lost in wars and civil wars in the period since 1945.

Millions upon millions more people were left permanently disabled, physically or psychologically. Families were torn apart and sometimes made into enemies set upon defeating and killing each other. The accumulated, productive capital of many lifetimes has been razed to the ground in bombings and battles. The historical heritage and architectural artifacts of hundreds or even thousands of years past have been ruined, destroyed, or intentionally obliterated in all of the violent conflicts just over the last 120 years.

America’s foreign wars have not been without their human cost. In the First World War, there were more than 116,600 deaths and 204,000 wounded; in the Second World War, 405,400 deaths and 670,850 wounded; in the Korean War, 36,500 deaths and 92,135 wounded; in the Vietnam War, 58,210 deaths and 153,300 wounded; in the war in Afghanistan, 2,215 deaths and 20,050 wounded; in the Iraq War, 4,500 deaths and 32,225 wounded. Almost 625,000 Americans lost their lives in foreign wars since 1914, along with nearly 1.2 million wounded.

Jacques Novicow’s Life and Interests and Fame

Among those classical liberal voices at the end of the nineteenth century and the beginning of the twentieth century for international peace and associative human freedom was the Russian sociologist Jacques Novicow (1849–1912). Almost forgotten today among both sociologists and classical liberals, Novicow was one of the most well-known and prominent social thinkers of his time.

Born in Constantinople, Turkey, of a Russian father and a Greek mother, his family settled in the Imperial Russian port city of Odessa on the Black Sea when Novicow was four years old. Educated at the University of Odessa, he inherited a profitable private enterprise from his father, which gave him a degree of financial independence to pursue what was clearly his first passion, the scholarly study of society in its various historical, political, cultural, and economic forms and evolutionary patterns.

Stifled by the political censorship that constrained intellectual openness and debate in Imperial Russia, Novicow spent a good part of his adult life in Paris, France. Much taken by the French language, he often wrote on the superiority of French over English as an “auxiliary” vernacular for intellectual discourse among Europeans.

It is not much of a surprise, therefore, that almost all of his significant works on social, political, and cultural themes were written and published in French. Only a handful of his writings have ever been translated into English, but among classical liberals on the European continent and among academic sociologists he was highly respected and widely known during his lifetime. In fact, for a period of time he served as vice president of the International Institute of Sociology, headquartered in Paris.

Nowadays, most people abhor the idea that war is both necessary and good for the betterment of nations and peoples. Two devastating world wars consigned most rationales and justifications for war as an institution that advances civilization and improves the human species to the past. Wars are being fought and, no doubt, will continue to be fought for the foreseeable future. But war, itself, as something glorious and uplifting, is rarely defended or proclaimed.

Yet, for a good part of human history and well into the twentieth century, war was often glorified. The classical liberals of the nineteenth century worked hard to refute this idea. And one of the most determined and uncompromising was Jacques Novicow.

The Fallacy that War Strengthens a Nation’s People

Novicow’s book War and Its Alleged Benefits (1911) is a devastating critique of virtually all the war-praising arguments of his time. “Bloodshed never will succeed,” he said. “Since the beginning of history wholesale murder has been committed thousands and thousands of times without resolving anything. It will be committed thousands and thousands of times again without yielding a better result. Each war merely sows the seeds of a future war.”

A common argument, Novicow explained, is that war weeds out the weak and invigorates the strong, leaving the human race better than before. He asked how this could be, when a moment’s reflection makes it clear that it is the physically heartiest who are normally sent off to war, and they are the ones who are left dead on the battlefield, leaving behind those who are genetically weaker and less physically fit.

The Fallacy of Economic Gains from War

War has been often proclaimed as a necessary means by which one nation and people materially improve themselves by conquering and subjugating another country and its inhabitants for purposes of plunder and enslavement of the defeated. But the supposed economic gains through spoliation are illusory. To be victorious, an aggressor nation must first incur huge financial and material expenses to have the military wherewithal and capacity to come out the winner of an initiated war. Before booty may be extracted from the defeated nation, many of the aggressor’s own soldiers will be lost in battle, thus, reducing the successful nation’s “human capital.”

Those deaths are usually heavy “costs” before any “profits” may be gained from the conflict. Furthermore, enslaving those among the defeated who have not been killed in battle, or exploiting those who remain in the defeated land, has its own negatives. Slave labor is far less productive than free labor, reducing the net gain presumed to result from war. Furthermore, history shows that a conqueror bears the burden of occupation and the constant fear of rebellion and attacks on the occupiers by those resentful of their oppressed state. Novicow attempted to give a financial price tag to the “glories of war”:

Since 1648 [to 1912] war has cost the European nations alone $80 billion [in inflation-adjusted 2020 dollars, $20.9 trillion]. It would not be exaggerating to say that in the entire historic period war has cost at least ten times that amount. Then, at the very lowest estimate, war has cost in all, $800 billion [in inflation-adjusted 2020 dollars, more than $200 trillion]. What does this mean? It means that a certain number of days of work, the money value of which is equal to that sum, were employed by men in killing one another. Suppose the same effort had been expended in cultivating the soil, irrigating the fields, weaving cloth, building houses, leveling roads, channeling harbors, and so on, is it not perfectly clear that the world’s face would be entirely different to-day? We should be at least ten times as prosperous, or, in other words, the sum of suffering would have been perceptibly less for us unhappy beings.

War Neither Unifies or Civilizes.

Another rationale for war, Novicow said, was the belief that only war has unified peoples in larger political entities to reduce the number of petty states that clutter the political map, preventing the civilizing possibilities that can come only when numerous people live under one political roof; it also reduces the Tower of Babel of many languages, producing a leading few through which people may converse. Novicow replied to this:

Civilization is not made by the relative number of spoken languages, but by the sum of the scientific knowledge and artistic treasures accumulated by mankind. Europe is now divided into eighteen main principalities. It might have been divided into fifteen or twenty-five, and civilization would in no wise have been affected….

… It is not to wholesale slaughter on fields of battle that we owe the existence of those glorious historic entities called England, Germany, France, and Italy. It is to a galaxy of geniuses and talents of all kinds, to Dante, to Shakespeare, to Descartes, to Goethe, and the rest…. Suppress war, and the unity of the human race in its entirety is instantly realized.

Peace, Novicow insisted, is the father of civilization, of prosperity, of cultural achievements. War siphons off the accumulated wealth of multitudes of people, and creates constant fears that distract from more productive and creative activities that enrich and improve all of humanity. “Why should there have been more light in Europe after a stupid Roman soldier murdered Archimedes than there had been before?” Novicow could not see how it could be.

Other advocates of war had insisted that war engenders the highest moral values and attitudes. Novicow wondered, “How can robbery, parasitism, intolerance, despotism ennoble communities. How can the practice of all these crimes develop the virtues?… If the 8,000 wars of the historic period could not make us moral, what chance is there that the eight thousand and first will effect the result?”

War Requires Indoctrination. 

At the beginning, wars were the activities of small bands led by some tribal chieftain. Since most people are reluctant to risk losing their lives, there must be some anticipated benefit worth such a risk. The tribal chief would promise that when victory was won he would divide the spoils with his loyal lieutenants, along with booties for the common soldiers in his band. But now that war has been taken out of private hands and “monopolized” by governments that insist on concentrating the plunders of war for themselves, how do you get large numbers of ordinary persons to go into battle and possibly lose their life? Explained Novicow,

But when war came to be monopolized by the heads of a state, the advantages to a soldier ceased to be apparent. To get men to decide to fight it is necessary to employ an amount of complex measures which Tolstoy very accurately describes as the hypnotization of the masses. A number of institutions — the Church, the school, and many others — lay hold of a man when he leaves the cradle, and impress certain special ideas upon him. He is made to believe that it is to his interest to be ready at any moment to throw himself upon his fellow-beings and massacre them…. One of the most effectual ways of keeping up the military spirit is to represent to people that they are always on the defensive and their neighbors alone are aggressors. That illusion has taken hold of all the nations.

Competition for Survival and Betterment Need Not Lead to War.

Novicow was especially critical of those nineteenth-century proponents of war who had taken up a particular interpretation of Charles Darwin’s notion of the evolutionary “survival of the fittest” and who concluded that since “struggle” for existence was inseparable from the circumstances of all living things, violent warfare among peoples for survival was no less inevitable.

Animals kill each other for food, and men have certainly done that enough against themselves, but violent, murderous methods for existence are not the only ones open to human beings. Men have the capacity for reasoning, for conceptualizing courses of action in terms of desired ends and imagined means for attaining them.

The superior and far more productive and moral one, Novicow explained and reminded his readers, is peaceful cooperation through numerous forms of exchange. Competition among men need not be limited to murder for the material means to life. Competition can also take the form of peaceful rivalry through voluntary trade that betters the overall condition of humanity as a whole, without any of the destructiveness of war. Said Novicow,

Here struggle has by no means disappeared, but goes under the form of economic com-petition, lawyers’ briefs, judges’ sentences, votes, party organizations, parliamentary discussions, meetings, lectures, sermons, schools, scientific associations, congresses, pamphlets, books, newspapers, magazines, in short, by spoken and written propaganda…. In short, economic, political, and intellectual competition will never cease among them.

Hence antagonism will always exist, but as soon as men stop butchering one another solidarity among them will be established.

Peaceful Exchange the Foundation of Freedom and Prosperity

If War and Its Alleged Benefits was his response to the proponents of violent human conflict, Novicow’s positive statement in behalf of personal liberty, freedom of trade, and peaceful relationships was offered in “The Mechanism and Limits of Human Association: The Foundations of a Sociology of Peace” (1912), first published in French and then in English in the American Journal of Sociology (November 1917).

“Exchange” is the fundamental element of all human existence. All that man does is a deliberative decision to trade one circumstance that he finds himself in for another that he views as better, superior, or more desirable to his current one. Isolated man enters into exchanges with himself all the time in choosing how to transform the world in which he lives, when he must “struggle” with nature to make it give up what he needs to better his circumstances.

Associations among men include the exchange of commodities that are respectively desired, and for which each is willing to part with something, exchanging what they value less for what they value more. Men trade commodities for services and exchange services, one for the other. The entrepreneur gives money salaries to those he hires, salaries that represent a quantity of purchasable commodities those employed may buy, and in turn the hired supply of labor services enables the entrepreneur to manufacture a product to offer in exchange to still others in the market.

The gains from trade are made permanently beneficial through processes of interdependent division of labor that in its limit incorporates all of humanity in every corner of the globe. And the same, in principle, would apply if intelligent life were to be found on other planets. Novicow reasoned that if there were men on Mars with whom we could communicate, there could be intellectual and culture interchange with them that would enrich both groups. “That exchange would fasten the bonds between the Martians and ourselves, and the two groups, heretofore two completely separate societies, would henceforth form a single vast society.”

Even if people are separated by great distances, as this interplanetary example suggests, peaceful and mutually beneficial association through exchange of various sorts would be both possible and desirable. Novicow argued it is not necessary that all the individuals in various groups separated by such great distances know anything about each other in the everyday sense. It is sufficient if the self-interested bonds of trade connect them together in ways from which each benefits, even if they know virtually nothing about all the multitudes of others with whom they have formed peaceful interdependencies of commerce and intellectual and culture networks of shared experiences.

Interracial Humanity

Writing at a time when “race consciousness” was widely held by many Europeans and most certainly among a large number of Americans, Novicow touched on the delicate subject of interrelationships among whites and blacks. He accepted as an existing fact that many whites, especially in the United States, viewed blacks as inferior and unwanted in any close social relationships. But nonetheless he anticipated a time when race prejudice would be gone and the mixing of whites and blacks — including interracial marriage — would eventually take place, and from which all would gain and be better off as members of humanity as a whole. In Novicow’s words,

In the United States, however, there is a much deeper prejudice against the Negro [than in other places], and fusion of the two races is a much slower process. But they are nevertheless amalgamating…. When prejudice will disappear in the United States as it has disappeared in Brazil — and prejudice is purely a psychical fact arising from social conditions — the fusion between Negroes and [white] Americans will be accomplished in a few hundred years….

We are unable to tell now whether or not all the human races will some day become one…. One thing is certain, however, and that is that the life of the human species will be more intense when they are amalgamated than if they remain differentiated.

Also, in an earlier article, “The Yellow Peril” (1897), Novicow refuted the accusations and fears that Chinese competition and migration threatened the economic and cultural well-being of the white man’s civilization, by emphasizing the positive and universal behavioral qualities and characteristics in all human beings, regardless of time and place, that made us all one people in a shared world.

Foundations of a Peaceful World

All that Jacques Novicow saw as the experienced and potential benefits from the peaceful and productive associations among human beings, however, was dependent on the end to a spirit of both international war and domestic plunder in the form of misguided government interventions; the worst of such domestic forms of plunder and societal disintegration, he said, would be if socialism were to triumph anywhere in the world.

The prerequisites for such a possibly world-enveloping association of exchange in all their economic and social and cultural facets were the foundational principles of a recognition and respect for the individual liberty and rights of each participant in the societal networks; a system of recognized and secured property rights; and organized justice so that violence may be minimized and disputes might be peacefully adjudicated.

Jacques Novicow’s analysis of the tragedies of war and the benefits from a peaceful, liberal world of individual liberty and freedom of trade remain as relevant and timely today as when he penned them more than a hundred years ago.

By Richard Ebeling

Originally published on January 3, 2021 for the American Institute for Economic Research

We are not only standing at the beginning of a new year in 2021, but at the entrance of the third decade of the 21^st century. With a fifth of this latest century now behind us, what have we learned so far? I, personally, fear that the answer to that is little that is right and true, as I understand it as a classical liberal and a supporter of a free market order of things, given all that has happened over the last 20 years. 

Let us recall some aspects of our world two decades ago in 2000. First, for much of the 1990s, in spite of the scandals surrounding the Bill Clinton Administration – “I did not have sex with that woman” – many were fairly optimistic about the future in America. The Soviet Union had disappeared from the face of the global political map at the end of 1991, China was, seemingly, moving in the direction of greater economic freedoms, and the Eastern European countries were no longer “captive nations” behind the communist Iron Curtain. America was the leader, it appeared, of a unipolar world with an end to the decades-long Cold War. 

1990s Budget Surpluses, Y2K Computer Fears, and Florida Hanging Chads

Due to “divided government,” with a Democratic president in the White House and a Republican-held Congress for six of Clinton’s eight years in office, the federal government had seen four years of budget surpluses. Keynesian-oriented and other fiscal “activist” economic policy analysts worried about a future in which Uncle Sam might end up paying off the entire federal debt; after all, it “only” came to around $5 trillion when Clinton left office in January 2001. If there was no more outstanding government debt in the financial markets, what would the Federal Reserve have to buy and sell in its attempts to determine the quantity of money in the banking system and for manipulating at least short-term interest rates? Oh, no, an “end” to Keynesian-inspired fiscal and monetary policy? Say it isn’t so. 

People had approached the New Millennium a bit fearful of the Y2K threat: what if all the banking and other computer systems at the heart of the financial networks connecting everything in the economy could not handle going from 1999 to 2000 at the stroke of midnight on December 31^st? The Fed had pumped in additional “liquidity” just to make sure everyone might have sufficient cash on hand if a computer Armageddon befell humanity. We all woke up on January 1, 2000, and all was financially at peace in the world. It was a close one, but mankind lucked out, again.

But 2000 ended and 2001 began with a deeply divided country due to the presidential election between Republican George W. Bush and Democrat Al Gore. The fate of the outcome had all come down to a relatively small handful of votes in Florida that were in dispute due to the “hanging chads;” that is, the determination of how and for whom voters had manually punched the voting cards in the voting booths in Florida. It fell to the U.S. Supreme Court to make a decision that handed the presidency to George W. Bush.

Trade Tower Terrorism, Foreign Wars, and the Financial-Housing Crisis

For the first nine months of 2001, a large percentage of those who voted for Al Gore considered Bush to be an illegitimate president, since the national popular vote had gone for Gore, while the Supreme Court outcome gave George Bush the needed Electoral College votes to put him in the White House. Then a “miracle” happened for President Bush – the terrorist attacks on the New York City Twin Trade Towers and the Pentagon in Washington, D.C on September 11, 2001. Overnight, an imposter president became the patriotic Commander-in-Chief standing in lower Manhattan at the remains of the towers brought down by two of the commercial airplanes hijacked by the terrorists.  

Less than a month after the 9/11 tragedy, on October 7, 2001, Bush ordered an invasion of Afghanistan, when the Taliban religious tyrants ruling that country would not meet U.S. demands, including a handing over of those Al-Qaeda members accused of planning and ordering the attacks on America. This began the longest war in United States history that almost 20 years later still has not fully come to an end.

Determined to make more of the Middle East over into an American image, the Bush Administration ordered the invasion of Iraq in March 2003 under the pretense of the Iraqi dictator, Saddam Hussein, storing “weapons of mass destruction,” which were found to be nonexistent when the country had been fully occupied by U.S. forces and those of a few other countries dubbed “the coalition of the willing.” 

Between 2001 and 2019, it is estimated that these wars cost the American taxpayer over $6.4 trillion. In the two conflicts, the U.S. has suffered around 8,000 dead and over 52,000 wounded American military personnel. 

Because of military-related and domestic spending, the national debt grew from about $5 trillion when Bush took office to around $10 trillion when his presidency was over at the end of his second term in January 2009. His last year in office also saw the start of the financial and housing crises of 2008-2009, which were the result of a five-year monetary expansion binge by the Federal Reserve and the irresponsibility of the government housing agencies, Fannie Mae and Freddie Mac. Not the “excesses” of an “unbridled” capitalism, but monetary manipulation and housing-market interventionism caused the downturn and its magnitude, including the “shotgun wedding” between the banking industry and the U.S. Treasury in the autumn of 2008 that gave the government part ownership of the banking sector. I say a “shotgun wedding” because several banks did not want the government’s infusion of capital but were forced to take it.

The “Hope and Change” of More Political Paternalism

The next eight years of the Barack Obama presidency doubled the national debt to over $20 trillion when he left office in January 2017. Not only did those wars in the Middle East continue, but drone attacks on other countries in that part of the world were intensified, with little regard to civilian deaths in the process. And the U.S. supported members of the European Union in helping to overthrow the Libyan government of dictator Muammar Gaddafi in 2011, which has plunged that country into almost 10 years of tribal civil war and destruction. 

The domestic “crowning achievement” of the Obama administration was the (un)Affordable Care Act – ObamaCare – that further socialized government oversight and funding and control of the health care and medical insurance industry. It was rolled out with lies and misinformation about keeping your own doctor and insurance if you wanted to, that it would cost less and give more, and had a disaster of an initial online enrollment. House Speaker Nancy Pelosi pushed it under the argument that we could not be sure what was in the Act or how it might work until it was passed and implemented. Clearly the “politically correct” redefinition of the meaning of transparency in legislation.

Hailed initially as the great redeemer for “hope and change,” Obama disappointed and frustrated many, including those on the politically “progressive left,” who accused him of being too much of a “moderate,” unwilling to push a far more radical agenda. However, for those not enthralled with the dream and desire for a far more paternalistically planned society, Obama was more than enough of an interventionist and welfare statist. There were few corners of society that he did not think could and should be socially engineered in some way by those in political command and control. He assured the country that he had a pen and a phone, and if Congress would not always give him what he wanted, well, he had the power of arbitrarily instituting executive orders. In addition, Obama praised and called for learning “positive” lessons from the socialist experiment in Cuba, but without the somewhat disagreeable dictatorship thing.

The Loving or the Hating of Donald Trump

The contest for the White House in 2016 between Hillary Clinton and Donald Trump was between two products of the corrupt interventionist-welfare state: Hillary as the political intriguer and insider manipulator, and Donald as the master of the TV reality show, the carnival huckster and political player who made money by knowing how to game the interventionist and regulatory system. 

Like with George W. Bush, many in the Democratic Party and the “progressive” movement refused to accept and view Trump as a legitimate president; Hillary had won more of the popular vote while losing that “undemocratic” Electoral College vote, with the only way to explain “him” winning was to assume that Russian hackers had somehow twisted and “fixed” the outcome.

The Trump Administration will be a unique one in the American history books. It would be necessary to go really way back to find a president hated or hailed with such intensity as Donald Trump. For Democrats, “Progressives,” or “democratic” socialists, he has conjured up images of a fascist takeover, a rebirth of Jim Crow, and an essential corruptness of the “capitalist” system. To many Republicans, Trump has been the savior of the country from “political correctness,” who won’t take BS from “the left.” Who wanted to make America great again, by not putting up with deadbeat Europeans and conspiring Chinese commies. 

If Not for Covid-19, Trump Might Have Won 

In fact, Trump has been a crude, rude, boorish economic nationalist and neo-Mercantilist, who was as unwilling to challenge or undermine the welfare state entitlement programs as any Democrat or “Progressive.” This helps explain why it is that under Trump’s presidential watch, the national debt after his four years in office has increased to over $27.5 trillion. 

Trump has not been America’s version of Adolf Hitler, in spite of what “the left” has imagined, but he has had a brutish, bullying persona toward anyone or anything that did not conform and consent to his whims and wishes. Anyone not reflecting his views has been labelled a “loser.” His continuing unwillingness to accept that Joe Biden will be president starting on January 20, 2021 is just the latest demonstration of his flight from reality with anything that differs from his own view of the world.

In spite of who and what he is, Trump very likely would have won reelection, if the coronavirus had not happened, and if his administration and the state governments had not locked down the society and coercively attempted to restrictively plan production, work, and consumer shopping of so much of the American economy beginning in March of 2020. But his own policy follies and those of state governors created the economic and financial hardships that virtually assured his losing the election, given the general dislike of him among so many voters around the country.

Misguided “Science” and Irrational Government Planning

The year 2020 demonstrated very clearly, unfortunately, the embeddedness of political paternalism in American society, in terms of both the arrogant presumption of those in government to impose nearly a comprehensive restrictive command and control system over the country, and the willingness of so many Americans to passively and obediently follow those in power down a road to economic disruption and destruction as long as politicians and government “experts” chanted the phrase “follow the science.”

The “science” has been found to be faulty and full of exaggerations and factual errors that have ruined the livelihoods and everyday lives of tens of millions of people. Shunted aside were any notions of “costs,” or “trade-offs” in the economic sense and meaning of these things. In the 20^th century’s central planning tradition, a one-size-fits-all response was imposed on people, and with all the usual irrationality and arbitrariness seen in the actual centrally planned societies of the last century. The irrationality and arbitrariness were seen in the fact that different state governments, all claiming to be following the same “science,” implemented patterns of shutdowns and lockdowns and restrictions on retail business different from the others, but often with the same inconsistent results in terms of Covid-19 cases and reported deaths. 

The U.S. economy has been put through a whipsaw reflected in real Gross Domestic Product plunging 31.4 percent in the second quarter of 2020, and springing back up 33.4 percent in the year’s third quarter as soon as the shutdowns and lockdowns and shopping restrictions began to be lifted or at least loosened in different parts of the country. But in between this GDP rollercoaster have been bankrupt businesses, eaten up life savings, permanent losses of employment, and the disruption of education from kindergarten to graduate school, along with breaks in or hurdles placed in the way of the global supply chains of production and output.

The Counterrevolution of Identity Politics and Cancel Culture

Overlaid on all of this that happened in 2020 has been a counterrevolution of tribal collectivism dramatically seen with violent and destructive demonstrations and riots following the tragic and indefensible killing of George Floyd in May of 2020 from being strangled under the knee of a policeman on his neck in Minneapolis. The legitimate challenges to police procedures and disregard of human life in the face of a victim who is pleading that he cannot breathe as he expires became the catalyst for an onslaught of “identity politics” and “cancel culture” that has been festering in the interstices of academia for decades.  

This was not a mere call for reforms in policing methods and greater everyday sensitivity to racial and ethnic biases by law enforcement. No, this is a full-on counterrevolution against the American, and indeed, modern Western world, foundations in philosophical and political individualism, the premises of economic liberty, private property rights, and free enterprise, and the institution of constitutionally limited government based on impartial rule of law. 

It represents a perverse and dangerous mixture of Marxian class analysis with Nazi-like racialism. Individuals as distinct and unique thinking, valuing, and acting human beings, we are told, do not exist. Individuals are defined by and determined in their place and prospects in society by their race, their gender, and their “class” status and position in the social order. All the talk about individual rights, rule of law, freedom of association inside and outside the marketplace are ruses, coverups, corrupt and exploitive devices for a ruling class of white, male heterosexuals to dominate and oppress the rest of mankind through the political and institutional mechanisms of selfish, profit-oriented “capitalism.”

“America” is just another name for racism and sexism from its beginnings, it is insisted, that can only be “cured” by a root and branch removal of the words, symbols, institutions, and politics of the entire United States. In its place must be a society in which “diversity” and “inclusiveness” is assured by politically established and enforced “by-the-numbers” quotas of race, gender and class groups, for every profession, occupation, and role in society, into which each and every real individual would be classified. This would determine everyone’s fate, not as an actual, free human being, but as the member of a tribal group, with the “shares” determined and divided among these groups by those claiming the political authority and power to speak for all those in one or more of those collectivist pigeonholes.

New Decade Opens with Renewed Push for Paternalism and Plunder

The United States starts this third decade of the 21^st century with a new Democratic Administration coming into the White House and possibly dominating Congress, depending upon two Senatorial runoff elections in Georgia. But whether there is a Democratic-controlled federal government or a divided government with the Republicans holding a slim majority in the Senate, the worst of the collectivist fads and fashions will be pushed over the coming years. Climate change-based controls and centralized planning will be pushed aggressively; demands will be made for more regulation of business in the name of “social justice” and corporate “social responsibility;” calls will be made for increased taxes on “the rich” and not so rich to cover more of the redistributive plunder games that are the mother’s milk of political power and privilege; race and gender warfare will be ratcheted up on college campuses, corporate boardrooms, and the shop floors of private enterprises, great and small.

The political air is likely to be even more ideologically polluted with every imaginable economic fallacy. Renewed calls for raising the national minimum wage to $15 or more an hour; increased “free lunches” through more government deficit spending; disregard for savings and investment as the keystones to economic and social betterment in the future by demands for higher taxes on income and wealth; insistence that government experts and agencies have the knowledge, wisdom and ability to plan the right and desirable patterns of capital investment for energy, infrastructure, the location and type of businesses, and the education and employment of the workforce based on race and gender social justice.  

In other words, there appears to be a groundswell of economic ignorance and stupidity facing us, and even more than usual. What this means for friends of freedom and practitioners of sound, free market economics, however, is a need to redouble our efforts, and not wallow in despair and disappointment. Bad policies inescapably bring about undesirable and counterproductive effects. But their very failures can serve as openings to more reasonable and rational policies looking to the future. If these are to have a chance, the case has to be made for a freer and more open society. That requires all of us to not turn away from this challenge as this new year and this new decade begin.