The fraud of classical liberalism

Conservatism doesn't exactly have a great reputation these days. That's a problem for conservative (and even conservative-ish) public figures and intellectuals. After all, President Trump is not exactly a good #brand for people wanting to distinguish themselves as deep thinkers.

One solution adopted by pundits like Jordan Peterson and D.C. McAllister is to reach back into the 19th century and claim the mantle of "classical liberalism." That provides a nice aura of "Serious Philosopher" while also implying that modern liberals have abandoned the true traditions of their own politics.

So ... let's examine the profoundly wretched historical record of classical liberalism, which purports to the promotion of civil liberties with a slavish exultation of "self-regulating markets."

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In his brilliant study of the rise and fall of this school of thought, Karl Polanyi identified several distinctive characteristics of classical liberalism that continue to have enormous influence today. The most important one is the idea of the "self-regulating market." Adam Smith imagined that markets emerged from mankind's inherent, natural tendency to "truck, barter, and exchange." (Pre-modern societies turn out to not function in this way in the slightest, but never mind.) In his economics, which became a foundation of classical liberalism as developed further by David Ricardo and Jean-Baptiste Say, a society's system of production was a simple outgrowth of the way people naturally behave. The market economy was thus portrayed as a system outside of human society and therefore should be free of "interference" from government, which could only backfire.

This idea of the market economy being a sort of freestanding institution is the implicit frame behind most economic commentary to this day, from the left and the right. This or that policy is routinely predicted to benefit or harm the economy in some way. Few people talk about the fact — obvious when one thinks about it for a moment — that government policy creates the economy in the first place. Property, contracts, corporations, stock exchanges, currency, and so on — all the bedrock institutions of capitalism are underpinned and maintained by government laws, or are direct creations of government. The entire idea of the self-regulating market is a "stark utopia" that could not possibly exist, writes Polanyi.

But the utopianism of the self-regulating market allowed classical liberals to constantly press for more institutions that would regulate the economy through "automatic" mechanisms like the gold standard. This would remove the sovereignty of nations over economic matters — that is, direct massive government intervention towards forcing all human interaction to happen through markets.

This kind of thinking caused stupendous social carnage around the world. In England, it meant peasants (including women and young children) being forced off the land by enclosure of the commons, and shoved into factory work through the threat of starvation, plus viciously punitive workhouses and vagrancy laws. India and China were flooded with cheap textile exports, destroying their industrial base and throwing huge swathes of their populations out of work. That combined with allocating food via market directly induced multiple famines, as unemployed Indians were unable to afford skyrocketing prices during a food shortage, and proposals for price controls were denounced as illegitimate government meddling.

Characteristically, these instances of "free trade" required British gunboats (and direct colonial takeover in the case of India) to force open those countries against their will. When faced with a choice between the vision of self-regulating markets and democracy, or indeed the actual lives of foreigners, classical liberals tended to prioritize the former. John Locke, for instance, owned a large investment in the slave-trading business. John Stuart Mill (who believed that British colonial subjects should have no political rights) ferociously attacked arguments for aid to ameliorate the Irish Famine of the 1840s, in which a million people died and a million more were forced to emigrate, on the grounds that aid might induce unwillingness to work.

At any rate, classical liberal institutions of labor markets, free trade, and the gold standard were both fragile and chaotic, building up and then wrecking whole industrial complexes when prices changed a bit or crisis struck. Panics and depressions were commonplace, and orthodox remedies of deflation and balanced budgets to protect the currency meant vast unemployment in times of trouble. However, it wasn't until the Great Depression that the system truly broke down. Liberal orthodoxy — pushed by an elite which had a fevered, quasi-religious attachment to the gold standard — this time did not help in the slightest, instead severely worsening the crisis.

The result was political catastrophe. "Fascism, like socialism, was rooted in a market society that refused to function," writes Polanyi. Fascists made it function by casually discarding orthodoxy in pursuit of rearmament, deranged wars of national expansion, and genocide. European classical liberals surely did not intend to sacrifice their societies to Hitler, but that was in effect what they did. (Luckily, America and the U.K. avoided the fate of Germany by casting off orthodoxy before it was too late.)

Of course, one can pick and choose some worthy threads of argument from the classical liberal tradition. It did partly help set the stage for nations to become rich — though actually maintaining growth over time has required ditching classical liberal ideas as often as the converse.

But even if classical liberalism delivered wealth in the past, today its overall historical legacy is a grave obstacle to human freedom. In the eurozone, its modern descendants have effectively recreated the gold standard, with astoundingly disastrous results. For a generation and more, elites around the world have had a neurotic fixation on balanced budgets and free trade that has created highly familiar social carnage and dislocation. Don't let the branding exercise of a handful of desperate pundits distract from that fact.