Duncan Brack and Ed Randall, authors of the Dictionary of Liberal Thought, have kindly agreed to let us publish extracts on Lib Dem Voice. This month we start a trilogy of postings on liberalism – classical, economic and social. This month, it’s classical. You can read previous extract on LDV here. The entire book is available on Amazon here and can also be bought at the Westminster Bookshop.

Classical liberalism

The meaning of the term ‘liberalism’ has become increasingly diffused and has been subject to many changes and interpretations over time. In the Anglo-Saxon world, ‘classical liberalism’ is the term often used by those who want to preserve the original ideas of liberalism, based on individual freedom, the rule of law and free markets; they support a reduction in the role of the state, particularly in economic and welfare policy.

In the course of its history the term ‘liberalism’ has undergone many changes and reinterpretations. Those of today’s liberals (especially in the Anglo-Saxon world) who see themselves as the heirs of the ‘original’ tradition of liberalism often call themselves ‘classical liberals’. Neither this ‘original tradition’ nor the term ‘classical liberalism’ can be defined with absolute precision, but there is a rough consensus. Today’s ‘classical liberals’ agree that individual freedom ranks above material equality, that the state’s sphere has to be more strictly limited than it is today and that freedom is the guarantor of wealth for the people. The following political creed can be extracted from their writings:

• Freedom is the leading principle of liberal politics. Freedom means individual liberty or self-determination under the rule of law in the sense of what Isaiah Berlin called negative freedom, i.e. the absence of obstacles, barriers or constraints.
• The state has to be limited in order to protect individual liberty, the rule of law and the functioning of the market economy. Thus, constitutionalism (often based on constitutional economics) is high on the classical liberal agenda. This constitutionalism aims at a new framework for policy-making that makes it more difficult to widen the scope of state action, e.g. by introducing a rigid ‘competitive federalism’ with strong tax competition that puts pressure on politicians to lower taxes.
• Free markets and free trade are more efficient than any form of state planning and interventionism.
• The welfare state has to be scaled down, or at least reconstituted, to make it work better. While a few classical liberals (e.g. Robert Nozick) are ‘minarchists’ who see internal and external security as the only legitimate tasks of the government, the majority is more pragmatic in its approach. They mostly try to limit public spending to a sustainable level, to privatise sub-systems of the welfare state or to introduce more market-compatible mechanisms into the system. An example of the latter would be Milton Friedman’s proposal of a negative income tax that would gradually replace all other welfare and assistance programmes, thereby making the social policy system more efficient and simple.

Classical liberalism, however, is not such a coherent body of thought as it sometimes appears to be, partly because the ‘original’ liberal tradition was also one of considerable diversity. Although more sceptical of state coercion than the new liberals in general, the old liberals held widely differing views about the state’s responsibilities. For instance, even radicals such as Richard Cobden and the British free traders believed in state-financed schools, while others (their French counterparts like Frédéric Bastiat, for example) abhorred the idea. There were also divisions over the theoretical basis of liberalism; liberal theorists included advocates of natural-rights theory (John Locke), utilitarianism (Jeremy Bentham), romanticism (Wilhelm von Humboldt), Catholicism (Lord Acton) and evolutionism (Herbert Spencer).

Modern classical liberalism reflects this pluralism. Hence contractarians (Robert Nozick), utilitarians (Ludwig von Mises), critical rationalists (Karl Popper) and positivists (Milton Friedman) can be found among them. While all of them are generally critical of socialism and the welfare state, there is a great variety of opinions about the extent of the ‘roll-back of the state’ – often depending on how radical or pragmatic the chosen approach is.

Why is the adjective ‘classical’ necessary? The reason is historical. As Friedrich August von Hayek in 1973 remarked:

But though the last quarter of the nineteenth century saw already much internal criticism of liberal doctrines within the liberal camp and though the Liberal Party was beginning to lose support to the new labour movement, the predominance of liberal ideas in Great Britain lasted well into the twentieth century and succeeded in defeating a revival of protectionist demands, though the Liberal Party could not avoid a progressive infiltration by interventionist and imperialist elements. Perhaps the government of H. Campbell Bannerman (1905) should be regarded as the last liberal government of the old type, while under his successor, H. H. Asquith, new experiments in social policy were undertaken which were only doubtfully compatible with the older liberal principles.

This change from ‘old’ liberalism to the new social or interventionist type of liberalism was not confined to Britain. In America, for instance, where the term ‘liberalism’ was hardly used in the nineteenth century, the word ‘liberal’ became more or less synonymous with leftist or social democratic statism, with an over-reaching welfare state.

In Europe, where ‘liberalism’ has been associated with a long-standing tradition of political thought and practice since the early nineteenth century, the term has undergone changes in meaning and interpretation. Especially in the later decades of the nineteenth century, theorists and politicians such as Friedrich Naumann in Germany broke with certain liberal ideas about the limits of state power and called for a more interventionist and redistributionist agenda in order to solve the ‘social question’. This ‘New Liberalism’ or ‘social liberalism’ quite often advocated a closer relationship with the new labour unions and emerging socialist parties.

Not all liberals, however, followed that trend. The extension of coercive power, the fiscal irresponsibility and the inability of the welfare state to preserve its own economic basis always found critics within the liberal movement, who often called themselves ‘classical liberals’. Hayek’s book The Road to Serfdom (1944) gave much of the impetus for the revival of classical liberal ideas in Britain. Anti-market interventionism, he argued, would erode not only economic freedom but other civil freedoms too in the long run; and the basis of wealth and progress would similarly be undermined. At the time he was swimming against the tide, as socialism and social democracy of all sorts formed the political mainstream. This has changed since.

The crisis of the welfare state that began in the 1970s reinforced that tendency. As it became harder to ignore the economic problems market solutions became more and more an intellectually and politically acceptable trend, not only in the Anglo-Saxon world, but – to a lesser degree – in most parts of the world. No longer was it the domain of a few maverick intellectuals; in the 1980s and 1990s it underpinned the practical reform agenda for many governments around the world.

Since then the revival of ‘classical liberalism’ has played a role in reforming welfare states and restoring economic prospects in many countries, including Britain and New Zealand. Countries that resisted the trend toward ‘classical liberalism’ in recent years, like most of continental Europe, today tend to suffer from low growth rates and high unemployment.

Further reading

• Norman Barry, On Classical Liberalism and Libertarianism (Macmillan, 1987)
• David Conway, Classical Liberalism: The Unvanquished Ideal (St Martin’s Press, 1995)
• Friedrich August von Hayek, ‘Liberalism’ (1973), in Hayek, New Studies in Philosophy, Politics, Economics and the History of Ideas (Routledge & Kegan Paul, 1978)

Detmar Doering

The Dictionary of Liberal Thought is one of the many titles available from the Liberal Democrat History Group. Find out more about them on their website.