Liberty, Law and the Market Economy

First Published: 2018-04-13

The history of liberty and prosperity is inseparable from the practice of free enterprise and respect for the rule of law. Both are products of the spirit of classical liberalism. But a correct understanding of free enterprise, the rule of law, and liberalism (rightly understood) is greatly lacking in the world today.

Historically, liberalism is the political philosophy of individual liberty. It proclaims and insists that the individual is to be free to think, speak, and write as he wishes; to believe and worship as he wishes; and to peacefully live his life as he wishes. Another way of saying this is to quote from Lord Acton’s definition: “By liberty I mean the assurance that every man shall be protected in doing what he believes his duty against the influence of authority and custom, and opinion.” For this reason, he declared that the securing of liberty “is the highest political end.”

Liberty as the Highest Political End to Serve Others

Lord Acton did not say that liberty is the highest end, but rather the highest political end. In the wider context of a man’s life, political and economic liberty is means to other ends. What ends? Those that give meaning and purpose to his sojourn on earth. Liberalism does not deny that there may be or is one ultimate Truth, or one moral “right,” or one correct conception of “the good” and “the beautiful.”

What liberalism has argued is that even the wisest and best men are mere mortals. They lack God’s omniscience, omnipresence, and omnipotence. Mortal men look at and understand the world within the confines of their own imperfect knowledge, from the perspective of their own narrow corner of existence, and with extremely limited mental and physical powers compared to those possessed by the Almighty.

As a result, since no man may claim access to an understanding of man and his world equal to God’s, no man can claim a right to deny any other person the freedom to follow his conscience in finding answers to these profound and ultimate questions. They are so crucial to man’s very being as a spiritual and moral person that they must be removed from the arena of politics and political control. They must be left to the private and personal confines of each man and his conscience.

Political Control Means the Power of Force

The reason for this should be evident. Political control is fundamentally the power of physical force. It is the right to demand obedience from the citizenry either to do or not do something under the threat of the use of coercion. Political power can be used to command people regarding how they may live, how or what they may read or write, and how they may act. It is one man bending the will of another to his wishes under the threat of physical harm.

Some men have faced such threats or uses of force and not given up their faith or beliefs or ideas. But liberalism argues that no man should be confronted with torture or death because of where his conscience leads him. Furthermore, once political power is used to dictate what men may believe and how they may peacefully act, society is faced with an endless struggle as those with conflicting faiths, beliefs, and ideas battle for control of the reins of political authority. It becomes a life-and-death confrontation to determine whose conception of the good, the beautiful, the right, and the just shall be imposed on all. In such a battle over truth and virtue man’s world becomes an earthly hell of human and material destruction.

There thus arose the idea of tolerance, that each man should respect the right of every other man to be guided by the dictates of his conscience. But even tolerance was soon seen to be authoritarian; it implied that the one tolerating the free thoughts and actions of another was doing so as if he were giving a privilege to someone else, a privilege that if given at any time could be taken away. Hence, it was insisted that freedom of conscience was a fundamental right possessed by all men, and not something permitted or allowed, say, by a majority for the benefit of a minority.

But how was the political authority – the government – to be prevented from overstepping its boundaries and encroaching on such individual rights as freedom of conscience and other elements of personal liberty? How were men with political power to be restrained from abridging other men’s rights? All law is man-made, regardless of the source of the inspiration for the law. It is men who articulate and agree on the law, who codify it, and who establish and enforce the procedures and mechanisms for its respect and enforcement. Man, therefore, can never be separated from law and the legal process.

The Rule of Law and Political Accountability

A way to assure that society lives under a rule of law and not a rule of men is to insist that even those who implement and enforce the law be held accountable under certain clearly defined procedures in their dealings with the citizenry. Or as the English legal philosopher Albert Venn Dicey expressed it in the late nineteenth century: “With us every official, from the Prime Minister down to a constable or a collector of taxes, is under the same responsibility for every act done without legal justification as any other citizen.”

An essential element of the rule of law is that it specifies what government may not do to the citizenry. For example, neither the government nor its various legal agents may hold an individual without bringing charges against him before a judge within a specified period of time. The writ of habeas corpus assures that no man is physically seized and held for an indefinite duration without charges being brought against him in a court of law. If it is not demonstrated to the court that a breach of the law has occurred and that there is sufficient evidence for holding the accused, he must be let go. Or as Dicey explained it, “Liberty is not secure unless the law, in addition to punishing every kind of interference with a man’s lawful freedom, provides adequate security that everyone who, without legal justification, is placed in confinement shall be able to get free.”

A distinctive quality and merit of the rule of law is that it attempts to, if not completely eliminate, then reduce as much as possible all arbitrary power in the hands of those who administer the political regime and the legal order. Friedrich Hayek, for example, has emphasized that the rule of law refers to laws of an abstract and general nature equally applied to all men independently of any particular circumstance.

Freedom and End-Independent Rules

Since this may seem rather nebulous, it can be better understood through the expression end-independent rules. We can think of this, for example, in terms of the rules of road. These rules specify whether cars are to be driven on the right or left side of the road; that all cars must stop and wait while the traffic light is red, and may go when the light turns green; that posted speed limits must be followed; and that if a police car or an ambulance is coming down the road, all other drivers are to pull over and stop until it has passed.

These rules of the road are general and uniform, in that they apply equally to all drivers and do not privilege or burden anyone. Furthermore, as long as every driver follows these rules, he is free to travel on the roads whenever he desires, for whatever purpose he may have in mind. Nor can any driver be pulled over by police patrolling the roads and highways for a traffic violation unless there is an infraction of these general and uniform rules of the road.

The general and abstract rules are “end-independent” because they do not imply or require any particular outcome or result from the actions and interactions of the citizenry, as long as they follow the rules. Thus, whether people follow the rules of the road to get to work, or to visit the family dentist, or simply to get out of the house for a while and just drive around is immaterial. The very nature of a free society under the rule of law is that the society, itself, has no purpose, or “manifest destiny” or “historical role” that it is called upon to play. A free society has no plans or purposes separate from the particular plans and purposes of its individual citizens.

Individual Self-Interest versus “Great Causes”

That a free society has no plan or purpose or higher calling independent of those of its citizens has bothered many who think that nations should have “callings” to “greatness.” They see in the individual plans and purposes of the citizenry a narrowness and selfishness not worthy of great causes and great men. One leading voice in the first half of the twentieth century who wanted nations to pursue great causes under great men was Werner Sombart, a German Marxist who later in the 1930s became an outspoken apologist for Hitler’s National Socialism.

During World War I, Sombart published a small volume of what he called “patriotic reflections” titled Traders and Heroes. He contrasted the trader or man of commerce, who, Sombart insisted, sees no farther than his own profits to be made through market transactions, with the spirit of the hero that brings forth the virtues of courage, obedience, and self-sacrifice. “The trader,” Sombart said, “speaks only of ‘rights,’ the hero only of his duties.”

Now, of course, the question that Sombart’s depiction of the characteristics of the “hero” leaves unanswered is: obedience to whom, and sacrifice for what? In Sombart’s view it was the state, through its political leaders, that dictated the goals for which the citizenry was to make those sacrifices and that demanded obedience to achieve the national tasks. The individuals of the society were to sacrifice their own goals, purposes, plans, and dreams. These were narrow, mundane, and petty.

The great political leaders make the other members of society conform to a higher plan and purpose, one that they claim to discern through intuitive insights and understandings that ordinary men cannot comprehend or grasp. Hence, they are expected to obey the commands of those leaders in the service of an imposed hierarchy of ends to which they must sacrifice their individual plans and purposes.

In a society of Sombart’s “heroes,” the rules under which the citizenry now act are end-dependent. That is, the legal rules and regulations under which men are made to live direct them to act and interact in ways that are meant to assure particular outcomes. The citizenry’s actions are made to follow paths leading to the outcomes that the political leaders consider the desirable configuration for the society. How else can it be assured that the actions of all the people move in the direction that the nation’s call to greatness demands? It should be clear that this requires the abrogation of the individual’s own freedom of action, choice, and decision-making. He is made into the tool of another man’s ends. He serves ends that others have assigned to him, and not his own.

It should also be clear this is why those who desire to assign higher purposes and callings for society tend to be suspicious of and often actively hostile toward free enterprise and the market economy. The essence of every type of collectivism, whether it is called socialism, communism, fascism, Nazism, or the interventionist-welfare state, is the desire and intention of imposing on society a politically engineered design to which all men are expected and, if required, forced to conform.

Adam Smith, in his first book, The Theory of Moral Sentiments, referred to the social engineer as “the man of system,” who looks at society as if it were a giant chessboard upon which he moves the human chess pieces until the overall pattern created is one to his own liking. What the man of system totally disregards is that each of these human pieces on the chessboard of society has his own will, wishes, desires, dreams, goals, values, and beliefs, which motivate his own movements independent of any attempt by that social engineer to direct and dictate his place and position in society. (See my article, “Great National Purposes Mean Less Freedom”.)

Private Property, Individual Freedom, and Civil Society

Classical liberalism has always emphasized the inseparable connection between individual liberty and the right to private property. Partly it has been based on the idea of justice: that which a man produces honestly and peacefully through his own efforts, or which he acquires through voluntary acts of exchange with others, should be considered rightfully his. The case for private property has also been made on the basis of utilitarian efficiency: when men know that the rewards from their work belong to them, they have the motives and the incentives to apply their industry in productive and creative ways.

But in addition, the classical liberal has defended the institution of private property because it provides the individual with a degree of autonomy from potentially abusive political power. Private property gives the individual an arena, or domain, in which he has the ability to shape and design his own life, free from the control of political force. As a private owner of some of the means of production – even if it were only his own labor – he can search out the employment for himself that he considers most attractive and profitable, given his own personal purposes and plans.

A community of individuals, each of whom owns varieties of property that he is at liberty to apply and utilize in various ways, provides a network of potential relationships of production, trade, and association among men outside and independent of the orbit and control of government. Private property gives reality to the ideal of individual freedom.

The networks of voluntary, peaceful, and private association form the elements of what has been called “civil society.” They are the “intermediary institutions” that stand between the power of the state and the single, isolated individual; they supply support and give assistance to the individual in the economic, social, cultural, and spiritual needs of life. But they also offer protection and strength to the lone individual who otherwise would face the power of government on his own.

It is not surprising, therefore, that historically the more the power and intrusive reach of the government extends into the affairs of the citizenry, the more the state attempts in various ways to undermine and replace these voluntary associative institutions of civil society with its own bureaucratic structures. The weakening or elimination of the intermediary institutions of civil society leaves the individual increasingly dependent on the political caprice and largess of those who manage the agencies of government. He becomes a pawn in the hands of those men of system whom Adam Smith warned us against.

Where the rule of law is practiced and respected, the creative energies of man are set free. Each man is at liberty to utilize his own knowledge for his own purposes, but the very nature of the free-market economy is that he must apply that knowledge and his abilities in ways that serve the ends of others in society as well. Since no man can attain all his goals, beyond some of the more primitive ones, through his own labor and the particular resources that may be in his ownership and control, he enters into exchange relationships with others in society.

Men begin to specialize in producing things for which they have a comparative advantage over their neighbors to extend their trading opportunities with others in the growing community of men. The interdependency that a division of labor creates makes each member of society increasingly conscious that he must serve his fellow men in order to accomplish his own ends.

The individuals on that great chessboard of society move themselves about, forming connections, relationships, and associations with those around them as they discover opportunities for mutual improvement. Patterns do take form; configurations of human interconnection do take shape. But these patterns are not planned or designed; they emerge from the relationships that men choose to establish among themselves, with no conscious intention of generating much of the institutional order and structure that result from their market and social interactions.

Free Spontaneous Orders Irritate Social Engineers

As Hayek pointed out, drawing on the insights of some of the political economists of the eighteenth century, the social order that develops is to a great extent “the results of human action, but not of human design.” And, as Hayek emphasized, it is all to the better that this is the case. Why? Because the emergent social patterns, order, and institutional arrangements incorporate the knowledge, ability, and creativity of the multitudes of human participants. No single mind or group of minds – no matter how wise and well-intentioned – could ever know, understand, and appreciate all the fragmented knowledge, insight, and ability that exist as divided knowledge and creative potential in the minds of all the members of humanity as a whole. If all that man knows, that he can do or might imagine, is to be taken advantage of and brought into play for the general good of all mankind, then every individual must be left free to use what he knows, and do what he wants to do, according to his own design.

What irks the social engineer when he looks around at the free society is that it appears to be a world without a “plan,” a jumble of social chaos. What the classical liberal sees is a world of multitudes of plans, each one being the plan given by an individual to his own life. There is order, pattern, and structure to this world, but an order, pattern, and structure generated out of the interconnections that individuals have formed among themselves through their voluntary market and social relationships.

The rule of law provides the societal rules of the road within which those individuals may freely move about as they see fit. The rules for the free society are fairly simple and straightforward: thou shall not kill; thou shall not steal; thou shall not bear false witness – no fraud or deception in relationships with others. Beyond these types of simple rules, each individual is free to follow his own conscience and interests in practically all other matters.

If we are to regain the liberty that we have lost, and the fully and consistently applied rule of law that once was the guardian of our liberty and freedom of enterprise, we must reawaken in our fellow citizens an understanding of what liberty, the rule of law, and individual self-responsibility mean. But this cannot come about unless each of us is willing to participate in a process of self-education in which we become knowledgeable about liberty and its opposite. And we must be willing and courageous enough to consistently defend freedom, self-responsibility, and all of their implications.

None of us who care about liberty can avoid in good conscience our responsibility in this matter. As was said by the Austrian economist, Ludwig von Mises, who was one of the greatest voices for liberty in the twentieth century: “Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way for himself if society is sweeping towards destruction . . . What is needed to stop the trend towards socialism and despotism is common sense and moral courage.”

Dr. Richard Ebeling is the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel, in Charleston, South Carolina.

Dr. Ebeling is the author of Austrian Economics and Public Policy: Restoring Freedom and Prosperity  (2016); Monetary Central Planning and the State (2015) as well as the author of Political Economy, Public Policy, and Monetary Economics: Ludwig von Mises and the Austrian Tradition (2010) and Austrian Economics and the Political Economy of Freedom (2003). And the editor of the three-volume, Selected Writing of Ludwig von Mises, published by Liberty Fund.

He is also the co-editor of When We Are Free (Northwood University Press, 2014), an anthology of essays devoted to the moral, political and economic principles of the free society, and co-author of the seven-volume, In Defense of Capitalism (Northwood University Press, 2010-2016).

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