All Commentary
Thursday, March 1, 1984

Natural Liberty: A New Version

Dr. Gresham is President Emeritus and Distinguished Professor of Bethany College and President Pro Tempore of the Foundation for Economic Education. This paper was delivered by him at the Leonard E. Read Memorial Conference on Freedom, November 18, 1983.

When Good Queen Bess defended her realm from powerful and gold-rich Spain by means of a superior Navy and a powerful fleet of merchant adventurers, she gave out monopolies to certain traders and exemplified, thereby, the mercantilist system. As time went by, the astute practices of Sir Thomas Gresham, my distant kinsman, kept her modest empire solvent, even though her kingdom was always on the brink of disaster. The Low Countries with which she traded were in even more desperate circumstance. The Spanish and Portuguese explorers lived with the mercantilist presumption that precious metal is wealth.

However, contradictions and excesses inherent in government monopoly of trade administered through cartels and licensed subordinate monopolies soon brought disenchantment to those involved. The tyranny of the governments and their plundering agents left many people in penniless squalor. The urgency of change became a drumbeat.

At just this moment came the wise intellectual leadership of Adam Smith. He was a quaint and charming absentminded professor who formulated a new approach to political economy. He called it “natural liberty.” He saw wealth not as bullion, but as a prospering economy which gave hope to the poor and liberty to the common person. His classic benchmark volume, An Inquiry into the Nature and Causes of the Wealth of Nations, published in 1776, marked the end of mercantilism and ushered in the new order which was soon known as “liberalism.”

This somewhat slippery designation for a particular approach to political economy was intended to emphasize the freedom of the individual to act without restriction of state monopoly. While supply and demand are as old as any form of human commerce, it received its most adequate presentation in Adam Smith. In a somewhat desultory fashion, Smith covered such issues as the division of labor, the formation of capital, and the self-regulating nature of the market which made its own allocations, set its own prices, developed its own labor force, and brought on amazing prosperity without the interference of government intervention.

The natural liberty of Adam Smith meant freedom of initiative and resourcefulness to find economic opportunities and lift the common people out of their poverty. The market worked so well that the industrial revolution ensued.

Webster’s Unabridged Dictionary defines “liberalism” as “A theory in economics emphasizing individual freedom from restraint, especially by government regulation in all economic activity, and usually based upon free competition, the self-regulating market, and the gold standard (the decline of mercantilism produced a period characterized notably by the ideas and policy of liberalism)—called also economic liberalism.”

The free market, however, is not merely economic. Among other things, it is political. Economic considerations imply political activities of a certain kind. In all Scotland there is no university course in Economics and none in Politics; it is always Political Economy. Only the politics of limited government with an inclination toward laissez faire made possible the liberalism of Adam Smith. John Stuart Mill wrote his essay on liberty as a sort of political equivalent to The Wealth of Nations. While Mill got himself confused into some proposals of socialist economics, he was crystal clear in his demand for liberty in government.

Critics of natural liberty appeared in spite of the obvious success of its drive toward prosperity. Thomas Malthus, demographic genius who served as a priest at the Cathedral of Bath, worried that people would grow thrifty and savings would destroy the economy. David Ricardo, the stock broker who was a friend of the poor, fretted about rents and formulated his iron laws. But the real challenge to Adam Smith came with that angry curmudgeon who was writing endlessly in the British Museum. The Das Kapital of Karl Marx gave the name of “capitalism” to the economy of the free market. He used the word as a pejorative term; nevertheless, it gained respectability in spite of him. Capitalism powered the amazing development of that nascent republic which we call The United States of America.

In the first half of the 20th century, the winds of opinion changed. The 1930s were marked with a very different attitude toward liberty. The whole meaning of the word changed. John Maynard Keynes was a true genius at investments who tripled the endowments of King’s College at Cambridge by studying its portfolio each morning before he finished his tea and dressed for the day. An ardent patron of the arts, he was President of the Covent Gardens Society.

Bertrand Russell called him the greatest mind he had encountered. Keynes became interested in economics and wrote some books about money and about economic theory. He had great confidence in the government to manage the economy by stimulating aggregate demand. Much of the Pandora’s box of government intervention was opened by John Maynard Keynes. His advice to the American leaders involved in the Great Depression resulted in the New Deal.

Contemporary American Liberalism

John Kenneth Galbraith has become an apostle of the contemporary so-called “liberal” tradition with its emphasis on the public sector of the economy and its high regard for government as arbiter, manager, and in some respects, even owner. He is a bold proponent of government planning, a defender of transfer payments to promote equality, an exponent of government regulation for business, industry and finance. He argues that high taxes are necessary for civilized living. He has described the liberalism of Adam Smith as “the conventional wisdom.” Some of the facts add plausibility to his argument. Businessmen have run to government to reduce competition, to find protection from foreign trade, and to gain monopoly, if possible. Some of their rhetoric in favor of free enterprise is rhetoric and nothing more. They talk of individual liberty while cozying up to government for their own advantage. Galbraith was right in calling their free enterprise “conventional wisdom.”

By standards of contemporary American liberalism, as exemplified by some public figures such as Senator Edward Kennedy, Presidential candidate Walter Mondale, House Leader Thomas P. “Tip” O’Neill, or most of the media gurus such as John Chancellor or Jack Anderson, equality as an ideal for our society is viewed as absolute, rather than “the equality of opportunity” as mentioned by Thomas Jefferson. Quite oblivious to the fact that people are not equal and cannot be so, they make strong egalitarian appeals that are powerful vote-getters. They would pass laws that would take from some and give to others in order that all might be equal, or as much so as possible.

The contemporary American liberals, whether they are professors, news people, authors or politicians, argue that the present world economy is much too complicated to operate without planning and management. They believe in big government and high taxes. Economist Allan Meltzer has observed, “Governments grow because the benefits are concentrated and the costs are diffused.” Large interest groups organize to win special favors for themselves and the cost is so widely distributed that the voters do not organize to oppose the special interest legislation. In line with this effort, some leaders favor socialized housing and transportation. Intellectuals are slow to learn what has long been known as economic truth—that not everybody can live at the expense of everybody else.

The New Deal

The Franklin Delano Roosevelt New Deal marked the effective finish of the free market economy in America and brought in the arrangement which I have described as “interest group interventionism.” The state has taken on a vital role in all economic affairs, even though the relationship is less than socialism. The politicians and the bureaucrats feel responsibility to regulate industry and commerce, protect consumers, provide safety regulations, spell out the basis for economic action by controlling mergers, protect the environment and provide for the general welfare by means of transfer payments. Government grows, taxes become onerous, and individual liberty erodes.

The contemporary “liberal” in America is inclined to look to the government for solutions to national problems such as unemployment or highway safety. He is liberal in contradistinction to conservative. The earlier meaning of freedom from state interference and control is completely lost. The pejorative use of the term “liberal” by religious fundamentalists may have contributed to the New Deal meaning of the term. The name “liberal,” is worn with pride by those who wish to be progressive; they describe conservative in such disparaging terms as “rightest,” “old fogy,” “fundamentalist,” “reactionary,” and “ultraconservative.” By the irony of language, the word has been transformed to mean something more akin to mercantilism than to the liberalism of 1776.

“New Deal socialism saved capitalism in America” is a common remark by those who are conscripts of the contemporary American conventional wisdom. There are several variations on this remark, such as “President Roosevelt saved capitalism” or “Keynes was the economist who observed the self-destructive tendency of capitalism in The Great Depression and provided a theoretical basis to restore the economy.” Such efforts at explaining change in political and economic theory are naive. The New Deal dash of socialism did not end the depression, nor correct the conditions which brought it on. The Great Depression ended only when that dreadful war lashed the economy into a fury of production. The conventional “liberal” wisdom contributed to the failure of capitalism rather than to its salvation. Government intervention spawned a whole new batch of problems. Muddled legislation and bureaucratic excess were pronounced good and baptized both liberal and humane. The stark facts are that liberty was diminished, production repressed, inflation stimulated, and taxes multiplied to oppressive proportions. For documentation see Business, Government, and the Public by Murray Weidenbaum.

Natural Liberty: A New Version

Sometime around 1975, a new awareness began to sweep the world. Walter Lippmann much earlier had foreseen this effect when he wrote of the sickness of an overgoverned society. Higher and higher taxes with more and more loss of individual liberty began to catch the attention of world leaders. In countries where opinion can make a difference, the electorate was ready to accept more freedom in the political economy. Margaret Thatcher came into power in Britain; Ronald Reagan was elected in the U.S.A.; and the Scandinavian countries took a sharp turn to the right. France elected a socialist who seems to be leaning toward capitalism because of the failure of his nationalization efforts. The world seems to be ready for a rebirth of freedom.

As a political economist, I do not presume to evaluate Mrs. Thatcher, Mr. Reagan, Mr. Mitterrand, or any other political leader. It is my function to point out the mood of the people with regard to the role of government within a particular nation state. It is my opinion that Mrs. Thatcher and Mr. Reagan were swept into office because they represented more liberty in the political economy of their respective countries. The modification of the socialism of Mitterrand in France derives, likewise, from the interests of the people who cherish liberty.

The dominant public philosophy, however, continues to be government-centered interventionism. The planned and regulated political economy is the new “conventional wisdom.” Labor leaders expound this theory, but the rank and file are disenchanted with it. The members have begun to move with the drumbeat of a new liberty. There are stirrings toward the liberation of individuals all over the world—even in tightly controlled nation states such as Russia and China. The people are beginning to reassert themselves and to rediscover their individual needs, wants and ideas. Weariness with being a mere cell in some collective society is losing its appeal.

The arrival of Aleksandr Solzhenitsyn in America was a massive blow to the Socialist mystique. The almost lyrical appeal of Marxism to many contemporary American liberals had a rude shock when it became apparent that socialism has a very high record of abysmal failure almost everywhere. Indira Gandhi is trying to move India back from left to center. Chile is in turmoil, but has had enough of Allende. Many Canadians are sick of Trudeau. Mainland China is adopting capitalistic methods and ideas. Even Russia is showing more and more inclination toward capitalist ways in domestic matters.

Nor is economic theory lacking for the new forms of natural liberty. John Maynard Keynes once said, “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.” New and different in tellectuals are emerging who give thought and structure, as well as respectability, to the freedom philosophy. Theodore Lowi, political scientist at The University of Chicago, came forth with a new book called The End of Liberalism. Writing at the very end of the 1960s, he outlined in lucid terms the failure of the state-centered liberalism of the American mid-century. He marked the inability of the bureaucracies to deal with the problems of human action. He wrote a convincing chapter on the subject, “Why Liberal Governments Cannot Achieve Justice.” He notes the failure of the welfare state in its effort to deal with poverty. He notes the tragedy of efforts at urban planning. He notes the breakdown of the law in dealing with human issues when the law itself attempts to make policy.

Lowi is not alone. A whole flood of contemporary books of quality show the disenchantment that comes with too much government. The experience of one thoughtful journalist who has interviewed and dealt with almost every person of prominence in this 20th century describes his pilgrimage away from contemporary American liberalism to the free market, the free individual, and the free enterprise. I refer to John Chamberlain’s exciting book titled A Life with the Printed Word. A guru from Boston, named Warren Brookes, who wrote The Economy in Mind, comes down hard on the side of the new liberation from statism. The amazing popularity of the Friedman book, Free to Choose, is a great boost to the new public philosophy of liberty. In his book, The Spirit of Democratic Capitalism, Michael Novak has touched capitalism with a spiritual wand which renders contemporary American liberalism obsolete.

The Austrian Influence

All these writers build on a solid base laid by Ludwig von Mises in his great book Human Action. Comparable to it, and even more widely circulated, was the first alarm sounded by Friedrich Hayek with his more popular book, The Road to Serfdom. These two notable scholars were part of the Austrian school of economics which has growing support in all intellectual circles. Liberty is no longer out of fashion.

This new variety of liberalism is not just Adam Smith redivivus. It is something completely new and appropriate to the present position of life on this little blue planet. For example, George Gilder has correctly pointed to the benevolent nature of capitalism. This is a phase of Adam Smith which is frequently overlooked. It was present in his book, Theory of Moral Sentiments, but omitted from The Wealth of Nations. Gilder sees capitalism as a sort of exemplification of the Biblical injunction, “Cast thy bread upon the waters.”

The new political economy of liberty and hope takes full account of the benevolent nature of this system, whether it be called the market economy, capitalism, free enterprise, or by some other name. When Henry Ford was building black automobiles and amassing a huge fortune, his primary concern was better transportation for less expense to the American public. I have known his family well. Many of his original colleagues in the enterprise testify to the fact that he thought of himself primarily as a benefactor. I have just finished serving as chairman of a committee to write the history of the John A. Hartford Foundation. As I study the lives of John and George Hartford, I realize that these founders of the Great Atlantic & Pacific Tea Company were primarily motivated by a consuming desire to provide the people of the world with better food for less money.

Profit Rewards Service

The beauty of the free market is that service to humanity is rewarded by profit almost in direct proportion to the quality of the service rendered. The truly successful entrepreneur of our times is a person of social awareness, compassionate concern for the people around him, and fully aware of the fact that the pursuit of money for its own sake is self-defeating. The beauty of the free market is that the person who correctly perceives the needs of other people, and meets this need in a resourceful fashion with the necessary disciplines of good management and the marketing genius of a successful promoter, finds himself rewarded for the effort. Profit can be a major motive, but it is only possible when worthy goods are produced and valuable services are rendered. The entrepreneur or the corporate executive who cares and serves can live up to his own inner hero image.

The great founders of American business have been lampooned and pilloried as robber barons. Some were robbers indeed, but many were motivated by true benevolence, and practically all of them thought of themselves as heroes. The late T. V. Smith wrote a chapter in his book, Live Without Fear, which begins, “No man is an s.o.b, to himself. In fact, each person is a sort of hero to himself.”

This new approach of a redefined natural liberty tends to reduce the adversarial relationship between labor and management. I was greatly pleased to hear Douglas Fraser speak approvingly of the employee stock ownership plan at Weirton Steel. A few years earlier, no union leader would have dared consider any arrangement that would reduce union power, even though it had obvious benefit for the people involved. While labor leaders make loud declarations of the conventional wisdom which lingers as contemporary American liberalism, the rank and file of the people who do the work of America are enchanted by the possibility of individual initiative and freedom which might enable them to improve their own position. People like the possibility of doing things on their own without too much dependence on unions and government.

Union influence is waning, and the popular enchantment with government to solve all human problems has begun to fade into disillusionment. Many workers are willing to work with their companies on realistic terms to prevent bankruptcy and insure continuity. They have rediscovered the wisdom of Samuel Gompers who said, “The company that does not make a profit is the enemy of the working man.” The new natural liberty will require more cooperation between management and labor.

An End to Protectionism

This new cooperation is essential to successful foreign trade. The tired solution of protectionism is not adequate to deal with contemporary issues. Technological advance in the fields of transportation and communication has reduced the size of the world until the public philosophy must be aware of its global implications. Those who advocate barriers against foreign competition make no mention of the price rise for the American public which is implied. More and more people are rediscovering the correctness and pertinence of David Hume, who more than two centuries ago declared for international free trade. Those who try to make a moral issue out of “buy American” should consider the moral imperative to build better products at less cost. The philosophy of liberty requires that people be free to buy wherever they get the best product for the least investment. If American production costs are too high and the products are inferior, the market is sending its inevitable signal that we must learn to produce better products at less cost.

The new natural liberty differs from past liberalism in that we have more and better information and more technological facility than ever before. We are beginning to understand the nature of life on this little planet. We have become aware of the intricate ecology of everything around us. The interdependence of everything in our ecological world has reached the level of poignant awareness—and all of this in the recent past. When one natural condition is altered, all the others are somewhat affected. Some of us have learned, also, that the economic and political world is quite as interdependent as the world of nature.

The contemporary American liberal argument that our world system is too complicated to be trusted to a free market is a contradiction of patent fact. Like the ecosystem, the political economy of the world is too complicated to be placed in the hands of planning politicians and bureaucrats. The new natural liberty recognizes this fact and cries out for relief from the notorious failure of socialist solutions. The blindness of our conventional wisdom is evident in the fact that it has taken us so long to learn that the market is much more able to deal with vast and intricate problems than is any bureaucratic genius or pretentious political planner. Everybody knows better than anybody. No one person is wise enough, or strong enough, to think, plan and prescribe for everybody else.

The principal factor in bringing on the political economy, which I have called “the new natural liberty,” is the realization that our conventional wisdom of turning to the government for everything has betrayed us. Our experiment with the war on poverty turned out to be a war on the poor. Our benevolent effort to provide free health service has sent the health costs soaring so that the system is in jeopardy. The political attempt to bring about equality by the Robin Hood method of taking from the rich to give to the poor has helped the rich and hurt the poor. Our attempts to regulate our industries have priced us out of the world market and injured everybody. The gray dawn of hope is enabling us to discern the procedures that will free us to work with the natural laws of the political economy instead of against them. Nobody is wise enough to plan for everybody. “The miracle of the market,” to quote Leonard Read, is that the market reflects the initiative and imagination of everybody.

Hardening of the Attitudes

Those who repair to government for everything suffer from hardening of the attitudes. They seem to be unaware of government as an instrument of coercion which has a monopoly on violent force. Enchantment with government obscures the meaning of voluntary action and association which flourish under liberty. Those who prate of partnership of public and private sectors fail to recognize the difficulty which inheres in partnership between those who believe in freedom and those who believe in coercion. Government has an important role, but it does not consist of running everybody’s life and making subjects out of citizens. The new natural liberty calls for fewer laws, less bureaucracy, less presumption that Washington knows best, and more reliance on free in dividuals working to improve their conditions and fulfill their lives.

The findings of the Club of Rome show a grim future for humanity. The Malthus specter of limited resources and burgeoning population reappears. The one resource which is never in short supply is the creative imagination, the individual initiative, and the resourcefulness of individuals in a free society. The liberalism of Adam Smith’s day freed the people from the cartels and mon opolies of the state which were a lingering influence of mercantilism. The new natural liberty could free people from the burdensome government and stifling regulation of the conventional wisdom which I have subsumed under the title, “Contemporary American Liberalism.” This paper is a call for a new birth of liberty.

The Skeletal Remains

One of the most notable murals of America is located in the dining hall of Dartmouth College. José Clemente Orozco was the artist. Orozco had lost a hand in a chemistry explosion when he was a student, but he had an enormous reservoir of talent. His feeling for humanity was profound. The Dartmouth mural has the title “Epic of Culture of the New World.” He shows Christ chopping down his cross with an axe as a protest to the human rejection of his gift of peace. He shows Quetzalcoatl, the Mexican god of arts and crafts, turning away from his own country which had rejected him. In a most shocking and striking fashion, he shows the modern world rejecting its great opportunity for peace, prosperity and happiness.

The scene is the operating room of a modern hospital. The doctors in attendance are attired in academic robes, rather than the usual white gowns of physicians. A woman is lying on the operating table and giving birth to a baby. These, also, are in academic attire. But the most shocking fact is that the doctors, the nurses, the mother, and the stillborn child are all skeletons! Outside the window, the revolution flames red.

This mural exemplifies the reluctance with which the intellectuals, especially those of the academic community and those who man the media, cling to the socialist-tinged theory of political economy, which I have called “contemporary American liberalism.” Joseph Schumpeter correctly pointed out the fact that intellectuals show antipathy toward capitalism and the free market. The intellectuals feel somewhat dispossessed and lacking in power. They, therefore, identify with those who are aspiring to power, such as labor union leaders, some politicians, and the powerful revolutionaries. They tend to look on business with envy, and therefore, hate. They have lost their identity with the free market centers of power, capital and promise.

A Life Without Hope

The conventional wisdom of contemporary American liberalism is, therefore, a skeleton mother bringing forth a stillborn skeleton child. The promise of a truly free world in which, in the poetic language of The Old Testament, “each could sit under his own vine and his own fig tree” is dismissed. Instead, some intellectuals write of zero sum economics and a tightly-controlled society which distributes the rapidly depleting resources of the planet. They are blind to the hope that lies in the inexhaustible supply of creative individuals who have imagination and re sourcefulness.

This spell of Marxism will continue in some academic halls and among some news people. The government-centered theories of John Maynard Keynes, offered only for a special situation, will persist with those who look to government for everything. But the flaming red of a new moral revolution is just outside the window. It is the red sky beginning of a new period in which individuals are free and the market operates. This new natural liberty radiates benevolence. It trusts the creative initiative of each individual person. It speaks to the depths of the human nature, with its love of liberty which is as old as the human race.

G. K. Chesterton challenges humanity to a courageous reappraisal of our human predicament when he wrote a sort of prayer for our time:

From all that terror teaches,
From lies of tongue and pen,
From all the easy speeches
That comfort cruel men,
From sale and profanation
Of honor and the sword,
From sleep and from damnation
Deliver us, Good Lord!

  • Dr. Perry E. Gresham (1907-1994) was President Emeritus and Distinguished Professor, Bethany College. Bethany, West Virginia.