In the Wealth of Nations Adam Smith outlines a commercial society:
When the division of labour has been once thoroughly established, it is but a very small part of a man’s wants which the produce of his own labour can supply. He supplies the far greater part of them by exchanging… the produce of his own labour… for such parts of the produce of other men’s labour as he has occasion for. Every man thus lives by exchanging, or becomes in some measure a merchant, and the society itself grows to be what is properly a commercial society.
The last sentence of the just quoted passage forms the leitmotif of this immensely accomplished and insightful book by Christopher Berry, Professor Emeritus in Political Theory at Glasgow University. The book’s cover is graced by a drawing of the inner court of that university where Smith, in a letter of thanks upon his installation as its rector in 1787, reports he had spent “by far the most useful and therefore as by far the happiest and most honourable period” of his life, both as student and subsequently successor to his one-time teacher there, Francis Hutcheson, in the Chair of Moral Philosophy.
Hutcheson, an Ulster-born Presbyterian Scot, had, in turn, also been educated there before moving to Dublin to open and run an academy. It was there Hutcheson acquired international fame that led to his appointment at Glasgow by writing and publishing in 1725 a celebrated tract on the origin of our moral ideas. This tract had been heavily influenced by works in ethics with which he first became acquainted in Dublin written by John Locke’s former tutee, the third Earl of Shaftesbury to whom Hutcheson dedicated the first edition of his own tract. Shaftesbury, in a letter to the Swiss theologian Jean Le Clerc in March 1705, made the following highly prescient observation about that great efflorescence of ideas in Europe in the eighteenth century, subsequently known as the Enlightenment, in which Adam Smith’s Scotland was to play such a prominent part:
There is a mighty light which spreads itself over the world especially in those two free nations of England and Holland… and if Heaven sends us soon a peace… it is impossible but letters and knowledge must advance in greater proportion than ever.
Shaftesbury made this remark early on during the so-called War of Spanish Succession which raged in Europe for more than a decade until 1714. It was during it that, to forestall its becoming allied with and used as springboard for invasion by its traditional enemy, France, England was to engineer political union with Scotland, in return for which it provided its economically backward northern neighbour with an enormous economic stimulus. Within a few decades, this previous economic and cultural backwater became the epitome of a commercial society whose idea was to fascinate and absorb the intellectual energies of that small country’s band of literati whose most illustrious member was Adam Smith.
Berry’s book is about how these Scottish literati conceptualised and reacted to this novel form of society their country was fast turning into during the half century between publication of David Hume’s Treatise of Human Nature in 1739-40 and the sixth edition of Adam Smith’s Theory of Moral Sentiments in 1790. It would be hard to exaggerate the importance of their achievement. As was noted by Arthur Herman in his 2001 book How the Scots Invented the Modern World:
The Scots created the basic ideals of modernity… When we gaze out on the contemporary world shaped by technology, capitalism, and modern democracy… we are in effect viewing the world through the same lens as the Scots did… In 1700 Scotland was Europe’s poorest independent country… [By 1800] this small, underpopulated, and culturally backward nation had] rose to become the driving wheel of modern progress… [I]f you want a monument to the Scots, look around you.
As Berry observes, the Enlightenment was not just a collection of forward-looking intellectuals and their ideas. It was also a set of formal and informal institutions through which the intellectuals propagated these ideas and drew mutual support and encouragement.
In his opening chapter, Berry explains just how tight-knit this set of institutions was in Scotland’s case. At their core were its universities whose curricula became modernised more than a century before England’s did. Closely connected with them was a large network of clubs and debating societies which brought together academics, merchants, lawyers and clergymen in a highly fruitful symbiosis. As Berry remarks ‘these various societies were an important part of the institutional fabric and played a leading role within Scotland… By forming a point of convergence for universities, the law, the church and the ‘improving’ gentry… the idea of a commercial society took on an institutional form… thinking about “commercial society” was woven into the fabric; it was not some detached academic exercise.’
What, then, did Scotland’s eighteenth century thinkers observe about the new form of society that they were witnessing springing up around them?
In the second chapter of his book, Berry offers a highly useful account of their understanding of this idea from which the following vignettes are taken:
One of the ideas for which the Scots are best known is their notion of the four stages (hunting, herding, farming, commerce)… To understand their own commercial era meant for the Scots placing it in a narrative that began with the destruction of the Roman Empire, but in which the pivotal ‘event’ is the collapse of feudalism… [T]he history… portrayed in the four stages rests on a particular model of ‘natural’ development… from concrete to abstract, from simple to complex, from rude to cultivated or civilised…. A commercial society does indeed have a distinctive property regime but that is only one aspect of the complex inter-related whole which defines that type of society.
The remaining chapters of Berry’s book explore various aspects that comprised a commercial society in the eyes of Scotland’s literati. Of them, the much greater opulence and freedom it confers on all its members, relative to other social formations, constitute its two chief distinguishing features as well as its most salient advantages over them. As Berry puts it:
Although in the Scots’ writings there is no explicit definition or even delineation of what constitutes ‘civilisation’ (a new term), nevertheless there was a definitive difference between Athens and Edinburgh (the so-called ‘Athens of the North’). The latter was civilised and free. The Scots are clear that their own (and similar) society is civilised… Contrary to Stoic and republican ‘frugality’ or Christian asceticism… Smith [along with his fellow Scottish literati] is firmly repudiating any notion that poverty is ennobling or redemptive… Smith’s and others’ repudiation of the nobility of poverty is a key factor in the vindication of a commercial society.
Underpinning commercial societies, in the eyes of the Scottish literati, is the rule of law as the one institution on which depends the mutual trust between strangers involved in regular trade, contract, credit, and paper money. As Berry explains with characteristic cogency:
The argument relies on a series of [posited] causal connections: stability from a framework of law causes security and security is a causal precondition for the development of a market and extension of contracts and exchange. This goes to the heart of the idea of a commercial society… What the authority of law provides is security of property for all… Perhaps the most decisive development [in the establishment of the rule of law] was the separation and independency of the judiciary for it is that which ensures the impartiality of administration [of justice] that imparts security to all.
Yet, a problem remains as to how such rule becomes established and what maintains it. There is a problem here, of which the Scottish literati were acutely aware and did their best to address. Berry explains the problem so: ‘In a commercial society we live predominantly among “an assembly of strangers”… Since the bulk of our dealings are impersonal then they must be conducted on the basis of adhering to the complementary impersonal (abstract) rules of justice… [Yet] the Scots are aware that this society can be construed to appear to rely to a reprehensible extent on “self” or “private”, rather than, “social” or “public”, interest.’
Self-love is the animating force behind commerce, yet the viability of commerce presupposes a degree of self-restraint on the part of those who engage in it, out of consideration for others. From whence arises the motivation needed to energise such self-restraint? Their answer was that such consideration arose from individual moral conscience variously understood, with Smith having characteristically described its restraining power the most graphically as well as illuminatingly. He writes of it in one of the most memorable passages in his Theory of Moral Sentiments:
When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble?… It is not the soft power of humanity, it is not that feeble spark of benevolence… that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct…
While the rule of law could thus be supposed capable of prevailing within commercial society through the moral probity induced in members by the strictures of their consciences, the Scottish literati remained exercised by the notion that commerce had a morally deleterious effect on those whose livelihoods were gained by means of it, which increasingly meant everyone in a commercial society. The source of such concern lay in the ancient republican notion that true freedom and virtue demanded a form of active citizenship governed by a concern for the public good for which a narrow preoccupation with mercenary self-interest characteristic of commerce simply had no place. Berry terms this concern ‘the luxury critique’ of commercial society and characterises it so:
A free state depended on virtuous (free) men devoted to the public good for which they were willing to fight (and die)… A society where wealth is valued will produce a generation… [that]will devote itself to private ends and… be unwilling to act foe the public good, where crucially central to such action is a willingness to fight… Once poisoned by luxury they invest life itself with value and become afraid of death, with the consequence that the society will be militarily weak – a nation of cowards… will easily succumb.
Among the Scots literati, Adam Ferguson and Lord Kames who were the most exercised by this issue. Hume and Smith by contrast tended to consider such concern about the morally corrupting effects of luxury misplaced, being redolent of nostalgia for a bygone era irretrievably passed whose claim in any case to greater valour than modernity was in their view highly exaggerated. Berry is particularly instructive in detailing the argumentative stratagems through which Hume and Smith sought to defuse and repudiate the luxury critique of commerce.
Thus, in the case of Hume, Berry notes: ‘The Spartan regime, where everyone has a “passion for the public good”, is contrary to “the natural bent of the mind”, and ‘to govern men along Spartan lines would require a “miraculous transformation of mankind”.’ Similarly, for Hume: ‘The supposed causal link between luxury and military weakness fails the test of constant conjunction, as manifest by the cases of France and England, that is, the two most powerfulbecause the two most polished and commercial societies’. Likewise: ‘For Smith, militias are outmoded… in an “opulent and civilised nation” a professional army is the means to preserve civilisation against invasion from a “poor and barbarous nation”… In explicit repudiation of the position of “men of republican principles”.., he claims [a professional] army’ can… ‘be favourable to liberty’… in those circumstances where the chief officers… are drawn from the “principal nobility and gentry”.’
Berry is rightly not oblivious to the morally detrimental effects that Smith identified commercial society having on its members. He notes that: ‘In Book 5 of the Wealth of Nations he [Smith] observes… that the dexterity of the specialised operative (read pin-maker) is bought at the cost of his “intellectual, social and martial virtues”.’ Yet, for all that, contrary to many recent expositors of Smith such as Denis Rasmussen and Ryan Hanley, Berry contends that:
Smith is… not to be saddled with the possession of some profound disquiet about the soul of modern man… Smith’s purpose in identifying these threats to these virtues, these deficiencies or ailments of commercial society, is programmatic…. [T]he point is to identify where government action, and the public purse, is called for in order to remedy the deficiencies…
The remedy for torpid intellectual virtues is… [publicly-funded] education… [T]he shortfall in the “pin-maker’s” social virtues… [can be remedied by] use of the tax system to reduce the number of alehouses… [plus state support of] “public diversions”, such as drama, music, dancing and the like… to lift the “melancholy and gloomy humour” that Smith associates with the “disagreeably rigorous and unsocial character “of [austere religious] sects [to which he considers are especially prone migrants to large cities from rural backgrounds]… When it comes to addressing the erosion of the martial virtues… [Smith] refers to the military exercises that the Greeks and Romans made the citizens perform… He does not say the exercises should be compulsory but… recurrence of the phrase ‘premiums and badges of distinction’ with respect both to parish schools and the Greek and Roman republics suggests… [Smith favored] a government-backed incentive structure to encourage participation in activities that would help the decline of the martial spirit.
What is being suggested here is that whatever morally subversive effects commerce might have upon populaces whose ways of life had become deeply informed by it can all be adequately addressed by judicious forms of state intervention be they public subsidy of schooling, of the arts, or of sport. Berry ably sums up the resultant idea of a commercial society when he observes that:
What the Scots’ idea seems to resemble is the outlines of a “liberal” picture of society… The complex interlocking whole is not some perfect functioning system… [T]he Scots are well-aware of commercial society’s imperfections just as they remain cautiously optimistic that these will be eroded by progress.
Whether we can share their optimism remains an open question. Even should we not be able to, we can nonetheless still share their common confidence that this form of societal organisation is superior to all others. Berry is to be commended for having explained so clearly and carefully why members of the Scottish Enlightenment shared such confidence and why we might do so too.
The bibliographies of few books cite more Liberty Fund publications than does Domenico Losurdo’s Liberalism: A Counter-History from the Glorious Revolution to the First World War. It cites works published by Liberty Fund of no fewer than eleven authors and these do not include Hayek, Locke, Macaulay, Mill or Tocqueville whose works in other editions are cited.
Despite its focus, few accounts of the classical liberal tradition are more scathing or unrelenting in their criticism of it than Losurdo’s. By way of illustration, consider his treatment of John Calhoun, the mid-nineteenth century senator and statesman from South Carolina. The Italian Marxist philosophy professor begins his book by calling into question Calhoun’s defense of chattel slavery in the South. Very few today, of whatever political stripe, would concur with Calhoun that southern slavery was not only in the best interests of the slaves but also provided the South with foundations for freer and more stable political institutions than it otherwise could have enjoyed. Yet many might still wish to take issue with Losurdo’s contention that Calhoun’s support for slavery automatically disqualifies him from inclusion within the liberal canon, along with Locke who also defended the institution of slavery, or else it means, quoting Losurdo, that ‘we can no longer maintain the traditional… image of liberalism as the thought and volition of liberty.’
It is doubtless a merit of Losurdo’s book that it obliges its readers to confront the fact that practically all of the most prominent classical liberals supported institutions or policies that today appear unacceptably illiberal in character. However, it is equally as large a corresponding defect of the book that its author appears in writing it to have been unable to suppose, even for a moment, that, in espousing such illiberal opinions, the authors whose views he considers might have been onto something, however unpalatable it might be today to acknowledge that they were. In a book, like Losurdo’s, that purports to be a work of history, this is an especially grave defect, for it is by no means as easy or straightforward a task to pronounce a sound moral judgement about a past practice.
Take slavery, for instance. We know John Locke defended the institution in a certain form. Was he necessarily misguided in doing so? Simply because we moderns do not and cannot countenance the institution does not mean that Locke must necessarily have been wrong to suppose that the institution admitted of the moral justification that he gave it for the very specific and different imagined circumstances in which he argued it could be countenanced. Likewise, however deplorable were the conditions and treatment of plantation slaves, Calhoun was not necessarily altogether wrong that those of his day there still fared better than they would have had they or their ancestors not been brought to America as slaves and remained there as such. Equally, without it the political institutions of the South of his time might well have been less free and stable than they were.
A lack of historical imagination seriously flaws Losurdo’s book which largely consists of quotations from eminent classical liberals designed to reveal how illiberal so many of their opinions were, at least to contemporary ears. The purpose of this revelation is more than merely to show how muddled and confused the authors it considers were, or even how much the prisoners of their times. Rather its object is to show how inextricably bound up with oppression liberalism always was, the emancipation of those on behalf of whom it fought always having gone along with, and been predicated on, according to Losurdo, the de-emancipation of others whose deliberate exclusion from the charmed circle of the free was a condition on which those for whose entry to it liberalism fought were able to be admitted. As well as John Locke and John Calhoun, other canonical classical liberals whose views are subjected to such criticism by Losurdo include Adam Smith, Edmund Burke, Alexis de Tocqueville, John Stuart Mill, Ernest Renan, Benjamin Constant, and Ludwig von Mises.
An additional object of Losurdo’s history is to reveal the extent to which the eventual widening of the charmed circle of the free so as to incorporate one-time excluded groups (such as African American slaves, native American Indians, subjects of British colonial rule, and workers and servants in the metropolitan heartland of the West) was invariably owed more to the radical forces to which liberalism historically was always opposed than it did to it. As Losurdo puts these several contentions in his summing up at the end of his book:
[W]e… must bid farewell once and for all to the myth of the gradual, peaceful transition, on the basis of purely internal motivations, from liberalism to democracy… [N]ot only did the classics of the liberal tradition refer to democracy with coldness, hostility and sometimes frank contempt… the exclusion [of formerly excluded peoples and groups] w[as] not overcome painlessly, but through violent upheavals of a sometimes quite unprecedented violence. The abolition of slavery in… the United States [cost them] more victims than both world wars combined… [Moreover] emancipation very often had a spur completely external to the liberal world. The abolition of slavery in British colonies cannot be understood without the black revolution in San Domingo… viewed with horror… by the liberal world… [M]ost important[ly]… [a] tangle of emancipation and dis-emancipation… distinguishes the individual stages in the process of overcoming the exclusion clauses characteristic of the liberal tradition. In the United States the disappearance of censitary discrimination, and affirmation of the principle of political equality, were aided by the… containment and political and social neutralization of the “dangerous classes”, thanks to the expropriation and deportation of Indians… and the enslavement of blacks. In Europe extension of the suffrage in the nineteenth century proceeded in tandem with colonial expansion and the imposition of forced labor on people or “races” deemed barbarous or childlike…
Losurdo’s assessment of liberalism, however, is not unequivocally negative. In his estimate, it has displayed a commendably greater capacity to learn from its major rival, the radical political tradition to the left of it, than has that latter tradition shown in being able to learn several valuable lessons that Losurdo acknowledges liberalism has to teach it. He finally observes of liberalism:
Demonstrating an extraordinary flexibility, it constantly sought to react and rise to the challenges of the time…Liberalism has proved capable of learning from its antagonist (the tradition of thinking that, starting with ‘radicalism’ and passing through Marx, issued in the revolutions which variously invoked him) to a far greater degree than its antagonist has proved capable of learning from it… [a]bove all… the decisive problem of the limitation of power… In economics [furthermore] liberal thought has vigorously insisted on the need for competition… to develop social wealth… a further, major historical merit.
A sting, however, is contained in the tail of Losurdo’s concluding complimentary remarks about liberalism. Immediately after making them, he goes on:
However, at this [economic] level too, there emerged… awful exclusion clauses… Far from being a site where all individuals freely meet as sellers and buyers… for centuries the liberal market was a site of exclusion, de-humanisation and even terror. In the past the ancestors of today’s black citizens were commodities… And for centuries the market functioned as an instrument of terror: even more than the lash, what imposed total obedience on the slave was the threat of being sold… separately from other family members. For a long time, indentured white servants were also bought and sold… And in the name of the market, workers’ coalitions were repressed and economic and social rights ignored and denied… Is all this a definitively concluded chapter of history? … [H]as liberalism definitely left behind it the dialectic of emancipation and dis-emancipation… [or] is this dialectic still alive and well, thanks to the malleability peculiar to this current of thought?
As well might be imagined, Losurdo’s book has become the toast of the left, happy by means of it once again, in their eyes at least, to be able to claim the moral high-ground over liberalism. The victory that Losurdo’s exposé of the dark side of liberalism allows them to claim, if that is what his book succeeds in accomplishing, is, however, a very hollow one indeed. This is because, on every count on which Losurdo finds fault with liberalism, such as its alleged racism and repressiveness, the track-record of its radical antagonist with which Losurdo and fellow members of the left still clearly so heavily identify, has proved itself no less defective.
It is not simply that, as Losurdo concedes, the Marxist tradition has proved itself economically illiterate and insufficiently aware of the limitations of political power by comparison with the creative power of the market. Its most influential theoreticians and practitioners have proved themselves to be every bit as much racist, exclusionary and repressive as have those liberals whom Losurdo expressly or tacitly criticizes. A few selected quotations from Marx and Engels will suffice to bring home the point.
[These quotations have been selected from a larger set of equally revealing quotations of Marx and Engels contained in Leslie R. Page, Karl Marx and the Critical Examination of his Works (London: The Freedom Association, 1987)]
Beginning again with southern plantation slavery, Marx was no less fervent a supporter of this institution than Calhoun. In 1846, Marx wrote of it:
Without slavery, North America, the most progressive nation, would be transformed into a patriarchal country… Only wipe North America off the map and you will get anarchy, the complete decay of trade and modern civilisation. But to do away with slavery would be to wipe America off the map.
Marx was equally as incipiently anti-Semitic as Losurdo argues Edmund Burke was. In 1844 the father of communism observed:
We recognise in Judaism… a general anti-social element of the present time… Contempt for theory, art, history, and for man as an end in himself… is contained in an abstract form in the Jewish religion… Once society has succeeded in abolishing the empirical essence of Judaism – huckstering and its preconditions – the Jew will have become impossible.
Marx continued to harbor virulently anti-Semitic sentiments, writing in 1862 to Engels about their political rival, the German-Jewish socialist, Ferdinand Lassalle:
The Jewish Nigger Lassalle… fortunately departs at the end of this week…. It is now completely clear to me that he, as is proved by his cranial formation and [curly] hair – descends from the Negroes who had joined Moses’ exodus from Egypt (assuming his mother or grandmother on the paternal side had not interbred with a nigger [in English]. Now this union of Judaism and Germanism with a basic Negro substance must produce a peculiar product.
Marx and Engels were every bit as dismissive of the claims of indigenous populations of the Americas and of other peoples colonized by Europeans as were those liberals whom Losurdo takes to task for having been such. Thus, in 1848, Engels wrote
In America we have witnessed the conquest of Mexico and have rejoiced in it… It is to the interest of its own development that Mexico will in future be placed under the tutelage of the United States.
Similarly in 1853, Marx observed in support of British imperial rule in India that:
Indian society has no history at all, at least no known history… The question, therefore is not whether the English had a right to conquer India but whether we are to prefer India conquered by the Turk, by the Persian, by the Russian, to India conquered by the Briton… The British were the first conquerors superior, and therefore, inaccessible to Hindu civilisation.
In that same year, Marx also remarked more generally about such forms of imperialism and the ethnic cleansing in which they sometimes resulted:
Society is undergoing a silent revolution which must be submitted to… The classes and the races, too weak to master the new conditions of life, must give way.
Marx also was no less keen a supporter of war than was de Tocqueville, writing in 1855:
Such is the redeeming feature of war; it puts a nation to the test. As exposure to the atmosphere reduces all mummies to instant dissolution, so war passes supreme judgement upon social organisations that have outlived their vitality.
Perhaps, the slogan for which Marx and Engels were to become so famous would have more accurately reflected their outlook had it bid workers of the world to unite, unless they were Jews or belonged to other historically outmoded peoples best consigned to history’s dustbin. Losurdo makes no mention of these exclusion clauses, yet waxes lyrical in criticism about those he attributes to liberalism. One is entitled to wonder why.
So keen does Losurdo seem to find fault with liberalism for being exclusionary that he sometimes is led to make very hazardous claims. Thus, for example, at one point he takes de Tocqueville to task for having claimed in 1846 that the non-urban Algeria of his day to have been desert. In criticism of the claim, Losurdo remarks:
Like the lands inhabited or, rather, occupied without authorization by the redskins, Algeria was [according to de Tocqueville] a desert prior to the arrival of the French or ‘Christians’. A sort of Biblical aroma begins to make itself felt in connection with the landing in North Africa of a civilised people, who likewise seem invested with a providential mission.
The trouble with Losurdo’s suggestion here that de Tocqueville was being disingenuous in so considering rural Algeria is that this country was and remains largely all desert.
While something can undoubtedly be learned from reading Losurdo’s counter-history of liberalism, it is more the continuing myopia of the left and readiness to distort the truth on their part in the interests of their cause than any genuine insight into that political tradition and its vicissitudes. An accurate and up-to-date authoritative historical account of the liberal tradition still remains to be written.
This article was previously published at the Library of Law and Liberty.
Young people today are being robbed … [of] their rights … freedom … dignity .. [and] futures … [by] the world-straddling engine of theft, degradation, manipulation, and social control we call the welfare state.
So Tom Palmer begins the editorial introduction to his anthology, After the Welfare State: Politicians Stole Your Future… You Can Get It Back…. Along with this introduction, Palmer contributes three of the volume’s nine essays.
As is apparent from his opening statement, Palmer has a very low opinion of the welfare state. He considers it responsible for the economic and financial turmoil in which much of the world currently finds itself. In the next sentence to the one just quoted, he continues:
The welfare state is responsible for two current crises: the financial crisis that has slowed down or even reversed growth and stalled economies around the world, and the debt crisis that is gripping Europe, the United States, and other countries.
A main theme of the anthology is that the current welfare spending by western liberal democracies is no longer sustainable, especially that on health care and pensions. Addressed primarily to the young persons Palmer considers dispossessed of their rights, freedom and dignity by those of his generation and their forebears ‘who either created or failed to stop’ the welfare state, the aim of his anthology is to prepare them for when today’s welfare states have collapsed under the weight of their undeliverable promises. This his anthology seeks to do by informing them of what are argued to have been the superior voluntary arrangements for welfare in such countries as Britain and America before government there decided to muscle into its provision, replacing these voluntary arrangements with the current more heavy-handed, inferior ones.
Palmer sets the scene in an opening essay entitled ‘The Tragedy of the Welfare State’. There he argues that, by offering benefits at the public expense, welfare states inexorably encourage improvident levels of consumption. They do so, he argues, because the costs of what they let each take fall predominantly on others. Each consequently has a motive to take whatever is available, despite all ultimately losing from their collective profligacy, and even despite knowing they will all lose after they have stripped the welfare cupboard bare by their immoderation. Palmer writes:
The welfare state operates like a commons… Each person seeks to get as much as he can… but at the same time his neighbours are trying to get as much as they can… [P]eople reason, “if I don’t get that government subsidy, someone else will,” and each have an incentive to exploit the resource to exhaustion. They justify taking… on the grounds that they’re “just getting back what they paid in taxes,” even when some of them are getting a lot more than was ever taken from them… The result is exhaustion. It’s where we’re heading now with welfare states.
As well as encouraging improvident consumption, Palmer also holds the welfare state responsible for several other social maladies of our time. These include, most notably, xenophobia and recurrent economic crises.
Palmer implicates the welfare state in xenophobia, when he writes:
Immigrants are systematically demonized as “here to get our welfare benefits” … subjects of welfare states act to protect their “welfare benefits” by excluding would-be immigrants and demonising them as locusts and looters.
Palmer implicates welfare states in economic and financial crises, when he traces the immediate origins of the current such crisis besetting much of the world since 2008 to the intervention of the US government in the housing market so as to increase home ownership. That intervention, claims Palmer, created a property bubble by encouraging sub-prime mortgages of which most were almost certainly bound to fail. Palmer writes:
The seeds of the current crisis were planted in 1994 when the US administration announced a grandiose plan to raise homeownership rates…The US government deliberately and systematically undermined traditional banking standards and encouraged – in fact, demanded – increasingly risky lending… The result was a housing bubble of enormous magnitude… The… global financial system was poisoned with risky loans, bad debts, and toxic assets… [W]ithout the policy of the American welfare state of “making housing more affordable”… the financial crisis would not have happened… The global financial train wreck was… set in motion by the welfare state.
How exactly the US government precipitated the current world financial crisis receives greater elaboration in the contribution by Swedish economist Johan Norberg. Entitled ‘How the Right to “Affordable Housing” Created the Bubble that Crashed the World Economy’, Norberg’s essay explains how the US housing bubble was inadvertently, but predictably, engineered by policies of successive administrations wedded to extending home ownership beyond where the market would have.
There is, however, more than one way to skin a cat. Even had successive US administrations never intervened in the housing market, Europe today would still be suffering from a major debt crisis because of its indigenous profligacy in relation to welfare spending. Member states of the European Monetary Union are now locked into a sovereign debt crisis of epic proportion that threatens to blow the entire project of European Union asunder. In his opening essay, Palmer blames Europe’s welfare states for the crisis they currently face, as do several other contributors to his volume. Palmer writes:
[T]he explosion of spending on welfare state programs for retirement pensions, medical care, and many other programs has plunged the governments of the world into a debt crisis… [But] the huge increase in government debt… has been… small, when compared to the accumulated mountain of unfunded liabilities, that is, promises… to citizens… for which there is no corresponding financing… Taxes would have to rise to astronomical levels to fund even a fraction of the current promises… [Their promises] cannot be fulfilled, as we are seeing before our eyes in Greece… The welfare states … are collapsing…
How Greece fell into its current plight is explained by Greek law professor Aristides Hatzis in his contribution entitled, ‘Greece as a Precautionary Tale of the Welfare State’. Along with a companion piece by Piercamillo Falasca, entitled ‘How the Welfare State Sank the Italian Dream’, Hatzis’ essay is among the most interesting in the collection. As the two authors explain in connection with the country about which they write, and which both face bankruptcy, until comparatively recently both had sound economies, with public debt under control. Concerning Italy, Falasca writes:
From 1946 to 1962 the Italian economy grew at an average annual rate of 7.7 percent, a brilliant performance that continued almost until the end of the ‘60s… In an era dominated by Keynesian ideas and easy spending, Italian public expenditure [had] remained relatively controlled: in 1960 public expenditure barely reached the level of 1937.
At that point, explains Falasca, Italians yielded to the temptations of ever more extravagant and unaffordable welfare benefits with predictably deleterious consequences, as he further explains:
In the 1960s Italian governments passed legislation aimed at redistributing wealth… and establishing a stronger welfare state…Several important public policies adopted [then]… laid the foundations for Italy’s current crisis…The first was a weakening of fiscal discipline… [by] a 1966 Constitutional Court decision… allow[ing] the Parliament to pass laws for which annual expenses were covered not by fiscal income (taxation), but by the issue of Treasury bonds…The second was [the introduction of]… a generous pension system in 1969… [whereby] retirees received pensions… not determined by the total amount of compulsory savings collected during their working years, but merely by their previous wages… The third was heavier regulation of labor markets…making it very costly to dismiss employees… [and hence] to hire[them]… The fourth… [was] a nationalised health care system… [giving] little incentive for consumers to economise on use of medical services. Finally… in 1970 the government imposed a… rule… in the engineering and metal sectors which substantially… limited working times.
The combined effect of these policies was to end the Italian miracle and turn the country into the economic basket-case it currently is. According to Falasca, the ultimate problem engendered by Italy’s headlong rush into the deadly embrace of the welfare state has been a cultural one. He writes:
Contemporary Italians don’t seem willing to roll up their shirt sleeves as their parents and grandparents did, to produce wealth in a free and competitive economy, [and] to give up unaffordable welfare state benefits in exchange for greater freedom, income, and prosperity.
Neither do the Greeks, according to Aristides Hatzis in his contribution. Their current economic plight is even worse than that of the Italians. According to Hatzis, it is likewise due to their equally as hazardous recent flirtation with over-generous state welfare. Hatzis observes:
Greece used to be considered something of a success story… Greece’s average rate of growth for half a century (1929-19809) was 5.2 percent: during the same period Japan grew at only 4.9 percent… When [in 1981] Greece entered the EC, the country’s public debt stood at 28 percent of GDP, the budget deficit was less than 3 percent of GDP, and the unemployment rate was 2-3 percent.
All that changed for the worse shortly afterwards, when the Greek socialist party PASOK gained power. According to Hatzis, it was that party’s ‘radical statist and populist agenda’ that is directly responsible for most of Greece’s current plight:
Today’s crisis in Greece is mainly the result of PASOK’s short-sighted policies… PASOKS’s economic policies… created a deadly mix of a bloated and inefficient welfare state with stifling intervention and overregulation of the private sector… Its political success transformed Greece’s conservative party (“New Democracy”) into a poor photocopy of PASOK. From 1981 to 2009 both parties mainly offered welfare populism, cronyism, statism, nepotism, protectionism, and paternalism. And so they remain.
As an index of the profligacy to which the vote motive impelled Greece’s two main parties, Hatzis provides the following statistics about his country:
In 1980, public debt was 28 percent of GDP, but by 1990 it had reached 89 percent and in early 2010 it was more than 140 percent… Government spending in 1980 was only 29 percent of GDP; thirty years later (2009) it had reached 53.1 percent…
Greece has the least competitive economy among the 27 EU members…over 50 percent of young Greeks… [being] unemployed… Greece’s bloated welfare state has convinced many that their benefits have the status of “social rights”… The government spends 10,600 Euros per person on social benefits but brings in only 8,300 Euros per person in revenues… At the same time, wages in the public sector have risen in real terms (from 1996 to 2009) by 44 percent… Pensions also rose substantially.
Truly we are witnessing today a real Greek tragedy. Unsustainable levels of public spending on welfare, however, are by no means confined to Greece and Italy. According to Cato Institute senior fellow Michael Tanner, no European country, nor even the USA, has cause for complacency. He supplies the following chastening information in his contribution to the anthology:
Today, the average EU government consumes slightly more than 52 percent of the country’s GDP… [with] social welfare spending… a growing proportion…[O]verall social welfare spending represents more than 42 per cent of all EU government spending. Debt is the symptom and the welfare state the cause.
The United States is not in significantly better shape…US national debt… now exceeds… 102 percent of GDP… If one adds the unfunded liabilities of Social Security and Medicare… [t]he situation in Greece and in the US may not be so different after all. Currently, the US federal government spends more than 24 percent of GDP. That is projected to rise to 42 percent of GDP by 2050. Add state and local government spending, and government spending at all levels will exceed 59 percent of GDP, higher than any country in Europe today.
‘What is not debatable,’ Tanner concludes: ‘is that the welfare state is no longer affordable. It is time to look for alternatives that won’t bankrupt future generations.’
Where are these alternatives to be found? According to Palmer, the answer lies in the past, namely, in the voluntary arrangements in place before welfare states coercively crowded them out. Such voluntary arrangements portend what could — and, in Palmer’s view, should — increasingly replace welfare states as their collapse becomes ever more imminent. These earlier arrangements are the subject of the contributions by David Green and David Beito.
David Green is director of the British social policy institute Civitas. In his contribution, entitled ‘The Evolution of Mutual Aid’, he offers a brief overview of the arrangements for the mutual aid of workers and their dependents accorded by the so-called ‘friendly societies’ that flourished in Britain for more than a century before the advent of the welfare state. Green reports:
By the early years of the twentieth century the friendly societies had a long record of functioning as social and benevolent clubs as well as offering benefits such as sick pay when the breadwinner was unable to bring home a wage due to illness, accident, or old age; medical care for both the member and his family; a death grant sufficient to provide a decent funeral; and financial and practical support for widows and orphans of deceased members… By the time the British Government came to introduce compulsory social insurance for twelve million persons under the 1911 National Insurance Act, at least nine million were already covered by… voluntary insurance associations, chiefly the friendly societies.
Similar voluntary arrangements prevailed in the USA under the name of ‘fraternal societies’, American historian David Beito relates in his contribution entitled, ‘Mutual Aid for Social Welfare: The Case of American Fraternal Societies’. Beito observes there that:
Only churches rivalled fraternal societies as institutional providers of social welfare before the advent of the welfare state. In 1920 about eighteen million Americans belonged to fraternal societies, i.e., nearly 30 percent of all adults over age twenty.
Beito argues these past welfare arrangements were superior both to charity and state provision, attributing their superiority to the reciprocity on which fraternal societies rested, unlike the other two welfare providers. He writes:
Donors and recipients in the fraternal society were peers in the same organisation… While fraternal society benefits were not unconditional entitlements, neither could they be properly classified as charity… The aid restrictions… rested in an ethic of solidarity… [M]embers who violated certain restrictions… lost their claim to benefits… Fraternal societies and other mutual-aid organisations gave African Americans from all classes access to insurance… In 1919… [an] estimated 93.5 percent of the African America families in Chicago had at least one member with life insurance… [making them] the most highly insured ethnic group in the city… a striking testament to the resilience of African American families in an era of Jim Crow and economic marginality.
The conditionality and reciprocity of the welfare fraternal societies provided gave their members a powerful incentive for moral probity and familial responsibility, now largely vanished under the current impersonal state arrangements. Figures for welfare dependency in America cited by Beito suggest its burgeoning welfare state has undermined both the work ethic and a sense of personal responsibility, especially among African American citizens:
At least until the 1920s, African American families were about as likely as white families to be headed by two parents… In 1983, by contrast, 41.9 percent of African American families had no husband present… In 1931, 93,000 families were on the mothers’ pension rolls (well under 1 percent of the US population). By comparison, 3.8 million families now receive AFDC, including about one-fifth of the entire African American population.
In his concluding essay, Palmer draws together the various threads laid out in the preceding essays by offering an overview of what he claims to be the classical liberal perspective on poverty and its amelioration. In some ways the most ambitious contribution to the volume, this essay is also the least satisfactory.
As well as a senior fellow at the Cato Institute, Palmer is also executive vice president for international programs at the Atlas Network in which latter capacity, readers of his anthology are informed: ‘He oversees the work of teams working around the world to advance the principles of classical liberalism.’ This is a weighty responsibility. By taking on such a sacred cow as the welfare state, it is beholden on him to ensure the criticisms he levels against it on behalf of classical liberalism are well-founded and always find their mark. Otherwise, rather than advance the classical liberal ideals of limited government and individual responsibility, Palmer’s volume would only serve to discredit them.
Although Palmer’s anthology and his own contributions contain much that is both true and illuminating, his final essay is marred by a certain unfortunate propensity towards hyperbole. He tends to exaggerate both the defects attributable to the welfare state, as well as the extent to which classical liberalism opposes all forms of public provision of welfare.
For example, there was nothing integral to the welfare state, even in the U.S., that necessitated successive U.S. governments should in recent times have chosen to extend home ownership in the way that they did. Hence, it seems an exaggeration to attribute, as Palmer does, the current global financial crisis to the welfare state, rather than to other, separate misguided interventionist policies.
It seems equally as misguided of Palmer to attribute xenophobia to the welfare state or to have claimed classical liberalism opposed to all restrictions on immigration. The welfare state no more necessarily causes, or is born from, aversion and hostility to foreigners than its absence is an invariable sign or productive of universal amity. Think of present-day Somalia, for example.
Moreover not only was it woefully inaccurate of Palmer to cite, as he does, the British economist Phillipe Legrain as a classical liberal, because of his support for open borders and free trade, he is arguably equally as wrong to equate classical liberalism with opposition to immigration controls. Not only has Legrain exhibited no sign of championing limited government, in 2008 he produced a publication for Sweden’s Globalisation Council in which he argues for the compatibility of open borders and the welfare state.
Moreover, many eminent and undoubted classical liberals have argued against open borders, for reasons having little to do with xenophobia. They include Henry Sidgwick and Ludwig von Mises to name but two.
More importantly, it creates an unfavorably wrong impression of classical liberalism in those who need to be won over to its cause to state, as Palmer does in the concluding paragraph to his volume, that:
Classical liberal thinkers… all agree that.. [among] means for the alleviation of poverty, the least preferred option… [is] state compulsion.
Virtually all major classical liberals, from John Locke and John Stuart Mill, through Henry Sidgwick to Friedrich Hayek and Milton Friedman, have agreed on the indispensable need for a public welfare safety to prevent total indigence, as Palmer acknowledges, albeit somewhat grudgingly. Even that great apostle of strictly limited government, Ludwig von Mises did, writing in his 1936 book Socialism: An Economic and Sociological Analysis:
It is true that liberal politicians have striven against the encouragement of beggars by means of indiscriminate almsgiving and have shown the futility of any attempt at bettering the situation of the poor which does not proceed by increasing the productivity of labour… But they have never protested against support through the Poor Law of people unable to work.
So long as the poor remain with us, there will be need for some form of public provision to meet their needs, over and above charity and mutual-aid. The task ahead for classical liberals is to bring public provision of welfare once again within legitimate undamaging limits, not condemn it out of hand by suggesting that it is always and everywhere inferior to alternative forms of provision.
See Tom Palmer’s response: “The Protean Welfare State“.
This article was previously published at The Library of Law and Liberty.