Failure to recognize the distinction between classical and modern liberalism can have grave consequences for the protection of our rights and liberties.

Modern liberals are unflinching in their support for political and civil freedom. In this respect, they are similar to the liberals of the yesteryears- the classical liberals. But the similarity ends there. While classical liberals supported freedom for an individual in all spheres – political, civil and economic, modern liberals have removed protection of economic freedom from their agendas. It is important to understand the implications of this. Else modern liberals run the risk of destroying the very ideals liberalism originated to promote.

The origin of classical liberalism

We first need to take a dive into history to trace the birth of liberalism and understand what it originally stood for. As a doctrine, liberalism originated in Europe in the seventeenth century. The central value that it espoused was that individuals should be free to decide their destiny, and there should be equality in opportunity. This was sought to be achieved through three dimensions- promoting political freedom by challenging the absolute rights of kings, promoting civil liberty through freedom of speech, press, religion, and, promoting economic freedom through free-markets and international trade. This version of liberalism is called classical liberalism.

Classical liberal ideas played an important role in the Glorious Revolution (1688-1689), a battle between the English monarchy and the Parliament of England. The outcome of this Revolution was the abolition of absolute monarchy in England through the promulgation of the Bill of Rights in 1689. Classical liberal ideas were also behind the Declaration of Independence in 1776 by thirteen American colonies that proclaimed independence from the British Empire and the French Revolution from 1789 to 1799. All these events bore the classical liberal stamp of promoting political and civil freedom.

The revolutionary impact of classical liberalism was not limited only to political and civil aspects. The classical liberals also sought to promote actively economic freedom. Adam Smith’s magnum opus, The Wealth of Nations, published in 1776, formed the intellectual bedrock of classical liberalism’s defense of free-markets. These ideas served as the basis for the Industrial Revolution in England and Western Europe during the nineteenth century. Classical liberal free-market ideas also contributed to the repeal of UK’s Corn Laws which was in force from 1815 and 1846 and restricted international trade in the grain market.

Thus, the ascendancy of classical liberalism had three important effects. First, it led to the emergence of political freedom by challenging the ‘divine right of the kings to rule’. Second, it led to the enactment of constitutional guarantees for the protection of freedom of speech, press and religion. Third, the free-market ideas of classical liberalism played an important part in the emergence of the Industrial Revolution, which propelled the Western civilization ahead of other contemporaneous civilizations.

The turning point

The first half of the twentieth century was a turning point in the evolution of liberalism. One of the pillars of classical liberalism – economic freedom, no longer attracted the same attention from liberals. To distinguish this from classical liberalism, we can call this brand of liberalism as modern liberalism. There were primarily three factors that contributed to the loss of faith in free-markets–business cycles, world wars and the initial success of totalitarian political-economic systems.

Downturns in business cycles, like the Great Depression in the US in 1930, increased the demand for the government to intervene in the economy. The prolonged crisis, which extended to the start of the Second World War, gave birth to the belief that markets are not self-correcting. It was felt that government intervention is needed not only to stabilize economic activity but also reduce income inequality.

This was the basis of the New Deal program introduced by Franklin D. Roosevelt in 1933, the then US President, which substantially increased the role of the government in the economy. The rise of government intervention and restrictions on economic freedom was sanctified by Keynes whose theories provided the intellectual basis for tempering free-markets.

The two world wars also had a hand to play in the attack on economic liberty. Government planning was required both for conducting the war and for organizing the post-war recovery. War led to the emergence of central planning on a scale not seen before.

The First World War also led to the dislocation of the gold standard and increased government’s role in controlling the money supply in an economy. The Bretton Woods system post the Second World War further cemented the role of the government in regulating the international monetary system.

The emergence of alternative political-economic systems like Fascism in Germany and Italy and Socialism in the Soviet Union further undermined economic freedom.The rapid industrialization of Germany during the 1930sunder Hitler’s fascist regime led even Britain, the birthplace of free-market economic policies, to question the efficacy of free markets.

The victory of the Allies in the Second World War also had the consequence of establishing Stalin’s brand of Socialism as an alternative political-economy system to democratic-capitalism. Post the Second World War, the consensus that government planning and intervention is indispensable had deeply grounded itself.

Thus, the transition from classical to modern liberalism was complete by the 1950s. Economic freedom was removed as the third pillar of liberalism. In fact, economic freedom came to be considered as a hindrance in the achievement of the liberal ideals of freedom and equality.

Liberals started actively speaking of how the government should increase its role in the economy to restrain free-markets. With this, the meaning of the word ‘liberal’ itself has changed. Apart from continental Europe, where the word continues to refer to adherents of classical liberalism, in all other places, including India, the word ‘liberal’ has come to denote the followers of modern liberalism.

The confusing semantics

Looking at the above evolution of liberalism, it is clear to see that if someone was to remark, “I am a liberal,” we have reasons to be confused regarding their ideological disposition. Such a statement needs to be clarified by adding the nomenclature of ‘modern’ or ‘classical’. The reason this is not done is that modern liberals consider themselves to be the true inheritors of the liberal tradition, and hence just refer to themselves as ‘liberals’.

This is strange because the founders of liberalism may very well take umbrage to several of the policy perceptions advocated by modern liberals. In this sense, modern liberals are at best self-declared inheritors of the liberal tradition. Also, using the term ‘liberalism’ as an undisputed reference to ‘modern liberalism’ brushes aside the importance accorded to economic freedom by classical liberals.

The importance of economic freedom

This brings us to an important question.If indeed economic freedom is a hindrance in the achievement of liberal ideals, why did classical liberals support free markets? To answer this, we need to look at the close link between political-civil freedom on one hand, and economic freedom on the other.

Contrary to what modern liberals believe, political-civil freedom and economic freedom cannot be segregated. This is because political-civil actions co-exist with economic actions. For instance, what is the point of having the freedom to go on a long drive to a weekend getaway if the supply of fuel is rationed or buying a car requires a government approval?

Similarly, you may be free to choose your beverage, but if the government promotes tea because it is indigenous and restricts the consumption of coffee because it is imported, the freedom of choice is spurious. Classical liberals recognized this dichotomy and hence were unflinching in their support of individual liberty – political, civil, economic or otherwise.

Frédéric Bastiat, the great nineteenth-century French liberal said that whether the discussion is on religion, philosophy, politics, economy, or for that matter anything else, the solution is general to be found in individual liberty.

Hayek

The link between political-civil freedom and economic freedom was also highlighted by F.A. Hayek, the principal intellectual opponent of Keynes. In his book, The Road to Serfdom, published in 1944, Hayek warned that increasing centralization of economic powers with the government could undermine political and civil liberties. An important reason for this is that increasing government power in one area increases the tendency of such power being misused to curtail right and liberties in other areas. Also, implementation of economic planning by the government gives it the pretext to subjugate civil rights. For instance, arming the government with the power to control business cycles through output management could require the suspension of your right to choose a job.

A similar sentiment was echoed in Milton Friedman’s book Capitalism and Freedom, published in 1962. Commenting on the relationship between political-civil liberty and economic liberty, Friedman wrote, “I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity.” It would be difficult to find such an example even today. The co-existent nature of political-civil freedom and economic freedom, as described by Friedman and Hayek, has been summarized in the Friedman-Hayek Hypothesis which states that societies with high levels of political freedom must also have high levels of economic freedom.

The differing focus on economic freedom sets apart classical liberalism from its modern version. It is unfortunate that the contemporary use of the word ‘liberalism’ does not take cognizance of this fact. Underlying this obfuscation is the disregard of the fact that economic actions co-exist with political-civil actions. This can have grave consequences.

As the relationship between economic freedom and political-civil freedom shows, dilution of economic freedom could also unwittingly dilute political-civil freedom.It took centuries for liberal ideas to provide us with rights and liberties that we take for granted today. It will be a strange travesty if the modern avatar of the same movement leads to their destruction in the future.

The author can be contacted at ravi.srg@gmail.com. Views are personal.

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