The myth of classical liberalism

The idea of Ludwig Mises, Friedrich Hayek and Milton Friedman, that there was once an ultra-individualist ‘classical liberalism’ promoting unrestrained markets, is a myth.

So-called neoliberals such as Ludwig Mises, Friedrich Hayek and Milton Friedman described themselves as ‘classical’ or ‘old-style’ liberals.[1] Their declared mission was to revive an economic and political liberal tradition of the eighteenth and nineteenth centuries. They believed that this earlier liberal tradition had been perverted in the English-speaking world: it had come to signify extensive government intervention.

In his 1962 preface to his book now titled Liberalism: The Classical Tradition, Mises complained that in the US the term liberal ‘means today a set of ideas and political postulates that in every regard are the opposite of all that liberalism meant to the preceding generations.’ This account of the evolution of the term liberalism is widely taken for granted, by both its supporters and its critics.[2]

But in key respects it is false. Mises, Hayek and others adopted the following methodology. First, they conjured a picture of what classical liberalism means. In their case it is a doctrine of liberty seen as the absence of individual coercion, treating the individual as the best judge of his or her interests, with an emphasis on rights over duties, and the proselytization of a minimal state.

Then they read back into the history of ideas, searching for statements and writers who espouse such views. A history of classical liberalism is then constructed, typically going back to early Enlightenment thinkers like Locke in the seventeenth century.

There are major problems with this methodology. First it paints the portrait before studying its historical subject in the round. Given the scale and diversity of political and philosophical thought in over three hundred years, it is quite conceivable that one or more persons resembling the portrait can be found.

But this retro-constructivist methodology has to quickly pass over writers such as Thomas Paine, who were strong on social obligation, redistribution and economic equality, as well as on rights and liberty.

It also has problems dealing with people who have important distinctive features that are additional to those in the preconceived painting. A foremost example is Adam Smith, who is applauded for his recognition of individual incentives and for his celebration of markets and of spontaneous order. But other prominent features of his thought – including his extensive discussions of unselfishness, sympathy, justice and moral sentiments – are given less emphasis.

This retrospective methodology works backwards. Sure enough, it finds what it was looking for. But it becomes blind to much else. It constructs a history that is blinkered by its contemporary prejudices. It has no answer to a rival retrospective attempt that might start from a different preconception of classical liberalism and looks back to find thinkers that fit a different portrait. For example, it might accent an emphasis on moral motivation, sympathy, duty and justice, as virtues in themselves rather than as means to other ends, to find that Adam Smith, Edmund Burke, Thomas Paine and William Cobbett were classic liberals, whereas others such as Bernard Mandeville and Frédéric Bastiat were not.

An important corrective to this one-sided, retro-constructivist methodology is to look at the past usage of terms such as liberal and liberalism and to find the thinkers and ideas to which they adhered.[3] Helena Rosenblatt performs this task in her Lost History of Liberalism. She is fully aware of the difficulties, as term such as liberal have shifted in meaning. But the origins of the word are still important.

In ancient Rome: ‘liberalitas signified the moral and magnanimous attitude that the ancients believed was essential to the cohesion and smooth functioning of a free society.’ In the fourteenth century the adjective liberal was used to mean ‘generous’, ‘noble’, ‘selfless’, ‘magnanimous’ or ‘admirable’. In the King James version of the Bible (1604-11) the word liberal appears several times, ‘each time referring to generous giving, especially to the poor.’ The first edition of the Dictionary of the Académie française (1694) saw a liberal as ‘he who likes to give … to people of merit’.

Then the term shifts slightly in meaning. The Oxford English Dictionary records that by 1772 the word ‘liberal’ had come to mean ‘free from bias, prejudice, or bigotry; open-minded, tolerant.’ Rosenblatt found such sentiments in early liberal writings:

"At heart, most liberals were moralists. Their liberalism had nothing to do with the atomistic individualism we hear of today. They never spoke about rights without stressing duties. Most liberals believed that people had rights because they had duties, and most were deeply interested in questions of social justice. They always rejected the idea that a viable community could be constructed on the basis of self-interestedness alone. Ad infinitum they warned of the dangers of selfishness. Liberals ceaselessly advocated generosity, moral probity, and civic values."

As Rosenblatt explained, the term liberalism ‘owes its birth to the French Revolution. The word itself was coined around 1811, and it was men and women like the Marquis de Lafayette and his friends, Madame de Staël and Benjamin Constant, who first formulated the ideas to which it referred.’ The word first appeared in English in 1815. Rosenblatt thus offered an entirely different account of early liberalism:

"Contrary to what is often said today about nineteenth-century liberalism, early liberals were not doctrinaire about laissez-faire. They did not stress property rights or celebrate the virtues of unbounded self-interest. What today is called ‘classical’ or ‘orthodox’ liberalism did not exist. … In fact, the concept … never actually existed during the period under consideration. Liberals held a spectrum of economic views … the great majority of nineteenth-century liberals, whether British, French, or German, were not all that adverse to government intervention. Nor did they advocate absolute property rights. And they certainly did not believe that individuals pursuing their own self-interest would spontaneously create a healthy wealth distribution or social harmony. They denounced selfishness and individualism at every opportunity."

It is true that many (if not most) early liberals argued for a small state. But they lived in a period when the state and its tax levels were much smaller than they became in the twentieth century. We cannot automatically assume that they would have taken the same small-state view in the present context, especially if they were responsive to practical experiment and historical experience.

Consequently, classical liberalism does not denote one distinctive type or phase of liberalism. The original Liberalism from the seventeenth to the mid-nineteenth century contained widely diverging variants. Contrary to Mises and Hayek, the kind of government-interventionist and welfarist liberalism that we find today in Britain and North America is not an abuse of the classical label. It can trace its origins and legitimacy back to variants of liberalism that emerged during and after the French Revolution. Mises, Hayek and Friedman have no greater claim to the title of classic liberalism than interventionists such as John A. Hobson, John Dewey, John Maynard Keynes and Michael Polanyi.

In liberal chaos of miss-labelling we have to build up again from the remnants of history that have survived critical scrutiny. With such hindsight, and in terms of core sentiment rather than detailed argument, there is nothing ‘new’ or ‘neo’ in the interventionist liberalism of Hobson, Dewey or Keynes, or in the so-called ordoliberalismus of Eucken, Röpke or Rüstow. Despite their novelty, their justifications of some state intervention build on considerations raised within liberalism for more than two hundred years.  

Furthermore, taking the historical panoply of liberalism as a whole, and even if we confine our gaze to the nineteenth century, Mises, Hayek and Friedman do not come across as classical or typical, but as rather extreme. This is evident not only in their persistent devotion to a minimal state in an era of complex trading relations where it is arguably unfeasible, but also in their emphasis on individual gain, and in their lack of stress on duties, social justice and moral motivation as intrinsic virtues. If it can apply to any liberal, then the ‘neo’ epithet can apply to them. We need to restore much of classical liberalism, against the so-called neoliberal axis of Mises, Hayek and Friedman.

1. I am overlooking here the problem that the term neoliberalism is used to describe a host of very different things. It has become a much-abused term of abuse (Boas and Gans-Morse 2009, Audier 2012, Burgin 2012, Venugopal 2015, Hodgson 2019). Nevertheless, it could have a meaningful usage if it could be confined to the stream of thought around Mises, Hayek and Friedman (Hodgson 2020).

2. Hayek’s (1960, pp. 55-57) position was more nuanced. He contrasted the ‘British’ and ‘empiricist’ tradition of liberalism, including David Hume, Adam Smith and Edmund Burke, with the ‘rationalist’ and ‘French’ tradition.

3. Similar problems and possible remedies occur with the contested term social Darwinism. In this case too, a practice of first assuming what it meant, and then looking back to find exponents, is commonplace. But a systematic search for appearances of the term (in Anglophone journals) revealed a very different story. It was discovered that in its early years the term was often a label attached by critics of belligerent nationalism or racism. Accordingly, Herbert Spencer and William Graham Sumner (who were critical of imperialist wars) were not described as social Darwinists until the 1930s, and that meaning of the term then shifted to downplay nationalism in favour of notions of competitive individualism (Hodgson 2004, 2006).

Audier, Serge (2012) Néoliberalisme(s): Une archéologie intellectuelle (Paris: Grasset).

Boas, Taylor C. and Gans-Morse, Jordan (2009) ‘Neoliberalism: From New Liberal Philosophy to Anti-Liberal Slogan’, Studies in Comparative International Development, 44(2), June, pp. 137–61.

Burgin, Angus (2012) The Great Persuasion: Reinventing Free Markets since the Depression (Cambridge MA: Harvard University Press).

Hayek, Friedrich A. (1960) The Constitution of Liberty (London and Chicago: Routledge and Kegan Paul, and University of Chicago Press).

Hodgson, Geoffrey M. (2004) ‘Social Darwinism in Anglophone Academic Journals: A Contribution to the History of the Term’, Journal of Historical Sociology, 17(4), December, pp. 428-63.

Hodgson, Geoffrey M. (2006) Economics in the Shadows of Darwin and Marx: Essays on Institutional and Evolutionary Themes (Cheltenham: Edward Elgar).

Hodgson, Geoffrey M. (2019) Is Socialism Feasible? Towards an Alternative Future (Cheltenham UK and Northampton MA: Edward Elgar).

Hodgson, Geoffrey M. (2020) ‘How Mythical Markets Mislead Analysis: An Institutionalist Critique of Market Universalism’, Socio-Economic Review, 18(4), October 2020, pp. 1153-1174. 

Mises, Ludwig von (2005) Liberalism: The Classical Tradition, translated from the German edition of 1927 (Indianapolis: Liberty Fund).

Rosenblatt, Helena (2018) The Lost History of Liberalism: From Ancient Rome to the Twenty-First Century (Princeton NJ and Oxford UK: Princeton University Press). See especially pp. 4, 9, 16, 29, 42, 82, 112, 114-15.

Venugopal, Rajesh (2015) ‘Neoliberalism as a Concept’, Economy and Society, 44(2), pp. 165-87.