Economic liberalism

History of the economic liberalism

Traditional economic liberalism

The economic liberalism in its traditional version was constituted in theory with 17th and 18th centuries, under the influence of the philosophers of the Lumières, mainly British (John Locke, David Hume, Adam Smith) and French (Turgot, Condillac, Montesquieu). It consists primarily of the application to the economic acts of the philosophical and political principles liberal, which rise from the primacy of the individual Liberté on all the forms of to be able.

At that time, the liberal economists want to show that, across the arbitrary one and the capacity of the sovereign, free plan of the individual interests in the Civil society leads to a Ordre and not with chaos. In this direction, the liberal project lies within the scope of an optimistic philosophy and can be regarded as modern, even revolutionary.

The Scot Adam Smith thus supposed as of 1776 in his Recherche on the nature and the causes of the richness of the nations that all occurred as if a “invisible Main” organized the exchange S and harmonized the individual and collective interests: although he seeks only his own interest, the man “ is led by an invisible hand to fill an end which enters its intentions by no means; and it is not always what there is moreover more badly for the company, which this end does not enter for nothing its intentions. While seeking only its personal interest, it often works in a way much more effective for the interest of the company, than if the purpose of it were really to work there”. The same idea is expressed by Montesquieu: “ each one goes to the public property, believing to go to its private interests ”.

Later, David Ricardo, in Of the principles of the political economy and the tax (1817), will advance its famous theory of the Libre-échange mutually advantageous (theory of the comparative advantages) for all the countries taking part in the international business.

The liberalism of the economists of the traditional École French (Turgot, Condillac, Say, Bastiat) especially sat on arguments of a philosophical nature, the properly economic arguments having only one secondary place.

This liberalism goes hand in hand with a subjective design of the Valeur, which expresses the Désir that we test for the things. However neither the desire neither satisfaction are measurable, and one can thus neither compare nor to add the values which two different individuals attach to a good. For holding of this school, there does not exist measurement Bien-être of an individual or a group, and the concept of optimum economic is meaningless. No organization could thus legitimately assume the right to intervene by the constraint to support the attack of an optimum.

For these authors, the only legitimate role of the State is to make respect the civil rights and to protect individual freedoms. Its actions are thus regarded as illegitimate if they leave this field; the economy is only one of the fields of the human activity where the State should not intervene. It is what Frederic Bastiat summarizes in his Economic Harmonies of 1850: “ to await State only two things: freedom, safety. And to see well that one would not know, with the risk to lose them both, to ask a third of it”.

Some of these authors attempted to show that the governmental interventions in the economy are not only illegitimate, but ineffective. Not only they do not involve the effects which had justified them, but they have harmful perverse effects. It is what Turgot heard while writing in 1759 in its Eloge of Vincent de Gournay : “ the private interest given up with itself will produce more surely the general good than the operations of the government, always faulty and necessarily directed by a vague and dubious theory. ”. This thesis is detailed in 1776 by Condillac in “ the trade and the government considered relatively one with the other ”

These positions were taken again and developed as from 1870 by the Austrian Ecole of economy (Menger, Mises, Hayek, Murray Rothbard) and by French economists like Jacques Rueff. This school notes moreover than any voluntarily agreed agreement increases the satisfaction of the two parts. Indeed, if it were different, that of both which would feel injured would refuse this agreement and the exchange would not take place. More generally, any whole of freely authorized exchanges improves the situation of all those which took part in it. The freedom of the exchanges is thus the guarantee that the situation which results from it is considered to be preferable with the starting situation by those which took part in the exchanges. Freedom to exchange and undertake is at the same time a particular case of the philosophical principle of freedom, therefore a moral requirement which are essential independently of its consequences, and the means which most probably leads to greatest general satisfaction. One of criticisms essential of this school, in particular developed by Friedrich von Hayek ( Prix and Production , 1931), is that information on the state of the markets is provided by the prices (high prices indicating an insufficiency of production compared to the request and conversely), and that thus any intervention of the State in the economy, because it modifies the relevance of the prices artificially, diverts the factors of production of their optimal allowance, even pushes the agents to produce useless goods and not to produce the most asked goods.

For the Austrian authors, the Marché is primarily a “cognitive process” of discovery, exchange, conservation and treatment of information in which the system of the Prix directs the individual behaviors towards the activities considered to be most useful by the company, while carrying out a considerable saving of information and organization since all private information is condensed in only one indicator available for all.

The traditional British (Adam Smith, Malthus, John Stuart Mill, Ricardo) are less explicitly attached to philosophical liberalism. Their position is primarily Utilitariste, i.e. they justify their liberal positions by arguments of economic efficiency more than by general principles, thus preceding the neo-classic position. They are also absolute in their opposition to the governmental interventions. For example, Adam Smith assigns with the sovereign a " third devoir" in addition to " the protection of the company against violence and the invasion coming from the others sociétés" and of " the protection of each citizen against the injustice or oppression on behalf of all autres": that of " to build and maintain the public institutions and works… which one cannot wait until an individual or a small number of individuals can build them and the entretenir".

Neo-classic economic liberalism

This approach of liberalism is a more recent tradition born at the 20th century, which seeks to give a “scientific” justification of it being based on the theory of the general stability proposed at the end of the 19th century, which tries to show that the Rationalité actors, thanks to the presumedly perfect coordination of their actions by the only skew of the Marché, led to best of the possible situations. Leon Walras, in his Elements of pure political economy (1874), will thus try to show that the flexibility of the prices, associated with that of the quantities offered and required, necessarily leads to a general stability. Whereas Walras thus thought of having shown the possibility of balance, Vilfredo Pareto will seek to establish that balance in question is optimal. A situation is known as optimal within the meaning of Pareto if it “ is not possible to increase the utility of an individual without degrading that of at least another individual ”.

The study of general stability was resumed by Arrow and Debreu which will establish in a rigorous way the conditions of existence and stability of this balance, among which:

the atomicity of the agents: none of them is enough important to influence the market by its only behavior. This supposes not only one high number of offerers or applicants, but especially the absence among them of “a large” agent able to act on the market;
the rationality of the agents: each one of them is characterized by a “function of satisfaction” which expresses its satisfaction according to the quantities of each although it has, and its behavior is summarized to seek to maximize this function;
homogeneity of the product: only the price makes it possible to distinguish the products which have all of the identical characteristics;
transparency of the market: all the prices are known of all, like all the quantities available: information is supposed to be perfect;
the free entry on the market: only the price decides the agents to enter on the market and no other legal barrier (patent), technique (know-how) or economic (capital) is opposed to it;
the mobility of the factors: according to the price which remunerates each factor, the agents can reorientate their capital or their work towards the sectors or the activities remunerative.

Having thus shown that free plan of the economic actors leads to a situation of economic optimum, certain authors deduce from it the liberal precept that the State should not intervene in the operation of the market, under penalty of degrading the total situation.

This justification of liberalism is radically different from the traditional position. On the one hand it is based on two foreign concepts with the traditional ones: that of balance and that of optimum, and rests on assumptions that the traditional ones regard as without relationship with reality. In addition, it justifies liberalism only by its consequences and not by the application of general philosophical principles applicable to all the human activities, like does it traditional liberalism. It results from it that, contrary to the traditional liberals, the neo-classic liberals are been willing to admit certain interventions of the State, while differing on their exact limits. By doing this, they ignore that while taking with the ones to give to the others, the intervention of the state can only violate the criterion of Pareto which they themselves recognized.

The theory of general stability is not specifically liberal. Certain authors in the line of Oskar Lange proposed that the State uses it to calculate and impose balance. Others support that the State must intervene to impose the conditions of formation of balance.

Economic liberalism in practice

Beyond the significant theoretical divergences between currents, liberalism is and was always a practice.

Is the economic liberalism of left?

In a work recently published two Italian economists, Francesco Giavazzi and Alberto Alesina, support qu'" a strong regulation, the protection of the statutes, a public sector very développé" do not profit with poorest but with the more " connectés". For example, the job markets in Italy, in Spain and France marked by a strong duality between those which are in place and those which would like to enter tend to confine the last named in precarious employment. In the same way, they are very critical towards the universities of these countries which under cover of egalitarianism would penalize the majority of the students except for richest who can circumvent them. For these authors, the reforms pro-markets do not imply to exchange more effectiveness against less justice but, on the contrary, the privileges reduce. It is this direction which they are of left.

Controversies on the economic liberalism

See also: Critical of the economic liberalism

Nature and origins of the disagreements

The points of controversy on the economic liberalism are of origin and of nature various and do not form a homogeneous unit. Most current are of empirical nature. They identify situations considered to be unsatisfactory, charge them (wrongly or rightly) to the application of liberal economic policies and pose in theory that the State can and must correct them.

A second unit results from oppositions to liberalism as a theory of organization of the economic system. They generally address to the assumptions neo-classic theory, regarded (wrongly) as the base of the economic liberalism.

A third whole of controversies relates to the economic dimension of the principles constitutive of traditional liberalism. They are presented in the political article Libéralisme.

Controversies on the consequences (utilitarian)

By definition, liberalism implies a minimal action, even null, public authorities. The multiple real problems (economic but also social) are thus as many occasions to reproach him what seems a passive and preserving attitude, even a contempt for the problems and those which live them, and an encouragement the selfishness. For these criticisms, the action of the State is necessary to organize the solidarity.

In a general way, liberalism considers that to count on the State to correct these situations, it is him to lend a benevolence, knowledge and capacities which it does not have. Its action seems often ineffective, even carrying perverse effects. The omnipresence of the State would discourage these spontaneous initiatives rather and would tend to spread selfishness, whereas the social instincts of the human being are sufficiently strong there so that it spontaneously implements solutions without having to be constrained. The voluntary action, within an associative framework , Mutual, ONG, etc is considered to be more effective, and for the traditional liberals, is the only legitimate one.

Impact on employment

For example, the economic liberalism is translated on the job market by larger flexibility which involves than criticisms call Précarité. Position liberal on the matter is that Contractor will be more inclined to engage of personnel in phase of growth of its activity, that this flexibility will make it possible to the contractors to more easily answer at the requests of the Marché, which will be beneficial for the economic activity in general and thus for the workers (thus creating a Virtuous circle), the latter being then in a situation who is of mobility , rather than of precariousness.

The distribution of the richness created

The economic liberalism would be favorable to already rich and unfavourable with poorest, within the nations (between Social classes) and between nations. Indeed, richest the means would have of investing in a future enrichment, whereas poorest these means would not have. It would result from it an increase in variations in richness between the rich classes and the poorest classes and often a more important impoverishment of the most stripped classes. This reasoning is in practice more one critical Capitalisme, that liberalism, that one often confuses, this first accompanying quasi-systématiquement this last.

The comparison between rich countries of the rates of Poverty (using like Poverty line 50% of the median income ) place the most liberal countries atrelatively high rates (the United States to 17%, Australia to 14,3%, the United Kingdom to 12,5%), while the social democrat countries have the lowest rates (Finland to 5,4%, Sweden to 6.5%, Norway to 6.4%), the level of the country managed by a État-providence being intermediate (Belgium and France to 8%). The criterion selected must however be taken with precaution, since, Ceteris paribus , a higher median income (for example of rich person advantage) will raise the incidence of poverty.

The liberal answers are:

greatest freedom economic involves the greatest production of richnesses, and the official intervention reduces it. To take the recent topicality, the examples of the emergent countries, including more important in population such as the China, the India and the Brazil, showed that the development of the GDP is supported by the introduction of measurements of liberalization of private initiatives (That being these countries exert a rigorous control on the introduced reforms so that those do not disturb the local economy).
On the empirical level, the observation would show that economic freedom improves also the situation the most stripped of, even if it is in a proportion less than that of most favoured. The liberals consider that the Economic growth makes it possible to improve the situation of all, including poorer, which they summarize by the expression " With rising tide top spins all boats." (“the rising tide raises all the boats. ”) The social Interventionnisme would be with final against-productive even for poorest. The liberals return to the examples Russian, Indian or Chinese, where the distribution, according to them, was with the departure even more unjust, and where economic progress is faster since liberalization.
On the theoretical level: no political system can dictate with each one the good way of living its life. So some Inégalités are to be fought, others are the fruit of different trajectories of life for which the responsibility would remain individual.

The optimality of the economic behaviors

In many cases, one does not take the initiative of an action which would however be beneficial for all: that which undertakes it and community. At the macro-economic level: the economy can be in an unsatisfactory state (extremely Chômage, weak Production and weak Capitalisation) whereas a much better state could exist (more abundant employment, stronger production and profit for the capitalists).

The liberals think that it is the fundamental role of the Entrepreneur to act to correct such situations, and that its actions must always be exposed with the Concurrence, even if this contractor even acts in the name of a community of the State.

Failures of market

The market does not allocate however always in an optimal way the resources. One speaks then about Défaillance of the market. An often quoted example is the financing of the basic research, which implies investments with long run very, risked and which often answers a different question that which was posed initially. That would justify an intervention of the State to correct these failures and to restore optimality.

The utilitarian liberals, often followers of the neo-classic School, admit this criticism and accept that such interventions exist, but in the form of corrections with the action of the market and without basically calling this one into question.

The liberals plus essentialists, often followers of the Austrian School, object that it is impossible to define an allowance " optimale" resources differently than while precisely letting function the market freely. In their eyes, the concept of optimal allowance is a subjective opinion which varies from individual with individual and do not have objective contents, which removes any significance with the concept of failure of the market, the failures of the State being besides worse and more frequent.

The Public services

The economic liberalism is shown to use an only financial measurement of their utility or anticipated profits and to be unaware of the social problems or of town and country planning for example. The report of not-profitability of a public service would thus justify for the liberals his abandonment or its transfer to deprived by a process of Privatization.

The liberals advance the following arguments:

Or these services is financially profitable, or they are not it. If they are not it, then their disappearance is a good, which will allow réallouer the resources (wasted) other more useful uses. If these services are profitable, it is a question in this case of opening with the Concurrence these sectors, in order to make them possible as effective as.
As for knowing what is useful, the economic liberalism advances that it is primarily through what people are ready to pay that one defines the utility of a service.

Criticism Altermondialiste

The economic liberalism is violently denounced by the altermondialists, who see in his progression due to universalization a danger of progressive confiscation of the richnesses by a dominant class which would control the worldwide economy gradually. According to them, the progressive abandonment of the capacities of the democratic States at the financial markets and the multinationals, associated with the deregulations of many economic sectors as well as the rise to power of the actors deprived in management, (or confiscation, according to the points of sights) of the public goods on a worldwide scale, would involve a destruction of the natural resources, and a negation of the human being which would act more like Homo œconomicus than like Homo sociologicus. In their eyes, this evolution carried out without and even often against the political wills and especially popular is an evil to be fought.

On the contrary, for the liberals, this evolution is perfectly legitimate, because it naturally results from the synthesis of the spontaneous actions of all the actors, each one fascinating of account its interest real and its preferences (which can be, indeed, very different), without being subjected to the constraint of the governments. For these liberals, it is on the contrary the opposition of the policies which is an illegitimate scandal. One can still raise that contrary to the prejudice spread, the liberal theory, through the Austrian École, is very critical concept of homo œconomicus.

The criticism of the theoretical weakness

According to part of the economists, the three schools (that of Leon Walras and Vilfredo Pareto, that of Ludwig von Mises and Friedrich von Hayek and that of Joseph Schumpeter) which support the economic liberalism propose incompatible and irreconcilable executives.

This remark is founded, but could not constitute a refutation of the liberal doctrines. From a purely logical point of view, the fact that several people support the same thesis (or similar theses) with even incompatible different sales leaflets does not make it possible to say that this thesis is false (nor moreover that it is true). It is advisable for that to separately examine the various theses.

The debate on the neo-classic assumptions

A second type of controversies, generally launched by economists hétérodoxes, consists in raising the unrealistic character of the assumptions which found the theory of the general stability, and to deduce from it that the liberal regulations which result from this are without base. Moreover, the Pareto's optimum is a simple criterion of effectiveness and not of justice (a situation in which only one individual would have all can be “Pareto-optimal”). They return then to the report of the “Défaillances of the market” to justify that the State intervenes to correct them.

In answer, the neo-classic liberal economists admit that if the market is well the least bad of the economic systems, it needs regulations (police force of the markets, laws against the Cartels or the Monopole S, laws organizing the information of the consumer,…).

On the contrary, for the economists of the classico-Austrian school, individual freedom is inalienable and criticisms of general stability do not start their liberal convictions, because they regard it as a fiction without relationship with reality and do not base their liberalism on utilitarian considerations, but on the application to the economy of the general principle of freedom. They admit that Régulation S are necessary, but think that they must be implemented in an unconstrained voluntary way of the State, by companies subjected to competition, such as for example consumers' associations or the guides tourist and gastronomical.

The criticism of “economism”

Some reproach the economists, and particularly the liberals, a propensity to consider that all the social problems can be only treated through the economy. The economist étatsunien of Hungarian origin Karl Polanyi considered désencastrement economy compared to the social one during the period 1830-1930 was the main cause of the development of the totalitarian States of the twentieth century. Polanyi thus criticizes there the passage of the primacy of social on the economy with that of the economy on the social one.

However no economist, liberal or not, affirmed that the social relations would be reduced to economic relations. To study the economic phenomena does not imply that the other phenomena do not exist, not more than to choose to study the insects does not imply that one denies the existence of the other animals. The liberals of the Austrian school also support them that it is impossible to distinguish a sphere " économique" of a sphere " sociale".

Actually, those which speak d'" économisme" do not criticize the economic theory as such, but a tendency to consider that this theory is able to solve problems which are out of its field. These critics address themselves in particular to economic assertions that some regard as proven facts and others like simple Postulat S.

The criticism of the indicators

One also reproached the liberals for confusing Richesse with indicator of richness, and increase in GDP with increase in the richness. Liberal logic would tend to increase the volume of the spheres of exchanges without it y' having necessarily real creation of richness. See the article GDP for a criticism of this concept.

This criticism applies in fact to all the macroeconomic approaches and not specifically to the liberals. It is divided by the famous economists " ultralibéraux" Austrian school, for which the GDP is deprived of concrete significance. More than one critical towards the liberal theories, it is a criticism towards all the approaches supposing that one can quantify in his totality the total richness or the total Bien-être of a population.

Appendices

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