Essay plan: To what extent do liberals agree about the economy? (30)

Areas of agreement

  • In stark contrast with socialists, who advocate common ownership, liberals all support a capitalist system supported by a system of laws, which sets up and defends property rights. Locke argued that property rights were natural rights that we possess in the state of nature, but which need to be protected by the establishment of the state
  • Hayek and Smith argue that capitalism should be defended as the most efficient economic system, distributing goods, services and resources to where they are needed through the price mechanism. Capitalism creates incentives for people to work hard and do well and for firms to take risks by innovating and investing to get a return. By contrast, state planning doesn’t work because the world is too complex for governments to successfully plan, whereas the free market does the job automatically through the ‘invisible hand’ (Smith).
  • Liberals all argue that capitalism, individualism and freedom are intimately linked. Capitalism, and a system of stable property rights, fosters consumer choice within a free market and therefore maximises individual freedom. All liberals argue that individuals make better choices about their own lives that the state would on their behalf and so argue for a minimal role for the state in the economy.
  • All liberals believe in meritocracy. In contrast to traditional conservatives (who advocate a rigid hierarchy) and fundamentalist socialists (who advocate equality of outcome), liberals argue that individuals ought to be able to rise and fall in the social hierarchy according to their talent and ability and that justice is done when people receive what they are due by virtue of this effort.

Areas of disagreement

  • Whereas modern liberals (e.g. Rawls) argue for a large enabling state to create equality of opportunity and to foster positive freedom, classical and neo-classical liberals (e.g. Locke, Mill) argue for a minimal state as the state is seen by them as a necessary evil. For them, a large state would be a threat to our freedom as the state is a source of constraint. These differing views of the state will lead to radical disagreement about the economy, with modern liberals comfortable with a large public sector operating within a capitalist system, whereas classical and neo-classical liberals advocate a laissez-faire economy.
  • Liberals also disagree about the extent to which the government ought to intervene in the economy to level out the business cycle. Modern liberals support a Keynesian approach to economic crisis, with the government expanding demand during a recession in order to stimulate the economy. This is necessary, they argue, in order to replace demand from consumers and firms. Neo-classical liberals (e.g. Hayek) argue that this approach may actually make the problem worse. Intervention in the economy during a recession will stimulate an economic bubble which will eventually burst and is unnecessary as the market will automatically adjust if politicians leave things alone. Government intervention in the economy also risks individual freedom as the government encroaches into more and more areas of our lives – Hayek called this ‘The Road to Serfdom’.
  • Liberals disagree about what is required for there to be genuine equality of opportunity. For classical liberals it is enough for the state to simply get out of the way. This allows for the sort of individual self-striving advocated by thinkers such as Samuel Smiles. Thinkers like Herbert Spencer argued that society operates in accordance with Social Darwinism. Those with talent and ability rise to the top, those without fall to the bottom – and this is how it ought to be. As William Summer argues, ‘the drunkard in the gutter is where he ought to be.’ By contrast, modern liberals (e.g. Rawls) argue that society ought to be set up so that inequalities are only justified if they benefit the least advantaged. He justifies this by arguing that this is what we’d agree to from behind a ‘veil of ignorance’. A hypothetical position in which we don’t know which position in society we will occupy – forcing us to think about the least advantaged amongst us.

Conclusion:

In contrast to other ideologies, there is a distinctive liberal view on the economy. They advocate a capitalist system with a state that enforces property rights. However, there is a huge disagreement about the role of the state in the economy, with modern liberals advocating a large ‘enabling’ state and classical liberals advocating a minimal night-watchman state. So, whilst they will defend capitalism against socialist critics and against conservatives who advocate rigid hierarchies, they will disagree with each other about how the role of the state within a capitalist economy.