Classical liberalism (also known as traditional liberalism, laissez-faire liberalism, market liberalism or, in much of the world, simply liberalism) is a doctrine stressing individual freedom and limited government. This includes the importance of human rationality, individual property rights, natural rights, the protection of civil liberties, constitutional limitation of government, free markets, and individual freedom from restraint as exemplified in the writings of John Locke, Adam Smith, David Hume, David Ricardo, Voltaire, Montesquieu and others. As such, it is the fusion of economic liberalism with political liberalism. The "normative core" of classical liberalism is the idea that laissez-faire economics will bring about a spontaneous order or invisible hand that benefits the society, though it does not necessarily oppose the state's provision of a few basic public goods. The qualification classical was applied in retrospect to distinguish early nineteenth-century liberalism from changes in liberal thought during the nineteenth and early twentieth centuries, especially the "new liberalism" associated with Thomas Hill Green, Leonard Trelawny Hobhouse, and Franklin D. Roosevelt, which grants the state a more interventionist role in the economy, including a welfare state. Classical liberalism is not to be confused with the ideology that is commonly called "liberalism" today in the United States, as "classical liberalism" is closer to being a current of contemporary "conservatism" in the U.S.
Ludwig von Mises, Friedrich Hayek, Murray N. Rothbard and other followers of the Austrian School developed even further the liberal ideas, culminating in Minarchism and Anarcho-Capitalism, which are the main flags of libertarian politics. They, together with Milton Friedman, are credited with influencing a revival of classical liberalism in the twentieth century after it fell out of favor beginning in the late nineteenth century and much of the twentieth century. In relation to economic issues, this revival is sometimes referred to, mainly by its opponents, as "neoliberalism". It must be said that the German "ordoliberalism" has a whole different meaning, since the likes of Alexander Rüstow and Wilhelm Röpke have advocated a more interventionist state, as opposed to laissez-faire liberals.
Libertarians of a minarchist persuasion use the term "classical liberalism" almost interchangeably with the term "libertarianism", while the correctness of this usage is disputed (see "Classical liberalism" and libertarianism, below). Nevertheless, if the two philosophies are not the same, classical liberalism does resemble modern libertarianism in many ways.
when the growing complexity of industrial conditions required increasing government intervention in order to assure more equal opportunities, the liberal tradition, faithful to the goal rather than to the dogma, altered its view of the state," and "there emerged the conception of a social welfare state, in which the national government had the express obligation to maintain high levels of employment in the economy, to supervise standards of life and labor, to regulate the methods of business competition, and to establish comprehensive patterns of social security.
In Europe, especially, except on the British Isles, liberalism had been fairly weak and unpopular relative to its opposition, like socialism, and therefore no change in meaning occurred.
By the 1970s, however, lagging economic growth and increased levels of taxation and debt spurred a revival of a new classical liberalism. Friedrich von Hayek and Milton Friedman argued against government intervention in fiscal policy and their ideas were embraced by conservative political parties in the US and the United Kingdom beginning in the 1980s. In fact, Ronald Reagan credited Bastiat, von Mises, and Hayek as influences.
[A]t the heart of classical liberalism", wrote Nancy L. Rosenblum and Robert C. Post, is a prescription: "Nurture voluntary associations. Limit the size, and more importantly, the scope of government. So long as the state provides a basic rule of law that steers people away from destructive or parasitic ways of life and in the direction of productive ways of life, society runs itself. If you want people to flourish, let them run their own lives.
Classical liberalism places a particular emphasis on the sovereignty of the individual, with private property rights being seen as essential to individual liberty. This forms the philosophical basis for laissez-faire public policy. The ideology of the classical liberals argued against direct democracy "for there is nothing in the bare idea of majority rule to show that majorities will always respect the rights of property or maintain rule of law." For example, James Madison argued for a constitutional republic with protections for individual liberty, over a pure democracy, reasoning that in a pure democracy, a "common passion or interest will, in almost every case, be felt by a majority of the whole...and there is nothing to check the inducements to sacrifice the weaker party....
In economics, some classical liberals believe that "an unfettered market" is the most efficient mechanism to satisfy human needs and channel resources to their most productive uses: they "are more suspicious than conservatives of all but the most minimal government. Their advocacy of an "unregulated free market" is founded on an "assumption about individuals being rational, self-interested and methodical in the pursuit of their goals. Adam Smith, however, was not an advocate of pure capitalism, and allowed for many exceptions to a strictly free-market economy.
Classical liberalism holds that rights exist independently of government. Thomas Jefferson called these inalienable rights: "...rightful liberty is unobstructed action according to our will within limits drawn around us by the equal rights of others. I do not add 'within the limits of the law', because law is often but the tyrant’s will, and always so when it violates the rights of the individual. For classical liberalism, rights are of a negative nature — rights that require that other individuals (and governments) refrain from interfering with individual liberty, whereas social liberalism (also called modern liberalism or welfare liberalism) holds that individuals have a right to be provided with certain benefits or services by others. Unlike social liberals, classical liberals are "hostile to the welfare state." They do not have an interest in material equality but only in "equality before the law. Classical liberalism is critical of social liberalism and takes offense at group rights being pursued at the expense of individual rights.
Friedrich Hayek identified two different traditions within classical liberalism: the "British tradition" and the "French tradition". Hayek saw the British philosophers David Hume, Adam Smith, Adam Ferguson, Josiah Tucker, Edmund Burke and William Paley as representative of a tradition that articulated beliefs in empiricism, the common law, and in traditions and institutions which had spontaneously evolved but were imperfectly understood. The French tradition included Rousseau, Condorcet, the Encyclopedists and the Physiocrats. This tradition believed in rationalism and the unlimited powers of reason, and sometimes showed hostility to tradition and religion. Hayek conceded that the national labels did not exactly correspond to those belonging to each tradition: Hayek saw the Frenchmen Montesquieu, Constant and Tocqueville as belonging to the "British tradition" and the British Thomas Hobbes, Godwin, Priestley, Richard Price and Thomas Paine as belonging to the "French tradition". Hayek also rejected the label "laissez faire" as originating from the French tradition and alien to the beliefs of Hume, Smith and Burke.
Adam Smith argued in the Wealth of Nations that as societies progressed from hunter gatherers to industrial societies the spoils of war would rise, but the costs of war would rise further, making war difficult and costly for industrialized nations.
...the honours, the fame, the emoluments of war, belong not to [the middle and industrial classes]; the battle-plain is the harvest field of the aristocracy, watered with the blood of the people...Whilst our trade rested upon our foreign dependencies, as was the case in the middle of the last century...force and violence, were necessary to command our customers for our manufacturers...But war, although the greatest of consumers, not only produces nothing in return, but, by abstracting labour from productive employment and interrupting the course of trade, it impedes, in a variety of indirect ways, the creation of wealth; and, should hostilities be continued for a series of years, each successive war-loan will be felt in our commercial and manufacturing districts with an augmented pressure. Richard Cobden
When goods cannot cross borders, armies will. Frederic Bastiat
By virtue of their mutual interest does nature unite people against violence and war…the spirit of trade cannot coexist with war, and sooner or later this spirit dominates every people. For among all those powers…that belong to a nation, financial power may be the most reliable in forcing nations to pursue the noble cause of peace…and wherever in the world war threatens to break out, they will try to head it off through mediation, just as if they were permanently leagued for this purpose - Immanuel Kant, the Perpetual Peace.Cobden believed that military expenditures worsened the welfare of the state and benefited a small but concentrated elite minority. Summing up British imperialism, which he believed was the result the economic restrictions of mercantilist policies. To Cobden, and many classical liberals, those who advocated peace must also advocate free markets.
On the classical liberal concept of freedom the Edinburgh Review wrote in 1843: Be assured that freedom of trade, freedom of thought, freedom of speech, and freedom of action, are but modifications of one great fundamental truth, and that all must be maintained or all risked; they stand and fall together.
Kelley also suggests that classical liberals understood liberty to be a negative freedom--a freedom from the coercive actions of others. Modern liberals include positive freedoms in liberty, which are rights to the provision of goods. Modern understandings of positive freedom are opposite the classical thinking of negative freedom. An early John Stuart Mill (who at this time was a liberal advocate of limited government and free markets) recognized this difference, stating,
The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not sufficient warrant.
The cause(s) of the shift in liberalism in the United States "between 1877 and 1937...from laissez-faire constitutionalism to New Deal statism, from classical liberalism to democratic social-welfarism" has been a subject of study among scholars.
In the 19th century, the voting franchise in most democracies was extended, and these newly enfranchised citizens often voted in favor of government intervention into the economy. Rising literacy rates and the spread of knowledge led to social activism in a variety of forms. Those calling themselves social liberals, called for laws against child labor and laws requiring minimum standards of worker safety. The laissez faire economic liberals considered such measures to be an unjust imposition upon liberty, as well as a hindrance to economic development. Thus, 19th century social liberalism marked a split from "classical liberalism." In 1911, L. T. Hobhouse published Liberalism, which outlines a "new liberalism" which includes qualified acceptance of government intervention in the economy, and the collective right to equality in dealings, what he called "just consent". So different from classical liberalism did Hayek see Hobhouse's book that he commented that it would have been more accurately titled Socialism instead. (Hobhouse called his beliefs "liberal socialism".)
In the United States, the term "liberalism" almost always refers to social liberalism, while in some European countries the term refers to what is called "libertarianism" in the United States, i.e., European "liberalism" is most often in favor of a free market-economy and a more restricted government.
In Australia the major centre-right or 'conservative' party is called the Liberal Party of Australia, where "liberal" was chosen to refer back to the old Commonwealth Liberal Party and also to distinguish it from the "socialist" Labor Party. However, because of familiarity with contemporary US usage, the term "liberal" can take on a variety of meanings ranging from member or supporter of the Liberal party, to classical liberal, to "liberal" in the contemporary American sense (i.e. social liberalism).
Classical liberalism is liberalism, but the current collectivists have captured that designation in the United States. Happily they did not capture it in Europe, and were glad enough to call themselves socialists. But no one in America wants to be called socialist and admit what they are.
He believes that this is why liberalism means something different in Europe from in America. Proponents of the Austrian School, such as Ludwig von Mises and Friedrich von Hayek, and the Chicago School (sometimes called neo-classical economists), such as Milton Friedman, also reject claims that social liberalism represents a continuous development from classical liberalism. According to Friedman,
Beginning in the late nineteenth century, and especially after 1930 in the United States, the term liberalism came to be associated with a very different emphasis, particularly in economic policy. It came to be associated with a readiness to rely primarily on the state rather than on private voluntary arrangements to achieve objectives regarded as desirable. The catchwords became welfare and equality rather than freedom. The nineteenth century liberal regarded an extension of freedom as the most effective way to promote welfare and equality; the twentieth century liberal regards welfare and equality as either prerequisites of or alternatives to freedom. In the name of welfare and equality, the twentieth-century liberal has come to favor a revival of the very policies of state intervention and paternalism against which classical liberalism fought. In the very act of turning the clock back to seventeenth-century mercantilism, he is fond of castigating true liberals as reactionary!
Hayek argued that he was not a conservative because he was a liberal, and had refused to give up that label to what he considered to be modern usurpers.
Joseph Schumpeter stated, "As a supreme, if unintended compliment, the enemies of the system of private enterprise have thought it wise to appropriate its label," implying that social liberals have "stolen" the word and given it a definition opposite its original meaning.
In the 1920s, the New York Times criticized "the expropriation of the time-honored word 'liberal'" and argued that "the radical red school of thought...hand back the word 'liberal' to its original owners."
Following from this New York Times criticism, they argue that leading Progressive writers used the word liberal as a "substitute for progressivism, which had become tarnished by its association with their fallen hero, Theodore Roosevelt". They also concur with F.A. Hayek view (in his essay "Why I Am Not a Conservative") that Franklin D. Roosevelt adopted the term to "ward off accusations of being left-wing" [with Roosevelt] declaring that liberalism was "plain English for a changed concept of the duty and responsibility of government toward economic life."
Social liberals, beginning perhaps with T. H. Green in late 19th century Britain (and anticipated in their criticisms though not their prescriptions by historical classical liberals such as John Stuart Mill), have replied that their liberalism was consistent with the central values of classical liberalism as opposed to the ways those values had often been applied. Their position can be summarized as follows: 1) coercion of the individual could come not only from government but also from private industry despite the pretence of contractual agreement, so limits to the power of private industry were needed just as they were for government; 2) liberalism was concerned ultimately not with freedom from constraint—i.e. negative freedom—but with individual autonomy—i.e. positive freedom—to which negative freedom vis a vis the state was but a means rather than an end in itself, and that means was insufficient and in some cases actually an obstacle to the maximizing of freedom for all through conditions of reduced economic and social inequalities.
John McGowan, distinguished professor of the humanities, asserts that the modern liberalism in the United States evolved from the liberalism of the Founding Fathers. McGowan claims that the Founding Fathers were willing to have government regulate the economy, with laissez faire capitalist ideology not becoming as prominent as in Europe until the gilded age. The willingness of American liberals can be traced to the desire to distribute power as widely as possible and keep all power within a system of checks and balances. Modern American liberals seek to prevent the accumulation of power in the hands of an economic elite and balance the power of market forces and businesses against that of government, so that no source of power may go unchecked. Moreover, modern American liberals see government regulation of certain aspects of the economy as essential towards providing positive freedom.
Modern day American Liberalism is a descendent of Progressivism. A segment of modern day American conservatism is the direct descendent of Classical Liberalism. The term "fiscal conservative" usually refers to free market oriented people who use Classical Liberalism as their conception of understanding economics. So in America, fiscal convservatives have a traditionally "liberal" view of economics. Fiscal Conservatives only make up a part of modern American conservatives, the other parts being Social conservatives and Foreign Policy Conservatives.
Libertarianism's resemblance to liberalism is superficial; in the end, libertarians reject essential liberal institutions. Correctly understood, libertarianism resembles a view that liberalism historically defined itself against, the doctrine of private political power that underlies feudalism. Like feudalism, libertarianism conceives of justified political power as based in a network of private contracts. It rejects the idea, essential to liberalism, that political power is a public power to be impartially exercised for the common good.
Those who emphasize the distinction between classical liberalism and libertarianism point out that some of the key thinkers of classical liberalism were far from libertarian:
Adam Smith should be seen as a moderate free enterpriser who appreciated markets but made many, many exceptions. He allowed government all over the place.
For example, Adam Smith supports public roads, canals and bridges. However, he favored that these goods should be paid proportionally to their consumption (e.g., putting a toll).
In the mid-1800s, Abraham Lincoln followed the Whig version of economic liberalism which included state provision and regulation of railroads. The Pacific Railway Acts of 1862 provided the development of the First Transcontinental Railroad.
However, such a claim appears to be assuming "libertarianism" as a doctrine of absolute laissez-faire. While some libertarians oppose all government intervention, others make exceptions which allow for some government intervention and for provision of, e.g., roads and public utilities. Therefore, the claim that libertarianism is not the same as classical liberalism because some classical liberals make exceptions to absolute laissez-faire may only hold for a particular type of libertarianism.
Further, some argue that libertarianism and liberalism are fundamentally incompatible because the checks and balances provided by liberal institutions conflict with the support for complete economic deregulation offered by most libertarians. However, arguments over the similarities are made difficult by the large number of factions in both classical liberalism and libertarianism. For example, minarchist libertarians are not necessarily in favor of complete economic deregulation in the first place and often support tax-funded provision of a select few public goods.
Alan Ryan, a former professor of Politics at Princeton University, argues that the claim from
contemporary libertarians...that they are classical liberals...is not wholly true. There is at least one strain of libertarian thought represented by Robert Nozick's Anarchy, State and Utopia that advocates the decriminalization of 'victimless crimes' such as prostitution, drug-taking and unorthodox sexual activities. There is nothing of that in John Locke or Adam Smith.