Brief history of liberalism

In this introduction to the history of liberalism , Álvaro Martín will explain what liberalism is, describe its main phases, and talk about its theorists, as well as its main contributions to this science.

Brief history of liberalism

The concept of liberalism has always been widely used in the fields of Economic Science and Political Science, to refer to different social movements, institutional development or the remodeling of public policies that have emerged throughout history. Liberalism, both political and economic, therefore has a multitude of possible meanings and definitions across the entire political spectrum.

What is liberalism?

Well, what is liberalism? Liberalism is an ideology, or a movement that promotes the freedom of action of the individual, within a legal framework established by the rule of law, without causing disruption or coercion in the area of ​​freedom of action of a third party. That is, liberalism is a political and economic philosophy that advocates safeguarding the freedom of the individual in the different facets of daily life, avoiding the coercion of third parties on individual decisions and actions, under the principle of non-aggression. In this sense, it promotes the political emancipation of the individual in society. In such a way that the individual, at the level of rights and freedoms, is classified as an independent being, whose associations with other people or entities are carried out only voluntarily and peacefully.

In the economic field, in a generalized way – since liberalism can range from social democracy to anarcho-capitalism – the liberal ideology advocates a reduction of the intervention of the State in the economy, and entrusts a greater part of this to the free functioning of the markets. . That is, it allows the market to reach an optimal equilibrium through its own “self-regulating” forces and mechanisms.

What does economic liberalism defend?

For this reason, liberalism tends to defend, mainly, the following points:

  • Powerful defense of the right to private property.
  • Real equality before the law of all individuals and institutions of society.
  • Less regulation of the different markets by the authorities.
  • Greater independence, freedom and responsibility of consumers.
  • Lower taxes and reductions in obstacles to trade and entrepreneurship.
  • Less intervention by central banks in monetary policy and financial markets.

Said examples of policies promoted by liberalism are very general, since the gradation or intensity of each of these policies will effectively depend on what particular type of liberalism is defended, if it exists; as mentioned previously, a wide spectrum of ideologies that could be situated within the liberalism theoretical framework.

Thus, within the field of liberalism, those who advocate a greater intervention of the state in the economy are usually the social democrats, while the anarcho-capitalists defend the complete elimination of the state. Between these two groups we also find many other tendencies such as classical liberalism, conservative liberalism, traditionalist liberalism, minarchists … Due to the existence of this wide diversity of tendencies under the same general concept, we must tell the history of liberalism from its origins. broader and more general bases up to the present, going through some of its most relevant theorists throughout the last 6 or 7 centuries.

Main phases of economic liberalism

The history of the theory of economic liberalism is divided into several stages or main schools of thought:

  1. School of Salamanca (origins in the 16th century)
  2. Classical School of Economics (Anglo-Saxon Economic Liberalism of the Enlightenment)
  3. Austrian School (19th century – present)
  4. Chicago School (S.XX-present)
  5. Is neoliberalism a new liberalism?

This brief categorization is missing several schools that could be considered part of the liberal movement, as well as important periods and processes in the economic and political history of liberalism, but due to a question of space, in this article we will stick to the history of liberal thought, and its most relevant schools.

1. School of Salamanca

The School of Salamanca was made up of a group of Spanish theologians and jurists during the 16th and 17th centuries, whose main task was to renew the thought of Saint Thomas Aquinas, to introduce advances in the legal, theological, social and economic fields, typical of humanism. Renaissance. Many of these discoveries come from milestones such as the discovery of America or the Protestant Reformation of the early 16th century.

The Dominican in charge of laying the foundations of this school of thought was the theologian Francisco de Vitoria, a professor at the University of Salamanca at the beginning of the 16th century. Practically all the members of the School of Salamanca were originally scholastics, but only a minority of all the scholastics of the time belonged to the School of Salamanca. Some of the most relevant scholastics of the time, belonging to said school were: the aforementioned Francisco de Vitoria, Juan de Mariana, Luis de Molina, Domingo de Soto, Tomás de Mercado … Among these, the best known today are Francisco de Vitoria and Juan de Mariana, for their contributions to Law and Economics.

What were the main contributions of the School of Salamanca?

It all started with the recognition of private property as a fundamental pillar for economic development, according to the theories of the School of Salamanca. Thomist thought already recognized private property as an important factor for socioeconomic development, an idea that some theologians like Juan de Mariana reaffirmed, and others, like Domingo de Soto, qualified. The latter, due to the sinful tendency of man, saw private property as necessary, but an insufficient element by itself for the complete development of society.

Another of the key contributions of the School of Salamanca was its theory on monetary inflation, developed by Father Juan de Mariana through his work Treatise and discourse on the Currency of Vellón, in which he explains how through the devaluation of the currency and the expansion of the volume of circulating currency in the economy this could cause an increase in prices through a contraction of the purchasing power (value) of said currency. This can and should also be related to the study by Martín de Azpilcueta on the influence of the massive arrival of precious metals from America (expansion of the money supply) on the prices of goods and services in Spain, which was seen demonstrated in practice with the Price Revolution in Europe at the end of the 16th century and the beginning of the 17th century.

The influence of the School of Salamanca reached such relevant theorists as Adam Smith or Friedrich A. von Hayek, belonging to later schools of economic thought.

Classical School of Economics

The Classical School of Economics, and its members, known as the classical economists were the first economists to expose the idea of ​​the free market as a system of greater efficiency for society, as well as its natural form of organization. Classical economics is strongly influenced by mercantilism and the French physiocrats, a factor that is observed in many of the ideas of some of the most relevant classical economists such as Adam Smith, David Ricardo, or John Stuart Mill, all of them British and defenders of illustrated ideas.

Adam Smith was the author of two works throughout his life. The first Theory of Moral Sentiments, published in 1759, is a sociological treatise on human behavior and relationships between individuals. His second work, to which he owes his fame, is of purely economic content, this being The Wealth of Nations, in which, roughly, he stands out for exposing the labor theory of value previously to Karl Marx, considering that the The value of the goods produced was determined by the costs of production, the most important of which was the amount of work devoted to the manufacture of said good. Smith is also widely known for his exposition from his point of view of the virtues of free trade, and also of the division of labor and specialization in production chains, explaining how this organization at the level of society would lead to higher productivity and more efficient allocation of available resources.

Second, we find David Ricardo, a 19th century British economist, well known for his work Principles of Political Economy and Taxation, as well as his collections of essays on the functioning of markets and international trade. Ricardo is remembered today for his theory of business specialization, in which he includes comparative advantage. In other words, Ricardo proposed that each country produce a minimum number of goods in which they are specialized as they are more efficient in their production than the rest of the surrounding countries, thus each nation exporting the goods they produce more efficiently and importing the rest of the necessary goods, thus generating value through international trade.

John Stuart Mill was a British economist and philosopher, very close to utilitarian theories in economics and political liberalism, with works of historical prestige such as On Liberty. In economics, Mill stands out for his support for empiricism associated with economic utilitarianism. That is, trying to maximize the utility or well-being of society through the implementation of those measures that have previously been shown to work in practice, calculating said effect in an aggregate way on the total population, and not through the effects about the individual. Mill stands out for his theory of the value of use of goods, calculating their value based on their utility (this being one of the many theories that later the Austrian theory of subjective value would draw), and for his study on the formation of wages in a free market.

Austrian School

The Austrian School is the origin of numerous economic concepts applied to marginal analysis (marginal utility, opportunity cost …) that structure contemporary economics. The two main and direct disciples of the founder of the Austrian School of Economics, Carl Menger were Friedrich von Wieser and Eugen Böhm-Bawerk, defenders of the theory of subjective value and marginalism. This school continued to develop in Austria during the interwar period, through the figures of Ludwig von Mises and Friedrich A. von Hayek. A whole series of authors that today make up the memory of the Austrian School were the aforementioned Carl Menger and Friedrich von Wieser, apart from some lesser-known authors such as Oskar Morgenstern, Hans Mayer, Robert Meyer …

The emigration of these economists, often forced, during the 1930s, due to the Nazi anti-Semitism that ravaged Austria (especially from 1938) did not mean the death of their academic tradition. In particular, the arrival in the United States of Mises and Hayek gave rise, after World War II, to a new generation of authors inspired by Austrian analysis, mainly Kirzner and Rothbard who, in their wake, added their grain of sand to the Austrian School.

Today, the best-known authors of the Austrian School are Friedrich von Hayek and Ludwig von Mises.

Friedrich Hayek worked primarily on the study of business cycles, exposing the importance of information in markets and showing how liberal societies could prosper without central planning.

In 1931, after an intellectual training in Vienna under the tutelage of Friedrich von Wieser, he began to teach at the London School of Economics. During the war, he wrote his great critique of totalitarianism: The Road to Serfdom .

Hayek concludes in Road to Servitude that central planning is impractical. The economic information that central planners require is scattered throughout the economy is only partial and ephemeral. Total information and knowledge about her is beyond the reach of a single man; however, it forms the basis of the personal planning of millions of individuals, while the market coordinates the actions.

In 1950, Hayek moved to the University of Chicago, where he worked on drawing the limits of the scientific method in understanding society, and developed his ideal of how human institutions evolve naturally, without the need for central planning.

Hayek’s idea that a liberal government should uphold the laws of justice, through a strong and stable rule of law, but without authoritatively directing society, is summarized in The Foundations of Liberty . Hayek described this idea in just three words: Law, Legislation, and Freedom.

On the other hand, Ludwig von Mises joined the Austrian School after reading Menger’s Principles of Economics . At the Böhm-Bawerk seminars in Vienna, he became interested in monetary theory. In 1912, at just 31 years old, he published the Theory of Money and Credit in which he applied the marginal utility analysis to the means of exchange.

Mises served as chief economist at the Vienna Chamber of Commerce and, from 1913 to 1934, organized private seminars at the University. His book Socialism , from 1922, states that, without an effective price system, socialist societies could never develop an efficient and rational economic calculation, which is presented in a more condensed way in his paper The Impossibility of Economic Calculation in Socialism .

After Hitler’s rise to power, Mises settled in Switzerland, and after that in the United States. There, he wrote La Acción Humana , published in 1949, a book in which he explains economics as a deductive, not a predictive science.

Chicago School

The Chicago School began as a school of thought in defense of the free market, in the second half of the 20th century. The Chicago School was squarely opposed to Keynesian economic theory and expansionary fiscal policies. They are one of the main schools of economic thought framed within the concept of "neoclassical economics", highlighting the figure of homo economicus typical of the rationalist theory regarding consumer expectations and behavior. The Chicago School was founded by George Stigler, receiving the Nobel Prize in 1982.

Just 6 years earlier, Milton Friedman, one of the leading economists of the Austrian School, received the Nobel Prize, known for his studies on monetary theory and the relationships between the growth of the money supply, economic growth, and underlying inflation. One of his most outstanding works is Monetary History of the United States, which he wrote with Anna Schwartz.

Is neoliberalism a new liberalism?

In recent years, it is common to hear the term neoliberal to describe someone close to the previously described ideas of market liberalization and minimal State interference in the economy. But where did the term "neoliberalism come from?"

The term neoliberalism was first coined in 1938 by the Russian academic Alexander Rüstow, in 1938, trying to describe a socio-economic theory that represented a third way between capitalism and socialism, thus making reference to a kind of social democracy, thus trying to differentiate it from classical liberalism or laissez faire theories . Likewise, the ideology that most closely resembles what Rüstow referred to 81 years ago would be the social market economy, known today as social democracy, as we have previously exposed.

If we turn to the works of any classical liberal or libertarian economist, of those previously described, we will see that they never used this term to refer to their ideology or their economic proposals.

In the last decade the term "neoliberalism" has a pejorative character, and is used almost exclusively by economists who are more interventionist or close to market socialism, such as Paul Krugman or Joseph Stiglitz. However, it is still not a term accepted by mainstream liberal economists, who prefer to be called "liberals", "libertarians" (with the due differentiation that this entails), or "capitalists".

Thus, beyond the value judgments that would tip the balance on the best or worst of the current, beyond the ideology of who transmits the term and even ignoring the origins of who coined it, if we strictly stick to the idea Under which the term neoliberalism was born, we could safely say that the concept of neoliberalism is closer to social democracy than to liberalism. Which is not good, nor bad, better nor worse, it is simply what the knowledge of history dictates.

Article written by Álvaro Martín. ( @alvaromartinbcs )