What is liberalism? How ought we to understand it? Entire forests have been felled in the attempt to answer these questions. Much of the literature that undertakes a “taxonomy” of ideas has focused on whether liberalism is a single principle or a plurality of principles, or whether liberalism always contained within it the seeds of progressivism, or whether there is any such concrete thing as liberalism at all. This literature, including its more esoteric and normative features, is a necessary constituent of the Great Conversation comprising the study of man and society. However, engaging that literature is not my purpose here. Instead, I want to explore a particular aspect of liberalism which is underappreciated in public discourse.In this view, liberalism comprises a set of beliefs about what goals are actually achievable by public policy. This approach to liberalism treats the doctrine as a worldview within which means-ends problems, and their associated tradeoffs, can be navigated. This view of liberalism, which puts questions of feasibility in the analytical foreground and contentious normative issues in the background, was championed by Ludwig von Mises, the great Austrian economist and liberal. Mises’ book on the subject, Liberalism, is a fine survey of this understanding of liberalism.
Mises makes quite clear his view of liberalism in the beginning of his book, and what he hopes to accomplish in subjecting this view to scrutiny. To begin, Mises firmly couples liberalism with a free enterprise economy—private ownership of the means of production, in the context of a nondiscriminatory rule of law. Mises assumes, at a broad level, there is actually little disagreement on values between the proponents of a market economy and those who prefer interventionist schemes of varying intensity. The desire for more material abundance as opposed to less, more leisure and comfort as opposed to less, etc. is almost unanimous. While there will certainly be disagreement over the structure of society when it comes to permanent values, especially those that link everyday life to a conception of the sacred, taking these more commonplace preferences as given and examining which public policies best satisfy those preferences is a project of permanent relevance and urgency, given how frequently these kinds of questions come up. This gives us a common realm for discourse: ascertaining how these quasi-unanimous values can be satisfied.
The meat of Mises’ arguments lie in his analysis of how a free enterprise economy functions. Obviously, the arguments in Liberalism are not as detailed as those in Human Action, his economic treatise and magnum opus, but nonetheless, they strongly suggest the superiority of private property and freedom of contract in producing general prosperity. When Mises was writing Liberalism, the question of socialism—public ownership of the means of production, not the redistributionist schemes that mistakenly claim that mantle today—was a live issue. The dominant argument by socialists at the time was that socialism could beat free enterprise at its own game by out-producing it. Mises explains that this is impossible. In abolishing private property, socialism destroys the ability of consumers and producers to coordinate their behavior through the price system and profit and loss accounting. Thankfully, genuine socialism is not a live issue in today’s Western nations, but this means-ends approach can be adjusted to tackle the prominent public policy issues of the day. Consider the following examples:
- Can public policy improve the welfare of unskilled workers by forcing firms to pay them a minimum wage? No; wages are dependent on productivity, and profit-seeking firms will simply abstain from hiring labor that does not produce revenue for the firm at least equal to the minimum wage.
- Can public policy improve the welfare of those generally on the lower rungs of the socioeconomic ladder by mandating a maximum price for, say, housing? No; enforced price ceilings do not abolish scarcity, and thus there will be alternative forms of competition—tie-in sales with apartment furniture, for example—that will, in all likelihood, make it harder for poorer individuals to find affordable housing.
- Can public policy finance public goods, or other valuable social services, by taxing capital, so that labor does not bear the burden? No; by taxing wealth, accumulation of wealth in all its forms becomes less attractive, and capital owners will change their behavior to avoid the tax. This will result in firms scaling back production and further economizing on labor, as well as investing in less future capital. With less capital, average workers will be less productive than they otherwise would be, making wages lower than they otherwise would be.
- Can public policy regulate financial firms effectively to prevent them from taking excessive risk, thus preventing future financial crises? No; there is no obvious relationship between the composition of balance sheets, the amount of capital on hand as a percentage of assets, etc., that can be exploited for policy purposes. Even if a stable link were found, attempting to make use of that relationship would incentivize financial firms to change their behavior, rendering the relationship useless in the future. Close supervision of financial firms, in fact, tends to result in more financial instability, as this close relationship is precisely how the ‘too big to fail’ phenomena, whereby financial overseers cannot credibly commit to not bailing out financial firms in the event of a crisis, becomes institutionalized.
What Mises’ approach to liberalism suggests is a grounding for laissez-faire not on ideological commitments to pre-existent natural rights, but the recognition that intervention fails on its own terms. Public policy not only fails to improve the workings of the economy, but also makes worse the very problems that advocates of these policies decry.
Now, for the obvious caveats. One can be a Misesian liberal without being fully committed to laissez-faire, so long as one honestly recognizes the tradeoffs associated with public policy. For example, an economist who acknowledges increasing the minimum wage will result in some disemployment, but believes this is worth it because some workers who remain employed will see their wages rise, is means-ends consistent. One can also be a Misesian liberal while still being concerned with the distributional effects of a free exchange economy. There is nothing per se illiberal, in Mises’ sense, with advocating wealth redistribution, so long as one is honest about the disincentives such programs generate for future wealth creation.
Nonetheless, this approach to liberalism suggests some intriguing possibilities for synthesis with ideas and values typically considered incommensurate with liberalism. For example, a traditionalist conservative can be a Misesian liberal as well. Preferring tried-and-true social institutions to irresponsible sociopolitical innovation, belief in a transcendent moral order, and even a healthy skepticism of commercial society are not in conflict with the recognition that most interventions into the marketplace cannot achieve their desired goal. In fact, it may be that Misesian liberalism is a valuable complement to traditionalist conservatism. The means-ends approach of the former fits nicely with skepticism towards “public policy”—typically the creation of the modern centralized, bureaucratic, administrative state—in favor of sociopolitical reform through the cautious adaptation of existing institutions, or the gentle cultivation of new ones.
Misesian liberalism, by putting tradeoffs front-and-center, is not in conflict with any particular worldview, except those that are ideologically committed to not recognizing how free enterprise systems work. It insists on an honest assessment of commerce, but does not deify it. Ultimately, Misesian liberalism is a paradigm that can be, and should be, appended to broader sociopolitical worldviews, to prevent the Great Conversation from drifting to a sterile utopianism that is, at best, mere philosophical whimsy and, at worst, the catalyst for the destruction of social cooperation.
Books on the topic of this essay may be found in The Imaginative Conservative Bookstore.