IN DEFENCE OF LIBERALISM

By T.E.Bostock

For nearly 200 years, the classical liberalism exemplified by the writings of Adam Smith has been under attack, on the one side from those conservatives who wish to manipulate the levers of political power to protect vested interests and, on the other, from socialists who wish to manipulate those levers to create a new social order. Almost always, the attacks are based either on misrepresentation of what Smith wrote, or on drawing from selected and selective quotations implications which Smith would clearly not have intended to be drawn.

It is thus with the treatment of Smith's notion of the invisible hand by Dr John Carroll in his somewhat intemperate article "The Curse of Liberalism" (Weekend Australian, June 15-16 1991). Dr Carroll presumably refers to Smith's oft quoted observation that, by seeking to employ his capital in the most profitable way, a person "intends only his own gain, but he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention". Smith goes on to observe: "Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the Society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good". There is nothing "utopian" about that: it is an unquestionable observation of one aspect of human life; and Smith never used it as a basis for claiming, in Dr Carroll's words, "that if economic markets are left alone, they will automatically operate efficiently and justly."

It is also nonsense to say, as Dr Carroll appears to do, that the liberalism espoused by Smith treats "the free individual as a sole philosophy of the human condition", if by that Dr Carroll means an individualism free of all legal and moral restraint. On the contrary, Smith wrote that "Commerce and manufacturers, in short, can seldom flourish in any State in which there is not a certain degree of confidence in the justice of government"; and on morality he observed that "to feel much for others, and little for ourselves, that to restrain our selfish, and to indulge our benevolent, affections, constitutes the perfection of human nature; and can alone produce among mankind that harmony of sentiments and passions in which consists this whole grace and propriety."

It is hard to imagine anything further removed than that from the ethos of the "60's counter-culture"; indeed the self-indulgent irresponsibility of the "60's counter-culture" is only viable in a welfare state in which the individual is permitted to off-load the responsibility for his acts and omissions on his fellow citizens. It is on this point that comparison between the Anglo-Saxon countries and Germany, Switzerland and Japan becomes relevant. Dr Carroll is therefore quite wrong to say that a liberal in the Smith mould "abandons his intellectual foundations" by wanting "a free market within the framework of a stable political and judicial order". Dr Carroll also seems to be saying that Edmund Burke saw the French Revolution as the product of Smithian liberalism. If so, he is clearly wrong again. Burke, whom Smith called "the only man I ever knew who thinks on economic subjects exactly as I do, without any communications having passed between us", shared with Hume and Smith an evolutionary, empirical rationalism exemplified by Adam Ferguson's observation that lasting human institutions "are indeed the result of human action, but not the execution of any human design". Burke saw that the French Revolution was the product of a different kind of rationalism: a naive rationalism which regarded as worthwhile only those institutions which were the product of conscious human design; and that that sort of rationalism would lead the revolution to tyranny and terror. History proved him right, not only in the case of the French Revolution, but also in the case of similar experiments in the present century - informed as they were by the same naive rationalism - exemplified by the Gulag Archipelago, the successive waves of Maoist insanity and the charnel-house made of Cambodia by Pol Pot.

The final paragraph of Dr Carroll's article implies that economists informed by the spirit of Adam Smith "do not care" about widespread unemployment and "the widespread personal and social suffering that has been cast upon us." To those who have read and understood Smith, that notion is simply laughable. They would see Australia's present plight as the result of some 80 years of illiberal government interventions for the benefit of sectional interests or to further redistributional shibboleths at the cost of the community at large: for example, the cartelization of the labour market; high tariffs; steeply graduated income taxes, fuelling and in turn fuelled by inflation; death duties; undistributed profits tax; capital gains tax; fringe benefits tax; tax discrimination against, and other measures destructive of, the family; and ever-enlarging nets of regulation constricting all forms of economic activity. With an economic witches brew like that, no wonder we are where we are: on the way down - to the Third World. Our children deserve better than that.


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