Chapter 3

The Classical Liberal

Perspective

Classical Liberalism envisions society as an aggregation of autonomous

individuals seeking to pursue their private interests. Ideally, all social inter-
action should consist of voluntary exchanges among persons, and every
individual has the right to be free from the arbitrary exercise of power.
With its focus on individual choice as the primary determinant of social
outcomes, Classical Liberalism is ideally suited for expression in the form of
economic theory. In fact, the historical development of Classical Liberalism
closely aligns with the history of economic thought, starting with classical
political economy, continuing with the Austrian branch of neoclassical eco-
nomics, and culminating in a variety of current bodies of thought including
neo-Austrian economics, public choice theory, new classical economics, law
and economics, new institutional economics, constitutional economics, lib-
ertarianism, supply-side economics, monetarism, and property-rights theory.

ARCHITECTS OF CLASSICAL LIBERALISM

Thomas Hobbes (1588-1679)
English philosopher Thomas Hobbes was one of the first social theorists
to adopt the methods of the newly emerging natural sciences for the
analysis of human behavior. Influenced by other philosophers such as
42 Political Economy

Francis Bacon (1561-1626) and Rene Descartes (1596-1650), Hobbes

envisioned the world as a mechanical system operating according to precise
laws of nature and devoid of any inherent meaning, purpose, or morality.
He sought to uncover the natural laws governing society by analyzing indi-
vidual behavior. Humans, he claimed, were constantly propelled into
motion by the need to satisfy their appetites and desires. Although Hobbes
acknowledged nonmaterial desires such as the need for social recognition,
he claimed that such desires were best met by the pursuit of wealth.
Furthermore, since the universal pursuit of wealth would bring individuals
into conflict with one another, humans must become aggressively material-
istic to protect themselves from others. In the absence of morality, humans
will do whatever gives them pleasure and avoid whatever causes pain.
Hobbes concluded that in a "state of nature" prior to government or laws,
life would be "solitary, poor, nasty, brutish, and short" because a "war of
all against all" would result from the unrestrained pursuit of wealth.
Since violence and death obviously interfere with pleasure, Hobbes rea-
soned that self-interested persons would voluntarily enter into a "social con-
tract" with others to establish a government with absolute authority to
define and protect individual rights. Two points about the social contract are
noteworthy. First, it can include only laws that potentially could gain uni-
versal consent. Since people would presumably refuse to consent to any law
that restrained or harmed them more than other individuals, the government
cannot legitimately oppress any particular group or person. Second, since
government is created by the people, it must serve the interests of the people.
Hobbes opposed the idea of "divine right" as the source of royal power.
The Hobbesian legacy has had a major impact on Classical Liberalism. By
starting his analysis with the isolated individual in a state of nature, Hobbes
portrayed society and government as secondary and artificial creations. The
pursuit of private interests is presumed to be the only purpose of human exis-
tence, with politics merely a necessary activity to maintain social order.
Hobbes rejected the earlier Aristotelian notion of political activity as the site
of human development gained through participation in public life.
Despite Hobbes's strong commitment to individualism, he concluded that
government must have absolute authority to establish and enforce laws. So
long as the monarch maintained public order, the people could not resist
royal authority. The title of Hobbes's major book Leviathan (1651) has
become synonymous with an authoritarian state. Thus, although Hobbes
was a founder of Classical Liberalism, his conclusions about the scope of
government authority have been rejected by subsequent Classical Liberals.

John Locke(1632-1704)
John Locke, an English philosopher and physician, followed the
Hobbesian method by building his theories on assumptions about
The Classical Liberal Perspective 43

individuals in a state of nature. Like Hobbes, Locke assumed the self-inter-

ested and acquisitive nature of humans, but he believed that the capacity
for reason enabled people to discover "natural laws" that would serve as
guides both for restraining the pursuit of self-interest and defining the
proper role of government. Whereas Hobbes relied on government to
establish and protect property rights because his pessimistic view of
humans made the "state of nature" an arena of violence, Locke claimed
that property rights existed before government, and therefore government's
authority was limited to protecting those natural rights.
In Two Treatises of Government (1689), Locke claimed that people's
ownership of themselves and their labor is a self-evident truth. When indi-
viduals "mix" their labor with a part of nature unclaimed by anyone else,
that portion of nature becomes their property. Since this process requires
no government action or consent of others, Locke concluded that property
rights are natural and therefore no person or government can legitimately
violate them.
Locke's writings exhibit the dual commitment of Enlightenment thinkers
to freedom and equality. His explanation of the origins of property rights
seems to support unlimited freedom to accumulate property and therefore
substantial inequality. However, Locke attached two "provisos" to the
right to obtain property: property must be used without spoilage or waste,
and any claim to property is valid only when "there is enough, and as good
left in common for others." Yet, having placed these limits on accumula-
tion, Locke proceeded to remove them. He argued that the use of money
permits people to accumulate wealth without spoilage and that the
"enough and as good" restriction becomes impractical once all valuable
land in a country has been claimed.
Locke's apparent acceptance of unlimited accumulation should be under-
stood within its historical context. At the dawn of the capitalist era, liberal
thinkers were confident that individual rights and freedom would result in
substantially more equality than had existed under feudal domination.
Locke's defense of freedom to accumulate wealth was not insensitive to those
who lacked property. He argued that private property benefits all persons in
society; poor citizens are better off as wage laborers in a private-property sys-
tem than if they were living in a society with communal ownership. This shift
from defending property as a natural right to defending property for its
social benefits is the beginning of a split within Classical Liberalism that ulti-
mately gave birth to a new perspective—Modern Liberalism.

Adam Smith (1723-1790)

Adam Smith, a Scottish professor of moral philosophy, was the first to
articulate Classical Liberalism in the form of economic theory rather than
the political language of Hobbes and Locke. By Smith's time, political
44 Political Economy

disorder in Great Britain had been largely resolved, and the task at hand
was to raise the material standard of living.
In his first major work, The Theory of Moral Sentiments (1759), Smith
argued that humans are able, through social interaction, to overcome their
narrow self-interest and view situations from the perspective of an "impar-
tial spectator." The human capacity for sympathy would restrain aggres-
sive, selfish behavior and create a stable society. Yet Smith was deeply
concerned that the emerging market economy unleashed powerful and
potentially dangerous motives such as greed, envy, and selfishness. The
aggressive pursuit of self-interest threatened to erode the social bonds of
sympathy and concern for others. Given these pressures, Smith wondered
whether human virtue could withstand the temptations of wealth.
Motivated by these concerns, Smith turned his attention from moral phi-
losophy to political economy. After being introduced to the idea of laissez-
faire by a group of French political economists known as the Physiocrats,
he concluded that a market society could not only withstand the effects of
acquisitive selfishness, but could actually steer this "vice" into productive
and socially beneficial channels. Without meaning to do so, self-interested
individuals actually promote the good of society by engaging their talents
and resources in the most profitable use. By the time he published The
Wealth of Nations in 1776, Adam Smith had substituted the market for
individual conscience as the mechanism for reconciling self-interest with an
orderly and prosperous society.
Although Smith is often portrayed as the champion of capitalism, he was
not completely optimistic about the market. He found self-interest com-
patible with the public good only when competition prevailed, and he
warned that businessmen would constantly seek to suppress competition
and deceive the public to increase profits. Smith also expressed concern
about the well-being of workers in a market economy. While he recognized
the tremendous efficiency gained by dividing production into separate, rou-
tine tasks, he worried that the monotony and mindlessness of factory jobs
would render workers "as stupid as it is possible for a human being to
become." Finally, Smith set the tone for subsequent classical political econ-
omists with his fear that the dynamism and growth of a market society
would eventually come to an end as profitable investment opportunities
were exhausted.
Whatever qualms he may have expressed about capitalism, Adam
Smith's legacy has been his defense of free markets and nonintervention by
government. During the seventeenth and eighteenth centuries, mercantilist
policies had involved government in taxing commerce, opening new mar-
kets in foreign lands, protecting companies from competition, and assuring
product quality. Smith believed this meddling interfered with the potential
benefits of the market and proposed that government be limited to three
The Classical Liberal Perspective 45

functions: law enforcement, printing of money, and provision of certain

public goods such as harbors and roads.

T h o m a s Malthus ( 1 7 6 6 - 1 8 3 4 )
Malthus, a professor of history and political economy at the East India
College in England, was most responsible for steering Classical Liberalism
away from its earlier predisposition toward the Enlightenment values of
optimism, egalitarianism, and faith in reason. In contrast to Enlightenment
thinkers, Malthus believed that human misery was caused by nature rather
than badly organized institutions. In his book An Essay on the Principle of
Population (1798), Malthus claimed that population grows at a faster rate
than do food supplies because of the limited availability of fertile land.
Population growth could be restrained either by "positive checks" such as
famines, plagues, and wars, or by "preventive checks" such as delayed
marriages and "moral restraint."
Malthus had little hope that humans would be capable of exercising the
restraint required to control population growth, so positive checks would
be the effective controls on overpopulation. Moreover, Malthus believed
that government should not attempt to interfere with the operation of these
positive checks. He proposed that raw sewage be permitted to flow in the
streets, that insect-infested swamps remain undrained, and that cures for
disease be suppressed, thereby allowing nature to carry out the grisly task
of limiting population growth.
In addition to rejecting efforts to help the poor, Malthus argued that the
privileges and wealth of the upper classes benefitted all of society. He rea-
soned that workers as a group received insufficient wages to permit them
to purchase the vast array of goods being produced by the new factories,
so the economy would be plagued by periodic "gluts" of unsold goods
unless some members of society could afford to spend large amounts on
consumption without adding to production. Idle consumption by the rich
was therefore essential to maintain high levels of employment.
Malthus represents a turning point in Classical Liberalism. The
Enlightenment attack on aristocratic privilege evolved into a defense of
capitalist inequality. Later in the nineteenth century, Malthus's ideas would
resurface as "social Darwinism." Relying on the evolutionary theory of
Charles Darwin, Herbert Spencer (1820-1903) in England and William
Graham Sumner (1840-1910) in America claimed that the human species
evolves according to the principle of "survival of the fittest." Any attempts
by government to aid the poor would cause deterioration of the human
gene pool by allowing unfit members of the human species to survive and
reproduce. This biological argument for hierarchy and inequality became a
powerful ideological force in Europe and the United States.
46 Political Economy

Priedrich A. Hayek ( 1 8 9 9 - 1 9 9 2 )
Although born in Austria, Hayek spent most of his adult life in England
and America, where he devoted himself to defending laissez-faire capital-
ism against the challenges posed by Conservatives, Modern Liberals, and
Radicals. In The Road to Serfdom (1944), Hayek rejected the notion of a
middle ground between capitalism and socialism; the concept of a "mixed
economy" is untenable. Government intervention disrupts the smooth
functioning of a free-market economy, thereby generating the need for
additional corrective intervention. This vicious circle by which govern-
ment-induced problems lead to a larger role for government will eventually
push society toward socialism. The only way to halt this process is to resist
the initial temptation to improve society through government action.
The movement of Classical Liberalism away from the Enlightenment's
optimism and confidence in human reason can be clearly discerned in Hayek's
writings. He defended the market not because he believed in the power of
individual reason, but rather because of his skepticism about the capacity of
the human mind to obtain knowledge. Since each person can have detailed
knowledge of only a small portion of society, humans lack sufficient knowl-
edge to plan or direct the entire economy. Hayek explicitly denounced what
he called "constructivist rationalism," which seeks to remake society in accor-
dance with more humane and enlightened values.
Hayek praised the market for upholding individual freedom and empha-
sized its ability to process and transmit vast amounts of information about
individual preferences, availability of resources, and technology. Prices
reflect the conditions underlying supply and demand, so individuals are
able to compensate for their personal lack of knowledge by simply com-
paring prices. Moreover, through their own particular experience, individ-
uals gain specialized knowledge of niches in the market and may take
advantage of any profitable opportunities they discover.
Hayek's distrust of human reason led him to oppose virtually all gov-
ernment activity on the grounds that politicians and bureaucrats cannot
know what is best for society. The task of politics should be merely to
establish a constitution and set of laws restraining individuals from harm-
ing others. Hayek warned that when government is permitted to expand its
activities Seyond the protection of property rights, it will inevitably become
the tool of special interests. Various groups will claim that their interests
should be met to promote the public good or to achieve social justice, but
these appeals are simply disguised attempts to secure government benefits.
The public good is simply the aggregation of the private interests of indi-
viduals, and justice is a "mirage" based on the false supposition that some
interests are more deserving of fulfillment than others.
Hayek rejected the notion that economics can provide a scientific basis
for predicting or attempting to control the future of the economy. Not only
The Classical Liberal Perspective 47

is the economy too complex to comprehend, but individual behavior is

unpredictable and therefore not amenable to scientific analysis. The most
that economics can accomplish is to demonstrate the wisdom of free mar-
kets and minimal government. Attempts to use economic theory to guide
monetary and fiscal policy will fail.
Hayek also opposed efforts by economists to identify market failures that
might warrant government intervention. He claimed that the efficiency of the
market in processing information, providing price signals to guide individual
choice, and encouraging innovation more than offsets any inefficiency result-
ing from market failures. Moreover, government does not possess sufficient
knowledge to improve the workings of the market. Intervention is likely to
cause greater disruption than the market failure.

Robert Nozick ( 1 9 3 8 - )
A recent restatement of Classical Liberalism has been undertaken by
Harvard philosopher Robert Nozick in his book Anarchy, State, and
Utopia (1974). Nozick argues that the free market will create justice in the
distribution of rewards if the following three conditions are met: (1) prop-
erty must be acquired without theft, fraud, or coercion; (2) transfers of
property from one person to another must occur through free exchanges,
inheritance, gifts, or charity; and (3) any property holdings failing to meet
the first two requirements must be "rectified" through redistribution.
Nozick rejects the notion that justice requires any specific distribution
of rewards. On the contrary, if a particular "pattern" of distribution
were enforced, then government would have to confiscate and redistrib-
ute income earned in the market, thus violating individual liberty.
Nozick also dismisses any conception of justice linking reward with indi-
vidual merit. There are many possible criteria of merit including effort,
need, productivity, contribution, social status, or virtue, but society has
no way of objectively choosing from among these criteria. Therefore,
Nozick argues, any effort to assess individual merit and reward it would
be arbitrary.
Nozick instead proposes the following definition of justice: "from each
as they choose, to each as they are chosen." Each person's reward should
be determined by his or her choices of what to offer in the market and by
other people's choices to buy the person's goods or services. Personal
income may be justifiably low if an individual chooses not to offer much
or if what is offered is not desired by others.
For Nozick, inequality is the result of individual choice. So long as peo-
ple are free to choose, markets will tend to generate inequality, but this
inequality will be fair. In fact, attempts by government to interfere with
market distributions are the major cause of injustice. Nozick equates
taxation with slavery, claiming that it forces citizens to work for the
48 Political Economy

government. The only legitimate role of government is as a "nightwatch-

man" protecting property rights and preserving individual liberty.
In every society, the accumulation of wealth has sometimes involved
theft, fraud, or coercion and has therefore violated Nozick's definition of
legitimate acquisition of property. If property holdings are illegitimate,
Nozick's version of justice requires "rectification" through government
redistribution. Nozick acknowledges that his arguments for laissez-faire
are undercut by past injustices in the acquisition of property. He even con-
cedes that because current poverty is most likely to be found among the
descendants of those who suffered from past injustices, government redis-
tribution might legitimately attempt to make the poorest citizens as well off
as possible. In summary, while Nozick defends laissez-faire in principle, his
commitment to rectify past injustices leads him to acknowledge the legiti-
macy of redistributive policies. Most Classical Liberals have been unwilling
to accept this particular conclusion.

PRINCIPLES OF CLASSICAL LIBERALISM

The essential features of Classical Liberalism are contained in the defi-
nitions it gives to some of the most controversial terms in political economy.
Human Nature. Humans are self-interested and capable of acting
autonomously by using their capacity for reason to discover the most effi-
cient means to satisfy their needs and desires.
Society. Society is an aggregation of individuals and has no goals or pur-
poses of its own. The good society permits individuals to pursue their pri-
vate interests free from arbitrary constraint.
Government. Individuals create government for the purpose of protect-
ing their rights as established by a constitution. Beyond this function, gov-
ernment is best when it governs least.
Morality. No objective method exists for discerning which values are
superior to others; therefore, individuals should be free to determine right
and wrong based on their personal preferences. The only valid social values
are those that all citizens would support. Since nobody wants their property
or civil rights to be violated, such violations are wrong and should be illegal.
Freedom. Synonymous with autonomy and independence, freedom is
the absence of coercion by government or by other people.
Authority. Legitimate authority arises only through the consent of indi-
viduals to relinquish a degree of their autonomy. For example, authority in
the workplace may be consented to by employees in exchange for a wage.
Authority by government may be consented to by citizens in exchange for
protection of their rights to freedom and property.
Equality. Equality means that all citizens have the same opportunity
to engage in economic activity and the same civil rights as established by
the constitution.
The Classical Liberal Perspective 49

Justice. Justice requires protection of property rights and civil rights

established by the constitution and punishment of those who violate the
rights of others.
Efficiency. Efficiency is a situation in which no person can be made bet-
ter off without making someone else worse off. In other words, resources
are allocated to those persons most willing and able to pay for them.

CLASSICAL LIBERALISM TODAY

The Great Depression of the 1930s dealt a crushing blow to Classical
Liberalism by persuading large numbers of citizens that the free market
could not be trusted to organize economic activities. From the Depression
to the 1970s, Classical Liberals were conspicuously absent from public dis-
course, the primary exception being some members of the economics
department at the University of Chicago. However, the combination of high
inflation, high unemployment, and slow growth during the 1970s set the
stage for a resurgence of Classical Liberal thought. Almost overnight, jour-
nals, newspapers, and public debates were filled with Classical Liberal pro-
posals for solving the crisis of the modern welfare state. During the past two
decades, virtually every country in the West has moved toward reductions
in government spending, taxes, regulations, and public ownership. Inflation
and unemployment have improved dramatically, and only one recession has
occurred in the United States during the past fifteen years. Three of the most
prominent schools of thought in contemporary Classical Liberalism are neo-
Austrian economics, public choice theory, and new classical economics.

Neo-Austrian E c o n o m i c s
The conquest of Austria by the German army during World War II forced
many intellectuals in that country to emigrate. Ludwig von Mises
(1881-1973) and Friedrich A. Hayek were the principle carriers of Austrian
economics to England and the United States. Although never fully embraced
by mainstream economists, Mises and Hayek managed to gain the respect
of influential economists such as Lionel Robbins (1898-1984), Fritz
Machlup (1881-1973), Oskar Morgenstern (1902-1977), and Gottfried
Haberler. More recently, a neo-Austrian school of thought has developed in
the United States under the leadership of Israel Kirzner, Murray Rothbard
(1926-1995), and Roger Garrison. Neo-Austrian writings are featured in
the Austrian Economics Newsletter, the Journal of Libertarian Studies,
Social Philosophy & Policy, and Critical Review.
Although neo-Austrians are committed to free markets and personal lib-
erty, they reject the neoclassical assumption that individuals possess full
information. If full information prevailed, then planners could conceivably
replicate the market, and the defense of private property would be weakened.
50 Political Economy

Neo-Austrians willingly concede that markets are fraught with shortcomings

including monopolistic elements, uncertainty, and externalities. Their defense
of the market rests not on its ability to allocate resources efficiently at any
single point in time, but on its role as an engine for discovering and applying
knowledge that will raise standards of living. Individuals occupying unique
niches in the market have the best information and the strongest incentive to
innovate. No planning agency or bureaucracy can match the dynamism of
entrepreneurs in pushing technology forward. In fact, according to neo-
Austrians, government intervention will almost always be detrimental
because government caters to special-interest groups rather than promoting
the public good.
Without the rationality assumptions of neoclassical economics, neo-
Austrians rely less on mathematics and more on persuasive argument. In
fact, they join with Radicals in rejecting the neoclassical effort to create a
scientific economics analogous to physics. Ironically, neo-Austrians con-
clude that economics is largely a completed project. Having demonstrated
the efficiency of markets and the failures of government, neo-Austrian
economists have nothing left to do except to continue the effort to persuade
other economists, politicians, and the public that laissez-faire is the best
policy. The neo-Austrian perspective has influenced mainstream economics
through the development of game theory to illuminate situations in which
decisions must be made without full information.

Public Choice Theory

In recognition of the growing power of government in capitalist soci-
eties, some Classical Liberal theorists have attempted to analyze political
decisionmaking by applying the same principles of rational individual
choice used to explain the actions of consumers and firms. Rejecting the
Modern Liberal view of government as an impartial promoter of the well-
being of society, public choice theorists claim that voters, bureaucrats, and
politicians behave in the same fashion as do private consumers and pro-
ducers: they pursue their private interests, seeking maximum utility at min-
imum cost. Citizens vote for candidates who will deliver the most benefits
and the lowest taxes. Bureaucrats seek job security, high wages, profes-
sional advancement, and social status while minimizing their work effort.
The guiding principle of politicians is vote maximization since they must be
reelected to maintain the benefits of public office.
Politics is viewed by public choice theorists as simply economic activity
conducted in the public sphere of government instead of the private sphere
of the market. This approach to political economy is sometimes called the
"Virginia school" because its leading proponents taught at the University of
Virginia in the 1960s, moved to Virginia Polytechnic Institute in the 1970s,
and finally established a permanent base at George Mason University in the
The Classical Liberal Perspective 51

1980s. The most prominent public choice theorist is James Buchanan,

winner of the Nobel Prize in economics in 1986. Other important contrib-
utors include Anthony Downs, Gordon Tullock, William Riker, and
Richard McKenzie. Buchanan and Tullock founded the Public Choice
Society in 1963. Writings from this perspective are featured in the journals
Public Choice, Constitutional Political Economy, The Independent Review,
and Economics & Politics.
Public choice theorists uphold the Classical Liberal faith in free markets,
but they express concern that democratic politics creates an avenue by
which individuals and groups can gain economic benefits while spreading
costs among all taxpayers. Because individuals can be expected to pursue
their interests by any means available, ending this abuse of democracy
requires strict constitutional limits confining government to its appropriate
role as protector of property rights.

New Classical E c o n o m i c s
When Keynesian policies faltered in the early 1970s, Classical Liberals
were quick to fill the theoretical void. New classical economics describes
the modern revival of laissez-faire ideas from the nineteenth century. Some
of its leading proponents are Thomas Sargent, Neal Wallace, Robert Lucas,
and Robert Barro. Writings by new classical economists can be found in the
Journal of Political Economy and the American Economic Review.
New classical economists focus on the role of expectations in affecting
individual behavior. Sargent and Wallace developed the theory of "rational
expectations" to demonstrate the fallacy of Keynesian efforts to lower the
rate of unemployment. If citizens have rational expectations, their behav-
ior will take into account any anticipated effects of government policy.
When government attempts to stimulate the economy, citizens anticipat-
ing greater inflation will raise their wage demands, thereby offsetting any
tendency for employers to hire more workers. In short, any deliberate
effort by government to increase economic activity will be frustrated by
the reactions of citizens seeking to defend their income against antici-
pated inflation. The new classical economists conclude that government
cannot lower the level of unemployment and therefore ought to abandon
such attempts.
Closely related to new classical economics are two other theoretical
approaches: monetarism and supply-side economics. The former, champi-
oned by Milton Friedman, seeks to revive the classical idea that the amount
of money in the economy affects prices but not the level of employment or
output. Monetarists conclude that active monetary policy by the Federal
Reserve System can have no positive impact on unemployment and there-
fore should be abandoned in favor of steady growth of the money supply
at a rate sufficient to accommodate increases in real output.
52 Political Economy

Supply-side economics is so named because it rejects the Keynesian

focus on demand management and instead proposes to stimulate the econ-
omy through deregulation, tax cuts, and privatization. These policies
mesh perfectly with the new classical goal of minimizing the size and role
of government.

AN ASSESSMENT OF CLASSICAL LIBERALISM

Classical Liberalism originally provided the ideological ammunition to
dislodge the feudal aristocracy from power and to create a society in
which individual freedom and aspirations were both permitted and
rewarded. By undermining superstition, tradition, and arbitrary power,
Classical Liberalism promoted a wider scope for individual expression and
cultural diversity. With its insistence on the priority of individual liberty
over all other values, Classical Liberalism has served as a bulwark against
the abuse of political power. This ideology insists that for individuals to
develop and maintain personal identities, an irreducible core of their exis-
tence must remain separate from—and even opposed to—larger social
processes. Any society that represses the individual desire to formulate and
pursue a personal set of goals will lose the human energy unleashed by the
pursuit of self-interest. Such energy has been a mainspring of social and
economic progress.
However, the changing nature of Western societies poses several chal-
lenges to Classical Liberalism's commitment to the market as the primary
institution for organizing society. First, industrialization and urbanization
have contributed to a proliferation of "externalities" that cause the market
to allocate resources inefficiently.
Second, the large-scale production required to take advantage of econ-
omies of scale associated with modern technology has proven subversive to
effective competition. Without competition, the market contains no mech-
anism for guiding self-interest into socially useful channels.
Third, the same self-interested behavior motivating individuals and
firms to compete in the market also drives them to form groups and seek
government protection against the competitive pressures and instability of
the market. The resulting politicization of the economy can be reversed
only by a government sufficiently powerful to override the groups benefit-
ting from political activity. Thus, Classical Liberals face the paradox that a
very powerful government may be necessary to minimize the role of gov-
ernment. The question of whether such a government could be trusted to
exercise its power judiciously remains unanswered.
Finally, Classical Liberalism fails to adequately recognize the human
desire for community and a sense of common purpose. Individuals want to
pursue their private goals and achieve personal success, but they also
exhibit commitments to collective goals and the quality of public life. In
The Classical Liberal Perspective 53

fact, with rising standards of living in Western societies, "quality of life"

issues have become more significant. Concerns about environmental degra-
dation, crime, the spread of AIDS, homelessness, and drug abuse reflect a
growing realization that personal income and wealth cannot secure a high-
quality lifestyle when public life is deteriorating.

ADDITIONAL READING
Barry, Norman P. Hayek's Social and Economic Philosophy. London: Macmillan,
1979.
Boaz, David, ed. The Libertarian Reader. New York: The Free Press, 1997.
Boaz, David, and Edward H. Crane, eds. Market Liberalism: A Paradigm for the
21st Century. Washington, DC: Cato Institute, 1993.
Brittan, Samuel. A Restatement of Economic Liberalism, 2nd ed. London:
Macmillan, 1988.
Buchanan, James M. Post-socialist Political Economy. Lyme, NH: Edward Elgar,
1997.
Burke, T. Patrick. Ethical Principles for a Free Market. New York: Paragon House,
1993.
Conway, David. Classical Liberalism: The Unvanquished Ideal. New York: St.
Martin's, 1995.
Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago Press,
1962.
Friedman, Milton, and Rose Friedman. Free to Choose: A Personal Statement. New
York: Harcourt Brace Jovanovich, 1980.
Hendrickson, Mark W., ed. The Morality of Capitalism. Irvington-on-Hudson, NY:
The Foundation for Economic Education, 1996.
Machan, Tibor. Capitalism and Individualism. New York: St. Martin's, 1990.
McKenzie, Richard, and Gordon Tullock. Modem Political Economy. New York:
McGraw-Hill, 1978.
Rand, Ayn. Capitalism: The Unknown Ideal. New York: Signet, 1967.
Roberts, Paul Craig. The Supply-Side Revolution. Cambridge: Harvard University
Press, 1984.
Rockwell, Llewellyn H., Jr., ed. The Free Market Reader. Burlingame, CA: The
Ludwig von Mises Institute, 1988.
Rothbard, Murray. For a New Liberty. New York: Collier-Macmillan, 1978.
Rowley, Charles K. Liberty and the State. Brookfield, VT: Edward Elgar, 1993.
Schotter, Andrew. Free Market Economics. New York: St. Martin's, 1985.
Shand, Alexander H. Free Market Morality: The Political Economy of the Austrian
School New York: Routledge, 1989.
Stigler, George J., ed. Chicago Studies in Political Economy. Chicago: University of
Chicago Press, 1988.
Vaughn, Karen I. Austrian Economics in America. New York: Cambridge
University Press, 1994.