Classical Liberalism

When did Classical Liberalism see a resurgence?

Since the 1970s, nearly every country has moved towards reductions in taxes, regulations, and government ownership.

What do Neo-Austrian economists believe?

• Neo-Austrian economists believe in the free market, but reject the assumption that individuals possess full rationality and information.

• No planning agency can match the market’s dynamism.

• Economics is largely a completed project.

What do public choice theorists believe?

• Decision-makers behave in the same fashion as private consumers and producers, pursuing their private interests. Politics is thus simply economic activity conducted in the public sector.

• They uphold faith in free markets.

• Government should be restricted to a protector of property rights.

What do New Classical Economists believe?

• They focus on the role of expectations in affecting individual choice.

• Government attempts to lower unemployment don’t work - when government attempts to stimulate the economy, citizens expect higher inflation and raise wage demands, offsetting firms from hiring more workers.

• The economy should be stimulated through deregulation, tax cuts, and privatisation to reduce business costs and increase output.

What are the advantages of Classical Liberalism?

• The pursuit of self-interest may be correctly identified as the mainspring of social and economic progress.

What are the disadvantages of Classical Liberalism?

• Government intervention is often required to deal with externalities, e.g., pollution.

• Large corporations drive smaller firms out of business, resulting in a lack of effective competition.

• The paradox exists that a powerful government may be needed to avoid corruption by groups seeking to manipulate the market.

• Classical Liberalism fails to recognise human desires for community and common purpose.

What is the ideal role of the state according to Classical Liberals?

• Rights - Classical Liberals endorse a ‘night-watchman state’, only enacting and enforcing laws protecting private property and civil liberties. Positive liberties based on redistributive justice are an infringement on property rights.

• Public goods - Most goods and services provided by the government would be better provided by private interests. Taxation is theft, used to ‘buy votes’ by providing the electorate with benefits to ensure re-election.

• Minimal Regulations - Market failures occur due to government intervention - instability is caused by attempts to manipulate the economy, and unemployment is caused by government-protected unions, welfare, and minimum wage laws.

• Constitutional Democracy - A constitution is necessary to restrict governmental authority. The alternative is an oppressive tyranny of the majority.

What is the actual role of the state according to Classical Liberals?

• Interest Groups - Interest groups use the regulatory power of government to manipulate the market. Regulation therefore damages competition.

• Taxation - High taxes discourage productive activity and result in a smaller net tax base.

• Bureaucrats - Government expansion is due to the self-interest of government employees. Politicians are short-termists, and thus increase public spending without tax rises, worsening budget deficits.

• Voters - Citizens willing to incur the costs of becoming informed are those who stand to gain from expanded government. This results in a built-in bias in favour of government expansion.

What are some classically Liberal proposals for reform?

Lower taxes - Taxation beyond government’s basic functions is illegitimate. Tax reduces incentive for productive activity.

Less government spending - Balanced budgets are essential - ‘entitlement programs’ redistribute income, reducing incentives for productive activity.

Deregulation - Reduced regulation leads to lower business costs, more competition, improved efficiency, and lower consumer prices.

Privatisation - As government has no competition, it is inefficient.

Constitutional Amendments - An amendment supporting a balanced budget, a flat tax, and limits on government spending.