Liberalism

LIBERALISM

The term "liberalism" has meant different things at different points in the history of the United States. The different meanings of liberalism turn on the changing relationship between the government and the economy. In the nineteenth century liberalism was a critique of the doctrine of mercantilism which had been the reigning theory of economic activity in the eighteenth century. Mercantilism focused on the commercial life of the nation. It asserted that there was only a fixed amount of wealth in the world and viewed economic life as a kind of commercial warfare between nations in which the goal was to accumulate as much as possible of silver and gold. The government played an active role in this commercial competition between the nations. It encouraged specific manufacturing industries, regulated the quality of manufactures, established trading routes and oversaw the relations with the colonies. This doctrine had begun to crumble in the eighteenth century as a result of excessive regulation and poor administration. Also the economies of some European nations, like Spain, had been undermined by the price inflation that accompanied their governments' accumulation of gold and silver. The mercantilist economies also sometimes created obstructions to international trade by erecting high tariff barriers to protect domestic industry from foreign competition.

When Adam Smith wrote his Inquiry into the Nature and Causes of the Wealth of Nations in 1776, mercantilism had seen its better days. Smith's was a most elegant critique against the decrepit system, because it was so simple. He argued that all the functions that mercantilism invested in the state could be more efficiently performed by the individual entrepreneur. For instance, rather than have the government dictate prices and quantities of goods for sale, the "law of supply and demand" would automatically find the price and the quantity which best accommodated both the buyer and the seller. Secondly, rather than have the government decide what industry to invest in, the individual entrepreneur, spurred by the profit motive, would make that decision. And, rather than have the government organize production, the entrepreneur, again in the effort to maximize his profit, would find the optimum "division of labor" that would improve productivity and maximize profits.

It was an age of manifestos and Adam Smith's Wealth of Nations became (and remains) the most persuasive manifesto of free market capitalism. The nineteenth century economic liberals believed that property rights were the cornerstone of both political and economic freedom. Underlying Smith's system was an assumption (shared by another Scottish philosopher, John Locke) of the promise of harmonious relations among the members of society. Each individual, endowed with certain natural rights, in seeking personal happiness also enhanced the happiness of all. The economic liberals believed that there was no essential contradiction between the "public good" of all individuals. The economy was not, as the mercantilists held, a "zero sum game." The public good could be most effectively furthered by economic liberalism (or the freedom to invest). Democracy could rid itself of the dead hand of government and increase the benign scope of laissez-faire's "invisible hand."

But the emergence over the next two centuries of industrialization, urbanization, big business, over-production crises, instability, the excesses of competition, and the conspiracy to set prices, and in particular the misfortune of the Great Depression (1929–1939) plus two world wars gradually converted modern liberalism from a crusade against governmental interference in the economy into a movement to protect the weak against the strong and the national economy against the unregulated tendency towards instability. Today, at the beginning of the twentieth century and the dawn of a new millennium, liberalism stands for almost the complete opposite than its nineteenth century meaning.

But did nineteenth century liberalism ever actually exits? Many economic historians argue that during the first three centuries of U.S. history, colonial, state, and federal governments continued to intervene in the economy, in varying degrees, under the more modern definition of liberalism. They argue that during the colonial period government at all levels acted in the public interest and that it could set the "just price" for milling and the price of bread, regulate the purity of beer, establish reasonable ferry charges, and grant monopoly franchises. Colonial governments could set wages and even require work. In the process, many colonial regulations were embedded in common law. To enforce this web of complex rules and regulations, colonial governments used constables and wardens. While many of the colonial regulations had disappeared by the time of the American Revolution (1775–1783), the Revolution itself did little to interrupt institutional continuity.

While some economists assert that the U.S. economy in the nineteenth century followed Smith's vision of laissez faire liberalism, others argue that the government, although undoubtedly supportive of profit-driven economic development, was also beginning to take on the mandate of "twentieth century liberalism"— i.e., the roles of regulator and safety-net. This was the view, clearly present in the Populists and the Progressives, that the profit motive of the individual investor, unless restrained by government, may do damage to the public good.

In addition, the government remained a potent force in the economy, although often in spite of the popular sentiment to limit the role of the federal government in favor of states rights. The federal banking policy illustrates both the resistance to a larger role for the federal government—vented in Andrew Jackson's "bank war" of 1832— and the gradual realization that banks simply needed regulation. Eventually, the national consensus supported President Woodrow Wilson's Federal Reserve Bank which in 1913 created the modern national banking structure.

As the Progressive period unfolded, reforms at the federal level included the lowering of tariffs, the introduction of the income tax, passage of antitrust laws, the Federal Reserve Act of 1913, the direct election of Senators, federal child-labor laws, constitutional amendments prohibiting the consumption of alcoholic beverages, and extending the vote to women. Reforms at the state level brought workmen's compensation laws and pensions for Union Civil War veterans, their widows, and orphans (the nation's first government funded welfare plans). Seeking to break the power of entrenched political interests, reformers also advocated open primaries, initiative, referendum and recall, and promoted governmental regulation of gas, water, and electrical utilities. Urban reformers also sought to weaken political bosses and their machines by implementing commission government and home rule. As the emergence of the modern bureaucratic state continued, various political factions battled for control in a society being transformed by the forces of industrialization, immigration, and urbanization.

Faced with mounting pressure, the federal government also began to regulate the railroad industry as well as break up monopolies. In response to the accumulated demands of the National Grange, Farmers' Alliances, Greenback Party, and eventually the Populist Party, Congress finally passed in 1887 the Interstate Commerce Act, which assigned the federal government the role of market arbiter. On October 15, 1914, Congress passed and President Woodrow Wilson (1913–1921) signed the Clayton Antitrust Act, which was designed to strengthen the Sherman Antitrust Act of 1890 by fully codifying specific illegal antitrust activities. To carry out and enforce the Clayton Act and the Sherman Act, Congress created the Federal Trade Commission in a related measure.

As the country expanded and the population grew, and as the economy became more complex and powerful, some of the underlying structural weaknesses were not apparent to most U.S. citizens. But the Stock Market Crash of 1929 and the subsequent Great Depression changed their views. In 1933 President Franklin D. Roosevelt (1933–1945) formally introduced a new twentieth century liberalism to the United States political and economic landscape. Roosevelt was greatly influenced by the British economist John Maynard Keynes, who proposed the prevention of financial crisis and unemployment by adjusting demand through government control of credit and currency. Roosevelt shifted purchasing power in favor of the poor, the spenders; he provided employment through public works and insurance where it was feasible, and, in other cases, he offered assistance to those injured by economic forces. Essentially through ad hoc measures (measures taken for a specific case or instance), the New Deal unfolded. The objective was to help those in distress, deflate the large interests that had overreached themselves, and improve the functioning of the system.

In the late 1990s, under a more global economy, liberalism was faced with the question of whether the United States and other capitalist countries were prepared to accept a mixed economy—one in which the government, not the market, was responsible for major decisions concerning total savings, investment and spending, which would result, it was hoped, in stable or high levels of employment and output.

See also: Nicholas Biddle, Federal Reserve Act of 1913, Andrew Jackson, Mercantilism, Adam Smith

FURTHER READING

Gottfried, Paul. "In Search of a Liberal Essence." Society, 39-51, September/October 1995.

Link, Arthur S. Wilson: The New Freedom. Princeton, NJ: Princeton University Press, 1956.

Mandle, Jay. "The Lefts' Wrong Turn: Why Economic Nationalism Won't Work." Dissent, 45, 1998.

Nuechterlein, James. "The Lure of Social Democracy." First Things, May 1998.

Smith, Roger M. "Unfinished Liberalism." Social Research, Fall 1994.