LIBERALISM (ECONOMIC). — Economic liberalism is an economic liberalism and denotes at once a doctrine and an economic policy: the economic doctrine which holds that a beneficial and peaceful economic order is immanent in reality, and the almost negative economic policy that follows from II. Both emerged around the mid-18th century and lasted, with some sporadic revivals, until the end of the following century.
Liberalism appears to break abruptly with a constant and more than millennial tradition that had hitherto led to distrust of the instinctive order in the economy and had resulted in a positive policy of rationalizing the economy. In reality, it was slowly prepared by characteristic events and ideas in both the realm of facts and that of doctrines.
In the realm of facts, the reaction of the agricultural classes and of settlement colonies against the irrational exploitation practiced against them by the mercantilism of the later period—entirely bent on strengthening national commerce and industry—was especially influential, as was the reaction provoked by the excesses of credit voluntarism, which sometimes led to national disasters (as in the case of Law’s bank). Even in the 18th century, the high mercantilist-financial and industrial class, which mercantilism had nurtured with its favors, feeling itself now sufficiently strong and wealthy to stand on its own, no longer had regard for the privileges with which this system had endowed it, while it was highly critical of the burdens it continually imposed on it to obtain the support of the State.
In the realm of ideas—leaving aside those of a properly philosophical nature, such as the Cartesian conception of a universe governed by eternal and immutable mathematical laws, or the individualistic and ego-enhancing conceptions of English sensism—of great importance were the particular observations that, as the progress of concrete analysis advanced, accumulated within mercantilism itself concerning the natural mechanism of spontaneous and spontaneously rationalizing actions and reactions, which seemed to insist in various particular aspects of economic activity and rendered any deliberate action superfluous.
Liberalism essentially begins with physiocracy. The physiocrats, however, remained suspended between liberalism and voluntarism. They were already liberals because they believed that the beneficial and peaceful order was already established, indeed established from eternity, and thus did not need to be created but only recognized. They were still voluntarists because they believed that the beneficial and peaceful order did not come about spontaneously but had to be first recognized, then realized by removing all the obstacles accumulated by human ignorance, and finally constantly defended against this ignorance.
It was Adam Smith (1723–90), author of the famous book *The Wealth of Nations* (1776), who cut the moorings that still held nascent liberalism to the voluntarist shore and acclimatized liberalism throughout Europe. Smith gathered and systematized all the criticisms that had been leveled against mercantilist policy by mercantilists themselves and by the physiocrats, giving them a truly scientific systematic form. From the physiocrats, in particular, he derived the idea of a natural order, an order which, for him too, was distinguished by its ability to maximize the product of society, but which he saw as coming about spontaneously, and he corrected their original error of having limited productivity to the land.
The characteristic trait of A. Smith’s thought consists in his affirmation of the spontaneity and goodness of the economic order, which he demonstrates from facts rather than from dogmatic reasoning. Dogmatic, however, is his explanation of it, and even very mysterious: men, each acting in their own interest, are led by an invisible hand to promote, at the same time, the greatest good of society.
The economic action of the State should essentially be limited to administering justice, defending the country, constructing and maintaining certain public works and institutions that private individuals and associations would never provide, though there are cases in which public intervention is desirable. Free international trade is also required, though it admits of various exceptions, particularly those aimed at preserving the security of the country.
Smith’s doctrines quickly became popular in England and on the continent, especially through the intermediary of the Frenchman Jean Baptiste Say (1767–1832), who in his *Traité d’économie politique* (1830) gave Smith’s ideas an organic systematization, refining them in many points and presenting economic science for the first time as a natural science. Where Smith had spoken of a spontaneous order, Say spoke of natural laws.
The Smithian school in England took on a distinctly dogmatic and naturalist direction. Two names deserve special mention: that of Robert Malthus (1766–1836), author of the famous theory of population, and that of David Ricardo (1772–1823), author of the theory of rent, foreign trade, and money. The latter, in particular, had a great influence on English and continental legislation in a liberal direction.
With John Stuart Mill (1803–73), one is already outside the properly liberal current, since he clearly distinguishes between economic science and economic policy and admits extensive interventions in the distributive sector. But precisely when Mill’s thought was at its apogee, liberalism experienced a new, albeit fleeting, spring through the French school, and first and foremost through Frédéric Bastiat (1801–50), and the Manchester School in England. These thinkers strove to dispel the shadows that the theories of Malthus and Ricardo had cast over the natural order and bluntly rejected the criticisms of socialists, critics, and theorists of national economy, seeking to demonstrate that all the lamented evils stemmed from the fact that one had strayed from freedom and would disappear upon returning to II. They made economic freedom an essential requirement of political freedom.
With these authors, liberalism had made its greatest effort, even in political practice (it was due to them that free trade was established in England and elsewhere). After them, it would experience a slow decline in both practice and doctrine.
In its nearly century-long career, liberalism exerted a very great influence in the world of facts and doctrines. First, it accredited economic naturalism, finally persuading men that economic action should be rationalized by purely economic criteria and thus justifying economic individualism and anormalism. Second, it accelerated the pace of material progress of humanity, though at the price of great suffering for the lower classes and thus with the accumulation of serious problems for the future. And, finally, it increased interest in economic matters and thus extraordinarily stimulated economic observation, resulting in a corresponding enrichment of human knowledge in this field.