Today, Tocqueville is celebrated as a political thinker whose insights in Democracy in America, The Old Regime and the Revolution, and lesser-known texts like his 1848 critique of socialism resonate over 150 years after his death. But with some notable exceptions, less attention has been given to how Tocqueville approached economic subjects.

Economic topics were on Tocqueville’s mind from the moment he stepped ashore in America. For one thing, he immediately noticed how frantically Americans pursued wealth. In a May 28 letter to his brother Edouard, Tocqueville wrote, “The profound passion, the only one which profoundly stirs the human heart, the passion of all the days, is the acquisition of riches.” Americans, he added, were “a race of merchants.”

Tocqueville was initially repelled by what struck him as base materialism, but wider mixing with Americans quickly brought home to him that plenty of them had non-economic interests. However, Tocqueville was also driven beyond superficial impressions by his determination to study the facts closely to discover what was really going on beneath the surface of a society in which economic dynamism played such an oversized part. This would lead Tocqueville to arrive at intuitions about economic life as relevant today as in his own time.

Student of Say and Guizot

Although Tocqueville once expressed a desire in an 1834 letter to his cousin Louis de Kergorlay to author a book about political economy, Tocqueville never penned such a text. He was, however, extremely well-versed in economic thought. Tocqueville knew two of the most influential economic thinkers of his time—John Stuart Mill and Nassau William Senior—and regularly corresponded with them. But the economist who exerted the most influence on Tocqueville’s thought was his fellow Frenchman, Jean-Baptiste Say.

Tocqueville read Say’s Cours complet d’économie politique pratique twice—the second time while enroute to America. Besides exposing Tocqueville to key ideas expressed in Adam Smith’s Wealth of Nations, Say stressed a point that Tocqueville never forgot: that while the economy can be studied on its own terms, one should never forget that it is embedded in society.

This resonated with something that Tocqueville had absorbed from attending two years of lectures delivered by the historian François Guizot in Paris in the late 1820s. In these discourses, the future conservative liberal French prime minister underlined the importance of seeing all social phenomena as a connected whole. Herein we find the genesis of Tocqueville’s distinct approach to economic matters.

Certainly, Tocqueville believed that there are economic truths that we defy at our peril. In his 1852 address to the Academy of Moral and Political Sciences, Tocqueville bluntly stated, “The government can no more make salaries go up when the demand for work is down, than one can prevent water from leaning to the side of glass in the direction it is tilted.” Tocqueville was also attentive to economics’ empirical side. Although the use of economic statistics was in its infancy, Tocqueville regularly drew upon them to provide a quantitative dimension to his writings.

Rather, however, than studying economic phenomena separately from everything else—a path that Mill and Senior urged Tocqueville to embrace—Tocqueville sought to identify the most salient empirical facts and connect them to other trends manifesting themselves in society. For Tocqueville, that meant trying to understand how the “institutions” (laws and constitutions) and, above all, the “moeurs” (mores, or habits of mind and heart)—of a given society impacted its economic character and prospects.

A Democratic Economy

Tocqueville’s analysis of entrepreneurship exemplifies his mode of economic inquiry. Upon arriving in America, Tocqueville instantly observed something distinctive about American economic life. “Almost all [Americans],” Tocqueville wrote in his notes, are “entrepreneurs.” Not only did Americans seem to work incessantly, they were constantly innovating, changing jobs, and moving to various parts of the country. As amazed as Tocqueville was by the huge size of some American enterprises, he was even more astonished by “the countless number of small firms” that seemed to spring up everywhere.

But whereas Adam Smith had emphasized how the multiplication of wants in commercial society accelerated the division of labor and magnified economic productivity, Tocqueville also attributed the sheer scale of entrepreneurship in America to something else: the fact that America was a thoroughly democratic society.

In his 1964 essay “Alexis de Tocqueville et Karl Marx,” the liberal philosopher Raymond Aron points out that democracy for Tocqueville is less about political structures than what Aron calls a “social state.” The social state of the Americans was one that stressed liberty and a movement towards equality over and against the caste-like character of aristocratic orders and the fixed social and economic positions they entail.

According to Tocqueville, this democratic outlook weakened the power of pre-existing hierarchies, advanced equality before the law, and facilitated free-flowing relationships mediated through contracts. The result was new possibilities for people to become socially and economically mobile. Democratic conditions thus strengthened individuals’ confidence that they could change their lives from the bottom up. Such was democracy’s effects on Americans’ self-understanding and their perceptions of the opportunities available to them.

This focus on the role of what Tocqueville called “purely moral and intellectual qualities” in human affairs is crucial to understanding his approach to economic questions. In Democracy in America, for instance, Tocqueville showed that the reasons why Americans were far more successful at overseas trade than French merchants could not be attributed to significant differences in the economic costs of such trade. The average costs for Americans and Frenchmen, Tocqueville calculated, were essentially the same.

The decisive difference, he maintained, was that Americans were far more willing to venture across the world’s oceans than most of his compatriots. As a rule, Frenchmen were more cautious than Americans, less inclined to take the initiative, and more disposed to follow direction from above. By contrast, in the face of dangers like storms and pirates, American merchants threw caution to the wind. “There is something heroic,” Tocqueville wrote with awe, “about the way Americans do business.” The same courage and propensity to risk-taking, he indicated, did not characterize France’s commercial class.

Economic Habits

One conviction that Tocqueville took away from these inquiries was that mores are critical to explaining why ostensibly similar countries took economic paths that often varied widely. Here it is important to understand precisely what Tocqueville meant by mores.

On one level, mores for Tocqueville concerned “habits of mind.” These are the ideas and opinions generally held by people in a given society. Examples might be favorable views of commerce, or a universally held opinion that governments must pursue the equalization of economic outcomes. The other sense in which Tocqueville understood mores is as “habits of the heart.” By this, Tocqueville had in mind people’s moral beliefs and values: that, for instance, freedom is good, or that economic equality is the essence of justice.

There can be considerable overlap between habits of the mind and the heart. The belief that liberty from arbitrary government is good in itself and more important than greater economic equality is likely to incline people to view free enterprise favorably and highly interventionist governments with skepticism. The particular question that interested Tocqueville, however, was the relationship between these habits and a society’s institutions.

Like contemporary institutional economists, Tocqueville appreciated the importance of legal and constitutional arrangements for economic activity. One of his criticisms of attempts in 1848 to guarantee a right to employment in France’s constitution was that such a measure could not help but lead to the government assuming total mastery of economic life. That said, Tocqueville had little doubt that everything, including how institutions functioned, ultimately depended on mores. “It is a truth central to all my thinking,” he wrote in the first volume of Democracy in America, “and in the end all my ideas come back to it.”

Mores First, Then Institutions

If Tocqueville is right, the implications for economic life are profound. A government may, for example, reduce regulation, strengthen property rights, lower tariffs, and bolster constitutional protections for economic liberty. These policies will certainly shift economic incentives and accelerate economic growth. But what happens if most people in that society continue to believe that equal outcomes are more important than economic liberty, or view a state-dominated healthcare system as integral to the country’s very identity?

Tocqueville would answer that, absent a widespread and lasting change in mores, it will be a struggle to maintain such economic and legal reforms in place over the long term. Similar conclusions about the relative import of institutions and mores for economic life can be found in the work of some modern economists.

A prominent example is the 1993 Nobel economist, Douglass C. North. In his 1993 Nobel Prize lecture, North stated:

Institutions are the humanly devised constraints that structure human interaction. They are made up of formal constraints (rules, laws, constitutions), informal constraints (norms of behavior, conventions, and self-imposed codes of conduct), and their enforcement characteristics. Together they define the incentive structure of societies and specifically economies.

Here, North’s “formal constraints” approximate to Tocqueville’s conception of “institutions” while North’s “informal constraints” are analogous to Tocqueville’s understanding of “mores.”

As for which is more important for economic reform, North contended that “both institutions and belief systems must change for successful reform since it is the mental models of the actors that will shape choices.” He warned, however, that “developing norms of behavior that will support and legitimize new rules is a lengthy process and in the absence of such reinforcing mechanisms polities will tend to be unstable.”

Indeed, North’s belief in the power of what Tocqueville calls mores was such that he maintained that “informal constraints (norms, conventions and codes of conduct) favorable to growth can sometimes produce economic growth even with unstable or adverse political rules.” Tocqueville makes a similar point in his Old Regime when explaining England’s spectacular economic growth in the nineteenth century:

Nothing is more superficial than to attribute the greatness and power of a people to the mechanisms of its laws alone; for, in this matter, it is less the perfection of the instrument than the strength of the mores that determines the result. Look at England: how many of its laws today seem more complicated, more diverse, more irregular than ours! But is there, however, a single country in Europe where the public wealth is greater, individual property more extensive, more secure, more varied, the society richer or more solid? This does not come from the bounty of particular laws, but from the spirit that animates English legislation as a whole.

Identifying causality in economic affairs is never simple. Tocqueville was careful not to exaggerate what his understanding of the relationship between mores and institutions indicated about economic phenomena. Tocqueville’s method of economic reflection nevertheless reminds us of the knowledge to be gained from bringing economics together with sustained attention to norms and culture: not least because, as North once observed, so many of the interesting issues exist on the borders between them. Tocqueville, I suspect, could not have agreed more.

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That said, there’s little doubt that many Europeans’ preference for security via government intervention is exacting a high economic cost from many European countries. Indeed, Europe’s declining international competitiveness and low economic growth are the subject of a major EU report by no less than Mario Draghi, the former Italian prime minister and former President of the European Central Bank.

Entitled The Future of European Competitiveness, this 404-page document is remarkably candid about Europe’s economic troubles. Draghi acknowledges that Europe “is stuck in a static industrial structure,” increasingly devoid of innovation, unable to resist regulatory creep, weakening in capital markets, experiencing a demographic implosion, enduring accelerating energy prices, and losing some of its best entrepreneurs to America. Thousands of European businesses, reports Draghi, identify “regulatory obstacles and the administrative burden as their greatest challenge.” Then there is Europe’s sclerotic tech sector. “Only four of the world’s top 50 tech companies,” Draghi observes, “are European.” 

Taken together, this constitutes a damning critique that underscores Europe’s ongoing eclipse as an economic power vis-à-vis other developed economies. It also means a considerably poorer Europe, at least by comparison to America. “Europe’s households,” Draghi states, “have paid the price in foregone living standards. On a per capita basis, real disposable income has grown almost twice as much in the US as in the EU since 2000.” That is an astonishing number, one that should worry those Europeans who have not resigned themselves to managed decline.

Dirigisme Reigns

One would think that this state of affairs would itself suggest the solution: an aggressive deregulation of European economies at the national and EU levels. Alas, it is a sign of the dirigiste mindset’s iron grip upon wide swathes of the EU’s political class that Draghi’s proposed cure for fading competitiveness amounts to more political centralization and greater state intervention, the exact opposite of what is necessary to make EU economies more dynamic and fitted up for twenty-first-century challenges.

A prime example of this counterproductive approach is Draghi’s proposal for reducing the EU’s regulatory burden by “increasing the depth of coordination.” In EU-speak, “coordination” is code for shifting more power to Brussels. The regulatory complexity that comes from 27 member-states issuing many of their own regulations, the argument goes, can be reduced by moving more regulatory authority to Brussels, thereby giving EU institutions the capacity to standardize regulation across the EU. 

That amounts to giving more power with less accountability to those very same EU institutions that have promulgated so many of the regulations presently crushing European businesses. To suppose that these institutions will suddenly undergo a revolutionary upheaval in their basic view of regulation is at best naive. Moreover, the proposed centralization will also diminish the capacity of reform-minded national governments to pursue their own deregulatory agendas.

These measures form part of Draghi’s ambition “to lay out a new industrial strategy for Europe” to overcome its waning competitiveness. One feature of this strategy is the extensive use of industrial policy. Draghi acknowledges the failures and drawbacks of industrial policy “such as defending incumbent companies or picking winners.” Nonetheless, he insists that Europe can overcome the problems inherent to industrial policy by adhering to “a set of key principles which embed best practice.” That involves, according to Draghi, focusing on sectors rather than companies and subjecting the process of allocating subsidies and other forms of assistance to “rigorous monitoring.”

What “rigorous monitoring” means is left undefined, but we have good reason to doubt that it would have any effect. Once set in place, industrial policies are notoriously hard to terminate, even when the failure is manifest. The recipients don’t want government assistance to stop, and no political leader or bureaucrat wants to concede failure.

More generally, applying industrial policy to a sector inevitably involves government officials making choices about which companies in that sector are given assistance and which are not. Therein lies the inescapability of industrial policy’s problems. The temptations of collusion and cronyism are irresistible, but even scrupulously honest governments could not know everything they would need to know to identify in advance which companies will succeed.

Draghi provides no counterargument to these textbook objections to industrial policy. Instead, he insists, “Industrial strategies today—as seen in the US and China—combine multiple policies, ranging from fiscal policies to encourage domestic production, to trade policies to penalize anti-competitive behavior, to foreign economic policies to secure supply chains.”

Draghi, however, seems unaware of the failures that already mark the various industrial policies adopted by China and America over the past 6 years. If anything, these fiascos should give European leaders significant pause before accepting Draghi’s recommendations in this area.

Going hand-in-hand with this commitment to industrial policy is Draghi’s insistence that governments must boost “the total investment-to-GDP rate rise by around 5 percentage points of EU GDP per year to levels last seen in the 1960s and 70s.” Europe’s private capital markets, he argues, are simply not up to the job of providing the financial fuel needed to turbocharge productivity and growth. Private investments, Draghi maintains, must therefore be supplemented by capital from the public sector to drive productivity.

Left unsaid is the fact that government institutions providing capital will want a major say in where that investment goes, and that their motivations will not be the same as private capital investors pursuing profit. After all, the politicians and Eurocrats leading these institutions will be subject to relentless lobbying by special interests. That adds up to inefficient allocations of capital on a mass scale and therefore less productivity: the converse of what Draghi is aiming for.

Killing Competition via Corporatism and Climate

Draghi’s interventionist approach to competition isn’t limited to a predilection for industrial policy and government efforts to direct investment flows. He is determined to uphold the European social model with its emphasis on minimizing inequality. It follows, Draghi maintains, that any reform effort to bolster competitiveness must be grounded in a network of endless consultation:

A key part of this process will be empowering people. Leaders and policymakers should engage with all actors within their respective societies to define objectives and actions for the transformation of Europe’s economy. More effective and proactive citizens’ involvement and social dialogue, combining trade unions, employers and civil society actors, will be central in building the consensus needed to drive the changes. Transformation can best lead to prosperity for all when accompanied by a strong social contract.

The word to describe this is “corporatism.” This is a political model with deep roots in continental European political culture which regards private enterprise, markets, and competition as useful but also with suspicion on the ostensive grounds that they produce excessive wealth disparities, diminish security, and undermine solidarity. It follows that markets have to be embedded in political frameworks that seek to establish consensus around achieving particular social and economic objectives—a process overseen, coordinated, and ultimately enforced by the state.

The problem is that corporatism is incompatible with a dynamic competitive economy. In corporatist settings, competition and entrepreneurship are inhibited by protocols that mandate ceaseless consultation with sundry interest groups. Those same settings give substantial political clout to entities (unions, established businesses, etc.) whose priority is maintaining the status quo. Indeed, corporatism actively disincentivizes anyone from questioning the economic status quo, precisely because it prioritizes the harmonization of views. However, questioning the status quo and prevailing consensus are prerequisites for successful entrepreneurship and growth-enhancing competition.

One such competition-crushing consensus that reigns among the EU political class is the imperative of addressing climate change. This topic permeates Draghi’s report from beginning to end. The need to decarbonize European economies as quickly as possible is presented as a non-negotiable given.

Yet so many European nations—most notably, Germany, once the EU’s economic powerhouse but now becoming Europe’s sick man—are presently paying a big price in terms of productivity and growth because of efforts to pursue net-zero. In an October 2023 report, the University of Cologne’s Institute of Energy Economics estimated that the cost of decarbonization for Germany between 2024 and 2030 would be just over €1.9 trillion in private investment and public spending, with the private sector bearing an ever-increasing share of the cost. That translates squarely into less private-sector productivity. 

The self-crippling of substantial parts of many European economies in the name of combating climate change, and the associated failure of the promised green businesses and green jobs to materialize on any meaningful scale, is one of the major economic stories of our time. Few European political leaders, however, are willing even to discuss it. Such is the power of the climate consensus to suppress acknowledgment of reality.

Security Uber Alles 

It is difficult to believe that Draghi is unaware of these and the other contradictions undermining competition throughout the EU from within. It may be, however, that he recognizes that there are unspoken but severe limits to how much security millions of Europeans are willing to trade-off for the greater economic freedom that ultimately delivers greater growth.

In several sections of his report, Draghi comes close to suggesting that attitudinal change by Europeans is necessary if the EU is not to become an economic backwater. Each time he does so, however, Draghi immediately blunts the force of his point, often by suggesting that Europeans won’t and shouldn’t accept what they regard as the deep inequalities that characterize America.

Complicating matters is many Europeans’ inability to conceive of a world in which non-state institutions play a major role in addressing genuine situations of poverty. That blind spot is shared by many Americans. Nonetheless, America does have a long history and contemporary practice of private associations addressing social and economic problems that Europeans across the political spectrum typically regard as the primary (if not sole) responsibility of government.

Therein lies the deeper problem that makes reversing Europe’s growing lack of competitiveness difficult. Placing so much faith in state action makes it hard to concede that an addiction to government overreach is central to Europe’s present economic challenges.

Altering policy is critical. Without, however, a fundamental shift in attitudes that involves more faith in freedom and deeper skepticism about the efficacy of interventionist policies, Europe’s economies will continue deteriorating, rendering much of Europe a bit-player in world affairs. Decline is indeed a choice. Absent a deep change in Europe’s economic culture, decline is effectively the choice that Europe has made. 

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Runaway public debt is often symptomatic of deeper problems. In retrospect, the four state defaults incurred by Spain in 1557, 1560, 1575, and 1596 were an indication that the Spanish Empire’s decline had begun. Two hundred years later, the disastrous state of France’s public finances underscored the ancien régime’s political bankruptcy and helped trigger the French Revolution.

In The Financial Revolution in England: A Study in the Development of Public Credit 1688-1756 (1967), the Oxford historian P. G. M. Dickson illustrated that modern public debt, as we understand it, began when the Bank of England was founded in 1694 to act as the British government’s private banker and debt-manager. Britain’s subsequent acquisition of significant financial muscle helped lay the foundation for its rise as a world power.

These arrangements, however, had their critics. The most vocal was the Scottish Enlightenment philosopher, David Hume. In his 1752 essay, “Of Public Credit,” Hume dramatically stated that “either the nation must destroy public credit, or public credit will destroy the nation.” Hume was not averse to changing his mind. But this is one subject on which his opinion never altered. Indeed, some of his insights help us grasp the deeper dynamics underlying America’s present debt challenges.

Liberty, Necessity, and Degeneracy

Hume first signaled his concerns about Britain’s public debt in his 1741 essay “Of Liberty and Despotism.” Here Hume referred to the “degeneracy” generated by the ever-growing amounts of tax revenue being used to service debt. The tax burden, he claimed, was “becom[ing] altogether Intolerable.” It would, Hume warned, compromise liberty in Britain and reduce the country to the “same State of Servitude with all the Nations that surround us.”

In his public credit essay, Hume acknowledged instances in which governments had little choice but to incur substantial debt. He had in mind circumstances in which governments required resources exceeding their existing financial assets and tax revenues (what Hume called “treasury”) to address emergency situations, such as terminating a war.

Such “necessity” debt, as Hume construed it, could be legitimately understood as an extension of “treasury.” “These temporary expedients,” as Hume described them, were often rendered unavoidable by “the necessity of human affairs.” Beyond these circumstances, however, Hume saw a growing public debt as threatening a state’s well-being.

The error lay in using public debt for purposes that were not a matter of necessity. The initial impetus behind the Bank of England’s founding was funding William III’s wars against Louis XIV’s France. Yet it was not long before successive ministries started drawing on public debt for other purposes. To explain this shift, Hume focused on who decides what constitutes “necessity” and the motives shaping this decision-making process. Here Hume’s realist view of human nature comes to the fore:

It is very tempting to a minister to employ such an expedient, as enables him to make a great figure during his administration, without overburdening the people with taxes, or exciting any immediate clamors against himself. The practice, therefore, of contracting debt will almost infallibly be abused, in every government.

In short, why wouldn’t ministers of the crown use public debt to fund projects that enhanced their popularity while avoiding the ignominy attached to raising taxes? The temptation for governments to go down this path is, Hume observed, overwhelming.

Taxes, Interest, and Inflation

Hume’s warnings did little to deter British policymakers from using public debt to fund several wars in his lifetime. Indeed, public debt was central to Britain’s emergence as the eighteenth-century’s most formidable fiscal-military state: one capable of financially sustaining not only its own armed forces in globally scaled wars but also its allies.

Wider recourse to public debt was further encouraged by those who believed that states could use public debt to stimulate their economies. In his widely-read Traité de la Circulation et du Crédit (1764), the Dutch merchant-banker and philosophe Isaac de Pinto contended that a public debt increased the circulation of money and fostered the wider use of credit throughout society.

Neither these arguments nor Britain’s comprehensive victory over France in the Seven Years’ War altered Hume’s views about public credit. If anything, Hume’s prognostications became even more pessimistic.

In a letter dated March 11, 1771, Hume insisted that the sheer size of Britain’s debt would mean “certain and speedy Ruin either to the Nation or to the public Creditors.” Three months later, he referred in a June 25 letter to “our public Debts, which bring on inevitable Ruin, and with a Certainty which is even beyond geometrical, because it is arithmetical.” For Hume, the debt issue surpassed all other economic questions in importance. Six months after the outbreak of the War of Independence, Hume was railing in a letter dated October 26, 1775, against the “overwhelm’d and totally ruin’d State of our Finances.”

The actual state of Britain’s debt at the time belied Hume’s outbursts. The most reliable statistics available indicate that Britain’s public debt was 130.3 million pounds in 1769. This dropped to 128.9 million pounds in 1771, before declining further to 127.3 million pounds in 1775. This trajectory indicates relative stability, not impending fiscal doom.

That said, other late-eighteenth-century British thinkers began to express concerns similar to Hume’s. In his Commentaries on the Laws of England, William Blackstone claimed “that the present magnitude of our national incumbrances very far exceeds all calculations of commercial benefit, and is productive of the greatest inconveniences.” For one thing, Blackstone wrote, “the enormous taxes, that are raised upon the necessaries of life for the payment of the interest of this debt, are a hurt both to trade and manufactures” by forcing businesses to charge higher prices to consumers in order to absorb the cost of tax increases.

Hume’s friend, Adam Smith, focused on a different problem. “When,” he wrote in his Wealth of Nations, “national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having been fairly and completely paid.” According to Smith, history tells us that governments would invariably try to circumvent the problem, “frequently by a pretended payment” like debasing the currency through inflation and devaluation, thereby reducing people’s purchasing power.

Pitt’s Scheme, Hamilton’s Gamble

Hume was thus not alone in warning about the debt’s effects on Britain’s well-being. It took, however, a lost war to persuade British politicians to take such concerns seriously.

By the end of the Revolutionary War, Britain’s national debt had doubled to 243 million pounds in government loan stock. To put this in perspective, annual tax revenues in 1783 were 12.5 million pounds. Furthermore, over a third of Britain’s annual budget was devoted to interest payments on the debt.

These numbers necessitated new fiscal thinking. Like many of his generation, the young MP William Pitt had read Hume and Smith on economic topics. Upon becoming Prime Minister and First Lord of the Treasury in 1783 at the age of 24, one of Pitt’s immediate priorities was to get the national debt under control.

Pitt’s solution involved putting 1 million pounds each year from 1786 onwards into a “sinking fund” that accumulated compound interest. This fund was used to pay down the existing national debt. By the early-1790s, that debt had almost been halved. In 1792, Pitt established another sinking fund to pay down all future debt. Even after the outbreak of war with Revolutionary France in 1793, Pitt maintained the funds in place, such was his commitment to getting Britain’s financial house in order.

These developments were closely followed on the other side of the Atlantic by another careful reader of Hume’s writings. Unlike Hume, however, Alexander Hamilton concluded that a public debt need not be a fiscal albatross. Rather, Hamilton saw it as key to Britain’s powerful position in international affairs. He also held that America needed something similar to maintain its independence in a world of competitive states. In addition, Hamilton thought that the US government’s assumption of the thirteen states’ debts would bind the republic together and give domestic and foreign investors a financial stake in its well-being.

One objection to Hamilton’s subsequent establishment of a national debt came from Virginia’s House of Delegates. It pointed to “a striking resemblance” between the legislation passed by Congress and the measures “introduced into England at the [Glorious] Revolution—a system which has perpetuated upon that nation enormous debt, and has moreover insinuated into the hands of the Executive an unbounded influence.”

The Humean edge of these observations would not have been lost on Hamilton. In his Report on a Plan for the Further Support of Public Credit (1795), Hamilton excoriated in Hume-like terms exorbitant taxes, undisciplined government spending, and heavy debt. But he also underscored his ambition to render America’s public credit “immortal” by preventing an unrestrained accumulation of debt. To that end, Hamilton proposed that

with the creation of debt should be incorporated the means of extinguishment; which means are two fold, the establishing at the time of contracting a debt funds for the reimbursement of the Principle, as well as for the payment of Interest within a determinate period—The making it a part of the contract that the funds so established shall be inviolably applied to the object.

Every loan contract into which the US government entered would thus specify the terms under which the debt would be paid off. This principle was eventually embodied in two acts passed on March 3, 1795, and April 28, 1796, that established the necessary provisions for the public debt’s redemption over time. By such means, Hamilton believed, America would enjoy the advantages of a public debt while diminishing the risks stressed by Hume and others.

Self-Interest Cuts Both Ways

Plainly, Hamilton’s and Hume’s assessments of public debt differed significantly. The two men, however, had a similar understanding of human nature. In this connection, their emphasis on self-interest’s remorseless workings was critical to their thought about public finances. For Hamilton, appealing to self-interest was central to persuading people to lend money to the US government. By contrast, Hume thought that the pursuit of self-interest by political leaders was turning Britain’s public debt into a fiscal time bomb.

Both men had legitimate points. When, however, we examine the dynamics driving America’s debt today, Hume’s observations are especially pertinent.

Today’s stunning expansion of America’s debt is driven by entitlement programs like Social Security, Medicare, and Income Security. In 2023, these consumed 68 percent of US government spending. That same year, the government collected almost 4.5 trillion in revenue but spent 6.16 trillion.

Public debt has become the means by which Washington has managed the revenue-expenditure gap since 2000. Interest payments on the debt, however, now exceed the amount spent on Medicaid and veterans’ benefits and are projected to become the federal budget’s largest category by 2051.

Behind these raw numbers lies something else. The ultimate cause of this “degeneracy” (as Hume would call it) lies in many Americans’ unwillingness to contemplate any entitlement cuts whatsoever. Nor do I see any William Pitt on the horizon with the courage to tackle the problem. Instead, most American legislators perceive support for entitlement cuts as the road to political perdition. In both cases, legislators and citizens are following their immediate self-interest.

Therein lies our dilemma: how do we align people’s self-interest so that it favors rather than impedes policies that will address America’s national debt crisis? Perhaps, as in late-eighteenth-century Britain, things will have to get much worse before enough twenty-first-century Americans see it as being in their self-interest not to allow our public debt to become the ruin of a nation.

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Even in its revised and published form, Keynes’s lecture is not especially systematic. Several of its key points remained severely underdeveloped. Yet, despite these limitations, “The End of Laissez-Faire” was a decisive step in Keynes’s decades-long effort to expand the state’s role in the economy. Success in realizing this objective was preconditioned upon Keynes persuading his listeners that laissez-faire economics had had its day.

By “laissez-faire,” Keynes meant the economic vision grounded upon free markets, limited government, and the pursuit of individual self-interest first systematically outlined by Adam Smith. Throughout the nineteenth century, Keynes argued, this conception of economics had attained a hegemony among most economists. Keynes was, however, convinced that market liberalism could not comprehend or cope with the post-1918 world’s economic problems. In his view, this necessitated a thorough rethinking of both economics and economic policy. The results of Keynes’s subsequent endeavors surround us today in the form of economically activist governments that crowd out freedom to an extent not even Keynes himself may have anticipated.

Going to the Roots 

In the months preceding his Sidney Ball lecture, Keynes had signaled his growing doubts about market liberalism. In two articles published in The Nation in May 1924, Keynes argued that it could no longer be assumed that market forces would eventually restore full employment. Getting the British economy out of its protracted slump required, Keynes stated for the first time, “an impulse, a jolt, an acceleration” through means like public works or forcing a shift in British savings away from foreign markets towards domestic investment.

In the “End of Laissez-Faire,” Keynes takes a different tack. Rather than discussing policy, he goes straight to market liberalism’s philosophical roots. Keynes traces these to Enlightenment sources like John Locke’s conception of natural liberty and David Hume’s stress on utility. The power of these ideas of “conservative individualism,” as well as the influence of such unlikely nineteenth-century bedfellows like Charles Darwin and Archbishop Richard Whately, Keynes maintains, created conditions whereby citizens and governments alike came to believe that individuals’ pursuit of self-interest, combined with an absence of government intervention, had produced unprecedented economic, social, and political flourishing.

According to Keynes, the contribution of economists to this widespread confidence in markets was to associate laissez-faire thought with “scientific proof that [government economic] interference is inexpedient.” Further reinforcement of laissez-faire’s dominance, Keynes states, proceeded from the fact that “material progress between 1750 and 1850 came from individual initiative, and owed almost nothing to the directive influence of organized society as a whole.” Thus, he concludes, “practical experience reinforced a priori reasoning.”

Repudiating a whole set of a priori positions was central to Keynes’s attempt to prove market liberalism’s redundancy by discrediting its underlying intellectual apparatus. He declares, for instance, “It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities.” Precisely why this claim (labeled “metaphysical” by Keynes) is false goes unexplained. Similarly, Keynes insists that “more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these.” Again, Keynes offers no evidence to support this assertion, even by way of footnotes.

Goodbye to Theory 

Driving Keynes’s determination to smash holes in market liberalism’s intellectual underpinnings was his desire to clear the way for extensive government economic interventions. Keynes was well aware that the wisdom of such interventions would be disputed on grounds of economic theory. His response was to marginalize the saliency of economic theory itself.

One consistency pervading Keynes’s thought from the 1920s onwards is his conviction that the facts and problems confronting us must drive action, with theory being subordinated to the demands of praxis. Keynes’s lecture does not hide his impatience with market-liberal economists and their perpetual concern for sound theory.

Laissez-faire, from Keynes’s standpoint, had gradually come to function as a kind of ideology, and its theoretical underpinnings tended to collapse into dogma. In his view, this was exemplified by the writings of the nineteenth-century French economist Frédéric Bastiat. Here, Keynes said, “We reach the most extravagant and rhapsodical expression of the political economist’s religion.” For too many economists, Keynes stipulated, “The beauty and the simplicity of such a theory are so great that it is easy to forget that it follows not from the actual facts, but from an incomplete hypothesis introduced for the sake of simplicity.”

Economic theories are indeed abstract and often posed as hypotheticals. They are also subject to constant reverification. Keynes, however, downplays their indispensable role in comprehending and responding to economic reality. Facts after all do not explain themselves. Absent a coherent theoretical framework, it is impossible for economists to understand the significance of millions of pieces of data, or grasp how ever-growing and changing sets of facts relate to each other. 

Indeed, without solid theory, we find ourselves reverting to experience, intuition, or varying combinations of such things to explain reality. While they have their uses, peoples’ experiences and intuitions often radically differ, frequently contradict each other, and themselves require explanation. Their reliability as a way of organizing our thoughts, understanding the world, or guiding economic policy is thus constrained.

Keynes, however, skips over such objections. “We cannot,” he contends, “settle on abstract grounds” the parameters of what the state can and cannot do in the economy. Rather, we “must handle on its merits in detail what Burke termed ‘one of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion.’”

Recruiting Edmund Burke as an ally is a questionable move, given the way that writings like his “Thoughts and Details on Scarcity” accorded a significant role to economic theory in determining the limits of state intervention. In any event, Keynes’s words suggest a case-by-case approach to intervention. As if, however, he recognizes the inescapability of some type of intellectual framework to order our decision-making about what governments should and should not do, Keynes distinguishes between “those services which are technically social from those which are technically individual.” 

The “technically social,” Keynes says, are those “decisions which are made by no one if the State does not make them.” While that sounds like a public goods argument, Keynes’s “technically social” turns out to involve not only an incipit embrace of state macro-management of the economy but also full-blown corporatism.

Keynes the Corporatist

One of market liberalism’s failures, Keynes claimed in his lecture, was its inability to address problems generated by the prevalence of “risk, uncertainty, and ignorance” in the economy. These, he stated, produced “great inequalities of wealth” and “are also the cause of the unemployment of labour, or the disappointment of reasonable business expectations, and of the impairment of efficiency and production.” 

Keynes deemed it possible to minimize these difficulties through “deliberate control of the currency and of credit by a central institution.” Another of Keynes’s “technically social” policies involved state agencies collecting and disseminating “on a great scale” all “data relating to the business situation, including the full publicity, by law if necessary, of all business facts which it is useful to know.”

How we distinguish useful from non-useful facts is not specified. But such information, Keynes insists, must be collated so that “society” can exercise “directive intelligence through some appropriate organ of action over many of the inner intricacies of private business.”

This, Keynes hastens to add, “would leave private initiative and enterprise unhindered.” Keynes, however, does not elucidate why this is the case—perhaps because he cannot. Indeed, one reason why Keynes underscores the need for a government agency to assemble business facts is his belief that:

some coordinated act of intelligent judgement is required as to the scale on which it is desirable that the community as a whole should save, the scale on which these savings should go abroad in the form of foreign investments, and whether the present organization of the investment market distributes savings along the most nationally productive channels. I do not think that these matters should be left entirely to the chances of private judgement and private profits, as they are at present.

In other words, Keynes does want to hinder the workings of private initiative and enterprise by means of “the community as a whole” making decisions about the aggregate distribution of savings between domestic and foreign investments. 

Things get even more complicated once we discern what Keynes means by “society” and “the community.” In some cases, this functions as Keynesian shorthand for direct state intervention. In other instances, Keynes holds that “many big undertakings, particularly public utility enterprises and other business requiring a large fixed capital … need to be semi-socialized.” 

By “semi-socialism,” Keynes has in mind something akin to “medieval conceptions of separate autonomies.” In general, he comments, we should “prefer semi-autonomous corporations to organs of the central government for which ministers of State are directly responsible.” As examples, Keynes suggests institutions like universities, the Bank of England, and railway companies, all of which operated at one or more removes from the state but whose legal status was not that of a strictly private association. “In Germany,” Keynes observes in a casual aside, “there are doubtless analogous instances.”

That reference indicates Keynes’s awareness of corporatism’s influence throughout the early-twentieth-century German-speaking world. Nor should we forget that corporatism had become official government policy in Italy following Mussolini’s seizure of power just two years before Keynes’s laissez-faire lecture. In short, corporatist ideas that posited the corralling of individuals into state-supervised groups and promoted the public-private amalgams envisaged by Keynes were “in the air”—and the Cambridge don had breathed deeply.

A Heavy Legacy 

In this and other ways, Keynes’s “End of Laissez-Faire” amounted to more than an effort to kill off market liberalism. It prefigured Keynes’s ambition to design economic policies which were simultaneously shaped by, and sought to influence, contemporary conditions. Ultimately, these would come to fruition in his General Theory of Employment, Interest and Money (1936). But as F. A. Hayek pointed out in his 1972 monograph A Tiger by the Tail, while Keynes had called his book “a ‘general theory,’” it was no such thing. In Hayek’s words, it was “too obviously a tract for the times, conditioned by what he thought to be the momentary needs of policy.”

In the long-term, Keynes’s proposals for addressing the high unemployment of the 1930s would contribute substantially to the high unemployment and runaway inflation of the 1970s. Nonetheless, those same ideas’ popularity cemented in many people’s minds the illusion that governments can somehow “manage” trillion-dollar economies consisting of millions of people from the top down.

A century after Keynes’s “End of Laissez-Faire” lecture, faith in economic interventionism persists across the political spectrum. Immense bureaucracies exist whose entire raison d’être is to enforce core precepts of Keynesian doctrines by pursuing commensurate policies. Keynes may not have succeeded in terminating market liberalism’s influence, but his ideas and their institutional manifestations weigh heavily on us today.

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Industrial policy is also back in favor, with the European Union, China, and the United States accounting for almost half of the 2,500 new industrial policies implemented in advanced economies throughout 2023. As for deregulation, tax cuts, or reducing the state’s imprint on economic life, I know of no national government—save for Argentine Javier Milei’s administration—presently pursuing such standard-issue free market objectives with any consistency.

This global retreat from markets crisscrosses the political spectrum. Many on the right have joined the left in seeking government solutions to economic problems. Certainly, free market successes such as the ongoing advancement of school choice throughout America can be identified. Nonetheless, what F. A. Hayek called “the climate of opinion” in his 1949 essay, “The Intellectuals and Socialism,” is decidedly not with free market ideas.

Economic Arguments and Their Limits

The 2008 Financial Crisis is regularly identified as a prime culprit of this shift towards interventionism and economic populism. Despite considerable evidence to the contrary, the financial meltdown and Great Recession continue to be blamed on insufficient regulation. Then there is the widespread and equally disputable assertion that market liberalization has gone hand-in-hand with stagnating incomes for millions of middle-class and blue-collar workers.

To move forward, market liberalism must continue vigorously contesting such claims. As Hayek and earlier generations of free marketers well understood, engaging in debates about the past is crucial to achieving intellectual and policy successes in the present. Today’s critics of market economies are simply mistaken about many of the facts, and its defenders must put right the record.

Likewise, market liberals must continue critiquing the flawed economic theories of today’s dirigistes, whether their subject is wage growth or the effects of tariffs. Good economics can be a powerful antidote for any number of intellectual errors and policy sins. While it may not change the views of those who persist in promoting economic nationalist mythologies because their primary interest is in acquiring power, it will raise appropriate questions about their motives.

Victories in the realm of economic debate are, however, insufficient. People change their minds on economic issues for many reasons, and purely economic arguments are seldom the deciding factor. Hence, if market liberals want to shift the climate of opinion in a more friendly direction, they need to think harder about how to attach their proposals to broader arguments about their countries’ well-being. Here, contemporary market liberals can learn much from their predecessors.

We’ve Been Here Before

While market liberalism’s influence is waning today, things have been worse for its advocates in the past. In the lead-up to World War I, market liberalism appeared to have established an ascendency throughout the West. In his Economic Consequences of the Peace, John Maynard Keynes waxed lyrical about a pre-1914 world of Edwardian liberalism in which economic freedom was improving everyone’s living standards. Across the Atlantic, the US Congress passed the Underwood-Simmons Tariff Act in 1913 which lowered the average tariff rate from 40 percent to 27 percent—its lowest rate in 50 years. The world over, Keynes stated, more and more people were rising into the middle classes through hard work and enterprise.

Between 1914 and 1918, that world was obliterated. In the war’s wake came crippling inflation, crushing national debts, a global economy riddled with tariffs, a Bolshevik regime in Moscow committed to radical economic collectivism, and nationalist movements whose anti-capitalism was as intense as their anti-Semitism. More generally, the war had left millions of people of all classes and creeds inclined to look to the state for their economic salvation.

Conditions equally inimical to market liberalism prevailed after World War II. Though efforts to reduce trade barriers formed part of America’s postwar plan for the world, economic planning at the domestic level became the orthodoxy throughout the West. In Britain, the welfare state achieved an apotheosis in the National Health Service, while America embraced Lyndon B. Johnson’s Great Society. The ideas underlying these policies were reinforced by an economics profession thoroughly committed to the ideas of Keynes and his disciples.

Certainly, there were exceptions to this trend. The most notable was the West German economy’s liberalization in 1948, thanks partly to a small group of market liberals who exerted an intellectual influence far beyond their numbers. Western nations, however, generally moved in the opposite direction. Most political parties of the left and right were firmly in the camp of the planners. So too was the bureaucratic apparatus of governments whose presence, then as now, remained largely unaffected by changes at the top engendered by elections.

A Wider Agenda

Given these circumstances, it is remarkable that market liberals were able to alter the climate of opinion sufficiently that a revival of free market ideas occurred thirty years after the war. They also achieved this without anything like the resources that exist today for promoting economically liberal policies.

The story of how that occurred has been recounted in books like Angus Burgin’s The Great Persuasion: Reinventing Free Markets since the Depression and Richard Cockett’s Thinking the Unthinkable: Think-Tanks and the Economic Counter-revolution, 1931–1983. The inflationary outbreak of the 1970s, growing unemployment in advanced economies, and visible evidence of interventionism’s failures created an openness to free market ideas, especially on the right.

Nevertheless, one of the postwar market liberals’ singular achievements was to keep free market ideas alive over the preceding thirty years. In part, they were able to successfully build market liberal themes into wider messages about the need for political and social renewal. Subsequent decades’ free-market breakthroughs thus owed something to the broader arguments being made for a free society.

The free-market successes achieved under the Thatcher government and the Reagan administration exemplify this. A commitment to ending the default Keynesian settings for fiscal and monetary policy was central to their respective agendas. But this pledge was integrated into a bigger program: most notably, shaking off the general torpor and mentality of managed decline affecting America and Britain in the 1970s, much of which was inadvertently summarized by President Jimmy Carter in his 1979 “Malaise” speech.

The rhetoric deployed by Margaret Thatcher and Ronald Reagan throughout the late 1970s and 1980s reflected this strategy. Nowhere was the linkage more evident in Thatcher’s successful pivot from her 1982 victory over Argentina’s military junta in the Falklands to confronting Britain’s over-mighty unions. During and after the National Union of Mineworkers’ (NUM) 1984–1985 strike, Thatcher did not hesitate to associate her refusal to give in to the NUM’s demands with a more general effort to restore Britain’s self-respect and place in the world.

For decades, market liberals like Hayek had insisted that the legal privileges accorded to unions effectively gave them a monopoly of the labor supply. This, Hayek argued, undermined labor market flexibility and compromised rule of law. By the late 1960s, more than one commentator was wondering whether the General Secretary of Britain’s Trade Union Congress was more important than whoever occupied 10 Downing Street. Indeed, Ted Heath’s Conservative government lost the 1974 General Election after campaigning under the slogan, “Who governs Britain?”

Breaking trade union power was perhaps the greatest market liberal victory realized during Thatcher’s time as prime minister. But one major difference between 1974 and 1984 was that excessive union influence upon political and economic life had become so identified in many people’s minds with national decline that even Britain’s Labour Party was less than full-throated in its support of the NUM strike.

Likewise, millions of American blue-collar workers may have had their doubts about Ronald Reagan’s advocacy of free markets during the 1980 and 1984 presidential elections. But Reagan’s uncomplicated patriotism, firm anti-Communism, and patently sincere optimism about America’s future detached many such Americans from their traditional allegiance to a Democrat Party wedded to interventionism. Absent Reagan’s larger message of national revitalization, it is reasonable to wonder if his economic policies would have gotten off the ground.

Telling the Truth

Advancing market liberalism today likewise requires the incorporation of free market ideas into a more comprehensive narrative about a wider revival of America and other Western countries. But however market liberals go about this, there is one obligation of which they cannot lose sight: that concerns their duty to tell the truth, however hard it may be for policymakers and people more generally to hear it.

The German market liberal Wilhelm Röpke summed up this responsibility in a 1956 essay written in a festschrift for another liberal economist, Ludwig von Mises:

[Economics] has a humble but all the more useful mission. Amidst the passions and self-interest of politics, it must assert the logic of things, it must bring to light all the inconvenient facts and relationships, must put them in their proper place with dispassionate justice, must prick all the soap bubbles, must unmask illusion and confusion, and must defend before all the world the proposition that two and two make four. It should be the one science par excellence which disillusions, which is anti-visionary, anti-Utopian, and anti-ideological. Thus, it can render society the priceless service of cooling off political passion, of combating mass superstition, of making life hard for all demagogues, financial wizards, and economic prestidigitators.

At no time is the commitment to truth underlying this mindset more vital than in times of economic populism like our own. For free marketers who do not shirk this responsibility, it may mean unpopularity and even foregoing possibilities for career advancement. But, as Röpke stated, to do otherwise would be “to betray the sanctity that lies in the truth of science to the political passions and the social emotionalism of our era.”

Whether from the left or right, today’s economic populists are urging us to embrace demonstrably false ideas and thus flawed policies. But they are also employing rhetoric (“market fundamentalist”) designed to marginalize those who look behind the policy sleights-of-hand and reveal truths that contradict populist narratives: that, for example, we already live in highly regulated economies; or that underlying every industrial policy are special interests seeking favors as well as legislators inclined to bestow such privileges for reasons that have little to do with the general welfare.

Populist waves come and go, but the economic damage that they inflict lasts. So too does the harm that they do to the liberal constitutionalism that places principled limits upon government power, including in the economy. Reminding us of these deeper truths is the wider and indispensable service performed by market liberals in our present age of populism.

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Those who maintain that such distinctions can and should be made are usually labeled conservative, even traditionalist in their outlook. However, specific ideas about the nature of civilization have been taken quite seriously by key classical liberal thinkers and their philosophical forebears. For them, certain theories of societal development helped explain how particular conceptions of rights and distinctive political, economic, and legal institutions emerged and fit together. Today, I’d suggest, such concepts of civilization have the potential to invest contemporary classical liberalism with a normative outlook and foundations that it needs at a time when classical liberal ideas are being assailed by competitors from across the political spectrum.

Hayek’s Civilization

One curiosity of F. A. Hayek’s The Constitution of Liberty (1960) is its dedication, “To the unknown civilization that is growing in America.” Thanks to Bruce Caldwell and Hansjoerg Klausinger’s Hayek: A Life, 1899–1950 (2022), we know that Hayek, like many European classical liberals of his generation, had mixed views of America. What Hayek did not doubt, however, was classical liberalism’s need to wrap itself in a civilizational agenda.

Throughout his writings, Hayek makes references to classical liberalism finding validation in notions of progress. But for Hayek, liberalism properly understood had a civilizational dimension. In part, he connected this with the moves towards greater political, civil, and economic freedom that marked nineteenth-century Europe. Like his intellectual sparring partner, John Maynard Keynes, much of Hayek’s thought was geared towards seeking to protect values that both men associated with prewar liberal Europe—and, in Hayek’s case, those of a nineteenth-century liberal Britain that had well and truly disappeared long before Hayek moved to London in 1931.

What then were liberal civilization’s core values for Hayek? Some of these are outlined in his Constitution of Liberty. Certainly, he values goods closely connected to freedom, such as the scope that a free society provides for creativity and tolerance. However, there is just as much emphasis on constitutionalism and the rule of law as good in themselves, and even liberty is understood to be inseparable from personal responsibility.

Some of this is echoed in various commitments referenced in the Statement of Aims approved by the first meeting of the Mont Pelerin Society—a group of classical liberal thinkers convened by Hayek in 1947. The Statement begins by unambiguously asserting that “the central values of civilization are in danger.” Some of those civilizational values include “human dignity and freedom” and “the rule of law.” It specifically describes “freedom of thought and expression” as a “precious possession of Western Man,” thereby linking this liberty to a precise historical and cultural trajectory. The statement also references the civilizational threat posed by “a view of history which denies all absolute moral standards,” thereby signaling classical liberal opposition to moral relativism. 

There is, however, another sense in which Hayek utilizes the concept of civilization. In the Constitution of Liberty, he denotes civilization as an accumulation of knowledge and experiences over time that could never be designed by any one human mind, but which allows people to pursue their individual aims. The scope of possibilities open to people at any one moment in time is what Hayek refers to as “the state of civilization.” Some civilizations contain more possibilities than others; that is why Hayek speaks of “higher civilization.”

Civilization in Hayek’s sense thus embodies the wisdom transmitted from the past, often in the form of conventions and traditions. While no one person can fully grasp all this knowledge, it enables people to pursue “their individual ends so much more successfully than they could alone.” This “conservative” feature of civilization, however, goes together with a “liberal” recognition that as people freely pursue their chosen goals (especially the end of knowledge driven by humans’ innate desire to know truth) they may make errors but also likely uncover new information. This can form the basis of critiques of existing ideas, institutions, and conventions that in turn suggest revisions of what we already know.

Hayek’s liberal civilization is consequently one characterized by certain unchanging commitments alongside openness to change, a willingness to question, and above all, complexity. Full knowledge of the different elements that make up a higher civilization is, for Hayek, beyond any one human mind. Indeed, it is civilization that enables us to overcome “our ignorance of the circumstances upon which the results of our action depend.” For the same reason, Hayek thought it important that governments not unduly meddle with liberal civilization’s achievements. Such actions, he believed, were likely to undermine various conveyors of knowledge, the full value of which may not be apparent to us until it is lost. 

Scottish Civilization

If this sounds rather Burkean, that’s because it is. Hayek affirmed Lord Acton’s assessment of Burke as one of “the three greatest liberals” and as part of a liberal tradition that markedly differed from what Hayek labeled “rationalistic Continental liberalism” and “the English liberalism of the utilitarians.” It was not for idle reasons that later in life Hayek described himself in an interview as “a Burkean Whig.”

In using this expression, Hayek had in mind the eighteenth-century British tradition of liberty within which he placed Burke alongside important Scottish Enlightenment thinkers. That matters, not least because these Scots—still a reference point for many classical liberals—presented some of their arguments in explicitly civilizational terms.

One expression of this was the four-stage theory of social development articulated by the philosopher and judge Henry Home, Lord Kames in his Historical Law-Tracts (1758) and his Sketches of the History of Man (1774). Beginning with a hunter-gatherer stage before moving to a herder society and then to full-blown agricultural arrangements, Kames posited a fourth stage which he called “commercial society.”

As the phrase suggests, this was a social and economic order in which ever-expanding market exchanges, urbanization, and industry took center stage. It was also characterized by complicated webs of intersecting relationships, laws, and freely undertaken obligations that increasingly revolved around market transactions and the studied pursuit of self-interest. That complexity, however, delivered more than just material prosperity; Kames also believed that it produced an accelerated expansion of knowledge, a growth of social and cultural opportunities, and ultimately greater liberty and a more consistent administration of justice.

Similar narratives about civilizational development pervaded the thought of other Scottish Enlightenment figures ranging from Francis Hutcheson and Adam Smith to David Hume and Adam Ferguson. In his 1752 essay “Of Refinement in the Arts,” Hume maintained that “the mind acquires new vigor [and] enlarges its powers and faculties” in commercial societies. This energy spills over into the cultural, political, and legal spheres. “The spirit of the age,” Hume wrote, “affects all the arts; and the minds of men, being once roused from their lethargy, and put into a fermentation, turn themselves on all sides, and carry improvements into every art and science.”

Considering the sheer scale of the cultural achievements of late-eighteenth-century Scotland, whose universities became the envy of Europe as it was transformed from a poor semi-feudal country into a society dominated by commerce, Hume had a point. At the same time, these thinkers’ satisfaction at the emergence of commercial civilization did not mean that they regarded it as a cost-free exercise. As men steeped in classical and medieval history, the Scots recognized that the societies of those eras had their own virtues. They worried that commercial society might obviate these moral habits alongside the vices of premodern social orders. In his Sketches, Kames expressed concern that an obsession with consumption for consumption’s sake might weaken individuals and society more generally. 

Of all the Scots, Adam Ferguson was the most vocal about these risks. In his Essay on the History of Civil Society (1767), Ferguson described “the admired establishments and advantages of a civilized and flourishing people” as emerging from multitudes of individuals pursuing particular goals rather than “the execution of any human design” (a phrase that Hayek often quoted). Such achievements owed much, Ferguson stated, to “the effects of virtue.” By this, Ferguson meant habits like hard work, initiative, risk-taking, and creativity that people must embrace if they seek commercial advancement. 

Nonetheless, Ferguson also thought that the very successes of commercial civilization, especially its ability to generate wealth and luxury, could weaken those same habits and devalue the importance of others. “The boasted refinements,” Ferguson insisted, “of the polished age, are not divested of danger. They open the door, perhaps, to disaster, as wide and accessible as any they have shut. If they build walls and ramparts, they enervate the minds of those placed to defend them.” 

Virtue as Civilized Liberty

Apprehensions about the potential of commercial civilization and its creature comforts to undermine virtues linked with the premodern world are not hard to find in our own time. There is no dearth of thinkers on the left and right who view the market order promoted by classical liberal ideas as corrupting entire societies by marginalizing a concern for virtue, thereby rendering people weak, ineffectual, or even indifferent when tempted by the promises of domestic demagogues or threatened by foreign adversaries.

Most such critiques, however, miss an important point: Many of the Scots who favored commercial society were equally insistent that the civilized liberty of which they spoke required a firm grounding in virtues that went beyond those associated with commerce.

Francis Hutcheson went to some lengths to show that benevolent motivations often underlay the pursuit of economic self-interest and that the decisions driving commercial exchanges were often less self-regarding than many suppose. In his inaugural lecture at the University of Glasgow, Hutcheson noted that “when men are said to be seeking profit, or their own advantage, they are surely quite often serving their offspring and family.” 

Scottish Enlightenment thinkers also thought that the full panoply of virtues can and should be taught in commercial orders. Hutcheson and his student Adam Smith firmly believed in the power of education to inculcate moral knowledge and refinement among elites and the wider populace in the increasingly commercial conditions of their time. For Smith, this was important because he believed that those virtues which noticeably manifested themselves in market activities were insufficient if commercial societies were to be civilized.

In Part VI of his Theory of Moral Sentiments, entitled “On the Character of Virtue” and added to the book at the end of his life, Smith explains that commercial virtues require supplementation by classical virtues like magnanimity and justice as well as disinterested habits of benevolence like charity, generosity, and friendship. All these virtues, Smith believed, encourage us to look beyond the boundaries of self-preference.

Such virtues were not understood simply as extra grease to smooth the wheels of commerce. Virtue, Smith said, is nothing less than “excellence, something uncommonly great and beautiful.” It would civilize the use of our liberty in commercial society while also ensuring that our horizons were not limited to the market’s technical and material triumphs, as formidable as these are. Especially significant in this regard is the virtue of humility. For if Hayek was right to maintain that civilizational growth owes much, as Ferguson observed, to “nations [stumbling] upon establishments,” we should resist the hubris of imagining that we can somehow manufacture ex nihilo a better society and higher culture from the top-down.

If twenty-first-century classical liberals want to avoid being caricatured as narrow-minded technocrats or sophistic materialists, they could do worse than to follow their intellectual forebears, recasting classical liberalism as a truly civilizational endeavor that pursues the excellence that Smith has in mind. To the extent that classical liberalism today can show that love of the true, the good, and the beautiful can go hand-in-hand with the wealth, liberties, and complexities associated with markets, the power and attraction of its ideas will surely grow.

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There was, however, one commonality between these two unlikely prize co-recipients. As the Royal Swedish Academy of Sciences noted in its press release announcing the 1974 Nobel economics laureates, one reason for both men receiving the Prize was “their penetrating analysis of the interdependence of economic, social, and institutional phenomena.” Myrdal, for example, had written on race relations in America from an interdisciplinary standpoint. His work in this area was cited in the US Supreme Court’s Brown v. Board of Education judgment.

As Bruce Caldwell and Hansjoerg Klausinger illustrate in Hayek: A Life, 1899–1950, Hayek had taken his own extra-economic turn in the late 1930s as the Austrian economist sought to understand why the world was seeking salvation through greater state control over the economy and society more generally. This process accelerated when Hayek joined the University of Chicago’s Committee on Social Thought in 1950.

A common theme marking Hayek’s exploration of subjects like psychology, political science, and law was the conviction that the social sciences, including economics, had taken a wrong turn when they sought to follow as closely as possible the methods employed in the natural sciences. What Hayek called “scientism” had subsequently distorted economics by narrowly focusing it on what is measurable and observable. While that might work in the physical sciences, Hayek held that excessive reliance upon this methodology was bound to produce misleading conclusions when applied to the type of human interactions and knowledge that is the subject matter of economics. It was a theme to which Hayek would continually return, not least because it went to the heart of the nature of economics and its potential to contribute to human well-being.

“Old” versus “New” Economics

Hayek was not the only economist to lament postwar economics’ scientistic turn following efforts by Keynes’s disciples to concentrate the discipline upon quantifiable macro-aggregates that, many postwar economists believed, could provide them with the information that governments and technocrats needed to direct and manage the economy. Hayek’s fellow market liberal Wilhelm Röpke wrote at length on the same topic. In a 1952 essay, “Keynes and the Revolution in Economics,” Röpke observed that the “new economics” embodied an entirely different logic to that of (pre-Keynesian) “old economics.” It was, however, Hayek who most systematically explored the philosophical origins of this shift and its political and economic consequences.

The most famous of Hayek’s ventures into this area was his 1945 American Economic Review article “The Use of Knowledge in Society.” Its immediate target was the thesis of left-leaning economists like the Polish socialist Oskar Lange that economic planning was compatible with the price mechanism’s workings. To this extent, Hayek’s article formed part of the socialist calculation debate that had been litigated since the 1920s. What made Hayek’s 1945 article distinct was that it addressed some of the underlying epistemological questions driving this debate: most notably, the perennial question of what human reason can really know. In Hayek’s view, this was the decisive point that made economic planning a generally ineffectual and potentially dangerous exercise.

“Today,” Hayek stated in 1945, “it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge.” Yet, he stressed, there are other types of information, much of which is specific to individuals. These include “knowledge of the particular circumstances of time and place.” Possession of such tacit and thus largely unmeasurable information gives, Hayek observed, “practically every individual … some advantage over all others in that he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or made with his active cooperation.”

This state of affairs also creates significant challenges for government economic planning, insofar as it simply cannot keep up with the ongoing incremental changes in, and exchanges of, information to which individuals are constantly reacting at the micro-level of what Hayek calls “the economy of knowledge.” No planner can know the sheer number of changing factors (not least among which are the ever-changing preferences of billions of individuals as they react to unending price changes) that affect the prices of millions of goods and services at any one moment in time. The post-Keynesian emphasis on collating and acting upon macro-aggregates of the limited forms of information that did lend themselves to measurement positively discourages governments and technocrats from even thinking about these unknowables in the first place. This is bound to lead to significant policy errors, not least because it involves, as Hayek wrote, a willingness “to assume the problem away and to disregard everything that is important and significant in the real world.”

A Type of Vindication

In the three decades following the publication of Hayek’s 1945 essay, Western economies generally enjoyed steady economic growth, low unemployment, and low inflation. Contra Hayek, it seemed that governments aided by those trained in the new economics could successfully direct economic life towards the realization of very precise predetermined ends. “Old economics,” as personified by Hayek and a few market liberals, appeared dead.

Confidence in these propositions began weakening in the late-1960s as Western economy after Western economy started experiencing what practitioners of the “new economics” had regarded as an improbable scenario: high unemployment accompanied by growing inflation. These circumstances and the awarding of the Nobel Prize to Hayek in 1974 provided renewed attention to the now-elderly economist’s critique of planning and the alternative economic ideas with which he was associated.

No one would have been surprised if Hayek had chosen to use his Nobel lecture to dwell on the immediate economic problems of the 1970s or engage in an “I-told-you-so” retrospective. Hayek, however, decided to expand upon the epistemological questions addressed in his 1945 article and other papers—most notably, his three-part “Scientism and the Study of Society” essay, published in Economica in 1942, 1943, and 1944. This is what makes Hayek’s Nobel Prize lecture, “The Pretense of Knowledge,” one of his most important intellectual contributions and why it repays careful reading 50 years after Hayek delivered it in Stockholm.

Hubris is Costly

Hayek started his Nobel lecture with the somewhat polemical observation that economists were being called upon to save the free world from “accelerating inflation” which, Hayek insisted, had resulted from policies that “the majority of economists recommended and even urged governments to pursue.” To Hayek’s mind, this was symptomatic of the extent to which the economics profession had “made a mess of things.”

Central to this crisis of economics, Hayek contended, was “the ‘scientistic’ attitude” that underlay postwar economics. For three decades, he maintained, economists had insisted that there was “a simple positive correlation between total employment and the size of the aggregate demand for goods and services.” This, Hayek added, led “to the belief that we can permanently assure full employment by maintaining total money expenditure at an appropriate level.”

For Hayek, however, what mattered was that underneath this conviction was a heavy reliance upon totalities of “quantitative data.” But the capacity of such data, according to Hayek, to capture phenomena as complicated as inflation and unemployment was “necessarily limited.” There are, Hayek recognized,

a great many facts which we cannot measure and on which indeed we have only some very imprecise and general information. And because the effects of these facts in any particular instance cannot be confirmed by quantitative evidence, they are simply disregarded by those sworn to admit only what they regard as scientific evidence: they thereupon happily proceed on the fiction that the factors which they can measure are the only ones that are relevant.

Put another way: just because you can’t measure something doesn’t mean that it doesn’t exist or isn’t important. It follows, Hayek argued, that calculating grand aggregates of that limited number of things that lend themselves to measurement, and then trying to develop theories to explain the relationships between such aggregates, was bound to produce explanations for, say, rising inflation that were insufficiently attentive to what was happening at the micro-level of the economy.

Hayek illustrates the point by examining the phenomenon of how prices and wages are formed in a market economy. “Into the determination of these prices and wages,” Hayek explained, “there will enter the effects of particular information possessed by every one of the participants in the market process—a sum of facts which in their totality cannot be known to the scientific observer, or to any other single brain.” Economists cannot consequently know, no matter how sophisticated the econometric model, “which particular structure of prices and wages demand would everywhere equal supply.”

This does not mean that Hayek thought that using mathematics in economics was a waste of time. Such techniques, he observed, can help trace general patterns. They cannot, however, encapsulate everything that determines the formation of prices because no model can capture all the information that goes into shaping prices.

This, Hayek pointed out, had been well understood by sixteenth-century natural law philosophers like the Jesuits Luis Molina and Juan de Lugo who studied at the University of Salamanca. They emphasized, Hayek commented, “that what they called pretium mathematicum, the mathematical price, depended on so many particular circumstances that it could never be known to man but was known only to God.”

No Humility, No Freedom

Therein lay the normative and political significance of Hayek’s Nobel lecture. At its core was a plea for economists to avoid the hubris encouraged by scientism. This was not only about maintaining the discipline’s integrity as a social science. It was also a matter of being realistic about economics’ predicative powers: a realism which should discourage unrealistic expectations on the part of governments and citizens about what economics, economic policy, and economists can do.

Calibrating such expectations correctly was, for Hayek, crucial for two reasons. First, Hayek insisted, “The conflict between what in its present mood the public expects science to achieve in satisfaction of popular hopes and what is really in its power is a serious matter.” Overblown hopes lead to voters imagining that governments can deliver economic outcomes simply by pulling various interventionist levers, and political leaders and technocrats behaving as if they can do so. That is a recipe for disappointment and, potentially, deep disturbances in the body politic.

The second reason for Hayek’s concern was, in a word, civilizational. When economics and economic policy are infected by the scientism virus, we start to imagine that we can improve the social order at will via top-down control. Such a “fatal striving,” as Hayek described it, fueled by the refusal to recognize “the insuperable limits to his knowledge,” can make someone “not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

From this standpoint, the significance of Hayek’s Nobel lecture went beyond economics. Rather it was a generic appeal for something that seems perpetually in abeyance: intellectual and political humility. For Hayek, successfully improving society via economics or any other social science was premised upon accepting that there are areas of human life of which, he told his audience of Swedes in 1974, we “cannot acquire the full knowledge which would make mastery of the events possible.”

At the time Hayek spoke these words, doubts about the capacity of government planning to master economic affairs were coming back into fashion. Within six years of his lecture, Ronald Reagan and Margaret Thatcher were in office and promising a decisive break with postwar interventionist policies.

That world seems very distant from today. Much of the right has joined the left in insisting that government can and must be used to deliver very specific economic outcomes, through means like activist central banks, protectionism, industrial policy, and greater regulation. Even price controls are being entertained across the political spectrum.

The difficulty with so many of these policies is that they deny Hayek’s observation that we are not gods or God and that therefore neither economists nor government officials possess the divine-like qualities that they would need to overcome the serious limitations created by the knowledge problem. Such were Hayek’s convictions on this matter that he expressed doubts during his Nobel banquet dinner remarks about the prudence of creating a Nobel economics prize in the first place. Among other things, Hayek feared that it would confer “an individual an authority which in economics no man ought to possess.”

Humility is not usually found among those trying to build heaven-on-earth or who want to save the world through technocracy. It is, however, something that keeps us in touch with reality about the economy, society, and ourselves. That is what makes Hayek’s Nobel message about our capacity for knowledge such a powerful exercise in truth-telling for the ages.

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One question often not addressed during these debates is “What is national security?” That matters because the idea of national security has been stretched in more recent decades to embrace things ranging from social justice to DEI initiatives. Such conceptual elasticity has blurred national security’s most basic meaning.

In an effort to extract a clear answer from this ambiguity, the historian of ideas and former diplomat, Kim R. Holmes, extensively analyzed the modern meaning of national security and its permeations since the seventeenth century. Having sorted through various distinctions and identified numerous conceptual red herrings, Holmes concluded that “national security is the safekeeping of the nation as a whole. Its highest order of business is the protection of the nation and its people from attack and other external dangers by maintaining armed forces and guarding state secrets.” Holmes then stated, “Because national security entails both national defense and the protection of a series of geopolitical, economic, and other interests, it affects not only defense policy, but foreign and other policies as well.”

Among those other policies impacted by national security is trade policy. From Adam Smith onwards, trade liberalizers have been acutely aware of this, and always acknowledged legitimate national security claims as an exemption to their position that trade between nations should be as free as possible. When Smith wrote at the beginning of Book 5 of The Wealth of Nations that “The first duty of the sovereign” is “protecting the society from the violence and invasion of other independent societies,” he meant what he said.

The state’s fulfillment of this primary duty certainly has implications for trade policy. But it is not a warrant for endless government meddling in international trade. On the contrary, we should recognize how trade openness can promote America’s national security and how, conversely, economic nationalism usually undermines it.

Weakening Oneself While Making Enemies

Understanding how, in the name of strengthening nations, economic nationalism actually weakens national security requires recognizing one of economic nationalism’s original foundations: the notion that commerce across national borders resembles a zero-sum game. This was an underlying assumption of mercantilist doctrines that dominated the West from the late fifteenth century until the mid-eighteenth century. Today, such thinking manifests itself in the economic nationalist premise that other nations are entities from whom you can at best expect irregular and relative economic gains rather than as partners with whom there can be ongoing mutually beneficial exchanges.

This is why economic nationalists worry about trade deficits. When America exports more than it imports, protectionists consider this positive. Foreigners, they say, are purchasing more American-produced goods than Americans are buying foreign goods. America thus “wins.” Conversely, when Americans buy more foreign-made products than American goods, America “loses.”

Alas, such reasoning rests upon a serious misconception of the nature of trade. When two businesses in two different countries enter into a free exchange, both “win” because each secures what they want from the other. Otherwise, neither would have consented to the exchange. From this angle, trade deficits between nations are in themselves neither bad nor good. What matters is that people get what they value. Governments attempting to alter the balance of trade in their nations’ favor through protectionism are thus trying to rectify a non-problem.

Unfortunately, the story does not end there. Governments pursuing such policies not only inject serious long-term dysfunctionalities into their nation’s economy and politics by incentivizing massive rent-seeking; they risk creating serious national security problems for themselves.

That is precisely what happened when America embraced protectionist policies aimed squarely at free trade Britain following the Civil War. Not only, as the economic historian Phillip W. Magness shows, is there “considerable evidence that the harms of late 19th‐​century [American] protectionism outweighed the isolated benefits to selected industries on net.” The same protectionism damaged Washington’s already chilly relations with a naval, economic, and financial superpower with whom America—despite strong ties of language, liberal constitutionalism, history, religion, and trade—was involved in several disputes. Major diplomatic efforts were required to prevent these tensions from spilling over into war. Not coincidentally, the Great Rapprochement between America and Britain, which began in the mid-1890s, was accompanied by efforts to liberalize trade between the two great English-speaking powers.

Another instance of protectionism hurting American national security interests concerns the Smoot-Hawley 1930 Tariff Act which raised the average tariff to almost 60 percent. This produced retaliation from some of America’s biggest trading partners at the very moment when US businesses desperately needed more rather than less access to foreign markets. Especially targeted were goods of great importance to America. The trade economist Douglas A. Irwin has demonstrated how the tariff increases also further undermined economic growth at a time of severe economic regression in America. From an international relations standpoint, Smoot-Hawley’s timing could not have been worse for America. It rendered a country already crippled by the Great Depression even economically—and therefore militarily—weaker just as nation-state competition was heating up in Europe and the Asia-Pacific region.

Strength through Openness

So much for economic nationalism. But how does trade openness enhance national security?

In the first place, there is substantial empirical evidence indicating that growing trade between nations lowers the odds of serious military conflicts with such countries. This does not mean that trade openness makes it near-impossible for relatively economically integrated nations to enter into protracted hot wars with each other, as Norman Angell asserted in his 1909 book The Great Illusion. World War I disproved that claim forever when European governments decided that treaty obligations, ethnic ties, national interests, and national security trumped the economic costs associated with shattering the considerable economic interdependencies crisscrossing the continent.

Rather, it is simply to affirm Montesquieu’s observation that doux commerce’s spread across national boundaries is likely to diminish violence between countries, not least because it obliges governments to think about the economic damage that a choice for war may inflict upon their own nations in an economically integrated world. To the extent that trade openness causes some countries to hesitate before attacking other nations, it promotes the latter’s safety.

A second contribution of trade openness to national security concerns economic growth. The more outward a country’s economic orientation, the faster it grows compared to those with high trade barriers. The most comprehensive World Bank study of this question indicated that between 1950 and 1998 “countries which liberalized their trade regimes experienced annual average growth rates that were about 1.5 percentage points higher than before liberalization.” Over time, that has huge positive effects on growth. By contrast, as one detailed 2019 IMF analysis of protectionism’s effects illustrated, “tariff increases lead, in the medium term, to economically and statistically significant declines in domestic output and productivity.”

While America is less open than some other countries to trade, trade openness has accentuated the size and speed of America’s GDP growth and its associated benefits like greater productivity (including in manufacturing) thanks to foreign competition’s growth-enhancing pressures being added to those stemming from domestic competition. Trade openness also boosts growth via American companies securing reliable access to foreign markets where they can 1) acquire dependable supplies of goods at a cost lower than domestic sources and 2) sell American-made products in new markets.

The relevance for national security of these trade-driven growth enhancements is that wealthier nations can afford to spend much more on defense—including defense R&D—than poorer countries. Should war eventuate, wealthier nations can afford to fight for longer periods and with more sophisticated weaponry than those with fewer economic resources. That does not guarantee victory for wealthier nations, as America discovered during the Vietnam War. But it constitutes a deterrent to—and potentially fatal handicap for—belligerent but poorer countries.

The growth benefits of trade openness for America are magnified when accompanied by measures that make foreign investment easier. This expands capital inflows into America which, among other things, bolsters productivity, including in sectors like technology that presently give America significant military edges over its rivals. Economic nationalists, however, often counter that foreign investment can create national security problems. Such investments, they maintain, risk giving hostile foreign interests undue control over US commercial and industrial assets.

The difficulty with this argument is that foreign companies operating in America are subject to the same laws as American-owned businesses. If they violate commercial rules, they can find themselves fighting expensive legal cases in American courts. Furthermore, if a foreign company’s operations in America are deemed a national security threat, that company will likely be blacklisted by the US Treasury and shut out of American markets. There is a long and growing list of such businesses. In other words, America possesses the tools to address this challenge without unduly undermining foreign investment’s growth-inducing effects.

Supply Chains and Resilience

The benefits of trade openness’s growth-enhancing effects for national security are hard to deny. That may be why economic nationalists often focus on other issues when linking trade liberalization to particular national security threats. The issue of supply chain vulnerability invariably features in those discussions.

The more internationalized the supply chain, the argument goes, the more vulnerable America is to disruptions in that chain emanating from war, pandemics, natural disasters, or regime changes that turn once-friendly nations into hostile powers. Economic nationalists consequently hold that America should limit its potential vulnerabilities by trying to insulate its supply chains, especially for goods deemed essential, against such disruptions—even if that involves dramatically curtailing trade with particular countries.

On the face of it, this seems a plausible argument. Important facts, however, impair much of its cogency, one being that America’s economy is one of the least reliant upon international supply chains.

A second salient fact is emerging empirical evidence suggesting that re-shoring supply chains does not improve a country’s resilience in the wake of severe disruptions. During the Covid pandemic, economists began devoting more attention to this issue. While the research is still preliminary, one major World Bank study of Covid’s impact on resilience found that “there is generally no resilience benefit from renationalizing international supply chains” and that “there is no sector in which supply chain renationalization notably improves resilience, measured either by GDP, or by value added of the sector itself.”

There is also substantial evidence that trade openness makes it easier for businesses to adjust rapidly to domestic and international shocks by permitting them to more easily source goods from a wider plurality of nations. Likewise, trade openness allows businesses to switch their supply chain quickly when parts of it become unreliable or cost-ineffective. This has allowed American companies like Apple and Hasbro, recognizing that the cost of maintaining parts of their operations in China outweighs the benefits, to shift these activities faster to India and friendlier countries in Southeast Asia.

Naturally, there are certain goods (e.g., military technology) over which America should maintain particular controls. Entire government offices are devoted to assessing which products should be subject to export controls on national security grounds. At the same time, the trade scholar Scott Lincicome reminds us that frivolous appeals to national security to promote outright protectionist goals are becoming a real problem, most recently through more frequent invocation of the hitherto little-used Section 232 of the Trade Expansion Act of 1962. This reflects growing cross-party tendencies to reduce every trade question to a national security issue: something that, at a minimum, risks further emptying out national security’s core meaning.

Security Reasoning, Trade Logic

This brings us to a last point about trade openness and America’s national security: the manner in which inappropriate invocations of national security logic can muddle how we think about trade policy.

National security logic, particularly its military dimension, is replete with us-versus-them dichotomies. That is not surprising. The objective of military action is to deter and, if necessary, neutralize specific threats to Americans and American interests by hostile state and non-state entities. By nature, this logic is confrontational and zero-sum in outlook: America wins because Nazi Germany loses. National security reasoning is also influenced by the necessity of responding immediately to unanticipated and dramatic events like Japan’s bombing of Pearl Harbor.

The logic and promise of trade openness are quite different. Trade openness is not about defeating enemies. Rather, it’s a positive-sum enterprise through which all participants win—albeit to varying degrees and in different ways—through mutually beneficial exchanges over extended periods of time. In that sense, trade openness encourages us to think primarily about how to maximize our self-interest through trade with others in the global economy rather than dwelling solely on threats, economic or otherwise.

No doubt, particular policies adopted by other countries can hurt American economic interests. Sometimes they are designed to do so. China’s record of state-sponsored intellectual property theft is a good example. If, however, a government viewed international trade primarily through the prism of reacting to real and potential threats to the nation, it would not be out of the question for it to raise the economic drawbridge and opt for autarky.

This is not as fanciful a prospect as might be supposed. Autarkic sentiments have long pervaded economic nationalist thought. Some American economic nationalists have even suggested that a high degree of autarky should be part of America’s economic future. We know, however, that autarky, as exemplified by the policy of economic self-sufficiency adopted by Franco’s Spain between 1945 and 1955, impoverishes nations and significantly impairs their capacity for economic growth. In this sense, autarky is more than simply the economics of extreme self-harm; it also compromises a nation’s economic capacity to defend its citizens.

Grasping the differences between the respective logics informing national security and trade openness is not an argument for blindly subordinating genuine national security concerns to the imperatives of trade, let alone claiming that free trade will establish perpetual peace on earth. Rather, it is about looking at trade and national security through the appropriate lenses, distinguishing real national security challenges from fictitious ones, and grasping how, in the long term, liberalized trade makes substantial contributions to America’s ability to defend its interests and citizens. That is the type of prudence we need to make it more likely that trade openness and national security will be understood more often as complementary rather than implacably opposed.

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Wherever they locate themselves politically, free traders have been on the defense. They have pointed to the failures of slapping tariffs on China and the damage inflicted by protectionist policies upon American consumers and businesses. But free traders also need to re-make the positive case to Americans concerning how America can pursue trade liberalization in a manner cognizant of twenty-first-century realities.

This matters because making such arguments never occurs in domestic or international political vacuums. Free trade policies require substantial domestic support if they are to be sustained against the numerous sectoral interests ruthlessly seeking privileges. Trade questions are also notoriously difficult to separate out from foreign affairs. Debates about American trade policy have invariably involved reflection on other great powers’ actions, whether it is nineteenth-century free trade Britain or twenty-first-century neomercantilist China.

In the 1990s, much of the argument for trade liberalization became associated with widespread hopes for a more harmonious world following Communism’s demise in Eastern Europe. Yes, appeals to national interest were made. The fact that it took 15 years of multilateral negotiations and two years of specific Beijing-Washington talks before China was admitted to the World Trade Organization (WTO) underscores how much such interests were in play. Nonetheless, much of the speechifying by political leaders had a perpetual peace tone to it. Nor was it hard to find American policymakers arguing that economic liberalization would help spark political liberalization abroad.

In the Cold War’s aftermath, such sentiments were understandable. But we’re not living in the warm afterglow of America’s victory over the USSR anymore. American domestic politics have changed dramatically, as have international relations. China, for example, has become more authoritarian, less market-orientated in its domestic economic policies, even less transparent about the true state of Chinese businesses and the economy, and more aggressive in its dealings with other nations.

These melancholy facts do not mean that inching America towards ever freer trade is a forlorn exercise. But it does mean making an explicitly realist case for free trade ever more imperative. And by “explicitly realist,” I mean free traders focusing their arguments unabashedly upon the benefits that trade liberalization brings to Americans and America.

Free Trade Makes America Economically Stronger

The US economy’s well-being is never far from most Americans’ minds. That is one reason why advancing the free trade case to Americans today should be heavily focused on how trade liberalization contributes substantially to bolstering America’s economy: i.e., reducing import barriers, diminishing export subsidies, and limiting opportunities for the government to use economic carrots and sticks to direct trade between America and other nations. The result is greater wealth and overall economic welfare for Americans in the long term.

The evidence for this is frankly overwhelming. We know, for example, that trade liberalization accelerates GDP growth. Back in 2008, a World Bank analysis of trade’s impact upon growth estimated that, between 1950 and 1998, “countries which liberalized their trade regimes experienced annual average growth rates that were about 1.5 percentage points higher than before liberalization.” A more recent International Monetary Fund 2017 study of the trade-growth relationship illustrated how trade across borders significantly contributes to increases in per capita income. It estimated that “a one percentage-point increase in trade openness raises real per capita income by 2 to 6 percent.”

How then does trade liberalization help deliver more growth for America? First, free trade widens the number of potential customers for American businesses while simultaneously facilitating an expanding division of labor across borders. That leads to more specialization which in turn stimulates more efficiency and productivity on the part of American businesses. This reduces prices for American consumers and incentivizes American workers to gravitate to more productive economic sectors where higher wages are invariably to be found. Moreover, under free trade conditions, the value of American workers’ real wages also increases insofar as they can buy more goods and services which have, thanks to trade liberalization, become less expensive.

Second, the competition from abroad sparked by ever-expanding trade makes American businesses more resilient and adaptable. Exposure to greater foreign competition means that American companies know that their viability is perpetually open to challenges from existing and potential domestic rivals but also international competitors. This incentivizes them to evaluate over and over again what they are doing and why they are doing it. The bigger the competition, the more American businesses are subject to unrelenting pressures to innovate, reassess their comparative advantage, streamline their organization, shrink costs, find less-expensive inputs, take their products into new markets, reorganize their distribution systems, and thereby lower their prices while maintaining profit margins.

Such competition can be unsettling for American businesses and workers alike. The alternative, however, is an America cowering behind tariff walls, pretending that people abroad aren’t willing to work as hard or harder than Americans, and imagining that foreigners will somehow be magically less innovative than Americans. It also involves deluding ourselves that politicians and technocrats can know how to engineer the optimal makeup of a $26.8 trillion economy both now and into the future via tariffs and industrial policies. Lastly, it means Americans are denying that most expressions of economic nationalism are really about promoting sectional interests and have little to do with 330 million Americans’ long-term economic welfare.

Free Trade with Free People

The economic case for free trade is relatively straightforward and hard to refute. At its core is Smith’s key insight that people’s pursuit of their private interests plus an absence of privilege advances the general welfare.

Nonetheless, the best free trade thinkers have always acknowledged that we live in a world of geopolitical rivalries and in which nations are forever trying to reinforce their security. These realities are further complicated by the fact that the same world contains many not particularly free countries. The governments of some such nations (Iran, North Korea, Russia, etc.) are hostile to America. Yet others (most notably, China) have failed to fulfill some of their WTO commitments.

No realist trade liberalization policy can ignore these facts. This is one reason why the 2023 Freedom Conservatism Statement of Principles (full disclosure: I am an original signer) underscores “free trade with free people” as part of its call for a return to greater economic liberty throughout America.

Some might view this as effectively limiting the scope of any American attempt to kickstart trade liberalization to that relatively small number of countries that truly value constitutionalism, the rule of law, and free markets. That, however, would be a mistaken assumption. Free trade with free people should be understood as a starting point for America to pursue a wider free trade agenda.

To the extent that some countries are economically freer than others and committed to things like limited government and property rights, they are likely to be more amenable to liberalizing their trade with America. It is harder, for instance, for special interests to get traction in such societies compared to those countries in which overmighty and arbitrary government prevails. That makes opening up free nations’ markets to American businesses somewhat easier.

There is also some likelihood that genuine national security concerns will exert less-inhibiting effects upon expanding trade with free nations, especially those who are American allies. Questions like transfers of potential dual-use technologies or supply-chain vulnerabilities are less in play in the case of a privately-owned Australian-based business than with a Chinese state-owned company whose board is dominated by CCP members.

And Not-So-Free People?

Free trade with free people is not, however, a manifesto for America to ignore the rest of the world when advancing trade liberalization. Again, there are good realistic reasons why this is the case.

If US trade policy shifts decisively in economically nationalist directions, Washington will be seen by friendly and non-aligned nations alike as no longer interested in modeling an alternative vision of international political economy to, say, China’s neomercantilist policies. By contrast, a strong American return to the trade liberalization game would send a quite different message to the world and deliver considerable benefits to America. As the foreign policy analyst Mike Watson writes, “Offering greater access to American markets would counteract China’s economic influence, [and] make friendly and neutral countries more prosperous and less vulnerable.”

Granted, many of these nations are not as free as your average Western country. Nonetheless, some of them are looking for alternatives to China. They increasingly recognize that programs like China’s Belt and Road Initiative (BRI) come with weighty political strings. Not only do they resent Chinese officials behaving like an occupying power; nations ranging from Pakistan to Sri Lanka and numerous African countries have experienced how China doesn’t hesitate to turn the economic screws on them when significant disagreements with Beijing emerge.

Moreover, there is an even longer-term payoff associated with America expanding trade liberalization beyond free peoples. The evidence is growing that Chinese-style neomercantilism and the political dysfunctionalities and economic inefficiencies associated with it, combined with massive capital malinvestments, a self-inflicted demographic immolation, declining productivity, growing corruption, and a property market in crisis is inflicting considerable damage upon the Chinese economy. If such trends continue, many businesses in countries that once regarded China as the future are going to be looking for wider and more reliable access to other markets—especially the biggest market of all: the US economy—in which the rule of law is taken more seriously.

Should American policymakers pursue wider trader liberalization through, for instance, re-entering structures like the Trans-Pacific Partnership, they will be positioning America well for life in a global economy in which China becomes less of a player. Certainly, some TPP nations are not models of limited government constitutionalism or civil liberties. Four TPP members—Vietnam, Peru, Mexico, and Brunei—fall significantly short in all these areas. But many of their present and future political and business leaders are surely aware of China’s present and looming difficulties.

That represents economic opportunities for America. Liberalizing trade with these and similar nations is one way for American businesses to take advantage of these openings. Nor would the implied contrast with the behavior of an overbearing China be lost on the millions of relatively unfree people in such countries who represent no threat to America, and for whom access to American markets is one way to climb out of poverty. Political goodwill is a hard-to-acquire asset and can only augment America’s place in the world.

Pursuing such prospects need not compromise ongoing American commitment to the type of multilateralism associated with the WTO. Multilateral all-or-nothing agreements remain important because simultaneously lowering particular trade barriers of all WTO members increases the overall volume of trade and therefore much greater economic gains than would be realized by bilateral arrangements.

But participating in multilateral trade liberalization efforts need not obstruct America from deepening its trade ties with free nations or engaging in a mutual opening of markets with countries fed up with Beijing’s neomercantilism. America can, for instance, seek plurilateral agreements with these and other nations.

As the former Chairman of the WTO’s Appellate Body, James Baccus, explains, plurilateral arrangements involve a subset of the WTO’s 164 members agreeing on new trade commitments and then either extending the benefits to all members on a most-favored-nation basis or offering non-signatories opportunities to enter the agreement at a future date. This approach offers a pathway for America to seek wider trade liberalizations that gradually embrace free and less-free peoples in a context in which the WTO’s all-member consensus approach presently seems stalled.

Smithian Realism

Personally, I am skeptical that universal free trade among the world’s nations will ever be realized. So was the author of The Wealth of Nations. While Adam Smith’s intellectual outlook was certainly cosmopolitan, he specified in his Theory of Moral Sentiments that he did not think that most people’s natural sympathies for others could consistently extend much past the level of their country. Smith also grasped the immense challenges involved in overcoming the power of special interests pursuing favors at everyone else’s expense, but who are adept at persuading others that they are “really” promoting the public good.

Combating such machinations is an unending battle. Yet such realities are not sufficient reasons for America to settle for the mediocrity of a mildly-protectionist status quo. For the more America inches itself and the world in the direction of freer trade, the better off economically and politically Americans will be. Not only will the American economy be more competitive and adaptable, but it will also be less susceptible to the cronyism that scars so much of American political life.

Put another way: if the United States can steel itself to make trade free again, Americans as individuals and America as a nation will win in the long term while special interests and their armies of DC lobbyists will lose. That’s good news for America’s future economic prosperity but also for the well-being of the republic as a whole.

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Hitler never made any secret of his intention to strike against those he saw as his enemies once his grip on power had been consolidated. It was thus at considerable personal risk that a young German economics professor delivered a public lecture in Frankfurt am Main, just eight days after Hitler took office, in which he made clear his opposition to the new government.

Wilhelm Röpke was already known as an outspoken critic of Nazism. He had even personally campaigned against the Nazi Party. “You will be complicit,” he wrote in one 1930 election pamphlet, “if you vote Nazi or for a party that has no reservations about forming a government with the Nazis.” That pointed “or” was a shot at those conservative political and military elites who, three years later, would allow Hitler into office under the illusion that they could control him.

It would not have been difficult for Röpke to adapt himself to post-January 1933 German political realities. For one thing, he was not Jewish. Moreover, Röpke was a decorated combat veteran who had served with distinction in the trenches on the Western Front. Young and athletic, he even looked like the Aryan übermensch extolled by Nazi ideology. At the age of 24, Röpke had become the youngest professor in Germany and by 1933 his fame as an economist was European-wide. Had Röpke been willing to compromise, he could have gone far under the new regime. Röpke’s February 1933 lecture, however, indicated that he was not going to bend. From that moment on, he had no future in the Third Reich.

End Times

When the Nazis acceded to power in 1933, the effect was not mass consternation on the part of those with misgivings. Even the most important German Jewish representative group, the Central Association of German Citizens of Jewish Faith, maintained that, despite the Nazis’ ferocious anti-Semitism, “nobody would dare to touch [their] constitutional rights.”

In his February 8 lecture, Röpke demonstrated that he had no such illusions. Entitled “Epochenwende” (End of an Era), Röpke’s lecture spelled out precisely why Hitler’s entry into the Chancellery represented something entirely different from a normal change of government. National Socialism’s triumph constituted, Röpke stated, a defeat for reason and freedom. The Nazi movement, he told his audience, with its naked appeal to “moods and emotions” and constant invocation of “myth,” “blood,” and the “primordial soul” left no room for such things.

Not only, Röpke insisted, were “stupidity and stupor” being “inculcated in a way that beggars description”; “every immoral and brutal act,” he observed, “is justified by the sanctity of the political end” for the Nazis. The threats to destroy entire groups—“Jews in Germany” and “hereditary enemies of all kinds”—were not, Röpke argued, mere rhetoric designed to whip up populist resentment that would be quietly shelved once the Nazis took power. It was integral, Röpke knew, to the entire National Socialist project.

Liberalism as Civilization

Röpke’s lecture, however, went beyond listing all the deep problems with the Nazi movement. He also sought to identify the essence of what the highly ideological movements of the right and left then striving for power across Europe wanted to annihilate. Here we come to the second dimension of Röpke’s lecture: his defense of liberalism.

By liberalism, Röpke did not have in mind the liberal parties of Weimar Germany who had been squeezed out by the German Communists to their left and the National Socialists on their right. Nor was he thinking of the liberal thinkers and movements that wielded considerable influence in nineteenth-century Europe. “Today’s rebellion against liberalism,” Röpke stated, “is not a mere rebellion against perishable ideals and modes of thought of the nineteenth century.” Liberalism was “not to be equated with that century’s political or economic liberalism.” By this, Röpke had in mind industrial capitalism and figures like the British Liberal prime minister, William Gladstone. 

Instead, liberalism served in Röpke’s lecture as a synonym for the integration of Greco-Roman, Jewish and Christian, and Enlightenment ideas, culture, and institutions that, he believed, constituted the civilization of the West. Nazism—and Bolshevism, for that matter—should, Röpke maintained, be recognized as an insurrection against that particular complexion of concepts, expectations, and institutions.

As a distinguished free market economist, Röpke was well aware of the role played by the hyperinflation that had economically undermined and politically radicalized parts of the German middle class in the early 1920s, as well as the Great Depression in propelling the Nazi Party to power. “The present world crisis,” he said, “outranges all standards of the past.” The economic downturn that began in 1929 had driven Germany to the political abyss by shattering the relative stability that Weimar had attained by 1926.

Röpke, however, was neither an economic determinist nor a philosophical materialist. The political situation in which Germany found itself should not, he claimed, be understood as the country’s entry into “a new historical era” of the type predicted by Marxist dialectics.

The deeper cause for many Germans’ embrace of the Nazis, in Röpke’s view, was the turning of those whom he called “the masses” but also a fair number of professors against very specific values in the name of “Germany’s awakening” and “the purification of the German soul.” The delicate and sophisticated arrangements of capitalism and liberal constitutionalism, Röpke argued, relied upon some decidedly non-materialist foundations that many Germans had either been persuaded to reject or never really internalized.

Individuality, Liberty, and Reason

One such premise of liberalism to which Röpke’s lecture devoted particular attention was every person’s individuality. Liberalism, he said, involved a belief in “every individual’s human dignity” and “the profound conviction that man must never be degraded into an object.” That, Röpke said, was why liberalism rejected the oppression of people because of their race or religion. A coherent conception of tolerance itself was impossible, he noted, without an in-principle affirmation of every individual’s inherent dignity—not least because it ruled out treating one’s political opponents as “enemies” who belonged to a different group, and who would ultimately have to be reduced to the status of non-citizens or expelled from the body-politic altogether.

It was no coincidence, Röpke argued, that the National Socialists submerged everything into the Volksgemeinschaft (“people’s community,” “folk community,” or “racial community”). For the Nazis, what mattered was the group: in their case, the racial collective.

On one level, this was the Nazi alternative to the German Communists’ emphasis on one’s class above all else. It wasn’t for idle reasons that Nazi party members addressed each other as “Comrade.” Yet just as Marxism’s class-identity obsession pulverized any concern for the individual, so too did the Nazi fixation with race dismiss the concept of each individual person’s intrinsic worth as bourgeois prattle.

For Röpke, defense of the individual was tied to two other ideas that liberalism, as he understood it, emphasized. One was the priority of liberty. By liberty, Röpke meant more than “to be free from something.” Liberty also involved being “free for something.” That “something,” he said, was nothing less than “civilization”—“the very air” without which we “cannot breathe.”

Liberty in this sense thus went together with what Röpke called a belief in reason. And reason properly understood, for Röpke, far exceeded empirical rationality and utility calculations. Ultimately, reason concerned “the absolute pursuit of truth.” If societies wanted to be free, he added, they had “to accept reason as the common denominator.” For reason, combined with respect for freedom and each individual’s dignity, was indispensable for the liberal constitutionalism and rule of law that inhibited the type of arbitrary power that the Nazis would take to new levels. To violate the rule of law, Röpke underscored, was to behave in an inherently unreasonable manner, not least because it invariably involved choosing to treat individuals as things and to crush their liberty. Therein lay the path to “servilism” and the “total state.”

But where did Röpke ultimately locate the roots of these liberal ideas? Significantly, Röpke did not immediately point to the Kantian philosophy that was so influential among German liberal thinkers of his time. Rather, he urged his audience to look, first, to “the Greek and Roman Stoa” (Stoic philosophers), then “Christianity,” the subsequent development of “natural law,” and finally enlightenment thought—all of which, taken together, rejected “the principle of violence in favor of the principle of reason.” From this standpoint, Röpke explained, “Liberalism is at least two thousand years old.” One suspects that Röpke had been reading Lord Acton.

Herein we find, Röpke argued, “the essence of civilization.” This is what gives rise to “the concept of the civis, the citizen, and it serves to make possible the civitas, the community, living together.” Such a civilizational sense, Röpke stated, had to shape “the natural feeling” that “we call love of our country.” The true German patriot could not pretend that the high German culture of which Röpke himself was an exemplary product could somehow be sealed off from roots that “reach down to Athens, Rome, and Jerusalem.” Just as “economic nationalism leads to material impoverishment,” Röpke suggested, “cultural nationalism leads as inescapably to provincial Babbittry.”

Exile and Vindication

All this was anathema to the men sworn into office by President Paul von Hindenburg in January 1933. The National Socialists had no interest in reason or the individual, let alone freedom as Röpke understood it. They personified what Röpke called the “reigning illiberalism,” which was characterized by “hot air, slogans . . . glorification of direct action, violence in dealing with all those of different opinion, rabble-rousing in every sphere, empty rhetoric, and deceitful stage effects.” Such illiberalism would, he said, “trample down the garden of European civilization.” That, eventually, was what National Socialism did, epitomized by the regime’s attempt to wipe the Jewish people off the face of the earth.

This darkness, however, lay in the future. Röpke’s immediate problem in 1933 was the new government’s determination to move against those still willing to express open opposition to Nazism.

In Röpke’s case, the university authorities were not slow to act. Over 50 percent of the city of Marburg had voted for the Nazis, exceeding the national average by 16.1 percent. Most students at Röpke’s university fervently supported the Nazi party. On April 7, 1933, the University of Marburg’s Rector invited members of the university senate known to support the Weimar Republic to resign. That was clearly a message to Röpke. This was followed up by a Nazi member of the Prussian Landtag, Hans Krawielitski, writing directly to the new education minister, denouncing Röpke for his “anti-national attitude” and as a “danger to young German academics.” Krawielitski also called for a boycott of Röpke’s classes and his immediate dismissal. He could no longer be considered “a German professor.”

Initially, Röpke was suspended from teaching. Then, despite efforts by friends in high places to protect him, Röpke was forcibly retired on September 28, 1933, under the terms of article 4 of the new law for reorganizing state institutions. Röpke had departed into exile several months before. But the rupture between Röpke and the new Germany was now complete.

Fifteen years later, Röpke found himself among those uniquely positioned to reorientate the German economy away from the hard corporatism and widespread interventionism into which the Nazi regime had led it. But alongside his insistence on the necessity of embracing a market economy, Röpke invested just as much time explaining why his country and the West (more generally) had to embrace the civilizationally-grounded liberalism that he had defended in his February 1933 lecture. That, Röpke plainly believed, was essential if the era which prevailed in Germany between 1933 and 1945 was never again to see the light of day, and if the Communist menace was to be resisted.

In our own age of creeping servilism, wokeism, rampant cronyism, identity politics, friend-enemy Manichaeism, and, in some cases, outright nihilism across the political spectrum, it’s surely a message worth considering today.

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