If a nation-state sanctions laissez-faire economics, by definition they have “an attitude of letting things take their own course, without interference” Merriam-Webster). This concept of laissez-faire is an essential element of classical liberalism and must be analyzed at both the domestic and international levels of the economy. Classical liberalism has a large influence on both economics and politics, which must also be analyzed individually and collectively. Classical liberalism was born out of 1 9th century Europe and America when industrialization and urbanization were becoming more widespread daily.
Ideas commonly associated with classical liberalism arose earlier in the 18th century, but it was not until this era of European and American history that hese ideas were enmeshed together to create the uniform concept of classical liberalism. Philosophers that contributed to this framework include Adam Smith, David Ricardo, John Stuart Mill, and Milton Friedman. While early philosophers such as John Locke communicated concepts similar to those associated with classical liberalism, their thoughts did not combine economics but focused primarily on political philosophy.
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Classical liberalism in terms of a combination between economics and politics began to develop fully in 1 9th century Europe and originally drew on the economic writings of Adam Smith. His writing The Wealth of Nations discussed heavily why mercantilism cannot be victorious; mercantilism’s positions on government intervention and protectionism stunts any economy from becoming too profitable and lasting long-term. While Smith did appreciate the concept of the “invisible hand” in political economy, he did not agree that pure capitalism could be completely successful either.
He saw the value in government having a small role in the functions of the economy. Ultimately, Adam Smith stated that classical liberalism works as follows: “Man is generally considered by tatesmen and projectors as the materials of a sort of political mechanics. Projectors disturb nature in the course of her operations on human affairs, and it requires no more than to leave her alone and give her fair play in the pursuit of her ends that she may establish her own designs.
Little else is required to carry a state to the highest degree of affluence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or hich endeavor to arrest the progress of society at a particular point, are unnatural, and, to support themselves, are obliged to be oppressive and tyrannical” (Smith).
David Ricardo is by far one of the most influential economists involved in the formation of classical liberalism. His creation of the notion called “comparative advantage”, which we will discuss later in this paper, is one of the most important aspects of classical liberalism. Ricardo believed that, “nothing contributes so much to the prosperity and happiness of a country as high profits” and the best way to attain high profits is by eaving it up to the people and entrepreneurship, not the government (Ricardo).
John Stuart Mill, widely known for his work with the concept of utilitarianism, also had staunch opinions on the liberty entitled to individuals. He was quoted saying: “The only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others. His own good, either physical or moral, is not sufficient warrant” (Mill). Milton Friedman, an economics professor and statistician for the University of Chicago, became popular in United States uring the 1 970s when taxation and debts rates were both steadily increasing.
He wrote the book Free to Choose, which openly demeaned the US federal government of intervening and diminishing the rights Of citizens to spend as and where they choose. Conservatives immediately grasped onto his argument that the government should not interfere in fiscal policy favorably. He was an opponent of Social Security in America, saying it went against the basic ideals of laissez-faire since it created welfare dependency (An American Classical Liberalism). His ideas profoundly impacted modern day concepts of classical liberalism.
By looking at the several philosophers above and their beliefs on the topic, it is clear that there are certain nuances that differentiate each individual. The overarching philosophical ideas of each person are all comparable, however. In combining certain nuances and some overarching theories of each individual, the entire concept of classical liberalism is framed. In order to delve into the topic of how classical liberalism is still relevant to modern day, a definition much first be reached for classical liberalism.
In this context of this paper, classical liberalism includes two rimary ideals: 1) Preservation of individual freedom 2) Protection of a free-market (or laissez-faire) system In order to further discuss how classical liberalism affects international political economy, it is important to communicate what laissez-faire economics mean in the context of classical liberalism. Literally, laissez-faire is a French word translated to mean “to leave alone or allow to do” (Laissez- Faire: A Conservative Approach to the Industrial Revolution).
In essence, to have a laissez-faire economy, governments must understand that individuals prefer to be left alone to make their own decisions and complete their own rade. The profits made by individuals within the economy should be theirs and theirs alone – meaning no taxation or regulation Of income. Competition is the most vital element of laissez-faire economics – competition is the only motivation for individuals to be entrepreneurs, invent and create products, sell those products (both domestically and internationally) and keep the economy functioning properly.
Modern day, the term classical liberalism is used as follows: “The term classical liberalism was applied in retrospect to distinguish earlier nineteenth-century liberalism from the new or modern iberalism, here termed social liberalism, of Green and Hobhouse. It is taken here to include the political economists’ laissez-faire within a broader political philosophy whose central value was securing of individual freedom against arbitrary state power” (Richardson 52). With these definitions in mind, it is now possible to discern what classical liberalism looks like in actuality.
There are several elements that make up classical liberalism. These “elements” are fundamental parts of both politics and economics in a classically liberal nation-state. On a domestic level, the concepts of “self-evident truths” and unalienable rights” discussed in the United States Constitution are proof that liberties are rooted in reason and natural law. Since these liberties are not something to be granted by the government or earned by the individual, it is important to have a government that can protect these very liberties and ensure that individuals can maintain privacy and participate in a laissez-faire economy.
Government intervention in individual’s lives is not appreciated, nor permitted. The sole purpose of government is protection of individual’s rights. In economic terms, traditional liberalism holds that government ntervention is not required to stimulate the economy or maintain high employment rates. The only circumstances under which the federal government would have a right to get involved is concerning individual freedom. For example, if a corporation or business is not guaranteeing fair work conditions to its employees, it is the role of government to intercede and keep those businesses accountable.
Prominent philosopher Adam Smith stated that in order to best serve human welfare, individuals should be left free to follow their own interests, which were to “sustain life and to acquire oods” and that a government should refrain “from interference in free enterprise, putting checks only on undue strife and competition” (Smith). Classical liberalism ranges on the opinion of when it is appropriate for governments to become involved in the economy.
For example, modern libertarianism (a neo-classical liberal viewpoint), states that there are very few, if any, circumstances that the government should have a presence in business. Monopolies, then, would simply be an element of pure capitalism, not something government needed to create regulations to prevent. On the ther hand, some factions of classical liberalism maintain that monopolies exceed the scope of liberalism and are considered “undue strife” that Smith talked about; therefore, it is the government’s responsibility to intercede and prevent such things from occurring within a nation-state.
Another principle of classical liberalism on the domestic level involves economic relations and resources. In class, we discussed that in IPE it is vital to establish from the beginning fundamental truths: 1) The world only functions if economic relations function. 2) There must be the presence of economic resources to sustain people at ither the IPE or GPE level. The framework of traditional liberalism relies on the most basic thought that efficiency is the optimal result.
If this is true, then there is a goal much more specific than simply having economic resources to sustain people. Not only must there be a presence of economic resources, but the classically liberal nation much be efficiently and swiftly exporting their resources. All the while, this nation must not be taking in massive amounts of imports. When this is the situation in a classically liberal nation, prosperity is more properly ensured. Not only should government intrusion in businesses e kept to a minimum, but also the concept of “fair trade” must be adamantly discouraged.
No nation-state should be remunerated for any losses they may incur after involvement in free trade or laissez-faire economics. Author and economist Deepak Lal discusses in his book Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-First Century this proposal further: “On classical liberal principles there is no case of compensation for losses arising in a competitive capitalistic economy. The dynamics Of such an economy involves constant economic change embodied in new products, ew technologies, and new sources of supplies.
If those who lose in this competitive process were always to be compensated by the winners, it would attenuate the very process of change” (Lal 85). Capitalism, a fundamental component to classical liberalism, is often thought to increase income inequality not only domestically but internationally. There is sufficient evidence to point to this being a false belief. Capitalism worsening inequality of incomes for individuals is mythical and the exact opposite is true. For the last four decades, incomes have been becoming increasingly more equal (Pethokou kis).
Classical liberalism has many identifiable characteristics on a national level, but the same is true on the international level. In international political economics, classical liberalism can be recognized because of its vast difference from many other IPE frameworks. Classical liberalism deals with trade interactions, the World Bank and IME and the concept of globalization very differently from frameworks like structuralism or neo-mercantilism. Classical liberalism argues for open international trade and global capital.
From a traditionally liberal viewpoint, individuals and businesses within an conomy have the right to complete trade internationally, negotiate, and make global progress without government placing ludicrously high taxation rates on the imports/exports or creating standards these businesses must reach before completing any trade with another nation or state. Despite common belief, classical liberalism does acknowledge that free international trade could ultimately lead to world peace. This certainly goes against what many assumptions are. Frederic Bastiat believed that, “when goods cannot cross borders, armies will”.
Bastiat grew up in an era close to Karl Marx, who ommunicated concepts of capitalism being evil since it created an undue burden on lower classes and workers. Bastiat’s concepts, however, were much different than Marx’s and he contradicted those common thoughts in his book Economic Harmonies when he said: “The interests of mankind are essentially harmonious if they can be in a free society where government confines its responsibilities to suppressing thieves, murderers, and special- interest groups who seek to use the state as a means of plundering their fellow citizens” (Biography of Frederic Bastiat).
International organizations like he World Bank and International Monetary Fund are inhibiting international trade from occurring properly within classical liberalism. One of the most basic assumptions of todays economy is the participation of the World Bank and the International Monetary Fund. These two international organizations are fundamentally flawed in the concept that bad policies and decisions are rewarded when global capital is distributed; therefore no growth is encouraged (Griswold 616). In the end, the best solution for classical liberalism would be the complete shut down of the International Monetary Fund and/or World Bank.
Globalization is becoming a more common and warmly welcomed concept daily, but it is often thought to very much be In conflict with classical liberalism. This thought, however, is not true. In order to be successful in the modern economy worldwide, common belief is that protectionism must be practiced. The opposing viewpoint to the laissez-faire system and classical liberalism is the concept of protectionism. Protectionism states that in order to have an economy function in the way it ought to, governments must mandate the trade between states and countries by enforcing tariffs and enforcing other regulations to create more fair trade.
This concept proves to be the opposite view of David Ricardo’s “comparative advantage”. Instead, a “competitive advantage” is regularly seen to be more effective and plausible in todays world, which is filled with struggling economies, high debt rates, and hopes of globalization. With this summary and analysis of classical liberalism in mind, it is important to discuss how this view addresses the four basic tensions of contemporary international political economics.
For every one of the four tensions within IPE, there is something in common; in the most basic words, the tensions come down to the interests ithin politics versus the interests within economics. The first tension in IPE is between domestic needs and international relations or obligations. The domestic needs of a country are important because no nation-state will ever be functional if its citizens are not satisfied. International relations, however, are important since they are necessary to make an economy efficient.
The second tension in IPE is between the state’s security requirements and the increasing economic interdependency between nations. At home, a country needs to make sure citizen’s rights are being upheld – privacy, security, ndependence – all while the world is becoming more “globalized” daily. The third tension in IPE is between political sovereignty and political globalization. How can a country that wants to remain independent function in a world constantly being solicited to join a more global community, with interaction and reliance on others?
And what is the best decision between those two for a country attempting to be classically liberal? The fourth and final tension that dwells within IPE is between the pressures of unregulated markets and the pressures of government intervention to ensure equity, profit, or fairness. Throughout history, completely unregulated markets have not been successful, but neither have economies with too strong an influence in the economy. Deciding which method is the best to endorse within classical liberalism can be a difficult decision to make.
In classical liberalism, the answers to these inherent tensions of IPE are going to be drastically different than in mercantilism or radicalism. Every decision made in a traditionally liberal nation-state must be the purpose of ensuring individual freedom and protecting laissez-faire economics. With that in mind, here are the proper esponses of classically liberal nations to the inherent tensions of international political economics listed above: First, classical liberalism addresses the tension between domestic needs and international tensions by making it a priority to attend to domestic needs before all else.
This is not to say, however, that a classically liberal nation-state cannot have a foreign policy agenda. Classical liberalism, in fact, is pertinent in both domestic and international politics. If the basic concept that individual freedom is one of the most important aspects to classical liberalism then international order is a equirement of the framework as well. As Haar wrote: “Given human nature, it is pointless to aim for abolishing human conflict by establishing a world federation.
In an inevitably imperfect society of states, stability depends on interplay of just war, the balance of power, and a minimum of international law and organization. Even the expansion of trade, necessary as it is, will be unable to guarantee peace. The classical liberal foreign policy agenda is one of change, calling for the abolition of all trade barriers, many international treaties, international organizations, and development aid. Maximizing ndividual freedom is the right classical liberal goal at all political levels, every. Nhere in the world” – (van de Haar).
This conclusion given by Edwin van de Haar is the perfect summary of what international relations means within the context of classical liberalism. Often times, it is an assumption that international trade is not fundamentally accepted or incentivized in classical liberalism, but that is very much not true. The second tension of IPE within the context of classical liberalism is a difficult one. A majority of the world does not operate with ideals of classical liberalism so it is very hard for a ountry wanting to emphasize national security over economic interdependency to operate well.
As mentioned above, deciding in a classically liberal nation-state whether to stress political sovereignty or political globalization can be difficult. Traditional liberalism always promotes democracy to other nations in the hopes that the entire world can function as classically liberal. Endorsement of democracy is not only the morally right thing to do, but also in the best interest of themselves and their nation. For those reasons, classical liberalism stresses political sovereignty and political lobalization depending on the individual circumstances.
The tension of unregulated markets versus government intervention in the economy is a fundamental element to classical liberalism. In our definition of classical liberalism, one of the tvvo necessary elements was to protect laissez-faire economics. With an unregulated market that allows for competition and entrepreneurship, the laissez-faire system is the only one to work. Government intervention in the economy should be kept to an absolute minimum in all circumstances. The philosophical concept on classical liberalism within the contexts of both economics and politics has been ebated for many decades now.
Is it the best strategy for a nation-state to attain the most success possible? Can it be still be competitive when compared to frameworks like economic nationalism, radicalism, or neo- mercantilism? The answer to these questions has never really been proven since no nation-state has immersed themselves in the Concepts Of classical liberalism and attempted to run their government with those concepts in mind. Despite the endless theories (and various examples of proof) that classical liberalism can work, no nation-state has successfully lived in the world economy while endorsing it.
Even the United States has never been traditionally liberal past early-colonial days. Classical liberalism as created by Adam Smith and David Ricardo has truly not played out in the way that it was expected to. I would argue the reason for that is because no nation-state has attempted to run their government and economy with the genuine intentions of being classically liberal. Many, of course, would not accept this idea. If you look at certain, specific nations, it appears as if they intended to be liberal in a traditional way ” specifically the LJnited States of America and India.
Digging eeper down, though, it is clear that even these countries have not made a real effort at classical liberalism. If a country were to attempt to be truly liberal, it would have many or all of the qualities of classical liberalism discussed above. If any modern nation-state of the world was to decide that classical liberalism is the framework they wanted to enforce within their economic and political systems, believe America is still the nation that would be the best and most likely to do it.
There are several reasons why America would be best suited to take on the conceptualization of classical liberalism in nternational political economics still. First, America is still very much a nation that supports capitalism. This concept is dwindling daily, but there are many American citizens that still want it to be a fundamental part of their country and the nation in general has a history endorsing capitalism and seeing how the economy reacts to it. Laissez-faire economics are still a very plausible idea in the United States of America. Also, America is a perfectly situated nation to place emphasis on individual rights.
In modern day America, there is much more government involvement in rights than believe was ever the intention f the Founding Fathers. To protect individual rights – to arms, to religious freedom, to privacy, to protection from undue search and seizure – the Founding Fathers united to make a written Constitution (still a very new idea at the time). This Constitution still guides America today. If this Constitution was strictly enforced and consulted in all legal and governmental decisions, even international ones, America would naturally be a much more classically liberal nation.
Many countries (of both the past and present day) would consider themselves to be classically liberal nation-states, or at least countries with a ew classically liberal ideas imbedded in their policies. Many countries, though, that the world generally looks at as having some liberal ideals could not actually be further from that. The financial downfall that occurred in East Asia in the 1990s was due much in fact to the nation-states’ governments failing to live out classically liberal economic principles (Lal).
To be more specific, the faults in these governments would include: 1) Exchange rates. 2) personal relationships between national banks, major corporations and the country’s government. 3) “… failure to hedge borrowing against currency ovements” (Lal 1 17). Any nation-state that adamantly approves of classical liberalism would do volumes for international conditions. International trade would take on an entirely new meaning. Some countries would see the advantages and benefits that come of being a classically liberal nation and begin to adopt those principles.
To conclude, a prediction of classical liberalism’s most basic implications for international stability over the next five years is simple. Since no nation is currently endorsing classical liberalism, the likelihood of seeing it play out in the near future is slim. The closest cenario to predict would involve the United States of America with these elements included: 1) A president that is one of three branches that forms a much smaller, much less intrusive federal government 2) Better secured liberty of all American citizens.
This includes getting illegal immigrants out to better insure jobs, housing, and protection for full citizens. 3) Freedom for businesses within the economy. Business owners can open and close at their own discretion. No labor controls, mandated benefits, and other regulations. When these elements are sanctioned in the united States, better international tability will naturally occur. Foreign nation-states will see the success of America and begin to adopt classically liberal ideals for themselves. In the end, the more that classical liberalism is practiced the more classical liberalism will be favored.