Economic Liberalism

Economic liberalism is a useful term to describe theories propounded in the seventeenth and eighteenth centuries. The term was coined by nineteenth-century thinkers to describe their own theories; rather than economics. Nevertheless, economic liberalism usefully describes theories of the seventeenth and eighteenth centuries that defended the individual liberty to buy, sell, work, employ, and trade without restriction or governmental interference. The general idea of economic liberalism is captured in the French phrase of the era, laissez-faire, or ‘leave people alone’. Liberalism and economics believe the idea that people should be left alone because their self-interested activities in the market were self-regulating, guided by natural economic laws that were far more indicative of social well-being than when they follow directions of government officials. Thus, economic liberalism was the doctrine coined and influences by seventeenth-century English, French, and Dutch scholars who were critical of state restraints on trade and regulation of interests rates.

Liberalism and economics can be seen as a response to the wide-ranging policies of European governments from the sixteenth century onward to shape economic activity for state purposes. Such state policies are designated by historians as mercantilism. Economic liberalism manifested itself in systematic criticism of such state interference for violating natural economic laws to the detriment of society. Liberalism and economics arose after a wide variety of authors who had spent decades speculating about economic processes articulated natural economic laws that produced an automatic self-regulation of economic activity. The point to all this was social well being. The enormous financial demands of state-building in the modern era led Europe to start efforts for new revenues. Taxation was increased and expanded, and the sale of exclusive monopolies for the production of goods and trade, domestic and foreign, also brought new revenues. Thus, in France, the seventeenth-century minister Jean-Baptiste Colbert transformed the medieval system of producers’ guilds into state-licensed monopolies in goods ranging from salt to lace. In England, trade monopolies were granted for trade with Russia, the Middle East, and India and southeast Asia. By the seventeenth century in Europe, almost any foreign goods people used were likely imported by a trade monopoly; any domestic goods, by someone operating under a monopoly patent. The notion of liberalism and economics being developed out of a century’s observation of the regularity of markets is true. The rising prices producing increased supplies, and of gluts in the market producing falling prices made liberalism and economics a revolution. Many writers believed that the cause of such regularities was economic actors responding to opportunities for personal gain. Thus, the seventeenth century saw a new regard for self-interest. On the one hand, self-interest came to be seen as a more rational, less dangerous motivation for human behavior than the passions. On the other hand, because self-interest involved rational calculation, some believed that acts of self-interest demonstrated the same kinds of regularity in human nature as was found in other scientific laws in the natural realm. Theories in support of economic liberalism were developed in the Enlightenment, and believed to be first fully formulated by Adam Smith, which advocates minimal interference of government in a market economy, though it does not necessarily oppose the state’s provision of a few basic public goods with what constitutes public goods originally being seen as very limited.