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Market Liberalism, International Order, and World Peace,
Part 2
by Richard M. Ebeling, December
2000
In 1952,free-market economist Michael A. Heilperin delivered a lecture entitled
“An Economist’s Views on International Organization.”
He told his audience,
It is an elementary, but often forgotten, knowledge that policies of
national governments have always been the principle obstacle to economic
relations between people living in various countries, and that whenever
these relations were free from government restrictions, equilibrium and
balanced growth would follow by virtue of the spontaneous and anonymous
mechanism of the market.
Heilperin was doubtful that the
proposals for and implementation of international organizations for
economic coordination and prosperity would solve the problems of the
world as long as the mentality and ideology of interventionism and
planning continued to dominate the arena of public policy. He concluded,
In the economic sphere it is government policies which have erected the
greatest barriers on the path of international relations between human
individuals. It is the market mechanism which creates world unity out of a
multitude of business transactions. Let this market mechanism be revived,
let economic forces regain the freedom to function, and a decisive step
will have been made toward world organization, economic and otherwise.
A few years earlier, in 1947,
Heilperin had delivered a lecture in which he explained what such a freer
world meant in terms of economic policy. The “kind of world
envisaged by the [classical] liberal thinkers of the nineteenth and
twentieth centuries,” he said, was “a world in which political
boundaries would gradually become mere administrative divisions; a world
of free trade, free capital movements, and free migration; a world in
which peace as well as prosperity would be indivisible and sought by
common action of all mankind.”
The vision of economic liberty
This is the vision, the alternative,
both to political and economic nationalism and to international
organization for regulation and planning, that needs to be restored for the
21st century. The great insight of the classical economists and classical
liberals of the 18th and 19th centuries was that both freedom and
prosperity were possible without government control or direction.
Beginning with Adam Smith, they offered a “system of natural
liberty,” in which government would be limited to a handful of
functions related mostly to the securing and protecting of people’s
individual rights to life, liberty, and property. Beyond this, all human
relations and interactions would be based on voluntary agreement and
peaceful mutual benefit.
Even earlier than Adam Smith’s
Wealth of Nations, Smith’s Scottish colleague and friend
David Hume had demonstrated that international division of labor and
trade benefited all participants. Hume showed that the mercantilist idea
— that nation-states were rivals in the sense that if one country
gained another had to lose — was fundamentally wrong.
The very nature of peaceful trade is
that each trader enters into the exchange precisely because he considers
that which he will receive worth more to him than what he has to give up
to acquire it. Furthermore, the more prosperous one’s trading
partners, the better the market for one’s own goods, since this
widens the selection of opportunities for all nations to acquire things
that would be more costly or impossible to make at home and, at the same
time, to have the means to pay for them in trade.
It increasingly came to be seen that
wars between nations are both harmful and counterproductive. What was
desired was an international arena of peace, in which rights and property
were secure and where the citizens of the various nations of the world
could go about their private business of improving their own personal
circumstances through market exchanges that cumulatively enhanced the
prosperity of all in the society.
The Austrian economist Joseph
Schumpeter summarized this spirit in the following way in a lecture
delivered in 1941. He said that during the second half of the 19th century
“the world was rapidly internationalizing itself.” The goal
and general-policy direction was:
Free movement of commodities, restricted if at all only by custom tariffs;
freedom, unquestioned in principle, of migration of people and of capital;
all this facilitated by unrestricted gold currencies and protected by a
growing body of international law that on principle disapproved of force
and compulsion of any kind and favored peaceful settlement of
international conflicts — that fairly embodies not only what was or
was becoming approved practice but also what a majority of people
approved.
It was a civilization “not
favorable to cults of national glory, victory, and so on.” Central to
the success of this classical-liberal conception of international order
was the depoliticization of human relationships. By restricting
government involvement in social and economic life mostly to guarding
and guaranteeing individual rights and property, politics could not —
and for the most part did not — interfere in processes and outcomes
of market competition and association.
It was not a “matter of
state” whether the citizens or subjects of a particular country
purchased more or fewer of the goods they desired from domestic
manufacturers or suppliers in a different land. It was not an “affair
of national honor” whether the resources or raw materials in a
particular country were owned by the citizens of that land or by others
who happened to reside in another nation in a different part of the world.
Whether people chose to leave the
land in which they had been born to find more attractive and profitable
places to live and work was not an issue of “national policy”
either for the country of origin or for the recipient country.
The very nature and requirements of
the market economy are that every participant in the social system of
division of labor searches out that niche and activity in which he hopes to
earn the greatest net gain in his income and return from any investments
he undertakes. The labor services a person offers for hire, the resources
and raw materials he employs, and the capital that he invests must be
directed to producing those goods and services that others in the society
value most highly. From each sale the producer hopes to earn the financial
wherewithal to reenter the market as a consumer and demand what others
have for sale in exchange.
A world-encompassing community
A global network of interdependent
exchange emerges out of this process, in which the origin and location of
employment, resources, and capital are of no importance, other than that
they tend to be used where they offer the most economically
cost-efficient and profitable application for satisfying the demands of the
consumers of the world. The entire planet becomes a world-encompassing
community of commerce and trade. The motto of this social order
becomes: free trade, peace, and goodwill among nations, the very motto
adopted by the British opponents of protectionism and mercantilism in the
early 19th century.
Such a world of freedom, peace, and
prosperity needs neither the termination of nation-states and their
administrative sovereignty nor their replacement by international
organizations asserting superstate powers of control. What is needed is
the successful rebirth and triumph of the ideal and practice of freedom as
proposed by the classical liberals of earlier times and now. This was
explained by the Austrian economist Ludwig von Mises:
[Classical] liberalism did not and does not build its hopes upon abolition of
the sovereignty of the various national governments, a venture which
would result in endless wars. It aims at a general recognition of the idea
of economic freedom. If all peoples become liberal and conceive that
economic freedom best serves their own interests, national sovereignty
will no longer engender conflict and war. What is needed to make peace
durable is neither international treaties and covenants nor international
tribunals and organizations like the defunct League of Nations or its
successor, the United Nations. If the principle of the market economy is
universally accepted, such makeshifts are unnecessary; if it is not
accepted, they are futile. Durable peace can only be the outgrowth of a
change in ideologies.
The interventionist-welfare state
The ideology of today is that of the
interventionist-welfare state. Governments talk of market-oriented
reforms, privatization of state enterprises, revamping the welfare state,
reducing spending, and trying to balance the government’s budget or
even managing a budgetary surplus. The rhetoric rings with the sound of
economic freedom and greater individual autonomy and responsibility.
Unfortunately, what is meant is greater freedom relative to the
now-defunct idea of comprehensive Soviet-style socialist central planning.
And, indeed, by that standard, the world has been moving in the direction
of greater liberty.
But the benchmark from which
economic freedom and the role of government are judged and evaluated is
not one that uses the standard of Adam Smith’s system of natural
liberty for its point of comparison. Whether in the United States or in
Western Europe, the domain of the market economy is confined and
considered appropriate only within a straitjacket of government
regulations, controls, and rules specifying methods of production, ranges
in which prices and wages are considered fair, a safety net of welfare
provisions, and redistributive schemes to ensure “social
justice,” as well as prohibitions on various types of personal
conduct and private choices.
The networks of intergovernmental
international organizations that have been established since the Second
World War reflect the interventionist ideologies of the member
governments. And if these organizations, and new ones that have been
proposed, were given even greater regulatory and controlling authority,
they would merely extend this ideology in a more uniform and globally
encompassing manner. Degrees of freedom still retained, for example, in
the United States would be threatened in the process of member
governments’ establishing the rules and standards behind the
controls of international organizations that would be given increased
political power and authority. And since some people construe
international treaties as taking precedence even over the Constitution of
the United States, those liberties guaranteed and still respected under the
Bill of Rights might be weakened and possibly lost.
In his 1952 lecture, Heilperin argued,
“The necessary conditions for a return to economic liberalism on an
international scale can be achieved within the various nations only
through internal political developments.” In other words,
international organizations cannot bring the world freedom, peace, and
prosperity. Freedom and prosperity begin at home, within each country,
with the peoples of those countries discovering and accepting the
principles of political, personal, and economic liberty.
Global prosperity
When the government of each country
begins to practice the principles of freedom at home, a network of free
peoples encompassing more and more of the world will emerge and develop
on its own, without the guiding and planning hand of the state. Each nation
practicing the principles of the free market at home and free trade
towards its global neighbors will provide the political setting in which
individuals will spontaneously generate the private relationships of
international association, order, and peace that will bring about the
prosperity that people all over the world desire.
At the same time, in not relying upon
international organizations or being limited by their rules and regulations,
any country that wishes to go further and faster along the path to
economic freedom than some of its global neighbors will not be held back
or prevented from doing so. True internationalism and world peace will
come through individual freedom, the free market, and the peaceful and
voluntary associations of civil society. This should be our ideal for the
21st century.
Professor Ebeling is the Ludwig von Mises Professor of
Economics at Hillsdale College, Hillsdale, Michigan, and serves as vice
president of academic affairs for The Future of Freedom Foundation.
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