capitalism

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The Encyclopedia of Libertarianism
such as David Ricardo, Thomas Malthus, and J. S.
Mill. In fact, in much popular and public argument, a
second line of descent from Smith was equally important,
including such figures as Jean-Baptiste Say. The
underlying idea was that the economic life of the community
is a dynamic yet self-regulating system that,
given the correct framework of laws and then left to
itself, will produce wealth and convert the pursuit of
individual, self-regarding ends into public benefits. A
number of principles for public policy followed,
notably a general principle of noninterference by the
state in the outcome of private decisions (laissezfaire),
the abandonment of protectionism and other
restraints on trade, and support for free trade, low taxation,
and government frugality, hard money, and
freedom of contract. All of those principles are interconnected
and were often summarized under the general
heading of free exchange. It is significant that,
although these are economic arguments, they were not
generally advocated solely or even primarily on the
grounds of economic efficiency. The usual arguments
were moralistic and emphasized such themes as
autonomy, personal responsibility, and the connection
between free exchange—particularly free trade across
national borders—and peace.
Another significant point is that these ideas were
not in any sense conservative. Instead, they were
profoundly radical and had implications reaching
far beyond the straightforwardly economic, including
implications for the relation between the sexes and the
status of different races and ethnic groups. In particular,
they combined with, and led to, a sharp attack on
state-sanctioned privilege, social inequality, and
unjust class divisions.
An almost forgotten element of classical liberalism
is its theory of class and social divisions. Nowadays,
this kind of analysis is associated primarily with
Marxism, but it actually originated in the writings of
liberal thinkers—something that Marx freely acknowledged.
Classical liberal class theory was, however, different
from that put forward by Marx and his epigones.
Its fundamental premise is that there are only two ways
to obtain wealth: either through production and
exchange or by plunder (i.e., by using force). It followed
that the basic division in society is that between
the industrious or productive classes, on the one side,
and the parasitic or exploitative classes, on the other.
Classes are defined by their relation to the coercive
institutions of political power, rather than productive
or exchange relations. The exploitative ruling classes
are those who use their access to political power and
force to enrich themselves at the expense of the industrious
classes who create wealth. The former group
includes, according to most liberal accounts, aristocrats,
the clergy of established churches, state
bondholders and rentiers, slaveholders, and also ablebodied
paupers who are on relief. The exploited class
includes peasants, artisans, proletarians, merchants,
middlemen of all sorts, and entrepreneurs. Liberal
class theory originated in Scotland, in the writings of
authors such as James Millar, but it found its fullest
expression in France, where it was developed and
refined by Charles Comte, Charles Dunoyer, and
Augustin Thierry. Their analysis involved a theoretical
account of the origins and nature of the state and political
power leading to the formulation of a historical
sociology. Their analysis also was intimately connected
with a distinctive theory of historical development,
which originated in the writings of the Scottish
Enlightenment authors, among them Adam Smith, but
which was more fully elaborated by Comte and
Dunoyer. According to this theory, history consisted of
a succession of stages or levels of economic and social
development, culminating in the final stage of commercial
or industrial society. Each stage was marked
by distinctive kinds of social and political relationships.
The English liberal Herbert Spencer elaborated
this historical account as the movement from militant
societies, dominated by relations based on force,
exploitation of the productive classes, and hierarchy, to
industrial society, marked by voluntary, contractual
relations. This evolution was described by another
classical liberal, Sir Henry Sumner Maine, as the
movement in social relations and law “from status to
contract.” All these thinkers agreed that as society progressed,
the sphere of compulsion, and hence of the
state and power, would shrink, just as the area of voluntary
cooperation expanded. The end result would be
a minimal state or even, according to some radical
thinkers such as the economist Gustave de Molinari
and the young Herbert Spencer, no state at all.
Classical liberals had a clear set of ideas about
political arrangements. Their main goal was to reduce
the scope of power and compulsion in society. Political
power, they maintained, should be used only to protect
and sustain individual rights. The two central political
ideals of liberalism, constitutional government and the
rule of law, were limited. These ideals were combined
in Germany in the idea of the Rechtsstaat (the term
Recht in German means both “law” and “right”), an