The Measure Of Liberty

If Australians knew more of how political and economic liberty defeated pessimism and poverty, they’d be more prepared to fight for it now, write IPA Adjunct Fellow Brad Bowden and IPA Executive Director Scott Hargreaves.

Australians today are part of a modern and industrialised world that emerged during the ‘long century’ of the Enlightenment; an era of transformative change that began in the 1680s with England’s Glorious Revolution and the Bill of Rights, and ended with the conclusion of the Napoleonic Wars in 1815.

In politics, a series of revolutions heralded an era of liberty, including the American Revolution of 1776, and the French Revolution of 1789. In science, the publication of Isaac Newton’s The Mathematical Principles of Natural Philosophy in 1687 did more than explain the nature of gravity; a ‘scientific’ outlook and a marriage of scientific and business endeavours was also fostered. In Britain, the fruit of this was the Industrial Revolution (1760–1830) and the birth of a new mechanised age, just as it had embarked on the colonisation of Australia.

Enlightened self-interest is quite different from the caricature of mere selfishness.

Today’s critics of Western Civilisation and industrialisation scarcely realise their pessimistic creed can itself be traced back to debates of this period. The advance of freedom during the Enlightenment—and the prosperity it enabled—only occurred by advancing new ideas and unleashing new means of production. For Adam Smith (1723–1790), the Scottish Professor of Moral Philosophy, the burning issue of the period was economic liberty. The most famous words attributed to Smith, that free market economies are guided by “the invisible hand of the market”, were neither spoken nor written by him. Instead, Smith associated the ‘invisible hand’ with something even more substantial, namely self-interest.

Often depicted as a spokesman for vested interests, Smith’s advocacy of market competition was actually designed to undermine the monopolistic positions of the privileged few. His was an attack on the system of government restraints and favours known as mercantilism, of which more will be said below.

Smith argued that while humans have a natural regard for their own interest, they also have a capacity to imagine themselves in the shoes of another. By better understanding the situations of others, we are able to form the relationships of conversation and exchange that underpin sociability and commerce. In his Theory of Moral Sentiments (1759), which formed the philosophical foundation for The Wealth of Nations (1776), Smith created the notion of the ‘impartial spectator’, inviting independent actors to consider how their interactions with other parties would appear to someone who had no stake in the outcome. It was upon this notion of what came to be called ‘enlightened self-interest’—which is quite different from the caricature of mere selfishness in which every exchange is seen as an opportunity for plunder, and in which no ongoing relationship of exchange is possible—that Smith was able to base his claim that:

Little else is requisite to carry a state to the highest degree of opulence 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.

THE APOSTLE OF PESSIMISM, THOMAS MALTHUS

Smith’s optimistic message found a pessimistic rival in Thomas Malthus’s An Essay of the Principles of Population. Writing in 1798 in the midst of the Industrial Revolution, Malthus was a country pastor whose ministrations revealed a population living in misery. From these observations, he drew an accurate conclusion: if circumstances in late-18th-century England were dire, then they must have been even more miserable in earlier societies. This caused him to theorise the ‘Malthusian Trap’: a universal tendency for the population to increase beyond the resources needed for their support. As a result of this ‘iron law’, Malthus argued, “human life” will always have “a melancholy hue”.

Malthus’s book was largely written as a repudiation of Smith’s The Wealth of Nations. What Malthus found most objectionable was the belief that each firm and nation should invest in their areas of comparative advantage, trading what they had for what they had not. In 18th-century Britain this involved increased investment in manufacturing. Declaring “manufacturing labour” to be wholly “unproductive”, Malthus associated British manufacturing solely with “silks” and “laces” purchased by “the rich”. Instead of wasting time on manufacturing, Malthus believed, Britain needed to enact policies that facilitated agriculture, thereby putting more food on plates.

A greater use of machinery allowed a comparative few to produce much more.

Many of Malthus’s contemporaries shared his hostility to industrialisation. In northern England, mobs of so-called Luddites smashed machines and burned factories. In parliament, the poet Lord Byron declared machines were throwing people out of work, causing “unparalleled distress”. Another poet (and artist), William Blake, likened factories to “dark Satanic Mills”.

Blake hated science and opposed the Enlightenment, and one of his most famous works, Newton, depicts the great mathematician naked and perched on a rock, focussing on the diagrams he draws with a compass upon a scroll; portraying a vision of world ruled only by abstracted reason and without the spiritual values Blake and the other Romantics thought should take priority. This monotype by Blake was the basis of Eduardo Paolozzi’s 1995 bronze sculpture Newton, after William Blake, which resides (perhaps inappropriately) in the piazza of the British Library, as pictured at the beginning of this article.

FREEDOM AND THE INDUSTRIAL REVOLUTION

In thinking of Britain’s Industrial Revolution there is a near universal tendency to visualise of cotton mills and textile production. In truth, for most of the 18th century, Britain hid behind a wall of protective tariffs. Unable to compete in textile products, Britain’s trade was rebuilt around the importation of a range of luxury intoxicants and foodstuffs: tobacco, sugar and, above all, tea from China. Invariably, this trade was controlled by monopolies that paid for Royal Charters. In every trade and occupation, moreover, businesses and workers relied on regulation and restriction to maintain artificially high prices. As Smith accurately observed in The Wealth of Nations:

It is to prevent this reduction of price, and consequently of wages and profit, by restraining that free competition which would most certainly occasion it, that all corporations, and the greater part of corporation laws, have been established.

Smith’s solution was deceptively simple. First, the practice of determining prices, wages and profits through regulatory fiat (arbitrary decisions by government officials) had to end. Instead, wages and prices should be determined solely “by the higgling and bargaining of the market”. This would allow resources to be reallocated to where there was the greatest demand. Smith’s second solution was to encourage each firm and nation—and, indeed, each individual—to specialise in their area of comparative advantage. At its most basic level, this involved the division of labour.

To demonstrate the benefits of labour specialisation, Smith famously pointed to the example of a pin factory. Whereas a single person working alone would struggle to produce one pin a day, 10 workers in a pin factory could produce 48,000 pins a day by specialising in one part of the production process. Smith believed greater use of machinery was a boon to the labouring poor who had hitherto existed in a state of misery, allowing them to share in a newly created state of “universal opulence”.

The crisis of food production and living standards Malthus predicted failed to eventuate.

Malthus, meanwhile, appealed to the most authoritative economic voices of his time, the so-called French physiocrats (Cantillon, Quesnay, and Condillac). Without exception, these experts held that “labour employed in manufactures is unproductive”. They reasoned that each worker in manufacturing required the support of two farm workers, and therefore each factory worker placed new demands on already stretched food resources.

There is an historic truth to the arguments of Malthus and the French physiocrats. Until the Industrial Revolution economies everywhere were caught in a series of Malthusian traps: whenever population increased, living standards retreated. Proof of this is found in Figure 1. Prior to the 19th century, the only sustained increase in English living standards was caused by the Black Death, which reduced England’s population by almost a half between 1347 and 1400. As the population recovered, however, living standards went into a precipitous decline. In the second half of the 18th century, as population increased during the initial stages of the Industrial Revolution, yet another decline was evident.

Although supported by historical evidence, Malthus’s thinking was nevertheless profoundly misguided, having little appreciation of the productive capacities that competition and free markets could unleash. As Figure 2 indicates, the crisis of food production and living standards Malthus predicted failed to eventuate. Instead, industrialisation and free markets led to an unprecedented improvement in living standards. By 1850, the real wage of an English building worker was more than double that obtained when Malthus published his book in 1798. Far from constraining food production, industrialisation facilitated a revolution in agriculture associated with artificial fertilisers and mechanisation. Industrialisation also caused a transport revolution in the shape of railways and iron-hulled ships.

THE HEIRS OF MALTHUS

By the mid-19th century the debate between supporters of Smith and Malthus as to the future direction of society was seemingly permanently settled in Smith’s favour. In contemporary Australia, however, the ascendancy of Smith’s understandings over Malthus’s catastrophic predictions is no longer self-evident. On the Australian homepage of Extinction Rebellion, for example, we are informed that:

Life on Earth is in crisis … Biodiversity loss. Crop failure. Social and ecological collapse. Mass extinction. We are running out of time.

The Australian Greens, meanwhile, warn that “We are in a climate emergency that threatens to catastrophically overwhelm our society and economy”. Resources are overstretched and only through “a reduction in the material consumption” of the populace is there hope of salvation.

Fortunately, claims to a catastrophic overstretching of resourcing are even more fallacious than they were in the 19th century. As Figure 2 indicates, between 1961 and 2014, the world’s population grew more than two-and-a-half times. During the same period, crop production rose almost four-fold. Livestock production and overall food output rose in like fashion. Significantly, the greatest gains in food production occurred in poorer and underdeveloped nations, where crop production was more than four times higher in 2014 than in 1961. Nor, contrary to popular conceptions, has this growth been associated with a mass loss of forests and natural habitats.

Meanwhile, mercantilism has made a comeback: the problems Smith railed against—rent-seeking, cosy business-government relationships, excessive regulation—have witnessed a revival.

In The Rise of Corporate-State Tyranny (2021), political theorist Joel Kotkin referred to the “new alliance” in American politics between “corporate powers” and “the progressive clerisy in government and media” as “Chinese capitalism with American characteristics”. Corporate giants advocate a ‘woke’ political message that favours a progressive intellectual elite, and in return receive a continuation of their monopoly privileges.

Kotkin’s analysis can be applied to an Australia where 83 per cent of Australian shares are held by institutional investors, mainly ‘industry’ superannuation funds. Controlled by trade unions and sympathetic employers, these funds direct investments in ways that benefit not only favoured companies but also a progressive political agenda. At the same time, Australia has witnessed an unprecedented expansion of the power of big business at the expense of small firms. This is exacerbated as small business is squeezed out by rising red tape and compliance costs, creating even great scope for oligopolistic business practices (oligopoly being the ‘rule of the few’).

A concentration of economic power entails a concentration of political power.

The crisis of small business is well described in the IPA’s study, The Fair Go – Going, Gone: The Decline of the Australian Way of Life, 2000 to 2020. Over those two decades, the share of the workforce employed by a small business fell by 20 per cent and the percentage of the workforce who were self-employed suffered a 10 per cent decline. Inevitably, as Smith realised, a concentration of economic power entails a concentration of political power.

This is an extract from The Enlightenment and the Advance of Liberty, a publication of the IPA’s Centre for the Australian Way of Life. Released in April 2022, it is the first in a series entitled How Australia Was Made: A History of Western Civilisation for Australians.

To learn more, go to australia.ipa.org.au

Note: Figures 1 and 2 are from works by Bradley Bowden: Palgrave Handbook of Management and History, and Work, Wealth and Postmodernism, respectively.

This article from the Autumn 2022 edition of the IPA Review is written by IPA Adjunct Fellow Brad Bowden and IPA Executive Director Scott Hargreaves.