Metamorphoses of Liberalism in the Twentieth Century

Abstract

The utility-driven, individualist vision of the nineteenth century is subject to relevant criticism in the following century, under the influence of different circumstances: the consolidation of German nationalism; the evolving industrial structures, with consequent concentration of economic power and growth of trade unions; the Great War and, then, the difficulty to go back to pre-war societal structures and economic and monetary arrangements; the economic Depression and the pressure for a larger role of the State; and the affirmation of Marxist socialism in the Soviet Union. Philosophical developments—Croce’s idealism—emphasize the ethical contents of the liberal idea, which is seen as not necessarily coincident with economic liberalism. As a consequence of these circumstances, liberalism takes different directions: the first emphasizes the issues of market failure, wealth distribution, State presence in the economy. The second has libertarian, anti-statist accents, taking however distance from the “scientific” Neo-classical School. The third inserts powerful elements of market economy and competition into the German statist tradition. Pigou, Keynes and Beveridge can be considered as liberal economists who react to the imbalances of a liberal society: Pigou, by insisting on capitalism’s negative “externalities”, to be addressed by the State through the use of coercive devices for directing self-interest into social channels; Keynes, by facing the system’s inability to assure full employment and to address the inequality in wealth and income distribution, and by emphasizing economics as a moral science; Beveridge, by enlarging the field of liberalism through a long list of services that is up to the State budget to provide, even beyond full employment (the Welfare State). In a different direction move the economists of the Austrian School and its main exponent, Hayek. His individualistic stance, however, is far from the classical laissez-faire and the positivist, scientific attitude of neo-classical economists. A rational system of preferences, based on utility and stated in mathematical form, is not possible, given the dispersed bits of knowledge which are available, but market provides the necessary connection between “uninformed” economic agents through the system of prices. In order to operate, market competition requires absence of any central planning: only a set of basic rules intended to be instrumental to the pursuit of individual needs. The Chicago School, with Friedman, reiterates with emphasis this libertarian attitude, particularly focussing on the monetary constitution, as an instrument of stability and of keeping money out of authorities’ discretion. Ordoliberalism is a typical turn of liberalism in interwar Germany, whose influence seems however lasting and well alive in our days. The State is at the very centre of the economic system, and regulates and protects market competition. The State must act so as to de-proletarianize the social structures of capitalism, by enhancing workers’ freedom and responsibility and not imprisoning them in a welfare state. Ordoliberalism represents a strong turn towards normative, as opposed to positive, economics. As such, and similarly to the German Historical School of the previous century, it is unsuitable to be studied as a formal “model”. It’s rather a prescriptive scheme of structure and organisation of the economic system.