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A Liberal World Order


The 20th century opened with great hopes for the future. For almost a hundred years, a major war had not disturbed the peace of Europe. And when military conflicts had broken out among the European nations, they had been localized and limited in both their duration and destruction.

Most of the governments of Europe were either democracies or constitutional monarchies. The concept of the rule of law was almost universally endorsed. And throughout most of Europe, individuals could generally feel secure in their life and property. Even the colonial empires seemed benign; the British Empire was the leading example: the British ran their empire as one world-encompassing, free-trade zone — with Englishmen, colonial subjects and foreign traders more or less having the same legal protections and commercial liberty.

The 19th century, of course, was not a paradise of freedom and limited government. Governments transgressed their legitimate bounds more often than is remembered. In the last decades of the 19th century, for example, a number of European governments had reinstituted various forms of protectionist trade programs. Led by Germany, they also had introduced various welfare-state policies. Subsidies and monopoly privileges also had been given to selected private industries. And there had been a growing number of experiments with “municipal socialism,” i.e., local services being nationalized and operated by city or regional governments.

But except for these apparent anomalies, Europe and much of the rest of the world were based on the rule of law, individual liberty, private property and freedom of trade — “classical liberalism,” as this set of beliefs was termed in the 19th century.

This predominantly liberal world order came to an end in August 1914 with the outbreak of the First World War. In the name of the war effort, industries were either nationalized or placed under governmental regulation; wage and price controls were put into place; trade barriers were imposed; taxes were increased; and when taxes had reached the limit of what people would endure, paper-money inflation became the means by which governments raised funds.

The two world wars and the ideology of collectivism buried the liberal ideal and practically all limits upon the actions of governments. And current limits on the power of the state are due primarily to the habits of the past and the residues of constitutional constraints rather than to an adherence to a clear and coherent philosophy of individual freedom.

After each of the world wars, governments made numerous attempts to reconstruct a new world order — to recreate the peace and prosperity of the world before 1914. There have been the League of Nations and the United Nations. There have been regional defense pacts, like the North Atlantic Treaty Organization (NATO), and regional economic pacts, like the European Economic Community (EEC). There have been global economic pacts, like the General Agreement on Tariffs and Trade (GATT), the International Monetary Fund (IMF) and the World Bank.

But despite all of these governmental efforts, the 20th century has been one of economic and financial nationalism, regulation, control, war and impoverishment. The loss of the classical-liberal vision for society was accompanied by a century of global disorder — a century of tyranny and conflict. The great hopes for increasing freedom and international harmony at the beginning of our century were dashed.

In our own time, one of the greatest voices for the ideal of economic liberty was Ludwig von Mises, who was born on September 29, 1881 — 110 years ago this month — and who died on October 10, 1973. The leader of the Austrian school of economic thought, he was also one of the leading classical liberals of the last two hundred years.

Mises wrote several books which analyzed the collectivist disease of the 20th century: Nation, State and Economy (1919); Socialism: An Economic and Sociological Analysis (1922), Liberalism (1927); A Critique of Interventionism (1929); Bureaucracy (1944); Omnipotent Government (1944); Planned Chaos (1947); and Human Action, A Treatise on Economics (1949).

Mises argued that a liberal international order was inseparable from liberal economic policies at home. “A nation’s policy forms an integral whole,” he said. “Foreign policy and domestic policy are closely linked together, they condition each other. Economic nationalism is the corollary of the present-day domestic policies of government interference with business and of national planning, as free trade was the complement of domestic economic freedom.”

If governments choose a course of domestic interventionism and control, interference with international trade inevitably follows: privileges and regulations to benefit various producers within a country are constantly threatened by foreign competition under free trade; hence, to guarantee those privileges for domestic producers, the government has to impose trade barriers against foreign imports; when trade unions are allowed to use the strike threat to push wages above world-market levels, immigration restrictions have to be imposed to prevent those in other nations from entering the country and offering their services at a lower wage; and when governments resort to inflation to finance their domestic expenditures, the result is monetary nationalism reflected by governmental paper currencies as well as foreign-exchange controls.

The politicization of domestic economic activities, therefore, has led to the politicization of the international economic order. To secure markets and prices for domestic producers, governments are tempted to enter into trade wars with other countries, with import tariffs and export subsidies being among the chief weapons. Manipulation of the value of their respective currencies on the foreign-exchange markets becomes an economic weapon by which governments influence the amounts of imports and exports, and hence the market share and profits to be earned by privileged sectors of the domestic economy.

A truly liberal world order is only possible, Mises argued, when nations abandon their policies of economic politicization and adopt the philosophy of economic liberalism at home. And a liberal economic program requires the following:

1. An unhampered market economy. Government must be limited to the protection of life and property against force and fraud. Government must neither regulate nor intervene in the peaceful production, sale and pricing of goods and services. The qualities, quantities and prices of goods and services must be left up to the competitive forces of market supply and demand.

2. A free market for labor and all other resources. Wages and work conditions must be the result of free, competitive bargaining between employers and employees — free from governmentally bestowed trade-union privileges or minimum-wage laws. All resources and other means of production must be privately owned and free from governmental regulation and control.

3. A market monetary system and free banking. Government must control neither the supply nor the value of money. The market must be left to determine what commodity or commodities are to be used as money. Banking must be private and competitive — free from both governmental regulation and central-bank control.

4. Free Trade. The importing and exporting of all goods and services must be free of governmental control, regulation, protectionist tariffs and subsidies. Government must neither prohibit nor regulate the free movement of men and money from one country to another.

The full privatization of all domestic economic activity would, at the same time, de-politicize international economic relations. A liberal world order would naturally follow from domestic economic liberalism. International peace and prosperity cannot be created by government but by limiting governmental powers to the protection of life and property, the conditions are created in which free men will naturally pursue peaceful intercourse through economic and cultural exchange.

“Liberalism is a philosophy of peace and international cooperation,” Mises explained. It replaces political and economic nationalism with an international division of labor in which men are interdependent both for economic improvement and cultural enhancement. The world becomes a global civilization in which a multitude of nationalities contribute to the improvement of all mankind.

But unfortunately, as Mises pointed out, “The world is ruled by other ideas. These ideas lead to armaments and to protectionism, to barriers against the movability of commodities, labor and capital, to militarism and to dictatorship.” A peaceful, new world order will emerge only when the classical liberal philosophy of freedom prevails.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).