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The Rise, Fall, and Renaissance of Classical Liberalism, Part 3: The 20th Century

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The First World War was the watershed of the twentieth century. Itself the product of antiliberal ideas and policies, such as militarism and protectionism, the Great War fostered statism in every form. In Europe and America, the trend towards state intervention accelerated, as governments conscripted, censored, inflated, ran up mountains of debts, co-opted business and labor, and seized control of the economy. Everywhere “progressive” intellectuals saw their dreams coming true. Thee old laissez-faire liberalism was dead, they gloated, and the future belonged to collectivism. The only question seemed to be: which kind of collectivism?

In Russia, the chaos of the war permitted a small group of Marxist revolutionaries to grab power and establish a field headquarters for world revolution. In the nineteenth century, Karl Marx had concocted a secular religion with a potent appeal. It held out the promise of the final liberation of man through replacing the complex, often baffling world of the market economy by conscious, “scientific” control. Put into practice by Lenin and Trotsky in Russia, the Marxist economic experiment resulted in catastrophe. For the next seventy years, Red rulers lurched from one patchwork expedient to another. But terror kept them firmly in charge, and the most colossal propaganda effort in history convinced intellectuals both in the West and in the emerging Third World that communism was, indeed, “the radiant future of all mankind.”

The peace treaties cobbled together by President Woodrow Wilson and the other Allied leaders left Europe a seething cauldron of resentment and hate. Seduced by nationalist demagogues and terrified of the Communist threat, millions of Europeans turned to the forms of state worship called Fascism and National Socialism, or Nazism. Though riddled with economic error, these doctrines promised prosperity and national power through integral state control of society, while fomenting more and greater wars.

In the democratic countries, milder forms of statism were the rule. Most insidious of all was the form that had been invented in the 1880s, in Germany. There Otto von Bismarck, the Iron Chancellor, devised a series of old-age, disability, accident, and sickness insurance schemes, run by the state. The German liberals of the time argued that such plans were simply a reversion to the paternalism of the absolutist monarchies. Bismarck won out, and his invention — the welfare state — was eventually copied everywhere in Europe, including the totalitarian countries. With the New Deal, the welfare state came to America.

Still, private property and free exchange continued as the basic organizing principles of Western economies. Competition, the profit motive, the steady accumulation of capital (including human capital), free trade, the perfecting of markets, increased specialization — all worked to promote efficiency and technical progress and with them higher living standards for the people. So powerful and resilient did this capitalist engine of productivity prove to be that widespread state intervention, coercive labor-unionism, even government-generated depressions and wars could not check economic growth in the long run.

The 1920s and ’30s represent the nadir of the classical-liberal movement in this century. Especially after government meddling with the monetary system led to the crash of 1929 and the Great Depression, dominant opinion held that history had closed the books on competitive capitalism, and with it the liberal philosophy.

If a date were to be put on the rebirth of classical liberalism, it would be 1922, the year of the publication of Socialism, by the Austrian economist Ludwig von Mises. One of the most remarkable thinkers of the century, Mises was also a man of unflinching courage. In Socialism, he threw down the gauntlet to the enemies of capitalism. In effect, he said: “You accuse the system of private property of causing all social evils, which only socialism can cure. Fine. But would you now kindly do something you have never deigned to do before: would you explain how a complex economic system will be able to operate in the absence of markets, and hence prices, for capital goods?” Mises demonstrated that economic calculation without private property was impossible, and exposed socialism for the passionate illusion it was.

Mises’s challenge to the prevailing orthodoxy opened the minds of thinkers in Europe and America. F.A. Hayek, Wilhelm Roepke, and Lionel Robbins were among those whom Mises converted to the free market. And, throughout his very long career, Mises elaborated and reformed his economic theory and social philosophy, becoming the acknowledged premier classical-liberal thinker of the twentieth century.

In Europe and particularly in the United States, scattered individuals and groups kept something of the old liberalism alive. At the London School of Economics and the University of Chicago, academics could be found, even in the 1930s and ’40s, who defended at least the basic validity of the free-enterprise idea. In America, an embattled brigade of brilliant writers, mainly journalists, survived. Now known as the “Old Right,” they included Albert Jay Nock, Frank Chodorov, H. L. Mencken, Felix Morley, and John T. Flynn. Spurred to action by the totalitarian implications of Franklin Roosevelt’s New Deal, these writers reiterated the traditional American creed of individual freedom and scornful distrust of government. They were equally opposed to Roosevelt’s policy of global meddling as subversive of the American Republic. Supported by a few courageous publishers and businessmen, the “Old Right” nursed the flame of Jeffersonian ideals through the darkest days of the New Deal and the Second World War.

With the end of that war, what can be called a movement came into being. Small at first, it was fed by multiplying streams. Hayek’s Road to Serfdom, published in 1944, alerted many thousands to the reality that, in pursuing socialist policies, the West was risking the loss of its traditional free civilization. In 1946, Leonard Read established The Foundation for Economic Education, in Irvington, New York, publishing the works of Henry Hazlitt and other champions of the free market. Mises and Hayek, now both in the United States, continued their work. Hayek led in founding the Mont Pelerin Society, a group of classical-liberal scholars, activists, and businessmen from all over the world. Mises, unsurpassed as a teacher, set up a seminar at New York University, attracting such students as Murray Rothbard and Israel Kirzner. Rothbard went on to wed the insights of Austrian economics to the teachings of natural law to produce a powerful synthesis that appealed to many of the young. At the University of Chicago, Milton Friedman, George Stigler, and Aaron Director led a group of classical-liberal economists whose specialty was exposing the defects of government action. The gifted novelist Ayn Rand incorporated emphatically libertarian themes in her well-crafted best-sellers, and even founded a school of philosophy.

The reaction to the renewal of authentic liberalism on the part of the left — “liberal” — more accurately, social-democrat-establishment was predictable, and ferocious. In 1954, for instance, Hayek edited a volume entitled Capitalism and the Historians, a collection of essays by distinguished scholars arguing against the prevailing socialist interpretation of the Industrial Revolution. A scholarly journal permitted Arthur Schlesinger, Jr., Harvard professor and New Deal hack, to savage the book in these terms: “Americans have enough trouble with home-grown McCarthys without importing Viennese professors to add academic luster to the process.” Other works the establishment tried to kill by silence. As late as 1962, not a single prominent magazine or newspaper chose to review Friedman’s Capitalism and Freedom. Still, the writers and activists who led the revival of classical liberalism found a growing resonance among the public. Millions of Americans in all walks of life had all along quietly cherished the values of the free market, and private property. The growing presence of a solid corps of intellectual leaders now gave many of these citizens the heart to stand up for the ideas they had held dear for so long.

In the 1970s and ’80s, with the evident failure of socialist planning and interventionist programs, classical liberalism became a world-wide movement. In Western countries, and then, incredibly, in the nations of the former Warsaw Pact, political leaders even declared themselves disciples of Hayek and Friedman. As the end of the century approached, the old, authentic liberalism was alive and well, stronger than it had been for a hundred years.

And yet, in Western countries, the state keeps on relentlessly expanding, colonizing one area of social life after the other. In America, the Republic is fast becoming a fading memory, as federal bureaucrats and global planners divert more and more power to the center. So the struggle continues, as it must. Two centuries ago, when liberalism was young, Jefferson had already informed us of the price of liberty.

Part 1 | Part 2 | Part 3

This is the third part of a three-part series. The series is dedicated to the memory of Roy A. Childs Jr. (1949-1992).

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    Ralph Raico is originally from New York City. He received his B.A. from the City College of New York and his Ph. D. from the University of Chicago. He attended the Ludwig von Mises's Seminar at NYU and translated Mises's Liberalism. He is the Editor of the New Individualist Review and a Senior Editor of Inquiry Magazine. Among Ralph Raico’s recent publications are the introduction to the 50th-anniversary edition of John T. Flynn’s "The Roosevelt Myth" and the essay on World War I in the second, paperback edition of "The Costs of War", edited by John V. Denson, both available from Laissez Faire Books. He is also a contributor to "The Failure of America’s Foreign Wars", published by The Future of Freedom Foundation. Professor Raico is professor of history at the State University of New York College at Buffalo.