The counterrevolution against the classical liberalism of the nineteenth century has been at work for more than 150 years. In the 1840s, 1850s, and 1860s, the triumph of a philosophy of individual rights and liberty, impartial rule of law, private property, freedom of trade and enterprise domestically and in international relations, and attempts to mitigate, if not end, wars between nations had seen great progress, not only in Great Britain and the United States but in other, especially European, countries.
The slave trade had been abolished between Africa and the Americas in the early decades of the nineteenth century, followed by the abolition of slavery in the British Empire in 1834 and in the United States as part of the outcome of a costly and destructive civil war in the first half of the 1860s. Equality before the law was an ideal increasingly practiced in a growing number of countries, though bigotries and restrictions against ethnic and cultural groups still lingered in many places well into the twentieth century, including in Europe and the United States, often with disastrous consequences.
Mercantilism, the eighteenth-century version of the centrally planned economy, was challenged and abolished or greatly reduced in the middle decades of the nineteenth century in many of the European countries. The practice of free trade not only in Great Britain but throughout the British Empire meant that free movement of goods, investment, and men was a widely practiced ideal that helped globalize the social system of division of labor, benefiting all those participating in international trade. While the United States had alternating periods of free trade versus protectionism, nonetheless, within the continental sweep of the country, from the Atlantic to the Pacific, freedom of trade, movement of people, and investment were the practiced ideals.
Real standards of living increased dramatically in Europe and, most certainly, in the United States in the nineteenth century. In the period between the end of the Civil War in 1865 and 1900, the time of America’s industrial revolution, the real income of Americans rose, on average, by 75 percent. This is even more impressive in that the country’s population increased from 31.4 million people in 1860 to 76.3 million in 1900, or a 243 percent increase over a 40-year period. Out of that 44.9 million–person increase between 1870 and 1900, 12 million, or about 27 percent, were immigrants from other parts of the world.
But despite these dramatic changes and improvements in the political, social, and economic lives of a growing number of people in Europe and the United States, there emerged that counterrevolution against social and economic liberty and limited government. Particularly interesting is the fact that the central tenets, reasons, and rationales for this counterrevolution have remained essentially the same right up to our own time.
George Goschen: economist, businessman, and liberal politician
A guide for understanding their reasons and rationales, along with their emerging influence, may be found in some of the essays written by George Joachim Goschen (1831–1907). If any economists know his name at all today, it would be as the author of The Theory of the Foreign Exchanges (1863), a highly readable and clear exposition of the workings of the foreign-exchange market, with a strong emphasis on the importance of leaving the currency markets to the free and competitive international interaction of supply and demand. It was translated into several languages.
Goschen was the son of a German merchant immigrant who had come to Britain from Leipzig. Born in Great Britain, George ended up taking over and successfully running his father’s business. He believed that markets, not central banks, should determine interest rates. He also served as a director of the Bank of England for several years, beginning in 1858.
His father was a free-trade liberal, and he passed on these views to his son. As Thomas Spinner says in, George Joachim Goschen; the Transformation of a Victorian Liberal (1973):
Goschen had been in the vanguard of the struggle to destroy aristocratic privilege and to create a liberal state in which each individual would have equality of opportunity and all careers would be open to talent. His belief in a self-regulating market and free trade forced him to reject most proposals for social legislation.
Goschen’s “financial liberalism” was soon overshadowed by his “liberal realism.” He was repelled by the idea of [unrestricted] democracy, for he had no faith in the lower classes to govern the country and expected to be plundered when they obtained the vote. Democracy, he feared, would lead to [redistributed income] equality and equality would destroy the liberty for which the middle class had fought.
Elected to Parliament as a member of the Liberal Party in 1863, he held various ministerial positions over the years, including as Chancellor of the Exchequer, during which time he reduced the interest expense on the British national debt through effective refinancing, and ran six years of budget surpluses to further bring down the national debt. Goschen forcefully spoke out against religious discrimination and for civil liberties in general. He left the Liberal Party later in his life due to differences with William Gladstone over Home Rule for Ireland, finally aligning with the Conservative Party.
However, he never stepped back in any meaningful way from his long-standing defense of individual liberty, free trade, and limited government. In particular, he considered the liberal ideal to be one that focused on the rights of, and free market opportunities for, the individual. He opposed all attempts to politically homogenize people into social or economic “classes” that would be pitted against each other, a theme he warned against in many of his Parliamentary campaign speeches.
The dangers to liberty in majoritarian democracy
As another biographer, Arthur D. Elliot, explained in his book Life of George Joachim Goschen, First Viscount Goschen (1911), “George Goschen was an ardent Liberal as Liberalism was understood in those days…. Yet in everything that he wrote or uttered there rang the note of an individualism amply sufficient to prove that he could never be accounted a mere ‘item’ … in Party reckoning.” In other words, political conviction took precedence over unreflective party loyalty, when push came to shove.
This was seen in Goshen’s suspicion of the growing acceptance of unlimited democracy, including among members of the British Liberal Party. Deciding what the courses of action the government should follow purely based on electoral majorities should be feared, since that would undermine the sound economic principles and policies of personal liberty and free enterprise. As he expressed it in the late 1870s, “It was the teaching of history that the reign of numbers [political majoritarianism] endangered not the Throne, not the Constitution, not Property — these are all bugbears — but Political Economy and the teaching that made Englishmen self-reliant.” Goschen was increasingly concerned that, as Elliot puts it, “There was … far too much government interference with everything, and every new bill [before Parliament] seemed to create an inspector and a [new tax] rate.”
Unlimited majoritarian democracy was the wrong path the British political system was now moving down, including in the Liberal Party. Said Goschen on another occasion in the mid-1880s:
I believe there is no greater temptation, no more seductive influence, to which we in these days ought ever to close our ears than the siren voice which says – “Swim with the stream; let the boat glide; statecraft is no more than the clever use of the pole to keep it from the bank.” That is not my view…. My party seem to breathe an atmosphere of Utopia, and to feel a confidence I cannot share.”
Government intervention replacing natural liberty
When invited to deliver some lectures, Goshen used the opportunities to discuss the new collectivist direction Great Britain had begun to follow, and he included several of them in his book Essays and Addresses on Economic Questions, 1865–1893 (1905). Speaking before the British Philosophical Society in 1883, he chose to discuss, “Laissez-faire and Government Interference.” He pointed out to his audience that with every passing day, the arena of individual autonomy and self-responsibility was becoming narrower, as “the sphere of Government control and interference is expanding in ever widening circles.” It was seen in a variety of areas, including communications and finance. But this was only part of it, said Goschen:
What is of far deeper import is its growing interference with the relations between classes, its increased control over vast categories of transactions between individuals, and the substitution in many of the dealings of trade and manufacture, of the aggregate conscience and moral sense of the nation, for the conscience and moral sense of men as units. The parent in dealing with his child, the employer in dealing with his workmen, the shipbuilder in the construction of his ships, the ship-owner in the treatment of his sailors, the house-owner in the management of his house property, the land-owner in his contracts with his tenants, have been notified by public opinion or by actual law that the time is gone by when the cry of “Laissez-nous faire” would be answered in the affirmative. The State has determined what is right and wrong, which is expedient and inexpedient, and has appointed its agents to enforce its conclusions.
“Some of the highest obligations of humanity, some of the smallest businesses of everyday life, some of the most complicated transactions of our industrial and agricultural organizations have been taken in hand by the State. Individual responsibility has been lessoned. National responsibility has been heightened…. The attitude of the public towards “Laissez-faire” on the one hand and State action on the other has entirely changed.
Replacing individual self-interest with collectivist altruism
The question was why these attitudes and views about the individual and the state had changed so dramatically from the not-so-distant past, when the ideal and goal of many in Great Britain was the liberal one of decreased or abolished government involvement in personal, social, and economic affairs. That earlier view, that government paternalism was considered misdirected and damaging to the betterment of most of the people, had changed to a presumption that government knew best and ended up serving special landed and aristocratic interests as the expense of most others in society.
Foremost, Goshen argued, was the growing appeal of
the assertion of the claims of other than material interests … the public imagination [was] touched by appeals to our higher nature — which supplied the tremendous motive power necessary for passing laws, and put the State and its inspectors in the place of father and mother as guardians of a child’s education, labor, and health…. What I wish first to insist on is that the victory of the principle of compulsion over the principle of natural liberty could never have been gained except by a moral force.
In his lecture on “Laissez-faire and Government Interference,” Goschen never clearly elaborates on what was behind this urge for the presumption of a higher moral force than that of freedom of the individual under the principle of natural liberty. However, he tried to clarify this in a presidential address that he delivered before the British Economic Association 10 years later, in June 1893, entitled “Ethics and Economics.”
The critics of classical political economy and laissez-faire, who were behind much of the growth in government intervention, opposed and ridiculed the presumption of “self-interest” in human conduct and its asserted beneficial effects for the wider social good. Goshen did not deny that some of the classical economists may have formulated the presumption of an “economic man” as guided by material self-interest in ways that easily could be caricaturized and satirized.
But the critics had failed to appreciate that for some analytical exercises, it was postulated for purposes of the mental experiment of deducing theorical conclusions under hypothesized circumstances for better understanding of real-world situations in which many factors are at work all at the same time. In addition, most of these classical economists had pointed out that “self-interest” meant anything that the human actor considered of
value or importance to himself in using means to achieve his ends. Self-interest, therefore, included concern for or consideration of family, friends, and the fostering of valued purposes other than simply material or financial gain.
The misunderstandings and ambiguities sometimes found in the economists’ exposition of the self-interested individual resulted in people “who were only too ready to denounce motives which in themselves did not appear noble.” In its place, Goschen said, “a strong development of genuine altruism set in. The reaction was against selfishness.” Businessmen, merchants, and manufacturers needed to be reined in, “for the sake of reforming social abuses and securing social benefits.”
Thus, the revolt against political economy and the principle of natural liberty was fundamentally the demand that the interests of the individual be sacrificed for the good of the collective. “It is this development of the [altruist] ethical side of public opinion,” Goschen stated, that “has contributed very unfortunately and unjustly to discredit
political economy because of its supposed collision with more considerations.”
The reality and ethics of economics
These critics and opponents of the liberal market society little understood that it was precisely the recognition and respect for the individual and his liberty that resulted in the unintended outcomes of the wider social betterments that they condemned “capitalism” for neglecting. Said Goschen:
Economics will have to be classed amongst the moral and social sciences…. Thus, from a broad point-of-view, economics are not to be cried down as a non-moral science moving on a lower plane and with lower motives. They work towards civilization and morality…. Enlightened self-interest may be so utilized as to be found to go hand and hand with motives from which it is believed to be entirely absent.
How might these critics of economic liberalism be classified or labeled? Goschen suggested:
Neither sentimentalist nor philanthropist altogether answers the purpose; let me therefore use the term “emotionalist.” The emotionalist is influenced by the impression made on him by what he sees and feels — the visible, the palpable, the direct. The economist looks beyond — not at the present only, but at the future — and is swayed not only by the visible and the direct, but by the invisible, the more remote. The one is mainly impressed by the fact, the other by the consequences of the fact….
The emotionalist is moved by an immediate impulse at the sight of poverty to indulge in charitable relief, and that charity is often exercised without discrimination…. But it is the duty of the economist to point out the indirect and invisible effects of such action; and this information is needed in the interests of a wider community than that to which the charity is extended…. The ultimate result of the uncalculated generosity of the emotionalist may be infinitely more disastrous than the evil which in his generosity he tries to cure…. But it is the stern duty of the economist to point out the indirect, invisible effects of the generous charitable impulses.
If the tender treatment of the Poor-Law [Great Britain’s nineteenth century welfare program], founded on ethical considerations alone, should diminish the efforts of self-help, a whole class may suffer ultimately from action taken towards individuals. The many — the community as a whole — may be hurt and damaged by faults in the treatment of the few…. Mark that the attitude of the economist is no less ethical than that of the emotionalist — it is more farseeing, more social. It looks to the good of the community. It is called hard, but it is wise, and it serves the general interest.
The same applied no less to such matters as the determination of workers’ wages in the marketplace, Goschen argued. Based on a supposed higher “altruistic” ethic, “the standard of higgling in the market is given up,” and instead, trade union compulsion and the state will interfere. While couched in the rhetoric of the improving the wages and work conditions of laborers in general, trade unions can influence wages in a segment of the market only by limiting the number of potential workers entering a particular corner of the economy. Said Goschen: “Altruism may thus take up an antagonistic position to the too exclusive association of skilled labor, and protest against the laborers outside its charmed circle being neglected.”
The false view that democratic government is us
In his address on “Laissez-faire and Government Interference,” Goschen argued that there were other factors influencing the growth in government interference in the marketplace and society in general. With the widening democratic participation in political decision-making through an extension of the voting franchise, the general attitude toward who and what the government is changed in people’s minds. When the political regime was the rule of the few (monarchy and aristocracy) over the many, “Government interference could be regarded simply as paternal legislation, it excited, not confidence, but distrust,” that is, an imposing of the dictates of the king and those around him over how everyone else should live and work and earn, regardless of the wishes of those imposed upon.
However, when those holding political office came to be viewed as “representatives” of those ruled, government was no longer considered as an unwanted “parent” or a “beneficent master” telling all the children-subjects how to live. Instead, “It is invoked as the agent, aye, as the servant, of the people’s will. From this point of view the movement is essentially democratic. Society wants its representatives to act on its behalf. Society demands to control the individual. The movement is distinctly Socialistic.”
Once the state is expected to intervene in one corner of the market, others soon appear insisting that if the government can modify the outcome of the unfettered market for the improvement of one group or “social problem,” then it should equally use its compulsory powers on behalf of others, as well. Soon, government intervention appears as “the only Deus ex Machina for the immediate solution of some political or other difficulty, of which the instant termination is demanded by high reasons of State.”
Bureaucrats are happy to extend their powers
As agents of the wishes of “the people,” Goschen warned, those in government departments and agencies find it easy in their own interests to offer to extend or introduce their regulations, redistributions, and controls over a wider swath of social and economic life. “The successful performance of a certain set of duties by a public department inspires its administrators with the natural desire to extend their sphere of acknowledged usefulness,” Goschen explained, “No country gentleman covets more earnestly bits of land lying outside of, but adjoining, his estate, than the energetic heads of [government] departments, whose work had succeeded, covet an extension of the limits of their activities.”
A worse part of this process is that often it is not only a matter of acquiring greater power and authority over people’s affairs but also that those bureaucrats actually think they are wise and knowledgeable enough to do better than leaving it to individuals to take care of and solve these issues. “The more the public puts upon civil servants, the more will servants offer to do for the public.”
People want more government but hate the effects on themselves
The more the government intervenes and interferes with the personal, social, and economic affairs of the citizenry, the more many of those people may exhibit what might be called a form of Tourette Syndrome, the wanting and the not wanting of something at the same time. A call is made for government intervention or prohibition of some conduct or market outcome, but when confronted with the actual actions of government in these areas, many of the very same people object and dislike the policies they themselves have called for. As Goschen explained:
The public demands inspection, but too often denounces the inspectors; the public demands regulations, but chafes at the red tape employed in carrying them out; it legislates for watchfulness on the part of the State over the shortcomings of local authorities, but nothing is more unpopular than the activity of central agents; it demands organizations which require the appointment of vast numbers of clerks, yet the deficiencies of Government clerks, and the expense of their salaries and pension, furnish endless food for popular declamation.
Part of this, Goschen argued, was due to the peculiar assignment of almost divine or superhuman status and capability to “the state.” He asked, what is the state, what is government, into “whose hands such vast interference with natural liberty is to be confided?” Ultimately, it is merely a group of individuals elected as the representatives of the voters during a certain year and reflecting the views of that electorate on a particular day when the voting ballots were marked. “And this is the body which, stripped of conventional expressions, is to fix new relations between classes, and give a fresh direction to and control the currents of our lives.”
Many presume that individuals pursuing their, respective, self-interests in the exchanges of the marketplace cannot be trusted in terms of their effects on society as a whole, “but while we thus proceed on the policy of distrust [concerning individuals in the private sector], we are to have unbounded confidence in successive decisions of Parliamentary majorities…. But the homely reminder that the active force of society in its ultimate action is nothing more than the result of heated electoral contest drags us down again to earth,” that those in government are mere imperfect mortals like us, with their own interests usually in mind.
This should make us stop before going further in this direction, Goschen warned:
And if a grave mistake should be made, if when the era of State Socialism is further developed, we should find that the legislative and executive bodies are not infinitely freer from the imperfections and shortcomings of our common nature than history gives us any right to anticipate, the nation may regret having exacted almost superhuman duties and superhuman virtues from bodies essentially human. Again, even if we grant an admirable central government, do we not run a serious risk, in a vast number of cases, of weakening individual responsibility to such a degree that what we gain on the one side we lose on the other?”
The further we travel down this road, Goschen feared, the more difficult it becomes to reverse course, and return to a path to liberty: “Once pass a moral condemnation on ‘Laissez-faire’ in any particular case, and its rehabilitation becomes an almost hopeless task,” he despaired. This meant that all attempts to extend the size and scope of government activity had to be challenged and opposed:
Abstract principles are more and more being abandoned in favor of whatever may at a given moment seem to answer a given purpose, and eternal truths have ceased to command any practical faith. Believe me, there is a danger in the excess to which this skepticism is carried….
Hence it is no less important in democratic than in any other Government that all tendency on the part of public authorities to stretch their interference and assume a power of any sort which can easily be dispensed with, should be regarded with unremitting jealousy….
This habit of mind [of focusing on the immediate and the emotional] appears more than ever dangerous at a time when the nation is embarking on new social questions, and when, if ever, we have need of the steady aid of principles and of the knowledge gained in the world’s history as to the bearing of certain tendencies on the ultimate shape of events….
The dangers in the road of social reconstruction under Government control are so grave that they can scarcely be exaggerated; dangers arising, not only from the serious chance of inefficiency in the methods chosen, but from the transfer of responsibilities, from the establishment of national law in the place of individual duty, from the withdrawal of confidence in the quality of men in order to bestow it on the merits of administrations, from the growing tendency to invoke the aid of the State, and the declining belief in individual power…. We cannot see universal State action enthroned as a new principle of government without grave misgivings.
When George Goschen delivered this address on “Laissez-faire and Government Interference,” almost a century and a half ago, these tendencies in the direction of ever larger and more intrusive government were only starting after the high watermarks of classical liberalism’s successes and triumphs in the early and middle decades of the nineteenth century. But he saw the implications of where they were leading with a clarity and insight matched only by a few others during that time.
The same criticisms leveled against the liberal, free-market society at Goschen’s time are still heard today, though they are cloaked in slightly different rhetoric and emphasis: the materialistic immorality of self-interested conduct and the resulting supposed injustice of market-based incomes; the need to subordinate the selfish desires and actions of the individual for the “higher” altruistic good of the collective society, based on “the will of the people” as expressed through increasingly unrestricted majoritarian democracy; the emotionalism of the moment when undesirable circumstances demand government intervention “now” to solve “social problems,” with little or no thought of the negative or counterproductive longer-term consequences of rushing head-long with political control, regulation, or redistribution through governmental coercive means; and finally, the shunting aside of the value or importance of the individual’s liberty and freedom of choice and voluntary association, without which a good, prosperous, and ethical society is impossible in the long run.
All our current political problems exist due to the disregard for the warnings given by those like George Goschen a century and a half ago against a liberalism that is eating away at the remnants of the free society.
This article was originally published in the August 2023 edition of Future of Freedom.