Liberty and the History of Economic Ideas

In lauding economist Joseph Schumpeter’s History of Economic Analysis (Oxford University Press, 1954), Richard Ebeling notes that “the reader is awestruck by the immense knowledge and insight Schumpeter possessed about the evolution and development of economic ideas from ancient times to the present” (p. 527–28). I had a similar reaction to Ebeling’s Liberty and the History of Economic Ideas. Although his scope is narrower than Schumpeter’s—focusing on the intersection of economic ideas and human freedom—Ebeling’s book insightfully surveys an enormous amount of thinking on a topic of immense importance.

Though it has the heft of a textbook, Liberty and the History of Economic Ideas doesn’t seek to examine what every major economist has had to say on the subject. The focus is primarily on friends of liberty—people who take liberty seriously—so many prominent thinkers found in history of economic thought textbooks are omitted. You’ll not find the institutionalist economists, such as Thorstein Veblen (only a brief mention), nor the Utopian Socialists, nor Alfred Marshall (barely a whisper), nor Joan Robinson, nor mathematizers like Paul Samuelson.

The volume’s thirty-nine chapters (roughly one for each meeting of a class that convenes three times a week) proceed chronologically beginning with the ancient Greeks, the Romans and the Middle Ages. Most chapters are on individual thinkers—though a few focus on historical episodes, including “Inflation, Price Controls, and Collectivism during the French Revolution” (which opens with the observation that “governments seem to have an insatiable appetite for the wealth of their subjects” (p. 87)) and “The First World War and the Eclipse of Classical Liberalism.”

You’ll find chapters on the mainstays of classical liberalism—David Hume, Adam Smith, Thomas Malthus, David Ricardo, Jean-Baptiste Say, Frédéric Bastiat, Carl Menger, Ludwig von Mises (who merits two chapters), and Friedrich Hayek—and their allies, including Schumpeter. However, some of the most valuable chapters are on lesser-known economic thinkers who were proponents of liberty including Benjamin Constant, Simon Newcomb, Paul Leroy-Beaulieu, Herbert Davenport, Edwin Cannan, Moritz Bonn, and Louis Rougier. Sadly, though I teach the history of economic thought, I had not heard of some of these writers.

As the volume is over seven hundred pages and this review is only three pages long, I do not have space to discuss most of the book’s contents. Instead, I will highlight some of the penetrating wisdom of the scholars that Ebeling quotes at length (one of the book’s real strengths) and a few of his most important insights. The most overarching ideas—well supported throughout the book—are that “freedom of the marketplace is essential to generate and sustain a prosperous and free society” and that “liberty is an indivisible tapestry that cannot be cut up into parts without destroying the character and quality of the entire cloth” (p. xiii).

He notes that “anything involving manual labor and working for a living, as well as the day-to-day dealing in money and the exchange of goods and services, was considered beneath a cultured and free citizen of [an ancient] Greek city-state. . . . This did not make for an intellectual climate conducive to asking questions about economic relationships and institutions, which were not regarded as respectable fields for serious reflection” (p. 4). Instead, ancient Greece gave us many anti-liberal ideas, most notably those of Plato, “the father of the totalitarian state” (p. 8).

Ebeling goes beyond the usual textbook discussion of Malthus’s population theories to include his observations on government, including that “government is a quarter in which liberty is not nor cannot be very faithfully preserved” (p. 170). He goes beyond the usual textbook discussion of Ricardo’s trade theories to his observations on private property and private enterprise as foundations for a prosperous society: “The quantity of employment in the country must depend, not only on the quantity of capital, but upon its advantageous distribution [among alternative productive uses], and above all, on the conviction of each capitalist that he will be allowed to enjoy unmolested the fruits of his capital, his skill, and his enterprise. . . . To take from him this conviction is at once to annihilate half the productive industry of a country, and would be more fatal to the poor laborer than to the rich capitalist himself” (p. 182).

Earlier, Francis Hutcheson made a point that complements Ricardo’s insight: “Universal industry is plainly necessary for the support of mankind. . . . Whatever institution therefore shall be found necessary to promote universal diligence and patience, and make labor agreeable or eligible to mankind, must also tend to the public good. . . . Now nothing can so effectually excite men to constant patience and diligence in all sorts of useful industry, as the hope of future wealth, ease, and pleasure to themselves, their offspring, and all who are dear to them. . . . If the goods procured or improved by the industrious lye [sic] in common for the use of all, the worst of men have the generous and industrious for their slaves” (p. 102).

Ebeling’s chapter on W. H. Hutt opens with the observation that “one of the great myths about the free-market system is the presumption that businessmen make profits at the expense of the consumers and workers in society. In fact, nothing could be further from the truth. In the open, competitive market, consumers are the sovereign rulers who determine what gets produced and with what qualities and features. The sovereign consumers also determine who will be the owners and entrepreneurs of business enterprises” (p. 595). Or, as Hutt himself put it in Economists and the Public (Jonathan Cape, 1936): “In regarding the individual as a consumer, we do not see him in his full relationship to society. He is usually also a producer. But as a producer he is the servant of the community. He must apply himself and the property and equipment he possesses to producing what the community wants [that is, all other individuals in their role as consumers] or he will obtain nothing in the form of claims on others in return. . . . As a consumer, he commands other producers. . . . As a ‘consumer,’ each directs. As a ‘producer,’ each obeys. . . . The defense of consumers’ sovereignty rests . . . upon an assumption that liberty does possess supreme importance. . . . The complete sovereignty is compatible with the fullest scope to the initiative of the individual. . . . In other words, it is in harmony with the idea of liberty” (pp. 598–99). He continues by explaining that “incomes reflect what consumers think workers are worth” (p. 600). Hutt is surely an underappreciated economist. Indeed, he is one of the two dozen “underrated” economists in the Independent Institute’s new book ​Unsung Heroes of the Market. Its chapter on Hutt, by Art Carden and Ilia Murtazasvili, complements Ebeling’s chapter very nicely.

Perhaps ironically, the two most valuable chapters of Liberty and the History of Economic Ideas are about two enemies of classical liberal values. In them Ebeling situates and debunks Karl Marx and John Maynard Keynes.

After surveying Marx’s ideas (and some of his shameful behavior), Ebeling says, “Let me suggest that what Marx was objecting to—revolting against—was human nature and the existence of scarcity. Man can never escape from or get outside of being an individual ‘ego.’ We exist as individual human beings; we think, remember, imagine, choose, and act as distinct and unique individual men and women. . . . Marx also objected to the reality of the necessity to have to produce in order to consume, to have to view one’s own labor as a means to various ends—rather than the view that all that we want will somehow be provided by others” (pp. 299–300, emphasis in the original). He continues, “Marx’s flight from reality . . . was the wish to have all that capitalism, division of labor, and competitive exchange can produce but without the cost of work, discipline, specialization, and choosing among alternatives. It is like the cry of the child who refuses to accept the fact that he cannot have everything he wants, right there and then, and expects instead that someone or something will provide it to him and everyone else in a blissful fairyland of material plentitude” (p. 302). And, very perceptively, Ebeling says “Marx . . . misinterpreted capitalism’s ‘birth pangs’ for its ‘death rattle’” (p. 312).

John Maynard Keynes’s thinking “continues to haunt virtually all discussions surrounding monetary and fiscal policy” (p. 535). Ebeling pithily summarizes Keynes this way: this “is the essence of Keynesian economics. A world with arbitrary assumptions about workers and wages, incomes and consumption, and investors and animal spirits, all of which ‘rig the game’ so that no matter what, markets cannot rebalance themselves and coordinate production and employment. Only the wise and enlightened government—who are somehow free from the foibles and failures of character possessed by everyone else—can set society on a stable and even course of full employment” (p. 545).

Keynes had a very high opinion of himself. He didn’t merely believe that market economies are inherently unstable and that government could fix this problem, but he also apparently thought that he could personally stabilize things. Ebeling quotes Friedrich Hayek’s recounting of a conversation with Keynes: “Hayek asked him if he was concerned that some of his followers were taking his ideas to extremes. Keynes replied that Hayek did not need to worry. If it became necessary, he said, [we] could ‘rely upon him again quickly to swing round public opinion—and he indicated by a quick movement of his hand how rapidly that would be done” (p. 536). Keynes, the puppet master. Ebeling’s quotes of Keynes from his posthumously published memoirs revolt the reader who finds himself in the presence of someone who feels superior to all, who is answerable to no one, and who feels that morals are “unnecessary” (p. 548).