Liberalism and Capitalism Today E-Book

Paul-Jacques Lehmann

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 394

Veröffentlichungsjahr: 2021

Beschreibung

It now seems to be a given that the principles that presided over the birth of liberalism and capitalism are no longer relevant. To understand the evolution of this ideology and economic system, Liberalism and Capitalism Today examines the work of the two authors who have contributed the most to the analysis of the conditions that lead to the emergence of these types of organization: Alexis de Tocqueville of France and Max Weber of Germany. This book thus analyzes how the evolution of the general environment of a civilization leads to the emergence of new ways of approaching economic life, and then to its development, thanks to innovations in many fields. This historical perspective makes it possible to understand the transformations that liberalism and capitalism could offer. It suggests a potential path that does not involve simply returning to a way of life that has been totally altered by the evolution of civilizations and the economy, but instead leads to a more peaceful way of living in most countries of the world.

Leseprobe

Table of Contents

Cover

Title Page

Copyright

Introduction

PART 1: The Conditions in Which Liberalism and Capitalism Appeared

1 Political and Legal Conditions

1.1. Liberalism and democracy: new eldorados of political thought and political life

1.2. The right of ownership as a necessary condition for savings and capital formation

1.3. The advent of the bourgeoisie

1.4. The nascent authority of state bureaucracy

2 Economic and Sociological Conditions

2.1. Trade and industry: competitors of agriculture and the craft industry

2.2. The dangers of industrialization

2.3. The decisive influence of the Protestant religion on economic rationalization

2.4. The role of money and financial markets

PART 2: The Evolution of Liberalism and Capitalism

3 The Birth of a New Capitalism in a New World: Financial Capitalism

3.1. The emergence and development of financial capitalism

3.2. Changes in corporate governance

3.3. New economic policies

3.4. From the perfection of theoretical capitalism to the crises of real capitalism

3.5. Recurrent causes of the crises of capitalism

3.6. Some examples of crises of capitalism

4 Towards 21st Century Capitalism

4.1. A responsible and proactive economic policy

4.2. Finance that respects the principles of capitalism

4.3. Renewed corporate governance

Conclusion

References

Index

End User License Agreement

Guide

Cover

Table of Contents

Title Page

Copyright

Introduction

Begin Reading

Conclusion

References

Index

Other titles from iSTE in Innovation, Entrepreneurship and Management

End User License Agreement

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Liberalism and Capitalism Today

Paul-Jacques Lehmann

First published 2021 in Great Britain and the United States by ISTE Ltd and John Wiley & Sons, Inc.

Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licenses issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned address:

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John Wiley & Sons, Inc.

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USA

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© ISTE Ltd 2021

The rights of Paul-Jacques Lehmann to be identified as the author of this work have been asserted by him in accordance with the Copyright, Designs and Patents Act 1988.

Library of Congress Control Number: 2021934587

British Library Cataloguing-in-Publication Data

A CIP record for this book is available from the British Library

ISBN 978-1-78630-689-0

Introduction

When you have a book on capitalism and liberalism in your hands, most of the time, you find yourself faced with a debate based either on a panegyric praising the benefits of these two systems or on a purely critical ideology and hackneyed arguments that have been heard many times. Our objective is different: first, we will show how these systems appeared historically, then examine their evolution over time up to the present day, both in terms of their advantages and their dysfunctions.

Indeed, we can only understand the present by drawing on the past. However, we know that the explanations concerning the circumstances in which liberalism and capitalism emerged and developed are numerous and the object of these interpretations is often contradictory. The choice made in this book was not to present, compare and contrast all these analyses. It is obviously subjectable to criticism and will be criticized because it is based on numerous demonstrations. It seemed interesting to us to refer to causes, mostly economic, but also historical, political, legal and sociological causes.

For this, we have essentially called upon two authors recognized in all these fields: first, the Frenchman Alexis de Tocqueville1, followed by someone who is considered his successor, the Austrian Max Weber2. These forerunners of sociology, as well as historians and politicians, used this nascent science to explain the history of humanity and, thus, also of liberalism and capitalism. Moreover, both had the advantage, certainly, of being liberals in the political domain, but “troubled” moderate liberals, according to Raymond Boudon3, in the economic domain; they were favorable a priori to capitalism, but did not hide their questions in the face of the already present drifts of this system in their time, for which they foresaw, with lucidity, an acceleration of the pitfalls in the future. We will also touch on the economic explanations of the first liberals, in particular Adam Smith, and of more contemporary authors, for example Schumpeter and Hayek, who refer to modern liberalism and capitalism.

By exploring the contributions of these writers, the idea behind this book is to try to understand how the evolution of the general environment of civilization has led first to the emergence of a new way of approaching economic life and the problems associated with it, and subsequently to its development thanks to innovations in numerous fields (legal, institutional, technical, etc.).

This first part of the book thus enables us to consider the evolution of liberalism and capitalism by investigating whether the conditions that presided over their emergence are, at the dawn of the 21st century, still present, and whether the hypotheses put forward as to their appearance with regard to human behavior are still relevant at the dawn of the third decade of the 21st century, at a time when the globalization of the economy, a thousand leagues away from the situation that existed at the birth of these two systems and being one of the conditions of their existence, is increasingly called into question. This analysis seems all the more necessary because, despite the advances to which these systems have unquestionably led in the economic (with ever-increasing wealth) and social (with a generalized decline in poverty in the world, even if precariousness constitutes a new source of challenges to be resolved) fields, there are countless critics of the principles on which liberalism and capitalism are based because of the malfunctions they have essentially caused since the stock market crash of 1929. Indeed, these two systems are often the subject of a real crisis of legitimacy and are supposed to be responsible for all the evils that strike people in their daily lives, in a world where information, whether verified or truncated, is disseminated everywhere and instantaneously.

This introspective study is also indispensable because we can predict, without much risk of being refuted, that humans will have to evolve in a capitalist environment for a long time to come. Indeed, on the one hand, its most serious competitor, collectivism, has either disappeared, after the fall of the USSR, or has shown its limits and is facing serious difficulties, as irrefutably proved by the examples of North Korea and Cuba. On the other hand, the alternative systems proposed are struggling to establish themselves and are limited to local experiments, far from having a global reach.

This observation should not prevent us from asking the question of whether it is the principles of capitalism that are the cause of the abuses observed or whether it is their implementation by humans that is responsible for them. In the latter case, without necessarily returning to the original conditions of this system, some of which have, for that matter, disappeared, we must reflect on the vital improvements that we must strive to establish: the world is changing, thus liberalism and capitalism must change too.

Writing of this book began back when the word “coronavirus” was known only to a few specialists and the word “lockdown” was, for most people, a theoretical situation. It was completed when the current health crisis had begun to show its disastrous consequences. Liberalism and capitalism were accused not of being directly responsible for it, but of having precipitated its most harmful economic and social effects.

The changes that it has already brought about certainly make this even more necessary, but we must be careful not to “throw the baby out with the bathwater”.

1

Alexis Henri Charles Clérel, Count of Tocqueville, was born on July 29 1805 in Paris into an old Norman noble family. His father was a soldier in the Constitutional Guard of Louis XVI, before narrowly escaping the gallows and becoming a Prefect, then a Peer of France under the Restoration. After studying law, Alexis de Tocqueville became a legal trainee at the Court of Versailles. He then undertook numerous trips to Italy, the United States (sent by his administration to undertake a mission on the penitentiary system of that country), England, Switzerland, Algeria, Germany and more. After becoming a member of the Académie Française, he embarked on a political career: he was deputy of Valognes on three occasions and general x Liberalism and Capitalism Today councillor of the Manche on a few occasions, where he became president for four years; he was a deputy in the Constituent Assembly in 1848, then in the Legislative Assembly in 1849, the year in which he was appointed, for five months, as Minister of Foreign Affairs. Opposing the coup d’état of December 2 1853, three of his works through which he expressed his political ideas, some of which had economic consequences, made him famous:

De la démocratie en Amérique

,

Mémoire sur le paupérisme

and

L’Ancien Régime et la Révolution

. He died on April 16 1859 in Cannes.

2

Karl Emil Maximilian Weber was born on April 21 1864 in Erfurt, Germany, into a Protestant bourgeois family. His father, an industrialist, was a member of the liberal-national party in the Reichstag. While taking courses in political economy, philosophy, history and theology, Max Weber studied law and received his doctorate in 1889 with a dissertation on “The Development of Commercial Partnerships in the Italian Cities of the Middle Ages”. In 1891, he wrote his doctoral thesis on “The Significance of Roman Agrarian History for Public and Private Law”. In 1893, he was appointed professor of the history of Roman law and commercial law at the University of Berlin. In 1894, he was appointed chair of political economy at the University of Freiburg. In 1897, suffering a serious nervous breakdown, he had to postpone his activities as a professor and researcher for six years. From 1919, he held the chair of sociology at the University of Munich. His most famous contributions are, in economics:

The Stock Exchange

,

The

Protestant Ethic and the Spirit of Capitalism

and

Economy and Society

; in the history of religion:

The Religion of China

,

The Religion of India

and

Ancient Judaism

; and in politics:

Le Savant et le politique

. He died on June 14 1920 in Munich.

3

Boudon, R. (2004).

Pourquoi les intellectuels n’aiment pas le libéralisme

. Odile Jacob, Paris.

PART 1The Conditions in Which Liberalism and Capitalism Appeared

Introduction to Part 1

Capitalism is not a natural economic state and therefore had no reason to appear at the same time as humans. It is therefore not surprising that the pre-capitalist period was much longer than the capitalist period. Capitalism is the product of a long process of individual behavioral transformation in all areas of human existence, with consequences for economic life. Indeed, one can certainly discover, at all times and in all countries, scattered capitalist operations, but never as a complete economic system, because in any case, for Max Weber (2010a, author’s translation), “one can only really speak of capitalism where there is a true economic spirit”.

Thus, a certain form of capitalism has always existed, almost everywhere, in the form of the capitalism of mercantile exchange, served by a small number of people who have grown rich in particular activities (financiers, arms dealers, etc.). These wealthy citizens subsequently invested their wealth in owning land and acquiring ships, which allowed the countries that hosted them, such as Greece, to achieve dominance in the maritime world and in commercial enterprises.

Moreover, capitalism did not appear everywhere at the same time, since human evolution did not manifest itself in the same way on all continents: for reasons that will be developed in more detail later, capitalism only really appeared for most historians in the 16th century, and solely in the West, even though Weber believes that it was born at the end of Antiquity, from the 5th century onwards. Indeed, it is from this date that both the political and legal conditions and the economic and sociological conditions necessary for its existence were met.

1Political and Legal Conditions

There can be no capitalism without freedom. The appearance of liberalism was therefore an essential condition for the emergence of this economic system. In France, this was part of the philosophy of the Enlightenment, which extended from the death of Louis XIV to the Revolution of 1789 and would come to gradually impose itself, first, in the minds of the intellectuals of the time, and subsequently in the minds of the French people as a whole. The word liberalism initially had a purely political meaning, as the leaders of a nation were forced to promote the freedom and equality of individuals owing to the return of a political regime that had proved its worth many centuries earlier but had been forgotten in many countries: democracy.

At a legal level, liberalism extends the right of ownership from the right to just land to the holding of all production assets. This was an essential condition for economic growth in the form of savings and thus for the formation of productive capital. This legal evolution was the result of a new social class, the bourgeoisie, composed of entrepreneurs whose domination began to impose itself on the whole of society. However, this domination came up against the appearance of another source of domination: that of state bureaucracy.

1.1. Liberalism and democracy: new eldorados of political thought and political life

Liberalism brought the superiority of the individual to the fore. Prior to that period, the individual did not constitute an element of society to which philosophers gave prominence. Capitalism would develop from this new way of thinking, even though liberalism and capitalism should not be confused, especially with regard to the role of the state and their respective positions vis-à-vis monopolies.

Liberalism is also at the origin of the advent of democracy – a guarantee of formal equality – whereas an aristocratic society can only generate inequality. In such a situation, the more equality extends, the more the demand for equality widens and the more inequalities appear unacceptable. This change in political structure has completely different economic consequences.

1.1.1. Liberalism, defender of the superiority of the individual, and its economic application, capitalism

The foundation of liberalism rests on the assumptions that human beings are rational – that is, driven by desires and individual interests of which they are more or less clearly aware – and that they strive to use the means they consider best to achieve their goals. The individual must use their freedom through action, which enables them to achieve autonomy and well-being. They are able to prioritize their preferences. It follows that, in society, it is the individual who is most important. Thus, de Tocqueville and Weber speak of the actions of individuals, not of society as a whole. Humans must be understood as they have been, as they act and think, hence the importance of referring to history.

Liberalism is thus presented as the doctrine that best allows each individual to assert themself within the society in which they live, since this doctrine is supposed to reward the individual energy that is the source of life and development within a society. For example, the taste for work is an essential motivation of liberalism. Not only does labor allow us to measure the value of all goods, but it is also a source of capital. Encouraged to work more to improve the conditions of their existence, each individual has the chance to succeed and is able to save money in order to increase their income, and thereby their personal well-being, and at the same time, promote the economic development of their country.

It follows that each individual must dominate nature in order to satisfy in an ever more complete manner their needs, which increase in number and intensity as they become more civilized. As a consequence of their freedom, they are then be able to benefit from the resulting progress, which gives them confidence in the institutions that allow them to implement it. Thus, at the heart of liberalism is the defense of individual liberties and private initiatives everywhere and at every opportunity. It is an inexorable evolution. Thus, de Tocqueville explains that “the history of humanity shows that the gradual development of the equality of conditions is constant. It is a providential fact, with key characteristics: it is universal, it is lasting, it escapes human power every day […] All events, like all men, serve its development”.

He adds that there can be no political equality without parallel economic equality, that “those who believe that they can permanently establish complete equality in the political world without at the same time introducing a kind of equality in civil society, those seem to me to be making a dangerous mistake. I think that one cannot give men with impunity a great alternative of strength and weakness, making them touch extreme equality in one sense and letting them suffer extreme inequality in others, without soon aspiring to be strong, or becoming weak in all senses”. As for the relationship between equality and liberty, de Tocqueville explains that it is equality that prevails, because humans know that, in a democratic society, the state tries not to let anyone die of hunger; “nations, nowadays, cannot make conditions within them unequal; but it depends on them whether equality leads them to servitude or to liberty, to enlightenment or to barbarism, to prosperity or to misery”.

However, this doctrine is not blind: if we take the previous example of work, it attempts to differentiate between the economic point of view and the moral point of view. It recognizes that, in the first case, it is a constraint that humans are obliged to assume if they want to satisfy their desires and enrich themselves, while affirming that, in the second case, work is the means of developing moral and physical faculties in the individual’s own interest.

Capitalism and liberalism are two notions that are often confused, even though they are of different but complementary natures. Even today, it is only in Western nations that we find, to varying degrees, these two concepts together. In fact, capitalism was, and still is, spoken of in countries in which all forms of liberalism are totally absent. This is the case for what is called “state capitalism” in the former USSR, Cuba or China, which simply means that the state owns all the means of production and therefore controls all the capital of national enterprises. Nothing to do, therefore, with liberalism and capitalism as we will describe them. Conversely, countries that claim to be liberal sometimes, and in important respects, behave in a non-liberal way, for example by implementing protectionist measures.

Liberalism is at the heart of a political philosophy that advocates the participation of all individuals in public life to the detriment of the decision-making power exercised by a person, for example a sovereign, by imposing their point of view. In a liberal world, each individual must have the possibility of using their freedom by freeing themself from the obstacles they encounter, thus gaining access to moral freedom, characterized by independence of mind: any infringement of freedom constitutes an infringement of the natural law of the individual. The concept of political freedom is itself difficult to define, since the parties claiming to be liberal belong to opposite currents. Thus, for a long time, it was those close to left-wing parties who defined themselves as liberals, whereas nowadays it is rather members of right-wing parties who claim to be liberals.

Political liberalism has engendered economic liberalism in the form of capitalism, but these two forms of liberalism are not always seen as compatible: being in favor of a certain degree of political liberalism does not necessarily mean being in favor of the same degree of economic liberalism and accepting an equivalent capitalism. The latter can be defined, from a material point of view, as the economic translation of the satisfaction of innumerable human needs in the form of transactions, when resources, both natural and at the disposal of each individual, are scarce.

Liberalism is based on individual interest, the homo oeconomicus: each individual seeks to maximize their own well-being. This mainly functions based on a belief in the observation of laws drawn from observation and knowledge of the facts that govern trade. Admittedly, these laws cannot be approached in the same way as those found in the physical sciences. They simply mean that the behavior of individuals in their economic activities leads, in any place and at any time, to certain inexorable consequences of which the course cannot be changed. It is customary to say that economic principles are truths that people have been able to extract from experience; for example, that the freedom of work and exchange on which capitalism is based promotes economic growth.

As we will see, capitalism emphasizes the spirit of enterprise. Its consequence – risk-taking – can only be envisaged in a market economy; that is, a decentralized and deregulated economy, as opposed to a planned economy, which allows competition to take place in most sectors of activity and transactions of goods and services to be carried out according to the prices resulting from the confrontation of supply and demand. Indeed, free play of the market makes it possible to achieve an optimal balance of competition, which means that it is not possible to improve the situation of one agent without worsening that of another, and that this is the only way to satisfy economic agents as much as possible and to make the best possible use of available resources.

The market economy should not be confused with market economics, which stems from the segmentation of the market into its various components according to the nature of the products traded. For example, we can talk about the automobile market, the oil market, the financial market and so on.

1.1.2. The reduced role of the state and different positions in relation to monopolies

The role of the state in the city has always been a hotly debated question, especially in times of crisis. The liberal state should be a state of law and liberties. Back in his time, Adam Smith asserted that any intervention by the state undermines individual liberties, since the protection of some undermines the security of the community. An entire study followed to explain that it is not up to the public authorities to decide to protect, or worse, to over-protect citizens. They must let them take their lives into their own hands, by choosing the initiatives they deem necessary; that is, they must make them responsible, because favoring a few people often hinders the freedom of a greater number.

Opposition to the increasing intervention of the state in economic life is very present in de Tocqueville, for whom the search for the elimination of social inequalities leads above all to the inevitable strengthening of the role of state power, which is the only real power and which is never impartial, since those in power always seek to obtain the vote of as many voters as possible. Moreover, simply being in a democratic nation does not preclude the state from becoming tyrannical. In an environment conducive to public intervention, as soon as economic agents feel that the market does not meet their expectations, they turn to the state, because they know that there is a chance that it will satisfy their demands, even the least justified ones. New social categories will then follow suit, with people believing it legitimate to imitate those who have obtained satisfaction in order to benefit, in turn, from advantages hitherto reserved for others. The demands become all the more pressing as special interest groups grow in importance: the acceptance of a certain level of protection multiplies the demands for protection.

Thus, when satisfaction is granted to more and more citizens, the question arises as to whether public authorities, given their capacity for constraint, are seeking anything other than achieving an economic optimum. Some even go so far as to argue that the state’s desire to reduce inequalities and its behavior as a seemingly impartial arbitrator in settling certain conflicts are merely pretexts for its insidious and increasing involvement in the lives of citizens. For example, by regulating a market, the state favors either a company, which excludes all competition, or consumers, which puts certain companies at risk.

However, even the most intransigent liberals accept that public authorities carry out a minimum number of activities, qualified as regalian: those that only the state is capable of carrying out. All of them take up the arguments developed by philosophers such as Hobbes and Locke1, who explained that individuals must give up their freedom in favor of the sovereign, today’s rulers, in exchange for the guarantee of being assured of living in an environment where order reigns and where their interests are preserved. However, Adam Smith, trusting the “invisible hand”, explained that the state must fulfill only three missions: “the duty of protecting the society from violence and invasion of other independent societies; secondly the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals” (Smith 2007, p. 533).

It is up to the state to ensure the inviolability of property and the respect of all rights, both nationally and internationally. Public security, that is, everything related to police operations, defense, diplomacy and justice, is thus devolved to the public authorities, so that citizens are in a position to exercise their other prerogatives as effectively as possible. However, they must always act within the limits determined by the law: they must be given specific tasks that they must not overstep.

Hayek2, a contemporary Austrian liberal author, took up these ideas by explaining that the state must set totally transparent rules that prevent citizens’ actions from coming into conflict and that protect each individual from coercion or invasion of their free sphere by others. Thus, the authority of public authorities should not be exercised over individual activities, even for apparently legitimate and justified reasons, except in cases of trade-distorting fraud. Indeed, private law and the freedom to contract must be permanently protected, without entrusting a central institution with the right to enforce them, because any interventionism can only lead to the disruption of free trade.

For Hayek (1944), justice is simply an attribute of the human condition, which means that it makes no sense to talk about a just or unjust economic order. Therefore, guaranteeing the social well-being of citizens and ensuring social justice should not be the prerogative of public authorities, which should not substitute rights and claims for freedom – a condition of economic equilibrium. Otherwise, unbalanced interventions will follow, because individuals are then led to behave in a way that is unnatural, and therefore cannot be optimal: “To follow socialist morality would be tantamount to annihilating most of the men making up present-day humanity and impoverishing the vast majority of those who would survive”.

For extreme liberals in politics, capitalism can only function in the best possible way if it does not go beyond this minimum: the state must intervene as little as possible in the economic field. However, it can be said, without much risk of contradiction, that no liberal has ever demanded that all economic operations be left in the hands of the markets. Thus, again, for Hayek, public power must ensure the vital minima for all citizens in the areas of food, housing, health, etc., and the state must be able to provide them with a minimum level of services. However, it should not go further, for example, by guaranteeing material equality among all, because social order should not be based on the results obtained by the activities carried out, but on the remuneration of the conduct of the various economic actors. It is illegitimate for a government to use coercion to determine an income scale that corrects distortions of competition by providing a uniform gain to all those who, for one reason or another, are unable to obtain this income on the market.

For more moderate liberals, the other interventions of political power in the economic domain are the subject of more nuanced positions, with a multitude of proposals as to the more or less numerous activities that public authorities must ensure, according to the judgments made with regard to the consequences of capitalism on the collective well-being. Even if everyone believes that state “obesity” is harmful, there are different solutions adopted in different countries, certainly according to their level of development, but also, above all, according to their history and culture. For example, as we will see, the power to mint money and guarantee its value did not appear everywhere at the same time and has evolved in disparate ways.

Beyond the functions that some call those of a “night watchman”, the other interventions of political power (especially in the economic field) are the subject of more nuanced positions. Excluding the advocates of an omnipotent state that rejects all market transactions, a centralized and planning body that ensures all the mechanisms leading to transactions, we find a multitude of proposals as to the more or less numerous activities that public power must ensure, depending on the judgments made about the consequences of pure capitalism on collective well-being.

Generally speaking, two pitfalls must be avoided. On the one hand, while it is normal for regulation to prevent abuses and ensure respect for all the principles of capitalism, this must not contravene the functioning of the market economy and lead to even more harmful consequences than those it tries to counteract. For example, many liberals refuse to allow the state the possibility of providing work, and therefore wages, to the poor: this is in fact charity, which is perfectly justified from a social point of view, but which should be distributed in another way. On the other hand, the need to regulate the economy is constantly evolving: the bureaucratic burden of its organization prevents the state from being the best predictor and the best architect of the need to implement it. Aside from the fact that public authorities can only intervene retrospectively, once the negative effects of poor regulation have been felt, the question is whether those in power have the same relevant information as market players, according to the signals provided by price evolution: thanks to their specialization and their better knowledge of the mechanisms they consistently practice, market players have multiple ways of circumventing the new rules and benefiting from them3. At the same time, too frequent changes in regulations can only disrupt agents in their behavior, for example, by preventing them from taking the decisions necessary for economic growth.

All in all, from a strictly economic point of view, the state does not have the necessary means of action to ensure growth. On the contrary, it must be able to create the conditions for market mechanisms to achieve this growth. While it is true that in reality the market is incapable of setting the “true” price of a good or service, it is not clear that the public authorities would be able to determine its “fair” price. Thus, the policy of price control is, most of the time, a failure. Blocking prices at a certain level leads to perverse effects, particularly an increase in public spending. For example, the existence of a minimum wage is often equated with an increase in unemployment insofar as some labor-intensive firms refuse to hire workers whose qualifications would require lower pay. The same is true of rent freezes, which turn against the tenants themselves, since landlords are less inclined to build, reducing the number of housing units on offer and leading to higher rents.

There is also the definition of goods and services that are presented as not being abandoned to market mechanisms (public goods) and, as a result, can only be managed by the state. The political approach to this question is often more important than the purely economic approach, which explains why this definition differs from one country to another. Nevertheless, there is agreement on the fact that collective goods are presented as indivisible and non-appropriable goods, and therefore cannot be sold and are not part of the market economy. For example, the construction, operation and maintenance of a lighthouse at the entrance to a port can be considered as responding to this approach. Yet, the choice quickly becomes more delicate: should health, education, transportation infrastructure or public transportation be considered services or public goods?

The answer given by those in favor of the management of certain goods and services by the state can be summarized by five main reasons: (1) no one can be the individual owner of these goods; (2) no one can or should be excluded from consuming them, not least because the price dissuades them from doing so; (3) they are naturally indivisible, because they can only be available for a minimum significant quantity, which is also necessary to benefit from economies of scale; (4) no private company is in a position to create or manage them because of their cost and the impossibility of setting a selling price that would cover the costs incurred; and (5) external effects exist that lead to collective satisfaction. This is the case, for example, with the construction of anti-seismic shelters in order to protect not only the individual who is able to protect themself from the risk of earthquakes, but also the entire population.

However, it is questionable whether it is up to the state to establish a list of collective property by determining what is good or what is necessary for individuals, deciding that public resources should be allocated to one good or service over another, when the majority of the public does not feel the need, arbitrating between methods to reduce waste, deciding what to do or not to do based on moral or ideological considerations. Moreover, we can never be certain that the state manages more efficiently than private companies. Thus, de Tocqueville already condemned the fact that the state seizes functions for which private initiative would be more efficient.

If we consider that the price resulting from the confrontation of supply and demand is the best signal, we can only condemn the practice of administrative pricing of collective goods and services. Moreover, if the public authorities set a price lower than that which would come from market mechanisms, financing by taxpayers can be considered a source of greater inconvenience than a high price. Similarly, if the market is not capable of meeting the needs of consumers, is it certain that public authorities can satisfy the demands of customers?

The problems to which the scope of public enterprises leads are close to those posed by public goods, even though these firms fall into the category of the market economy since they are selling something at a certain price. Most of the time, the search for profit is not one of their objectives, which does not lead them to optimize their costs, especially if they are in a monopoly situation. This mindset of public enterprises is reinforced by the fact that they often believe that their shareholder – the state – cannot go bankrupt and is therefore always able to bail them out in case of difficulties. Thus, industrial successes or prestige financed by public funds sometimes result in financial black holes for taxpayers. That said – and both old and recent examples are there to remind us of this – this belief in the infallibility of the state can be problematic, as tax increases, the creation of money and recourse to public borrowing are not infinite.

Even when they are managed according to the standards in force within private firms, for example with regard to making a profit and therefore seeking cost savings, we must also question the justification for public companies. We can envisage three types of firms under the authority of the state:

– those that have been nationalized for moral or political reasons, as well as to fight against proven collusion of private companies in the sector, which brings us back to the problem of questionable unilateral decisions by public authorities;

– those that concern goods with increasing returns (e.g. in the transport and energy sectors) and which only allow the economic optimum to be reached with maximum production and in the form of a monopoly, and for which it is questionable whether they are truly efficient. For example, the railway tariff set by the state may not be the best, and competition between several companies could probably lead to lower prices on some lines. The same is true of postal services;

– those that are in competition with private companies and which have no reason to exist, because the fact that the goods and services concerned are already in the competitive sector means that they do not need to be in the hands of public authorities. As has already been pointed out, if the prices set by private companies are too high, it is up to consumers to act by refusing to accede to the diktats of certain producers, who will then be forced to revise their objectives.

The definition of public goods and their management by the public authorities is constantly evolving. This is the case for, among many other examples, the telephone or electricity, which having long been considered collective services have now in some countries become genuine private services. Similarly, when legal rules impose competition, or when public monopolies need funds that the state is unable to provide, moving them into the private domain is a good solution.

“True” liberalism rejects the existence of monopolies that annihilate the action of individuals: it is necessary to avoid the concentration of capital in the hands of very large companies that leads to the negation of individual property and the destruction of entrepreneurial freedom. Since it is people who must be privileged, they cannot be subjected to the influence of powerful groups, whoever they may be, in the economy of monopolies, private or public. One of the criticisms leveled at monopolies is that they encourage protectionism in international trade, because such a regime favors them to the detriment of consumers, whereas free trade, advocated by Richard Cobden as early as the 1830s, is beneficial for all economic actors. It is therefore logical that, in keeping with its individualistic approach, liberalism is favorable for small businesses.

The financing of public spending also remains to be considered – a problem that we will revisit in section 4.1 on capitalism today. For the moment, let us simply say that the most intransigent liberals reject, on principle, any taxation, because it involves taking resources from some people to provide them to others. In the same way, many people claim that the tax burden is incompatible with a free and balanced economy, as the behavior of agents is disturbed when individual interest no longer plays a key role. As a result, savings decrease and become insufficient to finance investment, while prices rise.

On the contrary, we will see that as capitalism develops, it rather encourages big business – if not monopolistic, then at least oligopolistic. Moreover, in many countries, public services operate in this monopolistic form, which is criticized by pure liberals in politics who believe that we are no longer in a capitalist system.

1.1.3. Democracy as a guarantee of freedom and equality

Equality is inherent in human nature. When the main activity of individuals is limited to hunting or fishing, no inequality can appear in relation to one’s neighbor since there is no visible sign that can show the superiority of one of them or of their family over another individual or over another family. For de Tocqueville (1997), “savages are equal because they are equally weak and ignorant”. He adds that even if inequality had established itself at some point, this indication could not have been transmitted to their descendants. In the following section, we will see that it was the establishment of private property that made inequalities possible.

This French politician wanted a system of authority that promotes three types of equality of human conditions: political equality, which implies the rule of law, a balance of power that guarantees the sovereignty of the people and the participation of every citizen in public life; equality of opportunity; and equality of considerations. He considered that only democracy is compatible with liberalism, which must succeed in establishing these vital forms of equality in a country, insofar as the state avoids the drifts of absolute liberalism by not facing up to its obligations as a legislator.

In his very detailed historical analysis, de Tocqueville begins by asserting that equality of conditions is inevitable because of the successes it has achieved over seven centuries: no institution is capable of stopping it. He explains the differences between aristocratic society and democratic society in the area of inequality and then equality. While inequality reigns in aristocratic society, with the rich in charge of political power, formal equality exists in democratic society, with fundamental consequences.

Social rules must be the same for everyone: individuals must be equal before the law. Beyond its moral consequences, this condition is essential for economic activity to become the main human activity. It leads to the elimination of inequalities, natural or otherwise, resulting from inheritance, birth, function and status. Thus, again, for de Tocqueville (1997), “highly civilized men can all become equal because they all have at their disposal similar means of attaining comfort and happiness. Between the two extremes is found inequality of conditions, wealth, knowledge – the power of the few, the poverty, ignorance, and weakness of all the rest”.

Equality must be based on the role that each person plays in society, which means that there are fair inequalities – for example those arising from skills, responsibilities and the merits of work, talent, effort and innovation – which are sources of progress that benefit everyone. Therefore, “reasonable” inequalities can be seen as a spur: when people see that some of their counterparts enjoy a higher standard of living than they do, they are led to make the necessary efforts to achieve the same result. Inequality is therefore indispensable as an engine of production and growth. For example, it is normal that remuneration varies if it is justified according to the influence or efficiency of the responsibilities exercised by each individual. What is necessary is equality of dignity among persons, equality of all before freedom, therefore equity and equality of opportunity, while accepting unequal merit. Otherwise, it is normal to qualify liberalism as cynicism and selfishness.

A distinction must be made between equality and egalitarianism: the latter notion has the major disadvantage of leading to a leveling down that can even be a handicap to achieving equality.

Aristocratic society is simultaneously stable, organized, closed and characterized by a permanent inequality of conditions. Inequalities are inscribed in its morals. Social mobility is almost non-existent, due to a society of order where a very strong hierarchical spirit reigns. Distinctions of birth and occupation create a permanent and impassable separation between individuals. As a totally hierarchical system reigns around them, based on obedience and authority in perpetuity, the poor know from childhood that they will be dependent on others for their entire lives and that they will therefore not be able to leave their subordinate situation. This submission goes beyond the mere stage of action; it permeates thoughts and opinions. It is all the more significant as it passes from father to son: a family of servants remains at the disposal of the same family of masters from generation to generation.