Economic Liberalism and the State: Dismantling the Myth of Naïve Laissez-Faire

ABSTRACT

The article offers a critique of the prevailing understanding of the relationship between neoliberalism and classic nineteenth-century liberalism in contemporary international political economy (IPE) and offers a redefinition inspired by Polanyi and Gramsci. Within critical IPE studies, a consensus has emerged that neoliberalism cannot be reduced to a simple attempt to roll back the economy and let loose free-market forces. However, this insight relies on contrasting neoliberalism with a classic liberalism, that is, a simple attempt to implement just this naïve laissez-faire ideology. In contrast, this article argues that nineteenth-century liberalism is also characterised by an active use of state and legislative power. Through a historical study of two cases from nineteenth-century Britain, Poor Law reform and the Gold Standard, the paper will argue that state action played a central role even during the heyday of laissez-faire liberalism. With a starting point in Polanyi’s dictum that ‘laissez-faire was planned’, this reinvestigation will point towards a need to develop a more nuanced understanding of the distinctions between economic theory, ideology, and practical policy, as well as pointing towards a general reinterpretation of the role of the state in liberal economic ideology.

KEYWORDS:

• Neoliberalism
• classical liberalism
• economic governance
• state theory
• history of economic thought
• critical political economy

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Rune Møller Stahl is a PhD candidate at the Department of Political Science, University of Copenhagen. He holds an MSc in Economic History from the London School of Economics and a MSc in political Science from University of Copenhagen. His research focuses on the processes through which economic ideas gain influence in the wider political economy.

ORCID

Rune Møller Stahl http://orcid.org/0000-0002-8235-8377

Notes

1 Liberalism is, for the purposes of this article, delimited as the self-identifying political liberal movement in line with Fawcett (2015). ‘Liberals’ from the period before the term was first used in Spain from the 1810s are, therefore, only touched upon sporadically.

2 The term laissez-faire originated from the physiocratic school in 1700s France (Viner 1960), but in this article, will be used to denote the period of the doctrine’s dominance within liberal economic thinking in the first part of the nineteenth century.

3 A motivation not unlike late twentieth-century labour market reform and the transition from welfare to workfare (Jessop 1993).

4 Hayek changed between different denominations throughout his life. At the founding of the Mont Pelerin Society, he used neoliberal, but abandoned it later. In The Constitution of Liberty from 1960 he completely renounces the term liberal in favour of ‘Old Whig’. With that, he wanted to highlight its commitment to the defence of individuality and property, which characterized the English revolution of 1688 or the Scottish enlightenment, but also marked the distance to the politically radical turn he thought liberalism later took.

5 Though both wrote their analysis out of the context of the breakdown of the liberal order and the cycle of revolution and reaction in the wake of the First World War, to my knowledge none of the authors were aware of the others work.

6 For Polanyi, the fictitious commodities also include land.

7 In the colonies and peripherals countries, the experiment with the self-regulating market was allowed to run much longer than in the core countries and with consequences that were even more destructive than what Polanyi drew up. In Ireland in the 1840s and India in the last half of the nineteenth century, the full commodification of food production was allowed to run out to its logical conclusion, and millions starved to death when drought or plant diseases drove their incomes below subsistence level (O Grada 1993, Stahl 2016).