The Brainchild of Earnest Gentlemen

How liberalism went left

These are confusing times for people who are fond of political labels. Most Americans admire Eastern European "liberals." They're the folks championing economic and political reform. Their principles, however, often resemble what passes for conservatism in the United States. Soviet "conservatism," on the other hand, is closet Stalinism.

But if Americans applaud Eastern European "liberalism," they are considerably less enamored of the domestic brand. On the eve of the last presidential election, the conservative-to-liberal ratio stood at between 1.4 and 2.2 to 1, depending on the survey. Michael Dukakis may not have been able to balance the Massachusetts budget, but he knew how to count. The Duke studiously avoided the "L-word" until the closing days of the campaign.

For most Americans, liberalism means that government abdicates responsibilities it's expected to assume—protecting people's lives and property from the likes of Willie Horton—and takes on new, unwarranted responsibilities. These new activities tend to be costly, so the second hallmark of contemporary liberalism is high spending, high taxes, and high deficits.

The word liberalism still implies an admirable commitment to civil liberties. But it once meant not only the freedoms conveniently identified in the Bill of Rights but a smaller, less intrusive government. It meant political and economic freedom. An understanding of the manner in which Western liberalism changed, and the rationales for this make-over, is essential to understanding the contradictory sentiments the term elicits today.

Even those who know that liberalism isn't what it used to be may not appreciate the insidious modifications introduced by a handful of little-known thinkers around the turn of the century. The revisionists meant well, but so did Frankenstein. The history of liberalism is the story of how superficially plausible, even promising, transplant operations altered a political philosophy beyond recognition and helped create a prodigious and predatory golem.

The story begins—and mostly unfolds—in Britain. Once upon a time there was a small island that became the richest and most powerful nation in history. The sun never set on its empire, the islanders boasted. But its proudest claim was that enlightened men and women all over the world looked to it for the key to their own well-being. The island nation, in an uncanny way, seemed to combine the two things people valued most—freedom and prosperity.

But 100 years after its heyday, people no longer looked to it for intellectual or moral leadership. People no longer even bought its products, except for a few luxury goods. Dissension set in among the island's shabby inhabitants, once considered the exemplars of civilized behavior. Class and racial antagonisms were never fiercer, strikes never more bitter, crowd violence never uglier. The tone of public dialogue became at once more shrill and more coarse. The sun had set, and in the growing darkness the inhabitants were disfigured by resentment.

Textbooks commonly offer two explanations for this downward slide. The first, the more popular, stresses the inevitability of the decline following the rapid industrial expansion of Germany and the United States. The second explanation is a bit more sophisticated. What happened was a failure of entrepreneurship. The culture was to blame. The British middle classes were too snooty. They sent their sons to Eton and Harrow, where they learned to despise their fathers. And hard work. And business savvy. The middle classes got co-opted by their betters.

There's some truth in both explanations. But something else was happening that fewer historians have troubled themselves with. Government was growing—at first modestly, then by leaps and bounds. Government spending as a percentage of GNP increased from 9 percent in 1870 (the beginning of the end) to 52 percent in 1979 (the beginning of the beginning, for those believing in Thatcherism). The percentage of that spending devoted to social welfare rose from less than 35 percent to more than 80 percent, from 3.2 percent to 41.8 percent of GNP. By 1979, the government employed nearly a quarter of the work force, a 10-fold increase over the percentage administering the sprawling empire a century earlier.

You can't pocket 52 percent of people's income without offering them some plausible rationale. This was the task of the revamped liberalism, which was called "New Liberalism." New Liberal dogmas became political common sense, a status they retained until the 1980s. A philosophy of state expansion replaced one that had set strict limits on the size of government.

In 1905, the jurist Albert Venn Dicey defined the core belief of traditional liberalism this way: "Every person is in the main and as a general rule the best judge of his own happiness. Hence legislation should aim at the removal of those restrictions on the free action of an individual which are not necessary for securing the like freedom on the part of his neighbors."

There's controversy about the extent to which laissez faire was advocated in 19th-century Britain. Historians enjoy pointing out that regulatory legislation increased throughout this period. (The first Factory Act passed in 1801 .) Pure laissez faire, these critics say, closely resembles the traditional conservative doctrine of English country gentlemen, who jealously defended their local prerogatives against the king's encroachments. Some historians have even suggested that the whole idea of a period of laissez-faire dominance is a late 19th-century myth concocted by defensive classical liberals and their foreign admirers.

But these counter-arguments present their own problems. First of all, when people share an assumption, they rarely discuss it. If laissez faire was indeed conventional wisdom by 1840, it needed no impassioned defenses of its premises, and historians are unlikely to stumble across them.

More important, critics of the idea that there was an "age of liberalism" have defined liberalism too narrowly. Adam Smith's "system of natural liberty" prescribes three duties for the sovereign: defense against foreign invaders, the administration of justice, and "the duty of erecting and maintaining certain 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 would never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society."

Smith went on to spell out what he had in mind: Not only should government provide roads, canals, a mint, etc., but it should sponsor military training and education as well. Whatever the merits of his arguments, they were accepted not only by every classical political economist but by all liberal politicians. To reduce liberalism to a caricatured version of laissez faire, and then to show that this was neither espoused nor honored as a principle of legislation, just isn't cricket.

The success of traditional liberalism was symbolized by the 1846 repeal of the Corn Laws, which restricted free trade by imposing a duty on imported grain. The well-orchestrated campaign, led by politicians Richard Cobden and John Bright, eventually enlisted tens of thousands. The cause became something like a religious movement, celebrated by banquets, songs, poems, and a surprising variety of knickknacks. Cobden's cool logic rather than Bright's fiery rhetoric ultimately persuaded intelligent conservatives. The Tory party ruptured and didn't recover for a quarter of a century.

The campaign had an unfortunate legacy, however. In order to enlist the support of Chartists, agricultural laborers, and tenant farmers, Cobden and Bright played up the anti-aristocratic angle. Many segments of society bitterly resented aristocratic privileges, and it's always easier to attack status than to defend contract. The frivolous duke with a 50,000-pound annuity was just too tempting a target. Then, one by one, the aristocratic preserves fell. The universities, the army, the civil service, even Parliament itself were opened up to men—and eventually women—of talent and ability, irrespective of their background.

But the anti-aristocratic emphasis had created two problems for liberalism. First, it associated wealth with illegitimate power. After vanquishing the aristocrats, reformers turned against the "plutocrats," large-scale capitalists. They used the tenets of liberalism to sanction attacks on wealth itself, no matter how it was earned.

Once old liberalism triumphed, especially after the vote had been extended to nearly all males, a second seductive conclusion presented itself. The state, reformers believed, had been the enemy because it was corrupt. Aristocrats had exploited their connections to hold offices for which they weren't qualified. But now that the bureaucracy was staffed by the best and brightest applicants, and answerable to Parliament, perhaps the government might benefit the nation in ways undreamt of by Adam Smith. Having narrowly confined its goals to overturning aristocratic privileges, liberalism became a victim of its own success.

It's important to tune in to the loud background chorus lamenting the social changes liberalism made possible. Even in the first industrial nation, powerful romantic critiques of industrialism flourished on both the political right and left from the middle of the century. The anti-industrial cause enlisted some of the most original Victorian writers and artists—Dante Gabriel Rossetti and William Morris, Charles Dickens and Anthony Trollope, Thomas Carlyle, Matthew Arnold, and John Ruskin. Some of their criticisms were aesthetic: The new cities were filthy, the skies above were smoky, and the new products were "cheap and nasty." Some of the criticisms were moral: Work had become more arduous, the lives of the working classes more stunted and coarse, and the middle classes more greedy and materialistic.

An idealized image of the pre-industrial world emerged: the squire in his manor, the clergyman in his parsonage, the happy villagers in their thatched cottages. Life before capitalism moved to natural rhythms; people responded to the changing seasons; without artificial stimuli, their needs were few and easily met; craftsmen took pride in their work, and peasants relished the harvest rituals. Then the Gradgrinds and philistines remade the world in their own narrow image, and competition replaced harmony.

Responding in part to this sense of dissatisfaction with the new order, several philosophers tried to take the rough edges off liberalism. John Stuart Mill turned classical economics on its head by extolling the hypothetical "stationary state," where new production ceases. What Smith and David Ricardo dreaded, Mill welcomed: "I am not charmed with the ideal of life held out by those who think the normal state of human beings is that of struggling to get on."

If Mill tried to improve on Ricardo when Ricardo was right, he stuck with him when Ricardo was wrong: "Happily there is nothing in the laws of value which remains for this or any other future writer to clear up." What Mill wished to have bronzed and hung over his mantelpiece was Ricardo's cost-of-production theory of value, that a good derives its worth from the labor and capital required to create it, rather than from the interaction of supply and demand. He was fuzzy as to why, exactly, people bother to produce goods, but "the things once there, mankind, individually or collectively, can do with them what they like." Mill thus argued that distribution is independent from production. Property rights could be abrogated without affecting the immutable laws governing the latter.

In addition, the uxorious Mill, yielding to the pleas of his future wife, Harriet Taylor, adopted an agnostic attitude toward socialism in the second and subsequent editions of his Principles of Political Economy, the standard text for four decades. This meant suppressing some telling objections in the original version, but Mrs. Taylor's grip on Mill was tenacious.

Historians usually described Leonard Hobhouse as Mill's heir in the task of improving and updating liberalism. Hobhouse never tired of quoting certain rousing exclamations from Mill, such as: "Education, habit, and the cultivation of the sentiments will make a common man dig or weave for his country as readily as fight for his country." In other respects, though, he was closer to T.H. Green, who tried to infuse liberalism with German Idealism. In Green's synthesis, freedom became specifically the freedom to realize "an idea of self-perfection." Negative freedom, the freedom from constraint, hadn't helped Green's alcoholic older brother. The government—the agency for securing "the common good"—had to actively promote rational choices.

Hobhouse combined Green's moralistic notion of freedom with reformist socialism, rationalizing three kinds of economic interventions by the state: regulation, taxation, and public works. All were predicated on serving a "higher" individualism. The starting point was Hobhouse's redefinition of liberalism's central premise—that individual liberty must be defended. He first asked why liberty is valued. He answered that it was "necessary to the development of the personality."

Hobhouse claimed liberty is important because the personality only develops by making free choices. Two things restrict choice: impulses and coercion. One cannot choose to act on an impulse if one wishes, he said; to do so is to deny choice. The logical conclusion: Behavior that can be labeled "impulsive" can be restricted without jeopardizing an individual's freedom, because such behavior doesn't develop the personality. (How "impulsive" does someone's desire for a pint of ale have to be before the police barge into the pub?)

Hobhouse then went to work on the concept of coercion. In book after book, he triumphantly demonstrated that liberty always entails coercion: The powerful must be restrained, or they will oppress the weak. He presented this chestnut as if it were an audaciously original proposition. But he failed to distinguish between aggression and efforts to stop or prevent it.

Hobhouse could not enunciate a version of the non-aggression principle—that one must not initiate aggression but may defend against it—because he lacked faith in private property and in contractual agreements. If someone protests that his liberty is being violated by another, how do you know he's right? What distinguishes aggression?

Traditional liberalism holds that concepts of private property and contract, which have evolved over centuries, offer at least a rough-and-ready index. What is legally one's own property cannot be seized or trespassed upon without the owner's consent. One cannot abrogate the terms of a contract one has entered into without penalty. Aparent trying to resolve a squabble between two children almost instinctively turns to these liberal principles.

Hobhouse, however, preferred to rely on the judgment of "the community"—meaning the state. "The desires of individual citizens may effectuate themselves most fully through state machinery, and insofar as the law and the administration are carrying out the moral will of the majority, so far their action has just as much moral value as though it were performed by the individuals themselves."

Hobhouse was willing, grudgingly, to extend rights to any minority, just so long as it didn't try to precipitate any action. Discussion should be free; worship should be free. But, to take an example he tirelessly recycled, if a single shopkeeper wishes to work longer hours than his competitors, you must call in the police and shut him down.

A narrow definition of freedom and a loose definition of coercion enabled Hobhouse to find oppression in all kinds of market transactions. To do this he stretched the traditional liberal notion that certain members of society cannot bind themselves contractually. People were traditionally excluded if they were mentally incompetent to understand what they were doing, as are children and deficient or insane adults. Hobhouse and other New Liberals dramatically widened this category.

Oppression now occurred when the contracting parties were "unequal," when one was considered weaker. Like most New Liberal rhetoric, this stipulation was so fuzzy that it was almost meaningless. Could a factory owner negotiate with any potential employee who was not himself a factory owner? What if the would-be worker's factory didn't yield quite the profit of his prospective employer's? In the end, one had to rely, predictably enough, on the judgment of those wielding political power as to which contractual arrangements serve "the common good."

Hobhouse's fiscal prescriptions drew heavily on the views of the Fabian Society. Founded in 1884, this small group of middle-class intellectuals included luminaries such as George Bernard Shaw, H.G. Wells, and Sidney and Beatrice Webb. They had an audacious—and self-serving—strategy: Rather than forming an independent political party or a revolutionary clique like Continental socialists, the Fabians believed in permeating existing organizations and persuading or manipulating their leaders.

The group's economic doctrines were the only original theoretical contributions of British socialism. Essentially, the Fabians extended the Ricardian theory of rent that American economist Henry George was popularizing. Ricardo's theory, which distinguished rent from other kinds of income, had little to do with the political philosophy of classical liberalism, but two generations of liberals had seized upon it as an effective bludgeon against their aristocratic adversaries. It appealed to their fervent belief that commerce and manufacturing were more useful occupations than landowning.

The Fabians argued that rent—unearned income based on the possession of superior natural resources in limited supply—did not benefit just landowners, who "grow rich while they sleep"; capitalists and workers also extracted their share. Exactly what was unjust about a skilled and experienced laborer receiving more than a novice in the same trade was unclear, although the Fabians darkly muttered about "luck" and unequal opportunities for education.

In any event, they labeled the income differential "rent," and this entitled "the community" to expropriate it. Since rent was a surplus attributable to "social factors," society had every right to reclaim it. Fabianism was thus socialism by taxation.

Hobhouse borrowed freely from the Fabians to justify redistribution of income. He granted that it's difficult to determine how much to take—what percentage of someone's earnings is "social" and what percentage is "individual." Instead, Hobhouse argued, you have to rely on a rule of thumb. Government is entitled to take all that is not essential to stimulate any given factor to produce.

The state, in other words, needs to be more tough-minded and calculating than Gradgrind himself. If a doctor will work for 5,000 pounds a year and he's getting 7,000, then tax away the rest. A judge may judge just as astutely for 25 percent less; a novelist may write equally spellbinding books for a mere 50 percent of her current earnings.

It takes about five seconds of concentrated thought to recognize that such calculations can never be made. People's needs and standards differ enormously within any job category. The salary that will elicit hard work from one individual will prompt someone else to abandon the field. And it's impossible to measure "effort." Someone whose wages have been docked 25 percent by the Central Economic Planning Bureau on the grounds that he'll perform just as well—enabling "the community" to pocket the balance—may indeed show up for work, but it's hardly likely that his output will be unaffected.

While Hobhouse's tax proposals extended the somewhat dubious liberal concept of rent, the rationale for public works enjoyed a more exalted pedigree. Adam Smith himself had sanctioned them. Smith, of course, had stipulated that while the project must benefit society, it could not be sufficiently profitable to encourage an entrepreneur to undertake it. Obviously this calls for more-refined judgments than the state can make. "Could it be sufficiently profitable to provide cheap fast food?" a busy New Dealer might legitimately have wondered as he waited in line at the crowded congressional cafeteria. What an ingenious federal project!

But Smith's guidelines were not sufficiently roomy for the New Liberals. To explain and justify the public works that government should promote, Hobhouse relied on his friend J.A. Hobson, the second major exponent of New Liberalism. Hobson either introduced or definitively restated nearly all the major liberal shibboleths of the 20th century. His theories of imperialism and monopoly became leftist staples. Hobson first floated the New Liberal rationale for public works in The Physiognomy of Wealth (1889), coauthored by A.F. Mummery. Hobson tirelessly repeated his underconsumptionist message in nearly 50 books and pamphlets, and countless articles.

As befits someone who emphasized the contributions of "the community" to productive labor, Hobson was always loath to acknowledge specific intellectual debts. His analysis of the causes of underconsumption, though, initially owed much to T.R. Malthus, who attributed it to the parsimonious habits of the wealthy. Be extravagant, the parson had urged large landowners.

Eventually, Hobson moved closer to Swiss economist Jean Charles Sismondi's approach: It was not the behavior of one class but the distribution of income throughout society that was to blame. Sismondi, who coined the word proletariat, argued that competition kept wages too low for workers to "buy back" their products. Opening foreign markets would help, but ultimately public works had to be set up to provide them with spending money—the happy logic being that these admittedly nonproductive enterprises wouldn't contribute to the glut of goods.

Probably anyone arguing the underconsumption thesis after the 1880s would come to favor Sismondi's more "socialistic" solution. If you exhort a particular class to spend more money, you're not going to win much of a readership. On the other hand, if you urge more government spending, you'll eventually attract an eager and credulous audience. As Frederic Bastiat's broken-window parable illustrates, the benefits of government spending are usually visible, while the foregone alternatives are not. We see the dam, the worker's pay stub, the smiling congressman; we don't see the goods and services the taxed money would have summoned.

Hobson's theory, unlike John Maynard Keynes's, did not differentiate savings from investment. Nothing is "hoarded"; everything saved is utilized. So underconsumption leads to overinvestment and overproduction. But if you're going to condemn investment, you have to come up with an explanation as to why, in a demand-driven economy, it doesn't result in new, better, and cheaper products. Hobson's answer: The money is wasted on "arts of competition" that don't benefit the consumer.

The foremost of these is advertising. The art of competition is the art of seduction. Hobson actually made two charges: Not only are consumers being manipulated, but they are being force-fed increasingly standardized goods. This had potentially grave consequences: "If the salesmen of the mass-producers can tempt consumers ever to enlarge their demand for standard goods, they can gradually standardize the whole man." A stroll down the aisles of the nearest supermarket is sufficient to refute Hobson's claim.

Hobson's belief in the power of advertising is clearly inconsistent with his notion that the chief economic problem is underconsumption. If people can be driven into a buying frenzy for cheap, mass-produced goods, where is the problem? Hobson's books are littered with such unresolved contradictions. One comes away appreciating just how necessary were the contributions of Cambridge economists A.C. Pigou, Joan Robinson, and Keynes. Nonetheless, at the popular level, Hobson as much as anyone gave shape to the unexamined economic assumptions of the noncommunist left.

Ideas don't evolve in a vacuum. The British Great Depression, an economic downturn in the final quarter of the 19th century, contributed much to the transformation of liberalism. The depression helped undermine the public's faith in economists and in "middle-class" values such as hard work, probity, and sobriety. The loss of self-confidence also made British liberals more receptive to German ideas. Liberals embraced Idealism and historicism, with unhappy consequences for individual rights. Even Otto von Bismarck's state socialism began to look attractive to advanced New Liberals.

The development of U.S. liberalism is a separate story. In America, ironically, the catalyst for the transformation was not economic failure but economic success. The rise of large corporations stimulated the emergence of our statist liberalism, though depression would eventually play a role, too.

But the arguments that American theorists advanced as they rationalized the growth of government owed a great deal to Hobhouse, Hobson, and other earnest gentlemen so impatient to do good that they had little time for economics or history. History has returned the compliment: Their names are mostly forgotten. But their brainchild, the welfare state, is still at large. As it plunders, it recites the lines they taught it.

Jeff Lipkis is a doctoral candidate in history at Princeton University and teaches in the English Department at Penn State University.