Return of the Invisible Hand

Why the market really does work, and why more people are realizing it. An excerpt from An End to Allegiance: Individual Freedom and the New Politics.

Homo sapiens is a gregarious animal. Few aspects of our lives are completely private, in the sense that they do not depend in any way on others' cooperation and have no implications at all for others' welfare. Almost everything we do is a communal enterprise. A bachelor, relaxing alone with his record collection of an evening, can do so because people (perhaps long dead) wrote the music; other people learned to play instruments (which other people manufactured); more people made record-players and records—and, indeed, further people made the armchair he sits in, built and repaired the house sheltering him, and so on, endlessly. A shepherd trudging the fells to look after his flock may not see another human from beginning to end of his working day, but his work has a purpose only because in due course people unknown to him will be turning wool into suits that other people will wear. It is a truism that society is an interdependent, immensely complex web.

This being so, there is no possibility of individuals conducting their lives without reference to the decisions of other individuals. The question is not whether this would be desirable: it is not possible. One individual's or group's products are another individual's or group's inputs; consumers cannot choose what range of goods to consume without reference to what is being made available by producers, and producers in turn are dependent on others' output.

In any human society there must be some means—perhaps efficient or perhaps inefficient, perhaps morally admirable or perhaps abominable—by which the activities of its members are coordinated. By this means, the various choices that individuals might be disposed to make in isolation are resolved into a set of decisions that are compatible taken as a whole, so that nobody is processing or consuming anything that does not exist because it has not been produced.

There are two contrasting principles by which this coordination can be achieved. The principle that, arguably, seems most natural is the principle of planning and command. The task of finding an efficient and fair solution to the coordination problem is an immensely complex task, so a competently staffed organ of state is charged to work out a satisfactory solution, and the state delegates to this body the authority to impose its solution on individuals in their roles as producers and consumers.

The opposite principle is that of the market. Under this principle, the state claims no authority to dispose of the various resources within society, each of which is controlled instead by some particular individual or voluntarily established institution. No overall plan of coordination is formulated, and instead a pattern of coordination emerges spontaneously as individuals attempt to satisfy their wants as consumers by engaging with others in voluntary exchanges of the resources under their respective control (including their labor).

Liberal-minded, individualist commentators* sometimes talk as if the market approach were innately natural to humans, whereas the growth of state intervention and the command system for resolving the social-coordination problem were a 20th-century innovation. This seems to me a profound mistake.

Surely, if the problem of coordinating millions or tens of millions of individuals' lives is as difficult as I have suggested, the natural thing is to suppose that a satisfactory solution requires a great deal of careful and well-informed thought. Perhaps plans can never be perfect, but imperfect planning must surely be better than just sitting back and leaving everything to the accidents of billions of decisions made by millions of independent individuals, few of whom know, or care, very much about the implications of their decisions for society in general. Any wise man tries to plan his own affairs, rather than just drifting at the mercy of every momentary gust and current in life. Surely we owe it to ourselves and to one another to arrange for society's affairs to be organized at least as carefully as we organize our own?

This, I should think, would be virtually anyone's instinctive response to the contrast between command and market principles; and historically the application of the command principle was until fairly recently limited mainly by the technical limits to the capacity of pre-modern states to make and impose detailed economic plans, rather than by any doubts about the theoretical virtues of the command principle. From a historical perspective, it seems to be the command principle that is traditional and the market principle that is a novelty. In the 17th century, Louis XIV's finance minister Colbert set out to regulate French industry to a degree of detail that has scarcely been approached in 20th-century Britain even in wartime: his thousands of pages of reglements went as far as to dictate the number of threads in each width of cloth.

Not until 200 years ago was the remarkable idea first propounded that the market system is actually better than the command system at achieving the very goals—the beneficial coordination of individuals' decisions—that motivates the command system's idealistic supporters. The classic statement of the virtues of the market was Adam Smith's Wealth of Nations, published in 1776. As Smith put it, in a market system based on private property, each participant "neither intends to promote the public interest, nor knows how much he is promoting it…he intends only his own gain, and he is in this…led by an invisible hand to promote an end which was no part of his intention.…By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it."

Smith's "invisible hand" is for liberals a key concept in understanding the functioning of society. Any attempt to invoke state power to modify society's workings, liberals argue, is likely to lead to results that are the opposite of those intended. Society is a delicately balanced self-regulating machine, and if we find that things are going amiss in some area of society, the liberal's reaction is to look for a cause in terms of unnecessary state regulation of some activity or failure to parcel out some collectively held resource into a set of private property rights.

Why should anyone believe such an implausible idea? That is a longish story. First, let me try to make the idea less implausible by illustrating it via a concrete example: the housing shortage.

Early in the 20th century, 9 out of 10 British families lived in privately rented housing (the tenth family being owner-occupiers). Rents were settled by the ordinary laws of supply and demand, until the First World War upset the normal functioning of the market. There was then a sudden unprecedented inflation, and rents began to soar alongside other prices. In 1915 rents were frozen at the immediately prewar levels, as a compassionate emergency measure to last no more than six months after the end of the war.

That emergency measure has outlasted the war that provoked it not by six months but, in one form and another, by more than 60 years.

After the war, landlords were allowed to increase rents by a specified percentage, but this was not enough to compensate for wartime inflation. So, naturally, the supply of new houses for rent began to dry up as rent control made housing a relatively unprofitable investment. To cure the shortage, the law controlling the powers of local government was changed to encourage local governments (councils) to go into the housing business.

Council housing was (and is) exempt from legal rent control; but that scarcely matters, since it is subject to a different sort of control via the ballot box. A local council that raises rents hurts its tenants' interests in a very clear and public fashion and gets into political difficulties accordingly. It is much less likely to lose votes by subsidizing its housing from tax funds, because taxpayers are not in a position to keep track of all the different things their money is spent on and how far they each represent value for money, without engaging in a research effort that few of them have time for.

By 1976 the average local authority's rents were so low as barely to cover the costs of maintenance, allowing nothing toward repaying the capital. Naturally, councils acquired long queues of would-be tenants eager to take advantage of this bargain—queues in which it takes months or years to reach the head.

What of the private landlords, meanwhile? As council rents sank in real terms, the figures that private landlords wanted to charge in order to get an economic return on their investment made them look like sharks by comparison—so rents remained controlled, to protect tenants from "exploitation." If a landlord cannot make a profit by renting, his obvious alternative is to get rid of his tenants and retrieve his capital by selling to owner-occupiers. This created a real danger of wholesale evictions; so, to rent control was added security of tenure: a tenant once in place cannot legally be given notice.

Under the 1974 Rent Act, the "fair rent" for a house or flat is determined by a local government official by criteria that are left mysterious (rent officers are expressly directed to ignore the factors of supply and demand). When a private letting does become available, it has become common for a prospective tenant to agree a rent with the landlord, move in, and go straight round to the Rent Office to get the figure just agreed to declared "unfair."

The result of all this, predictably enough, is that private tenancies have almost disappeared. Where private landlords do still try to run their properties as a business, they commonly aim to let to ambitious young bachelors or well-heeled foreign visitors, who are sure to move on before long—just the kind of people who could afford good accommodation easily in an uncontrolled market.

This might not matter to would-be tenants if council housing had succeeded in replacing the private landlord's function of supplying accommodation of the types and quantities needed in different places. But local authorities build the wrong kinds of housing, in the wrong places.

For a small-scale example, I do not need to look further than the village where I live. Our housing authority recently carried out an extensive building program that has given us exclusively one-bedroom houses for the elderly, while larger houses for couples with children have all been segregated in another village separated from us by several miles of hilly and winding road. Simultaneously, another arm of local government has closed the school in the other village and transferred its pupils to our newer and larger school. (This, in an area where few families have cars and fewer mothers have driving licenses.) A case like this seems laughable—but not to the people involved.

Other failures in the public housing program have been on a grander scale. The switch from houses to blocks of flats in the postwar period represented a decision made by the state in defiance of consumer preferences. (In 1952, when the Architects' Journal proposed to solve Liverpool's housing problem by building a two-mile ring of twenty-story blocks surrounding the city center, a local newspaper polled people on the waiting list for council accommodation and found that 96 percent of them wanted houses rather than flats.) A major demographic change in modern Britain has been the great increase in the proportion of young one-and two-person households, but this is often ignored by council housing programs that continue to cater mainly to traditional families and the old.

As long as I can remember, there has been a "housing problem" in Britain. Because of the cheapness of council housing, local authorities have to impose rationing schemes that cannot possibly be sensitive to all the human factors relevant in an individual case. A woman desperate to get away from a husband who bullies her and her children will get no house from the council, since she is "voluntarily" joining the queue at the bottom. Yet, at least since the beginning of the 1970s if not longer, there has been a substantial excess of houses over households in the country as a whole. Many of those empty houses are privately owned and had been rented before extensions to rent control made this uneconomic; many others are owned by local authorities and deliberately kept vacant in order not to interfere with "development" schemes that might, or might not, one day come to pass (a council has little motive to worry about forfeiting rental income, since it can always dip deeper into tax funds).

Nor are the ill-effects of rent control confined to frustrated tenants and would-be tenants. One of the factors often commented on in connection with Britain's miserable industrial performance in recent decades has been the extreme reluctance of workers in dying industries to move to areas where new opportunities are opening up. Even when suitable jobs are available, workers have often preferred to use all the political pressure at their disposal to force government to subsidize loss-making industries out of taxation, and governments of both parties have often yielded to the pressure.

People who ought to know better put this down to laziness or to the excessively generous levels of state unemployment benefits. It is nothing of the kind. For a family man installed in a good council house, the right to remain in that house may be his most valuable single asset: if he moved elsewhere he would have to go to the bottom of another council's waiting list. But, while this reluctance to move is perfectly understandable, at the same time it acts as a strong brake on the nation's industrial regeneration. State action in the field of rented accommodation is hurting everyone, including those who are neither landlords nor tenants.

A market is a system by which the preferences of consumers determine to what uses the productive resources of society will be put. Rent control has failed, as any state intervention in the operations of a market is likely to fail, because it has uncoupled decisions about use of resources from the pressure of consumers' wants. If there were no laws limiting freedom of contract between landlords and tenants, then a strong desire by many individuals to rent accommodation, reflected in willingness to devote a relatively high proportion of their income to rent, would make the letting of houses a relatively attractive proposition, so that those who owned spare accommodation would be inclined to let it out, and those who owned liquid capital that could be invested in the construction of houses for rent would be likely to choose this way of investing it.

As it is, no degree of willingness by would-be tenants to pay for more rented accommodation translates into a motive for a private person to become a landlord. By introducing laws designed to protect the interests of the dwindling class of tenants already in place and not wishing to move elsewhere, the state has gravely injured the interests of would-be tenants by depriving them of the power to influence the behavior of private owners of resources that could be used to provide them with accommodation.

Of course, the state has given them the possibility of influencing the provision of accommodation via the political process. But this is a very crude and unsatisfactory alternative to the market, because it gives consumers no way of registering the strength of their relative preferences for alternative uses of resources.

When a commodity is provided by the machinery of the market, consumers have to decide not merely whether they want it but whether they want it enough to forgo alternative uses for their income. If the supply of a commodity is determined politically, on the other hand, citizens who want the commodity have little reason to hold back from using their political clout to demand it, because the state provides such a large range of goods and services to so many people that the resources freed by failure to supply a given commodity are quite unlikely to be used in ways that benefit the same people.

When decisions about how to allocate resources are made politically, public life becomes a sea of individuals and groups all constantly asking, with various degrees of urbanity or shrillness, for more resources. Only a finite quantity of resources is available, so decisions get made almost accidentally, in terms of which pressure group can best publicize its case, who knows how to get access to the relevant decisionmakers, which minister is felt to deserve a success, and the like—all of which has very little connection with satisfying people's real needs.

Running an economy is a job so massively complex that, as Adam Smith put it in The Wealth of Nations, "no human wisdom or knowledge could ever be sufficient." We need to leave it to the market because its system of transmitting information and motivation via prices is subtler than any human alternative.

One virtue of the market is that, since individuals as consumers exert control over production decisions, resources are diverted to those uses where they can yield most real benefit. Another virtue is that it maximizes the quantity of benefit derived from each resource and minimizes waste. By treating each resource as the private property of some individual, it gives that individual a motive to husband the resource so that it yields the most good.

The point can be illustrated by a trivial example. In my university department, two electric typewriters are housed in neighboring rooms. One is in the departmental secretary's office; legally she is not its owner, but in practice it is controlled by her, and no one else touches it without her permission. The machine next door is available for any member of the teaching staff to use. The secretary's typewriter is beautifully looked after; it has given many years of good service, and if any problem arises its "owner" has it seen to without delay. The "public" machine, by contrast, is mistreated badly. Users rarely replace the dustcover and sometimes even leave the motor running overnight; the typeheads fill with dirt, faults are left to cure themselves, the work done by the machine deteriorates, and fairly soon it will be a write-off.

Taking good care of an electric typewriter requires a certain amount of effort—it is quicker not to bother to replace the dustcover after use, for instance. To the secretary, it is worth making this effort because it is repaid in terms of easier and more satisfying work with the machine in the future. But many of the individual users of the "public" machine no doubt calculate, consciously or unconsciously, that it is pointless for them to do their share of looking after the machine, since they cannot force other users to be equally careful; so the machine is neglected.

This example is on a very small scale, but what is true on a small scale is true in the large. Consider, for instance, how stocks of some species of fish have been virtually eliminated by overfishing in the North Sea and elsewhere. Fish in the sea are a public resource, so no one fishing enterprise has a motive to restrain its catches. It cannot prevent others from taking the fish that it does not, so for each enterprise it is rational to take as much as it can while stocks last. If it were technically feasible, a liberal would prefer the world's oceans to be divided up into privately owned sectors separated by underwater fences impermeable to fish; then it would be in the interests of each owner to take each year only as many fish as enabled the stock to keep up its numbers.

Replacement of the market by the command system of social organization is objectionable because it robs consumers of their power to influence producers and because it leads to wasteful, destructive uses of society's resources. Perhaps worst of all, though, it creates a class of people with a direct interest in further increasing state power and in misusing the resources that come under the control of the state: namely, state employees.

Any employee of the state has an interest in the growth of state power, because it improves his own career prospects. If this seems unduly cynical, consider how totally uninterested those who staff the welfare state have been in the idea of replacing it with a negative income tax.

The only serious argument that might be offered in favor of the welfare state is that it is designed to redistribute income from richer to poorer, which egalitarians regard as a desirable goal. In fact, it scarcely does this; in many cases it does the opposite. But, even if it did, there would be a far cheaper and fairer way to achieve the same goal. Milton Friedman, the University of Chicago economist who is probably the best-known contemporary advocate of classical, Adam Smith–style liberalism, frequently points to the desirability in this respect of replacing the complex structure of state-produced benefits in kind (food stamps, medical care, housing, etc.) with a simple extension to the income-tax system. Just as those whose incomes exceed a certain level pay out a proportion in tax, so those whose incomes fall below a given minimum would receive cash benefits that they could use to buy themselves the necessities of life that they cannot afford from their own resources.

Friedman argues that it is absurd to conclude, from the belief that poor people need state help in order to get a decent level of medical attention or schooling, that the state ought itself to operate hospitals and schools. If private enterprise can use resources to achieve a given goal more efficiently than state agencies (and the truth of this is by now scarcely controversial), then surely the best solution must be for the state to give poor people the wherewithal to buy private medicine and schooling?

One argument against the negative income tax idea is that it would give the poor too much freedom. The criticism would commonly be wrapped up in vaguer language, but in blunt terms the objection is that poor people would squander negative tax payments on fags and booze rather than using them to pay for medical insurance. But this represents a staggering degree of paternalism. Someone who makes the objection presumably believes that he himself knows roughly how to apportion income sensibly between basic necessities and pleasant luxuries, but he apparently regards the poor as a group of childlike subhumans who cannot be entrusted with like responsibility for themselves.

State employees, however, ignore the idea of a negative income tax for a different reason: it would put a number of them out of a job and worsen the working conditions of very many of them. Hospitals, for instance, would need to be staffed whether they were operated by the state or by private enterprise, but private enterprise uses human resources—like any other resources—efficently; a private-enterprise hospital may have as many doctors and nurses working in it as a National Health Service hospital, but it is likely to manage with fewer administrators, and the administrators it does have will be expected to earn their keep.

If people employed by the state in responsible positions were sincerely and intelligently concerned to maximize the welfare of the ostensible beneficiaries of their services, they ought to be clamoring for the organizations they serve to be privatized and for the system of state benefits in kind to be replaced by a negative income tax. But they invariably oppose any such moves with fervor.

What is distinctive about a "welfare" state is that it provides the citizen with goods and services whose production and distribution can without difficulty be controlled by private market interactions. But what about the core of state activities that are necessarily performed by the state because the market is inherently incapable of providing them? The two obvious examples are defense of the realm and a judicial system that enforces private contracts and punishes force and fraud. More generally, there is the range of what economists call "public goods" (some economists prefer the term "collective goods").

A "public good," to an economist, is something that, if provided at all, cannot be provided exclusively to those who choose to pay for it—which makes it difficult or impossible to provide it through the mechanism of the market. The example commonly cited is the lighthouse: there is no way to stop sailors who have not subscribed to a private-enterprise lighthouse service from seeing its beams and acting on their warning, so it would seem to be impossible to run private-enterprise lighthouses profitably. (As it happens, the example is less straightforward than it seems: private enterprise did play an important role in the development of British lighthouses.) Defense might be regarded as a particularly central example of a public good.

Liberals accept that states are needed to produce public goods and also to limit the production of "public bads" such as air pollution. But liberals would add that the categories of public good and bad must be defined narrowly, since the extension of state power needed to produce extra public goods or control extra public bads is itself a major public bad—as Milton Friedman puts it, "Every government measure bears, as it were, a smokestack on its back."

Defense, the judiciary, and the financing of public goods were for Adam Smith the three proper fields of state activity. Friedman, and many other contemporary liberals, would add to Adam Smith's agenda the duty of guarding the interests of individuals who cannot provide for themselves, such as children and lunatics. Most children are provided for by their parents; but if a child has unusually cruel or feckless parents, or is an orphan, he cannot fend for himself, and Friedman would argue that the state should look after him rather than leaving this task to private charity.

Again, however, any liberal would want to draw a tight boundary around the class of people who are regarded as nonparticipants in the market system because of youth or infirmity. One of the liberal's objections to the welfare state is that it effectively broadens this category to include masses of ordinary able-bodied adults in command of their mental faculties.

As we have seen, if this is to be done then the liberal method would be Milton Friedman's device of a negative income tax, rather than an array of benefits in kind. But Milton Friedman is a very moderate liberal, and many of his important works (such as Capitalism and Freedom, 1962) were published at a period when welfare-state ideology was much more ingrained in the public mind than it is now, so that there were limits to what he could propose if he hoped to be taken seriously. Younger liberals are less inclined to accept the legitimacy of a general policy of state redistribution of income.

Private charity has the virtue of being self-limiting: when the state takes responsibility for relief of poverty, it creates a set of people who have an interest in exaggerating the problem and setting the "poverty line" ever higher. Surely we are all familiar with the contradiction that members of the state salariat repeatedly talk as if the country contained an army of people in desperately penurious straits, while from one's personal experience one would be hard put to identify anyone so poor as to be an appropriate object of charity?

Most contemporary liberals would reject the concept of a progressive income tax, which redistributes across the whole range of incomes. If a "floor" of subsistence is provided it ought to be financed, like other state activities, from taxation that either falls equally on all citizens, like the annual membership fee of a club, or perhaps that is levied at a flat rate on all expenditures on consumer goods and services, on the ground that a person's total consumption measures his gain from membership in his society. Since state activities in a liberal society are few, taxation is low, so that questions about the precise system of taxation lose their urgency. But it is worth examining why liberals reject the idea of redistribution from richer to poorer, since, obviously, this concept lies at the heart of welfare-state ideology.

In the first place, even if morality were thought to require either equality of incomes or at least some closer approximation to equality than the market yields, there is no way that state action could achieve that result. If decisions are made politically rather than in the market, individuals do not stop striving to better their lot; they simply redirect their efforts toward the new source of benefits. If increased money incomes are robbed of their value to the individual by steeply progressive taxation, then people will strive to secure other kinds of benefit—money is only a device for getting real goods, after all.

Our state provides extensive subsidies for the arts—picture galleries, opera, and so forth. These are not in the economist's sense "public goods" (there is no technical difficulty in charging for admission), and it seems implausible that most of the poor people on whose behalf the welfare state is supposed to spend perceive a strong need for these things; but the upper-middle-class types who know how to influence the state like them, so the state gives them the opportunity of visits to the opera subsidized heavily by ordinary blokes out in the sticks who prefer relaxing in front of video recorders that they have to buy themselves out of after-tax income.

Inequality is inevitable, whether in a market or a command system. The difference is that, in a market system, the individual's urge to a better life is harnessed to the satisfaction of others' wants; in a command system, one person's success is bought at others' expense. To put the point very personally: the welfare state, looked at objectively rather than through rose-tinted ideological spectacles, is largely an enormously costly device for subsidizing people like me, with our "civilized," middle-class tastes. I cannot believe that people like me are a proper object of public charity.

Liberals go further and argue that there is no moral justification for redistribution. In a free market, if one individual's contributions to society are 10 times as lucrative as another's, then the first individual has given 10 times as much value and is entitled to 10 times the return. The state has no resources of its own; it can make the poor less poor only by making the rich less rich. For liberals, then, progressive taxation is not merely inexpedient (because, for instance, it reduces the incentive for possessors of highly valuable skills to work long hours) but actually immoral: it is a device by which society exploits its more prosperous members by taking their productive contributions and then depriving them of their fair return.

Particularly objectionable from a liberal point of view are taxes on capital, such as capital-gains tax or death duties, since these are blatantly unrelated to any notion of payment in exchange for services rendered. Collectivists often justify capital taxes by suggesting that even a self-made man cannot be seen as having created his wealth independently: we are all dependent in all aspects of our lives on the society we inhabit, so our society has every right to decide how to dispose ultimately of the accumulations of wealth that rich men are allowed to use temporarily.

But this is a bad argument from a good premise. Of course society is an interdependent web, but the fact that a successful businessman may overestimate his individual responsibility for his achievement does not imply that he leaves unpaid debts behind him. Insofar as he drew on contributions from other individuals, he presumably paid those individuals the market rate for what they provided. There are no "debts to society" left outstanding.

And even if there were, there would be no way to repay them in cash. Society is an abstraction; it has no bank accounts. States like to identify themselves with the societies they rule, but that is intolerably presumptuous of them. A state is just one of many human organizations within a society—special in some ways, but not entitled to quasi-mystical reverence. The organization called the United Kingdom does quite a good job of providing Britons with security and conflict-resolution services, just as the organization called Marks & Spencers does a good job of providing us with underwear.

We are not tempted to confuse the Marks & Spencers organization with the immensely rich and complex web of interpersonal relationships, institutions, and patterns of behavior that we call "British society," and we ought not to make the same mistake in the case of the state. The reason why the United Kingdom inherits large portions of people's wealth when they die, whereas Marks & Spencers inherits nothing even from the most regular wearer of St Michael Y-Fronts, is not because the UK is owed the money but because the UK has a police force and, ultimately, an army, and Marks & Spencers has nothing of the kind.

Basic disagreements about morality are hard to resolve, because of lack of common ground on which to build agreement. We all know that socialists reject the morality of private property and market determination of incomes, pointing out that it is a matter of luck whether individuals begin life with natural talent, supportive parents, or an inheritance of material wealth, all of which are very relevant to how much they can later earn in the market. They often say also that the worth, in moral terms, of an individual's contribution to society cannot be accurately measured by his or her money earnings. To this the liberal replies that there is no other measure: we could not possibly agree on how incomes should be distributed if we seriously set out to decide in terms of moral worthiness. But it remains open to the socialist to argue that complete equality is the moral ideal, even if expedience dictates some divergences from the ideal in practice.

Yet the great majority of those who advocate this point of view are in practice grossly hypocritical. Few calls are heard for massive diversions of state resources from the British welfare state to overseas beneficiaries. Morally speaking, this is incomprehensible. In the Third World there is plenty of really horrifying, degrading poverty, of a kind unknown in Britain. If prosperous Englishmen have a moral duty to forgo their own earnings in order to benefit impoverished strangers, then the morality can hardly be affected by the question of whether the strangers live in Hastings or Falkirk rather than Dacca or Dar-es-Salaam.

Moreover, people on the left of politics often favor policies that severely increase international income differentials—for instance, the erection of trade barriers that prevent consumers here from trading freely with poor producers overseas and force them instead to maintain the incomes of relatively well-paid British producers. None of this is explicable in moral terms, but morals have nothing to do with it. "Compassion" is a useful piece of cant for politicians to win elections with, but what really determines how the welfare state distributes welfare is the fact that Britons have British votes and foreigners do not. Welfare benefits are bribes that help the state to maintain its power; there is nothing "compassionate" about giving away other people's money.

The real objection to the free market, I believe, is not a moral one but a paternalist conviction that poor people would not spend their money sensibly if their middle-class betters did not make their spending decisions for them. What evidence is there for an assumption of such breathtaking arrogance?

Take the case of schooling—arguably a favorable example for the socialist, because free-market schooling involves adults forgoing current consumption not for their own long-term benefit but for that of their children. If poorer people are indeed as feckless as supporters of the welfare state appear to assume, perhaps one of their most likely failings would be to neglect their children's education.

Yet what are the facts about schooling in England before the 1870 Education Act? In 1813 the philosopher James Mill wrote that, within a 50-mile radius of London ("which is far from the most instructed and virtuous part of the kingdom," as he added in an aside to his fellow Scots), "there is hardly a village that has not something of a school; and not many children of either sex who are not taught more or less, reading and writing. We have met with families in which, for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school."

In 1813 the growing prosperity of the Victorian period lay in the future; as the century wore on, there occurred what historian E.G. West has described as a private-school "explosion." By 1858, according to the Newcastle Commission on Popular Education which conducted an exhaustive statistical survey, virtually no child was failing to receive schooling, with the average length of schooling being 5.7 years. The ratio of children in school to the entire population was 1 in 7.7—more than in Prussia, where schooling was compulsory. The commission found that parents who were themselves uneducated were remarkably good judges of teachers; within a few weeks of a good man being appointed to a previously unsuccessful school it would be full to overflowing with new pupils.

What we regard as a proper amount of education for a child has increased since the mid-19th century. But so have working-class incomes. Is it suggested that the descendants of the parents who sent their children to private schools while living exclusively on potatoes have become so degenerate that they would grudge lesser proportions of their own, far more lavish, incomes? I cannot believe it; but if they really are so degraded, what can have degraded them if it is not the welfare state's endlessly repeated lesson that "Nanny will sort out the big things in life for you; you just get on with enjoying yourself on the pocket money that Nanny allows you"?

If parents were left completely free to buy whatever education they chose for their children, no doubt occasional parents would make very odd decisions that others might not see as being in the child's best interests. But then the state does that, too, without being able to plead poverty as an excuse.

What is likely is that the patterns of activity that emerged in a liberal society would differ quite a lot from the patterns of activity promoted by a command system. Command systems always tend to favor what is orthodox, what is seen as morally uplifting or in accordance with traditional values, rather than what is experimental or offbeat. Partly, no doubt, this is because people who attain positions of responsibility in a political structure tend to be po-faced men with traditional tastes, and partly it is because traditional values are perceived as supporting state power while "underground" movements may threaten it.

The consequence is that, although the world of business is often seen as hostile to iconoclastic, experimental styles of living, in reality just the reverse is the case. Probably many men in the record industry find the various waves of modern music as unpleasant as I do, but if it is what the kids want, then to a businessman his personal tastes are irrelevant—he produces the records, because there is a market for them. In a thoroughgoing command economy such as those of Eastern Europe, on the other hand, pop music is scarcely obtainable. The state asserts by implication that its tastes are the real, "proper" tastes, and conflicting tastes (however real for those who hold them) are somehow improper and not to be taken into account.

It is ironic that so many partisans of this or that brand of "alternative society" believe that in some vague way socialism is on their side. The reality is that thoroughgoing socialism would be likely to kill stone dead almost all of their various attempts to create the good life. However, as Samuel Brittan, assistant editor of the Financial Times and a leading British advocate of classical liberalism, pointed out in his 1973 book, Capitalism and the Permissive Society:

The values of competitive capitalism have a great deal in common with…contemporary radical attitudes. Above all they share a similar stress on allowing people to do…what they feel inclined to do rather than conform to the wishes of authority, custom, or convention. Under a competitive system, the businessman will make money by catering for whatever it is that people wish to do—by providing pop records, or nude shows, or candyfloss. He will not make anything by providing what the establishment thinks is good for them.

Brittan noted, however, that when it comes to the test of practical application, the market has at least as many opponents among Conservatives as among Labour supporters, and among businessmen as among trade unionists. There are now a few more genuine liberals in the Conservative Party than there are in the ranks of Labour, yet Brittan's point remains broadly true now, as it was in Adam Smith's day: businessmen and the propertied classes are no more natural supporters of a genuinely free society than any other group. Markets force them to cater to others' free choices, often much against their own instincts.

This, then, is the case for the market. It was made by Adam Smith two centuries ago; only a few years ago it was seen as a quaint hangover from the days before democracy turned the state into Everyman's servant rather than his master. Writing in the Times in March 1976, Harry Johnson described the current view of Smith among professional economists as "out of date and incompetent in the elementary theory of his subject." By September 1978 the Times recognized the resurgence of the liberalism that Smith preached as "the most interesting intellectual movement of our times." "The British socialist state," it predicted, "is doomed to disappear because it is felt by too many people to be a hateful way to run their affairs."

Geoffrey Sampson is a professor of linguistics at the University of Leeds in England. This article is adapted from An End to Allegiance: Individual Freedom and the New Politics (published in the United States by Universe Books, New York). Copyright © 1984 by Geoffrey Sampson.

*Liberal is a long-standing political term for a position that emphasizes the freedom of the individual in contrast to collective or state authority. Remarkably, in the USA the term now connotes, instead, "aggressive use of central government power" and "equality more and liberty less." Despite this verbal hijacking, I shall use the terms liberal and liberalism to describe a political position favoring individual freedom against the authority of the state.