The erosion of the liberal economic order

Abstract

Our lesson for the day is from Adam Ferguson [1792], one of the principals, along with David Hume and Adam Smith of the Scottish Enlightenment: "Liberty or Freedom is not, as the origin of the name may seem to imply, an exemption from all restraints, but rather the most effectual application of every just restraint to all members of a free society whether they be magistrates or subjects." My brief remarks make four simple points. (1) A social order is best defined as a group of people who live by the same rules. At any place and time, thus, each person lives in a number of social orders, depending on the extent of shared rules. Over time, in turn, the size and composition of a social order changes in response to the effects of the shared rules. (2) The personal, social, and political rules that contribute most to a social order cannot be derived by deductive reasoning but may be inferred from the relative success of different orders. The laws of physics, for example, are presumably constant but are only sequentially revealed by experiment and evaluation. The rules of just conduct, I contend, have the same objective character. Sometimes history provides dramatic natural experiments, such as the division of Europe and Asia between capitalist and socialist economies after World War II, from which the lessons are, or should be, obvious. More often, sorting out the rules that contribute most to a social order requires a more discriminating analysis and any conclusions will be subject to more dispute. At this stage, I must acknowledge my own cranky perspective on this issue. My judgement is that the rules of the bourgeois liberal social order (in Europe, the U.S., and a few other countries through about 1914), with a few important exceptions, are our best guide to the rules of just conduct. My focus is on the economic order but it is important to recognize that the social and political orders involve the same people. The German liberal Wilhelm Ropke [1954] may have best summarized the personal rules that best contribute to the economic order: "... a minimum of natural trust, confidence in the stability and reliability of the legal-institutional framework (including money), contractual loyalty, honesty, fair play, professional honor and that pride which makes us consider it unworthy of us to cheat, to bribe, or to misuse the authority of the State for egoistic purposes." To that, I would add only that the condition that most distinguishes an extended-market order from an oriental bazaar is the mutual desire for continued relations. The rules that contribute to the "evolution of cooperation" over time are subtle but simple: a mutual commitment to exchange (rather than threat) as the primary instrument to coordinate economic activity, the self-restraint to leave something on the table for the other party in