Political Economy in Half a Lesson

An objection to libertarianism and classical liberalism is that total individual autonomy does not exist: even on the market, I cannot do anything I want. So what’s all the fuss about individual liberty? This is an important question about liberal political economy.

The short answer is that in a regime of equal individual liberty, you are constrained by the equal liberty of all other sovereign individuals, while in a regime of non-liberty, you are constrained by the will of some individuals (or by stifling tribal customs). To obtain this result, one needs first to recognize scarcity: resources, if only time, are limited and not everybody can have or do everything he wants.

The simplest microeconomic model, which you will find in any good microeconomics textbook, embodies these ideas. In order to maximize your utility (that is, improve your situation), you choose among all bundles of goods and services on the basis of both your preferences (tastes) and your budget constraint. Your budget constraint is composed of two things: the relative prices of all goods (and services) and your income; you can’t have everything. Your income is determined by how useful your productive capacities, yourself or your capital, are to others. Whatever his ultimate purpose (except negating your equal liberty), anybody may bid for what you directly or indirectly produce. Prices themselves are determined by everybody bidding on the goods he is pursuing. A free market is a continuous and silent auction, an important idea to understand.

The analysis is basically the same for all, or nearly all, kinds of social interaction. In order to obtain what you consider to be your preferred situation, you constantly choose among available social interactions on the basis of your preferences and what is possible for you to do. What is possible for you to do—your “feasible set”—is determined by what you must sacrifice to pursue some means of happiness instead of some others, and by your abilities and capacities (which are likely partly innate, partly acquired, pace Adam Smith). You can’t do everything. Your feasible set is determined by your contribution to the happiness of others, the latter’s cooperation, and of course by the person you are. The relative terms at which you can pursue social opportunities are determined by the social consequences of what all others do with the same liberty as you have to pursue their individual happiness.

These choices or decisions about your life as an adult can be made either by somebody for you (imposed on you), which, at least at a certain level, is called despotism or tyranny, or by yourself, which is called individual liberty.

Among the objections to this economic way of looking at the social world, one claims that the simple model described above does not work: it is impossible or “inefficient” for all individuals to have their individual liberty limited only by the equal liberty of all others. The response to this objection is that the possibility and efficiency of an autoregulated economic and social order has been a major 18th-century discovery, notably by Adam Smith. James Buchanan, the 1986 laureate of the Nobel Prize in economics, similarly explained that “we can all be free” (his emphasis). Economics demonstrates that the economy and society generally work better without commands from a coercive authority. What the “generally” exactly covers is a controversial matter, but it is difficult to rationally discuss it without some knowledge of economics. “Market failures” exist, of course, but they are generally much less constraining than the failures of government coercion.

An illustration a contrario was given by the Russian official who, after the breakup of the Soviet Union, asked British economist Paul Seabright: “Who is in charge of the supply of bread to the population of London?” A bread czar is not necessary. Historically and theoretically, there is more bread without one.

Other objections are more ethical, which means that they more explicitly require a value judgment. Instead of plunging into that rabbit hole, let me quote Anthony de Jasay, which raises the right questions (from “Before Resorting to Politics,” in de Jasay’s Against Politics: On Government, Anarchy, and Order [Routledge, 1997], p. 152):

If consequentialism is circular, depending in all cases involving harm or interpersonal comparisons on a value judgement about its own validity, the standard argument  for letting the state to do all the good we can find for it to do, and accordingly allowing politics to have unrestricted scope, falls to the ground. Its collapse releases and activates and activates the basic presumption against coercion, a presumption that can be derived either from an axiom about the practice of choice, or from a social convention of “live and let live,” of letting each do what it will if doing so involves, roughly speaking, no harm to others. Accepting, and acting on, this presumption also presupposes a value judgement, but it is one that demands far less of our moral credulity than any consequentialist alternative I can think of.

This would take us much farther. There are many other objections and further explanations, but I could only promise, at most, half a lesson.