Summary with Key points GPE
Chapter 2: Laissez-Faire: The economic liberal perspective.
Introduction:
Liberalism:
United States: today has an active role for the state and helps the poor and funds programs.
Neoliberals: limited role in the economy = also called conservatives.
Roots of the economic liberal perspective:
Liberalism= “liberty under law”
Focuses on human nature that is competitive and self-interested but this is NOT a bad thing
because in the end this results in the improvement in the economy for all. (opposite of
mercantilist view because: Human nature is aggressive combative and suspicious which is a
bad thing.)
Francois Quesnay: Laissez-Faire, laissez-passer = Hands off! Leave us alone!
Even though Ricardo, Hayek, Friedman, and Smith recognised its abusive potential they admired the
market.
Adam Smith:
Famous book: The Wealth of Nations ; where he opposed mercantilist perspective.
“Commercial society” should produce rising standards of living for all members of society.
Invisible hand: “The best interest of all society is served by (rational) individual choices.” This
is observed from a far with this hand.
MOST KNOW: A capitalist economy is largely self-motivating, self-coordinating, and self-
regulating.
Lesser-known ideas:
State has function which is: defending the country, policing, building public buildings,
and help achieve individual rights.
He distrusted businesspeople and bankers.
Some companies gain disproportionate influence over parliament and push the
“private interests”. Such as strengthening patents nowadays to prevent competition.
He opposed “rent-seeking”(= the manipulation of the market to reward powerful
business interests) he thinks that the invisible hand cannot work if there is no
competition.
In a properly structured market, commercial activity would produce righteous and
prudent people. In the end they will also serve the interest of others. This means that
all workers should live in welfare for the market to work because as Marx also
thought is that a society can not be flourishing and happy when the members are
poor and miserable.
, - No one but the market is in charge – decentralized resource allocation process guided by
the tastes and preferences of individual consumers.
2. Extensive markets exist for the exchange of land, labor, commodities, and money.
3. Competition regulates economic activity; consumer self-interest motivates economic activity.
– Price competition also results in the efficient allocation of resources among competing
uses.
4. Freedom of enterprise; individuals are free to start up any new business enterprise without
state permission. – Business can easily channel resources to the production of goods and
services that are in high demand while simultaneously intensifying competitive pressure in
these industries. – When people can choose their work, they generally seek to work at places
they can prosper and enjoy. – Allows entrepreneurs to test new ideas in the marketplace.
5. Private property; the owner of a resource is legally entitled to the income that flows from the
resource. Which results in him investing in land and improving it so it stays up to date.
1-3 address nature and behaviour of markets
4-5 deal with the role of the state in establishing freedom of enterprise and property.
The transformation of liberal ideas and policies
Classic liberal writers; John Locke and Thomas Jefferson.
For Laissez-faire to work citizens need:
negative rights (freedom from state authority, such as freedom from unlawful arrest),
positive rights (which include unalienable rights and freedoms to take certain actions, such as
freedom of speech or freedom of the press), and the right of democratic participation in
government
Without which positive and negative freedom cannot be guaranteed. And that is how this market
system is interwoven in politics.
Examples of acts in this section:
Declaration of independence
Bill of Rights
Navigation Acts: protected British industries by requiring their goods be shipped to British
colonies in British vessels. (Smith agreed to even though restriction on international market)
Corn Laws: Restricted agricultural trade. (Smith opposed). This act was in the end a victory of
the masses over the agricultural oligarchy at the time when the system was revised. Because
in parliament only agriculturalist were included because of system.
Liberals: POSITIVE-SUM game: everyone potentially gets more.
Ricardo: Important here is free commerce because this produces efficiency and this quality is
almost just as important is liberty.
Ricardo: On top of that is in a world of globalization less hostilities because of strong ties.
Mercantilists: ZERO-SUM game: Gains of one person comes on the expense of the other.
John Stuart Mill and the revolution of the liberal perspective
John Stuart Mill:
Focused on moral and spiritual progress rather than the mere accumulation of wealth.
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