Published in Financial Post, August 29, 2002
Dina Palozzi, vice-president at BMO Nesbitt Burns, clamours to replace the provincial securities commissions with one national monopolistic bully. George Soros, the famous billionaire speculator, also favours more state regulation of financial markets. The federal Department of Industry and the Export Development Corporation subsidize businesses. The Finance Department's Web site boasts: "If it has to do with the economy, it's our business." What do all these characters have in common? They are not libertarian.
As it developed over the last three centuries, and especially during the last 50 years, libertarianism is a corpus of philosophical, political and economic doctrines that stress individual liberty. Libertarian economic ideas revolve around the free market, which is but the economic dimension of individual liberty. Let's try to fit the main ideas of economic libertarianism into four little boxes.
The first box involves "consumer sovereignty." As economist and political theorist John Stuart Mill wrote, "Over himself, over his own body and mind, the individual is sovereign." Consumer sovereignty reflects the assumption that each individual knows better than anybody else what is good for him. This idea runs counter to state paternalism, whether in smoking, pension plans, drugs or whatever. As Milton Friedman wrote, "freedom has nothing to say about what an individual does with his freedom."
Libertarianism, then, is neither "right" nor "left," as it opposes state authoritarianism, whatever its virtuous motive.
Consumer sovereignty favours consumer preferences, not producer privileges. Consumers are better served when producers don't have legal privileges. Steel protectionism or subsidies to Bombardier illustrate the problem with businessmen using the state against the consumers or the taxpayers. Adam Smith wrote about employers: "The proposal of any new law or regulation of commerce which comes from [employers] ought always to be listened to with great precaution ..."
Secondly, libertarianism involves entrepreneurship, which occupies a special place in the theories of economists like Ludwig von Mises and Friedrich Hayek. The less forced standardization and regulation, the better entrepreneurs can fulfill their economic role by constantly challenging the business establishment.
Third idea of economic libertarianism: With free consumers and free enterprise, the economy takes care of itself. The individual, said Adam Smith, "intends only his own gain, and he is ... 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" has been reformulated in contemporary economic parlance as spontaneous, or self-regulating, order.
Libertarian economists are not concerned with "the economy," which is just the constellation of free economic relations. The less the economy is the state's business, the better.
Theory and experience show not only that extreme forms of economic planning do not work (in the sense that individual preferences are not satisfied efficiently), but also that regulation is often unnecessary and economically harmful. When regulation is necessary, or politically unavoidable, the more decentralized it is, the better. For example, if we are to have securities regulation, it is better to locate it at the provincial or state level, to let issuers "select their securities regulator," as Yale law professor Roberta Romano argues.
The fourth idea of economic libertarianism -- related to the Public Choice school -- has been developed by James Buchanan and others over the last 50 years. However imperfect markets are, says public choice theory, the state's political and bureaucratic processes are even more imperfect and dangerous. The interventionist state is not the incarnation of some fictitious collective will, but simply the coercive instrument of some private interests. Private choices expressed on free markets are more conducive to prosperity and happiness than political choices.
Most libertarian economists believe that a limited state is necessary to enforce property rights and protect freedom of contract under the rule of law. Such a system was lauded as "real anarchism, feasible and realized, and not mere emotional rhetoric" by French philosopher Raymond Ruyer, in his In Praise of the Consumer Society.
Some economists have pushed the market logic farther. The contemporary school of thought called anarcho-capitalism, and represented by economists like Murray Rothbard and David Friedman, believes that the state is not a necessary evil but an avoidable one, which can be completely replaced by voluntary transactions on free markets.
When the chips are down, a libertarian economist is closer to anarchistic liberty than to state authoritarianism. This was beautifully illustrated by William Graham Sumner, a conservative-looking professor of economics, who told his Yale classroom: "Gentlemen, the time is coming when there will be two great classes, Socialists, and Anarchists. The Anarchists want the government to be nothing, and the Socialists want government to be everything ... Well, the time will come when there will be only these two great parties, the Anarchists representing the laissez faire doctrine and the Socialists representing the extreme view on the other side, and when that time comes, I am an Anarchist."