I must admit, I wasn’t particularly excited by the title of Deepak Lal’s latest book, Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-first Century — it didn’t sound particularly nuanced — but this sample chapter impressed me. Lal notes that many older agrarian societies had some of the trappings of capitalism — markets, profit seeking, banking, bills of exchange, and business firms — but they weren’t quite capitalist:
But these agrarian civilizations looked upon these merchant capitalists as, at best, a necessary evil, as commercial activities were universally held in low esteem. Being intermediaries in the economic process, the merchants produced nothing in a tangible way, and were looked upon as parasites who were satisfying the demands of a tiny urban elite by transferring the rural surplus produced by those who wielded the plough to feed the warriors and priests in the towns. Devoted primarily to profit they became immensely rich, but their wealth was not matched by social acceptance or political power. It was only in the western part of Eurasia in the High Middle Ages that this changed, and the capitalists were eventually able to create an economy where their unceasing search for profit became not only acceptable but the norm. Thus, capitalism as an economic system came about when the merchant and the entrepreneur finally were given social acceptance and protection from the predation of the state.
Lal looks at globalism throughout history:
Unlike the modernity of capitalism, globalization is an ancient cyclical phenomenon that has been associated with the rise and fall of empires. For the essence of globalization is the creation of a common economic space amongst hitherto loosely linked or autarkic regions. The Pax generated by empires has provided this common economic space and led to those gains from trade emphasized by Adam Smith and thereby to what can be labeled Smithian intensive growth. Thus, the Graeco-Roman empires linked the areas around the Mediterranean, the Abbasid empire of the Arabs linked the worlds of the Mediterranean and the Indian Ocean, the Mongol empire linked China and Central Asia with the Near East, the various Indian empires created a common economic space in the subcontinent, while the expanding Chinese Empire linked the economic spaces of the Yellow River with those of the Yangtze. But, until the creation of the British Empire in the eighteenth and nineteenth centuries, the imperial sway was usually limited to particular regions, and the resulting economic integration was not truly global. The first truly global empire was that of the British, and it was the nineteenth century which saw the emergence of the first truly global economy — the first liberal international economic order (LIEO).Till the emergence of the British Empire the other ancient empires were agrarian organic economies, which were dependent upon the products of land. As this was fixed and subject to diminishing returns, the Smithian impulse from greater economic integration petered out. So, each of the empires had its economic climacteric, as with stagnant technology and the binding land constraint, they could not generate what I have labeled Promethean growth — which depends upon converting an economy based on the energy derived from the products of limited land to one which uses the unlimited energy provided by fossil fuels. Thereafter they were in a “high level equilibrium trap” with only extensive growth occurring — with output keeping pace with population growth and per capita income stagnating. We have no quantitative evidence for all the ancient empires, but heroic attempts have been made to piece together the per capita incomes and population of the three major empires at the beginning of the Christian era (India, China, and Rome) and are summarized in table I.1.
Lal’s book has prompted Tyler Cowen to list some key issues concerning “classical liberalism” in the 21st century:
- The welfare state is not going away. But it is imperative that we avoid Western European levels of taxation through the explosion of Medicare liabilities.
- What recipes lead to both strong markets and decent governance?
- We face a variety of critical issues involving decentralization: how to deal with pandemics, natural disasters, or terrorists with nuclear weapons, to name but a few. None of these are areas for laissez-faire.
Arnold Kling composes a similar list:
- We need to emphasize the middle ground in between the welfare state and individualism.
- I believe quite strongly in the importance of the institutions of civil society.
- A classical liberal in this century should be relatively apolitical, in the sense of not rooting strongly for a political party.
- Private forms of support for intellectual property, in the form of patronage, should be allowed to substitute for the legalistic approaches of patent and copyright.
- Above all, a classical liberal needs to identify, expose, and counter the marketing strategies and tactics that are used to expand government.