Thoughts on economics and liberty

The beliefs of the liberal

Classical liberalism has been vindicated in the 20th century through the collapse of totalitarian regimes in Germany and Italy, and communist USSR. Attempts in the West to promote a social democratic welfare state have also floundered badly. These ideas – that give the government a role beyond delivering law and order and a modicum of infrastructure – have by now been thoroughly discredited.
Freedom First has bravely defended classical liberalism in India for over 57 years in the face of socialist delusions. But not only have liberal ideas emerged unscathed, the only things that have actually worked in India since independence are based on the liberal philosophy. Thus, its 1950 constitution has defended at least some civil rights, and the liberal economic policies forced upon reluctant socialists (after they had bankrupted India in 1991) have helped it recover from a disastrous experiment with socialism.
Despite the sterling success of liberalism (even in India), even today there is no national liberal political party, and the shenanigans of corrupt socialists continue, unchecked. It is crucial for liberals to assert the moral claims and worldly benefits of liberalism, and to put to bed socialist and other collectivist ideas that have harmed India for so long.
Why freedom?
Liberalism gives primacy to two key values: life and liberty. It asks for the protection of “autonomous spheres in which the ends of the individuals are supreme” (Hayek). It asks that we must be allowed to do what we want as long as we don’t harm others.
This crucial value – of freedom – can be explored from two angles: the moral and empirical. The moral imperative requires everyone to be treated equally under the law, which means everyone should have the same freedom of action. All moral theories of justice also lead us to freedom. Individual justice (not social justice: a vacuous concept) is the other side of the coin of freedom. The idea of justice makes sense only where free-will prevails. Only a free man can be held to account.
The other aspect – empirical – argues that freedom is the only value capable of ensuring a harmonious society. The liberal, as a scientist, observes human weaknesses and limitations; and hence promotes a system that will permit us freedom but hold us to account. Another key empirical justification for freedom is that it generates huge amounts of wealth.
Institutions of liberty
The institutions of liberty are designed to empower self-interested individuals with widely differing tastes to cooperate voluntarily to achieve their personal goals using knowledge which is scattered across the society. I highlight below some of the key institutions below. A detailed excursion into liberty and its institutions is provided in my draft manuscript, The Discovery of Freedom (
The state – for the defence of our freedom
Liberalism opposes anarchy. A state (nation) with an agreed boundary and government is the basic liberal institution. Also, “[o]ne must be in a position to compel the person who will not respect the lives, health, personal freedom, or private property of others to acquiesce in the rules of life in society. This is the function that the liberal doctrine assigns to the state: the protection of property, liberty, and peace” (Ludwig von Mises). The government must therefore perform the key functions of defence, justice, and police. In particular, justice must be quick, proportionate, and accessible.
Limited government
Functions beyond these core areas of responsibility can be taken up by a government only where a strong case for the provision of public goods, or a level of equal opportunity, exists. In doing so, the government must not reduce our liberties, nor skimp on the delivery of its core functions. It is particularly important also that each citizen is allowed to pursue his own happiness the way he or she pleases. The government must never become our nanny.
Live and let live
A harmonious society can arise only when no one is permitted to forcibly impose his personal beliefs (religious or otherwise) on others. Note that liberalism is not against religion. Far from it. But it does demand tolerance and freedom of expression. It is intolerant of intolerance.
Separation of the domains of the state and religion
The liberal state is non-denominational. It does not support nor comment on any religious matter. Thus it does not make religious law, nor fund religious activity. Religions, similarly, are expected not to impose their demands on the functions of the state.
Participative government
As part of equal freedom, every adult should have equal political rights – including democratic franchise. Different views exist, however, on which form of democracy is best. Based on an analysis of incentives (see Breaking Free of Nehru: for details), I recommend continuing India’s current form of democracy, subject to a few reforms.
Limited democracy
There is a belief among some liberals that the ‘will of the people’ is supreme. This is incorrect – to the extent that such ‘will’ tramples on the liberty of a minority. Just as the government should be restricted to its core functions, democracy should be limited through constitutional safeguards that disallow the rule of the mob. Democracy is not an innate social value. Our freedom is.
Accountable government
The authority we give to the government is not a blank cheque for whimsical taxation or interference in the economy, or whimsical support for one group at the expense of another. The citizen, as principal, is entitled to hold his agent – his political representative, and the government – firmly to account. The executive must disclose the reasons for its decisions to the parliament, and the parliament must return back to the people every few years to renew its mandate.
To bring about greater accountability, the governance system must align our agents’ incentives (i.e. of MPs, MLAs and bureaucrats) with ours, so that our agents advance our security and welfare, not just their own. This means, in particular, that MPs’ and bureaucrats’ compensation must be high enough to eliminate corruption, with a major part of it linked to performance indicators of freedom, integrity, and prosperity.
Rule of law, and general rules
As Hayek noted, “[t]he great aim of the struggle for liberty has been equality before the law.” The state must not create special laws for special ‘classes’ of people – whether religious or otherwise, or favour particular businesses at the expense of others. (For instance, it can’t give the powers to issue currency only to a single bank.) Further, the functionaries of government should comply with, and disclose precisely how their decisions are compatible with the general rules. There is no place for whimsy in the free society.
Reasonable equality of opportunity
Free societies generate huge quantities of wealth, leaving only a tiny residue of poverty. But while a harmonious society can exist even with extreme economic inequality, poverty dampens the allegiance of the poor to the nation. For many other reasons, as well, the liberal accepts the need for a direct social insurance mechanism that supports, at a frugal level, those who fail to earn a minimum livelihood despite their best efforts.
These, in a nutshell, were the beliefs of the liberal. Clearly, India is far from being a free society. The liberals have a lot of work ahead of them to bring freedom to India.
Freedom Team of India
FTI ( is looking for Indian liberals to step forward and lead India to freedom. Please join or otherwise support FTI!
[This article by Sanjeev Sabhlok was published in Freedom First on 1 February 2011]
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