What is a Liberal Economy?

Liberal Economy:  An economic system in which economic activity is conducted through free and mutually agreed transactions.  A liberal economy is also known as a 'Free Market Economy' or a 'Capitalist Economy'.  A liberal economy is characterised by:

  • No slavery - direct or indirect

  • Minimal state interference in economic matters

  • No monopolies or cartels; state, private or labour union

    • Competition results in:

      • Consumer choice driving market demand and prices

      • Labour choice driving labour market and wages

  • Free markets

  • Labour

    • Workers are free to negotiate salaries and working conditions with employers

    • Workers are free to choose their employment within the limits of their individual merit and market demand

 

Prior to the development of the free market, there were only two ways to accumulate significant wealth; plunder (theft of posessions) and slavery (theft of labour).  Wealth in a free market is created as a by-product of providing an economically valuable product or service.  These products or services may take many forms, but all boil down to the product of combined effort (hard work), talent, knowledge and skill.

Unlike Feudal or Socialist economies, where economic production is conducted to serve the self-interest of the producer, in a Liberal economy, production is conducted to serve the demands of the consumer.  This results in a form of forced altruism where economic success is tied directly to one's ability to most effectively serve the needs of others.

Because a free liberal economy is based on mutually beneficial transactions and, fundamentally, on the trust that underpins such transactions, a truly free market is essentially self regulating, automatically punishing corruption.  When trust in an individual or company is lost, the market refuses to do business with them and they either change, or fail.

This is why the corruption and exploitation endemic to feudal and socialist economies is rare in free market economies.  This phenomenon has become a serious issue in recent years when western companies have been dealing with Chinese companies, for example.  As China operates a fascist/Keynesian 'state capitalist' form of socialist economy, state/party interference, bribery, nepotism and patronage are commonplace.  Chinese businesses, when 'caught' in unethical business practices, are often confused as to why the western company that 'caught' them is no longer willing to conduct business with them.  What is seen as 'normal' practice in a fundamentally unethical or anti-ethical economic system is considered corruption in a free-market economy.

In a free market economy, the primary role of the state is to ensure regulation prevents the creation of monopolies or cartels.  Virtually all the high level corruption and labour exploitation that occurs in free market economies, is a secondary effect of the emergence of a monopoly or cartel.  Unfortunately, in the west, most such monopolies or cartels are the result of government interference for partisan political gain, with many monopolies being deliberately created by government.  In Canada, for example, many jobs have become 'union only' jobs, but the workers have no choice in union representation.  Therefore, in order to gain employment, workers are forced to pay union dues to a union that often does not represent the workers best interests and is merely an unofficial 'wing' of a political party.  With a worker's economic liberty in the hands of a self-interested and unaccountable political entity, workers are often pressured into following a particular political view.  In this case, this results in a de-facto suspension of a citizen's economic and civil liberty.

This form of exploitation of the working class by politically partisan unions is now common and such monopolies are a major weakness in western nations.  The continued advance of civilisation requires this problem to be taken seriously and effectively addressed.

Reading List:

'The Theory of Moral Sentiments' - Adam Smith (1759)

'The Wealth of Nations' - Adam Smith (1776)

'Principles of Political Economy' - John Stuart Mill (1859)

'Economics in one Lesson' - Henry Hazlitt (1946/1988) *

* If you want a 'one stop' introduction to liberal economics, 'Economics in one Lesson' is a good place to start.  The clue is in the title I suppose.

Edited:  23 Dec 18