Government, the State, and Freedom (4) - John Gray's Account

Image credit. Continued from Government, the State, and Freedom (3) - John Gray's Account.

In the last sequence to the present series on Government, the State, and Freedom, I hoped to draw attention to the fact that liberty remains silent on many of the grand issues that perturb us in the heat of public debate. And yet, often we invoke her, as if she had spoken, to explain that liberty is on our side demanding for her own sake the policies we so ardently propose.

Consider my post Economics and the Indeterminacy of Freedom (1).

What I am arguing in this post is that there are severe limits to a liberal theory of the state, meaning: the robust conditions of freedom which produce modern civil society do not bear sufficient content in them to be carried over into true and valid conclusions as to what the state should look like in vital respects such as economic, fiscal, and monetary policy. When, nonetheless, we claim to have the correct solution by advancing a species of liberal policy we may in actual fact be producing a harmony perceptible to those close to our ideological paradigm but not a logically and empirically sound argument. Our proposal rhymes with our premises and pet principles, but this is no guarantee that we have got it right.

Hear the charivari of liberal recommendations in the filed of fiscal and monetary policy:

The recent literature of classical liberalism abounds with proposal for the constitutional regulation of fiscal and monetary policy, designed to avert this arbitrariness, though by no means all contemporary classical liberals are persuaded that the imposition of constitutional rules on governmental activity in these areas is the best antidote to the danger of arbitrary policy.

In monetary policy, the chief danger concerning classical liberals has been that of sudden destabilizing fluctuations in the value of money - mostly inflationary over the last four decades, but deflationary in the interwar period - generated by governmental manipulation of the money supply [not even this is uncontested, IGTU].

Led by Milton Friedman, a substantial body of contemporary liberals, has argued for the control of monetary policy by a fixed rule. Analogously, many contemporary liberals have in the field of fiscal policy advocated a balanced-budget rule compelling the abandonment of deficit financing policy. In these proposals, we see the search for effective constitutional limitations on governmental spending and money-creating activities.

Other classical liberals, by contrast,  have urged that limiting arbitrary governmental activities in these areas is best achieved by encouraging the growth of countervailing power rather than instituting legal rules which may then be circumvented or altered..

In monetary policy, for example, Hayek has urged that depriving government of its monopoly of money-creation is a better way of disciplining its monetary activities than is an attempt on monetarist lines to control them by a fixed rule.

Again, advocates of supply-side economic theory resist balanced-budget proposals on the ground that reducing tax levels may actually increase tax revenues by stimulating economic activity, whereas balancing the budget at current tax rates may precipitate recession.

I think, however, that these differences are in the end disagreements about transitional strategy rather than about the liberal goal. Hayek certainly favours a monetary constitution that deprives government of its monopoly powers, and the supply-side economists are typically advocates of an automatic gold standard. Common to all contemporary classical liberals is the goal of a form of limited government under the rule of law in which (aside from narrowly demarcated emergency provisions) the central economic powers of government - powers of taxation, spending and the issuance of money - are subject to rules no less stringent than those which protect the basic personal liberties.

In an attempt to be true to liberal principles, policies may be chosen that bring harm to society. There is great danger in the tacit method that relies on the self-resonance of an ideology rather than being driven by fact-oriented corroboration. Or, one's policy fetish ties up adherents in a posture of defiance, committing their energies to running down dead ends rather than embarking on an open-minded quest.

For an illuminating comment on futile Hayekian monetary policy recommendations see Free Banking - Wishful Thinking.