§1. On the very threshold of the subject of enquiry defined in the preceding chapter we find ourselves confronted by the sweeping doctrine that the sole function of an ideal Government in relation to industry is simply to leave it alone. This view in some minds seems to be partly supported by a curious confusion of thought; the absence of governmental interference being assumed for simplicity's sake in the hypothetical reasonings, by which the values of products and services are deductively determined, is at the same time vaguely regarded as a conclusion established by such reasonings. Still when modern Political Economy---according to the common view of its commencement as a special science or study---was founded by the ``Physiocrats'' in the middle of the last century, it was an essential part of its teaching that a statesman's business was not to make laws for industry, but merely to ascertain and protect from encroachment the simple, eternal and immutable laws of nature, under which the production would regulate itself in the best possible way, if Governments would abstain from meddling. And from this time forward, under the more enduring influence of Adam Smith, the accredited expositors of Political Economy---at least until the comparatively recent movement against Individualism in Germany---have commonly been advocates of Laisser Faire. Hence since this doctrine, so far as it is sound, is evidently the most important conclusion of Political Economy considered as an Art, it will be convenient to begin this department of our investigation by examining carefully the grounds on which it is advocated.
Throughout this examination it is desirable, for clearness' sake, to keep distinct the two points of view which we have taken separately in the two preceding books. For the proposition that what, after Adam Smith, I shall call ``natural liberty'' tends to the most economic production of wealth, by no means necessarily implies the further proposition that it also tends to the most economic or equitable distribution of the aggregate produce. It was no doubt held by the Physiocrats that natural Liberty tends to realise Natural Justice: and the same view has been commonly maintained by the more thorough-going followers of Adam Smith in France and Germany,---of whom Bastiat may be taken as a type---and has been frequently expressed or implied in the utterances of subordinate members of the ``Manchester School'' in England. But I am not aware that it has been expressly affirmed by any leading economic writer in England from Ricardo downwards; and since the influence of J. S. Mill has been predominant, I do not think it has been the prevailing opinion even among the rank and file of the orthodox school of Political Economy. Many, at any rate, of those who in England have held most strongly that it is expedient for Government to interfere as little as possible with the distribution of wealth resulting from free competition, have not maintained this on the ground that the existing inequalities are satisfactory; but rather in the belief that any such interference must tend to impair aggregate production more than it could increase the utility of the produce by a better distribution.
It will be convenient therefore to commence with an examination of the arguments by which the system of Natural Liberty is justified in its relation to production. The following is a concise statement of the reasoning to this conclusion which is more or less definitely implied, and partly expressed, in numberless passages of the works of Adam Smith and his successors.
Assuming as universal a fairly intelligent and alert pursuit of the interest of self and family, it is argued that wealth and other purchaseable commodities will be produced in the most economic way, if every member of society is left free to produce and transfer to others whatever utilities he can, on any terms that may be freely arranged.
For (1) the regard for self-interest on the part of consumers, will lead always to the effectual demand of the things that are most useful to society; and (2) regard for self-interest on the part of producers will lead to their production at the least cost. That is, firstly, if any material part of the ordinary supply of any commodity A were generally estimated as less useful for the satisfaction of social needs than the quantity of another commodity B that could be produced at the same cost, the demand of consumers would be diverted from A to B, so that A would fall in market-value and B rise; and this change in values would cause a diversion of the efforts of producers from A to B to the extent required. And, secondly, the self-interest of producers will tend to the production of everything at the least cost: for the self-interest of entrepreneurs will lead them to purchase services most cheaply, xtaking account of quality: and the self-interest of labourers---including, its expansion, through parental affection, into domestic interest---will cause them to be trained to the performance of the best-paid, and therefore most useful, services for which they are, or are capable of becoming, adapted; so far as the cost of the training does not outweigh the increment of efficiency given by it. Any excess of labourers of any kind will be rapidly corrected by a fall in the demand for their services; and, in the same way, any deficiency will be rapidly made up. And the more keenly and persistently each individual---whether as consumer or as producer---pursues his private interest, the more certain will be the natural punishment of inertia or misdirected effort anywhere, and therefore the more completely will the adaptation of social labour to the satisfaction of social wants be attained. What has been said applies primarily to ordinary buying and selling; but it may obviously be extended to borrowing and lending, hiring and letting and, in short, to all contracts in which any exchange of utilities takes place: the only thing required of government in any such case is to secure---by the protection of person and property from force and fraud and the enforcement of freely made contracts---that every one shall be really free to purchase the utility he most wants, and to transfer what he can best furnish.
This conception of the single force of self-interest, creating and keeping in true economic order the vast and complex fabric of social industry, is very fascinating; and it is not surprising that, in the first glow of the enthusiasm excited by its revelation, it should have been unhesitatingly accepted as presenting the ideal condition of social relations, and final goal of political progress. And I believe that the conception contains a very large element of truth: the motive of self-interest does work powerfully and continually in the manner above indicated; and the difficulty of finding any adequate substitute for it, either as an impulsive or as a regulating force, is an almost invincible obstacle in the way of reconstructing society on any but its present individualistic basis. At the same time, before we accept the system of natural liberty as supplying the type to which a practical politician should seek to approximate, it is important to obtain a clear view of the general qualifications with which the argument above given has to be accepted, and of the particular cases in which its optimistic conclusion is inadmissible.[Back to:]