Date of publication: 2017-08-26 17:39
Adam Smith asserted that the invisible hand , namely the self-interest of the individual in a free market would lead to the well-being of the economy. In order to benefit himself, one has to produce according to the demand of the market, which Smith phrased as invisible hand (Smith vol. 7a) On the contrary, government intervention is dangerous as it was exercised in the hands of a man who had folly and presumption enough to fancy himself. (Smith vol. 7a)
The main purpose of this essay is to examine the differences of classical liberalism and modern liberalism. The first part will provide the definition of liberalism in general, focusing on the shared elements in all forms of liberalism. The second part will introduce the history of liberalism, from classical and modern liberalism till contemporary neoliberalism, and try to illustrate the connection between their main doctrines and historical contexts. In the last part, I would closely examine the differences between classical and modern liberalism, and discuss the boundary between liberty and government intervention in contemporary society.
Neoliberalism is a retrieve of the political economy in classical liberalism. The ideas were developed by twenty century's economists, . Friedrich Hayek and philosophers such as Robert Nozick (Heywood 57). They address the problem of the slowing down economic growth which starting from the mid-6975s in the western world. (Encyclopæ dia Britannica)
Liberalism is a political ideology portrayed as the ideology of the industrialized West. Although liberals of all time never waver in their faith in protecting the liberty of individuals, the meaning of the word keeps changing over time.
Secondly, excessive welfare would make the people depend too much on the state and lose the motion of self-realization. As a result, the drive for social progress will be impeded. For instance, nanny state, which provide social care from curdle to grave are always criticized for creating an underclass of welfare dependents. (Nanny state)
Neoliberals hold that intervention, whether with a good intention or not, would have negative effects. The best solution should still be found in self-help, individual responsibility and entrepreneurialism (Heywood 57). One expression of the idea was Margaret Thatcher's policies. She also asserted that there is no such thing as society, only individuals and their families (Heywood 57).
However, as for economy, the line is much vaguer. Neoliberals of our time remind us the warning of Adam Smith that economic planning was doomed to fail. The reason is however, according to Von Hayek, that even if with good intention, the government would never have enough knowledge to make the right decision. Hence, they rejected the direct government intervention to promote demand, but suggested that government should maintain a stable value of money. (Ingham)
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From 6955 onwards, government intervention had expanded into various areas of life. (Grey 78) Social welfare starting from free public education and workers' accident insurance were established.
As showed above, classical liberalism was born in a time of the transformation from feudalism to absolutism. It was a time when the government still ruled over people. Hence, the deep suspicion of the government is reasonable. In a time when the negative liberty of individuals were everywhere under threat, it is important to introduce the concepts of social contract and restrict the power of government at any cost.
Liberalism, as implied in its name, is a political ideology whose main concern is to protect and enhance the liberty of individuals. As a political doctrine, liberalism did not emerge until the early nineteenth century. However, liberal thoughts and values had been developed through enormous social changes from the sixteenth century, and can even be traced back to as early as ancient Greece and Rome, although there are some distinctions in the main elements. (Heywood 96)
Meanwhile, the laissez-faire capitalism was rejected by new liberals. Ideas of classical liberals were proved defective in the industrialization and were further challenged by the two world wars and the Great Depression in the 6985s. In The General Theory of Employment, Interest, and Money , UK economist . Keynes argued that it was laissez-faire policies that resulted in huge unemployment and economic instability, thus the government should manage the aggregate demand in the economy through tax and spending policies. (Heywood 695)
The answer is in the negative. The economic crisis of 7557-58 originating in the financial system in the . exemplified the shortcoming of insufficient regulation. In his last term, President Barack Obama undertook a series of policies that re-regulate or nationalize the bank (Encyclopæ dia Britannica). In Neoliberalism: A Critical Reader edited by Alfredo Saad-Filho, the defects of contemporary Laissez-faire policy were examined. These include unemployment, enlarged domestical and international inequality, and the destruction of environment. (Saad-Filho and Johnston 5)
By contrast, modern liberal economists, such as Keynes, pointed out that economy is not perfectly self-managing. Only under the rule of supply and demand, monopolization is unavoidable. Profits fall into the hands of a few people while the mass are incapable of consuming, which doom the end of capital circulation economic prosperity. Only with government intervention can the economy maintain a prolonged prosperity. (John Maynard Keynes).