Francis Fukuyama 3

 

Francis Fukuyama 3

The third argument

The Economic Case

The third major justification for liberalism had to do with its connection to economic growth and modernization. For many nineteenth-century liberals, the most important form of autonomy was the ability to buy, sell, and invest freely in a market economy. Property rights were central to the liberal agenda, along with contract enforcement through institutions that lowered the risk of trade and investment with strangers. The theoretical justification for this is clear: no entrepreneur will risk money in a business if he or she thinks that it will be appropriated the following year either by a government, business competitors, or a criminal organization. Property rights needed to be supported by a large legal apparatus that included a system of independent courts, lawyers, a bar, and a state that could use its police powers to enforce judgments against private parties.

Liberal theory did not only endorse the freedom to buy and sell within national borders; early on it argued in favor of an international system of free trade. Adam Smith’s 1776 Wealth of Nations demonstrated the ways in which mercantilist restrictions on trade (for example, the Spanish Empire’s requirement that Spanish goods be carried only in Spanish ships to Spanish ports) were highly inefficient. David Ricardo laid the basis for modern trade theory with his theory of comparative advantage. Liberal regimes did not necessarily follow these theoretical dictates: both Britain and the United States for example protected their early industries with tariffs, until the point where they grew to a scale that allowed them to compete without government assistance. Nonetheless, there has been a strong historical association between liberalism and freedom of commerce.

Property rights were among the initial rights to be guaranteed by rising liberal regimes, well before the right to associate or vote. The first two European countries to establish strong property rights were England and the Netherlands, both of which developed an entrepreneurial commercial class and saw explosive economic growth. In North America, English Common Law protected property rights prior to the time when the colonies gained their political independence. The German Rechtsstaat, building on civil codes like Prussia’s 1792 Allgemeines Landsrecht, protected private property long before the German lands saw a hint of democracy. Like America, autocratic but liberal Germany industrialized rapidly in the late nineteenth century and became an economic great power by the early twentieth century.

The connection between classical liberalism and economic growth is not a trivial one. Between 1800 and the present, output per person in the liberal world grew nearly 3,000 percent. These gains were felt up and down the economic ladder, with ordinary workers enjoying levels of health, longevity, and consumption unavailable to the most privileged elites in earlier ages.