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Early ancestors

Some classical liberals trace their ideas back to the Chinese philosopher Lao-Tzu, who advocated restraint in leadership. Twenty centuries ago, the Indian emperor Ashoka was also calling for freedom and political tolerance. And Islam embraced economic freedom from its earliest origins in the sixth century.

But these are distant cousins of modern classical liberalism. The direct line is European, indeed specifically English. According to the classical liberal thinker and politician Daniel Hannan (1971–), it starts with the ­Anglo-Saxons, who from around the year 400 started to settle in what we now call England.

Anglo-Saxon England

As an island nation, hard to invade, England enjoyed greater stability than continental Europe, and there arose a secure system of property tenure and justice. It was not something anyone intended – just the gradual result of independent-minded Anglo-Saxons standing ox-like in their furrows and establishing their rights against interlopers.

Later, the need to co-exist with the Vikings, who started settling from around 800, led to the equally unintended emergence of a common language and common legal arrangements. In the absence of any European-style feudal authority, what came out of this melting pot was the common law – the law of the land that evolved through the interactions of individuals, rather than the law of princes laid down by the powerful.

The common law remains a key foundation of classical liberalism today. It was not monarchical, but determined by the people themselves. It respected private ownership and contract. It recognised liberty under the law. Nobody had to ask permission before acting: anything not specifically prohibited was legal. The law was everyone’s business, and law officers were accountable. Even kings were chosen by a council of elders (the Witan), which would demand their loyalty – rather than the reverse.

Invasion and rebirth

This came to a sudden end in 1066, with the Norman invasion and military occupation. England became ruled by a European elite, whose language and authoritarian ways separated them from the English population. They imposed feudalism, serfdom, social stratification and top-down law-making – the complete opposite of the freedoms and limited government that the Anglo-Saxons had known.

But within a few generations, the Norman landowners identified more and more with the locals; while King John (1166–1216), insulated behind his French courtiers, came to look increasingly detached and despotic, arbitrarily manipulating the law in order to maximise his tax revenues.

The result, in 1215, was the barons forcing the king to sign a great charter – Magna Carta – of rights and privileges.

Most of the charter is about reasserting people’s ancient property rights, and protecting them from the arbitrary predations of officialdom – the sort of secure rights of tenure that classical liberals deem of crucial importance today.

But a key part of the charter crystallised ancient freedoms – of the church, of cities and of the general population – and classical liberal principles such as trial by jury and the due process of law. It even asserted that the king, like everyone else, would be bound by the ‘law of the land’. Government, in other words, would be subject to the rule of law.

Though John disavowed the charter, he died soon after. His son Henry III came to the throne as a minor, and power subtly shifted from the monarchy to an assembly of barons. Henry reissued the charter, voluntarily, in 1225. But further confrontations with the barons, mostly over taxes for wars, led to another classical liberal initiative in England – the creation of Parliament.

The rise of classical liberalism

Cultural and religious revolutions

The English historian Lord Acton (1834–1902) wrote that: ‘Liberty is established by the conflict of powers’. In mainland Europe, the authority of the Roman Empire in the West and of subsequent feudal lords and monarchs had been challenged by the rise of the Christian Church. They did not consciously develop free institutions, but the mutual limitations that they imposed on each other opened up the opportunity for greater personal freedom.

Two other historical events in Europe cemented the importance of individual freedom over state power. A key part of the cultural revolution that was the Renaissance, roughly between the fifteenth and seventeenth centuries, was the introduction of the printing press into Europe in 1450. This simple invention broke the elites’ monopoly over science and learning, making knowledge accessible to ordinary individuals. No longer did anyone have to consult authorities for guidance and permission: they had the information on which to base their own choices.

The Protestant Reformation, sparked by Martin Luther in 1517, reinforced this further. It challenged the power of the Catholic Church, and raised the self-esteem of ordinary people by asserting that they could have direct, personal and equal access to God, without needing the intermediation of an elite priesthood.

All this served to raise the position and importance of the individual over the established institutions of power. In the countries where this greater freedom flourished most, art, industry, science and commerce flourished too.

Political revolution

Politically, things were also changing. A pro-freedom mass movement, the Levellers, swept over England in the 1650s. It was led by John Lilburne (1614–57), who insisted that people’s rights were inborn rather than bestowed by government or law. Arrested for printing unlicensed books (in defiance of the official monopoly), he appeared before the notorious Star Chamber, but refused to bow to the judges (insisting that he was their equal) or accept their procedures. Even in the pillory he continued to argue for freedom and equal rights, and inevitably he was imprisoned for his challenge to authority – as he would be several times more.

Lilburne became a popular anti-establishment figure. He petitioned for the end of state monopolies and spelt out what amounts to a bill of rights. This was taken further by Richard Overton (c. 1610–63), also imprisoned for refusing to acknowledge the judicial authority of the House of Lords, who called for a written constitutional ‘social contract’ between free people whom he saw as having property in their own persons that could not be usurped by anyone else.

Curbing the power of monarchs

After the English Civil War (1642–51), the reigning monarch, Charles I, was put on trial and executed for high treason – a stark assertion of the limits on government authority.

But the power relationship between king and Parliament had already turned. The island nation of Great Britain (as it had become) needed no standing army to protect itself against frequent invasions. So, unlike continental Europe, the monarch had no force that could be used to repress and exploit the public. Charles needed Parliament to agree to raise taxes for foreign wars.

This frustrated a jealous monarch and led to many conflicts. Among other things, Charles suspended Parliament, sought to levy taxes without its consent and attempted forcibly to arrest five of its most prominent members. He had broken the implicit contract with the people, by which their rights were secured.

The Glorious Revolution

After an interregnum (1649–60) under the dictatorship of Oliver Cromwell, the balance of authority was made evident again when Charles’s son Charles II had to appease Parliament in order to return as king. When his successor, Charles’s second son, James II, was deposed, it was Parliament who invited William (the Dutch Prince of Orange) and Mary to the throne. The direction of authority, from people to monarch, could not have been clearer.

In 1689, William and Mary signed the Bill of Rights, an assertion of the rights and liberties of British subjects and a justification of the removal of James II on the grounds of violating those rights and liberties. It called for a justice system independent of monarchs, an end to taxation without Parliament’s consent, the right to petition government without fear of retribution, free elections, freedom of speech in Parliament and an end to ‘cruel and unusual punishments’. It would directly inspire another great classical liberal initiative, America’s own Bill of Rights, a century later.

John Locke (1632–1704)

John Locke drew together the older tenets of classical liberalism into a recognisably modern body of classical liberal thinking. Part of his purpose was to show how James II had forfeited his throne by violating the social contract. All sovereignty, he asserted, comes from the people, who submit to it solely in order to boost their security and expand their general freedom. When this contract is broken, individuals have every right to rise up against the sovereign.

Locke also developed natural rights theory, arguing that human beings have inherent rights that exist prior to government and cannot be sacrificed to it. Governments that infringe these rights were illegitimate.

But central to Locke’s ideas was private property, and not just physical property. Locke maintained that people have property in their own lives, bodies and labour – self-ownership. From that crucial understanding, he reasoned that people must also have property in all the things that they had spent personal effort in creating – ‘mixed their labour’ with. The principle of self-ownership therefore makes it crucial that such property should be made secure under the law.

These ideas would inform many of the thinkers behind the American Revolution.

The Enlightenment

The eighteenth century saw another revival of classical liberal thinking. In France, Montesquieu (1689–1755) developed the idea that in a free society and free economy, individuals have to conduct themselves in ways that maintain peaceful cooperation between them – and do so without needing direction from any authority. He therefore called for a system of checks and balances on government power – another idea that would inform American thinkers.

Meanwhile, a growing intellectual revolt against the authoritarianism of the church led to thinkers such as Voltaire (1694–1778) calling for reason and toleration, religious diversity and humane justice. In economics too, intellectuals such as Turgot (1727–81) argued for lifting trade barriers, simplifying taxes and more competitive labour and agricultural markets.

The Scottish philosopher and economist Adam Smith (1723–90) explained, along the lines of Montesquieu, how, in many cases, the free interaction between individuals tended to produce a generally beneficial outcome – an effect dubbed the invisible hand. Self-interest might drive our economic life, but we have to benefit our customers to get any benefit for ourselves.

Smith railed against official monopolies, trade restrictions, high taxes and the suffocating cronyism between government and business. He believed that open, competitive markets would liberate the public, especially the working poor. His ideas greatly influenced policy and ushered in a long period of free trade and economic growth.

The Rechtsstaat

On the European continent, meanwhile, thinkers such as the German philosopher Immanuel Kant (1724–1804) were developing the principles of the ‘just state’ or Rechtsstaat, which would inform the creation of the American and French constitutions in the late eighteenth century.

Kant argued for a written constitution as a way of guaranteeing permanent peaceful co-existence between diverse individuals, which in turn he saw as a basic condition for human happiness and prosperity. He dismissed the Utopian idea that moral education could curb those differences and make everyone’s aims coincide. The state was about enabling diverse individuals to come together for mutual benefit, and the constitution is what held it together.

In the Rechtsstaat, the institutions of civil society – voluntary associations such as clubs, societies and churches – would have an equal role in promoting this social harmony. Government powers would be restrained by the separation of powers, and judges and politicians would be accountable to and bound by the law. The law itself would have to be transparent, explained and proportionate. The use of force would be strictly limited to the justice system. The test of a government is its maintenance of this just constitutional order.

Success and reassessment

A new home for classical liberalism

Thomas Paine took many of Locke’s classical liberal ideas on natural rights and social contracts, and that government is a necessary evil that can become intolerable if unchecked. In January 1776 he wove them into his influential call to arms, Common Sense, indicting Britain as being in breach of its contract to the colonists.

It was natural therefore that, after the hostilities, the Americans should seek a new classical liberal contract between themselves and the government they were creating. The Constitution would be infused with Locke’s ideas of natural, inalienable rights, and a Montesquieu-style division of government powers.

The nineteenth century

But new and radical classical liberal ideas returned to Britain. By 1833, classical liberal activists had secured the abolition of slavery throughout most of the British Empire, and by 1843 the reform was complete.

Also on the social front, the British philosopher and economist John Stuart Mill (1806–73) articulated the ‘no harm’ principle – that people should be able to act as they please, provided they do not harm others in the process, and thereby diminish their freedom. He also argued for a ‘personal sphere’ that the state could not touch, and, following the utilitarian philosopher Jeremy Bentham (1746–1832), argued that freedom was the best way to maximise public benefit, or ‘utility’.

In economics, the Anti-Corn-Law League, which sought to end protectionist taxes on imported wheat, grew into the Manchester School, whose leading figures such as Richard Cobden (1804–65) and John Bright (1811–89) called for laissez-faire policies on trade, industry and labour.

Reappraisal and decline

However, rapid industrialisation after the mid nineteenth century brought challenges for classical liberalism, such as poor working conditions, social stratification, displacement and urban poverty. Increasingly, people called on governments to regulate away such ills.

Then in the twentieth century, hostilities and threats in Europe promoted a nationalist culture and greater faith in the role of the state. After each wartime expansion, governments failed to shrink back again. In 1913, before World War I, government expenditure was just 17 per cent of GDP in France, 15 per cent in Germany and 13 per cent in the United Kingdom. It is now roughly three times that as a percentage of GDP, and many times more in absolute terms.

Meanwhile, just as the physical scientists were shaping the physical world, so economists and sociologists fancied that they could shape human society scientifically too. They saw central planning as more rational than the natural disorderliness of markets, with their externalities and their supposed tendency to monopoly or to unemployment. No longer was the onus on interventionists; now the classical liberals were the ones who had to justify their demands to let freedom prevail.

The modern revival of classical liberalism

Policy problems and the classical liberal response

But the vaulting confidence of the interventionists was misplaced. Economies became racked with unemployment and inflation (sometimes, inexplicably for them, at the same time), low growth and crises in housing, energy, lending and foreign exchange markets where governments set prices or manipulated supply and demand. A growing welfare state was plagued by problems of dependence and lack of incentives. There seemed no way to reduce the size of government, nor the demands it was making on taxpayers.

Even though they were on the defensive, classical liberals of many shades had been thinking about such problems for a long time. They went back to the old classical liberal principles and re-thought them, developing new or updated arguments that were better suited for the changed times. Eventually, in the 1980s, this intellectual revolution would inform the policies of world leaders such as Ronald Reagan in the United States and Margaret Thatcher in Britain.

Intellectual developments

The Austrian School economists, starting with Carl Menger (1840–1921), had recognised that economics was not a science but a matter of individual values and actions. Austrians like Ludwig von Mises (1881–1973) and F. A. Hayek (1899–1992) realised that state controls distort economic signals, setting off unpredictable consequences.