Samuel Brittan's Liberal Values

January 2010

I came across an article in the FT today by Samuel Brittan called A fresh look at liberalism. It runs as follows:

It is far too early to pick up the pieces and reconstruct mainstream economics after the debacle of the past two years. It is not, however, too early to restate some liberal values that need to be preserved whatever technical changes are made in the conduct of economic policy.

I am using the word “liberal” in the classical European sense of someone who attaches especial importance to personal freedoms... Defining liberal policy is complex but... Here are three starkly anti-liberal examples: 1. Some people advocate compulsory national service as a way of improving the character of young people. 2. Rigid foreign exchange restrictions. 3. A smoking ban in public places which is secretly designed to stop people smoking for their own health rather than the health of anyone around them.

So Samuel Brittan believes that a degree of personal freedom needs to be preserved in our economic model no matter what the lessons of the credit crisis may be.

For example, Brittan would reject any economic model which takes away from an individual the right to smoke. He would also reject any economic model which set out to improve the character of young people by forcing them to undertake national service. In both cases he is rejecting excessive government interference in the life of its people.

Many would agree - but is this economic science or moral ideology?

Suppose we asked a scientist to compute whether or not to prohibit cigarette smoking by calculating the net benefit to society. Here are some of the factors he might consider: (1) The damage smoking inflicts on health. (2) The low or negative increase in personal happiness even healthy smokers generally report. (3) The inability of smokers to quit cigarettes even when their rational mind is set against the habit. (4) The diversion of capital away from standard of living boosting goods to cigarette manufacturer, sale and associated medical expenses. Given all this, it is obvious that the scientist is very likely to conclude the net benefit to society is deeply negative.

Is scientific maximization of utility missing something, or does it properly define the essence of intelligent economic policy making?

Think about the 1930s. The British mathematician turned economist John Maynard Keynes spearheaded the revolution in economic thinking at this time by introducing new levels of mathematical rigour.

The Keynesians said: Economics is not a morality play, if you can't construct rational arguments you're not a scientist doing real economics, you're an ideologist wallowing in feelings and opinions.

Lionel Robbins' 1932 "Essay on the Nature and Significance of Economic Science" summed up the new era of pragmatic empirical rationality.

Robbins defined economic science as "neutrality between ends except as pertains to utility".

Imagine yourself shooting an arrow or playing pool. First you have to find the target with your eyes, which requires a sort of delicate sensitive big picture holistic skill. Then you have to focus like a laser beam on the physical action which requires a sort of detachment from the noise around you and an energetic immersion in the self.

Let's focus on the target. Plato's Laws opens with the question "What is government legitimacy?". Various definitions such as military power and material prosperity are proposed, but the Athenian Philosopher rejects them all. For example, it should be obvious to readers that wealth is a double edged sword, if a man is too hungry he can't do his work, but if he is too well fed he will get soft and rot. Therefore the statesman can't target wealth single mindedly. Likewise the Athenian Philosopher also showed that targeting Military Power can have long term term negatives. So the Athenian Philosopher said 'Give me the one fundamental target at which the statesman must aim at like an archer'. The answer is of course something like virtue. For example, society is held together by the watery moral virtue that fights for justice, and takes pleasure in helping others. Also for course, society is held together by the Promethean fire that builds houses and cars, and knows that when it comes to expert knowledge everyman is an island and must join to together to accomplish anything.

Now Keynes though the target was obvious- he defined utility as material prosperity, and he waged war against the 'unscientific types' who wouldn't listen to the techniques of delivering it. In other words Keynes thought that either material prosperity was the real target, or material prosperity was monotonically correlated with the real target and could therefore serve as useful proxy target, or material prosperity was at least a useful short term goal to head towards at the time. Imagine Keynes in debate with a socialist who says such and such a policy would lead to inequality, and Keynes says the poor will suffer in comparison to the rich but the poor will also get richer, and that's our goal so stay focused. Imagine Keynes  in debate with a capitalist who says such a such policy would hurt some small businesses, and Keynes says you have to break some eggs to make an omelette so focus on what needs to be done and stop shirking. In both cases we have "neutrality of ends expect as pertains to utility" - and it can mean stop flapping around like a bird in search of heaven, and stop squirming around like a eel that can't let go of its fears.

Austrian School Economists resisted Keynes. The majority said (a) intervention is impossible because the system is too complex to take hold of. A few said (b) the critical questions of economics are psychological not mathematical.

Argument (a) is the idea that there is no truth outside of the distributed opinions of the marketplace, and the marketplace's truth is in a state of constant flux which cannot be grasped as a whole anyway. Intervention requires a sort of benevolent King who sits outside the marketplace and works out what is wrong with the community and how to fix it, yet that's impossible because the outside one is always clueless and all wisdom is contained within the warring many. The upshot of this idea is a sort of "markets are the measure of all things" relativism which says searching for truth and justice is futile and the best thing we can do is leave the economy alone.

Argument (b) is the idea that economics is all about human factors such as human motivation and workplace culture and ways of thinking and things like that, and the mathematics is just trivial noise on the surface. So the psychological crowd said both fiscal and monetary stimulus is a waste of time, and we should try to keep the financial system as simple and boring as possible, and focus our attention on things like working practices and education and cultural forces.

Murray Rothbard is a famous example of a die hard type (a) thinker. He was the founder of "Anarcho-Capitalism", which is the idea of complete elimination of the state under total libertarian capitalism including even private sector law enforcement. Rothbard became a best selling author, but the academic community regarded him as a mad man. The Golden Age of Capitalism was punctuated by numerous financial crises, but Rothbard insisted that all the problems of past had been created by too much not too little capitalism. In other words, he rejected every empirical example of failed libertarian policy because he argued that the presence of any government at all makes it impossible to conclude how a perfectly libertarian system would respond. This is like someone attempting to argue that not watering a plant will result in the fastest growth. And when you point out to him that there is a correlation between the amount of water given to a plant and its rate of growth, he dismisses these experiments on the basis that they all used water.

Friedrich Hayek was the Austrian School Economist who denounced men like Rothbard saying "probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rules of thumb, above all of the principle of laissez-faire capitalism". Hayek mixed Keynesian scientific empiricism with distributed opinion Austrian School thinking. Up until the 1970s he was a very unfashionable figure because the "Post Keynesian Consensus" very much revolved around interventionist economics. For example, during WW2 everyone ran deeply interventionist policymaking because to win the war they needed aircraft, ships, tanks, munitions etc. After WW2 factories that made tanks were switched to cars, and there were bomb damaged cities to rebuild. In the 1970s the "Post Keynesian Consensus" run out of steam primarily because politics had become much more populist and trade unions were running wild, making interventionist policy making increasingly ineffective. Hayek didn't argue that "economics is a morality play" and we need to preserve a degree of personal freedom in our economic model regardless, nor did he argue the goal is the material prosperity Keynes targeted, he argued that political leaders eventually end up getting in the way either because they are self interested or they are stupid, leading to existential falure.

Where does all this leave Samuel Brittan?

I think these are the choices we touched on:

(a) Benevolent Kings who are wiser than the marketplace optimizing utility in their spreadsheets. (Keynes)

(b) Lots of people competing each other, each armed with their own spreadsheet, each focused on their own thing. (Hayek)

(c) Economics is the psychological art of making people upstanding, hard working and smart. (eg Thorstein Veblen)

Lets take a look at Samuel Brittan's words again:

Restate some liberal values that need to be preserved whatever technical changes are made in the conduct of economic policy. Here are three starkly anti-liberal examples: 1. Some people advocate compulsory national service as a way of improving the character of young people. 2. Rigid foreign exchange restrictions. 3. A smoking ban in public places which is secretly designed to stop people smoking for their own health rather than the health of anyone around them.

As far as I can tell these words don't fit any of our models. He doesn't argue for (a) because he unlike Keynes he doesn't believe economics is nothing but utility maximization. He doesn't argue for (b) because he doesn't claim that distributed opinions are rational, just that they should exit. He doesn't argue for (c) because he doesn't talk about human nature, just GDP.