The Manchester School of Liberals
The Manchester School of liberals
The most outspoken advocates of the new philosophy were the members of the Manchester School of liberals. They were businessmen in the Manchester area who urged that mercantilism be immediately discarded and replaced with laissez faire.
They took over the term laissez faire from the Physiocrats, a group in France who also wanted to apply liberal ideas to economics. The cry of the Physiocrats, "Laissez nous faire, laissez nous passer!" ("Leave us alone to produce what we want and to send our products where we want!"), was shortened to "Laissez faire!": "Leave us alone!" This is exactly what the Manchester liberals wanted.
They argued that all relations between individuals should be based on mutual free consent rather than coercion by the state. They stressed the importance of individual freedom in economic affairs, and they believed the state's role in the economy should be limited to the maintenance of law and order. Like the Physiocrats, they argued that the economic activities of buying, selling, and consuming should be completely free, because they are controlled by natural rather than man-made laws.
The free trade argument of the Manchester liberals received theoretical support from Adam Smith and other members of the classical school of economics. Smith observed the gradual decline of the mercantilist system of national economic planning in the late eighteenth century. Individual initiative of businessmen was becoming a mass phenomenon for the first time in history, but business was still hampered by remaining mercantilist restrictions and regulations. Smith believed that control of individual behaviour by the state was not in the best interests of the nation or the individual. He put forth the modern view that mutual dependence of nations leads to progress and is not detrimental to their welfare as the mercantilists thought. He argued that restrictions on manufacturing and foreign trade check the growth of a nation's wealth and impoverish its people.
The classical economists deduced how the capitalistic economy functions on the basis of the assumptions of natural law, universal competition, "economic man," and harmony of interests. Their analysis was centred around the four economic institutions of private property, the profit motive, the market system, and laissez faire. Private property was considered fundamental because it gives the businessman control over economic resources and it serves as an incentive for the accumulation of wealth. The profit motive leads the businessman to expand the output of goods consumers want and to cut back production of less desirable goods. The economic system consists of self-regulating markets which match the supply and demand of goods. Competition in markets sets prices and thereby controls indirectly the activities of buyers and sellers. Laissez faire is essential for the forces of the market to allocate resources efficiently and for individuals to effectively pursue their self-interest.
A new business ethic was needed for the burgeoning capitalistic system, and the profit ethic evolved quite naturally to fill this need. Technology, organization, and business practices had changed so markedly as a result of the Industrial Revolution that the mercantilist view of how businessmen should behave was now quite reactionary. Businessmen advocated the concept of profit maximization as a replacement. It offered them a radical new basis for deciding between morally right and wrong conduct. Businessmen defended the flotation of Russian state bonds in the London stock exchange during the height of the Crimean War on the basis of this new ethic. They argued that there is no relation between foreign policy and the laws of economic life, and therefore it would be foolish not to take advantage of a profitable bit of business. There could have been no sharper rejection of the economic policy and doctrine of mercantilism.
This radical viewpoint became acceptable to social thought in nineteenth-century Great Britain, largely because of the success of capitalism in raising living standards. Herbert Spencer, the most influential social philosopher of his day, shaped this thought by applying Darwin's theory of evolution to social life. He argued that ruthless competition is the basic law of industrial society. Those who win the economic race earn great profits and accumulate wealth, and the less fit share what is left. Spencer believed that anyone who cannot compete in the completely unregulated capitalistic system should not be allowed to survive and weaken the human stock. From this way of looking at things, the good man is the one who pursues profits most assiduously, and his social value is proportionate to his material success.
Classical economic theory supported the profit ethic in two ways: (1) by providing a scientific explanation of capitalism in which the profit motive plays a central role and (2) by defending capitalism and profit making on moral grounds. The classical economists thought mercantilism was wrong because it was opposed to the scientific truth that competition among individuals for scarce goods in free markets is the natural law of economic life. They believed that if all restraints were removed on man's inherent desire to maximize profits, natural resources would seek their most profitable and efficient employment. The profit maximization hypothesis was not only morally justified; it was essential to a theory that purported to predict price, wage, and employment levels, the allocation of resources, and the distribution of income. Mason has pointed out the dual nature of the classical economics as both science and justification of ideology: "As everyone now recognizes, classical economics provided not only a system of analysis . but also a defence . of the proposition that the economic behaviour promoted and constrained by the institutions of a free-enterprise system is, in the main, in the public interest. "
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