Capitalism: The Unknown Ideal.

In the 19th century, liberals worked to limit the role of government in economic matters, under the banner of free trade, laissez-faire, and the rights of property and contract. But around the turn of the century, in England and America, liberalism changed its course. As against the classical liberals, modern liberals wanted to expand government's power to regulate private economic activity and transfer wealth among its citizens.

Liberalism as a doctrine may be out of favor, but we still live in a liberal regime, with all the programs that liberals argued and lobbied for successfully: regulation of the economy as a whole through fiscal and monetary policy; regulation of individual sectors through regulatory agencies; welfare programs for the poor; and "social insurance" programs--unemployment benefits, Medicare, Social Security--for the entire population. Even conservative politicians now take these programs for granted.

It is therefore useful to know the arguments, the political philosophy, that made modern liberalism so successful. The best guide to this philosophy is L.T. Hobhouse's little book Liberalism (Oxford University Press, 1964). During his career, Hobhouse taught at Oxford and the University of London, was a journalist at the Manchester Guardian and other papers, and lectured widely in England and America. Liberalism is his attempt to justify the growth of the state by appealing to the individualist ideals of classical liberalism. Though the book was first published in 1911, it might have been written yesterday by the editorialists of The New York Times, if they took the time (and had the ability) to formulate the principles behind their positions.

Hobhouse thought that the ultimate good is the self-realization of the individual: "the development of will, of personality, of self control, or whatever we please to call that central harmonizing power which makes us capable of directing our own lives." Self-realization is the product of the individual's own voluntary initiative and choice; it cannot be compelled. But he claimed that the individual is not fully autonomous. His nature is shaped by society, and his exercise of choice depends on certain conditions that society must provide, including the provision of goods like education as well as the exercise of coercion by the state to regulate economic production and exchange.

Liberalism discusses the standard programs liberals sought, the standard rationales for them, and--most importantly--the redefinitions of classical-liberal concepts (freedom, rights, and equality, among others) that made the rationales seem plausible. The writings of later liberals, from John Dewey to John Rawls, contain little that one cannot find in Hobhouse, usually stated more clearly and economically.

As a counterpart to Liberalism, I would recommend the writings of Ayn Rand, especially her essay "What is Capitalism?" in Capitalism: The Unknown Ideal. Point for point--on human nature, on coercion and rights, on wealth and equality--Rand engages the issues on the same philosophical level as Hobhouse. Because she defends laissez-faire capitalism on moral grounds, she comes to grip with Hobhouse's arguments in a much fuller way than a purely economic critique could do.

David Kelley is executive director of the Institute for Objectivist Studies.