1.4.2 Liberalism

Related to economic theory, John Stuart Mill remains inside the narrow perspective of David Ricardo, albeit he mentioned that the productive structure could be changed if the workmen become themselves the owner of the "capital". Not in a socialist meaning, everybody own everything and everybody is responsible for nothing, but in the sense that the "capital" of a company belongs to the workmen of this company.

However, there is a big difference between David Ricardo and John Stuart Mill concerning politics. In classical and neoclassical thinking there is no space nor need for political decisions. Everything that has to be decided is decided through the market and through a supposed "free cooperation" steered by prices and what cannot be decided by the market, shouldn't be decided at all. Governmental intervention distorts the optimal allocation of resources and leads to inefficiency, see governmental activities.

In other words, it is not really important who governs and how a government is constituted, the only important thing is, that this government does as little as possible. We will return to the topic when talking about Hayek.

Where the market regulates everything and what is not regulated by the market needs not to be regulated there is no space for democratic decision making, see also preliminaries. The sympathy of Hayek and Friedman for dictatorship of any kind provided they don't interfere with the economy is a logical consequence of their concepts.

Milton Friedman and Friedrich Hayek want to create through bellum omnium contra omnes the paradise on earth, where everybody is free. Those who can't, for instance, afford a health insurance can die in freedom and those whose parents can't afford schooling, have the freedom to vegetate their whole live with poorly paid jobs at subsistence level or less.

There is a difference in the pitch between neoliberalism /Austrian school on one side and ordoliberalism/social market economy on the other side, although there is no difference regarding the fundamental economic concepts. All these lines of thinking are based on classical/neoclassical thinking. (Concerning the problematic of the terms classical and neoclassical theory click on the links.)

All these lines of thinking, believe in the infallibility of the market, assumes that market economies are stable, although the term "stability" is actually never really defined. Stability means in this context only that market reach an equilibrium, in another way a state where a reallocation of resources is not needed because reallocating the resources wouldn't increase the national income. In other words, in the equilibrium the resources are optimally allocated.

However, this is not very meaningful for many reasons. First of all, we are not interested in the equilibrium, we are interested in the level of the equilibrium. If the equilibrium price in the USA is 20 dollars an hour, allowing a high living standard, and 20 cents in Bolivia, allowing alive at existence level, we are more interested in the differences than in the fact that in both countries we have an equilibrium on the labour market. We are interested in the individual circumstances that lead to such big differences, not in the equilibrium. The individual circumstances, not taken into account in the model, which leads to such big differences are the interesting point, not the equilibrium, see preliminaries.

Ordoliberalism focus more than neoliberalism and the Austrian school on the fact market economy has an inherent tendency to eliminate the central mechanism of market economies, the competition. The government is, therefore, responsible for maintaining a sufficient intense degree of competition. It can do that by interdicting cartels, putting monopolies under observation, pursuing agreements on prices, etc. In any industrialised country, there are laws of this kind, although it is doubtful that these laws address the actually important issues. We will discuss this topic in the chapter about Milton Friedman.

The social market economy, a term often mentioned in the context of the German "economic miracle" after World War II, focus more on social transfers. In other words, the allocation of resources is steered by prices and the mechanisms of the market. It is the market that decides, what, how and for whom it is produced, but social transfers afterwards changed the result of the market.

Ordoliberalism and social market economy are concepts better known in Germany than in the rest of the world, but there is no need to know them. Actually, they are only remarks to Adam Smith. Adam Smith already mentioned that a market economy, based on competition, had a tendency to abolish itself, see monopolies, although he believed that any governmental intervention aiming to keep it alive is not compatible with freedom. However, all industrialised countries have and had, even before Germany, laws against cartels, trusts and monopolies.

[However, experience shows That Adam Smith was right. The constant attacks against Google, Microsoft, etc. shows us that the cartel law is often used to get rid of successful competitors.]

The same is valid for the social market economy. Any industrialised country has laws similar to the existing ones in Germany; that guarantee minimum social standards through redistribution of the national income by social transfers.

All these lines of thinking have in common that they have a systemic approach. They assume that given certain incentives human behaviour is predictable. (What is even true to a certain degree.) Therefore, they focus on the economic order to be established and maintained by the government in order to get the desired results.

The most basic version of the systemic control is the market economy. In a market economy, the homo oeconomicus has an incentive to reduce scarcity on one side and is controlled by competition on the other side, see homo oeconomicus.

The economy is something like the traffic, which is steered by an order, signals, traffic light, rules as well. Everybody can go wherever he wants, provided that he stick to the order

At first glance that seems easy and straightforward, if we look out of the window, we realise that reality is a little bit more complicated.

We put aside for the moment the fundamental Keynesian critics of the idea that economies tend to equilibrium, in other words to an optimal use of their resources. We will discuss this topic in the chapter about Keynes.

We don't sub estimate the value of this kind of thinking, see governmental activities and we will return to the topic in the chapter about Milton Friedman. However, this type of thinking leads to some fundamental errors.

1) The economy is conceived in this type of thinking as a machine that can be controlled by moving some levels, in the version of the ordoliberalism, or the economy is something that is steered best by the market mechanisms alone without any interference. However, complex social interactions cannot be steered systemically, although they have a big impact on economics. The schooling system, for instance, is an example for this. It is obvious that the adepts of the pure market economy like Milton Friedman want the education systems steered by the market mechanisms, but that's not the case in any country and it to be presumed that it is not the case because it doesn't work.

2) Systemic thinking alone doesn't explain reality. We can sometimes read that Hayek and his followers don't use any kind of mathematical modelling, what is considered, by some people, as an advantage, but actually, that doesn't make any difference. The problem is not the use of mathematics; the problem is the modelling itself. Economic modelling assumes that the behaviour of the people can be steered by incentives alone and given certain incentives, we get a certain result. If we assume that, we actually abstract from consciously taken decision. That's why classical and neoclassical economics abstract completely from human beings. The production factors are capital, labour and land and not the capitalists, the workmen and the farmers. This illustrates the fact that human beings are not involved in the process. Capital, labour and land moves alone, driven by economic laws the same way the earth turn around the sun driven by natural laws. The problem is, following this logic, all economic problems should be already resolved. If we have the same economic order everywhere, we should get the same results. Obviously, this is not the case. Individual circumstances have to be taken into account.

3) Modelling, especially mathematical modelling, is only possible if we assume stability. A roadmap, a reduction of a landscape to the relevant things, is only useful if the roads don't change. A model that describes human behaviour must, therefore, abstract from anything accidental, unpredictable, difficult to control, like the results of research and development, technical progress, change of preferences, change in the underlying economic structures etc. In other words, its abstracts from every kind of problem that is best resolved by a market economy, but if the basic problem that a market economy resolves best is excluded from the model, a model of a market economy, as we find it in any book about microeconomics, can't describe a market economy. Describing a market economy with a model is like studying microbiology and abstract from the virus. A system whose aim is to adapt itself to unpredictable changes, can't be analysed if we assume that nothing change.

4) The central message of Karl Popper is simple. An ideal state can't be imagined, because we don't know, what we will know tomorrow. Democracy is, therefore, perceived as a kind of exploring process, similar to an experiment in science. A political party proposes a measure aiming to resolve a problem. If they convince the public that this can work, they will be elected and can try to resolve the problem with the measures proposed. If they succeed, they have a good chance to be re-elected, if not, another party will propose other measures and the game starts again. For Karl Popper, the enemies of the open society are Platon, Hegel et Marx. We will return to the topic in the chapter about Karl Popper. Under this perspective, a democratic decision process is needed. If the underlying structures change, other measures are needed and possible to address old problems and new ones. In an ever changing world, democratic decision making is needed. Modelling affirms the opposite. Modelling is only possible if it assumed that the relevant factors remain stable and that economic laws are as stable as natural laws. We don't need any democratic decision-making process to decide the position of the Venus at day X. Natural laws never change and if they change, we don't need economic laws, because that would be the end of the world. Models are therefore as useful in science as they are useless in economics. In this sense, there is little difference between neoclassical authors like Léon Walras and Karl Marx, although the first one is believed to be the opponent of the last one. The fact that economic thinking abstracts from political circumstances is not a pure coincidence. It is a logical consequence of modelling.

In the paragraph above, John Stuart Mill addresses a problem we already addressed in the preliminaries, see the fascinating and fascinated public. There are several problems. Firstly, economists feel no need to advise the public, although that would be much more helpful. If politicians introduce a political measure against public opinion they have, in democracy, little chances to survive the next elections or they a lot of money is to be spent in repression. In the first case, they won't introduce these measure, although perhaps useful and in the second situation, they risk to lose their head in the long run and in any case it will lead to social unrest.

It is a logical consequence of systemic thinking that economists feel no need to advise the public, students are not even trained for that, the topic is not even mentioned. If someone believes that incentives can steer the behaviour of the people, he feels no need to convince anybody.

It is indeed true that most people unhappy with the current state of things will try to change them through political engagement inside political parties or create a new one instead of trying to convince the public: "...On the one hand, impatient reformers, thinking it easier and shorter to get possession of the government than of the intellects and dispositions of the public...".

The reason for that is besides that some of these people really think that they can improve things, the fact that it is much more rewarding to work inside a political party and get paid than trying to convince the public, something, in general, less awarding

On the one hand, impatient reformers, thinking its easier and shorter to get possession of the government than of the intellects and dispositions of the public, are under a constant temptation to stretch the province of government beyond due bounds: while, on the other, mankind have been so much accustomed by their rulers to interference for purposes other than the public good, or under an erroneous conception of what that good requires, and so many rash proposals are made by sincere lovers of improvement, for attempting, by compulsory regulation, the attainment of objects which can only be effectually or only usefully compassed by opinion and discussion, that there has grown up a spirit of resistance in limine to the interference of government, merely as such, and a disposition to restrict its sphere of action within the narrowest bounds.


Political parties try to maximise the number of people voting for them. They will follow public opinion. The real problem is that public opinion can be easily manipulated, see tabloid journalism and economy. What is therefore needed is more transparency, but not more political parties, see preliminaries. Politicians come and go and political parties appear and disappear, that's nothing really important. The crucial point, if we understand democracy in the meaning of Karl Popper as a learning process, is that people really learn something. The trick of Karl Popper, democracy as a learning process, only works if people really learn something through the experiments. Otherwise, they will commit the same error again and again.

The next sentence " ... on the other, mankind have been so much accustomed by their rulers to interference for purposes other than the public good ..." is more difficult. The author would say, that there is a tendency as well to expect nearly everything from politicians, political parties and the government. If people have a problem with Facebook, to give an example, they don't stop using it, this would be the easy and straightforward solution, they ask the government to intervene and regulate the way Facebook handles their data.

The relationship between political parties and the public is ambiguous. In "old democracies" we can see a great disillusion. The party of the non-voters could be everywhere in the world from the government; it has the majority. That means that a lot of people, more than one-third, don't expect anything from political parties, they not even vote. The media on the other side focus on politicians and political parties, although it is doubtful if they really have a big room for manoeuvre. They depend on the underlying economic structure. It would, therefore, be much more useful if people focus on the economy than on politicians and their opinions..

John Stuart Mill is considered the founder of liberalism.

The term liberal is ambiguous because it describes two very different tendencies which almost nothing to do with each other. Liberalism can describe a tendency that focus on social/religious/political issues and to a tendency that focus more on economic issues. John Stuart Mill belongs to the first group and the second group is better known under the term neoliberalism. To put it simply: For neoliberals, economic liberty is the basis of any kind of personal freedom. If the government decides how the economic resources are used, he can restrict at any moment the personal freedom. For liberals, the government can be a threat to liberty, but for John Stuart Mill the society as well can be a threat to freedom.

The approach is therefore very different: Milton Friedman is a systemic approach. He wants the government to establish some basic rules and leave the rest to the incentives and mechanisms of a free market economy. If this is done by a democratically elected government or by a dictator doesn't matter, see Milton Friedman - Pinochet And Chile. Experience shows however that free market economies easily leads to a situation where very few possess almost the whole fortune of a country. We agree totally with Milton Friedman that there is no liberty without economic resources. However, we can easily imagine a situation where the vast majority has no economic resources and their freedom is, therefore, something very theoretical. If the government wouldn't intervene, even the know-how, the crucial productive factor would be concentrated on a small group.

The arguments of John Stuart Mill, see paragraph below, are not really convincing. He argues, that if people take it for granted that the government has to protect property and punish fraud, it could be argued that the government can as well intervene in other occasions. The argument is wrong, because if the government wouldn't protect property, we will get a kind of "competition", that doesn't improve the situation of the consumer, see homo oeconomicus. The baker would not compete with the other baker by offering better and cheaper bread, something that improves the situation of the consumers; he would just kill him. The argument that people can protect themselves is not convincing. Some people cannot.

However, it is true that there are a lot of things that can be better organised by a central government than by private initiative. We will return to the topic when discussing Friedrich Hayek and Milton Friedman.

The neoliberals, therefore, for this reason, and other reasons can't refer to John Stuart Mill and Hayek explicitly doesn't do it.

In attempting to enumerate the necessary functions of government, we find them to be considerably more multifarious than most people are at first aware of, and not capable of being circumscribed by those very definite lines of demarcation, which, in the inconsiderateness of popular discussion, it is often attempted to draw round them. We sometimes, for example, hear it said that governments ought to confine themselves to affording protection against force and fraud: that, these two things apart, people should be free agents, able to take care of themselves, and that so long as a person practises no violence or deception, to the injury of others in person or property, legislatures and governments are in no way called on to concern themselves about him. But why should people be protected by their government, that is, by their own collective strength, against violence and fraud, and not against other evils, except that the expediency is more obvious? If nothing but what people cannot possibly do for themselves, can be fit to be done for them by government, people might be required to protect themselves by their skill and courage even against force, or to beg or buy protection against it, as they actually do where the government is not capable of protecting them: and against fraud every one has the protection of his own wits. But without further anticipating the discussion of principles, it is sufficient on the present occasion to consider facts.

This paragraph is taken from Principles of Political Economy with some of their Applications to Social Philosophy. John Stuart Mill is the only classical author that explicitly addresses the role of the government. For the other classical authors the there is no need to talk about the role of the government because he doesn't have any.

The sentence "...In attempting to enumerate the necessary functions of government, we find them to be considerably more multifarious than most people are at first aware of, and not capable of being circumscribed by those very definite lines of demarcation, which, in the inconsiderateness of popular discussion, it is often attempted to draw round them..". This is perhaps not completely true. It is doubtful that "most people" think that. It is to assume that his fellow economists think that, but not the people.

To put the question in a more straightforward way. The question is what should be organised by central planning and what should be organised by decentral coordination through the market. The position of the neoliberals is clear, see Milton Friedman on Why Free Market Capitalism is Best. The individual company, entrepreneur, household, workman etc. is better informed about his capacities, alternatives, needs, preferences etc. than any central planning commission. He can, therefore, react faster and better to a change in the economic structures and he has an incentive to do it.

Sectors like the dispensation of justice, public education, research and development etc. that cannot be, for obvious reasons, organised like a potato market should be organised as close as possible like a potato market. We will return to the topic when discussing about Milton Friedman. The underlying assumption is that the only way to control human behaviour is by market incentives. To put it simple and illustrating it with an example. A teacher at school who had a lifetime job and can't be fired will make no effort to improve his didactical skills, to update his knowledge, to prepare well his lessons etc., see also a literary perspective. Public employees are on the other side, a very compact pressure group and able to defend their interest. We can't say that what Milton Friedman says here is completely wrong: What's Wrong With Our Schools Featuring Milton Friedman. Concerning what he says about the teachers union is true for any kind of public employee.

The mistake of Milton Friedman and Friedrich Hayek is that they assume that the market mechanisms are the only way to control social systems. The author would say, that transparency can have the same effect. Actually, the infos24 GmbH, the company behind this website, runs projects of this kind, projects aiming to improve the efficiency of the public administration by transparency. To keep it simple: The commitment of a public employee will increase dramatically if his performance is documented on the internet. This social pressure can be as effective as market incentive.

A more radical and more fundamental critic, based on purely economic arguments, of the idea that market should be left alone, is the Keynesian theory. In certain constellations, the government is the only market player able to lead the economy out of recession. For a more detailed discussion, see the booklet downloadable from the start of this website. We will discuss this topic later on in the chapter about Keynes.

In the book "Principles of Political Economy" John Stuart Mill discusses the problem of liberty from an economic perspective. We have already discussed several times about the exceptions to the general idea that the market always leads to the best allocation of resources. See, for instance, governmental activities, public expenditures etc.. John Stuart Mill doesn't name these problems explicitly, for instance, public goods, merit goods, external costs, but he mentioned "the functions of the government" can be "considerably more multifarious than most people are at first aware of ", although he remains concerning the rest completely inside the classical thinking.

The work "On Liberty" is completely different. "On Liberty", sobre la libertad, discusses the problem of liberty in a larger context, not only focused on the relationship between government <=> individuum and not only from an economic perspective.

From an analytical point of view, a discussion about liberty shouldn't be mixed with economic freedom as done by Milton Friedman. He assumes that economic freedom is the best guarantor for any other kind of freedom. History tells something very different. Iran, to give an extreme example, has a free market economy, but nobody would say that it is a free country. The same is valid for the Spain of Franco, the Portugal of Salazar, the Chile of Pinochet, Germany under Wilhelm II etc. They combined economic freedom with total absence of freedom on any other issue.

There are even cases where a strong central power defends freedom. The communist government of Afghanistan backed by the Soviet Union under Taraki defended freedom, at least for women, while the mujahidin and especially the Taliban, backed by the USA, wanted a really "free" society, in other words, a society where they can do what they want without any restriction. The final results are well known.

Most of neoliberals, like Milton Friedman and Friedrich Hayek, are public employees working at universities. It is doubtful, given the low relevance of economics for the world of work, that they would have a lot of students if the universities were not subsidised completely or in part by the government or the taxpayer. For Milton Friedman, the main problem is that the whole society pays for the studies of an elite. That can be a problem; we will discuss this topic later on. However, the more serious problem is the low impact of economics on society. For obvious reasons neoliberals never address this issue.

Milton Friedman uses the term freedom and is as emphatic as is it meaningless. They never actually define the term or use the term only in the context of economy. The freedom of Milton Friedman and Friedrich Hayek is the freedom of an ant that follows its path guided by pheromones.

Freedom exists only; that is obvious if there are alternatives. The lack of alternatives can be objective or subjective. Objective means that people don't have a choice because their resources are limited. Subjective means that they do not even think about alternatives. In this sense, freedom and diversity is something that must be actively promoted. It is nothing that can be given for granted.

Hayek is indeed right, see the following paragraph. John Stuart Mill had a broader vision of liberty than he and his neoliberal fellows.

John Stuart Mill, in his celebrated book On Liberty (1859), directed his criticism chiefly against the tyranny of opinion rather than the actions of government, and by his advocacy of distributive justice and a general sympathetic attitude towards socialist aspirations in some of his other works, prepared the gradual transition of a large part of the liberal intellectuals to a moderate socialism.


The focus of John Stuart Mill is indeed not the threat to liberty and freedom through governments, but the society with its tradition, customs and things it takes for granted.

Where, not the person's own character, but the traditions of customs of other people are the rule of conduct, there is wanting one of the principal ingredients of human happiness, and quite the chief ingredient of individual and social progress. The majority, being satisfied with the ways of mankind as they now are (for it is they who make them what they are), cannot comprehend why those ways should not be good enough for everybody; and what is more, spontaneity forms no part of the ideal of the majority of moral and social reformers, but is rather looked on with jealousy, as a troublesome and perhaps rebellious obstruction to the general acceptance of what these reformers, in their own judgment, think would be best for mankind. Few persons, out of Germany, even comprehend the meaning of the doctrine which Wilhelm von Humboldt, so eminent both as a savant and as a politician, made the text of a treatise — that "the end of man, or that which is prescribed by the eternal or immutable dictates of reason, and not suggested by vague and transient desires, is the highest and most harmonious development of his powers to a complete and consistent whole."

If it is a good idea to refer to Wilhelm von Humboldt can be doubted. The expression "harmonious development of his powers to a complete and consistent whole" is vague. He would have done better referring to What is enlightment by Immanuel Kant. The song of beauty, truth and good is as vague as the song of freedom of Friedrich Hayek.

If we substitute tradition of customs by public opinion, we see the problem more clearly. Public opinion can be easily manipulated to a degree that people in a totalitarian state feel totally free. In this case, the distinction made in English make sense.

Freedom is a state of being capable of making decisions without external control.
Liberty, on the other hand, is freedom which has been granted to a people by an external control.


It can be possible that the government has to play an active role in the defence of freedom. If the public opinion, its taste and behaviour, the fashion and believes is controlled by economically dominant media groups it can be a task of the government to balance this power through, for instance, the education system. We will return to the topic when talking about Karl Popper and Theodor Adorno.

The next paragraph may seem trivial to a lot of people; actually, it is not trivial at all. No need to say that the methodological approach of the text "On Liberty" is completely different than what we find in texts about economics. It is a more "intuitive" approach.

It is to assume that John Stuart Mill didn't want to discuss the question whether their environment completely determines people or not. If this were the case, he could have discussed simply the issue of whether the behaviour, beliefs, traditions, moral values etc. fit with an ideal he had in mind.

His focus is another one. He addresses the question whether an individuum is able, after having obtained a certain degree of education, to draw his own conclusions. This question becomes relevant in the debate about totalitarian or authoritarian states. The less people can think on their own, the easier it becomes to manipulate the masses.

Under this perspective, a liberal government has to actively promote diversity.

Little, however, as people are accustomed to a doctrine like that of Von Humboldt, and surprising as it may be to them to find so high a value attached to individuality, the question, one must nevertheless think, can only be one of degree. No one's idea of excellence in conduct is that people should do absolutely nothing but copy one another. No one would assert that people ought not to put into their mode of life, and into the conduct of their concerns, any impress whatever of their own judgement, or of their own individual character. On the other hand, it would be absurd to pretend that people ought to live as if nothing whatever had been known in the world before they came into it; as if experience had as yet done nothing towards showing that one mode of existence, or of conduct, is preferable to another. Nobody denies that people should be so taught and trained in youth, as to know and benefit by the ascertained results of human experience. However, it is the privilege and proper condition of a human being, arrived at the maturity of his faculties, to use and interpret experience in his own way. It is for him to find out what part of recorded experience is properly applicable to his own circumstances and character. The traditions and customs of other people are, to a certain extent, evidence of what their experience has taught them; presumptive evidence, and as such, have a claim to this difference: but, in the first place, their experience may be too narrow; or they may not have interpreted it rightly. Secondly, their interpretation of experience may be correct but unsuitable to him. Customs are made for customary circumstances, and customary characters: and his circumstances or his character may be uncustomary. Thirdly, though the customs be both good as customs, and suitable to him, yet to conform to custom, merely as custom, does not educate or develop in him any of the qualities which are the distinctive endowment of a human being. The human faculties of perception, judgement, discriminative feeling, mental activity, and even moral preference, are exercised only in making a choice. He who does anything because it is the custom makes no choice. He gains no practice either in discerning or in desiring what is best. The mental and moral, like the muscular powers, are improved only by being used. The faculties are called into no exercise by doing a thing merely because others do it, no more than by believing a thing only because others believe it. If the grounds of an opinion are not conclusive to the person's own reason, his reason cannot be strengthened; but is likely to be weakened by his adopting it: and if the inducements to an act are not such as are consentaneous to his own feelings and character (where affection, or the rights of others are not concerned), it is so much done towards rendering his feelings and character inert and torpid, instead of active and energetic.

This is actually a complicated text. In modern philosophy, problems like that are addressed under the term subject <=> object dialectic. Instead of calling the text On Liberty he could have called it as well On Individualism.

He contrasts the object, the environment, to the subject, the individuum, assuming that the individuum only exists to the degree that he is able to choose what suits him best under his individual circumstances: "Customs are made for customary circumstances, and customary characters: and his circumstances or his character may be uncustomary."

This is more precise than the ideal of Humboldt. However, we imagine the process of individualisation; it is always kind of a subject <=> object dialectic. A "a complete and consistent whole" doesn't exist. Many people feel no need to develop a "consistent whole". They just want to develop some faculties, but those to perfection and have no interest in diletatting in everything. Some are original and happy people but don't care about the "consistent whole".

He already insinuates a lot of topics that will become very relevant in the preceding 100 years: The canalisation of the public opinion by the mass media, the "interior resistance" against pressures from totalitarian regimes, the primacy of economy, the tendency to consider everything under economic aspects and the intellectual impoverishment. For some countries, for instance, Germany, these issues are more than pure theoretical debates. The years between 1933 and 1945 show that it is well possible that a whole nation forms a disindividualised mass capable of any kind of barbarism.

We will discuss the topic again later on again in the chapter about Hayek. Hayek believes that economic freedom is the best guarantor against totalitarianism. That is doubtful. The market mechanism only steers the allocation of resources and have very little impact on others social spheres. Hayek and Friedman don't see that because the interpretation of historical situations is not really their strength.

Hayek, for instance, assumes that Nazism is because the government attracted more and more resources. Historically it was the other way round. The Nazis first assumed the power and then they attracted the resources. That would never have been possible if it had not been possible to manipulate the masses.

Beliefs, moral values, intellectual horizons are not created in the economic sphere. In the perception of the individuum, the mechanisms of the market, although very useful from a macroeconomic point of view, mean only "survival of the fittest" and adaptation to the market. Market logic tends to undermine moral values. Markets train people to react on incentives; it is not their business to promote critical thinking. .

Concerning the economic concepts, there is not a big difference between David Ricardo and John Stuart Mill. However, there is a very big difference in the philosophical background and the methodological approach.

Concerning the impact of the social sphere, especially politics, we can distinguish three different positions. In the classical/neoclassical theory, politics is silently ignored. The market alone leads to optimal allocation of resources. There is no active opposition against governmental intervention, but it is assumed that governmental intervention has no positive impact. That's what we found in modern textbooks.

The case of neoliberalism and the Austrian school is different. The government is conceived as a threat to freedom. That changes the role of the market economy. The market economy is not only the best way to allocate resources, but is as well the guarantor of freedom. That means, that even in the case that the market economy would be less effective it is preferable because it is the guarantor of freedom. For Hayek, economic efficiency is not the central argument. More important is the fact that, in his opinion, market economies are the guarantor of freedom. This is the position we can sometimes find in public debate, because the Austrian school, although they play no role in academic economics, has some successful organisations with a good relationship with the mass media.

The third position would have been the right way to go, but unfortunately, this is not the way economics embarked on. The right way would have been to conceive economics as a transversal science instead of trying to abstract from everything that can't be modelled, see preliminaries.

That's the way Alfred Marshall, the presumed founder of mathematical modelling, proposed. It would be a good idea to throw all textbooks on microeconomy, which are actually nothing else than simplified versions of Principles of Economics, to the trash and to base courses on microeconomics on the original work.

At last the speculations of biology made a great stride forwards: its discoveries fascinated the attention of the world as those of physics had done in earlier years; and there was a marked change in the tone of the moral and historical sciences. Economics has shared in the general movement; and is getting to pay every year a greater attention to the pliability of human nature, and to the way in which the character of man affects and is affected by the prevalent methods of the production, distribution and consumption of wealth. The first important indication of the new movement was seen in John Stuart Mill's admirable Principles of Political Economy. Mill's followers have continued his movement away from the position taken up by the immediate followers of Ricardo; and the human as distinguished from the mechanical element is taking a more and more prominent place in economics.

Principles of economics

The paragraph should be understood. The founder of mathematical modelling, Alfred Marshall, the author of almost all mathematical concepts we find nowadays in textbooks about microeconomics and which are the climax of modelling and mathematical thinking mentions John Stuart Mill as an author that gave a new direction to economic thinking, away from the mechanical concept of David Ricardo.

Actually, the tragedy started with David Ricardo. The aspects taken into account are drastically reduced in comparison to the works of Adam Smith or Jean-Baptiste Say. We have an impressive narrowing of the perspective.

In the work of Jean-Baptiste Say we have an entrepreneur, in the work of David Ricardo we have capital, not capitalists because the Ricardian capitalist doesn't take any decisions. Capital moves alone driven by economic laws to the best use. We have indeed a mechanical conception of the economy. This becomes even more obvious in the work of the follower of David Ricardo, Karl Marx. He called his work The Capital and not The Capitalists.

Concerning the methodological approach, there is no difference between the neoclassical theory and Marxism, although they are generally considered as opponents. Both are proud of their "economic laws". Law means that the concepts are presented as objectively true, as true as laws in science. This helps in ideological confrontations.

Economic laws are always either trivial or wrong and don't allow to make any meaningful statement about reality and they play no role in public debates about real problems.

Laws like the decreasing marginal utility, the more is consumed, the less it the utility, decreasing marginal revenue, the more is produced, the less yields the large unit sold for instance are trivial. They are actually "laws", as stable as law in science, valid everywhere, in Germany, in Bolivia, in the United States and Nigeria, but completely irrelevant. This "law" is stable, universally valid, but irrelevant. If we abstract from individual circumstances, it is easy to get "laws". Another law would be the more money someone has, the more he can spend. That's true and universally valid. That's not very helpful. What we actually want to know, how much money people have in different countries and what is the purchasing power of this money. The point is, that we are not only looking for the truth, we are looking for relevant truths.

The other half of the economic laws are wrong because they describe the effects on something and assume that the underlying causes remain stable. An illustrative example for that is the Ricardian theory, where everything is wrong, see David Ricardo.

Both types of law are only valid in parallel worlds, where the individual circumstances are ignored or presumed that they are the same everywhere.

The fact that this kind of modelling imposed itself as the standard methodological approach in economics can be explained. Only if we abstract from any individual circumstances, from anything spontaneous, incidental, unpredictable like advances in technology, the education system, know-how, the political system and political stability, change of preferences, accessibility to markets etc. can we abstract from social, juridic, psychological, political and organisational issues and only in this case can economics be considered as a standalone science. Otherwise, economics is a transversal science and economist would be obliged to compete with any other social science.

We will return to the topic when we discuss the methodological approach of Alfred Marshall.

It can be argued that Marxism is different, because what is called nowadays the "young Marx" has a broader and more sociological approach, but these writings, for instance, the 12 thesis on Feuerbach, played no role in socialist states.

All of the present day neoclassical authors reflected about the methodological approach, that what they distinguish from what we call the classical authors nowadays. They were well aware that they models abstract from individual circumstances but argued that this simplification is needed to study more in detail some aspects of economics. This reflection about the methodological approach got lost in the last 100 years and students learn a lot of "economic laws", textbook about economics are full of them, but they are of little use if it comes to analyse real issues. Most of what we find in modern textbooks about microeconmics is almost irrelevant in public debates.

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Concerning his economics concepts John Stuart Mill remains completely inside the classical framework.

However John Stuart Mill has a broader perspective on economics and considers economics more as a transversal science, what it actually is.

John Stuart Milles anticipates a debate that arises 200 years after between Adorno and Popper. If the effects are the result of the ensemble of social relationships, the effects don't explain anything.

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