Why Liberty Will Win
Our contention here is that history made a great leap, a sea-change, when the classical-liberal revolutions propelled us into the Industrial Revolution of the eighteenth and nineteenth centuries. For in the preindustrial world, the world of the Old Order and the peasant economy, there was no reason why the reign of despotism could not continue indefinitely, for many centuries. The peasants grew the food, and the kings, nobles, and feudal landlords extracted all of the peasants’ surplus above what was necessary to keep them all alive and working. As brutish, exploitative, and dismal as agrarian despotism was, it could survive, for two main reasons: (1) the economy could readily be maintained, even though at subsistence level; and (2) because the masses knew no better, had never experienced a better system, and hence could be induced to keep serving as beasts of burden for their lords.
But the Industrial Revolution was a great leap in history, because it created conditions and expectations which were irreversible. For the first time in the history of the world, the Industrial Revolution created a society where the standard of living of the masses leapt up from subsistence and rose to previously unheard-of heights. The population of the West, previously stagnant, now proliferated to take advantage of the greatly increased opportunities for jobs and the good life.
The clock cannot be turned back to a preindustrial age. Not only would the masses not permit such a drastic reversal of their expectations for a rising standard of living, but return to an agrarian world would mean the starvation and death of the great bulk of the current population. We are stuck with the industrial age, whether we like it or not.
But if that is true, then the cause of liberty is secured. For economic science has shown, as we have partially demonstrated in this book, that only freedom and a free market can run an industrial economy. In short, while a free economy and a free society would be desirable and just in a preindustrial world, in an industrial world it is also a vital necessity. For, as Ludwig von Mises and other economists have shown, in an industrial economy statism simply does not work.
Hence, given a universal commitment to an industrial world, it will eventually — and a much sooner “eventually” than the simple emergence of truth — become clear that the world will have to adopt freedom and the free market as the requisite for industry to survive and flourish. It was this insight that Herbert Spencer and other nineteenth-century libertarians were perceiving in their distinction between the “military” and the “industrial” society, between a society of “status” and a society of “contract.”
In the twentieth century, Mises demonstrated (a) that all statist intervention distorts and cripples the market and leads, if not reversed, to socialism; and (b) that socialism is a disaster because it cannot plan an industrial economy for lack of profit-and-loss incentives, and for lack of a genuine price system or property rights in capital, land, and other means of production. In short, as Mises predicted, neither socialism nor the various intermediary forms of statism and interventionism can work. Hence, given a general commitment to an industrial economy, these forms of statism would have to be discarded, and be replaced by freedom and free markets.
…
At the turn of the twentieth century, and for decades thereafter, things were not nearly that clear. Statist intervention, in its various forms, tried to preserve and even extend an industrial economy while scuttling the very requirements of freedom and the free market which in the long run are necessary for its survival. For half a century, statist intervention could wreak its depredations through planning, controls, high and crippling taxation, and paper money inflation without causing clear and evident crises and dislocations. For the free-market industrialization of the nineteenth century had created a vast cushion of “fat” in the economy against such depredations. The government could impose taxes, restrictions, and inflation upon the system and not reap rapid and evidently bad effects.
But now statism has advanced so far and been in power so long that the cushion is worn thin; as Mises pointed out as long ago as the 1940s, the “reserve fund” created by laissez-faire has been “exhausted.” So that now, whatever the government does brings about an instant negative feedback — ill effects that are evident to all, even to many of the most ardent apologists for statism.
(I was presently reminded of this here).