On the Economic and Philosophical Foundations of Libertarianism

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Liberty is without a doubt one of the most valuable pillars of the Western world. For a society to flourish politically and economically, freedom is a necessity. However, the implications of ideologies such as libertarianism, and its extremely laissez-faire attitude towards the operation of society and the economy, introduce an important question: is there such a thing as “too much” freedom? Or rather, what is “true” freedom? Are unfettered free markets and the ‘invisible hand’, without a doubt, the best guides for economic prosperity? Understanding extremes such as this is paramount in seeking the ideal method of managing the economy.

Political terms are complicated and thus often misinterpreted, so defining “libertarianism” is crucial in analysing it. Libertarianism is a political ideology which, as its name suggests, emphasizes liberty and individual freedom. It views government intervention as inhibitive of those freedoms and is thus disapproving of it. Therefore, libertarians argue for the deregulation of markets, property rights, minimal government spending and taxation, and a truly laissez-faire capitalist economy. The only suitable purpose of government in a libertarian society is to punish those who harm or limit the freedom of others through violent means.

Libertarianism must not be confused with liberalism. Although similar in name and in the core principles it holds, liberalism often acknowledges the role of government as necessary in establishing a free and equal society. Left-leaning liberals argue that government is necessary to provide social welfare and reduce economic inequality, and that these are features of a “free” society. On the other hand, right-leaning variations of liberalism, such as classical liberalism (which libertarianism closely derives from) and by extension neoliberalism, agree with libertarianism more closely on economic grounds and the idea of “the freer the market, the freer the people”. However, they view the government as central to establishing the framework of a laissez-faire capitalist economy to function, and in implementing laws to create a civilised, functioning society.

Of course, the definitions above are greatly simplified, focusing more on the two ideologies' general economic implications. Political terms are far more nuanced, and a myriad of variations for each ideology exist which share many other similarities and differences than those stated. In some instances, political terms differ in definition depending on their context. However, the simplified definitions above provide a solid foundation for the analysis of libertarianism on economic grounds.

Considering this, while the promise of absolute liberty to every individual is an admirable cause, the means by which libertarians seek to achieve this not only lead to consequences which simply cannot be undermined but may also prove to be counterintuitive towards the goal of achieving “freedom”. For starters, and perhaps the most apparent flaw of laissez-faire capitalism, is that negative externalities are left to run rife. These can occur in many forms, but an externality that has been the source of heated contention in the modern day has been pollution and the destruction of our environment. Leaving markets unregulated and permitting the exaggerated exploitation of natural resources would only result in the demise of future growth prospects, making libertarianism simply unsustainable.

The deregulation of markets also leads to a consequence which not only jeopardises the efficiency of markets but also the freedom of others: monopolies. Left unregulated, certain firms can amass a significant portion of market share, be it through early entrance into a market with high barriers to entry and establishing a natural monopoly over resources, or through predatory pricing strategies, etc. As such, competition remains minimised as incumbent monopolies greatly inhibit the ability of new entrants into the market. In such a scenario, monopolies lack the motive to innovate their products and can lead to stark price increases that exploit consumers. Productive, dynamic and allocative efficiency becomes non-existent. Furthermore, a lack of regulation over the production processes of monopolies would result in poor quality control over their products, exploiting consumers further. Even if a minimal level of regulation was enforced on a monopoly, a situation of regulatory capture could arise, where the regulator begins operating in the interest of the monopoly rather than the consumers due to its close working relationship with said monopoly. To put it simply, in the long run, a laissez-faire system could give rise to exploitative monopolies that undermine the efficiency of the free market. The establishment of such monopolies would also limit the freedom of choice for consumers, as well as the freedom of entry for entrants into the market.

Furthermore, the emphasis on individualism and property rights gives way to a “tragedy of the commons”. This is the idea that if individuals are entitled to using an unlimited amount of a “common” resource, such as water or land, they are capable of exploiting it and preventing others from accessing it, to the detriment of every other individual. To use the land as an example, a monopoly with immense wealth could purchase vast amounts of land and use it for its own purposes, pollute it and potentially destroy it altogether, preventing others from using that land for other purposes. Alternatively, it could exploit others by charging unreasonable prices for using that land.

Monopolies are not the only instance in which laissez-faire capitalism fails to allocate resources efficiently. The greatest tragedy of a truly libertarian economy would be the under-consumption of essential services such as education, healthcare and infrastructure. Because of how expensive maintaining these services is, along with the limitless demand for them due to how crucial they are, the free market would under-allocate them and reserve them for only the wealthiest in society. With a state that minimises its public spending and taxation, the only way in which such a void would be mitigated is through acts of charity, though such instances would imaginably be few and far between. In this dismal situation, the freedom of the most unfortunate in society is impaired.

The potential for the exploitation of resources, a lack of progressive taxation, and the under-consumption of education lead to another bleak outcome: severe inequality. The virtual reservation of education for the privileged prevents those less fortunate from attaining the skills and knowledge necessary to prosper. Of course, the lack of progressive taxation and/or inheritance tax means not only is income redistributed less equally, but less spending can be dedicated to education for the poorest. Moreover, the monopolisation of resources would result in the wealthy exploiting those resources and only becoming wealthier whilst excluding others from accessing those very resources for their benefit. Monopoly firms would also maintain higher bargaining power over workers, as they may be one of the few employers seeking the specific skills of particular workers.

As Albert Camus once stated, “Absolute freedom is the right of the strongest to dominate. Absolute justice is achieved by the suppression of all contradiction; therefore it destroys freedom” (Quote extracted from The Rebel (1951)). The fixation of libertarians on absolute freedom creates the stark inequality that inevitably leads to the “right of the strongest to dominate”. In such an instance, I ask, is freedom truly achieved? When only those with power are the ones capable of acting without restraint, can it be argued that “the freer the market, the freer the people”? A pragmatic and functional society must adopt a balance between freedom and justice: it must punish those who exploit their freedom by enforcing justice, whilst implementing the regulatory framework to preserve the freedoms of everyone. Freedom and justice, as contradictory as they may seem, are just as interdependent. Social welfare and regulation do not juxtapose liberty and freedom but rather complement it. “True” freedom is not achieved through “letting things be” but is instead achieved through implementing the blueprint for an economy where every individual from any background has access to all of its opportunities.

This leads to another debate: the existence of ‘free will’, which libertarians strongly argue for. However, certain economic concepts quickly disprove the existence of such an idea, specifically systemic risk and uncertainty, and the aforementioned socioeconomic inequality. Economies are complex, dynamic systems that are subject to unforeseeable shocks. For instance, the global financial crisis in 2008 was an event that many failed to predict, yet it generated the most severe recession since the Great Depression, and undoubtedly impacted individuals from all walks of life. Alternatively, consider Russia’s invasion of Ukraine in 2022: an event which certainly came across as a shock, and led to ramping inflation worldwide through the surge of oil prices. On the other hand, privileged individuals have access to more resources and are able to inherit more. This is bound to greatly influence their actions and attitudes. For instance, they are far more likely to pursue higher education, largely because they are more capable of affording it. Despite the monumental impact the socioeconomic context of an individual has on their actions, the context they are born and raised in is based entirely on faith. To put it simply, the economy is far more deterministic than libertarians admit, and the promise of “absolute freedom” under libertarianism is nothing but a myth.

So far, many of the ideas explored in this article were extremes that are rarely prevalent in the real world and are also not exclusive to libertarianism as an ideology, but this is not to say that they are completely unheard of. The United States, hailed as “the land of the free”, is the largest economy in the world, yet millions of Americans refuse to access healthcare services based on its absurd costs. Without a doubt, the free market is a powerful tool that can lead to the most efficient allocation of resources and by extension the liberty of people, but this can only be achieved with the aid of a powerful government to establish the environment in which such a system can flourish and remain sustainable. Acknowledgement of a powerful governmental body is not necessarily synonymous with the impairment of liberty but can instead correlate to increased freedoms. Identifying the ideal balance between power and freedom is key to maximising an economy’s prosperity. Such a reality is of course dependent on the idea that the said governmental body acts as a civil servant to its liberated population. But in an age where governments remain under the influence of the lobbying perpetuated by those who are “absolutely free,” perhaps such a reality remains quite distant.