Mary Wollstonecraft is one of the essential contributors to conceptions and discussions of liberty. Influential since the publication of her Vindication of the Rights of Woman in 1792, she was and continues to be read and cited both within and beyond the English-speaking world (Botting, Wilkerson, and Kozlow, 2014). Frequently seen as the first English feminist, her philosophy is receiving increasing attention, thereby placing her views on the rights of women in the wider context of her economic, social, and political views. Most important in relation to the subject of her reflections on liberty is the close link she maintained between rights and duties, and her insistence that artificial hindrances to the development of all human beings violated natural law and divine justice. Liberty, for Wollstonecraft, had to be enjoyed by all, regardless of gender and race; it was her belief that gross inequality was incompatible with the well-being not just of the unprivileged, but also of the privileged.

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With fewer academic and career opportunities than in the present, women in the past often found outlets for their scholarly and intellectual pursuits by collaborating with their husbands, sometimes while also raising families. That reality is reflected in the economics profession as well. This chapter highlights the intellectual contributions of two women who were economists in their own rights but who also married well-known and influential economists with whom they collaborated: Mary Paley Marshall and Rose Director Friedman. The nature of the collaborative intellectual relationships differed in the two cases in ways that reflect both the personal and cultural characteristics of each.

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Rose Wilder Lane based her analysis of human liberty on her experiences and observations across the United States—and across the globe. In 1943, her always adventurous life took an unexpected turn. Not only did she publish The Discovery of Freedom: Man’s Struggle Against Authority that year, but she also took on the Social Security system, the US Post Office, and the FBI.

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Today it is commonly recognized that a country’s central bank and the money supply have a significant impact on inflation and economic activity. Indeed, whether in research or academic circles, in the financial industry, or in popular press, no one can utter the words “recession” or “inflation” without discussing the actions of the US Federal Reserve. This was not always the case. Prior to the 1960s, few people acknowledged that the money supply and a central bank’s actions governing it matter for economic activity and prices.

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Elinor Ostrom was a scholar, citizen, and academic entrepreneur of exceptional insight and determination. Her research on democratic self-governance strongly influenced the emerging sub-fields of public choice and institutional economics, established an important new framework for the analysis of common pool resources and collective action problems, and helped to build bridges between otherwise unconnected bodies of research. For these contributions, Ostrom was awarded both the highest honor in political science and the highest honor in economics.

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The origins of the expression “natural law” are to be found in debates between the Greek philosopher Plato and those thinkers known as the Sophists. In broad terms the Sophists believed that politics was not about questions of right, wrong, justice, or injustice. They maintained that social arrangements reflected whoever was the strongest. Hence, it was “natural” for the strong to rule the weak. Such was the “law” of human “nature.”

Plato disagreed with the Sophists. For him, politics and justice could not be reduced to the rule of the strong. Nevertheless, Plato recognized the rhetorical power of the term “natural.” He thus decided to use it for his own purposes. In Plato’s thought, “natural” became a way of saying “human,” and one distinctive feature of humans is that we have reason. This is what makes humans different from animals. They act according to instinct alone. We do not.

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Any discussion of the nature and ends of liberty and justice inevitably touches upon the role of government and law in society. A good place to begin reflecting upon natural law’s approach to these questions is Aquinas’s understanding of law.

In his Summa Theologiae, Aquinas defined law “an ordinance of reason for the common good, made by him who has care of the community, and promulgated” (ST I-II, q.90, a.4). “Law” in this statement means laws formally made by the legitimate political authority. “Reason” means natural law, which signals the law itself must be reasonable rather than driven by whatever the authorities just happen to want. “Him” means the political authority: i.e., government and legal officials such as legislators, judges, and government ministers. Finally, the “common good” means the conditions that assist individuals and groups in a given political community to make free choices for the goods that promote human flourishing.

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Prior to the eighteenth century, the dominant economic framework of post-medieval Western Europe was essentially mercantilism. This was a way of economic thinking and acting which held that nations became rich by encouraging exports and restricting imports (LaHaye, 2021). Governments acted to protect merchants from foreign competition by imposing tariffs and quotas on imports, as well as granting monopolies on the production of particular goods or trade routes to particular merchants. Trade by sea was especially restricted under mercantile arrangements. While it was rare for states to ban outright the importation of goods and services from abroad, governments introduced a number of restrictions that served to minimize competition.

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Whether Feuer’s claim is strictly true or not need not concern us, but it may very well be. Liberalism in the modern world probably did begin with Spinoza a generation before John Locke, who is usually the thinker most associated with its origin. Born Baruch Spinoza, but sometimes identified as Benedict de Spinoza, he lived from 1632 to 1677 in the Netherlands. We shall have a bit more to say about Spinoza’s biography later, but it is important to know from the outset that the Netherlands at that time was the freest country in Europe. There is no doubt that its environment affected Spinoza’s reflections on political and social matters.

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In political philosophy there is an approach called “social contract” theory. Basically, this view began, at least in the modern era, with Thomas Hobbes and holds that the sovereign power—and sometimes also the legitimacy of that power—is established by people “contracting” with one another to set up a government. The time prior to when people get together to set up their government is known as the “state of nature.” The state of nature is thus that period of time, before any general agreement, when there is no government. There are different theories about what such a time would be like, or even whether it is truly possible to have a state of nature. Also, there are different theories about how the move out of the state of nature would go. Although it is debatable whether Spinoza is actually a social contract theorist, he does comment about our natural state and our natural rights, as well as the setting up of a government. Let’s begin with what Spinoza takes to be our natural rights and then move to the state of nature and the rights of government.

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Traditional political theories often focused on unity and uniformity as key aspects of a well-governed society. Difference, disagreement, and division were at best problems to manage, and at worst signs that there was no true community at all. From ancient Greece onward, political thought was marked by such metaphors as the ship of state, a ship on which we must all row in the same direction, one chosen by a captain we all obey, if we are to get anywhere; and the body politic, a body that acts as one, trying to preserve itself under the direction of a single mind.

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Immanuel Kant is widely regarded as one of the most important thinkers in the history of Western philosophy for his contributions to both epistemology— the study of what there is to know and how we can know it—and ethics— what we generally understand to be the study of right and wrong. But for Kant, ethics is closely tied to epistemology, rationality, and the characteristics of rational beings. Instead of focusing on whether certain actions are right or wrong and why they are right or wrong, Kant’s moral philosophy focuses on the principles underlying those actions, how they are adopted, and whether or not they are consistent with individual freedom or autonomy.

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There’s a story in academic circles that serious philosophical work in the liberal political tradition coming out of Enlightenment thinkers died after Kant, only to be resurrected by Harvard University philosopher John Rawls in the 1970s. While this story contains a bit of hyperbole, there’s little doubt that, after Kant, no writing before 1971 had the impact of Rawls’s A Theory of Justice. Rawls’s project was to take the principles that he identified as central to Kant’s moral philosophy—principles like the obligation not to treat another moral being merely as a means to accomplishing some end—and apply those principles to the political question of what justice entails and how best to bring it about.

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In all of his work Coase emphasized the importance of incorporating institutions into economic theory and empirical economic research. Institutions are the arrangements, the “rules of the game,” that structure social interactions. They vary from informal social norms about acceptable conduct to formal law enshrined in precedent or legislation. Institutions structure social interactions in the sense that they shape the incentives that individuals face as they make decisions, decisions that can affect their own outcomes and the outcomes for other people.

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How can people resolve conflicts over resource use when that use creates costs for people who are not party to the transaction? Coase used his approach of examining how people resolve such conflicts in reality to look at the history of how disputes were resolved in English common law, from grazing cattle eating a neighbouring farmer’s crops to industrial smoke harming nearby residents.

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Transaction costs, that is, the costs of defining property rights, shape incentives and how we organize the use of resources. As the example in the previous chapter of spectrum license auctions shows, these ideas have significant policy implications, even if their implementation takes decades. The use of emission permit trading in the United States to reduce air pollution is another example; it too, has long-lasting and great beneficial effects. The design of the emission permit trading program has several Coasean features, particularly the emphasis on institutional design to reduce transaction costs.

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An interesting and thorny question in the economic organization of production is monopoly, that is, when a single firm produces all output sold in a market. Coase analyzed two different monopoly questions: how should public utilities price their output, and how should a monopolist that produces a durable good price it?

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The UCLA School of economic thinking was a strong free-market tradition in late twentieth century economics. Some who observed it from a distance humorously referred to UCLA as “the University of Chicago at Los Angeles.” In some ways it was almost as strong as the University of Chicago School, whose most notable members in the 1960s and 1970s were Milton Friedman, George Stigler, and Gary Becker. In other ways, the UCLA School was even stronger. Armen Alchian, in particular, was one of a kind. His relentless application of economic analysis, especially analysis of property rights, was not replicated anywhere else. In the area of property rights, Harold Demsetz was a close second. The UCLA School was at its zenith from the mid-1960s to the late 1980s.

The UCLA tradition carries on in the work of dozens of economists who earned their PhDs at UCLA during its golden years. Also, because the work spread beyond UCLA, the tradition lives on in the work of scores of economists who had no formal connection with UCLA.

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The legal ability of owners of private property to use their human and physical assets to earn income, combined with competition from other owners of similar assets, creates a powerful incentive for those assets to be used efficiently. This is perhaps the most well-known argument for free markets. This is certainly a major theme underlying much of the research done by members of the UCLA School.

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Economists have long been interested in the following issue: why are some types of economic activity carried out within individual organizations, while other types of economic activity are carried out through market exchanges between independent organizations or individuals. The obvious answer is that if it is more efficient to carry out transactions within the boundaries of a single organization it will be done that way, and when it is not, transactions will be carried out between independent economic agents. But why are some transactions carried out more efficiently within organizations than between organizations? It also raises a related question: why do organizations take different forms? For example, why are so many law firms and accounting firms organized as partnerships or limited liability companies while others are organized as corporations with publicly traded stocks? And why does organizational form matter?

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Demsetz and Peltzman’s work primarily provides empirical evidence challenging the conventional wisdom that antitrust authorities should discourage or prevent mergers and acquisitions because allowing only a smaller number of firms in a market will primarily result in higher prices that hurt consumers. The UCLA School also provides novel theoretical explanations for why mergers and acquisitions could improve economic efficiency, thereby making consumers better off.

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The setting for Alchian’s article, his first major submission accepted by a top journal, was a heated debate in economics journals in the 1940s about whether it was reasonable to assume that firms maximize profits. Defenders of that assumption argued that firms acted as if they maximized profits. Some critics of the assumption argued that the fact of uncertainly meant that they couldn’t maximize profits. Alchian took a different perspective from that of either the defenders or the critics. He did not argue that firms act as if they maximize profits. And he agreed with one critic, Gerhard Tintner, that when firms’ managers cannot have certainly, the very concept of profit maximization is suspect.

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Scholars often see the economists of the UCLA School as ferocious defenders of free markets. They typically are. However, the claim should be qualified. Leading researchers of the UCLA School never claimed that free markets operate perfectly and always achieve textbook efficiency. As the earlier chapters in this book have shown, Alchian, Demsetz, and other members of the School acknowledged that phenomena such as imperfect information, transactions costs, and opportunism are pervasive. The critical issue that such phenomena raise, given real-world conditions, is whether a system relying upon well-defined property rights and private transactions results in more-efficient economic outcomes than a system that relies upon government proscriptions and regulations. The major contribution of the economists from the UCLA School is their careful and wide-ranging explanations and demonstrations of how and why private property rights and market competition are typically the most efficient institutional arrangement in an imperfect world characterized by scarcity.

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The great majority of the many comments, speeches, articles, and books that Buchanan wrote over the course of his long scholarly career is an outgrowth of the fundamental insights that he offered in 1949.

Most foundational among these 1949 insights is this: because neither the state nor society is a singular and sentient creature, a great deal of analytical and policy confusion is spawned by treating them as such. Collections of individuals cannot be fused or aggregated together into a super-individual about whom economists and political philosophers can usefully theorize in the same ways that they theorize about actual flesh-and-blood individuals. Two or more people might share a common interest and they might—indeed, often do—join forces to pursue that common interest. But two or more people are never akin to a single sentient individual. A collection of individuals, as such, has no preferences of the sort that are had by an actual individual. A collection of individuals, as such, experiences no gains or pains; it reaps no benefits and incurs no costs. A collection of individuals, as such, makes no choices.

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Economists often depict government as an omniscient organization that implements policies to maximize social welfare. But this depiction falls short in at least two ways. First, there is no such thing as “social welfare” beyond the welfare of each of the individuals who make up the society. Second, recognizing that government is not omniscient, there is no way for policy makers to know what policies would benefit those who are affected by them beyond discovering the preferences of its citizens as revealed by those citizens themselves.

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An externality exists when the actions of some people impose costs or convey benefits to others not involved in those actions. One common example is smoke from a factory that pollutes the air that nearby individuals breathe. The typical remedy suggested by economists is to tax the externality-generating activity, or if that is not feasible, to impose a regulation that reduces the external cost—the cost that’s imposed on third parties.

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A major difference between the social sciences and the physical sciences is that the objects of study in the physical sciences behave exactly as prescribed by the laws of nature. The challenge in the natural sciences lies in discovering those laws. The social sciences face this same challenge—there are indeed laws of social behaviour, such as the law of demand. But in the social sciences there’s an additional challenge: Its subjects—human beings—make choices about how they will behave. Predictions in the social sciences, therefore, can never be as precise, or as replicable, as predictions in the physical sciences.

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Buchanan observed that economic analysis, for the most part, examines the choices people make subject to given rules. Constitutional economics, in contrast, examines the choice of rules themselves. Buchanan calls decisions on what those rules should be “constitutional decisions,” while decisions that people make within some set of rules are called “post-constitutional decisions.” Using a sports analogy, Buchanan likens constitutional rules to the rules of the game, and post-constitutional decisions to those that are made within the rules of the game. Constitutional decisions are the decisions that determine the rules under which the game is played.

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Mill’s 1869 On Liberty made the case for three forms of freedom: thought, conscience, and expression; tastes, pursuits, and plans; and to join other like-minded individuals for a common purpose. Why did he care so much about these freedoms? He believed that self-governance—freedom—was an essential part of human happiness, how “human life… becomes rich, diversified, and animating”. Liberty holds a special place Mill’s overall conception of happiness, serving both as a means to obtaining individual and societal happiness, and also as an essential component of being human. Mill grounds his discussion of liberty on “utility,” “the permanent interests of man as a progressive being”.

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Here, we consider how Mill’s Utilitarianism was grounded in a theory of morals in which the worth and capacity of each was equal to that of others and all individuals are connected via sympathy and the desire for approbation. From this ethical theory, Mill recommended sweeping institutional reforms to offer equal treatment to all while continuing to advocate more individual choice.

Mill’s Utilitarianism relied on several key principles. For individual actions, Mill held that “actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness”.

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In his 1848 edition of the Principles of Political Economy and in all editions that followed, Mill famously distinguished between the laws of production, subject to technological and knowledge constraints, and those of distribution, a matter of human design. Perhaps more than any other claim in Mill’s corpus, this famous distinction has caused a great deal of confusion and consternation.

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Although Mill insisted that production and distribution are in fact interrelated, we should not conclude that he favoured only market-determined outcomes without regard for other, freely chosen institutional arrangements. Indeed, much of Mill’s Principles of Political Economy is devoted to the review of potential costs and benefits associated with socialism, peasant proprietorship, and trade unions. In this chapter, we examine Mill’s main arguments as they relate to alternative economic arrangements. While he was open to different institutional arrangements, Mill strongly opposed a centrally directed imposition of goals.

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English philosopher and political economist John Stuart Mill argued that people learn by choosing: this is how they become creative and productive individuals. For this reason, and because he felt that individuals are typically the most capable people to make their own choices, Mill was highly skeptical of restrictions on choice placed by a third party, such as the state. While the cases Mill uses in On Liberty clearly pertain to nineteenth century concerns and thus seem dated, his blueprint for how we think about and possibly intervene over potential harms nevertheless sheds light on contemporary issues, such as: gun control, free speech, and even mandates during the COVID-19 pandemic.

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David Hume was born in 1711 in Edinburgh, Scotland. He was the third and final child of Joseph and Katherine Home. (Hume changed the spelling of his last name from “Home” to “Hume” in 1734 so that its spelling matched its pronunciation.) His father died when Hume was only two years old, and Hume was raised by his mother, Katherine, who never remarried. Katherine was the daughter of Sir David Falconer, a prominent judge in Scotland, and was herself an advocate (or lawyer). It was perhaps understandable, then, that Hume’s mother expected him to follow a similar path and also become an advocate.

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Hume applied his empirical “experimental method” not just to the natural sciences, however, but to the “science of man” as well—which includes morality and politics, or what we might call political economy. How might Hume’s experimental method apply to, for example, justice? Hume argued that, as with other virtues, we come to have a sense or conception of justice based on our experiences. In that way, justice is, according to Hume, an “artificial” virtue, not a “natural” one—that is, it is constructed by human beings in light of their experiences, not written into the fabric of the universe or deduced from uncontradictable premises.

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Hume was one of the earliest expositors and defenders of commercial society. In a series of essays, he showed that, when secured in their lives and property, people would trade, transact, exchange, partner, and associate with one another in mutually voluntary and mutually beneficial ways, generating benefit not only for them as individuals but also for their fellow citizens, for their country, and even for others in the world.

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Hume did not believe that all preferences and desires are good. In fact, he drew clear distinctions between virtues, on the one hand, and vices, on the other. He went so far as to claim that people “who have denied the reality of moral distinctions”—that is, people who claim a moral equality among all preferences and desires, thereby eliminating any moral distinction among them—“may be ranked among the disingenuous disputants,” because, he claimed, no one “could ever seriously believe, that all characters and actions were alike entitled to the affection and regard of everyone”. The question for Hume, then, was not whether there are moral virtues and moral vices, but, instead, how we discern them and what their origin is—and what institutions support and encourage them.

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The origin of the Austrian School of economics is the publication of Carl Menger’s Principles of Economics in 1871. Menger, based in Austria, along with William Stanley Jevons in England, and Léon Walras in Switzerland, are considered the co-founders of the “marginal revolution” in economics. The marginal revolution was a paradigm shift from the established labour theory of value to the marginal utility theory of value. The labour theory of value held that the value of a commodity is a function of the labour required to produce the item. The marginal revolutionists, in contrast, argued that value is not based on the amount of labour expended, but rather reflects how useful people perceive the commodity to be in satisfying their ends.

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Several years ago, Thomas Thwaites, an inventor, undertook the “Toaster Project” in which he attempted to build a simple electric toaster from scratch. To begin, he purchased the cheapest toaster available at a local store. He then deconstructed the toaster to understand the parts that he would need to build his own. Thwaites identified over 400 parts and realized that building the toaster required copper, iron, nickel, mica, and plastic, among other materials. He began by going to mines to obtain the necessary raw materials. After extensive travel and effort, he acquired the necessary resources to construct his toaster. He then shaped these materials into the various components for the toaster and created a plastic mold for the toaster body. Upon plugging the completed (and very ugly!) toaster into an electrical outlet, it shorted out in a matter of seconds. The Toaster Project illustrates the marvel of coordination that takes place to produce goods that most of us take for granted. How does this marvel operate? We will be exploring the answer to this question over the next several chapters. Here we begin with the concept of economic calculation.

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What is a market? There is a tendency for people to think of markets as if they are choosing entities that determine the allocation and distribution of resources. “The market,” we often hear, is responsible for the decline of certain industries, the loss of jobs, or inequality in the distribution of income, and so on. This framing neglects the reality that markets reflect the choices of individuals participating in exchange relationships with others. The market is not a place or thing and has no purpose and no ability to engage in choice. Instead, market outcomes reflect the purposes, plans, and choices of the numerous people (demanders and suppliers) who voluntarily choose to interact with others. Given this, a more accurate way to think about markets is as an array of overlapping, continually changing, voluntary interactions among people, each of whom is seeking to achieve his or her own unique goals. These interactions among individuals contribute to the emergence of a pattern of resource allocations and distributions.

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Well-intentioned government policymakers seek to help low-income families purchase milk. In order to make cow’s milk more affordable, the policymakers impose a price ceiling. A price ceiling is a government mandate on the maximum monetary price that can be legally charged for a product.

Milk producers, however, are not passive in the wake of the government’s price decree. They adjust their behaviour to the price ceiling by holding some milk off the market until the price is allowed to again rise above the price established by the ceiling. This reduces the supply of milk available to consumers, including those less well off who were the intended beneficiaries of the initial government price control. That’s not all. In the face of the reduced supply of milk, consumers shift to milk substitutes—like soy milk and almond milk—and this leads to an increase in the price of these goods, making them less affordable to the least well-off in society.

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As discussed in earlier chapters, government policymakers suffer from the problem of insufficient knowledge in their efforts to plan economic activity. Knowledge is dispersed throughout society and much of this knowledge is tacit, meaning it cannot be communicated, aggregated, or possessed by a single policymaker or group of policymakers. This knowledge problem applies both to efforts at comprehensive economic planning—that is, planning all economic activity—and to efforts at non-comprehensive planning—that is, piecemeal efforts at planning aspects of economic activity. The market process attenuates this knowledge problem as entrepreneurs, relying on market-determined prices and profit and loss as guideposts, discover the best use of scarce resources. The inability of government planners to acquire the necessary economic knowledge, combined with the fact that people adjust their behaviour to interventions, also means that efforts to plan economic activity will lead to a series of unintended consequences, as illustrated by the example of the price control of cow’s milk at the beginning of chapter 7. Beyond the knowledge problem, there is another issue with the government planning of economic activity: it tends to centralize discretionary power in the hands of a small group of policymakers.

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Nozick begins Anarchy, State, and Utopia with the claim “Individuals have rights, and there are things no person or group may do to them (without violating their rights)” (p. ix). Incautious critics sometimes take this to mean that Nozick simply assumes rights and then proceeds from there, but he does have an argument for rights. For better or worse, this doesn’t appear until the third chapter of the book, but it is there. He understands rights as “moral side constraints upon what we may do” (p. 33). If there were no other beings, we would be free to do whatever we wanted to do, constrained only by the laws of physics.

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Having demonstrated in Part I of his book that the minimal state can be justified, Nozick set himself the task in Part II of showing that the minimal state “is the most that can be justified. Any state more extensive violates people’s rights” (p. 149). He turns first to arguments for more extensive state power that are based on a concept of distributive justice. He addresses this primarily by means of what he calls the “entitlement theory,” which also sets the stage for the application of his theory of rights to various other issues in political economy.

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Nozick’s general critique of patterned theories of distributive justice leads him to a specific consideration of one of the most well-known and influential of such theories, John Rawls’ 1971 A Theory of Justice, the now-canonical argument for mitigated economic liberty and redistribution. Nozick begins by praising the book, which he calls “a powerful, deep, subtle, wide-ranging, systematic work in political and moral philosophy which has not seen its like since the writings of John Stuart Mill, if then” (p. 183). And he also notes its influence, already huge in 1974 when Anarchy, State, and Utopia was published, and larger today: “Political philosophers now must either work within Rawls’ theory or explain why not” (p. 183). This encomium does not seem like mere formal politeness towards a colleague, but rather as very genuine admiration. Nevertheless, Nozick then proceeds to explain why he rejects the Rawlsian framework.

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Having demonstrated that the minimal state is justified but that only the minimal state is justified, Nozick also wants to show that the minimal state is morally inspiring, a positive good. He begins this discussion by considering what “utopia” might even mean. He says that it is “impossible simultaneously and continually to realize all social and political goods,” but that the idea is nonetheless worth investigating (p. 297). Why would it be impossible? Because everyone is different. “The world, or all those I can imagine, which I would most prefer to live in, will not be precisely the one you would choose” (p. 298). But underlying this problem, indeed what makes it a problem in the first place, is the idea that society consists of multiple people who have to have some way of living together. So utopia would have to be the best possible world that all could live in. The requirements of social living have to be reconciled with the fact of human pluralism and diversity.

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