Statesmanship and the Classical Liberal Order

There is a tension at the heart of political economy. Is it the science of statesmanship, by which rulers manage taxation, commerce, public finance, and national prosperity? Or is it the science of self-government, meaning the study of how free people coordinate their affairs without constant management from above?

These conceptions appear to conflict. Statesmanship implies centralized judgment. Self-government implies decentralized judgment. One vision emphasizes what governments do for societies, while the other emphasizes what societies can do for themselves.

Modern political debate often assumes we must choose between statesmanship and self-government. Either experts steer the social order, or citizens are left to navigate economic and civic life on their own. Yet the tradition of classical liberal political economy emerged precisely from the effort to reconcile these two aspirations. Its central insight is not that statesmanship should disappear, but that the highest form of statesmanship is the cultivation of a society capable of governing itself.

This was already visible in the eighteenth century. Classical liberal thinkers did not imagine political economy as merely a technical discipline concerned with prices and output. Morality, persuasion, and habits of intellectual excellence mattered just as much to their understanding of society. Furthermore, they strongly affirmed that economic institutions shape citizens’ character and their forms of cooperation. From this came the practice of treating private property, common law, and markets as means of social coordination among free and equal persons.

Adam Smith is often caricatured as a Panglossian prophet of laissez-faire: the “invisible hand” will sort everything out. Smith’s political economy rested on a sophisticated account of moral psychology and civic order. The Wealth of Nations cannot be separated from The Theory of Moral Sentiments. Human beings are social creatures capable of sympathy, prudence, and moral judgment. Whether these traits contribute to public well-being depends on institutions.

Commercial society works because its institutions channel ordinary motivations into mutually beneficial cooperation. Under conditions of secure property, impartial justice, and freedom of exchange, people pursuing their own projects can contribute more to the public good than they intend. Political economy thus became the study of how institutional arrangements make self-governance possible.

This marked a profound departure from older traditions of mercantilist statesmanship. Mercantilism held that national prosperity depended on continuous direction from political authorities: trade restrictions, taxes and subsidies, monopolies, and elaborate systems of regulation. Wealth was seen largely as something administered by the state. Although the mercantilists were not as economically naive as they now seem—their belief linking national prosperity to stocks of precious metals was a practical strategy to fund armies and navies, not a general theory of economic prosperity—they had a government-centric view of political and economic order.

Classical liberals challenged that view. They argued that no statesman, however intelligent, had the knowledge to direct a complex commercial society from the center. Economic order was not designed like a barracks or a bureau. It emerged from the interactions of countless individuals, each with knowledge of local circumstances. Contrary to the mercantilists, neither the “right” balance of trade nor the “best” industries for national development can be known apart from the market process. Smith’s "man of system" — the ruler who mistakes society for a machine he can redesign at will — had to be restrained for national prosperity to emerge..

In the twentieth century, Friedrich Hayek would sharpen this insight into one of the defining arguments of liberal political economy. The central problem of social organization, Hayek argued, is how to use dispersed and often tacit knowledge. Information relevant to economic coordination is fragmented across society and resists concentration, meaning top-down administration cannot act upon it. Markets coordinate the decisions of millions of households and firms more ably than discretionary rulers ever could.

The enduring insight of classical liberal political economy is that markets do much more than efficiently allocate resources. Markets are crucial institutions of self-government. They enable individuals to adjust their behavior toward one another through general, impersonal rules rather than arbitrary commands. The rule of law and cooperation work. Discretionary administration and coercive supervision do not.

But classical liberal political economy never claimed to obviate the need for statesmanship. On the contrary, it assigned a limited yet essential role to government actors. Free societies require stable institutions: the administration of justice, the provision of basic infrastructure, and the maintenance of national defense. The key distinction is that classical liberalism understands political authority as setting a framework rather than directing a society. Good statesmanship establishes the conditions under which people can govern themselves. Bad statesmanship attempts to substitute administrative judgment for the emergent intelligence of society itself.

This insight also carries moral significance. Self-government requires more than elections; it requires individuals capable of responsibility and independent judgment. Alexis de Tocqueville warned against “democratic despotism” and the erosion of civic capacities. Even when popularly ratified, such arrangements may produce citizens who, accustomed to delegating social problems to elected officials or bureaucrats, become politically passive even as they remain formally free. The danger is subtler than overt tyranny: a servile condition in which individuals lose confidence in their ability to govern themselves and their communities.

Ludwig von Mises extended this classical liberal understanding of statesmanship by arguing that political authority ultimately operates within the realm of ideas. In his view, no social order can endure without broad public support, and no government can permanently govern against public opinion. The statesman, therefore, must shape and channel public opinion toward the principles that make peaceful cooperation possible. Mises believed that free societies ultimately depend on shared beliefs about the benefits of property rights, exchange, and the rule of law. Statesmanship, properly understood, encompasses the educational and constitutional tasks of sustaining the ethical and political capital required to preserve free institutions.

Classical liberal political economy resolves the tension between statesmanship and self-government by redefining the purpose of political authority itself. The aim of government is to maintain the institutional and moral architecture of self-rule. That is why political economy cannot be reduced to either technocratic management or reflexive anti-statism. It is the study of how liberty and order reinforce one another through institutions that respect human dignity and harness dispersed knowledge.

At its best, classical liberal political economy presents an aspirational vision of a free society: one in which governments exercise restraint because human flourishing depends on preserving the space for individuals and communities to govern themselves. Good governance and self-governance are complements, not substitutes. Liberal political economy teaches us how to achieve and sustain both.

Alexander William Salter is the Georgie G. Snyder Professor of Economics in the Rawls College of Business at Texas Tech University and a research fellow at TTU’s Free Market Institute. He also holds fellowships with the Independent Institute and the American Institute for Economic Research.