On the ‘useless preachings’ of a great liberal thinker.

by Raffaele De Mucci (LUISS)

The purpose of this contribution is theoretical rather than historiographical. It aims to offer a reconstruction of some key aspects of Luigi Einaudi’s liberal thought, particularly those that are most relevant to understand Einaudi’s positioning regarding the “great divide” between Anglo-Saxon liberalism and continental liberalism. By understanding this placement, we can grasp the influence of this author’s thought on the formation of a liberal culture in Italian society and politics.

LIBERAL FREEDOM AND THE “FRAMEWORK” METHOD

Einaudi does not have a complete and organic theory of freedom, either as a moral theory or, even less, as a metaphysical theory. His conception of freedom lies rather at the intersection of different types of reflections. If we were to give a general characterization of Einaudian freedom, it could be said that it is eminently procedural. This is why Einaudi’s conception of freedom is almost inextricably connected with his conception of liberalism – both as a political and as an economic conception.

Undoubtedly crucial to understand the Einaudian vision is the preface he wrote in 1925 for the Italian edition of ‘On Liberty’ by John Stuart Mill, published by Gobetti: “[…] freedom is not just a simple tool but a common end upon whose achievement the other civil, political, and spiritual ends of life depend.” Freedom thus has primacy over other goals: not only civil and political but also spiritual. It is a common end for men, but freedom is essentially a category that concerns individuals and only derivatively collective life.

This epistemological root of the reasons for freedom – if not freedom itself – is constantly evident in Einaudi. This is seen, for example, in his advocacy for a school system that overcomes its monopoly while maintaining the public education system. In this advocacy, he was in perfect agreement with Luigi Sturzo: Trial and error, the possibility of attempting and making mistakes; freedom of criticism and opposition: these are the characteristics of free regimes.

It is interesting to see how almost superimposable Einaudi’s position is on what Karl Popper stated about ten years earlier, who gave it the fortunate name of “critical rationalism”: “In conclusion, rationalism is thus connected with the recognition of the necessity of social institutions aimed at protecting the freedom of criticism, the freedom of thought, and thus the freedom of men. And it imposes a kind of moral obligation to support these institutions.” The fact that Einaudi does not have a complete and organic theory of freedom does not mean that his positions cannot be interpreted with theoretical categories. One of these categories being undoubtedly the distinction between “positive freedom” and “negative freedom,” formulated by Isaiah Berlin originally in 1958 and significantly revised by him later on – with the consequence of making it quite indeterminate eventually.

In Berlin’s distinction, the concept of freedom embraced by Einaudi eminently falls on the side of “negative freedom,” meaning freedom as the absence of coercion. Freedom is a property of individuals, which can extend by composition to social entities: but it is not a property of social entities itself. This is evident in the field where Einaudi most applied his vision of freedom, which is obviously the economy.

Economic freedom coincides and resolves with that of individuals, whether they are employees, entrepreneurs, or consumers, who interact with one another. In Einaudi, there is never either an affirmed or implicitly assumed position that there may be an overlap or trade-off between freedom and other desirable values or goals, such as a decent living standards for all or social order. Einaudi always strongly affirmed that these other values and goals exist, and that they can be embraced even by someone who is a supporter of liberal freedom,.

What is crucial is that social policy actions are conceived by Einaudi not as a limitation of someone’s freedom, but as instruments so that those in conditions of material inferiority do not have to give up their freedom to survive.

If general Einaudian freedom is characterised by liberal traits, its specific declination is that of ‘freedom under the law’. That is, freedom that does not find a limit in legal rules, but the very conditions for its realization instead. Notoriously, the concept of “freedom under the law,” with its correlate of “rule of law,” typical of England since the time of John Locke, differs, theoretically and historically, not only from the Roman concept of “sub lege libertas,” but also from similar concepts in the rights of countries such as France and Germany. Einaudi would have seen the new Italian republic better framed in the concept of the Hayekian rule of law, quite different from those designated by the expressions “État de droit,” “Rechtsstaat,” “Stato di diritto” in the experience of continental Europe.

This position is the same that the great economist would have supported within the Italian Constituent Assembly, consistently adhering to the concept that preserving freedom requires that laws and norms should not be such as to bind individual action towards specific goals.  Einaudi illustrated what the “framework method” consists of many times, often in reference to concrete cases. From a general point of view, it is described as follows in a 1941 article: “The liberal legislator says […]: I will not tell you at all, O man, what you must do; but I will set the limits where you can make free choices at your own risk. If you are an industrialist, you can choose your workers, but you cannot employ them for more than so many hours […]. You can negotiate wages with them; but if they intend to negotiate through their associations or leagues, you cannot refuse and must observe the agreements made with them.” This is what he calls “Individualist Capitalism,” qualifying it within an “intellectual decay.” He continues by pointing out some issues that didn’t arise just in England – ‘Parliament should remain with “the ultimate sovereignty”’ does not make Keynes’s proposal something other than the advocacy of the expansion of the administrative State, if preferred, the shift of decisions from political bodies to technocratic bodies.

It was a vision opposite to the one that Einaudi consistently had throughout his life. Referring to trends already evident in the Giolittian era, namely transferring legislation to experts, often using the instrument of decree-laws, he stated: “let’s say it loud and clear, without false modesty and without blushing: legislative power must belong exclusively to the ‘generic’ body, to the Chamber taken as a whole, even if incompetent in individual matters and in its individual members. Legislating means establishing principles and rules of conduct. Specialists and ‘competent’ are not competent to do this. They have a very different task: that of execution.” It was 1921.

Keynes qualifies the solution of both technical and political problems that will involve achieving these goals as the true destiny of “New liberalism.”  There is nothing in this destiny that could coincide with Einaudi’s liberalism.  We know that the pillar of “New liberalism” on the social side was Beveridge. If Einaudi’s dissent towards Keynes’s ideas and Keynesian policies was always strong and clear, Beveridge always saw a substantial evaluation of mere skepticism towards him. Let’s just remember two judgments.

The first was given in the Lessons in Social Politics: “There is a mythical aura around plans, and it almost seems that just making a plan will result in something good or new or revolutionary coming out of it. An idea seems not to gain political or economic dignity unless it is translated into a plan. Ancient institutions, rooted for centuries and gradually integrated and grown around the traditional trunk, moved British public opinion only when their codification, streamlining, and perfection took the name of the ‘Beveridge plan,’ and that plan became a signal in the banner of programs even in countries like Italy, France, Germany, or Switzerland, where often a large part of the institutions contained in the ‘Beveridge plan’ existed and operated for a long time, and everyone could have studied their results, sometimes excellent, sometimes mediocre, or even harmful.”

Therefore, Einaudi declared that he was not willing to include “the so-called Beveridge plan in the list of new points of a liberal program.” because it was “a myth,” and above all because “[…] social insurances, whose paternity is today so unjustly attributed to the mythical ‘Beveridge plan,’ are a poor, if inevitable, surrogate of a different social organization, in which we can do without this miserable expedient, that ‘ensures’, but at the price of transforming the citizen into a public pensioner.”

Indeed, with the rise of “New liberalism”, Keynesian economic policies and Beveridge’s plans, the nationalizations wanted by the Labour Party, and weakly opposed by both Liberals and Conservatives, there will no longer be many reasons for the anglophile Einaudi to look to England as a source of nourishment for his liberal vision of the economy and society.

ROOTS IN ANGLO-SAXON LIBERALISM

If one side of the commonly accepted “great divide” contrasting continental liberalism is Anglo-Saxon liberalism, it is clear that in Einaudi’s case, it should more properly be termed British liberalism. The influences of American liberal thought on Einaudi were not particularly significant, largely because American liberal thought at the time, especially at the beginning of Einaudi’s intellectual life, did not present many examples of excellence.

A very different discussion must be had regarding the influence that American federalism, both as theory and practice, had on Einaudi’s political thought. He was a federalist in the dual and coherent sense of wanting a federal structure for the Italian national state, and wanting a federal structure for a united Europe based on a genuine pactum foederis, not mere agreements between sovereign states which – as he wrote admirably in 1954 discussing the European Defense Community, the great opportunity tragically missed by our continent – are now “flimsy powder.”

It is not possible to illustrate the richness of Einaudi’s federalist positions here. Suffice it to underline that his federalism had two fundamental motivations. The first was empirical, deriving from the observation that federal arrangements around the world were those that most ensured peace, democracy, and economic prosperity. The second was ethical and political, the consideration that allowing the widest possible sphere of self-government corresponded to the principles of liberty and responsibility. This is admirably illustrated by a passage written by Einaudi a few years before his death: “If regions, provinces, and municipalities must rely on their own revenues, the citizens’ control over public spending as well as the hope for sensible management of public money is born. If smaller territorial entities live off revenues received or forfeited by the State, or live, as happens, on subsidies, the pride of living off the fruit of their own sacrifice is lost, and the psychology of living at others’ expense arises.”

The real influence of English liberalism on Einaudi’s liberalism came overwhelmingly from economic thought, not from philosophical or legal thought. Probably the personality he was closest to, due to the close connection between the economic element and the moral and social element, was Alfred Marshall.

On the political engagement side, at least until the 1920s, England was a constant reference for Einaudi. And England had deep respect for him. In the United Kingdom, he was perceived as a “left-wing” liberal economist, a supporter of the taxation of the unearned increment of the value of land, a man with Fabian sympathies. It is significant that when Einaudi had leftist temptations, he felt attracted not by some Italo-German version of socialism (for example, Marxism or the idealism of the “socialists of the chair”) but by the Fabian movement, which at that time represented the quintessence of the “peculiarity of the English” in the panorama of European progressivism.

It is Einaudi’s “Anglophile” view of the “social question,” both as a problem and as a solution, that Gobetti thought prevented him from understanding how it arises in Italy, and in ither countries, too. The Italian Communist Party was founded in January 1921, while Gobetti wrote these pages in April 1922.  On an intellectual level, the main reason for this is the rise of Keynes and the Keynesian vision – or Keynesian visions – as the mainstream of economic thought. Einaudi confronted Keynes, or rather his thought, for thirty years.

Einaudi has words of admiration for him: “John Maynard Keynes had been known for years, even before the war, to students of economics […]. Economists owe him days of unsurpassed intellectual pleasure, when in 1913 they could read his book on currency and finance in India (Indian Currency and Finance), a classic book, which stands alongside those essays by Ricardo, Tooke, Fullarton, Lord Overstone, which marked the golden age of economic science. In 1914 and 1915, Keynes’s signature appeared under some descriptive essays on the August days and the first months of banking turmoil in London, which are among the finest ever written on monetary issues during the war.” Likely, Einaudi never expressed such highly positive appreciation towards a living and younger economist.

Einaudi’s judgment would become entirely different from 1933 onward and never changed again. After Keynes’s death, Einaudi came to state:

“Persuaded partly by practical considerations, but mainly as a result of a more thorough doctrinal analysis, the so-called Keynesian theory seems to have already surpassed the peak of its popularity in the academic world. Among American economists, it is already on the decline. If he were alive, perhaps the first to favour its decline would be Lord Keynes himself, known for his marked qualities of self-criticism.”  Einaudi’s opposition to Keynes occurred on several points.  The first point is philosophical, regarding the role that norms have and should have in the sphere of individual and social behaviours. We know how Einaudi, despite professing to be a utilitarian, had a moral vision of anti-eudaimonistic stamp, based on the moral “categorical imperative” and the continuity of tradition. And although, as a liberal, Einaudi believed that the individual was the subject of morality, the latter had a strong social dimension as the foundation of the rules of civil living.

Keynes had a completely different vision. Although it would be futile to seek a single coherent definition at various points in his life and various writings, this vision is nonetheless sufficiently clear. Morality is nothing more than a theory of rational choice under conditions of uncertainty.

From these anthropological premises, a “New Liberalism” cannot but arise. It would be the dominant feature of the 1940s and 1950s. Naturally, English “New Liberalism” designated a variety of ideas and proposals. If its economic pillar was Keynes, its social pillar was William Beveridge.  Keynes’s neoliberal vision is already exposed in the famous 1925 speech “Am I a Liberal?”, largely centered on English parties. Keynes criticizes the Conservative Party, tied to an “Individualist Capitalism,” which he qualifies as being in an “intellectual decay.” He continues by indicating some issues facing England (and not only).

First one being, that Parliament should remain “the ultimate sovereignty” makes Keynes’s proposal nothing else but the plea for the expansion of the administrative State, if preferred, the shift of decisions from political bodies to technocratic bodies.  It was a vision opposed to what Einaudi consistently held throughout his life. Referring to the tendencies already evident in the Giolitti era, namely transferring legislation to experts, often using the instrument of decree-laws, he stated: “Let’s say it loud and clear, without false modesty and without blushing: legislative power must belong exclusively to the ‘generic’ body. To the Chamber as a whole, even if incompetent in individual matters and in its individual members. Legislating means establishing principles and rules of conduct. Specialists and ‘competent’ individuals are not competent to do this. They have a very different task: that of execution. They are unsuitable for legislating because they look at only one aspect of the issue; whereas, even in the smallest matters, one must look at the whole. For experts, for the bureaucracy, the country is material to manipulate, is meat for slaughter; not a soul to shape and educate.” Remembering also that “Germany was ruined by the ‘competent.’ Before the war, it was, if ever there was one in the world, a government of technicians and competent people.” It was 1921.

For the economy, Keynes asserted that “Half the copybook wisdom of our statesmen is based on assumptions which were at one time true, or partly true, but are now less and less true”.   It is evidently a form of constructivist rationalism, the idea that we must – and can successfully! – invent new wisdom for a new age. The economic consequence for Keynes is that new policies must be found to keep the work of economic forces under control so that they do not interfere intolerably with contemporary ideas of safeguarding the interest in stability and social justice.

Keynes qualifies the solution of the technical and political problems required to achieve these objectives as the true destiny of “New Liberalism.” There is nothing in this destiny that could coincide with Einaudi’s liberalism.  We have recalled how the social pillar of English “New Liberalism” was Beveridge. If Einaudi always strongly and clearly dissented from Keynes’s ideas and Keynesian policies, there was substantial skepticism towards Beveridge. We are going to recall only two judgments.  The first was given in the Lectures on Social Policy: “There is a mythical aura around plans, and it almost seems that simply having a plan will bring about something good, new or revolutionary. An idea seems to gain political or economic dignity only if it is translated into a plan. Ancient institutions, rooted over centuries and gradually integrated and grown around the traditional trunk, moved British public opinion only when their codification, streamlining, and improvement took the name of ‘Beveridge Plan,’ and that plan became the banner and signal of programs even in countries like Italy or France or Germany or Switzerland, where a part and often a large part of the institutions contained in the ‘Beveridge Plan’ existed and operated for a long time and everyone could have studied the results sometimes excellent and sometimes mediocre or even harmful.”

Therefore, Einaudi declared that he was not willing to include “the so-called Beveridge Plan in the list of new points of a liberal program.” Because it was “a myth,” and above all because “the social insurances, whose paternity is today so loudly and unjustly attributed to the mythical ‘Beveridge Plan,’ are a poor, if inevitable, surrogate for a different social organization, in which we could do without this miserable expedient, that does provide ‘assurance’ but at the cost of transforming the citizen into a public pensioner.”

Indeed, with the rise of “New Liberalism,” with Keynesian economic policies and the Beveridge plans; with the nationalizations promoted by the Labour Party, and weakly opposed by both the Liberals and the Conservatives, there would no longer be many reasons for the Anglophile Einaudi to look to England as a source of nourishment for his liberal vision of the economy and society.

LOOKING AT CONTINENTAL LIBERALISM

In Europe in 1916, the echo of the debate in economics and social sciences between methodological individualists and historicist collectivists was still alive. The dissent, and indeed the opposition, with the German historical school united Einaudi with the Vienna School of Economics. This contrast dated back to the origins, with the famous Methodenstreit between Gustav Schmoller and Carl Menger.

Writing in 1916, Einaudi extended his negative judgment from economic science to the real world of Germany: “For the same reason – lack of originality and beauty in spontaneous development – German political and social institutions have always aroused little interest in me. The masses may find German political ‘organizations’ admirable because the masses admire orderly, hierarchical, mechanical things. But in terms of centralized political organization, what could the Germans ever add to the wonderful organism recreated in the brilliant mind of the first Napoleon on the traces of the work of the Kings of France? The German social insurance machine may at most seem of scientific interest to a lover of regulations.”

The Viennese School of Economics initially did not have a direct ideological commitment. The fact that it was characterized by an anti-holistic methodology, according to the fundamental concepts of methodological individualism strongly asserted by Menger; the fact that it was radically critical of Marx’s economic theory and Marxism; the fact that it explained economic institutions according to a conception of “spontaneous evolution” without centralized decisions; all this naturally placed the early Austrian School within a broadly liberal vision. A figure like Böhm-Bawerk openly proclaimed himself a liberal, but never engaged in political and cultural activity.

This commitment, however, was the hallmark of the next generation, particularly Ludwig von Mises and Friedrich A. von Hayek. Von Mises was born in 1881, and von Hayek in 1899. It can be said that if Einaudi was intellectually indebted to Böhm-Bawerk, with von Mises and von Hayek the intellectual exchange was among equals, and indeed – especially concerning von Hayek – Einaudi was the reference point.   Certainly, Einaudi and the third generation of the Austrian School shared not only significant pieces of economic theory but also a theoretical vision with liberal foundations of the economy, society, and morality in a specific sense. Not just as a common critical judgment against the two great politico-economic visions that differently and variously seemed to dominate from the 1930s onwards – certainly until Einaudi’s death and beyond – namely Marxism and Keynesian welfarism, but as a common vision of what were the correct liberal proposals, updated, both in terms of institutions and economics and the functioning of society.

Einaudi, together with exponents of the Marginalist School, was among the founders of the Mont Pèlerin Society which, as mentioned, was born in 1947 primarily through the work of von Hayek. The Mont Pèlerin Society managed to unify the diaspora that many liberals (including personalities like von Mises) had to endure in the 1930s. At the same time, the Society became the place of interaction for European liberals – without any more “great divisions” between liberals of the English world and liberals of Continental Europe – with the emerging schools of liberalism in the United States, such as the Chicago School.

In 1961, the biennial General Meeting was organized in Turin in honor of Einaudi, in August. Einaudi attended and delivered a paper on the theme “Politicians and Economists.” It was his last work. For the liberal culture in Italy, his exemplary lesson effectively resulted, as Einaudi himself titled the collection of his most important essays, in nothing more than “useless sermons.”