The idea of the liberal democratic nation-state appears to be experiencing one of the periodic economic crises of legitimacy that are a hallmark of the modern era. In living memory, we recall the challenge to the post-war welfare state posed by neoliberal economic theory in the 1970s and 1980s, even as more recently we have witnessed the neoliberal post-Cold War consensus splintering under the pressure of political populism and economic nationalism. In contrast to the Continental tradition of the Rechstaat or ‘Legal State’ generally thought to have been inaugurated by Immanuel Kant, the Anglo-American liberal tradition typically has been reluctant to identify a dominant theory of the state. We are now arguably very much in need of one, or at least we need to begin to think through what the economic elements of a liberal theory of the state should entail. This study proposes that there is genuine value in looking back to the intellectual foundations of British political economy in the ‘classical’ liberal period in the seventeenth to the early nineteenth centuries in hope of better understanding the possibilities and challenges confronting liberal democracies in our times.

The origins and history of liberalism have been the subject of considerable interest of late. And there have been valuable recent studies that illuminate particular aspects of early modern political economy, such as the concept of risk, charity and political corruption. There has also been renewed focus on the extent to which economic concepts such as propriety and self-ownership have long been embedded in the normative foundations of liberal political theory. However, the present project is guided by a different set of conceptual concerns and theoretical questions. I operate on the assumption that the primary reason for the continuing relevance of classical liberal thought is the widely held view that it is the philosophical inspiration for the neoliberal economic theory influential today. Contemporary neoliberalism is a somewhat nebulous concept, and one which has few self-admitted subscribers, but at its core it is frequently identified with the position that the economic realm has moral primacy over political life in the sense that political institutions are legitimate in the extent to which they contribute to the creation and functioning of markets driven by the free choice of individuals, not as fellow citizens, friends, parents or colleagues, but as economic agents: consumers, producers and investors.

Thomas Paine is one of the most intriguing figures among late eighteenth-century English radical thinkers. While he has long been celebrated or condemned, depending on one's political persuasion, for his model of the intellectual engagé in both the American and French revolutions, in more recent times there has been renewed interest in Paine as a serious political theorist in the Anglo-American tradition. In particular, Paine's innovative analysis of the relation of politics and economics, that is, his political economy, has been subject to considerable debate among scholars. Some commentators see Paine as the bourgeois radical champion of laissez faire individualism and the minimalist ‘night watchman’ conception of government. Others identify Paine as an intellectual forerunner of working-class radicalism and the social welfare state. Paine's thought has thus become a kind of Rohrschach test for how students of classical liberalism interpret the economic dimensions of the American and French Revolution-era theorising about the state.

However, this debate about Paine's political economy typically mischaracterises his thought because commentators often fail to recognise the significance of the change over time in Paine's reflections on the economic foundations of government. In this chapter I will argue that Paine's theory of the state transformed over several decades from a minimalist conception of government consistent with the laissez faire approach of Adam Smith's harmony of interests to an idea of the ‘positive’ state including among its responsibilities a broad range of social welfare policies. We must be careful, of course, to avoid anachronistic terms and references. Thus, while Paine did not understand the ‘positive state’ precisely in terms articulated by later thinkers, especially twentieth-century progressives and social democrats, it is nonetheless arguably significant that Paine advanced major ideas on the government's role in providing social programmes that anticipated the welfare state. Particularly striking is Paine's Physiocrat-influenced recommendation in his last major work Agrarian Justice (1795) for the creation of a ‘National Fund’ designed to indemnify economically disadvantaged (i.e., landless) individuals for the loss of their common birth right to the natural property of the Earth.

John Maynard Keynes famously observed, with no small hint of irony, that one of the characteristics of the relation between modern politics and modern economics is that: ‘Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.’1 I do not mean to suggest that any of the major figures of classical liberal political economy that we have examined in this book are ‘defunct’ or somehow only of antiquarian interest. Rather, the object of my recovery project has been to challenge a narrow and reductive interpretation of the legacy of classical liberal political economy that remains influential among a key segment of the political and economic elites in contemporary liberal democracies (Keynes’ ‘practical men’). This distorted view of classical liberal political economy continues to hover over our economic debates as the purported intellectual forbear of the laissez faire doctrine that provides academic pedigree and philosophical heft for the policies of austerity and unrestrained capitalism in our times. In contrast, what we have seen in our careful reading of figures ranging from Hobbes to John Stuart Mill is a complex narrative that interweaves distinct forms of economic reasoning based upon the morally and politically infused discourses of both natural rights and the harmony of interests.

This study arraigned an influential philosophical anthropology claiming to expose the origins of liberalism, which tends to reduce the state and political life primarily into an instrument designed to secure the conditions required for free market economics. I have tried to demonstrate that this account of classical liberalism depends upon an historical appropriation of this complex intellectual tradition that proves inadequate upon serious re-engagement with the economic, political and philosophical writings of the most important liberal thinkers of the seventeenth century to the midnineteenth century. But this misreading of what classical liberal political economy means, even by sophisticated commentators, is in itself both instructive and consequential as it speaks to the general problem of delimiting intellectual traditions that necessarily draw upon multiple, diverse influences. On the one hand, despite the enormous social and technological changes in the past four centuries, there remain clear aspects of continuity in the way we talk about the relation between the individual and government in liberal societies.

In the period following the tumultuous 1720s, the United Kingdom experienced a time of extraordinary economic growth and political success. By mid-century it became clear that the new banking institutions and monetary instruments that ushered in the Financial Revolution were part of a permanent transformation of politics and economics in Britain. Similarly, in the middle decades of the eighteenth century the British political class generally coalesced around a hardened orthodox Whig interpretation of the nation's constitutional system of balanced government. Well gone now was the grand political and theological struggles of the previous century, as the fierce battles ‘pro aris & foci’ were replaced by Walpole's bland managerialism and Bolingbroke's perpetual campaign against the administration. In philosophical terms, the highlight of British thought in this period was without doubt the Scottish Enlightenment. The broad, path-breaking movement that emerged from the great Scottish universities and the educated classes on Britain's northern Celtic-fringe at this time included the contributions of Francis Hutcheson and Thomas Reid in moral philosophy and James Steuart and Adam Ferguson's works of political economy, but arguably the most important figures of the Scottish Enlightenment were the philosophic dynamic duo and long-time friends, David Hume and Adam Smith.

Locating Hume and Smith in the tradition of classical liberalism perhaps requires some explanation inasmuch as the Scottish Enlightenment is frequently associated with the communitarian critique of the English natural rights philosophy we have encountered in Hobbes, Locke, and Trenchard and Gordon. Indeed, Hume in particular was often identified as a political conservative, even a Tory on account of his rejection of the state of nature concept as an unhelpful fiction, his predisposition against rapid or violent political change and his condemnation of Wilkite radicalism. However, I join those scholars who caution against the conservative characterisation of Hume. Rather, I suggest that Hume's liberalism reflects the profound influence of Mandeville, and the interest-based, as opposed to rights-based, elements of the earlier liberal tradition. Politically Hume was not a Tory for throughout his career he supported the Glorious Revolution settlement and Protestant Succession without hesitation or any perceivable admixture of Jacobite sympathies.

The circumstances of British liberalism's origins are inextricably linked to both the expansion of modern European imperialism and to the critique of patriarchal divine right monarchy in the cauldron of England's constitutional struggles prior to the Glorious Revolution of 1688–1690. In terms of both empire and the persistence of patriarchy, the egalitarian principles of liberalism were set in stark relief against a background of political, economic and social conditions of radical inequality. The debate in contemporary times is naturally whether British classical liberalism, liberal political economy in particular, was in essence antagonistic towards or complicit with imperialism and patriarchy.

The subject of liberal imperialism is not just of antiquarian interest. In the fairly recent context of reflections upon the challenges and opportunities of the post-Cold War pax Americana and post-911 War on Terror even figures as deeply ensconced among the elites of academia as Michael Ignatieff and Niall Ferguson lauded the virtues of liberal imperialism extending democracy and free markets to benighted, illiberal regions of the globe. In terms of early modern historiography, the debate has typically involved those who condemn liberalism as essentially ideological justification of European imperialism, global capitalism and racialist discourse, and others who endorse a more mixed view of liberalism's heritage, including both a noble tradition of anti-imperialism in the eighteenth century associated with Adam Smith, David Hume and Jeremy Bentham, and the later triumphalist colonialism of James Mill, John Stuart Mill and George Wakefield in the nineteenth century marked by the apologia of enlightened despotism and muscular assertions of western cultural superiority. On the question of classical liberalism's relation to patriarchy, the contemporary debate is no less robust as some feminist scholars view early modern liberal thought as integral to justifying de facto social and economic inequality for women, while others turn to classical liberals such as John Locke and John Stuart Mill to identify the early liberal roots of feminism.

This chapter will examine the themes of empire and women's emancipation through the interpretive lens of classical liberal political economy characterised by the two distinct discursive traditions we have identified with natural rights and the harmony of interests.

A standard reading of the movement of British political thought from the seventeenth century to the eighteenth century is that the main conceptual development in classical liberal political economy arose from the rejection of the somewhat vulgarised version of the English natural rights theories of Thomas Hobbes and John Locke by the luminaries of the Scottish Enlightenment, including David Hume, Frances Hutcheson and Adam Smith. According to this narrative, the crystallisation of the argument for commerce in eighteenth-century Britain presupposed the transformation from a political theory dominated by the discourse of pre-civil individual rights and a rationalist law of nature framework to a new political vernacular that emphasised natural moral sentiments and the concept of economic interests. In this chapter, I propose an amendment to this familiar account, one that re-situates the genesis of the philosophical defence of commerce earlier historically than typically thought, in the context of the polemical responses to the challenges posed both to law and conventional morality by the Financial Revolution in early eighteenth-century England. By recontextualising the origins of modern thought on commerce in the light of the debate about the new financial structures and institutions that transformed English economic life in this period, I hope to illuminate the rich, but often neglected, site of theoretical reflection about the problems and possibilities of commerce afforded most directly by the controversy surrounding the South Sea Bubble of 1720.

My central argument is that it was in response to the challenges posed by the Financial Revolution in England in the opening decades of the eighteenth-century that we witness the first clear mutual appearance of both the familiar natural rights-based version of liberalism as well as a new kind of argument that would in time come to be associated with the ‘harmony of interests’ philosophy. I focus on the pivotal nexus between the interest-based argument for commerce in Bernard Mandeville's Fable of the Bees and the natural rights-based argument in Cato's Letters authored by John Trenchard and Thomas Gordon. These controversial works were partners in crime, as it were, sharing a fiery fate condemned to the flames as a public nuisance by the Middlesex Grand Jury in 1723, as well as being arguably the most theoretically sophisticated writings on commerce in England in the first decades of the eighteenth century.

John Stuart Mill is often seen as an important figure in the transition from the classical liberalism of the seventeenth and eighteenth centuries to the more egalitarian, social welfare form of liberalism that emerged in response to the effects of the Industrial Revolution later in twentieth-century Britain. For our purposes, however, it is perhaps more significant to highlight Mill's role as a kind of culmination of classical liberal political economy. In Mill's political and economic writings, we see both direct linkages back to the rights and interest-based conceptual nerve centre of classical liberalism, as well as a fuller development of the early liberal response to socialism and communism we first encountered in Paine's Agrarian Justice. Mill is also arguably the last British thinker to offer a comprehensive philosophy including rigorous and systematic reflections on politics, ethics, morality, aesthetics, economics, logic and culture. An unparalleled intellectual provocateur, Mill was the epitome of the philosopher engagé who spent many decades publicly commenting on political and philosophical controversies in a variety of journals and newspapers, and even served a three-year term in Parliament as the MP for Westminster.

Today Mill is probably best known as the author of On Liberty (1859), one of the seminal texts in the liberal tradition of free speech, personal autonomy and pluralism. However, in his time Mill was at least as famous for his writings on political economy, especially his massive Principles of Political Economy (1848), which passed through more than a half dozen editions in Mill's lifetime and became established as the classic textbook of British political economy for decades until the appearance of Alfred Marshall's 1890 Principles of Economics. The principle of individual freedom as the requirement for the full development of human character underlies Mill's political economy as fully as it does every other aspect of his thought. It is perhaps hardly surprising that the same thinker who proclaimed in On Liberty that ‘over himself, over his own body and mind, the individual is sovereign’, would have professed earlier in his economic writings that ‘there is a part of the life of every person who has come to years of discretion within which the individuality of that person ought to reign uncontrolled either by any other individual or by the public collectively’.

John Locke and Thomas Hobbes are mirror images of the seventeenth- century English natural rights tradition. Both started from a doctrine of individual natural rights and a comparable state of nature account, but they nonetheless concluded with very different political visions. For Hobbes, natural equality produced the need for a radically conventional politics; that is, only with the construction of an all-powerful, omnicompetent sovereign power is it possible to protect the individual's natural right to self-preservation. Locke believed that Hobbes’ theory of absolute sovereignty was a terrible misstep. The central difference between them related to property. Hobbes famously argued that in the chaotic state of nature, there is no right of property for ‘where there is no commonwealth, here is no propriety, all men having right to all things’, including, quite graphically, the right ‘even to one another's body’. For Locke, on the other hand, the constitutional requirement of limited government derived its normative imperative precisely from the primordial moral fact that every individual owns his or her own person. Thus, contra Hobbes, Locke insisted that by nature human beings do not have a right to each other's bodies. This conception of self-ownership provides the logic behind perhaps the two most characteristic Lockean teachings: namely, that the powers of the civil government derive from the natural power of individuals to execute the law of nature; and that the natural right of property derives from an individual's labour, the products of which ‘nobody has any right to but himself’.

Unsurprisingly, the political implications of Locke's propertycentric natural rights theory revolve around the notion of the purpose of civil government being primarily to secure individuals in the enjoyment of their property, a goal presupposing a high degree of liberty rendered impossible in the Hobbesian ideal of absolute monarchy. Thus, in Lockean liberalism the individual right of property supplies both the object of civil government and the rationale for its intrinsic limitations.

In the political philosophy of Thomas Hobbes, arguably we are witness to one of the most important harbingers of the dawning of the modern conception of the state. Hobbes’ account of the origins, character and limitations of political association displays a level of theoretical sophistication that surpassed his immediate predecessors such as the arch-realist Niccolo Machiavelli or the master politique Jean Bodin. The distinct historical context out of which Hobbes’ political philosophy emerged is marked by both the specific political history of his native England and the more general intellectual milieu in mid-seventeenth-century Europe.

As is well-known, Hobbes’ political writings are in some sense an extended reflection upon the long simmering constitutional and religious disputes in England that exploded into civil war in the 1640s. What Hobbes perceived in this conflict was nothing less than the complete shattering of the feudal order that had dominated not only England, but much of Europe, since the medieval period. Under pressure of events in the first decades of the seventeenth century, the theological and social pillars of the Stuart monarchy splintered apart as the commercial towns, dissenting Protestants and their proponents in Parliament grappled in a struggle for supremacy with the defenders of the Crown's prerogatives among the adherents of the established Church of England.

To Hobbes’ mind, so complete was the disintegration of the once well-established grounds of legitimate authority that by the time the civil war broke out ‘not one perhaps of ten thousand know what right any man had to command him’. The centrifugal forces that tore apart the delicate Elizabethan political and religious settlement proved to be impervious to the effects of traditional modes of moral and civil discourse. Of course, Hobbes was not surprised that even the Restoration of the Stuart monarchy in 1660 could not fully resolve the crisis of legitimacy in the English government, which would not be settled, more or less decisively, until the Glorious Revolution of 1688–1690 a decade or so after Hobbes’ own long life came to an end.