Lionel Robbins on the Logic of Choice and a Liberal International Order

It is probably not too much of an exaggeration to say that British economist Lionel Robbins (1898–1984) was one of the most influential economists of the last hundred years without most economists, nowadays, being aware of it. This is all because of a relatively short book that he published over 90 years ago, An Essay on the Nature and Significance of Economic Science (1932).

He left this impact by defining economics as “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” That is, the foundational aspect of economics is the logic of choice, or the formal decision-making process of individuals to determine how best to allocate scarce means among competing ends. As Robbins more fully expressed it:

The time at our disposal is limited. There are only twenty-four hours in the day. We have to choose between the different uses to which they may be put. The services which others put at our disposal are limited. The material means of achieving ends are limited…. Everywhere we turn, if we choose one thing we must relinquish others which, in different circumstances, we would wish not have relinquished. Scarcity of means to satisfy ends of varying importance is an almost ubiquitous condition of human behavior. Here, then, is the unity of Economic Science, the forms assumed by human behavior in disposing of scarce means.

Economics a universal science of human choice and action

From the time of Adam Smith, economics was, at first, looked at as An Inquiry into the Nature and Causes of the Wealth of Nations (1776). Beginning with David Ricardo in the early nineteenth century, most books on political economy (as economics used to be called) viewed its subject matter to be a study of the production, consumption, and distribution of wealth. In fact, this phrase often appeared in the title or subtitle of volumes on “the principles of political economy.” Economics was seen as an investigation into the “material side” of human endeavors. Anything not concerned with the production and sale and use of material wealth that had been bought and sold on the market was said to be matters of the “noneconomic aspects” of human life.

In the late nineteenth century and the early decades of the twentieth century, some economists began looking for a wider understanding and more unifying conception of human decision-making. This culminated in Robbins’ 1932 definition of economic science, quoted above. Among the primary influences on Robbins had been the “Austrian” economists, in particular, Ludwig von Mises. Certainly, since the 1940s, virtually every principles of economics textbook from which millions of students have learned their basic understanding of the subject have been introduced to it through some version of Lionel Robbins’ definition of economics, with its universal reference to all human conduct. “It is clear that behavior outside of the exchange economy is conditioned by the same limitations of means in relation to ends as behavior within the economy, and is capable of being subsumed under the same fundamental categories,” Robbins said. No human conduct is without its economic aspect.

One implication of this was that all social analysis must start with the individuals who are the building blocks of societal interaction. Only individuals reason; only individuals have wants and desires; only individuals decide on goals or ends to pursue; and only individuals imagine possible means to attend their ends. Therefore, to speak of “society wanting,” or the “community desiring,” or the “nation acting” is to assign to a shorthand conceptualization a misplaced reality to what are the interactions of multitudes of deciding and choosing individuals in various settings inside and outside of the marketplace. This also means that there are “no free lunches,” that is, everything we do necessitates trade-offs, the forgoing of one thing to obtain another, given the insufficient means to attain any and all of our desired ends.

Indeed, all the core concepts of economics, ends and means, costs and benefits, marginal decisions, trade-offs, exchanges, and gains from trade, profit, and loss are not narrowly present and limited to the institutional workings of a market economy. No, they are present in each and every choice and action we undertake, whether in splendid self-sufficient isolation, or in the arena of free-market competition, or under regimes of socialist central planning or the interventionist-welfare state. “Economics,” therefore, is in us, and not in some external given societal setting such as “capitalism.”

Or as Robbins’ mentor on much of this, Ludwig von Mises, explained in 1931, a year before Robbins’ book appeared:

If, however, every conscious conduct is an act of rational economizing, then one must be able to exhibit the fundamental economic categories involved in every action, even in action that is called ‘non-economic’ in popular usage. And, in fact, it is not difficult to point out in every conceivable human — that is, conscious — action the fundamental categories of catallactics, namely, value, good, exchange, price, cost…. In this sense [economics] is universally human, and not limited to nationality, bound to a particular time, or contingent upon any social class.

Not falling into collectivist fallacies of supposed free lunches

To forget this is to risk a wide variety of collectivist fallacies, all of which end up restricting or preventing through political coercion the free choices and actions of many individuals in the name of “society,” or “community,” or the “nation.” What this really means is that one group of individuals use political means to impose its preferred ends, goals, and purposes on other individuals under the sleight-of-hand of saying that what they want is really “society” demanding, “the people” insisting, or “the nation” deciding to go in particular directions.

Too frequently, these elements in all human decision-making get hidden from view in many economic policy discussions, when the presumed benefits from various governmental programs are highlighted with little or no discussion or even reference to the questions: From whence will come the needed scarce means to pursue the politically chosen end? What, therefore, will have to be foregone or sacrificed to obtain it? And who — which real individuals — will have to pay the price in terms of redistributed income, or restricted choices from government regulation, or reduced freedom due to imposed political plans that nullify the plans and voluntary interactions of millions of individuals?

Using the history of economic ideas to explain free markets

Robbins was not a proponent of strict laissez faire in social and economic affairs, indeed, rather far from it. In his later years, especially, he viewed himself as, broadly defined, a classical liberal who appreciated the importance of the freedom of the individual, the benefits from voluntary association, and open, competitive markets. Robbins was also a master of the history of economic ideas and often used this wealth of knowledge to explain the theoretical and policy perspectives of the eighteenth- and nineteenth-century classical economists and liberals, and in the process also implicitly told the reader what his own policy views were through their words.

For instance, in his The Theory of Economic Policy (1952), Robbins presents in detail what he understood to be the ideas of the classical economists of the eighteenth and nineteenth centuries. In enunciating their premises and perspectives, Robbins also shows what he considered to be the guideposts for sound economic policy:

It is the specific contribution of the Classical Economists … that they recommended … the System of Economic Freedom. Given a certain framework of law and order and certain necessary government services … they conceived that the object of economic activity was best attained by a system of spontaneous cooperation. As consumers, the citizen should be free to buy what best pleased their fancy. As producers, as workers or owners and organizers of the means of production, they should be free to use their labor power or their property in ways which, in their judgment, would bring them the maximum reward in money or satisfaction. It is the impersonal mechanism of the market, which, on this view, brings it about that the interests of the different individuals are harmonized…. It follows that it should be the prime object of policy that trade and industry should be free, and that where obstacles to this spontaneous cooperation exist, they should be swept away.

Robbins made a point of emphasizing the views of the classical economists on the necessity for a rule of law with impartial justice and proper enforcement to ensure that the competitive free-market “rules of the game” are respected and protected. And that they had, in fact, a fairly long list of additional things they thought government should do, even in a primarily classical-liberal, free-market setting.

He also summarized the classical economists’ views on socialism and the central direction of economic affairs by a controlling governmental authority. Allowing a number of these classical economists to speak for themselves, for example, in extended quotes from Adam Smith, Jeremy Bentham, and especially Nassau Senior, Robbins concluded this part of his discussion with Senior’s words: “If this system [socialism] should ever be attempted to be adopted … it will be necessary to substitute fear, in the socialist nation, unless it is to starve, and must be divided into slaves and slave drivers.” It was not difficult to associate Robbins’ own views on collectivism with the voices of those he chose to highlight.

Robbins’ role and influence at the London School of Economics

But it was in the period between the two world wars, in the 1920s and 1930s, that Robbins’ contributions to classical-liberal thinking was particularly noteworthy. Robbins was born in 1898. He served on the western front in France during the First World War. His first intention upon returning from the war was to study literature at university, but he ended up turning to economics at the London School of Economics (LSE) and was especially influenced by lecturers such as classical-liberal-oriented economists Edwin Cannan and Theodore E. Gregory.

The LSE had been founded in 1895 by two leading Fabian socialists, Beatrice and Sidney Webb. Their vision was for incremental and democratic change in moving society toward socialist reforms through influencing the climate of ideas and, therefore, public opinion. But the LES had a variety of eclectic views in the form of the teaching faculty. In the late 1920s, Robbins was hired on to the faculty and took over responsibility and oversight for a good deal of the academic economic content of the institution.

He greatly influenced the LSE’s development and growing international stature as an institution of higher learning in the 1930s. For instance, in 1931, he brought Austrian economist Friedrich A. Hayek to the school to deliver a series of lectures that became Hayek’s book Prices and Production (1931), which then led to Hayek being offered a position at the school he held until the late 1940s. Indeed, under Robbins’ and Hayek’s influence, the LSE came to have a distinctively, though far from exclusively, “Austrian” tilt. Arnold Plant, who also taught at the LSE, recalled that when he was in Kiel, Germany, in 1933 and the first waves of university professors were being expelled by the Nazis, a young German academic said to him, “I suppose … that LSE will have no vacancy for me, now that you have become ‘ein Vorort von Wien’ — a suburb of Vienna.”

Robbins’ Austrian analysis of the Great Depression

Inspired by Mises’s and Hayek’s “Austrian” theory of the business cycle, Robbins published in 1934 The Great Depression, an insightful and in places eloquent analysis of the causes and cures for the depression of the early 1930s. Out of the wreckage and imbalances left in the wake of the First World War, the European economies attempted to return to some economic order and normality. But monetary mismanagements in Great Britain’s return to a gold standard in 1925 and price level “stabilization” policies, followed by the Federal Reserve in America during much of the 1920s, succeeded only in creating the instabilities that helped bring about the stock-market crash of 1929.

This was followed by a large array of government interventionist policies, all of which ended up exacerbating the distortion and misdirection of capital and labor through attempts to prevent the needed competitive adjustments in the relative structure of prices and wages. The cumulative effect was the economy-wide declines in output and employment. The policy prescription that Robbins offered was, in effect, a return to competitive free markets, at home and abroad, noninflationary monetary policies, and an end to government interventions in the marketplace.

Economic benefits from a liberal international order

His next book was Economic Planning and International Order (1937). Robbins’ analytical canvas was the global economy from a classical-liberal, cosmopolitan point of view. Explaining the liberal perspective, Robbins said:

Here on one side are the hundreds of millions of consumers who constitute the population of the planet. On the other side are the self-same people with their various aptitudes and opportunities as producers and the mechanical and natural resources which are available. What are the essentials of an organization which shall bring it about that these productive powers are used in such a way as to satisfy as fully as possible the various wants of the citizens?

Clearly two things are necessary. Firstly, we need an apparatus which will register the strength of demand and the relative capacity of the different instruments of production to satisfy it. Secondly, we need institutions of decentralized initiative operating in such a way as to involve a continuous tendency to apply productive resources at the point of highest return. We need to know the demands of the consumers and the relative effectiveness of different ways of satisfying them: and we need an organization of production which will bring it about that no resources can be devoted to produce any but the highest return without loss falling on those responsible for controlling them….

The essentials of such an organization are provided by the free market and the institution of private property. A free market prices both products and the factors of production which produce them. It rewards with higher gains, and transfers to lines of production where production is most urgently needed. It punishes, with loss and reduction of income, continuance of production when the factors of production involved can produce a higher return elsewhere. The institutions of private property provide for decentralized initiative; and this initiative in turn creates the market as an organizing principle.

Given their power to demand, which springs from the past value of their services and property, the citizens exercise through the market continuous control over the future disposal of their work and their resources. The citizen, as producer, is not compelled by physical or legal coercion to put his services and property to the uses in which they produce most in value terms. But if he chooses to refrain from doing so, his own power to consume in the future is curtained to the extent of his refusal… In this way the maximum division of labor which is compatible with given tastes and given technique is continuously reinforced.

This, Robbins argued, is the essential institutional framework and workings of the (classical) liberal economic plan for interpersonal prosperity. The free-market order is not an ideal just for Great Britain, or America, or any other particular country or people. It is an ideal for all of humanity, in which everyone, everywhere, may be bound together in a global social system of personal freedom as consumers and producers, demanders and suppliers, through the voluntary associations of peaceful and mutually beneficial production, trade, and commerce reflected in an international network of division of labor.

Peace, freedom, and prosperity under liberalism

This makes the liberal, free-market ideal cosmopolitan and universal in its possibility and promise. Eliminate barriers to the free movement of goods, money, and even people, and not only are the widest economic improvements made possible: It also diffuses many if not most of the rationales and justifications for war. What’s the point of militarily and politically conquering other nations if anything that is wanted is peacefully and noncoercively purchased from others looking for buyers for their resources and wares.

Robbins also pointed out that even if the entire world was not yet ready to follow the liberal plan for peace and prosperity, “It still remains true that the more liberalism it introduces into its arrangements the greater will be the resulting gain of wealth and stability. A single country or group of countries can pursue many of the aims of international liberalism in a world given over otherwise to interventionism and central planning and enjoy some at least of its benefits.” Unilateral freedom and free trade are means for nations to move in the direction of more liberty.

The greater part of Economic Planning and International Order offers a critique of the rationales and attempts to supplant a competitive market system with various forms of extensive government intervention, regulation, and comprehensive central planning. Domestic interventionism and trade protectionism are simply methods of piecemeal government planning. Introduced in democratic countries in which interest groups attempt to influence the interventionist policies of those running for and holding office, they often result in a hodgepodge of often inconsistent and contradictory purposes and outcomes that represent various types of economic irrationality.

Attempts to overcome this with the implementation of overarching central plans present a different set of problems and dangers. The world is divided into nation-states, so central planning results in various forms of national socialism, in which national central planners must politicize international relationships as each respective government monopolistically determines the allocation of its own nation’s resources, capital, and labor supplies. Trade between countries becomes “affairs of state” and runs the risk of conflicts among nations as each limits and determines what other nations may obtain from them via politicized trade decision-making.

Trade barriers can lead to deadly and destructive wars 

Indeed, in his later books, The Economic Basis of Class Conflict (1939) and The Economic Causes of War (1939), Robbins strongly suggested that protectionist trade barriers designed to control and secure domestic markets and jobs serve as an avenue to war when nations restricted from one country’s market go in search of others by conquest if it is a more profitable means of getting what it wants. Robbins saw this at work in Japan’s invasion of China in the 1930s:

Whatever we may think of the justice of the Japanese attack on China, there can be no doubt of its connection with the restriction of the Japanese market [in the U.S. and the British Empire]…. I would say nothing to extenuate this ghastly crime [Japan’s invasion of China in 1937] against humanity. But I should be glad to think that some of those leaders of English opinion who wrote so glibly … on the necessity of checking Japanese exports in the interest of Lancashire cotton could have it brought home to them that they, too, are not wholly guiltless of the desolation of the Chinese peasantry and the murder of women and children…. The connection between such events and the invasion of China is so obvious as to need no elaboration.

Robbins under the influence of Keynes and interventionism

Soon after the war in Europe had broken out, Robbins was employed as an economic consultant in the Office of the War Cabinet for the duration of the conflict. During the years he worked in government and had a variety of contacts with John Maynard Keynes, he moved in a far more “moderate” direction on matters of macroeconomic “activism” and positive roles for government in society.

He remained, nonetheless, a strong advocate of a competitive and functioning market economy. He continued to warn of the dangers from monetary mismanagement and its inflationary consequences. And he most certainly continued to emphasize the fundamental principle of personal liberty in its various facets for the preservation and morality of a free society. In a lecture entitled Liberty and Equality (1977), he said:

From my point of view the concept of liberty essentially means personal freedom from coercion by other people…. If we say that a man has liberty of action, we mean that he is not impeded by deliberate interference by someone else…. It is only action or expression which is free, which can be the subject of moral judgement at all…. Unless it is present, human action is not susceptible to ethical judgement.

Again, while in these later decades he was not immune from suggested policies of limited redistribution, he still believed that the central elements of any notion of “equality” were equality before the law and equality of opportunity in the sense of the abolition of all government regulations and prohibitions that prevented or restricted any individual’s attempt to improve his circumstances on the open and competitive market. Likewise, Robbins warned of the political and social dangers from attempts to impose redistributive economic equality among the members of society.

Robbins, a master of his subject

In the early 1980s, I taught in Ireland for two years, with frequent visits to London. During one of those trips in 1982, I had the opportunity to meet Lionel Robbins at the LSE. I attended two of his lectures on the history of economic thought. Robbins’ subject during those two sessions was Thomas Malthus and his theory of population. With delightful wit and rhetorical charm, he took the students though the premises of Malthus’s theory, along with its evolution through its various revised editions, and its meaning and relevance today. At the end of both classes, the students gave Robbins a standing ovation, which was fully deserved given the brilliance of the form and content of the presentations.

I also had the chance to spend a few hours with him in his office at the LSE. His vast knowledge of the history of economic ideas soon became apparent, matched only by his amazing memory of the details of the ideas of almost any old economist that he or I brought up in the conversation. He sometimes quoted them from memory, verbatim, in both English and in German when referring to the Austrian economists of the late nineteenth century! If anyone was a true master of his subject, Lionel Robbins was an embodiment of it.

This article was originally published in the January 2023 edition of Future of Freedom.

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