J.S. Mill and Financial Regulation

I was recently on vacation, which gave me a chance to reread John Stuart Mill’s On Liberty. This is a classic of the individual liberty movement, and I thought this might be an apt time to revisit it, what with the government nationalizing some financial institutions and making major investments in others, and almost certainly about to heavily reregulate the financial markets.

My expectation was that Mill would provide ammunition for those arguing against government involvement, but I was wrong. In fact, Mill clearly supports a government that is active in many affairs of its citizens, as long as there are definite and specific limits to that activity. As Mill says, “the fact of living in society renders it indispensable that each should be bound to observe a certain line of conduct toward the rest.” (p 70, all quotes from the Norton edition)

But let me take a step back. The money quote that summarizes all of On Liberty is this: “the only purpose for which power can be rightfully exercised over any member of a civilized community, against his will, is to prevent harm to others.” (p. 10) Mill’s basic position is that people should be allowed to do and say as they please, as long as they don’t harm anybody else. If left at this, Mill could easily be read to support a fully Libertarian position.

But Mill doesn’t leave it at that. Instead, he teases out a pretty broad definition of “harm,” and thereby a broad set of circumstances under which government can interfere in individual affairs. Continuing the quote from above, Mill notes “this conduct consists, first, in not injuring the interests of one another.” (p. 70) This sentence alone seems to support regulation of Wall Street, since virtually every trade has a counterparty whose interests are affected. Mill goes even further, claiming that the state can compel certain behavior from individuals: “to bear his fair share in the common defence, or in any other joint work necessary to the interest of the society of which he enjoys the protection.” (p. 12)

For Mill, the default position is to give people freedom, but he recognizes that a civil society involves so many interactions that the default may be infrequent, and thus there is significant warrant for government action. So while there are plenty of reasons to disagree with government policy on the financial bailout, John Stuart Mill is not one of them.

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One response to “J.S. Mill and Financial Regulation

  1. zeusiswatching

    Even Mr. Frederic Bastiat, the forerunner of the Austrian School, points out, in his seminal work, The Law, that the two evils are “stupid greed and false philanthropy (even if well intentioned). I would go further and say that stupid greed destroys like a cancer from within.

    Policing the markets, the banks, businesses, and real anti-trust efforts (which need to be radically different than the type we needed to employ in Teddy Roosevelt’s day) are not anti-free market and do not represent an intrusion of any sort of false philanthropy — which is really an over correction to stupid greed.

    This sort of policing and enforcement (shamefully absent over the last decade or so) are aspects of law and order that keep the markets working and prevent disasters like the current one.

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