Tristan Shan P.

Fuentes Professor Issabel Sallador

BAPE 1-2 POEC 3023: Theories in Political Economy

Liberalism and Laissez-faire Political Economy

Classical liberalism is an ideology that values individualism as it advocates free-market
economy and individual freedom. This ideology was based from the psychological
assumptions that humans only think of their own welfare and satisfaction, humans are
completely rational beings that rationalizes every decision that they make and do not take
emotions into consideration, and lastly, humans are atomistic and only moves for pleasure.
Therefore, classical liberalists advocate the maximization of individual welfare and
satisfaction by limiting the restrictions provided by the central government in order to let
individuals have freedom to do things. The same sense applies in their economic propaganda,
the "laissez-faire." In order to achieve individual satisfaction, government intervention is
limited in order to fully satisfy the needs and wants of the individual. The only function of
the government for classical liberalists are to protect the country against foreign invaders,
protect citizens from injustices, and strengthen public institutions and public works.
Classical Political Economy
The classical economic thought firmly believes that the market will work better without
the government interfering in its economic activities. Thus, classical economists believes that
the market regulates itself and this is the only way for a nation to achieve economic success.
This idea arises after the mercantilist system came into failure which heavily relied on the
government’s policies. Adam Smith, a renowned economist, redefined how wealth of a
nation should be measured. According to him, rather than using the amount of gold and silver
as a basis for a nation’s wealth, the true economic wealth of a nation should be based on the
value of the goods and services it produces. Furthermore, putting Adam Smith’s
revolutionary ideas on the center of classical economic theory, it states that the economy will
work better if there is no government intervention at all because the market is self-regulating
on its own. As the producers continue to maximize their profit, the consumers will maximize
their utility as well. Thus, strongly implies that the market is self-regulating. This theory also
implies that the only responsibilities that the government should focus on are the things that
only the political sector can manage such as maintaining the state’s security, improving
infrastructures and providing education, and enacting laws outside of the business sector. In
addition to this, there is another sector that arises during this era of revolutionary economic
thinking, the civil society. The Civil Society is sometimes referred to as “third sector” as it is
neither political or economical because the goal of this society is to achieve public welfare. It
is an extensive community that aims for social welfare outside the bounds of the government.
It can either be for a certain group of people or the society as a whole but nevertheless, it has
no responsibility for the nation and it’s people but voluntarily contributes towards achieving
society’s welfare.