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Economic policy of a free society

Abstract

Liberalism correctly understood is little more than the persistent and consistent applications of the principles of economics of the affairs of men be they domestic or international. These include mutually beneficial exchange, the absence of political privilege, and toleration. The institutional precondition of these principles is the rule of law, private property, and freedom of contract. Since the collapse of communism, however, the gains in human progress that have followed from economic and political liberalization are being increasingly questioned and critiqued. To counter these criticisms of liberalism, I contend, requires tireless and varied iterations of the basic principles. In order to prevent the invisible hand of the market process from being captured by the visible hand of political privilege, political economists must stress how the creative powers of a free civilization erode poverty, inequality, and monopoly privilege through the spontaneous order of market process.

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Notes

  1. In 2015, the World Bank estimated that for the first time in human history less than 10% of the world’s population was living in conditions of extreme poverty. This is the “Great Escape” as Angus Deaton terms it, yet it occurred without much notice while Stiglitz’s “Great Divide” and the concern with inequality domestically and internationally continues to shape the contemporary intellectual discourse. On the importance of Deaton’s work and his Nobel see my article on his work to celebrate his Nobel -- http://www.politico.eu/article/a-humane-nobel-economist-angus-deaton/ . On questions of global justice in general see Loren Lomasky and Fernando Teson, Justice at a Distance (2015).

  2. Mainline Economics refers to the set of substantive propositions that can be found in the works of thinkers from Adam Smith to F. A. Hayek about how the world works, and is to be contrasted with “mainstream” economics which I argue is a more sociological designation of what is currently considered scientifically fashionable. Sometimes the mainline and the mainstream align, other times they diverge significantly from one another. See Boettke, Living Economics (2012). Also see Boettke, Haeffele-Balch, Storr, ed., Mainline Economics: Six Nobel Lectures in the Tradition of Adam Smith (2016) and Mitchell and Boettke, Applied Mainline Economics: Bridging the Gap Between Theory and Public Policy (2017).

  3. In a reference work edited by Peter Leeson and myself, The Economic Role of the State (2015), we go through the various presumptions in the debate: the perfect market, the market failure, the government failure and the anarchy presumption. These presumptions or tacit presuppositions of political economy held by theorists dictate that conversation. What we insist must never be forgotten is that any effort to curb the potential of private predation by the establishment of a public entity of coercion by definition has now created the potential for public predation. This is way too often forgotten in the standard perspective of economists. In a debate with Richard Musgrave, e.g., James Buchanan once asked him whether he would put a muzzle on his tiger if he was taking him for a stroll in the park. Musgrave responded, No, what if my tiger wanted to eat the grass. Buchanan as appropriately exacerbated by such a response. Remember also Keynes’s response to Hayek’s The Road to Serfdom – while in deep moral agreement nevertheless thought that clearly men like Hayek and him could be entrusted to centrally plan an economy.

  4. And, it is always important to remember Milton Friedman’s warning in Capitalism and Freedom that any public policy arrangement where a sincere error on the part of a few can threaten the entire economic system is perhaps a public policy arrangement we cannot afford (1962 [2002]: 50). Also see Vincent Ostrom’s The Intellectual Crisis of American Public Administration (1973) and more recent work on “expert failure” by David Levy and Sandra Peart, The Escape from Democracy ( 2017) and Roger Koppl, Expert Failure (2017).

  5. See Milton Friedman’s review essay on Abba Lerner’s The Economics of Control published originally in the Journal of Political Economy (1947). Friedman brilliantly diagnoses Lerner’s proposals from a comparative institutional analysis and stresses the Lerner ignores the administrative costs of his policies and that these costs cannot be ignored.

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Acknowledgements

These remarks to be delivered at The Mont Pelerin Society Meetings, “Economic Freedom: Road to Prosperity,” May 7-10, 2017, in Seoul, South Korea. I gratefully acknowledge the useful comments on an earlier draft by Rosolino Candela. The usual caveat applies.

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Boettke, P. Economic policy of a free society. Rev Austrian Econ 32, 107–117 (2019). https://doi.org/10.1007/s11138-017-0398-8

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Keywords

  • Economic policy
  • Free society
  • Liberalism

JEL classification

  • H11
  • P14
  • P16