Classical Liberalism's Future

By Novak, Julie | Review - Institute of Public Affairs, September 2011 | Go to article overview
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Classical Liberalism's Future

Novak, Julie, Review - Institute of Public Affairs

Classical liberalism's future Julie Novak reviews Robust Political Economy: Classical Liberalism and the Future of Public Policy By Mark Pennington (Edward Elgar Pub, 2011, 302 pages)

It is a curious fact that one of the most compelling new works in classical liberalism, Mark Pennington's Robust Political Economy: Classical Liberalism and the Future of Public Policy, has perhaps the most obscure tide in the canon of freedom literature.

Nonetheless, Mark Pennington has written perhaps the most important book in classical liberal political economy in at least two decades. It deserves to be read widely, and for those who do, a richly rewarding intellectual experience will surely be in the offing.

The phrase 'robust political economy is derived from the efforts of economists, particularly Peter Boettke at George Mason University in Virginia, who sought to explain economic phenomena even when relaxing some crucial underlying assumptions concerning human agency.

As any student or informed observer of economics would appreciate, neoclassical economic theory rests on the idea that economic agents of all stripes are rationally omniscient.

This implies that all information about market conditions, including current relative prices attached to goods and services, and changes to relative prices if circumstances change, are perfecdy known to those who trade for mutual benefit.

Economists have also assumed that individuals are self-interested, in that they seek to optimise net benefits from the market transactions they engage in. As Adam Smith noted, the interplay of the expression of self-interest by sellers and buyers, as if led by an invisible hand, leads to a continuous improvement in material living standards.

The neoclassical economists believe that everyone is omniscient and selfinterested except, well, for politicians and government bureaucrats who are as omniscient as the traders in the village square, but are imbued with a benevolence that can only be expected of those taxing, spending and regulating in the community's interest.

As any intellectual refugee from Economics 101 might appreciate, public sector benevolence is a central aspect of the neoclassical narrative that suggests only governments can rectify inefficient resource allocations resulting from the (curiously growing) catalogue of market failures.

While neoclassical economics might be spoon-fed to undergraduate economic students and public servants on policy management short courses, it has come under intense challenge from a variety of schools of economic thought.

The Austrian school of economics has long criticised the neoclassical assumption of human omniscience, as exemplified by Ludwig von Mises and Friedrich Hayek's famous exposition of the 'knowledge problem.'

The relaxation of the omniscient agent assumption applies as much to the impossibility of centralised economic planning by government as it does to the marvel of decentralised plan coordination, guided by prices, for individuals.

It took the emergence of the public choice school of economics from the late 1940s, which culminated in James Buchanan winning the Nobel Prize in Economics in 1986, to finally break the pretence of benevolent public sector agency as a guiding star for economic analysis.

In their particular brand of politics without romance,' public choice theorists describe a world of self-interested politicians, budgetmaximising bureaucrats, rent-seeking special interests and rationally ignorant voters in rehabilitating the Humean imperative for checks and balances to constrain discretionary political conduct.

Whereas Austrian economics and public choice once rode on parallel train tracks, Boettke and other researchers in classical uberai political economy saw opportunities for their theories to provide better explanatory power if the Austrian critique of omniscience and the public choice critique of benevolence were merged.

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