Peter J. Boettke’s crisp summary of classical liberalism

Here's a nice extract from a recent article by Peter Boettke. Peter teaches at economics at George Mason University.

Those who worry about "free markets" will be relieved to find that the capitalism I advocate is much more nuanced than what is found either in the social democrat West or in crony capitalist Russia. I want a free society with accountability and responsibility. That is the fundamental message of classical liberalism.

The great free market economic thinkers from Adam Smith to F. A. Hayek … never argued that individuals were hyper-rational actors possessed with full and complete information, operating in perfectly competitive markets. They only argued that individuals will pursue, in the best way they can, those activities that are in their interest to pursue. These thinkers knew that individuals are individuals, fallible but capable human actors plagued by alluring hopes and haunting fears, not lightening calculators of pleasure and pain.

 

Human fallibility may cause “failures,” inefficient markets, but this very fallibility also sets in motion the market process of discovery and adjustment.

 

A setting of private property rights, free pricing, and accurate profit and loss accounting aligns incentives and communicates information so that individuals realize the mutual gains from trade with one another. Efficient markets are an outcome of a process of discovery, learning, and adjustment, not an assumption going into the analysis. That process, however, operates within political, legal, and social institutions. Those institutions can promulgate policies that block discovery, inhibit learning, and prevent adjustment, causing the market to operate poorly.

 

So … what is needed is a reinvigorated ideological vision of the free market economy: a society of free and responsible individuals who have the opportunity to prosper in a market economy based on profit and loss and to live in caring communities.

 

Yes, caring communities. The Adam Smith that wrote The Wealth of Nations also wrote The Theory of Moral Sentiments, and the F. A. Hayek that wrote Individualism and Economic Order also wrote about the corruption of morals in The Fatal Conceit. Our challenge today is to embrace the full scope of free market ideology so as to understand the preconditions under which we can live better together in a world of peace, prosperity, and progress.

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