Robust Political Economy
Show Less

Robust Political Economy

Classical Liberalism and the Future of Public Policy

Mark Pennington

This important book offers a comprehensive defence of classical liberalism against contemporary challenges. It sets out an analytical framework of ‘robust political economy’ that explores the economic and political problems that arise from the phenomena of imperfect knowledge and imperfect incentives.
Buy Book in Print
Show Summary Details
You do not have access to this content

Chapter 2: Market Failures ‘Old’ and ‘New’: The Challenge of Neo-Classical Economics

Mark Pennington


INTRODUCTION Economic theory enjoys a vexed relationship with the classical liberal tradition. On the one hand the writings of Adam Smith are often invoked to illustrate how a complex process of social coordination may occur without guidance from a centralised system of command and control. On the other hand, however, the tools of modern neo-classical economics highlight a wide array of ‘market failures’ thought to justify corrective government interventions. Even critics of the market economy appear confused about the relationship between economic theory and classical liberal conclusions. For many, the fully rational agents that populate the models of contemporary economics present a distorted view of human nature in order to deduce market liberal policies (for example, Barber, 1984; Ramsey, 2004). What such critics often fail to recognise, however, is that these very models of rationality are also used by contemporary economists to highlight the supposed weaknesses of an unregulated market system and to make the case for widespread government action. As Frank Knight (1982: 57) once remarked: ‘Critics of the enterprise economy who do not have a fair understanding of how the machinery works cannot tell whether to criticise it because it doesn’t work according to the theory or because it does.’ Much of this confusion about the status of classical liberalism arises from differing interpretations of ‘equilibrium’ in economic theory. To those working within the mainstream of neo-classical economics the equilibrium standard is a benchmark against which to judge the performance of ‘real-world’ market institutions. From a classical liberal...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information

or login to access all content.