|
Send to a friend
Book Review
by Richard M. Ebeling, August 2000
From Subsistence to Exchange and Other Essays, by Peter
Bauer (Princeton, N.J.: Princeton University Press, 2000); 153 pages;
$24.95.
FREE-MARKET
ECONOMIST Peter T. Bauer is 85 years old this year. During the 55
years since the end of the Second World War, Bauer has been one of the
most articulate and insightful critics of economic planning and
government intervention in the field of development economics. During
this period most academic economists and all of the international
organizations, such as the International Monetary Fund and the World Bank,
fostered the belief that only government control and direction of economic
activities could ensure growth and prosperity for underdeveloped
countries in the Third World and promoted policies based on that belief.
Bauer, who is now professor emeritus at the London School of Economics,
insisted that these policies would result in stagnation, corruption, and
continuing poverty for tens of millions of people in Asia, Africa, and Latin
America. Only the market economy and individual freedom could offer a
path to real economic development and sustainable rising standards of
living for an increasing circle of people around the world.
Some of Professor Bauer’s
most important works on this theme have been West African
Trade (1954); The Economics of Underdeveloped
Countries (1957); Economic Analysis and Policy in
Underdeveloped Countries (1957); Indian Economic Policy and
Development (1961); Markets, Market Control and Marketing
Reform (1968); Dissent on Development (1972);
Equality, the Third World and Economic Delusion (1981);
Reality and Rhetoric (1984); and
The Development
Frontier (1991) (reviewed in Freedom Daily,
October 1992.). The spring-summer 1987 issue of the Cato
Journal consisted of essays in honor of Bauer by many leading
free-market economists.
Bauer’s new collection of
essays, From Subsistence to Exchange, offers a valuable
overview of his many criticisms of Third World planning and defenses of
market solutions for development and growth. The title essay explains the
process by which subsistence farmers and producers are spontaneously
integrated into the market through the evolution of trading networks by
private traders and merchants without government aid or guidance.
These private trading networks create
incentives for specialization and division of labor that begins the
emergence of increased productivity and of connections with global
products and capital markets. Production for “export,” both to
other parts of the underdeveloped country as well as the wider world
market, enables the earning of money incomes that can then finance the
importing of both capital and consumer goods.
These trading networks need neither
government support nor government stimulus. Local merchants and budding
entrepreneurs possess the particular knowledge of the local
circumstances and opportunities that enable the developing trading
connections to take the form and shape best suited to the situation in each
region and area.
Private profit opportunities, not
government directives, are the natural mechanism for starting the process
of economic development. What is needed from government, Bauer argues,
is security from plunder and theft by both private and political thieves,
through the guarding of property rights, contract law, and equal treatment
under the judicial system. In addition, low taxes, limited government
expenditures, and a noninflationary monetary system are all that
government can contribute to helping the development process.
In this context, Bauer also challenges
those who insist that population growth is a threat to economic
development. First, he explains that it is a dangerous elitist assumption
that governments know how many children people in these underdeveloped
nations should be permitted to have. The people in these countries are not
irrational animals unable to control their sexual passions. Birth control
methods of various types were known and practiced long before the
manufacturing of modern contraceptives. Family sizes most often reflect
conscious choices based on the desirability of and love for wanted
offspring.
Second, as market opportunities
develop, the people in these countries have new options that often change
their preferences for family size without compulsory birth control,
abortions, or sterilization. It is precisely through normal market-based
interactions with the West that the people (especially women) in
underdeveloped lands rethink the value and viability of different family
sizes.
The harm of foreign aid
In several essays, Bauer critically
analyzes the rationales and consequences of foreign aid by governments
and international organizations. Invariably, such financial aid is given
directly to or passes through the hands of the governments in Third World
countries. The use and disbursement of these funds, therefore, is totally
politicized, since it is the political leadership and interest groups
controlling the governments who determine for whom and for what
purpose the billions of dollars in aid shall be used. These politically based
decisions have had nothing to do with the actual market-driven
opportunities for which investable funds could have been profitably
applied.
Furthermore, foreign-aid transfers
from countries in the West have most frequently been justified on the
grounds that the poverty of underdeveloped parts of the world is the
result of the past racism and colonialism practiced by the nations of
Europe and North America. Bauer demonstrates that, contrary to this myth,
those countries that have had the most economic contact and trade with
the West are those Third World countries that have experienced greater
economic growth and development. The greatest poverty is in those parts
of Africa, for example, in which commercial and financial penetration
from the West have been the least. Continuing poverty in these countries
is due either to backward cultural attitudes and traditions antagonistic to
commercial relationships or to corrupt and intrusive government policies
that have prevented the emergence of secure property rights and networks
of free-market transactions.
In an essay entitled “Disregard
of Reality,” Bauer suggests some of the reasons for the pervasive
misunderstanding of the conditions necessary for economic development.
A central element, he says, has been the increasing mathematization of
economic analysis during the last 50 years. Reducing the nature of the
human condition to quantitative functional relationships in sets of
mathematical equations has clouded a true understanding of human action
and the historical and institutional processes through which it naturally
unfolds. Man becomes nothing more than a quantified and measured
“variable” to be manipulated by self-appointed social
engineers convinced they know how best to order and arrange the patterns
of human interaction and for what purposes.
Thomas Sowell, the well-known
free-market economist and social theorist, once praised Bauer as
“one of those intellectually heroic figures who has stood fast
against the fads and fashions of his time.” The essays in this
volume show very clearly why Sowell’s judgment of Bauer was well
deserved. If academic and policy thinking about economic development has
slowly shifted in a pro-market direction over the last decades, a good part
of the credit belongs to Bauer’s unique and important contributions.
Professor Ebeling is the Ludwig von Mises Professor of Economics at Hillsdale College, Hillsdale, Michigan, and serves as vice president of academic affairs for The Future of Freedom Foundation.
Send to a friend
back to top
Subscribe to Freedom Daily.
|
