Lecture given on September 20, 2010 in Bratislava within Conservative Economic Quarterly Lecture Series /CEQLS/ by Tim Evans, Chief Executive of the Cobden Centre, Chairman of the Economic Policy Centre, a Consultant Director with the Adam Smith Institute and President of the Libertarian Alliance

1. The Relevance of
Classical Liberal
Political Economy in
Today’s World
Conservative Institute of M. R. Štefánik
Dr. Tim Evans

2. Introduction
1. The Challenge and Opportunity of the Economic Crisis
2. The Parlous State of Modern Economics
3. State Failure – Banking, Money and the problem of
Corporatism
4. Conclusion: The Way Forward

3. 1. The Challenge and Opportunity of the
Economic Crisis

4. The Challenge
He who controls the past, controls the future
Ideas matter: the pen is mightier than the sword
1929 and ‘Market Failure’
Massive state intervention
Rise of Nationalism
Rise of Protectionism
Today, we are at a pivotal moment
We need a correct diagnosis

5. The Challenge
Understand the roots of this economic crisis
To get opinion formers (journalists, academics, and policy
makers) to understand that this crisis is not the result of
market failure but massive state failure.
The key challenge is to explain that the entire
infrastructural architecture of our so called free market
economy is riven with a wide range of often unseen state
interventions all too often go unquestioned.

6. The Opportunity
To explain that this crisis has been the consequence of state
intervention – it is about state failure.
That this crisis has not been the result of greedy bankers,
immoral privateers or market failure.
The key opportunity is for us to change the terms of
economic debate and in doing so capture more moral and
intellectual high ground for the principles of life, liberty and
property.

7. Historic Challenge

8. 2. The Parlous State of Modern Economics

9. Against Mathematics
I recently interviewed a student with a degree in the
History of Economics…
He had never heard of the the Socialist Calculation
Debate (Ludwig von Mises)

10. Against Mathematics
There are three key schools in Economics:
Keynesian
Monetarist
Austrian
I am in the Austrian tradition
Good Economics is not about Mathematics
Economics is a Praxeological Discipline rooted in Human
Action and Free Will
Mathematics is a parallel universe. Examples of:
Perfect Competition
Perfect information

11. The Austrian School of
Economics
 “For the ‘Austrian economist’ the free market and the language of price are
the very sources and mechanisms of wealth, the diversity of goods produced
by many individuals is richer and more useful, ensuring greater and more
widespread diversity than any system which attempts to control from the
centre. A diversity of different attempts to predict future needs is what
guarantees innovation. The role of market pricing is partly that of allocating
resources to the preferred use. Its more important role however, is that of
transmitting information about preferences and about relative scarcities.
Only markets can effectively utilise information dispersed throughout
millions of economic agents. Profit is a signal which demonstrates that the
entrepreneur is doing the right thing for people he cannot know. Price is
therefore the language of the complex or extended order of modern
societies. The knowledge utilised in this extended order is greater than that
which any single agent such as a government department can possibly
acquire.”

12. Friedrich Hayek
“[It is] a procedure which has greatly improved the
chances of all to have their wants satisfied. It is the only
procedure yet discovered in which information widely
dispersed among millions of men can be effectively
utilised for the benefit of all – and used by assuring to all
an individual liberty desirable on ethical grounds.”

13. Against Mathematics
Ronald Coase: Social Costs, Externalities, and the
Importance of Private Property.
Public Goods (non-rivalrous and non-excludable)
Coase on Light Houses.

14. State Failure
Free Markets, Discovery and Invention (Telephones)
Free Markets and Regulation
The Importance of Standards, Reputations and Brands
Thinking about Healthcare
The Private Sector
The State Sector
Nationalised Monopoly Professions

15. State Failure
“…the market is, generally speaking, the best set of institutions
we know of for producing and distributing things. The more
important the good is, the stronger the argument for having it
produced by the market. Both barbers and physicians are
licensed; both professions have for decades used licensing to keep
their numbers down and their salaries up. Government regulation
of barbers makes haircuts more expensive; one result,
presumably, is that we have fewer haircuts and longer hair.
Government regulation of physicians makes medical care more
expensive; one result, presumably, is that we have less medical
care and shorter lives. Given the choice of deregulating one
profession or the other, I would choose the physicians.”
David Friedman

16. State Failure
You live in a world of Water Socialism
(Walter Block)
International Law of the Sea
Problems of State Failure
Less wealth creation
Less invention
More damaging externalities

17. 3. State Failure – Banking,
Money and the problem of
Corporatism

18. Money and Banking
Debate about the Koruna, the Pound and the Euro
Nationalised Central Banks
Nationalised, monopoly, fiat currencies
Bank of England: Monetary and Policy Committee
Inflation Targeting
Mid-nineteenth century Banks have had Statutory
Monopoly Privilege to create Credit

19. Adam Smith
It was Adam Smith who said:
“People of the same profession or trade seldom gather
together, even for merriment or diversion, but soon the
conversation turns to a conspiracy against the public
interest.”
What the people don’t know about banking

20. British Public Opinion
The general population is highly uninformed about
the banking system, misunderstanding the legal
status of their deposits and unaware of what banks
do with them. According to our survey:
74% of people think that they are the legal owner
of the money in their current account, as opposed
to the bank
66% of respondents answered “don t know” whenʼ
asked what proportion of their current account was
used in various ways by their bank
Only 33% of the general public favour the existing
policy of government backed deposits and a lender
of last resort

21. The History of Diagnosis
Freddie Mac and Fannie Mae
Not enough state regulation
Greed and Bankers Bonuses
The Euro, Koruna and the Pound
We can talk about state budgets, reducing state welfare
and taxation.
Diagnosing the Cause of the
Crisis

22. The Problem is State Failure
For me, the cancer at the heart of the system is widespread
state failure.
This crisis is not about market failure because we have not
had a market to fail!
Central Banks
Monopoly Currencies
Legislative Favour
Top down State Regulation

23. Statist Boom Bust Cycle
Hayek
Competing Currencies
Free Banking
Government Deficit Financing
Inflation as a Hidden Tax
It is the poorest who suffer
Only Austrian Economists Predicted this Crisis

24. 4. Conclusion: The Way Forward

25. Conclusion
The Importance of Ideas
We have to explain what has happened to be able to
successfully campaign for genuine market solutions
How the world changes
Change the Terms of Debate
www.CobdenCentre.org
www.Mises.org

26. Thank you.
tim.evans78@btinternet.com