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A Concise Introduction to Political Economy


Sep 10, 2023

An objection to libertarianism and classical liberalism is the argument that complete individual autonomy does not exist, even in a market setting. This raises the question of what exactly is the significance of individual liberty in liberal political economy. The answer lies in the fact that in a system based on equal individual liberty, your actions are bound by the equal liberty of all others, whereas in a non-libertarian system, you are constrained by the will of specific individuals or stifling tribal customs. This understanding is rooted in the recognition of scarcity, where resources, including time, are limited and not everyone can have or do everything they desire.

The basic microeconomic model, found in any good microeconomics textbook, exemplifies these ideas. To maximize utility and improve one’s situation, individuals make choices based on their preferences and budget constraints. These budget constraints consist of the relative prices of goods and services and one’s income, making it clear that one cannot have everything. Income is determined by one’s productive capacities and usefulness to others in the market. Additionally, anyone can bid on what you directly or indirectly produce, emphasizing that prices are determined through the interactions of individuals in a free market, which can be seen as a continuous and silent auction.

This analysis can be applied to all forms of social interactions, with exceptions for close relationships. Individuals constantly make choices based on their preferences and what is feasible for them to achieve their desired outcomes. Feasibility is determined by the sacrifices one needs to make, abilities and capacities, and contribution to the happiness of others. Each person’s feasible set is influenced by the social consequences of everyone else’s pursuit of individual happiness.

The choices and decisions individuals make about their lives can either be imposed by someone else, which is considered despotism or tyranny, or made by oneself, which represents individual liberty. Critics of this economic approach argue that the simple model described above is not viable or efficient, as it is impossible for all individuals to have their individual liberty only limited by the equal liberty of all others. However, proponents argue that the possibility and efficiency of an autoregulated economic and social order was discovered in the 18th century, particularly by Adam Smith and his concept of the “system of natural liberty.” Economics demonstrates that economies and societies generally function better without commands from a coercive authority, despite the existence of market failures that are typically less constraining than government coercion.

An illustration of this concept is the aftermath of the breakup of the Soviet Union, where a Russian official asked why a bread czar was not needed to supply bread to the population of London. The absence of a coercive authority in this case resulted in more bread being available. Other objections to this economic approach are more ethical and require value judgments. Anthony de Jasay raises such concerns, highlighting the collapse of the standard argument for giving the state unrestricted scope to do good, and instead emphasizes the presumption against coercion based on principles of choice and a “live and let live” social convention.

Of course, there are many other objections and explanations to delve into, but this discussion only scratches the surface.

By Editor

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