Economist who had total belief in market

BOOK REVIEW: Arthur Seldon: A Life for LibertyBy Colin Robinson Profile Books; £19.99 - ARTHUR SELDON was one of the founders of the Institute of Economic Affairs in the UK, a think-tank which advised Sir Keith Joseph, Margaret Thatcher and others on the benefits of free markets and the dangers of government intervention.

In this biography we have the story of a liberal economist who preached the virtues of markets for almost three decades before Thatcher came to power.

Arthur Seldon came from a poor background – the Jewish East End of London – was orphaned at the age of three and adopted by a shoe-maker and his wife. His ability to surmount such a difficult background gave him an emotional attachment to the notion of self-sufficiency. The more intellectual adoption of that notion came when he went to the London School of Economics (LSE) in the 1930s and sat at the feet of liberal economists like Hayek, Coase, Plant and Robbins.

The LSE had been founded by George Bernard Shaw and the Webbs in 1895 and, on the social studies side, did follow the left-wing programme of its Fabian founders. However, on the economics side it was precisely the opposite. There must have been many interesting debates at high table.

The LSE economists were fundamentally opposed to those 50 miles up the road in Cambridge where the interventionist policies of Keynes were still being taught.

It is a pity that we still haven’t found a pragmatic compromise between the extreme ideologies of free marketeers and the collectivists. It almost seems as if academics prefer to play around with extreme theories rather than work out viable solutions.

In Ireland we have exactly the same kind of bifurcation: some economists believe in Keynesian intervention; others prefer the classical Ricardian view. What, one might well ask, is the truth?

But Arthur Seldon did get a lot right. As long ago as 1980 he predicted that China would go capitalist, that Soviet Russia would not survive the century and that Labour would never rule again. These were pretty good predictions but, unfortunately, he did not foresee the recent banking melt-down where the free market essentially collapsed. (In that respect the timing of this book could hardly have been worse.)

One could argue that Seldon believed in the goodness of people including bankers and that free enterprise could not therefore succumb to naked greed. But that would be over-generous. This is because his belief in the market was so complete that he felt it would still work in the national interest even if people were fundamentally bad. He also believed that the discipline of the market would in time reduce the role of government to about 10 per cent of GDP – compared to some 40 per cent at present. In his view that role should be confined to national defence, law and order and the protection of property rights. Naturally, he recommended privatisation at every opportunity.

He believed that governments tended to be corrupt, were inefficient, exercised their monopoly power in the interest of pressure groups and were not motivated by the national interest. He once expressed the view that by winning the second World War, the UK lost the peace because the same old pressure groups and vested interests had not been wiped out in conflict, as they had been in Germany and Japan.

In fact, he didn’t believe that governments were democratic at all because minorities were excluded from decision-making whereas there was no such exclusion from the market. One person with money in his pocket can get what he wants in the market-place. But one vote will not get him any of the government policies he wants.

It’s ironic to note, however, that Arthur Seldon probably would never have had the opportunity to go to university were it not for the existence of state scholarships.

He believed that competition not only kept consumer prices low but encouraged entrepreneurs to discover new products and better means of production.

Although he believed that the welfare state was a dreadful mistake, forcing people to become dependant on inefficient governments, he was no right-wing ideologue. If people were in need they should be given money by the state, not services. The advantage of money was that they could spend it in the market place according to their choices.

Free international markets involved people of different nationalities in trade and this, he believed, was a powerful safeguard of peace. He would probably have agreed with Fukuyama that liberal capitalism caused the “end of history”.

During his many years at the top of the Institute of Economic Affairs, he refused to lobby government because that would have meant dealing with bureaucrats and pressure groups. He simply tried to change the intellectual climate by publishing.

To what extent he influenced Thatcher we will probably never know. And since the sort of theories he expounded were later labelled the “Washington Consensus”, it would seem that American economists had a greater influence on policy-makers.

Michael Casey is a former chief economist with the Central Bank and a former IMF board member