Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-First Century.

• Author: Griswold, Daniel T.
• Position: Book review

Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-First Century Deepak Lal Princeton, N.J.: Princeton University Press, 2006, 320 pp.

"Classical liberalism" may be an awkward and arcane term to modern ears but it remains a robust concept. More than two centuries after Adam Smith brilliantly articulated a systematic case for flee markets under limited government, classical liberalism continues to reshape the world for the better.

The term itself has fallen out of favor, however, buried under discussions of neoliberalism, market socialism, the Washington Consensus, and a host of "Third Way" variants, but in China, India, and other corners of the world, it is classical liberalism that is gaining ground. In his new book, development economist Deepak Lal explains the global economy through the penetrating light of a philosophy grounded in centuries of Western thought and experience.

Lal is superbly qualified for the task. A professor of international development studies at the University of California, Los Angeles, he is the author of" such highly regarded books as The Poverty of Development Economics, Unintended Consequences, and the provocative In Praise of Empires. He is an erudite scholar with wide-ranging interests and opinions, and they run freely in the pages of his new book.

The book begins with a historical tour from ancient China and Rome through the pro-market reforms of Pope Gregory VII in the 11th century to the "intensive" economic growth launched by the ideas of Adam Smith and the policies of the British government in the 19th century. Lal approvingly describes the triumph of the 19th century "liberal international economic order" built on the pillars of free (or at least freer) trade, the gold standard, and the international recognition of property rights.

Lal draws important distinctions between classical liberalism and the more technical approach that dominates the economics profession today. Classical liberalism emphasizes the process of competition in "contestable markets," not the abstract notion of a final market equilibrium through "perfect competition." The greatest threat to market efficiency is not that markets will fail to achieve equilibrium, but that rent-seeking producers will capture the government to stifle competition. He wisely warns that governments do not typically function as "beneficent guardians" of the public welfare, but more as "predatory states."

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