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

• Author: Ratnapala, Suri
• Position: Book review

Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-first Century By Deepak Lal Princeton, N.J.: Princeton University Press, 2006. Pp. 334. $29.95 cloth.

When Adam Smith wrote that individuals acting in their self-interest are "led as if by an invisible hand" to promote the public interest, he was not suggesting that every form of private endeavor produces public good. Criminals who gain by harming others also harm the public interest. The invisible-hand thesis holds where the rules of social life protect the life, liberty, and property of individuals. This process is not the result of divine intervention or magic, but the natural outcome of human instincts and physical laws. It materializes where conditions allow voluntary exchange and fades where people are barred from exchanging or are forced into involuntary transactions, whether by armed robbers or by interfering governments. This contingent relationship is the primary lesson of economic history. Those who wish to strengthen the invisible hand must know the nature of the forces that weaken it.

They might well start by reading Deepak Lal's Reviving the Invisible Hand: The Case for Classical Liberalism in the Twenty-first Century, an uncompromising and insightful defense of the classical-liberal case for laissez-faire capitalism and free trade that should be on every liberal's shelf. It begins with a brief history of capitalism, explains its fundamental principles, examines the threats it faces, and proposes ways in which the threats may be met intellectually and politically. Capitalism's great enemy, socialism, is thought by many to be dead, but as Lal shows, dirigisme is alive and well.

The book is crammed with facts, broad-brush accounts, nuanced technical arguments, brutal critiques, and bold prophecies. Themes are interwoven and repeated. The author apparently aimed to stamp out every misconception about capitalism, whether important or trivial, in a single book. This scope makes the reviewer's task difficult, but offers the reader an encyclopedic amount of material within a medium-size volume. The reader can find classical-liberal expositions on almost any question in political economy, from trade, investment, money, capital controls, business cycles, foreign aid, the World Bank, and the International Monetary Fund to economic history, democracy, nongovernmental organizations, the United Nations, cultural capital, public-choice theory, and path dependency. Lal's book is not easy to read, but neither is it easy to put down. A short review can describe only its major themes and arguments.

In the interconnected world of the twenty-first century, it is impossible to isolate domestic economic questions from global macroeconomic conditions. The first virtue of Lal's book is its global outlook. Lal sees how domestic policy is influenced by the effects of foreign trade and how free trade among nations is plagued by domestic politics and dirigiste dogma, his preferred term for interventionist thinking. He demonstrates the futility of pursuing flee trade overseas while curbing market freedom at home. His concern is not just with American or European societies, but with all humanity, including the poorest, to whom the invisible hand does not currently extend.

One of Lal's most significant contributions...