In this impressive work, Geoffrey Hodgson, a leading scholar in evolutionary and institutional economics, presents an interdisciplinary approach, including anthropology and neuropsychology, to demonstrate the fundamental importance of legal and financial institutions in the development of capitalism in England between 1300 and 1820. Determining the foundations of the ‘First Industrial Nation’ has long been a staple of economic history, often laden with a tendency to focus on quantifiable factors of production and resources, what Hodgson terms the ‘physicalist perspective in economics’ (page 182).
The notion of English exceptionalism has often informed historical accounts in this area, from self-congratulatory and often chauvinistic narratives of earlier centuries, which stressed nationalistic and religious attributes of ‘free-born Englishmen’, anti-Catholicism, and the virtuous worldliness of Protestantism, to those documenting the carefully-crafted application of hegemonic domestic and imperial economic policies. More recently, the cultural and intellectual dimensions of Enlightenment culture have been identified, especially by Joel Mokyr, as components of emergent capitalism.
While promoting a ‘legal institutionalist’ interpretation, Hodgson concedes that ‘multiple dimensions’ informed capitalist development (page 228). Yet, he seeks to revise an outlook whereby the apparatus of property rights, legal structures, and financial institutions have been understated in the historical literature. Thus, a ‘hidden wiring’ metaphor is appropriate, with the primacy of institutions representing a less fashionable, less heroic, and less visible element than the content of pre-existing interpretations.
The book is divided into three parts. Part I examines explanatory frameworks of capitalist development, including Marxist historical theory, as well as the role of technology, religion, and ideology. Part II, comprising over 50% of the book’s content, explains England’s economic development by reference to land, law, war, and finance. Part III narrows the focus by assessing institutions as drivers of economic transformation, while providing international comparative analysis.
The introduction presents the conceptual approach of ‘legal institutionalism’ with Thorstein Veblen and Joseph Schumpeter referred to as core influences. In Schumpeterian fashion, finance is held to have preceded enterprise, with rules-based institutions and organisations projected as the foundations and facilitators of transformation. A welcome semantic precision is employed in defining terms like ‘capital’ and in attempting to establish a sequential timeline of causal factors. Resisting Whiggish conceptions of linear progress, Hodgson argues for uneven development, especially of financial institutions and instruments, instancing that mortgaging rules were not established in England before 1670, and debt markets fully emerged only in the later eighteenth century (page 12 note 24).
Unpicking Marxist historical theory is a significant element of Part I. For Marx, law was not part of the economic base but rather the superstructure, yet Marx had to reference property since the social classes of capitalism were defined according to ‘specific institutional relations of property and power’ (page 47). Indeed, the very claim for an English bourgeois revolution is problematic, as the aristocracy retained enormous political and economic power, status, wealth, and privilege well into the twentieth century. With law considered constitutive of social relations, rather than simply an epiphenomenon, Hodgson allows himself the aphorism: ‘The history of all existing society is the history of institutional change’ (page 48).
Similarly, technology, religion, ideology, and culture are framed as limited explanations. China’s institutional failures in sustaining its earlier technological advances are taken as indicative of why technology alone is an insufficient explanation for capitalist development. Equally, while Calvinism, famously termed the parent of capitalism by Max Weber, ‘impelled a capitalist mentality’ of hard work, diligence, and literacy, it cannot explain the capitalist structures and institutions of non-Calvinist territories such as the Italian city-states (pages 55-56). Nonetheless, adjudging the different contours and outcomes might have been worth pursuing further.
Similarly, the presence of liberal ideas did not necessarily translate into policies or a particular policy agenda. The impact of Enlightenment networks, the ‘Republic of Letters’, and transmission of ‘Useful Knowledge’, even the influence of the great ‘Cultural Entrepreneurs’, Newton and Bacon, is taken as overstated, with too much weight ‘placed on too few extraordinary people’ (page 65). In sum, property rights, the rule of law, and financial institutions were more vital foundational factors, with transmission and circulation of knowledge depending on ‘higher-level evolution of organized authority’ (page 67). Hodgson viably suggests that the covert nature of evidence surrounding institutions, rules, and regulations often leads to historical understatement or neglect of these factors. The persistence of instincts and habits are also intriguingly referenced in the same sense.
Part II contains extended, and at times breathless, historical analysis. Thematically, the focus is on the transformative effects of landownership and warfare. The survival of feudal property laws are considered in terms of the limitations of capital formation and investment, with Entails and Strict Settlements reducing availability of marketable land, while also buttressing Primogeniture, meaning estates couldn’t be sold, divided, or collateralised (page 81). Land was an intergenerational trust rather than a marketable, collateralised asset, and across the centuries, landowners successfully prevented freer trade in land, while extensive enclosures facilitated greater concentration of landownership (pages 96-101). Not for nothing have historians adopted the term ‘Territorial Constitution’.
Socially, these events are correctly identified as misaligned with the Marxian ‘rise of the bourgeoisie’ with ‘capitalist’ landowners dismantling feudalism. Such a tidy pattern of development in social relations and economic policy seems too reductionist. An economic mosaic appears more accurate, with the Aristotelian legacy via Aquinas, natural law ideas of ‘just price’, and residual anti-usury sentiment vying uneasily with foreign trade monopolies and restrictive customary practices, into a period of supposed economic modernity and individual freedom. In fact, as Anthony Howe, Miles Taylor and others have described, many bourgeois were willingly coopted by the aristocracy, to the fury of Radicals like Cobden and Bright. Conversely, aristocratic attitudes towards commerce remained ambiguous. Despite the presence of many landowners in commercial ventures, it could take generations before, as Sir Lewis Namier famously related, ‘the stain of trade’ was eradicated.
In England, no government department was exclusively concerned with land, nor was there a Land Registry. The absence of the latter meant land sales and mortgaging were further inhibited (page 108). Moreover, with no English equivalent to the French Notaires, mortgaging was mostly conducted on an ad hoc basis by attorneys and scriveners acting as financial intermediaries. As transactions were likely widely-dispersed and with many as yet undiscovered in private archives, the importance of mortgaging may be understated. Nonetheless, the book intermittently details the vibrancy of local credit mechanisms and networks, with the Manchester cotton merchant Samuel Greg mortgaging land, and mortgaging also applied to lenders receiving toll revenues generated by investment in canal, river, and turnpike infrastructure. Country banks were also important to development, with Adam Smith arguing that the ‘most judicious operations of banking can increase the industry of the country’, but even by 1776 this remained as much an aspiration as a reality.
The orthodox view of early industrial finance was that it was largely self-generated (pages 158-159). Family firms and partnerships were based on trust and honesty in periods where limited liability was not yet legislated, and joint-stock status was reserved for highly-capitalised ventures, like Chartered Companies. Though start-up costs varied, capital formation was not always easy, and even Boulton and Watt had difficulties securing reliable sources of capital (pages 175-180). Nonetheless, England found a way.
Warfare in the form of the ‘Military Revolution’, consisting of more powerful firearms, stronger fortifications, and larger standing armies, features as a vital catalyst for State-based institutional development. The author adopts a traditional interpretation of the emergent Fiscal-Military State, with war the forcing-house for the creation of financial institutions, as previously noted by John Brewer, Werner Sombart, and Francis Fukuyama (page 155). Though not purely an English phenomenon, England was the primus inter pares whose State-building and institutional development advanced after the 1688 Glorious Revolution, aided by the sophisticated apparatus of ‘Dutch finance’ which ultimately created a pathway to industrial growth (pages 164-165). Despite indications that the process began earlier, under the Protectorate, the paradigm shift whereby England, as a Dutch ally, engaged in European and colonial conflict throughout the ‘long’ eighteenth century is fairly established. The contrast with Japan, South Korea, and Taiwan demonstrates similarities and differences in path dependency, but the notion that there exists a template for understanding economic development remains elusive.
Ultimately, Hodgson presents an interpretation of the imperatives of war finance overcoming the structural limitations of using collateralisable assets, especially land, for capital investment. Yet, despite any perceived shortcomings, perhaps Entails, Strict Settlements, and Primogeniture actually promoted the essential systemic stability for economic growth. The ‘Territorial Constitution’ was the institutional articulation of the permanence of land, and the political authority of the landed classes, and capitalism could only evolve and thrive if widespread confidence existed in the legitimacy of financial and political authorities and institutions. Additionally, the role of the State as a more interventionist economic actor is perhaps understated. The expansive protectionism of earlier centuries, including Navigation Acts and sector-specific tariff schedules, were influential in industrial growth, with the cotton industry a notable beneficiary of a deliberate ‘infant industry’ tariff strategy. Equally, the institutional maturity of England can be questioned. A considerable raft of commercial legislation, providing codification and legitimacy, had to wait until the nineteenth century, with repeal of the Bubble Act (1825), Bank Act (1844), Joint Stock Act and Limited Liability Acts of the 1850s and 1860s creating a more identifiable and self-conscious commercial society.
Hodgson has produced an interesting and thoughtful book which, perhaps inevitably in such a wide-ranging and ambitious work, underplays some features. Occasionally, the prose is a little staccato, but mostly it is measured and even, and the pace neither leisurely nor hurried. The book is recommended as a valuable addition to the fields of legal institutionalism, economic history, and development studies.
There is a sense that histories which ‘discover’ new features or relate understated factors often meet a receptive audience, as they can appear to validate historical study, and by extension, the historical profession. Hodgson’s book fits that category but more granular research needs to be conducted before the institutionalist theory can be more fully validated and readily accepted.
In his new book, Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor and Our Climate, Dani Rodrik of the Harvard Kennedy School argues that the three biggest challenges as we continue to march through the 21st century are mitigating climate change, saving democracy, and alleviating poverty. The good news is that we have made remarkable progress on these fronts; the bad news is that there is much left to accomplish. On this, there is much to agree with Rodrik, yet his proposed solutions, while eschewing technocracy and autocracy, almost necessitate those outcomes.
Rodrik is a renowned political economist. Yet, his book lacks clarity on the political economy of rent-seeking and cronyism that will emerge from subsidies and government-controlled international rules. It’s as if the government can be not only a referee of the rules of the game but also an active player, rearranging pieces on a chessboard to achieve its desired outcomes. He fails to bring in the essential public choice critique to his proposed solutions to understand if they can both achieve their goals and remain resilient to rent-seeking and perverse unintended consequences.
Rodrik sees our current series of problems stemming from the rapid acceleration of globalization and economic integration that began in the 1990s. In his view, global anarchy and the pursuit of a borderless global economy have undermined not only the American economy but also economies worldwide. He suggests that this exacerbates inequalities, has led to global populist politics and the rise of the Trump administration, whom he rightly chastises for his tariff policies, which not only hurt the US economy but also the world.
Hyperglobalization steered us in the wrong direction and is ultimately unsustainable, according to Rodrik, because it led to distributional struggles (page 33) and to the rise of geopolitical competition between the US and China. He is right to urge us not to see geopolitics as a zero-sum game. Yet he sees this as the case because of the ‘excesses of neoliberalism,’ which he uses interchangeably with ‘market fundamentalism.’ He goes so far as to suggest that the American left has failed the working and middle classes because it capitulated to hyperglobalization, which he argues generated the crisis. In other words, the left failed because they embraced a version of market liberalism.
The only bright light for Rodrik was the Biden Administration’s industrial policy. He, in part, blames the educated elite for progressives losing their way. No argument here. Yet, shockingly, he argues that it is because the progressive left moved from a ‘Keynesian, social democratic worldview to a more market-friendly, government-skeptic one’ (page 213). We would be hard-pressed to find evidence that Paul Krugman, Ezra Klein, or Elizabeth Warren have embraced market-friendly policies over the past quarter-century – quite the contrary. Paul Krugman calls for universal healthcare and Warren wants government ownership of private companies.
Rodrik is correct in his arguments that we do not need to overemphasize manufacturing jobs as a mechanism for income mobility and productivity enhancement. The focus is now on the service sector. In the first wave of the industrial revolution, manufacturing and industry were the path to success. Workers have always adapted to technological transformation, from farm to factory to cubicle, and artificial intelligence is simply the latest chapter in that story. The question is not whether that transformation will happen, but whether government intervention or market dynamism is better equipped to manage it. After all, today, the United States is an economic powerhouse precisely because it is engaged quite productively in all three sectors; agriculture and manufacturing continue to produce more with less. This is the source of economic progress, and it’s brought to us by open and free markets, the rule of law, and entrepreneurship. Rodrik is right to worry about how low-skilled workers will adapt to that transformation so that they do not get left behind. But he argues that the government can step in to help these workers, thereby strengthening economic dynamism and safeguarding the middle class.
To achieve what he calls shared prosperity, Rodrik focuses on second-best solutions, a framework premised on the idea that when markets are imperfect or distorted, targeted government intervention can improve on market outcomes. It is a seductive premise that, in practice, opens the door to almost unlimited intervention. He, for instance, argues that some subsidies are justified because they address climate externalities. In contrast, others are harmful because they entrench market failures, but this distinction assumes policymakers can reliably tell the difference. Both the public choice framework and the Hayekian knowledge problem are essential here: not only will self-interested actors inevitably capture subsidy programs for their own ends, but policymakers also cannot know which interventions to implement, when, or at what scale. The information required to make such judgments well does not exist at the central level, and the incentives to make them honestly rarely do either.
He recognizes self-interest as a problem in theory while counting on enlightened policymakers to transcend it in practice. Rodrik argues that we should focus on the service sector and enhancing worker productivity. Agree. He sees the world as if we could somehow sit above it, observe what is happening, and then use incentives, rules, and altered norms to achieve different outcomes.
To realize this vision of managed growth, he calls for a new progressivism in which the left connects with the middle and working classes to ‘convince them that it offers a path to middle-class prosperity’ (page 215). He suggests that we create good jobs through micro-interventions targeting structural change and macroeconomic management to ensure full employment, thereby necessitating an industrial policy.
Contrary to this pessimistic view, the middle class has achieved enormous success since the 1990s, and that success is due to market liberalism both at home and abroad. The data bears this out in ways that cut directly against Rodrik’s narrative. Economist Jeremy Horpedahl has shown that both Gen Z and Millennials are doing better financially than Boomers and Gen X were at the same stage of life, when adjusted for inflation. To the extent that the middle class is not gaining as we might hope, it is precisely because government has grown in both size and scope.
Rodrik’s understanding of what is broken in the American economy is misdiagnosed. He is correct that the Trump administration’s aggressive tariffs harm economic growth and development. But this raises the question of why that is the case. Free trade is not zero-sum. The author spends a great deal of time deriding market fundamentalism and neo-liberalism, which are terms tossed around jubilantly by both the progressive left and the progressive right. Yet market trade is, by its nature, voluntary and thus win-win. This is not to say there are no costs to a global free-trade regime under global anarchy. Creative destruction not only reigns, but no one can know what technologies will emerge and how they will destroy the old way of doing things. Free markets buttressed by the institutions of economic freedom, which include low levels of regulation, free international trade, limited government, private property rights, sound money, and the rule of law, spur the very economic growth Rodrik is rightly after.
Both Rodrik and the current Trump administration miss the point that the abundance we have is due precisely to the institutional environment the United States has long experienced. This is true across the world; in any country with greater economic freedom, there is growing income mobility and a robust middle class that often becomes part of high-income groups. Market abundance isn’t trickle down, beggar thy neighbor, or zero-sum. The best thing we can do is to remove artificial barriers and allow the progress to continue.
Christopher J. Coyne (George Mason University) and Abigail R. Hall (University of Tampa) have published an elegant book introducing readers to Austrian economics.
I propose a brief – though far from comprehensive – list of Weberian ideal types who would benefit from reading it. Anyone who:
(Note: Any resemblance to actual people is completely intentional).
How Austrian economics found itself in need of expositors to dispel such notions is a story for another time. But after this book, no one has an excuse for clinging to these caricatures. In Austrian Economics: An Introduction, readers will learn quickly that Austrian economics studies how people cooperate to improve their lives. They will also learn what stymies such cooperation and how government efforts to override peaceful choices often produce unintended consequences.
Chapter one describes the main themes of Austrian economics and how those emphases distinguish the tradition from prevailing frameworks today. It does so by weaving these ideas through the biographies of key Austrian figures, beginning with founder Carl Menger and extending through Böhm-Bawerk, Wieser, Mises, Hayek, Lachmann, Rothbard, and Kirzner. The authors place Austrian economics within the broader marginalist tradition. At the same time, strong commitments to methodological individualism, subjectivism, time, institutions, and resource heterogeneity differentiate Austrian economists from their neoclassical cousins.
The payoff of these Austrian hallmarks is a distinctive approach to prices, capital, money, business cycles, and social order more broadly. Austrian theory is more concerned with realism than most standard neoclassical models, but realism is not valuable for its own sake. Coyne and Hall show that Austrian theorizing aims at something deeper: insight into social processes, the kind that enables ‘pattern predictions’ – directional claims about the tendencies of an economic system (chapter two).
Chapter eight puts this pattern prediction capacity on the fullest display. Here, Coyne and Hall walk through the Austrian business cycle theory (ABCT), the Mises-Hayek account of why modern economies exhibit economic booms followed by busts. In the ABCT, the Austrian tradition’s signature insights converge. By integrating the Austrian analysis of prices (chapter four), entrepreneurship (chapter five), interventionism (chapter six), money (chapter seven), and capital theory (chapters one and eight) into a single framework, the ABCT illuminates social phenomena other approaches struggle to explain. Why, for example, do economic booms see entrepreneurs pouring resources into ‘higher-order goods’ (say, mining) even as final buyers go on a consumption spree? ABCT explains.
Much of the core Austrian material will be familiar to readers already steeped in classic Austrian works. But seasoned lay readers of Austrian economics, and even professional Austrian economists, will benefit from two chapters that set Coyne and Hall’s book apart from the competition. Chapter three – ‘Catallaxy: The Study of Coordination and Exchange’ – situates Austrian economics within a broader intellectual tradition Coyne and Hall call ‘the exchange paradigm.’ The term, borrowed from Dartmouth economist Meir Kohn, refers to a broad umbrella that includes several fellow-traveler traditions in public choice, law and economics, and the new institutional economics. Unlike the Hicks-Samuelson ‘allocation paradigm,’ the ‘exchange paradigm’ emphasizes price formation (rather than optimization against exogenously given prices), imperfect information, constant change, open-ended choice, and the specific knowledge of time and place. Because such knowledge is tacit and thus inarticulable, it resists the dominant ‘measure-and-model’ approach.
As with chapter three, seasoned scholars will find much to learn from chapter nine: ‘Austrian Economics: Yesterday, Today, and Tomorrow.’ In it, Coyne and Hall survey contemporary Austrian research – much of it from the last decade – spanning a host of domains: political economy, macroeconomics and monetary theory, entrepreneurship, development, behavioral economics, self-governance, culture and civil society, and the economics of disasters, diseases, and war. This chapter highlights the profoundly empirical nature of modern Austrian scholarship. Austrian economists want to understand how the world works and why things are the way they are.
The book repeatedly revisits economic calculation and the coordinating role of market prices. This repetition is a feature rather than a bug. Consider interventionism. The Austrians note that intervention alters prices, the distorted prices change behavior, and the new behavior often undermines the very goals the intervener pursued. Coyne and Hall rightly highlight how the rest of Austrian economics builds on the central contribution of economic calculation.
Given their mastery of the literature, I’d hoped Coyne and Hall would include chapters on other areas of economics where Austrians have been pioneers. The book might have explored Austrians’ substantial contributions to law and economics beginning with Menger’s discussion of property rights and followed by Hayek’s distinction between ‘law’ and ‘legislation.’ It could have also fruitfully featured an industrial organization chapter to highlight how Austrian market process insights (chapter four) provide a distinct lens on public policies such as antitrust. Though these chapters do not appear, I hope that means Coyne and Hall have a sequel in the works.
The quality of the book’s prose is a credit to the important ideas it contains. If Austrian economics has been on the cutting edge of many important intellectual contests – the 19th century Methodenstreit (the ‘battle of methods’), the 19th century Marginal Revolution, the 20th century socialist calculation debate, the 20th century contests over business fluctuations, and contemporary debates about everything from foreign aid to reinvigorated industrial planning – it deserves an accessible treatment that simplifies these Big Ideas without being simplistic. Chris Coyne and Abby Hall have delivered. Faculty now have a great option for courses on Austrian economics, public policy, political economy, economic history, and the history of economic thought.
One final note. Coyne and Hall’s endnotes and bibliography are worth the price of admission. Anyone hungry to learn more – and many will be after this appetizer – will find an intellectual feast awaiting them in the References. When it comes to the human sciences, there is enough here to occupy one’s mind for a lifetime. With so much to read and too little time, it’s good we have prices to guide us. At least when it comes to this new book, I think readers will conclude the marginal benefit exceeds the marginal cost.
‘Austrian Economics: An Introduction’ by Christopher J. Coyne and Abigail R. Hall was published in 2026 by Polity (978-1-509-54706-7). 222pp.
Last week we gathered people in policy, business, and public life together in Westminster to think about the current fiscal situation in the UK and specifically the relationship between taxation and enterprise.
We will be holding further events in the autumn. Please subscribe for details.
Tom Clougherty kicked us off by speaking about the rising level of tax needed to fund existing debt and continually increasing spending. For the purposes of this presentation he said he would take the required tax take as a given and focus instead on how it was raised. He pointed out that some taxes are much more efficient than others, because they raise revenue without impacting economic behaviour like investment in the future or decisions to take employment opportunities. He noted that the UK is ranked 32 out of 38 OECD members for tax competitiveness. He emphasised that the poor use of efficient taxes like VAT (where exceptions abound) and an almost uniquely poorly-designed property tax system mean than revenue comes from taxes that cause more economic damage.
Tom argued that while many experts disagree about the level and composition of government spending, they agree about improvements to the tax system and about the general design principles. Despite this, the practical politics is not clear cut and there are difficult questions about to how to get from the status quo to a better system.
Philip Krinks spoke about the broader determinants of a nation’s tax policy. He argued that there were at least six factors. The first was political vision and shared values, including the nation’s understanding of ‘fairness’ and of private property. The second factor was constitutional and legal, particularly which levels of government had tax-raising powers. The third was the chosen political economy, centring since the late 19th century in the UK on choices about state size, welfare provision and public ownership. The fourth was incentives for particular developments, such as the current focus on growth, where Philip agreed with Tom that the tax economics of growth enhancement are widely agreed, including predictability, low marginal rates, broad bases, neutrality, and favouring consumption taxes over levies on work, savings, and investment. A fifth issue, important to confront, was power dynamics, where certain constituencies are in a position to gain preferential treatment by forming electoral coalitions or otherwise influencing policy. The last was technical feasibility, since state capacity, while considerable in the UK, was still limited, not, for example, including a register of land values.
Philip concluded by suggesting a reset in the UK across all these dimensions: a political vision valuing work and enterprise over resentment, constitutional reforms restoring power to citizens and businesses over government bodies, a reduction in state size through welfare and pension reform, and tax reform to reward investment, innovation, and growth.
Naomi Wells spoke about the trends she was seeing in her work advising entrepreneurs impacted by UK taxes. These included those who had built up family businesses in the UK and were concerned by recent changes. In some cases, they were feeling compelled to leave the UK due to the liabilities which would be created when the business passed between generations, in addition to increasing payroll and other taxes and a worsening regulatory environment.
She also spoke about the successful entrepreneurs from overseas who had seriously considered relocating to the UK but been put off by a high and increasing tax burden. On a UK home, overseas buyers of premium property facing a 19 percent marginal stamp duty charge.
Taken together the risk is that policies discourage inbound entrepreneurs and encourage British entrepreneurs to move abroad weakening the economy and longer run fiscal situation.
The talks were followed by a lively group discussion, chaired by Joanna Moriarty, which continued over drinks.
We will be holding further events in the autumn. Please subscribe for details.
The UK faces compounding fiscal pressures: a swelling adult social care budget, rising debt-servicing costs, and a persistent temptation to raise revenue in ways that erode the very economic activity on which public spending ultimately depends. How should the tax system be reformed to encourage enterprise rather than discourage it?
On 21 May, CEME welcomed Tom Clougherty — a leading authority on UK tax reform, formerly Executive Director of the Institute of Economic Affairs and Head of Tax at the Centre for Policy Studies — to Westminster to set out the case. Naomi Wells, Partner in the Tax practice at Azets, and CEME’s Director Philip Krinks responded.
Location: One Great George Street, Westminster, SW1P 3AA.
Time: The event begins at 6:45pm with the talks from 7:00pm, followed by a drinks reception.
Please RSVP to let us know whether you are able to join us by emailing office@theceme.org
This fascinating book is well worth a read by anyone interested in economic history or contemporary policy debates. In it, Gramm (a former senator well-known as the moving force behind a number of important policies) and Boudreaux (an economist) take us through seven of what they call ‘myths’ about capitalism. These are five historical myths: that the industrial revolution impoverished workers; that in the decades after the American industrial revolution there was a strong tendency towards monopoly, only eventually limited and disciplined by regulation; that the Great Depression was a failure of Capitalism; that trade hollowed out American manufacturing; that deregulation caused the Global Financial Crisis; plus two myths about modern American inequality and poverty.
For each myth, the authors start off by setting out the case for the myth, drawing on certain key supporting statistics, academic commentary in favour and broader literature (frequently finding highly evocative quotes painting grim pictures embodying or expressing the myth). The authors state that their intention is to give each myth as fair and complete an airing as they can. And in most cases they have a decent shot at this, allowing the reader to understand what the myth is, why people believe it, and why it seems emotionally as well as intellectually attractive. I wasn’t wholly convinced they had summarised all the most important reasons to support the idea of the early industrial period’s tendency towards monopoly or the Great Depression’s natural resulting from Capitalism. But that is largely a matter of taste, for in all cases (including these) their painting of the case was vivid and should be seen as fair if not always complete.
With the myth and its basis painted, they move on to consider the facts in more detail, explaining why the idea in question is a myth. To a high degree, their case would have been made simply by the splendid additional facts they set out. But they go on to explain in detail why the facts that appear to the support the myth are as they are and to explain (frequently very interestingly and compellingly) the political context or motivations for the literature and commentary references that support the myth as well. At the end of each section, the myths lie in intellectual tatters, so savaged by Gramm and Boudreaux’s polite but forceful prose that one almost feels sorry for the battered victim.
Our courteous pitbulls begin with the industrial revolution and the notion that workers initially lost out because of it. Here perhaps the most decisive arguments offered were simply that purveyors of the myth had totally failed to understand the lot of the rural poor prior to industrialization, imagining that they lived a pleasant and comfortable life of high leisure in bounteous rural idylls. By contrast, Gramm and Boudreaux tell us a much more convincing tale of disease and accidents, early mortality, poor infrastructure, few if any available and accessible services, hunger or bland and monotonous diet, and living together in multi-family long-houses where a dozen slept together on a lice-ridden straw mattress and sexual relations were watched by skin-sores-ridden bedmates and rodents alike. In one fascinating section, the authors take us through nineteenth century interviews and autobiographical statements of the urban poor mocking and dismissing the ignorance and naivete of rich people expressing outrage at the lot of low-income urban living, whose only knowledge of the countryside came from their own or their rich friends’ stately homes.
Another interesting section in this opening myth concerned the motivation and timing of some of the key literature and commentary on bad conditions in factories. In the run-up to the abolition of the Corn Laws in 1846, opponents of free trade sought to paint manufacturers, who wanted tariffs taken off imported raw materials, as wicked bosses who harmed their workers by contrast with the pleasant lot workers had in the agricultural communities that food tariffs supposedly protected.
The chapter on the early industrial tendency towards monopoly told us of Standard Oil, as one would expect, but its longest section was about the Chicago meat-packers. Some of the most interesting material here was about how the key objections to alleged monopoly in this era were not, as one might suppose, that it resulted in prices that were too high – the authors offer extensive statistical evidence against that idea – but it appears that was not even claimed as a key concern at the time. Rather, opponents of monopoly worried that the power of large ‘trusts’ enabled them to secure prices that were too low, from their own suppliers (particularly of transport services) – and then pass these on to consumers.
This is also where we first encounter a recurring bipartisan theme – perhaps not unrelated to the fact that Gramm himself was first elected as a Democrat and then switched to the Republican Party. Time after time, through the economic history they set out, we see Republicans first to pursue foolish anti-market policies and rhetoric, followed by Democrats who push the anti-market agenda even further, before other Democrats finally see the light and set things in motion back along a pro-market line, in due course followed by the Republicans. As regards anti-trust rules, we are told that it is under President Carter that the key reversals of ‘Progressive era’ regulation start to be reversed, and Reagan carries forward Carter’s agenda. This pattern is repeated in other sections: Hoover starts the epic spending rises and deficits of the 1930s, and Hoover forbids firms from reducing wages despite 25 percent unemployment. Roosevelt carries that agenda forwards. Clinton enacts key (beneficial) financial deregulation measures and the most successful anti-poverty programmes (based on encouraging work). Trump impedes free trade and harms the WTO’s enforcement system, with Biden carrying forward Trump’s agenda. The authors clearly want readers to get the message that being pro-market is not a naturally Republican position and being anti-market not naturally Democrat.
Much of the material relating to the Great Depression will be familiar to students of the topic – the role of Britain’s rejoining of the Gold Standard leading to excessive US monetary growth in the 1920s and the failures of the Federal Reserve to prevent contraction of the money supply from the late 1920s onwards have been well-known since at least the work of Milton Friedman. Perhaps more novel is Gramm and Boudreaux’s analysis of the 1937-38 recession, along with their discussion of Roosevelt’s quasi-fascist anti-business rhetoric and how that was seen by investors aware of the international political context at the time. They present some interesting indicative statistics on how much more short-termist investment became as financiers worried that they might need to liquidate investments rapidly if the political situation turned further against them.
The section on trade and manufacturing is robust and persuasive, covering most of the bases one could want, explaining how US manufacturing dominated in the post-war period because much of the rest of the industrialised world lay in the ruins of war, but that that could not last indefinitely as other countries recovered. The authors cover the interesting question of whether software programming (which today constitutes up to half the value added of significant manufactured products such as cars) should be classified as ‘manufacturing’ in employment statistics. There was also a good discussion of the relationship between capital account inflows, as investors put money into America and then later invested into the rest of the world, and their natural counterpart in current account outflows (via trade deficits). The one thing I though could have been covered better here was the deeply erroneous arguments of Trump that the presence of a US trade deficit with a country shows that that countries must have been placing non-tariff barriers in the way of US exports.
The two final sections, on inequality and poverty, included material familiar to readers of Gramm’s 2022 book (along with Ekelund and Early) on The Myth of American Inequality (which I have reviewed here previously). These sections once again appeal extensively to the very strange situation created by US statistical authorities not deeming two thirds of the transfer payments made to lower-income American households as income (because they take non-cash forms such as food stamps) and how, once one corrects for this anomaly, the US actually has one of the highest proportions of GDP in the world transferred between income groups, very low poverty and very typical inequality by developed economy standards.
The one ‘myth’ topic about which I might claim to know more than the authors was the Global Financial Crisis. Here I found their discussion interesting and familiar, but incomplete in important ways that, though it did not threaten their key conclusion that the crisis was not a result of deregulation, it did mean their own alternative narrative was much less supported than they claimed. I found their discussion of financial diversification instruments (such as CDOs) a little too shallow, not really exploring whether these diversified away or added to systematic risk. I didn’t think they considered enough the role of an innovation boom-bust cycle in financial markets as a contributor to either the Great Depression or Global Financial Crisis. I also regretted their failure to discuss the way government bailouts of major banks since the mid-1980s had created implicit expectations of future bailouts, and how that encouraged banks to expand their balance sheets in multiple developed countries. I don’t dispute their criticisms of Clinton-era housing policies or of the failings of Fannie Mae and Freddy Mac. But I found their suggestion that flawed US housing policies by themselves caused a financial and sovereign debt crisis spanning the globe to be incomplete at best.
This is a small cavil regarding a book I enjoyed reading, found highly informative and whose overall message I both strongly endorse and believe this to be a robust ally in promoting. I liked it, and if this is your thing then you’ll like it too.
Written by economists at the Bank of England with a view to helping the public understand economics and economic matters, Can’t We Just Print More Money? represents an engaging and accessible contribution to the Bank’s purpose of contributing to the public good. As an exercise in explanation, there is no sustained argument to follow (or for a review to critique), which means that each chapter could be read in isolation – but considering how readable the prose is, there is no need to take such an approach.
Following an account of the reasons for writing the book, the introduction offers a series of illustrations to show the centrality of economics – as that which is concerned with decisions about how to use (scarce) resources – to many of our everyday experiences. The authors provide a brief history of the discipline and the tension between more ‘social scientific’ approaches and those more concerned to treat economics as a hard or mathematical science, and then explain the structure of the book: through a series of chapters, each raising one straightforward question, it will explore major issues of both micro- and macro-economics.
The first three chapters explore markets, with Chapter 1 focusing on the functioning of markets and discussing certain foundational concepts, such as ‘utility maximisation’, ‘monetary costs’, ‘opportunity costs’ and ‘marginal revenue’. In connection with these, it covers the importance of supply and demand and the factors that can influence each (such as pricing). The central point is that markets exist as the places where supply and demand (sellers and buyers) meet and prices are determined as the two are brought into equilibrium, with prices acting as signals to producers. In doing so, markets coordinate decisions made by countless individuals and bring about various outcomes that we find beneficial, without anyone managing the process or even in many cases directly intending those specific outcomes. Several useful examples illustrate these points perfectly, particularly in relation to pricing.
Subsequent chapters follow a similar pattern, the second covering the idea of market failure and the problems of externalities, imperfect knowledge and imperfect competition. These notions are brought to bear on the problem of climate change (or environmental damage more broadly) to illustrate not only the problems with markets, but also the reasons why some do not believe that market mechanisms can be employed to address the problem. Nevertheless, the authors consider the ways in which economic thinking can inform the alternatives and do discuss possible market solutions, such as carbon trading schemes. Chapter 3 turns to labour markets, framed in terms of the question of how to secure a pay rise.
From here, the book begins to shift towards macro-economic issues, considering (in Chapter 4) the question of growth by way of the question: Why am I richer than my great-great grandma? The authors discuss the concept of GDP and the ways in which it is measured, along with the factors affecting growth, its advantages and the negative outcomes of certain types of growth. Asking why so many clothes are made abroad, Chapter 5 focuses on trade, offering an explanation in terms of the specialisation brought about by the division of labour and the comparative advantage to each region or country of producing particular types of goods, components or services. The impact on trade of lower wage costs in some regions is considered, and the authors offer an interesting discussion of the controversies that arise from protectionist measures and competing interests – and the ways in which these can be (and have been addressed), reminding us that trade, and countries’ specialisms, are always shifting.
Chapter 6 addresses the issue of inflation, examining the factors that contribute to it and explaining the indices by which it is measured and the difficulties of doing so. The authors illustrate well the significance of the fact that inflation, by eroding the purchasing power of money, constitutes a major influence on our economic wellbeing. They also explain clearly why inflation constitutes a tax on savings and the reasons for which debt-laden governments are tempted to stoke inflation. This chapter also notes that moderate, controlled inflation tends to be favoured by economists as protection against the dangers of sustained deflation, and closes with a brief look at some of the major schools of thought on the causes of inflation. The discussion of a complex phenomenon that has been one of the major economic issues of recent years is very accessible. Opened (and closed) with the question of what was happening with the price of a Cadbury’s Freddo, it invites readers to look at the major causes of inflation, the reasons for which inflation is encouraged both responsibly and perhaps sometimes recklessly, who it tends to harm or benefit and its relationship with money. Missing perhaps, alongside the recognition that heavily indebted governments can be tempted to encourage inflation, is a short discussion of how the amassing of public debt can itself be inflationary.
Chapters 7 and 8 are also interesting and clear, focusing on the origin and functions of money and the role played by the banking system. With the recurring themes of the creation, storing, lending and circulation of money, these chapters cohere well and the authors emphasise the centrality of trust and confidence – though perhaps an opportunity was missed here to refer back to the discussion of inflation specifically in this regard.
The two final chapters look at economic crises. Chapter 9 addresses the question of why nobody saw the crisis of 2008 coming and considers the kinds of crisis that can occur, their causes and effects and the difficulties faced by economists in trying to foresee them. Chapter 10 raises the titular question of the book: Can’t we just print more money? It examines the measures that policy-makers can adopt to manage the economy. Some fairly difficult mechanisms connected with interest rates and their effects are handled well and there is a detailed discussion of how quantitative easing functions to affect the money supply and the reasons for which it affects rates of inflation. In addition to monetary policy, the chapter also looks at fiscal policy and the levers that governments have at their disposal in the form of taxation and spending to affect economic activity, closing with a discussion of government debt in relation to GDP and the debates surrounding the need to balance the books.
Following a summary conclusion that reiterates the importance and relevance of economics to our daily lives, a short appendix offers page references for answers to even simpler questions addressed in the course of responding to the major questions that form the basis of each chapter.
This is a lively volume that is richly illustrated with examples throughout, whether imagined for the purposes of explanation, or taken from history or current affairs. In consequence, it is easy to follow and material that could become abstruse is presented with clarity. The book’s stated aim is to enable readers to make more sense of the economic world they inhabit and in this, it is surely successful: all readers, including those with no grounding whatsoever in economics, ought to be able to understand the book without difficulty (and without becoming bored). It should therefore be read by anyone looking for an orientation in the major issues central to economics and clarity on the fundamental ideas and mechanisms that arise in public discourse on economic affairs.
The central thesis of The Permanent Problem, by Brink Lindsey, is that we are living through an historic transition in which capitalism has delivered mass prosperity but has not yet worked out how to deliver mass flourishing (providing meaning, purpose, belonging, fulfilment). In addition, the author argues that the very forces that created mass abundance, are now undermining the social and cultural foundations that are required for a fulfilling life. So, in Lindsey’s view, capitalism has largely solved the problem of material scarcity, but it has not yet solved – and may be making harder – the deeper problem of human flourishing. In so doing, Lindsey sets out a series of epochs and epic transitions, from a world of scarcity to a modern world of mass abundance and a future world of mass flourishing. But Lindsey is not certain, or indeed confident, that the world of mass flourishing will be attained.
Throughout, Lindsey emphasises that capitalism has succeeded on multiple fronts historically, delivering unprecedented affluence, together with freedom, health, longevity and education. He readily acknowledges the extraordinary achievements of capitalism. But he then fears we have hit a wall, because he asserts that capitalism is not well designed to deliver meaning, status, identity and relationships. He argues that prosperity itself creates destabilising effects in the form of consumerism weakening deep relationships, individualism undermining social bonds, collapsing fertility, a deterioration in mental health and the fragmentation of communities.
In his view, this creates a mismatch between rising expectations and actual lived experience, as we move up the hierarchy of needs from material provision to deeper psychological desires. The knock-on effect of this mismatch is, according to Lindsey, essentially a triple crisis: (1) a crisis of dynamism – with slower productivity growth, innovation bottlenecks and regulatory and institutional drag; (2) a crisis of inclusion – a widening class divide, especially by education, entailing a breakdown of family, community and social cohesion; (3) a crisis of politics – falling trust in democracy, rising populism and institutional paralysis.
The problem becomes permanent in the sense that there will be no return to scarcity, but affluence continually generates new expectations, frustrations and forms of dissatisfaction. Lindsey argues that solving the material problem does not eliminate human problems, it merely transforms them. His broad conclusion is that we need to refocus (to restore dynamism and innovation and remove barriers to growth such as rent seeking and regulation) and restore (strengthen communities and shift some functions away from markets and the state, towards civil society and personal relationships) capitalism in order to translate material abundance into meaningful lives. Essentially, he is arguing that economic systems are good at producing means (wealth, goods and services) but human beings ultimately care about ends (purpose, belonging, identity, love).
This is a rich, and indeed powerful thesis, taking a broad conceptual sweep of history. But is it true, and how should one approach it from a Christian perspective? Lindsey acknowledges that he is not a believer. But his thesis might appeal to many Christians due to it: (a) placing deeper psychological and spiritual needs above material considerations; (b) asserting that materialism has undermined more important values; (c) focussing on inclusion and the fragmentation of society.
However, whilst recognising the many fascinating insights contained in the book, I’m deeply sceptical of the thesis of The Permanent Problem for a number of reasons:
First, because from the perspective of Christianity – and of other faiths too – the root problem is not material but spiritual. The challenges of the human condition were never primarily about prosperity and so that was never going to solve them. The Bible teaches us that human striving and achievement in the material world will fail to satisfy. That failure to satisfy is attributable to a God-shaped hole in people’s lives, and whilst it cannot be filled by material abundance, neither can it be filled by flourishing either, if that excludes God. Mass flourishing ultimately requires a great awakening. Secular flourishing will never be enough. In economic terms, there is an omitted variable in the permanent problem model, namely God.
Secondly, there is a need to focus on the ethical formation of individuals. Christians for example would express this by saying that human nature is distorted by the Fall. The problem therefore is not just a matter of institutions, such as capitalism. Instead of blaming the sinner, fallen man repeatedly blames the system. Whilst Lindsey clearly recognises capitalism’s role in prosperity, he ultimately still blames the system. But capitalism alone was never meant to deliver the flourishing that he seeks. That flourishing comes from placing wealth creation in its rightful context, seeking first His kingdom and His righteousness. That is the route to meaning, purpose, identity and fulfilment.
Thirdly, the problems it attributes to capitalism are more likely the fault of the state. The 1980s saw the Gordon Gecko ‘greed is good narrative’ take root in the media. But the idea that capitalism as a system is based on greed and rampant individualism is erroneous. Capitalism is a system of voluntary exchange to meet the need for goods and services. Without doubt, to the extent that the Judaeo-Christian ethic and worldview have been withdrawn from the public square, capitalism has become an uglier process, but the problem is surely too little God, not too much capitalism. Less inclusion and more fragmentation are more a consequence of secularisation, as the Leviathan state forces the good Samaritan off the road, and in so doing has undermined social capital.
Fourthly, the state is undermining the very prosperity Lindsey takes for granted. The idea that prosperity is done and dusted, and we can take it for granted, may prove a triumph of hope over experience. The economics literature clearly sets out negative trade-offs between the size of the state (measured in terms of tax and spend, regulation and public debt) and economic growth. Trend output growth – based on supply-side potential – in many of the advanced economies is around 1% less than that of only a few decades ago. Statism and an ageing population promise to reduce this growth rate even further over the coming decades, with the mother of all fiscal crises potentially waiting for us at the end. Lindsey correctly identifies, and argues well, the need for far greater dynamism. But I fear he understates the significance and scale of the required reduction in the size of the state in order to facilitate this dynamism.
The Permanent Problem is an excellent book. It is thought provoking and challenging throughout, but its fundamental flaw is the same for all such works – in attempting to represent reality without reference to God, it seeks an external solution to an internal problem. Lindsey recognises that secularisation has been part of the problem, but he seeks to find meaning and community within a secular society. He sees the problem as social and institutional, not spiritual, so his solution is worldly and pluralistic. Those of us who are committed to the Judaeo-Christian ethic will respond that it is the solution to the problem he identifies.
IEA Food for Thought with Prof. Philip Booth (RSVP with the IEA)
The Government Debt Crisis – not just an economic issue
12:30-13:00: Sandwich lunch
13:00-14:00: Presentation and Discussion
About the Discussion
Philip Booth will describe how government debt is creating a looming economic and social crisis. This is especially so when we also consider demographic developments in western and in Asian countries. Although it is sometimes suggested that we have had higher levels of debt before (for example after wartime), there were huge costs from reducing debt in those circumstances and the evidence suggests that managing government debt in future generations will be even more difficult. This is not just an economic problem. Historical experience suggests that high levels of government debt can lead to the breakdown of civil order, violence and even war as well as dissatisfaction with the process of government itself: perhaps we are already beginning to see those things happening today. Indeed, there are examples, including one close to home, where government debt has led to countries losing their sovereignty entirely.
About the Speaker
Philip Booth is Academic Advisor and Senior Research Fellow at the Centre for Enterprise, Markets and Ethics. He is also professor of Catholic Social Thought and Public Policy at St. Mary’s University, Twickenhamand Director of Policy and Research at the Catholic Bishops’ Conference of England and Wales.
Previously, Philip was academic and research director at the Institute of Economic Affairs from 2002 to 2016. He has worked for the Bank of England and as associate dean of Bayes (formerly Cass) Business School. He held the positions of Director of Research and Public Engagement; Dean of the Faculty of Education, Humanities and Social Sciences; and Director of Catholic Mission at St. Mary’s.
Philip has written widely on investment, finance, social insurance, and pensions, as well as on the relationship between Catholic social teaching and economics. He curates the website Catholic Social Thought.
The question of whether artificial intelligence will help or harm ordinary people sits at the centre of some of the most consequential policy debates of our time. In Algorithmic Harm, the authors, Oren Bar-Gill and Cass R. Sunstein bring both rigour and accessibility to a subject that too often generates more heat than light. The book is neither a celebration of algorithmic innovation nor a counsel of despair. Its ambition is analytic: to identify precisely when and why algorithms cause harm, and to propose regulatory responses proportionate to those specific conditions. In that sense, it is a timely and disciplined intervention in a debate that is frequently distorted by ideological excess at both ends of the spectrum.
The book’s organising framework is a distinction between two types of consumer markets. ‘S markets’ are populated by sophisticated consumers – those with sufficient information and the rational capacity to use it effectively. ‘U markets’, by contrast, are populated by unsophisticated consumers who either lack relevant information or are subject to behavioural biases such as unrealistic optimism, present bias, or availability bias. The authors are careful to note that this is a shorthand: when they speak of S and U consumers, they should be understood as referring to the likelihood of mistakes rather than fixed categories of persons. Nevertheless, dividing the analysis in this way allows them to advance a clear overarching conclusion: ‘algorithmic differentiation is generally beneficial in S markets but often harmful in U markets.’
The book is structured in three parts. Part I focuses on algorithmic harm in consumer markets and is the analytical core of the work, comprising seven chapters. These cover algorithmic price discrimination and its extensions, algorithmic targeting, algorithmically enhanced misperceptions, algorithmic coordination, race and sex discrimination and consumer-side algorithms. Part II turns to policy and law, addressing how regulators might intervene through disclosure mandates, algorithmic transparency requirements and a combination of ex post policing and ex ante regulation. Part III extends the analysis beyond consumer markets to labour markets and political markets, closing with a warning that democracy and self-government are also at risk and that the same framework of analysis applies.
The treatment of price discrimination is among the most sustained in the book. The authors demonstrate that where consumers are sophisticated, algorithmic price discrimination reduces consumer surplus while increasing overall efficiency. In U markets, however, the analysis shifts: the willingness to pay of unsophisticated consumers includes a misperception component, meaning that pricing algorithms trained on behavioural data may exploit distorted signals rather than genuine preferences. The Facebook example the authors cite is instructive here – a leaked internal document reportedly showed the platform identifying when young users felt stressed, defeated or anxious, and using those emotional states to micro-target advertising. This is algorithmic targeting at its most troubling: not merely personalisation, but the deliberate exploitation of psychological vulnerability.
The dynamic dimension of the argument is also significant. Over time, as sellers accumulate more data about consumers’ past behaviour, the degree of price discrimination increases. The authors flag the case of behaviour-based pricing (BBP), noting that consumers with lower willingness to pay – who are likely to be poorer – may, in some respects, benefit from BBP because lower prices allow them to enter markets they would otherwise be excluded from. The labour market chapter draws the parallel explicitly: employers, like sellers, are increasingly using AI to make or assist in hiring and wage-setting decisions, and the asymmetry of sophistication between employer and employee maps closely onto the seller-consumer dynamic explored in Part I.
On the regulatory side, the authors propose that policing algorithms – tools developed by regulators to monitor sellers’ pricing algorithms – could play an important role, noting that the actual number of commercially deployed algorithms is smaller than it might appear, with a handful of large technology firms and a small number of developers supplying the market. They also argue that regulatory approaches should be designed to remain relevant as technology evolves, rather than becoming obsolete with the next wave of innovation.
Bar-Gill and Sunstein’s analytical framework is genuinely valuable, and the S/U market distinction gives the book a clarity of argument that some of the writings I have read on AI and regulation lack. The progression from consumer markets through to labour and political markets is coherent, and the policy prescriptions – disclosure mandates, algorithmic transparency, and the development of regulatory policing algorithms – are grounded and reasonable.
Yet the framework has vulnerabilities that the authors do not fully reckon with. The binary of sophisticated and unsophisticated consumers, however carefully the authors caveat it, risks masking important gradations within the ‘sophisticated’ category itself. What an engineer understands about AI is not the same as what a product manager understands, which in turn differs from what a marketing executive understands. A consumer who is sophisticated about one domain of algorithmic activity may be significantly less so in another. The authors’ own observation that willingness to pay includes a misperception component is worth pressing further here: even informed consumers may suffer from confirmation bias or operate with bounded knowledge about rapidly shifting technologies. The disruption caused by DeepSeek’s emergence is one recent illustration of how quickly the landscape can shift beneath even technically literate observers. The ‘S consumer’ may be a more unstable category than the book seems to acknowledge.
There is also a structural assumption embedded in the analysis that deserves scrutiny. The behaviour-based pricing discussion largely treats consumer decisions as driven by willingness to pay and the presence or absence of misperception. But purchasing decisions are also shaped by circumstances entirely outside the algorithm’s model — emergencies, sudden changes in income or one-off windfalls. These exogenous shocks do not map neatly onto the S/U framework, and their exclusion risks overstating the predictive tidiness of algorithmic consumer profiling.
One question that lingers after reading this book is whether the regulatory architecture the authors propose is politically achievable within the currently flailing democracy systems, as it’s a generally known fact that governments play catch-up with technological advancements. The suggestion that policymakers develop policing algorithms to monitor sellers’ pricing behaviour is intellectually coherent, but it rests on assumptions about regulatory competence and political will that the current environment does not obviously support. In a context where major technology firms are significant funders of electoral campaigns and cultivate close relationships with elected officials, the appetite for robust algorithmic oversight may be structurally limited in ways the book does not confront directly. The authors recommend that regulatory approaches be designed to avoid obsolescence as technology evolves – a sound principle, but one that presupposes a regulatory body both technically capable and institutionally independent enough to keep pace with commercial AI development. In my opinion, that presupposition deserves to be stated and interrogated rather than assumed.
There is also a broader geopolitical dimension that sits largely outside the book’s frame. The framework is calibrated primarily to Western liberal market economies and the consumer protection traditions of the United States and European Union. How the analysis translates to emerging market contexts where regulatory capacity, data infrastructure, and levels of consumer digital literacy may differ is a question the book’s scope does not seem to address, but that a globally oriented reader will find pressing.
Algorithmic Harm is recommended reading for scholars of law, marketing, behavioural economics, business management/leadership and technology policy, as well as for policymakers and practitioners engaged with AI governance. Bar-Gill and Sunstein have produced a framework that is both analytically rigorous and practically oriented, and their extension of the consumer market analysis to labour and political markets gives the work a reach that elevates it above a mere academic work. Some readers will find the S/U binary simplistic, and the book’s engagement with the political economy of regulation could be deeper. But as a serious, evidence-based and accessible intervention in one of the defining debates of the present moment, this work appropriately contributes to contemporary discussions and deserves recognition within the field.
Akin Akinbusoye is a PMP-certified IT Project Manager at HAP Consulting LTD with over 12 years of experience specialising in digital transformation, IT sourcing, and technology investment optimisation. His professional interests lie at the intersection of technology implementation, business strategy, business ethics, and the policy implications of algorithmic systems in organisational contexts.
In many areas of our lives, we join associations or engage in activities where there are rules that impose limits on or direct our behaviour. To give one example, over 7 million people are members of 40,000 football clubs, all with their own rules which are, in turn, regulated by the Football Association (FA). The FA, in turn, is a member of UEFA and FIFA with their own rules systems. There is, in the jargon, polycentricity or nested rules systems.
However, over time, the role of the state in regulating our lives has increased and the role of other bodies has reduced. Even football is now regulated by a government regulator.
By way of another example, we often think of the 1980s as a period of deregulation of financial markets. In 1986, there was an episode called ‘big bang’. This is often wrongly described as ‘deregulation’. In reality, the regulatory powers of a private body, the stock exchange, were radically curtailed after 300 years of independence, and they were replaced with a bureaucracy accountable to the Treasury. The scope of bureaucratic rulemaking in financial markets has increased exponentially ever since.
Our lives are now dominated by regulation from one source – central government. Even local government effectively acts as a set of Whitehall branch offices. When institutions do have some form of independence from the state, instead of this being regarded as normative, it tends to be regarded as a privilege, as if the state has a natural right to order our social, civic, professional, economic and family life. And there is always a threat hanging over quasi-independent institutions that they will have their independence snuffed out by the state – for example, when it comes to teaching about sex and religion in Catholic schools. And the remaining independence that universities, schools, professions, sports associations, and so on, have is radically tempered by employment regulation, equalities regulation and regulation that purports to promote human rights but, in reality, curbs freedom of association.
Pope Benedict produced a papal encyclical in 2009 in which he identified these problems, writing: ‘The exclusively binary model of market-plus-State is corrosive of society, while economic forms based on solidarity, which find their natural home in civil society without being restricted to it, build up society.’ This is surely true. And David Thunder’s excellent book, The Polycentric Republic: A Theory of Civil Order for Free and Diverse Societies, provides the antidote.
Thunder identifies the problem of the all-powerful centralised state as lying with classical theories of government in which the individual gives a monopoly of power (or coercion) to the state to keep order with the aim of promoting a peaceful society and preventing a ‘war of all against all’.
Thunder does not base his case for a system of decentralised governance on the principle of individual freedom but on the ability of such a system to promote flourishing and the practice of the virtues.
Thunder divides institutions of governance into two types: enterprise associations and civil associations. The former are not necessarily related to commerce and business, but they would be non-territorial. They would include professions, sports associations, universities, securities exchanges, and so on. Civil associations would be territorial in nature. Most powers in civil associations would be held at local level. The national political community would obtain its authority not just from a franchise of individual voters, but also from the lower-level civil associations and the enterprise associations: authority would flow upwards and not downwards. Interestingly, in some respects, the City of London operates on such a basis. Enterprise associations would be constrained by the right of exit. Civil associations would be constrained by the wide dispersion of authority.
In terms of philosophical outlook, the title of the book makes a clear nod towards Elinor Ostrom. Her Nobel Prize winning work showed how systems of governance which disperse authority with multiple layers and institutions adjusting to each other, evolved naturally in situations where economists and political scientists believed that centralised political control was often necessary.
There is an admirable chapter in the book which deals with possible objections to Thunder’s approach. But perhaps, there are a few other questions that could be considered. Firstly, reading this book from a UK perspective, one might be tempted to ask why he could not base his case on individual freedom and freedom of association. Until the growth of the centralised state from 1914, Britain had a huge network of self-governing institutions, many of which had developed over the previous 50 years. Local government was pretty autonomous too. Indeed, a Select Committee of inquiry into the stock exchange was able to conclude in 1878 that it was ‘capable of affording relief and exercising restraint far more prompt and often satisfactory than any within the read of the courts of law’. That is a pretty strong endorsement of forms of regulation that grow out of the market and civil society through enterprise associations.
Sporting associations also flourished. Indeed, it is worth noting that, in the case of football, three entirely autonomous rule-making bodies developed with very different organisational structures (association football, rugby football league and rugby football union). There was order, but also competition between rule-making bodies. A world of free, rule-making bodies in the context of a limited state is exactly what classical liberals would like, and it is what David Thunder wants too. So, the first challenge to Thunder is to ask why he does not join the queue of people who would simply like to go back to a smaller state.
The answer to that is that Thunder’s justification is different. His justification relies on creating a society in which we can all flourish and not one which simply maximises freedom, including freedom of association to form rule-making bodies. Pope Leo XIII, in 1891, published a strong defence of the family and private associations in Rerum novarum and argued that the state should protect the family and such associations and not interfere with them. His starting point was that of natural rights – we are born into a family, and society and the state should protect the family and society. But this perspective was also based on the need for society to flourish. Perhaps freedom and flourishing are best thought of as complementary arguments and so Thunder adds a new dimension to classical liberal arguments for a limited state.
And there is also the challenge, which Thunder does raise, that enterprise associations can be monopolistic and exclusive. I discuss this issue in a variety of papers, including, for example, an article ‘Private regulation versus government regulation: The example of financial markets’ Economic Affairs, 42(1), 30–49. In this respect, David Thunder refers to the Hanseatic league positively. But that organisation was extremely cartelistic. The Test and County Cricket Board (TCCB) was taken to court in 1977 for banning cricketers who played for an Australian entrepreneur, Kerry Packer. The TCCB lost. I disagree with the court decision, but we have to accept that a return to a world in which there is much greater diversity in rule-making institutions may lead to the restrictive practices that used to dominate economic life. That said, economic life today is dominated by state occupational licensing and government regulation of professions that restrict entry on arbitrary criteria.
I hope that David Thunder’s work will widen the constituency of people who believe in a limited state and dispersed competing forms of governance. Those of us who believe in a limited state but the maximum possibility for civil society structures of governance to emerge tend to be dismissed as ‘neo-liberal’ in a lazy misrepresentation of our views. But with his focus on creating a system of governance in which people can flourish and practise the virtues, David Thunder should avoid any such allegation, at least from interlocuters who exhibit a generosity of spirit and a genuine desire to engage with his arguments.
In the final chapter, David Thunder states that he hopes that the polycentric, federalist approach that he lays out provides a useful theoretical paradigm in which the future of our governance arrangements can be discussed. He has achieved that objective. His approach should be widely discussed and developed. It should be read by students on university politics and political economy programmes and by those who seek to influence the climate of opinion. It certainly should be of interest to Christians. Thunder states in the penultimate chapter that his purpose is to ‘stimulate our moral and political imagination with a view to stimulating institutional and cultural reform.’ This he does.
‘The Polycentric Republic: A Theory of Civil Order for Free and Diverse Societies’ by David Thunder was published by Routledge in 2024 (ISBN: 978-1-032-88889-7). 196pp.
Philip Booth is professor of Catholic Social Thought and Public Policy at St. Mary’s University, Twickenham (the U.K.’s largest Catholic university) and Director of Policy and Research at the Catholic Bishops’ Conference of England and Wales. He is also Senior Research Fellow and Academic Advisor to the Centre for Enterprise, Markets and Ethics.
