Economic Development and Freedom:The Legacy of Peter Bauer

A Hero of the Market Revolution The death of Peter Bauer on May 2, 2002, at 86 years old, marked the passing of a great economist and a hero of the market revolution that has been sweeping the globe. In recognition of his pioneering work in development economics and his lifelong commitment to the principles of a free society, Bauer was named the first recipient of the Milton Friedman Prize for Advancing Liberty, a $500,000 prize awarded every two years by the Cato Institute. Bauer was awarded the prize posthumously on May 9, at the Cato Institute's 25th anniversary celebration. At that ceremony, Milton Friedman expressed his admiration for Bauer with these words: "There are few things that are more important than to honor those people who have promoted liberty around the world, and Peter deserved that prize. A friend of mine for 50 years, he was always consistent and persistent in presenting ideas that were unpopular but correct. " For years Bauer fought against so-called development experts who saw comprehensive central planning, protectionism, and foreign aid as prerequisites for economic advance. The collapse of communism in Soviet Bloc countries in 1989 and in the USSR in 1991, and the end of central planning in China and other developing countries, were the defining moments of the 20th century from a market-liberal perspective. Those events, in particular, have vindicated Bauer's lifework. Pieter Tamas Bauer was born in Budapest on November 6, 1915. He attended the famous Scholae Piae and then went on to study law at Budapest University. In 1934, he embarked for England and was admitted to Gonville and Caius College, Cambridge, where he studied economics and graduated in 1937. Bauer then returned to Hungary to complete his law degree and serve in the military. In 1939, he left to take a job in London with Guthrie & Company, a merchant house that conducted business in the Far East. Bauer began his academic career in 1943 at London University, where he was first a research fellow and then, in 1947, a reader in agricultural economics. He moved on to teach at Cambridge University in 1948 and remained there until 1960. The remainder of his distinguished academic career was spent as a professor at the London School of Economics. In 1982, he was made a life peer with the appropriate title Lord Bauer of Market Ward. He was a fellow of the British Academy and a member of the Mont Pelerin Society. (1) The End and Criterion of Development: Extending Individual Choice For Bauer, the essence of development is the expansion of individual choices, and the role of the state is to protect life, liberty, and property so that individuals can pursue their own goals and desires. Limited government, not central planning, was his mantra. Accordingly, in 1957, Bauer wrote in Economic Analysis and Policy in Underdeveloped Countries: I regard the extension of the range of choice, that is, an increase in the range of effective alternatives open to people, as the principal objective and criterion of economic development; and I judge a measure principally by its probable effects on the range of alternatives open to individuals. The acceptance of this objective means that I attach significance, meaning, and value to individual acts of choice and valuation, including the individual time preference between the present and the future [Bauer 1957: 113]. He went on to say, "My position is much influenced by my dislike of policies or measures which are likely to increase man's power over man, that is, to increase the control of groups or individuals over their fellow men. " Bauer's view of economic development as a process consistent with, and dependent on, private property and freedom of contract placed him firmly in the tradition of the great classical liberals. His adherence to the principles of free trade and free people reflected his deep respect for the dignity, rationality, and capabilities of poor people around the world. …