Peter Thomas Bauer was born in Hungary in 1915. He studied law in Budapest before embarking for England in 1934 to study economics at Gonville and Caius College, Cambridge, from which he graduated in 1937. After a brief period in the private sector working for Guthrie & Co., a London‐based merchant house that conducted business in the Far East, Bauer spent most of his long career at the London School of Economics and retired in 1983, as emeritus professor of economics. In 1982, he was made a life peer. Lord Bauer was also a fellow of the British Academy and a member of the Mont Pelerin Society, founded by his friend Friedrich A. Hayek.
During the 1950s and 1960s, Bauer fought almost alone against the rising tide of state‐led development policy. It was not unusual at the time to hear well‐known economists advocate socialism as the answer to poverty. In 1957, Stanford University economist Paul A. Baran wrote, “The establishment of a socialist planned economy is an essential, indeed indispensable, condition for the attainment of economic and social progress in underdeveloped countries.”
Bauer sought to convince the so‐called development experts that their theories and policies were inconsistent with sound economic reasoning and with reality. His message was loud and clear: Comprehensive central planning, foreign aid, price controls, and protectionism perpetuate poverty rather than eliminate it; the growth of government intervention politicizes economic life and reduces individual freedom.
The failure of development planning — as revealed most notably in the collapse of the Soviet regime, the ongoing transition from plan to market in China, and the dismal record of foreign aid in Africa and India — has led to a revolution in thinking about the determinants of economic advance. Even the World Bank, in its 1997 World Development Report, admitted that the notion that “good advisers and technical experts would formulate good policies, which good governments would then implement for the good of society” was naive. “Governments embarked on fanciful schemes. Private investors, lacking confidence in public policies or in the steadfastness of leaders, held back. Powerful rulers acted arbitrarily. Corruption became endemic. Development faltered, and poverty endured.” Exactly as Bauer had predicted.
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: