The Milton Friedman Prize for Advancing Liberty

Date and Time
May 9, 2002 6:30 - 9 PM EDT
1st floor/Wintergarden

Peter Bauer: Winner of the 2002 Milton Friedman Prize

The Cato Institute and The Milton Friedman Prize for Advancing Liberty International Selection Committee are proud to announce that the first recipient is the distinguished British economist Peter Bauer, a professor emeritus at the London School of Economics.

Professor Bauer was chosen for his pioneering work in the field of development economics, where he stood virtually alone for many years as a critic of state‐​led development policy with its emphasis on central planning and external foreign aid.

From 1948 when The Rubber Industry was published to the publication in 2000 of From Subsistence to Exchange, Bauer wrote books that challenged the prevailing development orthodoxy, including the myth that poverty is self‐​perpetuating.

Through a half century of scholarship, Bauer was an outspoken champion of global economic liberty. Like classical liberals before him, Bauer recognized the dynamic gains from trade and emphasized that countries that fail to establish commercial contacts will inevitably perpetuate poverty.

Bauer demonstrated that the so‐​called Third World was not immune to wealth accumulation. He wrote that economic achievement was well within the reach of poor societies, a view that was contrary to that of development officials who argued that there was a “vicious circle of poverty” and that poor countries on their own were not capable of sufficient capital formation. Bauer’s study of small holdings in the Malaysian rubber industry and the importance of small‐​scale traders in West Africa convinced him that wealth accumulation was possible, notwithstanding the experts.

The collapse of the Soviet Union and the worldwide movement toward more open markets have changed development economics and vindicated Bauer’s market‐​liberal vision. In 1997 the World Bank conceded as much in its development report: “State‐​led intervention emphasized market failures and accorded the state a central role in correcting them. But the institutional assumptions implicit in this world view were, as we all realize today, too simplistic.”

Bauer’s adherence to the liberal principles of free trade and free people reflects his deep respect for the dignity, rationality, and capabilities of poor people around the world. It stands in sharp contrast to the patronizing undertones of the development experts who made up “the spurious consensus.”

Born to the son of a Budapest bookmaker in 1915, Peter Bauer came to Britain in 1934 to study economics at Gonville and Caius College in Cambridge, where he later became a fellow. He taught at the London School of Economics and Political Science from 1960 to 1983. He is currently emeritus professor of economics. In 1982 he was made a life peer and is a fellow of the British Academy. He is 86 years old.

Edward H. Crane, president of the Cato Institute, welcomed the recognition of Professor Bauer. “Peter is not only a longtime friend of Cato,” said Crane, “he is a hero to many of us for his courageous commitment to sound economic theory and the promotion of human liberty.”

Informed that he won the Friedman prize, Prof. Bauer said “I can’t think of a greater distinction than to be the first recipient of the Milton Friedman prize for advancing liberty. I am truly honored. I have long admired the Cato Institute and Milton Friedman and recognition by both could not be more delightful.”

Members of the 2002 International Selection Committee

Margaret Thatcher, former British prime minister
Václav Klaus, president of the Czech Parliament and former Czech prime minister
Antonio Martino, Italian defense minister
Jimmy Lai, Hong Kong/​Taiwan entrepreneur
Hernando de Soto, Peruvian author
Frederick W. Smith, Chairman & CEO, FedEx Corporation
John Blundell, General Director, Institute of Economic Affairs in London
Edward H. Crane, president of the Cato Institute
Rose D. Friedman, economist, wife of Milton Friedman and coauthor of Free to Choose

About Peter Bauer

At the beginning of the 21st century, the most heartening trend in the world economy is the collapse of central planning and the global spread of markets. This has had profound implications both for prosperity and for the entrenchment of constitutional government. Peter Bauer, now Professor Emeritus of Economics at the London School of Economics, both heralded and aided those triumphs, and his work has been vindicated by them.

From our vantage point today, it’s difficult to appreciate just how unreceptive the intellectual climate in the post‐​World War II era was to Professor Bauer’s antistatist approach to Third World economic development. In 1956, Swedish economist and later Nobel laureate Gunnar Myrdal expressed the prevailing orthodoxy when he wrote, “The special advisers to underdeveloped countries who have taken the time and trouble to acquaint themselves with the problem… all recommend central planning as the first condition of progress.” Indeed, until very recently, orthodox development economics held that the Third World could only achieve prosperity through central planning, autarchic trade policies, and state‐​led investment. But in books such as West African Trade (1954), The Economics of Under‐​developed Countries (1957), Dissent on Development (1971), Equality, the Third World and Economic Delusion (1981), Reality and Rhetoric (1984), The Development Frontier (1991) and From Subsistence to Exchange (2000), Bauer doggedly and convincingly undermined the conventional wisdom.

By careful observation and sound reasoning, Professor Bauer refuted many of the beliefs commonly held by development experts, among them, that poverty is self‐​perpetuating, and central planning and large‐​scale capital investment are prerequisites for growth. Bauer demonstrated that foreign aid, restrictive immigration and population policies, and trade barriers hinder economic growth. He also cautioned against the indiscriminate use of mathematical formalism in simple economic growth models and criticized the historical determinism inherent in stages‐​of‐​growth models. By 1997, the World Bank rather sheepishly admitted in its development report, “State‐​led intervention emphasized market failures and accorded the state a central role in correcting them. But the institutional assumptions implicit in this world view were, as we all realize today, too simplistic.”

Many of the statist development experts operated under the implicit assumption that poor people in the Third World were largely incapable of entrepreneurship, and could only be led out of poverty through massive state intervention. Bauer rejected this patronizing theory and showed that interventionism, statism, and social engineering were the problem, not the solution. Today, in large part thanks to Bauer, the market and not the plan is seen as the way forward in the developing world.


Books Written by Professor Bauer

From Subsistence to Exchange and Other Essays (Washington: Cato Institute, 2000)
The Development Frontier: Essays in Applied Economics (Cambridge: Harvard University Press, 1991)
Reality and Rhetoric: Studies in the Economics of Development (London: Weidenfeld & Nicolson, 1984)
Equality, the Third World, and Economic Delusion (Cambridge: Harvard University Press, 1981)
Class on the Brain: the Cost of a British Obsession (Centre for Policy Studies, 1978)
Dissent on Development; Studies and Debates in Development Economics (Cambridge: Harvard University Press, 1972)
Markets, Market Control and Marketing Reform: Selected Papers, by Bauer, P. T., and Yamey, Basil S. (London: Weidenfeld & Nicolson, 1969)
Two Views on Aid to Developing Countries, by Ward, Barbara and Bauer, P.T. (London: Institute of Economic Affairs, 1966)
The Economics of Under‐​developed Countries, by Bauer, P. T. and Yamey, Basil S. (Chicago: University of Chicago Press, 1957)
Economic Analysis and Policy in Underdeveloped Countries (Durham: Duke University Press, 1957)
West african Trade; A Study of Competition, Oligopoly and Monopoly in a Changing Economy (Cambridge [Eng.] University Press, 1954)
The Rubber Industry, a Study in Competition and Monopoly (Cambridge: Harvard University Press, 1948)

Articles About Professor Bauer

Remembering Peter Bauer, Cato Journal, vol. 25, no. 3, Fall, 2005.
The Sayer of Truth: A Personal Tribute to Peter Bauer,” by James M. Buchanan, Public Choice, vol. 112, no. 3–4, September 2002, p.233.
P. T. Bauer’s Market‐​Liberal Vision,” by James A. Dorn, The Freeman: Ideas on Liberty, vol. 50, no. 10, October 2000.
Standing Fast against Planning and Poverty,” a review of Reality and Rhetoric: Studies in the Economics of Development, by Thomas Sowell, Reason, December 1984, pp. 45–46.
Peter Bauer: Economist and Scholar,” by Basil S. Yamey, Cato Journal, vol. 7 no. 1, Spring/​Summer 1987, pp. 21 — 27.

Tributes to Professor Bauer

Peter Bauer (1915–2002),” by Thomas Sowell, Town​hall​.com, May 10, 2002.

R.I.P. Peter Bauer,” by Bruce Bartlett, Town​hall​.com, May 7, 2002.

A Dissenter on Development,” by Paul Craig Roberts, Town​hall​.com, May 7, 2002.

“Peter Bauer is in a class of his own as an outstanding economist. He has powerfully disputed the standard explanations of Third World poverty… and discussed how the poverty of a nation can be perpetuated without any malign intervention by others.”
— Nobel Laureate Amartya Sen, Master of Trinity College, Cambridge

“Peter Bauer is the world’s foremost authority on economic development… He destroys many popular myths about economic development and in the process convincingly demonstrates that static societies result wherever government pre‐​empts human action by monopolizing economic life. His scholarship is devastating.”
Wall Street Journal

“[Bauer’s] writings are a valuable antidote to a number of ideas that, though inspired by noble intentions, are poisoning the prospects of many of the world’s poorest people.”
The New Republic