Liberal And Neo-liberal Economics:IKHLAQ SIR.

 🌿Liberal and Neo-liberal Economics:📚

Liberalism as an economic philosophy is founded on the belief that individuals are rational in the decisions they take in the economic system. Producers make goods and services that are in demand. Consumers spend their money to realize maximum value for it. The rationalities of all the economic actors-producers, traders, consumers and others, add-up to collective and systemic rationality that guides the economy well.

Adam Smith, the 18th century Scottish economist and philosopher and a formidable proponent of laissez-faire economic policies, in his first book, The Theory of Moral Sentiments, proposed the idea of an invisible hand. Invisible hand means the unintended social benefits and public good produced by individuals acting in their own self interests.📚📚📚

Achievement of the most efficient level of production, consumption and distribution of goods in the society takes place without any wishing it. It secures the welfare of the society. In other words, the self-interest of each when rationally followed becomes the common interest of all. Based on this premise, Adam Smith said that there is an ‘invisible hand’ that steers the  economy well and so there is no need for State regulation. State should only provide support services like  public goods-police, judiciary, essential  infrastructure, etc. With this concept, Adam Smith answered critics of capitalism that it could lead to lack of stability and neglect of welfare. However, there were many crises in capitalism since then, and also great amount of misery and inequality that the theory of invisible hand may not be able to explain.📚

The euphoria in markets that is based on the  principle of laissez faire (French term that literally means ‘Let (people) do (as they choose).’ It stands for minimum government controls by way of laws and regulations in economic transactions) did not find justification in decades that followed industrial revolution in the mid-18th century. 📚📚

While the economies grew initially based on the above philosophy, there was widespread poverty and exclusion created by the economic growth. As a reaction, welfare and socialist schools of economics emerged. However, by the late 20th century, liberalism found renewed favour with the world after all other models of growth showed their inadequacies as we will see ahead. The return of liberalism late last century is known as neo-liberalism (any school of thought that returns after decline is given the  prefix, neo). Neoliberal philosophy did not change much from liberal assumptions and policies. After all, it returned to popularity because its adherence to free market economic model was proved historically right as communist command economy (State commands the economy in its decisions) with state ownership did not yield long-term growth and proved to be antithetical to innovation and entrepreneurship. Neoliberals championed as earlier for withdrawal of State from economic activities: globalization, privatization, price deregulation, etc. It is summarized by the saying that government is the best which governs the least.📚📚