Economic Philosophy Post #1: Institutions, Economists, and the Real Work of Building Societies
A response to Atanu Dey's reflections on Friedman and Buchanan
Atanu Dey’s recent piece in Deeshaa on the economists Milton Friedman and James Buchanan is a blog post on two influential thinkers in the 20th-century liberal economic tradition. It’s also a window into a certain ideological stance—one that places a great deal of faith in the power of institutions, markets, and rules that are meant to withstand human fallibility. (Markets, especially markets!) There is, to be sure, much to admire in such a focus on part of Friedman and Buchanan. But we must be wary of its blind spots.
Milton Friedman, in particular, is a polarizing figure. While his advocacy for school vouchers, floating exchange rates, and drug liberalization certainly had a contrarian flair, they also revealed an often narrow understanding of human wellbeing. Friedman frequently reduced questions of justice and morality to matters of market efficiency and voluntary choice, sidelining structural inequities and the role of power. His notion of freedom was one tied almost exclusively to the absence of state intervention—not necessarily to the flourishing of individuals or communities. And yet, that concept of freedom has deeply shaped public policy debates, often with long-term consequences that are still playing out.
At this juncture, we might ask: is it time for a new economic philosophy—one rooted not merely in efficiency, but in wellbeing? Should economic policy be executed with a view to "maximize shareholder value" or "maximize happiness, overall"? That is the question of economic philosophy that Friedman and his acolytes failed to full address.
Buchanan, as Atanu notes, offers something more nuanced—especially in his distinction between the economics of voluntary exchange and the politics of coercion. His insistence that we design institutions that are robust to human flaws is well taken. But even Buchanan’s constitutional economics sometimes leaned too heavily on idealized notions of “contract” and not enough on history, culture, or the messiness of lived experience. Institutions are not created in a vacuum, nor are they always chosen in a deliberative marketplace of ideas. They emerge from struggle, compromise, and often, deep inequalities.
One danger in overly admiring economists like Friedman and Buchanan is that it can obscure the real-world failures of the systems they championed. Deregulated markets did not, as promised, always lead to widespread prosperity. Vouchers didn’t solve educational inequity. Floating exchange rates came with their own volatilities. And in societies marked by entrenched disadvantage, the rhetoric of individual choice often becomes a smokescreen for inaction. And what happens when authoritarian leaders come to power and exploit economic systems for personal or political gain? (Yes, I am referring to Trump here.) Friedman and his acolytes never addressed that.
So yes, let’s talk about institutions. Let’s talk about rules that can endure in a world of fallible humans. But let’s also ask who those institutions serve, who gets to write the rules, and who bears the brunt when those systems fail. Economics needs not just logic and elegance, but empathy, context, and a deep engagement with social reality.
To quote Frank Knight, as Atanu does: "The game of being a society can rarely just dissolve." True. But it can unravel in slow, silent ways—when inequality festers, when trust erodes, and when too many people feel the rules were written without them in mind.
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And to bring things to a proper conclusion, some thoughts in Esperanto.
Kion mi neniam komprenos estas kiel Atanu alvenis al la konkludo, ke Trump estis la pli bona kandidato en la elekto de 2024. Kia terura ekonomikisto Atanu estas.
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