Taylor's book reminds us that our current economic difficulties are not rooted in our people, institutions or culture but are due mainly to failures in national policy. The path to growth and prosperity, he argues, will be found in a return to the traditional American principles of individual freedom, limited government and stable economic policy.
The Hayek Prize, which carries an award of $50,000, is one of the country's most significant book awards. It was established by the Manhattan Institute to recognize a work published within the previous two years that best reflects F.A. Hayek's vision of personal liberty and economic freedom. Hayek was a seminal figure in the postwar revival of classical liberalism, and a key figure in the founding of the Manhattan Institute. The Hayek Prize was established to recognize authors who demonstrate how those principles should be applied to contemporary problems.
Born in Austria in 1899, Hayek developed his views about socialism and economic planning in response to the European catastrophes he witnessed during the first half of the 20th century. The classical liberal order of representative government and free markets contributed to a century of relative peace and prosperity from 1815 to 1914. The rise of socialism and nationalism, and their accompanying ideologies of Marxism and fascism, destroyed that order, leading to three decades of war, depression and mass suffering. Yet, to Hayek's dismay, those catastrophes did not discredit the impulse for national planning.
In 1944, Hayek set forth his views in "The Road to Serfdom," his now-classic work in which he argued that efforts to organize society around a common economic plan inevitably lead to the destruction of the rule of law and the loss of individual freedom. The tradition of classical liberalism, he wrote, was the abandoned road to which the world must return.
Taylor writes from a similarly skeptical view of central planning and national economic micromanagement. In his survey of postwar economic policy, he finds that efforts to manipulate the economy through government spending or by stop-and-go monetary policies usually lead to slower growth, inflation or both. Crony capitalism and exploding levels of public debt are symptoms of such misguided national policies.
Taylor, who has served on the President's Council of Economic Advisors and as undersecretary of the treasury for international affairs, demonstrates that successful economic policy must rest on five clear principles: (1) a predictable policy framework; (2) the rule of law; (3) strong incentives to encourage work, saving and investment; (4) a reliance on markets to allocate resources; and (5) a limited role for government. Taylor is convinced that the American economy will not return to its normal pattern of growth and expansion until these principles are once again incorporated into national policy.
The United States has stumbled before and has always recovered by returning to first principles. Taylor is the unusual economist who, much like Hayek, has a grasp of history and appreciates the lessons it teaches. As he writes, "the best way to understand the problems confronting the American economy is to go back to the first principles of economic freedom upon which the country was founded. The good news is that if we begin to apply these principles to our current circumstances, we can restore America's prosperity and our confidence in the future."
Like "The Road to Serfdom," "First Principles" offers a compelling reminder of the fundamental connection between freedom and prosperity.
James Piereson is a senior fellow at the Manhattan Institute, chairman of the Hayek Prize Committee and president of the William E. Simon Foundation.