Eric Beinhocker, executive director of the Institute for New Economic Thinking at the Oxford Martin School, and Nick Hanauer, a successful entrepreneur, give a preview of their forthcoming book, Market Humanism, in the detailed report, “Markets Built for Humans: Creating an Economy for People, Planet, and Democracy.” Their main argument is that “markets should be built to serve human flourishing, and when they are, they produce broader prosperity, stronger communities, and a healthier democracy.”.
In their view, neoliberalism or the “neoliberal consensus” includes “free market theories from neoliberal political economy, neoclassical economics, and libertarian philosophy” (“Markets Built for Humans,” p. 9). They argue that neoliberalism has failed and needs to be replaced by a new paradigm to improve economic well-being and social harmony. The authors blame the global financial crisis on failed markets rather than government failure; advocate for industrial and other activist policies (such as higher minimum wages) to empower workers; reject free trade in favor of managed trade, and propose a “middle-out” versus “trickle-down” theory of economic growth.
A Strawman Argument
The problem, however, is that Beinhocker and Hanauer engage in a strawman argument by distorting or simplifying “libertarianism,” which can also be called “liberalism” or “classical liberalism” (Boaz 2015, p. 8). As David Boaz pointed out, “Libertarianism is the philosophy of freedom.… We should be free to live our lives as we choose so long as we respect the equal rights of others” (Boaz 2015, p. 1). Liberalism is not absolute freedom. Liberals going back to John Locke and Adam Smith bounded freedom by what Friedrich Hayek called “rules of just conduct.”
According to Hayek:
The central concept of liberalism is that under the enforcement of universal rules of just conduct, protecting a recognizable private domain of individuals, a spontaneous order of human activities of much greater complexity will form itself than could ever be produced by deliberate arrangement (Hayek 1966, p. 162).
Under liberalism, government’s function is to protect the equal, natural rights of individuals to their life, liberty, and property. The private free market is the way for individuals to cooperate and flourish.
Beinhocker and Hanauer also want people to flourish, but they have a much larger role for the state than true liberals. Even though they recognize the importance of markets and prices in allocating resources and providing information to market participants, they fail to explain how a free-market system operates to create social and economic harmony when government is limited to protecting natural rights.
By setting up a strawman argument to dismiss true liberalism as a workable solution to the Hayekian knowledge problem, Beinhocker and Hanauer miss the opportunity to effectively make the case for a free society. They also divert attention from the fundamental question posed by Vernon Smith in his Nobel Prize Lecture: “How is order produced from freedom of choice?”
Beinhocker and Hanauer do argue that “the purpose of the economy is to support human flourishing and provide everyone the freedom to live their lives to their fullest potential” (“Markets Built for Humans,” p. 46). However, they fail to recognize that “the economy” has no purpose, nor does the market, as Hayek and other liberals have noted (see Hayek 1966, p. 163; and Buchanan 1979, pp. 30–31). Individuals have plans that are coordinated via the free-market process. An activist government can impede the spontaneous order that emerges under voluntary exchange and a genuine rule of law.
Beinhocker and Hanauer do not appear to fully comprehend that complex system. They label Nobel Laureate James Buchanan a “neoliberal” (as opposed to a classical liberal) and argue: “If there were any truth to the libertarian fantasy of a stateless paradise, then somewhere on Earth, someone would have created one” (“Markets Built for Humans,” p. 63). But clearly, Buchanan is a libertarian and does not want a stateless society. He wants a free society under a just rule of law that protects persons and property—just like Adam Smith.
Beinhocker and Hanauer also contend that “neoliberals” embrace the assumptions of “perfect knowledge and foresight, efficient markets, and perfect competition, none of which exist in reality” (“Markets Built for Humans,” p. 78). However, economists associated with the Austrian school and proponents of classical liberalism have been critical of those assumptions and have offered alternatives paradigms. Most notably, Hayek emphasized the decentralized/useful knowledge that is often tacit and revealed in free-market prices. He viewed competition as a discovery process in which millions of people coordinate their plans via mutually beneficial exchanges. With private property rights and a just rule of law, a spontaneous order can emerge whereby self-interested actors generate socially beneficial results (see Hayek, “The Use of Knowledge in Society,” “Competition as a Discovery Procedure,” and “The Principles of a Liberal Social Order”).
Key Tenets of Market Liberalism
If we examine the key tenets of Market Humanism, we find that most of them have already been developed by neoliberals (broadly conceived). Moreover, the libertarian or classical liberal paradigm offers a more coherent view of the market as a complex system and the importance of freedom under the law than the so-called “new economic thinking.”
The key tenets of the Market Humanism paradigm, as stated by Beinhocker and Hanauer are as follows:
“It begins with a different set of moral foundations: a focus on broad human well-being, not just pleasure from consumption.”
“It reconceives human behavior not as homo economicus—a rational, selfish, utility calculator—but as homo sapiens, a cooperative, social, problem-solving species.”
“It understands the economy not as a closed equilibrium machine but as a complex adaptive system.”
“It defines progress not by GDP growth alone but by how the economy is ‘solving human problems’—increasing the well-being of people across the population.”
“It does not see prosperity and economic fairness as a trade-off but instead shows how fairness causes prosperity.”
“It envisions markets and states not as opponents but as essential partners in solving problems.”
“It translates these foundations into emblematic policies—from investing in mission-driven innovation to labor policies that support living wages and full employment, modern industrial policy to accelerate the clean energy transition, and competition policy that creates true market competition.”
“And it frames these policies in a compelling political narrative: We create prosperity by including, investing in, and empowering the broad middle of the electorate—prosperity grows from the middle out” (“Markets Built for Humans,” p. 39).
Beinhocker and Hanauer conclude by asserting: “The neoliberal consensus and Market Humanism are not merely rival policy menus. Market Humanism is a complete alternative paradigm stack—a contrasting worldview, a new common sense.”
A Critique
The first proposition is clearly false. True liberals value human flourishing not mere consumption. But they do so through a focus on individual freedom and limited government, not an activist policy regime designed to “empower” people. The second proposition sets up a strawman. The essence of liberalism is voluntary exchange and the gains from trade under a genuine rule of law. By asserting that “neoliberals” focus on simple self-interest rather than the desire to trade for mutual advantage, Beinhocker and Hanauer distort true liberalism. As Buchanan notes, the “mutuality of advantage that may be secured by different organisms as a result of cooperative arrangements, be these simple or complex, is the one important truth in our discipline.” In particular, “there is no comparable principle, and the important place that has been traditionally assigned to the maximization norm that is called the ‘economic principle’ reflects misguided emphasis” (Buchanan 1979, p. 28).
Turning to propositions three and four, no serious student of liberalism thinks that the economy is a “closed equilibrium machine.” Equilibrium is only used as a snapshot at the end of a dynamic market process in which individual plans of buyers and sellers are coordinated via competitive markets. The challenge is to understand and protect the institutions behind a free-market system—especially the role of private property rights and limited government.
Moreover, dynamic gains come from trade as markets for goods and ideas develop and widen the range of choices open to people. In this sense, one can evaluate progress not just by looking at GDP but also at the options open to people to exercise their freedom. As Peter Bauer wrote in his 1957 book, Economic Analysis and Policy in Underdeveloped Countries: “I regard the extension of the range of choice, that is, an increase in the range of effective alternatives open to people, as the principal objective and criterion of economic development; and I judge a measure principally by its probable effects on the range of alternatives open to individuals.”
Proposition five claims that liberals reject the idea that “fairness causes prosperity,” while proposition six holds that liberals do not see any synergy between the state and the market. Both claims are too simplistic. If “fairness” means having “just rules of conduct” that protect natural rights, then liberals would say that such rules foster freedom and help create the wealth of nations. But Beinhocker and Hanauer really mean “social justice,” which Hayek concluded “has no meaning” in a free society (Hayek 1978, p. 57). The state is not at odds with the market provided that government is limited in its powers to those that protect life, liberty, and property. Liberals would say that true justice requires limited government under a just rule of law.
Finally, propositions seven and eight hold that the Market Humanist principles laid out in propositions one through six justify an activist state designed to empower the “broad middle of the electorate.” Certainly, the government has the power to favor groups in society, but in doing so, it violates the very freedom and justice that are the cornerstones of a spontaneous market order.
A Simple System of Natural Liberty
The truth is that when people are left to pursue their own interests and private property rights are secure, people naturally cooperate in free markets to make themselves and society better off. That was Adam Smith’s message and has been the central tenet of liberalism.
Beinhocker and Hanauer do pay homage to Adam Smith, especially his 1759 book, The Theory of Moral Sentiments. They note, “For Smith, self-interest could serve the common good—but only when bounded by moral restraint, civic virtue, and good institutions” (“Markets Built for Humans,” p.10). But, unlike Beinhocker and Hanauer, Smith was not a proponent of activist government or industrial policy. He was fundamentally a proponent of free trade or what he called a “simple system of natural liberty.” As he wrote in The Wealth of Nations:
All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. [Thus], the sovereign is completely discharged from a duty … for the proper performance of which no human wisdom or knowledge could ever be sufficient” (Smith 1937, p. 651).
Beinhocker and Hanauer want to “build” a new system, but they fail to fully explicate liberalism, properly understood as “the philosophy of freedom.” They think they can design a socioeconomic system without realizing that such a “constructivist” mentality ignores the fact that institutions “are created from human interactions but not by deliberate human design,” as Vernon Smith noted in his Nobel Lecture. According to Smith:
Ecological rationality uses reason–rational reconstruction–to examine the behavior of individuals based on their experience and folk knowledge, who are “naïve” in their ability to apply constructivist tools to the decisions they make; to understand the emergent order in human cultures; to discover the possible intelligence embodied in the rules, norms and institutions of our cultural and biological heritage that are created from human interactions but not by deliberate human design. People follow rules without being able to articulate them, but they can be discovered. This is the intellectual heritage of the Scottish philosophers, who described and interpreted the social and economic order they observed (Smith 2002, p. 509).
In their recent book, Humanomics, Vernon Smith and Bart Wilson draw on Adam Smith’s Theory of Moral Sentiments and The Wealth of Nations to argue that individuals are not simply selfish utility maximizers; rather, they seek to cooperate with others for mutual gains from trade. There is a moral incentive to gain trust in market exchanges while spontaneously advancing social and economic order. In other words, a free society under a just rule of law is also a harmonious society in which humans can flourish (see McCloskey, Bettering Humanomics, 2021).
Beinhocker and Hanauer make no mention of Humanomics in their report or of Vernon Smith’s Nobel Lecture. Nor do they seriously consider the data contesting the supposed hollowing out of the middle class (see Michel 2025 and Winship 2026).
The Minimum Wage Delusion
Beinhocker and Hanauer see the minimum wage as “the policy that most succinctly illustrates the ideas at the heart of Market Humanism” (“Markets Built for Humans,” p.119).
They favor a higher minimum wage because they think it will lead to higher incomes most of which will be spent, thus increasing consumer demand and jobs:
Workers in the middle and bottom of the wage scale spend almost every additional dollar they earn. When the minimum wage increases, their purchasing power rises immediately, stimulating consumer demand. That increased consumer demand then immediately encourages local businesses to hire, invest, and expand in a virtuous cycle of growth (“Markets Built for Humans,” p. 120).
This logic is based on what Hanauer and Eric Liu call “the fundamental law of capitalism”—namely, “when workers have more money, businesses have more customers.” However, a worker’s income is not the same as the prevailing wage rate (i.e., the price of labor). Income is the wage rate per hour times the number of hours worked. A legal minimum wage rate set above the market wage rate for unskilled workers will decrease the number of jobs offered to workers (the law of demand) while increasing the number of workers looking for a job. Since demand curves slope downward and are more elastic in the long run than in the short run, the excess supply of labor (i.e., the number of workers who won’t be able to find a job at the minimum wage) will be greater in the long run than in the short run. Employers will substitute labor-saving technology and more skilled workers for the low-skilled workers who could find a job at the market wage rate.
There are many studies to substantiate this market logic. I summarized some of them in the article, “The Minimum Wage Delusion and the Death of Common Sense.” My conclusion still stands:
Ignoring the law of demand to adopt a higher minimum wage in the hope of helping low-wage workers is a grand delusion. The persistence of this false belief ignores economic reality. It is a red herring that diverts attention from alternative policies that would increase economic freedom and prosperity for all workers.
Trying True Liberalism
Modern-day liberals have turned the word “liberalism” on its head. Beinhocker and Hanauer throw the baby out with the bathwater by erecting a simplistic version of neoliberalism, setting liberalism up as a strawman and diverting attention from the central principle of liberalism—namely, the idea of a spontaneous market order that emerges from freedom and limited government. Although they praise Adam Smith and markets, they argue that “laissez-faire capitalism” and “neoliberalism” have failed to bring about “fairness” and “human flourishing.” What is needed is “a complete replacement” of these paradigms with the “Market Humanist” paradigm (“Markets Built for Humans,” p. 39). According to Beinhocker and Hanauer, “Markets are not the enemy. They are humanity’s greatest social technology for solving problems. But under neoliberalism, they have been misaligned—designed to extract rather than empower. Market Humanism seeks to reclaim them for human needs” (“Markets Built for Humans,” p. 138).
Instead of looking to Market Humanism as the path to human flourishing, I suggest looking to true liberalism—that is, a free society bounded by a just rule of law protecting life, liberty, and property. The Market Humanism paradigm is largely a strawman argument and diverts attention from the principle of spontaneous order, which lies at the heart of liberalism/libertarianism. As Paul Schwennesen has pointed out, Beinhocker and Hanauer “don’t offer much that is genuinely innovative.” Indeed, their “vast resources might be better spent engaging in the unglamorous work of promoting tried-and-true classical liberal principles instead of pretending to invent a new science.”
When Beinhocker and Hanauer’s book appears, it will no doubt receive a lot of attention. However, their positive statements about the miracle of markets in creating wealth and innovation will be overshadowed by their case for an activist state to the detriment of a free society.
