"I beseech you, in the bowels of Christ, think it possible you may be mistaken."

Oliver Cromwell

In the twentieth century, the various Communist attempts at creating utopian societies using centrally planned economies all ended, without exception, in political tyranny and economic failure. This outcome was inevitable whether the experiment was tried in Cuba, Poland or Cambodia. Communist states failed because even the most efficient bureaucracrats cannot predict or respond to the almost infinite number of economic decisions made by individual consumers every day. Furthermore the lack of economic freedom stifled innovation and technological development and living standards stagnated. It was also inevitable that Communist states would become tyrannies because Communist leaders were convinced that their ideology was perfect and that it would result in a perfect society; therefore criticism or alternative political views prevented the establishment of the utopian state and were to be repressed.

In the latter quarter of the twentieth century the failure of the great Communist experiment became obvious. In the late 1970s, Thatcher and Reagan became heavily influenced by the ideas of the economist Milton Friedman, who essentially argued for a return to the classical economical model first espoused by Adam Smith. Free market economics was also successfully adopted, or adapted, by a number of Asian states and territories, including Hong Kong, South Korea, Taiwan and, most importantly, China. The advantage of free market economics is that it is essentially a form of ‘negative’ freedom and allows humans to act upon heir own individual wants and needs. The principle of supply and demand, rather than a centralised bureaucracy, decides prices and production levels in a vastly more efficient way. Human ingenuity and inventiveness is allowed the freedom to create new products and technologies. In short human beings, who generally choose to work to provide for their family or improve their lot, are allowed to fulfil their economic potential. Classical economics holds that humans are essentially rational beings who, by acting in their own self-interest, provide benefits for the rest of society. As Adam Smith wrote

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest.”

Although Milton Friedman was a hugely persuasive intellectual, and indeed laid the intellectual groundwork for the record reduction of global poverty in the last part of the twentieth century, he was close to being an ideologue. Some commentators now talk of ‘free-market fundamentalism', perhaps a rather bland term, but it is clear that, as the world became richer and more globalised, some political and economic leaders may have begun to believe that free market economics alone could create a utopian society.

As Chairman of the Federal Reserve, Alan Greenspan encouraged further de-regulation of the financial markets during the late 1990s, believing that the rational self-interest of bankers would negate the increased risk to the financial system. Following the Credit Crunch, however, Greenspan candidly stated that he had "found a flaw ... in the model that I perceived is the critical functioning structure that defines how the world works".

The flaw is, I think, that, contrary to ‘fundamentalist’ classical economic thinking, humans can be irrational and sometimes stupid risk takers. Sometimes they do not act in their own interests; sometimes their own interests clash with the interests of others. So while 99% of the time economic freedom may unleash the best of humanity, occasionally it can also indulge the worst aspects of human behaviour.

Both Adam Smith and Milton Friedman strongly believed that Governments did have important roles to play in free-market societies. Perhaps people such as Alan Greenspan came to believe that free market economics was flawless, or that any potential flaws were unlikely to cause significant wider problems. This week David Cameron, the future Prime Minister barring an extremely unlikely event, attended a seminar with Nassim Nicholas Taleb, a professor of risk engineering and author of the bestselling book, The Black Swan. In his book Taleb uses the metaphor of ‘Black Swans’ to warn of the natural human instinct to ignore the risk posed by highly unlikely events that might have enormous consequences. Basically a 21st cenutry development of the rather more succinct theory that ‘Shit Happens’.

Over the last two hundred years free market economics, in its various guises, has helped to bring unprecedented benefits to humanity. However, Cameron and other political leaders have been recently provided with plenty of empirical evidence, should they have needed it, that capitalism is an imperfect economic system. So while leaders of the future must ensure that they continue to develop a system that has been largely successful, they should be careful to avoid the carelessness of complacency or the conceit of ideology. After all the problem with perfect systems is that they rely on imperfect humans to work.