The Late and Tragic Triumph of an Economic Myth

The paper argues that the Classical Liberal Paradigm with its core tenet that the ‘invisible hand of the market’ allocates resources in a socially optimal way, has been the dominant paradigm of mainstream economics for more than 200 years, and has given rise to research associated with the names of Cournot, Marshall, Walras, Pareto, Arrow, Debreu and many others. However, the insights produced by economic theory by around 1970 must be regarded as a refutation of the invisible hand tenet. Nevertheless, propagandists of the neoliberal version of the Classical Liberal Paradigm succeeded in convincing political authorities around the world, ironically at about the same time, to implement policies suggested by the outdated paradigm. The tragedy of its late triumph lies in the fact that it has contributed to a political neglect of environmental pollution and ensuing global warming on the one hand, and to a bizarre degree of concentration of wealth and the power that comes with it, on the other hand.