Arthur Seldon, who died on Tuesday aged 89, was, with Ralph Harris, one of the founders of the Institute of Economic Affairs, the think-tank which advanced free-market ideas at a time when they were deeply out of favour, and which provided much of the intellectual underpinning for Thatcherism.

The success of the IEA was in large part due to Seldon's gifts as an editor, and to the care with which he encouraged young writers. Many proposals which were later to be taken up by politicians might never have seen the light of day without Seldon's meticulous removal of jargon and insistence that the ideas being presented should be comprehensible to a wide audience.
Seldon himself had no interest in narrow party politics. He was not a Tory, but an old-fashioned Liberal, and insisted that shaping public attitudes, rather than courting politicians, should be the IEA's priority.

Arthur Seldon was born on May 29 1916 in the East End of London; his parents were Russian-Jewish immigrants who died in the 1918 'flu epidemic and, aged two, young Arthur was adopted by a neighbouring childless cobbler and his wife who had also immigrated from Russia. In later life he recalled helping to sell repaired boots on a Saturday at the market in Whitechapel Road.

This background helped foster his belief in self-reliance. When he was 11, Arthur's adoptive father died, and his widow collected £100 from a Friendly Society. Seldon quoted this as an example of family self-help before it was crowded-out by the welfare state. Likewise, before the era of "counsellors", his mother consulted neighbours and was helped to make a living by selling lisle stockings at 1s 11¾d a pair from their front room in Oxford Street, E1.

Some years later she married - "for Arthur's sake" - an elderly tailor with his own workshop, which prospered until the Depression of 1929. From Dempsey Street Elementary, Arthur passed the 11-plus and went on to Raine's Foundation Grammar School off the Commercial Road (later abolished by Anthony Crosland's comprehensive reorganisation). In 1934 he won a state scholarship to the London School of Economics, where he came under the influence of Lionel Robbins and FA Hayek, who had recently arrived from Vienna. After a brief flirtation with Communism he saw the light and joined a few others in establishing a student Liberal Society.

Despite the dominance of Laski and Dalton, who gave the LSE its undeserved reputation as a hot-house of Socialism, Seldon imbibed there his life-long belief in the commanding tenets of classical liberalism, based on secure property rights and open competitive markets as the foundation of long-run prosperity and individual freedom.

After a First in 1937 he became research assistant to Sir Arnold Plant before joining the Army. From 1942 to 1945 he served in North Africa and Italy, emerging unscathed, apart from a stiffened right arm resulting from an infection.

After 1945, Seldon returned to what he always called "the School", where he tutored part-time students in the commerce degree bureau and was appointed a staff examiner. From 1946 to 1949 he edited a retail trade journal, Store, where he met and married Marjorie Perrott, (née Willett) whose uncle invented Daylight Saving Time. She was a war widow with a son, whom Arthur adopted.

For the next decade Seldon worked as economic adviser to the brewing industry and found himself gently advising heads of famous family firms that they must improve their amenities at a time when they were vulnerable to take-over bids. He had seen that dividend limitation kept company shares far below the site value of many pubs.

In January 1957, on the initiative of a Liberal peer, Lord Grantchester, Seldon was introduced to Ralph Harris (now Lord Harris of High Cross), who was general director (and sole employee) of the newly-formed, independent Institute of Economic Affairs, of which Seldon soon became editorial director.

In a single week-end at the Reform Club he drafted a paper, published a few months' later as Pensions in a Free Society. It unfashionably declared: "The philosophy underlying this paper is that most of us are now adult enough to be left, or to be helped, to live our own lives according to our own lights... The transition from dependence to independence must be gradual; that is all the more reason for beginning soon."

There followed a remarkable 30-year partnership between Seldon and Harris that produced more than 300 scholarly books and papers which contributed powerfully, perhaps decisively, to the turn-round in party politics from the Keynesian-collectivist consensus of Butskellism to the market-centred programmes of Thatcher and Blair.

As self-confessed members of the awkward squad, Seldon and Harris were soon writing seminal studies of advertising and hire purchase in the free society series, and later co-authored further reports, including several on public versus private welfare.

The IEA had been set-up as an educational charity by a Sussex farming entrepreneur named Antony Fisher from the early profits of the Buxted Chicken company. While Harris built up the finances and student network of the Institute, Seldon became the incomparable, pro-active editor, orchestrating a rapidly growing academy of scholars, including Hayek, Milton Friedman and several other Nobel Laureates, as well as unknown junior scholars whom he coached to prominence.

Seldon identified not only important, but misunderstood or neglected, topics. After surviving an operation for an ulcer only when his rare blood group - for which stocks were unavailable - was matched to a bus driver from Edgware after a frantic search, he wrote The Price of Blood (1964), which argued for the market to be let loose to increase blood supplies.

He matched authors to each subject and urged them to develop analysis with recommendations for policy, but with no regard for what was then thought "politically impossible". His aim was to destroy the post-war consensus and rehabilitate the classical liberal philosophy of limited government based on a competition and the widest freedom of personal choice.

When faint-hearts dwelt on obstacles to radical reform, he declared that market forces would triumph over the short-term, opportunistic manoeuvres of puny party politicians. Yet despite his unceasing advocacy of the education voucher, in which he was especially helped by a devoted and energetic wife, he was doomed to watch his hopes dashed by mounting spending.

He was a pioneer in Britain of the American "public choice" school, which led him to confront the frequent cry of "market failure" with the charge of what he called "incorrigible government failure". The trouble he diagnosed was "that politicians are not generally saints pursuing the long-term public interest, but party politicians responding to demands from organised lobbies".

For Seldon, the profit motive governed by consumers in an open competitive economy was more truly democratic - and wholesome - than the vote motive operating in a regime of so-called representative government dominated by pressure groups.

His scholarly magnum opus entitled simply Capitalism (1990) failed to attract the public attention it deserved. But in his more populist writing he never ceased to challenge all three political parties. "The ultimate solution is nothing less than the displacement of 'public officials' and 'public servants' by the revival of the authority of parents to reject inadequate schools, crowded medical centres and captive housing, by empowering them to pay fees, medical insurance or other costs," he wrote in 2001.

On his 80th birthday, Lady Thatcher wrote to offer her congratulations, declaring that Seldon had made "an invaluable contribution to the political and economic map of Britain.

"At a time when free enterprise and the free market were unfashionable you championed their cause, laying the foundations for their revival in the 1970s… You always refused to accept Britain's decline and through your visionary work and rigorous preparation, you inspired much of our success during the 1980s."

Seldon was a Founder Trustee of the Social Affairs Unit, a Vice-President, and the first Honorary Fellow, of the Mont Pelerin Society, an Honorary Fellow of the LSE, and an honorary graduate of the private University of Buckingham - of which he might be regarded as the intellectual begetter. By comparison, many thought the CBE he was awarded in 1983 inadequate recognition of his service as a leading architect of the economic reforms associated with Thatcherism.

Seldon's phenomenal industry continued in his later years, when his books included The Dilemma of Democracy and The Retreat of the State (both 1998); Government: whose obedient servant? (2000) and The Making of the IEA (2002). His work as an author was crowned by the recent publication of his Collected Works, in seven volumes, by Liberty Fund of Indianapolis, edited by Professor Colin Robinson, his successor as editorial director at IEA. The final volume is to be launched in December; a conference on his work is to be held next year.

He was fond of cricket and opera, and was particularly noted for the "parties for non-conformists" which he and Marjorie threw at their house near Sevenoaks.

Arthur Seldon is survived by his wife and by their three sons.