Richard E. Wagner - Politics as a Peculiar Business: Insights from a Theory of Entangled Political Economy

In the nineteenth century, what is known as economics today was known as political economy. The replacement of political economy with economics was never universal, as political economy continues to be a recognizable term and with Dimitris Milonakis and Ben Fine (2009) exploring how political economy underwent transformation into economics. As used presently, political economy denotes a relationship between polities and economies conceived as separate entities or realms of action. In contrast, this book treats polities and economies as entangled, which means that prudent political action cannot be determined independently of the interests of relevant economic actors, nor can prudent commercial action be determined independently of the interests of relevant political actors. Recognition of the entangled quality of political economy points toward several points of difference with common theories of political economy.

There is something unavoidably arbitrary about locating the origin of any scheme of thought. A thinkers thought always takes place against a background of preceding thought, even if it also entails a projection of a thinkers imagination into new analytical territory. While todays thought might have some original aspects, it will also bear the imprint of preceding thought that can reasonably be described as precursory to the present thought (Lovejoy 1936). Despite this unavoidable arbitrariness, it is often informative for readers to know something about the most significant precursors of a particular scheme of thought, to locate that scheme within the broader Commons of the Mind (Baier 1997) in which all thought occurs. As Melvin Reder (1999) explains, economics is a controversial and contested discipline that features several schools of thought with distinct orientations.

Public choice is one style of political economy, and is widely described as the application of economic presumptions, which leads to other styles of economic theory that in turn lead to different treatments of political economy and public choice.

This book treats public choice and political economy from within an analytical framework of systems theory and entangled political economy. It does so by treating politics as a practical activity that is cousin to the commercial and industrial activity that is usually thought to be the domain of economic analysis. The scheme of thought that I advance here falls within the spirit of what has been called Virginia political economy, which originated in the late 1950s at the University of Virginia through the efforts of such scholarly notables as James Buchanan, Ronald Coase, Warren Nutter, Gordon Tullock, and Leland Yeager. Individual theorists rarely if ever assign themselves to a school of thought, for they mostly think of themselves as each forming their own tradition. A school of thought is a construction someone applies to a group of scholars to facilitate the making of points about a particular body of scholarship. Sometimes the points made are negative, with the designation of a school serving to concentrate the negative energy on a particular set of scholars and ideas. Virginia political economy became a recognizable term in this manner.

As David Levy and Sandra Peart (2013) document, around 1961 or 1962 the central administration of the University of Virginia hired a consultant to prepare a report to give the administration leverage to undermine the program that had been under construction in Charlottesville since 1956. That report opened by stating that:

It is generally recognized that at the top professorial levels this Department is staffed by unquestionably capable men and that it enjoys a considerable repute in the profession. On the other hand, the Committee has received considerable adverse criticism of this Department by reason of its close association with a particular viewpoint; and we have been given to understand that the repute enjoyed is regarded by the vast majority of economists as of a distinctly unfavorable character. It does not need to be emphasized here that the Economics Department has associated itself firmly with an outlook now known as that of the Virginia school.

In identifying a distinctive Virginia approach to political economy, that report helped to marshal the administrative force required to destroy the program in Charlottesville, though part of that program resurfaced in Blacksburg at Virginia Polytechnic Institute under the rubric public choice.

The tradition of Virginia political economy can be identified, as can any scholarly tradition, in terms of a hard core of ideas from which various lines of thought are fashioned, and which both Boettke and Marciano (2015) and Wagner (2015a) explore from different but complementary angles. Virginia political economy can also be identified with two precursory streams of thought, keeping in mind the unavoidably arbitrary elements involved in any effort to identify precursors, especially when referring to a group of scholars. One stream is the classical tradition of liberal political economy whose origin is typically associated with Adam Smith, though Smith did not originate many of the ideas typically associated with him. The central idea of that tradition of political economy is that societies can generate generally orderly patterns of economic activity even though people are mostly free to direct their lives as they choose. This classical liberal vision of political economy sought to explain how a society grounded in a strong presumption for individual liberty and responsibility for ones self-governance can operate in an orderly manner with but modest political participation in economic activity. To be sure, Virginia political economy arose during the height of the neoclassical period in economic theory, and could easily be misidentified with the neoclassical tradition. But misidentification it would be, for the central theoretical claim of neoclassical economics was the formal identity of liberalism and collectivism as systems of economic order, as Baumol (1965) and Dobb (1969), among others, convey. This formal identity reflected recognition that the first-order conditions for an optimal allocation of resources were the same under capitalism and socialism. This identity of liberalism and collectivism was not a claim that would have been advanced within the classical tradition, nor was it a claim that appeared sensible within the tradition of Virginia political economy, for reasons Milton Friedman (1953a: 277319) identified in his reviews of separate books by the socialist writers Oskar Lange and Abba Lerner, where Friedman contrasts a focus on the technical identity of necessary conditions with a focus on the different operating properties of alternative institutional arrangements for the governance of human interactions.

The second stream of precursory thought was the Italian tradition in public finance that arose in the 1880s and which had mostly disappeared by the late 1930s, which Buchanan (1960) and Fausto (2003) survey, and with McLure (2007) surveying the Paretian-inspired orientation toward this analytical material. Prior to the appearance of this tradition, as well as after its disappearance, public finance was largely construed by its theorists as an exercise in elaborating maxims for applied statecraft. Most scholars of public finance have sought to offer advice or maxims for rulers about how to advance the public good in some fashion as this was articulated by the expositors of those theories. Hence, public finance addressed such questions as how large public budgets should be, how progressive taxes should be, and how should tax revenues be distributed among items of possible public expenditure. In contrast, the Italian tradition arose as an effort to incorporate political activity into the explanatory framework of economic theory. Within this tradition, political processes reflected the same logic of economizing action as did market processes, with differences between the processes arising because of differences in the institutional environments that governed interactions among participants. Indeed, in the Foreword to the German translation of Amilcare Puvianis (1903)