The Prehistory of Public Choice

The Victorian Economic Sensibility

I’m glad that Michelle Vachris has taken us to the 19th century, with her thinking on Mark Twain, and that Maria Paganelli has provided us with more support for the nuanced thinking allowed for a novelist. Their work conveniently allows me to prod gently at the single part of Ross Emmett’s essay that makes me nervous.

I think that he’s found a much more likely and more immediate source for Gordon Tullock’s thinking about the transformation in economic thought after Adam Smith. I also think that he is, on the whole, right that “the nineteenth century was the heyday for romance about politics, at least among the English literati.”

There is a great deal of romance in Victorian writing about politics But as Paganelli reminds us, literary productions frequently capture a complexity that can be easily lost in theoretical constructs. Tyler Cowen has suggested elsewhere that a novel is a model. A novel is a model, however, that allows for the inclusion of all sorts of variables that would make mathematical models impossibly messy, but that make literature interesting and rich. T.S. Eliot put it like this, “When a poet’s mind is perfectly equipped for its work, it is constantly amalgamating disparate experience; the ordinary man’s experience is chaotic, irregular, fragmentary. The latter falls in love, or reads Spinoza, and these two experiences have nothing to do with each other, or with the noise of the typewriter or the smell of cooking; in the mind of the poet these experiences are always forming new wholes.”

That complex amalgamation of experiences, attitudes, and understandings means that whenever someone points to the romantic view that many Victorian novelists seem to have about politics, I am compelled to bring up counterexamples.

My favorite counterexample to accusations of Victorian romance about politics and economics is Charles Dickens. He’s my favorite example because he is, of course, every economist’s least favorite novelist. The portrait of the grasping businessman Ebenezer Scrooge in “A Christmas Carol” and the attack on industrialization in Hard Times are fairly good reasons to think of Dickens as a prime example of the kind of Victorian romanticization to which public choice theory is a useful antidote.

But Dickens wrote a lot of novels. I’ve argued elsewhere that his Christmas tale, “The Chimes” makes a useful pairing with “A Christmas Carol” as a way of providing a more complex view of Dickensian economic through. I’d suggest that Little Dorrit might prove equally instructive for those who object to Hard Times.

When we think of Little Dorrit we think of its portrayal of the Marshalsea—London’s notorious debtor’s prison—and its account of the financial chicanery of Mr. Merdle, upon whose demise (by his own hand, out of shame at being exposed), it is discovered that:

Numbers of men in every profession and trade would be blighted by his insolvency; old people who had been in easy circumstances all their lives would have no place of repentance for their trust in him but the workhouse; legions of women and children would have their whole future desolated by the hand of this mighty scoundrel. Every partaker of his magnificent feasts would be seen to have been a sharer in the plunder of innumerable homes; every servile worshipper of riches who had helped to set him on his pedestal, would have done better to worship the Devil point-blank. …. (He) was simply the greatest forger and thief that had every cheated the gallows.

Just for the record, it does not seem to me that hatred of graft and corruption is an anti-market or anti-business stance. People who value and appreciate free markets and honest business should despise those who corrupt them, just as people who love their religion should despise those who bastardize its teachings. That said, I am certainly not going to make the claim that Dickens’s portrait of Mr. Merdle—the Bernie Madoff of 19th century London—is in any way representative of the kind of nuanced public choice sensibility I’m looking for. But Mr. Merdle is not the only character in Little Dorrit.

An important foil to Merdle and his criminal misuse of funds is Dan Doyce. Doyce “is a smith and engineer. He is not in a large way, but he is well known as a very ingenious man. A dozen years ago, he perfects an invention (involving a very curious secret process) of great importance to his country and his fellow- creatures. I won’t say how much money it cost him, or how many years of his life he had been about it, but he brought it to perfection a dozen years ago.” Doyce is, in other words, an independent businessman, an inventor, and an entrepreneur. Notice that Dickens is very careful to specify both the enormous utility of Doyce’s invention and the cost of the time, intelligence, money, and energy he has invested in it. Doyce’s invention, we are told repeatedly throughout the novel, will be of great benefit to England, if he can only get a patent and put it into production.

However, in order to do this, Doyce must get past Parliament and the infamous Circumlocution Office:

[T]he trials (for patents) were made in the presence of a board of six, of whom two ancient members were too blind to see it, two other ancient members were too deaf to hear it, one other ancient member was too lame to get near it, and the final ancient member was too pig-headed to look at it. …How the Circumlocution Office, in course of time, took up the business as if it were a brand new thing of yesterday, which had never been heard of before; muddled the business, addled the business, tossed the business in a wet blanket. How the impertinences, ignorances, and insults went through the multiplication table. How there was a reference of the invention to three Barnacles and a Stiltstalking, who knew nothing about it; into whose heads nothing could be hammered about it; who got bored about it, and reported physical impossibilities about it. How the Circumlocution Office, in a Minute, number eight thousand seven hundred and forty, ‘saw no reason to reverse the decision at which my lords had arrived.’ How the Circumlocution Office, being reminded that my lords had arrived at no decision, shelved the business.

Dickens makes it very clear to his readers, as he takes us through Doyce’s rough but accurate accounting methods and business practices, that the problems Doyce faces in achieving his patent and in being allowed to produce his invention and profit from his own innovation are not due to any failing on Doyce’s part. He does everything right. He is hampered only as a result of an ossified government structure, a crew of bureaucrats who are too stupid to recognize a good thing when they see it, and an endlessly circumlocutory process. I do not think Buchanan or Tullock could have written a more effective description of government waste and inefficiency.

(George Orwell’s observation about Dickens and politics is well worth noting here. He writes that Dickens, “…despises politics, does not believe that any good can come out of Parliament—he had been a Parliamentary shorthand writer, which was no doubt a disillusioning experience.”)

Doyce takes the only possible action. He shrugs. He packs up his invention and the considerable intellectual capital contained in his innovative brain, and heads for “other countries.” The result of this move (a fine example of the need for international labor mobility) is that at the end of the novel Meagle is able to tell us, “Don’t talk about happiness until you see Dan. I assure you, Dan is directing works and executing labours over yonder, that it would make your hair stand on end to look at. He’s no public offender, bless you, now! He’s medalled and ribboned, and starred and crossed, and I don’t-know-what all’d like a born nobleman. But we mustn’t talk about that over here. …Britannia is a Britannia in the manger—won’t give her children such distinctions herself, and won’t allow them to be seen when they are given by other countries.”

And Little Dorrit is not the only major Victorian novel to consider politics without romance. Trollope’s Palliser novels—especially Phineas Finn—are important here, as well. I also suspect that the Victorian potboiler novel would be a productive source.

Finally, a question for the group as a whole. Are the Victorians any more of a highpoint for the romanticization of politics than the post WWII era? Should we be looking much later for writers who are thoroughly in love with the political?

Novelists Remembered What Economists Forgot

While it is true that a stripped down analysis based exclusively on rational self-interest gives us a clear and rigorous understanding of incentives, it comes at the cost of potentially creating a caricature of human beings. One of the advantages of looking at literature to integrate public choice analysis is that there we find descriptions of human beings that are more realistic than the homo economicus generally used in modern public choice models.

The bifurcations between the individual and the social and between the political and the economic, mentioned in all the essays this month, create parallel worlds in which the public spirit is segregated into the political sphere and self-interest into the economic sphere. This generates an idyllic image of the political but also a despicable image of the economic.  While politicians care dispassionately about the world, economic agents are heartless calculators.

What novels help us see is that that bifurcation is artificial and potentially limiting. Characters in novels, whether they are politicians or economic agents, are generally complex individuals. Many of public choice theory’s agents are not. They are simply rational calculators, perfectly sealed into an emotion- and ethics-proof world. But these theoretical agents behave in inexplicable ways when compared to real people in real or in experimental settings. With a Tullock-like approach, one remains impotent in front of experimental results that show, consistently and robustly, levels of cooperation that cannot be predicted or explained by traditional models. This is because such models slice off a part of human behavior and ignore the rest of the human being.

What Scottish Enlightenment thinkers such as Adam Smith may teach us is what Richard Wagner, one of the most important public choice scholars alive today, and Vernon Smith, a recipient of the Nobel Prize in economics, are also teaching us: humans are complex social beings whose conduct should be seen as embedded in an institutional and moral context, not in isolation from it.

Richard Wagner started a research project to study what he calls Entangled Political Economy. To better understand the political and the economic we should not separate them and make them into independent islands, but recognize their entanglement. Similarly Vernon Smith, puzzled by the systematic difference between rational predictions and experimental results, has increasingly made use of Adam Smith’s Theory of Moral Sentiments to explain the results from his laboratory. Monetary or material incentives are only a part of our motivational structure. We also care about fairness, about doing the right thing, about being “praiseworthy” and not “blameworthy,” to use Adam Smith’s expressions. Both Wagner and Vernon Smith are trying to re-integrate some of the different parts of human beings which have been separated in post-Enlightenment economics.

Novelists, pre-and post-Enlightenment, have the advantage of not having to try to un-learn and re-learn how to understand incentives and human conduct, because for them the individual and the social, the political and the economic, reason and the passions, sentiments and interests, are still entangled together forming complex social beings. 

Literature, the Scottish Enlightenment, Adam Smith, James Buchanan, Richard Wagner, and Vernon Smith are all reminding us, even if in different ways, that we are individuals, but that we are also social beings. As social beings we live in a social context in which incentives and institutions matter, but also where the judgment of our “impartial spectator,” or the voice of the “man within,” matter as well. Rational choice analysis, like public choice, is indispensable, but it should be complemented by (and not substituted for) an analysis that takes into consideration our moral incentives. Politicians, like shoe shoppers, are motivated and constrained by both their self-love and their desire to be approved of by others.

Mark Twain, Meet Gordon Tullock

Response Essays
March 13, 2017

Michelle Vachris argues that Gordon Tullock did make a good point when he characterized premodern political economists’ thinking as romantic. The paradigm of the bad legislator in the Theory of Moral Sentiments, for example, was not a self-interested or venal official, but rather the “man of system” who wished to achieve a particular plan of society. Literature, though, may have been more sophisticated; Vachris looks to Mark Twain and Charles Dudley Warner for several examples of public choice-like thinking in the nineteenth century.

Sarah Skwire’s lead essay adeptly critiques Gordon Tullock’s interpretation of pre-Enlightenment thinking, arguing that he viewed these thinkers as not having enough skepticism about the motivations of those in public office. He, along with Selden and Brady, asserted that “Until the time of Hume and his friend, Adam Smith, the prevailing view of human nature and government was that the moral or public interest approach was dominant.”[1] Unlike Skwire, I am willing to give Professor Tullock the benefit of the doubt and submit that the “prevailing view” being referenced was that within political economy disciplines, as opposed to works by all pre-Enlightenment thinkers. Yes, in the Wealth of Nations, Smith was critical of the cozy relationship between merchants and government under Mercantilism. In the Theory of Moral Sentiments, Smith did contrast a benevolent leader with a “man of system” who is “so enamoured with the supposed beauty of his own ideal plan of government.”[2] The man of system, however, is not described as explicitly pursuing his self-interest. Rather, he is just so very convinced that his plan is the right one. Therefore Tullock was correct in pointing out that Enlightenment scholars recognized that most people pursue their self-interest, but they did not apply this assumption to those in power to the extent that public choice theory does.

Tullock, et al were correct, then, in their claim that the development of public choice theory freed us from the “bifurcated view of human behavior”[3] where individuals are assumed act in their own self-interest as consumers and producers, but assumed to serve the public interest once they take political or government office. This is the main point that they seem to have been trying to make in Government Failure. Tullock et al were, however, guilty of ignoring the pre-public choice contributions of the humanities to this topic, specifically by overlooking the possible linkages between literature and public choice economics. For that, they are in good company.

As Cecil Bohanon and I have argued elsewhere,[4] despite the vast chasm between the economics and literature disciplines, there exist gains from trade between the two. Tyler Cowen has explained[5] that novels are similar to economic models in that the stories usually trace through shocks to the system of the characters. Therefore we and our students can learn a lot about the economy and economic theories by reading works of literature, and vice versa.

In particular there are plenty of examples of what Skwire calls “public choice sensibility” in literature that predates the development of public choice theory. To get us started, Skwire provides us with an introduction to Shakespearean coverage of public choice sensibility. I’d like to extend this train of thought by offering up Mark Twain and Charles Dudley Warner’s book A Gilded Age, A Tale of Today.[6]

As I have earlier explained,[7] A Gilded Age illustrated public choice theory in action through its three storylines. First, the novel traced the attempts of the impoverished Hawkins family to get the government to buy their undeveloped land in Tennessee to build a university. Daughter Laura Hawkins went to Washington, DC to work with Senator Dilworthy to lobby for his university appropriations bill. He taught her to “never push a private interest if it is not justified and ennobled by some larger public good” (p. 259). Public choice scholars have long maintained that much legislation promotes private interests, but in order to be enacted, it must be shrouded in a public-interest rationale.

The public choice modeling of politicians as brokers in political markets was also introduced in the Hawkins storyline. Laura got Representative Trollop to switch from opposing to promoting the bill by intimating that she had some dirt on him, and then she explained that in return for his support he will be allowed to name a friend or relative to a position at the new university.

The second story line involved two young men, Philip Sterling and Henry Brierly, who were keen on seeking their fortunes. They worked with Colonel Sellers to lobby the Congress for a public works project in Missouri that would bring steamship traffic to their town. With an appropriation passed, the work began; however, once all of the lobbyists were paid and bribes completed, there was no money left for the actual project. Complete rent extraction achieved!

Finally there was a subplot that exposed corruption in political markets and the rational ignorance of the voter. Senator Dilworthy attempted to bribe State Legislator Noble into supporting Dilworthy’s re-appointment. When he was caught, Dilworthy was able to spin the story so that it appeared that Mr. Noble misunderstood the transaction as a bribe, and Noble was called on the carpet for attempting to tarnish a U. S. Senator’s reputation. Elsewhere in the novel, it was explained that every session of Congress begins with these kinds of investigations, but no one ever gets ousted because “the proceedings drag on so long that the country is sick and tired of it” (p. 377). Voters rationally turn their attention to more pressing matters in their lives.

As these examples from A Gilded Age illustrate, “public choice sensibilities” were alive and well in post–Civil War America. The romantic view of government was long gone well before the development of public choice theory. Sarah Skwire convinces us that these sensibilities go back even further, to pre-Enlightenment theatre.

 
Notes


[1] Tullock, Gordon, Arthur Seldon, and Gordon L. Brady. Government Failure: A Primer in Public Choice. Cato Institute, Washington DC, 2002. 3-4.

[2] Smith, Adam, The Theory of Moral Sentiments, Indianapolis: Liberty Fund 1982 (1759), p. 234.

[3] Tullock, Gordon, Arthur Seldon, and Gordon L. Brady. Government Failure: A Primer in Public Choice. Cato Institute, Washington DC, 2002. 3-4.

[4] Bohanon, Cecil and Michelle Albert Vachris, (2012). Economics and Literature: the Gains from Trade. In Hoyt, Gail and KimMarie McGoldrick (Eds.), The International Handbook on Teaching and Learning Economics. Aldershot: Edward Elgar Press. pp. 223-233.

[5] Cowen, Tyler. (2008), ‘Is a novel a model?’, in S. J. Peart and D. Levy (eds), The Street Porter and the Philosopher: Conversations on Analytical Egalitarianism, Ann Arbor, MI, US: The University of Michigan Press, pp. 319-337.

[6] Twain, Mark and Charles Dudley Warner (2006).  The Gilded Age, A Tale of Today.  With introduction by Ron Powers.  New York: The Modern Library.

[7] Vachris, Michelle Albert (2014) “Crony Capitalism in The Gilded Age by Twain and Warner and its Relevance for Today” in Mixon Jr, Franklin G. and Richard J. Cebula (Eds.) New Developments in Economic Education  Edward Elgar Publishing.

Adam Smith’s Public Choice Economics

Response Essays
March 10, 2017

Maria Pia Paganelli examines the theme of rent seeking in Adam Smith’s Wealth of Nations. Why was it, Smith asked, that businessmen were the most likely to ask for government favors, and why had they demanded – and received – an expensive and dangerous empire? The reason was simple self-interest, he concluded, combined with the unequal distribution of costs and benefits these measures entailed. Although hints of public choice can be found earlier, it’s with good reason that Smith is seen as an important figure.

Sarah Skwire is wonderfully correct in claiming that the understanding of what today we call public choice is as old as our history, even if the expressions of that understanding may not be identical to Gordon Tullock’s. The Roman institution of consulship, in which the leadership of the nation was split between two consuls who had power for one year, was created with the goal of limiting lobbying and power-grabbing. The use of lot to assign political positions in ancient Greece had the same objective.  

According to Skwire’s interpretation of Tullock, a first watershed for public choice comes with the Enlightenment, since there seems to be a “pre-Smithian” and a “post-Smithian” phase in its description of thinking about political economy. Why, then, is the name of Adam Smith so dominant in what came before Tullock?

James Buchanan, co-author with Gordon Tullock and recipient of the Nobel Prize in Economics for his contributions in public choice, recognized the depth of Adam Smith’s public choice insights. The Wealth of Nations ([1776] 1981) is not only the book that unofficially started economics, but it can also be considered a public choice treatise. Smith himself thought of it as “the very violent attack I had made upon the whole commercial system of Britain” (Letter to Andreas Holt, 26 Oct. 1780). And those attacks were based on the observation that British merchants and manufacturers lobbied so much and so successfully that they created distortions to the natural system of liberty, harming the majority of the population and deterring economic growth.

In Smith’s account, land owners were too concerned with showing off their riches to care about things other than ornaments. Farmers and workers may have known their interest but were seldom in a position to lobby. They were many, and they were spread throughout the country. Merchants and manufacturers, on the other hand, knew their interest well and tended to be concentrated in towns. They were few and lived in proximity to each other. They could more easily conspire against the public and indeed this is what they did.

The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the publick, who have generally an interest to deceive and even to oppress the publick, and who accordingly have, upon many occasions, both deceived and oppressed it. (WN I.ix.p.10).

Smith claimed that all sort of laws and regulations were the result of the lobbying of merchants and manufacturers, from restrictions in the labor market such as apprenticeships to the entire creation of the British Empire itself:

To found a great empire for the sole purpose of raising up a people of customers, may at first sight appear a project fit only for a nation of shopkeepers. It is, however, a project altogether unfit for a nation of shopkeepers; but extremely fit for a nation whose government is influenced by shopkeepers. Such statesmen, and such statesmen only, are capable of fancying that they will find some advantage in employing the blood and treasure of their fellow citizens, to found and to maintain such an empire. […] The maintenance of this monopoly has hitherto been the principal, or more properly perhaps the sole end and purpose of the dominion which Great Britain assumes over her colonies (WN IV.vii.c.63-64).

This was by no means a perverse endorsement of imperial grandeur, but rather a severe condemnation of it because of its origins in special interests:

the cruellest of our revenue laws, I will venture to affirm, are mild and gentle, in comparison of some of those which the clamour of our merchants and manufacturers has extorted from the legislature, for the support of their own absurd and oppressive monopolies. Like the laws of Draco, these laws may be said to be all written in blood (WN IV.viii.17. Emphasis added).

The blood Smith referred to was literally the blood of his fellow-citizens who died to create and defend the monopolies that benefitted the few privileged interest groups.

Are there solutions to these forms of what today we call crony capitalism? Are there ways to reduce the influence of the big merchants and manufacturers on the legislature? Yes, but not easy ones. Smith was well aware that once privileges are in place, it is very difficult to take them away.

To expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain, is as absurd as to expect that an Oceana or Utopia should ever be established in it. Not only the prejudices of the publick, but what is much more unconquerable, the private interests of many individuals, irresistibly oppose it. Were the officers of the army to oppose with the same zeal and unanimity any reduction in the number of forces, with which master manufacturers set themselves against every law that is likely to increase the number of their rivals in the home market; were the former to animate their soldiers, in the same manner as the latter enflame their workmen, to attack with violence and outrage the proposers of any such regulation; to attempt to reduce the army would be as dangerous as it has now become to attempt to diminish in any respect the monopoly which our manufacturers have obtained against us. This monopoly has so much increased the number of some particular tribes of them, that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest publick services can protect him from the most infamous abuse and detraction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists (WN IV.ii.43. Emphasis added).

Smith’s advice was not to offer privileges to begin with. But how can the legislature defend itself against these attacks? If competition is the answer, how do we get there, given all the incentives that exist to try to limit it?

Here is where I think Buchanan and Tullock took separate routes. Tullock shut the morality door and did not answer the question. Buchanan, despite claiming that public choice was the study of “politics without romance,” left the morality door open. Just like Adam Smith did. If books like the Wealth of Nations were written and read, Smith seemed to imply, the legislature may be enlightened, it may see the beauty of the natural system of liberty, understand its force and beneficial effects, and hopefully become a guardrail to contain the reckless powers of interest groups. Not much else seems to be able to provide that break to the avidity of the big merchants and manufacturers. Similarly Buchanan told us that “Perhaps more important than formal constitutional changes are changes in ethical attitudes that would make attempted reforms workable” (Buchanan [1996] 2001, 275. Emphasis added). 

Of course neither Smith nor Buchanan were Pollyanna. They did look at “politics without romance.” Policy makers ought to be assumed self-interested. There should be institutional constraints that channel the self-interest of lobbyists in ways to prevent or at least limit capturing by special interests; and those constraints should be designed with the assumption that politicians are self-interested and not public spirited, and will fall under the attacks of special interests. Yet both Smith and Buchanan seemed to appeal to a sort of moral suasion to do the job. Theirs is an appeal to a different kind of self-interest, a self-interest that takes satisfaction in doing the right thing, in listening to the voice of “the man within” us, of an impartial spectator who approves of what is praiseworthy and disapproves of what is blameworthy.      

 

Bibliography

Buchanan, James M. [1996] 2001. “Distributional Politics and Constitutional Design.” In Choice, Contract, and Constitutions: Indianapolis, IN : Liberty Fund.

Smith, Adam. [1776] 1981. An Inquiry into the Nature and Causes of the Wealth of Nations. Indianapolis: Liberty Classics.

 

 

 

 

Romanticizing Politics

Response Essays
March 8, 2017

Ross Emmett agrees with Sarah Skwire that literature can be informative about public choice, and that pre- and early modern authors often showed more understanding of the problems of political economy than later critics might suppose. He proposes some origins for Gordon Tullock’s curious assertion that premodern authors had a romantic view of politics. These include a change in historical ideas about political economy that was first described by Frank Knight, as well as a litany of 19th- and early 20th-century English-language authors including Arnold Toynbee, William Wordsworth, John Ruskin, and George Bernard Shaw, all of whom did much to romanticize our ideas about politics.

Years ago in a graduate economics class, a concept we were discussing reminded me of something I had read the night before in Leo Tolstoy’s Resurrection. After highlighting the point – probably about the conflict between private and social interests in Orthodox Church affairs – I remarked that perhaps great novelists could teach economists a thing or two. After all, I said, novels are ultimately about the consequences of that fundamental human problem – choice – just like economics. The professor, and I suspect my classmates, were simply stunned that I was taking time away from my economics studies to read a novel. The prof clearly thought the consequences of my choice might not be in my best interest. I disagreed then as I do now.

I tell that anecdote to indicate my agreement with Sarah Skwire that we can learn a lot about economics generally, and public choice in particular, by reading great (and also no-so-great) literature. Her selections from Shakespeare should convince us that pre-Enlightenment writers were not all rosy-eyed romantics about the interests and actions of monarchs, their counselors, members of Parliament, and Church leaders. Indeed, they probably saw the connections among interests and actions more clearly because the line between the personal benefit to the ruler and the benefit to society were less clearly drawn in the political language of the day.

But the essay also led me to contemplate a historiographical, as well as a literary, problem for Skwire’s position. The first part of my response will focus on the historiographical problem; the second part will take up the literary problem. The starting point for my response is a set of lectures that Frank Knight (1960) delivered at the Thomas Jefferson Center for Studies in Political Economy during its first year of operation at the University of Virginia. Coincidentally, that was also Tullock’s first year of collaboration with James Buchanan in studies that led to the publication of Calculus of Consent (1962), the ur-text of public choice economics.

 

The Liberal Revolution and the Separation of the Political and the Economic

In his lecture series, Knight argued that the Enlightenment’s “liberal revolution” created a two-fold theory of social organization. The first division was between the individual and the social, and the second was a division of the social realm into the political and the economic. We capture the latter transformation, for example, when we speak of democratic capitalism, combining democratic political organization with “free enterprise” (Knight, 2013, 24-25). Prior theories of social organization unified the economic and the political, and also merged the individual and the social. Feudal society, for example, merged the economic and the political by building social relations on land ownership and use, governed ultimately by the merger of king and church. One’s duty to the church, the state, one’s lord, and one’s self were guided by a single moral code. Thus, as Tullock said, social discussion was moral discussion.

Knight argued that democratic capitalism – the product of the liberal revolution – was different. It was not the case that widespread, active markets didn’t exist before the liberal revolution (pace Karl Polanyi, such markets did exist, and let’s be aware that Knight was a much closer source for Tullock!). Rather, the liberal revolution brought the realization that, in both the political and economic spheres, the success of a form of social organization depended on the impersonal, unintentional, societal consequences of individual actions. Free enterprise and democracy were both impersonal systems that coordinated the consequences of individual decisions in ways that reinforced their intentions, but that also created unintended consequences that would have to be considered.

Note the use of “impersonal” and “unintended” in the previous two sentences. The Liberal Revolution was not just an economic and a political revolution – introducing free enterprise and democracy. It was also a social revolution – requiring a rejection of ethical systems built on individual choices and the analysis only of their first-order effects, in isolation from unintended consequence. Pre-liberal ethics was based on individual morality; the liberal revolution showed the bankruptcy of such ethical systems in matters of social analysis. In his final consideration of the topic – the lectures to the Jefferson Center that Tullock heard – Knight argued we were still searching for “rational norms” to guide modern political economic decisions. Public choice theory, and especially the constitutional political economy that came out of it, was perhaps a response to Knight’s challenge.

 

Romanticizing Politics in English Literature After the Liberal Revolution

One implication of Knight’s understanding of the Liberal Revolution is that it bifurcated the individual into two different “persons” – the economic person and the political person. Or, to put it differently, after the Liberal Revolution, the “person” operating in the economic realm was conceptualized differently from the “person” operating in the political realm. Morality remained important to political discourse after the Liberal Revolution, while rational calculation and profit-seeking were important to economic activity. What Knight made of this divide won’t detain us now, but one of the interesting consequences of his argument is the possibility that literary discourse in the post-Enlightenment period was romanticized because of the economic/political divide. If Shakespeare and others “were capable of viewing politics without even a shred of romance,” as Skwire argues, that doesn’t mean that literary writers continued to view politics without romance. In fact, one might want to make the case that the nineteenth century was the heyday for romance about politics, at least among the English literati. Let me conclude with some evidence to support that argument.

Perhaps you recall Arnold Toynbee’s (1884, 1) remark that the century after Adam Smith’s Wealth of Nations was a “bitter argument between economists and human beings”? Toynbee (1884, 24) added that “Political Economy destroyed the moral and political relations of men, and dissolved the social union.” The “human beings” of which Toynbee spoke – the moralists, literary figures, church leaders, and the working poor (at least, so Toynbee thought!) – believed that human potentiality was being dashed by rapidly advancing industrialization and manic economic activity. In Toynbee’s work, we see a modern concept that the pre-Enlightenment writers did not share: politics in the service of democracy was to be a high calling to which all persons were called, motivated by the public interest and empathy for the people. Economics, on the other hand, while important in provisioning people well, became immoral when motivated by self-interest; profit-seeking, fueled by calculation, could not lift us morally to become a good society.

Thinking of more than just the vaulted ceiling of King’s College Chapel, William Wordsworth wrote in the 1820s,

TAX not the royal Saint with vain expense,
With ill-matched aims the Architect who planned –
Albeit labouring for a scanty band
Of white robed Scholars only – this immense
And glorious Work of fine intelligence!
Give all thou canst; high Heaven rejects the lore
Of nicely-calculated less or more;
So deemed the man who fashioned for the sense
These lofty pillars, spread that branching roof
Self-poised, and scooped into ten thousand cells,
Where light and shade repose, where music dwells
Lingering – and wandering on as loth to die;
Like thoughts whose very sweetness yieldeth proof
That they were born for immortality.

 
Forty years later, John Ruskin (1907, 171) wrote that true Wealth was “THE POSSESSION OF THE VALUABLE BY THE VALIANT” (caps in original), and argued that, unless society, and especially those devoted to high art, were vigilant to maintain artistic and human value standards, market activity would produce, not Wealth, but “Illth” – that which contributes to sickness, death and destruction. Producing that which contributes to health, life, and common good – i.e., true wealth, could only come by empathic transformation, placing the laborer at the center of economic attention, rather than the capital holder.

With his friend and fellow artist William Morris, Ruskin transformed his words into art – the Arts and Craft Movement, through which their standards for art – if not for economics! – continued to govern art criticism for at least another generation. Morris eventually became a socialist and, through his friend George Bernard Shaw, influenced the foundations of the Fabian Society, the group of writers – and eventually the think tank – that set the socialist agenda for the British Labour Party, which, at least in the Atlee government after World War II, might be identified as the supreme example of Romance in Politics. Of course, anticipation of Labour’s victory spurred F. A. Hayek – one of the pre-eminent anti-romantic economists, to write The Road to Serfdom (1944).

 

References

Buchanan, James M., and Gordon Tullock. The Calculus of Consent: Logical Foundations of a Constitutional Democracy. University of Michigan Press, Ann Arbor, 1962.

Hayek, F. A. The Road to Serfdom. London: Routledge, 1944.

Knight, Frank. The Economic Organization. Transaction Publishers, New Brunswick, 2013.

Knight, Frank. Intelligence and Democratic Action. Harvard University Press, Cambridge, 1960.

Ruskin, John. Unto This Last & Other Essays on Art and Political Economy. London, J. M. Dent, 1907.

Tolstoy, Leo. Resurrection. Penguin Classics, London, 1966.

Toynbee, Arnold. Lectures on the Industrial Revolution in England. London, Rivingtons, 1884.

Tullock, Gordon. “The Theory of Public Choice.” In Government Failure: A Primer in Public Choice, by Gordon Tullock, Arthur Seldon and Gordon L. Brady, Cato Institute, Washington DC, 2002, 3-79.

Wordsworth, William. The Complete Poetical Works. London, Macmillan and Co., 1988; Bartlby.com, 1999. http://www.bartleby.com/145/ww690.html. Accessed March 6, 2017.

 

 

Shakespeare’s Inner Economist

Lead Essay
March 6, 2017

Sarah Skwire looks at the implicit economics of Shakespeare’s plays, in which self-interested politicians vie with one other for advantage. These plays, particularly the histories, reflect a keen awareness of the uses of politics for personal advantage, and of the incentives that work on state agents just like they work on the rest of us. Skwire argues that Shakespeare falsifies the notion that the economic way of thinking was an 18th-century construction, and that premodern people did not think about costs and benefits in the same ways that we now do.

One of the best and most common arguments for studying literature, history, and philosophy is their lasting relevance. Great productions of the human mind are always pertinent, say those of us who study them, because they record eternal truths about the human condition. No matter how far we are from Aristotle, Augustine, or Shakespeare in time, their questions are our questions, and their quests for answers are our quests. The world around us changes greatly, but our human concerns remain the same. For me, this has always been more than sufficient justification to frolic merrily across the centuries and apply the compelling insights of public choice theory—a 20th century phenomenon—to the literature of the 16th and 17th centuries, and even to the Bible.

I was surprised, then, to realize recently that Gordon Tullock himself, one of the founders of public choice theory, would have been highly skeptical of using pre-Enlightenment literature as a source for examples of and observations about public choice theory. Tullock has argued that, while history provides useful examples of public choice problems, pre-Enlightenment people lacked what I will call a “public choice sensibility” that would have allowed them to really understand those problems and write about them compellingly. We hear this claim in Government Failure when Tullock wrote with Selden and Brady that:

Until the days of Adam Smith most social discussion was essentially moral. Individuals—whether they were businessmen, civil servants, politicians, or hereditary monarchs—were told what was the morally correct thing to do and urged to do it. All these people were implicitly assumed to be, and perhaps were, engaged in maximizing the public interest. Machiavelli and Hobbes were major exceptions to this rule; nevertheless, in both cases their influence was much less than their readership might suggest.[1]

And again, a little later in the same work, “Until the time of Hume and his friend, Adam Smith, the prevailing view of human nature and government was that the moral or public interest approach was dominant.”[2] And in The Politics of Bureaucracy that moral difference was used to describe a world of medieval merchants who we are told, “did exist in the Middle ages, [and they] lived in small enclaves in which the moral system was not enforced or else owed their wealth, not to economic, but to political reasons.”[3] In other words, the moral underpinnings of the pre-Smithian world were so different from the post-Smithian world that one may as well be talking about different universes.

Those of us who work on pre-Enlightenment thought find this whole argument strange. Pre-Enlightenment thinkers were not fools, nor were they lacking in a healthy skepticism about the abilities of politics and politicians. They had better reason than almost any citizen of the modern West to look askance at the promises of sovereigns, and they had plenty of daily examples of people who claimed to serve the public interest while grabbing their private interests with both hands.

Tullock doesn’t specify which thinkers he has read that lead him to this idea about pre-Enlightenment political thought, so I can only guess where he got it. It seems possible that he’s picking it up from Karl Polanyi’s argument in The Great Transformation, which situates a similar change in morality and mentality during the Enlightenment. Unlike Tullock, Polanyi attributes that change to state intervention. Tullock obviously must reject that causal part of Polanyi’s theory because of his own observations about public choice, but he does still accept the larger part of the theory – the transformation itself. It’s also possible that Tullock derives this idea about pre-Enlightenment thought from reading within the period. A church inclined to excommunicate or execute those who resisted and sovereigns who were equally inclined to step heavily upon dissenters meant that political and religious survival required mouthing a certain number of pieties. These circumstances may well have kept some of the political theorists of the time from being as blunt about the state of politics as they desired – this is why Machiavelli and Hobbes were so shocking and, contra Tullock, so influential.

As scholars like Gordon Schochet and Eric Nelson[4] have noted, however, new methods and approaches to scriptural study in the early modern period opened up new possibilities for a skepticism about human political systems that, because it was biblically based, could maintain both its skepticism about divine right monarchy and also its assertions of piety and virtue. No early modern treatise on politics is complete without some discussion of I Samuel 8, where the Israelites ask God to give them a king. Because Saul’s speech in response to this request can be read either as a list of the rights of a monarch or a list of the dire things that a monarch will do, each writer’s interpretation of this piece of scripture reveals much about his political preferences. And the rise of early modern interpretations that emphasized the dangers of kings and the ways in which the kings of the Davidic line brought those dangers to life is one indication that the skepticism about politics that is such a notable part of the public choice sensibility was alive and well among the early moderns.

This is at least as true in the playhouse as it was in the political arena. As long as they avoided actual treasonous content, pre-Enlightenment playwrights were able to get away with an impressive amount of political commentary, often disguised as historical drama. Tullock misjudged this material severely when he dismissed pre-Enlightenment political thought. Though one could turn to any of a number of pre-Enlightenment sources to support this claim, Shakespeare’s work will, as ever, be a good place to start. His plays—particularly his histories and tragedies – provide a useful sampling of the sort of public choice sensibility that I see as manifestly present in the pre-Enlightenment and that Tullock did not.

The Shakespearean play that most strongly supports the idea of an early modern public choice sensibility is Henry V, the opening scene of which provides the single best rendition of rent-seeking I have ever read. The Bishops of Canterbury and Ely are discovered discussing a bill proposing that the Crown seize lands that had been donated to the church. The land would then go to support:

Full fifteen earls and fifteen hundred knights,

Six thousand and two hundred good esquires

…A hundred almshouses right well supplied;

And to the coffers of the king beside

A thousand pounds by th’year. (H5, 1.1.12-19)

Henry V and Parliament stand to profit enormously. The churchmen are understandably worried, noting that “This would drink deep” (1.1.20) but they believe that the king’s recent turn to a more moral life is making him lean in their favor and against parliament. We learn almost immediately, however, that Henry’s tendency to support the church in this matter is not simply the result of some newfound holiness of purpose. The Bishop of Canterbury has:

… made an offer to his majesty

… As touching France, to give a greater sum

Than ever at one time the clergy yet

Did to his predecessors part withal. (1.1.75-81)

In other words, the clergy has persuaded Henry V to take their side by offering him a large sum of cash to help him invade France. I doubt you could ask for a better classroom example of rent seeking, or for stronger evidence that the early moderns didn’t inhabit such a different moral universe from us. To go by this example, they most certainly could see the many public choice problems happening around them. 

One of the central observations of public choice theory is that we are the same people, with the same controlling interests, when we are in voting booth or in positions of political power as we are when we go to the grocery store. Shakespeare’s Richard III provides further strong evidence that Shakespeare knew things as well as Tullock. As a result of his many murders, and in spite of widespread suspicion of his crimes, Richard of Gloucester has maneuvered his way into being offered the crown of England by the Lord Mayor and the citizens of London. Aware that the Mayor, Aldermen, and a group of citizens are about to arrive to press the crown upon him, Richard carefully constructs the circumstances under which this “high request” will be made of him. He arranges to be discovered at prayer, standing between two bishops, and holding a Bible. He and his closest advisor, Buckingham, assert throughout the scene that Richard’s modesty and piety prevent him from even dreaming of taking the throne. With great show of reluctance, however, he finally does.

The audience for Shakespeare’s Richard III is, of course, composed of the very same kinds of citizens who are so gulled by the murderous king in the play. Shakespeare is not mocking them, however. He and his audience are both aware of the grisly comedy that comes from the vast difference between the personal character of a politician and the appearance presented by the public self. They are also aware of the danger of those who – like the Lord Mayor in the play – are unable to see that difference and guard against it.

Macbeth and King Lear provide further examples of this particular insight. As Macbeth’s murderous tyranny becomes revealed to the people around him in the course of the play, they observe the way in which their former understanding of his public persona has changed as they have come to see the truth about his character.

Now does he feel

His secret murders sticking on his hands;

Now minutely revolts upbraid his faith-breach;

Those he commands move only in command,

Nothing in love: now does he feel his title    

Hang loose about him, like a giant’s robe

Upon a dwarfish thief. (5.2.19-25)

Similarly, one could argue that nearly the entirety of the plot of King Lear is the rapid and complete degradation of Lear’s appearance of command and mastery in the opening scene to the truthful representation of him as a broken wreck in the play’s final moments.

Coriolanus provides us with trenchant observations of the necessity of wooing the populace in order to gain power. Julius Caesar shows why appealing to them is so dangerous and destructive. Measure for Measure is a powerful reminder of how the enforcement of laws is driven by political whims and provides us – in the person of Angelo – with another example of the dangers of a politician who pretends to be one person in office and is another in private.

Again and again in the pre-Enlightenment world and in the plays that presented that world to cultural consumers we see these moments of public choice sensibility presented and assumed to be thoroughly understood by both author and audience. An old regime is overthrown. A new regime rises and is corrupt and self-serving in precisely the same ways. The brave young Bolingbroke who overthrows the vacillating and ineffective Richard II? He becomes the paranoid and reclusive Henry IV whose memory is eclipsed by the bold young Henry V…who dies young and whose kingdom is decimated by mishandling during the minority of Henry VI, which takes us to the Wars of the Roses…I think you take my point. What’s important here is not that the force of history confirms public choice theory. No one is arguing that isn’t true. What’s important here is that, when turning history and politics into art, early modern playwrights did not choose to edit them down to make them morally palatable in the way that they would if Tullock’s assertions of moral difference between their time and ours were correct. Whenever or wherever the “romantic and illusory thinking” about politics that Buchanan and Tullock were rightly concerned about took hold, it was not in the pre-Enlightenment playhouses. The early moderns who were writing and consuming staged representations of politics were at least as suspicious of political leaders and their motivations as were Tullock and Buchanan. And they had at least as much cause to be. They would have, I expect, been insightful commentators on our own political times. If we dismiss them as pre-Smithian moral strangers, we deny ourselves the possibility of accessing their wisdom and applying it to our own times.

We can increase our understanding of these plays if we apply public choice thinking to our work on them. And we can make a strong case for public choice thinking as a description of the condition of humans in politics – regardless of time and place – when we are willing to take the early moderns on their own terms and see that they, too, were capable of viewing politics without even a shred of romance.

 

Notes 


[1] Tullock, Gordon, Arthur Seldon, and Gordon L. Brady. Government Failure: A Primer in Public Choice. Cato Institute, Washington DC, 2002. 3-4.

[2] Ibid, 4.

[3] Tullock, Gordon. “The Politics of Bureaucracy” (1965) in The Selected Works of Gordon Tullock, Vol. 6: Bureaucracy. Ed. Charles K Rowley. Liberty Fund, Indianapolis, 2005, 34.

[4] See, for example Political Hebraism: Judaic Sources in Early Modern Political Thought, eds. Gordon Schochet, Fania Oz-Salzberger, and Meirav Jones. Shalem Press, Jerusalem and New York, 2008 and Eric Nelson, The Hebrew Republic: Jewish Sources and the Transformation of European Political Thought. Harvard University Press, Cambridge, 2010. Eran Shalev provides a useful continuation of the discussion into the later American context in American Zion: The Old Testament as a Political Text from the Revolution to the Civil War, Yale University Press, New Haven, 2013.

 


 

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Conversation through the end of the month.