Fiscal Sociology and Political Economy

Political economy is now back en vogue.  Acemoglu and Robinson, Persson and Tabellini, Besley and Burgess, and Shleifer and Vishny are just some of the names that have re-established the field within the mainstream literature.  Students of economics and political economy should read the works of these scholars very carefully and learn from their deep insights.  But despite the new popularity of these works, there is something errily backward.  Modern political economists such as Bates and Weingast, or Greif and Kuran seemed to have been here before on a vast number of the issues discussed.  Let alone thinkers such as Buchanan, Coase, Hayek, North, Olson, Schelling and Tullock who clearly covered these subjects in the 1960s or before.  Political economy is back, but has it progressed beyond the classic work on the 1960s?

In my assessment  not on a theoretical/conceptual level.  All the progress, if we want to call this progress, is at the empirical testing level.  The creativity of empirically testing the breakthrough ideas of an earlier generation of political economists has final caught up with the creativity of the conceptual work that was done.  Or at least that is what we might say to be polite and go along with the general assessment that science marches upward and onward in good Whig fashion. But what then do we then make of claims like James Robinson when he informs his students in his Harvard syllabus that IV regressions are not going to provide the answer to the deepest questions in economics and political economy (e.g., why was Hatti at one time one of the richest areas of the world and today one of the poorest?)?  Instead, Robinson contends we need to understand deep historical processes.  Oh, I guess Hayek's digression on the 1000 year evolution of common law and the fundamental difference between law and legislation, or Tullock's work on the social dilemma, or Buchanan's puzzle of how we constrain the predatory proclivities of government wasn't all that weird to begin with.

My point is not to be dismissive of the work of the new generation of political eocnomist.  We can read it with great benefit --- especially the work of Acemoglu, Besley and Shleifer (I am admittedly less impressed with Persson and Tabellini but that is perhaps for another post) --- and I assign it in my classes and encourage students to be conversant with their questions, methods and results.  It is what is currently understood as "best practice" in the field of political economy.  But does this work push us past the work of say Buchanan and Tullock in our understanding of political processes?  Here I think the answer must be that even the absoultely great work of Andrei Shleifer (and I consider him the most significant political economist of his generation) does not advance beyond Buchanan and Tullock on a conceptual level.  Shleifer has grabbing hands, Tullock has rent seeking; Shleifer has restraints on predation, Buchanan finds freedom in constitutional contract, etc.  No, the argument in Shleifer does not advance our conceptual understanding by pushing the older public choice argument in a new direction.  His creativity is in the application of the ideas.  And, there is no doubt that he empirically tests the older ideas in public choice and law and economics in new and novel ways.  But conceptually, to someone well read in the literature of public choice, Austrian economics, law and economics, his work is edifying --- reinforcing already known propositions about the way the world works.

Enter Richard Wagner's Fiscal Sociology and the Theory of Public Finance.  Wagner is perhaps the best political economist in the Viriginia School tradition, and he is amazingly creative in the way he utlizes the history of ideas (in politics, philosophy, sociology, and economics) and contemporary streams of research (Austrian, public choice, new institutional, economic sociology, agent based computational modeling, emergence studies, etc.) to address the intricate matrix of institutions and human behavior that produce social order.  While utilizing the conceptual ideas and intellectual tool-kit developed by the older generation, Wagner pushes the argument in a new direction.  He jettisons the equilibrium analytics and welfare theory benchmark they provided, and instead wants to study the evolutionary processes underlying property rights structures, entrepreneurial innovations (in the public as well as private sector), and the organization of governmental activities in general.

Wagner rejects the traditional dichotomy of state and market (a dichotomy that I tend to employ in my own work), and instead examines the interrelatedness of markets and government and in particular the dynamic processes of exchange that are in operation in the process of public finance.  It is not that Wagner views government as beneign; no, a core idea of his is the parasitic nature of government set prices and the problems parastic prices face when the host (in this instance the market) is killed off by the parasite.  But just as the prices of public goods are parasitic with respect to the market, market transactions exist due to the governance structure that is in place and enforced.  Order is defined within the process of its emergence, for Wagner, both within the environment of the market economy and in the area of public finance and public administration.

Despite my more simplistic view of state vs. market dichotomy, I have to admit that Wagner's vision of the fiscal process is far superior and advances the conceptual agenda of Buchanan and Tullock (and also Vincent Ostrom) beyond where he picked it up.  By following his lead, political economist will both see the fiscal process that actually transpire before our eyes at the local, state and federal level in a more accurate manner, and avoid the errors of traditional public finance theory and the neoclassical welfare economics upon which it is built that sees the state as a corrective to market failures.

Students of political economy should rush to read this book and think seriously about the "market square" and the "public square" that Wagner explores.   As he explains, his development of a conjunctive political economy (as opposed to the more standard disjunctive political economy) may eliminate our confidence in the state as a being that strives to optimally intervene in the market economy, but it promises to improve our understanding of politics as the institutionalized process where people interact with one another, attempt to resolve social conflict (or ignite it), and find the means for self-governance (or destroy that ability).  State activity emerges within society and does not stand outside of society, and the same economizing forces that propel market activity within a society also are in operation within the state.  The equilibrium economics of traditional neoclassical theory and public finance theory fail to capture the exchange processes and the institutional filters through which exchanges always take place.  In the process, Wagner has produced the best book in the Buchanan tradition of public finance (which ultimately derives from the Italians and Wicksell) since Buchanan himself wrote such works as Public Finance in the Democratic Process or The Supply and Demand of Public Goods or The Power to Tax.  Wagner's book does not have the same normative emphasis that one can read in Buchanan's work (not that it is completely absent mind you!), but as a primary resource in developing a catallatic theory of public finance Wagner has made more analytical progress than any of the others claiming to advance the field of political economy in the last decade.

Comments

[Rafe Champion]

It is not necessarily simplistic to draw a distinction between state and market for analytical purposes because it is not possible to talk usefully about everything at once, just as long as the pieces get put back together.

That recalls a paper at a Mont Pelerin conference where Naomi Moldofsky drew a strong distinction between spontaneous orders (such as the market) and others such as the state. There seemed to be a better way to go, as suggested. in some comments at the time.

"Moving on from Moldofsky’s concern with majority rule, another section of her paper calls for further investigation. This is her account of two co-existing but separate types of orders. These are spontaneous orders (language, law, society, market) and organizations (family, firm, and various public institutions such as government). She wrote:

'The two types of orders are altogether different. Organizations are concrete orders made deliberately by outside forces, orders that rest on hierarchal structures of commands and obedience, and, to an extent, on rules applicable to certain designated tasks…In contrast, spontaneous orders, including the open society (and the open market system as one of its chief presuppositions) are abstract orders, governed by rules that are purposeless.'

She suggested that the principles of the two types of orders cannot be mixed. This needs to be investigated in concrete situations and my suspicion is that the two orders are inextricably interwoven. This is an area where further research and development could be important to improve the symbiosis between democracy and freedom, as Moldofsky so felicitously put it."

For the full text http://catallaxyfiles.com/?p=2064

On the topic of current workers catching up with the leaders in the field, the necessary framework for this kind of integrated work was in place in the late 1930s thanks to Mises (praxeology), Talcott Parsons on the action frame of reference in his first book and Popper's situational analysis. These three strands of thought could have been woven into a strong rope but that did not happen, but still the pieces are coming together at present and the result is what I like to call "the George Mason research program", though of course it is not restricted to that location.

http://catallaxyfiles.com/?p=3070

[Sinclair Davidson]

I hope you earn commission, not only did I invest in a copy of this book, I bought several others.

[Josh]

Any way for us poor grad students to get a cheaper copy? Yeesh.