Theoretical foundations and intellectual origins: the Wicksellian ancestry
Constitutional economics is informed by an explicit methodological individualism (Buchanan, 1990, p. 13). Only individuals choose and act. Whatever phenomena at the social aggregate level we seek to explain, we ought to show how they result from the actions and interactions of individual human beings who, separately and jointly, pursue their interests as they see them, based on their own understanding of the world around them (Vanberg, 1994, p.
1).Beyond the logical - and largely tautological - presuppositions of individualism, orthodox public choice models usually obtain operational content through the postulate of homo economicus. Individuals are assumed to be utility-maximizing and to seek their own interests. It is increasingly recognized, however, that at least a part of the traditional public choice emphasis had been wrongly placed. Thus the emphasis is shifted away from the motivational postulates for political actors to the incentive structures of politics. In Buchanan (1993a, p. 69) it is argued that the seminal Alchian (1950) analysis of the market’s analogue to evolutionary selection can be extended to politics in a relatively straightforward fashion, the difference between the two evolutionary models lying in the compatibility with overall efficiency. The structure of the politics in which politicians act requires them to act contrary to the public interest if they are to survive at all. For the constitutional economist the relevant question then becomes: ‘How can constitutions be designed so that politicians who seek to serve “public interest” can survive?’ (Buchanan, 1993b).
The germs of the recent re-emergence of the research programme of constitutional political economy were contained in The Calculus of Consent (Buchanan and Tullock, 1962; also Wagner, 1988 and Tullock, 1987). The distinguishing feature of the Buchanan and Tullock approach to the study of political institutions from a normative viewpoint was to treat the political process by which individuals advance their interests as one of exchange.
In adding this second element - ‘politics as exchange’ - to the utility-maximizing models for individual choice behaviour in politics, they were directly influenced by the great work of Knut Wicksell.Constitutional political economy could be characterized as ‘Wicksellian’ political economy. In his basic work on fiscal theory, Wicksell (1896) called attention to the significance of the rules within which choices are made by political agents, and he recognized that efforts at reform must be directed towards changes in the rules for making decisions rather than towards modifying expected results through influence on the behaviour of the actors. In order to take these steps, Wicksell needed some criterion by which the possible efficacy of a proposed change in rules could be judged. He introduced the now familiar (near to) unanimity or consensus test. Thus, for Wicksell, ‘the consent of the governed’ was the point of departure for the evaluation of government activities. As he concluded:
It is a necessary condition that expenditures and the means of financing them be voted upon simultaneously.... If this procedure should become general practice, a very important practical step would have been taken in the direction of the system proposed in this essay. The requirement of the veto right of the minorities would follow sooner or later as a logical and necessary consequence.. It stands to reason that a combination which satisfies everyone. must be imbued with more justice than any other which might appeal more to an accidentally greater half of those interested, but which would be at the expense of the others. Once this is conceded, the right of minority veto is already recognized in principle. (Wicksell, 1896 [1962], p. 116)
This ‘Wicksellian’ idea has had considerable influence on Buchanan’s approach. Buchanan maintains that politics must be understood according to the model of market exchange. Thus the political process is conceptualized as one of mutually beneficial exchange.
It is for this reason that he is drawn to unanimity as a collective decision rule. Since the choice among rules is more a social choice than an exchange, the form of voluntary exchange is political consent. At the most fundamental level of constitutional choice, consent serves as the basis of justification. It provides the ultimate criterion of efficiency. Unlike other economists who have emphasized either the efficiency or rationality of rules, Buchanan is concerned exclusively with whether or not people consent to them. Through the emphasis on ‘consent’ or ‘agreement’ as a normative yardstick, the research programme of constitutional political economy became closely related to the contractarian tradition in political philosophy (Buchanan, 1975). In contrast with Paretian ‘optimum resource allocation’, a situation of ‘Wicksellian efficiency’ will be characterized by the fact that citizens are satisfied that the extant system of rules, institutions and policies of their society is free from improper coercion (Wiseman, 1990, p. 110).Thus Buchanan and traditional economic analysts develop the relationship between autonomy and efficiency in exactly opposite ways (Coleman, 1990, p. 141). Traditional economists believe that efficiency can be defined as a property of social states independent of the process of voluntary exchange. For example, the perfectly competitive market is efficient, but the outcome of the prisoner’s dilemma is not. And given the logic of the relevant concepts - especially Pareto superiority - it follows logically that people would consent to efficient rules. Consent follows from efficiency. Buchanan puts the matter exactly the opposite way. What people consent to is efficient. Efficiency follows from consent.
As Buchanan sees it, contractarian political institutions typically exhibit three attributes. First, the place of the individual is central to the contractarian vision of the political process. Individuals’ own - and necessarily subjective - evaluations, their interests and values constitute the relevant benchmark or criterion against which the efficiency or desirability of alternative sets of rules are to be judged.
Contractarianism complies with this criterion by according each individual equal treatment at the constitutional stage. This normative individualism should be distinguished from the methodological individualism discussed above.Second, there is the fundamental distinction between actions taken within the constitutional rules, and changes in the rules themselves. The latter are to occur only at the constitutional stage and ideally are made using the unanimity rule. Whereas Wicksell did not move beyond the development of criteria for evaluating policy alternatives one at a time, Buchanan and Tullock (1962) operationalized Wicksell’s (1896) insights and extended the applicability of the unanimity or consensus criterion from the level of particular proposals to the level of rules - to constitutional rather than post-constitutional or inperiod choices. The image of political activity as a two-stage process, first developed in The Calculus of Consent, recurred in many of Buchanan’s later writings as a sort of normative benchmark or yardstick by which to measure the quality of a community’s political institutions.
Third, actions taken in the second stage of the political process should be effectively constrained by the rules written in the first, constitutional stage, and this is true, not only for the individual citizen, but also for the elected representatives, and the bureaucrats and jurists who administer the system.
The shift of the Wicksellian criterion to the constitutional stage of choice has some remarkable consequences. It becomes conceivable to allow for the possibility that preferred and agreed decision rules might embody sizeable departures from the unanimity limit, including simple majority voting in some cases and even less than majority voting in others (Buchanan, 1987, p. 135). The constitutional calculus suggests that both the costs of reaching decisions under different rules and the importance of the decisions are relevant. Since both of these elements vary, the preferred rule will not be uniform over all ranges of potential political action.
The in-period Wicksellian criterion may remain valid as a measure of the particularized efficiency of the single decision examined. But the in-period violation of the criterion does not imply the inefficiency of the rule so long as the latter is itself selected by a constitutional rule of unanimity.For Buchanan and Tullock (1962, ch. 6) constitutional design was a matter of comparing the interdependence costs of public and private decisions over a range of activities to determine which activities would be assigned by the constitution to the state and which voting rule or choice mechanism would be specified by the constitution for each state activity. The best public decision rule for each activity was the one that minimized interdependence costs. It was specified that the representative individual perceived interdependence costs for an activity as the sum of the anticipated external costs levied on that individual if not part of the decision set, and the anticipated decision cost experienced by the individual if part of the decision set. The sum of both external and decision costs was shown to have a unique minimum somewhere between the extremes of individual rule and unanimity rule, the exact position depending on relative external and decision costs.
Thus, while it was recognized that unanimity and not majority rule is the pivot of constitutional democracy, it was equally demonstrated that ‘at best, majority rule should be viewed as one among many practical expedients made necessary by the costs of securing widespread agreement on political issues when individual and group interests diverge’ (ibid., p. 96).